© 2008 Northern Trust Corporation northerntrust.com The Northern Trust Experience A C C E S S. E X P E R T I S E. S E R V I C E. R. Hugh Magill Executive Vice President and Chief Fiduciary Officer Trends in Trust Law: Implications for Estate Planning and Fiduciary Administration

The Northern Trust Experience Demographic Trends Death & Taxes2001 Tax Act (EGTRRA)Continued evolution of Estate Planning Strategies Changes in Capital Markets Prudent Investor Rule Uniform Prudent Management of Institutional Funds Act Evolution of Securities Markets and Asset Management Practices Decline in YieldsUnitrusts and Principal / Income Adjustments Changes in Asset Allocation and Distribution Practices Client MobilityUniform Trust Laws Non-Uniform State Tax Laws Changes in Estate Planning & Trust Administration Wealth FormationTax Rate Environment Asset Diversification Deal Flow, Liquidity, Philanthropy New Generation of Clients Legacy Planning, Family Governance, Modification of Trustee Duties, Situs Shopping Inter-generational Wealth Transfer, Trust Friendly Jurisdictions, Consumerism

The Northern Trust Experience Asset Concentrations and the Duty of Diversification Maximizing Opportunities Minimizing Risks

The Northern Trust Experience Concentrations and Trust Documents Retained Assets Retention is permissible Retention is strongly suggested Retention is mandatory Fiduciary Authority Sole trustee Co-trustees Advisors Advisory Committees Modification of Fiduciary Responsibility Hold Harmless / Indemnification Agreements Virtual Representation Court-Ordered Reformation

The Northern Trust Experience Concerns About Diversification Adverse Income Tax Consequences Unfamiliarity with other Asset Classes Loss of Control Performance Expectations Impact on Portfolio Yield Fees

The Northern Trust Experience Reasons for Non-Diversification Purpose of Trust Legacy Holdings Termination Date of Trust Interests of Beneficiaries Step-Up in Basis Illiquidity Loss of Controlling Interest Related Trusts Beneficiaries Assets Adverse Income Tax Consequences

The Northern Trust Experience Retention Language Identify the Asset Waive the Duty to Diversify Articulate the Reasons for Retention Address Asset Conversion Issues Equities: Mergers, Acquisitions, Spin-offs Real Estate: Sale, Reinvestment Identify the Circumstances under which, and by Whom, Sale Should be Considered

The Northern Trust Experience Concentration Risk Management Process Definition and Identification Evaluation of Fiduciary Responsibility Review Process Evaluation of Strategies Implementation and Periodic Review Documentation

The Northern Trust Experience

© 2008 Northern Trust Corporation northerntrust.com © 2008 Northern Trust Corporation northerntrust.com Unitrust Conversions When Should a Fraction Trump a Yield?

The Northern Trust Experience Unitrust Conversions – Interest Rates 10 Year Government Yields Percent

The Northern Trust Experience Unitrust Conversions – Stock Dividends S&P 500 Dividend Yield

The Northern Trust Experience Reviewing Trusts for Potential Conversion Income only (mandatory or discretionary) Income with narrow power to discrete principal Income with moderate power to discrete principal Income with broad power to discrete principal

The Northern Trust Experience Unitrust Conversions – Issues to be Analyzed Governing law Nature, purpose, duration of trust Settlors intent Duty of impartiality vs. permissible partiality Beneficiary expectations Discretionary authority over principal distributions

The Northern Trust Experience Unitrust Conversions – Portfolio Issues Asset composition Asset allocation Portfolio size Reinvestment alternatives Re-allocation impact Investment management limitations Fixed income; taxable vs. tax-exempt

The Northern Trust Experience Conversion Analysis – Critical Assumptions Time horizon Inflation rate Capital market assumptions Tax impact of portfolio re-allocation Rebalancing frequency Management costs Payout ratio Liquidity needs Return methodology

The Northern Trust Experience 50 / 50 Asset Allocation Large Value Stocks 50% Corporate Bonds 50% $2.5 MM $5 Million Portfolio $2.5 MM

The Northern Trust Experience $5 Million Portfolio 0% Conservative Moderate Aggressive 5%10%15% 50 / 50 Asset Allocation Efficient Frontier Standard Deviation Return 50 / 50 Asset Allocation 20%25%

The Northern Trust Experience $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 3% Payout Payout 3% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $150,000$161,112$176,106$194,360$213,415 $5 $6.15 $4.33 $12.60 $4.42 $7.46 $9.02 $10.65 $4.10 $4.16 Inflation: 2.5%

The Northern Trust Experience $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 4% Payout Payout 4% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $200,000$206,488$214,787$225,620$235,748 $5.70 $4.40 $9.93 $3.55 $5 $6.73 $7.88 $8.88 $3.90 $3.69 $3.57 Inflation: 2.5%

The Northern Trust Experience $5 Million Portfolio 50 / 50 Asset Allocation Monte Carlo Simulation Analysis – 5% Payout Payout 5% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $250,000$247,988 $245,565 $245,177$243,597 $5.65 $4.34 $8.16 $2.89 $5 $6.42 $7.15 $7.67 $3.70 $3.32 $3.06 Inflation: 2.5%

The Northern Trust Experience Diversified Portfolio $4,714,249 Million Portfolio

The Northern Trust Experience $4,714,249 Million Portfolio 0% Conservative Moderate Aggressive 5%10%15% Diversified Portfolio Efficient Frontier Standard Deviation Return Diversified Portfolio 20%25%

The Northern Trust Experience Diversified Portfolio Monte Carlo Simulation Analysis – 3% Payout Payout 3% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $141,427$156,954$177,897$201,886$231,170 $4.71 $5.05 $4.19 $13.94 $4.48 $4,714,249 Million Portfolio $7.16 $9.28 $11.44 $3.93 $4.01 $4.19 Inflation: 2.5%

The Northern Trust Experience Diversified Portfolio Monte Carlo Simulation Analysis – 4% Payout Payout 4% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $188,570$201,218$217,233$234,549$255,658 $5.48 $4.16 $11.50 $3.67 $4,714,249 Million Portfolio $4.71 $6.84 $8.44 $9.91 $3.73 $3.62 $3.59 Inflation: 2.5%

The Northern Trust Experience Diversified Portfolio Monte Carlo Simulation Analysis – 5% Payout Payout 5% Asset Range ($MM) 1 Year5 Years10 Years15 Years20 Years $235,712$241,748$248,247 $255,022$264,519 $5.41 $4.10 $9.47 $2.99 $4,714,249 Million Portfolio $4.71 $6.53 $7.67 $8.57 $3.54 $3.27 $3.09 Inflation: 2.5%

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