T. Rowe Price Associates, Inc.

100%

Specialty broad U.S. stock fund, focusing on small capitalization stocks

Russell 2000 Index

Actively Managed

VALIC Retirement

Fees and expenses are only one of several factors that should be considered when making investment decisions. More information on fees and expenses can be found in the FAQs on the MyFRS.com website.

On an annual basis, marketing companies estimate the fees that FRS Investment Plan participants will pay as a percentage of their mutual fund account assets; e.g., 0.50% per year. These figures reflect any rebates or reductions negotiated by the State Board of Administration and are published in the Fund Profiles and other plan materials.

However, the actual fees you would pay as an investor in a mutual fund are not guaranteed and will vary over time when expressed as a percent of asset values. Mutual fund boards of directors can change fees without the FRS's permission. Changes occur throughout the year in the day-to-day expenditures made by mutual funds to cover their operating expenses and these changes are passed through to shareholders. The amount of assets under management changes from period to period and so fees expressed as a ratio of assets will vary, even if the actual dollar expenditures do not. Also, some mutual funds have fees that can rise or fall depending on performance compared to a benchmark.

The actual expenses paid for mutual funds included in the FRS Investment Plan are detailed in their annual or semi-annual reports for previous periods. These reports are available free of charge by calling the MyFRS Financial Guidance Line (1-866-446-9377). Please note that these reports will not reflect any rebates or reductions negotiated by the State Board of Administration.

Each industry analyst follows 100-150 companies and at any given time approximately fifty companies are under close scrutiny as potential investments. They begin with a quantitative analysis of the earnings growth rate, balance sheet, and current valuation of a stock. Sources for this data include annual reports, standard on-line industry databases, conference presentations, etc. Attractively valued companies are subjected to further analysis to ensure that the essential elements of their operations are also sound. The core of their research process is their company visits. They meet with company management to discuss their quantitative findings, get a firsthand look at the operations, and make their own assessments of the skills, commitment, and resources commanded by the company. When the research is complete, the analysts use a proprietary rating system to consolidate their findings and recommend whether to buy, hold or sell an individual stock.

Utilizing a bottom-up fundamental approach, their investment team begins with a universe of companies ranging in market capitalizations from $150 million to $2 billion at the time of purchase (roughly equivalent to the Russell 2000 an S&P 600 benchmarks). They emphasize "growth at a reasonable price," seeking companies which are reasonably valued relative to their industries, and have demonstrated consistent earnings growth based on solid fundamentals. In their valuation analysis, they measure value through absolute P/E, relative P/E, P/B, P/CF, price/discounted cash flow and price/assets. In addition they prefer companies that demonstrate controlled, sustainable growth based on a clearly articulated business plan and whose operating margins, returns, and overall financial status are stable or undergoing positive change. Management should be comprised of seasoned entrepreneurs with a solid grasp of their industry and a significant financial commitment to their firm. They look for a catalyst that will drive a stock price to its full potential valuation.

Portfolios will typically hold between 200 and 250 stocks. Turnover averages 34% annually. Sectors and industries are limited to 25% and 20% (respectively) of portfolio assets, and single issues to 5%. They may invest up to 10% of the assets in foreign issues including ADRs.

A stock may be sold if: its true valuation is realized; its fundamentals deteriorate; management changes or shifts its focus; the catalyst for value realization disappears; or, a superior investment opportunity arises.