Investment Fund Summary

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2 Investment Fund Summary If you choose the FRS Investment Plan, you need to make decisions about how your retirement plan account balance will be invested. This brochure is a great way to start learning about the different funds that are available to you. How to Build an Investment Portfolio When making your investment decisions, be sure you take advantage of all the resources available under the MyFRS Financial Guidance Program. 1) Review this guide to get a quick overview of the funds available to you in the FRS Investment Plan. 2) Contact the MyFRS Financial Guidance Program by phone at , Option 2, or go online at MyFRS.com to get help figuring out your retirement goals and developing a portfolio that fits your goals. 3) Receive guidance on specific investment funds that best fit your needs by working through the CHOICE SERVICE or 2 nd Election CHOICE SERVICE on MyFRS.com. And, once you join the Investment Plan you ll have access to the online ADVISOR SERVICE, which provides you with ongoing personalized investment guidance to keep you on track toward reaching your retirement goals. 4) For more detailed investment fund information, investigate the fund information on MyFRS.com by clicking on Investment Funds in the toolbar. Interactive links at MyFRS.com make it easy to explore the different levels of information shown below. Contents Investment Funds at a Glance...3 Quick Summary: How to Read the Investment Fund Tables...4 Investment Fund Tables...5 Composition of the Balanced Funds...10 Appendix: Additional Information About the Investment Fund Tables...11 Examples of Fund Objectives for Different Asset Classes...12 Retired? FRS Investment Plan retirees can choose from a variety of low-cost distribution options guaranteed by Hartford Life Insurance Company. Investment Funds You Can Choose Investment Fund Categories Investment Funds Home Tab (Summary of the fund objective, management, investment risk, net asset value, performance, future range estimates and past growth of assets) Performance Tab (Annualized returns, calendar year returns and various risk statistics) Composition Tab (Graphics and tables that describe asset allocation, sector and regional exposure and other portfolio measures of the fund s holdings) Scorecard* (Overall score, peer rankings, investment risk, historical performance, future range estimates, and investment style) * Provided by Financial Engines Objective Tab (Investment strategy, portfolio construction, and risks of investing in the fund) Profile / Prospectus (Links to the fund s summary profile or online prospectus, if a mutual fund) PAGE 2

3 Investment Funds at a Glance This investment fund summary is organized by asset class. Thinking about asset classes is a very effective way to simplify investing and improve the odds of meeting your retirement goals. Asset classes are groups of similar investments whose values react to changes in the economy in the same basic way. In this booklet, we use five asset classes: money market, inflationprotected securities, bonds, U.S. stocks and foreign stocks. Each is described in the appropriate section. Investing in a mix of asset classes, or diversifying, helps to control your risk. This is the common-sense notion of not putting all of your eggs in one basket. How you divide your account between asset classes is the most important factor in determining risk and return for your investments. Experts say that 90% of your investment success will be based on getting the right mix of investments in your retirement savings. The MyFRS Financial Guidance Program can guide you to the right mix of investments for your personal situation and minimize unnecessary cost and risk. The FRS Investment Plan features 20 funds, which are spread across five asset classes. There s also a special category of fund called a balanced fund that s a mixture of various asset classes. Here are the choices available to you: Investment Funds You Can Choose Single Asset Class Funds Balanced Funds ASSET CLASS CORE FUNDS SPECIALTY FUNDS These funds invest in a very broad These funds invest in a portion of These funds invest in multiple portion of an asset class and can help an asset class and can help you asset classes and are you form the core of your portfolio fine-tune your portfolio good for one-stop shopping Money Market 1 fund (No funds) U.S. Treasury Inflation- 1 fund (No funds) Protected Securities Bonds 2 funds 2 funds U.S. Stocks 2 funds 6 funds Foreign Stocks 2 funds (No funds) Global 1 fund (No funds) 3 Balanced Funds to match your risk tolerance: Conservative, Moderate, or Aggressive. Investment Fund Types Tables in this booklet list all available investment funds by asset class. Funds can also be classified by type: mutual fund or institutional investment fund. Mutual funds are public funds that combine the money of many different investors to buy stocks, bonds or other securities. A mutual fund s operation and fees are governed by a legal document known as a prospectus that is approved by its board of directors. Anyone can buy mutual funds, and many people in the U.S. own mutual funds. However, mutual funds actually hold only about 20% of all money invested in retirement plans (including IRAs). ß Mutual funds are noted as MF in the Objective and Type column of the fund tables. Institutional funds are private funds specially created by investment management companies (banks, insurance companies, brokers and mutual fund advisory companies) to offer investment services to retirement plans or wealthy individuals at wholesale cost (which is lower than the cost of funds sold to the general public). Institutional funds represent about 80% of all retirement plan investments in the country. The FRS Select funds are examples of institutional investment funds, but others are available in the Investment Plan. The operations and fees of the institutional funds in the FRS Investment Plan are established by contracts with the FRS. Their fees will generally decline as their asset size grows, according to current contracts. ß Institutional funds are noted as IF in the fund tables. PAGE 3

4 Quick Summary: How to Read the Investment Fund Tables The investment fund information in this booklet is organized into a series of tables. Here s a brief description of the information you ll find in these tables, column by column and why that information is important. For a more complete description, see the Appendix on page 11. Fund Name Investment Marketing Objective Annual Term Result in Result in Result in Manager(s) Company and Type Fees Fees 10 Years 10 Years 10 Years Investment Manager(s) Marketing Company Objective Type Annual Fees Long-Term Fees* Average Result* Downside Result* Upside Result* The companies that manage the money in each investment fund by buying and selling stocks and bonds. ß Why It s Important: Shows you who s managing your money and how many managers are involved. The company that markets and/or distributes the fund (not the same as Investment Manager). ß Why It s Important: Tells you what company (if any) offered this fund to the FRS. FRS Select Funds don t have marketing companies, because the FRS contracts directly with the investment managers. Is different for each asset class and shows the type of investment on which each fund focuses. Core funds invest in a broad portion of their particular market. Specialty funds invest in just a portion of their particular market. ß Why It s Important: Tells you what the fund invests in and whether the fund is broadly or narrowly focused. Building a retirement strategy around a lot of specialty funds can be costly due to higher fees, and also requires more monitoring since specialty funds may have greater swings in value as market conditions change, compared to core funds. The way the fund is organized and operates (Mutual Fund or Institutional Investment Fund). See the box on Investment Fund Types on page 3. ß Why It s Important: You may not recognize the names of some of the institutional funds. However, these funds are well known in the pension industry. They were chosen for their good performance, rigorous investment strategies and low cost. Current annual fees assuming a $10,000 investment in each fund. Your investment fees will be deducted from your account based on a percent of the dollar amount of your account. ß Why It s Important: These fees reduce your account balance. You may want to consider selecting funds with lower fees. The total fees that would be charged for a $10,000 investment held for 30 years, based on current annual fees. ß Why It s Important: You should plan for the long term. You could own these funds up to retirement and beyond. Also, even small fees compound over time and have a large impact on your nest egg. What a $10,000 investment might grow to in 10 years (after fees) if the fund has average performance. ß Why It s Important: This figure gives you an idea of possible results you can expect if you choose to invest in this fund. You can compare different funds to see whether their predicted results are similar. What a $10,000 investment might grow to in 10 years (after fees) if the fund has poor performance. ß Why It s Important: This figure gives you an idea of results you might expect if financial markets are performing poorly. A large difference between the Average Result and the Downside Result indicates that the fund is more sensitive to changes in the economy and therefore has a greater potential for short-term loss. What a $10,000 investment might grow to in 10 years (after fees) if the fund has strong performance. ß Why It s Important: This figure gives you an idea of results you might expect if financial markets are performing well. * These figures are shown in Today s Dollars so that you can make a realistic comparison of the different funds in terms of what you could buy with the results today, rather than in the future when inflation will decrease the value of your account. PAGE 4

5 Investment Fund Tables The following tables provide important information about the investment funds offered under the FRS Investment Plan. The tables are arranged by asset class and (except for the balanced funds) in order of increasing cost. For more detailed information, see the online investment guide at MyFRS.com. If you have questions about either these tables or the online guide, please call the MyFRS Financial Guidance Line. Balanced Funds The Balanced Funds were designed by the FRS to provide you with a One-Stop Shopping investment alternative. These funds seek favorable long-term returns by keeping costs low and investing across multiple asset classes to diversify and control risk. So you re already diversified if you invest in a balanced fund! The three Balanced Funds are designed to have different risk levels. The Conservative Balanced Fund is designed to have approximately as much risk as a core bond fund. The Moderate Balanced Fund is designed to have approximately as much risk as the average U.S. investor. The Aggressive Balanced Fund is designed to have a level of risk that puts it roughly mid-way between the Moderate Balanced Fund and the FRS Select U.S. Stock Market Index Fund. The three Balanced Funds invest in various FRS investment funds in different proportions (institutional funds and mutual funds). Because the Balanced Funds are designed to keep their overall level of risk relatively steady over time, the proportions and specific funds included in each Balanced Fund may change over time. Financial Engines, a federally registered investment advisor and fiduciary to the FRS, will periodically provide updated investment fund mixes to the FRS that they believe will provide the best trade-off between expected risk and return. Changes to the Balanced Funds will be posted on MyFRS.com. Management Type Management Type is the type of investment strategy used by a fund. Passively Managed (or Index) funds follow a strategy to produce the same level and pattern of investment returns generated in a market index (such as the S&P 500 index) by buying and holding the same securities as the index itself. Index funds carry a very low fee. Actively Managed funds try to predict securities price movements in order to beat a market index. The higher fees associated with Actively Managed funds are used to support the research needed to predict market changes. Investment Marketing Objective Annual Term Result in Result in Result in Core Balanced Funds Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select BlackRock, None Balanced; $5 $152 $13,000 $9,900 $15,800 Conservative Capital Research Blend of Balanced Fund (A10) and Management IF and MF FRS Select BlackRock, None Balanced; $5 $139 $15,200 $9,000 $23,900 Moderate Quantitative Blend of Balanced Fund (A20) Management Associates, IF and MF Pyramis Global Advisors FRS Select BlackRock, None Balanced; $4 $123 $16,000 $8,300 $28,600 Aggressive Quantitative Blend of Balanced Fund (A30) Management Associates IF and MF PAGE 5

6 Money Market Funds These funds invest in short-term securities (financial instruments or obligations) that are high quality and can be sold quickly with little loss of value. Because of these investments, the funds have limited risk of declining in value. However, over the long term, money market investment returns have been modest, basically keeping pace with inflation. Money market funds are not FDIC insured or guaranteed. Core Money Market Investment Marketing Objective Annual Term Result in Result in Result in Fund Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select Yield Plus BlackRock None Money $6 $179 $11,500 $10,100 $12,500 Money Market Active Market; IF Fund (M10) Inflation-Protected Securities Funds These funds invest in United States Treasury inflation-protected securities or TIPS. TIPS provide two types of return. First, there s a fixed interest rate that s been around 2% to 3% since TIPS were first issued in Second, there s a return of principal (the starting amount of your investment) and interest (the additional earnings you get over time) that is protected, or indexed to inflation. As inflation rises, so does the amount of principal and interest you receive. So if the fixed rate is 3% and inflation is 3%, you receive a total interest rate of about 6%. The day-to-day value of inflation-protected securities varies with changes in inflation and interest rates, but these funds offer a promise of keeping up with inflation that is unique to this type of investment. Core Inflation-Protected Investment Marketing Objective Annual Term Result in Result in Result in Securities Fund Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select BlackRock None Inflation- $2 $60 $12,300 $9,200 $14,900 U.S. Treasury Protected Inflation-Protected Securities; IF Securities Index Fund (T10) = Passively Managed Type = Actively Managed Type What s the difference between bonds and stocks? A bond is a loan to a company that the company repays to you with interest. A stock is a share of ownership in a company s assets (property such as buildings, machines and bank accounts). A stock also includes a right to receive dividends (to share in future profits). If the company fails (goes bankrupt) and you re a bondholder, you become a creditor to the company and can sue to get your money back. However, if you re a stockholder, you get your money (your share of the assets) back only if there s anything left to distribute after all creditors (including bondholders) are paid off first. Also, profits tend to rise and fall with the economy, sometimes sharply. So bonds are generally considered less risky than stocks over the short term. PAGE 6

7 Bond Funds These funds invest primarily in bonds, which are like IOUs a company or government agency borrows money and pays it back with interest to the bondholder (the person making the loan). The quality of a bond is reflected in the credit rating of the company or agency that issues the bond. The shortterm risk of bond funds is relatively low, so they are often held by retirement investors as a way to lower risk and diversify. Over time, the value of a bond is affected by interest rates, inflation and other factors. When inflation or interest rates go up, the value of bonds goes down because they pay a fixed rate of interest (the market sees other investments as being more attractive, so the value of a specific bond decreases). Therefore, bonds don t always protect the value of your retirement savings against inflation. Investment Marketing Objective Annual Term Result in Result in Result in Core Bond Funds Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select BlackRock, None Broad $5 $151 $13,000 $9,300 $16,000 U.S. Bond Enhanced Prudential Investment Bond; IF Index Fund (B15) Management, Inc. PIMCO Total Pacific Investment Nationwide Broad $60 $1,979 $12,400 $8,700 $15,800 Return Fund Management Bond; MF (B20) Company, LLC Specialty Bond Funds Pyramis Intermediate Fidelity Investments Fidelity Intermediate $12 $376 $12,700 $9,500 $15,200 Duration Pool Bond; IF Fund (B35) FRS Select High Prudential Investment Prudential High Yield $46 $1,483 $13,300 $8,300 $20,100 Yield Fund (B50) Management, Inc. Bond; MF = Passively Managed Type = Actively Managed Type The MyFRS Financial Guidance Program Use It No Matter Which Plan You Choose CALL the MyFRS Financial Guidance Line , Option 2 (TRS 711) VISIT MyFRS.com Retirement and Financial Planning Workshops: Offered at some locations throughout the state PAGE 7

8 U.S. Stock Funds These funds invest primarily in equity shares or stocks issued by U.S. companies. The short-term risk of stocks has been much higher than bonds. However, over long periods of time, stocks have generally done better than bonds. The performance of stocks over the long run is one of the main reasons that stocks are typically recommended for retirement investing. Some risk is necessary to achieve long-term investment growth. Investment Marketing Objective Annual Term Result in Result in Result in Core U.S. Stock Funds Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select BlackRock None All Cap $2 $60 $16,900 $6,900 $38,300 U.S. Stock Market Broad; IF Index Fund (S10) Pioneer Fund Pioneer VALIC Large Cap $74 $2,496 $15,600 $6,700 $34,500 (S20) Investments Retirement Broad; MF Specialty U.S. Stock Funds FRS Select U.S. BlackRock, None Large Cap $19 $595 $16,400 $7,100 $35,100 Large Value Stock Quantitative Value; IF Active Fund (S25) Management Associates Prudential Mid-Cap Prudential Investment Prudential Mid Cap $35 $1,109 $16,900 $6,400 $41,400 Quantitative Core Management, Inc. Core; IF Equity Fund (S40) FRS Select U.S. BlackRock, None Large Cap $36 $1,146 $16,000 $6,100 $38,900 Large Growth Stock Jennison Growth; IF Active Fund (S30) Fidelity Growth Fidelity Investments Fidelity All Cap $64 $2,124 $15,600 $5,000 $42,800 Company Growth; MF Fund (S80) 2 American Beacon American Beacon VALIC Small Cap $82 $2,802 $15,700 $5,800 $38,900 Small-Cap Value Retirement Value; MF Fund (S99) T. Rowe Price T. Rowe Price VALIC Small Cap $92 $3,195 $15,400 $5,700 $39,700 Small-Cap Stock Associates, Inc. Retirement Broad; MF Fund (S97) 2 = Passively Managed Type = Actively Managed Type PAGE 8

9 Foreign Stock Funds These funds invest primarily in equity shares or stocks issued by foreign companies. Compared to U.S. stocks, foreign stocks are affected by additional risk factors such as foreign laws and regulations, differences in accounting practices, political risk (foreign governments are sometimes unstable) and currency risk (differences in the relative value of domestic and foreign money). Over the long term, foreign stocks have not done quite as well as U.S. stocks, but they have provided some important diversification benefits. Core Foreign Investment Marketing Objective Annual Term Result in Result in Result in Stock Funds Manager(s) Company and Type Fees 1 Fees 10 Years 10 Years 10 Years FRS Select BlackRock None Foreign $2 $60 $16,700 $6,500 $38,900 Foreign Stock Developed; IF Index Fund (F10) 2 American Funds Capital Research and VALIC Foreign $50 $1,623 $15,900 $6,800 $35,000 EuroPacific Growth Management Retirement Developed; Fund (F20) 2 Company MF Global (Foreign and U.S.) Stock Funds American Funds Capital Research and Prudential Global $55 $1,799 $16,100 $6,900 $34,500 New Perspective Management Developed; Fund (F40) 2 Company MF 1 Fees and expenses are only one of several factors that you should consider when making investment decisions. 2 These funds may impose restrictions on your ability to withdraw your money or transfer it to other funds in the Investment Plan. Please refer to the excessive fund trading policy and fund details available on MyFRS.com or by calling the MyFRS Financial Guidance Line. = Passively Managed Type = Actively Managed Type The MyFRS Financial Guidance Program Use It No Matter Which Plan You Choose CALL the MyFRS Financial Guidance Line , Option 2 (TRS 711) VISIT MyFRS.com Retirement and Financial Planning Workshops: Offered at some locations throughout the state PAGE 9

10 Composition of the Balanced Funds The asset mix and the basis for determining the Balanced Fund fees are shown in the following table. This mix is subject to change over time. Financial Engines, a federally registered investment advisor and fiduciary to the FRS Investment Plan, will periodically provide updated FRS investment fund mixes to the FRS that they believe will provide the best trade-off between expected risk and return. Changes to the Balanced Funds asset mixes and fees will be posted on MyFRS.com. Balanced Funds Investment Fund Allocations and Fees Funds: Name (Current Annual Fees Investment Fund Conservative Moderate Aggressive Per $10,000 Account Balance) Asset Class Balanced Fund Balanced Fund Balanced Fund FRS Select U.S. Treasury Inflation-Protected Inflation Protected 20% 0% 0% Securities Index Fund ($2) Securities FRS Select Yield Plus Money Market Money Market 35% 0% 0% Active Fund ($6) FRS Select U.S. Bond Enhanced Bonds 19% 35% 29% Index Fund ($5) FRS Select U.S. Stock Market Index Fund ($2) U.S. Stocks 7% 27% 31% FRS Select U.S. Large Value Stock U.S. Stocks 0% 0% 7% Active Fund ($19) American Funds New Perspective Fund ($55) U.S. and Foreign 0% 0% 0% Stocks FRS Select Foreign Stock Index Fund ($2) Foreign Stocks 9% 23% 33% Prudential Mid-Cap Quantitative U.S. Stocks 0% 0% 0% Core Equity Fund ($35) Pyramis Intermediate Duration Pool Fund ($12) Bonds 10% 15% 0% Current Weighted Average Fees $5 $5 $4 Column percentages may not add up to 100% due to rounding. Fund percentages as of July About Financial Engines and 10-Year Estimates of Investment Fund Results Financial Engines is a registered trademark of Financial Engines, Inc. Advisory services provided through Financial Engines Advisors L.L.C., a federally registered investment advisor and wholly owned subsidiary of Financial Engines, Inc. Financial Engines is held to high standards of independence, expertise and conduct on behalf of members in both FRS retirement plans. You can read more about their responsibilities in the Financial Guidance and Advice Policy available on MyFRS.com or through the toll-free MyFRS Financial Guidance Line. Their services are based on the work of Nobel Prize winner, Professor Bill Sharpe. More information on Financial Engines can be found in the Financial Engines Disclosure Statement which is part of the legal documents mailed to you, or in Financial Engines Form ADV, Part II, available from Financial Engines by writing to Financial Engines at 1804 Embarcadero Road, Palo Alto, CA 94303, Attn: Investor Support. Financial Engines does not guarantee future results. The Average Result, Downside Result and Upside Result assume a hypothetical investment of $10,000, net of any applicable fees or charges. The Average Result, Downside Result and Upside Result are not guarantees of future results, but only reasonable estimates based upon forward-looking models of the economy and securities markets that use such data as historical returns, historical correlations, expected growth rates and calculated-risk premiums. Since past performance is not always an accurate predictor of the future, and reliance on historical and current data necessarily involves certain inherent limitations, you must understand that the future performance estimates are only a tool to be used in evaluating your portfolio and not a substitute for your informed judgment. Fees and styles may change. PAGE 10

11 Appendix: Additional Information About the Investment Fund Tables Investment Manager(s) are the private-sector companies responsible for the day-to-day operation of buying and selling the investments held inside the FRS Investment Plan funds. These private-sector companies are banks, insurance companies, brokers and firms that advise and help run mutual funds and institutional investment funds. The FRS Select funds use multiple specialist investment managers to control risk. Marketing Companies are the private-sector companies that market and/ or distribute the investment funds to pension funds, separate from their investment management. The marketing companies also provide some backoffice services. The FRS Select funds do not have a marketing company because the investment managers are under direct contract with the FRS and a separate company (Aon Hewitt) performs all back-office functions. Unlike other funds, the FRS Select funds are available only through the FRS Investment Plan. Objectives are different for each asset class. Core funds cover the vast majority of the market in an asset class and should meet the needs of most investors. Specialty funds cover only a portion of the market in an asset class. Balanced funds cover multiple asset classes. Index funds follow a strategy to produce the same level and pattern of investment returns generated in a market index (like the S&P 500 index) by buying and holding the same securities as the index itself. Index funds deliver market returns at very low cost. In contrast, actively managed funds try to predict security price movements to beat a market index. These funds have higher fees to support the research needed to predict prices. Type of investment fund: mutual fund or institutional fund (see the box at the bottom of page 3). Mutual fund investment managers typically have the ability to take more risk when they try to beat the market, by having broader objectives and investment guidelines. Their board of directors can change fees without the FRS s permission. Institutional funds tend to have less discretion and are lower-risk. Institutional funds are subject to more stringent standards of care when investing on your behalf. Their fees will generally decline as their asset size grows, according to current contracts. Please refer to fund summaries and profiles for a full description of each fund s operations and risks. Annual Fees are the current fees the fund charges to cover its management, operating and marketing expenses. The tables show the fees that would apply to a $10,000 account (divide the annual fees shown by 10,000 to put them on a percentage basis). Actual fees are proportional to the amount you invest in that fund. For example, if the annual fee for a $10,000 investment in a fund is $2 but you only invest $1,000, you would be charged ($1,000 $10,000) x $2, or 20 cents for a year. Fees may change in the future. Continues on page 12 PAGE 11

12 Continued from page 11 Long-Term Fees* are the value in Today s Dollars of the total fees that would be charged over 30 years, assuming a $10,000 initial investment. Average Result* is an estimate in Today s Dollars of what an investment of $10,000 today might grow to over a 10-year period. There is a 50% chance that $10,000 would grow to this amount or more in 10 years. Downside Result* is an estimate in Today s Dollars of how poorly an investment of $10,000 today might do over a 10-year period. There is a 5% chance that $10,000 would grow or decline to this amount or less in 10 years. Upside Result* is an estimate in Today s Dollars of how well an investment of $10,000 today might do over a 10-year period. There is a 5% chance that $10,000 would grow to this amount or more in 10 years. * These figures are shown in Today s Dollars so that you can make a realistic comparison of the different funds in terms of what you could buy with the results today, rather than in the future when inflation will decrease the value of your account. Information Detailed information on all the investment funds is available by calling the MyFRS Financial Guidance Line toll free at , Option 2, or visiting MyFRS.com and clicking on Investment Funds in the toolbar. Note: The FRS Investment Plan is not designed to facilitate short-term excessive fund trading. Foreign and global investment funds are subject to a minimum holding period of 7 calendar days following any non-exempt transfers into such funds. You may also be subject to trading controls on other funds in the event that you are trading excessively. The excessive fund trading policy is available on MyFRS.com as described above. Examples of Fund Objectives for Different Asset Classes Bond Funds ( Maturity refers to length of time until a bond comes due and is repaid) Broad Fund invests intermediate- and longer-maturity bonds issued by governments and corporations and those backed by mortgages and other loans. Intermediate Bond focuses on shortermaturity bonds (1 to 5 years) whose value does not fall as sharply when inflation or interest rates increase. Book-Valued Intermediate Bond invests in shorter-maturity bonds, but also uses other specialized investments and insurance contracts to keep bond values insulated from changes in inflation or interest rates. These insulation strategies may not always be effective. Restrictions may apply to your ability to transfer money from these funds. High Yield invests in bonds that pay higher interest rates but also have a higher risk of the issuer defaulting. U.S. Stock Funds ( Cap short for capitalization refers to the dollar value of a company s total outstanding shares of stock) All Cap 3,000 stocks, or 98% of the value of the stock market. Large Cap 1,000 largest companies. Mid Cap 800 smallest companies within the Large Cap sector. Small Cap 2,000 smallest of the 3,000 All Cap companies. Value Fund tracks stocks that are attractively (low) priced relative to current and expected future earnings. Growth Fund tracks stocks that have higher expected rates of earnings growth than the overall market. Broad Fund tracks both the value and growth segments of the U.S. stock market. Foreign Stock Funds Developed Fund invests primarily in stock markets outside of the U.S. in countries that have mature economies and relatively high standards of living, such as Europe and Japan, with limited investments in other foreign markets. Global Stock invests in both U.S. and foreign stocks. July 2011 MyFRS Financial Guidance Program all rights reserved. FL2Q11 PAGE 12