OHIO DEFERRED COMPENSATION

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1 Ohio 457 Focus OHIO DEFERRED COMPENSATION OHIO PUBLIC EMPLOYEES DEFERRED COMPENSATION PROGRAM In This Issue Stability in Unstable Times... 2 Holiday Schedule... 2 Leave Cash-Out... 2 Balanced Funds... 3 Exchange Policy... 3 Redemption Fees... 3 Test Your Knowledge... 4 Evening Workshops... 4 Third Quarter 2008 Report from the Executive Director Investors everywhere are understandably concerned with the unprecedented market events involving big names like Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and American International Group (AIG). Recognizing that markets will always experience ups and downs, the Program has picked investment managers to provide long-term value and has encouraged participants to select long-term investment strategies. Nevertheless, the recent events can test anyone s resolve. While no one can predict the outcome of these events, Ennis Knupp & Associates, the Program s independent investment consultant, has assured me that it remains in regular contact with the Program s money managers and continues to monitor the unfolding of events. The Program continues to encourage all participants to keep a long-term focus and to reevaluate their risk tolerance and asset diversification. Need help? Just call an Account Executive at Keith Overly National Save for Retirement Week October 19 25, 2008 Americans are living longer than ever, but are still retiring at roughly the same age they did generations ago. Even a decent payout from your pension plan may leave you short of what you will need to sustain your pre-retirement lifestyle. These facts suggest that we must prepare to stretch our retirement dollars over a greater period of time. That s why Congress passed a resolution designating October as National Save for Retirement Week. If you re receiving this newsletter, you have already made a decision to prepare for your retirement! Ohio Deferred Compensation wants to remind you to take some action every day during National Save for Retirement Week. SUNDAY - Confirm that your beneficiaries are up-to-date for your primary pension plan and every other retirement account you have. MONDAY - Are you saving enough? This may be a great time to increase your deferral or sign up for the SMarT Plan. TUESDAY - Review your asset allocation. A well thought out, long-term investment plan is important regardless of market conditions. Avoid making investment decisions based on short-term drops or gains. WEDNESDAY - Encourage a co-worker to enroll! Often times, we hear participants talk about how they wish they would have started contributing earlier in their career. Please take a moment to encourage a co-worker to take the first step towards a more secure retirement and enroll in Ohio Deferred Compensation. THURSDAY - Consider consolidating other pre-tax retirement accounts at Ohio Deferred Compensation. Contact us to learn more. (See page 3 for more details.) FRIDAY - Contact your retirement system or the Program to learn about retirement planning seminars you can attend. SATURDAY - Visit our web site to review the features, benefits, and flexibility offered by the Program. A publication of the Ohio Deferred Compensation Board

2 Stability in Unstable Times Recently, a large number of financial institutions have come under financial distress, which created negative impacts on both equity and fixed income investments. These events have led many investors to question the safety of all investments, including the Stable Value Option (SVO). While the SVO is not guaranteed by the U.S. Government or the FDIC, it is designed to provide stability of principal, daily liquidity, and yield that is expected to fluctuate modestly. It should be noted that all investments carry a risk of loss and no fund guarantees performance, whether a stable value fund, money market fund, treasury bond fund, or an equity fund. Nevertheless, the SVO is structured to be a prudent income-producing, lowrisk, liquid fund, with AA+ average credit quality with an assurance of financial protection provided by wrapper contracts issued by multiple financially responsible banks and life insurance companies. The SVO is managed according to the Board s investment policy, diversified over six investment managers, covered by wrapper contracts to minimize volatility, and overseen by both an independent investment consultant and a roll-up manager, who continually monitors the fund. The SVO yield for the 4 th quarter will be 4.60%. If you have questions about the SVO, please call us at Visit our web site to read articles about investing in bear markets. Holiday Schedule The Service Center and exchange processing will be affected by the following holiday schedule. When the Service Center is closed, you may still access your account by using the automated telephone system or the web site. Exchanges received during the holiday closings will be processed as of the market close of the next business day. Holiday Service Center Closed Exchanges Processed Columbus Day 10/13/08 10/14/08 Veteran s Day 11/11/08 11/12/08 Thanksgiving Day 11/27/08 11/28/08 Friday after Thanksgiving 11/28/08 Exchanges after 1:00 p.m. (Market closes at 1:00 p.m.) (OPEN until 1:00 p.m.) processed on 12/01/08 Christmas Eve 12/24/08 Exchanges after 1:00 p.m. (Market closes at 1:00 p.m.) (OPEN until 1:00 p.m.) processed on 12/26/08 Christmas Day 12/25/08 12/26/08 New Year s Day 01/01/09 01/02/09 Year-End Leave Cash-Out Many employees are allowed to cash-out unused sick or vacation time at yearend. Also, employees who retire at year-end will get their unused sick or vacation time paid to them at termination. If either of these situations applies to you, you may have a golden opportunity to invest more into your Program account. To defer your year-end leave cash-out, ask your payroll officer for the amount of and date the cash-out will be paid. Your request must be completed at least 30 days in advance of that pay date. Many participants must make their request in early November in order to take advantage of an early December cash-out. If your leave cash-out is due to your termination of employment, the IRS requires the cash-out be made by the longer of either year-end or within 75 days of your termination date in order to be deferred. The request to defer your termination cash-out must be completed one month prior to that pay date. If you would like to defer all or part of your leave cash-out, call the Service Center at Information from Account Executives is for educational purposes only and is not intended as investment advice. 2

3 Investing in BALANCED Funds Most mutual funds have an investment strategy that focuses on one segment of the market, such as largecompanies, international companies, or bonds. To build a complete portfolio, investors typically need to own funds in several of these categories to diversify properly. A balanced fund usually owns both stocks and bonds in order to provide investors with both investment types within one investment option. The Dodge & Cox Balanced Fund is the balanced fund currently offered to Program participants. As of 6/30/08, it had 71 percent invested in stocks and 29 percent in fixed income securities and cash. Under normal circumstances, this fund will hold no more than 75 percent in stocks. The LifePath funds offered by the Program might be considered balanced funds too, however, their balance between stocks and bonds changes as they age. As these funds near their planned retirement dates, stocks are sold and bonds are bought to become more conservative. If you think that you need to change your investment allocation to be more diverse, but have a hard time selecting individual funds, you may want to consider a balanced fund to achieve additional diversification within one option. Both the fund profile and prospectuses can be obtained on the web site or by calling Before investing, carefully consider the fund s investment objectives, risks, charges, and expenses. The fund profile and prospectus contain this and other important information. Read the prospectuses carefully before investing. Exchange Policy Reminder Most mutual funds have rules to prevent excessive buying and selling of their shares. The Program has agreed to monitor trading activity and enforce rules to prevent excessive trading, in order to offer these mutual funds. The Program has established a uniform set of trading rules which have been approved by the mutual fund companies. These rules require that any participant who requests four exchanges in any 45-day period will lose electronic trading privileges and will be restricted to one mail-in exchange every five days for the following twelve-month period. In addition, the Executive Director has some discretionary oversight to restrict exchanges, and the Program must enter into written agreements with each of the mutual funds as required by SEC Rule 22c-2. The Program web site contains the complete exchange policy, and you can view the prospectus of any Program fund to obtain more information about each fund s requirements regarding short-term trading. Redemption Fees Effective September 1, 2008, Templeton Foreign fund removed the holding period requirement for shares owned in the fund, meaning they no longer charge redemption fees on any exchanges. Redemption fees are only charged when shares are exchanged into a fund, and then exchanged back out of the fund, before the end of the required holding period. Please refer to the Program web site for more detailed information on the Program's four investment options that currently charge redemption fees. Other Program options may determine the need for redemption fees in the future. The Program encourages participants to establish a longterm investment strategy in order to avoid excessive trading restrictions or redemption fees. Keep It Simple Combine Your Retirement Assets Did you know you can simplify your life by combining retirement accounts from your former employers and IRAs into Ohio Deferred Compensation? When you bring your retirement assets into your Ohio Program account, you can: Potentially lower fees With your Program account, there are no sales charges, commissions, or other sales expenses; only the individual fund expenses. Make it easier to manage and access your portfolio Receive one quarterly statement for your retirement assets. You can exchange funds or access your account anytime through the automated telephone system or web site. Carefully consider any difference between plan types before moving your assets. Neither the Ohio Deferred Compensation Program nor any of its representatives give legal or tax advice. For such guidance, contact your legal or tax advisor. Unlike your 457 plan assets, assets rolled over from a qualified plan or individual retirement account may be subject to a 10% penalty tax if withdrawn prior to age 59½. 3

4 Test Your Knowledge... Ohio Deferred Compensation Quiz True of False? 1. Ohio Deferred Compensation allows you to defer accrued sick and vacation time to your account. 2. Once I select a withdrawal option, I am unable to change it. 3. Ohio Deferred Compensation offers investment options with automatic rebalancing and dynamic asset allocation modeling based on your age. Answers: 1. TRUE. You may defer any accrued sick and vacation pay up to the annual plan maximum or your personal catch-up maximum. All sick and vacation pay deferrals must be received by the longer of either year-end or within 75 days of your termination date. 2. FALSE. The IRS changed withdrawal rules years ago. You now have the flexibility to change your payout elections to suit your needs. 3. TRUE. LifePath portfolios are designed to provide age-based asset allocation and automatic rebalancing. Just choose the LifePath portfolio date closest to the date you plan to begin making retirement withdrawals. Evening Workshops Held in Cincinnati and Cleveland Area Because many of you can t always attend a workshop or speak with one of our Account Executives at your place of employment, the Program is offering evening workshops in the Cincinnati and Cleveland area in the coming weeks. Our Account Executives will conduct a retirement readiness workshop covering basic topics such as asset allocation, risk tolerance, catch-up deferrals, and withdrawal options. As a part of the workshop and afterwards, we look forward to addressing individual questions but will be unable to perform detailed individual account reviews. Register for the evening workshops today to learn more about your Ohio Deferred Compensation retirement savings plan! Feel free to bring your spouse or a co-worker to learn more about the Program. For participants with more advanced needs, please contact us to schedule a one-on-one separate consultation with a Retirement Planning Specialist. Meet with a Retirement Planning Specialist The Program offers retirement planning services at the Service Center and various locations throughout Ohio. If you are interested in meeting with a Retirement Planning Specialist at one of the locations listed below, please call , press 3, and an Account Executive will assist you in scheduling an appointment. October Meetings: October 21, 2008 Akron Tallmadge Library October 23, 2008 Dayton Trotwood Library November Meetings: November 7, 2008 Cleveland Independence Library November 13, 2008 Lima Allen County Ohio Department of Job & Family Services December Meetings: December 4, 2008 Cincinnati Sharonville Library The above dates and locations may be subject to change due to availability and participation. We look forward to meeting with you soon! Information presented by the Retirement Planning Specialist is for educational purposes only and is not intended as investment advice. Cincinnati Area: Wednesday October 29 (two separate sessions) 5:30 p.m. or 7:30 p.m. Holiday Inn Hotel, 3855 Hauck Rd, Sharonville, OH Cleveland Area: Thursday November 6 (two separate sessions) 5:30 p.m. or 7:30 p.m. Sheraton Independence Hotel, 5300 Rockside Rd, Independence, OH Space is limited. Please call to register. 4

5 Ohio Deferred Compensation Investment Performance Report As of September 30, 2008 The results shown represent past performance and should not be considered a representation of future performance or experience. Past performance cannot guarantee future results. Current investment results may be lower or higher than quoted in this report. The principal value and investment return of an investment will fluctuate so that an investor's units/shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month-end may be obtained by visiting Although data is gathered from investment providers, the Program cannot guarantee completeness and accuracy. Please see other important disclosures at the end of this report. Consider the investment objectives, risks, charges, and expenses carefully before investing by consulting your prospectuses, which contain this and other information. Prospectuses are available by calling or visiting Read the prospectus carefully before investing. VRU Ticker 3rd Average Annual Returns Expense Fund # Symbol Quarter YTD 1 Year 3 Year 5 Year 10 Year Ratio (1) Ohio DC Options LifePath Portfolios 110 LifePath 2010 n/a (2) -6.78% -9.70% -9.88% 2.39% 5.27% 4.76% 0.40% 111 LifePath 2020 n/a (2) -9.19% % % 1.45% 5.50% 4.33% 0.40% 112 LifePath 2030 n/a (2) % % % 0.74% 5.69% 3.98% 0.40% 113 LifePath 2040 n/a (2) % % % 0.11% 5.79% 3.79% 0.40% Stable Value (Annualized Return) 3 rd Quarter % 4 th Quarter % 101 Stable Value Option n/a (2) 1.16% 3.62% 4.92% 4.92% 4.86% 5.52% 0.26% Mutual Funds International Stock Funds 532 Templeton Foreign TEMFX % % % 0.66% 7.90% 7.99% 1.16% 209 Vanguard International Growth (3)(4) VWILX % % % 3.33% 10.63% 5.74% 0.31% 310 Vanguard Total International Stock Index (3) VGTSX % % % 2.61% 11.14% 6.16% 0.27% Small-Cap Stock Funds 402 FPA Capital (3) FPPTX % -7.73% % -0.69% 7.43% 11.73% 0.88% 403 Hartford Small Company HIASX % % % 3.72% 10.35% 9.28% 0.70% 210 Vanguard Small-Cap Index VSCIX -4.98% % % 1.19% 8.73% 8.38% 0.07% Mid-Cap Stock Funds 208 Vanguard Capital Opportunity (3)(4) VHCAX % % % 2.58% 9.35% 14.89% 0.37% Large-Cap Stock Funds 202 Dodge & Cox Stock DODGX % % % -3.30% 5.44% 8.89% 0.52% 306 Fidelity Contrafund FCNTX % % % 3.07% 9.45% 7.47% 0.89% 307 Fidelity Growth Company FDGRX % % % 2.48% 7.17% 6.33% 0.94% 291 Janus Twenty JAVLX % % % 5.13% 11.38% 4.23% 0.88% 565 Vanguard Institutional Index VINIX -8.34% % % 0.22% 5.17% 3.10% 0.05% Balanced Funds 201 Dodge & Cox Balanced DODBX % % % -2.07% 4.07% 7.54% 0.53% Bond Funds 207 PIMCO Total Return PTRAX -2.12% -0.32% 3.52% 4.15% 4.05% 5.49% 0.74% 211 Vanguard Total Bond Market Index VBTIX -0.38% 0.74% 3.88% 4.27% 3.84% 5.07% 0.07% (1) Investment returns for the Ohio DC Options and Mutual Funds have been reduced for gross Expense Ratios. These average Expense Ratios may vary from time to time. The Expense Ratios for the Ohio DC Options are established by the Program. (2) The LifePath portfolios and Stable Value Option are not publicly traded mutual funds and do not have a ticker symbol or prospectus. These options are only available through Ohio Deferred Compensation. The value of the securities held by the Stable Value Option will fluctuate. The Stable Value Option focuses on principal preservation and a stable rate of return. (3) This fund may be subject to a redemption fee. Please consult the Program web site or fund prospectus for additional information. (4) Returns include performance of a different share class achieved prior to the inception of the Admiral or Institutional share classes. Returns were not recalculated to reflect the fees of the Admiral Share class. Account Executives are registered representatives of Nationwide Investment Services Corporation, Member FINRA

6 Investment Performance Report Notes Asset Class Descriptions Asset classes identify funds that tend to have similar investment objectives and strategies, and generally react in a similar manner to market fluctuations as other funds in the same class. Spreading your investment selections across several asset classes, a technique known as diversification, can help increase your total return based on the level of risk you are willing to accept. The use of diversification and asset allocation as part of an overall investment strategy does not assure a profit or protect against loss in a declining market. LifePath Portfolios Each LifePath portfolio is a pre-mixed option investing in multiple asset classes in the US and abroad with an asset allocation of stocks, bonds and cash based on a target year (when you expect to begin using your money). The portfolio then automatically adjusts its asset allocation as the target year approaches, by investing more and more conservatively, reducing its investments in stocks, and increasing its investments in bonds and cash. The LifePath Portfolios are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying funds. Therefore, these portfolios experience risks and expenses ratios, including applicable fees and expenses, of the underlying funds. Stable Value These options are short to intermediate term, high quality securities. Investors who seek safety of principal as well as a competitive rate of return compared to money market funds, may invest in these options. The Stable Value Option annualized returns are net of investment management, custody, principal protection, and plan administration fees. A fund profile can be obtained for the Stable Value Option by calling or visiting International Stock Funds International funds, also known as foreign funds, contain stocks from companies located outside of the United States. Most international stock funds seek long-term growth of capital. These funds typically have higher risk due to political factors, currency fluctuations, differences in accounting standards and foreign regulations, as well as higher return potential. Risk and return is typically high. Small-Cap Stock Funds Small-cap funds contain stocks from companies with less than $2 billion in capitalization including many start up companies. Small companies can grow much faster than big companies, but small company stocks tend to be more volatile than the stocks of larger companies. Over the long term, an investor in small-cap stocks must be willing to accept a higher level of risk resulting from potentially higher market volatility. Mid-Cap Stock Funds Mid-cap funds contain stocks from companies with market values between $2 billion and $10 billion and often include companies who are well established and growing. Risk and return is typically moderate to high. Large-Cap Stock Funds A large-cap fund invests mostly in stocks of larger companies. Typically, large-cap stocks are companies with market values more than $10 billion and include blue-chip and Fortune 500 companies. They are typically more mature, diversified companies with many products and services. The goal of this type of fund is usually steady growth of capital. Risk and return is typically moderate to high. Balanced Funds Balanced funds are funds that seek both income and capital appreciation by investing in a generally fixed combination of stocks and bonds. These funds generally hold a minimum of 25% of their assets in fixed-income securities at all times. Risk and return is typically moderate to low. Bond Funds Bonds are loans or debt instruments issued by governments or corporations that need to raise money. When investors buy a bond, they are actually loaning money to the government or company, and therefore have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fund. Bonds are issued for a set period, during which interest payments are typically made to the bondholder. Bonds are generally a more conservative form of investment than stocks, and usually provide a more steady flow of income. Typically, bonds have a lower long-term total return than stocks. Investment Performance Investment returns on the Investment Performance Report do not reflect the deduction of historical asset fees or the current administrative fee. The Board may suspend the administrative fee at their discretion. All reported mutual fund returns assume reinvestment of capital gains and dividends and reflect the fund's expense ratio.the Ohio DC Options are not mutual funds or registered investment companies. Historical Asset Fee Time Period Mutual Funds/ Stable Value 4/1/98-3/31/99.10% 4/1/99-12/31/99.05% Administrative Fee Time Period Quarterly Amount 1/1/00-9/30/06 $2.00 The quarterly $2.00 administrative fee has been suspended 10/1/06 to Present. NRX-0221OH