WATKINS, MEEGAN, DRURY & COMPANY, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS

SUITE 400 1111 SIXTEENTH STREET, N.W.
WASHINGTON, D.C. 20036
(202) 775-1616
TELECOPIER (202) 755-8216

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statements of financial position of The Jerusalem Fund for Education & Community Development (the Organization), as of December 31, 1998 and 1997, and the related statements of activities, functional expenses, and cash flows for the years then ended. These financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide 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, 1998 and 1997, and the changes in its net assets and its cash flows for the years then ended, in conformity with generally accepted accounting principles.

Washington, D.C. April 5, 1999

STATEMENTS OF FINANCIAL POSITION

Assets

STATEMENTS OF ACTIVITIES

Notes to Financial Statements
December 31, 1998 and 1997

NOTE 1: NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ORGANIZATION

USE OF 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. However, management does not believe that actual results will be materially different from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of amounts held in demand deposits and short-term highly liquid investments with an original maturity date of three months or less.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using accelerated methods over useful lives of five to seven years for furniture and equipment and seven to forty years for the building and building improvements.

PUBLIC SUPPORT

CContributions received from the public are recognized as public support when received and are reported as current unrestricted funds unless specifically restricted by the donor to specific projects.

Temporarily restricted contributions are initially recorded as temporarily restricted support when received. When donor restrictions are met, the temporarily restricted net assets are reclassified to unrestricted net assets and are included in net assets released from restrictions on the accompanying statements of activities. Temporarily restricted contributions received during the year for which the restrictions are met during the same year are recorded as both temporarily restricted contributions and net assets released from restrictions on the accompanying statements of activities.

INCOME TAXES

Prior to 1994, the Organization was exempt from taxation under Internal Revenue Code Section 501(c)(3) as a private foundation and was subject to an excise tax on its net investment income. On April 12, 1995, the Organization received a private letter ruling from the Internal Revenue Service acknowledging that the Organization would begin a five-year termination period effective June 1, 1994, for purposes of terminating its status as a private foundation. The Organization can operate as a nonprivate foundation during the period and if certain requirements for nonprivate foundations are fulfilled during the period, the Organization will be granted status as a nonprivate foundation by the Internal Revenue Service at the completion of the termination period.


FUNCTIONAL ALLOCATION OF EXPENSE

The costs of providing various programs and other activities have been summarized on a functional basis in the financial statements. Certain administrative expenses have been allocated based on an analysis of personnel time utilized for the related activities. Certain direct mail costs for educational mailings that also provided space for a fund-raising appeal have been allocated to program expenses and to fund-raising expenses based on linage analyses of the mailings and on the analysis of personnel time utilized for the related activities. During 1998, such costs totaled $24,641, and $14,784 was allocated to program services and $9,857 to fund-raising. During 1997, such costs totaled $33,468, and $20,081 was allocated to program services and $13,387 to fund-raising.

NOTE 2: INVESTMENTS

Investments include marketable debt securities and marketable equity securities carried at market value. A breakdown of long-term investments and related cost and market value is as follows:

December 31, 1998
		Market	Cost	Appreciation (Depreciation)
Long-term Investments
	Equity Securities	$5,194,638	$2,461,205	$2,733,433
	Corporate Bonds	1,684,189	1,631,813	52,376
	Treasury Notes	843,345	796,309	47,036
		$7,722,172	$4,889,327	$2,832,845
December 31, 1997
		Market	Cost	Appreciation (Depreciation)
Long-term Investments
	Equity Securities	$4,605,568	$2,203,140	$2,402,428
	Corporate Bonds	1,847,223	1,864,132	(16,909)
	Treasury Notes	823,877	796,309	27,568
		$7,276,668	$4,863,581	$2,413,087

NOTE 3: CONCENTRATIONS OF RISK

At December 31, 1998, the Organization maintained a cash balance at one of its banks which exceeded the Federal Deposit Insurance Corporation (FDIC) coverage.