JENNISON MANAGED ACCOUNTS A Division of Jennison Associates LLC Large Cap Blend Equity Strategy June 2004
Investment Strategy & Process
Large Cap Blend Investment Objective To outperform the S&P 500 Index over the long term by investing in a portfolio that has earnings growth greater than the index. 2
Large Cap Blend Investment Strategy Utilize a bottom-up stock selection process to identify investment candidates from traditionally growth and value areas, as well as stocks exhibiting characteristics of both. Growth Ideas: Seek Value in Growth Reasonable valuations and relative expectations must accompany superior earnings and/or revenue growth. Value Ideas: Seek Growth in Value The potential for future earnings acceleration must accompany compelling valuations and sound fundamentals. Core Ideas: Value + Growth Companies exhibiting both Value and Growth characteristics that we believe will outperform the market, but may be viewed as too expensive by value managers or too boring by growth managers. 3
Large Cap Blend Investment Process Stock Selection Drives Investment Process Bottom-up Stock Picking Fundamental research is key to stock selection The investment decision-making process is interactive Daily morning meeting Meetings and calls with company and external contacts 4
Fundamental Research Key to Stock Selection Team of highly experienced analysts Large Cap Blend universe of 900 companies Regular meetings with company managements Leverage insights from Wall Street Portfolio Manager makes final investment decision, with benefit of input from all Equity Professionals 5
Large Cap Blend Buy Discipline Bottom-up Approach Right Stock is the Most Important Factor Superior management Strong market position Unique marketing ability Outstanding research & development Global leadership 6
Large Cap Blend Stock Selection Criteria (Buy Discipline) Value Growth Qualitative Screening Low Price to Sales Low Price to Book Value Improving: Profitability &/or sales & earnings growth Favorable P/E ratio vs Projected Growth Rates Financial Discipline Unique Marketing Competence Return on equity Significant earnings stability Above Average earnings & revenue growth Consistent track records Strong management teams Strong research & development 7
Large Cap Blend Sell Discipline Generally stocks may be sold or positions trimmed if we believe: Company and/or industry fundamentals are deteriorating Valuation becomes excessive Security and/or sectors become too large relative to potential appreciation Outlook no longer seems promising A more attractive stock emerges 8
Large Cap Blend Portfolio Manager Jeffrey P. Siegel Executive Vice President, Portfolio Manager 19 Years of Experience Joined Jennison in 1999 B.A., Rutgers University 9
Portfolio Advisors Ted Brindisi Portfolio Advisor 35 Years of Experience B.B.A. and M.B.A. Bernard Baruch College Abhi Kamerkar Portfolio Advisor 14 Years of Experience B.A. (Economics) and M.B.A. (Finance) Rutgers University 10
Large Cap Blend Expected Portfolio Characteristics 40-50 Holdings Maximum position: generally 5% Sector weights normally up to 50% above or below the S&P 500 Index Fully invested: generally less than 5% cash Annual Turnover: Approximately 30-70% Also available in Balanced strategy with targeted allocation of 60% Equity and 40% Fixed Income 11
Balanced Option Lowers Total Portfolio Risk Fixed Income target allocation is 40% 35% to 45% range High quality focus with U.S. government and agency securities (AAA Rated) Strategic yield curve positioning to add incremental value Maximum final maturity of all holdings is 10 years 12
Performance
Large Cap Blend Equity Strategy Performance June 30, 2004 2Q 2004 YTD 1 Year 3 Year Since 9/30/2000* Gross 0.91% 1.60% 20.65% -2.42% -7.65% Net 0.32 0.44 17.92-4.73-9.84 Russell 1000 Index 1.40 3.33 19.48-0.32-4.65 S&P 500 Index 1.72 3.44 19.10-0.69-4.48 *Inception date of Jennison s portfolio management. Source for performance: Prudential Investments. Net performance reflects the deduction of actual program fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Past performance does not guarantee future results. See Notes to Presentation 1 and 3. 14
Large Cap Blend Balanced Strategy Performance June 30, 2004 2Q 2004 YTD 1 Year 3 Year Since 9/30/2000* Gross -0.31% 0.95% 12.09% 1.89% -0.40% Net -0.89-0.24 9.46-0.49-2.71 60/40 Russell 1000/LB Int. Gov. -0.08 1.94 11.27 2.72 0.37 60/40 S&P 500/LB Int. Gov. 0.11 2.01 11.06 2.48 0.46 *Inception date of Jennison s portfolio management. Source for performance: Prudential Investments. Net performance reflects the deduction of actual program fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Past performance does not guarantee future results. See Notes to Presentation 2 and 3. 15
Portfolio Characteristics
Portfolio Sector Allocation As of June 30, 2004 % 30 Large Cap Blend Equity Strategy Model Portfolio S&P 500 Index 25 23 20 19 17 20 17 15 13 13 10 5 11 11 6 6 11 9 7 5 3 3 3 3 0 Consumer Discretion. Consumer Staples Health Care Financials Information Tech. 0 0 Industrials Energy Materials Telecomm. Services Utilities Cash 0 See Notes to Presentation 4 and 5. 17
Largest Equity Holdings As of June 30, 2004 % of Model Portfolio Starbucks Corporation 3.5% Cisco Systems, Inc. 3.4 Pfizer Inc. 3.3 Yahoo! Inc. 3.2 Intel Corporation Citigroup Inc. 3.0 Merrill Lynch & Co., Inc. 3.0 ebay Inc. 2.8 Citigroup Inc. 2.7 American Express Company 2.5 Amgen Inc. 2.5 Total 29.9% See Notes to Presentation 6. 18
Portfolio Characteristics As of June 30, 2004 % EPS Growth P/E 40 40 30 20 28 21 20 30 20 23 19 17 16 10 6 10 0 2004E 2005E 0 2004E 2005E % 175 150 125 100 75 50 25 0 Relative P/E 135 119 2004E 2005E Large Cap Blend Equity Strategy Model Portfolio S&P 500 Index Other Characteristics Number of Holdings Cash Annual Turnover 50 securities 2.8% of portfolio 51% See Notes to Presentation 4 and 7. 19
Summary
Large Cap Blend Equity Strategy Growth In Value & Value In Growth 21
Value and Growth Perform in Cycles S&P Barra Value / S&P Barra Growth Relative Performance 2.0 V G V G V G V 1.8 1.6 1.4 1.2 1.0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Chart prepared by Jennison Associates LLC using information from Bloomberg. In order to construct the S&P 500 Barra Value and Growth Indices, companies are split into two groups based on price-to-book ratio to create growth and value indices. The Value index contains companies with lower price-to-book ratios, while the Growth index contains those with higher ratios. As of 6/30/04. See Notes to Presentation 4. 22
Value and Growth Performance Varies S&P BARRA Value minus Growth Quarterly Return Differences 20% 15% Value Outperforms 10% 5% 0% -5% -10% -15% Growth Outperforms 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Chart prepared by Jennison Associates LLC using information from Bloomberg. In order to construct the S&P 500 Barra Value and Growth Indices, companies are split into two groups based on price-to-book ratio to create growth and value indices. The Value Index contains companies with lower price-to-book ratios, while the Growth Index contains those with higher ratios. As of 6/30/04. See Notes to Presentation 4. 23
Value and Growth Relative Valuation Range Russell 1000 Growth and Value Index Relative Valuation 3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Growth Index PE Ratio / Value Index PE Ratio +2 Standard Deviations +1 Standard Deviation 25.6-Year Mean = 1.56-1 Standard Deviation 6/30/2004 = 1.67 3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 (AA62) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Ned Davis Research. The Russell 1000 Growth Index contains those Russell 1000 securities with a higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index contains those Russell 1000 securities with a lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index is a large cap (market-oriented) index that represents the universe of stocks from which most active money managers typically select. As of 6/30/04. See notes to presentation 3. 24
Selecting Jennison Large Cap Blend Equity Style diversification Growth & Value Access to attractive companies whose blend of growth and value characteristics may escape single-style managers Access to experienced institutional portfolio management Highly experienced, specialized blend equity team Original Research 25
Notes to Presentation 1 The inception date of the Jennison Large Cap Blend strategy (formerly Prudential Investments Crossroads Equity) is July 1, 1995. Jennison became responsible for the portfolio management of the Prudential Investments Large Cap Blend Strategy in September of 2000 pursuant to a transition of Prudential Financial's active public equity capabilities to Jennison. Performance for periods since 9/30/2000 reflects returns generated solely by Jennison. The investment returns shown represent the historical performance of all fully discretionary accounts that have been managed under the Large Cap Blend strategy for at least one full calendar quarter. Returns for periods longer than one year are annualized. Some of the performance represented was achieved during a period of unprecedented returns in certain market sectors and may not be repeated. Past performance does not guarantee future results. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Standard & Poor s 500 (S&P 500) Index is a market capitalization-weighted index of the common equity of 500 companies primarily traded on the NYSE. Investors cannot directly invest in an index. 2 The inception date of the Jennison Large Cap Blend Balanced strategy (formerly Prudential Investments Crossroads Balanced) is July 1, 1995. Jennison became responsible for the portfolio management of the equity portion of this strategy in September of 2000 pursuant to a transition of Prudential Financial's active public equity capabilities to Jennison. Performance for periods since 9/30/00 reflects returns generated by both Jennison and Prudential Investment Management (PIM). The investment returns shown represent the historical performance of all fully discretionary accounts that have been managed under the Large Cap Blend strategy for at least one full calendar quarter. Returns for periods longer than one year are annualized. Some of the performance represented was achieved during a period of unprecedented returns in certain market sectors and may not be repeated. Past performance does not guarantee future results. The 60/40 Russell 1000 Index/Lehman Brothers Intermediate Government Bond Index is a blended index with 60% Russell 1000 Index and 40% Lehman Brothers Intermediate Government Bond Index. The 60/40 S&P 500 Index/Lehman Brothers Intermediate Government Bond Index is a blended index with 60% S&P 500 Index and 40% Lehman Brothers Intermediate Government Bond Index. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Standard & Poor s 500 (S&P 500) Index is a market capitalization-weighted index of 500 companies primarily traded on the NYSE. The Lehman Brothers Intermediate Government Index is an unmanaged index, and comprises U.S. Treasuries and agencies having 1- to 10-year maturities. Investors cannot directly invest in an index. 3 The Russell Indicies are a trademark/service mark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. The information in this presentation is confidential and further redistribution is prohibited. 4 Source for S&P 500 Index, S&P Barra Growth Index and S&P Barra Value Index: Bloomberg, Standard & Poor s and FT Interactive Data Corporation. Jennison does not compile statistical or other data itself and relies on third-party vendors to provide such data. Although Jennison utilizes vendors that it believes are reliable, we can not guarantee the accuracy of such information as we do not control the methods used to compile such data. 5 Source for all data: Jennison Managed Accounts. Due to rounding, sector percentages may not sum to 100%. Sector classification of individual stocks is determined by Global Industry Classification standard developed by Standard & Poor s in collaboration with Morgan Stanley Capital International. However, after periodic review, Jennison investment professionals may reclassify certain securities held in the portfolio. The cash percentage represents trade date cash and cash equivalents. It should not be assumed that future investments made on behalf of the Jennison Managed Accounts Large Cap Blend Equity Strategy Model Portfolio will be of comparable size in terms of percentage of the portfolio or will be as profitable or equal the performance of the securities currently held in the portfolio. 6 Source for all data: Jennison Managed Accounts. Due to rounding, percentages may not sum to total shown. These securities represent the largest positions held in the Jennison Managed Accounts Large Cap Blend Equity Strategy Model Portfolio as of 6/30/04 and do not represent all of the securities held in the model portfolio. Since accounts are individually managed actual holdings may vary from the holdings shown here and among other accounts. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any securities mentioned herein. It should not be assumed that future investments made on behalf of the Jennison Managed Accounts Large Cap Blend Equity Strategy Model Portfolio will be of comparable size in terms of percentage of the portfolio or will be as profitable or equal the performance of the securities mentioned herein as well as those currently held in the portfolio. A list of all investments made on behalf of Jennison Managed Accounts throughout the past twelve months is available upon request. 7 Source for all data: Jennison Managed Accounts. The EPS Growth and P/E listed above are estimates determined by Jennison investment professionals. They are based on operating earnings per share and are subject to periodic change. Portfolio P/E is calculated using harmonic mean methodology. Certain securities for which earnings is not a primary basis for evaluation have been excluded from the calculation of EPS Growth and P/E. A list of those securities is available upon request. Relative P/E is the portfolio P/E divided by the Index P/E. The cash percentage represents trade date cash and cash equivalents. It should not be assumed that future investments made on behalf of the Jennison Managed Accounts Large Cap Blend Equity Strategy Model Portfolio will be of comparable size in terms of percentage of the portfolio or will be as profitable or equal the performance of the securities currently held in the portfolio. A list of all investments made on behalf of Jennison Managed Accounts throughout the past twelve months is available upon request. 26
Why Core Mutual Funds? Growth Funds + Value Funds CORE TMahoney: TMahoney: Use Use this this additional additional slide? slide? Potential problems with separate growth and value funds: Too much concentration in one sector and/or stock Too much cash over market cycle Core Fund Managers have the option to retain stocks that transition from value to growth or growth to value The GOAL is Selecting and Keeping the Best Stocks 27