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1. 33 CREATING MODEL PORTFOLIOS 34 MODEE PORTEOLO EINK G2 34 ASSETSI SEGURITIES M uai c e IPM DD M DU DM DL 35 CREATING YOUR OWN ASSET CLASS sasuke sa senes 35 EDITING AN ASSET CLASS ASSET TYPE SECURITY oan a raus auras 35 DELETING AN ASSET CLASS ASSET TYPE SECURITY eeeseeee nennen 35 CHANGING THE NAME OF AN ASSET SECURI TY 2 2 Oo 36 GLASSIFYING ASSET GLASSES c A LLL D CECI OI 36 GLASSIFYING SECURITIES CE p PLE E CI DIIS cL TUDIN E I P SP M PI cM EU Pe DIS 36 MIS 36 MODIFYING AssET SECURITY RATES OF RETURN AND STANDARD DEVIATIONS enne nnne nennt 37 SECURITY ANALYSIS erii ee eese reo uev Lead bee E Cow Uv cem vEnE Ehe eb E 38 FIYPOTHETIGAL PERFORMANGE CN IE IE D CL IC DO COD DRM PN MEDI MA 38 OVERVI
2. ese su 59 THE ASSET ALLOCATION PROCESS URP DR APER 60 DEVELOPMENT OF POLICIES AND OBJECTIVES nn 60 CLIENT RISK MINIMUM PERIOD RETURN sek 61 PROBABILITY RANGE OF RETURNS 61 MINIMUM amp MAXIMUM CONSTRAINTS 62 Biz m m 62 CONTRIBUTIONS Ge WITHBRAWMAES Meca Dru e TEES E SOIL I DE D 62 APPLYING TAX RATES MANAGEMENT FEES AND INFLATION RATES 62 ens 62 biz c r Cr 62 MANAGEMENT FEES vaa ra eas FEEE o Reo ea E Seen Dee 62 INEEATION bee Lie Lene awe eee EE be ciun 62 TRANSACTION FEES INT
3. 46 CREATING NEW PORTFOLIOS seek 46 COPY COMBINE AN EXISTING PORTFOLIO WITH OTHER PORTFOLIOS 46 COPYING RECOMMENDED OR MODEL PORTFOLIOS rasan sanas 47 ASSIGNING SECURITIES TO ASSET CLASSES UNE ER 48 CHANGING PORTFOLIO TIME 20 49 EDITING VALUES OF ASSETS SECURITIES IN PORTFOLIO ennnen 49 SAVING PORTFOLIOS 5 3 ead once Ine d 49 ADJUSTING PORTFOLIO VALUE DOR LIC LA 49 EDITING VALUES OF ASSETS SECURITIES ER Vra Ea Fo PusR Es eR X 50 SETTING VALUES GLOBALELY Ee E oe 50 APPLYING HISTORICAL RETURNS ADVISORYWORLD ESTIMATES FIRM ESTIMATES OR USER ESTIMATES 50 INCOME amp CAPITAL
4. Equivalents 00 90 earury Dill 5 00 25 000 5 40 1 51 12 1068 n amp 2002 35 48 27 20 100 00 0 00 1 00 AX E 5 0 2 1968 8 x Domestic Equites Indices 40 00 C Wilshire Large Ca Growth 10 00 T 21 84 12 1977 08 2002 39 48 27 20 1 00 10 00 1 50 14 05 12 1977 n amp 2005 39 48 27 20 100 0 n nn 1 00 10 00 00 28 24 45 12 1977 DA 2002 356 48 27 20 100 00 0 00 1 00 x Jang secure Eos 792179 10 08 o 00 Ey security Damestic Bonds G Corp Bonds General 5 0 25 00 55 4 72 12 1968 08 2002 39 48 27 20 100 00 0 00 1 00 dada security International Equities WF International 15 05 12 1868 05 2002 39 48 27 20 100 00 0 00 1 00 idd rotionded start 8S bebe 47 ASSIGNING SECURITIES TO ASSET CLASSES 1 Click on the Add Security link under the asset class name 2 The Assets amp Securities Add Remove Classify window appears on top where you can add securities to current asset class 3 You can define which securities to show in the left part of the window by choosing one of the radio buttons ALL or recommended for this asset class by AW s Firm s or Yours Advisory World Microsoft Internet Explorer File Edit Favorites Tools Help ix 2 2 Search 5 Favorites QU a dE 2 E Address http Jtest advis
5. Add security LCGAX Large Cap Growth A 23 95 59 868 By asset class 1 WSY Wilshire Small Co Value 40 01 100 033 213 93 16 3 18 1977 10 2002 100 00 Add security DFSVX DF Small Value 40 01 100 033 By asset class Domestic Bonds 27 51 5617860 Corp Bonds High Yield 0 00 D 6 9 10 85 18 1968 100 00 Add security ABHIX American Century High Yield Inv 0 00 asset class Corp Bonds High Qual 27 51 7 0 bead 4 24 12 1968 10 2002 100 00 o oo o oo Add security OPIGX Oppenheimer Bond Fund 27 51 648 780 By asset class International Equities 8 53 21 319 WF International Equities 0 00 0 dna 10 200 0 00 0 00 00 00 0 00 alae 7 00 8 Click on Compare Portfolio Icon 23 Locate and Select your clients Current Portfolio 3 Advisory World Microsoft Internet Explorer gt lt AW http ice advisoryworld com ICE Thomas Widget Log Out Smith Salai Portala EE Select Portfolio valu History Estimates Select Portfolio E LLL i Thomas Widget PE clients lome Clients ortfolio Portfolio dj d 8 s F Dollar Amount Eas John Smith Domestic Equites Indices 63 9 1593901 Wilshire Large Co Value 0 00 Add security Advisory World Portfolios LCBAX Large Cap Basic Value 0
6. ERERNT E 8 9 HOW VIEWLEFT S 9 ICE GETTING STARTED amp CASE 10 OPENING THE ICE APPLICATION er dr EI RI QUEUE 10 ADVISOR SETUP qv 10 JOHN T OMITA IGE CASE STUDY esae PRO ES Fe Reo eso ica 10 TO OPEN YOUR CLIENTS LIST AND skr arare nen an 11 NEW E eH KNEE ERE c TC 12 ACCOUNTS T TETTE mr 13 NEW PORTFOLIOS NEUTER 15 BUILDING PORTFOLIOS acta AE E 15 PORTFOLIO RN UTE 15 ADDING ASSETS amp 16 SAVING PORTFOLIOS Eae ea 18 CASH FLOW amp FINANCIAL PLAN ANALYSIS 19 OPTIMIZING PORTFOLIOS EH ov E 19 MONTE CARLO SIMULATION 21 M tM
7. 3 Years 60 16 Eii YTD 1 Year 3 Years 5 Years General Address Information 5 Years 12 84 Inception Date 4 01 1985 Family Name Janus Fund avg 10 Years 147 02 Legend A Load 0 00 Address 100 Fillmore Street Janus Fd Inc Twenty Inception 737 34 12b 1 0 00 City E u Recent Bull Market 13 1396 ES SBI Salomon Broad E Recent Bear Market 8 47 Annualized Expense 0 00 State Minimum Initial Investment 2 500 00 ZIP 80206 Subsequent Investments 100 00 Phone local 303 333 3863 Histori cal Perfo rmance Reinvest or Other Phone Toll Free 800 525 3713 Check writing Ann High Low Payroll Deductions ROR Growth Growth Mths Mths Automatic Phone Transactions Month end Information Exchange By Phone 401K Plan 31 26 JAVLX Janus Fd C Inc Twenty 6 Growth 634 1896 11 70 21 54 138 79 737 34 16 81 24 29 133 82 10 000 403B Plan POP 31 96 Buann gg SPC SOP 500 771 71 13 47 21 53 137 80 Composite 457 Plan Capital Gain 0 00 779695 85 87 89 91 93 95 97 99 01 03 mg SBI Salomon Broad Keogh Plan Income dividend 0 00 Bond Index The graphic above displays historical performance for the time period common to the security and the indices to which Systematic Withdrawal Plan Assets Under Management 9 069 700 096 it is being compared All other calculations in this report use the security s time horizon only
8. 1358 sA 25 12222 esa Portfolio Status og Trans Mn Yield Dollar Ama Ss 9 Dividends amp Fees Fees Optimal Interest s 250 1 yea 0 06 0 06 0 00 Domestic Equites Indices 63 96 1544 Wilshire Large Co Value m om 7 secu LCBAX Large Cap Basic Value 0 00 100 00 MSVTX MFS Strategic Value A 0 00 5 M 29 75 NLS Wisnire Large F WLG Wilshire aoe andi 23 95 53 0 00 1 Large Cap Growth 23 95 59 xs Wilshire Small Valve 40 01 security 10 2002 10 2002 DFSVX DFA Small Cap Value 40 01 1004 Domestic Bonds 27 5 Corp Bonds High Yield 0 00 0 00 0 00 a m ABHIX American Century High Yield Inv 0 00 Corp Bonds Hi ual 27 51 BB 0 00 0 00 0 00 OPIGX Oppenheimer Bond Fund g 51 780 asset class International Equities 8 53 21 319 WF International Equities 0 00 J n 10 200 0 00 0 00 00 00 0 00 nik E 7 00 After reviewing close the window Next click on Reports 25 REPORTS The pull down list allows selecting any or all reports graphs and tables Within the report window you can use the following buttons Print to print a report Send to send a report to the client receiver must use MS Outlook and have MS Internet
9. Applying Tax Rates Management Fees and Inflation Rates Tax Rates Management Fees and Inflation Rates may be applied automatically check them in the Portfolio Info screen or on the fly clicking on the icons You may select any or all of these factors The portfolio performance will be changed as follows depending on which if any of the factors you wish to use in calculating performance Tax Rates The Tax Rates Income Tax and Capital Gains Tax will tell the programs to generate after tax returns in the Optimization programs and in portfolio simulations Management fees are those fees charged by the adviser if any and will also effect the Optimizer and the portfolio simulations Both entries may be set globally or individually within the portfolio However these values may be modified and set at different rates for each asset if desired Simply move the cursor to the desired asset and then to the appropriate field you wish to change Yield The program calculates the after tax yield on each asset based on the Income Tax specified in the Questionnaire Capital Gains Capital Gains is the net difference between any Yield specified and the assets total return The program calculates the after tax capital gain on each asset based on the Capital Gains tax specified in the Questionnaire These rates are initially set globally However different rates may be assigned to different assets or some assets may be made non taxable while others re
10. SSN or Fed 10 123121234 Bank E mail pwilson advisoryworl Spouse Name Birth Date 09 19 2002 Editing Reviewing a client s information Editing a client is performed similarly 31 1 Select required client by clicking selected item is highlighted in blue 2 Choose the or Detail button CREATING AN ACCOUNT 1 Select the client you wish to attach a new account to selected client is highlighted in blue 2 Choose the New Account button The Account Setup window appears on top 3 Fill in the fields concerning this client s account 4 f you are not sure of a Portfolio Objective dialog s rightmost tab for the account then click the Questionnaire button and follow the instructions 5 After you have finished editing choose OK to close the window and append the new account to the designated client If you choose Apply the account will be created and the Accounts Setup window will remain staying on top Choosing Cancel will close the window and nothing will be added to the list Choosing Save amp Create a Portfolio will save the account close the window create new portfolio and start the Portfolio Setup dialog Account Setup Microsoft Internet Explorer Personal Portfolio Portfolio Account info Info Defaults Objective Account Info Account Type Personal Investments Account Name Personal Investments Account 123 Brokera
11. advisoryworld com ICE Integrated Capital Engine Portfolio C omparis Select ssets Cash Flow amp Plan Analysis Optimize Portfolio Reports He History Estimates Probability Range Years Hold Portfolio Status P fol ae Dollar Amount ROR STD pest End Date gos Magus Irene ME a e Hes Fees Fees ET At list Click here to add assets into portfolio allocations to Asset Classes Securities expressed as a percent2 the Portfolio Value Adding Assets amp Securities The Assets amp Securities Add Remove Classify window appears on top The left pane of this window displays the list of available Assets Securities In the right pane you see those Assets Securities that are already present in the portfolio blank if using for the first time You can add assets by selecting an asset security in the left dialog s pane and double clicking on that security by clicking on the Add button or by Searching for securities by ticker symbol To remove an asset security from the portfolio select it in the right pane and click on the Remove button An asset class is added to the portfolio under the asset type to which it has been assigned in the Assets Securities dialog See also Classifying asset classes You can also move by drag n drop an asset class to another asset type within the portfolio in the dialog s right panel When
12. that are grayed out will be Advantus Bond Fund removed from the report because Advantus Band Fund B Alliance Bond Carporate Bond given time 2 remove a security click on the Alliance Bond Corporate Bond B ticker symbol Alliance Bond Corporate Band C Time Horizon Holding Period months l Risk Free ROR 153 axis Standard Deviation he Y axis Rate of Return 35 Prepared by Rate of Return 7s standard Deviation Prepared for Sharpe Ratio Correlation with Independend Variable Last 1 2 manth Rate of Return 35 Note Risk adjusted Rate of Return 25 Printed pages has head according to the setup browser s settings Growth of A Dollar Graphs the performance of securities or indices for a specified time horizon e this report select Security Reports in the main screen e Click on Select Assets You can choose an index and Add In Class or select from all available databases using Select Assets e time horizon you wish to use the holding period i e 12 months 36 months and use your own the historical risk free rate of return e the report click on Continue 40 e While report is displayed you can modify any setting add or remove securities by clicking on the Edit Report button at the top of the report Monthly Annual Performance Displays the monthly and annual rate of returns for
13. AdvisoryWorld ICE and related Plug in Modules The computer programs contained on diskettes provided by AdvisoryWorld are proprietary trade secrets of AdvisoryWorld Their possession and use must conform strictly to the Product and Service Agreement between user and AdvisoryWorld Copyright 1987 2003 by AdvisoryWorld rights reserved This copyright notice should not be construed as evidence of publication ADVISORYWORLD 7812 Gloria Ave Van Nuys CA 91406 818 999 0015 Fax 818 304 0722 ADVISORYWORLD Product and Service License Agreement IMPORTANT READ THIS BEFORE USE OF ADVISORYWORLD S PRODUCTS AND SERVICES USE OF THESE PRODUCTS AND SERVICES IN ANY MANNER CONSTITUTES YOUR ACCEPTANCE OF THE FOLLOWING TERMS AND CONDITIONS If you do not agree to these terms and conditions return the Operating Disks any Data Disks and documentation package together with the other components of this product immediately to ADVISORYWORLD for a refund PERMITTED USES This 15 a copyright protected product You may use the Operating Disk s and Product software on a computer s that you own or use You may make a copy of those portions of the software generated screen displays specifically permitted under this Agreement for client presentation or archival purposes NON PERMITTED USES Without express written permission from ADVISORYWORLD you may NOT 1 Use the software in a computer service business including rental networking or time sharing s
14. Close to apply changes to the portfolio or Cancel to cancel changes MODIFYING ASSET SECURITY RATES OF RETURN AND STANDARD DEVIATIONS Asset Security Microsoft Internet Explorer HUNE Performance Identification and Classification History Estimate Information o Statistics Mot Defined Mat Defined Mot Defined Modify TOs To modify RORs and or STDs for ALL portfolios 8 Click on Assets amp Securities 9 select the asset or security to be modified 10 click on Details 11 click on the Estimates tab 12 click on Modify RORS STDs 13 enter or change the ROR or STD 14 to apply these values click on Estimates under History Estimates OR display the securities assigned to an Asset Class by clicking on the check box next to the Asset Class click on the Estimates tab click on Modify RORS STDs enter or change the ROR or STD 0 to apply these values click on My Estimates under History Estimates 2 45 Using this method modified RORs and STDs will not be applied until you the Portfolio Builder screen and re open the portfolio To modify RORs and or STDs ONLY for the active portfolio Select and load a portfolio highlight click the or STD field for the Asset Class or Security desired 6 7 enter the new value 8 type the tab or enter key or click on another asset or another part of the screen
15. LCGAX Large Cap Growth 10 00 25 000 By assetclass WSV Wilshire Small Co Value 3 00 7 500 1 197 20 2002 0 00 0 00 n m Add security DFSVX Small Cap Value 3 00 7 1500 asset class Domestic Bonds 24 00 0 000 Corp Bonds High Yield 10 00 25 000 12 1968 10 2002 0 00 0 00 p m Add security ABHIX American Century High Yield Inv 10 00 25 000 By asset class CICO Corp Bonds High Qual 14 00 35 000 24 12 1968 10 2002 0 00 0 00 Add security Oppenheimer Bond Fund 14 00 35 000 By asset class International Equities 15 00 371500 WF International Equities 3m n After Entering the Dollar Values click on the Taxes Icon to apply taxes to the portfolio Taxes Fees and Inflation can be turned on or off at any time simply by clicking on the icons Saving Portfolios m After Entering the Dollar Values Press Save Next Click on Cash Flow amp Plan Analysis link 18 Cash amp Financial Plan Analysis Opens the dialog devoted to analyzing the client s financial plan Input the main objective data at the screen s top and other financial goals contributions to and withdrawals from the portfolio the client is planning to do To add a financial goal choose the Create New Goal button You can change the values of financial goals directly in the table Just click on a line and input boxes will appear where you can type in To unselect a line
16. My user defined portfolios respectively Within these folders are the subfolders named according to a portfolio objective Aggressive Growth Income etc Moving a predefined portfolio into corresponding folder by drag n drop means that this portfolio will be recommended to be used by the clients with given objective 3 Links is the folder where you can group portfolios accounts and clients by creating folders and moving by drag n drop objects to them Each client folder is organized as follows 1 The first level contains accounts each corresponding to the client s brokerage account 2 second level each account may contain various portfolios The portfolio marked as current highlighted in bold corresponds to the current portfolio at given brokerage account Besides within an account s folder you can create one proposed portfolio in italics and several testing portfolios In other words each client possesses brokerage accounts to which portfolios themselves are added Within this list you can create edit and delete your clients their accounts and attached portfolios as well as your pre defined portfolios Clients and Portfolios Microsoft Internet Explorer e E a wilson Philip Description PE clients Hame Jahn Maare Heg E Anderson Created You M Jorn Moor etalls 401k HA Edu Trust HEA Johns IRA Mary s Roth IRA ER Personal 88 Test Consolida
17. Name the new Consolidated Portfolio Clients and Portfolios Microsoft Internet Explorer ag 4 advisor No Description PE Clients Eee John Moore 401 Consolidated Portfolio Edu Trust B Johns IRA marys Roth IRA B Personal Test Consolidation Stone amp Youngberg BA client 4 Joe Client 884 Wilson Sample Advisory World Portfolios To review client accounts portfolios click on Clients it will turn blue select any client name To create a New Client click on Clients it will turn blue click on New Client 3 Drag and drop all of the portfolios you want into the new Consolidated Portfolio Any changes made to these portfolios will automatically update the same portfolio included in the consolidated portfolio 4 Toreview the portfolio click on Reports and select the reports tables or graphics you want Show Reports Microsoft Internet Explorer Seles NEN TIT C NN ci Reports Portfolio Cash Flow Carlo Simulation Consolidation By Account Consolidation Summary Consolidation By Asset Type Consolidation By Position Tables Graphs Adds lt lt Remove lt lt lt Remove All Build Reports 33 CREATING MODEL PORTFOLIOS Create model portfolios by selecting My Portfolios and then creating a new portfolio These portfolios can then be quickly and easily copied or linked to new client portfolios Clients and Port
18. PORTFOLIOS RN ST ee 54 OPTIMAE PORTFOLIO RISK ENTE T 54 OPTIMAL PORTFOLIO sese su 54 SCREEN DISPLAY unmet seeaeeacueeanepeuncaeanuuceaseceesace 55 SETTING CONSTRAINTS SE E E E 55 SETTING G OBAL GONSTIRAINIS 56 MODIFYING HOLDINGS RORS amp STDS 22 uua ch qii ena mua 56 COMPARING 5 Gan coa aV Eu s VEN E GRE CENE ERES 56 COMPARISON EFFICIENT FRONTIER sis ceu o eed Ove dud 57 DISPEAY OF ASSEN GLASSES Dell lee d PERDRE D DNO ME SI IEEE 57 XB d M CLOSE 57 SAVE PORTFOLIO 57 MODERN PORTFOLIO THEORY pies her excuse de creed 58 WHAT DETERMINES PORTFOLIO
19. and answer res to its confirmation Note Browser settings will be changed You can restore them by gt setup dialog 39 Scatter Graph Displays the performance of securities in risk return terms X amp Y axis Users can change X amp Y values and sort columns e this report select Security Reports in the main screen e Select an independent variable IV which is the benchmark against which other securities indices or portfolios will be measured You can elect to Add All In Class as the securities to be measured against the IV or select from all available databases using Select Assets e Set the time horizon you wish to use the holding period i e 12 months 36 months and use your own the historical risk free rate of return e the report click on Continue e You can set or change the parameters for the X and Y axis if desired e While the report is displayed you can modify any setting add or remove securities by clicking on the Edit Report button at the top of the report Report Parameters Specifying Microsoft Internet Explorer Please Specify Report Parameters Parameters Action View amp Print Select CG Corp Bonds General The Independent variable is the performance benchmark against which other securities indices and portfolios will be measured Selected Assets Select assets ABN AMROMhicaga Trust Band M
20. click anywhere on the screen outside the table To delete a line select it by clicking and press the Del button At the screen s bottom you see the analysis options and results To update results click on the CALCULATE button Clicking on the Show Cash Flow Report button displays the Cash Flow Report within the analyzed period The Financial Planning amp Analysis screen is where you will enter your client s financial goals The primary goal in this case John s retirement should be entered on the top of the screen Notice how we have entered the number 25 for years to complete objective Again in this case the number 25 refers to the difference between John s Retirement age of 60 and the age of 85 simply a mortality assumption Enter ancillary goals like John s monthly contribution other examples may include College funding major purchases or sales social security etc by pressing the Create New Goal button After all goals are entered press the CALCULATE button Advisory World Financial Planning tt Analysis Microsoft Internet Explorer At what age will your primary objective begin 55 Number of years to complete objective i e years in college 4 years in retirement 20 one time goal 1 How much will you need to withdraw each year to meet this objective 53 088 65 Pre tax start inflation Today with 3 0076 inflation rate Note Areasonable estimate is approximately 30 of your current after tax
21. 50 50 to both then you may use the period 12 85 to the present The following table will demonstrate the importance of selecting the appropriate period for calculations CORRELATION MATRIX For Aggressive Growth Funds Index 1 78 2182 12 80 1 87 inflation deflation 90 T Bills 0 4840 0 3757 Intermediate Corp Bonds 0 0720 0 6598 Long term Gov Bonds 0 4558 0 5678 Real Estate Diversified 0 3529 0 7804 o The probability range required for portfolio optimization The adviser and client must select a level of statistical probability within which they will review the expected performance and risk of the current and optimized portfolio These levels of statistical probability may be set at 80 90 9596 and 99 The default level is at 9096 o Theminimum difference between the allocation of one asset over another This policy will determine when capital is shifted between assets For example if the policy requires a shift of no less than 596 then a recommended shift of 396 will not be made whereas a shift of 896 will Client Risk Minimum Period Return The minimum period return will generally be a value of from 096 to any negative value as a loss of principal If however you have specified a five year holding period for Maximum horizon and are concerned with minimum annual compound returns then this value may be anything from 0 to any positive value such as 10 To express the client s tolerance for risk of loss you will gen
22. 77 Portfolio 9 04 Portfolio STD 5 67 18 64 7 17 34 29 13 37 20 13 24 5 Next click on Save as a new Portfolio at the bottom of the Efficient Frontier page As Microsoft Internet Explorer Testing 1 1 jm zCurrent Optimal Name the portfolio Optimal or Recommended Proposed or Other Press Save Choose Close _ at bottom of the Portfolio Optimization Page to return to Financial Planning Screen Choose Close on the Financial Planning Screen to return to the Portfolio Builder The Portfolio Builder Screen will be active and now displays the new Optimal portfolio 3 Advisory World Microsoft Internet Explorer q v fx AW http ice advisoryworld com ICE Thomas Widget Log Out ICE smith Portola nuin nn EI Select cms T n rans field 0 0 x i puede E12 T ren tak TNNT CN EC 0500 0 00 0 00 Domestic Equites Indices 63 96 1591901 T WLV Wilshire Large Co Value 0 00 D 14 33 12 137 10 2008 100 00 o oo 0 00 Add security LCBAX Large Cap Basic Value 0 00 0 asset class MSVTX WAFS Strategic Value 0 00 asset class WEG Wilshire Large Co Growth 23 95 54 858 15 53 2 88 12 187 10 2002 100 00
23. Add security LCBAX Large Cap Basic Value 00 15 000 By asset class MSVTA MFS Strategic Value 5 000 assetclass WLG Wilshire Large Growth 25 000 Add secunty LCGAX Large Cap Growth 25 000 By asset class WSV Wilshire Small Co Value 21500 22 1997 10 2002 0 00 0 00 Add security DFA Small Value 1500 class Domestic Bonds 0 000 Corp Bonds High Yield 25 000 12 1968 10 2002 0 00 security American Century High Yield Inv 25 000 By asset class Corp Bonds High Qual 35 000 12 1966 10 2002 0 00 o oo Add zecurityl Oppenheimer Bond Fund 35 000 asset class International Equities 474500 WE International Equities i Hn 43 ADDING ASSETS amp SECURITIES 1 2 To add assets securities to the portfolio choose Add Assets amp Securities from the menu bar The Assets amp Securities Add Remove Classify window appears on top The left part of this window represents the list of available Assets Securities In the right part you see those Assets Securities that are already present in the portfolio Select an asset security in the left dialog s pane and double click on the security or click on the Add button To remove an asset security from the portfolio select it in the right pane and click on the Remove button When the Search tab is selected you ca
24. Characteristics to Look For Minimal or no change in price Moderate yields Regular income payments High liquidity no withdrawal penalties or fees Slightly more volatility Fixed term and or regular payments Some liquidity Some capital appreciation Highest total return Greater volatility Capital appreciation Total returns that exceed inflation rate Risk Return Trade offs Lower total returns Vulnerable to inflation More volatility risk Lower returns than Int bonds More volatility risk Limited capital appreciation potential Greater risk than intermediate or short term securities Limited liquidity Alternative Investments Money Markets Treasury bills Short term CDs Short term bonds Equity income securities Utilities High income limited appreciation securities Int term fixed securities Int term annuities Long term bonds Equities with high growth potential International equities Real estate Commodities Collectibles In most cases investors make investment decisions based on the expected performance of a specific issue such as an individual stock bond or property According to industry and academic studies approximately 91 5 of the performance and risk in any investment portfolio is related to the asset classes and only 5 7 is related to the specific issues involved market timing or the selection of specific securities Therefore in allocating capital to specific issues one must consider
25. Explorer v 5 or later installed on his PC Close to close the report window Besides the Cash Flow Report window allows you to set the analysis period Just input corresponding dates and choose Recalc You can also get a monthly or annual report by selecting appropriate radial button Select the reports that you would like to show to your client and press gt gt The selected reports can be viewed on the right hand side of this window and are listed under Reports to Be Built Reports Bl Portfolio Comparison HA Tables Graphs E Asset MixPie Risk vs Return Matrix of Returns Bar Standard Deviation Bar Range of Returns Bar Range of values T lt lt E Monthly RORs Graph _ Remove Dollar Growth Graph P lt lt lt Remove All E Rolling RORS Graph Boundary of Returns Graph Portfolio Performance Build Reports 7 Cancel Press Build Reports Choose Continue when this Report Parameters screen pops up ELEM MEUM inlerne TERR six Please Specify Report Parameters Parameters Action View amp Print E mail address jjohn smith com Comments Note pages has header and footer usually URL and date according to the File Page setup browser s settings remove page header and footer click select Open this file from its current location and answer res to its conf
26. MM E IL M M M 26 CASE ie DEN ure s m P PRU 27 ADVISORS AND THE ICE APPLICATION 27 A GENERAL OVERVIEW OF ICE FUNCTIONS sake sa sanas nera s anne 28 ADVISOR SETUP CLIENTS amp PORTFOLIOS ASSETS amp SECURITIES IMPORT DATA 28 ADVISOR SETUP Hs 28 REPORTS Ge PERMISSIONS e eh C o ue ead 29 CHANGING PASSWORD TT T 29 CEIENTS PORTFOLIOS ITUR 29 CREATING A NEW sk ss sau 30 GIVING CLIENTS ACCESS TO REPORTS eU Dit baec 31 EDITING REVIEWING A CLIENT S 31 32 GREATING A PORTFOLIO ee ee ee eee 32 CONSOLIDATING PORTFOLIOS
27. There are essentially seven asset classes and a series of sub classes included in the CAMS portfolio modeling system The primary asset classes include cash equities bonds real estate guaranteed investment contracts commodities and venture capital The sub classes would include such items as domestic or international equities short intermediate or long term corporate and government bonds and gold silver and oil ASSET CONSTRAINTS min max The optimization mode of the CAMS programs allows for the proportional allocation of specific assets to the portfolio from 0 to 100 These constraints determine the extent to which any asset will be included in the optimized portfolio Proportional allocation should only be performed prior to the portfolio optimization program when a fixed proportion of a portfolio must be allocated to an asset or where minimum maximum percentages are specifically desired 68 Correlations represent the strength of the relationship between two variables The correlation coefficient measures the timing and direction of movement between two variables assets i e are they moving in the same direction at the same time or in opposite directions at the same time If the correlation coefficient is 1 there is a perfect linear relationship between the independent and dependent variables they are moving in the same direction at the same time and the relationship is direct Conversely if the correlatio
28. USING ASSET CLASS OR SECURITY RORS Asset Class RORs are the default To use a Security ROR 1 Select Add Assets amp Securities 2 In the box on the right hand side find the security you want and click on it 3 In the box in the middle check the box Use Security 4 Click on Update Portfolio Note The combined holding of all assigned securities will be equal to 100 of the Asset Class holding E Assets amp Securities Add Remove Classify Microsoft Internet Explorer Select Assets or Securities List Search Selected Security Description AAL Capital imasth Fund Assets amp Securities eal Asset Classes 6 Mutual Funds a Stocks sig Variable Annuities Closed end Funds change class Remove Assets in the Portfolio Time Horizon 02 1986 07 2002 Cash Equivalents Domestic Equites Indices amp Equity Income 547 Growth AAL Capital Growth Fund A amp Growth amp Income amp Specialty Utilities amp Wilshire Large Co Growth amp Wilshire Large Co Value amp Wilshire Small Co Growth amp Wilshire Small Co Value ig International Equities xig Domestic Bonds U International Bonds eal Real Estate Update Portfolio amp Close CREATING NEW PORTFOLIOS Create a new portfolio using the New Portfolio function Save and go to the Portfolio Builder screen Choose the Combine Portfolios button on the toolbar Th
29. When you reach the desired asset type the cursor is a down arrow release the mouse button The Classified field in Description pane indicates who AW your firm or you personally created and classified the asset class You can nullify the results of your classification by choosing the Default classification button Classifying securities Securities are grouped into folders by fund family or fund group You can drag and drop only the created by you securities into any folder as well as create your own folders Belonging of the security to an asset class is set within Details under the Classification tab where you can type in your own classification user defined When adding the security to a portfolio you may choose between these variants AW firm user defined SEARCH When the Search tab is selected you can search the list for asset classes securities by name or by ticker Search by name Type in the name you wish to find and click the Search button As a result the list below will display all the items containing the word or sequence of characters you have typed Search by ticker Type in the ticker of the item you wish to find and click the Search button As a result if such ticker exists in the list the corresponding item will be displayed below To search for multiple tickers separate the entries by commas 36 MODIFYING ASSET SECURITY RATES OF RETURN AND STANDARD DEVIATIONS Asset Security Microso
30. a specified period such as December 1986 through December 2001 and may represent a period which the user would like to focus The returns computed will be initially from historical data and are a common horizon for the portfolio assets securities selected Calculation of a different time horizon may be computed at any point if desired in the future The user may modify the returns to reflect estimates after the initial calculation There are three different holding periods calculated 1 year 3 year 5 year Returns displayed are the rolling period mean rates of return Time Horizon Time horizon is the specified historical period for calculating portfolio asset returns standard deviation and correlation i e 12 86 to 12 01 The time horizon will initially default to the longest common period for the assets securities selected A shorter period may be used but any change to the default time horizon must be between the beginning date and the ending date Changing the historical time horizon allows the user to focus on a specific historical period i e high inflation A calculation of one historical period compared to another period will 71 result in different returns standard deviation and correlation performance The program does not perform backward modeling or estimating performance for an asset where there is no history and the common time horizon allows appropriate measurement of how assets securities would have statistically performed i
31. and investment environment Further the complexity and volatility of today s 59 investment world requires access to and proficiency with superior analytical tools and databases Many professionals now realize that developing successful investment strategies and competing for investment capital depends on their ability to employ the most sophisticated analytical techniques THE ASSET ALLOCATION PROCESS Development of Policies and Objectives The first step in the asset allocation process is the development of a set of policies and objectives which will govern the design and management of a client s portfolio This step includes an accurate assessment of the client s risk return attitude and the asset classes appropriate for the client As these factors change a new analysis is required Thus asset allocation is a continuing process There are several factors which can influence the asset allocation process These factors may be evaluated using the systems Questionnaire or a similar type of information gathering method o Theinvestor s risk tolerance Since the correct method of evaluating client risk as a quantitative measure of portfolio risk loss of principal it is important for the adviser and the client to understand the amount of principal loss the client is willing to tolerate in any one year of the investment period For example younger clients may be willing to accept downside risks of 10 while one who is retired or about to r
32. appropriate investment vehicles and managers Simply stated asset allocation or is the process of selecting a mix of asset classes and the efficient allocation of capital to those assets by matching rates of return to a specified and quantifiable tolerance for risk Risk tolerance is essentially the percentage of an investment portfolio that an investor is willing to risk to achieve a specific rate of return The foundation of MPT rests upon four basic premises 1 Risk Aversion Investors are inherently risk averse Investors are not willing to accept risk except where the level of returns generated will fairly compensate for that risk It s reasonable to assume that investors are more concerned with risk than they are with rewards The problem historically has been to quantify risk and its relation any reasonable return 2 Efficient Markets Most academic and industry research supports the concept that markets at least in the broadest sense are reasonably efficient As asset classes growth equities intermediate bonds real estate commodities etc are generically efficient The nature of an efficient market is such that all participants have the same information regarding the markets in general and specific issues in particular at the same time although they may come to opposite conclusions as to an appropriate price for individual securities It is perhaps ironic that the sophistication of money managers and their virtually ins
33. better programs to make your job easier and more productive If you have any comments or suggestions please do not hesitate to call us at any time For technical support please call 818 999 0015 74
34. feet advisory coe ICE v Ee uns AW advisor Log Gut ICE eni Test Client Select Portfolio DII Account I i Paranal Intaqrated Capital Engine Portfolio OMmpaneion Select Home Clients fi Portfolios Adel Flow fi Plan Analysis Optimize Porthelia Reports Help TERI Haki miia ete amp YT Ed ra g d Hold ee ces bru Cash Equivalents 25 000 5 00 25 000 5 40 1 51 12 1968 08 2002 39 48 27 20 100 00 0 00 1 00 x 10 00 200 000 10 00 50 000 J T 21 89 12 1977 19 48 27 20 100 00 0 00 1 00 3 10 00 50 000 11 14 09 12 1577 08 2002 30 48 27 20 100 00 0 00 1 00 10 00 10 23 24 45 I2 1977 OE 39 48 27 20 100 00 0 00 1 00 10 00 0 000 By Security Domestic Bonds 25 00 125 000 Corp Bonds General 25 00 125 000 4 72 12 1968 08 2002 39 98 27 20 100 1 00 Villi smary International Equities 10 00 50 000 WF ltermational Equitim 1 0 50 000 0 31 16 96 12 1540 29 30 27 20 100 00 i applet netioaded i a COMPARING PORTFOLIOS You can compare your portfolio to one of the existed portfolios Choose the Select link the Portfolio to compare section In the Select Portfolio window choose a portfolio to compare In the Portfolio Status window you will see the status of the compared portfolio You can h
35. see Portfolio Profiles Optimization These economic estimates are reviewed and modified periodically and are updated along with regular monthly updates Consensus figures are provided by Blue Chip Economic Indicators All other estimates are provided by AdvisoryWorld Computation Of Total Return Estimates For Asset Classes e historical mean ROR of 90 Day T Bills from 12 86 to 12 2001 e historical mean ROR of each asset from 12 86 to 12 2001 change current yield for 90 Day T Bills from consensus forecast by approximately 50 economists for T Bill rate in next 12 months current yield on each fixed investment and forecasted yield e relative change in each asset versus estimate change in 90 Day T Bills Beta e relative change in each asset independent of change in 90 Day T Bills Alpha Total return estimates are derived by computing the historical relationships between the yield on 90 day Treasuries and each index based on rolling one year mean rates of return for the period 12 1986 to 12 2001 These relationships are correlated to current rates and the expected 12 month rate on 90 day T Bills plus or minus an amount which may be expected based on the relationship between the change in rates for 90 day T Bills and each index plus or minus an amount which might be expected based on the performance of each index independent of the change in 90 Day T Bill rates For example an increase in the expected yield on 90 day T Bills will fo
36. the new ROR estimate A good example of the foregoing would have been the Pacific Rim index in 1988 At that point the index return for the past 10 years was around 21 far higher than most advisors were willing to forecast for the next 12 24 months By lowering the forecasted return to the 10 level the allocation to Pacific Rim securities dropped from 80 to around 12 This allocation was predicated on the asset s forecasted historical STD and its relationship to each other asset in the portfolio and not some arbitrary figure that would have been incorrect in relationship to the other assets and the portfolio as a whole The reason for not pre setting constraints is that there is no way the advisor can know precisely the mathematical relationship of each asset to each other asset in the portfolio Consequently pre setting constraints may have the adverse effect of tilting the portfolio in the wrong direction 66 6 What percentage of capital is presently allocated to each asset class a How were those percentages determined b What guidelines are used to determine when how much capital is to be shifted from one asset class to another Diversification is not a very well understood concept Most investors think equity portfolios are diversified if they have 100 different stocks Actually owning 100 different stocks does not reduce the systematic risk of a portfolio any more than owning 20 different securities across industr
37. times when you as the advisor have certain knowledge or expectations that warrant the inclusion or exclusion of some assets The classic example would be Japanese or Pacific Rim securities in 1988 when most advisors were under weighting Pacific Rim securities in portfolios as they were considered substantially over valued How much diversification will be required It is important to note that diversification is not a function of how many assets are included but rather are they negatively correlated and do the selected assets balance the portfolio For example if you had an equity portfolio of 100 stocks the portfolio is nor more diversified and the systematic risk of the portfolio is not reduced any more than if you had only 20 stocks across industry lines In other words adding 80 more stocks to the portfolio did not reduce the risk of the portfolio In fact having just two perfectly negatively correlated assets in the portfolio would represent a portfolio which will exhibit zero risk and a constant and predictable rate of return it should be noted that we have never seen two perfectly negatively correlated assets The point is portfolios which contain only three or four assets may in fact be far more diversified than portfolios that contain 9 or 10 assets In some cases you may find that although you have included several assets the Optimization routine only recommends three assets Mathematically the relationships of the assets returns co
38. worth the results Most investors acquire assets without much if any consideration given to their financial objectives expected portfolio rates of return risk and the inter relationship or balance of the assets involved They generally end up with a mix of unrelated investments which as a whole can never fulfill the investor s policies and objectives Investors need to design portfolios which will achieve their financial objectives by matching assets according to risk return trade offs If capital is allocated efficiently to a series of well balanced assets portfolio returns will generally be higher over the long term and portfolio volatility will be lower Establishing well thought out policies and objectives and using AdvisoryWorld asset allocation programs will result in portfolios with greater predictability of and stability of returns and theoretically optimal performance By answering the following questions you should be in a better position to achieve your financial objectives 1 Are the client s investment objectives clearly defined retirement current income college expenses building wealth 2 What rate of return is required over the short intermediate and long term Short Intermediate Long is the current portfolio able to meet those expectations 3 What rate of return is the current portfolio expected to generate over those periods Short Intermediate Long 4 What asset classes currently constitute the portf
39. 00 Portfolios MSVTX MFS Strategic Value 0 00 Links WLG Wilshire Large Co Growth 95 Sg BbB 5 Add security LCGAX Large Cap Growth 95 59 868 WSV Wilshire Small Co Value 100 033 Add security DFSVX DFA Small Cap Value O1 100 033 Domestic Bonds 51 80 Corp Bonds High Yield 5 10 95 12 1968 10 2002 Add security ABHIX American Century High Yield Inv 00 0 Corp Bonds Hi ual 51 648 780 4 24 17 1968 10 2002 Add security OPIGX Oppenheimer Bond Fund 51 68 780 International Equities 53 21 319 WF International Equities oo After Calculating you can click on the Portfolio Status Button The Status of each portfolio is displayed side by side 24 oo 258 000 A Current Select Portfolio Status Turnover Trans Mng ep Yield 0 Fees Fees 2 o oo 0 00 0 00 asset class asset class 0 00 0 00 asset class 0 00 0 00 asset class By asset class 0 00 0 00 By asset class Advisory World Microsoft Internet Explorer 318 E AW http ice advisoryworld com ICE Advisor Widget Log Out suite ROMs account 411 Cur pekaani parison Select History Estimates Probability Range Years Hold Apply p Status Portfolio value p 3250 00 eal
40. 404 3796 9 1796 2 49 155 54 12 Month Yield 0 6796 Avg PE of Equity Holdings Data as of 5 31 2003 _ The information displayed above is for illustrative purposes only and is based on historical data The effects of sales charges have not been Avg Yield of Equity Holdings reflected in this table and if included would reduce the amounts shown No quarantees can be given about future performance and this illustration shall not be construed as offering such a quarantee It should be recognized that actual returns and volatility characteristics can be higher or lower FACTOR ANALYSIS The Factor Analysis application allows users to find those funds and or securities that will match the benchmark characteristics established for the portfolio Failure to do this will mean that the asset allocation process will not be effective Performance Overview Calculates and displays performance characteristics for mutual funds stocks variable annuities compared to an Independent Variable i e index security or portfolio Calculated values include betas alphas correlation coefficients RORs STDs Sharpe Ratio R squares last 12 month ROR and risk adjusted return e this report select Security Reports in the main screen e Select an independent variable IV which is the benchmark against which other securities indices or portfolios will be measured You can elect to Add All In Class as the securities to be mea
41. 9 16 Contributi ons Withdrawals required for Shortfall Surplus Correction Post retirement Tax Rates Income Tax 0 00 Max Objective Withdrawal Available 52 863 08 1 Federal State Total Cap Gains Tax 0 00 Lump sum 1 334 68 1 Met Income Shortfall Surplus 325 58 Income Tax Turnover Ratio 0 0075 OR Monthly Payments 1455 x Cap Gain Tax Rebalance Annually v OR Annual Payments 164 72 x Minimum ROR required 9 19 4 Show Cash Flow Report Monte Carlo Simulation CASH FLOW amp FINANCIAL PLAN ANALYSIS Open the dialog devoted to analyzing the client s financial plan Input the main objective data at the screen s top and other financial goals contributions to and withdrawals from the portfolio the client is planning to do To add a financial goal choose the Create New Goal button You can change the values of financial goals directly in the table Just click on a line and input boxes will appear where you can type in To unselect a line click anywhere on the screen outside the table To delete a line select it by clicking and press the Del button At the screen s bottom you see the analysis options and results To update results click on the CALCULATE button Clicking on the Show Cash Flow Report button displays the Cash Flow Report within the analyzed period 52 MODIFYING VARIABLES GETTING THE INVESTMENT STRATEGY AND FINANCIAL GOALS INTO EQUILIBRIUM If the results of the analy
42. 977 39 46 27 20 100 00 0 00 1 00 f 0 00 10 00 0 000 11 90 14 002 1271577 CP 26 40 27 20 100 00 O 00 1 00 f 0 00 10 00 SKK 10 23 24 85 12 1977 20 40 27 20 300 00 0 00 1 00 x 0 00 10 00 90 000 Demestic Bonds 25 00 125 000 Bench Giir all Em mee 25 00 125 000 7 55 4 72 12 1968 CS 39 45 27 20 00 00 0 05 1 00 fi 0 00 International Equities 10 00 50 000 WE kalerat 0 00 50 00 5 31 16 96 12 1998 08 2002 39 48 27 20 100 00 0 00 1 00 0 09 canary rper m rr 3X Inbox Ouk oh dus Ti IN s AER COPYING RECOMMENDED OR MODEL PORTFOLIOS You can replace the contents of your current portfolio with those recommended by AW Firm or You for the portfolio objective Choose the Copy Recommended Portfolio button in the Portfolio section on the toolbar Advisory World Microsoft Internet Explorer Edt View Fawontes Tools Heb Q 6 arme 3 8 Across dI Fato test sdvisorymord 1 ud adwisor 4 Lug Cut Pul Portfolio Comparision febris lients Portfolios Add Assets Cash Plow ft Plan Analysis Optimize Portfolio Reports Help In grated Capital Portfolio bite Held ipy iatus s qm 3500 00 go s og Begin oi
43. Applet nolioaded start Inbox Microsoft Out Advisory World ih ICE MANUAL DCXC JE 110m 51 FINANCIAL PLAN ANALYSIS set financial goals and make necessary changes to achieve those goals The Financial Plan Analysis feature is an extremely powerful tool for determining if your investment strategy will achieve the client s stated financial objectives i e college retirement major purchase or investment Set the date age at which the client expects to achieve a goal the amount of capital to be withdrawn the period over which it will be withdrawn whether to inflate this withdrawal any additional cash flows that may occur prior to and after reaching this goal as well as any cash flows that might affect whether or not the client will achieve the goal including reinvesting dividends interest and capital gains Cash flows can include items such as college buying a new boat leisure activities sale of a house investment in a new business sale of a business post retirement expenses etc The Cash Flow report gives a detailed picture of the portfolio cash flows for any time horizon i e now until death The analysis shows whether or not the goal will be achieved and if not it will offer some solutions including lump sum monthly and annual contributions You may then modify any of approximately 20 different variables to review how changes in these variables will affect the client s chances of reaching the stated obje
44. DRE Individual 03 25 1952 987654321 Washington john smith com 11718 2002 Click on the Contacts Tab and enter Contact Info 12 E Client Setup Microsoft Internet Explorer 818 991 001 4 818 905 5040 po 818 714 0031 3500 Lawndale Drive Los Angeles Reports amp Plugins If you have permission to allow clients to review reports select those reports that you will allow this client to review Permissions If you have permission to allow clients to review reports enter a read only Username and Password that the client will use to access and review reports Click on Save and Create an Account bottom of page New Accounts Enter General Account Information Select an account type Personal IRA SEP etc E Account Setup Microsoft Internet Explorer uem m DER Personal Investments 13 Portfolio Defaults If this account or portfolio is taxable enter the Federal and State tax rates for income and capital gains Check the Taxable box if it is taxable and leave blank if not The Turnover Rate is the percentage of portfolio holdings that will be bought and sold within any 12 months period For example if only 5096 of all portfolio securities will be bought and sold within any12 month period then set the Turnover Rate at 50 In the Portfolio Builder screen you will have an opportunity to set the taxability of each security as well as set Transaction and Manage
45. ENTI 63 ECONOMIC ESTIMATES ADVISORYWORLD 63 DESIGNING REALISTIC AND THEORETICALLY OPTIMAL PORTFOLIOS 63 TERMS DEFINITIONS 68 ten A EAA E A 71 ACCESSING THE ICE APPLICATION Select ICE Select ICE Professional Java Free There is no real functional difference between the two entry points Java Free is typically a more user friendly and firewall friendly location Enter your Username and Password TECHNICAL SUPPORT FOR ICE n order for ICE to work properly on your machine you must ensure that you have both the Sun and Microsoft Java Virtual Engines Installed You must also set your Internet Explorer settings to allow for ActiveX commands Please follow these steps 1 Update both Microsoft and Sun Java Virtual Machine 2 Internet Explorer ActiveX Settings 3 Internet Explorer Temporary Settings 4 The ICE software has been designed to run on the Microsoft Internet Explorer version 5 0 or newer UPDATE JAVA AND MICROSOFT VIRTUAL MACHINES e Title Java Runtime Environment Download Product ICE Description Download and Install the Sun JavaTM Virtual Machine JVM There are two ways to get Sun s JVM 1 Automatic Download and Installation for Windows XP Me NT 2000 98 or 95 and Internet Explorer Click to begin First our system will check to see if automatic
46. EW x P A 38 FACTOR ANAL YSIS nb as mit ens ace Sd EMT 39 PERFORMANCE OVERVIEW r aar aani 39 SCATTER GRAPH cesa dias ads Une a a 40 GROWTH OF A RTT IEEE 40 MONTHEY ANNUAL 3 dor e 41 ROLLING PERIOD RETURNS NETTEN 41 BUILDING PORTFOLIOS 43 ADDING ASSETS amp SECURITIES 44 USING A SECURITY S HISTORICAL ennnen nenene 45 REVIEWING AND SETTING THE HISTORICAL TIME HORIZON FOR A nnn nnns 45 MODIFYING ASSET SECURITY RATES OF RETURN AND STANDARD DEVIATIONS 45 To MODIFY RORS AND OR STDS FOR ALL 45 To MODIFY RORS AND OR STDS ONLY FOR THE ACTIVE nnne nnn nnn ane 46 USING ASSET CLASS OR SECURITY
47. EXPLORER ACTIVEX SETTINGS e Title Internet Explorer ActiveX Product ICE Description Edit the Active X settings in Internet Explorer to allow ICE to function better Click on Tools and Click on Internet Options 1 Click on the Security Tab 2 Click on Internet 3 Click on Custom Level 4 Enabled ActiveX settings Leave them Enabled Disabled ActiveX settings Click on Prompt When completed click on the OK button Click on YES to the Security changes Click on OK to close the Internet Options lxi General Security Privacy Content Connections Programs Advanced Selec eb content zone to specify its security settings 2 5 6 f Security Settings Settings 4 Actives controls and plug ins E Download signed Actives controls Disable O Enable Prompt Download unsigned Actives controls C Disable O Enable Prompt E Initialize and cript Actives controls not marked as safe O Disable O Enable Prompt 3 Initialize and script Active controls not marked as safe C Disable Enable Prompt Hun Actives controls and plug ins Administrator approved C Disable Enable Script Active controle marked safe for scripting Disable Enable Local intranet Trusted sites Restricted sites Internet This zone contains all Web sites you Cis haven t placed in other zones Security level for this zone Custo
48. GAINS TAXES 50 TIRANSACTION a im DTE 50 CHANGING PORTFOLIO ANALYSIS OPTIONS eoa ea x ewe Cua veuve cu 50 PORTFOLIO STATUS D RAND I DM DRE IDOL D MD Lp D UM PII LIO DID D DOLI D si D D 51 COMPARING PORTFEOEIOS siccat uc eux iux cepi Ev Ee niea de aun vec Ro vts Pu usu 51 FINANCIAL PLAN ANALY SIS ont eexUs veu 52 CASH FLOW amp FINANCIAL PLAN ANALYSIS sese suras enean 52 MODIFYING VARIABLES GETTING THE INVESTMENT STRATEGY AND FINANCIAL GOALS INTO EQUILIBRIUM 53 HYPOTHETICAL PERFORMANCE CASH FLOW FINANCIAL PLAN ANALYSIS 53 CARLO SIMULATION MORET LE R 53 FREPOR TS E S 53 WIZARD E Pon 53 OPTIMIZING rasan suas nasa 54 OF OPMAAT O UM 54
49. If asset constraints returns standard deviations tax rates or other characteristics of the portfolio are modified the algorithm will take those changes into consideration when calculating the optimal portfolios When comparing optimal portfolios to existing or alternative portfolios it is important to understand that all of the portfolios have precisely the same probability of achieving the displayed risk return characteristics given the assumptions implicit in the program Investing is an on going process which will not end when this process is completed Investment performance client needs and objectives will change constantly Investor s financial objectives attitude towards risk and the performance of his portfolio at least twice a year and perhaps quarterly There is no substitute for thoughtful consideration and diligent supervision where your clients money is concerned Investors are not and indeed should not be looking for simplistic or pat answers to investment needs or single factor solutions to multi factor problems They are risk averse and don t want to shoot from the hip or guess They do not want short term solutions to their long term problems Solving for client s needs requires the expertise 67 and tools to develop long term investment strategies and to implement those plans manage the portfolio and evaluate portfolio performance relative to established policies and objectives TERMS DEFINITIONS ASSET CLASS
50. Plan Analysis tools the advisor can set all of the client s financial goals such as college education major purchases retirement leaving money to heirs and any other cash flow contributions and or withdrawals for any time period The Optimal Portfolio Goal is the best portfolio alternative for achieving the client s financial goals with the least amount of risk volatility The advisor and client can now review all possible optimal portfolios to determine which investment strategy is best suited to the client s financial needs and risk tolerance 54 SCREEN DISPLAY The screen displays the Efficient Frontier of all optimal portfolios the Optimal Risk Portfolio the Optimal Goal Portfolio the current portfolio the selected portfolio all portfolio assets a comparison portfolio if any the Efficient Frontier of another optimal portfolio mix comparison the 9o holdings of the current and selected portfolio and many additional options Graphic displays can be turned on or off at any time simply by checking or un checking the respective items Efficient Frontier Personal Current Microsoft Internet Explorer Portfolio History Estimates Probability Range Years Hold Apply Monte Carlo Asset Mix erin amp 93 293 A Holdings Currenthold 100 0075 113 portfolios found mL 15 0096 o Cash Equivalents 90T Add security DMM 344 security ROR F Domestic Equites I
51. R Annual Payments Lae ty Minimum ROR required 9 19 2 CALCULATE gt Show Cash Flow Report Monte Carlo Simulation The resulting financial planning calculations can be seen in the Analysis Results section The Max Objective Withdrawal Available based on the Future Value of this portfolio ROR of 9 16 in this case is 325 58 less than the 53 088 John requires ICE offers recommendations Lump sum Monthly or Annual Payments and Minimum ROR to achieve the original goal To apply any of these corrections click on the check mark next to them In this case let s click on the button to the right of the Minimum ROR required or 9 19 This button will access the Efficient Frontier Optimizing Portfolios 19 The Frontier plots optimal portfolios and connects them with a red line Each of the individual assets are plotted as blue dots and current portfolio is a green square The Optimal goal portfolio lies on the curve as a light blue dot and reflects the portfolio that will meet my clients minimum requirement in this case 9 99 The yellow dot on the curve is a reflection of the Optimal risk portfolio This portfolio relates to the downside risk tolerance level that my client s Growth amp Income profile allows for 5 25 Click on this yellow dot The optimal asset mix can now be viewed in table to the right of the curve Several functions can be performed at this stage including constraining positions see S
52. ad Bond Index MAXIMIZE RATE OF RETURN PERIOD This is the period of time over which the client wishes to maximize returns and minimum cash yields The time period to maximize returns will generally be between 1 and 5 years Based on the confidence level selected there is a maximum rate of return within the probability distribution which may be expected for the period specified MINIMUM RETURN PERIOD The Minimum Return Period represents the period over which minimum returns risk will be expected The correct method of evaluating client risk as a quantitative measure of portfolio risk loss of principal it is 69 important for the adviser and the client to understand the amount of principal loss client is willing to tolerate in any one year For example the client s current portfolio exhibits a downside risk of 5 If this exceeds his tolerance for risk of loss in any one year then the minimum return period should be one year and the minimum expected return should be from 0 no loss in any one year to less than 5 If however the client has certain actuarial funding or current income requirements then the minimum return period might be five years and the minimum expected return might be slightly greater than the minimum required MODERN PORTFOLIO THEORY Simply stated it is the process of selecting a mix of asset classes and the efficient allocation of capital to those assets by matching rates of return to a specified and qu
53. adding a security you will be prompted to choose between those asset classes defined for this security by AW Firm or you personally If only one was defined it will be automatically used If no classes were defined for the security you will be prompted to choose between the asset classes available in the portfolio A security can be moved by drag n drop to another asset class within any given portfolio in the dialog s right panel When the Add Assets window pops up simply click on the Search tab In the Ticker cell enter Mutual Fund ticker symbols separated by commas and then press Search 16 LCBAX MSVTX LCGAX DFSVX ABHIX OPIGX FGEAX MEMAX XSFRX After the list of funds is shown press Add All Assets amp Securities Add Remove Classify Microsoft Internet Explorer Assets in the Portfolio Asset Root Folder Time Horizon 11 2002 1172002 100 This falder halds all the assets fgeax and securities grauped in falders ics Large Cap Basic Value des Large Cap Growth Es American Century High Yield Inv E DFA Small Cap Value Eg Fidelity Ady Global Equity Es Liberty Floating Rate Advantage MFS Emerging Mkt Equity Fund dcs MFS Strategic Value Oppenheimer Band Fund ICE automatically classifies all of the Mutual Funds These can be edited but for this case let s leave them as is Choose Add to Portfolio A Classify And Add Assets Securiti
54. aint set at a maximum of 50 of the Asset Type iii Donoghue Money Market 1 Constraint set at a maximum of 50 of the Asset Type In this case no more than 5 00 of the portfolio can be allocated to Cash Equivalents and of that no more than 50 can be allocated to any of the selected Asset Classes The sum of maximum constraints at any level must be equal to at least 100 allocated to that level If only one Asset Class is selected for an Asset Type then you cannot set a maximum constraint of 5096 since that would be less than 100 of the Asset Type Users can set the minimum and maximum amount that will be permitted for any or all Securities The constraints are expressed as a percentage of the Asset Class For example 1 Maximum of 5 00 is set for Cash Equivalents 2 Asset Classes selected i 90 Day T Bills 1 Constraint set at a maximum of 50 of the Asset Type Cash Equivalents a XYZ Fund Short term Treasuries i Constraint set at a maximum of 100 of 90 Day T Bills li 30 Day Commercial Paper 1 Constraint set at a maximum of 50 of the Asset Type Cash Equivalents Short term Bond Fund i Constraint set at a maximum of 100 30 Day Commercial Paper ii Donoghue Money Market 1 Constraint set at a maximum of 50 of the Asset Type Cash Equivalents a LKL Money Market Fund i Constraint set at a maximum of 100 Donoghue Money Market In this case no more than 5 00 of the portfolio can be allocated to Cash Equivalent
55. ake Do not be generic in specifying this risk ie growth amp income or aggressive Risk is a function of how much loss of principal real or nominal the client is willing to accept in any 12 month period Assuming a balanced portfolio risk levels should never exceed 8 0 minimum ROR in any 12 month period How can you manage the portfolio risk The risk volatility of a portfolio is directly related to the correlation characteristics of the assets and the portfolio The lower the asset standard deviations and the greater the degree of negative correlation the lower the portfolio risk will be Using the optimization routines in these programs you will be able to find portfolios that will meet your client s risk tolerance while providing an acceptable and achievable rate of return It is important that investors get the most they possibly can from their investments The following worksheet may help in establishing policies objectives risk parameters and investment alternatives which will achieve your financial goals and answer some of your investment questions What financial goals does the investor want to achieve When does he hope to reach them How much risk is he willing to take to achieve those goals How much money can he invest now and in the future How much money will he need to achieve his goals 9 9 9 takes some time and thought to review your client s finances and financial goals the time and effort are well
56. ands High Gual Oppenheimer Bond Fund International Equities i w International Equities i Fidelity Adv Global Equity An asset class is added to the portfolio under the asset type to which it has been assigned in the Assets Securities dialog See also Classifying asset classes You can also move by drag n drop an asset class to another asset type within given portfolio in the dialog s right panel 44 When adding a security you will be prompted to choose between those asset classes defined for this security by AW Firm or you personally If only one was defined it will be automatically used If no classes were defined for the security you will be prompted to choose between the asset classes available in the portfolio A security can be moved by drag n drop to another asset class within any given portfolio in the dialog s right panel UsiNG A SECURITY S HISTORICAL PERFORMANCE When a security is selected in the portfolio the right pane check the Use Security checkmark in the Selected Security Description middle pane to use its performance data in portfolio calculations rather than its asset class data REVIEWING AND SETTING THE HISTORICAL TIME HORIZON FOR A PORTFOLIO The Time Horizon of the portfolio is represented in the upper part of the right panel Choosing 1000 button will set the Time Horizon to the widest available one After you have finished editing within this window choose Update Portfolio amp
57. antifiable tolerance for risk Risk tolerance is essentially the percentage of an investment portfolio that an investor is willing to risk to achieve a specific rate of return It is no longer a one dimensional process of selecting the right stock bond or property to place in a portfolio Modern portfolio theory and asset allocation methods have as their foundation four basic premises First that investors are inherently risk averse Second that the markets are basically efficient Third that the focus of attention should be shifted away from individual securities analysis to consideration of portfolios as a whole predicated on explicit risk reward parameters and on the identification and quantification of portfolio objectives Fourth is the optimality of portfolio returns vis vis portfolio risk In other words for any level of risk that one is willing to accept there is a rate of return that should be achieved Quantitative methods are used for measuring risk and diversification making it possible to create efficient and theoretically optimal portfolios OPTIMIZATION ASSET ALLOCATION is the process of selecting a mix of asset classes and the efficient allocation of capital to those assets by matching rates of return to a specified and quantifiable tolerance for risk It is no longer a one dimensional process of selecting the right stock bond or property to place in a portfolio PROBABILITY RANGE The Probability Range is a function of the pr
58. any security or index e this report select Security Reports in the main screen e Click on Select Assets You can choose an index and Add All In Class or select from all available databases using Select Assets e time horizon you wish to use the holding period i e 12 months 36 months and use your own the historical risk free rate of return e the report click on Continue e While the report is displayed you can modify any setting add or remove securities by clicking on the Edit Report button at the top of the report Rolling Period Returns Displays graphically the rolling period performance of securities or indices for any holding period and time horizon e Torun this report select Security Reports in the main screen e Click on Select Assets You can choose an index and Add In Class or select from all available databases using Select Assets e Set the time horizon you wish to use the holding period i e 12 months 36 months and use your own the historical risk free rate of return e the report click on Continue e While the report is displayed you can modify any setting add or remove securities by clicking on the Edit Report button at the top of the report Definitions Betas indicate how each asset manager dependent variable has or should perform in relation to movement by the primary index independent variable Beta is t
59. based on historical performance and or the advisors forecasted return and volatility assumptions A GENERAL OVERVIEW OF ICE FUNCTIONS ADVISOR SETUP CLIENTS amp PORTFOLIOS ASSETS amp SECURITIES IMPORT DATA E Advisory World Microsoft Internet Explorer TEX JE u dli File Edit View Favorites Tools Help 2 P Search 5 Favorites a Media m v Lj 3 Address 2 http itest advisoryworld com ICE start herl an Links Portfolio Integrated Capital Engine Portfolio Comparison Logout Advisor Setup Clients amp Portfolios Assets Securities Security Reports Import Data Help Acwisor Setup Clients amp Portfolios Assets amp Securities Security Reports Import Data Done Internet Advisor Setup set up information about the advisor Clients amp Portfolios select or add new clients accounts and portfolios Asset amp Securities review information about assets securities estimate RORs STDs add asset security history Security Reports hypothetical performance and overviews for mutual funds stocks and variable annuities Factor Analysis and the Security Screener Import Data Import data from Ramcap amp Power Optimizer Statement One Advisor s Assistant AdvisorMart Advent dbCams synchronize ICE and ICE PC applications ADVISOR SETUP Enter information about yourself and your company as well as any managem
60. ch you can actually borrow money SIMPLE REGRESSION Simple regression describes the way in which one variable is related to another Regression analysis derives an equation which can be used to estimate the unknown value of one variable on the basis of the known value of the other variable STANDARD DEVIATION The standard deviation is a measure of dispersion of observations expressed in the same units as the measurements percent rate of return Mathematically it is expressed as the positive square root of the mean of the squared deviations or squares of the values of measurement from their mean One standard deviation will include 68 496 of all observations within a population dispersion The wider the spread of measurements within one standard deviation the greater the variability of the population asset Therefore the greater the variability from the mean rate of return the greater the risk inherent in the asset The validity of correlating standard deviations among several asset classes will depend upon using the same time period of measurement In general assuming the same time period and unit of measurement is used the greater the standard deviation of one asset in relation to another the riskier the asset is in relation to the other RETURNS If cannot understand it then it must be wrong anonymous source from the dumbest quotes file Introduction ICE calculates returns for user selected time horizons A time horizon is
61. ctive Advisory World Financial Planning amp Analysis Microsoft Internet Explorer At what age will your primary objective begin 55 Number of years to complete objective i e years in college 4 years in retirement 20 one time goal 1 How much will you need to withdraw each year to meetthis objective 53 088 55 Pre tax start inflation Today with 3 00 inflation rate Note Areasonable estimate is approximately 80 of your current after tax income Note If you have more than one portfolio to achieve this objective then the amount of income required for each portfolio should be proportional to the amount of principal for each For detailed contributions and withdrawals including withdrawals from Roth IRAs and 401 plans use the Cash Flow options Create Additional Goals How much do you want to leave to heirs charity etc 0 00 Financial Analysis Settings Analysis Results Apply Fees Date of Birth 127271950 End Portfolio Value 20 960 49 Apply Trans Fees to beginning value Current Age 52 Portfolio Value at Objective 762 206 17 Portfolio Value Required for Objective Apply Trans Fees to future transactions Date to begin Analysis 07 2003 1 766 169 66 Pianon Tan Age to begin analysis 52 Portfolio Income Needed for Objective 76 629 71 PEDES Total Annual Portfolio Income 75 304 14 Reinvest Cap Gains Portfolio Value 275 000 00 Reinvest Dividends Portfolio ROR
62. d on the portfolio ROR weighted security RORs the portfolio standard deviation volatility cash flows contributions and withdrawals made prior to and during the time period required to meet the objective the amount required to meet the objective s and the time period required to meet the objective s Determine the probability of growing a portfolio to a specified value by a pre determined date or age Determine the probability of achieving a goal s such as having sufficient capital after retirement to meet the investor s income requirements through mortality or sending children through college Review alternative strategies by quickly and easily modifying elements such as portfolio return the age at which the objective will be met the amount of income required the length of time to complete the objective and many other variables Review the actual time weighted cash flows leading to completion of the investor s objective s The Monte Carlo Report is graphic and easy to understand and is a great marketing tool The Monte Carlo Simulation results are strictly goal based The graphic and table tell us that the probability of achieving our client s goal and withdrawing 42 000 is 78 1096 based on this optimal portfolio What does this mean Even though a straight financial calculation may result in a portfolio meeting or even exceeding a client s goals when variance is introduced via Monte Carlo Simulation the probability of actually reach
63. deducted from income generated on the portfolio assets Further Transaction Fees are treated as a one time charge against the portfolio value in the beginning of the first year only Transaction Fees are the estimated costs of making any transaction within the portfolio a shift from one asset to another These may be over ridden by re setting them individually for each asset fund in the portfolio The Transaction Fee is expressed as a percent of an amount actually being added to the portfolio For example if growth funds currently constitute 10 of the portfolio and they will constitute 20 after optimization then assuming a transaction fee of 4 is charged on the purchase of new shares the transaction fee percent to be entered will be 2 4 of 10 2 of 2090 The effect of these policies tax rates withdrawals contributions management fees and transaction fees may be viewed in the Expected Portfolio RORs Expected Portfolio Values Portfolio ROR Summary and Portfolio Values Summary sections By modifying these policies the user may review the consequential effects on the portfolio of such modifications ECONOMIC ESTIMATES ADVISORYWORLD These are estimated total rates of return for the next twelve months and may not be edited However they may be incorporated into the expected returns for portfolio asset classes in evaluating existing client portfolios constructing efficient frontiers and in simulating portfolio performance
64. e Combine Portfolio dialog window appears on top proe Toc represented on the dialog s right COPY COMBINE AN EXISTING PORTFOLIO WITH OTHER PORTFOLIOS 1 Choose the Combine Portfolios button on the toolbar 2 Combine Portfolio dialog window appears on top 3 In the left part of the window you see the list of available portfolios which can be added to the current portfolio In the left part of the window you see the list of available portfolios which can be added to the current portfolio represented on the dialog s right 46 d Y World Microsoft bibirit Explorer ll im x Edt View Favorites Tool ir Qm Oi De Qr 3 52 hatip Fest en ICE iior 4 Log Cut Test Client elect Account mb Pera yiated Capital Engine aes EGIT Comparision 50 Home i Portfolios Add Assets Cash Flow Plan Anatysts Optimize Portfolio Reports Help ren Fai Meis Fi tobe Probab Pari habe Frau 9 99 59 Haw E Equivalents ar a POT 0 Day Treasury Bills 5 00 25 000 5 90 1 51 12 1968 08 2002 39 4B 27 20 100 00 0 00 1 00 o oo Ped recaty Domestic Equites Indices 0 00 200 060 PLC Wilshire Loree Ce Growth 10 00 50 000 14 73 21 84 12 1
65. e The maximum return is the high end on the expected return range for the portfolio for the selected probability range User Estimate Manual entry Any asset return may be overwritten with an expected estimated or forecasted return The estimate will be used for the hold and the portfolio AdvisoryWorld Estimates Edit Portfolio AdvisoryWorld supplies 1 year estimates for various asset classes The estimates are based on the expected movement of the 90 day Treasury Bill estimate for the next twelve months and or expected yields for debt instruments The expected 90 day Treasury Bill estimate is correlated over an historical time horizon to each of the assets for which a return estimate is computed The return estimates are for the next twelve months and are updated monthly 72 The AdvisoryWorld estimates may be applied to an individual asset or to all of the asset classes for a portfolio The AdvisoryWorld estimates cannot be applied globally for all clients and or portfolios and when used for a portfolio will not affect any other portfolio Firm Estimates If the program is part of a large group broker dealer has specified certain functionality for their representatives then there may be firm defined estimates The estimates may be applied to a single asset security Firm Estimates Line or globally for the portfolio Firm Estimates Global Inserting the estimates for a portfolio will not change or use the estimates for another portfo
66. e the risk return characteristics of a portfolio in any meaningful way Establish a percentage of the portfolio which the investor can reasonably lose in any one year of an investment program By knowing the level of acceptable risk in absolute terms you may construct portfolios which should not exceed the client s downside risk parameters 9 What level of risk percent of portfolio loss in any one year is acceptable 10 Does current portfolio exhibit risk characteristics that are acceptable 11 Is the current portfolio constructed to maximize returns relative to your client s risk tolerance In reviewing alternative investments it will be useful to determine the one year mean rates of return for those investments and the maximum potential loss of each in any one year at the 9096 confidence level Notice how the potential loss for most equities is less than for long term government bonds and the expected rate of return is higher This exercise may be helpful in determining which assets are used and the risk associated with each asset The actual portfolio risk however is a function of the relationship of the assets to each other as well as their volatility covariance Each of the portfolios on the Efficient Frontier will provide the highest possible return for any level of portfolio volatility STD Mathematically there are no other combinations of the portfolio assets which can generate higher returns for the same level of volatility
67. el Days to keep pages in history Clear History VECTOR GRAPHICS If you do not have Microsoft s Vector Graphics tools loaded you should download these tools from the Microsoft web site before running the application If you have any questions regarding the ICE application or any of its Plug ins please contact TECHNICAL SUPPORT 818 999 0015 FAX 818 304 0722 HELP SCREENS All operations and functions within the programs are fully explained in the Help screens Directions on how to use the programs and all of the program functions may be found in the Help files You will also find definitions explanations of terms and functions marketing ideas a slide show for education and client presentations and many other useful hints To access the Help files simply click on at the top of the command bar HOW TO VIEWLETS The viewlets below will help you learn how to use various functions in the ICE application Whatis ICE e Using Goal Based Optimization in ICE e Howto Import data to ICE from Ramcap or Power Optimizer e to use ICE Monte Carlo e How to build a portfolio using ICE Instructional Series SEVERAL INSTRUCTIONAL WHITE PAPERS CAN BE FOUND ON THE ICE PAGE AT WWW ADVISORYWORLD COM THESE INFORMATIVE PAMPHLETS WILL WALK YOU THROUGH SPECIFIC TOPICS STEP BY STEP ICE GETTING STARTED 8 CASE STUDY OPENING THE ICE APPLICATION To access Advisoryworld s ICE application simply c
68. ent fees you expect to charge 28 Advisor Setup Microsoft Internet Explorer Standard Reports Change Personal no Contacts amp Plugins Permissions System Info Login mwilson Firm wilson passworgy Personal Info AdvisovRep 87 First Michael Last Wilson Salutation Mr E Mail mwilson acdvisoryworl Occupation Sr SP Firm Mame REPORTS amp PERMISSIONS The Reports and Permissions tabs will tell you what reports and system functions are permitted To add plug in modules or databases contact us at sales advisoryworld com or call us at 800 480 3888 CHANGING PASSWORD By selecting the Change Password tab you may change the Password used for accessing the ICE applications CLIENTS amp PORTFOLIOS Clients and Portfolios Microsoft Internet Explorer Sh advisor 4 Advisor Description mE Clients advisor 4 HA Advisory World Portfolios Created by ANN lai My Portfolios v From the Main menu choose Clients amp Portfolios The Clients amp Portfolios window appears on top In the left part of this window you see the tree which contains the following folders 1 Clients contains your list of clients 29 2 Advisory World portfolios Firm portfolios My portfolios contain the predefined portfolios provided by Advisory World your Firm and your
69. erally enter 1 for the number of years followed by the percent of portfolio principal which the client may be willing to lose in any one year If the client is not willing to lose anything leave the Rate at 0 0 If the client is willing to lose 2 of his principal in any one year enter 2 0 If the client a defined benefit plan for example needs a minimum rate of return over five years enter 5 for the number of years and the rate required for that period In optimizing the portfolio the programs will tell you 1 isthat rate of return achievable 2 if itis achievable how much risk is the client taking in any one year to achieve it If the five year rate is achievable but the risk is to high you may re optimize the portfolio by establishing a specific risk level which is acceptable to determine the highest rate of return which may be expected within the client s risk tolerance It may be that the client will have to modify the rate of return expectation or increase the tolerance for risk or both Probability Range Of Returns The Probability Range is a function of the probability of achieving a range of expected returns At the 90 level approximately 90 of all possible returns will fall within the range displayed In most cases the 90 level will be sufficient for evaluation The Minimum return is the value referred to as the risk the client may be willing to accept as a potential loss measured as a percentage of principal For example if at t
70. erest and capital gains detailed cash flows and transaction fees Users can specify a Prepared By advisor and a Prepared For client e Select the security or securities to be reviewed and establish any additional cash flows such as periodic contributions to be applied e When finished click on Continue OVERVIEW Report Parameters Specifying Microsoft Internet Explorer Please Specify Report Parameters Parameters Action View amp Print E mail address Comments Invest Value 1 0 0 00 0 0 Reinvest Income Reinvest Cap Gains Apply Taxes Federal Income Tax Federal Capital Gains Tax State Income Tax State Capital Gains Tax Select assets Total 0 00 Cash Flow Edit Cash Flow Goals Prepared by Prepared for Registered Investment Advisor Report Version NASD Approved Calculates and displays an overview of a mutual fund stock or variable annuity Mutual Fund Overview Microsoft Internet Explorer File Edit Favorites Tools Mutual Fund Overview Microsoft Internet Explorer File Edit View Favorites Tools Help Mutual Fund Overview Date Prepared July 9 2003 Data as of May 31 2003 Time Horizon 4 1985 5 2003 Janus Fd Inc Twenty Total Cumulative Return Average Annual Retum 2096 Ticker JAVLX Objective Growth 0 a 1 Month 4 7296 YTD 3 8896 CUSIP 471023408 Manager Scott Schoelzel 10 1 8 20
71. es Microsoft Internet Explorer x A s Wilshire Large ca value xl Wis m Wilshire Large Co Growth A s RI Corp Bands High Yield x x Ej AwW s wilshire Small Co value ka ANS E International Equities I xl AN s Emerging Markets Free x 3l Aa s Donoghue Money wkt AMS m Wilshire Large Co Value lt AMS m Corp Bonds High Qual The following screen will be displayed Press Update Portfolio and Close 17 Assets amp Securities Add Remove Classify Microsoft Internet Explorer Select Assets or Securities Assets in the Portfolio Selected Security Description Time Horizon 1127987 10 2002 100 Oppenheimer Search BondFundA E Domestic Equites Indices xsfrx fgeex Amount 0 00 5 Wilshire Large Co Value Use Security n Large Cap Basic Value Large Cap Basic Value A MFS Strategic Value AIM Large Cap Growth A Use drag drop operations to 547 Wilshire Large Co Growth American Century High Yield Inv change asset class AIM Large Cap Growth A DFA Small Cap Value Wilshire Small Co Value Es Fidelity Adv Global Equity A DFA Small Cap Value Liberty Floating Rate Advantage Eia Domestic Bonds MFS Emerging Mkt Equity Fund A aty Corp Bonds High Yield MFS Strategic value A American Century High Yiel Oppenheimer Bond Fund A aty Corp Bonds High Qual Oppenheimer Bond Fund 28 International Equities
72. etire may not be willing to lose any principal Risk parameters such as moderate aggressive some or a little are unacceptable Be specific For pension accounts it may be more a function of existing actuarial and funding requirements than risk of loss in any one year Therefore the adviser should view risk as a function of meeting certain minimum compound annual return requirements Set the Maximum ROR period for 3 5 years and the Minimum ROR for the minimum compound rate of return required by the client ie 5 years and 8 596 o Therate of return objective The return objective may be determined as a function of the client s future requirement for income or as required by actuarial assumptions Once established the programs will determine how much portfolio risk will be required to achieve the expected rate of return This is extremely important since clients may not be willing to accept levels of risk required to achieve desired returns Consequently future income or funding requirements may have to be modified in accordance with the client s risk tolerance o Theinvestment period Typically the investment period will be five years It is important that clients view the investment process as a long term plan for achieving desired investment results An investment period of any length whether it be one year or five years if viewed in an absolute sense will inevitably result in disappointment However from a more academic view poin
73. etting Constraints below editing estimates and introducing new assets For this case let s leave the optimal portfolio alone Monte Carlo Asset Mixes Efficient Frontier Personal Current Microsoft Internet Explorer Portfolio History Estimates Probability Range eux 93 sess Currenthold 100 002 de 115 portfolios found IRL Domestic Equites Indices Clickthe Frontier to select Portfolio Efficient Frontier Portfolio Assets Compared Portfolio Frontier ABCAX Account ROR Std Sharpe Min ROR Goal Selected Portfolio 9 16 Q Optimal goal Partfolio 9 04 130 0 28 9 01 Optimal risk Portfolio 10 99 0 95 508 5 25 E Current Portfolio 9 16 112 1 78 The ICE application employs optimization to find two optimal solutions Optimal Portfolio Risk and Optimal Portfolio Goal For additional information on Optimization click here Optimal Portfolio Risk When using the optimization function the application will first find the optimal portfolio that will achieve the highest possible rate of return without exceeding the Minimum ROR specified for the client The Minimum ROR is set by the advisor by selecting an Investment Objective for the account See Account Detail by completing the 15 question Risk Profile Questionnaire or by manually entering the Minimum ROR value This value is the greatest amount of downside risk real or nominal loss of principal in any 12 mo
74. flationary such as 1975 1980 or 1987 1990 Using this time horizon the program will calculate the correlations and standard deviations which actually may exist in this type of economic environment Then forecasting rates of return for the next 12 60 months might give you a better scenario for the portfolio you are designing for your client Again there is no guarantee that future returns will actually be reflected by these forecasts or the displayed values for the portfolio OPTIMAL PORTFOLIOS The ICE application employs optimization to find two optimal solutions Optimal Portfolio Risk and Optimal Portfolio Goal Optimal Portfolio Risk When using the optimization function the application will first find the optimal portfolio that will achieve the highest possible rate of return without exceeding the Minimum ROR specified for the client The Minimum ROR is set by the advisor by selecting an Investment Objective for the account See Account Detail by completing the 15 question Risk Profile Questionnaire or by manually entering the Minimum ROR value This value is the greatest amount of downside risk real or nominal loss of principal in any 12 month period that the client is willing to accept Optimal Portfolio Goal When using the optimization function the application will in addition to finding the Optimal Portfolio Risk find the optimal portfolio that will achieve the client s financial goals Using the Cash Flow amp Financial
75. folios Microsoft Internet Explorer Advisor Description Name Wilson Philip Created by AVY To review client accounts portfolios click on Clients it will turn blue select any client name To create a New Client click on Clients it will turn blue click on New Client MODEL PORTFOLIO LINKS Users can link client portfolios to model portfolios such as AW s or My Portfolios It automatically starts the client out with a model portfolio and allocates capital proportionately If the model is changed all linked client portfolios are changed as well and the advisor is notified of the change Portfolio Setup Microsoft Internet Explorer SEs Portfolio Basic Forttolio Defaults Value 200 000 00 Model Portfolio Comments Eas Growth amp Income 48 oe test model test 111 cave amp Go to Portolio Builder Apply 34 ASSETS SECURITIES Asset Classes Securities Microsoft Internet Explorer 5 Asset Root Folder zig Assets amp Securities This folder holds all the assets and Asset Classes securities qrouped in folders zia Mutual Funds Stocks C Variable Annuities Je Closed end Funds From the Main menu choose Assets Securities The Asset Classes Securities window appears on top The two tabs are provided in the left part of this window List and Search When the List tab is chosen yo
76. formance can be analyzed and optimized RISK LEVEL MINIMUM EXPECTED ROR To express the client s tolerance for risk of loss you will generally enter 1 for the number of years followed by the percent of portfolio principal which the client may be willing to lose in any one year If the client is not willing to lose anything leave the Rate at 0 0 If the client is willing to lose 2 of his principal in any one year enter 2 0 Based on the confidence level selected there is a minimum rate of return within the probability distribution which may be expected The 90 confidence level includes 90 of the probable rates of return within the distribution the lowest of which will be the minimum rate of return RISK The risk or volatility of any asset or portfolio is measured by the standard deviation in the distribution of rates of return of the asset or portfolio The greater the positive or negative rate of return within one standard deviation 70 the greater the risk Depending on the time period being measured the standard deviation reflects the variability of change in the asset RISK FREE ASSET The risk free asset is an asset which has theoretically no risk or volatility Assets in this regard might include Treasury Bills money market instruments and CDs under 100 000 RISK FREE RATE OF RETURN The risk free rate of return will either be a rate at which you could lend money to a risk free asset such as a T Bill or a rate at whi
77. ft Internet Explorer STET Performance Identification and Classification History Estimate Information Qr n S Statistics Mat Defined Mat Defined Mat Defined Modity FORsSTDs To modify RORs and or STDs for ALL portfolios 1 DU OI Ss Co OR Ag Ie cs Click on Assets amp Securities select the asset or security to be modified click on Details click on the Estimates tab click on Modify RORS STDs enter or change the ROR or STD to apply these values click on My Estimates under History Estimates display the securities assigned to an Asset Class by clicking on the check box next to the Asset Class click on the Estimates tab click on Modify RORS STDs enter or change the ROR or STD to apply these values click on My Estimates under History Estimates To modify RORs and or STDs ONLY for the active portfolio 1 2 3 4 select and load a portfolio highlight click on the ROR or STD field for the Asset Class or Security desired enter the new value type the tab or enter key or click on another asset or another part of the screen 37 SECURITY ANALYSIS HYPOTHETICAL PERFORMANCE Calculates and displays the hypothetical performance of a portfolio of funds stocks and variable annuities or for individual funds stocks and variable annuities e Setthe assumptions to be used in the hypothetical performance such as taxes reinvestment of dividends int
78. ge Firm Account Manager Insurance Company Custodian CREATING A PORTFOLIO Select the account you wish to attach a new portfolio to selected account is highlighted in blue Choose the New Portfolio button New portfolio for this client account will be created The Portfolio Setup window appears on top Fill in the fields concerning this new portfolio After you have finished editing choose OK to close the window and append the new portfolio to the designated account If you choose Apply the portfolio will be created and the Portfolio Setup window will remain staying on top Choosing Cancel will close the window and nothing will be added to the list Besides you can immediately Save amp Go to Portfolio Builder to fill the portfolio with assets amp securities and analyze its performance Just choose this button oe oN Portfolio Setup Microsoft Internet Explorer Portfolio Basic Portfolio Defaults Portfolio Name Main Portfolio Value 500 000 00 Objective Retirement vj Status Current Comments save amp Go to Portfolio Builder Apply 22 CONSOLIDATING PORTFOLIOS The ICE application allows users to create consolidated portfolios by linking as many portfolios as desired into one overall portfolio These consolidated portfolios can include taxable and non taxable portfolios 1 Select the client you want to use for consolidating portfolios 2
79. hat you want to do SAVE PORTFOLIO AS You may save the desired portfolio as a new portfolio Select the client and account for which you will associate this portfolio no selection is necessary if it is for the same client and account currently in use and enter the new portfolio name If this is a new type or portfolio proposed testing or if this portfolio will have characteristics that are different from the portfolio you have been working with you will need to open the details for this portfolio and make the necessary changes 57 MODERN PORTFOLIO THEORY Modern Portfolio Theory MPT or asset allocation is a method of assisting those concerned with investment analysis portfolio design and performance evaluation in expressing quantitatively their views regarding risk and its relationship to investment return They focus attention on the overall composition of the portfolio rather than the traditional method of analyzing and evaluating the individual components The investment manager is therefore able to examine and design portfolios predicated on explicit risk reward parameters and on the identification and quantification of portfolio objectives Financial professionals need more practical methods of solving very sophisticated investment and retirement objectives MPT techniques and related software programs help provide solutions i to better risk management ii the design of investment portfolios and iii the selection of
80. he slope of the regression line or the amount of change on the vertical axis dependent variable return per unit of change on the horizontal axis independent variable return A Beta greater than 1 0 indicates a higher level of risk and an expected change of value in excess of that experienced by the primary index independent variable Alpha is the intercept of the regression line where the line crosses the vertical axis and zero on the horizontal axis The Alpha indicates the change in value for an asset manager dependent variable which is independent or unrelated to a change in value for the primary index independent variable The correlation coefficient of two assets is a quantitative measure of the timing and direction of the movements of the assets A positive correlation means that the assets are moving in the same direction at the same time A negative correlation coefficient indicates that one asset is increasing in value when the other is declining in value The Sharpe Ratio is a measure of how much additional return can be expected for every unit increase in risk The higher the number the more efficient the security portfolio tends to be by providing more return per unit of risk taken R squared measures the proportion of a security s total variance that is market related The closer the historical performance the higher the number The mean returns represent the average return for all of those rolling time periods Januar
81. he 90 level the mean is 6 5 the maximum is 14 5 and the minimum return is 2 50 then there is a 90 chance that the portfolio will not lose more than 2 5 or make more than 14 5 However there is still a 5 0 chance that the 6l portfolio could do worse than being down 2 5 and a 5 0 chance that the portfolio could do better than 14 5 high 14 5 6 5 low 2 5 STD 8 0 Minimum amp Maximum Constraints Percentage constraints may be entered however you should not enter any minimum or maximum asset constraints unless absolutely necessary You may always return to this screen to establish constraints if the optimal portfolio suggests greater or lesser percentages than you believe warranted Yield Yields will be loaded by program where yields are available in the databases otherwise users must enter them separately If they are not entered then Income Taxes will not apply to that asset only the Capital Gains rate will apply Contributions amp Withdrawals Contributions and Withdrawals are the amounts which the client wishes to add to or withdraw from his account on a monthly quarterly semi annual or annual basis Withdrawals may be made on a percentage of portfolio basis if desired You may set the amount whether the amounts will be inflated beginning and ending times and number of times the contribution or withdrawal will occur A complete Cash Flow statement may be reviewed using the Tables option
82. hest to lowest Returns are nominal and are not reduced by taxes management fees and or inflation Monthly Return Monthly return is the percent change from the prior month The return change will be either total return income and capital appreciation depreciation or based on price movement only Indices with UA next to the name represent asset classes with returns based only on price movement or unadjusted returns for income The AdvisoryWorld Databases unless specifically noted contain historical month to month return changes The month to month return performance allows the user flexibility to calculate for a desired time horizon both for expected and past performance review Returns are nominal and are not reduced by taxes management fees and or inflation High Growth Historical Dollar Graph Represents the highest return cumulative during the time horizon indicated This will usually be equivalent to the cumulative return but there may be time horizons where the cumulative return prior to the end of the time horizon was greater than the ending cumulative return Low Growth Historical Dollar Graph Represents the absolute lowest return cumulative during the time horizon indicated This will generally be equivalent to zero but there will be time horizons where the cumulative return will fall below zero 73 Thank you for using AdvisoryWorld s financial applications and services We are constantly striving to design and build
83. ide show the status of the compared portfolio by clicking on the corresponding button in the Portfolio Status section on the toolbar Advisory World Microsoft Internet Explorer Fie View Favorites Tools Help Q M http test advisor 4 Log Out ANICE EM Test Client Select Portfolio Spi Account 1 Personal Integrated Capital Engine Portfol zu select Home Clients amp Portfolios Add Assets Cash Flow amp Plan Analysis Optimize Portfolio Reports Help Portfolio Vortfolio value tory Estimates Probability targe Portfolio Satur sum 23 3 ues aj 4 Hold ee Cash concen 25 rr EE DOT 90 Bills 5 25 000 5 40 1 51 12 1968 08 2002 39 48 27 20 100 00 0 00 1 00 x 120 Day Domestic Equites Indices 200 000 Wilshire Large Growth 50 000 21 84 12 1977 08 2002 39 48 27 20 1 00 x Ade securmy V Wilshire Large Co Value 50 000 14 09 12 1977 08 2002 39 48 27 20 1 00 x Ade Wilshire Small Co Growth 24 45 12 1977 08 2002 39 48 27 20 1 00 x By security Domestic Bonds i Sate Bonds Genara 25 25 7 55 4 72 12 1960 00 2002 39 40 27 20 1 00 B decuky International Equities Fquities T 16 96 12 1968 08 2002 39 48 27 20 00 0 00 1 00 x Applet Test
84. in return vis vis any increase in risk is measured by a function called the Sharpe Ratio The number of assets in the portfolio is less important than the relationship of those assets For example if a portfolio consisted of only two assets with a perfectly negative correlation and differing volatilities standard deviations there is some mix of those two assets which will provide 096 portfolio risk and a predictable rate of return Therefore having many assets in a portfolio will not reduce the systematic risk in the portfolio as much as having negatively correlated assets is a misconception albeit a widely held one that investors must accept higher levels of risk to achieve higher returns By using asset allocation methodologies investors may achieve higher returns with less risk Implementing MPT through the process of asset allocation may include one or all of the following approaches WHAT DETERMINES PoRTFOLIO PERFORMANCE The importance of asset allocation was demonstrated by a study of 91 large pension plans The study sought to attribute the variation of total returns among the plans to three factors e Asset allocation policy e Market timing e Security selection Market Timing 1 8 Security Selection 4 6 Other 2 1 Asset Allocation 91 5 Source Brinson Beebower amp Singer Determinants of Portfolio Performance Il An Update 1994 The chart above dramatically demonstrates the study s conclusion that as
85. income Hote If you have more than one portfolio to achiewe this objective then the amount of income required for each portfolio should be proportional to the amount of principal for each For detailed contributions and withdrawals including withdrawals from Roth IRAs and 401k plans use the Cash Flow options Create Additional Goals 01 2005 06 2020 How much do you want to leave to heirs charity etc 0 00 Financial Analysis Settings Analysis Results Apply Fees Date of Birth 12 12 1950 End Portfolio Value 20 960 49 I Apply Trans Fees to beginning value Current Age 52 Portfolio Value at Objective 762 206 17 Portfolio Value Required for Objective I Apply Trans Fees to future transactions Date to begin Analysis 07 2003 a 766 169 66 52 Portfolio Income Needed for Objective 76 629 71 Total Annual Portfolio Income 75 304 14 Net Income Shortfall Surplus 325 58 C Apply Taxes Age to begin analysis Reinvest Cap Gains Portfolio Value 275 000 00 Reinvest Dividends Portfolio ROR 9 16 lt required for Shortfall Surplus Correction Post retirement Tax Rates Income Tax 0 00 Max Objective Withdrawal Available 52 863 08 1 Federal State Total Cap Gains Tax 0 00 Lump sum 1 334 68 J Income Tax 000 0 00 0 00 Turnover Ratio 0 00 OR Monthly Payments 14 65 x Cap Gain Tax 0 00 0 00 0 00 Rebalance Annually v O
86. ing these goals may not be very high at all In this scenario the 78 1096 probability is relatively high Different probability levels and their associated Annual Withdrawals are displayed in the graphic and table Note Your probability of goal achievement may slightly vary from these results This is due to the several thousand iterations being run 21 E Monte Carlo Simulation Results Microsoft Internet Explorer Print Close Monte Carlo Simulation Results The Monte Carlo calculations are based on the portfolio ROR weighted security RORs the portfolio standard deviation volatility the amount required to meet the objective s the time period required to meet the objective s and cash flows contributions and withdrawals made prior to and during the time period required to meet the objective Changing and any of these variables will impact the probability of achieving your goal The Probability of achieving goal is obtained by generating thousands of random values within the upper and lower boundaries of returns and determining how many times the objective is successfully achieved The objective is successfully achieved if there is sufficient capital to meet the objective and the balance 42 000 00 15 78 1056 The probability of achieving your goal and withdrawing Simulation results are based on inflated values detailed list of inflated withdrawals can be rewiewed in the Cash Flow Rep
87. install works on your computer If so the automatic process previewed here will begin If not you will see how to manually download and install which is nearly as quick and easy as automatic installation 2 Manual Download for Later Installation Advanced users may want to download a local copy of the installer from our developer Web site to run at a later time or install on other machines The manual download is referred to as the Java 2 Runtime Environment JRE e Title Microsoft Java VM Virtual Machine Product ICE Description A note about Microsoft Java Virtual Machine as of May 18 1999 The Microsoft Windows Update site may have newer installations for Windows that contain this software http windowsupdate microsoft com You will need to also install a browser component called the Microsoft Java Virtual Machine It is a file supplied by Microsoft and can be downloaded from their servers Click on the link above to download It is 5 21MB in size When the dialogue box opens chose Open if that is an option If that is not an option choose to save the file in My Documents After it is saved double click on that file in My Documents The name of the file is MSJavx86 CD24D109B33421DB6728FBDC80C9F572bEB7A3865 exe After you run the program follow the instructions to install the Microsoft Java Virtual Machine component on your computer You will need to restart your computer after the install INTERNET
88. ions using the asset and or security rates of return standard deviations correlation coefficients covariances and any maximum or minimum constraints assigned at the asset type asset class or security levels An Efficient Frontier curve is displayed which includes up to 150 optimal portfolio mixes To view the performance of any Selected portfolio you must select a portfolio on the Frontier either by clicking on the Frontier or by moving up or down the Frontier Optimal portfolios can be calculated using 1 3 or 5 year RORs by clicking on the desired time period Users can also calculate optimal portfolios on an after tax basis apply taxes with management fees apply fees or after inflation apply inflation When using strictly historical data the optimizer may be unequivocally relied upon to provide the optimal portfolio in terms of return and risk for the specified time period For example using a time horizon of 1985 to the present the optimal portfolio displayed would have been the optimal portfolio for that time period Unfortunately there is no statistical evidence to support the idea that returns will ever repeat themselves at any time in the future Therefore it is extremely important that the advisor carefully determine the underlying assumptions that are being used in the system If you believe that the next 12 60 months will be somewhat inflationary then you might want to use an historical time period that was in fact in
89. irmation Note Browser settings will be changed You can restore them by gt setup dialog You should see the same reports as seen here http www advisoryworld com ice casestudyreports html 26 CASE SOLUTION John s current portfolio performance was clearly insufficient in terms of his goals even on a straight financial plan projection Using our optimal portfolio John will achieve his financial goals using a straight financial calculation and do so with close to 8096 probability ADVISORS AND THE ICE APPLICATION 27 The ICE programs are intended to be used as an asset allocation tool It is intended to provide absolute solutions to portfolio decisions or investment advice There are no magical answers to investment decisions While these programs are extremely sophisticated they cannot replace your own experience knowledge and expertise nor can they eliminate the fiduciary responsibility of the advisor to provide management services The ICE programs are designed to provide a means of analyzing historical information and to provide advisors with the ability to build theoretically optimal portfolios based on historical and or forecasted rates of return standard deviations correlations and covariances for the selected investments Portfolio and asset performance produced by the programs cannot guarantee a future rate of return These illustrations only suggest the possibility of what may occur in the future
90. ital Preservation of capital with returns exceeding risk free investments The Preservation risk level should be low with minimal price volatility Modest growth of capital with the primary objective being the generation of O Income income Growth amp Primarily oriented toward growth of principal with minor emphasis an Income portfolio income Could include equities debt instruments cash Growth of capital Portfolio will exhibit increased volatility while expecting Growth to outperform equity indices over a market cycle The portfolio may accept volatility associated with aggressive growth while expecting to autperform equity indices aver a market cycle O Aggressive Create a Portfolio Apply Click on Save and Create a Portfolio bottom of page 14 New Portfolios Enter Portfolio name and value as well as status Current Proposed Testing Using the Portfolio Defaults tab you can apply or modify any values set at the account level Portfolio Setup Microsoft Internet Explorer 250 000 00 Retirement Current f Click on Save and Go to Portfolio Builder bottom of page BUILDING PORTFOLIOS Portfolio Builder The Portfolio Builder page is the hub of your ICE application When you reach this page simply press Click here to add assets into portfolio or Add Assets 15 3 Advisory World Microsoft Internet Explorer v 5 5 AW http
91. ith the standard deviation and expected returns to indicate the probability range of returns The multiplier is equivalent to a range on the bell curve where the 9096 range is 1 645 standard deviations 68 1 1 times the standard deviation 8096 1 282 1 282 times the standard deviation 9096 1 645 1 645 times the standard deviation 95 1 960 1 960 times the standard deviation 99 2 575 2 575 times the standard deviation Minimum Return Goal The minimum return goal is the portfolio risk tolerance level A goal is the least expected return that is desired for a given holding period i e 1 3 5 years If the client desires that a portfolio achieve no less than 3 in the next twelve months then the minimum return goal is 3 for 1 year A minimum return goal will be inputted for the client if the fifteen question risk tolerance questionnaire is completed this will be filled in under the default tab and this may be modified for the client or one or more of the client portfolios The minimum return expected low end of the return range of the portfolio for the probability level when computed for a portfolio will use the following exp return std probability range multiplier expected Return expected Standard Deviation Probability range higher probability ranges produce lower minimums Maximum Return The maximum return is computed for the portfolio using the expected return expected standard deviation and the probability rang
92. l gains rates For example Total Return 10 Yield Income 5 income taxes are applied to this amount Capital Gain 5 capital gains taxes are applied to this amount TRANSACTION FEES Transaction fees can be applied to the first purchase beginning value of a security or to all future transactions buys and sells of a security For example in Cash Flow and Financial Plan Analysis if you set the portfolio to rebalance and elect to apply transaction fees to all future transactions then every time the securities are turned over bought sold a transaction fee will be applied to the purchase for cash flow purposes CHANGING PORTFOLIO ANALYSIS OPTIONS Choose one of the buttons in the Portfolio Range section on the toolbar to select corresponding confidence level of the portfolio 50 Choose one of the buttons in Years Hold section on toolbar to select corresponding holding period of the portfolio You can define whether to apply taxes inflation rate or management fees for the portfolio analysis by choosing corresponding button in the Apply section on the toolbar PORTFOLIO STATUS Choosing the Show Portfolio Status button in the Portfolio Status section on the toolbar opens the Portfolio otatus window Within this draggable window you can view the portfolio analysis results d Advisory World Microsoft Internet Explorer File d wee fFavontes Took Help O deren Gem E Address dE hate
93. led on his PC Close to close the report window Besides the Cash Flow Report window allows you to set the analysis period Just input corresponding dates and choose Recalc You can also get a monthly or annual report by selecting appropriate radio button WIZARD If you have already built a portfolio using assets and or securities the Wizard will help find alternative assets that might enhance the portfolio performance by increasing return or reducing volatility You may choose any or all of these assets to add to the portfolio recalculate and optimize To access this function a click on the Add Assets option b click on the Wizard tab c select whether you are looking for higher return or lower volatility Note Calculations of returns and standard deviations used in the Wizard are only for the past three years Therefore the RORs and STDs may not be directly comparable to the RORs and STDs displayed for this portfolio depending on the time horizon used 53 OPTIMIZING PORTFOLIOS Optimization is the process of mathematically determining those portfolios that will achieve the highest possible rate of return for any level of risk as measured by the standard deviation of returns that an investor is willing to accept Optimal portfolios are selected using the prospective assets securities selected by the investor METHOD OF OPTIMIZATION ICE employs a mean variance optimization algorithm This algorithm calculates optimal solut
94. lick here http www ice advisoryworld com ice or add this URL to your Favorites folder on your Internet browser Enter your Username and Password or Username Test and Password Demo for Read only trial Advisor Setup Click on Advisor Setup Enter Information about the advisor yourself including contact info and standard advisor fees When finished here click on OK JOHN T SMITH ICE CASE STUDY John Smith is 50 years old John has an existing retirement portfolio worth 250 000 and consisting of several mutual funds John plans on contributing 500 a month to this portfolio and hopes to retire when he turns 60 withdrawing 42 000 per year after that Will he be able to do so with his current positions If not what is an appropriate recommendation Contact info Social Security 987654321 03 25 1952 Address 3500 Lawndale Drive Suite 101 Los Angeles CA 90015 Office Phone 818 991 0014 Home Phone 818 905 5040 Fax 818 714 0031 Email john smith com Employer Acme Co Bank Washington Mutual Account Info Account Type Personal Investment Account Title John Smith s Retirement Account 411 Objective Growth amp Income Brokerage Firm Advantage Limited Portfolio Info Name John Current Objective Retirement Value 250 000 Status Current Portfolio Composition Ticker Dollar Value 15 000 MSVTX LCGAX ABHIX OPIGX DFSVX XSFRX FGEAX MEMAX MFS Emerging Market Equit
95. lio amount the line of the table doesn t equal the value set for this portfolio the Portfolio Value text box on the toolbar then when trying to save the portfolio you will be prompted to adjust the value by choosing one of the variants The Adjust Portfolio Value dialog may also be opened by choosing the Adjust Portfolio Value button left to the Portfolio Value text box You can also modify the designated portfolio value directly within this page by typing in the Portfolio Value text box SETTING VALUES GLOBALLY Choose the Set Values Globally button on the toolbar The appeared dialog allows you to globally change values in the portfolio Globally meaning to change values in the whole portfolio in the current line or in the asset class or asset type the current line belongs to Just enter the values that you want to globally apply APPLYING HISTORICAL RETURNS ADVISORYWORLD ESTIMATES FIRM ESTIMATES OR USER ESTIMATES Choose appropriate button in the History Estimates section on the toolbar Corresponding values of ROR and SID will be applied to the current line or to the whole portfolio if no line is selected INCOME amp CAPITAL GAINS TAXES Income to a security or asset class is the amount specified as the Yield Income taxes will be applied to this value and capital gains taxes will be applied to the remainder of the total return If no Yield is specified then the entire amount of the return will be taxed at capita
96. lio or any other client Firm estimates may be viewed estimates cannot be modified Cumulative Return Cumulative return is the total return over a specified time horizon This is also known as the holding period return The ICE program illustrates the portfolio cumulative return both graphically historical performance dollar growth and numerically dollar growth table The dollar growth table and graph both use a base of one The graph removes the base when illustrating the cumulative return and the table will grow with base included Returns are nominal and are not reduced by taxes management fees and or inflation Annualized Return The annualized return is computed by adding one to the cumulative return and raising the number to the power of 12 number of holding months The annualized return is the equivalent of the 12 month compounded return Average Return The average returns reflects the mean of the data points Computed average monthly data points and average holding periods 1 3 5 returns The average calculation sums all of the data points and divides by the number of data points Returns are nominal and are not reduced by taxes management fees and or inflation Median Return The median return is the return of a data series which has the same number of data points below and above Example if there are eleven data points returns the median return would be data point number six if the returns were in sequential order i e hig
97. ll be indicated along the Frontier curve while the client s existing portfolio is displayed a green square elsewhere the graph 56 It is important to note that both portfolios have precisely same probability of achieving the displayed returns and volatility Therefore all things being equal there is no reason for selecting a portfolio other than the more efficient proposed portfolio COMPARISON EFFICIENT FRONTIER When a comparison portfolio is selected the graphic will also display the Efficient Frontier for the comparison portfolio This is particularly valuable when comparing two different sets of asset class selections For example if one Frontier is displayed to the left less volatility and above another Frontier higher returns it would indicate that the former is a preferable mix of selected assets and that the corresponding optimal portfolio would also be preferable DISPLAY OF ASSET CLASSES The Efficient Frontier graphic also displays all Asset Classes available in the portfolio In general the ideal portfolio will have a volatility STD less than any of the assets in the portfolio Of course the more risk an investor is willing to take the greater the portfolio volatility will be relative to selected assets APPLY amp CLOSE Applies the displayed holdings to the current portfolio and closes the screen CAUTION This operation will overwrite the portfolio you are currently working on so be sure that this is w
98. ll of the investor s assets might perform It is imperative that the advisor choose those assets that when combined will meet the investor s growth and risk requirements For example investors that are more risk conscious should not have equities and long term bonds in their portfolio since they tend to have a positive correlation to each other thereby compounding the volatility of the portfolio How can you determine appropriate investments The advisor and the client should consider all assets that are acceptable to the investor Based on the client s risk tolerance and economic situation the advisor should recommend those assets that based on historical or forecasted performance will provide the highest possible rate of return without exceeding the client s tolerance for potential loss Selected assets should have negative or very low correlations to each other and ideally high covariances covariance measures the timing direction and momentum of the movement of two independent variables The advisor should never a recommend assets that all have a positive correlation to each other b recommend assets that provide greater volatility than the client is willing to accept C recommend a superfluous asset If two assets are positively correlated and one has a lower historical or estimated rate of return and a higher standard deviation volatility the latter investment should be excluded from consideration Having said this there may be
99. m Custom settings To change the settings click Custom Level use the recommended settings click Default Level 3 Custom Level Default Level Cancel mnlti 5 DK Cancel 6 Tes INTERNET EXPLORER TEMPORARY INTERNET FILE SETTINGS e Title Internet Explorer Temporary Internet Files and Temporary Pages Product ICE Description Edit the settings to delete the temporary files and edit settings To Delete the Temporary Internet Files 1 Click on Tools and Internet Options 2 Click on Delete Files 3 Click on Yes 4 Click on OK to close the Internet Options To edit the Temporary Settings Click on Tools and Internet Options Click on Settings Click on Every visit to the page Click on OK Click on OK to close the Internet Options Internet Options General Security Privacy Content Connections Programs Advanced Home can change which page to use for your home page Address advisoryworld Use Current Use Default Use Blank Temporary Internet files Pages view on the Internet are stored in special folder for quick viewing later Delete Cookies Delete Files History E The History folder contains links to pages you ve visited For Every time you start Internet Explorer Automatically Never quick access to recently viewed pages 3 Canc
100. main taxable investments For example if Municipal bonds are included in a non qualified portfolio you may wish to specify that this asset is non taxable applicable only to income Management Fees The Management Fee is pro rated to the Yield and the Capital Gain for each asset in the portfolio Management Fees as specified in the Questionnaire are defaulted to for all assets in the portfolio However different Fees may be assigned individually to each asset in the portfolio Since in most cases Management Fees are not tax deductible from portfolio returns they are deducted from income and capital gains after taxes are applied As an example you may wish to set the management fee for money market investments to be zero while other assets will generate a fee of 1 0 Inflation Rate You may set any inflation rate you desire in the client profile Values in the Optimizer and in portfolio simulations will reflect returns and dollar values after allowing for the effects of the specified inflation rate real rate of return 62 Inflation is pro rated to the Yield and Capital Gain for each asset the portfolio Since inflation erodes value of all earnings and portfolio values there is no function to specify inflation rates separately for each asset Transaction Fees Transaction Fees are only deducted from individual asset capital gains prior to taxes Transaction fees reduce the tax basis of a portfolio and as such are not directly
101. may incur or experience as a result of using the Products and Services or entering into or relying upon this Agreement or in any way relating to AdvisoryWorld s performance pursuant to this Agreement including but not limited to loss of data or information of any kind which Licensee or a third party may incur or experience THE FOREGOING CONSTITUTES THE ENTIRE LIABILITY OF ADVISORYWORLD ITS AGENTS AND SUPPLIERS AND SOLE REMEDY OF LICENSEE WITH RESPECT TO ANY CLAIM OR ACTION BASED IN WHOLE OR IN PART UPON PATENT OR COPYRIGHT INFRINGEMENT TABLE CONTENTS ACCESSING THE ICE 6 TECHNICAL SUPPORT FOR 6 UPDATE JAVA AND MICROSOFT VIRTUAL MACHINES 6 INTERNET EXPLORER ACTIVEX SETTINGS eC NUS 7 INTERNET EXPLORER TEMPORARY INTERNET FILE SETTINGS sanare 8 VECTOR
102. ment Fees Turnover Rates Dividends Interest for each security If you do not know the portfolio value enter 1 and then enter values for the assets and or securities when you are building the portfolio Account Setup Microsoft Internet Explorer Slee Personal Portfolio Account Info a Contacts murem Objective Federal State Total Income Tax 32 00 11 00 38 4855 Capital Gain Tax 20 00 9 0055 ej els Transactian Fees 0 0055 Management Fees 1 00 Taxable Dividends Interest 0 005 Turnover 100 00 Portfolio value 500 000 00 save amp Create a Porfolio Apply Portfolio Objective The Portfolio Objective tab is where you will determine and select the appropriate Risk Tolerance level for your client Pick from one of the 5 investment objectives Each objective defaults to a downside Risk ROR Rate of Return This number relates to the maximum real or nominal loss your client is willing to take in any 12 month period in order to reach his her goals If you are not sure which category your client fits into simply run the Risk Profile Questionnaire that will result in a selection of 1 of the 5 categories This questionnaire can be printed amp emailed Account Setup Microsoft Internet Explorer Personal Portfolio Portfolio Account Info m Contacts Defaults Please indicate what you consider to be your over all investment objective far this portfolio Cap
103. n coefficient is 1 there is a direct but inverse relationship between the independent and dependent variables they are moving in opposite directions at the same time COVARIANCE Covariance is a measure of the timing direction and magnitude of the fluctuations of two independent variables The measure of diversification in a portfolio is determined by the negative covariance of the assets in relation to each other Effective diversification is achieved when the assets do not fluctuate in a similar manner so that the variability of the expected rates of return for the portfolio will be less than the variability of individual components of the portfolio The covariance is a product of the standard deviations of the variables times the coefficient of correlation EFFICIENT FRONTIER CURVE The Efficient Frontier and Capital Market Lines are displayed which the user may use in constructing or evaluating alternative optimal portfolios The efficient frontier is a line along which the proportional allocation of capital to a group of assets will provide the greatest rate of return commensurate with the degree of risk standard deviation of the portfolio exhibited by the portfolio For every level of return which an investor expects to achieve there is a commensurate level of risk he must accept The higher the risk the greater the expected rate of portfolio return which can be identified at any point along the frontier EXPECTED MEAN RATE OF RETURN The e
104. n search the list for asset classes securities by name or by ticker Search by name Type in the name you wish to find and click the Search button As a result the list below will display all the items containing the word or sequence of characters you have typed Search by ticker Type in the ticker of the item you wish to find and click the Search button As a result if such ticker exists in the list the corresponding item will be displayed below To search for multiple tickers separate the entries by commas E Assets Securities Add Remove Classify Microsoft Internet Explorer Select Assets Securities Assets in the Portfolio wizard Selected Security Description Time Horizon 100 Oppenheimer E Search Bond Fund HE Domestic Equites Indices xsfrx fgeex memax Amount 0 00 amp Wilshire Large Value Use Security ics AIM Large Basic Value Large Cap Basic Value Es MFS Strategic Value Large Cap Growth Use drag drop operations to EX Wilshire Large Co Growth American Century High Yield Ir change asset class Large Cap Growth DFA Small Cap Value m Wilshire Small Ca value Fidelity Global Equity DFA Small Cap value Liberty Floating Rate Advantage A Eit Domestic Bonds MFS Emerging Equity Fund Ey Carp Bands High Yield MFS Strategic value American Century High riel Oppenheimer Bond Fund Carp B
105. ndices El Add security Add security Gl Add security SU Add security Add security md Click the Frontier to select Portfolio WLV Add security WSG Add i GS Efficient Frontier Portfolio Assets Add security S Compared Portfolio Frontier WSV fdd security ROR Std Sharpe MinROR Goal Ihternational Equities Selected Portfolio 916 665 114 178 WE Add security Q Optimal qoal Portfolio 9 20 5 88 1 29 0 4 3 13 Q Optimal risk Portfolio 11 04 989 096 5 23 5 25 E Current Portfolio 916 665 114 1 78 Ense SETTING CONSTRAINTS The adviser may specify whether or not certain minimum or maximum constraints are to be applied to the allocation of capital For example some individuals cannot or will not allocate more than 15 to 25 of their capital to real estate If the client owns the property and building in which he does business then that proportion of capital will remain a minimum allocation to real estate Some clients wish to maintain certain minimum levels of capital in cash or cash equivalent accounts thereby requiring a minimum allocation to cash equivalent assets It is important not to arbitrarily constrain the portfolio unless absolutely necessary Allow the optimization models to construct alternative portfolios first then if necessary apply additional constraints on the optimization process For example if the optimal portfolio includes a 50 allocation to International Equitie
106. ndividually and combined during a given time horizon All dates indicated are end of month Holding Period The portfolio hold refers to the periods 1 year 3 year and 5 year average annualized returns Each hold period will be computed for the user specified time horizon If the time horizon is December 1986 to December 1996 then there are 120 months or ten years In this time horizon there will be 108 twelve month periods The portfolio asset security return will be calculated based of the average returns for each of the holding periods using all data points applicable to each hold period i e 108 twelve month periods for the 1 year hold Each holding period computed will have average returns that may be higher or lower than other holds Each hold initially will be based on the historical averages and each holding period may be used for concentration within the program for portfolio optimization portfolio design and or risk measurement ICE Portfolio Return Calculation The mean is the calculation used in converting historical data to return estimates The sum of all data points over a time horizon is divided by the number of data points Probability Range The higher the probability range the wider the potential statistical returns may fall A probability range of 90 will have a lower minimum and a higher maximum potential return than a probability range of 80 The probability range multipliers are listed below and are used in conjunction w
107. nly type in User Performance Estimates and User Classification assigned Asset Class for securities Deleting an asset class asset type security 1 Select required item by clicking selected item is highlighted in blue 2 Choose the Delete button Note you may delete only the created by you items asset types asset classes securities and folders 35 Changing name of asset security The name of any asset or security can be changed in the Assets Securities section from the Main Menu Click on Assets Securities select the asset security to be changed click on Details and enter the new name d Asset Security Microsoft Internet Explorer Performance identification and MPT Definition History Estimate Information i Statistics Basic Object Class Asset Class Tickar 80T hy AV 190 Day Treasury Bills Mame iby firm advisory Cusip Advisors can change the name of an asset security in a portfolio simply by clicking on the asset security in the Portfolio Builder screen and changing the name To review the Details click on the ticker symbol Classifying asset classes As you already know each asset class belongs to a certain asset type Changing the classification of an asset class 15 easy just drag and drop it to another asset type Point to the asset class which classification you wish to change hold the left mouse button and move it to the new asset type
108. nth period that the client is willing to accept Optimal Portfolio Goal When using the optimization function the application will in addition to finding the Optimal Portfolio Risk find the optimal portfolio that will achieve the client s financial goals Using the Cash Flow amp Financial Plan Analysis tools the advisor can set all of the client s financial goals such as college education major purchases retirement leaving money to heirs and any other cash flow contributions and or withdrawals for any time period The Optimal Portfolio Goal is the best portfolio alternative for achieving the client s financial goals with the least amount of risk volatility The advisor and client can now review all possible optimal portfolios to determine which investment strategy is best suited to the client s financial needs and risk tolerance Next click the Monte Carlo Icon 20 Choose continue when this Report Parameters screen pops up 3 Report Parameters Specifying Microsoft Internet Explorer View 8 Print john smith com z z 4 EI MONTE CARLO SIMULATION Our unique Monte Carlo simulator is a very advanced mathematical model developed by Professor Giray Okten at the Dept of Mathematical Sciences of Ball State University The simulation eliminates the problem of over concentration of probability runs by spreading iterations throughout the entire grid of normal distribution The Monte Carlo calculations are base
109. nts o The comparative relationships of assets in the mix correlations and covariances The relationships of asset classes and pooled funds is important in determining the level of diversification in the portfolio Assets which exhibit high positive correlations will tend to move in the same direction at the same time 60 Therefore it is necessary for the adviser to include assets which tend to have very low or negative correlations and covariances For example owning 100 stocks will not reduce the systematic inherent portfolio risk any more than owning 20 stocks across industry lines Therefore it is less a question of how many assets or issues are in the portfolio than of how the assets move in relation to each other If all of the assets exhibit high positive covariances or correlations the adviser should and perhaps must consider including alternative assets with low or negative correlations to other assets in the portfolio User have the ability to select any period of time for which asset and portfolio calculations are made to determine returns correlations covariances and standard deviations This may be extremely important if you wish to consider these relationships during periods of inflation or deflation The period 8 76 to 9 81 would be an appropriate period for inflation and low growth and the period 9 81 to 10 87 would be appropriate for disinflation and growth If you are unsure of either scenario or assign a probability of
110. ny historical rolling 12 months periods experienced negative growth 42 BUILDING PORTFOLIOS Note Do not leave the Portfolio Builder page by using the browser s navigation buttons Home Back Forward and do not quit the browser without having the portfolio saved Otherwise all your changes will be lost To properly quit the Portfolio Builder use the Home link only In this case you will be prompted to save the portfolio The Portfolio Builder page is where you see the portfolio calculation results and perform required adjustments e For detailed information on any asset type asset class or security simply click on that object view assigned securities simply click the plus sign at the left of the Asset Class name E ENTE Microsoft Internet Explorer As AW fice advisorworld cam l LE Meme Thomas Widget Log Qut LII iene John T Smith Select Partfalio account 411 Current Portfolio Cam select r Integrated Capital Engine Portfolio value History Estimates Probability Range Years Hold e Capital Wield 4 Hold Begin Income Turnover Trans Mng a A F Dollar Amount ROR STO Tax y EQUUM Tax Dividends aoo oo 250 000 0 00 0 00 0 00 0 00 Domestic Equites Indices 52 500 C WLY Wilshire Large Co Value 4 00 20 000 14 33 128 1H77 10 2002 0 00 0 00 0 00
111. o section on the toolbar to save the portfolio as is Click on the Save As button to save the portfolio to another name This function also allows you to save the portfolio to another client or account ADJUSTING PORTFOLIO VALUE When you are editing values in the portfolio table the total Hold and or Dollar amount may exceed the values set for a group an asset class is a group of securities asset type is a group of asset classes In this case the current group values will be highlighted red on yellow and when clicking outside the group the Adjust Value dialog window will appear on top where you are prompted to choose among variants of how to adjust the group s value 49 EDITING VALUES OF ASSETS SECURITIES Values can be changed directly in the portfolio table Click on a line or the input box and enter your value s To unselect a lien click anywhere on the screen outside of the table By clicking on the icons beneath Hold you can enter or review the holdings as 1 a percentage of the portfolio left icon 2 asset type as a of the portfolio asset class as a of the asset type Securities as a of asset classes Advisory World Microsoft Internet Explorer Wikhirs tamall a Growth vans SG raath bh income Domestic Bonds Corp ond General 5 00 5 no a no a no a a 5 0 avi aid recarty International Equities If the current portfo
112. o each other The portfolio should include assets which go up in value as the value of other assets declines The extent to which knowledge of one asset return provides information regarding the behavior of another asset is measured by the correlation of returns Are they moving in the same or opposite directions at the same time Measurements of risk and return characteristics of individual investments are inadequate in explaining what happens when investments are combined in portfolios The true measurement of diversification between assets is called the covariance of the assets Covariance measures the timing direction and momentum of the movement of two variables Are they moving in the same direction at the same time and what is the volatility of the movement of 58 each variable By calculating covariances and expected returns for all of the assets in any given portfolio it is possible to calculate the optimal portfolio mix for any degree of risk Each portfolio on this efficient frontier will generate the highest possible rate of return for any specific level of risk with risk being measured by the standard deviation of returns Any other portfolio which exhibits the same standard deviation risk will generate lower returns and will therefore be considered inefficient Another way of saying this is the investor must increase the expected return by the maximum amount for each additional unit of risk he is willing to take The increase
113. obability of achieving a range of expected returns In any statistical population or sample 68 396 of all observations will be included within one standard deviation from the mean 95 4 of all observations within two standard deviations and 99 7 of all observations within three standard deviations Therefore at the 90 confidence level slightly less than 2 standard deviations one would expect 90 of all observations or expected observations to fall within the minimum and maximum rates of return of a probability distribution The probability range also referred to in statistics as the confidence level essentially determines the percent of all expected rates of return which will be included within the expected minimum and maximum rates of return In most cases the 90 level will be sufficient for evaluation QUADRATIC OPTIMIZATION Risk and performance are not linear functions One of the problems with statistical definitions of risk relative to optimization models is the use of linear analysis which uses simplified assumptions and calculations Better accuracy can be attained using non linear or quadratic equations which can model complex relationships Quadratic optimizers use multiple factors such as returns correlations covariances taxes and contributions to the portfolio in determining the optimal mix of assets for each unit of risk standard deviation the investor is willing to assume Using these calculations non linear investment per
114. oftware nor may you use it for multiple user or multiple computer system applications in the absence of individual licenses with ADVISORYWORLD or 11 use the software to provide portfolio recommendations or investment services to other financial planners brokers advisers or investment managers or 111 use copy modify alter or transfer electronically or otherwise the software or documentation except as expressly allowed in writing by ADVISORY WORLD iv translate reverse program de assemble or decompile the software or sell give publish disclose or otherwise make available to others the software any of the historical data including but not limited to the index data mutual fund data independent managers data stock and bond data or copies of them GRANT OF USE AdvisoryWorld grants to Licensee a non exclusive right to use the Products and Services of AdvisoryWorld together with the right to make them available to customers of Licensee on a financial consulting investment advisory or broker dealer basis Upon any termination of this Agreement you agree to pay AdvisoryWorld any amounts remaining due for services rendered to Licensee and you further agree to destroy or return any and all Operating and Data disks together with documentation relating to the software and all copies modifications or portions of them existing in any form including any installed on your computer or back up disks PAYMENT Licensee shall pay to Advisor
115. olio 4a Why were those assets chosen is a good idea to get a clear understanding from the client why each investment was chosen and what expectations he has from each one 4b Have other assets been considered Which ones Would other assets be considered The time period and expected rate of return are critical in determining which investments should be used to achieve investor s goals The strategy for achieving short term goals is very different from the strategy for reaching long term goals Short term goals require high liquidity and low risk For long term investments you will be less concerned with short term volatility and more concerned with higher returns and capital appreciation Long term investment returns should at the very least exceed the inflation rate thereby providing you with the same purchasing power in five years that exists today 65 The selection of investments should match investor s financial objectives Investments which are illiquid and seek capital appreciation are not suitable for achieving short term goals Finally and perhaps most important investments should be chosen based on their correlation to each other asset in the portfolio Negatively correlated investments will provide the best balance and most optimal portfolio returns and volatility The following may help in the selection or consideration of alternative investments Time Horizon Short Term 0 2 years 2 5 years 5 years
116. ort Probability Graph um oo eo e a 0 ea co 20 00 0 00 12 600 23 100 33 600 37 600 42 000 46 200 30 400 54 6500 65 100 Probahility Table Annual Withdrawals To Meet Objective Annual Withdrawals To Meet Objective Probability of required 12 50n0 00 30 00 100 00 23 100 00 99 0095 99 4055 33 600 00 50 00 33 30 37 200 00 30 00 94 9095 42 000 00 100 00 75 10 46 200 00 110 00 67 3095 50 400 00 120 00 61 10 x After analyzing the Monte Carlo Results close the window To review asset mixes for the current portfolio the selected portfolio the optimal risk and optimal goal portfolios click on the Asset Mix button Asset Class Mix Pies Microsoft Internet Explorer Asset Class Mix Pies EF Selected Portfolio Current Portfolio Portfolio ROR 10 13 Portfolio STD 7 66 Portfolio ROR 9 16 Portfolio STD 6 65 15 00 32 57 7 50 7 50 14 94 10 00 9 00 B GI Growth amp Income 5 56 Day Treasury Bills 7 50 LG Wilshire Large Co Growth 16 57 DMM Donoghue Money Mkt 7 5096 SV Wilshire Small Co Value 14 94 GI Growth 8 Income 9 00 3 Corp Bonds General 10 0095 WLG Wilshire Large Co Growth 10 00 BII International Bonds 32 5796 WSY Wilshire Small Co Value 15 0096 WP International Pacific 6 0096 ds General 15 00 Optimal Risk Portfolio Optimal Goal Portfolio Portfolio 10 99 Portfolio STD 9
117. oryworld com ICE ESTERI advisor 4 Log Out ICE Pert Client Select Portfolio Account 1 Personal Select Home Clients amp Portfolios Add Assets Cash Flow 8 Plan Analysis Optimize Portfolio Reports Help Integrated Capital Engine Portfolio Portfolio value History Estimates Probability Range Years Hold zl Portfolio Status 9 5 amp A 500 000 E sez 358 sox d 9 amp TAR Yield Begin Income Turnover Trans Mng e ves sms pet Tese Cash Equivalents 5 00 25 000 90 Day Treasury Bills 5 00 25 000 5 40 1 51 12 1968 08 2002 39 1 1 00 x Add security Domestic Equites Indices 40 00 200 000 WLG Wilshire Large Co Growth 10 00 50 000 21 84 12 1977 08 2002 39 48 27 20 1 00 x Add security WLV Wilshire Large Co Value 10 00 50 000 14 09 12 1977 08 2002 39 48 27 20 1 00 Add security WSG Wilshire Small Co Growth 10 00 50 000 24 45 12 1977 08 2002 39 48 27 20 d 1 00 x Add security Growth amp Income 10 00 50 000 By security Add security Domestic Bonds 25 00 125 000 Corp Bonds General 25 00 125 000 4 72 12 1968 08 2002 39 48 27 20 1 00 x Add security International Equities 10 00 50 000 WF International Equities 50 000 16 96 12 1968 08 2002 39 48 27 20 0 00 1 00 Add security Applet TestApplet notloaded ia i Internet star
118. osure Statement Portfolio Overview Portfolio Comparison Completed Questionnaire Monte Carlo Simulation Portfolio Rates of Returns Asset Class Information Comparison Implementation Portfolio Asset Returns Portfolio Status Growth of a Dollar Efficient Frontier Portfolios Risk vs Return Matrix Standard Deviation Bar Range of Values Bar Dollar Growth Graph Boundary of Returns Graph Efficient Frontier Graph Plugins Available Efficient Frontier To setup the permission for clients to access permitted reports 1 click on the Permissions tab 2 check login box 3 assign a Username and Password to the client this will give the client read only access to view reports After you have finished editing choose OK to close the window and append your new client to the list If you choose Apply the client will be created and the Clients amp Portfolios window will remain staying on top Choosing will close the window and nothing will be added to the list Choosing Save amp Create Account will save the client close the window create a new account and start the Account Setup dialog Client Setup Microsoft Internet Explorer Personal contacts Alieu NetWorh Repons Permissions Info Fees Income amp Plugins Client Type Individual v Personal Info First Name Joe Last Name Sample Mi Salutation Mr Birth Date 08 06 1943 Company Name
119. oy International Equities Fidelity Global Equity For more information on adding assets and setting time horizons see A General Overview of ICE Functions Now your Portfolio Builder screen will contain all of the Assets in your portfolio On the left side of your screen you will see small gray buttons with plus signs on them Double click on these buttons and your Mutual Funds will become visible Click in the cells under the Dollar Amount column and next to each of the mutual funds Enter their appropriate values For more information about this screen see A General Overview of ICE Functions Advisory World Microsoft Internet Explorer lA Alg AW http ice advisoryworld com ICE ENTERS Thomas Widget Log Out Select Integrated Capital Engine FACON Probability Range 4 Daag Capital Yield Dollar Amount RoR 529 ena pate Cae DOM Date Tax E Fees Fees ban war 0 00 0 00 0 00 o oo u nn 0 Seeks AS Domestic Equites Indices 21 00 1500 WLV Wilshire Large Co Value 8 00 20 000 15 33 12 197 0 00 0 00 0 00 Add security LCBAX Large Cap Basic Value 00 15 000 By asset class MSVTX AAFS Strategic Value 2 00 5 000 By asset class WLG Wilshire Large Co Growth 10 00 25 000 2 197 0 00 0 00 o oo Add security
120. r some indices increase the expected yield and decrease the expected equity value thereby reducing the expected total return in relation to T Bills The High and Low estimates are within one standard deviation of the historical mean returns It should be emphasized that these estimates are based on historical relationships and a broad consensus opinion as to the future rate of return for 90 day Treasury Bills While these estimates may represent an average annual return based on historical relationships they may not reflect AdvisoryWorld opinion as to the most likely rates of return over the next twelve months for each asset class DESIGNING REALISTIC AND THEORETICALLY OPTIMAL PORTFOLIOS What should investors achieve with an investment portfolio 63 In general the primary objective for any investment portfolio is to provide sufficient capital and income for the investor to live comfortably in post retirement years For larger estates the objective may be substantially different but in all cases you must be able to evaluate alternative scenarios and their likely outcomes Are the current investments the right ones for your client In almost all cases investors acquire assets based on the investor s perception of how each asset will perform in the future No attention has been paid to the risk characteristics of the individual investments how each investment will perform relative to each other investment or how a portfolio containing a
121. rrelations and covariances will support the recommendation However you may feel that additional diversification is necessary Remember your knowledge experience and understanding of your client s needs are as important as any mathematical algorithm in the asset allocation programs It is also true that these programs and the algorithms employed are not magical and therefore should only be relied upon as mathematically probable There is not any means by which the programs can know about current or possible economic events which might further influence the performance of any asset or assets Your experience expertise and knowledge will be useful in guiding the composition of the portfolio How much risk is your client taking with his present mix of assets It is virtually impossible to develop meaningful portfolios for your client unless you have knowledge of how the existing portfolio might be expected to perform From a marketing stand point there are very few investors who would not pay to know how much risk they are currently taking with their portfolio and what kind of performance might be expected Managing the investor s risk and expected performance are critical in providing sound financial advice How much risk can your client comfortably accept with any investment portfolio 64 A review of the current portfolio s risk characteristics with the client should give you and the investor a good idea of how much risk he is willing to t
122. s and the adviser or the client do not believe such a concentration of capital in International Equities to be prudent at this time the adviser may over ride the model by constraining the optimization to a minimum percentage which is acceptable As you would expect in most cases where the optimal portfolio is re constrained you will sacrifice some return and increase the portfolio standard deviation Users can set optimization constraints at the Asset Type Asset Class and or the Security level After setting constraints or modifying any variable in the portfolio the user must select Re Calc Frontier and then select a portfolio along the Frontier before any performance or allocation data will be displayed a Users can set the minimum and maximum amount that will be permitted for any or all Asset Type The constraints are expressed as a percentage of the portfolio For example if a maximum of 5 00 is set for 55 Cash Equivalents then regardless of how many Asset Classes securities are assigned to that Asset Type no more than 5 00 can be allocated to them as a group Type b Users can set the minimum and maximum amount that will be permitted for any or all Asset Classes The constraints are expressed as a percentage of the Asset Type For example 1 Maximum of 5 00 is set for Cash Equivalents 2 Asset Classes selected i 90 Day T Bills 1 Constraint set at a maximum of 50 of the Asset Type 30 Day Commercial Paper 1 Constr
123. s of that no more than 50 can be allocated to any of the selected Asset Classes and no more than 100 of any Asset Class can be allocated to the selected securities The sum of maximum constraints at any level must be equal to at least 100 allocated to that level If only one security is selected for an Asset Class then you cannot set a maximum constraint of 50 since that would be less than 100 of the Asset Class SETTING GLOBAL CONSTRAINTS Users can set constraints globally by clicking on the Portfolio icon and entering their choices MODIFYING HOLDINGS RORS amp STDS Users can modify any ROR or STD simply by highlighting the desired field and entering a new value if permitted by your firm After setting constraints or modifying any variable in the portfolio the user must select Re Calc Frontier and then select a portfolio along the Frontier before any performance or allocation data will be displayed COMPARING PORTFOLIOS Select a portfolio to compare against the Selected portfolio by clicking on the Select option for Portfolio Comparison Find the desired portfolio and click on Select The comparison portfolio will be displayed in the Efficient Frontier graphic as a solid gray box The comparison may be turned off at any time simply be clicking on the check box This graphic displays a comparison of an optimal portfolio and another the client s existing portfolio in the same risk return space The optimal portfolio wi
124. set allocation is the primary determinant of investment performance Strategic Asset Allocation uses historical data mean rates of return standard deviations and covariances in an attempt to understand how the asset has performed and is likely to perform over long periods of time The goal is not to beat the market but to establish a long term investment strategy using a core mix of assets Tactical Asset Allocation uses periodic assumptions regarding the performance and characteristics of the assets and or the economy This approach attempts to improve portfolio performance by making mid course changes in the long term strategy based on near term expectations Dynamic Asset Allocation involves changes in investor circumstances which may lead to the modification of policies objectives and or risk tolerances Resulting changes are intended to maintain equilibrium between the investor s policies and objectives and the asset allocation process There is very little if any relevance to historical information regarding investment performance before 1960 The economic environment and investment alternatives today are substantially different from those of the past We can no longer be myopic in our view of investments in so far as we restrict our analysis to domestic issues of equities bonds real estate commodities or other investment vehicles The traditionally domestic portfolio is clearly inadequate in today s internationally based economic
125. sis show that there is a net shortfall it means that the current investment strategy the portfolio will not achieve the client s financial goals To solve for this problem you may modify any number of variables in the Financial Plan Analysis screen For example you could make lump sum monthly or annual payments change the age of the objective reduce the amount of money required to meet the objective apply additional income that will be available or modify the portfolio holdings to find a portfolio that will generate a higher rate of return HYPOTHETICAL PERFORMANCE CASH FLOW amp FINANCIAL PLAN ANALYSIS Users can calculate the hypothetical historical performance of a portfolio and related cash flows for any period prior to the current date The calculations use the portfolio s mean historical return in determining hypothetical past performance For example if you want to know how a portfolio and related cash flows might have performed if the client had made the investments 20 years before the current date then change the Date to begin analysis or Age to begin analysis accordingly MONTE CARLO SIMULATION Our unique Monte Carlo simulator is a very advanced mathematical model developed by Professor Giray Okten at the Dept of Mathematical Sciences of Ball State University To review the simulation simply click on Monte Carlo Simulation button on the Financial Plan Analysis page e The simulation eliminates the problem of over concen
126. sured against the IV or select from all available databases using Select Assets e the time horizon you wish to use the holding period i e 12 months 36 months and use your own or the historical risk free rate of return e the report click on Continue e While the report is displayed you can modify any setting add or remove securities by clicking on the Edit Report button at the top of the report Report Parameters Specifying Microsoft Internet Explorer Pef P Please Specify Report Parameters Parameters Action View amp Print v 35 Select Corp Bonds General The Independent variable lis the performance benchmark against which other securities indices and portfolios will be measured Selected Assets Celect assets ABM AMR Trust Band M Assets that are grayed out will be Advantus Bond Fund remowed from the report because Advantus Bond Fund pur cu Alliance Bond Corporate Bond A given time harizan To remove a security click on the Alliance Bond Corporate Bond B ticker symbol Alliance Bond Corporate Band C Time Horizon ju amp o03 df 100 Holding Period months Risk Free ROR Prepared by Do Prepared for Note Frinted pages has header and footer usually URL and date according to the File Page setup browser s settings remove page header and footer click here select Open this file from its current location
127. t Inbox Microsoft Out Zl Advisory World taj ICE MANUAL DOC Q jan 5490 1 10PM 48 CHANGING PORTFOLIO TIME HORIZON The portfolio time horizon may be changed in the Assets amp Securities Add Remove Classify window A Assets amp Securities Add Remove Classify Microsoft Internet Explorer SEE Assets in the Portfolio List Search Asset Root Folder Time Horizon 02 1986 07 2002 5 alef Domestic Equites Indices International Equities ial Domestic Bonds ia International Bonds ian Real Estate SE Assets amp Securities This folder holds all the assets Asset Classes and securities grouped in folders jer Mutual Funds Stacks ial Variable Annuities Closed end Funds BR Update Portfolio amp Close EDITING VALUES OF ASSETS SECURITIES IN PORTFOLIO You can change the values of assets securities directly in the portfolio table Just click on a line and input boxes will appear where you can type in To unselect a line click anywhere on the screen outside the table By clicking on the icons beneath Hold you can enter or review the holdings as 1 a percentage of the portfolio 2 a asset as a of the portfolio b Asset Classes as a of Asset Types Securities as a 9o of Asset Classes SAVING PORTFOLIOS Click on the Save Portfolio button in the Portfoli
128. t one year would be the more appropriate period since portfolios will be re optimized and or re evaluated on a quarterly or semi annual basis Since the portfolio will be modified several times within a five year period the original expected five year returns are not likely to be realistic objectives Further the risk a client is willing to take in any one year is more accurately tied to his expectation of returns in the one year period o Asset constraints minimum or maximum percent allocated to each asset Any constraint on the minimum or maximum amount of capital to be allocated to specific assets must be determined prior to initial portfolio analysis and optimization These constraints will include illiquid investments ownership of business property maximum amounts of capital allocated to international or aggressive investments maximum allocations to real estate minimum allocations to cash or debt instruments for current income etc o Asset characteristics such as variability and mean rates of return Clients with low risk tolerances will not need or want asset classes which exhibit high standard deviations risk Therefore assets with high risk characteristics should be excluded from consideration These might include international equities aggressive growth equities and long term bonds More conservative investors will prefer growth amp income equities balanced equity amp bond funds GICs real estate and short term debt instrume
129. tantaneous access to information creates greater efficiency in the marketplace thereby making above average returns extremely difficult to achieve With the advance in information technology and more sophisticated investors the markets are likely to become even more efficient 3 The Portfolio As The Determining Factor The third premise is that the focus of attention should be shifted away from individual securities analysis to consideration of portfolios as a whole predicated on explicit risk reward parameters and on the identification and quantification of portfolio objectives Today it is more likely that the efficient allocation of capital to specific asset classes will be far more important than selecting the right components of any asset class 4 Portfolios Can Be Quantitatively Optimized The fourth premise for Modern Portfolio Theory is the optimality of portfolio returns vis vis portfolio risk In other words for any level of risk that one is willing to accept there is a rate of return that should be achieved Quantitative methods are used for measuring risk and diversification making it possible to create efficient and theoretically optimal portfolios Portfolio diversification is not so much a function of how many issues are involved as it is of the relationships of each asset to each other asset and the proportionality of those assets in the portfolio Investors should search for those assets which tend to have negative relationships t
130. the asset class involved and their relationship to all other asset classes in the portfolio In fact under the new ERISA regulations you will be required to have a working knowledge of Modern Portfolio Theory and to be able to construct portfolios in accordance with these methodologies Without a diligent analysis of the client s needs and risk and the use of sophisticated asset allocation tools it will be almost impossible to meet these new regulations 5 Are there any asset constraints minimum maximum amount allocated to specific assets If your client currently holds investments in long term illiquid assets the portfolio will be constrained by the capital committed to that asset The advisor should not arbitrarily constrain the portfolio assets assign minimums and maximums before optimizing the portfolio It is strongly recommended that the advisor optimize the portfolio and then iteratively set minimum or maximum levels for each asset or you may set global minimums or maximums of some amount until the portfolio meets your satisfaction If you believe that the optimization algorithm has allocated too much or too little to a particular asset you should review the returns before setting constraints It may well be that the asset in question has a rate of return far higher than you are comfortable with Consequently you should lower the return estimate and then re optimize You should find that the allocation is materially different using
131. tion Samuel Adams atm Stone amp Youngberg BA client e Hac Joe Client Thamas Baker Wilson Sample Advisor World Portfolios L New Account review Consolidation an ED B NT select any ru create a Mew Client click an Cliente dt will turn blue click an Mew Client Creating a new client To create a new client 30 1 Select the Clients folder selected folder is highlighted in blue 2 Click on the New Client button lower left part of screen 3 The Client Setup window appears on top 4 Fill in the fields concerning this client Giving Clients Access to Reports Advisors can give clients access to selected reports using the Reports amp n Plugins tab If you do not have permission to allow clients access to reports contact AdvisoryWorld about licensing this permission E Advisor Setup Microsoft Internet Explorer Standard Personal Info Contacts AIEO oos Reports Available Investment Policy Statement Portfolio Review Summary Report Questionnaire Portfolio Cash Flow Tables Available Partfolio Recommendation Portfolio Values Asset Class Statistics Portfolio Implementation Portfolio Correlations Monthly RORs Rolling Period Graphs Available Asset Rate of Retums Bar Range of Returns Bar Monthly RORs Graph Rolling RORs Graph Portfolio Performance Reports permissions Change amp Plugins Password Discl
132. tration of probability runs by spreading iterations throughout the entire grid of normal distribution e he Monte Carlo calculations are based on the portfolio ROR weighted security RORs the portfolio standard deviation volatility cash flows contributions and withdrawals made prior to and during the time period required to meet the objective the amount required to meet the objective s and the time period required to meet the objective s e Determine the probability of growing a portfolio to a specified value by a pre determined date or age e Determine the probability of achieving a goal s such as having sufficient capital after retirement to meet the investor s income requirements through mortality or sending children through college e Review alternative strategies by quickly and easily modifying elements such as portfolio return the age at which the objective will be met the amount of income required the length of time to complete the objective and many other variables e Review the actual time weighted cash flows leading to completion of the investor s objective s e he Monte Carlo Report is graphic and easy to understand and is a great marketing tool REPORTS The pull down list allows selecting required report or graph Within the report window you can use the following buttons Print to print a report Send to send a report to the client receiver must use MS Outlook and have MS Internet Explorer v 5 or later instal
133. u see assets and securities represented as a tree where you expand collapse its branches by clicking on the plus minus marks Asset Classes are grouped in Asset Types Securities are grouped in folders Within this list you can create edit delete and move by drag n drop user defined asset types asset classes securities and folders CREATING YOUR OWN ASSET CLASS To create your own asset class 1 Expand appropriate asset type i e where you want to assign your new asset class Click on the New Asset Class button The Asset Security window appears on top Fill in the fields concerning your asset class Under the History tab specify the time horizon and input historical values for each year After you have finished editing choose OK to close the window and append your new asset class to the designated asset type If you choose Apply the asset class will be created and the Asset Security window will remain staying on top Choosing Cancel will close the window and nothing will be added to the list eO Oc e T Editing an asset class asset type security Editing an asset class asset type security is performed similarly 1 Select required item by clicking selected item is highlighted in blue 2 Choose the Edit button Note that you may fully edit only those items asset types asset classes and securities folders that you have created Within other objects those provided by Advisory World of your Firm you may o
134. xpected mean rate of return is the mean of the probable rates of return based on the distribution of the historical data Therefore the expected mean rate of return is the mean of the probability distribution of all monthly rates of return available for the period of time selected for each asset or fund MEAN RATE OF RETURN The mean rate of return is equal to the sum of all period rates of return in the data population divided by the number of such observations LINEAR OPTIMIZATION Linear optimization uses only one factor returns in calculating optimal portfolios It is a form of simple regression which describes the way one variable return is related to another correlation the timing and direction of movement of the independent variable in relation to the dependent variable MARKET TIMING Market timing is an attempt to maximize returns by moving capital into or out of the markets based on the timing of such moves Using various technical and quantitative methods investors try to time their investments of capital when the markets are moving up and liquidate positions when the markets are declining thereby maximizing gains and limiting losses MARKET SURROGATE INDEX Where insufficient data is available for any asset fund or security a surrogate index asset may be substituted for that investment in preparation of portfolio recommendations Surrogate indices may include indices such as the S amp P 500 Index and the Soloman Brothers Bro
135. y Fund Total 250 000 10 To open your clients list and portfolios Click On Clients amp Portfolios This has been designed in the same hierarchical format as Windows Explorer Advisor Advisor Information Clients Click here to begin entering clients Accounts Click on your choice of accounts Portfolios Click on your choice of portfolios AdvisoryWorld Portfolios A set of portfolios designed for different risk tolerance My Portfolios This is where users design predefined portfolios Links Allows users to group clients in relation to Portfolio Value etc Advisory World Microsoft Internet Explorer v 5 ve AW http fice advisoryworld com ICE Anice Integrated Capital Engine Integrated Capital Engine Clients amp Portfolios amp Assets amp Securities qi Import Data Next select a Client in the Clients Folder The word Client will be highlighted in blue and then click on New Client on the lower left quadrant of that window The Client Setup Screen will pop up 11 7h Clients and Portfolios Microsoft Internet Explorer Description clients sentar Portfolios pii My Portfolios ag Links New Clients Enter required fields as well as details such as client income and net worth You must always enter a client first and last name as well as a Social Security number Client Setup Microsoft Internet Explorer es EET RE emm
136. y lines True diversification can be achieved if you own two or more assets which have a negative or nearly negative relationship to each other Basically this means that when the value of one asset is declining the value of the other s is rising 7 Are the asset classes diversified by correlation as well as by type duration liquidity and return If the value of one asset class were to decline does the investor own other assets which will tend to rise in value at the same time In order to determine the performance of a portfolio you should establish mutually acceptable benchmarks against which the performance of each asset class in your portfolio can be measured If the assets investment managers are not meeting these standards for performance you should consider alternative investments managers Performance evaluation should be done in a timely and consistent manner such as quarterly or semi annually 8 How has the portfolio performed relative to similarly constituted portfolios or surrogate assets Excellent Good Fair Poor The basic need of any investor is to conserve capital or at least achieve reasonable rates of return without risking unacceptable amounts of capital Defining risk tolerance is perhaps the most important decision you will make in constructing a portfolio This should not be done in ambiguous terms such as conservative moderate or aggressive The use of such terms makes it virtually impossible to evaluat
137. y to January February to February and so on in the time horizon specified For example during a 10 year time horizon there are 108 one year holding periods and calculations Standard deviation is a measure of volatility i e a relative measure of how frequently actual results varied from the mean rate of return for a given historic time period One standard deviation will include 68 4 of all observations within the dispersed population of results The wider the spread of measurements within one 41 standard deviation the greater the variability of returns Therefore the greater the historic variability from the mean rate of return the greater the risk associated with the investment Risk adjusted Performance indicates the expected mean rate of return and the actual rate of return experienced over the past 12 months Cumulative Rate of Return displays the holding period return for the time horizon specified Annualized Rate of Return displays the annualized rate of return for the number of 12 month periods within the time horizon specified High Growth Rate displays the highest historical 12 month rate of return experienced during the time horizon specified Low Growth Rate displays the lowest historical 12 month rate of return experienced during the time horizon specified Number of Positive Periods indicates how many historical rolling 12 months periods experienced positive growth Number of Negative Periods indicates how ma
138. yWorld prior to receipt of program or data updates the maintenance fees agreed to by Licensee Failure to make any payments in the manner and at the times provided for herein shall be considered a default of this Agreement OWNERSHIP AND SECURITY The Products consist of proprietary products developed and or licensed by AdvisoryWorld and shall at all times remain the sole and exclusive property of AdvisoryWorld and or its suppliers of data WARRANTY LIMITATION OF LIABILITY AdvisoryWorld s sole obligation under any of the warranties set forth in this Agreement shall be to repair or replace at AdvisoryWorld s option any defective item of the Products In no event will AdvisoryWorld or its suppliers of data be liable to such customer or to Licensee for any representations or warranties made by Licensee other than those stated herein OTHER THAN AS EXPRESSLY STATED HEREIN ADVISORYWORLD MAKES NO OTHER WARRANTIES INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE The foregoing shall be the extent of Advisory World s liability under this Agreement regardless of the form in which any legal or equitable action may be brought against AdvisoryWorld and the foregoing shall constitute Licensee s sole remedies In no event shall AdvisoryWorld or its agents suppliers or contractors be liable to Licensee or any third party for consequential special indirect or incidental damages which Licensee or a third party

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