INVESTMENT POLICY STATEMENT - SEPTEMBER 2010Clearwater Police Supplemental Pension Plan
Investment Policy Statement
September, 2010
Investment Policy Statement
The City of Clearwater Police Supplemental Pension Trust Fund (the "Plan") is a defined contribution plan,
which was established to provide retirement benefits to participants in accordance with the benefit structure
adopted by the Board of Trustees (the "Board").
The Plan is maintained to invest contributions and reinvest income and investment proceeds for the exclusive
benefit of plan participants and beneficiaries.
Assets of the Plan shall be invested to ensure that principal is preserved, both in real and nominal terms.
This policy statement is issued for the guidance of fiduciaries, including investment managers and the Board,
in the course of investing the retirement funds of the City of Clearwater and is consistent with the provisions of
the "prudent man rule" under ERISA or other such federal laws as may now and in the future apply to
investments of the Plans.
The Board, in performing its investment duties, shall comply with the fiduciary standards set forth in the
Employees Retirement Income Security Act of 1974 at 29 U.S.C. s. 1104(a) (1) (A) - (C). In case of conflict
with other provisions of law authorizing, investments, the investment and fiduciary standards set forth in this
section shall prevail. This policy statement's purpose is to determine the Plan's projected financial needs;
express the Board's position regarding the asset mix of the Plan.
Policy guidelines will be amended from time to time by the Board both upon its own initiative and upon
consideration of the advice and recommendations of the investment manager and Plan professionals, including
the Plan's investment consultant.
Investment of the assets of the Plan must be consistent with this written investment policy adopted by the
Board. The policy will be structured to maximize the financial return to the Plan with risks incumbent in
each investment and will be structured to establish and maintain an appropriate diversification of the Plan's
assets.
The Board shall establish a system of internal controls and be made a part of the Board's operational
procedures. As part of any financial audit periodically required by the City of Clearwater, the independent
certified public accountant will review the Plan's system of internal controls. The internal controls should
be designed to prevent losses of funds which might arise from fraud, error, misrepresentation by third
parties, or imprudent actions by the Board or employees of The City of Clearwater.
The Board shall establish a policy for continuing education of its members relating to the investments of the
Plan and Board's responsibilities.
INTRODUCTION
This statement of investment goals and objectives is set forth in keeping with the f=iduciary requirements under
existing federal laws. Its purpose is to express the Board's position regarding the asset mix of the Plans, set
forth an appropriate set of objectives for the Plan's assets and define policies and restrictions within which the
Investment Managers may formulate and execute their investment decisions.
OTHER CONSIDERATIONS
To reduce volatility of year-to-year changes in investment return.
To diversify investments to the extent practicable to control the risk of loss resulting from over
concentration of assets in a specific maturity, issuer, instrument, dealer, or bank through which financial
instruments are bought and sold. Diversification strategies within the established guidelines shall be
reviewed and revised periodically, as deerned necessary by the Board.
To maintain an investment posture that if flexible, within guidelines, to the ever-changing economic
environment as well as to the volatile capital and securities markets.
Invest only in marketable securities. No illegal investments shall be made.
Assets for which a fair market value is not provided shall be excluded from the assets used in the
determination of annual funding cost.
INVESTMENT FUND MANAGER
PORTFOLIO MANAGER CHARACTERISTICS
The Board recognizes that a professional Investment Manager should be retained. In order to facilitate that
selection process, the following criteria and standards are adopted:
Have employed essentially the same portfolio managers for the past five years.
2. Have consistently maintained the same investment philosophy for the past five years.
Show three and five year composite performance in the top quartile of a nationally
recognized rating service.
4. Have maintained an equity portfolio (without cash) standard deviation no more than
twenty percent (20%) higher than the market.
Present performance monitor report from an identified account showing three and five
year results above the 25th percentile using the Fund's asset allocation.
6. Actively manage both fixed income and equity portfolios.
7. Demonstrate to the Board satisfaction past results of changing asset allocation in
concert with changing markets.
8. Total management and custodian fees of less than one percent (I%).
9. Provide a minimrn i of three references fi-oni similar size, asset allocation and objective
funds.
10. Provide the name of all public sector clients who have left the firm in the past twelve
months.
11. Withdrawal penalties are not imposed.
12. Allow the Board the right of termination, without cause, of the manager's contract
upon thirty days notice.
1.3. Provide the Board a minimum of ninety days notice of the investment manager's intent
to terminate this agreement.
OBJECTIVES AND POLICIES
The Investment Manager will manage a pool of assets on a fully discretionary basis within the context of the
policies of this section.
Asset Mix
The asset mix (at market values) shall be the responsibility of the Board and its consultant subject to the
following guidelines:
Minimum Target Maximum Representative
Asset Class Weight Weight Weight Index
Equities 40% 45% 65% S&P 500
Foreign 0% 15% 25% EAF.E
Fixed Income 25% 35% 60% Barclay's
Gov't/Credit
Cash & Equivalents 0% 5% 15% 91 Day T-Bills
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INCOME DISTRIBUTION
There are no specific requirements for current income distributions.
INVESTMENT GUIDELINES
The investment guidelines, which follow, should be adhered to in managing the Plan assets. Any changes
in these investment guidelines will be communicated to the Investment Managers by the Board in writing.
If all guidelines are not met, no additional investment may be made in the investment category, which does
not meet the guidelines.
E UITY POLICIES AND RESTRICTIONS
Common stocks and preferred stocks 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 may be selected.
Up to ten percent of the total portfolio at cost may be invested in foreign securities.
A corporation's stock may be selected provided it is listed on any one or more of the recognized national
stock exchanges (including the NASDAQ).
Certain securities and investments are ineligible for inclusion by the Investment Managers in their pool
of assets:
a) private placement
b) unregistered or restricted stock
c) option contracts
d) futures contracts
e) uncovered short positions
f) margin transactions
g) commodities
h) warrants
4. A stock position of the equity portfolio at market may not exceed the individual stock weighting of the
S&P 500 by more than 3 percentage points without written approval from the Board.
5. A sector position of the equity portfolio at cost may not exceed the S&P 500 sector weighting by more
than 10 percentage points without written approval fi-o?n the Board.
6. The Investment Manager will pursue securities transactions on a best execution efforts basis through the
Blind Principal Bidding trading approach. The Investment Manager stands behind this approach as
being in the best financial interest of the Plan.
7. Investments in commingled stock funds which meet the criteria listed above are permitted.
8. The Investment Manager will have full discretion over turnover and allocation of equity holdings among
selected securities and industry groups, within the limits described above.
9. All investments should have sufficient liquidity to pay obligations as they come due.
10. If the Fund's equitypolicies ace exceeded, the investment Manager will bring the Plan into compliance
as soon as economically feasible.
11. Florida Statute 215
a) Direct Investment in "Scrutinized Companies" identified in the periodic publication by the State
Board of Administration ("SBA List, updated on their website www.sbafla.com/fsb/), is prohibited. Any
security identified as non-compliant on or before January 1, 2010 must be divested by September 1,
2010. For securities identified after January 1, 2010 that were not deemed "Scrutinized Companies" at
the time of purchase, which subsequently exceed the applicable limit or do not satisfy the applicable
investment standard, such excess or noncompliant investments may be continued until it is economically
feasible to dispose of such investments in accordance with the prudent man standard of care, but no
additional investment may be made unless authorized by law or ordinance. An action plan outlining the
investment "hold or sell" strategy shall be provided to the Board immediately. However, if divesture of
business activities is accomplished and the company is subsequently removed from the SBA list, the
manager can continue to hold that security.
b) For indirect investments in "Scrutinized Companies", the Investment Consultant, on behalf of the
Plan, shall send a letter to any pooled fund referring the Investment Manager to the listing of
"Scrutinized Companies" by the State Board of Administration ("SBA list"), on their website
www.sbafla.com/fsb/. This letter shall request that they consider removing such companies from the
fund or create a similar actively managed find having indirect holdings devoid of such companies. If
the Manager creates a similar fund, the Plan shall replace all applicable investments with investments in
the similar fund in an expedited timeframe consistent with the prudent man investing standards, For the
purposes of this section, a private equity find is deemed to be an actively managed investment field.
However, after sending the required correspondence, the Plan is not required to sell the pooled fund.
FIXED INCOME POLICIES AND RESTRICTIONS
Fixed income securities are to be selected and managed to ensure appropriate balances in qualities and
maturities consistent with current money market and economic conditions. "Active" bond management
is encouraged, as deemed appropriate by the Investment Managers. Selection ofa particular investment
should be determined primarily by the safety and liquidity of the investment and only secondarily by the
yield available.
Fixed income securities include U.S. Government and agency obligations, in A rated or higher corporate
bonds, debentures and preferred stocks, Bonds and other evidence of indebtedness issued or guaranteed
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 may be selected provided the corporation meets the standards
set forth in section 185.06(1)(b), Florida Statutes, as the same may be amended from time to time as the
Plan's investment consultant advises the Board.
3. Investments in privately placed or other non-marketable debt are not permitted.
4. Speculating in fixed income or interest rate futures is not permitted.
5. The duration of the fixed income portfolio may not exceed 125% of the duration of the Barclays
Government/Credit Bond Index subject to quarterly review. No issues, Treasury or Corporate Bonds,
may be purchased with more than 15 years to maturity. Also, no issue of mortgages would be made with
a duration. in excess of a 15 year Treasury. An attempt will also be made to match investment maturities
with known cash needs and anticipate cash-flow requirements.
6. Preferred stocks must be rated A or better by Moody's or Standard & Poor's at the time of purchase.
7. Investments in securities of a single issuer with the exception of the U.S. Government and its agencies
may not exceed five percent of the fixed income portfolio's value at cost.
8. If the fixed income security is downgraded below A after purchase, the Investment Manager will dispose
of the security as soon as it is economically feasible to do so.
9. Investments in commingled funds which meet the criteria listed above are permitted.
10. All investments should have sufficient liquidity to pay obligations as they come due.
CASH POLICIES AND RESTRICTIONS
1. Cash equivalents should not be viewed only as avenues to meet the liquidity requirements of the Plan.
Selection of a particular investment should be determined primarily by the safety and liquidity of the
investment and only secondarily by the yield available.
2. Cash and equivalents include money market funds, commercial paper, repurchase agreements, Treasury
Bills, certificates of deposits and bankers acceptances, which mature within one year.
3. Commercial paper must be rated A-1 or P-I by Standard & Poor's and M.oody's respectively. If an issue
receives a split rating, the lower rating will apply.
4. Bankers acceptances and certificates of deposits should only be purchased fron larger, well capitalized
domestic banks. All securities must be dollar denominated.
5. Investments in securities of a single issuer with the exception of the U.S. Government and its agencies
may not exceed five percent of the value of the portfolio at cost.
6. Foreign investments are not permitted.
7. If the cash or cash equivalent security is downgraded below A-1 or P-1 after the purchase, the
Investment Manager will dispose of the security as soon as it is economically feasible to do so.
OTHER ASSETS
1. All approved institutions and dealers transacting repurchase agreements must execute and perform as
stated in the master repurchase agreement and shall adhere to the requirements of the master
repurchase agreement.
2. Investments not listed in the investment policy are prohibited. Unless otherwise authorized by law or
ordinance, the investment of the assets of any local retirement system or plan covered by this part shall
be subject to the limitations and conditions set forth in s.215.47 (1), (2), (3), (4), (5), (6), (7), (8), (10),
and (16).
INVESTMENT OBJECTIVES AND MEASUREMENT STANDARDS
The Board shall retain a monitoring service to evaluate and report on a quarterly basis the rate of return
and relative performance of the fund.
2. The Board will meet quarterly with the monitoring service's representative to review the performance
report.
Assets managed by the Investment Managers shall be invested to ensure that principal is preserved, both
in real and nominal terms.
4. For the fund, the total rate of return should equal or exceed the actuarial earnings assumption and should
equal or exceed the Consumer Price index plus 3.5% over rolling, three year period.
5. Total return, including income and changes in market value, should be competitive with the experience
of other balanced fiords, consistently rank in the top half of the Wilshire Cooperative Public Fund
Universe each calendar year. Over rolling three year periods, the returns should rank in the top third of
the Wilshire Cooperative Public Fund Universe.
6. Over the rolling three year periods, the Total Fund will be compared to an unmanaged composite of the
market indices weighted in direct proportion to the Fund's actual percentage investment in equities,
fixed income and cash equivalents.
7. The fixed income portfolio return will be compared to the Barclays Government/Credit Index. Over
rolling three year periods fixed income returns are expected to exceed this index net of all costs.
8. 'The cash portfolio return will be compared to the 91-day U.S. Treasury Bill Index. Over rolling three
year periods cash returns are expected to meet this index net of all costs.
9. Performance of this field will be evaluated on a quarterly basis. The evaluation will focus on the extent
to which the Investment Manager has complied with the Plans' guidelines and the extent to which the
overall performance of the Plan achieves or exceeds the targeted goals.
10. Based on the target asset allocation, the Board has determined that the total expected annual rate of
return is 8% for the current year, for each of the next several years, and for the long term thereafter.
This determination must be filed promptly with the Department of Management Services and with
the Plan's sponsor.
CRITERIA FOR INVESTMENT MANAGER REVIEW
The Board wishes to adopt standards by which judgments of the ongoing performance of a Investment
Manager may be made. With this in ?nind, the following are adopted:
If at any time, any one of the following is breached, the Investment Manager will be warned of the Board's
serious concern for the Fund's continued safety and performance.
Four consecutive quarters of the total Fund performance below the 75th percentile in Investment
Manager performance rankings.
2. Standard deviation for the Fund in excess of 120% of the market.
Loss by the Investment Manager of any senior investment personnel.
4. Any change in basic investment philosophy by the Investment Manager.
Failure to attain a 60% vote of confidence by the Board.
Valuation of Illiquid Investments
The valuation of illiquid investments for which a generally recognized market is not available or for which
there is no consistent or generally accepted pricing mechanism shall be determined during each actuarial
valuation. For each actuarial evaluation, the Board must verify the determination of the fair market value
for those investments and ascertain the determination complies with all applicable state and federal
requirements. The Board shall disclose to the Department of Management Services and the City of
Clearwater each such investment for which the fair market value is not provided.
MEETINGS
On a timely basis, but not less than four times a year, the Board will meet to focus on:
Investment Manager's adherence to the Plan's guidelines.
Material changes in the manager's organization, investment philosophy and/or personnel; and
Comparisons of the Investment Manager's results to its investment objectives.
The Plan Sponsor will review the costs associated with the Plan annually. Costs to be reviewed include:
Asset Management Fees: The active management of the fund.
THIRD PARTY CUSTODIAL AGREEMENT
The Plan's securities should be held with a third party, and all securities purchased by, and all collateral
obtained by, the Board should be properly designated as an asset of the Board. No withdrawal of
securities, in whole or in part, shall be made from safekeeping except by an authorized member of the
Board or the Board's designee. Securities transactions between a broker-dealer and the custodian
involving purchase or sale of securities by transfer of money or securities must be made on "delivery vs.
payment" basis, if applicable, to ensure that the custodian will have the security or money, as appropriate,
in hand at the conclusion of the transaction.
REPORTING
On an annual basis, the consultant shall prepare a report on the City of Clearwater investment activities.
The Board will present these reports to City Council of the City of Clearwater. The reports shall include a
listing of all of the Plan's investments in the portfolio by class or type, book value, income earned, and
market value as of the report date. Such reports shall be available to the public.
FILING OF INVESTMENT POLICY
Upon adoption by the Board, the investment policy shall be promptly filed with the Department of
Management Services and the City of Clearwater. The effective date of the policy shall be 31
calendar days from filing with the City of Clearwater.
ADOPTION OF INVESTMENT POLICY
The foregoing Investment Policy Statement was unanimously adopted by the Board of Trustees of the City of
Clearwater Supplemental Pension Trust Fund on 1CD day of2010.
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Chairman Date
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Acknowledge Mul Date
Invesc Advisers Inc.
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