Quarter In ReviewBarry Mendelson, CFP®President & Financial Advisor

1399 Y i V ll Rd S it 24 b @ l tiThird Quarter 2013

1399 Ygnacio Valley Rd, Suite 24 barry@elevationwm.comWalnut Creek, CA 94598 925-348-5852

www.elevationwm.com

Disclosures

Opinions expressed are those of Barry Mendelson, CFP® and Elevation Wealth Management.

This presentation should not be construed as investment advice.

The information contained in this presentation is compiled from sources p pbelieved to be reliable.

Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

The markets can remain irrational longer than you can remain solvent.

2

Ti li f E t Q t i R iTimeline of Events: Quarter in ReviewSelected headlines from Q3 2013

US Congress

10%

12% US Federal Reserve refrains from tapering and continues its pace of monthly bond buying purchases. S&P 500 Index hits all-time high of 1,729.86.

fails to agree on spending bill, resulting in partial government shutdown.

8%

US Federal Reserve announces it will carry on with current pace of stimulus.

GDP in euro zone climbs 0.3% in second quarter following six consecutive negative quarters.

Dow Jones Industrial Average replaces Alcoa, HP, and BofA with Nike, Visa, and Goldman Sachs.

6%

Egyptian President

Indian rupee falls to a record low of 68.85 against US dollar.

2%

4% Mohammed Morsi ousted and Egypt’s constitution suspended.

Prime Minister Shinzo Abe and Liberal Democratic Party win majority of seats in Japan’s upper house.

US and Russia agree on framework to destroy Syria’s chemical weapons.

0%6/28 7/28 8/28 9/287/31 8/31 9/30

3Returns in US dollars. Graph Source: MSCI ACWI Index. MSCI data copyright MSCI 2013, all rights reserved.It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

Market Returns

U.S. and International Market IndexesJuly 1, 2013 through September 30, 2013

Global 1-5 Year Bonds

Emerging MarketsStocks

Int’l Small Stocks

Int’l Value Stocks

U.S. REIT Stocks

U.S. Small Cap

Stocks

U.S. Value Stocks

U.S. Large Cap

Stocks

U.S. Gov/ Credit 1-3

Year Bonds

0.5%5.8%15.0%12.5%-3.2%+10.2%+3.9%+5.2% 0.4%

BONDSU.S. STOCKS INTERNATIONAL STOCKS

ONE 19 3% 22 3% 30 1% 4 7% 22 6% 24 8% 1 0% 0 8% 0 7%ONEYear 19.3% 22.3% 30.1% 4.7% 22.6% 24.8% 1.0% 0.8% 0.7%

FIVEYears 10.0% 8.9% 11.2% 5.3% 6.0% 11.1% 7.2% 2.5% 2.5%

TEN 7 6% 8 0% 9 6% 9 3% 8 3% 10 1% 12 8% 3 2% 2 9%

Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. SmallCompany Stocks (Russell 2000 Index), U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed (MSCI World Ex USA Value Index (net div.)),I t ti l S ll (MSCI W ld E USA S ll ( t di )) E i M k t (MSCI E i M k t I d ( t di )) Gl b l B d (Citi WGBI 1 5 Y Hd USD) US B d

Annualized for 5 and 10 Year Periods

Years 7.6% 8.0% 9.6% 9.3% 8.3% 10.1% 12.8% 3.2% 2.9%

International Small (MSCI World Ex USA Small (net div.)), Emerging Markets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI 1-5 Yr Hdg USD), US Bonds(BofA ML Corp & Govt 1-3 Yr TR). Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect theexpenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreigncurrency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.

World Asset Classes

I t ti l d l d k t l d it t d i th t M j i di t d iti t ith th ti f th

World Asset ClassesThird Quarter 2013 Index Returns

International developed markets led equity returns during the quarter. Major indices posted positive returns, with the exception of the US real estate market.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. M k t t (i d t ti ) f ll US L C (S&P 500 I d ) US S ll C (R ll 2000 I d ) US V l (R ll 1000 V l I d ) US R l E t t (D J US S l t REIT I d ) Gl b l R l

5

Market segment (index representation) as follows: US Large Cap (S&P 500 Index); US Small Cap (Russell 2000 Index); US Value (Russell 1000 Value Index); US Real Estate (Dow Jones US Select REIT Index); Global Real Estate (S&P Global ex US REIT Index); International Developed Large, Small, and Value (MSCI World ex USA, ex USA Small, and ex USA Value Indexes [net div.]); Emerging Markets Large, Small, and Value (MSCI Emerging Markets, Emerging Markets Small, and Emerging Markets Value Indexes); US Bond Market (Barclays US Aggregate Bond Index); and Treasury (One-Month US Treasury Bills). The S&P data are provided by Standard & Poor's Index Services Group. Russell data © Russell Investment Group 1995–2013, all rights reserved. MSCI data copyright MSCI 2013, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by Dow Jones Indexes. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

Diversified Portfolios Review

Asset Class Qtr 1

Year5

Year10

Year10 YearVolatility

Growth of WealthOct 2003 – Sep 2013

100% Stocks 8.6% 21.2% 8.4% 8.0% 16.4%

75-25 6.7% 16.0% 7.6% 7.3% 11.9%

50-50 4.7% 10.8% 6.2% 6.2% 7.7%

25-75 2.6% 5.7% 4.4% 4.7% 3.8%

100% Bonds 0.4% 0.6% 2.2% 2.9% 1.3%

Source: Morningstar Direct 2013. 5 and 10 year periods are annualized. Asset allocations and index portfolio returns are for illustrative purposes only and do not representactual performance. Stocks represented by MSCI World IMI Index (net div.) and Bonds represented by 50% Citi World Government Bond Index 1-5 Yr Hedged and 50% Bankof America Merrill Lynch US Treasury/Agency 1-3 Yr. Globally diversified portfolios rebalanced annually. Hypothetical value of $1 and kept invested through June 31, 2013f th ti d t A i t t f i d t ti t t Thi i f ill t ti l d t i di ti f i t tfrom the respective dates. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment.Indexes are unmanaged baskets of securities that are not available for direct investment by investors.Index performance does not reflect the expenses associated with the management of an actual portfolio.Past performance is not a guarantee of future results. Stock investing involves risks, including volatility(up and down movement in the value of your assets) and loss of principal.

Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index), Indexes are unmanaged baskets of securities that are notavailable for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not aguarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currency changes, political risks, foreigntaxes, and different methods of accounting and financial reporting. The time period for the performance shown was chosen to correlate with the market crisis in 2008. Therefore,performance is only shown up to January 31, 2009 and is not current to the most recent data available. More recent performance may alter these assessments or outcomes.7

Greatest Lessons from the Great Recession

1 Don’t let emotions drive investment decisions1. Don t let emotions drive investment decisions

2. Don’t try to time the markets

3. Active managers do not consistently outperform in bear

k tmarkets

4. Diversification still works

5. Don’t take unnecessary risks with bonds

6. Rebalance your portfolio regularly

7. There may be no better alternative to buy-and-hold investing

Don’t Let Emotions Drive Investment Decisions

It’s easy to let emotions influence your confidenceIt s easy to let emotions influence your confidence

Source: Wikipedia

“Pressure grew on Republicans to accept an increase in the

nations debt ceiling yesterday g y ywhen a major Wall Street rating firm threatened to downgrade

US government securities”

“Default would produce global economic and financial crisis of

major proportions”S&P 500 Performance

During Gov Shutdown 0 37%“The Treasury Department said it was its ‘duty and intention to take all legal steps

t th t th ti ’

During Gov Shutdown 0.37%

12 Months Following 18.72%necessary to assure that the nation’s

financial obligations — obligations already approved by Congress — are honored”

Source: Morningstar Direct 2013. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Indexperformance does not reflect the expenses associated with the management of an actual portfolio Past performance is not a guarantee of future

Source: Wikipedia — http://www.fool.com/investing/general/2013/09/30/the-most-important-thinginvestors-should-remember.aspxIndexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal.11

performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of futureresults. All investments involve risk, including loss of principal.

Don’t Try to Time the Markets

Best and Worst Days in the U.S. Stock MarketS&P 500 Index, Jan. 1, 1970 through Dec. 30, 2012

Worst Ten Days

Best Ten Days

Source: Yahoo! Finance. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index), Indexes are unmanagedbaskets of securities that are not available for direct investment by investors. Index performance does not reflect the expensesassociated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk,including loss of principal.

Active Managers Do Not Consistently Outperform

The S&P 500 began 2008 at 1468..

g y p

Noted Market Strategists’ Predictions for the S&P 500 Index at the End of 2008– Abhijit Chakrabortti (Morgan Stanley) 1520

– Richard Bernstein (Merrill Lynch) 1525

– Stuart Freeman (A.G. Edwards) 1575Stuart Freeman (A.G. Edwards) 1575

– Rod Smyth (Wachovia Securities) 1590

– Thomas Lee (JP Morgan Chase) 1590

– Tom McManus (Bank of America Securities) 1625

– Abby Joseph Cohen (Goldman Sachs) 1675

– Tobias Levkovich (Citigroup) 1675( g p)

– Jason Trennert (Strategas Research Partners) 1680

and ended at 903

Source: USA Today. 2008 predictions for the S&P 500. January 2, 2008.

…and ended at 903

13

Active Managers Have Not Outperformed in Bear MarketsActive Managers Do Not Consistently Outperform

• Standard and Poor’s study of 2008 2008 bear market concluded: “the belief

that bear markets favor active management is a myth.”

Active Managers

2008

• Study found similar results in 2003 for the 2000 - 2002 bear market.

Active Managersunderperformed

S&P 500 by1.67%1.67%

Source: Standard and Poor’s Investment Service, 2009. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. The data assumes reinvestment of income and does notaccount for taxes or transaction costs. Past performance is not a guarantee of future results.14

Active Managers Do Not Consistently Outperform

Percentage of Active Managers Failing to Beat IndexAugust 2008 through July 2013

Source: Standard & Poor’s Indices Versus Active (SPIVA) Aug 2008 Jul 2013 Index used for comparison: US Large Cap S&P 500 Index; US Mid Cap S&P MidCap 400 Source: Standard & Poor s Indices Versus Active (SPIVA), Aug 2008 – Jul 2013. Index used for comparison: US Large Cap — S&P 500 Index; US Mid Cap — S&P MidCap 400 Index; US Small Cap — S&P SmallCap 600 Index; Global— S&P Global 1200 Index; International — S&P 700 Index; Emerging Markets — S&P/IFCI Composite; Short-Term Inv. Grade Fixed Income — Barclays 1-3 Year Government/Credit Index. Outperformance is based upon equal weight fund counts. For illustrative purposes only. Index returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. Past performance is not an indication of future results.

Diversification Still Works

20%300%

-10%

0%

10%

150%

200%

250%

Cumulative Return Mar 2009

Sep 2013

-40%

-30%

-20%

50%

100%

150% – Sep 2013

Cumulative Return Jan 2008

-70%

-60%

-50%

ds ds ge ue all

Ts ue all

ets

-100%

-50%

0%

ds ds ge ue all

Ts ue all

ets

– Feb 2009

US

Bon

d

Glo

bal B

ond

US

Lar

g

US

Val

u

US

Sm

a

RE

IT

Inte

rnat

iona

l Val

u

Inte

rnat

iona

l Sm

a

Em

ergi

ng M

arke

US

Bon

d

Glo

bal B

ond

US

Lar

g

US

Val

u

US

Sm

a

RE

IT

Inte

rnat

iona

l Val

u

Inte

rnat

iona

l Sm

a

Em

ergi

ng M

arke

Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. SmallCompany Stocks (Russell 2000 Index), U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed (MSCI World Ex USA Value Index (net div.)),International Small (MSCI World Ex USA Small (net div.)), Emerging Markets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI 1-5 Yr Hdg USD), US Bonds(BofA ML Corp & Govt 1-3 Yr TR). Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect theexpenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal.Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. The risksassociated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets)and loss of principal. Emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods ofaccounting and financial reporting. Bonds are subject to market and interest rate risk. Bond values will decline as interest rates rise, issuer's creditworthiness declines, and aresubject to availability and changes in price. Real estate securities funds are subject to changes in economic conditions, credit risk and interest rate fluctuations.16

Diversification Still WorksRanking of Markets Around the World — Ten-Year Performance in US DollarsAnnualized Returns Year Ending September 30, 2013

1. Colombia 2. Philippines 3. Brazil

16. Malaysia 17. Singapore 18. Korea

31. UK 32. Spain 33. France

4. Egypt 5. Indonesia 6. Peru 7. Thailand

19. Chile 20. India 21. Australia 22. Hong Kong

34. USA35. Austria 36. Belgium 37. Israel

8. Mexico 9. Turkey 10. China 11. Norway

23. Poland 24. Germany 25. Switzerland 26. Canada

38. Hungary 39. Taiwan 40. Japan 41. Finland y

12. Czech Republic 13. South Africa 14. Sweden 15. Denmark

27. New Zealand 28. Morocco 29. Netherlands 30. Russia

42. Portugal 43. Italy 44. Ireland 45. Greece

Source: Morningstar Direct 2013 Countries represented by their respective MSCI IMI(net div ) Indexes are unmanaged baskets of securities in which investors cannot Source: Morningstar Direct 2013. Countries represented by their respective MSCI IMI(net div.). Indexes are unmanaged baskets of securities in which investors cannot directly invest; they do not reflect the payment of advisory fees or other expenses associated with specific investments or the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Diversification neither assures a profit nor guarantees against loss in a declining market.17

Don’t Take Unnecessary Risks with Bonds

Fixed Income Maturity Risk1970 20121970 – 2012

Source: Morningstar, January, 2013. Short-term government bonds are represented by the one-year U.S. government bond for 1970–2012. Intermediate-term government bondsare represented by the five year U S government bond and long term government bonds by the 20 year U S government bond An investment cannot be made directly in an indexare represented by the five-year U.S. government bond and long-term government bonds by the 20-year U.S. government bond. An investment cannot be made directly in an index.The data assumes reinvestment of all income and does not account for taxes or transaction costs. For the annual periods 1970 through 2012, each year was categorized as a yearwhen yields rose or a year when yields fell. The price changes during all years when yields rose were then averaged. The same was done for years in which yields declined. Theprice change was isolated, as opposed to the total return, so that the effect would be more pronounced. Bonds are subject tomarket and interest rate risk. Bond values will decline as interest rates rise, issuer's creditworthiness declines, and are subjectto availability and changes in price.

Don’t Take Unnecessary Risks with Bonds

10 Year Treasury YieldApr 1 Sep 30 201310 Year Treasury YieldJan 1 1983 Sep 30 2013Apr 1 – Sep 30, 2013Jan. 1, 1983 – Sep 30, 2013

Source: US Department of the Treasury. Past performance is not a guarantee of future results. All investments involve risk, includingloss of principal.

Rebalance Your Portfolio Regularly

Keys to Rebalancing

• Automatic- Set it and forget it- Set it and forget it

• Disciplined- Remove emotion from decision

• Frequency- Monthly, Quarterly, Annual make little difference

• Risk Management- Vital to maintaining a desired portfolio exposure

The buying and selling of securities for the purpose of rebalancing may have adverse tax consequences.

Rebalance Your Portfolio Regularly

Importance of Rebalancing1992 20121992 – 2012

Source: Morningstar Large stocks are represented by the Standard & Poor’s 500® index which is an unmanaged group of securities and considered to be representative of theSource: Morningstar. Large stocks are represented by the Standard & Poor’s 500® index, which is an unmanaged group of securities and considered to be representative of theU.S. stock market in general. Bonds are represented by the five-year U.S. government bond. An investment cannot be made directly in an index. The data assumes reinvestment ofincome and does not account for taxes or transaction costs. ©2013 Morningstar, Inc. All rights reserved. Stock investing involves risks, including increased volatility (up and downmovement in the value of your assets) and loss of principal. Bonds are subject to market and interest rate risk. Bond values willdecline as interest rates rise, issuer's creditworthiness declines, and are subject to availability and changes in price.

Pioneer of Modern Finance

S2013 Nobel Prize in Economics ScienceUniversity of Chicago Professor Eugene Fama, Sr.

For his groundbreaking work on Efficient Market HypothesisFor his groundbreaking work on Efficient Market Hypothesis

Greatest Lessons from the Great Recession

1 Don’t let emotions drive investment decisions1. Don t let emotions drive investment decisions

2. Don’t try to time the markets

3. Active managers do not consistently outperform in bear markets

4 Diversification still works4. Diversification still works

5. Don’t take unnecessary risks with bonds

6. Rebalance your portfolio regularly

7 There may be no better alternative to buy and hold investing7. There may be no better alternative to buy-and-hold investing

Given Time Markets RecoverGiven Time, Markets Recover

Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index), Indexesare unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflectthe expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Allinvestments involve risk, including loss of principal.

CommoditiesCommoditiesThird Quarter 2013 Index Returns

C diti d f th i YTD d li Individual Commodity (% Returns)Commodities reversed some of their YTD decline, as the DJ-UBS Commodity Index finished up 2.1% during the quarter.

With the US Federal Reserve hinting in mid-September that it will keep rates low for the foreseeable future 8 05

8.25

8.44

11.21

Brent Oil

Gold

Copper

Silver

Individual Commodity (% Returns)

that it will keep rates low for the foreseeable future, precious metals, which have borne the brunt of the commodity market decline so far this year, finished the quarter with a gain of 8-11%. The inflationary impact of the Fed’s decision was positive news for precious-metal investors 3.81

4.13

4.42

7.91

8.05

Cotton

Sugar

Lean Hogs

WTI Crude Oil

Brent Oil

precious metal investors.

Soft commodities, with the exception of coffee, corn, and soybean oil, reversed the declines from the previous quarter, finishing with gains of 1-4%. The energy complex, with the exception of natural gas, had a good 1.32

1.59

2.46

3.07

3.39

Aluminum

Live Cattle

Soybean

Unleaded Gas

Heating Oil

quarter; oil led the way, finishing up approximately 8%.

Asset Class YTD Q3 1 Year 3 Years** 5 Years** 10 Years**

Period Returns (%) * Annualized

-4.41

1.05

1.22

1.23

1.32

C ff

Natural Gas

Wheat

Zinc

Nickel

u u

Commodities -8.56 2.13 -14.35 -3.16 -5.29 2.14

-17.48

-8.91

-7.57

Corn

Soybean Oil

Coffee

Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.All index returns are net of withholding tax on dividends. Dow Jones-UBS Commodity Index Total Return data provided by Dow Jones ©.

25

Standardized Performance Data and Disclosures

Average Annual Total Returns (%) 3 Mo 1 Yr 5 Yr 10 Yr Since Inception

S&P 500 TR 5.24 19.34 10.02 7.56 10.43 Jan-26Russell 1000 Value TR USD 3.94 22.30 8.87 7.99 12.28 Dec-78Russell 2000 TR USD 10.21 30.06 11.16 9.64 11.90 Dec-78DJ US Select REIT TR USD -3.15 4.70 5.31 9.29 8.99 Dec-86MSCI World Ex USA Value NR USD 12.52 22.56 5.99 8.26 11.90 Dec-74MSCI World Ex USA Small Cap NR USD 14.97 24.75 11.06 10.15 9.19 Dec-00MSCI EM NR USD 5.77 0.98 7.22 12.80 10.97 Dec-98Citi WGBI 1-5 Yr Hdg USD 0.48 0.80 2.53 3.18 5.98 Jan-85BofAML US Corp&Govt 1-3 Yr TR USD 0.43 0.72 2.51 2.91 5.43 Jun-86

Data as of 9/30/13

Source: Morningstar Direct 2013. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of p g p p g gprincipal. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.

Appendix and additional data points on the following slides…g

US Stocks

R k d R t f th Q t (%)

US StocksThird Quarter 2013 Index Returns

D i th thi d t j US t l

8 11

10.21

12.80

L C G th

Small Cap

Small Cap Growth

Ranked Returns for the Quarter (%)During the third quarter, major US asset classes continued to post positive performances. Asset class returns ranged from 12.80% in small growth to 3.94% in large value.

Small caps outperformed large caps Growth

5.24

6.35

7.59

8.11

Large Cap

Marketwide

Small Cap Value

Large Cap GrowthSmall caps outperformed large caps. Growth indices outperformed value indices among both small caps and large caps.

3.94Large Cap Value

P i d R t (%) * A li dW ld M k t C it li ti US Period Returns (%) * Annualized

Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**

Marketwide 21.30 21.60 16.76 10.58 8.11Large Cap 19.79 19.34 16.27 10.02 7.57Large Cap Value 20.47 22.30 16.25 8.86 7.9849%

World Market Capitalization—US

Large Cap Growth 20.87 19.27 16.94 12.07 7.83Small Cap 27.69 30.06 18.29 11.15 9.64Small Cap Value 23.07 27.04 16.57 9.13 9.29Small Cap Growth 32.47 33.07 19.96 13.17 9.86

49%US Market $18.9 trillion

28

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap: Russell 3000 Index is used as the proxy for the US market. Russell data copyright © Russell Investment Group 1995–2013, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group.

International Developed StocksInternational Developed StocksThird Quarter 2013 Index Returns

D i th thi d t d l d k t t id R k d R t f th Q t (%)During the third quarter, developed markets outside the US posted strong performances. The size premium rebounded after reversing its negative trend in the second quarter.

The US dollar depreciated relative to the currencies

11.09

12 52

14.97Small Cap

Ranked Returns for the Quarter (%) US Currency Local Currency

The US dollar depreciated relative to the currencies of most major foreign developed countries, in particular the euro and the British pound, further adding to US dollar returns.

Across the size spectrum, value outperformed growth.

7.37

8.54

10.10

11.31

12.52

G th

Large Cap

Value

p p g

* A li dP i d R t (%)

6.20Growth

W ld M k t C it li ti I t ti l D l d * Annualized

Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**

Large Cap 14.66 21.45 7.89 6.12 8.18Small Cap 18.99 24.75 9.92 11.06 10.15Value 14.58 22.56 7.87 5.99 8.26

Period Returns (%)

40%

World Market Capitalization—International Developed

Growth 14.70 20.32 7.85 6.19 8.0240%International Developed Market $15.7 trillion

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth). All index returns are net of withholding tax on dividends. World Market Cap: Non-US developed market proxies are the respective developed country portions of the MSCI All Country World IMI ex USA Index. Proxies for the UK, Canada, and Australia are the relevant subsets of the developed market proxy. MSCI data copyright MSCI 2013, all rights reserved. 29

Emerging Markets StocksEmerging Markets StocksThird Quarter 2013 Index Returns

E i k t b d d i th l tt t f th R k d R t f th Q t (%)Emerging markets rebounded in the latter part of the third quarter. Value outperformed growth by 2.82%, and large caps outperformed small caps by 2.28% in US dollar terms.

The US dollar depreciated against most emerging

6.95

5 77

7.19Value

Ranked Returns for the Quarter (%) US Currency Local Currency

The US dollar depreciated against most emerging markets currencies.

4.33

5.63

3 49

4.37

5.77

Growth

Large Cap

3.423.49

Small Cap

* AnnualizedPeriod Returns (%)W ld M k t C it li ti E i M k t * Annualized

Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**

Large Cap -4.35 0.98 -0.33 7.22 12.80Small Cap -0.21 4.88 -1.41 12.36 13.77Value -5.65 -1.21 -1.15 7.08 14.07

Period Returns (%)

11%Emerging

World Market Capitalization—Emerging Markets

Growth -3.18 3.03 0.42 7.30 11.50Markets$4.2 trillion

30

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Large Cap (MSCI Emerging Markets Index), Small Cap (MSCI Emerging Markets Small Cap Index), Value (MSCI Emerging Markets Value Index), and Growth (MSCI Emerging Markets Growth Index). All index returns are net of withholding tax on dividends. World Market Cap: Emerging markets proxies are the respective emerging country portions of the MSCI All Country World IMI ex USA Index. MSCI data copyright MSCI 2013, all rights reserved.

Select Country PerformanceSelect Country Performance

All developed countries posted positive returns for the quarter, while performance was mixed in emerging markets. Spain, Greece, Italy, and Egypt were among the best performers in USD terms in contrast to their performance earlier this year Indonesia which reported a record

Third Quarter 2013 Index Returns

Egypt were among the best performers in USD terms, in contrast to their performance earlier this year. Indonesia, which reported a record high current account deficit, was the worst performing market as the rupiah declined sharply. The larger emerging markets countries of South Korea and Russia, however, performed well.

Developed Markets (% Returns) Emerging Markets (% Returns)

16.0819.0419.42

24.6525.8526.29

IrelandAustria

ItalyFinland

SpainGreece

13.30

13.96

14.47

17.71

17.96

Russia

Czech Republic

Korea

Poland

Egypt

13 0015.0415.6415.6715.8115.9616.08

BelgiumNetherlands

New ZealandDenmarkSwedenFrance

4.28

7.94

8.38

9.28

11.64

Taiwan

Brazil

South Africa

Colombia

China

9 079.87

11.5412.4512.7612.9313.00

C dSwitzerland

PortugalAustralia

UKGermanyBelgium

-3.38

-3.33

-2.91

-1.69

0.47

Peru

Hungary

Malaysia

Mexico

Morocco

4.926.35

7.398.639.069.07

SingaporeUSA

JapanNorway

Hong KongCanada

24 56

-6.65

-5.87

-5.82

-5.69

-5.11

I d i

Turkey

Philippines

Chile

India

Thailand

9

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Country performance based on respective indices in the MSCI World ex US IMI Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholding tax on dividends. MSCI data copyright MSCI 2013, all rights reserved. Russell data © Russell Investment Group 1995–2013, all rights reserved. Greece has recently been reclassified as an emerging markets country by MSCI, effective November 2013.

4.82Israel -24.56Indonesia

Fixed Income

B d Yi ld Diff t I

Fixed IncomeThird Quarter 2013 Index Returns

B d i t t bit f d

2.61

4.53

2 53

3.48

Bond Yields across Different IssuersBond investors got a bit of good news this quarter as the US Federal Reserve continued the pace of bond buying in the latest quantitative easing program. This was a far cry from the news last quarter when the

9/30/136/30/13

9/30/122.61 2.53

10-Year US State and AAA-AA A-BBB

from the news last quarter, when the Fed announced it would begin to taper the purchase of government bonds with a view to end the most recent round of quantitative easing by mid 2014 The market reacted by Treasury Local

MunicipalsCorporates Corporates

Period Returns (%)

Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**

* Annualized

by mid-2014. The market reacted by taking 10-year bond yields from a two-year high of 3.00% to a close of 2.61%.

The positive effects of continuing Asset Class YTD 1 Year 3 Years 5 Years 10 Years

BofA Merrill Lynch Three-Month US Treasury Bill Index 0.06 0.10 0.10 0.16 1.70BofA Merrill Lynch 1-Year US Treasury Note Index 0.24 0.31 0.37 0.87 2.09Citigroup WGBI 1-5 Years (hedged to USD) 0.40 0.80 1.43 2.53 3.18Long-Term Government Bonds -8.86 -10.16 3.48 6.43 6.22B l US A t B d I d 1 89 1 68 2 86 5 41 4 59

p gthe latest round of quantitative easing, which could be inflationary, spilled over to the TIPS market.Real rates across most of the maturity spectrum declined quarter

Barclays US Aggregate Bond Index -1.89 -1.68 2.86 5.41 4.59Barclays US Corporate High Yield Index 3.73 7.14 9.19 13.53 8.86Barclays Municipal Bond Index -2.87 -2.21 3.24 5.98 4.40Barclays US TIPS Index -6.74 -6.10 4.02 5.31 5.24

over quarter.

Yield-seeking investors were rewarded as credit spreads narrowed.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Yield curve data from Federal Reserve. State and local bonds are from the Bond Buyer Index, general obligation, 20 years to maturity, mixed quality. AAA-AA Corporates represent the Bank of America Merrill Lynch US Corporates, AA-AAA rated. A-BBB Corporates represent the Bank of America Merrill Lynch US Corporates, BBB-A rated. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Citigroup bond indices copyright 2013 by Citigroup. The Merrill Lynch Indices are used with permission; copyright 2013 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. 32

Riding the Emerging Markets Tiger

Th i k i t d ith i k t h Thi j t th t i ti f h t t

Riding the Emerging Markets TigerThird Quarter 2013

Many investors fell for emerging markets in recent years when they delivered sizeable returns. More recently, the associated risk has reasserted itself and the infatuation has faded. What's the right approach?

The risk associated with emerging markets has reasserted itself in recent months. Expectations that the US Federal Reserve will “taper” its monetary stimulus have led to a retreat by many investors from these developing markets.

In its latest economic assessment released in

This just means that irrespective of short-term performance, emerging markets offer the benefit of added diversification. And we know that historically, diversification across securities, sectors, industries, and countries has been a good source of risk management for a portfolio.

faded. What s the right approach?

A major theme in media commentary since the turn of the century has been the prospect of a gradual passing of the baton in global economic leadership from the world’s most industrialized nations to the emerging economies.

In its latest economic assessment released in September, the Organization of Economic Cooperation and Development (OECD) noted that while advanced economies were growing again, some emerging economies were slowing.1

Naturally, many investors will be feeling anxious

Third, emerging markets perform differently from one another, and it is extremely difficult to predict with any consistency which countries will perform best and worst from year to year. That’s why concentrated bets are not advised. Fourth, in judging your exposure to emerging markets, it is important to

Anticipating this change, investors have sought greater exposure to these changing economic forces by including in their portfolios an allocation to some of the emerging powerhouses such as China, India, and Brazil.

about these developments and wondering whether emerging markets still have a place in their portfolios. There are number of points to make in response to these concerns.

First, this information is in the price. Markets reflect concerns about the impact of the Fed’s tapering on

distinguish between a country’s economic footprint and the size of its market. Combined, emerging markets make up only 11% of the total world market.

This is not to downplay the importance of emerging markets. The global economy is changing, and the internationalization of emerging markets in recent

These markets historically have provided higher average returns than developed markets.

But the flipside of these returns is that emerging markets also tend to be riskier and more volatile. This is reflected in their higher standard deviation

concerns about the impact of the Fed s tapering on capital flows. Changing a portfolio allocation based on past events is tantamount to closing the stable door after the horse has bolted.

Second, just as rich economies and markets like the US, Japan, Britain, and Australia tend to

internationalization of emerging markets in recent decades has allowed investors to invest their capital more broadly. Emerging markets are part of that.

We know that risk and return are related, so getting out of emerging markets or reducing one’s exposure to them after stock prices have dropped means This is reflected in their higher standard deviation

of returns, which is one measure of risk., p , ,

perform differently from one another, emerging economies and markets tend to perform differently from rich ones.

p ppforgoing the increased expected return potential.

A bumpy ride on this tiger is not unexpected. But for those adequately diversified with an asset allocation set for their needs and risk appetites, it is worth holding on.

33

1."Interim Economic Assessment," OECD, September 3, 2013Adapted from “Riding the Emerging Markets Tiger” by Jim Parker, Outside the Flags column on Dimensional’s website, September 2013. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale. All expressions of opinion are subject to change. Diversification does not eliminate the risk of market loss. General investment risks include loss of principal and fluctuating value. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Dimensional Fund Advisors LP ("Dimensional") is an investment advisor registered with the Securities and Exchange Commission.