# Exhibit 5: DFAIC's Economic Value Efficient Frontier

The economic value efficient frontier for DFAIC shows a low-risk, investment strategy (Strategy A) that consists of short duration, taxable fixed-income securities and no equities. Moving up the efficient frontier into higher return/higher risk strategies involves lengthening the duration of the fixed-income portfolio, moving into tax-exempt securities and increasing allocations to equities.

DFAIC Economic Value Efficient Frontier 5-Year Horizon

3.800

.J

BJ

700

800

3,700

3,600 m E 3,500 == .~ 3,400

u ~ 3,300

~ 3,200

3,100 •

3,000 600

•

Curr(nt Fort'o"o

900 1,000 1,100 1,200 Standard Deviation of Economic Value (millions)

1,300

1,400

Current

A

B

C

D

E

F

G

H

I

J

86.0

100.0

95.4

84.6 4,0 2.6

72.7 10.0 3.2

60.3 18.9 4.1

51.7 20,0 4.0

38.0 35.1 6.1

29.3 37.1 6.0

20.3 39.5 6.0

7,7 47.3 6.6

5.0

0.3

2.1

11.2

4.5

11.4

17.3

20.6

26.3

26.9

"33.6

40.2

45.0

Fixed Income: Taxable Tax-Exempt Duration

Equity:

To help understand the asset strategies on DFAIC's economic value efficient frontier it is necessary to understand DFAIC's risk exposures. Again, DFA can be used to do this through a technique called decomposition of risk. By applying decomposition of risk techniques we can identify the impact that various factors have on DFAIC's economic risk. We can then use this information to gain insights into the logic behind the strategies recommended by the economic value efficient frontier. 'Exhibit 6 shows the impact of real underwriting, inflation, discount rates, and asset returns on the economic

88

1,500

K

2.0 48.0 6.4

50.0