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Home My Public Portal AboutDeferred Comp 2004 4th Quarter ReportMetropolitan St. Louis Sewer DistrictFourth Quarter 2004Fourth Quarter 2004457 Deferred Compensation Plan457 Deferred Compensation PlanExecutive SummaryExecutive SummaryFebruary, 2005February, 2005Ms. Doris Ewing Ms. Doris Ewing PartnerMr. Douglas MoseleyMr. Douglas MoseleySenior ConsultantPartnerSenior ConsultantOne Main Street, Cambridge, Massachusetts 02142-1524(617) 374-1300; F: (617) 374-1313www.nepc.com 2L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAExecutive Summary Executive Summary ––Third Quarter 2004Third Quarter 2004•As of December 31, 2004 total plan assets were $18.1 million, upfrom $16.2 million on September 30, 2004•The Plan’s equity commitment, including international stock, was 75.1%. In comparison, the average defined contribution plan’s equity commitment was 65.2%–The Plan’s higher-than-median equity commitment ranks among the top 18thpercentile of the Defined Contribution universe. This signifies that plan participants are taking on more equity risk than the median DC plan participant•The plan experienced net contributions of $421 thousand and investment gains of $1.3 million–In the third quarter, both the Vanguard Windsor II fund and the Vanguard Bond Index fund experience net inflows. During the fourth quarter, the Windsor fund continued to experience net inflows (+100 thousand), but the Bond Index had anet outflow of $110 thousand–For the year, net inflows totaled $1.4 million, with each fund experiencing a net inflow•The top four Plan options garner 67.9% of the assets.–Balanced fund options represent 21.5% of the total investments–The Windsor II continued to garnish the most assets, and represented 28.9% of the total Plan as of quarter-end–The Life Strategy Income fund only represented 0.9% of the totalfund as of December 31, 2004 3L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAPerformance Summary Performance Summary --DetailsDetails•For the second consecutive year, one-year returns across nearly all asset classes were driven by strong fourth quarter results–Equity funds or options with equity allocations earned most of their one-year gains in the fourth quarter•Domestic equities rallied in the fourth quarter. The S&P 500 earned 9.2% for the quarter and 10.9% for the year. The Russell 2000 Growth Index lead the domestic equity pack and posted a gain of 15.1%–Both equity and bond funds, as well as balanced funds, ended theyear with positive absolute returns•The Vanguard U.S. Equity fund earned 9.9% for the quarter and 6.9% for the year, meaning that the Fund had a negative return through the first three quarters of 2004•Non-U.S. investments also faired well in the fourth quarter, partly due to the U.S. dollar decline relative to other currencies –The U.S. International Growth fund was the Plan’s top absolute performed. The Fund posted a gain of 14.5% for the quarter. 4L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAMarket Environment Market Environment ––Fourth Quarter 2004Fourth Quarter 2004EQUITY MARKETSFIXED INCOME MARKETS•The Domestic Equity Marketsrose sharply in the fourth quarter, resulting in a strong 2004 return. The S&P 500 Index returned 9.2% during the quarter and finished the year returning 10.9%. Meanwhile small cap stocks, as measured by the Russell 2000 Index, gained 14.1% during the quarter. •Equities advanced as concerns over several geo-political and macro-economic events receded or passed during the quarter, most notably a decisive U.S. presidential election and the fall of oil prices from their late-October all-time highs in the mid-$50’s. •As measured by Russell indexes, growth stocks rebounded from prior quarter losses, with small cap growth leading the charge gaining 15.1%. Large cap growth stocks returned 9.2%. Meanwhile, small cap value and large cap value stocks returned 13.2% and 10.4% respectively. For the year, growth stocks lagged value stocks across all market capitalizations. •Developed International Equity Markets performed very well during the quarter and for the year. The MSCI EAFE Index surged 15.3% in U.S. dollar terms during the quarter, and returned 20.2% for the year. •For the second consecutive year, Emerging Equity Markets was the best performing asset class both during the fourth quarter and trailing year, returning 17.2% and 25.6%, respectively. 2004 was the fourth year in a row the emerging equity markets outperformed the S&P 500. •The returns to U.S. based investors in the Developed and •Following their strong rebound in the third quarter, Domestic Fixed Income Markets were slightly positive. The Lehman Aggregate posted a 1.0% quarterly return. The Aggregate returned 4.3% for the year.•The Federal Open Markets Committee continued its “measured”pace for tightening monetary policy by raising the Federal Funds target rate from 1.75% to 2.25%. After five consecutive quarter-point increments following each meeting, the Fed Fund rate has increased 125 basis points since late June.•While short-term and intermediate-term interest rates rose, the long end of the yield curve declined. This fact combined with narrowing credit spreads led the Lehman Long Government/Credit to gain 2.2% during the quarter and 8.6% for the year. •Helped by declining credit spread,High Yield Bonds, as measured by the Lehman Brothers High Yield Index, gained 4.6% during the quarter and finished the year earning 11.1%. High yield bonds were the best performing domestic fixed income asset class for the second consecutive year.•Global/International Bonds continued their strong run during the quarter as the Citigroup World Government Bond Index and JP Morgan Emerging Markets Bond Index Plus surged 8.5% and 5.1%, respectively. Over the past year, the asset class has posted double digit returns benefiting from the falling US dollar. Emerging Markets were helped by the falling U.S. dollar. 5L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAMarket Environment Market Environment ––Fourth Quarter 2004Fourth Quarter 2004 6L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAAsset Allocation Asset Allocation ––Fourth Quarter 2004Fourth Quarter 2004Vanguard US Growth10.3%Life Strategy Conservative Growth1.6%Vanguard Small Cap4.2%Life Strategy Income0.9%Vanguard Retirement Savings4.7%Vanguard Bond Index6.1%Vanguard International Growth2.0%Vanguard Money Market4.4%Vanguard Mid Cap Index3.1%Vanguard S&P 500 Index14.8%Vanguard Balanced13.9%Life Strategy Growth2.3%Life Stragety Moderate Growth2.8%Vanguard Windsor II28.9% 7L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAAsset Growth Asset Growth --Fourth Quarter 2004Fourth Quarter 2004BeginningNetIncomeGainEndingVanguard Fund NameValueContributionsReceived(Loss)ValueComposite$16,289$421$161$1,179$18,051Balanced Fund2,29257221312,501Windsor II Fund4,641100524285,221US Growth Fund1,689(4)51641,854S&P 500 Index Fund2,4420202052,667Mid Cap Index Fund42261663552Small Cap Fund62542783757International Growth Fund29725640368Money Market Fund7613430798Bond Index Fund1,197(110)1201,099Retirement Savings Fund8291681855Life Strategy Growth34144530421Life Strategy Moderate Growth41655924505Life Strategy Conservative Growth22453310290Life Strategy Income1114723162(Dollars in 000’s) 8L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAAccount Market Values Account Market Values ––Fourth Quarter 2004Fourth Quarter 2004DomesticInt'l DomesticCash &StableBalancedEquityEquityFixedEquiv.ValueFundsCompositeComposite$11,051$368$1,098$798$2,922$18,050Balanced Fund2,501$2,501Windsor II Fund5,221$5,221US Growth Fund1,854$1,854S&P 500 Index Fund2,667$2,667Mid Cap Index Fund552$552Small Cap Fund757$757International Growth Fund368$368Money Market Fund798$798Bond Index Fund1,098$1,098Retirement Savings Fund855$855Life Strategy Growth421$421Life Strategy Moderate Growth505$505Life Strategy Conservative Growth290$290Life Strategy Income162$16211,0513681,0987988553,87918,049Total Allocation61.2%2.0%6.1%4.4%4.7%21.5%100.0% 9L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAFund Allocation HistoryFund Allocation History0%20%40%60%80%100%Jun-03Sep-03Dec-03Mar-04Jun-04Sep-04Dec-04LS IncomeLS Cons. GrowthLS Moderate GrowthLS GrowthRetirement SavingsBond IndexMoney MarketInt'l GrowthSmall-capMid Cap IndexS&P 500 IndexUS GrowthWindsor IIBalanced 10L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPADomestic Equity Style AnalysisDomestic Equity Style AnalysisWindsor II500 Index FundS&P 500 Index Mid Cap Index FundSmall Cap Index FundRussell 2000 IndexUS GrowthCompositeBalanced 11L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAThird Quarter Performance Third Quarter Performance ––Category SpecificCategory SpecificNetNet--ofof--Fee Returns for Comparative PurposesFee Returns for Comparative PurposesExpenseRatioQuarter1 Year3 Years5 YearsFederal Money Market0.32%0.4%1.1%1.2%2.8%Retirement Savings Trust0.30%1.0%3.9%4.5%5.1% 90-day T-Bills0.5%1.3%1.4%3.0% BT 3-Year GIC Rate0.8%3.7%5.0%5.5%Total Bond Market Index0.22%1.0%4.3%5.6%4.6% LB Aggregate Bond Index1.0%4.3%6.2%7.7% Median bond manager1.1%4.7%6.6%7.9%Balanced Index Fund0.22%6.5%9.4%5.9%3.5% 60% S&P 500/ 40% LB Aggregate Index5.9%8.3%5.0%2.0% Median balanced fund6.7%9.8%6.2%3.8%Life Strategy Income0.27%3.2%6.0%5.5%5.7%Life Strategy Conservative Growth0.28%5.3%8.0%6.0%4.2%Life Strategy Moderate Growth0.28%7.5%10.6%6.7%2.8%Life Strategy Growth0.28%9.6%12.6%6.8%1.0% 12L:/Client/St. Louis Sewer/ 457 Plan/ IPA/ Exec IPAThird Quarter Performance Third Quarter Performance ––Category SpecificCategory SpecificNetNet--ofof--Fee Returns for Comparative PurposesFee Returns for Comparative PurposesExpenseRatioQuarter1 Year3 Years5 YearsS&P 500 Index Fund0.18%9.2%10.8%3.6%-1.1% S&P 500 Index9.2%10.9%3.6%-2.3%Windsor II Fund 0.43%10.2%18.4%8.7%5.1% Russell 1000 Value Index10.4%16.5%8.6%5.3%U.S. Growth 0.55%10.1%7.3%-4.5%-4.6% Russell 1000 Growth Index9.2%6.3%-0.2%-9.3%Mid Cap Index 0.26%14.8%20.4%11.4%13.6% Russell Mid Cap IndexSmall Cap Index0.27%14.0%20.0%11.9%9.8% Russell 2000 Index14.1%18.3%11.5%6.6% Median domestic equity manager10.5%13.0%6.0%3.2%International Growth 0.69%14.4%19.2%9.8%7.7% Citigroup PMI EPAC Index15.5%20.4%12.1%-0.8% MSCI EAFE Index15.3%20.2%11.9%-1.1% Median international equity manager14.4%20.5%12.2%2.6%