Va n d e r b i lt U n i v e r s i t yF i n a n c i a l R e p o r t 2 0 0 0

About the University

Commodore Cornelius Vanderbilt gave one million dol-

lars to build and endow Vanderbilt University in 1873. Today

Vanderbilt University is a private, comprehensive teaching

and research institution with a quality undergraduate pro-

gram and a full range of graduate and professional

programs. The University has a strong faculty of more than

1,900 full-time members and a diverse student body of

more than 10,100. Students from many regions, back-

grounds, and disciplines come together for multidiscipli-

nary study and research.

The ten schools and colleges of the University are the College of

Arts and Science, the Graduate School, the Blair School of Music,

the Divinity School, the School of Engineering, the Law School, the

School of Medicine, the School of Nursing, Owen Graduate School

of Management, and Peabody College (education and human devel-

opment). Vanderbilt also serves the community through its med-

ical center and an institute for public policy studies.

Please visit the Vanderbilt University website

at www.vanderbilt.edu for more information. A

link to the 2000 Financial Report can be found at

www.vanderbilt.edu/divadm.

ContentsLetter from the Chancellor 2

Letter from the Chairman of the Board of Trust 3

Letter from the Chancellor Emeritus 4

The Year at a Glance 6

Statistical Highlights 10

A Blueprint for Academic Excellence 13

Discussion ofFinancial Results 17

Financial Ratios 23

Endowment Review 24

Financial Statements

Statements of Financial Position 28

Statements of Activities 29

Statements of Cash Flows 30

Notes to the Financial Statements 31

Management Responsibility for Financial Statements 38

Independent Auditors’ Report 38

Supplementary Hospital, Clinic, and Parking Facilities Financial Statements

Balance Sheets 40

Statements of Operations 41

Statements of Cash Flows 42

Statements of Changes in Net Assets 43

Board of Trust and Administration 44

Every year during my administration I will be greet-

ing you in Vanderbilt University’s Financial Report.

In coming years, I will be reporting on how far we

have come, and on what we have left to do. This year I am

afforded the opportunity of announcing to you the chal-

lenges I hope the University will be meeting during those

years. However, I cannot begin to give you my blueprint for

change without first acknowledging the accom-

plishments of Chancellor Joe B. Wyatt. The

achievements of my predecessor equip us well

for our advancement into the future. Chancel-

lor Wyatt’s prudent but aggressive economic

strategy and his financial innovation have stim-

ulated Vanderbilt’s physical and intellectual land-

scapes, increasing Vanderbilt’s academic presence

on both national and international stages.Because

of him, I am here, and my goals for change in

the University build upon and refine the work he has done.

I have formulated five strategic goals for change at the

University that I believe will help Vanderbilt to arrive at the

next stage in its existence. Think of these goals as an archi-

tecture of change and as challenges for you, for myself, and

for the University. These goals will initiate processes that

will help us evolve.

1. We must renew our commitment to the under-

graduate experience at Vanderbilt.We must make an under-

graduate’s career at Vanderbilt a total, immersed learning

experience. We have to ensure that Vanderbilt is a dynam-

ic, student-based learning community, with opportunities

for learning that extend beyond the formal classroom, and

support what students learn in the classroom. Students at

Vanderbilt should be surrounded by an atmosphere of intel-

lectual exhilaration. We must maintain excellent learning

and living spaces that facilitate interaction among students,

faculty, and staff, and serve students’ academic, social,

and recreational needs.

2. We must reinvent graduate education at Vander-

bilt. We have to ask ourselves how we can attract the best

graduate students and what new areas of support we can

identify for graduate education. How do we recruit facul-

ty that will attract the best graduate students? Exploring

these questions requires a vigorous review of our doctor-

al programs, and may demand fundamental changes in

some of those programs.

3. We must reintegrate professional education with

the intellectual life of the University. Vanderbilt’s profes-

sional schools are the most direct reflection of Vanderbilt’s

presence within the community, and because of this they

set high standards for the rest of the University.

As leaders, they serve as useful models to the

University’s other schools, which would benefit

from more cross-disciplinary work with pro-

fessional programs. Conversely, the critical acu-

men of the professional schools would only be

deepened through intellectual discourse with

their fellow colleges.

4. We must reexamine and restructure eco-

nomic models. Vanderbilt’s current planning

system can create barriers to intellectual life. Its creation of

financial divisions between colleges can prohibit cross-dis-

ciplinary work. We need an open, transparent, integrated

budget/planning process that builds confidence within

the University community and places responsibility on man-

agers, but is more flexible and does not require as much

negotiation.

5. We must renew Vanderbilt’s covenant with the com-

munity. Although we may be a private university, we serve

Middle Tennessee, the nation, and the world.We must con-

tinue to reach out to this wider world to further our social

mission. We have to assess what our obligations are to the

communities that support us. We also have to make our

good works visible to publicize the good we do. We should

promote our positive influence through strategic outreach

to local, national, and international communities. It is

Vanderbilt’s time to become a more engaged institution.

These goals will prove useful as markers with which to

check our progress as an institution, so that we may ensure

that Vanderbilt is growing into its fullest integration as an

intellectual academic community. We will return to them

again and again. I invite you to check me against them.

E. Gordon Gee

Chancellor

Letter from the Chancellor

2

Vanderbilt’s 127-year legacy of excellence continues today

thanks to the outstanding quality of its administrators,

faculty, staff, and students.

The ten undergraduate, graduate, and professional schools at

Vanderbilt are consistently honored for their exceptional quality.

The level of skill of its faculty and the ability of the University’s stu-

dent body only increase from one year to the next. These things,

when coupled with the dedication of the Board members and the

competence of the University staff, produce a university paramount

in every respect. I am grateful to Chancellor Emeritus Joe B. Wyatt

for his outstanding leadership over the past 18 years. In every way,

Vanderbilt is a better, stronger, more diverse university.

Vanderbilt enters a new era this year as E. Gordon Gee joins the

University as its seventh chancellor. Suggesting that Vanderbilt is

an institution better than it realizes, he expects to lead this Uni-

versity with a sense of vision that will surely inspire us all.

Committed to creating an even better reputation for Vander-

bilt, Chancellor Gee and I share the belief that Vanderbilt’s best

days are yet to come.

Martha R. Ingram

Chairman of the Board of Trust

Letter from the Chairman of the Board of Trust

3

The true measure of a university is not the condition of its campus,

the size of its endowment, or the SAT scores of its entering

freshmen. It is, rather, the cumulative impact that an institution

has outside its borders by educating leaders, creating new knowledge, and

serving the community and the world.

By those standards, the Vanderbilt University I was privileged to serve

for 18 years as Chancellor is a truly remarkable place.

The financial health of the University as presented in this report rep-

resents my final year as Chancellor. It tells an important part, but only a

part, of Vanderbilt’s success in recent years. By successfully navigating the

rapids of change in education, technology, and health care, Vanderbilt has

a solid foundation for the future.

Indeed, each year for the past 18 has represented a foundation for

the next, an endless continuum in which success in achieving the goals of

a distant vision depends on dealing with the challenges of the present.

Our academic programs continue to grow in stature, thanks to a world-

class faculty and an increasingly diverse student body. The campus is sprout-

ing nearly a half-billion dollars in new and renovated space—a construction

effort with few parallels at private universities of our size. And through

the careful but entrepreneurial management of our resources, both finan-

cial and intellectual, the University is poised to make great leaps in all areas

under the direction of Chancellor E. Gordon Gee.

Vanderbilt is indeed a great university. I value the leadership provid-

ed by our Board of Trust and the many members of the Vanderbilt com-

munity who can rightly claim credit for the University’s successes over the

past year and those before it.

Joe B. Wyatt

Chancellor Emeritus

Letter from the Chancellor Emeritus

4

5

1999

■ The Medical Center joins Duke and BostonUniversity Medical Centers as one of the initialthree Genetic Epidemiology Centers in the world.Pharmaceutical giant Glaxo Wellcome will partial-ly fund Vanderbilt’s program in human genetics inan effort to identify the genes involved in com-mon diseases and use the power of genetics todevelop drugs to combat these ailments.

■ Law School students publish the VanderbiltJournal of Entertainment Law & Practice to address issues of intellectual property andpatent law on the Internet. The new journal isaimed at those affected by changing laws per-taining to technological advancement in theentertainment industry.

� Vanderbilt kicks off a new logo publicity campaign with the help of head football coachWoody Widenhofer. The campaign invites theNashville community and Vanderbilt alumniworldwide to vote on which of the new logosshould adorn the helmets of the football teamand the 50-yard line of Dudley Field.

■ The Vanderbilt University Medical Center islisted on U.S. News and World Report’s “Ameri-ca’s Best Hospitals” in 10 of 16 specialty areas.Vanderbilt’s first-time entrants on the list includecardiology and heart surgery (30th), digestivetract (48th), and orthopaedics (50th). The Vanderbilt-Ingram Cancer Center continues itsrise in prominence, ranking 16th in cancer care,up from 21st last year and 35th the year before.Other specialties in which Vanderbilt is rankedamong the best are respiratory care (12th); urology (30th); ear, nose, and throat (15th);gynecology (23rd); hormonal disorders (13th);and rheumatology (24th).

� Two hundred incoming freshmen attend thefirst Squirrel Camp, a three-day retreat spon-sored by the Vucept Orientation Program at theJoe C. Davis Outdoor Recreation Center on Percy Priest Lake. Together with student orien-tation leaders and faculty and staff, the new students enjoy several team-building activitiesincluding a high ropes course.

■ Construction begins on a new 14-story,362,000-square-foot office and retail building onUniversity-owned property at 2525 West EndAvenue. The first phase of the new developmentis scheduled to be completed in September 2000and will include office space, several restaurants,and a bookstore. A subsequent phase willinclude a four-star hotel. The development, to bemanaged by international real estate firm Hines,will generate income to be used to fund meritscholarships for undergraduate students.

■ Vanderbilt University School of Nursing offersone of the first graduate programs in the nationfocused on the growing field of correctionalhealth. The School of Nursing partnered with the Federal Bureau of Prisons for this uniqueprogram of study. Students will serve in an areaof need in the Federal Bureau of Prisons for twoyears.

■ Bill Purcell leaves his position as director of theCenter for Child and Family Policy at the Vander-bilt Institute for Public Policy Studies to serve asNashville’s mayor. Meanwhile, Brenda Gilmore,director of Mail Services, is elected to a MetroCouncil seat in District 1.

■ Peabody College is one of 14 recipients in thenation to win a Department of Education CatalystGrant. Catalyst is part of a federal program to con-nect children with computers and Internet access.Peabody’s $2 million grant will be used to developcurricula, teaching methods, instructional materi-als, and other models for teaching technology.

■ Doctors at Vanderbilt University Medical Centerdevelop a new device to help people with para-lyzed vocal folds breathe on their own and speaknormally. The Implantable Pulse Generator,recently implanted in a patient for the first time inthe United States, offers a new alternative to atracheotomy.

■ Donna Hoffman and Thomas Novak, associateprofessors of management in marketing at theOwen Graduate School of Management, arevoted the world’s top two Internet scientists bymore than 600 U.S. and European scientists andmarketing managers. The survey was conductedby Prof-Net Institute for Internet-Marketing in Germany.

� StevensonProfessor ofChemistry NedPorter receivesone of the tophonors in chem-istry, the CopeScholar Awardfrom the Ameri-can ChemicalSociety.

The Year at a Glance

6

J u ly 1 9 9 9 Au g u s t S e p t e m b e r

7

■ The Owen Graduate School of Managementis recognized as one of the top M.B.A. schoolsin the country in addressing environmentalissues. The award was presented by the WorldResource Institute and the Aspen Institute’s Ini-tiative for Social Innovation through Business.

■ Vanderbilt is selected as the lead university fora $10 million multi-institution grant to fund bio-engineering education. The grant calls for theestablishment of the Vanderbilt-Northwestern-Texas-Harvard-MIT Center for BioengineeringEducational Technologies. The center will com-bine the expertise of the Vanderbilt School ofEngineering and the Peabody College LearningTechnology Center to develop bioengineeringeducational technologies and curricula.

■ Vanderbilt is one of 21 universities in the nation to receive a Grant to Combat ViolentCrimes Against Women on Campuses from theU.S. Department of Justice’s Violence AgainstWomen Office. The $435,000 federal grant willhelp fund educational outreach, training, and research on violence against women through the efforts of the Margaret Cuninggim Women’sCenter and the Department of Police and Security.

■ Marshall Eakin, associate professor of history,is named the Tennessee Professor of the Year bythe Carnegie Foundation for the Advancement ofTeaching and the Council for Advancement andSupport of Education in recognition of his dedi-cation to teaching, commitment to students, andinnovative teaching methods.

■ The Alternative Spring Break program and theStudent Government Association sponsor the first-ever Weekend of Service. Approximately 100 stu-dents spend two days volunteering in small groupswith various Nashville service organizations.

■ Vanderbilt and Metro school officials team upwith the private sector to offer a program thatguarantees college scholarships to inner-citystudents. Nashville’s project GRAD (GraduationReally Achieves Dreams) will award its firstscholarships in 2003 to students attendingPearl-Cohn High School. Project GRAD wasbrought to Nashville through the efforts of Van-derbilt junior Katie Dunwoody.

■ The Vanderbilt-Ingram Cancer Center andMeharry Medical College form a new partnershipwith the goal of improving educational, scientific,and clinical programs at both institutions. Thealliance received more than $1 million from theNational Cancer Institute to collaborate onresearch, training, and patient care. One of theprimary goals of the partnership will be to under-stand why African-Americans are more likely todevelop and die from cancer.

■ Travis Thompson, director of the John F.Kennedy Center for Research on Human Devel-opment and a professor of psychology, psychia-try, and special education, receives the EarlSutherland Prize for Achievement in Research,Vanderbilt’s top research award. Thompson’swork in the field of developmental disabilitiesstudies has been applied to treatment programsfor the mentally retarded nationwide.

� Walter Chazin, a renowned scientist from theScripps Research Institute in California, joins theVanderbilt faculty as professor of biochemistry.He will also serve as director of the new StructuralBiology Program. The program joins severalareas of the University in an effort to promotemolecular research and brings computationalbiology expertise to Vanderbilt for the first time.

■ Dr. Harvey Bender, Jr., emeritus professor ofcardiac and thoracic surgery, is named presi-dent-elect of the American College of Surgeons.Dr. Bender served as Vanderbilt’s chair of theDepartment of Cardiac and Thoracic Surgery for25 years, leading the program to national andinternational prominence. He will assume thepresidency of the largest organization of sur-geons in the world in October 2000.

■ Vanderbilt enters into a contractual relation-ship with Follett Higher Education Group tomanage the Vanderbilt Bookstore and the Med-ical Bookstore. Follett manages more than 630college and university bookstores and supportsonline textbook purchasing.

� Researchers at Vanderbilt’s W. M. KeckFoundation Free-Electron Laser Center success-fully complete the first-ever clinical operation ona human with a free-electron laser. The infraredlaser was used to remove tissue from a braintumor of a 78-year-old Missouri woman. Firstadopted by the Defense Department as part ofthe “Star Wars” missile defense program, thefree-electron laser is now being applied tosurgery due to its precise tissue cutting capabilities.

O c t o b e r N o v e m b e r D e c e m b e r

2000

■ The Vanderbilt University 1999 CommunityGiving Campaign raises $755,320, surpassinglast year’s total by more than $65,000. A record-high 4,830 Vanderbilt faculty and staff contributeto the effort, exceeding last year’s total by 250participants.

� Vanderbilt seniorbaseball player HunterBledsoe is named a recipient of Today’s TopVIII award by theNCAA HonorsCommittee, makinghim Vanderbilt’s firstathlete to earn thisaward in its 26-yearhistory. The award isgiven to eight student ath-letes who excel in athletics,academics, and leader-ship. Bledsoe graduatedin 1999 with a dual degreefrom the School ofEngineering and the College of Arts and Science.He was the 1999 Southeastern ConferencePlayer of the Year and went on to sign with theLos Angeles Dodgers.

■ The Vanderbilt community mourns the loss offormer president of the Board of Trust Sam M.Fleming. Fleming began serving on the board in1951 and was named a life trustee in 1979. Heserved as vice-president from 1966 to 1970,during which time he led the University’s $55million fund-raising campaign. He held the officeof president from 1975 to 1981.

■ Surgeons at the Medical Center complete thefirst-ever triple organ transplant at Vanderbilt.The rare procedure consisted of removing an18-year-old male cystic fibrosis patient’s heart,lungs, and liver and replacing them with donororgans. The procedure took 11 hours and in-volved almost 100 Medical Center employees.

■ Board of Trust member Thomas M. Hudsontragically dies in an automobile accident. Hudson co-founded the Nashville branch of theRobinson-Humphrey investment firm and theMatteson-Hudson Construction Company. Healso served in 1978 as president of the Board ofDirectors of the Vanderbilt Alumni Association.

� E. Gordon Gee, president of Brown University,is elected by a unanimous vote of the Board ofTrust to become the seventh Chancellor of Van-derbilt effective July 31, 2000. He will also serveas a professor of law. Gee graduated from theUniversity of Utah in 1968 and then earned a law degree and a doctorate in education atColumbia University. Before Brown, he served aspresident at Ohio State University, University of

Colorado, andWest VirginiaUniversity. Hiswife, Con-stance Gee,will join thefaculty ofPeabody College.

■ An economic impact analysis indicates Vanderbilt is the largest private employer in Mid-dle Tennessee with approximately 15,000 facultyand staff. Estimates indicate that the Universityaccounts for an annual economic impact of $2.4billion, while Vanderbilt’s academic, health care,athletic, and cultural activities attract hundredsof thousands of people to campus and supportan estimated 28,700 jobs in Middle Tennesseeeach year.

■ NAACP president and former U.S. congress-man Kweisi Mfume addresses the Vanderbiltcommunity at Langford Auditorium on racial rec-onciliation in the United States. Mfume was invit-ed to campus by the Speakers Committee togive a speech titled “Race: Exploring America’sAgenda,” which examines how racial relationshave changed.

■ The Board of Trust approves the naming ofthe soon to be completed Sarratt Student Cen-ter addition for Terence and Mary Beth Adderleyin light of their substantial contribution to thatproject. The University also announces signifi-cant gifts toward the renovation from Board ofTrust members Eugene H. Vaughan and JoanneFleming Hayes.

■ Commodore basketball’s senior forward DanLanghi is named Associated Press SEC Co-Playerof the Year and Coaches SEC Player of the Year.Langhi is the fifth player in Vanderbilt basketballhistory to receive this honor. He averaged 22.4points per game in his final season and went onto sign with the Houston Rockets.

� U.S. Supreme Court Justice Sandra DayO’Connor, the first woman to serve on the court,visits Vanderbilt to participate in a moot courtcompetition sponsored by the Law School andthe First Amendment Center.

■ The School of Medicine is ranked 25th out of123 medical schools based on grants receivedfrom the National Institutes of Health (NIH) lastyear. Among specialty departments, Pharma-cology ranked first; Cell Biology, Molecular Physi-ology and Biophysics ranked fourth; Biochemistryranked fifth; and the Clinical Research Centerranked seventh.

The Year at a Glance Continued

8

J a n ua ry 2 0 0 0 F e b r ua ry M a r c h

9

■ The $11.4 million renovation of Sarratt Stu-dent Center is completed and the building re-opened with an additional 21,000 square feet.New features include a Munchi Mart, studyspace, and offices for various student groups.Re-opening festivities include food, music, per-formances by student groups, and an openhouse of the building.

■ In its annual rankings of graduate and profes-sional schools, U.S. News and World Reportranks four Vanderbilt University schools amongthe top 25 in their fields: Owen Graduate Schoolof Management (24th out of 325 accreditedM.B.A. programs), Peabody College (6th out of187 graduate education programs), the LawSchool (18th out of 174 American Bar Associa-tion–accredited law schools), and the School ofMedicine (16th out of 125 schools of medicine).In addition, the School of Nursing ranks 27thand the School of Engineering’s biomedical spe-cialty ranks 18th.

■ Vanderbilt hosts the Millennial Gathering,bringing 46 writers of the New South to campusto celebrate this 70-year-old literary tradition.The Gathering, coordinated by associate profes-sor of English and published Southern poet,Kate Daniels, includes various workshops,forums, panels, and readings.

■ The Office of Volunteer Activities, Interhall, theStudent Government Association, and the Com-munity Service Coalition sponsor a CommunityService Outreach Day. Approximately 130 volun-teers visit 18 sites in neighborhoods aroundNashville. The Vucept student program sendsanother 200 volunteers to 13 other sites. Activi-ties range from painting and cleaning to visitingwith patients at area hospitals.

■ Vanderbilt Board of Trust member and motionpicture director Delbert Mann receives the Van-derbilt Alumni Association’s 1999 DistinguishedAlumnus Award. After graduating from Vander-bilt University, Mann went on to direct such clas-sic films as All Quiet on the Western Front, TheDark at the Top of the Stairs, and David Copper-field. He won an Academy Award for his debutfilm, Marty, in 1956. Mann has served on theBoard of Trust since 1962.

■ The Social Religious Building on Peabodycampus is renamed the Faye and Joe WyattCenter for Education in honor of the retiringChancellor and his wife. The Board of Trust vot-ed to rename the 85-year-old building as a trib-ute to the Chancellor under whom it becameone of the most advanced learning environ-ments in the country.

■ The University begins construction of a newbrick and iron baseball stadium on the site of thecurrent baseball diamond on McGugin Field.The stadium should be completed before the2001 season. The $5 million makeover is beingfunded by private donors, including an anony-mous contributor of $2 million.

■ Elizabeth Howard, an instructor in the practiceof nursing, is one of 26 individuals selected toreceive the 2000 Excellence in Teaching Awardby the American College of Nurse MidwivesFoundation, Inc. The award honors educatorswho mentor and serve as role models for mid-wifery students.

■ The School of Medicine and the Owen Gradu-ate School of Management create a jointM.D./M.B.A. degree program. The five-year pro-gram will require students to spend threesemesters at Owen, taking courses that will pre-pare them to deal with economic and account-ing issues in health care.

� The Medical Center becomes one of the firstlaser vision centers to use new LASIK technolo-gy to reduce post-operative infections. Dr. MingWang, director of the Vanderbilt Laser SightCenter and principal investigator, successfullyperformed the LASIK surgery. The new, saferinstrument is expected to become a standard ofcare in vision correction surgery.

A p r i l M ay J u n e

■ Vanderbilt enters into a partnership with Cel-era Genomics, which gives the Universityaccess to vast resources of genomic data thatwere previously available only to industrial sub-scribers. As the first academic institution to gainaccess to Celera’s library, Vanderbilt will use thisinformation for the development of new thera-peutic and diagnostic tools to facilitate biomed-ical research and advance patient care.

■ The Vanderbilt Children’s Hospital celebratesthe groundbreaking of a nine-story, 565,000-square-foot hospital, which will have 206 inpa-tient beds and 16 operating rooms. The hospitalwill be named the Monroe Carell Jr. Children’sHospital at Vanderbilt.

� A sculpture called “The Tree of Learning” byartist Greg Wyatt is unveiled on Library Lawn.The 20-foot-tall, 10,000 pound bronze sculptureis the centerpiece of Vanderbilt’s “Garden ofGreat Ideas,” a collection of eight sculpturesplaced on campus over the last three years.

■ The School of Engineering hosts a ground-breaking ceremony at Jacobs Hall to mark thebeginning of a $28 million project to improve theeducational facilities and create a central gather-ing place for engineering faculty, students, andalumni. A portion of the new engineering facilityis named after William W. Featheringill in honorof his significant financial commitment for theproject.

■ The 2000 Black Graduates’ Recognition cere-mony is dedicated to the late Felix Boateng, for-mer director of the Bishop Joseph JohnsonBlack Cultural Center, who died in April.Boateng developed many innovative programsaimed at helping the University community bet-ter appreciate and understand cultural diversity.

10

1999/2000 1998/1999 1997/1998 1996/1997

S T U D E N T SUndergraduate 5,885 5,818 5,927 5,877Graduate and professional 4,242 4,292 4,364 4,376

Total fall enrollment 10,127 10,110 10,291 10,253

Undergraduate admissionsApplied 8,499 9,211 9,487 8,667Accepted 5,217 5,436 5,530 5,215Enrolled 1,633 1,495 1,514 1,545

Selectivity ratio 61.4% 59.0% 58.3% 60.2%Matriculation ratio 31.3% 27.5% 27.4% 29.6%

Degrees conferredBaccalaureate 1,370 1,417 1,399 1,322Master’s 1,016 967 980 880M.D. 109 96 105 100Other doctoral 371 364 396 407

Total degrees conferred 2,866 2,844 2,880 2,709

Undergraduate graduation rates 84.0% 81.2% 81.6% 81.2%

Undergraduate tuition rate $ 22,990 $ 21,930 $ 20,900 $ 19,920% increase over prior year 4.8% 4.9% 4.9% 5.6%

H O S P I T A L A N D C L I N I CLicensed beds 658 658 658 658Hospital admissions 32,151 31,349 30,011 28,496Hospital patient days 167,764 165,426 161,847 152,671Average daily census 458 453 443 418Average length of stay (days) 5.2 5.3 5.4 5.4Clinic outpatient visits 627,988 573,481 535,934 472,600Emergency room visits 57,604 57,210 50,110 45,599LifeFlight (helicopter) missions 1,657 1,558 1,279 889

FAC U LT Y A N D S TA F FFull-time faculty 1,924 1,815 1,828 1,779Full-time staff 11,131 11,292 10,417 9,799Part-time faculty 380 318 317 329Part-time staff 1,440 1,617 1,685 1,369

Total faculty and staff 14,875 15,042 14,247 13,276

M A NAG E D E N D OW M E N T F U N D SMarket value ($000) $ 2,314,935 $ 1,796,785 $ 1,507,001 $ 1,311,884Total return on endowment 31.9% 19.8% 17.0% 20.8%Endowment earnings utilized 3.5% 3.7% 3.7% 3.7%Endowment per student $ 228,590 $ 177,724 $ 146,439 $ 127,951

R E S E A R C H E X P E N D I T U R E S ( $ 0 0 0 )Federal $ 92,342 $ 85,545 $ 76,564 $ 70,914Non-federal 44,689 39,590 34,330 32,961Facilities and administrative costs recovery 46,397 40,060 37,775 34,514

Total research expenditures $ 183,428 $ 165,195 $ 148,669 $ 138,389

Statistical Highlights

Students. Enrollment for the 1999/2000 academic year

totaled 10,127 students. The matriculation rate increased

significantly to 31.3% in fall 1999, resulting in Vander-

bilt’s largest-ever freshman class.

Although applications decreased to 8,499 last year, they

rebounded to over 8,900 for fall 2000 undergraduate admis-

sions. As a result of increased applications, Vanderbilt’s

selectivity improved significantly in fall 2000.

Undergraduate graduation rates increased to 84.0%

(based on successful graduations within six years of ini-

tial enrollment).

Undergraduate tuition increased only 4.8% to $22,990

for the 1999/2000 academic year. The University announced

a tuition rate of $24,080 for the 2000/2001 academic year,

resulting in the smallest percentage increase in nearly 35

years.

Hospital and Clinic. In fiscal 2000, Vanderbilt admitted

32,151 hospital patients, served 627,988 outpatient visits,

and cared for 57,604 patients in its emergency room. Inpa-

tient admissions have increased an average of 4.1% per

year since 1997, while outpatient and emergency room

visits increased an annualized average of 9.9% and 8.1%

per year, respectively, during that same period.

Meanwhile, the average inpatient length of stay con-

tinues to decrease as technology advances, patient care

practices improve, and more procedures are performed

on an outpatient basis. Managed care also contributes

to decreasing lengths of stay. The average length of stay

for an inpatient visit decreased to 5.2 days in fiscal 2000,

compared to 7.2 days ten years ago.

Faculty and Staff. The University employed 14,875 regu-

lar and temporary faculty and staff in 2000, including those

employed in wholly-owned affiliated entities. This figure

excludes employees of joint ventures and over 1,100 clini-

cal and adjunct faculty not paid directly by Vanderbilt.

In fiscal 2000, the faculty headcount increased in the

School of Medicine and other areas to support efforts in

teaching, research, and patient care. The staff headcount

decreased, partially because of a decision to outsource the

University Bookstores in fiscal 2000. Additionally, posi-

tion eliminations in the hospital and Vanderbilt Health

Plans, Inc. contributed to the overall reduction in the staff

headcount.

Managed Endowment Funds. The market value of Van-

derbilt’s endowment totaled over $2.3 billion as of June

30, 2000. This amount does not include six million shares

of Ingram Micro, Inc. stock held for Vanderbilt by the

Ingram Charitable Fund. The University benefited from

outstanding endowment returns that have averaged more

than 21% per year over the last five years.Vanderbilt’s con-

servative spending policy also contributes to growth in

the endowment. In fiscal 2000, the endowment returns

totaled 31.9%, of which 3.5% were utilized to fund oper-

ations, scholarships, and other defined endowment spend-

ing. The Endowment Review section on page 24 of this

Financial Report discusses the endowment in greater detail.

Research Expenditures. Research expenditures have

increased a total of 32.5% since 1997. Sponsored research

and project awards, including multiple-year grants and

contracts, totaled $202.8 million in fiscal 2000.

11

Review of the Statistical Highlights

12

Vanderbilt has embarked on the largest building

campaign in its history. A coordinated plan

between the academic, health care, and ad-

ministrative areas allowed the University to identify cap-

ital projects in support of the mission and priorities of

the University. This plan also helped to determine pru-

dent funding strategies using a combination of debt, re-

serves, and philanthropy. The outcome was that almost

$500 million in new projects were approved, partially

funded by the issuance of $225 million in debt. Even with

the increased debt level, Vanderbilt maintained its Aa3

and AA credit ratings by Moody’s Investors Service and

Standard & Poor’s, respectively.

Significant projects currently underway are described

below.

� The Law School expansion, with an estimated cost of

$22.6 million, will include the addition of 57,000 square

feet and the renovation of a significant portion of the ex-

isting 105,000 square feet. The expansion and renovation

will create modern classroom spaces and a new practice

trial courtroom, expand and improve the library facili-

ties, and enhance common areas such as student lounges.

■ The Blair School of Music will undergo two phases of

expansion with an estimated cost of $23.5 million. Phase

I, recently completed, consisted of the addition of 40,700

square feet of instructional and rehearsal space including

classrooms, teaching studios, student practice rooms, and

a large rehearsal hall. Phase II will consist of 61,000 square

feet of new construction and 5,300 square feet of reno-

vations to the existing facility. Phase II will include con-

struction of a 620-seat performance hall with an orchestra

pit, dressing rooms, full staging capabilities, and new re-

hearsal, studio, and library space.

� The Biological Sciences Building/Medical Research Building

III (MRB III) project, with an estimated cost of $95 mil-

lion, includes new construction of approximately 300,000

square feet and renovation of 83,400 square feet of the ad-

joining Learned Lab Building. The new research building

is part of an interdisciplinary initiative involving neuro-

science, structural biology, genetics, and developmental bi-

ology. The building will contain faculty research laboratories,

teaching laboratories, and a shared lecture hall.

13

A Blueprint for Academic Excellence

� The Jacobs Hall (School of Engineering) renovation,

with an estimated cost of $28 million, includes the de-

molition of a middle wing and connecting corridors, and

construction of a new three-story, 92,400-square-foot

building. The project also includes renovations of over

76,100 square feet of space in Jacobs Hall east and west

wings.

� The Sarratt Student Center project, completed in April

2000 at an estimated cost of $11.4 million, consisted of

the renovation of approximately 59,000 square feet and

the addition of 21,000 square feet. The renovation and

expansion provided additional space for over 50 student

organizations, a significant amount of social gathering

space, study spaces, and meeting rooms.

� The Monroe Carell Jr. Children’s Hospital at Vanderbilt

project, with an estimated cost of $150 million, consists

of the construction of a new freestanding 565,000-square-

foot children’s hospital inpatient facility with 206 beds

and 16 operating rooms. The Children’s Hospital is being

designed from the ground up as a child-oriented setting

with a focus on “family-centered care.” The new Children’s

Hospital will provide easy access to all services for chil-

dren and their parents.

■ The Research Support Facility project, with an estimat-

ed cost of $14 million, consists of a two-story addition to

the top of Medical Center North’s Werthan Building. The

construction will create 35,000 square feet of space to sup-

plement the Medical Center’s growing research programs

in the MRB III facility to be located nearby.

14

A Blueprint for Academic Excellence Continued

� The Vanderbilt-Ingram Cancer Center project, with an

estimated cost of $14 million, consists of an eight-story,

59,800-square-foot addition to the existing Frances Williams

Preston Cancer Research Building. The new building will

provide a focal point for cancer research, patient care, and

education.

■ Memorial Gym will undergo two phases of renovation

and construction with an estimated cost of $21.3 million.

Phase I, now complete, consisted of renovations that up-

graded life-safety features; enhancements to seating, light-

ing, sound, and interior surfaces; and the addition of suites,

graphics, and other aesthetic improvements. Phase II will

add a new practice gym with three courts and new of-

fice space for men’s and women’s basketball.

■ The Steam Plant and Transformer project, with an es-

timated cost of $25.2 million, consists of the expansion

of the central steam and electric utility infrastructure. The

expansion will support the growth and renovation of

facilities planned by the University over the next several

years.

Vanderbilt has over 200 buildings spread across its 323-

acre campus. The University constantly looks to improve

the quality of its education, research, and patient care

through strategic investments in existing and new facili-

ties. Rather than taking a project-by-project approach,

Vanderbilt develops its capital funding strategies through

a consolidated assessment of the University’s debt capac-

ity, operating results, endowment returns, available re-

sources, and fund-raising opportunities. By combining

the academic and health care program facility needs with

a comprehensive capital strategic plan, Vanderbilt is de-

veloping a blueprint for academic excellence.

Judson Newbern

Associate Vice Chancellor for Campus

Planning & Construction and

Environmental Health & Safety

Bet ty Price

Controller and Assistant

Vice Chancellor for Finance

15

16

Vanderbilt University has nearly $500 million in

new building and renovation projects recently

completed or currently underway. These capi-

tal projects will greatly benefit the faculty and students of

the University, as well as the people of Middle Tennessee

who come to Vanderbilt for health care, cultural events,

and athletics. However, the University added more than

just bricks and mortar to its solid foundation. The Uni-

versity’s outstanding investment returns drove a net asset

increase of more than one-half billion dollars in fiscal

2000, as Vanderbilt ended the year with a record $3.3 bil-

lion in net assets.

Endowment returns reinvested and unrealized invest-

ment gains of $488.3 million were the major contributors

to net asset growth of $527.5 million in 2000. Vanderbilt’s

endowment investments generated an outstanding 31.9%

return rate—a sixth consecutive year of returns at or above

17%. As of June 30, 2000, the managed endowment exceed-

ed $2.3 billion. The Endowment Review section, begin-

ning on page 24 of this report, contains detailed information

on the investment strategies that resulted in this spectac-

ular growth.

The University reported operating results of $20.5 mil-

lion in fiscal 2000, with all major operating divisions achiev-

ing planned financial targets. This Discussion of Financial

Results will review the changes in total net assets and

the operating results in more detail.

Overview of Financial Position

During fiscal 2000, total assets increased by $756.8 mil-

lion to $4.3 billion. This increase was driven by managed

endowment growth of $518.1 million and the inclusion

of approximately $165 million of unspent bond proceeds

in investments.

Total liabilities increased by $229.3 million to $962.2

million. This increase primarily resulted from the issuance

of $225.0 million of variable-rate bonds during May 2000.

The bond proceeds will fund major facility projects out-

lined on pages 13–15 of this report. Of the proceeds from

this new debt issuance, almost $60 million were expend-

ed in fiscal 2000 to fund new facilities, additions, renova-

tions, and capital equipment.

Net Assets

Vanderbilt’s net assets totaled $3,311.9 million as of June

30, 2000, compared to $2,784.4 million in the prior

year. The University classifies all net assets and activities

as unrestricted, temporarily restricted, or permanently

restricted in accordance with generally accepted account-

ing principles (GAAP). These net asset classifications

recognize the legal availability of funds. Although the Uni-

versity considers all managed endowment to be “per-

manent,”only those funds specified by donors as permanently

restricted are in fact permanently restricted from a legal

and GAAP perspective. As illustrated in the graph below,

a large portion of Vanderbilt’s managed endowment is

“unrestricted” from a legal perspective, even though the

University operates as if all managed endowment funds

are permanently restricted.

Unrestricted net assets, which are not subject to donor-

imposed restrictions, totaled $2,630.2 million as of

Discussion of Financial Results

17

Temporarily restrictednet assets$228.5 million

Permanently restrictednet assets$453.2 million

Unrestrictednet assets$2,630.2 million

Managed endowment$2,314.9 million

Total Net Assets$3,311.9 million

June 30, 2000. These net assets include funds functioning

as endowment (quasi-endowment funds), returns on

investments, and all plant facilities and operating funds.

Temporarily restricted net assets are subject to donor-

imposed restrictions that will be met by actions of the

University or the passage of time. These consist primarily

of gift pledges and life income funds. As of June 30, 2000,

temporarily restricted net assets totaled $228.5 million,

including $134.5 million remaining from a gift pledged

by Martha R. Ingram and her family in fiscal 1999. The

remaining amount of the 1999 Ingram gift includes six

million undistributed shares of Ingram Micro, Inc. stock

valued at $104.6 million in contributions receivable. Por-

tions of the 1999 Ingram gift distributed to Vanderbilt

were expended for new projects or recognized separate-

ly as permanently restricted net assets for scholarships

and professorships.

Permanently restricted net assets totaling $453.2

million as of June 30, 2000, are subject to permanent

donor-imposed restrictions. These include gifts in which

the donors stipulate that the corpus must be held in

perpetuity and only the income can be made available for

operations.

Managed endowment assets totaling $2,314.9 mil-

lion consisted of a) $1,930.3 million of unrestricted funds

functioning as endowment and unrealized gains on invest-

ments; and b) $384.6 million of permanently restricted

endowment funds designated as such by specific donors.

As of June 30, 2000, the managed endowment did not

include the temporarily restricted portion of the 1999

Ingram gift described above.

Gifts, trusts, and pledges totaling $433.1 million include

pledges receivable, gift annuities, and gifts that may be

expended solely along lines designated by the donors.

Once a pledge has been collected, the net assets resulting

from that gift generally are reflected separately as man-

aged endowment, plant facilities, or amounts designat-

ed for operations.

Net assets designated for plant facilities totaled $464.9

million based on the historical costs of plant facilities

less depreciation and related outstanding debt. Net assets

of $99.0 million designated for operations consist of

departmental operating funds and amounts reserved for

future facility and equipment renewals.

Summary of Increase in Net Assets

Vanderbilt’s total net assets increased by $527.5 million

in fiscal 2000. As noted in the chart to the right, the

increase in net assets can be attributed primarily to

endowment return reinvested and net unrealized gains

on investments. The operating results, gifts, and dis-

continued operations are discussed further within this

Discussion of Financial Results.

Discussion of Financial Results Continued

18

Net Assets as of June 30(in millions)

Temporarily Permanently Total TotalUnrestricted Restricted Restricted 2000 1999

Managed Endowment $ 1,930.3 $ — $ 384.6 $ 2,314.9 $ 1,796.8

Gifts, Trusts, and Pledges 136.0 228.5 68.6 433.1 467.5

Designated for Plant Facilities 464.9 — — 464.9 447.3

Designated for Operations 99.0 — — 99.0 72.8

Total Net Assets $ 2,630.2 $ 228.5 $ 453.2 $ 3,311.9 $ 2,784.4

Summary of Revenues and Expenses

The Summary of Revenues and Expenses (see right) com-

bines operating and non-operating revenues and expens-

es in a consolidated format. This summary also combines

all activity from the unrestricted, temporarily restricted,

and permanently restricted net asset categories.

Health care services revenues increased 12.3% from

the prior year, while health care services expenses increased

only 10.7%—resulting in a positive impact to operating

results.

Gifts and contributions decreased from the prior year

due to $236.5 million of the 1999 Ingram gift being rec-

ognized in fiscal 1999, while a $49.9 million unrealized

loss in the value of the six million undistributed shares of

Ingram Micro, Inc. stock was recognized in fiscal 2000.

Operating Revenues and Expenses

As noted above, the Summary of Revenues and Expenses

combines operating and non-operating revenues and expens-

es. However, the Statements of Activities on page 29 sepa-

rate operating and non-operating activities. Only the

operating activities are discussed below.

Out of $1,786.6 million in total revenues, $1,279.6

million are considered operating revenues. Operating

expenses totaled $1,259.1 million—resulting in an oper-

ating surplus of $20.5 million.

The fiscal 2000 operating surplus of $20.5 million

compares favorably to the prior year operating results of

$2.0 million. Most of this increase can be attributed to

aggressive cost-cutting and revenue enhancement strate-

gies at the Medical Center as described in more detail

on page 20.

The following graphs illustrate that 57% of the Uni-

versity’s operating revenues and 54% of the University’s

operating expenses result from health care activities.

Another component on the revenue graph, “Govern-

ment, primarily research grants,” includes revenue for the

reimbursement of direct and facilities and administrative

(F&A) costs on research grants. The federal F&A cost recov-

ery rate for on-campus research was 52.0% in fiscal 2000.

The University negotiated F&A cost recovery rates of 51.5%

for fiscal years 2001 and 2002, and 51.0% for fiscal years

2003 and 2004.

19

Summary of Revenues and Expensesoperating and non-operating activity in all net asset categories(in millions)

2000 1999

REVENU ES

Net tuition, fees, room, and board $ 177.7 $ 170.0

Government grants and contracts 168.3 151.6

Gifts, private grants, and contributions 81.2 334.2

Investment income and realized gains 484.4 209.0

Net unrealized gains on investments 95.1 103.3

Health care services 723.9 644.5

Auxiliary services and other 56.0 63.9

Total Revenues 1,786.6 1,676.5

EXPENSES

Instruction, departmental research, and other related programs 199.4 196.6

Sponsored research 149.8 139.9

Health care services 679.1 613.5

Academic support 69.6 64.9

Institutional support 59.0 53.5

Student support services 20.8 19.6

Auxiliary services and other 81.4 91.2

Total Expenses 1,259.1 1,179.2

Actual and estimated future losses fromdiscontinued operations — (63.4)

Total Increase in Net Assets $ 527.5 $ 433.9

Summary of Increase in Net Assets(in millions)

2000 1999

Operating results $ 20.5 $ 2.0

Restricted gifts and non-operating activities 18.7 270.0

Endowment return reinvested 393.2 122.0

Net unrealized gains on investments 95.1 103.3

Actual and estimated future losses from discontinued operations — (63.4)

Total Increase in Net Assets 527.5 433.9

Ending Balance of Net Assets $ 3,311.9 $ 2,784.4

Operating Expenses by Type

The University constantly evaluates expenses in light of its

primary goal and purpose—achieving excellence in teach-

ing, research, patient care, and public service. Operating

expenses grew by a modest 6.8% from the prior year to

total $1,259.1 million. Growth in salaries and wages, as

well as other operating expenses, was fueled by volume and

cost increases in patient care, increased research activity,

and technology investments. Vanderbilt’s salaries, wages,

and fringe benefits totaled $751.1 million and constituted

59.7% of total operating expenses.

Medical Center

“Cuts by government and private insurers have created

a crisis for many of the nation’s 300 major academic med-

ical centers, traditionally home to the best medical researchers

and specialists in the U.S. Forty percent of teaching hos-

pitals will be losing money on patient-care activities by

2005…” according to a recent front page article in the Wall

Street Journal.

Losses incurred from serving TennCare patients at

Vanderbilt have ranged from $15 to $20 million each year

since 1997. Likewise, the 1997 Budget Reconciliation

Act costs Vanderbilt millions of dollars each year in reduced

Medicare reimbursements. Although the Balanced Bud-

get Relief Act of 1999 will offset some of the 1997 Medicare

reimbursement cuts, the estimated negative impact of the

Medicare reductions at Vanderbilt will still total over $35

million for the five-year period from 1999 to 2003.

Fortunately, Vanderbilt has thus far withstood the

maelstrom facing the nation’s academic medical cen-

ters. Through proactive management and creative strate-

gies,Vanderbilt’s medical center generated positive operating

results in fiscal 2000.

As part of ongoing financial improvement efforts, the

Medical Center implemented initiatives to enhance rev-

enues and reduce costs. The University opened new facil-

ities for the Vanderbilt Heart Institute and a new ambulatory

surgical suite primarily for orthopaedic surgery. The new

Monroe Carell Jr. Children’s Hospital at Vanderbilt, sched-

uled to open in 2003, will provide increased capacity for

inpatient, outpatient, and intensive care patients, as well

as expanded education and playroom capabilities.

Meanwhile, over 100 positions were eliminated in other

targeted areas. Expense reductions will not have a nega-

tive impact on research, education, or patient care activ-

ities. Rather, an increased focus on core missions of the

Medical Center will enhance overall effectiveness over the

long term.

Discussion of Financial Results Continued

20

Salaries, wages& benefits$751.1 million

Professionalservices$65.3 million

Supplies & other$253.3 million

Facilities$189.4 million

Operating Expenses by Type$1,259.1 million

Health care57%

Students, netof financial aid14%

Government, primarilyresearch grants13%

Gifts andendowment support11%

Other5%

Operating Revenues by Source$1,279.6 million

Health care54%

Instruction and otherstudent services26%

Research12%

Support5%Other

3%

Operating Expenses by Function$1,259.1 million

As part of the effort to focus on Vanderbilt’s core mis-

sions, negotiations are underway to divest the Universi-

ty’s interest in Vanderbilt Health Plans, Inc. (VHP), which

had operating losses of $28.9 million in fiscal 1999 and

$9.8 million in fiscal 2000. The fiscal 2000 and estimat-

ed future losses were recognized in fiscal 1999 with the

establishment of a reserve for discontinued operations.

In July 2000, VHP announced that it would discontinue

its Health 1-2-3 Platinum health care plan as of Decem-

ber 31, 2000. Also, in September 2000, VHP signed letters

of intent to transition its Health 1-2-3 commercial group

participants to large managed-care provider United-

Healthcare and sell the TennCare component through a

management-led buyout.

Such proactive strategies combined with strong man-

agement and exceptional faculty and staff have contributed

to impressive positive operating results at Vanderbilt in a

challenging health care environment where multi-million

dollar losses elsewhere are common.

Vanderbilt’s Strengths and Challenges

The University’s financial well-being depends upon its

core strengths. A superlative spirit of interdisciplinary

cooperation among faculty, students, staff, and admin-

istration drives Vanderbilt’s competitive advantage. The

University benefits from prudent administrative and finan-

cial management aligned with the academic and health

care missions.

Vanderbilt’s wide-ranging research, patient care spe-

cialties, and academic programs are among the best in the

country. These many dynamic programs result in diverse

revenue sources. This revenue diversity allows Vanderbilt

to target specific market opportunities in some areas while

withstanding challenges in others. As a result, research-

funding awards continue to increase at a rate greater than

the growth in federal research budgets.

Meanwhile, the composition of the student body shows

great diversity. Of a total enrollment exceeding 10,000, all

50 states and 91 countries are represented. Further-

more, minority enrollment has risen to 18%.

These factors help Vanderbilt distinguish itself as one

of the nation’s elite universities, as illustrated by the many

highly ranked programs in the most recent U.S. News &

World Report top 25 listings. These rankings include the

undergraduate program (22nd), and the graduate schools

in education (6th), medicine (16th), law (18th), and busi-

ness (24th).

In addition, Vanderbilt’s medical center was listed in

July 2000 among the nation’s top 50 hospitals and med-

ical centers in 11 specialty areas: kidney disease; ear, nose,

and throat; hormonal disorders; respiratory disorders;

urology; orthopaedics; gynecology; heart; cancer; neu-

rology; and digestive disorders.

Vanderbilt has many strengths, but is not immune

to the challenges that face universities and academic med-

ical centers. Several key health care challenges are noted

above. Meanwhile, private universities are faced with

the challenge of containing rising tuition costs to attract

and retain the best students. Further, Vanderbilt must find

ways to quickly and effectively integrate new technologies

into traditional learning environments.

For Vanderbilt to continue its move into the highest

echelon of colleges and universities, additional gifts for

endowed scholarships and faculty chairs will be essential.

Vanderbilt’s endowment ranks well behind most of the

top private universities despite several years of strong

endowment returns.

Summary

Vanderbilt had another notable financial year. We earned

an outstanding 31.9% return on the endowment—truly

remarkable given the volatility of the stock market in early

2000. We successfully implemented strategic and tacti-

cal changes to better position ourselves in a difficult health

21

22

care market. As a result,Vanderbilt experienced an increase

in operating results in fiscal 2000—an indication of sound

financial management.

In May 2000, Moody’s Investors Service and Standard

& Poor’s re-affirmed our healthy credit ratings of Aa3 and

AA, respectively. These ratings are based on strong lev-

els of financial resources that provide long-term flexi-

bility; national name recognition and healthy student

demand; manageable debt levels; and proven manage-

ment efforts to enhance revenues and reduce expenses.

At Vanderbilt, we are building upon a strong founda-

tion laid by the extraordinary efforts of faculty, staff,

students, and donors. We anticipate even greater achieve-

ments under the leadership of our new Chancellor, E.

Gordon Gee, in the coming years.

Lauren J. Brisky

Vice Chancellor for Administration

and Chief Financial Officer

Discussion of Financial Results Continued

Viability Ratio

The viability ratio measures one of the most basic determinants of clear fi-

nancial health: the availability of expendable net assets to cover debt should

the University need to settle its obligations as of June 30, 2000. “Expendable

Net Assets” are all unrestricted and temporarily restricted net assets other than

plant equity. Plant equity is defined as all property, plant, and equipment, net

of total outstanding associated debt. A ratio of 1.00 or greater indicates an in-

stitution has sufficient expendable net assets to satisfy debt requirements.

At Vanderbilt: The drop in this ratio resulted from the issuance of $225 million

in new debt during May 2000. This ratio is still considered strong, as only about

one-fifth of Vanderbilt’s expendable net assets would be used if all long-term debts

were required to be satisfied on June 30, 2000.

Primary Reserve Ratio

The primary reserve ratio measures financial strength and flexibility by indi-

cating how many years the University could operate using its expendable

resources without relying on additional net assets generated by operations. A

ratio of 1.00 denotes that an institution would have the ability to cover its ex-

penses for one year without a revenue stream.

At Vanderbilt: Significant growth in unrestricted net assets has been driven by

reinvested endowment returns. This, combined with limited growth in operat-

ing expenses, contributed to improvement in the primary reserve ratio. Vanderbilt

has the ability to maintain its existing level of continuing operations for over two

years without generating additional revenues.

Debt Coverage Ratio

The debt coverage ratio measures the ability to cover debt service require-

ments from continuing operations. The change in unrestricted net assets from

operating activities is adjusted for depreciation and interest expense. This ad-

justment results in the “Unrestricted Operating Surplus” that is available to

make required principal and interest payments.

At Vanderbilt: This ratio benefited from improved operating results and the fact

that the issuance of new debt did not occur until May 2000. The University has

sufficient unrestricted operating resources available to meet its debt burden should

economic conditions change.

The following ratio analysis supplements the Discussion of Financial Results by providing additional measures of

the University’s financial health and flexibility.

Financial Ratios

23

Expendable Net AssetsLong-term Debt

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

5.09 4.93

4.34

6.24

1997 1998 1999 2000

Expendable Net AssetsTotal Operating Expenses

2.50

2.00

1.50

1.00

0.50

0.00

2.08

1.54

1.37

1.68

1997 1998 1999 2000

Unrestricted Operating SurplusRequired Debt Service

6.00

5.00

4.00

3.00

2.00

1.00

0.00

4.744.88

4.31

3.77

1997 1998 1999 2000

Revenge of the Nerds

In recent years, it has become fashionable to question the

wisdom of holding diversified portfolios since most of the

action has been in large capitalization U.S. growth stocks.

As is always the case, the pressure to abandon a sensible

investment strategy hit its peak just at the time that diver-

sification was about to pay off. For the five-year period

ending in June 1999, the annual return on the S&P 500

Index was 27.9% and the technology-laden NASDAQ

earned 30.6%. In comparison, the Russell 2000 Index of

smaller stocks earned 15.3% while the EAFE Index of

stocks in the developed markets outside the U.S. managed

only an 8.6% return. U.S. bonds inhabited the cellar with

a paltry return of 7.8% per annum. No wonder some

endowments and many individual investors chose to

cut back or abandon their exposure to small cap stocks,

non-U.S. equities, bonds, and some other categories!

Not surprisingly, many plausible rationalizations were

developed to justify concentration in large cap U.S. stocks.

“The U.S. is the world’s growth engine, so why bother to

invest elsewhere?” “In a global economy, only large

companies will be competitive, so why own small cap

stocks?”“Bonds always produce inferior returns, so why

should an endowment hold them?”“As a perpetual fund,

shouldn’t we be able to take more risk?”

The winds shifted dramatically in fiscal 2000 as the

S&P 500 underperformed small cap stocks, foreign stocks,

real estate, timber, and many other categories. In other

words, diversification finally was rewarded. More impor-

tantly, both financial theory and empirical evidence demon-

strate that diversified portfolios provide a superior balance

between risk and return over time. Because of our bal-

anced approach to investing, the Vanderbilt Endow-

ment has not suffered a negative annual return since fiscal

1974. Additionally, our fund has enjoyed an average annu-

alized return during the past ten years of 15.7% with a

standard deviation of 10.6%. In comparison, a plain vanil-

la portfolio consisting of 75% U.S. stocks and 25% U.S.

Endowment Review

24

bonds earned 15.1% with a standard deviation of 11.3%.

In other words, our fund earned a higher rate of return

with less risk. Now that is a great combination!

As depicted in the pie chart below, the endowment

is highly diversified with significant allocations to non-

marketable investments such as venture capital and to

inflation hedges such as real estate, timber, energy, and

Treasury Inflation Protected Securities. Computer simu-

lations suggest that this mix should generate a long-term real

or after-inflation return of approximately 7.7% with a stan-

dard deviation of 11.0%. Given annual spending of approx-

imately 4.5%, this return should allow the real value of the

corpus to grow by at least 3% per year with a risk/return rela-

tionship that is vastly superior to traditional stock/bond struc-

tures.While our balanced approach may be “nerdy,” we have

long believed that you win in the investment business by

earning reasonable returns while avoiding disasters.

Fiscal 2000 in Review

Fiscal 2000 was a terrific year for diversified endowment

funds with significant allocations to “non-traditional”

investments such as small capitalization stocks, interna-

tional stocks, and venture capital. U.S. stocks and bonds

provided positive but unexciting returns of 7.5% and 4.6%,

respectively. In contrast, the Russell 2000 Index of small-

er stocks returned 14.3% while stocks in developed coun-

Timber & Energy1%

Absolute ReturnStrategies14%

Bonds15%U.S. Equities

25%

Non-U.S. Equities11%

EmergingMarket Equities6% Venture Capital

21%

Real Estate3%

Treasury InflationProtected Securities4%

Endowment Asset Allocationsas of June 2000

tries outside the U.S. earned 17.2%. But, the real story

of the year was venture capital, which was a significant

beneficiary of the technology boom. Fiscal year return

data on venture partnerships will not be available for some

time, but a good indication is the return on the Venture

Economics Index for calendar 1999 that was 146.2%.

The Vanderbilt Endowment enjoyed a strong year in

both absolute and relative terms ending with a market

value exceeding $2.3 billion. We earned a total return on

the fund of 31.9% which compares with the 11.8% return

on a blend of market indices designed to mirror the struc-

ture of our portfolio. In other words, we outperformed

the indices by 20.1%, which represents approximately

$355 million. We also compare our return to a Cambridge

Associates universe of endowments and foundations with

assets in excess of $1 billion. Fiscal-year data on this

universe is not yet available, but our returns for the 1, 3,

5, and 7 years ending in March 2000 were in the top quar-

tile of this universe of 50 institutions. This is a very com-

petitive universe as illustrated by the fact that the mean

annual return earned by these institutions over the past

five years is 2% greater than the average of Cambridge’s

much broader universe of 270 endowment funds.

As is always the case, several components of the fund

performed very well while others lagged their respective

benchmarks. This year, U.S. equities, global equities, emerg-

ing market equities, and our non-marketable portfolio

beat their benchmarks by amounts ranging from 1.7%

to 116%. On the other hand, international equities, absolute

return, and bonds lagged by 3.1%, 19.1%, and 1.7%, respec-

tively. The underperformance of our international equity

and bond portfolios is not of concern because we have out-

performed the indices over longer periods. However, as a

result of consistent underperformance in the absolute

return segment, we restructured this category in the first

quarter of calendar 2000. Our return of 3.4% for the June

quarter as compared to the 3.7% return on the benchmark

gives us hope that we are on the right track.

The annual payout to the University’s operating bud-

get for fiscal 2000 was $2.452 per unit, a 14.7% increase

over the prior year. For fiscal 2001, the payout will be $2.923

per unit, which represents a further increase of 19.2%.

The Private Equity Dilemma

In last year’s Endowment Review, I expressed concern that

the U.S. was in the midst of a stock mania. That has now

been replaced by a venture capital mania as demon-

strated by the fact that investors committed more than

$46 billion to venture capital firms in 1999 as compared

$0

$500

Fiscal Year

$1,000

$1,500

$2,000

$2,500

20001999199819971996199519941993199219911990198919881987198619851984

Total Endowment Market Value(in millions)

Endowment Market Value vs. Payout Per Unit(in constant 1985 dollars)

25

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Endowment

Market Value

$400

$200

$0

$600

$800

$1,000

$1,200

$1,400

$1,600

2000

$.50

$0

$1.00

$1.50

$2.50

$3.00

$3.50

$4.50

$4.00

$2.00

Payout

Per Unit

(in m

illio

ns)

Endowment Market Value

Payout Per Unit

Fiscal Year

to $28 billion the prior year. Even more astonishing is the

fact that commitments totaled more than $49 billion in

the first half of 2000. As recently as 1990, annual com-

mitments were less than $4 billion. Another indicator of

the popularity of this asset class is the fact that venture

capital invested in the U.S. currently equals 1% of the gross

domestic product (GDP) versus 0.5% only two years ago.

In Germany, the comparable figure is 0.1%, while invest-

ment in the U.K. is more similar to the U.S. level at 0.55%.

Finally, there are currently more than 200 private equity

funds in the marketplace attempting to raise money from

institutional investors.

Typically, a surge of interest in a particular investment

category is an omen of poor future returns. On the other

hand, our venture capital partners tell us that they have

never seen as many exciting opportunities. And, while val-

uations have increased, private market multiples have not

risen as fast as those of public securities.

We are coping with this dilemma in the same way that

we always deal with uncertainty, by sticking to our knit-

ting. We are generally not establishing new relationships

with private equity firms since our excellent returns have

resulted in an increase in our current weighting beyond

the target allocation. Instead, we are reinvesting with our

current partners and harvesting the gains that we have

enjoyed. While returns will certainly moderate in the pri-

vate equity world, we are invested with elite firms that

should continue to outperform other firms and provide

returns that exceed those on marketable securities.

William T. Spitz

Vice Chancellor for Investments

and Treasurer

Endowment Review Continued

26

F i n a n c i a l

S tat e m e n t s

2000 1999A S S E T S

Cash and cash equivalents $ 199,140 $ 186,206Accounts receivable 207,801 182,388Prepaid expenses and other assets 77,885 72,681Contributions receivable 187,279 204,462Student loans receivable 35,423 36,447Investments 2,744,537 2,085,567Property, plant, and equipment 773,242 714,656Interest in trusts held by others 48,882 34,981

Total assets 4,274,189 3,517,388

L I A B I L I T I E SAccounts payable and accrued expenses 335,232 335,717Current portion of long-term debt 12,022 8,090Deferred revenues 34,653 27,157Actuarial liability of annuities payable 46,911 42,071Government advances for student loans 14,319 13,826Long-term debt, net of current portion 519,109 306,131

Total liabilities 962,246 732,992

N E T A S S E T SUnrestricted:

Designated for operations 99,024 72,799Designated gifts 107,310 97,707Designated for student loans 26,632 26,959Funds functioning as endowment 1,424,482 1,022,944Unrealized gains on investments 507,946 424,683Designated for plant facilities 464,873 447,316

Total unrestricted net assets 2,630,267 2,092,408

Temporarily restricted:Externally restricted gifts and pledges 205,162 247,796Interest in trusts held by others 6,419 8,201Life income and gift annuities 16,932 13,111

Total temporarily restricted net assets 228,513 269,108

Permanently restricted:True endowment 384,594 364,938Interest in trusts held by others 42,463 26,780Life income and gift annuities 26,106 31,162

Total permanently restricted net assets 453,163 422,880

Total net assets 3,311,943 2,784,396

Total liabilities and net assets $ 4,274,189 $ 3,517,388

The accompanying notes are an integral part of the financial statements.

Statements of Financial PositionAs of June 30, 2000 and 1999ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

28

2000 1999O P E R AT I N G R E V E N U E S

Tuition and educational fees $ 215,332 $ 202,749 Room and board 31,937 30,326Less financial aid (69,528) (63,058)

Net tuition, fees, room, and board 177,741 170,017Government grants and contracts 119,638 109,428Facilities and administrative costs recovery 48,698 42,163 Gifts, private grants, and contributions 57,892 60,603 Endowment income 69,089 58,598Investment income 17,762 22,148 Health care services 723,931 644,465 Auxiliary services 40,944 48,299 Other sources 14,992 14,097 Net assets released from restrictions 8,954 11,328

Total operating revenues 1,279,641 1,181,146

O P E R AT I N G E X P E N S E SInstruction, departmental research, and other related programs 199,437 196,573Sponsored research 149,837 139,912Health care services 679,129 613,472Academic support 69,629 64,928Institutional support 58,982 53,469 Student support services 20,822 19,565Public service 10,753 11,401Auxiliary services 70,602 79,838

Total operating expenses 1,259,191 1,179,158Change in unrestricted net assets from operating activities 20,450 1,988

N O N - O P E R AT I N G I T E M S A N D D I S C O N T I N U E D O P E R AT I O N SGifts and contributions for plant facilities 7,331 7,023Net assets released from restrictions 28,406 14,903Endowment return reinvested 393,208 121,960Net unrealized gains 88,464 98,095Other changes and non-operating activities — 1,479Operating losses from discontinued operations held for sale — (28,921)Estimated loss on future operations and sale of discontinued operations — (34,500)

Change in unrestricted net assets from non-operating itemsand from discontinued operations 517,409 180,039

Increase in unrestricted net assets 537,859 182,027

Changes in temporarily restricted net assetsContributions and other additions 45,430 210,895Net unrealized loss on contributions receivable (49,875) —Endowment income 1,796 1,509Investment income 1,473 947Net unrealized gains (losses) (2,059) 347Net assets released from restrictions (37,360) (26,231)

Increase (decrease) in temporarily restricted net assets (40,595) 187,467

Changes in permanently restricted net assetsContributions and other additions 20,548 55,676Endowment income 120 187Investment income 927 3,657Net unrealized gains 8,688 4,836

Increase in permanently restricted net assets 30,283 64,356

Increase in total net assets $ 527,547 $ 433,850Net assets at beginning of year 2,784,396 2,350,546Net assets at end of year $ 3,311,943 $ 2,784,396

The accompanying notes are an integral part of the financial statements.

Statements of ActivitiesYears Ended June 30, 2000 and 1999ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

29

2000 1999

C A S H F L OW S F R O M O P E R AT I N G AC T I V I T I E S

Increase in total net assets $ 527,547 $ 433,850Adjustments to reconcile increase in total net assets to net cash

provided by operating activities:Nonoperating items

Gifts for plant expansion and endowment (47,860) (82,675)Net realized investment gains (404,227) (142,917)

Noncash itemsDepreciation and amortization 74,417 70,591Provisions for doubtful accounts 44,232 41,964Net unrealized investment gains (95,093) (103,278)Present value adjustment on annuities payable 4,840 2,965Interest in trusts held by others (13,901) (2,489)

Discontinued operationsEstimated loss from discontinued operations — 34,500Incurred losses ($9,845 total less $1,761 depreciation) (8,084) —

Change in operating assets and liabilities(Increase) decrease in:

Accounts receivable (62,568) (87,628)Prepaid expenses and other assets (5,204) 4,563Contributions receivable 10,249 (140,062)

Increase (decrease) in:Accounts payable and accrued expenses 9,360 34,469Deferred revenues 7,496 (2,229)Government advances for student loans 493 544

Net cash provided by operating activities 41,697 62,168

C A S H F L OW S F R O M I N V E S T I N G AC T I V I T I E S

Purchases of investments (3,536,041) (2,051,922)Proceeds from the sale of investments 3,376,391 2,065,593Acquisitions of property, plant, and equipment (137,885) (106,297)Disposals of property, plant, and equipment 3,121 443Student loans disbursed (3,975) (4,771)Principal collected on student loans 4,856 4,862

Net cash used in investing activities (293,533) (92,092)

C A S H F L OW S F R O M F I NA N C I N G AC T I V I T I E S

Gifts for plant expansion and endowment 47,860 82,675Proceeds from the issuance of bonds 225,000 —Payments to retire or defease debt (8,090) (38,213)

Net cash provided by financing activities 264,770 44,462

Net increase in cash and cash equivalents $ 12,934 $ 14,538

Cash and cash equivalents at beginning of year 186,206 171,668

Cash and cash equivalents at end of year $ 199,140 $ 186,206

The accompanying notes are an integral part of the financial statements.

Statements of Cash FlowsYears Ended June 30, 2000 and 1999ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

30

1. REPORTING ENTITY

The Vanderbilt University is a private, not-for-profit, research university ofapproximately 5,900 undergraduate and 4,200 graduate students. Foundedin 1873, the University comprises ten schools: the College of Arts and Science,the Graduate School, and eight professional schools (law, medicine, nursing,education and human development, engineering, divinity, management, andmusic). Vanderbilt also serves the community through its medical center andan institute for public policy studies. The Chancellor and the Board of Trust,the governing board of the University, have oversight responsibility for all ofthe University’s financial affairs.

These consolidated financial statements include the accounts of all enti-ties in which the University has a significant financial interest and over whichthe University has control. All significant intercompany accounts and transac-tions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and AccountingThe financial statements of the University have been prepared in accordancewith generally accepted accounting principles. Accrual basis financial state-ments prepared in conformity with generally accepted accounting principlesinclude managerial estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilities atthe date of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results ultimately could differfrom those estimates.

For purposes of not-for-profit accounting the University classifies resourcesinto three net asset categories according to donor-imposed restrictions. Thethree net asset categories are unrestricted, temporarily restricted, and perma-nently restricted.

Unrestricted net assets are free of donor-imposed restrictions. All expens-es, revenues, gains, and losses that are not temporarily or permanently restrict-ed by donors are included in this classification. The University has chosen toprovide further classification information about unrestricted net assets on theStatements of Financial Position. The six sub-classifications of unrestricted netassets are as follows:

Designated for Operations: Composed of the cumulative budgeted operat-ing activity of the University and routine equipment replacement reserves.

Designated Gifts: Composed of departmental gift funds.

Designated for Student Loans: University funds set aside to serve as revolv-ing loan funds for students.

Funds Functioning as Endowment: Amounts set aside by the Board of Trust,intended to generate income in perpetuity to support operating needs. Suchamounts include substantially all cumulative realized gains on endowed invest-ments.

Unrealized Gains on Investments: Unrealized net gains on marketable invest-ments. Most of these unrealized gains are attributable to funds functioning asendowment.

Designated for Plant Facilities: Net investment in property, plant, and equip-ment, as well as funds designated for future acquisitions of plant facilitiesand retirement of debt.

Temporarily restricted net assets are limited as to use by donor-imposedstipulations that expire by the passage of time (unconditional pledges sched-uled for receipt at future dates, interest in trusts held by others, and life incomeand gift annuities) or that can be fulfilled by action of the University pursuantto those stipulations.

Permanently restricted net assets are amounts required by donors to be heldin perpetuity. The income on these assets generally is available for opera-tions. These net assets include true endowment, interest in trusts held by oth-ers, and life income and gift annuities.

Cash and Cash EquivalentsCash and cash equivalents, consisting primarily of money market mutual funds,maturing in 45 days or less, checking accounts, and cash, are carried at marketvalue, which approximates cost.

InvestmentsInvestments are stated at fair value, based primarily on market quotes, exceptfor real estate and mortgages that are stated at cost. Purchases and sales of secu-rities are recorded on the trade dates, and realized gains and losses are deter-mined on the basis of the average cost of the securities sold. Net receivables andpayables arising from unsettled trades by investment managers are reported asa component of investments. All true endowment investments and long-term net assets functioning as endowments are carried in an investmentpool, unless special considerations or donor stipulations require that they beheld separately.

The University employs a total return endowment spending policy thatestablishes the amount of endowment investment return distributed to sup-port current operational needs. This policy is designed to insulate operationalprograms from capital market fluctuations and increase the amount of returnthat is reinvested in the corpus of funds in order to enhance its long-term value.

Under this policy, endowment income distributions are based on a per-centage of the previous three years’ average year-end market values. Actualendowment income earned in excess of the distribution under this spendingpolicy is reinvested as part of the managed endowment. Endowment returnreinvested is reported as a non-operating item in the Statements of Activities.

Should a current year’s endowment income distribution under the afore-mentioned policy exceed current year actual interest and dividend earnings,realized gains and/or investment earnings from prior years would supplementthe actual earnings.

Interest, dividends, and realized net gains on long-term investments arereported:

• as increases in permanently restricted net assets if the terms of a gift requirethat they be added to the principal of a true endowment;

• as increases in temporarily restricted net assets if the terms of a gift imposerestrictions on the use of the income or net gains; and

• as increases in unrestricted net assets in all other cases.

Other Financial InstrumentsRecorded amounts for receivables, prepaid expenses and other assets, accountspayable, and variable-rate debt approximate fair value.

The University employs limited use of derivatives. The most common useoccurs in the management of a fixed income portfolio by an endowment man-ager who utilizes futures and collateralized mortgage obligation (CMO) bonds.

Life Income, Gift Annuities, Interest in Trusts Held by OthersThe University’s split-interest agreements with donors consist primarily ofirrevocable charitable remainder trusts, charitable gift annuities, and life incomefunds for which the University serves as trustee. Assets held in these trusts areincluded in investments. Contribution revenues are recognized at the dates thetrusts are established, after recording liabilities for the present value of the esti-mated future payments to be made to the donors and/or other beneficiaries.The liabilities are adjusted annually for changes in the value of the assets, accre-tion of the discount, and other changes in the estimates of future benefits.

The University is also the beneficiary of certain perpetual trusts held andadministered by others. These trust assets are recorded at fair value as interestin trusts held by others. The carrying value of the assets is adjusted annuallyfor changes in market value.

31

Notes to the Financial StatementsJune 30, 2000 and 1999

Property, Plant, and EquipmentPurchased property, plant, and equipment are recorded at cost, including, whereappropriate, capitalized interest. Donated assets are recorded at fair marketvalue at the date of donation. Additions to the library collection are expensedat the time of purchase.

Depreciation is calculated by the straight-line method at rates estimated toallocate the cost of various classes of assets over their estimated useful lives.Equipment is removed from the accounting records at the time of disposal.

Costs of developing internally used software applications are capitalized inaccordance with the guidelines of American Institute of Certified Public Accoun-tants Statement of Position 98-1.

Government Advances for Student LoansGovernment revolving loans to qualified students are funded principallywith federal advances to the University under the Perkins, Nursing, and HealthProfessions Student Loan Programs. These advances of federal funds areclassified as liabilities.

ContributionsUnconditional promises to give (pledges) are recognized as contribution rev-enue when the donor’s commitment is received. Conditional promises are notrecorded until donor stipulations are substantially met. Unconditional promis-es to give, with payments due in future periods, are recorded as increases in tem-porarily restricted or permanently restricted net assets at the estimatedpresent value of future cash flows, net of an allowance for estimated uncollectiblepromises.

Contributions with donor-imposed restrictions are recorded as operatingrevenue if those restrictions are met in the same reporting period. Otherwise,contributions with donor-imposed restrictions are recorded as increases intemporarily restricted or permanently restricted net assets, depending on thenature of the restriction.

Contributions recorded as temporarily restricted net assets are released fromrestrictions and recognized as unrestricted net assets upon receipt of the giftor expiration of the time restriction, and after any donor stipulations aremet. Gifts for plant facilities are released from restrictions and recognized asnon-operating only after resources are expended for the plant facilities.

Contributions receivable of marketable securities are stated at the fair valueof the underlying securities with significant changes in fair value separatelyreported as a non-operating item in the Statements of Activities.

Income TaxesThe University is a tax-exempt organization as described in Section 501(c)(3)of the Internal Revenue Code and is generally exempt from federal income taxespursuant to Section 501(a) of the Code.

Operating ResultsOperating results in the Statements of Activities reflect all transactions that changeunrestricted net assets, except those items associated with long-term investments.In accordance with the University’s total return endowment spending policy, aspreviously described, only the portion of total investment return available underthis policy to meet operating needs is included in operating revenues.

The University’s primary programs are instruction, research, patient care, andpublic service. Academic and student support expenses and auxiliary services areconsidered integral to the delivery of these programs. Fund-raising costs are notmaterial to the University’s contributions or total program costs.

Costs related to the operation and maintenance of physical plant, includingdepreciation of plant assets, are allocated to operating programs and supportingactivities based upon periodic facility usage surveys. Interest expense on exter-nal debt is allocated to the activities that have most directly benefited from theproceeds of the external debt.

ReclassificationsCertain reclassifications have been made to prior year amounts to conformto the current year presentation.

3. ACCOUNTS RECEIVABLE

Accounts receivable were as follows as of June 30 (in thousands):

2000 1999Patient care $ 206,082 $ 188,417Students and others 53,840 58,677Accrued investment receivables and income 35,943 12,175Accounts receivable 295,865 259,269

Less allowance for uncollectible accounts 88,064 76,881

Accounts receivable, net $ 207,801 $ 182,388

4. CONTRIBUTIONS RECEIVABLE

Contributions receivable were as follows as of June 30 (in thousands):

2000 1999Unconditional promises

expected to be collected in:Less than one year $ 50,228 $ 20,060One year to five years 149,067 191,144More than five years 3,582 1,922

Total unconditional promises 202,877 213,126

Less: Unamortized discount 12,171 6,667Allowance for uncollectible promises 3,427 1,997

Contributions receivable, net $ 187,279 $ 204,462

As of June 30, 2000 and 1999, contributions receivable included six millionshares of Ingram Micro, Inc. stock valued at the fair market value of $104.6million and $154.5 million, respectively.

The University had also received bequest intentions of approximately $107.9million and $110.6 million as of June 30, 2000 and 1999, respectively. Theseintentions to give are not recognized as assets, and, if they are received, theywill generally be restricted for specific purposes stipulated by the donors, pri-marily endowments for faculty support, scholarships, or general operating sup-port of a particular department or division of the University.

5. STUDENT LOANS RECEIVABLE

Loans to students from University funds are carried at cost, which, based onsecondary market information, approximates the market value of education-al loans with similar interest rates and payment terms. Loan balances are netof allowances for estimated uncollectible accounts of $2.5 million and $2.3 mil-lion as of June 30, 2000 and 1999, respectively. Loans receivable from stu-dents under governmental loan programs are not marketable and can onlybe assigned to the United States government or its designees. As such, the fairvalue of these loans is not determinable.

Notes continued

32

6. INVESTMENTS

The following table summarizes investments by type as of June 30 (in thousands):2000 1999

Short-term securities $ 228,156 $ 126,138Bonds 544,998 283,955Stocks 1,099,633 1,117,854Partnership investments 808,394 441,874Mortgages 21,212 22,399Real estate, net 71,814 69,639Other 56,666 42,444Net payables for unsettled trades

by investment managers (86,336) (18,736)

Total fair value $ 2,744,537 $ 2,085,56

Total cost $ 2,221,639 $ 1,647,511

The following table summarizes investments by net asset category as of June 30(in thousands):

2000 1999Unrestricted $ 2,302,308 $ 1,637,554Temporarily restricted 46,850 60,391Permanently restricted 395,379 387,622

Total fair value $ 2,744,537 $ 2,085,567

As of June 30, 2000, the University held unleveraged, long futures positionsin U.S. Treasury bonds and notes and euro-dollars. The cost and fair market valueof these futures were $21.2 million and $21.6 million, respectively. The marginrequirement (liquid investment grade securities) on these futures was 25.0%. Thecash equivalents used to back these futures positions, which consisted solely ofU.S. Treasury bills, include the actual collateral posted with futures brokers in theamount of $5.4 million fair market value and cost.

As of June 30, 1999, the University held unleveraged, long futures positionsin U.S. Treasury bonds and notes and euro-dollars. The cost and fair marketvalue of these futures were $74.6 million and $74.1 million, respectively. Themargin requirement (liquid investment grade securities) on these futures was1.76%. The cash equivalents used to back these futures positions, which con-sisted solely of U.S. Treasury bills, include the actual collateral posted with futuresbrokers in the amount of $1.3 million fair market value and cost.

7. INVESTMENT RETURNS

Investment returns, as reflected in the Statements of Activities, were as followsfor the years ended June 30 (in thousands):

2000 1999Operating:

Endowment income $ 69,089 $ 58,598Investment income 17,762 22,148

Total operating return $ 86,851 $ 80,746

Non-operating:Unrestricted:

Endowment return reinvested $ 393,208 $ 121,960Net unrealized gains 88,464 98,095

Temporarily restricted:Endowment income 1,796 1,509Investment income 1,473 947Net unrealized gains (losses) (2,059) 347

Permanently restricted:Endowment income 120 187Investment income 927 3,657Net unrealized gains 8,688 4,836

Total non-operating return $ 492,617 $ 231,538

Total return $ 579,468 $ 312,284

The components of total investment return are reflected below for the yearsended June 30 (in thousands):

2000 1999Endowment interest and dividends $ 59,986 $ 39,337Investment income 20,162 26,752Net realized gains 404,227 142,917Net unrealized gains 95,093 103,278

Total return $ 579,468 $ 312,284

As previously noted, the University employs a total return endowment spend-ing policy that establishes the amount of endowment investment return thatis available for distribution to support current operating needs. The distribu-tion of endowment income in 2000 and 1999 was based on 4.5% of the pre-vious three years’ average year-end market values, resulting in a distribution of3.5% and 3.7% of the current years’ market value of the managed endowmentfunds in 2000 and 1999, respectively.

For the years ended June 30, 2000 and 1999, endowment income distributedunder the aforementioned policy exceeded current year actual interest and div-idend earnings by approximately $11.0 million and $21.0 million, respectively.

33

8. RECONCILIATION OF MANAGED ENDOWMENT TO NET ASSET COMPONENTS

Vanderbilt’s managed endowment represents only those endowment net assetsthat are under the management control of Vanderbilt University. Gift annu-ities, interest in trusts held by others, and certain contributions pending trans-fer are not considered components of the managed endowment funds discussedin the Endowment Review.

Endowment and long-term investment net assets functioning as endow-ment and the reconciliation to related asset components as of June 30 are asfollows (in thousands):

2000 1999Funds functioning as endowment $ 1,424,482 $ 1,022,944

Net unrealized gains on investments 507,946 424,683Exclude portion allocable to

other investments 18,477 (619)Subtotal-net unrealized gains on endowment 526,423 424,064

True endowment 384,594 364,938Exclude portion allocable to

contributions receivable (20,564) (15,161)Subtotal-managed true endowment 364,030 349,777

Total managed endowment $ 2,314,935 $ 1,796,785

9. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of June 30 (in thousands):

2000 1999Land and improvements $ 38,490 $ 37,262Buildings 878,394 811,154Equipment and other 465,967 460,275Construction in progress 78,434 50,708Total property, plant, and equipment 1,461,285 1,359,399

Less accumulated depreciation 688,043 644,743

Property, plant, and equipment , net $ 773,242 $ 714,656

Purchases for the library collection, which is valued at approximately $52.7million for insurance purposes, are not included in the foregoing since they areexpensed at the time of purchase. For fiscal 2000, $3.0 million of capitalizedinterest was added to construction in process and $0.4 million of internallydeveloped software was added to equipment and other.

10. DEBT

Bonds and other obligations as of June 30 consist of the following (in thousands):

Remaining Average Outstanding PrincipalYears to Interest (in thousands)

Maturity Rate 2000 1999Variable-rate bonds:

1985 Series A 15 4.2% $ 45,250 $ 45,2502000 Series A 30 4.5% 67,500 —2000 Series B 30 4.6% 67,500 —2000 Series C 30 5.0% 90,000 —

Total variable-rate bonds 270,250 45,250

Fixed-rate obligations:1991 Series A 16 6.5% 18,690 19,3551991 Series B 4 4.8% 4,560 5,5501992 Series A 23 5.8% 60,875 62,1101993 Series A 19 5.0% 44,385 45,7951996 Series A 9 5.3% 8,605 9,3551997 Series A 19 5.1% 30,225 31,1601998 Series A 16 5.6% 27,325 28,3801998 Series B 29 4.9% 38,555 39,1601998 Series C 15 4.6% 21,545 21,695HUD bonds 9 3.0% 1,939 2,174Other bonds 1 7.0% 3,550 3,550Other obligations 9 3.0% 627 687

Total fixed-rate obligations 260,881 268,971

Total long-term debt 531,131 314,221

Less current portion 12,022 8,090

Long-term debt, net of current portion $ 519,109 $ 306,131

The interest rates reflected above for variable-rate obligations represent therates in effect as of June 30, 2000, or the annualized rate for the year ended June30, 2000, for those issues with rates that vary monthly or weekly. Total inter-est costs incurred on indebtedness were $14.1 million in 2000 and $17.4 mil-lion in 1999. Total interest paid was $16.6 million and $17.6 million for theyears ended June 30, 2000 and 1999, respectively.

Principal payments and scheduled sinking fund requirements due in sub-sequent fiscal years ending June 30 are as follows:

2001 $12.0 million 2004 $12.0 million2002 $10.9 million 2005 $14.4 million2003 $11.4 million Thereafter $470.4 million

34

Notes continued

Under certain circumstances, variable-rate bond obligations may be con-verted to a fixed-rate. Prior to conversion to a fixed-rate, the bond owners havethe right to tender their bonds for purchase in whole or in part on each adjust-ment date. The University has agreements with underwriters to remarket anybonds so tendered.

The bonds and notes are secured by deeds of trust on certain of the Uni-versity’s property, pledged revenues of the hospital, and security interests inaccounts receivable and certain other assets of the hospital. Certain revenuebonds are collateralized by lines of credit. Interest on any funds drawn underthese lines is payable at a range of specified percentages over the then existingprime rate. There were no draws outstanding on these lines of credit as of June30, 2000 or 1999. At June 30, 2000 and 1999, the University had $10.6 millionand $7.6 million, respectively, of assets held by trustees for debt service.

Trust indentures underlying the 1991, 1992, 1993, 1996, 1997, and 1998bonds contain certain covenants and restrictions involving the issuance of addi-tional debt and income available for debt service. The 1998 Series C RevenueRefunding bonds require maintenance of a specified debt service coverage ratio.

In May 2000, the University issued the 2000 Series A and Series B bonds inthe amount of $67.5 million each, and the 2000 Series C bonds in the amountof $90.0 million. These bonds were issued for the purpose of financing the con-struction, expansion, and renovation of numerous University facilities andrelated equipment. Under the terms of the 2000 Series A and Series B loan agree-ments, while such bonds bear interest under the initial variable-rate structure,the University generally must maintain liquidity facilities. As of June 30, 2000,the University has standby bond purchase agreements with an external bankfor the required liquidity facilities. The 2000 Series C bonds were initially issuedas Periodic Auction Reset Securities (PARS); as such, no liquidity facility isrequired. The 2000 Series C bonds require maintenance of a specified debt ser-vice coverage ratio.

The Department of Housing and Urban Development (HUD) bonds aresecured by first mortgages on the facilities financed, by pledges of the rev-enues derived from the operation of such facilities, and by pledges of certainunrestricted assets having market values of approximately $0.6 million as ofJune 30, 2000 and 1999. In addition, certain repair and replacement reserves arerequired by the trust indentures.

As of June 30, 2000, the University was in compliance with applicable covenantsfor all bond issues.

In October 1998, the University entered into a commitment for a $20 mil-lion operating line of credit with a major commercial bank. In December 1999,this commitment was increased to $40 million. The University has an optionto incur an interest rate on the daily balance based on the federal funds rateplus 0.25%, or the London Inter-Bank Offered Rate (LIBOR) plus 0.15% forloans of one month or more. The University pays a fee for this line of credit.The University did not have a balance payable as of June 30, 2000 or 1999.

The fair value of the University’s fixed-rate debt was substantially equiva-lent (i.e., within 10%) to its carrying value of $260.9 million and $269.0 mil-lion as of June 30, 2000 and 1999, respectively. These fair values were estimatedbased on quoted market prices for similar issues or borrowings.

11. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS

Temporarily restricted net assets are available for the following purposes orperiods as of June 30 (in thousands):

2000 1999Student scholarships $ 646 $ 717Instruction 1,758 2,505Other support programs 829 947Capital improvements 50,399 49,397For subsequent period operations 174,881 215,542

Total $ 228,513 $ 269,108

Net assets were released from donor restrictions by incurring expensessatisfying certain restricted research and instruction purposes in the amountsof $1.0 million in 2000, and $0.7 million in 1999. Net assets were released fromdonor restrictions by the passage of time in the amounts of $36.4 million in2000 and $25.5 million in 1999.

Permanently restricted net assets as of June 30 are restricted to (in thousands):

2000 1999Investments to be held in perpetuity $ 438,784 $ 405,926Endowment with income accretion

to original gift until fund reaches donorstipulated balance 14,379 16,954

Total $ 453,163 $ 422,880

Income from permanently restricted net assets is expendable for facultysupport (30%), scholarships (20%), general operations (35%), and studentloans and other support services (15%) as of June 30, 2000.

12. OPERATING ACTIVITY

(A) Financial Aid. Financial aid is reflected as a reduction to tuition andhousing fees in the Statements of Activities. Financial aid is awarded to studentsbased upon need and merit and is applied to billed tuition, educational fees,and room and board. Financial aid does not include payments made to studentsfor services rendered to the University. Financial aid for the years ended June30 consists of the following (in thousands):

2000 1999Institutional scholarships $ 59,581 $ 53,934Endowed scholarships 5,710 4,853External financial aid 4,237 4,271

Total $ 69,528 $ 63,058

(B) Private Grant Revenue. Approximately 60% of gifts, private grants, andcontributions revenue represent transactions where University services are providedin exchange for the private grants.

(C) Contributions Reporting. Contributions are reported in the Statements ofActivities on the accrual basis. The Alumni and Development Office reports totalgifts based on reporting standards of the Council for Aid to Education (CAE).Gifts announced by Alumni and Development using CAE standards totaled $94.6and $193.8 million in 2000 and 1999, respectively.

(D) Health Care Services. Health care services revenues and expensesinclude those of Vanderbilt University Hospital and Clinic, Vanderbilt MedicalGroup, Vanderbilt Health Services, Inc., and other activities directed towardthe purpose of providing health care services to the community.

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(E) Facilities and Administrative Costs Recovery. Facilities and administrative(F&A) costs recovery, historically referred to as indirect cost recovery, representsrevenue, primarily from the federal government, for reimbursement of F&A costson research grants. The federal F&A costs recovery rate for on-campus researchwas 52.0% in fiscal 2000. This rate will gradually decline to 51.0% in fiscal2003. The rate setting process for F&A costs recovery is pending for years beyondfiscal 2004.

13. DISCONTINUED OPERATIONS

In June 1999, the Board of Trust Executive Committee agreed to sell or otherwisediscontinue as a line of business the Vanderbilt Health Plans, Inc. (VHP), a for-profit corporation controlled by Vanderbilt University. The University incurredlosses of $28.9 million from the operations of VHP for the year ended June 30,1999. During 1999, the University also recorded $34.5 million for losses estimatedon the future sale or disposal of VHP, which included $22.5 million for futureoperating losses.

VHP operating losses were $9.8 million for the year ended June 30, 2000, whichwere approximately the same as those originally estimated and included in thediscontinued operations reserve established in fiscal 1999.

In July 2000, VHP announced that it would cease its Health 1-2-3 Platinumhealth care plan as of December 31, 2000. During September 2000, VHP signedletters of intent to sell its other product lines. University management expectsthat the divestiture transactions will be complete by December 31, 2000.

The assets and liabilities of VHP consist primarily of accounts receivable,short-term investments, and medical claims payable. The net assets of VHP arenot considered material to the net assets of the University.

14. INGRAM GIFT

In November 1998, the Martha and Bronson Ingram family, through the IngramCharitable Fund, Inc. (ICF), announced a contribution to the University of eightmillion shares of Ingram Micro, Inc. Class A common stock.

In fiscal 1999, the University received two million shares, valued at $82.0 mil-lion, in conjunction with the announcement of the contribution. In consulta-tion with the University, the ICF designated $34.5 million of the initial distributionfor permanently restricted investments and $6.0 million for unrestricted oper-ations. The remaining $41.5 million was included in temporarily restricted invest-ments awaiting the University’s presentation of specific use recommendations tothe ICF for its approval. Of the initial distribution of two million shares, 816,221shares remained unsold as of June 30, 2000, and 831,318 shares remained unsoldas of June 30, 1999. Unrealized losses of $6.8 million in fiscal 2000 and $12.7 mil-lion in fiscal 1999 were reported as reductions in temporarily restricted net assetsas a result of the decline in market value of the shares since their receipt.

The remaining six million shares of the contribution are held by the ICF andare recognized as temporarily restricted contributions receivable. University man-agement understands that the ICF intends to distribute its holdings over the nextseveral years. At June 30, 2000, the temporarily restricted contribution receivablewas valued at $104.6 million, which is net of the decline in market value ($49.9million unrealized loss) since June 30, 1999. The fair market value of these shareswas $85.5 million as of September 22, 2000.

15. RETIREMENT PLANS

The University’s full-time faculty and staff members participate in multi-employ-er defined contribution-type retirement plans administered by third-party invest-ment and insurance firms. The University’s obligations under these plans are fullyfunded by periodic transfers to the respective retirement vendors. The corre-sponding expenses are recognized in the year incurred.

For eligible employees with one year of continuous service, these plans man-date employee and matching employer contributions; such contributions imme-diately fully vest with the employee.

The University’s total contributions to all of the pension and retirement plansfor the years ending June 30, 2000 and 1999, were approximately $21.5 millionand $18.3 million, respectively.

16. COMMITMENTS, CONTINGENCIES,AND RELATED PARTY TRANSACTIONS

(A) Construction. At June 30, 2000 and 1999, approximately $155.2 millionand $82.4 million, respectively, were committed for projects under construc-tion and equipment purchases. Commitments at June 30, 2000, are to be financedprimarily from bond proceeds.

(B) Lease Obligations. The University leases certain buildings and equipment.These leases are classified as operating leases and have lease terms ranging upto five years. Total lease expense for fiscal 2000 was $8.6 million. The followingis a schedule by fiscal year of future minimum rentals on non-cancelable oper-ating leases as of June 30, 2000 (in thousands):

2001 $ 7,5772002 4,6472003 3,5132004 1,7542005 788Total future minimum rentals $ 18,279

(C) Litigation. The University is a defendant in several legal actions. Whilethe outcome cannot be determined at this time, management is of the opinionthat liability, if any, from these actions will not have a material effect on theUniversity’s financial position.

(D) Medical Malpractice Liability Insurance. The University is self-insuredfor the first level of medical malpractice claims. For the self-insured retention,a trust fund has been established, administered by a trustee. The funding of thetrust is based upon studies performed by an actuarial firm. Management believesthe actuarially determined trust fund reserves are adequate.

Excess malpractice and professional liability coverage has been obtainedfrom commercial insurance carriers on a claims-made basis for claims abovethe retained amounts. From July 14, 1988, through June 30, 1995, the first layerof excess coverage had been obtained from Southern Medical Center InsuranceCompany, Inc. On July 14, 1988, the University became an initial shareholderin this multi-provider captive insurance company with two other medical uni-versities. For fiscal years 1996 through 2000, the first layer of excess coveragewas purchased from a commercial insurance carrier. The University continuesto own one-third of the outstanding stock of Southern Medical CenterInsurance Company, Inc. as of June 30, 2000 and 1999. The University’s por-tion of the initial capital contribution was $1 million. As an initial sharehold-er, the University has agreed to contribute its pro rata share of any requiredadditional amounts of capital and surplus as specified by the shareholders’agreement up to a maximum of $5 million. No such additional capital con-tribution has been required as of June 30, 2000.

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Notes continued

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(E) Federal and State Contracts and Other Requirements. Expenditures andF&A costs related to federal and state grants and contracts are subject to adjust-ment based upon review by the granting agencies. The amounts, if any, of expen-ditures that may be disallowed by the granting agencies cannot be determinedat this time, although the University expects they will not have a material effecton the University’s financial position.

(F) Health Care Services Revenues. Revenues from hospital services includeamounts paid under reimbursement agreements with certain third-party pay-ors and are subject to examination and retroactive adjustments. Any differ-ences between estimated year-end settlements and actual final settlementsare reported in the year final settlements are known. Substantially all settle-ments have been made through the year ended June 30, 1997. Managementbelieves it has made adequate provision for any potential differences betweenamounts claimed and actual settlements.

In August 1996, Congress approved the Health Insurance Portability andAccountability Act of 1996 (Act). Under the Act, the federal government wasgiven substantial resources and authority for the completion of fraud and abuseinvestigations, and the Act has established substantial fines and penalties foroffenders. Management continues to implement policies, procedures, and acompliance overview organizational structure to enforce and monitor com-pliance with this Act and other government statutes and regulations. The Med-ical Center’s compliance with such laws and regulations is subject to futuregovernment review and interpretations, as well as regulatory actions unknown

or unasserted at this time. Management is of the opinion that liability, if any,from such reviews will not have a material effect on the University’s financialposition.

(G) Partnership Commitments. There are $238.6 million of commitmentsto venture capital, real estate, and distressed security investments in the endow-ment fund. These funds are expected to be drawn down over the next two yearsupon request by the general partners. As of June 30, 2000, $1.1 million of unal-located cash and cash equivalents in the endowment fund are held to meet theseobligations. Management expects to finance these commitments with availablecash and expected proceeds from the sale of securities.

(H) McKendree Village, Inc. Debt Guaranty. In July 1998, Vanderbilt Uni-versity and McKendree Village, Inc., a non-profit retirement community, signeda Memorandum of Affiliation to become a joint venture. In September 1998,the University guaranteed payment of $19.8 million of bond debt issued byMcKendree Village. As of June 30, 2000, the balance of the guaranteed bonddebt was $19.8 million.

(I) Related Party Transactions. The University contracts with certain relat-ed parties for the purchase of goods, performance of construction activities,and provision of other services. Significant purchases of goods and servicesfrom related parties typically are subject to competitive pricing analyses. Dur-ing fiscal 2000, the University had related party transactions approximating:purchases of goods–$4.3 million; construction activities–$14.4 million; andother services–$3.4 million.

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M A N A G E M E N T R E S P O N S I B I L I T Y F O R F I N A N C I A L S T A T E M E N T S

I N D E P E N D E N T A U D I T O R S ’ R E P O R T

The management of Vanderbilt University is respon-sible for preparing the accompanying financial statementsand for their integrity and objectivity. The financial state-ments have been prepared in conformity with generallyaccepted accounting principles applicable to colleges anduniversities and include amounts that are based on man-agement’s best estimates and judgments.

The University’s system of internal controls pro-vides reasonable assurance that the University’s assets areprotected and that the financial records are reliable. Thesecontrols are supported by the establishment and com-munication of accounting policies and procedures, thedivision of responsibilities, the careful selection and train-ing of qualified personnel, and a program of internal audits.Management continually monitors the system of internalcontrol for compliance and believes that, as of June 30,2000 and 1999, Vanderbilt University’s system of internalcontrols is adequate to accomplish the objectives discussedherein.

KPMG LLP has audited the accompanying financialstatements. The auditors’ report expresses an informedjudgment as to whether management’s financial state-

ments present fairly the financial position of the Uni-versity, as of June 30, 2000 and 1999, and the changes inits net assets and its cash flows for the years then ended,in conformity with generally accepted accounting prin-ciples. The audits included an evaluation of the Univer-sity’s accounting systems, procedures, and internal controls;tests of the accounting records; and other auditing pro-cedures to provide reasonable assurance that the finan-cial statements were free of material misstatement.Management believes that all representations made toKPMG LLP during its audits were valid and appropriate.

The Board of Trust, through its Audit Committee, isresponsible for reviewing and monitoring the Universi-ty’s financial reporting and accounting practices. Both theinternal auditors and the independent auditors have accessto the Audit Committee, and both meet with the AuditCommittee at least semi-annually.

Betty L. PriceController and Assistant Vice Chancellor for Finance

Board of Trust, The Vanderbilt University:

We have audited the consolidated statements of finan-cial position of The Vanderbilt University as of June 30,2000 and 1999, and the related consolidated statementsof activities and cash flows for the years then ended. Theseconsolidated financial statements are the responsibilityof the University’s management. Our responsibility is toexpress an opinion on these consolidated financial state-ments based on our audits.

We conducted our audits in accordance with audit-ing standards generally accepted in the United States ofAmerica. Those standards require that we plan andperform the audits to obtain reasonable assurance aboutwhether the financial statements are free of material mis-statement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing theaccounting principles used and significant estimates madeby management, as well as evaluating the overall finan-cial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects,the financial position of The Vanderbilt University as ofJune 30, 2000 and 1999, and their changes in net assetsand their cash flows for the years then ended, in con-formity with accounting principles generally accepted inthe United States of America.

Nashville, TennesseeSeptember 22, 2000

S u p p l e m e n ta r y

H o s p i ta l , C l i n i c , a n d

Pa r k i n g F a c i l i t i e s

F i n a n c i a l S tat e m e n t s

2000 1999

A S S E T SCurrent:

Treasury cash $ 9,733 $ 9,917Assets limited as to use 3,166 3,355Patient accounts receivable,

net of allowance for uncollectible accounts of approximately$20,898 and $14,279 in 2000 and 1999, respectively 87,239 77,636

Contributions receivable, net 21,243 12,208Other receivables 4,371 4,941Inventories of supplies 11,065 9,109Prepaid expenses 2,562 2,311

Total current assets 139,379 119,477

Investments 87,890 93,171

Assets limited as to use, excluding current portion 96,267 12,210

Property, plant, and equipment, net 188,963 207,573

Deferred financing costs, net 783 744

Total assets 513,282 433,175

L I A B I L I T I E SCurrent:

Current installments on long-term debt 3,975 3,785Accounts payable 15,143 14,737Estimated net payables under third-party programs 311 11,743Accrued compensated absences 11,814 11,677Accrued interest 2,905 2,657Other accrued expenses and liabilities 22,195 17,200

Total current liabilities 56,343 61,799

Long-term debt, excluding current installments 258,753 173,145

Deferred revenue 1,250 1,500

Total liabilities 316,346 236,444

N E T A S S E T SUnrestricted 159,382 169,575Temporarily restricted 35,904 25,506Permanently restricted 1,650 1,650

Total net assets 196,936 196,731

Total liabilities and net assets $513,282 $433,175

Vanderbilt University Hospital, Clinic, and Parking FacilitiesBalance SheetsAs of June 30, 2000 and 1999(Using AICPA Health Care Organizations reporting guidelines) ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

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2000 1999Operating revenues and gains:

Net patient service revenue $ 508,575 $ 466,525Premium income 1,495 3,853Investment income on assets whose use is limited under

bond indenture agreements 317 509Other revenue 11,521 10,615

Total operating revenues and gains 521,908 481,502

Operating expenses:Medical services 361,052 340,739General services 24,144 22,297Administrative and fiscal services 64,687 60,250Depreciation and amortization 25,638 23,749Interest 8,855 8,589Provision for bad debts 31,571 23,466

Total operating expenses 515,947 479,090Income from operations 5,961 2,412

Other income:Unrestricted endowment income and bequests 585 510Investment income 7,614 7,069

Total other income 8,199 7,579

Excess of revenues and gains over expenses 14,160 9,991

Transfers to other University divisions:Transfers to other Vanderbilt Medical Center divisions (15,467) (4,755)Transfers to other Vanderbilt health venture subsidiaries (14,840) (22,101)Net assets released from restrictions used for purchase of

property and equipment 5,954 —

Decrease in unrestricted net assets $ (10,193) $ (16,865)

Vanderbilt University Hospital, Clinic, and Parking FacilitiesStatements of OperationsYears Ended June 30, 2000 and 1999(Using AICPA Health Care Organizations reporting guidelines) ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

41

2000 1999Cash flows from operating activities:

Excess of revenues and gains over expenses $ 14,160 $ 9,991Transfers to other Vanderbilt Medical Center divisions (15,467) (4,755)Transfers to other Vanderbilt health venture subsidiaries (14,840) (22,101)Transfers from other Vanderbilt University divisions for plant expansion 7,250 22,345Contributions for plant expansion 12,473 3,161Change in net unrealized losses on temporarily restricted investments (3,371) —

Net increase in total net assets 205 8,641

Adjustments to reconcile net increase in total net assets to net cash provided by operating activities:

Transfers to other Vanderbilt Medical Center divisions and health venture subsidiaries 30,307 26,856Transfers from other Vanderbilt University divisions for plant expansion (7,250) (22,345)Contributions for plant expansion (12,473) (3,161)Decrease in temporarily restricted investments 3,372 —Provision for bad debts 31,571 23,466Depreciation and amortization of plant and equipment 25,638 23,748Loss on disposal of equipment 1,364 350Amortization of bond discounts 203 183Amortization of deferred revenue (250) (250)Net unrealized gain on investments (210) (27)Net realized and unrealized gain on assets limited as to use (1,459) (1,022)Increase (decrease) in cash due to changes in:

Patient accounts receivable (41,175) (44,570)Other receivables 570 (1,870)Inventories of supplies (1,957) (224)Prepaid expenses (251) 339Accounts payable 1,182 2,577Estimated net payables under third-party reimbursement programs (11,432) (2,558)Accrued compensated absences 137 692Accrued interest 248 (188)Other accrued expenses and liabilities 4,995 4,422

Net cash provided by operating activities 23,335 15,059

Cash flows from investing activities:Purchase of property, plant, and equipment (20,246) (42,394)Additions to investments (147,605) (38,160)Sale of investments 67,317 83,375

Net cash provided (used) by investing activities (100,534) 2,821

Cash flows from financing activities:Proceeds from the issuance of long-term debt 90,000 —Repayment of long-term debt (3,876) (2,863)Additions to deferred finance costs (699) —Transfers to other Vanderbilt Medical Center divisions and health venture subsidiaries (19,098) (26,847)Transfers from other Vanderbilt University divisions for plant expansion 7,250 —Contributions for plant expansion 3,438 2,171

Net cash provided (used) by financing activities 77,015 (27,539)

Net decrease in treasury cash $ (184) $ (9,659)

Treasury cash - beginning of year 9,917 19,576

Treasury cash - end of year $ 9,733 $ 9,917

Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 8,607 $ 8,402

Vanderbilt University Hospital, Clinic, and Parking FacilitiesStatements of Cash FlowsYears Ended June 30, 2000 and 1999(Using AICPA Health Care Organizations reporting guidelines) ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

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2000 1999Unrestricted net assets:

Excess of revenues and gains over expenses $ 14,160 $ 9,991Transfers to other Vanderbilt Medical Center divisions (15,467) (4,755)Transfers to other Vanderbilt health venture subsidiaries (14,840) (22,101)Net assets released from restrictions used for purchase of

property and equipment 5,954 —Decrease in unrestricted net assets (10,193) (16,865)

Temporarily restricted net assets:Transfers from other Vanderbilt University divisions for plant expansion 7,250 22,345Contributions for plant expansion 12,473 3,161Net assets released from restrictions (5,954) —Change in net unrealized losses on temporarily restricted investments (3,371) —

Increase in temporarily restricted net assets 10,398 25,506

Net increase in total net assets 205 8,641

Net assets at beginning of year:Unrestricted 169,575 186,440Temporarily restricted 25,506 —Permanently restricted 1,650 1,650

Total net assets at beginning of year 196,731 188,090

Net assets at end of year:Unrestricted 159,382 169,575Temporarily restricted 35,904 25,506Permanently restricted 1,650 1,650

Total net assets at end of year $ 196,936 $ 196,731

Vanderbilt University Hospital, Clinic, and Parking FacilitiesStatements of Changes in Net AssetsYears Ended June 30, 2000 and 1999(Using AICPA Health Care Organizations reporting guidelines) ALL AMOUNTS ARE SHOWN IN THOUSANDS OF DOLLARS.

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MARY BETH ADDERLEYBloomfield Hills, Michigan

MICHAEL LEWIS AINSLIEPalm Beach, Florida

NELSON C. ANDREWS L

Nashville, Tennessee

WILLIAM W. BAIN, JR.Boston, Massachusetts

DAN M. BARNHARDT A

Los Angeles, California

ANDREW B. BENEDICT, JR. L

Nashville, Tennessee

DARRYL D. BERGERNew Orleans, Louisiana

CAMILLA DIETZ BERGERONNew York, New York

LEWIS M. BRANSCOMBConcord, Massachusetts

MONROE J. CARELL, JR.Nashville, Tennessee

RUTH M. CECIL A

Balboa Island, California

THOMAS F. CONENashville, Tennessee

CECIL D. CONLEEAtlanta, Georgia

MIRIAM MCGAW COWDEN L

Nashville, Tennessee

BROWNLEE O. CURREY, JR.Franklin, Tennessee

MELANIE DAYANI A

New York, New York

NEIL A. DEAN A

Louisville, Kentucky

GUILFORD DUDLEY, JR. L

Nashville, Tennessee

IRWIN B. ESKIND, M.D. L

Nashville, Tennessee

FRANK M. FARRIS, JR. L

Nashville, Tennessee

WILLIAM W. FEATHERINGILLBirmingham, Alabama

FRANK A. GODCHAUX III L

Abbeville, Louisiana

JOHN R. HALLLexington, Kentucky

WILLIAM M. HANNON L

Sea Island, Georgia

L. HALL HARDAWAY, JR.Hendersonville, Tennessee

H. RODES HARTBrentwood, Tennessee

JOANNE F. HAYESNashville, Tennessee

J. HICKS LANIERAtlanta, Georgia

JOHN R. LOOMIS A

Larchmont, New York

REV. EDWARD A. MALLOY, C.S.C.Notre Dame, Indiana

DELBERT MANN L

Los Angeles, California

ALYNE QUEENER MASSEYNashville, Tennessee

WILLIAM A. MCMINN, JR.Brenham, Texas

DUDLEY BROWN MORGANNashville, Tennessee

EDWARD G. NELSONNashville, Tennessee

JUDSON RANDOLPH, M.D.Nashville, Tennessee

JOHN W. RICHNashville, Tennessee

JOE L. ROBYNew York, New York

MICHELE BITSIS SENA A

Richmond, Virginia

EUGENE B. SHANKS, JR.Greenwich, Connecticut

RICHARD H. SINKFIELDAtlanta, Georgia

CHARLES C. TRABUE, JR. L

Nashville, Tennessee

CAL TURNER, JR.Brentwood, Tennessee

EUGENE H. VAUGHAN Houston, Texas

THOMAS B. WALKER, JR. L

Dallas, Texas

JAMES A. WEBB, JR. L

Nashville, Tennessee

MARY JANE L. WERTHAN L

(Died August 15, 2000)Nashville, Tennessee

W. RIDLEY WILLS IIFranklin, Tennessee

DAVID K. WILSON L

Nashville, Tennessee

J. LAWRENCE WILSONRosemont, Pennsylvania

SAM I. YARNELL L

Chattanooga, Tennessee

L. Life Trustee

A. Nominated by Alumni Association

Vanderbilt University Board of Trust and Administrationas of August 1, 2000

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O f f i c e r s o f t h e B o a r d

MARTHA R. INGRAM, Chairman, Nashville, Tennessee

DENNIS C. BOTTORFF, Vice-Chairman, Nashville, Tennessee

REBECCA WEBB WILSON, Vice-Chairman, Memphis, Tennessee

KENNETH L. ROBERTS, Secretary, Nashville, Tennessee

E. GORDON GEE, Chancellor of the University

A d m i n i s t r a t i o n

E. GORDON GEE, J.D., Ed.D., Chancellor

BEVERLY K. BOND, M.B.A., Vice Chancellor for Alumni and Development

LAUREN J. BRISKY, M.B.A., Vice Chancellor for Administration and Chief Financial Officer

THOMAS G. BURISH, Ph.D., Provost

HARRY R. JACOBSON, M.D., Vice Chancellor for Health Affairs

MICHAEL J. SCHOENFELD, M.S., Vice Chancellor for Public Affairs

WILLIAM T. SPITZ, M.B.A., Vice Chancellor for Investments and Treasurer

DAVID WILLIAMS II, J.D., LL.M., M.B.A., M.A., Vice Chancellor, General Counsel, and

Secretary of the University

BENEFACTIONS OF THE

VANDERBILT FAMILY

Vanderbilt University was founded in 1873 by Commodore Cornelius

Vanderbilt and has been generously supported by successive generations of his

family. Especially significant were the gifts and bequests of Harold Stirling

Vanderbilt and his wife, Gertrude Conaway Vanderbilt. The contributions of the

Vanderbilt family are here summarized, without adjustments for inflation.

All amounts are shown in thousands of dollars.

The founding gifts of Commodore Cornelius Vanderbilt $ 1,004

Harold Stirling VanderbiltGifts $27,216Bequests 30,063

57,279Gertrude Conaway Vanderbilt

Gifts $ 38Bequests 6,418

6,456

Gifts and bequests from other members of the family 8,589

TOTAL $73,328

Prepared by Vanderbilt University Division of Administration

Published by Vanderbilt UniversityCreative Services, 2000

Photos by Vanderbilt UniversityDivision of Public Affairs

and the Medical Art Group