The Abacus Investment ApproachInvest globally and include real estate and other real assets to provide a higher return at each level of risk than using stocks and bonds alone

It is possible to incorporate social values into a portfolio without sacrificing financial returns

Use low cost, diversified strategies (like index funds, only better)

Invest more in small stocks and under-valued stocks, because both have been shown to increase returns over time

Build a disciplined and thoroughly researched investment program based on Nobel-Prize-winning academic research instead of emotions and hot tips

Beginning sample includes funds as of the beginning of the one-, five-, and 10-year periods ending in 2012. The number of funds as of the beginning of each sample time period is indicated below the period label. Survivors are funds that are still in existence as of December 2012. Winners are funds that survive and beat their respective benchmarks over the period. See Data Appendix for more information. Data provided by the CRSP Mutual Fund Database. Source: CRSP data provided by the Center for Research in Security Prices, University of Chicago. Past performance is no guarantee of future results.

The striped areas show how many funds were still in business. During the ten year period, only 51% of funds survived.

Even worse, the blue box is the number of funds that both survived and beat their benchmark, only 17% over the ten year period.

So, how do you identify one of the 17%?

So you agree that avoiding hot tips makes sense. How do you choose an investment manager?

This chart shows that over time, it’s very difficult to pick a manager that stays in business and outperforms their benchmark. The grey boxes represent the total mutual fund population that existed one, five, and ten years prior to 12/31/12. The first question is, how many of these funds were still around at the end of 2012?

Find a good money manager!

Pick a past winner!

!The sample includes funds at the beginning of the three-, five-, and seven-year periods, ending in December 2009. The graph shows the proportion of funds that outperform and underperform their respective benchmarks. Winner funds are reevaluated in the subsequent period from 2010 to 2012, with the graph showing the proportion of outperformance and underperformance among past winners. See Data Appendix for more information. Data provided by the CRSP Mutual Fund Database. Source: CRSP data provided by the Center for Research in Security Prices, University of Chicago. Past performance is no guarantee of future results.

Many Wall Street experts proclaim that ten years is long enough to get rid of the lucky managers and leave only those with great skill. We looked at the best equity funds over a three, five and seven-year period and picked those that beat their benchmarks. Then we looked at how those past winners did over the next three years.

Across the board, only a quarter of the winning funds continued to beat their benchmarks in the subsequent three-year period (2010–2012), regardless of how many years they had won in the past. That kind of drop would turn the 17% number from the prior slide to less than 5%.

So, in summary, the research shows that most managers aren’t any better than a simple index, and you can’t find the 5% that will end up doing better by looking at past performance.

October 1987: Stock Market

Crash

August 1989:

US Savings and

Loan Crisis

September 1998: Asian Contagion Russian Crisis

March 2000: Dot-Com Crash

September 2001:

Terrorist Attack

September 2008:

Bankruptcy of Lehman Brothers

When things get bad, get out!

44%

84%

55%51%52%

61%

9%

42%

-2%

25%

15%

37%

6%

-3%

3%

20%

-1%

21%

After 1 year After 3 years After 5 years

Balanced Strategy: 7.5% each S&P 500 Index, CRSP 6-10 Index, US Small Value Index, US Large Value Index; 15% each International Value Index, International Small Index; 40% BofA Merrill Lynch One-Year US Treasury Note Index. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2014 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US Small Value Index and US Large Value Index provided by Fama/French. International Value Index provided by Fama/French. International Small Cap Index compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the bottom 10% of market capitalization, excluding the bottom 1%; market-cap weighted; each country capped at 50%; rebalanced semiannually. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance.

If we can’t find a good manager, at least we should be able to predict that when bad things happen in the world, we should stay away from the markets. Or maybe we can’t. We looked at six of the worst world events in the past 25 years to see what effect they had on the market. We found short term drops with pretty amazing five year performance after the event.

Here’s the punchline: If your emotions tell you to run away from the market, ignore them.

Performance of a Normal Balanced Strategy: 60% Stocks, 40% Bonds - Cumulative Total Return

If we can’t trust past performance or our emotions, how do we create a portfolio?

We found Nobel Prize winning research that identifies four factors that affect the majority of stock performance.

Most of the investment management industry exists to say, “hire us and we’ll pick stocks better than the other guy.”

1. Relative price as measured by the price-to-book ratio; value stocks are those with lower price-to-book ratios.

EQ

UIT

IES

Company Size Small cap premium – small vs large companies

Market Equity premium – stocks vs bonds

Relative Price1 Value premium – value vs growth companies

Expected Profitability Profitability premium – high vs low profitability companies

DIMENSIONS POINT TO SYSTEMATIC DIFFERENCES IN EXPECTED RETURNS

The overwhelming evidence is that this activity is an economic waste of time because any financial return from this activity pales in comparison to the effect of these four factors.

Sometimes two of the factors above are described more colorfully as Small (company size) and Value (relative price).

Structure Determines Performance

Structure Determines Performance

1. Beta: A quantitative measure of the co-movement of a given stock, mutual fund, or portfolio with the overall market. 2. Price-to-Book Ratio: A company's capitalization divided by its book value. It compares the market's valuation of a company to the value of that company as indicated on its financial statements. 3. Direct Profitability: A measure of a company’s current profits. We define this as operating income before depreciation and amortization minus interest expense, scaled by book equity.

By carefully structuring portfolios to take advantage of these dimensions, one can tilt toward the Small, Value and Profitability dimensions that can increase one's expected returns.

Factors Around the World

Annualized compound returns (%) in US dollars. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. See “Index Descriptions” in the appendix for descriptions of Dimensional and Fama/French index data. The S&P data are provided by Standard & Poor’s Index Services Group. MSCI data © MSCI 2014, all rights reserved.

Dimensions of Expected ReturnsIllustrative index performance

#17867-1011

HIGH

Rel

ativ

e P

rice

Pro

fita

bili

tySi

ze

1928–2013

1996–2013

1975–2013

EMERGING MARKETS STOCKSUS STOCKS NON-US DEVELOPED MARKETS STOCKS

S&P 500 Index

Dimensional US Small Cap Index

12.339.78

Fama/French International Growth Index

Fama/French International Value Index

15.11

9.16

4.23

Dimensional Emerging Markets High Profitability Index

Dimensional Emerging Markets Low Profitability Index

SMALL LARGE SMALL LARGE SMALL LARGE

LOW HIGH

LOW

LOW HIGH LOW HIGH

HIGH LOWHIGH LOW

10.63

1928–2013

Fama/French US Growth Index

Fama/French US Value Index

12.628.94

1970–2013

MSCI World ex USA Index (gross div.)

Dimensional Intl. Small Cap Index

15.0710.06

1964–2013

Dimensional US HighProfitability Index

Dimensional US Low Profitability Index

12.988.26

MSCI Emerging Markets Index

Dimensional EmergingMarkets Small Cap Index

12.78 11.11

1989–2013

1992–2013

9.033.88

Dimensional International High Profitability Index

Dimensional International Low Profitability Index

1989–2013

Fama/French Emerging Markets Growth Index

Fama/French Emerging Markets Value Index

15.0810.06

Here are the numbers to prove the story. Small, value and profitable stocks have provided higher returns in most historical periods. For example, the blue bars to the far left show the results for US companies across each dimension. For example, the S&P 500’s annualized return (unreduced by any fees or costs) was 9.78% from 1927-2013. If one allocated to small stocks, one earned 12.33%, or 2.55% more per year. This effect has been persistent in other countries as well.

World Stock Market Capitalization $45.4 Trillion as of December 31, 2013

In US dollars. Diversification does not eliminate the risk of market loss. Market cap data is free-float adjusted from Bloomberg securities data. Many small nations not displayed. Totals may not equal 100% due to rounding. For educational purposes; should not be used as investment advice.

Abacus diversifies client assets across most of the world’s stock markets, often owning thousands of stocks in a typical portfolio. Foreign companies currently make up 40% of total stocks.

Other 16%

Non Agency MBS 12%

Corporate 27%

Agency MBS 12%

US Govt Direct 33%

Mortgage 28%

TIPS 20%

US Investment Grade 40%

International 12%

Bonds - The Ballast of your PortfolioAllocation Credit Quality

Abacus aims to earn clients a healthy yield from bonds while not taking on excessive credit risk from companies or governments with a poor future outlook, or excessive interest rate risk by investing in long term bonds. !We diversify our bond allocation in an attempt to provide protection from inflation as well as declines in individual sectors of the bond market.

A Sample Portfolio

U.S. Stocks 29% International Stocks - 19%

Alternatives - 12% Bonds - 40%

DFA US Sustainability Core I (DFSIX)

O'Shaughnessy All Cap Core I (OFAIX)

DFA US Targeted Value I (DFFVX)

DFA Global Real Estate Securities I (DFGEX)

PIMCO Commodity Real Ret Strat Instl (PCRIX)

Oppenheimer SteelPath MLP Select 40 Y(MLPTX)

DFA Intl Sustainability Core 1 (DFSPX)

DFA International Small Cap Value I (DISVX)

DFA Emerging Markets Core Equity I (DFCEX)

DFA Investment Grade I (DFAPX)

DFA Two-Year Global Fixed-Income I (DFGFX)

PIMCO Income Instl (PIMIX)

DoubleLine Total Return Bond I (DBLTX)

DFA Short-Duration Real Return Instl (DFAIX)

14%

7%

7%

7%

2%

3%

10%

2%

7%

8%

8%

8%

8%

8%

DFA US Sustainability: A broad exposure to the US stock market with innovative environmental screening. !O'Shaughnessy All Cap: A quantitative, multi-factor value fund with a

unique approach to capturing the momentum factor. !DFA US Targeted Value: Owns many of the smallest and lowest-priced (“value”) companies in the U.S. This is how we capture the Small & Value premiums.

DFA Global Real Estate: REITs around the globe provide core exposure to real estate. We also offer private real estate investments to accredited clients.

PIMCO Commodity: Exposure to the energy, metals, and other futures markets to reduce overall volatility and hedge inflation. !Oppenheimer SteelPath MLP: MLPs earn income by owning the means of transportation for natural gas and oil (pipelines, shipping, trucking).

DFA Intl. Sustainability: A broad exposure to the stock markets of developed countries around the world with the same environmental screens as the U.S. fund

DFA Emerging Markets Core: Exposure to stocks in emerging economies around the world. These investments have higher volatility but a significantly higher expected return than US stocks.

DFA Intl. Small Cap Value: Captures the Small and

Value premiums in

DFA Investment Grade, DFA Two-Year

Global & PIMCO Income: These three funds offer broad

exposure to the government and corporate bond markets with a focus

on credit quality and low duration.

Doubleline Total Return: Exposure to the vast real estate debt market, with its different investment characteristics than other bonds.

DFA Short Duration Real Return: A short-term corporate bond fund that protects from rising inflation.

developed countries

40%

19%29%

12%

Abacus offers a variety of portfolios tailored to each client’s required rate of return, ability to accept risk, social values, and current income needs.

All Slides - Disclosures -

Hypothetical performance results shown on prior pages are backtested and do not represent the performance of any account managed by Abacus, but were achieved by means of the retroactive application of each of the previously referenced models, certain aspects of which may have been designed with the benefit of hindsight. !The hypothetical backtested performance does not represent the results of actual trading using client assets nor decision-making during the period and does not and is not intended to indicate the past performance or future performance of any account or investment strategy managed by Abacus. If actual accounts had been managed throughout the period, ongoing research might have resulted in changes to the strategy which might have altered returns. The performance of any account or investment strategy managed by Abacus will differ from the hypothetical backtested performance results for each factor shown herein for a number of reasons. !For Slide 7 Annualized compound returns (%) in US dollars. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. See “Index Descriptions” in the appendix for descriptions of Dimensional and Fama/French index data. The S&P data are provided by Standard & Poor’s Index Services Group. MSCI data © MSCI 2014, all rights reserved.