During the Spring meeting of Council, the Finance Committee Chair reported that the Society continues to be financially strong through sound management and investment practices. As directed by Council, the Society uses up to four percent of the value of its investments annually as operating income. Only that amount required to offset the cost of Society programs, other than the Journals Program, is withdrawn, and the remainder continues in actively managed investment accounts. The Journals Program, by a 1995 Council mandate, is expected to generate a return of 10% annually. These funds are also available to support the general operations of the Society.

Society Budget

The chair reviewed the 2001 budget versus actual income and expenses and presented the modified 2002 budget based on the 2001 results, as reviewed and approved by the Finance Committee at its Spring meeting. The Society employs a consolidated operating budget to manage overall operations. The consolidated budget is comprised of the individual budgets for the various cost centers; these include Publications, Membership and Meetings, Education, Public Affairs, Marketing, and the Executive, Information Technology, and Business Offices. For 2001, the year ended with income of $16,153,866 (including $1,279,672 allocated from the Society�s investment income to supplement operations in accordance with Society policy) and direct expenses of $13,886,110, plus general and administrative (G&A) costs of $1,573,291, for total expenses of $15,459,401. G&A costs (the sum of Executive, Information Technology, and Business Office expenses) are allocated to other Society offices based on each office's share of total salary expenses. Including the $1,279,672 investment income allocation, total operating revenue exceeded total operating expenses, resulting in an increase in net assets from operations of $694,465.

The Council approved a 2002 budget of $16,280,746. To achieve a balanced budget, it is expected that the entire investment allocation of $1,327,285 from the managed accounts will be needed, plus an additional $743,688 from Publications net revenue of $1,222,779. Including the investment allocation, total APS operating revenue ($16,759,837) is expected to exceed total operating expenses resulting in a $479,091 increase in net assets from operations.

Journal Subscription Pricing

Council reviewed the Publications and Finance Committees' recommendations for 2003 journal subscription prices. It should be pointed out that journal publication is the major source of revenue for the Society and is key to our financial well being. In 1995, the Council recommended that the journals' prices be set at a point that generates a margin of approximately 10% to help defray the costs of the various Society programs. The Finance Committee recommended that 2003 subscription prices be raised by an overall rate of 7.3%.

Nonmember individual subscription prices will continue to be 2/3 of the domestic institutional price. Beginning in 2002, APS members were provided online access to all journals at no cost.

Society Reserves

The Finance Committee reviewed the performance of the Society's investment managers. The investments are administered by four managers under the direction of our investment consultant, Salomon Smith Barney. As of December 31, 2001, the accounts had the following market values: Operating Reserve I $11,806,044, Operating Reserve II $9,791,849 Publication Reserve $10,012,190, Second Century Program Fund $2,774,504, Giles F. Filley Memorial Fund $855,028, Caroline tum Suden Fund $584,950, IUPS Fund $352,082, Perkins Memorial Fund $320,429, Shih-Chun Wang Fund $157,440, Rife/Guyton Fund $452,436, and the Lazaro Mandel Fund $153,964.  The return on the managed accounts was -4.34% for the year ended December 31, 2001. The return on equities for 2001 was -11.82%, and the return on fixed income investments was 7.91%. The market value of the managed accounts at December 31, 2001 was $37,260,916.

Due to variable performance in the four managed accounts, each manager held between 23% and 29% of all invested assets. Based on a recommendation from the Finance Committee that was approved by Council, the accounts were rebalanced so that each of the four fund managers will be allocated approximately 25% of all assets as of April 30th in accordance with the Society's investment strategy. 

Financial Forecast

The Finance Committee presented a three-year financial forecast to Council. The forecast was developed using historical revenue and expense information and also considered known future events. The three-year forecast will be prepared annually for the Spring Finance Committee and Council meetings.

2001 Audit

The Finance Committee received the annual audit performed by Grant Thornton, LLP. In the opinion of the auditors, based on generally accepted accounting principles, the financial statements shown below present fairly the financial position of the Society as of December 31, 2001.  

Mordecai Blaustein, Chair

For a Statement of Financial Position as of December 31, 2001 and a Statement of Activities for the year ended December 31, 2001 please see the October issue of The Physiologist.