1. The 7Twelve TM Portfolio Craig L. Israelsen, Ph.D. 2012 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 TM is a registered trademark belonging to Craig L. Israelsen Copyright © 2008-2012 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. 42-year history (1970-2011) ► Part Two introduces the 7Twelve Portfolio, a multi-asset, low correlation balanced portfolio. 10-year history (2002-2011). www.7TwelvePortfolio.com3

4. Part One www.7TwelvePortfolio.com4

5. 42-Year Historical Asset Returns 42-Year Period from 1970-2011 Annualized Return (%) Std Dev of Annual Returns Growth of $10,000 Real Estate 11.3819.65923,187 US Small Stock 10.6222.25693,816 US Large Stock 9.8017.75507,362 Commodities 9.7024.71488,889 International Stock 8.8722.76355,563 Bonds (Aggregate) 8.286.57281,975 Cash 5.723.41103,609 Inflation (CPI) 4.363.0760,038 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. 42-year Historical Upside and Downside 42-Year Period from 1970-2011 Largest One-Year Gain (%) Worst One-Year Loss (%) Worst 3-Year Cumulative Return (%) Bonds 32.6(2.9)6.15 Cash 15.60.060.36 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

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

11. 42-Year Correlations of Major Asset Classes (1970-2011) 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 0.260.110.00 Cash 0.110.060.000.25 REIT 0.510.750.370.050.07 Commodities -0.06-0.140.04-0.140.11-0.04 Aggregate (Average) Correlation in Equal-Weighted 7-Asset Portfolio = 0.21 www.7TwelvePortfolio.com11

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

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

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

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28. Annual Performance Individual Assets vs. Multi-Asset Portfolio www.7TwelvePortfolio.com28

29. 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

30. 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 www.7TwelvePortfolio.com

31. When built correctly, a multi-asset portfolio achieves equity-like returns with bond-like risk www.7TwelvePortfolio.com31

32. Single Assets vs. Multi-Asset Portfolio 1970-2011 Large US Equity Small US Equity Non-US Equity US Bonds Cash Real Estate Commodities Equally Weighted 7-Asset Portfolio 42-Year Average Annualized % Return 9.8010.628.878.285.7211.389.7010.26 42-Year Standard Deviation of Annual Returns 17.7522.2522.766.573.4119.6524.7110.47 Growth of $10,000 507,362693,816355,563281,975103,609923,187488,889605,768 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)6.150.36(35.61)(39.72)(13.30) www.7TwelvePortfolio.com 32

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35. Comparison of Portfolios During Accumulation Phase Typical 60/40 Balanced Fund vs. Multi-Asset Portfolio www.7TwelvePortfolio.com35

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37. Performance of Multi-Asset Portfolio During Post-Retirement Distribution Phase www.7TwelvePortfolio.com37

38. 42-Year Analysis of Retirement Distribution Portfolios (1970-2011) $250,000 starting balance, 5% initial withdrawal, 3% annual increase in withdrawal Total amount withdrawn over each 25-year period = $455,741 www.7TwelvePortfolio.com38

39. 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 Average Ending Balance860,9301,989,2142,197,984 www.7TwelvePortfolio.com Retirement Distribution Portfolio Ending Account Balances (1970-2011) $250,000 starting balance, 5% initial withdrawal, 3% annual increase in withdrawal Total amount withdrawn over each 25-year period = $455,741 39

40. Part Two www.7TwelvePortfolio.com40

41. Building a Multi-Asset Low Correlation Portfolio The 7Twelve TM Portfolio 7 Core Asset Classes utilizing 12 Underlying Funds www.7TwelvePortfolio.com41

42. 7Twelve A Multi-Asset Balanced Investment Strategy www.7TwelvePortfolio.com 42 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

43. www.7TwelvePortfolio.com43 7Twelve All 12 funds are equally weighted in the “core” model

44. “…the more simple any thing is, the less liable it is to be disordered…”. “Common Sense” by Thomas Paine, February 1776 www.7TwelvePortfolio.com44

45. Correlation of 7Twelve Ingredients 10-year Aggregate Correlation = 0.38 Using monthly returns from 2002-2011 www.7TwelvePortfolio.com Mid US Small US Non-US Developed Non-US Emerging Global Real Estate Natural Resources Commodities US Aggregate Bonds Inflation Protected Bonds Non-US Bonds Cash Large US 0.940.90 0.840.720.730.43(0.11)0.080.28(0.09) Mid US 0.950.860.850.76 0.48(0.13)0.100.24(0.11) Small US 0.840.790.830.680.40(0.10)0.070.27(0.12) Non-US Developed 0.890.710.760.520.030.190.52(0.03) Non-US Emerging 0.630.800.58(0.03)0.180.390.00 Global Real Estate 0.480.340.080.230.39(0.12) Natural Resources 0.75(0.10)0.190.30(0.01) Commodities (0.06)0.330.380.01 US Aggregate Bonds 0.730.560.01 Inflation Protected Bonds 0.61(0.06) Non-US Bonds (0.02) 45

46. Old vs. New www.7TwelvePortfolio.com 7Twelve A Multi-Asset Balanced Strategy 46

47. Total % Return (Assuming annual rebalancing) Active 7Twelve Portfolio Passive 7Twelve Portfolio Vanguard Balanced Index Vanguard 500 Index 20022.26(0.78)(9.52)(22.15) 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)(24.61)(22.21)(37.02) 200932.4524.9120.0626.49 201014.5214.5013.1214.91 2011(6.30)(1.18)4.141.98 3-Year Ave Annualized % Return (2009-2011) 12.4312.2212.2514.02 5-Year Ave Annualized % Return (2007-2011) 3.033.473.16(0.32) 10-Year Ave Annualized % Return (2002-2011) 9.218.574.872.82 10-Year Standard Deviation of Monthly Returns 13.1612.689.8115.92 Annual % Expense Ratio 0.680.310.260.17 www.7TwelvePortfolio.com 47 7Twelve Annual Returns

48. 7Twelve 10-year Growth of $10,000 www.7TwelvePortfolio.com 48

49. 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)??? 2002 (0.78)1.173.135.08 (9.52) 2003 27.0922.5818.0713.56 19.87 2004 17.7615.1512.549.93 9.33 2005 12.1710.308.436.56 4.65 2006 15.1512.6310.117.58 11.02 2007 11.3110.7510.209.65 6.16 2008 (24.61)(19.46)(14.32)(9.17) (22.21) 2009 24.9120.8716.8412.81 20.06 2010 14.5012.229.947.66 13.12 2011 (1.18)0.391.963.53 4.14 10 Year Annualized Return (2002-2011) 8.577.987.306.534.87 7Twelve Age-Based Models

50. Distribution 7Twelve Portfolio $250,000 Initial Account Value on Jan 1, 2002, 5% Initial Withdrawal, 3% Annual Increase in Annual Withdrawal www.7TwelvePortfolio.com 50

51. Importance of Rebalancing www.7TwelvePortfolio.com Rebalancing the 7Twelve Portfolio as of December 31, 2011 51 108 bps benefit

52. 7Twelve Rebalancing Comparison 10-Year Annualized % Returns as of December 31, 2011 2002-2011 www.7TwelvePortfolio.com 52

53. Calendar Year Performance of Passive 7Twelve (annual rebalancing) 7Twelve Core Model 12 Equally Weighted Funds 7Twelve Without Cash 11 Equally Weighted Funds (no cash fund) 2002 (0.78) (1.00) 2003 27.09 29.47 2004 17.76 19.27 2005 12.17 13.00 2006 15.15 16.09 2007 11.31 11.87 2008 (24.61) (27.10) 2009 24.91 27.12 2010 14.50 15.81 2011 (1.18) 10 Year Annualized Return (%) 8.579.06 10 Year Standard Deviation of Annual Returns (%) 15.116.5 7Twelve Without Cash Component

54. 1) As a balanced fund, 7Twelve is a “QDIA” (Qualified Default Investment Alternative) under the 2006 Pension Protection Act. 2) Portfolio logistics are straight-forward: – Equally-weighted, rebalanced periodically. – Using cash flows to accomplish rebalance increases tax efficiency. 3) No reliance upon tactical skill or timing. 4) Represents the core “module” of any portfolio: pre or post-retirement. Satellite assets tailored to the client can be layered around 7Twelve “core”. 5)Can be built using actively managed funds, passively managed index funds, ETFs, ETNs, or CTFs (collective trust funds). www.7TwelvePortfolio.com 7Twelve Portfolio: Summary 54

55. Available at Amazon.com

56. For more information about the 7Twelve portfolio please visit www.7TwelvePortfolio.com 56

57. Craig L. Israelsen, Ph.D. Brigham Young University Email: craig@7TwelvePortfolio.com craig@7TwelvePortfolio.com Web: www.7TwelvePortfolio.comwww.7TwelvePortfolio.com The 7Twelve TM Portfolio 57

58. Technical notes: Raw data utilized in this research report were obtained from Morningstar Principia and other sources. The returns reported in this presentation and on the 7Twelve website may differ slightly from the returns of the 7Twelve portfolio published in my book “7Twelve: A Diversified Investment Portfolio with a Plan” (John Wiley & Sons, 2010). The slight differences are due to two issues: (1) different rebalancing assumptions, and (2) corrected historical returns. From time to time, Morningstar will modify and correct historical performance data. Occasionally such corrections affect the historical performance of the underlying funds and ETFs utilized in the various 7Twelve portfolios. In every case, the resulting changes in the historical returns of the 7Twelve portfolio are so small as to be immaterial. www.7TwelvePortfolio.com58