1. What are the differences among the types of investment companies?

How easily are they bought and sold? Do they sell for their net asset values? If not, how are their prices determined? Do they sell for a premium over or discount from the NAV?

2. What is the tax implication of selling the existing stock to obtain funds to invest in other alternatives?

3. Should the Sachses open a retirement account? Which of the various alternatives may be the most appropriate to acquire in a retirement account?

4. Develop an appropriate allocation in which the asset classes (e.g., large cap stocks) are expressed as ranges such as 10-15 percent devoted to the class.

Exhibit 1 Correlation Coefficients for Selected Investment Alternatives

Exhibit 2 Selected Investment Companies
Company Type of Investment Company
Large Company Fund ------------------------ No-load open-end
Large Income Stock Fund ------------------------ Closed-end investment company
The All Stocks Fund ------------------------ Exchange-traded fund
The Little Stocks ------------------------ Load open-end
The Corp-Bond Fund ------------------------ Closed-end fund
Interest-Index Fund ------------------------ Exchange-traded
Money MKT Asset Fund ------------------------ No-load open-end
Real Estate Trust ------------------------ Closed-end investment company
The Foreign Index Fund ------------------------ Exchange-traded fund
5. Identify the specific investment companies for each class in the allocation. What role do the correlation coefficients play in your allocation? (It is not necessary to use every possible investment company in your proposed allocation.)
6. How may the answer to Question 2 affect the decision to proceed with your suggested changes?
7. Assume that the cost basis of the current portfolio is approximately $250,000. Under this assumption, how much would you allocate to each class of assets?
8. Based on the returns in Exhibit 1, what will be the allocation five years from now? What steps should be taken?

Your clients, Eva and Walther Sachs, operate a successful catering business specializing in Germanic and eastern European foods. It is a family business with part-time workers during peak periods. Most of the part-time employees have regular full-time jobs and work part time for their love of the specialty foods. The business has been profitable for years and consumes a large amount of Eva’s and Walther’s time. They have accumulated over $250,000, which has been invested solely in a large cap growth mutual fund. They have no retirement accounts and have not thought about an exit strategy in which they would sell or liquidate the business.

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Returns Large Small Corporate Money Real Foreign on bonds ket estate socks indexes 10.0% 12.0% 60% cap cap 1.00 0,78 0.23 Large cap Small cap Corporate bonds Money market securifies Real estate Foreign stocks 1.00 0.12 1.00 0.10 0.05 0.65 1.00 0.26 0.35 014 0.03 1.00 0.35 0.26 0.17 0.14 0.28 1.00 12.0% 0% 14.0%