© 2014 Morningstar. All Rights Reserved. The images contained in the Presentations and Education modules are provided as a single user license (‘Authorized User’). Images may be used in seminars and client presentations by the Authorized User, but may not be distributed electronically or without written permission from Morningstar. Printed handouts of the images may be used with individual clients and prospects, but may not be mass distributed. For additional user licenses or distribution capabilities, please contact your Morningstar sales representative. Portfolio Diversification and Performance

The Case for Diversifying 2004–2013 Past performance is no guarantee of future results. *The return of the portfolio is higher than the returns of the constituent asset classes due to a phenomenon called “the rebalancing bonus,” which occurred due to the unusual behavior of stocks and bonds over the time period analyzed. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. 30% Return –10 –20 0 –30 –40 Year Compound annual return 6.1 Stocks 50/50 portfolio Bonds 7.4% 7.9* 78910

Stocks and Bonds: Risk Versus Return 1970–2013 Past performance is no guarantee of future results. Risk and return are measured by standard deviation and arithmetic mean, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. 12% Return % Risk10 Maximum risk portfolio: 100% Stocks 80% Stocks, 20% Bonds 60% Stocks, 40% Bonds 50% Stocks, 50% Bonds Minimum risk portfolio: 32% Stocks, 68% Bonds 100% Bonds

Diversified Portfolios in Various Market Conditions Performance during and after select bear markets Past performance is no guarantee of future results. Diversified portfolio: 35% stocks, 40% bonds, 25% Treasury bills. Hypothetical value of $1,000 invested at the beginning of January 1973 and November 2007, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. Mid-1970s recession (Jan 1973–Jun 1976)2007 bear market and aftermath (Nov 2007–Dec 2013) $1,750 1,500 1, Jan 1973 Jan 1974 Jan 1975 Jan 1976 Nov 2007 Nov 2008 Nov 2009 Nov Nov 2010 Nov 2011 $1,368 $1,355 $1,446 Stocks 50/50 portfolio Bonds 1, $1,014 $1,150 $1,171 Nov 2012

Potential to Reduce Risk or Increase Return 1970–2013 Past performance is no guarantee of future results. Risk and return are measured by standard deviation and compound annual return, respectively. They are based on annual data over the period 1970–2013. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. Lower risk portfolioHigher return portfolioFixed income portfolio Return:7.7% Risk:5.5% Return:9.0% Risk:7.9% Return:7.7% Risk:7.9% 15% 85% 39% 31% 20% 9% 41% 60% Stocks Bonds Cash

Correlation Can Help Evaluate Potential Diversification Benefits Asset-class correlation 1926–2013 Past performance is no guarantee of future results. Correlation ranges from –1 to 1, with –1 indicating that the returns move perfectly opposite to one another, 0 indicating no relationship, and 1 indicating that the asset classes react exactly the same. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. Small stocks Large stocks LT corporate bonds LT govt bonds IT govt bonds Treasury bills Small stocks Large stocks LT corporate bonds LT govt bonds IT govt bonds Treasury bills –0.10 –0.12 – –0.01 –0.03 –

A Diversified Portfolio: Sum of the Parts Risk and return characteristics Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Diversification does not eliminate the risk of experiencing investment losses. © 2014 Morningstar. All Rights Reserved. Large stocks Return: Risk: Small stocks Return: Risk: Bonds Return: Risk: Cash Return: Risk: International stocks Return: Risk: 9.4% 22.3% 8.4% 12.1% 5.2% 3.3% 10.4% 17.6% 12.9% 23.2% Total portfolio Return:10.1% Risk: 10.9% Large stocks Return: Risk: Small stocks Return: Risk: Bonds Return: Risk: Cash Return: Risk: International stocks Return: Risk: 6.9% 22.2% 6.1% 13.7% 1.5% 1.9% 7.4% 18.8% 9.3% 23.0% Large stocks Return: Risk: Small stocks Return: Risk: Bonds Return: Risk: Cash Return: Risk: International stocks Return: Risk: 12.4% 16.8% 1.9% 17.4% 0.1% 0.0% 17.9% 11.7% 22.8% 18.0% Total portfolio Return:7.3% Risk: 10.1% Total portfolio Return:11.7% Risk: 5.5% 1970–2013 Past 10 years 2004–2013 Past 5 years 2009–2013

Asset-Class Winners and Losers Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. Highest return Lowest return Small stocks Large stocks International stocks Long-term government bonds Treasury bills Diversified portfolio

Hypothetical Portfolio Performance 1926–2013 Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. © 2014 Morningstar. All Rights Reserved % Range of 12-month rolling returns Avg Positive Return Standard Deviation 100% Bonds –50 150% Avg Negative Return 80% B 20% S % B 30% S % Stocks % B 90% S % B 80% S % B 70% S % B 60% S % B 50% S % B 40% S % B 10% S –5.6% 47.9% 62.5% 77.8% 110.3% 127.3% 162.9% –67.6% –63.1% –58.3% –52.9% –47.1% –26.1% –10.2% –17.8% 32.7%30.8% 34.0% 93.8% 144.9% –33.7% –40.7% Percentage of positive/negative 12-month rolling periods 8.8% 7.8% 9.9% 13.4% 16.5% 18.9% 20.4% 22.5% 24.0% 24.9% 25.8% Positive Negative Compound Annual Return

Long-Term Portfolio Performance 1926–2013 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. 10.1% Compound annual return $10,000 1, $4,677 $2,379 $987 $335 $93 Portfolio 1 (100% Stocks) Portfolio 2 (75% Stocks, 25% Bonds) Portfolio 3 (50% Stocks, 50% Bonds) Portfolio 4 (25% Stocks, 75% Bonds) Portfolio 5 (100% Bonds)

$5.15 $5.84 $4.38 $3.60 $2.86 $ Year Portfolio Performance 1994–2013 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. 9.2% Compound annual return Portfolio 1 (100% Stocks) Portfolio 2 (75% Stocks, 25% Bonds) Portfolio 3 (50% Stocks, 50% Bonds) Portfolio 4 (25% Stocks, 75% Bonds) Portfolio 5 (100% Bonds) 1

Portfolio Summary Statistics Rolling periods 1926–2013 Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved % 118.7% 77.8% 40.9% 32.7% –67.6% –55.7% –40.7% –22.0% –5.6% 25.8% 23.3% 18.9% 11.3% 8.8% 36.1% 29.0% 22.2% 20.0% 19.5% –17.4% –11.5% –6.1% –1.2% 0.7% 13.0% 7.6% 4.8% 0.3% 0.0% 21.4% 17.7% 16.2% 14.9% 13.7% –4.9% –1.3% 1.5% 3.3% 1.2% 5.7% 1.0% 0.0% 10.1% 9.2% 8.1% 6.8% 5.3% Highest return Average return Lowest return Negative periods Highest return Lowest return Negative periods Highest return Lowest return Negative periods 12-month holding period60-month120-month 50% Stocks Bonds 100% 25%75% 25% 100%

–2.1– –3.7–7.0– –1.1–1.8–9.1–11.9– –24.5 –37.0 – – Diversification May Lessen the Impact of Market Swings Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. Highest return Lowest return (100% Stocks)(75% Stocks, 25% Bonds)(25% Stocks, 75% Bonds)(100% Bonds)(50% Stocks, 50% Bonds) Portfolio 1 Portfolio 2 Portfolio 4 Portfolio 5 Portfolio

Portfolio Risk Appears to Diminish Over Time 1926–2013 Past performance is no guarantee of future results. Each bar shows the range of rolling returns for each asset class over the period 1926–2013. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved. –100 – % 75% Stocks/25% Bonds50% Stocks/50% Bonds25% Stocks/75% Bonds100% Bonds100% Stocks 12-month holding periods 60-month holding periods 120-month holding periods Compound annual return 6.8% 5.3% 10.1% 9.2% 8.1%

$350k 50 Enhancing Diversification Using Real Assets Annual returns Past performance is no guarantee of future results. Hypothetical value of $100,000 invested at the beginning of Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Highlighted areas represent years when Portfolio 1 experienced losses. © 2014 Morningstar. All Rights Reserved Large stocks Small stocks International stocks REITs Commodities TIPS Bonds Traditional moderate portfolio Portfolio 1 Traditional moderate portfolio, real assets added Portfolio 2 Diversification does not eliminate the risk of experiencing investment losses. The two portfolios are for illustrative purposes only and do not represent investment advice; consult a financial professional for investment advice specific to your situation. Please note that, even though the real- assets-added portfolio outperformed the traditional portfolio over the time period analyzed, this may not always be the case. Disclosure 300 Port. 1 –$23,901 –13% Port. 2 –$3,697 –2% Portfolio 1 –$605 –1% –$3,153 –3% Portfolio 2 –$743 –1% $11,606 10%