OCTOBER 10, 2002

President's Report to the October Meeting: "Meeting the Financial Challenge"

To: Members of the Global Board of Directors

From: Joan Holmes

Executive Summary

At the very time our programs are poised for expansion, we have needed to confront a significant cash shortfall. The fundraising initiatives we launched in the first half of the year to meet the challenges of the post-9/11 economy were insufficient. Beginning in June, we took more dramatic steps, including my taking personal charge of our fundraising efforts. In the past four months, these steps have shown positive results. While we are not "out of the woods" yet, we have seen significant progress.

A guiding principle throughout this period has been to avoid any significant harm to our programs. While we are not yet in a position to expand these programs, they have continued to be strong and produce the very impressive results included in the attached country reports.

Background on our current financial situation

It was becoming apparent by the middle of 2001 that the end of the "dot-com" economy was hurting our fundraising efforts. Income growth in The Hunger Project from 1992 through 2000 had tracked closely with the overall growth achieved by charities during the decade. Through a very intense year-end campaign and thanks in large measure to the extraordinary generosity of Steve Sherwood's million-dollar investment, we held our own during 2001.

As we began 2002, we took steps we hoped would be sufficient to meet the challenge: (1) we began operating under an austere "contingency" budget designed to cut expenses well below board-approved levels, (2) we launched new fundraising efforts including a "Road Show" to catalyze expansion in more cities across the US, (3) we redeployed staffing, assigning both Peg Thatcher and John Coonrod to US funding and assigning Marty Corley and Laurel Dutcher to work in partnership with the affiliates to maximize their results.

While these efforts produced some results, they were insufficient to stem the tide. As pointed out in the New York Times by the head of the Ashoka Foundation - his foundation (like The Hunger Project) has been disproportionately hurt because it is supported most strongly by entrepreneurs, small business owners and consultants - the segment of the economy most devastated in this economy. Many of The Hunger Project's most generous investors have seen 50-80% cuts in their personal incomes.

By the end of May, The Hunger Project was more than $1 million behind in income compared with 2001. To survive and thrive, The Hunger Project obviously needed to work far more rigorously with far larger number of our investors.

Action taken in June

On June 3, Peg Thatcher - our director for global funding - completed her tenure on staff and I took direct charge of fundraising efforts. We based our work on the premise that our existing investor constituency and their friend and colleagues - if we communicated with them far more rigorously - would be able to provide sufficient funds for The Hunger Project.

We established an "expanded fundraising team" including staff from program, fundraising and financial management so that there would be a wider forum for analysis and action. We hired Jim Whitton, one of our volunteer fundraisers, to join our staff, and assigned Carol Coonrod and John Coonrod to include fundraising alongside their program responsibilities.

We created new computer-based work plans to track our fundraising strategies with each individual investor.

To prioritize our work, we categorized our investors according to investment levels (the "pyramid of giving" applied by most charities) and by how recently people had invested. We defined "Universe A" as our current investors who had last invested in 2001 or 2002, "Universe B" to be those lapsed investors from 1999 or 2000, and "Universe C" as those who lapsed earlier. We committed ourselves to being in communication with every investor in Universe A and B. Every investor over $1,000 in Universe A and over $1,500 in Universe B has been assigned to a staff fundraiser, who is personally accountable to communicate with that investor and empower their participation.

Within these investor distinctions, we created the following focused strategies:

Individual strategies for each investor at the $25,000+ level that we review weekly with the expanded team.

Strategies for corporations and foundations.

A strategy of "Investor Gatherings" led by a team of volunteers, building on the "Road Show" strategy from the first half of the year.

A series of five events that I led personally.

Strategies for individual calls or meetings with every investor above $500.

Mailing strategies for all those below $500.

Results since June

Since June, we have raised $1.1 million in new funds for 2002 in the US. Cash receipts in July and September were significantly ahead of the same months last year. (August, other than Steve Sherwood's magnificent investment in August 2001, was approximately the same.)

More than 1,300 individuals attended 30 Hunger Project presentations between February and August - roughly half of whom were new to The Hunger Project. This is an unprecedented step, and provides us with an important platform for expansion in the future.

Fundraising Plans for October 26 and the rest of 2002

In late August, we looked out to the rest of this year, and created targets and strategies to raise an additional $2 million in the US for 2002, and additional funds in the affiliates. Together, these targets - if fulfilled - would bring us to our original fundraising target for this year.

Our biggest fundraising opportunity each year is the annual fall event. This year, instead of having only one event in New York, we are having more than 60 events in 23 countries around the world, linked by satellite. These events require us to call forth and empower a multiplicity of leadership that will be vital for expanded fundraising at these events and in the future.

For example, the largest of our past annual events in New York was attended by approximately 1,300 US citizens and many more from the affiliates. This year, we could have nearly twice as many Americans attend our fall events by participating in 37 different localities, brought together by more than three times as many volunteers.

Many of the localities hosting October 26th events will organize follow-on events in November and December, to channel the excitement, energy and hopefully opportunities for more additional financial resources that emerges from October 26th.

Program milestones and the contingency budget

The first principle of our contingency budget has been to minimize cuts to program. It has not, however, been possible to avoid cuts all together. We have delayed planned expansion of funds for African Woman Food Farmer loans, delayed construction of additional epicenters, and have not been able to expand our India budget nearly as much as we had hoped. Perhaps most painful of all, we have not yet been able to fully launch our new campaign of workshops on "AIDS and Gender Inequality" that we developed earlier this year - although our team in Uganda has obtained local government funds to begin it at the Mpigi epicenter.

Within the remaining program budgets - and bringing enormous good will, spirit and creativity to challenging times - our programs continue to cause breakthroughs. As you will read in the attached reports - and will see in video footage to be presented on October 26th - since our last meeting:

Our "epicenter" strategy in Africa continues to empower mobilization for self-reliant development in 6 countries. Its effectiveness was recently acknowledged by the commitment of the West African Development Bank and IFAD to channel funds through two of our epicenter banks in Senegal. The local government that serves the Mpigi epicenter in Uganda has committed to fund the AIDS and Gender Inequality strategy from that epicenter.

The African Woman Food Farmer Initiative has made new loans to 5,200 women totally $150,000 during the first six months of the year.

Bangladesh successfully held its third annual "National Girl Child Day", with more than 160 events across the country.

India successfully awarded the second annual "Sarojini Naidu Prize for Best Reporting on Women and Panchayati Raj."

In Bolivia, our partner ACLO has played a key role in increasing representation by indigenous people. Of the 27 indigenous members elected recently, the 7 from Chuquisaca and Potosí are all graduates of ACLO workshops.

Planning Process for 2003

In reviewing our position mid-year, the Audit and Finance Committee recommended we consider planning scenarios that can take into account a worst-case 2002 income of $5.5 million - a dramatic drop from our original $7.2 million target. We have done this - based on additional spending cuts in 2002, a prudent but significant draw-down of operating reserves, and preparation of a reduced budget for 2003.

Given that our program is based on self-reliance and the human component, we could survive such a situation. But given our mission, any loss of momentum is unacceptable.

We are also considering scenarios based on $6 million and $7 million incomes, and we continue to have in place plans for up to $10 million per year in sustainable income. Reaching $10 million sustainable annual income continues to be our strategic objective.

By November, when budgeting and planning for 2003 begin in earnest, we will know much more about how we will end this year in terms of income. We will be able to plan our budget for 2003 consistent with both prudent management and our unyielding commitment to our mission.

There are no clear signs that this economy will turn around anytime soon. The Hunger Project will need to give top priority to holding down costs and expanding our investor movement at all levels throughout 2003 in order to begin the kind of sustainable expansion in programs that we are committed to achieve.