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A Newsletter for the State of Connecticut Deferred Compensation Plan

August 2002

State Comptroller Nancy Wyman Deciding how to invest your plan contributions can be difficult. Financial experts agree that the most effective investment strategies include diversifying investments - that is, spreading out your investments - across broad asset classes. Read this issue to learn what asset classes are and the risks - and rewards - associated with each class.
State Comptroller
Nancy Wyman

Diversifying Plan Contributions: 

A Key to Investment Success

Diversifying, or spreading, your investments over different asset classes is an important step in building a successful retirement savings strategy. In fact, studies have shown that a primary factor in determining the overall value of an investment portfolio is the way you mix investments among the different asset classes.

Why Is Diversifying Your Savings So Important?

Because, in a certain financial climate, one asset class may be performing poorly while another asset class is doing well. For example, the stock market may be experiencing a decline, but bonds may be on the upswing. So, by diversifying your savings over a number of different asset classes, you're lowering the chance of being hurt by the poor performance of any single asset class.

Knowing the basic asset classes is essential for building a diversified investment portfolio.

What Is an Asset Class?

An asset class is a group of investments that share similar financial characteristics. There are three main asset classes: stocks, bonds and cash. The table on the back cover describes these asset classes and some of the investment choices available in each class.

Good News! New Annual Limits
The Job Creation and Worker Assistance Act of 2002 (JCWAA) eased the restriction on the maximum annual contribution for 457(b) plans like the State's Deferred Compensation Plan.
For 2002, the annual contribution limit was $11,000 or 50% of your taxable income, whichever was less. JCWAA changed the limit to $11,000. The limit will increase by $1,000 each year through 2006, when the limit reaches $15,000. For years beyond 2006, the limit will increase in $500 increments, as needed, to reflect increases in the rate of inflation.

Investment Fund Performance & Operating Fees

For the Period Ending June 30, 2002

You may invest your contributions with any one of the plan's three financial services organizations: ING Financial Advisors, LLC (member SIPC), The Hartford and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices - both mutual funds and annuity options. They show the historical rates of return for each financial services organization's available investment options and the various operating fees that may be assessed against these options for the period ending June 30, 2002.

The rates of return columns are "net of expenses" and reflect the actual returns that would be applied to your account. This means that they already exclude the operating fees a financial services organization may charge you for managing, investing or marketing a particular investment option. Operating expenses appear in separate columns.

About Your Fund Choices

To help you identify between these two types of options, variable annuities appear in italic print. When comparing two similarly styled mutual funds or annuity options, be sure to:

Since each financial services organization offers similar investment opportunities, it's a good idea to review the materials from each of these organizations before you make your decision as to where to invest your money. Then, select the one financial services organization that offers the investment options and products that best match your personal financial goals. 

ING FINANCIAL ADVISORS
  Return on Investments
(net of expenses) 		Operating Expenses
Last Quarter Annual Rates of Return
Level of Risk Investment Options 4/1/02-6/30/02 1 Year Annualized 5 Years Management Fees Other Expenses Total Expenses
High Janus Aspen Series Aggressive Growth Portfolio -11.47% -34.00% 1.25% 0.65% 0.82% 1.47%
Janus Aspen Series Worldwide Growth Portfolio -12.47 -22.64 3.55 0.65 0.84 1.49
ING MFS Emerging Equities Portfolio* -19.49 -34.14 -3.72 0.68 0.93 1.61
ING Scudder International Growth Portfolio* -2.19 -14.35 -0.08 0.80 1.00 1.80
Medium ING Index Plus Large Cap VP -12.52 -18.43 3.57 0.35 0.90 1.25
ING Growth and Income VP -11.91 -21.06 -1.78 0.50 0.89 1.39
ING Small Company VP -7.20 -9.00 8.68 0.75 0.91 1.66
AIM V.I. Growth Fund -17.90 -29.64 -4.40 0.62 1.06 1.68
Fidelity VIP Equity-Income Portfolio -9.79 -10.71 3.95 0.48 0.90 1.38
Fidelity VIP II Contrafund Portfolio -3.75 -4.10 7.01 0.58 0.90 1.48
Janus Aspen Series Growth Portfolio -15.89 -28.72 2.00 0.65 0.81 1.46
Low ING Balanced VP, Inc. -5.26 -7.32 5.03 0.50 0.89 1.39
ING Bond VP 3.13 6.52 5.84 0.40 0.90 1.30
ING Money Market VP 0.23 1.62 4.06 0.25 0.89 1.14
ING Fixed Account-457/401 5.30 NA NA 0.00 0.00 0.00
Calvert Social Balanced Portfolio -6.82 -12.26 2.50 0.70 0.98 1.68
Janus Aspen Series Balanced Portfolio -4.31 -5.20 9.91 0.65 0.81 1.46

* The later fund listed was replaced with the applicable ING Partners (formerly Portfolio Partners ("PPI")) after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable ING Partners Portfolio after that date. The replaced fund may not have been available under all contracts.

 

THE HARTFORD
  Return on Investments
(net of expenses) 		Operating Expenses
Last Quarter Annual Rates of Return
Level of Risk Investment Options 4/1/02-6/30/02 1 Year Annualized 5 Years Management Fees Other Expenses Total Expenses
High American Century Ultra -11.42% -18.30% 3.15% 0.99% 0.70% 1.69%
Hartford International Opportunities Y -4.36 -10.11 -1.27 0.85 0.91 1.76
Hartford Small Company Y -12.81 -16.57 4.73 0.85 0.81 1.66
Janus Worldwide -12.72 -23.05 2.36 0.65 0.93 1.58
Medium American Century Income & Growth -11.44 -14.92 4.06 0.67 0.70 1.37
American Century Value -6.76 0.51 7.53 1.00 0.70 1.70
Fidelity Adv. Growth Opportunities -12.89 -19.77 -3.61 0.35 1.45 1.80
Hartford Capital Appreciation HLS -14.25 -22.66 7.89 0.63 0.80 1.43
Hartford Dividend and Growth Y -8.32 -7.18 5.69 0.75 0.80 1.55
Hartford MidCap Y -7.01 -4.81 NA 0.83 0.83 1.66
Hartford Index HLS -13.65 -18.99 2.42 0.40 0.78 1.18
Hartford Stock HLS -16.42 -21.13 2.44 0.46 0.78 1.24
Janus Twenty -11.74 -27.19 3.60 0.65 0.91 1.56
Low Hartford Advisers HLS -10.01 -11.51 3.97 0.63 0.78 1.41
General Account 4.50 NA NA 0.00 0.00 0.00
Hartford Bond Income Strategy Y 2.76 6.27 6.19 0.65 0.82 1.47

 

Phoenix Investment Partners
Return on Investments
(net of expenses)		 Operating Expenses
Last Quarter Annual Rates of Return
Level of Risk Investment Options 4/1/02-6/30/02 1 Year Annualized 5 Years Management Fees Other Expenses Total Expenses
High Phoenix-Aberdeen Worldwide Opportunities A -4.61% -10.35% 4.04% 0.75% 0.70% 1.45%
Phoenix-Seneca Mid-Cap Edge A -16.46 -26.16 9.03 0.80 1.71 2.51
Phoenix-Engemann Small-Mid Cap Growth A -21.33 -38.28 0.85 0.97 0.86 1.83
Phoenix-Aberdeen International A -1.22 -7.54 -0.37 0.75 0.62 1.37
Medium Phoenix Duff & Phelps Core Equity A -12.54 -27.41 NA 0.75 2.20 2.95
Phoenix-Engemann Nifty Fifty A -19.64 -33.66 -6.20 0.82 0.78 1.60
Phoenix-Engemann Capital Growth -15.96 -32.38 -4.93 0.66 0.42 1.08
Phoenix-Oakhurst Growth & Income A -12.92 -18.09 NA 0.75 1.13 1.88
Phoenix-Seneca Growth A -17.67 -23.52 3.37 0.70 0.74 1.44
Phoenix-Zweig Managed Assets A -4.64 -4.61 2.89 1.00 0.51 1.51
Low Phoenix-Engemann Balanced Return A -10.19 -15.94 2.92 0.76 0.87 1.63
Phoenix-Goodwin Multi-Sector Short Term Bond A 1.06 5.20 5.28 0.55 1.00 1.55
Phoenix-Duff & Phelps Core Bond 1.61 5.48 5.53 0.45 0.55 1.00
Phoenix-Goodwin Money Market A 0.32 1.89 4.38 0.40 0.33 0.73

 

3 Main Asset Classes

As you read about asset classes, keep in mind that you can invest in a mix of the three asset classes through the mutual funds and variable annuity options offered by the plan. A mutual fund is a portfolio of stock, bonds and/or cash managed to meet a specific goal. Variable annuities include stocks, bonds and cash equivalent investment choices. Similar to mutual funds, the money you invest is pooled with the money of other investors. Variable annuities differ from mutual funds in that there is a contract between the insurance company and the State. The contract may include insurance features such as a minimum death benefit, expense guarantees, minimum annuity purchase rates and options for lifetime income. Because they offer these additional features, variable annuities generally have higher operating expenses than mutual funds.

Asset Class Examples
1 Stocks
Stocks represent ownership in a company and generally offer the best growth opportunities over the long term, as well as the highest risk.

Stock portfolios make money by sharing in the companies' profits (in the form of cash dividends) or through capital appreciation (the increase in stock prices).

Stocks are considered the riskiest of all investments. You can even lose your original investment. To invest in stocks, you have to be prepared to go through stock market ups and downs.
  • Growth Stocks: Stock of a company that is growing earnings and/or revenue faster than its industry or overall market.
  • Capital Appreciation Stocks: Stocks that seek maximum growth.
  • Value Stocks: Stocks that are currently considered to be undervalued based on fundamental data, such as earnings, revenue and assets.
  • Large, Mid and Small Cap Stocks: Capitalization is the number of shares publicly available multiplied by the price per share. In general, a small cap company is a company with $250 to $1 billion capitalization; a mid cap company has $1 billion to $5 billion capitalization; a large cap company has over $5 billion capitalization.
  • International Stocks: Stocks of companies of any size based entirely outside the U.S. Generally considered riskier than U.S. stocks because of currency fluctuations, political instability and foreign taxes and regulations.
  • Global Stocks: Funds that contain a mixture of U.S. and foreign holdings.
2 Bonds

Bonds represent a loan to a government or corporation and generally offer steady, fixed income and medium risk.

Bond portfolios make money because the organization that receives the loan promises to pay a stated rate of interest to the fund.

Bonds issued by corporations tend to be riskier, and therefore pay higher interest rates, than those issued by governments.
  • Corporate Bonds: Issued by private corporations, these bonds are used to raise money to finance or pay for operating costs.
  • Government/Treasury Bonds: The U.S. Government issues these to pay for federal government programs.
  • Municipal Bonds: Issued by state, county and city governments to finance public work projects, such as building a highway or airport.
3 Cash and Cash Equivalents

Cash is represented by short-term investments, such as money market accounts and certificates of deposits.

Cash is the lowest risk asset class.
  • Cash/Money Market Accounts: Highly liquid investment that pays interest.
  • Certificates of Deposit (CD): Short- or mid-term FDIC-insured, interest-paying investment (for one year or less) offered by banks and savings and loans.

 

IMPORTANT NOTE: The information presented in this newsletter is not intended as investment advice. Its purpose is to help you understand the investment choices available through the State of Connecticut's Deferred Compensation Plan. Your financial strategy and investment choices are entirely your own and should reflect your personal needs and circumstances.

State of Connecticut personnel, including the Human Resources Department staff, cannot provide investment advice. For more information, you may want to consult with a professional financial advisor.

The investment information is current as of June 30, 2002.

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