A three-year study of Performance Funding in Tennessee was begun in 1975-76 to investigate the possibility of allocating some portion of state funds for higher education on performance criteria as compared to the current allocation of funds on an enrollment or organizational unit criterion. During the first year, the postsecondary institutions participating in the project were to develop institutional performance indicators that reflect institutional uniqueness and instructional effectiveness. During the second year, data on performance indicators would be collected. Volunteer State Community College is one of 11 colleges and universities participating in Pilot Projects throughout the state. During fall and winter 1976-77, meetings involving members of various disciplines and several divisions were held for the college's faculty to determine what competencies and skills students should have and how competencies and skills could be measured when students exit from specific courses, finish work in a particular discipline, or earn associate degrees and certificates. After skills and competencies were identified, a tentative list of institutional objectives and performance indicators was developed. The college's Performance Funding contract for 1977-78, approved by the Tennessee Higher Education Commission, is appended. (TR)