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OCR for page 1
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
OCR for page 2
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.
OCR for page 3
.
.
.
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
OCR for page 4
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
OCR for page 5
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
$193.1 million fo
total expenses for
related to classifie
During the courst
NAS, individual
incurred expenses
enue allocated to
overruns generally
annual basis. Duri
review process for
ing an overrun sta
the NAS's Endow
Certain necessary
not allowable as c
as direct charges t
OCR for page 6
Figure 3
250,000
200,000
.,
,
1 5O,000
In
o
s
sol
._
-
1 00,000
50,000
o
Total Administrative and Other
Grand Total
TEN YEAR HISTORY OF NRC EXPENSE
BY PURPOSE
OAdmin & Other |
0 Publications Activities
O Non-government funded activities
· Government Contracts and Grants
it'
.,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
YEARS ENDING JUNE 30
Specific figures for FY95 and FY96 as
shown graphically above
($ 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
OCR for page 7
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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Investments
.
Representative terms from entire chapter:
beckman center
