Changes to the Farmers Group, Inc. 401(k) Savings Plan s investment lineup. Frequently asked questions and definitions of common investment terms

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1 Changes to the Farmers Group, Inc. 401(k) Savings Plan s investment lineup Frequently asked questions and definitions of common investment terms Beginning July 1, 2013, you ll have a new lineup of investments in the Farmers Group, Inc. 401(k) Savings Plan. The new lineup was designed to help you more easily build a diversified portfolio for retirement while still enjoying the same great Plan benefits you have today, including the dollar-fordollar match Farmers makes on the first 6% of earned base pay you contribute. This document provides details about the new investment lineup and how the changes will affect you. Please read on for more information. About the new investment lineup Q. Why are my funds changing? A. Farmers periodically reviews the investments available in the Farmers Group, Inc. 401(k) Savings Plan to make sure they meet participants needs. As a result of a recent review, the company decided to make some changes to the current investment lineup. On July 1, 2013, Farmers will introduce a new lineup of investments that will offer you a simplified, costeffective way to build a diversified portfolio for your retirement savings. The new lineup was designed to give all employees both novice and experienced investors the building blocks to build a diversified portfolio and the educational tools you ll need to make informed investment decisions for your future. Keep in mind that while Farmers has chosen the Plan s investment lineup, it s still up to you to take advantage of your choices and develop an investment strategy that meets your needs and risk tolerance. Q. What changes will be made to the investment lineup? A. The 401(k) Savings Plan s existing funds will be replaced by new investments on July 1, The new investments will be divided among three groups to help ease the decision process: Option A: All-In-One Target Retirement Trusts give you a diversified portfolio in just one investment. The lower-cost trusts replace the Target Retirement Funds currently offered in the 401(k) Savings Plan Option B: Do-It-Yourself Investments let you build your own diversified portfolio Option C: Open Choice Vanguard Brokerage Option is the same brokerage option currently available in the 401(k) Savings Plan. It gives experienced investors greater flexibility All investing is subject to risk, including the possible loss of the money you invest. Investments in Target Retirement Trusts are subject to the risks of their underlying funds. The year in the trust name refers to the approximate year (the target date) when an investor in the trust would retire and leave the workforce. The trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Trust is not guaranteed at any time, including on or after the target date. Q. What investment options are in Option A? A. Option A features 12 Vanguard Target Retirement Trusts. The trusts are similar to the 12 Vanguard Target Retirement Funds currently offered in the 401(k) Savings Plan but are available at a lower cost to invest. You may want to consider investing in just one Target Retirement Trust. A single Target Retirement Trust provides diversification and is designed to keep your assets invested appropriately for someone in your stage of life, up to and including your retirement years. Even though Target Retirement Trusts simplify the investment process, they still require some monitoring to ensure that your portfolio is in line with your current risk tolerance. Consider choosing the trust with the target date that s closest to the year when you expect to retire. If you are already retired, consider choosing Vanguard Target Retirement Income Trust I. This trust is designed to provide retirees with current income and some capital appreciation.

2 Each Target Retirement Trust invests in several broadly diversified Vanguard funds. Diversification does not ensure a profit or protect against a loss in a declining market. Potential fund choice Intended for investors retiring in... Vanguard Target Retirement 2060 Trust I 2058 or later Vanguard Target Retirement 2055 Trust I 2053 to 2057 Vanguard Target Retirement 2050 Trust I 2048 to 2052 Vanguard Target Retirement 2045 Trust I 2043 to 2047 Vanguard Target Retirement 2040 Trust I 2038 to 2042 Vanguard Target Retirement 2035 Trust I 2033 to 2037 Vanguard Target Retirement 2030 Trust I 2028 to 2032 Vanguard Target Retirement 2025 Trust I 2023 to 2027 Vanguard Target Retirement 2020 Trust I 2018 to 2022 Vanguard Target Retirement 2015 Trust I 2013 to 2017 Vanguard Target Retirement 2010 Trust I 2008 to 2012 Vanguard Target Retirement Income Trust I* 2007 or earlier *The Income Trust is designed for retirees who will be making withdrawals. For more information, visit the 401(k) Savings Plan s Target Retirement Trust website at Q. Can I invest in more than one Target Retirement Trust? A. Nothing prevents you from investing in more than one trust. However, each trust is designed to be an all-in-one investment, meaning you can have a diversified portfolio in just one trust. Q. How do Target Retirement Trusts differ from the current Target Retirement Funds? A. Target Retirement Trusts have lower expense ratios than Target Retirement Funds. An expense ratio is the cost of running an investment, expressed as a percentage of the investment s assets, as of the most recent fiscal year. Expense ratios are important because, quite simply, cost matters. Reducing an investment s expense ratio can earn you a higher net return because expenses are deducted before you get your return. While you may not notice much difference in the short term, the difference becomes more pronounced the more you save and the longer you keep the money invested. Q. What investment options are in Option B? A. There are five funds in Option B. If you have some investing experience, you can use these funds to build your own mix of stocks, bonds and short-term reserves to fit your investment goals and risk tolerance. Farmers Active Stable Value Fund is a short-term reserve fund Farmers Active Bond Fund is an actively managed bond fund Farmers Bond Index Fund is a bond index fund Farmers Active Stock Fund is an actively managed stock fund Farmers Stock Index Fund is a stock index fund Note: Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer s ability to make payments. Stocks represent partial ownership in a corporation. Historically stocks have yielded the highest returns over the long term, but they can also experience prolonged downturns. They are considered riskier than other types of investments because stock prices can move unpredictably based on the issuing company s performance, market swings and the state of the economy.

3 Q. The new Option B funds are considered more comprehensive than the mutual funds in the current lineup. What does that mean? A. The new Farmers Funds within Option B are considered more comprehensive than a single mutual fund because each fund holds multiple asset classes. This provides diversification and enhanced risk/return characteristics. Q. Some of the Option B funds are called active funds and others index funds. Why? A. Each investment in Option B has active or index in its name to tell you the investment style for that fund: Index funds generally use a buy-and-hold strategy to try to track the performance of a given market. In other words, these funds replicate as closely as possible a particular index (for example, the S&P 500). Index funds generally cost less to run than actively managed funds. Active managers try to outperform the market, for example, by buying and selling individual stocks frequently. Option B s index funds are Farmers Bond Index Fund and Farmers Stock Index Fund. Actively managed funds employ managers to select specific investments with the goal of outperforming an investment benchmark (for example, the S&P 500). Because more work goes into researching and choosing specific investments, an actively managed fund can cost more to run than passively managed (index) funds. Option B s actively managed funds are Farmers Active Stable Value Fund, Famers Active Bond Fund and Farmers Active Stock Fund. Q. I don t see an international fund. Can I invest in stocks and bonds from other countries? A. No fund invests solely in international stocks or bonds. However, many of the investments in the new lineup invest globally, meaning each investment holds domestic and foreign stocks or bonds. For information about a fund s current holdings, please reference the fund s fact sheet. You can obtain fact sheets for the funds at any time by logging on to your account at vanguard.com on or after July 1, Note: Investments in stocks or bonds issued by non-u.s. companies are subject to risks including country/regional risk and currency risk. Q. Why can t I find information about Option B funds online or in the newspaper? A. The five Option B funds were established just recently for 401(k) Savings Plan participants. Because these funds are not available to the general public, there will be no information about them on investment websites or in newspapers. You can obtain fact sheets for the funds at any time by logging on to your account at vanguard.com on or after July 1, Because the funds were recently established, historical performance information will not be available. Q. What investment options are in Option C? A. Option C is the same Vanguard Brokerage Option (VBO ) currently offered in the 401(k) Savings Plan. This option lets you open a brokerage account and access thousands of mutual funds from hundreds of fund families. You can invest up to 100% of your account balance in the VBO. Keep in mind that this option might be best for experienced investors. The risks are substantially higher with this strategy, and you ll be responsible for paying commissions and other costs for your VBO account. If you decide this option is right for you, you must complete a VBO application to open your brokerage account. To obtain a copy of the application, contact a Vanguard Participant Services associate at (800) Monday through Friday from 5:30 a.m. to 6 p.m., Pacific time.

4 Q. Can I invest in multiple options? A. Yes. The 401(k) Savings Plan s new investment lineup is designed with flexibility in mind. Options A and B were created to give you the ability to build a diversified portfolio using only the investments in each option. But if you wish, you can choose investments from both options. Option C lets you further diversify your portfolio by opening a brokerage account to invest solely in mutual funds not offered in the 401(k) Savings Plan or as a supplement to your Option A or B investments. Q. Who will manage the new funds? A. Some asset managers from the current line up and some new partners will manage the new funds. We worked with a leading 401(k) consulting firm, Towers Watson, to carefully review and hire asset managers that fit well with the objectives of each fund. We then hired a mix of large firms, medium-sized firms, and smaller, boutique-sized firms to manage the different asset classes within each fund. Fund option Asset manager Mandate (what the firm manages) Vanguard Target Retirement Trusts Vanguard Multiple asset classes aligned with a target retirement date Farmers Active Bond Fund BlackRock PIMCO Wellington U.S. bonds index Global bonds active Global bonds active Farmers Bond Index Fund BlackRock U.S. bonds index BlackRock Cupps Capital Management Large-cap index Small-cap growth active Farmers Active Stock Fund Metwest Capital Management Small-cap value active American Century International growth active Mondrian Investment Partners BlackRock International value active Emerging markets index Farmers Stock Index Fund BlackRock U.S. & non-u.s. stocks index Farmers Active Stable Value Fund Deutsche Bank Stable value active Your existing investments Q. What will happen to my existing investments? A. Balances in, and contributions to, the existing funds will be directed automatically to new investments, as outlined in the chart below: Your money will move from here... To here... Vanguard Target Retirement 2060 Fund Vanguard Target Retirement 2060 Trust I Vanguard Target Retirement 2055 Fund Vanguard Target Retirement 2055 Trust I Vanguard Target Retirement 2050 Fund Vanguard Target Retirement 2050 Trust I Vanguard Target Retirement 2045 Fund Vanguard Target Retirement 2045 Trust I Vanguard Target Retirement 2040 Fund Vanguard Target Retirement 2040 Trust I Vanguard Target Retirement 2035 Fund Vanguard Target Retirement 2035 Trust I Vanguard Target Retirement 2030 Fund Vanguard Target Retirement 2030 Trust I Vanguard Target Retirement 2025 Fund Vanguard Target Retirement 2025 Trust I Vanguard Target Retirement 2020 Fund Vanguard Target Retirement 2020 Trust I Vanguard Target Retirement 2015 Fund Vanguard Target Retirement 2015 Trust I Vanguard Target Retirement 2010 Fund Vanguard Target Retirement 2010 Trust I

5 (Continued) Your money will move from here... To here... Vanguard Target Retirement Income Fund Vanguard Target Retirement Income Trust I Farmers Fund A Stable Value Farmers Active Stable Value Fund PIMCO Total Return Fund Administrative Class Farmers Active Bond Fund Farmers Fund B Balanced Fund 40% to Farmers Active Bond Fund 60% to Farmers Active Stock Fund Vanguard Institutional Index Fund Institutional Shares Janus Research Fund Class T Shares MFS Value Fund Class R4 Shares DFA US Targeted Value Portfolio R1 Class Farmers Active Stock Fund Vanguard Small-Cap Growth Index Fund Institutional Shares American Funds EuroPacific Growth Fund Class R-5 Note: If you have a brokerage account, no changes will be made to your existing brokerage holdings. Q. My money isn t transferring to an index fund. How do I invest in them? A. While no money will be transferred automatically to Farmers Bond Index Fund or Farmers Stock Index Fund, you can redirect your money to one or both funds at any time on or after July 1, Simply contact Vanguard to make an investment change, using the instructions provided below. Q. What do I need to do before the investment changes are made? A. You are not required to take action. Your money will be mapped to the new investments automatically. After the conversion on July 1, 2013, you will be able to change your elections and choose the options that are right for you. Make your investment change by contacting Vanguard: Online. Log on to your account at vanguard.com and select Manage my money on the left side of the page. Not yet registered for immediate, secure online account access? You will need your 401(k) Savings Plan number: By phone. Call Vanguard s 24-hour interactive VOICE Network at (800) You will need a personal identification number (PIN) to use VOICE. To create a PIN, follow the prompts. With personal assistance. Vanguard Participant Services associates are available at (800) (hearing-impaired: (800) ) Monday through Friday from 5:30 a.m. to 6 p.m., Pacific time. Q. I like my existing investments. Can I keep them? A. You can continue investing in the 401(k) Savings Plan s existing fund options (excluding Farmers Fund B) by picking Option C and opening a VBO account. Remember that you will pay more for this option because of the commissions and account fees associated with a brokerage account. Note: You may not be eligible to invest in the same share classes offered for some of the 401(k) Savings Plan s existing funds because of the minimum investment requirements for the share classes. Because of its size, the Farmers Group, Inc. 401(k) Savings Plan qualifies for special share classes that are not typically available to individual investors.

6 Q. I do not know which investments to choose. How do I get help? A. You have access to a number of advice services through the 401(k) Savings Plan. Vanguard s Investor questionnaire can help you build your own portfolio from your 401(k) Savings Plan s fund options. If you want some guidance but also want to maintain control over your investing, then complete the Investor questionnaire at vanguard.com/assetmix. Your results will give you suggestions for an appropriate investment mix. The suggestions are based on your investment goals, time horizon, and comfort with risk. You can use the suggested investment mix to help you build a mix of funds. Personal Online Advisor, powered by Financial Engines, can help you choose funds. For investment advice about your personal investments and an unbiased evaluation of your chances of reaching your financial goals, log on to your account at vanguard.com and click Review my performance. Then select Get help planning for retirement and choose Do It Yourself. (If you have multiple accounts at Vanguard, you may need to select Employer plans after you log on.) Personal Online Advisor is a powerful online service developed by Nobel Prize-winning economist William F. Sharpe and a team of leading software and finance experts. Farmers and Vanguard offer Personal Online Advisor to Farmers employees at no cost. Plus, your 401(k) Savings Plan information is automatically loaded into your Financial Engines account. Experts from Vanguard Financial Planning Services can choose funds for you. If you are age 50 or older, you can get customized financial advice delivered by a professional financial planner. This comprehensive financial planning service can cost up to $1,000. But it s free to participants age 50 or older! For information, call (800) Monday through Friday from 5 a.m. to 5 p.m., Pacific time. A Vanguard planner can prepare a blueprint for your investments that will show you exactly what to do to help you reach your long-term goals, including a more comfortable retirement. Vanguard s investment advisors are salaried professionals who receive no commission for their recommendations. Have your account managed by Vanguard Asset Management Services. Team up with a personal investment manager who will give you and your money the attention you deserve. Your investment manager will create a customized investment and spending program designed to help preserve your wealth and help meet your investment goals. Your manager will provide ongoing asset management of your portfolio. In addition, Vanguard Asset Management Services can provide trustee, trust administration, and wealth planning services to meet your and your family's financial needs. The fee is based on a percentage of your total assets under management ($4,500 minimum annual fee). A minimum of $500,000 is necessary to establish an Asset Management Services relationship. For eligibility information, please call (800) Connect with Vanguard For more information about the new investment lineup, go to the Get Smart website at If you have any questions about the investment changes or your 401(k) Savings Plan account, call a Vanguard Participant Services associate at (800) (hearing-impaired: (800) ) Monday through Friday from 5:30 a.m. to 6 p.m., Pacific time.

7 Common investment terms Term Actively managed fund Bonds Brokerage account Diversification Expense ratio Index fund Investment mix Mutual fund Short-term reserves Stocks Definition An actively managed fund attempts to outperform the average returns of the financial markets. Fund managers rely on research, market forecasts and their own judgment in selecting securities to buy and sell. Generally, actively managed funds cost more to run than index funds. Bonds are loans to a company, government, or government agency. The issuer of the loan agrees to repay the principal and also may make regular interest payments along the way. If interest rates increase, bond prices usually fall. (Conversely, if rates fall, bond prices generally go up.) Bonds also face credit risk and the risk of default by the issuer. A brokerage account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. Keep in mind that investments in a brokerage account through your 401(k) Savings Plan are limited to mutual funds. You cannot invest in individual stocks and bonds. Diversification is a strategy of investing in different types of investments (stocks, bonds and short-term reserves) in an attempt to lower overall investment risk. The expense ratio is the cost of running an investment, expressed as a percentage of the fund s assets, as of the most recent fiscal year. In other words, the expense ratio is figured into the value of the fund, not deducted directly from your account. An index fund is a type of investment that seeks to track the performance of a particular market index (for example, the S&P 500) by buying or holding all or most of the securities that appear in that index. Because the fund managers are not actively choosing securities and are not turning over the investments in the fund too frequently, index funds often have lower expense ratios than actively managed funds. Your investment mix is the blend of stocks, bonds and short-term reserves in your account. A mutual fund is a pool of money from many shareholders that is invested in a variety of securities. Each investor owns a number of shares of the fund proportionate to his or her investment, and can buy or sell those shares at any time. The fund is professionally managed by an investment company in an effort to achieve a specific investment objective. Short-term reserves seek to preserve the money you invest and pay you interest. Because short-term reserves are conservative, they usually generate the lowest returns and are vulnerable to the effects of inflation. Stocks represent partial ownership in a corporation. Historically stocks have yielded the highest returns over the long term, but they can also experience prolonged downturns. Stocks are considered riskier than other types of investments because stock prices can move unpredictably based on the issuing company s performance, market swings and the state of the economy.

8 For more information about any fund, including investment objectives, risks, charges and expenses, call Vanguard at (800) to obtain a prospectus. The prospectus contains this and other important information about the fund. Read and consider the prospectus information carefully before you invest. You can also download Vanguard fund prospectuses at vanguard.com. An investment in a stable value fund is neither insured nor guaranteed by the U.S. government. There is no assurance that the fund will be able to maintain a stable net asset value, and it is possible to lose money by investing in the fund. Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a subsidiary of The Vanguard Group, Inc. The Vanguard Group has partnered with Financial Engines Advisors LLC to provide subadvisory services to Personal Online Advisor. Financial Engines Advisors LLC is an independent, federally registered investment advisor that does not sell investments or receive commission for the investments it recommends. Advisory services are provided by Vanguard Advisers, Inc. (VAI), a federally registered investment advisor and an affiliate of The Vanguard Group, Inc. (Vanguard). Vanguard is owned by the Vanguard funds, which are distributed by Vanguard Marketing Corporation, a registered broker-dealer affiliated with VAI and Vanguard. Neither Vanguard, Financial Engines, nor their respective affiliates guarantee future results. Vanguard Financial Planning Services are provided by Vanguard Advisers, Inc., a federally registered investment advisor. Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency. Vanguard Brokerage Services is a division of Vanguard Marketing Corporation, Member FINRA. Financial Engines is a trademark of Financial Engines, Inc The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor of the Vanguard Funds. BBBBGCRS