The Medallion Strategy

An Alternative Investment Strategy To Help Protect and Grow Your Investments

Since 1982

MCS 04-2013

Creative Financial Designs, Inc.

Performance Protection & Diversification

Building your investment nest egg takes time, discipline, and the right approach. Because every investor may be different as a result of their goals, time horizon, risk tolerance, and overall needs, we offer a wide spectrum of choices to help fit those needs. Whether you are new to investing or a seasoned veteran, we are here with the investment strategies for you.

The Foundation of Investing

When it comes to reaching your investment goals, perhaps most importantly, you need to have a solid investment approach. All to often investors adhere to emotions and misunderstandings to lead their investment decisions. According to the independent research firm DALBAR, average equity investors have returned only 4.25% over the past 20 years while the S&P 500 has returned 8.21% (19932012). Our firm has created and individually manages within several investment strategies and risks levels, creating a platform and strategy for every client to potentially be successful in their financial investing.

The Investing Options

Traditional investing uses cash, bonds and/or stocks (mutual funds) to build your investment portfolio. Normally designed to allocate your portfolio over several investment categories to provide a diversified portfolio. Traditional investing helps keep you invested throughout many different market cycles. Alternative investing normally uses non-traditional investments and/or nontraditional investing strategies in an attempt to further diversify your overall investment portfolio. They might include: commodities, precious metals, real estate, managed futures, leveraged investments, market timing strategies, and many more. Both traditional and alternative investments can come in many different strategies and options. However, it is important to know the general difference and most importantly why one could use both options when investing their assets.

Traditional Investing

Adding Alternatives
ALTERNATIVES

20%

BONDS

40% 60%
EQUITIES

EQUITIES BONDS

50%

30%

Returns: 6.58%* Standard Deviation: 8.76*

Returns: 6.63%* Standard Deviation: 8.25*

Returns and Standard Deviations were calculated in Morningstar Hypothetical using the S&P500 Index 500 for equities, Barclays U.S. Agg Bond Index for bonds, and the Credit Suisse Liquid Alternative Index for alternatives. These returns and risk assessments are not actual performance or risk of any Creative Financial Designs, Inc. managed account strategies. Indices are unmanaged and are not available for direct investment. Indices do not reflect fees and expenses associated with the active management of a portfolio.

Enhanced diversification comes with using investments that are non-correlated to one another. In other words, using investments that work differently in different types of market conditions. This may give you a better chance to make money in rising or declining markets and potentially protect assets during market declines. Think of it this way, if you were heading outside for the day, you would check the weather forecast. Do you need sunblock or an umbrella? If you do not know what the day will hold, you may bring both with you. Investing can be the same way. Some markets rise while other fall. An enhanced diversification model gives you both sunblock and an umbrella.

Taking it to the Next Level

Who is Right For Using Alternative Investment Strategies?

Your adviser can help you determine what strategy is right for you and if so what percentage of your portfolio should be in alternative investment strategies. Just like with most investment strategies, alternative investment strategies are designed for those with long-term investing needs. A prospective client may also be: Someone concerned with daily market volatility of their account. Someone that has an investment goal that they are willing to possibly take a moderate to higher level of risk for a portion of their assets. Someone with adequate to substantial emergency savings. Someone looking to diversify a portion of their investment assets among nontraditional investing strategies.

The Harvard Endowment Policy

Pension plans and endowments such as the Harvard University have embraced alternative investing. The guidelines the university uses for its endowment portfolio has changed dramatically from 1995 to 2013. The guidelines for 2013 recommended having 40% of its portfolio in alternatives, while back in 1995 it recommended just 13%.

1995*

2013
FIXED INCOME

FIXED INCOME

22

11%
ALTERNATIVES

EQUITIES

ALTERNATIVES

EQUITIES

70

13%

49%

40%

*Data for 1995 adds to 105% due to a -5% cash allocation.

The Medallion Strategy

A Quantitative Investment Process to Help Manage Risk
The Medallion technical investment strategy offers an alternative to the traditional buy and hold and asset allocation investment strategies. This strategy is designed for those investors who seek a more active approach to the management of their money. The strategy is designed primarily to identify specific, short-term trends in the equity markets, whether bullish or bearish, and invest accordingly. We offer three investment objectives within the Medallion model: Lite, Core and Plus. Just as the names imply, the Lite model is a bit more conservative and uses no leverage investment holdings, while the Plus uses leveraging of investments and is considered more aggressive than the Lite and Core models. Our emotionfree, disciplined process has the potential to reduce volatility and enhance diversification by identifying potential growth opportunities during both bull AND bear markets.
Less Risk More Risk

Lite

Core

Plus

The Medallion Process

Creative Financial Designs uses a proprietary quantitative model to assess the equity markets on a daily basis. Our model will help to determine whether conditions are neutral, favorable, or unfavorable for investing. Here are the basics of how our computer algorithm works:

Re

ion sit po

1.
ly Measure Dai

1. Measure market risk daily using our quantitative model, which tells us whether or not conditions are neutral, favorable, or unfavorable to invest. 2. Selects an investment style that suits the current daily market conditions. Favorable Indicators Uses a pre-determined model to take advantage of potentially up-trending markets.
Neutral /Unfavorable Indicators Pre-determined model holds cash the majority of the time and also has the ability to short the market during rare periods of extreme weakness.

3.
<N < F e u tr a l a < U vorabl e nfa vora ble

2.

3. Actively reposition accounts based on daily quantitative models. This removes personal bias and emotion from the process.

Medallion Strategy Core Results

Performance as of 6/30/13
Medallion Core S&P 500 YTD 6/30/13 4.28% 13.82% 2012 Returns 21.24% 16.00% 2011 Returns 14.84% 2.11% 2010* Returns 1.99% 15.06% Cumulative Returns 1/1/10 - 6/30/13 42.35% 46.99%

All returns shown above for the medallion Core take all fees and expenses into account. The S&P 500 Index is an unmanaged portfolio of stocks that does not include any fees and expenses and is not available for direct investment.

It is about risk

Returns are important to consider within your investment strategy, however, knowing the risk your portfolio takes is possibly even more important. Many investments look at the Beta to compare risk of their portfolio. Beta is simply a direct comparison to the S&P 500 Index which is always 1.00. If you have a .75 Beta, your investment or portfolio is taking 25% less risk than the S&P 500 Index. Likewise, if your investment or portfolio Beta is 1.25, you are taking 25% more risk than the S&P 500 Index. Then, Standard Deviation shows us how much variation exists from the expected value. The lower the Standard Deviation the less the volatility.

Key Risk Statistics* 9/30/10 - 12/31/12

Beta
Medallion Core S&P 500 Index -.07 1.00

Standard Deviation
11.4 17.0

As described previously, the Medallion Strategy uses a daily indicator to determine whether to be invested in the market, against the market or neutral. Our Core strategy historically spends a significant amount of time in cash to limit your portfolios volatility. Listed below is the key information about how historically often our strategy is invested in the four potential signals: Signal Inverse (Bear) Long Long w/Leverage Cash % of Time 4.0% 19.7% 22.7% 53.6% 7

All statistics listed above will change over time and no guarantees are made that these listed levels will be the same or even close to the listed for future investing.

The content and design of the program was developed by and is owned by William Breagy. Creative Financial Designs, Inc. provides access to the program through a license agreement with William Breagy. Creative Financial Designs, Inc. is not responsible for the content or design of the program. *S&P 500 is a trademark of The McGraw-Hill Companies, Inc. The S&P 500 is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock market performance. An investment cannot be made directly into an index. **The performance reported is calculated from an average of actual client returns, net of fees and expenses (Creative Financial Designs management fees and internal sub-account and product fees). The only client accounts used for the calculation are those that have been retained throughout the year (i.e. not opened or closed within the reporting year), and do not have any deposits or withdrawals among the activity in the account. Certain anomalous accounts may also be omitted in the reported figures. The returns reflect the reinvestment of earnings. Certain investments managed by Designs have surrender charges that may be incurred upon withdrawal of funds. Actual returns for such accounts do not reflect those fees, expenses, and charges, which would reduce the returns realized by persons making early withdrawals from such products. Reported Returns Actual and Hypothetical Investment returns reported for a model portfolio are based on a sampling of actual client returns. The performance for the Medallion portfolios reported is calculated from an average of actual client returns since October 1, 2010, and back-tested hypothetical returns prior to that time, net of fees and expenses (Creative Financial Designs management fees and internal sub-account and product fees). Aggregate returns are a calculated based on actual and hypothetical returns, and reflect the hypothetical back-tested results if the Medallion program were used with the Alternative Investment Rider. Returns do not take tax considerations into effect, which will affect the returns and the level of profitability of an account over time. Designs does not provide legal or tax advice. Reported returns are historical in nature, and past performance is not indicative of future results. Mutual Funds, ETFs, and variable annuity products pay management fees to professional investment managers, which are separate to and in addition to the management fees of Creative Financial Designs, Inc (Designs). The professional management fees paid by such investment vehicles are born by the investors and reduce the net asset value, and therefore the returns of the respective fund shares. Affiliation with CFD Investments Designs is owned and controlled by several persons who also have financial interests in CFD Investments, Inc. (CFD), a registered broker/dealer, member FINRA and SIPC. Designs is also co-located with CFD and several persons associated with CFD are also associated with Designs. When appropriate, assets of clients managed by Designs will be maintained in brokerage accounts established at CFD. Affiliations among CFC companies The CFC companies are all co-located in the Creative Financial Center in Kokomo, Indiana. Many of the CFC companies have some correlation of ownership, and some may be considered affiliated entities. No CFC company is owned or controlled by another CFC company.

questions@creativefinancialdesigns.com
Advisory Services are Provided through Creative Financial Designs, Inc., a Registered Investment Advisor, and Securities are offered through CFD Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 South Goyer Rd, Kokomo, IN 46902 (765) 453-9600

www.creativefinancialdesigns.com