Division of Investment Department of the Treasury State of New Jersey Pension Fund June 30, 2008 and 2007 (With Independent Auditors’ Report Thereon)
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F INANCIAL S TATEMENTS, M ANAGEMENT’ S D ISCUSSION AND A NALYSIS AND S UPPLEMENTAL S CHEDULES Division of Investment Department of the Treasury State of New Jersey Pension Fund June 30, 2008 and 2007 (With Independent Auditors’ Report Thereon) Division of Investment Department of the Treasury State of New Jersey Pension Fund Financial Statements June 30, 2008 and 2007 Contents Independent Auditors’ Report..........................................................................................................1 Management’s Discussion and Analysis .........................................................................................3 Basic Financial Statements: Statements of Net Assets .................................................................................................................7 Statements of Changes in Net Assets...............................................................................................8 Notes to Financial Statements..........................................................................................................9 Supplemental Schedules: Schedule 1 – Combining Schedule of Net Assets..........................................................................35 Schedule 2 – Combining Schedule of Changes in Net Assets.......................................................36 Schedule 3 – Portfolio of Investments – Common Fund A...........................................................37 Schedule 4 – Portfolio of Investments – Common Fund B ...........................................................61 Schedule 5 – Portfolio of Investments – Common Fund D...........................................................82 Schedule 6 – Portfolio of Investments – Common Fund D – Open Foreign Forward Currency Contracts.....................................................................................................102 Schedule 7 – Portfolio of Investments – Common Fund E .........................................................103 Schedule 8 – Portfolio of Investments – Other............................................................................107 Ernst & Young LLP 99 Wood Avenue South P.O. Box 751 Iselin, New Jersey 08830-0471 732 516 4200 www.ey.com Independent Auditors’ Report The Members State Investment Council, Division of Investment, Department of the Treasury, State of New Jersey We have audited the accompanying statement of net assets of the Pension Fund (the Fund) managed by the Division of Investment (the Division), Department of the Treasury, State of New Jersey, as of June 30, 2008, and the related statement of changes in net assets for the year then ended. These financial statements are the responsibility of the Division’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Fund for the year ended June 30, 2007 were audited by other auditors whose report dated January 4, 2008, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Division’s internal control over financial reporting of the Fund. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Division’s internal control over financial reporting of the Fund. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in note 1, the financial statements present only the Fund and do not purport to, and do not, present fairly the financial position of the State of New Jersey as of June 30, 2008 and 2007 and the changes in its financial position for the years then ended in conformity with accounting principles generally accepted in the United States. In our opinion, the 2008 financial statements referred to above present fairly, in all material respects, the financial position of the Fund managed by the Division of Investment, Department of the Treasury, State of New Jersey, as of June 30, 2008, and the changes in its financial position for the year then ended in conformity with accounting principles generally accepted in the United States. 1 A member firm of Ernst & Young Global Limited Management’s discussion and analysis on pages 3 through 6 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information for 2008. However, we did not audit the information and express no opinion on it. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in schedules l through 8 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the 2008 basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the 2008 basic financial statements taken as a whole. ey March 19, 2009 2 Division of Investment Department of the Treasury State of New Jersey Pension Fund Management’s Discussion and Analysis (Unaudited) June 30, 2008 and 2007 Introduction This section of the financial statements of the Pension Fund (the Fund) presents our discussion and analysis of the Fund’s financial position as of June 30, 2008 and 2007. Since this discussion and analysis is designed to focus on current activities, it should be read in conjunction with the Fund’s basic financial statements, which follow this section. Financial Statements The Fund’s basic financial statements include statements of net assets and statements of changes in net assets, which have been presented in accordance with accounting principles generally accepted in the United States as applicable to governmental entities. The statements of net assets provide information on the financial position of the Fund at year- end. The statements of changes in net assets present the results of the investing activities during the fiscal year. The notes to the financial statements offer additional discussion that is essential to the full understanding of the data presented in the financial statements. The notes give more detail about accounting policies, significant account balances and activities, material risks, obligations, contingencies and subsequent events, if any. The financial statements and related notes are prepared in accordance with Governmental Accounting Standards Board principles as applicable to governmental entities. Statements of Net Assets The statements of net assets present the assets, liabilities and net assets (assets minus liabilities) of the Fund as of the end of each of the respective fiscal years and are point in time financial statements. 3 The statements of net assets are comprised of the following major components: June 30 2008 2007 2006 (Millions) Cash and Cash Management Fund $ 5,665 $ 6, 771 $ 4, 290 Investments, at fair value 72,537 75, 411 68, 918 Receivables 1,872 602 2, 260 Securities lending collateral 12,794 18, 413 14, 105 Total assets 92,868 101, 197 89, 573 Total liabilities 14,312 18, 712 16, 481 Net assets $ 78,556 $ 82, 485 $ 73, 092 Receivables consist primarily of the net amounts owed to the Fund on pending investment transactions and dividends and interest receivable. Securities lending collateral represents cash invested by the Fund with cash collateral received from borrowers of securities under various securities lending programs. Liabilities primarily represent amounts owed for pending investment transactions, amounts due to borrowers under the securities lending program (i.e., the obligation of the Fund to return the collateral and pay rebates at the expiration of the securities loans) and amounts due to the General Fund of the State of New Jersey for administrative expenses. In fiscal 2008 and 2006, receivables and liabilities also include amounts related to forward currency transactions. At June 30, 2007, liabilities also include capital calls that were received but were unpaid under various real estate partnership investments; no such capital calls existed at June 30, 2008 or 2006. 4 Statements of Changes in Net Assets Changes in net assets from year to year are presented in the statements of changes in net assets. The purpose of these statements is to present the net investment income earned by the Fund as well as the contributions of employers and participants and distributions to participants and/or beneficiaries. A summary follows: Year ended June 30 2008 2007 2006 (Millions) Additions: Net investment income: Interest and dividends $ 2,579 $ 2,272 $ 2,124 Net