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OCR for page 1
Treasurer's Statement
To the Council of the National Academy of
S.
clences:
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, 2001.
Financial Overview
The financial overview that follows expands on the finan-
cial statements and notes to the financial statements, as
found on pages 39-53.
.
Cash and Cash Equivalents
The increase in cash and cash equivalents in 2001 is
the result of uninvested cash in short-term investment
accounts at year-end due to the timing of the receipt of
the funds. The cash was placed in money market
funds, which is considered cash equivalents for finan-
cial statement purposes. The cash was fully invested
in short-term investment instruments in early January.
· Short-term Investments
Short-term investments of NRC funds amounted to
$52.0 million as of December 31, 2001. These funds
are held in short-term investments for the following
purposes:
Programs
Corporate financing
Swap proceeds
Total
$40,351,728
7,024,991
4,648,126
$52,024,845
On December 31, 2001, the Academy's short-term
fixed income instruments were earning interest at an
average rate of 4.55 percent. In addition, a small
portion of the portfolio is invested in a diversified list
of common stocks. This portfolio generated interest
income of $2.7 million and capital appreciation of
$0.8 million during the year. (Details are provided in
note 4 to the Financial Statements.) Interest and
capital gains are reinvested in programs.
.
.
.
Bond Proceeds Held with Trustee
The decrease in bond proceeds held with trustee from
$78.3 million in 2000 to $38.0 million in 2001 is due
to the nearing completion of the new NRC office
building at 500 5~ Street. This decrease corresponds
with the increase in the property and equipment
balance from $68.6 million in 2000 to $109.6 million
in 2001. The building costs have been capitalized as
part of construction in progress. (See notes 5 and 12 in
the Financial Statements for additional details.)
Revenues
The Academies' operating funds come from four main
funding sources: government support, private support,
contributions and investment income.
Although government revenues decreased from
$165.7 million in 2000 to $163.9 million in 2001, the
basic core of NRC programs has increased steadily
over the past few years. This decrease was attributable
to a $9 million decrease in flow-thru funding related
to the Radiation Effect Research Foundation (RERF)
program. Excluding the RERF program, government
revenues increased by $7.2 million in 2001 due to an
increase in amounts funded for studies. (See 2001
Revenue by Source section for more details.)
Contribution revenues decreased from $34.3 million
in 2000 to $8.2 million in 2001. This decrease relates
to the extraordinary contributions recognized in 2000:
Koshland $22.8 million (net of discount); Sackler $5.6
million, and Robert Wood Johnson Foundation $3.7
million. Individual gifts of this magnitude were not
received in 2001. However, current year contributions
are consistent with the average increase in giving
since 1996, excluding 2000. (See also 2001 Revenue
by Source section for additional details.)
Investment income shows a net loss of $9.9 million in
2001 due to unfavorable capital market conditions.
(See note 4 to the Financial Statements for details.)
Expenses
Total NRC grants and contracts program expenditures
for FY2001 was $175.7 million compared to $179.5
million for 2000. This decrease is attributable to the
decrease in flow-thru funding related to the RERF
program. See the corresponding decrease in govern-
ment revenues related to this program above. See
1
OCR for page 2
Note 10 of the Financial Statements for a presentation
of expenses by NRC program unit.
Development Ofrce Programs
In 2001, the Development Office continued to raise mem-
bers' awareness of our goals for The Campaign for the
National Academies, and encouraged participation in the
Academy's Annual Fund and Planned Giving program.
· The $300 million Campaign for the National Acad-
emies has progressed well in 2001, bringing the total
received to $175 million. Over $48 million has been
raised for the NAS, towards its $60 million goal. The
campaign is scheduled to conclude at the end of 2004.
· A total of 420 members made contributions to the
NAS exceeding $880,000 in FY 2001. This repre-
sented a 21 percent member participation rate, equiva-
lent to last year's participation level. We hope to see
50 percent of members participating in annual giving
by the close of the Campaign in December 2004.
Toward that goal, the 2001 Annual Fund appeal
initiated a class-by-class and section-by-section effort
to increase participation; in 2002 that process will be
expanded to include a broader group of classes and
sections.
· The Development Office's Estate Planning and
Planned Giving program was enhanced in 2001 with
the introduction of the Insight on Estate Planning
newsletter series and the expansion of Insight Online,
an estate planning web resource developed specifi-
cally for members. Both Insight resources will con-
tinue in 2002, and we will explore additional opportu-
nities for providing members with Practical
~ .. . . .
Information on estate planning and estate-based chari-
table giving.
· Members of the Presidents' Circle - a group of more
than 100 of the Academies' friends from business and
industry - continue to make significant contributions
to our unrestricted and program funds. Beyond their
annual gifts of $241,000 in 2001, Presidents' Circle
members contributed $504,000 for specific Acad-
emies' projects. Notable among those gifts was Sarah
Schupf's contribution to underwrite a series of origi-
nal biographies of accomplished female scientists for
use by middle school girls. The series will be pub-
2
fished by the Academies' Joseph Henry Press, begin-
ning in 2004.
.
In 2000 and 2001 the Development Office initiated
regular communications to members about the
Campaign's status and significant member gifts.
Those communications will continue in 2002, when
members will also receive a personal request for
support. We firmly believe that NAS members will
respond favorably with generous gifts to the
Academy's endowment and in support of its important
programs.
Endowment and Trust Investment Pool
With the assistance of the Finance Committee, I am
responsible for the prudent management of the Endow-
ment and Trust Fund portfolio. To provide stable support
for the Academy's General Fund, the NRC programs, and
other Trust and Award activities, the Finance Committee,
with the approval of the Council, has adopted a 5 percent
per year spending rule for the endowment and trust funds.
This spending limitation was imposed in order to maintain
the purchasing power of the endowment over time by
reinvesting a portion of the annual total investment return.
The spending rule is based on the three-year average
market value of the participating funds in the investment
pool.
.
.
During 2001, the investment performance of the port-
folio was slightly lower than the composite bench-
mark for the year. The endowment sustained a loss of
5.9 percent while the market benchmark was negative
4.8 percent. The less than 1 percent difference is
attributed to slight overweighting in Science and
Technology funds.
While the return for the total portfolio is slightly lower
for the year, the performance for the five-year period
is consistent with the market benchmark. In addition,
for the ten years ending December 31, 2001, the total
return for the portfolio is 10 percent while the com-
posite benchmark is 9 percent for the same period.
The benchmark portfolio is a composite index consist-
ing of the Standard and Poor's 500 Index (35 percent),
the Russell 2000 Index (15 percent), the EAFE Index
(15 percent), the Emerging Markets Index (5 percent),
the Lehman Aggregate (25 percent), and the Non U.S.
dollar Fixed Income Index (5 percent), and was devel-
OCR for page 3
oped to reflect the asset allocation within the NAS
portfolio.
· 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
Fixed-Income: U.S. Fixed
U.S. High Yield
Non-U.S. Fixed
Equities:
Cash Equivalents
Total
Mortgages (at cost)
U.S. Large Cap Funds
U.S. Small-Mid Cap Funds
Non-U.S.Stocks - Developed
Non-U.S. Stocks - Emerging
Hedge Funds
Private Commitments
Percent Dollar
of Amount (in
Target Portfolio thousands)
15.0% 13.2%
5.0% 3.7%
0% 1.9%
0% 3.5%
30.0% 31.6%
15.0% 15.2%
15.0% 15.0%
5.0% 1.9%
10.0% 10.2%
5.0% 2.6%
0% 1.2%
$ 32,812
9,114
4,656
8,663
78,366
37,846
37,304
4,680
25,435
6,484
2,859
$248,219
· Market values of the Endowment and Trust Invest-
ment Pool, after withdrawals, for the years ended
December 31, 2001 and 2000, are displayed in the
following chart:
Cash and Fixed-Income Securities
Equity Securities
Total
($ in thousands)
2001 2000
$ 58,104 $ 84,737
190,1 15 188,764
$248,219 $273,501
See schedule 2-A and 2-B for details of specific
investments.
NAS General Funds
NAS General Funds account for the activities of the
Council, the Officers, and the Members as follows:
Revenue:
Contributions from Endowments
Interest Income and Reimbursements
Development Office
Total Revenue
Expenses:
Development Office
Member Services:
Annual Meeting
Other
Programs/Projects:
Committee on Human Rights
Arts in the Academy
Public Understanding Of Science
Beyond Discovery
Frontiers of Science
Multiethnic Conflict Symposium
Issues in Science and Technology
Woods Hole
NAS Officer's Expenses
NRC Operations
Interest Expense
Other
Total
Surplus - NAS Reserve
Journal Publications
.
$5,507
894
154
$6,555
$1,816
425
164
165
322
276
397
605
92
328
364
487
243
466
$6,150
$ 405
Financial results of the Proceedings of the National
Academy of Sciences are shown below for the years
ended December 31, 2001, and December 31, 2000:
($ in thousands)
2001 2000
· Included in the $248.2 million total market value of Revenue:
Subscriptions $4,534 $4,994
the Endowment and Trust Investment Pool as of Author charges 2,453 2,198
December 31, 2001, are the amounts of $39.2 million Other 260 354
$19.5 million, and $6.0 million for the IOM, TNAC, Total $7,247 $7,546
and Woods Hole Endowment Funds, respectively. Expense:
TNAC denotes The National Academies' Corporation POri~ehrng $4'l97 $4,161
(Beckman Center), which is equally owned by the Total $6,986 $7,371
NationalAcademyofSciencesandtheNationalAcad- Net $ 261 $ 175
emy of Engineering Fund (see note 1 to the Financial
Statements). Prize and Award Trust Funds
.
Withdrawals of $9.2 million were made to fund the
President's Committee, NAS General Fund's activity,
and prizes and awards for the current period. Addi-
tional withdrawals of $4.2 million were made to fund
IOM, Woods Hole, and TNAC activity.
.
Several award trust funds have existed for more than
100 years, while others were established more re-
cently. The Home Secretary oversees the nomination
process that selects award recipients and recommends
to the Council (subject to legal and financial review)
OCR for page 4
changes in the award cycle, amounts of the honoraria,
and any other administrative changes.
NRC Operations
· The NRC Operations Committee reviews NRC ad-
ministrative and financial operations each month to
ensure quality improvements. We have been success-
ful in limiting the growth of indirect costs through
operational improvements and a rigorous budget
process.
.
.
4
The Academy owns certain of the facilities used in its
operations and leases space in others.
Leased Owned
109,626
48,000
17,676
Square Feet Assessed
Value
$69.4 million
$12.3 million
$2.8 million
$24.1 million
Not available
Main Building
Beckman Center
Woods Hole
Green/Harris
Other Facilities
Total
225,471
139,690 3,262
365,161 178,564
Offices occupy most of the facilities with the excep-
tion of the NAP printing facility in Landover, Mary-
land. The Beckman Center and Woods Hole facilities
are conference centers in Irvine, CA, and Woods Hole,
MA, respectively. The assessed values are based on
insurance records for all facilities.
· In February 2002, the NAS Council approved a plan
to proceed with Phase 2 of the 500 5~ Street building
project, which is an eight-story addition in the space
above the District of Columbia fire station adjacent to
the new building. Phase 2 would add approximately
600 offices and permit the final consolidation of staff
from the Green Building in Georgetown that is pres-
ently leased from Georgetown University. The design
and final pricing should be completed by the end of
2002 with construction completed in the first quarter
of 2005.
· As in many universities and nonprofit institutions,
managing indirect cost expenditures for funding of
necessary support services while keeping these costs
in reasonable proportion to program expenditures
continues to be a challenge. From 1996 through 2001,
NRC management has successfully maintained a rela-
tively steady relationship between program and sup-
port costs, i.e.; the growth rate of indirect costs was
less than or equal to the growth rate of direct costs.
Indirect costs for 2001 were $57.1 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,
2001 was $163.9 million (see chart below). The
comparable figure for 2000 was $165.7 million. In
addition, private sponsors supplementing government
projects or providing for new initiatives fund $41.2
million of awards.
2001 Revenue by Source
U.S. Government Agencies (Grants and Contracts)
Agency for International Development
Defense Special Weapons
Defense Supply Service
Department of Agriculture
Department of Commerce
Department of Defense:
Department of the Air Force
Department of the Army
Department of Defense
Department of the Navy
United States Marine Corp
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Environmental Protection Agency
Executive Office of the President
Federal Emergency Management Agency
Federal Judicial Center
General Services Administration
International Broadcasting Bureau
National Aeronautics and Space Administration
National Science Foundation
National Security Agency
Nuclear Regulatory Commission
Smithsonian Institute
Social Security Administration
U.S. Postal Service
Veterans Administration
Carry forward adjustment for indirect costs & Other
Total U.S. Government Agencies
Private & Nonfederal Sources
Grants and Contracts
Contributions
Total Private & Nonfederal Sources
up
1,005,866
142,023
6,616
1,960,053
6,655,338
3,839,745
13,097,189
1,946,048
8,816,626
358,904
4,133,017
8,457,956
16,701,090
493,120
2,555,804
770,525
1,455,173
1,442,232
41,707,303
6,423,042
168,320
22,298
31,478
256,091
14,292
18,404,222
12,771,976
36,575
631,326
16,202
1,293,291
27,803
5,136,838
3,077,861
$163,856,243
$ 33,035,057
8,156,208
$ 41,191,265
OCR for page 5
The Private and Nonfederal sources of revenue listed
above were funded by the following parties:
Foundations, Corporations & Other Organizations
Individuals
State Governments, Agencies & Institutions
Refunds
Discounts on Pledges Receivable & Other
Total Private & Nonfederal Sources
Related Entities
.
$31,784,289
2,999,454
4,298,610
(200,918)
2,309,830
$41,191,265
There are many financial transactions exchanged be-
tween 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 state-
ments.
The financial activity and results of the National
Academy of Engineering, the National Academy of
Engineering Fund, and the National Academies Cor-
poration (Beckman Center) are audited and reported
separately. Financial information for the NAB and the
NAEF is available on request from the NAB Finance
Office; information for the Beckman Center is avail-
able 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, 2001, and
the results of operations 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 Operations Committee for their contin-
ued input and support. I believe that 2001 was a year
of continued financial stability and improved report-
ing capability.
Respectfully submitted,
Ronald Graham, Treasurer
s
OCR for page 6
Representative terms from entire chapter:
woods hole
