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HomeMy Public PortalAboutPension Plan 2008 4th Quarter ReportNEPC, LLCOne Main Street, Cambridge, MA 02142Tel: 617-374-1300 Fax: 617-374-1313www.nepc.comCAMBRIDGE I CHARLOTTE I DETROIT LAS VEGAS I SAN FRANCISCORegistered Investment AdvisorsFourth Quarter 2008 Investment Performance Analysis ReportJanuary 2009Metropolitan St. Louis Sewer DistrictMetropolitan St. Louis Sewer DistrictDoris V. Ewing, CAIAPartner 1L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt 2L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptContentsContentsTabMarket Commentary 1Executive Summary2Asset Allocation Analysis 3Investment Performance Analysis4 3L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket CommentaryMarket Commentary 4L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008)• Financial crises deepened in the fourth quarter of 2008–National Bureau of Economic Research declares the United States fell into recession in December 2007•Consumer sentiment reached an all-time low in December as unemployment spiked to fifteen year high•Negative inflation for the first time since 1955–After rising to a high of $147/barrel in July, oil prices dropped to $40/barrel by year end–Deteriorating economic signals across European and Asian countries• Governments around the world took aggressive actions–US government implements series of programs to address financial crisis including:•TARP - Direct equity investments in financial institutions and purchases of illiquid assets•CPFF - Liquidity backstop to US issuers of commercial paper•TLGP - FDIC guarantee of up to three years for bank debt issued before June 30, 2009•TALF - Support for issuance of consumer focused asset backed securities, e.g. student loans, credit card loans–European governments announce bank rescue measures. The United Kingdom nationalizes parts of its banking system–Short-term interest rates drop across the globe. US Federal Reserve announces a Fed Fund target of 0% -0.25%; rates dropped a total of eight times in 2008 after starting the year at 4.25%–Incoming U.S. presidential administration plans fiscal stimulus package measuring in excess of $800 billion. Germany, China and Japan pursue spending programs to counter economic woes 5L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt 2008SectorIndex20032004200520062007QTR 1QTR 2QTR 3OctNovDecQTR 4YTDGlobal FI Salomon WGBI 14.9% 10.4%-6.9%6.1% 11.0% 9.7%-4.2% -3.0% -2.0%3.7% 7.1% 8.8% 10.9%Core FI LB Aggregate 4.1% 4.3% 2.4% 4.3% 7.0% 2.2%-1.0% -0.5% -2.4%3.3% 3.7% 4.6% 5.2%Muni Bonds LB Muni (unadj) 5.3% 4.5% 3.5% 4.8% 3.4%-0.6%0.6%-3.2% -1.0%0.3% 1.5% 0.7%-2.5%Emerging FI LB Emerging ($US) 26.9% 11.9% 12.3% 10.0% 5.2% 0.2%-0.4% -5.8% -19.5%3.6% 8.7%-9.3% -14.8%High Yield LB HY29.0% 11.1% 2.7% 11.9% 1.9%-3.0%1.7%-8.9% -15.9% -9.3%7.7%-17.9% -26.2%BalancedDiversified* 26.5% 12.8% 6.4% 15.2% 5.9%-4.8% -1.4% -7.3% -14.5% -5.4%4.7%-15.4% -26.4%SC Value R2000 Value 46.0% 22.3% 4.7% 23.5%-9.8% -6.5% -3.6%5.0%-20.0% -11.6%6.2%-24.9% -28.9%Small Cap Russell 2000 47.3% 18.3% 4.6% 18.4%-1.6% -9.9%0.6%-1.1% -20.8% -11.8%5.8%-26.1% -33.8%Commodities DJ AIG Commodity 24.0% 9.2% 21.4% 2.1% 16.2% 9.6% 16.1%-27.7% -21.3% -7.0% -4.5% -30.1% -35.7%LC Value R1000 Value 30.0% 16.5% 7.1% 22.3%-0.2% -8.7% -5.3% -6.1% -17.3% -7.2%1.4%-22.2% -36.8%S&P 500 S&P 50028.7% 10.9% 4.9% 15.8% 5.5%-9.4% -2.7% -8.4% -16.8% -7.2%1.1%-22.0% -37.0%Large Cap Russell 1000 29.9% 11.4% 6.3% 15.5% 5.8%-9.5% -1.9% -9.3% -17.5% -7.6%1.6%-22.5% -37.6%LC Growth R1000 Growth 29.8% 6.3% 5.3% 9.1% 11.8%-10.2%1.3%-12.3% -17.6% -8.0%1.8%-22.8% -38.4%SC Growth R2000 Growth 48.5% 14.3% 4.1% 13.4% 7.1%-12.8%4.5%-7.0% -21.7% -12.1%5.4%-27.4% -38.5%REITS DJ Wilshire REIT 36.2% 33.2% 13.8% 36.0%-17.6%2.1%-5.4%4.8%-32.4% -24.6%17.7%-40.0% -39.2%Intl. Dev. EAFE (net) 38.6% 20.3% 13.5% 26.3% 11.2%-8.9% -2.3% -20.6% -20.2% -5.4%6.0%-20.0% -43.4%Intl. Emerging EM (net)55.8% 25.6% 34.0% 32.2% 39.4%-11.0% -0.8% -27.0% -27.4% -7.5%7.8%-27.6% -53.3%* 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITSPERFORMANCE THRU 12/31/08Market Update Market Update ( As of 12/31/2008)( As of 12/31/2008) 6L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008)• Equity markets post historical declines–S&P 500 down nearly 22% in Q4 2008. Off 37% for the year. Decline led by financials and materials–MSCI EAFE lost 20% in Q4 2008 and 43.4% for the year. Financials and materials led the MSCI EAFE decline as well–Emerging equities underperformed all other equity markets, down 27.6% in the quarter and 53.3% for the year–Large cap stocks (Russell 1000) outperformed small cap stocks (Russell 2000) for the quarter by 360 basis points but underperformed for the year by 380 basis points –Value stocks (Russell 1000 Value) fared better than growth stocks (Russell 1000 Growth) for the quarter and the year, outperforming growth by 60 and 150 basis points, respectively • Fixed income investors seek safety and liquidity–Barclays Aggregate bond index was up 3.7% for the quarter and 5.2% for the year, with Treasuries turning in the strongest performance in both time periods.–Most non-Treasury fixed income securities were shunned by investors throughout 2008. U.S. Agency, MBS, AAA Subprime, ABS, CMBS, Investment Grade Credit and High Yield securities experienced their worst returns since 1990–December represented a bright spot for non-Treasury securities as government rescue efforts calmed investors. High-yield bonds outperformed Treasuries by 568 percentage points in the month of December• Commercial Real Estate Valuations Decline–Difficult economic conditions lowered expectations for rent growth, demand and occupancy, accelerating the downward revision of appraised values. The NCREIF Index returned -8.3% for the fourth quarter, comprised of 1.3% income and -9.4% in appreciation. NCREIF returned -6.5% for the year, comprised of 5.1% income and -11.2% in appreciation 7L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008) 8L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008)S&P 500 Sector Returns (Wgts.)-21.9%-13.3%-20.4%-37.1%-12.1%-23.3%-25.7%-31.6%-1.3%-10.5%-32.3%-15.9%-34.3%-55.1%-22.8%-39.2%-43.0%-46.9%-30.6%-29.1%-65% -55% -45% -35% -25% -15% -5% 5% 15%Con.Discretionary (8.19%)Con.Staples (12.88%)Energy (13.18%)Financials (13.29%)Health Care (14.79%)Industrials (11.28%)Info Tech. (15.27%)Materials (3.09%)Telecom (3.83%)Utilities (4.19%)QTDYTDS&P continued its drop in Q4 lead by Financials and Materials.. 9L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008) 10L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008) 11L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008) 12L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMarket Commentary Market Commentary (As of 12/31/2008)(As of 12/31/2008) 13L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive SummaryExecutive Summary 14L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive Summary Executive Summary ––Total FundTotal Fund*As of December 31, 2008, the public funds universe included 165 funds with assets of $599 billion. Asset Growth and Allocation• At quarter end, the assets in the Fund totaled approximately $151.1 million, a decrease of $16.2 million over the quarter, reflecting investment losses of $16.9 and net inflows of $696,000• The Fund’s allocation to equities was 43.0% at the end of the quarter (including equity allocations of GMO and PIMCO All Asset), well below the median public fund’s allocation to equities of 48.1%• The Fund’s equity commitment ranked in the 70thpercentile of the public funds universe*Performance• The Fund posted a -10.1% return in the quarter, ranking in the 20thpercentile of public funds, nationwide. Managers, in aggregate, detracted from returns in the quarter• For the year 2008, the Fund earned a -19.9% return, ranking in the 17thpercentile of public funds• For the three-year period performance was flat with returns ranking in the 15thpercentile of public funds; five-year return of 3.0% ranked in the 24thpercentile•Higher relative returns were earned with lower levels of risk than the median public fund over the three-year and five-year periods 15L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptAsset Growth as of 12/31/08Asset Growth as of 12/31/08 16L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive Summary Executive Summary (As of 12/31/2008)(As of 12/31/2008)• With all broad market indices in negative territory, on a absolute basis, 2008 was a difficult year for diversified portfolios. Key questions to consider are:–How did the investment policy perform?–Did deviations from the investment policy, as measured by the allocation index, help or hurt returns?–Did active management add value over the returns that would have been earned had the fund invested passively?•Policy decisions helped returns, as the policy index has outperformed the median public fund out to six years, ranking in the top quartile. In the quarter, the policy index outperformed the median public fund by 210 basis points. Broad diversified across asset classes and strategies reduced reliance on equities, thereby improving risk adjusted returns. The fund has achieved higher levels of return with lower levels of risk than the median public fund over the three- and five-year periods. •Deviations from the target asset allocation have helped performance over all periods. In the quarter the allocation index added 120 basis points to return. One of the mechanism used to adjust the long-term strategic allocation is the global asset allocation mandate. The GAA managers invests in a broad array of asset classes and alter the mix based on relative value. •Active management has been mixed. Active management detracted from return over the last year; but has added value over longer-term periods. Active management detracted 50 basis points from return in the quarter even though 9 out of your 15 managers outperformed their respective benchmarks. The weak returns was predominately in the fixed income portfolio. Policy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers. 17L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptPolicy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers.Total Fund PerformanceTotal Fund Performance**vs. Public Fund Universe vs. Public Fund Universe * Returns are gross of fees.As of December 31, 2008 18L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptTotal Fund Performance vs. Public Fund UniverseTotal Fund Performance vs. Public Fund UniverseAs of December 31, 2008Policy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers. 19L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptTotal Fund Performance vs. Public Fund UniverseTotal Fund Performance vs. Public Fund UniverseAs of December 31, 2008Policy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers. 20L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptTotal Public Funds Total Public Funds ––Total Return vs. Risk Total Return vs. Risk --3 Years Ending 12/31/08 3 Years Ending 12/31/08 Total Fund Risk/ReturnTotal Fund Risk/ReturnS&P 500BC AGGREGATEPOLICY INDEXALLOC INDEXCOMPOSITELower risk, higher return than the median public fund 21L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptTotal Public Funds Total Public Funds ––Total Return vs. Risk Total Return vs. Risk --5 Years Ending 12/31/08 5 Years Ending 12/31/08 Total Fund Risk/ReturnTotal Fund Risk/ReturnLB AGGREGATES&P 500ALLOC INDEXCOMPOSITEPOLICY INDEXLower risk, higher return than the median public fund 22L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive Summary Executive Summary (As of 12/31/2008)(As of 12/31/2008)• Active management, in the aggregate, detracted 50 basis points for the quarter– Domestic Equities• The large cap equity composite ranked in the 35thpercentile of equity managers for the quarter and in the top quartile for the one-and three-year periods– All but BDH&S met or exceeded their respective benchmarks in the quarter. All of active large cap equity managers outperformed their benchmarks over the one-and three- year periods• The small cap composite ranked in the top 5% of small cap managers for the quarter and in the top third out to five years−Kennedy and Time Square exceeded their benchmarks by 790 and 590 basis points, respectively, in the quarter– International Equities–Morgan Stanley’s developed markets portfolio outperformed the EAFE Index by 570 basis points in the quarter, ranking in the top 11% of developed markets managers. Underweight to finance and positive stock selection relative to the index helped return–Morgan Stanley’s emerging markets portfolio lagged its benchmark in quarter and the year. County allocations helped return in the quarter while stock selection hurt returnNote – BPS =basis points. 100 basis points is equivalent to 1%. Returns are gross of fees. 23L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive Summary Executive Summary (As of 12/31/2008)(As of 12/31/2008)• Active management, in the aggregate, detracted 50 basis points for the quarter– Domestic fixed income•Penn Capital’s high yield portfolio outperformed its passive benchmark , but lagged the median high yield manager. Their defensive style did not participate in the December year-end rally. Penn outperformed its benchmark by 560 basis points for the full year•Income Research posted positive returns, falling short of the index but ranking in the top 40% of core bond managers. Overweight to commercial mortgages and asset backed securities hurt return relative to the index−Global Bonds •Brandywine lagged its benchmark by 14.2 percentage points in the quarter. Performance was hurt by an underweight to the Yen (which accounts for 30% of the index) and overweight to collateralized mortgage (CMOs) positions. The yen rose about 17% relative to the dollar in the quarter. CMO positions were hurt because of widening of spreads caused by the credit crisis; the holdings are senior and super senior tranches and there is no sub-prime exposure – Global Asset Allocation•GMO outperformed its benchmark in the quarter. Underweight to equities and overweight to bonds helped. GMO outperformed its benchmark by 700 basis points for the full yearNote – BPS =basis points. 100 basis points is equivalent to 1%. Returns are gross of fees. 24L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptExecutive Summary Executive Summary (As of 12/31/2008)(As of 12/31/2008)• Active management, in the aggregate, detracted 50 basis points for the quarter– Alternative Assets•The PIMCO All Asset fund lagged its absolute return benchmark; increased allocations to emerging market and high yield debt hurt performance as spreads widened significantly during the quarter•Pyramis outperformed its benchmark by 170 basis points in the quarter, ranking in the top decile of the hedge funds universe. Performance was helped by short positions in consumer discretionary, energy, and info tech. •UBS’ core real estate portfolio lagged the NACREIF Index and the median real estate manager. UBS outperformed the universe of similarly managed open end diversified equity funds (ODCE). This universe is comprised of about 16 open-ended core real estate funds.Note – BPS =basis points. 100 basis points is equivalent to 1%. Returns are gross of fees. 25L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt15.0%-9.3%-17.9%-15.4%-30.1%-22.0%-20.0%-27.6%20.1%-20.7%-26.2%-26.4%-35.7%-37.0%-43.4%-53.3%-60%-50%-40%-30%-20%-10%0%10%20%30%10 Year USTreasuryHedge Funds High Yield 60/40 BalancedIndex*Commodities S&P 500 InternationalEquityEmergingMarkets4th Qtr2008Market Results Market Results ––No Reward for Taking RiskNo Reward for Taking Risk* 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITSRisk Free AssetRisky Assets 26L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptCore Plus Bond Manager Excess Return HistogramsCore Plus Bond Manager Excess Return Histograms 27L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptSecuritized Bonds Securitized Bonds ––BarCapBarCapAggregate CarveAggregate Carve--OutsOutsSource: LehmanLive 28L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptCredit DislocationCredit DislocationSource: LehmanLiveS&L CrisisEnronLehman, AIG, WaMu etc.Fannie/Freddie 29L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Executive SummaryManager Executive SummaryAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months 1 Year 3 Years 5 YearsDOMESTIC EQUITYVanguard Windsor IIRussell 1000 ValueNo changes to noteStable 1.3% 1.0% 0.5% 0.8% BDH&SRussell 1000 GrowthNo changes to noteStable(2.2)%4.2% 2.9% 0.2% Waddell & ReedRussell 1000 GrowthThe firm offered a Voluntary Separation Program (VSP) to eligible employees to help reduce overall compensation expenses. There were 8 investment professionals who participated in the VSP. Chace Brundige was promoted within the firm to manage the International Growth style and is no longer part of the team. Sarah Ross will now manage the Tax Managed Equity Fund, formerly managed by Brundige. Ross joined Waddell & Reed in October 2003 as an Investment Analyst specializing in health care. She joined the large cap growth team as an Assistant Portfolio Manager in February 2006 and will be expanding her responsibilities with the product.Stable 2.5% 2.8% 4.2% 3.3% Vanguard Institutional IndexS&P 500No changes to noteStable 0.1% 0.1% 0.1% 0.1% Kennedy Russell MidCap ValueEffective Jan 2009, the Mid Cap Value product currently managed by Frank Latuda will be co-managed along with Joe Kinnison. Joe has been managing the Mid Cap Growth product for 3 years. He will also assume portfolio management of the Small Cap Growth product. Rich Tadaro who served as portfolio manager for 10 years for the Small Cap Growth product will be returning to analyst responsibilities. Effective Jan 2009, they launced the All Cap Value product managed by Frank Latuda. Michael Bert, their Director of Research (DOR) who was also covering a segment of the tech sector earlier will move into a more dedicated role to work as DOR full-time.They do not envision the organization changes to have significant impact on the investment process or portfolio construction.7.9% 11.4% n/a n/aTimes SquareRussell 2000 GrowthNo changes to noteStable 5.9% 6.9% 5.7% 5.2% Excess Return Vs. Benchmark 30L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Executive SummaryManager Executive SummaryAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months 1 Year 3 Years 5 YearsINTERNATIONAL EQUITYMorgan Stanley International MSCI EAFEDennis Shea, Chief Investment Officer and Head of the Global Equity Group decided to retire at the end of the year. As a team, they have been working together with Dennis for the past few months to ensure a smooth transition. Dennis has been instrumental in making sure that all of their equity investment boutiques remain focused on and continue to share the same core values of fiduciary responsibility, risk management and devotion to client service for more than three decades.Stable 5.7% 10.9% 4.9% n/aMorgan Stanley EmergingMSCI Emerging Mkts FreeSame as aboveStable(2.0)% (2.5)%1.1% n/aDOMESTIC FIXED INCOMEIncome ResearchBarclays Capital Gov't/CorpNo changes to noteStable(1.7)% (4.3)% (1.3)% (0.4)%Penn CapitalMerrill Lynch High Yield Cash PayPeter Duffy, CFA was promoted to Senior Portfolio Manager and Daniel Amble was promoted to Senior High Yield Trader.Stable 1.7% 5.6% 2.0% n/aGLOBAL / INT'L FIXED INCOMEBrandywine Global Bond FundCiti World Gov't IndexAdded a research analyst who works out of their Singapore office and contributes outlook on the Asian currency markets.Stable(14.2)% (19.4)% (6.2)%n/aTACTICAL ASSET ALLOCATIONGMO65% MSCI World / 35% Lehman AggNo changes to noteSee Manager Page3.9% 7.0% n/a n/aALTERNATIVE ASSETSPyramis90 Day T-Bill + 300bpsNo changes to noteStable 1.7% (14.4)% (0.2)%n/aPimco All AssetCPI + 500bpsNo changes to noteStable(6.1)% (19.7)% (7.5)%n/aUBS Realty NCREIF PropertyNo changes to noteStable(0.4)% (1.0)%n/a n/aExcess Return Vs. Benchmark 31L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptAsset Allocation AnalysisAsset Allocation Analysis 32L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2.3%3%9.3%10%8.4%10%6.1%20%2.6% 8.6% 9.9%10.0%20%20.3%4.5%5.0%9.4%8% 5.0%5.9%4.0%4.1%5.0%6.4%2.1%Equities 49.0%Fixed Income 37.0%Equities 43.6%**Fixed Income 40.0%***Int’l EquityDomestic EquityKennedy: 3.8%TS: 4.7%BDH&S:2.5% W&R:6.1%Windsor II VGDomestic FICore FixedIncome ResearchCashInt’l EquityDomestic EquitySmall CapLarge CapDomestic FICore FixedCurrent Asset Allocation*Current Asset Allocation*Policy Target Asset AllocationPolicy Target Asset AllocationGMOEqty:5.7%FI:3.7%Cash: 0.5%Asset Allocation as of 12/31/08Asset Allocation as of 12/31/08EM Int’l DevHY GB RE Mk NeutGBBrandywineMorgan StanleyMk NeutEMInt’l DevSmallCapLC ValueLCCoreLC GrowthGAAPyramisPennHYARPIMCOEqty:0.6%FI:2.1Others:1.4%REUBSARGAA*Totals may not add to 100% due to rounding. Totals include manager cash.** Equities include a 0.6% allocation included in the PIMCO All Asset product and a 5.7% included in the GAA product. *** Fixed Income includes a 2.1% allocation included in the PIMCO All Asset product and a 3.7% included in the GAA product.Eqty: 6%FI: 4% 33L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptEquity Weighting vs. Median Public FundEquity Weighting vs. Median Public FundAs of December 31, 2008Composite Percentage Excludes Manager Cash. 34L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptAsset Allocation (as of 12/31/08)Asset Allocation (as of 12/31/08)Asset ClassTargetAllocationActualAllocationVariancefrom TargetEquity43.0% 37.3%-5.7%Large Cap Equity20.0% 17.3% -2.7%Small Cap Equity10.0% 8.4%-1.6%International Equity10.0% 9.3%-0.7%Emerging Markets Equity 3.0% 2.3%-0.7%Fixed Income33.0% 34.2%1.2%Core Fixed Income20.0% 20.3%0.3%High Yield5.0% 4.5%-0.5%Global Bonds8.0% 9.4%1.4%GTAA10.0% 9.9%-0.1%Real Estate5.0% 5.9%0.9%Absolute Return4.0% 4.1%0.1%Market Neutral5.0% 6.4%1.4%Cash0.0% 2.1%2.1%Total100.0% 100.0% 35L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2009 NEPC Capital Market Observations & Expectations2009 NEPC Capital Market Observations & Expectations• Global recession persists into 2009– Deleveraging process will continue– Recovery may not follow past patterns• Just like the recession, we may not recognize the upturn until some time has passed– There is a small but credible risk of a long-term deflationary spiral• Volatility will continue– Markets need to assess the emerging financial capital and governance landscape – Low short term inflation expectations, with risk of deflation– Longer term risks of high inflation • Unprecedented global central banks’actions to generate liquidity – Regulation of markets will increase, bringing some benefits but more frictional costs– Long term weakening of US Dollar may be matched by other currencies• As markets stabilize, opportunities for attractive returns will be available – Providers of liquidity and patient capital will be in the best position to capitalize– Fundamentals will matter once again– Future-looking risk premiums should be the highest in decades, but are unlikely to recover 2008 losses for many years 36L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2009 General Actions for Clients2009 General Actions for Clients• Position for opportunities but size risk positions appropriately– High forward-looking risk premiums are attractive in most assets– Pricing of potential rebound in credit looks attractive relative to the upside in equity– Allocate to strategies most likely to capitalize on return to fundamentals – skilled traditional and alternative managers and credit opportunities– Consider strategies with lock-ups to protect capital flight• Consider broader risks of the total investment program – Examine portfolio performance under different economic scenarios and tilt allocation to better protect capital in unfavorable environments– Where appropriate, allocate to interest rate and/or inflation sensitive securities to better match liabilities or spending needs • Prepare for continued market volatility– Rebalance towards targets, but consider the tradeoffs of high transaction costs– Dollar-cost average to mitigate market timing risk– Consider strategies with broad diversification that can stabilize returns in uncertain environments – risk parity and global asset allocation• Assess liquidity needs and commit capital accordingly– Balance long-term investment opportunities with near-term spending needs 37L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2009 52009 5--toto--7 Year Return Forecasts7 Year Return ForecastsGeometric Expected ReturnVolatilityAsset Class2008 2009 ChangeAsset Class2008 2009 ChangeInflation3.00% 3.00% 0.00% Inflation1.50% 2.00% 0.50%Cash4.00% 3.00% -1.00% Cash1.50% 2.00% 0.50%Core Bonds5.00% 5.50% 0.50% Core Bonds6.75% 7.00% 0.25%Muni's3.75% 4.50% 0.75% Muni's7.00% 7.00% 0.00%TIPs4.75% 6.00% 1.25% TIPs6.00% 7.50% 1.50%Long G/C Bonds5.25% 6.00% 0.75% Long G/C Bonds11.00% 12.50% 1.50%High-Yield Bonds6.75% 11.00% 4.25% High-Yield Bonds10.75% 18.00% 7.25%Global Bonds4.00% 4.25% 0.25% Global Bonds9.25% 9.75% 0.50%Emerg Market Debt6.50% 8.00% 1.50% Emerg Market Debt15.00% 19.00% 4.00%Large Cap Equities8.50% 9.25% 0.75% Large Cap Equities16.00% 20.00% 4.00%Small/Mid Cap Equities8.75% 9.50% 0.75% Small/Mid Cap Equities21.00% 24.00% 3.00%Int'l Equities9.00% 9.75% 0.75% Int'l Equities19.00% 24.00% 5.00%Emerg Market Equity9.50% 10.50% 1.00% Emerg Market Equity27.00% 32.00% 5.00%Commodities5.00% 5.25% 0.25% Commodities15.00% 20.00% 5.00%Real Estate6.75% 7.00% 0.25% Real Estate11.50% 13.00% 1.50%Private Equity10.50% 11.50% 1.00% Private Equity27.00% 32.00% 5.00%Hedge Funds - Cons6.50% 6.50% 0.00% Hedge Funds - Cons7.00% 8.00% 1.00%Hedge Funds - Mod8.00% 8.00% 0.00% Hedge Funds - Mod10.00% 15.00% 5.00% 38L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2.00%3.50%15.0 0 %8.00%8.00%6.50%32.00%11.50 %13 .0 0 %7.00%20.00%5.25%32.00%10.50%24.00%9.75%24.00%9.50%20.00%9.25%19 .0 0 %8.00%9.75%4.25%18 .0 0 %11.0 0 %12 .50 %6.00%7.50%6.00%7.00%5.50%2.00%3.00%2.00%3.00%0% 5% 10% 15% 20% 25% 30% 35% 40%InflationCashCore BondsTIPSLong BondsHigh-Yield BondsGlobal BondsEmerg Mkt BondsLarge Cap EquitiesSmall/Mid Cap EquitiesInt'l EquitiesEmerg Int'l EquitiesCommoditiesReal EstatePrivate EquityHedge Funds - ConsHedge Funds - ModShort LIBORForecast Risk (volatility of returns)Expected Return (net of fees)2009 Asset Class Risk / Return Assumptions2009 Asset Class Risk / Return Assumptions 39L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt2009 Asset Class Correlation Forecasts2009 Asset Class Correlation ForecastsAsset ClassCash Core TIPs Long HY Global EMD Large Smid Intl Emg Comm RE PE HF-C HF-M LIBORCash1.00Core Bonds0.25 1.00TIPs0.10 0.75 1.00Long Bonds0.20 0.95 0.75 1.00High-Yield Bonds-0.10 0.50 0.30 0.55 1.00Global Bonds0.15 0.70 0.50 0.60 0.30 1.00Emerg Mkt Bonds0.00 0.10 0.10 0.00 0.60 -0.10 1.00Large Cap Equities0.00 0.25 0.00 0.25 0.60 -0.10 0.50 1.00Small/Mid Cap Equities-0.10 0.05 0.00 0.15 0.70 -0.20 0.50 0.90 1.00Int'l Equities-0.20 0.05 0.00 0.10 0.50 0.30 0.50 0.70 0.60 1.00Emerg Int'l Equities-0.10 -0.15 -0.10 -0.25 0.55 0.00 0.70 0.55 0.50 0.60 1.00Commodities0.00 0.00 0.30 0.00 -0.10 0.00 0.25 -0.10 -0.10 0.00 0.10 1.00Real Estate0.40 -0.10 -0.10 -0.20 -0.10 0.00 0.00 0.00 -0.05 0.10 -0.10 0.05 1.00Private Equity-0.10 0.15 0.00 0.10 0.60 0.00 0.25 0.75 0.85 0.50 0.25 0.00 0.00 1.00Hedge Funds - Cons0.50 0.40 0.40 0.40 0.35 0.10 0.10 0.30 0.30 0.15 0.10 0.05 0.00 0.20 1.00Hedge Funds - Mod0.10 0.05 0.10 0.05 0.45 0.15 0.15 0.50 0.50 0.15 0.15 0.00 0.00 0.30 0.90 1.00Short LIBOR0.95 0.25 0.10 0.20 -0.10 0.15 0.00 0.00 -0.10 -0.20 -0.10 0.00 0.40 -0.10 0.50 0.10 1.00 40L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptMSD Asset Allocation History & ProposalMSD Asset Allocation History & ProposalTargetw/ 2008AssumptionsCurrentw/ 2008AssumptionsTargetw/ 2009AssumptionsCurrentw/ 2009AssumptionsEquity43.0% 37.3% 43.0% 42.0%Large Cap20.0% 17.3% 20.0% 19.6%Small Cap10.0% 8.4% 10.0% 9.2%International10.0% 9.3% 10.0% 9.7%Emerging3.0% 2.3% 3.0% 3.5%Fixed Income33.0% 34.2% 33.0% 31.9%Domestic Bonds 20.0% 20.3% 20.0% 19.3%High Yield Bonds 5.0% 4.5% 5.0% 4.5%Global Bonds8.0% 9.4% 8.0% 8.1%GAA10.0% 9.9% 10.0% 9.7%Real Estate5.0% 5.9% 5.0% 5.1%Absolute Return 4.0% 4.1% 4.0% 3.9%Market Neutral5.0%6.4%5.0%5.6%Cash0.0% 2.1% 0.0% 1.9%Expected Return7.60% 7.36% 8.50% 8.20%Expected Risk8.96% 8.12% 11.30% 10.20%Sharpe Ratio0.44 0.45 0.49 0.51Risk from Equities 86.90% 83.40% 84.20% 80.90% 41L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptInvestment Performance Analysis Investment Performance Analysis 42L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptPerformance Summary (12/31/08)Performance Summary (12/31/08)Composite ranked in the public funds universe and Managers ranked in their respective style universe.Target WeightWeightin FundLast3 Months RankLastYear RankThreeYears RankFiveYears RankEndingMarket Value100.0% 100.0% Composite (Gross)-10.1% 20 -19.9% 17 0.0% 15 3.0% 24 $151,078,253Allocation Index-9.6% 18 -18.7% 15 -0.1% 17 2.8% 29Policy Index-10.8% 24 -20.2% 17 -0.7% 23 2.8% 2930.0% 25.7% Total Domestic Equity$38,884,74420.0% 17.3% Large Cap Equity Composite-21.5% 35 -35.7% 29 -6.5% 17 -0.9% 42 $26,119,414S&P 500-21.9%-37.0%-8.4%-2.2%6.1% Vanguard Windsor II-20.9% 34 -35.9% 35 -7.8% 41 0.0% 40 $9,195,040Russell 1000 Value-22.2%-36.9%-8.3%-0.8%Median Large Cap Value Manager-22.0%-37.8%-8.3%-0.6%2.5% BDH&S-25.0% 68 -34.3% 19 -6.2% 12 -3.3% 72 $3,819,4466.1% Waddell & Reed-20.3% 20 -35.7% 24 -4.9% 8 -0.1% 19 $9,149,679Russell 1000 Growth-22.8%-38.4%-9.1%-3.4%Median Large Cap Growth Managers-23.0%-39.3%-9.3%-1.9%2.6% Vanguard Institutional Index-21.9% 50 -36.9% 52 -8.2% 52 -2.1% 70 $3,955,249S&P 500-21.9%-37.0%-8.4%-2.2%Median Large Cap Core Manger-22.0%-36.8%-8.0%-1.2%10.0% 8.4% Small Cap Equity Composite-20.5% 5 -31.0% 24 -6.3% 29 1.3% 29 $12,765,330Russell 2000-26.1%-33.8%-8.3%-0.9%3.8% Kennedy -19.3% 16 -27.0% 20 n/an/a$5,689,959Russell MidCap Value-27.2%-38.4%-10.0%0.3%Median Mid Cap Value Manager-21.7%-36.3%-10.0%-1.0%4.7% Times Square-21.5% 7 -31.6% 13 -3.7% 8 2.8% 10 $7,075,371Russell 2000 Growth-27.4%-38.5%-9.3%-2.4%Median Small Cap Growth Manager-26.1%-39.5%-9.0%-1.4%13.0% 11.6% Total International Equity$17,508,91110.0%9.3% International Equity Composite-14.2% 11 -32.4% 8 -2.5% 11 3.6% 50 $14,048,692Citigroup PMI EPAC-20.0%-43.3%-7.1%2.1%10.0% 9.3% Morgan Stanley International-14.2% 11 -32.4% 8 -2.5% 11 n/a$14,048,692 MSCI EAFE-20.0%-43.4%-7.4%1.7%Median International Manager-19.7%-42.2%-5.7%3.7%3.0% 2.3% Morgan Stanley Emerging-29.6% 72 -55.8% 83 -3.8% 43 n/a$3,460,219MSCI Emerging Mkts Free-27.6%-53.3%-4.9%7.7%Median Emerging Manager-28.4%-53.1%-4.4%8.1%43.0% 37.3% Total Equity$56,393,655Annualized Returns 43L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptPerformance Summary (12/31/08)Performance Summary (12/31/08)Target WeightWeight in FundLast3 Months RankLastYear RankThreeYears RankFiveYears RankEndingMarket Value33.0% 34.2% Total Fixed Income$51,601,00925.0% 24.8% Domestic Fixed Income Composite-0.4% 65 -3.3% 67 2.9% 66 3.0% 70 $37,444,84820.0% 20.3% Income Research3.2% 40 0.8% 50 4.2% 49 3.8%54$30,610,019Barclays Capital Gov't/Corp4.8%5.1%5.5%4.2%Median Core Fixed Income Manager2.5%0.8%4.2%4.0%5.0% 4.5% Penn Capital-15.8% 64 -20.6% 51 -3.6% 56 n/a$6,834,829Merrill Lynch High Yield Cash Pay-17.5%-26.2%-5.6%-0.8% Median High Yield Manager-15.1%-20.5%-3.4%0.5%8.0% 9.4% Total Global/Int'l Fixed Income$14,156,1618.0% 9.4% Brandywine Global Bond Fund-5.4% 70 -8.5% 75 3.1% 73 n/a$14,156,161Citi World Gov't Index8.8%10.9%9.3%6.0%Median Global Bond Manager-0.8%-2.1%5.1%5.0%10.0% 9.9% TAA Composite-9.2% 40 -18.6% 41 0.4% 18 3.6% 12 $14,940,96210.0% 9.9% GMO-9.2% 40 -18.6% 41 n/an/a$14,940,96265% MSCI World / 35% Lehman Agg-13.1%-25.6%-3.0%1.3%Median Balanced Manager-11.2%-20.5%-2.1%1.5%14.0% 16.5% Total Alternative Assets$24,956,1025.0%MARKET NEUTRAL6.4% Pyramis2.7% 6 -9.3% 15 6.8% 6 n/a$9,721,94190 Day T-Bill + 300bps1.0%5.1%7.1%6.3%4.0%ABSOLUTE RETURN4.1% Pimco All Asset-8.1% 31 -14.8% 27 -0.2% 24 n/a$6,246,547CPI + 500bps-2.0%4.9%7.3%7.8%5.0%REAL ESTATE5.9% UBS Realty -8.6% 67 -7.5% 52 n/an/a$8,987,614NCREIF Property -8.3%-6.5%8.1%11.7%NCREIF ODCE -11.0%-10.0%6.7%10.3%0.0% 2.1% Cash0.5%2.5%4.2%3.3%$3,186,52590 Day T-Bill0.2%2.1%4.0%3.3%Notes: Results for periods longer than one year are annualized. Total percentages may add to more than 100% due to rounding.All returns are gross of fees.Annualized Returns 44L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Stocks Style and Size MapDomestic Stocks Style and Size MapAs of December 31, 2008R 2000(R)TIMES SQUAREKENNEDYSMALL CAP EQTYVANG INST INDEXS&P 500LARGE CAP EQTYB D H & SCOMPOSITELARGE CAP VALUEWADDELL & REEDVANG WINDSOR IILARGE CAP GRWTH 45L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 46L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 47L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 48L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 49L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 50L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of ReturnManagers ranked in the Total Equity Universe. 51L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 52L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 53L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 54L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 55L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptGlobal Bond Funds Total Rates of ReturnGlobal Bond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 56L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptGlobal Bond Funds Total Rates of ReturnGlobal Bond Funds Total Rates of ReturnManagers ranked in the Total Bond Universe. 57L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Vanguard Windsor II Fund *Vanguard Windsor II Fund ** Holdings as of 9/30/08 58L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Vanguard Institutional Fund *Vanguard Institutional Fund ** Holdings as of 9/30/08 59L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Waddell & ReedWaddell & Reed 60L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––BDH&SBDH&S 61L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––TimesSquareTimesSquare 62L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Information Manager Information ––Kennedy CapitalKennedy Capital 63L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptGMO (Global Balanced Allocation Strategy)GMO (Global Balanced Allocation Strategy)BenchmarkCurrent AllocationASSET ALLOCATIONHISTORICAL ALLOCATIONRISK vs. RETURN 3 YEARLB AGGS&P 500GMODecember 1988- December 2008 64L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.ppt• In October 2008, GMO changed the redemption policy for all fixed income mutual funds due to lack of liquidity in the market.– A redemption fee of 2% was imposed on its fixed income mutual fund. Further until end October, the amount available in cash for fixed income fund redemptions was limited to 2%, with the remainder transferred in-kind to the investor. The redemption fee of 2% applied only to the portion of the redemption received as cash.– Many of GMO’s fixed income funds are core holdings of their asset allocationstrategies which includes the Global Balanced Strategy; the redemption policy change therefore affected this fund.– For asset allocation investors, this meant that an investor would receive cash for the portion of the redemption not held in fixed income, 2% of the fixed income redemption as cash, and the remainder as shares of the underlying GMO fixed income mutual fund. • In November 2008, GMO made further changes to its redemption policy– While they experienced only modest redemption requests, they believe that the 2% redemption fee imposed on the fixed income funds no longer adequately reflected the actual cost of selling securities to honor cash redemptions.– In order to provide additional flexibility to investors, GMO approved a redemption fee of up to 2% at the Global Balanced Asset Allocation Fund level. The initial redemption fee will be set at 1.71% to reflect current estimate of the transaction costs. This fee may be adjusted periodically to reflect market conditions, but at no time will it exceed 2%.– In lieu of paying up to 2% redemption fee at the Global BalancedAsset Allocation Fund level, the investor may continue to request to take shares of the fixed income funds in-kind and redeem for cash the remainder of the investment. Such a redemption would be charged a reduced redemption fee based on the transaction costs associated with the cash portion of the redemption.GMO GMO ––Fixed Income and Asset Allocation FundsFixed Income and Asset Allocation Funds 65L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Morgan Stanley Intl. EquityMorgan Stanley Intl. EquityTOP TEN HOLDINGSCOUNTRY ALLOCATION**Numbers in Parenthesis ( ) reflect benchmark weights.SECTOR PERFORMANCE3 Year Risk VS. ReturnSwitzerland9.86% (8.41%)Japan27.330% (25.25%)France6.84% (10.90%)Germany4.98% (8.74%)Netherlands4.34% (2.43%)Cash6.02% (0.0%)UK25.7% (19.88%)Australia3.59% (5.96%)% PORTFOLIONESTLE SA3.80IMPERIAL TOBACCO3.11BRITISH AMERICAN TOBACCO3.07UNILEVER NV2.60T & D HOLDINGS2.47RECKITT BENCKISER2.38BHP BILLITON2.22ROCHE2.15ELECTRICITE2.13VADAFONE2.04 66L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Morgan Stanley Emerging Mkts.Morgan Stanley Emerging Mkts.TOP TEN HOLDINGSTaiwan7.7% (10.4%)Cash3.0% (0.0%)Poland4.2% (1.6%)Russia4.7% (5.7%)Brazil9.4% (12.9%)South Korea11.9% (13.6%)India9.2% (6.5%) South Africa8.4% (8.4%)China5 (14.4%)Mexico6.2 (5.2%)Other35% (35.0)**Numbers in Parenthesis ( ) reflect benchmark weights.COUNTRY ALLOCATION3 Year Risk VS. ReturnStock% HoldingsChina Mobile3.6Samsung E lectronics 3.3America Movil2.8Petrochina2.6MTN Group2.0Gazprom2.0China Life Insurance1.9Lukoil1.9Petrobras1.9CVRD1.8 67L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptCREDIT DISTRIBUTIONSECTOR ALLOCATION35.3%9.9%16.9%13.4%24.0%0.9%0%20%40%CashBaaAAaAaaGov'tPORTFOLIO ANALYSISAVERAGE MATURITY % HELDYearsManager Performance Manager Performance ––Income ResearchIncome ResearchCash1%ABS40.1%MBS16.4%Corporates64.74%Govt.7.8%Municipals2.74%60.0%31.0%3.8%5.3%0% 20% 40% 60% 80%10.0+5.0 - 10.01.0 - 5.00 - 1 68L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Penn CapitalPenn CapitalPORTFOLIO ANALYSISAVERAGE MATURITY % HELDCREDIT DISTRIBUTIONAverage Maturity6.2Average Duration4.3Average Coupon8.1%Average Yield to Maturity14.6%Average Credit QualityB2Number of Issues13427.0%10.0%35.6%3.6%18.8%5.0%0%20%40%10.0+8.0 - 10.06.0 - 8.04.0 - 6.02.0 - 4.00.0 - 2.00.1%0.1%33.1%0.0%16.9%11.4%7.6%2.8%2.5%6.2%19.4%0.0%0%20%40%OtherCaaB3B2B1Ba3Ba2Ba1Baa3Baa2Baa1A3 69L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––BrandywineBrandywinePORTFOLIO ANALYSISU.S.AustraliaSwedenIndonesiaOthersBrazilCanadaU.K.MalaysiaMexicoPolandNew ZealandCREDIT DISTRIBUTIONCOUNTRY ALLOCATION20.3%13.4%7.4%51.3%3.9%0% 20% 40% 60% 80% 100%BaBaaAAaAaaAVERAGE MATURITY % HELD19.6%3.7%8.4%8.3%15.4%5.1%39.4%0%20% 40% 60%20.0+10.0 -7.0 - 10.05.0 - 7.03.0 - 5.01.0 - 3.00.0 - 1.0 70L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptPIMCO (All Asset Fund)PIMCO (All Asset Fund)Source: PIMCO 71L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Performance Manager Performance ––Fidelity Market Neutral (Pyramis)Fidelity Market Neutral (Pyramis)PORTFOLIO CHARACTERISTICSSECTOR ALLOCATION1.0-2.0-1.72.81.2-1.0-2.71.31.50.4-4 -3 -2 -1 0 1 2 3 4Consumer Disc.Info TechnologyFinancialsHealth CareIndustrialsConsumerEnergyMaterialsTelecom ServicesUtilities 72L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptManager Overview Manager Overview ––UBS TPFUBS TPFUBS RESA is an actively managed core style, diversified, open end commingled vehicle. The goal is to optimize the portfolio’s asset mix through acquisitions and timely sales in order to maximize total return while maintaining an acceptable level of risk. GEOGRAPHIC DIVERSIFICATIONPROPERTY TYPE DIVERSIFICATIONSTRATEGY / FUND DETAILSQUARTER-END OCCUPANCY LEVELS *Funded in June 2006.* Occupancy Levels as of 6/30/08 73L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptEquity Funds 3 Year Risk AnalysisEquity Funds 3 Year Risk AnalysisR 2000(R)WADDEL & REEDSMALL CAP EQTYBDH&SLARGE CAP EQTYS&P 500VANG WINDSOR IIVANG INST INDEX 74L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptEquity Funds 3 Year Risk AnalysisEquity Funds 3 Year Risk AnalysisR 2000(R)TIMES SQUARELARGE CAP GRWTHLARGE CAP VALUES&P 500 75L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptEquity Funds 5 Year Risk AnalysisEquity Funds 5 Year Risk AnalysisBDH&SR 2000(R)SMALL CAP EQTYWADDELL & REEDVANG WINDSOR IIVANG INST INDEXS&P 500LARGE CAP EQTY 76L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptEquity Funds 5 Year Risk AnalysisEquity Funds 5 Year Risk AnalysisS&P 500R 2000(R)TIMES SQUARELARGE CAP GRWTHLARGE CAP VALUE 77L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds 3 Year Risk AnalysisBond Funds 3 Year Risk AnalysisFIXED INC COMPINCOME RESEARCHBC AGGREGATEBC GOVT/CR INTPENN CAPITAL 78L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptBond Funds 5 Year Risk AnalysisBond Funds 5 Year Risk AnalysisFIXED INC COMPINCOME RESEARCHBC GOVT/CR INTBC AGGREGATE 79L:\Clients/St Louis MSD/IPA/Executive Reports /2008/MSD 4Q 2008 Executive Report.pptInformation Disclosure• NEPC uses, as its data source, the plan’s custodian bank or fund service company, and NEPC relies on those sources for security pricing, calculation of accruals, and all transactions, including income payments, splits, and distributions. While NEPC has exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within.• The Investment Performance Analysis (IPA) is provided as a management aid for the client’s internal use only. Portfolio performance reported in the IPA does not constitute a recommendation by NEPC.• Information in this report on market indices and security characteristics is received from sources external to NEPC. While efforts are made to ensure that this external data is accurate, NEPC cannot accept responsibility for errors that may occur.