Phillips 66 Savings Plan

Investment Glossary

Asset Classes
Securities generally fall into one of three asset classes: short-term reserves, bonds, or stocks. Each one involves different risks and potential returns. You can mix different types of investments to come up with the combination of risk and potential return that's right for you.

Short-Term Reserves are short-term loans to creditworthy borrowers. They are designed to conserve the principal value of your investment and provide income that rises and falls with short-term interest rates. Examples are U.S. Treasury bills, certificates of deposit (CDs), money market instruments, and stable value funds.

Key Risk: Because short-term reserves are conservative, they usually generate the lowest returns and are vulnerable to the effects of inflation.

Stable Value Funds invest in a combination of cash and bond securities, including Treasury and agency bonds, short- and intermediate-term corporate bonds and mortgage-backed securities, and investment contracts issued by financial institutions such as insurance companies or banks. Stable value funds are different from bond funds because they offer protection against loss of principal from interest rate fluctuations. This protection is provided by specialized investment contracts issued by various financial institutions. This protection against loss of principal is intended to help eliminate the short-term volatility that would otherwise result from the underlying investments.

For these reasons, stable value funds may offer an attractive combination of risk and return. With a stable value fund you have the opportunity to receive most of the total return earned by an intermediate-term bond fund with substantially less risk. Results are not guaranteed by the U.S. government, Phillips 66, or the Stable Value Fund investment manager.

Balanced Funds are mutual funds made up of stocks and bonds. Among the balanced options offered in your plan are Target Retirement Trusts, broadly diversified investments that gradually and automatically shift to more conservative investments over time. Each trust is a complete portfolio in itself. A single Target Retirement Trust provides diversification and is designed to keep your assets invested appropriately for your stage in life, up to and including your retirement years.

All investing is subject to risk, including the possible loss of the money you invest. Investments in Target Retirement Trusts are subject to the risks of their underlying funds. The year in the trust name refers to the approximate year (the target date) when an investor in the trust would retire and leave the workforce. The trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Trust is not guaranteed at any time, including on or after the target date. Diversification does not ensure a profit or protect against a loss.

Potential Fund Choice Investment Mix*
Vanguard Target Retirement 2065 Trust Plus** 90% stocks, 10% bonds
Vanguard Target Retirement 2060 Trust Plus** 90% stocks, 10% bonds
Vanguard Target Retirement 2055 Trust Plus** 90% stocks, 10% bonds
Vanguard Target Retirement 2050 Trust Plus** 90% stocks, 10% bonds
Vanguard Target Retirement 2045 Trust Plus** 90% stocks, 10% bonds
Vanguard Target Retirement 2040 Trust Plus 85% stocks, 15% bonds
Vanguard Target Retirement 2035 Trust Plus 78% stocks, 22% bonds
Vanguard Target Retirement 2030 Trust Plus 70% stocks, 30% bonds
Vanguard Target Retirement 2025 Trust Plus 63% stocks, 37% bonds
Vanguard Target Retirement 2020 Trust Plus 53% stocks, 47% bonds
Vanguard Target Retirement 2015 Trust Plus 41% stocks, 59% bonds
Vanguard Target Retirement Income Trust Plus† 30% stocks, 70% bonds

*Allocation targets for each trust as of June 30, 2018. Allocations for the date-specific trusts will shift their emphasis (from stocks to bonds) over time based on an assumed retirement age of 65.

**The target allocations of the trusts dated 2045 through 2065 are currently identical; however, as time passes, each trust will gradually shift its emphasis toward a more conservative allocation depending on the maturity date of the trust.

†The Income Trust is designed for retirees who will be making withdrawals.

Risk level takes into account the different types of risk applicable to the asset class and investment style of each balanced trust's (or fund's) underlying investments.

Bonds are longer-term loans made to a company, government, or government agency. The borrower, or issuer, agrees to repay the principal after a certain period and also to make regular interest payments along the way.

Key risk: If interest rates increase, bond prices usually fall. (Conversely, if rates fall, bond prices generally go up.)

Average Maturity. The average length of time before bonds in a fund reach maturity is known as the fund's average maturity. Average maturity affects the fund's yield and the risk to an investor's principal. Generally, the longer the term of the bond, the higher its yield will be, and the greater the risk to the investor. Long-term bond holders are lending their money for an extended period of time, so there is greater risk that the borrower will be unable to repay the principal or will default on interest payments. There is also greater risk for price volatility along the way. Typically:

  • Short-term bond funds invest in bonds with an average maturity that ranges from 1 to 5 years.
  • Intermediate-term bond funds invest in bonds with an average maturity that ranges from 5 to 10 years.
  • Long-term bond funds invest in bonds with an average maturity of more than 10 years.

Stocks represent partial ownership of a corporation. A stock can increase in value through a rise in the market price of its shares. Many stocks also pay dividends.

Key risk: Stock prices move unpredictably based on the issuing company's performance, market swings, and the state of the economy. Stocks have yielded the highest returns over the long term but can also experience prolonged downturns. Keep in mind, however, past performance is not a guarantee of future results.

Stocks are subdivided based on size and investment style. See below for more information.

  • Size. As a general rule, investment risk—and the potential for dramatic returns—decreases as you go from small-cap, to mid-cap, to large-cap. A more aggressive investor may choose small-cap stocks because of their potential for greater long-term growth. Stocks are generally classified as small capitalization, mid-capitalization, or large capitalization. What's the difference?
    • Small-capitalization, or small-cap, refers to the stock of companies whose market value is less than $3.84 billion. Small-cap companies may grow faster than large-cap companies and typically use any profits for expansion rather than for paying dividends. They also carry more investment risk than large-cap companies.
    • Mid-capitalization, or mid-cap, is the term for companies whose stock is worth at least $7.22 billion but not more than $20.34 billion.
    • Large-capitalization, or large-cap, describes companies whose market value is more than $25.15 billion. Large-cap companies are generally well-established corporations.

Note: Figures are for domestic market cap boundaries, effective until December 31, 2017. Source: Vanguard.

  • Investment style. A stock fund may focus on a particular segment of the market, such as growth stocks or value stocks.
    • Growth stocks are the stocks of companies with stronger-than-average prospects for rapid sales and profit growth. Growth stocks offer above-average capital gains potential but typically little or no dividend income. The stocks generally produce little dividend income because the companies prefer to reinvest earnings in research and development. Investors pay a premium for growth stocks, believing that these companies' strong earnings prospects justify their higher prices.
    • Value stocks are the other side of the coin. Although these companies don't boast exceptional prospects for sales and earnings growth, their stocks may be priced low enough to be attractive investments. Value stocks may pay high dividends too.
    • Domestic versus international stocks. Domestic stocks are stocks of U.S. companies. International stocks are stocks of companies outside the United States.
    • Both types of stocks share certain risk factors, such as market risk. International stocks have their own special risks. For example, they are subject to currency risk—the risk that a strong U.S. dollar relative to the local currency would reduce returns for American investors. Also, some foreign markets are subject to volatile economies or political instability.

Company Stock. An individual stock—including company stock—is substantially riskier to own than a diversified stock mutual fund. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

A Note About Risk
While U.S. Treasury or government agency securities provide substantial protection against credit risk, they do not protect investors against price changes due to changing interest rates. Although the market values of government securities are not guaranteed and may fluctuate, these securities are guaranteed as to the timely payment of principal and interest. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments. Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks. Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment.

Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.

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