00:00:00 The purpose of this meeting is to give you all an opportunity to meet the managers of

00:00:14 three of our major fund options and to also be able to ask them some of the questions

00:00:18 and voice some of the concerns that you have about their respective funds.

00:00:22 Our format today is going to be that I'll let each of the three funds represent themselves

00:00:28 in about a 15-minute little presentation, and at the end of that 45 minutes we'll go

00:00:33 ahead and open the floor up for questions and answers.

00:00:36 I'd like to ask all of you to direct your questions to the funds themselves and not

00:00:42 the plan.

00:00:43 Plan-oriented questions, I tried to anticipate some of them and we actually did a Q&A in

00:00:48 the back of the room with plan questions and answers, and if we've run out, your HR reps

00:00:53 will have those forms for you tomorrow or later next week.

00:00:59 The first manager that is going to speak today are two representatives from Primco Capital

00:01:03 Management, and they're the fund manager who's responsible for investment of our Projected

00:01:08 Interest Fund, or the PIF Fund, as we so fondly call it.

00:01:11 So I'd like to introduce to you George Bowman and Patty Trumpeter.

00:01:23 Thanks a lot.

00:01:24 Again, we'll try to keep this to about 15 minutes.

00:01:26 We're going to do two things.

00:01:29 First of all is answer the questions that you probably have regarding the PIF Fund or

00:01:36 the Stable Return Portfolio.

00:01:37 We're not going to do two things.

00:01:38 We're not going to sell this fund, and we're not going to preach to you in regards to your

00:01:43 asset allocation.

00:01:44 We believe that's kind of your business.

00:01:47 The first, first we're going to answer these questions.

00:01:52 Who is Primco?

00:01:53 What is the Projected Interest Fund, and what are the investment objectives of your portfolio?

00:01:58 What types of assets are in the fund, and how safe are those assets?

00:02:01 What has been the past performance of the fund, and what is the methodology, the factors

00:02:06 that go into the calculation and the explanation, the number which is given to you in regards

00:02:13 to what the blended rate is for the calendar year end?

00:02:20 Who is Primco?

00:02:22 Primco is managed in Louisville, Kentucky.

00:02:25 We manage over $9.2 billion.

00:02:28 Our clients include TRW, Bell South, Rubbermaid, TI, Goodyear, Marriott, Sony.

00:02:34 The two major airlines are Delta and TWA.

00:02:38 Burying right up the street is another one of our clients, and 38 other large Fortune

00:02:43 500 type companies with very, very large plans just like yours.

00:02:48 Our entire business is really focused around the management of stable return investments

00:02:53 just like your funds.

00:02:54 We are not, we don't manage equities, we don't manage growth funds, we don't manage junk

00:03:01 bonds.

00:03:02 Our entire focus, our entire strategy is based around stable return fixed income management.

00:03:12 Next graph here shows the kind of a timeline, 1985 to 1991.

00:03:19 You can see the growth of the dollars as well as clients that Primco has been fortunate

00:03:22 to manage, again, starting with under about $600 million, now about $9.2.

00:03:29 We presently have 48 clients.

00:03:32 The growth is really a factor of two things.

00:03:34 Number one is the tremendous explosion in the defined contribution area, your type of

00:03:40 plan, the 401K.

00:03:41 This has been just an enormous growth.

00:03:44 The other factor is we think our clients think we do an excellent job of managing their money.

00:03:50 Our philosophy is we have 48, 50 clients right now, we're going to cap it off at 60 clients.

00:03:56 Our niche is large Fortune 100, Fortune 200 type companies, maximum exposure of 60 clients

00:04:03 and service that client quite well.

00:04:09 This is kind of a schematic of our professional staff.

00:04:11 It's kind of a wheel broken into about five segments.

00:04:15 Portfolio management, research, which we spend a tremendous amount of time making sure that

00:04:19 your portfolio is safe, contract administration, client service and the portfolio trading unit.

00:04:26 We have a staff of 31 people, 25 of those people are professionals.

00:04:30 We have PhDs, we have CFAs, we have MBAs, we have every person you can imagine trying

00:04:39 to do two things, to make sure that the carriers in your portfolio are high quality and that

00:04:46 we maintain a high risk adjusted return for the portfolio.

00:04:50 Patty now, who is the trader for your portfolio, will talk over the objectives of the portfolio

00:04:55 and really talk a little bit about what a GIC is.

00:05:03 Okay, George and I specifically work with the fund.

00:05:11 We are constantly monitoring the cash flow as it comes in from your contributions and

00:05:15 from the simple interest payments and maturity payments from the contracts and keeping those

00:05:19 cash flows invested in contracts.

00:05:23 We invest according to the objectives of the fund.

00:05:25 Now what are the objectives of the fund?

00:05:27 First and foremost, to invest in high quality, safety of principle and the preservation of

00:05:33 your capital.

00:05:34 A diversified fund, which George will show you later, a chart of a breakdown of how the

00:05:40 assets are invested.

00:05:42 To provide a high yield that is rate responsive and provides for liquidity so that you can

00:05:50 make transfers quarterly, change your asset allocation and for any of your benefit needs.

00:05:58 Now what is a guaranteed investment contract?

00:06:02 A guaranteed investment contract is simply a private placement from a corporation.

00:06:07 It is backed by the full faith and credit of the issuing entity as to the payment of

00:06:13 interest in principle, just like any bond would be.

00:06:20 Let me explain what book value accounting is.

00:06:22 That allows for zero price volatility, so that if you put in a dollar today and three

00:06:29 months from now, a year from now, five years from now, you want to transfer those dollars

00:06:34 or you want to withdraw for a hardship withdrawal or whatever benefit event it may be, you will

00:06:39 get 100 cents on the dollar.

00:06:42 Therefore there is zero price volatility.

00:06:46 No secondary market.

00:06:48 What that means is a secondary market would be that if I buy this contract and then I

00:06:55 were going to turn around and sell it.

00:06:58 Guaranteed investment contracts are so short in nature and the ones that are in the fund

00:07:02 are all short in nature that there is no need for a secondary market.

00:07:08 It's a buy and hold strategy.

00:07:12 Last but not least, a guaranteed investment contract is benefit responsive, again to provide

00:07:18 for your benefit needs, whether it's to transfer or to change your asset allocation or to provide

00:07:24 for some benefit event.

00:07:28 I'll turn it over to George and let him go further into the credit aspect.

00:07:36 Because research is such a vital part of this, because we do not sell the contracts, as Patty

00:07:42 stated, they are a buy and hold.

00:07:44 What I wanted to do is just give you a brief overview of our credit process.

00:07:48 It's really kind of a four phase type of deal.

00:07:52 Preliminary screen looks at the asset size, the surplus, the GIC and BIC issue or their

00:07:57 lines of business.

00:07:59 The second phase really gets into the quantitative, looking at the analytics of their income statement

00:08:05 and balance sheet.

00:08:06 We have approximately 35 to 40 different ratios that we use to establish the good companies

00:08:12 from the bad companies.

00:08:13 A lot of time, the majority of time, is really spent in regards to monitoring the assets,

00:08:18 their investment portfolio, their real estate portfolio, their mortgage portfolio, their

00:08:24 investment grade, non-investment grade.

00:08:27 Just every type of asset class they may have in their investment portfolio is reviewed.

00:08:32 The third phase is the qualitative, looking at the risk that the corporation takes on.

00:08:38 What is the risk they've taken on in the past?

00:08:40 What is the potential risk they want to take on in the future?

00:08:43 Just really the risk profile.

00:08:45 The profitability, obviously, is a big concern.

00:08:48 Personnel, have they had high turnover with their upper management?

00:08:53 Has it been high?

00:08:55 Has it been low?

00:08:56 And their distribution network, i.e., how they issue their liabilities.

00:09:02 What all this kind of fuses down to is a credit rating that Primco puts on a corporation,

00:09:08 AAA, obviously, being the highest, Single A, in our spectrum, being the lowest, but

00:09:12 still a high-quality company.

00:09:15 We have a tendency to be more conservative in the rating agencies, which a number of

00:09:19 you probably have read about, Moody's, Standard & Poor's, which is S&P, Duff & Phelps.

00:09:25 We're, on average, a little bit more conservative, thus having a lower rating for a carrier that

00:09:31 one of them might have had a higher rating, but we think that's all right.

00:09:34 I mean, the primary job, the primary objective of this portfolio is preservation of principle,

00:09:40 making sure that every dollar in the portfolio is safe.

00:09:48 This is your portfolio right here.

00:09:50 It's made up of 15 different carriers.

00:09:53 What Patty and I have done is kind of breaking out the portfolio in regards to the asset

00:09:59 rating, as well as the issuers in your portfolio.

00:10:03 As you can see, looking at the right side there, 35% of the portfolio is in AAA carriers.

00:10:09 You have 33% in AA+, almost 10% in AA, 13 or 14% in AA-, and about 4% in Single A+.

00:10:18 So it is a very, very well-diversified portfolio, and there's no question, when you take the

00:10:23 overall quality of the portfolio, it is very, very high.

00:10:29 In regards to the performance of the portfolio, this goes back to 1988, since the inception

00:10:35 that we've had the portfolio to the present.

00:10:37 We thought that the clearest way to do this is to show the growth of the dollar.

00:10:41 And so what we did is just graph the growth, the straight line, which is your portfolio,

00:10:46 again, because, as Patty stated, there is no principle volatility.

00:10:50 It's simply almost a straight line year after year.

00:10:54 Relative to the performance that you would have if you would have had an intermediate

00:10:58 government fund or an intermediate corporate bond portfolio, so this is GICs versus bonds,

00:11:04 bonds in regards to corporate bonds versus treasury bonds, and you see, obviously, there's

00:11:08 going to be more volatility on an instrument that is priced, is marked to market, priced

00:11:13 on a monthly basis.

00:11:15 But the overall, what you see, is the performance is very close to an intermediate bond portfolio.

00:11:21 So basically, in a GIC, in a stable return portfolio, you have the best of both worlds.

00:11:27 You do not have to worry about your month-to-month, quarter-to-quarter price volatility, and you're

00:11:31 going to receive yield on the portfolio actually greater than what you would have if you would

00:11:38 have intermediate corporate bonds.

00:11:40 But remember, the GIC, the investment contract, is the general obligation of the corporation

00:11:45 we're dealing with to pay.

00:11:46 It is not syntax, it's not a government guarantee, it's the obligation of the corporation, just

00:11:52 like a normal bond.

00:11:55 The next slide looks at price volatility of three different categories, the S&P 500, the

00:12:04 stock market, the corporate bonds, and a rolling GIC portfolio.

00:12:10 And I put this up only to say that depending on quarter-to-quarter, month-to-month, there's

00:12:15 no question you're going to have a greater price volatility in equities relative to bonds

00:12:20 relative to GIC.

00:12:21 You see the white line being the stable GIC portfolio, the green line being bonds, and

00:12:27 the yellow line being equities.

00:12:29 No question on a long-term basis, you're going to have a higher risk-adjusted return with

00:12:33 equities, but again, you're going to be subject to the month-to-month, day-to-day price volatility.

00:12:39 Now, Patty's going to talk over a little bit about what the blended rate communication

00:12:43 was for this year, as well as the characteristics of what goes into establishing that rate.

00:12:54 You all have just had the rate communicated to you for the next year being July 1, 1991

00:13:00 through June 30, 1992, at eight and three quarters, and I'm going to explain a little

00:13:04 bit about how we get to that rate.

00:13:08 There are two factors that we look at.

00:13:10 First off, we look at what can we invest the dollars at, what levels, what are current

00:13:15 levels right now.

00:13:17 We took from seven and a half to nine and a half, and those were the reinvestment rates

00:13:22 that we assumed.

00:13:24 Second of all, you have to look at cash flow.

00:13:26 Well, there's two types of cash flow.

00:13:29 The first type of cash flow is the cash flow that comes from you, the participants, through

00:13:33 your contributions.

00:13:35 We'll look historically over the last three years on a month-to-month basis and get a

00:13:39 net figure that will look at how much is in benefits, how much is in transfers, and then

00:13:44 give us a net figure, say, for example, $400,000 a month.

00:13:48 Then once we get to that net figure, we'll make other assumptions.

00:13:52 We'll say, well, what if it's 10% higher in contributions and 15% higher in benefit payments,

00:13:58 and we may take that scenario and then run it against another scenario.

00:14:04 We'll take these cash flow assumptions and run it through a model where it'll kick out

00:14:10 a blended rate that we've gotten right now at eight and three quarters.

00:14:14 It's assuming that all of this cash flow from your contributions as well as the cash flow

00:14:21 that comes from the contract payments, simple interest payments, or contract maturities,

00:14:27 and it'll invest it at the rates of seven and a half to nine and a half, and those,

00:14:31 like I said, the assumptions that we make.

00:14:33 So we kind of, like I'll say, put all that in a blender and come out with the final rate

00:14:38 at eight and three quarters.

00:14:40 That's it.

00:14:53 The next manager we're going to have speak to you today is a representative from the

00:14:56 Vanguard Group, and he's representing Upper Windsor.

00:15:03 Good afternoon, everyone.

00:15:21 I know, everyone just got done eating lunch, right, and everyone's tired.

00:15:28 My name is Dave Horne.

00:15:29 I'm with Vanguard, and what I'd like to talk to you about is the Windsor portfolio.

00:15:33 And I've broken this up into a couple different sectors.

00:15:36 First off, I'd like to talk about Vanguard just to give you some background knowledge

00:15:40 of the company behind the fund.

00:15:42 Then I'm going to talk a little bit pertaining to risks towards investing.

00:15:45 Then I will talk about the Windsor fund itself, what the goals, objectives, and strategies

00:15:49 of the portfolio is.

00:15:50 And finally, lastly, different ways that you can follow or track the investment.

00:15:56 Now, to give you a little background about Vanguard, probably a lot of you in the room

00:16:00 are familiar with Vanguard already, but for those of you that are not, Vanguard is a mutual

00:16:05 fund company located out in Valley Forge, Pennsylvania.

00:16:08 And Valley Forge is about 35 miles west of Philadelphia, so it's on the east side of

00:16:13 the state.

00:16:14 We were founded and established back in 1928, so we've been around now for over 60 years.

00:16:19 One of the oldest and largest mutual fund companies in the world.

00:16:23 One of the oldest and largest mutual fund companies in the nation.

00:16:26 Now, currently in the marketplace, we offer about 60 mutual fund portfolios.

00:16:30 Again, you're going to be concerned with the Windsor fund, which we're going to talk about.

00:16:34 Asset size of Vanguard, right now we stand at about $65 billion in assets.

00:16:41 We are the largest pure no-load mutual fund company in the United States.

00:16:45 And with the funds Vanguard offers, including the Windsor fund, they are called no-load

00:16:50 mutual funds.

00:16:51 There's no front-end charges to get into the funds, and there's no back-end charges to

00:16:54 get out of the portfolios.

00:16:56 They are sales commission free.

00:16:58 Vanguard's also known as some of the lowest fund expenses in the entire mutual fund industry.

00:17:04 Now, probably a lot of you in the room are familiar with mutual funds already.

00:17:07 Again, for those of you that are not, basically what a mutual fund is, it's a pooled investment

00:17:13 where a group of people are putting their money together, going out in the marketplace

00:17:17 and buying a pool of securities.

00:17:19 And the example that I like to give, to try to put that in perspective a little bit, let's

00:17:23 say here in this room we decide we're going to start up a mutual fund.

00:17:26 So everyone in the room takes out $20.

00:17:28 We combine this money together, and we decide we're going to go out and establish a growth

00:17:32 mutual fund.

00:17:33 We're going to invest in stocks.

00:17:34 So we take the money, we buy IBM, AT&T, and General Electric, just for an example.

00:17:40 Well, that in a sense would be a small mutual fund.

00:17:42 There's a pool of us, we're putting our money together, and we're going out in the marketplace

00:17:46 and buying securities for a type of common goal.

00:17:49 If the mutual fund is investing in stocks, the goal of the fund is going to be growth-oriented.

00:17:54 If the mutual fund is investing in bonds or fixed dollar investments, the goal of the

00:17:58 fund is going to be more income-oriented.

00:18:00 So keep in mind, every type of mutual fund is going to have a different type of goal

00:18:03 correlated with it.

00:18:05 Now the fund I'm going to be talking about, the Windsor Fund, it's thousands upon thousands

00:18:10 of investors putting their money together to go out in the marketplace to invest in

00:18:13 about 100 stocks.

00:18:15 And on top of that, it's also professionally managed.

00:18:17 There's a portfolio manager deciding on what stocks he wants to buy for the fund, which

00:18:22 stocks he wants to sell off for the fund, and which ones he's going to hold on to on

00:18:26 a daily basis.

00:18:28 Now what we need to keep in mind about any type of investment are there's different types

00:18:33 of risks and rewards correlated with any type of investment.

00:18:36 And as your potential risks of your investments get higher, your potential rewards get higher

00:18:41 also.

00:18:42 Now available in your plan, you have a fixed dollar investment, very safe, very conservative,

00:18:47 low degree of risk, low potential rewards.

00:18:50 Bond funds are considered a little bit more aggressive, moderate risks, moderate rewards.

00:18:55 And finally, you also have two different stock funds to select from.

00:18:58 And with your stock funds, the degree of risk is going to be higher.

00:19:01 Again, your potential earnings and rewards will be higher also.

00:19:04 If you're going to consider to invest in stocks, and again, this applies to your retirement

00:19:09 account or any personal investing you might do, you want to invest in stocks for a long

00:19:13 or extended period of time, because they're growth-oriented.

00:19:16 They're not geared for the short run.

00:19:19 Because in the short term, you're going to experience short-term risks.

00:19:22 If you take a look at the stock market, the stock market varies a great deal from calendar

00:19:26 year to calendar year.

00:19:28 In 1989, it was a good year in the market.

00:19:31 That year, the market returned over 31%.

00:19:33 But at the same time, you can have very poor years in the market, like we did back in 1990.

00:19:37 That year, the market dropped 3%.

00:19:39 Or if we take a look at 1973, the market dropped 14%.

00:19:43 That was followed by 1974.

00:19:44 The market dropped another negative 26%.

00:19:47 So if you're going to invest in stocks, you want to invest in stocks for a long or extended

00:19:51 period of time.

00:19:52 And you don't want to look for stocks for the short run.

00:19:55 Because again, in the short run, we could experience what is called a bear market, where

00:19:58 if you need the money in the near future, you might realize negative return.

00:20:02 And again, the fund I'm going to be talking about is the Windsor Fund.

00:20:05 Everything here is invested in stocks.

00:20:08 When you take a look at stock funds, there's really three different classifications of

00:20:12 stock funds.

00:20:13 There's growth and income stock funds.

00:20:15 There are growth stock funds.

00:20:17 And finally, lastly, there's aggressive growth stock funds.

00:20:20 When we take a look at the Windsor Fund, this fund is classified as a growth and income

00:20:24 stock fund.

00:20:25 So if we take a look at stocks as a whole, this fund is a little bit more on the conservative

00:20:29 side.

00:20:31 If we take a look at investments as a whole, including fixed dollar investments and bonds,

00:20:35 this investment is above average in terms of degree of risk.

00:20:39 Again, reason being, you're investing in stocks.

00:20:41 Stocks are more volatile than bonds or, again, fixed dollar investments.

00:20:45 Now, the Windsor Fund is a mutual fund that goes out in the marketplace and looks to invest

00:20:49 in undervalued common stocks in the marketplace.

00:20:52 The portfolio manager of this fund is named John Neff.

00:20:55 And John Neff is out of Wellington Management Company in Valley Forge, Pennsylvania.

00:20:59 The fund was established back in 1958.

00:21:02 John Neff started running this fund in 1964.

00:21:05 So he's been running it now for about 27 years.

00:21:08 Again, what he looks for in the marketplace are those undervalued common stocks in the

00:21:12 marketplace.

00:21:13 Now, that might sound a little bit confusing to you.

00:21:15 You might be like, well, what do you mean by an undervalued common stock?

00:21:19 And to give you an example, remember a couple years ago, Johnson & Johnson had that big

00:21:24 Tylenol scare through those cyanide poisons?

00:21:26 Remember that?

00:21:27 Anyone that doesn't remember that?

00:21:29 The price of Johnson & Johnson stock during that incident, it dropped dramatically.

00:21:33 It was undervalued in the marketplace.

00:21:36 Now, John Neff would see an undervalued stock like J&J when it's low like that, buy it,

00:21:41 hold on to it, wait for the market to recognize that stock being undervalued, wait for the

00:21:46 share price to go back up again, then he's going to sell it off.

00:21:50 Another example I can give is Exxon with the Valdez spill.

00:21:53 It was an undervalued stock for a little bit.

00:21:55 So he's looking for undervalued common stocks in the marketplace.

00:21:58 The companies he's looking for, however, are your large, well-established companies in

00:22:03 the marketplace.

00:22:04 He won't be investing in any smaller over-the-counter stocks, your NASDAQ, OTC, anything along those

00:22:11 lines, but your larger corporations in the marketplace.

00:22:14 What he's primarily basing that selection on is low price-to-earnings ratios, or PE

00:22:20 ratios.

00:22:21 This tells him whether it's an undervalued stock in the marketplace and whether it's

00:22:24 out of favor.

00:22:25 So that's his primary concentration on his stock selection.

00:22:28 Again, this fund is investing in about 100 stocks, the Windsor portfolio.

00:22:33 Now, hopefully everyone in the back picked it up, and if you didn't, don't worry about

00:22:37 it.

00:22:38 You're going to find white sheets which talk about the Windsor fund.

00:22:41 We call these sheets fact sheets.

00:22:43 At the top of this sheet, it'll give the objective of the fund, what it's looking for.

00:22:47 Below that, it'll give the strategy of the portfolio.

00:22:51 Below that, then, you're going to see performance summary for the Windsor fund.

00:22:54 It's going to give it to you for the last 10 years, from 1981 up until 1990.

00:23:00 For each calendar year, you're going to see two sets of numbers.

00:23:03 You're going to see a black line.

00:23:05 That is representing the Vanguard fund.

00:23:07 And next to that, you're going to see a striped line.

00:23:09 That is the composite index, and that basically tells you how well or how poorly the fund

00:23:13 did in any given calendar year, as opposed to the overall industry.

00:23:17 And the measurement or index we're using in this case is the Standard & Poor's 500 stock

00:23:21 market index.

00:23:23 Now, for those of you that are in the fund, this will come as no new news to you.

00:23:26 In 1990, the Windsor fund did not have a banner year, and that year, it was a negative 15.5%.

00:23:33 If we go below that performance chart, however, you'll see a performance summary for the last

00:23:37 1, 3, 5, and 10 years, both cumulative total returns, and next to that, average annual

00:23:43 total returns.

00:23:45 Keeping in mind, again, you're putting this money away for your retirement, you should

00:23:49 be more concerned about how is the fund done over a long or extended period of time, as

00:23:54 opposed to how it's done in a short period or a short run.

00:23:58 Because, again, with a stock fund, you're going to have banner years with a stock fund,

00:24:01 but you're also going to have very poor years with a stock fund.

00:24:04 So, with stocks being that they're growth-oriented, we want to take a look at how's it done over

00:24:08 a long or extended period of time.

00:24:10 Now, if we go to this chart at the bottom, we look for 10 years, go to the third column

00:24:14 over, that's going to give us the average performance of this fund over the last 10

00:24:18 years, and if you look, Windsor fund has returned about 16.29% over the last 10 years.

00:24:24 And, again, that includes 1990, where it was not a banner year in the fund.

00:24:28 So far in 1991, since the golf crisis has ended and so forth, the market has recognized

00:24:33 a lot of stocks in the portfolio are out of favor, and the stock for the first quarter

00:24:38 of this year has shot up.

00:24:39 If you look at the performance figure for the Windsor fund for 1991, and this is in

00:24:43 a smaller box, the fund has returned 18.25% for the first quarter of 1991.

00:24:50 Now, that figure is not annualized at all, that is a total return figure for just the

00:24:54 first three months of this year, the Windsor fund.

00:24:59 Also in the back are these, which are called annual reports, which are available, they'll

00:25:07 be black covered, and also in the back are the white covered brochures, which are prospectuses.

00:25:13 The prospectuses are going to give you more technical information pertaining to the fund.

00:25:19 The annual report is going to have a letter from the chairman of the board in it, a letter

00:25:22 from John Neff, the portfolio manager, and it's also going to give you a portfolio listing

00:25:27 of the fund.

00:25:28 Let's say before you invest in the fund, you want to see what the fund invests in.

00:25:32 This is going to give you a listing of the stocks the Windsor fund is invested in, and

00:25:36 it's going to break it up into individual sectors of the market, and then it's going

00:25:40 to break it up into stocks.

00:25:41 It'll give you the name of the stock it's holding, the amount of shares it's holding,

00:25:45 and also the market value of those shares on a particular date.

00:25:48 So again, if you're interested in seeing what the fund invests in before you invest in the

00:25:51 fund, or if you are investing in the fund and want to see how it's invested, pick up

00:25:55 one of these annual reports.

00:25:57 This is updated on a semi-annual basis, and that's what's required by the SEC.

00:26:03 Now, other ways you can track the Windsor fund.

00:26:07 First off, you can track it by following the newspaper if you wish to do so.

00:26:11 If you go to the money section or business section of your paper, you look under mutual

00:26:15 funds.

00:26:16 Under the Vanguard group, it lists our portfolios for you.

00:26:19 The first column that you see is going to give you the abbreviation of the fund.

00:26:22 Now, the Windsor fund is going to be abbreviated WNDSR.

00:26:27 Or in some papers, you might see it WINDSR.

00:26:31 So the first column will give you the abbreviation of the fund.

00:26:34 The second column over is going to give you the closing share price from the previous

00:26:38 business day.

00:26:39 So in this example, the Windsor fund closed at $11.64 a share.

00:26:44 So if you have 100 shares of the fund, the value of your account on that given day's

00:26:47 close will be $1,164.

00:26:50 The next column where you see NL, that stands for no load.

00:26:54 Keep in mind these are no load mutual funds.

00:26:56 No front end or back end charges at all.

00:26:59 And finally and lastly, the very last column over will tell you whether it was up or down

00:27:03 the previous day's business close.

00:27:05 So you might see something like plus .05 was up five cents, negative .05 was down five

00:27:10 cents.

00:27:11 Or if you see something where it's just listing dots, that's telling you the portfolio has

00:27:15 remained unchanged from the previous day.

00:27:19 Other ways you can track the fund is calling our toll-free 1-800 number if you wish to

00:27:23 do so.

00:27:24 This number is available Monday through Friday, 830 to 7 Eastern Time.

00:27:29 And at this number, you will find registered representatives available to assist you.

00:27:33 And by registered, I mean they took an exam with the NASD.

00:27:36 They're currently registered and licensed with the NASD.

00:27:39 So if you have any questions pertaining to the fund at all in terms of goals of the fund,

00:27:43 objectives, strategies, if you forgot to pick up a prospectus or an annual report in the

00:27:47 back and you wish to get one sent to you, you can call this number.

00:27:50 They can get it out to you.

00:27:51 If you want assistance in understanding the philosophy of the fund, they can help you

00:27:55 out along those lines.

00:27:57 Now, the individuals at this number are not certified financial planners.

00:28:01 And the reason I'm bringing that up, they can't advise you on what to do.

00:28:05 You have to be a CFP for that.

00:28:07 But they can help or assist you as best they possibly can.

00:28:10 So they might tell you, well, this fund is growth-oriented.

00:28:12 It is or it's not meeting your goals.

00:28:15 They're not going to advise you.

00:28:16 They're not going to tell you, well, I think you should put 30% here, 40% there, and 30% here.

00:28:21 But they are available to assist you as best they possibly can.

00:28:25 That's basically all I have.

00:28:26 Susan?

00:28:27 Our third representative is from the Capital Research and Management Company who are responsible

00:28:40 for our ICA fund.

00:28:41 And they've sent us three representatives today.

00:28:43 It's Victor Sadu, Chris Rowe, and Linda Fetzer.

00:28:47 Thanks, Connie.

00:28:50 Let me get rid of this here.

00:28:54 There, that's more like it.

00:28:58 Chris and Linda and I are going to sort of divide up the chores.

00:29:02 And I'll talk a little bit about Investment Company of America, who manages it,

00:29:07 and some of the stocks that are in it and so forth, and how well it has done its performance.

00:29:12 And then Chris has got a kind of interesting concept that might help you decide what portion of your assets

00:29:18 in your employee retirement savings plan ought to go into Investment Company of America.

00:29:24 And then Linda will follow up with what resources and materials are available,

00:29:30 and she'll take a look at the annual report with you a little bit.

00:29:34 How many here actually are utilizing the Investment Company of America option in the plan?

00:29:40 Okay.

00:29:42 Well, that's quite a few people.

00:29:43 And I'm deputizing all of you.

00:29:46 After this meeting is over, turn to the person next to you and tell them the good word.

00:29:50 We're very proud of Investment Company of America.

00:29:54 The firm that manages ICA is the Capital Group of Companies,

00:29:58 and it's one of the quietest, largest investment company managers in the world.

00:30:02 It's a California-based company.

00:30:04 It has nine research offices around the world in Geneva and London and New York and Tokyo and Singapore and L.A.

00:30:12 and San Francisco.

00:30:13 I probably missed something there.

00:30:15 Total assets that it manages are about $70 billion.

00:30:19 That amount makes it the largest active money manager west of the Mississippi.

00:30:25 It manages funds for eight of the ten largest pension plans in the country.

00:30:31 It also has management responsibility for the American Group of Funds,

00:30:36 and it's within that group of funds that we find Investment Company of America.

00:30:40 Now, ICA began in a rather inauspicious year, 1933.

00:30:45 First full year for Investment Company of America's portfolios was 1934.

00:30:51 Throughout that time, it has grown in successive years to where now the portfolios in ICA comprise around $6 billion,

00:31:02 and there are over 300,000 shareholders, many of them large corporate customers and foundations.

00:31:10 I think it's important for you to find ways to measure the success of a fund

00:31:16 and then blend that in with your personal needs to decide how much you might want to put into ICA.

00:31:22 I'll share with you two ways I would look at it.

00:31:24 I think as an organization, we tend to look at a fund in terms of the length of time that it has shown a superior result.

00:31:34 We're really looking for consistent superior results,

00:31:39 and one of the ways we would look at that is we would look at successive 10-year time periods.

00:31:44 In other words, you look at a fund, say, between 1960 and 1970, how well did they do,

00:31:50 versus the S&P 500, a measure of the market, or versus other funds.

00:31:55 You might say from 1961 to 1971 and so forth and go through those various 10-year periods.

00:32:02 If you do that, what you will find is that, in fact, I'm pointing this the wrong way.

00:32:09 There we go.

00:32:11 If you look back, say, over the last 30 years,

00:32:13 there are a fair number of common stock funds that have been in existence in that time period,

00:32:18 115 of them.

00:32:20 Of those 115, surprisingly, there were only five of them that beat the standard and course 500

00:32:28 in every one of the 10-year time periods during that time period, only five.

00:32:32 But, of course, there have got to be funds in the top group.

00:32:36 Now, what we're very delighted to say is that during that time period,

00:32:40 three of those five are managed by the American Funds Group and by the Capital Group of Companies.

00:32:45 And, of course, you see our star, Investment Company of America.

00:32:49 If you look at either the long-term returns versus inflation

00:32:53 or just the aggregate returns from Investment Company of America,

00:32:57 they're really rather stunning, and that compares with inflation and a number of our other funds.

00:33:03 But you can see ICA heads the list.

00:33:05 Now, we might take a look.

00:33:06 You might ask, how in the world do they do that?

00:33:08 We might take a look at some of the companies that they actually are in the portfolio right now.

00:33:13 These are some of the largest holdings.

00:33:15 And I think, as you can see, we're investing in some of the stronger,

00:33:18 the companies that have a long-term history.

00:33:21 Our method of operation to find these companies,

00:33:24 and there are about 102 in the current ICA portfolio,

00:33:28 is through the expenditure of a lot of research dollars.

00:33:30 It's not that much different than Syntex might do.

00:33:32 You've got to spend a lot of money on research to get a long-term benefit.

00:33:36 We spend $30 million a year just on research.

00:33:39 That doesn't include anybody else, just the research people.

00:33:42 They go around the world.

00:33:43 Last year, they made 4,600 research calls on companies.

00:33:47 This includes trekking around the forest up at the warehouse,

00:33:50 or it might involve a company in Europe.

00:33:53 We particularly like, at this point in time,

00:33:55 companies that are in the information flow, in the information business.

00:33:59 This might mean that they build satellite dishes.

00:34:02 It might mean that they're involved in fiber optics,

00:34:04 or it might mean, I think, Pacific Telesis.

00:34:08 Pacific Telesis is one of the firms, a large distributor of information services.

00:34:13 Those are some of the kinds of companies that we might like.

00:34:21 Thank you, Linda.

00:34:25 The bottom line to us, then, really is consistent superiority.

00:34:29 There's another way, and I notice here there is a copy.

00:34:33 If you look just perhaps on a little shorter-term basis in your Syntex employee flyer,

00:34:39 you'll see that for the options that you have, the rates return over the last few periods.

00:34:45 I think absent the discussion of what blend you should have,

00:34:50 I would just look and see which has the larger number and then choose that one,

00:34:53 since I know what had the larger number.

00:34:55 But more seriously, I want to turn it over to Chris,

00:34:58 who will address the issue of how much should you have in your blend and how comfortable you might feel.

00:35:04 I think he's got some interesting data that will be very surprising to you.

00:35:14 Thank you, Victor.

00:35:15 As Victor said, my job today, here this afternoon,

00:35:18 is to demonstrate the investment results achieved by the Investment Company of America.

00:35:23 I'm going to do it in a little bit of a different way than you might be used to.

00:35:27 I want to introduce an investment strategy while I demonstrate the results at the same time.

00:35:33 This investment strategy really is built around the advantages the Syntex plans offer its participants.

00:35:42 I kind of look at the advantages of the Syntex plan in three ways.

00:35:46 One, the Syntex plan allows the participants to accumulate money in a safe, fixed vehicle.

00:35:53 You call it the PIP fund.

00:35:55 You put your dollars in that fund, the principal is stable,

00:35:58 and you get back 100 cents on the principal dollars that you put in.

00:36:02 I think that's very important when you're putting your own money away for retirement.

00:36:06 People want that peace of mind.

00:36:08 Second, the plan allows you the ability, when it fits,

00:36:12 to invest a portion of your money in an equity-type investment.

00:36:17 In this case, we're talking about the Investment Company of America.

00:36:20 Thirdly, your plan allows you flexibility to reallocate your assets on a periodic basis.

00:36:26 What I mean by reallocate, I'm not going to be talking about market timing.

00:36:30 We're not talking about trying to pick a day in the market to do.

00:36:33 I think we'll all agree that that's a losing proposition.

00:36:36 But the reallocation is involved in the strategy that I want to describe today

00:36:41 that you might want to employ in the operation of the plan.

00:36:45 The strategy is really built around a very basic concept, I think, in investing.

00:36:49 With the money that you put in, you don't want to lose.

00:36:54 But at the same time, you want to maximize your return with a minimum amount of risk in it.

00:37:00 I'm going to demonstrate how this strategy works

00:37:04 by first starting out with perhaps the most conservative investor.

00:37:08 I'm demonstrating results over the last 15 years.

00:37:11 The results I show today will be results achieved starting back in 1976.

00:37:18 They're actual results of the fund.

00:37:20 This first illustration is going to illustrate a $10,000 investment made on the first day of 1976,

00:37:26 made in a fixed investment fund yielding a 9% return.

00:37:31 Throughout the 15-year period, it also gave a 9% return.

00:37:35 Every time, every year it turned over, it paid you 9%.

00:37:39 I want to make one correction on the slide here.

00:37:42 The scale right here is a little bit off.

00:37:45 If you move this line right up to where it says $20,000 and change the $20,000 to $10,000,

00:37:50 then we're looking at a correct slide.

00:37:52 We're starting with $10,000 invested 15 years ago in a fixed investment.

00:37:58 If you let that investment just ride, every time the new rate was announced,

00:38:03 you just reinvested your principal at 9%,

00:38:06 you would have accumulated an amount of money in your account of $38,856.

00:38:12 I think we all agree that's a pretty good return.

00:38:14 At the same time, your principal didn't change.

00:38:18 Flat line on the principal.

00:38:20 You just grew by reinvesting your dividends.

00:38:22 Let me introduce a concept that we call cross-investing now,

00:38:27 where you can take advantage of the low volatility of the principal in a fixed account,

00:38:32 but also get involved in long-term investing in an equity account

00:38:36 and show the benefits of that for your retirement plan dollars.

00:38:39 Again, let's adjust the scale on this.

00:38:41 This should be up right here.

00:38:42 This should be $10,000.

00:38:44 Again, we're starting back in 1976.

00:38:47 In this illustration, you put your $10,000 in at the beginning of 76 into the fixed account,

00:38:53 but instead of just rolling over your interest back right into the fixed account,

00:38:57 you reallocate it.

00:38:59 You figure what your earnings are for that year or that quarter,

00:39:02 whenever you have the opportunity to move,

00:39:04 and on a methodical basis, dump those earnings into the investment company of America.

00:39:09 You start at zero in the investment company of America

00:39:11 and just put your earnings in there from your fixed account.

00:39:15 Your $10,000 after 15 years is still worth $10,000.

00:39:19 The folks at Permacode did the job and preserved your principal,

00:39:23 and they allowed you a good stream of income that you dumped into the investment company of America.

00:39:28 By doing so, your entire account, which is made up of $10,000 fixed investment

00:39:34 and the dividends or shares acquired through investing in the investment company of America grew to $64,953.

00:39:43 I'll show the next slide contrasting the two styles.

00:39:47 Remember, the first style is you put your $10,000 in, and it grew to $38,856.

00:39:54 In the other one, you put your $10,000 in, but you invested or cross-invested your earnings to the investment company of America,

00:40:00 and you grew to $64,953,

00:40:03 which is a $26,000 difference over 15 years.

00:40:06 So you've been able to maximize your results,

00:40:09 but keep your $10,000, the money that you started with, intact over the long term.

00:40:15 I think that's kind of a goal we all would like to achieve,

00:40:19 kind of weighting the risk in return and damping it by using this particular strategy.

00:40:25 And again, your retirement plan allows you the flexibility to do that.

00:40:29 Let's recap, then, of what this investment strategy takes advantage of.

00:40:34 Again, it leverages the features of your plan.

00:40:38 Feature one, the availability to invest in a fixed investment and not have price volatility on that.

00:40:44 Two, the fixed investment gives you a stream of income that you can use to make an investment into an equity-type fund

00:40:51 and maximize your return and keep your principal dollars stable.

00:40:55 And lastly, the reallocation allows, that's the mechanism by which you can move your earnings over.

00:41:01 The summary, again, is going to summarize what we said about the different timeframes

00:41:05 and the earnings you could have got given the strategies.

00:41:08 I threw in the last kind of a mountain chart in the back.

00:41:12 This is for the investor who did not reallocate his investment,

00:41:16 rather put the $10,000 in 15 years ago in the ICA and just reinvested any earnings back into the fund.

00:41:23 That account in total would have grew to $102,581.

00:41:29 I think between these three strategies, you can find a comfort zone that might help you dampen the volatility of your investments,

00:41:38 but at the same time invest for the long term.

00:41:41 And somewhere you'll find a comfort zone between those.

00:41:44 I'm going to turn it over to Linda now, and she'll let you know how to get more information about the fund on an ongoing basis.

00:41:50 Thank you.

00:41:53 Thank you.

00:42:00 I'm going to take a slightly different approach and bring up some questions which you as investors or potential investors in ICA may have.

00:42:09 You may wonder, who invests in ICA? Who owns it?

00:42:13 Today there are more than 330,000 people or institutions who have invested in ICA, but who are they?

00:42:20 How many are individuals? How many are men? How many are women?

00:42:23 How many are institutions?

00:42:25 And by that we mean corporations or companies who have invested part of their employee programs in ICA,

00:42:32 or institutions such as colleges and universities, unions, or charitable foundations who have invested part of their assets in ICA.

00:42:40 And I would like to draw your attention to the annual report.

00:42:43 It contains a lot of valuable information.

00:42:45 For instance, on pages four to five, you'll find out who these investors in ICA are.

00:42:50 And I think it helps to bring this home and make it seem a little more real.

00:42:56 An important question to ask yourself is, what are your personal financial goals?

00:43:01 How are you going to reach them?

00:43:04 Now, this answer will be different for each of you, and you will each have different goals.

00:43:09 But sometimes it is helpful to read about real people, real investors who have established goals and have reached them.

00:43:16 And on pages six through nine of the annual report, there's a story of one family who, with their financial planner,

00:43:22 set some financial goals for their retirement and for their children's education.

00:43:26 They invested in part in ICA and some other vehicles, and they attained those goals.

00:43:30 And you might find this to be a helpful story for you when you establish your own goals.

00:43:37 You might be very interested in knowing what the portfolio of ICA consists of.

00:43:43 What companies does ICA invest in?

00:43:46 If you turn to page 12 and 13, you'll see a complete portfolio for ICA, divided up by industry sector.

00:43:56 I'll show you what percentage of the portfolio is with what company.

00:44:00 And you'll recognize all these companies as very well-known names.

00:44:03 It's a very diversified, very strong portfolio, and we encourage you to look this over carefully.

00:44:08 Vic and Chris have given you a general overview of ICA, its history, its performance.

00:44:14 However, you might be interested in knowing how ICA has performed on any given year or over any given time period.

00:44:22 Let's say, for instance, you would like to know if 10 years ago, on your daughter's birthday,

00:44:27 you invested $10,000 in ICA, what would your investment be worth today?

00:44:32 That brings it home in real terms to you.

00:44:35 Again, if you look in your annual report on pages 9 through 11,

00:44:39 you can see just how much such an investment would be worth.

00:44:42 You can run the calculation for any year and see just what your investment would have grown to.

00:44:48 Again, I think this is a really helpful tool, and you might enjoy doing that.

00:44:53 What literature is available on ICA so that you can become more familiar with the fund and its performance?

00:44:58 There are three main pieces which are on the back table.

00:45:02 I suspect we may be out of annual reports by now, but your human resource rep will have additional copies, so please contact them.

00:45:09 Here's the annual report, which we strongly encourage you to read very carefully.

00:45:14 The practice, which makes a good companion piece, and as Dave mentioned in his discussion,

00:45:18 it contains more technical information, but it is a good addition to the general information you'll obtain in the annual report.

00:45:25 We also have a piece called Fund Facts, which gives you a very quick overview of ICA, its history, its performance,

00:45:32 and highlights the outstanding features of the fund.

00:45:35 We encourage you to take these home and really go over them carefully.

00:45:40 As I said, all three of these pieces will be available through your human resource rep, your employee benefits department,

00:45:46 or if for some reason they are temporarily out or you're away from the office and you want a copy.

00:45:52 We have an 800 number, which you can feel free to call.

00:45:55 It's the American Funds Line literature number, and again, ICA is part of the American Funds family.

00:46:01 The number is 1-800-421-1900, extension 11.

00:46:06 Please identify yourself as a Syntax Employee when you call and state that you are a planned participant.

00:46:12 They will then know who you are and why you're calling, and they will be happy to get this information to you.

00:46:19 You might be interested in knowing how you can chart ICA's progress.

00:46:24 Dave showed how you can find Vanguard listings in the financial section of the newspaper.

00:46:29 It's the same with the American Funds.

00:46:31 Go into the finance or business section, look for the mutual fund listings, and then look for the American Funds family,

00:46:38 and you will find ICA listed under the American Funds.

00:46:42 The inside back cover of your annual report will tell you again how to do this and how to interpret the numbers

00:46:47 so you can track the progress of the fund on a daily basis, and you might enjoy doing that.

00:46:52 We've only had time to give you a very brief overview of ICA.

00:46:56 We encourage you to take home the material available so that you become very familiar with the fund and its performance.

00:47:03 We ask you to ask yourself some serious questions about what your financial goals are.

00:47:08 We are very proud of ICA and its consistently superior performance over time,

00:47:14 but not every investment is right for every person, only you can decide that.

00:47:18 We feel ICA has a very strong story of success and offers some real investment advantages,

00:47:23 so we hope you'd like to get to know us better, and thank you for your time today.

00:47:53 Thank you.