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Treasurer's Report 2000-1


I would like to discuss the financial situation of the Union and present some highlights, which seem of importance for the future. In anticipation of the change in our activities from a commission to a project driven organization the outcome in financial terms is unclear in terms of project volume and rate of expenses. I have therefore asked the Divisions to split their Budgets (25 % for administration and 75 % for projects). We will be watching expenses very closely over the next few years in order to understand the change of the operation in financial terms. The next years will prove if our hopes were justified from the operational view and if the needs are financially feasible. It is in our opinion of highest importance that our activities and our expenses are in line with our strategies.

The discussion that follows is based on the audited Financial Statements for the years 1998-2001 provided by our auditors, Batchelor, Tillery & Roberts, LLP. These reports are available on the IUPAC web site here > Download Auditor's Report [pdf file - 506K]

Review of Accounts
The Table below summarizes the revenues and expenses of the Union for the two most recent biennia, 1998-9 and 2000-1. The financial results are presented for biennia rather than for the individual years due to the difference in expenses during a General Assembly year as compared to a year without General Assembly. The net assets of the Union increased dramatically during the 1998-9 biennium, mainly due to the increase in value of our investment portfolio. Over the course of the 2000-1 biennium, the value of our portfolio decreased, most dramatically during 2001. However, our portfolio losses have been modest due to the conservative investment strategy of the Finance Committee. I will have more to say on the subject below.

Statement of Activities

The financial resources of the Union come from three major sources, National Subscriptions paid by the National Adhering Organizations, income from publications, mainly Pure and Applied Chemistry, and investment income. The revenue from the Affiliate Membership Program is offset by the cost of providing subscriptions to Chemistry International to the Affiliates. Total support decreased from 1998-9 to 2000-1 due to the decrease in grants and contributions. This item is highly variable and reflects the success of IUPAC bodies in obtaining funding from outside organizations such as ICSU, UNESCO, and others. Net publications income increased from biennium to biennium in the face of a declining subscriber base for PAC and a policy of keeping the subscription rate for PAC fixed at the 1999 level in 2000 and 2001. This is due to the one time cost savings provided by changing to self-publishing PAC in 2000. The probability that publications income will decrease in the future is high and the Union must plan for a decreased reliance on this source of income. The major change on the revenue side of the ledger is the change in investment income from a gain of USD 671 052 to a loss of USD 72 030. However, this still gives a net increase in the value of the Union's assets over the four-year period of USD 660 890.

The increase in total expenses from one biennium to the next is mainly due to an increase in activity. A large part of the increased activity is due to the introduction of the project system during the past biennium and its operation in parallel with the commission system. This has led to projects being funded that would not have been funded in the commission system, which has meant increased expenditures. Another component of the increase is the growth of the Secretariat staff from two at the beginning of 1998 to five at the end of 2001. The transition from the Oxford Secretariat to the Research Triangle Park Secretariat went through a low point in staff as functions were defined and the role of the Secretariat was reevaluated. The Secretariat has been asked to play an increased role in support of the work of the Divisions and Standing Committees and in new developments such as the IUPAC web site and the project approval system. The biennium 2000-1 also saw a number of ad hoc Committees established to develop strategic plans for special areas of activity, such as nomenclature, education, industry/IUPAC relations, and Chemistry International.

The ability to increase the activity of the Union so dramatically over the course of the past two biennia is due to a number of circumstances, not least of which were the reforms in the Union's financial structure made in the previous four years. These included regular increases in National Subscriptions based on an agreed formula and the control of expenses so that the Union's reserves could be rebuilt. The role of the Reserve Fund is one that deserves further explanation.

The main purpose of the Reserve Fund is to cushion the effect of changes in revenue or expenses from biennium to biennium. Thus, the Officers were able to proceed with the introduction of the project system in parallel with the commission system because the Union's reserves would cover any temporary shortfalls of revenue. The Reserve Fund also provides current income that reduces the need for increases in National Subscriptions. The Reserve fund is made up of three separate Funds, as defined below:

Biennium Operating Reserve Fund
This fund contains an amount of money equal to the currently approved biennium budget minus the operating funds for publications. It is the prime financial protection for the Union in the event of a severe worldwide economic downturn.

General Assembly Special Fund
This fund is used to supplement the expense of holding General Assembly meetings in locations where the costs are considerably more expensive than the norm. General Assembly meetings such as the recently held one in Brisbane, Australia and the upcoming 2005 General Assembly in Beijing, China will draw on this fund.

IUPAC Endowment Fund
This is treated as an "endowment fund", that is, only the interest earned on the principal in this fund will be used for special projects of a broad nature that enhance the stature of the Union. For example, the recently established IUPAC Prize for Young Chemists is supported by the proceeds from this fund. Other projects approved by the Executive Committee and the Finance Committee may be supported by this fund. The aggregate of the three funds is managed as a single long-term portfolio according the IUPAC Investment Policy and the guidelines contained therein.

The worldwide investment market in the past year continued its downward trend from the preceding year when it started down after a number of years of high growth. Over the course of the year, the equity markets all lost value as monitored using the Morgan Stanley Composite Indices: the World Index lost 18 % of its value; the North American Index lost 14 %; the European Index lost 22 % and the Pacific Index lost 27 %. It was not a good year for long-term investments.

The IUPAC portfolio decreased in value over this past year by only 2.5 %. In the light of the decreases in the equity indices this past year, our portfolio performed quite well.

The roughly 50 % of our portfolio which is in fixed income instruments such as bonds provided us with an excellent cushion during this "bear market". The Finance Committee's decision to move in this direction several years ago helped our performance picture again this year.

Closing Comments
By watching our expense side and reevaluating our activities in terms of acceptance to the outside, we can ensure our most important income, the National Subscriptions. Other revenues such as publications and the interest on our reserves have seen and will continue to see some difficulties.

Our financial situation is still good but clouds are not far away. A strong income base is necessary to support activities that are in line with the IUPAC strategic plan.

The work of the Treasurer was only possible with the great help of the Executive Director and the Finance Committee. I am always open for good thoughts and inputs on our finances.

> The Treasurer 's Colunm is published in the Sept. '02 issue of Chem. Int.

> Link to Finance Committee

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