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STATEMENT OF INVESTMENT OBJECTIVES & GUIDELINES 1 I STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES CITY OF CLEARWATER FIREMAN'S RELIEF AND PENSION FUND Adopted September 28, 2000 .- rOf?- 'TIf (:r Off ICIr4L ! PI//:- RECEIVED OCT iJ 2 200fi CITY CLERK DEPARTMENT ~- / , " ' J I PURPOSE The purpose of this Statement of Investment Objectives and Guidelines is to assist the City of Clearwater Fireman's' Relief and Pension Fund (hereafter referred to as the Fund) in more effectively supervising and monitoring the investment of the Fund's assets. In the various sections of this policy document, the Fund defines its investment program by: . stating in a written document the Fund's attitudes, expectations and objectives in the investment of Fund assets. . setting forth an investment "structure" for managing assets. This structure includes various asset classes and investment management styles that, in aggregate, ,are expected to produce a prudent level of diversification and investment return over time. . providing guidelines for each investment portfolio that control the level of risk assumed in the portfolio and ensure that assets are managed in accordance with stated objectives. This Statement represents the Fund's current philosophy regarding the investment of Fund assets. In addition, although the Fund shall utilize this Policy Statement in making decisions concerning the Fund, it shall not necessarily be bound solely by its contents. PRUDENCE AND ETHICAL STANDARDS The standard of prudence to be applied by the trustees shall be the "Prudent Person" rule, which states: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income derived." The "Prudent Person" rule shall be applied in the context of managing the overall portfolio. The trustees shall also be governed by the fiduciary standard set forth in the Employee Retirement Income Security Act of 1974 at 29U.S.C. s. 1104 (a) (1) (A) - (C). 2 ",_1" , .. -\ .1 I Fundine Philosophy The Fund receives no funding other that the required City contribution and investment earnings. Liquidity Posture The Fund is closed to new entrants and has no active members. Sufficient funds will remain in the City's pooled cash account to meet current liabilities. The Fund will match security maturities with the expected cash flow needs. Authorized Investments The following is a list of authorized investments that the Fund may invest in: a. Time deposits, savings accounts, money market accounts, funds, certificates of deposits, or money market certificates of a national bank, a state bank, or a savings, building and loan association insured by the Federal Deposit Insurance Corporation or collateralized by United States Government Agency securities. b. Negotiable direct obligations of, or obligations the principal and interest of which are unconditionally guaranteed by, and which carry the full faith and credit of the United States Government and its agencies. Investments in this category would include but not be limited to the following: United States Treasury Bills, Notes and Bonds, and securities issued by the Small Business Administration, Government National Mortgage Association (Ginnie Mae), Veterans Administration, and Federal Housing Administration. c. Fully collateralized United States Agency obligations which carry an implied guarantee and the implied full faith and credit of the United States government. Investments in this category would include but not be limited to the following: obligations of the Federal Home Loan Banks System (FHLB) or its distinct banks and Financing Corporation (FICO). d. Other United States Agency obligations which carry an implied guarantee and the implied full faith and credit of the United States Government. Investments in this category would include but not be limited to the following: obligations of the Federal Farm Credit Bank, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Student Loan Marketing Association (Sallie Mae), Financial Assistance Corporation and Federal Agriculture Mortgage Corporation (Farmer Mac). e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage Investment Conduits (REMIC), rated investment grade or equivalent by Standard and Poor's, Moody's Fitch, or other recognized national rating agencies which are backed by 3 J I securities otherwise authorized in this ordinance and which are guaranteed as to the timely payment of principal and interest by the U.S. Government or its agencies. f. County bonds containing a pledge of the full faith and credit of the county involved, bonds of the Florida Development Commission, or of any other state agency, which have been approved as to legal and fiscal sufficiency by the state board of administration. g. Obligations of any municipal authority issued pursuant to the laws of this state; provided, however, that for each of the five years next preceding the date of investment, the income of such authority available for fixed charges shall have been not less than one and one-half times its average annual fixed charge requirements over the life of its obligations. Illiquid Investments The Fund will not invest in illiquid investments. Illiquid investments being defined as an investment for which there is no generally recognized market or generally accepted pricing mechanism. Investment Mana!!ement Structure The Fund has reviewed the investment program for the City of Clearwater Fireman's Relief and Pension Fund. The result of the review is an updated, long-term strategic asset allocation Fund. Initially, two distinct asset classes were considered for inclusion in the portfolio: Domestic Fixed Income Pooled Cash After a thorough review, a permanent commitment to these two asset classes will be made to ensure diversification at the Fund level. The Fund may consider investments in other asset classes which offer potential enhancement to total return at risks no greater than the exposures under the initially selected asset classes. Internal Controls As part of the city's annual financial audit the external CPA firm will review the internal controls of the Fund. Internal controls will be designed to prevent losses of funds which might arise from fraud, error, misrepresentation by third parties or imprudent actions by the trustees or city employees. Continuine Education 4 J I The annual budget for the pension Fund will include sufficient funding for the trustees and members of the Pension Investment Committee to participate in pension education opportunities. These educational opportunities will include education on the individual's duties and responsibilities as well as investments in general. The chief investment officer will complete no less than 8 hours of continuing educational opportunities on pension investments each fiscal year. Investment Return Obiectives For each actual valuation the Trustees will determine the expected rate of return of the current year, next several years and the long term. Based upon the above and the following the expected annual rate ofreturn for the current year is 6.5%. The expected rate ofreturn for the foreseeable future is also 6.5%. 1. Total Fund Return Objectives The following minimum comparative objectives have been established for the total Fund. Whenever the interest earnings of an allowable security will outproduce the City's pooled cash rate, the Fund will buy that security provide liquidity requirement have been met. The Fund will generally buy a security and hold it to maturity. 2. Performance Measurement. Because ofthe unique conditions of the Fund, the Fund will compare its performance to the City's Pooled Cash rate of return. Because the Fund does not trade securities it will not concern itself with the day to day market value changes in the securities in the portfolio. Instead, it will concern itself with the long-term value of the securities in the portfolio. 3. Responsibilities ofthe Third Party Custodian All securities will be held by the City's third party custodian. The custodian will be responsible for performing the following functions: . Accept daily instructions for securities; . Safekeeping of securities; . Interest collection; . Process all investment transactions on a delivery vs. payment basis; . Collect proceeds from maturing securities; 5 I I . Provide monthly statements; EVALUATION AND REVIEW On a yearly basis the Fund will review actual investment results. Film!! ofInvestment Policy Upon adoption by the trustees, the investment policy shall be promptly filed with the Department of Management Services, the City Clerk, and the consulting actuary. The effective date of changes to the Investment policy will be 31 days after the filing date with the city. Fixed Income Se!!ment The Fund will adhere to the following guidelines: . All Fixed Income Securities held in each portfolio should have a Moody's, or Standard & Poor's quality rating of no less than Investment Grade from any of these rating services. (For an issue, which is split-rated, the lower quality designation will govern.) No more than twenty percent (20%) of the market value of the manager's portion of the Fund portfolio shall be rated less than "investment grade" quality. . A diversification of securities by maturity, quality, sector, and coupon will be achieved to the extend possible. . There shall be no use of options, financial futures, derivatives or other specialized investment activity without the prior written approval of the Fund. . The Fund shall get at least three bids for securities whenever possible. Instances of when three bids are not required include a "new" issued security or when a purchase is made from an "agency window" . Cash and EQuivalents Se!!ment Includin!! Pooled Cash A portion of the Funds assets will always be in the City's Pooled Cash Account. Whenever a security is anticipated to outperform the City's Pooled Cash Account rate, the Fund will 6 ,. . . I I buy that security, providing that liquidity requirements have been met If a security cannot out- perform the City's Pooled Cash rate, it will not be purchased. Master ReDurchase Al!reement The Fund, money managers and safekeeping custodian will use a master repurchase agreement whenever appropriate. All repurchase agreement transactions shall adhere to the requirements of the master repurchase agreement Investment ReDortinl! On not less that an annual basis the Trustees will receive a report showing a list of all of the securities held by the Fund. This report will be provided by the safekeeping custodians or the City and shall include the portfolio by class or type, book value, income earned, and market value as of the date of the report. This report will be filed with the city. Review of Policv This Statement of Investment Policy must be reviewed annually by the Trustees. 7 , .j I I CITY OF CLEARWATER EMPLOYEES PENSION FUND Investment Tvoe Domestic Fixed Income Pooled Cash ~STMENTSTRUCTURE Sentember. 2000 8 Target Allocation 0% - 70% 30% -100%