propriated trust funds provided an additional $381.5 million. 

 When adjusted to remove auxiliary activity expenses of $197.0 

 million, net tevenues totaled $577.5 million. The chart below 

 reflects revenues by source and broad purpose of use. 



Fiscal Year 1998 Sources of Gross/Net Revenues 



Percent 

 Gross Net Net 



Revenues Revenues* Revenues 



($ thousands) ($ thousands) (%) 



Operatwns 









Federal Appropriations 



393.032 



393,032 



68. 



General Trust** 



137,026 



40,036 



6.9 



Donor/Sponsor* * 



87,081 



87,081 



15.1 



Gov't Grants & 



57.310 



57.320 



9-9 



Contracts 









Total Sources for 



774,459 



577,469 



IOO.0 



Operations 









•Net of expenses related to revenue-generating activities, e.g., museum 

 shops, restaurants, publications, etc. 



**GeneraI trust is reduced from Table i by the Donor/Sponsored 

 Contributions. 



Operations (Tables land 2) 



Federal operating revenue of $331.5 million provided the core 

 funding for ongoing programs of the Institution. The fiscal 

 year 1998 operating appropriation of $333.4 million repre- 

 sented an increase of $14.9 million from the fiscal year 1997 

 level. Total increases were $15.7 million, with $0.8 million in 

 one-time funding being returned. Increases to cover certain 

 uncontrollable costs included $6.6 million to cover the cost of 

 mandated pay and benefit increases, $2.7 million for utiliry 

 costs, and $0.3 million for inflation for library materials. In 

 addition, the following program increases were provided: $1.2 

 million to fund operation of the Smithsonian Astrophysical 

 Observatory Submillimecer Telescope Array, $3.0 million for 

 the National Museum of Natural History's East Court project, 

 $1.0 million for collections information systems, and $0.9 mil- 

 lion for other projects. 



General trust revenue was $270.6 million. Overall revenue 

 levels in this category were up 3 percent over the prior year. 

 Donor/sponsor revenue was up 8 percent, sales and member- 

 ship revenue was up 5 percent, and other revenue was down 41 

 percent, primarily as a result of the closedown of 150th an- 

 niversary activities. Overall net revenue for auxiliary activities 

 declined 9 percent. Major increases in net revenue for museum 

 shops/mail order and concessions were offset by a loss for 

 Smithsonian Press/Smithsonian Productions related to discon- 

 tinuation of major portions of that operation. 



Revenue from donor/sponsor designated funds roraled $53.5 

 million. Donor/sponsor revenue in this category increased by 

 123 percent over the prior year as a result of intensified fund- 

 raising activities and the development of and focus on new 

 strategies. In addition, 150th anniversary activities had a posi- 

 tive impact on overall giving. Major gifts and grants included 

 $20 million from the Kenneth E. Behring family to support 



exhibitions, public programs, and related activities at the Na- 

 tional Museum of Natural History; $5 million from the Pew 

 Charitable Trusts to the National Museum of American His- 

 tory for the Star-Spangled Banner Preservation Project; and 

 $1.3 million from the Nippon Foundation to the National 

 Museum of Narural History for the "Ainu: Spirit of a Northern 

 People" project. The Smithsonian is especially grateful to its 

 many friends in the private sector whose generosity con- 

 tributed vitally to its work. The names of major donors are 

 listed in the Benefactors section of this annual report. 



In fiscal year 1998, the Institution recorded $57.3 million in 

 income from contracts and grants from government agencies, 

 an increase of $0.6 million over fiscal year 1997. Support from 

 government agencies consrirutes an important source of re- 

 search monies for the Institution, while also providing the 

 granting agencies access to Smithsonian expertise and resources. 

 As in prior years, the majority of these funds were provided 

 by the National Aeronautics and Space Adminisrration for re- 

 search programs at the Smithsonian Astrophysical Obser- 

 vatory. Other awards included $1 million from the National 

 Science Foundation for a program in science education 

 developed by the National Science Resources Center and $0.5 

 million from the Department of Energy for a study of carbon 

 dioxide levels in selected ecosystems at the Smithsonian Tropi- 

 cal Research Instirute. 



Endowment {Tables }, 4, and 5) 



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 investot in a mutual fund. 



The Investment Policy Committee of the Smithsonian's 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 stream of payouts for 

 current expenditures and 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 five years. The investment policy 

 targets a real rate of rerurn of 5 percent. 



As depicted in the chart on page 279, the market value of 

 the endowment decreased from $600 million to $580.9 mil- 

 lion during fiscal year 1998, reflecting the market downturn 

 in the last quarter of the fiscal year. New gifts and internal 

 transfers totaled $11.5 million, while the payout was $197 

 million and fees were $1.5 million. 



The total return on the consolidated portfolio was (8.16) 

 percent, reflecting the market downrurn in the last quarter of 

 the fiscal year. Rerurns rose again substantially as the market 

 rebounded in the last months of calendar year 1998. At year's 

 end, the Institution's portfolio was invested 64 percent in 

 equities, 33 percent in bonds, and 3 percenr in cash. The 

 portfolio had 22 percenr in foreign stocks and bonds and 78 

 percent in U.S. securities. 



278 



