Swan Wealth Advisors, Inc

Defined Risk Strategy (DRS)

SWAN Wealth Advisors, INC.

Swan Wealth Advisors, Inc. is an independent investment advisory company that specializes in index-based strategies that are intended to allow investors
to participate in upward price movement in a particular stock index while reducing most of the downside risk. Swan's primary focus is to protect and
accumulate wealth for its clients guided by two core principles: 1) Never Lose Money, 2) Don’t forget rule #1
INVESTMENT STRATEGY DRS SELECT ACCOUNT COMPOSITE PERFORMANCE VS. S&P 500
Swan Wealth Advisors, Inc. has long held and published that
Strategy Inception-to-date July 1, 1997 – December 31, 2010
predicting the market over an extended period of time is Swan Wealth Advisors, Inc. Defined Risk Strategy S&P 500 (“The Benchmark”)
impossible. This assumption and clear weaknesses of asset Year Net-of-Fee Net-of-Fee Net-of-Fee Standard
Sharpe
# of Accts /
% of Firm Dispersion Cumulative Annualized
Standard
Sharpe
Cumulative Annualized Beta Deviation Assets in Return Deviation
allocation as a reliable long-term investment strategy formed the Return
Return Return (External)
Ratio
Millions
Assets (Internal) Return Return
(External)
Ratio

incentive and basis for the development of our innovative and 1997+ 19.17% 19.17% 19.17% - - - 1 / .22 100% - 9.98% 9.98% 9.98% - -
proprietary market-neutral Defined Risk Strategy (DRS). Swan’s 1998 11.55% 32.94% 20.90% - - - 1 / .32 100% - 28.58% 41.42% 25.99% - -
1999 12.26% 49.23% 17.37% - - - 1 / .72 100% - 21.04% 71.17% 23.99% - -
DRS strategy should not be confused with risky (i.e. speculative) 2000 3.17% 53.97% 13.12% - - - 1 / .90 100% - (9.10)% 55.59% 13.46% - -
and/or highly leveraged strategies which expose the investor to 2001 7.46% 65.46% 11.84% 0.10 5.12% 0.62 3 / 1.66 100% - (11.89)% 37.09% 7.26% 16.03% 0.19
2002 12.22% 85.68% 11.91% 0.22 4.70% 0.62 3 / 1.97 100% - (22.10)% 6.79% 1.20% 18.38% (0.07)
large losses through high leverage with the hope of a large pay
2003 (0.65)% 84.47% 9.88% 0.19 5.99% 0.48 5 / 2.93 78% 5.68% 28.69% 37.43% 5.01% 19.28% 0.15
off. We say “hope” because such strategies attempt to and rely 2004 12.28% 107.13% 10.20% 0.19 5.71% 0.54 7 / 3.66 79% 5.80% 10.88% 52.38% 5.78% 18.10% 0.21
on predicting the market. In contrast, the DRS strategy is a 2005 7.47% 122.60% 9.87% 0.19 5.42% 0.54 7 / 4.16 84% 2.66% 4.91% 59.87% 5.68% 17.08% 0.21
2006 18.14% 162.98% 10.71% 0.20 5.80% 0.64 9 / 6.71 87% 3.71% 15.79% 85.12% 6.70% 16.42% 0.26
market-neutral absolute return strategy. The DRS is designed 2007 8.81% 186.15% 10.53% 0.20 5.54% 0.64 10 / 8.31 88% 3.79% 5.49% 95.29% 6.58% 15.67% 0.25
with components (85% equity + 15% options-hedge + options- 2008 (4.50)% 173.27% 9.14% 0.25 6.68% 0.50 10/13.67 87% 5.00% (37.00)% 23.04% 1.82% 19.40% 0.02
2009 25.00% 241.59% 10.33% 0.25 7.80% 0.62 50 / 48.05 86% 11.69% 26.46% 55.60% 3.60% 19.59% 0.11
income) developed and fine-tuned over 13.5 years to profit and 2010 8.10% 269.26% 10.16% 0.26 7.54% 0.62 71 / 86.79 89% 2.13% 15.06% 79.03% 4.41% 19.04% 0.17
protect in bear, bull, flat, and choppy markets.
DEFINED RISK STRATEGY NON-IRA ACCOUNT VS. THE S&P 500 (“THE BENCHMARK”)
Since inception in July 1997, the DRS has met its objectives in both
performance and risk reduction with independently verified Cumulative Returns
GIPS® compliant annualized returns of 10.16% (Net-of-Fees) at a 300%
Standard Deviation of only 7.54% and Beta of only 0.26! During DRS (Net-of-Fees)
250%
this same period the benchmark S&P 500 yielded only 4.41% with S&P 500
a Standard Deviation of 19.04%. From July 1997 investments in 200%
the DRS:
150%
• Grew by 269% (Net-of-Fees)
100%
• Beat the S&P 500 by 190% (Net-of-Fees)
• Accumulated 319% new shares of core equity holding with 50%
profits from hedge investments 0%
• 10.16% annualized returns after fees 1997+ 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

+ 1997 CY Returns are total returns (i.e. not annualized) from July-December consistent with initial Strategy implementation

“Prophesy as much as you like, but always hedge.” - Oliver Wendell Holmes, 1861
 Swan Wealth Advisors, Inc

A Compliment to Asset Allocation

ASSET ALLOCATION – Where does Swan DRS fit?

Risk vs. Return: 1997 to 2010 DRS as a Core Holding

12% Swan’s Defined Risk Strategy (DRS) is an
Swan DRS
absolute return, market neutral investment
10% program designed to protect your
investment in down markets, generate
8% income in down, flat and up markets and
Treasury Bond
allow for maximum upside participation in Core Equity
6%
Return

Russell Balanced bull markets. DRS as a strategy has great Defined Risk
4% flexibility in your asset allocation program. Strategy
Gateway Fund Whether you need a non-correlated (to
S&P 500
2% equities) alternative asset, a hedged core
holding or large cap equity exposure, as
0% demonstrated in the Risk vs. Return Chart
0% 5% 10% 15% 20% to the left, DRS can help to decrease risk
Risk and increase return.

Defined Risk (DRS) as an Alternative Holding DRS as a Large Cap Holding

Cash
Real Estate Cash International Real Estate International
Commodities
Commodities
Emerging Mkts

DRS
Bonds Emerging Mkts
Bonds
Mid Cap
Mid Cap
Small Cap

Small Cap
Large Cap
DRS
(Large Cap)

“Prophesy as much as you like, but always hedge.” - Oliver Wendell Holmes, 1861
Because Asset Allocation
Swan Wealth Advisors, Inc

is Not Enough…
ASSET ALLOCATION – POLISHING THE TURD
"...In times of trouble, markets become more closely linked, and
seemingly unrelated assets rise and fall in tandem" (Lowenstein,
2000).
Market Pressure
Investopedia explains Systematic Risk Interest rates, recession
and wars all represent sources of systematic risk because they 2002 2008 2009 2010 2011+
affect the entire market and cannot be avoided through
diversification. Systematic risk can be mitigated only by being
hedged.

In normal markets, the advertised value in asset allocation is that a

diversified portfolio will lose less money than a non- diversified
portfolio. Does an asset allocated portfolio protect an investor when
the market is down? Historically, the answer is a resounding "no!"
During the four negative years over the past ten years, asset
allocation saved the investor from being down as much as the stock
market, but not by very much. In 2008, when the market was down
37%, the Lipper Diversified Growth and Income Index was down
31%! Investors don't care if they beat the market if that means they
will lose 1/3 of their hard earned money.
Swan Wealth Advisors, Inc. thinks the economic and market
Government Debt
"pressure" is building. The United States government has artificially
Municipal Bonds

?
propped up the markets. Financial instruments (dominoes) are Corporate Debt
teetering on the edge. Investors need to prepare for the worst case Stock
scenario. When the last of the dominoes fall, 2008 may look good in Real Estate
comparison! We may even be in danger of a repeat of the 1929-
1932 bear market crash in which the Dow fell 89%. Nobody knows
what will happen in this scenario. Hoping for economic and market
recovery is not good enough. Asset Allocation has demonstrated its
Dec 31, 2010
ineffectiveness to protect against significant losses.

Diversifying into bonds or increasing your portfolio's allocation to

S&P 500 Index

bonds is not the answer since bond defaults on corporate and/or

municipal debt are real possibilities. Interest rates are at historic
lows and have nowhere to go but up. As rates rise, bond values fall.
Real estate may not have even bottomed yet. And cash, well, cash is
paying virtually nothing. After taxes and inflation, bonds and cash
give you a negative return. 26.46% 26.89% 25.00%
Relying on archaic asset allocation techniques which are not able to 12.22% 15.06% 13.74%
8.10%
protect against market risk will yield the same or worse results as
Return %

shown in 2002 and 2008. If you prepare, you can protect your
investments. The old adage "better safe than sorry" could not be (4.50)%
more apropos. Find a manager who will manage market risk in your (7.29)%
investment portfolio. Don't settle for outdated strategies which (22.10)% S&P 500 Index
simply “polish the turd”. You have investment options. (29.75)% Russell Balanced (1)

What are you doing about it? (1) Russell Balanced Fund (RBLSX)
(37.00)% DRS(2)
(2) Swan Wealth Advisors, Inc. Defined Risk Strategy

“Prophesy as much as you like, but always hedge.” - Oliver Wendell Holmes, 1861

GIPS® Compliance
GIPS® Disclosures
Swan Wealth Advisors, Inc. is an independent investment advisory
company that specializes in index-based strategies that seek to allow
investors to participate in the upward price movement in a particular
stock index while attempting to reduce most of the downside risk.
The Defined Risk strategy focuses on delivering defined risk strategies
that target capital growth and protection. Swan Wealth Advisors, Inc.
claims compliance with the Global Investment Performance
Standards (GIPS®). To receive a complete list and description of Swan
Wealth Advisors Inc.’s composites and/or a presentation that
adheres to the GIPS standards, contact Randy Swan, 970-382-8901 or
write Swan Wealth Advisors, Inc. 277 E 3rd Ave, Suite A, Durango, CO
81301, or randy.swan@swanwealthadvisors.com
Compliance Statement: Swan Wealth Advisors, Inc. (“Swan”) has prepared and
presented this report in compliance with the Global Investment Performance
Standards (GIPS®).
Verification: Swan Wealth Advisors, Inc. has been verified for the periods July 1,
1997 through December 31, 2010 by The Spaulding Group. A copy of the
verification report is available upon request. To receive a copy of the report
please call or 970-382-8901 or email jim.pritchard@swanwealthadvisors.com
Returns: The Defined Risk Strategy presented returns are calculated NET-OF-FEES.
NET-OF-FEES calculations are made net of management fees, and net of custodial
fees and all trading expenses.
Benchmark: The benchmark used for the Defined Risk Strategy is the S&P 500
Index.
Minimum account size: No minimum account size is required for inclusion into
the Defined Risk Strategy composite. The composite includes all past and present
accounts invested in the Defined Risk Strategy.
Currency: All valuations are computed and performance reported in US dollars.
Past results do not guarantee future performance. All investments have the
potential of losing money.
“Prophesy as much as you like, but always hedge.” - Oliver Wendell Holmes, 1861
Swan Wealth Advisors, Inc
Composite Definition: The Defined Risk Strategy Select composite was defined on
January 1, 2010 and includes all Non-IRA discretionary accounts which were solely
invested in the Defined Risk Strategy from July 1, 1997 through December 31,
2010. The Defined Risk Strategy was designed to protect investors from substantial
market declines, provide income in flat or choppy markets, and to benefit from
market appreciation. Stock and options are the primary components of the
strategy. A complete list and description of composite is available on request.
Composite Description: The Defined Risk Strategy Select composite demonstrates
the performance of all taxable assets managed by Swan Wealth Advisors, Inc. since
inception. It includes discretionary individual accounts whose account holders
seek the upside potential of owning stock, and the desire to eliminate most of the
risk associated with owning stock. The composite relies on LEAPS and other
options to manage this risk. Individual accounts own SPY and LEAPS associated
with SPY as well as multiple other option spreads that represent other indices that
are widely traded. The Defined Risk Strategy composite includes all non-IRA
discretionary accounts which are solely invested in the Defined Risk Strategy. The
Defined Risk Strategy was designed to protect investors from substantial market
declines, provide income in flat or choppy markets, and to benefit from market
appreciation. Stock and options are the primary components of the strategy.
Definition of the Firm: Swan Wealth Advisors, Inc. is an independent Investment
Advisory company headquartered in Durango, CO. Swan is registered with the US
Securities and Exchange Commission under the Investment Advisors Act of 1940.
Swan offers and manages a Defined Risk Strategy for its clients including
individuals and other investment advisor firms. Swan offers its services to
individuals and third party advisors. The Defined Risk Strategy is the only
composite offered and it includes all assets under management. Additional
information regarding Swan’s policies and procedures for calculating and reporting
performance returns is available upon request. Registration with a securities
regulator does not constitute an endorsement of the firm nor does it indicate that
the advisor has attained a particular level of skill or ability.
Standard Deviation: Standard deviations of annualized returns for both the
composite and benchmark (i.e. S&P 500) have been calculated using standard
methodologies. The time period and frequency used in calculations is composite
inception-to-date and annual, respectively. Values are excluded for the 1st 3.5
years of composite implementation (i.e. 1997-2000) to ensure sufficient
measurement points for meaningful statistical analysis.
Measure of Dispersion: The Defined Risk Strategy composite dispersion is
measured using standard deviation of returns. Specifically, the dispersion
represents the variability of returns within the composite. Calculation
methodologies, time period, and frequency of returns is consistent with those
described for Standard Deviations.
Sharpe Ratio: Sharpe Ratios for both the composite and the benchmark have been
calculated using the standard formula of (Return – Risk Free Return) / Standard
Deviation. The time period and frequency used in calculations is composite
inception-to-date and annual, respectively. Risk Free Return values used in these
calculations are based on 91 Day Treasury Bond returns for the same period.
Values are excluded for the 1st 3.5 years of composite implementation (i.e. 1997-
2000) to ensure sufficient measurement points for meaningful statistical analysis.
Use of Derivatives: The purchase and sale of options are a component of the
Defined Risk Strategy. Options are traded on both long-term and short-term
horizons to reduce the risk of owning stock and to generate income. Since
inception of the Defined Risk Strategy, Options have been responsible for a
significant portion of total returns. The Defined Risk Strategy uses little or no
leverage (<2%). Portfolios are generally balanced annually with 85% stock, 15%
Options. Please contact Swan Wealth Advisors, Inc. if you would like more
detailed information on the use of Options in The Defined Risk Strategy.
Definition of Accredited Investor : An Accredited Investor is a natural person who
has individual net worth, or joint net worth with the person's spouse, that exceeds
$1 million at the time of the purchase or a natural person with an individual
income in excess of $200,000 or in excess of $300,000 with his or her spouse in
each of the two most recent years and who has a reasonable expectation of an
income in excess of $200,000 individually or in excess of $300,000 with his or her
spouse in the current year.
Definition of an Investment Adviser/Professional: An Investment
Adviser/Professional is a person or business that provides investing advice or
counsel to an investor in exchange for a fee. Investment advisers may interact
directly with a client (e.g. by managing assets), or may provide passive, general
advice on which securities or industries are bullish or bearish. Investment advisers
managing more than a certain amount of money must register with the SEC; the
actions of all investment advisers are governed by the Investment Advisers Act of
1940. Importantly, it is a criminal offense for investment advisers to provide false
or misleading information, and to sell or buy their own securities to or from a
client.