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Glossary

ACTIVE ALLOCATION — Is the act of altering the weighting of funds between stocks, bonds, real estate, and cash in a manner that is different than is defined as normal weighting in the IPS.

AGGRESSIVE GROWTH PORTFOLIO — A mutual fund portfolio focused on capital appreciation.

ALPHA - The excess return earned by the portfolio above the risk taken as measured by Beta.

ASSET CLASS — There are essentially seven asset classes and a series of sub-classes included in our portfolio modeling system. The primary asset classes include cash, equities, bonds, real estate, fixed or guaranteed investment contracts, commodities, and venture capital. The sub-classes could include such items as domestic or international equities; short, intermediate, or long-term corporate and government bonds; and gold, silver, and oil.

ASSET CONSTRAINTS (min./max.) — The optimization process allows for the proportional allocation of specific assets to the portfolio from 0% to 100%. These constraints determine the extent to which any asset will be included in the optimized portfolio. Proportional allocation is performed prior to the portfolio optimization where a fixed proportion of a portfolio must be allocated to an asset, or where minimum/maximum percentages are specifically desired. Your IPS sets constraints, which are reflected in your portfolio.

ATTRIBUTION ANALYSIS — Is used to determine the contribution to returns made by active management. It separates returns into two categories. Excess returns earned by the security selection, and excess returns earned by asset allocation decisions.

BENCHMARK — The performance of a hypothetical portfolio of index funds weighted to reflect the normal allocation of the portfolio as defined in the Investment Policy Statement of your portfolio. A fee of 0.5% has been subtracted from the index return to simulate the transaction costs imbedded in an actual index fund.

BENCHMARK +/- — Refers to the difference in performance between the benchmark's return and the actual return earned by the portfolio.

BETA — Portfolio risk relative to the S&P 500 measured over the last twelve months.

CONSERVATIVE — A mutual fund portfolio focused on income generation and capital preservation.

CORRELATION — Correlation measures the strength of the relationship between two variables (investments). If the correlation coefficient is 1, there is a perfect linear relationship between the variables (both going up or both going down at the same time), and the relationship is direct. Conversely, if the correlation coefficient is —1, there is a direct but inverse relationship between the investments (one is going up while the other is going down in value).

COVARIANCE — Covariance measures the timing, direction, and magnitude of the fluctuations of two investments. The measure of diversification in a portfolio is determined by the negative covariance of the assets in relation to each other. Effective diversification is achieved when the assets do not fluctuate in a similar manner (one is going up in value while the other is going down in value), so that the variability of the expected rates of return for the portfolio will be less than the variability of individual components of the portfolio.

EFFICIENT FRONTIER — The Efficient Frontier and Capital Market Lines are displayed and used when constructing or evaluating alternative optimal portfolios. The efficient frontier is a line along which the proportional allocation of capital to a group of assets will provide the greatest rate of return commensurate with the degree of risk (standard deviation of the portfolio) exhibited by the portfolio. For every level of return that an investor expects to achieve, there is a commensurate level of risk he must accept. The higher the risk, the greater the expected rate of portfolio return, which can be identified at any point along the frontier.

ETFs — These are electronically-traded funds. They are shares of indexes which trade like stock on the major exchanges.

FORMULA — (Expected Return — Risk-free Return/Standard Deviation) it is expressed as a number, and is not related to any number.

GROWTH AT MODERATE RISK — A mutual fund portfolio focused on a balance between capital appreciation and income.

HISTORICAL MEAN RATE OF RETURN — The historical mean rate of return represents the "mid-point" between the extreme high and low of the rates of return based on the distribution of the historical data. For example, the one year mean return represents the "average" compounded return for all one-year periods in the time horizon specified (January to January, February to February, and so on). The 2-, 3-, 4-, and 5-year mean returns represent the "average" return for all of those rolling time periods (January to January, February to February, and so on) in the time horizon specified. For example, during a 10-year time horizon there are 107 one-year holding periods and calculations. No guarantees can be given about future performance and rates of return shall not be construed as offering such a guarantee.

MAXIMUM RETURN — The portfolio's maximum return is calculated using the portfolio's mean rate of return, standard deviation (measure of volatility) and a statistical "probability multiplier." The maximum return represents the upper boundary of a specified frequency range of returns. It is important to bear in mind that the "Minimum" and "Maximum" rates of return referred to in any report are relative figures based on a range established by the selected Frequency Level. As such, they are figures derived from statistical calculations and, most likely, have not actually been experienced in reality. It should be recognized that the portfolio may invest in both passive and actively managed accounts and securities and that the actual weightings of these investments will result in actual returns and volatility characteristics higher or lower than those presented in any report that we prepare that expresses performance expectations.

MINIMUM RETURN — The portfolio's minimum return is calculated using the portfolio's mean rate of return, standard deviation (measure of volatility) and a statistical "probability multiplier." The minimum return represents the lower boundary of a specified frequency range of average returns. It is important to bear in mind that the "Minimum" and "Maximum" rates of return referred to in this report are relative figures based on a range established by the selected Frequency Level. As such, they are figures derived from statistical calculations and, most likely, have not actually been experienced in reality. It should also be understood that higher and lower returns might have actually been experienced in reality. It should be recognized that the portfolio may invest in both passive and actively managed accounts and securities and that the actual weightings of these investments will result in actual returns and volatility characteristics higher or lower than those presented in any report that we prepare that expresses performance expectations.

OPPORTINUTY PORTFOLIO — This is an equity portfolio managed by us, and is composed primarily of small- and mid-cap stocks, and selected ETFs.  The portfolio seeks above average Growth at Moderate Risk. 

PERFORMANCE — The time weighted rate of return earned by the portfolio, taking into account the monthly deposit of contributions and the withdrawal of trading expenses and benefits. Returns are calculated based on compounded, time-weighted daily returns. Returns reflect dividends and the cost of transactions. Our advertising material assumes management expenses at the highest level, where as an individual's performance reflects actual client costs. Actual client portfolios of a similar style objective experienced returns which varied from that shown, and therefore this information should be considered similar, but hypothetical relative to the performance of your specific portfolio. Each portfolio has its own unique evaluation benchmark. Investment performance is not guaranteed. Past performance may not be a good predictor of future performance. The investment value of a portfolio will fluctuate and at any point in time could be worth more or less than the amount invested.

PROBABILITY RANGE — Probability Range expresses how often a certain range of returns occurred during a given historical time period. It is bounded by a minimum and maximum rate of return for that period. In any statistical sample, 68.4% of all observations will be included in one standard deviation from the mean; 95.4% within two standard deviations; and 99.7% within three standard deviations. Therefore, at the 90% probability range 90% of all prior observations fell within the minimum and maximum rates of return displayed for the designated holding period during the selected time horizon. Conversely, 5% of the returns fell below, and 5% fell above, the minimum and maximum returns, respectively. Therefore, it is important to bear in mind that the maximum and minimum rates referred to within this study are not absolute and that they only describe the relative high and low range for the given probability range and holding period selected. Probability Ranges expressed in the system represent the percentage of times the portfolio return fell within a range of historic rates of return over the past period being examined. This does not, in any way, guarantee that any of the displayed returns or standard deviations will actually be realized.

ROR — The abbreviation "ROR" used in these reports refers to the historical mean rate of return which represents the "mid-point" between the extreme high and low of the rates of return based on the distribution of the historical data (see Historical Mean Rate of Return).

RISK — The risk or volatility of any asset or portfolio is measured by the standard deviation in the distribution of rates of return of the asset or portfolio. The greater the positive or negative rate of return within one standard deviation, the greater the risk. Depending on the time period being measured, the standard deviation reflects the variability of change in the asset.

RISK-FREE ASSET — The "risk-free" asset is an asset which, theoretically, has no risk or volatility. Assets in this regard might include Treasury Bills, money market instruments, and CDs.

RISK-FREE RATE OF RETURN — The risk-free rate of return will either be a rate at which you could lend money to a risk-free asset such as a T-Bill, or a rate at which you can actually borrow money.

RISK LEVEL — To express an investor's tolerance for risk of loss, the risk level will generally represent a period of one year and exhibit the percent of portfolio principal which the investor may be willing to lose in any one-year period. If the investor is not willing to lose anything, this rate will be 0.0%. If the investor is willing to lose 2% of his principal in any one year the value will be equal to —2.0%. Portfolios are designed so that the investor's tolerance for risk will not be exceeded within some specific confidence level. Based on the confidence level selected, there is a minimum rate of return within the probability distribution which may be expected. The 90% confidence level includes 90% of all probable rates of return, the lowest of which will be the minimum rate of return.

SECURITY SELECTION — Refers to the excess return added by the mutual fund managers that we selected above that which would have been earned using an unmanaged index fund.

SHARPE RATIO — Sharpe ratio measures the reward to total volatility trade-off. Divides expected return less risk-free return, by the standard deviation of the asset or portfolio. Formula: ((Expected Return — Risk-free Return)/Standard Deviation).

STANDARD DEVIATION — The standard deviation is a measure of dispersion of observations expressed in the same units as the measurements (percent rate of return). Mathematically it is expressed as the positive square root of the mean of the square deviation or squares of the values of measurement from their mean. One standard deviation will include 68.4% of all observations within a population dispersion. The wider the spread of measurements within one standard deviation, the greater the variability of the investment. Therefore, the greater the variability from the mean rate of return, the greater the risk inherent in the asset.

STD — The abbreviation "STD" used in these reports refers to the Standard Deviation of returns which is a measure of volatility, i.e., a relative measure of how frequently actual results varied from the mean rate of return for a given historic time period. (See also, Standard Deviation.)