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Phillips Academy concluded FY1998, the second year of operations guided by the 1996 Strategic Plan, with a stronger financial base. Consistent with the Strategic Plan, the school will continue to reduce enrollment--from 1,147 students in 1997-98 to 1,025 students in 2001-02--in order to improve residential life, enhance our sense of community and manage the cost of maintaining the school's extraordinary physical plant.

In April, the school will officially launch a campaign to raise approximately $200 million. The fund- raising effort is expected to add $110 million to the endowment and fund several critical physical plant improvements, including the recent renovation of Cochran Chapel, creation of new faculty apartments in the dormitories, development of the Evans Hall Science Center, and renovation of Hardy House (the admission office), the Memorial Bell Tower and carillon and the Abbot Gates, as well as construction of a new hockey rink. Although the campaign is now in its "quiet phase," it is already making a difference in the life of the campus.

Implementation of the Strategic Plan's priorities has changed the way Phillips Academy is doing business, concurrent with the campaign. We have strengthened our sense of community by reducing the size of the student body and increasing faculty presence in the dormitories. The enhanced strength of our residential program, we believe, is a major factor in increasing our application and matriculation rates.

At the heart of the academy's Strategic Plan is the concept of financial equilibrium. To achieve it the school must maintain its excellent educational program and balance the operating budget each year, while preserving the purchasing power of the endowment and the value of the physical plant.

The Strategic Plan calls for:

  Funding compensation for teachers at a level that will attract and retain an excellent and diverse faculty.

  Providing the financial aid scholarships necessary to enroll a talented and diverse student body.

  Increasing the investment in renewal of the physical plant to an annual rate equal to 2.3 percent of its replacement value by 2002.

  Reducing use of the endowment while increasing its value to support a greater percent of the operating budget within 10 years.

  Investing in technology that will support the academic program and maintain our leadership role in pedagogical use of technology.

  Reducing the size of the physical plant as well as faculty and staff personnel to parallel the planned decrease in student enrollment.
 
 

Fiscal Year 1998

As the operating results illustrate (see Table 1 and Charts 1 and 2), we ended FY1998 with expenses of $53.7 million and a small surplus. We continued to make progress in implementing the Strategic Plan's aforementioned initiatives. For example:

The median salary for full-time Andover teachers in FY1998 was $47,900, the highest median in Andover's peer group. This was $1,700 more than the median salary for full-time teachers at the school with the next-highest median. The academy is committed to holding a leadership position in faculty compensation.

Financial aid scholarships represented 13.1 percent of Andover's 1998 expenses and 28.5 percent of tuition, maintaining Andover's leadership position among its peer schools.

The portion of the operating budget allocated to maintain and renew the physical plant continues to grow--from 21 percent in FY1997 to 23.3 percent in FY1998.

The endowment continued to grow to a new level--$409 million as of June 30, 1998--and to provide increased support to the operating budget while allowing the academy to reduce its use of the prior 13 quarter average value of the endowment from 5.81 percent in FY1997 to 5.75 percent in FY1998.

We awarded the contract to connect all dormitories to the campus computer network by January 1999. We have also upgraded the primary administrative software and hardware systems and are replacing all desktop computers to implement Y2K compliance before the end of 1999.

Concurrent with the 76-student decrease in enrollment since 1996, we reduced the number of faculty by positions and staff by six positions, through attrition, as planned.
 

Endowment

Endowment investments returned 17.6 percent for the 12 months ending June 30, 1998, a return that exceeded our passive benchmark index (50 percent S&P 500; 36 percent Lehman Brothers Gov't/Corp.; 10 percent MSCI EAFE; and five percent MSCI Emerging Markets) by .7 percent and the median performance of a competitive endowment universe of schools and colleges by 1.1 percent. A 17.6 percent return is remarkable by historical standards and played a primary role in in-creasing the value of the endowment from $360 million to $409 million (see Chart 3, Endowment Market Value, and Chart 4, Endowment Asset Allocation). The endowment provided $16.9 million, or 31.4 percent, of the FY1998 operating budget. The endowment growth and the resulting increase in endowment income available for operations in the past few years have enabled the school to moderate tuition increases during these years of low inflation. Lower tuition increases also mitigate the need for increased financial aid, especially among continuing students.
 

Facilities

Phillips Academy has made significant strides in improving and maintaining the condition of its physical plant in the past 10 years. The Strategic Plan calls for the academy to incorporate significant renewal of the physical plant into its annual operating budget. FY1998 facilities renewal, funded in the operating budget, increased to $4.9 million (9.1 percent of the operating budget) from $4.5 million (8.5 percent of the operating budget) in FY1997. In addition, $1 million was spent from available reserves to bring total renewal spending to $5.9 million for the past year.
 

Financial Discipline

The school has embraced a strict financial discipline that will insure its financial health well into the next century. Almost no other educational institution has succeeded in incorporating an appropriate level of physical plant renewal as well as all its debt service into its annual operating budget. To achieve these goals while maintaining our excellent educational program as well as reducing our endowment spending rate will be a real legacy for the future.
 

Susan Garth Stott, director of business services, was acting chief financial officer during CFO Neil Cullen's recent sabbatical.