Dear Friend,

For over 45 years, the Packard Foundation has focused on improving the lives of children, enabling the creative pursuit of science, advancing reproductive health and conserving and restoring the earth's natural systems. We focus on goals and strategies where we think the unique nature of philanthropic support and strengths of our Foundation can make a difference. We have been privileged to work with talented and dedicated nonprofit organizations that have secured progress in each of these areas, in the United States and around the world.

We end 2008 with mixed emotions. On the one hand, we celebrate and are grateful for the wonderful progress our grantees have made this past year in the focus areas of our funding, and we are excited about new possibilities in the coming year. On the other hand, we are very concerned about the depths of this global financial crisis and the uncertainty it brings. In this newsletter, I want to share a bit about both.

Our endowment, like most others, has experienced great volatility and serious decline as we end 2008. We know that our grantees with endowments or reserves have experienced similar declines, and we are concerned with you about implications for support for all nonprofits dependent on fundraising from government, foundations and individuals in 2009.

Our Board and staff are seeking to prudently respond to this very serious financial situation and change in our endowment, while remaining focused on the strategic goals and directions we share with our grantees around some of the most urgent issues of our day—from climate change to access to health insurance for our nation's children.

So what are we doing? First, we are honoring all awards and payment obligations of the Foundation. We have also maintained our budget and award goals for 2008, and project that our payout rate for 2008 will be about 6%.

Second, our Board has decided to allow our payout rate to rise in 2009. While the volatility of the markets changes this rate regularly, we are prepared to have it rise to about 7% at our current endowment levels. In making this decision, we have set a grant award level in 2009 of $276 million, down from projected awards of $335 million in 2008. This represents overall about 20% less in new grant awards in 2009 than in 2008. But it is not an even reduction straight across the Foundation. The Board and staff are working together to decide how to make these reductions so that they have the least negative impact on areas where program needs are most urgent. This is not something we will sustain in the long term due to the impact on the health of our endowment. But this is the right decision for our Foundation in these extraordinary times.

Third, as we have over our 45-year history, the Foundation will work in other ways with impacted grantees to help them through the downturn where possible. For example, our Organizational Effectiveness program will prioritize support for grantees in need of restructuring. We can also extend grants or expedite grant application review in certain instances. We have also affirmed our commitment for program-related investments (PRIs) so that our grantees who qualify have access to low-cost loans to help them meet their program objectives.

Finally, we are tightening our own belts and driving our operating costs down by freezing most open positions and seeking significant reductions in all variable costs.

These are the steps that we have taken to date. Like you, we continue to monitor the economy and if significant further deterioration in our endowment occurs, we will be in touch about any additional steps we decide to take.

In the meantime, all of us at Packard want to keep our common goals foremost in mind. We invite you to be in touch with your program officers about how you are being impacted by this downturn. The Packard Foundation is deeply committed to the partnerships we have developed during our history, and to doing what we can to limit the impact of the current financial crisis on our grantees so that those partnerships can carry long into the future.

Now let me turn to some of the activities and accomplishments we are celebrating with grantees as we end 2008.

Earlier this year, the Packard Foundation joined other foundations in California to address the challenges facing minority-led organizations and other grassroots organizations serving low income communities. We have a long-standing history of serving underrepresented communities in California and across the country, but know we can always do more. That is why over the summer and fall, senior staff at the Foundation and I participated in a number of community meetings, many individual conversations and hosted an online wiki project on our ideas for improving our grantmaking in this area. The result will be an increased focus in providing support for leadership development activities that will bolster and train a diverse pipeline of executives, staff and board members for the nonprofit sector. We will also work with other foundations in California over several years to make grants to proven intermediary organizations that provide capacity building and leadership development support to minority-led and other grassroots organizations. You can read more about our commitment to diversity here .

In the past several months, we have also used PRIs to support excellent organizations internationally and nationally. For example, we made an investment in the BRAC Africa Loan Fund to provide microfinance loans to poor borrowers in Tanzania, Uganda and southern Sudan. BRAC's lending operations are a platform for delivering its development program, including health, education and other services to its borrowers and their communities, and helping to combat poverty and improve the livelihood of millions of people in east Africa. And at our September Board meeting, our Trustees approved a multi-million dollar bridge loan to the Nature Conservancy to support the purchase of the Plum Creek timberland properties in Montana—over 310,000 acres of critical wildlife habitat marked by aspen glades, dense conifer forests, clear flowing rivers, and extensive wetlands. Read more about our PRI program on our Web site .

Closer to our home, five years ago, we made a ten-year funding commitment to help achieve voluntary quality preschool for all three- and four-year olds in California by 2013. In 2008, we took a hard look at the halfway mark of this effort to examine what grantees have achieved, check our progress against expected results, and re-evaluate our priorities for the next five years. Through an extensive and ongoing external review coordinated by the Harvard Family Research Project, we have learned that grantees have played a central role in elevating preschool onto the public agenda and in building strong programs and advocacy efforts throughout California. Also, during this time, there has been a gradual growth in the state's preschool budget which has increased the number of children served in the state, and there have been improvements in the quality of preschool offered in communities across the state. In the next few years, we will focus our support on grantees working to provide preschool access to low inc ome children who need it most while retaining our aspiration to provide high quality preschool for all of California's children. Please visit our Web site soon to learn more about our evolving efforts.

Finally, this is a time when we hope that all individuals and foundations will pay special attention to the communities in which they live, supporting their local nonprofits. In 2009, we will keep our local giving at high levels, extending our grantmaking to San Benito County. A significant component of this local grantmaking supports food and shelter services.

Again, I end this year with real concern, but also with celebration and great gratitude for the work each of you do.

With best wishes for the holidays and New Year,

Carol S. Larson
President and CEO