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SMITHSONIAN INSTITUTION    1550

First of all I should like to take this opportunity to express my appreciation to the other members of the Executive Committee for their willingness to work with me on the problems of the Smithsonian Institution. The members of the Committee have been most helpful in considering the detailed actions that must be taken in connection with the management of the investments of the Smithsonian. I have also been in constant touch with the Secretary in regard to the investment portfolio. Sometimes in a single week many letters and telephone conversations are required to transact this work. This official correspondence is supplemented by personal conferences with the Secretary in regard to the business of the Institution.

One formal meeting of the Executive Committee has been held during the year. At the invitation of the Chancellor this meeting was conducted in the chambers of the Chief Justice on December 13, 1961. Mr. George S. Johnston and Mr. James F. Lawrence, partners of the firm of Scudder, Stevens & Clark, the investment counselors for the Smithsonian Institution, were present during the first part of this meeting. They discussed with the members of the Committee the present state of the investment portfolio of the Smithsonian Institution and general financial considerations that are considered likely to affect the investment policy of the Institution during the coming year. Mr. Johnston presented a report dealing with the history of the main invested funds of the Smithsonian Institution. A summary of this report in mimeographed form is before you on this table. He dealt with the long-term performance of the Freer and Consolidated Funds from 1945 to September 30, 1961. It was pointed out that during this time the value of the Freer Fund has increased from $6.2 million to $15.3 million, and the annual income has risen from a rate of $213,000 to $462,000. It was emphasized that during this period there had been no additions of new capital from the outside or withdrawals of capital from this fund. He also discussed changes in the Consolidated Fund during this same period of time. The adjusted capital value of this fund has risen from $1.5 million to $2.8 million. Concurrently the market value has increased from $1.5 million to $5.1 million. Income has risen from a $50,000 annual rate to $203,000 per annum. These changes were illustrated by tables and graphs prepared by the Research Department of Scudder, Stevens & Clark. Tabulations were also given to show the purchases, market value and gain or loss of both these funds from January 1, 1961 to October 31, 1961. In addition, a tabulation was presented to show the percentage of total bonds and common stocks as a percent of the total portfolio.

Following this consideration of the performance of the Freer and Consolidated Funds Mr. James F. Lawrence presented a summary of the present economic status of the country together with considerations which he deemed to be important in the near-term change in the investment portfolio of the Smithsonian. In most general terms it was suggested that it is believed that the economic trend of the country would be upward during the next year but that this trend might not be as rapid as it was during the past year. It was further suggested that there may be a certain economic slowing in 1963. It was pointed out that many factors impossible to assess at this time will change these predictions.

Following this presentation of general economic conditions the Committee discussed the specific implication of the analysis for the investment management of the portfolio of the Smithsonian Institution. It was concluded that the percentage of common stocks in the total portfolio should not be increased. A number of special issues in the portfolio of the Institution were also discussed. At the conclusion of this discussion Mr. Johnston and Mr. Lawrence withdrew from the meeting.

The Secretary then presented a brief history of the public and nonpublic funds of the Institution during recent years. On the basis of this presentation the proposed nonpublic funds budget for the fiscal year 1963 was considered. In this connection it was noted that at the meeting of the Board of Regents held on January 17, 1958 it was voted that an annual

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