Cornerstone Institutional Investors,...

www.cornerstone-companies.com

74 W. Broad St. Suite 340 Bethlehem, PA 18018


Cornerstone Institutional Investors, Inc.

October 17, 2014

Christopher Lakatosh, CFP®, AIF®

Principal & Senior Consultant

Email: [email protected]

Phone: 800-923-0900

74 W. Broad Street

Suite 340

Bethlehem, PA 18018

Contact:

Request for Information:

Northern York County Regional Police Pension Fund

Pension Fund Investment Consulting Services

Table of Contents Request for Information:

Northern York County Regional Police Pension Fund

Pension Fund Investment Consulting Services

Section I ................................................................................................................................................. Cover Letter

Section II ................................................................................................ Attachment 1- Respondent Certification

Section III .................................................................................................................................. Response Questions

Exhibit A ................................................................................................................... Organizational Chart

Exhibit B ....................................................................................................................... Form ADV I and II

Exhibit D ............................................................................................................................... Code of Ethics

Exhibit E ........................................................................................................................... Staff Biographies

Exhibit F ...................................................................................... Sample Quarterly Performance Report

Exhibit G .................................................................................................................... Sample Flash Report

Exhibit H .............................................................................................. Manager Hiring and Termination

Exhibit I .................................................................................................................. Sample SAFE Analysis

Section IV .......................................................................................................................... Certificates of Insurance

Section V .......................................................................................................................... Rebalancing White Paper

Section VI ......................................................................................................................... Business Continuity Plan

Section I

Cover Letter

w 74 W. Broad St., Suite 340, Bethlehem, PA 18018 w Phone: 610-694-0900 w Fax: 610-867-8614

www.cornerstone-companies.com 74 W. Broad St., Suite 340, Bethlehem, PA 18018 • (800) 923-0900, (610) 694-0900 • Fax: (610) 867-8614

Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Cornerstone Advisors Asset Management and/or Cornerstone Institutional Investors, Inc., which are independently owned and operated.

October 17, 2014 Northern York County Regional Police Department 1445 E Canal Road Dover, PA 17315 To whom it may concern: Cornerstone Institutional Investors, Inc. is pleased to transmit to you its response to the Request for Information for Pension Fund Investment Consulting Services for Northern York County Regional Police Pension Fund. Based on our experience, client service, and technology, we exceed all the requirements of this RFP and commit to perform the duties outlined within the request should we be chosen to work with your organization.

Cornerstone’s value proposition of fiduciary best practices, risk-centric asset management and results-oriented consulting is one that would serve the Northern York County Regional Police Pension Fund well. Our corporate culture is one of thought leadership that helps our clients accomplish their goals while making them aware of and protecting them from liabilities that they may not even know that they have. We are a full service investment consultant that, while regional in size, is global in reach. This is achieved by partnering with larger firms in areas where Cornerstone has no competitive advantage so that we can focus on our core competencies of risk-management and client service. Our state-of-the-art technology will allow the Northern York County Regional Police Pension Fund to achieve a high level of clarity that most consultants are unable to provide at the manager and portfolio levels. Quantifying risk is not a new idea, nor is it impossible. While uncertainty in financial markets will always exist, prudent management of funds involves looking at risks and liabilities at least quarterly and deciphering whether these risks are appropriate and whether you are being properly compensated for taking on those risks. The lead consultant for this relationship, Christopher Lakatosh, has spent 12 years working with clients to make sure that these needs are being met. Chris has a solid, stable team around him that includes four investment analysts, three dedicated client service contacts and two operations professionals. Having a sizable private client business, Cornerstone understands that middle market institutions do not always have the budget to hire professional investment personnel. For that reason, we have built a service model for these institutions more similar to a multi-user family office than what our larger competitors provide. We have regular dealings with custodians, auditors, accountants and other service providers. In this way, we take the burden of being the lead contact from our clients to allow them to focus on their other duties. As a principal of the firm and corporate secretary, I am authorized to legally bind Cornerstone Institutional Investors, Inc. to the terms of this RFP and our responses found therein. Should you have any questions, please do not hesitate to contact me. We look forward to the opportunity to speak with you regarding the fund and the services that Cornerstone believes it is best suited to provide. Sincerely,

Kevin Karpuk, CFA Chief Investment Officer

Section II

Attachment 1 - Respondent Certification


Section III

Response Questions


1

INVESTMENT MANAGEMENT RFI QUESTIONNAIRE

Organization

1. Provide the address of the office that would service this account. If you have other office locations, where are

they located (address and telephone number), and what are the primary functions performed within each

office?

Firm Name: Cornerstone Institutional Investors, Inc.

Address:

74 W Broad Street

Suite 340

Bethlehem, PA 18018

Phone: 610-694-0900

Fax: 610-867-8614

2. Provide a brief history of your firm and its operations. Include the year formed, ownership structure, and any

ownership changes that occurred during the past five (5) years. Are ownership changes planned or anticipated

at this time?

Cornerstone has roots that date back more than 30 years when we began working with entrepreneurs, helping

them to develop their business, estate, investment, retirement and succession plans. Through fiduciary best

practices as a method of decision-making, our clients understood the value we brought to them. Simply put, our

clients came first.

In 1997, Cornerstone Financial Consultants, Ltd. dba Cornerstone Advisers created two additional

investment firms, Cornerstone Advisers Asset Management, Inc. (CAAM), a SEC Registered Investment

Adviser, and Cornerstone Institutional Investors, Inc. (CII), a Broker/Dealer FINRA Member Firm.

In 2004, CII also became a SEC Registered Investment Advisory firm providing services primarily to the

family members, board members and executives of CAAM’s clients.

In January 2006, the Cornerstone entities were purchased by Harleysville National Bank (HNB) in an

effort to enhance the services they provided to their more successful entrepreneurial and institutional

clients. During this time, the former shareholders of the Cornerstone entities continued to manage the

day-to-day operations of the firms.

In April 2010, HNB was purchased by First Niagara Financial Group out of Buffalo, NY. This change in

control gave two of the original shareholders of CAAM and CII the opportunity to reacquire the entities.

Shareholders Tom Scalici and Skip Cowen invited Kevin Karpuk and Chris McKinley to become

shareholders of CAAM in August 2010 and shareholders of CII in January 2011. The addition of Kevin

and Chris is a conscious step in continuing Cornerstone's promises to clients for the next 30 years.

In 2010, CII withdrew its Broker/Dealer FINRA membership but remains as a stand-alone SEC

Registered Investment Adviser.

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Today, CAAM and CII specialize in consulting to successful institutions and wealthy families who have

fiduciary responsibility for the assets under their care.

Understanding CAAM and CII

CAAM provides services exclusively for clients with assets in excess of $25 million. CII works with clients who

have liquid assets from $1 million to $25 million. Together, the two companies serve sophisticated financial

market participants through investment consulting, retirement plan consulting, executive risk management,

planned giving, wealth management, financial planning, charitable planning and insurance/risk planning.

Cornerstone Advisors Asset Management, Inc. (CAAM) and Cornerstone Institutional Investors, Inc. (CII) have

earned top rankings for assets under management in the Lehigh Valley. CAAM has been listed as #1 by Lehigh

Valley Business with $3.95 billion in fiscal year 2013, while CII earns the #4 spot with $533.9 million.

Outside of the Lehigh Valley, Cornerstone Advisors Asset Management, Inc. was ranked by Financial Advisor

Magazine as the 32nd largest Registered Investment Advisory firm in the country as of December 31, 2013.

Additionally, they are currently recognized as the 95th largest consultant in worldwide institutional advisory

assets by Pensions & Investments magazine.

CII is also a member firm of the M Financial Group (M). M is the largest insurance buying consortium in the

country. M allows our clients access to proprietary products designed to help them protect their assets and

manage the shortfall risk around retirement income funding, disability, long-term care and estate preservation, all

of which have an impact on their liquid asset strategy.

3. Provide copies of the following organizational charts as Exhibit A:

- Organizational structure, including parent/subsidiary relationships, if any;

- Your consulting unit listing major functional areas with the names and titles of key staff in each

area along with the total number of staff in each area and their experience. If there are staffing

overlaps, please indicate and explain as a footnote.

Please see Section III, Exhibit A for Cornerstone’s organizational chart.

4. List your firm’s lines of business and the approximate contributions of each business to your organization’s

total revenue. If you are an affiliate or subsidiary of an organization, what percentage of the parent firm’s total

revenue does your subsidiary or affiliate generate?

Cornerstone provides investment advisory services to several different market segments including defined

benefit, endowment/foundation, defined contribution, and planned giving markets. Regardless of the market

segment, Cornerstone applies our unbiased, independent third-party approach to investment advice. Please see

below for each advisory business segment’s revenue contribution.

Business Segment Revenue Contribution

Planned Giving Services 5%

Retirement Planning - DC 15%

Retirement Planning - DB 20%

Investment Consulting 60%

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5. When was the firm first registered as an investment advisor under the federal Investment Advisors Act of

1940? Please provide Form ADV I and II as Exhibit B.

Cornerstone Institutional Investors, Inc. is an SEC Registered Investment Advisor since 2004. Please see

Section III, Exhibit B for Cornerstone’s ADV Part I & II.

6. Do you consider yourself a fiduciary under applicable law with respect to recommendations you will provide?

If hired, will you acknowledge in writing that you have a fiduciary obligation as an investment advisor to the

Plan while providing the consulting services we are seeking?

Yes. Since our founding, Cornerstone has been a trendsetter in fiduciary matters among consultants, including

being a co-fiduciary with our clients and accepting discretion for clients’ assets. Though the market is changing

and other consultants are starting to reluctantly embrace the Cornerstone Model of consulting, many clients still

view consultants as third parties who only provide performance monitoring and manager searches rather than

leadership and decision making. We have built a business that fully acknowledges our standing as a guide for

our clients because we believe that it is both the legally and morally correct course of business. By offering

advice for a fee, we become a de facto co-fiduciary with our clients and willingly acknowledge that in writing.

By contractually becoming a co-fiduciary with our clients, we serve as the “Prudent Expert” described in

fiduciary law and provide a “Safe Harbor” for investment committee members with fiduciary liability.

7. Provide details on the financial condition of your firm as Exhibit C. The most recent annual report filed with

the SEC is acceptable, but any recent material changes should be included.

Cornerstone is a privately held firm and does not publish our financials. We would be happy to share with you

the details in a face-to-face setting. Please see Section III, Exhibit B for Cornerstone’s ADV Part I & II

8. Briefly summarize your philosophy relating to the consultant's relationship with Boards/Committees, Staff,

Investment Managers and Brokers.

Cornerstone’s success is driven by the satisfaction and success of our clients. With that in mind, we seek

relationships that are free of conflicts of interest that will best serve our clients. A Cornerstone client is a client

from the Chair of the Board through the receptionist at our client’s front desk. We strive to provide the highest

level of service throughout our clients’ entire organizations, whether that entails regular meetings, ad-hoc

educational sessions, ongoing audit support, or any other part of our wide menu of services.

Cornerstone’s relationships with investment managers, custodians, and brokers are ongoing. As an open

architecture firm, we have no operational or financial ties to any specific vendor. Our analyst team is responsible

for relationships with current and prospective vendors and interacts daily with various industry contacts. We

seek best-of-breed providers who provide attractive services at a competitive cost.

9. Disclose any relationship you have or have had with any Board Member or NYCRPD employee. If there are

none, so state.

Cornerstone does not have nor had any relationships with any Board Member or NYCRPD employee.

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10. Do you or a related company have relationships with money managers that you recommend, consider for

recommendation, or otherwise mention to clients? If so, describe those relationships.

Cornerstone does not have any relationships or affiliation with any money manager.

11. Do you or a related company receive any payments from money managers that you recommend, consider for

recommendation or otherwise mention to clients? If so, what is the extent of these payments in relation to

your other income (revenue)? What percentage of your clients utilizes money managers, investment funds,

brokerage services or other service providers from whom you receive fees?

We receive no soft dollars and have no financial relationships with any money manager or any kind of third-party

vendors allowing us to be completely independent and unbiased in our services to our clients.

12. Do you have any written policies or procedures to address conflicts of interest, including (but not limited to)

the payment of fees or other consideration from other clients, relationships or entities that may compromise

your fiduciary duty to your clients? If so, please include a copy as Exhibit D.

To combat any sort of conflict of interest, Cornerstone has adopted a Code of Ethics for all employees describing

its high standard of business conduct, and fiduciary duty to our clients. The Code of Ethics includes provisions

relating to the confidentiality of client information, a prohibition on insider trading, entertainment items, and

personal securities trading procedures, among other things. As a summary of the entire Code of Ethics, we

believe that The Statement of General Principles found within the Code of Ethics best encapsulates our internal

rules regarding our relationship with you. It reads as follows:

“In recognition of the trust and confidence placed in the Firm by its clients and to stress its belief that its

operations are directed to the benefit of its clients, the Firm has developed and adopted the following general

principles to guide its associated persons, officers, and directors:

1. The interests of the clients are paramount and all associated persons of the Firm must conduct

themselves in such a manner that the interests of the clients take precedence over all others.

2. All personal securities transactions by associated persons of the Firm must be placed in such

a way as to avoid any conflict between the interest of the Firm’s clients and the interest of any

associated person of the Firm.

3. All associated persons of the Firm must avoid actions or activities that allow personal benefit

or profit from their position with regard to the Firm’s clients.

4. All associated persons will remain compliant with federal securities laws.

5. Any potential violations of this Code of Ethics must be promptly reported to the Chief

Compliance Officer.

Please see Section III for Exhibit D, a copy of Cornerstone’s Code of Ethics.

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13. In addition to the investment consulting fees paid to your firm by clients who retain your firm as their

investment consultant, what other sources of revenue does your firm and/or your firm’s affiliates receive that

relate (directly or indirectly) to the provision of investment consulting services?

As a conflict free advisor, we receive no payment except the hard dollar fees paid by our clients. We

provide no consulting or marketing services to any third party vendor other than our clients. As a co-

fiduciary, Cornerstone does not enter into any formal or informal business relationships with any service

provider. As such we are not compensated through any soft dollar arrangements. Transparency is at the

forefront of everything we do.

14. Is your firm or affiliate a broker/dealer? If yes, does this broker/dealer execute trades for portfolios for which

your firm provides consulting services? Do you have any arrangement with broker/dealers under which you

or an affiliated/related company will benefit if money managers place trades for their clients with such

broker/dealers?

CII is affiliated with M Holdings Securities, Inc., a FINRA member broker/dealer. This affiliation

affords our private clients access to certain financial products that they otherwise would not have access

to. CII’s institutional investment clients do not have any dealings with our broker-dealer. We receive no

soft dollars and have no financial relationships of any kind with third-party vendors allowing us to be

completely independent and unbiased in our services to our clients.

15. Has your firm or any officer or principal of your organization been involved in litigation or any SEC or other

regulatory action relating to investment management, brokerage or consulting activities in the last ten (10)

years? If so, provide a brief explanation and indicate the current status of the proceedings.

No complaints, claims or investigations as described above have occurred over the last ten years, none are

pending and none are foreseen.

16. Do you subcontract or outsource any parts of your investment consulting business? If yes, please describe in

detail which parts are performed externally and the reason for doing so. Please provide the names of the

providers, their office location, how long they have been in business and the qualifications of the specific

people who would be working on our account.

Cornerstone does not engage in any subcontractor relationships.

17. Describe the levels of coverage for errors and omissions insurance and any other fiduciary and professional

liability insurance the firm carries. List the insurance carriers providing the coverage.

Cornerstone maintains significant Errors & Omissions insurance issued through various entities. We have four

policies with $10 mm aggregate claims and a fifth with a $5 mm claim maximum. Currently, we are not required

to notify our clients of a pending insurance cancellation but we feel it is our duty to go above and beyond and

notify our clients to any changes with our insurance policies. Certificates of insurance can be found in Section

IV.

18. What are your firm's consulting specialties and strengths? What are your firm’s limitations?

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All of Cornerstone’s clients benefit from our risk focused investment management process. The world of public

pension plans has been turned on its head over the last several years due to poor market performance, aging

workforces and a long term lack of funding while markets were performing well. The one benefit that public

pension plans have had compared to ERISA plans is that the discount rate associated with liabilities is not tied to

market rates, a major source of private sector underfunding. Cornerstone has been able to work with clients to

provide a framework for success that begins with a robust fiduciary process and then follows with unbiased

consulting that rigorously and continuously monitors the results of the plan.

Should you choose to engage in further conversations with us, we expect you to understand that a healthy

pension fund is a continuously funded, well monitored pool of assets. Investment returns are not a panacea.

Only in coordination with proper funding and prudent liability management does an underfunded fund become a

healthy fund. We strive to set realistic expectations that can be met through prudent management of the

investments and liabilities of the Fund.

We truly believe that we are a firm without limitations. We are agnostic as to who we work with from an

investment management prospective. We can work with any custodian, any mutual fund, any separate account in

the universe and as such can have a completely independent view of our clients position and how best to position

a solution. We customize our reporting and have developed industry leading reporting and performance due

diligence. All of these factors allow us to sit squarely on the same side of the table as our clients.

19. Who are your top five (5) competitors? What differentiates your firm from your competition? Why should the

Plan hire your firm rather than your competitor(s)?

Having a specialized focus in the management of pension plan assets, we have competitors in different markets (large

pensions or small) and different industries. Whether we are working in the large municipal market place or smaller

ERISA governed private pension plans we are regularly competing against national firms and consistently winning

business. A few names that we see are PFM, Morgan Stanley, Wells Fargo, Pierce Park and Beirne Wealth

Consulting.

Our competitors focus blindly on return. What makes Cornerstone unique is our understanding of, the ability to

identify, articulate, monitor and manage the levels of risk within our client portfolios. Risk is neither good nor

bad it is just risk but it does have a direct correlation on the levels of return of the portfolio. Our competitors are

not able to provide to their clients an answer to the question of are they being compensated for the risks that they

are taking. Understanding that the market moves geometrically, meaning if you lose 50% you have to make

100% to get back to even, we pay considerable attention to the risks and most importantly the downside risk

potential of our clients’ accounts. Holding market value in down markets is far more important than squeezing

every last drip of up market capture. Large losses in down markets will wreak havoc on the funded status of the

plan. The other area that sets us apart in the management pension plan assets is our focus on the liability side of

the balance sheet as well. The funded status will have a direct impact on the budget considerations of the

municipality, which can then translate into tighter budgets, higher taxes etc. Identifying risk, being able to

manage and smooth the volatility of the pension, mitigating large losses, identifying the liability side of the

pension balance sheet are all differentiators to our competitors.

20. What investment consulting services do you provide to clients that are not among the specific services

requested in this RFI?

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We are a full service investment consulting firm and as a client you would get the full breadth and depth of our

services, capabilities and expertise. These are outlined in all of the answers of the RFI as well as our list of Fiduciary

and Non-Fiduciary services attached to question one of the Fees section.

Clients

1. Please describe the type, size and number of clients your firm currently provides a full range of investment

consulting services for in the table below.

Client Type # of Consulting Clients Total Client AUM ($mil)

Public Pension Plans 4

620

Under $25 million 2 38

$25 million to $100 million 0 0

$100 million to $1 billion 2 582

Over $1 billion 0 0

ERISA Plans 93 2064

Under $25 million 79 500



Over $1 billion 0 0

Foundations & Endowments 42 1011

Under $25million 31 208



Over $1 billion 0 0

Other (provide detail)1 164 805

Total 316 4500

1The other accounts belong to wealthy families and high net worth individuals.

*Please note the above chart represents the combined clients and assets under management of both Cornerstone entities. Please

refer to ADV Part 1 for specific information on CII.

2. Indicate the total amount of assets under your pension fund consulting management at the end of each calendar

year from 2009 to 2013.

12/31/13 12/31/12 12/31/11 12/31/10 12/31/09

# of clients 21 21 20 22 19

Assets ($) 1.050 billion 1.338 billion 1.252 billion 1.056 billion 785 million

3. Indicate the approximate aggregate market value in US Dollars of your full service clients' investments in

various asset classes as of 12/31/13 (do not overlap amounts).

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Asset Class Total Client AUM ($mil)

Domestic equities 1,875,000

Domestic fixed income 1,125,000

Non-U.S. equities 645,000

International bonds (not included above)

Commercial mortgages

Cash (not included above) 135,000

Real estate

Alternative investments (describe) 700,000

Hedge Funds 10,000

Other (describe) 10,000

TOTAL 4,500,000

*The above two charts represent the combined information of both Cornerstone entities.

4. List the total number and provide at least five (5) references for all public pension funds with assets equal to or

greater than $10 million and less than $100 million for whom you provide primary consulting services

comparable to the services requested in this RFI, and whether they are a full-retainer client. For each

reference listed, include client name, name of contact person, title, address, telephone number and e-mail

address. Please secure advanced permission to contact no less than three (3) of these references and provide

the name and title of the person(s) at your firm who secured the permission. In addition, for each client

referenced, include number of managers monitored, fund diversification by asset class, inception date of

consulting relationship and the total number of dollars under management. If you do not have at least three

(3) public pension fund clients with assets above $10 million and below $100 million, list at least two (2) of

the next largest pension plan clients that you have, providing the same reference information and the amount

of their funds, and whether they are a full-retainer client.

5.

Company Name: Lehigh County Employees Retirement System

Address:

Government Center

17 South Seventh Street

Allentown, PA 18101

Contact Person: Mr. Glenn Eckhart, Controller

Telephone: 610-782-3082


Account Asset Value: ~$444 MM

Type of Service: Full Service Consulting

Length of Service: 3 Years

Company Name: Schuylkill County Employees Retirement Plan

Address:

Schuylkill County Courthouse

401 North Second Street

Pottsville, PA 17901

Contact Person: Commissioner Frank Staudenmeier,

Commissioner Chair

Telephone: 570-628-1200

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Company Name:

County Commissioners Association of

Pennsylvania

Address: PO Box 60769

Harrisburg, PA 17106

Contact Person: Ms. Pam Szajnuk, Director of Finance Telephone: 717-526-1010, Ext 3313




Length of Service: 3 years

Company Name: Whitehall Township Police Pension Fund

Address: 3219 MacArthur Road

Whitehall, PA 18052

Contact Person: Mr. Ed Hozza, Mayor

Telephone: 610-437-5524, Ext 147





Company Name: Bedford County Employees’ Retirement Fund

Address: 200 South Juliana Street

Bedford, PA 15522

Contact Person: Commissioner Kirt Morris,

Commissioner Chair

Telephone: 814-623-4807




Length of Service: 1.5 Years

6. Provide a list of clients that have terminated your services within the last five (5) years, the dollar amount of

assets under management at time of termination and the reasons for termination of each. Indicate the primary

and back-up consultants within your firm who were assigned to each client at time of termination.

Client Term

Date

Dollar

Amount

Reason for Termination Primary

Consultant

Secondary

Consultant

Montgomery

County

June-13 $465MM Administration turnover

and a change in

investment policy

Malcolm “Skip”

Cowen, II

Kevin Karpuk,

CFA

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7. Describe your plans for managing the future growth of your firm in terms of staff, maximum assets, number of

clients, etc.

We have achieved sustainable growth since our inception. Consultant relationships are limited to 25 primary

relationships per consultant and we have increased our minimum relationship size twice in the past ten years to

focus on larger, institutional clients. After hiring two new consultants in 2013, we feel we have ample capacity

for the next three years. As growth continues, we expect to add to our team accordingly.

8. Briefly describe how a new client would transition to your firm. Do you backload transaction and/or

investment performance data? What problems have you encountered in transitioning a new client to your firm

from their previous consultant? Please provide at least one (1) reference (name, fund name, address, phone, e-

mail) of a recent client of yours whom we may contact regarding the transition process.

For every client onboarding, a transition team is appointed to take responsibility from start to finish. Transitions

vary in complexity. Custodian changes, portfolio adjustments and changes, and performance data transfers are

just some of the many issues that can arise. Ideally, if a client is satisfied with their current custodian,

Cornerstone would be able to seamlessly take over consulting responsibilities. Performance and asset flow data

would be moved from the current consultant/custodian onto our systems. This is generally the most time

consuming process. Depending on format, granularity, and the completeness of the data, Cornerstone would

work to integrate the data to the best of our ability so that there is no gap in reporting. Transitions, while tedious,

are excellent opportunities to scrub data and ensure its accuracy. Beginning a relationship with a stable baseline

is critical.

Company Name:

County Commissioners Association of

Pennsylvania

Address: PO Box 60769

Harrisburg, PA 17106

Contact Person: Pam Szajnuk, Director of Finance Telephone: 717-526-1010, Ext 3313




Personnel

1. Identify the different classifications of employees within your firm and the totals for each classification. What

policies are in effect to control the workload as it relates to the number of clients serviced by each

consultant/relationship manager? Is there a limit on the number of accounts that a consultant/relationship

manager may handle? What is the average number of accounts per consultant?

Please see Section III, Exhibit A for Cornerstone’s organizational chart that breaks down the different

classification for each of our employees.

Currently, Cornerstone’s ratio of institutional relationships to consultant is 19:1. To handle the workload on an

everyday basis, teamwork is our most effective strategy. In the following question’s response, we provide

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detailed information on all members of the Cornerstone team that will be assigned to this relationship. As an

added layer, Cornerstone does limit the number of institutional client relationships per consultant to 25.

2. Identify and provide biographies of your firm’s senior leadership and the primary and backup consultants who

would be assigned to this engagement as Exhibit E. Who are the clients these consultants currently serve?

Which of these consultants would attend the Northern York County Regional Police Pension Committee

meetings? To which office are they assigned? What measures will your firm employ to ensure that either the

primary or the backup consultant be readily available to answer questions from the Plan’s Staff?

Cornerstone has always utilized a team approach to each of our client relationships. Christopher Lakatosh and

Kevin Karpuk will be the lead and secondary contacts for this relationship. Chris has been providing investment

advisory and fiduciary services to qualified retirement plan sponsors for over ten years. During that time, he has

compiled a well-educated, experienced team of two educational consultants, two operations professionals, three

client service directors and three investment analysts, all of whom are CFA charterholders. Our entire staff is

available to service the needs of our clients directly on an as needed basis. Our service model is built on the

premise that clients should be able to define their experience with Cornerstone, whether that is the older model of

having a relationship manager who is the sole point of contact or a more decentralized system of contacting the

particular employee they need for that particular service.

Please see Section III, Exhibit E for Cornerstone’s staff biographies.

3. Describe the firm’s compensation and incentive program for hiring and retaining key consultant personnel.

How does the firm tie client performance and satisfaction to a consultant’s compensation?

Cornerstone consultants are paid a base salary with benefits plus an annual share of the revenue they generate

and retain for the firm. Client retention is paramount in our culture and we continue to reward consultants as

long as their relationships are healthy. Successful consultants who merit additional compensation are considered

for a principal position which includes profit sharing. This is the next step before ultimately being considered for

a shareholder position in the firm.

4. Has your firm adopted the CFA Code of Ethics and Standards of Professional Conduct? If so, how is

compliance monitored?

Yes. Cornerstone has adopted the CFA Code of Ethics and Standards of Professional Conduct. All policies and

procedures are monitored by Cornerstone’s Chief Compliance Officer.

5. Explain turnover in key professional personnel (senior management and consultants) over the last five (5)

years. Please list staff positions hired, resigned and terminated, including a description of each position and

the reason for turnover.

In the last two years, Cornerstone has seen one consultant leave the firm to join our former business partner. He

chose to pursue insurance sales rather than investment consulting. Since his departure, we have added two

seasoned professionals to backfill and expand our consulting reach.

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Investment Management

1. Describe your public pension fund experience and approach in developing and monitoring, and updating

investment policies and objectives for a diversified pension fund. Comment on your process for analyzing a

client's legal and regulatory restrictions, liquidity needs, time horizon, social responsibility, funding status,

portfolio structure, and for recommending modifications, including frequency of review.

Cornerstone has provided consulting services to defined benefit plans for over 20 years. Our public pension

experience started in 2000 when the Schuylkill County Retirement Plan retained our services. Our experience

and focus on risk management has led us to be hired by several of the country’s leading independent actuaries to

manage their own defined benefit plans. Managing defined benefit assets is something that is inherent in our

business model because it is very much a two-sided equation. The liabilities of plans grow much more steadily

than the assets, in most cases, and it is our job to understand that and provide insights into COLA’s, duration

management, minimum municipal obligations and other non-traditional consulting inputs. If we focus solely on

your assets, we are doing you a disservice.

We are experienced with the various state rules governing the plan under your care. We also have extensive

experience with Act 44 of 2009 as it pertains to the funding and smoothing methodology applicable to your plan.

To us, Act 44 was a necessary evil. It was passed as funding relief for municipalities, allowing them to realize

losses over longer period of times than was acceptable prior to its passage. Pension funds are long-term vehicles,

which should be able to take some short-term volatility in exchange for increased long-term upside; however,

many plans needed this relief not because of the catastrophic financial markets of 2008, but instead because they

underfunded their plans in the past and had improper asset allocations that didn’t allow them to understand and

appreciate the risk that they had undertaken. The reason that Act 44 was a “necessary evil” is that the legislature

did not undertake hard decisions regarding ongoing funding that would change the behavior of pension plan

sponsors in the public sphere. During good financial markets, plans are thought of as self-funding vehicles

which is patently false. The legislature had the opportunity while modifying Act 205 with Act 44 to require

municipalities to at least contribute the annual cost of plan going forward. This was an opportunity wasted.

The one part of Act 44 that we unequivocally agree with is the “pay-to-play” disclosures. Public funds have long

been used to benefit large political donors. Cornerstone does not make political contributions, nor do we receive

any compensation based on political activities, so the leveling of the playing field was appreciated by

independent firms such as ours. The history of officials using retirement funds as a way to reward political allies

has been long and detrimental to the participants in the plan. With Act 44, we hope that this has changed.

2. Describe your firm's experience in customizing asset allocation studies for individual clients, including

integration of liabilities and funding. How often does your firm recommend reviewing asset allocation?

In order to develop an appropriate asset allocation, it is critical to start with the investment policy statement. We

spend the greatest portion of time working with our clients on their investment policy development,

implementation and monitoring. We look at the current policy statement, current funding ratios and undertake

service provider due diligence at the start of every relationship and create a needs analysis that identifies the most

urgent points that need to be addressed. We then review (quarterly, with a detailed annual report) all of these

aspects of the plan.

The investment policy statement for any client is probably the most important document that a fiduciary has. A

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well written policy clearly outlines the responsibilities of all parties involved and is signed by each party as

acknowledgement of what is expected of them. We begin this process with reviewing the current investment

policy to ensure that it contains everything necessary from a legal perspective, but then we expand our scope to

ensure the inclusion of the Prudent Investment Practices. If the policy is clearly written and is strictly followed,

it is highly unlikely that fiduciaries will act in a way that will expose them to legal jeopardy.

The first step of developing a statement of investment policy and objectives is to listen to our clients and their

service providers. Since each client is different in their attitude towards investment risk, we cannot develop

proper policy without first talking with them. If a client is willing and able to fund liabilities through cash flow,

our investment solution will be much less volatile than a client who cannot afford to fully fund future obligations

and therefore relies on investment experience to maintain or improve its funding status.

In the next step of the process, we turn the typical return-focused allocation modeling process on its head.

Instead, we work with the client and its actuary to figure out what a “maximum acceptable loss” is and then build

a portfolio to have that risk profile. No one knows what the capital markets will return in a given year, or even

over a given decade as the last one has shown, but what we can do with a high degree of confidence is model

what our clients’ expected downside is. This is important because if we understand the liability stream several

years into the future, we can better fit an asset allocation. With any investment, avoiding large losses while

participating in a large percentage of the upside is important, but in a defined benefit plan, it is crucial.

Once we decide on an acceptable level of downside risk, we then use our software to develop an asset allocation

and portfolio structure. This software uses Monte Carlo simulation of our current capital market assumptions to

provide us with modeled returns. There are two fundamental differences between the way we use this software

and many in the industry do. First, we do not use historical capital market returns to model the future. What has

happened in the markets since 1926 is far less relevant to a client than is a thoughtful look at current market

conditions and their likely effect on future market performance. The second differentiating factor is that we do

not use optimization. By allowing a software program to run a simple “min-max” calculation on risk and return

without regards to common sense causes either unrealistic portfolios or so much human interference that the

output becomes useless.

After determining the appropriate asset allocation and portfolio structure, we turn our attention to the individual

money managers. Here we apply a quantitative and qualitative screening process that is guided by the

investment policy statement. In order for any money manager to be considered, they must meet a set of

minimum criteria. After this initial screen, our team of analysts begins the exhaustive due diligence process to

condense the manger universe.

3. Describe your firm’s capital markets model. Is the model proprietary, or does your firm rely on an outside

vendor’s model? If your firm relies on an outside vendor, indicate the name of the vendor, name of the model,

etc.

Cornerstone relies on Callan’s capital market assumptions which are created using a fundamental building block

approach paired with a common sense overlay. We also consider other major forecasts (JPMorgan, BNY

Mellon, GMO, etc) to look for outliers and to understand differences between the models and their outputs.

4. How does your firm develop inputs to the model? Does your firm develop standard inputs to the model for all

clients? Can these inputs be customized based upon individual client views, needs or requirements?

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The software we use for modeling is fully customizable. We have a base case model with base inputs that can be

refined to meet the unique needs of our clients.

5. Provide your firm’s current inputs to the asset allocation model. Include at a minimum expected returns,

standard deviations and correlation coefficients for U.S. equities (large cap, small cap, total market),

international equities (developed and emerging markets), global equities, U.S. bonds, U.S. TIPS, international

bonds, U.S. treasuries, real estate and other significant asset classes for which your firm has developed inputs.

Below is a simple table with our 2014 projections. These, paired with their correlation matrix makeup the base

case inputs in our model.

Asset Class

10 Yr.

Geometric

Mean Return

Projected

Standard

Deviation

Broad Domestic Equity: 7.63% 18.94%

Large Cap: 7.49% 18.30%

Small/Mid Cap: 7.84% 22.90%

Global (ex-US) Equity: 7.85% 21.24%

International Equity: 7.50% 20.10%

Emerging Markets Equity: 7.94% 27.75%

Domestic Fixed: 2.51% 3.75%

Defensive: 2.29% 2.25%

High Yield: 5.03% 12.60%

Non US Fixed: 2.24% 9.40%

Commodities: 2.76% 18.25%

Real Estate: 6.21% 17.50%

TIPS: 2.30% 5.00%

Private Equity: 8.63% 30.90%

Hedge Funds: 5.09% 10.20%

Cash Equivalents: 2.01% 0.90%

6. Describe your firm’s view on portfolio rebalancing. Include discussion on targets, ranges, frequency and

implementation methods.

Cornerstone does not subscribe to calendar-driven rebalancing. We have recently completed research which

shows that markets trend for extended periods of time and exhibit serial correlation that can be exploited. Please

see Section V for a copy of this research. With that said, the research also shows that when IPS limits are being

approached, rebalancing offers good downside protection to a portfolio since trending is not eternal. As will be

discussed below, macroeconomic trends and market sentiment have been volatile recently, another factor in our

reticence to rebalance in a manner which is calendar driven.

One of the key inputs in our rebalancing strategy, other than macroeconomic trends, is capital flows. If the

portfolio will have large infusions or withdrawals that are known with a high level of certainty, we are mindful of

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this during our decision making process. In most cases, if our macroeconomic outlook is negative, we try to raise

as much cash as will be necessary for the foreseeable future. If we know that a large deposit is expected, then we

will discuss with the committee how we would like to allocate it.

7. How do you define risk? Briefly describe the risks to which a public pension fund is exposed.

Our definition of risk is volatility that causes an organization stress. Risk measurement and management is not a

new or nebulous idea. There are many ways to measure volatility including standard deviation, downside risk,

etc.; however, every organization has a different level of risk tolerance. Risk should be a known commodity and

every fiduciary should be able to explain their risk tolerance in measurable terms.

Many pundits believe that the greatest risk to public pension plans is tied to the funding ratio whereas we believe

that the real risk is the volatility of annual contributions. Until the law changes, municipalities will be in the

pension plan business. With that in mind, we consider these plans to be “forever” money. The funding ratio will

move with the capital markets over time, but if managed correctly, it will revert to a mean of being well-funded.

It is the annual required contribution volatility that is truly the greatest risk since if plans are exposed to too much

risk in the capital markets, the contribution will markedly increase at the exact worst time, when the economy is

slowing and the tax base is weakest. One of our core philosophies in managing any pool of money and

especially in public pensions is that minimizing the volatility of these contributions is the greatest success we can

achieve. Anyone who believes that they will invest their way back to full funding rather than contributing their

way back is setting themselves up for a long road with overexposure to volatility.

8. How does your firm monitor risk? List the measurements that are used when evaluating risk.

Cornerstone monitors risk through various measures. The first is our annual capital market assumptions in which

we model a client’s current allocation and look at what the expected downside in a bad market could be. If that

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percentile event would irreparably harm a client, then we need to slide down the risk scale. The ongoing risk

monitoring, at both the manager and total fund level is found in our quarterly reviews in which we track statistics

such as standard deviation, beta, downside risk and down market capture to name a few. What we are able to do

with these numbers is not only compare them to the agreed upon benchmark but also a national peer group of

similar sized public plans. If a retirement board is risk seeking (or risk averse), we can build a portfolio that will

reflect these tendencies but ensure that the level of risk is not imprudent compared to the rest of the universe.

9. Describe your firm’s view on risk budgeting. Have you created a risk budget model that is utilized by your

clients?

Cornerstone does not subscribe to the idea of risk budgeting in the classical sense for several reasons. The first is

that to target a particular standard deviation target is to miss the point that over complete business cycles, the

standard deviation of the markets varies greatly, so to target a standard deviation of 8 – 12%, for example, is not

always relevant. Another downside to risk budgeting that we see in the market is that alternative investments

have a lower weighting in the risk budgeting than we are comfortable with. An example of this is that a hedge

fund of funds may have the same risk profile as a bond fund when measured historically, but an astute investor

should understand that the risks inherent in illiquid investments is significantly higher than fixed income.

We do informally budget tracking error in our portfolios. In less efficient areas of the market such as small cap

and emerging markets, we are willing to add more active management than in large cap domestic stocks. If we

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are going to add tracking error to a portfolio, we wish to do so in errors where there is the chance of positive

alpha, and we minimize tracking error and other risk factors where history shows a lower chance of success.

10. Describe any other risk management capabilities that are offered to clients.

There are many aspects of risk management that come with having a consultant with over 30 years of industry

experience that spans non-public clients as well as public funds. One aspect that we would enjoy sharing with

you would be regarding our proposal to a local municipality that liquidated an asset to fund their massively

underfunded pension plan. While there were headwinds to our concept politically, we believe that the concept

itself highlights the type of forward thinking, risk-centric management that Cornerstone is known for.

11. Discuss the steps your firm would take to analyze the current Plan portfolio.

Cornerstone comes into every new relationship with an open mind. We do not have a prepackaged investment

solution that we require clients to adhere to. Our initial steps to analyze the current Plan portfolio would be to

schedule due diligence meetings with each of the managers to help discern who has been fulfilling their charter

and who may need to be changed. This is an open process in which we meet with each manager and follow our

typical due diligence process. We have found many of our best managers through inheriting them from existing

positions. We would then provide the Board with a written report of what we have found in our research.

In terms of asset allocation or portfolio structure, while our team of analysts is performing manager due

diligence, we would meet with your Board and actuary to discern what the best course of action would be. The

actuary’s input on any expected demographic changes or past smoothing of underperformance is helpful in

planning for the future.

12. Discuss how you optimize the number and types of managers and how you assess the effect of including new

managers. Discuss any statistical analysis that is performed.

We are unaware of any statistical analysis that will yield the optimal number of managers for a given portfolio.

For a portfolio of this size, we would expect around 5 actively managed separate accounts, several index mutual

funds/ETF’s and several other mutual funds to get access to the marginal asset classes such as high yield bonds,

emerging markets, etc. Our strategy is to hire the number of specialist managers needed to fill out the manager

matrix as designed in the policy statement.

13. Describe your firm’s philosophy with respect to manager evaluations (formal review, ad hoc, etc.). Briefly

describe any ongoing due diligence process. What critical issues are examined in the due diligence process?

At what point would your firm recommend terminating an investment manager?

A good manager evaluation program is one that is clearly defined, documented and followed. Within our

Investment Policy Statement, we outline the metrics (as described above) to which we hold our managers. Many

policies we see in the market are tied purely to performance comparisons, a major flaw within the consulting

community. Our policy lays out performance but as an input for risk-adjusted returns. We will not consider a

manager a failure for underperforming a benchmark or peer group if there is a commensurate lower risk profile.

By knowing the managers well and constantly monitoring them, we can understand and even to a certain process

being used to manage money. Every money manager is going to have periods of strong performance and periods

of weak. It is much more important to us to understand that the people and process for the manager remain

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consistent with what created historical success. If the process changes significantly or key team members

change, we consider that a reason to immediately terminate a relationship since there is an entire universe of

qualified managers from which to choose. A counterpoint to many things we see in the industry is that we favor

hiring firms that have strong organizations and track records but are in the bottom half of their peer groups in

recent time periods. We do not want to hire the hot dot which is a weakness of many wrap programs.

14. Describe your firm’s view of the role of passive management (by asset class) in a client’s portfolio. Indicate

the active/passive allocation in your typical public pension fund client’s portfolio.

We believe passive strategies are powerful tools for investors in sectors of the market in which active

management is limited in its ability to create alpha. Core domestic equity is the most obvious example of

somewhere we would want to employ an index fund. Within the largest 500 companies in the United States,

there exists such a high level of analysis that managers historically have had a difficult time beating their index

without introducing style risk. As co-fiduciaries, we are more comfortable minimizing fees and tracking error in

this portion of the portfolio, allowing us to take on risk in areas that attract alpha creation opportunities, such as

emerging markets, small cap and specialist fixed income mandates.

Utilizing index funds across several asset classes (large cap, core fixed income and developed international) also

allows for the efficient redeployment of assets during portfolio restructuring or tactical shifts in asset allocation.

We do, however, believe that certain asset classes – such as emerging markets, high yield bonds and small cap

stocks – are inefficient enough for active management to yield sufficient alpha over a market cycle.

15. Describe your firm’s view on securities lending. Do you typically recommend lending with the client’s

custodian or with a third-party lender? Describe your viewpoint on each method of implementation.

With large pools of assets, securities lending helps boost returns at the margin under good and normal market

conditions. While we are not against it, Cornerstone does not actively encourage securities lending. As long as

the overseeing body understands the risks associated with it, we are comfortable monitoring it. The reason we

aren’t strong proponents of it is that in a stressed market, securities lending can easily backfire, exactly when you

don’t need another problem. From a risk/return standpoint we usually don’t feel the marginal return is worth the

associated risk.

16. Briefly describe the capabilities associated with the evaluation and monitoring of securities lending programs.

Briefly describe the capabilities associated with the evaluation and monitoring of short-term investment funds

(STIF) or other cash management programs.

Cornerstone will work with your custodian to establish a monitoring system for their securities lending activity.

Cash management and STIF’s are subject to the same rigorous due diligence and monitoring processes we have

established for any other investment manager in your portfolio.

17. Do you believe a plan should have a permanent allocation to cash? Why or why not?

Cornerstone believes a cash allocation is warranted in a portfolio. In most cases, a 1-5% target is typical,

depending on liquidity needs and the payment structure of the Fund. While cash balances pay very little at

present, they provide virtually zero volatility. Also, a rising rate environment should help cash returns in the

future.

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18. Describe your firm’s view on performance-based fees. What percentage of your firm’s clients utilizes these

types of fees?

Cornerstone accepts performance-based fees as long as the terms of the fees are reasonable and do not

disadvantage the client in declining markets. In areas such as private equity and hedge funds, performance based

fees are typical. Less than 1% of our asset base is with managers who have performance-based fees.

19. Discuss your firm’s philosophy on transition management. Do you recommend clients maintain a pool of

approved transition managers? How have you assisted with a search for qualified transition managers?

Cornerstone personally handles transitions. We have had conversations with transition managers but have not

run across a situation with enough complexity to justify the cost of a dedicated transition manager.

Performance Measurement/Portfolio Analytics & Reporting

1. Describe your firm’s experience and capability for calculating performance. Describe differences, if any, in the

way the firm would calculate performance among different asset classes. How would the firm ensure accuracy

in the performance calculations? How soon after receipt of settlement-date accounting data from the custodian

would accurate performance reports be available to present to the plan’s administrative committee?

The database we use for performance reporting is actually two different systems that we have merged into one.

The first is our manager composite, benchmark and peer group database, which we purchase from Callan

Associates. To verify this information, we also have subscriptions to PSN, Morningstar and various other data

sources. For client-specific performance reporting, our database creates return streams using daily transactions

and valuation for a more precise return calculation than is required by GIPS® standards. Once these returns have

been verified by our performance reporting team, they are automatically loaded into our database as final

numbers and are used in our reporting. Very little data entry or human contact is involved in the production of

performance figures, other than strenuous cross-checking and data validation by our reporting and technology

teams.

To ensure accurate performance reports, trade-date accounting is preferred. However, we do understand this

information may not always be available depending on the custodial relationship and in those instances

settlement-date data must be used. Cornerstone feels confident that accurate performance reports can be

available within two weeks after the receipt of client statement data.

2. Describe how benchmarks are chosen or developed and how performance is compared to similar portfolios.

Can the firm provide custom benchmarks? Style benchmarks? Normal portfolios? Please indicate whether

your firm has ever developed benchmarks, and if so, please provide a description of the benchmarks

developed.

Cornerstone outlines two different benchmarks in our investment policy statements. The first is our “blended

benchmark”. This measure weights the benchmark at the current portfolio weighting. This is most appropriate

to judge whether the managers are providing a benefit to the Fund through active management. Our second

benchmark, the “broad market benchmark”, uses the policy target weightings for the different asset classes.

While some manager performance seeps through to this calculation, for the most part, this will show whether the

deviations from the IPS benchmark have helped or hurt the Plan. Since Cornerstone believes that modest

19

deviations from the policy statement can be beneficial in the long run, we believe that this measure is a good

indicator of whether a consultant is performing well over the long run.

The final measure that we use to measure our performance is to look at the Plan level performance versus others

investing money in a similar fashion with similar goals. We can put a return stream versus a peer group and

compare the total portfolio much like we can an individual manager.

Finally, for investment managers, Cornerstone has the ability to compare managers against any benchmark in

existence and we have found that a handful of well-known indexes (e.g. Standard and Poors, Russell, MSCI,

Barclays Capital) are well suited for evaluating managers.

3. Describe the content and format of your firm’s standard quarterly performance reports for the total fund, major

asset classes and individual investment managers. Provide a sample report for one (1) of your firm’s clients

that is structured similarly to the Plan as Exhibit F. Provide samples of other kinds of non-standard reports

available to clients as Exhibit G.

Cornerstone’s typical reporting package includes an audited review book quarterly. Our audited quarterly review

book typically contains three sections. The first section is an overview of the current economic environment.

The second section contains an audited cash flow analysis of the portfolio along with an asset allocation

breakdown and money manager performance. The final section includes our quarterly due diligence on all

money managers within the portfolio.

Please see Section III, Exhibit F for a sample detailed quarterly review book.

4. Can these reports be customized to accommodate the Plan’s information needs? Are there charges for these

additional information requests? Within what time frames can these requested changes be implemented?

Cornerstone’s reporting is completely customizable. Our goal while designing our standard reports was to track

the goals and restrictions outlined in the investment policy statement, while maintaining flexibility to add,

subtract or modify the format in many different ways. Normally, Cornerstone does not assess a fee for

customization; however, depending on the extent of customization, a discussion with the Board regarding fees

may be necessary.

Cornerstone is confident we can meet any customization requests with a three month time frame.

5. Describe the process and data needed to input historical Plan performance data into the responding firm’s

system.

The ideal set of data we utilize to populate our performance database is daily transactional and market value data

at the manager level. This allows us to calculate GIPS compliant returns for not only each individual manager

but also for the aggregate portfolio. Knowing this information is not always available, we have the ability to

work with the Fund’s current custodian in order to gather the necessary information. After the data gathering

process has been completed, Cornerstone can normalize the data for import into our performance reporting

database.

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6. Describe your firm’s source, if any, to determine comparable plan sponsor returns. Indicate the size (#’s and

$’s), composition (#’s and $’s) and data compilation method.

As a member of Callan’s Independent Advisor Group we receive robust peer groups from Callan Associates

across all asset classes, sub asset classes, and at the overall portfolio level. The applicable peer group

Cornerstone would use for a pension plan of your size is the Public Funds Small Funds Group which consists of

75-100 public pension plans with assets of less than $100,000,000.

7. Describe your firm’s view on the most relevant methods of evaluating performance. Include the firm’s

approach to the measurement risk-adjusted performance.

Cornerstone evaluates performance streams for their absolute returns, relative returns, risk levels, and risk-

adjusted statistics compared to an appropriate benchmark and against an appropriate peer group. We have found

that using rolling periods of three and five years removes much of the noise in a manager return stream and

allows us to get a more accurate view of how a manager performs in various market conditions. Risk is neither

good nor bad as long as sufficient returns are generated over full market cycles.

8. Describe your firm’s performance attribution capabilities. Include a breakdown of domestic and international

performance attribution capabilities. Does your firm’s quarterly reporting package contain attribution analysis

at the total fund, asset class and investment manager level?

Cornerstone is capable of providing performance attribution on individual equity managers (both domestic and

international) as well as at the overall fund level. All of the above can be provided in our quarterly performance

package.

9. Please list and describe the specific analytical tools and/or software programs used by the firm with regard to:

- General Market & Economic Research

i. Bank Credit Analyst

ii. Bloomberg

iii. Research Foundation of CFA Institute

iv. Financial Analysts Journal

- Asset/Liability Modeling and Asset Allocation

v. Callan Associates AssetMax

- Risk Management

vi. Callan Associates AssetMax

vii. Callan Associates Performance Evaluation Program

- Public Market Investment Manager Oversight, Selection & Monitoring

viii. Callan Associates

ix. Informa

x. Morningstar

- Private Markets/Real Estate Opportunities

xi. Callan Associates

- Performance Measurement/Attribution

xii. Callan Associates

xiii. Morningstar

- Other (please specify)

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xiv. Iconics Reportworx – database management tool that produces our fully

customizable reporting suite

10. Are your performance reports and attribution analysis tools available on-line?

Yes. Cornerstone virtual vault is a secure online location for storage and easy access to client documents

including performance reports.

Selection and Retention of Investment Managers

1. Describe your experience and capabilities in conducting searches for investment managers and other

investment services.

Cornerstone uses both a quantitative and qualitative process to select managers to work on behalf of our clients.

Through twenty years of experience in manager search and selection, we have found that past performance is not

truly an indicator of future results. Instead, we look for internal stability, a good business plan and sound

investment processes when choosing a money manager.

Our process begins with a proprietary screening model that identifies investment style and analyzes a manager’s

historical returns as they compare to risk. Then, performance attribution analysis identifies managers that add

value through security selection, sector allocation and other performance-enhancing techniques. This part of the

process reduces the number of potential managers from approximately seven-thousand to three-hundred.

Next, we quantify both market and residual risk through fundamental analysis of the positions held by a manager

and risk factor assessment. This typically reduces possibilities from three-hundred to fifty.

The final step involves a visit and organizational due diligence that reviews investment processes, systems and

technology, organizational capabilities, legal and compliance reviews and personnel. This is all analyzed in the

context of an executable business plan and reduces our list of candidates to about eight or twelve firms with

which we would like to do business in each sub-style.

Our open architecture philosophy coupled with our objective evaluation process eliminates any manager bias.

2. During calendar years 2011, 2012 and 2013, what type and how many manager searches did you conduct for

clients with between $10 million and $50 million in assets for each year? How many different managers were

recommended by you for each year in each asset category?

Cornerstone conducted six major manager searches during this time period.

a. A large cap domestic value search was conducted due to a manager change. Two different managers were

hired as a result of that search.

b. A small cap domestic value search was conducted due to concerns about high turnover. A single manager

was used as a replacement.

c. A domestic fixed income search was conducted. Two managers were selected as replacements.

d. Three searches were conducted in the liquid alternatives space. Four managers with four separate mandates

were selected.

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3. Describe your database that is used for manager searches.

- How many managers do you maintain on your manager search database?

Our database includes nearly the entire universe of investment managers totally well over 10,000. More

importantly, we have the ability to add any manager to our proprietary database. If we come across a new

manager with a certain asset class, we can immediately add them to our database and compare them against all of

the other managers within that particular asset class.

- Is your system purchased or proprietary?

Cornerstone does maintain a proprietary database of investment managers; however, the backbone of our

database is updated daily through our relationship with Callan Associates, Inc.

- How do you gather, verify, analyze and update manager information? How frequently? How many

years of performance data are on the system?

Cornerstone’s database is constantly being updated on a daily basis with both client specific and third-party

money manager data. We gather this data from several different sources which we believe is essential when

verifying its accuracy. Having relationships with multiple sources (Callan, Bloomberg, Morningstar, PSN, etc.),

gives Cornerstone the ability to cross check the information contained in our proprietary database. If any

discrepancy were to arise, we utilize all the difference data sources to triangulate its origination at which point

we can notify the appropriate parties.

- What criteria do you use in evaluating managers for inclusion in your database?

To eliminate any type of manager bias, Cornerstone allows any manager that possesses a GIPS compliant return

stream inclusion within our database.

4. What fees or other consideration do you receive from managers who wish to be maintained on your database?

Cornerstone does not charge any direct or indirect fees for inclusion in our database.

5. How do you categorize managers? List manager styles and characteristics that distinguish each style in

your classification system, and include concise definitions. How does the firm monitor consistency of style?

Each investment manager is categorized and placed into a specific investment style based on the manager’s

investment strategy and philosophy. Based on those two factors, we are able to place each investment manager

in a peer group that consists of other managers who implement a similar investment style. On a quarterly basis,

we evaluate the manager’s style by looking at each of the individual holdings as well as the holding’s individual

weights within the portfolio. This creates a way for us to plot the manager’s overall portfolio style so that we

may compare it to the broad market.

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6. Describe the firm’s methodology and sources of data for analyzing and evaluating a potential manager’s

performance. Discuss benchmarks and comparisons with other managers. How is risk factored into this

analysis? How do you verify investment manager information such as performance history and their

compliance with CFA Institute performance reporting standards?

As mentioned above, Cornerstone subscribes to industry wide databases in order to gather CFA Institute

compliant data streams. If a firm is unable to provide CFA Institute compliant and verified returns they are

dropped from all searches. A manager’s mandate will determine the benchmark used during the search.

Candidate portfolios are expected to derive the majority (90% or more) of their holdings from that benchmark.

Rolling risk-adjusted statistics are analyzed for consistency and predictability given historical market conditions.

Depending on the portfolio structure and the search, a group of managers is chosen given their risk/return

profiles. From there, a thorough qualitative due diligence process is applied to the remaining candidates.

7. Describe the firm’s experience and capability for assessing an investment manager’s total performance.

Besides investment returns, what key criteria do you consider in your overall evaluation of an investment

manager?

Cornerstone’s manager selection and monitoring is driven by quantitative and qualitative analysis that is

specifically laid out within the investment policy statement. Our quantitative analysis is very different from our

competitors. We do not look solely at whether the manager has beaten the benchmark or peer group over certain

time periods. We feel the most important criterion is a manager's risk-adjusted return as measured by the Sharpe,

Information and Sortino Ratios. In addition, using our knowledge of the type of management philosophy they

employ, we evaluate whether the return stream was expected or not given the current market environment. In

other words, we would expect a low-risk manager to underperform his benchmark in an up market but preserve

value better in a down market. Likewise, we would expect a higher risk manager to outperform in an up market

and underperform in a down market. When this does not happen, additional levels of due diligence are required.

8. Describe the firm’s process for monitoring managers and notifying clients of developments at management

firms. Provide one (1) example of a written recommendation to hire, and one (1) recommendation to

terminate a manager that you have made within the last twelve (12) months as Exhibit H. Include copies of

supporting documentation you provided to your client.

Cornerstone has systems in place to monitor managers daily. In addition to our risk and performance

capabilities, we monitor changes in personnel as well as firm and product asset flows. Any changes in

management are emailed to our analysts via two automated systems, Callan for separate accounts and

Morningstar for mutual funds. Significant flows are flagged monthly, generally 10% of assets or greater.

Please see Exhibit H for hiring and termination pieces.

Other Information

1. Describe your firm’s capabilities in providing educational opportunities for board members and staff. Provide

a sample of educational materials developed as Exhibit I.

With all new clients, Cornerstone will conduct a fiduciary review of the investment plan and its procedures. A

SAFE analysis is attached in the exhibits. The investment world is a dynamic space where constant education is

24

required. Our goal is to set aside time at each meeting to introduce concepts, both new and old to the committee.

2. How does your firm evaluate the quality of its consulting services? Describe any benchmarks the firm has

developed to evaluate its performance and the performance of its primary/lead consultants.

Cornerstone evaluates overall portfolio performance against a national database of similar portfolios, in this case,

municipal pension plans under $100MM. In the same way our managers are evaluated, we track and monitor our

performance, risk, and risk-adjusted performance against applicable benchmarks and peer groups.

3. Provide a yardstick, benchmark, measurement methodology or other technique that a public fund plan sponsor

might use for ongoing quantitative and qualitative evaluation of a full service consultant.

As mentioned above, using a peer group of similarly sized pension plans is a starting point. A median

benchmark for the group along with a portfolio specific benchmark would complement the analysis. Overall

portfolio returns, levels of risk, and risk-adjusted returns should all be measured versus these benchmarks and

peer groups. From a qualitative standpoint, we believe a formal assessment of our performance should be done

by the Board and reviewed at least annually.

4. Describe your emergency preparedness and backup office/computer system plans. Have you ever had to

activate any parts the plan? If so, describe the effectiveness of the plan and any post-activity modifications to

that plan.

Please see Section VI our Business Continuity Plan

5. Describe how the firm implements and uses the latest technology, and how such technology adds value to the

firm’s clients. What internet technology do you provide to your clients?

Cornerstone leverages technology in almost everything we do, from reporting, to conducting manager research,

to monitoring portfolios in real-time, to our phone systems. The speed, efficiency, and accuracy that results from

using technology is passed directly through to our client base. Cornerstone clients have full access to all of our

technology. Some items where they interface directly are our secured web vault for documentation and review

materials. Our monthly flash report emails, web-based meetings, and meeting minutes that are electronically

recorded.

6. List the frequency or schedule of specific services that will be provided under your proposed fee.

Please refer to our list of services below for schedules and frequency of specific services.

Fees

1. What are your standard fees for providing investment consulting services? Include separate schedules for any

item in the Services Requested that is not covered under your standard fee arrangement.

Cornerstone is offering a full-service consulting relationship for Northern York County Regional Police Pension

Fund where we would charge all-inclusive asset based fee of 30 basis points (.30%). This fee would be assessed

on the total value of the assets billed either in arrears or in advance depending on the custodial relationship.

25

Outside of extenuating circumstances, Cornerstone reviews fees at contract expiration. Over the past three years,

less than three percent of our clients experienced a fee increase. Cornerstone will guarantee our fee for the

duration of the contract. Our fee is for full retainer services which include the following:

FIDUCIARY SERVICES

Investment Policy Management – The first step in our process involves sitting down the staff and committee

for the client to put together the governing document for all parties that meets legal, moral and best practices

criteria.

Development and Ongoing Monitoring of Investment Policy Statement

Roles & Responsibilities Definitions

Asset Allocation Development

Portfolio Structure Analysis

Monitoring Criteria for Investment Options

Benchmark and Peer Group Development

Asset Management Services – We can serve with discretion (i.e. having day-to-day decision making) or

without. The trend across the industry is for fiduciaries to give an investment manager discretion and then to

monitor the results against the goals outlined in the Investment Policy Statement.

Named Fiduciary Status with all Powers and Responsibilities Described under Applicable

Law (Florida UMIFA)

Discretionary Management

Selection and Termination of Investment Options

Transition Management

Asset Allocation Implementation

Monitoring Cash Flows and Rebalancing

Strategic Allocation Utilizing Macroeconomic Overlay

Quantitative and Qualitative Manager Benchmarking

Performance Monitoring – Our performance monitoring involves gathering daily values and transactions for

each client and providing reporting that is highly customizable to the needs of each individual client. Our “base”

reporting package is built to provide our clients with the information necessary to monitor our performance, but

this can be supplemented with various other risk, return and peer group information.

Monthly Flash Reports

Quarterly Investment Reports versus Benchmarks and Peer Groups

Fund and Manager Level Performance Reporting

Risk Assessment

Risk-Adjusted Return Monitoring

On Demand and Custom Reporting

Risk Assessment – Besides the risk inherent in any financial investments, fiduciaries are also tasked with

making sure that the operational risks are assessed and managed. We have a long history of working with clients

to mitigate these risks.

Asset Allocation Modeling

Trade Execution Review

Liquidity Monitoring

Vendor Risk Due Diligence

26

NON-FIDUCIARY SERVICES

Service Provider Services – We work with our clients to review all of their service providers, the fees and

appropriateness of those service providers’ continuing participation in the investment solution. We also update

any dated agreements and clarify any roles and responsibilities with those providers.

Current Service Provider Due Diligence

Provider Agreement Review

Service Provider Search and Selection

Leadership Training – With nine AIFs® on staff, we develop fiduciary training programs for our clients. This

training is not a one-time event, rather ongoing and with changes to the participants, new training is scheduled.

Fiduciary Training

Initial

Ongoing

Fiduciary Compliance Monitoring

Vendor Fees – We provide fee benchmarking, monitoring and negotiation of fees for all of our clients.

Fee Benchmarking

Negotiating Fees

Monitoring of Fees

Other Services – Unlike many consulting firms, we add value by serving as an interface and problem solver for

the daily, quarterly and annual accounting and audit needs of our clients. Acting as an intermediary on behalf of

our clients helps them focus on the myriad of other duties they have.

Accounting Support

Audit Support

Problem Resolution Support

Intermediary Services with Vendors

A la Carte Services – We provide the following services on an as-needed basis for our clients. We partner with

experts in various areas to bring experience and a high level of client service for the services outlined below.

Non-Liquid Alternative Investment Search and Selection

Legal Support

Asset/Liability Studies

Section III - Exhibit A

Organizational Chart


30+ Professional Designations including:

• Accredited InvestmentFiduciary

• Certified EmployeeBenefits Specialist

• Certified FinancialPlanner

• Chartered FinancialAnalyst

• Certified RetirementPlan Specialist

• Chartered FinancialConsultant

• Chartered LifeUnderwriter

Thought Leadership & Client Service

Consultants

•Malcolm L. “Skip” CowenPresident

•Thomas J. ScaliciChief Executive Officer

•Tiffany A. GilbertSenior Consultant

•Christopher W. LakatoshSenior Consultant

•Brian D. BobeckSenior Consultant

•Tyler J. PapazSenior Consultant

•Michael M. StraubelConsultant

Client Service

•Rita D. MillerInvestment OperationsSupervisor

•Jessica M. LongInvestment OperationsAdministrator

•Angela N. SmolczynskiConsultant & MarketingManager

•Michelle D. JohnsonClient Account Manager

•Chris G. DerocherClient Account Manager

Investment Analysts

•Kevin Karpuk, CFAChief Investment Officer

•Ryan D. Wood, CFASenior InvestmentAnalyst

•Trevor M. Reid, CFASenior InvestmentAnalyst

•Whitney R. BatesAnalyst

Core Services

•Christopher J. McKinleyDirector of Technology

•Donna M. HumphreyChief Compliance Officer

•William M. SoberickBusiness DevelopmentAssociate

•Parag S. Joshi, CPAStaff Accountant

•Kim M. CottrellExecutive Assistant

•Katie L. KaplanStrategic Assistant

•Suzelle E. OlmosOffice Administrator

•Ashley M. HoffmanAdministrative Assistant

Section III - Exhibit B

Form ADV I and II


FORM ADV

UNIFORM APPLICATION FOR INVESTMENT ADVISER REGISTRATION AND REPORT BY EXEMPT REPORTING ADVISERS

Primary Business Name: CORNERSTONE INSTITUTIONAL

INVESTORS, INC.

CRD Number: 44664

Other-Than-Annual Amendment - All Sections Rev. 10/2012

4/8/2014 2:15:30 PM

WARNING: Complete this form truthfully. False statements or omissions may result in denial of your application, revocation of your registration, or criminal prosecution. You must keep this form updated by filing periodic amendments. See Form ADV General Instruction 4.

Item 1 Identifying Information

Responses to this Item tell us who you are, where you are doing business, and how we can contact you.

A. Your full legal name (if you are a sole proprietor, your last, first, and middle names): CORNERSTONE INSTITUTIONAL INVESTORS, INC.

B. Name under which you primarily conduct your advisory business, if different from Item 1.A.:CORNERSTONE INSTITUTIONAL INVESTORS, INC.

List on Section 1.B. of Schedule DSection 1.B. of Schedule D any additional names under which you conduct your advisory business.

C. If this filing is reporting a change in your legal name (Item 1.A.) or primary business name (Item 1.B.), enter the new name and specify whether the name change is of

your legal name or your primary business name:

D. (1) If you are registered with the SEC as an investment adviser, your SEC file number: 801-63342(2) If you report to the SEC as an exempt reporting adviser, your SEC file number:

E. If you have a number ("CRD Number") assigned by the FINRA's CRD system or by the IARD system, your CRD number: 44664

If your firm does not have a CRD number, skip this Item 1.E. Do not provide the CRD number of one of your officers, employees, or affiliates.

F. Principal Office and Place of Business(1) Address (do not use a P.O. Box):

Number and Street 1:74 WEST BROAD STREET

Number and Street 2:SUITE 340

City:BETHLEHEM

State:Pennsylvania

Country:UNITED STATES

ZIP+4/Postal Code:18018

If this address is a private residence, check this box:

Page 1 of 40IARD - All Sections [User Name: longjessica8, OrgID: 44664]

10/1/2014https://crd.finra.org/Iad/Content/PrintHist/Adv/Sections/crd_iad_AdvAllSections.aspx?Ref...

List on Section 1.F. of Schedule DSection 1.F. of Schedule D any office, other than your principal office and place of business, at which you conduct investment advisory business. If you are applying for registration, or are registered, with one or more state securities authorities, you must list all of your offices in the state or states to which you are applying for registration or with whom you are registered. If you are applying for SEC registration, if you are registered only with the SEC, or if you are reporting to the SEC as an exempt reporting adviser, list the largest five offices in terms of numbers of employees.

(2) Days of week that you normally conduct business at your principal office and place of business:

Monday - Friday Other: Normal business hours at this location:8:30 AM - 5:00 PM

(3) Telephone number at this location:610-694-0900

(4) Facsimile number at this location: 610-867-8614

G. Mailing address, if different from your principal office and place of business address:

Number and Street 1: Number and Street 2:City: State: Country: ZIP+4/Postal Code:

If this address is a private residence, check this box:

H. If you are a sole proprietor, state your full residence address, if different from your principal office and place of business address in Item 1.F.:

Number and Street 1: Number and Street 2:City: State: Country: ZIP+4/Postal Code:

Yes NoI. Do you have one or more websites?

If "yes," list all website addresses on Section 1.I. of Schedule DSection 1.I. of Schedule D. If a website address serves as a portal through which to access other information you have published on the web, you may list the portal without listing addresses for all of the other information. Some advisers may need to list more than one portal address. Do not provide individual electronic mail (e-mail) addresses in response to this Item.

J. Provide the name and contact information of your Chief Compliance Officer: If you are an exempt reporting adviser, you must provide the contact information for your Chief Compliance Officer, if you have one. If not, you must complete Item 1.K. below.

Name:DONNA M. HUMPHREY

Other titles, if any:CHIEF COMPLIANCE OFFICER

Telephone number: 610-694-0900

Facsimile number:610-867-8614



City:BETHLEHEM

State:Pennsylvania





Electronic mail (e-mail) address, if Chief Compliance Officer has one:[email protected]

K. Additional Regulatory Contact Person: If a person other than the Chief Compliance Officer is authorized to receive information and respond to questions about this Form ADV, you may provide that information here.

Name:KEVIN KARPUK

Titles:CHIEF INVESTMENT OFFICER

Telephone number: 610-694-0900

Facsimile number:610-867-8614



City:BETHLEHEM

State:Pennsylvania



Electronic mail (e-mail) address, if contact person has one:[email protected]

Yes NoL. Do you maintain some or all of the books and records you are required to keep under

Section 204 of the Advisers Act, or similar state law, somewhere other than your principal office and place of business?

If "yes," complete Section 1.L. of Schedule DSection 1.L. of Schedule D. Yes No

M. Are you registered with a foreign financial regulatory authority?

Answer "no" if you are not registered with a foreign financial regulatory authority, even if you have an affiliate that is registered with a foreign financial regulatory authority. If "yes," complete Section Section 1.M. of Schedule D1.M. of Schedule D.

Yes NoN. Are you a public reporting company under Sections 12 or 15(d) of the Securities Exchange

Act of 1934? If "yes," provide your CIK number (Central Index Key number that the SEC assigns to each public reporting company):

Yes NoO. Did you have $1 billion or more in assets on the last day of your most recent fiscal year?

P. Provide your Legal Entity Identifier if you have one:

A legal entity identifier is a unique number that companies use to identify each other in the financial marketplace. In the first half of 2011, the legal entity identifier standard was still in development. You may not have a legal entity identifier.



SECTION 1.B. Other Business Names

No Information Filed

SECTION 1.F. Other Offices


SECTION 1.I. Website Addresses

List your website addresses. You must complete a separate Schedule D Section 1.I. for each website address.

Website Address: HTTP://WWW.CORNERSTONE-COMPANIES.COM

SECTION 1.L. Location of Books and Records


SECTION 1.M. Registration with Foreign Financial Regulatory Authorities




Item 2 SEC Registration/Reporting

Responses to this Item help us (and you) determine whether you are eligible to register with the SEC. Complete this Item 2.A. only if you are applying for SEC registration or submitting an annual updating amendment to your SEC registration.

A. To register (or remain registered) with the SEC, you must check at least one of the Items 2.A.(1) through 2.A.(12), below. If you are submitting an annual updating amendment to your SEC registration and you are no longer eligible to register with the SEC, check Item 2.A.(13). Part 1A Part 1A Instruction 2Instruction 2 provides information to help you determine whether you may affirmatively respond to each of these items. You (the adviser):

(1) are a large advisory firm that either:

(a) has regulatory assets under management of $100 million (in U.S. dollars) or more, or

(b) has regulatory assets under management of $90 million (in U.S. dollars) or more at the time of filing its most recent annual updating amendment and is registered with the SEC;

(2) are a mid-sized advisory firm that has regulatory assets under management of $25 million (in U.S. dollars) or more but less than $100 million (in U.S. dollars) and you are either:

(a) not required to be registered as an adviser with the state securities authority of the state where you maintain your principal office and place of business, or

(b) not subject to examination by the state securities authority of the state where you maintain your principal office and place of business;

Click HEREHERE for a list of states in which an investment adviser, if registered, would not be subject to examination by the state securities authority.

(3) have your principal office and place of businessin Wyoming (which does not regulate advisers);

(4) have your principal office and place of businessoutside the United States;

(5) are an investment adviser (or sub-adviser) to an investment company registered under the Investment Company Act of 1940;

(6) are an investment adviser to a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940 and has not withdrawn the election, and you have at least $25 million of regulatory assets under management;

(7) are a pension consultant with respect to assets of plans having an aggregate value of at least $200,000,000 that qualifies for the exemption in rule 203A-2(a);

(8) are a related adviser under rule 203A-2(b) that controls, is controlled by, or is under common control with, an investment adviser that is registered with the SEC, and your principal office and place of business is the same as the registered adviser;

If you check this box, complete Section 2.A.(8) of Schedule Section 2.A.(8) of Schedule D.D.

(9) are a newly formed adviser relying on rule 203A-2(c) because you expect to be eligible for SEC registration within 120 days;




(10) are a multi-state adviser that is required to register in 15 or more states and is relying on rule 203A-2(d);


(11) are an Internet adviser relying on rule 203A-2(e);

(12) have received an SEC order exempting you from the prohibition against registration with the SEC;


(13) are no longer eligible to remain registered with the SEC.

State Securities AuthorityNotice Filings and State Reporting by Exempt Reporting AdvisersC. Under state laws, SEC-registered advisers may be required to provide to state securities authorities

a copy of the Form ADV and any amendments they file with the SEC. These are called notice filings. In addition, exempt reporting advisers may be required to provide state securities authorities with a copy of reports and any amendments they file with the SEC. If this is an initial application or report, check the box(es) next to the state(s) that you would like to receive notice of this and all subsequent filings or reports you submit to the SEC. If this is an amendment to direct your notice filings or reports to additional state(s), check the box(es) next to the state(s) that you would like to receive notice of this and all subsequent filings or reports you submit to the SEC. If this is an amendment to your registration to stop your notice filings or reports from going to state(s) that currently receive them, uncheck the box(es) next to those state(s).

Jurisdictions

ALAKAZARCACOCTDEDCFLGAGUHI

IDILINIAKSKYLAMEMDMAMIMNMS

MOMTNENVNHNJNMNYNCNDOHOKOR

PAPRRISCSDTNTXUTVTVIVAWAWVWI

If you are amending your registration to stop your notice filings or reports from going to a state that currently receives them and you do not want to pay that state's notice filing or report filing fee for the coming year, your amendment must be filed before the end of the year (December 31).

SECTION 2.A.(8) Related Adviser



If you are relying on the exemption in rule 203A-2(b) from the prohibition on registration because you control, are controlled by, or are under common control with an investment adviser that is registered with the SEC and your principal office and place of business is the same as that of the registered adviser, provide the following information:

Name of Registered Investment Adviser

CRD Number of Registered Investment Adviser

SEC Number of Registered Investment Adviser 801 -

SECTION 2.A.(9) Newly Formed AdviserIf you are relying on rule 203A-2(c), the newly formed adviser exemption from the prohibition on registration, you are required to make certain representations about your eligibility for SEC registration. By checking the appropriate boxes, you will be deemed to have made the required representations. You must make both of these representations:

I am not registered or required to be registered with the SEC or a state securities authority and I have a reasonable expectation that I will be eligible to register with the SEC within 120 days after the date my registration with the SEC becomes effective. I undertake to withdraw from SEC registration if, on the 120th day after my registration with the SEC becomes effective, I would be prohibited by Section 203A(a) of the Advisers Act from registering with the SEC.

SECTION 2.A.(10) Multi-State AdviserIf you are relying on rule 203A-2(d), the multi-state adviser exemption from the prohibition on registration, you are required to make certain representations about your eligibility for SEC registration. By checking the appropriate boxes, you will be deemed to have made the required representations.

If you are applying for registration as an investment adviser with the SEC, you must make both of these representations:

I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of 15 or more states to register as an investment adviser with the state securities authorities in those states. I undertake to withdraw from SEC registration if I file an amendment to this registration indicating that I would be required by the laws of fewer than 15 states to register as an investment adviser with the state securities authorities of those states.

If you are submitting your annual updating amendment, you must make this representation: Within 90 days prior to the date of filing this amendment, I have reviewed the applicable state and federal laws and have concluded that I am required by the laws of at least 15 states to register as an investment adviser with the state securities authorities in those states.

SECTION 2.A.(12) SEC Exemptive Order



If you are relying upon an SEC order exempting you from the prohibition on registration, provide the following information:

Application Number: 803-

Date of order:



Item 3 Form of OrganizationA. How are you organized?

Corporation

Sole Proprietorship

Limited Liability Partnership (LLP)

Partnership

Limited Liability Company (LLC)

Limited Partnership (LP)

Other (specify):

If you are changing your response to this Item, see Part 1A Instruction 4Part 1A Instruction 4.

B. In what month does your fiscal year end each year? DECEMBER

C. Under the laws of what state or country are you organized? State Country Pennsylvania UNITED STATES

If you are a partnership, provide the name of the state or country under whose laws your partnership was formed. If you are a sole proprietor, provide the name of the state or country where you reside.

If you are changing your response to this Item, see Part 1A Instruction 4Part 1A Instruction 4.



Item 4 SuccessionsYes No

A. Are you, at the time of this filing, succeeding to the business of a registered investment adviser?

If "yes", complete Item 4.B. and Section 4 of Schedule DSection 4 of Schedule D.

B. Date of Succession: (MM/DD/YYYY)

If you have already reported this succession on a previous Form ADV filing, do not report the succession again. Instead, check “No.” See Part 1A Instruction 4Part 1A Instruction 4.

SECTION 4 Successions




Item 5 Information About Your Advisory Business - Employees, Clients, and Compensation

Responses to this Item help us understand your business, assist us in preparing for on-site examinations, and provide us with data we use when making regulatory policy. Part 1A Instruction 5.a.Part 1A Instruction 5.a. provides additional guidance to newly formed advisers for completing this Item 5.

Employees

If you are organized as a sole proprietorship, include yourself as an employee in your responses to Item 5.A. and Items 5.B.(1), (2), (3), (4), and (5). If an employee performs more than one function, you should count that employee in each of your responses to Items 5.B.(1), (2), (3), (4), and (5).

A. Approximately how many employees do you have? Include full- and part-time employees but do not include any clerical workers. 18

B. (1) Approximately how many of the employees reported in 5.A. perform investment advisory functions (including research)? 15

(2) Approximately how many of the employees reported in 5.A. are registered representatives of a broker-dealer? 14

(3) Approximately how many of the employees reported in 5.A. are registered with one or more state securities authorities as investment adviser representatives? 15

(4) Approximately how many of the employees reported in 5.A. are registered with one or more state securities authorities as investment adviser representatives for an investment adviser other than you? 12

(5) Approximately how many of the employees reported in 5.A. are licensed agents of an insurance company or agency? 9

(6) Approximately how many firms or other persons solicit advisory clients on your behalf? 1

In your response to Item 5.B.(6), do not count any of your employees and count a firm only once –do not count each of the firm’s employees that solicit on your behalf.

Clients

In your responses to Items 5.C. and 5.D. do not include as "clients" the investors in a private fund you advise, unless you have a separate advisory relationship with those investors.

C. (1) To approximately how many clients did you provide investment advisory services during your most recently completed fiscal year?

0 1-10 11-25

26-100



More than 100If more than 100, how many? (round to the nearest 100)200

(2) Approximately what percentage of your clients are non-United States persons? 0%

D. For purposes of this Item 5.D., the category "individuals" includes trusts, estates, and 401(k) plans and IRAs of individuals and their family members, but does not include businesses organized as sole proprietorships. The category "business development companies" consists of companies that have made an election pursuant to section 54 of the Investment Company Act of 1940. Unless you provide advisory services pursuant to an investment advisory contract to an investment company registered under the Investment Company Act of 1940, check "None" in response to Item 5.D.(1)(d) and do not check any of the boxes in response to Item 5.D.(2)(d).

(1) What types of clients do you have? Indicate the approximate percentage that each type of client comprises of your total number of clients. If a client fits into more than one category, check all that apply.

None Up to 10%

11-25%

26-50%

51-75%

76-99% 100%

(a) Individuals (other than high net worth individuals)

(b) High net worth individuals

(c) Banking or thrift institutions

(d) Investment companies

(e) Business development companies

(f) Pooled investment vehicles (other than investment companies)

(g) Pension and profit sharing plans (but not the plan participants)

(h) Charitable organizations

(i) Corporations or other businesses not listed above

(j) State or municipal government entities

(k) Other investment advisers

(l) Insurance companies

(m) Other:

(2) Indicate the approximate amount of your regulatory assets under management (reported in Item 5.F. below) attributable to each of the following type of client. If a client fits into more than one category, check all that apply.

None Up to 25%

Up to 50%

Up to 75% >75%

(a)



Individuals (other than high net worth individuals)

(b) High net worth individuals

(c) Banking or thrift institutions

(d) Investment companies

(e) Business development companies

(f) Pooled investment vehicles (other than investment companies)

(g) Pension and profit sharing plans (but not the plan participants)

(h) Charitable organizations

(i) Corporations or other businesses not listed above

(j) State or municipal government entities

(k) Other investment advisers

(l) Insurance companies

(m) Other:

Compensation ArrangementsE. You are compensated for your investment advisory services by (check all that apply):

(1) A percentage of assets under your management(2) Hourly charges(3) Subscription fees (for a newsletter or periodical)(4) Fixed fees (other than subscription fees)(5) Commissions(6) Performance-based fees(7) Other (specify):

Item 5 Information About Your Advisory Business - Regulatory Assets Under ManagementRegulatory Assets Under Management

Yes NoF. (1) Do you provide continuous and regular supervisory or management services to

securities portfolios? (2) If yes, what is the amount of your regulatory assets under management and total number of

accounts?U.S. Dollar Amount Total Number of Accounts

Discretionary: (a) $ 169,484,971 (d) 394Non-Discretionary: (b) $ 364,416,476 (e) 61Total: (c) $ 533,901,447 (f) 455

Part 1A Instruction 5.b.Part 1A Instruction 5.b. explains how to calculate your regulatory assets under management. You must follow these instructions carefully when completing this Item.



Item 5 Information About Your Advisory Business - Advisory ActivitiesAdvisory ActivitiesG. What type(s) of advisory services do you provide? Check all that apply.

(1) Financial planning services(2) Portfolio management for individuals and/or small businesses(3) Portfolio management for investment companies (as well as "business development

companies" that have made an election pursuant to section 54 of the Investment Company Act of 1940)

(4) Portfolio management for pooled investment vehicles (other than investment companies)(5) Portfolio management for businesses (other than small businesses) or institutional clients

(other than registered investment companies and other pooled investment vehicles) (6) Pension consulting services(7) Selection of other advisers (including private fund managers) (8) Publication of periodicals or newsletters(9) Security ratings or pricing services(10) Market timing services(11) Educational seminars/workshops(12) Other(specify):

Do not check Item 5.G.(3) unless you provide advisory services pursuant to an investment advisory contract to an investment company registered under the Investment Company Act of 1940, including as a subadviser. If you check Item 5.G.(3), report the 811 or 814 number of the investment company or investment companies to which you provide advice in Section 5.G.(3) of Schedule DSection 5.G.(3) of Schedule D.

H. If you provide financial planning services, to how many clients did you provide these services during your last fiscal year?

0

1 - 10

11 - 25

26 - 50

51 - 100

101 - 250

251 - 500

More than 500

If more than 500, how many?(round to the nearest 500)

In your responses to this Item 5.H., do not include as "clients" the investors in a private fund you advise, unless you have a separate advisory relationship with those investors.

I. If you participate in a wrap fee program, do you (check all that apply): (1) sponsor the wrap fee program? (2) act as a portfolio manager for the wrap fee program?



If you are a portfolio manager for a wrap fee program, list the names of the programs and their sponsors in Section 5.I.(2) of Schedule DSection 5.I.(2) of Schedule D.

If your involvement in a wrap fee program is limited to recommending wrap fee programs to your clients, or you advise a mutual fund that is offered through a wrap fee program, do not check either Item 5.I.(1) or 5.I.(2).

Yes NoJ. In response to Item 4.B. of Part 2A of Form ADV, do you indicate that you provide

investment advice only with respect to limited types of investments?

SECTION 5.G.(3) Advisers to Registered Investment Companies and Business Development Companies


SECTION 5.I.(2) Wrap Fee Programs




Item 6 Other Business Activities

In this Item, we request information about your firm's other business activities.

A. You are actively engaged in business as a (check all that apply): (1) broker-dealer (registered or unregistered)(2) registered representative of a broker-dealer(3) commodity pool operator or commodity trading advisor (whether registered or exempt

from registration)(4) futures commission merchant(5) real estate broker, dealer, or agent(6) insurance broker or agent(7) bank (including a separately identifiable department or division of a bank)(8) trust company(9) registered municipal advisor(10) registered security-based swap dealer(11) major security-based swap participant(12) accountant or accounting firm(13) lawyer or law firm(14) other financial product salesperson (specify):

If you engage in other business using a name that is different from the names reported in Items 1.A. or 1.B, complete Section 6.A. of Schedule DSection 6.A. of Schedule D.

Yes NoB. (1) Are you actively engaged in any other business not listed in Item 6.A. (other than

giving investment advice)? (2) If yes, is this other business your primary business?

If "yes," describe this other business on Section 6.B.(2) of Schedule DSection 6.B.(2) of Schedule D, and if you engage in this business under a different name, provide that name.

Yes No(3) Do you sell products or provide services other than investment advice to your advisory

clients?

If "yes," describe this other business on Section 6.B.(3) of Schedule DSection 6.B.(3) of Schedule D, and if you engage in this business under a different name, provide that name.

SECTION 6.A. Names of Your Other Businesses


SECTION 6.B.(2) Description of Primary BusinessDescribe your primary business (not your investment advisory business):

If you engage in that business under a different name, provide that name:



SECTION 6.B.(3) Description of Other Products and ServicesDescribe other products or services you sell to your client, You may omit products and services that you listed in Section 6.B.(2) above. OTHER SERVICES FOR OUR RETIREMENT PLANNING CLIENTS INCLUDE, RUNNING RFP'S, MERGER AND ACQUISITION CONSULTING, FEE BENCHMARKING, TRANSITION MANAGEMENT, FIDUCIARY REVIEWS AND CUSTOM COMMUNICATIONS PROGRAMS

If you engage in that business under a different name, provide that name.



Item 7 Financial Industry Affiliations

In this Item, we request information about your financial industry affiliations and activities. This information identifies areas in which conflicts of interest may occur between you and your clients.

A. This part of Item 7 requires you to provide information about you and your related persons, including foreign affiliates. Your related persons are all of your advisory affiliates and any person that is under common control with you. You have a related person that is a (check all that apply):

(1) broker-dealer, municipal securities dealer, or government securities broker or dealer (registered or unregistered)

(2) other investment adviser (including financial planners)(3) registered municipal advisor(4) registered security-based swap dealer(5) major security-based swap participant(6) commodity pool operator or commodity trading advisor (whether registered or exempt

from registration)(7) futures commission merchant(8) banking or thrift institution(9) trust company (10) accountant or accounting firm(11) lawyer or law firm(12) insurance company or agency(13) pension consultant(14) real estate broker or dealer(15) sponsor or syndicator of limited partnerships (or equivalent), excluding pooled

investment vehicles(16) sponsor, general partner, managing member (or equivalent) of pooled investment

vehicles

For each related person, including foreign affiliates that may not be registered or required to be registered in the United States, complete Section 7.A. of Schedule DSection 7.A. of Schedule D.

You do not need to complete Section 7.A. of Schedule D for any related person if: (1) you have no business dealings with the related person in connection with advisory services you provide to your clients; (2) you do not conduct shared operations with the related person; (3) you do not refer clients or business to the related person, and the related person does not refer prospective clientsor business to you; (4) you do not share supervised persons or premises with the related person; and (5) you have no reason to believe that your relationship with the related person otherwise creates a conflict of interest with your clients.

You must complete Section 7.A. of Schedule DSection 7.A. of Schedule D for each related person acting as qualified custodian in connection with advisory services you provide to your clients (other than any mutual fund transfer agent pursuant to rule 206(4)-2(b)(1)), regardless of whether you have determined the related person to be operationally independent under rule 206(4)-2 of the Advisers Act.

SECTION 7.A. Financial Industry Affiliations

Complete a separate Schedule D Section 7.A. for each related person listed in Item 7.A.



1. Legal Name of Related Person: CORNERSTONE ADVISORS ASSET MANAGEMENT INC.

2. Primary Business Name of Related Person: CORNERSTONE ADVISORS ASSET MANAGEMENT INC.

3. Related Person's SEC File Number (if any) (e.g., 801-, 8-, 866-, 802-) 801 - 65091or Other

4. Related Person's CRD Number (if any):138638

5. Related Person is: (check all that apply) (a) broker-dealer, municipal securities dealer, or government securities broker or dealer (b) other investment adviser (including financial planners) (c) registered municipal advisor (d) registered security-based swap dealer (e) major security-based swap participant (f) commodity pool operator or commodity trading advisor (whether registered or exempt

from registration) (g) futures commission merchant (h) banking or thrift institution (i) trust company (j) accountant or accounting firm (k) lawyer or law firm (l) insurance company or agency (m) pension consultant (n) real estate broker or dealer (o) sponsor or syndicator of limited partnerships (or equivalent), excluding pooled investment

vehicles (p) sponsor, general partner, managing member (or equivalent) of pooled investment vehicles

Yes No6. Do you control or are you controlled by the related person?

7. Are you and the related person under common control?

8. (a) Does the related person act as a qualified custodian for your clients in connection with advisory services you provide to clients?

(b) If you are registering or registered with the SEC and you have answered “yes,” to question 8(a) above, have you overcome the presumption that you are not operationally independent (pursuant to rule 206(4)-(2)(d)(5)) from the related person and thus are not required to obtain a surprise examination for your clients' funds or securities that are maintained at the related person?

(c)



If you have answered "yes" to question 8.(a) above, provide the location of the related person's office responsible for custody of your clients' assets: Number and Street 1: Number and Street 2:City: State: Country: ZIP+4/Postal Code:If this address is a private residence, check this box:

Yes No9. (a) If the related person is an investment adviser, is it exempt from registration?

(b) If the answer is yes, under what exemption?

10. (a) Is the related person registered with a foreign financial regulatory authority ?

(b) If the answer is yes, list the name and country, in English, of each foreign financial regulatory authority with which the related person is registered.


11. Do you and the related person share any supervised persons?

12. Do you and the related person share the same physical location?

Item 7 Private Fund Reporting

Yes No

B. Are you an adviser to any private fund?

If "yes," then for each private fund that you advise, you must complete a Section 7.B.(1) of Schedule Section 7.B.(1) of Schedule DD, except in certain circumstances described in the next sentence and in Instruction 6 of the Instructions to Part 1AInstructions to Part 1A. If another adviser reports this information with respect to any such private fund in Section 7.B.(1) of Schedule D of its Form ADV (e.g., if you are a subadviser), do not complete Section 7.B.(1) of Schedule D with respect to that private fund. You must, instead, complete Section Section 7.B.(2) of Schedule D7.B.(2) of Schedule D.

In either case, if you seek to preserve the anonymity of a private fund client by maintaining its identity in your books and records in numerical or alphabetical code, or similar designation, pursuant to rule 204-2(d), you may identify the private fund in Section 7.B.(1) or 7.B.(2) of Schedule D using the same code or designation in place of the fund's name.

SECTION 7.B.(1) Private Fund Reporting


SECTION 7.B.(2) Private Fund Reporting




of 40IARD - All Sections [User Name: longjessica8, OrgID: 44664]


Item 8 Participation or Interest in Client Transactions

In this Item, we request information about your participation and interest in your clients' transactions. This information identifies additional areas in which conflicts of interest may occur between you and your clients.

Like Item 7, Item 8 requires you to provide information about you and your related persons, including foreign affiliates.

Proprietary Interest in Client TransactionsA. Do you or any related person: Yes No

(1) buy securities for yourself from advisory clients, or sell securities you own to advisory clients (principal transactions)?

(2) buy or sell for yourself securities (other than shares of mutual funds) that you also recommend to advisory clients?

(3) recommend securities (or other investment products) to advisory clients in which you or any related person has some other proprietary (ownership) interest (other than those mentioned in Items 8.A.(1) or (2))?

Sales Interest in Client TransactionsB. Do you or any related person: Yes No

(1) as a broker-dealer or registered representative of a broker-dealer, execute securities trades for brokerage customers in which advisory client securities are sold to or bought from the brokerage customer (agency cross transactions)?

(2) recommend purchase of securities to advisory clients for which you or any related person serves as underwriter, general or managing partner, or purchaser representative?

(3) recommend purchase or sale of securities to advisory clients for which you or any related person has any other sales interest (other than the receipt of sales commissions as a broker or registered representative of a broker-dealer)?

Investment or Brokerage DiscretionC. Do you or any related person have discretionary authority to determine the: Yes No

(1) securities to be bought or sold for a client's account?

(2) amount of securities to be bought or sold for a client's account?

(3) broker or dealer to be used for a purchase or sale of securities for a client's account?

(4) commission rates to be paid to a broker or dealer for a client's securities transactions?

D. If you answer "yes" to C.(3) above, are any of the brokers or dealers related persons?

E. Do you or any related person recommend brokers or dealers to clients?

F. If you answer "yes" to E above, are any of the brokers or dealers related persons?

G. (1) Do you or any related person receive research or other products or services other than execution from a broker-dealer or a third party ("soft dollar benefits") in connection with client securities transactions?

(2) If "yes" to G.(1) above, are all the "soft dollar benefits" you or any related personsreceive eligible "research or brokerage services" under section 28(e) of the Securities Exchange Act of 1934?



H. Do you or any related person, directly or indirectly, compensate any person for clientreferrals?

I. Do you or any related person, directly or indirectly, receive compensation from any personfor client referrals?

In responding to Items 8.H and 8.I., consider all cash and non-cash compensation that you or a related person gave to (in answering Item 8.H) or received from (in answering Item 8.I) any personin exchange for client referrals, including any bonus that is based, at least in part, on the number or amount of client referrals.



Item 9 Custody

In this Item, we ask you whether you or a related person has custody of client (other than clients that are investment companies registered under the Investment Company Act of 1940) assets and about your custodial practices.

A. (1) Do you have custody of any advisory clients': Yes No(a) cash or bank accounts?

(b) securities?

If you are registering or registered with the SEC, answer "No" to Item 9.A.(1)(a) and (b) if you have custody solely because (i) you deduct your advisory fees directly from your clients' accounts, or (ii) a related person has custody of client assets in connection with advisory services you provide to clients, but you have overcome the presumption that you are not operationally independent (pursuant to Advisers Act rule 206(4)-(2)(d)(5)) from the related person.

(2) If you checked "yes" to Item 9.A.(1)(a) or (b), what is the approximate amount of client funds and securities and total number of clients for which you have custody:

U.S. Dollar Amount Total Number of Clients(a) $ (b)

If you are registering or registered with the SEC and you have custody solely because you deduct your advisory fees directly from your clients’accounts, do not include the amount of those assets and the number of those clients in your response to Item 9.A.(2). If your related person has custody of client assets in connection with advisory services you provide to clients, do not include the amount of those assets and number of those clients in your response to 9.A.(2). Instead, include that information in your response to Item 9.B.(2).

B. (1) In connection with advisory services you provide to clients, do any of your related persons have custody of any of your advisory clients':

Yes No

(a) cash or bank accounts?

(b) securities?

You are required to answer this item regardless of how you answered Item 9.A.(1)(a) or (b).

(2) If you checked "yes" to Item 9.B.(1)(a) or (b), what is the approximate amount of client funds and securities and total number of clients for which your related persons have custody:

U.S. Dollar Amount Total Number of Clients(a) $ (b)

C. If you or your related persons have custody of client funds or securities in connection with advisory services you provide to clients, check all the following that apply: (1) A qualified custodian(s) sends account statements at least quarterly to the investors in

the pooled investment vehicle(s) you manage.(2) An independent public accountant audits annually the pooled investment vehicle(s) that

you manage and the audited financial statements are distributed to the investors in the pools.

(3)



An independent public accountant conducts an annual surprise examination of clientfunds and securities.

(4) An independent public accountant prepares an internal control report with respect to custodial services when you or your related persons are qualified custodians for clientfunds and securities.

If you checked Item 9.C.(2), C.(3) or C.(4), list in Section 9.C. of Schedule DSection 9.C. of Schedule D the accountants that are engaged to perform the audit or examination or prepare an internal control report. (If you checked Item 9.C.(2), you do not have to list auditor information in Section 9.C. of Schedule DSection 9.C. of Schedule D if you already provided this information with respect to the private funds you advise in Section 7.B.(1) of Section 7.B.(1) of Schedule DSchedule D).

D. Do you or your related person(s) act as qualified custodians for your clients in connection with advisory services you provide to clients?

Yes No

(1) you act as a qualified custodian

(2) your related person(s) act as qualified custodian(s)

If you checked "yes" to Item 9.D.(2), all related persons that act as qualified custodians (other than any mutual fund transfer agent pursuant to rule 206(4)-2(b)(1)) must be identified in Section 7.A. of Section 7.A. of Schedule DSchedule D, regardless of whether you have determined the related person to be operationally independent under rule 206(4)-2 of the Advisers Act.

E. If you are filing your annual updating amendment and you were subject to a surprise examination by an independent public accountant during your last fiscal year, provide the date (MM/YYYY) the examination commenced:

F. If you or your related persons have custody of client funds or securities, how many persons, including, but not limited to, you and your related persons, act as qualified custodians for your clients in connection with advisory services you provide to clients?

SECTION 9.C. Independent Public Accountant




Item 10 Control Persons

In this Item, we ask you to identify every person that, directly or indirectly, controls you.

If you are submitting an initial application or report, you must complete Schedule A and Schedule B. Schedule A asks for information about your direct owners and executive officers. Schedule B asks for information about your indirect owners. If this is an amendment and you are updating information you reported on either Schedule A or Schedule B (or both) that you filed with your initial application or report, you must complete Schedule C.

Yes NoA. Does any person not named in Item 1.A. or Schedules A, B, or C, directly or indirectly,

control your management or policies?

If yes, complete Section 10.A. of Schedule Section 10.A. of Schedule D.D.

B. If any person named in Schedules A, B, or C or in Section 10.A. of Schedule D is a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934, please complete Section 10.B. of Schedule DSection 10.B. of Schedule D.

SECTION 10.A. Control Persons


SECTION 10.B. Control Person Public Reporting Companies




Item 11 Disclosure Information

In this Item, we ask for information about your disciplinary history and the disciplinary history of all your advisory affiliates. We use this information to determine whether to grant your application for registration, to decide whether to revoke your registration or to place limitations on your activities as an investment adviser, and to identify potential problem areas to focus on during our on-site examinations. One event may result in "yes" answers to more than one of the questions below.

Your advisory affiliates are: (1) all of your current employees (other than employees performing only clerical, administrative, support or similar functions); (2) all of your officers, partners, or directors (or any person performing similar functions); and (3) all persons directly or indirectly controlling you or controlled by you. If you are a "separately identifiable department or division" (SID) of a bank, see the Glossary of Terms to determine who your advisory affiliates are.

If you are registered or registering with the SEC or if you are an exempt reporting adviser, you may limit your disclosure of any event listed in Item 11 to ten years following the date of the event. If you are registered or registering with a state, you must respond to the questions as posed; you may, therefore, limit your disclosure to ten years following the date of an event only in responding to Items 11.A.(1), 11.A.(2), 11.B.(1), 11.B.(2), 11.D.(4), and 11.H.(1)(a). For purposes of calculating this ten-year period, the date of an event is the date the final order, judgment, or decree was entered, or the date any rights of appeal from preliminary orders, judgments, or decrees lapsed.

You must complete the appropriate Disclosure Reporting Page ("DRP") for "yes" answers to the questions in this Item 11.

Yes NoDo any of the events below involve you or any of your supervised persons?

For "yes" answers to the following questions, complete a Criminal Action DRP:A. In the past ten years, have you or any advisory affiliate: Yes No

(1) been convicted of or pled guilty or nolo contendere ("no contest") in a domestic, foreign, or military court to any felony?

(2) been charged with any felony?

If you are registered or registering with the SEC, or if you are reporting as an exempt reporting adviser, you may limit your response to Item 11.A.(2) to charges that are currently pending.

B. In the past ten years, have you or any advisory affiliate:(1) been convicted of or pled guilty or nolo contendere ("no contest") in a domestic,

foreign, or military court to a misdemeanor involving: investments or an investment-related business, or any fraud, false statements, or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses?

(2) been charged with a misdemeanor listed in Item 11.B.(1)?

If you are registered or registering with the SEC, or if you are reporting as an exempt reporting adviser, you may limit your response to Item 11.B.(2) to charges that are currently pending.

For "yes" answers to the following questions, complete a Regulatory Action DRP:C. Has the SEC or the Commodity Futures Trading Commission (CFTC) ever: Yes No

(1) found you or any advisory affiliate to have made a false statement or omission?



(2) found you or any advisory affiliate to have been involved in a violation of SEC or CFTC regulations or statutes?

(3) found you or any advisory affiliate to have been a cause of an investment-relatedbusiness having its authorization to do business denied, suspended, revoked, or restricted?

(4) entered an order against you or any advisory affiliate in connection with investment-related activity?

(5) imposed a civil money penalty on you or any advisory affiliate, or ordered you or any advisory affiliate to cease and desist from any activity?

D. Has any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority:(1) ever found you or any advisory affiliate to have made a false statement or omission, or

been dishonest, unfair, or unethical?(2) ever found you or any advisory affiliate to have been involved in a violation of

investment-related regulations or statutes?(3) ever found you or any advisory affiliate to have been a cause of an investment-related

business having its authorization to do business denied, suspended, revoked, or restricted?

(4) in the past ten years, entered an order against you or any advisory affiliate in connection with an investment-related activity?

(5) ever denied, suspended, or revoked your or any advisory affiliate's registration or license, or otherwise prevented you or any advisory affiliate, by order, from associating with an investment-related business or restricted your or any advisory affiliate'sactivity?

E. Has any self-regulatory organization or commodities exchange ever:(1) found you or any advisory affiliate to have made a false statement or omission?

(2) found you or any advisory affiliate to have been involved in a violation of its rules (other than a violation designated as a "minor rule violation" under a plan approved by the SEC)?

(3) found you or any advisory affiliate to have been the cause of an investment-relatedbusiness having its authorization to do business denied, suspended, revoked, or restricted?

(4) disciplined you or any advisory affiliate by expelling or suspending you or the advisory affiliate from membership, barring or suspending you or the advisory affiliate from association with other members, or otherwise restricting your or the advisory affiliate'sactivities?

F. Has an authorization to act as an attorney, accountant, or federal contractor granted to you or any advisory affiliate ever been revoked or suspended?

G. Are you or any advisory affiliate now the subject of any regulatory proceeding that could result in a "yes" answer to any part of Item 11.C., 11.D., or 11.E.?

For "yes" answers to the following questions, complete a Civil Judicial Action DRP:H. (1) Has any domestic or foreign court: Yes No



(a) in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity?

(b) ever found that you or any advisory affiliate were involved in a violation of investment-related statutes or regulations?

(c) ever dismissed, pursuant to a settlement agreement, an investment-related civil action brought against you or any advisory affiliate by a state or foreign financial regulatory authority?

(2) Are you or any advisory affiliate now the subject of any civil proceeding that could result in a "yes" answer to any part of Item 11.H.(1)?



Item 12 Small Businesses

The SEC is required by the Regulatory Flexibility Act to consider the effect of its regulations on small entities. In order to do this, we need to determine whether you meet the definition of "small business" or "small organization" under rule 0-7.

Answer this Item 12 only if you are registered or registering with the SEC and you indicated in response to Item 5.F.(2)(c) that you have regulatory assets under management of less than $25 million. You are not required to answer this Item 12 if you are filing for initial registration as a state adviser, amending a current state registration, or switching from SEC to state registration.

For purposes of this Item 12 only:

• Total Assets refers to the total assets of a firm, rather than the assets managed on behalf of clients. In determining your or another person's total assets, you may use the total assets shown on a current balance sheet (but use total assets reported on a consolidated balance sheet with subsidiaries included, if that amount is larger).

• Control means the power to direct or cause the direction of the management or policies of a person, whether through ownership of securities, by contract, or otherwise. Any person that directly or indirectly has the right to vote 25 percent or more of the voting securities, or is entitled to 25 percent or more of the profits, of another person is presumed to control the other person.

Yes NoA. Did you have total assets of $5 million or more on the last day of your most recent fiscal

year?

If "yes," you do not need to answer Items 12.B. and 12.C.

B. Do you:(1) control another investment adviser that had regulatory assets under management

(calculated in response to Item 5.F.(2)(c) of Form ADV) of $25 million or more on the last day of its most recent fiscal year?

(2) control another person (other than a natural person) that had total assets of $5 million or more on the last day of its most recent fiscal year?

C. Are you:(1) controlled by or under common control with another investment adviser that had

regulatory assets under management (calculated in response to Item 5.F.(2)(c) of Form ADV) of $25 million or more on the last day of its most recent fiscal year?

(2) controlled by or under common control with another person (other than a natural person) that had total assets of $5 million or more on the last day of its most recent fiscal year?



Schedule A Direct Owners and Executive Officers1. Complete Schedule A only if you are submitting an initial application or report. Schedule A asks for

information about your direct owners and executive officers. Use Schedule C to amend this information.

2. Direct Owners and Executive Officers. List below the names of: (a) each Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Legal Officer,

Chief Compliance Officer(Chief Compliance Officer is required if you are registered or applying for registration and cannot be more than one individual), director, and any other individuals with similar status or functions;

(b) if you are organized as a corporation, each shareholder that is a direct owner of 5% or more of a class of your voting securities, unless you are a public reporting company (a company subject to Section 12 or 15(d) of the Exchange Act); Direct owners include any person that owns, beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 5% or more of a class of your voting securities. For purposes of this Schedule, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security.

(c) if you are organized as a partnership, all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 5% or more of your capital;

(d) in the case of a trust that directly owns 5% or more of a class of your voting securities, or that has the right to receive upon dissolution, or has contributed, 5% or more of your capital, the trust and each trustee; and

(e) if you are organized as a limited liability company ("LLC"), (i) those members that have the right to receive upon dissolution, or have contributed, 5% or more of your capital, and (ii) if managed by elected managers, all elected managers.

3. Do you have any indirect owners to be reported on Schedule B? Yes No 4. In the DE/FE/I column below, enter "DE" if the owner is a domestic entity, "FE" if the owner is an

entity incorporated or domiciled in a foreign country, or "I" if the owner or executive officer is an individual.

5. Complete the Title or Status column by entering board/management titles; status as partner, trustee, sole proprietor, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued).

6. Ownership codes are:

NA - less than 5% B - 10% but less than 25%

D - 50% but less than 75%

A - 5% but less than 10%

C - 25% but less than 50%

E - 75% or more

7. (a) In the Control Person column, enter "Yes" if the person has control as defined in the Glossary of Terms to Form ADV, and enter "No" if the person does not have control. Note that under this definition, most executive officers and all 25% owners, general partners, elected managers, and trustees are control persons.

(b) In the PR column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) of the Exchange Act.

(c) Complete each column. FULL LEGAL

NAME (Individuals: Last

DE/FE/I Status Date Status

Ownership Code

Control Person

PR CRD No. If None: S.S.

No. and Date



Name, First Name, Middle

Name)

Acquired MM/YYYY

of Birth, IRS Tax No. or

Employer ID No.

COWEN, MALCOLM, LEE

I PRESIDENT 11/1997 NA Y N 1013493

SCALICI, THOMAS, JOSEPH

I CEO 01/2000 NA Y N 1520689

HUMPHREY, DONNA, MARIE

I TREASURER/CHIEF COMPLIANCE OFFICER

01/2011 NA N N 2133971

CII HOLDING COMPANY

DE SHAREHOLDER 04/2010 E Y N 27-2203398

KARPUK, KEVIN, (NMN)

I SECRETARY/CHIEF INVESTMENT OFFICER

01/2011 NA Y N 4442939

MCKINLEY, CHRISTOPHER, JOHN

I INDIRECT SHAREHOLDER

01/2011 NA Y N 5693671



Schedule B

Indirect Owners1. Complete Schedule B only if you are submitting an initial application. Schedule B asks for information

about your indirect owners; you must first complete Schedule A, which asks for information about your direct owners. Use Schedule C to amend this information.

2. Indirect Owners. With respect to each owner listed on Schedule A (except individual owners), list below: (a) in the case of an owner that is a corporation, each of its shareholders that beneficially owns, has

the right to vote, or has the power to sell or direct the sale of, 25% or more of a class of a voting security of that corporation;

For purposes of this Schedule, a person beneficially owns any securities: (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant, or right to purchase the security.

(b) in the case of an owner that is a partnership, all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 25% or more of the partnership's capital;

(c) in the case of an owner that is a trust, the trust and each trustee; and (d) in the case of an owner that is a limited liability company ("LLC"), (i) those members that have

the right to receive upon dissolution, or have contributed, 25% or more of the LLC's capital, and (ii) if managed by elected managers, all elected managers.

3. Continue up the chain of ownership listing all 25% owners at each level. Once a public reporting company (a company subject to Sections 12 or 15(d) of the Exchange Act) is reached, no further ownership information need be given.

4. In the DE/FE/I column below, enter "DE" if the owner is a domestic entity, "FE" if the owner is an entity incorporated or domiciled in a foreign country, or "I" if the owner is an individual.

5. Complete the Status column by entering the owner's status as partner, trustee, elected manager, shareholder, or member; and for shareholders or members, the class of securities owned (if more than one is issued).

6. Ownership codes are:

C - 25% but less than 50%

E - 75% or more

D - 50% but less than 75%

F - Other (general partner, trustee, or elected manager)

7. (a) In the Control Person column, enter "Yes" if the person has control as defined in the Glossary of Terms to Form ADV, and enter "No" if the person does not have control. Note that under this definition, most executive officers and all 25% owners, general partners, elected managers, and trustees are control persons.

(b) In the PR column, enter "PR" if the owner is a public reporting company under Sections 12 or 15(d) of the Exchange Act.

(c) Complete each column.

FULL LEGAL NAME

(Individuals: Last Name, First Name,

Middle Name)

DE/FE/I Entity in Which

Interest is Owned

Status Date Status

Acquired MM/YYYY

Ownership Code

Control Person

PR CRD No. If None: S.S.

No. and Date of

Birth, IRS Tax No. or



Employer ID No.

COWEN, MALCOLM, LEE

I CII HOLDING COMPANY

OWNER/DIRECTOR 03/2010 C Y N 1013493

SCALICI, THOMAS, JOSEPH

I CII HOLDING COMPANY

OWNER/DIRECTOR 03/2010 C Y N 1520689



Schedule D - MiscellaneousYou may use the space below to explain a response to an Item or to provide any other information.



DRP Pages

CRIMINAL DISCLOSURE REPORTING PAGE (ADV)


REGULATORY ACTION DISCLOSURE REPORTING PAGE (ADV)


CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (ADV)




Part 2 Exemption from brochure delivery requirements for SEC-registered advisers

SEC rules exempt SEC-registered advisers from delivering a firm brochure to some kinds of clients. If these exemptions excuse you from delivering a brochure to all of your advisory clients, you do not have to prepare a brochure.

Yes NoAre you exempt from delivering a brochure to all of your clients under these rules?

If no, complete the ADV Part 2 filing below.

Amend, retire or file new brochures:

Brochure ID Brochure Name Brochure Type(s)

113736 ADV PART 2 BROCHURE Individuals, High net worth individuals, Pension plans/profit sharing plans, Pension consulting, Foundations/charities, Government/municipal, Other institutional, Financial Planning Services

117376 ADV PART 2 BROCHURE Individuals, High net worth individuals, Pension plans/profit sharing plans, Pension consulting, Foundations/charities, Government/municipal, Other institutional, Financial Planning Services



Execution Pages DOMESTIC INVESTMENT ADVISER EXECUTION PAGEYou must complete the following Execution Page to Form ADV. This execution page must be signed and attached to your initial submission of Form ADV to the SEC and all amendments.

Appointment of Agent for Service of Process

By signing this Form ADV Execution Page, you, the undersigned adviser, irrevocably appoint the Secretary of State or other legally designated officer, of the state in which you maintain your principal office and place of business and any other state in which you are submitting a notice filing, as your agents to receive service, and agree that such persons may accept service on your behalf, of any notice, subpoena, summons, order instituting proceedings, demand for arbitration, or other process or papers, and you further agree that such service may be made by registered or certified mail, in any federal or state action, administrative proceeding or arbitration brought against you in any place subject to the jurisdiction of the United States, if the action, proceeding, or arbitration (a) arises out of any activity in connection with your investment advisory business that is subject to the jurisdiction of the United States, and (b) is founded, directly or indirectly, upon the provisions of: (i) the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, or the Investment Advisers Act of 1940, or any rule or regulation under any of these acts, or (ii) the laws of the state in which you maintain your principal office and place of business or of any state in which you are submitting a notice filing.

Signature

I, the undersigned, sign this Form ADV on behalf of, and with the authority of, the investment adviser. The investment adviser and I both certify, under penalty of perjury under the laws of the United States of America, that the information and statements made in this ADV, including exhibits and any other information submitted, are true and correct, and that I am signing this Form ADV Execution Page as a free and voluntary act.

I certify that the adviser's books and records will be preserved and available for inspection as required by law. Finally, I authorize any person having custody or possession of these books and records to make them available to federal and state regulatory representatives.

Signature: THOMAS J SCALICI

Date: MM/DD/YYYY 04/08/2014

Printed Name:THOMAS J SCALICI

Title: CEO

Adviser CRD Number: 44664

NON-RESIDENT INVESTMENT ADVISER EXECUTION PAGEYou must complete the following Execution Page to Form ADV. This execution page must be signed and attached to your initial submission of Form ADV to the SEC and all amendments.

1. Appointment of Agent for Service of Process



By signing this Form ADV Execution Page, you, the undersigned adviser, irrevocably appoint each of the Secretary of the SEC, and the Secretary of State or other legally designated officer, of any other state in which you are submitting a notice filing, as your agents to receive service, and agree that such persons may accept service on your behalf, of any notice, subpoena, summons, order instituting proceedings, demand for arbitration, or other process or papers, and you further agree that such service may be made by registered or certified mail, in any federal or state action, administrative proceeding or arbitration brought against you in any place subject to the jurisdiction of the United States, if the action, proceeding or arbitration (a) arises out of any activity in connection with your investment advisory business that is subject to the jurisdiction of the United States, and (b) is founded, directly or indirectly, upon the provisions of: (i) the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, or the Investment Advisers Act of 1940, or any rule or regulation under any of these acts, or (ii) the laws of any state in which you are submitting a notice filing.

2. Appointment and Consent: Effect on Partnerships

If you are organized as a partnership, this irrevocable power of attorney and consent to service of process will continue in effect if any partner withdraws from or is admitted to the partnership, provided that the admission or withdrawal does not create a new partnership. If the partnership dissolves, this irrevocable power of attorney and consent shall be in effect for any action brought against you or any of your former partners.

3. Non-Resident Investment Adviser Undertaking Regarding Books and Records

By signing this Form ADV, you also agree to provide, at your own expense, to the U.S. Securities and Exchange Commission at its principal office in Washington D.C., at any Regional or District Office of the Commission, or at any one of its offices in the United States, as specified by the Commission, correct, current, and complete copies of any or all records that you are required to maintain under Rule 204-2 under the Investment Advisers Act of 1940. This undertaking shall be binding upon you, your heirs, successors and assigns, and any person subject to your written irrevocable consents or powers of attorney or any of your general partners and managing agents.

Signature

I, the undersigned, sign this Form ADV on behalf of, and with the authority of, the non-residentinvestment adviser. The investment adviser and I both certify, under penalty of perjury under the laws of the United States of America, that the information and statements made in this ADV, including exhibits and any other information submitted, are true and correct, and that I am signing this Form ADV Execution Page as a free and voluntary act.

I certify that the adviser's books and records will be preserved and available for inspection as required by law. Finally, I authorize any person having custody or possession of these books and records to make them available to federal and state regulatory representatives.

Signature: Date: MM/DD/YYYYPrinted Name: Title: Adviser CRD Number: 44664



Privacy Legal Use of Web CRD®, IARDTM, or PFRDTM is governed by the Terms & Conditions.©2014 FINRA. All rights reserved. FINRA is a registered trademark of the Financial Industry Regulatory Authority, Inc.



Cornerstone Institutional Investors, Inc.

74 W. Broad St., Suite 340 Bethlehem, PA 18018

(800) 923-0900 www.cornerstone-companies.com

April 8, 2014 This Brochure provides information about the qualifications and business practices of Cornerstone Institutional Investors, Inc. (“Cornerstone”). If you have any questions about the contents of this Brochure, please contact us at (800) 923-0900. The information in this Brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Cornerstone is a registered investment adviser with the Securities and Exchange Commission. Registration of an Investment Adviser does not imply any level of skill or training. The oral and written communications of an Adviser provide you with information about which you determine to hire or retain an Adviser. Additional information about Cornerstone Institutional Investors, Inc. also is available on the SEC’s website at www.adviserinfo.sec.gov.

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http://www.cornerstone-companies.com/

http://www.adviserinfo.sec.gov/

Material Changes This Brochure dated April 8, 2014 is our most recent ADV Part 2 Brochure prepared according to the SEC’s requirements and rules. One change to this document from our previous brochure dated March 26, 2013 is as follows: Page 16: Brokerage Practices – 5th Paragraph Removed: The following paragraph has been removed as it is not applicable: Certain affiliated accounts may trade in the same securities with client accounts on an aggregated basis when consistent with Cornerstone's obligation of best execution. In such circumstances, the affiliated and client accounts will share commission costs equally and receive securities at a total average price. Cornerstone will retain records of the trade order (specifying each participating account) and its allocation, which will be completed prior to the entry of the aggregated order. Completed orders will be allocated as specified in the initial trade order. Partially filled orders will be allocated on a pro rata basis. Any exceptions will be explained on the Order. Page 18: Voting Client Securities – Replaced Designation Proxy Voting Delegate in 5th Paragraph: Ryan Wood, Cornerstone’s current designated proxy voting delegate at [email protected] Page 19: Financial Information – Additional Language to 2nd Paragraph, 1st Sentence: We have no financial commitment that impairs its ability to meet contractual and fiduciary commitments to clients, and have not been the subject of a bankruptcy proceeding at any time during the past ten years. Pursuant to SEC Rules, we will ensure that you receive a summary of any materials changes to this and subsequent Brochures within 120 days of the close of our business’ fiscal year. We may further provide other ongoing disclosure information about material changes as necessary. We will deliver the applicable disclosure brochure(s) or Form ADV Part 2 to you before or at the time we enter into an investment advisory contract with you. In addition, we will further provide you with a new Brochure as necessary based on changes or new information, at any time, without charge.

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At any time, our Brochure may be requested by contacting Donna Humphrey, Chief Compliance Officer at (800) 923-0900 or [email protected]. Our Brochure is also available on our web site www.cornerstone-companies.com free of charge. Additional information about Cornerstone Institutional Investors, Inc. is also available via the SEC’s web site www.adviserinfo.sec.gov. The SEC’s web site also provides information about any persons affiliated with Cornerstone Institutional Investors, Inc. who are registered, or are required to be registered, as investment adviser representatives of Cornerstone Institutional Investors, Inc.

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http://www.cornerstone-companies.com/

http://www.adviserinfo.sec.gov/

Table of Contents Cover Page ....................................................................................................................................... i

Material Changes ............................................................................................................................ ii

Table of Contents ........................................................................................................................... iv

Advisory Business .......................................................................................................................... 1

Fees and Compensation .................................................................................................................. 6

Performance-Based Fees and Side-By-Side Management ............................................................. 7

Types of Clients .............................................................................................................................. 7

Methods of Analysis, Investment Strategies and Risk of Loss ....................................................... 8

Disciplinary Information ............................................................................................................... 12

Other Financial Industry Activities and Affiliations .................................................................... 12

Code of Ethics ............................................................................................................................... 13

Brokerage Practices ..................................................................................................................... 15

Review of Accounts ..................................................................................................................... 16

Client Referrals and Other Compensation .................................................................................... 16

Custody ......................................................................................................................................... 17

Investment Discretion ................................................................................................................... 17

Voting Client Securities ................................................................................................................ 18

Financial Information.................................................................................................................... 19

Business Continuity & Information Security Programs ............................................................... 19

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Advisory Business Cornerstone Institutional Investors, Inc. began offering investment services in 1998 and has continuously offered investment advisory services since that time. The firm is privately held by four shareholders: Malcolm L. Cowen II, President; Thomas J. Scalici, CEO; Kevin Karpuk, Chief Investment Officer; and, Christopher J. McKinley, Director of Information Systems. Cornerstone provides investment advisory services for institutional clients (i.e., defined benefit and defined contribution plans, foundations and endowments, corporations, religious organizations, hospitals, charitable organizations and public funds) and individual clients (i.e., natural persons, families, personal trusts, family partnerships and limited liability companies). The common factor among these clients is their obligation or desire to implement a “best practices” fiduciary investment solution designed to produce above average risk-adjusted returns based on their risk profile. This is achieved through asset allocation, portfolio structure, tactical overlays, manager selection and fee transparency. Our advisory philosophy is that clients are funding one liability or another via their asset pools. Understanding liability structure allows us to work with a variety of clientele while employing the same management philosophy. The common thread tying together our services whether we are working with private clients who need to fund their lifestyles or institutions with defined benefit obligations, endowment spending requirements, or other liabilities is that our focus is on risk management, asset allocation, portfolio monitoring and fee transparency. We prefer to be retained as a full service investment consultant by each client; however, you can engage Cornerstone in any one or multiple lines of business because of our open architecture platform. An open architecture platform, which means hiring “best in class” service providers for management, brokerage, custody, recordkeeping, etc., allows you to achieve a high level of flexibility. This flexibility enables us to work with you to develop investment policies that are tailored to your specific needs in every aspect of your investment solution. Our clientele’s requirement of flexibility has led Cornerstone to make substantial investments in technology so that reporting and monitoring can be customized to suit your needs. As of the date of this filing, Cornerstone manages a total of $533,901,447 of which $169,484,971 are discretionary assets and $364,416,476 are non-discretionary assets. Our services which are listed below are broadly grouped into five categories which are: Asset Management Services, Fiduciary Support Services, Discretionary Management, Other Services and Additional Services which are described in more detail below.

Asset Management Services Asset management services are the core offering of any investment consulting firm. We provide asset allocation modeling to our clients on an annual basis using current capital market

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assumptions. The assumptions which we purchase from Callan Associates, Inc. take current market conditions into account rather than simply using historical norms because macroeconomic and monetary trends can impact your portfolio. We input these capital market assumptions into software which uses Monte Carlo simulations to create a likely range of outcomes over different time periods. We also provide manager search and selection services for our clients. You can find the methodology of these searches in the section of this document entitled “Methods of Analysis, Investment Strategies and Risk of Loss”. As mentioned above, our performance reporting technology was developed to allow both us and you flexibility in output as reporting needs or market conditions change. Our reporting technology combines client-specific cashflow and asset allocation with detailed return, risk, and risk-adjusted return metrics. These reports compare your manager/portfolio performance against both appropriate indices and benchmarks. The design of our reporting is meant to help you understand whether you are making progress towards your goals and whether more due diligence is needed on specific service providers based on the guidelines found within your written Investment Policy Statement. Cornerstone provides portfolio, manager and security level analysis to you that include return attribution, trading statistics and diversification measures. This analysis includes benchmarking against peers and investment policy guidelines to confirm that portfolios are being managed prudently. Fiduciary Support Services For the majority of our clients, one of our first mandates is to formulate a written Investment Policy Statement that formalizes the investment guidelines and expectations for each party to the document. While there are few legal requirements to have an Investment Policy Statement in writing, it is considered a best practice. When formulating this statement, Cornerstone takes your risk tolerance, time horizon, fiduciary status, regulatory limitations and other specific factors into account. A well written document should clearly outline acceptable investments, targeted returns and downside and acceptable performance standards. Each party, including investment managers, receives a copy of the executed document. As a living document, an Investment Policy Statement must be reviewed frequently. Our reporting is built to support a constant review of the guidelines of the document and we urge clients to review the document at least annually to ensure that it changes as your needs or expectations do. A well written policy should be able to outlast a particular party to it. We provide you fiduciary training and ongoing compliance reviews utilizing the guidelines developed by the Center for Fiduciary Studies, LLC®. This program promotes the understanding of regulatory and moral responsibilities shared by fiduciaries. We organize seminars during which we review with you a best practices process that should be followed to minimize fiduciary liability and promote the achievement of your goals. A part of our ongoing fiduciary compliance reviews are to perform risk assessments for clients. These reviews involve comparing best

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practices with your current process. If deficiencies exist, we implement changes. More information is available on these seminars upon request. For those clients who have socially responsible investment mandates we utilize outside resources to both select managers and monitor portfolios for compliance with these guidelines. Socially responsible mandates vary as greatly as the underlying organizations supporting them do. We work with you during the process of Investment Policy Statement development to codify your objectives as they pertain to socially responsible investing. On an ongoing basis, we continuously monitor the underlying holdings of the portfolio to ensure compliance. If there is a breach of the mandate, we take corrective action including instructing the manager to sell the security or terminating the offending party. Cornerstone will act as a named fiduciary in certain instances. Various regulatory and legal definitions exist for the term fiduciary. An example of this is that Cornerstone has been retained by qualified retirement plan clients as either an ERISA 3(21) or ERISA 3(38) advisor, as defined by the Department of Labor. The specifics of Cornerstone’s role as a fiduciary for any assets under your care are outlined in the Investment Advisory Contract you enter into with us. The role of fiduciary imposes on Cornerstone a higher level of care than is typical in a traditional consulting relationship. We discuss with our clients and contractually agree to be bound by these requirements on an individual basis and acquire various types of liability insurance in these instances where appropriate or required. Discretionary Management Cornerstone provides discretionary investment management to clients at their request. The scope of these services is more broadly outlined in the section entitled “Investment Discretion” later in this document. We utilize a manager-of-managers approach for the majority of our client relationships and employ macroeconomic overlays which are described within the section titled “Methods of Analysis, Investment Strategies and Risk of Loss”. In most cases, Cornerstone outsources individual security management to other registered advisors; however, in the case of cash management, Cornerstone can manage these assets directly for clients with basic needs. Pursuant to the written guidelines of our clients, we purchase short-term investments with clearly defined quality and duration characteristics. Other Services Few individual clients or middle market institutions can afford the cost of maintaining staff positions to handle the day-to-day reporting requirements that are associated with these pools of assets. As such, as part of our investment advisory offerings, Cornerstone coordinates the actions of the different service providers for our clients. We provide data and insight into investment pools to accountants, auditors, actuaries, recordkeepers and other third parties at your direction. This information is made available upon your written authorization.

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These Other Services vary greatly depending on regulatory or client-specific needs. The scope of these services and any extra costs associated with these are outlined within your Investment Advisory Agreement. As with the rest of our advisory offering, fees are negotiable and are discussed more fully in the section of this document labeled “Fees and Compensation”. Additional Services Services that are found outside a normal scope of work are grouped under our Additional Services listing. Fees associated with these services are typically a la carte and can be found under the section of this document labeled “Fees and Compensation”. The offerings we consider Additional Services are generally project based. For example, alternative investment searches are more complex due to their nature than are traditional asset class searches, requiring more in depth due diligence, because the data associated with this asset class is less regulated and widely available than other investment styles. We outsource asset/liability modeling to third party actuaries but provide them with our capital market assumptions and all plan data required. Once the modeling is completed, we meet with our clients to discuss the report and whether any changes to asset allocation, funding levels or liabilities should be considered. There are numerous project based services we provide to our retirement planning clients including, running RFP’s for new providers, merger and acquisition consulting, fee benchmarking, transition management, fiduciary reviews and custom communications programs. Cornerstone has provided litigation support on differing levels for clients. Our role can be anywhere from data collection to pre-trial support to expert witness. Our commission recaptures and transition management services include searching and implementing both programs for clients. In discretionary relationships, Cornerstone directly contracts with third party firms to provide these services or provides them internally. We group the above discussed services into various lines of business. Our explanation of these lines of business is found below. Investment Management Consulting Cornerstone provides comprehensive investment consulting services designed to ensure that clients are meeting their fiduciary responsibility as defined by ERISA (Employee Retirement Income Security Act), UPIA (Uniform Prudent Investor Act), UPMIFA (Uniform Prudent Management of Institutional Funds Act), MPERS (Uniform Management of Public Employee Retirement Systems Act), or other pertinent laws. We manage all of our relationships in a manner designed to deliver best practices and urge our individual clientele to follow as high a fiduciary standard for your personal assets as you would for an institution for which you serve.

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Retirement Planning Our Retirement Planning practice works with you to develop different methods in which to retain employees through well designed compensation structures. We design, implement and monitor defined contribution plans (401(k), 403(b), 457(b), etc.), non-qualified deferred compensation plans and incentive plans. Cornerstone assists clients with plan design, negotiating vendor contracts, managing asset allocation portfolios, policy development and monitoring, core menu fund selection, quarterly fiduciary reviews, plan communications, monitoring regulatory changes, annual educational goals and problem resolution support. Dependent on the size and scope of our relationship, Cornerstone also holds employee education meetings at both a group and individual level in which both the benefit and proper investment techniques are discussed. The scope and cost of these services are formally outlined within your Investment Advisory Agreement. Financial Planning Cornerstone offers financial planning services to individuals that include services such as: personal financial planning, insurance and estate planning, capital needs analysis, tax and cashflow analysis, retirement planning, investment analysis and planning and education planning. Financial planning information will be obtained through personal interviews with each client concerning your current financial status, future goals and attitudes towards risk. Related documents that you supply are carefully reviewed, along with data gathered from you. In most cases, a written report is issued. Insurance Services We advocate a fiduciary decision-making process when helping clients assess their insurance needs. While a formal fiduciary standard does not currently exist in the insurance industry, we have elected to implement one since we feel it is a moral and ethical way to do business and because it is consistent with a philosophy of managing the firm. The key components of a fiduciary decision-making process revolved around documentation and disclosure, transparency around the variables that effect pricing and performance, and identifying and quantifying risks. The primary target market for our services are the executives and key employees of our corporate clients, high net-worth individuals and our charitable planning clients. This group is most impacted by the limitations of group benefit programs that are designed to provide benefits to the masses. Shortfall risks in the areas of life, disability insurance and long-term care are addressed during the course of our planning. CII is a member firm of the M Financial Group (“M”). M was founded in 1978 and is owned by approximately 120 member firm organizations. It is currently the largest insurance producers

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group in the country. Over the years, M has created partner relationships with a number of large life and disability insurance carriers. During the course of this relationship, M has created a number of proprietary products, riders, underwriting and pricing advantages due to the volume and quality of the business generated by its Member Firms. CII as a member firm owns stock in M Life, a reinsurance company designed to retain a certain portion of the risk underwritten by the Member Firms. Annually, M has the right to distribute profits from M Life to the Member Firms Payments based on the profitability of the block of business each firm manages for its clients. CII is eligible to receive these Incentive Compensation Payments. Fees and Compensation Cornerstone’s fees are negotiable on a case-by-case basis and mutually agreed upon depending on the level and scope of services that you require. These fees can be any one or a combination of the following: asset based fee (percentage of assets), a flat dollar fee or a project based fee. The entire scope and rate of these fees are defined within your Investment Advisory Agreement. Investment Management Fees are calculated and due quarterly and may be payable in advance or in arrears. Based on your preference, Cornerstone can either deduct these fees directly from your account or invoice you directly for services rendered. Cornerstone’s Investment Management Fees are for advisory services only and are separate from compensation paid to independent money managers, custodians, recordkeepers, mutual funds, brokers and other service providers as well as other fees which include taxes, trading fees and other transfer fees. Cornerstone does not sponsor a wrap-program in which all of these services would be included in Cornerstone’s fee. We believe that it is a best practice and matter of moral integrity to disclose all fees you have paid to our firm. We will disclose such payments and any other compensation created from our relationship with you. Detailed historical fee information for your account is available upon request. Our Investment Advisory Agreement can be terminated by contractually determined written notice by either party. Upon such a termination, accounts that are billed in advance will have fees prorated and promptly refunded directly to you. The method for calculating the proration is based on the number of calendar days expired during the current billing period as a percentage of total calendar days in the quarter. Cornerstone’s fees are a function of the complexity of the client engagement and the services agreed upon. Fees can be asset based or a negotiated fixed fee for a period certain. Fees are determined after considering factors such as, but not limited to, the amount of assets under management, the complexity of the investment solution, and/or the services you require. In no case will fees exceed 100 basis points annually of assets under management (new relationships subject to an annual minimum fee of $5,000) for our general consulting fees with the following exceptions:

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Financial Planning Fees Cornerstone charges a flat fee ranging from $2,500 to $100,000 unless agreed upon between the Advisor and the client, which will be quoted prior to the contract being executed. The fee for this service will be determined according to the complexity of the plan as well as the extent of service desired by the client. An estimated fee will be given upon contracting with the client. Fees may be negotiable. Fees may be charged on a quarterly basis and may be payable in advance or in arrears. The contract may be terminated by either party upon 30 days written notice for which a payment is due. The client will be billed for the time spent and costs incurred up to the date of termination. Clients who terminate the contract within 5 business days of signing the contract shall be provided a full refund. Special Client Projects During the course of a client relationship, Cornerstone is often asked to perform special projects in addition to or in lieu of providing our traditional investment consulting services. Examples of Special Client Projects include but are not limited to managing RFP's (Request for Proposals) for Retirement Plan Providers or Custodians, Plan Fiduciary Reviews, Overall Plan/Portfolio Fee Analysis, Consolidated/Customized Performance Reporting, Asset Liability Modeling, Communication and Education services, Fiduciary Training and Transition Management. A consulting fee, ranging from $5,000 to $250,000, which is negotiated with the client before services are provided, is charged for these services. Under certain circumstances, Cornerstone may waive all or part of this fee. Fees for special client projects are payable per the Scope of Work agreement and payment schedules will vary depending on the type and/or the complexity of the project. Performance-Based Fees and Side-By-Side Management Cornerstone does not charge any performance-based fees (fees based on a share of capital gains on or capital appreciation of the assets of a client). Types of Clients Cornerstone provides consulting services to high net worth individuals, corporations, qualified defined benefit and defined contribution plans, Taft-Hartley plans, charitable institutions, foundations, endowments, municipalities, colleges, hospitals and other institutions. Although minimum account sizes are negotiable based on various factors (other relationships with the client, future growth expectations, etc.), our target market consists of smaller middle market institutions and high net worth individuals or families. We define smaller middle market institutions as those with up to $25 million of investable assets. High net worth individuals are those with less than $10 million of investable assets.

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Methods of Analysis, Investment Strategies and Risk of Loss We utilize many sources of data including those both publicly available and those that are proprietary. Your written Investment Policy Statement outlines the steps of the process and our methodologies. During the drafting of the policy, we explore your current solution and possible enhancements, as well as defining how we will undertake our responsibilities for both monitoring and making changes to the portfolio on an ongoing basis. Our consulting services utilize a four step process as follows: The process of drafting an Investment Policy Statement gives us great insight into your current financial condition, your investment preferences and your specific needs or limitations. Once we have completed an initial review, we provide asset allocation modeling to frame a discussion of risk (i.e., the downside possibility of your portfolio). We believe our analytics are world class, but there are limitations to any modeling that need to be viewed by an experienced eye because the real world diverges greatly from models. Besides risk tolerance, you may have restrictions particular to your investment portfolio including tax considerations, socially responsible investment mandates or other regulatory or self-imposed restrictions. Investment pools succeed because they follow a prudent investment process that promotes intelligent decision-making. This process typically focuses on four basic principles: • Asset allocation • Portfolio structure • Multiple specialist managers • Continuous portfolio management Asset Allocation – the most important step in the management process How do you position investments if you can’t depend on the past performance of investment products? The preponderance of research over more than a decade suggests that asset allocation policy is the primary determinant of long-term success or failure. This means that your decisions regarding asset mix (stocks vs. bonds, etc.) are far more important than which mutual funds you buy or sell or which money managers handle your investments. How your assets are allocated should be directly related to your investment objectives – your investment time horizon, your ability to handle risk, and the overall goal you want to reach. The most important steps in the investment process are those in which an investor’s objectives are carefully defined and then implemented with an appropriate asset allocation strategy. Cornerstone assists clients in developing an appropriate asset allocation by using the software and inputs described earlier in the document. These inputs are forward-looking in nature because we do not believe that historical performance is likely to be repeated. Our Monte Carlo simulation software provides for a range of returns based on these inputs and provides us with the ability to model expected median returns and expected loss scenarios.

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It is important for you to recognize that no software, regardless of its sophistication is able to predict the future. Even with thoughtfully constructed Capital Market Assumptions, your downside is not limited in any way. We model out downside returns that can be expected in normal market declines but do not warrant that these lower bounds cannot be breached in a given year. Portfolio Structure – diversification across and within asset classes For the best chance at success, your portfolio should be diversified across and within these asset classes as well. In other words, you shouldn’t only buy “stocks” or mutual funds, but you should also make sure you have the right mix of large cap, small cap, growth and value, avoiding concentrations that create unknown risks. An important idea to stress is that of identifying the style specialty of a money manager because stock performance within groups tends to be similar. In addition, money managers that specialize in a style of stock or bond tend to outperform “generalist” money managers that buy stocks or bonds over several different categories. Cornerstone performs due diligence on a multitude of asset classes and sub-asset classes including but not limited to; large and small capitalization domestic equities, international and emerging equities and fixed income, domestic and high yield fixed income, cash alternatives and alternative asset classes which can include real estate, private equity, hedge funds, commodities, convertible securities, global tactical asset allocation funds and other inflation sensitive investments. In 401(k) and 403(b) plans, this manifests itself in two ways, one in the selection of the core fund menu of investments and two, in our ability to create or select appropriate risk-based asset allocation or Target Date Fund portfolios. Virtually every investment platform in a defined contribution plan has some sort of limitations (number of funds, use of proprietary funds, ability to record keep custom portfolios, etc.) that need to be incorporated into the decision-making process. We urge you to do independent research on these asset classes and confer with us regarding your investments in these products. Diversification has historically provided benefits to clients through lower volatility of returns but this is not guaranteed to be true in all time periods. During times of financial market stress, many historically uncorrelated asset classes earn similar return patterns, lessening the benefit of diversification. These periods of “flights to quality” can be of varying lengths and degrees and should be expected. Use of Specialist Money Managers Specialist money managers that concentrate on one investment discipline, such as large cap growth stocks, can become experts in a small segment of the larger market. This focus can mean greater consistency and predictability of results. In contrast, generalist money managers who

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roam about the market in search of “good” opportunities often underperform the market indexes and experience increased volatility. Again, the use of multiple specialist managers satisfies your requirement to minimize uncompensated risk and search for additional returns in well-defined types of securities. With thousands of money managers and mutual funds; how do we identify the firms that are likely to continue to do well in the future? The manager selection process includes exhaustive quantitative analyses in combination with an examination of the qualitative aspects of a manager’s investment process and business organization. We describe the basic considerations in the manager selection process below and will share a more detailed explanation upon request:

Performance – How does the firm compare against its peers across market cycles? Is the result consistent with a particular style? Are you adequately compensated for the manager specific risk? Philosophy – Is there a clearly defined investment philosophy and style that has been consistently applied over a number of market cycles? Process – Can the manager demonstrate discipline in making buy and sell decisions? How efficient is the manager’s securities trading operation? People – Is the firm a stable, well-managed organization that attracts and retains outstanding investment manager talent? Is it employee owned?

Cornerstone employs four investment analysts to research and track the various firms that manage your portfolio. These analysts are members of and report to our Investment Policy Committee which numbers 8 individuals from consultants to compliance to operational professionals. It is not possible to envision every risk involved while working with third parties. To mitigate the risk of outright fraud, Cornerstone utilizes third party custodians to hold the assets of our clients except as described in the section titled “Custody”. All money managers will underperform their benchmarks at some point in time. This is expected as different sub-styles or stock specific issues arise. We attempt to limit the effect of these periods by requiring minimum levels of diversification; however, they cannot be avoided entirely. Another risk in investing with independent money managers is that either the people or the process will change. Cornerstone utilizes two methods to lessen this risk: industry contacts and contractual requirements. We maintain constant contact with competitors of these firms in the industry who will inform us of changes promptly. We also require that the manager inform us of changes to personnel or process immediately. This requirement is found in your separate agreements with the managers and is also in the written Investment Policy Statement.

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Continuous Portfolio Management Portfolio management should be a continuous process. Once a portfolio strategy is implemented, the investment process should work to maintain the asset allocation policy and the competitive performance of the money manager team. This requires a periodic rebalancing discipline and the continuous monitoring of money managers for style drift and peer group underperformance. Rebalancing is an important aspect of portfolio management, as market movements are certain to change intended asset mix and therefore risk exposure and return potential. This can create unintended and unnecessary risks, as it did during the market run-up in the late 1990s. Utilizing a tactical overlay within the allocation bands of your investment policy is a key determinant of success. Our macroeconomic overlay combines research from Callan, Bank Credit Analysts, and other sources with our fundamental aversion to uncompensated risk. An example of uncompensated risk is when the yield of certain fixed income investments becomes too small in relation to riskless assets (i.e., Treasury Bills). We observe trends in investment flows, international trade balances, debt markets and other factors that influence financial markets and the Investment Policy Committee decides on tactical over/underweights based on your specific needs. While Cornerstone emphasizes preservation of capital, we may at times become more aggressive within the allowable ranges of your Investment Policy Statement. A potential risk is that our tactical overlay could be poorly timed causing less than optimal performance in your account. Process Summary Investment markets tend to be irrational and unpredictable in the short run. Fortunately, the factors that control performance over the long term – asset allocation policy and manager quality – can be effectively managed. The key to success is employing a process that integrates the four basic investment management principles in decision making. In the final analysis, the objective is to minimize mistakes. This process, at its core, is the same regardless of the client to which we consult. Nuances such as differing cash needs, long-term goals, and other variables as outlined specifically by you are considered while developing the final investment solution and ongoing monitoring process. Having full knowledge of your needs and limitations helps us craft individualized policies to maximize the chance of long-term success. Investing in securities involves risk of loss that Clients should be prepared to bear. While we attempt to quantify and communicate these risks to you, we cannot make assurances about maximum loss during market dislocations or other events that are not in our control as outlined above.

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Disciplinary Information Registered investment advisers are required to disclose all material facts regarding any legal or disciplinary events that would be material to your evaluation of Cornerstone Institutional Investors, Inc. or the integrity of Cornerstone’s management. We have no information or disclosures applicable to this Item. Other Financial Industry Activities and Affiliations Broker/Dealers All registered investment advisory associates of Cornerstone are registered representatives with M Holdings Securities, Inc. (“MHS”), a member firm of the Financial Industry Regulatory Authority (FINRA) engaged in the design and sale of specialized investment products. We will occasionally provide money managers with the option to do directed trades through MHS. On such occasions we will disclose this information to you. Cornerstone and/or its executive officers may, from time to time, receive incentive awards for the recommendation/introduction of investment or insurance products. These arrangements may represent a conflict of interest between you and Cornerstone. In situations where this conflict exists or may potentially exist, you will receive full disclosure of a conflict, compensation paid and resolution of the conflict. Our brokerage policies are outlined in the section of this document labeled “Brokerage Practices”. Custodians We run searches for, negotiate pricing and services and recommend clients to custody assets at various banks, trust companies or thrift institutions. A partial list of these institutions includes Bank of New York Mellon, Wachovia Bank, Wells Fargo, M&T Bank, PNC Bank, Northern Trust, First Niagara Bank, 1st National Bank of Omaha, Charles Schwab and Deutsche Bank, et al. None of these relationships yield any benefit to us and all fees paid to these institutions are defined and controlled by your agreement with them. Qualified Plan Recordkeepers Cornerstone and its affiliates currently provide services to more than 100 retirement plan clients on more than 15 recordkeeping platforms. While Cornerstone and its affiliates do not provide qualified plan recordkeeping services, we have built an electronic link to them so we can access the data necessary to monitor and manage the investments in the plan. Cornerstone and its affiliates currently has clients on the following platforms; Fidelity, Schwab, Vanguard, TIAA-CREF, John Hancock, Principal, Prudential, Nationwide, Transamerica, Newport Group, Matrix and several other TPA platforms.

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Other Investment Advisors Cornerstone is affiliated with Cornerstone Advisors Asset Management, Inc. (CAAM), a registered investment advisory firm specializing in investment consulting, fiduciary services, and qualified retirement plan design and consultation to ultra-high net worth individuals, entrepreneurs, not-for-profit institutions, corporations, and closely held businesses. CAAM’s target market is institutions with above $25 million and individuals with more than $10 million in investable assets. CAAM is also an affiliated partner of Callan Associates Inc., a Registered Investment Advisor located in San Francisco, California. CAAM is a founding member of Callan’s Investment Advisor Group (IAG) and purchases investment technology and research through Callan or other non-affiliated third parties. Cornerstone and its affiliates may periodically refer a client to another financial services firm and receive a fee. Examples of this include estate and business succession planning, health and welfare consulting, salary studies and incentive compensation plan design. Fees received from the referred entity will not incur any additional costs to you. In all cases, compensation provided to or from these affiliates will be fully disclosed to you. If a conflict of interest exists or may exist, we will obtain from you a signed disclosure form outlining the potential conflict and our process for minimizing the effect of said conflict on you. Code of Ethics Cornerstone has adopted a Code of Ethics for all supervised persons of the firm describing its high standard of business conduct, and fiduciary duty to you. The Code of Ethics includes provisions relating to the confidentiality of client information, a prohibition on insider trading, restrictions on the acceptance of significant gifts and the reporting of certain gifts and business entertainment items, and personal securities trading procedures, among other things. All supervised persons at Cornerstone must acknowledge the terms of the Code of Ethics annually, or as amended. Cornerstone anticipates that, in appropriate circumstances, consistent with clients’ investment objectives, it will cause accounts over which we have management authority to effect, and will recommend to investment advisory clients or prospective clients, the purchase or sale of securities in which Cornerstone, its affiliates and/or clients, directly or indirectly, have a position of interest. Our employees and persons associated with Cornerstone are required to follow our Code of Ethics. Subject to satisfying this policy and applicable laws, our officers, directors and employees and its affiliates may trade for their own accounts in securities which are recommended to and/or purchased for you. The Code of Ethics is designed to assure that the personal securities transactions, activities and interests of our employees will not interfere with (i) making decisions in the best interest of advisory clients and (ii) implementing such decisions while, at the same time, allowing employees to invest for their own accounts. In addition, the Code requires pre-clearance of many transactions, and restricts trading in close proximity to client trading activity. Nonetheless, because the Code of Ethics in some circumstances would permit employees to invest in the same securities as clients, there is a possibility that employees

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might benefit from market activity by a client in a security held by an employee. Employee trading is continually monitored under the Code of Ethics, and to reasonably prevent conflicts of interest between you and us. As a summary of the entire Code of Ethics, which is available upon request, we believe that The Standards of Business Conduct found within the Code of Ethics best encapsulates our internal rules regarding our relationship with you. It reads as follows:

“Personnel are expected to acknowledge and adhere to the CFA Institute Code of Ethics, specifically to;

(i) Place the integrity of the investment profession and the interests of clients above their

own personal interest.

(ii) Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

(iii)Use reasonable care and exercise independent, professional judgment when conducting

investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.

(iv) Practice and encourage others to practice in a professional and ethical manner that will

reflect credit on themselves and the profession.

(v) Promote the integrity and uphold the rules governing capital markets.

(vi) Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.”

Although the Code of Ethics that we have adopted outlines our philosophy with regards to maintaining our relationship with you, below you will find instances where a conflict or potential conflict of interest exist. In each case, we have attempted to minimize the frequency of these conflicts and have outlined disclosure and remediation of such situations. Executive Officers and other employees, as insurance agents, brokers for various insurance companies, or registered representatives of broker/dealers, can purchase investment products, including traditional insurance and variable life insurance, for you upon request. However, you are under no obligation to engage Cornerstone or these individuals when considering implementation of advisory recommendations. The implementation of any or all recommendations is solely at your discretion. Cornerstone or individuals associated with it may buy or sell securities identical to those recommended to clients. It is our express policy that no person employed by Cornerstone may

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purchase or sell any security prior to a transaction(s) being implemented for an advisory account, preventing employees from benefiting from transactions placed on behalf of advisory accounts. Cornerstone or any related person(s) may have an interest or position in a certain security(ies) which may also be recommended to a client. As certain transactions may represent a conflict of interest, Cornerstone has established the following restrictions in order to ensure its fiduciary responsibilities: 1) An executive officer or employee of Cornerstone shall not buy or sell securities for their personal portfolio(s) where their decision is substantially derived, in whole or in part, by reason of his or her employment unless the information is also available to the investing public on a reasonable inquiry. No person of Cornerstone shall prefer his or her own interest to that of the advisory client. 2) Cornerstone maintains a list of all securities holdings for itself, and anyone associated with this advisory practice. These holdings are reviewed on a regular basis by the executive officers. 3) You are and will be fully informed that certain individuals may receive separate compensation when effecting transactions during the implementation process. 4) Cornerstone emphasizes your unrestricted right to decline to implement any advice rendered. 5) Cornerstone emphasizes your unrestricted right to select and choose any broker or dealer, and/or insurance company you wish. 6) We require that all individuals must act in accordance with all applicable Federal and State regulations governing registered investment advisory practices. 7) Any individual not in observance of the above may be subject to termination. Brokerage Practices Cornerstone does not directly participate in any soft dollar arrangements when trading for your accounts and requires service providers to receive your written permission prior to entering into any soft dollar arrangements. In certain circumstances, Cornerstone Institutional Investors, Inc. may suggest the use of a FINRA member firm broker/dealer to a client in need of assistance; provided Cornerstone, in its discretion, meets its fiduciary obligation of best execution. While commissions charged, if any, are generally competitive, they may not be the lowest in the industry. The overall services provided by the broker/dealer are taken into consideration when executing transactions. You are not under any obligation to affect trades through any recommended broker and are free to select any broker or dealer you choose. Choosing to direct brokerage may cause you to not achieve

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most favorable execution and you may pay higher brokerage commissions by choosing to direct brokerage. Cornerstone’s advisory practice, due to the individualized nature of its business and client needs, does not include, blocking trades, negotiating commissions with broker/dealers or obtaining volume discounts, nor necessarily obtaining the best price. Our policy is that the firm will not affect any principal or agency cross securities transactions for client accounts. We will not cross trades between client accounts. Principal transactions are generally defined as transactions where an adviser, acting as principal for its own account or the account of an affiliated broker/dealer, buys from or sells any security to any advisory client. A principal transaction may also be deemed to have occurred if a security is crossed between an affiliated hedge fund and another client account. An agency cross transaction is defined as a transaction where a person acts as an investment adviser in relation to a transaction in which the investment adviser, or any person controlled by or under common control with the investment adviser, acts as broker for both the advisory client and for another person on the other side of the transaction. Agency cross transactions may arise where an adviser is dually registered as a broker/dealer or has an affiliated broker/dealer. We do not participate in any relationships with outside parties that include brokerage for client referrals. Review of Accounts Cornerstone periodically reviews all accounts under advisement. These accounts are reviewed at least semi-annually by the investment advisor representative assigned to the account. The purpose of these reviews is to ensure that your accounts are within your Investment Policy Statement guidelines and that your financial situation has not changed from the previous review. Account reviews are also conducted when non-calendar determined events occur. Such events include but are not limited to: large in/outflows, a change in your financial situation or a market dislocation. You receive from the custodian of your assets a statement of values and transactions no less than quarterly. For the majority of our clients, Cornerstone prepares reporting for your accounts with holdings and performance information no less frequently than quarterly. Client Referrals and Other Compensation Cornerstone has a code of ethics that requires all dealings be in the best interest of our clients. All compensation paid and received for services related to client accounts is fully disclosed to you. Specific instances of fee sharing and other compensation issues are outlined below. Cornerstone has entered into an agreement with the M Holdings Securities, Inc., a FINRA Member Firm, whereby Cornerstone provides back office and technological support to assist

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other investment advisors registered through M Holdings Securities, Inc. in servicing their clients. Cornerstone may enter into an agreement with another registered investment advisor where the parties recognize that a synergy exists between the services offered by both parties and that those clients of one firm could benefit from services rendered by the other firm. Services rendered by Cornerstone include, but are not limited to, managing Requests for Proposal (RFP’s) and advisory or consulting services on investment assets. If a client of the other firm enters into an agreement with Cornerstone to perform such services, then Cornerstone will pay the referring investment advisor firm a fee agreed to by both parties. Prior to the client entering into an advisory agreement with Cornerstone, a complete disclosure will be made to the client by the referring advisor and a signed disclosure form will be required from the client. Fees paid to the referring entity are included in the fee paid to Cornerstone by the client and the client will not incur any additional costs related to this relationship. Custody All assets owned by clients are physically held by third party financial institutions that include banks, trust companies, broker/dealers, or prime brokers. Cornerstone does not take legal custody of assets; however Cornerstone Advisors Asset Management, Inc., an affiliate of Cornerstone, does take custody of some client assets only under their Planned Giving Services operation. All other assets under advisement are held either in street name or in your name at third party institutions. You should receive statements no less than quarterly from the broker/dealer, bank or other qualified custodian that holds and maintains your investment assets. We urge you to carefully review such statements and compare such official custodial records to the account statements that we may provide to you. Our statements may vary from custodial statements based on accounting procedures, reporting dates, or valuation methodologies of certain securities. We encourage you to immediately inform us of any discrepancy noted between the custodian records and the reports you receive from us. Investment Discretion Cornerstone can accept discretionary investment authority for client accounts. The level of discretionary authority which is outlined within Investment Advisory Agreements can be unlimited, limited or none. You are free to choose the level of discretion you grant to us and are under no obligation to choose one method over another. Unlimited discretionary authority means that we can invest client assets in a manner that we find most beneficial to you so long as it is consistent with the investment objectives. This discretionary authority includes the ability to open investment accounts on your behalf, hire subadvisors to manage the assets or buy and sell mutual funds or individual securities within your account without prior approval.

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You can limit the investment discretion allowed to Cornerstone in several ways. You can limit investment discretion based on dollar amounts or percent of the portfolio. In these cases, Cornerstone may initiate transactions up to the limit before providing a written explanation to you. The delivery of this written communication effectively resets this discretion limit to its maximum level. While we will typically inform you either prior to or immediately following a transaction performed by Cornerstone, unless we have written instruction from you to the contrary, Cornerstone has no obligation to inform you of such transactions. You will receive detail of the transaction from the custodian, whether that is via trade confirmation or statement. Voting Client Securities Cornerstone will accept authority to vote proxies on your behalf if the firm has discretionary authority over the account in compliance with SEC rule 206(4)-6. A designated employee has been assigned to vote all such corporate actions. The general rule utilized when voting proxies is that the votes are cast in the best interest of the client/beneficiaries of the account. More specifically, our proxy voting procedures were crafted on the belief that management usually has both the best insights into and best interests of the company in mind when either supporting or dissenting from proxy issues. There are, however, several, instances in which management’s decision can be questioned, especially when management may be biased by real or potential conflicts of interest. Some examples of when we will vote against management recommendations include: excess anti-takeover measures and excessive compensation for executives. When considering how to vote on specific items, we take client specific issues into account and may vote the same proxy differently for you than we vote it for other clients. The most frequent example of this exception is in the case of clients who have “socially responsible” guidelines in place versus those that do not. Clients who have instituted socially responsible guidelines have indicated that financial gain must be offset against other factors. This creates a situation where voting on an issue for one client may not coincide with the wishes of another client. Where appropriate, Cornerstone has outsourced proxy voting to third party money managers that have discretion over individual security selection because their level of familiarity with the company and issues supersedes the information available to Cornerstone. You may choose to retain proxy voting rights by indicating that desire to us within your Investment Advisors Agreement. If you wish to vote a proxy in a particular manner, you should email Ryan Wood, Cornerstone’s current designated proxy voting delegate at [email protected] no less than 10 business days prior to the deadline with an indication of how to vote the particular proxy.

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mailto:[email protected]

You can obtain a copy of Cornerstone’s complete proxy voting policies and procedures upon request. You may also obtain information from us about how we voted any proxies on your behalf. Financial Information Registered investment advisers are required in this section to provide you with certain financial information or disclosures about Cornerstone’s financial condition. We have no financial commitment that impairs its ability to meet contractual and fiduciary commitments to clients, and have not been the subject of a bankruptcy proceeding at any time during the past ten years. Business Continuity & Information Security Programs We have developed business continuity and information security programs that are regularly reviewed by compliance and information technology professionals in light of both current best practices and applicable regulations. Clients may obtain a copy of our Business Continuity Disclosure upon request.

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Section III - Exhibit D

Code of Ethics


CODE OF ETHICS

CORNERSTONE ADVISORS ASSET MANAGEMENT, INC. CORNERSTONE INSTITUTIONAL INVESTORS, INC.

April 1, 2014

A. Code of Conduct The Companies2 have established this Code of Ethics (the “Code”) pursuant to Rule 204A-1 of

the Investment Advisers Act of 1940, as amended (the “Advisers Act”). As an investment adviser, the Companies have an undivided duty of loyalty to act solely in the best interests of their clients, an obligation which includes the responsibility to make full and fair disclosure of all material facts, especially where the Companies’ interests may conflict with those of their clients. In carrying out daily affairs, the Companies and all Companies’ Associated Persons (also known as “Supervised Persons”), shall act in a fair, lawful and ethical manner, in accordance with the rules and regulations imposed by the Companies’ governing regulatory authority (e.g., United States Securities and Exchange commission, state bureau of securities, etc.).

All Companies’ personnel should review this Code, as well as the Companies’ internal policies

and procedures, in an effort to be aware of their responsibilities pertaining to client service. To the extent that any term within the Companies’ Compliance Manual or any other company policy, including the M Holdings Securities, Inc. compliance manual, is inconsistent with any term contained within this Code, the Code shall control. Any violation of the Code or any other company policy and/or procedure shall be subject to the Companies’ disciplinary procedures, which may include termination of employment.

B. Scope of the Code The terms of this Code apply to all of the Companies’ supervised persons and sets forth the

standard of conduct by which each individual should carry out his/her respective obligations. Specifically, this document presents the Companies’ fundamental standard of conduct and shall address issues pertaining to:

• Privacy of Client Non-Public Personal Information; • Insider Trading; and • Personal Securities Transactions.

As discussed in paragraph D below, the rules on the issue of reporting securities transactions

pertain to the securities accounts in which any Companies’ Associated Person has any direct or indirect beneficial interest. Of particular concern (but not exclusive) are securities in which client assets may be invested, including stocks, options, futures and options on futures, but generally not those which are excluded from the definition of ‘reportable securities” (e.g. bankers’ acceptances, bank certificates of _________________________ 2 The “Companies” for purposes of the Code of Ethics include Cornerstone Advisors Asset Management, Inc. and Cornerstone Institutional Investors, Inc.

deposit, commercial paper, shares of unaffiliated registered open-end investment companies, etc.) (see definition section E).

C. Standards of Business Conduct

All Companies’ personnel shall act in accordance with the requirements of the Advisers Act, which sets forth numerous policies and procedures pertaining to the Companies’ advisory business. The Companies, as a fiduciary, have an obligation to act consistent with the Advisers Act, but to also place the clients’ interest above those of the advisory Companies. To that end, all supervised persons should avoid conflicts of interest that could compromise the advisory Companies’ ability to act in the clients’ best interest. For example, the Companies have determined that supervised persons should not accept inappropriate cash or gifts from any client, service provider or other third party. Such an activity by an Associated Person, in addition to any proposed outside business activity (see Section XXV), are subject to pre-approval by the Chief Compliance Officer.

Personnel are expected to acknowledge and adhere to the CFA Institute Code of Ethics,

specifically to; (i) Place the integrity of the investment profession and the interests of clients above their

own personal interest.

(ii) Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

(iii) Use reasonable care and exercise independent, professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.

(iv) Practice and encourage others to practice in a professional and ethical manner that will

reflect credit on themselves and the profession. (v) Promote the integrity and uphold the rules governing capital markets. (vi) Maintain and improve their professional competence and strive to maintain and improve

the competence of other investment professionals.

In a similar vein, and as discussed at Section VI, it shall be against the Companies’ policy for any company representative to use the mails or any means or instrumentality of interstate commerce:

(i) to employ any device, scheme, or artifice to defraud a client or prospective client;

(ii) to engage in any transaction, practice, or course of business which defrauds or deceives a

client or prospective client; (iii) to knowingly sell any security to or purchase any security from a client when acting as

principal for his or her own account, or knowingly effect a purchase or sale of a security for a client’s account when also acting as broker for the person on the other side of the transaction, without disclosing to the client in writing before the completion of the transaction the capacity in which the adviser is acting and obtaining the client’s consent to the transaction; and

(iv) to engage in fraudulent, deceptive or manipulative practices.

The Companies are aware of concerns surrounding nonpublic information, specifically in the

areas of client service and securities trading. The Companies’ standard of business conduct relative to client nonpublic personal information is consistent with the terms of Regulation S-P, in that it has established a Privacy Program that includes the delivery to all prospective and current clients a Privacy Notice detailing the framework within which client information is secured, as well as an internal Privacy Policy to be reviewed and executed by all Companies’ Associated Persons. The Privacy Policy and Notice create appropriate standards for the security of client personal information, and detail the framework within which client information is secured (see Section IX for additional information on the Companies’ privacy initiatives). As it relates to nonpublic information in the securities trading area, the Companies’ standard of business conduct focuses upon non-disclosure. No person associated with the Companies shall disclose “material nonpublic” (see definition section E) information about a company or about the market for that company’s securities: (a) to any person except to the extent necessary to carry out the Companies’ legitimate business obligations, or (b) in circumstances in which the information is likely to be used for unlawful trading. No employee of the Companies, who has possession of material nonpublic information about a company, or about the market for that company’s securities, is permitted to purchase or sell those securities until the information becomes public and sufficient time has passed such that the market would have already reacted.

Finally, it is, and always has been, the policy of the Companies that they and each such

supervised person comply with the aforementioned standards and to recognize that the Companies have a fiduciary obligation towards its clients. Supervised persons should be fully aware of the high value the Companies have placed and continue to place on the adherence by all supervised persons to ethical conduct at all times, and all supervised persons are urged to comply not only with the letter of their respective fiduciary duties, but also to the ideals of the Companies. In addition, all supervised persons are required to comply with those federal securities laws which apply to the business of the Companies, and our execution of the Annual Acknowledgment of the Policies and Procedures, if you are a supervised person, constitutes your agreement that you have complied, and will continue to comply, with such applicable laws. For purposes of these paragraph, “federal securities laws” means the Securities Act of 1933 (15U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15U.S.C. 78a – mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C. 80a), the Investment Advisers Act f 1940 (15 U.S.C. 80b), Title V of the Gramm Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999)), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 – 5314; 5316 – 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the SEC or the Department of the Treasury.

D. Personal Securities Transactions All Access Persons (see definition section E) must submit for the Companies’ review, a report of

his/her personal securities transactions and securities holdings periodically, as provided and further explained herein. One purpose of the Rule is to provide the Companies with information on “scalping” (i.e., a practice whereby the owner of shares (e.g., an Access Person) of security recommends that security for investment and then immediately sells it at a profit upon the rise in the market price which follows the recommendation), as well as potentially abusive “soft dollar” or brokerage practices. In addition, this requirement can help detect insider trading, “front-running” (i.e., personal trades executed prior to those of the Companies’ clients) and other potentially abusive practices.

Initial and Annual Holding Reports on Current Securities Holdings of Access Persons Each Access Person of the Companies must provide the Chief Compliance Officer or his/her designee with a written report of the Access Person’s current securities holdings within 10 days after the person becomes an Access Person, which information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. Additionally, each Access Person must provide the Chief Compliance Officer or his/her designee with a written report of the Access Person’s current securities holdings at least once each 12-month period thereafter on a date the Companies select, and the information must be current as of a date no more than 45 days prior to the date the report was submitted; provided, however that at any time that the Companies have only one Access person, he or she shall not be required to submit any securities report described above.

Each securities holdings report must provide, at a minimum, the following information:

(i) the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security (as defined below) in which the Access Person has any direct or indirect beneficial ownership (as defined below);

(ii) the name of any broker, dealer or bank with which the Access person maintains an

account in which any securities are held for the Access person’s direct or indirect benefit; and

(iii) the date the Access Person submits the report.

Transaction Reports Each Access Person must provide the Chief Compliance Officer or his/her designee with a written record of his/her personal securities transactions no later than thirty (30) days after the end of each calendar quarter, which report must cover all transactions (other than those pursuant to an “automatic investment plan” as defined in Rule 204A-1(e)(2)) during the quarter. The report must provide, at a minimum, the following information about each transaction (other than pursuant to an “automatic investment plan” as defined in Rule 204A-1(e)(2)) involving a reportable security (see definition section E) in which the Access Person had, or as a result of the transaction acquired, any direct or indirect “beneficial ownership” (see definition section E):

(i) The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;

(ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or

disposition); (iii) The price of the security at which the transaction was effected; (iv) The name of the broker, dealer or bank with or through which the transaction was

effected; and

(iv) The date the Access Person submits the report.

The security transaction reporting requirement may be satisfied by providing duplicate broker trade confirmations or account statements of all such transactions to the Companies no later than thirty (30) days after the end of each calendar quarter.

In the alternative to the security transaction reporting requirement, the Companies may require: (1) all personal securities transactions for its Access Persons be executed with or through a broker-dealer/custodian of the Companies’ choosing: or, (2) its Access Persons to maintain all investment accounts with a broker-dealer/custodian of the Companies’ choosing, provided that the broker dealer/custodian and/or Access Person complies with the submission of the broker trade confirmations or account statements to the Companies as referenced in the last paragraph. Exceptions

The above holdings and transactions reporting requirements do not apply to transactions effected in any account over which a particular Access Person has no direct or indirect influence or control. In addition the holdings and transactions reporting requirements do not apply to securities which are excluded from the definition of reportable security (see definition section E).

Investment Polity and Procedures No Access Person of the Companies may effect for himself or herself or for his or her immediate family (i.e., spouse, minor children, and adults living in the same household as the officer, director, or employee, and trusts for which the employee serves as a trustee or in which the employee has a beneficial interest) (collectively “Covered Persons”) any transactions in a security which is being actively purchased or sold, or is being considered for purchase or sale, on behalf of any Companies’ clients, unless in accordance with the following Companies’ Procedures.

1. Companies’ Procedures

In order to implement the Companies’ Investment Policies, the following procedures have been put into place with respect to the Companies and it’s Covered Persons:

a. If the Companies are purchasing or considering the purchase of any exchange listed security on behalf of the Companies’ clients, no Covered Persons may transact in that security prior to the client purchase having been completed by the Companies, or until a decision as been made not to purchase the security on behalf of the client; and

b. If the investment adviser is selling or considering the sale of any exchange listed

security on behalf of a Companies’ clients, no Covered Persons may transact in that security prior to the sale on behalf of the client having been completed by the Companies, or until a decision has been made not to sell the security on behalf of the client.

2. Exceptions

a. These Investment Policies have been established recognizing that some securities being considered for purchase and sale on behalf of the Companies’ clients trade in sufficiently broad markets to permit transactions to be completed without any appreciable impact on the markets of the securities. Under certain circumstances, exceptions may be made to the policies stated above per the authorization of the

Chief Compliance Officer, who has been designated by the Companies to address any prospective exceptions. Records of these trades, including the reason(s) for the exceptions, will be maintained with the Companies’ records; and

b. Open-end mutual funds and/or the investment subdivisions which may comprise

a variable insurance product are purchased or redeemed at a fixed net asset value price per share specific to the date of purchase or redemption. As such, transactions in open-end mutual funds and/or variable insurance products by Covered Persons are not likely to have an impact on the prices of the fund shares in which clients invest, and are therefore not prohibited by the Companies’ Investment Policies.

Restricted Securities (to the extent applicable) Certain of the Companies’ clients may be publicly traded companies (and/or senior executive officers and/or management of publicly traded companies), a current list of which publicly traded companies (to the extent applicable) shall be part hereof as Exhibit D (the “Restricted Securities List”) of the Companies’ Insider Trading Policy and Preventive Procedures. In addition, Exhibit D may also include the securities of public companies, which the Companies are currently recommending or considering recommending to its clients. All securities listed on Exhibit D shall be designated as the Restricted Securities List. The purchase and/or sale of any of the Restricted Securities List is prohibited unless expressly approved in advance by the Chief Compliance Officer. Exhibit D shall be updated and/or amended annually, and each person shall be required to acknowledge his/her ongoing compliance relative to the Restricted Securities List on an annual basis. Failure to comply with this policy shall be cause for immediate dismissal from the Companies. Pre-approval required for IPO’s and Limited Offerings The acquisition of a beneficial ownership (see definition section E) interest in any security in an initial public offering (as defined in Rule 204A-1(e)(6)) or in a limited offering (as defined in Rule 204A-1(e)(7)) by an Access Person is prohibited unless expressly approved in advance by the Chief Compliance Officer, provided, however that at any time that the Companies have only one Access Person, he or she shall not be required to obtain pre-approval for an initial public offering or limited offering. The Companies shall be required to obtain pre-approval for an initial public offering or limited offering. The Companies shall maintain a record of any decision, and the reasons supporting the decision, approving the acquisition of such securities by Access Persons for at least five years after the end of the fiscal year in which the approval is granted.

Blackout Periods (a) Open Order Blackout Period. No Advisory Person shall purchase or sell, directly or indirectly, any Securities in which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership on any day during which the Investment Company has pending “buy” or “sell” order in that same Security until that order is executed or withdrawn. (b) Fifteen-Day Blackout Period. No Portfolio Manager shall purchase or sell, directly or indirectly, any Securities in which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership within seven days before and after the Investment Company trades in that security.

Short-Term Trading Profits

No Advisory Person shall profit in the purchase and sale, or sale and purchase, directly or indirectly, of the same (or equivalent) Securities in which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership within 60 calendar days. Exceptions to this short-term trading prohibition may be made on a case-by-case basis with the prior written approval of the Designated Officer when no abuse appears to be involved and the equities of the situation strongly support such an exception.

Pre-Clearance of Transactions The Chief Compliance Officer must pre-approve the following transactions:

a) Transactions which appear upon reasonable inquiry and investigation to present a reasonable

likelihood of harm to the Firm’s clients.

b) Purchases or sales of reportable securities which are not eligible for purchase or sale by any client, as determined by reference to the Act and blue sky laws and regulations thereunder, the investment objectives and policies and investment restrictions of the clients and their series, and undertakings made to regulatory authorities.

c) Transactions which the Chief Compliance Officer, after consideration of all the facts and

circumstances, determines to be in violation of this Code of Ethics and to present no reasonable likelihood of harm to the clients.

Additional Restrictions and Requirements

a) No Access Person shall accept or receive any gift in excess of $100 value during any 12-month period from any person or entity that does business with or on behalf of the Firm.

b) No Access Person may accept a position as a director, trustee or general partner of a publicly

traded company unless such position has been presented to and approved by the Firm.

c) The Firm shall create and maintain a listing of all Access Persons.

d) The Chief Compliance Officer will review this Code of Ethics at least annually to determine the adequacy of these policies and related procedures.

Retention of Certain Records A record of each securities holdings report and transaction report, including any duplicate broker trade confirmation or account statements provided by an Access Person (or his/her broker/dealer or custodian) in lieu of securities transactions report, shall be maintained by the Companies for the time period required by the Act. In addition, a record of the names of persons who are currently, or within the past five years were, Access Persons of the Companies shall be maintained.

E. Definitions “Access Persons” [either] means:

(i) any of the Companies’ supervised persons (as defined below) who: (A) have access to nonpublic information regarding any Companies’ clients’ purchases or sales of securities, or nonpublic information regarding the portfolio holdings of any reportable fund (as defined under Rule 204A-1(e)(9)), or (B) are involved in making securities recommendations to Companies’ clients, or who have access to such recommendations that are nonpublic; or

(ii) all of the Companies’ directors, officers, members and/or partners since

providing investment advice are the Companies’ primary business. “Beneficial ownership” means an Access Person having or sharing a direct or indirect pecuniary interest (i.e., the opportunity, directly or indirectly, to profit or share in any profit) in the reportable securities (or initial public offering or limited offering, as the case may be), directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise. “Material” information means any information about a company, or the market for its securities, that, if disclosed, is likely to affect the market price of the company’s securities or to be considered important by the reasonable investor in deciding whether to purchase or sell those securities. Examples of information about a company which should be presumed to be “material” include, but are not limited to, matters such as (a) dividend increases or decreases, (b) earnings estimates, (c) changes in previously released earnings estimates, (d) significant new products or discoveries, (e) developments regarding major litigation by or against the company, (f) liquidity or solvency problems, (g) significant merger or acquisition proposals, or (h) similar major events which would be viewed as having materially altered the information available to the public regarding the Companies or the market for any of its securities. The foregoing is not intended to be an exhaustive list. “Nonpublic” information means information that has not been publicly disclosed. Information about a company is considered to be nonpublic information if it is received under circumstances which indicate that it is not yet in general circulation. “Reportable security” means any security defined in Section 202(a)(18) of the Act (generally, all securities of every kind and nature), except that is does not include:

(i) Direct obligations of the Government of the United States; (ii) Bankers’ acceptances, bank certificates of deposit, commercial paper and high quality

short-term debt instruments, including repurchase agreements;

(ii) Shares issued by money market funds; (iv) Shares issued by open-end funds other than reportable funds (as defined in Rule 204A-

1(e)(9)); and (v) Shares issued by unit investment trusts that are invested exclusively in one or more open-

end funds, none of which are reportable funds (as defined in Rule 204A-1(e)(9)). This exception is aimed at variable insurance contracts that are funded by insurance company separate accounts organized as unit investment trusts. (Note: Although not specifically

excluded from the definition of reportable security, it is presumed the variable insurance products are included within this exception).

“Supervised person” means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of the Companies, or other persons who provide investment advice on behalf of the Companies and is subject to the supervision and control of the Companies. Also included are those persons who in connection with his or her regular functions or duties, makes, participates in, obtains, or has knowledge of information regarding the purchase or sale of a security by the Companies.

F. Administration and Enforcement of Code:

The Chief Compliance Officer shall be responsible for administering and enforcing this Code, a necessary part of which is supervising employees through the implementation process. Should any Associated Person have any questions regarding the applicability of this Code, he/she should address those questions with the Chief Compliance Officer. Pursuant to Section 203(e)(6) of the Act, the Companies and Chief Compliance Officer shall not be deemed to have failed to supervise any person if –

• There have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and

• The Chief Compliance Officer has reasonably discharged the duties and obligations incumbent upon that position by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with.

While compliance with the law and with a Companies’ policies and procedures described above

is each individual’s responsibility, interpretive questions may arise, such as whether certain information is material or nonpublic, or whether trading restrictions should be applicable in a given situation. All violations of this Code should be reported to the Chief Compliance Officer. Any questions should immediately be addressed with the Chief Compliance Officer who has been designated by the Companies to respond to such questions.

G. Recordkeeping

In addition to the above, the Code of Ethics currently in effect, or that any time in the past five years was in effect, must be maintained by the Companies. Additionally, a copy of the executed annual Acknowledgment Certification, (an unexecuted copy which is located on the last page of this document shall be part hereof as Exhibit A) of each person who is currently, or within the past five years was, a supervised person must be maintained by the Companies. Furthermore, the Companies are required to maintain a record of any violation of the Code of Ethics (but this does not include any initial reports by employees that informed the Companies of a violation of Companies’ policies, procedures and/or Code of Ethics), and of any action taken as a result of the violation.

EXHIBIT A

ACKNOWLEDGEMENT CERTIFICATION I acknowledge receipt of the Code of Ethics of the Companies. I have read and understand such Code of Ethics and agree to be governed by it at all times. Further, if I have been subject to the Code of Ethics during the preceding year, I certify that I have complied with the requirements of the Code of Ethics and have disclosed or reported all personal securities transactions required to be disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code of Ethics.

___________________________________ (Signature)

___________________________________ (Printed Name)

___________________________________ Date

Section III - Exhibit E

Staff Biographies


1

Staff Biographies

Malcolm (“Skip”) L. Cowen, II

President

Education and Accreditations

BA, Business Administration, Gettysburg College, 1981

MBA, Business Administration, Lehigh University, 1987

Masters in Taxation, Villanova Law School, 1996

General Securities Principal, Series 24

Municipal Securities Principal, Series 53

FINRA Series 7, 63, 65 Licenses

Life, Accident and Health Insurance License

Experience

Over thirty years of industry experience and a shareholder and co-founder of Cornerstone Advisors Asset

Management, Inc. and Cornerstone Institutional Investors, Inc.

As Cornerstone’s President, Skip works with institutional clients and wealthy families to help design,

implement and monitor portfolios on their behalf. He is the chair of the Cornerstone Investment Policy

Committee, which oversees all client assets. He has direct responsibility for client relationships as well as

the overall direction of the firm. Skip became President of Cornerstone Advisors Asset Management, Inc.

and Cornerstone Institutional Investors, Inc. in 2002.

Thomas J. Scalici, CFP®, CEBS, AIF®

Chief Executive Officer


BA, Business Administration, Gettysburg College, 1986

CFP®, College For Financial Planning, Denver, CO, 1991

CEBS, International Society of Certified Employee Benefits Specialists,

The Wharton School, 2003

AIF®, The Center For Fiduciary Studies, University of Pittsburgh, 2006

General Securities Principal, Series 24



Member of AALU and ISCEBS

Experience

Twenty-seven years of industry experience and a shareholder and co-founder of Cornerstone Advisors

Asset Management, Inc. and Cornerstone Institutional Investors, Inc.

Tom has spent his entire career in financial services, having learned the business from the ground up. He

has specialized in the qualified retirement plan business since 1992 and has advised more than 150

corporate clients during that time. Tom became CEO of CAAM and CII in 2002. As such, his primary

firm responsibilities include strategic planning, development of Cornerstone's Lead Team, employee

selection and mentoring. He has a strong belief that each individual has set of unique abilities that

properly developed and nurtured lead to great employee satisfaction. When combined with others' unique

2

abilities, this leads to an organization with a high achievement culture.

Kevin Karpuk, CFA, AIF®, CIPM®

Chief Investment Officer


BS, Economics, Lehigh University, Bethlehem, PA, 2000

MS, Economics, Lehigh University, Bethlehem, PA, 2001

CFA Charter, CFA Institute, 2005

Municipal Securities Principal, Series 53

Registered Options Principal, Series 4

FINRA Series 7, 66 Licenses

AIF®, The Center For Fiduciary Studies, University of Pittsburgh, 2012

Member of CFA Institute & CFA Society of Philadelphia

CIPM® (Certificate in Investment Performance Measurement), CFA Institute 2014

Experience

Kevin has worked with Cornerstone since May 2000, has 14 years of industry experience and is a

shareholder of Cornerstone Advisors Asset Management, Inc. and Cornerstone Institutional Investors,

Inc.

Kevin is Cornerstone’s Chief Investment Officer, specializing in asset allocation studies and managing

due diligence and other special projects for a wide range of clients. Kevin became CIO of CAAM and CII

in 2002. As such, his responsibilities include day-to-day management of client portfolios, research,

having lead responsibility for Cornerstone’s fixed income and alternative investments and also managing

client relationships.

Christopher J. McKinley

Director of Technology


BS, Computer Engineering, Lehigh University, 2001


Experience

Chris has worked with Cornerstone since September 2007. He came from a global software company,

Iconics, which provides the backbone of our internal investment reporting capabilities. While working for

Iconics, Chris introduced Cornerstone to ReportWorX, a software package that can interface with any

data provider while utilizing a flexible Excel interface, which is customizable to suit the complex and

varied needs of our clients. He was the global head of support for the company and worked closely with

Cornerstone in designing the architecture used to integrate Cornerstone’s various reporting vehicles into a

single platform.

As a shareholder and Cornerstone’s Director of Technology, Chris has been the driving force in

developing Cornerstone’s internal and external technology infrastructure and has streamlined and

automated numerous internal functions to improve efficiency, speed and accuracy. Chris is responsible

for developing and maintaining relationships with various service providers that enable Cornerstone to

develop better information acquisition and delivery techniques. He is also responsible for Cornerstone’s

technology contracts. Chris’s ongoing focus is the analysis, design, implementation and integrity of the

technology and systems that allow Cornerstone to provide world-class service to its clients.

3

Donna M. Humphrey, AIF®

Principal/Chief Compliance Officer


AAS, Accounting, Northampton Community College, 1986

AIF® (Accredited Investment Fiduciary), The Center For Fiduciary Studies, University

of Pittsburgh, 2002

FINRA Series 27, 7, 63, 65 Licenses


Experience

Donna has worked with Cornerstone since April 1996 and has 26 years of industry experience. Prior to

joining Cornerstone, she worked for a financial planning Fortune 500 company and also held financial

positions at local non-profit organizations. Upon joining Cornerstone, she was instrumental in

establishing both Cornerstone entities and continues to oversee their financial and operational functions.

Along with her responsibilities, she is the Chief Compliance Officer and has worked with the SEC and

FINRA through the years to ensure our firms are meeting our clients’ needs to the highest fiduciary

standards.

Tiffany A. Gilbert, RP®, ChFC®, CASL™, AIF®

Senior Consultant & Director of Client Service and Operations


BS, Business Administration, Shippensburg University, 1993

ChFC® (Chartered Financial Consultant), American College, Philadelphia, PA, 2008

CASL™ (Chartered Advisor for Senior Living), American College, Philadelphia, PA, 2008

AIF® (Accredited Investment Fiduciary), The Center for Fiduciary Studies, University of Pittsburgh Katz

Graduate School of Business, 2002



Registered ParaplannerSM

, College for Financial Planning, Denver, CO

Experience

Tiffany has worked with Cornerstone since August 1995. She consults with our investment clients and

manages the service team for our Liquid Asset Management Division. She serves as the liaison between

our Investment Policy Committee and our Asset Management Group. She is responsible for the external

and internal servicing of both CAAM and CII clients, which involves identifying client needs and

solutions to ensure and promote client retention.

Ryan D. Wood, CFA, AIF®, CIPM®

Principal and Senior Investment Analyst


BA, Economics, Lehigh University, 2001

MS, Economics, Lehigh University, 2002

CFA Charter, CFA Institute 2012


AIF® (Accredited Investment Fiduciary), The Center For Fiduciary Studies, University of Pittsburgh,

2011

4

Member of CFA Institute & CFA Society of Philadelphia

CIPM® (Certificate in Investment Performance Measurement), CFA Institute 2014

Experience

Ryan has worked with Cornerstone since May 2002 and is a Principal of the Company.

Upon completion of his Master's degree, Ryan began his career at Cornerstone as an analyst. He is

responsible for portfolio design, reporting and research, and data analysis.. He is a member of the

Investment Policy Committee, which makes decisions on investment-related research and due diligence.

As a member of the Lead Team, Ryan plays a major role in the day-to-day operations of the business.

Christopher W. Lakatosh, CFP®, AIF®

Principal and Senior Consultant


BS, Business Administration, Bloomsburg University, 2002

CFP®, The American College, CFP® Board of Standards

AIF® (Accredited Investment Fiduciary), The Center For Fiduciary Studies, University of Pittsburgh,

2011


Life, Accidental & Health Insurance License

Experience

Christopher has worked with Cornerstone since March 2004 and is a Principal of the Company.

As a Senior Consultant, his responsibilities include Strategic Planning and creating best-fit solutions for

individual and institutional clients, in areas of retirement planning, executive benefits, insurance analysis,

charitable giving programs and personal and institutional wealth management. He effectively works

through a prudent investment process to ensure that the highest level of fiduciary standards and insulation

is met.

Brian D. Bobeck, ChFC ®, CLU®

Senior Consultant


BS, Computer and Information Systems, King’s College, 1993

MBA, Lehigh University, 2004

ChFC®, The American College

CLU®, The American College


Life, Accident, and Health Insurance License

Experience

Brian has been with Cornerstone since March 2011. He has 12 years of industry experience specifically

within the M Financial Group community serving in a variety of roles including client service, insurance

and executive plan design, marketing and new business development. He also served as Chief Operating

Officer.

5

Brian is a Chartered Financial Consultant, a Chartered Life Underwriter, and holds a life and health

insurance license. Although he virtually started his career with Cornerstone, Brian recently returned to

reunite with two of the shareholders with whom he started his career. Brian’s personal and career

background has positioned him well to lead the sales efforts and operations of our insurance division,

which includes corporate executive benefit programs, the funding of non-qualified plan liabilities, and the

disability, life and long-term care insurance needs of clients.

Tyler J. Papaz, AIF®

Senior Consultant


BA, Economics, Lafayette College, 2005

M.B.A. Candidate Lehigh University, 2014


Life, Accident, and Health Insurance License

AIF®, (Accredited Investment Fiduciary), The Center For Fiduciary Studies, University of Pittsburgh,

2013

Experience

Tyler has worked with Cornerstone since June 2013 and has been in the financial industry for 8 years. As

a Senior Consultant, Tyler's responsibilities include Strategic Planning and creating best-fit solutions for

sophisticated financial market participants. He concentrates in the areas of the qualified retirement plan

business, wealth management, executive benefits, insurance analysis, and charitable giving programs. He

follows a fiduciary process with a focus on risk management.

Section III - Exhibit F

Sample Quarterly Performance Report



74 W. Broad St. Suite 340 Bethlehem, PA 18018


Fourth Quarter Review Presentation December 31, 2013

Presented By:

Sample Client Employees Retirement Fund

Table of Contents Sample Client

Section I....................................................................................................................... Aggregate Portfolio

Pages 1-6 Market Review Pages 7-10 Tabular Page 11 Report Card Pages 12-13 Style Map Page 14 Top Holdings Report

Section II ......................................................................................................................... Large Cap Value

Section III ................................................................................................................................Core Equity

Section IV ..................................................................................................................... Large Cap Growth

Section V .......................................................................................................................... Small Cap Value

Section VI ..................................................................................................................... Small Cap Growth

Section VII ............................................................................................................................. International

Section VIII.................................................................................................................. Core Fixed Income

Section IX ................................................................................................................................. Alternatives

Section X ............................................................................................................................. Total Portfolio

Cornerstone Advisors Asset Management, Inc.

Investment Measurement Service

Quarterly Review

BENCHMARK & PEER GROUP ANALYSIS

SEPARATE ACCOUNT INVESTMENT STYLES December 31, 2013

The following statistical analysis was prepared by Cornerstone Advisors Asset Management, Inc. utilizing

secondary data from statements provided by the plan trustee and/or custodian, CAI computer software and

selected information in CAI's database. This report may also contain returns and valuations from outside

sources as directed by the client. CAI assumes no responsibility for the accuracy of these valuations or return

methodologies. Reasonable care has been taken to assure the accuracy of the CAI computer software and

database. CAI disclaims responsibility, financial or otherwise for the accuracy or completeness of this report.

1

Market Overview

The charts below illustrate the range of returns across managers in Callan's Separate Account database over the most recent one quarter and one year time periods. The database is broken down by asset class to illustrate the difference in returns across those asset classes. An appropriate index is also shown for each asset class for comparison purposes. As an example, the first bar in the upper chart illustrates the range of returns for domestic equity managers over the last quarter. The triangle represents the S&P 500 return. The number next to the triangle represents the ranking of the S&P 500 in the domestic equity manager database.

Range of Separate Account Manager Returns by Asset Class One Quarter Ended December 31, 2013

Ret

urns

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

Domestic Non-US Domestic Non-US Real CashEquity Equity Fixed Income Fixed Income Estate Equivalents

vs vs vs vs vs vsS&P 500 MSCI EAFE Barclays Aggr Bd Citi Non-US Gov NCREIF Index 3 Mon T-Bills

(35)

(67)

(86)(81)

(51)

(97)

10th Percentile 11.97 8.32 3.24 0.37 3.68 0.3425th Percentile 10.95 7.38 1.57 (0.08) 3.22 0.27

Median 9.90 6.37 0.41 (0.52) 2.56 0.1275th Percentile 8.55 5.28 0.05 (0.94) 1.79 0.0590th Percentile 7.15 4.08 (0.29) (1.51) 1.07 0.03

Index 10.51 5.71 (0.14) (1.24) 2.53 0.01

Range of Separate Account Manager Returns by Asset Class One Year Ended December 31, 2013

Ret

urns

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

Domestic Non-US Domestic Non-US Real CashEquity Equity Fixed Income Fixed Income Estate Equivalents

vs vs vs vs vs vsS&P 500 MSCI EAFE Barclays Aggr Bd Citi Non-US Gov NCREIF Index 3 Mon T-Bills

(75)

(52)

(80) (55)

(58)

(99)

10th Percentile 45.54 28.81 7.20 (0.90) 16.11 0.9225th Percentile 40.01 26.08 1.32 (2.04) 13.37 0.69

Median 35.49 23.29 (0.54) (3.78) 11.30 0.4475th Percentile 32.38 19.57 (1.69) (5.98) 8.57 0.2290th Percentile 28.85 15.34 (5.44) (7.02) 5.40 0.13

Index 32.39 22.78 (2.02) (4.56) 10.98 0.07

Market OverviewActive Management vs Index Returns


2

Domestic Equity

The strong bull market of 2013 continued through the 4th quarter of the year with all major equity indices posting solid gains. By and large, domestic equity indices outpaced active management with exceptions within the mid cap space as well as the large cap and small cap value spaces, where the median separate account manager outpaced its respective index. For the one year period ending December 31, 2013, the trend was reversed with active management essentially across the domestic equity styles outpacing the indices. Small value was the exception there with modest outperformance by the index relative to the median separate account manager. For the recent quarter, large cap outpaced small cap across the style spectrum, and growth outperformed value within both large cap and small cap. Mid cap was the laggard relative to large and small cap in the 4th quarter, although the S&P Mid Cap index posted a strong 8.3% absolute return. For the 2013 calendar year, small growth was the clear winner with a 42.7% return for the S&P 600 Growth index and a return of 46.7% for the median small growth manager. Returns for the one-year period were quite strong across the domestic equity spectrum. Small cap outpaced large cap by a wide margin, and growth outperformed value within both large cap and small cap, although the spread was modest.

Separate Account Style Group Median Returns for Quarter Ended December 31, 2013

0%

5%

10%

15%

8.35%

Small CapGrowth

10.00%

Small CapValue

9.27%

Small CapBroad

8.19%

Mid CapGrowth

9.22%

Mid CapValue

8.71%

Mid CapBroad

10.98%

Large CapGrowth

10.28%

Large CapValue

10.42%

LargeCap Core

Ret

urns

S&P 500: 10.51%S&P 500 Growth: 11.15%S&P 500 Value: 9.83%S&P Mid Cap: 8.33%S&P 600: 9.83%S&P 600 Growth: 10.06%S&P 600 Value: 9.61%

Separate Account Style Group Median Returns for One Year Ended December 31, 2013

0%

10%

20%

30%

40%

50%

60%

70%

46.71%

Small CapGrowth

38.28%

Small CapValue

42.24%

Small CapBroad

36.20%

Mid CapGrowth

35.08%

Mid CapValue

35.84%

Mid CapBroad

35.60%

Large CapGrowth

34.36%

Large CapValue

34.34%

LargeCap Core

Ret

urns

S&P 500: 32.39%S&P 500 Growth: 32.75%S&P 500 Value: 31.99%S&P Mid Cap: 33.50%S&P 600: 41.31%S&P 600 Growth: 42.69%S&P 600 Value: 39.98%

Domestic EquityActive Management Overview


3

Active vs. the Index

The yield on the 10-year U.S. Treasury Note climbed 40 bps during the 4th quarter to close at 3.04%, its high for 2013 and its highest level since mid-2011. After rallying into October as the government shutdown threatened economic growth, yields climbed steadily through year-end on a fairly continuous string of encouraging economic data. The Barclays Aggregate Index posted a -0.1% result, bringing its 2013 return to -2.0%; its worst return since 1994. Corporate bonds strongly outperformed like-duration Treasuries for both the quarter and the year. High yield corporates continued to post very strong results with the Barclays High Yield Index up 3.6% for the quarter and 7.4% for the full year. Lower quality bonds outperformed among both investment grade and high yield for the quarter and the year.

For the quarter ended December 31, 2013, the median Core Bond manager returned 0.18% and the median Core Plus manager returned 0.73%, both outperforming the Barclays Aggregate Index (-0.14%). For the trailing twelve month period, the median Core Bond manager (-1.52%) underperformed the median Core Plus manager (-0.59%) while both fared better than the Barclays Aggregate Index (-2.02%). The median High Yield manager posted the best returns for both periods; 3.59% for the quarter and 7.46% for the 1-year period with both returns in line with the Barclays High Yield Index.

Intermediate vs. Long DurationLonger duration managers slightly outperformed intermediate duration managers in the 4th quarter. The median Extended Maturity manager returned 0.39% while the median Intermediate manager posted a 0.20% return. For the trailing twelve month period, the median Extended Maturity manager returned -7.28%, sharply below the median Intermediate manager's return (-0.54%).


(2%)

(1%)

0%

1%

2%

3%

4%

5%

0.27%

ActiveCash

0.29%

Defensive

0.20%

Intermed

0.18%

CoreBond

0.73%

CorePlus

0.39%

ExtendedMaturity

0.19%

ActiveDuration

(0.31%)

MortgageBacked

3.59%

HighYield

Ret

urns

Barclays Universal: 0.22%Barclays Aggregate: (0.14%)Barclays Govt/Credit: (0.03%)Barclays Mortgage: (0.42%)Barclays High Yield: 3.58%Barclays US TIPS: (2.00%)


(10%)

(5%)

0%

5%

10%

15%

0.66%

ActiveCash

0.61%

Defensive

(0.54%)

Intermed

(1.52%)

CoreBond

(0.59%)

CorePlus

(7.28%)

ExtendedMaturity

(0.88%)

ActiveDuration

(1.15%)

MortgageBacked

7.46%

HighYield

Ret

urns

Barclays Universal: (1.35%)Barclays Aggregate: (2.02%)Barclays Govt/Credit: (2.35%)Barclays Mortgage: (1.41%)Barclays High Yield: 7.44%Barclays US TIPS: (8.61%)

Domestic Fixed Income Active Management Overview


4

Factors Influencing Bond ReturnsThe charts below are designed to give you an overview of the factors that influenced bond market returns for the quarter. The first chart shows the shift in the Treasury yield curve and the resulting returns by duration. The second chart shows the average return premium (relative to Treasuries) for bonds with different quality ratings. The final chart shows the average return premium of the different sectors relative to Treasuries. These sector premiums are calculated after differences in quality and term structure have been accounted for across the sectors. They are typically explained by differences in convexity, sector specific supply and demand considerations, or other factors that influence the perceived risk of the sector.

Yield Curve Change and Rate of Return One Quarter Ended December 31, 2013

Duration

Yie

ld to

Mat

urity

Rate of R

eturn

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

September Yield CurveDecember Yield CurveReturn

Duration AdjustedReturn Premium to Quality

One Quarter Ended December 31, 2013

0% 1% 2% 3% 4% 5% 6%

Trsy

AAA 0.20%

AA+ 2.47%

AA 2.82%

AA- 1.88%

A+ 1.36%

A 1.67%

A- 3.05%

BBB+ 3.22%

BBB 3.22%

BBB- 3.05%

BB+ 3.42%

BB 2.85%

BB- 3.19%

B+ 3.38%

B 2.70%

B- 2.60%

CCC 4.33%

Return Advantage vs Treasuries

Qua

lity

Rat

ing

Quality and Duration Adjusted Return Premium by Sector

One Quarter Ended December 31, 2013

(0.30%)(0.20%)(0.10%)0.00% 0.10% 0.20% 0.30% 0.40% 0.50%

Agencies (0.16%)

Asset Backed 0.26%

CMBSs 0.36%

Credit 0.23%

Eurobonds 0.25%

Mortgages/CMOs 0.05%

Treasuries

Return Advantage vs Treasuries

Bond Market Environment


5

Active vs. the IndexForeign equities lagged their U.S. counterparts in both local currency and U.S. dollar terms (MSCI EAFE US$: +5.7%, Local:+6.4%). Currency impacts were mixed in the 4th quarter as the euro and UK pound strengthened while the Japanese yen and Australian dollar weakened. Active management outperformed passive by a thin margin within both developed large core and emerging markets.

EuropeThe MSCI Europe Index returned 7.9% for the 4th quarter, trailing the Europe peer group median (+8.5%) by 60 bps. Europe was the top-performing region for the recent quarter, outpacing the other broad regions in some cases by several hundred basis points. MSCI Europe closed the 2013 year among the top performing non-US indices with a return of 25.2%.

PacificThe MSCI Pacific Index posted a return of 1.6% for the 4th quarter. The median of the active Pacific Basin peer group modestly outpaced the index with its 2.2% return. The median of the Japan peer group posted a return of 2.8%.

Emerging MarketsEmerging market equities continued to be significant laggards relative to the rest of the developed world and widely trailed developed market results particularly for the 2013 calendar year. For the 4th quarter, active emerging market managers outpaced the Index by a narrow margin (MSCI EM: 1.9%, median 2.2%). The Index finished the year in negative territory with a -2.3% return and the separate account median eked out a 0.3% positive return.


0%

2%

4%

6%

8%

10%

12%

8.48%

Europe

6.82%

Core Int'l

5.99%

Core Plus

2.23%

PacificBasin

2.82%

JapanOnly

2.24%

EmergingMarkets

8.46%

GlobalEquity

Ret

urns

MSCI AC World Index 7.42%MSCI ACW ex US Free: 4.81%MSCI EAFE: 5.71%MSCI Europe: 7.88%MSCI Pacific: 1.56%MSCI Emerging Markets: 1.86%


0%

5%

10%

15%

20%

25%

30%

35%

40%

28.28%

Europe

24.81%

Core Int'l

20.72%

Core Plus

14.00%

PacificBasin

30.65%

JapanOnly

0.25%

EmergingMarkets

28.49%

GlobalEquity

Ret

urns

MSCI AC World Index 23.44%MSCI ACW ex US Free: 15.78%MSCI EAFE: 22.78%MSCI Europe: 25.23%MSCI Pacific: 18.27%MSCI Emerging Markets: (2.27%)

International EquityActive Management Overview


6

Active vs. the IndexPerformance among developed fixed income markets was mixed in the 4th quarter with Spain and Italy performing well and the UK and Germany posting weaker results. Hedged indices outperformed for both the quarter and the year, due largely to depreciation in the Japanese yen versus the U.S. dollar. The yen sank over 20% versus the U.S. dollar in 2013, the most since 1979, as the Bank of Japan initiated a massive stimulus program to combat its long battle with deflation. The Citi Non-US World Government Bond Index returned -1.2% for the quarter (unhedged) and the hedged version posted a 0.4%return. For the full year, the hedged index (+1.4%) outperformed the unhedged (-4.6%) by 600 bps.

Emerging MarketsEmerging market debt delivered mixed results over the quarter. U.S. dollar-denominated sovereign debt performed relatively well as measured by the JPM EMBI Global Diversified Index, which returned 1.5% for the quarter, while local currency emerging market debt continued to sell off. The local debt JPM GBI-EM Global Diversified Index fell 1.5% for the quarter. Both benchmark indices remain sharply down for the full year (-5.2%; -9.0%, respectively) on worries over the impact on developing countries of a slowing and eventual cessation of Fed stimulus.


(1%)

0%

1%

(0.52%)

Non-US FixedIncome

(0.25%)

Global FixedIncome

0.55%

Emerging Debt

0.18%

DomesticCore Bond

Ret

urns

Citi World Govt: (1.09%)Citi Non-US Govt: (1.24%)Citi Non-US Hedged: 0.44%JPM EMBI GI Div: 1.54%


(8%)

(6%)

(4%)

(2%)

0%

2%

(3.78%)

Non-US FixedIncome

(3.42%)

Global FixedIncome

(6.21%)

Emerging Debt

(1.52%)

DomesticCore Bond

Ret

urns

Citi World Govt: (4.00%)Citi Non-US Govt: (4.56%)Citi Non-US Hedged: 1.42%JPM EMBI GI Div: (5.24%)

International Fixed Income Active Management Overview

CORNERSTONE ADVISORS ASSET MANAGEMENT, INC.

9/30/13-12/31/13

Manager - MandateBeginning Market

ValueIncome Deposits Transfers Expenses

Participant/Beneficiary

Payments

Change in

Market Value

Ending Market

Value

CS McKee - LCV $14,623,358 $80,485 $0 ($1,500,000) ($18,279) $0 $1,278,341 $14,463,906

iShares S&P 500 - Core Eq $11,426,930 $59,599 $0 ($1,059,835) $0 $0 $1,115,167 $11,541,861

Alger - LCG $14,955,016 $41,896 $0 ($2,100,000) ($24,303) $0 $1,659,653 $14,532,263

Vanguard - SCV $5,553,846 $101,854 $0 ($500,000) $0 $0 $433,664 $5,589,364

Emerald - SCG $6,135,762 $2,194 $0 ($800,000) ($9,953) $0 $330,044 $5,658,047

American Beacon International - Intl $5,456,765 $92,610 $0 $0 $0 $0 $281,613 $5,830,988

Artisan International - Intl $5,384,920 $54,901 $0 $0 $0 $0 $343,802 $5,783,624

Harding Loevner Emerging - Intl $2,247,154 $19,213 $0 $0 $0 $0 $90,723 $2,357,090

BHMS - Fixed Income $15,444,720 $124,127 $0 $0 ($11,580) $0 ($134,508) $15,422,759

JPMorgan - Fixed Income $13,770,440 $0 $0 $10,285 ($10,285) $0 ($8,516) $13,761,924

Nationwide - Short-Term Fixed Income $4,479,277 $0 $0 $0 $0 $0 $39,009 $4,518,286

Eaton Vance FRN - Alternative $2,352,305 $32,361 $0 $1,770,000 $0 $0 $17,944 $4,172,610

Nuveen - Alternative $2,272,765 $48,525 $0 $1,830,000 $0 $0 $13,718 $4,165,008

CS Commodity - Alternatives $2,353,224 $0 $0 $1,830,000 $0 $0 ($47,639) $4,135,585

Jhancock Global Abs Return - Alternatives $0 $48,226 $0 $4,100,000 $0 $0 $45,345 $4,193,571

Vanguard Infl Prot Secs - Alternatives $2,202,602 $0 $0 ($2,204,278) $0 $0 $1,677 $0

PIMCO All Asset - Alternatives $3,981,105 $0 $0 ($4,062,551) $0 $0 $81,447 $0

Money Market - Cash & Equivalents $2,776,352 $65 $2,369,085 $2,686,379 ($29,816) ($2,123,304) $0 $5,678,762

Aggregate Portfolio $115,416,539 $706,057 $2,369,085 $0 ($104,216) ($2,123,304) $5,541,484 $121,805,646

Sample Client Employees' Retirement Fund December 31, 2013

Section 1 - 7


Market Value Target

% of

Portfolio Deviation

Estimated

Yield Market Value Target

% of

Equity Deviation

Domestic Eq $51,785,440 40.0% 42.5% 2.5% 1.8% Large Cap Growth $14,532,263 20.0% 28.1% 8.1%

International Eq $13,971,702 10.0% 11.5% 1.5% 2.9% Large Cap Core $11,541,861 40.0% 22.3% -17.7%

Fixed Income $33,702,969 35.0% 27.7% -7.3% 2.4% Large Cap Value $14,463,906 20.0% 27.9% 7.9%

Alternatives $16,666,774 10.0% 13.7% 3.7% 5.0% Small Cap Growth $5,658,047 10.0% 10.9% 0.9%

Cash $5,678,762 5.0% 4.7% -0.3% 0.0% Small Cap Value $5,589,364 10.0% 10.8% 0.8%

$121,805,646 100.0% 100.0% 0.0% 2.4% $51,785,440 100.0% 100.0% 0.0%

Sample Client Employees' Retirement Fund Equity Summary - Style & Capitalization

Large Capitalization

Small Capitalization

Large Cap Growth

28%

Large Cap Core

22%

Large Cap Value

28%

Small Cap Growth

11% Small Cap Value

11%

Current Equity Portfolio

Domestic Eq

42%

International Eq

11%

Fixed Income

28%

Alternatives

14%

Cash

5%

Current Portfolio

Valu

e

Gro

wth

CS McKee Alger iShares S&P 500

Vanguard Emerald

Section 1 - 8


Quarterly Return Market Value Market Value

4th Quarter 2013 Beginning of Period End of Period

CS McKee - LCV 9.36% $14,623,358 $14,463,906

Russell 1000 Value 10.01%

iShares S&P 500 - Core Eq 10.49% $11,426,930 $11,541,861

S&P 500 10.51%

Alger - LCG 11.50% $14,955,016 $14,532,263

Russell 1000 Growth 10.44%

Vanguard - SCV 9.92% $5,553,846 $5,589,364

Russell 2000 Value 9.30%

Emerald - SCG 5.51% $6,135,762 $5,658,047

Russell 2000 Growth 8.17%

American Beacon International - Intl 6.86% $5,456,765 $5,830,988

Artisan International - Intl 7.40% $5,384,920 $5,783,624

Harding Loevner Emerging - Intl 4.61% $2,247,154 $2,357,090

MSCI EAFE 5.71%

BHMS - Fixed Income -0.07% $15,444,720 $15,422,759

Barclays Capital Aggregate -0.14%

JPMorgan - Fixed Income -0.06% $13,770,440 $13,761,924

Barclays Capital Aggregate -0.14%

Nationwide - Short-Term Fixed Income 0.87% $4,479,277 $4,518,286

Barclays Capital 1-3 Year Govt/Credit 0.18%

Liquid Alternatives 1.26% $9,180,894 $16,666,774

Liquid Alternative Blended Benchmark 0.71%

PIMCO All Asset - Alternatives 1.30% $3,981,105 $0

CPI + 5% 0.66%

Money Market - Cash & Equivalents 0.00% $2,776,352 $5,678,762

30 Day MM Yield 0.00%

Weighted Portfolio 5.45% $115,416,539 $121,805,646

Rate of Return Index 5.21%

Sample Client Employees' Retirement Fund Manager Performance Summary

Section 1 - 9


Blended Benchmark Market Value Market Value Net Income/

Return Beginning of Period End of Period Flows MV Gain/Loss

Year 2001 4.43% 3.68% $66,970,199 $68,638,530 ($1,180,150) $2,848,481

Year 2002 -8.27% -9.47% $68,638,530 $61,650,854 ($1,431,099) ($5,556,578)

Year 2003 18.81% 20.65% $61,650,854 $72,667,971 ($631,801) $11,648,918

Year 2004 9.08% 8.79% $72,667,971 $77,513,941 ($1,608,048) $6,454,017

Year 2005 5.91% 4.42% $77,513,941 $80,568,936 ($1,495,573) $4,550,569

Year 2006 11.68% 12.76% $80,568,936 $88,571,639 ($1,343,899) $9,346,603

Year 2007 9.10% 6.10% $88,571,639 $94,891,235 ($1,655,432) $7,975,028

Year 2008 -19.58% -20.96% $94,891,235 $74,123,185 ($2,517,366) ($18,250,685)

First Quarter 2009 -3.47% -5.54% $74,123,185 $70,721,117 ($812,875) ($2,589,193)

Second Quarter 2009 9.21% 9.40% $70,721,117 $76,410,673 ($775,576) $6,465,132

Third Quarter 2009 9.54% 10.01% $76,410,673 $83,680,317 ($37,400) $7,307,044

Fourth Quarter 2009 3.33% 3.03% $83,680,317 $86,792,476 $323,058 $2,789,101

Year 2009 19.32% 17.13% $74,123,185 $86,792,476 ($1,302,793) $13,972,084

First Quarter 2010 3.02% 2.64% $86,792,476 $88,509,507 ($888,758) $2,605,789

Second Quarter 2010 -4.40% -4.68% $88,509,507 $83,728,331 ($897,819) ($3,883,357)

Third Quarter 2010 7.50% 6.92% $83,728,331 $90,652,037 $603,306 $6,320,400

Fourth Quarter 2010 5.55% 5.19% $90,652,037 $96,419,035 $744,162 $5,022,836

Year 2010 11.75% 10.04% $86,792,476 $96,419,035 ($439,109) $10,065,668

First Quarter 2011 3.42% 3.40% $96,419,035 $98,640,907 ($1,070,287) $3,292,159

Second Quarter 2011 0.84% 0.90% $98,640,907 $98,622,782 ($851,678) $833,554

Third Quarter 2011 -8.55% -7.47% $98,622,782 $90,661,892 $563,608 ($8,524,498)

Fourth Quarter 2011 5.92% 5.72% $90,661,892 $96,990,032 $952,039 $5,376,101

Year 2011 1.02% 2.06% $96,419,035 $96,990,032 ($406,318) $977,316

First Quarter 2012 8.17% 6.68% $96,990,032 $103,600,384 ($1,257,246) $7,867,597

Second Quarter 2012 -1.76% -1.32% $103,600,384 $100,565,928 ($1,215,541) ($1,818,915)

Third Quarter 2012 4.92% 3.97% $100,565,928 $105,911,483 $384,721 $4,960,834

Fourth Quarter 2012 0.94% 0.91% $105,911,483 $106,861,747 ($23,016) $973,281

Year 2012 12.54% 10.45% $96,990,032 $106,861,747 ($2,111,082) $11,982,797

First Quarter 2013 4.81% 5.25% $106,861,747 $110,325,964 ($1,645,226) $5,109,442

Second Quarter 2013 0.14% 0.27% $110,325,964 $109,263,776 ($1,222,090) $159,903

Third Quarter 2013 5.16% 4.57% $109,263,776 $115,416,539 $483,402 $5,669,361

Fourth Quarter 2013 5.45% 5.21% $115,416,539 $121,805,646 $141,565 $6,247,541

Year 2013 16.39% 16.11% $106,861,747 $121,805,646 ($2,242,349) $17,186,247

Since Inception Cumulative 127.31% 105.21%

Since Inception Annualized 6.65% 5.80%

Time Period Aggregate Return Blended Benchmark

Rolling Three-Year Return 9.78% 9.38%

Aggregate ReturnTime Period

Sample Client Employees' Retirement Fund Historical Performance Summary

$66,970,199 $121,805,646 ($18,365,019) $73,200,465

Section 1 - 10


QuarterLast Last Year

YearsLast 3

YearsLast 5

YearsLast 7

YearsLast 10

0.0

5.0

10.0

15.0

20.0

25.0

Group: CAI Public Fund - Small (<100 MM)for Periods Ended December 31, 2013

Returns

Ret

urns

10th Percentile 6.47 20.72 10.92 13.48 6.98 7.7025th Percentile 6.19 18.31 10.24 12.76 6.37 7.18

Median 5.56 16.88 9.10 11.22 5.94 6.6875th Percentile 4.96 14.40 8.34 9.53 5.16 6.2990th Percentile 4.02 12.43 7.19 8.98 4.54 5.96

Sample Client Blended Bench A 5.21 16.11 9.39 11.02 5.08 6.13

Sample Client Aggregate B 5.45 16.39 9.78 12.03 6.44 7.16

A (64)

A (61)

A (47) A (53)

A (79) A (83)B (53)

B (59)

B (39) B (42)

B (22) B (25)

Section 1 - 11


(100) (75) (50) (25) 0 25 50 75 100(100)

(75)

(50)

(25)

0

25

50

75

100

for 3 Years Ended December 31, 2011Rolling 20 Quarter Return Based Style Map

Value Growth

Smal

lLa

rge

Emerald:Dvsfd Sm Cap Gr

BlkRck:iShares:Core S&P 500

FAlger:Cap Appr Gr EqCSMKee:Dom Value Eq

Vanguard SC Val Idx;Ins

Section 1 - 12


for 3 Years Ended December 31, 2011Domestic Equity Style Map

Value Core Growth

Mega

Large

Mid

Small

Micro

Emerald:Dvsfd Sm Cap Gr


FAlger:Cap Appr Gr Eq

CSMKee:Dom Value Eq

Vanguard SC Val Idx;Ins

Section 1 - 13

Equity Attribution - Sample ClientPerformance Attribution Analytics

Attribution Statistics

Time Period: 9/30/2013 - 12/31/2013Benchmark: S&P 500 Index

Consumer Discretionary 14.97 15.08 12.54 10.62 10.36 1.59 1.29 0.01 0.04 0.05Consumer Staples 6.18 6.23 10.11 7.55 7.53 0.48 0.76 0.10 0.00 0.10Energy 9.05 9.12 10.43 3.17 7.49 0.29 0.79 0.02 -0.39 -0.37Financials 13.99 14.09 16.18 10.94 9.53 1.53 1.55 0.01 0.20 0.21Health Care 14.19 14.10 13.04 8.02 9.80 1.15 1.27 0.00 -0.23 -0.23Industrials 12.57 12.66 10.79 13.63 12.84 1.70 1.38 0.05 0.10 0.15Information Technology 20.22 20.36 17.81 10.20 12.77 2.09 2.27 0.07 -0.51 -0.44Materials 2.97 2.99 3.49 11.09 10.22 0.33 0.36 0.00 0.03 0.02Telecommunication Services 1.47 1.48 2.44 4.27 4.84 0.07 0.12 0.05 -0.01 0.04Utilities 2.12 2.13 3.09 3.62 2.66 0.08 0.08 0.07 0.02 0.09Cash 1.74 1.76 0.06 0.02 0.02 0.00 0.00 -0.17 0.00 -0.17Attribution Total 99.48 100.00 99.66 9.32 9.87 9.32 9.87 0.22 -0.77 -0.54

Leading Contributors Leading DetractorsSector Weight Return Contr Sector Weight Return ContrInformation Technology 20.36 10.20 2.09 Cash 1.76 0.02 0.00Industrials 12.66 13.63 1.70 Telecommunication Services 1.48 4.27 0.07Consumer Discretionary 15.08 10.62 1.59 Utilities 2.13 3.62 0.08Financials 14.09 10.94 1.53 Energy 9.12 3.17 0.29Health Care 14.10 8.02 1.15 Materials 2.99 11.09 0.33

76.29 8.07 17.48 0.77Holdings HoldingsApple Inc 2.82 16.89 0.46 Sarepta Therapeutics Inc 0.10 -56.47 -0.08Google, Inc. Class A 1.45 27.88 0.38 Anadarko Petroleum Corp 0.35 -15.91 -0.06General Electric Co 1.50 17.49 0.25 Infoblox Inc 0.20 -21.74 -0.05Amazon.com Inc 0.88 26.20 0.21 Rally Software Development Corp 0.10 -36.46 -0.05JPMorgan Chase & Co 1.41 12.76 0.20 NPS Pharmaceuticals Inc 0.27 -6.24 -0.04American Express Co 0.99 19.92 0.19 Achillion Pharmaceuticals, Inc. 0.02 -54.16 -0.04Microsoft Corporation 1.30 13.30 0.17 Tile Shop Holdings Inc 0.10 -39.14 -0.03Time Warner Cable Inc 0.80 21.37 0.16 Nuance Communications, Inc. 0.09 -19.45 -0.03CVS Caremark Corp 0.66 24.29 0.15 Celldex Therapeutics, Inc. 0.05 -32.77 -0.03Wells Fargo & Co 1.41 9.93 0.14 Cisco Systems Inc 0.76 -3.15 -0.03

13.22 2.32 2.05 -0.44

Active Return

ReturnWeightings

Benchmark Contribution

Portfolio Contribution

Attribution Effects %Contribution

Portfolio Weights

Portfolio Rescaled Weights

Benchmark Rescaled Weights

Portfolio Return

Benchmark Return

Sector Allocation

Effect

Security Selection

Effect

Section 1 - 14


10.0 12.0 14.0 16.0 18.0 20.0 22.08.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Scatter Chart for 12 Quarters for periods ending 12/31/13

Standard Deviation

Ret

urns

16.7

17.1

CAI:Lg Cap Value Style

Russell:1000 Value

Sample LCV

CSMKee:Dom Value Eq

Section 2 - 1


Last 5 Years Year to Date Last Year Last 2 Years Last 3 Years10.015.020.025.030.035.040.045.0

Group: CAI Large Cap Value Stylefor Periods Ended December 31, 2013

Returns

10th Percentile 19.99 40.31 40.31 29.00 18.3425th Percentile 18.54 36.92 36.92 27.16 17.68

Median 17.22 34.36 34.36 25.14 16.7175th Percentile 16.19 32.14 32.14 23.91 15.6090th Percentile 15.32 30.55 30.55 21.90 13.71

Russell:1000 Value A 16.67 32.53 32.53 24.79 16.06

18.56 31.68 31.68 23.65 14.31Sample LCV B CSMKee:Dom Value Eq C 17.14 31.87 31.87 23.74 14.76

A (67)

A (69) A (69)

A (59)

A (60)B (24)

B (80) B (80)

B (80)

B (88)

C (54)

C (79) C (79)

C (79)

C (84)

Section 2 - 2


12/31/13 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12 3/31/12(10.0)

(5.0)0.05.0

10.015.020.0

Group: CAI Large Cap Value Style2 Years Ended December 31, 2013

for 1 Quarter Rolling PeriodsReturns

10th Percentile 11.89 6.32 5.65 13.68 3.30 8.20 (1.84) 14.6825th Percentile 10.95 5.63 4.79 12.77 2.64 7.24 (2.72) 12.96

Median 10.28 4.83 3.92 11.99 1.79 6.45 (3.59) 11.8575th Percentile 9.59 4.09 3.11 11.12 0.93 5.59 (4.92) 10.8390th Percentile 8.85 3.49 2.52 10.43 0.07 4.95 (6.56) 9.56

Russell:1000 Value A 10.01 3.94 3.20 12.31 1.52 6.51 (2.20) 11.12

9.36 5.22 4.34 9.68 (0.70) 7.46 (3.59) 12.86Sample LCV B CSMKee:Dom Value Eq C 9.61 5.16 4.30 9.69 (0.76) 7.45 (3.56) 12.90

A (56)

A (79) A (71)

A (44)

A (59) A (49)A (15)

A (71)B (78)

B (33) B (38)B (93)

B (96)

B (21)

B (51)

B (29)C (75)

C (35) C (38)

C (93)

C (96)

C (21)

C (46)

C (27)

Section 2 - 3


(100) (75) (50) (25) 0 25 50 75 100(100)

(75)

(50)

(25)

0

25

50

75

100

Style Map for rolling 12 Qtr. periods over 12 Quarters Ended December 31, 2013

Value Growth

Smal

lLa

rge

Sample LCV

Russell:1000 Value CSMKee:Dom Value Eq

Larger points reflect the more recent 12 Qtr. periods

Section 2 - 4


BetaDeviationStandard Residual Risk Downside Risk

0.05.0

10.015.020.025.0

Group: CAI Large Cap Value Stylefor 3 Years Ended December 31, 2013

Statistics

10th Percentile 1.15 19.12 4.02 3.4925th Percentile 1.08 17.83 3.34 2.48

Median 1.05 17.07 2.54 1.7175th Percentile 0.97 15.90 2.04 1.2190th Percentile 0.89 14.55 1.61 0.84

Russell:1000 Value A 1.00 16.23 0.00 0.00

0.93 15.52 3.50 3.09Sample LCV B CSMKee:Dom Value Eq C 0.94 15.57 3.55 3.05

A (66)

A (67)

A (99) A (100)B (84)

B (82)

B (20)B (16)

C (84)

C (81)

C (19)C (17)

Section 2 - 5


Alpha Sharpe RatioRatio

TreynorRatio

Information Sortino Ratio(5.0)

0.05.0

10.015.020.025.0


Statistics


Median 0.11 0.98 16.05 0.04 0.2975th Percentile (1.17) 0.89 14.63 (0.47) (0.19)90th Percentile (2.80) 0.79 13.13 (0.76) (0.91)

Russell:1000 Value A 0.00 0.98 15.97 0.00 --

(0.59) 0.92 15.23 (0.17) (0.57)Sample LCV B CSMKee:Dom Value Eq C (0.22) 0.94 15.67 (0.06) (0.43)

A (52) A (49)

A (51)

A (52)

B (65) B (66)

B (65)

B (63) B (87)C (62) C (62)

C (61)

C (61) C (85)

Section 2 - 6


Up Market Capture Down Market Capture70.0

90.0

110.0

130.0

150.0


Statistics

10th Percentile 119.44 136.2325th Percentile 114.67 120.34

Median 107.04 107.4575th Percentile 99.55 96.6990th Percentile 91.58 80.04

Russell:1000 Value A 100.00 100.00

91.42 101.59Sample LCV B CSMKee:Dom Value Eq C 92.75 99.36

A (74) A (64)

B (90)

B (63)

C (88) C (64)

Section 2 - 7

Sample Client - CS McKee Performance Attribution Analytics


Time Period: 10/1/2013 to 12/31/2013

Benchmark: iShares Russell 1000 Value Index

PortfolioWeights

PortfolioRescaledWeights

BenchmarkRescaledWeights

PortfolioReturn

BenchmarkReturn

PortfolioContribution

BenchmarkContribution

AllocationEffect

SelectionEffect

ActiveReturn

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Telecommunication Services

Utilities

Attribution Total

Cash

Other

Missing Performance

Total

7.3 7.5 6.5 15.4 11.3 1.1 0.7 0.0 0.3 0.3

6.5 6.6 5.9 6.1 11.6 0.4 0.7 0.1 -0.4 -0.3

15.2 15.6 15.0 4.0 10.0 0.6 1.5 0.0 -0.9 -0.9

19.7 20.2 28.9 12.7 9.3 2.5 2.7 0.1 0.7 0.7

12.0 12.3 13.1 9.7 8.9 1.2 1.2 0.0 0.1 0.1

13.9 14.2 10.2 11.7 14.9 1.7 1.5 0.2 -0.4 -0.3

14.6 15.0 8.8 9.1 12.1 1.4 1.1 0.1 -0.4 -0.3

2.5 2.5 2.9 13.4 11.1 0.4 0.3 0.0 0.1 0.1

1.9 2.0 2.6 5.4 7.1 0.1 0.2 0.0 0.0 0.0

4.0 4.0 6.1 3.6 2.6 0.2 0.2 0.2 0.0 0.2

97.6 100.0 100.0 9.6 10.0 9.6 10.0 0.7 -1.0 -0.4

1.9

0.0

0.6

100.0 9.6 10.0

Sector Variance

Time Period: 10/1/2013 to 12/31/2013


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials


Utilities

-10.0 -6.0 -2.0 2.0 6.0 10.0

Sample Client - CS McKee - Top Holdings

Portfolio Date: 12/31/2013

GICSSector

TotalRet

YTD(Daily)

% Weight

General Electric Co

JPMorgan Chase & Co

Wells Fargo & Co

AmerisourceBergen Corp

Chevron Corp

Dover Corporation

American Express Co

Hess Corp

Wal-Mart Stores Inc

Apple Inc

Industrials 4.35

Financials 4.01

Financials 3.96

Health Care 3.55

Energy 3.46

Industrials 3.08

Financials 2.95

Energy 2.87

Consumer Staples 2.72

Information Technology 2.72

1.19

1.46

0.67

-3.12

-3.82

-2.53

-5.01

-2.15

-2.18

-0.83

Sample Client- CS McKee - Operations

Avg Market Cap (mil)

Debt to Capital %

Net Margin %

ROA % (TTM)

ROE % (TTM)

P/B Ratio (TTM)

P/S Ratio (TTM)

P/C Ratio (TTM)

Asset Alloc Equity %

US Equity %

Asset Alloc Non-US Equity %

Asset Alloc Cash %

Asset Alloc Other %

72,213

38.6

13.0

6.4

16.9

2.1

1.3

9.2

98.2

94.6

3.6

1.8

0.0

Section 2 - 8


12.0 14.0 16.0 18.0 20.06.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0


Standard Deviation

Ret

urns

14.7

16.4

CAI MF:Core Equity Style

S&P:500


Section 3 - 1


Last 5 Years Year to Date Last Year Last 2 Years Last 3 Years5.0

10.015.020.025.030.035.040.0

Group: CAI MF - Core Equity Stylefor Periods Ended December 31, 2013

Returns



S&P:500 A 17.94 32.39 32.39 23.93 16.18

BlkRck:iShares:Core S&P 500 B 17.86 32.31 32.31 23.84 16.09

A (20)

A (50) A (50)

A (43)

A (25)B (23)

B (52) B (52)

B (44)

B (26)

Section 3 - 2


12/31/13 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12 3/31/12(10.0)

(5.0)0.05.0

10.015.020.0

Group: CAI MF - Core Equity Style2 Years Ended December 31, 2013


10th Percentile 10.91 9.27 4.79 11.99 1.61 7.68 (2.42) 16.0325th Percentile 10.62 7.89 3.12 10.63 0.77 6.85 (3.35) 15.16

Median 10.14 6.51 2.17 9.90 (0.44) 6.35 (4.49) 13.3375th Percentile 9.14 5.36 1.55 9.01 (1.11) 5.65 (5.66) 11.6590th Percentile 8.27 4.60 0.92 7.72 (1.82) 4.62 (6.92) 9.84

S&P:500 A 10.51 5.24 2.91 10.61 (0.38) 6.35 (2.75) 12.59

BlkRck:iShares:Core S&P 500 B 10.49 5.23 2.90 10.59 (0.38) 6.33 (2.76) 12.54

A (38)

A (79)A (35)

A (26)

A (49)

A (50)

A (17)

A (67)

B (41)

B (79)B (36)

B (27)

B (49)

B (51)

B (17)

B (67)

Section 3 - 3


(100) (75) (50) (25) 0 25 50 75 100(100)

(75)

(50)

(25)

0

25

50

75

100


Value Growth

Smal

lLa

rge

S&P:500BlkRck:iShares:Core S&P 500


Section 3 - 4



0.0

5.0

10.0

15.0

20.0

Group: CAI MF - Core Equity Stylefor 3 Years Ended December 31, 2013

Statistics



S&P:500 A 1.00 15.16 0.00 0.00

BlkRck:iShares:Core S&P 500 B 1.00 15.14 0.02 0.05

A (78)

A (83)

A (98) A (98)B (79)

B (83)

B (98) B (98)

Section 3 - 5


AlphaRatio

SharpeRatio

TreynorRatio

InformationRatio

Sortino(10.0)

(5.0)0.05.0

10.015.020.0


Statistics

10th Percentile 1.09 1.11 17.26 0.41 1.9725th Percentile (0.30) 1.04 15.74 (0.10) 0.02

Median (1.84) 0.91 14.08 (0.59) (0.66)75th Percentile (4.24) 0.75 11.54 (1.19) (0.98)90th Percentile (5.18) 0.69 10.64 (2.32) (1.35)

S&P:500 A 0.00 1.06 16.08 0.00 --

BlkRck:iShares:Core S&P 500 B (0.06) 1.06 16.02 (3.30) (1.80)

A (23) A (23)

A (23)

A (24)B (24) B (24)

B (24)

B (99) B (97)

Section 3 - 6


Up Market Capture Down Market Capture70.080.090.0

100.0110.0120.0130.0140.0150.0


Statistics



S&P:500 A 100.00 100.00

BlkRck:iShares:Core S&P 500 B 99.57 100.09

A (56)A (85)B (56)B (85)

Section 3 - 7


10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.010.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0


Standard Deviation

Ret

urns

16.2

17.0

CAI:Lg Cap Growth Style

Russell:1000 Growth Sample LCG


Section 4 - 1


Last 5 Years Year to Date Last Year Last 2 Years Last 3 Years10.015.020.025.030.035.040.045.0

Group: CAI Large Cap Growth Stylefor Periods Ended December 31, 2013

Returns



Russell:1000 Growth A 20.39 33.48 33.48 24.04 16.45

20.27 35.92 35.92 27.28 16.67Sample LCG B FAlger:Cap Appr Gr Eq C 23.01 36.14 36.14 27.42 17.54

A (36)

A (73) A (73)

A (72)

A (45)B (37)

B (47) B (47)

B (21)

B (35)

C (15)

C (44) C (44)

C (21)

C (27)

Section 4 - 2


12/31/13 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12 3/31/12(10.0)

0.0

10.0

20.0

30.0

Group: CAI Large Cap Growth Style2 Years Ended December 31, 2013


10th Percentile 12.38 12.71 3.11 10.57 0.09 7.87 (3.32) 19.4125th Percentile 11.81 11.42 2.66 9.93 (0.39) 6.75 (4.37) 17.78

Median 10.98 9.87 1.76 9.12 (0.97) 6.17 (5.26) 16.3475th Percentile 10.15 8.28 1.20 8.54 (1.61) 5.82 (6.22) 14.8990th Percentile 9.68 6.82 0.23 7.63 (2.24) 4.97 (6.86) 13.49

Russell:1000 Growth A 10.44 8.11 2.06 9.54 (1.32) 6.11 (4.02) 14.69

9.77 1.63 9.27 (0.52) 7.39 (4.52) 16.85Sample LCG B 11.50 FAlger:Cap Appr Gr Eq C 11.78 9.78 1.33 9.49 (0.27) 7.30 (4.41) 16.58

A (64) A (82) A (36)

A (35)

A (60)

A (55) A (18)

A (79)B (33) B (51)

B (58) B (44)B (28)

B (20)

B (27)

B (41)C (29) C (51)

C (70)

C (36)C (20) C (21)

C (26)

C (47)

Section 4 - 3


(100) (75) (50) (25) 0 25 50 75 100(100)

(75)

(50)

(25)

0

25

50

75

100


Value Growth

Smal

lLa

rge

Russell

Sample LCG



Section 4 - 4



0.05.0

10.015.020.025.0

Group: CAI Large Cap Growth Stylefor 3 Years Ended December 31, 2013

Statistics



Russell:1000 Growth A 1.00 15.44 0.00 0.00

1.13 17.51 2.04 1.85Sample LCG B FAlger:Cap Appr Gr Eq C 1.12 17.33 1.82 1.45

A (84)

A (91)

A (100) A (99)

B (34)

B (39)

B (83) B (72)C (40)

C (43)

C (86) C (85)

Section 4 - 5


Alpha Sharpe Ratio Treynor RatioRatio

Information Sortino Ratio(10.0)

0.0

10.0

20.0

30.0


Statistics



Russell:1000 Growth A 0.00 1.06 16.36 0.00 --

(1.57) 0.95 14.71 (0.77) 0.12Sample LCG B FAlger:Cap Appr Gr Eq C (0.66) 1.01 15.62 (0.36) 0.75

A (29) A (22)

A (26)

A (29)

B (48) B (44)

B (47)

B (59)B (35)C (40) C (36)

C (39)

C (45)C (23)

Section 4 - 6


Up Market Capture Down Market Capture80.090.0

100.0110.0120.0130.0140.0


Statistics



Russell:1000 Growth A 100.00 100.00

107.29 113.15Sample LCG B FAlger:Cap Appr Gr Eq C 110.15 108.97

A (64) A (83)B (40)

B (46)C (33)C (59)

Section 4 - 7

Sample Client- Alger Performance Attribution Analytics


Time Period: 10/1/2013 to 12/31/2013

Benchmark: iShares Russell 1000 Growth Index

PortfolioWeights

PortfolioRescaledWeights

BenchmarkRescaledWeights

PortfolioReturn

BenchmarkReturn

PortfolioContribution

BenchmarkContribution

AllocationEffect

SelectionEffect

ActiveReturn


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials


Utilities

Attribution Total

Cash

Other

Missing Performance

Total

23.0 23.8 20.0 11.9 10.4 2.8 2.1 0.0 0.4 0.4

6.5 6.8 12.3 11.4 7.4 0.8 0.9 0.2 0.3 0.4

4.7 4.9 4.7 -3.6 1.6 -0.2 0.1 -0.1 -0.2 -0.3

5.8 6.0 5.4 15.5 10.7 0.9 0.6 0.0 0.3 0.3

13.9 14.4 12.1 11.1 10.9 1.5 1.3 0.0 0.0 0.0

10.7 11.1 12.2 15.7 12.1 1.7 1.5 0.0 0.4 0.4

28.2 29.2 26.5 13.5 12.8 4.0 3.4 0.0 0.2 0.3

3.0 3.1 4.5 7.5 9.8 0.2 0.4 0.0 -0.1 -0.1

0.7 0.7 2.0 6.5 6.4 0.1 0.1 0.1 0.0 0.1

0.0 0.0 0.2 8.7 0.0 0.0 0.0 0.0 0.0

96.6 100.0 100.0 11.9 10.4 11.9 10.4 0.2 1.2 1.4

3.3

0.0

0.1

100.0 11.9 10.4

Sector Variance

Time Period: 10/1/2013 to 12/31/2013


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials


Utilities

-8.0 -4.0 0.0 4.0

Sample Client - Alger - Top Holdings

Portfolio Date: 12/31/2013

GICSSector

TotalRet

YTD(Daily)

% Weight

Apple Inc

Google, Inc. Class A

Wilmington US Government Money Mkt Admin

Amazon.com Inc

Gilead Sciences Inc

CVS Caremark Corp

Facebook Inc Class A

Visa, Inc. Class A

Home Depot, Inc.

General Motors Co



3.40

Consumer Discretionary 2.57

Health Care 2.29

Consumer Staples 2.28





-5.01

-0.70

6.02

-0.31

-0.28

-2.88

0.85

0.00

-2.06

-0.40

Sample Client- Alger - Operations

Avg Market Cap (mil)

Debt to Capital %

Net Margin %

ROA % (TTM)

ROE % (TTM)

P/B Ratio (TTM)

P/S Ratio (TTM)

P/C Ratio (TTM)

Asset Alloc Equity %

US Equity %

Asset Alloc Non-US Equity %

Asset Alloc Cash %

Asset Alloc Other %

50,357

35.7

13.2

8.2

19.8

3.5

2.0

13.1

96.6

88.3

8.3

3.4

0.0

Section 4 - 8


2.0 4.0 6.0 8.0 10.0 12.0 14.00.0

2.5

5.0

7.5

10.0

12.5


Standard Deviation

Ret

urns

CAI:Pub Fund Sm DB

Sample Client

Sample Client Blended Bench

Section 10 - 1


Last Year Last 3 Years Last 5 Years Last 7 YearsYears

Last 102.5

7.5

12.5

17.5

22.5

Group: CAI Public Fund - Small (<100 MM)for Periods Ended December 31, 2013

Returns



Sample Client Blended Bench A 16.11 9.39 11.02 5.08 6.13

Sample Client B 16.39 9.78 12.03 6.44 7.16

A (61)

A (47)A (53)

A (79) A (83)

B (59)

B (39)B (42)

B (22) B (25)

Section 10 - 2


12/31/13 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12(2.5)

0.0

2.5

5.0

7.5

Group: CAI Public Fund - Small (<100 MM)1 1/2 Years Ended December 31, 2013


10th Percentile 6.47 5.79 1.03 6.37 2.19 5.3025th Percentile 6.19 5.42 0.63 6.07 1.86 5.00

Median 5.56 4.67 0.28 5.26 1.53 4.5575th Percentile 4.96 4.19 (0.31) 4.51 1.18 3.6890th Percentile 4.02 3.60 (0.89) 3.54 0.69 3.36

Sample Client Blended Bench A 5.21 4.57 0.27 5.25 0.91 3.97

Sample Client B 5.45 5.16 0.14 4.81 0.94 4.92

A (64)A (53)

A (50)

A (52)

A (85)

A (65)

B (53)B (31)

B (57)

B (65)

B (85)

B (33)

Section 10 - 3



0.0

2.5

5.0

7.5

10.0

12.5

Group: CAI Public Fund - Small (<100 MM)for 3 Years Ended December 31, 2013

Statistics



Sample Client Blended Bench A 1.00 7.95 0.00 0.00

Sample Client B 1.13 9.00 0.94 0.72

A (58)

A (59)

A (100) A (100)

B (39)

B (39)

B (75) B (87)

Section 10 - 4


AlphaRatio

SharpeRatio

TreynorRatio

InformationRatio

Sortino(7.5)

(2.5)

2.5

7.5

12.5


Statistics



Sample Client Blended Bench A 0.00 1.17 9.29 0.00 --

Sample Client B (0.71) 1.08 8.60 (0.76) 0.55

A (30)A (29)

A (30)

A (30)B (53)

B (49)

B (49)

B (57)

B (29)

Section 10 - 5



100.0120.0140.0160.0180.0


Statistics



Sample Client Blended Bench A 100.00 100.00

Sample Client B 109.10 116.89

A (56) A (62)B (41) B (42)

Section 10 - 6

Retirement Fund - (Sample Client)

Organization Name - Sample Client

Organization Type - Retirement Fund

2.0 4.0 6.0 8.0 10.0 12.0 14.00.0

2.5

5.0

7.5

10.0

12.5

for 3 Years Ended December 31, 2013Scatter Chart

Standard Deviation

Ret

urns

CAI:Pub Fund Sm DB

Sample Client Blended Bench

Sample Client Aggregate

4th Quarter 2013

Section 10 - 7

Return Analysis The graphs below show returns on an unadjusted basis for the Sample Client Aggregate. The first chart illustrates the overall portfolio's return and ranking over various time periods. The second chart shows quarterly returns versus the Retirement Fund. The final graph looks at calendar year returns for both the Sample Client Aggregate as well as the Retirement Fund.

Last Quarter Year to Date Last Year Last 3 Years Last 5 Years0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

A 5.21 16.11 16.11 9.39 11.02Sample Client Blended Bench Sample Client Aggregate B 5.45 16.39 16.39 9.78 12.03

A (64)

A (61) A (61)

A (47)A (53)

B (53)

B (59) B (59)

B (39)B (42)

12/31/13 9/30/13 6/30/13 3/31/13 12/31/12(2.5)

0.0

2.5

5.0

7.5


A (64)A (53)

A (50)

A (52)

A (85)

B (53)B (31)

B (57)

B (65)

B (85)

(25)

(20)

(15)

(10)

(5)

0

5

10

15

20

25

Ret

urns

2013 2012 2011 2010 2009 2008 2007 2006

Sample Client Blended Bench Sample Client Aggregate

16.1

10.4

2.1

10.0

17.1

(21.0)

6.1

12.816.4

12.5

1.0

11.7

19.3

(19.6)

9.111.7

Retirement Fund - (Sample Client) 4th Quarter 2013

Section 10 - 8

Beta Standard Deviation Downside Risk Residual Risk Tracking Error0.0

2.5

5.0

7.5

10.0

12.5


A (58)

A (59)

A (100) A (100) A (100)

B (39)

B (39)

B (87) B (75) B (69)

Risk Analysis Each of the graphs below illustrate the risk associated with Sample Client Aggregate relative to the Sample Client Blended Bench and compared to the CAI Public Fund - Small (<100 MM) represented by the shaded gray area. The first graph shows five common risk measures over the past three years. The bottom two graphs take a deeper look into the risk levels of the overall portfolio with respect to Beta and Standard Deviation on a rolling three year basis.

2009 2010 2011 2012 20130.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Bet

a

2009 2010 2011 20134.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Stan

dard

Dev

iatio

n

2012

Sample Client Blended BenchCAI:Pub Fund Sm DB



Beta is a measure of the systematic risk of a security or a portfolio. The value of Beta is expressed as a percentage of the market where the market Beta is 1.00.

Standard Deviation is a statistical measure of portfolio risk. It reflects the average deviation of the observations from their sample mean.

Section 10 - 9

Risk Analysis Eash of the graphs below illustrate the Sample Client Aggregate risk/return relationship relative to the Sample Client Blended Bench and compared to the CAI Public Fund - Small (<100 MM) represented by the shaded gray area. The three graphs below take a deeper look into the Downside Risk, Residual Risk and Tracking Error levels on a three year rolling basis.

2009 2010 2011 2012 20130.0

1.0

2.0

3.0

4.0

5.0

6.0

Dow

nsid

e R

isk


2009 2010 2011 2012 20130.0

1.0

2.0

3.0

4.0

5.0

Res

idua

l Ris

k

2009 2010 2011 20130.0

2.0

4.0

6.0

8.0

Trac

king

Err

or

2012



Downside Risk is a statistical measure of underperformance risk. It reflects the average deviation of the observations from their sample mean only on the downside.

Residual risk is the unsystematic, firm-specific, or diversifiable risk of a security or portfolio.

Tracking error measures the volatility of the return differences between the portfolio and the benchmark over time.

Section 10 - 10

Alpha Sharpe Ratio Information Ratio Treynor Ratio Sortino Ratio(7.5)

(5.0)

(2.5)

0.0

2.5

5.0

7.5

10.0

12.5

A 0.00 1.17 0.00 9.29 --Sample Client Blended Bench Sample Client Aggregate B (0.71) 1.08 (0.76) 8.60 0.55

A (30)A (29)

A (30)

A (30)

B (53)B (49)

B (57)

B (49)

B (29)

Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Sample Client Blended Bench and compared to the CAI Public Fund - Small (<100 MM) represented by the shaded gray area. The first graph shows five common risk adjusted measures over the past three years. The bottom two graphs take a deeper look into the Alpha and Sharpe ratios on a three year rolling basis.

2009 2010 2011 2012 2013(5.0)

(2.5)

0.0

2.5

5.0

Alp

ha

2009 2010 2011 2013(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Shar

pe R

atio

2012




Alpha is used as a measure of a managers contribution to performance due to security or sector selection.

Sharpe Ratio is a measure of the risk-adjusted return of a portfolio. The ratio represents the return gained per unit of risk taken.

Section 10 - 11

Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Sample Client Blended Bench and compared to the CAI Public Fund - Small (<100 MM) represented by the shaded gray area. The three graphs below take a deeper look into the Information, Treynor and Sortino ratios on a three year rolling basis.

2009 2010 2011 2012 2013(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

Info

rmat

ion

Rat

io


2009 2010 2011 2012 2013(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

Trey

nor R

atio

2009 2010 2011 2013(2.0)

0.0

2.0

4.0

6.0

Sorti

no R

atio

CAI:Pub Fund Sm DB

2012


Information Ratio is a risk statistic that measures the excess return per unit of residual non-market risk in a portfolio.

Treynor Ratio is a risk statistic that measures the excess return per unit of systematic market risk taken in a portfolio.

Sortino Ratio identifies the value added per unit of bad risk. This statistic measures excess return divided by downside risk.

Section 10 - 12

Up & Down Market Capture Analysis Eash of the graphs below illustrate the Sample Client Aggregate Up and Down Market Capture relative to the Sample Client Blended Bench and compared to the CAI Public Fund - Small (<100 MM) represented by the shaded gray area. The first graph shows the Up and Down Market Capture over the past three years. The bottom two graphs expand the analysis showing Up and Down Market Capture on a three year rolling basis.

Text Box


60.0

80.0

100.0

120.0

140.0

160.0

180.0

A 100.00 100.00Sample Client Blended Bench Sample Client Aggregate B 109.10 116.89

A (56) A (62)B (41) B (42)

2009 2010 2011 2012 201340.0

60.0

80.0

100.0

120.0

140.0

160.0

Up

Mar

ket C

aptu

re

2009 2010 2011 201325.0

50.0

75.0

100.0

125.0

150.0

175.0

200.0

Dow

n M

arke

t Cap

ture

2012




Up Market Capture Ratio is the percentage of the total market movements achieved by a manager during a period in which the benchmark increases.

Down Market Capture Ratio is the percentage of the total market movements achieved by a manager during a period in which the benchmark decreases.

Section 10 - 13

Definitions

Beta is a measure of the systematic risk of a security or portfolio. The value of Beta is expressed as a percentage of the market where the market Beta is 1.00.


Downside Risk differentiates between “good” risk (upside volatility) and “bad” risk (downside volatility).

Residual Risk is the unsystematic, firm-specific, or diversifiable risk of a security or portfolio.

Tracking Error is the standard deviation of a portfolio’s relative returns compared to a chosen benchmark.

Alpha is used as a measure of a manager’s contribution to performance due to security or sector selection.


Information Ratio is a risk statistic that measures the excess return per unit of residual “non-market” risk in a portfolio.

Treynor Ratio is a risk statistic that measures the excess return per unit of systematic “market” risk taken in a portfolio.


Up Market Capture Ratio is the percentage of the total market movement achieved by a manager during a period in which the benchmark increases.

Down Market Capture Ratio is the percentage of the total market movement achieved by a manager during a period in which the benchmark decreases.

𝐵𝑝 =∑��𝑟𝑝′ − 𝑟𝑝′��𝑟𝑏′ − 𝑟𝑏′� ��

∑�𝑟𝑏′ − 𝑟𝑏′� �2

𝛼𝑝 = 𝑅�𝐹�𝑟𝑝′� − 𝛽𝑝𝑟𝑏′� ��𝑗

𝑆𝑅𝑝 =�𝑅𝑝 − 𝑅𝑓�

𝜎𝑝

𝑇𝑅𝑝 =�𝑅𝑝 − 𝑅𝑓�

𝛽𝑝

𝑆𝑜𝑟𝑡𝑖𝑛𝑜𝑝 =�𝑅𝑝 − 𝑅𝑏�

𝐷𝑅𝑝

(∏𝑓𝑝) − 1(∏𝑓𝑏)− 1

× 100

(∏𝑓𝑝) − 1(∏𝑓𝑏) − 1

× 100

𝑅𝑅 = �(1 − 𝑅2)𝑥∑�𝑟𝑝′ − 𝑟𝑝′��

2

(𝑛 − 2) 𝑥 𝑗

𝜎𝑝 = 𝑅 ��∑�𝑓𝑝 − 𝑓𝑝� �

2

(𝑛 − 1) (𝑗)�

𝐷𝑅𝑝 = �∑�𝑟𝑏 − 𝑟𝑝, 𝑖𝑓 𝑟𝑏 > 𝑟𝑝, 𝑒𝑙𝑠𝑒 0�2

𝑛𝑥�𝑗

𝑇𝐸𝑝 = 𝑅

⎝

⎛�∑�𝑓𝑟 − 𝑓𝑟��2

(𝑛 − 1)(𝑗)

⎠

⎞

𝐼𝑅𝑝 =𝛼𝑝𝑅𝑅𝑝

www.cornerstone‐companies.com

Disclosures

Securities offered through M Holdings Securities, Inc., MEMBER FINRA/SIPC

Investment Advisory Services offered through Cornerstone Advisors AssetManagement, Inc., which is independently owned and operated.

Performance quoted is past performance and is no guarantee of future results.

Unless otherwise noted, data obtained from Callan Associates.

All indices are unmanaged and not available for direct investment.

Cornerstone Advisors Asset Management, Inc. has exercised reasonable carein the preparation of this presentation. Several portions of this presentation areobtained from third party sources. While we have attempted to verify allinformation within, we disclaim all responsibility for any errors that may occurdue to third party information and data.

The information is provided solely for informational purposes and thereforeshould not be considered an offer to buy or sell a security. Except as otherwiserequired by law, Cornerstone shall not be responsible for any tradingdecisions or damages or other losses resulting from, this information, data,analyses or opinions or their use. Please read the prospectus carefully beforeinvesting. It is not a replacement for any account statement or transactionconfirmation issued by the provider. Please compare this document to yourcustodial statement for accuracy, as applicable.

74 W. Broad St., Suite 340, Bethlehem, PA 18018 • (800) 923-0900, (610) 694-0900 • Fax: (610) 867-8614

Material and information in this presentation is solely for our client and cannot be copied or reproduced by a third party without permission .

Section III - Exhibit G

Sample Flash Report



Monthly Return Market Value Market Value

January-2014 Beginning of Period End of Period

CS McKee -4.36% $14,463,905 $13,833,343

Russell 1000 Value -3.55%

iShares S&P 500 -3.49% $11,541,861 $11,138,999

S&P 500 -3.46%

Alger -1.83% $14,533,078 $14,266,582

Russell 1000 Growth -2.85%

Vanguard SC Value Index -2.83% $5,589,364 $5,433,905

Russell 2000 Value -3.87%

Emerald 3.84% $5,658,345 $5,875,898

Russell 2000 Growth -1.73%

International Funds Allocation -5.22% $13,971,701 $13,245,266

MSCI EAFE -4.02%

Barrow, Hanley, Mewhinney & Strauss 1.45% $15,324,997 $15,547,339

Barclays Capital Aggregate 1.48%

Nationwide 0.29% $4,518,286 $4,531,507

Barclays Capital 1-3 Year Govt/Credit 0.45%

Liquid Alternatives 0.29% $16,635,294 $16,681,211

Blended Alternative Benchmark 0.97%

Wilmington:US G MM;Admn 0.00% $5,678,761 $5,249,724

30 Day MM Yield 0.00%

Weighted Portfolio -1.56% $107,915,592 $105,803,773

Rate of Return Index -1.66%

Market Value Market Value

Beginning of Period End of Period

JP Morgan Core Bond $13,847,084 $13,761,924

Grand Total $121,762,677 $119,565,697

Sample Client Monthly Flash Report

Assets Not Valued Daily

The values on this report are collected from electronic interfaces and released before an audit function can occur. These values are not final. Differences may include, but are not limited to, pending trades, accruals,

mispricing, or custodian error.

Section III – Exhibit H

Manager Hiring and Termination


Large Cap Growth

Analyst Commentary - (RDW 3/21/14) People - Brad Fretz's 10/11 departure has led to some reorganization at the firm. After re-acquiring themselves from Old Mutual in 2012, the firm has added analysts to the team. While decision making has always been at the team level, we are not fully comfortable with the recent changes. Process - The firm's bottom-up fundamental research combined with a top-down thematic overlay is designed to identify the best companies in the most attractive sectors. Resulting portfolio is 50-65 high quality growth companies. ADR's can be a significant part of the portfolio 20%+ at times. ADR's are out-of-benchmark holdings that can create larger dispersion from the benchmark. Risk & Performance - Ashfield's portfolio has tended to have higher than median peer group risk. This coupled with poor performance has led to lackluster risk-adjusted returns over extended rolling time periods. Analyst Recommendation - Terminate. While we view the reacquisition as good news in terms of aligning interests we would recommend a more pure play domestic large cap growth to be used in a core satellite portfolio structure. We are no longer receommending Ashfield due to recent organizational changes and their appetite for ADR holdings.

Product Name - Ashfield Large Cap Growth

Product Type - Mutual fund and separate account vehicles

10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.010.0

12.0

14.0

16.0

18.0

20.0

22.0

for 3 Years Ended June 30, 2014Scatter Chart

Standard Deviation

Ret

urns


Russell:1000 Growth

Ashfield:Lg Cap Growth Eq

2nd Quarter 2014

1

Return Analysis The graphs below show returns on an unadjusted basis for the Ashfield:Lg Cap Growth Eq. The first chart illustrates the overall portfolio's return and ranking over various time periods. The second chart shows quarterly returns versus the Russell 1000 Growth Index. The final graph looks at calendar year returns for both the Ashfield:Lg Cap Growth Eq as well as the Russell 1000 Growth Index.

Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Median 27.94 15.40 18.90 7.89 8.57

Russell:1000 Growth A 26.92 16.26 19.24 7.98 8.20Ashfield:Lg Cap Growth Eq B 29.04 15.04 18.15 7.79 7.88

A (61)

A (39)A (43)

A (49) A (71)

B (38)

B (57)B (62)

B (51) B (80)

6/30/14 3/31/14 12/31/13 9/30/13 6/30/13(5.0)

0.0

5.0

10.0

15.0

Median 4.69 0.28 10.99 9.86 1.76

Russell:1000 Growth A 5.13 1.12 10.44 8.11 2.06Ashfield:Lg Cap Growth Eq B 4.59 0.82 10.06 11.19 (0.38)

A (35)

A (22)

A (65)

A (82)

A (36)

B (59)

B (33)

B (80)B (28)

B (95)

(50)

(25)

0

25

50

Ret

urns

2 Qtrs. 2014 2013 2012 2011 2010 2009 2008 2007

Russell:1000 Growth Ashfield:Lg Cap Growth Eq

6.3

33.5

15.3

2.6

16.7

37.2

(38.4)

11.85.4

32.0

16.4

(1.9)

18.8

37.2

(40.0)

17.5

Large Cap Growth 2nd Quarter 2014

2


5.0

10.0

15.0

20.0

25.0

Median 1.09 16.97 2.24 2.82 3.15

Russell:1000 Growth A 1.00 15.38 0.00 0.00 0.00Ashfield:Lg Cap Growth Eq B 1.15 17.95 2.77 3.51 4.04

A (88)

A (91)

A (99) A (100) A (99)

B (30)

B (27)

B (27) B (28) B (29)

Risk Analysis Each of the graphs below illustrate the risk associated with Ashfield:Lg Cap Growth Eq relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows five common risk measures over the past three years. The bottom two graphs take a deeper look into the risk levels of the overall portfolio with respect to Beta and Standard Deviation on a rolling three year basis.

2009 2010 2011 2012 2013 20140.8

0.9

1.0

1.1

1.2

1.3

Bet

a

2009 2010 2011 2012 2013 201412.5

15.0

17.5

20.0

22.5

25.0

27.5

30.0

32.5

Stan

dard

Dev

iatio

n

CAI:Lg Cap Growth Style Russell:1000 Growth Ashfield:Lg Cap Growth Eq


3



Risk Analysis Eash of the graphs below illustrate the Ashfield:Lg Cap Growth Eq risk/return relationship relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The three graphs below take a deeper look into the Downside Risk, Residual Risk and Tracking Error levels on a three year rolling basis.

2009 2010 2011 2012 2013 20140.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Dow

nsid

e R

isk


4

2009 2010 2011 2012 2013 20140.0

2.5

5.0

7.5

10.0

Res

idua

l Ris

k

2009 2010 2011 2012 2013 20140.0

2.0

4.0

6.0

8.0

10.0

12.0

Trac

king

Err

or






(5.0)

0.0

5.0

10.0

15.0

20.0

Median (1.72) 0.92 (0.63) 14.30 (0.33)

Russell:1000 Growth A 0.00 1.05 0.00 16.18 --Ashfield:Lg Cap Growth Eq B (3.05) 0.83 (0.87) 13.05 (0.44)

A (21)A (15) A (22)

A (17)

B (75)B (76) B (62)

B (76)

B (59)

Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows five common risk adjusted measures over the past three years. The bottom two graphs take a deeper look into the Alpha and Sharpe ratios on a three year rolling basis.

2009 2010 2011 2012 2013 2014(6.0)

(4.0)

(2.0)

0.0

2.0

4.0

6.0

Alp

ha

2009 2010 2011 2012 2013 2014(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Shar

pe R

atio



5



Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Russell:1000 Growth and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The three graphs below take a deeper look into the Information, Treynor and Sortino ratios on a three year rolling basis.

2009 2010 2011 2012 2013 2014(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

Info

rmat

ion

Rat

io


6

2009 2010 2011 2012 2013 2014(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

Trey

nor R

atio

2009 2010 2011 2012 2013 2014(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

Sorti

no R

atio

CAI:Lg Cap Growth Style Ashfield:Lg Cap Growth Eq




Up & Down Market Capture Analysis Eash of the graphs below illustrate the Ashfield:Lg Cap Growth Eq Up and Down Market Capture relative to the Russell:1000 Growth and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows the Up and Down Market Capture over the past three years. The bottom two graphs expand the analysis showing Up and Down Market Capture on a three year rolling basis.

Text Box


90.0

100.0

110.0

120.0

130.0

140.0

Median 104.24 110.96

Russell:1000 Growth A 100.00 100.00Ashfield:Lg Cap Growth Eq B 105.44 125.83

A (65) A (83)B (41)

B (21)

2009 2010 2011 2012 2013 201470.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

Up

Mar

ket C

aptu

re

2009 2010 2011 2012 2013 201480.0

90.0

100.0

110.0

120.0

130.0

140.0

Dow

n M

arke

t Cap

ture



7



Large Cap Growth

Analyst Commentary - (RDW 3/15/14) People - David Rolfe leads a portfolio management team of four. There have been no adverse changes at the firm. Process - Wedgewood's sole strategy is a concentrated growth portfolio (18-25 positions) made up of dominant, sustainable, profitable companies led by strong management teams. They are valuation sensitive and construct a portfolio of companies with very little business overlap. This means the fundamental drivers of growth are uncorrelated which helps to prevent "pin-action" in the portfolio. Risk & Performance - Wedgewood's concentrated nature has led to periods of high risk (2009-2011). Over those same periods, the portfolio has been rewarded for the underlying risk. The recent year has been soft from a performance standpoint. Analyst Recommendation - Engage. In portfolios with an indexed core, adding Wedgewood is appropriate. It's concentrated nature will require patience at times, but paired with an index, we believe this high conviction portfolio will be additive to portfolios from both risk and reward perspectives.

Product Name - Wedgewood Large Cap Growth

Product Type - Mutual fund and separate account vehicles

10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.010.0

12.0

14.0

16.0

18.0

20.0

22.0

for 3 Years Ended June 30, 2014Scatter Chart

Standard Deviation

Ret

urns


Russell:1000 Growth

Wedgwd:Lg Cap Growth Conc

2nd Quarter 2014

1

Return Analysis The graphs below show returns on an unadjusted basis for the Wedgwd:Lg Cap Growth Conc. The first chart illustrates the overall portfolio's return and ranking over various time periods. The second chart shows quarterly returns versus the Russell 1000 Growth Index. The final graph looks at calendar year returns for both the Wedgwd:Lg Cap Growth Conc as well as the Russell 1000 Growth Index.

Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Median 27.94 15.40 18.90 7.89 8.57

Russell:1000 Growth A 26.92 16.26 19.24 7.98 8.20Wedgwd:Lg Cap Growth Conc B 25.37 18.77 21.10 12.73 10.31

A (61)

A (39)A (43)

A (49) A (71)

B (78)

B (7)B (7)

B (2) B (9)

6/30/14 3/31/14 12/31/13 9/30/13 6/30/13(5.0)

0.0

5.0

10.0

15.0

Median 4.69 0.28 10.99 9.86 1.76


A (35)

A (22)

A (65)A (82)

A (36)B (97)B (7)

B (62)B (63)

B (31)

(50)

(25)

0

25

50

75

Ret

urns

2 Qtrs. 2014 2013 2012 2011 2010 2009 2008 2007

Russell:1000 Growth Wedgwd:Lg Cap Growth Conc

6.3

33.5

15.3

2.6

16.7

37.2

(38.4)

11.83.8

30.822.7

6.415.4

61.8

(37.8)

15.7


2


5.0

10.0

15.0

20.0

25.0

Median 1.09 16.97 2.24 2.82 3.15


A (88)

A (91)

A (99) A (100) A (99)B (93)

B (92)

B (25)B (14) B (19)

Risk Analysis Each of the graphs below illustrate the risk associated with Wedgwd:Lg Cap Growth Conc relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows five common risk measures over the past three years. The bottom two graphs take a deeper look into the risk levels of the overall portfolio with respect to Beta and Standard Deviation on a rolling three year basis.

2009 2010 2011 2012 2013 20140.8

0.9

1.0

1.1

1.2

1.3

Bet

a

2009 2010 2011 2012 2013 201412.5

15.0

17.5

20.0

22.5

25.0

27.5

30.0

32.5

Stan

dard

Dev

iatio

n

CAI:Lg Cap Growth Style Russell:1000 Growth Wedgwd:Lg Cap Growth Conc


3



Risk Analysis Eash of the graphs below illustrate the Wedgwd:Lg Cap Growth Conc risk/return relationship relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The three graphs below take a deeper look into the Downside Risk, Residual Risk and Tracking Error levels on a three year rolling basis.

2009 2010 2011 2012 2013 20140.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Dow

nsid

e R

isk


4

2009 2010 2011 2012 2013 20140.0

2.5

5.0

7.5

10.0

Res

idua

l Ris

k

2009 2010 2011 2012 2013 20140.0

2.0

4.0

6.0

8.0

10.0

12.0

Trac

king

Err

or






(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

Median (1.72) 0.92 (0.63) 14.30 (0.33)

Russell:1000 Growth A 0.00 1.05 0.00 16.18 --Wedgwd:Lg Cap Growth Conc B 3.07 1.23 0.66 19.75 0.87

A (21) A (15) A (22)

A (17)

B (3) B (3) B (8)

B (3)

B (18)

Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Russell 1000 Growth Index and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows five common risk adjusted measures over the past three years. The bottom two graphs take a deeper look into the Alpha and Sharpe ratios on a three year rolling basis.

2009 2010 2011 2012 2013 2014(7.5)

(5.0)

(2.5)

0.0

2.5

5.0

7.5

10.0

12.5

Alp

ha

2009 2010 2011 2012 2013 2014(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Shar

pe R

atio



5



Risk/Return Analysis Eash of the graphs below illustrate the manager's risk/return relationship relative to the Russell:1000 Growth and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The three graphs below take a deeper look into the Information, Treynor and Sortino ratios on a three year rolling basis.

2009 2010 2011 2012 2013 2014(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Info

rmat

ion

Rat

io


6

2009 2010 2011 2012 2013 2014(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

Trey

nor R

atio

2009 2010 2011 2012 2013 2014(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

Sorti

no R

atio

CAI:Lg Cap Growth Style Wedgwd:Lg Cap Growth Conc




Up & Down Market Capture Analysis Eash of the graphs below illustrate the Wedgwd:Lg Cap Growth Conc Up and Down Market Capture relative to the Russell:1000 Growth and compared to the CAI Large Cap Growth Style represented by the shaded gray area. The first graph shows the Up and Down Market Capture over the past three years. The bottom two graphs expand the analysis showing Up and Down Market Capture on a three year rolling basis.

Text Box


100.0110.0120.0130.0140.0150.0

Median 104.24 110.96

Russell:1000 Growth A 100.00 100.00Wedgwd:Lg Cap Growth Conc B 103.68 77.86

A (65) A (83)B (52)

B (96)

2009 2010 2011 2012 2013 201470.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

Up

Mar

ket C

aptu

re

2009 2010 2011 2012 2013 201450.0

75.0

100.0

125.0

150.0

Dow

n M

arke

t Cap

ture



7



Section III - Exhibit I

Sample SAFE Analysis


www.cornerstone-companies.com 74 W. Broad St., Suite 340, Bethlehem, PA 18018 • (800) 923-0900, (610) 694-0900 • Fax: (610) 867-8614

Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Cornerstone Advisors Asset Management and/or Cornerstone Institutional Investors, Inc., which are independently owned and operated.

Sample Client

Self-Assessment of Fiduciary Excellence (SAFE) Review

1. Are investments managed in accordance with all applicable laws?

Yes. Sample Client is governed by 15 Pa.C.S.A. § 5548 (c). This law is specific to nonprofit

corporations incorporated for charitable purposes. This law states that the board of directors shall adopt

and follow an investment policy seeking a total return for the assets held by the corporation…the policy

constituting the election shall be in writing, shall be maintained as part of the permanent records of the

corporation and shall recited that it constitutes an election to be governed by this subsection.

- The IPS states specific guidelines and objectives as well as limits, constraints and risk tolerances

that managers must abide by.

- Performance expectations are based on a long-term rate of return.

- We keep on file the discretionary investment advisor contract.

- Custody agreement on file for BNY

- Quarterly performance reports

See pages 1 & 2 of the addendum.

2. Are investments managed in accordance with trust documents?

Yes. All funds are managed in accordance with Sample Client’s governing documents.

3. Are investments managed in accordance with the written Investment Policy Statement?

Yes. Please see Investment Policy Statement (“IPS”) handout.

4. Are documents pertaining to the investment management process filed in a centralized

location?

Yes. Cornerstone, as well as the staff of the Sample Client, maintains files of these documents.

Cornerstone will soon be making these available via online vault for all Committee members.

5. Are the roles and responsibilities of all parties documented in the IPS?

Yes (page 4 of IPS).

AUTHORITY AND RESPONSIBILITY

The Board has ultimate responsibility and full authority over institutional assets including the

Fund. It, however, appoints a Committee and delegates to it authority for general oversight

of the Fund.

The Committee establishes operational procedures, selects and supervises all service

providers; and conducts ongoing assessments of investment manager performance within the

scope of this IPS.

The Committee has chosen to retain the use of a Consultant to help manage the

investment process. The Consultant will supervise the day-to-day activity of the

Fund within the context of the IPS. The Consultant will acknowledge its fiduciary

2

responsibility in writing and operates with discretion at the request of the Finance

Committee.

The Committee chooses a custodian (“Custodian”) which is responsible for the

safekeeping of all fund assets and the processing of securities transactions as

determined by money managers and the Consultant. Custodian will also provide

administrative, accounting, and disbursement services.

Money managers (“Managers”) will be retained to manage fund assets within their

area of expertise. Managers will be responsible for security selection within the

context of the Policy Statement and are expected to exercise the appropriate level of

due care in the management of the Fund.

6. Have all parties demonstrated an awareness of their duties and responsibilities?

Yes. The Consultant and Executive Director of the Sample Client have signed the IPS acknowledging

that they understand their duties and responsibilities. The Committee has reviewed this document and

approved it.

The Finance Committee meets quarterly and all service providers have written contracts and have

received a copy of the IPS.

7. Have all parties acknowledged their fiduciary status in writing?

Yes. Cornerstone signs an Investment Advisor Contract acknowledging its fiduciary responsibilities.

Under the Control Procedures established in the IPS, managers must acknowledge and agree in writing

to their fiduciary responsibility. Each manager’s advisory contract acknowledges this status.

8. Does the investment committee have and follow by-laws?

Yes. Article VI of the By-Laws of the Sample Client allows for the creation of Committees. The

Finance Committee has and follows the by-laws as accepted by the Board of Governors.

See page 3 of the addendum.

9. Are policies and procedures for overseeing and managing potential conflicts of interests

defined?

Yes. All conflicts of interest concerning both the Finance Committee and the other fiduciaries must be

fully disclosed and monitored.

10. Do all fiduciaries annually acknowledge the organization’s ethics policies and agree to

disclose any potential conflicts of interest?

Yes. The Board members of the Sample Client sign an annual Conflicts of Interest Disclosure. All

Cornerstone employees have a Conflict of Interest code.


3

11. Are agreements and contracts periodically reviewed to ensure consistency with the needs of

the managed assets?

Yes. Cornerstone is currently updating all manager paperwork to be signed by Cornerstone. An updated

investment manager contract for Cornerstone has been submitted to the CEO of the Sample Client for

review and signature.

12. Are agreements and contracts periodically reviewed by legal counsel?

Yes. Cornerstone and the Sample Client share the same legal counsel who is responsible for drafting

and maintaining these agreements. These have been reviewed within the past year.

13. Is consideration given to putting vendor contracts back out for bid every three years?

Yes. The Finance Committee of the Sample Client is considering putting together a Request for

Information from various service providers. This would serve to affirm or better define those firms with

whom the Sample Client would consider partnering.

14. Are assets within the purview of the relevant judicial system?

Yes. The assets are managed under Pennsylvania law with arbitration and legal proceedings held in

Pennsylvania.

15. Are the sources, timing, distribution, and uses of cash flows documented?

Yes. The staff of the Sample Client records all information regarding cash flows. Cornerstone provides

quarterly cash flow reports to the Committee for verification. Although the timing of gifts is not always

known in advance, the staff of the Sample Client and Cornerstone work together to ensure proper

documentation of these flows.


16. In the case of a defined benefit retirement plan, has the appropriate asset/liability study

been factored into the time horizon?

N/A

17. In the case of a foundation or endowment, has the receipt and disbursement of gifts and

grants been factored into the time horizon?

Yes. Sample Client has a long term time horizon. It would not surprise the donor base of the Sample

Client to expect a long-term perspective with respect to its funds.

18. In the case of a retail investor, has the appropriate needs-based analysis been factored into

the time horizon?

N/A

19. Are sufficient liquid assets maintained for contingency plans?

Yes. Short-term liquidity requirements have been anticipated and will be handled from contributions

and/or the amount allocated to cash - (strategic allocation of 5%). At no time shall the Fund be invested

in such a way as sufficient liquidity is not maintained. An example of this is that all funds can currently

be liquidated within 3-5 business days.

4

20. Is the level of risk the client’s portfolio is exposed to understood? Are the quantitative and

qualitative factors that were considered documented?

Yes. Acknowledged in the IPS- the Sample Client’s current financial condition suggest collectively that

the portfolio can tolerate some interim fluctuations in market value and rates of return in order to

achieve long-term objectives.

The IPS has both quantitative and qualitative factors for measuring risk. See pages 6 & 10 - 11 of the

IPS for further clarification.

See pages 6 - 12 of the addendum.

21. Has the “worst-case” scenario been considered? Has it been determined that the portfolio

has sufficient liquidity to meet short-term (less than five years) obligations?

Yes. The committee reviews annually forecasted ranges of returns and invests the Sample Client’s assets

in highly-liquid securities. The portfolio could be completely liquidated within 3 - 5 business days, even

though that need is extremely unlikely and beyond the scope of even a “worst-case” scenario.

22. Is the “expected” or “modeled” return for each client consistent with the client’s

investment goals and objectives?

Yes. 2013 CMA= 6.6% which is above the current spending policy.


23. Are the “expected” or “modeled” return assumptions for each asset class based on

reasonable risk-premium assumptions, as opposed to recent short-term performance?

Yes. Forward looking capital market assumptions are used and developed based on current market

conditions. Recent short-term performance has little impact on these return assumptions.

24. For defined benefit plans, are the expected return values being used for actuarial

calculations reasonable?

N/A

25. Are assets appropriately diversified to conform to the specified time horizon and

risk/return profile?

Yes. Based on a long term time horizon and ability to withstand some intermediate volatility a 60-25-10-

5 allocation is appropriate. The asset allocation and portfolio structure has been implemented to allow

for long-term real growth of the assets while controlling short-term downside volatility.

26. For participant directed plans, do selected asset classes provide each participant the ability

to diversify their portfolio appropriately given their time horizon and risk/return profile?

N/A

27. Are the methodology and tools used to establish appropriate portfolio diversification

effective and consistently applied?

Yes. The Committee believes that the portfolio's risk and liquidity posture are, in large part, a function

of asset class mix. The Committee has reviewed the long-term performance characteristics of various

5

asset classes, focusing on balancing the risks and rewards of market behavior. The following asset

classes were selected as acceptable asset classes within the portfolio:

- Domestic Large Capitalization Equities

- Domestic Small Capitalization Equities

- International Equities

- Alternative Investments (All Asset Fund)

- Domestic Fixed Income

- Cash

Based on the portfolio's time horizon, risk tolerances, performance expectations and asset class

preferences, an efficient or optimal portfolio was identified. The current strategic asset allocation of the

portfolio can be found in the executive summary on page one.

The percentage allocation to each asset class may vary as defined within the IPS depending upon market

conditions. When necessary and/or available, cash inflows/outflows will be deployed in a manner

consistent with the strategic asset allocation of the portfolio. If there are no cash flows, the allocation of

the portfolio will be reviewed quarterly. If the Consultant judges cash flows to be insufficient to bring

the portfolio within the strategic allocation ranges, the Consultant shall decide the procedure necessary

to effect transactions to bring the strategic allocation within the threshold ranges.

28. Do individuals responsible for implementing and monitoring investment decisions have the

time, inclination, and knowledge to do so effectively?

Yes. The Finance Committee has elected to hire Cornerstone and sub-managers with full discretion

while such parties are registered with the SEC and manage the money according the Prudent Investor

Rule.

29. Are the process and tools used to implement and monitor investments in the selected asset

classes effective?

Yes. All managers have been assigned a benchmarking peer group for risk as well as return measures

and are monitored quarterly. Cornerstone receives and reviews all transactions on a daily basis to ensure

that managers are following their assigned roles.

30. Has consideration been given of the ability to access suitable investment products within

all selected asset classes?

Yes. Neither Cornerstone nor the Committee believes that the current Fund size allows for illiquid

investments. The decision between separately managed accounts and mutual funds is largely driven by

investment efficiencies and diversification requirements.

31. Does the IPS define diversification and rebalancing guidelines consistent with specified

risk, return, time horizon, and cash flow parameters?

Yes. See page 6 – Rebalancing of Strategic Allocation, of the IPS.

32. Does the IPS define the due diligence criteria for selecting investment options?

Yes. See page 9 - Selection of Money Managers, of the IPS.

6

33. Does the IPS define the monitoring criteria for investment options and service vendors?

Yes. See page 10 - Monitoring of Money Managers/Mutual Funds, of the IPS.

34. Does the IPS define procedures for controlling and accounting for investment expenses?

Yes. See page 5 – Statement of Objectives, of the IPS. The cost of the investment solution shall be

regularly monitored and benchmarked.

35. Have the purpose and mission been evaluated to determine whether socially responsible

investing is appropriate and/or desirable?

The Committee believes that their primary fiduciary duty is to grow the assets under their care within a

defined level of risk. While not indifferent to socially responsible issues, the Committee wishes to

handle such issues on a case-by-case basis as defined on page 3 of the IPS under Purpose.

36. If a socially responsible investment strategy is elected, is it appropriately structured,

implemented, and monitored?

N/A

37. Is there a due diligence procedure for selecting investment options?

Yes. See page 9 of the IPS.

38. Is the due diligence process consistently applied?

Yes. The due diligence process is ongoing and is as rigorous as initial search and selection. The Finance

Committee and Cornerstone have developed acceptable criteria and monitors these criteria on a

quarterly basis.

39. Are decisions regarding passive and active investment strategies documented and

appropriately implemented?

Yes. Both passive and active are utilized in this portfolio. In asset classes that the opportunity for

manager outlook is not sufficient, passive management has been utilized.

40. Are decisions regarding the use of separately managed and commingled accounts, such as

mutual funds and unit trusts, documented and appropriately implemented?

Yes. Cornerstone discusses these issues with the Committee when changes occur within the portfolio

and these are documented in the Committee’s meeting minutes.

41. Are regulated investment options selected over unregulated options when comparable risk

and return characteristics are projected?

Yes. The IPS specifically lays out the criteria for money managers. The Managers must be a bank,

insurance company, investment management company or investment adviser as defined by the

Registered Investment Advisers Act of 1940.

42. Are investment options that are covered by readily available data sources selected over

similar alternatives for which limited coverage is available?

Yes. All investments are valued daily and such valuations are publically available.

7

43. In the case of wrap or sub-accounts, is the portfolio’s return comparable to the returns

received by institutional clients in the same investment strategy?

Yes. These return streams are compared quarterly.


44. Is a documented due diligence process applied to select service providers?

Yes. The Investment Policy Statement outlines this process.

45. Does each custodian have appropriate and adequate insurance to cover the portfolio

amount?

Yes. BNY/Mellon’s current limits on insurance are outlined in the addendum to this questionnaire.

See pages 15 - 17 of the addendum.

46. Are appropriate sweep money market funds selected?

Yes. Sample Client sweeps cash into a Money Market fund invested in Treasury or Government backed

securities. The risk/reward tradeoffs currently available in cash options do not compensate investors for

taking on credit risk.

47. Has an inquiry been made as to whether the custodian can provide performance reports

and year-end tax statements?

Yes. BNY/Mellon sends statements and Cornerstone compiles quarterly performance reports.

48. Is the performance of each investment option periodically compared against an

appropriate index, peer group, and due diligence procedures defined in the IPS?

Yes. The quarterly performance reporting provided by Cornerstone is designed around the criteria in the

IPS including peer group and benchmark assignments. The committee reviews with Cornerstone these

reports quarterly.

49. Is the information that is provided in performance reports evaluated? Are the actions

considered documented?

Yes. The documentation of these considerations can be found in the meeting minutes of the Committee.

50. Are “watch list” procedures followed for underperforming Investment Managers?

The procedures requiring enhanced due diligence are outlined in the IPS as outlined below; however, it

is not the intention of Cornerstone or the Committee to “watch list” investment managers.

A thorough review and analysis of a mutual fund/money manager will be conducted if the mutual

fund/money manager:

- Performs in the bottom quartile (75th percentile) of their peer group over an annual period.

- Falls in the southeast quadrant of the risk/return scatterplot for a three-year time period.

- Has a three-year risk adjusted return fall below that of the median manager within the

appropriate peer group.

8

Performances which may require the replacement of a mutual fund /manager include:

- Performs in the bottom quartile over a rolling three-year period.

- Performs below the median (50th percentile) of their peer group over a rolling five-year period.

- Negative alpha over a rolling three-year period.

51. Are rebalancing procedures followed?

Yes. The percentage allocation to each asset class may vary as much as defined within the IPS

depending upon market conditions. When necessary and/or available, cash inflows/outflows will be

deployed in a manner consistent with the strategic asset allocation of the portfolio. If there are no cash

flows, the allocation of the portfolio will be reviewed quarterly. If the Consultant judges cash flows to

be insufficient to bring the portfolio within the strategic allocation ranges, the Consultant shall decide

the procedure necessary to effect transactions to bring the strategic allocation within the threshold

ranges.


52. Are periodic evaluations of the qualitative factors which may impact Investment Managers

and Investment Advisors performed?

Yes. Managers must notify Cornerstone if significant material matters and changes pertaining to the

company happen- Investment strategy, ownership, organizational structure, professional staff, etc.

53. Is unsatisfactory news regarding an Investment Manager and/or Investment Advisor

documented and appropriately acted upon?

Yes. If the news causes Cornerstone to lose faith in the manager we immediately begin the process of

terminating the manager (i.e. MetWest).

54. Are control procedures in place to periodically review policies for best execution?

Yes. All transactions effected for the portfolio will be "subject to the best price and execution." A

manager will not utilize brokerage from the portfolio assets to effect “soft dollar” transactions without

the express written permission of the Finance Committee.


55. Are control procedures in place to periodically review policies for “soft dollars”?

No soft dollar arrangements are allowable within the investment solution.

56. Are control procedures in place to periodically review policies for proxy voting?

Yes. Managers are required to promptly voting all proxies and related actions in a manner consistent

with the long-term interests and objectives of the portfolio set forth herein. Each manager shall keep

detailed records of said voting of proxies and related actions and will comply with all regulatory

obligations related thereto.


9

57. Has a summary of all parties that being compensated from portfolio assets been

documented? Have the fees been determined to be reasonable given the level of services

rendered?

Yes. Fee structure snapshots are prepared which show the of each manager’s expenses. All fees are hard

dollar explicit fees from the portfolio.


58. Are the fees paid to each party periodically examined to determine whether they are

consistent with services agreements?

Yes. Both Cornerstone and the staff of Sample Client monitor to ensure that the fees paid align with the

contractual agreement.

59. Are the fees being paid for various services periodically compared to industry

benchmarks?

Yes. See page 22 of the addendum.

60. Have all parties compensated from portfolio assets, along with the amount (or schedule) of

their compensation, been identified?

Yes. Fee structure (schedules) are put together outlining manager expenses. The staff of the Sample

Client also provides this information to the Committee regularly.

61. Has compensation paid from portfolio assets been determined to be fair and reasonable for

the services rendered?

Yes. See page 22 of the addendum.

62. Is effectiveness periodically reviewed in order to foster continued improvement?

Yes. It is the intention of both Cornerstone and the staff to perform these self-assessments on an ongoing

basis.

63. Are assessments conducted at planned intervals to determine whether

(a) appropriate policies and procedures are in place to address all fiduciary obligations, and

(b) such policies and procedures are effectively implemented and maintained

(c) the IPS is up-to-date?

Yes. It is our intention to perform these self-assessments than no less than every three years or as new

Finance Committee members join the organization. The Investment Policy Statement is reviewed no less

than annually.

64. Are assessments conducted in a manner that ensures objectivity and impartiality?

Yes. The Committee, staff and Cornerstone are committed to providing these assessments in an

objective and impartial manner. No participant has a stake in allowing shortfalls to occur or remain

following said reviews.

Section IV

Certificates of Insurance


CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) 06/01/2014

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy (ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER AON RISK SERVICES NORTHEAST, INC. 199 WATER STREET NEW YORK, NY 10038

CONTACT NAME: PHONE (A/C, No. Ext): PHONE

(A/C, NO.): E-MAIL ADDRESS: PRODUCER CUSTOMER ID#:

INSURERS AFFORDING COVERAGE NAIC # INSURED insurer a: CONTINENTAL CASUALTY COMPANY 20443 REGISTERED REPRESENTATIVE AND/OR REGISTERED INVESTMENT ADVISOR OF M HOLDINGS SECURITIES INC. LIFE AGENT (MARKETER) OF M MEMBER FIRMS CORNERSTONE INSTITUTIONAL INVESTORS, INC 1125 NW COUCH STREET, SUITE 900 PORTLAND, OR 97209

INSURER B: INSURER C: INSURER D: INSURER E: INSURER F:

COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADD’L

INSRD POLICY NUMBER POLICY EFF

(MM/DD/YY) POLICY EXP (MM/DD/YY) LIMITS (INCLUSIVE OF DEFENSE COSTS)

GENERAL LIABILITY EACH OCCURRENCE COMMERCIAL GENERAL LIABILITY DAMAGE TO RENTED

PREMISES (Ea occurrence) CLAIMS MADE OCCUR MED EXP (Any one person) PERSONAL & ADV INJURY GENERAL AGGREGATE GEN’L AGGREGATE LIMIT APPLIES PER: PRODUCTS - COMP/OP AGG POLICY PRO- LOC

JECT AUTOMOBILE LIABILITY

COMBINED SINGLE LIMIT (Ea accident) ANY AUTO

ALL OWNED AUTOS BODILY INJURY (Per person) SCHEDULED AUTOS

HIRED AUTOS BODILY INJURY (Per accident) NON-OWNED AUTO

PROPERTY DAMAGE (Per accident)

UMBRELLA LIAB OCCUR

CLAIMS MADE

EACH OCCURRENCE EXCESS LIAB AGGREGATE DEDUCTIBLE RETENTION

WORKERS COMPENSATION AND EMPLOYERS’ LIABILITY Y / N

WC STATU- TORY LIMITS

OTHER

ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? (Mandatory in NH)

E.L. EACH ACCIDENT E.L. DISEASE-EA EMPLOYEE If yes, describe under

DESCRIPTION OF OPERATIONS below E.L. DISEASE-POLICY LIMIT

A

Other: REGISTERED REPRESENTATIVE AND REGISTERED INVESTMENT ADVISOR ERRORS & OMISSIONS

596463836

6/01/2014

6/01/2015

$2,000,000 Each Claim/$2,000,000 Aggregate per Insured POLICY AGGREGATE: $ 25,000,000 RETENTION (Inclusive of Damages & Defense Costs): The deductible per claim is $100k. However, based on policies for the M Securities E&O Program, you may be eligible for a reduced deductible, no less than 25k.

DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES / (Attach ACORD 101, Additional Remarks Schedule, if more space is required) RE: SUBJECT TO THE TERMS, CONDITIONS & EXCLUSIONS OF THE POLICY, COVERAGE IS INCLUDED FOR ACTIVITIES AS A REGISTERED REP. OF M HOLDINGS SECURITIES, INC. AS WELL AS THE SALE & SERVICING OF LIFE, A&H, DISABILITY INS. & PROVIDING ADVICE, CONSULTATION & SERVICE, INCLUDING THOSE OF A REGISTERED INVESTMENT ADVISOR. IF THE REGISTERED REP’S CONTRACT WITH M HOLDINGS SECURITIES, INC. TERMINATES, COVERAGE UNDER THIS PROGRAM CEASES THE SAME DATE.

PLEASE REFER TO THE E&O POLICY SUMMARY POSTED ON THE COMPANY INTRANET SITE FOR SUBLIMITS WITH RESPECT TO CERTAIN PRODUCTS

CERTIFICATE HOLDER CANCELLATION

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE

Aon Risk Services Northeast, Inc.

ACORD 25 (2010/05) © 1988-2010ACORD CORPORATION. All rights reserved.

The ACORD name and logo are registered marks of ACORD

ADDITIONAL REMARKS SCHEDULE PAGE 2 OF 2

AGENCY Aon Risk Services Northeast, Inc.

NAMED INSURED REGISTERED REPRESENTATIVE AND/OR REGISTERED INVESTMENT ADVISOR OF M HOLDINGS SECURITIES INC. LIFE AGENT (MARKETER) OF M MEMBER FIRMS CORNERSTONE INSTITUTIONAL INVESTORS, INC 1125 NW COUCH STREET, SUITE 900 PORTLAND, OR 97209

CARRIER

NAIC CODE

EFFECTIVE DATE: ADDITIONAL REMARKS THIS ADDITIONAL REMARKS FOR IS A SCHEDULE TO ACORD FORM, FORM NUMBER: 25 FORM TITLE: Certificate of Liability Insurance

Other

Policy Covers: 1st Excess Professional Liability Everest National Insurance Company Policy Number: FL5EE00023-141 Effective Date: 06/01/14 Expiration Date: 06/01/15 Limits: Each Claim: $2,000,000 Aggregate per Insured: $2,000,000 Policy Aggregate: $15,000,000 Policy Covers: 2nd Excess Professional Liability National Liability & Fire Insurance Company Policy Number: 43-XPL-150175-01 Effective Date: 06/01/14 Expiration Date: 06/01/15 Limits: Each Claim: $6,000,000 Aggregate per Insured; $6,000,000 Policy Aggregate: $10,000,000 Total Primary and Excess Limits: $10,000,000 each Claim/$10,000,000 Aggregate per Insured/$50,000,000 Total Policy Aggregate

ACORD 101 (2008/01) © 2008 ACORD CORPORATION. All rights reserved.


CERTIFICATE HOLDER

© 1988-2010 ACORD CORPORATION. All rights reserved.ACORD 25 (2010/05)

AUTHORIZED REPRESENTATIVE

CANCELLATION

DATE (MM/DD/YYYY)

CERTIFICATE OF LIABILITY INSURANCE

LOCJECTPRO-

POLICY

GEN'L AGGREGATE LIMIT APPLIES PER:

OCCURCLAIMS-MADE

COMMERCIAL GENERAL LIABILITY

GENERAL LIABILITY

PREMISES (Ea occurrence) $DAMAGE TO RENTEDEACH OCCURRENCE $

MED EXP (Any one person) $

PERSONAL & ADV INJURY $

GENERAL AGGREGATE $

PRODUCTS - COMP/OP AGG $

$RETENTIONDED

CLAIMS-MADE

OCCUR

$

AGGREGATE $

EACH OCCURRENCE $UMBRELLA LIAB

EXCESS LIAB

DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required)

INSRLTR TYPE OF INSURANCE POLICY NUMBER

POLICY EFF(MM/DD/YYYY)

POLICY EXP(MM/DD/YYYY) LIMITS

WC STATU-TORY LIMITS

OTH-ER

E.L. EACH ACCIDENT

E.L. DISEASE - EA EMPLOYEE

E.L. DISEASE - POLICY LIMIT

$

$

$

ANY PROPRIETOR/PARTNER/EXECUTIVE

If yes, describe underDESCRIPTION OF OPERATIONS below

(Mandatory in NH)OFFICER/MEMBER EXCLUDED?

WORKERS COMPENSATIONAND EMPLOYERS' LIABILITY Y / N

AUTOMOBILE LIABILITY

ANY AUTO

ALL OWNED SCHEDULED

HIRED AUTOSNON-OWNED

AUTOS AUTOS

AUTOS

COMBINED SINGLE LIMIT

BODILY INJURY (Per person)

BODILY INJURY (Per accident)

PROPERTY DAMAGE $

$

$

$

THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIODINDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THISCERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

INSRADDL

WVDSUBR

N / A

$

$

(Ea accident)

(Per accident)

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS

CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES

BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED

REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to

the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the

certificate holder in lieu of such endorsement(s).


COVERAGES CERTIFICATE NUMBER: REVISION NUMBER:

INSURED

PHONE(A/C, No, Ext):

PRODUCER

ADDRESS:E-MAIL

FAX(A/C, No):

CONTACTNAME:

NAIC #

INSURER A :

INSURER B :

INSURER C :

INSURER D :

INSURER E :

INSURER F :

INSURER(S) AFFORDING COVERAGE

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORETHE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN

ACCORDANCE WITH THE POLICY PROVISIONS.

INS025 (201005).01

7/17/2014

Arbor Insurance Group, Inc.1605 N Cedar Crest BlvdSuite 410Allentown PA 18104-2351

Kathy J Heffner, CIC(610)437-3340 (610)770-9318

[email protected]

Cornerstone Institutional Investors Inc74 W Broad St, Ste 340

Bethlehem PA 18018-5738

Selective Ins Co of America 12572Selective Ins Co of Southeast 39926

2014 CII Standard

AX

X

X

S 1989057 7/1/2014 7/1/2015

1,000,000300,00010,000

1,000,0003,000,0003,000,000

A XS 1989057 7/1/2014 7/1/2015

1,000,000

AX x

S 1989057 7/1/2014 7/1/2015

5,000,0005,000,000

B

WC 7983783 7/1/2014 7/1/2015

x500,000500,000500,000

K J Heffner, CIC/KJH

Cornerstone Institutional Investors Inc 74 W Broad St Suite 340 Bethlehem, PA 18018

Section V

Rebalancing White Paper


The Importance of a Rebalancing Schedule 2010

The phrase “set it, and forget it” has occasionally been used as investment advice. Those who give this advice believe that an investment needs no attention for the next 20 or 30 years. The only advantage of this strategy is the fact that it removes emotions from any investment decisions. When emotions get involved, decisions are based upon fear and not facts. If fear creeps into an investors mind, sell decisions are usually made when the market is falling and buy decisions are made when the market is rising. This leads to buying high and selling low; the exact opposite of how one should invest (Appendix A). Aside from keeping emotions under control, this neglectful style of investing produces lower returns and higher risk. Returns and risk are primarily affected because the allocation of an unattended portfolio evolves. This evolution creates a totally different portfolio structure that becomes unsuitable as well as detrimental to the investor. In order to avoid these issues, a defined rebalancing process should be put in place and continually monitored.

There are multiple ways a portfolio can be rebalanced. It can be done periodically, that is monthly, quarterly or on an annually basis. Or it can be based upon an investment policy statement (IPS). An IPS rebalance schedule uses defined allocation ranges. Whenever one of the allocation ranges is breached, the entire portfolio is reset back to its target weights. Exhibit 1 shows the returns for a 60% equity, 40% fixed income portfolio that consists of 4 indices; S&P 500, MSCI EAFE, Barclays Capital Aggregate and the 3 Month T-bill. Each portfolio starts out with the same weights but during the investment time horizon, the portfolios are rebalanced at different intervals. Over every time frame, the portfolio that was rebalanced based on an IPS range of 30% performed the best. It outperformed the buy and hold portfolio by 35 basis points annually. This may not seem like a large amount but when it is put into nominal terms, ($283,860 on an initial investment of $100,000), it becomes rather significant.

Why does the IPS 30% range portfolio perform the best? Periodic and small range rebalancing run into two issues; the first being transactions costs. As rebalancing becomes more frequent, the cost of rebalancing actually works against the investor. Even though the frequently rebalanced portfolio’s returns are greater than the buy and hold strategy, the costs eat into the investor’s assets and hinder the portfolio’s ability to reach its maximum return. The second problem involves the tendency of the market to trend and the serial correlation of market returns. In a recently published paper, “Six Decades of Significant Autocorrelation in the U.S. Stock Market” authored by William J. Egan Ph.D., it was confirmed that autocorrelation analysis detected evidence that refutes the random walk theory. With this evidence, we can accurately say that markets trend and a frequently rebalanced portfolio will limit the ability of the best performing asset class to further contribute to the portfolio. The last column in exhibit 1 shows the number of rebalances each portfolio goes through. On a periodic basis, annual rebalancing produces the best return, however, it does not allow for market trends to last for more than one year. The IPS 30% range portfolio takes both costs and market trends into consideration which is why it produces the highest return.

1


Exhibit 1

Portfolio Returns

Rebalance

Last 34 Years

Last 20 Years

Last 10 Years

Last 5 Years

Last 3 Years

Value of $100,000

# of Rebalances

Buy & Hold 9.86% 7.44% 0.84% 2.95% -2.88% $2,449,081 0 Monthly 9.89% 7.58% 2.58% 3.85% -0.42% $2,468,485 413 Quarterly 9.96% 7.68% 2.77% 4.00% -0.19% $2,525,663 137 Annually 10.08% 7.87% 3.09% 4.49% 0.52% $2,617,612 34 IPS 15% Range 10.03% 7.78% 2.90% 4.40% 0.39% $2,579,170 27 IPS 30% Range 10.22% 8.01% 3.09% 4.63% 0.52% $2,732,942 11

In addition to returns, the risk profile is quite different between a buy and hold and rebalanced portfolio. The IPS 30% range portfolio was able to decrease its beta by 16.5% and its standard deviation by 2.22% (Exhibit 2). One of the main causes for the increased risk in the buy and hold portfolio is the change of its asset allocation. Any asset class that performs better on a relative basis will start to gain weight in the portfolio. The original allocation of the portfolio began at 60% equity and 40% fixed income but after 34 years, the portfolio’s allocation changed to 75% equity and 25% fixed income. This increased equity exposure has caused the risk of the portfolio to increase. A 15% move in equity exposure is quite significant but over the entire life of the portfolio, it is not the largest variation. The greatest equity exposure occurs right before the past two market crashes. On December 1999 the portfolio equity exposure was 87% and on October 2007 its exposure was 84%. In each case, the relative outperformance of equities skewed the portfolio to an extreme. Since these exposures occur prior to a market downturn, they intensify the portfolio’s losses. Without any monitoring, a balanced 60% equity, 40% fixed income portfolio can turn into an aggressive 85% equity, 15% fixed income portfolio. This type of portfolio shift will most likely violate an investor’s IPS and no longer be a suitable investment.

Exhibit 2

Risk Statistics Portfolio Ending Weights

Rebalance

Beta Standard Deviation

S&P 500 MSCI EAFE

BC Aggregate

3 Month T-bill

Buy & Hold 1.15 12.48 58.91% 17.20% 22.43% 1.45% Monthly 0.96 10.21 42.00% 18.00% 35.00% 5.00% Quarterly 0.96 10.20 41.08% 16.37% 37.32% 5.23% Annually 0.95 10.13 42.84% 16.48% 35.69% 4.99% IPS 15% Range 0.96 10.19 41.08% 16.37% 37.32% 5.23% IPS 30% Range 0.96 10.26 46.08% 18.59% 31.29% 4.04%

*Statistics are calculated against a 60% equity 40% fixed income portfolio over the last 34 years

Combining risk and return, the portfolio with the best risk adjusted measures is again the IPS 30% range. Exhibit 3 shows these various risk adjusted measures. In every category, the IPS 30% range portfolio produced superior statistics. One of the most important measures is the Sharpe Ratio. This ratio shows the amount of return in excess of the risk free rate the portfolio

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generates for every one unit of risk (measured by standard deviation). For every additional unit of risk, the IPS 30% range portfolio produced an extra 42 basis points of return. On the other hand, the buy and hold portfolio produced a negative information ratio. The statistic being negative shows that the portfolio’s inability to produce a return in excess of its benchmark. These measures really show the importance of rebalancing and its ability to produce the most efficient portfolio.

Exhibit 3

Risk Adjusted Statistics

Rebalance

Alpha Information Ratio

Treynor Ratio

Sharpe Ratio

Sortino Ratio

Buy & Hold -0.63 -0.17 3.39 0.31 -0.08 Monthly -0.02 -0.01 4.10 0.38 -0.12 Quarterly 0.06 0.02 4.19 0.39 -0.07 Annually 0.19 0.08 4.34 0.41 0.00 IPS 15% Range 0.12 0.05 4.26 0.40 -0.03 IPS 30% Range 0.28 0.11 4.43 0.42 0.08 *Statistics are calculated against a 60% equity 40% fixed income portfolio over the last 34 years

In the long run, it is important to implement a rebalancing schedule. Rebalancing enhances returns and lowers the risk of every portfolio across the board but it is very important to limit the frequency of rebalances. As they become more frequent, transactions costs and the trending nature of the market will limit the benefit. Portfolio allocation change is another item to keep an eye on. Without any type of rebalance schedule, a portfolio can change drastically over time and increase an investor’s exposure to riskier asset classes. As a portfolio changes, it may also no longer be suitable for the investor. All of these issues reinforce the fact that creating an investment policy statement that lays out the portfolio structure and defines a monitoring process is crucial for every investor. Otherwise, an investor is leaving money on the table which is never a good thing.

Appendix A

In order to determine how emotions affect an investment portfolio, a trading strategy based on the volatility index was constructed. The volatility index was chosen for it measures the amount of fear in the market. As the index level increases, so too does the fear in the market. Fear causes emotions to take over and control investment decisions. As fear increases, a participant’s equity allocation can cause them to become anxious and sometimes lead them to substantially cut their exposure. The following strategy was constructed to replicate that behavior. The original portfolio consisted of two assets: Vanguard 500 Index and Vanguard Total Bond Index with respective weights of 60% and 40%. Knowing the historical average of the index, an increase of 100% triggered a portfolio rebalance. The rebalance decreased the portfolio’s equity exposure by 50% and the proceeds from the sale were used to increase the fixed income allocation. On the other hand, when the index fell back to its historical average, this triggered another portfolio rebalance. This rebalance shifted the portfolio’s allocation back to its original 60% equity 40% fixed income target. The table below shows when the portfolio was rebalanced and what caused the volatility index to spike (“Sell” represents when the equity allocation was decreased and

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“Buy” represents when the portfolio was rebalanced back to target). The table also includes the ending market value of two portfolios. Since December 11th 1986, the emotional portfolio underperformed the buy and hold portfolio by over $400,000. There is a time and place for emotions, but investing is not one of them.

Sell Buy Causation Portfolio Market Value 10/19/1987 7/15/1988 Black Monday Emotional $2,818,900 8/31/1998 11/20/1998 LTCM Buy & Hold $3,221,924 9/17/2001 3/12/2002 September 11, 2001 *Base on price returns 7/19/2002 5/16/2003 9/29/2008 10/15/2009 Lehman Bankruptcy

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Section VI

Business Continuity Plan


* * * *

Cornerstone Companies Business Continuity Planning

Cornerstone Advisors Asset Management, Inc. and Cornerstone Institutional Investors, Inc. have developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our business continuity plan.

Contacting Us – If after a significant business disruption you cannot contact us as you normally do at 610-694-0900 (Bethlehem office) or www.cornerstone-companies.com, please call our alternate number at 610-866-2897. This is a temporary alternate location that will house sufficient staff to meet our clients’ needs. If you cannot access us through either of those means and your assets are custodied at Charles Schwab & Co., Inc., you can contact them directly at 1-800-515-2157. For clients whose assets are custodied at SEI Private Trust Company, you can contact them directly at 1-877-435-2497. If you maintain a brokerage account through Pershing, you should contact them directly at 201-413-3635. Your particular custodian can take your buy/sell orders, execute the orders, compare them, allocate them, clear and settle them. The custodians maintain your account(s), can grant you access to them, and deliver funds and securities to you. For all life insurance related questions, please call the above referenced numbers or alternate number and someone will contact you within 24 hours or you may contact the life insurance carrier directly in the event of an emergency.

Our Business Continuity Plan – We plan to quickly recover and resume business operations after a significant business disruption and respond by safeguarding our employees and property, making a financial and operational assessment, protecting the firm’s books and records, and allowing our customers to transact business. In short, our business continuity plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption.

Our business continuity plan addresses: data back up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical suppliers, contractor, bank and counter-party impact; regulatory reporting; and assuring our customers prompt access to their funds and securities if we are unable to continue our business.

Charles Schwab & Co., Inc. states it stores its essential data in two independent facilities, each equipped with an uninterrupted power supply and generators that can power the facilities and computing equipment for several weeks. Schwab’s current plans are designed to adequately protect our client’s assets and service requirements.

SEI Private Trust Company states it will use alternate processing facilities and standby computer resources of a third party recovery services provider and that SEI can rebuild the processing infrastructure and resume critical processing services. Their plan has been developed with the objectives to minimize the impact of business interruptions to clients and within SEI.

Pershing backs up clients’ records in a geographically separate area. While every emergency situation poses unique problems based on external factors, such as time of day and the severity of the disruption, our clearing firm has advised us that its objective is to restore its own operations and be able to complete existing transactions and accept new transactions and payments with minimal disruption.

In any of these cases it is possible that your orders and requests for funds and securities could be delayed.

Varying Disruptions – Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we will transfer our operations to a local site when needed and expect to recover and resume business within two (2) hours. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area, and recover and resume business within four (4) hours. In either situation, we plan to continue in business, transfer operations to our clearing firm and custodians if necessary, and notify you through our web site www.cornerstone-companies.com or our customer emergency number, 610-866-2897 on how to contact us. If the significant business disruption is so severe that it prevents us from remaining in business, we will assure our customer’s prompt access to their funds and securities.

For more information – If you have questions about our business continuity planning, you can contact us at 610-694-0900 or email us at www.cornerstone-companies.com.

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