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REPORT OF THE TREASURER TO THE COUNCIL OF THE NATIONAL ACADEMY OF SCIENCES: For the Year Ended December 31, 2000 Treasurer's Statement To the Council of the National Academy of Sciences: This report, “Treasurer's Report to the Council of the National Academy of Sciences,” presents the financial position and results of operations as well as a review of the endowment and trust activities of our Academy for the year ended December 31, 2000. Development Office Programs The year 2000 was an energetic, record-setting time for NAS Development efforts, highlighted by two important events: In November, the Academy publicly launched Shaping the Future: The Campaign for the National Academies. This first-ever joint campaign with the NAE and IOM will seek to raise $300 million by December 2004. The event was marked by a special symposium of the role of Science, Engineering, and Medicine in addressing the key challenges of the 21st Century. In December, we formally accepted Daniel Koshland's generous gift to underwrite the creation of the Marion E. Koshland Science Museum. While Dan had previously announced his intention of making the gift, the enormous logistical, legal, and financial planning arrangements necessary to formalize his plan took nearly three years, and were approved by the Council at year's-end. With the arrangements finalized, the Council moved expeditiously to recruit and hire the first Koshland Science Museum Director: David Ucko, the highly regarded former head of the Kansas City Science Center. The Koshland gift was only the most visible of the 408 members' contributions to the NAS in FY 2000. Those contributions totaled $31,265,180, of which nearly $225,000 resulted from the NAS Annual Fund 2000. The 408 members who made contributions represented a 20 percent participation rate by members - a notable improvement on last year's 16 percent rate, but still shy of the participation necessary for a really successful campaign. The Presidents' Circle, comprising a group of more than 100 friends of the Academies drawn from business and industry, continued to be an important source of support through its contributions to unrestricted and program funds. Over and above their annual gifts of $270,000, Presidents ' Circle members contributed $6.4 million to establish and support National Academies' programs such as the expanded dissemination of ‘How People Learn', ‘Biographies of Women Scientists for Middle School Students, The Arthur M. Sackler Colloquia of the NAS, Horizon Fund, and Science Technology and the Law. An increasing focus of the Development Office's efforts in 2000 and 2001 will be NAS programs that advance and guide the scientific enterprise. The Frontiers of Science seminars, the Committee on Human Rights, and the Academy's fellowship and internship programs are prime examples of NAS activities that need and merit continuing member financial support. The Academy is uniquely positioned to sponsor these activities, and no one better understands their significance than NAS members. Building on efforts launched in 2000, the Development Office will continue to reach out to members through in-depth guidance on Estate Planning and Planned Giving; an expanded Annual Fund effort next fall, and a continuing Library Collections initiative. Members can also expect to receive periodic written updates on the Campaign' s progress, and news about members who are making commitments - large and small - to financially support the Academy's projects and mission. Endowment and Trust Investment Pool As Treasurer, with the assistance of the Finance Committee, I am responsible for prudent management of the Endowment and Trust Investment Funds of the NAS. The investment strategy concentrates on enhancing total return with diligence toward preserving the principal and protecting against the effects of inflation. The Finance committee periodically reviews the spending rate policy for income from the NAS investment portfolio. The current recommendation, which was approved by the NAS Council in fiscal year 1993,

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REPORT OF THE TREASURER TO THE COUNCIL OF THE NATIONAL ACADEMY OF SCIENCES: For the Year Ended December 31, 2000 limits annual expenditures to 5% of the 3-year moving average of the market value of the Endowment and Trust Investment Funds. All Endowment and Trust Investment Funds are pooled for investment purposes. A detailed analysis of the funds in the Endowment and Trust Investment Pool is presented in the Investment section of this report. The next chart presents the investment structure adopted by the NAS Finance Committee in 1995 for its asset allocation strategy. Overview of Current Investment Structure     Target Percent of Portfolio Dollar Amount (in thousands) Fixed-Income: U.S. Fixed 25% 25% $ 68,295   Non-U.S. Fixed 0% 2% 4,940   Mortgages (at cost) 0% 4% 9,711 Equities: U.S. Large Cap Funds 30% 32% 89,060   Small Cap Funds 15% 15% 40,656   Non-U.S. Developed Markets 15% 17% 45,970   Non-U.S. Emerging Markets 5% 2% 5,048   Private Commitments 5% 3% 8,030 Cash Equivalents   5% 1% 1,791 Total       $273,501 Market values of the Endowment and Trust Investment Pool, after withdrawals, for the years ended December 31, 2000 and 1999, are displayed in the following chart:   ($ in thousands)   2000 1999 Cash and Fixed-Income Securities $ 84,737 $ 85,966 Equity Securities 188,764 195,472 Total $273,501 $28 1,438 See schedule 2A and schedule 2B for details of specific investments. Included in the $273.5 million total market value of the Endowment and Trust Investment Pool as of December 31, 2000, are the amounts of $44.8 million, $20.9 million, and $6.8 million for the IOM, TNAC, and Woods Hole Endowment Funds, respectively. TNAC denotes The National Academies' Corporation (Beckman Center), which is equally owned by the National Academy of Sciences and the National Academy of Engineering Fund (see note 1 to the Financial Statements). A total return of 0.65% before withdrawals was realized from the investment pool in FY2000, exceeding our benchmark composite of −4.7% by 5.3% for the same period. For the ten-year period ending December 31, 2000 the total return for the portfolio was 12.55% exceeding the composite benchmark of 11.83% for the same period. Details are provided in Schedule 2 of the Investment Section. Withdrawals of $8.4 million were made to fund the President's Committee, NAS General Fund's activity, and prizes and awards for the current period. Additional withdrawals of $2.2 million were made to fund IOM, Woods Hole, and TNAC activity. NAS General Funds NAS General Funds account for the activities of the Council, the Officers, and the Members as follows ($ in thousands): Revenue:   Contributions from Endowments $5,201 Interest Income and reimbursements 902 Development Office 301 Total Revenue $6,404 Expenses:   Development Office $1,963 Member Services:   Annual Meeting 374 Other 149 Programs/Projects   Committee on Human Rights 196 Arts in the Academy 271 Public Understanding Of Science 357 Beyond Discovery 318 Frontiers of Science 600 Multiethnic Conflict Symposium 240 Issues in Science and Technology 150 Woods Hole 376 NAS Officer's Expenses 320 NRC Operations 415 Interest Expense 523 Other 67 Total $6,319 Journal Publications Financial results of the Proceedings of the National Academy of Sciences are shown below for the years ended December 31, 2000, and December 31, 1999:   ($ in thousands)   2000 1999 Revenue:     Subscriptions $4,994 $4,537 Author charges 2,198 2,392 Other 354 322 Total $7,546 $7,251

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REPORT OF THE TREASURER TO THE COUNCIL OF THE NATIONAL ACADEMY OF SCIENCES: For the Year Ended December 31, 2000 Expense:     Printing $4,264 $4,020 Other 3,345 3,097 Total $7,609 $7,117 Net $ (63) $134 The Academy entered into an agreement with the University of Texas at Dallas (UTD) for it to become the publisher of Issues in Science and Technology (Issues). Under this agreement which will end December 31, 2001, the Academy pays UTD $125,000 per year. All costs and operational expenses associated with Issues are the responsibility of UTD. Prize and Award Trust Funds Several award trust funds have existed for more than 100 years, while others were established more recently. The Home Secretary oversees the nomination process that selects award recipients and recommends to the Council (subject to legal and financial review) changes in the award cycle, amounts of the honoraria, and any other administrative changes. NRC Operations The NRC Management Review Committee reviews NRC administrative and financial operations each month to ensure quality improvements. We have been successful in limiting the growth of indirect costs through operational improvements and a rigorous budget process. The Academy owns certain of the facilities used in its operations and leases space in others.   Square Feet     Leased Owned Assessed Value Main Building   109,626 $69.4 million Beckman Center   48,000 $12.8 million Woods Hole   17,676 $2.8 million Green/Harris 225,471     Other Facilities 139,690 3,262 Not available Total 365,161 178,564   Offices occupy most of the facilities with the exception of the NAP printing facility in Landover, Maryland. The Beckman Center and Woods Hole facilities are conference centers in Irvine, CA, and Woods Hole, MA, respectively. The assessed values are based on tax records for all facilities. We have completed the sale of the Green/Harris buildings, to Georgetown University. The NAS will lease these buildings back from Georgetown University until the new facility at 500 5th street is available for occupancy by mid-2002. There were several commercial and not-for-profit organizations bidding to purchase the property, which resulted in our receiving a very competitive price of $42.5 million. NRC activities conducted in response to requests from a broad range of U.S. government agencies are funded through cost-reimbursable non-fee contracts and grants. The total amount reimbursed by the U.S. government agencies in the year ended December 31, 2000 was $165.9 million (see chart below). The comparable figure for 1999 was $160.2 million. In addition, private sponsors supplementing government projects or providing for new initiatives fund $66.3 million of awards. Revenue in 2000 by Source U.S. Government Agencies (Grants and Contracts) Agency for International Development $ 1,046,622 Defense Special Weapons 249,411 Defense Supply Service (13,844) Defense Technical Information Center (583) Department of Agriculture 1,739,130 Department of Commerce 6,633,346 Department of Defense 1,559,752 Department of the Air Force 3,338,379 Department of the Army 13,091,098 Department of the Navy 7,756,966 United States Marine Corp 89,418 Department of Education 4,224,491 Department of Energy 17,992,911 Department of Health and Human Services 17,378,366 Department of Housing and Urban Development 322,967 Department of the Interior 2,604,302 Department of Justice 782,504 Department of Labor 206,310 Department of State 1,902,121 Department of Transportation 40,250,666 Environmental Protection Agency 6,015,013 Executive Office of the President 639,298 Federal Emergency Management Agency 2,215 General Services Administration 45,023 National Aeronautics and Space Administration 17,603,664 National Science Foundation 13,270,659 National Security Agency 22,525 Nuclear Regulatory Commission 200,628 Smithsonian Institute 14,522 Social Security Administration 1,106,664 U.S. Consumer Product Safety Commission (26,188) U.S.Postal Service 29,930 U.S.Treasury 34,367 Veterans Administration 5,003,927 Carry forward adjustment for indirect cost 877,420 Total U.S. Government Agencies $165,994,000 Private & Nonfederal Sources   Grants and Contracts $36,953,000 Contributions 29,312,000 Total Private & Nonfederal Sources $66,265,000

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REPORT OF THE TREASURER TO THE COUNCIL OF THE NATIONAL ACADEMY OF SCIENCES: For the Year Ended December 31, 2000 Total NRC grants and contracts program expenditures for FY 2000 was $203.8 million compared to $193.0 million for 1999. Please see Note 10 of the Financial Statements for a presentation of expenses by NRC program unit. Short-term investments of NRC funds amounted to $49.5 million on December 31, 2000. These funds are held in short-term investments for program and operational liquidity requirements. On December 31, 2000, the Academy's short-term instruments were earning interest at varying rates ranging from 5.15% to 7.09%. This portfolio generated $2.6 million of interest income during the year. (Details are provided in Note 4 to the Financial Statements). Related Entities There are many financial transactions exchanged between the member organizations of the National Academies. The NRC serves as the clearinghouse for these transactions. However, it is important to note that only the financial activity and results of the NAS, NRC, and IOM are included in these financial statements. The financial activity and results of the National Academy of Engineering, the National Academy of Engineering Fund, and the National Academies Corporation (Beckman Center) are audited and reported separately. Financial information for the NAE and the NAEF is available on request from the NAE Finance Office; information for the Beckman Center is available from the NAS Accounting Office. Conclusion The financial statements and schedules that follow reflect the sound financial condition of the National Academy of Sciences as of December 31, 2000, and the results of operation for the year then ended. I would like to thank the Council, the Committee on Budget and Internal Affairs, the Finance Committee, and the NRC Management Review Committee for their continued input and support. I believe that 2000 was a year of continued financial stability and improved reporting capability. I would also like to take this opportunity to commend all members and staff who over the past years have contributed so much to the achievements of the Academy. We are enthusiastically looking forward to an even more exciting and productive future in the coming year. Respectfully submitted, Ronald Graham, Treasurer