Your Plan Highlights Investment Option Descriptions Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. LifePath Portfolios LifePath 2010 seeks total return for investors retiring in approximately the year 2010. The fund uses an asset allocation approach; a neutral mix would be 30% equities, 60% debt securities and 10% cash. The allocation changes, becoming more conservative, as the fund nears its maturation date of 2010. The fund allocates assets among securities contained in various domestic and foreign indexes; it may invest up to 20% of assets in securities traded in foreign markets. LifePath 2020 seeks total return for investors retiring in approximately the year 2020. The fund uses an asset allocation approach; a neutral mix would be 65% equities and 35% debt securities. The allocation changes, becoming more conservative, as the fund nears its maturation date of 2020. The fund allocates assets among securities contained in various domestic and foreign indexes; it may invest up to 20% of assets in securities traded in foreign markets. LifePath 2030 seeks total return for investors retiring in approximately the year 2030. The fund uses an asset allocation approach; a neutral mix would be 70% equities and 30% debt securities. The allocation changes, becoming more conservative, as the fund nears it maturation date of 2030. The fund allocates assets among securities contained in various domestic and foreign indexes; it may invest up to 20% of assets in securities traded in foreign markets. LifePath 2040 seeks total return for investors retiring in approximately the year 2040. The fund uses an asset allocation approach; a neutral mix would be 100% equities. The allocation changes, becoming more conservative, as the fund nears its maturation date of 2040. The fund allocates assets among securities contained in various domestic and foreign indexes; it may invest up to 20% of assets in securities traded in foreign markets. International Stock Funds Templeton Foreign Fund seeks long-term capital growth. The fund invests primarily in stocks and debt securities of companies and governments outside of the United States. It maintains a flexible investment policy and can invest in all types of securities and in any foreign country, developed or underdeveloped. The fund generally invests up to 25% of assets in foreign debt securities. Vanguard International Growth Fund seeks capital appreciation. The fund invests in a broadly diversified array of non-u.s. equity securities, primarily common stocks of seasoned companies. The fund invests in up to 30 foreign stock markets, emphasizing companies with above-average growth potential. The fund will generally have representation within all countries included in the MSCI-EAFE Index. Vanguard Total International Stock Index Fund seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in Europe, the Pacific region, and emerging markets countries. International investing involves additional risks, including: currency fluctuations, political instability and foreign regulations. Small-Cap Stock Funds FPA Capital Fund seeks long-term growth of capital. Current income is secondary. The fund invests primarily in common stocks of medium and small companies that the advisor believes have above-average ability to increase market value. It may also invest in U.S. government and government agency obligations, corporate debt securities, preferred stocks, and convertibles. In selecting investments, the advisor considers a company s profitability, book value, replacement cost of assets, and free cash flow. The fund may invest up to 10% of assets in foreign issues. Hartford Small Company Fund seeks growth of capital. The fund invests at least 80% of assets in equities issued by companies with market capitalizations within the range of the Russell 2000 and S&P Small Cap 600 indices. It may invest up to 20% of assets in securities of foreign issuers and non-dollar securities. Vanguard Small-Cap Index seeks to track the performance of a benchmark index that measures the investment return of small capitalization stocks. The fund employs a passive management investment approach designed to track the performance of the MSCI US Small 1750 index, a broadly diversified index of the stocks of smaller U.S. companies. It attempts to replicate the target index by investing all, or substantially all, of assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. Small company funds involve increased risk and volatility. Mid-Cap Stock Funds Vanguard Capital Opportunity Fund seeks long-term total return. The fund invests primarily in equities of small and mid-cap U.S. companies. It typically concentrates investments in as few as 25 to 50 stocks. To select investments, the advisor tries to find stocks with strong industry positions, excellent prospects for growth, superior return on equity, and talented management teams. The fund may short stocks up to 10% of assets. It may invest up to 15% of assets in foreign securities. The fund may also invest up to 10% in both convertibles and high-yield bonds 12 Mid-Cap stocks are subject to market risk. They are generally perceived to be riskier than large cap stock funds, but less so than small cap funds.
Large-Cap Stock Funds Dodge & Cox Stock Fund seeks long-term growth of principal and income; current income is a secondary consideration. The fund intends to remain fully invested in equities with at least 65% of assets in common stocks. It may invest in preferred stocks and convertibles. Management seeks companies with financial strength and a sound economic background. Fidelity Contrafund seeks capital appreciation. The fund invests primarily in common stocks and convertible securities that management judges to be undervalued. It may also invest in preferred stocks, warrants, and debt securities. Management seeks companies that are currently out of favor with the investing public and that may have favorable long-term outlooks because of termination of unprofitable operations; changes in management, industry, or products; or a possible merger or acquisition. The fund may invest up to 5% of assets in lower-quality debt obligations. It may also invest in foreign securities. Fidelity Growth Company Fund seeks capital appreciation. The fund invests primarily in various common stocks including preferreds, convertibles, and warrants issued by companies that the advisor believes have above average growth potential, measured by earnings or gross sales. To select investments, the advisor focuses mainly on smaller, lesser-known companies in emerging areas of the economy. It may also seek investment opportunities in revitalized or well-positioned larger companies in mature industries. Janus Twenty seeks long-term growth of capital. The fund primarily invests in equity securities with growth potential. It may invest up to 35% of assets in high-yield bonds and without limit in foreign equity and debt securities. It normally invests in a core group of 20-30 common stocks. Vanguard Institutional Index Fund seeks capital growth. The fund seeks investment results that parallel the performance of the S&P 500 Index. The Fund employs a passive management strategy designed to track the performance of the S&P 500 Index, which is dominated by the stocks of large U.S. companies. Large-cap funds are subject to market risk. They are generally perceived to carry less risk than mid and small cap funds. Balanced Funds Dodge & Cox Balanced Fund seeks income, conservation of principal, and long-term growth of principal and income. The fund may invest up to 75% of assets in common stocks and convertible securities. It may invest up to 20% of assets in American Depository Receipts. The fund typically invests in investment-grade debt securities. It may invest in government obligations, mortgage and asset-backed securities, and corporate bonds. When selecting securities, management may consider yield to maturity, quality, liquidity, and current yield. Bond Funds PIMCO Total Return Fund seeks total return consistent with preservation of capital. The fund invests at least 65% of assets in debt securities, including U.S. government securities, corporate bonds, and mortgage-related securities. It may invest up to 20% of assets in securities denominated in foreign currencies. The portfolio duration generally ranges from three to six years. Vanguard Total Bond Market Index seeks to track the performance of a broad, market-weighted bond index. The fund invests by sampling the index. It invests at least 80% of assets in bonds held in the index. The fund maintains a dollar-weighted average maturity consistent with that of the index ranging between 5 and 10 years. Bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fund. Stable Value Stable Value Option is offered and administered by the Program. It is designed for the safety-oriented participant who is seeking a current competitive rate of return. Principal and interest are protected against market loss. The fund is a well-diversified portfolio of high quality fixed-income instruments with strong credit ratings, including bond and mortgage securities. The fund also invests in contracts issued by banks and insurance companies that provide principal protection for the diversified bond portfolios, regardless of daily market changes. The annualized interest rate is declared each quarter and guaranteed through the end of that quarter by banks and insurance companies. The Stable Value Option is not a mutual fund. Because the value of securities held by stable value funds will fluctuate, there is the risk that an investor will lose money investing in stable value funds. For more information, please consult a prospectus. Both the product prospectus and the underlying fund prospectuses can be obtained from your investment professional. Before investing, please carefully consider the fund s investment objectives, risks, charges and expenses. Both the product prospectus and underlying fund prospectus contain this and other important information. Please read the prospectus carefully before investing. 13
Glossary of Investment Terms Understand the terms Below are some common investment terms and their definitions. For more general investing information, visit www.ohio457.org. Glossary of Investment Terms Asset Class Descriptions Asset classes identify funds that tend to have similar investment objectives and strategies, and generally react in a similar manner to market fluctuations as other funds in the same class. Spreading your investment selections across several asset classes, a technique known as asset allocation, can help maximize your total return based on the level of risk you are willing to accept. Asset allocation does not protect against a loss in a declining market. Balanced Funds Balanced funds are funds that seek both income and capital appreciation by investing in a generally fixed combination of stocks and bonds. Risk and return is typically moderate to low. Blend Funds Blend funds will generally hold a mix of volatile growth stocks with the more stable value stocks, providing style diversification within one fund. Bond Funds Bonds are loans or debt instruments issued by governments or corporations that need to raise money. When investors buy a bond, they are actually loaning money to the government or company. Bonds are issued for a set period, during which interest payments are typically made to the bondholder. Bonds are generally a more conservative form of investment than stocks, and usually provide a more steady flow of income. Typically, bonds have a lower long-term total return than stocks. Growth Funds Growth funds invest in companies expecting higher than average revenues and earnings growth. They are broad-based stock funds, although most prospectuses permit investing in bonds for defensive purposes. Investments usually include large, mid and small capitalization stocks in a wide variety of sectors. Funds have the ability to invest heavier in one market cap and overweigh in one or more sectors. Managers like to employ a buy and hold strategy by keeping stocks for an average of 3-5 years and only selling if company fundamentals, such as earnings or growth prospects, change. 14 International Stock Funds International funds, also known as foreign funds, contain stocks from companies located outside of the United States. Most international stock funds seek long-term growth of capital. These funds typically have higher risk due to political factors, currency fluctuations, differences in accounting standards and foreign regulations, as well as higher return potential. Risk and return is typically high.
Large-Cap Stock Funds A large-cap fund invests mostly in stocks of larger companies. Typically, large-cap stocks are companies with market values more than $10 billion and include blue-chip and Fortune 500 companies. They are typically more mature, diversified companies with many products and services. The goal of this type of fund is usually steady growth of capital. Risk and return is typically moderate to high. LifePath Portfolios Each LifePath Portfolio is a pre-mixed fund investing in multiple asset classes in the U.S. and abroad with an asset allocation of stocks, bonds, and cash based on a target year (when you expect to begin using your money). The portfolio then automatically adjusts its asset allocation as the target year approaches, by investing more and more conservatively, reducing its investments in stocks and increasing its investments in bonds and cash. Mid-Cap Stock Funds Mid-cap funds contain stocks from companies with market values between $2 billion and $10 billion and often include companies that are well established and growing. Risk and return is typically moderate to high. Small-Cap Stock Funds Small-cap funds contain stocks from companies with less than $2 billion in capitalization, including many start-up companies. Small companies can grow much faster than big companies, but small company stocks tend to be more volatile than the stocks of larger companies. Over the long term, an investor in small-cap stocks must be willing to accept a higher level of risk resulting from potentially higher market volatility. Stable Value These options are short to intermediate term, high quality securities. Investors who seek safety of principal, as well as a competitive rate of return compared to money market funds, may invest in these options. Value Fund Type of broad-based growth fund that attempts to purchase stock believed to be selling at a value. In general, a stock is considered a value if its price to earnings and/or price to book ratios are below the industry average and future earnings are expected to rise or remain consistent. Value funds usually invest in larger companies and are less volatile than other growth funds. However, small cap value funds are growing in popularity, but they are more aggressive than typical value funds. 15
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