Fourth Quarter 2012 J.K. Financial, Inc. Performance Report Cover Letter (Clients)

Dear Investor,

Enclosed you will find your Fourth Quarter 2012 Performance Report. As a reminder this report is a summary of your monthly statements and transactions you receive directly from our outside custodian along with the IRS tax basis for each of your investments. This report summarizes the last 90 days activities and consolidates multiple accounts into one report for a total comprehensive view.

In this annual report you will find 5 years of Historical Account Value quarterly bar chart to go along with our YTD Cash deposit and Withdrawals ledger report, and greater return details than in our normal quarterly reports.

On April 2, 2012 just barely out of the first quarter, most domestic capital markets made almost all of their gains for the year. The remaining portion of the year was driven primarily by headline political and world events. While the ups and downs of such movements are stressful, proper allocation, diversification, and rebalancing proved once again critical. Despite the recent market run up, we expect very little headway until political clarity is gained thereby releasing companies pent-up demand and growth goals.

Over the last quarter our suspicions proved true from a domestic equity perspective as the S&P 500, our favorite large domestic index fell just over 1% for the quarter. A final gallop into the year trimmed the losses by several percentage points lessening the pain.

With an expectation of a one up, two down market for at least the first half of the year and a new presidential cycle weighing against us (forthcoming Q 1 2013 Newsletter discusses in great detail) we feel the road is rocky, especially for the early part of this year. Proper diversification and rebalancing will be an absolute necessity if our expectations prove correct.

We will be sending a separate tax report by mid February that will summarize taxable items and help in your government tax filing requirements should you have a taxable account. IT IS VERY IMPORTANT YOU WATCH FOR THIS REPORT AS IRS RULES HAVE MANDATED CUSTODIAL REPORTING, WHICH WILL NOT BE 100% ACCURATE DURING THE TRANSITION PHASE. OUR REPORT WILL BE THE MOST ACCURATE. We have included our latest private policy statement for your review. Also, we want to take this opportunity to offer our latest ADV filings; Requests for review will be accepted via phone, mail or email, and mailed immediately upon request.

Sincerely,

John A. Kvale CFA, CFP

Enclosures (Fourth Quarter 2012 Performance Report, Private Policy Statement)

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