UNDERSTANDING HOW THE EMPLOYER STOCK FUND WORKS

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1 UNDERSTANDING HOW THE EMPLOYER STOCK FUND WORKS WHAT DOES THE FUND INVEST IN? An employer stock fund invests in publicly traded stock offered by your employer. In addition, this fund also maintains a cash component for liquidity purposes. Liquidity is required in order to facilitate daily transactions such as investment transfers or distributions from the fund. An appropriate cash liquidity level is established as a percentage of the entire investment fund and is based on plan provisions, estimated activity levels, and market availability of employer securities. HOW DOES THE FUND OPERATE? In order to account for the total value of employer stock and cash on a daily basis, Pentegra utilizes unit value accounting. Unit values (similar to the stock s share price) and number of units (similar to number of shares) are used to communicate the dollar value of your account. The unit value of the fund is determined at the end of each day by dividing the total market value of the fund as of the current day's end by the total number of units held in the fund by all members as of the previous day's end. As contributions are processed, they are converted to units in the fund. Example Employer Stock Fund Stable Value Fund S&P MidCap Stock Fund Russell 2000 Stock Fund 1. Total # of units owned by all members as of July Total market value as of August 1 $1, $ $1, $ Unit value on August 1 (Line 2 divided by Line 1) $ $ $ $ The difference between the value of a member's account at the end of the previous day and the value at the end of the current day, net of all transactions occurring during the current day (i.e., contributions, withdrawals, etc.) is the amount of earnings (losses) credited to the member's account for the day. The change in unit value reflects the day's change in stock price, any cash dividends accrued and the interest earned on the cash component of the fund, less investment management fees. How closely the fund s unit value change tracks the change in stock price depends on the percentage of cash held in the fund. The larger the stock component in the investment, the closer the rate of return of the stock fund will track that of the rate of return of the stock. At its inception, the unit value of the fund is arbitrarily set. This unit value is not intended to correspond to the price per share of your company stock.

2 WHY IS THE UNIT VALUE DIFFERENT THAN THE STOCK PRICE? A participant does not own individual shares of common stock, but rather, units in the fund. Since the unit value takes into account certain factors such as interest on the cash portion held in the fund, accrued cash dividends and administrative fees, the unit value will be different than the actual price of a share of stock. Your share in the fund is represented by the number of units that you own in the fund. HOW CAN I TRACK FUND PERFORMANCE? The market value and unit holdings of your stock fund, and other funds, is reported to you on your quarterly participant statement. On a daily basis, you can access our interactive website, or call Pentegra by Phone to determine the market value, unit holdings, and unit values in your account. ARE THERE ANY RESTRICTIONS ON TRANSFERRING IN OR OUT OF THE STOCK FUND? Rules governing transfers and accessibility depend upon the provisions of your plan. Refer to your Summary Plan Description and read the section on withdrawals and loans or call a Pentegra Customer Service Representative at to determine if there are transaction restrictions on the stock fund. DO I HAVE ACCESS TO THE STOCK FUND? That depends upon the provisions of your plan. Refer to your Summary Plan Description and read the section on withdrawals and loans or call a Pentegra Customer Service Representative at to determine if there are restrictions on accessing the stock fund. WHAT IS AN IN-KIND DISTRIBUTION? An in-kind distribution is a distribution made in the form of actual stock certificates rather than cash. These stock certificates are re-registered either to a qualified successor plan, an individual IRA or directly to the participant depending on the participant s instructions. WILL I RECEIVE DISTRIBUTIONS IN-KIND OR IN CASH? This also depends on the provisions of your plan. Refer to your Summary Plan Description or contact a Pentegra Customer Service Representative at to obtain this information.

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