VRS Defined Contribution Plans Investment Guide. the Nature of Investing Stretch Your. Investment Knowledge. Defined Contribution Plans

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1 VRS Defined Contribution Plans Investment Guide SM: the Nature of Investing Stretch Your Investment Knowledge Defined Contribution Plans

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3 Stretch Your Wings To Reach Your Goals When you invest in your financial future through your Virginia Retirement System (VRS) defined contribution plans, you decide how to invest your money from the variety of investments your Plans offer. You choose those that fit your personal investment goals, your investment time horizon and your comfort level with risk. Over the years, your goals for the future may change quite a bit. As they change, so may your financial strategy and how you choose to invest your money. Your Plans investment options are designed to help you meet your needs now and in the future. All these things are at the heart of The Nature of Investing. And by stretching your investing wings today, you could be a few steps closer to achieving your goals for retirement! Learning to Fly This Investment Guide explores what you need to know to build your own personal investment strategy, with respect to both your VRS defined contribution plans' assets and your finances outside the Plans, including: A summary of the basic types of asset classes and investment types The types of investment risk and how to help manage them The importance of diversification in your planning process An overview of the VRS defined contribution plans investments Easy steps for creating your personal investment strategy A glossary of financial terms Turn to the next page to begin exploring your investing landscape. 1

4 THE INVESTING L ANDSC APE Choosing the right investment strategy is an important step toward reaching your financial goals. By matching your personal saving strategy to the types of investments that you feel most comfortable with, you are creating an investing style that is all your own. Your VRS defined contribution plans offer a number of different investment types, also known as asset classes. Although past performance is not a guarantee of future results, here s a brief overview of what you might expect from the three major asset classes over the long term. Cash Equivalents Lower market risk with lower growth potential Cash equivalents are short-term securities that pay interest, such as money market funds and U.S. Treasury bills. 1 Their objective is capital preservation. Stable value investments are often associated with this asset class. Stable value investments seek to maintain a steady, or stable, principal value that generally does not fluctuate. They may include securities with short- to intermediate-term maturities. While cash equivalents and stable value investments have a place in many portfolios, their returns are generally low and may not outpace inflation. An investment in a Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Bonds Moderate market risk with moderate growth potential By investing in bonds (also called fixed-income investments), you are actually loaning money to an organization, such as a corporation or the government, in exchange for interest payments. Bond values may fluctuate up and down, sometimes widely, but ordinarily they will not vary as much as stocks. Bond investment options may help offset the higher risk of stocks in a more aggressive investment portfolio, and they may help keep pace with inflation in a more conservative investment portfolio. Stocks Higher market risk with higher growth potential By investing in stocks, you are actually buying shares of ownership in a corporation. Stocks have the highest potential for growth over the long term but also carry a higher degree of risk. Their unpredictable movement up and down in value is called volatility. Historically, over long stretches of time, stocks have had a greater rate of return than other types of investments. One way of classifying stocks is through market capitalization. Market capitalization, or market cap, measures a company s size by multiplying the number of shares outstanding by the stock s price. For example, if a company has 10 million shares outstanding at a price of $50 per share, the company s market cap is equal to $500 million. Market cap size is often categorized as: Mark Your Trail: Investing in Asset Classes Investment management style refers to the way professional money managers pick stocks. For instance, most stock fund managers pick stocks based on two styles: growth and value (or a blend of both). Some of your VRS defined contribution plans investments are noted as Growth, Value or Blend. Growth Style means stocks that are expected to produce above-average earnings growth. Value Style means stocks that are considered undervalued relative to several criteria. Blend Style means stocks that are a combination of both growth and value styles. 2 1 Government bonds and T-bills are guaranteed as to the timely payment of principal and interest if held to maturity. Fund shares are neither issued nor guaranteed by the US Government.

5 Large (referred to as large cap) Medium (referred to as mid or mid cap) Small (referred to as small cap) Major Types of Stocks Large-cap stocks are often called bluechip stocks, a term that comes from the highest valued chips on a poker table. They are stocks of well-established companies that generally pay steady dividends. The vast size and maturity of these companies can make them well positioned to weather inevitable economic downturns. Mid-cap stocks historically tend to get less attention than large-cap and small-cap stocks. In many cases, however, mid-cap companies are established, yet innovative and responsive, and have the potential for continued, healthy earnings growth. Their larger capitalization base tends to make them less risky than smaller-cap stocks, though they typically have slightly lower historical returns. Small-cap stocks have the potential for rapid acceleration in earnings and growth, such as Microsoft exhibited in its early stages. Small-cap stocks can be highly volatile, but the companies are often viewed as being on the cutting edge of their industries. Many small-cap companies effectively respond to market changes, but they may also have difficulty weathering economic downturns. International stocks are issued by companies outside of the United States. Whether you invest in the stock of a Japanese auto manufacturer, a German design firm or more volatile emerging markets, international stocks tend to have a high risk and return potential. Political climates may change and currency valuations may rise or fall. But international stocks may also offer you the opportunity to diversify into young, dynamic markets that are early in their growth cycle. International stocks also have the potential to help balance some of the risks of investing in U.S. stocks. For example, an economic downturn at home could be offset by stronger performances abroad, since the markets may be responding to different economic conditions. Collective Trusts and Mutual Funds Your Plans provide you with a wide array of investment options that include both mutual funds and collective trusts, which are very similar. When you invest in mutual funds, your money is pooled together with the money of other investors who have the same, or mutual, investment goals. Generally, each mutual fund has a team of professional money managers who perform the day-today tasks involved in the buying and selling of investments on behalf of the fund, based on the fund s investment philosophy and objective described in its prospectus or disclosure documents. Like a mutual fund, a collective trust is formed from the pooling of investments of institutional investors. Collective trusts have a team of professional money managers who perform the day-to-day tasks involved in the buying and selling of investments on behalf of the trust, based on the trust s investment philosophy and objective described in its declaration of trust. Where a mutual fund and collective trust differ is that a mutual fund primarily serves individual shareholders (retail market), while a collective trust is available only to institutional investors, such as employers who sponsor retirement plans (like VRS), foundations and endowments. Therefore, collective trusts tend to have lower fees and expenses than mutual funds because the employer can negotiate investment management fees with the investment manager. In addition, mutual funds and collective trusts are overseen by different regulatory bodies. Two Approaches to the Investment Trail Many of your VRS defined contribution plans investments are noted as passively managed or actively managed. These are terms for two primary investment management approaches. Passively managed investment options try to track the total return of a particular index. 2 An index tracks a particular group of investments that is representative of a market as a way of measuring that market s performance. For example, the Standard & Poor s (S&P) 500 Index is a market index of large-cap stocks only; it is the benchmark index 2 to which many large-cap stock managers compare their performance. Index investment options are designed to produce similar returns to those that investors would earn if they owned all the securities in a particular market index. They are often called passively managed because the securities included in a particular index determine how your money is invested not the research and discretion of a portfolio manager. Actively managed investment options try to produce higher returns than the benchmark index. Typically, a professional portfolio management team engages in regular in-depth research on the individual companies within a particular area of focus. A variety of research tools, financial analysis and personal expertise are used to determine which securities to buy and sell. Actively managed investment options tend to have higher fees than those that are passively managed. This is because you are paying the investment manager for his or her expertise and research in deciding which securities to buy or sell and for the potential of achieving higher returns. Actively managed investment options may also have higher fees due to more frequent trading of securities within the investment option than with a passively managed option. Investors need to be aware that there is no guarantee that the portfolio manager will accomplish the goal of producing higher returns than the benchmark. Mark Your Trail: Here Are a Few Common Market Indices Standard & Poor s (S&P) 500 Index. This unmanaged index, considered to be indicative of the broad domestic stock market in general, is comprised of 500 widely held U.S. stocks chosen by Standard & Poor s. Lehman Brothers Aggregate Bond Index. This unmanaged index, considered to be indicative of the broad domestic bond market in general, consists of government, corporate, mortgage-backed and asset-backed securities. MSCI EAFE Index. The Europe, Australasia and Far East Index from Morgan Stanley Capital International is an unmanaged index considered to be indicative of the broad foreign stock market in general; it is comprised of approximately 1,000 stocks in 20 countries in Europe and the Pacific Basin. 2 An index or benchmark index are not professionally managed, do not have a defined investment objective, and do not incur fees or expenses. Therefore, performance of an Index Fund will generally be less than its benchmark index. You cannot invest directly in an index. 3

6 UNDERSTANDING THE NATURE OF RISK Mark Your Trail: Know the Risks Associated with Investing Market Risk is the risk that the value of your investment will drop due to a decline in the financial markets. Business Risk is the risk that an investment will lose value because of a decline in a particular company or industry. Inflation Risk is the risk that your investments will lose value because their returns will not outpace the cost of living. Interest Rate Risk is the risk that if interest rates rise, the value of your investments will fall. Credit Risk is the risk that an investment s value will fall if its credit rating declines or, in the case of bonds, if the issuer fails to pay interest and principal in a timely manner. International Risk is the risk that international investments will lose value because of political, economic or currency instability. Not Investing is the risk that you will not have enough retirement income to do the things you need or want to do. Investing in your VRS defined contribution plans can help reduce this risk! By diversifying your retirement savings and investing in several different investments with different levels of risk, you can better protect your total return. When it comes to investing, there s no way to avoid risk. There s the risk of losing money if the market goes down (market risk) which it will from time to time. There s the risk of playing it too safe and not beating inflation (inflation risk). And there s the risk of not saving and investing at all and not having enough money for the retirement you envision for yourself. The fact is, there are many types of risks to be aware of as you formulate your saving investment strategy. Here are some ways you can help reduce risk: Diversify. The process of determining your investment strategy is known as asset allocation. Putting your money into a number of different types of investment options that include different types of asset classes can help reduce risk. Generally speaking, if your dollars are invested in materially different types of investments and market conditions cause one of your investments to not do well, all of your money won t be affected. Invest for the long term. The market will have ups and downs, but if you invest wisely and leave your investments to grow, you ll have a better chance of reaching your long-term investment goals. Be aware of being too cautious. Just as you should be aware of investing too aggressively, you should also be aware of being too cautious. When you re ready to retire, you ll most likely be living in a much more expensive world than today. If you don t diversify and instead invest all of your contributions in a conservative investment option, you run the risk that inflation will erode much of your investment gains. Knowing the type of investor you are is critical to building the investment mix that s right for you. Complete the following questionnaire to help you identify your risk tolerance and, ultimately, your investment style. 4

7 DISCOVERING YOUR TRUE NATURE Determine Your Risk Tolerance Circle the number that describes how strongly you agree or disagree with the following statements. 1. I am a knowledgeable investor who understands the trade-off between risk and return and am willing to accept a greater degree of risk for potentially higher returns. Disagree Agree 2. I am willing to invest on a long-term basis. Disagree Agree 3. If one of my investments dropped 20% in value over six months due to a stock market fluctuation, I would hold on to that investment, expecting it to recover its value. Disagree Agree 4. I have personal savings vehicles in addition to my VRS defined contribution plan that make me feel secure about my financial future. Disagree Agree What s Your Nature? Use the following information as a general guide in determining your investing style. 4-8 Points: Conservative Investing Style. You re an investor who likes safety and stability for your money. But remember: Not having enough money when you retire is a big risk, too! Keep in mind how much time you have until retirement and the effect that inflation may have on your investments Points: Moderate Investing Style. You re an investor who likes some balance between lower-risk investments and higher-risk investments. Review your situation at least once a year to make sure you re still comfortable with how you re dividing up your money Points: Aggressive Investing Style. You re an investor who s comfortable with taking on the higher risk associated with the chance for higher returns. Review your situation at least once a year and keep in mind how much time you have until retirement. Keep your investing style in mind as you review and consider the VRS defined contribution plans investment options on the following pages. Add up the numbers you circled above for your total score:. Turn to the next section to explore your tools for the investment trail. 5

8 TOOLS FOR THE INVESTMENT TRAIL VRS is responsible for selecting and monitoring the core investments offered in your VRS defined contribution plans. There is a range of investments that can help you build an investment strategy that s right for you. The investment options are organized into four distinct tiers representing different overall investment approaches. Depending upon your own preferences, you can mix and match investment options within each tier to help you meet your investment return objectives, risk tolerance and overall investing style. Tier I: Pre-Mixed Asset Allocation Funds Tier II: Passively Managed Funds Tier III: Actively Managed Funds Tier IV: Self-Directed Brokerage Account Option 1. Income & Growth Fund A passively managed fund that seeks to provide income and a modest level of capital growth. This Fund invests in a combination of bonds and stocks with a goal of providing long-term total returns that are slightly higher than inflation, with the possibility of occasional shortterm losses. The Fund is pre-mixed with the asset class weightings to the right. U.S. Stocks: 22% Income & Growth Fund Foreign Stocks: 3% U.S. Bonds: 75% 6 Remember that by investing in different Tiers, you are not automatically diversifying your investment portfolio. Please refer to the Fund Profile Sheets to ensure you are getting the diversification you desire by reviewing the top holdings of each fund. Tier I: Pre-Mixed Asset Allocation Funds The VRS defined contribution plans offer three distinct passively managed asset allocation funds in this tier, each representing a different potential risk versus return profile designed to track their respective market indices. Investment professionals maintain a pre-mixed weighting of specific asset classes (for example, U.S. bonds, U.S. stocks and foreign stocks, 3 ) to create an asset allocation fund in each investment option. These professionals monitor performance on an ongoing basis and make adjustments as needed to maintain the pre-mixed weightings of these specific asset classes. These asset allocation funds may be most appropriate for those investors who may want to simplify the asset allocation process. 2. Balanced Growth Fund A passively managed fund that seeks to provide income and a modest level of capital growth. This Fund invests in a combination of bonds and stocks with a goal of providing long-term total returns that are higher than inflation, with the possibility of short-term losses. The Fund is pre-mixed with the asset class weightings to the right Long-Term Growth Fund A passively managed fund that seeks to provide capital growth. This Fund invests in a combination of bonds and stocks with a goal of providing long-term total returns that are higher than inflation, with the possibility of significant short-term losses. The Fund is pre-mixed with the asset class weightings to the right. U.S. Stocks: 43% U.S. Stocks: 64% Balanced Growth Fund Foreign Stocks: 7% Long-Term Growth Fund U.S. Bonds: 50% Foreign Stocks: 11% U.S. Bonds: 25%

9 Tier II: Passively Managed Funds Investors seeking to track the total return performance of the various market indices may want to consider choosing from among the investment options in this tier. For a general overview of a passively managed investment approach, please review page 3 of this Investment Guide. Bond Index Fund Fund Type: Bond The Fund seeks to track the total return performance of the Lehman BrothersAggregate Bond Index. This Index is an unmanaged index considered to be indicative of the broad domestic bond market in general, and it consists of government, corporate, mortgage-backed and assetbacked securities. S&P 500 Index Fund Fund Type: Large-Cap Stock (Blend) The Fund seeks to track the performance of the S&P 500 Index. This Index is an unmanaged index considered to be indicative of the large-cap domestic stock market in general, and it is comprised of 500 widely held U.S. stocks chosen by Standard & Poor s. Russell 1000 Value Index Fund Fund Type: Large-Cap Stock (Value) The Fund seeks to track the performance of the Russell 1000 Value Index. This Index is an unmanaged index considered to be indicative of the value-oriented domestic stock market in general, and it is comprised of stocks in the Russell 1000 that have lower price-to-book ratios and lower forecasted growth values. Russell 1000 Growth Index Fund Fund Type: Large-Cap Stock (Growth) The Fund seeks to track the performance of the Russell 1000 Growth Index. This Index is an unmanaged index considered to be indicative of the growth-oriented domestic stock market in general, and it is comprised of stocks in the Russell 1000 that have higher price-to-book ratios and higher forecasted growth values. Russell 3000 Index Fund Fund Type: Broad Stock Market The Fund seeks to track the performance of the Russell 3000 Index. This Index is an unmanaged index considered to be indicative of the broad domestic stock market in general, and it is comprised of the 3,000 largest stocks in the U.S. market and accounts for approximately 98% of the U.S. stock market capitalization. Real Estate Investment Trust Index Fund Fund Type: REITs The Fund seeks to create a portfolio of securities which replicates, as closely as possible, the returns and characteristics of the Dow Jones Wilshire REIT Index. This Index is an unmanaged capitalization-weighted index of publicly traded real estate investment trusts chartered for the equity ownership and operation of commercial real estate. Small/Mid-Cap Equity Index Fund Fund Type: Small 4 /Mid-Cap Stock (Blend) The Fund seeks to track the performance of the Russell Small-Cap Completeness Index. This Index is an unmanaged index considered to be indicative of the small- to mid-cap stock market in general. International Equity Index Fund 5 Fund Type: International Stock 3 The Fund seeks to track the performance of the Morgan Stanley Capital International Europe, Australasia and Far East Index (MSCI EAFE Index). This Index is an unmanaged index considered to be indicative of the broad foreign stock market in general, and it is comprised of stocks in 21 countries in Europe and the Pacific Basin. 3 Foreign investments involve special risks, including currency fluctuations and political developments. 4 Equity securities of companies with relatively small market capitalizations may be more volatile than securities of larger, more established companies. 5 If you transfer money out of the International Equity Index Fund, you will not be able to transfer money back into the International Equity Index Fund from any of the investment options for a period of 90 calendar days. 7

10 TOOLS FOR THE INVESTMENT TRAIL Tier III: Actively Managed Funds Investors seeking to exceed the total return performance of the various market indices may want to consider choosing from among the investment options in this tier. For a general overview of an actively managed investment approach, please review page 3 of this Investment Guide. Money Market Fund Fund Type: Cash Equivalent The Fund seeks to provide short-, medium- and long-term returns that provide a high level of current income while preserving capital. The Fund invests in U.S. Treasury and agency obligations, commercial paper, repurchase agreements, certificates of deposit, bankers acceptances, time deposits and floating rate notes. The maximum maturity of any instrument is 13 months. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Stable Value Fund Fund Type: Stable Value The Fund seeks to provide safety of principal and a stable credited rate of interest, while generating competitive returns over time compared to other conservative investments, such as money market funds or short-term yields available in the fixed income (bond) market. An equity wash restriction will be imposed on transfers between the Stable Value Fund and competing funds. You will not be allowed to transfer dollars directly from the Stable Value Fund to a competing fund and vice versa. Dollars must be transferred into a non-competing fund and remain there for 90 days before they can be transferred to or from the Stable Value Fund or a competing fund. Refer to the Stable Value Fund Profile Sheet for a list of competing funds. Active Inflation-Protected Bond Fund Fund Type: Inflation-Indexed Bonds The Fund seeks to provide inflation protection and income consistent with investment in inflation-indexed securities and to provide long-term returns that exceed the performance of the Lehman Brothers U.S. Treasury Inflation Notes Index. This Index is an unmanaged index that is indicative of the inflation-indexed bond market in general. Active Bond Fund Fund Type: Bond The Fund seeks to provide long-term returns that exceed the performance of the Lehman Brothers Aggregate Bond Index. This Index is an unmanaged index considered to be indicative of the broad domestic bond market in general, and it consists of government, corporate, mortgage-backed and asset-backed securities. Active High-Yield Bond Fund Fund Type: High-Yield Bond The Fund seeks to provide a high level of current income and long-term returns that exceed the performance of a custom benchmark. Although they have higher return potential, high-yield bonds are also subject to greater risk, including the risk of default, compared to higher rated securities. Active Global Equity Fund Fund Type: Global Stock The Fund seeks to provide long-term growth of capital with current income by investing primarily in common stocks all over the world, including the United States, and to provide long-term returns that exceed the performance of the MSCI World Index. This Index is an unmanaged index considered to be indicative of the global developed market in general. Active Small/Mid-Cap Equity Fund Fund Type: Small 4 /Mid Cap Stock (Blend) The Fund seeks to provide long-term returns that exceed the performance of the Russell Small Cap Completeness Index. This Index is an unmanaged index considered to be indicative of the smallto mid-cap stock market in general. Please consider the investment objectives, risks, fees and expenses carefully before investing. For this and other important information, you may obtain Investment Option Performance, Fund Profile Sheets, mutual fund prospectuses and disclosure documents from your registered representative or the Web site at Contact the SDB provider for the prospectuses on funds offered through the SDB. Read them carefully before investing. You may also refer to the SDB Fund Profile Sheet at for additional details and contact information.. 8

11 Tier IV: Self-Directed Brokerage Account Option The Virginia Retirement System has worked hard to provide an investment offering that meets the needs of most participant investment strategies. The Self-Directed Brokerage (SDB) Account option allows you to select from thousands of publicly traded funds in addition to your VRS Plans core investment options. The SDB option is for knowledgeable and experienced investors who acknowledge and understand the risks and costs associated with the funds available through this option. Please refer to the Fund Profile Sheet for more detailed information on this option. Please note that securities available through this option are not offered through GWFS Equities, Inc. and have not been reviewed for suitability by VRS, Great-West Retirement Services SM or your employer. Risk vs. Return Stable Value Funds Cash Equivalents Lower Risk/Return Potential Higher Risk/Return Potential Self-Directed Brokerage Account Option* International Stocks Domestic Stocks Bonds * The SDB option has been rated highest in risk potential because there has been no review of the options from which you may select. This graph is for illustrative purposes only and represents market risk vs. return. 9

12 STRETCH YOUR INVESTING WINGS You are almost ready to choose the investment options that will start you on the path to achieving your retirement goals. But first, let s review the key components of a sound investment strategy. The Three Ts The investment strategy that may be right for you depends on three things: your savings Target, your Time horizon and your Tolerance for risk. Your Savings TARGET In choosing your investment strategy, consider the amount of money you want to save and invest, as well as any other retirement plans or assets you or your spouse might have. For example, if your goal is to accumulate a large amount of money, you might consider riskier investments that might have higher earnings potential over the long term. Keep in mind that saving and investing through your Plans may be only one of your financial goals. You may have other financial goals, both short and long term. Be sure to balance all of your goals when making investment decisions. Your TIME Horizon The amount of time you have to invest in your Plans before you start making withdrawals is also very important. If you are many years away from retirement, you may be willing to take more risk with your money and invest more aggressively. When you re closer to retirement, your investment strategy may lean more toward investments with less risk because they ll have less time to recover should they fall in value. You may have many years in retirement, so you might consider the benefits of maintaining some assets in investments that are likely to outpace inflation and provide some growth. 10

13 Your Risk TOLERANCE Risk tolerance is your comfort level with the ups and downs in the value of your investments. You don t want to lose sleep if your account value declines; however, you ll also need to earn a rate of return that is appropriate for your goals. You need to create an investment mix that provides a balance between safety and growth that you are comfortable with and that will help you work toward your goals. Choose Your Investments Carefully consider the investment style you determined for yourself on page 5 and review the investment options described on pages 6 9, as well as the Fund Profile Sheets and prospectuses available on the Web site at Your Risk Tolerance Score from Page 5:.. Once you re ready, fill in the chart below with a list of your investment options and allocation percentages. Please consider the investment objectives, risks, fees and expenses carefully before investing. For this and other important information, you may obtain mutual fund prospectuses and disclosure documents from your registered representative or the Web site at Contact the SDB provider for the prospectuses on funds offered through the SDB. Read them carefully before investing. You may also refer to the SDB Fund Profile Sheet at for additional details and contact information. You can also visit the Web site at or contact your local Great-West Retirement Services representative to review the Fund Profile Sheets. And remember: This is just a starting point. You should make adjustments to your account as your financial goals or comfort level with risk change. NAME OF INVESTMENT ALLOCATION %. % % % % It s wise to review your saving and investment strategy at least annually. Choose an easy-to-remember date such, as your birthday or at the start of the new year. Once enrolled, you can regularly make transactions, obtain investment option information and review your account online at Please note that you have several different investment options from which to choose, and there is no limit to the number of funds in which you may invest. 11

14 FINANCIAL TERMS: A QUICK REFERENCE Assets. Anything owned that has monetary value or can be exchanged for monetary value (a house or car, for example). Capital. Money available for investment purposes. Capital Gain (or Loss). An increase (or decrease) in value, for example, of a stock or mutual fund, resulting from favorable (or unfavorable) investment performance. This may also be expressed as appreciation (or depreciation). Diversification. Spreading your money among different types of investments, such as stocks, bonds or cash equivalents. Dividend. A payment to shareholders that represents their share of a fund s or company s distributed earnings. Earnings. A company s or fund s profit after paying all costs, expenses and taxes. Expense Ratio. A ratio for comparing an investment option s efficiency by dividing its expenses by its net assets. Growth Investment Option. A portfolio with growth or capital appreciation as its primary goal or companies that reinvest most of their earnings for expansion, research or development. Income. Interest or dividends earned from an investment. Income is automatically reinvested in a participant s plan account. Index. A benchmark against which financial or economic performance may be measured, such as the S&P 500 or the Consumer Price Index. Interest. Money a borrower pays to a lender as the cost of using its money, expressed as a percent per period of time. The period of time is usually one year, in which case it is called an annual rate of interest. Investment Objective/Goal. A statement of the goals an investment option seeks to achieve through its investments. Generally, investors match their financial objectives with investment options that have similar goals, balanced with the investor s risk tolerance. Liquidity. A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. A liquid asset is easily turned into cash. Market Capitalization (Market Cap). The current value or price of a stock multiplied by the number of shares outstanding. For example, if a company has 1 million shares available and the price is $10 per share, market cap is $10 million. Price-to-Book (P/B) Ratio. The ratio of stock price to per-share stockholders equity. Price-to-Earnings (P/E) Ratio. The most common measure of how expensive a stock is. Equal to a stock s capitalization divided by its after-tax earnings over a 12-month period. Principal. The original amount invested, not including interest or dividends on that amount. Prospectus. The printed statement describing a particular mutual fund to prospective investors. It explains overall investment goals, investment strategy, fund expenses, excessive trade restrictions, redemption fees and the potential risk and reward of investing in the fund. Total Return. The profit or loss on an investment over a specific period of time. Total return includes income and share price appreciation and depreciation. Total return assumes that all dividends and capital gains paid during the period are reinvested to buy additional shares. Value Investment Option. A portfolio seeking to buy stocks that are at a discount to their fair value and sell them at or in excess of that value. Often a value stock has a low P/B ratio. Volatility. A measure of price or interest rate fluctuations over a given period of time. 12

15 CONVENIENT ACCOUNT MANAGEMENT You have round-the-clock access to your account through the Web site at or KeyTalk, the toll-free voice response system at (866) All you need is your Social Security number and your Personal Identification Number (PIN). 7 Web Site Visit to: View your account balance, allocations and transactions Transfer between funds 6 Change the way your future contributions are invested Obtain daily unit/share values and other investment option information, including Fund Profile Sheets and prospectuses. Use financial calculators and tools, such as DreamTracker SM, Rebalancer and Dollar Cost Averaging Order a new PIN or personalize your PIN KeyTalk Call KeyTalk at (866) to: Speak to a customer service representative Obtain your account balance, allocations and transactions Transfer between funds 6 Change the way your future contributions are invested Obtain daily unit/share values Order a new PIN or personalize your PIN Local Service Dedicated registered representatives are available to discuss any Plan-related questions about such topics as: Enrollment Distribution options Investment options Or any other questions you may have Visit the Great West Retirement Services Local Service Center at: 1108 E. Main Street Suite 1102 Richmond, VA Or call toll free at: (866) , option 2, or (804) Office hours are Monday through Friday, 8:00 a.m. to 5:00 p.m. Eastern Time. 6 Access to KeyTalk and the Web site may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/maintenance or other reasons. Transfer requests made via the Web site or KeyTalk received on business days prior to close of the New York Stock Exchange (4:00 p.m. Eastern Time or earlier on some holidays or other special circumstances) will be initiated at the close of business the same day the request was received and may be subject to transfer restrictions. The actual effective date of your transaction may vary depending on the investment option selected. 7 The account owner is responsible for keeping the assigned PIN confidential. Please contact Great- West Retirement Services immediately if you suspect any unauthorized use. 13

16 Great-West Retirement Services SM refers to products and services provided by Great West Life & Annuity Insurance Company and its subsidiaries and affiliates. Securities (except the Self-Directed Brokerage Account option), when offered, are offered through GWFS Equities, Inc., a wholly owned subsidiary of Great West Life & Annuity Insurance Company. Great West Retirement Services SM, KeyTalk, The Nature of Investing and DreamTracker SM are service marks of Great West Life & Annuity Insurance Company. All rights reserved. Not intended for use in New York. Securities available through the Self-Directed Brokerage Account option are offered by Ameritrade, Inc. Additional information can be obtained by calling Ameritrade at (866) Employees of Great West Retirement Services and the Virginia Retirement System are not registered investment advisers and cannot offer legal, tax or financial planning advice. Please consult with your financial planner, attorney and/or tax adviser as needed. For more information, call Great West Retirement Services at (866) , option 2. Once enrolled in your Plan(s), you can review your account, make changes and more online at Form# CB1007IG (08/01/2006) Copyright 2006 Great West Retirement Services

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