Net asset balances of the endowment consisted of the following at September 30, 

 1997: 





(SOOOs) 



Unrestricted 

 Unrestricted -desiznated 



$ 226,026 

 177.979 



Total unrestricted 

 Temporarily restricted 

 Permanendv restricted 



404.005 

 149.089 

 56.462 



Total endowment net assets 



S 609.556 



(9) Composition of Total Return from Investments 



Total return from investments consisted of the following for the year ended 

 September 30, 1997: 



Composition of Endowment Return: 







(SOOOs) 



Endowment payout 



Investment income in excess of pavout 



S 



18.174 

 3.679 



Total investment income 

 Less: investment fees 





21.853 



(1.250) 



Net investment income 



Net realized and unrealized _gains 





20.603 

 106.854 



Endowment tota] return 



s 



127.457 



Total return is reported as $18,174,000 in operating revenue and $109,283,000 in non- 

 operating revenue in the statement of financial activity. 



Composition of Short-Term Investment Total Return: 



(SOOOs I 



Investment income 



Net realized and unrealized loss 



S 1.618 

 306 



Short-term investment total return 



(10) Property and Equipment 



Property and equipment consisted of the following at September 30, 1997: 



(SOOOs) 



Trust 



Federal 



Total 



Land 



Buildings and capital improvements 



Equipment 



Leashold improvements 



$ 2.387 



143.063 



24.997 



1368 



2.387 



753.094 896.157 



51382 77.379 



- 1.368 



Accumulated depreciation 



171.815 



(65.148) 



805.476 977.291 



(395.647) (460.795) 



Total property and equipment 



At September 30, 1997, buildings and capital improvements included $11,791,000 and 

 $112,494,000 of construction in progress within Trust and Federal funds, respectively. 

 Depreciation expense for fiscal year 1997 totaled $31,165,000 in the federal funds and 

 $6,773,000 in the trust funds. 



(11) Debt 



At September 30, 1997, the Smithsonian had an interest-free loan from the Virginia 

 Department of Aviation totaling $ 1 ,000,000. The Virginia Department of Aviation 

 agreed, in fiscal year 1995, to make available to the Smithsonian an interest-free loan 

 facility totaling $3 million, of which $500,000 was drawn in fiscal years 1996 and 

 1997. This loan facility is intended to assist in the financing of the planning, market- 

 ing, fund-raising, and design of the proposed National Air and Space Museum exten- 

 sion at Washington Dulles International Airport The Smithsonian is scheduled to re- 

 pay the outstanding loan not later than June 30, 2000. 



(12) Affiliate Relationships 



The Smithsonian provides certain fiscal, procurement, facilities and administrative ser- 

 vices to several separately incorporated affiliated organizations for which certain offi- 

 cials of the Smithsonian serve on the governing boards. The amounts paid to the 

 Smithsonian by these organizations for the above services totaled $ 161,000 of trust 

 funds and $70,000 of federal funds for fiscal year 1997. 



Deposits held in custody for these organizations at September 30, 1997, were 

 $3,933,000, and were recorded in the trust funds. 



The Friends of the National Zoo (FONZ), an independent 501(c)(3) organisation, 

 raises funds for the benefit of the Smithsonian's National Zoological Park. Funds re- 

 ceived by the Smithsonian from FONZ are recorded as unrestricted revenue and totaled 

 $500,000 in fiscal year 1997. 



(13) Commitments and Contingencies 



Leasing Activities 



Leases for Smithsonian warehouse and office spaces provide for rent escalations to co- 

 incide with increases in property taxes, operating expenses attributable to the leased 

 property and the Consumer Price Index. The Smithsonian has the authority to enter 

 into leases for up to 30 years using federal funds. 



The Smithsonian's operating leases for the warehouse and office spaces require fu- 

 ture minimum lease payments as follows: 



(SOOOs) 



1998 

 1999 

 2000 

 2001 

 2002 

 Thereafter 



13.147 

 10.095 

 6394 

 4.383 

 4.245 

 12.981 



Total 



S 51.445 



Rental expense for these operating leases totaled $15,808,000 for fiscal year 1997. 



Government Grants and Contracts 



The Smithsonian receives funding or reimbursement from governmental agencies for 

 various activities which are subject to audit. Audits of these activities have been com- 

 pleted through fiscal year 1996, however, fiscal year 1996 has not been dosed with the 

 cognizant federal audit agency. Management believes that any adjustments which may 

 result from this audit and the audit for fiscal year 1997 will not have a material adverse 

 effect on the Smithsonian's financial statements. 



(14) Employee Benefit Plans 



The federal employees of the Smithsonian are covered by either the Civil Service Re- 

 tirement System (CSRS) or the Federal Employee Retirement System (FERS). The terms 

 of these plans are denned in federal regulations. Under both systems, the Smithsonian 

 withholds from each federal employee's salary the required salary percentage. The 

 Smithsonian also contributes specified percentages. The Smithsonian's expense for 

 these plans for fiscal year 1997 was approximately $15,034,000. 



The Smithsonian has a separate defined contribution retirement plan for trust fund 

 employees, in which substantially all such employees are eligible to participate. Under 

 the plan, the Smithsonian contributes stipulated percentages of salary which are used 

 to purchase individual annuities, the rights to which are immediately vested with the 

 employees. Employees can make voluntary contributions, subject to certain limita- 

 tions. The Smithsonian's cost of the plan for fiscal year 1997 was $9,102,000. 



In addition to the Smithsonian's retirement plans, the Smithsonian makes available 

 certain health care and life insurance benefits to active and retired trust fund employ- 

 ees. The plan is contributory for retirees and requires payment of premiums and de- 

 ductibles. Retiree contributions for premiums are established by an insurance carrier 

 based on the average per capita cost of benefit coverage for all participants, active and 

 retired, in the Smithsonian's plan. The inclusion of retirees in the calculation of aver- 

 age per capita cost results in a higher average per capita cost than would result if only 

 active employees were covered by the plan. Therefore, the Smithsonian has a postre- 

 tirement benefit obligation for the portion of the expected future cost of the retiree 

 benefits that is not recovered through retiree contributions. The Smithsonian has 

 elected to use the 20-year amortization option to record the related accumulated 

 postietirement benefit obligation (APBO). The Smithsonian's policy is to fund the cost 

 of these benefits on the pay-as-you-go-basis. 



The following table presents the plan's funded status reconciled with amounts recog- 

 nized in the Smithsonian's statement of financial position at September 30, 1997: 

 (SOOOs) 



Accumulated po su rtii r mr n t bene fi t obligation: 

 Retirees 

 Active plan participants 



$ (2,661) 

 (6.615) 



Total 



Plan assets at fair value 



(9.276) 

 216 



Accumulated postrearement benefit obligation in excess of plan assets 

 Unrecognized prior service costs 

 Unrecognized net gain 



Unrecopru^d transition obligation 



(9.060) 



(1,182) 

 5.216 



Accrued p osti e tiiernffl t benefit cost 



S i5.026) 



Net periodic postretirement benefit cost for the year ended September 30, 1997 in- 

 cludes: 



(SOOOs) 



Service costs 



Interest costs 



Amortization of transition obligation over 20 years 



Return on assets 



575 



668 



308 



_Li2 



Net periodic vosaa m mr m b e nrnfit cost 



S 1334 



312 



