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Portfolio Construction A fiduciary has the duty to make recommendations that are in the best interest of a retirement investor. It is generally accepted that recommendations in the best interest of a retirement investor must consider the investors age, expected cash distributions, long-term goals and expectations, and short-term attitudes. Tried-and-true portfolio principles demand that portfolios be constructed in a manner that reflects the investor’s specific circumstances and incorporates risk-reduction features such as: proper asset allocation; appropriate diversification within an asset class; and, specific investments that are in the investor’s best interest. Asset classes that should be considered for inclusion in all portfolios include: domestic stocks; non-US stocks; bonds; cash; real estate; and, commodities. As all asset classes have specific risk/return characteristics, proper asset allocation can reduce risk and enhance return. Many of the products offered by R.M. Stark & Co, Inc., Stark Financial Advisers, Inc., and Lockwood Advisers incorporate all of the above features and will help to assure we are properly executing our fiduciary duties. If you will be recommending an approved product that does not incorporate these features, it will be the financial adviser’s responsibility to assure these benchmarks are met. Certain recommendations, such as target date funds and asset allocation funds, incorporate at least some of these features and may be a suitable investment. However, if you are recommending approved investments other than those mentioned above, you will need to invest in a suitable planning product that can assist with your investment planning. One of the most popular is Morningstar Office. Morningstar products can be integrated with Pershing’s system making it easier to construct new portfolios and monitor existing ones. For information on Morningstar products, contact either Morningstar directly, or the Home Office. The appropriate asset allocation is specific to each client and changes over time. Changes in the client’s circumstances, or attitudes, as well as valuation changes in various asset classes, are all items to be monitored. Periodically, most portfolios will need to be rebalanced. Following are several hypothetical asset allocation models that would be appropriate under current market conditions. As you can see, most of the hypotheticals include at least some of the same asset classes. However, the allocation percentage changes based upon risk tolerance and investment horizon. Generally, as an investor ages, the risk exposure should go down. As the risk level decreases, you would also anticipate a reduction in return. Hypothetical One Age 45 and Under Moderately Aggressive Risk Tolerance Asset Class % Allocation Mid-cap Domestic Stocks 54% Emerging Market Securities 13% High Yield Bonds 18%

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Non-US Stocks 06% Commodities/Tangibles 09% Hypothetical Two Age 46 to 55 Moderate Risk Tolerance Asset Class % Allocation Mid-cap Domestic Stocks 38% Small-cap Stocks 02% Emerging Market Securities 11% Investment Grade Bonds 16% High Yield Bonds 16% Non-US Bonds 08% Commodities/Tangibles 09% Hypothetical Three Age 56 to 65 Moderate Risk Tolerance Asset Class % Allocation Mid-cap Domestic Stocks 18% Small-cap Stocks 07% Emerging Market Securities 09% Investment Grade Bonds 36% High Yield Bonds 11% Non-US Bonds 07% Commodities/Tangibles 12% Hypothetical Four Age 66 to 75 Conservative Risk Tolerance Asset Class % Allocation Mid-cap Domestic Stocks 07% Small-cap Stocks 06% Emerging Market Securities 07% Investment Grade Bonds 30% High Yield Bonds 08% Non-US Bonds 06% Cash 28% Commodities/Tangibles 08% The best investment strategy to help assure a comfortable retirement is to begin investing at a young-age, maximize your contributions to available retirement plans annually, and invest wisely.

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Most importantly, try to avoid devastating losses from which it may be difficult to recover - especially as a retirement investor approaches a point where distributions are anticipated. If you plan to make recommendations outside of products that provide these premium services, you will be expected to provide the same, or similar information, that is listed above. By doing so, we can assure the best client experience and compliance with the principles that govern fiduciary behavior.