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The subject of how and why the Smithsonian collects was discussed in brief.  Mr. Perrot mentioned that the Institution has generally collected in the disciplines to provide a systematic overview for study and exhibition.  The Smithsonian is presently codifying the collecting policies of its museums and departments and will be promulgating a "policy on policies" as a keystone for collections management.  It was suggested that at a future meeting the Audit and Review Committee could be provided with examples of when objects are acquired and when they are rejected, and could explore how these decisions are made.

II.  [[underlined]] Review of Financial Statements and Report to Management [[underlined]]

Mr. Mann of Coopers and Lybrand, the independent auditors of the Institution's trust funds, said that the financial statements for the fiscal year 1979 were in excellent order and that the auditors had received full cooperation from the Treasurer's office, which was both interested and responsive.  Mr. Mann reviewed the financial statements and provided definitions for current funds, plant funds, and endowment funds.  He highlighted key income factors, such as auxiliary activities, contracts, investment income, and gifts and bequests, and he reviewed the major expenditures, related primarily to administrative, educational, and research activities.  There was a general discussion of the various notes to the financial statements, with particular attention to the subject of the Institution's tax status under the provisions of sections 501(c)(1) and 501(c)(3) of the Internal Revenue Code.  Certain technical questions regarding the Institution's tax liability for unrelated business income are currently pending before the Internal Revenue Service.