TWA Pilots’ DAP/401(k) Plan Quarterly Review alpa July 1997 Your DAP/401(k) Portfolio Dr. Jekyll or Mr. Hyde? ight now, your DAP/401(k) holdings, the more volatility, or risk, portfolio has a risk/return you should expect. The Moderate personality. But is it the Model Portfolio includes 65% A Message from the R one you gave it or has it stocks. Captain Doe’s portfolio Investment Committee developed one of its own over time? contains 82-1/2% stocks, exposing With this anniversary issue of “Heads Up,” Are you overdiversified? Taking on him to more volatility risk from the the TWA Pilots DAP/401(k) Plan more risk than you have to? Have fluctuations of the stock market Investment Committee marks four full you added new funds without over the past three years. Since his years of operation under the self-directed reviewing your objectives? Or is your mix earned a slightly higher return, cash account structure put into place July portfolio out of balance because of you might ask yourself, “Was the 1, 1993. This long-sought change in the the recent stock market boom? extra risk worth it?” former TWA Pilots Trust Annuity Plan (or Many TWA pilots may think they Suppose the stock markets had “B Plan”) was the culmination of persistent are taking conservative or moderate declined during this period. Captain efforts by a number of TWA pilots, working risks with their retirement savings Doe’s return would likely have in officer, representative and MEC because they started out with one of lagged behind the Moderate Model committee positions of the Air Line Pilots the Model Portfolios. They don’t because his portfolio had a greater Association, to provide a substantially count the stand-alone funds they exposure to stocks. If Captain Doe’s improved retirement investment vehicle added in the meantime, the return had been significantly higher for TWA pilots. We believe that the TWA selection they made through the than the Model Portfolio, he could Pilots DAP/401(k) Plan has met or Fidelity Funds Window, or the way justify the added risk. Otherwise, exceeded the expectations of these pilots in their modest stand-alone additions Captain Doe may want to recon- every respect, and we would like to have grown in value. sider his asset allocation. If he acknowledge their role in bringing this In the aggregate, a portfolio’s total believes, for example, that interna- state-of-the-art retirement plan into return is the sum of its weighted tional or growth stocks are going to existence. While their names are too components’ returns. For example, increase in value faster, he might numerous to be listed here, they should “Captain John Doe” holds a stand pat. Otherwise, by selecting a and will be remembered by all TWA pilots portfolio with 50% in the Moderate Model Portfolio, he may realize for their vision and devotion to the highest Model Portfolio, 25% in the similar returns without risking so traditions of the Air Line Pilots Association. International Stock Fund and 25% much of his assets to stock Over the last four years, your Investment in the Growth Stock Fund. His volatility. Committee (composed of pilot, company, portfolio’s return will be the sum of A Simple Exercise and outside investment professional half the Moderate Model Portfolio members) has been mindful of the trust Use the table on page 2 to return, and a quarter each of the you have placed in us and the Plan staff to determine the equity exposure of International Stock and Growth ensure that your DAP/401(k) accounts are your own portfolio. Stock Funds’ returns. Suppose he administered to the very highest standards. wants to roughly estimate a 3- We believe we have achieved that year total return for that Portfolio Weight in 3-year Fund Weighted objective, and we are confident that the Investments Portfolio Return Return portfolio (see table to the right). (From (Weight in Portfolio x retirement investment vehicles provided to Heads Up) Fund Return) In this example, Captain Doe’s the TWA pilots in this plan are as good or Moderate 50% 12.53% 6.27% better than any available in the defined portfolio actually outperformed Model the Moderate Portfolio by a few contribution plan industry. We hope you International 25% 7.87% 1.97% are pleased with the results of our efforts, basis points. But at what Stock and that you are finding your personal increase in risk? You can Growth 25% 17.33% 4.33% consider exposure to the Stock financial goals more attainable through increased volatility of stocks as TOTAL 100% — 12.57% your participation in this very special a yardstick for risk—the higher defined contribution retirement plan, Source: TWA Pilots’ DAP 401(k) 3 year annualized designed by TWA pilots, for TWA pilots. your percentage of equity performance as reported in March 1997 “Heads Up.” Continued on page 2 HEADS UP • JULY 1997 1 Your DAP/401(k) Portfolio cont. from front DAP/401(k) News 1. Identify the plan options you use and write averaged more than a percent less return New Fund Components the percentage of each in Column 2. than the Aggressive Model Portfolio at Since January 1, 1997, three new Example: Suppose a portfolio contains 20% the same exposure to equities. Moreover, Stable Value Fund, 45% Equity Index Fund, funds have been added to the it would have also underperformed the 15% International Stock Fund, and 20% DAP/401(k) Plan options. Aggressive Growth Fund. Enter these Moderate Model Portfolio that has even percentages in Column 2. less exposure to equities. ■ In the International Fund, Janus Overseas replaces the Morgan 1234567 Stanley Emerging Markets and Morgan Stanley Instl Asia ex-Japan. Percent Percent of Stock/Stable Simulated Percent Weighted Option Invested Option Value Average Equity Average ■ In the Aggressive Stock Fund, the in Option in Stocks Ratio Annual Exposure Annual Return* Return* MFS Instl Emerging Equities and Franklin Small Cap Stable Value Example: 20% 0% 0/100 9.46% Example: 0% Example: 1.9% Growth replace American Century Conservative 100% 100/0 16.23% Equity Income 20th Vista and PIMCO Equity Index Example: 45% 100% 100/0 15.59% Example: 45% Example: 7% Opportunity. Growth Stock 100% 100/0 15.26% Please see the back page for fund International Example: 100% 100/0 13.83% Example: Example: component weightings. Stock Fund 15% 15% 2.1% Aggressive Example: 100% 100/0 14.22% Example: Example: Transfer Fees Growth Stock 20% 20% 2.8% Please remember that 12 transfers are Conservative 40% 40/60 12.53% Model Portfolio permitted per year, per plan. Additional activity will be charged at Moderate 65% 65/35 14.00% Model Portfolio $100 per transfer. For 1997, the Agressive 80% 80/20 14.85% numbers began accruing May 1. Model Portfolio Fidelity Funds 100% 100/0 ? Plan Communications Notebook Window** If you have lost or misplaced your TOTALS Example: Example: Example: Plan Communications Notebook, you 100% 80% 13.8% may order a new one for $15 from the Source: Simulated average annual returns based on 18-year results of the DAP/401(k) Funds’ benchmarks: ML DAP/401(k) Plan office at Govt. Agency 1-2.99 (Stable Value Fund), Russell 1000® Value Index (Conservative Equity Income Fund), 314-739-7373. Wilshire 5000 Index (Equity Index Fund), Russell 1000® Growth Index (Growth Stock Fund), MSCI EAFE Index ® (International Stock Fund), Russell 2000 Index (Aggressive Growth Stock Fund). Retirees Nearing Age 70-1/2... **Try to get as close to 18-year history with your Fidelty Funds, or their benchmarks, as you can. Please double-check your DAP/401(k) 2. Multiply Column 2 by the percentage of Model Portfolios beneficiary form for accuracy. If it is stocks in that fund shown in Column 3. not up-to-date, your minimum distrib- Enter the answer in Column 6. Does your portfolio’s equity exposure ution may be higher than necessary. Example: 20% Stable Value Fund x 0% equal or exceed that of any of the Model equity = 0% Portfolios? How do your returns Contact Benefits Express to review 45% Equity Index Fund x compare? If you have more equity your form or file a new one. 100% equity = 45% exposure and a lower or similar return, ALPA Retirement Planning Kit 15% International Fund x you may want to revisit your asset 100% equity = 15% allocation. Even if you have a higher Please contact TWA MEC Benefits 20% Aggressive Growth Fund x equity exposure and a higher return, it’s Specialist Mary Ulett at (314) 770- 100% equity = 20% always a good idea to review your needs, 8500 or CompuServe at 73714,64 to 3. Multiply Column 2 by your funds’ receive your kit. Include a payroll simulated average annual returns shown in risk tolerance and time horizon to Column 5. Enter the answers in Column 7. ensure your equity exposure is appro- number, intended retirement date and Example: 20% Stable Value Fund x 9.46% priate for you. your spouse’s name and birth date with your request. HU = 1.9% The Model Portfolios are highly diver- 45% Equity Index Fund x 15.59% = 7% sified, automatically rebalanced and 15% International Fund x have performed well when compared to 13.83% = 2.1% investment, but be sure to consistently their benchmark. You may want to 20% Aggressive Growth Fund x monitor your equity exposure. You may 14.22% = 2.8% consider re-allocating to the Model increase your risk/return potential with Portfolio that best suits your objectives. 4. Total Column 6 and then Column 7.