SEPARATING MYTHSFROM TRUTH: SEPARATING MYTHS FROM TRUTH The Story of Investing


SEPARATING MYTHS FROM TRUTH: Dispelling the Traditional Investing Myths Telling the True Story of Investing Opportunity to Achieve True Peace of Mind SEPARATING MYTHS FROM TRUTH


DISPELLING THE MYTHS: DISPELLING THE MYTHS Myth: A story made up to explain a phenomenon beyond the science of the day.


TRADITIONAL INVESTING MYTHS: TRADITIONAL INVESTING MYTHS MYTH 1: Stock Selection MYTH 2: Track Record Investing MYTH 3: Market Timing MYTH 4: Costs of Investing


MYTH 1: STOCK SELECTION: THE MYTH: Investment advisors can consistently and predictably add value by exercising “superior skill” in individual Stock selection. Stock Selection: Choosing stocks based on a belief they will do well in the future. MYTH 1: STOCK SELECTION


ACTIVE FUND MANAGERS AND THE S&P 500: Percentage of US Large Blend Funds Beating the S&P 500 Index 1996-2005 NUMBER OF YEARS MANAGERS BEAT THE MARKET (Out of 10) P E R C E N T A G E Source: Morningstar Principia Software data through 12/31/05 ACTIVE FUND MANAGERS AND THE S&P 500


ACTIVE FUND MANAGERS’ SUCCESS VS. RANDOM LUCK: Active managers’ performance is worse than what would be expected by chance. Percentage Source: Morningstar Principia Software data through 12/31/05 Percentage of US Large Blend Funds Beating the S&P 500 Index 1996-2005 ACTIVE FUND MANAGERS’ SUCCESS VS. RANDOM LUCK


MYTH 2: TRACK RECORD INVESTING: Track Record Investing: The use of performance history to determine the best investments for the future. THE MYTH: Finding funds that did well in the past is a reliable method of indicating which funds will do well in the future. MYTH 2: TRACK RECORD INVESTING


TOP TWENTY FUNDS(NO-LOAD AND LOAD): 1986-1995 Source: Morningstar Principia, January 1996 1. 20th Century Giftrust Invest 2. Invesco Strat Health Science 3. Seligman Communicate&Info A 4. PBHG Growth 5. Fidelity Destiny II 6. Fidelity Sel Home Finance 7. Invesco Strat Technology 8. Fidelity Sel Health Care 9. AIM Constellation 10. Hancock Regional Bank B 11. Vanguard Spec Health Care 12. 20th Century Ultra Investors 13. PIMCo Adv Opportunity C 14. Fidelity Adv Inst Eqty Grth 15. Fidelity Sel Software & Comp 16. Fidelity Sel Telecommun 17. Fidelity Contrafund 18. CGM Capital Development 19. Fidelity Growth & Income 20. Fidelity Sel Food & Agricult TOP TWENTY FUNDS (NO-LOAD AND LOAD)


TOP TWENTY FUNDS(NO-LOAD AND LOAD): 1. Wasatch Micro Cap 2. BlackRock Gib Res Instl 3. Bridgeway Ultra-Small Co 4. Calamos Growth B 5. CGM Realty 6. Bridgeway Aggr Inv 1 7. First Amer Sm Cp Gr Opp Y 8. GMO Emerging Ctry Dbt IV 9. First Amer Sm Cp Gr Opp A 10. BlackRock Aurora Instl 11. Fidelity Sel Brokerage 12. Needham Growth 13. Meridian Value 14. AIM Energy A 15. Alpine U.S. Real Est Y 16. Nicholas-Apple Int GrOpll 17. Royce TrustShares Inv 18. Vanguard Energy Ad 19. Fidelity Sel Energy Serv 20. JennDry Jenn Nat Resour Z Source: Morningstar PrincipiaPro 12/31/05 1996-2005 TOP TWENTY FUNDS (NO-LOAD AND LOAD)


ANALYZING THE TOP TWENTY EQUITY FUNDS: Source: Morningstar PrincipiaPro 1/96 and 12/05 Average Annual Return: Top 20 Funds From (1986-1995) S&P 500 1,7: 1986-1995 1996-2005 How They Performed: +20.65% +8.80%* A manager’s ability to pick stocks in the past has ZERO CORRELATION with his/her ability to do so in the future. +14.86% +9.08% ANALYZING THE TOP TWENTY EQUITY FUNDS


MYTH 3: MARKET TIMING: Market Timing: Any attempt to alter or change the mix of assets based on a prediction or forecast about the future. THE MYTH: Money managers are able to utilize market timing to effectively predict up & down markets. MYTH 3: MARKET TIMING


Slide13: As the chart below clearly indicates – The Average Investor earns significantly less than the market indices, and investors that time the market actually lose money over the period measured. DALBAR, Inc., Quantitative Analysis of Investor Behavior, 2006


WHY MARKET TIMING DOESN’T WORK: Return Growth of $10,000 Investment * Fully Invested 9.08 $23,838 Missed 10 best days 4.06 $14,861 Missed 20 best days 0.24 $10,239 Missed 30 best days -3.07 $7,348 Missed 40 best days -5.85 $5,528 Missed 60 best days -10.57 $3,359 *Fact Set Research Systems 2003 Based on initial investment of $10,000 January 1, 1993 – December 31, 2003 WHY MARKET TIMING DOESN’T WORK 2,520 Trading Days


BEWARE: MARKET TIMING: “Tactical Asset Allocation” is Market Timing in Disguise BEWARE: MARKET TIMING


CHARLES D. ELLIS: “The evidence on investment managers’ success with market timing is impressive - and overwhelmingly negative.” Charles D. Ellis, Investment Policy, 1993 Charles D. Ellis is managing partner of Greenwich Associates, the leading consulting firm specializing in financial services worldwide. B.A. Yale, M.B.A (with distinction) Harvard and Ph.D. New York University CHARLES D. ELLIS


MYTH 4: COSTS OF INVESTING: Costs of Investing: Fees incurred by investors to buy, sell, and own stocks or mutual funds. THE MYTH: What you don’t see can’t hurt you. MYTH 4: COSTS OF INVESTING


THE COSTS OF INVESTING: Bid/Ask Spread Mutual Funds THE COSTS OF INVESTING


Bid/Ask Spread: Bid/Ask Spread


BID/ASK SPREADWhat Your Broker Won’t Tell You: Source: Reuters Trading Systems (March 9, 2005) BID/ASK SPREAD What Your Broker Won’t Tell You


CONSUMER “NO LOAD” MUTUAL FUNDS: “The key question under the new rules of the game is this: How much better must a...[actively trading]... manager be to at least recover the cost of...[portfolio turnover]? The answer is daunting.” “... total transaction cost… commissions plus the spread between the bid and the ask side of the market...of 2% to buy and 2% to sell [are] certainly not high estimates.” Source: Charles D. Ellis, Investment Policy - How to Win the Loser's Game, 1985 1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game, 2nd Edition by Charles D. Ellis (1993) p.8-9. CONSUMER “NO LOAD” MUTUAL FUNDS


SO FAR…: The Myths Stock Selection Track Record Investing Market Timing Costs of Investing Next… The Truth SO FAR…


THE STORY OF INVESTING:FREE MARKET PORTFOLIO THEORY: THE STORY OF INVESTING: FREE MARKET PORTFOLIO THEORY


WHAT IS FREE MARKET PORTFOLIO THEORY?: Free Market Portfolio Theory is: An investment approach firmly grounded in the academic research of the last 50 years. A disciplined approach to capturing market returns while managing volatility. WHAT IS FREE MARKET PORTFOLIO THEORY?


THE COMPONENTS OFFREE MARKET PORTFOLIO THEORY: THE COMPONENTS OF FREE MARKET PORTFOLIO THEORY COMPONENT 1: Free Markets Work COMPONENT 3: The Three-Factor Model COMPONENT 2: Modern Portfolio Theory


LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET PORTFOLIO THEORY: LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET PORTFOLIO THEORY Harry Markowitz: Nobel Prize Laureate, 1990, University of Chicago Merton H. Miller: Nobel Prize Laureate,1990 - Robert R. McCormick Distinguished Service, University of Chicago Rex Sinquefield: Co-author Stocks, Bonds, Bills and Inflation, MBA, University of Chicago, BA, St. Louis University Roger G. Ibbotson: Co-author Stocks, Bonds, Bills and Inflation, Professor of Finance, School of Organization and Management, Yale University Eugene F. Fama: Robert R. McCormick Distinguished Service, Graduate School of Business, University of Chicago Kenneth French: Professor - Yale School of Management, NTU Professor of Finance at MIT’s Sloan School of Management


COMPONENT 1:: Free Markets Work “In [a free] market at any point in time the actual price of a security will be a good estimate of its intrinsic value.” -Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October 1965. COMPONENT 1:


FREE MARKETS FAIL: The market fails to price goods and services appropriately. It is possible for some individuals to identify in advance which prices are inaccurate. Under-priced or over-valued markets can be forecast or predicted. By taking advantage of these mispricings either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments. People with this view would utilize traditional investment myths and speculate with their assets. FREE MARKETS FAIL


FREE MARKETS WORK: Based on supply and demand the free market is the best determinant of market prices. All available information is factored into the current price. Only new and unknowable information and events change pricing. The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk. People with this view would utilize free market investment strategies FREE MARKETS WORK


BELIEFS DICTATE ACTION: BELIEFS DICTATE ACTION FREE MARKETS WORK Focus on capturing market returns Utilize asset-class or structured funds Diversify prudently Identify your risk tolerance Eliminate traditional investment strategies Work with a financial coach who shares your market belief FREE MARKETS FAIL Pursue traditional investment strategies Stay connected to all sources of financial information Read every investment article you can find Work with a financial professional who shares your market belief


COMPONENT 2:: Modern Portfolio Theory Diversification Works Nobel Prize Winners, 1990 Harry Markowitz William Sharpe Merton Miller COMPONENT 2:


DR. HARRY MARKOWITZ: As a graduate student in economics at the University of Chicago in the 1950's, Dr. Markowitz won acclaim for his studies on portfolio design and risk reduction. These concepts were later crucial for the development of Modern Portfolio Theory. Nobel Prize Winner 1990 DR. HARRY MARKOWITZ


MARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of Volatility: 6 8 10 12 14 16 18 20 6 8 10 12 14 16 One Year Standard Deviation (Volatility) Annualized Compound Return Growth Aggressive S&P 500 Conservative Moderate MARKOWITZ EFFICIENT FRONTIER Maximizing Expected Returns for Any Level of Volatility


DETERMINANTS OFPORTFOLIO PERFORMANCE: DETERMINANTS OF PORTFOLIO PERFORMANCE 1.8 2.1 4.6 91.5


ASSET CLASS CORRELATIONExample Portfolio: ASSET CLASS CORRELATION Example Portfolio


INCREASE RETURNSAND REDUCE VOLATILITY: Source: DFA Returns Software 12/05 Return(%) Simplified Example Of Low Correlation Benefits January 1971 - December 2005 (in $U.S.) INCREASE RETURNS AND REDUCE VOLATILITY Standard Deviation


COMPONENT 3:: The Three-Factor Model Source: Fama, Eugene F., and Kenneth R. French, 1992 The cross-section of expected stock returns, Journal of Finance 47 (June), 427-465 COMPONENT 3: Eugene Fama & Kenneth French Factor 1: The Market Factor Factor 2: The Size Factor Factor 3: The “Value”Factor


FACTOR 1: THE MARKET FACTOR: Equities are riskier than fixed income. Equities historically provide a higher rate of return. 1926-2005 S&P 5001,7 T-Bills Annualized Return 10.36 3.70 Standard Deviation 20.20 3.12 Source: DFA Returns Software, 12/05 FACTOR 1: THE MARKET FACTOR


FACTOR 2: THE SIZE FACTOR: Small companies are riskier than large companies. Small companies historically provide a higher return than large companies. Source: DFA Returns Software, 12/05 1926-2005 S&P 5001,7 US Small Co. Annualized Return 10.36 12.64 Standard Deviation 20.20 39.21 FACTOR 2: THE SIZE FACTOR


FACTOR 3: THE VALUE FACTOR: High book-to-market (value) stocks are riskier than low book-to-market (growth) stocks. High book-to-market stocks historically provide higher return than low book-to-market stocks. Source: DFA Returns Software, 12/05 July 1926-2005 S&P 5001,7 US Lg. Value1,2 Annualized Return 10.44 12.41 Standard Deviation 19.30 25.28 FACTOR 3: THE VALUE FACTOR


THE TRUTH: Free Markets Work + Modern Portfolio Theory + The Three-Factor Model = Free Market Portfolio Theory THE TRUTH


BUILDING A BETTER PORTFOLIOAVERAGE INVESTOR EQUITY PERFORMANCE: BUILDING A BETTER PORTFOLIO AVERAGE INVESTOR EQUITY PERFORMANCE


CREATING A DIVERSIFIED PORTFOLIO: Portfolio 1 100% Equity Mutual Funds 1984-2005 Portfolio 1 4.12 15.67 Annualized Return (%) Annualized Standard Deviation (%) 60% 40% Actual Investor Results 100% Equity Mutual Funds Dalbar Investor Results Research for period 1984-2005 CREATING A DIVERSIFIED PORTFOLIO Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006


WHY ARE THE RETURNS SO LOW?: *Average Holding Period – 2.9 Years Track Record Investing – Chasing the Market Hyperactive Stock Picking Market Timing WHY ARE THE RETURNS SO LOW? *Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006, 20-year period


CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested Portfolio: S&P 500 Index 1973-2005 Annualized Return (%) Annualized Standard Deviation (%) Portfolio 1* 4.12 15.67 Portfolio 2 11.00 17.71 Portfolio 1 100% Portfolio 2 100% Equity Mutual Funds 100% S&P 500 CREATING A DIVERSIFIED PORTFOLIO Basic Passively Invested Portfolio Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006; 1984-2005.


CREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the Portfolio: 1973-2005 Annualized Return (%) 60% 20% 20% Annualized Standard Deviation (%) Portfolio 1* 4.12 15.67 Portfolio 2 11.00 17.71 Portfolio 3 10.23 11.07 S&P 500 Index Portfolio 1 100% Portfolio 2 100% Portfolio 3 60% 20% 20% Equity Mutual Funds 5-Year Government Portfolio One-Year Fixed Income CREATING A DIVERSIFIED PORTFOLIO Including Fixed Income Assets in the Portfolio Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006; 1984-2005.


CREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the Portfolios: 1973-2005 Annualized Return (%) 30% 20% 20% 30% Annualized Standard Deviation (%) Portfolio 1* 4.12 15.67 Portfolio 2 11.00 17.71 Portfolio 3 10.23 11.07 Portfolio 4 10.33 10.94 S&P 500 Index Portfolio 1 100% Portfolio 2 100% Portfolio 3 60% 20% 20% Portfolio 4 30% 20% 20% 30% Equity Mutual Funds 5-Year Government Portfolio One-Year Fixed Income EAFE Index CREATING A DIVERSIFIED PORTFOLIO Including Fixed Income Assets in the Portfolios Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006; 1984-2005.


CREATING A DIVERSIFIED PORTFOLIOAdding Small Cap Stocks: 1973-2005 Annualized Return (%) 20% 15% 20% 15% 15% 15% Annualized Standard Deviation (%) Portfolio 1* 4.12 15.67 Portfolio 2 11.00 17.71 Portfolio 3 10.23 11.07 Portfolio 4 10.33 10.94 Portfolio 5 11.68 11.61 S&P 500 Index Portfolio 1 100% Portfolio 2 100% Portfolio 3 60% 20% 20% Portfolio 4 30% 20% 20% 30% Portfolio 5 15% 20% 20% 15% 15% 15% Equity Mutual Funds 5-Year Government Portfolio One-Year Fixed Income EAFE Index US 9-10 Small Co. Int’l Small Cap Stocks CREATING A DIVERSIFIED PORTFOLIO Adding Small Cap Stocks Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006; 1984-2005.


CREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market Stocks: Annualized Return (%) 20% 20% 7.5% 15% 7.5% 7.5% 15% 7.5% Annualized Standard Deviation (%) Portfolio 1* 4.12 15.67 Portfolio 2 11.00 17.71 Portfolio 3 10.23 11.07 Portfolio 4 10.33 10.94 Portfolio 5 11.68 11.61 Portfolio 6 12.27 11.23 S&P 500 Index Portfolio 1 100% Portfolio 2 100% Portfolio 3 60% 20% 20% Portfolio 4 30% 20% 20% 30% Portfolio 5 15% 20% 20% 15% 15% 15% Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5% Equity Mutual Funds 5-Year Government Portfolio One-Year Fixed Income EAFE Index US 9-10 Small Co. Int’l Small Cap Stocks US Small Cap Value US Large Cap Value CREATING A DIVERSIFIED PORTFOLIO Adding High Book-to-Market Stocks 1973-2005 Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2006; 1984-2005.


THE 20 MUST-ANSWER QUESTIONS FOR CREATING LASTINGPEACE OF MIND: Directions: Answer each question “Yes” or “No.” Your Answer must be 100% “Yes” to qualify as “Yes.” THE 20 MUST-ANSWER QUESTIONS FOR CREATING LASTING PEACE OF MIND


QUESTION 1: QUESTION 1 Have you discovered your True Purpose for Money, that which is more important than money itself?


QUESTION 2: Are you invested in the Market? QUESTION 2


QUESTION 3: Do you know how markets work? QUESTION 3


QUESTION 4: Have you defined your Investment Philosophy? QUESTION 4


QUESTION 5: Have you identified your personal risk tolerance? QUESTION 5


QUESTION 6: Do you know how to measure diversification in your portfolio? QUESTION 6


QUESTION 7: Do you consistently and predictably achieve market returns? QUESTION 7


QUESTION 8: Have you measured the total amount of commissions and costs in your portfolio? QUESTION 8


QUESTION 9: Do you know where you fall on the Markowitz Efficient Frontier? QUESTION 9


QUESTION 10: When it comes to building your investment portfolio, do you know exactly what you are doing and why? QUESTION 10


QUESTION 11: Are you working with a financial coach versus a financial planner? QUESTION 11


QUESTION 12: Do you have a customized lifelong game plan to guide all of your investing and spending decisions? QUESTION 12


QUESTION 13: Do you have an Investment Policy Statement? QUESTION 13


QUESTION 14: Have you devised a clear-cut method for measuring the success or failure of your portfolio? QUESTION 14


QUESTION 15: Do you fully understand the implications and applications of diversification in your portfolio? QUESTION 15


QUESTION 16: Do you have a system to measure portfolio volatility? QUESTION 16


QUESTION 17: Are you aware of the incentives brokerage firms and the financial community have when selling commission-based products? QUESTION 17


QUESTION 18: Do you know the three warning signs that you are gambling and speculating with your money versus prudently investing it? QUESTION 18


QUESTION 19: Can you identify the cultural messages and personal mindsets about money that destroy your peace of mind? QUESTION 19


QUESTION 20: Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode? QUESTION 20


SCORING:: 85-100: Amazing Investor Congratulations! You are among the most educated, diligent and confident investors. You have experience in the investment markets and understand what it takes to be successful. Now is the time to support your current knowledge with discipline and educational reinforcement. 65-80: Better Investor As a Better Investor, you have been around the block a time or two and maybe had some less than successful investing experiences. Now is the time to expand your knowledge about investing and begin to make some solid choices about your financial future. To achieve this, seek answers to the questions you missed. 45-60: Common Investor You are not alone. Like many investors, you may frequently find yourself uncertain and confused about how to make the right investment choices. If you don’t already have an Investor Coach that you trust completely, now is the time to build a relationship to last a lifetime. 25-40: Discouraged Investor It’s easy to feel discouraged when you have been doing what you thought were the right things with your money without success. You may have followed all of the advice that you’ve read in financial magazines and newspapers, yet you are not getting the exponential results you had expected. 0-20: Frustrated Investor Flustered and confused, you may wonder where to begin – how is it even possible to wade through all of the information that you are being bombarded with on a daily basis. Sort through the chaos and find a path that is right for you. Give yourself 5 points for every “Yes” answer. SCORING:


THE OPPORTUNITY: Learn more about what this means for you THE OPPORTUNITY


ENDNOTES: No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matrix would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be relected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matrix clients’ portfolios with similar investment objectives for the period Matrix has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of markets is no guarantee of future performance and clients may experience a loss. US Large Value = U.S. Large Cap Value Portfolio: July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of Fama-French and CRSP: deciles 1-5 size, (.7) BtM. April 1993-Present: U.S. Large Cap Value Portfolio net of all fees. DFA International Small Company Strategy/DFA International Large Company Strategy: January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA U.K. Portfolio net of all fees. July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all fees. October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees. April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees. January1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees. April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA Asia/Australia Portfolio net of all fees. April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees. 4. DFA International Small Company Portfolio: January 1970-September 1996: DFA International Small Company Strategy. October 1996-Present: DFA International Small Company Portfolio net of all fees. EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($). January 1969-Present: EAFE Index Including gross dividends ($). 6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges. January 1926-June 1962: NYSE, rebalanced semi-annually. July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly. January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly. October 1988-Present: CRSP Index (NYSE & AMEX & OTC). S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results. ENDNOTES


ENDNOTES: 6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges. January 1926-June 1962: NYSE, rebalanced semi-annually. July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly. January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly. October 1988-Present: CRSP Index (NYSE & AMEX & OTC). S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results. All investing involves risk and costs. Your advisor can provide you with more information about the risks and costs associated with specific programs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, assure profit, or protect against loss. ENDNOTES