FINANCE COMMITTEE

I. Background

1. This document is submitted to the Finance Committee for information, in accordance with Financial Regulation IX, which provides, in part, as follows: "The Director-General may invest moneys not needed for immediate requirements seeking, wherever practicable, the advice of the United Nations Investments Committee. At least once a year the Director-General shall include in the financial statements submitted to the Finance Committee a statement of the investments currently held".

2. The Staff Compensation Plan, which was introduced on 1 January 1956, provides compensation benefits for staff members (and/or their dependants) in case of injury, illness, or death, attributable to the performance of official duties. The Organization's liability under the Plan is funded, currently at 0.129% of payroll for Regular Programme and other Headquarters Staff and 0.266% for Field Staff. These rates were confirmed by the Finance Committee at its Seventy-seventh Session (21-30 September 1993).

II. Activity and Performance

3. The balance in accordance with the terms of the funding arrangements amounted to US$ 44,698,528 on 31 December 1999. The cash resources set aside to cover this liability are invested in internationally diversified equities and bonds, in order to produce income and provide capital growth.

4. Following extensive discussions with the investment adviser, Fiduciary Trust Company International (FTCI), a more defined benchmark was established in 1998. The asset allocation of 65% in equities reflected both the actuarial position of both funds and the general tone of the UNIC asset allocation guidelines. For this portion of the fund, the MSCI All Countries Index ("MSCI All Country") was chosen as the most comprehensive index covering all investible countries. For the bond section of 35%, the JP Morgan World Government Broad Index was chosen for the same reason. This combination replaced the narrower market indices previously used as a reference which were the MSCI World and the Salomon World Government Bond index. This benchmark combination provides a yardstick for performance measurement consistent with the aims of achieving both growth and income from a portfolio of internationally diversified stocks and bonds.

5. During 1999, as the outlook for economic growth and earnings improved markedly from initial expectations, the equity component of the asset allocation was increased. Cash was favoured over bonds as expectations of monetary tightening increased. In terms of currency distribution, the US Dollar was reduced during the second half of the year in favour of Yen and Euro. Sterling was consistently overweighted.

6. At its Twenty-fifth session, on 28 May 1999, the Advisory Committee on Investments heard a report by Cambridge Associates (CA), the FAO consultant on investment matters, on the investment performance of the CPRF and the SPS. The overall performance compared quite well to the benchmark. Most of the good performance could be attributed to the concentration of the equity portfolio in growth stocks, the speciality of Fiduciary Trust Company (FTC), the Investment Manager for both funds. Cambridge Associates cautioned that the funds would not be expected to perform as well when value stocks returned to favour. Also, the performance of the fixed income sector had been below par. To correct these deficiencies, Cambridge Associates advised taking half of the FTC equity assets and placing them with an equity manager that specialized in value stocks and taking half of the fixed income assets and placing them with another manager. The ACI endorsed the CA recommendations with the caveat that consideration should be given to shifting all the FTC fixed income assets to another manager.

7. Because these also involved the Regular Programme and Trust Fund assets, the Investment Committee first acted on the fixed income recommendations. The Committee decided to shift the CPRF and SPS fixed income assets in equal portions to the managers selected for the Regular Programme and Trust Fund, Wellington Investment Management and Western Asset Management. After this move has been completed, the Investment Committee plans to conduct a search for a value-oriented equity manager.

8. The performance of the Fund over one, three and five years respectively are shown in Appendix A. The results show consistent outperformance against the benchmark.

9. Appendix B hereto contains a Summary of Investments held at 31 December 1999, with information provided on both cost and market value for each category of investment.

APPENDIX A

FOOD AND AGRICULTRUE ORGANIZATION OF THE UNITED NATIONS -
Performance

APPENDIX B

COMPENSATION PLAN RESERVE FUND
SUMMARY OF INVESTMENTS TO 31 DECEMBER 1999

1 Not including US$ 396,293 of accrued income