1

Stable Value Funds Overview

October 1CFTC
Stable Value Investment Association

f Dedicated to educating plan sponsors and the public oimportance of saving and investing for retirement and the that stable value funds can make to a financially secure ref Voice for the stable value investment community on issstable value and retirement securityf Represents all segments of the stable value investmenplan sponsors, investment managers, bank issuers and inissuersf Members collectively manage almost $561.2 billion in sassets
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Why Stable Value Is a Key Part of Asset Allo

f Stable value is a fundamental component of defined contribution plans because it offe

» Principal protection» Steady, predictable returns consistent with a conservative principal protection v» Benefit-responsive liquidity

f Stable value is a low-risk, cost-effective investment option used by millions of participa

achieve their desired risk tolerance in asset allocation

f Participants who invest in stable value funds are:

» Retirees or individuals nearing retirement who will begin to access retirement fun

the near future

» Conservative investors who seek a core portfolio that provides an attractive return 

with the opportunity for low volatility and preservation of capital

» Moderate or aggressive investors seeking diversification to enhance their overall 

adjusted returns

» Individuals seeking an alternative to money market funds and short-term bond fun» Individuals who have been placed in a stable value fund by default because they 

made an asset allocation decision. 

Stable value funds are defined by the Financial Accounting Standards Board in “Reporting of Fully Benefit-Responsive Investment Contracts HeCompanies Subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pension Plans, FSP AAG INV-

Money Market Funds 

Stable Value Funds

Bond Funds

Balanced Funds

Growth & Income Funds

Growth Funds

International/GlobEquity Funds

Funds to the left have potentially more inflation risk and less investment risk

Funds to the right hainflation risk and mor
401(k) Plans that Offer Stable Value Funds

39.8

5.3

12.6

8.3

4.9

25.5

54.1

15.4

5.9

3.4

17.7

Average Asset Allocation of 401(k) Accounts for Plans 

with Stable Value Fund Investment Option and No 

Company Stock

2008 2006

33.2

5.3

7.1 7.1

43.8

10.2

5.1

Average Asset Allocation of 401(

with Stable Value Fund Inves

Employer Sto

2008 20

Source: 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008, Research Perspective, October 2009, Volume 15, Number 2, InvestmePlan Asset Allocation, Account Balances, and Loan Activity in 2006, Research Perspective, August 2007, Volume 13, Number 1, Investment Company Inst
Participants of All Ages Use Stable Value

Source: 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008, Research Perspective, October 2009, Volume 15, Number 2, Investm

38.0

15.2

3.0

9.3

5.5

8.4 7.8

1

47.0

9.1 8.8

10.3

5.2

7.4

8.7

44.1

6.8

8.2

10.9

5.7

10.4 10.1

35.2

6.2

8.3

12.7

7.3

16.2

10.5

28.0

5.5

7.7

14.5

9.4

23.2

8.4

37.4

6.6

8.2

12.3

7.1

15.2

0.7

Equity Funds Lifecycle Funds Non-Lifecycle 

Funds

Bond Funds Money Market 

Funds

Stable Value 

Funds

Company Stock 

20s 30s 40s 50s 60s All

Asset Allocation by Age for 2008
0%

10%20%30%40%50%60%70%80%90%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

Asset Allocation 1997 to June 2010

Stable Value Money Market Bond Company Stock Equities Speciality Fun

Participants Consistently Use Stable Value

Source: Hewitt 401(k) IndexTM Observations 1997 to March 2010. Hewitt 401(k) Index allocation to stable value ranges from 17% to 37% 
-4.0000%-3.0000%-2.0000%-1.0000%

0.0000%1.0000%2.0000%3.0000%4.0000%

12/1/1988

6/1/1989

12/1/1989

6/1/1990

12/1/1990

6/1/1991

12/1/1991

6/1/1992

12/1/1992

6/1/1993

12/1/1993

6/1/1994

12/1/1994

6/1/1995

12/1/1995

6/1/1996

12/1/1996

6/1/1997

12/1/1997

6/1/1998

12/1/1998

6/1/1999

12/1/1999

6/1/2000

12/1/2000

6/1/2001

12/1/2001

6/1/2002

12/1/2002

6/1/2003

12/1/2003

6/1/2004

12/1/2004

6/1/2005

//

Volatilty of Returns

December 1988 through June 2010 

Stable Value Funds Money Market Funds Intermediate Bond Funds 

Stable Value Provides Capital PreservatioConsistent, Steady Returns
Stable Value Offers Higher Return PotenMoney Market Funds

0.0000000.5000001.0000001.5000002.0000002.5000003.0000003.5000004.0000004.500000

12/1/1988

6/1/1989

12/1/1989

6/1/1990

12/1/1990

6/1/1991

12/1/1991

6/1/1992

12/1/1992

6/1/1993

12/1/1993

6/1/1994

12/1/1994

6/1/1995

12/1/1995

6/1/1996

12/1/1996

6/1/1997

12/1/1997

6/1/1998

12/1/1998

6/1/1999

12/1/1999

6/1/2000

12/1/2000

6/1/2001

12/1/2001

6/1/2002

12/1/2002

6/1/2003

12/1/2003

6/1/2004

12/1/2004

6/1/2005

Growth of a $1

December 31, 1988 through June 30, 2010

Stable Value Funds Money Market Funds Intermediate Bond Fun
Benefit Responsiveness Distinguishes Stable VaOther Asset Classes

3⁄4 Benefit-responsiveness means participants transact at book value (p

accrued interest)

f Benefit responsiveness helps the stable value fund achieve the f

objectives:

» Principal preservation with capital appreciation» Consistent, conservative returns » Returns similar to bond funds with the liquidity of money mar

f Benefit responsiveness is provided through one or more different investment contractsf Benefit responsiveness criteria is established by the Financial Ac

Standards Board (FASB) and all five requirements must be met

Stable value funds are defined by the Financial Accounting Standards Board in “Reporting of Fully Benefit-Responsive Investment Contracts 

Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pension 

FSP AAG INV-1 and SOP 94-4-1”
FASB Requirements for Benefit Responsiveness

f FASB established criteria for benefit responsiveness in FSP AAG INVsatisfied:

1. Investment contract is effected directly between the fund and issuer and prohibassignment of the contract or its proceeds to another party without the consent of 2. The repayment of principal and interest credited to participants in the fund is a fof the issuer of the investment contract, or prospective interest crediting rate adjusprovided to participants in the fund on a designated pool of investments held by thissuer who is a financially responsible third party and provides assurances that the interest crediting rate do not result in a future interest crediting rate that is less tha3. The terms of the investment contract require all permitted participant-initiated trafund to occur at book value 4. An event (such as bankruptcy) that limits the ability of the fund to transact at boissuer and that also limits the ability of the fund to transact at book value with partimust not be probable of occurring 5. The fund itself must allow participants reasonable access to their funds

Stable value funds are defined by the Financial Accounting Standards Board in “Reporting of Fully Benefit-Responsive Investment Contra

Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pens

FSP AAG INV-1 and SOP 94-4-1”
How Benefit Responsiveness Is Achieved

f Benefit responsiveness is the ability of plan participants to tranvalue (principal plus accrued interest)f Benefit responsiveness is delivered by a stable value investmefrom a financially sound bank or insurance company that provides book value (principal plus accumulated interest), regardless of the market valuef Stable value investment contracts are:

» Guaranteed Interest Contracts and/other General Account 

» Separate Account Contracts» Synthetic GICs

f Stable value funds may hold one contract type or some combiinvestment contracts

Stable value funds are defined by the Financial Accounting Standards Board in “Reporting of Fully Benefit-Responsive Investment Contracts He

Investment Companies Subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pension Plans, FSP and SOP 94-4-1”
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Managed portfolio 

of high-quality, fixed income securities

Stable Value Fund

•The book value investment conpreservation of principal and a s•The investment contract smoothamortizing gains and losses oveportfolio•This smoothing is triggered thromechanism and insulates agains

Stable Value 

Portfolio

Investment 

Contracts

Asset Value

Time

Market Value 

of underlying 

portfolio

Wrap Value – Book Valu

How Benefit Responsiveness Works
2 Years 3 Years 

Fund 

Balance

$$

Crediting Rate Formula Smoothes the Portfolio Yiel

Keeps Market and Book Value Close Together

Book Value

Market Value MV(1+ytm) = BV(1 

The equivalent formula, expresse

CR = [(MV/BV) x (1+

1 Year

Benefit Responsiveness: How Market Value and Book Value Converge

d 

1/d 
Stable Value Investment Contracts

Types of 

Stable Value Contracts Description Rate of Return 

Guaranteed Interest Contracts (GICs) and other General Account Contracts

Contracts and agreements with an insurance company that provide principal preservation, benefit responsiveness, and a guaranteed fixed or indexed rate of return backed by the assets of the insurer’s general account. 

Guaranteed regardless of the performance of the underlying assets.

Owcoan ac

Separate Account Contracts

Contracts and agreements with an insurance company that provides principal preservation, benefit responsiveness, and a guaranteed rate of return backed by assets held in a segregated account separate from the insurer’s general account. 

May be fixed, indexed, or reset periodically based on the actual performance of the segregated assets. 

Owcoa sthe the the 

Synthetic GICs Contracts or agreements with a bank or insurance company that 

provides principal preservation, benefit responsiveness, and a contracted rate of return relative to a portfolio of assets held in an external trust. 

Provides a periodic rate of return based on the actual performance of the underlying assets.

Dipa
Stable Value Fund Are Managed in Three Ways

f Separately Managed Accounts

» Specifically customized to meet the objectives of a single pla

include the assets of other, unrelated plans 

f Commingled Funds

» Designed to combine the assets of unrelated plans, enabling 

economies of scale within a single stable value strategy

f GICs and Other General Accounts

» Generally hold or invest in a single group annuity contract is

the plan, through which the plan sponsor receives a direct asprincipal and accrued interest from the issuer

f All have a contractual element that protects against interest rate 

f All stable value funds are managed to meet FASB’s requirement

responsiveness

Stable value funds are defined by the Financial Accounting Standards Board in “Reporting of Fully Benefit-Responsive Investment Contracts 

Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined Contribution Health and Welfare and Pension 

FSP AAG INV-1 and SOP 94-4-1”
External

36%

In-house

2%

Pooled 

Funds

23%

Life Co.

39%

Stable Value Assets Managed

$561.2 billion in 2009

Looking at Stable Value Funds: Overview

Source: 14th Annual SVIA Stable Value Investment and Policy Survey, which covers stable value fund assets as of December 31, 2009

Universe External In-

Stable Value Asset Managed (billions) $561.2 $202.5 $Number of Plans 173,050.00 867.00 5Average Size of SVF (millions) $3,062.03 $499.83 $3,Net 12-month Return 3.60% 3.26% 4Duration 3.21 2.84 3Credit Quality S&P Rating AA AA+ 
Characteristics of a Stable Value Portfolio

f High credit quality, fixed income securities

» Portfolios will have an investment grade strategy

» Duration is 3.21 years for $561.2 billion as of December 31, 2009» Duration is 2.61 years for $435 billion as of June 30, 2010

f Broadly diversified

» In general, the exposure to any single issuer of investment se

does not exceed five percent of fund assets

f Balances duration with crediting-rate responsiveness

» Crediting rates are 4.68% for $561.2 billion as of December 31, 2009

» Crediting rates are 3.25% for $435 billion as of June 30, 2010

f Maintains a source of ready liquidity

» Portfolios should be structured to provide sufficient liquidity w

plan benefits

f Each characteristic should be viewed and evaluated as a compo

overall strategy employed

Source: SVIA’s Key Investment Management Principles for Stable Value Funds ,The 13th Annual SVIA Stable Value Investment and Policy 

SVIA Stable Value Quarterly Characteristics Survey.
Stable value has proven performance and regula

f Over 35 years of successful regulation of stable value funds and investment contracts

» Office of Comptroller of the Currency 

for bank contracts

» State Insurance Commissions for 

insurance contracts

» U.S. Department of Labor’s 

Employee Benefits Security Administration and state pension plans, which often subject themselves to ERISA-like standards ‐37%

5.24%

4.75%

26.40%

5.93%

3.52%

9.65%

3.57%

‐50%‐40%‐30%‐20%‐10%

0%

10%20%30%

S&P Index

Barclays Capital Aggregate Bond Index

Stable Value

December 2008 to 

Dec‐08 Dec‐09 

Source: Stable value returns/crediting rates are from SVIA’s Stable Value Quarterly Characteristics Survey .
Stable Value Funds Continue to be a Valued Inv

$347.00 $358.00 $356.00 

$388.00 

$423.00 

$-

$50.00 

$100.00 $150.00 $200.00 $250.00 $300.00 $350.00 $400.00 $450.00 $500.00 

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 

2.53%

11.79%

22.09%

2

‐0.80%

9.03%

9.21%

3.36%

3.63%

billions

Source: SVIA Stable Value Quarterly Characteristics Survey through June 2010. 27 stable value managers participate in this surv

Growth from quarter to quarter Growth from Dec-2008
For more information:

Stable Value Investment Association

1025 Connecticut Avenue, NW

Suite 1000

Washington, DC 20036

Phone 202-580-7620

Fax 202-580-7621

www.stablevalue.org