© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Stocks and Bonds

Investing in Stocks © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Ownership in a corporation  Voting rights  Historically higher returns  More risk

Stock Market Performance 1926–2007 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 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/ % 10.4 Compound annual return $100k 10k 1k $15,091 $3,246 Small stocks Large stocks

Small Stock Annual Returns Relative to Large Stocks 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/ % Excess return Small stocks outperform large stocks Large stocks outperform small stocks

–20 – % Small and Large Stock Performance Tends to Go in Cycles 36-month rolling period returns 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 Small stock excess return Jan Dec

Risk of Stock Market Loss Over Time 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 One-year returns 5-year annualized returns 15-year annualized returns Each bar represents the average return for the preceding 5-year time period. Each bar represents the average return for the preceding 15-year time period. 50% Periods with gain Periods with loss 72% 28% 87% 13% 100%

Do Stock Winners Repeat? Top ten performing stocks 1986–2007 Past performance is no guarantee of future results. Annualized returns of an equally weighted portfolio of top 10 stocks by three-year return and return in subsequent three-year period (excluding the smallest 20% of the market). 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 – % 4.7 Average return First 3 years Subsequent 3 years 300% Annualized return 2003

Stock Diversification 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/ Risk Company risk Market risk Number of stocks in portfolio

Benefits of Bonds in a Portfolio © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Potential growth  Historically lower risk  Diversification benefits  Income generation  Expand efficient opportunities

Bond Market Performance 1926–2007 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 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 $20.19 $33.48 $78.78 $ $ $3, $10,000 1, % Compound annual return Stocks High-yield corp bonds Corporate bonds Government bonds Municipal bonds Treasury bills

Relationship Between Bond Prices and Yields When yields increase, bond prices decrease 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/ % $ Bond prices ($) Bond yields (%)

Bonds Produced Greater Income 1970–2007 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 StocksBonds Capital appreciation Income 27% 71% 2% 80% 15% 5% Reinvestment of income

Bonds Expand Efficient Opportunities 1970–2007 Past performance is no guarantee of future results. Risk is measured by standard deviation. Risk and return are based on annual data over the period 1970–2007. Portfolios presented are based on modern portfolio theory. 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 5% Risk % Return Stock portfolios Stock and bond portfolios Small stocks Large stocks Bonds

Adding a Bond Allocation to Diversify 1970–2007 Past performance is no guarantee of future results. Risk is measured by standard deviation. Risk and return are based on annual data over the period 1970–2007. Portfolios presented are based on modern portfolio theory. 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/ % 40% 5% Return10.4% Risk10.0% Lower risk portfolio 30% 70% Return10.4% Risk11.7% Original portfolio Stocks Bonds Cash

Risk Versus Return Stocks, bonds, and bills 1926–2007 Past performance is no guarantee of future results. Risk and return are measured by 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/ % Return % Risk Small stocks Large stocks Treasury bills Long-term government bonds Intermediate-term government bonds

– –3.63.7– –9.1–11.9– –7.85.6–0.92.1–7.3–9.0–14.0–21.2– Asset Class Winners and Losers 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 Highest return Lowest return Small stocks Large stocks International stocks Long-term government bonds Treasury bills