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COVINGTON & BURLING

Smithsonian Institution
April 18, 1972
Page Three

tends to force a charitable institution, in the selection of individual securities to provide a balanced fund, to sacrifice either its present needs or future needs. In these circumstances we believe that investment for total return and use of a prudent percentage of total fund values for the determination of income is a proper and indeed prudent exercise of the Smithsonian's responsibility to reconcile present and future needs. Such a determination does place upon the Smithsonian a heavy burden of responsibility in the selection of that portion of yield and appreciation determined as income. We believe it proper, however, that the Smithsonian accept such responsibility rather than follow mechanically the legal principles applicable to private trusts. In expressing this opinion we assume that the prudent percentage to be applied to total fund values would not exceed a reasonable average of historical yields over a substantial period for high-rated bonds and high-grade equity securities and that the fund values would be averaged over a substantial period to reduce the effect of short-term fluctuations. 

The complexity of the issues relating to income determination for a charitable institution, in the absence of clearly applicable authority, requires extended