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Documentation_Pension Public Safety_Tab 04C_02/18/2005
STAR Trustee Directed • Retirement Plans The Answer to Informed Investment Decisions TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND SAMPLE STAR PORTFOLIOS Nationwide The STAR Program is used in conjunction with Nationwide Life Insurance Company of America's ("Nationwide Life") group variable annuity contract Table of Contents Section I STAR Program Advantages Section II Efficient Frontier Section III Portfolios Section IV STAR Program Highlights Section V Complying With ERISA Section VI STAR Program Cost STAR Program Advantages All Pro Series of Separate Accounts: Designed exclusively for retirement plans, the All Pro Funds feature institutional, style specific investment managers and are overseen by Wilshire Associates ^ Investment Consulting by Wilshire Associates: One of the foremost retirement plan consultants in the country, Wilshire oversees the manager search and due diligence process and provides ongoing monitoring and evaluation of the fund managers Support for Trustees: STAR provides the various tools to help the trustee(s) fulfill their fiduciary obligations. They include: Investment Policy Statement support Customization of a strategic asset allocation program Automatic rebalancing and the, Investment prudence and diversification afforded by the All Pro investment process. • Asset custody by Mellon Trust Plan and Contract Services: The STAR program provides these additional services to assist the plan sponsor in successfully implementing their retirement plan: • Benefit payments and tax reporting ' Dedicated website for all plan financial transactions Periodic reporting and review The STAR Process e Investment Manager Selection Criteria Emphasis on: People • Process • Resources Asset Allocation Modeling • Tailored to meet the trustee's/plan specific goals and objectives • Emphasis is on mitigating investment risk Portfolio A -optimal portfolio projected to meet a conservative rate of return Portfolio B -optimal portfolio projected to meet a moderate rate of return Portfolio C -optimal portfolio projected to meet an aggressive rate of return 2005 Asset Class Forecasts 'Standard deviation percentage is a statistic that measures the scattering of returns around an average return for a particular time period; the standard deviation helps show how close or far various returns are from the average return. The larger the standard deviation percentage number the greater the risk of short-term volatility or change, including loss. All projected returns and standard deviations are derived from research conducted by Wilshire Associates, Inc. Efficient Frontier: a series of portfolio mixes for which no higher return is expected, given the risk or volatility undertaken. Sample Portfolio A Domestic Equity 50% International Equity 0% Bonds 40% ~ Cash /Cash Equivalents 10% Portfolio Hypothetical Return Portfolio Estimated Standard Deviation 25% 20% i 15% ~ 10% j 5% 0% ' -5% I -10% ~ -15% 1 ~ 2 I 3 4 i Upper Range 21.46% I 16.99% 15.01 % 13.83% i Hypothetical 6.20% 6.20% ~ 6.20% 6.20% Lower Range -9.06% -4.59% ~ -2.61% -1.43% The above illustration is not intended to represent or predict the perforn Past performance is no guarantee of future returns 6.2% 9.3% 5 6 7 13.03% 12.43% 11.97% 6.20% 6.20% 6.20% ~ -0.63% -0.03% 0.43% lance of any particular investment 8 9 10 11.60% 'I 11.29% 11.03% 6.20% 6.20% ~ 6.20% ~ 0.80% i 1.11% 1.37% The Range of Returns Shown Above Reflect a 90% Confidence Interval Potential Implementation of Asset Class Allocation through the "All Pro" Series of Separate Accounts ~ Sample Portfolio A In Depth Portfolio Breakdown All Pro Large Cap Value Fund 21.250% All Pro Large Cap Growth Fund 21.250% All Pro Small Cap Value Fund 3.750% All Pro Small Cap Growth Fund 3.750% All Pro International Equity Strategy 0.000% All Pro Diversified Bond Fund 40.000% Fixed Income Fund 10.000% Total Portfolio 100.000% Large Cap Value ^ Mellon Equity Assoc. 10.6250% Sanford C. Bernstein 10.6250% Large Cap Growth ^ Geewax Terker 10.6250% INTECH 10.6250% Small Cap Value Sterling Capital Mgmt 1.8750% Reams Asset Mgmt 1.8750% Small Cap Growth ' Husic Capital Mgmt 1.8750% ?' Lee Munder Capital Mgmt 1.8750% International Equity Julius Baer Investment Mgmt 0.0000% The Boston Company 0.0000% Intermediate Bond - Western Asset Mgmt 20.0000% BlackRock Financial Mgmt 20.0000% Fixed Income Nationwide's Investment Committee 10.0000% Total Portfolio 100.0000% . Large Value Holdings 182 Large Growth Holdings 132 Mid Value Holdings 84 Mid Growth Holdings 54 Small Value Holdings 70 Small Growth Holdings 99 ,~; ~ .~ International Holdings 172 Diversified Bond Holdings 550 Fixed Income Fund Holdings 325 Total Portfolio 1354 0 75 I50 225 300 375 450 525 600 Sample Portfolio B . Domestic Equity 60% International Equity 0% Bonds 30% Cash /Cash Equivalents 10% Portfolio Hypothetical Return 6.5% Portfolio Estimated Standard Deviation 10.7% 30% 25% 20% 15%~ 10% 5% 0% -5% -10% o - -15/0 1 2 ~ 3 4 5 6 7 i 8 ~ 9 10 _- Upper Range 24.18% ~, 19.01% 16.72% i 15.35% I 14.42% ~ 13.74% 13.20% 12.77% 12.41% 12.11% Hypothetical 6.53% 6.53% 6.53% I 6.53% 6.53% 6.53% 6.53% 6.53% 6.53% 6.53% j' Lower Range ', -11.12% ~'~ -5.95% -3.66% ~ -2,29% -1,36% -0.68% -0.14% 0.29% % 0.65% 0.95% The above illustration is not intended to represent or predict the performance of any particular investment Past performance is no guarantee of future returns The Range of Returns Shown Above Reflect a 90% Confidence Interval Potential Implementation of Asset Class Allocation through the "All Pro" Series of Separate Accounts Sample Portfolio B In Depth Portfolio Breakdown i~ i~ All Pro Large Cap Value Fund All Pro Large Cap Growth Fund All Pro Small Cap Value Fund All Pro Small Cap Growth Fund All Pro International Equity Strategy All Pro Diversified Bond Fund Fixed Income Fund Total Portfolio Large Cap Value ^ Mellon Equity Assoc. Sanford C. Bernstein Large Cap Growth ^ Geewax Terker INTECH Small Cap Value ~~ Sterling Capital Mgmt Reams Asset Mgmt Small Cap Growth Husic Capital Mgmt Lee Munder Capital Mgmt International Equity Julius Baer Investment Mgmt The Boston Company Intermediate Bond Western Asset Mgmt ,~~' BlackRock Financial Mgmt Fixed Income Nationwide's Investment Committee Total Portfolio Large Value Holdings Large Growth Holdings Mid Value Holdings Mid Growth Holdings Small Value Holdings Small Growth Holdings International Holdings Diversified Bond Holdings Fixed Income Fund Holdings Total Portfolio 25.500% 25.500% 4.500% 4.500% 0.000% 30.000% 10.000% 100.000% 12.7500% 12.7500% 12.7500% 12.7500% 2.2500 2.2500 2.2500% 2.2500% 0.0000% 0.0000% 15.0000% 15.0000% 10.0000% 100.0000% 182 132 84 54 70 99 172 550 325 1354 0 75 I50 225 300 375 450 525 600 Sample Portfolio C i~ . Domestic Equity International Equity ^ Bontls Cash /Cash Equivalents 65% 0% 25% 10% Portfolio Hypothetical Return 6.7% Portfolio Estimated Standard Deviation 11.5% 30% l 20% t 10% ~ 0% - --- -10% -20% i % i _1 2 ~i 3 4 5 6 7 8 9 -- 10 Upper Range i 25.57% 20.04% 17.59% i 16.13% 15.13% 14.40% 13.83% 13.37% 12.98% 12.66% Hypothetical 6.69% 6.69% I 6.69% 6.69% 6.69% I 6.69% 6.69% 6.69% 6.69% 6.69% ' j Lower Range -12.19% {! -6.66% -4.21 % -2.75% I -1.75% 1.02 /o -0.45% I 0.01 % 0.40% 0.72% ° I i The above illustration is not intended to represent or predict the performance of any particular investment Past performance is no guarantee of future returns The Range of Returns Shown Above Reflect a 90% Confidence Interval i~ ' Potential Implementation of Asset Class Allocation through the "All Pro" Series of Separate Accounts Sample Portfolio C In Depth Portfolio Breakdown All Pro Large Cap Value Fund 27.625% All Pro Large Cap Growth Fund 27.625% All Pro Small Cap Value Fund 4.875% All Pro Small Cap Growth Fund 4.875% All Pro International Equity Strategy 0.000% All Pro Diversified Bond Fund 25.000% Fixed Income Fund 10.000% Total Portfolio 100.000% Large Cap Value ^ Mellon Equity Assoc. 13.8125% Sanford C. Bernstein 13.8125% Large Cap Growth ^ Geewax Terker 13.8125% INTECH 13.8125% Small Cap Value Sterling Capital Mgmt 2.4375% Reams Asset Mgmt 2.4375% Small Cap Growth Husic Capital Mgmt 2.4375% Lee Munder Capital Mgmt 2.4375% International Equity Julius Baer Investment Mgmt 0.0000% The Boston Company 0.0000% Intermediate Bond Western Asset Mgmt 12.5000% BlackRock Financial Mgmt 12.5000% Fixed Income Nationwide's Investment Committee 10.0000% Total Portfolio 100.0000% ^ Large Value Holdings 182 Large Growth Holdings 132 Mid Value Holdings 84 Mid Growth Holdings 54 - Small Value Holdings 70 Small Growth Holdings 99 ~,_,;,,,,; International Holdings 172 Diversified Bond Holdings 550 Fixed Income Fund Holdings 325 Total Portfolio 1354 0 75 I50 225 300 375 450 52S 600 1 The STAR Pr ogram Highlights 1 '' •• Investments Support of Fiduciaries Institutional Investment Management Investment Policy Statement ' Multi Managed Customized Strategic Asset Allocation Style & Capitalization Specific Help support the trustee in fiduciary responsibility "All Pro" separate accounts Help develop a portfolio mix best ' correlated to the efficient frontier Wilshire Associates Professional Investment Consultant Online Reporting Trustee Directed Website Manager Search First Rate Snapshot -online ' Due Diligence Ongoing Monitoring performance reporting ' Nationwide Life Coordination of STAR process Custody of Assets Mellon Trust Benefit Payment ~' ~ •• ' Investment Manager Selection Criteria People Process ' Resources Asset Allocation Modeling Helps create a customized long-term investment strategy ' Adherence to formal investment plan •--•. . ' Asset Allocation Based on STAR Questionnaire Investment Policy Statement ' Coordination & Support Automatic Rebalancing ' As stated in Investment Policy Statement Benefit Payments & Tax Reporting 1099-R Form Distribution IRS 945 Filing SAS 70 Periodic Reporting & Review Pertormance measurement Online access to plan information Transactional and historical account data ' Complying with ERISA Support for Plan Sponsors and their Advisors ERISA requires that a sponsor of a qualified retirement plan take extraordinary care to assure that the assets of the plan are both adequate to pay benefits and safeguarded from undo risk. Nationwide Life's STAR Program can help Plan Sponsors and their advisors fulfill their fiduciary responsibilities and comply with some of FRIBA's toughest standards. Diversify assets to specific The STAR Questionnaire helps analyze the plan's specific risk/return profile economic and demographic condition STAR's customized asset allocation service diversifies plan assets by market segment, by fund and by sub advisor. STAR's customized asset allocation is done using Wilshire Associates proprietary Compass software Maintain investment STAR provides customized Investment Policy Statement policy language support that is coordinated with the asset allocation STAR's automatic rebalancing keeps the plan in compliance with both the investment policy statement and the asset allocation STAR provides annual plan reviews to reevaluate the investment goals and objectives Control and account for STAR offers class share institutional pricing to accommodate investment expenses all size plans STAR specifically and completely discloses all investment costs to the plan Use "Prudent Experts" STAR's investment vehicles, the All Pro Funds, are managed by specifically selected institutional sub advisors STAR's provides consulting by Wilshire Associates who provide manager search, due diligence and ongoing monitoring for the All Pro Funds STAR provides custody from Mellon Trust STAR is a program provided by and coordinated by Nationwide Life Insurance Company of America Monitor the activities of STAR through its alliance with Wilshire Associates provides: "Prudent Experts" a. Separate account structure and implementation b. Manager research c. Manager selection d. Performance measurement and evaluation e. Compliance oversight management STAR's dedicated websites offer on-line performance and transactional reporting Avoid conflicts of interest STAR's sub advisors are held to strict investment policy and prohibited transactions requirements STAR's continuous monitoring of the sub advisors by Wilshire ensures manager compliance ~1 The STAR Program Cost i~ All Pro Large Cap Value Fund 21.250% 1.19% All Pro Large Cap Growth Fund 21.250% 1.18% All Pro Small Cap Value Fund 3.750% 1.45% All Pro Small Cap Growth Fund 3.750% 1.45% All Pro International Equity Strategy 0.000% 1.61% All Pro Diversified Bond Fund 40.000% 1.05% ' Fixed Income Fund 10.000% N/A Aggregate Portfolio Cost: 1.03% •. ..- ..- All Pro Large Cap Value Fund 25.500% 1.19% All Pro Large Cap Growth Fund 25.500% 1.18% ' All Pro Small Cap Value Fund 4.500% 1.45% All Pro Small Cap Growth Fund 4.500% 1.45% All Pro International Equity Strategy 0.000% 1.61% ' All Pro Diversified Bond Fund 30.000% 1.05% Fixed Income Fund 10.000% N/A ' Aggregate Portfolio Cost: 1.05% ~~ All Pro Large Cap Value Fund 27.625% 1.19% ' All Pro Large Cap Growth Fund 27.625% 1.18% All Pro Small Cap Value Fund 4.875% 1.45% All Pro Small Cap Growth Fund 4.875% 1.45% ' All Pro International Equity Strategy 0.000% 1.61 All Pro Diversified Bond Fund 25.000% 1.05% ' Fixed Income Fund 10.000% N/A Aggregate Portfolio Cost: 1.06% 1 The Portfolio Cost is based on the Market Value of plan assets as noted on the STAR Questionnaire. Pricing may change as the market value of plan assets fluctuate or if additional compensation is included. The Cost by Investment Option column is inclusive of all broker compensation and investment management fees. i~ i~ Footnotes ' 1. Standard Deviation: A statistic that measures the dis ersion of returns around the avers a return P g ^ for a particular timeframe; the larger this number, the greater the risk of short term volatility, including '~ ! loss. 2. All projected returns and standard deviations are derived from research conducted by Wilshire Associates, Inc. 3. Asset class portfolios are optimized on the Efficient Frontier (i.e., they have the highest expected return for a given risk, given the forecasts of asset class expected returns, standard deviations, correlation coefficients and constraints submitted on the questionnaire). ' 4. 2005 Projected Annual Asset Returns and Standard Deviations for next 10 Years: * Domestic Stocks: Return = 8.00%; Standard Deviation = 17.00% ' * International Stocks: Return = 8.00%; Standard Deviation = 19.00% * Domestic Bonds: Return = 4.75%; Standard Deviation = 5.00% * Cash: Return = 3.00%; Standard Deviation = 1.00% 5. Returns illustrated assume a 90% probability range. 6. Model portfolios are illustrated assuming a style neutral implementation. 1 ~Vati+©nwide Provident°' & Ndtie>nw~ida-' Fin3ri<,i~l [e~n7~~iny Proposal Expense Summary For Tequesta Public Safety Officers Pension Trust Fund Contract Charges, Fees & Expenses The expenses shown below are inclusive of all commissions. Pricing Assumptions Expected Rollover Amount $2,500,000 Separate Account All Pro Diversified Equity Fund -Select All Pro Equity Growth Fund -Select All Pro Value Equity Fund -Select All Pro Large Cap Growth Fund -Select All Pro Large Cap Value Fund -Select All Pro Small Cap Growth Fund -Select All Pro Small Cap Value Fund -Select All Pro International Equity Strategy -Select International Growth Fund -Select International Value Fund -Select All Pro Diversified Bond Fund -Select U.S. Government Bond Fund -Select Fixed-Income Fund -General Account Expense Ratio'' 1.14% 1.29% 1.22 1.18% 1.19% 1.45% 1.45 1.61 %' 1.79% 1.42 1.05% 1.10% See Footnote 3 'Expense ratios are as of June 26, 2003. - 2The expense ratio for Nationwide Provident separate accounts is accrued daily and reflected in the daily unit value. -'Rate declared by Nationwide Provident is net of all investment related expenses. °Represents the weighted average of the underlying funds. 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A A , O O W ' ~ (O (O O H W O W CO W ~ O W O O O CO W O W aD W O A ~ W W 00 ~ N W W A du W O W ~ O O O A A -+ N ~ W N ~ ~ N 01 O O) OD N CT V N A 07 A N W N V CD j 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O CO 'O O O) Ui O) Cli Q) A O) DD W (T A V O) V (71 F O W O O N N (P A N j W O V W O) OD 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O ~ ~ ~ p A ~ N ~ W N ~ ~ N O O O 00 IV U1 V N A OD A N W N V CO j 0 ~ 0 0 • 0 0 0 0 ~ 0 0 0 0 0 0 0 W W A O O) O) N ~ O ~ 0 0 O) Vt V V N N O Cp O W W W W ~ A Oo O ~ O A N ~ ~ N Cn O 0 0 0 0 0 0 e o 0 0 o e o W O) O) N Oo A ~ N V N V ~ W A A A U1 O ~ ~ CO 0 N 0 W 0° ~ o~ T C o ~ o~ ~ 0 0 0 0 0 0 0 A V V O (P O) A d1 CT ~O d1 W :.. 00 N O) V A C-`~ ~ O ~ O A V N O CT O V N O O O W A W ~ OD 0 o a 0 0 0 0 0 ~ o ~ o 0 CT ~ O ''. f0 CJ1 ~ ~ CO ~ O O CJi ? ~ W ~ A 0 0 0 0 ° o Vt O) A O Oo A A W N ?; O 00 (T O O N O A ~ ~ _. m N V A N O CO Cp N 0 0 0 0 0 0 0 0 0 o v~ d N ID ~ O 7 3 O J S ~ w 41 3 ~ W S NN N 0 0 ~ ~ O N N V ~ .r A ~ ~ 3 VI fD fD C1 + Z ems-' ~ 3 G7 ~ .n v r O ~ ~ D ~ ~ 3 N ~ 3 ~ "O C d ~ ~ ~ ~. ~ n O ~ ~ a ~ n m ~ o ~ ~ ~ _a y . ~ ~ 3 ~p ~ ~ ~ ~ n Oyu 3 K ~ ~. fD (~ ~ ~ 3 d 7 n fD 3. Risk/Return Profile Please complete this section with the assistance of your financial professional. Specify the allowable minimum and maximum weightings in each asset class. Alternatively, you may use the check boxes to select from the Conservative, Moderate and Aggressive Ranges below. 1) For plans with assets under $5 million, the maximum cash allocation may not exceed 10%. 2) If cash is chosen as an option, bonds must also be chosen for rebalancing purposes. Domestic Equity International Equity Bonds Cash/Cash Equivalents Total Equity 0-12% 40-80% quivalents 0-20%* * For plans with assets of less than Minimum Maximum o~ o~ %* (must be less than 100%) (must be well over 100%) ..- 30-55% 60-85% 0-18% 0-25% 15-60% 10-30% 0-15%* 0-10% 5 million, the Cash/Cash Equivalents maximum range will be 10%. 4. Expected Return Please complete this section with the assistance of your financial professional. Take note of Wilshire's market projections below. The target total return of the plan cannot exceed Wilshire's maximum projected return for any single asset class. *Plan's Target Total Return *Maximum One-Year Decline *Past Performance is no guarantee of future returns. Rates of retums are not guaranteed. Wilshire 2005 Asset Class Forecasts International Equity 8.00% 19.00% Domestic Bonds 4.75% 5.00% Cash /Cash Equivalents 3.00% 1.00% Standard deviation percentage is a statistic that measures the scattering of retums around an average return for a particular time period; the standard deviation helps show how dose or far various returns are from the average return. The larger the standard deviation percentage number the greater the risk of short-term vdaUlity or change, induding loss. In order b c~nstrud a portfoio for a spedfied hypothetical return, it is necessary to forecast future retums for each asset doss induded in the portfoio. Similarly, in order to estimate the amount of risk potentially assodated with a spedfic portfolio, it is necessary to forecast the standard deviation that may be assodated with the retums for each asset class. The forecasted retums and standard deviations we currently use are set out above. The forecasted retums and standard deviations shown are provided by Wilshire Assodates, Inc. The retums and standard deviations are derived from research conducted by wlshire Assodates. They are used for the sole purpose of optimizing the risklretum charaderisUrs of sample porUdios with spedfied hypothetical retums. Actual retums and standard deviations will vary, potentially significantly, from forecasted retums and standard deviations. 5. Actuarial Information /Plan Profits Please consult with your Actuary or Administrator for these items. These items may also be located in your most recent Actuarial Valuation Report Average Age of Active Employees Actuarial Assumed Interest Rate Present Value of Retired Liabilities Accumulated Benefit Obligation Projected Benefit Obligation By signing below, I, as trustee, request that Nationwide Life Retirement Services prepare a STAR Program proposal for the Plan based on the responses provided in this questionnaire and the forecasted rates of return and standard deviations. I understand that this is a request for proposal only and does not constitute any conVactual obligation on the part of my organization, and that the sample portfolios that will be included in the proposal are provided solely for the purpose of illustrating the risk/return characteristics of the portfolios. I understand further that it is not possible to predict what the actual rates of return of a portfolio will be, and that the actual return of a sample portfolio will likely vary, potentially significantly, from the specified hypothetical return of the portfolio. Trustee(s) Signature Date Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-1181, 800-523-4681 2005 Defined Benefit STAR Questionnaire STAR -Determine, Implement & Monitor Please complete and sign the following questionnaire. In order to construct portfolios tailored to your plan, we must have complete and accurate information. Responses will be used to gauge your plan's risk/retum profile and sample portfolios will be developed for your consideration. Consult with your financial professional for assistance in completing sections 1 through 4. Consult with your plan administrator or actuarial consultant in completing section 5. This questionnaire must be signed by a plan trustee. 1. General Plan Information 2. Current Investment Information This information can be obtained from your most recent asset statement. You may attach a statement copy. ^ Check to indicate if this is a startup plan with no current investments Market Value of Plan Assets Anticipated Annual Contribution Domestic Equity International Equity Bonds Cash/Cash Equivalents Other Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Diversified Bond Fund seeks to provide current income, with capital appreciation as a secondary goal. This investment option is divided between two investment managers; both who invest in investment grade securities, while one has the ability to invest in high-yield and non-dollar securities on a strategic basis. The portfolio will maintain characteristics similar to those of the Lehman Aggregate Bond Index, a broad domestic bond market index. The investment option is designed for investors seeking current income and can tolerate the risks associated with debt securilies. Current Manager Allocation Calendar Year Returns Manager Percent Investment Style Diversified Bond Lehman Agg. Western Asset Management 50% Core Plus 2003 5.34% 4.11% BlackRock Financial Management 50% Corc Plus 2002 9.18% 10.27% 2001 8.20% 8.42% Maturity Breakdown 2000 10.96% 11.63% Under l year 20.76% 1999 -1.79% -0.83% I - 3 years 16.94% 1998 8.16% 8.67% 3 - l0 years 46.49% 1997 8.68% 9.68% 10 - 20 years 3.15% 1996 Over 20 years 12.67% 1995 1994 Historical Performance I Offering2 QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Diversified Bond 7/29/1996 3.19% 3.29% 3.94% 5.91% 7.20% 6.60% Lehman Aggrcgatc Bond Index 3.20% 3.35% 3.68% 5.88% 7.48% ': Portfolio Statistics Assets in $Millions 171.8 Total Holdings 583 Maturity (yrs) 6.61 Effective Duration (yrs) 4.18 Portfolio Yield 4.27% Credit Quality Breakdown BB ~ 2.24% 1366 ~ 7.40% A 5.12'% AA ~ 4.19% AAA 48.06 Govt 28.58 Bond Allocation Other ~ 0.04 Cash 0.12 Govcmmcnt 0.24 Mortgage Corporate 0.00 Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+Group Variable Annuity Contract and its related services arc issued by Nationwide Lifc Insurance Company of America. Nationwide Provident, 1000 Chcstcrbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Pas[ performance is no guarantee of future results. Performance rctlccts the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Performance rctlccts the reinvestment of all income and capital gains. The investment return and principal value of an investment will fluctuate so that [hc return on an investment may be more or Icss than the original amount invested. Bonds arc subject [o market risk and may be worth more or Icss if sold prior [o maturity. Investments in higher-yielding, lower rated bonds arc subject to more risk than lower-yielding, higher rated bonds. I Performance reflects investment results of a scparatc account. 2 Date option was first offered under Nationwide Provident's Sclec[or+ Group Variable Annuity Contract. Indexes arc hypothetical portfolios of specified securities, the pcrfonnancc of which is used as a benchmark in judging the relative pcrfonnance of'securitics. 3Market Indices arc being provided for comparative purposes only and does not reflect any charges and fees. Indices arc hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. The benchmark index chosen most closely represents [hc composition of the scparatc account fund but the group variable annuity contract will differ significantly from the securities representing the index. It is not possible to invest in an index and i[ is not intended to predict the performance or return of any investment. Lehman Brothers Aggrcgatc Bond index includes U. S. government, corporate and mortgage-backed securities with maturities up to 30 years. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Diversified Equity investment option invests in domestic common stocks. This "All Pro" portfolio is designed to provide a broad exposure to the entire U.S. stock market. Various money managers will focus on large, medium and small capitalization stocks, with both value and growth investmer styles. The investment option is designed for investors who seek growth of capital and can tolerate the risks associated with common stock investments. Current Manager Allocation Market Capitalization Breakdown Manager Percent Investment Style ^<$zSOM Terker & Company Geewax 42.5% Large Cap Growth 38.0% , ^$25oM-$IB Mellon Equity Associates 42.5% Large Cap Value Reams Asset Management 7.5% Small Cap Value 07% ~$IB-$SB Husic Capital Management 7.5% Small Cap Growth 38 6% 5.1 /u ^ $5B - $256 17.7% O>$25B Portfolio Sector Allocation Utilities ~ 3.00% Top Ten Holdings Transportation 15.00 4.9% General Electric Co. Technology 21.00% 2.9% Microsoft Cote. Materials/Serv. ~ 8.00% 2.6% PFIZER [NC 2.3% Citigroup InC. Finance ~ 600/ 2.2% Dell Inc Com Energy la.oo% 2.2% Exxon Mobil Corp. Cons. Non-Durables 15.00%u 1.9% INTEL CORP 1.7% Cash Conswner Durables ~ 5. 00% l.7% Cisco Systems Inc. Capital Goods 10.00% 1.5% Wal Mart Stores, Inc. Historical Performance[ Offering= QTK YTD 1 Year 3 Years 5 Years ]0 Years All Pro Diversified Equity Fund 6/30/1993 -1.40% 0.84% 11.81% 4.49% -0.65% 10.37% Wilshire 5000 Index -1.78% 2.08% 14.76% 6.12% -0.04% 10.74% Portfolio Statistics Price /Earnings 20.60 Price /Book 2.60 Yield L50% Return on Equity 15.70% Beta 1.04 Debt /Equity 0.48 Rz 0.92 Assets in $Millions $ 149.56 Total Holdings 344 Market Cap in $Billions 80.376 Turnover l 7. l0% Asset Allocation: Equity 97.00% Asset Allocation: Cash 3.00% Calendar Year Returns Diversified Equity Wilshire 5000 2003 30.38% 31.65% 2002 -21.59% -20.86% 2001 -12.08% -10.96% 2000 -8.71% -10.90% 1999 20.13% 23.53% 1998 26.36% 23.45% 1997 32.24% 31.28% 1996 19.68% 21.20% 1995 32.79% 36.47% 1994 2.19% -0.06% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through [he Selector+ Group Variable Annuity Con[rac[ and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Past performance is no guarantee of future results. Performance reflects- the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Performance reflects the reinvestment of all income and capital gains. Small cap stocks are more volatile than large cap stocks, are subject to significant price fluctuation and business risks, and are thinly traded. Investments in equities are not guaranteed. I Performance relects investment results of a separate account. 2 Date in which the separate account was firs[ ofTercd under Nationwide Life Insurance Company of America's Selector+ Group Variable Annuity Contract. Indexes are hypothetical portfolios of specified securities, [he performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices are being provided for comparative purposes only and does not reflect any charges and fees. Indices are hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly from [he securities representing the index. I[ is no[ possible to invest in an index and it is not intended to predict the performance or return of any investment. Objective & Strategy "I'Ite "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Equity Growth Fund seeks long-term growth of capital through investment in domestic common stocks. Any income realized is incidental to the fund's objective. This investment option employs multiple money managers who will focus on large, medium and small capitalization growth stocks. The investment option is designed for long-term investors who seek growth of capital and can tolerate the higher risks associated with growth stock investments. Current Manager Allocation Manager Percent Geewax, Terker & Company 45% Alliance Capital Management 45% Lee Munder Capital Management 10% Portfolio Sector Allocation Market Capitalization Breakdown Investment Style 19.5 Large Cap Growth 7.5 % 31.4% ^ < S250M Large Cap Growth ^ S250M - S I B Small Cap Growth O ~ I B - S5B I5.5 % ^ SSB -S25B 26.1 % ^> S25B utilities 0.00° 'transportation 29.00 Technology 13.00% Materials/Scrv. 23.00"% Finance ~ 6.00% Energy 15.00% Cons. Non-Durables ~ 10.00% ConsumcrDumblcs ~ L00% Capital Goods ~ 2.00 Top Ten Holdings 4.9% cash 4.0% Pfizer, Inc. 3.8% General Electric Co. 3.7% Microsoft Corp. 3.4% Dell Computer Corp. 2.4% Cisco Systems Inc. 1.9% Intel Corp. 1.8% Citigroup Inc. 1.8% American Intl Group Inc 1.7% Proctor & Gamble Co. Historical Performance) Offering2 TR Q YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Equity Growth Fund 4/30/1988 -5.53% -3.47% 4.37% 0.96% -6.42% 4.97% s:a '. Wilshire All Growth Index -4.80% -1.23% 8.39% 2.73% -6.38% 8.42% : Portfolio Statistics Price /Earnings 27.60 Price /Book 3.80 Yield 0.70% Return on Equity 15.40% Beta 1.29 Debt /Equity 0.28 Rz 0.82 Assets in $Millions 46.38 Total Holdings 274 Market Cap in $Billions 72.723 Turnover 50.30% Asset Allocation: Equity 7.00% Asset Allocation: Cash 0.00% Calendar Year Returns Equity Growth Wilshire All Growth 2003 26.65% 27.45% 2002 -29.70% -25.33% 2001 -18.67% -19.61% 2000 -17.76% -25.07% 1999 33.36% 36.56% 1998 20.64% 37.62% 1997 16.25% 30.16% 1996 8.76% 20.99% 1995 41.91% 33.91% 1994 -4.08°/n 1.00% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Sclector* Group Vaziable Annuity Contract and its related services arc issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chcstcrbrook Boulevard, Berwyn, PA 19312-1181, 800-523-4681. Past performance is no guarantee of future results. Performance reflects the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Pertormancc rcflccts the reinvestment of all income and capital gains. Small cap stocks arc more volatile than large cap stocks, arc subject to significant price fluctuation and business risks, and arc thinly traded. Investments in equities arc not guaranteed. I Pcrfonnancc rcflccts invcstmcnt results of a scparatc account. 2 Date in which the scparatc account was first offered under Nationwide Life Insurance Company of America's Sclcctor+ Group Variable Annuity Contract. Indexes arc hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the rclativc performance of sccuritics. 3Market Indices arc being provided for comparative purposes only and dots not reflect any charges and fees. Indices arc hypothetical and unmanaged portfolios of specified sccuritics, the performance of which is used as a benchmark in judging the rclativc performance of securities. The benchmark index chosen most closely represents the composition of the scparatc account fund but the group variable annuity contract will difTer significantly from the sccuritics representing the index. It is not possible to invest in an index and it is not intended to predict the performance or return of any invcstmcnt. The Wilshire All Growth Index is a broad measure of growth stocks and is a combination of all stocks in the Wilshire Large Growth Index and the Wilshire Small Growth Index. Current Year Declared Rates October 2003 3.60% January 2004 3.60% November 2003 3.70% February 2004 3.50% December 2003 3.70% March 2004 3.85% January 2004 3.60% July 2004 3.40% February 2004 3.50% August 2004 3.30% March 2004 3.85% September 2004 3.20% Objective & Strategy The Fixed Income Fund (FIF) invests substantially all its funds in high quality investment grade issues. These may include public bonds, private placements and commercial mortgages. Investments are diversified by type, industry and geography in order to spread risk. This investment is appropriate for conservative investors who desire a guaranteed rate of return. Crediting Rates A new contract rate is declared and credited each month for all new deposits made to the FIF during that month. If the deposits are made in a month from January through August, then that month's rate will be credited to those deposits through the end of the current year; otherwise, that rate is applied to those deposits through the end of the next calendar year. Investment Pools After these initial guarantees, all deposits made during a calendar year are combined to form an "old money" investment pool, and to share in the experience of the underlying investments. At the beginning of each subsequent January, Nationwide Provident declares rates that will be credited to each pool during the new calendar year. Contract Interest Rate The overall contract interest rate depends on the amount invested by the plan in each investment pool. While new contributions to the FIF earn the current rate at the plan level, each participant in the plan is credited monthly with the contract interest rate, a blend of all pool rates. Transfers/Benefits/Rollouts Transfers from the FIF in a trustee directed contract are treated differently depending on the nature of the distribution. Any benefit payment made to participants will be distributed at book value. All other activity, whether it would be a transfer to a different investment option or termination of the contract, is subject to a market value adjustment. The value of this adjustment will be positive or negative depending on the interest rate environment since establishment of the contract. For this reason the Fixed Income Fund was designed to "rollout" a portion of the account to allow for allocation to other investments, or rolled back into the Fixed Income Fund at current rates. Rollouts from an investment pool begin on the second Januaryl after pool inception, and continue for seven years, at which time the pool will fully mature. In each year after rllouts begin, no less than 10% of a pool's book value will be rolled-out. Each rollout is automatically reinvested at book value, in the current pool, unless the trustee requests otherwise. Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-1181, 800-523-4681. lid NBtIO~iWIC~4 Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The International Equity Strategy seeks long-term capital appreciation through investments in international common stocks. The strategy is intended to provide a broad exposure to the international markets by employing both value and growth investment styles. The strategy will be implemented by investing in Nationwide Life's International Value and [nternational Growth funds. The strategy is designed for long-term investors who seek growth of capital through investments in international common stocks and who can tolerate the special risks associated with international investments. Investing in foreign securities may involve different risks than investing domestically. Additional risk factors may include: regulatory risk, exchange rate risk and political risk. Current Manager Allocation Manager Percent The Boston Company 50% Julius Baer Investment Mgmt 50% Portfolio Sector Allocation Miscellaneous ~ 6.00% Gold Mines Ili 4.00% Investment Style Foreign Equity -Value Foreign Equity -Growth Multi-Industry 25.00 Finance ~ 7.00% Scrviccs 10.00 consmner c°nds Capital Equipment 10.00""/0 Materials 9.00""/0 Energy ~ 8.00% I6.oo % Market Capitalization Breakdown 43.08% ^ < $250M o s2soM - $ I B ^$IB-S56 25.02 % 0 SSB - $25B 28.77% 2.86% 0.26% O>5256 Calendar Year Returns International Equity MSCI-EAFE 2003 35.50% 38.59% 2002 -15.35% -14.60% 2001 -18.37% -21.45% 2000 -11.40% -14.16% 1999 34.24°/n 26.97% 1998 1997 1996 1995 1994 Historical Performance) OfferingZ TR Q YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro International Equity 6/29/1998 -0.86% 4.08% 19.57% 8.79% 0.19% 2.14% MSCI-EAFE Index -0.23% 4.62% 22.52% 9.53% -0.51% 3 ,,,`~x,;tw Portfolio Statistics Price /Earnings 17.60 Debt / Equity 0.95 Price /Book L80 RZ 0.00 Yield Return on Equity 13.50% Total Holdings Beta 0.72 352 Market Cap in $Billions 34.508 Turnover 20.85% Asset Allocation: Equity 96.00% Asset Allocation: Cash 4.00% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related Scrviccs arc issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Past performance is no guarantee of future results. Performance rcflccts the deduction of investment management fccs. Performance may not rcFlect additional group variable annuity contract charges, which will alter investment return. Performance rcflccts the rcinvcstmcnt of all income and capital gains. Small cap stocks arc more volatile than large cap stocks, are subject to significant price Fluctuation and business risks, and arc thinly traded. Invcstmcnts in equities arc not guaranteed. IPcrformance rcflccts investment results of a separate account. 2 Datc in which the separate account was first offered under Nationwide Lifc Insurance Company of America's Selcctor+ Group Variable Annuity Contract. Indexes arc hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices arc being provided for comparative purposes only and does not reflect any charges and fccs. Indices arc hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging [hc relative performance of securities. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly liom the securities representing the index. It is not possible to invest in an index and it is not intended to predict the performance or return of any investment. Morgan Stanley Capital International index that is designed to measure the performance of the developed stock markets of Europe, Australia, and the Far East. 2.70% Assets in $Millions 37.07 Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The investment option is designed for long-term investors who seek growth of capital through investments in international common stocks and who can tolerate the special risks associated with international investments. Investing in foreign securities may involve different risks than investing domestically. Additional risk factors may include: regulatory risk, exchange rate risk and political risk. Current Manager Allocation Manager Percent Julius Baer Investment Mgmt 100% Portfolio Sector Allocation Miscellaneous X6.00% Gold Mines ~ 2,00% Multi-Industry 27.00 Market Capitalization Breakdown Investment Style o < $2soM Foreign Equity -Growth 29.99% 47.20% ~ ^ $250M - $ I B ;., ®$1B-$SB 6.33% ®$5B - $256 9.22% 7.27% O>$25B Finance ~ 9.00% Services 10.00 % Consumer Goods 11.00 15.00 Capital Equipment Materials ~ 3.00% Energy 12.00 Top Ten Holdings 2.9% BP PLC ORD 2.3% Total SA 2.0% Vodafone 2.0% OTP Bank 1.8% Sanofi-Aventis 1.6% Cash 1.6% Komercni Banka I.5% Royal Bank of Scotland 1.4% Nomura l.4% Glaxosmith Historical Performance t OfferingZ QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro lntcrnational Growth 3/2/1998 0.57% 2.17% 17.00% 4.29% -4.78% -1.32% MSCI-EAFE Index -0.23% 4.62% 22.52% 9.53% -0.51% Portfolio Statistics ('rice /Earnings 21.00 Price /Book 2.10 Yield 2.30% Return on Equity 15.80% Beta 0.67 Debt /Equity I.OI RZ 1.00 Assets in $Millions 22.51 Total Holdings 268 Market Cap in $Billions 44.965 Turnover 29.10% Asset Allocation: Equity 93.00% Asset Allocation: Cash 7.00% Calendar Year Returns 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 International Growth MSCI-EAFE 28.95% 38.59% -20.30% -14.60% -25.42% -21.45% -19.44% -14.16% 40.41 % 26.97% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Sclcctor+Group Variable Annuity Contract and its related services arc issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-1 181, 800-523-4681. Pas[ performance is no guarantee of future results. Performance reflects the deduction of invcstmcnt management fees. Performance may not rctlcct additional group variable annuity contract charges, which will ahcr invcstmcnt return. Performance reflects the reinvestment of all income and capital gains. Small cap stocks arc more volatile than large cap stocks, arc subject to significant price Ihicuiation and business risks, and arc thinly traded. Investments in equities arc not guaranteed. I Performance reflects investment results of a separate account. 2 Date in which the separate account was first offered under Nationwide Life Insurance Company of America's Sclcctor+ Group Variable Annuity Contmct. Indexes arc hypothetical portfolios of specified securities, the pcr(omtance of which is used as a benchmark in judging the rclativc pcrfotmancc of securities. 3Market Indices arc being provided for comparative purposes only and does not reflect any charges and fees. Indices arc hypothetical and unmanaged portfolios of specified sccuritics, the performance of which is used as a benchmark in judging the rclativc performance of securities. I'he benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly from the sccuritics representing the index. It is not possible to invest in an index and it is not intended to predict the performance or return of any invcstmcnt. Morgan Stanley Capital lntcrnational index that is designed to measure the performance of the developed stock markets of Europe, Australia, and the Far East. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The investment option is designed for long-term investors who seek growth of capital through investments in international common stocks and who can tolerate the special risks associated with international investments. Investing in foreign securities may involve different risks than investing domestically. Additional risk factors may include: regulatory risk, exchange rate risk and political risk. Current Manager Allocation 1~1anager Percent The Boston Company 100% Portfolio Sector Allocation Miscellaneous ~ 6A0% Gold Mines ~ 5.00 Multi-Industry Finance ~ 6.00% Services 10.00% Consumer Goods Capital Equipment 1000% Materials 11.00% Energy ~ 7A0% Market Capitalization Breakdown Investment Style Foreign Equity-Value 41.57% ~<$2SOM ~ $250M - $1 B O$IB-$SB 30.42% 5.37°/ 22.62°/u 0$SB-$25B o> $z5B Top Ten Holdings 2.0% Glaxosmithkline ORD ~ 25.00% 1.8% Novartis AG 1.7% Shell Trans & Trdg 1.7°/n France Telecom 1.5% BK of Ireland 1.4% Rio Tinto ORD 16.00% 1.4% Honda Motor Co. 1.4% Nestle SA 1.4% Thomson SA 1.4% Unicredito Italian historical Performance' Offering= Q"I'R YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro International Value 3/1/1994 -2.09% 5.38% 21.26% 12.05% 4.23% 7.87% 7.27% MSCI-EAFE Index -0.23% 4.62% 22.52% 9.53% -0.51% 4.34% Portfolio Statistics Calendar Year Returns International Value MSCI-EAFE Price /Earnings 16.80 Assets in $Millions 63.67 2003 39.89% 38.59% Price /Book 1.80 Total Holdings 135 2002 -11.49% -14.60% Yield 2.80% Market Cap in $Billions 31.269 2001 -12.00% -2L45% Return on Equity 12.90% Turnover 12.60% 2000 -2.69% -14.16% Beta 0.74 Asset Allocation: Equity 99.00% 1999 28.04% 26.97% Debt /Equity 0.94 Asset Allocation: Cash 1.00% 1998 9.60% 19.97% [ZZ 0.99 1997 9.24% 1.77% 1996 10.68% 6.05% 1995 l 3.81 % 11.22% 1994 Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through [he Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-1181, 800-523-4681. Past performance is no };uarantce of future results. Performance reflects the deduction of investment management tees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Performance reflects the reinvesnnent of all income and capital gains. Small cap stocks are more volatile than large cap stocks, are subject to significant price fluctuation and business risks, and are thinly traded. Investments in equities are not guaranteed. 1 Performance reflects investment results of a separate account 2 Dale in which the separate account was first otlered under Nationwide Life Insurance Company of America's Selector+ Group Variable Annuity Contract Indexes are hypothetical portfolios of specified securities, [he performance of whi is used as a benchmark injudging the relative performance of securities. 3Market Indices are being provided for comparative purposes only and does not reflect any charges and fees. Indices are hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark injudging the relative performance of securities. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly from the securities representing [he index. It is not possible to invest in an index and it is not intended to predict the performance or return of any inveshnent. Morgan Stanley Capital International index that is designed to measure the performance of the developed stock markets of Europe, Australia, and the Far East. Objective & Strategy Tltc "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Large Capitalization Growth Fund seeks long-term growth of capital through investment in domestic common stocks. Any income realized is incidental to the fund's objective. This investment option employs multiple money managers who will focus on large capitalization (more than $1 billion in market capitalization) growth stocks. This investment option seeks stocks of companies the managers believe have a potential for rapid growth. The investment option is designed for long-term investors who seek growth of capital and can tolerate the higher risks associated with growth stock investments. Current Manager Allocation Market Capitalization Breakdown Manager Gcewax, Terker & Company Alliance Capital Management Portfolio Sector Allocation Percent Investment Style 50% Large Cap Growth 50% Large Cap Growth 26.R'%i' 49.70/ ^ < $250M ^$250M-$IB 3.2% 18.6% ^$SB-$25B rl> C~CR utilities o.oo% Top Ten Holdings Transportation 28.00% 4.1 % Pfizer [nc. Technology 17.00% 4.0% Microsoft Corp Materials/Sere. 22.00% 3.8% DeIIInC 3.7% General Electric Co Finance ~ 7.00% 3.4% American International Group, Inc. Energy 15.00% 3.1% Cash 2.7% Cisco Systems Inc Cons. Non-Durables ~ 8.00% 2.2% Cltigroup InC 2.1% iShares Russell 1000 Consumer Durables 0.00% 2. I % Proctor & Gamble Co Capital Goods ~ 2.00% 1 Historical Performance Offering2 QTR YTD 1 Year 3 Years 5 Years ]0 Years Inception Return All Pro Large Cap Growth Fund 4/14/1998 -5.43% -2.82% 5.30% -1.09% -8.53% -3.25% Wilshire Large Growth Index -4.73% -1.53% 7.70% 2.02% -6.90% Portfolio Statistics Price /Earnings 24.70 Price /Book 3.90 Yield 0.80% Return on Equity 17.00% Beta 1.25 Debt /Equity 0.29 Rz 0.83 Assets in $Millions 94.673 Total Holdings 202 Market Cap in $Billions 80.65 Turnover 66.30% Asset Allocation: Equity 97.00% Asset Allocation: Cash 3.00% Calendar Year Returns Large Growth Wilshire Large Growth 2003 23.78% 24.32% 2002 -28.42% -24.97% 2001 -23.09% -20.33% 2000 -18.93% -24.98% 1999 25.34% 34.73% 1998 1997 1996 1995 1994 Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Past performance is no guarantee of future results. Performance reflects the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Performance reflects the reinvestment of all income and capital gains. Small cap stocks are more volatile than large cap stocks, are subject to significant price Fluctuation and business risks, and are thinly traded. Investments in equities are not guaranteed. I Performance reflects investment results of a separate account. 2 Date in which the separate account was first offered under Nationwide Life Insurance Company of America's Selector+ Group Variable Annuity Contract. Indexes are hypothetical portfolios of spc•cilied securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices are being provided for comparative purposes only and dues not reflect airy charges and fees. Indices are hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly ti~um the securities representing the index. It is not possible to invest in an index and it is not intended to predict the performance or return of any investment. Wilshire Large Growth Index measures large cap stocks that exhibit growth characteristics, which includes a selection of securities from the Wilshire Large Cap 750 Index. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Large Capitalization Value investment option seeks long-term growth through investments in domestic common stocks. Income is a secondary objective. This investment option employs institutional money managers who focus on large capitalization value stocks. Value investing seeks companies the managers believe to be "undervalued" relative to their actual worth. The portfolio will focus on stocks of companies with market capitalization of greater than $1 billion. This investment option is designed for long-term investors who seek growth of capital and can tolerate the risks associated with common stock investments. Current Manager Allocation Market Capitalization Breakdown Manager Percent Investment Style 43.7% ®<$25oM Mellon Equity Associates 50% Large Cap Value Sanford C. Bernstein 50% Large Cap Value ^szSOM-$le osl6-sse 0 19 /o Portfolio Sector Allocation o> s2s6 Utilities ~ 5.00% Top Ten Holdings Transportation ~ 6.00% Tcchnolo~ 4.5% Exxon Mobil Corp. 6y 3a.oo% 2.9% General Electric Co Matcrials/Scrv. ~ 3.00% Finance ~ 5.00% Energy ~ 12.00% Cons. Non-Durables 13.00% ConsumcrDurablcs ~ 5.00% Capital Goods 13.00% 2.6% Cash 2.3% Citigroup Inc. 2.2% Bank of America Corporation 2.2% JP Morgan Chase & Co. L9% Chevrontexaco Corp. l.7% Altria Group [nc. l.7% Wachovia Corp. l.5% Conocophillips Historical Performance t OfferingZ QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Large Cap Value Fund 4/14/1998 0.75% 4.17% 17.76% 7.05% 3.45% 2.34% Wilshire Large Value Index 1.25% 5.00% 20.47% 7.46% 2.57% Portfolio Statistics ['rice /Earnings 15.50 Price /Book 2.30 Yield 2.40% Return on Equity 16.10% Beta 0.98 Debt /Equity 0.69 ]Z- 0.76 Assets in $Millions 116.38 Total Holdings 222 Market Cap in $Billions 82.823 Turnover 8.30% Asset Allocation: Equity 96.00% Asset Allocation: Cash 4.00% Calendar Year Returns Large Value Wilshire Large Value 2003 28.28% 32.26% 2002 -14.30% -17.57% 2001 -1.30% -8.18% 2000 1.56% 1.09% 1999 1.40% 8.27% 1998 1997 1996 1995 1994 Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Sclcctor* Group Variable Annuity Contract and its related services arc issued by Nationwide Lifc Insurance Company of America. Nationwide Provident, 1000 Chcstcrbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Past performance is no guarantee of future results. Pcrformancc reflects the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Pcrformancc reflects the reinvestment of all income and capital gains. Small cap stocks arc more volatile than large cap stocks, arc subject to significant price Fluctuation and business risks, and arc thinly traded. Investments in equities arc not guaranteed. I Pcrformancc reflects investment results of a separate account. 2 Datc in which the separate account was first offered under Nationwide Lifc Insurance Company of America's Sclcc[or+ Group Variable Annuity Contract. Indexes are hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices are being provided for compazativc purposes only and does not reflect any charges and fees. ]ndices arc hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the rdativc performance of sccuritics. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will dif7cr significantly from the sccuritics representing the index. It is not possible to invest in an index and it is not intended to predict the performance or return of any investment. Wilshire Large Value Index measures large cap stocks that exhibit value characteristics, which includes a selection of sccuritics from the Wilshire Large Cap 750 Index. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Small Capitalization Growth investment option seeks long-term growth of capital through investments in small companies with rapid growth potential. This investment option will generally invest in companies with less than $1 billion in market capitalization which are considered "emerging growth" stocks. A large portion of the portfolio can be expected to be invested in technology-related stocks and companies that benefit from technological advances. The investment option is designed for aggressive long-term investors who seek growth of capital and can tolerate the risks associated with small capitalization stock investments. Investing in small issues generally involves greater risk than investing in larger, more established companies Current Manager Allocation Market Capitalization Breakdown Manager Percent Investment Style I lusic Capital Management 60% Small Cap Growth 45.14% ®~ $250M 25% ^ $250M - $ I B Lee Munder Capital Management 40% Small Cap Growth ^$IB-$SB 0.70% ^ $SB - $25B Portfolio Sector Allocation 28.24% ^> $25B utilities o.ooi Top Ten Holdings Transportation I y.p0 4.0% Wynn Resorts Technology 9 U0% 3.3% Ultra Pete Corp Materials/Serv. 17A0% 2.7% Bucyrus Int'1 IttC. 2.5% Ultratech Inc Finance ~ LpO~ 2.5% Cal Dive Int'I Inc. Energy Iy.ooi 2.3% Massey Energy Corp. 2.3% Petroleum Energy Corp. Cons. Non-Durables 8.00/ 2.3% Steel Dynamics [nc. 2.1% Oregon Stl Mls Inc Consumer Durables 12.00% 1.9% Orleans Homebuilders Inc. Capital Goods 15.00 I{istorical Performance) Otteringt QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Small Cap Growth Fund 4/14/1998 -3.67% -8.43% 1.27% 7.69% 0.87% 3.61% Wilshire Stnall Growth Index -5.41% 1.00% -5.41% 9.53% -1.60% Portfolio Statistics Price /Earnings NM Price /Book 3.00 Yield 0.20% Kcturn on Equity 5.60% Beta 1.30 Debt /Equity 0.35 1Z'- 0.56 Assets in $Millions 36.42 Total Holdings 125 Market Cap in $Billions 1.153 Turnover 35.50% Asset Allocation: Equity 98.00% Asset Allocation: Cash 2.00% Calendar Year Returns Small Growth 2003 67.75% 2002 -36.32% 2001 -17.24% 2000 -17.58% 1999 91.46% 1998 1997 1996 1995 1994 Wilshire Small Growth 44.41 -28.85% -14.14% -24.74% 52.56% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Past performance is no guarantee of future results. Performance reflects the deduction of invesnnent management fees. Performance may not renect additional group variable annuity contract charges, which will alter investment return. Performance reflects the reinvestment of all income and capital gains. Small cap stocks are more volatile than large cap stocks, are subject to signiticam price fluctuation and business risks, and are thinly traded. Invesunents in equities are not guaranteed. IPerfonnance reflects invesnnent results of a separate account. 2 Date in which the separate account was first offered under Nationwide Life Insurance Company of America's Selector+ Group Variable Annuity Contract. Indexes are hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices are being provided for comparative purposes only and does not reflect any charges and fees. Indices are hypothetical and unmanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly from the securities representing [he index. It is not possible to invest in an index and it is not intended to predict the performance or return of any investment. Wilshire Small Growth Index measures large cap stocks that exhibit growth characteristics, which includes a selection of'securities from the Wilshire Smapp Cap 1750 Index. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are monitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Small Capitalization Value investment option seeks long-term growth of capital through investments in small companies with rapid growth potential, which the managers believe to be "undervalued" by the market. This investment option will invest in companies with less than $1 billion in market capitalization. The stocks in the portfolio will often be considered "under followed" by the market. The investment option is designed for aggressive long-term investors who seek growth of capital and can tolerate the risks associated with small capitalization stock investments. Investing in small issues generally involves greater risk than investing in larger, more established companies. Current Manager Allocation Market Capitalization Breakdown ~~anager Percent Investment Style 82.2% ^ < $250M Sterling Capital Management 50% Small Cap Value Reams Asset Management 50% Small Cap Value ^$25oM-$IB ^$IB-$SB Portfolio Sector Allocation 8'S% ^> $zsB Utilities ~ 4.00% Top Ten Holdings Tmnsporta[ion 13.00 4.0% Cash Technology 16.00"% 3.3% Tidewater Inc Matcrials/Scrv. ~ 6.00% 3.3% Catalina Mktg Corp 3.3% Delta & Pine Land Co. Finance ~ 5 .00% 3.3% Commonwealth Telephone 2.2% Blyth, lnc. Energy 19.00% l.9% Rayonier Inc. Cons. Non-Durables 22.00°~ 1.7% Speedway Motorsports, Inc. 1.7% Acquity Brands, Inc. Consumer Durables 8.00% 1.5% Commercial Fed Corp. Capital Goods ~ 6.00% Historical Performance t OfferingZ QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Small Cap Value Fund 4/14/1998 -1.35% 6.37% 22.46% 14.60% 12.30% 4.02% Wilshire Small Value Index -0.77% 6.72% 25.44% 19.13% 14.17% Portfolio Statistics Price /Earnings 29.30 Price /Book 1.80 Yield 1.10% Return on Equity 6.30% Beta 0.94 Debt /Equity 0.37 R2 0.58 Assets in $Millions 37.80 2003 Total Holdings 92 2002 Market Cap in $Billions 1.153 2001 Turnover IL90% 2000 Asset Allocation: Equity 96.00% 1999 Asset Allocation: Cash 4.00% 1998 Calendar Year Returns Small Value Wilshire Small Value 41.22% 52.27% -15.09% -13.31% 12.27% 10.15% 19.76% 23.21% -7.96% -1.41% 1997 1996 1995 1994 Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Sclcctor+Group Variable Annuity Contract and its related services arc issued by Nationwide Life Insumncc Company of America. Nationwide Provident, 1000 Chcsterbrook Boulevard, Berwyn, PA 19312-I 181, 800-523-4681. Pas[ performance is no guarantee of future results. Performance reflects the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Pcrfonnancc rcflccts the reinvestment of all income and capital gains. Small cap stocks arc more volatile than large cap stocks, arc subject to significant price fluctuation and business risks, and arc thinly traded. Investments in equities arc not guaranteed. I Performance rcflccts investment results of a separate account. 2 Date in which the separate account was first offered under Nationwide Life Insurance Company of America's Sclector+ Group Variable Annuity Contract. Indexes arc hypothetical portfolios of specified sccuritics, the pcrfomtancc of which is used as a benchmark in judging the rclativc performance of sccuritics. 3Market Indices arc being provided for comparative purposes only and does not reflect any charges and fees. Indices arc hypothetical and unmanaged portfolios of specified sccuritics, the performance of which is used as a benchmark in judging the rclativc performance of sccuritics. fhc benchmark index chosen most closely represents the composition of the separate account fund but [hc group variable annuity contract will differ significantly from the sccuritics representing the index. It is not possible to invest in an index and it is not intended [o predict [he performance or rctum of any investment. Wilshire Small Value lndcx measures large cap stocks that exhibit value characteristics, which includes a selection of sccuritics from the W ilshirc Smapp Cap 1750 Index. Objective & Strategy The All Pro U.S. Government Bond Fund seeks to provide current income, with capital appreciation as a secondary goal. The investment option invests exclusively in U.S. Government guaranteed securities of the highest quality, with an average weighted maturity between 5 and ] 0 years. While U.S. Government securities guarantee repayment of principal and interest to the investment option, the value of the investment option will fluctuate as interest rates change. The investment option is designed for investors who seek current income and can tolerate the risks associated with debt securities. Current Manager Allocation Calendar Year Returns l\lanager Percent Investment Style U.S. Government Lehman Govt. Western Asset Management 100% Corc Plus 2003 2.37% 2.37% 2002 12.89% 11.50% 2001 5.60% 7.24% Maturity Breakdown 2000 12.26% 13.23% Under l year 34.31% 1999 -3.76% -2.25% I - 3 years 3.52% 1998 9.43% 9.85% 3 - 10 years 43.68% 1997 9.98% 9.58% 10 - 20 years 12.67% 1996 1.42% 2.77% Over 20 years 5.82% 1995 18.36% 18.33% 1994 -2.56% -3.37% Historical Performance t OfferingZ QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return U.S. Govcrnmcnt Bond Fund 10/31/1991 2.94% 3.46% 3.24% 5.66% 6.70% 6.64% Lehman Govcrnmcnt Index 3.10% 2.98% 2.54% 5.33% 7.24% 7.44% Portfolio Statistics Assets in $Millions 18.67 Total Holdings 49.00 Maturity (yrs) 6.55 Effective Duration (yrs) 4.29 Portfolio Yields 3.53% Credit Quality Breakdown Bond Allocation Other 0.00% Other ~ 13.91" BB 0.00% BBB 0.00% AAA ~ 32.55 A 0.00 AA 0.00% Govt 53.54 AAA 43.64% Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Sclcctor+ Group Variable Annuity Contract and its related services arc issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chcsterbrook Boulevard, Berwyn, PA 19312-1 181, 800-523-4681. Past performance is no guarantee of future results. Performance reflects the deduction of investment management fccs. Performance may not reflect additional group variable annuity contract charges, which will alter invcsunent return. Pcrfortnancc rcFlccts the reinvestment of all income and capital gains. The investment rctum and principal value of an invcstmcnt will Fluctuate so that the retum on an invcstmcnt may be more or Icss than the original amount invested. Bonds arc subject to market risk and may be worth more or Icss if sold prior to maturity. Investments in higher-yielding, lower rated bonds arc subject to more risk than lower-yielding, higher rated bonds. I Performance reOccts invcstmcnt results of a separate account. 2 Date option was first offered under Nationwide Provident's Sclcctor+ Group Variable Annuity Contract. Indexes arc hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Markct Indices arc lx;ing provided for comparative purposes only and does not reOcct any charges and fccs. Indices are hypothetical and unmanaged portfolios of specified sccuritics, the performance of which is used as a benchmark in judging the relative performance of sccuritics. The benchmark index chosen most closely represents the composition of the separate account fund but the group variable annuity contract will differ significantly from the secutitics representing the index. It is not possible to invest in an index and it is not intended to predict the performance or rctum of any invcstmcnt. Lehman Brothers Aggregate Bond index includes U.S. govcmmcnt, corporate and mortgage-backed sccuritics with maturities up to 30 years. Objective & Strategy The "All Pro" approach brings together various institutional money managers who are specialists in different investment styles. These managers are motlitored by Nationwide Life Insurance Company of America on an ongoing basis to help ensure consistency of style, personnel and returns against appropriate benchmarks. The Value Equity investment option seeks Tong-term growth through investments in domestic common stocks. Income is a secondary objective. This investment option employs institutional money managers who focus on large, medium and small capitalization value stocks. The investment option is designed for investors who seek long-term growth of capital and can tolerate the risks associated with common stock investments. Current Manager Allocation Current Manager Percent Investment Style Mellon Equity Associates 45% Large Cap Value Sanford C. Bernstein 45% Large Cap Value Sterling Capital Management 10% Small Cap Value Portfolio Sector Allocation Market Capitalization Breakdown 28.1`% 32.1% ^<$250M ^ $250M - $ l B O$IB-$5B 12.3% 27% ^ $5B - $25B Q8% o> $zse Utilities ~ 5.00% Top Ten Holdings Transportation ~ 7 OOo Technology 33.00% 5.3% Cash 4.4% Exxon MObil Corp. Materials/Serv. ~ 3A0% 3.9% General Electric Finance ~ 5.00% 3.7% Citigroup, Inc. 2.6% Bank of America Corp. Energy la.oo/ 2.6% JP Morgan Chase & Co. cons. Non-Durables Iz.ooi 2.3% Chevrontexaco Corp. 1.6% Altria Group Inc. Consumer Durables ~ 4A0 % 1.5% Wells Fargo & Co. Capital Goods Iz.ooi L4% Conocophillips Historical Performance' Offering= QTR YTD 1 Year 3 Years 5 Years 10 Years Inception Return All Pro Value Equity Fund 12/31/1984 0.53% 5.03% 18.37% 7.85% 4.38% 9.27% Wilshire All Value Index I.01% 5.19% 20.95% 8.63% 3.74% 11.79% Portfolio Statistics Calendar Year Returns Value Equity Wi lshire All Value Price /Earnings 15.60 Assets in $Millions 61.455 2003 28.75% 32.32% Price /Book 2.20 Total Holdings 249 2002 -14.19% -17.06% Yield 3.70% Market Cap in $Billions 73.558 2001 -0.06% -6.41% Return on Equity 15.40% Turnover 10.00% 2000 3.16% 3.13% Beta 0.96 Asset Allocation: Equity 91.00% 1999 -0.60% 7.78% Debt /Equity 0.66 Asset Allocation: Cash 9.00% 1998 l .95% 12.20% R'' p,77 1997 26.44% 33.48% 1996 20.98% 21.80% 1995 34.88% 39.17% 1994 -0.46% -0.66% Nationwide is a lederally registered service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contract and its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 19312-I I81, 800-523-4681. Past prrlbrmancr is n° guarantee of future results. Performance reflects the deduction of investment management fees. Performance may not reflect additional group variable annuity contract charges, which will alter investment return. Performance reflects the reinvestment of all income and capital gains. Small cap stocks are more volatile than large cap stocks, are subject to significant price fluctuation and business risks, and are thinly traded. Investments in equities are no[ guaranteed. 1 Performance reflects investment results of a separate account. 2 Date in which the separate account was first offered under Nationwide Life Insurance Company of America's Selector+ Group Variable Annuity Contract. Indexes are hypothetical portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. 3Market Indices are being provided for comparative purposes only and does not reflect any charges and fees. Indices are hypothetical and umnanaged portfolios of specified securities, the performance of which is used as a benchmark in judging the relative performance of securities. The benchmark index chosen most closely represents the cmnposition of the separate account fund but the group variable annuity contract will differ significantly from the securities representing the index. It is not possible to invest in an index and it is not intended [o predict the performance or return of any investment. The Wilshire All Vaue Index is a broad measure of value stocks and is a combination ofall stocks in the Wilshire Large Value Index and the Wilshire Small Value Index. i^ i^ i~ i^ i; ~^ ~^ ^ ^ ~^ ^ i^ ^ > IHK ANSWER TO INFORMED INVESTMENT DECISIONS The STAR Program is offered to retirement plans by Nationwide° Life Retirement Services, a unit of Nationwide Life Insurance Company of America, Nationwide Life. The program is offered in conjunction with the Selector+ Group variable Annuity Contract (Selector+ Contract) issued by Nationwide Life Insurance Company of America. The Selector+ Contract and the STAR Program are made available by agents and brokers of Nationwide Life. Some agents may be registered representatives of NASD member broker-dealers. Nationwide Provident 1000 Chesterbrook Boulevard Berwyn, PA 19312-1 181 P.O. Box 1717 galley Forge, PA 19482-1717 STAR-THE ANSWER TO INFORMED INVESTMENT DECISIONS TABLE OF CONTENTS Section I Nationwide Life Retirement Services & Wilshire Associates .................................. l Nationwide"~' Life Insurance Company of America .............................................. l Wilshire Associates, Inc .................................................................................2 Section II Introducing STAR ..............................................................................................5 Section III Determining the Appropriate Asset Allocation ......................................................7 What is Asset Allocation? ..............................................................................7 Risk and Return ............................................................... .............................8 The "Efficient Frontier" ..................................................... .............................8 Minimizing Risk (Volatiliiy~ ................................................. .............................9 Style Specific Managers ................................................... ...........................10 Multi-Manager Approach ................................................. ...........................12 Rebalancing the Portfolio ................................................. ...........................1 3 Plan Portfolio Key Points .................................................... .......................... l 3 Developing the Investment Policy Statement .......................... ..........................14 Section IV Implementing Your Plan's Investment Strategy & Administrative Program ..............15 Section V The "All Pro" Process ......................................................................................17 Fund Structure Planning and Implementation ....................................................17 Manager Research ....................................................................................1 8 Manager Selection ....................................................................................19 Compliance Oversight Management ............................................................19 Performance Measurement and Evaluation ......................................................20 Section VI Administrative Program ..................................................................................21 Section VII Monitoring and Reporting Services of the STAR Program ....................................23 Plan Reporting ................................................................................................25 Section VIII Sample Portfolio Summary ..............................................................................27 Sample STAR Portfolios ....................................................................................29 Sample Investment Policy Statement ..................................................................35 Footnotes and Terminology ..............................................................................47 I~ ^ ^ NATIONWIDE LIFE RETIREMENT SERVICES & ~ WILSHIRE ASSOCIATES ^ COMBINING LEADERSHIP AND EXPERIENCE TO HELP YOU ACHIEVE YOUR GOALS NATIONWIDE LIFE INSURANCE COMPANY OF AMERICA Nationwide Life Insurance Company of America can trace its roots back to 1865, and ~ has earned a reputation for quality products and services, financial strength and stability ~ and sound management. Licensed in all states, the District of Columbia, and Puerto Rico, ^ we are a progressive financial services company providing individual life insurance to protect families, estates and businesses. We also offer annuities for individual retirement ~ needs and a group variable annuity contract, as well as related services to fund qualified pension plans. ~ Our product line features asset distribution and wealth transfer solutions designed to meet ~ our clients' financial needs throughout their lives. With a proven history of excellence Nationwide Life is forging new solutions to help secure the financial futures of new ~ generations of individuals, families and privately owned businesses. RELY ON NATIONWIDE LIFE RETIREMENT SERVICES Nationwide Life Retirement Services, a unit of Nationwide Life Insurance Company of ~ America, has over 40 years of experience in the pension field, with more than 1,200 ~ clients, whose tax-exempt assets are in excess of $1.8 billion. Working with people you ~ can rely on makes it easier to reassure your employees and plan for their futures. ~ OUR COMMITMENT TO YOU ~ Our investment philosophy and process are based on commitments to high quality, safety ~ and due diligence. We focus on a sound investment process and the individuals ^ involved. To better serve our clients, we have placed our field offices in strategic locations across the country. Our offices are staffed with pension specialists proficient in all aspects ~ of qualified retirement plan design and administration. Nationwide is a federally registered service mark of Nationwide Mutual Insurance Company. Nationwide Provident is a service mark of Nationwide Mutual Insurance Company. The retirement plans funded through the Selector+ Group Variable Annuity Contrail and Its related services are issued by Nationwide Life Insurance Company of America. Nationwide Provident, 1000 Chesterbrook Boulevard, Berwyn, PA 1931 2 1 1 81 , 804523-4681 . WILSHIRE ASSOCIATES, INC. "Managing the Managers" Wilshire has entered into an agreement with Nationwide Life to provide investment consulting services with regard to the "All Pro" series of separate accounts, as well as for other separate accounts. Since its founding in 1972, Wilshire Associates has been a leading provider of consulting services to the investment and retirement fund industries. Wilshire's 220-plus corporate clients currently have assets in excess of $1 trillion, making Wilshire a premier provider of services to large institutional investors. Wilshire provides a depth of experience and knowledge unmatched in the industry. Wilshire conducts its own rigorous in-house research, enhancing its investment judgement with quantitative models, superior databases and advanced computer technology. This approach provides added benefit to clients and keeps Wilshire at the forefront of innovation in the investment world. Wilshire was the first to create an objective, quantitative method of categorizing equity portfolios and measuring their style exposures, critical elements in an asset allocation strategy. While style analysis is now an industry standard, Wilshire's method uniquely allows clients to monitor a manager's ability to adhere to designated style and to meet performance expectations. Wilshire is well known among large pension funds, endowments, foundations and insurance companies for investment consulting. As one of the largest and most recognized consultants in the industry, Wilshire's technology in pension investing has become the basis for asset allocation studies now widely used by clients to set long-term investment strategies. 2 WILSHIRE ASSOCIATES, INC. AT A GLANCE THE ORGANIZATION • Investment focus • 30 years of pension investment analysis • Long client tenure • Global presence THEIR PEOPLE • Quality professionals • Investment orientation • Diverse backgrounds • Long staff tenure Culture of innovation/improvement THEIR RESOURCES • State-of-the-art proprietary system • Complete security/manager databases • Depth of staff • Technology • Research THEIR PHILOSOPHY • High-quality, customized client service • Comprehensive investment approach • Planning for the long term • Monitoring short term risk • Tailored investment solutions 3 ^ ^ e INTRODUCING STAR M Ease Your Fiduciary Concerns The STAR Program has been designed to make your job simpler by easing your fiduciary concerns. We believe this program, designed for the use with the Selector+ Group Variable Annuity Contract (Selector+ Contracts issued by Nationwide Life Insurance Company of America, provides a comprehensive investment solution for traditional pension plans, which stresses the importance of the overall retirement planning process. Three Keys to a Successful Retirement Plan Meet the Needs of Your Plan Participants Determining, implementing, and monitoring the appropriate asset allocation strategy for your employee retirement plan are keys to a successful investment policy. As fiduciary of a qualified plan, you are responsible for ensuring that your plan is funded to meet the needs of plan participants. To help you achieve your plan's objectives and fulfill your fiduciary responsibilities, Nationwide Life Retirement Services offers the STAR Program. You can rely on Nationwide Life Retirement Services' STAR Program to help you Determine, Implement and Monitor your plan: • First, we help you determine the appropriate asset allocation strategy for your plan by working with you and your financial services representative. • Next, we implement that strategy by creating an investment program tailored to your plan's specific needs. This program employs the style specific multi-manager approach of Nationwide Life's "All Pro" series of separate accounts. • Finally, we continually monitor and report on the program to make sure that your plan remains consistent with its intended goals. Plan sponsors of large retirement plans have used this three-step approach of determining, implementing and monitoring for years. The STAR Program now brings this sophisticated approach to qualified retirement plans of all sizes. 5 A CLOSER LOOK AT THE STAR PROGRAM Determine The STAR Program tailors plan components to meet your plan participants' unique needs. We work with you and your advisor to create an investment program that will provide added value to the decisions made in developing your plan. In order to construct a tailored proposal, the plan trustee is first asked to complete a STAR Questionnaire. Based on the information gathered, an Investment Policy Statement will be created. Implement STAR addresses your overall asset allocation strategy as well as diversification within the asset classes. Using our multi-managed "All Pro" series of separate accounts, offered within the Selector+ Contract we design each portfolio in astyle-neutral manner. This approach supports our strategy within the Selector+ Contract of capturing the upturns and cushioning the downturns of the investment market. Monitor Once your program is implemented, we rebalance your portfolio quarterly to help ensure that your asset allocation remains consistent with your plan's goals. We also conduct an annual review of your portfolio's investment performance to make sure it remains on target with expectations. At the same time, we will suggest changes deemed necessary to get your plan's policy and portfolio back on track. 6 a ^ ^ DETERMINING THE APPROPRIATE ~ ASSET ALLOCATION A Strategy That Will Influence Your Total Portfolio Return WHAT IS ASSET ALLOCATION? The STAR Program uses the strategy of asset allocation when determining your proposed portfolios. Asset allocation is the strategy of spreading investment dollars among the three broad asset classes -stocks (equities, bonds and cash/cash equivalents money market funds, savings accounts, CDs, etc. instead of concentrating them in just one or two. Any allocation should generally include a variety of investments expected to perform differently during particular economic conditions. A portfolio that's diversified this way is less dependent on the performance of a single asset class. This strategy attempts to take advantage of the varied market reactions of the different classes in order to earn a more consistent, less volatile investment return. A well-known study by Brinson, Singer, and Beebower' offers compelling evidence that over the long-term, asset allocation is crucial to shaping total portfolio return (Figure 1 ~. They found that asset allocation decisions contribute to over 90% of a portfolio's return variability. The remaining 10% is determined by which investments are selected (stock selection) and by when the investment is made (market timing. 7 RISK AND RETURN Each asset class has unique expected return-and-risk characteristics. The expected return is based on the level of compensation investors require in order to assume the risk volatility) of a particular asset class. It's an estimate of what the asset class will earn in the future, based on historical performance and economic forecasts. It's important to consider the different risks and returns associated with the three asset classes. Historically, equities (stocks) generally offer the highest rate of returns but they also have the highest risk or volatility. Bonds generally offer a more modest return but have less volatility than stocks. Cash/cash equivalents, such as money market funds, provide the lowest rate of return with the smallest amount of risk, adding a degree of safety to the portfolio. THE "EFFICIENT FRONTIER" The relationship between return and risk is particularly important when building an investment portfolio. A common term of reference is the "efficient frontier," which is a series of portfolio mixes for which no higher return is expected, given the risk or volatility undertaken (Figure 2). When planning a portfolio, an investor should seek an asset mix that approximates the efficient frontier, aiming for the highest level of return for a given level of risk. Figure 2 -Efficient Frontier 20 18 ~, 16 14 °; 12 10 8 b 4 2 0 5 10 15 20 25 30 35 40 Risk (Standard Deviation) Source: Wilshire Associates, Inc. 8 MINIMIZING RISK (VOLATILITY) The risk or volatility of an asset class can be measured by calculating the standard deviation of its historical returns. This historical statistic may be used by investors as an indication of the potential range of returns for an asset class. The extent to which the three asset classes react the same way to given economic conditions is known as "correlation." Generally speaking, the three asset classes react differently, so their correlation is low. Investing in a mix of asset classes with low correlation reduces the potential risk or volatility of the portfolio. When constructing a portfolio, the asset classes should complement each other in a way that will provide the highest return for the degree of risk taken, or the least amount of risk for a given rate of return. Figure 3 illustrates the differences in risk and return of three hypothetical portfolios. Portfolio A consists solely of stocks and is expected to yield a high return with a high degree of volatility. Portfolio B adds bonds to the investment mix, and the expected volatility declines more than two times the drop in expected return. Portfolio C allocates assets among the three major asset classes, and as expected, the potential return drops but not in the same magnitude that the risk drops. 9 STYLE SPECIFIC MANAGERS Diversification within each asset class has become increasingly important. Since it offers the highest return over the long haul, the equities class often comprises the largest portion of pension plan assets. Diversification is particularly critical when allocating funds within the equities asset class. A 1992 study by Nobel Laureate William Sharpe of Stanford University confirmed that investment "style" is a major determinant of equity returns. Domestic equity markets and products can be evaluated using two factors: investment style and size of company. A stock's style is either growth or value. Company size is defined in terms of "market capitalization," which is generally stated as "large-cap" or "small-cap." However, history shows us that not all styles and sizes move up and down at the same time. One year large-cap investments may generate the best returns, while in another year value stocks may lead the way. Figure 4 illustrates how returns fluctuate in and out of favor from year to year. It shows the historical percentage differences between growth and value investment returns expressed as "growth minus value") and between large-cap and small-cap investment returns ("large- cap minus small-cap"~. Figure 4 40 30 20 10 0 ~, .:f: -10 -20 -30 -40 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 ^ Style Difference ~ Size Difference Source: Wilshire Associates, Inc. Past performance is not indicative of future results. In 1999, for example, a portfolio consisting of only growth stocks included in the Wilshire 5000 Index would have enjoyed a 30% edge over a portfolio of only value stocks, only to lose it in 2000. Similarly, in 1998 a portfolio consisting solely of large-cap stocks would have made good gains relative to small-cap stocks, only to trail small-cap stocks in the subsequent two years. 10 As styles rotate in and out of favor, a portfolio that contains both value and growth styles can help reduce the volatility associated with investing in just one style. By constructing a style-neutral portfolio, an investor can capture the upside of both styles, which can help compensate for the declines in each style segment. Categorizing an investment manager's approach as growth or value and large- or small-cap enables an investor to evaluate that approach by comparing the investment results achieved by the manager to returns of investments with similar characteristics (benchmark returns. Measurement against a benchmark return can indicate a manager's conformity to or divergence from a given style. A large divergence can indicate that the manager's investment style is "drifting" from the expected style (Figure 5). Figure 5 Large • Manager A • S&P 500 ~. • Wilshire 5000 Value • Wilshire 4500 Source: Wilshire Associates, Inc. Small Growth When one style outperforms the other, some managers are tempted to drift toward the favored style. This is known as "style drift." Style drift affects manager performance and increases the variability and undue risk in an equity program. Style drift can be a concern for an investor who has created a portfolio intending to use a particular manager in a style-specific approach. Exposing a portfolio to style drift increases the volatility of returns. A style-specific manager will closely track the size and style exposure of a benchmark (Figure 6). Strict adherence to style-specific investing minimizes style risk. It also allows investors to determine whether the excess return is due to the stock selection skill of the individual manager. MULTI-MANAGER APPROACH An individual manager's returns can fluctuate considerably within the investment style. A combination of managers using the same style-specific approach can help reduce the impact of a single manager's style drift on the portfolio (Figure 7~. A multi-manager, style-specific portfolio attempts to: 1 ~ provide a disciplined, common- sense approach to portfolio structure; 2) shift control of portfolio structure from the managers to the investor; 3) provide for a diversified portfolio structure; and 4j reduce short- and medium-term volatility relative to a desired benchmark. If the objective is to reduce risk while retaining the opportunity to add value, the multi-manager structure can serve as an effective technique in achieving your goal. Figure 7 Value Large • Manager A • Manager C o Wilshire 5000 ~ Composite Growth ^ Manager B 12 Source: Wilshire Associates, Inc. Small REBALANCING THE PORTFOLIO The divergent performances of asset classes may cause a portfolio to become overweighted in one asset class and underweighted in another. As a portfolio shifts from its original allocation, it could become more aggressive or conservative than desired. If the percentage of assets allocated to equities increases, the portfolio may be subjected to higher volatility (risk) than initially intended. Periodic rebalancing helps ensure that the strategy used to construct the portfolio remains intact. Lar e-Ca Growth Allocation 1/1 27% Allocation 12/31 17% Rebalance + 10% Allocation 1/1 27% Lar e-Ca Value 27% 30% -3% 27% Small-Ca Growth 5% 7% -2% 5% Small-Ca Value 5% 4% +l % 5% International E ui 15% 14% +l% 15% Bonds 17% 23% -6% 17% Cash/Cash Equivalents 4% 5% -1 % 4% PLAN PORTFOLIO KEY POINTS When constructing your plan's portfolio, please keep these key points in mind: 1 . According to studies asset allocation determines 90% of the variability in portfolio returns 2. Style/size returns and risks vary from year to year 3. Style- and size-specific managers help eliminate "drift" 4. Multi-manager portfolio construction reduces risk while seeking to add value 5. Portfolio allocations will drift due to market dynamics 13 DEVELOPING THE INVESTMENT POLICY STATEMENT Before we can implement your plan, the following needs to be defined in an investment policy statement: investment goals and responsibilities; investment policies and procedures; the standard of care with which the program is determined; asset allocation policies and investment allocations; performance objectives; and investment guidelines and ongoing review. As fiduciaries of employee benefit plans, plan sponsors are subject to the fiduciary duties imposed by ERISA. One such requirement is that fiduciaries prudently manage, monitor, and, if necessary, modify the investments of assets held by the plan. The Department of Labor requires that plan sponsors put in writing how they plan to comply with these duties. This can be done by the adoption of a formal investment policy statement. An "Investment Policy Statement" is the foundation upon which your plan's investment goals, portfolio evaluation and portfolio monitoring is based. Accordingly, Nationwide Life assists plan sponsors in designing an investment policy that will provide a framework for the selection of an appropriate menu of investment options, as well as criteria for monitoring these options. Given the law's emphasis on the "process" employed by fiduciaries when making decisions with respect to aplan, awell-designed investment policy statement can make you feel confident that you are meeting your obligations under ERISA. 14 i^ ~^ I^ IMPLEMENTING YOUR PLAN'S INVESTMENT STRATEGY & ADMINISTRATIVE PROGRAM THE BUILDING BLOCKS NEEDED TO IMPLEMENT YOUR PLAN'S INVESTMENT POLICY The "All Pro" series of separate accounts offered within the Selector+ Group variable Annuity Contract serve as the primary tool used when implementing the STAR Program. Each "All Pro" separate account has its own style, market capitalization and the diversification of managers. And as our investment consultant, Wilshire plays an important role in the successful execution of the "All Pro" process. Wilshire brings to the relationship various services and expertise that help ensure top investment managers are retained, monitored and combined in a manner that is most beneficial to our clients. The "All Pro" series of separate accounts serve as ideal building blocks in implementing your plan's investment policy. The separate accounts are managed by institutional money managers experienced in managing some of the country's largest pension funds. Managers are continually reviewed and evaluated to ensure that appropriate investment disciplines are followed. This extensive managerial experience and supervision sets the "All Pro" series of separate accounts apart from the competition. Figure 8 Wilshire Associates 1 A °~ ®®®~® s ° Ss~ u Source: Wilshire Associates, Inc. 15 INVESTMENTS RIGHT FOR YOU When creating the "All Pro" series of separate accounts,, Nationwide Life took into consideration the importance of investing throughout the broad market spectrum. The "All Pro" series employs a unique, style-specific, multi-manager approach and includes funds in virtually every asset class: • Diversified Equity Fund • Equity Growth Fund • Large Cap Growth Fund • International Equity Strategy • Small Cap Growth Fund • Value Equity Fund • Large Cap value Fund • Diversified Bond Fund • Small Cap value Fund 16 i^ ^ ^ THE "ALL PRO" PROCESS ~ Through our close working relationship with Wilshire Associates, we bring to the smaller ~ plan market the same institutional money management skills, investment philosophy, and ^ due diligence employed by the country's largest pension plans. Aided by Wilshire's performance measurement and evaluation system, the "All Pro" process helps ensure that ~ the investment results desired are the investment results delivered. Figure 9 "All Pro" Process Source: Wilshire Associates, Inc. FUND STRUCTURE PLANNING AND IMPLEMENTATION Nationwide Life structures each "All Pro" separate account based on Wilshire's investment planning models. Recommendations include the number of managers to use within a separate account, the individual investment styles most appropriate for each separate account, as well as the appropriate allocations among these managers to balance the separate account's risk-and-return compared to its benchmark. 17 MANAGER RESEARCH Wilshire conducts significant research to evaluate and compare current fund managers to other managers available in the marketplace. While past performance is important, Wilshire's evaluation incorporates factors that will also help drive future performance. Their assessment includes: Figure 10 Manager Scoring Sheet TOTAL SCORE - (100%J 0-100 points • The manager's investment philosophy and process • The manager's organization, resources and personnel qualifications • The manager's trading operations, systems and research services Wilshire continually monitors each "All Pro" manager attempt to ensure stability and quality in each of these areas. Score PEOPLE/ORGANIZATION - (25%) 0-100 oints Ownership/Incentives Experience of Professionals Stability of Staff Team Orientation Commitment to Im rovement PHILOSOPHY/PROCESS - 30% 0-100 oints Market Anomaly Unique Information Buy/Sell Disciplines Portfolio Construction Risk Mana ement RESOURCES - 20% 0-100 oints Research Sources Systems Back Office Client Service Trading ~ - PERFORMANCE - (25%) 0-100 points Risk Adjusted Value-Added Persistence of Skill Ability to Absorb Business Quality of Information Fee Competitiveness Source: Wilshire Associates 18 MANAGER SELECTION Wilshire provides the necessary support during the selection of a new investment manager for an "All Pro" separate account. Using its proprietary database of manager information currently tracking more than 5,000 products, Wilshire evaluates the universe of candidates and submits a report to Nationwide Life profiling those most qualified for the assignment. Investment management firms are selected on the basis of their suitability for filling specific needs within the "All Pro" series portfolios as well as their consistent performance. And if an individual fund manager with a successful stock selection track record leaves an investment management firm, we will know about it immediately and take the necessary measures to compensate for this manager's absence. COMPLIANCE OVERSIGHT MANAGEMENT Wilshire assists Nationwide Life in negotiating with new and existing managers. An important part of that process is the development of detailed investment guidelines that define the amount of risk a manager may take within the portfolio. This oversight provides our clients-and us-assurance that unexpected and unintended risks will be minimized. 19 PERFORMANCE MEASUREMENT AND EVALUATION Wilshire thoroughly evaluates each "All Pro" manager's portfolio performance on a monthly basis. Quantitative models are used to monitor the manager's investment style over time to ensure that investment disciplines are followed. Evaluation of a manager's investment success involves sophisticated performance attribution. Wilshire, therefore, models the sources of excess returns as compared to the manager's benchmark rate of return, which helps determine whether performance is reached through the manager's decision-making skills or through random luck. This measurement and evaluation system is an essential factor in Nationwide Life's "All Pro" process. Such a high level of scrutiny has proven to enhance long-term consistency in investment performance results. With our "All Pro" approach, plans of all sizes-even the smallest-can now benefit from the high gualiiy of market expertise previously available to large plans alone. 20 ^ ^ i ADMINISTRATIVE PROGRAM ^ ^ ^ ^ ^ ~~ ~a Benefit Payments and Tax Reporting One of the major benefits Nationwide Life Insurance Company of America provides is our ability to make benefit payments directly to recipients. Checks are processed from our operations center and delivered to the recipient's residence. This process is efficient and time-effective, as proven by our past performance and client satisfaction. We combine the investment expertise of a life insurance company with reliable distribution capabilities to provide an integrated system that works well for us and for our clients. Distributions are allocated equally to all investment options used within the STAR Program. There are other advantages to having Nationwide Life provide your retiree benefit payments, including: • Federal and state tax withholding • Preparation and distribution of 1099-R forms and completion of IRS 945 filing • Ability to have deductions taken directly from benefit payment (QDRO, medical insurance, etc. • Ability to have check mailed to alternate address during the year • Flexibility in changing addresses, withholding amounts and cost of living adjustment ~COLAs~ PAX (Pension Automated eXchange) Nationwide Life has established a 24-hour bulletin board via the Internet. The Pension Automated eXchange (PAXI gives you, the employer, access to your accounts between statement periods. You can access your account electronically with your confidential password and logon ID. Through our user-friendly PAX interface, you are able to view the updated information you need to administer your employee benefit plan, including: • Account balances • Deposits made to your account over the last five processing days • Withdrawals made from your account over the last five calendar days • Last four quarter ending balances • Unit values for all investment options I ^ 21 s ^ ^ MONITORING AND REPORTING SERVICES OF THE STAR PROGRAM ~ We take great pride in the range and depth of services we provide our clients. We are . with you every step of the way and we are fully committed to help make the installation and management of your retirement plan easy and effective. Get with the program, and ~ this is what you can expect: QUARTERLY REBALANCING ' One of the most important aspects of long-term investing is maintaining the asset allocation percentages as intended. With the STAR Program, you will not have to worry about your plan's portfolio becoming over- or underweighted in any given asset class. a We will automatically rebalance your portfolio every quarter. ~ THE ANNUAL REVIEW Each year we will provide you with a comprehensive plan review, including suggestions . for enhancements, and a detailed report on plan status to help you determine whether expectations outlined in your investment policy are being met. At the same time, we'll ~ also review new market assumptions and make necessary changes to your portfolios. ^ PERFORMANCE REPORTING Through your advisor, you'll receive customized, easy-to-read performance information ~ about your portfolio. QUARTERLY MARKET COMMENTARY In conjunction with Wilshire, a Quarterly Market Commentary will be supplied to your plan. You'll find it an informative piece that helps put the past quarter's market environment into perspective. INVESTMENT POLICY STATEMENT An "Investment Policy Statement" is the foundation upon which your plan's investment goals, portfolio evaluation and portfolio monitoring is based. A carefully crafted policy must be designed and implemented to comply with ERISA. To help you meet your fiduciary obligations, we can help you develop your plan's investment policy and furnish you with the appropriate language. 23 BENEFIT PAYMENTS AND TAX REPORTING Nationwide Life makes benefit payments directly to recipients. This process is efficient and time-effective. We combine the investment expertise of a life insurance company with reliable distribution capabilities to provide an integrated system that works well for us and for our clients. TRADITIONAL QUALIFIED PLANS WEB SITE The Traditional Qualified Plans Web site offers plan sponsors and their representatives a more accessible option in viewing plan information. The secure Web site offers services similar to those offered by defined contribution plan sites. The services include: Client Profile • Contact Information • Contributions & Distributions • Tax Reporting • Asset Statements • Performance Reporting Balances & Transactions • Current Balance • Historical Balance • Transaction History & Reporting Investments & Performance • Investment Policy Statement • Closing Unit values & Performance • Historical Performance Forms & Information • Distribution Forms • Contribution Forms • Transfer Forms • Period Payment Forms • Contract Information Form • Glossary & Newsletter 24 ^ ^ ^ PLAN REPORTING Your advisor will periodically provide you with a comprehensive reporting package. This plan-specific package includes the following reports: ACTIVITY SUMMARY REPORT • Beginning and Ending Values • Contributions and Distributions • Gains/Losses • Asset Class Allocation PERFORMANCE SUMMARY REPORT • Portfolio Return • Asset Class Returns • Fund Return PORTFOLIO ALLOCATION • Asset Class Allocation • Fund Allocation PERFORMANCE SUMMARY REPORT • Asset Class Market values • Asset Class Allocations o ~ -- Q .~ __ 11{t \ .~un~;M~~r l4mno.ireifiin YUN~iv'~fl~~l~ 25 GROWTH OF A DOLLAR HISTORY OF ASSET GROWTH \wl \r.~.m+... urmo.ar.w~. pnrpo.n oni. .~ ..e a. ~Mis. • .. ___fi ,. ~.. „~ ,u, ,m. ,u, ~~M ,~., ~~.. ,,.. ~mn one, ro. AM-.\ ni:knr lMmnn.tnlinn Pnrpn\r.Ilnl~ -- I.. r QUARTERLY MARKET COMMENTARY Sometimes it's difficult to understand the dynamic financial world. Numbers and percentages do not always paint a clear picture of what has happened or what the outlook is. Through our relationship with Wilshire, we provide a Quarterly Market Commentary with the standard reports. The commentary, written in clear and understandable language, is an informative piece to help you better understand current market conditions. 26 i^ ~^ I^ SAMPLE PORTFOLIO SUMMARY Once we have analyzed your responses to the STAR Questionnaire to determine what kinds of expectations you, the trustee, have for your retirement plan and your risk tolerance, we will construct a proposal tailored to the goals you have for your plan. Generally, we generate three different sample portfolios for your consideration using a conservative, moderate and aggressive approach, as follows: • Portfolio A (Conservative): optimal portfolio with a hypothetical return equal to the Actuarial Assumed Interest Rate • Portfolio B (Moderate): optimal portfolio with a hypothetical return equal to the Accumulated Benefit Obligation (ABO~ • Portfolio C (Aggressive): optimal portfolio with a hypothetical return equal to the target return We provide the sample portfolios in the proposal to illustrate how, for a specified hypothetical return, specific asset classes are combined in accordance with the asset allocation methodology employed in the STAR Program to attempt to minimize risk. In order to construct a portfolio for a specified hypothetical return, it is necessary to forecast future returns for each asset class included in the portfolio. Similarly, in order to estimate the amount of risk potentially associated with a specific portfolio, it is necessary to forecast the standard deviation that may be associated with the returns for each asset class. The forecasted returns and standard deviations we currently use are set forth in the Questionnaire. The forecasted returns and standard deviations shown are provided by Wilshire Associates, Inc. The returns and standard deviations are derived from research conducted by Wilshire Associates. They are used for the sole purpose of optimizing the risk/return characteristics of sample portfolios with specified hypothetical returns. Actual returns and standard deviations will vary, potentially significantly, from forecasted returns and standard deviations. The following Sample Portfolios are intended only as examples of what you may receive for your review once your questionnaire is completed. The Sample Portfolios are provided solely for the purpose of illustrating the risk/return characteristics of the portfolios. It is not possible to predict what the actual rates of return of a portfolio will be, and the actual return of a Sample Portfolio will vary from the specified hypothetical return of the portfolio. 27 ~~ ~~ ~ ABC Company Defined Benefit Plan ^ ~ ~ STAR Proposal Sample Portfolios 29 H -.s -.c. -.~ c ~ ~~ ~ - c;.s G.(i G.4 62 6 .~ ort o w Portfolio E3 Portfolio i\ 9 IU LI 12 L3 l4 15 Risk (Standard De~nadon) Portfolio A -optimal portfolio projected to meet the Actuarial Asstuned Interest Rate Portfolio B -optimal portfolio projected to meet theAcclunulated Benefit Obligation (ABO) Portfolio C* -optimal portfolio projected to meet the target return *Based on your responses found on the STAR Questiomlaire a portfolio projected to meet the target return could not be constructed.The asset class constraints were widened in order to obtain the target return. Accumulated Benefit Obligation: $1,600,000 Projected Benefit Obligation: $1,800,000 Actuarial Assumed Interest Rate: 6.50% Maximum Allocations Cash/Cash Equivalents Bonds Domestic Equity International Equity Maximum One Year Decline: Target Portfolio Return: 2002 Asset Class Forecasts 40.00% 20.00% 80.00% 25.00% 15.00% 7.50`% 'Standard Deviation percentage is a statistic that measures the scattering of returns around an average rehun for a particular time period; the standard deviation helps show how close or far various returns are from the average return. The larger the standard deviation percentage number the greater the risk of short-term volatility or change, including loss. 30 PORTFOLIO A 5.00% Domestic Equity 40.08% International F,quit5~ 16.46% Bonds 38.46% Cash/Cash h;c~ui~ralents 5.00% Portfolio I Ivpothecical Comp~xuid Rctw~n ~> >i~" Portfolio Estimated Standard Deviation 10.02"/> 30`%. 25`% 20`%r. 15'% 10% 5°/ " _ , .. 0 /0 5°/u _.._ -10°/ 1 2 3 4 5 6 ? 8 9 l0 U ~ er Ran>e 23.74 %~ 18.26~%~ 15.92`%, 14.54° ~~ 13.67'%, 12.93"~~~ 12.MI" ~~ 11.)8"4. 11.63" ~~ 1 1.34%. Hv othetical 6.50°/~ 6.SO G. (,50 %~ C.50`%~ 650"/0 650 %~ 65U"/ 650'% 6.5U %~ 6.711 'Lower Ran*e -9.14`%x -~+.94°/~ -3.(Yl"/~ -1.85`% -1.04°/~ -0.45°~~ o.f~2°~~ 0.4U`%~ 0.71'/ Ii.9R°~~ TGe chore zlbErkrntion is trot intrnrlrrl to rvprruritt or j~redicl for perjnrmm~cr o% avtp partradar htrr rhnent. 31 PORTFOLIO B ' Domestic Equity 62.65% International Equity 24.11% Portfolio H~~pothetical Compound Return Portfolio Estimated Standard Deviation 40% r 30`% 20% 10°/i 7.48`% 1439%~ -10% } __ 1 2 3 4 5 6 7 8 9 10 U er Ran e 32.64% 24.39% 20.90% 18.87% 17.50% 16.50% 15.73% 15.12% L4.61% 14.18% H othetical 7.48% 7.48% 7.48% 7.48'% 7.48% 7.48% 7.48% 7.48% 7.48% 7.48% Lower Range -14.44% -8.77% -6.14% -4.53% -3.42% -2.59% -1.94% -1.42% -0.98% -0.61% %7~r nhnre illu~tialinrt is no! intended io rr~rerent orpredz d tGe perforn~a~u e of nrrp j~orticnlar~ iiu~ertnrent 32 ABC COMPANY DEFINED BENEFIT PLAN SAMPLE INVESTMENT POLICY STATEMENT Month Day, Year 35 ~ nn~~i. PORTFOLIO C ® Domestic Equity 70.00`% International Equit~~ 25.(10'%~ Bonds 0.O0`% Cash/Cash Equivalents 5.00`%. 33 Potential Implementation of Asset Class Allocation through the "All Pro" Series of Separate Accounts t111 Pro Large Cap Value Fund 17.03% 01% ~/o All Pro Large Cap Growth Fund 17.03% __ All Pro Small Cap Value Fund 3.01% ,1ll Pro Small Cap Growth Fund 3.01 w;. All Pro International Equity Strategy 16.46`% x111 Pro Diversified Bond Fund 38.46% Fixed-Income Fund 5.00% till Pro Large Cap Value Fund 26.63% All Pro Large Cap Growth Fund 26.63% ~~` :111 Pro Small Cap Value Fund 4.70% All Pro Small Cap Growth Fund 4.70% All Pro International Equity Strategy 24.11`% All Pro Diversified Bond Fund 8.24% Fixed-Income Fund 5.00% 5.00% 5.25 5 _ All Pro Large Cap Value Fund 29.75% All Pro Large Cap Growth Fund 29.75% All Pro Small Cap Value Fund 5.25% All Pro Small Cap Growth Fund ~~ 5.25% ~" ,~ Pro International Equity Strategy . ,wy .-: .T 25.00% .., . All Pro Diversified Bond Fund 0.00% Fixed-Income Fund 5.00% 34 ABC COMPANY DEFINED BENEFIT PLAN INVESTMENT POLICY STATEMENT TABLE OF CONTENTS The Purpose of Investment Policy Statement ................................. ..............................._38 Investment Goals and Responsibilities ........................................... ...............................39 Investment Policies and Procedures ............................................... ...............................40 Standard of Care ............................................................................... ...............................42 Prudence ................................................................................... ...............................42 Ethics and Conflicts of Interest ................................................. ...............................42 Delegation of Authority ............................................................. ...............................42 Asset Allocation Policies and Investment Allocations ..................... ...............................43 Defmitions ...................................................................................... ................................44 Performance Objectives .................................................................. ................................45 Investment Guidelines and Review ................................................ ................................4C Adoption of Investment Policy Statement ...................................... ................................4C 37 THE PURPOSE OF INVESTMENT POLICY STATEMENT This Investment Policy Statement is intended to set out the investment framework that shall apply at all times for the AI3C Company's Defined Benefit Plan. The purpose of the Plan is to provide participants with defined pension benefits based on the indexation of retirement benefits. It is important to set up an appropriately diversified asset mix in order to ensure continued prudent and effective management of pension ftmd assets.The Plan has adopted this Investment Policy Statement to serve as that long-term plan, in order that: • There is a clear understanding on the part of the Trustees, Staff, participants, beneficiaries and all outside service providers as to the objectives, goals and restrictions concerning the investment of assets. • Assets be structured and invested in a prudent manner. • There is a meaningful basis for the evaluation of asset classes and strategies used to achieve the investment objectives. 38 I^ ^ ^ INVESTMENT GOALS AND RESPONSIBILITIES ^ The investment goals state the mission of the retirement plan and its investment ^ program.They articulate the philosophy and process for the management of plan assets. • The overall goal of the ABC Company Defined Benefit Plan (the "Plan") is to provide benefits, as anticipated under the retirement Plan, to its participants and ^ their beneficiaries through a carefully planned and executed investment ^ program. ^ • The Plan Sponsor shall be responsible for the creation of the investment policies ^ of the Plan and provide oversight for the management of the Plan's assets. ^ • ABC Company will make the necessary contributions as dictated by the Plan ^ document. Benefits will be funded through a combination of company contributions and investment earnings on the Plan's assets. ^ • The Plan Sponsor shall select investments with specific objectives and guidelines ^ to manage the Plan's assets. ^ • The investment philosophy of the Plan is to create a management process with ^ sufficient flexibility to capture investment opportunities as they may occur, yet ^ maintain reasonable parameters to ensure pnidence and care in the execution of ^ the investment program. ^ • The Plan Sponsor seeks to produce a return on investment which is based on levels of investment risk that are prudent and reasonable given prevailing capital ^ market conditions. While the Plan Sponsor recognizes the importance of the ^ preservation of capital, it also recognizes modern portfolio theory, which ^ maintains that varying degrees of investment risk will be rewarded with compensating returns. Consequently, prudent risk-taking is warranted and justifiable. ^ • The pension investment program shall at all times comply with existing and ^ future applicable state and federal regulations including, but not limited to, the ^ Employee Retirement Income Security Act of 1974 (ERISA), as may be amended. ^ ^ ^ ^ ^ ^ 39 INVESTMENT POLICIES AND PROCEDURES The policies and procedures of the investment program guide its implementation and outline the specific responsibilities of the Plan Sponsor and its investment managers. The investment policies of the Plan shall be based on a program that will consider: • The financial condition of the Plan • The expected long term capital market outlook • The Plan Sponsor's risk tolerance • Future growth of active and retired participants • Expected inflation • Expected costs and benefit payments The financial planning process considers alternative investment policies and measures their potential impact on the financial condition of the Plan and future pension costs. Based on the financial plan it will be the responsibility of the Plan Sponsor, the Plan's fiduciary, to determine the specific allocation of the investments (the asset policy mix) among the various asset classes considered prudent given the Plan's liability stnicture. The long-term allocation guidelines shall be expressed in terms of a target and ranges for each asset class to provide sufficient flexibility to take advantage of shorter-term market opportunities as they may occur. The asset policy mix shall be sufficiently diversified to maintain a reasonable level of risk as determined by the Plan Sponsor without imprudently sacrificing return.The Plan Sponsor shall review the asset allocation Plan each year with current capital market assumptions to ensure the current asset mix will achieve the long-term goals of the retirement program. In accordance with the asset allocation guidelines, the Plan Sponsor will select investment options for the implementation of the Plan's investment policies. 40 ASSET ALLOCATION POLICIES AND INVESTMENT ALLOCATIONS The Plan Sponsor has adopted the following asset allocation policies and manager allocations on January X,YYYY: 43 DF.FINI'CIONS Domestic Equity: Invests mainly in stocks of American firms. But note that some domestic equity fiords invest part of their assets overseas, and many American companies do a large part of their business abroad. International Equity: Invests in stocks and/or bonds of companies outside the United States. International fiords pose some unusual risks. In addition to choosing the most promising foreign companies, fiord managers must also hedge against currency fluctuations and sometimes must even consider political unrest.The international portfolio will be highly correlated with the Morgan Stanley Capital International of Europe, Australia, and the Far East (MSCI EAFE) Index.The MSCI EAFE Index is designed to measure the performance of the developed stock markets of Europe, Australia, and the Far East. Large Company Growth: Characterized by higher earnings growth, higher P/E ratios, lower yield, and higher price volatility than the broad market.The growth stock portfolio will be highly correlated with the Wilshire Large Company Growth Index. The Index measures large cap stocks that exhibit growth characteristics. Large Company Value: Characterized by higher dividend yields, lower P/E ratios, and lower price volatility than the broad market.The value stock portfolio will be highly correlated with the Wilshire Large Company Value Index.The Index measures large cap stocks that exhibit value characteristics. Small Company Growth: Characterized by higher earnings growth, higher P/E ratios, lower yield, and higher price volatility than the broad market.The growth stock portfolio will be highly correlated with the Wilshire Small Company Growth Index. The Index measures small cap stocks that exhibit growth characteristics. Small Company Value: Characterized by higher dividend yields, lower P/E ratios, and lower price volatility than the broad market.The value stock portfolio will be highly correlated with the Wilshire Large Company Value Index.The index measures small cap stocks that exhibit value characteristics. Bonds: Investment grade government, corporate and mortgage-backed securities with characteristics closely reflecting the broad market.The duration of the portfolio will be maintained within one year of the Lehman Brothers Aggregate Bond Index. Fixed-Income Fund (F1F): The FIF investment objective is to provide a high level of income with guaranteed rates of return.The Fiord will invest substantially all fiords in high quality investment grade issues focusing on public bonds, private placements and 44 The Plan Sponsor will allocate funds across investments to develop the most efficient investment structure for each asset class.The Plan Sponsor will set guidelines for these options and regularly review their investment performance against stated objectives. The procedures for the management of the Plans assets are: l.The Plan Sponsor will exercise its fiduciary responsibilities regarding the investment program in accordance with the provisions of the Plan document. 2.A formal review of the Plan's asset allocation policies and investment structure will be conducted annually by the Plan Sponsor. 3.The investments of the Plan shall be reviewed no less than annually (more often if unusual market conditions dictate) to ensure that policy guidelines continue to be appropriate and are met.The Plan Sponsor shall monitor investment returns on both an absolute and comparative basis. 41 STANDARD OF CARE Prudence The standard of prudence to be applied to the investment of the Portfolio shall be the industry standard "Prudent Investor Rule," which states: `Investments shall be made with judgment and care, under circumstances then prevailing which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct busuiess.They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with which business is conducted on behalf of ABC Company. Delegation of Authority Responsibility for the operation of the Plan is hereby delegated to the Plan Sponsor, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Plan Sponsor.The Plan Sponsor shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. 42 ^ ^ . commercial mortgages. Investments will be diversified by type, industry and ^ geographic region in order to spread risk.The fund will target investments with five to seven year maturaties for yield and one to five year maturaties for liquidity purposes. ^ Note: Indices are hypothetical portfolios of specified securities, the performance of ^ which is used as a benchmark in judging the relative performance of securities. Indices . are unmanaged portfolios and do not guarantee future performance. It is not possible ^ to invest in an index. ^ PERFORMANCE OBJECTNES ^ The Plan's performance objectives shall be set forth at the total Plan level.Al1 ^ objectives will be incorporated in the annual review of the Plan's performance. Rates ^ of return will be calculated based on atime-weighted rate of return formula.The performance of the overall fund will be measured relative to: • The actuarial rate of interest -The first objective is achieving a rate of return equal to or greater than the Plan's actuarial interest rate. If the Plan's assets grow at a rate equal to or greater than the actuarial rate, the Plan's funding condition will be maintained. Earning a lower return will generally result in increased levels of contributions. • Inflation rate -The second objective is achieving a real return above inflation. The Plan's liabilities are sensitive to inflation as benefits are ultimately determined by future salaries. Failing to achieve the necessary real return may increase pension costs. • The Plan's stated target return -The third objective is to equal or exceed the Plan's stated target rate of return. 45 INVESTMENT GUIDELINES AND REVIEW The Plan Sponsor has selected a number of investment options to implement its investment policies. Each option is retained to invest a specific allocation in accordance with its style and investment process as specified in the investment guidelines. On an ongoing basis, the Plan Sponsor will monitor the investment options for compliance with the investment guidelines and specific objectives. Modifications may occur for the following reasons: 1. Plan objectives have changed and the current investment program is no longer appropriate. 2.Asset class expectations have changed and the Plan's policy needs to be updated. ADOPTION OF INVESTMENT POLICY STATEMENT Dated this day of ABC Company Retirement Plan Approved by: Print Name: Title: Approved by: Print Name: Title: 2003. 46 ^ FOOTNOTES AND TERMINOLOGY ^ . FOOTNOTES At the beginning of each year, Wilshire reviews its return and risk assumptions for the major asset classes. Based on its research Wilshire provides Nationwide Life with its ~ forecasted annual returns and standard deviations for each of the noted asset classes. ~ Nationwide Life utilizes this data in order to create the Sample Portfolio's containing the ^ Upper, Lower and Hypothetical Ranges. ^ Asset class portfolios are optimized on the Efficient Frontier ~i.e., they have the highest expected return for a given risk, given the forecasts of asset class expected returns, ~ standard deviations, and correlation coefficients. There are two steps involved in the ~ asset allocation process. The first involves forecasting return, risk and correlation for all ^ asset classes to identify an efficient frontier. The second is to choose the optimal asset mix based on each investor's financial and non-financial circumstances and attitude toward ~ risk. By utilizing the information collected through step one and step two allows for an ~ optimal portfolio allocation. Compound returns illustrated assume a 90% probability range using a lognormal ^ distribution. The 90% probability range is a confidence interval based on approximately 1 .3 standard deviations from the mean. Based on a lognormal distribution of returns, you ~ would expect returns to fall within the range (1.3 standard deviations from the mean) ~ 90% of the time. Model portfolios are illustrated assuming a style neutral implementation. The equity stock . market can be broken into two categories: growth and value. Wilshire's equity assumptions do not categorize this market in two, but rather base their assumptions on the ~ market as a whole. ~ The efficient frontier and model portfolios illustrated are derived from the data supplied by the client. In order to begin the process Nationwide Life requests that every client ^ complete and sign the STAR Questionnaire. Based on the information found on the Questionnaire Nationwide Life derives an efficient frontier and model portfolios ~ specifically for the individual client. i~ 47 TERMINOLOGY Actuarial Assumed Interest Rate: The actuary's professional opinion that is reasonable and reflects the actuary's best estimate or target return for the plan's portfolio. Accumulated Benefit Obligation: The benefit earned by retirees and current employees at any point in time based on the plan formula, which may include years of service or participation, compensation and payable in the normal form of payment from the plan. Projected Benefit Obligation: The benefit earned at any point in time based on the plar formula, years of service or participation, expected future years of service, compensation and payable in the normal form of payment from the plan. Standard Deviation: Standard deviation is a statistic that measures the dispersion of returns around the average return for a particular timeframe from the average return. The larger the standard deviation percentage number, the greater the risk of term volatility, including loss. Efficient Frontier: A series of portfolio mixes for which no higher expected return is possible given the risk or volatility undertaken. Upper Range: Based on the given portfolio's asset allocation, Wilshire's hypothetical returns and the standard deviation associated with the asset mix, this is the Upper Range of returns for the specified period of time. Hypothetical: This is the hypothetical return for each of the Sample Portfolios. The Upper Range and Lower Range Returns are calculated based on the Hypothetical Return. Lower Range: Based on the given portfolio's asset allocation, Wilshire's forecasted returns and the standard deviation associated with the asset mix, this is the Lower Range of returns for the specified period of time. "Small Cap" Companies: Are generally those companies whose market value and shares outstanding is less than $1 billion. These are small, emerging firms with the potential for fast growth. A higher risk than larger, more established companies, they are generally more suitable for the younger, more aggressive investor. "Large Cap" Companies: Are generally those companies whose market value and shares outstanding is greater than $3 billion. These are large, established companies with histories of steady growth. They are generally suitable for investors nearing retirement and seeking steadier returns and lower risk. 48 Growth Funds: Include stocks of young, fast growing firms with high earnings potential and continual growth in earnings per share year after year. Value Funds: Include stocks of older, more established companies whose share prices appear to be low relative to their earnings potential. value funds seek to buy stock shares when they are underpriced and take profits when shares appear overvalued. 49