A policy statement is a road map of investment process. It helps the portfolio manager to take the appropriate decision. To make a policy statement, it is important to know that what is client’s objective and what is the constraint of that investment process.

INVESTMENT OBJECTIVE:

Basically there are four types of investment objective. 1. Capital preservation, 2. Capital appreciation, 3. Current income, 4. Total return. Here our typical investor is 70 year age of old but he is leading an active life style. He has a goal to build a medical research foundation, so that his investment objective should be Capital appreciation and Total return, through which he can meet his future plan. Because these two types of objective concentrate on capital gain as well as reinvesting the current income. He should invest 60 to 70% of his asset in moderate to risky project, which generate more income and 30 to 40% in a treasury bill, which will meet his daily expenses.

INVESTMENT CONSTRAINT:

In addition to investment objective there are some investment constraints or limitations, which are also important to make a policy statement.
1. Liquidity needs: Mr. Franklin has a little need for liquid asset because he is seventy years old and has no children. He is living an active life style and has huge amount of cash, which he can easily invest in short term bond or in Treasury bill.
2. Time Horizon: Longer investment horizon, such as equities are perfect for Mr. Franklin, which will protect himself from inflation and help him to meet his future goal.
3. Tax concern: Mr. Franklin is in a lower tax bracket, so tax planning is not a major concern for him. He can easily invest his cash into government bonds which are tax exempted.
4. Legal and regulatory factors: There are different rules and regulations for different investments. Each individual will be penalized if they try to break the rules. So Mr. Franklin should concern with a legal advisor to avoid regulatory constraint. 
5. Unique needs and preferences: Each investor is unique, so that unique needs and preferences also differ for each person. As we know Mr. Franklin is going to build a medical research foundation, so it is possible that he might not prefer that kind of portfolio which includes environmentally harmful company, such as tobacco, alcohol or pornography.