Stock Star Rating Performance Update--Page 2

It's also helpful to look at the performance of our star "buckets," which are constructed similarly to our strategies shown on the previous page. For example, the 5-Star bucket can be thought of as a Buy at 5, Sell at 4, 3, 2, or 1 strategy. In 2008, stocks we rated at 5 stars significantly outperformed stocks we rated 1 star as well as the S&P 500, and the three intermediate buckets also lined up as we would hope. This holds true for our trailing five-year performance as well.

Trailing Period Returns
	5 Star	4 Star	3 Star	2 Star	1 Star	S&P 500	S&P 500 Eq-Weight
Trailing 1-Year	-28.3%	-40.1%	-43.9%	-49.9%	-67.1%	-37.0%	-39.7%
Trailing 2-Year	-19.2%	-23.4%	-23.0%	-27.4%	-40.6%	-18.5%	-21.8%
Trailing 3-Year	-6.7%	-10.6%	-10.9%	-15.2%	-25.5%	-8.4%	-10.8%
Trailing 4-Year	-2.5%	-5.4%	-5.9%	-9.8%	-17.5%	-5.2%	-6.5%
Trailing 5-Year	5.3%	0.8%	-1.5%	-4.7%	-11.3%	-2.2%	-2.2%
Since Inception	3.2%	33.6%	0.8%	-23.0%	-53.3%	-2.1%	0.1%
Data from Abacus Analytics, through 12-31-08. Morningstar began rating stocks on 8-06-01.

While our strategies and buckets may show outperformance, they are not what we would consider investable strategies (given the number of stocks involved). We run a number of actively managed portfolios, such as the Tortoise and Hare that appear in Morningstar StockInvestor, and the Dividend Builder and Dividend Harvest that appear in Morningstar DividendInvestor. These portfolios are real-world examples of our research in practice. In addition, our Wide Moat Focus Index $MWMFT tracks the 20 cheapest wide-moat stocks in our coverage universe. Each of these portfolios has outperformed over the past year, and they are all beating the S&P 500 over their available trailing  two-, three-, four-, and five-year time periods as well.

Trailing Period Returns
	Tortoise	Hare	Dividend Builder	Dividend Harvest	Wide-Moat Focus	S&P 500	S&P 500 Eq-Weight
Trailing 1-Year	-22.2%	-32.4%	-18.3%	-31.1%	-19.6%	-37.0%	-39.7%
Trailing 2-Year	-11.1%	-15.6%	-10.8%	-16.2%	-10.9%	-18.5%	-21.8%
Trailing 3-Year	-3.5%	-4.6%	-1.1%	NA	-2.2%	-8.4%	-10.8%
Trailing 4-Year	-0.7%	-2.7%	NA	NA	-0.6%	-5.2%	-6.5%
Trailing 5-Year	1.9%	2.6%	NA	NA	4.6%	-2.2%	-2.2%
Data from Morningstar, through 12-31-08.

Conclusion
Despite the uncertainty and turmoil surrounding the financial markets, we think stocks are cheap. The median price/fair value ratio of our coverage universe is 0.69, with the hardware and energy sectors being the most attractive based on valuation. Now, more than ever, we believe fundamental analysis provides the means to sort strong companies from weak, and we look forward to guiding you through the uncertainty that is sure to ensue in 2009.

Median Price/Fair Value of Sectors
Sector	Median P/FV
Hardware	0.61
Energy	0.62
Business Services	0.68
Consumer Services	0.68
Financial Services	0.69
Health Care	0.69
Telecommunication	0.69
Industrial Materials	0.69
Software	0.70
Consumer Goods	0.73
Media	0.77
Utilities	0.89
Data from Morningstar as of 1-23-09.

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