Growth and Value Investing

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

Equity Investment Classification

Large-cap

9,500 Mutual funds

283 Stocks Mid-cap

2,486 Mutual funds 701 Stocks Small-cap

2,066 Mutual funds 4,908 Stocks

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

What are Growth and Value Stocks?

Growth stocks

Value stocks

High growth rate of earnings, sales

Low book-to-price, high price-toearnings ratios Paying lower or no dividends

Slower growth of earnings and sales

High book-to-price, low price-toearnings ratios Higher dividend yields Turnaround opportunities Risks

Risks

Future growth does not occur as expected Book-to-price ratios rise unexpectedly, price-to-earnings ratio decline unexpectedly

Evaluation of stocks as good value is misread Difficult to stick to value policy when prices are beaten down

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

Risk and Return by Size and Style Growth and value stocks 19692007
16% Compound annual return Small value

14

Mid value

12
Large value

10 Large growth Mid growth Small growth

15% Standard deviation

17

19

21

23

25

27

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

Range of Annual Returns Growth and value stocks 19692007

60% Return 61.2% 60.5%

58.3%

51.3% 47.6% 40 39.4%

20

Compound annual return: 9.2%

13.6% 10.8% 9.7% 9.1%

14.8%

22.1%

20.8%
24.4% 33.0% 40.6%

20
32.4%

40
Large growth Large value Mid growth Mid value Small growth Small value

Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period 19692007. 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

Growth and Value Investing 19692007

$1,000

Compound annual return

100

Small value Large value Large growth Small growth

$220.84

14.8% 10.8 9.2 9.1 $55.22 $31.02 $29.69

10

0 1969 1975 1981 1987 1993 1999 2005

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1969. 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

Growth and Value Investing 19982007

$5 Compound annual return

Small value Large value Small growth Large growth

10.8% 6.3 5.8 4.3

$2.79

$1.84 $1.75 $1.53

0.7 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1998. 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

One-Year Growth and Value Cycles 19692007

Performance differential 40%

Large growth

Large value

30

20

10

12-month rolling returns 75% 50 25 0 25 JanDec 1969 JanDec 1974 JanDec 1979 JanDec 1984 JanDec 1989 JanDec 1994 JanDec 1999 JanDec 2004

Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another on a 12-month rolling basis. Each 12-month rolling return represents the annualized return over the prior 12 months. 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

Three-Year Growth and Value Cycles 19692007

Performance differential 25%

Large growth

Large value

20

15

10

36-month rolling returns

50%

25

25

Jan 1969 Dec 1971

1974 1976

1979 1981

1984 1986

1989 1991

1994 1996

1999 2001

2004 2006

Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another on a 36-month rolling basis. Each 36-month rolling return represents the annualized return over the prior 36 months. 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

Growth and Value by Decade Compound annual rates of return by decade

25% Return

Growth stocks Value stocks

20

15

10

5
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s**

Past performance is no guarantee of future results. *Based on the years 19281929. **Based on the years 20002007. 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

Moving With the Market Annual performance comparison 19882007

Large growth
50%

Large value

S&P 500

40

30

20

10

10

20

30

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

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

Bull Market Performance Booming 1990s: 19951999

Growth $4,500 Compound annual return: Large growth: 34.4% Mid growth: 23.2 Small growth: 17.6 Value

$4,379

Large value: Mid value: Small value:

Compound annual return: 24.8% 17.7 16.4

3,500 $3,033 $2,842

2,500

$2,249

$2,258 $2,136

1,500

500 1995 1996 1997 1998 1999 1995 1996 1997 1998 1999

Past performance is no guarantee of future results. Hypothetical value of $1,000 invested at the beginning of 1995. 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

Bear Market Performance Early 2000s bear market: July 2000December 2003
Growth $1,800 Value Compound annual return: 5.8% 7.3 14.5 Compound annual return: 16.5% 13.7 0.9

Small growth: Mid growth: Large growth:

Small value: Mid value: Large value:

$1,705 $1,568

1,400

1,000 $812 $767

$969

600

$577

200

July 2000

July 2001

July 2002

July 2003

July 2000

July 2001

July 2002

July 2003

Past performance is no guarantee of future results. Hypothetical value of $1000 invested at the beginning of July 2000. 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

Blending Growth and Value

Balance growth investments with those that produce income Invest in both large and small companies, as well as a mix of well established and new companies Consider investments that are currently out of favor but have potential to increase in value Blending effectively may cushion against the many ups and downs in the market

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

Style Winners and Losers 19982007

1998 Highest returns 47.6% LG 1999 51.3 MG 2000 25.4 MV 2001 14.8 SV 2002 12.8 MV 13.3 SV 19.8 DP 20.1 LV 21.5 MG 23.9 LG 27.8 SG 2003 48.4 SG 2004 21.1 SV 2005 14.0 MV 2006 23.2 SV 2007 12.1 LG

16.6 LV 10.7 DP

39.3 SG 29.8 LG

22.7 SV 3.0 LV 3.4 DP 18.5 MG 22.0 LG 22.6 SG

3.9 MV 0.4 SG 2.9 DP 7.2 MG 8.8 L V 20.1 LG

47.9 SV 43.9 MV

20.8 MV 19.6 SG

9.2 SV 8.8 MG

22.1 LV 15.3 DP

8.7 MG 7.4 SG

6.4 MG

23.2 DP

40.3 MG

15.8 DP

7.9 DP

13.9 MG

4.1 DP

2.3 SG 0.8 MV 4.1 SV

13.1 LV

39.0 DP

13.4 LV

7.0 LV

13.0 MV 10.8 SG

2.5 LV

4.8 MV 4.6 SV

29.9 LV

13.1 MG 6.7 LG

4.7 SG 3.3 LG

0.4 MV 5.6 SV

Lowest returns

24.8 LG

8.9 LG

Large growth
(LG)

Large value
(LV)

Mid growth Mid value Small growth

(MG) (MV) (SG)

Small value Diversified portfolio

(SV) (DP)

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