INVESTMENT POLICY STATEMENT
CALDWELL FAMILY DYNASTY TRUST
Trust Agreement Dated April 1, 2023
Situs: State of Delaware
Governing Law: Delaware
Institutional Co-Trustee Northgate Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, DE 19801
Family Co-Trustee Thomas R. Caldwell 55 Perry Street, Unit 3 New York, NY 10014
Trust Protector Victoria Chambers Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, NY 10152
Investment Advisor Havensbrook Wealth Advisors LLC 900 Third Avenue, 18th Floor New York, NY 10022 Key Contact: Diana R. Linden, CFP®, Managing Director, Family Office Services
Prepared by Calderwood & Harkness LLP, in consultation with Havensbrook Wealth Advisors LLC
Date of Adoption: April 1, 2023
Matter No.: 1034-00004
CONFIDENTIAL — This Investment Policy Statement contains confidential information relating to the Caldwell Family Dynasty Trust. Distribution is limited to the co-trustees, the trust protector, the investment advisor, and their respective authorized representatives. Unauthorized reproduction or distribution is prohibited.
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I. PURPOSE AND SCOPE
A. Purpose of the Investment Policy Statement
This Investment Policy Statement (the "IPS" or "Policy") is adopted by the co-trustees of the Caldwell Family Dynasty Trust (the "Dynasty Trust" or "Trust") for the purpose of establishing a comprehensive framework governing the prudent investment and management of the assets held in the Trust. The IPS is intended to serve the following principal purposes:
1. Framework for Prudent Investment. The IPS establishes the investment objectives, risk parameters, asset allocation guidelines, diversification requirements, and operational procedures that will guide the co-trustees and the investment advisor in the management of Trust assets. By articulating these principles in a formal written document, the co-trustees ensure that investment decisions are made within a structured, disciplined framework consistent with the long-term purposes of the Trust.
2. Guidance for Decision-Making. The IPS provides the co-trustees — Thomas R. Caldwell, as family co-trustee, and Northgate Trust Company of Delaware, as institutional co-trustee — and the investment advisor — Havensbrook Wealth Advisors LLC — with clear guidelines and parameters within which investment decisions are to be made. The IPS defines the respective roles and responsibilities of each party, thereby promoting accountability, coordination, and transparency in the investment management process.
3. Performance Evaluation Benchmark. The IPS establishes specific return targets, risk tolerances, and benchmark indices against which the investment performance of the Trust portfolio will be measured over time. These benchmarks enable the co-trustees and the trust protector to evaluate the effectiveness of the investment strategy and the performance of the investment advisor on an ongoing basis.
4. Fiduciary Compliance. The IPS is designed to ensure that all investment activities undertaken on behalf of the Trust comply with applicable fiduciary standards under Delaware law, including, without limitation, the Delaware Prudent Investor Act, 12 Del. C. § 3302 et seq. (the "Prudent Investor Act"). The adoption and maintenance of this IPS, together with the ongoing monitoring and review procedures described herein, are intended to demonstrate the co-trustees' adherence to the standard of care required of a prudent investor managing trust assets.
5. Communication and Continuity. The IPS serves as a foundational document that articulates the investment philosophy and strategy of the Trust in a manner that can be communicated to successor trustees, successor investment advisors, and other fiduciaries who may be involved in the management of the Trust over its perpetual duration. The IPS thereby promotes continuity and consistency in investment management across generational transitions.
B. Scope of Application
This IPS applies to all assets held in or contributed to the Dynasty Trust, regardless of the form, character, or source of such assets. Specifically, the scope of this IPS encompasses:
(a) Initial Cash Funding. The initial cash contribution of Five Million Dollars ($5,000,000) made by the Grantor, Jonathan R. Caldwell, to the Dynasty Trust on April 1, 2023, the date of the Trust's creation and initial funding.
(b) GRAT Remainder Interests. Future assets expected to be received by the Dynasty Trust as remainder interests from the following grantor retained annuity trusts upon the termination of their respective annuity terms:
(i) GRAT A — the Caldwell 2023 Securities GRAT, funded on April 15, 2023, with a two-year annuity term;
(ii) GRAT B — the Caldwell 2023 Realty GRAT, funded on May 1, 2023, with a three-year annuity term; and
(iii) GRAT C — the Caldwell 2023 Carried Interest GRAT, funded on June 1, 2023, with a three-year annuity term.
(c) Additional Contributions and Accumulated Income. Any additional contributions made to the Dynasty Trust by the Grantor or any other permissible transferor, as well as all income, gains, and appreciation accumulated within the Trust, whether or not distributed.
The nature of the assets expected to be received from the above-referenced GRATs may include publicly traded securities (from GRAT A), membership interests in Stonecrest Realty Holdings LLC, a Delaware limited liability company engaged in the ownership and management of commercial and residential real estate in the New York metropolitan area (from GRAT B), and limited partnership interests and carried-interest positions in Caldwell Ridgeline Capital Funds IV, V, and VI (from GRAT C). This IPS will govern the management, retention, disposition, and reinvestment of all such assets upon receipt by the Dynasty Trust.
This IPS does not apply to the assets of The Caldwell Family Foundation, the Caldwell Family Insurance Trust, or the Caldwell Revocable Trust, each of which is a separate legal entity with its own governing instrument and investment policy. To the extent that coordination among these entities is appropriate (for example, in connection with overall family wealth planning or the avoidance of undue concentration across related family vehicles), such coordination shall be addressed outside the scope of this IPS.
C. Relationship to Trust Agreement
This IPS supplements and is expressly subject to the terms and provisions of the Caldwell Family Dynasty Trust Agreement dated April 1, 2023 (the "Trust Agreement"). The Trust Agreement is the governing instrument of the Dynasty Trust, and this IPS is adopted pursuant to the investment management provisions contained therein.
In the event of any conflict or inconsistency between any provision of this IPS and any provision of the Trust Agreement, the Trust Agreement shall control in all respects. The co-trustees and the investment advisor shall interpret and apply this IPS in a manner consistent with the terms of the Trust Agreement.
The Trust Agreement establishes a Distribution Committee composed of Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell. The Distribution Committee is vested with authority to approve discretionary distributions exceeding One Hundred Thousand Dollars ($100,000) per beneficiary per calendar year, such approval requiring the unanimous consent of all members of the Distribution Committee. This IPS accounts for the potential liquidity needs arising from such distributions and establishes procedures for advance notification and liquidity planning in connection therewith, as described more fully in Section X below.
II. TRUST BACKGROUND AND BENEFICIARY INFORMATION
A. Grantor
The Grantor of the Dynasty Trust is Jonathan Robert Caldwell, born March 14, 1956, age 67 at the time of the creation of the Trust. Mr. Caldwell resides at 418 East 72nd Street, Apartment 14A, New York, New York 10021.
Mr. Caldwell is the founder and former Managing Partner of Caldwell Ridgeline Capital LLC, a private equity and alternative investment firm. Mr. Caldwell retired from active management of the firm in 2019, although he retains certain economic interests in the firm's fund vehicles and serves in an advisory capacity to the firm's current leadership team.
Mr. Caldwell's estimated net worth, inclusive of all personal, trust, and entity-level assets, is approximately Three Hundred Million Dollars ($300,000,000) as of the date of this IPS. The Dynasty Trust represents one component of a comprehensive estate and wealth transfer plan implemented by Mr. Caldwell with the assistance of Calderwood & Harkness LLP, Strathmore Corporation & Greaves LLP, and Havensbrook Wealth Advisors LLC.
The Dynasty Trust is a "grantor trust" for federal income tax purposes during the Grantor's lifetime. Under the grantor trust rules of the Internal Revenue Code (Sections 671–679), all items of income, gain, loss, deduction, and credit attributable to the Trust are reportable on the Grantor's individual federal income tax return. The Grantor's payment of the Trust's income tax liability constitutes an additional tax-free transfer to the Trust and its beneficiaries, as such payments are not treated as gifts for gift tax purposes. This grantor trust status has significant implications for the investment strategy during the Grantor's lifetime, as discussed in Section XII below.
B. Beneficiaries
The beneficiaries of the Dynasty Trust are as follows:
Primary Beneficiaries:
(a) Thomas R. Caldwell, age 38, the Grantor's eldest child. Thomas serves as Vice President of Acquisitions at Meridian Crest Partners LLC, a middle-market private equity firm in New York. He is married to Dr. Sarah P. Caldwell, a pediatrician, and is the father of two children: Lucas T. Caldwell (age 3) and Nora E. Caldwell (age 1). Thomas also serves as the family co-trustee of the Dynasty Trust and as a member of the Distribution Committee.
(b) Katherine C. Hartfield (née Caldwell), age 35, the Grantor's second child. Katherine is a freelance interior designer based in the New York metropolitan area. She is married to Dr. Andrew W. Hartfield, an orthopedic surgeon, and is the mother of two children: James W. Hartfield (age 8) and Charlotte M. Hartfield (age 5). Katherine serves as a member of the Distribution Committee.
(c) Olivia G. Caldwell, age 30, the Grantor's youngest child. Olivia is an associate attorney at Linden & Fairchild LLP, a law firm based in Chicago, Illinois. She is currently unmarried and has no children. Olivia serves as a member of the Distribution Committee.
Contingent Beneficiaries:
The contingent beneficiaries of the Dynasty Trust are the issue of the primary beneficiaries, determined on a per stirpes basis. As of the date of this IPS, there are four living grandchildren of the Grantor who are contingent beneficiaries: Lucas T. Caldwell, Nora E. Caldwell, James W. Hartfield, and Charlotte M. Hartfield. Future-born issue of the primary beneficiaries will also be included as contingent beneficiaries in accordance with the terms of the Trust Agreement.
Spousal Beneficiaries:
Spouses of the primary beneficiaries are eligible to receive distributions from the Trust, but only under the health, education, maintenance, and support ("HEMS") distribution standard. Spousal beneficiaries are not eligible for broader discretionary distributions.
Distribution Standard:
The Trust Agreement provides for distributions under a dual standard: (i) distributions for the health, education, maintenance, and support of the primary beneficiaries (and eligible spousal beneficiaries), which may be made by the co-trustees in their discretion, and (ii) broader discretionary distributions, which require the unanimous approval of the Distribution Committee. Discretionary distributions exceeding One Hundred Thousand Dollars ($100,000) per beneficiary per calendar year require Distribution Committee approval. The existence of this distribution framework affects the liquidity requirements of the Trust portfolio and is a factor in the investment strategy and asset allocation described herein.
C. Multi-Generational Time Horizon
The Dynasty Trust is established with its situs in the State of Delaware, which has abolished the common-law rule against perpetuities for trusts governed by Delaware law. Pursuant to Delaware's perpetual trust statute, the Dynasty Trust has no mandatory termination date and is intended to continue in perpetuity for the benefit of the Grantor's descendants across multiple generations.
The perpetual nature of the Trust is a defining characteristic that profoundly influences the investment strategy set forth in this IPS. The investment approach must balance the competing interests of current beneficiaries, who may have near-term and medium-term financial needs, against the long-term interests of future generations of beneficiaries who are not yet born and whose needs cannot be specifically anticipated. This tension — the duty of impartiality between current and future beneficiaries — is a fundamental fiduciary obligation that permeates every aspect of the investment strategy.
As of the date of this IPS, the current beneficiaries range in age from one year old (Nora E. Caldwell) to thirty-eight years old (Thomas R. Caldwell). Future generations of beneficiaries, who will benefit from the Trust over the coming decades and centuries, must also be considered in the formulation of the investment strategy. The perpetual time horizon supports a growth-oriented investment approach that seeks to preserve and increase the real (inflation-adjusted) value of Trust assets over time, while maintaining sufficient liquidity and income-generating capacity to meet the current and anticipated needs of existing beneficiaries.
D. GST Exemption Status
The Grantor has allocated Five Million Dollars ($5,000,000) of his generation-skipping transfer ("GST") tax exemption to the initial cash funding of the Dynasty Trust. The Dynasty Trust is intended to be fully GST-exempt, with an inclusion ratio of zero.
Additional GST exemption will be allocated to the Trust as GRAT remainder interests are received from GRAT A, GRAT B, and GRAT C, in each case subject to the estate tax inclusion period ("ETIP") rules of Internal Revenue Code Section 2642(f). During the respective GRAT annuity terms, the ETIP rules prevent the allocation of GST exemption to the GRAT remainder interests. Upon the termination of each GRAT's annuity term, the Grantor (or the Grantor's executor, if applicable) will allocate GST exemption to the remainder interests transferred to the Dynasty Trust.
The preservation of the Trust's GST-exempt status is a paramount consideration in all investment and administrative decisions. Investments, transactions, and administrative actions undertaken by the co-trustees and the investment advisor must not jeopardize the Trust's inclusion ratio or its status as a GST-exempt trust. In particular, transactions that could be construed as additions to the Trust from non-exempt sources, or that could otherwise alter the inclusion ratio, must be avoided. The co-trustees and the investment advisor shall consult with legal counsel at Calderwood & Harkness LLP as needed to ensure that proposed investment transactions do not compromise the Trust's GST-exempt status.
III. INVESTMENT OBJECTIVES
A. Primary Objective
The primary investment objective of the Dynasty Trust is the long-term growth of Trust assets in real terms — that is, after accounting for the effects of inflation — while providing sufficient liquidity to meet current beneficiary distribution needs and to pay the ongoing administrative expenses of the Trust.
Given the perpetual duration of the Trust and the multi-generational nature of the beneficiary class, the primary emphasis of the investment strategy is on total return, encompassing both capital appreciation and income. The co-trustees and the investment advisor recognize that a total return approach, rather than an approach focused exclusively on current income or exclusively on capital growth, is most likely to achieve the dual goals of serving current beneficiaries and preserving wealth for future generations.
The investment strategy should seek to grow the Trust's assets at a rate that exceeds the combined effects of inflation, distributions to beneficiaries, trust administration expenses, and (after the Grantor's death) income taxes payable at the trust level. Over time, the real purchasing power of the Trust should increase, ensuring that the Trust remains a meaningful source of support and opportunity for the Grantor's descendants in perpetuity.
B. Secondary Objectives
In addition to the primary objective stated above, the investment strategy shall pursue the following secondary objectives:
(a) Preservation of Capital in Real Terms. The Trust portfolio should be managed so as to preserve the real (inflation-adjusted) value of Trust assets over rolling ten-year periods. While short-term declines in portfolio value are anticipated and acceptable given the growth-oriented strategy, the portfolio should not experience a sustained erosion of real value over any meaningful measurement period.
(b) Liquidity for Distributions and Expenses. The portfolio must generate sufficient income and maintain adequate liquidity to satisfy anticipated distributions under the HEMS standard and discretionary distributions approved by the Distribution Committee, as well as ongoing administrative expenses including trustee fees, investment advisory fees, legal and accounting costs, insurance premiums, and tax preparation costs.
(c) Tax Efficiency. During the Grantor's lifetime, the Dynasty Trust is a grantor trust, and all income tax liability is borne by the Grantor personally. This arrangement effectively provides an additional tax-free transfer to the Trust, as the Grantor's payment of taxes on Trust income is not treated as a taxable gift. During this period, the investment strategy may pursue maximum total return without the constraints that would otherwise be imposed by tax-efficiency considerations at the trust level.
Upon the Grantor's death, the Trust will become a non-grantor trust and will be subject to trust-level federal income tax at the compressed trust tax brackets. At that point, the Trust's Delaware situs provides favorable state income tax treatment: Delaware does not impose state income tax on undistributed income of a trust with a Delaware corporate trustee where the beneficiaries reside outside of Delaware. The investment strategy should be adapted at the appropriate time to incorporate tax-efficient approaches, as more fully described in Section XII.
(d) Diversification of Concentrated Positions. The Trust is expected to receive significant concentrated positions from the GRAT remainder interests, including illiquid membership interests in Stonecrest Realty Holdings LLC and limited partnership and carried-interest positions in Caldwell Ridgeline Capital Funds IV, V, and VI. A managed transition to a diversified portfolio is a secondary objective that must be balanced against the costs and constraints of liquidating illiquid positions, as described in the Transition and Diversification Plan in Section IX.
C. Return Target
The co-trustees and the investment advisor have established the following return targets for the Dynasty Trust portfolio:
(a) Target Annualized Total Return. The portfolio should achieve an annualized total return (net of investment management fees but before distributions and trust administration expenses) of 7.0% to 8.0% over rolling ten-year periods. This target reflects the growth-oriented nature of the investment strategy and the perpetual time horizon of the Trust.
(b) Minimum Acceptable Return. The minimum acceptable annualized total return over rolling ten-year periods is CPI + 4.0% (where "CPI" refers to the U.S. Consumer Price Index for All Urban Consumers, as published by the Bureau of Labor Statistics). This minimum threshold is intended to ensure that the Trust grows in real terms at a rate sufficient to sustain distributions and expenses while preserving intergenerational purchasing power.
(c) Benchmark. Investment performance will be measured against a blended composite benchmark consisting of:
• 60% Ridgeline Technologies (ACWI)
• 30% Westmark Services Inc. U.S. Aggregate Bond Index
• 10% NCREIF Property Index
This composite benchmark reflects the Trust's strategic asset allocation targets and provides a meaningful basis for evaluating the investment advisor's performance relative to a passive, market-weighted alternative. The benchmark composition may be adjusted as the Trust's asset mix evolves over time, particularly as illiquid alternative investments are received and subsequently diversified. Detailed definitions of each benchmark component and the blended composite calculation methodology are set forth in Appendix B.
IV. RISK TOLERANCE
A. Overall Risk Profile
The Dynasty Trust's overall risk profile is moderate-to-aggressive, reflecting the following considerations:
(a) Perpetual Time Horizon. The indefinite duration of the Trust provides an exceptionally long investment horizon, which permits the portfolio to absorb short-term market volatility and to recover from periodic downturns. This extended time horizon supports a higher allocation to growth-oriented asset classes, including equities and alternative investments, than would be appropriate for a trust with a fixed or short-term duration.
(b) Absence of Near-Term Liquidity Constraints. Beyond anticipated HEMS distributions and administrative expenses — which represent a modest percentage of total Trust assets — the Trust does not face significant near-term liquidity demands. The current beneficiaries are either employed professionals (Thomas and Olivia) or supported by a spouse's professional income (Katherine), and no beneficiary is currently dependent on Trust distributions for basic living expenses.
(c) Grantor's Expressed Preference. The Grantor, Jonathan R. Caldwell, has expressed a strong preference for a growth-oriented investment approach, consistent with his own investment philosophy developed over a career in private equity and alternative investments. While the Grantor's preferences are advisory rather than binding on the co-trustees, they are a relevant factor in establishing the Trust's risk profile.
(d) Willingness to Tolerate Volatility. The co-trustees acknowledge and accept that a growth-oriented investment strategy will result in periods of significant portfolio volatility, including potential short-term declines in portfolio value. Such volatility is an inherent characteristic of equity and alternative investment asset classes and is the expected cost of pursuing higher long-term returns.
Maximum Acceptable Drawdown. Under normal market conditions, the maximum acceptable peak-to-trough decline in portfolio value over any rolling twelve-month period is 25%. This threshold is intended as a guideline for evaluating the risk characteristics of the portfolio, not as a hard stop-loss trigger. In the event that the portfolio experiences a drawdown approaching or exceeding this threshold, the co-trustees and the investment advisor shall convene a special review to assess the causes of the decline, evaluate the portfolio's risk profile, and determine whether adjustments to the investment strategy are warranted.
B. Risk Constraints
The following specific risk constraints are established to manage the principal categories of investment risk:
Concentration Risk:
(a) No single publicly traded equity position shall exceed 5% of total Trust assets at cost at the time of acquisition. Positions that appreciate above this threshold due to market movements are not in violation of this constraint but should be monitored and considered for rebalancing.
(b) No single fixed-income issuer, other than the United States Treasury, shall represent more than 3% of total Trust assets at market value.
(c) Aggregate exposure to any single industry sector shall not exceed 20% of the equity allocation, as described more fully in Section VII.B.
Illiquidity Risk:
(d) Aggregate illiquid and alternative investments — including, without limitation, private equity, venture capital, hedge funds with lock-up provisions, direct real estate holdings, and limited partnership interests — shall not exceed 35% of total Trust assets at fair market value. The co-trustees and the investment advisor recognize that the receipt of GRAT remainder assets (particularly Stonecrest Realty Holdings LLC membership interests and Caldwell Ridgeline Capital fund interests) may cause the Trust to temporarily exceed this threshold. The Transition and Diversification Plan described in Section IX establishes a framework for reducing illiquid concentrations to within the permissible range over a defined timeline.
Currency Risk:
(e) Non-U.S. dollar-denominated investments shall not exceed 25% of total Trust assets at market value. This constraint is intended to limit the Trust's exposure to foreign currency fluctuations while permitting meaningful international diversification. Currency hedging may be employed at the discretion of the investment advisor to manage currency exposure within international equity and fixed-income allocations.
Leverage:
(f) No leverage shall be employed at the Trust level. The Trust shall not borrow funds, pledge Trust assets as collateral, or otherwise employ leverage in the management of the portfolio. This prohibition does not apply to leverage employed at the fund level by underlying investment vehicles (such as private equity funds, real estate funds, or hedge funds) in which the Trust invests, provided that such fund-level leverage is consistent with the governing documents of the applicable fund and is within industry norms for the relevant asset class.
Credit Risk:
(g) Fixed-income investments held directly by the Trust shall be limited to investment-grade securities, defined as securities rated BBB-/Baa3 or above by Standard & Poor's, Moody's, or Fitch at the time of purchase. Below-investment-grade (high-yield) allocations are permitted only within diversified high-yield bond funds, credit funds, or similar pooled investment vehicles managed by professional credit managers, and such allocations shall be capped at 10% of total Trust assets.
C. Fiduciary Standard
All investment decisions made by or on behalf of the Dynasty Trust are subject to the Delaware Prudent Investor Act, 12 Del. C. § 3302 et seq. The co-trustees are required to invest and manage Trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the Trust. This standard of care requires the co-trustees to exercise reasonable care, skill, and caution in making investment decisions.
The co-trustees may delegate investment management functions to Havensbrook Wealth Advisors LLC, as permitted under the delegation provisions of the Delaware Prudent Investor Act and the Trust Agreement. The delegation of investment management to Havensbrook does not relieve the co-trustees of their ultimate fiduciary responsibility for the oversight and monitoring of the Trust's investment program. The co-trustees retain the duty to:
(a) Select Havensbrook with reasonable care, skill, and caution;
(b) Establish the scope and terms of the delegation, as reflected in this IPS and the investment advisory agreement;
(c) Periodically review Havensbrook's actions and performance to monitor compliance with the terms of the delegation; and
(d) Take appropriate action if Havensbrook's performance or conduct is unsatisfactory or inconsistent with the terms of the delegation.
Havensbrook Wealth Advisors LLC, as the delegated investment manager, is subject to the same fiduciary standard of care in the exercise of the investment management functions delegated to it and owes a duty of care to the Trust and its beneficiaries.
V. ASSET ALLOCATION GUIDELINES
A. Strategic Asset Allocation
The following strategic asset allocation targets and permissible ranges have been established for the Dynasty Trust portfolio. These targets represent the long-term allocation that the co-trustees and the investment advisor believe is most likely to achieve the investment objectives described in Section III, subject to the risk constraints described in Section IV.
A graphical representation of the strategic asset allocation targets is set forth in Appendix A.
B. Notes on Asset Allocation
The strategic asset allocation targets set forth in the table above represent the long-term equilibrium allocation for the Dynasty Trust portfolio once the Trust is fully funded and diversified. The co-trustees and the investment advisor recognize that the Trust's actual allocation will deviate from these targets during certain periods, and the following considerations apply:
(a) Initial Funding Period. The Dynasty Trust was initially funded with $5,000,000 in cash on April 1, 2023. During the initial deployment of this cash into the portfolio, actual allocations will differ from strategic targets as positions are established. The investment advisor shall deploy the initial cash in a disciplined manner, investing in accordance with the strategic allocation targets and emphasizing liquid, publicly traded securities. The initial deployment is expected to be substantially completed within 90 days of funding.
(b) Transitional Period Following GRAT Remainder Receipts. The receipt of GRAT remainder assets — anticipated between 2025 and 2026 — will introduce significant new asset classes and concentrated positions into the portfolio. During the transitional period following each receipt, actual allocations may deviate materially from strategic targets. The Transition and Diversification Plan described in Section IX governs the management of these deviations.
(c) Real Estate Overweight. The real estate allocation may initially be significantly higher than the 10% target due to the anticipated receipt of Stonecrest Realty Holdings LLC membership interests from GRAT B. The Stonecrest membership interests represent a concentrated position in New York metropolitan area commercial and residential real estate. A managed diversification strategy, described in Section IX.C, will be implemented to reduce the real estate concentration to within the permissible range over a defined period.
(d) Private Equity Overweight. The private equity and venture capital allocation may initially include Caldwell Ridgeline Capital Fund IV, V, and VI interests received from GRAT C. These are legacy fund positions with defined fund life cycles, and their liquidity is governed by the terms of the respective fund partnership agreements. These positions will generally be held to natural maturity, with fund distributions reinvested in accordance with the strategic allocation targets. Secondary market sale opportunities will be evaluated on a case-by-case basis, as described in Section IX.D.
C. Rebalancing Policy
The Trust portfolio shall be reviewed on a quarterly basis by Havensbrook Wealth Advisors LLC and the co-trustees for the purpose of assessing whether the actual asset allocation remains within the permissible ranges established in Section V.A.
Rebalancing Triggers. Rebalancing shall be initiated when any asset class allocation deviates beyond its permissible range as set forth in the strategic asset allocation table. Rebalancing may also be initiated at the discretion of the investment advisor and the co-trustees when an asset class approaches the boundary of its permissible range and market conditions suggest that further drift is likely.
Rebalancing Methods. Rebalancing may be accomplished through one or more of the following methods, selected to minimize transaction costs and tax consequences:
(a) Directing new contributions to the Trust into underweight asset classes;
(b) Reinvesting income and capital gains distributions into underweight asset classes;
(c) Funding beneficiary distributions from overweight asset classes;
(d) Direct sales of overweight positions and reinvestment of proceeds into underweight asset classes; and
(e) Use of exchange-traded funds or other liquid instruments as temporary placeholders during transitions.
Tax Considerations. The tax implications of rebalancing transactions shall be carefully evaluated, particularly after the Trust transitions from grantor to non-grantor trust status upon the Grantor's death. During the grantor trust period, rebalancing transactions may be executed without regard to the Trust's tax liability, since all income and gains are reportable on the Grantor's personal tax return. After the Trust becomes a non-grantor trust, rebalancing transactions should be structured to minimize the realization of short-term capital gains and ordinary income at the trust level.
Documentation. All rebalancing decisions shall be documented in writing, including the rationale for the rebalancing action, the asset classes and positions affected, the rebalancing method employed, and any tax considerations taken into account. Documentation shall be maintained by Havensbrook Wealth Advisors LLC and provided to Northgate Trust Company of Delaware for inclusion in the official trust records.
VI. DIVERSIFICATION REQUIREMENTS
A. General Diversification Policy
Consistent with the Delaware Prudent Investor Act, the Trust portfolio must be diversified to reduce the risk of large losses, unless, under the circumstances, the co-trustees reasonably determine that the purposes of the Trust are better served without diversifying. The co-trustees and the investment advisor shall manage the portfolio with a view toward achieving meaningful diversification across and within asset classes, geographic regions, industry sectors, and individual issuers.
The co-trustees acknowledge that the Trust will hold certain initial concentrated positions that are inconsistent with the general diversification policy. Specifically, the receipt of GRAT remainder assets is expected to introduce substantial concentrated positions in Stonecrest Realty Holdings LLC membership interests and Caldwell Ridgeline Capital fund interests. These positions are acknowledged as necessary legacy holdings that arise from the Grantor's estate planning structure and that cannot be immediately diversified without unacceptable costs or market impact. The Transition and Diversification Plan set forth in Section IX governs the orderly reduction of these concentrations over a defined period.
The co-trustees have determined, based on consultation with the investment advisor and legal counsel, that the temporary retention of these concentrated positions during the transition period is consistent with the purposes of the Trust and the requirements of the Prudent Investor Act, provided that a written diversification plan is adopted and diligently implemented.
B. Concentration Limits
The following concentration limits apply to the Trust portfolio on an ongoing basis, subject to the transitional provisions described in Section IX:
(a) Single Public Equity Security. No single publicly traded equity security shall represent more than 5% of total Trust assets at cost at the time of acquisition. If a position exceeds 5% of total Trust assets at market value due to appreciation, the position shall be monitored and considered for reduction during the next quarterly rebalancing review.
(b) Single Fixed-Income Issuer. No single fixed-income issuer, other than the United States government (including U.S. Treasury securities and U.S. agency obligations backed by the full faith and credit of the United States), shall represent more than 3% of total Trust assets at market value.
(c) Industry Sector Exposure. Aggregate exposure to any single industry sector (as defined by the Global Industry Classification Standard, or GICS) shall not exceed 20% of the equity portfolio. For purposes of this limit, the equity portfolio includes U.S. large-cap, U.S. small/mid-cap, international developed, and emerging market equity allocations.
(d) Real Estate Geographic Concentration. Aggregate exposure to any single real estate market, defined by Metropolitan Statistical Area (MSA), shall not exceed 40% of the real estate allocation. The co-trustees acknowledge that the Stonecrest Realty Holdings LLC portfolio is concentrated in the New York metropolitan area, and that the Trust's real estate allocation will initially exceed this geographic concentration limit upon receipt of the GRAT B remainder. The diversification of this concentration is addressed in the Transition and Diversification Plan (Section IX.C).
C. Prohibited Investments
The following categories of investments are prohibited for the Dynasty Trust:
(a) Direct commodity futures or options, except to the extent that commodity exposure is obtained through diversified fund vehicles (such as commodity index funds or multi-asset real assets funds) that do not require the Trust to assume direct commodity trading positions.
(b) Speculative or highly leveraged derivative instruments at the Trust level, including, without limitation, naked options, uncovered short sales, and speculative forward contracts. This prohibition does not apply to the use of derivatives by underlying fund managers within pooled investment vehicles in which the Trust invests, provided that such derivative usage is consistent with the fund's governing documents and investment strategy.
(c) Investments that would generate unrelated business taxable income ("UBTI") in excess of amounts that can be managed under the Trust's tax planning framework. This consideration is particularly relevant after the termination of grantor trust status, when the Trust will be subject to trust-level taxation. The co-trustees and the investment advisor shall evaluate potential UBTI exposure before committing to any investment that involves debt-financed property or the conduct of an unrelated trade or business.
(d) Investments constituting acts of self-dealing or that would jeopardize the Trust's GST-exempt status, including any transaction that could be construed as an addition to the Trust from a non-exempt source or that could alter the Trust's inclusion ratio.
(e) Loans to or from any beneficiary, trustee, or disqualified person, whether or not secured, and regardless of whether the loan bears interest at a market rate.
VII. ROLES AND RESPONSIBILITIES
A. Family Co-Trustee — Thomas R. Caldwell
Thomas R. Caldwell serves as the family co-trustee of the Dynasty Trust. In this capacity, Thomas participates in the oversight of the Trust's investment program and brings to the co-trusteeship his knowledge of the Caldwell family's circumstances, values, and priorities. Thomas's principal responsibilities with respect to the investment management of the Trust include the following:
(a) Investment Oversight and Policy Review. Thomas participates in the development, review, and amendment of this IPS. He brings to the investment oversight process his professional experience in private equity and his understanding of alternative investment strategies. Thomas is responsible for ensuring that the investment strategy remains aligned with the needs and circumstances of the beneficiary class.
(b) Quarterly and Annual Report Review. Thomas reviews the quarterly investment performance reports and trust statements prepared by Havensbrook Wealth Advisors LLC and Northgate Trust Company of Delaware, respectively. Thomas participates in the annual comprehensive review described in Section XI.B.
(c) Family Circumstances and Distribution Planning. Thomas provides input regarding changes in family circumstances, beneficiary needs, and anticipated distribution requests that may affect the investment strategy or liquidity requirements of the Trust. As a member of the Distribution Committee, Thomas has direct knowledge of anticipated large distributions that may require advance liquidity planning.
(d) Investment Direction Limitations. Notwithstanding his role as co-trustee, Thomas does not have unilateral authority to direct specific investment trades or to override the investment decisions of Havensbrook Wealth Advisors LLC within the parameters established by this IPS. Day-to-day investment management authority, including security selection, trade execution, and manager selection, is delegated to Havensbrook, subject to the guidelines and constraints set forth in this IPS and the investment advisory agreement.
B. Institutional Co-Trustee — Northgate Trust Company of Delaware
Northgate Trust Company of Delaware serves as the institutional co-trustee of the Dynasty Trust. Philip A. Rossiter, Senior Vice President, Trust Administration, serves as the primary contact at Northgate for matters relating to the Dynasty Trust. Northgate's principal responsibilities include the following:
(a) Custody and Safekeeping. Northgate provides custody and safekeeping of all Trust assets, including publicly traded securities, cash and cash equivalents, and records of illiquid asset holdings. Northgate ensures that all assets are held in the name of the Trust and are properly safeguarded in accordance with applicable Delaware law and industry standards.
(b) Trust Accounting. Northgate maintains the official trust accounting records, including records of all receipts, disbursements, investment transactions, income, and principal allocations. Northgate prepares and distributes quarterly trust statements to the family co-trustee and the trust protector, and provides annual accounting statements in accordance with the Trust Agreement and applicable Delaware law.
(c) Fiduciary Compliance. Northgate ensures that all activities of the Trust, including investment management activities, comply with Delaware fiduciary law and the terms of the Trust Agreement. Northgate monitors Havensbrook Wealth Advisors LLC's adherence to this IPS and reports any material deviations to the family co-trustee and the trust protector.
(d) Transaction Review. Northgate reviews and approves all investment transactions for compliance with this IPS and the Trust Agreement before execution. In the event that a proposed transaction would violate any provision of this IPS or the Trust Agreement, Northgate shall decline to execute or settle the transaction and shall promptly notify the family co-trustee and the investment advisor.
(e) Legal Coordination. Northgate coordinates with outside Delaware fiduciary counsel at Ridgewell & Thorn LLP (Margaret A. Colvin, Esq.) on Delaware fiduciary matters as needed, including questions of trustee duty, delegation, and compliance with the Prudent Investor Act.
C. Investment Advisor — Havensbrook Wealth Advisors LLC
Havensbrook Wealth Advisors LLC serves as the investment advisor to the Dynasty Trust. Diana R. Linden, CFP®, Managing Director, Family Office Services, serves as the lead advisor for the Trust account. Havensbrook is retained as a discretionary investment manager within the parameters established by this IPS and the investment advisory agreement between the Dynasty Trust and Havensbrook. Havensbrook's principal responsibilities include the following:
(a) Day-to-Day Investment Management. Havensbrook is responsible for all day-to-day investment decisions, including security selection, portfolio construction, manager selection for sub-advised strategies and pooled investment vehicles, asset allocation implementation, and trade execution. All investment decisions must be made within the parameters established by this IPS.
(b) Quarterly Performance Reporting. Havensbrook provides written quarterly investment performance reports to the co-trustees and the trust protector within thirty (30) days of each calendar quarter-end. Quarterly reports are described in detail in Section XI.A.
(c) Annual Comprehensive Review. Havensbrook prepares and presents an annual comprehensive portfolio review, including IPS compliance certification, as described in Section XI.B.
(d) Strategy Recommendations. Havensbrook recommends changes to asset allocation, IPS guidelines, manager lineup, or other elements of the investment program as appropriate based on changes in market conditions, beneficiary circumstances, or other relevant factors. All recommendations are subject to approval by the co-trustees.
(e) Tax Coordination. Havensbrook coordinates with the Trust's accounting firm, Strathmore Corporation & Greaves LLP (Martin J. Prescott, CPA), on tax-related investment considerations, including income tax planning for the Trust. This coordination is particularly important in anticipation of the Trust's transition from grantor to non-grantor trust status upon the Grantor's death, and in connection with ongoing tax-efficient investment management thereafter.
(f) Compensation. Havensbrook's compensation consists of advisory fees as set forth in the investment advisory agreement between the Dynasty Trust and Havensbrook. The fee schedule is reviewed annually by the co-trustees and is subject to negotiation and amendment by mutual agreement. A summary of the current fee schedule is set forth in Appendix D.
D. Trust Protector — Victoria Chambers
Victoria Chambers, a partner at Calderwood & Harkness LLP, serves as the Trust Protector of the Dynasty Trust. The Trust Protector serves in a non-fiduciary capacity as defined in the Trust Agreement. The Trust Protector's principal powers and responsibilities relevant to this IPS include:
(a) Modification of Administrative Provisions. The Trust Protector has the power to modify the administrative provisions of the Trust Agreement, including this IPS, upon recommendation of the co-trustees or the investment advisor. Any such modification must be documented in writing and maintained in the trust records.
(b) Power to Change Situs. The Trust Protector has the power to change the situs of the Trust from Delaware to another jurisdiction, which could have significant implications for the investment strategy, tax treatment, and administrative framework of the Trust.
(c) Removal and Appointment of Fiduciaries. The Trust Protector has the power to remove and appoint trustees and investment advisors, providing a mechanism for the independent oversight and succession of the Trust's fiduciary structure.
(d) Receipt of Reports. The Trust Protector receives copies of quarterly trust statements and annual performance reviews. The Trust Protector is not involved in day-to-day investment decisions and does not exercise investment management authority.
E. Distribution Committee
The Distribution Committee of the Dynasty Trust is composed of Thomas R. Caldwell, Katherine C. Hartfield, and Olivia G. Caldwell. The Distribution Committee serves the following role in connection with the Trust's investment management:
(a) Discretionary Distribution Approval. The Distribution Committee approves discretionary distributions exceeding One Hundred Thousand Dollars ($100,000) per beneficiary per calendar year. Such approval requires the unanimous consent of all three members of the Distribution Committee.
(b) Advance Notification. To ensure adequate liquidity planning, the investment advisor and the institutional co-trustee shall be notified in advance of anticipated large distributions. The Distribution Committee members are encouraged to provide at least ninety (90) days' advance notice of anticipated distribution requests exceeding $100,000 to allow for orderly liquidation of portfolio positions if necessary.
VIII. TRANSITION AND DIVERSIFICATION PLAN
The Dynasty Trust's portfolio will evolve significantly over the coming years as GRAT remainder assets are received. This Section VIII establishes a structured plan for the transition from the initial cash-funded portfolio to a fully diversified portfolio consistent with the strategic asset allocation targets described in Section V.
A. Phase 1 — Initial Cash Funding (April 2023)
The Dynasty Trust was initially funded on April 1, 2023, with a cash contribution of Five Million Dollars ($5,000,000) from the Grantor. During Phase 1, the investment advisor shall deploy this initial cash in accordance with the following guidelines:
(a) Deployment Strategy. The initial cash shall be invested in line with the strategic asset allocation targets set forth in Section V.A, with emphasis on liquid, publicly traded securities and investment-grade fixed-income instruments. The deployment should be completed in a disciplined manner over a period of approximately sixty (60) to ninety (90) days, utilizing dollar-cost averaging or similar techniques to mitigate timing risk where appropriate.
(b) Cash Reserve. During the initial deployment phase, the investment advisor shall maintain a minimum cash reserve of $500,000 (10% of the initial funding) for Trust expenses, potential early distributions, and unforeseen liquidity needs. This cash reserve may be invested in money market funds, short-term U.S. Treasury securities, or other highly liquid, low-risk instruments.
(c) Portfolio Construction. Given the relatively modest initial funding amount relative to the anticipated total Trust size following GRAT remainder receipts, the initial portfolio construction should prioritize diversification, liquidity, and cost efficiency. The use of index funds, exchange-traded funds, and other low-cost diversified vehicles is appropriate during this phase.
B. Phase 2 — Receipt of GRAT A Remainder (Expected 2025)
GRAT A — the Caldwell 2023 Securities GRAT — was funded on April 15, 2023, with Sixty Million Dollars ($60,000,000) in publicly traded securities. GRAT A has a two-year annuity term with annual annuity payments of approximately $32,195,122 per year. The GRAT A remainder interest is expected to transfer to the Dynasty Trust on or after April 15, 2025, upon the termination of the annuity term.
The remainder transferred to the Dynasty Trust from GRAT A will consist of the excess appreciation of the GRAT A assets above the Section 7520 hurdle rate of approximately 5.0% over the two-year term. The actual amount of the remainder will depend on the investment performance of the GRAT A portfolio during the annuity term.
(a) Nature of Assets. The assets received from GRAT A are expected to consist of publicly traded securities, which are liquid and readily marketable.
(b) Integration. Upon receipt, the GRAT A remainder assets shall be integrated into the existing Dynasty Trust portfolio. The investment advisor shall evaluate the composition of the received securities and implement rebalancing as needed to bring the overall portfolio into alignment with the strategic asset allocation targets.
(c) Concentrated Positions. To the extent that any individual security position received from GRAT A represents a concentration exceeding the limits set forth in Section VI.B, the investment advisor shall implement a diversification plan to reduce such concentration within six to twelve months of receipt, taking into account market conditions, transaction costs, and (during the grantor trust period) the absence of trust-level tax consequences.
C. Phase 3 — Receipt of GRAT B Remainder (Expected 2026)
GRAT B — the Caldwell 2023 Realty GRAT — was funded on May 1, 2023, with Eighty Million Dollars ($80,000,000) in membership interests in Stonecrest Realty Holdings LLC, representing approximately 59.7% of the outstanding membership interests in Stonecrest. GRAT B has a three-year annuity term with annual annuity payments of approximately $29,375,859 per year. The GRAT B remainder interest is expected to transfer to the Dynasty Trust on or after May 1, 2026.
Stonecrest Realty Holdings LLC is a Delaware limited liability company that owns and manages a portfolio of eleven (11) commercial and residential real estate properties located in the New York metropolitan area. The entity-level value of Stonecrest is approximately $134,000,000 as of the date of this IPS. The Stonecrest membership interests are illiquid, are not publicly traded, and are subject to transfer restrictions under Stonecrest's operating agreement.