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

Risk and Volatility

Types of Risk

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

Market timing Inflation

Risk

Credit

Industry/company

Market

Interest rateCall/reinvestment

Liquidity

Political/economic

Currency

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. 3/1/2008

1 2 4 6 8 16 30 50 100 1000

Risk

• Company risk

• Market risk

Number of stocks in portfolio

Risk Tolerance Spectrum

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

High risk

Low risk

Small stocks

International stocks

Large stocks

Corporate bonds

Government bonds

Cash equivalents

High return

Low return

Asset Class ReturnsHighs and lows: 1926–2007

Past performance is no guarantee of future results. Each bar shows the range of annual total 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

Compoundannual return:12.5% 10.4%

5.5% 5.3% 3.7%

Smallstocks

Largestocks

Long-termgovernment bonds

Intermediate-termgovernment bonds

Treasury bills

150%

100

50

0

–50

–100

142.9%

–58.0%

–43.3%

–9.2% –5.1%0.0%

14.7%

29.1%

40.4%

54.0%

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%

Risk Versus ReturnStocks, 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. 3/1/2008

14% Return

12

10

8

6

4

2

0

0% Risk 5 10 15 20 25 30 35

Small stocks

Large stocks

Treasury bills

Long-term government bonds

Intermediate-term government bonds

Ibbotson® SBBI® Summary statistics 1926–2007

Past performance is no guarantee of future results. *The 1933 small company stock total return was 142.9%. 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

Compoundannualreturn

Arithmeticannualreturn

Risk(standarddeviation)

Large stocks

Small stocks*

Governmentbonds

Treasurybills

Inflation

10.4%

12.5%

5.5%

3.7%

3.0%

12.3%

17.1%

5.8%

3.8%

3.1%

20.0%

32.6%

9.2%

3.1%

4.2%

–90 0 90

Stock and Bond Volatility Varies1926–2007

Past performance is no guarantee of future results. Monthly returns in percent from 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

1926 1946 1966 1986 1926 1946 1966 1986

50%

40

30

20

10

0

–10

–30

–20

Stocks Bonds

Risk Changes Over TimeFive-year rolling periods 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

0

80

70

60

50

40

30

20

10

90% Standard deviation

Dec 1930

Jan 1926

1940

1936

1950

1946

1960

1956

1970

1966

1980

1976

1990

1986

2000

1996

• Small stocks

• Large stocks

• Long-term government bonds

• Treasury bills

Inflation Risk: Stocks Versus Fixed IncomeRange of average inflation-adjusted returns over 20-year periods 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

17.2%

4.0%

13.3%

0.8%

8.6%

–3.1% –3.0%

2.9%

Treasurybills

Governmentbonds

Largestocks

Smallstocks

20% Return

15

10

5

–5

0

Fixed Income Maturity Risk1970–2007

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

15%

10

5

0

–5

–10 Long-termgovernment bond

Intermediate-termgovernment bond

Short-termgovernment bond

1.6%

5.9%

9.2%

–7.7%

–3.8%

–1.3%

• Average rise in price during declining interest rate periods

• Average decline in price during rising interest rate periods

Liquidity RiskAverage daily stock trading volume as of December 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

0.33

0

1

2

4

$5 mil

Large-cap stocks Mid-cap stocks Small-cap stocks

3

4.10

1.70

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