“Growing and preserving wealth for generations”

Welcome To The

2011 Financial Forum

Hosted by

The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and advisory services through Commonwealth Financial Network, Member FINRA Financial Investor Regulatory Authority / SIPC Security Investor Protection Corporation, a registered investment advisor. Zeller Kern Private Wealth Management Inc., 11335 Gold Express Drive, Suite 155, Gold River, CA 95670, 916-436-8270

Steven E. Zeller, President, CFP®, AIF®, CExPTM

Zeller Kern Private Wealth Management, Inc.

Trevor K. Kern, CFO, AIF®, AAMSZeller Kern Private Wealth Management, Inc.

Special GuestRobert G. Burris, Senior Vice President

Sacramento Area Commerce and Trade Organization

Today’s Speakers

• To keep you informed about our views on the economy and markets.

• To educate you about important topics presented by our guest speakers.

• What is new with Zeller Kern.

• A chance to get answers to your questions.

Purpose of This Event

Download Today’s Presentation

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• Recap of the economic environment

• Introduction of Mr. Robert G. Burris, Senior Vice President of Sacramento Area Commerce and Trade Organization

• Discuss global financial crisis and market outlook

• Break

• Overview of our investment process and why we are committed to our “Advance and Preserve” discipline

• What’s new with Zeller Kern

• Closing remarks

Agenda

RECAP OF ECONOMIC ENVIRONMENT

Market Review

S&P 500 Returns

Source: Russell Investment Group, Standard and Poor’s, FactSet, J.P. Morgan Asset Management

Where We Have Been

Where Are We Now

Past performance is no guarantee of future results. The market for all securities is subject to fluctuation such that upon sale an investor may lose principal. Indices are unmanaged and cannot be invested into directly.

YTD September 15,2011 Return

Stocks:Dow Jones Industrial Average -0.94%Standard & Poor’s 500 -3.86%Nasdaq Composite -1.73%Russell 2000 Index -8.73%MSCI EAFE Index -14.98%

Bonds:10-Year Treasury Yield 1.95%

Commodities:DJ-UBS Commodity Index -2.53%

Gold 25.72%Currencies:

U.S. Dollar Index 0.11%

Secular vs. Cyclical Markets

The State of U.S. Housing

and Real Estate

Homes Are More Affordable…

Source: Census Bureau, FRB, BEA, J.P. Morgan Asset Management

…But How Low Can They Go?

Source: National Association of Realtors, FactSet, J.P. Morgan Asset Management

This is Not How You Want to Increase Home Sales

Housing Starts

Source: Census Bureau, FactSet, J.P. Morgan Asset Management

Unemployment

One of These Things is Not Like the Other One…

Some Progress has been made

2008-2009: 8.8 Million Jobs Lost

2010-Mid 2011: 2.1 Millions Jobs Gained

Under-Employment: A Big Issue…

…And Some Jobs May Not Come Back

Other Key U.S. Economic Observations

Confidence Rising from Lows…

How About Gold?

Do you see a bubble?

Source: EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management

• Robert G. Burris, Senior Vice President Sacramento Area Commerce and Trade Organization

Special Guest

Regional Economy and New Opportunities

September 22nd, 2011

Positive job growth by early 2012

UNDERWRITERS

Recovery in most large sectors

UNDERWRITERS

Unemployment will turn around

UNDERWRITERS

Stronger statewide growth for 2011 and 2012

Modestly positive business confidence

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49

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60 5955

59

54

46

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58

44

49

42

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56

50

56

0

10

20

30

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50

60

70

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BCI Industryconditions vs. 6

mo. ago

Industryconditions 6 mo.

from now

Sac Regionconditions vs. 6

mo. ago

Sac Regionconditions 6 mo.

from now

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ive

Pe

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itive

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Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011

Sacramento Region Business Confidence Index

Positive moderate-term job growth projectedSacramento Region Projected Major Sector Employment Growth, 2010-2015

Sorted by 2010 Size

8.5%

11.7%

8.6%

3.2%

38.0%

9.6%

13.1%

13.7%

16.4%

3.3%

5.9%

10.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Mining & Logging

Information

Other Services

Manufacturing

Construction

Financial Activities

Leisure & Hospitality

Prof. & Business Svcs.

Edu. & Health Svcs.

Trade, Trans., & Util.

Government

Total NonfarmAbsolute Gain = 86,422

Data Source: CSER analysis of Moody’s Economy.com information

Notable population growth projected in next decade

Economic Development Trends

• International Activity

• Green Economy

• Healthcare Industry

• Food/Beverage Logistics

• Long-Term State Government Activity

Recent Prospect Activity(Last six months)

• 50 percent of new prospects are in clean technology.

• Solar companies make up 76 percent of total clean technology prospects.

• Of total prospects seeking manufacturing sites, half are clean technology companies; most are in the solar industry.

• Of total clean technology prospects, 39 percent are based in Europe.

• Of non-clean prospects seeking sites for manufacturing and distribution, over half are involved in food/beverage industries.

• 70 percent of service prospects involved in education and training.

SACTO-AssistedRelocations/Expansions (2009-11)

• Nippon Shokken (Japan)

• Aero Union Corporation (USA)

• Harris and Bruno International (USA)

• Mori Seiki/Gildemeister (Japan/Germany)

• Mounting Systems (Germany)

• RagingWire Enterprise Solutions (USA)

• RIOS Solar Energy (Spain)

• Global Solar Energy Solutions (Korea)

• Siemens Mobility (Germany)

• SMA America (Germany)

• N Solar (Korea)

• Gemco Minerals (Canada)

• OPDE Group/Proinso (Spain)

• Etimex Solar (Germany)

• Nestle Water (USA)

• Telefunken Semiconductors (Germany)

* Company just signed lease in Sacramento. Confidential until press release.

Competitive Advantages:Why Sacramento?

• California is target #1 (ie. 70% of all installed solar capacity in U.S.)

• California’s Policy HQ (CalEPA, Energy Commission, Air Resources, Governor’s Office, etc.)

• Affordability (20 to 30 percent lower operating costs than coastal regions)

• Talented workforce (Strong tradition in energy trades)

• Progressive Utilities with Experience (SMUD and PG&E, national leaders in renewables)

• UC Davis/Sacramento State/Community Colleges (R&D to installation)

• Energy resources (Sun, wind and biomass)

• Optimal location for logistics (Air, sea, and road)

• Momentum of other companies (high number of first U.S. locations. High growth of domestics)

Major Institutional and Academic Headquarters

• California Air Resources Board• California Biomass Collaborative

(UCD)• California Energy Commission• California EPA• California Fuel Cell Partnership• California Independent Systems

Operator (ISO)• California Lighting Technology Center

(UCD)• CalPERS• CalSTRS• California Solar Energy Industries

Assoc.• Air Quality Research Center• Interdisciplinary Center for

Sustainability (Sac State)

• Center for Energy Efficiency and Renewable Technologies

• Clean Energy Center (Sac State)• Energy Efficiency Center (UCD)• Geothermal Resources Council• Independent Energy Producers Assoc.• Institute of Transportation Studies

(UCD)• The California State Legislature• The Office of the Governor• California Wind Energy Collaborative

(UCD)• California Institute of Food &

Agricultural Research• Western Cooling Efficiency

Center (UCD)

Media/Research Acknowledgement• Sacramento ranked 7th in U.S. in “Smarter Cities” sustainability index (National Resources Defense Council, 2009)

• Top 10 in U.S. for Clean Tech Job activity (Clean Edge, 2009)

• Sacramento ranked 4th in market size for hybrid vehicles (Cars.com Green Index, 2009)

• SMUD ranked 5th in the U.S. for renewable energy sales (National Renewable Energy Laboratories, NREL, 2010)

• Sacramento ranked 4th in U.S. as Electric Vehicle-Ready (Th!NK, 2009)

• General Electric’s Ten Best Cities for Electric Vehicle Integration (American Community Survey, U.S. Census, 2010)

• Sacramento has the 5th highest percentage of LEED certified building in the U.S. (CoStar, 2009)

• Top 5 Cities for PEV Vehicle-Readiness (Roland Berger News, Rocky Mountain Institute, 2010)

• Sacramento ranked 1st in California in “green” job growth between 1995 and 2008 and was 2nd in growth between 1995 and 2009 with 103 % Growth (Next10/Collaborative Economics, 2009, Shades of Green 2010)

• The Sacramento Region has installed the most solar per capita in California, and likely the U.S. (NREL, PV OpenAccess, 2010)

• Sacramento ranked 8th in the U.S. for markets most likely to participate in green energy programs (Nielsen Wire, 2010)

• Sacramento ranked 8th in the U.S. for the number of EnergyStar buildings and 9th in the total cost savings from EnergyStar buildings (National Renewable Energy Laboratories, NREL, 2011)

• Sacramento Region ranked 3rd in the U.S. for the percentage of clean economy jobs, 7th for the percentage increase of green jobs, and 12th in the total number of green jobs. (Brookings Institution, 2011)

Health Care Facility ExpansionsSutter Health Anderson Lucchetti Women’s & Children’s Center, 395,000 sf, 242-bed.Completion 2013. (Sacramento)

Kaiser Permanente 5-story tower, 48 private rooms, 30 intensive care rooms. Completion 2011. (Sacramento)

Catholic Healthcare West65,000 sf lab/surgery expansion. Completion 2012. (Elk Grove)

Kaiser Permanente Promenade Medical Offices 67,000 sf building. Completion 2011. (Elk Grove)

Mercy Alex G. Spanos Heart Center 4-story, $153 million, 121,000 sf.Completion 2011. (Sacramento)

UC Davis Cancer Center Expansion 46,000 sf. Completion 2012. (Sacramento)

Fremont-Rideout Hospital expansion, 6-floor, $225 million, 215,000 sf. Completion 2014(Marysville)

UC Davis Medical Center Surgery and Emergency Pavilion 472,000 sf expansion. RecentlyCompleted. (Sacramento)

MARKET OUTLOOK AND GLOBAL FINANCIAL

CRISIS

Global Debt

2010May 2 – first bailout ($43B)May 18 – second bailout ($18.7B)September – IMF says Greek reform “ahead of schedule”

2011January – rating agencies cut Greek debt to “junk”February – third bailout ($19.5B)April – Europe leaders urge Greece to control spendingMay – S&P cuts debt to B (just above Pakistan) as anti-austerity protests riseJune 8 – fourth bailout ($8.5B)June 9 – GDP tumbles 5.5%June 13 – S&P downgrades to CCCJuly 2 – fifth bailout ($17B) approved, for disbursement July 15

A Review of Greece

Debt To GDP Of The PIIGS

• Portugal: 86.3% Debt to GDP

• Italy: 100.6% Debt to GDP

• Ireland: 95.2% Debt to GDP

• Greece: 152.3% Debt to GDP

• Spain: 52.6% Debt to GDP

Source: FactSet, IMF’s June 2011 World Economic Outlook, J.P. Morgan Asset Management

Further Pressures Ahead

Source: FactSet, IMF’s June 2011 World Economic Outlook, J.P. Morgan Asset Management

Looming concern for U.S.

Source: U.S. Treasury, BEA, CBO, OMB, J.P. Morgan Asset Management

Where is the growth?

Transfer of Debt

U.S. Borrows 40% of what it Spends

Our Outlook

2011 Chart

Source: VPM Partners

• Economy to continue to mark a gradual recovery through at least first half of this year

– But employment and real estate to be a determining factor

• Equity markets – continued upward trend through the first half of the year

• The alternative scenario was that we would see a bear market peak sometime in the second or third quarter

2011 Outlook

• Investor psyche had achieved a pessimistic extreme in early 2009. – Socioeconomic mood was rising, all through 2009, most

of 2010 and reached a high in may of 2011

• The worst is over theory green shoots• Corporate earnings rebounded through technology

upgrades, down sizing, and some improvement in revenue

• QE1, QE2 dangerously pumping liquidity into the financial system

What has fueled the stock market rebound

Strong Headwinds Ahead

Declining optimism of the herd

The Behavior of Herding

Extreme opinions, shared widely constitute the single most reliable indicator of an impending change of direction for a market

Strong Headwinds Ahead• Declining optimism of the herd

• European Debt Meltdown

• Structural Problem – Aging Population

• Financial Crisis Within

• European Banking System and the Domestic Banking System

Strong Headwinds Ahead• Federal Reserve’s Balance Sheet is now

massively leveraged 55 to 1 Debt to Asset ratio

• U.S. Government Debt

• Unemployment at unacceptable levels

• Regulated to oblivion

The Affects of an Overleveraged Economy and

Financial System

• Possibly the greatest asset and credit bubble of all time

• Federal governments have reached the highest level of debt in human history

Results

• A heightened risk of a severe recession or worse caused by a severe contraction of credit through defaults and depreciation

• Most asset values will decline in value• Deflation not inflation

What is Deflation

• Inflation: an increase in the volume of money and credit relative to available goods

• Deflation: a contraction in the volume of money and credit relative to available goods

Credit

• Self-liquidating credit

• Non-self-liquidating credit

Increase of Credit Supply

Triggers for Deflation

• Expansion of credit ends when ability to sustain trends can’t be maintained

• Confidence and productivity decrease, supply of credit contracts

• Social mood changes from optimism to pessimism; producers and consumers go from expansion to conservation

Examples of Extreme Social Moods

Published 2010

Deflationary Crash

• A deflationary crash involves persistent, sustained, deep, general decline in people’s desire and ability to lend and borrow

• A depression involves a persistent, sustained, deep, general decline in production

Primary Preconditions of Deflation

1. Deflation of excess credit2. Excess of credit situation seems to last

years before bubble breaks3. Some outside event brought the thing to

a head, but signs visible in advance4. None was ever quite like the last, so the

public is always fooled5. Deflation of non-self-liquidating credit

usually produces greater slumps

OUR PROCESS

Advance & Preserve Investment Process

• A capital preservation model with an offensive strategy.

• A risk balancing process to capture growth when the market is rising and protect capital when the market is falling.

• Employs a strict buy and sell discipline.• Uses a combination of qualitative and

quantitative strategies.

No Strategy insures a profit or protects against a loss. Investing involves risk including the loss of principal. Past performance is no guarantee of future results. Observed market movement may not persist in the future. There is no way to determine the “right” time to enter or exit the market. Signals for offensive/defensive action may be inaccurate.

Advance & Preserve Investment Process

There is no guarantee this strategy will meet its objectives. The strategy does not guarantee a profit or guarantee protection against a loss. This illustration is hypothetical and is intended to illustrate the strategy only. The “right” entry or exit point is not guaranteed.

Why Advance & Preserve?

No Strategy insures a profit or protects against a loss. Investing involves risk including the loss of principal. Past performance is no guarantee of future results. Observed market movement may not persist in the future. There is no way to determine the “right” time to enter or exit the market. Signals for offensive/defensive action may be inaccurate.

A Lesson in Market Eras• Over the past 60 years, there have been four

distinct market eras.

• Two of these periods have been prolonged bull markets offering above average returns with very little market volatility.

• The other two have been exceptionally volatile periods making it extremely difficult to create wealth.

Why Advance & Protect?

• Buy and Hold investment strategies may not work in our current market environment.

• Bear markets have robbed investors of capital or set back growth for years.

• Individual Investors do not have infinite time horizons to recover from major market declines.

• Diversification alone is not enough to reduce market risk due to globalized markets and electronic trading.

Government bonds and Treasury Bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Nowhere to Hide

Source: Financial Planning Association Journal, May 2005: ‘Missing the Ten Best’ by Paul J. Gire, CFP®

Buy & Hold vs. Advance & Preserve

• In an article from the Financial Planning Association Journal, May 2005, the author cited the following statistics…

– Bull market from January 1984 through December 1998.

– S&P 500 buy-and-hold return was 17.89% annually.

– Over this 15-year period, only a handful of trading days accounted for most of the market’s movement.

8.23%40 days

10.01%30 days

11.99%20 days

14.24%10 days

Best# of trading days missed

Buy & Hold vs. Advance & Preserve

Source: Financial Planning Association Journal, May 2005: ‘Missing the Ten Best’ by Paul J. Gire, CFP®

31.66%8.23%40 days

29.45%10.01%30 days

27.04%11.99%20 days

24.17%14.24%10 days

WorstBestNumber of Trading Days Missed

Missing the worst days has a bigger impact…

Buy & Hold vs. Advance & Preserve

Source: Financial Planning Association Journal, May 2005: “Missing the Ten Best” by Paul J. Gire, CFP®

20.87%31.66%8.23%40 Days

20.80%29.45%10.01%30 Days

20.68%27.04%11.99%20 Days

20.31%24.17%14.24%10 Days

BothWorstBest# of Trading Days Missed

Buy and Hold vs. Advance and Preserve

Missing the best and worst days beat buy-and-hold’s 17.89% average annual return

Source: Financial Planning Association Journal, May 2005: “Missing the Ten Best” by Paul J. Gire, CFP®

Questions

What’s New

Introducing Wealth Vault®

Download Today’s Presentation

at

http://www.zellerkern.com/news.htm

• If you would like to receive our free “Weekly Investment Monitor” please

let us know.

Or

• Visit our website: www.zellerkern.com

Subscribe to Zeller Kern’s Exclusive Publication

Thank You

The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and advisory services through Commonwealth Financial Network,

Member FINRA/SIPC, a registered investment adviser. Financial Planning offered through Zeller Kern Private Wealth Management, Inc., a registered investment adviser. Zeller Kern Private Wealth Management

Inc, 11335 Gold Express Drive, Suite 155, Gold River, CA 95670, 916-436-8270