1. 1 Legal Considerations in the Investment of Assets Kevin C. Kaufhold Copyright 2005 Kaufhold & Associates, P.C.

2. 2 Educational in Nature Qualifications Disclosures I.Introduction

3. 3 II.Legal Considerations Common Law Obligations Illinois Trusts – Prudent Investor Rule Foundations / Endowments Corporate Investment of Assets Investment of Public Assets Pension & Health Trust Funds Investment Managers & Advisors

4. 4 III.Financial Considerations Applicable Investment Concepts  What must you do to satisfy fiduciary?  What should you do to invest wisely? Get out of Debt  Credit Cards  Manage RE mortgage Develop a Pattern of Saving & Investing  Investor Education  Keep it Simple  Live Below Your Means  The Power of Compound Returns  Invest Regularly  Dividend & Dividend Reinvestment  Reduce Other Loans

5. 5

6. 6  Dollar Cost Averaging  Keep Costs, Expenses, Taxes Low.  Can Active Mutuals Outperform?  Invest in the Long Run  How Much to Save?  Tax Issues & Turnover  Insurance Issues & Coverage  Investment Policies and Practices

7. 7 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off

8. 8

9. 9 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk & Return Through Optimization

10. 10

11. 11 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification

12. 12

13. 13 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification Reduction of Risk through International Diversification

14. 14

15. 15

16. 16 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification Reduction of Risk through International Diversification Reduction of Risk through Time

17. 17

18. 18 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification Reduction of Risk through International Diversification Reduction of Risk through Time Reduction of Risk over Time for all Asset Classes

19. 19

20. 20 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification Reduction of Risk through International Diversification Reduction of Risk through Time Reduction of Risk over Time for all Asset Classes Other Forms of Risk Increasing Across Time

21. 21

22. 22 IV.Risk and Return Concepts Definitions of Risk & Return The Risk – Return Trade-Off Balancing of Risk and Return through Optimization Reduction of Risk through Diversification Reduction of Risk through International Diversification Reduction of Risk over Time for All Asset Classes Reduction of Risk through Time Other Forms of Risk Increasing Across Time Very-Long Term Risk and Return Risk and Return Across Holding Periods

23. 23 ST LT VLT Risk Std DevShortfall Risk Underperf. Risk Intergen. Risk Policy Drift, etc. Return Pricing ReturnRtn to Net WorthIntergen. Transfers Bus Model CAPM/MPT MVO Asset/Liability Low P/V Indicators Utility Analysis Complex Behavior Estate Planning

24. 24 V.On the Allocation of Assets Allocation vs. Specific Asset Selection Historical Rates of Return Cultural Differences Age Considerations Alternative Asset Classes Risk Tolerances & Holding Periods Asset Liability Modeling Three Factor Modeling Macro vs. Micro Styles

25. 25 VI.Practical Allocation Models Lifestyle Funds Target Retirement Funds A Simple Approach from S&P A Holding Period Approach Investment Objective/Risk Tolerance Models Complex, Professional Level Models

26. 26 VII.Conclusion As to the Law: “Fiduciaries must act solely in the interest of plan participants … for the exclusive purpose of providing plan benefits…” As to Finances: “Investment is most intelligent when it is most businesslike”.

27. 27 VIII. Questions / Notes