1. S1800.2
Client Presentation
The returns and other characteristics of the allocation mixes contained in this presentation are based on model/back-tested simulations to demonstrate broad economic
principles. They were achieved with the benefit of hindsight and do not represent actual investment performance. There are limitations inherent in model performance; it does
not reflect trading in actual accounts and may not reflect the impact that economic and market factors may have had on an advisor’s decision making if the advisor were
managing actual client money. Model performance is hypothetical and is for illustrative purposes only. Model performance shown includes reinvestment of dividends and
other earnings but does not reflect the deduction of investment advisory fees or other expenses. Clients’ investment returns would be reduced by the advisory fees and other
expenses they would incur in the management of their accounts.
Past performance is not a guarantee of future results, and there is always the risk that an investor may lose money. Indexes are not available for direct investment. Their
performance does not reflect the expenses associated with the management of an actual portfolio.
2. S1810.3
Principles
• Markets work. Capital markets do a good job of fairly pricing all available
information and investor expectations about publicly traded securities.
• Diversification is key. Comprehensive, global asset allocation can neutralize the
risks specific to individual securities.
• Risk and return are related. The compensation for taking on increased levels of
risk is the potential to earn greater returns.
• Portfolio structure explains performance. The asset classes that comprise a
portfolio and the risk levels of those asset classes are responsible for most of
the variability of portfolio returns.
3. S1820.1
Basic 60/40 Balanced Strategy vs. Company Plans
Results of 192 Corporate Pension Funds
Annual: 1988–2005
16
Companies
(in alphabetical order)
14
Annual Average Returns (%)
Anheuser-Busch Cos., Inc.
12 Avista Corp.
Cooper Industries, Inc.
10 Delta Air Lines, Inc.
Edison International
FirstEnergy Corp.
8
Goodyear Tire & Rubber Co.
Ingersoll-Rand Co. Ltd.
6
IBM Corporation
Jefferson-Pilot Corp.
4 Lincoln National Corp.
Sherwin-Williams Co.
2 Sunoco, Inc.
SunTrust Banks, Inc.
0 UAL Corp.
Union Pacific Corp.
Company 110
Company 120
Company 130
Company 140
Company 150
Company 160
Company 170
Company 180
Company 190
Company 192
Company 100
Basic 60/40
Company 1
Company 60
Company 70
Company 80
Company 90
Company 10
Company 20
Company 30
Company 40
Company 50
Verizon Communications, Inc.
VF Corp.
West Pharmaceutical Svcs., Inc.
Williams Cos., Inc.
Wolverine World Wide, Inc.
Basic 60/40 is 60% S&P 500 Index, 40% Lehman Brothers US Government/Credit Bond Index Intermediate, rebalanced monthly.
Source: FutureMetrics (December 2006); all companies with fiscal year ending December, with complete return data from 1988–2005.
The S&P data are provided by Standard & Poor’s Index Services Group. Barclays Capital data provided by Barclays Bank PLC.
4. S1830.6
The Basic Institutional Portfolio
Quarterly: 1973–2010
Model Portfolio 1
Annualized Annualized
S&P 500 Index
Compound Standard Barclays US Government/Credit Bond Index
Return Deviation
Model Portfolio 1 9.47% 11.16%
Barclays US
Govt./Credit S&P 500
Bond Index Index
Model Portfolio 1 40% 60%
Barclays Capital data provided by Barclays Bank PLC. The S&P data are provided by Standard & Poor’s Index Services Group.
Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model
allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See cover page for additional information.
6. S1850.6
Substituting Short-Term for Long-Term Fixed Income
Quarterly: 1973–2010
Model Portfolio 2
S&P 500 Index
Annualized Annualized
Compound Standard BofA Merrill Lynch One-Year US Treasury Note Index
Return Deviation
Model Portfolio 1 9.47% 11.16%
Model Portfolio 2 8.83% 10.23%
BofA Merrill Lynch
Barclays US One-Year US
Govt./Credit S&P 500 Treasury Note
Bond Index Index Index
Model Portfolio 1 40% 60%
Model Portfolio 2 60% 40%
Barclays Capital data provided by Barclays Bank PLC. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with
permission; copyright 2011 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved.
Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes
designed with the benefit of hindsight and so not represent actual investment performance. See cover page for additional information.
7. S1860.6
History of the Size Effect
1965–1968 1969–1974
Total Returns (%)
350 0
• The size effect can
persist for long periods in
either direction. 0 -75
1 S&P 2 3 4 5 6 7 8 9 10 1 S&P 2 3 4 5 6 7 8 9 10
• These long periods Market Cap Decile Largest Smallest Largest Smallest
can immediately be
succeeded by
a reversal in the opposite 1975–1983 1984–1990
Total Returns (%)
1,400 175
direction.
0
-25
1 S&P 2 3 4 5 6 7 8 9 10 1 S&P 2 3 4 5 6 7 8 9 10
Market Cap Decile Largest Smallest Largest Smallest
Total Returns (%)
Market Cap Decile Largest Smallest
The S&P data are provided by Standard & Poor’s Index Services Group.
Market cap decile data provided by the Center for Research in Security Prices, University of Chicago.
Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
8. S1870.7
Diversifying a Portfolio into US Small Cap Stocks
Quarterly: 1973–2010
Model Portfolio 3
Annualized Annualized BofA Merrill Lynch One-Year US Treasury Note Index
Compound Standard S&P 500 Index
Return Deviation US Small Cap Index
Model Portfolio 1 9.47% 11.16%
Model Portfolio 2 8.83% 10.23%
Model Portfolio 3 9.74% 11.88%
BofA Merrill Lynch
Barclays US One-Year US US Small
Govt./Credit S&P 500 Treasury Note Cap
Bond Index Index Index Index
Model Portfolio 1 40% 60%
Model Portfolio 2 60% 40%
Model Portfolio 3 30% 40% 30%
Barclays Capital data provided by Barclays Bank PLC. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with
permission; copyright 2011 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Dimensional Index data compiled by Dimensional. Indexes are not available
for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future
results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do
not represent actual investment performance. See cover page for additional information.
9. S1890.6
Size and Value Effects in the US
Annual: 1927–2010
US Large US Small
Capitalization Stocks Capitalization Stocks
13.82
11.69
10.45
9.85
9.05 8.97
Annualized
Compound
Returns (%)
Fama/French Fama/French Fama/French Fama/French
US Large S&P 500 US Large US Small CRSP 6-10 US Small
Value Index Index Growth Index Value Index Index Growth Index
Average
Return (%) 14.03 11.88 11.35 19.17 15.98 13.95
Standard
Deviation (%) 27.01 20.51 21.93 35.13 30.94 34.05
Fama/French data provided by Fama/French. The S&P data are provided by Standard & Poor’s Index Services Group. CRSP data provided by
the Center for Research in Security Prices, University of Chicago.
Small company risk: Securities of small firms are often less liquid than those of large companies. As a result, small company stocks may
fluctuate relatively more in price. Indexes are not available for direct investment. Their performance does not reflect the expenses associated
with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. See
cover page for additional information.
10. S1900.9
Diversifying a Portfolio into US Value Stocks
Quarterly: 1973–2010
Model Portfolio 4
Annualized Annualized Merrill Lynch One-Year US Treasury Note Index
Compound Standard S&P 500 Index
Return Deviation
US Small Cap Index
Model Portfolio 1 9.47% 11.16%
US Large Value Index
Model Portfolio 2 8.83% 10.23%
Targeted Value Index
Model Portfolio 3 9.74% 11.88%
Model Portfolio 4 10.68% 11.81%
Barclays US BofA Merrill
Govt./Credit Lynch One-Year US Small US Large Targeted
Bond S&P 500 US Treasury Cap Value Value
Index Index Note Index Index Index Index
Model Portfolio 1 40% 60%
Model Portfolio 2 60% 40%
Model Portfolio 3 30% 40% 30%
Model Portfolio 4 15% 40% 15% 15% 15%
Barclays Capital data, formerly Lehman Brothers, provided by Barclays Bank PLC. The S&P data are provided by Standard & Poor’s Index Services Group. The
Merrill Lynch Indices are used with permission; copyright 2011 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Dimensional Index data
compiled by Dimensional.
Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model
allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See cover page for additional information.
11. S1910.6
Size and Value Effects Abroad
Annual: 1975–2010
Non-US Developed
Markets Stocks
15.79 15.72
10.57
Annualized
Compound Return
(%)
Fama/French International
International Small Cap MSCI World
Value Index Index ex USA Index
Average Annual Return (%) 18.48 19.17 12.74
Standard Deviation (%) 24.56 28.13 21.47
Annual Correlation 0.596 0.505 0.651
Coefficient to S&P 500 Index
Fama/French data provided by Fama/French from Bloomberg and MSCI securities data. International Small Cap Index data compiled by Dimensional from
Bloomberg, Style Research, London Business School, and Nomura Securities data. MSCI data copyright MSCI 2011, all rights reserved; see MSCI
disclosure page for additional information. The S&P data are provided by Standard & Poor’s Index Services Group.
Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. Not to be construed as investment advice.
12. S1920.7
A Fully Diversified Portfolio
Quarterly: 1973-2010
Model Portfolio 5
Annualized Annualized Merrill Lynch One-Year US Treasury Note Index
Compound Standard S&P 500 Index
Return Deviation
US Small Cap Index
Model Portfolio 1 9.47% 11.16% US Large Value Index
Model Portfolio 2 8.83% 10.23% Targeted Value Index
Model Portfolio 3 9.74% 11.88% International Large Index
International Small Index
Model Portfolio 4 10.68% 11.81%
International Large Value Index
Model Portfolio 5 11.65% 11.26%
International Small Value Index
Emerging Markets Blended Index
BofA
Barclays US Merrill Lynch US US Intl. Intl. Emerging
Govt./Credit S&P One-Year US Small Large Targeted Intl. Intl. Large Small Markets
Bond 500 Treasury Cap Value Value Large Small Value Value Blended
Index Index Note Index Index Index Index Index Index Index Index Index
Model Portfolio 1 40% 60%
Model Portfolio 2 60% 40%
Model Portfolio 3 30% 40% 30%
Model Portfolio 4 15% 40% 15% 15% 15%
Model Portfolio 5 7.5% 40% 7.5% 7.5% 7.5% 6% 6% 6% 6% 6%
Rebalanced annually. Barclays Capital data provided by Barclays Bank PLC. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch
Indices are used with permission; copyright 2011 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Dimensional Index data compiled by Dimensional.
Emerging Markets Blended Index consists of 50% Fama/French Emerging Markets Index, 25% Fama/French Emerging Markets Small Cap Index, and 25% Fama/French
Emerging Markets Value Index. Fama/French Emerging Markets, Fama/French Emerging Markets Value and Fama/French Emerging Markets Small Cap Index weightings
allocated evenly between Dimensional International Small Cap Index and Fama/French International Value Index prior to January 1989 data inception. Dimensional
International Small Cap Value Index weighting allocated to International Small Cap Index prior to July 1981 data inception. International Value weighting allocated evenly
between International Small Cap and MSCI World ex USA Index prior to January 1975 data inception. Indexes are not available for direct investment. Their performance
does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as
investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual
investment performance. See cover page for additional information.
13. S2000.5
MSCI Disclosure
Copyright MSCI 2011. Unpublished. All rights reserved. This information may only be used for your internal
use, may not be reproduced or redisseminated in any form and may not be used to create any financial
instruments or products or any indices. This information is provided on an “as is” basis and the user of this
information assumes the entire risk of any use it may make or permit to be made of this information. Neither
MSCI, any of its affiliates, nor any other person involved in or related to compiling, computing or creating this
information makes any express or implied warranties or representations with respect to such information or the
results to be obtained by the use thereof, and MSCI, its affiliates, and each such other person hereby
expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy,
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person involved in or related to compiling, computing, or creating this information have any liability for any
direct, indirect, special, incidental, punitive, consequential, or any other damages (including, without limitation,
lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.