1. The Fourth Quarter in Review3
The Fourth Quarter in Review
The fourth quarter of 2007 found the market in a volatile state, with much of the volatility due in part to the declining housing market and a substantial rise in foreclosures. The slowdown on the housing construction industry helped drive the unemployment rate up to 4.7%.*
With the mortgage fallout, high gas prices, and a possible economic slowdown, consumers are now spending less.
*U.S. Department of Labor, as of Dec
Source: Transamerica Investment Management, “Manager Commentary–Fourth Quarter 2007.”
Transamerica Retirement Services (“Transamerica”), a marketing unit of Transamerica Financial Life Insurance Company (“TFLIC”), 4 Manhattanville Road, Purchase, New York 10577, and Transamerica Life Insurance Company (“TLIC”), 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, and other TFLIC and TLIC affiliates, specializes in the promotion of retirement plan products and services. TFLIC is not authorized and does not do business in the following jurisdictions: Guam, Puerto Rico, and the U.S. Virgin Islands. TLIC is not authorized in New York and does not do business in New York. 3
© 2008 Transamerica Corporation. All rights reserved.
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2. Fourth Quarter Highlights
Bond Market
Lehman Brothers Aggregate Bond Index increased 3.00%
Stock Market
S&P 500 Index decreased -3.33%
During the fourth quarter, the Lehman Brothers Aggregate Bond Index increased 3.00% and the S&P 500 Index decreased -3.33%.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
Source: Morningstar, Inc. Data as of December 31, 2007.
One cannot invest directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
© 2008 Transamerica Corporation. All rights reserved.

3. Annual Stock Market Returns+
vs.
Long-Term Averages
The 50 year
long-term
stock average
is approximately
10%*
In the late 1990s, stocks experienced remarkable returns of 20% to 30%, but we were warned that these returns were not sustainable. At that time, Transamerica Retirement Services encouraged participants to focus on the long-term average return of the stock market which was about 10%.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future results.
+The annual stock market returns shown are represented by the S&P 500 Index and are for the 10-year period from December December Source: Morningstar, Inc.
*The long-term performance quoted for stocks is based on the 50-year average annual total return of the S&P 500 Index obtained from Russell/Mellon Analytical Services and Morningstar, Inc. from
One cannot invest directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
© 2008 Transamerica Corporation. All rights reserved.

4. Stock Index Returns More Conservative More Aggressive
This chart shows the returns of some of the major U.S. equity indices for the fourth quarter of Value stocks, as measured by the Russell 1000® Value Index, decreased -5.80% and growth stocks, as measured by the Russell 1000® Growth Index, decreased -0.77%. The Russell 1000® Index (indicative of large-cap company performance) decreased -3.23%, and the Russell 2000® Index (small-cap performance) decreased -4.58%.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future results.
Source: Morningstar, Inc. Data as of December 31, Value based on Russell 1000® Value Index, growth based on Russell 1000® Growth Index, large-cap based on Russell 1000® Index, and small-cap based on Russell 2000® Index.
One cannot invest directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
© 2008 Transamerica Corporation. All rights reserved.

5. Bond Index Returns More Conservative More Aggressive
This chart shows the returns of some of the major bond indices. 3-Month Treasuries, as measured by the Citigroup 3-Month Treasury Bill Index, increased 0.99%. Short-term Government Bonds, as measured by the Merrill Lynch 1-3 Year Treasury Index, increased 2.39%. Intermediate Government Bonds, as measured by the Lehman Brothers Intermediate Government Bond Index, increased 3.36% for the quarter. Investment Grade Bonds as a whole, as reflected by the Lehman Brothers Aggregate Bond Index, increased 3.00%. High Yield Bonds, as measured by the Credit Suisse First Boston Global High Yield Index, decreased -1.04%.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future results.
Source: Morningstar, Inc. Data as of December 31,
The indices used to represent each investment style are as follows: 3-Month Treasury – Citigroup 3-Month Treasury Bill Index; Short-term Government Bond – Merrill Lynch 1-3 Year Treasury Index; Intermediate Government Bond – Lehman Brothers Intermediate Government Bond Index; Investment Grade Bond – Lehman Brothers Aggregate Bond Index; High Yield Bond – Credit Suisse First Boston Global High Yield Index.
One cannot invest directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
© 2008 Transamerica Corporation. All rights reserved.

6. Lehman Brothers Aggregate Bond Index Annual Returns+ vs
Lehman Brothers Aggregate Bond Index Annual Returns+ vs. Long-Term Averages
Long-term historical average for bonds is approximately 7%, higher than what we’re seeing today.*
+The annual bond market returns shown are represented by the Lehman Brothers Aggregate Bond Index and are for the 10-year period from December December Source: Morningstar, Inc. The Lehman Brothers Aggregate Bond Index is used to represent the returns of the investments that make up the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index. The Lehman Brothers Aggregate Bond Index is unmanaged, assumes reinvestment of all distributions and does not account for fees or other charges.
*The long-term historical average for bonds is based on the 50-year average annual total return of the Intermediate-Term Government Bonds obtained from the Stocks, Bonds, Bills and Inflation® 2001 Yearbook, Ibbotson Associates ( ) and the Lehman Brothers Aggregate Bond Index obtained from Morningstar, Inc. ( ).
One cannot invest directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future performance.
The rates of return that we are seeing in bonds today are lower than the long-term average rate of return for bonds, which is approximately 7%. Over the long term, as economic conditions improve bond returns may increase as well. It should be noted that in today’s low inflation environment, bond rates are likely to be lower than historical averages.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future results.
© 2008 Transamerica Corporation. All rights reserved.

7. Outlook:
Banking institutions may have some decline in stock price over the next few months
Agriculture markets may rally with a surge in demand due to alternative fuel needs
Smaller companies may grow with focus on solar and alternative energy
Future cuts in the Federal Reserve Rate expected
Housing market continues to be weak
The Dow Jones Industrial Average finished 2007 at , up 6.4% on the year. The Standard & Poor's 500-stock index rose by 3.5%, to Both indexes declined in the fourth quarter.
At the end of the fourth quarter, many economists and money managers remain confident that the economy will narrowly escape recession. The combination of Federal Reserve interest-rate cuts and strong growth in places such as China and India will help keep big multinational companies expanding, possibly permitting broad stock indexes to gain ground as well.
It is important to keep in mind that an investment cannot be made directly in an index. An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so performance may differ. Past performance is not a guarantee of future results.
Source: Transamerica Investment Management,
“Fourth Quarter 2007 Outlook."
© 2008 Transamerica Corporation. All rights reserved.
TRS 3413ECON-0208