managed portfolios morningstar investment...

Managed Portfolios

Peter Dugery, SVP, National Sales and Distribution

John Green, Regional Sales Director

February, 2014

For Financial Advisor Use Only-Not for Use With the Public. This presentation is not complete without accompanying disclosures.

Morningstar Investment Services

©2013 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.

Agenda

Who is Morningstar Investment Services and what do we offer You?

How are other Independent Advisor’s using us within their practice?

How can You benefit from Morningstar Managed Portfolios?

Where do You go from here?

Morningstar Investment Management (MIM)

We combine the strengths of Morningstar, Inc…

…with over 35 years of investment experience*

…to create innovative solutions for institutions, advisors, and individual investors.

The Morningstar Investment Management division is a division of Morningstar and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, which are 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.

*Data as of June 30, 2013 and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, OBSR, and Ibbotson Australia.

**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.

Expertise in asset allocation, manager selection, and portfolio construction

Investors first

Independent investment research since 1984

Global resources in 27 countries

Trusted brand

Offer leading retirement, investment management, and consulting services

35+ years

Serving Clients**

$166.1B

Total Assets*

Morningstar Investment Services

Since 2001, we have created high-conviction investment portfolios…

…designed exclusively for fee-based, independent financial advisors

…to deliver investment choices to the clients that they serve.

We work with more than 3,000 financial advisors across the country.

Morningstar Investment Services was formed in response to feedback from advisors seeking an objective, independent investment approach.

Our team of investment professionals create, build, and monitor a diverse lineup of managed portfolios.

The Insight of an Advisor, The Strength of Morningstar

Holistic financial planning meets professional portfolio management

We team up to deliver a tailored investment plan designed to help investors reach their long term goals

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

Our Commitment to

Investment Excellence

Our Mutual Fund Portfolios

Our Mutual Fund Portfolios at a Glance

For illustrative purposes only. Not to be used to asses the exact risk/return relationship between portfolios. No guarantee can be given about future performance.

Wide Range of Solutions for Your Client Situations:

Our Mutual Fund Portfolios

Full discretion active management- at two levels

Strategic asset allocation with a tactical overlay

Differentiating traits

Independent, unbiased, objective investment selection

Use of flexible managers and “boutique” managers

Use of alternative funds

High conviction, disciplined long-term investing

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

Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.

Conservative Income & Growth

Moderate Growth Growth

Aggressive Growth

Our Retirement Income Portfolios

Four distinct managed portfolios diversified across asset classes

Targeted payouts ranging from 4–7%

Time horizons from 1 to 20+ years

Endowment-like approach

Payouts derived from total return, not reliant solely on yield

Monte Carlo Analysis, 95% confidence. Monte Carlo adjusts for inflation. Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.

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%

Our Focused Portfolios

Allow for tactical approach; further diversification

Global Allocation: seeks long-term capital appreciation and income; invests in go-anywhere equity and bond funds

Absolute Return: seeks to provide modest, equity-like returns, minimize volatility and downside protection in poor market environments


Enhanced Cash Tax-Advantaged

Income Absolute Return Real Return Global

Allocation

Asset Allocation: Ibbotson Active/Passive Portfolios

Leverages the strength of both approaches

Enhances portfolio risk-adjusted returns by finding most efficient way to invest in asset classes and markets

Tends to reduce overall portfolio expenses

Figures are based on a recent allocation, and are subject to change. Allocation of portfolios at the individual account level may vary.

% A P % A P % A P % A P % A P

US Stocks 14 7 7 27 15 12 37 22 15 44 29 15 52 37 15

Non-US 5 5 0 10 8 2 16 13 3 24 20 4 29 24 5

Real Estate 0 0 0 2 2 0 3 3 0 5 5 0 6 6 0

Bonds 71 27 44 56 24 32 36 18 18 17 10 7 2 2 0

Alternatives 2 0 2 2 0 2 6 4 2 8 5 3 9 6 3

Cash 8 0 8 3 0 3 2 0 2 2 0 2 2 0 2

20/80 40/60 60/40 80/20 95/5

Our ETF Portfolios

Our ETF Portfolios at a Glance

For illustrative purposes only. Not to be used to asses the exact risk/return relationship between portfolios. No guarantee can be given about future performance.

Core and Explore Approach

Broadly diversified ETFs

Passive and low cost

Track asset classes in strategic asset allocation

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

Selection based on proprietary rating methodology

Aim to add value over index

Core

Explore

Core and Explore Approach

For illustrative purposes only.

Total Stock

Foreign Stock

Fixed Income

Div-Pay Stocks

Global High-

Quality

Health Care

Japan

Corp. Bonds

Cash

Core

Explore

Tactical View

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

Potential ETF

Our ETF Asset Allocation Portfolios

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

Low-cost portfolios offer specific risk /return profiles for investors at all stages


Conservative Income & Growth

Moderate Growth Growth

Aggressive Growth

Our Contrarian ETF Portfolios

Invest in market’s “unloved” areas

Based on mutual fund outflows

Transparent, cheap to implement

Use ETFs that mirror unloved areas

Potential core holding, or supporting player

Focus on the areas where selling has been most pronounced.


Contrarian & Income Contrarian Contrarian & Growth

Ibbotson Momentum Portfolios

Managed by Ibbotson Associates

Low-cost, active portfolios designed to capitalize on the tendency of investments to gather momentum over a period of time

Supported by nearly two decades of academic research

Ibbotson: strategies buying recent winners, selling recent underperformers can generate significant positive returns over 6- to 12-month holding periods1.

1Source: Jegadeesh and Titman. “Returns to Buying Winners and Selling Losers: Implications for Market Efficiency.” Journal of Finance 48, (1993).

Momentum 20/80

Momentum 40/60

Momentum 60/40

Momentum 80/20

Momentum 95/5

Our Select Stock Basket Portfolios

Our Select Stock Baskets Custom Series at a Glance

Customized portfolio of individual equities

25 to 35 of our highest conviction stock ideas

Tailored to a client’s needs

Restrict sector, industry, or individual stock exposures

Combine with a portfolio of fixed-income mutual funds or ETFs (80/20, 65/35, 50/50)

Accommodate current client holdings*

Transfer existing holdings

Portfolio can be built around client’s other holdings

Actively managed to help achieve added value

Buy and sell discipline

Optimal balance of risk and reward

Mindful of tax and cost implications

*Initial and subsequent funding in the client’s account may be in cash, and/or transfer of positions currently held including common stocks, ETFs and mutual funds; due to liquidity restrictions and trading constraints, any position that is transferred in may be rejected and required to be remove from the account. For Illustrative Purposes only. Data and information is subject to change at anytime without notice.

Select Stock Baskets Custom Series

You can elect further customization

$250,000 account minimum

Broad Market Global Equity

Composite Style Equity Income

Capital Appreciation

Foreign Foreign Equity

Market Capitalization Small+Mid-Cap Equity

Select Stock Baskets Strategist Series

Select Stock Basket strategies to choose from

The Tortoise Portfolio

The Hare Portfolio

The Dividend Portfolio

Wide Moat Focus Portfolio

These three are patterned after Morningstar, Inc.’s popular monthly newsletters

Morningstar StockInvestor

Morningstar DividendInvestor

Account minimums

All Equity - $100,000

With Fixed Income (80/20, 65/35, 50/50) - $250,000

For illustrative purposes only. There is no guarantee that the Select Stock Basket Strategist Series will perform as the portfolios after which they were patterned.

*Please note that portfolio availability may vary based on business relationships

Solutions for the 401K Market- Managed Plan Solutions (MPS)

Bundled (3)38 Solution

MIS as a Co-Fiduciary

Investment Policy Statement

5 Age/Risk based models

Fund/ETF Lineup

Choice of three record-keepers

Dedicated Web Platform


Online Risk Tolerance Questionnaire


Co-Branded Investment Proposals


Tools to Help You Analyze Portfolios

Robust Reports for Current Clients


Client Review Packet


Supplementary Marketing Material


Investment Commentary


Communication Materials


36 36

Morningstar Managed Portfolios

Case Studies

37 37


Case #1:

Conservative client, worried about being invested heavily in

bonds with the rising interest rate environment, but does not

want the volatility of equities.

Solution:

Morningstar Absolute Return portfolio

Absolute Return Portfolio Results

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%. See appendix for performance disclosures and definition of statistics. Past performance does not guarantee future results. An index is unmanaged and an investor cannot invest directly in an index.

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

April 2005 through December 2013

Absolute Return S&P 500

Annualized Return 4.30% 7.50%

Standard Deviation 5.91% 15.39%

Sharpe Ratio 0.47 0.44

Up Capture 39.37 100.0%

Down Capture 32.37 100.0%

Alpha vs. Market 0.33 0.0%

Beta vs. Market 0.36 1.00

Advisor Suggestion for Linda’s $500,000 Portfolio

× Retain the bulk of assets in the traditional portfolio for growth purposes

× Allocate a slice of assets to Absolute Return to hedge market risk

For illustrative purposes only. Neither diversification or asset allocation ensure a profit or guarantee against a loss.

100% Moderate Growth

30% Absolute Return

70% Moderate Growth

Current Suggested

40 40


Case #2:

Client needs income and growth. They are concerned about

rising interest rates. They need income, but also need to grow

their principle. They have a long time horizon.

Solution:

Morningstar Dividend Stock Basket

Morningstar Equity Income Stock Basket

What Sets Us Apart From Our Competitors?

Portfolio construction

Ibbotson Associates

Incorporating alternatives

Tactical overlay

Research

“GPA”

Boutique managers

Risk-management

Stressing risk-adjusted returns

Using flexible managers

“Absolute return”

Experience

Decade-plus track record

Portfolio Construction: 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

Goal: maximize return for a given level of risk

Recommendations form the basis for each portfolio

Use alternatives across portfolios

Ibbotson Associates is a registered investment advisor and wholly-owned subsidiary of Morningstar , Inc. Each portfolio has a set of target allocations which serve as guidelines in managing the portfolio. The asset class forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that these ideas will be successful. Diversification nor asset allocation ensure a profit or protect against a loss.

Research: Rigorous, Independent

Leverage proprietary data, analytics, grading system

Look beyond stars, style-box

Draw on decades of experience research managers

Before investing in a fund, we meet face-to-face with each manager

The world is our oyster

We don’t play favorites

Research: Proprietary Fund Selection

For illustrative purposes only; information subject to change.

Research: GPA Report

Examines five critical factors:

Process

Performance

People

Price

Parent

Performance and price grades updated monthly

Qualitative factors monitored, adjusted on an ongoing basis

React to events, not calendar

Source: Morningstar Investment Services, Inc.; as of May 4, 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.

GPA Report Excerpt

Research: Using Boutique Managers


Risk Management: Built Into Our Process

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal.

× Established, repeatable, continual four-step process

× Designed to help portfolios stay well-positioned through the market’s up and downs

Risk-Management: Stressing Risk-Adjusted Returns

”Performance Scorecard” considers

Trailing returns

Risk-adjusted metrics

Consistency

Downside statistics

Measure over multiple time periods, including custom periods

Update monthly on entire fund universe

Ensures consistency, uniformity

Source: Morningstar Investment Services, Inc.; as of January 25, 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

Risk-Management: Using Flexible Managers

IVA Worldwide: Flexible world-allocation fund that seeks capital appreciation by investing across various asset classes around the globe

Source: Morningstar Direct. As of 03/31/2013. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice. For illustrative purposes only.

Recent Asset Allocation

US Equity 27.6%

International Equity 29.7%

Fixed Income 12.3%

Gold 4.9%

Cash 24.8%

Other 0.77%

Risk-Management: “Absolute Return” Approach

We use an “absolute return “ approach across our strategies to help deliver steadier, more consistent returns

Add value by using funds that invest in alternatives, or non-traditional asset classes where appropriate

Source: Absolute Investment Advisers. As of 12/31/2012. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice For illustrative purposes only.

Example: Moderate Growth Portfolio

As of 12/31/2012. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice For illustrative purposes only.

What is Absolute Return Designed to Do?

Provide moderate, consistent returns that aren’t overly dependent on markets’ direction

Help investors of all kinds manage risk.

Adapt to any market environment;

Follows approach first used by university endowments

Invests a broad range of alternative securities

Allows portfolio to pursue opportunities we think are most promising

Provide downside protection in volatile markets

Provides some protection in down markets; captures appreciation in up markets.

Sample Growth ETF Strategy

For illustrative purposes only; not intended to be an offer or recommendation to buy/sell the above securities. Allocations subject to change without notice; Weighting and expense ratio as of 01/22/2013.

Ticker Weighting EXP Ratio

Cor

e

Vanguard Total Stock Market VTI 31.6% 0.05

Vanguard Developed Markets VEA 10.96% 0.10

Vanguard Total Bond Market BND 7.86% 0.10

First Trust ISE-Rever Natural Gas IDX FCG 6.61% 0.60

Vanguard Small Cap VB 6.56% 0.10

Vanguard Emerging Markets VWO 6.43% 0.18

Money Market 5.41%

Expl

ore

Wisdom Tree Japan SmallCap Dividend DFJ 7.84% 0.58

SPDR S&P International Dividend DWX 6.08% 0.45

Health Care Select Sector SPDR XLV 4.42% 0.18

PowerShares Senior Loan Port BLKN 3.68% 0.65

PIMCO Total Return BOND 2.56% 0.55

Portfolio Blended Expense Ratio 0.22

Leveraging Morningstar, Inc.’s Equity Research

As of June 2013

Independent analysis from over 100 analysts, covering around 1,800 stocks

Actionable investment ideas

Economic Moat ratings

Fair Value estimates

Coverage Snapshot

129

217 244

39

83

149 194

145

104

151 82

802 577 158

Morningstar, Inc.’s Stock Research: Focus and Key Tenets

Look for what we feel are superior businesses that trade at discounts to the Morningstar, Inc. Analyst estimate of their fair values

Free cash flow is what matters, not reported earnings

A firm that grows without earning its cost of capital destroys long-term business value

Shareholder value is created by maximizing the return on invested capital

Focus on firms whose businesses display “moat-like” characteristics.

Competitive Fee Structure – Mutual Fund Portfolios

*MIS Minimum Annual Fee is $200 for those accounts not held at BNY.

**Please note that fees may vary based on business relationships.

Account Minimum: $50,000 (lower in family plan)

Client fee does not include the mutual funds’ expenses

Advisor fee can be discounted in 5 bps increments

Mutual Fund Portfolios Up to $500,000 Next $500,000 Next $1MM Over $2MM

Morningstar Investment Services* 0.40% 0.35% 0.30% 0.20%

Advisory Firm** 1.10% 1.05% 1.00% 0.90%

Total Annual Fee 1.50% 1.40% 1.30% 1.10%

Competitive Fee Structure – ETF Portfolios

*MIS Minimum Annual Fee is $150.


$50,000 account minimum

Client fee does not include the underlying ETF’s expenses

Client fee does not include costs associated with custody/clearing/execution


ETF Portfolios Up to $1MM Next $4MM Thereafter

Morningstar Investment Services* 0.30% 0.25% 0.20%

Advisory Firm** 1.10% 1.10% 1.10%

Total Annual Fee 1.40% 1.35% 1.30%

Competitive Fee Structure – Select Stock Baskets

*MIS Minimum Annual Fee is $550 for Strategist Series and $1375 for Custom Series.


Account minimums: Custom Series $250,000, Strategist Series all-equity $100,000, Strategist with fixed-income allocation (80/20, 65/35, 50/50) $250,000

Client fee does not include costs associated with custody/clearing/execution


Select Stock Baskets Up to $1MM Next $4MM Thereafter

Morningstar Investment Services* 0.55% 0.50% 0.45%

Advisory Firm** 1.10% 1.10% 1.10%

Total Annual Fee 1.65% 1.60% 1.55%

The opinions expressed herein are those of Morningstar Investment Services, are as of the date written and are subject to change without notice, do not constitute investment advice and 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. Morningstar Investment Services shall not be responsible for any trading decisions, damages, or other loses resulting from, or related to, the information data, analyses or opinions or their use.

The Morningstar Investment Management division is a division of Morningstar and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, all registered investment advisors and wholly owned subsidiaries of Morningstar, Inc.

Ibbotson Associates is a registered investment advisor and wholly-owned subsidiary of Morningstar and serves as a sub-advisor to the Morningstar Managed Portfolios program.

Past performance is no guarantee of future results.

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

Portfolio The portfolio returns presented are derived from seeded portfolios. For inception dates, please refer to our Website for a complete list. Each model portfolio is similar to the investment strategies managed for clients on a discretionary basis under the Morningstar Managed Portfolios program (‘Program’). Each model portfolio is designed to achieve a certain strategy and consists primarily of mutual funds (‘MF’), exchange-traded funds (‘ETF’) and equity securities (‘Equity’) (each a ‘Strategy Portfolio’, collectively ‘Strategy Portfolios’) Each Strategy Portfolio will invest in one or a combination of the aforementioned securities.

The Strategy Portfolios have similar investment objectives and strategies as the portfolios recommended to individual clients. The purpose in presenting Strategy Portfolio performance is to provide a historical indication of the performance of the Strategy Portfolio. The Strategy Portfolio may not have contained and/or currently contain the same holdings as the holdings currently underlying this Strategy Portfolio.

The performance of each Strategy Portfolio presented is not a reflection of actual clients’ portfolios, but is that of seeded portfolios which are managed in the same manner as the portfolios managed for actual clients (e.g., the timing of rebalancing and/or reallocation transactions for each Strategy Portfolio is the same as when such transactions are implemented for actual clients).

Returns Gross of Program Fees—

The ‘gross’ performance presented for each Strategy Portfolio does not include any Program fees (Total maximum program fees are disclosed below), brokerage commissions or the effects of taxation. If such expenses/adjustments were taken into account, the performance noted would be less (and in some cases may be significantly less).

MF and ETF Strategy Portfolio - The ‘gross’ performance calculations do assume all dividends and capital gains distributions are reinvested and are net of fees and expenses. Performance is based on the MF or ETF net asset value as of close of trading on the New York Stock Exchange at the last business day of a month.

Equity Strategy Portfolio - The ‘gross’ performance calculations do assume all applicable dividends and MLP distributions are reinvested into the account but may not be into the specific Equities that paid the dividend. Performance is based on a common stock’s market price as of close of trading on the last business day of a month.

For Equity Portfolios, client returns and purchases and sales of individual equities for a given strategy may differ significantly from that of the model account. This is especially true for strategies in our custom series, as each client portfolio is unique and managed at the individual account level.

Disclosures

All Strategy Portfolios’ returns were calculated using a time weighted, geometrically linked rate of return formula. Returns for periods over one year are annualized. Returns for periods under twelve months are not annualized.

In no way should the performance of each Strategy Portfolio be: considered indicative or a guarantee of the future performance of an actual client’s portfolio with the same strategy; considered indicative or the actual performance achieved by actual clients in the same strategy within the Program; or viewed as a substitute for the actual portfolios recommended to individual clients.

Actual results of an individual client in the Program may differ substantially from the historical performance shown for a Strategy Portfolio and may include an individual client incurring a loss. Past performance is no guarantee of future results.

MIS does not guarantee that the results of their advice, recommendations, or the objectives of a Strategy Portfolio will be achieved. The Strategy Portfolios may not have contained and/or currently may not contain the same underlying holdings that are currently underlying the Strategy Portfolios.

Total Maximum Program Fees

MF Portfolios 1.50%

ETF Portfolios 1.40%

Equity Portfolios 1.65%

ETFs carry certain risks that may adversely affect their net asset value, market price, and/or performance. Because ETFs are not actively managed, their value may be affected by a general decline in the U.S. market segments relating to their underlying indexes. ETFs are traded on national exchanges and therefore are subject to similar investment risks as common stocks.

The Select Stock Baskets portfolios ("Portfolios") invest primarily in common stocks of U.S. companies although certain Portfolios may also contain Master Limited Partnerships, American Depositary Receipts and/or Real Estate Investment Trusts. Common stocks are a type of equity security that represents an ownership interest in a corporation and are typically subject to greater fluctuations in market value than other asset classes as a result of such factors as a company's business performance, investor perceptions, stock market trends, and general economic conditions.

Standard Deviation measures an investment’s volatility or range of outcomes. The total returns of any given investment are expected to be within one standard deviation from its mean return about 68% of the time and within two standard deviations from the mean 95% of the time.

Sharpe Ratio measures return per unit of risk. Equal to excess return (average monthly return less average monthly return of 90-day Treasury bill) divided by standard deviation.

Upside Capture is the percentage of the return of the benchmark the investment captured when the selected benchmark had a positive return.

Downside Capture is the percentage of the return of the benchmark the investment captured when the selected benchmark had a negative return. For example, if the selected benchmark had a -10% return and the investment had 25% downside capture, it would have returned -2.5% during that down period.

Beta is a measure of an investment’s sensitivity to market movements. A low beta implies that an investment’s market related risk is low.

Disclosures

Alpha measures a fund’s actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta predicted.

Drawdown measures the magnitude of decline in an investment during a specific period as measured from peak to trough.

Performance: Imposition of advisory fees and other expenses incurred in the management of an account would cause actual performance to be lower than the performance shown. For example, if the one-year performance before such fees was 10% and the account assessed an annual fee of 1.50% deducted quarterly, the fee would reduce the performance approximately 8.36% annually.

Long-Short Equity—Combines a long position (number of contracts bought exceeds number sold) in one security with a short position (number of contracts sold exceeds number bought) in another.

Convertible Arbitrage—Includes the purchase of convertible securities and the sale of the underlying common stock. These securities tend to be convertible bonds or convertible preferred stocks that may be converted into the stock of the same company. This strategy strives to gain profits from potential pricing errors made in the conversion.

Credit Arbitrage—Seeks to exploit the mispricing of different classes of securities of the same company, and may invest in investment grade and/ or non investment grade corporate debt, credit derivatives, loans, equities, structured products, credit index securities and private debt.

Merger Arbitrage—Seeks to profit from the successful completion of corporate organizations. Hedging strategies are utilized to reduce market exposure and volatility.

Multi-Strategy—Offers investors exposure to a combination of strategies like long-short equity and debt, managed futures, global macro, and convertible arbitrage, among others.

Global Macro—Establishes long/short exposures around the globe to take advantage of what the manager believes to be attractive opportunities. May invest in fixed income and equities securities, a wide variety of derivative instruments, and commodities-related investments. underlying common stock. These securities tend to be attractive opportunities. May invest in fixed income and equities securities, a wide variety of derivative instruments, and commodities-related investments.

Disclosures

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