Litman/Gregory Research Call 2 nd Quarter 2011 July 19, 2011

Asset Class Returns for Second Quarter Not currently in portfolios Currently in portfolios

Current Allocation: Balanced Strategy

Looking Forward: Key Takeaways Significant risks exist that could roil markets  Greece and the potential for contagion in Europe  China’s real estate bubble  U.S. debt ceiling and deficit problem, and a weakening economy Odds favor low stock and bond returns over the next 5 years  At current valuations stocks aren’t priced to deliver strong returns  Economic headwinds won’t help  With interest rates very low, return-potential for bonds is also low As a result, our portfolios are conservatively positioned  Stocks may continue to rise, and if they do we will underperform on the upside  We like non-traditional and absolute return strategies that don’t require market tailwinds  Compelling opportunities to take on risk and boost returns will come but require patience

More Pessimistic More Optimistic Economic Scenario Recession Recur/Deflation Stagflation Subpar Recovery Average Recovery As of 7/11/11 S&P 500 at 1330, Barclays Aggregate yield at 2.5%, MSCI EM Index at 1167, Merrill Lynch High-Yield Cash Pay Index at 7.4%. Equity Asset ClassesEstimated Average Annual Returns over Next Five Years U.S. Equities-4.5%-2.8%2.6%10.7% Developed International Similar to U.S. Equities, but exact ranges still in progress. Emerging Markets-2.8%n/a5.4%13.9% REITs-4.0%-1.7%-3.4%-1.2% Fixed Income Asset Classes Investment-Grade Bonds1.6%0.7% High-Yield Bonds2.9%3.4%4.0%4.7% Floating-Rate Loans4.2%4.0%5.3%5.2% TIPS-0.4%2.9%-1.8% Emerging-Markets Local-Currency Bonds Low single-digit returns Mid/High single-digit returns Mid/High single-digit returns Mid/High single-digit returns Alternative Asset Classes Arbitrage Strategies Mid single-digit returns in most scenarios Scenario Analysis: Asset Class Return Estimates 5 5

Here’s How Our Tactical Moves Might Help or Hurt Us in the Scenarios We Consider

Final Thoughts  Markets may continue to climb and investors become complacent about the serious problems we’ve noted  But, time by itself won’t heal these problems – they require concrete actions and these actions can’t happen without inflicting economic pain  In light of longer-term economic headwinds, we think shorter-term market gains are in effect “borrowing from future returns”  We are willing to underperform in the short term because we expect to gain little or no extra return from being fully weighted to risk assets like stocks  At some point, a macro shock could hammer markets, giving us the chance to use dry powder and boost returns  We encourage everyone to consider their risk tolerance in a benign market rather than wait for a sharp downturn to do so

Research Team Q&A