Glossary
501(c)(3):
Section of the Internal Revenue Code that designates an organization
as charitable and tax-exempt. Organizations qualifying under this
section include religious, educational, charitable, amateur athletic,
scientific or literary groups, organizations testing for public
safety or organizations involved in prevention of cruelty to children
or animals. Most organizations seeking foundation or corporate contributions
secure a Section 501(c)(3) classification from the Internal Revenue
Service (IRS). Note: The tax code sets forth a list of sections-501(c)(4-26)-to
identify other nonprofit organizations whose function is not solely
charitable (e.g., professional or veterans organizations, chambers
of commerce, fraternal societies, etc.)
Annual Report:
A voluntary report published by a foundation or corporation describing
its grant activities. It may be a simple, typed document listing
the year's grants or an elaborately detailed publication. A growing
number of foundations and corporations use an annual report as an
effective means of informing the community about their contributions
activities, policies and guidelines. (The annual contributions report
is not to be confused with a corporation's annual report to the
stockholders.)
Articles of Incorporation:
A document filed with the secretary of state or other appropriate
state office by persons establishing a corporation. This is the
first legal step in forming a nonprofit corporation.
Assets:
Cash, stocks, bonds, real estate or other holdings of a foundation.
Generally, assets are invested and the income is used to make grants.
(See Payout Requirement.)
Bequest:
A sum of money made available upon the donor's death.
"Bricks and Mortar":
An informal term indicating grants for buildings or construction
projects.
Building Campaign:
A drive to raise funds for construction or renovation of buildings.
Bylaws:
Rules governing the operation of a nonprofit corporation. Bylaws
often provide the methods for the selection of directors, the creation
of committees and the conduct of meetings.
Capital Campaign:
Also referred to as a Capital Development Campaign, a capital campaign
is an organized drive to collect and accumulate substantial funds
to finance major needs of an organization such as a building or
major repair project.
Challenge Grant:
A grant that is made on the condition that other monies must be
secured, either on a matching basis or via some other formula, usually
within a specified period of time, with the objective of stimulating
giving from additional sources.
Charity:
In its traditional legal meaning, the word "charity" encompasses
religion, education, assistance to the government, promotion of
health, relief of poverty or distress and other purposes that benefit
the community. Nonprofit organizations that are organized and operated
to further one of these purposes generally will be recognized as
exempt from federal income tax under Section 501(c)(3) of the Internal
Revenue Code (see 501(c)(3)) and will be eligible to receive tax-deductible
charitable gifts.
Community Foundation:
A community foundation is a tax-exempt, nonprofit, autonomous, publicly
supported, philanthropic institution composed primarily of permanent
funds established by many separate donors of the long-term diverse,
charitable benefit of the residents of a defined geographic area.
Typically, a community foundation serves an area no larger than
a state. Community foundations provide an array of services to donors
who wish to establish endowed funds without incurring the administrative
and legal costs of starting independent foundations. There are more
than 500 community foundations across the United States today. The
Cleveland Foundation is the oldest; the New York Community Trust
is the largest. Examples of recently started, thriving community
foundations include the Community Foundation for the Fox Valley
Region, Wisconsin, and the Delaware Community Foundation.
Decline:
Also referred to as Denial, a decline is the refusal or rejection
of a grant request. Some declination letters explain why the grant
was not made, but many do not. Demonstration Grant: A grant made
to establish an innovative project or program that will serve as
a model, if successful, and may be replicated by others.
Designated Funds:
A type of restricted fund in which the fund beneficiaries are specified
by the grantors.
Discretionary Funds:
Grant funds distributed at the discretion of one or more trustees,
which usually do not require prior approval by the full board of
directors. The governing board can delegate discretionary authority
to staff.
Disqualified Person: (Private Foundation)
Substantial contributors to a private foundation, foundation managers,
certain public officials, family members of disqualified persons
and corporations and partnerships in which disqualified persons
hold significant interests. The law bars most financial transactions
between disqualified persons and foundations. (See Self-Dealing.)
Disqualified Person: (Public Charity)
As applied to public charities, the term disqualified person includes
(1) organization managers, (2) and any other person who, within
the past five years, was in a position to exercise substantial influence
over the affairs of the organization, (3) family members of the
above, and (4) businesses they control. Paying excessive benefits
to a disqualified person will result in the imposition of penalty
excise taxes on that person, and, under some circumstances, on the
charity's board of directors (See Intermediate Sanctions.)
Donee:
See Grantee.
Donor:
See Grantor.
Donor Advised Fund:
A fund held by a community foundation where the donor, or a committee
appointed by the donor, may recommend eligible charitable recipients
for grants from the fund. The community foundation's governing body
must be free to accept or reject the recommendations.
Donor Designated Fund:
A fund held by a community foundation where the donor has specified
that the fund's income or assets be used for the benefit of one
or more specific public charities. These funds are sometimes established
by a transfer of assets by a public charity to a fund designated
for its own benefit, in which case they may be known as grantee
endowments. The community foundation's governing body must have
the power to redirect resources in the fund if it determines that
the donor's restriction is unnecessary, incapable of fulfillment
or inconsistent with the charitable needs of the community or area
served.
Endowment:
The principal amount of gifts and bequests that are accepted subject
to a requirement that the principal be maintained intact and invested
to create a source of income for a foundation. Donors may require
that the principal remain intact in perpetuity, or for a defined
period of time or until sufficient assets have been accumulated
to achieve a designated purpose.
Excise Tax:
The annual tax of 1 or 2 percent of net investment income that must
be paid to the IRS by private foundations.
Expenditure Responsibility:
When a private foundation makes a grant to an organization that
is not classified by the IRS as tax-exempt under Section 501(c)(3)
and as a public charity according to Section 509(a), it is required
by law to ensure that the funds are spent for charitable purposes
and not for private gain or political activities. Such grants require
a pre-grant inquiry and a detailed, written agreement. Special reports
on the status of the grant must be filed with the IRS, and the grantees
must be listed on the foundation's IRS Form 990-PF.
Field of Interest Fund:
A fund held by a community foundation that is used for a specific
charitable purpose such as education or health research.
Financial Report:
An accounting statement detailing financial data, including income
from all sources, expenses, assets and liabilities. A financial
report may also be an itemized accounting that shows how grant funds
were used by a donee organization. Most foundations require a financial
report from grantees.
Form 990/Form 990-PF:
The IRS forms filed annually by public charities and private foundations
respectively. The letters PF stand for private foundation. The IRS
uses this form to assess compliance with the Internal Revenue Code.
Both forms list organization assets, receipts, expenditures and
compensation of officers. Form 990-PF includes a list of grants
made during the year by private foundations.
Funding Cycle:
A chronological pattern of proposal review, decisionmaking and applicant
notification. Some donor organizations make grants at set intervals
(quarterly, semi-annually, etc.), while others operate under an
annual cycle.
Grant:
An award of funds to an organization or individual to undertake
charitable activities.
Grant Monitoring:
The ongoing assessment of the progress of the activities funded
by a donor, with the objective of determining if the terms and conditions
of the grant are being met and if the goal of the grant is likely
to be achieved.
Grantee:
The individual or organization that receives a grant.
Grantor:
The individual or organization that makes a grant.
Guidelines:
A statement of a foundation's goals, priorities, criteria and procedures
for applying for a grant.
In-Kind Contribution:
A donation of goods or services rather than cash or appreciated
property.
Intermediate Sanctions:
Penalty taxes applied to disqualified persons of public charities
(see Disqualified Person) that receive an excessive benefit from
financial transactions with the charity. An excessive benefit may
result from overcompensation for services or from other transactions
such as charging excessive rent on property rented to the charity.
Unlike private foundations, public charities are not barred from
engaging in financial transactions with disqualified persons as
long as the transaction is fair to the charity. Penalty taxes also
may apply to organization managers, such as the charity's board,
that knowingly approve an excess benefit transaction.
Internal Revenue Service (IRS):
The federal agency with responsibility for regulating foundations
and their activities. On-line at www.irs.gov.
Letter of Intent:
A grantor's letter or brief statement indicating intention to make
a specific gift.
Leverage:
A method of grantmaking practiced by some foundations. Leverage
occurs when a small amount of money is given with the express purpose
of attracting funding from other sources or of providing the organization
with the tools it needs to raise other kinds of funds. Sometimes
known as the "multiplier effect."
Limited-Purpose Foundation:
A type of foundation that restricts its giving to one or very few
areas of interest, such as higher education or medical care.
Loaned Executives:
Corporate executives who work for nonprofit organizations for a
limited period of time while continuing to be paid by their permanent
employers.
Matching Gifts Program:
A grant or contributions program that will match employees' or directors'
gifts made to qualifying educational, arts and cultural, health
or other organizations. Specific guidelines are established by each
employer or foundation. (Some foundations also use this program
for their trustees.)
Matching Grant:
A grant or gift made with the specification that the amount donated
must be matched on a one-for-one basis or according to some other
prescribed formula.
Operating Support:
A contribution given to cover an organization's day-to-day, ongoing
expenses, such as salaries, utilities, office supplies, etc.
Payout Requirement:
The minimum amount that a private foundation is required to expend
for charitable purposes (includes grants and necessary and reasonable
administrative expenses). In general, a private foundation must
pay out annually approximately 5 percent of the average market value
of its assets.
Philanthropy:
Philanthropy is defined in different ways. The origin of the word
philanthropy is Greek and means love for mankind. Today, philanthropy
includes the concept of voluntary giving by an individual or group
to promote the common good. Philanthropy also commonly refers to
grants of money given by foundations to nonprofit organizations.
Philanthropy addresses the contribution of an individual or group
to other organizations that in turn work for the causes of poverty
or social problems-improving the quality of life for all citizens.
Philanthropic giving supports a variety of activities, including
research, health, education, arts and culture, as well as alleviating
poverty.
Pledge:
A promise to make future contributions to an organization. For example,
some donors make multiyear pledges promising to grant a specific
amount of money each year.
Post-Grant Evaluation:
A review of the results of a grant, with the emphasis upon whether
or not the grant achieved its desired objective.
Preliminary Proposal:
A brief draft of a grant proposal used to learn if there is sufficient
interest to warrant submitting a proposal.
Program Officer:
Also referred to as a corporate affairs officer, program associate,
public affairs officer or community affairs officer, a program officer
is a staff member of a foundation or corporate giving program who
may do some or all of the following: recommend policy, review grant
requests, manage the budget and process applications for the board
of directors or contributions committee.
Program-Related Investment:
A loan or other investment made by a private foundation to a profitmaking
or nonprofit organization for a project related to the foundation's
stated purpose and interests. Program related investments are an
exception to the general rule barring jeopardy investments. Often,
program-related investments are made from a revolving fund; the
foundation generally expects to receive its money back with limited,
or below-market, interest, which then will provide additional funds
for loans to other organizations. A program-related investment may
involve loan guarantees, purchases of stock or other kinds of financial
support.
Public Charity:
A nonprofit organization that is exempt from federal income tax
under Section 501(c)(3) of the Internal Revenue Code and that receives
its financial support from a broad segment of the general public.
Religious, educational and medical institutions are deemed to be
public charities. Other organizations exempt under Section 501(c)(3)
must pass a public support test (see Public Support Test) to be
considered public charities, or must be formed to benefit an organization
that is a public charity (see Supporting Organizations). Charitable
organizations that are not public charities are private foundations
and are subject to more stringent regulatory and reporting requirements
(see Private Foundations).
Public Foundation:
Public foundations, along with community foundations, are recognized
as public charities by the IRS. Although they may provide direct
charitable services to the public as other nonprofits do, their
primary focus is on grantmaking. To be eligible for membership in
the Council, a public foundation must grant at least $60,000 yearly
and must dedicate at least 50 percent of its organizational budget
to a competitive grantmaking program.
Public Support Test:
There are two public support tests, both of which are designed to
ensure that a charitable organization is responsive to the general
public rather than a limited number of persons. One test, sometimes
referred to as 509(a)(1) or 170(b)(1)(A)(vi) for the sections of
the Internal Revenue Code where it is found, is for charities like
community foundations that mainly rely on gifts, grant, and contributions.
To be automatically classed as a public charity under this test,
organizations must show that they normally receive at least one-third
of their support from the general public (including government agencies
and foundations). However, an organization that fails the automatic
test still may qualify as a public charity if its public support
equals at least 10 percent of all support and it also has a variety
of other characteristics-such as a broad-based board-that make it
sufficiently "public." The second test, sometimes referred
to as the section 509(a)(2) test, applies to charities, such as
symphony orchestras or theater groups, that get a substantial part
of their income from the sale of services that further their mission,
such as the sale of tickets to performances. These charities must
pass a one-third/one-third test. That is, they must demonstrate
that their sales and contributions normally add up to at least one
third of their financial support, but their income from investments
and unrelated business activities does not exceed one-third of support.
Query Letter:
Also referred to as a letter of inquiry, this is a brief letter
outlining an organization's activities and a request for funding
sent to a prospective donor to determine if there is sufficient
interest to warrant submitting a full proposal. This saves the time
of the prospective donor and the time and resources of the prospective
applicant. (See Preliminary Proposal.)
Restricted Funds:
Assets or income that is restricted in its use, in the types of
organizations that may receive grants from it or in the procedures
used to make grants from such funds.
Seed Money:
A grant or contribution used to start a new project or organization.
Self-Dealing:
A private foundation is generally prohibited from entering into
any financial transaction with disqualified persons (see Disqualified
Person). The few exceptions to this rule include paying reasonable
compensation to a disqualified person for services that are necessary
to fulfilling the foundation's charitable purposes. Violations will
result in an initial penalty tax equal to 5 percent of the amount
involved, payable by the self-dealer.
Site Visit:
Visiting a donee organization at its office location or area of
operation and/or meeting with its staff or directors or with recipients
of its services.
Social Investing:
Also referred to as ethical investing and socially responsible investing,
this is the practice of aligning a foundation's investment policies
with its mission. This may include making program-related investments
and refraining from investing in corporations with products or policies
inconsistent with the foundation's values.
Supporting Organization:
A supporting organization is a charity that is not required to meet
the public support test because it supports a public charity. To
be a supporting organization, a charity must meet one of three complex
legal tests that assure, at a minimum, that the organization being
supported has some influence over the actions of the supporting
organization. Although a supporting organization may be formed to
benefit any type of public charity, the use of this form is particularly
common in connection with community foundations. Supporting organizations
are distinguishable from donor-advised funds because they are distinct
legal entities.
Tax-Exempt Organizations:
Organizations that do not have to pay state and/or federal income
taxes. Organizations other than churches seeking recognition of
their status as exempt under Section 501(c)(3) of the Internal Revenue
Code must apply to the Internal Revenue Service. Charities may also
be exempt from state income, sales and local property tax.
Technical Assistance:
Operational or management assistance given to a nonprofit organization.
It can include fundraising assistance, budgeting and financial planning,
program planning, legal advice, marketing and other aids to management.
Assistance may be offered directly by a foundation or corporate
staff member or in the form of a grant to pay for the services of
an outside consultant. (See In-Kind Contribution.)
Tipping:
The situation that occurs when a gift or grant is made that is large
enough to significantly alter the grantee's funding base and cause
it to fail the public support test. Such a gift or grant results
in "tipping" or conversion from public charity to private
foundation status.
Trust:
A legal device used to set aside money or property of one person
for the benefit of one or more persons or organizations.
Trustee:
The person(s) or institutions responsible for the administration
of a trust.
Unrestricted Funds:
Normally found at community foundations, an unrestricted fund is
one that is not specifically designated to particular uses by the
donor, or for which restrictions have expired or been removed.
Investment Terms
A
Active vs. Passive Managers:
An active manager tries to outperform an index over time by actively
managing the portfolio-holding fewer names than the index, trading
the portfolio, concentrating the portfolio by industry or by economic
sector, holding cash or bonds as common stock reserves, etc. The S&P
500 and EAFE are two often-used market indexes. An index manager tries
to match the performance of a market index with little or no deviation
("tracking error"). Index managers are often described as
passive managers, although it takes "active" buying and
selling to match the performance of an index.
Appreciation:
Increase in the value (from date of purchase) of an asset such as
a stock, a bond, a commodity or real estate.
Asset Allocation:
The distribution of a pool of assets among various asset classes,
including, but not limited to, domestic and foreign bonds, cash,
real estate, venture capital, etc.
Asset Classes:
Types of investments commonly divided into the categories of equity
(common stock), fixed-income (bonds), cash and cash equivalents
and alternative investments (real estate, oil and gas, venture capital,
distressed securities, leveraged buyouts, risk arbitrage, etc.).
Average Annual Compound Return (AACR):
AACR is the annual return-that would produce the same end result
if compounded over a given period-as a string of different annual
returns over that same period. Using AACR allows comparison of managers'
performance over a period of years. However, the AACR does not show
how volatile returns have been over the period.
Balanced Portfolio:
A portfolio in which a manager invests in both common stock and
fixed-income instruments according to a predetermined target-e.g.,
60 percent common stock, 40 percent fixed-income.
Basis Point:
One one-hundredth of a percent (0.01 percent); 2 percent is equal
to 200 basis points. A term commonly used to measure returns, earnings
and fees paid to investment managers.
Cash Equivalents:
Instruments or investments of such high liquidity and safety that
they are virtually as good as cash. Examples include money market
funds and treasury bills.
Consumer Price Index (CPI):
Measures the average change in prices (inflation or deflation) over
time for a fixed-market basket of goods and services. It is often
used to adjust economic and financial data from current (nominal)
terms to inflation-adjusted (real) terms. Published monthly by the
Bureau of Labor Statistics.
Corporate Form:
A community foundation that is incorporated as a nonprofit corporation.
Investment management of assets held by the corporation is the responsibility
of the managers or board of the foundation. A community foundation
may include both a corporate entity and component trusts. (See Trust
Form.)
Custodian:
A bank or other financial institution that has custody of stock
certificates and other assets of a mutual fund, individual, corporation
or institution. All custodians can hold assets in safekeeping, collect
income on securities in custody, settle transactions, invest cash
overnight, handle corporate accounting and provide accounting reports.
Derivative:
A security whose price is based on the price of another security.
Examples include options, warrants, swaps, futures and forwards.
Diversification:
An attempt to minimize risk by distributing assets among various
asset classes or among managers within the same asset class who
have different styles.
Due Diligence:
The degree of prudence that might be properly expected from a reasonable
person in the circumstances; applicable to foundation personnel
who act in a fiduciary capacity. (See Fiduciary Duty.)
Duration:
A more accurate measure of the interest rate sensitivity of a bond
than maturity, duration reflects both the timing and the relative
magnitude of a bond's cash flows (both principal and interest payments).
Specifically, duration is defined as the weighted average time period
to receipt of a bond's cash flows (both principal and interest),
with the cash flows discounted to present value using the bond's
yield to maturity. Because a zero-coupon bond has no interim cash
flows, its maturity and duration are the same. For other bonds,
duration is determined by the bond's maturity, its coupon and its
yield to maturity. Used to measure the price sensitivity of a bond.
(See Maturity.)
EAFE Index:
Acronym for the Europe, Australia, Far East Index prepared by Morgan
Stanley Capital International. The EAFE Index is the most commonly
used market benchmark for measuring the performance of international
common stock managers. Because the index is weighted by market capitalization,
Japanese stocks make up approximately half of the index.
Earned Income:
Dividends and interest payments received or credited to one's account.
(See Return, Total.)
Emerging Markets:
Best represented by developing countries' markets in four major
regions: Latin America, East Asia, South Asia and sub-Saharan Africa.
The most commonly used benchmark for measuring the performance of
emerging markets is the MSCI Emerging Markets Index.
Equity vs. Common Stock:
Common stock represents equity or ownership interest in a corporation;
equity can also mean an ownership interest in other asset classes,
including real estate, oil and gas, venture capital, etc.
Excise Tax on Net Investment Income:
A tax on the net investment income of private foundations. Normally
set at 2 percent per year, the rate may be reduced to 1 percent
if the foundation meets certain expenditure requirements.
Fiduciary Duty:
The legal responsibility for investing money or acting wisely on
behalf of another. Managers of charitable entities have fiduciary
obligations to the charity. (See Due Diligence.)
Global vs. International Investing:
Describes opportunities for investing in asset classes. Global investment
managers may invest anywhere in the world. International investment
managers (often called foreign investment managers) may invest in
any country, except the United States.
Hedging:
Hedging can include one or more strategies used to offset specific
investment risk. A perfect hedge is one eliminating the possibility
of future gain or loss. Examples include owning real estate to protect
against inflation; owning high-quality, long-term bonds to protect
against deflation (selling stocks short to protect against a downturn
in the stock market).
Index:
A standard of measurement, e.g., the Dow-Jones Industrial Average,
the S&P 500, the Lehman Bros. Long-Term Bond Index, the Russell
2000, etc. Each of these indexes measures the activity of securities
within their universe. There are many indexes. The performance of
some investment managers is measured against an appropriately selected
index.
International Investing:
The selection of investments for inclusion in a portfolio from outside
the United States. Such selections of investments may make up one
or more separate asset classes.
Investment Consultants:
Advisors who aid in the investment decisions of individuals and
financial committees and officers of institutions. Investment consultants
provide information and make recommendations about asset allocation,
manager structure, manager review and portfolio performance.
Investment Manager:
An individual, firm or committee responsible for making day-to-day
decisions to buy, hold, or sell assets. Also known as money managers
or investment advisors.
Lehman Brothers Governments Corporate Bond Index:
A capitalization-weighted
index, generally accepted as a proxy for the U.S. taxable-bond market.
It is composed of all publicly issued, nonconvertible domestic debt
of the U.S. government and of industrial, utility and financial
corporations. It includes issues rated BBB or better, with maturities
greater than one year and at least $1 million per value outstanding.
Government bonds account for approximately 75 percent of the face
value of the index.
Liabilities:
Claims on assets held, excluding ownership equity. For a foundation,
payments outstanding for grants authorized and not yet paid or remaining
grants to be paid over multiyear periods, are liabilities.
Market Capitalization:
The market capitalization of a company is equal to the total number
of shares outstanding multiplied by the current price per share.
Maturity:
Maturity measures only the timing of the recovery of the principal
and ignores the interim coupon payments of a bond. Bonds with similar
durations are more likely to react similarly to changes in interest
rates than are bonds with similar maturities but different durations.
(See Duration.)
Pass-Through Foundation:
Foundations that receive monies and make distributions to donees,
with little or no principal remaining with the foundation.
Percentile Rank:
Ranking of an entity within a comparable universe. In general, 89th
percentile means that the entity in question is in the top 11 percent.
Some organizations use a different convention: the same entity would
be considered to be in the 11th percentile.
Portfolio:
The total investment pool held by an organization; normally divided
into several segments such as equities, fixed-income, real estate
and the like. The asset allocation of a portfolio will reflect the
risk level with which the sponsor is comfortable and will concurrently
affect the level of total return.
Portfolio Insurance:
The use of stock index futures by a portfolio manager to protect
against market declines. Instead of selling actual stocks as they
lose value, managers sell the futures. If the stock continues to
drop, they repurchase the futures at a lower price.
Present Value:
Also called time value of money or discounted cash flow, present
value is the value today of a future payment discounted at some
appropriate compounded interest rate. Used to determine the current
value of a future payment or to calculate the amount that must be
invested today to achieve a desired value of assets at some future
date.
Price-Earnings Ratio (P/E):
The current price of a share of stock divided by the most recently
available 12-month earnings per share.
Prohibited Transaction:
One of a number of activities in which certain private foundations
and/or foundation representatives may not engage. (See Disqualified
Persons.)
Return, Net, of Manager Fees:
Total return minus managers' fees. (See Return, Total.)
Return, Rate of:
The rate of return on an asset or a pool of assets is a measure
of investment performance and should always be determined on a total-return
basis, i.e., including realized and unrealized changes in market
value in addition to earned income (i.e., dividends and interest
income). Managers may report returns before or after management
advisory fees, but returns are always reported after brokerage and
trading costs.
Return, Real:
A real return is the nominal or actual return adjusted for inflation
as measured by the Consumer Price Index (CPI). (See Consumer Price
Index.)
Return, Total:
A measure of an investment's return that includes both realized
and unrealized changes in market value plus earned income. (See
Earned Income.)
Russell 2000:
A capitalization-weighted, total return index comprising the smallest
2,000 stocks of the Russell 3000. (The Russell 3000 index includes
the largest U.S. companies as measured by the market capitalization.)
The Russell 2000 provides a useful proxy for the small company universe,
with the smallest stocks still large enough to be of interest to
the institutional investor.
S&P 500:
The most widely used index of the stock market, the S&P 500
represents about two-thirds of the aggregate market value of all
U.S. common stocks. In selecting stocks for inclusion in the index,
Standard & Poor's aims to replicate the industry weightings
of the market; therefore, it is not the 500 largest stocks. Moreover,
5 percent of the index comprises foreign stocks.
Security:
A general term that refers primarily to stocks and bonds, as compared
to other investments such as real estate, limited partnerships and
the like. Historically, the term comes from the fact that "security"
was provided by the presentation of a written document reflecting
the ownership.
Spending Policy:
An agreed-upon policy that determines what percentage of a group
of assets, such as an endowment, should be spent to cover both operating
costs and grants of an institution. Typical spending rules combine
calculations based on previous years' spending, the current year's
income and investment return rates and the policy of the foundation
covering grant commitments.
Transaction Costs:
Costs of buying or selling a security. Costs include brokerage commission,
dealer markdown or markup, fees and taxes.
Trust Form:
A community foundation made up of multiple forms. Investment responsibilities
generally remain with the trust department of a bank (or banks)
and such trust departments are responsible for the developing and
implementing of investment policy. (See Corporate Form.)
Turnover:
Turnover is a measure of how actively traded a portfolio is. One
often-used calculation of turnover is the lesser of security purchases
or sales for the period divided by the average total asset value
during the period. A portfolio with 100 percent turnover implies
that all of the stocks that were in the portfolio at the beginning
of the period were sold and replaced by the end of the period. In
reality, however, a portion of the portfolio may have been turned
over aggressively, while other holdings remained untouched.
Yield:
For bonds, yield is annual interest divided by the market value
of the bond. For stocks, yield is a security's dividend per share
divided by its price per share.
Yield to Maturity:
Used to determine the rate of return an investor will receive if
a long-term, interest-bearing investment, such as a bond, is held
to its maturity date. Factors involved in calculating the rate of
return include purchase price, redemption value, time to maturity,
coupon yield and schedule of payments.
Compiled by John Dickason (MARKEY CHARITABLE TRUST AND CAMBRIDGE ASSOCIATES), consultants from a Lexicon for Community Foundations (COUNCIL ON FOUNDATIONS), Glossary of Definitions and Terms (CAMBRIDGE ASSOCIATES), Finance and Investment Handbook (BARRON'S) and other appropriate sources.
