Detailed Proposal Prepared For - HiddenLevers › uploads › sample-proposal.pdfDetailed Proposal Prepared For: Johnny and June Cash Prepared By: David Ristau May 15, 2018 1 FINANCIAL

Detailed Proposal Prepared For:Johnny and June Cash

Prepared By: David RistauMay 15, 2018

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FINANCIAL PLANNING.

The core of what we do for high net worth clients, pension funds, corporations, retire-ment plans and charitable foundations is guiding them toward their financial goals.

WEALTH SERVICES.

Estate planning, life insurance, asset-backed lending and corporate retirement plans can all play an important role in the lives of our clients. We’ve coordinated with top providers in these areas so that we can incorporate these services in a comprehensive manner.

What We Do

ASSET MANAGEMENT.

We believe in low-cost, simple investment plans in a marketplace of near-limitless complexity. The strategies and solutions we utilize are selected specifically to address the objectives of each client.

INVESTMENT ADVICE.

We work directly with clients on a conflict-free, fee-only basis. We are held to a Fiduciary Standard as a registered investment advisory firm (RIA) and giving the right advice is the soul of our firm. No one pays us but you, we serve no other interest but those of our clients.

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TheRiskProfilequestionnaireisdesignedtohelpevaluateyourtoleranceforrisk.Youranswershavebeentalliedtodetermineyourriskscoreandcategory.Youradvisorcanusethisinformationtodesignanappropriateinvestmentportfolio.Ifyoudonotagreewiththisanalysis,youmayadjusttheriskcategoryontheInvestmentPolicyStatementwithyouradvisor.Youradvisorwillthendevelopanappropriateinvestmentportfoliobasedontherevisedinformation.

ThisriskscoreputsyouintheModeratecategory.

RiskProfile

ConservativeModeratelyConservative Moderate

ModeratelyAggressive Aggressive

Conservative:1-10%Acceptingoflowerreturnsforahigherdegreeofstability

Seeksprincipalpreservationandminimizingrisk

ModeratelyConservative:11-20%Comfortableacceptingasmalldegreeofriskvolatility

Acceptingoflowerreturnsinexchangeforminimallosses

Moderate:21-30%Acceptingofmoderaterisktoseekhigherlong-termreturns

Acceptingofshort-termlossesofprincipalinexchangeforlong-termappreciation

ModeratelyAggressive:31-40%Willingtoacceptsignificantrisk

Mayendurelargelossesinfavorofpotentiallyhigherlong-termreturns

Aggressive:41-50%Willingtoacceptsubstantialrisk

Maximizinglong-termreturnsismoreimportantthanprotectingprincipal

21%

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ThesurveybelowwastakenonJune7,2018.

Survey

Goals

1.Whatisthemaingoalforyourinvestments? Steadilygrowmyassets

2.Iexpecttopullmoneyfrommyinvestmentsin: 11-20years

Financials

1.Selectyourcurrentnetworth(excludingprimaryresidence):

500K-1M

2.Pleaseindicateyourcurrentannualhouseholdincome: 125,001-200,000

3.Pleaseselectthemostcomplexinvestmentyouhaveowned,orwouldbecomfortableowning:

MutualFunds/ETFs

RiskTolerance

1.Whichbestdescribesyourtolerancetorisk? Iaimforinvestmentgrowth,acceptingmoderateriskofloss

2.Thischartshowsthepotential1-yearrisk/returntradeoffofa$100,000investment.Whichwouldyouchoose?

+2,000

-0

3.Imaginethataninvestmentyouownlost30%ofitsvaluein3days.Whatwouldyoudo?

Sellallofmyshares

4.Youmakeaninvestment,planningtoholditfor5years.Itthenloses20%initsfirstyear.Howdoyoureact?

Iwouldwaittoseehowitcontinuestoperform

5.Thefollowingchartsshowthepotentialperformanceofaninvestmentover10years.Whichwouldyouchoose?

S&P500 Investment

4

Holdings %Allocation DollarValue

CurrentIRA 100.00% 400,000.00

Total 400,000.00

Recommendation %Allocation DollarValue

TheThreeLittlePigsHL20/80Benchmark 14.00% 56,000.00

TheThreeLittlePigsModerateModel 86.00% 344,000.00

Total 400,000.00

AccountsSummary

5

Holdings($400,000) Recommendation($400,000)

62% Equities 36% FixedIncome

<1% Alternative 2% Cash

54% Equities 44% FixedIncome

<1% Alternative 2% Cash

HoldingsEEM 12.50% iSharesMSCIEmergingMarketsETF

Fund-DiversifiedEmergingMkts

FCNTX 12.50% FidelityContrafundFundFund-LargeGrowth

MWHYX 12.50% MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond

VOO 12.50% VanguardS&P500Fund-USIndex

AGG 12.50% iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond

FOX 12.50% Twenty-FirstCenturyFox,Inc.DiversifiedCommunicationServices

AAPL 12.50% APPLEINCTechGiants

84247PGB1 12.50% SoCalPubWtrFixedIncome

HoldingsSPY 15.70% SPDRSP500ETF

Fund-USIndex

VTSMX 12.90% VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend

MDBAX 12.90% BlackRockBasicValueFundInvestorASharesFund-LargeValue

XLP 12.90% ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend

BND 12.90% VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond

VTEB 12.90% VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond

AGG 11.20% iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond

MPHQX 8.60% BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond

PortfolioAllocations

62%Equities

54%Equities

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StressTestSummary

Holdings Recommendation

Theabove"potentialdownside"numberisthehypotheticallosstheportfoliocouldexperiencebasedonthepotentialdownsidescenariodefinedbelow.Thesescenariosare"what-if"economicsimulationsdoneontheportfolio.

PastCrashesThisscenariolooksathistoricalmarketcrashes,andasks"Whatifthishistoricalcrashhappenedtoday?"

FinancialCrisis9/1/08-3/9/09

S&PValuationWhatimpactwouldashiftintheS&P500cyclically-adjustedPEratiohaveontheeconomy?

17CAPE-LongTermAverage21CAPE-TypicalRecession44CAPE-All-timeHighs

Recommendation

-21%*

-23%

Holdings

-21%*

-38%

Recommendation

-19%

-14%

+13%

Holdings

-35%

-26%

+26%

-38%-$152K

-23%-$91,077

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*Thedashedlinerepresentsyourrisktolerance.

TechBubbleAretechcompaniesintheearlystagesoftransformingthewholeeconomy,oraretheysettingupfora2000-stylecorrectioninvaluations?

TechCrashBullMarketCorrectionTechHitsY2KValuations

OilPricesWhatisthefutureimpactofchangingOilpricesontheglobaleconomy?

CommoditiesPerfectStorm$90-IranSanctionsReinstated

BaselineThisscenarioexaminestheimpactofstraightforwardmovesineconomicindicators.

S&P500Down20%Treasuryratesup100bpS&P500Up10%

Recommendation

-7%

-2%

+5%

Holdings

-18%

-9%

+11%

Recommendation

-10%

-1%

Holdings

-18%

-3%

Recommendation

-7%

+0%

+6%

Holdings

-13%

+1%

+10%

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Theinformationhereexploresothermeasuresofrisk.Pleaseseedisclosuresforaglossaryandexplanationofcalculations.


Forward-LookingRisk/Return

HistoricalCalcsTimeframe:June7,2013toJune7,2018

RiskStats

StressTestRisk

CorrelationRisk

S&P500Beta

PerformanceStats

TotalReturn

MaxDrawdown

Volatility

PortfolioStats

Yield

SharpeRatio

SortinoRatio

Expenses

ExpenseRatio

Fee%Thehypotheticaltotalreturnmaynotincludealldeductedfees(e.g.AUMfee)andchargesinherenttoinvesting.

RiskStatistics

PotentialDownside:-$152K

ExpectedReturn(5Yr):+$227K

PotentialDownside:-$91,077

ExpectedReturn(5Yr):+$138K

-38% -23%

0.38 0.44

0.74 0.50

* 43.96% 37.98%

-12.82% -6.53%

6.29% 5.25%

1.91% 2.19%

0.83 0.82

1.14 0.93

0.30% 0.21%

N/A N/A*

-38% -23%

+57% +34%

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Performancehistorymeasuresthereturnofeachportfolioincludingdividends,andsubtractinganyfees.Itassumestheportfolio'sallocationtodayhasremainedconstantoverthetimeperiodselected.Thereturnsarebacktestedandnotreflectiveofanyactualtradedaccount.Pleaserefertothedisclosurepageformoreinformation.

Timeframe:June7,2013toJune7,2018

TheThreeLittlePigsHoldings TheThreeLittlePigsRecommendation

HypotheticalPerformanceHistory

Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017 Jul2017 Jan2018-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Holdings

+43.96%

Recommendation

+37.98%

10

Thechartbelowshowsthehistoricaldownsideperformance(inpercentageterms)foreachportfolio.Thelowestpointonthechartshowsthemaximumlossincurredbyeachportfoliooverthedepictedtimeframe.Pleaserefertothedisclosuresformoreinformation.

Timeframe:June7,2013toJune7,2018

TheThreeLittlePigsHoldings TheThreeLittlePigsRecommendation

HypotheticalDrawdownAnalysis

Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017 Jul2017 Jan2018-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

HoldingsPeak:May-18-2015Trough:Feb-08-2016

-12.82%

RecommendationPeak:Jan-22-2018

Trough:Apr-30-2018

-6.53%

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TheThreeLittlePigsHoldings($400,000) TheThreeLittlePigsRecommendation($400,000*)

Holdings Recommendation% $ % $

ExpenseRatio 0.30% $1,190.00 0.21% $850.59AUMFee N/A $0.00 N/A $0.00TotalFees 0.30% $1,190.00 0.21% $850.59

*Forcomparisonpurposes,bothportfoliosaredepictedashavingthesametotalvalue.

HoldingsSymbol Name/Category ExpenseRatio Cost CategoryFeeRange

FeeAttribution

ExpenseAnalysis

MWHYX MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond

0.86 $430.00 0.10 0.86 1.93

FCNTX FidelityContrafundFundFund-LargeGrowth 0.74 $370.00 0.01 0.74 2.54

EEM iSharesMSCIEmergingMarketsETFFund-DiversifiedEmergingMkts 0.69 $345.00 0.18 0.69 2.39

AGG iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond

0.05 $25.00 0.01 0.05 1.65

VOO VanguardS&P500Fund-USIndex 0.04 $20.00 0.02 0.04 1.96

Thefollowingpositionsdonotchargeanyfees:FOX,AAPL,84247PGB1

$1,190.00TotalFees

$850.59TotalFees

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RecommendationSymbol Name/Category ExpenseRatio Cost CategoryFeeRange

MDBAX BlackRockBasicValueFundInvestorASharesFund-LargeValue

0.82 $423.12 0.01 0.82 2.06

MPHQX BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond

0.39 $134.16 0.01 0.39 1.65

VTSMX VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend

0.14 $72.24 0.00 0.14 2.12

XLP ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend 0.13 $67.08 0.00 0.13 2.12

SPY SPDRSP500ETFFund-USIndex

0.09 $59.35 0.02 0.09 1.96

VTEB VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond

0.09 $46.44 0.01 0.09 1.76

BND VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond

0.05 $25.80 0.01 0.05 1.65


0.05 $22.40 0.01 0.05 1.65

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StyleAnalysis

Holdings

Value

Large 8

Blend

30

Growth

58

Mid 1 1 2

Small 0 0 0

Recommendation

Value

Large 44

Blend

23

Growth

21

Mid 6 4 2

Small 0 1 0


MarketCapAnalysis

Small Mid Large

0.2% 3.7%

96.1%

1.9%11.3%

86.8%

MarketCapReturns

Past90Years

Past30Years

Past10Years

Large-CapStocksS&P500Index

9.7% 7.1% 4.6%

Mid-CapStocksRussellMidcapIndex

10.2% 8.7% 5.7%

Small-CapStocksS&P600SmallCapIndex

11.9% 7.4% 6.8%


StyleAnalysis

Value Blend Growth

9.4%

30.8%

59.8%

49.6%

27.2%23.2%

StyleReturnsPast30Years

Past20Years

Past10Years

LargeValueIndexRussell1000ValueIndex

6.5% 4.7% 3.3%

LargeBlendIndexRussell1000Index

7.1% 5.2% 5.1%

LargeGrowthIndexRussell1000GrowthIndex

7.3% 4.9% 7.5%

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SectorAnalysis


ConsumerDiscretionary

ConsumerStaples

Energy

Financials

Healthcare

Industrials

Materials

RealEstate

Technology

Telecommunications

Utilities

6.9

2.3

2.6

11.7

3

2.7

2.6

0.80.8

40.5

26.4

0.60.6

7.2

29.2

6.1

15.1

11.8

6.6

2

1.51.5

14.4

2.8

3.3

ConsumerDiscretionary

ConsumerStaples

Energy

Financials

Healthcare

Industrials

Materials

RealEstate

InformationTechnology

Telecom

Utilities

as%ofequityallocation

15

GeographicAnalysis


Domestic Developed EmergingMarkets

78.7%

6.6%14.6%

97.7%

2.3% 0%

DevelopmentTypeHoldingsByRegion Holdings Recommendation

NorthAmerica

79% 98.1%

LatinAmerica 2.1% 0%

Europe 1.6% 1.9%

AsiaPacific 15.7% 0%

MiddleEast+Africa

1.5% 0%

7979%%vsvs98.198.1%%

2.12.1%%vsvs00%%

1.61.6%%vsvs1.91.9%%

15.715.7%%vsvs00%%

1.51.5%%vsvs00%%

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FixedIncomeAnalysis


Long Intermediate Short

13.6%

37.6%

48.8%50.7%

32.7%

16.6%

TermAnalysis


Municipal Corporate Government0%

62.6%

37.4%30.8%

25.6%

43.6%

TypeAnalysis

InterestRateRisk Holdings Recommendation

AverageYield 2.62% 2.71%

AverageDuration 2.94 5.82

CreditQuality Holdings Recommendation

AAA 40.77% 54.29%

AA 1.41% 17.41%

A 5.65% 12.51%

BBB 9.65% 12.7%

BB 19.36% 0.68%

B 18.29% 0.63%

BelowB/Unrated 4.86% 1.79%

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Ticker Name/Industry Holdings Recommendation

MWHYX MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond

12.50%

FCNTX FidelityContrafundFundFund-LargeGrowth

12.50%

EEM iSharesMSCIEmergingMarketsETFFund-DiversifiedEmergingMkts

12.50%


12.50% 11.20%(-1.30%)

VOO VanguardS&P500Fund-USIndex

12.50%

FOX Twenty-FirstCenturyFox,Inc.DiversifiedCommunicationServices

12.50%

AAPL APPLEINCTechGiants

12.50%

84247PGB1 SoCalPubWtrFixedIncome

12.50%

MDBAX BlackRockBasicValueFundInvestorASharesFund-LargeValue

12.90%

MPHQX BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond

8.60%

VTSMX VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend

12.90%

XLP ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend

12.90%

SPY SPDRSP500ETFFund-USIndex

15.70%

VTEB VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond

12.90%

BND VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond

12.90%

ComparePositions

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AnnualizedReturnsforHoldings

Symbol NameExpenseRatio YTD 1Year 3Years 5Years 10Years

SinceInception

Ann.Return Volatility Drawdown

MWHYX MetropolitanWestHighYieldBondFundClassM

0.86 -1.59% 0.24% 2.61% 2.57% 6.38% 7.21%Sep-30-2002

6.92% -28.32%

FCNTX FidelityContrafundFund 0.74 9.81% 21.75% 14.54% 15.66% 10.38% 11.77%Jan-01-1980

17.88% -47.98%

EEM iSharesMSCIEmergingMarketsETF

0.69 1.97% 14.35% 6.93% 4.84% 1.53% 11.53%Apr-14-2003

21.72% -61.46%

AGG iSharesCoreU.S.AggregateBondETF

0.05 -3.05% -2.34% 0.98% 1.50% 3.30% 3.57%Sep-29-2003

3.37% -7.34%

VOO VanguardS&P500 0.04 5.40% 14.97% 11.45% 13.13% 14.71%Sep-09-2010

10.63% -15.10%

FOX Twenty-FirstCenturyFox,Inc.

N/A 25.75% 42.72% 6.09% 7.31% 10.12% 9.80%May-19-1986

34.88% -80.76%

AAPL APPLEINC N/A 12.29% 26.67% 15.90% 27.06% 23.22% 17.75%Dec-08-1980

102.90% -86.51%

Total(SinceSep-09-2010) 5.17% 12.62% 6.86% 7.55% 8.26% 6.29% -12.82%

AnnualizedReturnsforRecommendation

Symbol NameExpenseRatio YTD 1Year 3Years 5Years 10Years

SinceInception

Ann.Return Volatility Drawdown

MDBAX BlackRockBasicValueFundInvestorAShares

0.82 3.37% 11.11% 4.99% 8.93% 6.98% 8.54%Oct-17-1994

16.50% -54.96%

MPHQX BlackRockTotalReturnFundClassKShares

0.39 -2.86% -2.00% 1.36% 2.43% 2.93% 2.65%Dec-03-2001

5.96% -20.91%

VTSMX VanguardTotalStockMarketIndexFundInvestorShares

0.14 5.89% 15.52% 11.09% 13.07% 9.47% 9.65%Apr-27-1992

15.07% -54.03%

XLP ConsumerStaplesSelectSectorSPDRFund

0.13 -9.46% -10.53% 3.47% 6.94% 8.66% 5.43%Dec-21-1998

12.70% -34.60%

SPY SPDRSP500ETF 0.09 5.38% 14.91% 11.38% 13.18% 9.34% 9.52%Jan-25-1993

14.87% -53.89%

VTEB VanguardTax-ExemptBondIndexFundETFShares

0.09 -0.89% -0.37% 2.05%Aug-25-2015

2.41% -5.27%

AGG iSharesCoreU.S.AggregateBondETF

0.05 -3.05% -2.34% 0.98% 1.50% 3.30% 3.57%Sep-29-2003

3.37% -7.34%

BND VanguardTotalBondMarketIndexFundETFShares

0.05 -2.99% -1.88% 1.07% 1.45% 3.23% 3.55%Apr-09-2007

3.13% -4.84%

Total(SinceAug-25-2015) -0.54% 2.86% 6.28% 5.25% -6.53%

Thevaluesherearecalculatedfromeachinvestment'sreporteddataandpricehistory.Past

HistoricalReturns

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performanceisnotindicativeoffutureresults.Investingalwaysinvolvesriskandyoumayincuraprofitorloss.Noinvestmentstrategycanguaranteesuccess.Pleaserefertothedisclosurepageformoreinformationonthesecalculations.

20


StressTestDetails

CurrentTotal=$400,000.00 ScenarioTotal=$248,415 Total%=-37.9(+/-2.90%)


PastCrashes:FinancialCrisis9/1/08-3/9/09Description:ThisscenariocoversthetimeframefromSeptember1,2008throughMarch9th,2009,andmeasuresthehistoricalchangeofeachleveroverthosedates.

Outcome:ThisscenariooutcomereflectstheeconomicmovementsbetweenSept.1,2008andMarch9th,2009.Formonthlyandotherlessgranularlevers,thenearesttimeperiodisused

Timeframe:6MonthsScenarioProgress:0%Complete

Levers Current Projected Change

S&P500 2772.35 1438.85 -48.1%

10YUSTYield 2.97% 2.13% -0.84%

12MT-BillYield

2.32% 1.48% -0.84%

CPI 2.43% -0.51% -2.94%

EUR 1.18$ 1.05$ -11.02%

Oil 65.52$/barrel 24.12$/barrel -63.19%

RetailSales 4.68% -1.26% -5.94%

Unemployment 3.8% 5.9% 2.1%

USGDPGrowth

2.86% -0.36% -3.22%

USD 93.9(IndexValue)

108.3(IndexValue)

15.34%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-56.7%

-7.2%

-46.9%

-0.0%

-21%*

-43.3%

+1.6%

+1.1%

-0.0%

21




S&PValuation:17CAPE-LongTermAverageDescription:WhatiftheS&P500suffersacorrectioninvaluationdowntolongtermaveragelevels(downto17CAPE)?

Outcome:ThelongtermaverageCAPEmultiplefortheS&P500isaround17,comparedto33atthestartof2018Adeclineofroughly45%fromthosehighswouldberequiredtonormalizetheS&P500CAPEmultipleThisassumesonlyamodestriseinearnings,asthescenariowouldbeaccompaniedbyabroadereconomicslowdown

Timeframe:1YearScenarioProgress:0%Complete


S&P500 2772.35 1524.79 -45.0%

10YUSTYield 2.97% 1.77% -1.2%

12MT-BillYield

2.32% 0.78% -1.54%

CPI 2.43% 0.47% -1.96%

EUR 1.18$ 0.98$ -16.95%


RetailSales 4.68% -3.6% -8.28%


USGDPGrowth

2.86% -1.48% -4.34%


105.1(IndexValue)

11.93%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-53.6%

-5.5%

-44.2%

-0.0%

-21%*

-39.6%

+5.3%

+7.7%

-0.0%

22




S&PValuation:21CAPE-TypicalRecessionDescription:WhatiftheS&P500experiencesatypicalrecessionarycorrection,bringingtheCAPEmultipledowntotheaverageofthe1990and2003recessions?

Outcome:TheS&P500CAPEmultipledroppedby17%duringthe1990recession,andby23%in2003DroppingtoaCAPEaround21wouldrequireamarketdeclineofnearly35%fromS&P500at2500Valuationsaremuchfurtherextendedtoday,withearningsgrowthprovidingonlyapartialcushionforapotentialrecessionarycorrection



S&P500 2772.35 1819.16 -34.38%

10YUSTYield 2.97% 2.49% -0.48%

12MT-BillYield

2.32% 1.42% -0.9%

CPI 2.43% 1.71% -0.72%

EUR 1.18$ 1.07$ -9.32%


RetailSales 4.68% 0.86% -3.82%


USGDPGrowth

2.86% 0.99% -1.87%


101.18(IndexValue)

7.75%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-41.4%

-1.4%

-33.7%

-0.0%

-21%*

-29.8%

+5.6%

+5.0%

-0.0%

23


CurrentTotal=$400,000.00 ScenarioTotal=$505,664 Total%=26.4(+/-2.01%)


S&PValuation:44CAPE-All-timeHighsDescription:CanlowinterestratesandagrowingeconomyenabletheS&P500tosustainlevelsofvaluationfarabovelong-termaverages?

Outcome:TheS&P500reachedanall-timehighCAPE(cyclically-adjustedPEratio)of44.19inDecember1999,atthepeakofthedot-combubbleReachingthoselevelswouldimplyanS&P500riseto3600fromaround2700atthestartof2018Thelasttimethislevelofvaluationwasreached,theensuingcrashhalvedtheS&P500overthefollowing2.5years



S&P500 2772.35 3614.88 30.39%

10YUSTYield 2.97% 4.52% 1.55%

12MT-BillYield

2.32% 3.48% 1.16%

CPI 2.43% 2.69% 0.26%

EUR 1.18$ 1.2$ 1.69%

Oil 65.52$/barrel 75.47$/barrel 15.19%

RetailSales 4.68% 4.85% 0.17%

Unemployment 3.8% 3.62% -0.18%

USGDPGrowth

2.86% 3.37% 0.51%


91.69(IndexValue)

-2.35%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

+42.7%

-0.5%

+31.0%

-0.0%

-21%*

+29.7%

-7.1%

-5.5%

-0.0%

24




TechBubble:TechCrashDescription:Whatiffrothytechsectorvaluationscomecrashingdown,butdoesn'tcompletelydestroythemarketasawhole?

Outcome:TechcompaniesandtheNasdaqwouldfeelthemostpaininthisscenarioTechisnotthesolemarketdrivertoday,soadownturnwouldbemoremutedthanin2000TheFedmightattempttocombatacrashwithQEandlowrates,proppingupothersectorslikehousing



Nasdaq 7689.24 5059.52 -34.2%

S&P500 2772.35 2245.6 -19.0%

10YUSTYield 2.97% 2.37% -0.6%

12MT-BillYield

2.32% 2.18% -0.14%

CPI 2.43% 2.29% -0.14%

EUR 1.18$ 0.99$ -16.1%


RetailSales 4.68% 1.8% -2.88%


USGDPGrowth

2.86% 1.88% -0.98%


95.5(IndexValue)

1.7%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-29.3%

-0.2%

-26.5%

-0.0%

-21%*

-15.7%

+4.0%

+4.9%

-0.0%

25




TechBubble:BullMarketCorrectionDescription:Whatiftechcompanyvaluationsnormalize,erasingtherecentoutperformancebytheNasdaq?

Outcome:TheNasdaqhasoutperformedtheS&P500byroughly10%overthelastyearDropintechvaluationsmightstartinprivatefunding(VCs)andspreadtopublicmarketsAmildcorrectionintheNasdaqmightensue,withlesserimpactsonothermajorequityindices



Nasdaq 7689.24 6089.88 -20.8%

S&P500 2772.35 2495.12 -10.0%

10YUSTYield 2.97% 2.73% -0.24%

12MT-BillYield

2.32% 2.32% 0.0%

CPI 2.43% 2.43% 0.0%

EUR 1.18$ 1.15$ -2.54%


RetailSales 4.68% 4.5% -0.18%


USGDPGrowth

2.86% 2.72% -0.14%


96.3(IndexValue)

2.56%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-16.3%

+2.4%

-15.6%

-0.0%

-21%*

-7.4%

+4.2%

+4.0%

-0.0%

26




TechBubble:TechHitsY2KValuationsDescription:WhatiftechgiantscontinuerisingsothattheirvaluationsonaP/Ebasisaresimilartothatofthe2000peak?

Outcome:NasdaqwillcontinuetorallyfasterthantheoverallmarketastechcompaniesdominatemoremarketsGDPgrowthandinflationwillbemutedastechnology-baseddeflationspreadstomoresectorsTechnologywillenablenewcapabilities,butwillalsocontinuetodisplacemiddleclassjobs,sothatunemploymentstaysflat



Nasdaq 7689.24 9014.34 17.23%

S&P500 2772.35 3011.23 8.62%

10YUSTYield 2.97% 3.46% 0.49%

12MT-BillYield

2.32% 2.82% 0.5%

CPI 2.43% 2.64% 0.21%

EUR 1.18$ 1.16$ -1.69%


RetailSales 4.68% 4.68% 0.0%


USGDPGrowth

2.86% 3.0% 0.14%


95.52(IndexValue)

1.73%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

+16.3%

+1.7%

+13.5%

-0.0%

-21%*

+9.7%

-0.3%

+0.6%

-0.0%

27




Baseline:S&P500Down20%Description:WhatiftheS&P500hasastrongcorrectionandfalls20%overashorttimeframe?

Outcome:A20%correctionisusuallyassociatedwithaslowdowninGDPgrowthandariseinunemploymentInterestrateswouldfallsignificantlyasinvestorsbraceforarecessionMostinvestableassetsincludingrealestate,commodities,andpreciousmetalswouldseesomedecline



S&P500 2772.35 2217.88 -20.0%

10YUSTYield 2.97% 2.49% -0.48%

12MT-BillYield

2.32% 1.9% -0.42%

CPI 2.43% 2.01% -0.42%

EUR 1.18$ 1.05$ -11.02%


RetailSales 4.68% 4.14% -0.54%


USGDPGrowth

2.86% 2.02% -0.84%


97.1(IndexValue)

3.41%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-22.4%

+1.6%

-19.2%

-0.0%

-21%*

-16.6%

+5.3%

+4.4%

-0.0%

28




Baseline:Treasuryratesup100bpDescription:Whatif10yeartreasuryratesrise100basispointsasinterestratesnormalize?

Outcome:A100bpriseinratesmightoccurindependentofotherlargemarketmoves30yearmortgagerateswouldbemostimpacted,risingtothe5%rangeIfinterestratespreadswiden,couldbepositiveforfinancialfirmsandlenders



S&P500 2772.35 2800.07 1.0%

10YUSTYield 2.97% 3.97% 1.0%

12MT-BillYield

2.32% 2.82% 0.5%

CPI 2.43% 2.43% 0.0%

EUR 1.18$ 1.17$ -0.85%


RetailSales 4.68% 4.68% 0.0%


USGDPGrowth

2.86% 2.86% 0.0%


93.9(IndexValue)

0.0%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

+2.8%

-0.6%

+1.2%

-0.0%

-21%*

+2.7%

-3.2%

-2.4%

-0.0%

29




Baseline:S&P500Up10%Description:WhatiftheS&P500rises10%,inlinewithitslongtermaveragesince1950?

Outcome:Since1950theS&P500hasrisenroughly10%peryearincludingdividends(7.7%without)AsmallriseinratesmightaccompanythiskindofaverageperformanceInflationandcommoditiespriceswouldlikelybeheldincheck



S&P500 2772.35 3049.58 10.0%

10YUSTYield 2.97% 3.21% 0.24%

12MT-BillYield

2.32% 2.6% 0.28%

CPI 2.43% 2.57% 0.14%

EUR 1.18$ 1.21$ 2.54%


RetailSales 4.68% 4.68% 0.0%

Unemployment 3.8% 3.7% -0.1%

USGDPGrowth

2.86% 3.28% 0.42%


93.9(IndexValue)

0.0%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

+14.3%

+2.4%

+9.8%

-0.0%

-21%*

+11.0%

+0.9%

+2.0%

-0.0%

30




OilPrices:CommoditiesPerfectStormDescription:Whatifthecommoditiesdropandsubduedinflationareapreludetoamarketcorrection?

Outcome:EquitiesmarketsgenerallyunderperformindeflationaryperiodsIfcommoditiesandCPIareindeedpredictingfallingprices,thestockmarketandeconomicgrowthmightbothnotbefarbehindThisscenariowouldlikelyexacerbatethetrendwhichstartedwiththeoildrop-weaknessinenergyandmaterials,andrelativestrengthintechandconsumer-orientedsectors




S&P500 2772.35 2070.95 -25.3%

10YUSTYield 2.97% 2.37% -0.6%

12MT-BillYield

2.32% 1.76% -0.56%

CPI 2.43% 1.59% -0.84%

EUR 1.18$ 1.09$ -7.63%

RetailSales 4.68% 2.88% -1.8%


USGDPGrowth

2.86% 1.6% -1.26%


97.1(IndexValue)

3.41%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-27.8%

-1.3%

-24.1%

-0.0%

-21%*

-21.5%

+3.8%

+4.3%

-0.0%

31




OilPrices:$90-IranSanctionsReinstatedDescription:WhatifIran'saccesstoworldoilmarketsiscutoffbyarestartofUSandEuropeansanctions?

Outcome:TheUSalreadyreinstatedIransanctions,butEuropecontinuestonegotiateoverIran'snuclearprogramOilpricesmightspikeupwardifIranianoilproductioniscurtailedAmildpriceshockmightslowgrowthabitintheUSandothermajorenergyconsumers




S&P500 2772.35 2575.46 -7.1%

10YUSTYield 2.97% 2.79% -0.18%

12MT-BillYield

2.32% 2.43% 0.11%

CPI 2.43% 2.9% 0.47%

EUR 1.18$ 1.17$ -0.85%

RetailSales 4.68% 4.82% 0.14%


USGDPGrowth

2.86% 2.67% -0.19%


95.25(IndexValue)

1.44%

Holdings

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

Recommendation

Equities-Stocks

FixedIncome-Bonds

Alternative-Alt

Cash-MoneyMarket

-21%*

-5.8%

+1.8%

-6.4%

-0.0%

-21%*

-4.8%

+2.9%

+3.2%

-0.0%

32

ClientAcknowledgement

ClientSignature Date ClientSignature Date

WealthAdvisorSignature Date WealthAdvisorSignature Date

Iunderstandthatthisreportisonlyaguidetobuildinganoverallfinancialsolution,andrecognizethatthereareotherfactorstoconsiderwhenmakingportfoliodecisions.Thepurposeofthisreportistoestablishaclearunderstandingbetweentheclient(s)andtheadvisorastotheinvestmentguidelinesandgoalsfortheinvestor'sassets.Pleasereviewtheunderlyingassumptionscarefully.Pastperformanceisnoguaranteeoffutureresultsandprincipalvaluesfluctuatewithchangingmarketconditions.

Theinformationpresentedinthisreportisforillustrativepurposesonlyanddoesnotconstituteinvestmentadvice.Theresultspresentedherearehypotheticalandmaynotreflecttheactualgrowthofinvestments.Thedatapresentedmayexcludecommissions,saleschargesorfeeswhich,ifincluded,wouldhavehadanegativeeffectontheannualreturns.Investinginsecuritiesinvolvesriskoflossthatclientsshouldbepreparedtobear.ItshouldbeassumedthatinvestmentslistedinthisreportarenotFDICinsured.

Investorsshouldconsideraninvestment'sobjective,risks,charges,andexpensescarefullybeforeinvesting.InthecaseofETFs(ExchangeTradedFunds)andmutualfunds,theassociatedprospectuscontainsthisandotherimportantinformationwhichshouldbeconsideredbeforeinvesting.Theadvisorwillassisttheclient(s)inmakinginvestmentdecisionsbasedinindividualneeds,objectives,andrisktolerance.Theclient(s)is/areresponsibleforprovidingvalidinformationontheirfinancialstatus,risktolerance,goals,andmustnotifytheadvisorofanychanges.

IherebyaffirmthatIhavereviewedtheinformationpresentedinthisreport.Iacknowledgethattheinformationaccuratelyreflectsmyinvestmentobjectivesandgoals.Onatimelybasis,Iwillinformtheadvisor(s),inwriting,ofanymaterialchangesinourfinancialsituationand/ormyinvestmentobjectives,whichmightaffecttheinvestmentofmyassets.

33

Disclosures

ExcludedTickers:

TheThreeLittlePigsRecommendation:VTEB:Excludedfromchartsandriskmeasuresbecauseithasinsufficientdataforthistimeframe.Important:

TheprojectionsgeneratedbyHiddenLeversregardingthelikelihoodofvariousinvestmentoutcomesarehypotheticalinnature,donotreflectactualinvestmentresults,andarenotguaranteesoffutureresults.Assumptionsonratesofreturnandstandarddeviationusedinthisanalysisarebasedonhistoricalreturndataforeachsecurityandassetclass.Pastperformanceisnoguaranteeoffutureresults.Resultsmayvarywitheachuseandovertime.Youcannotinvestdirectlyinabenchmarkorindex.Indexresultsdonotreflectfees,expenses,orsaleschargesincurredwhenmakinginvestments.Allcalculationsinthisproposalarebasedondatafromthepreviousday'smarketclose.Thepreviousdayreferstothedaybeforethedateprintedonthecoverpageandintheheaderofeachpage.

Forindividualfixedincomeinstruments(bondCUSIPS,preferredshares,CDs,etc.),HiddenLeversbackfillsperformancedata.ForsymbolsrecognizedasaUSTreasury,theBarclays3-7YearTreasuryBondIndexisused.Formunicipalbonds,theBarclaysCapitalMunicipalBondIndexisused.Forpreferredequities,iSharesS&PU.S.PreferredStockdataisused.Forotherfixedincomeinstruments,theBarclaysUSAggregateIndexisused.ThesebackfillsaffectcalculationsontheRiskStatistics,HypotheticalDrawdownComparison,HypotheticalPerformanceHistory,andHistoricalReturnssections.Youradvisormaychangethesebackfillsiftheydeemitappropriate.

MethodologyUsedtoGeneratethisReport:Definitions:Beta-Betameasurestherelationshipbetweenaninvestmentandamajormarketindex(theS&P500isusedinthisreport).Abetaof1.0meansthata1%riseintheS&P500couldleadtoa1%riseintheinvestment,whileabetaof-0.5meansthata1%riseintheS&P500couldleadtoa0.5%dropintheinvestment.ThebetaforaninvestmentisdeterminedbyusingregressionanalysistomeasuretherelationshipbetweenthereturnsoftheinvestmentandthereturnsoftheS&P500.HiddenLeversuses10yearsofdatatomeasurethebetaforaninvestment.Forinvestmentswithlessthan10yearsofhistory,allavailablehistoricaldataisused.

CategoryFeeRange-Therangeisdeterminedbytakingtheaveragefeeofallfundsinacategory,andthendeterminingthestandarddeviationoffeesfromthataverage.Thelowendofthefeerangeissettobetwostandarddeviationsbelowtheaverage,andthehighendofthefeerangeissettobetwostandarddeviationsabovetheaverage.CrossCorrelations-HiddenLeversmeasuresthecorrelationbetweeneverypairofinvestmentsintheportfolio.Thecorrelationresultscanvarybetween1and-1,whereacorrelationof1meansthattwoinvestmentsmovetogetherperfectlyovertime,andacorrelationof-1meansthattwoinvestmentsmoveinoppositedirectionsovertime.

ExpectedReturn-Thisisthe5-yeartotalreturnoftheportfoliobasedonthestresstestscenariosselectedforthereport.Thesystemtakestheweightedaverageoftheeconomicscenariostocalculateaone-yearreturn,whichisthencompoundedtodeterminethefive-yearreturn.

Lever-HiddenLeverstracksdifferentlevers(economicindicators)likeCPI,USGDPGrowth,andoilprices,andusesmovementsintheseleverstodefineeconomicscenarios.

LeverImpact-Theleverimpactssectiondescribestheimpactofdifferenteconomicleversontheportfolioasawhole.AnS&Pleverimpactof1.0,forexample,meansthata1%riseintheS&P500isprojectedtoleadtoa1%riseintheportfolio.HiddenLeverssimilarlymeasurestheimpactofarangeofeconomicleversontheportfolio.

MaximumDrawdown(MDD)-thisismeasuredasthelargestpercentagedropinapositionduringthetimeframeofmeasurement.

Scenario-Ascenarioisarepresentationofamajormacro-economicorgeopoliticaleventwhichhasthepotentialtoimpactinvestmentreturns.HiddenLeversmodelsscenariosasasetofup-or-downmovementsinanyoftheeconomicindicators(levers)inthesystem.

ScenarioImpacts-UsingHiddenLevers'stresstestingmodel,anupsideanddownsideimpactareprojectedfortheportfolioineachscenario.Mostscenariosaremodeledwithmultiplepotentialoutcomes,withbothpositive,neutral,andnegativeoutcomesconsidered.ThebestandworstprojectionsarederivedfromrunningthedifferentscenariooutcomesagainsttheportfolioinHiddenLeversmodel.Thescenario-basedstresstestingmodelisdiscussedindetailintheMethodsectionbelow.

SharpeRatio-TheSharpeRatioistheameasureforcalculatingrisk-adjustedreturn,andthisratiohasbecometheindustrystandardforsuchcalculations.ItwasdevelopedbyNobellaureateWilliamF.Sharpe.TheSharperatioistheaveragereturnearnedinexcessoftherisk-

34

freerateperunitofvolatilityortotalrisk.HiddenLeverscalculatestheSharperatiobysubtractingshortterm(1M)T-billratesfromtheportfolio'sannualizedtotalreturn,andthendividingbytheportfolio'svolatility(annualizedstandarddeviation).

SortinoRatio-TheSortinoRatiosubtractstherisk-freerateofreturnformtheportfolio'sreturn,andthendividesthatbythedownsidedeviation.

StressTestRisk/Reward-TheStressTestRisk/Rewardcomparestheportfolio'spotentialdownsideriskagainstthe5yearexpectedreturnoftheportfolio.DownsideRisk:Thisisthemaximumdownsidecalculatedacrossallofthescenariosincludedinthereport.5YearExpectedReturn:HiddenLeversfirstcalculatestheexpectedreturnfortheportfoliobycalculatingtheone-yearweightedaverageexpectedreturnacrossallincludedscenarios.Theone-yearexpectedreturnisthencompoundedtoobtaina5yearreturnestimate.Historically,majordownsideeventsoccurroughlytwiceadecade,making5yearsanappropriatetimeframeforcomparisonoflongtermreturnsanddownsidescenariorisk.

Volatility-HiddenLeversmeasuresvolatilityastheannualizedstandarddeviationofaninvestmentorportfolio,expressedinpercentageterms.Thestandarddeviationiscalculatedusingweeklydatapoints,andisthenannualizedbymultiplyingbythesquare-rootof52(numberofperiodsinoneyear).

PotentialDownside-PotentialDownsideiscalculatedbytakingtheaccountvalueandmultiplyingbythemostpotentialdownsideseenintheportfoliothroughstresstestslistedinthestresstestsection.TotalReturn-Calculationofreturnsofallsecuritiesinsideofportfoliooverthetimeframeselectedforproposal.Thecalculationassumesthesameportfolioforentiretimeframerebalancedweekly.Yieldandexpenseratioforeachsecurityisincludedinthiscalculation.

ExpenseRatio-Theexpenseratioisaweightedaverageofthemostrecentlydisclosednetexpenseratioforsecuritiesintheportfolio.

Yield-Theweightedaverageofthecurrentyield(dataupdatedmonthly)forsecuritiesintheportfolio.

Method:

Thisreportdescribesoneormorepotentialscenarios,andshowstheHiddenLevers-modelbasedperformancefortheportfolioineachscenario.Thestepsbelowareperformedtogeneratetheprojections:Scenario->Levers->Assets(Stocksetc)->PortfolioReturn

Ascenariopushesleversupordown,whichinturnpushassetsupordown,whichinturnimpactaportfolio'smodeledreturninthescenario.Asdefinedabove,ascenarioismodeledasasetofmovementsinthelevers.Regressionanalysisisusedtodeterminethehistorical(prior10year)relationshipbetweeneachleverandeachassetintheportfolio.Themodelisthenrun2500timesforeachscenario/portfoliocombination.Ineachiteration,themodelprojectsthereturnsforeachassetusingthehistoricalregressioncoefficientsforeachlever,andusingthescenarioassumptionsonhoweachleverwillchange.Themodelvariestheregressioncoefficientsforeachiterationusinganormaldistributionaroundtheirmean(similartoaMonteCarlomodel'svaryingofexpectedreturnsacrossiterations),andaggregatestheresultsofthe2500iterationstofindameanportfolioreturnwitha95%confidenceinterval.Theconfidenceintervalisdisplayedonthereportas"marginoferror"foreachscenario.

LimitationsandAssumptions:

EachscenariodiscussedinthisreportisdefinedbytheeconomicassumptionslistedintheMacroImpactsectionofeachscenariopage.HiddenLeversdoesnotguaranteethatanyparticularscenariowilloccurasmodeledinthisreport.HiddenLeversuseshistoricalanalysisinthecreationofthisreport,andpastperformanceisnotaguaranteeoffutureresults.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

GxWorksLLC,makerofsoftwareusedtocreatethisreport,makesthefollowingdisclosures:GxWorksLLC's(GxWorks)missionistoeducateandprovideusefulmacroriskanalyticaltoolstohelpprovidedatatoassistwiththeinvestmentdecisionprocess.GxWorksreliesonfinancialdata,includingstockprices,providedbythirdparties.Thedataisbelievedtobeaccurate,butGxWorksdoesnotguaranteeorwarrantythisdata.Thisreportisintendedonlyasaninformationaltoolforyouandyourinvestmentadvisor,andshouldnotinanywaybeconstruedasinvestmentadvicebyGxWorks.Ifyoumakeinvestmentdecisionsbasedoninformationyoureceiveinconnectionwiththisreport,youdosoatyourownriskandneitherGxWorksnoritsemployeeswillbeliableforanylossesthatyoumayincur.GxWorks,itsemployees,officersoraffiliates,insomeinstances,mayhavelongorshortpositionsorholdingsinthesecuritiesorotherrelatedinvestmentsofcompaniesmentionedherein.Usersofthisshouldconducttheirownindependentresearchandduediligenceandconsultwiththeirinvestmentadvisorbeforemakinganyinvestmentdecisionsorrecommendations.

35

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Detailed Proposal Prepared For - HiddenLevers › uploads › sample-proposal.pdfDetailed Proposal Prepared For: Johnny and June Cash Prepared By: David Ristau May 15, 2018 1 FINANCIAL