The investment choices offered by MMBB for your Retirement Plan, TDA and TAS accounts are made up of a variety of investment vehicles. Remember, before you set out on your journey, you will want to know if your vehicle is a jet, a bus or a rowboat. Investment vehicles are distinguished both by management style (active or passive) and by asset class (whether the underlying investments are equities, bonds or some other type). This section describes different investment vehicles and their characteristics.

Passive management refers to managing a fund to track or simulate a target market index, so as to match, as closely as possible, the total return of that index. For example, a popular equity index is the S&P 500 Stock Index. On the bond side, a portfolio might track the Lehman Brothers Aggregate Bond Index. Returns can be both positive and negative, tracking the movements of the applicable index.

Active managers may use a market index to gauge the investment success of their portfolios, but they buy and sell securities based solely on the manager's investment judgment and market analysis. Active managers strive to outperform whatever index they use as a benchmark.

Balanced funds are portfolios made up of a mix of asset classes — equity investments, bonds and cash or short-term investments. By balancing the proportion of investments in each of those categories, balanced portfolios strive to maximize the advantages and minimize the disadvantages of the individual asset classes. The proportion of equities, bond and cash in a balanced portfolio will change, depending on which type of investment becomes favored in the marketplace.

Risks and Rewards: Balanced portfolios carry the same risks and rewards found in the individual asset classes described below. However, the cumulative effect of the risks and rewards may be balanced out because of the spread of investments.

Cash equivalents are portfolios that purchase short-term investments like money market instruments, bank certificates of deposit and U.S. Treasury bills. A money market fund is a typical cash portfolio. This could be considered a "rowboat" investment class — safe but slow.

Risks: In general, these investments have a lower rate of return compared with other types of investments, and may not outpace inflation over time.

Rewards: The amount you invest generally will not fluctuate in value. Plus, your investment will earn current interest income.

Equity portfolios purchase stock, or units of ownership, in companies. These are the "jets" of the investment world, with the ability to rise and fall dramatically. The value of the investments may rise through capital appreciation (if the market price of the stock goes up and the stock becomes worth more than its purchase price) and through dividends (a share of the company's profits paid out to shareholders). Market influences such as political events and actions of the Federal Reserve System also may cause the value of the investments to fall.

Equity portfolios can be U.S. funds (investing in stocks of U.S. companies) or international funds (investing in the stocks of companies located outside the United States).

Risks: If a company performs poorly, investors can lose all or part of their investment. Plus, the price may drop when the overall market goes down, even if a company is doing well. International stocks carry the added risks of currency exchange rates and political instability.

Rewards: As an owner, you may share in any company profits. Stocks have been one of the few investments that historically have beaten inflation.

Bonds, also called fixed income investments, represent debt rather than equity. Bonds generally fall between cash equivalents and equities on the risk/return scale — a "bus" rather than a rowboat or a jet. When you buy a bond, you are buying an IOU. The issuer of the bond promises to repay you the original amount when the bond matures, plus a stated rate of interest.

Bonds can be issued by a corporation, government or government agency. Corporate bonds often pay higher interest than government bonds. On the other hand, federal government bonds are considered the safest of all bonds because they generally are guaranteed by the U.S. government.

Risks: If interest rates rise, the value of a bond's original value can decline. You also may lose all of your investment if the bond issuer defaults on the bond (which may happen with corporate bonds).

Rewards: Bonds can provide a regular source of income. Bond interest rates also are generally above interest rates on short-term investments (like cash equivalents).

A socially aware investment portfolio invests in the stocks of companies that meet certain moral or social criteria. For example, the portfolio may avoid the stocks of companies that market products considered objectionable (such as tobacco or alcohol), or companies that are based or do business in countries whose governments are repressive or violate human rights. On the other hand, the portfolio might seek out stocks of companies that are making extra efforts to protect the environment.

Risks: Socially responsible portfolios carry the same risks as other equity portfolios. In addition, by avoiding profitable but objectionable stocks, they may lose potential earnings.

Rewards: As in risks, potential rewards are the same as those in other equity investments. In addition, you have the satisfaction of buying stock in companies you admire.

* Past performance is no guarantee of future results

Source: Stock, Bonds, Bills, and Inflation 1999 Yearbook, Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved.