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Portfolio Protection: Performance Update

July 17, 2012

In 2011 a portfolio protection element was added to the True Wealth Design portfolio allocations. The information below provides a generalized update to how this protection element (Dynamic VIX) has performed in relation to managing risk (volatility and maximum draw-down) while capturing returns. The results to date have been very encouraging.

Please see below for performance during the period from June 13, 2011 to June 29, 2012, for a hypothetical investment in the S&P 500® Index, as well as a hypothetical portfolio composed of 90% S&P 500® Index and 10% of the Dynamic VIX Index ("90/10 portfolio") and a second portfolio of 85% in S&P 500® Index and 15% of the Dynamic VIX Index ("85/15 portfolio").

During this time period, the performance of a 90/10 portfolio was up 12.0% with 18.1% annualized volatility. This compares to a 100% investment of S&P 500® Index which was up 9.1% for the period with 23.1% annualized volatility; thus the 90/10 portfolio has an improved returns-to-volatility ratio of 0.66 compared to 0.40. Furthermore, max drawdown for the period for the 90/10 portfolio was reduced to -13.2% compared to an -18.4% drawdown for a 100% S&P 500® Index investment.

†Annualized Volatility is calculated as a standard deviation of natural logarithm of monthly returns in the observation period multiplied by the square root of 12. Because the annualized volatility is based on historical data, it may not predict variability on annualized future performance.

‡Max Drawdown represents the maximum percentage decline of an index price between any starting and ending point in time. Index returns are for illustrative purposes only and do not represent actual iPath ETN performance. Index performance returns do not reflect any investor fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Performance of the Dynamic VIX Index

For the period from December 30, 2011 to June 29, 2012 ("Year-to-date"), the performance of the Dynamic VIX Index was up 1.7% with 12.8% annualized volatility. During the same period, the returns of the component indices were as follows: the S&P 500® VIX Mid-Term Futures Index was down 25.6% with 35.2% annualized volatility and the S&P 500® VIX Short-Term Futures Index was down 57.8% with 76.9% annualized volatility. Year-to-date, the Dynamic VIX Index allocation alternated between 70%/-30% and 80%/-20% (long mid-term VIX futures/short short-term VIX futures).

Remember that Dynamic VIX is a second-generation volatility product designed to mitigate negative characteristics of first generation products like short and mid-term VIX futures. Most literature written on volatility products tends to be about first generation products or leveraged versions of them.

S&P 500® Dynamic VIX Futures™ Total Return Index ("Dynamic VIX Index")*

Description: The Dynamic VIX Index seeks to provide investors with exposure to forward implied volatility by reflecting the outcomes of holding long and at times long and short positions in futures contracts on the CBOE Volatility Index®. The Index aims to react positively to overall increases in market volatility by allocating dynamically between two components: a short-term volatility component and a mid-term volatility component.

* The Dynamic VIX Index has been live since June 13, 2011. All Dynamic VIX Index performance information prior to June 13, 2011 is hypothetical historical information. Historical and hypothetical historical information is not indicative of the future performance of the Dynamic VIX Index or any related investment.

Index returns are for illustrative purposes only and do not represent actual iPath ETN performance. Index performance returns do not reflect any investor fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

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