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Treasurer's Statement To the Council of the National Academy of S. czences: sary payments for current obligations. Relevant infor- mation about the composition of net assets allows the user to assess the long-term and short-term ability to provide comparable levels or types of services in the future. (For more details see Exhibit A and Explana- tory Note 2.) 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 fiscal year ended June 30, 1996. Prior to fiscal year 1994, the Treasurer's Report consisted of a single volume containing the reports on "Financial Condi tions" and "Investments." For fiscal years 1994 and The new financial system is now interfaced with our 1995 these reports were presented in separate vol- Grants Management System, allowing us to gather umes. As in earlier years we have combined the better data on revenue and expenditure patterns more Report on the Financial Condition and the Investments quickly. We intend to construct mathematical and into one volume. graphical models that will allow us to analyze our cur rent performance and to better forecast trends, incor porating historical trends and non-linear effects. · The NAS adopted, on July 1, 1995, the provisions of Statements of Financial Accounting Standards (SEAS) No. 1 16, Accounting for Contributions Received and Contributions Made and No. 117, Financial Statements of Not-for-Profit Organizations. These standards are issued by He Financial Accounting Standards Board (FASB), which has oversight responsibility for finan cial accounting and reporting of profit and nonprofit organizations. These new standards provide guidelines for classification of net assets and revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. The effect of these new standards is displayed in the audited financial state ments (Exhibits A, B. & C) and related footnotes (Pages 36 thru 42). As not-for-profit entities compete for increasingly limited resources, sponsors call for more understand able statements. These standards enhance compara bility between not-for-profit organizations, including universities. The classification changes recognize that donor restrictions influence the liquidity and ability of an organization to provide a satisfactory level of ser vice. For example, assets that are permanently restricted are not a source of cash to pay present or prospective commitments to lenders, suppliers, or employees. Likewise the nature and extent of tempo rary restrictions (or lack of restrictions) provide useful information in assessing the organization's ability to allocate resources, provide services, or make neces . Over the course of the next year, we intend to strengthen our financial management tools. Building on the basic controls already in place, including the new financial system, we will be able to provide rele- vant information in a variety of categories on a timely basis. With the able assistance of the Council, the Commit- tee on Budget and Internal Affairs, the Finance Com- mittee, the NRC Management Review Committee, and the newly formed NRC Governing Board Man- agement and Budget Committee, together with my own team in the Office of the Chief Financial Officer, I look forward to a year of focused growth for the NAS. The following are the financial highlights of fiscal year J996: Endowment and Trust Investment Pool · As Treasurer, with the assistance of the Finance Com- mittee, I am responsible for prudent management of the Endowment and Trust Fund investments of the NAS. The investment strategy concentrates on enhancing total return with diligence toward preserv- ing the principal, and protecting against the effects of inflation. . The Finance Committee periodically reviews the spending rate policy for income from the NAS invest- ment portfolio. The current recommendation, which was approved by the NAS Council in fiscal year 1993, limits expenditures to 5% annually of each Endow
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ment and Trust Fund. All Endowment and Trust Funds are pooled for investment purposes. A detailed analysis of the funds in the Endowment and Trust Investment Pool is summarized in Schedules 1 and 1- A (Pages 10 and 20~. . During FY95 the Finance Committee adopted a poli- cy of the NAS to give long-term structure to its asset allocation strategy (see Figure 1~. Figure 1: Overview of Current Investment Structure Target Range Market Value at June 30, 1996 From To Dollar Percent of Amount Portfolio (in thousands) U.S. Large Cap Funds20% Small Cap Funds10% Non-U.S. Developed Mkts5% Non-U.S. Emerging Mkts0% Private Commitments0% U.S. Fixed Income15 % Non-U.S. Fixed Income0% Mortgages Cash Total . 55% 25% 20% 7% 10% 65% 20% 0% 38% 15% 13% 3% 1% 19% 3% 7% 2% 73,433 28,702 24,645 5,562 2,288 37,605 4,978 13,817 _3,172 194,202 The market value of the National Academy of Sci- ences' Endowment and Trust Investment Pool increased by $22.3 million (12.9~o) during FY96. Starting at $171.9 million on June 30, 1995, the mar- ket value reached $194.2 million on June 30, 1996. Market value of the Endowment and Trust Investment Pool for the last 3 years at June 30 is displayed below. ($ in thousands) 1996 1995 1994 Cash and Fixed Income Securities Equity Securities $ 59,568$ 56,739$ 60,729 134,6351 15,22092,591 $ 194,203$ 171,959$ 153,320 Also included in the market value, shown as cash and fixed income securities for FY96, are two real estate mortgages totaling $13.8 million for two office build- ings located in Georgetown (see Schedule 2A on Page 25~. . A total return of 16.5% was realized from the Invest- ment Pool in FY96, compared with our benchmark composite of 16% for the same period. Dividends and interest from investments during FY96 were $10.6 million. (Details are provided in Schedule 2.) Includ- ed in the total market value of the Endowment and Trust Investment Pool at June 30, 1996, are the amounts of $29.2 million and $14.9 million for the IOM and TNAC Endowment Funds, respectively. TNAC denotes The National Academies' Corporation (Beckman Center) equally owned by the National Academy of Sciences and the National Academy of Engineering Fund (see Explanatory Note 1, Page 365. Short-Term Investment Pool Short-term investments of general, private, and endowment and trust funds amounted to $28.2 million at June 30, 1996. These funds are held in short-term . . . ~ investments for program and operational liquidity requirements. During the year, interest revenue net of refunds to sponsors of $2.0 million was earned from this class of investments. At June 30, 1996, the NAS's short-term instruments were earning interest at vary- ing rates, from a low of 4.65% to a high of 6.0397c. (Details are provided in Schedule 3 on Page 27.) Contributions . The Wayland Group, which was engaged by the NAS, NAE, and IOM in 1995 to conduct a national planning and fund-raising feasibility study, released the report of its findings and recommendations in February 1996. The Wayland Group has recommended that the NAS, NAE, and IOM undertake a collaborative capi- tal campaign on the order of $83 million. The pro- posed campaign includes fund-raising for renovation of the headquarters building on Constitution Avenue and a number of endowment and program support objectives, several of which cut across the NAS, NAE, and IOM, and others that are specific to each organi- zation. The Councils of the NAS, NAE, and IOM have estab- lished a Task Force composed of two representatives from each Council to review the recommendations of the Wayland Group study and to work on development of an implementation plan for the proposed capital campaign. The Vice President of the NAS serves as chairman of the Task Force, with the Treasurer of the NAS serving as the other NAS representative on the Task Force. The Task Force is to provide its recom- mendations to the Councils of the NAS, NAE, and IOM by February 1997.
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. . . The NAS continues to work toward completion of a fund-raising campaign for the J. Erik Jonsson Woods Hole Center. The objective is to meet the terms of a $750,000 matching grant ($500,000 in endowment and $250,000 in renovation funds) from the Brown Foundation of Houston, Texas, by December 15, 1996. If the NAS is successful, the Jonsson Center will be fully endowed at the $4.0 million level and have available much needed renovation monies for the Center. In addition, the main house of the Center, at the Brown Foundation's request, will be named after NAS member Norman Hackerman. . The Elkan Blout Society was created in 1993 to rec ognize members and friends of the NAS who make planned gifts to the NAS to help build the future endowment resources of the organization. Nineteen Academy members and friends have become Elkan Blout Society members to date, making legacy gifts Operations such as bequests and life income gifts such as charita ble remainder trusts and charitable gift annuities. Dur ing the 1996 Annual Meeting, a special luncheon was held to recognize and thank members of the Elkan Blout Society. The NAS Financial Advisor newsletter and an estate planning seminar series, offered on an ongoing basis in cities around the country, are two estate planning tools the NAS provides its members. The Presidents' Circle, which now has some 100 indi vidual members from business and industry, continues to serve as a strong support group for both the NAS and the IOM. Its primary purpose is to promulgate a better understanding of the two organizations on how their work benefits the nation. Members contribute at least $3,500 each annually to the NAS and the Insti tute, with many members also making major endow ment contributions. The NAS Industry Program (AIP) of the National Research Council received contributions in FY96 totaling close to $500,000. These funds cover the costs of operating the AIP, as well as provide support for self-initiated studies and activities of the NRC. The AIP, since 1983, serves as a bridge between the NRC and the industry, providing avenues for discus sion and dialogue on issues of mutual interest. The NAS launched an annual giving program in 1995 96, with the aim of providing the NAS with a source of unrestricted, core operating support. Members and other individuals are asked to make an annual contri- bution, with those giving $1,000 or more recognized through membership in the Prometheus Society. Prize and Award Trust Funds Several Award Trust Funds have existed for more than 100 years, while others have been more recently estab- lished. 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, amount of the honorarium, and any other administrative changes. Expenditures from the Award Funds are limited by the JO spending rate policy recommended by the Finance Committee and approved by the Council. (See Schedules 1 and 1A on pages 10 and 20 for details of these funds.) . . . A Management Review Committee periodically reviews NRC administrative and financial operations to ensure quality improvements. We have been suc- cessful in containing the growth of indirect costs through proactive policy decisions and incentives. These containment measures also have had the posi- tive effect of limiting indirect cost rate increases an smoothing fluctuations of indirect expenditures. The NAS owns certain of the facilities used in opera- tions, and leases space in others. Square Feet Leased Owned Main Building Beckman Center Woods Hole Green/Harris 225,47 1 Other Facilities 139,690 365,161 109,626 48,000 12,412 3,262 173,300 Assessed Value $66.8 million $12.3 million $1.4 million Not available Most of the facilities are occupied by offices. The Beckman Center and Woods Hole facilities are con- ference centers in Irvine, California, and Woods Hole, Massachusetts, respectively. The assessed values are based on tax records for all facilities except "other"; this is based on a realtor's estimate. The new financial and information system was suc- cessfully implemented on July 1, 1996, on its target date, and below budget. 3
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FIGURE 2: Revenue in Fiscal Year 1996 by Source U.S. GOVERNMENT AGENCIES (GRANTS AND CONTRACTS) Agency for International Development $ Commission on Immigration Reform Defense Logistics Agency Defense Mapping Agency Defense Nuclear Agency Defense Supply Service Department of Agriculture Department of Commerce Department of Defense Defense Technical Information Center Department of the Air Force Department of the Army Department of the Navy Department of Education Department of Energy Department of Health and Human Services 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 National Aeronautics and Space Administration National Science Foundation National Security Agency Nuclear Regulatory Commission U.S. Postal Service U.S. Treasury Veterans Administration TOTAL PRIVATE AND NONFEDERAL SOURCES (GRANTS AND CONTRACTS) American Automobile Manufacturers Association $ American Public Transit Association Association of American Railroads AT & T Foundation Battelle Pacific Northwest Laboratories Carnegie Corporation of New York The Commonwealth Fund Digital Equipment Corporation EG&G Idaho, Inc. Eastern Virigina Medical School The Energy Foundation Exxon Education Foundation Ford Foundation William T. Grant Foundation German-American Academic Council The Greenwall Foundation The William & Flora Hewlett Foundation Howard Hughes Medical Institute The Robert Wood Johnson Foundation The Henry J. Kaiser Foundation William Keck Foundation W. K. Kellogg Foundation John D. & Catherine T. MacArthur Foundation Andrew W. Mellon Foundation Motorola, Inc. - 4 3,585,766 254,085 31,058 88,125 1,233,197 2,520,949 940,650 5,594,755 2,454 3,051,510 12,613,086 7,765,047 2,016,822 10,564,010 12,863,860 1,013,164 310,696 984,040 1,123,613 38,264,438 5,910,702 366,593 223,927 18,729,656 14,381,695 27,578 766,037 80,813 134,474 1,549~342 $ 146,992,142 50,000 50,000 50,000 50,000 50,000 719,330 53,571 60,000 69,476 209,128 48,230 194,992 4,871,168 102,904 595,097 83,143 47,861 928,670 722,127 288,667 343,798 167,774 547,351 200,452 90,000 National Asphalt Paving Association New York State Department of Health Open Society Institute David and Lucile Packard Foundation Parkinson Institute The Pew Charitable Trusts Rockefeller Foundation The Spencer Foundation Alfred P. Sloan Foundation University of Alaska/Fairbanks Various state Governments Other Grants and Contracts (less than $45,000 per donor) TOTAL PRIVATE & NONFEDERAL GRANTS AND CONTRACTS PRIVATE AND NONFEDERAL SOURCES American Academy of Nursing 50,000 146,871 74,135 60,000 67,751 340,893 91,938 96,912 370,704 300,000 4,159,260 774,654 $ 17,126,857 12,450 12,000 15,000 ~14,000 AT & T Bell Laboratories 40,100 BP Oil Shipping Company, USA 150,000 Bristol-Meyers Company 85,000 Carnegie Mellon University/SEI 50,000 Chemical Manufacturers Association 20,000 Citibank, N.A. 50,000 Connaught Laboratories, Inc. 25,000 Consolidated Rail Corporation 65,000 County Sanitation Districts of Los Angeles County 20,000 Ford Motor Company 25,000 GTE Foundation 30,000 General Electric Foundation 45,000 Health Industry Manufacturers Association 15,000 Hoffman-LaRoache, Inc. 17,500 IEEE Computer Society 12,000 Intel Foundation 15,500 International Bank for Reconstruction & Development Johnson & Johnson Family of Companies Kaiser Permanente Lucent Technologies Massachusetts Health Data Consortium, Inc. Merck Institute for Science Education Mitchell Energy & Development Corporation Monsanto Company American Chemical Society Amoco Corporation Association of American Medical Colleges 75,835 30,000 45,000 25,000 25,000 100,000 300,000 40,000 National Academy of Engineering Fund2,756,455 National Pork Producers Council15,000 Nissan Research & Development, Inc.25,000 O'Donnell Foundation40,000 Pfizer Inc.80,000 Rockwell International Corporation20,000 San Diego County Water Authority30,000 SmithKline Beecham Pharmaceuticals25,000 Texaco Foundation15,000 The National Alliance for the Mentally Ill62,400 The Upjohn Company56,500 Trimble Navigation Limited15,000 Varian Associates, Inc.20,000 Xerox Corporation47,500 Other Contributors (less than $10,000 per donor)973,545 TOTAL PRIVATE & NONFEDERAL SOURCES$ 5,540,785 GRAND TOTAL PRIVATE & NONFEDERAL$ 22,667,642
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General Description of Revenue Sources NRC activities conducted in response to requests of the U.S. government are financed through cost-reimbursable non-fee contracts and grants. The General Fund of the NAS pays for expenses as they are incurred. Invoices are then submitted to federal government agencies for reim- bursement. Some agencies of the U.S. government pro- vide for advance payment to the NAS. Recognized rev- enue is equal to the expense incurred for these red acuv~ues ~nfe,V~amomu~n~~~re~m~r~ ~ti"ioif:fne ~Thyear~amvernat erPmmar~et value Government agencies in FY96 was Figure 2~. On the other hand, activi- Journal Publications ivate, nonfederal agencies are usually and agreements that provide for the he NAS in a lump sum or fixed incre in advance of the expense being nds are available for expenditure on g the current year and frequently also (see revenue detail in Figure 21. lure 3, the total direct program IS, NRC, and IOM for FY95 from Private funds amounted to $134.9 of 6.7% from the previous year. o publication activities was $10.2 ~1 year, an increase of 12% over the istrative and other expenses were he fiscal year, a decrease of 5.3% year. Combined expenses totaled fiscal year 1996. Included in the fiscal year 1996 was $7.0 million . . . l activities. Of operating the programs of the Projects have, from time to time, in excess of contract and grant rev them. In aggregate, unrecovered amount to less than $100,000 on an fig FY95, management established a projects that are in danger of reach ;us, thus protecting the integrity of rent and Trust Funds. and appropriate expenditures are barges to the Indirect Cost Pool or ~ government contracts and grants. . These expenditures include such items as Academy- sponsored initiatives, expenses of Academy members and officers not allowable as an indirect cost, fund . . . . . raising activities, contract and grant overruns, costs disallowed by federal auditors, and the annual meeting of Academy members. In order to meet these budget- ed expenditures, we use interest earnings on short- term investments and an allocation from the unre- stricted endowment pool. The current approved spending rate from the unrestricted endowment is 5% of the '2_`rmc~r O`7PrO~= ~Orl-=t `7~111= Financial results of the Proceedings of the National Academy of Sciences are included in the publications line of the statement of activities in Exhibit B on a fis- cal year basis. However, the financial operation is bet- ter reflected on a calendar year basis, since the business cycle of a Proceedings' subscription begins in January and ends in December. Therefore, a financial summa- ry of the results of Proceedings is shown below for the calendar years ended December 31, 1995 and 1994. Year Ended December 31 1994 1995 ($ in thousands) Revenue: Subscriptions Page charges Other Total Revenue $ 3,195 1,224 1,177 $ 5,596 $ 3,674 1,296 1,305 $ 6,275 Expense: Printing Other Total Expense $ 5,415 $ 6,006 $ 3,550 1,865 $ 3,703 2,304 Net $ 181 $ 269 When revenues exceed expenses, the net reduces the indirect cost rate. When expenses exceed revenues, the net loss increases the indirect cost rates. The NAS entered into an agreement with the Univer- sity of Texas at Dallas (UTD) for UTD to become the publisher of Issues in Science and Technology (Issues). The current agreement is effective for a peri- od of three years, ending June 1999, by which the NAS pays UTD $100,000 per year. All costs and operational expenses associated with Issues are the responsibility of UTD. is Expenses . . .~,overnrnem-sponst bursed by the U.S $146.9 million (set ties supported by pi financed by grants funds to be paid to mental payments incurred. These fi these projects durir in subsequent years As shown in Fi expense for the N government and million, a decrees Expenses related million for the fist prior year. Admit $47.9 million for from the previous $193.1 million fo total expenses for related to classifie During the courst NAS, individual incurred expenses enue allocated to overruns generally annual basis. Duri review process for ing an overrun sta the NAS's Endow Certain necessary not allowable as c as direct charges t
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Figure 3 250,000 200,000 ., , 1 5O,000 In o s sol ._ - 1 00,000 50,000 o Total Administrative and Other Grand Total TEN YEAR HISTORY OF NRC EXPENSE BY PURPOSE OAdmin & Other | 0 Publications Activities O Non-government funded activities · Government Contracts and Grants it' ., 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 YEARS ENDING JUNE 30 Specific figures for FY95 and FY96 as shown graphically above ($ in thousands) FY95 FY96 Government Contracts and Grants$ 126,623$ 1 13,249 Non-government Funded Activities>17,95421,682 Publication Activities9,18610,287 145,218 47,954 153,763 50,646 204,409 1 93? 1 72 . 6
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Related Entities . . Conclusion There are many financial transactions exchanged between the member organizations of the NAS Com- plex, and the National Research Council (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 the IOM are includ- ed 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 Cor- poration (Beckman Center) are audited and reported separately. Financial information for NAE and NAEF is available upon request from the NAE Finance Office; information for the Beckman Center is avail- able from the NAS Accounting Office. . . The financial statements and schedules that follow reflect the sound financial condition of the National Academy of Sciences as of June 30, 1996, and the results of operation for the fiscal year then ended. I would like to take this opportunity to commend all the staff and members who over the past year have contributed so much to the achievements of the NAS. We are looking forward to an even more exciting and productive future for the NAS. Respectfully submitted, RONALD L. GRAHAM, Treasurer 7
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Representative terms from entire chapter: