ADMINISTRATIVE DIRECTOR'S REPORT

Newsday recently titled a lead editorial "The World Comes to Cold Spring Harbor"-- and so it does, with record numbers of visiting scientists and students, and with representatives of government, the judiciary, the press, and the general public. They come to interact with the staff here and to learn from the multi-faceted research and education programs. In so doing, they help make Cold Spring Harbor what must surely be the most interesting place in the world today at the vanguard of genetics.

Last year was a particularly good time to visit and to work at the ab. There was a remarkable flow of discovery-from new cancer genes, to the molecular basis of long-term memory, to flowering intricacies in plants. Meetings and courses on the main campus represented the cutting edge of science, and Banbury Center, the CSHL Press, and the DNA Learning Center added richness and diversity to an already overflowing mix.

It was also a satisfactory year from the administrative standpoint, with good financial results. Revenues reached a new high of $45,215,000 and a small surplus of $59,000 was achieved after allowing for approximately $3 million of depreciation. It was not necessary to utilize any portion of the $1,150,000 of designated reserves set aside in previous years to defray start-up expenses of the neuroscience program and for any research funding shortfalls. There were, however, some significant variations in several areas of Laboratory operations. The CSHL Press incurred an unanticipated deficit of $258,000, despite higher than projected sales of already published titles. The shortfall was due to the inability to meet scheduled year-end publication dates for a number of new books and lower than expected journal advertising revenues. A reorganization program to deal with these problems was instituted shortly after year-end and already shows positive indications for 1997. The deficit at the Press was more than offset by better than anticipated financial results at the main Lab, which benefited from higher investment income and indirect cost recovery from grants; and also from lower than budgeted costs in several administrative departments. Before depreciation, 1996 operations generated positive cash flow of $3,047,000, the best since $3,066,000 in 1992. Over the past 8 years, Laboratory operations have generated more than $20 million of positive cash flow, which has been invested primarily in renewing and improving infrastructure, modernizing laboratory facilities, and acquiring new scientific equipment.

Not surprisingly, it becomes more difficult each year to repeat the good financial results to which we have become accustomed. Limits on government funding for science, and intense competition for available grants, have been accompanied by reductions in government reimbursement for overhead. Categories of costs such as computer services and scientific secretarial salaries are no longer fully reimbursed and must be paid for from in-house institutional funds. Housing subsidies for young scientists seeking an acceptable living standard here on the expensive North Shore of Long Island now total nearly $170,000 per year. The Lab will be subsidizing its new on-grounds child care center, due to open in mid-1997, and will have to provide for substantial start-up costs. Although we are exempt from most federal, state, and local taxes, the Laboratory makes substantial voluntary payments to local villages in recognition of services provided, and to the local school district on behalf of the children of staff living in on-grounds tax-exempt housing. Such payments made from institutional funds last year were approximately $155,000.

To deal with such financial realities, it is imperative to maintain the lean and relatively low-cost administrative structure which for many years has characterized the Lab, while being certain that the extensive services required by a world class scientific staff continue to be provided at a commensurate level. We are making substantial investments in facility modernization, which will reduce costs in future years. A good example is the now halfway completed $1.7 million program to replace the outdated HVAC systems in Demerec Laboratory and in Bush Auditorium, and also the lighting and electric drive systems in these and many of our other buildings. Overall, this project should generate energy savings of more than $300,000 per year and pay for itself entirely in less than six years' time.

Revenue enhancement provides a good counterbalance to increasing costs and we continue to encourage David Stewart, director of Meetings and Courses, and his staff to extend the now several-year effort to increase use of our much expanded and improved meetings and teaching facilities by adding new meetings and courses appropriate to the character and mission of the Laboratory. Each year, the number of participating scientists rises, providing significant new revenues.

Very important also has been the success of technology transfer under the very capable leadership of John Maroney. In 1996 for the first time, royalty-derived income was nearly $2 million and has become a significant source of support for the science program. This is a matter of satisfaction, but paradoxically also of concern, in that one very important patent, accounting for more than half of all royalty-derived income, will expire in the year 2000. There will be new, but probably more modest, sources of royalty income by then. In addition, the Laboratory now has growing holdings of stock in biotechnology companies, received in return for granting various rights to Lab-developed intellectual property. The Laboratory now holds equity positions of varying sizes in ten such companies based in whole or in part on Lab technology. Back in 1992, the Laboratory's Board of Trustees established the Science Fund as an integral part of the Lab's endowment, into which are placed all such stock holdings to be accumulated and used eventually for the support of the science program. For the first time, in 1996, the Lab's financial statements include a conservative valuation for such holdings of $2,672,000. Five of the companies have now completed IPOs and have public markets. While in most instances the Lab's percentage ownership of each company is relatively small, it is a significant indication of the value of CSHL technology that these 10 companies together have an overall public and private market capitalization of just over $1 billion.

Nineteen ninety-six was another outstanding year for the Laboratory's endowment, which collectively includes the Robertson and Cold Spring Harbor Funds and is our primary source of internal funding for science. With the bull market of recent years continuing to drive equity markets to record levels, the year-end combined values of the Robertson Research and Cold Spring Harbor Funds approached $130 million, which when offset by the Lab's $30 million of outstanding tax-exempt debt, represents a total of nearly $100 million, an amount we could only dream about just a few years ago. As in the past, the endowment includes a balanced mix of investments in equities, fixed income securities, and short-term instruments. Total return for 1996 was a shade less than 16%, ahead of the benchmark index, which rose 14.9%. As in past years, the firm of Miller Anderson & Sherrerd, now a subsidiary of Morgan Stanley & Co., provided outstanding investment management. During 1996, considering the substantial growth of the funds, the Finance & Investment Committee of the Laboratory, headed by John Reese, conducted a search for additional investment managers. Effective July 1, the Committee appointed two, the Vanguard Prime Cap Fund and Essex Investment Management Company, Inc., to provide additional expertise in the growth equity areas of the portfolios. U.S. Trust Company continues to provide excellent management for our short-term investments. As in the past, the annual drawdown policy for the endowment was maintained at a conservative average of less than 3.5% of market value. This policy, together with good investment management, has enabled the endowment to grow over the years at a rate sufficient to provide an offset for inflation and for expanded science programs.

Late last year, the Buildings & Grounds Department, under the leadership of Art Brings, director of facilities, initiated its happily anticipated move into the new Richards Buildings & Grounds Facility. Named to honor Jack Richards, now our still very active director of special projects, the new facility includes modern central administrative offices and a conference room fashioned from the shell of the previous residence of Mitsu Kurahara, which was purchased by the Lab in 1992. It is flanked on either side by two new barnlike buildings which will house the various trade shops and the storage facilities needed for supplies and equipment. Well hidden from nearby meadows and from Bungtown Road are the necessary areas for parking of cars and heavy equipment, for refuse processing, and for storing various grounds and building supplies. By late summer of 1997, the entire Richards facility should be complete and in use by the Department.

A second major 1996 project was the adaptive reconstruction of the de Forest Stables for use as the new Mary D. Lindsay Child Care Center. With an eventual capacity of up to 50 infants, toddlers, and preschoolers, the new Center will add significantly to the quality of life for young laboratory families. The Center will be managed by Rainbow Chimes, Inc., an experienced child care operator from Huntington, New York, who plan to utilize the most forward-looking methodologies of child care and teaching curricula.

Other important buildings and grounds projects included a change from secondary to primary metering of the Lab's electric power, resulting in estimated cost savings of $150,000 per year, and improved reliability and redundancy of the system, thanks to the addition of a second electric feed from a second substation. Ballybung, the new President's house, was added to the Lab's internal electrical grid. Demerec & James laboratories, Robertson & Hooper houses, and Cabins 1-6 all received new high efficiency boilers for heat and hot water.

In Beckman Center, a new storage area was created for course equipment and new shops for machining, equipment service, and HVAC were built. Other areas of Beckman were reconfigured to provide room for a new MR facility and for installation of a new mass spectrometer.

The upstairs guest rooms, bathrooms and the central hallway of Blackford Hall were extensively renovated and redecorated, greatly improving these 90-year old overnight bachelor accommodations for meetings guests. In Grace Auditorium the former computer center office and repair shop was converted into a new full-service bookstore, the operation of which was subcontracted to Barnes & Noble College Bookstores, Inc. It is now a pleasure to see the many visiting scientists at the Lab meetings and courses congregating in the attractive and spacious new facility to view the wide variety of general science books and the latest publications of the CSHL Press. The old bookstore and copier room were converted to additional office space for Meetings and Courses. The network operating center for information services was extensively renovated to improve the efficiency and reliability of the Laboratory's computer system. Doubleday House, severely damaged by fire early in the year, was fully restored and returned to residential use. Last but not least, the Lab's radioactive materials license and animal care accreditation were successfully renewed on a timely basis, completing a year of accomplishment by the B&G staff, which never fails to amaze us.

Public Affairs and Development, capably directed by Susan Cooper, was also very active and successful in areas of much importance to the Laboratory. Foremost was the increased coverage of Lab research obtained in key national and local media. Newspapers such as the Wall Street Journal, New York Times and Newsday carried prominent articles describing cancer-related discoveries in the labs of David Beach, Mike Wigler and Carol Greider, and new insights regarding the molecular basis of long-term memory from the labs of Tim Tully, Jerry Yin, and Alcino Silva. ABC, CBS, and Cablevision News 12 all ran TV coverage of ongoing in-lab research; and more recently, following the publicity surrounding the cloning of the sheep Dolly, there was a televised discussion of bioethics with Jan Witkowski, director of Banbury Center.

Much effort was also directed toward further improving relations with the local community. A new newsletter, The Lab Next Door, described the lectures, concerts, and other events of public interest offered free of charge to the community by the Lab; and also reported the extensive science educational programs and other assistance made available to local public and private schools on a voluntary basis by our staff.

Development focused primarily on the difficult triple play of asking more-or-less the same constituency of donors to participate in a capital campaign, major benefit, and the annual fund, all in a single year. The capital campaign, for the benefit of the Lindsay Child Care Center, now has pledges exceeding $800,000 and it is clear that the goal of $1 million will be exceeded__owing much to the outstanding leadership of chairman Carol Large and vice-chairman Deborah Solbert. The Emanuel Ax benefit, led by chairman Lola Grace, was both a spectacular artistic and financial success, providing $136,000 for the benefit of the Undergraduate Research Program endowment. The CSHL Association's Annual Fund, led by president John Cleary, amazed us all by raising $608,000 and nearly matching the record $662,000 total of the previous year, despite the other demands placed on its almost 700 members.

The Corporate Advisory Board of the DNA Learning Center, chaired by Jack Leahy, once again achieved a record level of support, providing $151,000, or nearly 19 percent of the DNALC's annual budget. These funds were raised through a combination of the Third Annual CSHL Golf Tournament, chaired by Horst Saalbach of Festo Corporation and held at Piping Rock Club, and by a successful Annual Fund spearheaded by the very able Laura Hundt. The DNALC has become the Lab's most important outreach program to the public and the CAB is indispensable in providing for its financial viability.

It is always with special regret that we view the departure of someone we have come to count on as much as Barbara Wang, our assistant controller, who moved to Connecticut with her family. We were fortunate indeed in having Kathy Didie of the Grants Department ready and willing to assume Barbara's responsibilities, and already we are sure that she was an excellent choice to be our new assistant controller.

Also noteworthy during 1996 were the successful negotiations conducted by our controller, Bill Keen, leading to a new three-year indirect cost rate with the Department of Health & Human Services. Although the new rate continues the gradual downtrend of recent years in the amount of overhead the Laboratory may recover on government grants, it is an acceptable rate which continues to provide urgency to our efforts to further reduce costs wherever possible. As always, we are indebted to Bill for his very able management of Lab finances.

The same may be said each year of the fine leadership provided by the heads of our other administrative departments: Susan Schultz in Grants, Cheryl Sinclair in Human Resources, and Phil Lembo in Purchasing. In addition, we are most fortunate in the very comprehensive and effective library services provided by Margaret Henderson and her staff, and for the substantial upgrading and rationalization that has been brought to Information Services by Gerry Latter and his hardworking department. Nor must we overlook the generous and efficient assistance that Roberta Salant provides each year for the needs of the Trustees and of John Maroney and myself.

Looking forward to 1997, we are particularly pleased with the much improved relations with our neighbors in the Village of Laurel Hollow. The new projects undertaken by the Lab, such as the Child Care Center and the Building & Grounds Facility, have been processed expeditiously and fairly by the Village in conformity with the new zoning ordinance. Together, we and the Village have a better understanding of each other's needs and concerns and are determined to go forward in the most constructive manner possible.

The present year will mark the transition of a number of extraordinarily productive scientists from the Lab to other institutions. Their departure and the cost of recruiting replacements will place a substantial financial burden on the Lab, and in that regard makes the balance of this year and 1998 more financially uncertain than is usually the case. While we are saddened by these departures, this sort of transition has been historically typical of the Lab and has traditionally resulted in a new influx of young scientists who often experience the most productive periods of their scientific careers while at CSHL. They will surely continue to astound us with their discoveries, which are as often unexpected as they are unpredictable.