QUARTERLY MARKET UPDATE

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1 January 2016 ASSET CLASS PERFORMANCE Equity Markets - Domestic and International equity markets provided mixed results over the course of The Standard & Poor s (S&P) 500 Index, the Dow Jones Industrial Average and the Nasdaq Composite registered positive results, thanks in part to large technology names like Amazon, Facebook and Netflix. Outside of a selected few names, however, many large cap, as well as most small and mid-capitalization equities, displayed negative results for the year according to Morningstar, the nice rebound on the 4th quarter notwithstanding. International equities, specifically those of the non-developed economy variety, suffered significant losses. Source of Data: Morningstar Fixed Income Markets - Domestic fixed income markets were largely stable over the course of last year. Government debt securities posted somewhat positive gains, while investment grade corporates (an A rated corporate bond for example) went slightly negative. The largest moves were put in by high yield corporate bonds and Treasury Inflation Protected Securities, both losing over one and a half percent. Emerging market debt posted faintly positive results, outperforming the global bond category which registered solidly negative returns. Source of Data: Morningstar

2 January 2016 Page Two CAPITAL MARKETS OVERVIEW Key Economic Theme - Declining Earnings Expectations As 2015 concludes, the Standard and Poor s (S&P) 500 registered a total calendar year return of 1.38%. This ended a string of three straight years of double-digit gains and was the weakest showing since The final standing for 2015, however, distorts the fact that it was an unusual year for the market. It was a year with two distinct halves, with the first steady and restrained, and the second exhibiting large price swings, leaving many investors feeling relieved that the S&P 500 finished anywhere in positive territory. Prior to August, the Dow Jones Industrial Average, Nasdaq Composite, S&P 500, and Russell 2000 had at some point all established new record highs. They did so in the face of contentious negotiations between Greece and its creditors, an uneasy ceasefire between Russia and Ukraine, a strengthening dollar that cut into the earnings prospects of multinational companies, slowing global growth, and falling commodity prices. Though these new highs had been reached, the indices could not seem to break away in any convincing fashion. Strained valuations were a limitation along with a narrowing level of participation in the advance (as well as the fear of Fed tightening in the second half of the year), which was being led by a handful of heavily-weighted stocks like Apple (AAPL) and Nike (NKE) and the so-called FANG contingent -- Facebook (FB), Amazon.com (AMZN), Netflix (NFLX), and Google, which was eventually renamed Alphabet (GOOG). Volatility arose in August when China s stock market went into a freefall and the yuan was devalued. Those particular events, along with tumbling oil and copper prices, triggered a widespread selloff that would culminate in the first correction for the S&P 500 in four years. Additionally, the increasing expectations of a Federal Reserve (Fed) interest rate hike towards the end of the year amplified the price movements. On December 16, 2015 the Fed indeed agreed to raise the target range for the federal funds rate by 25 basis points from 0.25% to 0.50%. It was an important move, not only because there hadn t been an actual rate hike in more than 10 years, but because it marked a key departure in central bank policies that may, in our opinion, have investment consequences in That is, the Fed is now increasing its policy rate while the European Central Bank (ECB), Bank of Japan (BOJ), and the People s Bank of China (PBOC) are still working to provide accommodation and the Bank of England (BOE) is maintaining its easy money stance. Collapsing oil prices have been impactful as well, though they were not an issue during the first half of last year. Oil prices had risen to near $60 per barrel by the end of the second quarter of 2015 from $53 at the end of However, they have been declining ever since, lowering earnings estimates and capital spending budgets along with them. At the same time, they have led to a noticeable widening in high-yield spreads, striking budget cutbacks in Saudi Arabia, and infighting among OPEC members. In summary, 2015 was largely impacted by world central banks, most notably the Fed, and the plunge in commodity (oil) prices. Those two factors were a consistently prominent component of the market discourse has begun with further volatility in global equity markets. Whether it continues will likely have much to do with the upcoming fourth quarter earnings reporting period for US companies. It has been well broadcast that the fourth quarter 2015 earnings results in aggregate will likely be mediocre at best. According to S&P Capital IQ, S&P 500 earnings per share (EPS) are expected to decline 5.5%. The energy sector is, of course, the main detractor as it is projected to report a 68.6% decline in earnings per share. S&P 500 EPS growth absent the energy sector would still only be 0.4%.

3 January 2016 Page Three What the latter growth estimate implies is that the entire market, even excluding energy, has not been vigorous. A strong dollar, weak manufacturing activity, consumer spending restraint, weak business investment, slow economic growth, and tough sequential earnings comparisons are among the numerous factors in addition to energy price declines that have proved challenging for companies in the last quarter. In fact, there are only four sectors (out of ten) that are expected to produce any Q4 EPS growth, according to FactSet. Also, EPS growth estimates have been marked down for every sector since the start of October. The sector exhibiting the biggest downward revision is materials, with the EPS growth estimate falling from a decline of 2.6% to a decline of 23.3%. The scope of the revision for this highly cyclical sector reflects the twin challenges of excess supply and weak demand. The declining projected revenue growth rates for the fourth quarter highlight the issues surrounding the strong dollar, generally weak demand, and the lack of pricing power. If the projections are correct, the fourth quarter would mark the fourth consecutive quarter that S&P 500 revenues have declined year-over-year, according to S&P Capital IQ. The downward EPS growth revisions have effectively lowered the bar for companies to hurdle with their actual results. It is interesting to note that the fourth quarter estimate was 4.7% on April 1, 3.1% on July 1, and -0.5% on October 1. While final results may end up being better than expected, one shouldn t mistake the enthusiasm for a smaller than expected decline in this instance for being overly respectable, especially if it is accompanied by probable generally weak guidance.

4 January 2016 Page Four Further, companies may be expected to offer conservative guidance in the forthcoming quarter for numerous reasons: Anticipated continued dollar strength Ongoing consumer and business uncertainty Weak economic data in the U.S. and China Heightened geopolitical tension Sustained pressure on oil prices Increasing consumer savings In our opinion, growth conditions continue to represent a recovery yet to hit full stride, not one asking to be tempered by tighter monetary conditions. Taking steps typically used to mute inflation in its absence augments the uncertainty surrounding revenue and earnings growth prospects in the near term. In a market exhibiting substantial valuation entering a phase of interest rate increases, there exists the likelihood that volatility will remain in the existing quarter. PORTFOLIO IMPACT - Traditional Assets Stocks Current economic conditions (moderating growth, tightening credit, contracting margins, pressured earnings, contractionary monetary policy, etc.) are consistent with a late business cycle stage. As such, positioning seeks to capitalize on exposures most likely to benefit from this environment. Healthcare, infrastructure, telecom and even the energy sector all exhibit historical positive relative results in these conditions; we therefore hold positions in these categories, when it is appropriate for investors risk tolerance and investment objectives. Additionally, the considerable outperformance of growth stocks over value stocks (amplified by the decline in the energy sector) is showing signs of abatement, if not reversal. The continuing of this recent trend would also provide benefit to the aforementioned sectors. In term of domestic versus international sectors, valuation potential of international stocks outweighs near-term volatility concerns, making certain international markets compelling from a long term return viewpoint. We therefore remain in a tactical underweight (from neutral) to domestic categories. Bonds With the first interest rate hike since 2006 having transpired in December, inflation and growth expectations still remain soft. These conditions complement a forecast where future rate increases will be few in number and weak in magnitude. That is, the trajectory of prospective rising rates will be shallow. Nevertheless, we therefore, when appropriate for a client, continue to look for relative safety combined with modest yield in corporate credit on the short end of the curve. We have reduced exposure to intermediate term high yield as volatility has increased, looking to diversify those positions into a variety of sectors (Asset-Backed, Agency, Commercial Mortgage, etc.), including government securities to provide a balance to the aforementioned credit securities. PORTFOLIO IMPACT - Alternative Assets Global Macro Most strategy changes over the recent past have been in the direction of de-risking the portfolio due to a heightened risk environment. When appropriate for the client, risk was reduced in emerging market equities, emerging market currencies, and the global energy sector. We believe that this low-risk posture will be relatively short-lived and we see an opportunity set that is widening to levels not seen in a few years. Market strategy continues to be positioned net long of global equity, with effective exposure decreasing from 34% to 26% towards the end of the year. Market strategy (attempting to capitalize on global opportunities through active management across asset classes, geographies, currencies, and risk themes to achieve mid-single digit long-term, risk adjusted returns) also continues to be positioned net short of government bonds. Exposure to rate spread products was reduced, with high yield spread moving from 4% long to 1% long and investment grade from 13% to 8%. Mortgage backed security spread and emerging markets debt both remained unchanged at 0% and 1%, respectively.

5 January 2016 Page Five Absolute Return It is no secret that hedge fund strategies have struggled on a relative basis over the past few months. Often times when hedge fund strategies underperform it is driven by ineffective shorts or hedges, but our data has shown that shorts have generated positive alpha (excess return above what Modern Portfolio Theory would predict given level of risk taken) recently. Instead, we attribute the majority of the underperformance to several large liquidations that have led to selling pressure in crowded hedge fund trades, defined as equities in which hedge fund strategies own a significant portion of the market cap. Historically, these trades have generated alpha versus equity index benchmarks. However, that alpha is cyclical and we are currently experiencing one of the worst periods of negative hedge fund alpha on record. While the worst of this pain may be behind us, we think there could be some more selling pressure over the next few months as some underperforming hedge funds continue to raise cash to meet redemptions. With that in mind, we have made the following tactical adjustments to our allocations: Event driven - Given that the nature of the strategy focuses on a limited universe of announced corporate activity, event driven trades tend to have the highest degree of crowding, where many investors follow the same trade idea. We have therefore trimmed our event driven exposure from 23% to just below 14%. Additionally, our managers have rotated a significant amount of capital out of soft catalyst special situations where the selling pressure has seemingly been the strongest and into merger arbitrage where spreads are very attractive. Broker-Dealer Branch Office Locations: Registered Investment Advisory Office Locations: Minneapolis 3800 American Blvd W Suite 1000 Minneapolis, MN St. Cloud 220 Park Avenue S. P.O. Box 1304 St. Cloud, MN Cedar Falls 602 Main St. Suite 100 Cedar Falls, IA Cedar Rapids 2720 First Ave. NE Suite 300 Cedar Rapids, IA Coralville 2530 Corridor Way Suite 301 Coralville, IA Des Moines 9207 Northpark Drive Johnston, IA Waterloo 100 East Park Ave., Suite 300 Waterloo, IA This market update provides commentary on current economic and market conditions and is not directly relevant to any particular client account. The information contained herein should not be construed as personalized investment advice or recommendations to buy or sell any security or adopt an investment strategy. There can be no assurance that the views and opinions expressed in this article will come to pass. All investing involves the risk of loss, including the possible loss of principal. Past performance is no guarantee of future results. Information contained herein is subject to change without notice. All indices are unmanaged and cannot be directly invested in. Please contact a qualified attorney, tax or financial advisor regarding your personal situation. Investment Advisory Services offered through BerganKDV Wealth Management LLC, an SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Suite 300, Akron, Ohio BerganKDV Wealth Management LLC is a separate entity from ValMark Securities, Inc.