Quantitative Core EquityQuantitative Management Associates

November 2004

2SP\QC 9-04

Table of Contents

I. Organization & People

II. Quantitative Core Equity Overview

III. Underlying Research

IV. Investment Process

V. Trading

VI. Results

Appendix

Technical Information

Biographies

Fee Schedule

Composite Performance Returns

I. Organization & People

4SP\QC 9-04

Quantitative Management AssociatesInvestment Manager Firmly Grounded in Academic Theory

Highly experienced, stable team of investment professionals

Time-tested investment principles psychology of investor behavior financial valuation theory

Proprietary quantitative research recognized by industry publications

Insights and empirical research incorporated in quantitative processes

Assets Under Management$47 Billion*

Balanced Management**

$19.9 billion

Q uantitative Core

$11.8 billion

Value Equity$2.0 billion

O ther$0.1 billion

Equity Index$22.6 billion

* Quantitative Management Associates LLC (QMA) directly manages more than $36 billion and allocates approximately $10 billion (assets as of 9/30/04) to other Prudential Investment Management, Inc. units. QMA operated for many years as a unit within Prudential Financial’s asset management business, known today as Prudential Investment Management. On July 1, 2004, QMA became an SEC-registered investment adviser. No changes in investment professionals and processes occurred as a result of this change in legal structure.

** Includes approximately $10 billion in assets for which equity and balanced management services are provided

5SP\QC 9-04

Stable, dedicated team of experienced investors

Research driven investment culture

Theoretical underpinning

Rigorous testing

$47 billion under management* Quantitative Core Equity ($11.8 billion) Value Equity ($2.0 billion) Balanced Management ($19.9 billion)** Equity Index Management ($22.6 billion) Other ($0.1 billion)

Quantitative Management AssociatesSenior Team Focused on Research and Implementation

As of 9/30/04 * Quantitative Management Associates (QMA) directly manages more than $36 billion and

allocates approximately $10 billion (assets as of 9/30/04) to other Prudential Investment Management, Inc. units.

** Includes approximately $10 billion in assets for which equity and balanced management services are provided.

James Scott, PhDPresident Portfolio Manager 17Margaret Stumpp, PhD

Chief Investment Officer Portfolio Manager 17Ted LockwoodManaging Director Portfolio Manager 16John Van Belle, PhDManaging Director Portfolio Manager 21Mitch Stern, PhDVice President Portfolio Manager 7Peter Xu, PhDPrincipal Portfolio Manager 7Max Smith, PhDSenior Associate Research Analyst 15Dan Carlucci, CFASenior Associate Research Analyst 20Betty TongAssociate Research Analyst 23Rich CristVice President Trader 21

Quantitative YearsCore Equity at

Professionals Role Firm

II. Quantitative Core Equity Overview

7SP\QC 9-04

* There can be no guarantee that this objective will be achieved.

Quantitative Core Equity

Objective*

Achieve total return of 1.0 –1.5% over the benchmark with about 2% tracking error

Philosophy

Investors make systematic, exploitable mistakes

They fall too easily for “stock stories”

They fail to react sufficiently to material news

The most effective way to exploit these mistakes is with a diversified, objective process

Different selection criteria are effective for different types of stocks

Risk should be focused on areas of greatest confidence

8SP\QC 9-04

Results Consistently Achieved Objective Over Time

Quantitative Core Equity Annualized Performance as of 9/30/04

Quantitative

Core Equity (Gross)

S&P 500 Index Difference

Tracking Error

Information Ratio

1 Year 16.03% 13.87% +216 bps – –

3 Years 5.37 4.05 +132 1.55% 0.86

5 Years 0.49 -1.31 +180 1.86 0.97

Since Inception (1/1/97)

8.49 7.02 +147 1.78 0.83

Please see ‘Composite Performance Returns’ section of the Appendix for full disclosures. Source of all data: QMA, Standard & Poor’s

III. Underlying Research

10SP\QC 9-04

“Overconfidence Bias in International Stock Prices,”

The Journal of Portfolio Management, (Winter 2003)

Compelling Research Recognized by Industry Publications

“Behavioral Bias, Valuation and Active Management,” Financial Analysts Journal, Vol 55 (July/August 1999)

“News, Not Trading Volume, Builds Momentum,” Financial Analysts Journal, (March/April 2003)

“Enhanced Equity Indexers: Common Traits and Surprising Differences,” Journal of Investment Management, (September 2003)

11SP\QC 9-04

Conceptual Framework

Value of companies with no growth opportunities depends on normalized earnings.

P =E/k

Value of rapidly growing companies depends primarily on expectations of future growth.

P =E/k + profitable growth

Valuation Theory Shows Where to Find Opportunities

P = Stock PriceE = Normalized Earnings Per Sharek = Equity Discount Rate

12SP\QC 9-04

Slow Growth Stocks

1.33%

0.18%

-1.05%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Cheap Average Expensive

Valuation “Works” Best for Slowly Growing Companies …

Qua

rter

ly E

xces

s R

etur

ns*

Fast Growth Stocks

P/E

Quarterly payoff to stocks grouped by P/E and Long-Term EPS Growth

-0.04%-0.15%

-0.01%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Cheap Average Expensive

P/E* Based on the difference between each group of stocks returns and the average of all stocks returns.Source: Quantitative Management Associates, based on the largest 3000 US stocks (based on market cap valuation) in each quarter from 3/1985 - 6/2003.Past performance is not a guarantee of future results. Returns are gross of management fees and are only provided to illustrate the information implicit in our stock selection methodology.

13SP\QC 9-04

Slow Growth Stocks

… While “News” Is More Important for Rapidly Growing Companies

Fast Growth Stocks

Quarterly payoff to stocks grouped by Estimate Revisions and Long-Term EPS Growth

0.12%0.27%

0.83%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

-1.15%

-0.31%

0.75%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Negative Revisions

Positive Revisions

NeutralRevisions

Negative Revisions

Positive Revisions

NeutralRevisions

Qua

rter

ly E

xces

s R

etur

ns*

* Based on the difference between each group of stocks returns and the average of all stocks returns.Source: Quantitative Management Associates, based on the largest 3000 US stocks (based on market cap valuation) in each quarter from 3/1985 - 6/2003.Past performance is not a guarantee of future results. Returns are gross of management fees and are only provided to illustrate the information implicit in our stock selection methodology.

14SP\QC 9-04

Valuation Framework Also Works Internationally

Source: Scott, J., Stumpp, M., and Xu,P. “Overconfidence Bias in International Stock Prices” Journal of Portfolio Management, 29(2), Winter 2003.Past performance is not a guarantee of future results. This is shown for illustrative purposes only.

Valuation Is More Important For Slow Growth1987 - 2000

Hig

h E

/P -

Low

E/P

(%

exc

ess

Tot

al R

etu

rn)

-4

-3

-2

-1

0

1

2

3

4

U.S. Japan U.K. France Germany

Str

ong

New

s m

inu

s W

eak

New

s (%

exc

ess

Tot

al R

etu

rn)

“Good News” Is More Important For High Growth1987 - 2000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

U.S. Japan U.K. France Germany

Slow Average Fast

IV. Investment Process

16SP\QC 9-04

Three-Step Process Adds Value

1.

2.

3.

Classify Stocks

Calculate Expected Return

Construct Portfolio

STEPInputs Outputs

Nightly download of data for approximately 3,000 US stocks

Internally built optimizer Overweight high expected

return stocks

Limits exposure to other risks

Stocks classified by growth rate into categories

Expected return for each stock and portfolio, calculated daily

Periodically rebalance each portfolio to reflect risk/reward objectives

Models for each category Slow growth: emphasize

“valuation”

Fast growth: emphasize “news”

17SP\QC 9-04

Steps 1 and 2: Classify Stocks and Calculate Expected Returns

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

Emphasize valuation

Forward Price/Earnings

Change in Price/Earnings

Adjusted Price/Book

Equal emphasis on both valuation and “news”

Slow Growth Fast GrowthAverage Growth

Emphasize “news”

EPS Estimate Revisions

Price-Volume Behavior

Insider Trading

New Issues/Buybacks

Earnings Quality

3000 Stock Universe

18SP\QC 9-04

Higher Expected Return Stocks Have Outperformed

Average quarterly equal-weighted sector-adjusted gross returns for all stocks in universe, 1998-Q1 through 2004-Q2.Source: Quantitative Management Associates, using data provided by Factset Data Systems. Past performance is not a guarantee of future

results. Returns are gross of management fees and are only provided to illustrate the information implicit in our stock selection methodology.

-1.17

0.26

0.92

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

Lowest Middle Highest

Expected Alpha Group

Qua

rter

ly E

xces

s R

etur

n (%

)

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

19SP\QC 9-04

Our Process Adapts to Changes in a Firm’s Business

Source: Quantitative Management Associates using data provided by Factset.Shown to illustrate the stock selection methodology and not intended to be a recommendation. Not all stocks held in the portfolio perform similarly. Past performance is not a guarantee of future results.

3/02 6/02 9/02 12/02 3/03 6/03 9/03 12/03

10

15

20

25

30

35

0

626350VCA9 - Shares

Tyco International Ltd. (TYC)15-Feb-2002 to 17-Feb-2004 (Weekly) High: 35.830U.S. Dollar Low: 6.980

Last: 28.920Slow Growthbut Cheap (Buy)– Negative EPS revisions;– Low P/E, P/B;– EPS Quality OK.

Fast Growthbut bad news (avoid)– Negative EPS revisions;– Insider Selling;– Weak EPS Quality.

20SP\QC 9-04

Step 3: Construct Portfolios Mindful of Risk

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

• Data integrity review

• Select portfolio with appropriate risk/return profile

• Review transactions before trading

Expected Returns

Calculated Daily

Expected Returns

Calculated Daily

EstimatedTradingCosts

EstimatedTradingCosts

Risk Constraints

Market capitalization

Industry Sector Active stock

position Liquidity Style

Risk Constraints

Market capitalization

Industry Sector Active stock

position Liquidity Style

ProprietaryOptimizer

ProprietaryOptimizer

Efficient Frontier

1.25

1.35

1.45

1.55

1.65

1.75

1.85

0.50 1.00 1.50 2.00 2.50

Tracking Error

Exp

ecte

d(a

lph

a %

)

Portfolio 1

Portfolio 10

This is shown for illustrative purposes only.

21SP\QC 9-04

Factor Restrictions

Representative Optimization Parameters

Liquidity

Industry ± 0.75%

Sector ± 0.75%

Growth/Value (by growth bucket) ± 3.0%

Size (by cap bucket) ± 3.0%

No more than 20% of average daily trading volume

No more than 10% in an individual trade

More liquid stocks favored

Stock Restrictions

No more than 0.75% underweight

No more than 0.75% overweight

Levels vary under normal market conditions. Precise bounds may vary without notice.

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

22SP\QC 9-04

Key Attributes of Portfolio In Line With Market

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

Quantitative Core EquityRepresentative Portfolio Characteristics

As of 9/30/04

Large Cap Quantitative Core Equity

S&P 500 Index

Size ($ bil)$ Weighted Average 86.2 90.0$ Weighted Median 49.7 48.0Median 8.6 9.5

ValuationPrice/Earnings (excluding neg) 17.6x 18.5xPrice/Earnings (I/B/E/S 1 yr Forecast1)

14.8x 15.9x

Price/Book 2.7x 2.9xYield 1.7% 1.8%

Growth and ProfitabilityLong-Term Forecast1 12.1% 12.0%Return On Equity 19.9% 20.6%Earnings Per Share Growth-5 Yrs. 10.7% 9.6%

Beta2

Versus S&P 500 1.00 1.00

Turnover typically 75-

100%

As of 9/30/041 There is no guarantee that forecasts will be met. This is shown for illustrative purposes only.2 Historical Beta calculated in Zephyr Style Advisor using monthly returns since inception (1/97 – 3/04).Sources of data: QMA, Frank Russell Company, Standard & Poor’s.

V. Trading

24SP\QC 9-04

Optimizer

Timely Data

Market Access

Ongoing Research

Carefully Manage Trading Costs

Trading (Agency, Principal, Electronic Crossing

Network)

Post trade analysis • Evaluation of broker

performance• Evaluation of our trading

techniques• Estimation of trading costs

Expected returns/Risks

characteristics

Estimated trading costs

25SP\QC 9-04

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%$/share (left) %/share (right)

Ongoing Research Has Reduced Transaction Costs

Incorporated real-time bid-ask spreads

Enhanced transaction-cost

modelingIntra-day principal trading

Average Transactions Costs for All Quantitative Core Equity Trades, May 2001 – December

2003

Quarterly average of total transaction costs including commission, spread, impact and delay. Results include both agency and principal trades. Data begins 5/15/01 Past trends are not a guarantee of future results.Source: QMA

26SP\QC 9-04

Ongoing Research Leads to Periodic Model Enhancements

Replaced earning surprises with analyst estimate revision as measure of news

Product

Inception

Changed optimizer from BARRA to CPLEX

Incorporated real-time bid-ask spread and transaction costs in optimization to evaluate brokers and trading strategies

Added insider trading, share repurchase/issues and earnings quality

Additional data integrity screens

Introduced international models

Refined market capitalization risk control

1997 1998 1999 2001 2002 2004

Introduced Long-Short Market Neutral model

VI. Results

28SP\QC 9-04

Quantitative Core Equity CompositeInvestment Performance

5.37

16.03

0.49

8.49

13.87

4.05

-1.31

7.02

-4

-2

0

2

4

6

8

10

12

14

16

18

1 Year 3 Year 5 Year Since Inception

Quantitative Core Equity S&P 500 Index

Quantitative Core Equity Annualized Gross Returns

As of 9/30/04

(1/1/97 – 9/30/04)

Past performance is not a guarantee of future results. Please see ‘Composite Performance Returns’ section of the Appendix for full disclosures. Source of Benchmark: Standard & Poor'sSource of all other data: Quantitative Management Associates

% QuantitativeCore Equity Composite S&P 500

Year (Gross) Index Difference

2004 (1/1-9/30) 3.22% 1.51% +171 bps

2003 31.02 28.69 +233

2002 -20.60 -22.10 +150

2001 -12.97 -11.89 -108

2000 -5.46 -9.11 +365

1999 21.38 21.04 +34

1998 31.31 28.58 +273

1997 33.51 33.38 +13

Annual Returns

29SP\QC 9-04

Performance in One-Year Rolling Periods

0

3

6

9

12

15

18

21

24# of Rolling One-Year Periods

Times that Quantitative Core Underperformed S&P 500

Times that Quantitative Core Outperformed S&P

500

-5 to -6% -4 to -5% -3 to -4% -2 to -3% -1 to -2% 0 to -1% S&P 0 to 1% 1 to 2% 2 to 3% 3 to 4%4 to 5%5 to 6%

500

Relative Performance of Quantitative Core vs. S&P 500

Relative Gross Performance of Quantitative Core vs. S&P 500 (Account Performance Minus S&P 500) (79 Month-end Observations From 12/31/97 – 6/30/04). Past performance is not a guarantee of future results.Source: Quantitative Management Associates and Standard & Poor’s.

30SP\QC 9-04

Outperformance in Up Markets and Down Markets

% o

f ti

mes

Qu

an

tita

tive

Core

(G

ross

)O

utp

erf

orm

s

83%77%

81%

0%

25%

50%

75%

100%

S&P 500 Return-10% or

Less-10 to +10%

+10% or More

Average Added Value

1.0% 2.0% 1.4%

# of Observations

24 13 42

Percent of the Time Quantitative Core Outperforms S&P 500 in Up and Down Markets

(Rolling One-Year Periods; 79 Month-end Observations from 12/31/97- 6/30/04)

Past performance is not a guarantee of future results.Source: Quantitative Management Associates and Standard & Poor’s.

31SP\QC 9-04

77%

85%78%

0%

25%

50%

75%

100%

Outperformance in Growth, Value and Neutral Markets

-10% or Less -10 to +10%+10% or

More

Average Added Value(Quantitative Core minus S&P 500)

1.8% 1.1% 1.2%

# of Observations 22 34 23

Growth Favored Neutral Value Favored

(Defined as Russell 1000 Value minus Russell 1000 Growth)

Percent of the Time Quantitative Core Outperforms S&P 500 in Growth and Value Markets

(Rolling One-Year Periods; 79 Month-end Observations from 12/31/97- 6/30/04)

% o

f ti

mes

Qu

an

tita

tive

Core

(G

ross

)O

utp

erf

orm

s

Past performance is not a guarantee future results. Sources: Quantitative Management Associates, Standard &Poor’s and Frank Russell

32SP\QC 9-04

Value Added Primarily Through Security Selection

Attribution Analysis 6/30/1999 – 6/30/2004

Source: Factset. 5-Year consensus forecasted EPS growth rates from IBES. P/E calculated using latest 12 month trailing EPS.

1.53 1.541.41

1.77

1.33

0.15

0.28

-0.08

0.36

0.16

-0.5

0.0

0.5

1.0

1.5

2.0

EconomicSector

Market Cap Price to Book EarningsGrowth

Price toEarnings

Security Selection Factor & InteractionA

nn

uali

zed

Valu

e A

dd

ed

(%

)

--Attribution Factor --

33SP\QC 9-04

Strategy Adds Value Across Capitalization Range and Internationally

Annualized Value Added (Gross)

Inception through 9/30/04

Past performance is not a guarantee of future results.An investment cannot be made directly in an index.Source of data: QMA, Standard & Poor’s, Frank Russell and Morgan Stanley.

0.0

1.0

2.0

3.0

4.0

5.0

Quant Core All Cap Quant Core Mid Cap Quant Core Small Cap QuantCore

Global Quant Core International QuantCore

(1/1/1997)

S&P 500

(1/1/2000)

Russell 3000

(7/1/1996)

S&P 400

(6/1/2000)

S&P 600

(1/1/2002)

MSCI EAFE

Inception Date

Benchmark

(%)

(4/1/2002)

MSCI World (Free)

34SP\QC 9-04

Why Quantitative Core?

Experienced, stable, dedicated team

Captures major insights of growth and value management into one portfolio

Adds value in different market environments

Quantitative approach ensures discipline and objectivity

Continuing research keeps process fresh

AppendixTechnical InformationBiographiesFee ScheduleComposite Performance

Returns

36SP\QC 9-04

No Black Box: Review Transactions Before Trading

Recommended Trades – Client X

Ticker Name

Trade Share

sTrade

$ Dir

BOP Weigh

t

EOP Weigh

t

Market

Weight

BOP Activ

e

EOP Activ

e

Last Price

$

Size, Growt

h

News, d(E/P), E/P, B/P

Insiders,

Buyback,Quali

ty

Expected

AlphaExchan

ge % ADV Flag

ADVP Advancepcs Com 16,20

0428,328 B 0.17% 0.22% 0.00% 0.17% 0.22% 26.44 (3/3) (1/0/0/0) (1/0.4/0.6) 3.0 NASDAQ 1.2% 0

AHC Amerada Hess Corp Com 1,400 62,020 B 0.24% 0.25% 0.05% 0.19% 0.20% 44.30 (3/1) (0.9/0/1/1) (0/0/0.6) 2.1 NYSE 0.2% 0

AIN Albany Intl Corp Cl A 600 13,482 B 0.00% 0.00% 0.00% 0.00% 0.00% 22.47 (4/1) (1/0.3/1/0.8)

(0/0/0.5) 2.1 NYSE 0.5% 0

AMGN Amgen Inc Com 20,40

01,196,05

2B 0.59% 0.73% 0.93% -0.34% -0.21% 58.63 (2/3) (1/-0.7/0/0) (-0.5/0/1) 1.3 NASDAQ 0.2% 0

AMH Amerus Group Co Com 2,500 62,725 B 0.04% 0.05% 0.00% 0.04% 0.05% 25.09 (4/0) (0/1/1/1) (0.5/0/0) 2.3 NYSE 1.3% 0

APA Apache Corp Com 21,80

01,283,80

2B 0.05% 0.19% 0.12% -0.07% 0.08% 58.89 (3/1)

(1/1/0.8/0.1)

(0/0/0.2) 1.9 NYSE 1.5% 0

ATH Anthem Inc Com 1,900 125,248 B 0.07% 0.08% 0.12% -0.05% -0.03% 65.92 (3/2) (1/-1/0/-1) (1/0.8/0.3) 2.1 NYSE 0.2% 0

BBBY Bed Bath & Beyond Inc Com

900 32,904 B 0.00% 0.00% 0.13% -0.13% -0.13% 36.56 (2/3) (1/0.8/-1/-1)

(-0.5/0/0.1)

1.3 NASDAQ 0.0% 0

BBT Bb&t Corp Com 7,000 227,360 B 0.07% 0.10% 0.19% -0.12% -0.09% 32.48 (2/0) (-1/1/0.8/0.6)

(0/0.4/0) 1.5 NYSE 0.6% 0_B

BBY Best Buy Inc Com 67,70

02,002,56

6B 0.00% 0.22% 0.12% -0.12% 0.10% 29.58 (3/2) (1/1/-0.1/0)

(-0.1/0/0.8)

2.2 NYSE 1.5% 0

BMY Bristol Myers Squibb Co Com

34,200

770,526 B 0.61% 0.70% 0.54% 0.07% 0.16% 22.53 (2/0) (-0.8/1/1/1) (0/0/0.5) 2.0 NYSE 0.5% 0

RE Everest Re Group Ltd Com 3,20

0186,432 S 0.26% 0.24% 0.00% 0.26% 0.24% 58.26 (3/2) (1/-1/1/0) (0/0/0) 0.5 NYSE 0.7% 0

RHI Robert Half Intl Inc Com 6,90

094,323 S 0.01% 0.00% 0.03% -0.02% -0.03% 13.67 (3/3)

(-1/-0.6/-1/-1)

(0/0/0.4) -1.2 NYSE 1.0% 0***

RKY Coors Adolph Co Cl B 400 19,684 S 0.02% 0.02% 0.02% 0.00% -0.01% 49.21 (3/1) (-1/0/1/1) (0/0/-0.2) 0.3 NYSE 0.1% 0

RSG Republic Svcs Inc Com 2,00

040,220 S 0.13% 0.12% 0.00% 0.13% 0.12% 20.11 (3/1) (-1/0/0.3/0) (0/0/0.5) 0.2 NYSE 0.4% 0

S Sears Roebuck & Co Com 23,4

00587,340 S 0.19% 0.13% 0.10% 0.09% 0.03% 25.10 (3/1) (-1/-1/1/1) (0/0/-0.2) -0.4 NYSE 0.5% 0

SHW Sherwin Williams Co Com 900 24,192 S 0.02% 0.02% 0.05% -0.03% -0.03% 26.88 (3/1) (-0.3/0/0/0) (0/0.2/0.2) 0.2 NYSE 0.2% 0

SPC St Paul Cos Inc Com 8,60

0290,336 S 0.07% 0.04% 0.09% -0.02% -0.05% 33.76 (3/1) (-1/-1/0.4/0) (1/0/0) 0.0 NYSE 0.9% 0

STE Steris Corp Com 1,50

036,645 S 0.13% 0.12% 0.00% 0.13% 0.12% 24.43 (3/3) (-1/1/0/0) (0.5/0/1.4) 1.3 NYSE 0.4% 0

Understand what drives transactions

RangesSize (1-5): 5 =

SmallGrowth (0-3): 3 =

Fast

Contribution to from news,

(E/P), E/P and B/P

Contribution to from insider

trading, buybacks and earnings

quality

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

Stocks shown to illustrate the investment process. They are not intended as recommendations or as a complete listing.Source: QMA

Anticipate trading costs Monitor

data integrity

37SP\QC 9-04

IndustryPortfolio Before

Benchma

rkPortfolio

AfterDifferenc

eMultiline Retail 3.51% 4.23% 3.48% -0.75%Chemicals 0.82% 1.53% 0.78% -0.75%Electric Utilities 1.51% 2.20% 1.47% -0.74%Energy Equipment & Services

0.08% 0.79% 0.08% -0.71%

Diversified Financials 7.01% 7.90% 7.24% -0.65%Machinery 0.56% 1.19% 0.60% -0.59%Biotechnology 0.59% 1.29% 0.73% -0.56%Real Estate 0.00% 0.40% 0.00% -0.40%IT Consulting & Services 0.00% 0.29% 0.00% -0.29%Hotels Restaurants & Leisure 1.01% 1.08% 0.79% -0.29%Electronic Equipment & Instruments

0.10% 0.37% 0.09% -0.28%

Multi-Utilities & Unregulated Power

0.03% 0.30% 0.05% -0.26%

Automobiles 0.31% 0.57% 0.31% -0.25%Personal Products 0.26% 0.60% 0.36% -0.24%Road & Rail 0.24% 0.47% 0.24% -0.23%Food & Drug Retailing 0.90% 1.11% 0.90% -0.21%

Evaluate Impact of Each Recommended Trade on Alpha and Risk

CharacteristicPortfolio Before

Benchmar

kPortfolio

After DifferenceExpected Alpha 0.82 0.30 0.88 0.58Tracking Error 1.56 1.51Number of Stocks 315 500 318 182 P/E 14.2 15.6 14.3 -1.4P/B 2.7 2.7 2.7 -0.1IBES EPS %Growth 12.4 12.1 12.4 0.3

Size Bucket 1 20.9% 22.2% 20.4% -1.8%Size Bucket 2 16.9% 17.7% 17.0% -0.8%Size Bucket 3 20.8% 20.7% 21.4% 0.6%Size Bucket 4 20.3% 19.7% 20.2% 0.4%Size Bucket 5 21.1% 19.6% 21.1% 1.5%

IBES EPS Growth Bucket 0

23.1% 24.1% 23.0% -1.1%

IBES EPS Growth Bucket 1

38.0% 37.3% 38.6% 1.3%

IBES EPS Growth Bucket 2

23.4% 25.9% 22.9% -3.0%

IBES EPS Growth Bucket 3

15.5% 12.8% 15.5% 2.7%

Non-Benchmark Positions 6.0% 0.0% 6.0% 6.0%

Sector Portfolio

Before

Benchmark Weight

Portfolio After

Difference

Materials 2.02% 2.69% 1.94% -0.75%Utilities 2.07% 2.80% 2.05% -0.75%Industrials 10.75% 11.44% 10.74% -0.70%Energy 5.33% 5.95% 5.56% -0.40%Financials 19.92% 20.30% 20.01% -0.29%Consumer Discretionary 14.41% 14.00% 14.18% 0.18%Consumer Staples 9.46% 9.03% 9.47% 0.44%Information Technology 15.49% 14.78% 15.53% 0.75%Health Care 16.22% 15.39% 16.14% 0.75%Telecommunication Services 4.33% 3.62% 4.37% 0.75%

Classify StocksClassify Stocks

Calculate Expected

Return

Calculate Expected

Return

Construct Portfolio

Construct Portfolio

Shown for illustrative purposes, and not intended to be a recommendation or as a complete listing.Source of Data: QMA

38SP\QC 9-04

Analyze Every Broker

Broker Name

Total Cost (%)

Excess Cost

Spread (%)

Commission(%)

Impact (%)

Daily Volume

# of Stocks

# of Progra

ms$ Value Traded Shares

Mean Price

$

Broker #1 0.07% -0.17% 0.04% 0.07% -0.04% 1.48% 740 6226,559,84

77,882,524 31.45

Broker #2

0.09% -0.07% 0.05% 0.06% -0.02% 0.60% 283 3 25,933,500 826,390 35.15

Broker #3

0.14% -0.04% 0.04% 0.07% 0.02% 0.57% 870 12 63,796,073 2,390,734 32.37

Broker #4

0.20% -0.04% 0.04% 0.07% 0.09% 1.26% 810 13180,112,36

16,654,718 30.27

Broker #5

0.16% -0.04% 0.05% 0.06% 0.06% 1.00% 1,621 22213,647,61

47,987,382 30.57

Broker #6

0.14% -0.03% 0.04% 0.06% 0.04% 0.74% 1,220 38105,285,03

53,764,626 29.59

Broker #7

0.17% -0.03% 0.05% 0.06% 0.06% 0.95% 1,663 19195,820,46

27,814,969 30.29

Broker #8

0.23% -0.03% 0.04% 0.07% 0.12% 1.46% 705 27124,584,56

84,663,283 29.86

Broker #9

0.13% -0.01% 0.04% 0.06% 0.04% 0.37% 156 2 14,146,285 463,568 32.45

Broker #10

0.16% -0.01% 0.05% 0.07% 0.03% 0.47% 137 2 15,467,011 613,705 33.05

Broker #11

0.22% -0.01% 0.06% 0.05% 0.11% 1.49% 1,544 40158,385,50

75,795,059 28.16

Broker #12

0.26% 0.00% 0.05% 0.07% 0.13% 1.55% 570 13 42,519,493 1,580,895 31.05

Broker #13

0.18% 0.02% 0.05% 0.06% 0.06% 0.51% 372 5 41,283,135 1,535,558 32.07

Broker #14

0.21% 0.03% 0.04% 0.08% 0.09% 0.53% 584 10 53,089,887 1,997,483 30.00

Broker #15

0.20% 0.04% 0.07% 0.07% 0.06% 0.51% 151 2 9,603,803 357,200 28.82

Broker #16

0.21% 0.06% 0.06% 0.06% 0.08% 0.41% 152 3 13,589,094 494,875 29.67

Broker #17

0.21% 0.07% 0.06% 0.07% 0.08% 0.08% 68 5 3,080,906 125,000 33.05

Broker #18

0.32% 0.11% 0.06% 0.07% 0.19% 1.02% 538 11 44,750,780 1,856,588 25.95

TOTAL 0.17% -0.04% 0.04% 0.07% 0.06% 1.10% 12,184 2331,531,655,

36156,804,55

730.22

Top performing agency broker, last 120 days

Average agency

trade cost = 0.17%

Total costs 0.04% below

expectationsShown for illustrative purposes, and not intended to be a recommendation or as a

complete listing.Source of Data: QMA

39SP\QC 9-04

Analyze Every Trade

Evaluate broker performance based upon “residual cost”, given difficulty of trade

Agency Trades By Broker Last 90 Days 4/9/03

Broker Date

Total Cost (%)

Residual Cost (%)

Half -Spread

(%)Commissi

on (%)

Impact & Other

(%)

% of Avg Daily

Volume

Number of

Trades Value

($) Shares

($)

Transaction Price

Sells ($)

Buys($)

Broker #6

1/10/03 0.14% -0.01% 0.07% 0.08% -0.01% 0.15% 74 645,171 28,800 26.345 326,584 318,587

Broker #6

1/23/03 0.23% 0.03% 0.05% 0.09% 0.09% 0.44% 24 609,906 32,000 24.179 497,987 111,919

Broker #6

1/24/03 0.13% 0.00% 0.04% 0.06% 0.03% 0.20% 64

10,092,650

320,223 35.793 206,416

9,886,235

Broker #6

2/7/03 0.22% 0.04% 0.03% 0.10% 0.09% 0.02% 16 355,406 19,700 18.083 300,561 54,845

Broker #6

2/14/03 0.18% 0.04% 0.06% 0.07% 0.06% 0.19% 143

1,831,103

70,100 29.210 901,529 929,574

Broker #6

2/27/03 0.16% 0.01% 0.04% 0.07% 0.05% 0.34% 164

8,215,593

313,600 27.965

4,306,782

3,908,81

1

Broker #6

2/28/03 0.16% -0.04% 0.03% 0.06% 0.07% 1.13% 112

55,789,292

1,929,70

0 31.537

26,528,489

29,260,803

Broker #6

3/3/03 0.10% -0.02% 0.06% 0.05% -0.01% 0.25% 19 770,634 23,500 36.477 540,004 230,630

Broker #6

3/4/03 0.20% 0.06% 0.04% 0.07% 0.08% 0.01% 5 19,613 800 26.230 - 19,613

Broker #6

3/5/03 0.09% -0.05% 0.04% 0.07% -0.02% 0.15% 114

1,855,612

68,900 28.195 953,821 901,791

Broker #6

3/6/03 0.07% -0.08% 0.04% 0.06% -0.03% 0.40% 231

15,458,321

573,903 31.076 13,061,7

91

2,396,53

0

Broker #6

3/7/03 0.14% -0.05% 0.04% 0.10% 0.00% 0.19% 15

1,121,695

61,800 27.716 -

1,121,695

Broker #6

3/14/03 0.16% 0.05% 0.03% 0.05% 0.08% 0.08% 61 614,274 19,000 30.693 516,349 97,925

Broker #6

3/17/03 0.43% 0.28% 0.04% 0.08% 0.31% 0.09% 32 882,348 41,000 22.843 484,555 397,793

Broker #6

3/18/03 0.21% 0.08% 0.02% 0.05% 0.14% 0.36% 11 500,243 13,400 37.767 358,672 141,571

Broker #6

3/19/03 0.13% 0.01% 0.02% 0.06% 0.05% 0.05% 13 298,142 10,500 31.627 183,127 115,015

Broker #6

3/20/03 0.05% -0.05% 0.03% 0.05% -0.03% 0.05% 8 158,960 4,600 34.800 103,506 55,454

Broker #6

3/27/03 0.12% -0.11% 0.08% 0.12% -0.08% 0.15% 17 377,754 26,600 17.310 315,402 62,352

Broker #6

3/28/03 0.12% -0.03% 0.03% 0.06% 0.02% 0.36% 64

5,140,468

188,400 35.054

2,227,101

2,913,36

7 Broker #6

4/1/03 0.08% -0.05% 0.03% 0.04% 0.00% 0.50% 4 195,002 5,000 39.000 125,974 69,028

Broker #6

4/3/03 0.12% -0.04% 0.09% 0.06% -0.03% 0.35% 29 352,847 13,100 22.751 166,078 186,769

Total 0.14% -0.03% 0.04% 0.06% 0.04% 0.74% 1,220 105,285,

035

3,764,62

6 29.590

52,104,727

53,180,307

Cost below expectations. “Good trade.”

Large, slightly unbalanced,

program

Shown for illustrative purposes only. This does not depict actual trades.Source of Data: QMA

40SP\QC 9-04

Biographies

James H. Scott, PhD is the President and co-head of Quantitative Management Associates (QMA). Jim is portfolio manager for enhanced equity index portfolios for institutional investors and mutual fund clients. Prior to joining the firm, Jim was a professor and head of the Finance Department at Columbia University Graduate School of Business. His academic career included positions at Stanford University, University of Wisconsin-Milwaukee, and Carnegie Mellon University. During this period, Jim also served as a consultant, corporate director, mutual fund trustee, and research fellow at the Federal Reserve Bank of Cleveland. He has written numerous articles that have appeared in The Journal of Portfolio Management, The Journal of Finance, and The Financial Analysts Journal, among other publications. Jim is a cum laude graduate from Rice University where he holds a BA in Economics. He holds a Masters and PhD in Economics from Carnegie Mellon University. He serves on the Business Board of Advisors for the Graduate School of Industrial Administration at Carnegie Mellon University, and is a Director of the Institute for Quantitative Research in Finance, and Chair of its Research Committee. He is also a member of the Board of Editors of The Financial Analyst Journal and of The Journal of Investment Management.

 Margaret S. Stumpp, PhD is the Chief Investment Officer and co-head of Quantitative Management Associates (QMA). She is portfolio manager for enhanced equity index portfolios for institutional investors and mutual fund clients. Maggie is extensively involved in quantitative research in asset allocation, security selection and portfolio construction for Quantitative Management Associates. Prior to joining the firm, Maggie was employed by the AT&T Treasury department and by Price Waterhouse as a senior consultant. In both positions, she was responsible for providing expert testimony on economic and financial matters. She has published articles on finance and economics in numerous publications, including, The Financial Analysts Journal, The Journal of Portfolio Management, The Journal of Investment Management and Award Papers in Public Utility Economics. Maggie earned a BA cum laude with distinction in Economics from Boston University, and holds an AM and PhD in Economics from Brown University.

Ted Lockwood is Managing Director for Quantitative Management Associates (QMA). Ted oversees the equity area, which includes quantitative equity, derivative, and index funds. He is also responsible for managing portfolios, investment research, and new product development. Previously, Ted was with AT&T and a member of the technical staff at AT&T Bell Laboratories. Ted graduated summa cum laude with a BE in Engineering from the State University of New York at Stony Brook, as well as an MS in Engineering and an MBA in Finance from Columbia University.

Peter Xu, PhD is Principal for Quantitative Management Associates (QMA). He conducts equity market research, the results of which are used in the stock selection process for all quantitative core equity portfolios. He has published articles in various journals, including The Financial Analysts Journal, The Journal of Portfolio Management, Review of Quantitative Finance and Accounting, and Review of Pacific Basin Financial Markets and Policies. Previously, Peter taught in the business school at the University of Houston. He earned a BS in Nuclear Physics from Fudan University in Shanghai, an MA in Economics from Rice University, and a PhD in Finance from the University of Houston.

41SP\QC 9-04

John Van Belle, PhD is Managing Director for Quantitative Management Associates (QMA). John manages global balanced portfolios, domestic balanced funds, and equity portfolios for foreign-based full service clients. Previously, John was a vice president in Currency Management Consulting Groups at both Bankers Trust and Citibank. He began his career in the research department at the Federal Reserve Bank of New York. Before that he taught Economics and Finance at the University of Virginia and Rutgers Graduate School of Management. He has published numerous articles in the fields of Economics and Finance. John earned a BS in Economics from St. Joseph's College and holds a PhD from the University of Virginia.

Mitchell B. Stern, PhD is Vice President for Quantitative Management Associates (QMA). Mitch is responsible for research, development, and management of structured products. He also is a portfolio manager for the PIIMA (Prudential Investments Individually Managed Accounts) individual tax-managed portfolios and the Long-Short Market Neutral fund. Previously, Mitch was an Assistant Professor of Finance at Fairfield University and the University of Tennessee. He also has twelve years of experience as a consultant to portfolio managers and hedge funds on quantitative investment strategies. Mitch holds a BA cum laude in Economics from Brandeis University, and an MA and PhD in Financial Economics from the University of Virginia.

Maxwell Smith, PhD is Senior Associate for Quantitative Management Associates (QMA). He is responsible for optimizing quantitative core equity portfolios and engages in research to improve the quantitative investment process. Previously, he was a municipal bond portfolio manager with Prudential Fixed Income. He joined Prudential Financial in 1989. Max earned a BS in Physics from CalTech, an MS in Physics from the University of Illinois, and holds a PhD in Finance from the University of British Columbia.

Betty Sit Tong is Investment Associate for Quantitative Management Associates (QMA). She co-manages the global index portfolios benchmarked against MSCI developed index series. She is also responsible for trading foreign and domestic equities, foreign exchange, and derivative instruments. In addition to the developed index series, she has experience with funds benchmarked against the MSCI small cap and emerging market index series. Previously, Betty was employed by Prudential Equity Management Associates. She joined Prudential Financial in 1981. Betty earned a BA in Psychology from Princeton University.

Daniel Carlucci, CFA, is Senior Associate and Portfolio Advisor for Quantitative Management Associates (QMA). He assists with the management of several quantitative portfolios, specifically the large-cap and and small-cap core portfolios as well as tax-managed portfolios for high net worth investors. Prior to his current assignment, Dan was an Investment Analyst with Quantitative Management Associates’ Value Equity team, where he assisted with the management of quantitative large-cap institutional portfolios. He joined Prudential Financial in 1984. Dan holds a BS in Finance and an MBA in Finance from Rutgers University.

Richard L. Crist, ChFC, CLU is Vice President for Quantitative Management Associates (QMA). Rich is responsible for trading US and foreign equities for the group's quantitative core, quantitative value, and global balanced strategies. He manages US equity index funds and also trades inflation indexed government bonds, treasuries, foreign currencies, and futures contracts. Previously, he was an Accounting Supervisor with the Prudential Asset Management Company, which he joined in 1983. Rich earned a BS in Accounting from Montclair State College. He holds the Chartered Financial Consultant designation, and is a Certified Life Underwriter from the American College.

Biographies

42SP\QC 9-04

Quantitative Core EquityFee Schedules

35 basis points on first…………………....$25

million

30 basis points on next………………….$75

million

25 basis points ……………………………..

Thereafter

Minimum account ………………….……..$2

million

Commingled Fund(includes custody)

35 basis points on first………………….... $25

million

30 basis points on next………………….…$75

million

25 basis points ……………………………..

Thereafter

Minimum account ………………….…….. $30

million

Single Client Separate Account(excludes custody)

43SP\QC 9-04

Quantitative Core Equity Composite

44SP\QC 9-04

Quantitative Core Equity Composite