University of Pennsylvania

1 9 9 9 - 2 0 0 0 A n n u a l R e p o r t

B u i l d i n g P e n n ’s F u t u r e

97806c.w 5/15/01 11:24 AM Page 1

2 Message from the President7 Message from the Executive Vice President12 Message from the Interim Chief Executive Officer,

University of Pennsylvania Health System andInterim Dean, University of Pennsylvania School of Medicine

15 Message from the Vice President for Finance and Treasurer

21 A Five-Year Review of Investments22 Endowment

23 Associated Investments Fund26 Management Responsibility for Financial Statements27 Report of Independent Accountants28 Statement of Financial Position29 Statement of Activities30 Statement of Cash Flows31 Notes to Financial Statements43 Trustees of the University of Pennsylvania48 Statutory Officers of the University of Pennsylvania

I r v ine Audi tor ium

97806.w 5/15/01 10:33 AM Page 1

Univers i t y o f Pennsy lvan ia

Bu i ld ing Penn’s Fu ture

1999-2000

In his Autobiography,Benjamin Franklin observedthat no sailing ship is everdesigned, built and captainedby a single person. Manyneed to be involved.

Like building a ship, buildinga university’s future to meetthe needs of discerningstudents and a rapidlychanging world is long,painstaking work for manyhands. More still arerequired to steer past theshoals of setbacks andmisfortunes that would foilless intrepid crews.

From its founding by Mr.Franklin 260 years ago, theUniversity of Pennsylvaniahas risen to meet manychallenges in ways that havebenefited humanity andposterity. Tapping its courageto experiment where othersfeared to dream, Pennproduced a series of "firsts"and discoveries that helpedtransform America.

Entering the 21st century,Penn continues to raise highits banner of excellence towhich generations of world-class faculty, students, alumni,

and friends have rallied.Regardless of the challengesimposed on us, Penn remainsstrong in will and firm inpurpose to pursue and achieveextraordinary breakthroughsin research, in undergraduate,graduate, and professionaleducation, and in service tohumanity.

Student applications, researchdollars, and donorcontributions continued toflow into the University atrecord levels this year, whilestate-of-the-art facilities tookshape across campus.

Our drive to enhance theacademic, social, and culturallife of Penn led to thecompletion of PerelmanQuad; the development of theArch, an undergraduate arts,cultural, and research hub;and the conclusion of the firstphase of the historicQuadrangle College Houserenovations.

Off campus, University Citycontinued its spectacular re-emergence into a cleaner, safer,and more vibrant community.Our ongoing engagement withour neighbors produced a

message from Judith Rodin President, University of Pennsylvania

Render ing o f Pere lman Quadrang le

AN

NU

AL

RE

PO

RT

97806.w 5/15/01 10:33 AM Page 2

breakthrough agreement tobuild a Penn-assisted, preK-8public school. We launched abusiness incubator, P2B (forPenn to Business), to createentrepreneurial opportunitiesfor faculty, students, and staff.And we began working with aprivate-sector partner toconvert the historic GEbuilding at 31st and Walnutinto an attractive apartmentand retail complex, furtheringour plans to develop oureastern gateways.

At the same time, the boomingeconomic climate in WestPhiladelphia convincedbusinesses from GMAC

Mortgage to Izzy and Zoe'sbagel shop and New York’sPapaya King to put down rootsin our community, while newestablishments, like StephenStarr’s sensational futuristicpan-Asian restaurant Pod, wereopening every month.

Local business owners sharedin the boom. In 1999 alone,the University purchased morethan $50 million in goods andservices from WestPhiladelphia vendors, as part ofan intentional economicdevelopment strategy.

Meanwhile, Penn solidified itselite position among thenation’s best universities,occupying sixth place in thelatest US News & World Reportrankings.

Penn also weathered adversityin the 1999/2000 year ---including the financialdifficulties in our health systemand the tragic death of a youngadult participant in a genetransfer clinical trial.

But true to its nature andheritage, Penn emerged fromadversity and tragedy strongerin both capacity and resolve tobe a model of excellence.

Through bold measures andstrategies that Robert Martinand Arthur Asbury describe intheir message, we began tonurse the Health System backto financial strength. And wewent well beyond newgovernment rules and all ourpeers to establish and enforcethe most stringent safety andoperating standards for clinicaltrials in the nation.

In short, Penn made lastingheadway to meet the toughchallenges that our students,our neighbors, and humanitywill face. This 1999/2000

annual report presents anarrative of milestones,markers, and pictures thatshow a University creativelyand aggressively on the moveto build a future of academicvitality, social vibrancy, andfinancial health.

Fundraising: GivingPenn the DecisiveAdvantageWith the support of ourgenerous donors, Penn hasbeen able to increase financialaid to deserving students,endow more faculty chairs,build new facilities and restoreold ones, and launch a fullarray of academic programs.

This past year, alumni andfriends gave $310 million toPenn --- well above the $260million annual baseline that weset after raising that amount in1995, the last year of theCampaign for Penn. Of thetotal, the $26 million harvestedfor the undergraduate financialaid endowment enabled us tofund 110 new scholarships.

Encouraged by the consistentlyhigh level of donor support, wehave set a goal to raise $350million during the 2000/2001academic year. Those dollarswill allow us to make even

larger strides in our march toenhance programmatic andphysical excellence at Penn,while supporting a newemphasis for graduate and pro-fessional student financial aid.

Penn’s Students: TheBest, the Brightest, andOnly Getting BetterA University cannot build afuture of excellence without asuperior cohort of students.

By virtually every conceivablemeasure, our studentscollectively rank among thebrightest, most accomplished,and most capable in thenation, helping Penn becomeone of America’s most selectiveuniversities.

For starters, not only did thenumbers of applicants andearly-admissions applicantsincrease dramatically this pastyear, the academic caliber ofapplicants and admittedstudents also continued torise. Our last crop ofapplicants registered anaverage score of 1350 on theirSATs, while our matriculatingclass averaged 1392.

And the quantitative measures

AN

NU

AL

RE

PO

RT

Render ing o f Penn-assisted, pre K-8 public school

97806.w 5/15/01 10:33 AM Page 3

are only the start. Our studentsare leaders in all areas, inculture and the arts, in athleticsand business, and in scienceand technology.

Second, our student body grewmore cosmopolitan, with morethan 3,000 internationalstudents enriching the diversityand learning opportunities forall of us.

Third, our students continuedto grow more sociallyconscious. About 25 percent ofall Penn undergraduates lenttheir time, talents, and passionto fighting homelessness,hunger and poverty, topromoting health andnutrition, and to mentoringand educating our youngpeople in programs like theWest Philadelphia TutoringProject, whose team leader lastyear, Penn senior SarahZimbler, was awarded theprestigious TrumanScholarship for hercontributions.

The Rankings: High onthe Leader BoardWhile rankings do notmeasure or reflect all of thedimensions of Penn'sstrengths, they do at leastfurnish some benchmarks thatmeasure our progress relativeto some of our peers. And2000 proved to be a very goodyear throughout theUniversity.

To begin, it bears mentioningthat Penn has climbed pastmany outstanding institutionsover the past six years to reachthe number-six spot in the U.S.News & World Report rankings.

Wharton’s undergraduateprogram was ranked numberone by U.S. News & WorldReport, while the graduateprogram captured the toprankings in Business Week andthe Financial Times.

The School of Medicine wasranked number three by U.S.News and World Report and wasranked number two in fundingto universities from NIH.HUP made the Honor Roll ofthe best hospitals in the UnitedStates and, despite our financialproblems, Penn Medicineranked in the Top Ten for six ofeight specialties that were listed.

Many of our departments inthe School of Arts and Sciencesmade strong showings. Anumber of our Ph.D. programsin the natural sciences, thesocial sciences and thehumanities were ranked amongthe finest programs in thenation, including Top Ten

rankings for both Economicsand Psychology; English waseleventh and both History andSociology were ranked twelfth.Our graduate program inArchitecture ranked ninth inthe nation.

The Law School stood twelfth,among 174 accredited lawschools in the nation.The Graduate School ofEducation was ranked elevenththis year among 187 graduateeducation programs, up fromtwentieth a year ago.The School of Nursing ranked

second in reputational ranking,and seven of eight nursingspecialties are in the Top Ten.The School of Social Workranked eleventh amonggraduate programs.

The School of VeterinaryMedicine ranked second in the nation in this year'sreputational ranking.

High rankings do not validate auniversity or a school or aprogram. Nor do they conveythe full scope and depth of thelearning experience at Penn.

But the fact that Penn isconsistently ranked among avery elite group of peers reflectsboth the superior caliber of ourfaculty, students, and staff, andthe outstanding work they do inbuilding a robust Universityenvironment.

Research: On theCutting Edge The generation of newknowledge through researchhas driven intellectual activityon campus and establishedPenn as one of the premieruniversities in the world.

At Penn, the growth inresearch funded bygovernment sources andprivate industry has beenphenomenal. In fiscal year2000 alone, sponsoredresearch awards at Pennsoared by 13 percent to arecord $540 million.

This enviable record of successunderscores a fundamentaltruth: When it comes to fos-tering the kinds of interactionsand discussions that lead toresearch that can literally

AN

NU

AL

RE

PO

RT

Lev ine Ha l l

97806.w 5/15/01 10:33 AM Page 4

change the world, there is nobetter place than Penn. Ourfaculty is extraordinary, andthey are pushing the bound-aries of knowledge in hun-dreds of areas.

For example, during the pastyear, Penn researchers from ourSchools of Medicine,Arts and Sciences, andEngineering and AppliedScience prepared to launch anew University-wide genomicsinitiative, which in time willdramatically expand ourunderstanding of humannature and promote a betterquality of life for millions ofpeople.

With the dramatic completionof the human-genome project,researchers now have apowerful, comprehensivebiological data base with whichto study the involvement ofspecific genes in growth,health, behavior—anddisease—and Penn scientistshope to make the most of it.

The diagnostic and life-savingpotential is enormous. At theAbramson Family CancerResearch Institute at Penn,Dr. Barbara Weber is leadingan international effort tomove beyond early detectionof breast cancer to earlyidentification of women whogenetically run a higher riskof developing the disease.

Other new research initiativeswere approved this past year.

One was the Institute forUrban Innovations, to belocated at the Fels Center ofGovernment, which will be apremier location for thinkingand research about cities andtheir future, as well as acampus hub for a communityof urban scholars.

Another was the Center forChildren’s Policy Practice andResearch. What started out asa series of brainstormingsessions among a professor ofSocial Work (Richard Gelles),

a pediatrician and childpsychiatrist (AnnieSteinberg), a law professor(Barbara BennettWoodhouse), and members ofPhiladelphia’s child-advocacycommunity on how to makechild welfare more child-centered, grew into acollaborative research centerdedicated to helping andprotecting abused andneglected children.

At the same time, Penn hasbecome a victim of its ownsuccess. As Penn’s researchbase has expanded, theUniversity has had to digdeeper into its own pockets tocover more of the indirectcosts, both in themaintenance of buildings andthe support of the personnel.With government shiftingmore of these cost burdensonto the backs of universities,Penn is examining new waysto more efficiently cover thecosts of research.

New Facilities for aNew Century During the 1999/2000 year,Penn began, continued, or com-pleted a plethora of major con-struction projects that will boostthe teaching and researchcapacity of individual schoolsand centers while strengtheningties among all schools andacross many disciplines.

For example, we conceived aLife Sciences building aroundthe biology pond that wouldlink the departments ofBiology and Psychology withthe School of Medicine andthe School of VeterinaryMedicine to create oneintegrated life sciences researchcampus within the campus.

Meanwhile, the School ofEngineering and AppliedSciences completed a muchneeded BioengineeringLaboratory, while breakingground on the Melvin J. andClaire Levine Hall forComputer and InformationScience.

This state-of-the-art 40,000-square-foot facility, made possi-ble by a generous grant byMelvin and Claire Levine, willlink the Graduate ResearchWing of the Moore School andthe Towne Building, therebydoubling the space for a facultywhose ranks are projected toswell by 40 percent over thenext several years.

This past year also saw theThe Annenberg Schoolcomplete its work on thePublic Policy Center, thanks tothe generosity of the

AN

NU

AL

RE

PO

RT

Bio logy Pond

97806.w 5/15/01 10:33 AM Page 5

Annenberg Foundation,creating a critically importantmultimedia conference facilitywithin the Annenberg Schoolbuilding.

Penn’s global impact-All over the map Penn and University Citycontinued to flourish togetheras all quality-of-life indicatorskept moving in the rightdirection. Home ownershipcontinued to rise, privateinvestment was up, new shopsand restaurants were opening,and the streets were alive with pedestrian traffic dayand night.

In the middle of thisbrightening picture there wasalso growing promise for ourneighborhood schools.Faculty and students fromPenn and our neighbors,Drexel University and theUniversity of the Sciences,continued to find new ways towork with students andteachers in local schools.They created viable smallbusinesses in middle and highschools, introduced healthyeating habits and nutritionawareness to elementaryschool students and their

parents, and taught web-based design to at-risk highschool students.

In the most significantdevelopment, Penn movedahead with implementation of

its agreement with the SchoolDistrict and the PhiladelphiaFederation of Teachers tocreate a new university

assisted, pre-K-8 publicschool that will open in thefall of 2001 on land suppliedby Penn. The school willprovide an outstandingeducation for up to 700neighborhood children everyyear and it will be followed, ashort time later, by theconstruction of a magnetpublic high school for scienceand technology.

Meanwhile, Penn’s leadershipin knowledge, research, andteaching continued to expandaround the globe. We beganforging important newpartnerships with Singaporeto work on joint life-scienceinitiatives. The WhartonSchool teamed up withKellogg, NorthwesternUniversity’s business school,and consulting giantMcKinsey and Company tolaunch the Indian School ofBusiness, which is expected toopen in Hyderabad in thesummer of 2001.

Almost every school at Penndeveloped stronger ties with

dozens of countries oncollaborative research,teaching, and professionaldevelopment projects.

Looking ahead The world is on the verge of atechnology and life-sciencesrevolution that will utterlychange the way we live, learn,work, engage in recreation,and age --- in short, what itmeans to be a human being.

The University of the futuremust not only prepare its

students for this brave newworld, it must also seize therevolutionary moment tocultivate teaching andresearch that is no lessvigorous in scholarship than it is beneficial in impact.Fortunately, Penn has been inthe business of seizing themoment to shape the futurefor the better part of threecenturies. It is part of thegenetic material that Franklinpassed on to the University he founded.

Entering the new century,Penn retains that robustspirit, nurturing andbenefiting the students,

faculty, and staff who form a buoyant and fearlesscommunity of scholars – the leaders and explorers of tomorrow.

AN

NU

AL

RE

PO

RT

President,University of Pennsylvania

Render ing o f the atrium of the new public school

97806.w 5/15/01 10:33 AM Page 6

an

nu

al

re

po

rt

Fiscal Year 2000 markedanother significant year for theUniversity of Pennsylvania as itcontinues to implement itsstrategic plan, the Agenda forExcellence. Much of the pastyear focused on the continuedimplementation of ouradministrative restructuringprogram; continuing toenhance the quality of life onour campus for the benefit ofthe University community; andmoving forward with initiativesto strengthen our UniversityCity neighborhood. Thefollowing highlights just someof the many initiatives that

were successfully completed inFiscal Year 2000.

ADMINISTRATIVERESTRUCTURINGAdministrative restructuringinitiatives continue with anemphasis on measuring andimproving customer service,improving our overall financialperformance, and investing inthe professional growth anddevelopment of our employees.These initiatives are apace withmajor projects being completedin Audit and Compliance,Business Services, FacilitiesServices, Finance, Human

Resources, InformationSystems and Computing, andPublic Safety. Fiscal Year 2000highlights include:

Campus Services Major initiatives reflecting the creative use of University/corporate partnerships haveresulted in operatingefficiencies and serviceenhancements to students and guests:

Campus Dining• Implemented the Bon

Appetit ResidentialManagement Model

• Addressed Kosher Diningissues by opening Irv’s Placeat 4040 Locust

• Brought new providers tokey locations, improvingboth product offerings andservice delivery

Housing and ConferenceServices• Increased Housing Services

revenues by approximately$500,000 in Conference/Guest Services

• Restructured the Housingand Conference Servicesorganization, therebymaximizing year-round

message from John A. FryExecutive Vice President

The courtyard at The Left Bank

Univers i t y o f Pennsy lvan ia

Bu i ld ing Penn’s Fu ture

1999-2000

97806.w 5/15/01 10:33 AM Page 7

an

nu

al

re

po

rt

capability to deliverexcellent service

• Hosted high visibilitymeetings (RepublicanNational Convention,ResNet) and expandedsports camp presence inSummer 2000

eCommerceMarketplaceProcurement SystemThe University, in partnershipwith Oracle Corporation andTPN Register, is completing acomprehensive eCommerceprocurement system to supportthe purchase of equipment,supplies and services. Thisnew procurement solution, tobe implemented in 2001, willenable Penn to further improvethe existing university-wideprocurement and disbursementprocess and maximize itsconsiderable buying powerthrough new suppliercontracting and product costreduction opportunities. Arecent article in The Chronicleof Higher Education describedPenn’s eCommerce program as"one of the most aggressiveamong universities, offeringthe clearest glimpse into thefuture of electronicprocurement."

Facilities Services We successfully renegotiatedan amendment to theServicing Agreement withTrammell Crow Company,which returned theresponsibility for themanagement of facilitiesoperations and maintenance to the University, whileTrammell Crow retained theresponsibility for projectmanagement and real estate

portfolio management for asix-year term. Improved laborcontracts were successfullynegotiated with members ofunion Local 835 (buildingmaintenance trades) and Local 115 (housekeepers).The Campus DevelopmentPlan is substantially completeand the implementation ofcertain elements of the planhas begun.

High Performance Work Culture Under the leadership ofHuman Resources, theUniversity continues to invest inits people through professionaldevelopment, employeerecognition, and quality-of-lifeprograms, while simultaneouslykeeping a sharp eye on its salary and benefits costs.The "Models of Excellence"program, "Return-to-Work"program for those withoccupational injuries, and the“Workplace ResolutionProgram,” focusing on disputeresolution and minimizingdisruption in the workplace area few notable accomplishments.

Public SafetyAfter a successful accreditationinitiative, Public Safetycontinues to be ranked among the top private policeforces in the country. To ensure our vision of a vibrantand safe University Citycommunity, Public Safetycontinues to work successfullywith the Philadelphia PoliceDepartment and the UniversityCity District (UCD).Together, the University andUCD have increased thepresence of security officers

and expanded and improvedthe PennWalk program, nowknown as the UCD Walk.Additionally, the developmentof new technology continuedto be a major thrust with 54major new security systemsimplemented, 25 additionalblue light phones added, and19 outdoor CCTV camerasinstalled. These improvements

have resulted in a 33%reduction in overall criminaloffenses, 64% reduction inrobberies and attemptedrobberies, 35% reduction inassaults, 19% reduction inburglaries, and 31% reductionin thefts. To further ourcommitment to provide a safeand secure environment, aquality-of-life program wasimplemented, greatly reducingaggressive panhandling andcriminal activity. Recognizingthat homelessness was agrowing challenge inUniversity City, Penn andProject HOME collaboratedto address this issue. As part ofthe quality-of-life program,Public Safety providesincreased services to UniversityCity businesses to enhance

awareness of safety issues.Since the inception of thisprogram, homelessness andcriminal activity have beenreduced materially.

CAMPUS DEVELOPMENTMany significant enhance-ments were made to the campus this year, including the following:

Perelman QuadThe vision of an academic andstudent activities complex,providing a commonmeeting place for everyone hasbeen a long-term goal of theUniversity. This goal wasachieved with the completionof the Perelman Quadranglethis past summer. ThePerelman Quadrangle projectconsisted of the renovations offive important buildings:Houston, College, Logan,Williams Halls, and IrvineAuditorium. Wynn Commonhas been added between thesefive buildings to serve as agrand plaza. The design ofWynn Commons provides aunifying sense of arrival, placeand enclosure. Gatewaymarkers announce a transition

Cons t ruc t ion a t Pere lman Quadrang le

97806.w 5/15/01 10:33 AM Page 8

an

nu

al

re

po

rt

into the Quadrangle within thehistoric fabric of the campus.An amphitheater and arostrum at opposing ends ofWynn Commons complementnew building entries. HoustonHall has been restored to itsformer grandeur and resumesits original purpose as theUniversity’s student commons.College Hall's entrance ontothe Commons, sealed fordecades, is now reopened.The great hall of IrvineAuditorium has beenmagnificently restored as amulti-seat performance hallwith a capacity of 1,200 seats.Student practice rooms, arehearsal hall, double-story sidelobbies and generous backstagespaces have also been restored.Renovations to Logan Halland Williams Hall (aclassroom building dating fromthe 1960s) facilitate spacesharing to meet the School ofArts and Sciences' academicand administrative needs. Keyfunction spaces include astudent art gallery, auditoriumsand meeting rooms located inground-level spaces, whilestreet-level rooms in WilliamsHall provide expansion spacefor the future needs of theextended Campus Center. TheSilfen Student Study Center, anew 24-hour study pavilionhelps to harmonize theacademic, Williams andLogan, buildings. The newEast entrance to Logan Hallprovides a more directconnection between theadministrative offices of Artsand Sciences in Logan and therest of the PerelmanQuadrangle complex.

Christian AssociationBuilding We acquired the historicChristian Association propertyat 36th and Locust Walk, andafter months of renovations,the building was re-namedThe Arch – Arts, Research andCulture House. The buildinghouses academic programs, aswell as a diverse group ofstudent organizations. Thiscentrally located facilityprovides an immediateopportunity to better serve theUniversity community, as wellas a wonderful site for thelong-term expansion of ouracademic programs.

Faculty ClubThe Faculty Club ceasedoperations in Skinner Hall inAugust 1999 to make way forconstruction of Addams Hall.The new Faculty Club, locatedon the second floor of the Innat Penn, is beautifullyappointed and will be servicedby professional food andbeverage staff of the Inn. TheFaculty Club has created acollegial environment for Penn faculty and staff, whilealso functioning as an upscalespecial event venue. This new arrangement will also save the University upwards of $500,000 per year inoperating costs.

The Left Bank This landmark developmentpartnership with DranoffProperties has resulted in thecreation of luxury apartmentsin the former GE Building at31st and Walnut Streets. Therenovation will create 285residential apartment units, a

parking garage, approximately20,000 square feet of retailspace, and 95,000 square feetof office and storage space.Housed in the lower levels ofthe building will be theDivision of Facilities Services,various other Penn offices, andthe Penn Children’s Center.Originally located at 42nd andSpruce Streets, the PennChildren’s Center will continueto provide an on-site, fullservice childcare facility forfaculty and staff in itsexpanded new home.

Hajoca and EasternApparatus Buildings The University is presentlyworking with a private realestate developer to convertthese former industrialbuildings into nearly 120,000square feet of high tech spacethat will house emerging newbusinesses. The hope is that,once they are redeveloped andmodernized, these facilities willattract growing businessesalong with youngentrepreneurs from theUniversity and throughout theDelaware Valley.

Huntsman Hall Huntsman Hall is currentlyunder construction, and whenopened in 2002, will provide

state-of-the art classrooms,group study rooms, communityspaces and faculty offices forthe Wharton School.Undergraduates will enter thebuilding from Locust Walkand will be served by adedicated cafe and lounge.Located within the heart ofthe new building, The Forumwill be the first and onlyWharton facility large enoughto accommodate entireundergraduate classes (up to500 people) in one location.Faculty, staff and graduatestudents will enter via anentrance on Walnut Streetwhere a plaza level café andlounge will be available tothem. Other exciting newspaces will be created at thetop of the building including a200 seat presentation room,conference rooms, and thegrand sky-lit East Hall, withcommanding views to the eastof both the academic center ofPenn's campus and thePhiladelphia skyline.

Inn at PennThe first hotel to be built inWest Philadelphia in over 25years, the Inn at Penn officiallyopened its doors in September1999. Adding to the quality-of-life and economicdevelopment of University

Facu l ty C lub Hourg lass Room

97806.w 5/15/01 10:33 AM Page 9

City, the Inn provides 238guest rooms, hospitality andconference suites, and 18,000square feet of flexible meetingand banquet space. Each guestroom is equipped with anEthernet connection, a 25-inchtelevision featuring WebTV,and two phone lines. TheUniversity’s extensive R. TaitMcKenzie-Joe Browncollection of sculpture andfriezes was incorporated intothe overall interior design ofthe hotel. The Inn, along withthe Penn Bookstore, serves toanchor commercial activity inthe Sansom Common complexand complement the HamiltonSquare development, which isrising on 40th Street.

Wharton Sinkler EstateIn addition to expanding anddeveloping the campusenvelope, the University is alsofurther committed to selling itsunderutilized properties. TheWharton Sinkler estate,located in Chestnut Hill, wassold at a price of over $4million. The sale of theproperty secured the long-termfuture of the historic WhartonSinkler mansion whilepreserving the undevelopedcharacter of the surroundingland. The proceeds of the sale

were used to purchase theChristian Association Buildingon campus.

3401-59 ChestnutStreetThe University acquired fromthe Redevelopment Authorityof the City of Philadelphia, animportant two-plus acre site at34th and Chestnut Street,which will be the future homeof a significant, mixed-useddevelopment. Thisdevelopment, which will beannounced in the coming year,would include office space,upscale housing, and asignificant retail and parkingprogram that will have atransformational effect onChestnut Street, andsignificantly upgrade thehousing and retail amenitiesfor our community.

Civic Center andExhibition HallsDemolition of this nine-acresite was completed this year,and this property nowrepresents one of the majoropportunities for campusexpansion to the east, and willprovide the necessary space fornew medical and researchfacilities. To accommodate thisfuture growth, the Universityand Children’s Hospital of

Philadelphia (CHOP) havecommenced development of aparking garage at Civic CenterBoulevard and UniversityAvenue. Once it is completedin 2002, this new garage willprovide University and CHOPemployees with nearly 2000new parking spaces.

NEIGHBORHOOD REVITALIZATIONPenn’s commitment tostrengthening its surroundingneighborhood remains undi-minished, and many new ini-tiatives were undertaken dur-ing FY 2000 towards this end.

West Philadelphia,Minority- and Women-Owned BusinessesWith a commitment towardsmaking targeted investmentsto foster community andeconomic development inWest Philadelphia, theUniversity has increased itspurchases from qualified WestPhiladelphia businesses, with astrong emphasis towardsminority- and women-ownedbusinesses. During Fiscal Year2000, the University purchased$57.1 million in non-construction goods andservices from West

Philadelphia-based businesses,bringing to $196.7 million thefive-year total of suchpurchases. Over the course ofthe past five years, theUniversity has purchased$179.5 million of similar goodsand services from minority-and women-owned businesses,with $39.4 million of that totalcoming in Fiscal Year 2000.During the same five-yearperiod from Fiscal Year 1996through Fiscal Year 2000, theUniversity has made nearly$110 million in constructioncontract awards to minority-and women-owned businesses.All this has been accomplishedon projects that are notable fortheir quality as well as theirsuccessful completion in termsof timing and budget.

Hamilton Square While the fresh food marketand the 750-car garage willopen in 2001, the volatile stateof the nation’s movie theaterexhibition industry led to thebankruptcy of GeneralCinema, the financial partnerof Robert Redford’s SundanceCinema project, following theend of the fiscal year.However, while suburban and

an

nu

al

re

po

rt

Hami l ton Square park ing garage

97806.w 5/15/01 10:33 AM Page 10

an

nu

al

re

po

rt

exurban film markets areglutted with theaters, centralcity locations such as Penn’scontinue to commandattention and we are confidentthat we will attract a newoperator/investor in the nearfuture.

Penn-Assisted PreK-8 SchoolThe effort to create anexcellent public school choicefor Penn’s neighborhoodresidents has reached its finalstages of realization. Followingan intensive community-basedeffort to design the school’sphysical and programmaticfeatures, the University hascompleted the design and willcommence construction in2001 and have the initial phasecompleted by Fall 2002. As aninterim measure, kindergartenand first grade classes willcommence in Fall 2001 intemporary facilities. The 700-student school will receive anoperating subsidy from Penn of$1,000 per student, along withextensive programmaticsupport from Penn’s GraduateSchool of Education.Designed by the GraduateSchool of Fine Arts facultymember Tony Atkin, thefacility is a thoughtful,contextual building located onfive landscaped acres on aPenn-owned site at 42nd andSpruce Streets.

Preserving andDeveloping Multi-Family ResidencesThe University finalized thestructure of a partnership withFannie Mae, the TrammellCrow Company, and the

University of the Sciences inPhiladelphia to acquire up to1,500 units of multi-familyresidential property in theUniversity City area. Theproperties will be preserved asa resource for moderate-income renters through modestrenovations and upgrades, witha particular emphasis onpreserving and restoring basicbuilding systems and essentialamenities. The University’sstrategic partner, TrammellCrow, will play a central role inthe venture as both propertymanager and equity investor.

University City DistrictThe University continues itscommitment and support ofthe thriving University CityDistrict (UCD). In additionto operating its successful"clean and safe" programs,during Fiscal Year 2000, theUCD spearheaded therevitalization of Clark Park,completed streetscapeimprovements to 40th Street,launched a new website aboutUniversity City, and created acolorful new quarterlycalendar-of-events promotingthe neighborhood’s greatdiversity of attractions. Tofurther their commitment to asafe and vibrant environment,UCD also introduced "LUCY,"a shuttle bus service providinga convenient and safe way forpeople to get aroundUniversity City. LUCY, shortfor Loop Thru University City,serves several area institutions,including Penn, DrexelUniversity, CHOP, HUP, thePresbyterian Medical Centerand the VA Medical Center.

University Mortgageand HomeImprovement ProgramTo encourage faculty and staffto live in University City, Pennoffers a guaranteed mortgageincentive program and otherincentives to those whopurchase homes in WestPhiladelphia. Since theprogram’s inception in 1999,over 220 employees of theUniversity have purchasedhomes in the neighborhood.In addition to encouragingnew homeowners to put downroots in University City, Pennis also providing homeimprovement incentives toemployees already living in theneighborhood to further investin their properties. To date,over 100 families have takenadvantage of this program.To combat the potentiallycorrosive impact vacantproperties can have on aresidential neighborhood, Pennrehabilitated, and reconvertedto homeownership, fourformerly derelict properties,bringing to twenty the totalnumber of local propertieswhich the University hastransformed via this program.

CONCLUSIONIn Fiscal Year 2000, we madesignificant progress inexpanding the campusenvelope and developing keyproperties, as well as disposingof underutilized properties. Asa result of these efforts, wehave already begun to realizethe aspirations of our CampusDevelopment Plan, a plancreated to help fulfill theacademic mission of theUniversity by providing avibrant campus environmentthat supports our well-established excellence inresearch and instruction. Aswe look to Fiscal Year 2001and beyond, we will continuethe creative use of ourresources for improving thequality of life for the entireUniversity community and itssurrounding neighborhoods.

John A. FryExecutive Vice President

97806.w 5/15/01 10:33 AM Page 11

Among the many notabledevelopments at theUniversity of PennsylvaniaHealth System (UPHS)during Fiscal Year 2000, nonewas more significant – andmore encouraging – than itsremarkable progress towardfinancial recovery.Throughout 1999-2000, theHealth System tookdetermined steps to restore itsfiscal health by trimmingpositions, phasing out someprograms, and cutting costs.After losing $198 million inFiscal Year 1999, the HealthServices Component of

UPHS rebounded with theoutstanding help of facultyand staff and was able to cutits operating losses to $30million. For the final sixmonths of the academic year,in fact, the health careenterprise operated profitably.Our goal, naturally, is toreturn to profitability. Theroad ahead will not be an easyone, but the kind ofcooperation, dedication, andhard work that sustained us inthe past fiscal year will carryus through Fiscal Year 2001.Yet despite the financialconstraints, painful decisions,

uncertainties, and changes ofleadership that had to befaced, the year also saw UPHSachieve several othermilestones in our traditionalmissions of education,research, and patient care.

In the fall of 1999, the Schoolof Medicine formallyannounced the establishmentof a new basic science depart-ment, the Department ofCancer Biology. The newdepartment is an acknowledg-ment of the increased promi-nence of cancer biology intoday's biomedical research.

As the mean age of thepopulation increases over thenext several decades, expertspredict that cancer willbecome the leading cause ofdeath among Americans. Atthe same time, a departmentfocused on cancer researchwill complement the clinicalcare provided by Penn’sCancer Center, while servingas a way to centralize andcoordinate teaching efforts inthe discipline.

Earlier this year, we continuedour recent outstandingshowing in the annual survey

message from Robert D. Martin, Ph.D.Interim Chief Executive Officer, University of Pennsylvania Health System and

Arthur K. Asbury, M.D.Interim Dean, University of Pennsylvania School of Medicine

Univers i t y o f Pennsy lvan ia

Bu i ld ing Penn’s Fu ture

1999-2000

AN

NU

AL

RE

PO

RT

Biomedica l Research Bu i ld ing I I/ I I I

97806.w 5/15/01 10:33 AM Page 12

of graduate and professionalschools by U.S. News & WorldReport. In Fiscal Year 2000,our School of Medicine wasagain ranked third among allU.S. medical schools, and sixspecialties were ranked amongthe top ten programs, amongthe eight specialties that areranked nationally.

The research efforts of ourfaculty and staff were alsorecognized nationally. In thefall, Clay M. Armstrong,M.D., a professor ofphysiology since 1976, receivedthe 1999 Albert Lasker BasicMedical Research Award (withtwo researchers elsewhere).

The Lasker Award was onlythe most noteworthy amongthe many honors individualfaculty members received.

Collectively, Penn rankedsecond among all Americanmedical schools that receivedresearch, contract, andtraining funds from theNational Institutes of Health,perhaps the single mostimportant barometer ofresearch strength. For FiscalYear 2000, five of ourdepartments were ranked atthe top position, and fourteendepartments finished in thetop five.

On the clinical side, in FiscalYear 2000, the Hospital of theUniversity of Pennsylvania wasagain ranked tenth in thenation among more than 1,700hospitals surveyed in U.S. News& World Report’s annual listingof "America’s Best Hospitals."Thirteen specialties werenationally ranked, and two werein the top ten. In addition, inthe spring, HUP was namedone of the top three health-careaward recipients in the "QualityCup Competition." Thenational competition, sponsoredannually by the RochesterInstitute of Technology andUSA Today, recognizes teamsthat make significant

contributions to theimprovement of quality in their organization.

Many of the new clinical andresearch undertakings of thelast year embody principleslong associated with theUniversity of Pennsylvania –interdisciplinary study,innovation, and practicalapplication. The School ofMedicine remains eager tobuild relationships with theother schools on campus andto help develop programs thatcut across schools,departments, and divisions.The Institute for Medicine and

Engineering, established in1994, stands out as a superbexample. In similar fashion,the Center for CognitiveNeuroscience was created lastyear to bring together the bestresearchers in a variety ofdisciplines across theUniversity to study the physicalbasis of the human mind.

In the fall, the Penn Center forExcellence for AutoimmuneResearch was establishedthrough a five-year grant fromthe National Institutes ofHealth for $6.5 million. Thecenter, with experts inneurology, medicine,neuroscience, and pathologyand laboratory medicine, isfocusing first on multiplesclerosis and systemic lupuserythematosus. Also in thefall, the Medical Centerestablished the Center for theTreatment and Study ofAnxiety to treat such commondisorders as post-traumaticstress syndrome, panic attacks,social phobia, and obsessive-compulsive disorder. The verytitle of the center indicates itsequal footing in clinical careand research.

In the spring, Penn wasdesignated one of eightnationally recognized researchsites for the study of colorectalcancer by the NationalColorectal Cancer ResearchAlliance – and the only centerin the region. Penn’s researchin colorectal cancer is multi-faceted, drawing physiciansfrom gastroenterology, gastro-intestinal surgery, radiology,and the University ofPennsylvania Cancer Center.

Also in the spring, researchersat the University ofPennsylvania Cancer Center,which is itself a model forinterdisciplinary study andtreatment, received a majorgrant in the field of breastcancer. The project is to designand develop a prototype of anintegrated database that will becapable of instantly retrievingand storing digital breastimages from mammographyfacilities across the country.

When Biomedical ResearchBuilding II/III was dedicatedin Fiscal Year 1999, it markedthe culmination of the HealthSystem’s master plan forconstruction. Fiscal Year 2000,on the other hand, was a yearof consolidation, newefficiencies, and smallerdevelopments. Given ourfinancial constraints, we had tomake the fullest use of whatwe already had. In some cases,departments and programsthat had been spread acrosscampus were brought closertogether for improved synergy.BRB II/III was one of themajor sites for someprogrammatic consolidation.Another example comes from

AN

NU

AL

RE

PO

RT

97806.w 5/15/01 10:33 AM Page 13

HUP, where five formerobstetrical areas – Dulles 2and 3, two nurseries, and theDulles antepartum area – were combined into theAntepartum/Postpartum Unitand Newborn Nursery onSilverstein 8. TheDepartment of Biostatisticsand Clinical Epidemiologycontinued to grow in BlockleyHall, and the University ofPennsylvania Cancer Centeropened new counseling officesin Penn Tower.

Two major projects that, tosome extent, cut across theentire Health System alsobegan to show fruit in the pastfiscal year. One was theFaculty 2000 process, agrassroots effort initiated bythe faculty through theMedical Faculty Senate. Thefinal report, issued in the

spring, is the culmination of atwo-year project to examinevirtually every aspect of facultyaffairs at the School ofMedicine after a period ofunprecedented change thathad affected the schoolduring the 1990s. Among thetopics considered werefunding issues, quality-of-lifeconcerns, faculty tracks, andthe status and potential use ofsenior professors. Asignificant portion of thefaculty provided views onthese various matters, and theproposed recommendationswere overwhelminglyendorsed by the facultythrough a mail ballot.

The other project was theClinical Effectiveness andQuality initiative, a new,physician-driven program thatseeks to build on Penn's proudtradition in qualityimprovement. Its goal is toengage physicians in acomprehensive re-engineeringof our care processes tomaximize cost effectivenesswhile maintaining andimproving our quality of care.The CEQ subcommittee andteam leaders have beenidentified, and targets havebeen selected. As the initiativemoves ahead, there havealready been some specificsuccesses - for example, shorterlength of stay at the Medical

Center during April and May,as well as a cost-savingprogram in the Department ofUrology for cell saver useduring prostatectomy surgery.More work plans are currentlybeing developed.

We have every confidence thatour Health System will bebetter for having gone throughthe pressures of the past fiscalyear. We are determined notonly to survive but to flourish,but to do so we will have tocontinue to be selective aboutwhat programs to support andbecome even leaner and moreentrepreneurial. One of our

challenges for the new year isto shape a new strategic planthat will better serve us in thenext decade. As we have donethroughout our noble historyof accomplishment andinnovation, we will strive forexcellence in our three-partmission of education, research,and patient care.

The successes we haveachieved this past year, and inearlier years, are due to oursuperb faculty, to outstandingacademic and administrativeleadership, and to the others inour organization who givetheir best every day. On behalfof the University, we offer ourthanks to all those whocontributed to creating thefuture of medicine at theUniversity of PennsylvaniaHealth System.

Robert D. Martin, Ph.D.Interim Chief Executive OfficerUniversity of PennsylvaniaHealth System

Arthur K. Asbury, M.D.Interim Dean, University ofPennsylvania School of Medicine

AN

NU

AL

RE

PO

RT

97806.w 5/15/01 10:33 AM Page 14

Fiscal Year 2000 was verymuch oriented towardenhancing the foundation thatwill allow the University andits Health ServicesComponent (Health Services)to meet its future goals in thetwenty-first century. Theoverall financial performanceof the University was positive,spurred by significant growthin sponsored research fundingand contributions.Importantly, the academicenterprise saw unprecedentedstrength in admissions quality.These positive results werereduced by the disappointing

endowment investmentperformance and by anoperating loss for HealthServices for the fiscal year.

While recording a loss fromoperations for the year,Health Services significantlyimproved its operatingperformance when comparedto the prior two fiscal years inwhich notably largeroperating losses occurred.Proactive actions taken,including a sizable reductionin work force to stabilize itsfinancial operations, began totake effect in Fiscal Year

2000. Despite its recentfinancial problems, theUniversity of PennsylvaniaHealth System has been ableto maintain its reputation asone of the leading healthcareproviders in the world. Ourflagship hospital, the Hospitalof the University ofPennsylvania, was recentlyselected as the tenth highestrated hospital in the UnitedStates by U.S. News and WorldReport.

In Fiscal Year 2000, wecontinued to make substantialcapital investments in the

physical infrastructuresupporting our academicmission. We have madesignificant additions to ourresearch and educationalfacilities, as well as a number ofcapital investments to improvethe quality of campus life.Moreover, we also continue tofocus on seeking outopportunities to reduce costs,enhance revenue, and improveservice delivery across campus.

Fiscal Year 2000Performance HighlightsDuring Fiscal Year 2000, on aconsolidated basis, the

message from Craig R. CarnaroliVice President for Finance and Treasurer

Univers i t y o f Pennsy lvan ia

Bu i ld ing Penn’s Fu ture

1999-2000

an

nu

al

re

po

rt

Quadrang le Res idence

97806.w 5/15/01 10:33 AM Page 15

AN

NU

AL

RE

PO

RT

University recorded an increasein net assets of $9 million to atotal of almost $4.8 billion, ofwhich unrestricted net assetsrepresented $2.4 billion. Thisincrease was mainly attributableto nonoperating revenue,specifically the receipt of almost$157 million in nonoperatingcontributions for endowmentand capital purposes. Thiscompensated for a non-operating loss on investmentsof $145 million for the year.There was a marginal decreasein net assets before non-operating revenue of $2.9million, solely attributable tothe net loss experienced by the Health ServicesComponent. Its operating loss included a non-recurringcharge of $7.8 millionassociated with severance andpractice closure expenses.

Tuition, Fees andFinancial AidDuring Fiscal Year 2000, theUniversity recorded a $23.2million increase in tuition andfee revenue to a total of over$397 million, net of financialaid direct grants. Thisrepresents an increase of about6.1% over Fiscal Year 1999.The University was able tocontinue to maintain its need-blind undergraduateadmissions policy, with 48% ofPenn students receiving needbased financial aid. Overall,undergraduate and graduatedirect grants totaled almost

$100.9 million for the year.Once again, Penn broke itsformer undergraduateadmissions records, with thehighest SAT scores and mostcompetitive admissions inhistory. Penn continued toadvance in its selectivity, withthe percent of applicantsadmitted to Penn declining toan all-time low of 22.9%, andthose matriculating growing toan all-time high.

Development andAlumni Relations Gifts and pledges (includingprivate grants) to the Universitytotaling $310 million exceededfundraising goals for Fiscal Year2000. Cash receipts of morethan $288 million set a newrecord for annual fundraising.

Fiscal Year 2000 receiptsincluded $85.1 million added tothe University’s endowment.Penn’s annual giving programsalso produced a record-settingtotal of $29.4 million inunrestricted support for a widearray of University programs.

Funds raised for the Agenda forExcellence represented asignificant portion of totalgiving. During the first fouryears of the strategic plan, atotal of $724 million was raisedfor Agenda priorities. FiscalYear 2000 gifts emphasizedfinancial aid, facilities, endowedprofessorships, and academicand research programs.

Development and AlumniRelations inaugurated Penn’sAlumni On-Line Community,including e-mail-forwarding,access to the University’s on-line alumni directory, and otherservices designed to attract andengage alumni at every stage intheir lives and careers. TheUniversity of PennsylvaniaAlumni Society sponsored aseries of regional and campusevents throughout the year thatrecognized and celebratedalumni involvement andachievement.

Sponsored ProgramsSponsored programs supportcontinued to be exceptionallystrong in Fiscal Year 2000.Since Fiscal Year 1996,sponsored project awards havegrown at double-digit rates ofincrease, with an annualizedrate of 10.6% over the period.Total awards received for FiscalYear 2000 reached nearly $540million, an increase of 13.2%over the previous year.Sponsored programs revenuetotaled over $464.9 million lastyear, an increase of 11.0% overFiscal Year 1999. The Schoolof Medicine, the School ofArts and Sciences, the Schoolof Dental Medicine, and theAnnenberg School forCommunication all hadsignificant increases in theirfunding for research. TheUniversity, largely through theefforts and funding successesof the School of Medicine

faculty, continues at a numbertwo national ranking infunding from the NationalInstitutes of Health (NIH).New funding proposalssubmitted during the yearincreased by 3.2%, suggestingthe likelihood that Penn'sgrowth in sponsored programssupport will continue in theupcoming years.

Endowment andInvestmentsFor the fiscal year ended June30, 2000, Penn’s endowmentfell slightly to $3.20 billionfrom $3.28 billion at June 30,1999. The AssociatedInvestments Fund (A.I.F.), inwhich a majority of theendowment is invested, lost1.8% in Fiscal Year 2000. Thisreturn was disappointingrelative to the A.I.F.’sbenchmark, which returned apositive 4.7% over the sameperiod. Penn’s under-performance resulted largelyfrom the domestic equityportfolio’s value bias and lackof exposure to growthcompanies in technology,media and telecommunicationsthat drove market returns forthe first nine months of Fiscal2000. However, beginning inmid-March 2000, as the firstsigns of a technologycorrection appeared in themarket, the A.I.F. began toout-perform compared to itsbenchmark.

Locust Lobby in Huntsman HallThe Inn at Penn

97806.w 5/15/01 10:33 AM Page 16

Several significant steps havebeen taken to address theA.I.F.’s under-performance inrecent years that had beendriven by: 1) an extreme biastoward value investing indomestic equities; and 2) a lackof alternative investments,particularly venture capital andbuyout investments which havedriven the performance of ourpeer group over the recentpast. Over the past two years,over $1 billion has been moved

from cash and Penn’s priorvalue stock investments andcommitted to index funds,more opportunistic domesticequity managers, venturecapital, private equity andhedge funds. Stylediversification has been aconscious objective, andalthough a bias in favor ofvalue still exists, it has beenreduced and diversified.

While the more balancedcourse Penn has selected forthe future will not enable us tocapture the returns that weremissed in the last few years, webelieve the recent changes tothe endowment’s portfolio willreturn its performance to ahighly respectable position

among its peers. The FiscalYear 2000 loss reflects theimpact of a market cycle thathas already begun to turn infavor of Penn’s investmentstyle. For example, fromMarch 2000 through the endof calendar 2000, performanceof technology stocks (andgrowth stocks in general)faltered, while Penn’s domesticequity portfolio significantlyout-performed the market. Asa result of the changes

mentioned above, we believethe A.I.F.’s investments aremore attractively positioned forthe future.

Capital InvestmentDuring Fiscal Year 2000, theUniversity invested almost $314million in new construction,renovation, and the purchase ofproperty, plant and equipmentto support our teaching,research and public servicemissions. Major projectsranged from the start ofconstruction of new buildingsfor the Wharton School(Huntsman Hall) and School ofDental Medicine (SchattnerBuilding), to significantrenovations to the Quadrangleresidences, a new chiller plant,

and major renovations to createa new student center on campus(Perelman Quad).

We continued to makeinvestments designed toimprove the quality of life forstudents, faculty and staffwithin and around campus.Significant renovations toHouston Hall, IrvineAuditorium, and WilliamsHall as well as the creation ofWynn Way were substantiallycompleted in Fiscal Year2000, all of which nowencompass the area nowknown as the Perelman Quad.This is expected to be astudent hub on campus forgenerations of students tocome. A new baseball field,coupled with the renovation ofBower Field was completed inFiscal Year 2000, which hashelped to relieve the need foradditional recreational fields.

The Inn at Penn, a majorcomponent of SansomCommon opened in the earlypart of the fiscal year. Inaddition, work was begun toconstruct a new parking garagewith a specialty supermarket onthe western end of campus.The University has also teamedwith a local developer toconvert the GE Building,acquired by the Universityseveral years ago, into loftapartments for faculty, staff and students.

During Fiscal Year 2000,various stages of planning andconstruction were initiated for anumber of other importantprojects. These included the

renovation of Skinner Hall tohouse the Graduate School ofFine Arts’ studio arts programsin a newly named CharlesAddams Hall. Work began onthe new Melvin J. and ClaireLevine Hall for the School ofEngineering and AppliedScience. Design work wasinitiated on a new life sciencesbuilding which will eventuallyhouse the Biology andPsychology departments.

The University believes that itis essential to continue to investin its physical environment inorder to ensure that futuregenerations of students, facultyand staff have facilities thatenhance their education,research and instructionalexperience.

SummaryThe University’s continuedsixth place ranking by U.S.News & World Report is areflection of the excellenceachieved by Penn faculty,students and staff during thepast year. Fiscal year 2000 wasone in which Penn madesubstantial investments onmany fronts to ensure that itsfuture continues to be bright.With this foundation, we lookforward to achieving evengreater accomplishments.

Craig R. CarnaroliVice President for Finance and Treasurer

The new Chi l l e r P lan t

AN

NU

AL

RE

PO

RT

97806.w 5/15/01 10:33 AM Page 17

an

nu

al

re

po

rt

We are extremely proud of theundergraduate admissionsrecords achieved in the last fiveyears. Indeed, the class thatentered Penn in September2000 was our most selective

with the highest SAT scoresever. The percent of applicantsadmitted to Penn declined toan all-time low of 22.9%, whilethose matriculating grew to anall-time high of 55.5%.

The table below reflectsapplication, acceptance, andmatriculation information forundergraduates for the last five years.

Building Penn’s Future…with a quality student base

Univers i t y o f Pennsy lvan ia

Bu i ld ing Penn’s Fu ture

1999-2000

Academic Acceptance MatriculationYear Applicants Acceptances Percentage Matriculants Percentage

2000-2001 18,823 4,313 22.9 2,394 55.51999-2000 17,666 4,668 26.4 2,507 53.71998-1999 16,658 4,870 29.2 2,408 49.41997-1998 15,464 4,828 31.2 2,349 48.71996-1997 15,862 4,772 30.1 2,331 48.9

Col lege Green

97806.w 5/15/01 10:33 AM Page 18

Year Ended June 30 Total

2000 $233,4071999 196,8241998 231,8411997 129,0461996 126,389

an

nu

al

re

po

rt

In conjunction with the dramatic growth indemand for a Penn education, we continuedto see improvement in the overall quality ofthe applicant pool. The following tablereflects the mean college entrance scoresachieved by incoming Penn freshmen.

These results are heartening as theyreflect a noteworthy growth in the qualityof and demand for a Penn education. Weare confident that the many faculty,programmatic, financial and physicalinvestments we are making will enable usto continue these trends.

Gift and pledges (excluding private grants)have grown by 13.1% annually over thepast five years. This generous support hasenabled many qualitative enhancements atthe University.

Building Penn’s Future…with a growing stream of gifts

Grants and contracts awarded to theUniversity for sponsored research andtraining from governmental and privateagencies during the past five years grew at a10.6% annual rate strengthening ourfaculty’s research.

Year Ended June 30 Total Grants & Contracts Awarded

2000 $539,9351999 477,1611998 413,1871997 364,7551996 326,797

Class Entering in September

800

700

600

1996 1997 1998 1999 2000

Verbal

Math

Undergraduate S.A.T. Scores

666 690 666 693 679 704 680 708 683 709

Building Penn’s Future…with growth in sponsored programs

97806.w 5/15/01 10:34 AM Page 19

97806.w 5/15/01 10:34 AM Page 20

F inanc ia l s

A F ive-Year Rev iew o f Inves tmen t sUnivers i t y o f Pennsy lvan ia

(Thousands o f Do l lars )

2000 1999 1998 1997 1996Investments:Fair Value

Stocks $1,422,929 $2,181,568 $1,758,030 $1,478,932 $976,114Bonds 1,398,108 962,844 1,048,050 1,380,926 1,138,918Short-term 342,889 449,797 538,662 403,303 548,151Other 550,008 181,663 215,025 168,961 135,225Total Investments $3,713,934 $3,775,872 $3,559,767 $3,432,122 $2,798,408

CostStocks $1,259,747 $1,752,471 $1,412,292 $1,183,639 $856,003Bonds 1,378,182 982,682 1,039,355 1,198,167 1,137,017Short-term 342,784 450,071 538,662 402,602 545,617Other 535,425 122,820 165,541 145,188 120,842Total Investments $3,516,138 $3,308,044 $3,155,850 $2,929,596 $2,659,479

Endowment:Fair Value $3,200,712 $3,281,306 $3,059,401 $2,535,312 $2,108,961Cost $3,050,942 $2,836,033 $3,009,100 $2,202,511 $1,986,641

Associated Investments Fund:

Fair Value $2,556,597 $2,661,621 $2,138,012 $1,856,663 $1,527,651Cost $2,464,477 $2,358,924 $1,899,007 $1,622,538 $1,438,583

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 1

F inanc ia l s

EndowmentUnivers i t y o f Pennsy lvan ia , June 30, 2000

Total EndowmentThe role of Penn’s endowment is to support its schools and centers by generating a growing, real (inflation-adjusted)flow of funds for the operating budget. The endowment funds 3.9% of the University’s consolidated operatingbudget. At June 30, 2000, Penn’s endowment had a market value of $3.201 billion. For the year, the endowmentgenerated an investment return of -1.8%, reflecting a significant allocation to value-oriented equities whichregistered negative performance for the year. The market value of the endowment decreased by $80 million over theyear, with such decline being comprised by net investment loss of $145 million, net gifts and transfers to theendowment of $76 million and net spending rule liquidation of approximately $11 million.

The total endowment includes the endowment of all ofPenn’s schools and centers. The endowments serve a varietyof purposes. The pie chart below reflects the breakdown ofendowment by purpose.

One objective in managing the endowment is to achieve realgrowth in value. The following chart reflects the growth inthe endowment for the past ten years. The impact of bothperformance and gifts is shown. The chart shows that theendowment’s growth has significantly outpaced inflation overthis time period. Note that the endowment market valueexcludes the portion of returns which have been spent.Including such distributions would make the comparison ofendowment performance with inflation even more favorable.

Instruction57.7 %

Academic Support

1.7 %

Health Care15.4 %

Research6.8 %

Undergrad/GradFinancial Aid*

15.4 %

Other3.0 %

ENDOWMENT BY PURPOSE

1990 2000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

Endowment Market Value1990 Endowment Market Value + Additions, Inflated1990 Endowment Inflated

ENDOWMENT GROWTH VS. INFLATION

* Includes graduate stipends

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 2

F inanc ia l s

Assoc ia ted Inves tmen t s FundUnivers i t y o f Pennsy lvan ia , June 30, 2000

Associated Investments FundApproximately 80% of the University’s endowment is invested in the Associated Investments Fund ("A.I.F."), anopen ended pooled investment fund which had a market value of $2.557 billion as of June 30, 2000. One of the keydeterminants of investment performance is asset allocation. This allocation has changed dramatically over the yearsas the A.I.F.’s diversification has increased, reducing its dependence on domestic marketable equities and fixedincome. This shift in asset allocation is illustrated below.

Domestic. Equity41.1 %

Int'l Equity11.1 %

AbsoluteReturn5.4 %High

Yield8.3 %

Emg MktEquity6.3 %

RealEstate5.2 %

PrivateEquity1.4 %

FixedIncome19.0 %

AIF ASSET ALLOCATION 6/30/00

Cash2.2 %

Domestic Equity53.9 %

FixedIncome31.3 %

Real Estate/Other1.3 %

Cash13.5 %

AIF ASSET ALLOCATION 6/30/90

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 3

F inanc ia l s

Assoc ia ted Inves tmen t s FundUnivers i t y o f Pennsy lvan ia , June 30, 2000

The A.I.F. is managed for total return, as investment returns are sought from both current income and principalappreciation. For the five-year period ending June 30, 2000, the A.I.F. generated an average annual compoundedtotal investment return of 12.3%. This return compares with the 16.9% preliminary average university endowmentreturn (as reported by Cambridge Associates). Longer measurement periods provide a meaningful context in whichto evaluate investment performance, and are shown in the chart below.

A.I.F. DistributionsIn addition to principal gains and gifts, a total of $92,311,000 was earned from interest and dividend payments onassets held in the A.I.F. in Fiscal Year 2000. From this total, $2,542,000 was applied to investment administrationcharges, which supports the internal costs of investment management. An allocation of $16,806,000 was made forgeneral school/center support, which covers the general overhead (e.g., heat, light, maintenance) of the schools andcenters benefiting from the endowment. To meet the spending requirement, an additional $10,558,000 wasliquidated from principal pursuant to the A.I.F. spending rule policy, described below. The net distributionfollowing these transfers was $83,521,000, which went to support a variety of university purposes, dependent on therestrictions of each endowment fund held in the A.I.F.

TOTAL RETURN PERFORMANCE COMPARISONPeriods Ended June 30, 2000

Annualized Returns (%)

Category 10 Years 5 Years 3 Years 1 YearAssociated Investments Fund (A.I.F.) 12.2 12.3 7.3 -1.8Composite Index* 13.3 15.4 12.3 4.7Wilshire 5000 17.3 22.5 19.1 9.5Lehman Bros. Gov’t./Credit Index 7.8 6.1 6.0 4.3

* The Composite Index represents Wilshire 5000, EAFE, MSCI Emerging Markets Free, NCREIF, Lehman Gov’t./Credit,Salomon High Yield indices on a weighted basis equal to the AIF’s asset allocation.

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 4

F inanc ia l s

Assoc ia ted Inves tmen t s FundUnivers i t y o f Pennsy lvan ia , June 30, 2000

A.I.F. Spending Rule PolicyIn Fiscal Year 1981, the Trustees implemented an endowment spending policy. Prior to that, all interest anddividends earned were distributed to A.I.F. unit holders. The primary purpose of implementing a spending policywas to protect the purchasing power of the endowment against the impact of inflation. In addition, the spendingrule policy seeks to provide smooth and predictable endowment distributions. The spending rule policy in place forFiscal Year 2000 was to spend 4.7% of the three-year moving average A.I.F. market value, lagged by one year. Thisrate is known as the "spending rate." Because this spending rate is based on a three-year moving average marketvalue, the spending rate is different when stated in the context of the current market value. Based on the June 30,1999 market value, the spending rate was 4.0%.

Since inception of the spending rule in FY 1981, a total of $147 million has been reinvested in the A.I.F. Theimpact of this reinvestment means that A.I.F participants in FY 1981 now hold approximately 37% more units andreceive 37% more income annually than they would otherwise. The spending rate had been less than investmentincome until Fiscal Year 1999; however, under present market conditions, it is slightly more than earnings fromcurrent income. Any shortfall in current income relative to the amount available for spending, as calculated underthe Spending Rule, is liquidated from endowment principal. Conversely, any income earned above the spendinglevel is reinvested into principal. In Fiscal Year 2000, the A.I.F.’s distribution was greater than the interest anddividends it generated; therefore, $10,558,000 was liquidated from principal to meet spending requirements. Thechart below reflects the growth in the distribution relative to the Consumer Price Index (CPI) since 1981. Asreflected, the net distribution generated by the A.I.F., adjusted for such reinvestment, has dramatically outpaced theCPI . The A.I.F. net distribution has grown by 7.9% annually versus 3.4% for the CPI.

450

400

350

300

250

200

150

100

50

01981 1985 1990

Fiscal Year 1981 - Fiscal Year 2000

1995 2000

NET DISTRIBUTION

CPI

AIF DISTRIBUTION GROWTH RELATIVE TO INFLATION

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 5

F inanc ia l s

Management Respons ib i l i t y for F inanc ia l S ta tement sUnivers i t y o f Pennsy lvan ia

The management of the University of Pennsylvania is responsible for the preparation, integrity and fair presentationof the financial statements. The financial statements, presented on pages 28 to 42, have been prepared in accordancewith generally accepted accounting principles and, as such, include amounts based on judgments and estimates bymanagement. The University also prepared the other information included in this annual report and is responsiblefor its accuracy and consistency with the financial statements.

The financial statements have been audited by the independent accounting firm PricewaterhouseCoopers LLP,which was given unrestricted access to all financial records and related data, including minutes of all meetings ofTrustees. The University believes that all representations made to the independent accountants during their auditwere valid and appropriate. PricewaterhouseCoopers’ audit opinion is presented on page 27.

The University maintains a system of internal controls over financial reporting, which is designed to provide areasonable assurance to the University’s management and the Board of Trustees regarding the preparation of reliablepublished financial statements. Such controls are maintained by the establishment and communication ofaccounting and financial policies and procedures, by the selection and training of qualified personnel, and by aninternal audit program designed to identify internal control weakness in order to permit management to takeappropriate corrective action on a timely basis. There are, however, inherent limitations in the effectiveness of anysystem of internal control, including the possibility of human error and the circumvention of overriding controls.Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financialstatement preparation. Furthermore, the effectiveness of an internal control system can change with circumstances.

The Trustees of the University of Pennsylvania, through its Committee on Audit and Compliance comprised ofTrustees not employed by the University, is responsible for engaging the independent accountants and meeting withmanagement, internal auditors, and the independent accountants to ensure that each is carrying out theirresponsibilities. Both internal auditors and the independent accountants have full and free access to the Committeeon Audit and Compliance.

Craig R. Carnaroli Kenneth B. CampbellVice President for Finance Comptrollerand Treasurer

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 6

F inanc ia l s

Repor t o f Independen t Accoun tan t sUnivers i t y o f Pennsy lvan ia

To the Trustees of theUniversity of Pennsylvania

In our opinion, the accompanying statement of financial position and the related statements of activities and ofcash flows present fairly, in all material respects, the financial position of the University of Pennsylvania at June 30,2000, and the changes in its net assets and its cash flows for the year ended June 30, 2000, in conformity withaccounting principles generally accepted in the United States of America. These financial statements are theresponsibility of University management. The prior year summarized comparative information has been derivedfrom the University of Pennsylvania's 1999 financial statements; and in our report dated October 1, 1999, weexpressed an unqualified opinion on those financial statements. Our responsibility is to express an opinion on thesefinancial statements based on our audit. We conducted our audit in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.

October 2, 2000Philadelphia, Pennsylvania

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 7

F inanc ia l s

S ta tement o f F inanc ia l Pos i t ionUnivers i t y o f Pennsy lvan ia

( thousands o f do l lars )

JUNE 30, 2000 JUNE 30, 1999Assets

Cash and cash equivalents $149,812 $252,091Accounts receivable, net of allowances

of $17,175 (2000) and $14,795 (1999) 110,998 102,122Patient receivables, net of allowances

of $69,689 (2000) and $67,452 (1999) 364,148 358,248Contributions receivable, net 187,176 173,380Loans receivable, net of allowances

of $5,842 (2000) and $4,995 (1999) 98,671 95,553Other assets 129,092 136,428Investments, at fair value 3,713,934 3,775,872Plant, net of depreciation 2,420,661 2,288,800

Total assets $7,174,492 $7,182,494

LiabilitiesAccounts payable $132,229 $140,508Accrued expenses and other liabilities 485,523 505,225Deferred income 44,188 29,231Deposits, advances, and agency funds 74,728 67,471Federal student loan advances 67,568 67,031Accrued retirement benefits 189,336 209,591Debt obligations 1,418,733 1,410,698

Total liabilities 2,412,305 2,429,755

Net assetsUnrestricted 2,375,103 2,328,803Temporarily restricted 1,250,612 1,394,299Permanently restricted 1,136,472 1,029,637

4,762,187 4,752,739Total liabilities and net assets $7,174,492 $7,182,494

See accompanying notes to financial statements.

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 8

F inanc ia l s

S ta tement o f Ac t i v i t i e sUnivers i t y o f Pennsy lvan ia

for the year ended June 30, 2000 (wi th summar ized f inanc ia l in format ion for the year ended June 30, 1999)

( thousands o f do l lars )

RESTRICTED TOTAL

UNRESTRICTED TEMPORARILY PERMANENTLY 2000 1999Revenue and other support:

Tuition and fees, net $397,738 $397,738 $374,580Commonwealth appropriations 38,099 38,099 36,792Sponsored programs 464,907 464,907 418,675Contributions 42,254 $34,236 76,490 77,437Investment income 108,413 71,115 179,528 152,218Hospitals and physician practices 1,617,590 1,617,590 1,568,738Sales and services of auxiliary enterprises 77,980 77,980 72,724Other income 108,749 108,749 98,569Independent operations 45,884 45,884 27,436Net assets released from restrictions 87,690 (87,690)

2,989,304 17,661 3,006,965 2,827,169

Expenses:Program:

Instruction 553,685 553,685 497,702Research 389,056 389,056 332,706Hospitals and physician practices 1,647,778 1,647,778 1,761,380Auxiliary enterprises 81,675 81,675 75,921Other educational activities 82,438 82,438 75,447Student services 33,999 33,999 31,323

Support:Academic support 52,750 52,750 45,918Management and general 118,183 118,183 107,825Independent operations 50,325 50,325 35,775

3,009,889 3,009,889 2,963,997

Increase (decrease) in net assets before non-operating revenue, net gains,reclassifications and other (20,585) 17,661 (2,924) (136,828)

Non-operating revenue, net gains (losses),reclassifications and other:

Gain/(loss) on investments, net (50,947) (105,749) $11,538 (145,158) 239,496Investment income (1,160) (1,288) 3,061 613 19,196Contributions 59,232 37,125 60,560 156,917 119,387Extraordinary loss (4,027)Reclassification of net assets 2,394 (34,070) 31,676

Net assets released from restrictions 57,366 (57,366)Increase (decrease) in net assets 46,300 (143,687) 106,835 9,448 237,224

Net assets, beginning of year 2,328,803 1,394,299 1,029,637 4,752,739 4,515,515

Net assets, end of year $2,375,103 $1,250,612 $1,136,472 $4,762,187 $4,752,739

See accompanying notes to financial statements

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 9

F inanc ia l s

S ta tement o f Cash F lowsUnivers i t y o f Pennsy lvan ia

( for the years ended June 30, 2000 & 1999)( thousands o f do l lars )

2000 1999Cash flows from operating activities:

Increase in net assets $9,448 $237,224Adjustments to reconcile increase in net assets tonet cash provided by operating activities:

Depreciation and amortization 190,850 184,534Provision for bad debts 80,758 85,326Loss/(Gain) on investments, net 145,158 (239,496)(Gain)/Loss on disposal of plant, property, and equipment (556) 637Non-operating revenue designated for the acquisition of long-lived assets (155,401) (139,497)Changes in operating assets and liabilities:

Patient, accounts and loan receivable (93,153) (82,089)Contributions receivable (3,322) (216)Other assets 7,336 4,905Accounts payable, accrued expenses and accrued retirement benefits (48,236) 17,079Deposits, advances and agency funds 7,257 18,325Deferred income 14,957 376

Net cash provided by operating activities 155,096 87,108

Cash flows from investing activities:Student loans repaid 13,235 10,389Student loans issued (17,412) (11,629)Purchase of investments (5,465,856) (4,272,459)Proceeds from sale of investments 5,382,636 4,295,850Purchase of plant, property, equipment and physician practices (313,873) (369,217)

Net cash used by investing activities (401,270) (347,066)

Cash flows from financing activities:Non-operating revenue designated for the acquisition of long-lived assets 143,605 131,791Federal student loan advances 537 635Repayment of long-term debt (39,637) (62,553)Proceeds from issuance of long-term debt (39,390) 166,192Defeasance of long-term debt (66,915)

Net cash provided by financing activities 143,895 169,150

Net decrease in cash and cash equivalents (102,279) (90,808)

Cash and cash equivalents, beginning of year 252,091 342,899

Cash and cash equivalents, end of year $149,812 $252,091

Supplemental disclosure of cash flow information:Cash paid for interest $72,845 $66,039

Non-cash activity Due to First Hospital Foundation $1,280 $1,197 Redevelopment Authority Mortgage $8,200

See accompanying notes to financial statements

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 10

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

1. Significant Accounting Policies

Organization The University of Pennsylvania (the University), based in Philadelphia, Pennsylvania, is an independent,nonsectarian, not-for-profit institution of higher learning founded as a college in 1740. The University provideseducational services, primarily for students at the undergraduate, graduate and postdoctoral levels; performs research,training and other services under grants, contracts, and similar agreements with sponsoring organizations, primarilydepartments and agencies of the United States Government; and operates an integrated health care delivery system,the University of Pennsylvania Health System-Health Services Component (the Health Services Component).

Basis of Presentation The financial statements have been prepared on the accrual basis and include the accounts of the University ofPennsylvania and its related entities. All material transactions between the University and its related entities havebeen eliminated.

The net assets of the University are classified and reported as follows:

Unrestricted - Net assets that are not subject to donor-imposed restrictions.

Temporarily restricted - Net assets that are subject to legal or donor-imposed restrictions that will be metby actions of the University and/or the passage of time. These net assets include gifts donated for specificpurposes and capital appreciation on permanent endowment, which is restricted by Pennsylvania law onthe amounts that may be expended in a given year.

Permanently restricted - Net assets that are subject to donor-imposed restrictions that require the originalcontribution be maintained in perpetuity by the University, but permits the use of the investment earningsfor general or specific purposes.

Expenses are reported as a decrease in unrestricted net assets. Gains and losses on investments are reported asincreases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law.Expirations of temporary restrictions recognized on net assets are reported as net assets released from restrictionsfrom temporarily restricted net assets to unrestricted net assets.

The financial statements include certain prior-year summarized comparative information in total, but not by netasset category. Such information does not include sufficient detail to constitute a presentation in conformity withgenerally accepted accounting principles. Accordingly, such information should be read in conjunction with theUniversity’s financial statements for the year ended June 30, 1999 from which the summarized information wasderived. Certain reclassifications have been made to the summarized financial information for comparativepurposes.

Cash and Cash Equivalents Cash equivalents include short-term U.S. Treasury securities and other short-term, highly liquid investments and arecarried at cost which approximates fair value. Short-term investments with original maturities of three months orless are classified as cash equivalents, except that any such investments held in trusts or by external investmentmanagers are classified as investments.

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 11

Investments Investments in equity and debt securities with readily determinable fair values are reported at fair value. Changes infair value of investments are reported in the University’s Statement of Activities. Fixed income investments with amaturity of less than one year are included in short-term investments. Derivative financial instruments held forinvestment purposes are carried at fair value with the resulting gains and losses included in investment earnings forthe period. The University’s principal derivative financial instruments are forward mortgage contracts. Fair valuesfor certain private equity and real estate investments held through limited partnerships or commingled funds areestimated by the respective external investment managers if market values are not readily ascertainable. Thesevaluations necessarily involve assumptions and methods that are reviewed by the University.

The majority of the endowment funds of the University have been pooled in the University's AssociatedInvestments Fund (A.I.F.), which is invested primarily in three investment pools, an Equity Fund, a Fixed IncomeFund, and a High Yield Fund. Each participating endowment fund in the A.I.F. earns investment income on thebasis of each fund’s percentage ownership of the A.I.F. The A.I.F. is managed for total return. The distribution ofA.I.F. returns for expenditure is independent of the cash yield and appreciation of investments for the year. TheUniversity has adopted an endowment spending policy designed to stabilize annual spending levels and to preservethe A.I.F. portfolio. The A.I.F. returns made available for expenditures in 2000 were $93,165,000, which exceededactual investment income by $10,558,000.

Loans Receivable Student loans receivables are reported at their net realizable value. Such loans include donor-restricted andFederally-sponsored student loans with mandated interest rates and repayment terms. Determination of the fairvalue of student loans receivable is not practical.

Plant Plant is stated at cost, or fair value at the date of donation, less accumulated depreciation. Depreciation is computedon the straight-line method over the estimated useful lives of the assets. Museum contents, rare books and othercollectibles aggregating $12,471,000 are not subject to depreciation.

Intangible Assets Intangible assets are included in other assets in the accompanying Statement of Financial Position. Intangible assetsconsist of acquisition costs, the excess of cost over net assets acquired, and non-competition agreements related tothe acquisition of physician practices, which are amortized on a straight-line basis over five years or the lives of therespective non-competition agreements. Intangible assets associated with the statutory merger of the PresbyterianMedical Center of Philadelphia into the Health Services Component are being amortized over thirty years on astraight-line basis.

Split-Interest Agreements The University’s split-interest agreements with donors consist primarily of charitable gift annuities, pooled incomefunds and irrevocable charitable remainder trusts for which the University serves as trustee. Assets are invested andpayments are made to donors and/or other beneficiaries in accordance with the respective agreements.

Contribution revenue for charitable gift annuities and charitable remainder trusts is recognized at the date theagreement is established, net of the liability recorded for the present value of the estimated future payments ofapproximately $33,142,000 to be made to the respective donors and/or other beneficiaries. Contribution revenue forpooled income funds is recognized upon establishment of the agreement, at the fair value of the estimated futurereceipts discounted for the estimated time period to complete the agreement.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 12

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

The present value of payments to beneficiaries of charitable gift annuities and charitable remainder trusts and theestimated future receipts from pooled income funds are calculated using discount rates which represent the risk-freerates in existence at the date of the gift. Gains or losses resulting from changes in actuarial assumptions andaccretions of the discount are recorded as increases or decreases in the respective net asset category in the Statementof Activities. During 2000, the University reclassified approximately $15,100,000 of previously recorded charitableremainder trusts from temporarily restricted to permanently restricted net assets.

Tuition and Fees The University maintains a policy of offering qualified applicants admission to the University without regard tofinancial circumstance. This policy provides financial aid to those admitted in the form of direct grants, loans, andemployment during the academic year. Tuition and fees have been reduced by certain direct grants in the amount of$100,850,000 in 2000.

Sponsored Programs The University receives grant and contract revenue from governmental and private sources. In 2000, grant andcontract revenue received from governmental sources totaled $391,141,000. The University recognizes revenueassociated with the direct costs of sponsored programs as the related costs are incurred. Indirect costs recovered onFederally-sponsored programs are based on predetermined reimbursement rates negotiated with the University’scognizant federal agency, the Department of Health and Human Services. Indirect costs recovered on all othergrants and contracts are based on rates negotiated with the respective sponsor. Funds received for sponsoredresearch activity are subject to audit.

Contributions Contributions are reported as increases in the appropriate net asset category based on donor restrictions.Contributions, including unconditional promises to give, are recognized as revenue in the period received at theirfair values. Unconditional pledges are recognized at their estimated net present value, net of an allowance foruncollectible amounts, and are classified in the appropriate net asset category. Unconditional promises to give andcontributions of cash and other assets designated for the acquisition of long-lived assets are reported with non-operating revenue, net gains, reclassifications and other. The University recognizes contributions in temporarilyrestricted net assets when a contribution is received without specific notification of donor intent. During 2000, theUniversity reclassified approximately $12,300,000 of previously recorded contributions from temporarily topermanently restricted net assets upon finalization of documentation reflecting the donors’ intentions.

Health Services Component Revenue of the Health Services Component is derived primarily from patient services and is accounted for at establishedrates on the accrual basis in the period the service is provided. Net patient service revenue is net of charity care andcommunity service. Certain revenue received from third-party payors is subject to audit and retroactive adjustment.Final adjustments to revenue, resulting from settlements with third-party payors, are recorded in the year in which theyare settled. Third party settlements increased net patient revenue by $1,610,000 and $9,017,000 in 2000 and 1999,respectively. Additionally, the Health Services Component has entered into certain contracts under which it isresponsible for providing medical care to covered members at predetermined rates. Any changes in estimates under thesecontracts are recorded in operations currently. During 2000, $24,893,000 of additional patient service revenue wasrecognized as a result of the reversal of previously established liabilities for disproportionate share payments (generalassistance days) due to a favorable change in Federal legislation.-

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 13

Allocation of Certain Expenses The Statement of Activities presents expenses by functional classification. Operation and maintenance of plant anddepreciation are allocated to functional classifications based on square footage. Interest expense is allocated to thefunctional classifications that directly benefitted from the proceeds of the debt.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting PronouncementsIn June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, which establishesaccounting and reporting standards for derivative instruments and hedging activities. It requires that an entityrecognize all derivatives as either assets or liabilities in the statement of financial position and measures thoseinstruments at fair value. This statement is effective for all fiscal years beginning after June 15, 2000. TheUniversity has not yet completed its analysis of the effects of this statement. Accordingly, the effect of adopting thisstandard has not been disclosed in the fiscal year 2000 financial statements. However, management believes that theadoption of this standard would not materially affect the financial position of the University.

2. University of Pennsylvania Health System - Health Services Component The Trustees of the University formed the University of Pennsylvania Health System (the Health System) in June1993 to operate as an integrated system, which delivers education, research, and patient care. The Health Systemincludes the Health Services Component and the School of Medicine of the University. The Health ServicesComponent is comprised of the Hospital of the University of Pennsylvania, the Clinical Practices of the Universityof Pennsylvania, the Presbyterian Medical Center of the University of Pennsylvania Health System, Clinical CareAssociates, Wissahickon Hospice of the University of Pennsylvania Health System, Phoenixville Hospital, andPennsylvania Hospital.

Throughout the year, certain transactions are conducted between the Health Services Component and theUniversity. The effect of these transactions (primarily inter-entity billings for allocations of common costs andcertain purchased services) is included in the financial information of the Health Services Component. At June 30,2000, the Health Services Component net liability to the University was $80,529,000 for various inter-entitybillings. The University and the Health Services Component have reached a formal agreement for the repayment ofthe inter-entity advance. Under the terms of the agreement, the Health Services Component will make paymentsover the next three years to fully satisfy its obligation.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 14

The Health Services Component makes transfers to the School of Medicine from its operations that furtherresearch and educational activities. These activities are integral to the overall mission of the Health System and theeffect of the transfers is reflected in the Health Services Component net assets.

Summarized financial information for the Health Services Component as of June 30, 2000 and 1999, prior toeliminations for transactions between the Health Services Component and other entities of the University, is asfollows (in thousands):

2000 1999Net patient service and premium revenue $1,530,413 $1,468,911Other revenue 122,736 126,863Total expenses (1,652,096) (1,761,979)Excess (deficit) of revenues over expenses from operations 1,053 (166,205) Non-operating, net (18,021) 59,566 Decrease in net assets before inter-entity transfers $(16,968) $(106,639)

Total current assets $464,141 $489,462Investments and assets whose use is limited

(including Board designated funds of $273,352and $363,321 and trustee held funds of$36,752 and $42,142 for 2000 and 1999, respectively) 616,657 714,845

Property, plant and equipment, net 652,946 683,637Other assets 84,066 84,412Total assets $1,817,810 $1,972,356

Total current liabilities $350,232 $450,893Long-term debt, net of current portion 798,152 812,230Other liabilities 300,952 293,668Total liabilities 1,449,336 1,556,791

Net assetsUnrestricted 67,964 110,901Temporarily restricted 240,627 246,702Permanently restricted 59,883 57,962

Total net assets 368,474 415,565Total liabilities and net assets $1,817,810 $1,972,356

3. Investments A summary of investments, stated at fair value, at June 30, 2000 is as follows (in thousands):

Short-term $342,889Stocks 1,422,929Bonds 1,398,108Real estate 157,487Other 392,521End of year $3,713,934

Beginning of year $3,775,872

Included in investments are assets held in trust with an aggregate fair value of $179,291,000 at June 30, 2000.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 15

In connection with a University-sponsored loan program, the University is required to invest in certificates ofdeposit of the lending institution. At June 30, 2000, short-term investments held under this arrangementaggregated $9,718,000.

At June 30, 2000, investments with a fair value of $40,378,000 were held by trustees under indenture and escrowagreements.

At June 30, 2000, investment securities with an aggregate fair value of $2,487,000 were loaned primarily on anovernight basis to various brokers in connection with a securities lending program. These securities are returnableon demand and are collateralized by cash deposits amounting to 102% of the market value of the securities loaned.The University receives lending fees and continues to earn interest and dividends on the loaned securities.

At June 30, 2000, short-term investment securities with a fair value of $258,549,000 have been earmarked for thepurchase of other long-term investments. Additionally, included in short-term investments at June 30, 2000 areinvestment sales receivable with an aggregate fair value of $44,154,000.

4. Contributions Receivable A summary of contributions receivable is as follows at June 30, 2000 (in thousands):

Unconditional promises expected to be collected in:Less than one year $107,187One year to five years 146,705Over five years 14,773

268,665Less: Unamortized discount and

allowance for doubtful amounts (81,489)

Contributions receivable, net $187,176

Because of uncertainties with regard to their realizability and valuation, bequest intentions and other conditionalpromises are not estimated by management and are recognized if and when the specified conditions are met.

5. Plant The components of plant at June 30, 2000 are as follows (in thousands):

Land $79,650Buildings 2,484,860 (a) Contents 1,238,009Construction-in-progress 216,108

4,018,627Less accumulated depreciation (1,597,966)Plant $2,420,661

(a) Includes $79,725,000 of completed facilities which serve as collateral for debt obligations.

The University recorded $182,592,000 of depreciation expense for the year ended June 30, 2000.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 16

6. Debt Obligations Debt obligations at June 30, 2000 are as follows (in thousands):

Pennsylvania Higher Education Facility Authority (PHEFA) Series A and B 1996Revenue Bonds, (4.60% - 6.00%), net of unamortized discount of $2,601 (a), (o) $413,479

PHEFA Series 1998 Revenue Bonds, (4.50% - 5.50%), net of unamortizeddiscount of $2,182 (b) 196,108

PHEFA Series B of 1998 Revenue Bonds, (variable interest rate,4.80% at June 30, 2000) (c), (o), (p) 121,600

PHEFA Series A of 1995 Revenue Bonds, (4.8% - 7.0%) (d) 100,160PHEFA Series B of 1994 Revenue Bonds, (variable interest rate,

4.80% at June 30, 2000) (e), (o), (p) 90,000 PHEFA Series C of 1996 Revenue Bonds, (variable interest rate,

4.80% at June 30, 2000) (f ), (o), (p) 80,000Quakertown General Authority Pool Financing Program, 1985 Series A Bonds,

(variable interest rate, 5.25% at June 30, 2000) (g) 71,744 Washington County Authority Lease Revenue Bonds, Series 1985 A,

(variable interest rate, 4.85% at June 30, 2000) (h) 61,528 PHEFA Series B of 1995 Revenue Bonds, (4.85% - 7.0%) (d) 45,070PHEFA Series A of 1998 Revenue Bonds, (4.50% - 5.10%),

including unamortized premium of $763 (i), (o) 39,513 PHEFA Series A of 1994 Revenue Bonds, (5.6% - 7.0%),

including unamortized premium of $683 (j), (o) 35,683PHEFA Series of 1968 Revenue Bonds, (4.9%) (k) 22,260 Pennsylvania Economic Development Financing Authority Series C of 1994

Revenue Bonds, (variable interest rate, 6.75% at June 30, 2000) (l) 10,468 PHEFA Second Series of 1985 Revenue Bonds, (variable interest rate,

4.61% at June 30, 2000) (m) 10,610PHEFA Series of 1990 Revenue Bonds, (variable interest rate,

4.61% at June 30, 2000) (n) 6,500Mortgages payable and other, (6.64% weighted average interest rate,

due through 2022) 114,010$1,418,733

(a) The Series A and B of 1996 Bonds mature in varying annual amounts ranging from $12,405,000 in 2001 to$14,110,000 in 2003, with maturities of $8,970,000 in 2021 and $9,590,000 in 2022.

(b) The Series of 1998 Bonds mature in varying annual amounts ranging from $1,790,000 in 2001 to $50,955,000in 2039. The Bonds provide for optional redemption by the Authority on or after July 15, 2008 at a redemptionprice of 100% plus accrued interest. Annual debt service payments to the Authority extending through 2039 rangefrom $11,314,000 in 2001 to $11,554,000 in 2039.

(c) The Series B of 1998 Bonds mature in varying amounts ranging from $2,080,000 in 2011 to $2,700,000 in 2015and $9,825,000 in 2018 to $15,055,000 in 2026. The Bonds are subject to optional redemption on any interestpayment date at a redemption price equal to the principal amount plus accrued interest.

(d) The Series A and Series B of 1995 Bonds mature in varying annual amounts ranging from $1,825,000 in 2001to $9,345,000 in 2015. The Bonds are subject to optional redemption by the Authority on or after September 1,

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 17

2005 at a redemption price of 100% plus accrued interest. Annual debt service payments to the Authority extendingthrough 2016 range from $14,098,000 in 2001 to $14,349,000 in 2016.

(e) The Series B of 1994 Bonds mature in varying amounts ranging from $16,900,000 in 2020 to $19,100,000 in2024. The Bonds bear a floating rate of interest which may be adjusted by the Authority at certain intervals. TheBonds are subject to optional redemption by the Authority prior to their scheduled maturity at a redemption priceof 100% plus accrued interest.

(f ) The Series C of 1996 Bonds mature in varying annual amounts ranging from $9,100,000 in 2023, $9,700,000 in2024, $30,000,000 in 2025 and a final maturity of $31,200,000 in 2026. The Bonds have a variable interest rate, butare eligible to be converted to a fixed rate as elected by the Authority. The Bonds are subject to optional redemptionby the Authority prior to their scheduled maturity at a redemption price of 100% plus accrued interest.

(g) The 1985 Series A Bonds mature on June 1, 2005 and provide for optional prepayments as stipulated in the loanagreement. The Bonds bear a floating rate of interest which may be adjusted by the Authority at certain intervals.

(h) The Series 1985 A Bonds mature on November 1, 2005 and provide for advance payments and optionalprepayments as stipulated in the Lease Agreement. The Bonds bear a floating rate of interest which may beadjusted by the Authority at certain intervals. The Authority has the option to convert the interest rate on theBonds to a fixed rate.

(i) The Series A of 1998 Bonds mature in varying amounts ranging from $1,635,000 in 2007 to $5,300,000 in 2015.The Bonds are subject to optional redemption by the Authority on or after July 1, 2008 at a redemption price equalto the principal amount plus accrued interest.

(j) The Series A of 1994 Bonds mature in varying amounts from $3,340,000 in 2003 to $5,205,000 in 2010. TheBonds are subject to optional redemption by the Authority on or after January 1, 2004 at redemption prices of102%, 101% and 100% plus accrued interest in 2004, 2005, and thereafter, respectively.

(k) The Series of 1968 Bonds mature in varying amounts from $2,310,000 in 2001 to $3,305,000 in 2008. TheBonds are subject to optional redemption on any interest payment date at a redemption price equal to 100% ofprincipal amount plus accrued interest to redemption date. Annual debt service payments to the Authority rangefrom $3,401,000 in 2001 to $3,467,000 in 2008.

(l) The Series C of 1994 Bonds mature in varying annual amounts ranging from $400,000 in 2001 to $1,200,000 in2014. The Bonds are subject to optional redemption on any interest payment date at a redemption price equal to100% of principal amount plus accrued interest to redemption date.

(m) The Second Series of 1985 Bonds have a variable interest rate which is based on the discount rate of short-termUnited States government securities and may be converted to a fixed rate at the Authority’s option. The Bondsmature in 2016, subject to earlier redemption by bond holders (prior to conversion to a fixed rate) or the Authority.

(n) The Series of 1990 Bonds have a variable interest rate which is based on the discount rate of short-term UnitedStates government securities and may be converted to a fixed rate at the Authority’s option. The Bonds mature onDecember 1, 2020, subject to earlier redemption by bond holders (prior to conversion to a fixed rate) or theAuthority.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 18

(o) The University has entered into a Master Trust Indenture (MTI) with respect to the indebtedness related to theassets and revenue of the Hospital of the University of Pennsylvania, the Clinical Practices of the University ofPennsylvania, the Presbyterian Medical Center of the University of Pennsylvania Health System, Clinical CareAssociates, Phoenixville Hospital, Pennsylvania Hospital and the operating unit known as Managed Care/Full RiskCapitation (collectively, the designated units). The MTI and related agreements contain certain restrictive covenantswhich limit the issuance of additional indebtedness and, among other things, require the Health ServicesComponent to meet an annual debt service coverage requirement of "income available for debt service" (excess ofrevenue over expenses plus depreciation, amortization, interest expense and extraordinary items) at an amount equalto 110% of the annual debt service requirements. If the debt service coverage requirement for a particular fiscal yearis not met, the Health Services Component must retain the services of a consultant, within six months of the closeof that fiscal year, to make recommendations to improve its debt service coverage. The Health Services Componentmust also implement the recommendations of the consultant to the extent that they can be feasibly implemented.The Health Services Component will not be considered to be in default of the provisions of the MTI so long as theHealth Services Component has sufficient cash flow to pay total operating expenses and to pay debt service for thefiscal year. In 1999, the debt service coverage requirement was not met. As a result, the Health ServicesComponent retained a consultant to make recommendations to increase its debt service coverage. In 2000, theHealth Services Component met its debt service coverage requirement under the MTI.

(p) On August 2, 1999, the Health Services Component entered into a reimbursement agreement with threefinancial institutions, whereby these institutions have agreed to provide letters of credit for the principal amount ofthe bonds, plus applicable interest coverage to support the PHEFA Series B of 1994, Series C of 1996 and Series Bof 1998 outstanding variable rate bonds. The letters of credit expire in August, 2002. The conditions under thereimbursement agreement permit a borrowing under the letter of credit in the event the bonds are not successfullyremarketed. The Health Services Component pays commitment fees on the unused amount of the letters of credit.The University has agreed to guarantee the obligations of the Health Services Component under the reimbursementagreement with the financial institutions.

The fair value of the University’s debt obligations was $1,145,145,000 at June 30, 2000. The fair value representsthe quoted market value for Authority Revenue Bonds and carrying amounts for all other debt which approximatesfair value.

Maturities of debt obligations for each of the next five years are as follows (in thousands):Fiscal Year Amount

2001 $25,6422002 27,0072003 28,1602004 31,6842005 105,242

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 19

7. Operating LeasesThe University leases office space and equipment under operating leases expiring through January 2015. Rentalexpense of $33,282,000 is included in the accompanying Statement of Activities.

At June 30, 2000, future minimum lease payments under operating leases with remaining terms greater than oneyear were as follows (in thousands):

2001 $28,6672002 20,9552003 16,8922004 14,6572005 14,081Thereafter 26,293Total minimum lease payments $121,545

8. Pension and Other Postretirement Benefit Costs Retirement benefits are provided for academic employees and certain administrative personnel through a definedcontribution plan. The University’s policy with respect to its contribution is to provide up to 9% of eligibleemployees’ salaries. The University’s contributions amounted to $30,211,000 in 2000.

The University has noncontributory defined benefit pension plans for substantially all other full-time employees.Benefits under these plans generally are based on the employee’s years of service and compensation during the yearspreceding retirement. Contributions to the plans are made in amounts necessary to at least satisfy the minimumrequired contributions as specified in the Internal Revenue Service Code and related regulations.

The components of accrued benefit costs and net periodic benefit cost for pension benefits and other postretirementbenefits are as follows (in thousands):

Other Pension Benefits Postretirement Benefits

Change in benefit obligation:Benefit obligation at June 30, 1999 $401,721 $195,551Service cost 14,876 11,194Interest cost 29,817 16,453Plan participants' contributions -- 91Actuarial (gain) loss (27,762) 13,980Benefits paid (15,837) (10,770)Curtailments (3,487) (2,682)

Benefit obligation at June 30, 2000 $399,324 $223,817

Change in plan assets:Fair value of plan assets at June 30, 1999 $558,778 $67,253Actual return on plan assets (20,133) (2,519)Employer contribution -- 6,179Plan participants' contribution -- 38 Benefits paid (15,837) (2,617)

Fair value of plan assets at June 30, 2000 $522,808 $68,334

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 20

Other Pension Benefits Postretirement Benefits

Reconciliation of funded status:Funded status $123,484 $(155,483)Unrecognized net actuarial (gain)/loss (147,572) 900Unrecognized prior service cost 250 (753) Unrecognized transition asset (3,628) --

Accrued benefit cost $27,466 $(155,336)

Weighted-average assumptions as of end of year:Discount rate 8.00%Expected return on plan assets 9.25% to 9.50%Rate of compensation increase 4.00% to 4.75%

The health care trend rate was assumed to decrease gradually from 9.00% in 2000 to a range of 5.00% to 6.00% overthe next seven to eight years, and remain level thereafter.

OtherPension Benefit Postretirement Benefits

Service cost $14,876 $11,194Interest cost 29,817 16,453Expected return on plan assets (51,314) (6,331) Amortization of prior service cost 80 (63) Amortization of transition asset (974) -- Amortization of net actuarial (gain)/loss (12,230) 287Net periodic (benefit) cost (19,745) 21,540Curtailment gain (3,487) (2,682)

$(23,232) $18,858

Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirementbenefits. A one-percentage-point change in assumed health care trend rates would have the following effects:

1-Percentage 1-Percentage Point Increase Point Decrease

Effect on total of service and interest cost $5,298 $(4,425)Effect on accumulated postretirement benefit obligation $32,710 $(28,394)

Pension plan assets consist principally of investments in a master trust account, invested in a diverse portfolio ofequity and debt securities. Other postretirement employee benefit plan assets consist principally of investments in adiverse portfolio of equity and debt securities.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 21

9. Medical Professional Liability Claims The University is insured for medical professional liability claims through the combination of the MedicalProfessional Liability Catastrophe Loss Fund of the Commonwealth of Pennsylvania, various commercial insurancecompanies, and a risk retention program. The University accrues for estimated retained risks arising from bothasserted and unasserted medical professional liability claims. The estimate of the liability for unasserted claimsarising from unreported incidents is based on an analysis of historical claims data by an independent actuary. Atrust fund has been established for the payment of medical professional liability claims under the risk retentionprogram. Prior to July 1, 1998, annual contributions were made to the trust fund to provide funding for retainedrisk. The trust fund’s assets are included in the accompanying financial statements. Effective July 1, 1998, theHealth Services Component entered into a three-year agreement with a commercial insurer to provide claims madeprimary layer coverage on a premium basis.

10. Contingencies The University has guaranteed certain obligations, including student loans, mortgages and leases on propertiesowned by related parties, totaling $104,632,000 at June 30, 2000. Various lawsuits, claims and other contingentliabilities arise in the ordinary course of the University’s education and health care activities. Based uponinformation currently available, management believes that any liability resulting therefrom will not materially affectthe financial position or operations of the University.

F inanc ia l s

Notes to F inanc ia l S ta tementsUnivers i t y o f Pennsy lvan ia

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 22

Mrs. Madlyn K. AbramsonJupiter, FL

* Hon. Arlin M. Adams Of CounselSchnader, Harrison, Segal & LewisPhiladelphia, PA

* Gustave G. Amsterdam, Esq.Retired Chairman and CEOBankers Securities Corp.Philadelphia, PA

Dr. Edward T. AndersonPalo Alto, CA

* Hon. Leonore AnnenbergFormer Chief of Protocol of theUnited StatesWynnewood, PA

* Hon. Walter H. AnnenbergChairman and PresidentThe Annenberg FoundationSt. Davids, PA

* Mr. Walter G. AraderChairmanWalter G. Arader & AssociatesRadnor, PA

* Mr. Samuel H. Ballam, Jr.Bryn Mawr, PA

Ms. Lynda BarnessPresidentThe Barness OrganizationWarrington, PA

Mrs. Judith Roth BerkowitzPresidentJarby, Inc.New York, NY

Mr. Robert S. BlankCo-Chairman and Co-CEOWhitney CommunicationsNew York, NY

Dr. Mitchell J. BluttExecutive PartnerChase Capital PartnersNew York, NY

* Mr. Gordon S. BodekLos Angeles, CA

* Richard P. Brown, Jr., Esq.CounselMorgan, Lewis & Bockius, LLPPhiladelphia, PA

Mr. Christopher H. BrowneManaging DirectorTweedy, Browne Company, LLCNew York, NY

* Mr. I. W. Burnham IIHonorary ChairmanBurnham Securities, Inc.New York, NY

Gilbert F. Casellas, Esq.West Chester, PA

Mrs. Susan W. CatherwoodBryn Mawr, PA

* Mr. Henry M. Chance IIKennett Square, PA

* Dr. Gloria Twine ChisumRetired Research PsychologistPhiladelphia, PA

Mr. L. John ClarkFounding PartnerCompass Partners InternationalLondon, United Kingdom

Univers i t y o f Pennsy lvan ia

Trus teesas o f June 30, 2000

* Emeritus

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 23

Dr. Stanley N. CohenKwoh-Ting Li Professor of Geneticsand Professor of MedicineStanford University School ofMedicinePalo Alto, CA

* Mr. Charles D. Dickey, Jr.Retired ChairmanScott Paper CompanyWest Conshohocken, PA

* Mr. G. Morris Dorrance, Jr.Villanova, PA

Mr. James D. Dunning, Jr.PresidentThe Dunning Group, Inc.Stamford, CT

Mr. Jerome FisherChairman EmeritusNine West Group, Inc.Palm Beach, FL

Mr. Richard L. FisherFisher BrothersNew York, NY

* Mr. Robert A. FoxChairman and CEOR.A.F. IndustriesJenkintown, PA

Mr. Robert A. Gleason, Jr.Chairman and CEOThe Gleason Agency, Inc.Johnstown, PA

* Mr. Bruce J. Graham, FAIAPartnerGraham and Graham Architecture & Interior DesignHobe Sound, FL

* John G. Harkins, Jr., Esq.PartnerHarkins CunninghamPhiladelphia, PA

Mr. Alan G. HassenfeldChairman and CEOHasbro, Inc.Pawtucket, RI

Charles A. Heimbold, Jr., Esq.Chairman and CEOBristol-Myers Squibb Co.New York, NY

Mr. John C. Hover IIBuckingham, PA

Mr. Jon M. Huntsman, Jr.Vice ChairmanHuntsman CorporationSalt Lake City, UT

* Mr. Reginald H. Jones Retired Chairman and CEOGeneral Electric CompanyStamford, CT

Mr. Edward W. KaneSenior Managing DirectorHarbour Vest Partners, LLCBoston, MA

* Dr. Carl KaysenDavid W. Skinner Professor Emeritusof Political EconomyMassachusetts Institute of TechnologyCambridge, MA

Mr. Paul K. KellyPresident and CEOKnox & Co.Westport, CT

* Emeritus

Univers i t y o f Pennsy lvan ia

Trus teesas o f June 30, 2000

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 24

Mr. James J. KimChairman and CEOAmkor Technology, Inc.West Chester, PA

Mr. Yotaro KobayashiChairman and CEOFuji Xerox Co., Inc.Tokyo, Japan

Natalie I. Koether, Esq.CounselRosenman & ColinFar Hills, NJ

* Dr. Ralph LandauStanford Universityc/o Listowel, Inc.New York, NY

Thomas F. Lang, Sr., Esq.PartnerAllen, Lang, Curotto & Peed, P.A.Orlando, FL

Mr. Leonard A. LauderFormer Chairman of the Board and CEOThe Esteé Lauder Companies Inc.New York, NY

* Mr. Robert P. LevyChairman DRT Industries, Inc.Philadelphia, PA

Mrs. Carolyn A. LynchPresidentThe Lynch FoundationMarblehead, MA

Mr. William L. MackPresident and CEOThe Mack OrganizationFort Lee, NJ

Mr. Jerry MagninBeverly Hills, CA

* Mr. A. Bruce MainwaringBryn Mawr, PA

* Mrs. Margaret R. MainwaringBryn Mawr, PA

Arthur Makadon, Esq.PartnerBallard Spahr Andrews & IngersollPhiladelphia, PA

Mr. Howard S. MarksChairmanOaktree Capital Management, LLCLos Angeles, CA

* Mr. Paul F. Miller, Jr.Miller AssociatesWest Conshohocken, PA

* Anthony S. Minisi, Esq.CounselWolf, Block, Schorr & Solis-CohenPhiladelphia, PA

Ms. Andrea MitchellChief Foreign Affairs CorrespondentNational Broadcasting CompanyWashington, DC

Mr. David P. MontgomeryPresident and CEOPhiladelphia Phillies Baseball ClubPhiladelphia, PA

* Emeritus

Univers i t y o f Pennsy lvan ia

Trus teesas o f June 30, 2000

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 25

AN

NU

AL

RE

PO

RT

Univers i t y o f Pennsy lvan ia

Trus teesas o f June 30, 2000

Mr. John B. NeffRadnor, PA

Lawrence C. Nussdorf, Esq.President and COOClark Enterprise Inc.Bethesda, MD

Mr. Russell E. PalmerChairman and CEOThe Palmer GroupPhiladelphia, PA

Mr. Ronald O. PerelmanChairman and CEOMacAndrews & Forbes Group, Inc.New York, NY

Mr. Egbert L. J. Perry President and OwnerThe Integral Group, L.L.C.Atlanta, GA

Mr. David S. PottruckPresident and Co-CEOThe Charles Schwab CorporationSan Francisco, CA

Stanley B. Prusiner, M.D.Director, Institute forNeurodegenerative DiseasesUniversity of California,San FranciscoSan Francisco, CA

Mr. Mitchell I. QuainExecutive Vice PresidentING Baring LLCNew York, NY

Ms. Pamela Petre ReisRolling Hills, CA

Hon. Marjorie O. RendellCircuit JudgeUnited States Court of Appeals forthe Third CircuitPhiladelphia, PA

Hon. Tom Ridge (ex officio)GovernorCommonwealth of PennsylvaniaHarrisburg, PA

Mr. James S. Riepe, ChairmanVice ChairmanT. Rowe Price Group, Inc.Baltimore, MD

Dr. Judith Rodin (ex officio)PresidentUniversity of PennsylvaniaPhiladelphia, PA

* Mrs. Adele K. SchaefferBryn Mawr, PA

Leonard A. Shapiro, Esq.PresidentEmerald Realty Advisors, LLCBethesda, MD

Mr. Alvin V. ShoemakerFormer ChairmanThe First Boston Corp.Stone Harbor, NJ

Mr. David M. SilfenAdvisory DirectorThe Goldman Sachs GroupNew York, NY

Mr. Henry R. SilvermanChairman, President and CEOCendant CorporationNew York, NY

* Emeritus

97806f.w 5/15/01 11:13 AM Page 26

AN

NU

AL

RE

PO

RT

Univers i t y o f Pennsy lvan ia

Trus teesas o f June 30, 2000

* Mr. Wesley A. Stanger, Jr.Director, A.S.A., Ltd.Summit, NJ

Mr. Saul P. SteinbergChairman and CEOReliance Group Holdings, Inc.New York, NY

David W. Sweet, Esq.Pepper Hamilton LLPHarrisburg, PA

* Myles H. Tanenbaum, Esq.ChairmanArbor EnterprisesWest Conshohocken, PA

Mr. Michael L. TarnopolVice ChairmanBear Stearns & Co., Inc.New York, NY

* Robert L. Trescher, Esq.Havertown, PA

* Dr. P. Roy VagelosRetired Chairman and CEO Merck & Co., Inc.Bedminster, NJ

Mr. Lawrence A. WeinbachChairman, President and CEOUnisys CorporationBlue Bell, PA

Mr. George A. WeissPresidentGeorge Weiss Associates, Inc.Hartford, CT

* Mr. Raymond H. WelshSenior Vice PresidentPaineWebber IncorporatedPhiladelphia, PA

* Mrs. Jacqueline G. WexlerFormer President, Hunter CollegeOrlando, FL

* Dr. Charles K. Williams IIPhiladelphia, PA

Mr. Paul C. WilliamsVice President and ManagerNuveen InvestmentsChicago, IL

Mr. Stephen A. WynnChairman and CEOWynn DevelopmentLas Vegas, NV

Michael D. Zisman, Ph.D.Executive Vice President of StrategyLotus CorporationWayne, PA

* Emeritus

97806f.w 5/15/01 11:13 AM Page 27

PresidentJudith Rodin

ProvostRobert L. Barchi

Executive Vice PresidentJohn A. Fry

Vice President for Development and Alumni RelationsVirginia B. Clark

Vice President and General Counsel of the University and the Health SystemPeter C. Erichsen

Vice President for Government,Community and Public AffairsCarol R. Scheman

Vice President and Chief of StaffStephen D. Schutt

Vice President for Facilities ServicesOmar H. Blaik

Vice President for Finance and TreasurerCraig R. Carnaroli

Vice President for Human ResourcesJohn J. Heuer

Vice President for Business ServicesLeroy D. Nunery

Vice President for Public SafetyThomas M. Seamon

Vice President for Audit and ComplianceRick N. Whitfield

Secretary of the UniversityRosemary McManus

ComptrollerKenneth B. Campbell

Univers i t y o f Pennsy lvan ia

S ta tu tor y Of f i cersas o f June 30, 2000

AN

NU

AL

RE

PO

RT

97806f.w 5/15/01 11:13 AM Page 28

Non-Discrimination Policy Statement

The University of Pennsylvania values diversity and seeks talented students, faculty and staff from diverse backgrounds. The University of Pennsylvaniadoes not discriminate on the basis of race, sex/gender, sexual orientation, religion, color, national or ethnic origin, age, disability, or status as aVietnam Era Veteran or special disabled or other eligible veteran in the administration of educational policies, programs, or activities; admissionspolicies; scholarship and loan awards; athletic, or other University administered programs or employment. Questions regarding this policy shouldbe directed to: Executive Director, Office of Affirmative Action and Equal Opportunity Programs, Sansom Place East, 3600 Chestnut Street, Suite 228,Philadelphia, PA 19104-6106 or (215) 898-6993 (voice) or (215) 898-7803 (TDD).

97806c.w 5/15/01 11:24 AM Page 2