© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Portfolio Diversification

What is Asset Allocation? © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Asset allocation is the process of combining asset classes such as stocks, bonds, and cash in a portfolio in order to meet your goals. Stocks Bonds Cash

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/ % Risk Number of randomly selected assets in portfolio 12.1% 10.0% 8.9% 8.4% 8.0% 7.9% 7.7% 7.5%

Potential to Reduce Risk or Increase Return 1970–2007 Past performance is no guarantee of future results. Risk and return are measured by standard deviation and compound annual return, respectively. They are based on annual data over the period 1970–2007. 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 Lower risk portfolioHigher return portfolioFixed income portfolio Return:8.2% Risk:5.5% Return:9.1% Risk:7.5% Return:8.2% Risk:7.5% 15% 85% 21% 30% 43% 20% 36% 50% Stocks Bonds Cash

The Case for Diversifying Past performance is no guarantee of future results. Time period illustrated is from 1956–1962. This time period was chosen as a dramatic illustration of stock and bond return behavior and how their often opposite movements reduced portfolio volatility. 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 –10 –20 Year Compound annual return 1.9 Stocks 50/50 portfolio Bonds 8.5% 5.8

Stocks and Bonds: Risk Versus Return 1970–2007 Past performance is no guarantee of future results. Risk and return are measured by standard deviation and arithmetic mean, 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 Maximum risk portfolio: 100% Stocks 80% Stocks, 20% Bonds 60% Stocks, 40% Bonds 50% Stocks, 50% Bonds 100% Bonds Minimum risk portfolio: 25% Stocks, 75% Bonds

Correlation Can Help Evaluate Potential Diversification Benefits Asset class correlation 1926–2007 Past performance is no guarantee of future results. Correlation ranges from –1 to 1, with –1 indicating that the returns move perfectly opposite to one another, 0 indicating no relationship, and 1 indicating that the asset classes react exactly the same. 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 LT corporate bonds LT govt bonds IT govt bonds Treasury bills Small stocks Large stocks LT corporate bonds LT govt bonds IT govt bonds Treasury bills –0.02 –0.07 – –

Degree of Correlation Between Equity Sectors 1992–2007 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 Business services Consumer goods Consumer services EnergyFinancialHardwareHealth care Industrial materials MediaSoftwareTelecomUtilities services Business Consumer goods Consumer services Energy Financial Hardware Health care Industrial materials Media Software Telecom Utilities High Medium Low

Diversification in Bull and Bear Markets 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 $3,000 Bull market 2,500 2,000 1,500 1, ,000 1,250 $1,500 Bear market $1,484 $985 $624 $1,181 $1,763 $2,555 Stocks 50/50 portfolio Bonds

Diversified Portfolios and Bear Markets Past performance is no guarantee of future results. Diversified portfolio: 35% stocks, 40% bonds, 25% Treasury bills. Hypothetical value of $1,000 invested at the beginning of January 1973 and July 2000, 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 Mid-1970s recession (Jan 1973–Jun 1976)Early-2000s bear market (July 2000–Dec 2003) $1,149 $1,014 $1,101 $806 $1,250 1, Jan 1973 Jan 1974 Jan 1975 Jan 1976 July 2000 July 2001 July 2002 July 2003 Stocks Diversified portfolio

Morningstar Market Barometer 2003–2007 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/ –0.4 –5.5 – – ValueCoreGrowth Small Mid Large % Return < –20– > Morningstar US Market Index Daily Values JanDecJanDecJanDecJanDecJanDec 5,000 3,500 2, %+6.5%+15.7%+30.7% Annual return+5.9%