Division of Investment Department of the Treasury State of New Jersey Pension Fund June 30, 2011 and 2010 (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, 2011 and 2010 (With Independent Auditors’ Report Thereon) Ernst & Young LLP Division of Investment Department of the Treasury State of New Jersey Pension Fund Financial Statements June 30, 2011 and 2010 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 ..........................................................................26 Schedule 2 – Combining Schedule of Changes in Net Assets .......................................................27 Schedule 3 – Portfolio of Investments – Common Fund A ...........................................................28 Schedule 4 – Portfolio of Investments – Common Fund B ...........................................................47 Schedule 5 – Portfolio of Investments – Common Fund D .........................................................112 Schedule 6 – Portfolio of Investments – Common Fund D – Open Foreign Forward Currency Contracts .....................................................................................................130 Schedule 7 – Portfolio of Investments – Common Fund E .........................................................131 Schedule 8 – Portfolio of Investments – Other ............................................................................135 Schedule 9 – Written Call Options ..………………….….……………………….. ...................138 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 statements 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, 2011 and 2010, and the related statements of changes in net assets for the years 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 audits. We conducted our audits 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 audits 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 audits provide 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, 2011 and 2010 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 financial statements referred to above present fairly, in all material respects, the financial position of the Fund managed by the Division at June 30, 2011 and 2010, and the changes in its financial position for the years then ended in conformity with U.S. generally accepted accounting principles. 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 the Government Accounting Standards Board. 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. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in schedules l through 9 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 basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. EY October 13, 2011 2 Division of Investment Department of the Treasury State of New Jersey Pension Fund Management’s Discussion and Analysis (Unaudited) June 30, 2011 and 2010 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, 2011 and 2010. 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 2011 2010 2009 (Millions) Cash and Cash Management Fund $ 4,384 $ 3,164 $ 3,233 Investments, at fair value 69,122 63,337 59,354 Receivables 2,570 2,568 5,405 Securities lending collateral and income receivable 855 17 4,789 Total assets 76,931 69,086 72,781 Total liabilities 3,196 2,262 9,858 Net assets $ 73,735 $ 66,824 $ 62,923 At June 30, 2011 and 2010 receivables consist primarily of amounts related to forward currency transactions. Receivables for all years presented also include 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 its securities lending programs. Liabilities include amounts related to forward currency transactions, 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 for certain administrative and investment expenses. 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 2011 2010 2009 (Millions) Additions: Net investment income: Interest and dividends $ 1,992 $ 2,012 $ 2,192 Net realized gain (loss) from investment transactions 3,205 2,618 (3,763) Net change in unrealized appreciation (depreciation) of investments 6,340 3,595 (10,109) Securities lending income 7 28 166 Net investment gain (loss) 11,544 8,253 (11,514) Deductions: Administrative expenses 51 49 49 Securities lending program expenses 1 8 105 Custody fees 1 1 1 Investment expenses