F.1. Types of Funds
     January 1989

Development Policy and Administration Manual 
Chapter III. Gift Administration Policy 
Section F. Fund Types and Their Investment
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                              TYPES OF FUNDS


Gift funds generally fall into one of the categories described
below.  If the donor does not designate a fund type, it is neces-
sary to allocate the gift.


Endowment Funds

An endowment fund is a fund whose donor has stipulated that the
fund principal must remain inviolate and that only income may be
expended.  In accepting endowment funds, the University is
legally bound to keep the principal intact and to comply with
donor restrictions governing the use of income.  

Most endowment funds participate in the General Endowment Pool
(GEP), where investments emphasize long-term growth of both
income and principal, preserving and enhancing the market value
of the fund.  Because of the cost of fund administration in
relation to projected annual income, the Office of the President
uses a guideline of a minimum of $10,000 to establish a new
endowment.  For more information concerning the GEP, see Section
III: F.2, Investment Pools for Gift Funds.  For more information
about endowments, see Section VI: B, Management of Endowed Funds.


Funds Functioning as Endowments

A fund functioning as an endowment is a fund, the principal of
which has been set aside by administrative action to be invested
in the manner of an endowment fund (see Section III: E.2, Allo-
cating and Reallocating Gifts and Bequests).  Principal is held
inviolate, but, because there are no legal restrictions regarding
expenditure of principal, the decision to hold the principal
inviolate may be reversed by appropriate administrative action. 
Funds functioning as endowments are also normally invested in the
General Endowment Pool.  (For more information concerning the
GEP, see Section III: F.2, Investment Pools for Gift Funds.)  As
with endowed funds, the Office of the President uses a guideline
of a minimum of $10,000 to establish a new endowment.  For more
information about funds functioning as endowments, see Section
VI: A, Management of Endowed Funds.

Since the majority of gifts received are for current use, it
becomes important to build the University's endowment as a
foundation for the future.  It is therefore suggested that funds
in excess of $100,000 be allocated as funds functioning as
endowments. Based on historical rates of return, a new fund
entering the GEP will have earned its original value in interest
by about its fifteenth year of existence.  


Externally Held Trusts  

An externally held trust is one in which funds are held in trust
for investment by another institution acting as trustee.  The
terms of these trusts vary; the University may be designated as
income beneficiary, remainder beneficiary, or both.  Any income
disbursed to the University by the trustee is to be accounted for
and used in the same manner as income from endowment funds.  

Externally held trusts are recorded on the University's books for
accounting purposes at the nominal value of one dollar, but are
reported in gift records at the fair market value of the assets
when this information first becomes available.  If the trust
eventually terminates and the assets are distributed to the
University, the fund is revalued for accounting purposes at that
time.  A determination of whether it is necessary to reallocate
the fund is made at the time of such distribution.


Loan Funds

Loan funds exist as a form of financial aid to students.  They
are held at the campus as a loan pool, with any unloaned balance
earning Short Term Investment Pool (STIP) income.  

Occasionally, the donor's terms will require establishment of an
endowed loan fund.  The corpus of an endowed loan fund is held
intact and the income is loaned to students.  In such cases, the
corpus is held by the Office of the President as an endowment and
the annual income is transferred to the campus for addition to
the loan fund.

It is the practice of the University to allocate funds for
student aid for scholarships rather than loans whenever possible,
for several reasons:

     -    there is a more-than-adequate supply of student-
          loan funds, whereas there is a less-than-adequate
          supply of scholarship or fellowship funds; 
                                             
     -    loans are less meaningful than scholarships as
          recognition for academic excellence; 

     -    currently (1988) the majority of student aid is awarded
          as loans, and many students graduate with a substantial
          amount of loan indebtedness; and 

     -    loans are expensive for the University to administer.


Current Funds

If a fund is to be expended within a short time, it should be
allocated as a current fund and held in an account invested in
STIP.  The immediate rate of return is higher than for the GEP
because no consideration is given to preserving the value of the
corpus from erosion due to inflation.  For more information about
STIP see Section III: F.2, Investment Pools for Gift Funds.


Plant Funds

Funds used for construction, for renovation of facilities, or for
the purchase of real property are also invested in STIP but,
unlike current funds, a plant fund will normally be expended over
a period of several years.