If we look carefully at our lives during the past year, we catch glimpses of the hand of God at work. Looking back at the financial year for Pepperdine, we see a remarkable year of blessing. We have been blessed with faculty, staff, and friends who support Pepperdine in the pursuit of its unique mission. We have been blessed with strong investment returns and dedicated leadership. And, we have been blessed with a sense of purpose that drives us to find new and better ways to positively affect the lives of our students.
Continued positive operating results, strong investment returns, and increased gifts from friends have raised Pepperdine's total assets by $218 million to total over $1.4 billion. The University's net assets increased commensurately, growing by $216 million to total over $1 billion.
Pepperdine's investment portfolio returned approximately 30 percent during fiscal 2007, providing $210 million of support, gains, and income to University operations. Contributing to the significant investment gains in fiscal 2007 was the recognition of a $100 million increase in investments held by external trustees.
At the close of fiscal 2007, University endowment and quasi-endowment funds totaled $712 million, a 37 percent increase from one year ago. Increasing endowment through investment returns as well as new gifts is critically important to expanding financial aid to our students and providing ongoing support for University operations.
Long-term obligations decreased from one year ago as a result of scheduled principal amortization, and totaled $209 million at the end of fiscal 2007. The University's conservative capital structure is evidenced by the low ratio of long-term debt to total capitalization of only 16 percent at the end of fiscal 2007. The University's strong debt rating affords the ability to issue additional low-cost debt should a warranted need arise. However, capital expenditures during the next two years are expected to be funded through existing reserve funds and future gifts from friends. Refurbishments are underway for several buildings on the Malibu campus that have provided many years of service, and plans have begun for additional student housing to satisfy accommodation needs in one of the most expensive housing markets in the country.
Improving academic quality places limits on the number of students that we enroll at our five schools. Currently, Pepperdine enrolls a total of approximately 7,600 students. The number of students enrolled is important since approximately 70 percent of operating revenues come directly from students. For fiscal 2007, net tuition revenues totaled $157 million, relatively unchanged from last year. While demand remains strong for most of Pepperdine's academic offerings, we reduced the number of enrolled students during fiscal 2007 in order to provide a higher quality educational experience. Reducing enrollment has a significant impact on the operations of the University, since student-derived revenues either remain unchanged or decline, while the costs of delivering the educational experience continue to increase.
The impact of declining student enrollment can be seen in the level of change in net assets before non-operating revenues and expenses, which declined $6 million from year-ago levels to total $21 million for fiscal 2007. Increasingly, the University will be looking to endowment support as well as increased gifts from friends to provide the funds necessary for continued strategic investment in academic and capital programs.
While Pepperdine remains dependent on student-derived revenues to support its activities, progress has been made in reducing that dependency. Net tuition revenues accounted for 60 percent of total revenues during fiscal 2007, a significant decline from 66 percent three years ago. At the same time, private gift and grants revenues increased 22 percent from year-ago levels and totaled $34 million for fiscal 2007.
Funds expended on instruction, research, academic support, and student services increased by $5 million to total $151 million for fiscal 2007. As a result, Pepperdine spent $21,643 per full-time equivalent student, or 96 percent of each net tuition and fee dollar in a manner that directly impacts each student's academic experience. Pepperdine has been blessed with increasing financial fortune. But truthfully, the fortune of Pepperdine does not lie in the columns of a balance sheet, but is kept in the lives of the people who work here in service to students. So many people have contributed to improve the academic, spiritual, and financial strength of Pepperdine. We are grateful for the many friends who have supported our efforts. Above all, we are grateful to God, who gives strength and purpose to our work.
Paul B. Lasiter
Chief Financial Officer