Burton G. MalkielChemical Bank Chairman’s

Professor of EconomicsPrinceton University

“Investing in a Restrained Market”

University of PennsylvaniaJanuary 17, 2006

Exhibit 1

Exhibit 2

January, 2006

Exhibit 3

Exhibit 4

Exhibit 5

Exhibit 6

So Does Rebalancing

Exhibit 7

Exhibit 8

Asset Allocation for Person in Mid-Fifties

Suggested Asset Allocation Retirement Portfolio

Exhibit 9

Exhibit 10

BOW TO THE WISDOM OF THE MARKET

• Markets are reasonably efficient

• Index Funds Outperform

• Past is not prologue

The Case for Indexing continues to be strong

The Case for Active Management continues to be weak

Percent of Large Capitalization Equity Funds Outperformedby Index Ending December 31, 2004.

1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs

S&P vs. Large Cap Equity 74% 76% 63% 86% 90%Funds

Exhibit 11

Exhibit 12

Index Funds tend to outperform by Over Two Percentage PointsComparison of Returns-Average Equity Fund vs. Indexes

10 Yrs 20 Yrs to 12/31/04 to 12/31/04

S&P 500 Index 12.00% 12.78%

Average Equity Fund* 9.30% 10.54%

S&P 500 Advantage 2.70 2.48(percentage points)

Source: Lipper, Wilshire, & the Vanguard Group.*Consists of ALL Lipper equity categories.

Exhibit 13

FundName

12/31/199612/31/1999AnnTotal Return

12/31/199912/31/2002AnnTotal Return

99 – 02 Rank(851 total funds)

1 Rydex: OTC Fund; Inv 65.82 -37.07 841

2 RS Inv: Emerg Growth 62.46 -31.17 832

3 Morg Stan Cap Oppty; B 59.47 -40.72 845

4 Janus Olympus Fund 58.49 -27.42 791

5 Janus Twenty 54.79 -28.63 801

6 Managers: Capital Apprec 53.28 -28.20 798

7 Janus Mercury 51.51 -27.24 790

8 Fidelity Aggr Growth 51.46 -39.09 843

9 Van Wagoner: Emrg Growth 50.05 -51.66 851

10 WM: Growth; A 49.67 -27.88 793

11 Janus Venture 49.56 -29.70 819

12 Van Kampen Emerg Growth;A 49.34 -26.38 785

13 Fidelity New Millennium 49.22 -14.90 500

14 PBHG: Sel Equity;PBHG 49.14 -33.45 837

15 Janus Enterprise 48.71 -33.11 836

16 TCW Galileo:SC Growth;Instl 45.95 -39.32 844

17 Morg Stan Inst: MC Growth;l 45.42 -23.28 735

18 Morg Stan Spec Growth;B 45.34 -41.46 846

19 IDEX: Jan Growth;T 44.96 -28.70 802

20 ING: SmCp Opptys;B 44.06 -30.64 826

Average – Top 20 51.44 -32.00

S&P 500 27.56 -14.55

Exhibit 14Getting Burned by Hot Funds

Exhibit 15

Exhibit 16

Percentage of Actively Managed BondFunds Outperformed by Benchmark

10 Years Ended 12/31/04

Short-term

Intermediate-term

Long-term

Gov’t. Corp. GNMA High-Yield

98% 100% 90% 83%

90 99

75 83

Source: Lipper Inc. and Morningstar, Inc.

Exhibit 17

How to Buy Bonds

Taxable vs. Tax Exempt

Mutual Funds

NJ/PA Money Market Fund

NJ/PA (insured) Long-Term Bond Fund

Buy Bonds Directly

Only buy insured new issues

Yields today about 4½%

for insured bonds (AAA)

Exhibit 18

DON’T BE YOUR OWNWORST ENEMY

AVOID STUPID INVESTOR TRICKS

• Overconfidence

• Herding

• Loss Aversion

• A couple of other common errors

- Hot tip Investing

- New Issue Investing

Exhibit 19

Retirement Strategies

Buy Annuities Pro: Surest way to guarantee you won’tOutlive your money

Con: Expensive, inflexible, and inconsistentWith a bequest motive.

Do it Yourself

1. Determine the takeout rate Assume Portfolio half equities (7 ½ % return) and half bonds (5% return). Average return 6 ¼ % Minus Inflation Adjustment 2 % Takeout rate 4 ¼ %

2. Rebalance– Take money out of best performing asset class