Quarterly Investment Briefing May 1, 2013

1. QuarterlyInvestment BriefingMay 1, 2013 Clayton T. Bill, CFA Stephen J. Nilles, CFP

2. Capital Market Returns Period Ending March 31, 2013 Source: Russell

3. What Worked and What Didn’t in 1Q2013 • What Worked • Equities • Health Care +16% / Cons. Staples +15% • Micro Cap +13% • Japan +12% / Ireland +11% • Fixed Income • U.S. Corp High Yield +3% • U.S. Municipals 0% • Alternatives / Real Assets • Cotton +16% / Natural Gas +15% • Infrastructure: Energy +11% • REITS Asia +9% What Didn’t Work • Equities • Technology +4% • Italy -8% • BRIC countries -3% • Fixed Income • U.S. Treasury Long -2% • Emerging Market Debt -1% • Alternatives / Real Assets • Wheat -12% / Aluminum -10% • Infrastructure: Utilities +4% • REITs Europe -3% • U.S. equity indexes heavily influenced by Apple (down -15% for the quarter) • The BRICs (Brazil, Russia, India, and China) lagged the broader equity market • Fixed income returns reversed from prior periods Source: Russell

4. Strong Start for U.S. Equities: Too Much, Too Soon?A historical look at previous fast starts Calendar years with first quarter return exceeding 10% and subsequent three quarters of the year return (1926-2012) Return (%) • Since 1926, the U.S. equity market posted double-digit 1Q returns 15 times • In 13 of those years, the remaining 9 months of the year were positive • The 2 negative years included the Great Depression (1930) and Black Monday (1987) • The average return for the last 9 months of all 15 years was +7.6%

5. New Stock Index Highs, but Long-term Valuation Compression The S&P 500 Index hit a new nominal high during the first quarter, but remains only marginally higher than previous peaks in 2000 and 2007. Over the past 13 years, the sideways market and steady growth in corporate earnings have allowed valuation multiples to compress significantly, leaving the price-to-earnings ratio for the market close to historical averages. Source: Fidelity

6. Non-U.S. Stock Valuations Still Below AverageIn developed markets outside the U.S., current price-to-earnings multiples continued to tick up on both trailing and a forward basis, thanks to the first quarter’s positive price momentum. Yet these metrics remain below the long-term average price-to-earnings ratios in developed as well as emerging markets.

7. Global diversification offset U.S. and Non-U.S. leadership reversals Continued leadership reversal Non-U.S. led over last 10 years A global marketplace Source: Russell

8. Active Management Can Help Balance the Effects of Rising Interest Rates on Bond Prices • Decrease duration • Adjust credit exposure • Go global • Fixed income opportunities not included in index: • Non-Agency Mortgage Backed Securities • Global High Yield • Bank loans • Debt issued by foreign countries • Currencies Source: Russell

10. A coordinated, global effort: 45 countries 328 distinct policy initiatives Stimulus in the form of fiscal deficit spending and monetary easing Monetary easing has been supportive of asset valuations Capital markets response: S&P 500® Index nearly doubled since bottom in March 2009 Russell Global Index™ (RGI) +52% since the bottom in March 2009 Russell Global Index™ (RGI) +13% between Aug 2011–Jan 2013 (period covered on the left hand chart) Stimulus: A Global Policy Response to Economic Stagnation Source: Russell

11. Economic Momentum Supported by Housing and Energy National home prices increased1 (Dec 1987 – Jan 2013) U.S. monthly crude oil production and net imports2 (Jan 2010 – Jan 2013) Jan. 2013: Housing index up 7% year over year • National home prices have been improving • Housing starts have been rising at a rapid rate, but still below long-term trend • Residential construction spending increased 12% in 20123 • New technologies increasing U.S. energy production • Reduces reliance on imports from Middle East and South America • Offers more stable (and closer) input for production of chemicals, fertilizers, steel, etc. Source: Russell

12. Secular Trends Boosting U.S. Manufacturing ResurgenceStill in the early innings of a long-term resurgence, U.S. manufacturing has gone through a significant adjustment process over the past decade. Lower energy and unit labor costs – from job cuts and a weaker dollar – have created a more competitive manufacturing sector, which will likely have far-reaching positive effects across the economy for years to come.

13. What Predicts Stock Market Returns?

14. Stocks, Bonds or Both?Stocks Look Attractive but Volatile, Bonds Remain an Important Diversifier STOCKS Historical range of U.S. Equity Price/Earnings 1926-2012 BONDS Historical range of 10-Year Treasury Yield 1926-2012 95thPercentile 28.5 95thPercentile 10.9% 7.4% 7.7% 75thPercentile 6.8% 75thPercentile 18.7 6.9% 4.9% 16.4 P/E on 12/31/12* 50thPercentile 4.2% If yield was between 2.3% and 2.8%, average annualized return for ensuing 10 years was 2.3%(1) If P/E was between 15.8 and 18.7, average annualized equity return for ensuing 10 years was 6.9% 50thPercentile 15.8 3.6% 11.8% 25thPercentile 2.8% 25thPercentile 11.2 2.3% 14.6% 5thPercentile 2.3% 1.9%on 3/31/13 5thPercentile • 7.7 • P/E • Valuations and current yields impact future returns • Equity valuations appear to be within historical norms • Fixed income yields are at historical lows which have historically been followed by lower bond returns • Fixed income still offers diversification benefits Source: Russell

15. Fixed Income as a Shock Absorber

16. Fading Impact of Myopic Loss Aversion Could Boost StocksThe behavioral bias of myopic loss aversion suggests the more frequently investors evaluate their portfolios, the more often they see losses, which may prompt a move to less risky assets such as bonds. Since 2008, news headlines associated with market declines have prompted more frequent evaluations, but this psychological effect may be waning as volatility falls.