Adams County Retirement Plan Executive Summary
Adams County Retirement Plan
Investment Performance Evaluation Report September 30, 2007
As Prepared By
Adams County Retirement Plan Executive Summary Asset Allocation $202,852,123
Hedge Fund-offunds, 9.1%
Cash, 0.8%
Real Estate, 11.3% U.S. Equity, 41.1%
Fixed Income, 16.6%
International Equity, 20.1%
Private Equity, 1.0%
3rd Qtr Benchmark Year % of Total Return Return to Date Total Plan 100.0% 2.2% 2.5% 9.5% Operating Account 0.4% … … … DIA Fixed Income 8.4% 2.5% 3.0% 3.6% PIMCO Total Return 8.3% 4.6% 2.9% 5.0% SSgA S&P 500 Index 32.5% 2.1% 2.1% 9.2% TimesSquare Capital Mgmt 4.7% 1.8% 2.1% 11.8% -2.2% -6.3% 4.9% Thompson, Siegel & Walmsley 4.1% AllianceBernstein ACWI Value 10.3% 1.8% 4.7% 15.5% Frontegra New Star Int'l Equity 9.7% 2.9% 2.2% 16.7% Grosvenor Institutional Ptrs 9.1% -0.2% -0.4% 8.0% Principal Financial Group 11.3% 4.8% 3.8% 12.1% Mesirow Financial P/E Ptrshp Fd III 0.7% … … … Mesirow Financial P/E Ptrshp Fd IV 0.3% … … …
Benchmark Ahead Return of Index 9.1% √ … 4.0% 3.8% √ 9.2% = 13.3% -2.7% √ 17.9% 13.2% √ 6.1% √ 12.6% … …
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Adams County Retirement Plan Executive Summary
CAPITAL MARKET RETURNS Third Quarter 2007
US EQUITIES S&P 500 Russell Top 200® (Lrg Cap) Russell MidCap® Russell 2000 ® (Sml Cap)
NON-US EQUITIES MSCI AC World MSCI AC World ex U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex-Japan MSCI Emerging Markets MSCI EAFE Small Cap MSCI EAFE Value MSCI EAFE Growth
Market 2.0% 3.0% -0.4% -3.1%
Value
Growth
1.0% -3.6% -6.3%
5.3% 2.2% 0.0%
US$ 3.6% 4.7% 2.2% 1.7% -0.8% 13.4% 14.5% -4.4% 0.1% 4.4%
Local 1.1% 0.2% -2.5% -2.3% -7.6% 9.8% 1 2.6% -9.0% -4.5% -0.5%
Currency 2.5% 4.4% 4.7% 4.0% 6.8% 3.6% 1.9% 4.6% 4.6% 4.8%
NCREIF 3.6%
NAREIT 2.6%
REAL ESTATE
FIXED INCOME Lehman Aggregate
Total 2.8%
Excess -0.9%
T-Bills Lehman Intermediate Treasury Lehman Long Treasury
1.1% 3.6% 4.9%
… … …
Lehman US TIPS Lehman US Treasury Lehman US Agency Lehman US Mortgage-Backed Lehman US Commercial MBS Lehman US Asset-Backed Lehman US Corporate Lehman US High Yield Lehman Majors ex-US Lehman Majors ex-US (Hedged) Lehman Emerging Markets
4.5% 3.8% 3.2% 2.6% 2.8% 1.4% 1.8% 0.3% 8.2% 2.9% 2.0%
… … -0.1% -0.9% -1.3% -1.7% -2.4% -3.6% 3.9% -1.2% -2.3%
HEDGE FUNDS HFRI Fund-of-Funds
Composite Conservative 0.2% 0.6%
Calendar Year-to-Date 2007
US EQUITIES S&P 500 Russell Top 200® (Lrg Cap) Russell MidCap® Russell 2000 ® (Sml Cap)
NON-US EQUITIES MSCI AC World MSCI AC World ex U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex-Japan MSCI Emerging Markets MSCI EAFE Small Cap MSCI EAFE Value MSCI EAFE Growth
REAL ESTATE
Market 9.1% 9.3% 9.5% 3.2%
Value
Growth
6.4% 4.8% -2.7%
12.5% 13.4% 9.4%
US$ 14.1% 17.9% 13.2% 14.9% 2.1% 33.8% 34.8% 6.9% 10.1% 17.1%
Local 10.2% 10.9% 6.7% 8.1% -1.5% 23.2% 29.8% 0.8% 3.9% 10.4%
Currency 3.9% 7.0% 6.5% 6.8% 3.5% 10.6% 5.1% 6.1% 6.2% 6.8%
NCREIF 12.2%
NAREIT -3.5%
FIXED INCOME Lehman Aggregate
Total 3.8%
Excess -1.2%
T-Bills Lehman Intermediate Treasury Lehman Long Treasury
3.7% 5.1% 3.9%
… … …
Lehman US TIPS Lehman US Treasury Lehman US Agency Lehman US Mortgage-Backed Lehman US Commercial MBS Lehman US Asset-Backed Lehman US Corporate Lehman US High Yield Lehman Majors ex-US Lehman Majors ex-US (Hedged) Lehman Emerging Markets
6.3% 4.9% 4.5% 3.7% 3.3% 3.0% 2.5% 3.2% 7.0% 3.0% 3.1%
… … -0.4% -1.5% -2.0% -2.1% -2.4% -2.1% 2.2% -1.8% -1.7%
HEDGE FUNDS HFRI Fund-of-Funds
Composite Conservative 8.1% 7.1%
Sources: Ibbotson Associates, MSCI, Lehman Brothers
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Adams County Retirement Plan Executive Summary
Asset Allocation As of September 30, 2007
Cash & Equiv Operating Account DIA Fixed Income
$
U.S. Stocks
Int'l Stocks
Hedge FOF
Percent Total of Total
Real Estate Private Equity
790,915
790,915
0.4%
262,371 $ 16,748,705
17,011,076
8.4%
16,906,415
16,906,415
8.3%
65,983,191
65,983,264
32.5%
PIMCO Total Return SSgA S&P 500 Index
Fixed Income
$
73
$
TimesSquare Capital Mgmt
401,935
9,155,717
9,557,652
4.7%
Thompson Siegel & Walmsley
249,325
8,152,391
8,401,716
4.1%
AllianceBernstein ACWI Value
1,343
$ 20,976,264
20,977,607
10.3%
Frontegra New Star Int'l Equity
1,086
19,773,452
19,774,538
9.7%
18,551,744
9.1%
22,946,850
11.3%
1,419,352
1,419,408
0.7%
530,939
530,939
0.3%
Grosvenor Institutional Ptrs
$ 18,551,744
Principal Financial Group Mesirow Financial P/E Ptrshp Fd III
$ 22,946,850 56
Mesirow Financial P/E Ptrshp Fd IV Total Adams County Percent of Total Target Allocation Allowable Ranges
$ $1,707,104 0.8%
$33,655,120
$ 83,291,299
$40,749,715
$18,551,744
$22,946,850
$ 1,950,291
16.6%
41.1%
20.1%
9.1%
11.3%
1.0%
20% 15-25%
37.5% 32.5-42.5%
20% 15-25%
10% 5-15%
10% 5-15%
2.5% 0-5%
$ 202,852,123 100.0%
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Adams County Retirement Plan Executive Summary
Growth of Assets As of September 30, 2007 Beginning Balance
3rd Quarter SSgA S&P 500 Index
$
Net Cash Flow
65,675,558
$
Net Investment Return
-992,309
$
1,300,016
Ending Balance $
65,983,264
TimesSquare Capital Mgmt
9,375,191
18,552
163,909
9,557,652
Thompson Siegel & Walmsley
8,575,898
17,842
-192,024
8,401,716
DIA Fixed Income
16,587,105
17,014
406,957
17,011,076
PIMCO Total Return
16,165,029
-
741,386
16,906,415
AllianceBernstein ACWI Value
20,568,396
44,883
364,328
20,977,607
Frontegra New Star Int'l Equity
19,213,998
-
560,539
19,774,538
Grosvenor Institutional Ptrs
18,584,784
-
-33,040
18,551,744
Principal US Property
21,893,914
-
1,052,936
22,946,850
Mesirow Financial P/E Ptrshp Fd III
859,407
560,000
1
1,419,408
Mesirow Financial P/E Ptrshp Fd IV
530,939
-
-
530,939
Operating Account
512,557
270,792
7,566
790,915
-63,225
$ 4,372,574
$ 202,852,123
Net Investment Return
Ending Balance
Total Adams County
$ 198,542,775
Calendar YTD 2007
Beginning Balance
SSgA S&P 500 Index
$
$
Net Cash Flow
67,119,158
$
-7,116,426
$
5,980,533
$
65,983,264
TimesSquare Capital Mgmt
8,498,302
54,165
1,005,185
9,557,652
Thompson Siegel & Walmsley
7,957,083
53,584
391,049
8,401,716
DIA Fixed Income
16,370,822
51,461
588,793
17,011,076
PIMCO Total Return
16,108,230
-
798,185
16,906,415
AllianceBernstein ACWI Value
15,155,354
3,400,466
2,421,787
20,977,607
Frontegra New Star Int'l Equity
15,248,777
1,849,793
2,675,968
19,774,538
Grosvenor Institutional Ptrs
17,150,742
-
1,401,002
18,551,744
Principal US Property
20,472,930
-
2,473,920
22,946,850
Mesirow Financial P/E Ptrshp Fd III
553,735
885,117
-19,445
1,419,408
Mesirow Financial P/E Ptrshp Fd IV
-
585,000
-54,061
530,939
1,309,945
-541,928
22,898
790,915
-778,768
$ 17,685,814
$ 202,852,123
Operating Account Total Adams County
$ 185,945,078
$
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Adams County Retirement Plan Executive Summary
Net of Fees Investment Performance For Periods Ending September 30, 2007 Year
5 Years/
Inception Date
Quarter
to Date
1 Year
3 Years
Since Inception
Total Fund Target Return Custom Index 1 Rank - Public Fund
2.2% 1.9% 2.5% 31
9.5% 5.6% 9.1% 13
15.8% 7.5% 15.4% 16
12.9% 7.5% 12.9% 20
13.3% 7.5% 13.7% 23
5 Years
Total U.S. Equities Russell 3000 Rank - Domestic Equity
1.6% 1.6% 42
8.9% 8.8% 49
16.5% 16.5% 43
14.0% 13.8% 48
16.1% 16.2% 62
5 Years
Total International Equity MSCI EAFE (Net) Rank - International Equity
2.3% 2.2% 65
16.5% 13.2% 28
28.4% 24.9% 31
20.6% 23.2% 82
20.9% 23.6% 73
5 Years
Total Fixed Income Custom Index 2 Rank - Intermed. Fixed Income
3.5% 2.9% 5
4.3% 3.9% 6
5.3% 5.1% 12
4.2% 3.8% 11
4.9% 4.2% 16
5 Years
Total Hedge Fund of Funds HFRI Conservative Fund of Funds Rank - Hedge Fund of Funds
-0.2% -0.4% 47
8.0% 6.1% 40
12.8% 10.2% 49
9.5% 8.0% 53
9.5% 7.5% …
09/30/04
Total Real Estate NCREIF ODCE Equal Weight Rank - Real Estate
4.8% 3.8% 23
12.1% 12.6% 46
16.2% 16.6% 39
17.0% 17.0% 52
17.0% 17.0% …
09/30/04
®
1. Custom Index: 40% Russell 3000 , 20% MSCI All-Country World ex-US, 20% Lehman Aggregate, 10% NCREIF ODCE Equal Weight Index, 10% HFRI Conservative Fund of Funds. 2. Custom Index: 50% Lehman Aggregate, 50% Lehman Gov't/Credit. Periods longer than one year are annualized.
Annual Returns of the Fund (Net of Fees) Through December 31, 2006 Annual Return
Actuarial Return Assumption
30.0% 25.0%
22.5%
20.0%
14.2%
15.0% 10.0%
11.1% 7.5%
8.0%
6.3%
5.0% 0.0% -5.0% -10.0% -15.0%
-10.9% 2002
2003
2004
2005
2006
5 Year Annualized
5
Adams County Retirement Plan Executive Summary
Net of Fees Investment Performance For Periods Ending September 30, 2007 Year
5 Years/
Inception Date
Quarter
to Date
1 Year
3 Years
Since Inception
SSGA S&P 500 Index S&P 500 Rank - Large Cap Blend
2.1% 2.1% 47
9.2% 9.2% 51
16.5% 16.5% 49
13.2% 13.1% 44
10.9% 10.8% …
12/31/03
TimesSquare Capital Mgmt.
1.8% 2.1% 68
11.8% 13.3% 80
20.5% 21.2% 71
… … …
18.2% 15.5% …
06/30/05
-2.2% -6.3% 6
4.9% -2.7% 21
14.0%
6.1% 15
16.8% 12.5% 6
17.3% 12.2% …
12/31/03
Russell 2000 ® Value Rank - Small Cap Value AllianceBernstein ACWI Value
1.8%
15.5%
29.9%
…
26.9%
06/30/06
MSCI All Country World ex - U.S. Rank - International Equity Value
4.7% 29
17.9% 16
31.1% 10
… …
28.1% …
Frontegra New Star Int'l Equity
2.9% 2.2% 80
16.7% 13.2% 54
26.0% 24.9% 73
… … …
20.1% 22.0% …
2.5% 3.0% 40
3.6% 4.0% 24
4.7% 5.1% 35
3.9% 3.7% 18
4.8% 4.2% 18
5 Years
Lehman Govt/Credit Rank - Intermed. Fixed Income PIMCO Total Return
4.6%
5.0%
5.9%
4.4%
5.0%
5 Years
Lehman Aggregate Rank - Intermed. Fixed Income
2.9% 1
3.8% 2
5.1% 5
3.9% 6
4.1% 15
Grosvenor Institutional Partners
-0.2% -0.4% 47
8.0% 6.1% 40
12.8% 10.2% 49
9.5% 8.0% 53
9.5% 8.0% …
09/30/04
4.8% 3.8% 23
12.1% 12.6% 46
16.2% 16.6% 39
17.0% 17.0% 52
17.0% 17.0% …
09/30/04
Russell Mid Cap ® Growth Rank - Mid Cap Growth Thompson Siegel & Walmsley
MSCI EAFE (Net) Rank - International Equity Growth DIA Fixed Income
HFRI Conservative Fund of Funds Rank - Hedge Fund of Fund Principal US Property
NCREIF ODCE Equal Weight Rank - Real Estate
09/30/05
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Adams County Retirement Plan Executive Summary
Equity Portfolio Characteristics Equity Style Map
S&P 500/ SSgA S&P 500
Large Value
®
Russell 3000
Large Growth
Total Adams County
Russell Mid Cap Growth
®
TimesSquare
TS&W ®
Russell 2000 Value
Small Value
®
Russell 2000
Small Growth
For Periods Ending September 30, 2007 SSgA S&P # of Stocks Wghtd Avg Mkt Cap ($000) Median Mkt Cap ($000) P/E Ratio Dividend Yield 5-Yr Earnings Growth
TimesSquare
Russell Mid ®
TS&W
Russell 2000®
500 501 $109,990 $13,443 17.4 1.9 15.0
Capital Mgmt 74 $7,176 $5,370 27.4 0.8 17.8
Cap Growth 555 $9,621 $4,837 25.7 0.8 16.5
Small Value 85 $1,726 $1,275 20.1 0.7 14.2
Value 1,264 $1,206 $604 24.7 1.9 8.6
11.7% 3.2% 11.5% 9.2% 9.6% 11.7% 19.8% 16.2% 3.8% 3.4%
7.1% 2.0% 17.9% 16.3% 0.6% 23.2% 9.3% 17.3% 6.5% 0.0%
11.1% 4.7% 15.6% 18.5% 4.1% 12.6% 7.9% 19.9% 2.6% 3.0%
9.5% 10.0% 18.7% 11.0% 3.7% 8.4% 21.1% 14.8% 0.0% 2.8%
5.6% 6.8% 13.4% 12.5% 3.6% 5.0% 33.0% 13.2% 1.7% 5.3%
Sectors:
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecomm. Services Utilities
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Adams County Retirement Plan Executive Summary
Equity Portfolio Characteristics As of September 30, 2007 Total Adams County
Russell 3000®
660 $88,102 $9,356 18.4 1.6 15.2
2,921 $89,014 $1,204 18.8 1.7 14.6
# of Stocks Wghtd Avg Mkt Cap ($mil) Median Mkt Cap ($mil) P/E Ratio Dividend Yield 5-Yr Earnings Growth
Sector Allocation As of September 30th, 2007 35%
30%
12.6% 11.6%
3.0% 3.7%
5%
3.7% 3.5%
8.0% 8.3%
3.7% 3.8%
10%
10.2% 10.6%
11.0% 10.9%
15%
12.9% 12.1%
20%
16.2% 16.0%
18.8% 19.5%
25%
Telecomm Svcs
Utilities
0% Energy
Materials
Industrials
Consumer Consumer .Disc Staples
Total Adams County
Health Care
Financials
Info Tech
Russell 3000®
8
Adams County Retirement Plan Executive Summary
International Equity Portfolio Characteristics Country Allocation as of September 30, 2007 60%
Pacific Basin/Asia
AllianceBernstein
Euro Currency Other Europe
MSCI ACWI
Canada
Frontegra New Star
Emerging Mkts
1.2% 0.0% 1.0% 0.0%
5.0% 0.0%
0% Japan
20.1% 17.9% 4.7% 6.4% 0.0% 0.0%
10%
14.0% 10.0%
20%
2.9% 7.6%
30%
18.9% 15.6% 18.0% 20.6%
40%
20.3% 25.4% 26.4% 33.5%
32.0% 27.2% 35.7% 35.9%
50%
Cash & Equiv
MSCI EAFE Index
Sector Allocation as of September 30, 2007
# of Stocks Wghtd Avg Mkt Cap ($000) Median Mkt Cap ($000) P/E Ratio Dividend Yield 4-Yr Earnings Growth
Alliance Bernstein 113 $57,707 $20,505 12.5 3.0 23.9
MSCI ACWI ex US 2,087 $57,530 $4,771 16.1 2.5 21.5
Frontegra New Star 109 $61,542 $27,641 15.9 2.4 19.3
MSCI EAFE 1,137 $63,160 $6,171 15.2 2.7 20.6
12.6% 0.9% 27.1% 4.8% 0.7% 4.1% 30.7% 9.0% 4.5%
10.2% 11.5% 11.2% 9.7% 7.0% 5.1% 26.9% 6.9% 6.6%
9.8% 7.8% 13.0% 13.5% 3.7% 6.4% 26.6% 9.8% 5.8%
7.5% 9.9% 12.1% 11.2% 8.0% 6.3% 27.9% 5.9% 5.8%
5.5%
4.8%
3.8%
5.4%
Sectors:
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecomm. Services Utilities
9
Adams County Retirement Plan Executive Summary
Fixed Income Characteristics As of September 30, 2007
Effective Duration (years) Average Quality Yield to Maturity Effective Maturity (years)
DIA Lehman PIMCO Lehman Fixed Income Govt/Credit Total Return Aggregate 5.0 5.2 5.3 4.6 AA AA+ AA AA+ 5.4% 5.0% 5.4% 5.3% 6.9 7.9 6.6 7.3
Quality Rating Allocation
60%
58.4% 64.2% 64.0%
80%
79.4%
100%
BAA
DIA
Lehman Govt/Credit
1.1% 0.0% 0.0% 0.0%
A
0.0% 0.0% 1.0% 0.0%
AAA
0.0% 0.0% 0.0% 0.0%
15.8% 13.6% 3.0% 7.5%
AA
0%
0.0% 0.0% 9.0% 0.0%
18.0% 13.5% 7.0% 7.8%
20%
6.7% 8.8% 16.0% 5.3%
40%
≤BA
A1/P1
Other
Cash
PIMCO Total Return
Lehman Aggregate
Sector Allocation 100%
Other
17.0%
Non US$ Develop
0.0%
0.0% 0.0% 7.0% 5.7%
Asset Backed
1.1% 0.0%
0.0% 0.0% 6.0% 0.0%
38.1%
30.0% 0.0%
7.2% 0.0% 0.0% 0.9%
-20%
-1.0%
0%
13.0% 22.3%
20%
40.1% 40.4%
33.0%
40%
21.6%
60%
58.0%
59.7%
80%
Government
Credit
Mortgage
Cash Investment
10
Adams County Retirement Plan Executive Summary
Portfolio Characteristics – Real Estate As of September 30, 2007
Principal U.S. Property Gross Asset Value Net Asset Value Leverage Ratio Number of Investments Number of Markets Portfolio Occupancy
$7.6 Billion $6.2 Billion 15% 152 47 90%
1.0%
10%
2.5%
16.0%
20%
15.5%
15.0%
23.0%
30%
26.0%
40%
21.9%
42.0%
50%
37.1%
By Property Type
0% Residential
Industrial
Office
Retail
Principal U.S. Property
NCREIF Index
Hotel
By Geographic Region
10%
10.0%
20%
13.0%
16.0%
30%
21.1%
33.8%
40%
23.0%
50%
35.0%
60%
48.0%
70%
0% West
East
South
Midwest
11
Adams County Retirement Plan Executive Summary
Hedge Fund Portfolio Characteristics As of September 30, 2007 Grosvenor Institutional Partners Overall Fund Size
$4.8 Billion
Aggregate Fund Leverage
2.24
Number of Investment Programs
65
Percent Held by Top 15 Investment Programs
39.2%
Average Underlying Manager Assets Managed
$8.4 Billion
Investment Strategy Allocation 100% 80% 60% 40% 20% 0% Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Relative Value
Event-Driven
Credit
Multi-Strategy Arbitrage
U.S. Hedged Equities
Non-U.S. Hedged Equities
Global Hedged Equities
Short Selling
Cash/Other
Sep-07
Geographic Market Allocation 100% 80% 60% 40% 20% 0% Mar-05
Jun-05 Japan
Sep-05
Dec-05
Mar-06
Asia (ex-Japan)
Europe
Jun-06
Sep-06
Emerging Mkts
Dec-06 U.S.
Mar-07
Global
Jun-07
Sep-07
Cash/Other
12
Adams County Retirement Plan Executive Summary
Private Equity Portfolio Characteristics Mesirow Financial Private Equity Partnership Fund III, L.P. Portfolio Summary as of September 30, 2007
Vintage Year
Capital Net Cash Cash Flows Calls Distributed* Flow 2005 $ (180,000) $ $ (180,000) 2006 (400,000) 14,813 (385,187) 2007 (900,000) 0 (900,000) 2008 0 0 0 2009 0 0 0 2010 0 0 0 2011 0 0 0 2012 0 0 0 2013 0 0 0 2014 0 0 0 Total $ (1,480,000) $ 14,813 $ (1,465,187)
2005
TOTAL FUND (6/30/07) Investor Commitments (Mil) Manager Commitments (Mil)
ADAMS COUNTY Capital Commitment Remaining Commitment Value
$505.5 $506.6
$4,000,000 $2,520,000 $1,419,352
Returns Internal Rate of Return Total Value to Paid-In Ratio
Fund N.M. N.M.
Median N.M. N.M.
Quartile Rank N.M. N.M.
Peer Group: Thomson Venture Economics, All Private Equity, Vintage Years 2005-2007 * Adams County's share of late entry charges collected by Mesirow.
Commitments Closed Through August 31, 2007 Venture Capital (25%) Battery Vent VIII Canaan VII DCM V DFJ IX HealthCare Vent VIII JMI Equity VI Latterell Vent Prtnrs III M/C Vent Prtnrs VI Meritech Cap Prtnrs III NEA 12 Opus Cap Vent Prtnrs
Special Situations (17%) Fortress Inv IV, V Fortress Inv IV, V Co-Invest Peninsula IV Sun Capital Prtnrs IV, V TA Sub Debt II TSG5
Buyout (41%) Berkshire Prtnrs VII Blackstone Cap Prtnrs V Brockway Moran III Green Eq Investors V Hellman & Friedman VI Kelso Inv VIII Madison Dearborn V Providence Eq Prtnrs VI Resolute II Spectrum Eq Inv V TA X Thoma Cressey VIII TPG V Vestar Cap Prtnrs V International (17%) Apax Europe VI, VII BC European VIII Charterhouse VIII EQT V Fourth Cinven
13
Adams County Retirement Plan Executive Summary
Mesirow Financial Private Equity Partnership Fund IV, L.P.
Portfolio Summary as of September 30, 2007 Capital Vintage Year TOTAL FUND (6/30/07) Investor Commitments (Mil) Manager Commitments (Mil)
ADAMS COUNTY Capital Commitment Remaining Commitment Value
$212.4 $255.9
$4,500,000 $3,915,000 $530,939
Returns Internal Rate of Return Total Value to Paid-In Ratio
Net Cash
Cash Flows Calls Distributed Flow 2007 (585,000) 0 (585,000) 2008 0 0 0 2009 0 0 0 2010 0 0 0 2011 0 0 0 2012 0 0 0 2013 0 0 0 2014 0 0 0 2015 0 0 0 2016 0 0 0 Total $ (585,000) $ $ (585,000)
2007
Fund N.M. N.M.
Median N.M. N.M.
Quartile Rank N.M. N.M.
Peer Group: Thomson Venture Economics, All Private Equity, Vintage Years 2005-2007
Commitments Closed Through August 31, 2007 Venture Capital (30%) Battery VIII DFJ IX JMI Equity VI
Special Situations (15%) Fortress Inv V Fortress Inv V Co-Invest Sun Capital Prtnrs IV, V TSG5
Buyout (40%) Green Eq Investors V Hellman & Friedman VI Kelso Inv VIII Providence Eq Prtnrs VI Resolute II
International (15%) Apax Europe VII EQT V
14
Capital Markets Volatility rose dramatically
liquidations
among
-2%
quantitative hedge funds drove
-4%
equities lower. The second two
-6%
weeks
of
August
6.6%
0%
July
and
S&P 500
September saw equity markets rally
substantially,
largely
0.8%
2%
1.2%
offs as credit concerns and
-1.5%
4%
1.5%
6%
August experienced sharp sell-
forced
3.7%
8%
0.8%
and the first two weeks of
-0.3%
July
-3.1%
during the third quarter.
Third Quarter 2007 10%
August MSCI AC World ex-US
September Lehman Aggregate
So urce: Ibbo tso n A sso ciates
driven by the Federal Reserve’s decision to cut the federal funds target rate by 50 bps to 4.75%. Domestic equities, as denoted by the S&P 500, underperformed International markets over the quarter. The Lehman Aggregate performed positively across all three months, masking negative returns in the Asset-Backed Securities – Home Equity segment of the index. Both the Standard & Poor’s 500 stock index and the MSCI AC World ex-US index were positive for the quarter, appreciating by 2.0% and 4.7% respectively.
Heightened volatility accompanied
positive third quarter performance, through which the S&P 500 sold off by 9.4% from July 19th through August 15th. US Bonds markets returned 2.9% during the third quarter, as measured by the Lehman Brothers Aggregate Bond index.
S&P 500
MSCI AC World ex-US
Lehman Aggregate
20%
17.9%
16% 12%
9.1%
8% 4%
4.7%
3.8%
2.9%
2.0%
0% Q3 2007
YTD 2007
So urce: Ibbo tso n A sso ciates
15
U.S. Equity Markets
S&P 500 Price Index: Third Quarter 2007
Although
1570
beginning-to-end
performance
1550
for
the
quarter
1530
appeared unspectacular, the third
1510
quarter was marked by a sharp sell-
1490 1470
off in July and August as concerns
1450
about housing filtered into credit and
1430
equity markets. Equities rallied from
1410 1390
Mid-August through quarter-end, as
1370
the Fed cut the discount rate on
1350
August 17th and cut the federal funds
1330
rate by 50 bps on September 18th in
1310 Jun-07
Jul-07
Aug-07
Sep-07
So urce: Standard & P o o r's
an effort to alleviate concerns about systemic risks to the credit markets.
Large cap and growth stocks outperformed their small cap and value counterparts during the third quarter, as investors continued to transition towards a more defensive posture. Furthermore, forced selling by quantitative hedge funds caused extreme performance swings among some segments of the market, contributing generally to underperformance in small caps and value.
Russell Indexes: Third Quarter 2007 12% 8% 4%
5.2% 3.0%
1.0%
2.2%
0.0%
0%
-0.4%
-4%
-3.1%
-3.6%
-8%
-6.3%
-12% Russell Top 200® (Large)
Russell Midcap®
Russell 2000® (Small)
Top 200® Top 200® Growth Value
Midcap® Growth
Midcap® Value
2000® Growth
2000® Value
So urce: Ibbo tso n A sso ciates
16
International Equity Markets MSCI Indexes: Third Quarter 2007 20%
14.5%
13.4%
15%
12.6% 9.8%
10%
4.7% 5%
2.2%
1.7%
0.2% 0%
-2.3%
-2.5%
-5%
-0.8%
-7.6%
-10% AC World ex-U.S.
EAFE (net)
Europe
US Dollar
Japan
Pacific ex-Japan
Emerging Markets
Local Currency
So urce: M SCI
The U.S. dollar depreciated relative to most currencies above, enhancing returns on a dollar basis. Japan was the worst performer, as concerns about the effects of a potential global economic slowdown and Yen appreciation weighed on equity markets. Europe depreciated (in local terms), due primarily to US sub-prime exposure in economies. and
select financial institutions and worries about slowing
Pacific ex-Japan
Emerging
Markets
MSCI Indexes: Third Quarter 2007 (Returns in US Dollars)
continued to perform well in response to strong economic growth. China continues to be
6%
a large factor with respect to
4%
both regions.
2%
Returns by style in the EAFE
0%
index displayed similar returns
-2%
to the U.S. market. Large stocks
-4%
outperformed small stocks, and
-6%
growth outperformed value.
4.4% 2.2% 0.1%
-4.4% EAFE
EAFE Small Cap
EAFE Value
EAFE Growth
So urce: M SCI
17
Equity Sector Performance Sector Performance: Third Quarter 2007 S&P 500
MSCI EAFE (Local Currency)
0.1%
-0.3%
-3.5%
-2.0% -5.9%
-5.9%
-10%
-6.3%
-5%
-4.3%
-2.3%
0%
2.0%
4.5%
2.1%
4.9%
6.3%
3.8%
0.9%
5%
1.1%
4.8%
10%
5.9%
9.8%
15%
-15% Consumer Discret.
Consumer Staples
Energy
Financials
Health Care
Industrials
Info. Materials Technology
Telecom. Srvcs.
Utilities
So urce: Ibbo tso n A sso ciates, M SCI
Consumer Discretionary and Financials were the key laggards in both the US and EAFE during the third quarter. Housing and any related knock-on effects, weighed on Consumer Discretionary stocks, amidst falling consumer confidence and fears of an economic slowdown.
Financials performed
negatively largely as a combination of significantly lower reported earnings, negative guidance and credit concerns. Domestically, performance was driven by two primary themes. First, Energy performed well, largely as a result of rising commodity prices. Furthermore, domestic industries with substantial international exposure, such as Information Technology, Industrials and Materials performed well.
18
Fixed Income Markets Treasury Yield Curve
Treasury yields fell during the third quarter,
6%
particularly at the short end of the curve. As
5%
discussed, the Federal Reserve lowered rates The
action resulted from a pronounced flight to quality as investors shied away from risky assets and purchased short-term Treasuries. To
Yield
dramatically during the third quarter.
4% 3% 2%
6/30/07
1%
9/30/07
0%
illustrate the magnitude of the increased risk
0
aversion, Treasury Bill rates fell by over 60 bps
5
10 Maturity (Years)
15
20
So urce: US Treasury Department
on Wednesday, August 15th, representing the largest daily move since the early 1980’s.
The Lehman Aggregate performed well on an absolute basis, despite trailing Treasuries in relative terms. Higher credits performed better, as all credits rated higher than Caa earned positive returns. The Home Equity component of the Asset-Backed Securities portion of the Index performed negatively during the quarter, depreciating by 68 bps.
Lehman Aggregate Bond Index: Third Quarter 2007
Excess Returns over Treasuries: Third Quarter 2007
4% 2.9%
2%
1.4%
1.5%
1%
Basis Points
3%
80 30 -20 -70 -120 -170 -220
-89 -212
-270 -320 -370
0% Total Return
Income Return
So urce: Ibbo tso n A sso ciates
Capital Appreciation
Lehman MBS
Lehman Credit
-347 Lehman High Yield
So urce: Lehman B ro thers
19
Real Estate Markets NCREIF Property Index Returns: Third Quarter 2007
Commercial real estate, measured by the
5%
NCREIF Property Index (National Council of Real 4%
Estate Investment Fiduciaries) produced solid
3.6%
returns for the third quarter, with a total return of
3% 2.3%
3.6%.
2%
Appreciation
was
the
driver
of
performance, accounting for 2.3% of returns,
1.3%
while the Income component contributed 1.3%.
1% 0% Total Return
Income
Appreciation
Returns are preliminary. So urce: NCREIF
Cap rates continued to remain low thanks to solid fundamentals. Solid gains were posted across all property types and geographic regions.
Office continues to post strong returns due to strong
fundamentals and high transaction volume. Geographically, properties in the East and West continue to lead other areas as MSA’s on both coasts are deemed to have desirable demographics.
NPI Property Type & Regional Returns: Third Quarter 2007 7% 6%
4% 3%
4.8%
4.4%
5%
4.0% 3.2%
2.9%
3.6%
3.1%
3.0%
Midwest
South
2.4%
2% 1% 0% Apartment
Hotel
Industrial
Office
Retail
East
West
Returns are preliminary. So urce: NCREIF
20
Hedge Fund Markets Hedge Fund Research Index Returns: Third Quarter 2007 3% 1.7%
2% 1% 0.2%
0.1%
0% -0.3%
-1%
-0.5%
-0.8%
-2% Fund-of-Funds Composite
Convertible Arbitrage
Equity Hedge
Equity Market Neutral
Event-Driven
Fixed Income
Returns are preliminary. So urce: Hedge Fund Research
In many respects, the third quarter was the most volatile for hedge funds since Fall, 1998. Despite the volatility, the Fund of Funds Composite was positive for the quarter, largely as a result of positive performance in the Equity Hedge strategy. A backdrop of events in helpful when evaluating third quarter performance.
Credit concerns
related to sub-prime intensified from June into July, causing notable failures of two Bear Sterns hedge funds and Sowood, all three of which were largely liquidated toward the end of July. Furthermore, markets began to behave erratically from late July into mid-August as some market participants were forced to liquidate large volumes of positions.
A form of contagion spread among quantitatively
based hedge funds, inducing large scale draw-downs across equity and credit markets.
Markets
began to normalize from mid-August through September, recouping some of the losses previously experienced. The action above affected many sub-strategies within the hedge fund space.
Equity Market
Neutral funds were down marginally during the quarter. As a style, Equity Market Neutral tends to invest across similar themes with many of the quantitative funds exposed to similar factors. Fixed Income was also down largely as a function of performance in credit, with underperformance in structured credit, high yield and distressed securities. Event Driven was affected by the factors listed above in addition to negative performance in merger arbitrage, attributed to widening spreads in announced mergers and acquisitions deals.
21
Capital Markets: Trailing Period Returns
Index
Quarter
US Equities S&P 500
Periods Ending September 30, 2007 YTD 1 Yr 3 Yrs 5 Yrs
10 Yrs
2.0% 1.6% 3.0% -0.4% -3.1% -0.2% 4.2% -6.3% 0.0%
9.1% 8.8% 9.3% 9.5% 3.2% 6.0% 12.7% -2.7% 9.4%
16.4% 16.5% 16.6% 17.9% 12.3% 14.5% 19.4% 6.1% 18.9%
13.1% 13.7% 12.4% 17.3% 13.4% 15.3% 12.2% 12.5% 14.1%
15.5% 16.2% 14.2% 20.9% 18.8% 18.1% 13.8% 18.7% 18.7%
6.6% 6.8% 5.8% 10.4% 7.2% 8.8% 4.1% 10.1% 3.7%
4.7% 2.2% 1.7% -1.7% 13.4% 14.5% 0.1% 4.4%
17.9% 13.2% 14.9% 0.4% 33.8% 34.9% 10.1% 17.1%
31.1% 24.9% 28.1% 5.4% 56.4% 58.6% 22.5% 28.2%
26.5% 23.2% 25.3% 14.8% 33.6% 41.3% 24.0% 23.5%
26.3% 23.6% 26.0% 14.8% 32.5% 39.1% 26.3% 21.8%
9.2% 8.0% 10.0% 2.8% 11.2% 11.9% 10.7% 5.8%
Fixed Income LB Aggregate Bond 30-Day Treasury Bills Citigroup 1-10 Yr Treasury Citigroup 10+ Yr Treasury Merrill Lynch TIPS Lehman Government Lehman Credit Lehman Mortgage Lehman High Yield Citigroup Non-US Gvt Citigroup Non-US Gvt (Hedged) JPM Emerging Mkt Debt+
2.9% 1.1% 3.5% 4.9% 4.5% 3.6% 2.1% 2.7% 0.3% 8.1% 2.9% 3.1%
3.8% 3.7% 5.1% 4.0% 6.3% 4.8% 2.9% 3.7% 3.2% 7.3% 2.9% 3.7%
5.1% 5.0% 5.9% 4.5% 4.9% 5.6% 4.2% 5.4% 7.6% 9.5% 3.6% 7.9%
3.9% 4.0% 3.4% 4.6% 4.0% 3.8% 3.5% 4.3% 7.5% 4.8% 4.6% 10.4%
4.1% 2.8% 3.0% 4.5% 5.4% 3.5% 5.0% 4.1% 12.7% 8.0% 4.1% 16.2%
6.0% 3.6% 5.3% 7.2% … 5.9% 6.1% 5.8% 5.9% 5.8% 5.8% 9.6%
Real Estate NAREIT Equity NCREIF Property
2.6% 3.6%
-3.5% 12.2%
5.7% 17.3%
19.0% 18.0%
21.5% 14.8%
12.2% 13.1%
Inflation (CPI-U)
0.1%
3.3%
2.8%
3.2%
2.9%
2.6%
®
Russell Russell Russell Russell
3000 ® Top 200 (Large Cap) MidCap ® 2000 (Small Cap)
Russell Russell Russell Russell
1000 Value ® 1000 Growth ® 2000 Value ® 2000 Growth
®
®
Non-US Equities (In US dollars) MSCI AC World ex. U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex Japan MSCI Emerging Markets MSCI EAFE Value MSCI EAFE Growth
Periods longer than one year are annualized. Source: Ibbotson Associates
22
Capital Markets: Calendar Year Returns Index US Equities S&P 500 ®
Russell 3000
®
Russell Top 200 (Large Cap) ®
Russell MidCap ® Russell 2000 (Small Cap) ®
Russell 1000 Value ®
Russell 1000 Growth ® Russell 2000 Value
2006
2005
2004
2003
2002
2001
15.8% 15.7%
4.9% 10.9% 28.7% -22.1% -11.9% 6.1% 12.0% 31.1% -21.5% -11.5%
2000
1999
1998
-9.1% 21.0% 28.6% -7.5% 20.9% 24.1%
15.5% 3.8% 8.3% 26.7% -23.4% -14.6% -12.1% 21.8% 34.0% 15.3% 12.7% 20.2% 40.1% -16.2% -5.6% 8.3% 18.2% 10.1% 18.4%
4.6% 18.3% 47.3% -20.5%
2.5%
-3.0% 21.3%
-2.6%
22.2% 9.1%
7.1% 16.5% 30.0% -15.5% -5.6% 7.0% 7.4% 15.6% 5.3% 6.3% 29.8% -27.9% -20.4% -22.4% 33.2% 38.7%
23.5%
4.7% 22.3% 46.0% -11.4% 14.0% 22.8%
Russell 2000 Growth
13.3%
4.2% 14.3% 48.5% -30.3%
Non-US Equities (In US dollars) MSCI AC World ex. U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex Japan MSCI Emerging Markets MSCI EAFE Value MSCI EAFE Growth
27.2% 26.3% 34.4% 6.2% 33.2% 32.6% 31.1% 22.7%
30.9% 27.0% 16.2% 63.1% 43.2% 66.4% 24.5% 29.7%
14.5% 20.0% 28.9% 5.1% -6.2% -25.3% 18.1% 22.5%
Fixed Income LB Aggregate Bond 30-Day Treasury Bills Citigroup 1-10 Yr Treasury Citigroup 10+ Yr Treasury Merrill Lynch TIPS Lehman Government Lehman Credit Lehman Mortgage Lehman High Yield Citigroup Non-US Gvt Citigroup Non-US Gvt (Hedged) JPM Emerging Mkt Debt+
4.3% 2.4% 4.3% 4.1% 10.3% 8.4% 11.6% -0.8% 4.8% 3.0% 1.2% 1.0% 1.7% 3.8% 5.9% 4.7% 3.5% 1.6% 2.0% 2.1% 9.2% 8.1% 10.2% 0.5% 1.9% 6.5% 7.7% 2.5% 16.7% 4.2% 20.3% -8.7% 0.5% 2.8% 8.5% 8.3% 17.0% 8.0% 13.2% 2.5% 3.5% 2.6% 3.5% 2.4% 11.5% 7.2% 13.2% -2.3% 4.3% 2.0% 5.3% 7.7% 10.5% 10.4% 9.4% -1.9% 5.2% 2.6% 4.7% 3.1% 8.7% 8.2% 11.2% 1.9% 11.9% 2.7% 11.1% 29.0% -1.4% 5.3% -5.9% 2.4% 6.9% -9.2% 12.1% 18.5% 22.0% -3.5% -2.6% -5.1% 3.1% 5.7% 5.2% 1.9% 6.9% 6.1% 9.6% 2.9% 10.5% 11.9% 11.8% 28.8% 14.2% -0.8% 15.6% 26.0%
8.7% 4.9% 8.6% 13.5% 3.9% 9.9% 8.6% 7.0% 1.9% 17.8% 11.5% -14.4%
Real Estate NAREIT Equity NCREIF Property
35.1% 12.2% 31.6% 37.1% 16.6% 20.1% 14.5% 9.0%
®
Inflation (CPI-U)
2.5%
17.1% 13.5% 9.9% 25.6% 14.8% 34.5% 14.4% 13.6%
3.4%
21.4% 20.3% 21.4% 16.2% 29.6% 26.0% 24.9% 16.5%
3.3%
41.4% 38.6% 39.1% 36.0% 47.0% 56.3% 46.0% 32.5%
1.9%
-14.7% -15.9% -18.1% -9.8% -5.8% -6.0% -15.6% -15.8%
-1.5%
-6.5%
-9.2% -22.4% 43.1%
1.2%
-19.5% -21.4% -19.6% -29.5% -9.4% -2.4% -18.2% -24.4%
-15.1% -14.2% -8.1% -28.3% -15.2% -30.6% -2.8% -24.4%
3.8% 13.9% 26.4% -4.6% -17.5% 6.8% 7.3% 12.3% 11.4% 16.3% 2.3%
1.6%
3.4%
2.7%
1.6%
Source: Ibbotson Associates
23
Investment Performance Evaluation Report September 30, 2007
As Prepared By
Adams County Retirement Plan Executive Summary Asset Allocation $202,852,123
Hedge Fund-offunds, 9.1%
Cash, 0.8%
Real Estate, 11.3% U.S. Equity, 41.1%
Fixed Income, 16.6%
International Equity, 20.1%
Private Equity, 1.0%
3rd Qtr Benchmark Year % of Total Return Return to Date Total Plan 100.0% 2.2% 2.5% 9.5% Operating Account 0.4% … … … DIA Fixed Income 8.4% 2.5% 3.0% 3.6% PIMCO Total Return 8.3% 4.6% 2.9% 5.0% SSgA S&P 500 Index 32.5% 2.1% 2.1% 9.2% TimesSquare Capital Mgmt 4.7% 1.8% 2.1% 11.8% -2.2% -6.3% 4.9% Thompson, Siegel & Walmsley 4.1% AllianceBernstein ACWI Value 10.3% 1.8% 4.7% 15.5% Frontegra New Star Int'l Equity 9.7% 2.9% 2.2% 16.7% Grosvenor Institutional Ptrs 9.1% -0.2% -0.4% 8.0% Principal Financial Group 11.3% 4.8% 3.8% 12.1% Mesirow Financial P/E Ptrshp Fd III 0.7% … … … Mesirow Financial P/E Ptrshp Fd IV 0.3% … … …
Benchmark Ahead Return of Index 9.1% √ … 4.0% 3.8% √ 9.2% = 13.3% -2.7% √ 17.9% 13.2% √ 6.1% √ 12.6% … …
1
Adams County Retirement Plan Executive Summary
CAPITAL MARKET RETURNS Third Quarter 2007
US EQUITIES S&P 500 Russell Top 200® (Lrg Cap) Russell MidCap® Russell 2000 ® (Sml Cap)
NON-US EQUITIES MSCI AC World MSCI AC World ex U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex-Japan MSCI Emerging Markets MSCI EAFE Small Cap MSCI EAFE Value MSCI EAFE Growth
Market 2.0% 3.0% -0.4% -3.1%
Value
Growth
1.0% -3.6% -6.3%
5.3% 2.2% 0.0%
US$ 3.6% 4.7% 2.2% 1.7% -0.8% 13.4% 14.5% -4.4% 0.1% 4.4%
Local 1.1% 0.2% -2.5% -2.3% -7.6% 9.8% 1 2.6% -9.0% -4.5% -0.5%
Currency 2.5% 4.4% 4.7% 4.0% 6.8% 3.6% 1.9% 4.6% 4.6% 4.8%
NCREIF 3.6%
NAREIT 2.6%
REAL ESTATE
FIXED INCOME Lehman Aggregate
Total 2.8%
Excess -0.9%
T-Bills Lehman Intermediate Treasury Lehman Long Treasury
1.1% 3.6% 4.9%
… … …
Lehman US TIPS Lehman US Treasury Lehman US Agency Lehman US Mortgage-Backed Lehman US Commercial MBS Lehman US Asset-Backed Lehman US Corporate Lehman US High Yield Lehman Majors ex-US Lehman Majors ex-US (Hedged) Lehman Emerging Markets
4.5% 3.8% 3.2% 2.6% 2.8% 1.4% 1.8% 0.3% 8.2% 2.9% 2.0%
… … -0.1% -0.9% -1.3% -1.7% -2.4% -3.6% 3.9% -1.2% -2.3%
HEDGE FUNDS HFRI Fund-of-Funds
Composite Conservative 0.2% 0.6%
Calendar Year-to-Date 2007
US EQUITIES S&P 500 Russell Top 200® (Lrg Cap) Russell MidCap® Russell 2000 ® (Sml Cap)
NON-US EQUITIES MSCI AC World MSCI AC World ex U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex-Japan MSCI Emerging Markets MSCI EAFE Small Cap MSCI EAFE Value MSCI EAFE Growth
REAL ESTATE
Market 9.1% 9.3% 9.5% 3.2%
Value
Growth
6.4% 4.8% -2.7%
12.5% 13.4% 9.4%
US$ 14.1% 17.9% 13.2% 14.9% 2.1% 33.8% 34.8% 6.9% 10.1% 17.1%
Local 10.2% 10.9% 6.7% 8.1% -1.5% 23.2% 29.8% 0.8% 3.9% 10.4%
Currency 3.9% 7.0% 6.5% 6.8% 3.5% 10.6% 5.1% 6.1% 6.2% 6.8%
NCREIF 12.2%
NAREIT -3.5%
FIXED INCOME Lehman Aggregate
Total 3.8%
Excess -1.2%
T-Bills Lehman Intermediate Treasury Lehman Long Treasury
3.7% 5.1% 3.9%
… … …
Lehman US TIPS Lehman US Treasury Lehman US Agency Lehman US Mortgage-Backed Lehman US Commercial MBS Lehman US Asset-Backed Lehman US Corporate Lehman US High Yield Lehman Majors ex-US Lehman Majors ex-US (Hedged) Lehman Emerging Markets
6.3% 4.9% 4.5% 3.7% 3.3% 3.0% 2.5% 3.2% 7.0% 3.0% 3.1%
… … -0.4% -1.5% -2.0% -2.1% -2.4% -2.1% 2.2% -1.8% -1.7%
HEDGE FUNDS HFRI Fund-of-Funds
Composite Conservative 8.1% 7.1%
Sources: Ibbotson Associates, MSCI, Lehman Brothers
2
Adams County Retirement Plan Executive Summary
Asset Allocation As of September 30, 2007
Cash & Equiv Operating Account DIA Fixed Income
$
U.S. Stocks
Int'l Stocks
Hedge FOF
Percent Total of Total
Real Estate Private Equity
790,915
790,915
0.4%
262,371 $ 16,748,705
17,011,076
8.4%
16,906,415
16,906,415
8.3%
65,983,191
65,983,264
32.5%
PIMCO Total Return SSgA S&P 500 Index
Fixed Income
$
73
$
TimesSquare Capital Mgmt
401,935
9,155,717
9,557,652
4.7%
Thompson Siegel & Walmsley
249,325
8,152,391
8,401,716
4.1%
AllianceBernstein ACWI Value
1,343
$ 20,976,264
20,977,607
10.3%
Frontegra New Star Int'l Equity
1,086
19,773,452
19,774,538
9.7%
18,551,744
9.1%
22,946,850
11.3%
1,419,352
1,419,408
0.7%
530,939
530,939
0.3%
Grosvenor Institutional Ptrs
$ 18,551,744
Principal Financial Group Mesirow Financial P/E Ptrshp Fd III
$ 22,946,850 56
Mesirow Financial P/E Ptrshp Fd IV Total Adams County Percent of Total Target Allocation Allowable Ranges
$ $1,707,104 0.8%
$33,655,120
$ 83,291,299
$40,749,715
$18,551,744
$22,946,850
$ 1,950,291
16.6%
41.1%
20.1%
9.1%
11.3%
1.0%
20% 15-25%
37.5% 32.5-42.5%
20% 15-25%
10% 5-15%
10% 5-15%
2.5% 0-5%
$ 202,852,123 100.0%
3
Adams County Retirement Plan Executive Summary
Growth of Assets As of September 30, 2007 Beginning Balance
3rd Quarter SSgA S&P 500 Index
$
Net Cash Flow
65,675,558
$
Net Investment Return
-992,309
$
1,300,016
Ending Balance $
65,983,264
TimesSquare Capital Mgmt
9,375,191
18,552
163,909
9,557,652
Thompson Siegel & Walmsley
8,575,898
17,842
-192,024
8,401,716
DIA Fixed Income
16,587,105
17,014
406,957
17,011,076
PIMCO Total Return
16,165,029
-
741,386
16,906,415
AllianceBernstein ACWI Value
20,568,396
44,883
364,328
20,977,607
Frontegra New Star Int'l Equity
19,213,998
-
560,539
19,774,538
Grosvenor Institutional Ptrs
18,584,784
-
-33,040
18,551,744
Principal US Property
21,893,914
-
1,052,936
22,946,850
Mesirow Financial P/E Ptrshp Fd III
859,407
560,000
1
1,419,408
Mesirow Financial P/E Ptrshp Fd IV
530,939
-
-
530,939
Operating Account
512,557
270,792
7,566
790,915
-63,225
$ 4,372,574
$ 202,852,123
Net Investment Return
Ending Balance
Total Adams County
$ 198,542,775
Calendar YTD 2007
Beginning Balance
SSgA S&P 500 Index
$
$
Net Cash Flow
67,119,158
$
-7,116,426
$
5,980,533
$
65,983,264
TimesSquare Capital Mgmt
8,498,302
54,165
1,005,185
9,557,652
Thompson Siegel & Walmsley
7,957,083
53,584
391,049
8,401,716
DIA Fixed Income
16,370,822
51,461
588,793
17,011,076
PIMCO Total Return
16,108,230
-
798,185
16,906,415
AllianceBernstein ACWI Value
15,155,354
3,400,466
2,421,787
20,977,607
Frontegra New Star Int'l Equity
15,248,777
1,849,793
2,675,968
19,774,538
Grosvenor Institutional Ptrs
17,150,742
-
1,401,002
18,551,744
Principal US Property
20,472,930
-
2,473,920
22,946,850
Mesirow Financial P/E Ptrshp Fd III
553,735
885,117
-19,445
1,419,408
Mesirow Financial P/E Ptrshp Fd IV
-
585,000
-54,061
530,939
1,309,945
-541,928
22,898
790,915
-778,768
$ 17,685,814
$ 202,852,123
Operating Account Total Adams County
$ 185,945,078
$
4
Adams County Retirement Plan Executive Summary
Net of Fees Investment Performance For Periods Ending September 30, 2007 Year
5 Years/
Inception Date
Quarter
to Date
1 Year
3 Years
Since Inception
Total Fund Target Return Custom Index 1 Rank - Public Fund
2.2% 1.9% 2.5% 31
9.5% 5.6% 9.1% 13
15.8% 7.5% 15.4% 16
12.9% 7.5% 12.9% 20
13.3% 7.5% 13.7% 23
5 Years
Total U.S. Equities Russell 3000 Rank - Domestic Equity
1.6% 1.6% 42
8.9% 8.8% 49
16.5% 16.5% 43
14.0% 13.8% 48
16.1% 16.2% 62
5 Years
Total International Equity MSCI EAFE (Net) Rank - International Equity
2.3% 2.2% 65
16.5% 13.2% 28
28.4% 24.9% 31
20.6% 23.2% 82
20.9% 23.6% 73
5 Years
Total Fixed Income Custom Index 2 Rank - Intermed. Fixed Income
3.5% 2.9% 5
4.3% 3.9% 6
5.3% 5.1% 12
4.2% 3.8% 11
4.9% 4.2% 16
5 Years
Total Hedge Fund of Funds HFRI Conservative Fund of Funds Rank - Hedge Fund of Funds
-0.2% -0.4% 47
8.0% 6.1% 40
12.8% 10.2% 49
9.5% 8.0% 53
9.5% 7.5% …
09/30/04
Total Real Estate NCREIF ODCE Equal Weight Rank - Real Estate
4.8% 3.8% 23
12.1% 12.6% 46
16.2% 16.6% 39
17.0% 17.0% 52
17.0% 17.0% …
09/30/04
®
1. Custom Index: 40% Russell 3000 , 20% MSCI All-Country World ex-US, 20% Lehman Aggregate, 10% NCREIF ODCE Equal Weight Index, 10% HFRI Conservative Fund of Funds. 2. Custom Index: 50% Lehman Aggregate, 50% Lehman Gov't/Credit. Periods longer than one year are annualized.
Annual Returns of the Fund (Net of Fees) Through December 31, 2006 Annual Return
Actuarial Return Assumption
30.0% 25.0%
22.5%
20.0%
14.2%
15.0% 10.0%
11.1% 7.5%
8.0%
6.3%
5.0% 0.0% -5.0% -10.0% -15.0%
-10.9% 2002
2003
2004
2005
2006
5 Year Annualized
5
Adams County Retirement Plan Executive Summary
Net of Fees Investment Performance For Periods Ending September 30, 2007 Year
5 Years/
Inception Date
Quarter
to Date
1 Year
3 Years
Since Inception
SSGA S&P 500 Index S&P 500 Rank - Large Cap Blend
2.1% 2.1% 47
9.2% 9.2% 51
16.5% 16.5% 49
13.2% 13.1% 44
10.9% 10.8% …
12/31/03
TimesSquare Capital Mgmt.
1.8% 2.1% 68
11.8% 13.3% 80
20.5% 21.2% 71
… … …
18.2% 15.5% …
06/30/05
-2.2% -6.3% 6
4.9% -2.7% 21
14.0%
6.1% 15
16.8% 12.5% 6
17.3% 12.2% …
12/31/03
Russell 2000 ® Value Rank - Small Cap Value AllianceBernstein ACWI Value
1.8%
15.5%
29.9%
…
26.9%
06/30/06
MSCI All Country World ex - U.S. Rank - International Equity Value
4.7% 29
17.9% 16
31.1% 10
… …
28.1% …
Frontegra New Star Int'l Equity
2.9% 2.2% 80
16.7% 13.2% 54
26.0% 24.9% 73
… … …
20.1% 22.0% …
2.5% 3.0% 40
3.6% 4.0% 24
4.7% 5.1% 35
3.9% 3.7% 18
4.8% 4.2% 18
5 Years
Lehman Govt/Credit Rank - Intermed. Fixed Income PIMCO Total Return
4.6%
5.0%
5.9%
4.4%
5.0%
5 Years
Lehman Aggregate Rank - Intermed. Fixed Income
2.9% 1
3.8% 2
5.1% 5
3.9% 6
4.1% 15
Grosvenor Institutional Partners
-0.2% -0.4% 47
8.0% 6.1% 40
12.8% 10.2% 49
9.5% 8.0% 53
9.5% 8.0% …
09/30/04
4.8% 3.8% 23
12.1% 12.6% 46
16.2% 16.6% 39
17.0% 17.0% 52
17.0% 17.0% …
09/30/04
Russell Mid Cap ® Growth Rank - Mid Cap Growth Thompson Siegel & Walmsley
MSCI EAFE (Net) Rank - International Equity Growth DIA Fixed Income
HFRI Conservative Fund of Funds Rank - Hedge Fund of Fund Principal US Property
NCREIF ODCE Equal Weight Rank - Real Estate
09/30/05
6
Adams County Retirement Plan Executive Summary
Equity Portfolio Characteristics Equity Style Map
S&P 500/ SSgA S&P 500
Large Value
®
Russell 3000
Large Growth
Total Adams County
Russell Mid Cap Growth
®
TimesSquare
TS&W ®
Russell 2000 Value
Small Value
®
Russell 2000
Small Growth
For Periods Ending September 30, 2007 SSgA S&P # of Stocks Wghtd Avg Mkt Cap ($000) Median Mkt Cap ($000) P/E Ratio Dividend Yield 5-Yr Earnings Growth
TimesSquare
Russell Mid ®
TS&W
Russell 2000®
500 501 $109,990 $13,443 17.4 1.9 15.0
Capital Mgmt 74 $7,176 $5,370 27.4 0.8 17.8
Cap Growth 555 $9,621 $4,837 25.7 0.8 16.5
Small Value 85 $1,726 $1,275 20.1 0.7 14.2
Value 1,264 $1,206 $604 24.7 1.9 8.6
11.7% 3.2% 11.5% 9.2% 9.6% 11.7% 19.8% 16.2% 3.8% 3.4%
7.1% 2.0% 17.9% 16.3% 0.6% 23.2% 9.3% 17.3% 6.5% 0.0%
11.1% 4.7% 15.6% 18.5% 4.1% 12.6% 7.9% 19.9% 2.6% 3.0%
9.5% 10.0% 18.7% 11.0% 3.7% 8.4% 21.1% 14.8% 0.0% 2.8%
5.6% 6.8% 13.4% 12.5% 3.6% 5.0% 33.0% 13.2% 1.7% 5.3%
Sectors:
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecomm. Services Utilities
7
Adams County Retirement Plan Executive Summary
Equity Portfolio Characteristics As of September 30, 2007 Total Adams County
Russell 3000®
660 $88,102 $9,356 18.4 1.6 15.2
2,921 $89,014 $1,204 18.8 1.7 14.6
# of Stocks Wghtd Avg Mkt Cap ($mil) Median Mkt Cap ($mil) P/E Ratio Dividend Yield 5-Yr Earnings Growth
Sector Allocation As of September 30th, 2007 35%
30%
12.6% 11.6%
3.0% 3.7%
5%
3.7% 3.5%
8.0% 8.3%
3.7% 3.8%
10%
10.2% 10.6%
11.0% 10.9%
15%
12.9% 12.1%
20%
16.2% 16.0%
18.8% 19.5%
25%
Telecomm Svcs
Utilities
0% Energy
Materials
Industrials
Consumer Consumer .Disc Staples
Total Adams County
Health Care
Financials
Info Tech
Russell 3000®
8
Adams County Retirement Plan Executive Summary
International Equity Portfolio Characteristics Country Allocation as of September 30, 2007 60%
Pacific Basin/Asia
AllianceBernstein
Euro Currency Other Europe
MSCI ACWI
Canada
Frontegra New Star
Emerging Mkts
1.2% 0.0% 1.0% 0.0%
5.0% 0.0%
0% Japan
20.1% 17.9% 4.7% 6.4% 0.0% 0.0%
10%
14.0% 10.0%
20%
2.9% 7.6%
30%
18.9% 15.6% 18.0% 20.6%
40%
20.3% 25.4% 26.4% 33.5%
32.0% 27.2% 35.7% 35.9%
50%
Cash & Equiv
MSCI EAFE Index
Sector Allocation as of September 30, 2007
# of Stocks Wghtd Avg Mkt Cap ($000) Median Mkt Cap ($000) P/E Ratio Dividend Yield 4-Yr Earnings Growth
Alliance Bernstein 113 $57,707 $20,505 12.5 3.0 23.9
MSCI ACWI ex US 2,087 $57,530 $4,771 16.1 2.5 21.5
Frontegra New Star 109 $61,542 $27,641 15.9 2.4 19.3
MSCI EAFE 1,137 $63,160 $6,171 15.2 2.7 20.6
12.6% 0.9% 27.1% 4.8% 0.7% 4.1% 30.7% 9.0% 4.5%
10.2% 11.5% 11.2% 9.7% 7.0% 5.1% 26.9% 6.9% 6.6%
9.8% 7.8% 13.0% 13.5% 3.7% 6.4% 26.6% 9.8% 5.8%
7.5% 9.9% 12.1% 11.2% 8.0% 6.3% 27.9% 5.9% 5.8%
5.5%
4.8%
3.8%
5.4%
Sectors:
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecomm. Services Utilities
9
Adams County Retirement Plan Executive Summary
Fixed Income Characteristics As of September 30, 2007
Effective Duration (years) Average Quality Yield to Maturity Effective Maturity (years)
DIA Lehman PIMCO Lehman Fixed Income Govt/Credit Total Return Aggregate 5.0 5.2 5.3 4.6 AA AA+ AA AA+ 5.4% 5.0% 5.4% 5.3% 6.9 7.9 6.6 7.3
Quality Rating Allocation
60%
58.4% 64.2% 64.0%
80%
79.4%
100%
BAA
DIA
Lehman Govt/Credit
1.1% 0.0% 0.0% 0.0%
A
0.0% 0.0% 1.0% 0.0%
AAA
0.0% 0.0% 0.0% 0.0%
15.8% 13.6% 3.0% 7.5%
AA
0%
0.0% 0.0% 9.0% 0.0%
18.0% 13.5% 7.0% 7.8%
20%
6.7% 8.8% 16.0% 5.3%
40%
≤BA
A1/P1
Other
Cash
PIMCO Total Return
Lehman Aggregate
Sector Allocation 100%
Other
17.0%
Non US$ Develop
0.0%
0.0% 0.0% 7.0% 5.7%
Asset Backed
1.1% 0.0%
0.0% 0.0% 6.0% 0.0%
38.1%
30.0% 0.0%
7.2% 0.0% 0.0% 0.9%
-20%
-1.0%
0%
13.0% 22.3%
20%
40.1% 40.4%
33.0%
40%
21.6%
60%
58.0%
59.7%
80%
Government
Credit
Mortgage
Cash Investment
10
Adams County Retirement Plan Executive Summary
Portfolio Characteristics – Real Estate As of September 30, 2007
Principal U.S. Property Gross Asset Value Net Asset Value Leverage Ratio Number of Investments Number of Markets Portfolio Occupancy
$7.6 Billion $6.2 Billion 15% 152 47 90%
1.0%
10%
2.5%
16.0%
20%
15.5%
15.0%
23.0%
30%
26.0%
40%
21.9%
42.0%
50%
37.1%
By Property Type
0% Residential
Industrial
Office
Retail
Principal U.S. Property
NCREIF Index
Hotel
By Geographic Region
10%
10.0%
20%
13.0%
16.0%
30%
21.1%
33.8%
40%
23.0%
50%
35.0%
60%
48.0%
70%
0% West
East
South
Midwest
11
Adams County Retirement Plan Executive Summary
Hedge Fund Portfolio Characteristics As of September 30, 2007 Grosvenor Institutional Partners Overall Fund Size
$4.8 Billion
Aggregate Fund Leverage
2.24
Number of Investment Programs
65
Percent Held by Top 15 Investment Programs
39.2%
Average Underlying Manager Assets Managed
$8.4 Billion
Investment Strategy Allocation 100% 80% 60% 40% 20% 0% Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Relative Value
Event-Driven
Credit
Multi-Strategy Arbitrage
U.S. Hedged Equities
Non-U.S. Hedged Equities
Global Hedged Equities
Short Selling
Cash/Other
Sep-07
Geographic Market Allocation 100% 80% 60% 40% 20% 0% Mar-05
Jun-05 Japan
Sep-05
Dec-05
Mar-06
Asia (ex-Japan)
Europe
Jun-06
Sep-06
Emerging Mkts
Dec-06 U.S.
Mar-07
Global
Jun-07
Sep-07
Cash/Other
12
Adams County Retirement Plan Executive Summary
Private Equity Portfolio Characteristics Mesirow Financial Private Equity Partnership Fund III, L.P. Portfolio Summary as of September 30, 2007
Vintage Year
Capital Net Cash Cash Flows Calls Distributed* Flow 2005 $ (180,000) $ $ (180,000) 2006 (400,000) 14,813 (385,187) 2007 (900,000) 0 (900,000) 2008 0 0 0 2009 0 0 0 2010 0 0 0 2011 0 0 0 2012 0 0 0 2013 0 0 0 2014 0 0 0 Total $ (1,480,000) $ 14,813 $ (1,465,187)
2005
TOTAL FUND (6/30/07) Investor Commitments (Mil) Manager Commitments (Mil)
ADAMS COUNTY Capital Commitment Remaining Commitment Value
$505.5 $506.6
$4,000,000 $2,520,000 $1,419,352
Returns Internal Rate of Return Total Value to Paid-In Ratio
Fund N.M. N.M.
Median N.M. N.M.
Quartile Rank N.M. N.M.
Peer Group: Thomson Venture Economics, All Private Equity, Vintage Years 2005-2007 * Adams County's share of late entry charges collected by Mesirow.
Commitments Closed Through August 31, 2007 Venture Capital (25%) Battery Vent VIII Canaan VII DCM V DFJ IX HealthCare Vent VIII JMI Equity VI Latterell Vent Prtnrs III M/C Vent Prtnrs VI Meritech Cap Prtnrs III NEA 12 Opus Cap Vent Prtnrs
Special Situations (17%) Fortress Inv IV, V Fortress Inv IV, V Co-Invest Peninsula IV Sun Capital Prtnrs IV, V TA Sub Debt II TSG5
Buyout (41%) Berkshire Prtnrs VII Blackstone Cap Prtnrs V Brockway Moran III Green Eq Investors V Hellman & Friedman VI Kelso Inv VIII Madison Dearborn V Providence Eq Prtnrs VI Resolute II Spectrum Eq Inv V TA X Thoma Cressey VIII TPG V Vestar Cap Prtnrs V International (17%) Apax Europe VI, VII BC European VIII Charterhouse VIII EQT V Fourth Cinven
13
Adams County Retirement Plan Executive Summary
Mesirow Financial Private Equity Partnership Fund IV, L.P.
Portfolio Summary as of September 30, 2007 Capital Vintage Year TOTAL FUND (6/30/07) Investor Commitments (Mil) Manager Commitments (Mil)
ADAMS COUNTY Capital Commitment Remaining Commitment Value
$212.4 $255.9
$4,500,000 $3,915,000 $530,939
Returns Internal Rate of Return Total Value to Paid-In Ratio
Net Cash
Cash Flows Calls Distributed Flow 2007 (585,000) 0 (585,000) 2008 0 0 0 2009 0 0 0 2010 0 0 0 2011 0 0 0 2012 0 0 0 2013 0 0 0 2014 0 0 0 2015 0 0 0 2016 0 0 0 Total $ (585,000) $ $ (585,000)
2007
Fund N.M. N.M.
Median N.M. N.M.
Quartile Rank N.M. N.M.
Peer Group: Thomson Venture Economics, All Private Equity, Vintage Years 2005-2007
Commitments Closed Through August 31, 2007 Venture Capital (30%) Battery VIII DFJ IX JMI Equity VI
Special Situations (15%) Fortress Inv V Fortress Inv V Co-Invest Sun Capital Prtnrs IV, V TSG5
Buyout (40%) Green Eq Investors V Hellman & Friedman VI Kelso Inv VIII Providence Eq Prtnrs VI Resolute II
International (15%) Apax Europe VII EQT V
14
Capital Markets Volatility rose dramatically
liquidations
among
-2%
quantitative hedge funds drove
-4%
equities lower. The second two
-6%
weeks
of
August
6.6%
0%
July
and
S&P 500
September saw equity markets rally
substantially,
largely
0.8%
2%
1.2%
offs as credit concerns and
-1.5%
4%
1.5%
6%
August experienced sharp sell-
forced
3.7%
8%
0.8%
and the first two weeks of
-0.3%
July
-3.1%
during the third quarter.
Third Quarter 2007 10%
August MSCI AC World ex-US
September Lehman Aggregate
So urce: Ibbo tso n A sso ciates
driven by the Federal Reserve’s decision to cut the federal funds target rate by 50 bps to 4.75%. Domestic equities, as denoted by the S&P 500, underperformed International markets over the quarter. The Lehman Aggregate performed positively across all three months, masking negative returns in the Asset-Backed Securities – Home Equity segment of the index. Both the Standard & Poor’s 500 stock index and the MSCI AC World ex-US index were positive for the quarter, appreciating by 2.0% and 4.7% respectively.
Heightened volatility accompanied
positive third quarter performance, through which the S&P 500 sold off by 9.4% from July 19th through August 15th. US Bonds markets returned 2.9% during the third quarter, as measured by the Lehman Brothers Aggregate Bond index.
S&P 500
MSCI AC World ex-US
Lehman Aggregate
20%
17.9%
16% 12%
9.1%
8% 4%
4.7%
3.8%
2.9%
2.0%
0% Q3 2007
YTD 2007
So urce: Ibbo tso n A sso ciates
15
U.S. Equity Markets
S&P 500 Price Index: Third Quarter 2007
Although
1570
beginning-to-end
performance
1550
for
the
quarter
1530
appeared unspectacular, the third
1510
quarter was marked by a sharp sell-
1490 1470
off in July and August as concerns
1450
about housing filtered into credit and
1430
equity markets. Equities rallied from
1410 1390
Mid-August through quarter-end, as
1370
the Fed cut the discount rate on
1350
August 17th and cut the federal funds
1330
rate by 50 bps on September 18th in
1310 Jun-07
Jul-07
Aug-07
Sep-07
So urce: Standard & P o o r's
an effort to alleviate concerns about systemic risks to the credit markets.
Large cap and growth stocks outperformed their small cap and value counterparts during the third quarter, as investors continued to transition towards a more defensive posture. Furthermore, forced selling by quantitative hedge funds caused extreme performance swings among some segments of the market, contributing generally to underperformance in small caps and value.
Russell Indexes: Third Quarter 2007 12% 8% 4%
5.2% 3.0%
1.0%
2.2%
0.0%
0%
-0.4%
-4%
-3.1%
-3.6%
-8%
-6.3%
-12% Russell Top 200® (Large)
Russell Midcap®
Russell 2000® (Small)
Top 200® Top 200® Growth Value
Midcap® Growth
Midcap® Value
2000® Growth
2000® Value
So urce: Ibbo tso n A sso ciates
16
International Equity Markets MSCI Indexes: Third Quarter 2007 20%
14.5%
13.4%
15%
12.6% 9.8%
10%
4.7% 5%
2.2%
1.7%
0.2% 0%
-2.3%
-2.5%
-5%
-0.8%
-7.6%
-10% AC World ex-U.S.
EAFE (net)
Europe
US Dollar
Japan
Pacific ex-Japan
Emerging Markets
Local Currency
So urce: M SCI
The U.S. dollar depreciated relative to most currencies above, enhancing returns on a dollar basis. Japan was the worst performer, as concerns about the effects of a potential global economic slowdown and Yen appreciation weighed on equity markets. Europe depreciated (in local terms), due primarily to US sub-prime exposure in economies. and
select financial institutions and worries about slowing
Pacific ex-Japan
Emerging
Markets
MSCI Indexes: Third Quarter 2007 (Returns in US Dollars)
continued to perform well in response to strong economic growth. China continues to be
6%
a large factor with respect to
4%
both regions.
2%
Returns by style in the EAFE
0%
index displayed similar returns
-2%
to the U.S. market. Large stocks
-4%
outperformed small stocks, and
-6%
growth outperformed value.
4.4% 2.2% 0.1%
-4.4% EAFE
EAFE Small Cap
EAFE Value
EAFE Growth
So urce: M SCI
17
Equity Sector Performance Sector Performance: Third Quarter 2007 S&P 500
MSCI EAFE (Local Currency)
0.1%
-0.3%
-3.5%
-2.0% -5.9%
-5.9%
-10%
-6.3%
-5%
-4.3%
-2.3%
0%
2.0%
4.5%
2.1%
4.9%
6.3%
3.8%
0.9%
5%
1.1%
4.8%
10%
5.9%
9.8%
15%
-15% Consumer Discret.
Consumer Staples
Energy
Financials
Health Care
Industrials
Info. Materials Technology
Telecom. Srvcs.
Utilities
So urce: Ibbo tso n A sso ciates, M SCI
Consumer Discretionary and Financials were the key laggards in both the US and EAFE during the third quarter. Housing and any related knock-on effects, weighed on Consumer Discretionary stocks, amidst falling consumer confidence and fears of an economic slowdown.
Financials performed
negatively largely as a combination of significantly lower reported earnings, negative guidance and credit concerns. Domestically, performance was driven by two primary themes. First, Energy performed well, largely as a result of rising commodity prices. Furthermore, domestic industries with substantial international exposure, such as Information Technology, Industrials and Materials performed well.
18
Fixed Income Markets Treasury Yield Curve
Treasury yields fell during the third quarter,
6%
particularly at the short end of the curve. As
5%
discussed, the Federal Reserve lowered rates The
action resulted from a pronounced flight to quality as investors shied away from risky assets and purchased short-term Treasuries. To
Yield
dramatically during the third quarter.
4% 3% 2%
6/30/07
1%
9/30/07
0%
illustrate the magnitude of the increased risk
0
aversion, Treasury Bill rates fell by over 60 bps
5
10 Maturity (Years)
15
20
So urce: US Treasury Department
on Wednesday, August 15th, representing the largest daily move since the early 1980’s.
The Lehman Aggregate performed well on an absolute basis, despite trailing Treasuries in relative terms. Higher credits performed better, as all credits rated higher than Caa earned positive returns. The Home Equity component of the Asset-Backed Securities portion of the Index performed negatively during the quarter, depreciating by 68 bps.
Lehman Aggregate Bond Index: Third Quarter 2007
Excess Returns over Treasuries: Third Quarter 2007
4% 2.9%
2%
1.4%
1.5%
1%
Basis Points
3%
80 30 -20 -70 -120 -170 -220
-89 -212
-270 -320 -370
0% Total Return
Income Return
So urce: Ibbo tso n A sso ciates
Capital Appreciation
Lehman MBS
Lehman Credit
-347 Lehman High Yield
So urce: Lehman B ro thers
19
Real Estate Markets NCREIF Property Index Returns: Third Quarter 2007
Commercial real estate, measured by the
5%
NCREIF Property Index (National Council of Real 4%
Estate Investment Fiduciaries) produced solid
3.6%
returns for the third quarter, with a total return of
3% 2.3%
3.6%.
2%
Appreciation
was
the
driver
of
performance, accounting for 2.3% of returns,
1.3%
while the Income component contributed 1.3%.
1% 0% Total Return
Income
Appreciation
Returns are preliminary. So urce: NCREIF
Cap rates continued to remain low thanks to solid fundamentals. Solid gains were posted across all property types and geographic regions.
Office continues to post strong returns due to strong
fundamentals and high transaction volume. Geographically, properties in the East and West continue to lead other areas as MSA’s on both coasts are deemed to have desirable demographics.
NPI Property Type & Regional Returns: Third Quarter 2007 7% 6%
4% 3%
4.8%
4.4%
5%
4.0% 3.2%
2.9%
3.6%
3.1%
3.0%
Midwest
South
2.4%
2% 1% 0% Apartment
Hotel
Industrial
Office
Retail
East
West
Returns are preliminary. So urce: NCREIF
20
Hedge Fund Markets Hedge Fund Research Index Returns: Third Quarter 2007 3% 1.7%
2% 1% 0.2%
0.1%
0% -0.3%
-1%
-0.5%
-0.8%
-2% Fund-of-Funds Composite
Convertible Arbitrage
Equity Hedge
Equity Market Neutral
Event-Driven
Fixed Income
Returns are preliminary. So urce: Hedge Fund Research
In many respects, the third quarter was the most volatile for hedge funds since Fall, 1998. Despite the volatility, the Fund of Funds Composite was positive for the quarter, largely as a result of positive performance in the Equity Hedge strategy. A backdrop of events in helpful when evaluating third quarter performance.
Credit concerns
related to sub-prime intensified from June into July, causing notable failures of two Bear Sterns hedge funds and Sowood, all three of which were largely liquidated toward the end of July. Furthermore, markets began to behave erratically from late July into mid-August as some market participants were forced to liquidate large volumes of positions.
A form of contagion spread among quantitatively
based hedge funds, inducing large scale draw-downs across equity and credit markets.
Markets
began to normalize from mid-August through September, recouping some of the losses previously experienced. The action above affected many sub-strategies within the hedge fund space.
Equity Market
Neutral funds were down marginally during the quarter. As a style, Equity Market Neutral tends to invest across similar themes with many of the quantitative funds exposed to similar factors. Fixed Income was also down largely as a function of performance in credit, with underperformance in structured credit, high yield and distressed securities. Event Driven was affected by the factors listed above in addition to negative performance in merger arbitrage, attributed to widening spreads in announced mergers and acquisitions deals.
21
Capital Markets: Trailing Period Returns
Index
Quarter
US Equities S&P 500
Periods Ending September 30, 2007 YTD 1 Yr 3 Yrs 5 Yrs
10 Yrs
2.0% 1.6% 3.0% -0.4% -3.1% -0.2% 4.2% -6.3% 0.0%
9.1% 8.8% 9.3% 9.5% 3.2% 6.0% 12.7% -2.7% 9.4%
16.4% 16.5% 16.6% 17.9% 12.3% 14.5% 19.4% 6.1% 18.9%
13.1% 13.7% 12.4% 17.3% 13.4% 15.3% 12.2% 12.5% 14.1%
15.5% 16.2% 14.2% 20.9% 18.8% 18.1% 13.8% 18.7% 18.7%
6.6% 6.8% 5.8% 10.4% 7.2% 8.8% 4.1% 10.1% 3.7%
4.7% 2.2% 1.7% -1.7% 13.4% 14.5% 0.1% 4.4%
17.9% 13.2% 14.9% 0.4% 33.8% 34.9% 10.1% 17.1%
31.1% 24.9% 28.1% 5.4% 56.4% 58.6% 22.5% 28.2%
26.5% 23.2% 25.3% 14.8% 33.6% 41.3% 24.0% 23.5%
26.3% 23.6% 26.0% 14.8% 32.5% 39.1% 26.3% 21.8%
9.2% 8.0% 10.0% 2.8% 11.2% 11.9% 10.7% 5.8%
Fixed Income LB Aggregate Bond 30-Day Treasury Bills Citigroup 1-10 Yr Treasury Citigroup 10+ Yr Treasury Merrill Lynch TIPS Lehman Government Lehman Credit Lehman Mortgage Lehman High Yield Citigroup Non-US Gvt Citigroup Non-US Gvt (Hedged) JPM Emerging Mkt Debt+
2.9% 1.1% 3.5% 4.9% 4.5% 3.6% 2.1% 2.7% 0.3% 8.1% 2.9% 3.1%
3.8% 3.7% 5.1% 4.0% 6.3% 4.8% 2.9% 3.7% 3.2% 7.3% 2.9% 3.7%
5.1% 5.0% 5.9% 4.5% 4.9% 5.6% 4.2% 5.4% 7.6% 9.5% 3.6% 7.9%
3.9% 4.0% 3.4% 4.6% 4.0% 3.8% 3.5% 4.3% 7.5% 4.8% 4.6% 10.4%
4.1% 2.8% 3.0% 4.5% 5.4% 3.5% 5.0% 4.1% 12.7% 8.0% 4.1% 16.2%
6.0% 3.6% 5.3% 7.2% … 5.9% 6.1% 5.8% 5.9% 5.8% 5.8% 9.6%
Real Estate NAREIT Equity NCREIF Property
2.6% 3.6%
-3.5% 12.2%
5.7% 17.3%
19.0% 18.0%
21.5% 14.8%
12.2% 13.1%
Inflation (CPI-U)
0.1%
3.3%
2.8%
3.2%
2.9%
2.6%
®
Russell Russell Russell Russell
3000 ® Top 200 (Large Cap) MidCap ® 2000 (Small Cap)
Russell Russell Russell Russell
1000 Value ® 1000 Growth ® 2000 Value ® 2000 Growth
®
®
Non-US Equities (In US dollars) MSCI AC World ex. U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex Japan MSCI Emerging Markets MSCI EAFE Value MSCI EAFE Growth
Periods longer than one year are annualized. Source: Ibbotson Associates
22
Capital Markets: Calendar Year Returns Index US Equities S&P 500 ®
Russell 3000
®
Russell Top 200 (Large Cap) ®
Russell MidCap ® Russell 2000 (Small Cap) ®
Russell 1000 Value ®
Russell 1000 Growth ® Russell 2000 Value
2006
2005
2004
2003
2002
2001
15.8% 15.7%
4.9% 10.9% 28.7% -22.1% -11.9% 6.1% 12.0% 31.1% -21.5% -11.5%
2000
1999
1998
-9.1% 21.0% 28.6% -7.5% 20.9% 24.1%
15.5% 3.8% 8.3% 26.7% -23.4% -14.6% -12.1% 21.8% 34.0% 15.3% 12.7% 20.2% 40.1% -16.2% -5.6% 8.3% 18.2% 10.1% 18.4%
4.6% 18.3% 47.3% -20.5%
2.5%
-3.0% 21.3%
-2.6%
22.2% 9.1%
7.1% 16.5% 30.0% -15.5% -5.6% 7.0% 7.4% 15.6% 5.3% 6.3% 29.8% -27.9% -20.4% -22.4% 33.2% 38.7%
23.5%
4.7% 22.3% 46.0% -11.4% 14.0% 22.8%
Russell 2000 Growth
13.3%
4.2% 14.3% 48.5% -30.3%
Non-US Equities (In US dollars) MSCI AC World ex. U.S. MSCI EAFE (net) MSCI Europe MSCI Japan MSCI Pacific ex Japan MSCI Emerging Markets MSCI EAFE Value MSCI EAFE Growth
27.2% 26.3% 34.4% 6.2% 33.2% 32.6% 31.1% 22.7%
30.9% 27.0% 16.2% 63.1% 43.2% 66.4% 24.5% 29.7%
14.5% 20.0% 28.9% 5.1% -6.2% -25.3% 18.1% 22.5%
Fixed Income LB Aggregate Bond 30-Day Treasury Bills Citigroup 1-10 Yr Treasury Citigroup 10+ Yr Treasury Merrill Lynch TIPS Lehman Government Lehman Credit Lehman Mortgage Lehman High Yield Citigroup Non-US Gvt Citigroup Non-US Gvt (Hedged) JPM Emerging Mkt Debt+
4.3% 2.4% 4.3% 4.1% 10.3% 8.4% 11.6% -0.8% 4.8% 3.0% 1.2% 1.0% 1.7% 3.8% 5.9% 4.7% 3.5% 1.6% 2.0% 2.1% 9.2% 8.1% 10.2% 0.5% 1.9% 6.5% 7.7% 2.5% 16.7% 4.2% 20.3% -8.7% 0.5% 2.8% 8.5% 8.3% 17.0% 8.0% 13.2% 2.5% 3.5% 2.6% 3.5% 2.4% 11.5% 7.2% 13.2% -2.3% 4.3% 2.0% 5.3% 7.7% 10.5% 10.4% 9.4% -1.9% 5.2% 2.6% 4.7% 3.1% 8.7% 8.2% 11.2% 1.9% 11.9% 2.7% 11.1% 29.0% -1.4% 5.3% -5.9% 2.4% 6.9% -9.2% 12.1% 18.5% 22.0% -3.5% -2.6% -5.1% 3.1% 5.7% 5.2% 1.9% 6.9% 6.1% 9.6% 2.9% 10.5% 11.9% 11.8% 28.8% 14.2% -0.8% 15.6% 26.0%
8.7% 4.9% 8.6% 13.5% 3.9% 9.9% 8.6% 7.0% 1.9% 17.8% 11.5% -14.4%
Real Estate NAREIT Equity NCREIF Property
35.1% 12.2% 31.6% 37.1% 16.6% 20.1% 14.5% 9.0%
®
Inflation (CPI-U)
2.5%
17.1% 13.5% 9.9% 25.6% 14.8% 34.5% 14.4% 13.6%
3.4%
21.4% 20.3% 21.4% 16.2% 29.6% 26.0% 24.9% 16.5%
3.3%
41.4% 38.6% 39.1% 36.0% 47.0% 56.3% 46.0% 32.5%
1.9%
-14.7% -15.9% -18.1% -9.8% -5.8% -6.0% -15.6% -15.8%
-1.5%
-6.5%
-9.2% -22.4% 43.1%
1.2%
-19.5% -21.4% -19.6% -29.5% -9.4% -2.4% -18.2% -24.4%
-15.1% -14.2% -8.1% -28.3% -15.2% -30.6% -2.8% -24.4%
3.8% 13.9% 26.4% -4.6% -17.5% 6.8% 7.3% 12.3% 11.4% 16.3% 2.3%
1.6%
3.4%
2.7%
1.6%
Source: Ibbotson Associates
23
