1. The 7Twelve ® Portfolio Craig L. Israelsen, Ph.D. 2013 www.7TwelvePortfolio.com 1

2. This document is a research report presenting portfolio research and analysis. This document is neither investment advice nor an investment solicitation. Implementation of the 7Twelve portfolio is no guarantee of performance. --------------------------------------------------------------------------------------------- This is a copyrighted document, copying for redistribution is prohibited unless written permission is obtained from Craig L. Israelsen The term 7Twelve ® is a registered trademark belonging to Craig L. Israelsen Copyright © 2008-2013 Craig L. Israelsen All rights reserved www.7TwelvePortfolio.com2

3. Overview ► Part One provides a historical context of the benefits of a multi-asset, low correlation portfolio. 43-year history (1970-2012) ► Part Two introduces the 7Twelve Portfolio, a multi-asset, low correlation balanced portfolio. 15-year history (1998-2012) www.7TwelvePortfolio.com3

4. Part One: 43-year Asset Class Review www.7TwelvePortfolio.com4

5. 43-Year Historical Asset Returns 43-Year Period from 1970-2012 Annualized Return (%) Std Dev of Annual Returns Growth of $10,000 Real Estate 11.5119.421,081,237 US Small Stock 10.7521.99807,255 US Large Stock 9.9417.55588,540 Commodities 9.4724.49489,280 International Stock 9.0622.50417,147 Bonds (Aggregate) 8.186.53293,874 Cash 5.593.48103,692 Inflation (CPI) 4.293.0660,980 www.7TwelvePortfolio.com5

6. Data Large-cap US equity represented by the S&P 500 Index. Small-cap US equity represented by the Ibbotson Small Companies Index from 1970- 1978, and the Russell 2000 Index starting in 1979. Non-US equity represented by the MSCI EAFE Index. Real estate represented by the NAREIT Index from 1970-1977 and the Dow Jones US Select REIT Index starting in 1978. Commodities represented by the Goldman Sachs Commodities Index (GSCI). As of February 6, 2007, the GSCI became the S&P GSCI Commodity Index. U.S. Aggregate Bonds represented by the Ibbotson Intermediate Term Bond Index from 1970-75 and the Barclays Capital Aggregate Bond index starting in 1976. Cash represented by 3-month Treasury Bills. www.7TwelvePortfolio.com6

7. 43-year Historical Upside and Downside 43-Year Period from 1970-2012 Largest One-Year Gain (%) Worst One-Year Loss (%) Worst 3-Year Cumulative Return (%) Bonds 32.6(2.9)6.15 Cash 15.60.060.28 REIT 49.0(39.2)*(35.6) US Large Stock 37.6(37.0)*(37.6) Commodities 74.9(46.5)*(39.7) US Small Stock 57.4(33.8)*(42.2) International Stock 69.4(43.4)*(43.3) www.7TwelvePortfolio.com * Worst One-Year Loss Occurred in 2008 7

8. www.7TwelvePortfolio.com8

9. 9 Ideal Risk & Return “Zone”

10. To be diversified, a portfolio must combine multiple ingredients that have low correlation with each other. www.7TwelvePortfolio.com10

11. 43-Year Correlations of Major Asset Classes (1970-2012) Large US Equity Small US Equity Non-US Equity US Bonds CashREIT Small US Equity 0.78 Non-US Equity 0.660.55 US Bonds 0.250.11-0.01 Cash 0.090.05-0.010.26 REIT 0.510.750.370.050.06 Commodities -0.06-0.140.04-0.130.13-0.04 Aggregate (Average) Correlation in Equal-Weighted 7-Asset Portfolio = 0.20 www.7TwelvePortfolio.com11

12. Rolling 10-Year Correlations Using S&P 500 as comparison baseline index www.7TwelvePortfolio.com12

13. Large and Small US Stock www.7TwelvePortfolio.com13

14. US Stock and Non-US Stock www.7TwelvePortfolio.com14

15. US Stock and REITs www.7TwelvePortfolio.com15

16. US Stock and Commodities www.7TwelvePortfolio.com16

17. US Stock and US Bonds www.7TwelvePortfolio.com17

18. US Stock and Cash www.7TwelvePortfolio.com18

19. Meaningful portfolio diversification requires Depth and Breadth Mutual Funds/ETFs = Depth Wide variety of funds = Breadth www.7TwelvePortfolio.com19

20. The following slide demonstrates portfolio performance as diversity (or breadth) increases. www.7TwelvePortfolio.com20

21. www.7TwelvePortfolio.com21

22. When built correctly, a multi-asset portfolio achieves equity-like returns with bond-like risk www.7TwelvePortfolio.com22

23. Year Large US Equity Small US Equity Non-US Equity Aggregate US Bonds CashReal EstateCommodities Equally Weighted Multi- Asset Portfolio 1970 3.92(17.43)(11.66)16.866.80(4.00)15.171.38 1971 14.3016.5029.598.724.5315.5221.0815.75 1972 19.004.4336.355.164.248.0142.4317.09 1973 (14.69)(30.90)(14.92)4.617.46(15.52)74.961.57 1974 (26.47)(19.95)(23.16)5.698.35(21.40)39.51(5.35) 1975 37.2352.8235.397.836.0819.30(17.22)20.20 1976 23.9357.382.5415.605.2347.59(11.92)20.05 1977 (7.16)25.3818.063.045.5222.4210.3711.09 1978 6.5723.4632.621.397.6710.9831.6116.33 1979 18.6143.074.751.9310.8648.9933.8123.15 1980 32.5038.6022.582.7112.7133.1211.0821.90 1981 (4.92)2.03(2.28)6.2515.5817.88(23.01)1.65 1982 21.5524.95(1.86)32.6211.6620.9111.5617.34 1983 22.5629.1323.698.369.2432.1716.2620.20 1984 6.27(7.30)7.3815.1510.3321.891.057.82 1985 31.7331.0556.1622.107.976.5010.0123.65 1986 18.675.6869.4415.276.2919.752.0519.59 1987 5.25(8.80)24.632.766.13(6.59)23.776.74 1988 16.6125.0228.277.897.0617.4827.9418.61 1989 31.6916.2610.5414.538.672.7238.2817.53 1990 (3.10)(19.48)(23.45)8.967.99(23.44)29.08(3.35) www.7TwelvePortfolio.com

24. Year Large US Equity Small US Equity Non-US Equity Aggregate US Bonds CashReal EstateCommodities Equally Weighted Multi- Asset Portfolio 1991 30.4746.0412.1316.005.6823.84(6.13)18.29 1992 7.6218.41(12.17)7.403.5915.134.426.34 1993 10.0818.8832.569.753.1215.14(12.33)11.03 1994 1.32(1.82)7.78(2.92)4.452.665.292.39 1995 37.5828.4511.2118.485.7912.2420.3319.15 1996 22.9616.496.053.635.2637.0533.9217.91 1997 33.3622.361.789.665.3119.66(14.07)11.15 1998 28.58(2.55)20.008.695.02(17.01)(35.75)1.00 1999 21.0421.2626.97(0.82)4.87(2.58)40.9215.95 2000 (9.10)(3.02)(14.17)11.636.3231.0449.7410.35 2001 (11.89)2.49(21.44)8.443.6712.35(31.93)(5.47) 2002 (22.10)(20.48)(15.94)10.261.683.5832.07(1.56) 2003 28.6947.2538.594.101.0536.1820.7225.23 2004 10.8818.3320.254.341.4333.1617.2815.10 2005 4.914.5513.542.433.3413.8225.559.73 2006 15.7918.3726.344.335.0735.97(15.09)12.97 2007 5.49(1.57)11.176.974.77(17.56)32.675.99 2008 (37.00)(33.79)(43.38)5.241.51(39.20)(46.49)(27.59) 2009 26.4627.1731.785.930.1628.4613.4919.06 2010 15.0626.867.756.540.1428.079.0313.35 2011 2.11(4.18)(12.14)7.840.069.37(1.18)0.27 2012 16.0016.3517.324.220.0817.120.0810.17 www.7TwelvePortfolio.com

25. Single Assets vs. Multi-Asset Portfolio 1970-2012 Large US Equity Small US Equity Non-US Equity US Bonds Cash Real Estate Commodities Equally Weighted 7-Asset Portfolio 43-Year Average Annualized % Return 9.9410.759.068.185.5911.519.4710.26 43-Year Standard Deviation of Annual Returns 17.5521.9922.506.533.4819.4224.4910.34 Growth of $10,000 588,540807,255417,147293,874103,6921,081,237489,280667,357 Number of Years with Negative Returns 91312209115 Worst One-Year % Return (37.00)(33.79)(43.38)(2.92)0.06(39.20)(46.49)(27.59) Worst Three-Year Cumulative % Return (37.61)(42.24)(43.32)6.150.28(35.61)(39.72)(13.30) www.7TwelvePortfolio.com 25

26. www.7TwelvePortfolio.com 26

27. www.7TwelvePortfolio.com27

28. www.7TwelvePortfolio.com28 RISK: Investors incorrectly benchmark a multi-asset portfolio against the S&P 500 Index

29. www.7TwelvePortfolio.com29 S&P 500 Index outperformed multi-asset portfolio 53% of the time (23 years out of 43 years)

30. www.7TwelvePortfolio.com30

31. Key to Long-Term Success Reducing the frequency and magnitude of losses www.7TwelvePortfolio.com31

32. The Math of Losses Needed % Gain = [1 / (1 – % Loss)] – 1 Percentage Loss in Portfolio Portfolios Needed Percentage Gain to Restore Portfolio -5%5.3% -10%11.1% -15%17.6% -20%25.0% -27%Multi-Asset Portfolio37.0% -30%42.9% -35%53.8% -37%S&P 500 Index58.7% -40%66.7% -45%81.8% -50% 141 equity funds lost 50% or more in 2008 (funds with at least 60% equity) 100.0% -55%122.2% -60%150.0% -65%185.7% -70%233.3% -75%300.0% www.7TwelvePortfolio.com32

33. www.7TwelvePortfolio.com33

34. Performance of Multi-Asset Portfolio During Post-Retirement Distribution Phase www.7TwelvePortfolio.com34

35. Starting Year Ending Year 100% Bond Portfolio 60% US Stock/ 40% Bond Portfolio Multi-Asset Portfolio 19701994 822,1911,090,1072,112,645 19711995 720,7981,311,0102,746,880 19721996 684,3401,293,1372,727,621 19731997 766,7581,312,6802,482,220 19741998 862,5572,283,4242,715,091 19751999 855,5783,911,5193,810,758 19762000 905,6962,816,2663,402,765 19772001 767,0242,073,6212,588,633 19782002 908,1822,242,4232,332,968 19792003 1,046,4072,719,9642,475,519 19802004 1,179,3142,661,9492,170,663 19812005 1,273,1432,187,6611,816,134 19822006 1,305,0252,691,1372,205,756 19832007 866,3362,111,1231,926,619 19842008 853,1831,397,7201,079,017 19852009 731,7591,531,8511,225,871 19862010 524,5231,183,829999,055 19872011 423,921986,426745,506 19882012 476,5161,121,184794,669 Average Ending Balance 840,6971,943,5282,124,126 www.7TwelvePortfolio.com Retirement Distribution Portfolio Ending Account Balances (1970-2012) $250,000 starting balance, 5% initial withdrawal, 3% annual increase in withdrawal Total amount withdrawn over each 25-year period = $455,741 35 $180,598 higher average

36. Part Two: 7Twelve Portfolio model www.7TwelvePortfolio.com36

37. Building a Multi-Asset Low Correlation Portfolio The 7Twelve ® Portfolio 7 Core Asset Classes utilizing 12 Underlying Funds www.7TwelvePortfolio.com37

38. 7Twelve ® A Multi-Asset Balanced Investment Strategy www.7TwelvePortfolio.com 38 Eight Equity and Diversifying Funds 65% of Overall Portfolio Allocation Four Fixed Income Funds 35% of Overall Portfolio Allocation US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash

39. www.7TwelvePortfolio.com39 7Twelve All 12 funds are equally weighted in the “core” model

40. Old vs. New www.7TwelvePortfolio.com 7Twelve A Multi-Asset Balanced Strategy 40

41. Total % Return (Assuming annual rebalancing) Active 7Twelve Portfolio Passive 7Twelve Portfolio Vanguard Balanced Index Vanguard 500 Index 200328.8427.0919.8728.50 200419.8617.769.3310.74 200513.1612.174.654.77 200616.3615.1511.0215.64 200713.7911.316.165.39 2008(28.22)(24.62)(22.21)(37.02) 200932.4524.9020.0526.49 201014.5214.5013.1314.91 2011(6.30)(1.01)4.141.97 201212.4410.8511.3215.83 3-Year Ave Annualized % Return (2010-2012) 6.467.919.4610.72 5-Year Ave Annualized % Return (2008-2012) 2.783.424.141.57 10-Year Ave Annualized % Return (2003-2012) 10.259.797.076.99 10-Year Standard Deviation of Monthly Returns (2003-2012) 13.112.69.314.8 Annual % Expense Ratio 0.660.290.240.17 www.7TwelvePortfolio.com 41 7Twelve Annual Returns

42. 7Twelve 10-year Growth of $10,000 www.7TwelvePortfolio.com 42

43. Calendar Year Performance of Passive 7Twelve Core Model 12 Equally Weighted Funds 7Twelve Age-Based 50-60 80% 7Twelve 10% TIPS 10% Cash 7Twelve Age-Based 60-70 60% 7Twelve 20% TIPS 20% Cash 7Twelve Age-Based 70 Plus 40% 7Twelve 30% TIPS 30% Cash Vanguard Balanced Index 60% US Stock 40% US Bonds Investor Profile  (Under age 50)(Age 50-60)(Age 60-70)(Over age 70)??? 2003 27.0922.5818.0713.56 19.87 2004 17.7615.1512.549.93 9.33 2005 12.1710.298.426.55 4.65 2006 15.1512.6310.117.58 11.02 2007 11.3110.7510.209.65 6.16 2008 (24.62)(19.47)(14.32)(9.18) (22.21) 2009 24.9020.8716.8412.80 20.05 2010 14.5012.229.947.66 13.13 2011 (1.01)0.532.063.59 4.14 2012 10.859.327.796.27 11.32 10 Year Annualized Return (2003-2012) 9.798.837.786.667.07 7Twelve Age-Based Models

44. 15-Year Distribution Analysis: 1998-2012 $250,000 Initial Account Value on Jan 1, 1998, 5% Initial Withdrawal, 3% Annual Increase in Annual Withdrawal www.7TwelvePortfolio.com 44

45. New “Age-Based” Allocations as of July 2013 7Twelve Core Model 7Twelve Age-Based 50-60 7Twelve Age-Based 60-70 7Twelve Age-Based 70Plus Asset Class7Twelve Age-Based Portfolio Allocation Large US Stock 8.33%6.67%5.00%3.33% Mid Cap US Stock 8.33%6.67%5.00%3.33% Small US Stock 8.33%6.67%5.00%3.33% Non-US Stock 8.33%6.67%5.00%3.33% Emerging Markets 8.33%6.67%5.00%3.33% Real Estate 8.33%6.67%5.00%3.33% Natural Resources 8.33%6.67%5.00%3.33% Commodities 8.33%6.67%5.00%3.33% US Bonds 8.33%6.67%5.00%3.33% Inflation Protected Bonds 8.33%6.67%5.00%3.33% International Bonds 8.33%6.67%5.00%3.33% Cash 8.33%26.67%45.00%63.33% www.7TwelvePortfolio.com45

46. Old & New “Age-Based” Allocations 15-Year Performance Comparison (1998-2012) www.7TwelvePortfolio.com46 7Twelve 50-60 7Twelve 60-70 7Twelve 70+ Old Model (Cash & TIPS overweighted) 7.48%6.94%6.34% New Model (Only Cash overweighted) 7.04%6.06%5.01%

47. Rebalancing the 7Twelve Portfolio as of December 31, 2012 www.7TwelvePortfolio.com47

48. 7Twelve Rebalancing Comparison 10-Year Annualized % Returns as of December 31, 2012 2003-2012 www.7TwelvePortfolio.com 48

49. 15 Calendar Year Total Returns Active 7Twelve Passive 7Twelve Vanguard 7Twelve T. Rowe Price 7Twelve Fidelity 7Twelve Tax Efficient 7Twelve DFA 7Twelve 19980.092.373.880.03(5.50)1.720.03 199917.0716.0214.9219.3223.4315.9617.34 200011.726.774.225.109.156.698.41 20013.13(1.66)0.56(2.41)0.57(2.74)1.04 20022.26(0.78)0.16(1.57)(0.02)(1.05)(0.41) 200328.8427.0929.8226.5727.0527.1028.04 200419.8617.7615.1417.7118.3318.1218.22 200513.1612.1710.6812.4917.9512.3813.54 200616.3615.1517.4414.2316.0814.9716.06 200713.7911.3111.1813.8213.5311.539.48 2008(28.22)(24.62)(27.97)(27.87)(30.63)(25.94)(24.90) 200932.4524.9031.7931.5832.0125.5124.32 201014.5214.5016.6015.2415.1114.1815.58 2011(6.30)(1.01)(2.80)(1.16)(3.37)(0.42)(2.07) 201212.4410.8510.5310.6013.0310.5811.30 3-Year Annualized Return 6.467.917.808.007.927.938.00 5-Year Annualized Return 2.783.423.533.642.863.173.30 10-Year Annualized Return 10.259.799.8910.0510.409.729.89 15-Year Annualized Return 9.047.958.117.938.597.758.26 49

51. For more information about the 7Twelve portfolio please visit www.7TwelvePortfolio.com To purchase 7Twelve Portfolio Research Reports click below: http://www.7twelveportfolio.com/Downloads/Web7TwelveReport.pdf www.7TwelvePortfolio.com51

52. Craig L. Israelsen, Ph.D. Email: craig@7TwelvePortfolio.com craig@7TwelvePortfolio.com Web: www.7TwelvePortfolio.comwww.7TwelvePortfolio.com The 7Twelve ® Portfolio 52

53. Fixed Income: What to Do Going Forward? www.7TwelvePortfolio.com53

54. Historical Performance of US Bonds www.7TwelvePortfolio.com54

55. Bond Performance in a Portfolio Context Portfolio Period of Rising Interest Rates 34-Year Period from 1948 to 1981 Period of Declining Interest Rates 31-Year Period from 1982 to 2012 1-Asset Portfolio 100% US Bonds 3.83% Annualized Return 4.32% Standard Deviation 8.82% Annualized Return 6.99% Standard Deviation 2-Asset Portfolio 60% Large US Stock 40% Bonds 4-Asset Portfolio 40% Large US stock 20% Small US Stock 30% Bonds 10% Cash www.7TwelvePortfolio.com55

56. Bond Performance in a Portfolio Context Portfolio Period of Rising Interest Rates 34-Year Period from 1948 to 1981 Period of Declining Interest Rates 31-Year Period from 1982 to 2012 1-Asset Portfolio 100% US Bonds 3.83% Annualized Return 4.32% Standard Deviation 8.82% Annualized Return 6.99% Standard Deviation 2-Asset Portfolio 60% Large US Stock 40% Bonds 8.52% Annualized Return 10.49% Standard Deviation 10.56% Annualized Return 11.33% Standard Deviation 4-Asset Portfolio 40% Large US stock 20% Small US Stock 30% Bonds 10% Cash www.7TwelvePortfolio.com56

57. Bond Performance in a Portfolio Context Portfolio Period of Rising Interest Rates 34-Year Period from 1948 to 1981 Period of Declining Interest Rates 31-Year Period from 1982 to 2012 1-Asset Portfolio 100% US Bonds 3.83% Annualized Return 4.32% Standard Deviation 8.82% Annualized Return 6.99% Standard Deviation 2-Asset Portfolio 60% Large US Stock 40% Bonds 8.52% Annualized Return 10.49% Standard Deviation 10.56% Annualized Return 11.33% Standard Deviation 4-Asset Portfolio 40% Large US stock 20% Small US Stock 30% Bonds 10% Cash 9.52% Annualized Return 11.80% Standard Deviation 9.99% Annualized Return 10.98% Standard Deviation www.7TwelvePortfolio.com57

58. Bond Performance in 7Twelve Portfolio Time Period Description of US Bond Performance 10-Year Annualized % Return of US Bonds 10-Year Annualized % Return of 12-Asset Portfolio Growth of $10,000 in a Diversified Portfolio 2003-2012 Actual Performance 5.169.7925,455 2003-2012 (US bond returns from 1950-1959) Worst-case Performance 1.349.4424,654 2003-2012 (US bond returns from 1982-1991) Best-case Performance 14.0910.4827,099 Difference between Worst-case and Best-case Bond Performance 1,275 bps104 bps2,445 www.7TwelvePortfolio.com58