Principled Portfolio Solutions SM Exchange Traded Products...

Dynamic Conservative Allocation

Principled Portfolio SolutionsTaxable

As Of Third Quarter 2012

Exchange Traded ProductsSM

The dynamic conservative portfolio is managed with a short to intermediate term horizon. Target allocations are primarily focused on high quality fixed income assets to provide income and reduce the potential for significant loss. A moderate allocation to growth oriented assets is included to provide an element of real growth potential. Growth assets are diversified across domestic and international stocks, and emerging markets. The equity portfolio emphasizes large cap stocks but also has meaningful exposures to small and mid cap stocks. The DSA sleeve manages risk by adjusting the equity/fixed mix in response to evolving market conditions and the reward-for-risk opportunity. This portfolio is appropriate for investors with a low to moderate risk tolerance.

Portfolio Risk Meter

Performance Statistics Time Period: Nov-00 - Sep-12Strategy Allocation

Current Fund Allocation

Portfolio Objective

Less Opportunity More Opportunity

Less Risk More Risk

Portfolio Benchmark

Reward Measures

5.36.6Inception to Date

-1.4Excess Return (%)

-1.7Risk Adjusted Excess(%)

Risk Measures

5.95.6Standard Deviation (%)

-0.9Beta

-2.0Tracking Error (%)

Reward vs Risk

0.5270.794Sharpe Ratio

-0.7Information Ratio

Experience Measures

-100.0Upside Capture (%)

-76.9Downside Capture (%)

11.39.8Best Quarter (%)

-14.1-11.1Worst Quarter (%)

DSA

Core

Strategy Weight

75%Core : Exchange Traded Products : Conservative

25%DSA : Dynamic Strategic Allocation Portfolio

Ticker Description Asset Class Role Style %

Cash EquivalentsCASH 16.5Cash Income Short

SPDR Nuveen Barclays Capital Muni BondTFI 30.5Investment Grade Municipal Bonds Income Intermediate-Long

SPDR Nuveen Barclays Capital S/T Muni BdSHM 13.1Investment Grade Municipal Bonds Income Short

Market Vectors High-Yield Muni ETFHYD 10.0High Yield Municipal Bonds Income Long

Vanguard REIT Index ETFVNQ 2.5Real Estate Real Return Core

SPDR S&P 500SPY 13.9Large Capitalization Stocks Growth Core

Utilities Select Sector SPDRXLU 1.0Large Capitalization Stocks Income Utilities

iShares Russell 2000 IndexIWM 1.2Small-Mid Capitalization Stocks Growth Core

SPDR S&P MidCap 400MDY 1.2Small-Mid Capitalization Stocks Growth Core

Vanguard MSCI EAFE ETFVEA 4.4International Stocks Growth Core

iShares MSCI EAFE Small Cap IndexSCZ 1.0International Stocks Growth Core

Vanguard MSCI Emerging Markets ETFVWO 2.9Emerging Market Stocks Growth Core

SPDR S&P Emerging Markets Small CapEWX 0.7Emerging Market Stocks Growth Core

JPMorgan Alerian MLP Index ETNAMJ 1.0Commodities Income MLP - Energy

United States Commodity IndexUSCI 1.0Commodities Real Return Diversified Basket

Available Through Kovack Advisors Exchange Traded Products_A_TX_Advanced Model Blend_Tilts -- See Disclosures on Last Page





Asset Allocation : Current vs NormalAsset Allocation Summary

13.6

1.8

38,064

7.5

9.1

Equity Composite Characteristics

Fixed Income Composite Characteristics

0.19

$25,000

Operations

Weighted Average Fund Expense Ratio:

Minimum Initial Investment:

Average Effective Duration:

Average Effective Maturity:

Averge Price to Earnings Ratio:

Average Price to Book Ratio:

Average Market Cap ($Billions):

Annualized Returns (%)

Time Period Nov-00 - Sep-12

AA / AAverage Credit Quality:

Allocation may not sum to 100 due to rounding

Current vs Normal

2.5

2.0

26.2

63.5

6.5

2.5

2.0

26.2

53.5

16.5

0 10 20 30 40 50 60 70

Real Estate

Commodit ies

Equit ies

Fixed Income

Cash

Normal Current

Asset Class Normal MaxMinCurrent

Cash 6.5 29.04.016.5

Fixed Income 63.5 78.553.553.5

Equities 26.2 38.713.726.2

Commodities 2.0 2.02.02.0

Real Estate 2.5 2.52.52.5

Credit Distribution

Regional Equity Allocation (%)

18

15

68

0 20 40 60 80 100

Asia

Europe

Americas

Equity Sector Allocation (%)

7

14

3

12

9

15

9

10

10

5

6

0 10 20

Ut ilit ies

Technology

Real Est at e

Indust r ialMat er ials

Healt hcare

FinancialServices

Energy

ConsumerDef ensive

ConsumerCyclical

Communicat ion Services

Basic Mat erials

3M 1YR 3YR 5YR 10YR ITD

3.0 10.3 6.8 6.94.2Portfolio 6.6

3.6 12.0 6.7 6.54.1Benchmark 5.3






Key Investment Principles

Dynamic Strategic Allocation (DSA): DSA offers an extension of the traditional asset allocation approaches that improves the alignment

of portfolio risk with investor risk tolerance. Portfolio risk, as reflected in the overall stock, bond and cash allocation, is adjusted as

economic conditions drive changes in the reward-for-risk opportunity. The portfolio risk level is increased when valuation or risk

conditions improve. Portfolios are adjusted based on the interaction investor risk tolerance with the evolving reward for risk

opportunity. DSA’s disciplined risk tolerance based process tends to moderate extremes, improve the likelihood of long-term success

and enhance the overall investor experience.

Investment Team

Kovack Advisors has engaged SightLine Investments LLC, an outside specialist as sub-advisor, to make the PPS program available

to you. SightLine Investments LLC , an asset management firm specializing in principles-based, risk-managed investment

solutions, is responsible for managing the portfolio models, including manager selection, portfolio construction and ongoing

model changes. Kovack Advisors, Inc. is responsible for rebalancing and execution. SightLine is a sub-advisor to FDx Advisors, a

wholly owned subsidiary of FolioDynamix.

Key Investment Professionals Ron Madey, CFA Ken Kideckel, CFA

Chief Investment Officer Portfolio Manager

SightLine Investments, LLC SightLine Investments, LLC

Experience: 25 Years Experience: 17 Years

Disclosures

Performance: The performance shown on this report represents model results and does not reflect actual account performance or a composite. Model performance results are simulated. Model results represent what an investor’s performance would have been, had they been invested in the stated time period in the exact investments and allocations of the model shown, with quarterly rebalancing. Model results do not take into account any cash flows in or out of the portfolio or transaction costs, factors that can decrease performance results. Investment selections displayed represent model target holdings as of quarter end and can change any time subject to SightLine’s discretion. ETF returns are calculated by closing NAV as supplied by Morningstar. In the event the investment product (exchange traded fund or note) selected does not have more than five years of history, for the period where the product did not have a track record, the product’s respective index was used and the returns were reduced to reflect the current fees charged by the investment product provider.

Diversification: All PPS portfolios are built upon the important

principle of diversification to manage your risk-return experience

over time. All PPS portfolios are diversified both across and within

asset classes to help reduce risk and capture long-term returns.

Goal-Based Asset Allocation: Each of the five PPS asset allocations

has four implementations, differentiated investment objective, style,

and tax treatment, for a total of twenty portfolios from which you

can choose. You select the portfolio that meets your needs.

Efficient Portfolio Construction: With PPS ETF-based portfolios,

investors benefit from an efficient portfolio design. Each investment

selection is based on key diversification, expense, and liquidity

criteria to manage costs and achieve the target profile of your

chosen asset allocation.

Monitoring and Risk Management: Key drivers that underpin

the results of your asset allocation strategy – your investment

selections and portfolio construction – are monitored and

adjusted as necessary on an ongoing basis. Liquidity risks

reflected in bid/offer spreads, deviations from NAV, and trading

volumes are monitored to help control implementation costs.

Disciplined Rebalancing: Systematic, disciplined rebalancing

serves to help manage risk, maintain your intended allocations

and keep your portfolio on target with your objectives.

Tax-Aware Implementation: Each PPS asset allocation offers

two implementations, one for taxable accounts and one for tax-

deferred accounts. Product selections and rebalancing strategy

are tailored to the tax treatment of your accounts.






Disclosures (continued)

Fees: All performance results are shown gross of wrap (platform) fees and advisory fees, but net of fees for the underlying investments. Performance of the exchange traded funds and notes is calculated after management, administrative and other costs taken out of the fund or note’s assets. Actual performance results will be reduced by fees including, but not limited to, wrap program fees and other costs, such as custodial or transaction charges, advisor fees, and any other expenses associated with the advisory account. Assuming two investments have identical returns, the investment with lower costs would provide a higher overall projected value. The net compounded impact of the deduction of such fees over time will be affected by the amount of the fees, the time period, and investment performance. For example, an account with a 1% annualized investment management fee, deducted quarterly, with 5 year annualized performance of 10% before fees, will have a net annualized performance of 8.93% after fees. Compounding will similarly affect the account's performance on a cumulative basis. Specific calculations of net of fees performance for a given fee structure and gross of fees performance can be provided upon request. Your actual performance will vary. Investment Advisory fees are described in Part II of the adviser’s Form ADV. Benchmarks: This model performance was calculated on a total return basis. It includes the reinvestment of dividends and capital gain distributions. All values are based on the U.S. dollar. Benchmark returns are calculated based on the broad allocation equity / fixed income / cash defined above utilizing the respective benchmarks for each broad asset class: Equities : MSCI ACWI, Fixed Income : Barclays Aggregate Index, Tax Exempt Fixed Income: Barclays Muni Index, and for Cash: 3 Month T-bills. Portfolio data is from MPI Stylus and Morningstar. Portfolio level qualitative data is derived from Morningstar.

Backtested Results: For the Core sleeve, which comprises 75% of the portfolio, performance results were based on the assumption that the target holdings shown were held for the duration of the performance history shown above. For the Dynamic Asset Allocation sleeve, which comprises 25% of the portfolio, performance results for this sleeve were calculated via a backtested model. Investors should note that there are frequently material differences between hypothetical, back-tested or simulated performance results and actual results subsequently achieved by any investment strategy. Unlike an actual performance record based on trading actual client portfolios, hypothetical, back-tested or simulated results are achieved by means of the retroactive application of a back-tested model itself designed with the benefit of hindsight. Simulated performance does not reflect the impact that material economic or market factors might have on an adviser's decision making process if the adviser were actually managing a client’s portfolio. The back-testing of performance differs from actual account performance because the investment strategy may be adjusted at any time, for any reason and can continue to be changed until desired or better performance results are achieved. No representation is made that any index or account will or is likely to achieve profits or losses similar to those shown. Alternative modeling techniques or assumptions might produce significantly different results and prove to be more appropriate. Past hypothetical, back-test or simulated results are neither indicators nor guarantees of future returns. Potential investors should carefully consider whether an investment is suitable for them in respect of their financial situation and their ability to bear risk of loss. SightLine assumes no responsibility or liability for any damage or loss whatsoever directly or indirectly resulting from use of the Information or investments entered into based thereupon.


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