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Annals of the Smithsonian Institution 1999 



reported amounts of assets and liabilities and disclosure of 

 contingent assets and liabilities at the date of the financial 

 statements and the reported amounts of revenues and 

 expenses during the reporting period. Actual results could 

 differ from those estimates, however, management does 

 not believe that actual results will be materially different 

 from those estimates. 



(d) Fair Value of Financial Instruments 



The carrying value of bond obligations in the financial 

 statements exceeds the fair market value by approximately 

 $3,756 at September 30, 1999. 



The carrying value of all other financial instruments in 

 the financial statements approximates fair market value. 



(e) Cash and Balances with U.S. Treasury 



Amounts represent cash deposited with financial institu- 

 tions, balances held by the U.S. Treasury that are available 

 for disbursement, and a repurchase agreement totaling 

 $3,272 at September 30, 1999. 



(h) Inventories 



Inventories are reported at the lower of cost or market, and 

 consist primarily of merchandise inventory, books, record- 

 ings, and office supplies. Cost is determined using the first- 

 in, first-out method. 



(i) Deferred Revenue and Expense 



Revenue from subscriptions to Smithsonian magazine and 

 Air & Space/Smithsonian magazine is recognized over the 

 period of the subscription, generally one year. 



Promotion production expenses are recognized when 

 related advertising materials are released. Direct-response 

 advertising relating to the magazines is deferred and amor- 

 tized over one year. At September 30, 1999, prepaid and 

 deferred expenses include $6,926 of deferred promotion 

 costs, mostly related to the Smithsonian magazine. Promo- 

 tion expense totaled $15,967 in fiscal year 1999 and is 

 reported within Business Activities on the statement of 

 financial activity. 



(f) Investments 



The Smithsonian's marketable equity and debt securities 

 are reported at fair value based on quoted market prices. 

 Changes in fair value are recognized in the statement of 

 financial activity. Purchases and sales of investments are 

 recorded on the trade date. Investment income is recorded 

 when earned. As mandated by Congress, the Smithsonian 

 maintains two Treasury investments totalling $1,000 relat- 

 ing in part to the original James Smithson gift. 



The Smithsonian uses the "total return" approach to 

 investment management of pooled true endowment funds 

 and quasi-endowment funds, referred to collectively as the 

 endowment. Each year, the endowment pays out an 

 amount for current expenditures based upon a number of 

 factors evaluated and approved by the Board of Regents. 

 Based on approved Board policy, if the market value of any 

 endowment fund is less than 1 10 percent of the historical 

 value, the current payout is limited to the actual interest 

 and dividends allocable to that fund. 



The difference between the total return (i.e., dividends, 

 interest and net gain or loss), and the payout is reinvested 

 when there is an excess of total return over payout, or 

 withdrawn from previously accumulated returns when 

 there is a deficiency of total return to payout. The differ- 

 ence is reported as non-operating income or loss in the 

 statement of financial activity. 



(j) Split Interest Agreements and 

 Perpetual Trusts 



Split interest agreements with donors consist primarily of 

 irrevocable charitable remainder trusts and charitable gift 

 annuities. For the charitable remainder trusts, contribution 

 revenue and assets are recognized at fair value on the date 

 the trusts are established. Assets are adjusted during the 

 term of the trusts for changes in the value of the assets, 

 accretion of discounts, and other changes in the estimated 

 future benefits. For the charitable gift annuities, assets are 

 recognized at fair value on the date the annuity agree- 

 ments are established. An annuity liability is recognized at 

 the present value of future cash flows expected to be paid 

 to the donor and contribution revenue is recognized as the 

 difference between the assets and liability. Liabilities are 

 adjusted during the term of the annuities for payments to 

 donors, accretion of discounts and changes in the life 

 expectancy of the donor. 



The Smithsonian is also the beneficiary of certain per- 

 petual trusts held and administered by others. The present 

 values of the estimated future cash receipts from the trusts 

 are recognized as assets and contribution revenue at the 

 dates the trusts are established. Distributions from the 

 trusts are recorded as contributions and the carrying value 

 of the assets is adjusted for changes in the estimates of 

 future receipts. 



(g) Contributions Receivable 



All contributions receivable are reported net of estimated 

 uncollectible amounts. Contributions expected to be col- 

 lected beyond one year are also discounted to present value 

 based on current U.S. Treasury rates. Conditional contribu- 

 tions receivable are not recorded until material conditions 

 have been met. 



(k) Property and Equipment 



Property and equipment purchased with federal or trust 

 funds are capitalized at cost. Property and equipment 

 acquired through transfer from government agencies are 

 capitalized at net book value or fair value, whichever is more 

 readily determinable. Property and equipment acquired 

 through donation are capitalized at appraised value at the 



