Dear Nazareth friends,

During the year ended June 30, 2012, Nazareth College navigated through continuing external challenges. The external economic environment impacts the College in many ways—affecting enrollment, philanthropy, endowment performance, and the valuation of certain liabilities.

The College enrolled 1,971 undergraduates and 711 graduate student full-time-equivalents in fall 2011, a decline from the previous year. We are seeing reduced enrollment in programs leading to teacher certification as employment opportunities falter. At the same time, we are seeing significant increased interest in our health and human services programs, including physical therapy, occupational therapy, speech therapy, creative arts therapy, social work, and nursing, as these fields show increasing employment potential.

The continued economic uncertainty has not deterred our many donors from continuing to support the College. We grew our annual fund commitments by 28%. And this year’s financial statements reflect more than $5 million of new commitments supporting both our endowment fund and Peckham Hall, home of our Integrated Center for Math and Science. These gifts to the College, large and small, reflect the continuing commitment of our alumni and our community. Effective stewardship of these gifts—through responsible and dynamic strategic leadership of the College and through effective oversight of our endowment portfolio—is integral to our success.

With regard to the performance of our endowment portfolio, in last year’s letter we cited the strong performance of our funds, both in absolute terms (a gain of 21.7%) and as compared with industry benchmarks. For FY12, the investment markets were far more turbulent. The Nazareth endowment lost 1.1% for the twelve month period ended in June. This performance exceeded the weighted average of our benchmark asset classes by 3.7% (the policy benchmark declined by 4.8%). However, such returns are not sufficient to maintain and grow the value of the endowment. Our three-year average annual return, however, stands at 10.5% as compared with our policy benchmark at 8.2%, and these longer-term figures reflect the effective management of our portfolio over a variety of market environments.

Finally, the continuing decline in interest rates has impacted the College in a number of ways. It is a contributing factor to the performance of the endowment, it constrains the College’s ability to generate interest income from its cash balances, and it also increases the valuation of certain long-term liabilities that the College reflects in its financial statements. This year, such increases in liability account for close to a $3 million reduction in the College’s reported net assets. When interest rates rise (and they will), these liability valuations will decrease, reversing this impact on our net assets.

Overall, the College navigated these challenges well throughout the year. The College ended the year with a modest increase in net assets from operations. Non-operating activities reflected significant capital gifts offset by relatively flat endowment performance and increased valuation of liabilities. In total, the net assets of the College remained steady in a turbulent time. As we look to the coming fiscal year and beyond, the leadership of the College is carefully monitoring its programs and working to ensure that the College’s resources are deployed effectively and efficiently to enable us to respond to the changing external landscape and the new opportunities it presents.

Sincerely,

Margaret Cass Ferber
Vice President for Finance and Treasurer