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©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 pr ior written consent of Morningstar Investment Services is prohibited.

For financial professional use only.

Morningstar®

Investment Services

Core Managed Portfolios

Peter Dugery

Senior Vice President, National Sales

Morningstar Investment Services

August 21st, 2012

For financial professional use only. This document is not complete without accompanying disclosures on page s 35-36.

Agenda

× Why Managed Money?

× Current Landscape

× Your Practice and Our Core Morningstar Managed Portfolios

× Platform Demonstration and Roadmap to Take Action


Why Managed Money for your Clients?

× Third-party managers are independent, bringing objectivity and investment discipline

to the table

× They remove as much emotion as possible from the process

× They can bring greater transparency and contribute positively to a client/advisor

relationship built on trust

× Economies of scale reduce costs of portfolio management, improve access to

investments

× They can utilize institutional-level risk and volatility management controls


Why Managed Money for your Practice?

× Save you time and worry by allowing you to focus more time on planning for clients

× Help you build a repeatable investment experience for your clients

× Help you to differentiate yourself in a more meaningful way

× Enable you to focus on your biggest revenue-generating activities

× Deliver a smoother, higher-value succession plan

Third-party managers can:


Five Points on the Current Landscape

× Evolutionary shift to Fee Based/Managed Accounts is continuing

× Attracting Competition

× Need for Product Differentiation

× Open Architecture

× ETF’s as Growth Driver


Morningstar: Independent. Experienced. Well Researched.

× Part of Morningstar’s Investment Management division

× Morningstar, Inc: has been researching mutual fund, stock, and Exchange Traded

Funds for over 25 years

× Leverage proprietary data, analytics

× Good stewards: Invest client assets like they are our own

$185.5B Total Assets*

34 Serving Clients**

+ yrs 2 patents Human Capital and Asset Allocation

with Annuities***

*Data 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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About Morningstar Investment Services

× Objective, independent approach

× Actively managed mutual fund, stock

and ETF model portfolios

× Online platform including profiling tools,

proposals, and statements

× Professional investment management

× You manage your clients and your

business

× Let us worry about portfolio

construction and manager/security

selection

80+ years

investment experience

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Our Investment Team

8

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, BA


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



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

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Morningstar Investment Services: Core Holdings

× Independent research

× Long track record

× Mutual fund portfolios launched in 2001

× ETF portfolios launched in 2007

× Utilize Morningstar, Inc.’s extensive research

× Broadly diversified portfolios

× Use of alternatives

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Creating Core Portfolios

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Our Investment Process

× Our continual four-step process is designed to help the portfolios stay

well-positioned through the market’s up and downs

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What Sets Us Apart?

× Portfolio construction

× Ibbotson Associates

× Incorporating alternatives

× Research

× “GPA”

× Boutique managers

× Risk-management

× Stressing risk-adjusted returns

× Using flexible managers

× Experience

× Decade-plus track record

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Portfolio Construction: Ibbotson Associates

× Ibbotson Associates, a Morningstar, Inc. company, sets the strategic asset allocation

of our diversified portfolios

× Methodology rooted in 30+ years of research and investment theory

× Asset allocation is critical in determining a portfolio’s risk and return

characteristics

× Ibbotson’s use of alternatives in asset allocation is unique

Create asset class

recommendations

Determine an efficient

mix: mean-variance

optimization

Standard

Deviation

Covariance

Asset Class Forecasts

Asset Class Models Efficient Frontier

Expected

Returns

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Research: Rigorous, Independent

× We do our own work

× Draw on decades of experience

researching managers

× Leverage proprietary data, analytics,

grading system

× Look beyond the 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.

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Fund Selection: GPA Fund Evaluation System

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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. 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

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Research: Using Boutique Managers

For illustrative purposes only. Morningstar Investment Services is not affiliated with companies shown. 18


Quantitative Analysis

× Performance analysis

× Risk metrics

Qualitative Due Diligence

× Interview managers

× Peruse SEC filings

× Hold on-site visits

× Evaluate fund company stewardship

Strategic Allocation

× Long-term risk/return profile

× Diversify across asset classes

Tactical Overlay

× Over/underweight relative to strategic allocation

Monitor

× Managers

× Portfolio positioning

× Risk factors

Adjust

× Rebalance accounts

× Top-down adjustments

× Fund specific changes

Portfolio Level

× Holdings-based analysis

× Manage to target risk

× Monitor fund overlap

Fund Level

× Tailor fund to strategy

× Contribution to portfolio risk and expenses

Risk-Management: Built Into Our Process

Disciplined

Asset

Allocation

Rigorous Fund

Evaluation

and Selection

Cohesive

Portfolio

Construction

Continuous

Risk

Management

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Our Mutual Fund Portfolios

Our Core

Mutual Fund Portfolios

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Core Portfolios: Diversified Mutual Fund Portfolios

× Diversified mutual-fund portfolios

× Invests in actively-managed funds

× Well suited to anchor core of a portfolio

× Pair well with specialized strategies

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Conservative

Income &

Growth

Moderate

Growth

Growth

Aggressive

Growth


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%

Asset Allocation of Our Retirement Income Portfolios

Monte Carlo Analysis, 95% Confidence Interval with payouts adjusted

for inflation.

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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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The Ibbotson Active/Passive Series

• Focus on fees

Note that the passive portion of a portfolio may be invested in a combination of indexed mutual funds and ETFs, or simply indexed mutual funds, depending on custodial arrangement.

For illustration purposes, we have grouped the sub-asset allocations together, showing only the six broad asset classes above. Weightings are subject to change.

All investments involve risk, including loss of principal. Past performance is no guarantee of future results.

Diversification does not assure a profit or protect against a loss in a declining market.


Our Diversified ETF Portfolios

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The Case for Our ETF Portfolios

× Wide diversification

× Ibbotson

× Low cost

× Internal model expenses: 0.15% - 0.20%

× Benefits of active, passive management

× Core-and-explore format

× Disciplined, methodical approach

× Leverage Morningstar’s research

Conservative

Income &

Growth

Moderate

Growth

Growth

Aggressive

Growth

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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

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Tactical Decision-Making

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Select Stock Baskets

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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 holdings*

× Transfer existing holdings

× Portfolio can be built around client’s other holdings

× Actively managed to 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 my 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.

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Select Stock Baskets Custom Series

Broad Market Global Equity

Composite Style Equity Income

Capital Appreciation

Foreign Foreign Equity

Market Capitalization Small+Mid-Cap Equity

× You can elect further customization

× $250,000 account minimum

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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

Select Stock Baskets Strategist Series

► Select Stock Basket strategies to choose from

The Tortoise Portfolio

The Hare Portfolio

The Dividend 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

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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%

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

× Minimum Exceptions: Enhanced Portfolio Service, $1MM

× Client fee does not include the mutual funds’ expenses

× Advisor fee can be discounted in 5 bps increments

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

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

Maximum Fee Schedule

Mutual Fund Portfolios - Fee Structure


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

Morningstar Investment Services* 0.31% 0.25% 0.20%

Advisory Firm ** 1.10% 1.10% 1.10%

Total Annual Fee 1.41% 1.35% 1.30%

× $100,000 account minimum

× Client fee does not include the underlying ETF’s expenses

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

× Advisor fee can be discounted in 5 bps increments

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


Maximum Fee Schedule

ETF Portfolios- Fee Schedule


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%

Account minimums: $100,000 Strategist Series, $250,000 Custom Series

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

Advisor fee can be discounted in 5 bps increments

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


Stock Baskets - Fee Structure


Why Morningstar Investment Services?

× Our focus

× Help fee-based, independent advisors grow their practices

× Our experience

× 10-plus years

× We work with thousands of advisors like you

× Our reputation

× Clients first

× Independence, objectivity

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Morningstar Investment Services Sales Team

Peter Dugery 312 696-6040

National Director [email protected]

General Information 877 626-3227

Internal Service [email protected]

Representatives www.mis.morningstar.com

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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.

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.

Appendix: Disclosures

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Appendix: Performance Metrics Definitions

× 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.

× 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.

× 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.

× 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.

× Russell 3000 Index – A market-capitalization weighted index that includes the 3,000 largest U.S. companies based on

total market capitalization.

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