Dear Alumni, Parents and Friends,

I am pleased to report on Blair Academy's financial position as of June 30, 2011, the conclusion of our 2010-11 fiscal year. In order to navigate through continued uncertain economic times, we have chosen a fiscally conservative course in terms of investments, endowment draw and expenditures. At the same time, we have sharpened our focus on fundraising and admission, with excellent results. Thus the School's financial performance remains positive, and we are well-positioned for both continued short-term fiscal prudence and increased long-term security as we work to ensure a Blair education not only for this generation of students but also for future generations.

Over the past fiscal year, three key factors contributed to the strength of the School's current financial position: record fundraising, full enrollment and conservative endowment draw. The impact of all-time-high Blair Fund support from alumni, parents and friends cannot be underestimated. Alumni and parent gifts each topped the million dollar mark, and alumni achieved 33% participation for the first time in School history, while more than 80% of parents contributed. The Blair Fund provided 11% of our operating revenue last year, and these record-setting numbers represent a growing awareness among alumni and parents of the vital necessity of unrestricted funds in providing a Blair experience of exceptional quality for today's students.

Robust demand for a Blair education has strengthened admission. At present, tuition continues to represent our greatest source of operating revenue (see chart, below)—thus, our admission efforts are vital to the overall financial stability of the School. It is worth noting, however, that last year we reduced our reliance on tuition as a percentage of our operating revenue—from 72% in FY 09-10 to 69% in FY 10-11—due to increases in both endowment income and ancillary operation revenue. The Trustees have endeavored to hold the line on tuition increases as much as possible. In addition, our commitment to providing financial aid to deserving students is as strong as ever: in FY 10-11, $4.4 million was awarded to 161 students, which represented 35% of our student body. The average award was $26,635.

Blair's endowment saw over-all growth this year with the general improvement of the financial markets. This growth allowed us to return to our traditional, albeit conservative, endowment spending policy, withdrawing five percent of the 12-quarter, trailing endowment average. (In FY 09-10, in response to market decline, we used an alternative formula to reduce draw and preserve endowment principal.) In keeping with our conservative approach to endowment spending, any operating surplus is annually re-invested back into the endowment, reducing the actual percentage of our endowment draw. This year's endowment draw provided 13% of operating revenue, compared to last year's 11%, and our dependency on tuition was slightly eased. While endowment draw remains a critical component of Blair's operating revenue, we continue to maintain a conservative spending policy in order to sustain endowment principal and enhance the School's long-term financial security.

The Investment Committee of the Board of Trustees is responsible for the management of the Blair Academy endowment portfolio. This committee meets with our investment consultant throughout the year to review the portfolio and asset allocation before making decisions regarding potential changes in investments. On June 30, 2011, the Blair Academy endowment had a market value of $66,364,448. The over-all performance for the Blair endowment during the last fiscal year was a total return of 22.5% vs. the targeted benchmark return of 20.6% over the same time period. The table below shows endowment performance over the last four fiscal years.

Given the current global economic outlook, the Investment Committee increased the endowment's allocation of "real assets" last year, a strategy designed to diversify our portfolio and protect against inflation. The year-end asset allocation of Blair's endowment portfolio is detailed on the chart, below. The long-term investment objective of the Blair Academy endowment portfolio is to attain a total return on endowment assets, net of manager fees, to meet the annual spending requirements of the School while also providing for the long-term growth of the endowment on an inflation-adjusted basis. The growth of Blair's endowment remains one of the Board's most important financial objectives.

The Board of Trustees adopted Blair's strategic plan, "Building on Strength," at its January 2011 meeting, and we have since undertaken several physical plant improvements to meet the plan's objectives. A prime example is the renovation of seven faculty dormitory apartments this summer, a project that included kitchen and bathroom replacement, flooring installation, appliance upgrades and painting throughout. The goal of this project is to retain our best faculty in the dorms with the students by providing modern, comfortable family housing, and the faculty members who live in the newly renovated apartments are pleased with the changes. Fourteen additional apartments are slated for renovations over the next two summers: we fully expect this project to pay dividends for decades to come.

In response to the strategic plan initiative calling for the pursuit of measures to minimize energy costs, we have installed a photovoltaic array on the roof of Hardwick Hall. The array will generate approximately 300 kilowatts of electricity (eight percent of campus electrical use), reducing the School's outlay for utilities.

Additional physical plant projects that align with strategic initiatives are currently being planned including the expansion of science and math facilities; upgrades to student dormitory housing; and the improvement of the School's main and golf course entrances to better reflect the historical beauty of the main campus. Work on these projects will proceed as funds become available for their completion, and we will look to our dedicated constituency for support.

The strategic plan will guide every aspect of our work at Blair Academy over the next five years. "Building on Strength" outlines the steps we must take to ensure a quality Blair experience for the students of today and tomorrow. Our current course of conservative fiscal management will not only help us navigate the volatile economy but will also keep Blair moving steadily toward a secure future.

Sincerely,
James Frick
Assistant Headmaster for Finance & Operations

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