The Smiths are reviewing their financial plan and ask for your assistance in the development of an Investment Policy Statement. They are both 55 years old and have an 18-year-old son who is about to start college. The Smiths earn after-tax salaries of $100,000 a year and they can meet their living expenses while saving 25,000 after taxes annually. They expect little change in either their incomes or expenses on an inflation-adjusted basis other than the addition of their son's college expenses. The Smiths both wish to retire in 10 years. Their son is about to enter a 4-year college program that requires a $50,000 contribution payable now to the college endowment fund. Thereafter they estimate the tuition and living expenses will amount to 45,000 annually. The Smiths manage their own portfolio which currently amounts to $700,000. A third of the portfolio is invested in the technology company one of the Smiths is working for. While they do have a very low-cost basis for tax purposes in that stock, the future of the company is highly uncertain. The Smiths plan to continue to manage their portfolio and they prefer conservative growth investments with minimal volatility. The Smiths have a 30% tax on ordinary income and 20% on net realized capital gains. They also have $100,000 accumulated losses from past unsuccessful investments. The Smiths expect to receive an inheritance in 10 years from a family trust. Currently, the amount is $1 million and is expected to grow before distribution. However, they do not receive any income from it now, nor do they have any control over its management. They have decided to exclude the future distribution from their current financial planning. Construct the objectives and constraints portion of an investment policy statement for the Smith addressing each of the following: 1) return objective 2) risk tolerance 3) time horizon 4) liquidity requirements 5) tax concerns 6) unique circumstances Ten years have passed, and The Smiths will retire this year when they receive the inheritance of $2 million after-tax. Other information about their financial situation is summarized below: a) pension income will total $100,000 a year and will not increase with inflation b) annual expenses will total 180,000 initially and will increase with inflation c) inflation is expected to be 2% annually d)their personal investments now total 1,100,000 excluding trust distribution The Smiths will rely on this personal portfolio to support their lifestyle and do not wish to reduce their level of spending e) The Smiths have health problems, and neither is expected to live more than 10 years f) all healthcare expenses will be covered by employer-paid insurance The Smiths sole investment objective is to meet their spending needs The Smiths are not concerned with growing or maintaining principle and any income deficit may be met with both investment income and by reducing the principle. The Trust distribution of $2 million after-tax The Smiths will maintain separate accounts for their personal assets and the trust distribution. They do not plan to withdraw income or principal from the trust portfolio, but they have made a minimum pledge of $2.5 million to a charitable organization for the next five years. They will need at least a 5.4% after-tax return on the trust portfolio to meet their pledge. All tax liabilities produced by the trust assets will be paid from the trust portfolio.