atorat otoaoootooo First Fiscal Quarter 2009 Defined Gontribution Government of Guam 401(a) and 457(b) Plans MERCER f---l MARSH MERCER KROTL L!!F out cnnpenrER ouvER wYMAN All seruices provided by Mercer lnvestment Consulting, lnc. ooooaoloatooooo Performance Eval uation .,TTVERNMENT 0F GUAltl REIIREMFNT FUND :i.:;ll RECEIVED Aciountrng Division
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Senator Vicente (ben) C. Pangelinan Fund/DC Performance Evaluation FY09 Q1.pdfaloaaaotf ooaooa oooaoo oo lotaa ooa o Detined Contributaon P6rformance Evaluatlon Reporl Economic Environment
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First Fiscal Quarter 2009
Defined Gontribution
Government of Guam401(a) and 457(b) Plans
MERCERf---l MARSH MERCER KROTLL!!F out cnnpenrER ouvER wYMAN
All seruices provided by Mercer lnvestment Consulting, lnc.
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Performance Eval uation
.,TTVERNMENT 0F GUAltlREIIREMFNT FUND
:i.:;ll
RECEIVEDAciountrng Division
f rooaoraoaaraaoortoaaoaaaf oaacaDefinod Contribution PErtormance Evaluation Report Gov€mment of Guam - 401(a) and 457(b) Plans
The economy ended the year with a rapid decline in all measuresof economic activity: declining consumer spending, decliningmanufacturing activity, and depressed capital markets. Thegovernment's initial estimate of GDP showed the economycontracted 3.8% in the fourlh ouarter.
The unemployment rate rose lo 7.2yo, its highest level sinceJanuary 1993. In 2008, a total of 2.6 million iobs were lost, lhelargest annual loss in more than six decades.
Consumer spending remained weak as holiday shoppers kepttheir oocketbooks closed. Retail sales fell 2.8% in December, thesixth strarght monthly decline.
The housing market remained frozen despite record"lowmortgage rates and lalling home prices. Nationally, home priceshave fallen 21"/o since their peak. The average 3o-year fixed-ralemortgage hit a s7-year low of 5.10% in December.
2.1%
\
Fivg-year avgrago:
I7
6
2
I0
-1
-2
.3
lnterest Rates and lnflation
Treasury Yields . The Fed lowered the federal tunds rate three times during thequarter, bringing it from 2.0% lo a range of between 07o ando.25"/", a historic low.
. Over the quarter, the z-year Treasury yield fell 124 basis points to0.76% and the 1o-year Treasury yield fell 160 basis points to2.25"/". The 2- to 1o-year yield slope narrowed by 36 basis points.
. The 3-month T-bill yield decreased 81 basis points to 0.11%,while the yield on 3o-year Treasuries fell 162 basis points to2.69"/".
. Gonsumer prices dropped for the third straight month inDecember because ol falling energy prices. In 2008, the CPI rose0.1olo, the smallest increase in 54 years. Core CPI was up 1.8%.
3-month yield dropped325 baaia pointE during
Mercer
ooooototto.oootoraatoooaaoaoooooDefined Contrlbution Pedormance Evaluation Report Government of Guam - 401(a) and 457(b) Plans
Domestic Equity Market Performance
. The stock market plummeted in the fourth quarter amid ongoingproblems in the credit markets and continued investor riskaversion. The S&P 500 Index lell 21.9"/" during the quarter andwas down 37.O"/" in 2008, its worst year since 1 937. The Russell1000 lndex lost 22.5% and 37.6"/. for the same oeriods.
. Small cap stocks, down 26.1%, underpertormed large cap stocksduring the quaner, but held up better over the year, losing 33.8"/..Mid cap stocks posted the weakest performance, declining 27.3%for the quarter and 41 .5% for the year.
. Value outpedormed growth across all market capitalizationsduring the quarter and year, though the margin was lesssignificant in the large cap space. For the year, losses were leastsevere for small cap value stocks, which fell 28.9%.
. Financials, the hardest hit sector, fell 35.1olo during lhe quarter.For the year, financial slocks sank 52.?o/o. Consumer staplesheld up best, falling 16.5%.
Equity Market PerformanceFor Periods Ending December 20O8
Market lndex Perlormance
-50
n00
Sector Qtr Return 2008 Rsturn
Energy -22.6
Materials -31.7 -47.3
Consumer Discretionary -24,6 -37.6
Consumer StaDles -13.0 - lo-5
Health Care -13.2 .22.8
Financials -35.1 -52.2
I nf ormation Technology -25.5 -42.4
Telecommunication Services -32.7
Utilities .10.8
lndustrials -24.1 -40.8
Russell 1000 Sector Returns S&P 500 Trailing 4-Quarter Earnings per UnitEarnin$ per S&P Unit
$20 1-1004Source: Fsums and s€curity data ior lh€ RLrss€ll indicss ar6 provided by Fuss€lvir€llon Analytical Sorvicss.
Fussell indic€s ar€ tradema*s/s€ruics ma.ks ol he Flank Fussell Company.
Fuss6tt@ is a kact€mrk oj the Frank Bussellcompany,
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Sourcei Slanchrd & Poo/s
otooolottorf oooaoaooo lr oaaoa ooaoDotined Gontribution Perto.manca Evaluation Report
Fixed lncome Market PedormanceFor Periods Ending December 2008
Fixed Income Market Performance
by Maturity and SectorPerformance
I I Trlg Year
Government of Guam - 401(a) and 457(b) Plans
. The bond market exoerienced continued investor risk aversaonand increased spread widening during the quarter. The BarclaysCapital Aggregate Bond Index advanced 4.6%, resulting in a5.2"/" gain for the year.
. Treasuries, up 8.8% for the quarter and 13.7"/" for the year,outperformed all spread sectors as investors' flight-to-qualitydrove yields down.
The Barclays Capital Credit lndex was up 4.0% for the quarter butended the year down 3.1%. In general, long-term bonds offeredthe best results during the quarter but trailed intermediate-termmaturity issues in 2008. By quality, BAA-rated securities were theweakest performers during the quarter and year. On average,credit spreads widened 102 basis points during the quarter-
The Barclays Capital MBS Index gained 4.3"/" for the quarter and8.3"/" for the year. The ABS and CMBS sectors posted lossesduring the quarter and declined 12.7"/" and 20.5% in 2008.
Performance by lssuer Treasury Yield Curves
t5
10
5
-10
-15
-20
The yield curved$€ended as yieldsdropped to new lows.
Performance for the QuarterInternational equity markets continued on a downward spiral asthe MSCI EAFE Index fell 19.9% during the quarter, resulting in a43. 1% loss for the year in dollar terms- The Index was down18.5% and 39.9% in local currency terms for the same periods.
The Pacilic region lost 13.8% in the tourth quarter, ending theyear down 36.2"/o. Performance for the Pacific ex Japan regionwas bleaker, declining 24.9"/. and 50.0% for the same periods.
Stocks in the European region were down 22.7yo tor the quaterand declined 46.1"/" for the year, with all countries reportingdouble-digit losses.
. Emerging market stocks were hammered as the MSCI EM Indexplummeted 27.6% during the quarter. For the year, the Index wasOOWn 53.2-lo.
Jspan Pacific x Jspsn Emg Mkts
Regional
]=rLo;a-llCurr€ncy
Other Asset Glasses
High Yield Bonds. The Barclays Capital High Yield Bond lndex posted a solid gain
in December, but remained in negative territory tor the quarterand year, declining 17.9"/" and 26.20lo respectively. During thequarter, the average yield spread versus Treasuries widened700 basis points.
. In 2008, long-term bonds underperlormed intermediate-termissues and lower-quality bonds suffered greater losses thanhigher-rated bonds.
Real Estate. Equity REITS, as measured by the FTSE NAREIT Index,
declined 38.8"/o during the quarter, resulting in a 37.7% loss forthe year.
. The latest data available for the private real estate marketshowed a third-quarter loss of 0.2olo for the NCREIF Propertylndex.
Mercer
lnflation lndexed Bonds. Treasury Inf lation-Protected Securities (TIPS) were down 3.5"/o
for the quarter and lost 2.4"/o lor the year, underperformingTreasuries by 1 ,609 basis points.
Commodities. The S&P GSCI Index plunged 47.0% during the quarter, ending
the year with a loss ol 46.5%. Energy, down 52.4%, posted thesharpest decline in 2008. The Precious Metals Index, up 0.5olo,was the only sector to post a positive return for the year.
lntejnational Bonds. The Citigroup Non-U.S. Government Bond Index returned 8.87o
in U.S. dollar terms during the quarter, resulting in a 10.1% gainin 2008.
. The Barclays Capital Emerging Markets Index was down 9.37oin the fourth quarter and down 14.8% for the year. TheEmerging Middle East was the best-performing region in 2008.
toatoDefined Contrlbutlon
ooafotPe]|o]mance Evaluatlon R€port
foaootooooooaoaoaloaGovernment of Guam - 401(a) and 457(b) Plans
Market Returns SummaryFor Periods Ending December 2008
Equrty
1YR 3 YRS- sYBS" IOYRS'
Fixed lncome
lnte.national
Mlacollanqous
lnflation
OTR
_21.9
-22.2-22.4-27.3-27.2-27 -4-26.1_24.9
-27 -4-22-A-21.6-22.6-24.6-26.7
0.34.86.44.88.2
13.14.3
-17.S2.4
-1S.9-27.6
8.45.5
-20.6
s&P 500Russell 1000 ValueRussell 1000 GroMhRussell MidCapRussell Midcap ValueRussell Midcap GrovYthRussell 2000Russell 2000 ValueRussell 2000 GrowlhRussell 3000Mercer Larye Cap Value Equity Peat Grcup median"Mercer Larye Cap Grcwth Equity Peer Grcop madian'"Mercer Small Cap Value Eguily Peet G@up median"Mercer Small Cap Gtuwth Equity Peer Group fiediah'*
Ciligroup s-Month T-BillBarclay6 Capital Int. Govt/CreditBarclay6 Capital Gov'VorsditBarclays Capital AggregateBarclays Capital Intermediale Governm€nlBarclays Capital Long Gov't/CredilBarclays Capilal lvlodgagesBarclays Capital TIPSBarclays Capilal Corp High YieldMercer Corc Fixed lnaome Peet Group meclian"
t llunicipal BondsMarkst Duration Bonds (American Funds Bond Fund of America A)
Rerl EstateIntcrnational Bonds (Standish Melton I nternational Fixed- Inc)
' Long Duration gondsHigh Yaeld Eonds
Global Bonds
Small/Mid Cap Value Equitylntornataonal Large Gap Equity (Thornburg International Value R3)
./- llicro Cap Equity'- Small/Mid Cap Growth Equity (Franklin SmalFMid Cap Growth A)Small/Mid Cap Core Equity (Baron Small Cap. BlackRock Aurora lnv A)
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Vsnturo Capital r Gompany StockEmerging llarketc Equity (Pioneer Emerging Markets A")
Precbus lletals- Emerging Harkets BondInternational Small Cap Equity
-O\ ./- Global Equity.49 { Large Cap Growth Equity (American Funds Amcap R4)F // Large Cap Gore Equity (Vanguard 5OO Index Signal)
/ Large Cap Value Equity (Vanguard Windsor ll)
Exp€cted Rlsk (standard Devlatlon)
t Accofding b Morcsrb Sur'/ey on Savhgs Ptans, Mercer Res6arch and Bernstein R$€arch' Thb turd b ody availaHe t0 padictpa s in tho 454b) Plan
ooooooooooofoooocoooooooooooooooDefined Cont.ibution Pertolmance Evaluatlon Report Govemment ol Guam - 401(a) and 457(b) Plans
Summary - Plan Highlights
Assets in the Plan
401(a) PIan
. 401 (a) Plan assets totaled $139.8 million at December 31 , 2008, representing a decrease of $16.3 million f rom September 30, 2008.
. The Plan's assets were invested 31 .4"/. in Conservative Profile, 12.9o/o in Moderate Prof ile, 9.5% in Moderately Aggressive Prof ile, 7.1ol. in GalliardWells Fargo Stable Relurn, 6.47o in Vanguard 500 Index, 5.9% in Aggressive Profile, 5.2% in Dodge & Cox Balanced, and 5.2"/" in ThornburgInternational Value. All other investment ootions each had less than 5% of the Plan's total assets.
. The Pioneer Emerging Market Fund is not available to participants in this Plan.
457(b) Plan
. 457(b) Plan assets totaled $ 10. 1 million at December 31 , 2008, representing a decrease of $1 .2 million f rom September 30, 2008.
. The Plan's assets were invested 14.5"/o in Galliard Wells Fargo Stable Return, 10.070 in Vanguard 500 Index, 8.0% in Vanguard Windsor 11,7.5"/. inThornburg International Yalue,6.7"/" in Conservative Profile, 6.1% in Franklin Small-Mid Cap GroMh, 6.0% in American Funds Amcap, 5.7% inModerate Aggressive Profile, 5.5% in lvloderate Protile, 5.2o/o in American Funds Bond Fund of America, 5.0% in Drefus/Standish InternationalFixed Income, and 5.0% in Dodge & Cox Balanced. All other investment options each had less than 5% of the Plan's total assets.
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oooooo oooo oooo,f oo ooooo ooooa oooo aDetlned Gontribution P€ o.manca Evaluation Report Government of Guam - 401(a) and 457(b) Plans
Summary - Plan Highlights
I nvestment Manager Updates
Dodge & Cox - Research Note for Fixed lncome Strategies, January 20,2(N9, cont'd
Highlights
. In 2Q08, Dodge & Cox shifted primary lixed income oversight responsibility trom the firm's broad Investment Policy Committee to the Fixed IncomeInvestment Policy Committee. The former contains the most senior members of the firm, but skews to equity investment professionals. The firmbelieved it would be more efficient for fixed income professionals to directly set and review portfolio strategy, approve new types of securilies andissuers, oversee the research process, and oversee strategy implementation. As a result, Dana Emsry, the longest-tenured fixed incomeprofessional, Peter Lambert, and Tom Dugan shifted off the firm's Investment Policy Committee. Dodge & Cox CIO Charles Pohl is the onlymember of bolh committees. We believe this shift makes sense, as it puts fixed income protessionals in a better position to make efficienl, well-informed decisions.
. Larissa Roesch and Anthony Brekke demonstrated a mastery of the team's corporate holdings. The firm's industry analysts create their ownfinancial statement models lor their covered companies, and these models are used by both the equity and fixed income teams. The fixed incometeam's corporate bond specialists work with the industry analysts to build an investment thesis for each credit, with a focus on downside risk. Thefirm's typical investment horizon is three to five year. This plays to the tirm's strength as company analysts and buy-and-hold long-term investors.This contrasts with active fixed income managers that conduct a lot of relative-value trading.
. Despite the longer-term philosophy, we are impressed with the firm's focus on liquidity and short-term survivability of issuers given the difficultcredit environment. In addition to the tundamental investment thesis for each credit, Brekke was extremely well versed in the maturity schedules,bond covenants, access lo credit lines, and asset values of the team's retail and REIT holdings. The firm has stepped up the haircuts it gives toissuers'assets, using recessions in the early 1990s and early 2000s as a staning point for modeling liquidation values.
. We are impressed with the depth of analysis around the team's inveslment in Kaupthing Bank, which nonetheless detracted meaningfully fromperformance in the third and fourth quarters of 2008. The position was initiated at new issue in May 2006, with a 75 bp position across eligibleaccounts. The position peaked at roughly 88 bps in 1Q07, primarily due to price appreciation.
. The team specifically selected Kaupthing and avoided investments in lceland's other two banks, Glitnir and Landsbanki, based on fundamental andbalance sheet research. For example, Boesch explained that Kaupthing had deposits representing 50% of its outstanding loans, maintained thebest international diversification of assets o{ the three banks, and had the smallest market share within lceland. All of this was viewed positively inDodge & Cox's downside risk scenario, as the bank would have been in a good position to sell foreign assets. Kaupthing had also hedged againstlcelandic cunency depreciation, which would have produced exceptional results in 30.
. Unfortunately, the chain ol events that led to Kaupthing's receivership was highly unexpected. Roesch admits thal the swiftness of the eventscaught the firm off guard, despite frequent communication with bank management. lceland's linancial services agency took all three banks intoreceivership following a seizure of Glitnir's UK assets by UK's Chancellor of the Exchequer and a lack of new lending in global credit mad(ets forKaupthing to tap lor liquidity. The conservatorship prohibits bondholders/creditors lrom forcing the bank into bankruptcy following its technicaldefault (lrom a missed coupon payment).
ooooaoooooo ooootoooooooooooaooooDetined Gontribution Portormance Evaluatlon Report Government ol Guam - 401(a) and 457(b) Plans
Summary - Plan Highlights
Key Observations and Recommendations
American Funds Bond Fund of America. For all periods evaluated, the fund continued to underperform its index and place in the bottom quartile of its universe. Overweight allocation to the
two lowest-performing sectors, CMBS and ABS, was the most significant detractor for the quaner. Underweight position to Treasury and agencyholdings also weighed on returns. The portfolio restriction is to have no more than 15"/o allocalion to lower-rated bonds (BB and below); however,given the downgrades in the bond market, higher-grade bonds are moving to non-investment-grade levels and thus pushing their holdings abovethe maximum level. Current allocations to BBB-rated and high-yield bonds are al 17.7o/. and 6.21" respectively, and this might be of concern if theportfolio counselors decide to sell positions at a loss to meet the guidelines, if the underlying securities ratings were to decline further. Continue tomonitor.
Standish Mellon lnternational Fixedr Effective December 1, 2008, the name on the Trust will be changed to Dreylus Investmenl Funds and the name of Standish Mellon International
Fixed will be changed to Dreyfus/Standish International Fixed Income Fund. Dreyfus and Standish are affliliates of each other and subsidiaries ofBNY Mellon. We see no immediate impact to the fund as fees and the management structure/team remain unchanged. The portfolio manager willcontinue to use Standish's proprietary investment process to manage the fund. Retain.
Dodge & Cox Balanced. The fund underperformed its index and placed in the bottom quartile of its universe for all periods. This quarter's weakness was largely attributed to
an overweight allocation to equities (66.9olo versus 60% for the index) in an environment where equities drastically underperformed lixed income.Within equity, stock selection in the energy sector suffered large losses. Within fixed income, overweight to poorpedorming corporate and noexposure to Treasuries also contributed to weaker results. Dodge & Cox has a strong track record of adding value over the longer time horizon andthey have demonstrated this through their investment discipline in order to stay true to their investment philosophy. However, given the currentenvironment and potential value traps when entering positions in oversold names too early, we remain cognizant of the downside risk associatedwith investing in distressed assets. Also, because Dodge & Cox may invest in oufol-benchmark securities such as CMO and non-investment-gradecorporates, the fixed income portion of the portfolio may exhibit higher tracking error. (See research note in prior section). Continue to monilor.
Vanguard Windsor ll. For all penods except 3 years, the fund outpedormed its index. lt placed close to its universe median lor all periods except 5 years, where it placed
at the 33rd percentile. The health care sector was a significant contributor to performance. Stock selection within the industrials andtelecommunication services sectors also benefited results. No signlflcant development occurred during the quarter for lhe subadvisors (includingHotchkis & Wiley), and we'll continue to monitor for any changes to the underlying investment strategies. Continue to monitor,
American Funds Amcap. The fund outpedormed both its index and its universe median for all periods except 3 years. lt placed at the 51st percentile for 3 years. Security
selection in consumer discretionary, health care, and financral services added to return. Underweight allocation to energy and informationtechnology was also very positive for relative returns. A significant cash position of 15.8% was the largest contributor as the Russell 1000 Growthreturned -22.8% for the quarter. Given the team's selectivity and patience, this fund has been more conservative than many of its counterparts andhas demonstrated that it generates lower tracking error (top quartile) and lower standard deviation (top decile) relative to its peers. W€ recommendtaking this f und ott monitor. Retain,
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oooaoatooaoooooaoooooooooooaooooDefin€d Contribution P€domance Evaluation Reporl covemment of Guam - 401(a) and 457(b) Plans
Summary - Plan HighlightsKey Observations and Recommendations
Franklin Small-Mid Cap Growth. For all periods except the recent quarter, the fund underperformed both its index and its universe median. Favorable allocations to information
technology, telecommunication services, and financials aided per{ormance lor the quarter. Cash holdings of 5.7% also helped during a roughequities market. Total assets in the fund have continued to decline (mainly because of market losses), from $4.3 billion to $3.0 billion over thequarter. Pertormance for all periods has been hovering around the median and has been generally close to the index's return. Although the fund islooking more favorable in terms of capacity and performance, we will maintain a monitor status until these two factors stabilize lor several morequarters. Continue to monitor.
BlackBock Aurora. The lund underperformed both its index and its universe median for all periods except the recent quarter. Positively impacting perlormance for the
quarter came from the overweight allocation to the linancials and consumer staples sectors coupled with the underweight position to inlormationtechnology and energy. A manager search is being conducted to potentially replace BlackRock Aurora in the small cap core or small + mid capcore space. Replace.
Thornburg lnternational Value. For all periods evaluated, the fund outperformed its index and placed in the top half of the universe. lt placed in the top decile for the two longer-
term periods evaluated. Strong performance 6an be seen from the fund's favorable allocation to financials, telecommunication services, and healthcare. A sizable overweight to strong-performing Switzerland and an out-of-index exposure to China added substantially to the quarter's return. ltshould be noted that this fund may take considerable bets outside the benchmark, overweighting in a particular country or sector, or may have asubstantial allocation to emerging markets. Although standard deviation is low (sitting close to the top quartile), tracking error relative to the MSCIEAFE Value is moderately high at the 22nd percentile. Performance has been strong relative to its benchmarks for the past couple of periods, eventhough the fund is very concentrated, holding roughly 50 to 60 stocks. For this reason we recommend removal of the monitor status. Retain.
Pioneer Emerging Markets. For all periods, the fund underperformed its index and placed below the universe median. Portfolio manager Christopher Smart utilizes an
approach that blends bottom-up, fundamental research emphasizing robust balance sheets and management quality with top-down,macroeconomic themes. Because of his willingness to build oversized country and sector posilions, the lund could be exposed to additional risks.We may conlinue to express our concerns with the fund's methods of portfolio construction, and that lhe fund's significanl macro bets against thebenchmark may generate high volatilily. This lund is only available in the 457(b) plan. Monitor.
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aoooooaooooooaoooaoaoooooooaooooD€tined Contribution Pgrfomanca Evaluation Repori Gove.nmeni of Guam - ,+01(a) and 457(b) Plans
Current Asset Allocalion - Ibcember 31, 2008
I Stable Value
I US Fixed
tr Internalional Fxed
tr Balanced
I Lilecycle
I US Large Cap quity
I LE Snlall + Md Cap qury
E t S SrEll Cap Ruity
I International quity
I Slable Value
I US Fixed
tr lnternational Fo(€d 1i
tr Balanced
I Ufecycle
I US Larg€ Cap Euity
I US SrBll + Mid Cap quity
tr US SnBll Cap Euity
I hternational qu y
Summary - Asset Allocation
401(a) Plan
Prior Asset Allocation - September 30,200860/. 29.
1oh ,. ',, eV" I , Oy.
627. 65%
Investment Option Asset Cla6s Fund Balance "/o ol Plan % Chg vs. Prior
Galliard Wells Farqo Stable Return Stable Value $9.876.489 1.10/.
American Funds Bond Fund of Amer A Domestic Fixed $3.100.613 2.20/" 0.2"/"
oaoooaoooooooaaoooGovernmsnt of Guam - ,+01(a) and 4571b) Plans
Fed numbers indicate fund underDerformed both benchmarksBlue numbers indicate lund matched or oerformed between benchmarksGreen numbers indicate fund oulDerformed or matched both benchmarksBlack numbers indicate fund tracked the index
ooooaaaooooooaoooGovernment ot Guam - 401(a) and 457(b) Plans
Red numbers indicate fund underpedormed both benchmarksBlue numbers indicat€ lund matched or performed between benchmarkscreen numbers indicate tund outperformed or matched both benchmalksBlack numbers indicate fund tracked the index
laoaaooorooooaaooGovemment of Guam - 401(a) and ,157(b) Plans
Rad numbers indicate lund underDedormed both benchmarksElue numbers indicate fund matched or Derlormed between benchmarksGreen numbers indicate fund outDertomed or matched both benchmarksBlack numbers indicate tund tracked the index
o
Mark€t Valu€ %olAlPlans
'I Quartel I Yeal 3 Years 5 Years
Baron Small Cap
Russell 2000
Mercet Mutual Fund US Equity Sma Cap Corc UniverEe Median
Fund Rank in Univerce
$684,131 0.5% -23.5%
-26.10/"
-26.1%
20
40.2%
-33.8%
-36.2%
-93%
-8.3%
-10.3%
39
4.?h-0.90/.
-t.4yo
BlackRock Aurora Inv A
Russell2000
Mercer Mutual Fund US Equity Small Cap Corc Univerce Median
Fund Bank in Univerce
$636,500 o.4"h -25.1"h
-26.1"/"
-26.1%
-39.4v"
-33.8"/.
-36.2Yo
74
"11.5%
-8.3%
-t0.3",6
-3.9%
-0.9%
-1.4%
84
International EquityMarket Value % of All
Plans1 Ouarler 'l Year 3 Years 5 Years
Thornburg International Value R3
t'rscl EAFE Value
Mercer Mutual Fund lntt Equity Larye Cap Value UniveEe Median
Fund Bank in Univerce
$7,979,181 5.3c/o -19.4c/o
-19.70/"
-20.3%
42
42.070
-43.7"h
42.7",6
41
-2.5"/o
,7.r/o
-6.60,4
5.2"/o
2.30/"
2,2"/"
Pioneer Emerging Markeb A
MSCI EM
Mercet Mutual Fund Emeeing Makets Equity Univerce Median
Fund Rank in Universe
$396,650 0.3% .33.opl.
-27.6"/"
-29.0%
.59.0%
-53.?/"
-54.67.
-7.3%
-4.6"/"
-6.270
5.5%
8.0%
6.4%
ooaoooaooooaooooaaoaao coaooa oa ooOefl ned Gontrlbutlon Performance Evaluation Report
The tund is designed for lhe consenr'alive investor seeking more income than money market funds provide, while preserving the safety of principal and consislency ofreturns with minimal volalility. The fund invesls in linancial instruments issued by hlghly rated companies. These include guaranteed investment contracls (GlCs),security backed contracts (synthetic GlCs) and cash equivalent.
Portlolio Analysis & Key Observations Fund Composition as ot December 31, 2008
Duration Dlstribution
Less than 1 Year 16.0'/.
1 to 2 Years 25.1'/.
2 to 3 Years 26.4"/"
3 to 4 Years 32.5"/"
4 to 5 Years 0.0"/o
Contract Ouality Distribution
18.6./.
71 .5Vo
9.9%
Top 5 Contract lgsuers
Monumental Life lnsurance Co.
JPMorgan Chase Bank
Pacific Life lnsurance Co.
Bank of America
StateStreet Bank and Trust Co.
ABSI axaDE
municipats 4a%
1.4%
CMBS6.30/.
MBS Non.Agency
2.3%
Treasu ry,/Agency4.O"k
Corporale613.4%
GlCs3.20h
Other US Gov't't1.4to
Key Facts and Figures
Portfolio Manager: Galliard Capilal Management
Porlfolio Manager Average Tenure: N/A
Total Fund Assets: $14,731 Nlillion Expense Ratio (Net): 0.55%
lVercer Average Expense Ratio (Net): N/A
Mercer 20
oaoooorraaoaaoorotooa o o aoo o oaoooDgtln€d Gontrlbuilon Prffo.mrncr Evrlurtlon R.port
Fund Profile
Domestic Fixed - Amerlcan Funds Bond Fund of Amer A
Gov€rnmeflt of Guam - 401(a) and 457(b) Plans
Share Class: A Bonchmark: Barclays Capital Us Aggregate
Inveatment Philosophy
The Bond Fund of Amstica soeks to provide as high a level ol current income as is consistent with preservation ol capilal. lt is a broadly diversified lixed-incoms fund,giving the managers great flexibility in responding to bond markat conditions. The fund is a core strategy thal invests in dollardenominated bonds. WheJe allowed,lhe tirm will allocale opportunistically to non-investment-grade and non-dollar bonds.
Portfolio Analysis & Ksy Obssrvationg Sector Allocation as ol December31.2008
Positive lmpact on Performance
. Exposure to higher-quality holdings in the corporats sector
Negative lmpact on Pertormance
. Ovenveight botiom-performing sectors CMBS (5.6% versus 3.6% for theindex) and ABS (6.60% versus 0.60/" for the index)
. Underueight to Treasury & agency holdings
. Overweight lo BBB-rated credit
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Key Facts and Figurss
Portolio Manager: Multiple
Portlolio Manager Average Tenure: 17.4 Years
Total Fund Assets: $32,196 Million
Total Share Class Assets: $21,980 Million
Expense Ratio (Neo: 0.61%
Mercer Average Expense Ratio (Nel): 0.65%
Mercer
to ooaooooaoolooootDetined Contribution Portocfi anco Evaluation Report
Fund Profile
Domestic Fixed - American Funds Bond Fund of Amer A
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Mercer
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Fund Profile
International Fixed - Drelilus/$tandish International Fix-lnc
SSRM believes consistenl, above-average returns require active management and that the firm should exploit all available sources of value added. Those sourcesinclude: duralion, yield curve positioning, seclor rotation, and credit and option analysis, SSRM believes in-depth research is the key to success.
Porltolio Analysis & Key observations Country Allocalion as of December 31, 2008
Poaitiva lmpacl on Psrformance
. Eposure to US fixed income
. Unds]weight to poor-performing Japan
Negative lmpact on Performance
. Unde eight loreign/govemmental securities
. Overweight corporate credit
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Share Cla$: No Load Benchmark: S&P 500 60% / 4070 BC Aggregate
Inv6stment Philosophy
Dodge & Cox's investment philosophy for equity and fixed income is predicated on a long-term investmsnt horizon and the conlrol ot downside risk. The equityslrategy is bottom-up and value driven. The fixed income strategy is a core stralegy that invests exclusively in inveslment-grade issues.
Porttolio Analysis & Key Observations A$et Allocation as of Decsmber 31, 2008
Positive lmpact on Psrformance
. Overweight allocation and stock selection within the health care sector
.In the fixed income portfolio, corporate bond holdings perlormed well,padicularly within the linancials ssctor
Nogative lmpact on Performance
. Overweight exposure to equities (66.9% allocation)
. Stock selection within the energy sector
. On the tixed income side, overweight to the corporate sector; no exposure toU.S. Treasuries
. Individual detractors to performance: Sprint Nextel (-70.0% return), Citigroup(-€6.9o10 return), and Dow Chemical (-51.2% return)
Conservative Profile ModerEte Conservativc Prof ile Moderale Profile
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Mercer 29
oaoooaaooooaoDefi ned Contdbution Performance Evaluatlon Report
Fund Profile
Domestic EquiQr - Passive - Vanguard 5OO Index $ignal
oooooaoaooooooooafoGovernment ol Guam - 40'|(a) and 457(b) Plans
Share Class: Other Benchmark: S&P 500
Investm6nt Philosophy
The Vanguard 5OO lndex Fund attemptrs to provide investment results that parallel the performance of the S&P 500 Index. Given this objective, the portlolio isexpected to provide investors with long-term growth of capital and income as well as a reasonable level ol current income.
. Top-perfoming sectors were telecommunication services (-2.9% return)utilities (-12.0% return), and health care (-12.7y. rclurn)
. Top individual contributors to performance: Exxon Mobil (3.3o/. return),Verizon (7.3% return), Bristol Myers Squibb (14.7% return), AT&T (3.6%return), and Gilead Sciences (12.1% return)
Negative lmpacl on Performance
. The worst-perf orming sectors included financials (-37.6% return), malerials(-31.4% return), and technology (-26.0% return)
. Top individual detractors from performance; Bank of America (-58.9%return), GE (-35.3% return), Citigroup (-66,9% return), JPlvlorgan Chase(-31.9% return), and N'licrosoft (-26.7010 return)
The lund seeks long-tem capital appreciation and income by investing in a broadly divsrsified universe of large- and mid-capitalization valus stocks. Th6 fundachieves diversification through a multi-manager structure, including both fundamental and quanlitative styles. The advisors woft independendy, each employing iisown process and strategy. While the fivs advisors have individual styles, the overall fund focuses on stocks with belo',v-average P/E ratios, above-average yiel6 andsolid relative-retum potential. The fund is subadvised by Banow, Hanley, Mewhinney & Strauss; Lazard Asset Management; Vanguard Quantitativs Equity Group;Hotchkis & Wiley Capital Managemenl; and Armstrong Shaw Associates.
The lund focuses on high-quality, conservative growth companies that have a history of stable revenue groMh. ln addition, companies must show a record ol solidearnings growih. The Fund is managed in a fashion similar to that ol CR&M'S GroMh Fund of America, and many of lhe fund's holdings overlap. Unlike the GroMhFund, ths managers invest only in U.S. stocks. However, because of Amcap Fund's smaller asset base, ths managsrs ars able to invest more in small- and mid-capstocks, which account for about one-third of assets. The tund seeks to provide long-term growth ol capilal, investing in established growth companies of any size withproven records of sieady, above-average earnings and a laster groMh rate. Specialemphasis is given to companies wilh rapid groMh polential in expanding sectorsof the U.S. economy. The fund investrs primarily in U.S. common stocks, as well as convertible prelerred stocks and cash and equivalents.
Domestlc Equlty - Franklin Small-illid Gap Growth A
Government ot Guam - 401(a) and 457(b) Plans
Share Class: A Benchmark: Russ€ll 2500 Growth
Invsstmont Philosophy
Franklin believes that employing a disciplined long-tem, bottom-up approach to small cap growth equity investing, backed by extsnsive fundamental analysis, canoroducg lavorable resulb over tims.
Er..st Rcru.n v! 8Ur500G in th. M{rftr Mu.url Fuld Us Equiry smrll+Mid corih Uni}edsFnlklh SmllrMid C.p Ctuwrh A rrof, Jrd 1004 to ltsc 2003 (rtur feer)
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Fund Profile
Domestic Equity - Baron Small Gap
Govemmsnt ol Guam - ,l.Ol (a) and ,f57(b) Plans
Sharo Class: No Load Eenchmark: Russell 2000
Inv6stmenl Philosophy
Greenberg ss€ks lo invssl in companiss that ars currently undeNalued or ovedooked by th6 broad investment mad(et yet have strong growth potential. To b€considered tor the portfolio, such companies must have stable or improving lundamenlals, clear competitive advantagBs, and strong growth potential. ThB fim'sinvestmenl approach is long term in scope, and all funds will hold oul-of-lavor names provided lhe inveslment thesis remains compelling.
. Individual contribulors to perfomance: Capella Education (37.1%roturn), AECOM Tschnology (25.7% retu'n), and Asrovironmenl(15.2% retum)
Negatlw lmpacl on Performance
. An unde eight to and stock selection within the financials sectoj
. Stock selection wiihin the heallh care sector
. Individual detractoE to performance: Emoritus (-59.7% roturn), CBFicha.d Ellis Group (-€7.7y, retum), J. Crew Group (-57.3%rsturn, and L-1 ldsntity Solutions (-55.9% rsturn)
This lund rFes straightlorward tundamental analysis that is highly dependent on portfolio manager Wayne Archambo's stock-picking acumen. He looks iorundervalued securities wilh sound business fundamentals and positive business momontum. Sincs ha raquires a catalyst for change, the portfolios will have more ota relative-value biaE. Porttolios are designed with rather broad seclor conslraints 6ven though he insists lhat slock selec'tion is the primary driver of pe ormancs.Archambo is quick to sell stocks il they rsadr targst valuations, lail to realize a calalyst, or simply grow too large. He will nol double down on stocks lhat are lalling,and typically takes a 6- to l2-month outook when determining a calalyst.
. Overweight allocation to linancials and consumer staples
. UndeMeight position to infomation technology and energy
. Top 10 holdings First Niagara Financial (3.6% return), PHH (-4.2%retum), Platinum Underwritels (2.0plo return), and HanoverInsurance Group (-4.5olo rotum)
NcaatiYc lmp&t on Psrformance
. Ov6rwaight to the consumer discretionary s€ctor
. Undoru/€ight allocalion to h€alth cara and utiliti€s
. Top 10 holdings Hain Celestial Group (+0.77. return) and Skillsotl(-31.7% retum)
lnternational Equity - Thornburg International Value R3
Govemm€nl of Guam - 401(a)and 457(b) Plans
Share Class: Relirement Benchmark: MSCI EAFE Value
Investment Philosophy
Thornburg b€lieves that a bottom-up approach to investing in undervalued securities will generale above-average returns with below-market risk. The idea of valuecenters on an assessment ol the intrinsic worth of an inveslment. Thornburg's goal is to uncover promising companies with sound business fundamenlals at a timewhen their intrinsic value is nol fully recognized by lhe malketplace.
Porttolio Analyeis & K€y Observations Country Analysis as ol December 31, 2008
Positive lmpact on Performance
. An undeftveight allocation to the financials sector
. OveMeight allocations to telecommunication services and health care
. OveMeight to Switzerland; out-of-index exposure to China
. Top conlributors: China Mobile (1.4% return), Vodafone Group (-6.6%return), Julius Baer Holding AG (-22.6% retum)
Nggativo lmpact on Pertormance
. UndeMeight allocations to lhe utilities, energy, and induslrials sectors
. SecuJity selection in the energy, ulilities, and consumer staples sectors
. Underweight to Japan; out-ol-index exposure to Canada and Denmark
. Top detractors: BNP Paribas (-54.7% retum), National Bank of Greece(-53.3% return), A)(A (-31.5% retum)
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Fund Profile
International Equi$ - Pioneer Emerging Markets A
Governm€nt of Guam - 401(a)and 457(b) Plans
Share Class: A Benchmark: MSCI EM
Investment Philosophy
Pioneer seeks long{erm capital appreciation using a value-oriented approach. The strategy uses top-down analysis to evaluate a country's political, sconomic,financial, and social situation, combined with extensive review ot individual holdings trom lhe bottom up, locusing on emerging markets.
Porttolio Analysis & Key Obs€rvaliong Country Analysis as ot December 31, 2008
Posilive lmpact on Pertolmance
. Slock selection within industrials and materials
. Out-ol-ind6x exposure to Hong Kong; overweight to South Africa
. Cash allocation ot 4.8%
. Top 10 holdings China Mobil (1.4% retum), Taiwan SemiconductorManufacturing ('1.2% return), TEVA Pharmeceutical (-5.4% return)
eachuniquetimeperiodindependent|y'Thehighestreturnisassignedtherankofzero(0),andthe|owesttherankol100.Dependingonthenumberofobselvationsbetwnthesefopoints,theremainingresu|tsarenorma|izedtocreatepercenti|erankin9s-Percenti|erankingslormanagerspercentiles due to rounding.
Data Sources
. Although all data is gathered from sources believed to be reliable, data accuracy and completeness cannot be guaranteed by either the data providers or by l\,lercer.
this information. Past performance is no guarantee of luture results.
. Retums and security data for the Russell indices are provided by Buss€ll/Mellon Analytical Services.
copying, disseminatiomaterid or for any inaccuracy in presentation thereof.
. Copyright MSCI 2009. Unpublished. All Righb Reserved. This inlormation may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be
used to create any financial instruments or pmakeorpermittob9madeofthisinformation'NeitherMSc|'anyolitsaffi|iatesoranyotherpersonexpr€ssorimp|i€dwarrantiesorrepresentiationswithrespecttosUchinformationortheresultob8obta|nedb
or il it might otherwise have anticipat€d, the possibility of such damages.
Miscellaneous Notes. Returns for periods greater than one year are annualized. Returns are calculated net of invesfnent management fess, unless noted.