Program-Related Investments A Technical

Program-related investments (PRIs) are hybrid grants/loans made by foundations to charities. They allow foundations to stretch their limited funds further. This book provides foundations with guidelines for evaluating PRIs, monitoring grant recipients, and tracking returned funds.

Christie I. Baxter is the author of Program-Related Investments: A Technical Manual for Foundations, published by Wiley.

About the Author

xiii

(2)

Foreword

xv

(2)

Preface

xvii

One Program-Related Investments: New Tools for Philanthropy

1

(18)

1.1 The Tools: A Spectrum of Investment Instruments

2

(3)

1.2 New Tools: New Approaches to Philanthropy

5

(1)

1.3 The Investment Process

6

(3)

Exhibit 1-1 "Answers to the 10 Most-Asked Questions about PRIs"

9

(2)

Exhibit 1-2 "Introduction to Program-Related Investments,"

11

(8)

John Weiser

Frances Brody

Two The PRI Decision: From Policy to Program

19

(66)

2.1 Policy Questions

19

(3)

2.2 Private versus Community Foundations

22

(1)

2.3 The Policy Framework: Presentations to Trustees

22

(1)

2.4 From Policy to Program: Guidelines and Procedures

23

(3)

Exhibit 2-1 Community Foundation Staff Assessment of a Proposed PRI

26

(11)

Exhibit 2-2 Discussion Paper for a Private Foundation Board

37

(4)

Exhibit 2-3 PRI Guidelines

41

(2)

Exhibit 2-4 Document for Trustee Discussion

43

(3)

Exhibit 2-5 PRI Internal Guidelines

46

(2)

Exhibit 2-6 PRI Guidelines

48

(6)

Exhibit 2-7 Policies and Procedures: Community Investment Program

54

(5)

Exhibit 2-8 Policies and Procedures: Loan Guarantee Program

59

(3)

Exhibit 2-9 Program Description: Nonprofit Assistance Program

62

(4)

Exhibit 2-10 Loan Program Guidelines and Application Form

66

(8)

Exhibit 2-11 PRI Guidelines and Pre-Application Form

74

(4)

Exhibit 2-12 PRI Program Brochure

78

(2)

Exhibit 2-13 PRI Application Form

80

(5)

Three Federal Tax Considerations for Private Foundations

85

(52)

3.1 Defining PRIs

85

(3)

3.2 Tax Treatment of PRIs

88

(1)

3.3 Imposing Tax Rules on Transactions

89

(1)

3.4 Reporting PRIs on Form 990-PF

90

(1)

Exhibit 3-1 Treasury Regulations, Section 53.4944-3

91

(4)

Exhibit 3-2 "Current Issues in Housing and Economic Development: What is Charitable?"

95

(34)

Eric Doppstadt

Exhibit 3-3 "Reporting Program-Related Investments,"

129

(2)

Gregory L. Colvin

Rosemary Fei

Exhibit 3-4 Sample IRS Form 990-PF

131

(6)

Four Documenting Direct Investments

137

(128)

4.1 The Loan Process

137

(1)

4.2 Components of the Loan Agreement

138

(5)

4.3 Special Issues

143

(2)

4.4 Other Transactions

145

(1)

4.5 Documentation Packages

145

(2)

Exhibit 4-1 Letter to Approved Borrowers

147

(3)

Exhibit 4-2 "Some Practical Observations about Making, Documenting and Closing PRIs,"

150

(9)

David S. Chernoff

Exhibits 4-3 to 4-7 Documentation from a Private Foundation

159

(35)

Exhibit 4-3 Questionnaire to Borrower

159

(1)

Exhibit 4-4 Commitment Letter

160

(4)

Exhibit 4-5 Loan Agreement

164

(20)

Exhibit 4-6 Promissory Note

184

(3)

Exhibit 4-7 Borrower's Tax Opinion Letter

187

(7)

Exhibits 4-8 to 4-16 Documentation Prepared by Outside Counsel

194

(38)

Exhibit 4-8 Loan Cover Letter

194

(2)

Exhibit 4-9 Loan Award Letter

196

(4)

Exhibit 4-10 Loan General Terms and Conditions

200

(13)

Exhibit 4-11 Promissory Note

213

(2)

Exhibit 4-12 Certificate of Corporate Resolutions

215

(2)

Exhibit 4-13 Master Tax Opinion Letter

217

(8)

Exhibit 4-14 Transaction-Specific Legal Opinion Letter

225

(3)

Exhibit 4-15 Cover Letter for an Equity Investment

228

(1)

Exhibit 4-16 Letter of Agreement for an Equity Investment

229

(3)

Exhibits 4-17 to 21 Documentation from a Community Foundation

232

(33)

Exhibit 4-17 Cover Letter, Unsecured Loan

232

(1)

Exhibit 4-18 Loan Agreement, Unsecured Loan

233

(9)

Exhibit 4-19 Cover Letter, Secured Loan

242

(2)

Exhibit 4-20 Loan Agreement, Secured Loan

244

(10)

Exhibit 4-21 Promissory Note

254

(1)

Exhibits 4-22 to 4-23 Documentation for Recoverable Grants

255

(1)

Exhibit 4-22 Recoverable Grant Application Kit

255

(5)

Exhibit 4-23 Letter of Agreement for a Recoverable Grant

260

(5)

Five Investing in Intermediaries

265

(62)

5.1 Nonprofit Intermediaries

266

(2)

5.2 Using Covenants to Monitor Performance

268

(1)

5.3 Making PRIs in For-Profit Banks

269

(2)

Exhibit 5-1 "Program Related Investments in Intermediary Organizations,"

271

(9)

Paul E. Lingenfelter

Exhibit 5-2 Questions to Ask when Investing in a Loan Fund

280

(3)

Exhibit 5-3 Loan Agreement and Exhibits from an Intermediary

283

(16)

Exhibit 5-4 Loan Agreement from a Community Foundation

299

(12)

Exhibit 5-5 Promissory Note to a Community Foundation

311

(4)

Exhibit 5-6 Commitment Letter to an Intermediary

315

(9)

Exhibit 5-7 Financial Covenants for a Loan to a Community Development Loan Fund

324

(3)

Six Supporting Ventures

327

(64)

6.1 Investment in Nonprofit Enterprise versus Grants to Programs

328

(1)

6.2 Investing through Intermediaries

329

(2)

Exhibit 6-1 "Foundation Investments in For-Profit Enterprise,"

331

(9)

Frances Brody

Scott Miller

Claire Morduch

John Weiser

Exhibit 6-2 "Financing the Enterprise,"

340

(23)

Ellen Arrick

Exhibit 6-3 "The Cultural Challenge of Supporting Enterprise,"

363

(12)

Gregory F. Robison

Exhibit 6-4 "Review of Support for Small Business Finance"

375

(16)

Kerwin Tesdell

Seven Evaluation

391

(60)

7.1 Financial Performance

391

(2)

7.2 Programmatic Performance

393

(1)

7.3 Costs

394

(2)

Exhibit 7-1 PRI Program Evaluation for the Board

396

(6)

Exhibit 7-2 Progress Report to the Board

402

(4)

Exhibit 7-3 Survey of Borrowers

406

(8)

Exhibit 7-4 John D. and Catherine T. MacArthur Foundation's Portfolio in 1996

414

(16)

Exhibit 7-5 Metropolitan Life's Social Investment Program in 1994

430

(3)

Exhibit 7-6 "How Much Does It Cost to Make a PRI?"

433

(8)

Frances Brody

Scott Miller

Exhibit 7-7 "Program Related Investments: Do They Cost, or Do They Pay?"

441

(10)

Paul E. Lingenfelter

Appendix: Providers of Information

451

(4)

Glossary of Terms

455

(4)

References for Readers

459

(2)

Index

461

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Program-Related Investments A Technical Manual for Foundations

Summary

Author Biography

Table of Contents

Supplemental Materials