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for a $480,000 reserve for possible taxes on advertising revenues; this reserve may not be required and in that case total results for FY 1976 should be higher by that amount. Our Product Development Program, primarily Fieldcrest, has also been a major contributor to the favorable results. Income from our Museum Shops, on the other hand, is well below that of last year because of the closing of the Arts and Industries Building shop, the beginning of amortization charges to write off the renovation costs of our new shops, the development expenses of our first mail order catalogue, and more recently, a serious inventory shortage; intensive efforts are now underway to correct the conditions leading to that inventory loss.

The shortage was in the estimated amount of $160,000, it was reported. The Board was assured that the new shops were designed to minimize pilferage.

Mr. Yates stated that his Subcommittee on Appropriations was troubled by several Smithsonian actions; the 2% set-off of the "S and E" appropriation for contingencies; the acceptance of grants from the National Foundation on the Arts and Humanities; the acceptance of grants or fellowships by Smithsonian scholars which otherwise would possibly be awarded to others, as in the case of foreign currency; and taking on new projects funded by private funds. He thought that Smithsonian should not use 2% of appropriated funds for contingencies unless authorized by Congress and that grants and fellowships also should be obtained directly from Congress.