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Quarterly Metro: 303.713.9400 Toll Free: 800.352.0313 WWW.CCOERA.ORG JANUARY 2001 Global Market Maturity Leads to Addition of New Fund: Janus Overseas WORLDWIDE STOCK MARKET CAPITALIZATION 1980 26% by: Rick Rodgers, Director of Marketing and Client Services 48% 52% 74% In the future, financial historians will probably look back at the last 20 years of the stock market as one of the most significant periods in its history. Prior to the 1980s, most individual investors were satisfied with single-digit, conservative investment returns. Beginning in the 80’s, the period labeled as “the decade of greed,” conservative investments, such as CDs and money market accounts, began paying double-digit returns near 20% annually. Investors grew accustomed to these high returns and began pouring money into JAY 2000 United States Foreign stocks and stock mutual funds stocks at unprecedented rates. investors. Add this to corporations expanding their markets globally to become multi-nationals and you get a true stock market evolution. In the nineties the trend continued, with even more of these historically conservative investors becoming willing to “taste” the market, in pursuit of higher returns. Technology enhanced the trading and information capabilities of both individual and institutional SHOEMAKER’S While all of these topics are pertinent to CCOERA’s evolution, it’s the expanding foreign markets - that is the relative topic for this article. As you can see in the chart above, continued on page 2 QUARTERLY REPORT A Shift in Style Major US stock indexes stumbled through the worst year in many years. The Dow Jones Industrial suffered its worst loss since 1981 (-4.85%), the S&P 500 its worst since 1977 (-9.10) and the NASDAQ its worst-ever (-39.29%). Another measurement of small-cap stocks, the Russell 2000 lost 3.03% this year (and -6.91% for the quarter). Despite this significant loss year, all these indices post at least double-digit returns over the last five years, with the NASDAQ Composite posting a high 18.62%, and the Russell 2000 posting the lowest of the bunch with a five-year return of 10.32%. continued on page 2 Jay Shoemaker, Executive Secretary I N S I D E Janus Overseas Fund Profile T H E R E 3-4 T I 4th Quarter 2001 Investment Results R E M E N T A S S 5 O C I A T I O N NEW FOREIGN FUND: JANUS OVERSEAS continued from cover one of the most significant changes during the past twenty years has been the transformation from a stock market dominated by domestic (US) companies to a more globaloriented market. As a result, there are now more investment opportunities outside the United States than there are within our boundaries. Historically, foreign investments have been regarded as much more aggressive and risky than domestic stocks. But you would probably find a large number of residents in foreign countries that feel a lot more comfortable investing in Nintendo, Phillips Electronics, Nokia, or the like, over a U.S. dot-com stock. One of the reasons for the “risky” label assigned to foreign stock funds is the broad array of stocks contained in their portfolios, everything from the larger, more established multi-nationals, to the unknowns from under-developed nations. While the trend in domestic mutual funds has been to focus on a specific style of stock picking, such as growth versus value, or companies of a particular size (large-cap, midcap, small-cap), many foreign funds have continued to mix styles and capitalization sizes - until recently. As the global market matures, a greater variety of investment opportunities have been presented to us. We are now seeing foreign funds with historically blended approaches beginning to target specific strategies, much like their domestics counterparts. As a result of the changing environment CCOERA has added Janus Overseas to the investment menu to offer participants greater choice with respect to foreign investing. Compariso Janus Over NTT DoCoMo Vodaphone A China Mobile Nokia Telfonos de Check Point Furukawa Ele Nortel Netwo Banco Bibao Tyco For example, the American AAdvantage International Equity Fund (offered to Fund Assets CCOERA participants), has Total Stocks drifted from a blend-style to an absolute “value-only” approach, with a “limited-exposure” policy to emerging markets. “Value-only” refers to the price of the stocks that the managers are permitted to choose for the fund. A Jay Shoemaker’s Quarterly Report: A Shift in Style continued from cover Each of you needs to continue your long-term investing resolution because for most, retirement investing is longer than even a 5-year horizon. Besides investing for the long-term, CCOERA Group Presentations also emphasize diversification. This year is a classic example of the benefits of diversification. Diversification means investing in different asset classes, as well as different types of investment styles. For example, although the major stock market indices shown above experienced losses, bonds had a very good year. The Lehman Brothers Intermediate Government/Corporate index had a positive 10.10% annual return for 2000. CCOERA's bond option, PIMCO's Total Return produced an above-average 11.81%. Further diversification among equity investment styles would also have mitigated losses. The Russell 2000 Value index posted a 22.81% return. CCOERA's small-cap value alternative, Fidelity's Low-Priced Stock Fund nearly equaled these returns with a one-year 18.83% return. Another index, BARRA's large-cap value index had a one-year return of 6.09%. CCOERA's large-cap value fund, Davis NY Venture beat this index with a 9.92% return. Our mid-cap value alternative, MAS Mid-cap Value bettered Davis' performance with a 11.59% return. As you assess the performance of your account, and the various CCOERA investment options, note how in 2000 all value funds performed better than growth funds, yet reviewing the 3-year returns, you'll note that most growth funds hold the edge. My point is this - diversify so that your account is not over-exposed to any one investment style, and most important - invest for the long-term. page 2 number represents a growth style of stock-picking, and a lower number indicates a value style. on of Top-Ten Holdings American AAdvantage Intl. Equity rseas o Airtouch e Japan UK China Finland Mexico Mexico Software Isreal ec Japan orks Canada o Spain US Aventis E.On AG ADR Total Fina Azko Nobel ING Groep Zurich Finan. Unilever BAE Systems United Overseas Telefonica Services Services Services Technology Services Technology Industrials Technology Financials Industrials in Top-Ten Holdings France Germany France Netherlands Netherlands Switzerland UK UK Singapore Spain Fund Assets in Top-Ten Holdings 36% Total Stocks 111 value stock is one in which the price of the company’s stock is low as compared to the value of the company’s tangible assets and its earnings. On average, the stocks currently owned by American AAdvantage International Equity fund are selling for prices that are only 3.4 times the value of the underlying company assets. This is referred to as the “price-to-book ratio” of the stock. In other words, if you totaled the value of a particular company’s assets and divided that by the number of outstanding shares of stock, you would determine the “book value” of each share. Let’s say the number derived from this calculation is $10 per Country Exposure Comparison share. Meaning, for each share of outstanding stock, the company has $10 in assets. If investors are currently willing to pay $34 for one Value vs. Growth Price/Book Ratio American AAdvantage Intl. Janus Overseas 15.7 13.1 29.8 In contrast, Janus Overseas has an average price to book ratio of 13.1, indicating a growth-style of stock selection, making it a much more aggressive fund. American AAdvantage United Kingdom 24% Japan 15% France 9% Germany 7% Netherlands 6% Emerging Markets 24% Emerging Markets 6% Total Countries 24 Price/Earnings Ratio 3.4 share of this stock, it has a price to book ratio of 3.4. 14% 11% 7% 6% 5% 21 20% 209 Janus Overseas United Kingdom Japan United States France Canada Total Countries However, the price-to-earnings ratio is a measure of the current price of a company’s stock compared to the earnings of that company over the last twelve months. The earnings are divided by the number of outstanding shares of stock. In this case, the average stock held in Janus Overseas has a price/earnings ratio of 29.8, meaning the average stock owned by the fund is currently trading for 29.8 times more than the companies earned for each outstanding share. Additionally, the fund may invest a greater portion of its assets in emerging markets (companies located in countries with newly Health Services Energy Industrials Financials Financials Staples Technology Financials Services The other statistic shown in the chart above is the “price-toearnings” ratio, which is another measure of the fund’s preference toward growth or value stocks. Again, the higher developing stock markets) Currently, Janus Overseas has 24% of assets invested in emerging markets, compared to only 6% in American AAdvantage. Finally, notice that over one-third of Overseas’ assets are invested in just 10 stocks, and you can see why this fund is expected to be much more volatile than American AAdvantage Intl. In summary, the addition of Janus Overseas represents CCOERA’s ongoing effort to provide a very comprehensive, yet diverse array of investment alternatives. As the global markets continue to mature, so will the investment menu offered to participants. page 3 JANUS OVERSEAS FUND D E C E M B E R PRIMARY INVESTMENTS SELECTION STYLE MANAGEMENT STYLE Foreign Stock Large Growth Active INVESTMENT 3 1 , 2 0 0 0 Janus Overseas Lower F U N D OBJECTIVE S T R AT E G Y The fund normally invests at least 65% of its total assets in securities of issuers from at least five different countries, excluding the U.S. However, it may at times invest in U.S. issuers and it may invest all of its assets in fewer than five countries. The fund may invest without limit in foreign equity and debt securities. The portfolio managers apply a “bottom-up” approach in choosing investments. They look for companies with earnings growth potential one at a time. P O R T SECTOR AS F O L I O WEIGHTINGS OF 27.6% Technology 25.6% Industrial Cyclicals 8.7% Consumer Durables 8.3% Health 7.3% Financials 5.4% Energy 2.8% Consumer Staples 1.5% Retail 0.0% Utilities 0.0% R-squared Beta Alpha Sharpe Ratio Standard Deviation Mean I N F O R M AT I O N Foreign Stock Janus $8.2 billion May 1994 JAOSX F U N D M A N A G E M E N T Lead Manager: Tenure: Education: Helen Young-Hayes, CFA 6 Years B.A., Yale University, 1984 Co-Manager: I V E R S Brent Lynn I F I P O R T F O L I O AS 10/31/00 Services M O D E R N T H E O R Y D Higher Fund Category: Fund Family: Assets: Inception Date: Ticker: The fund seeks long-term capital appreciation by investing in foreign securities. INVESTMENT RISK C A T I O N C O M P O S I T I O N OF 10/31/00 Bonds 0.3% Cash 12.5% U.S. Stocks 12.0% Foreign Stock 75.2% P O R T F O L I O S TAT I S T I C S S&P 500 24 0.78 11.85 Wil. 4500 64 0.81 13.61 3 Yr. 0.50 34.96 20.69 5 Yr. 0.51 28.32 21.78 O P E R A T I N G E X P E N S E S Management Fee Other Expenses Total Expense Ratio 0.65% 0.26% 0.91% Foreign Stock Avg. Expense Ratio 1.68% page 4 INVESTMENT PERFORMANCE RESULTS For the Period Ending December 31, 2000 Total Return of the investment funds offered through: CCOERA 401(a) Retirement Plan and CCOERA 457 Deferred Compensation Plan Small-Cap Fund Name 4th Quarter 2000 3 Years 5 Years 10/1/00-12/31/00 1/1/00-12/31/00 1/1/98-12/31/00 1/1/96-12/31/00 1/1/91-12/31/00 -20.50% -13.43% 16.71% 17.84% N/A Small-Cap Growth Mutual Fund Average -19.03% -12.39% 11.92% 12.48% 17.91% 1.34% Fidelity Low-Priced Stock Fund 5.73% 18.83% 7.87% 15.08% 19.60% 15.76% 1.41% 13.90% 5.07% 11.90% 15.45% 17.46% -17.64% -7.57% 28.58% 27.57% 23.79% 30.80% -18.59% -8.14% 17.38% 16.83% 17.26% 28.97% MAS Mid-Cap Value Fund -2.06% 11.59% 15.91% 25.07% N/A 19.84% Mid-Cap Value Mutual Fund Average 3.64% 10.30% 10.13% 15.92% 16.02% 16.01% -13.74% -18.57% 20.69% 21.78% N/A 28.32% -4.63% -15.92% 10.04% 9.35% 9.64% 18.62% 2.89% -4.15% 10.77% 12.27% N/A 14.94% -4.63% -15.92% 10.04% 9.35% 9.64% 18.62% -6.56% -6.81% 15.30% 18.11% 21.04% 16.85% -16.49% -15.87% 13.66% 17.58% 16.27% 20.52% -9.40% -9.31% 14.55% 16.27% 18.31% 18.63% -8.14% -2.23% 11.99% 15.82% 16.00% 18.14% Davis NY Venture - Class A 1.13% 9.93% 14.04% 20.04% 20.19% 16.62% Large-Cap Value Mutual Fund Average 2.34% 4.96% 9.11% 15.03% 15.45% 14.44% -8.15% -15.07% 11.47% 18.11% N/A 17.92% -5.18% -4.12% 11.06% 16.39% 15.44% 14.98% -7.22% -8.22% 12.26% 18.49% N/A 16.07% -7.82% -9.10% 12.26% 18.33% 17.46% 16.22% 4.62% 11.83% 6.80% 6.94% N/A 3.97% 4.02% 10.34% 5.34% 5.54% 7.33% 3.66% 1.61% 6.28% 5.54% 5.47% N/A 0.25% 1.63% 6.18% 5.43% 5.37% 4.93% 0.26% 1.67% 6.90% 7.10% 7.31% 7.41% 0.16% 1.58% 6.35% 6.22% 6.25% 6.57% 0.14% Black Rock Small-Cap Growth Small-Cap Value Mutual Fund Average Mid-Cap MAS Mid-Cap Growth Fund Mid-Cap Growth Mutual Fund Average Foreign Stocks Janus Overseas Fund International Equity Mutual Fund Average American AAdvantage Intl. Equity International Equity Mutual Fund Average Large-Cap Fidelity Contrafund Large-Cap Growth Mutual Fund Average Fidelity Magellan Fund General Equity Mutual Fund Average Index Domini Social Equity Index Fund Core Equity Mutual Fund Average PIMCo StocksPLUS S&P 500 Stable Money Bonds Value Market S&P 500 Index PIMCo Total Return Fund Core Bond Mutual Fund Average Fidelity Retirement Money Mkt. 90-Day Treasury Bill Average CCOERA Book Value Fund Ryan Labs GIC Index Higher CCOERA Pension Portfolios Automatic Allocation Options Pension Portfolio Five Risk Tolerance: Very Aggressive Pension Portfolio Four RISK Risk Tolerance: Aggressive Pension Portfolio Three Risk Tolerance: Moderate Pension Portfolio Two Lower Risk Tolerance: Conservative Pension Portfolio One Risk Tolerance: Very Conservative 10 Years Standard Deviation 34.79% 4th Quarter 2000 3 Years 5 Years 10/1/00-12/31/00 1/1/00-12/31/00 1/1/98-12/31/00 1/1/96-12/31/00 10 Years Standard -3.98% -3.61% 10.58% 13.94% Deviation 14.33% 15.45% 10.05% 12.72% 13.17% 11.70% 8.33% 10.65% 11.67% 7.08% 9.00% 10.09% 10.47% 3.77% 7.55% 8.27% 8.38% 2.12% 1/1/91-12/31/00 Average Age Group: 45 & under -2.31% -0.86% Average Age Group: 46 - 55 -0.16% 1.96% Average Age Group: 56 - 65 1.92% 6.24% Average Age Group: 66 - 75 1.53% 5.85% Average Age Group: 75+ page 5 Source: InnoVest Portfolio Solutions, Inc.