lion from the Department of Energy for atmospheric studies 

 at the Smithsonian Environmental Research Center, and $.3 

 million from the Department of Agriculture in support of an 

 exhibit at the National Museum of Natural History. 



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 Smithsonian's 

 Board of Regents establishes investment policy and recom- 

 mends the annual payout for the consolidated endowment. 

 The Smithsonian's policies for managing the endowment are 

 designed to achieve two objectives: I) to provide a stable, 

 growing stream of payouts for current expenditures and 2) to 

 protect the value of the endowment 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 5 years. With this payout policy, to achieve the 

 endowment's objectives, the investment policy targets a real 

 rate of return of 5 percent. 



As depicted in the chart on the following page, the market 

 value of the endowment increased from $482.5 million to 

 $600 million during fiscal year 1997. New gifts and internal 

 transfers totaled $8.5 million while the payout was S18.2 

 million and fees were $1.2 million. 



The total rerurn on the consolidated portfolio was 27.35 

 percent. At year end, the Institution's portfolio was invested 

 72 percent in equities, 27 percent in bonds and I percent in 

 cash. The portfolio had 23 percent in foreign stocks and bonds 

 and 77 percent in U.S. securities. 



Construction and Plant Funds 



In fiscal year 1997, the federal appropriations for construction 

 amounted to S52.8 million. This included $39.0 million for 

 general repair, restoration, and code compliance projects 

 throughout the Institution. With the support of Congress, 

 this amount continues to move closer to the $50 million per 

 year required to maintain systematic renewal of the physical 

 plant. Funds earmarked for new construction, alterations, and 

 modifications totaled $13.8 million. Included in this amount 

 is $4 million for the Mai museum for the National Museum 

 of the American Indian; $3.8 million for renovations, repairs, 

 and master plan projects at the National Zoological Park; $3 

 million for planning and design of the National Air and Space 

 Museum Dulles Center; and $3 million for minor construc- 

 tion and planning. 



Nonappropriated trust construction funds, also termed 

 plant funds, totaled $7.8 million. Approximately $4.6 million 

 was for the construction of facilities for the National Museum 

 of the American Indian, $1.7 million was for renovation of the 

 Cooper-Hewitt, National Design Museum, $1.0 million was 



for the reinstallation of the Gem Hall at the National 

 Muesum of Natural History, and $500,000 was for the 

 National Air and Space Museum Dulles Center. 



Financial Position 



The Smithsonian Institution's Statement of Financial Position 

 presents the total assets, liabilities, and net assets of the 

 Institution. Total assets of $1.4 billion far exceed total 

 liabilities of S323.0 million and are indicative of the financial 

 strength of the Institution. During fiscal year 1997, the most 

 significant change in the Institution's financial position was 

 the growth of the endowment by over $117.0 million through 

 investment earnings and realized and unrealized gains on the 

 endowment investments. 



Financial Management 



The Institution was successful in operating its new general 

 ledger, financial reporting and management information 

 system. Although software problems from the payroll feeder 

 system initially limited the usefulness of standard reports, all 

 problems were resolved prior to year-end. Online access to cur- 

 rent data, funds control, and reporting by programmatic 

 categories are key advantages of the new system. 



To fully take advantage of current financial system 

 capabilities, several initiatives are planned for next fiscal year. 

 They include using electronic funds transfer for all payment 

 types, distributing software that will allow units to custom 

 design financial reports to meet specific needs, a new accounts 

 receivable system, and travel system software to generate 

 standard travel documents. 



Other financial management improvement initiatives un- 

 dertaken in fiscal year 1997 included: 



• Implementation of several modules of a new, automated 

 budgeting system. The budget system will now feed 

 budgets directly into the accounting system. Units have the 

 ability to directly redistribute their budgets across object 

 classes. 



• Completion of a draft five-year financial management 

 improvement plan. It is currently being reviewed by staff, 

 customers, and stakeholders. 



• Conversions of the Smithsonian Investment Management 

 System to meet the requirements of the new general ledger 

 coding structure. 



• Replacement of the sponsored project data base, which had 

 reached functional limits, with a new, expanded system 

 that will improve reporting and analysis. 



• Development of an individual development plan program 

 for Finance staff that will plan training for each staff 

 member to improve the performance of core job 

 responsibilities as well as provide opportunities for career 

 growth. The program will be fully implemented in fiscal 

 year 1998. 



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