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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, 1999.
.
.
.
At its April 1998 annual meeting, the Academy ap-
proved a change to the fiscal year for which financial
information is reported. The new fiscal year is
January 1 through December 31. Therefore, this report
presents results for the fiscal year January 1, 1999,
through December 31, 1999. To reflect this change, in
our last report we reported results for the six-month
transition period July 1, 1998, through December 31,
1998 (FY99T). We will not be presenting prior-year
comparative data, as agreed to by our auditors, KPMG
LLP.
In order to consolidate the institution's program ac-
tivities in one location, the NAS Council authorized a
facility planning project in December 1996 and in
August 1998 approved the purchase of a site at 500
5th Street, NW, in the East Capitol business district of
Washington, D.C. An 11-story office building is to be
built on the site, with construction beginning in the
summer of 1999 with an anticipated completion date
of Spring 2002. The project has been financed with
$130 million of tax-exempt bonds over 40 years at an
anticipated average interest rate of 4.4%. The annual
debt service and operating expenses are projected to
be less than the costs now incurred in the several
leased facilities currently occupied by program staff.
No assets of the NAS were pledged as security for the
new building.
.
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 1999
was a year of continued financial stability and im-
proved reporting capability.
The following are the financial highlights of 1999:
This change accommodates budget planning based on
more timely information. A significant number of Endowment and Trustlavestment Pool
new awards are received in the final month of the
federal fiscal year, which ends on September 30. As a
result, estimates of program expenditures for the
period July through June are not firm until October.
By this time, more than 25% of the fiscal year had
elapsed in our previous fiscal year schedule; thus, the
indirect spending plan (which is linked to the esti-
mates of program levels) previously had to be ap-
proved months before there was any certainty that
these funds could be recovered. The NAS Constitu-
tion and Bylaws have been amended to reflect this
change.
· We are negotiating a contract to sell the Green/Harris
complex, comprising of two 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 in Spring
2002. There were several commercial and not-for-
profit organizations actively competing to purchase
the property, which resulted in our receiving a very
competitive price of $42.5 million.
.
.
.
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 en-
hancing 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 invest-
ment portfolio. The current recommendation, which
was approved by the NAS Council in fiscal year 1993,
limits annual expenditures to 5% of the Endowment
and Trust Investment Funds, averaged over the pre-
ceding three years.
Included in the total market value of the Endowment
and Trust Investment Pool as of December 31, 1999,
are the amounts of $45.6 million, $21.7 million, and
$7.0 million for the IOM, TNAC, and Woods Hole
Endowment Funds, respectively. TNAC denotes The
National Academies' Corporation (Beckman Center),
1
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which is equally owned by the National Academy of
Sciences and the National Academy of Engineering
Fund (see note 1, page 45~.
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 summarized in Schedules 1 and 1-A (pages 8
and 18).
TABLE 1: Overview of Current Investment Structure
Market Value on
December 31, 1999
Fixed-Income: U.S. Fixed
Non-U.S. Fixed
Mortgages (at cost)
Equities: U.S. Large Cap Funds
Small Cap Funds
Non-U.S. Developed Markets
Non-U.S. Emerging Markets
Private Commitments
Cash Equivalents
Total
.
.
Percent Dollar
of Amount (in
Target Portfolio thousands)
25%
0%
0%
30%
15%
15%
5%
5%
5%
$ 66,684
5,226
10,841
88,760
43,442
51,792
7,634
3,844
3,215
$281,438
During FY95 the Finance Committee adopted a policy
of the NAS to give long-term structure to its asset
allocation strategy (see Table 1~.
· A total return of 12.8% before withdrawals was
realized from the investment pool in 1999, compared
with our benchmark composite of 17.3% for the same
period. Dividends and interest from investments dur-
ing 1999 were $16.7 million. For the ten-year period
ending at December 31, 1999, the total return for the
portfolio was 12.26%, exceeding the composite
benchmark of 12.19% for the same period. Details are
provided in Schedule 2.
Withdrawals of $6.2 million were made to fund the
President's Committee, NAS General Funds activity,
and prizes and awards for the current period.
· The market value of the NAS Endowment and Trust
Investment Pool increased by $24.3 million (9.4%),
after withdrawals, during the year ended December
31, 1999. Starting at $257.1 million on December 31,
1998, the market value reached $281.4 million on
December 31, 1999. Market value of the Endowment
and Trust Investment Pool for the year ended Decem-
ber 31, 1999, for the six months ended December 31,
2
1998, and for the year ended June 30, 1998, is
displayed below:
($ in thousands)
1999 FY99T FY98
$ 85,966 $ 92,672 $ 82,104
195,472 164,502 181,089
$281,438 $257,174 $263,193
Cash and Fixed-Income Securities
Equity Securities
Total
.
Fixed-income securities for the year ended December
31, 1999, are two real estate mortgages totaling $10.8
million for two office buildings located in Georgetown
(see Schedule 2-A on page 27~.
Short-Term Investment Pool
.
Short-term investments of general, private, and en-
dowment and trust funds amounted to $34.0 million
on December 31,1999. These funds are held in short-
term investments for program and operational liquid-
ity requirements. During the year ended December
31, 1999, interest revenue net of refunds to sponsors
of $1.0 million was earned from this class of invest-
ments. On December 31, 1999, the Academy's short-
term instruments were earning interest at varying
rates. The current yield on December 31, 1999,
ranged from 6.25 to 6.94%. (Details are provided in
Schedule 3 on page 28~.
Development Office Programs
.
After formal unification of the NAS, NAE, and IOM
development offices and the recruitment of our new
chief advancement officer, Michael O' Mahoney, in
late 1998, 1999 saw the office's staffing completed
with the hiring of NAS, NAE, and IOM major gift
officers and senior development officers in foundation
relations, corporate relations, and development mar-
keting. The office has energetically expanded its ac-
tivities to gather both core and program support, with
new efforts in member annual giving and planned
giving, individual major gifts, and foundation and
corporate support.
OCR for page 3
.
.
Total member giving in 1999 was $679,183, of which
$134,838 was contributed during the fall's Annual
Fund Solicitation. Sixteen percent of NAS members
(265 individuals) made a charitable contribution to the
Academy in 1999. With expanded outreach to
members for example, through dissemination of
new planned giving information and the new Library
Collections program the Development Office hopes
to raise the member participation rate to at least 25%
in FY2000.
The Presidents' Circle, comprising a group of more
than 100 friends of the Academies drawn from busi-
ness 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
$332,374, Presidents' Circle members contributed
$112,656 in 1999 to underwrite expanded dissemina-
tion of the popular version of the study How People
Learn.
· 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 Fron-
tiers 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 signifi-
cance than NAS members.
Prize and Award Trust Funds
· 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)
changes in the award cycle, amounts of the honoraria,
and any other administrative changes. Expenditures
from the award funds are limited by the 5% spending
rate policy recommended by the Finance Committee
and approved by the Council. (See Schedules 1 and
1-A on pages 8 and 18 for details on these funds.)
Operations
.
.
The Management Review Committee periodically re-
views NRC administrative and financial operations to
ensure quality improvements. We have been success-
ful in limiting the growth of indirect costs through
proactive policy decisions and incentives. These con-
tainment measures also have had the positive effect of
limiting indirect cost rate increases and smoothing
fluctuations of indirect expenditures.
The Academy owns certain of the facilities used in its
operations and leases space in others.
Square Feet
Leased Owned
109,626
48,000
17,676
Assessed
Value
$68.1 million
$14.0 million
$2.3 million
Main Building
Beckman Center
Woods Hole
Green/Harr~s
Other facilities
.
225,471
139,690 3,262
365,161 173,300
Not available
Most of the facilities are occupied by offices. The
Beckman Center and Woods Hole facilities are confer-
ence centers in Irvine, CA, and Woods Hole, MA,
respectively. The assessed values are based on tax
records for all facilities.
General Description of Revenue Sources
.
NRC activities conducted in response to requests of
the U.S. government are financed through cost-reim-
bursable nonfee contracts and grants. Expenses are
paid out of NRC working capital as they are incurred.
Invoices are then submitted to federal government
agencies for reimbursement. Some agencies of the
U.S. government provide for advance payment to the
NRC. Revenue is equal to the expenses incurred
for these government-sponsored activities. The total
amount reimbursed by U.S. government agencies in
the year ended December 31, 1999, was $160.2
million (see Figure 1 below). On the other hand,
activities supported by private nonfederal agencies are
usually financed by grants and agreements that pro-
vide for the funds to be paid to the Academy in a lump
sum or fixed incremental payments in advance of the
expenses being incurred. These funds are available
for expenditure on these projects during the current
year and frequently also in subsequent years.
OCR for page 4
FIGURE 1: Revenue in 1999 by Source
U.S. GOVERNMENT AGENCIES
(GRANTS AND CONTRACTS)
Agency for International Development
Defense Special Weapons
Defense Supply Service
Department of Agnculture
Department of Commerce
Department of Defense
$ 740,368
749,423
692,147
739,976
6,681,126
522,179
L)elense rlechn~cal lntormat~on (:enter (588)
Department of the Air Force 2,735,163
Department of the Army 13,333,900
Department of the Navy 6,587,600
Department of Education 5,625,498
Department of Energy 20,841,658
Department of Health and Human Services 16,342,656
Department of Housing and Urban Development 22,727
Department of the Intenor 3,037,984
Department of Justice 655,357
Department of Labor 184,019
Department of State 1,164,816
Department of Transportation 33,383,641
Environmental Protection Agency 5,769,363
Executive Office of the President 921,744
Federal Emergency Management Agency 90,465
General Services Administration 65,896
National Aeronautics arid Space Administration 18,411,172
National Science Foundation 13,096,909
National Security Agency 85,620
Nuclear Regulatory Commission 115,112
Smithsonian Institution 5
Social Security Administration
U.S. Consumer Product Safety Commission
U.S. Treasury
~ ~ . . . . . .
Veterans Administration
Indirect cost underrecovery due from the government
TOTAL U.S. GOVERNMENT AGENCIES
PRIVATE AND NONFEDERAL SOURCES
Grants and contracts
Contnbutions
TOTAL PRIVATE AND NONFEDERAL SOURCES
Expenses
.
4
FIGURE 2 Ten-Year History of NRC Expenses by Purpose
($ in thousands)
S250,000
$200.000
$100,000
$50,000 -
$o
.IIllUlUlUlI I I I ~
1991 1992 1993 1994 1995 1996 1997 1998 1999T 1999
REFLECTS FISCAL YEAR TOTALS THROUGH 1999
Government Contracts and Grants = Nongovernment Funded Activities
121 Publications Activities ~ Administrative and Other
Specific figures for 1999 and FY99T as
shown graphically above
Government Contracts and Grants
Nongovernment Funded Activities
Total direct program expense
Publication Activities
($ in thousands)
1999 FY99T
Total Administrative and Other
658,314
526,211
44,621
4,521,263
1,820,189
$160,166,534
$ 26,779,232
5,589,176
$ 32,368,408
As shown in Figure 2, the total direct program ex-
pense for the NAS, NRC, and IOM for the year ended
December 31, 1999, from government and private
funds amounted to $148.2 million. These costs in-
clude staff salaries, travel and meeting costs, consult-
ants' fees, and dissemination costs. Expenses related
to publication activities were $11.8 million. Adminis-
trative and other expenses were $60.9 million, which
are reimbursed through our indirect rates. For a
description of those rates, see note 10, page 49.
Grand total
.
.
$120,101
28,155
$148,256
1 1,868
$160,124
60,977
$221,101
$65,260
12,953
$78,213
5,485
$83,698
24,376
$108,074
Combined expenses totaled $221.1 million for the
year ended December 31, 1999.
During the course of operating the programs of the
Academy complex, individual projects have, from
time to time, incurred expenses in excess of contract
and grant revenue allocated to them. In aggregate
these overruns normally amount to less than $100,000
on an annual basis. During FY95 the Management
Review Committee established a review process for
projects in danger of reaching an overrun status, thus
protecting the integrity of the Academy's Endowment
and Trust Investment Funds.
Certain necessary and appropriate expenditures are
not allowable as charges to the Indirect Cost Pool or as
direct charges to government contracts and grants.
These expenditures include such items as Academy-
sponsored initiatives, expenses of Academy members
and officers not allowable as indirect costs, fund-
OCR for page 5
raising activities, contract and grant overruns, costs
disallowed by federal auditors, and expenses associ-
ated with the annual meeting of the Academy. To meet
these budgeted expenditures, interest earnings on
short-term investments and an allocation from the
unrestricted endowment pool are used. The current
approved spending rate from the unrestricted endow-
ment is 5% of the three-year average market value.
Journal Publications
.
Financial results of the Proceedings of the National
Academy of Sciences are included in the publications
line of the statement of activities for the year ended
December 31, 1999. A financial summary of the
results of the Proceedings is shown below for the
years ended December 31, 1999, and December 31,
1998:
1999
($ in thousands)
1998
Revenue:
Subscriptions
Author charges
Other
Total
Expenses:
Printing
Other
Total
Net
$4,537
2,392
322
$7,251 $6,510
$4,104
2,106
300
$4,020
3,097
7,117 $6,456
$4,075
2,381
$ 134
$ 54
It is the Academy's policy to close any surplus or
deficit to the indirect cost pool in the following fiscal
year. Thus, when revenues exceed expenses, the net
reduces the indirect cost rate. Conversely, when ex-
penses exceed revenues, the net loss increases the
indirect cost rates.
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). The current agreement is effective for a
period of three years, ending December 2001, by
which the Academy pays UTD $125,000 per year. All
costs and operational expenses associated with Issues
are the responsibility of UTD.
Related Entities
.
.
There are many financial transactions exchanged be-
tween the member organizations of the Academy
complex. 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, 1999, and
the results of operation for the year then ended.
I would like to take this opportunity to commend all
staff and members who over the past years have
contributed so much to the achievements of the Acad-
emy. We are enthusiastically looking forward to an
even more exciting and productive future in the com-
ing year.
Respectfully submitted,
RONALD GRAHAM, Treasurer
s
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Representative terms from entire chapter:
market value
