For state and local governments, a fund that is legally restricted to the use of earnings with the principal protected is

A permanent fund is a governmental fund used to report resources that are legally restricted so that

only earnings (not principal) may be used to support government programs. These are typically

endowments where the corpus is preserved in perpetuity.

According to GASB Statement No. 34, permanent funds are classified under governmental funds and

must be used to benefit the government or its citizenry.

Relevant Standards and Reference:

GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—

for State and Local Governments

GASB Codification Section 1300, Fund Types

GFOA Budgeting & Fund Balance Guidance

Therefore, Option B is correct.