disease. The Gates project is now in the early stages of implementation with the three initial partners selected – the science academies of Nigeria, Uganda, and South Africa. Strategic planning grants have also been awarded to the science academies of Cameroon, Senegal, Ghana, and Kenya; and the initiative will support meetings and symposia to promote collaboration and joint learning among sub-Saharan Africa’s science academies.

In addition, the John D. and Catherine T. MacArthur Foundation made a grant of $600,000 to help underwrite continuation of the important work of the Committee on International Security and Arms Control. And the Committee on Human Rights has benefited from new support from organizations such as the Alfred P. Sloan Foundation and the Ewing Marion Kauffman Foundation.

Endowment and Trust Investment Pool

With the assistance of the Finance Committee (see Committee roster on page 51), I am responsible for the prudent management of the endowment and trust fund portfolio. The goal of the endowment is to provide stable support for the NAS General Fund, the NAS and IOM activities, and the Presidents’ initiatives within the NRC program. To achieve this goal, the NAS Council, acting on the recommendation of the Finance Committee, has adopted a spending limitation designed to maintain the purchasing power of the endowment over time by reinvesting a portion of the annual total investment return. The spending limitation caps annual spending at 5 percent of the three-year average market value of the participating funds in the investment pool.

Each year, the investment performance of the NAS portfolio is compared to a composite market benchmark portfolio for the year. The benchmark portfolio is a composite index consisting 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 developed to reflect the asset allocation within the NAS portfolio.

Market values of the Endowment and Trust Investment Pool, after withdrawals, for the years ended December 31, 2004 and 2003, are displayed in the following chart:

 

($ in thousands)

2004

2003

Cash and Fixed-Income Securities

$ 40,904

$ 36,627

Equity Securities

280,964

231,210

Total

$ 321,868

$ 267,837

At the beginning of 2004, the NAS endowment consisted of $267.8 million in assets. During the year, the Endowment received contributions of $30.1 million, had expenditures and transfers of $12.4 million, and received a total return on investments of $36.3 million, resulting in an ending asset balance of $321.9 million. For the year, the portfolio returned 14.0% versus 12.8% for the benchmark described above. During 2004, the portfolio’s slight overweight in equity was beneficial to the portfolio’s annual performance. The portfolio gained 9.2% during the fourth quarter, which accounts for most of its 14.0% gain for the year. By capturing most of the upside performance in the good years, and generating comparatively smaller losses in the down years, the portfolio has been able to outperform the market benchmark. For the last five years ending 12/31/04, the NAS return is 4.3%, compared to the market composite benchmark of 2.8% and for the last ten years ending 12/31/04, the NAS return is 10.1%, compared with the market composite benchmark of 9.6%.

The next chart presents the investment structure adopted by the NAS Finance Committee in 1995 for its asset allocation strategy and compares this target to the portfolio allocation at December 31, 2004.

Overview of Current Investment Structure

 

Target

Percent of Portfolio

Fixed-Income:

U.S. Fixed

15.0%

7.1%

U.S. High Yield

5.0%

1.6%

Non-U.S. Fixed

0.0%

1.9%

Equities:

U.S. Large Cap Funds

30.0%

29.4%

U.S. Small-Mid Cap Funds

15.0%

18.8%

Non-U.S.Stocks -Developed

15.0%

18.4%

Non-U.S. Stocks - Emerging

5.0%

6.7%

Hedge Funds

10.0%

8.0%

Private Commitments

5.0%

2.9%

Real Estate

0.0%

4.5%

Cash Equivalents

0.0%

0.7%

Total

100.0%

100.0%



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