ANNUAL REPORT 2011

THE MISSION OF PEPPERDINE UNIVERSITYPepperdine is a Christian University committed to the

highest standards of academic excellence and Christian

values, where students are strengthened for lives of

purpose, service, and leadership.

In a broad view, large

principles, a good heart,

high aims, a firm faith,

we may find some charts and

a compass for our voyage.

Still, as we lean over the stern

of the ship and watch the

swirling eddies in our wake,

the most rigid and resolute

of us must feel how many

currents are playing their part

in the movement of the vessel

that bears us onwards.

—Winston ChurChill

Though many things inspire me

about Pepperdine University, the

students and the alumni top the

list. Bright and energetic people come to

Pepperdine thoughtful, hopeful, and eager

to engage the world. Through rigorous

courses taught by world-class scholars

and mentors and through cocurricular

activities that challenge the mind, body,

and soul, students encounter a wondrous

moment when they become something

greater than they ever imagined. Their

lives have been changed.

When someone asks, “What is Pepperdine? What does it do? Why does it matter?” I respond simply and with conviction: “Pepperdine changes lives.” That may seem like a soft answer to some, but the deep and profound changes that are made in the lives of students are greatly multiplied as each student engages a competitive world filled with almost overwhelming challenges. Some emerge from Pepperdine ready to take on high-profile leadership roles while others serve quietly and behind the scenes. Either way, they serve, support, create value, and otherwise make wonderful and consequential contributions to society with conviction and integrity. Pepperdine changes the lives

By Edwin L. Biggers

Message from the chair

of its students and, through them, the lives of many more.

This mission to bring positive change to the world through waves upon waves of alumni is worthy of our support. I commend President Benton, his leadership team, and the campaign chairs of the recently launched Campaign for Pepperdine: Changing Lives, for their vision and courage to launch a bold and positive campaign in such difficult times. They could have easily chosen to defer the campaign until the return of a temperate economy; but this work could not wait for the storm clouds to clear. Pepperdine is an emerging university outperforming many older and financially stronger universities. It must continue to build momentum.

That is why I am personally committed to this effort. Through this campaign, the largest in Pepperdine’s history, the University intends to complete the work of the pioneering generation that came before and to set the stage for the emerging generation of students and faculty to come. Through this campaign, Pepperdine will secure its mission and strengthen the foundation for changing the lives of tens of thousands of future Waves. The year 2011 was a milestone as we launched this historic effort to win the future for our students and the countless thousands they will serve. I am grateful to you for joining us on this journey.

Message from the president There are many currents that flow

through the emerging Pepperdine

story. Some propel us, some

hinder, some are invited, and others are

not, but each shapes the journey. As I

consider the first 75 years of our history, I

see that it has always been so. Challenges

and opportunities almost always

accompany one another.

Only a generation ago George Pepperdine College was struggling to keep its doors open. With the loss of Mr. Pepperdine’s personal fortune, which had sustained operations during its early years, many doubted the college could remain open. Crisis turned to triumph as Pepperdine leaders found new currents to propel the college through uncharted waters, which resulted in university status and the move to Malibu.

Thankfully, we do not face a crisis as our predecessors did, but we do live in challenging times. It has never been more important for Pepperdine to enter its future having effectively prepared for many possibilities.

To start the process, in 2010, I reaffirmed five foundational goals for Pepperdine’s future in a document called Boundless Horizons. These five

By Andrew K. Benton

goals, which we revisit in this annual report, became the basis of lively discussion and strategic planning and eventually gave rise to an exciting vision that positions Pepperdine as a preeminent, global, Christian university.

Designed to meet the challenges presented in the strategic plan, the Campaign for Pepperdine was launched last May. It is my hope that this vision of our future, based on our mission, made functional through the strategic plan, and energized by the Campaign for Pepperdine, will provide the Pepperdine community all that it needs to reach new heights in the next stage of its journey. The challenge is especially great given the unyielding nature of global problems, but opportunities to meet the challenge are presenting themselves every day.

Many currents propel us forward, but none more powerfully than your friendship. Thank you for your support and encouragement in the year now ending. I invite you to continue with us along this marvelous journey as Pepperdine seeks to fulfill its mission.

Behold also the ships, which though they be so great, and are driven of fierce winds, yet are they turned about with a very small helm, whithersoever the governor listeth. — James 3:4

The Campaign for Pepperdine Beyond a worthy cause…changing lives.

The academic year 2011–2012 signals 75 years since George

Pepperdine opened his college at 79th and Vermont Avenue in

Los Angeles. I would have loved to have been among the 2,000

gathered in the central quad of those 34 acres to witness the

birth of his dream—beneath the lingering clouds of the Great

Depression.

The 40th year of our Malibu campus. Like the Los Angeles

campus, it opened with unfinished buildings and still-wet

sidewalks in 1972, but with hope and optimism for a bright and

bountiful future.

The start of President Andrew Benton’s second decade as

Pepperdine’s chief executive. Throughout his 27 years at the

University—and as president since 2000—he has pursued his

strategic vision for the build-out of our 830-acre Malibu campus,

with the needs of students always at the heart of our efforts.

The launch of the Campaign for Pepperdine, our third such

initiative and largest to date, with $450 million in student-

centered priorities to change the lives of students who in turn

will change the world. We are well on our way—six months

into the campaign’s public phase—with more than $270 million

raised and pledged to date.

What an awesome time for Pepperdine University, and what an auspicious season for you to be a part of the Pepperdine family.

Consider our historic milestones over the past 12 months:

By S. Keith HinkleSenior Vice President for

Advancement and Public Affairs

These are big-picture milestones at Pepperdine, for certain. As I consider the larger landscape of higher education, our 90,000 graduates around the globe, our permanent presence on four continents, and our universe of supportive friends and potential students, I find myself contemplating Pepperdine’s place in the world and just as critically, the value—the worthiness—of our work.

Clearly, when we approach you and others for allegiance and support, we want to be sure that without a doubt, you understand and embrace our cause.

Several years ago in the Chronicle of Higher Education, public opinion analyst Daniel Yankelovich suggested in his article, “Ferment and Change: Higher Education in 2015,” that higher education has “too many constituencies to satisfy, too many traditions, too many constraints weighing on it to lend it the flexibility—or the political will—to adapt rapidly to the outside world.”

Challenged by that observation, I believe that Pepperdine University—at this extraordinary moment in history and with its distinctive Christian character faithfully and authentically expressed through our daily work and through the lives of our students and graduates—is indeed a cause worthy of your confidence.

Admittedly, there are times when I am a bit fearful that higher education is no longer considered a worthy cause. At Pepperdine, we strive each day to demonstrate otherwise: that ours is a university where the student, as a person of infinite dignity, is at the

heart of all we do; where reason and faith, and where academic excellence and Christian values, reside and thrive. Higher education remains one of the greatest enablers of a productive and upwardly moving citizenry, especially in a languishing economy. If our will be done, we will ensure that every student—undergraduate, graduate, credential seeker, or doctoral candidate—is being prepared to pursue a purposeful life as servant-minded leaders throughout the world.

Initiative Goal Raised to Date

Annual Support $48,000,000 $32,625,633

Campus Facilities $150,000,000 $70,963,613

Faculty Support and Academic Programs $170,000,000 $92,336,331

Student Support $82,000,000 $56,833,360

Futures and Expectancies $20,600,791

Campaign Goal$450,000,000

Raised to Date$273,359,728

as of 11.30.11

A little more than six months ago we went

live with the Campaign for Pepperdine. Nearly

1,000 of Pepperdine’s family united at LA Live to launch

our grand quest to change lives, and to sustain, in the

words of President Benton, “our trajectory of growth.”

We set our sights on four aspirations, four guideposts, if you

will, that would keep us fixed squarely on our goals. In the

ensuing six months, we have been supremely encouraged

by so many of you who have accepted our invitation to

change lives.

Let me share some of the good news that has come to

Pepperdine as a result of those aspirations during the second

half of 2011.

THE CAMPAIGNEnabling the Future

ADVANCE LEARNING, KNOWLEDGE, AND SCHOLARSHIP

I am especially excited about the recent gifts of graduates that are helping us advance knowledge and enrich the classroom experiences of our students. Laure Sudreau-Rippe (JD ’97) is the first alumna to endow a chair at the Pepperdine School of Law. Other alumni have stepped forward in recent months to endow a chair in finance; new student scholarships in fine arts, business, and public policy; and student-serving internship programs.

Two sets of Pepperdine parents saw opportunities to enrich the theatre arts experience of undergraduates through scholarships and enhancements to our art studio spaces. Other generous donors have contributed to the dean’s excellence funds at our undergraduate and graduate schools.

HONOR GOD AND OUR HERITAGE OF FAITH

From support for our Pat and Shirley Boone Center for the Family, to enabling gifts for the University’s Center for Faith and Learning and our annual Bible Lectures that bring thousands to Malibu each spring, Pepperdine has welcomed support that is helping to extend our Christian mission within and beyond our campuses.

The dedicated work of the Pepperdine Volunteer Center, Project Serve, Step Forward Day, and a host of service-learning events embraced by our students, extends Mr. Pepperdine’s ideal of “a great Christian institution of higher learning in Los Angeles that would serve the world from this cosmopolitan crossroads.”

THE CAMPAIGNEnabling the Future

BUILD COMMUNITY

Terry and Sharon Mullin are the namesakes of our Mullin Town Square at the center of the Malibu campus. Their dedication to building community has been realized in Phase I of this two-phase project, integrating social and academic venues that converge on the main plaza at the heart of Seaver College. Comfortable and inviting niches to sit, read, relax, study, and socialize—surrounding the iconic fountain in Joslyn Plaza—are enhanced by a shaded courtyard and a picturesque plaza classrooms terrace.

Others have stepped forward to help build community through our future University events center at the top of the campus. We are heartened by early, pacesetting gifts toward the long-planned arena, destined to become the home of the Waves and major sports events, but also the venue for conferences, concerts, and commencement ceremonies.

We are also thankful to donors who have begun to step forward to help us renovate and create our 21st-century “Library of the Future,” accomplish a dramatic revitalization of our Odell McConnell Law Center, and support our intercollegiate athletic teams.

RESPECT DIVERSITY AND PROMOTE GLOBAL UNDERSTANDING

Herbert and the late Elinor Nootbaar are among our greatest enablers of this campaign aspiration. As benefactors of the Nootbaar Institute on Law, Religion, and Ethics, their continuing gifts are transforming the lives of “the least of these” in third world countries through the work of Pepperdine law students and faculty.

We are also gratified by the gifts of alumni in support of our global Waves of Service initiative, which honors Mr. Pepperdine’s mandate “to continue the widening waves of good citizenship and Christian influence” through the connected service projects of our graduates locally, nationally, and around the world.

GIVING FROM THE INSIDE OUT

A wonderful testament to our mission to change lives has been demonstrated by our own Pepperdine family. Months before the campaign’s May 2011 public launch, more than 1,100 of our employees made contributions to the University.

The faculty/staff campaign, led by staff and faculty, encouraged outright or payroll-deduction gifts, even estate planning opportunities, and employees were permitted to donate to the University as a whole or to favorite schools, programs, or scholarships. All told, 73 percent of our own family—responsible for impacting student lives on a daily basis—has invested in the University’s future and the students we serve.

THE ACT OF BEING GENEROUS

And so, with you, we face the challenge of meeting our ambitious campaign goals, of increasing our margin of excellence, to make possible an incomparable environment for learning, living, and personal growth for our students.

In his book, Being Generous, Theodore Malloch asks the provocative question, “How should we live?” Malloch suggests that the concept of giving selflessly to others lies at the heart of what it means to be a thoughtful and moral human being.

Pepperdine has its own compass point to answer Malloch’s question. It is found in the motto in scripture, chosen by our founder, to define his hopes for all who would study and teach at his college. In “Freely ye receive, freely give,” we find our calling, our worthiness, to positively change the life of each student in ways that are deep, wide, and everlasting.

All of us at Pepperdine are grateful for your partnership—and your enabling gifts—toward our worthy cause.

1. S. Keith Hinkle2. Louis Drobnick3. John Miller4. Claudia Arnold Preston5. Stephanie Buckley6. Ronald Phillips7. Sara Jackson8. Michael Warder9. Thomas Caldwell10. Cynthia Ware11. Deirdre Shipstead12. Christine Bishop13. Sheila King14. Giuseppe Nespoli 15. Nicole Ashby 16. Heidi Bernard17. Karin Taylor18. Kimberly Barkis19. Curt Portzel20. Dawn Pettersen21. Mathew MacDonell22. Kay Rosen23. Greg Cornell24. Samuel Lagana25. Wesley Patterson

Not pictured: Kelly Herman and Stacy Taylor

Volunteer Chairs

Glen HoldenFormer Ambassador to Jamaica

Member, Board of Regents

Marylyn M. Warren (’58)Senior Vice President, Retired

eHarmony.comMember, Board of Regents

Campaign Leadership Team

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45

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2015

1110 12 1314

21 22

181716

24

1. S. Keith Hinkle2. Louis Drobnick3. John Miller4. Claudia Arnold Preston5. Stephanie Buckley6. Ronald Phillips7. Sara Jackson8. Michael Warder9. Thomas Caldwell10. Cynthia Ware11. Deirdre Shipstead12. Christine Bishop13. Sheila King14. Giuseppe Nespoli 15. Nicole Ashby 16. Heidi Bernard17. Karin Taylor18. Kimberly Barkis19. Curt Portzel20. Dawn Pettersen21. Mathew MacDonell22. Kay Rosen23. Greg Cornell24. Samuel Lagana25. Wesley Patterson

Not pictured: Kelly Herman and Stacy Taylor

The senior administration and deans

of Pepperdine humbly serve the

University with knowledge, skill, and

dedication to its mission. Pepperdine’s

many longstanding leaders hold the

institution to a sure and steady course,

while new faces infuse the school

with fresh energy and perspective.

Darryl L. TippensProvost and Chief Academic Officer

Tippens has been a literary scholar, instructor, and professor for over 30 years. As chief academic officer, he provides overall direction and leadership to the academic programs in each of the University’s five schools. During his 11 years as provost, Tippens has been a steady voice for the essential and historic link between scholarship and faith. Under his guidance, Pepperdine’s commitment to teaching and research, as well as the formation of new programs and centers, have increased significantly.

S. Keith HinkleSenior Vice President for Advancement and Public Affairs and Chief Development Officer

As a CPA (license currently inactive) and attorney, Hinkle spent several years in public accounting and practicing law. He is a 1997 alumnus of the School of Law and returned to Pepperdine in 2000 as director for the Center for Estate and Gift Planning. Hinkle oversees fundraising, alumni affairs, and public affairs. He also serves on the board of the Los Angeles Chamber of Commerce and the Ventura County Economic Development Association.

Hanson’s responsibilities encompass broad operational, financial, budgeting, legal, regulatory, governmental, human resources, construction and campus physical planning, physical plant, administrative, and related duties. He also serves as the University’s assistant corporate secretary and as a director of its U.K. Charity Corporation and Argentine Foundation.

A magna cum laude graduate of the University of Utah, Hanson received his JD from Pepperdine University School of Law in 1980.

Gary A. HansonExecutive Vice President and Chief Operating Officer

Pippin, who focuses his full attention on Pepperdine’s investments, is responsible for the management of the University’s endowment, general reserves, treasury, trust and annuities, and real estate. His work with the investment committee within the Board of Regents offers a unique opportunity for the growth and strengthening of Pepperdine’s financial future.

A CPA (license currently inactive) with extensive experience in finance, Pippin came to Pepperdine in 1981, was appointed chief financial officer in 1991, and named vice president in 2000.

Charles J. (Jeff) PippinSenior Vice President for Investments and Chief Investment Officer

Andrew K. BentonPresident and

Chief Executive Officer

Benton has served Pepperdine as the chief executive officer since 2000. Prior to this role, he held the position of executive vice president for over nine years. Benton teaches courses within the University on a regular basis and is deeply involved in the lives of students. He is active in many legal, educational, athletic, and community organizations, including the National Association of Independent Colleges and Universities, and the American Council on Education, for which he chaired the board of directors 2008–2009.

Senior Administration

Linda A. LivingstoneDean, Graziadio School of Business and Management

Livingstone has served as dean of the Graziadio School of Business and Management since 2002. During her tenure the school has increased international partnerships to over 35 worldwide; established the E2B (Education to Business) Live Case Program; launched the Dean’s Executive Leadership Series; added degree

programs in applied finance, entrepreneurship, global business, and management and leadership; and added a certificate in Social, Environmental, and Ethical Responsibility (SEER).

Deanell Reece TachaDean, School of Law

Tacha was named the Duane and Kelly Roberts Dean of the School of Law in 2011. She has been a circuit judge, U.S. Court of Appeals for the 10th Circuit, since January 1986. She served as chief judge from January 2001 through 2007. Tacha previously served in numerous academic capacities at the University of Kansas and practiced law in Washington, D.C. She has represented the judiciary of the United States internationally on several occasions.

Rick R. MarrsDean, Seaver College of Letters, Arts, and Sciences

A member of the Pepperdine Religion Division faculty since 1987, Marrs was named dean of Seaver College in 2008. He served as the Blanche E. Seaver Professor of Religion from 2001 to 2006. Marrs is regarded as an exceptional scholar of the Old Testament and the literature of the ancient Near East with

knowledge of Hebrew, Aramaic, Syriac, Phoenician, and Ugaritic, and in the study of the Dead Sea Scrolls.

Margaret J. WeberDean, Graduate School of Education and Psychology

Dean of GSEP for 10 years, Weber has published work on the socialization of graduate students and faculty development. Under her leadership, GSEP launched its Urban Initiative program in 2006. She serves as director for GSEP’s newest master’s program, the master of arts in social entrepreneurship and change, which

responds to leading with purpose through service. Weber’s current research focuses on The Women’s Project: Work-Life Balance, which takes a global view of women and leadership.

James R. WilburnDean, School of Public Policy

Wilburn is the founding dean of the School of Public Policy, which was launched in 1996. He is the author of several books on American history, business management, and leadership. Having served as cochair of the U.S. Committee to Assist Russian Reform, he is widely considered an expert on the subject. Throughout his four decades at Pepperdine, Wilburn has served in

several leadership roles including provost, dean of the business school, and vice president for University Affairs.

Mark S. RoosaDean of Libraries

Dean of Pepperdine’s libraries since 2004, Roosa directs libraries on the Malibu campus and throughout the Los Angeles area, leading their efforts to provide seamless access to both print and digital resources essential for learning, teaching, and research. Prior to joining Pepperdine, Roosa served as director for preservation at the Library of Congress in Washington,

D.C., and chief conservation officer at the Huntington Library, Art Collections, and Botanical Gardens in San Marino, California.

This year Pepperdine was excited to welcome a new dean to the School of Law: distinguished jurist Deanell Reece Tacha, who served for more than 25 years as a circuit judge on the United States Court of Appeals for the 10th Circuit. Also reaching an important milestone was School of Public Policy dean James R. Wilburn, who celebrated 40 remarkable years at Pepperdine this spring.

academic deans

I find the great thing in this world is not so much where we stand, as in what direction we are moving: To reach the port of heaven, we must sail sometimes with the wind and sometimes against it—but we must sail, and not drift, nor lie at anchor. —Oliver Wendell Holmes

I f I had to sum up the feelings I have

when I review the financial results of

fiscal 2011 in one word—that word

would be “hopeful.”

Following two very challenging years in the history of Pepperdine University, I am breathing a small sigh of relief. In the wake of the financial crisis, and now the California state budget crisis, many of my colleagues at other universities—especially those at publicly funded institutions—have not resumed breathing at all.

Whereas we took decisive action two years ago to internally reallocate funds to improve operating efficiency and institutional liquidity, many others have only recently begun to take such actions, by either dramatically reducing operating budgets or significantly increasing costs to their students.

While I can certainly empathize with those who are currently grappling with these challenges, I must say that I am pleased that Pepperdine University decisively dealt with those same challenges two years ago and is now uniquely positioned to make significant improvements in the quality of service we afford our students.

The financial position of the University has gained strength from a year ago, with net assets and unrestricted net assets increasing to $1 billion and $576 million, respectively. The primary driver of

Message from the Chief Financial Officer

By Paul B. Lasiter, CPAVice President and

Chief Financial Officer

ASSETS 2011 2010

Cash and cash equivalents ..................................................... $ 50,172 $ 54,479

Student receivables, less allowance for doubtful accounts of $1,374 and $1,418, respectively ....... 1,838 2,997

Other accounts receivable ..................................................... 4,822 7,660

Student loans, less allowance for loan losses of $1,697 and $1,632, respectively .................. 24,513 25,960

Contributions receivable, net ................................................. 27,752 37,644

Prepaid expenses, inventories, and other assets ...................... 5,459 5,905

Investments .......................................................................... 779,682 691,075

Assets held as trustee or agent ............................................... 121,656 111,185

Property, facilities, and equipment, net .................................. 346,678 345,898

Total assets ....................................................................... $1,362,572 $1,282,803

LIABILITIES AND NET ASSETS

Liabilities:

Accounts payable and accrued liabilities ............................ $ 23,801 $ 28,934

Accrued salaries and wages ............................................... 3,216 3,099

Student deposits, advance payments, and deferred revenue .......................................................... 8,613 9,916

U.S. government-funded student loans .............................. 14,685 14,393

Trust and agency obligations ............................................. 72,198 70,771

Long-term obligations........................................................ 226,978 227,172

Total liabilities .............................................................. 349,491 354,285

Net assets:

Unrestricted ...................................................................... 575,703 521,281

Temporarily restricted ....................................................... 132,378 119,064

Permanently restricted ...................................................... 305,000 288,173

Total net assets ............................................................. $1,013,081 928,518

Total liabilities and net assets ........................................ $1,362,572 $1,282,803

PEPPERDINE UNIVERSITY Consolidated Statements of Financial Position

At July 31, 2011 and 2010 (in thousands)

the growth in net assets came from both improved investment results, principally from endowment funds, as well as positive operating performance.

During fiscal 2011, the University’s endowment funds increased $58 million, or 10 percent from one year ago, to total $623 million. It is important to note that this is the increase after accounting for appropriations of endowment support totaling nearly $32 million to fund operating costs and student aid. Many financial analysts look to endowment value as one of the key measures of a university’s financial strength.

Generally, I am not concerned about the value of our endowment at any single point in time, but more concerned with the ability of our endowment to

meet the payout requirement we’ve budgeted in any given year. With that in mind, the liquidity position of our endowment is very good and has never caused me to question the receipt of our budgeted annual endowment support. The investment policy of our endowment allows management to achieve superior long-term returns with a reduced risk profile while at the same time allowing for tactical asset shifts to adapt to changing market conditions.

At the present time, we are expecting endowment support to remain relatively constant in the short term since the University distributes endowment support based on a five-year moving average of endowment value multiplied by a five percent payout rate. As mentioned before, endowment support totaled

net student tuitionand fees

room and board

private gifts and grants

endowment support

Net student tuitionand feesgovernment grants

sales and servicesother revenue

instruction and research

academic supportstudent

services

public service

auxiliary enterprises

management and general

membership development fundraising

REVENUES EXPENSES

For the year ended July 31, 2011

REVENUES

Student tuition and fees .................................................. $ 264,767 $ – $ – $ 264,767

Less student aid ............................................................. $ (80,214) $ – $ – $ (80,214)

Net student tuition and fees ........................................... 184,553 – 184,553

Room and board ............................................................. 31,821 – 31,821

Private gifts and grants ................................................... 13,622 5,519 8,644 27,785

Endowment support ....................................................... 31,377 197 263 31,837

Government grants ........................................................ 3,602 6 3,608

Sales and services ........................................................... 6,800 – 6,800

Other revenue................................................................ 3,953 956 409 5,318

Net assets released from restriction ........................ $ 3,529 $ (3,184) $ (345) $ –

Total revenues ....................................................... $ 279,257 $ 3,494 $ 8,971 $ 291,722

EXPENSES

Instruction and research ................................................. 82,314 – – 82,314

Academic support .......................................................... 48,055 – – 48,055

Student services ............................................................. 46,590 – – 46,590

Public service ................................................................. 14,895 – – 14,895

Auxiliary enterprises ....................................................... 19,802 – – 19,802

Management and general ............................................... 48,637 – – 48,637

Membership development .............................................. 1,989 – – 1,989

Fundraising .................................................................... $ 7,699 $ – $ – $ 7,699

Total expenses ....................................................... $ 269,981 $ – $ – $ 269,981

Change in net assets before non-operating revenues and expenses .......................................... 9,276 3,494 8,971 21,741

NON-OPERATING REVENUES AND EXPENSES

Adjustment of actuarial liability ...................................... – 3,113 1,386 4,499

Investment income:

Dividends .................................................................. 7,602 2,306 17 9,925

Interest ...................................................................... 1,206 4 85 1,295

Other ........................................................................ 6,956 56 – 7,012

Investment expenses ...................................................... (2,991) (932) – (3,923)

Net realized and unrealized investment gains ................. 32,367 9,253 9,528 51,148

Other ............................................................................. $ 6 $ (3,980) $ (3,160) $ (7,134)

Total non-operating revenues and expenses ................ $ 45,146 $ 9,820 $ 7,856 $ 62,822

Change in net assets ....................................................... 54,422 13,314 16,827 84,563

Net assets at beginning of year ............................... $ 521,281 $ 119,064 $ 288,173 $ 928,518

Net assets at end of year ........................................ $ 575,703 $ 132,378 $ 305,000 $ 1,013,081

UnrestrictedTemporarily Restricted

Permanently Restricted Total

PEPPERDINE UNIVERSITY Consolidated Statement of Financial Position

For the year ended July 31, 2011 (in thousands)

$32 million in fiscal 2011, or approximately 12 percent of total expenses. The relatively low level of support for operations provided by our endowment has been advantageous in the midst of the challenging investment environment we have faced recently since we are less dependent on endowment support to fund operations than many other universities.

The University’s liquidity position remains strong and continues to improve through positive operating results, and increases in investment values. Investments in property, facilities, and equipment have moderated over the past year, although we are keenly aware of the ongoing needs to improve the places that our students live, study, and work. To that end, future investments in facilities will continue, and are expected to be funded through the use of existing reserve funds and gifts from friends and alumni.

The operating leverage of the University remains conservative with our long-term debt-to-total capitalization ratio standing at 18 percent at the

end of fiscal 2011. The University’s debt structure consists entirely of fixed-rate debt, with the majority of maturities scheduled to occur in more than 23 years. The only sizeable exception to that general statement relates to the scheduled maturity of $50 million in taxable bonds due in 2019. The current level of general asset reserves is sufficient to make all scheduled principal payments through 2033.

The University’s results from operations remained strong in fiscal 2011, primarily as a result of our students’ support and the generosity of our alumni and friends, as well as to significant returns from our investment portfolio.

Net tuition revenues increased four percent or $7 million to total $185 million in fiscal 2011. From a student’s perspective, net tuition and fee revenues amounted to $30,100 per full-time-equivalent student in fiscal 2011, while at the same time, expenses that directly affect each student’s experience, such as instruction, research, academic support, and

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student services, amounted to $28,865 per full-time-equivalent student, or approximately 96 percent of each net tuition and fee dollar paid.

Net tuition and fees combined with room and board revenues totaled $216 million in fiscal 2011, or approximately 74 percent of total revenues. Strong demand for the vast majority of our academic offerings, in light of this relatively high level of student-related revenues has provided the University with a stable source of cash to fund operations.

Private gift and grant revenues remained strong, but decreased 26 percent to $28 million due to a larger balance of gifts received through deferred-giving arrangements. It is vitally important to the future of the University that we maintain and sustain a high level of private gift and grant revenues to both increase the value of our endowment and support current operations. We continue to need the support of our alumni and friends, since the need for additional student financial aid continues to be a key concern.

Total Assets

0

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$600,000

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$1,200,000

$1,500,000

201120102009200820072006

(in thousands)

(in thousands)

Net Assets

0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

201120102009200820072006

(in thousands)

Endowment Assets

0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

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$800,000

201120102009200820072006

During the course of the past two fiscal years, we took decisive steps to reallocate operating costs to help fund increased levels of student aid. In fiscal 2011, growth in student aid stabilized, and we dedicated increased resources to support other operating activities. As a result, student aid increased one percent and total operating expenses increased by six percent. Despite the recent growth in expenses, we continue to retain annual operating reserves that can be used to shore up any declines in future endowment support, fund more student aid should that need arise, make strategic investments in research and instruction, or to improve the quality of the student learning experience through reduced enrollment requirements.

Despite the inevitable financial challenges we face each day, I feel incredibly blessed to be working here at Pepperdine University. God has certainly kept his face shining upon this special place in the midst of very turbulent times. I pray that He continues to give us all peace, and that each of us who serves here passes on His grace to our students through all that we do.

Edwin L. Biggers Chair President (Retired), Hughes Missile Group

James R. Porter ViCe Chair Principal, Porter Capital Partners

Susan F. Rice seCretary Principal Consultant, SFR Consulting

Frederick L. Ricker assistant seCretary Vice President and Deputy General Manager Advanced Programs and Technology Northrop Grumman Aerospace Systems

William S. Banowsky President Emeritus, Pepperdine University

Andrew K. Benton President, Pepperdine University

Sheila K. Bost Individual, Marital, and Child Psychotherapist

Charles L. Branch Professor of Neurosurgery Wake Forest University Health Center

Dale A. Brown Principal, Moriah Group Petroleum Strategies

Janice R. Brown Circuit Court Judge, United States Court of Appeals for the D.C. Circuit

Jose A. Collazo Vice Chair and President, Form I-9 Compliance, LLC

Jerry S. Cox President, Cox & Perkins Exploration, Inc.

W. L. Fletcher III Co-Owner, Park Centre Properties, LLC

Terry M. Giles President and Owner, Giles Enterprises

Michelle R. Hiepler Partner, Law Offices of Hiepler & Hiepler

Glen A. Holden United States Ambassador (Retired) Managing Partner, The Holden Company

Gail E. Hopkins Orthopaedic Surgeon, Hinsdale Orthopaedic Associates

John D. Katch District Manager (Retired), Southern California Edison Company

BOARD OF REGENTS

The 40-member Board of Regents is the legal governing body and chief policy board of the University. Life Regents are recognized and honored for their extraordinary service as past regents.

The University administration, working in tandem with the governing and advisory boards, shapes the direction of the University.

The guidance provided by these distinguished and committed men and women is greatly valued.

Mark A. Kirk Partner (Retired), Linsalata Capital Partners

Dennis S. Lewis President and Owner, WorldTravelService

Eff W. Martin Managing Director (Retired), Goldman Sachs & Company

Michael T. Okabayashi Partner, Ernst & Young

Danny Phillips Investments/Ranching

Timothy C. Phillips Chief Executive Officer, Phillips and Company

Russell L. Ray, Jr. Airline and Aerospace Companies Executive (Retired)

Carol Richards

B. Joseph Rokus Vice Chair, Consolidated Container Company

P. Bui Simon President, Angels Wings Foundation International

Harold R. Smethills Managing Director, Sterling Ranch, LLC

Rosa Mercado Spivey Physician, Medical Director, LAUSD

William W. Stevens Chair of the Board (Retired), Triad Systems Corporation

Stephen M. Stewart President, Stewart Brothers Drilling Company

Augustus Tagliaferri Chair and President Financial Structures, Inc.

Marta B. Tooma Dentist

Thomas J. Trimble Senior Vice President/General Counsel and Corporate Secretary (Retired), Southwest Gas Corporation

Robert L. Walker Senior Executive for Development Texas A&M University

Marylyn M. Warren Senior Vice President (Retired), eHarmony.com

Edward V. Yang Chair and President, U.S. Business Group iSoftstone, Inc.

LIFE REGENTSJoe R. Barnett

Lodwrick M. Cook

Robert R. Dockson

Hari N. Harilela

Jerry E. Hudson

Jerve M. Jones

Rosemary Raitt

Charles B. Runnels

Richard M. Scaife

William R. Waugh

J. McDonald Williams

Helen M. Young

PAT BOONE Chair

William Ahmanson, Jr.

Robert Barbera

Thomas J. Barrack, Jr.

Nabil Barsoum

William W. Beazley

Paul F. Bennett

Andrew K. Benton

A. Ronald Berryman

Viggo Butler

Rod Campbell

Peter Chung

Manuel Del Arroz

K. Duane Denney

Robert E. “Bob” Dudley

Maureen Duffy-Lewis

Mark W. Dundee

David G. Elmore

Alex Fortunati

Hank Frazee

G. Louis Graziadio III

Bart M. Hackley, Jr.

Michael A. Hammer

Mary Heckmann

Bruce Herschensohn

Robert W. P. Holstrom

Peter James Johnson

M. Lawrence Lallande

Carl J. Lambert

Stephen Lehman

Deanne Lewis

Ian R. Linde

Seiji Masuda

Takuji Masuda

Gregory R. McClintock

Warren R. Merrill

E. Chadwick Mooney

Velma V. Morrison

William S. Mortensen

Kenneth Mosbey

Aaron Norris

Stephen E. Olson

John D. Ratzenberger

Kelly Roberts

Charles B. Runnels

Paul Saber

Margaret Sheppard

Eric Small

Lisa Smith

Richard L. Stack

William G. Stephens

Dorothy B. Straus

Terralynn Walters Swift

George Thomas

Robert A. Virtue

Ellen Weitman

Jay Welker

Larry L. Westfall

Jeremy N. White

Gary L. Wilcox

Griffith J. Williams

Judy Zierick

ANNUAL REPORT 2011UNIVERSITY BOARD

The University Board is a national advisory group that provides additional guidance

and leadership.

Statement of AffirmationPEPPERDINE UNIVERSITY AFFIRMS

That God is

That God is revealed uniquely in Christ

That the educational process may not, with impunity, be divorced from the divine process

That the student, as a person of infinite dignity, is the heart of the educational enterprise

That the quality of student life is a valid concern of the University

That truth, having nothing to fear from investigation, should be pursued relentlessly in every discipline

That spiritual commitment, tolerating no excuse for mediocrity, demands the highest standards of academic excellence

That freedom, whether spiritual, intellectual, or economic, is indivisible

That knowledge calls, ultimately, for a life of service.PA

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