morningstar investment...

©2012 Morningstar Investment Services, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. All other marks are the property of the respective

owners. Morningstar Investment Services, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. The information contained in this presentation is the proprietary

material of Morningstar Investment Services. Reproduction, transcription or other use, by any means, in whole or in part, without the prior written consent of Morningstar Investment Services is

prohibited.

Morningstar®

Investment Services

Process and Philosophy

Peter Dugery

Senior VP, National Sales and Distribution

Morningstar Investment Services

For financial advisor use only; not for use with the general public. Presentation not complete without disclosures on pages 42-43.

Morningstar’s Investment Management Division (MIM)

Morningstar Investment Management includes Morningstar Associates, LLC, Morningstar Investment Services, Inc., and Ibbotson Associates, Inc., all

registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. All investment advisory services described herein are provided by one or

more of the registered investment advisor subsidiaries. * Ibbotson Associates Inc. was established in 1977, and acquired by Morningstar in 2006.

Morningstar Associates was established in 1999 and Morningstar Investment Services, Inc. was established in 2001.

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We combine the strengths of Morningstar, Inc… × Investors first

× Independent investment research since 1984

× Global resources in 26 countries

× Trusted brand

Asset

Allocation

Manager

Research

Portfolio

Construction

Retirement Solutions

Managed Portfolios

Advisory Services

…with over 30 years investment experience* Expertise in asset allocation, manager selection, and portfolio construction

…to create innovative solutions for institutions, advisors, and individual investors. Offer leading retirement, investment management, and consulting services


Morningstar Investment Services

× Part of Morningstar’s Investment Management division

× Work exclusively with fee-based advisors to grow their practices

× Leverage Morningstar, Inc.’s proprietary, independent data and analysis

on mutual funds, stocks, and exchange-traded funds (ETFs)

$185.5B Total Assets*

34 Serving Clients**

+ years 2 patents Human Capital and Asset Allocation

with Annuities***

*As of June 30, 2012. Includes Morningstar Associates, Ibbotson Associates, Morningstar Investment Services, OBSR, and Ibbotson Australia.

** Ibbotson Associates Inc. was established in 1977. Morningstar Associates was established in 1999 and Morningstar Investment Services, Inc. was established in 2001.

***Patent issued to Ibbotson Associates for Asset Allocation with Annuities in 2006. Patent issued to Ibbotson Associates for Human Capital in 2007.

Morningstar’s Investment Management division includes Morningstar Associates, LLC, Morningstar Investment Services, Inc., and Ibbotson Associates, Inc., all registered

investment advisors and wholly owned subsidiaries of Morningstar, Inc. All investment advisory services described herein are provided by one or more of the U.S. registered

investment advisor subsidiaries.

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Independent. Experienced. Well Researched.


Our Investment Team

Jeffrey Ptak, CFA, CPA

President and Chief Investment Officer

University of Wisconsin, BS

18 years of financial industry experience

Marta Norton, CFA

Investment Manager

Wheaton College, BS


Paul Gozali, CFA

Director of Quantitative Analysis

University of Iowa, BS

University of Iowa, MBA


Sean Hynes, CFA

Investment Manager

University of Notre Dame, BS

Carnegie Mellon University, MBA


Venus Phillips

Investment Manager

Howard University, BBA

University of Chicago, MBA


Sam Yan, CFA

Quantitative Analyst

Tsinghua University, BS

University of Illinois, MS


John Owens, CFA, CPA

Investment Manager

Oklahoma State University, BS

University of Texas, MBA


4


The Insight of an Advisor, The Strength of Morningstar

► Determines target asset mix

► Evaluates investment performance data to

peer group and benchmark

► Analyzes, selects, and monitors investments

► Creates and constructs portfolios

► On-going risk management

► Analyzes clients current financial situation

► Assists in determining client’s risk/return profile

► Helps client’s select the appropriate portfolio

► Monitors performance relative to client’s goals

► Reviews changes in client’s circumstances

5


Our Philosophy

We invest for the long term

We are independent thinkers

We employ a disciplined, consistent investment process

We actively manage portfolios

We are sensitive to costs and taxes

We invest clients’ money as if it were our own

We communicate in a timely and candid fashion

6


Our Investment Process

× Established and repeatable, our continual four-step process is designed to help

the portfolios stay well-positioned through the market’s up and downs

7


Develop Asset Allocation: Ibbotson Associates

× Founded in 1977; acquired by Morningstar, Inc. in 2006

× Leading source of independent academic research

× Capital markets, asset allocation expertise

× Ibbotson Associates sets the strategic asset allocation for our diversified portfolios

× Ibbotson’s strategic asset allocation forms the building blocks for each portfolio

Neither diversification nor asset allocation ensure a profit or guarantee against a loss.

Make Asset

Class

Forecasts

Determine an

Efficient

Asset Mix

Create Asset

Class

Recommendations

8


Analyze Investments: Research: Rigorous, Independent

× We do our own work

× Draw on decades of experience

researching managers

× Leverage proprietary data, analytics,

grading system

× Look beyond stars, style-box

× The world is our oyster

× Use any fund available to us

× No “select list”

From our base in Chicago, our investment

team travels across the country, meeting with

each manager in person.

9


Research: Using Boutique Managers

For illustrative purposes only. Morningstar Investment Services is not

affiliated with companies shown.

10


Research: Proprietary Fund Selection (“GPA”)

11


Evaluating Long-Term Performance

× Monitor

× Managers

× Portfolio positioning

× Risk factors

× Adjust

× Rebalance accounts

× Top-down adjustments

× Fund specific changes

Source: Morningstar Investment Services, Inc.; as of August 20, 2012. For illustrative

purposes only; past performance is not a guarantee of future results. Should not be viewed

as a recommendation buy or sell the mentioned securities.

Fund Performance Scorecard

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Constructing Portfolios

× Portfolio Level

× Holdings-based analysis

× Manage to target risk

× Monitor fund overlap

× Fund Level

× Tailor fund to strategy

× Contribution to Portfolio risk and expenses

Deep-Value Core-Value Core Core-Growth High-Growth

G i a

n t

L a r g

e

M i d

S

m a l l

M i c

r o

Holdings-Based Style Map

13


Our Mutual Fund Portfolios

Our Mutual Fund Portfolios

14


Our Asset Allocation Portfolios

× Broad diversification, open architecture, sophisticated risk management, good

complement to niche/specialized strategies

× Taxable and tax-deferred versions of mutual fund portfolios available

15

Conservative

Income &

Growth

Moderate

Growth

Growth

Aggressive

Growth


Diversification: Asset Allocation Portfolios

Conservative Income &

Growth

Moderate

Growth

Growth Aggressive

Growth

US Stocks Large Growth 5 8 10 12 15

Large Value 9 12 14 16 18

Mid-Cap 5 6 7 10 11

Small-Cap 0 4 7 10 14

Non-US Stocks Developed 5 8 14 18 23

Emerging 1 2 4 5 7

Real Estate REITs 0 0 4 5 5

Taxable Bonds Investment-Grade 30 25 18 12 0

High-Yield 7 6 4 3 0

Inflation-Protected 8 6 3 0 0

Non-Domestic 10 8 5 4 0

Alternatives Commodities 3 3 3 3 5

Absolute Return 10 7 5 2 0

Cash Short Term Reserves 7 5 2 0 2

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Our Retirement Income Portfolios

× Four distinct managed portfolios

× Targeted payouts ranging from 4–7%

× Time horizons from 1 to 20+ years

× Endowment-like approach

× Diversified across asset classes

× Payouts derived from total return, not reliant solely on yield

Ultra Short Short-Range Mid-Range Long-Range

Targeted Payout 7% 6% 5% 4%

Time Horizon 1–5 years 2–10 years 10–20 years 20+years

Probability of

Principal Preservation

2.1% 9.9% 17.3% 36%

Probability of Principal Depletion 0.1% 0.1% 0.4% 0.8%

Monte Carlo Analysis, 95% Confidence Monte Carlo adjusts for inflation. 17


Diversification: Retirement Income’s Asset Allocation

Tax-Deferred Allocation % Ultra Short Short-Range Mid-Range Long-Range

US Stocks Large Growth 0 2 5 6

Large Value 0 5 7 10

Mid-Cap 0 0 3 6

Small-Cap 0 0 2 4

Non-US Stocks Developed 0 3 6 7

Emerging 0 0 2 2

Real Estate REITs 0 0 4 4

Taxable Bonds Investment-Grade 60 36 30 30

High-Yield 5 22 8 6

Inflation-Protected 5 5 5 4

Non-Domestic 5 6 5 4

Alternatives Commodities 0 3 3 4

Absolute Return 0 10 15 8

Cash Short Term

Reserves

25 8 5 5

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Breaking down the Retirement Income portfolios

× Four distinct managed portfolios

× Targeted payouts ranging from 4–7%

× Time horizons from 1 to 20+ years

× Endowment-like approach

× Diversified across asset classes

× Payouts derived from total return, not reliant solely on yield

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× Limited diversification

× Lower growth potential

× Income levels can fluctuate

× Vulnerable to rising

inflation, interest rates

Why not just income?

Income Portfolio

× Churns out income

× In theory, do not need to

sell investments to meet

spending needs

Advantages

Disadvantages

Total Return Portfolio

× Balances the need for

income and growth

× Offers diversification

× Protects against inflation

and interest rate risk

× May need to sell securities

in down markets

to meet income needs

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$0

$200

$400

$600

$800

$1,000

$1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Declining coupons make income strategies more dangerous

× Income generated by a $100,000 portfolio

Corporate High

Yield Bond Index

Aggregate Bond

Index

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Stocks Growth Engine Domestic Small Caps

Domestic Large Caps

International

Emerging

Bonds Income Producer Investment-grade

High-yield

Non-U.S.

Inflation-protected

Alternatives Volatility Dampener Commodities

Real estate

Long/Short funds

Arbitrage strategies

Diversification: Retirement Income’s asset allocation

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Goals of the Absolute Return Portfolio

× Deliver moderate returns over time with lower volatility

× Provide downside protection relative to equity markets

× Provide low correlation to the traditional broad market indexes

Note: There can be no assurance that the stated goals will be met

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Absolute Return


Absolute Return Portfolio Allocation

Data as of April 2012. Weightings shown are subject to change without notice.

%

US Stocks 12

International Stocks 8

Taxable Bonds Investment-Grade 13

High-Yield 5

Alternatives Multi-Strategy 11

Long-Short Equity 10

Convertible Arbitrage 10

Credit Arbitrage 9

Merger Arbitrage 9

Global Macro 8

Commodities 4

Cash Short Term Reserves 25

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How You Can Use Absolute Return

× Stand-alone solution: Good choice for conservative investors

× Enhance diversification: Complement to traditional stock and bond portfolios

× Meet distribution needs: Lower volatility makes regular distributions less disruptive

25


Building Wealth: The Importance of Low Volatility

$65,000

$75,000

$85,000

$95,000

$105,000

$115,000

Year 4: Return Port A: 9% Port B: 25%

Four-Year Growth of Two Portfolios

Beginning Balance: $100,000

Portfolio A

Portfolio B

Portfolio Returns

Year 1 Year 2 Year 3 Year 4

11% -12% 12% 9%

10% -40% 25% 25%

Portfolio Returns

Avg Rate of Return Cum Rate of Return

5% 19.2%

5% 3.1%

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Performance of Alternative Strategies

Source: Morningstar Direct, as of 4/29/2012.

An index is unmanaged and an investor cannot invest directly in an index.

References to investments above should not be considered an offer (as defined by the Securities and Exchange Act) to buy or sell that

specific investment. Past performance does not indicate or guarantee future returns.

BarCap US Agg Bond Hennessee HF Convertible Arbitrage Hennessee HF Long/Short Equity

Hennessee HF Merger Arbitrage S&P 500

Merger Arb

S&P 500

Convert Arb

Long/Short

BarCap US Agg

BarCap US Agg

S&P 500

Long/Short

Merger Arb

Convert Arb

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Traditional

Traditional Plus

Alternatives

Russell 3000 45% 37.5%

MSCI World Ex. US 15% 12.5%

BarCap Agg 35% 25%

Citigroup T-Bill 3 Mo. 5% 5%

Hennessee HF Merger Arbitrage 7%

Hennessee HF Long/Short Equity 7%

Hennessee HF Convertible Arbitrage 6%

Return Benefits: Traditional Portfolio with Alternatives

Traditional

Traditional Plus Alternatives

See appendix for definition of statistics. An index is unmanaged and an investor cannot invest directly in an index.

References to specific investments should not be considered an offer (as defined by the Securities and Exchange

Act) to buy or sell that specific investment. Past performance does not indicate or guarantee future returns.

28


Return Benefits: Traditional Portfolio with Alternatives

Traditional Traditional Plus

Alternatives

Return (annualized) 5.60% 5.93%

Standard Deviation

(annualized)

9.95% 9.15%

Sharpe Ratio* 0.32 0.38

Beta* 0.58 0.53

Alpha* 1.06 1.48

Downside Capture* 53.25 47.63

Growth of $10,000 from June 30, 1997 – July 1, 2012

Traditional Plus Alternative

Russell 3000 TR USD)

Trailing 15 Years of Statistics as of 06/30/2012

Source: Morningstar Direct, as of June 30, 2012 See appendix for definition of statistics. An index is unmanaged and an investor cannot invest directly in

an index. References to specific investments should not be considered an offer (as defined by the Securities and Exchange Act) to buy or sell that specific

investment. Past performance does not indicate or guarantee future returns.

2000 2002 2004 2006 2008 2010 2012

11K

12K

13K

15K

17K

19K

22K

24K

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Absolute Return Portfolio Results

► Less than half the volatility of the S&P 500 Index since its inception

► Provides good downside protection relative to the broad equity market

► Beta of 0.36. Returns have not been very dependent on the domestic equity market

Source: Morningstar, Inc. Portfolio returns noted are gross of annual program fees. Addition of these fees would reduce the performance shown. The

maximum program fee for this portfolio is 1.50% *The portfolio returns presented are from a portfolio seeded on 3-31-2005.See appendix for definition of

statistics. Past performance does not guarantee future results. An index is unmanaged and an investor cannot invest directly in an index.

April 2005 through June 2012

Absolute Return* S&P 500

Annualized Return 4.03% 4.14%

Standard Deviation 6.41% 16.43%

Sharpe Ratio 0.32 0.13

Up Capture 42.59% 100.0%

Down Capture 32.26% 100.0%

Alpha vs. Market 2.18% 0.0%

Beta vs. Market 0.36 1.00

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Absolute Return Portfolio: Calendar Year Return

Source: Morningstar Direct, as of December 31, 2011. Portfolio returns noted are gross of annual program fees. Addition of these fees would reduce the

performance shown. The maximum program fee for this portfolio is 1.50%

-40

-30

-20

-10

0

10

20

30

Absolute Return US OE Long/Short Equity S&P 500

2011 2010 2009 2008 2007

31


Select Stock Baskets

Our Select Stock Baskets

Our ETF Portfolios LFA Only

32


Exchange-Traded Fund Portfolios

× Diversified ETF portfolios

× Invest in passive ETFs, utilizing tactical overlay

× Well-suited to anchor core of a portfolio


Morningstar Managed ETF Strategies

× Core-and-Explore format leverages Morningstar’s

strengths

× Asset allocation research

× Strategic asset allocations set by Ibbotson

Associates

× Security research, portfolio construction

× Morningstar, Inc.’s deep ETF analytics, data

× MIS’ extensive experience managing client

capital, making tactical decisions

34


Core and Explore Approach

+

Core

× Broadly diversified ETFs

× Passive and low cost

× Track asset classes in strategic asset allocation

Explore

× ETFs that track narrower segments (style, sector, region, etc.)

× Selection based on proprietary rating methodology

× Aim to add value over index

35


Total

Stock

Foreign

Stock

Fixed

Income

Div-Pay

Stocks

Global

High-

Quality

Health

Care

Japan

Corp.

Bonds

Cash

Core

Explore

Tactical View Potential ETF

Investment-Grade Corp. Bond ETF

High-Yield Bond ETF

Japan Small-Cap ETF

Companies are flush;

Treasuries are rich

Stocks look cheap,

especially after quake

Fears over patent

“cliff” overdone Health Care Stock ETF

Dividends prized in a

lower-growth climate

Dividend Appreciation ETF

High-quality, global

firms to pace recovery

Technology Stock ETF

Information is for illustrative purposes only and is not a recommendation or an offer to purchase

or sell a specific security. Information is subject to change at anytime without notice.

Core-and-Explore Approach

36


Tactical Decision-Making

37


Diversification: ETF Asset Allocation Portfolios

Conservative Income &

Growth

Moderate

Growth

Growth Aggressive

Growth

US Stocks Large Growth 6 9 13 14 17

Large Value 10 13 16 18 20

Mid-Cap 3 5 7 9 11

Small-Cap 0 5 7 10 14

Non-US Stocks Developed 6 11 13 18 21

Emerging 0 0 2 3 5

Real Estate REITs 0 0 4 5 6

Taxable Bonds Investment-Grade 45 34 22 14 0

High-Yield 6 5 5 3 0

Inflation-Protected 8 6 3 0 0

Non-Domestic 5 4 3 0 0

Alternatives Commodities 3 3 3 4 4

Cash Short Term Reserves 8 5 2 2 2

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× The low-cost portfolios in this series offer specific risk and return profiles to meet investors’

needs throughout the stages of life, from capital preservation and income to capital

appreciation and growth.


Why Morningstar Investment Services?

× Independent – Conflict free

× Objective – Use of best-of-breed managers

× Disciplined – Institutional research process

× Continuous oversight

× Ability to be proactive

× Breadth of solutions

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Platform Pricing – Mutual Fund Portfolios

Mutual Fund Portfolio

$50,000 Minimum

×Asset Allocation Mutual Fund Series, Taxable & Tax Deferred

×Absolute Return

×Retirement Income Series

Program Fee First 500K 0.45%

Over 500K 0.40%

× No custody and clearing fee

× Clients may pay transaction costs to have transferred securities liquidated as follows:

× $15 at Pershing for transaction fee mutual funds and general securities

× $35 at IWS for transaction fee mutual funds, and $7.99 for general securities

40


Platform Pricing – ETF Portfolios for LFA

ETF Portfolios

$100,000 Minimum

×Asset Allocation ETF Series

Program Fee First 250K 0.42%

Next 250K 0.40%

Next 500K 0.37%

Over 1m 0.35%

× $150 per account/per year custody and clearing fee

41


Peter Dugery 312 696-6040

National Director [email protected]

Morningstar Investment Services Sales Team

Reach our sales team members at 877 626-3224

1 Aaron Peterson Ext. 1 [email protected]

Region 1 – California, Oregon, and Alaska, Guam, Hawaii

2 Justin Stender Ext. 2 [email protected]

Region 2 – Idaho, Illinois, Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin

3 Steven Geiger Ext. 3 [email protected]

Region 3 – Delaware, Maryland, North Carolina, Pennsylvania, Virginia, West Virginia

4 Brad Murphy Ext. 4 [email protected]

Region 4 – Massachusetts, Maine, New Hampshire, Rhode Island, Vermont

5 Mike Reeves Ext. 5 [email protected]

Region 5 – Alabama, Florida, Georgia, South Carolina, Puerto Rico

6 John Green Ext. 6 [email protected]

Region 6 – Arizona, Kansas, Missouri, New Mexico, Oklahoma, Texas

7 Todd Schaul Ext. 7 [email protected]

Region 7 – Connecticut, New Jersey, New York

8 Tracy Unger Ext. 8 [email protected]

Region 8 – Arkansas, Louisiana, Mississippi, Tennessee

9 Adam Herakovich Ext. 9 [email protected]

Region 9 – Ohio, Indiana, Kentucky

10 Internal Ext. 10 [email protected]

Region 10 – Idaho, Montana, Washington, Utah, Colorado, Wyoming

42

General Information 877 626-3227

Internal Service [email protected]

Representatives www.mp.morningstar.com


The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and

therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date

written and are subject to change without notice. Except as otherwise required by law, Morningstar Investment Services shall not be responsible for any

trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. Past performance is not a

guarantee of future results.

The information contained herein is the proprietary property of Morningstar Investment Services and may not be reproduced, in whole or in part, or used in

any manner, without the prior written consent of Morningstar Investment Services.

© 2012 Morningstar Investment Services, Inc. All rights reserved. Morningstar Investment Services is a registered investment advisor and wholly owned

subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc.

Appendix: Disclosures

43


Appendix: Disclosures

The portfolio returns are from a model portfolio (“Model Portfolio”). The Model Portfolio performance is provided for informational purposes only, and may

include seed account returns across various custodial platforms. The Model Portfolio has similar investment objectives and asset allocations as the portfolio

clients may be invested in; however, it is important to note that the Model Portfolio may not have contained and/or currently may not contain the same

holdings underlying the recommended portfolio.

The purpose in presenting the Model Portfolio performance is to provide a hypothetical historical indication of the performance of the investment strategy,

and in no way should the Model Portfolio performance be considered indicative of or a guarantee of the future performance of an actual portfolio. Results of

an investment made today in a Morningstar Managed Portfolio may differ substantially from the historical performance shown, and as a result, you may

incur a loss.

The Model Portfolio performance calculations assume all dividends and capital gains distributions are reinvested and are gross of all fees and expenses.

Model Portfolios containing common stocks and ETFs are calculated using the underlying holdings‘ market price, and Model Portfolios containing mutual

funds are calculated using the mutual funds’ net asset value, both as of the close of trading on the New York Stock Exchange at the last business day of a

month. Model Portfolio performance is calculated using a time weighted, geometrically linked rate of return formula. Returns for periods over one year are

annualized. Return calculations do not reflect the deduction of brokerage or other commissions/expenses, and does not include the maximum fee charged

by Morningstar Investment Services for investing in the portfolio. Fee Schedules vary per business relationship.

Index Returns Individual index performance is provided as a reference only. Each index is unmanaged and is not available for direct investment. Since

indices and/or composition levels may change over time, actual return and risk characteristics may be higher or lower than those presented. Although index

performance data is gathered from reliable sources, Morningstar Investment Services cannot guarantee its accuracy, completeness or reliability.

Benchmark data sources are: Morningstar, Inc., Russell Mellon Analytical Services, Barclays Capital, Citigroup, Morgan Stanley, Standard & Poor’s, NAREIT,

Dow Jones, and Merrill Lynch.

For blended benchmarks for specific strategies, please refer to the portfolio reports on our Website.

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