Annual Leave 



The Smithsonian's civil service employees earn annual leave in accordance with federal 

 laws and regulations. Separate rules apply for trust employees. Annual leave for all em- 

 ployees is recognized as expense when earned. 



Government Grants and Contracts 



The Smithsonian receives grants and enters into contracts with the U.S. government 

 and state and local governments, which primarily provide for cost reimbursement to 

 the Smithsonian. Revenue from governmental grants and contracts is classified as un- 

 restricted and is recognized as reimbursable expenditures are incurred. 



Contributions 



The Smithsonian recognizes revenue from unrestricted contributions as unrestricted 

 revenue in the period promises are received. Unrestricted contributions with payments 

 due in future periods are initially recorded as temporarily restricted support, and are 

 reclassified to unrestricted net assets when payments become due. 



Temporarily restricted contributions are recorded as temporarily restricted revenue 

 in the period promises are received. When donor restrictions are met, the temporarily 

 restricted net assets are reclassified to unrestricted net assets and are included in net as- 

 sets released from restrictions in the accompanying statement of financial activity. 



Permanently restricted contributions are contributions restricted by donors for the 

 Smithsonian's endowment and are recorded as permanently restricted revenue in the 

 period received. 



Gifts of long-lived assets are recorded as unrestricted revenue in the period received. 



In-kind contributions of goods and services totaling 58,321,000 were received in fis- 

 cal year 1997 and recorded as program support in the accompanying statement of fi- 

 nancial activity. The nature of the in-kind contributions primarily includes donated 

 space and interactive multimedia software programs. 



A substantial number of volunteers also make significant contributions of time to 

 the Smithsonian, enhancing its activities and programs. In fiscal year 1997, more than 

 8,000 volunteers contributed over 606,000 hours of service to the Smithsonian. The 

 value of these contributions is not recognized in the financial statements. 



Advancement 



The Smithsonian raises unrestricted, temporarily restricted and permanently restricted 

 private financial support from individual donors, corporations and foundations to 

 fund programs and other initiatives. Funds are also generated through numerous 

 membership programs. Fund-raising costs are expensed as incurred and reported as Ad- 

 vancement expenses in the statement of financial activity. Membership program costs 

 are amortized over membership terms, typically one year, and are also reported as Ad- 

 vancement expenses. 



(3) 150th Anniversary Celebration 



America's Smithsonian, the traveling exhibition of Smithsonian treasures organized as 

 part of the Smithsonian's 150 th anniversary celebration in fiscal year 1996, continued 

 its national tour in fiscal year 1997, visiting five cities. Contnbutions from businesses 

 and individuals in the cities to which America's Smitiisonian traveled aided in covering 

 the cost of the continuation of the tour. Current and future royalties from a new 

 Smithsonian affinity credit card, issued m fiscal year 1997, are being dedicated to re- 

 covery of the funding shortfall incurred for the 1 50 !h anniversary celebration activities. 



(4) Receivables and Advances 



Receivables and advances consisted of the following at September 30, 1997: 



(SOOOs) 





Trust 



Federal 



Total 



Auxiliary activities, net of S926 in allowances 



S 19,076 





19.076 



Investment securities sold 



1.224 





1.224 



Contributions receivable 



19.054 



- 



19,054 



Grants and contracts 



13,080 





13,080 



Interest and dividends due 



607 



- 



607 



Advance payments 



1.038 



14.368 



15.406 



Chantabie trust 



2.306 





2.306 



Total receivables and advances 



Contributions Receivable 



Contributions receivable (pledges) are recorded as revenue when received. Pledges for 

 which payment is not due within one year are discounted based on United States Trea- 

 sury risk-free obligation rates according to their corresponding terms. As of 

 September 30, 1997, the aggregate discounted amount due to the Smithsonian as con- 

 tributions receivable was as follows: 



(SOOOs) 



S 10.067 



13,468 



1.884 



(4.7431 



(1.622) 



Less than 1 year 



1 to 5 years 



More than 5 years 



Allowance for uncollectible promises 



Discount to present value 



Conditional Contribution Receivable 



The Smithsonian has outstanding conditional contributions totaling 58,000,000 

 which will be recognized to the extent specific conditions are met. 



Advance Payments 



Federal advance payments of 514,368,000 represent prepayments made to government 

 agencies, educational institutions, firms and individuals for services to be rendered, or 

 property or materials to be furnished. 



At September 30, 1997, the Smithsonian had advance payments outstanding to the 

 General Services Administration of S9, 475, 000 for equipment purchases for the Mu- 

 seum Support Center and other projects to be completed in future years. Advance pay- 

 ments to educational institutions amounting to 51,263,000 were principally under the 

 Special Foreign Cunency Program. Other advance payments totaled S3, 630,000. 



(5) Deferred Promotion Costs 



At September 30, 1997, prepaid and deferred expenses include approximately 

 $5,461,000 of deferred promotion costs, mostly related to the Smithsonian magazine. 

 Promotion expense was $13,929,000 in fiscal year 1997. 



(6) Accessions and Deaccessions 



For fiscal year 1997, $7,359,000 of trust funds and $1,999,000 of federal funds were 

 spent to acquire collection items. Proceeds from trust fund deaccessions were 

 $2,719,000. There were no deaccessions of collection items purchased with federal 

 funds in fiscal year 1997. At September 30, 1997, accumulated proceeds and related 

 earnings from deaccessions of $15,532,000 were designated for collections acquisition 

 in the trust funds. Non-cash deaccessions result from the exchange, donation, or de- 

 struction of collection items, and occur because objects deteriorate, are beyond the 

 scope of a museum's mission, or are duplicative. During fiscal year 1997, the Smith- 

 sonian had non-cash deaccessions of works of art, animals, historical objects, and nat- 

 ural specimens. Contributed items held for sale total 54,300,000 and are reported as 

 other assets in the statement of financial position. 



(7) Investments 



At September 30, 1997, investments consisted of the following: 

 - 



Short-term investments 



Cash equivalents S 6.99S 

 U.S. Government obligations : : / . 



Endowment and similar investments: 

 Pooled investments: 

 Cash equivalents 



U.S. Government and quasi-govemment obligations 

 Corporate bonds and other obligations 

 Common and preferred slocks 



4.646 



15.993 



144.194 



434.668 



Total pooled investments 



599 JO 1 



Nonpooled investments: 



Deposits with U.S. Treasury 



1.030 



Total endowment and similar investments 





Total investments 



S 609.660 



Total contributions receivables 



S 19.054 



(8) True Endowment and Funds Functioning as Endowments 



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 expendi- 

 tures based upon a number of factors evaluated and approved by the Board of Regents. 

 The payout for 1997 was 4.5 percent of the average market value of the endowment 

 over the prior five years. The difference between the total return (i.e., dividends, inter- 

 est and realized capital gains and unrealized capital gains) and the payout is reinvested 

 when there is an excess of total return over payout or withdrawn from previously accu- 

 mulated returns when there is a deficiency of total return to payout. Total return ex- 

 ceeded the payout amount in fiscal year 1997 and the excess was reinvested in the en- 

 dowment asset pool. The excess of total return is reported as non-operating revenue in 

 the accompanying statement of financial activity (see note 9). 



Substantially all of the investments of the endowment are pooled on a market value 

 basis, with individual funds subscribing to or disposing of units on the basis of the per 

 unit market value at the beginning of the month in which the transaction takes place. 

 At September 30, 1997, each unit had a market value of S647. The market value of the 

 pool's net assets at September 30, 1997, was $599,009,000. This represents all pooled 

 investments plus net receivables and payables related to investment transactions. 

 Each fund participating in the investment pool receives an annual payout equal to the 

 number of units owned times the annual payout amount per unit. The payout for fis- 

 cal year 1997 was $19.75 per unit. Based on approved Board policy, if the market value 

 of any endowment fund is less than 110 percent of the historical value, the current 

 payout is limited to the actual interest and dividends allocable to that fund. 



3ii 



