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A Newsletter for the State of Connecticut Deferred Compensation Plan

February 2004

State Comptroller Nancy Wyman Investing always involves some degree of risk, regardless of the investment or savings vehicles you choose. In this issue, we discuss the different types of risk you may face, and how you can adjust your portfolio to minimize your risk. seal of state of connecticut comptroller's office
State Comptroller Nancy Wyman

What is Risk?

Every investor knows nothing is risk-free, but there are different types of risk as well as different degrees of risk. It's not just investing in stocks that involves risk - even if you invest your money in a conservative vehicle such as a bank account or CD, there's still the risk of inflation eating away at your savings.

Investment Risk

Investment risk refers to the possibility that your investments will lose or not gain value. While investing in the stock market generally carries with it a greater degree of risk than more conservative investments, it is worth noting that the stock market has outperformed all other types of investments over the past 20 years. For example, for the 20-year period ending in 2002, stocks returned 14.53%, while bonds trailed with an 11.25% return, and cash equivalents weighed in with a 5.68% return.* And remember that the State of Connecticut Deferred Compensation Plan offers several investment options that focus on preserving capital, which minimizes the risk of losing your initial investment. Including these types of funds in your plan portfolio may ease some of your concerns about investment risk.

Market Risk

This is the probability that a security's value will move along with its overall market. For example, if the stock market is declining in value, mutual funds that invest in stocks generally will fall in value as well. Diversifying your investments can help minimize your vulnerability to market risk because different segments of the market tend to underperform at different times. If one type of investment is experiencing a downturn, it can be balanced by another type of investment that may be on the upswing.

*Source: Ibbotson Associates. The stock return was represented by the S&P 500 Index, bonds were represented by 50% Lehman Brothers' Long Term Credit Index and 50% Long Term Government, and 30-day Treasury Bills represented cash equivalents.

Interest Rate Risk

This type of risk is the possibility of a decrease in the value of a security, especially a bond or bond fund, resulting from a rise in interest rates. As interest rates increase, the market value of a bond decreases. This risk can be reduced by diversifying the durations of the fixed-income investments that you are holding at any given time. If you invest in a bond fund, the fund manager will do this automatically. This means the fixed income investments in a bond fund portfolio will have varying periods over which the fixed income is paid (e.g., 30, 60 or 90 days) and will mature on different dates.

Credit Risk

This type of risk, which affects bonds and bond funds, focuses on the ability of a bond issuer to repay its debt as promised when the bond matures. If a bond issuer defaults, principal and interest payments to investors may be paid late or may go unpaid. Bonds issued by the federal government almost never default. Bonds issued by corporations are more likely to default, since companies can go bankrupt. Municipalities can also default, although this is much less common than corporations defaulting. Bonds and bond funds receive credit ratings by such agencies as Moody's and Standard & Poor's. Generally, the higher the rating, the lower the credit risk.

Inflation Risk

The value of your investment will decrease as inflation shrinks your purchasing power. In other words, $1 today generally will purchase more today than it will five years from now. When saving for retirement, inflation is a real concern. Why? Because if you overlook the potential impact of inflation on your retirement savings, you may not have the resources at retirement you are planning on. For example, inflation reduces the real return on your investments. If your investments earn a 6% return each year, a 2% inflation rate reduces your real rate of return to just 4%. Inflation also reduces the purchasing power of your money. Even a relatively modest annual inflation rate of 3% can double the cost of a gallon of milk - from $2 to $4 - in about 24 years. And, if you are a conservative investor who believes your money is most safe in a bank account or CD, you need to consider the risk of inflation reducing the purchasing power of your savings. Add to that risk the fact that these vehicles typically offer a relatively low rate of return, and that you have to pay taxes on the interest such accounts earn, and you might be disappointed in how little your account balance grows over the years.

The Advantages of a Diversified Portfolio

Keep in mind that maintaining a diversified portfolio is the hallmark of a wise investor. By distributing your assets among different types of investments and asset classes, you protect yourself from undue risks.

IMPORTANT NOTE: The information presented in this newsletter is not intended as investment advice. Its purpose is to help you understand the investment choices available through the State of Connecticut's Deferred Compensation Plan. Your financial strategy and investment choices are entirely your own and should reflect your personal needs and circumstances.

State of Connecticut personnel, including the Human Resources Department staff, cannot provide investment advice. For more information, you may want to consult with a professional financial advisor.

The investment information is current as of December 31, 2003.

Change in Fund Offerings

The Phoenix-Oakhurst Managed Assets A Fund will be replaced by the Phoenix-Oakhurst Balanced Fund in early March, subject to shareholder approval. If you are a plan participant and have assets invested with Phoenix Investment Partners, you will receive information about this change from Phoenix.

Investment Fund Performance & Operating Fees

For the Period Ending
December 31, 2003

You may invest your contributions with any one of the plan's three financial services organizations: The Hartford, ING Financial Advisers, LLC (member SIPC), and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices. They show the historical rates of return for each financial services organization's available investment options and the various operating fees that may be assessed against these options for the period ending December 31, 2003.

The rates of return columns are "net of expenses" and reflect the actual returns that would be applied to your account. This means that they already exclude the operating fees a financial services organization may charge you for managing, investing or marketing a particular investment option. Operating expenses appear in separate columns.

Results are historical and not intended to portray future performance. Current performance may be less than figures shown.

Please note that investment benchmarks may differ from the benchmarks provided in the funds' prospectuses.

About Your Fund Choices

When comparing two similarly styled mutual funds, be sure to:


THE HARTFORD
Return on Investments (net of expenses) Operating Expenses
Last Quarter Rates of Return
Level of Risk Investment Options 10/1/03-12/31/03 1 Year Annualized 5 Years Management Fees Other Expenses Total Expenses
High American Century Ultra 9.07% 24.95% -2.02% 0.99% 0.70% 1.69%
Janus Adviser Capital Appreciation 8.92 18.09 0.98 0.65 1.23 1.88
Russell 1000 Growth Index 10.41 29.75 -5.11 
Templeton Foreign 11.61 29.60 7.29 0.61 1.31 1.92
MS EAFE Index 17.11 39.17 0.26 
AIM Small Cap Growth 11.34 38.15 9.55 0.71 1.32 2.03
Russell 2000 Growth Index 12.68 48.54 0.86 
Hartford Small Cap Value HIS 14.42 37.49 14.99 0.87 0.75 1.62
Russell 2000 Value Index 16.37 46.03 12.28 
Oppenheimer Global 16.78 42.08 9.28 0.67 1.26 1.93
MS World Index 14.37 33.76 -0.39 
Lord Abbett Midcap Value 12.15 24.00 13.22 0.54 1.47 2.01
Russell Midcap Value Index 15.22 38.07 8.73 
MFS Value 13.74 23.83 5.77 0.60 1.35 1.95
Russell 1000 Value Index 14.19 30.03 3.56 
Hartford Capital Appreciation HLS 18.38 41.38 9.84 0.64 0.75 1.39
Calvert Social Investment Equity 9.52 21.46 6.82 0.70 1.29 1.99
Hartford Index HLS 11.85 27.24 -1.71 0.40 0.74 1.14
S&P 500 Index 12.17 28.67 -0.57 
Hartford Midcap HLS 13.48 36.71 15.91 0.68 0.74 1.42
Russell Midcap Growth Index 12.16 42.71 2.01 
Medium Janus Adviser Balanced I 6.64 13.21 3.85 0.65 1.22 1.87
Hartford Advisers HLS 8.30 17.67 0.64 0.63 0.74 1.37
50% S&P 500 + 50% LBAGG Index 6.15 16.00 3.41 
Low PIMCO Total Return 0.45 4.35 6.08 0.25 1.35 1.60
LB Aggregate Bond Index 0.32 4.10 6.62 
General Account 1 N./A N./A N./A 0.00 0.00 0.00

1 The Declared Rate is credited through the close of the calendar year on contributions received during the designated quarter. The rate for the first quarter 2004 is 4.00%. For contributions received prior to January 1, 2004, the Declared Rate is 4.00%. Rates quoted are effective annual yields.

ING FINANCIAL ADVISERS, LLC

Return on Investments (net of expenses) Operating Expenses
Last Quarter Rates of Return
Level of

Risk		 Investment Options 10/1/03-12/31/03 1 Year Annualized

5 Years		 Management

Fees		 Other Expenses Total Expenses
High Janus Aspen Series Mid Cap Growth Portfolio 10.83% 34.03% -2.74% 0.65% 0.82% 1.47%
Russell Midcap Growth Index 12.16 42.71 2.01 
Janus Aspen Series Worldwide Growth Portfolio 12.71 23.00 -0.92 0.65 0.85 1.50
MS World Index 14.37 33.76 -0.39 
ING Salomon Brothers Aggressive Growth Portfolio 10.25 37.08 -7.15 0.69 0.93 1.62
Russell 3000 Growth Index 10.58 30.97 -4.69 
ING JPMorgan Fleming International Portfolio 16.10 28.42 -1.06 0.80 1.00 1.80
MS EAFE Index 17.11 39.17 0.26 
Pioneer Mid Cap Value VCT Portfolio 14.70 36.38 10.75 0.65 0.95 1.60
Russell Midcap Value Index 15.22 38.07 8.73 
ING VP Small Company Portfolio 10.76 36.37 8.05 0.75 0.92 1.67
Russell 2000 Index 14.52 47.25 7.13 
ING VP Index Plus LargeCap Portfolio 11.77 25.14 -1.55 0.35 0.90 1.25
ING VP Value Opportunity Portfolio 12.15 23.60 1.09 0.60 0.92 1.52
Fidelity® VIP Contrafund® Portfolio 11.25 27.44 2.64 0.58 0.90 1.48
S&P 500 Index 12.17 28.67 -0.57 
Janus Aspen Series Mid Growth Portfolio 12.85 30.68 -2.94 0.65 0.82 1.47
Russell 1000 Growth Index 10.41 29.75 -5.11 
Medium Fidelity® VIP Equity-Income Portfolio 14.18 29.29 2.65 0.48 0.89 1.37
Russell 3000 Value Index 14.35 31.14 4.16 
ING VP Balanced Portfolio, Inc. 7.17 17.92 2.08 0.50 0.90 1.40
Calvert Social Balanced Portfolio 6.89 18.37 0.38 0.70 1.01 1.71
60% S&P 500 + 40% LBAGG Index 7.34 18.47 2.67 
Janus Aspen Series Balanced Portfolio 6.64 13.14 3.90 0.65 0.82 1.47
50% S&P 500 + 50% LBAGG Index 6.15 16.00 3.41 
Low ING VP Bond Portfolio 0.87 5.45 5.54 0.40 0.89 1.29
LB Aggregate Bond Index 0.32 4.10 6.62 
ING VP Money Market Portfolio 0.04 0.10 2.74 0.25 0.89 1.14
91-Day Treasury Bills 0.23 1.01 3.28 
ING Fixed Account-457/401  2 N./A N./A N./A 0.00 0.00 0.00

2 The Declared Rate as of January, 2004 is 3.90% , expressed as an annual effective yield, and is guaranteed not to drop below 3.70% through December 31, 2004.

PHOENIX INVESTMENT PARTNERS
  Return on Investments (net of expenses) Operating Expenses
Last Quarter Rates of Return
Level of Risk Investment Options 10/1/03-12/31/03 1 Year Annualized 5 Years Management Fees Other Expenses Total Expenses
High Phoenix-Aberdeen Worldwide Opportunities A 12.69% 26.89% -0.87% 0.75% 0.98% 1.73%
MS World Index 14.37 33.76 -0.39 
Phoenix-Seneca Mid-Cap Edge A 8.87 29.01 1.74 0.80 0.44 1.24
Russell Midcap Growth Index 12.16 42.71 2.01 
Phoenix-Engemann Small-Mid Cap Growth A 8.82 48.29 2.61 0.92 0.87 1.79
Russell 2000 Growth Index 12.68 48.54 0.86 
Phoenix Small Cap Value A 12.27 45.75 12.59 0.90 0.81 1.71
Russell 2000 Value Index 16.37 46.03 12.28 
Phoenix-Aberdeen International A 13.83 28.33 -3.08 0.75 1.15 1.90
MS EAFE Index 17.11 39.17 0.26 
Phoenix-Oakhurst Growth & Income A 12.40 27.30 -0.13 0.75 0.70 1.45
Phoenix-Kayne Rising Dividends A 8.49 18.06 N./A 0.75 0.54 1.29
S&P 500 Index 12.17 28.67 -0.57 
Phoenix-Engemann Capital Growth A 8.76 25.76 -8.48 0.69 0.60 1.29
Phoenix-Seneca Growth A 8.25 25.77 -1.74 0.70 0.68 1.38
Russell 1000 Growth Index 10.41 29.75 -5.11 
Phoenix-Oakhurst Value Equity A 9.84 23.60 3.03 0.75 0.88 1.63
Russell 1000 Value Index 14.19 30.03 3.56 
Medium Phoenix-Oakhurst Managed Assets A 7.29 18.16 1.62 1.00 0.61 1.61
Phoenix-Engemann Balanced Return A 6.51 19.49 -0.60 0.75 0.70 1.45
60% S&P Index + 40% LBAGG Index 7.34 18.47 2.67 
Low Phoenix-Goodwin Multi-Sector Short Term Bond A 1.97 9.09 7.19 0.55 0.68 1.23
LB Intermediate Aggregate Index 0.42 3.81 6.65 
Phoenix-Duff & Phelps Core Bond A 0.04 2.81 4.32 0.45 0.70 1.15
LB Aggregate Bond Index 0.32 4.10 6.62 
Phoenix-Goodwin Money Market A 0.21 0.95 3.19 0.40 0.44 0.84
91-Day Treasury Bills 0.23 1.01 3.28 

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