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Ford Foundation Annual Report 1971







to colleges, universities, and symphony orchestras (these three programs of the early 1960s absorbed $430 million).

But during the course of the year 1966 it became apparent to us that the shape of our basic financial problem was changing decisively. The general philosophy of earlier years had gradually led us into a sustained high level of annual grant-making. Early in 1966, the capital markets turned downward sharply and while recovery followed in ensuing months, it is a sobering fact that in all the years since then the Dow Jones Industrial Average has never regained its 1966 high. At the end of the 1966 fiscal year, the Foundation's gross assets available for investment had a market value of $3 billion, the lowest figure in seven years. Its annual level of new commitments had averaged $300 million a year over the preceding three years—10 per cent of those gross investable assets. (New commitments are shown on line 2 of the table, and gross investable assets on line 24.)

The Trustees recognized that they must make a fundamental decision about the future of the Foundation. If they intended to sustain its earning assets, they must sharply reduce the level of new commitments, because no responsible financial adviser could tell them in late 1966 that the investable assets of the Foundation could be relied on to produce an average continuing overall return of 10 per cent (including capital appreciation) in the years immediately ahead. (In fact the average annual overall return from equity markets in the next five years was very much lower—about 6 per cent—and on the same basis bonds were even less rewarding.) To continue with new commitments at $300 million a year would be to run the risk of putting the Foundation gradually out of business.

Claims of Past and Future

As I said in my annual report at the time, the decision of the Trustees was that the Foundation should not run this risk. They found no reason to believe that there would be less need for a large foundation like Ford in 1980 than in 1967—"the forces we help to counterbalance are not likely to be smaller—the need for an independent agency not likely to be less." So we accepted "a clear obligation to preserve our endowment for our successors."

However, the Trustees were faced with the fact that the later 1960s gave every sign of being a time in which the Foundation's help would be needed, at home and abroad, at least as much as in earlier years. By a decision of the Board in June, 1966, I had been authorized to announce a firm commitment to the struggle for equal opportunity as our most important domestic concern, and the Trustees had no intention of leaving that as merely a paper pledge. At the same time the main lines of program concern developed in the early 1960s—population, the environment, public broadcasting, agricultural research, and the arts, for example—were proving themselves fields of the highest importance in which there were as yet no adequate substitutes for the support of the Foundation. So for the first time in the Foundation's history the Trustees faced a painful decision between the claims of the future and those of the present.

The need for decision was inescapable. Our Trustees had never been bound, either by charter rules or by policy decision, to any notion that the Foundation should restrict its spending to its income. They had regularly authorized expenditures well above regular dividend and interest income (twice as much in some years), and they had always accepted the responsibility for a conscious choice between the present and the future.

This conviction was reinforced, from 1966 onward, by a growing recognition, in our own Board as elsewhere, of the proposition that the central criterion for effective investment is the long-term rate of total return, with capital gain or loss just as