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-41- (3) [[underlined]] Support Needs of Bureaus and Scientists [[/underlined]]: Of the endowment funds at March 31, 1980, 67% were for restricted purposes, namely support of the Freer Gallery (28%), Endowment #3 for oceanographic research at Fort Pierce (23%) and a wide range of other specific projects throughout the Institution (16%). The remaining third is for unrestricted support of the Institution. Approximately two-thirds of the Freer income and one-third of Endowment #3 is used for operating costs (Freer), collections acquisitions and other program support. For current planning purposes, a 6.25% pay increase in October is expected, but together with promotions and merit increases, salary costs will probably increase over 8%. In prior years, a portion of Endowment #3 income has been reinvested into principal; this will not occur in 1981 and following years, since approximately half of the income (attributable to the funds contributed by Mr. Johnson) will be used exclusively for support of the submersible program at Fort Pierce, and the remainder will be committed to other oceanographic programs. Routinely, the professional staff apply for more funds from endowment, during the budget process, than are available; an increase in payout roughly comparable to the CPI can be assumed necessary to support ongoing activities. The Smithsonian Senate of Scientists, which has taken an active interest in the Institution's endowment fund performance in the past, has made a strong request that the payment be increased in FY 1981 in view of the increase yield from dividends and interest; information on their specific proposal will be made available at the Investment Policy Committee meeting. (4) [[underlined]] Inflationary Trends [[/underlined]]: The Research and Development Price Index and the Higher Education Price Index, both compiled by the National Institute of Education to measure research and operating cost increases at colleges and universities, show an increase of 7.8% in the year ended June 30, 1979. During that same period, the Consumer Price Index increase 10.9%, although the annual inflation rate measured by the CPI has risen to 13% since then. The President's Budget for fiscal 1981 assumes an annual increase in the CPI of 11.8% in 1980 and 9.2% in 1981. [[underlined]] Alternatives [[/underlined]]: The attached table indicates the payout in recent years, together with several alternatives for FY 1981. These include: (a) $4.62/unit, the rate indicated by application of the 4-1/2% formula; (b) $5.00/unit, continuation of the current year's payout; (c) $5.25/unit, an increase of 5% over the current year; and (d) $5.50/unit, an increase of 10%. The first three alternatives would, to varying extents, reduce income to participating funds in real purchasing power. Alternative (d) would provide Smithsonian programs with an increase sufficient to offset inflationary increases, and possibly, particularly in the personnel-intensive Freer fund, allow for some increase in 2