McGLADREY & PULLEN, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT

December 31, 2000

To the Board of Directors
The Jerusalem Fund for Education & Community Development
Washington, D.C.

We have audited the accompanying balance sheet of The Jerusalem Fund for Education & Community Development (The Fund) as of December 31, 2000, and the related statements of activities and changes in net assets, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of The Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Jerusalem Fund for Education & Community Development as of December 31, 2000, and the changes in its net assets and its cash flows for the year then ended in conformity with generally accepted accounting principles.

As described in Note 1, the Fund changed its definition of cash equivalents.

Bethesda, Maryland
March 2, 2000

STATEMENTS OF FINANCIAL POSITION

BALANCE SHEET

STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS

Notes to Financial Statements
December 31, 2000

NOTE 1: Nature of Activities and Significant Accounting Policies

Nature of activities: The Jerusalem Fund for Education & Community Development (The Fund) is a not-for-profit organization incorporated under the laws of the District of Columbia. The Fund seeks to improve and expand the educational, cultural, and health institutions of the Palestine community through scholarships and grants to eligible individuals and not-for-profit organizations, and to promote and enhance awareness and understanding of the Middle East through sponsorship of educational and cultural activities.

A summary of The Fund's significant programs follows:

• Center for Policy Analysis on Palestine: Present forums and seminars to study the relationship between the United States and the Middle East focusing on Palestinian issues and the Arab-Israeli conflict.
• Emergency Relief: Aid provided to established charitable institutions assisting in the West Bank and in Gaza.
• Educational Grants: Provide assistance to qualified degree seeking applicants in general areas of vocational training, under-graduate, or graduate study.
• Events and Activities: Assist and foster educational and cultural events and activities which will enhance understanding in the United States of Middle Eastern culture.

A summary of the significant accounting policies of The Fund follows:

• Basis of accounting: The accompanying financial statements are presented in accordance with the accrual basis of accounting, whereby, revenue is recognized when earned and expenses are recognized when incurred.
• Basis of presentation: The financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. Under SFAS No. 117, The Fund is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Fund had no permanently restricted net assets at December 31, 2000.
• Financial risk: The Fund maintains cash in bank deposit accounts, which, at times, may exceed Federally insured limits. The Fund has not experienced any losses in such accounts. The Fund believes it is not exposed to any significant credit risk on cash.
• Provision for doubtful accounts: Management believes that all accrued interest receivables are fully collectible and no provision for doubtful accounts is necessary.
• Investments: Investments with readily determinable fair values are reflected at fair market value. To adjust the carrying value of these investments, the difference between cost and fair market value is recorded as a component of investment income on the statement of activities and changes in net assets. The Fund considers all cash and cash equivalents held with their investment advisor to be investments.
• Property and equipment: Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives. The Fund capitalizes all property and equipment purchased with a cost of $500 or more.
• Grants payable: Grants payables are recorded when the board approves for payment the request for grant.
• Restricted and unrestricted support and revenue: Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted revenue, depending on the existence and/or nature of any donor restrictions. All donor-restricted revenue is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities and changes in net assets as net assets released from restrictions.
• Expenses: Direct costs associated with specific programs are recorded as direct program expenses. Fringe benefits, supplies, telephone, depreciation and occupancy are allocated to specific programs based on salaries.
• Income taxes: The Fund is generally exempt from Federal income taxes under the provisions of Section 501(c)(3) of the Internal Revenue Code. In addition, The Fund qualifies for charitable contribution deductions under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a)(1). Income which is not related to exempt purposes, less applicable deductions, is subject to Federal and state corporate income taxes. The Fund had no unrelated business income for the year ended December 31, 2000.
• Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
• Change in definition of cash equivalents: In prior years, The Fund has included money market funds in its definition of cash and cash equivalents for purposes of balance sheet presentation and reporting the statement of cash flows. During the year ended December 31, 2000, The Fund changed its definition of cash and cash equivalents to exclude money market funds. Money market funds under the new policy are reported as investments. Consequently, cash equivalents in the amount of $252,900 have been reclassified as investments as of January 1, 2000.

NOTE 2: Investments

Investments at December 31, 2000, consist of the following:

Equity securities	$4,572,346
Corporate bonds	1,869,536
Treasury notes	924,280
Cash equivalents	222,566
	$7,588,728

Investment income for the year ended December 31, 2000, consists of the following:

NOTE 3: Property and Equipment

Property and equipment and accumulated depreciation at December 31, 2000, and depreciation expense for the year ended December 31, 2000, are as follows:

NOTE 4: Temporarily Restricted Net Assets

Temporarily restricted net assets of $36,698 at December 31, 2000 are available for the community assistance program and net assets during the year ended December 31, 2000 of $112,836, were released from restrictions by incurring expenses satisfying the restricted purpose. Contributions to the community assistance program were $72,500 for the year ended December 31, 2000.