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Report of the Treasurer for the Year Ended December 31, 2009 (2010)

Chapter: Treasurer's Statement

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Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

Treasurer’s Statement

To the Council of the National Academy of Sciences:


This Report of the Treasurer of the National Academy of Sciences presents the financial position and results of operations as well as a review of the endowment, trust, and other long-term investments pool activities of our Academy for the year ended December 31, 2009.

Overview

The National Academy of Sciences (NAS) functions on the basis of two sources of income: that received through National Research Council (NRC) activities as compensation for the myriad reports, studies, etc. produced each year and second, a much smaller sum that we obtain from our endowment via the formula of the “spending rule” that we can use for essentially any purpose consistent with our charter. Regarding the first of these, the numbers are very heartening. Despite the difficult economic environment, our total actual program revenue for 2009 was 9.6% over 2008 actual revenue. And for 2010, we are anticipating continued growth, currently estimated at 6.0%. There are many who deserve credit for this strong showing but not least among them is Bill Colglazier for his wise oversight as the Executive Officer of the NRC.


As the recent economic problems have had a serious impact on the endowment’s value, management has adopted a prudent spending level, agreeing to a decreased spending level in 2009 to 4% of the 12 quarter average as of June 30, 2009, of unrestricted funds and to avoid spending whenever possible from underwater endowments (those with value below the original gift from restricted funds). Management agreed to the same 4% spending level for 2010.

NAS Highlights

Endowment, Trust, and Other Long-term Investments Pool

As the Chairman of the Finance Committee, I am responsible for the prudent management of the endowment, trust, and other long-term investments (the “Pool”). The goal of the Pool is to provide stable support for the NAS General Fund, NAS Trust and Award 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 historically adopted a “spending rule” designed to maintain the purchasing power of the Pool over time. The spending rule caps annual spending at 5 percent of the trailing 12 quarter average market value of the participating funds in the Pool.


During calendar year 2009, the market value of the Pool regained a portion of the value that was lost during the market downturn in 2008. Market value of the Pool increased net of withdrawals and new contributions from $288.0 million on January 1, 2009 to $344.4 million at December 31, 2009. The Pool returned 25.1% for the year which was lower than the 29.2% of the relevant benchmark. The performance of the hedge fund investments was the main contributing negative factor for the relative performance differential. Positive contributions to performance came from non-US emerging markets, small-mid US equity and fixed income funds. By actions of the Finance Committee in the latter part of 2008 and continuing in 2009, investments were made in a basket of securities in the natural resources and alternative energy arenas which have contributed significant positive returns to the Pool’s overall performance. A further action by the Committee led to the sale of poor performing investments in certain hedge funds.


Liquidity of the Pool investments is a concern of organizations that rely on income for operational needs and/or have bond obligations. It has been extensively publicized that several prominent university endowments had serious difficulties in extracting operating income from illiquid portfolios. A careful study of our portfolio by Chief Financial Officer, Julie Englund, shows it to be highly liquid, with 76% of the portfolio being available between 1-3 days; 83% is available within a month.


Market values of the Pool, after withdrawals, for the years ended December 31, 2009 and 2008, are displayed in the following chart:

 

(dollars in thousands)

 

2009

2008

Cash and Fixed-Income Securities

$ 47,697

$ 63,624

Equity Securities

296,683

224,398

Total

$ 344,380

$ 288,022

The Pool has consistently outperformed the market benchmarks over a long period. For the five years ending December 31, 2009, the Pool return is 4.6% compared to the market composite benchmark of 3.9% and, for the ten

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

years ending December 31, 2009, the Pool return is 4.5% compared with the market composite benchmark of 3.3%.


The Finance Committee will continue to monitor the performance of investments and the portfolio overall asset allocation compared to policy, and to review possible future investments. The comparison of these guidelines to the actual portfolio allocation at December 31, 2009, is as follows:

Overview of Current Investment Structure

 

 

Guideline

Portfolio Allocation

Fixed-Income:

 

 

 

U.S. Fixed/Cash

12.0%

7.4%

Non-U.S. Fixed

3.0%

6.4%

Equities:

U.S. Large Cap Funds

25.0%

19.4%

U.S. Small-Mid Cap Funds

12.0%

9.9%

Non-U.S. Stocks — Developed

20.0%

23.6%

Non-U.S. Stocks — Emerging

8.0%

13.8%

Real Estate Investments

5.0%

2.8%

Hedge Funds

12.0%

13.2%

Other Alternative Investments

3.0%

3.5%

Total

100.0%

100.0%

  • See Schedule 2-A on page 21 for details of investments by asset class.

  • Included in the $344.4 million total market value of the Pool as of December 31, 2009, are $6.6 million for the Woods Hole Endowment Funds, $57.9 million for the Institute of Medicine (IOM), and $8.8 million for The National Academies’ Corporation (TNAC). TNAC, which is equally owned by the NAS and the National Academy of Engineering Fund (NAEF), owns and operates the Beckman Center (see note 1 to the financial statements on page 45).

  • Withdrawals of $15.5 million were made to fund the President’s Committee, NAS General Fund’s activity, and prizes and awards for the current period. Additional withdrawals of $2.2 million were made to fund Woods Hole, IOM, and TNAC activity.

NAS General Fund

The NAS General Fund accounts for the activities of the Council, the Officers, and the Members. The primary funding for these activities is received from specified endowment, trust, and other long-term investment funds (see page 16 for detailed listing), normally based on the 5% spending rule.


For fiscal year 2009, the General Fund revenue totaled $7.7 million and expenditures totaled $5.8 million, resulting in a $1.9 million surplus. Comparable figures for fiscal year 2008 were $7.0 million in revenues, $5.4 million in expenditures, resulting in a surplus of $1.6 million.


The NAS Reserve is the accumulation of prior year surpluses, and one of the anticipated and appropriate uses of the NAS Reserve is to provide a cushion for ongoing operations during periods of revenue shortfalls. During 2009, President Ralph Cicerone has prudently spent less than the funds available, returning to the NAS Reserve $1.6 million. There are plans for a comparable degree of fiscal caution in 2010 as well. The remaining balance of the NAS Reserve at December 31, 2009, is $4.4 million. The $1.6 million of the surplus from fiscal year 2009 will be added to this balance in early 2010, for a net NAS Reserve balance of $6.0 million.


The 2009 NAS General Fund activity is summarized as follows:

 

(dollars in thousands)

Revenues:

 

Unrestricted Endowment

$ 5,896

Woods Hole Endowment

401

Communications Initiative Fund

201

Annual Giving from Members

327

Membership Dues

252

Annual Meeting

207

NAS Reserve

385

Short-Term Investment Interest, Royalties, etc.

46

Total Revenue

$ 7,715

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

Expenses:

 

Development Office

$ 1,570

Member Services:

 

Annual Meeting

647

Other

191

Programs/Projects:

 

Cultural Programs of the NAS

395

Evolution, Education & Communication

158

Communications Initiative

446

Frontiers of Science

144

Committee on International Security & Arms Control

196

Local High School Project

40

Committee on Women in Science, Engineering and Medicine

98

InterAcademy Council

109

Woods Hole

248

Foreign Meetings

125

President’s Office

103

NAS Executive Office

55

NRC Operations

1,025

ISSUES Support

265

Miscellaneous

19

Total Expenses

$ 5,834

Surplus

$ 1,881

Disposition of Surplus:

 

Due to NAS Reserve

1,571

Due to Woods Hole Reserve

160

Due to Communications Initiative Reserve

150

The NAS Council has approved a General Funds budget of $4.8 million for fiscal year 2010, which is less than the amount available by $252,000. This budget level was accomplished by reducing the budget through prudent reductions to existing programs as well as the transfer of some programs to unrestricted funds.

Prizes and Awards

Several award funds have existed for more than 100 years, while others were established more recently. 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.

Journal Publications

Financial results of the Proceedings of the National Academy of Sciences are shown below for the years ended December 31, 2009 and 2008:

 

(dollars in thousands)

 

2009

2008

Revenues:

 

 

Subscriptions

$ 6,820

$ 6,906

Author charges

6,174

5,535

Other

119

121

Total

$ 13,113

$ 12,562

Expenses:

 

 

Publishing

$ 6,387

$ 6,048

Other

7,038

6,429

Total

$ 13,425

$ 12,477

Net

$ (312)

$ 85

Facilities

NAS owns the following facilities:

  • Keck Center of the National Academies at 500 Fifth St., NW in Washington, D.C.

  • National Academy of Sciences Building at 2101 Constitution Ave., NW in Washington, D.C.

  • J. Erik Jonsson Center of the National Academies at 314 Quisset Dr. in Woods Hole, Massachusetts.

  • Arnold and Mabel Beckman Center at 100 Academy in Irvine, California (jointly owned with NAEF through TNAC).

NAS is leasing the following facilities:

  • Terrell Place Office Building (two suites) at 575 Seventh St. NW in Washington, D.C.

  • National Academies Data Center at 8619 Westwood Center Drive in Vienna, Virginia.

  • National Academy Press Printing Facility at 8700 Spectrum Drive in Landover, Maryland.

  • Proceedings of the National Academy of Sciences Office at 700 Eleventh St. NW in Washington, D.C.

The plans for the restoration of the historic Constitution Avenue NAS Building are moving ahead. The contractor provided a Guaranteed Maximum Price for the project in April 2010. Bonds were issued in late May 2010 with

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

construction beginning in June 2010. The project is expected to be completed by April 2012.

Development Office Programs

The NAS is grateful for the generous support of members, friends, and philanthropic organizations in 2009. The support received assists the NAS in taking a leadership and proactive role in addressing the issues and challenges facing our nation.


The NAS Development Office continues to seek and receive private philanthropic support from members, friends and organizations. This has been a truly critical source of strength in building the endowment and all members are encouraged to help support the NAS. The availability of funds derived from our own endowments assists the NAS in initiating studies in sensitive areas, and in taking a leadership role in addressing the issues and challenges facing our nation.


In 2009, the NAS, including the IOM, received a total of $12.2 million in new gifts and pledges, a decrease of 8% from the previous year. Contributions to the NAS Annual Fund were essentially the same as 2008, although there was a gratifying 21% increase in the number of members who made gifts in this economically challenging environment. The IOM Annual Fund receipts were up 52% over 2008, and the number of members contributing increased by more than a third. The gifts described below illustrate the scope of philanthropic support during 2009:

  • The NAS received a $1.5 million gift from the Carnegie Corporation to underwrite the expenses of the Christine Mirzayan Science & Technology Graduate Fellowship Program for the next several years. The NAS will use this budget relief to undertake an ambitious effort to permanently endow this highly successful program, which engages selected recent graduates in the analytical process that informs U.S. science and technology policy.

  • The IOM secured $750,000 in commitments from two individual philanthropists for the IOM Initiatives Fund. This new fund will be used to convene exploratory symposia and workshops and to initiate studies to examine those health and healthcare issues that may be too politically sensitive or too long term to attract timely support. The IOM plans to secure a total of $1.5 million for the Fund by the end of 2010.

  • The Committee on Human Rights received $317,000 in gifts in 2009, including support from 191 members of the NAS, IOM and the National Academy of Engineering (NAE).

  • Three NAS members reported that they had included the Academy in their estate plans, including one at the level of $100,000.

The NAS Development Office also undertook a comprehensive review of all funds in the NAS endowment. They are collecting the gift agreements and other records governing the use of each of the more than 100 funds. To be completed in 2010, this project will document the purpose of each endowment as designated by the donor to help guide the appropriate use of the distributions, identify any opportunities to better utilize endowments, and develop an effective program of regularly reporting to living donors on the use of their endowments.


Over thirteen percent of the Academy’s endowment has come from estate gifts, largely from members or their spouses. Deferred gifts, such as bequests, charitable gift annuities, and charitable remainder trusts represent an increasingly important source of philanthropic support for NAS. Accordingly, the NAS Development Office is undertaking an effort to significantly increase deferred gifts through regular informative mailings to members, educational seminars on estate planning, and visible recognition for this kind of support. The Heritage Society was created in 2005 to recognize members who provide for the NAS in their estates or make other deferred gifts. A permanent, professional position has been established to support these efforts across all three academies.

NRC Highlights

Revenues

The two main sources of revenue for the NRC are the U.S. government and private / nonfederal entities. The total contract and grant revenue from both of these sources totaled $259.7 million in 2009 and $256.2 million in 2008.

U.S. Government Contracts and Grants

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, 2009, was

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

$215.0 million (see following chart and the Statements of Activities on page 43) and in the year ended December 31, 2008, was $202.8 million.

U.S. Government Revenues by Agency

(dollars in thousands)

Agency for International Development

$ 1,487

Department of Agriculture

2,280

Department of Commerce

11,097

Department of Defense:

 

Department of the Air Force

5,283

Department of the Army

10,564

Department of Defense

6,419

Department of the Navy

11,563

Department of Education

1,116

Department of Energy

8,555

Department of Health and Human Services

27,152

Department of Homeland Security

3,462

Department of Housing and Urban Development

16

Department of the Interior

2,179

Department of Justice

1,256

Department of Labor

415

Department of State

2,411

Department of Transportation

95,121

Department of Treasury

964

Department of Veterans Affairs

2,453

Election Assistance Commission

202

Environmental Protection Agency

4,829

Executive Office of the President

1,646

General Accounting Office

219

General Services Administration

90

Institute of Museum and Library Services

195

Marine Mammal Commission

70

National Aeronautics and Space Administration

9,652

National Science Foundation

13,321

Nuclear Regulatory Commission

41

Social Security Administration

717

Adjustment to Indirect Cost Receivable & Other

(9,818)

Total U.S. Government Agencies

$ 214,957

Overall, the financial results for 2009 were better than expected. The 6.0% increase in program revenues represents the largest one-year percentage increase in program revenues since 2002. This growth is expected to continue in 2010 with an estimated increase in NRC program revenues of 6.0%.

Private/Nonfederal Contracts and Grants

Private sponsors supplemented government projects and provided for new initiatives by funding awards in the amount of $44.7 million in 2009, compared with $53.4 million in 2008. The private and nonfederal revenues were comprised of contracts and grants ($39.0 million) and other contributions ($5.7 million). (See Statements of Activities on page 43.)

  • The private contracts and grants decreased from $45.2 million in 2008 to $39.0 million in 2009. This is due to an overall decrease in the number of private awards received. In 2008, NAS received 97 new private awards. In 2009, that number decreased to 73.

  • Other contributions revenue decreased from $8.2 million in 2008 to $5.7 million in 2009. In 2008, the NAS received two gifts totaling $2.0 million from Raymond and Beverly Sackler and their foundation to endow a bilateral scientific forum to be operated jointly by the NAS and the Royal Society in London.

Expenses

The NRC programs include funding from government and private sources. Almost all contracts and grants are cost-reimbursable agreements. Therefore, even if the revenues and expenses are not equal in any one given year, the revenues and expenses will be the same over the life of the award.


As in many universities and nonprofit institutions, managing indirect expenditures for funding the necessary support services, while keeping these costs in reasonable proportion to program expenditures, is a continual challenge. Historically, NRC management has successfully maintained a relatively constant relationship between program and support costs, i.e., the growth rate of indirect costs has been approximately equal to the growth rate of direct costs. In 2009, total indirect expenses were $70.7 million compared to an approved budget of $72.0 million. The NAS Council approved a 2010 indirect expense budget of $77.0 million, which includes a 2.5% increase to the total salary budget, which is distributed on the basis of merit. This increase was approved in order to maintain a competitive position for hiring and retaining staff in the Washington, DC, market.

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×

Related Entities

There are many financial transactions exchanged between 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, NAE, IOM, and NRC are included in these financial statements. The financial activity and results of the National Academy of Engineering Fund (NAEF) and The National Academies’ Corporation (TNAC) are audited and reported separately. Financial information for the NAEF is available on request from the NAE Finance Office; information for TNAC is available from the NAS Controller’s Office.

Overall Financial Condition

Each year, the overall financial condition of the NAS can be reviewed by taking into account the increase or decrease in the net assets of the organization. During calendar year 2009, the NAS has been able to grow its net assets through increased program revenues and recovery of a significant portion of the investment losses suffered in 2008. The 2008 investment losses are reflected in lower revenue total for 2008 in the chart below:

 

(dollars in millions)

 

2009

2008

Total Revenues

$ 370.1

$ 130.8

Total Expenses

307.4

303.8

Change in Net Assets

$ 62.7

$ (173.0)

These NAS 2009 results of operations are further described in the financial statements starting on page 42.

Conclusion

The NRC demonstrated strong financial growth during 2009, with revenues projected to continue to grow in 2010. Indirect expenses have been well-managed during the year. As is the case for all endowments, the stock market’s major decline in 2008 has had a serious impact on the value of our endowment although it has experienced strong rebuilding in 2009. The Finance Committee has made some changes to the endowment investments and will continue to work to strengthen the portfolio.


I would like to thank the Council, the Committee on Budget and Internal Affairs, the Finance Committee, and NRC management for their continued input and support. Also, thanks go to the Office of the Chief Financial Officer for careful and steady oversight of the budgets, for preparation of the financial statements, and its help with oversight of the endowment.

Jeremiah P. Ostriker

Treasurer

Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
Page 1
Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
Page 2
Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
Page 3
Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
Page 4
Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
Page 5
Suggested Citation:"Treasurer's Statement." National Academy of Sciences. 2010. Report of the Treasurer for the Year Ended December 31, 2009. Washington, DC: The National Academies Press. doi: 10.17226/12936.
×
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This Report of the Treasurer of the National Academy of Sciences presents the financial position and results of operations, as well as a review of the endowment, trust, and other long-term investments pool activities of the Academy for the year ended December 31, 2009.

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