© 2008 Morningstar, Inc. All rights reserved. 3/1/2008LCN200803-2013997

Principles of Investing

Power of Reinvesting1988–2007

Past performance is no guarantee of future results. Hypothetical value of $1,000 invested at the beginning of 1988. Data does not account for taxes or transaction costs. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$20k

1

1988 1991 1994 1997 2000 2003 2006

$9,330

$5,943$5,892

$1,638

10

11.8%9.39.32.5

Compound annual return

• Stocks with reinvestment• Stocks without reinvestment• Bonds with reinvestment• Bonds without reinvestment

Power of CompoundingHypothetical investment in stocks

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Years contributing: 10Annual amount contributed: $2,000

Years contributing: 10Annual amount contributed: $4,000

Investor BInvestor A

$40,000

$55,138

$20,000

$104,555

• Total amount invested• Compounded value at year-end 2007

0

20

40

60

80

100

120

$140k

1988–2007 1998–2007

Importance of Rebalancing1987–2007

Past performance is no guarantee of future results. Stocks: 50% large and 50% small stocks. Data is represented as of year-end 1987.Bonds: intermediate-term government bonds. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

50% 50%

55%

45%

69%

31%

62%

38%

73%

27%

0

10

20

30

40

50

60

70

80%

2002 2007199719921987

• Stock allocation• Bond allocation

Controlling Risk With Portfolio RebalancingThe risk and return of rebalanced versus non-rebalanced portfolios

Past performance is no guarantee of future results. Risk and return are measured by annualized standard deviation and compound annual return, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Return

0

2

4

6

8

10

12

14%

Jan 1970–Dec 2007

Jan 1980–Dec 2007

Jan 1990–Dec 2007

Jan 1970–Dec 2007

Jan 1980–Dec 2007

Jan 1990–Dec 2007

Risk

12.6%12.4%

10.7%10.2%

9.8%

9.0%

11.0%

11.7%

9.1%

10.7%

11.3%

8.8%

• Non-rebalanced portfolio• Rebalanced portfolio

2,500

Dangers of Market TimingHypothetical value of $1 invested from 1926–2007

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$3,246

$19.23 $20.19

0

500

1,000

1,500

2,000

3,000

$3,500

Stocks Stocks minus best 40 months Treasury bills

Dangers of Market TimingHypothetical value of $1 invested from 1988–2007

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$9.33

$2.36 $2.41

0

2

4

6

8

$10

Stocks Stocks minus best 18 months Treasury bills

Market-Timing RiskThe effects of missing the best month of annual returns

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

–40

–30

–20

–10

0

10

20

30

40% Return

1988 1994 2000 2006198219761970

• Annual return• Annual return minus best month

Reduction of Risk Over Time1926–2007

Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period 1926–2007. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Small stocks Large stocks Government bonds Treasury bills

–60

–30

0

30

60

90

120

150%

1-year

Holding period

5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year

Compound annual return:12.5% 10.4%

5.5% 3.7%

Tax-Loss HarvestingSelling losing investments for a tax advantage

Past performance is no guarantee of future results. *Assumes capital gains tax rate of 15%.This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

• Taxable gain (loss)

• Taxes paid (credit)*$5,000

$750

($450)

($3,000)

$2,000

$300

(3,500)

(2,500)

(1,500)

(500)

500

1,500

2,500

3,500

4,500

$5,500

Investmentwith gain

Investment with loss

Results ofharvesting loss

Returns Before and After Inflation1926–2007

Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

10.4%

7.1%

5.5%

2.4%

3.7%

0.7%

Stocks Bonds Cash

0

2

4

6

8

10

12%

Before inflation After inflationBefore inflation After inflation Before inflation After inflation

Reduction of Portfolio Risk

Past performance is no guarantee of future results. Risk is measured by standard deviation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

0

2

4

6

8

10

12

14% Risk

1 2 3 4 5 6 7 8

Number of randomly selected assets in portfolio

12.1%

10.0%

8.9%

8.4%8.0% 7.9% 7.7%

7.5%

Can You Stay on Track?

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$18,439

$1,091

$37,344

$912

$60,895

$747

600

800

1,000

$1,200

100

1k

10k

$100k

1975 1985 1995 20051972 1973 1974

• Stocks• 50/50 portfolio• Bonds