Managing Institutional Investor Portfolios －LO source, annual, respect, purpose

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 5: Portfolio Management for Institutional Investors
Reading 21: Managing Institutional Investor Portfolios
LOS h: Distinguish among various types of foundations, with respect to their description, purpose, source of funds, and annual spending requirements.

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Which of the following statements regarding foundations is TRUE?

A) Grants from company-sponsored foundations must be made without regard to the sponsoring companys business interest.

B) An operating foundation is generally funded by the organization it is intended to support.

C) A community foundation typically receives its funding from an individual.

D) Independent foundations receive their funds from an individual, family, or group.

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Answer and Explanation

Company executives usually dominate the board of trustees for a company-sponsored foundation, which may use grants to further corporate interest. A fund owned and funded by the organization it is intended to support is called an endowment, not a foundation. Community foundations typically receive their funding from multiple, not single, sources.

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Which of the following types of foundations do NOT have a spending requirement?

A) Independent.

B) Company-sponsored.

C) Operating.

D) Community.

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Answer and Explanation

Independent (or private) and company-sponsored foundations must spend five percent of their assets annually toward non-operating expenses to maintain their tax-exempt status. Operating foundations must use 85% of interest and dividend income to conduct the institutions own program.

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Which of the following statements regarding foundations is TRUE?

A) Company-sponsored foundations receive their funding from many sources, including the general public.

B) An operating foundation is generally funded to support a variety of social causes over time.

C) A community foundation is dedicated solely to support a specific organization or some on-going research initiative.

D) Independent foundations provide grants to charities, educational institutions, and social organizations.

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Answer and Explanation

Company-sponsored foundations receive their funding from the sponsoring company. An operating foundation is funded solely to support a specific organization or some on-going research initiative. A community foundation typically funds social, educational, or religious initiatives.