Financial Report 



315 



geted for leases will service debt for this $106 million facility. 

 Planned occupancy is in fiscal year 2000. 



The groundbreaking ceremony for the National Museum of 

 the American Indian on the National Mall was held in 1999. 

 The museum is scheduled to open in 2003. This project is 

 being funded by a combination of federal appropriations and 

 private funding. At the end of the year, plans were under way 

 to raise rhe final 20 percent of the project costs. 



In support of these projects, the Smithsonian established 

 Smithsonian Business Ventures and appointed Gary M. Beer, 

 previously president and CEO of the Sundance Group, as 

 CEO of that organization. Smithsonian Business Ventures is 

 a separate entity within the Institution approved by the 

 Board of Regents with a goal of doubling business revenue 

 in five years. The Smithsonian's national capital campaign, 

 currently in its "quiet phase," continued to significantly in- 

 crease giving to the Institution. 



Fiscal Year 1999 Results 



Operating revenues received by the Institution in fiscal 

 year 1999 from all sources totaled $869.6 million. Revenue 

 from federal appropriations accounted for $402.6 million, 

 and nonappropriated trust funds provided an additional 

 $467.0 million. When adjusted to remove auxiliary activity 

 expenses of $191.8 million, net revenues totaled $677.8 mil- 

 lion. The chart on this page reflects revenues by source and 

 broad purpose of use. 



Operations 



Federal operating revenue of $344.0 million provided the 

 core funding for ongoing programs of the Institution. The 

 fiscal year 1999 federal appropriation of $351.3 million 

 represented a net increase of $17.9 million over the fiscal 

 year 1998 level. After reduction of $3.4 million for one-time 

 costs in the fiscal year 1998 budget, increases totaled $21.3 

 million. The increases included $9.1 million for mandatory 

 increases in pay, utilities, and rent; $6.0 million for opera- 

 tions of the National Museum of the American Indian; 

 $1.5 million for the National Museum of Natural History 

 for operations and move costs associated with additions to 

 the museum; and $4.7 million to meet security system re- 

 quirements that were not Year 2000 compliant. 



General trust revenue was $276.5 million, a 2 percent 

 increase over the previous year. Donor/sponsor revenue for 

 undesignated purposes of $33.7 million was basically un- 

 changed from the prior year. Sales and membership revenue 

 rose 2 percent, reversing a decline from last year. However, 

 the net revenue from these activities was up more than 58 

 percent, in part due to a reduction in expenses. This increase 

 was the result of a major restructuring of the Smithsonian 

 Institution Press, which eliminated unprofitable lines of 

 business, and the success of Smithsonian magazine. 



Revenue from donor/sponsor designated funds totaled 

 $123.6 million, more than doubling the amount from fiscal 

 year 1998. Major gifts and grants included the $60 million 



pledge from Steven F. Udvar-Hazy for the National Air and 

 Space Museum's Dulles Center and $10 million from Polo 

 Ralph Lauren for the Star-Spangled Banner Preservation Pro- 

 ject at the National Museum of American History. 



The Smithsonian is especially grateful to its many friends 

 in the private sector whose generosity contributed vitally to 

 its work. The names of major donors are listed in the Donors 

 section of this annual report. 



In fiscal year 1999, the Institution recorded $66.9 million 

 in revenue from contracts and grants from government agen- 

 cies, a $9.6 million increase over fiscal year 1998. Support 

 from government agencies constitutes an important source of 

 research funding, while also providing the granting agencies 

 access to Smithsonian expertise and resources. As in previous 

 years, most of these funds were provided by the National 

 Aeronautics and Space Administration for research programs 

 at the Smithsonian Astrophysical Observatory. One of the 

 largest and most important projects funded was rhe Chandra 

 X-ray Observatory, which is now in orbit and contributing 

 to astrophysical knowledge. Two projects received support 

 from Save America's Treasures, a public-private partnership 

 between the White House Millennium Council and the 

 National Trust for Historic Preservation: $3.0 million for 

 the Star-Spangled Bannet Preservation Project and $ 1 .4 mil- 

 lion for Apollo space program artifacts at the National Air 

 and Space Museum. 



Endowment 



The Institution pools its endowment funds for investment 

 purposes into a consolidated portfolio, with each endowment 

 purchasing shares in a manner similar to shares purchased by 

 an investor in a mutual fund. 



The Investment Policy Committee of the Board of Regents 

 establishes investment policy and recommends the annual 

 payout for the consolidated endowment. The Smithsonian's 

 policies for managing the endowment are designed to achieve 

 two objectives: to provide a stable, growing stteam of payouts 

 for current expenditures and to protect the value of the en- 

 dowment against inflation and maintain its purchasing power. 

 Current policy calls for an average payout of 4.5 percent of the 

 average market value over the prior five years. With this pay- 

 out policy, to achieve the endowment's objectives, the 

 investment policy targets a real rate of return of 5 percent. 



The market value of the endowment increased from 

 $580.9 million to $658.5 million during fiscal year 1999. 

 The total includes $1.0 million that is not pooled with other 

 endowment assets. The total return for the endowment, net 

 of fees, was $121.5 million, and transfers into the endow- 

 ment totaled $8.5 million. Offsetting these amounts was an 

 endowment payout of $2 1 .0 million and a net transfer our of 

 the endowment of $31.4 million. The transfer moved funds 

 to a private operating foundation that had been the recipient 

 of the endowment payout to perform research consistent 

 with the requirements of the endowment. 



The total return on the consolidated portfolio was 2 1 .78 

 percent. At the end of the fiscal year, the Institution's portfo- 

 lio was invested 71 percent in equities, 28 percent in bonds. 



