ANSWERS TO QUESTIONS

1. A fiduciary is a person or institution that manages money and/or business

affairs for another person or institution. A fiduciary has discretion in
management rather than just being an order taker.
2. Harvard College v. Amory is the origin of modern fiduciary standards. This
court case was the first legal statement regarding proper trustee investment
choices.
3. a. The prudent man rule states that a fiduciary should not speculate.
b. The rule does not define speculation.
4. a. The court dismissed the contention that the fact that an investment portfolio
appreciated in value is a defense against imprudent investment management.
b. The court also ruled that each portfolio component must be judged on the
extent to which it contributes to overall portfolio characteristics and the
resulting likelihood that the portfolio will serve the beneficiary well.
5. One the one hand, the Spitzer case requires that each portfolio component be
scrutinized. This raises the possibility that someone could focus on one
particular losing position and argue that it was an imprudent investment choice.
On the other hand, the Spitzer case recognizes that portfolio components are
part of a portfolio and that the prudence of a component ultimately depends on
the portfolio in which it is placed. This implies that portfolio focus is
important.
6. The prudent expert standard states that the standard of performance is not an
ordinary person (who may be unfamiliar with modern portfolio management);
rather, it is a person familiar with such matters and acting in a like capacity for
a similar institution with a similar investment policy. The standard essentially
says that we need to see what the experts are doing before making a judgement
about the prudence of some course of action.
7. See Table 20-1.
8. Reasonable care and undivided loyalty.
9. The documents rule requires the portfolio manager to handle investments in
accordance with the documents that govern the pension plan unless the