During the Spring meeting of Council, the Finance Committee Chair reported that the Society's financial condition remains strong through sound management and investment practices. The Society's income has been growing slowly, but expenses are growing at a faster rate than revenue. During the spring meeting, the Committee reported to Council that the Three-Year Financial Forecast is showing a steady trend from $1 million in Net Revenue in 2000, to a projected $1 million in Net Expenses in 2006. In response to this trend and in accordance with the 2000 Strategic Plan, the Committee is continuing to investigate ways of increasing the flow of revenues to the Society through the development of new sources of income.
The need is tempered by the recognition that the Society does not have the clinical presence to command the attention of the most common sources of such funds, the pharmaceutical industry, in the same way as do the more clinically oriented societies. This, plus the obvious amount of time and effort that would be required to generate new funds suggested a limited move to fundraise should be advocated. Nevertheless, there seems to be enthusiasm for carefully targeted attempts to raise new funds.
Particular suggestions that were favored included:
Search for sponsors for the now large number of named lectureships. Only the Cannon lecture is supported by non-APS funds. It was felt that as a recurring event with a somewhat coherent theme in most cases, it might be possible to match such lectureships to specific companies on a multiyear basis and, thus, not be too labor intensive.
Search for a corporate sponsor for the annual publications dinner at EB.
Give serious thought to CME course appendages to EB or other meetings where registrants paid a fee that would more than cover expenses.
Have a mechanism (outside the EB Program Committee) for identifying symposia that might be attractive to specific companies who might then support them. This should include consideration of possible evening symposia at EB of a more translational/clinical nature, as done at other meetings.
The issue of how to better incent APS Conference organizers to take part of the fundraising burden remains an idea to be worked on. This is tempered by the trend of fewer APS Conference submissions. If we place a fundraising requirement on organizers, we might get even less submissions.
More grandiose ideas, especially those that would be labor-intensive, were not favored in the absence of a dedicated staff person to work on them. The already developed thrust in the area of planned giving/member donations is considered as in place.
At its business meeting last April, the Society announced a new APS Endowment fund. The Endowment was initiated with a $2.75 million investment from APS' reserves, and it will initially support existing award programs for the Porter Minority Development Program (budgeted at $40,000/year), Career Enhancement Awards (budgeted at $40,000/year), and the Undergraduate Summer Research Awards (budgeted at $30,000/year). The goal is for the APS Endowment to eventually raise another $7.25 million, with additional programs being funded as the Endowment increases. The new endowment will supplement $2.5 million in existing endowed funds increasing the total support for awards, grants, and fellowships from Society endowments to $5.25 million.
As directed by Council, the Society uses up to 4% 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. In the early 1990's, the reserves, which the Society depends on for approximately 7.5% of its operating revenue, almost doubled due to favorable market conditions. However, during the most recent three years, the down market has caused the Society's investments to decrease from $33 million at December 31, 1999, to $29 million at December 31, 2002. The recent market turnaround has increased the value of the Society's investments. As of June 30, 2003, the Society's reserves and APS Endowment have grown to a combined value of approximately $32 million.
Society Budget
The chair reviewed the 2002 budget versus actual income and expenses and presented the modified 2003 budget based on the 2002 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 2002, the year ended with income of $16,305,256 (including $1,327,285 allocated from the Society�s investment income) and direct expenses of $14,437,156, plus general and administrative (G&A) costs of $1,603,041, for total expenses of $16,040,197. 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 $1,327,285 investment income allocation, total operating revenue exceeded total operating expenses, resulting in an increase in net assets from operations of $265,059.
The Council approved a 2003 budget of $16,589,350. After applying the entire investment allocation of $1,242,933 and the net revenue from Publications of $803,622, the budget showed Net Expenses of $207,297. Consideration was given to increasing the investment allocation from 4% of reserves to 5% in order to cover the deficit. Instead, Council authorized the Society's staff to find savings sufficient to cover the $207,297 deficit by year-end.
Journal Subscription Pricing
Council reviewed the Publications and Finance Committees' recommendations for 2004 journal subscription prices. It should be pointed out that journal publication is the major source of revenue for the Society and is key to its financial well-being. In 1995, the Council recommended that the journals' prices be set so as to generate a margin of approximately 10% to help defray the costs of the various Society programs. The Finance Committee recommended that 2004 subscription prices be raised by an overall rate of 8.5%. A comparison of 2004 and 2003 domestic institutional prices is shown in Table 1.
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
At its spring meeting, 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, Smith Barney. As of December 31, 2002, the accounts had the following market values: Operating Reserve I $9,103,343, Operating Reserve II $8,644,731, Publication Reserve $8,839,259, Second Century Program Fund $2,449,470, Giles F. Filley Memorial Fund $706,259, Caroline tum Suden Fund $490,601, IUPS Fund $330,168, Perkins Memorial Fund $273,892, Shih-Chun Wang Fund $125,908, Rife/Guyton Fund $496,145, and the Lazaro Mandel Fund $123,635. The return on the managed accounts was -10.59% for the year ended December 31, 2002. The return on equities for 2002 was -24.73%, and the return on fixed income investments was 11.36%. The market value of the managed accounts at December 31, 2002 was $31,583,411.
Due to variable performance in the four managed accounts, each manager held between 24% and 26% 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 were allocated approximately 25% of all assets as of April 30th in accordance with the Society's investment strategy.
2002 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 that follow present fairly the financial position of the Society as of December 31, 2002.
Peter D. Wagner, Chair