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09-05-2000s � � � ,� � :� � }... , ACTlON AGEND� �oard of Trusteos of the Employees' Pension Fund September 5, 2000 1. Call to Order - 9:�0 ao.m. 2. Approva! of Minutes: 8/14/00 - Approved as submitted. 3. Request for acceptance inta membership: Deane Murray, Raymond Minniefield, Anthony iVlcClaney, Mark Matheny, Leroy Bostick, Jamie Abbott, Donald Brown, Vernon Kearney, Kenneth Saleeba, Laura Whitt, & Lochen Wood - Approved. 4. Pension to be vested; George Denty - Approved. 5. Approve administrative expenditure budget for Fiscal Year 2000-2001, totaling $192,s00 for Pension Plan - Approved. 6. Approve Investment Policy for Employees' Pension Plan - Approved. 7. Other Business - IVane. 8. Adjourn - �:04 �.m. s A Meeting Date: �' S• 00 T0: FRdM: SUBJECT: DATE: Pension Trustees Approved by Trustees: CITY OF CLEARWATER EMPLOYEES' PE[VSION PLAN/ PENSION ADVISORY COMMITTEE Pension Advisory Committee Recommendation for Acceptance into Perision Plan August 10, 2000 'C`rcJ s-�-e eS i-t� rn � As Trustees of the City of Clearwater Employees' Pension Fund, you are hereby notified that the employee(s) listed below have been duly examined by a local physician and each has been designated as a"first class risk". The employment ofi Yhese individuals brings thQ number of FTE's as of this date to 1682.� of 1776.4 budgeted positions (including the City Cornmission. These employees a�e eligible for pension membership as noted in thE Pension Eligibility Date column beiow, and it is the recommendation of the Pension Advisory Committee that they be accepted into merrsbership. Name, Job. Class, & De�t./Div, Pension Elig. Hire Date Dat� Deane Murray, Custodial Worker/General Support Services 3127/00 Rayrnond Minniefieid, Public Services Technician I/Public Works 7/3/00 Anthony McClaney, Public Services Technician I/Public Works 713/00 Mark Matheny, Plans Reviewer/Planning & Development Services 7/3/00 Leroy Bostick, Maintenance Worlcer I/Solid Waste 711/00 Jamie Abbot, Senior Auditor/)nterna! Audit 7/17/00 Donald Brown, Custodial Worker/Building &�Vlaintenance 7117l00 Vernon Kearney, Equiprnent Operator II/Parks & Recreation 7/15/00 Kenneth Saleeba, Field �ervice Representative/Customer Ser. 71'I7/00 laura Whitt, Staff Assistant III/Public Works 7125/Oq lochen Wood, Planner/Planr�ing & Development Services 7/24/00 6/19/00 * 7/3/00 7/3/QO 7/3/00 7/1 /00 7/17/00 7/17I00 7/1 5/00 7/17/00 7/2 5/00 7/24/00 * originally hir•ed as permanent part-time; transferred to full-time and pension eligible as of 6/19/00 Pension Advisory mittee hair , �i3 ,,. -. � :. � � +.� Trustees oi �he Final Agend�� itern �t — Elnployees' Pens�on Plan 9/5/00 Meeti ng Date: Agenda Cover Memorandum S�J Bj ECTIRECOMMENDATION: George Denry, Information Tec��nology Department, be alio�ved to vest his pension under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. ❑ and that the appropriate 4fficials be authorized to execute same. SUMM�RY: George Denty, Sysfiems !�c Technical 5ervices Manager, Information Technology Depar#ment, was employed by the Ciry on May 15, 1978, and his pension service credit is effective on that �iate. t-le resigned from Ciry emp(oym�nt on )uly 7, 2000. The Empioyees' Pens�on Plan proyides th3t should an ernployee cease to be an employee of the City of Cleaewater after completing ten or more years of creditable service (pension participation), then such ernployee shall acquire a veste�i interest in the recirement benefits. Vested pension payments commence on the first of the month folfowing the month +n which th� ern�loyee normally would have been eligible for retirement. Section 2.393 provides for normal retirement eligibility when a participant has completed twenty years of credited service and reached age 55. Mr. DPnty would have cornpleted twenry years of service and reached age 55 on )anuary 9, 2001, His pension wi!! be efirrective on February 1, 2001. This request was approved by the Pension Advisory Comrnittee on �ugust 10, 2000. Revie�ved by: Legal NA Budget NA Purchasing NA Risk Mgrnt NA Info Tech NA Public VVorks NA DCIvJACM Other Submitted by: C�ct M-anager � Printed oe� recycled paper Originating Dept: Human Resources User Dept. NA Attachments ,-, ❑ None Costs Funding Sourc�e: Caplia� Improvement � Operating _� 01her Appropriation Code; Tota) Current Fiscal Year Rev. 2198 � E�ployees' pension Trustee Agenda Caver Nie�morand�tn SUBJECT/RECOMIIA�NDATI�N: Agenda Item # Meeting Date: 5 � •�• � Ap�rove the recommended administrative expenditure budget for fiscal year 2000-01 totaling $192,600 for the City of Clearwater Employees' Pension Pian, ❑� and that the �ppropriate officials be authorized to execute same. sur��A�v: Attached is the proposed budget for fi�cal year 2000 — 2001 including historical numbers. Medical Bills is for the medical services that the Pension Advisory Committee authorizes. Travel and training is for members of the Pension Investment Committee to attend the Callan training seminar and visit Callan, the pension plan's performance measurement firm. Also included is $6,000 for the due diligence visits associated with h+ring the two money managers the plan is currently conducting a search for. The sum of $7,000 has been added to this budgE•t to facilitate the training requirPd by the recent changes in Florida Statutes. Printing and Binding is far the statutarily requirec� annual information distribution to the members of the pension pfan. This amount +s being increased to recognize increased printing costs. Mor�ey Manager, Safekeeping Service, Pension Administrator and Actuary fees are all set by contracts approved by the tr•ustees and are not included in this administrative budget. Reimbursement to the General Fund is for the cost of oversight of the plan and is recognized as revenue to the Genera) Fund. All other amounts are the same wit� one exception: Reimbursements to the General Fund have been updated to mor� accurately reflect costs. This will bring the General Fund reimbursPments to $118,200. Of this number, $?_5,612 is Finance and $92,588 is Human Resources. All of the increase over the prior fiscal year is the cost of the new employee physi�als required by tt�e pension plan. In the past tf�ese physicals �vere not reimbursed by �he pension plan although they were required by the pension plan and not as a condition of employment �vith the city. Originating Dept: Expenditure Worksheet ���_�-- Printed on recycled paper Fundirig Source: 646-07410-5 xxx00-S 8x-000 W � \z o Q _ U W W � � � w � o V U zw 0 c� w� F-- .«� o � C� �, ,o�" °a� �� �� >o° �a�+ � J � � O Q W N � � � � � �� � � � U � �- � � � ��� � � � W a � � O 0 � m ��N = � C) a W a7 Q C� Q � � � U a� Q tt, � �a J W � � rn U Q O � � � 0 0 0 0 0 0 0 0 0 O N� OOO �O � O NI` 000 �' � ch c� o r- t` �t- � � O N O O � � � O N 1+� 000000 c� a o 0 0 �D N tA tA O � cc o ti o� '�hd'd'O�--O O M tf� t.C) O r-' �t `�- �- N CO M 0000�o o�.n0000 O I� d' � O r-' � � � f` M 00 O O t� c'� O O M t1') t.C) O i!'� M � r- r- c� 0�7 M� O O O a� rn � c� O tp t� � 0 0 '� � M d' � � c7 0 � � � N tt� M N � 0 0 �, a� � r- N � C7 O tU .. .. • \ 0 � b' � � N r I O N t0 � 0 � ri rn � � � O O O r- � � u� O M � �n �n o et� (fl O c�i dN' t�- t17 O 0 �i O O � r-- -a c �' � Ll tt3 N � � U � � c � �- � v c � � W � � � U O. ° ��m o� o � � -� � � � � --°'� Q� � � � cnw ��oU O ` c � � � c •� c s � E �I-`ri1`a..0 a � � � 0 N i.+ � s m .� � �u A��, i�� , � J : , Fmploye�'s Pensioa Plan Trustee's Ag�nda Cover Me�orandum Agerida Item �i Meeting Date: � • � � SUBJECT/RECOIV�R�Ey DAYION: Approve Investment policy for the Empioy�es' Pension Plan. ❑ and that the appropriate officials be authorized to execute same. SUMMARY: e The Pension investment Advisory Gommittee has tollowed the ordinances relating to the Employees' Pension Plan. The attached policy puts in writing what the Pension Advisory Committee has been doing. • The a�tached policy camplies with Florida Statutes 218,415, which the Governor signed on June 14, 2000. + The Investment Advisory Committee is currently composed ot the Finance Services Administrator, Assistant Finance Director, Financ� Controller, Risk Nianager, Senior Accountant, General Services Controlier, �rire Adrninistrative Support Manager and Cash &(nvestments Manager. d The lnvestment Advisory Commit�ee meets weekly to discuss current financial news affiecting the Plan. The cornrnittee also meets quarterly to receive updates from investment managers, review performance and discuss inv�strr�ents with the plan's cons�ltants. Special rneetings are calied on an as needed basis. The committee meets about sixty (60) times p�r year. The rneetings are open to anyone who wants to attend. e The inve5tment �ol icy lists the types of investments allowable, �he allocation of the assets and the target ranges for those a(locations. : The investment pol icy sets minimum perforrnance expectations for the money managers. The inves�tment policy defines the expectations of the money managers and that of the safekeeping service. Reviev+red by: Legal N/q Budget N/A Purchasin� N/A Risk Mgmt N/A Submitted by: Info Srvc N/A Public Works N/A DCM/ACM Other � Originating Dept: Finance 1 User Dept. Finance Attachments iD None Costs S,Moskun Total 0 Current FY 0 Appropriatian Code: Funding Source: CI _ OP _ Other � .. . STATEMENT OF INVESTMEN'I' OBJECTIVES ANl3 GUIDELINES CIT�' O►F CLEA.RWAT�Ia EIV�P��YE�S' P�PdSIOP�T �'TJND Adopt�d September �, 2000 0 PURP�SE The purpose of this Statement of Investment Gbjectives and Guidelines is to assist the City of Clearwa�er Employees' Pension Fund (liereafter refened to as the Fund) it� more effectively supervising and monitoring the investment of the Fund's assets. In the various sections of this policy docurrient, the Fund defines its investment program by: • stating in a written document the Fund's attitudes, expectatians and objectives in the investment of Fund assets. • setting forth an investment "structure" for managing assets. This structure includes various asset classes and inveshnent management styles that, in aggregate, are expected to produce a prudent level of diversif cation and investment retum over time. � providing guidelines for each investrnent portfolio that control the level. of risk assumed in the portfolio and ensure that assets are managed in accordance with stated obj ectives. � encouraging criteria to monitor and evaluate tlie performance results achieved by the investment rnanag�rs. This Statem�nt represents the Ftind's current phi�osophy regarding the investment of Fund assets. In addition, although the Fua�d shall utilize this Policy Statement in rnaking deeisions conceming the Fund, it shall not neGessarily be hound solely by its contents. PitUDEN�� Ai�I]D E'i'HICAL, S'Y'AI'�iI�A�S Tlle standard of prudence to be applied by the tnistees shall be the "Prudent Person" rule, which states: "Investments shall be made withludgrnent and care, under circumstances then prevailing, which persons of prudence, discretian and intelligence exercise in the management of their own affairs, �ot for speculation, but for investrnent, 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). 1 ���d�ng �n�i�sonhx The Fund's funding objectives for the Fund is to be as fitlly funded as possible so that: • the ability to pay all benefits and expense obligations from the Fund when due is �nsured; • there w ill be no principal erosion of contributed funds or the purchasing power thereof. • a"funding cushion" is maintained within the Fund for unexpected developments and for possible future increas�es in benefit structure and expense levels; • the Fund assets should eam sufficient total rate of reh�rn over time to reduce the Fund's deper.dency on contributions to meet aII benefit and expense obligafions. Inves�nent results within the Fund are considered to be the major critical element in achievitlg these funding objectives stated above while reliance on contributions is a secondary element. L��uidrty Postur�e Liquidity cansidcrations are low in the short-term and interrnediate-term resulting ir� a�� immaterial impact upon investment poliiy, ubj ectives an.d guidelines. Authorizec� Indcstment� The following is a list of authorized investments: 0 Invest and zeinvest the assets of the pension fund in annuity (including group annuity contracts of the pensian investrnent type) and life insurance contracts of l�egal reserve life insura�nce companies licensed to do business in the State of Florida, in amounts sufficient to provide, in who�e or in part, benefits ta which all of the participants shal� be or become entitled under the provisions of the Fund, and pay the initial a.nd subsequent premiurns thereon • Invest and reinvest the assets af the pension fund in: a. Time deposits, savings accounts, rnoney market accounts, fualds, certificates �f deposits, or money market cei-tificates of a national bank, a state bank, or a savings, building and loan association insured by the Federal I�eposit Insurance Corporation or collateralized by United States Government Agency securities. b. Negotiable direct obligations of, ar obliga�ions 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 2 be limited to the following: IJnited States Treasury Bills, Notes and Bonds, and securities issued by the Small Business Administration, Government Natior�al Mortgage Association (Ginnie Mae), Veterans Administration, and Federal Housing Administratian. c. Fu�ly collateralized United States Agency obligations which carry an implied guarante,e and the implied full faith and credit of the United States government. Inv�stments in this categorv would include but not be limited to th� following: obtigations of the Federal Home Loan Banks System (FHLB) or its distinct banks and Financing Corporation (FIC�). d. 4ther United States Agency obligations which carry an implied guarantee and the implied full faith and credit of the United States Government. Investments in this categorg� would include but not be limited to the following: obligations of the Federal Farrn Credit Banl:, 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) aiidlor Rea1 Estate Mortgage Investment Con�uits (REMIC), rated investment grade or equivalent by Sta�ndard and Poor's, 1Vloody's Fitch, or oth�,r recognized national rating agencies which are backed by se�urities otlYerwise authc�cized 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. C'ounty bon�is containing a pledge of the full faith and credit of the county involved, bonds of the Florida Developmei�t Commissiun, or of any other state agency, which have b�en approved as to legal a��d fiscal sufficiency by the state board of administration. g. Obligations of any municipal authority issued pursuant t� the laws of this state; provzded, however, that for each of the fve years next preceding the date of investment, the income of such authority available for fixed charges shall have been not less than one an.d one-haif times its average annual �xed charge requirements over the Iife of its obligations. h. Common stocks, preferred stocks and bonds and other evidence of indebtedness issued or guarante�d by a corporation organized under the laws of the United States, any state, or organized territory of the United States or the Districk of Columbia or any non-U.S. cor�oration, provided: 1. The corporation is listed on any one ar more of the recognized national or international stock exchanges andJor in the case of bonds and mortgage backed securities, traded among dealers and investors in a recognized and agreed upon conventional format; 3 2. All corporate bonds shall carry an investment grade rating as established either by Standard & Poor's, Moody's, Fitch or other recognized rating agencies; and 3. Not more than five p�rcent of the assets of the pension fund shall be invested in the cornrnon stock or capital stock of any one issuing company nor shall the aggregate investment any one issuing company exceed five percent of the outstanding capital stock of that cornpany; nor shall the non-U.S. investrnents exceed tcn percent of the pension fund's assets at cost; nor shall the aggregate of the investrnents under this subparagraph at cost exceed sixty-five percent of the pension fund's assets �t cost. Iliiqt�id Investrnents T'he Fund will not i�ivest in illiquid investments. Illiquid investments being defined as an inveshnent for which there is no generally recognized market or generally accepted piicing mechanism. Iuvesir�ent 1l�Ianagerrrer�t Strt�cture The Fund has revie��ved the investrnent prob am for the City of Clearwater Ernployees' Yension Fund. The result of the review is an updated, long-term strategic as5et allocation Fund. I�utially, four distinct asset classes were considered for inclus�on in the portfolio: Domestic Equities Domestic Fixed Income In.ternationaUNon US Equities Cash A.fter a thoraugh review, a permanent commitmen� to these four asset classes will be made to ensure diversification at the Fund level. The Fund may c�nsider investrnents in other asset classes which offer �o�cential enhanceinent to total return at risks no great�r than the exposures under the initially selected asset class�s. It is not the inter�tion of the Fund to become involved in day-to-day investment decisions. Therefore, the assets will be allocated to professional investment mar�agers in a manner consistelit with the Policy's objectives. Each asset class will have its own investment managers. Diversifcation of ihe U.S. Market Equity commitment will be achieved through the ernployrnei:t of znanagers of complementary investrnent styles, �Growth and Value. In the U.S. Fixed Incorne market a core bond managers will be utilized to stat�ilize ths fund. In the Internatio�al Equity market a diversified non-U.S. rnanagers will be hired and achieve diversi�ication. �ash auid cash equivalents will be rnanaged either by t}�e Investment Managers or the custodian. In addition the �ity uses the pooling concept to meet the irr��ediate cash needs of the city ar�d to rn�xinuze t�ie interest eaanings. The Fund will keep sufficienE fi�nds in the City's pooled cash account to rneet the current obligations of the Fund. The guidelines for the allocation of assets, at cost, to investment managers are as follows: L� 2. All corporate bonds shall carry an investment grade ratinb as established either by Standard & Poor's, Moody's, Fitch or other recognized rating a�encies; and 3. Not more than fiv� nec•cent of the assets of'tlie pension fund shall be invested in the common stock or ca��tal stock of any one issuing cornpany nor shall thc ag�regate investment any one issuii�g compaiiy Exceed five percent of the outstanding capital stock of that company; nor shall the non-U.S. investments exceed ten percent of the pension fund's assets at cost; nor shall the aggregate of the investments under this subparagraph at cost exceed sixty-five percent of the p�nsion fund's assets at cost. Illiquid Invesiments The Fund will not invest in illiquid investments. Illiquid investments being defined as an in�estxnent for which there is no generally recognized market or generally accepted pricing mechanisrn. Investment Mana�ernent Structure 1'he Fund has revie�ved the investment prograin for the City of Clearwater Ernployees' Pension Fund. The r.esutt af the review is an updated, long-tcmi strategic asset allocation Fund. Initially, four distinct asset classes �vere considered for inclusion in the portfolio: Domestic Equities Domestic Fixed Income InYernational/Non US Equities Cash After a thorough review, a permanent comrnitment to these four asset classes will be made to ensure diversification at the Fund tevel. The Fund may consic�er investrnents in otlier asset classes which affer potential enhancement to total return at risks no greater tllan the exposures under th� initially selected asset classes. It is iiot the intention of the Fund to become involved in day-to-day investment decisions. Therefore, the assets will be allocated to professional investment managers in a manner consistei�t with the Policy's abj ectives. Each asset class will have its own investment managers. Diversif cation of the fiJ.S. Market Equity commitment will be achieved through the employment of mal�agers of complernentary investrnent styles, Gro��th and Value. In the U.S. Fixed Income market a core bond managers will be utilized to stabilize the fund. In the Internatiollal Equity rnarket a diversified non-U.S. rnanagers will be hired and achieve diversification. Cash and czsh equivalents will b� managed either by the Investment Managers or the custodian. In addition the City uses the pooling concept to meet the immediate cash needs of the city and to maximize the interest earnings. The Fund will keep sufficient funds in the City's pooled casll account to meet the current obligations of the Fund. The guidelines for the allocation of assets, at cost, to investment managers are as follows: � Lower Limit Upper Liinit Cost or Market U.S. Nlaricet Equities 40.0% G0.0% Cost Growth 10.0% 40.0% Cost Value 10.U% 40.0% Cost Fixed Income 30.0% 50.0% Cost Internalic�nal Equity 5.0% 10.0% Cost Because the asset classes do not move in concert, deviations from the riornlal commitments will occur through normal marlcet activity. The Upper and Lower Limits define the ranges withi�� which market activity wiil be allowed to shift the allocati�ns. The ranges �u-e designed to allow for a reasonable period of tirne to elapse before rebalancing the portfalio. When the investments are otit of policy the assets ���ill be moved from the over-allocated to the under-allocated in a prudent manor. When in market equilibriurn, cash flows will be depIoyed in a manner that returns the poi-tfolio to its nonnal comrnitments. Internal Controls As part of the city's annual financial audit the extemal CPA firnl will review the internal controls of the Fund. The hii-ing ar tennination of all money managers, consultants or safekeepii�g custodians mtist be made by the trustees. No individual associated with the Fund may autl�orire a��y movement of monies or securities with out the approval of the trustees, if required, or by the approval of the Pension Investment Conunittee if trustee approval is not required. An instance not requiring truste� approval is rebalancing the portfolio. Internal controls �vill be designed to prevent Ioss�s of funds which rnight arise frarn fraud, error, misrepresentation by third parties ar imprudent actions by the trustees or city ernployees. Mak�up of 7['he �nvestment C�meriittee The Pension Investment Cornrnittee initially shall be made up of the following: Finance Services Aclministrator (City Treasurer), Assistant Finance Director, Financ;e Coiitroller, Risk Managec•, Senior Accc�unt�nt, Gen�ral Services Controller, Fire Administrative Support Manager and Cash & Investments Manager. The Financial Services �dniinistrator or their designee will chair the cornmittee. Tfie City Treasurer will make a recommendation to the Tnistees as to ally changes in the makeup of the committee. Continuing �;ducation '�'he annual budget for the pension Fund will include sufficient funding for the trustees and nlembers of the �'en�ion Investment Committee to participate in pension education opportunities. These educational opporlunities will include education on the individual's duties and responsibilities as well as investznents in general. The chief investment officer will complete no less than 8 hours of cor�tinuing educational opportunities on pension investments each fiscal year. � �nv�strr�er�t R�turr� Ob.je�tivef In formulating invesiment return abjectives for the Fund objectives for the Fund assets, the Fund placed primary emphasis on the follawing goals: � Achieve investment performance that exceeds the rate of inflation over time thereby providing a real rate of return. • Achieve investment results of at least the actuarial rate of return. • Achieve investment performance that is materially above average when compared to: - Other investment managers - Other investment manager peers of related investrnent style - Other public retirement plans - Several capital market indices For cach actual valuatioil the Trustees wilt determine the expected rate of return of the currerit year, next several years and the long terni. Based upon the above �id the following tl�e capected annual rate of return for the current year is 7%. The expected rate of return for the foz-eseeable future is also 7%. 1. 7Cota1 Fund Retua-n Objectives The following minimum comparative objectives have been established for the total Fund: � The total fund should rank in the upper f ftieth (SOth) percentile compared to a recognized p�rforma�lc� measure company's total public plan sponsar database measured over a minimum period of three (3) or maximum five (5) years. e The Fund's overall annualiz�d total reiurn should perform at least at the upper fiftieth (SOth} percentile compared to investment style peers of similar type as found in recogr�ized perforniance measure camp�ny's style database for each asset class segment. � The Fuald's overall am�ualized total return (which is defi�ied as all price changes plus ail income and/ar dividends) should exc�ed the actuarial assumption over a rolling three or maximum of year period. + The Fund's overall annualized total return should exceed the retums that would have collectively heen achieved if the Fund had been fully invested in the appropriate percentage of : 0 - Standard & Poor's 500 Stock Index - Lehman Brothers AggreJate Bond Index - Morgan Stanley Capital Internationa] EAFE Index This is a custom benchmark that will be calculated relative to the actual collectiv� asset class mix of the Fund measured over a minimum of three (3) or maximum of five (�) years. 2. Equity Segc�ent 12e�urn Objectives A. The following minimum performance goals have been established for the Fund's dornestiG equity segment: � The domestic equity segment total rehirn should perform at least at the upper fiftieth (SOth) perceritile cornpared to the a recognized performance measure cornpany's total U.S. equity database measured over a minimum period of three (3) or ma�imuin of (5) yea� s. • The individual dornestic equity managers total retui-n should perfonn at least at the upper fifth (SOth) percentile campared to investment style peers of similar type as found in a recognized performance measure company's total U.S. equity database measured over a minimum period of three (3) or ma�:imum of (5) years. • The total d�mestic equit_y segment total return sl�ould exceed tlie total return of the Standard & Poor's 500 Stock Index by at least one (1) percentag;, point per year measui-ed over a minimum period of three (3) or maximum of (5) years. b. The follawing minimum performance goals have l�een established for the Fund's international equity segment: � The intemational �quity segment total return sl�ould perform at least at the upper fiftieth (SOt�l) percentile compared to recognized performance nieasure company's total non U.S. equity database measured over a minimum period of three (3) or maximum of (5) years. � The individual international equity managers total rehirn should perform at least at the upper fiftieth (SOth) percentile cornpared to the inveshnent style peers of similar type as found in a recognized performance measure company's total non U.S. equity database f/ � measured over a minimu�m period of three (3) or maximum of (5) years. • The international equity segment total return should exceed the total return of the Morgan Stanley Capital I�lternational Europe, Australia, Far East IndeY (CIEAFE) by at least two (2) percentage points per year over a minimum of three (3} or maximum of (S) years. 3. Fixed Income Segrn�ent �'��turn �Dbjectives A. The following minimurn performance goals have been established for the Fund's domestic fi�ced-in�ome segrrient: � '�he domestic fixed-income segment total return should perfc�im at least at the upper fiftieth (SOth) percentile compared to the recognized performance measure compa�iy's total domestic f i�ced income database measured over a minimum period of tlu•ee (3) or maximurn of (5) y�ars. • The individual domestic fixed income managers total return should perfornl at least at the upper f f�ieth (SOtll) Uercentile com�ared to investrnent style peers of similar type as found in a recogilized perfarmance measure company's total domestic fixed income database measured over a minimum period of tllree (3} or maximun� of (5) years. • The domestic fixed income segment total returns should exceed the tota� return of the Lelvnan Brothers Aggr�gate Bond Index by at least one-half (.5) percentage point per year measured over a miiumurn period af tlu-ee (3) or maximwn of (5} years. 4. Itespo�sibilities oithe Tliird lParty Custodian A third pariy custodian will hold all Fund assets other than commingled accounts. In order to maxirnize the Fund's return, no money sliould be allowed t.o remain idle. Dividends, interest, proceeds from sales, new contributions and alI other monies are to be invested or reinvested promptly. If fw�ds are not reinvested, then they will be placed in money mar�cet instruments or a money market fund inunediately by the designated cash manager working in concet-t with the custodian. The custodian �vill be responsible for performing the following functions: : • Accept ciaily instructions from the investment managers; • Advise investment managers daily of changes in cash equivalent balances; • Immediately advise investment managers of additions or withdrawals from acco�int; • Notify investment managers of tenders, rights, fractional shares or other dispasitions of holdings; • Res�lve any problems that investment managers may have relating to custodial account; • Safekeepulg of securities; • Interest and dividend collection; • Daily cash sweep of idle principal and incor,ie cash balance; • Process all investmerit manager transactions on a delivery vs. payment basis; • Collect proceeds from maturing securities; e Provide monthly statemecits by investment manager accou�lt; • No withdrawat of securities, in whole oz in part shall be made except by ac� authorized member of the committee or the committee's designee. �ESFONSIB�LI'�'IES OF INVES'I'M[EN'T MAIVAGERS The duties and responsibilities of each of the registered investment advisors retained by the Fuiid include: l. Managing the assets under its management in accordance with the policy guidelines and objectives expressed herein, or eYpressed in a separate �uritten agreement when deviation is deemed prudent and desirable. 2. Exercising full investrnent discretion within the guideiines and objectives stated herein. Such discretion includes decisions to buy, hold or sell securities in arnounts and proportions reflective of the manager's current investment strategy and compatible with invesmlent objectives. � 3. Promptly inforrning the Fund regarding all significant matters pertaining to the investment of tlie fund assets, for exa�nple: • chaulges in investment strategy, portfolio structure and market value of rnanaged assets; • the manager's progress in rneeting the investment objectives set forlh in this document; and • significant changes in the ownership, affiliations, organizational struch�re, financial condition, professional persor�nel staffing and clientele �f the investment management orga�lizations, 4. Init�ating written commux�ic�tion with the Fund whe�eve�- tlie investment manager believes that this Statement of Investrnent Obiectives and Guidelines should be altered� No deviation from guidelines a�ld objectives established in the Statement should occur until after such communication has occurred anci the Fund has approved such deviation in writing. S. The �und fonnally delegates full authority to each investment manager for exercising all proxy and related actions of the Fund's investment assets assig��ed to it. �ach rnanager shall prornptly vote all proxies and related actions in a manner consistent with the long-t�rrn interests of the Fund and its Pariicipants and Beneficiari.es. Each investment manager shall keep detailed records of all said voting of proxies and related actions and will comply �vith all regulatory obligations related thereto. The Fund shall periodically audit and review each investment manager's policies and actions in this area. 6. Each Investment 1Vlanager shall utilize tlle same due care, skill, prudence a�lcl diligence under the circumstances then prevailing that �xperienced, lI1VeSt111el1t professionals acting in a like capacity, as a fiduciary, and fully farniliar wifh such matters would use in like activities for like Funds with like aims, while maintaining appropriate diversification to avoid the risks of large loss�s, in accordaiice and compliance with all �pplicable laws, rules and regulations fi•om local, state, federal and international political entities as it pertains to fiduciaay duties and responsibilities. EVALUATION A1�1D REVIEW On a timely basis, but not l.ess than four times a year, the Fund will review actt�al investnient reslilts achieved by each manager (with a perspective toward a five-year time horizan) to determine ��hether: 10 • the investment managers per#'ormed in adherence to the irrvestment philosophy and policy guidelines set forth herein; and • the investment managers performed satisfactorily when cornpared with: - the objectives set forth in Appendix "A", as a primary consideratioii, - their own previously stated investment style, - other invPStment rnanagers, both in asset class and in style group, - other retirement Funds, - several different market indices. vl addition to reviewing each investment manager's results, the Fund will re-evaluate, frorn tirne to time, its progress in achieving the total fund, equity, fixed-income, international, a�ld cash and equivalents segment obje�tives previously outlined. The periodic re-evaluatioi� also will invotve an evaluation of tlie continued appropriateness of: {1) the manager structure set forth in Appendix "A"; (2) the allocation oi assets among the managers; and (3} the investment objectives for the Fund's assets. The Fund may appoint investment consultants to assist in the on-going evaluation process. The consultants selected by the Fund are expected to be familiar with the investment practices of other sunilar retirement plans and will be responsible for suggesting appropriate cha�lges in the Fund's investrnent program over time. Fating of Investrnent Po�ic� Upon adoption by the trustees, the investment policy shall be promptly filed with the Depai��ie��t of Managernent Services, the City Cleik, and the consulting actuary. The effective date of changes to the Investment policy wi11 be 31 days after the f ling date with tl�e city. 11 0 APPENDIX A: FIJND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES 12 CITY OF CLFARWATFR EMPLOYEES PENSION FUND INVESTMiENT STRUCTU�2E September, 2000 Investment Mana�er Dome�tic Equity Specialist Manager Value Orientation Domestic Equity Specialist Manager Growth Orientation International Equity 5pecialist Manager Domestic Fixed �ncome Specialist Manager Core Fixed Income Orientation 13 Target Allocation 10% - 40% 10% - 40% 5% - 10% 30% - 50% �,PPFNDIX A: F[JND �EGMEh"I' AND INDIVIDUAL MANAGFR GIUIDELINES 1. Mana�er Structure The Fund will retain investinent managers ti�at specialize in the use of particular asset classes. The targeted distrib�tion of Fund assets among specialist rna.liagers will be as illustrated ori the previous page. The Fund believes that the established structure: • is consistent with the practices of other similar-sized retirement funds; and • offers an appropriate "blend" of investtnent styles tliat will produce a sufficient level of diversification and investment return over tirne. 2. C:�sli Flow �llocation The allocation of assets is consistent with the Fund's desire to diversify its iiivestment management progra.in. The Fund intends to review on a periodic basis the allocation of assets among its iiivestment managers. To the extent that it is practically possible, it is expected that any cash flow will be allocated to or taken from the managers in the same proportions that eacli manager's assets represent to total fund a.ssets in the target asset allocation outlined previously. 3. Trustee Utili�ation Restrictions All domestic Fund assets, in any forrn, shall be solely and exclusively: (a) settled at, (b) held in custody at, and (c) safe-kept only at custodians designated by the Tund at its snle discretion. International Fund assets rnay be held in cominingled accounts provided that all of the nonnal protection of tlle Fund's assets is provided for. 4. '�ransaction A ent Assi�nmeot Restrdctions Assi�nment of sp�cific Urokerage firms, dealers, financial institutions, and other transaction execution agents to all investment managers shall be the sole responsibility caf the Fund. From tiine to tirne, the Fund at its sole discretion may specify certain transaction agents that investment transactions shall be executed through. �. Shart Selli�g and �telated Restrictaons There shall be no: short selling, non-coilateralized and/or non-delivered repurchase agreements, use of financi�l fiitures or options, non-�riarketable direct investrnents in equity or debt private placements or lease-backs or any other specialized investrnent activity without the prior �vritten eonsent of the Fl.nd, 14 6. Liquiditv and Marketabilitv Restrictions Liquidity and marketability frequently are perceived to be a function of tlie quality and tlie mark�t capitalizatio�i of each security holding. From the Fund's perspective, liquidity and marketability also may be a function of a ma.nager's aggre�ate holdings in a�ai�ticular security. The Plan believes that an investment manager should not buy or hold a security for the Funds portfolio if the a�gregate holdings arnong all of that manager's other accounts in that same security would restrict the manager's ability to expeditiously liquidate tlle position at any time. From a total Fund perspective, the Fund believes the collective holdin�s ainong all Fund managers accounts in that same security would restrict all ma.nagers collective ability to expeditiously liquidate th�ir respective positions in that saine security. Therefore, the Fund retains �he sole right to limit any manager's hold.ing of any security in the Fund at any time in order to prevent the potential for said Fund's collective liquidatiori and market risk. 7. Usage o� Custodian� STIF on all Idle �ash Restricteons Any idle cash not invested by the investment managers shall be invested daily via an automatic sweep STIF maz�aged by the Custodian or by others in behalf of each investment manager. It is the Fund's objective to have no idle cash at any time in any rnanager's portfolios, 8. Usage oi Cross Asset Segment Investment Guideline Restrictions When a manager's holdings include Fund assets outside of their primary assigned asset segment assigtunent (e.�. a prirnary damestic equity manager also holds same casli equivalents or fixed incon�ie securities as well as equities) the guidelines stated thcrein for the non primary asset segment shall fully apply to the manager, in addition to the primary asset assigned segment guidelines. 9. Divers�fication I2estrictions Except for criteria noted elsewhere in this Policy and in specific written contracts with eacli manager, the appr�priate and reasonable diversification of securities by such factors as geogra�hy, region, sovereign risk, native currency, quality, coupon, country risk, maturity, industry, duration, and sector is within the full discretion and responsi�iility of the investment managers. 15 10. 11. 11 A. 11 B. Other C�bjcetives, Guidelines and Restrictions Forthcornen� The Fund will develop additional objectives, guidelines and res±riGtions in the future on other areas as it deems appropriate. Fund Se�rnent G�idelines Following are guidelines and objectiv es established for the fund segments and for each investment manager retained by the Fund, Individual rnanager guideliries are designed to be consistent, in aggregate, with the total fund asset allocation guidelines and investment objectives set forth in the Statement of Investrnent Objectives and Guidelines. E�c uitv Segment Each equity manager is expected to adhere to the following guidelines: • Equity holdi�gs in any one company (including common and preferred stock, convertible secut-ities and debt) should not exceed 10% of the market value of the manager's portion of the Fund without the consent of the Fund. � ECluity hoZdir�gs in any one industry (as defined by Standard & Poor'sj should not exceed 50% of the market value of the manager's portion of the Fund. ° Cash equivalents and fixed iiicome positions shouid not exceed twei�ty percent (20%) of the manager's portion of the Fund assets. A manager may invest in fixed income securities (i.e. secuxities �vith more than two years t� maturity) if projected retums on such securities are perceived to bc cornpetitive with potential equity returns. However, fixed income securities should not represent more than t�venty-f ve percent (25%) of a manager's portfolio without the prior written consent of thc Fund. • No purchase shall be made by an investment rnanager which would cause a holding ta exceed 5% of the issue outstanding. International Eqti6ty. Segment Each intemational equity x�lanager is expected to adhere to the following minimum guidelines: • Equity holdings in any one compan;� and all of its subsidiaries and affiliates (inciuding equities, canvertible sccurities and debt) should not e�ceed ten ld perce�t (10%) of the market value of the manager's portion of the Fund portfolio without the prior written consent �f the Fund. • Equity holdings in any one industiy should not exceed Ffty percent (50%) of the market value of the manager's portion of the Fund portfolio. Equity holdings in any onc s�etor (e.g., consumer cyclical, energy, technology, etc,) should not exceed fifty (50%) of thc market value of the rnanager's portfolio without the prior written consent of the Fund. • Cash equivalents and fixed income positions should not exceed fif�y percent (50%) of the manager's portion of the Fund assets. A manager may invest in fixed income securities (i.e. securities with more than two years to maturity) if projected retums on such securities are perceived ta be carnpetitive witl� poter�tial equity returns. • The manager may enter into foreign exchange contracts on currency provided that: (a) such contracts have a rnaturity of une year or less, and (U) use of such contracts is lirnited solely and exclusively to heciging currency exposure existing within the mana�er's portfolio. The intent is to dampen portfolio volatility and prevent currency loss. There shall be no direct foreign currenc}� speculation or any related investment activity. • The rnanager may purchase or sell currency on a spot basis to acco�nmodate specific securities settlements. 11 C. Fixed Income Se,�ment Each fixed incorne manager is expected ta adhere to the following guidelines: • All Fixed Income Securities held in each poi-tfolio should have 3 Moody's, or Standard & Poor's quality rating of no less than Llvestrneiit Grade from any of these rating services. (For an issue, which is split-rated, the lower quality designation will govem.) No more than twenty percent (20%) of the rnarket v�lue of the manager's portion of the Fund portfolio shall be rated less than "investment grade" quality. • The diversification of securities by maturity, quality, sector, coupon and geography is the responsibility of the manager. • The �xposure of each mar�ager's portfolio to any single security other than a security backed by the full faith and credit of the U.S. Govemment or any of its instrumentalities should be lirnited to 10% of the manager's portion of the Fund me�sured at market value. I7 • No purchase shall be made by a Fixed Income Manager which would cause a holding to exceed 15% of the issue outstanding. • There shall be no use of options, financial futures, derivatives or other specialized investment activity �vithout the prior written approval of the Fund. • Not more than IO% of an investment manager's portfolio, valued at market, shall be invested in certiticates of deposit, time deposits, bankers acceptances, corrunercial paper, or related investments of a single issuer financial institution or financial institution holding company family. 11D. Cash and Equivalents S�ment Although investment managers will be retained for their expertise iil a certain investment segment, it is expected that from time-to-time each will have sorne cash and equivalents in their portfolios as a result of discretionary asset allocation decisions. Any idle cash not invested by the investment mana�ers shall be invested daiiy via an automatic sweep STIF managed by the custodian. It is the Fund's objective to have no idle cash at any time in any manager's �ortfolio. 11�. Poaied Vehicl�es To the extent that the Fund invests a partion of the Fund's assets in commingled vehicles or instih.itional mutual furids, then the investment guidelinzs of the Fund's prospectus will be adopted as thi5 fund's guidelines. 11F. 1°+�Ias�er Repurcbase Agreement 'I'he money managers and safekeeping custodian will use a master repurchase agreement whenever appropriate. All repurch�se agreements transactions shall adhere to the requirements of the master repurchase agreem�nt. : 12. Individuat Ma�aEer Descriptions and Five-Year Expectations Al1 expectations are minimums. All investment managers shall exceed the stated expectations. Investment Muna�cr Percentilc Pcrcentilc Expectution Expectation Itelutive To Rclativ�e To Otiicr M11unagcrs Stylc Pecrs Domc;stic Equity Specialist Manager SOth SOtI: Valuc Orieniation Domcstic Equity Specialist Manager SOth SOth Growth Qrientation Intemational Equity SOth 50'� Specialist Manager Domestic Fixed (ncomc: Specialist Manager SOth SOw Cure Fixed Income Orientation Cash and Equivalents and SOth SOtii S'CIF Portfolios In addition, each domestic equity and fixed income manager is expected to achieve positive risk-adjusted (alpha) performance over a three (3) or maxirnum of (5) year periods. I3. Repor�in� Requirernents Consultant ReportinQ The Pension Fund`s Consultant will provide quarterly reports to the Pension Fund which, at a minimum, will review the following information about each Investment Manager a�id the Total Fund: ° Overview of the most recent quarter and year-to-date investment indicators • Total Fund asset alloeation ° Comparison of total Fund retum versus the customized benchmark • Performance results by individual Manager and Total Fund cornpared to appropriate benchmarks. 19 Investment Reporting • On not less that an annual b�asis the Trustees will receive a report showing a list of aIl of the securities het�i by investrnent manager. This report will be provideci by the safekeeping custodians and shall include the portfolio by class or type, book value, income eamed, and market value as of the date of the report. This report will be filed with the city. Review of Policv This Statement of Inveshnent Policy must be reviewed annually by the Pension Investment Cornmittee with a recommendation to revise or confirm to the Trustees. Meetin� A�enda At each meeting, the written and oral presentations shall cover the following points: � A report of perforniance for past periods. Standard time periods for each report ��vill be last quarter, last year, year to date, latest twelve (12) mont}�s, two years, three years, etc., and since inception and by calendar year. Returns should be annualized and calculated on a time-weighted basis for the total portfolio. All returns should include price change plus income and/or dividends. � Discussion of the rationale for performance results by relating them specifically to investment strategy and tactical decisions implemented during the current review period. � Discussion of the investment manager's specific strategy for the portfolio over the next six to twelve months with specific reference to asset allocation and sector weighting, as appropriate. Supporting discussion of the next period's strategy with re�'erence to investment manager's capital market and economic assumptions, if applicable. Ten (12) copies of the written summary should be received by the Fund at lea.�t five (5) business days prior to the meeting. The Fund is interested in fostering an effective working relationship with its investment managers through a discipline of good comrnunication. The establishment of Objectives, Perfonnance Standards, Policies and Guidelines, and Reporting Requirements is intended to provide the Fund with a good foundation 20 �� �. 1. from which to understand specific managemznt styles and strategies, evaluate results �id aversee progress toward overall investment objectives. The Fund shall be using a third pariy consultant selected, hired and directed by the Fund to: (1) assist in appraising perforrnance, (2) to provide performance comparison data witli other retirernent plans, several capital market indices, and to other invesnnent nrianagers, (3) assist in evaluating manager style discipline and peer comparisoiis, �4) assist in strategic funding and manag�ment of the Fund, and (5) other factors the Fund deerns appropriate. Investrnent managers are required to support and a5sist the con�ultant with their fullest cooperation. 21