GAO, 2003, Compacts of Free Association: An Assessment of the Amended Compacts and Related Agreements, GAO-03-890T (Washington: Government Accountability Office) June.
GAO, 2006a, Compacts of Free Association: Development Prospects Remain Limited for Micronesia and Marshall Islands, GAO-06-590 (Washington: Government Accountability Office) June.
GAO, 2006b, Compacts of Free Association: Micronesia and the Marshall Islands Face Challenges in Planning for Sustainability, Measuring Progress, and Ensuring Accountability, GAO-07-163 (Washington: Government Accountability Office) December.
Graham, Benjamin, 2005, Trust Funds in the Pacific: Their Role and Future. Pacific Studies Series (Manila: Asian Development Bank).
JTFC, 2006, Annual Report: Trust Fund for the People of the Federated States of Micronesia (unpublished; Federated States of Micronesia: Joint Trust Fund Committee) March.
Office of the Treasurer of the Regents, 2003, University of California Annual Endowment Report for the Fiscal Year ending June 30 (Oakland: University of California Regents).
Prepared by Christopher Faulkner-MacDonagh (ext. 35978).
The Compact indexes payments using two-thirds of the annual increase in the U.S. GDP price deflator.
Other members may be added, as long as the United States retains a majority vote.
The trustee must also: (i) be a U.S.-based trust institution; (ii) have a net worth greater than $100 million; (iii) have at least ten years managing trust assets; and (iv) have experience managing trusts of at least $500 million. (FSM/US Trust Fund Agreement, 2002, Article 11, Section 3).
Many providers offer investments that follow these two indices. The Russell 3000 is an index fund of the shares of the 3,000 largest U.S. companies. The MSCI EAFE is Morgan Stanley Capital International’s index, covering equity markets in 21 industrialized economies in Europe, Australasia, and the Far East.
For 2007–11, U.S. Office of Management and Budget estimates GDP price inflation at 2¼ percent. For 2012–15, U.S. Congressional Budget Office estimates GDP price inflation at 1¾ percent per year, and this simulation assumes inflation is constant and equal to the rate in 2015.
Investment returns during the draw-down phase would likely be well-below those during the accumulation phase, because the government would need to shift its portfolio toward bonds and other less risky—and lower yielding—securities to preserve the fund’s principal.
Fees at U.S. university endowments average 40 basis points (NACUBO, 2003) for investment and custodial services, although this includes internally managed endowments. Charges for the externally-managed trusts for the University of California are higher, at 70 basis points (Office of the Treasurer of the Regents, 2003). The investment and custodial fees for the Micronesian Social Security System is 90 basis points (FSM SSA, 2006).