Equifax 2003 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS
EQUIFAX. INFORMATION THAT EMPOWERS. 57
asset category on the difference between its rolling five-year histori-
cal arithmetic average return and the arithmetic average of the risk-
free rate over the same period. Using this estimated risk premium and
risk-free rate, we arrive at forecasted returns for each asset category.
USRIP asset allocation strategy is determined based upon guidelines
provided by our external advisor and using input from a computer-
based stochastic asset/liability forecasting process. This forecasting
process takes into account projected investment returns by asset
category, the correlation among those returns, the standard devia-
tion of those returns, and the future pattern of actuarial liabilities to
which the plan is obligated. Asset/liability forecasting is conducted
at regular intervals during the year, as needed, utilizing input from
our in-house and external consulting actuaries, and our external
investment advisor. All USRIP asset targets and ranges are approved
by two in-house Plan Administrators, who are Named Fiduciaries
under ERISA. Investment recommendations are made by our external
advisor, working in conjunction with our in-house Investment Officer,
who is also an ERISA Named Fiduciary. The 8.75% expected return
on plan assets assumption for 2004 is based on the 50th percentile
return from our asset/ liability forecasting process.
The following USRIP asset allocation ranges, targets and actual
allocations were in effect as of December 31, 2003 and 2002:
Actual
Target Range 2003* 2002
Large-Cap equity 25% 20-35% 30.5% 41.4%
Mid-Cap equity 10% 5-15% 5.4% 2.3%
Small-Cap equity 8% 5-15% 15.8% 12.3%
International equity 12% 6-18% 13.6% 11.0%
Alternative Assets 15% 5-20% 9.4% 5.7%
Venture Capital 10% 5-15% 5.8% 7.0%
Real Estate 5% 0-12% 3.2% 1.4%
Fixed Income 15% 10-35% 15.7% 17.2%
Cash minimal 0-2% 0.7% 1.7%
*Note: New USRIP asset allocation targets and ranges were put into place
during 2003.
The USRIP, in an effort to meet its asset allocation objectives,
utilizes a variety of asset classes which have historically produced
returns which are relatively uncorrelated to those of the S&P 500.
Asset classes included in this category are Alternative Assets
(hedge funds-of-funds), venture capital (including secondary
private equity), and real estate. The primary benefits to the Plan of
using these types of asset classes are: (1) their non-correlated
returns reduce the overall volatility of the Plan’s portfolio of assets,
thereby moving the Plan closer to the efficient investment frontier,
and (2) they produce superior risk-adjusted returns, as measured by
standard metrics such as Jensen’s Alpha and the Information Ratio.
Additionally, the USRIP allows certain of its managers, subject to
specific risk constraints, to utilize derivative instruments, in order
to enhance asset return, reduce volatility, or both. Derivatives
are primarily employed by the Plan in its fixed income portfolio and
in the hedge fund-of-funds area.
The USRIP is prohibited from investing in Equifax Inc. stock once
the market value of stock held by the plan exceeds 10% of the total
market value of the USRIP. At December 31, 2003 and 2002, the
USRIP’s assets included 1.76 million shares of the Company’s
common stock, with a market value of approximately $43.2 million
and $40.8 million, respectively.
Additionally, the USRIP is subject to the transaction prohibitions
imposed by ERISA. Not more than 5% of the portfolio (at cost) shall
be invested in the securities of any one issuer with the exception
of Equifax Inc. common stock, and U.S. Treasury and Government
Agency securities.
Canadian Retirement Income Plan (CRIP) Investment
and Asset Allocation Strategies
McLean Budden Limited (“MBL” ), the investment manager for the
assets of the CRIP, is given discretion to invest in a wide range of
asset classes consistent with the care, skill and diligence of estab-
lished prudence. Equifax Canada Inc., through a group annuity
contract with Sun Life Financial (“SL”), has invested the CRIP’s
assets in a variety of “segregated” pooled funds SL offers to
pension plan sponsors in the Canadian market. The SL pooled
funds, in turn, purchase units in pooled funds managed by M BL.
The following areas require pre-approval for investment by the
investment manager: a Canadian pension plan committee reviews
these limitations periodically and considers alternative invest-
ments if the CRIP’s objectives change, or the investment manager
recommends them for consideration:
• purchase of Equifax Inc. common stock or securities
• investment in commodities and loans
• short sales and the use of margin accounts
• put and call options
• private placements
Additionally, CRIP assets will not be involved in transactions which
are considered to be related-party transactions as set out in the
Canadian Pension Benefits Standards Act and its regulations.
Each CRIP asset class has a primary investment objective, which
is linked to the generally accepted index for that class and is based
on a five-year time horizon. There is also a relative objective (rankings
versus other comparable funds). The primary objective for each asset
class is identified below: