CFA Examination Level III Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle, and has no children. He has interest in a private company for $90 million and has decided that a medical research foundation will receive half the proceeds now; it will also be the primary beneficiary of his estate upon his death. Mr. Franklin is committed to the foundation’s well-being because he believes strongly that, through it, a cure will be found for the disease that killed his wife. He now realizes that an appropriate investment policy and asset allocations are required if his goals are to be met through investment of his considerable assets. Currently, the following assets are available for use in building an appropriate portfolio:

$45.0 million cash (from sale of the private company interest, net of pending $45 million gift to the foundation)

10.0 million stocks and bonds ($5 million each)

9.0 million warehouse property (now fully leased)

1.0 million Franklin residence $65.0 million total available assets

a. Formulate and justify an investment policy statement setting forth the appropriate guidelines within which future investment actions should take place. Your policy statement must encompass all relevant objective and constraint considerations.

b. Recommend and justify a long-term asset allocation that is consistent with the investment policy statement you created in Part a. Briefly explain the key assumptions you made in generating your allocation.