Endowment funds are created primarily by gifts. Fiduciary responsibility must be exercised to protect principal, produce income through effective investment practices, and protect wishes of the donors as expressed in the terms of gifts.
The oldest endowment account is the Federal Land Grant, valued at $550,984, which resulted from sales of lands in Michigan, the proceeds of which were earmarked for the University. These funds were retained in the state treasury, and the state constitution of 1835, section 5 of Article X, protected this amount for the benefit of the University in recognition of federal grants of lands for such purposes (see Volume I, pages 36, 118, 267, and 274). An annual payment of $38,569, representing 7 percent of the endowment principal amount held by the state treasurer, was made to the University by the state. When the state constitution was revised in 1964, this annual payment was discontinued as a separate payment, with the assumption that the small amount involved would be included in the annual state appropriation for operations.
The level of book value of endowment funds has increased from $14,764,000 in 1939-40 to $98,111,000 in 1976-77. At June 30, 1977, market values of the Endowment and Other Invested Funds amounted to $117,577,000 compared to $98,111,000 book value.
These funds are now entitled Endowment and Other Invested Funds and are divided into three sub-groups. The first group, labeled Endowment Funds, includes accounts which allow only the income to be expended, amounting to $62,892,000 at June 30, 1977. A second group, labeled Total Return Funds, includes accounts which allow both principal and income to be expended, and amount to $30,648,000 at June 30, 1977. Annuity and Life Income Funds make up the remainder, representing accounts where commitments exist for payments to living beneficiaries. Page 27