Spectrum of Investment Options

Transcription

1 Spectrum of Investment Options A guide to the investment options available to you through the Kentucky Public Employees Deferred Compensation (KDC) Plans Kentucky Public Employees Deferred Compensation Authority (Kentucky Deferred Comp, KDC ) 457 and 401(k) Plans, plus Deemed IRAs, are sponsored by the Commonwealth of Kentucky Simple. Smart. For You. For Life. Investing does not have to be complicated. As a participant in Kentucky Deferred Comp (KDC), you have a choice between two simple investing approaches: 1 Professionally Managed Funds Simply pick the fund targeted to your retirement date, and let an experienced money manager do the rest. 2 Do-it-Yourself Portfolio Choose and manage your individual funds on your own by using the information enclosed. Or, contact us for an Asset Allocation Questionnaire that will measure your risk tolerance and time horizon, and direct you to an asset allocation model. Whichever choice you make, KDC is proud to provide Kentucky s public employees access to simple, cost-effective and well-known professionally managed investment options for planning for retirement. And we are here to help you along your way! KentuckyUnbridledSpirit.com

2 Do-it-Yourself Portfolio Introduction KDC offers three supplemental retirement savings opportunities: 457(b) Plan (tax-deferred) 401(k) Plan (tax-deferred), including the Roth 401(k) option (after-tax) Deemed IRAs includes both a Traditional and Roth IRA option, available only to employees of participating employers The available investment option featured here have been selected by KDC, with the assistance of its investment consultant/advisor. Plan administration is performed by KDC under the direction of the Board of Trustees. Plan communication, enrollment, and record-keeping services are performed by Nationwide Retirement Solutions, Inc. (NRS). Nationwide Retirement Solutions may be contacted at or Step 1 Determine your Investing Style This Spectrum of Investment Options (Spectrum) is designed to help you compare, at a glance, the type of investments and the relative risk and return potential of each available option in the KDC Plans. The Spectrum is broken up into two categories: 1) Managed Lifecycle Funds 2) Do-it-Yourself Portfolio Within each section, the investment options are listed from most conservative to most aggressive. If you would prefer to invest in a managed Lifecycle Fund, please proceed directly to the Lifecycle Funds section of this document. If you would prefer to "do it yourself," please proceed to Step 2. Step 2 Choose an Asset Allocation Model Risk-based asset allocation models seek to increase potential total return based on levels of risk. This asset allocation program allows you to choose a portfolio based on your individual risk tolerance and time-horizon. KDC has an Asset Allocation Questionnaire to help you determine your personal investor profile. Please call to request this questionnaire. P Check the box next to the asset allocation model to the right that best suits your risk tolerance and time horizon. The use of asset allocation does not guarantee earnings or insulate you from potential losses. Asset allocation is a rational strategy for investment selection. Simply stated, it is the process of diversifying your investment dollars across different asset classes. It helps you increase your return potential while helping to reduce your risk. The pie charts reflect the asset allocation program developed by Ibbotson Associates. This program uses a broad approach to diversify holdings across six general asset classes, which include combinations of different types of stock investments, bonds and cash equivalents. It can help you determine and implement your personal investment strategy by selecting funds from the Spectrum that match your investor profile. Step 3 Select your Investment Options Using your asset allocation model as a guide, select funds from each risk category recommended by the model and specify the percentage ( %) of your deferral that you would like allocated to each fund. For example, if you chose the Conservative Model, you would allocate 40% of your deferral to Short-Term Investments, 40% to Bonds, 10% to Large-Cap Funds, 5% to Mid-Cap Funds, and 5% to International Funds. Of course, you may also create your own model and select from these available funds at your discretion. Ultimately, these percentages will be added to your Participation Agreement that is completed during the enrollment or fund change process. The asset categories are subject to change, and KDC makes no representation or assurance that a fund s asset category will stay the same over time. You can view this information online at kentuckydcp.com. % Fixed Contract Fund 3 Conservative The Conservative Model is designed for an investor with a low risk tolerance and/ or a short time horizon. It is targeted toward seeking investment stability and liquidity with the main objective of preserving capital. Fluctuations in the value of this model are typically minor lower than those in more aggressive models. Conservative Model* International Stocks...5% Small-cap stocks...0% Mid-cap stocks...5% Large-cap stocks...10% Bonds % Short-Term Investments... 40% Short-Term Investments Ticker: n/a SAVER # 5323 Category: Fixed Operating Expense: 1 N/A Invests in a diverse portfolio of high quality bonds, including U.S. Gov. securities, corporate bonds, mortgage-backed and asset-backed securities and cash equivalents. Bonds are wrapped by investment contracts issued by high quality financial institutions such as insurance companies and banks. These contracts allow book value withdrawals and book value accounting for the underlying assets under certain conditions. The FCF is a separately managed account with underlying assets owned by the Authority. The interest rate earned is a blend of the rates earned by all contracts in the FCF. Each contract s rate reflects the rates of its underlying bonds, adjusted for differences between actual and expected earnings. Adjustments may reduce a contract s yield to zero, but no lower than zero. The FCF blended rate should change in the direction of new investment rates. Over time, FCF returns are expected to be comparable to returns of intermediate-term, high quality bonds. % Federated Prime Obligations Money Market Fund (Instl) Ticker: POIXX SAVER # 3450 Category: Money Market Operating Expense: % Seeks to provide current income consistent with stability of principal, by investing in commercial paper, certificates of deposit and obligations issued or guaranteed by the U.S. Government. An investment in a money market underlying fund is not insured nor guaranteed by the FDIC or any other government agency. Although the money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the money market. % Federated U.S. Government Securities Fund: 2-5 years (Instl) Ticker: FIGTX SAVER # 3448 Category: Short Govt. Operating Expense: % Seeks current income through a portfolio of U.S. Government and federal agency securities maturing in five years or less. (Targets 2-5 year average maturity range.) While the fund invests primarily in securities of the U.S. Government and its agencies, the fund s value is not guaranteed by these entities. Investment Option Types Fixed Products seek to deliver a consistent level of current income while preserving investment principal and provide a blended rate of return -- net of any fees -- based on the interest rates earned by the Fund's investments. Fixed products invest in a portfolio of investment contracts issued by insurance companies, banks, and other financial institutions. Under the terms of these contracts, the issuing institution promises to pay a specific rate of return for a defined period of time on the invested funds. Guarantees and protections are based on the claims-paying ability of the issuing insurance company. Bond Funds invest in a selection of bonds. A bond is a loan by investors to a private company or the government, that pays regular interest income over a specified period of time. The borrower repays the principal (the amount borrowed) at the end of that period. The return of a bond fund is a blend of the interest earned by each of the bonds held by the fund and any gain (or loss) from selling bonds before they mature. Bond funds are subject to the same credit, inflation and interest rate risk as the underlying bonds. Balanced Funds invest in a selection of both bonds (see above) and stocks. They seek conservation of principal, reasonable income return, and profits without undue risk.

3 Managed Lifecycle Funds Lifecycle Funds The Fidelity Freedom Funds are lifecycle funds, offering the power of a diversified set of mutual funds in a single fund, with the added benefit of professional asset allocation. Fidelity Freedom Funds Freedom Funds have an asset allocation mix among stocks, bonds, and short-term instruments that is more aggressive when you are younger and gets more conservative as you near retirement. Pick one fund with a target retirement date closest to when you want to retire or begin taking income from the fund, and Fidelity s expert money managers will do the rest. Note, though, that the fund becomes most conservative years after the actual fund date and, like all mutual funds, the value of a lifecycle fund is not guaranteed at any time. Check with your Deferred Comp representative for more details about the fund so you select a fund that best fits your planned needs. P Check the box next to the fund that best suits your target retirement date. Note: Due to the design of lifecycle funds, investors selecting this approach normally designate 100% of their funds to one Lifecycle Fund (e.g. 100% in The Fidelity Freedom 2030 Fund). Fidelity Freedom Income Fund Ticker FFFAX SAVER # 2776 Operating Expense: 0.50% Seeks high current income and, as a secondary objective, capital appreciation. The Fund invests in approximately 19 underlying Fidelity equity, fixed-income and short-term funds, and allocates its assets among these funds according to a stable asset allocation strategy designed for investors already in retirement. U.S. Stocks (17.2%) Non-U.S. Stocks (2.3%) Bond Funds (52.5%) Cash (27.2%) Other (0.8%) Fidelity Freedom 2010 Fund Ticker FFFCX SAVER # 2757 Operating Expense: 0.67% Seeks high total return by investing in approximately 24 underlying Fidelity equity, fixed-income and short-term funds, and allocates its assets among these funds according to an asset allocation strategy. Upon reaching its target date, continues becoming more conservative for years until the asset mix is approximately the same as the Fidelity Freedom Income Fund. Ultimately, the funds will merge. U.S. Stocks (35.6%) Non-U.S. Stocks (12.0%) Bond Funds (38.6%) Cash (12.8%) Other (0.9%) Fidelity Freedom 2020 Fund Ticker FFFDX SAVER # 2759 Operating Expense: 0.74% Seeks high total return by investing in approximately 24 underlying Fidelity equity, fixed-income and short-term funds, and allocates its assets among these funds according to an asset allocation strategy. Upon reaching its target date, continues becoming more conservative for years until the asset mix is approximately the same as the Fidelity Freedom Income Fund. Ultimately, the funds will merge. U.S. Stocks (44.6%) Non-U.S. Stocks (15.4%) Bond Funds (30.5%) Cash (8.5%) Other (0.9%) Fidelity Freedom 2030 Fund Ticker FFFEX SAVER # 2761 Operating Expense: 0.79% Seeks high total return by investing in approximately 22 underlying Fidelity equity, fixed-income and money market funds, and allocates its assets among these funds according to an asset allocation strategy. Upon reaching its target date, continues becoming more conservative for years until the asset mix is approximately the same as the Fidelity Freedom Income Fund. Ultimately, the funds will merge. U.S. Stocks (55%) Non-U.S. Stocks (19.1%) Bond Funds (18.6%) Cash (6.5%) Other (0.8%) Fidelity Freedom 2040 Fund Ticker FFFFX SAVER # 2763 Operating Expense: 0.81% Seeks high total return by investing in approximately 22 underlying Fidelity equity, fixed-income, and shortterm funds using a moderate asset allocation strategy. Upon reaching its target date, continues becoming more conservative for years, until the asset mix is approximately the same as Freedom Income Fund. Ultimately the funds will merge. U.S. Stocks (58.8%) Non-U.S. Stocks (20.7%) Bond Funds (13.8%) Cash (5.9%) Other (0.8%) All portfolio composition figures are as of 2/28/2010. The Fidelity Freedom Funds are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying Fidelity funds. Therefore, you are indirectly paying a proportionate share of the applicable fees and expenses of the underlying Fidelity funds. Like other funds, Fidelity Freedom Funds are subject to market risk and loss. Loss of principal can occur at any time, including before, at or after the target date. There is no guarantee that Fidelity Freedom Funds will provide enough income for retirement or the principal is guaranteed.

4 Moderately Conservative Moderate The Moderately Conservative Model is appropriate for investors who seek modest capital appreciation and have either a moderate time horizon or a slightly higher risk tolerance than the most conservative investor. While this range is still designed to preserve the investor s capital, fluctuations in value may occur from year to year. Moderately Conservative Model* International Stocks...10% Small-cap stocks...0% Mid-cap stocks...10% Large-cap stocks... 20% Bonds % Short-Term Investments...25% Bonds** % Vanguard Total Bond Market Index Fund (Instl) Ticker: VBTIX SAVER # 8261 Category: Intermediate-Term Bond Operating Expense: % Seeks to match the performance of the Lehman Brothers Aggregate Bond Index, a broad market-weighted index that encompasses U.S. Treasuries, investment grade corporate bonds, international bonds and mortgage-backed securities. The Moderate Model best suits investors who seek relatively stable growth and have a higher tolerance for risk and/or a longer time horizon than conservative or moderately conservative investors. The objective of this model is to provide steady growth while limiting fluctuations to less than those of the overall stock market. Moderate Model* Balanced % Vanguard Wellington Fund (Admiral Shares) International Stocks...15% Small-cap stocks...5% Mid-cap stocks...10% Large-cap stocks... 30% Bonds % Short-Term Investments...15% Ticker: VWENX SAVER # 8957 Category: Moderate Allocation Operating Expense: % Seeks to provide conservation of principal, reasonable income return, and profits without undue risk, by investing in bonds and common stocks (normally 60% - 70% in common stocks). % PIMCO Total Return Fund (Instl) Ticker: PTTRX SAVER # 7410 Category: Intermediate-Term Bond Operating Expense: % The investment seeks maximum total return and normally invests at least 65% of assets in a diversified portfolio of Fixed-Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of total assets in high-yield securities. The fund may invest all assets in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities. % Goldman Sachs High Yield Bond Fund (Instl) Ticker: GSHIX SAVER # 6816 Category: High Yield Operating Expense: % Seeks high current income by investing in a diversified portfolio of U.S. intermediate-term high yield corporate bonds category BBB/Baa or lower (including those sometimes referred to as junk bonds ) with maturities of 10 years or less. High yield funds are typically subject to greater risk and price volatility than funds which invest in higher-rated debt securities. ** Because there are many different types of bonds, bond funds can vary dramatically in their risks, which can include credit and interest rate risk. Stock (Equity) Funds invest in a selection of stocks issued by several different companies. The return comes from dividends, if any, the appreciation in the value of the shares held, and gains (or losses) from the sale of the stocks by the fund. Note: KDC s international investing options are included in this category. Small-cap stocks are issued by smaller companies defined by market capitalization (the total value of the company s outstanding common stock shares). Generally small cap stocks have a market capitalization of less than $2 billion*. Small cap stocks are considered to be more risky or volatile than mid and large cap stocks. Investors generally have a higher return expectation than mad and large cap stocks due to this risk. Mid-cap stocks issued by companies whose market capitalization generally falls between $2 billion and $10 billion*. Mid cap stocks are generally considered more risky or volatile than large cap stocks. Investors generally have a higher return expectation than large cap stocks due to this risk. Large-cap stocks issued by companies whose market capitalization generally falls above $10 billion*. These are typically larger, more established, and well-known companies. *The estimated capitalization ranges listed are based on asset class definitions and change over time as the markets move. Individual funds may hold stocks that fall outside of these ranges. Large-Cap Stocks % Allianz NFJ Dividend Value (Instl) Ticker: NFJEX SAVER # 6812 Category: Large Value Operating Expense: % Seeks reasonable income with the potential for capital appreciation. Invests primarily in income-producing stocks with a yield higher than the composite yield on the stocks in the S&P 500 Index, with the remainder invested in convertible debt obligations. % Davis New York Venture Fund (Class Y) Ticker: DNVYX SAVER # 1600 Category: Large Blend Operating Expense: % Seeks capital appreciation by investing primarily in stocks of companies it believes are well-managed and underpriced, with long-term growth potential. % Fidelity Contrafund Ticker: FCNTX SAVER # 3268 Category: Large Blend Operating Expense: % Seeks capital appreciation. The fund invests in securities of companies with valuable fixed assets. It also seeks securities it considers undervalued in relation to the issuer s assets, earnings or growth potential. % Vanguard Institutional Index Fund (S&P 500) Ticker: VINIX SAVER # 8464 Category: Large Blend Operating Expense: % Seeks to match the investment performance of the S&P 500 Index, an index emphasizing large-capitalization stocks. % Fidelity Growth Company Fund Ticker: FDGRX SAVER # 3347 Category: Large Growth Operating Expense: % Seeks capital appreciation, investing, under normal market conditions, at least 80% of its net assets in stocks and securities convertible into common stocks of companies which its investment manager believes offer better-than-average prospects for long-term growth. The fund may invest up to 35% of its total assets in foreign securities. % American Funds: Growth Fund of America (Class R6) Ticker: RGAGX SAVER # 6887 Category: Large Growth Operating Expense: % Seeks capital growth by investing in common stocks of high potential growth companies. May also invest up to 15% of assets in securities of issuers domiciled outside of the U.S. and Canada, and not included in the S&P 500 Composite Index.

5 Moderately Aggressive Aggressive The Moderately Aggressive Model is designed for investors with a higher risk tolerance and a longer time horizon than conservative, moderately conservative, or moderate investors. The objective is capital appreciation. investors in this model should be able to tolerate moderate fluctuations in portfolio value. Mid-Cap Stocks % Neuberger Berman Genesis Fund (Instl) Moderately Aggressive Model* International Stocks...25% Small-cap stocks...5% Mid-cap stocks...15% Large-cap stocks...35% Bonds % Short-Term Investments...5% Ticker: NBGIX SAVER # 2335 Category: Mid-Cap Blend Operating Expense: % Seeks capital growth by investing primarily in common stocks of companies with purchase criteria of $2 billion or less. However, at times, this fund maintains substantial holdings in funds broadly characterized as mid-cap funds. It invests in undervalued companies whose current market shares and balance sheets are strong. % Virtus Mid-Cap Value Fund (Instl) Ticker: PIMVX SAVER # 6795 Category: Mid-Cap Value Operating Expense: % Seeks capital appreciation by investing mainly in stocks of companies with below-market price-to-earnings ratios with an average market capitalization of $7.3 million. % Vanguard Mid-Cap Index Fund (Instl) Ticker: VMCIX SAVER # 8259 Category: Mid-Cap Blend Operating Expense: % Seeks to parallel the performance of the S&P MidCap 400 Index by investing in each stock found in the index, in essentially the same proportion as represented in the index. It may also invest in stock futures and options, contracts, warrants, convertible securities and swaps. % T. Rowe Price Mid-Cap Growth Fund (Instl) Ticker: PMEGX SAVER # 2336 Category: Mid-Cap Growth Operating Expense: % Seeks long-term capital growth by investing in common stocks of Mid-Cap companies with above-average growth potential. These companies generally have a market capitalization that falls within the range of the companies in the S&P Mid-Cap 400 Index. 1 Mutual Fund Company Annual Expense as % of Assets. Operating expenses featured are as of September 30, Denotes a trade restriction policy or redemption fee from the mutual fund company applies. Please review the prospectus carefully. Fund prospectuses can be obtained by calling or by going online to Before investing, carefully consider the fund s investment objectives, risks, and charges and expenses. The fund prospectus contains this and other important information. Read the prospectuses carefully before investing. Kentucky Deferred Comp Plan Service Representatives are authorized and licensed to explain the Deferred Compensation Plans and the available investment options. However, they are not permitted to provide investment advice. Plan Service Representatives are Registered Representatives of Nationwide Investment Services Corporation, member FINRA Morningstar, Inc. All Rights Reserved. The mutual fund descriptions contained herein: (1) are proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) are not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Ticker symbols are provided to help you research mutual funds. Information related to pricing or performance of these funds published in publicly available media such as newspapers and websites may be different than performance data and pricing specific to the KDC Plan(s). To find pricing or performance related information specific to your account visit the Investment Info tab at kentuckydcp.com. The Aggressive Model is appropriate for investors with both a high risk tolerance and a long investment time horizon. The objective is to provide high growth for the investor s assets. Possible substantial fluctuations in value from year to year make this model unsuitable for those with a short-term investment horizon. Small-Cap Stocks *** % American Century Small-Cap Value Fund (Instl) Ticker: ACVIX SAVER # 2330 Category: Small-Cap Value Operating Expense: % Seeks long-term capital growth; income is a secondary objective. The fund normally invests at least 65% of assets in equity securities of U.S. companies with small market capitalizations. It may invest in foreign securities, convertible securities, corporate and government debt, and non-leveraged stock index futures contracts. % Vanguard Small-Cap Index Fund 2 (Instl) Ticker: VSCIX SAVER # 5175 Category: Small-Cap Blend Operating Expense: % Seeks to match the investment results of the Standard & Poor s SmallCap 600 Index. The fund normally invests in at least 80% of assets in the stocks that comprise the index (in the same percentages as represented in the index) and stock-index futures. % Prudential Jennison Small Company (Z) Ticker: PSCZX SAVER # 9101 Category: Small-Cap Growth Operating Expense: % Seeks capital growth by normally investing at least 80% of assets in equity securities of small, less well-known, undervalued U.S. companies. It may invest up to 20% of assets in equityrelated securities, including nonconvertible preferred stocks and convertible securities. The fund may also invest in foreign securities, REITs, high-quality money market instruments, options, foreign currency forward contracts and may make short sales of a security. *** Small company funds involve increased risk and volatility. International Stocks **** % Dodge & Cox International Fund 2 Aggressive Model* International Stocks... 30% Small-cap stocks...10% Mid-cap stocks...15% Large-cap stocks... 40% Bonds % Short-Term Investments...0% Ticker: DODFX SAVER # 3505 Category: Foreign Stocks Operating Expense: % The Fund seeks long-term growth of principal and income and invests primarily in a diversified portfolio of equity securities issued by non-u.s. companies from at least three different foreign countries, including emerging markets. The Fund focuses on countries whose economic and political systems appear more stable and are believed to provide some protection to foreign shareholders. The Fund invests primarily in medium-to-large well established companies based on standards of the applicable market. % American Funds: EuroPacific Growth Fund (Class R6) Ticker: RERGX SAVER # 6888 Category: Foreign Stocks Operating Expense: % Seeks long-term growth of capital by investing at least 80% of assets in stocks of strong, growing companies, ranging from small to large, based chiefly in Europe and the Pacific Basin. All holdings are non-u.s., except a nominal portion that, for liquidity, may be held in U.S. dollars or equivalents. Other holdings include American Depositary Receipts, European Depositary Receipts, bonds and cash. % Federated International Small-Mid Company Fund (Instl) 2 Ticker: ISCIX SAVER # 1516 Category: Foreign Stocks Operating Expense: % Seeks capital appreciation by investing at least 65% of its assets in stocks of foreign companies with market capitalizations of less than $1.5 billion. **** International investing involves additional risk including: political instability, currency fluctuations, and foreign regulations.

6 Disclosure of Fees Below are the plan administrative charges and fees applicable to the respective investment options: Asset Fees Fixed Contract Fund 3 account The annual record keeping and administrative fee for this account is.32 percent. The credited interest rate reported on your quarterly statement is already adjusted for this annual fee. Mutual fund accounts Beginning one year after the date of your first deferral, there is an annual record keeping and administrative fee, based on the first $125,000 of your total balance in all mutual funds. A portion of this fee is collected each month. The fee is described below and illustrated in the chart to the right.:.32 percent on the first $25, percent on up to the next $25, percent on up to the next $50, percent on up to the next $25,000 no additional fee on amounts over $125,000 Note: The maximum annual mutual fund asset fee that will be charged is $225. Total Balance $125,000 $100,000 $50,000 $25,000 $0 Fee Amount No additional fee for amounts over $125,000.06% of next $25,000.13% of next $50,000.26% of next $25,000.32% of first $25,000 First year free!* Participants investing in mutual funds are not charged record keeping and administrative fees until one year after the date of their first investment. The first year free provision does not apply to Fixed Contract Fund 3. * Underlying fund management fees still apply. Low Balance Fee** A $6.00 per month administrative fee is charged to all accounts with balances of less than $5,000 that have been inactive for six consecutive months. ** An inactive, low-balance account fee of $6 per month will apply to those accounts under $5000 that have not experienced any in-coming contributions for a period of six months. Exceptions to this fee include those accounts in periodic distribution, beneficiary and alternate payee accounts, and accounts of participants on military leave. Contact Information Kentucky Deferred Comp or toll-free Your NRS Representative (Option 5) The SAVER (automated voice response) Line Web site...kentuckydcp.com For more information on a fund or to obtain a prospectus, you may contact the Authority or call the funds directly. Their toll free numbers are listed on our Web site, kentuckydcp.com. Allianz American Century Funds American Funds Davis Funds Dodge & Cox Funds Federated Funds Fidelity Funds Goldman Sachs Funds INVESCO Worldwide Neuberger Berman Funds PIMCO Prudential Virtus Mutual Funds T. Rowe Price Funds Vanguard Funds Kentucky Deferred Comp (KDC) 101 Sea Hero Road, Suite 110 Frankfort, Kentucky Nationwide Investment Services Corporation, member FINRA. NRM-3097KY-KY.12 (10/10)