Is Diversification Still Relevant?

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1 Is Diversification Still Relevant? Examining the portfolio value of managed futures and other alternative investments after a 9-year equity bull market FOR BROKER DEALER AND RIA USE ONLY. NOT TO BE USED WITH THE GENERAL PUBLIC.

2 FOR BROKER DEALER AND RIA USE ONLY. 2 Agenda Asymmetric Market Risks Managed Futures vs. Traditional Investments Managed Futures vs. Other Alternatives Market Turning Points Andrew John Manager Risk Analytics Joined Steben in 2015 Chartered Financial Analyst BS in Mathematics from Arizona State University; MBA in Investments from University of Notre Dame Formerly an Energy Risk Management Consultant at Siemens

3 Asymmetric Market Risks

4 FOR BROKER DEALER AND RIA USE ONLY. 4 S&P 500 Shiller P/E: Top Decile Valuations S&P 500 Shiller 10Y Cyclically Adjusted P/E S&P 500 Shiller 10Y Cyclically Adjusted P/E January 1928 March 2018 March 2018 P/E 32.8x 96th Percentile Matches 1929 level PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Yale University. See Glossary for definitions.

5 FOR BROKER DEALER AND RIA USE ONLY. 5 Should Equity Return Expectations Be Set at Zero? Subsequent 5Y Annualized ROR 20% 15% 10% 5% 0% S&P 500 Shiller P/E Valuation Decile & Average Subsequent 5-Year Annualized Returns January 1928 March 2018 We are in the most expensive decile today % Stocks Cheap S&P 500 Shiller P/E Decile Stocks Expensive PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Yale University, Bloomberg. Each monthly date from is assigned to an S&P 500 valuation decile based on the Shiller P/E ratio in that month compared to the historical range. For each decile, the average annualized return for a subsequent 5-year investment in the S&P 500 is then computed. See Glossary for definitions.

6 Higher Equity P/Es May Be Followed by Larger Drawdowns Subsequent 5Y Max Drawdown 0% -5% -10% -15% -20% -25% -30% S&P 500 Shiller P/E Valuation Decile & Average Subsequent 5-Year Max Drawdown January 1928 March 2018 Stocks Cheap Stocks Expensive S&P 500 Shiller P/E Decile We are in the most expensive decile today -35% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Yale University, Bloomberg. Each monthly date from is assigned to an S&P 500 valuation decile based on the Shiller P/E ratio in that month compared to the historical range. For each decile, we then compute the average size of the inception-to-valley loss experienced for an investment in the S&P 500 held over the subsequent 5 years. See Glossary for definitions. FOR BROKER DEALER AND RIA USE ONLY. 6

7 FOR BROKER DEALER AND RIA USE ONLY. 7 Size of US Equity Market Relative to Economy at All Time Highs Ratio of US Equity Market Cap to Nominal GNP % January 1970 March 2018 We hit Tech Bubble peak of 140% Ratio of US Equity Market Cap to Nominal GNP PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Equity Market Cap is based on market capitalization of the Wilshire 500 Total Market Index. Source: Bloomberg. See Glossary for definitions.

8 FOR BROKER DEALER AND RIA USE ONLY. 8 Key Risk Is Central Bank Monetary Tightening $5,000,000 Fed Balance Sheet $Trillions Historical (Jan 1995 Mar 2018) and Expected Quantitative Tightening Path (Apr 2018 Dec 2020) Fed Balance Sheet $ Trillions $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Expected Monetary Tightening PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Federal Reserve.

9 FOR BROKER DEALER AND RIA USE ONLY. 9 Key Takeaways Stock prices can outpace fundamentals for extended periods of time However, high valuations suggest long-term stock performance may be flat from here, with risk of large drawdowns Monetary policy has turned from a tailwind to a headwind, not just from rising interest rates, but also quantitative tightening With equities in this fragile state, catalysts such as a trade war, earnings disappointment or a growth slowdown could spark a deep correction

10 Managed Futures vs. Traditional Investments

11 Traditional Investments Historically Delivered Positive Returns 3% Average Rolling 3-Month Returns of Select Traditional Investments Since Inception or All Available Data January 1987 March 2018 Average Rolling 3M Returns 2% 1% 0% Emerging Market Stocks Real Estate Small Cap Stocks HY Bonds LT Treasuries Managed Futures Foreign Stocks IG Bonds ST Treasuries Gold PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data from Jan 1987 through Mar 2018 to calculate rolling 3-month returns, except when the index commenced after Jan 1987 as noted. Emerging Market Stocks are represented by the MSCI Emerging Markets Index, which begins in Jan Real Estate is represented by the FTSE NAREIT US Real Estate Index. Small Cap Stocks are represented by the Russell 2000 Index. High Yield Bonds are represented by the Bloomberg Barclays US Corporate High Yield Total Return Index. Long Term Treasuries are represented by the Barclays Long US Treasuries Index. Managed Futures are represented by the Barclay Systematic Traders Index. Foreign Stocks are represented by the MSCI EAFE Index. Investment Grade Bonds are represented by the Bloomberg Barclays US Corporate Total Return Index. Short Term Treasuries are represented by the BofA Merrill Lynch US 3-Month Treasury Bill Index. Gold is represented by the COMEX Gold Futures Index. See Glossary for detailed index information. FOR BROKER DEALER AND RIA USE ONLY. 11

12 Average Rolling 3M Returns But Performed Poorly During Equity Market Downturns 10% 5% 0% -5% -10% -15% -20% -25% Average Rolling 3-Month Returns of Select Traditional Investments During Periods When the S&P 500 TR Index Returns for Those 3 Months is Below -10% Since Inception or All Available Data January 1987 March 2018 Managed Futures LT Treasuries Gold IG Bonds ST Treasuries HY Bonds Real Estate Foreign Stocks Emerging Market Stocks Small Cap Stocks PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data from Jan 1987 through Mar 2018 to calculate rolling 3-month returns, except when the index commenced after Jan 1987 as noted. Emerging Market Stocks are represented by the MSCI Emerging Markets Index, which begins in Jan Real Estate is represented by the FTSE NAREIT US Real Estate Index. Small Cap Stocks are represented by the Russell 2000 Index. High Yield Bonds are represented by the Bloomberg Barclays US Corporate High Yield Total Return Index. Long Term Treasuries are represented by the Barclays Long US Treasuries Index. Managed Futures are represented by the Barclay Systematic Traders Index. Foreign Stocks are represented by the MSCI EAFE Index. Investment Grade Bonds are represented by the Bloomberg Barclays US Corporate Total Return Index. Short Term Treasuries are represented by the BofA Merrill Lynch US 3-Month Treasury Bill Index. Gold is represented by the COMEX Gold Futures Index. See Glossary for detailed index information. FOR BROKER DEALER AND RIA USE ONLY. 12

13 FOR BROKER DEALER AND RIA USE ONLY. 13 Key Takeaways In addition to US Large Cap stocks, the standard universe of other Traditional Investments has generated positive returns on average over the last 30 years While average returns across all periods have been positive, many of these Traditional Investments have performed poorly during periods of US Large Cap sell-offs In contrast, Managed Futures has historically delivered both positive average returns over all periods and positive average returns during periods of US Large Cap sell-offs

14 Managed Futures vs. Other Alternatives

15 Long-Only Alts Have Risks Highly Correlated to Equities Beta of Alternative Investment Asset Classes to S&P 500 Since Inception or All Available Data January 1990 March 2018 Beta to S&P (0.20) Since Inception or All Available Data Since Jan 1990 Last 10 Years BDCs REITs Commodities MLPs Private Equity Hedge Funds Managed Futures Long-Only Alternatives L/S Alternatives PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Pertrac. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data from Jan 1990 through Mar 2018, except where index commenced after Jan 1990 as noted below. BDCs are represented by the Wells Fargo BDC Index, which begins in Oct REITs are represented by the Dow Jones REIT Index, which begins in Feb Commodities are represented by the S&P GSCI TR Index. MLPs are represented by the Alerian MLP Index, which begins in Jan Private Equity is represented by the Cambridge Associates US Private Equity Index, which is quarterly and ends in Sep Hedge Funds are represented by the HFRI Fund Weighted Composite. Managed Futures are represented by the Barclay Systematic Traders Index. See Glossary for detailed index information. FOR BROKER DEALER AND RIA USE ONLY. 15

16 FOR BROKER DEALER AND RIA USE ONLY. 16 Hedge Funds Are Not Identical: Correlated Equity Risk Varies Beta of Various Hedge Fund Strategies to S&P 500 January 1990 March 2018 Beta to S&P Since 1990 Last 10 Years - (0.10) Equity L/S Event Driven Relative Value Equity Market Neutral Global Marco Managed Futures PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data beginning from Jan 1990 to Mar HFRI Strategy Indices are used in all cases except for Managed Futures, which uses the Barclay Systematic Traders Index. See Glossary for detailed index information.

17 Return Enhancers vs. Diversifiers in Up/Down Equity Months Average Performance in Positive / Negative S&P 500 Months Since Inception or All Available Data January 1990 March 2018 Diversifiers Return Enhancers Managed Futures Equity Market Neutral Relative Value Global Macro Commodities Event Driven Private Equity Equity L/S MLPs REITs BDCs Positive S&P Months Negative S&P Months -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Pertrac. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data from Jan 1990 through Mar 2018, except where index commenced after Jan 1990 as noted. BDCs are represented by the Wells Fargo BDC Index, which begins in Oct REITs are represented by the Dow Jones REIT Index, which begins in Feb Commodities are represented by the S&P GSCI TR Index. MLPs are represented by the Alerian MLP Index, which begins in Jan Private Equity is represented by the Cambridge Associates US Private Equity Index, which is quarterly and ends in Sep Equity L/S. Event Driven, Global Macro, Relative Value and Equity Market Neutral are represented by the respective HFRI Strategy Indices. Managed Futures are represented by the Barclay Systematic Traders Index. See Glossary for detailed index information. FOR BROKER DEALER AND RIA USE ONLY. 17

18 FOR BROKER DEALER AND RIA USE ONLY. 18 Performance During Equity Crises Stronger for Diversifiers Annualized ROR in Periods When S&P 500 Falls More than 10% Since Inception or All Available Data January 1990 March % BDCs REITs Commodities Equity L/S Event Driven Private Equity MLPs Relative Value Equity Market Neutral Global Macro Managed Futures Annualized ROR 0% -20% -40% -60% -56% -26% -20% -14% -11% -9% -8% -3% 1% 3% 16% -80% -100% Return Enhancers Diversifiers PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Pertrac. Index returns are for illustrative purposes only and do not represent the performance of any fund. We use monthly data from Jan 1990 through Mar 2018, except where index commenced after Jan 1990 as noted. S&P 500 Crisis Periods include Nov 2007 Feb 2009, Sep 2000 Sep 2002, May 2011 Sep 2011, Jul 1998 Aug 1998, Jan 1990 Oct 1990, May 2010 Jun BDCs are represented by the Wells Fargo BDC Index, which begins in October REITs are represented by the Dow Jones REIT Index, which begins in Feb Commodities are represented by the S&P GSCI TR Index. MLPs are represented by the Alerian MLP Index, which begins in Jan Private Equity is represented by the Cambridge Associates US Private Equity Index, which is quarterly and ends in Sep Equity L/S. Event Driven, Global Macro, Relative Value and Equity Market Neutral are represented by the respective HFRI Strategy Indices. Managed Futures are represented by the Barclay Systematic Traders Index. See Glossary for detailed index information.

19 FOR BROKER DEALER AND RIA USE ONLY Worst Episodes of Equity Performance 40% January 1987 March % 0% 20% 27% 12% 7% 26% -15% -15% -20% -51% -45% -30% -40% Barclay Systematic Traders Index S&P 500 TR Index -60% NOV 07 FEB 09 SEP 00 SEP 02 SEP 87 NOV 87 JUL 98 AUG 98 JUN 90 OCT 90 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg. Different time periods could produce different results. Calculated using month-end data. See Glossary for detailed index information. It is not possible to invest directly in an index.

20 FOR BROKER DEALER AND RIA USE ONLY. 20 Historical Impact of Adding a 20% Allocation to Managed Futures January 1987 March 2018 S&P 500 TR Index 20% Managed Futures 40% Bonds 60% Equities Barclays US Aggregate Bond Index Barclay Systematic Traders Index 30% Bonds 50% Equities Since 1987 Annualized Return Max Drawdown Standard Deviation Sharpe 60/40 Portfolio 8.98% % 9.14% /30/20 Portfolio 8.89% % 7.98% 0.69 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg. Calculated using month-end data. Rebalanced monthly. See Glossary for index definitions.

21 FOR BROKER DEALER AND RIA USE ONLY. 21 Volatility Coming off Historic Lows in % 3.00% Average Absolute Daily S&P 500 % Price Change Quarterly Data Q Q Average Absolute Daily S&P 500 % Price Change 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Q4 2017: 0.27% 50-Yr Low PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. We use daily S&P 500 data to calculate the average absolute daily percentage change for each calendar quarter starting in Source: Bloomberg. See Glossary for definitions.

22 FOR BROKER DEALER AND RIA USE ONLY. 22 Which Alts Perform Best In Rising and Falling Volatility 3-Month Alt Index Performance 3-Month Alt Index % ROR vs. VIX Index % Change: Line of Best Fit All Available Data January 1990 March % -25% 0% 25% 50% 75% 100% Falling Volatility Rising Volatility 3-Month % Change in VIX Index Managed Futures Diversifiers Return Enhancers PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Pertrac. This data represents past performance and is no guarantee of future results. Index returns are for illustrative purposes only and do not represent the performance of any fund. Using monthly data, we measure percentage changes in the VIX Index and coinciding returns for various Alternative Indices over rolling 3-month windows from Jan 1990 to Mar Managed Futures is represented by the Barclay Systematic Traders Index. Diversifiers are represented by an equally weighted average of the HFRI Relative Value, Equity Market Neutral and Macro Indices. Return Enhancers are represented by an equally weighted average of the Wells Fargo BDC Index, Dow Jones REIT Index, Alerian MLP Index, GSCI Index, Cambridge Associates US Private Equity Index, and HFRI Equity Hedge and Event Driven Indices. A 2 nd -order polynomial line of best fit is used to represent the relationship between changing volatility and performance. See Glossary for definitions.

23 FOR BROKER DEALER AND RIA USE ONLY. 23 Key Takeaways Managed futures has historically had lower correlations than other alternatives to equities Performance has generally been strong in equity crises Adding managed futures to a traditional 60/40 portfolio has the potential to lower portfolio volatility and improve Sharpe ratios based on historical data Managed futures is a strategy that has historically done better in rising market volatility environments

24 Market Turning Points

25 FOR BROKER DEALER AND RIA USE ONLY. 25 Return Pattern for Managed Futures over Market Cycle Managed Futures Trend-Following Long positions tend to profit on the up trend, with a loss when the trend turns downward Short positions typically profit on the down trend, with a loss when the trend turns upward For illustrative purposes only.

26 FOR BROKER DEALER AND RIA USE ONLY. 26 Turning Points Trend-Following Performance After Large 1-Week Losses SG Trend Index Five Largest 1-Week Losses and subsequent Performance over Next 1 Year January 2000 March 2018 Week SG Trend Index Trailing 1-Week Return SG Trend Index Forward 1-Year Return S&P 500 (TR) Forward 1-Year Return February 27, 2007 to March 5, % 31.23% -1.60% March 13, 2003 to March 19, % 14.48% 30.66% November 10, 2001 to November 16, % 22.09% % July 24, 2007 to July 30, % 17.30% % September 21, 2000 to September 27, % 37.96% % Average -9.88% 24.61% -6.16% February 2, 2018 to February 8, % PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Steben & Company. Index returns are for illustrative purposes only and do not represent the performance of any fund. Calculated using daily data from Jan 1990 through Mar 2018 to identify the 5 worst episodes of 1-week performance in the SG Trend Index. To avoid duplication, any rolling 1-week windows that overlapped with the episodes above were removed. See glossary for index definitions

27 FOR BROKER DEALER AND RIA USE ONLY. 27 Performance Following Sharp Turning Points SG Trend Index Five Largest 1-Week Losses and Subsequent Performance Over Next 1 Year January 2000 March % SG Trend Index Trailing 1-Week Return SG Trend Index Forwa rd 1-Year Return S&P 500 TR Index Forwar d 1-Year Return 30% 20% 10% 0% -10% -20% -30% Average Recent 1-Week Loss: 1-Week Loss: -9.9% -10.6% Average Forward 1-Year Return: 24.6% Average Forward 1-Year Return: -6.2% Period Period Period Average Periods 1 through 5 Period Period Recent PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. DIVERSIFICATION DOES NOT ASSURE A PROFIT OR GUARANTEE AGAINST A LOSS. Source: Bloomberg, Steben & Company. Index returns are for illustrative purposes only and do not represent the performance of any fund. Calculated using daily data from Jan 1990 through Mar 2018 to identify the 5 worst episodes of 1-week performance in the SG Trend Index. To avoid duplication, any rolling 1-week windows that overlapped with the episodes above were removed.

28 FOR BROKER DEALER AND RIA USE ONLY. 28 Key Takeaways Trend-following managed futures programs tend to profit during market trends and incur losses at market turning points as they reposition for new trends Sharp market turning points tend to lead to larger managed futures corrections in this transition period Historically the sharpest turning points have been followed by strong periods for managed futures In February 2018 we saw just such a sharp turning point

29 FOR BROKER DEALER AND RIA USE ONLY. 29 Glossary of Terms The indices described below are used in the graphs of this presentation. There are limitations in using financial indices for comparison purposes because the Funds may have different volatility, credit and other material characteristics. Generally, indices are unmanaged and are not available for direct investment. Alerian MLP Index*: The leading gauge of energy Master Limited Partnerships (MLPs). The float-adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX). Inception 12/29/1995 MLP investments are subject to risks, including but not limited to Commodity Price risk, Interest Rate risk, and Legislative and Regulatory risk. Performance Source: Alerian Barclay Systematic Traders Index*: An equal weighted composite of managed futures programs whose approach is at least 95% systematic. In 2018 there are 400 systematic programs included in the index. The performance of the index is net of management and incentive fees from the individual trading managers. Inception: 1/1987 Managed futures investments are subject to risks, including illiquidity, lack of a secondary market, and the volatility of the underlying commodities or futures markets traded by a particular program. Performance Source: BarclayHedge Bloomberg Barclays Long US Treasuries Index*: Includes all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade and have $250 million or more of outstanding face value. Inception: 1/1973 Performance Source: Bloomberg Bloomberg Barclays US Corporate High Yield Bond Index*: Measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody s, Fitch and S&P is Ba1/BB+/BB+ or below. Inception: 1/1973 Performance Source: Bloomberg Bloomberg Barclays US Corporate Total Return Index*: Measures the investment grade, fixed-rate taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-us industrial, utility, and financial issuers. Inception: 1/1973 Performance Source: Bloomberg BofA Merrill Lynch US 3-Month Treasury Bill Index*: Comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month, that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to, but not beyond, three months from the rebalancing date. To qualify for selection, an issue must have settled on or before the month-end rebalancing date. While the index will often hold the Treasury Bill issued at the most recent 3- month auction, it is also possible for a seasoned 6-month Bill to be selected. Inception: 1/1978 Treasury bills are subject to risks, including: interest rate risk, call risk, credit risk and reinvestment risk. Treasury bills rated below investment grade may have speculative characteristics and present additional risks. Performance Source: BofA Merrill Lynch *It is not possible to invest directly in an index.

30 FOR BROKER DEALER AND RIA USE ONLY. 30 Glossary of Terms (Continued) Cambridge Associates US Private Equity Index*: The index and benchmark statistics are based on data compiled from more than 1,200 institutional-quality buyout, growth equity, private equity energy, and mezzanine funds formed between 1986 and Inception: 4/1986 Private Equity investments are subject to risks, including but not limited to Funding Risk, Liquidity Risk, Market Risk, and Capital Risk. Performance Source: Cambridge Associates CBOE Volatility Index (VIX)*: A market implied volatility measure for the S&P 500, reflecting the price investors are willing to pay to buy option insurance. Inception: 1/1990 Performance Source: CBOE COMEX Gold Futures Index*: An index for generic futures contracts that represents the returns that would historically have been realized by an investor who continuously held one front-month gold futures contract, and subsequently rolled the contract at expiration to the next expiry. These returns differ from the returns associated with owning physical gold, since the purchase of a gold futures contract does not include common carrying costs such as lost interest or costs to store and secure the commodity associated with owning physical gold. Inception: 1/1975 Performance Source: CME Group Dow Jones Equity REIT Total Return Index*: Comprised of REITs that directly own all or part of the properties in their portfolios. Inception: 1/1990 REITs are subject to risks similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions. Performance Source: Dow Jones FTSE NAREIT US Real Estate Index*: An unmanaged total return index designed to measure the growth and performance of the real estate investment trust (REIT) industry. The index includes all REITs currently trading on the New York Stock Exchange, the NASDAQ National Market System and the American Stock Exchange. Inception: 12/1971 REITs are subject to risks similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions. Performance Source: FTSE NAREIT Global Policy Uncertainty Index*: Tracks news media keywords related to economic policy uncertainty in developed markets. Inception: 1/1997 Performance Source: Bloomberg *It is not possible to invest directly in an index.

31 FOR BROKER DEALER AND RIA USE ONLY. 31 Glossary of Terms (Continued) HEDGE FUND RESEARCH INC. (HFRI) INDICES HFRI Equity Hedge (Total) Index*: Equity L/S: Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. EH managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and short. Inception 12/31/1989 HFRI EH-Equity Market Neutral Index*: Equity Market Neutral strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. These can include both Factor-based and Statistical Arbitrage/Trading strategies. Factor-based investment strategies include strategies in which the investment thesis is predicated on the systematic analysis of common relationships between securities. In many but not all cases, portfolios are constructed to be neutral to one or multiple variables, such as broader equity markets in dollar or beta terms, and leverage is frequently employed to enhance the return profile of the positions identified. Statistical Arbitrage/Trading strategies consist of strategies in which the investment thesis is predicated on exploiting pricing anomalies which may occur as a function of expected mean reversion inherent in security prices; high frequency techniques may be employed and trading strategies may also be employed on the basis on technical analysis or opportunistically to exploit new information the investment manager believes has not been fully, completely or accurately discounted into current security prices. Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no greater than 10% long or short. weighted index of over 2,000 single-manager hedge funds that report to the HFR Database. Constituent funds report monthly performance net of all fees in US dollars and have a minimum of $50 million under management or a 12-month track record of active performance. The HFRI Fund Weighted Composite Index does not include funds of hedge funds. The current month and the prior three months returns of the Index are estimates and are subject to change. All performance prior to that is locked and is no longer subject to change. HFRI Event-Driven*: Investment Managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Security types can range from most senior in the capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event Driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company specific developments. Investment theses are typically predicated on fundamental characteristics (as opposed to quantitative), with the realization of the thesis predicated on a specific development exogenous to the existing capital structure. HFRI Fund of Funds Composite Index*: Currently comprised of over 500 domestic and offshore funds of hedge funds that have a minimum of $50 million under management or a 12- month track record of active performance. All fund performance is equally weighted and is net of all fee returns on a monthly basis. The current month and the prior three months returns of the Index are estimates and are subject to change. All performance prior to that is locked and is no longer subject to change. HFRI Fund Weighted Composite Index*: A global, equal-weighted index of over 2,000 single-manager hedge funds that report to the HFR Database. Constituent funds report monthly performance net of all fees in US dollars and have a minimum of $50 million under management or a 12-month track record of active performance. The HFRI Fund Weighted Composite Index does not include funds of hedge funds. The current month and the prior three months returns of the Index are estimates and are subject to change. All performance prior to that is locked and is no longer subject to change. *It is not possible to invest directly in an index.

32 FOR BROKER DEALER AND RIA USE ONLY. 32 Glossary of Terms (Continued) HFRI Macro (Total) Index*: Investment Managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long and short term holding periods. Although some strategies employ RV techniques, Macro strategies are distinct from RV strategies in that the primary investment thesis is predicated on predicted or future movements in the underlying instruments, rather than realization of a valuation discrepancy between securities. In a similar way, while both Macro and equity hedge managers may hold equity securities, the overriding investment thesis is predicated on the impact movements in underlying macroeconomic variables may have on security prices, as opposes to EH, in which the fundamental characteristics on the company are the most significant are integral to investment thesis. HFRI Relative Value*: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range broadly across equity, fixed income, derivative or other security types. Fixed income strategies are typically quantitatively driven to measure the existing relationship between instruments and, in some cases, identify attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the investment manager. RV position may be involved in corporate transactions also, but as opposed to ED exposures, the investment thesis is predicated on realization of a pricing discrepancy between related securities, as opposed to the outcome of the corporate transaction. HFRI Indices Inception: 1/1990 Performance Source: Hedge Fund Research, Inc. Investments in hedge funds involve the risk of (i) loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices of hedge funds, (ii) lack of liquidity of their shares, (iii) volatility of returns, (iv) limited information regarding valuations and pricing, and (v) complex tax structures and delays in tax reporting. Hedge funds are generally subject to less regulation and higher fees than mutual funds. MSCI Emerging Markets Index*: A free float adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of 23 emerging market country indexes. Inception: 1/2001 Performance Source: Morgan Stanley Capital International (MSCI) MSCI Europe, Australasia, Far East Index (MSCI EAFE Index)*: A capitalization-weighted index that is designed to measure the investment returns of developed economies outside of North America. The Index includes publicly traded stocks from 21 countries. Inception: 1/1969 International investments may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Performance Source: Morgan Stanley Capital International (MSCI) Russell 2000 Index*: An index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the US. Inception: 1/1984 Performance Source: FTSE Russell *It is not possible to invest directly in an index.

33 Glossary of Terms (Continued) SG Trend Index*: The SG Trend Index calculates the net daily rate of return for a pool of the 10 largest (by AUM) trend-following based managed futures managers. It is equal-weighted and rebalanced and reconstituted annually. Inception: 1/2000. Managed futures investments are subject to risks, including illiquidity, lack of a secondary market, and the volatility of the underlying commodities or futures markets traded by a particular program. Inception: 1/2002 Performance Source: Societe Generale S&P GSCI Total Return Index*: A composite index of commodity sector returns representing a broadly diversified, unleveraged, long-only investment in commodity futures. The returns are calculated on a fully collateralized basis with full reinvestment. Inception 1/1970 Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. Performance Source: Standard & Poor s S&P 500 Total Return Index (TR)*: The 500 stocks in the S&P 500 are chosen by Standard and Poor s based on market size, industry representation, liquidity and stability. The stocks in the S&P 500 are not the 500 largest companies; rather the Index is designed to be a leading indicator of US equities and is meant to reflect the risk/return characteristics of the large cap universe. Inception 3/1957. Performance Source: Standard & Poor s US equity index investments are subject to risks, including price fluctuations in response to news on companies, industries, government policies and the general economic environment. The Wells Fargo Business Development Company Index*: Intended to measure the performance of all Business Development Companies (BDC) listed on the New York Stock Exchange (NYSE AMEX) or NASDAQ that satisfied market capitalization and other eligibility requirements. This index is a total return index. The index was created to yield a benchmark value of 1, on September 30, Inception 9/30/04 Business Development Company investments are subject to risks, including but not limited to Portfolio company credit and investment risk, Leverage risk, Market and valuation risk, Price volatility and liquidity risk, Capital markets risk, Interest Rate risk, Dependence on key personnel, and Structural and Regulatory risk. Performance Source: Bloomberg Wilshire 5000 Total Market Index (TMWX)*: A market capitalization-weighted index composed of more than 6,700 publicly-traded companies that are headquartered in the United States, are actively traded on an American stock exchange, and have pricing information that is widely available to the public. Inception: 12/1970 Performance Source: Wilshire Associates *It is not possible to invest directly in an index. FOR BROKER DEALER AND RIA USE ONLY. 33

34 FOR BROKER DEALER AND RIA USE ONLY. 34 Glossary of Terms Alpha: A measure of risk-adjusted performance. A higher alpha indicates a security has performed better than expected with its given beta (or volatility.) See Beta. Alternative Investment: An investment product other than traditional investments such as stocks, bonds, cash or property. Beta: Measures a fund s sensitivity to market movements by comparing a fund s excess return (over a benchmark) to the market s excess return. By definition, the beta of the market is For example, a beta that is lower than 1.00 would normally indicate that a fund s excess return is expected to be above the market s excess return in a down year and below in an up year. However, beta is a measure of historical volatility and cannot predict a fund s actual performance. Correlation: A measure of the degree to which two variables relate to each other. Equity Market Neutral: A hedge fund strategy that seeks to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, country, etc. This strategy creates a hedge against market factors. Gross National Product (GNP): An estimate of total value of all the final products and services produced in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services. Nominal: A nominal term is an unadjusted number of something such as wages, stock prices, assets, and interest rates and is generally described in fixed monetary terms. On the other hand, a real term takes into account changes in price level over time. Real value is a far more accurate measurement of value than nominal value. Peak-to-Valley Drawdown: The peak-to-trough decline during a specific period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough. Rate of Return (ROR): Profit on an investment. It comprises any change in value, and interest or dividends or other such cash flows, which the investor receives from the investment. Real Estate Investment Trust (REIT): A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. REITs are subject to risks similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions. Sharpe Ratio: A calculation meant to illustrate the amount of return one is achieving per unit of risk. It is derived by dividing the average annual return by the standard deviation of an investment. A higher number tends to signify a better return/risk relationship, whereas a lower number may be seen as unfavorable. Shiller P/E Ratio (S&P 500 Shiller 10Y Cyclically-Adjusted P/E): A valuation measure, generally applied to broad equity indices, that uses real per-share earnings over a 10- year period. The ratio uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in profit margins over a typical business cycle. The ratio was popularized by Yale University professor Robert Shiller. Standard Deviation: Measures the dispersal or uncertainty in a random variable (in this case, investment returns). It measures the degree of variation of returns around the mean (average) return. The higher the volatility of the investment returns, the higher the standard deviation will be. Value Added Monthly Index (VAMI): An index that tracks the monthly performance of a hypothetical $1000 investment. The calculation for the current month's VAMI is: = Previous VAMI x (1 + Current Rate of Return) Volatility: The relative rate at which the price of a security moves up and down.

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