UESTION TWO Several discussion meetings have provided the following information about one of your firm's new advisory clients, a charitable endowment fund recently created by means of a one-time E10 million sitt Objectives Return requirement: Planning is based on a minimum total return of 3% per year, including an initial current income component of E500,000 (5% on beginning capital). Realizing this current income target is the endowment fund's primary return goal. Constraints Time horizon. Perpetuity, except for requirement to make an E8,500,000 cash distribution on June 30, 2025. Liquidity needs. None of a day-to-day nature until 2025. Income is distributed annually after year-end. Tax consideration. None, this endowment fund is exempt from taxes. Legal and regulatory consideration. Minimal, but the prudent investor rule applies to all investment actions. Unique needs, circumstances and preferences. The endowment fund must pay out to another tax-exempt entity the sum of E3,500,000 in cash on June 30, 2025. The assets remaining after this distribution will be retained by the fund in perpetuity. The endowment fund has adopted a 'spending rule' requiring a first-year current income pay-out of E500,000; thereafter, the annual pay-out is to rise by 3% in real terms. Until 2025, annual income in excess of that required by the spending rule is to reinvestment. After 2025, the spending rate will be reset at 5% of the then-existing capital. with this information and information found in other publications, do the following: 2.1.1 Formulate an appropriate investment policy statement for the endowment fund. (7 Marks) 2.1.2 Identify and briefly explain three major ways in which your firm's initial asset allocation decisions for the endowment fund will be affected by the circumstances of the account. (8 Marks) UESTION TWO Several discussion meetings have provided the following information about one of your firm's new advisory clients, a charitable endowment fund recently created by means of a one-time E10 million sitt Objectives Return requirement: Planning is based on a minimum total return of 3% per year, including an initial current income component of E500,000 (5% on beginning capital). Realizing this current income target is the endowment fund's primary return goal. Constraints Time horizon. Perpetuity, except for requirement to make an E8,500,000 cash distribution on June 30, 2025. Liquidity needs. None of a day-to-day nature until 2025. Income is distributed annually after year-end. Tax consideration. None, this endowment fund is exempt from taxes. Legal and regulatory consideration. Minimal, but the prudent investor rule applies to all investment actions. Unique needs, circumstances and preferences. The endowment fund must pay out to another tax-exempt entity the sum of E3,500,000 in cash on June 30, 2025. The assets remaining after this distribution will be retained by the fund in perpetuity. The endowment fund has adopted a 'spending rule' requiring a first-year current income pay-out of E500,000; thereafter, the annual pay-out is to rise by 3% in real terms. Until 2025, annual income in excess of that required by the spending rule is to reinvestment. After 2025, the spending rate will be reset at 5% of the then-existing capital. with this information and information found in other publications, do the following: 2.1.1 Formulate an appropriate investment policy statement for the endowment fund. (7 Marks) 2.1.2 Identify and briefly explain three major ways in which your firm's initial asset allocation decisions for the endowment fund will be affected by the circumstances of the account. (8 Marks) UESTION TWO Several discussion meetings have provided the following information about one of your firm's new advisory clients, a charitable endowment fund recently created by means of a one-time E10 million sitt Objectives Return requirement: Planning is based on a minimum total return of 3% per year, including an initial current income component of E500,000 (5% on beginning capital). Realizing this current income target is the endowment fund's primary return goal. Constraints Time horizon. Perpetuity, except for requirement to make an E8,500,000 cash distribution on June 30, 2025. Liquidity needs. None of a day-to-day nature until 2025. Income is distributed annually after year-end. Tax consideration. None, this endowment fund is exempt from taxes. Legal and regulatory consideration. Minimal, but the prudent investor rule applies to all investment actions. Unique needs, circumstances and preferences. The endowment fund must pay out to another tax-exempt entity the sum of E3,500,000 in cash on June 30, 2025. The assets remaining after this distribution will be retained by the fund in perpetuity. The endowment fund has adopted a 'spending rule' requiring a first-year current income pay-out of E500,000; thereafter, the annual pay-out is to rise by 3% in real terms. Until 2025, annual income in excess of that required by the spending rule is to reinvestment. After 2025, the spending rate will be reset at 5% of the then-existing capital. with this information and information found in other publications, do the following: 2.1.1 Formulate an appropriate investment policy statement for the endowment fund. (7 Marks) 2.1.2 Identify and briefly explain three major ways in which your firm's initial asset allocation decisions for the endowment fund will be affected by the circumstances of the account. (8 Marks) UESTION TWO Several discussion meetings have provided the following information about one of your firm's new advisory clients, a charitable endowment fund recently created by means of a one-time E10 million sitt Objectives Return requirement: Planning is based on a minimum total return of 3% per year, including an initial current income component of E500,000 (5% on beginning capital). Realizing this current income target is the endowment fund's primary return goal. Constraints Time horizon. Perpetuity, except for requirement to make an E8,500,000 cash distribution on June 30, 2025. Liquidity needs. None of a day-to-day nature until 2025. Income is distributed annually after year-end. Tax consideration. None, this endowment fund is exempt from taxes. Legal and regulatory consideration. Minimal, but the prudent investor rule applies to all investment actions. Unique needs, circumstances and preferences. The endowment fund must pay out to another tax-exempt entity the sum of E3,500,000 in cash on June 30, 2025. The assets remaining after this distribution will be retained by the fund in perpetuity. The endowment fund has adopted a 'spending rule' requiring a first-year current income pay-out of E500,000; thereafter, the annual pay-out is to rise by 3% in real terms. Until 2025, annual income in excess of that required by the spending rule is to reinvestment. After 2025, the spending rate will be reset at 5% of the then-existing capital. with this information and information found in other publications, do the following: 2.1.1 Formulate an appropriate investment policy statement for the endowment fund. (7 Marks) 2.1.2 Identify and briefly explain three major ways in which your firm's initial asset allocation decisions for the endowment fund will be affected by the circumstances of the account. (8 Marks)