STATEMENT OF INVESTMENT POLICY
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STATEMENT OF INVESTMENT POLICY
FOR THE
CITY OF CLEARWATER FIREFIGHTERS'
SUPPLEMENTAL TRUST FUND
Adopted: 5/10/99
Revised: 5/22101
Introduction
The Board of Trustees of the City of dearwater Rrefighters' Supplemental Trust Fund has
established this Statement of Investment Policy. This policy has been identified by the Board as
having the greatest expected investment return, and the resulting positive impact on asset
values, funded status, and benefits, without exceeding a prudent level of risk. The Board
determined this policy after evaluating the implications of increased investment return versus
increased variability of return for a number of potential investment policies with varying
commitments to stocks and bonds.
This Statement of Investment Policy is intended to comolement the investment guidelines
provided in all applicable State Statutes and local ordinances. The purpose of this Statement is
to:
1) Provide the investment manager a more accurate understanding of the Trustees' investment
objectives and,
2) Indicate the criteria by which the investment manager's performance will be evaluated.
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INVESTMENT MANAGER RESPONSIBIUTIES
1) Within the guidelines and restrictions set forth herein, it is the intention of the Board to give
the investment manager full investment discretion, with respect to assets under its
management. The investment manager shall discharge its responsibilities in the same
manner as it would if the Fund were governed by the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). Although the Fund Trustees
acknowledge that ERISA does not apply to a governmental fund, it hereby imposes the
fJcluciary provisions of ERISA upon the investment manager whose performance shall conform
to the statutory provisions, rules, regulations, interpretations and case law of ERISA. The
investment manager shall acknowledge, in writing, that it is a named fiduciary of the Fund.
2) The investment manager is expected to provide any reasonable information requested by the
Board of Trustees. At a minimum, each manager shall provide a quarterly report detailing
their investment activity, the portfolio's current value, and any changes in investment
philosophy or strategy. The Rrm's investment manager is expected to meet with the Board
of Trustees at least once per year. A designated representative will meet with the Board of
Trustees, as requested.
3) Unless otherwise provided by the Custodian, the investment manager will monitor portfolio
activity to minimize uninvested cash balances.
4) The investment manager shall be responsible only for those assets under its management.
5) It will be the responsibility of the investment manager to review the monthly valuations
provided by the Custodian and to note, in writing, any significant discrepancies from the
valuations provided in their own reports.
Administrative
1) The Board of Trustees relies on its consultants and professionals to provide continuing
education on pension and investment issues. The Board of Trustees also recognize state and
regional conferences as a source of continuing education. The Trustees are encouraged to
attend conferences, schools, and other functions periodically in order to fulfill this
requirement.
2) The investment policy is to be promptly filed with the Department of Management Services,
plan sponsor and consulting actuary. The effective date of the investment policy and any
amendment thereto shall be the 31st calendar day following the filing date with the plan
sponsor.
3) The Board of Trustees relies on its consultants and professionals to provide continuing
education on pension and investment issues. The Board of Trustees also recognize state and
regional conferences as a source of continuing education. The Trustees are encouraged to
attend conferences, schools, and other functions periodically in order to fulfill this
requirement.
4) With consideration to rates of return from different asset dasses, the Board of Trustees has
crafted its investment program in order to deliver an expected rate of return similar to that of
the actuarial assumed rate. The Board shall determine for each actuarial valuation, the total
expected annual rate of return for the current year, for each of the next several years and for
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the long term thereafter. The total expected annual rate of return is anticipated to be similar
to the actuarial assumed rate of return. This determination is to be filed with the Department
of Management Services and with the plan sponsor and consulting actuary.
GENERAL OBJECTIVES
The primary investment objective of the Oty of dearwater Firefighters' Supplemental Trust Fund
is the preservation of invested capital. The secondary objective is to achieve moderate long-term
real growth of the assets while minimizing the volatility of returns.
To achieve these objectives, the Board seeks to create a conservative, well diversified and
balanced portfolio of high quality equity, fixed income and money market securities. The Board
has determined that one or more outside investment managers shall be retained to assure that
all investments are managed in both a prudent and professional manner and in compliance with
the stated investment guidelines.
INVESTMENT OBJECTIVES
Investment objectives are intended to provide quantifiable benchmarks to measure and evaluate
portfolio return and risk. Most investment styles require a full market cyde to allow an
investment manager to demonstrate his abilities. A full market cyde is generally defined as a
three to five year time period. As a result, performance objectives will be measured over three to
five year periods. Monitoring shorter periods may be used to determine the trend of performance
premiums or deficiendes.
The specific investment objectives of the Oty of Clearwater Rrefighters' Supplemental Trust Fund
are as follows:
Primary Objective: To earn an average rate of return over the long term (3 to 5 years)
which exceeds the return of a Target Index. The Target Index for the City of Oearwater
Rrefighters' Supplemental Trust Fund is defined as a 50% investment in the S&.P 500 Stock
Index a 50% investment in the Merrill Lynch Master Bond Index.
In addition, it is expected that the total rate of return earned by the Fund and the returns
earned by the stock and bond portions of the portfolio will each rank above average when
compared to a representative universe of other, similarly managed portfolios.
Secondary Objectives: To earn an average annual return over the long term which
exceeds the Consumer Price Index (CPI) by 3.0%.
Volatility: The votatility of the Fund's total returns is expected to be similar to that of the
Target Index and will be evaluated accordingly.
The above invesbnent objectives have been established for the entire City of
Clearwater Firefighters' Supplemental Trust Fund. The specific investment objectives
for each investment manager will be outlined in addenda to this overall Statement of
Investment Policy.
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INVESTMENT GUIDEUNES
The Board of Trustees has established the following target asset allocation for the entire
Oearwater Firefighters' Supplemental Trust Fund investment account:
Target
Allocation
(at market)
Equity securities 50%
Rxed income securities 50%
Cash Equivalents 0%
To implement this strategy, the Board has chosen to hire one or more professional investment
managers. Specific assignments and additional guidelines for each investment manager will be
outlined in addenda to this overall Statement of Investment Policy. The following guidelines and
restrictions apply to all Fund investments.
In accordance with the policies established by the Board of Trustees, the assets of the Clearwater
Rrefighters' Supplemental Trust Fund shall be invested in a diversified portfolio of fully
negotiable, equity, fIXed income, and money market securities, provided they meet the following
criteria:
EQUITY SECURITIES:
1} Investments in equity securities shall be limited to no more than 600/0 (at cost) of the Fund's
total asset value.
2) All equity investments shall be limited to fully and easily negotiable equity securities.
3) No more than 5% at cost value of an investment manager's equity portfolio may be invested
in the shares of a single corporate issuer.
4} No more than 10% at cost value of the plan's total assets may be invested in foreign equity
securities. Investment in foreign companies is limited to those traded on a national exchange
and lor American Depository Receipts (ADRs).
5) Investment in equity securities whose market capitalization is less than $3 billion dollars shall
be limited to 20% of the total equity portfolio.
6) Investment in those corporations whose stock has been publicly traded for Jess than one year
are limited to 15% of the equity portfolio.
7} Equities may be managed through the purchase of open-end, no-load mutual funds or
commingled funds as long as these funds in aggregate adhere to the equity guidelines
herein.
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FIXED INCOME SECURITIES:
1) The fIXed income portfolio shall comply with the following gUidelines:
a) The average credit quality of the bond portfolio shall be "A" or higher.
b) The duration of the fixed income portfolio should be within 65% and 135% of the
duration of the market index. The market index is defined as the Merrill lynch Master
Bond Index.
2) Investments in all corporate fixed income securities shall be limited to:
a) those securities rated "A" or higher by Moody's or "A" or higher by Standard & Poor's
rating services. Rxed intome securities, which are downgraded below the minimum
rating, shall be sold at the earliest beneficial opportunity.
b) securities issued by a corporation organized under the laws of the United States, any
state or organized territory of the United States, or the District of Columbia.
c) no more than 10% at cost of an investment manager's total fixed income portfolio
shall be invested in the securities of any single corporate issuer.
3) Investments in Collateralized Mortgage Obligations (CMOs) shall be limited to 15% of the
market value of the investment managers' total portfolio and shall be restricted to issues
which meet all of the following criteria:
a) All issues must be backed by mortgage securities issued, guaranteed, or fully insured
by the Government National Mortgage Association (GNMA), the Federal Home loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA) or
that are rated "Aaa" by Moody's or "AAA" by Standard & Poor's rating services.
b) All issues must pass the FFIEC High Risk Security Test on an annual basis. Any CMO
issue held in the investment managers' portfolio that fails the FFIEC test shall be sold
at the earliest beneficial opportunity
4) There is no limit imposed on investments in fixed income securities issued directly by the
United States Government or any agency or instrumentality thereof.
5) Rxed income securities may be managed through the purchase of open-end, no-load
mutual funds or commingled funds as long as these funds in aggregate adhere to the
fixed income guidelines herein.
Investments in interest only or principal only CMOs, precious metals, limited partnerships of any
kind, real estate, direct investment in recapture agreements, venture capital, futures contracts,
options contracts, trading on margin and short selling are prohibited.
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CASH EQUIVALENT SECURITIES:
1) The investment manager may invest only in the following short term investment vehides:
a) The money market or STIF provided by the Plan's custodian.
b) Direct obligations of the United States Government with a maturity of one year or less.
c) Commercial Paper with a maturity of 270 days or less that is rated A-I by Standard &
Poor's or P-I by Moody's.
d) Bankers Acceptances issued by the largest 50 banks in the United States (in terms of
total assets).
REVIEW OF POUCY
It is the intention of the Board of Trustees of the City of Clearwater Firefighters' Supplemental
Trust Fund to review this Statement of Investment Policy and its addenda periodically to amend it
to reflect any changes in philosophy or objectives. However, if at any time the investment
manager believes that the specific objectives defined herein cannot be met or that these
guidelines unnecessarily consbict performance, the Board shall be so notified in writing.
Adopted this 6th day of June, .tm.
Revised this 22nd day of May, 2001.
~C~
Chairman, Board of Trustees
Oty of Oearwater Rrefighters'
Supplemental Trust Fund
..y-;2 7-0/
Date
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Date
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