01/16/2007
PENSION TRUSTEES AGENDA
Location: Council Chambers - City Hall
Date: 1/16/2007- 9:00 AM
1. Call to Order
2. Approval of Minutes
2.1 Approve the minutes of the December 12, 2006 Pension Trustees Meeting as submitted in written
summation by the City Clerk.
~ Attachments
3. Pension Trustee Items
3.1 Candace McDaniel, Library Department; Philip Seissian, Public Services Department; Robert
Cruickshank, Fire Department; and Edward Lee, Police Department, be granted regular pensions under
Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory
Committee.
~ Attachments
3.2 Eric C. Stokholm, Solid Waste Department, and Alicia H. Farrell, Parks & Recreation Department, be
allowed to vest their pensions under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as
approved by the Pension Advisory Committee.
~ Attachments
3.3 Approve changes to the Mortality, Withdrawal, and Retirement Assumptions for the Employees' Pension
Plan as recommended by the plan's actuary, PriceWaterhouseCoopers LLP.
@) Attachments
3.4 Approve a contract with Independence Investments LLC as a small cap growth manager for the
Employees' Pension Plan.
~ Attachments
3.5 Approve a contract with Wedge Capital Management LLP as a mid cap value manager for the Employees'
Pension Plan.
@) Attachments
4. Other Business
5. Adjourn
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Approve the minutes of the December 12,2006 Pension Trustees Meeting as submitted in written summation by the City Clerk.
SUMMARY:
Review Approval: 1) Clerk
Cover Memo
Item # 1
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Candace McDaniel, Library Department; Philip Seissian, Public Services Department; Robert Cruickshank, Fire Department; and Edward
Lee, Police Department, be granted regular pensions under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the
Pension Advisory Committee.
SUMMARY:
Candace K. McDaniel, Librarian I, Library Department, was employed by the City on September 28, 1966, and her pension service credit is
effective on June 2, 1967. Her pension will be effective January 30, 2007. Based on an average salary of approximately $46,232 per year
over the past five years, the formula for computing regular pensions, and Ms. McDaniel's selection of the Joint & Survivor Annuity, this
pension will approximate $46,232 annually. Philip Seissian, Construction Inspector II, Public Services Department, was employed by the
City on December 27, 1977, and his pension service credit is effective on that date. His pension will be effective February 1,2007. Based on
an average salary of approximately $46,257 per year over the past five years, the formula for computing regular pensions, and Mr. Seissian's
selection of the Joint & Survivor Annuity, this pension will approximate $36,993 annually. Robert Cruickshank, Firefighter, Fire
Department, was employed by the City on December 17, 1973, and his pension service credit is effective on that date. His pension will be
effective November 1,2006. Based on an average salary of approximately $56,135 per year over the past five years, the formula for
computing regular pensions, and Mr. Cruickshank's selection of the Joint & Survivor Annuity, this pension will approximate $50,745
annually. Edward Lee, Police Officer, Police Department, was employed by the City on July 19, 1982, and his pension service credit is
effective on that date. His pension will be effective December 1,2006. Based on an average salary of approximately $60,313 per year over
the past five years, the formula for computing regular pensions, and Mr. Lee's selection of the 100% Joint & Survivor Annuity, this pension
will approximate $39.574 annually. These pensions were approved by the Pension Advisory Committee on December 14,2006. Section
2.393 provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has
completed thirty years of credited service, or has reached age 65 and completed ten years of credited service. Section 2.393 also provides for
normal retirement eligibility when a participant has completed twenty years of credited service or has reached age 55 and completed ten
years of credited service in a type of employment described as "hazardous duty" and further defines service as a Firefighter and Police
Officer as meeting the hazardous duty criteria. Ms. McDaniel qualifies under the age 55 and twenty years of service and the 30 years of
service criteria; Mr. Seissian qualifies under the age 55 and twenty years of service criteria; and Mr. Cruickshank and Mr. Lee qualify under
the hazardous duty criteria.
Review Approval: 1) Clerk
Cover Memo
Item # 2
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Eric C. Stokholm, Solid Waste Department, and Alicia H. Farrell, Parks & Recreation Department, be allowed to vest their pensions under
Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee.
SUMMARY:
Eric C. Stokholm, Container Maintenance Worker, Solid Waste Department, was employed by the City on April 29, 1985, and began
participating in the Pension Plan on that date. Mr. Stokholm terminated from City employment on November 3, 2006. Alicia H. Farrell,
Administrative Analyst, Parks & Recreation Department, was employed by the City on May 15, 1995, and began participating in the
Pension Plan on that date. Ms. Farrell terminated from City employment on October 23,2006. The Employees' Pension Plan provides that
should an employee cease to be an employee of the City of Clearwater after completing ten or more years of creditable service (pension
participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of
the month following the month in which the employee normally would have been eligible for retirement. Section 2.393 (P) provides for
normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed 30 years
of credited service, or has reached age 65 and completed ten years of credited service. Mr. Stokholm would have completed at least 30 years
of service on April 29, 2015. His pension will be effective May 1,2015. Ms. Farrell would have completed at least 20 years of service and
reached age 55 on November 13,2017. Her pension will be effective December 1, 2017. These pensions were approved by the Pension
Advisory Committee on December 14,2006.
Review Approval: 1) Clerk
Cover Memo
Item # 3
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Approve changes to the Mortality, Withdrawal, and Retirement Assumptions for the Employees' Pension Plan as recommended by the plan's
actuary, Price W aterhouseCoopers LLP.
SUMMARY:
The plan's actuary, PriceWaterhouseCoopers LLP, has recommended changes to the plan's mortality, withdrawal, and retirement
assumptions that are used to calculate the plan's liability and related contribution requirements. The recommended changes were the result of
a comprehensive review of the plan's assumptions relative to the implementation of a new reporting requirement for the City's liability for
Other Post Employment Benefits (OPEB). A comprehensive set of assumptions for calculation of the OPEB liability will be presented to the
City Council for approval at a later date. The actuary has indicated that the change to the mortality assumption, using the RP 2000 Blended
Healthy Mortality Table versus the current 1994 Group Annuity Reserving Table, should result in an increase in the plan's liability.
However this increase is expected by the actuary to be more than offset by the favorable changes in the withdrawal and retirement
assumptions, resulting in a net decrease in the plan's actuarial liability as the result of these three assumption changes. The actuary has
recommended that these changes be implemented to more fairly and accurately estimate the plan's liabilities and required contribution rates.
Type:
Current Year Budget'!:
Other
None
Budget Adjustment:
None
Budget Adjustment Comments:
Current Year Cost:
Not to Exceed:
For Fiscal Year:
Annual Operating Cost:
Total Cost:
to
Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) City Manager 5) Clerk 6) City Manager 7) Clerk
Cover Memo
Item # 4
Attachment number 1
Page 1 of 1
City of Clearwater, Florida
Employees' Pension Plan and GASB 45 OPEB Mortality Assumption
January - 2007
RP 2000 Blended Healthv Mortalitv Table
Aqe
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
Male
0.0269%
0.0284%
0.0301%
0.0316%
0.0331%
0.0345%
0.0357%
0.0366%
0.0373%
0.0376%
0.0376%
0.0378%
0.0382%
0.0393%
0.0412%
0.0444%
0.0499%
0.0562%
0.0631%
0.0702%
0.0773%
0.0841%
0.0904%
0.0964%
0.1021 %
0.1079%
0.1142%
0.1215%
0.1299%
0.1397%
0.1508%
0.1616%
0.1734%
0.1860%
0.1995%
0.2138%
0.2449%
0.2667%
0.2916%
0.3196%
0.3624%
0.4200%
0.4693%
0.5273%
0.5945%
0.6747%
0.7676%
0.8757%
1.0012%
1.1280%
1.2737%
1.4409%
1.6075%
Female
0.0170%
0.0177%
0.0184%
0.0188%
0.0190%
0.0191%
0.0192%
0.0194%
0.0197%
0.0201%
0.0207%
0.0214%
0.0223%
0.0235%
0.0248%
0.0264%
0.0307%
0.0350%
0.0394%
0.0435%
0.0475%
0.0514%
0.0554%
0.0598%
0.0648%
0.0706%
0.0774%
0.0852%
0.0937%
0.1029%
0.1124%
0.1223%
0.1326%
0.1434%
0.1550%
0.1676%
0.1852%
0.2018%
0.2207%
0.2424%
0.2717%
0.3090%
0.3478%
0.3923%
0.4441 %
0.5055%
0.5814%
0.6657%
0.7648%
0.8619%
0.9706%
1.0954%
1.2163%
Aqe
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
Male
1.7871%
1.9802%
2.2206%
2.4570%
2.7281%
3.0387%
3.3900%
3.7834%
4.2169%
4.6906%
5.2123%
5.7927%
6.4368%
7.2041%
8.0486%
8.9718%
9.9779%
11.0757%
12.2797%
13.6043%
15.0590%
16.6420%
18.3408%
19.9769%
21.6605%
23.3662%
25.0693%
26.7491%
28.3905%
29.9852%
31.5296%
33.0207%
34.4556%
35.8628%
37.1685%
38.3040%
39.2003%
39.7886%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
100.0000%
Female
1.3445%
1.4860%
1.6742%
1.8579%
2.0665%
2.2970%
2.5458%
2.8106%
3.0966%
3.4105%
3.7595%
4.1506%
4.5879%
5.0780%
5.6294%
6.2506%
6.9517%
7.7446%
8.6376%
9.6337%
10.7303%
11.9154%
13.1682%
14.4604%
15.7618%
17.0433%
18.2799%
19.4509%
20.5379%
21.5240%
22.3947%
23.1387%
23.7467%
24.4834%
25.4498%
26.6044%
27.9055%
29.3116%
30.7811%
32.2725%
33.7441%
35.1544%
36.4617%
37.6246%
38.6015%
39.3507%
39.8308%
40.0000%
40.0000%
40.0000%
40.0000%
40.0000%
100.0000%
Item # 4
Attachment number 2
Page 1 of 2
City of Clearwater, Florida
Employees' Pension Plan and GASB 45 OPEB Withdrawal Assumption
January - 2007
Withdrawal - Non-Hazardous Withdrawal - Hazardous
AQe Service < 1 year 1 <=Service<2 yrs 2<=Service<3 yrs Service >= 3 yrs AQe All Service
15 25% 25% 25% 20% 15 8%
16 25% 25% 25% 20% 16 8%
17 25% 25% 25% 20% 17 8%
18 25% 25% 25% 20% 18 8%
19 25% 25% 25% 20% 19 8%
20 25% 25% 25% 20% 20 8%
21 25% 25% 25% 20% 21 8%
22 25% 25% 25% 20% 22 8%
23 25% 25% 25% 20% 23 8%
24 25% 25% 25% 20% 24 8%
25 25% 25% 20% 15% 25 8%
26 25% 25% 20% 15% 26 8%
27 25% 25% 20% 15% 27 8%
28 25% 25% 20% 15% 28 8%
29 25% 25% 20% 15% 29 8%
30 15% 13% 10% 8% 30 3%
31 15% 13% 10% 8% 31 3%
32 15% 13% 10% 8% 32 3%
33 15% 13% 10% 8% 33 3%
34 15% 13% 10% 8% 34 3%
35 15% 13% 10% 8% 35 3%
36 15% 13% 10% 8% 36 3%
37 15% 13% 10% 8% 37 3%
38 15% 13% 10% 8% 38 3%
39 15% 13% 10% 8% 39 3%
40 15% 13% 10% 5% 40 3%
41 15% 13% 10% 5% 41 3%
42 15% 13% 10% 5% 42 3%
43 15% 13% 10% 5% 43 3%
44 15% 13% 10% 5% 44 3%
45 15% 13% 10% 4% 45 3%
46 15% 13% 10% 4% 46 3%
47 15% 13% 10% 4% 47 3%
48 15% 13% 10% 4% 48 3%
49 15% 13% 10% 4% 49 3%
50 15% 5% 5% 4% 50 3%
51 15% 5% 5% 4% 51 3%
52 15% 5% 5% 4% 52 3%
53 15% 5% 5% 4% 53 3%
54 15% 5% 5% 4% 54 3%
55 15% 5% 5% 4% 55 0%
56 15% 5% 5% 4%
57 15% 5% 5% 4%
58 15% 5% 5% 4%
59 15% 5% 5% 4%
Item # 4
Attachment number 2
Page 2 of 2
60
0%
0%
0%
0%
Item # 4
Attachment number 3
Page 1 of 1
City of Clearwater, Florida
Employees' Pension Plan and GASB 45 OPEB Retirement Assumption
January - 2007
Retirement - Non-Hazardous Retirement - Hazardous
AQe Service < 10 yrs 1 0<=Service<20 yrs 20<=Service<30 yrs Service >= 30 yrs AQe Service < 10 yrs 1 0<=Service<20 yrs Service >= 20 yrs
49 0% 0% 0% 0% 40 0% 0% 0%
50 0% 0% 0% 20% 41 0% 15% 15%
51 0% 0% 0% 20% 42 0% 15% 15%
52 0% 0% 0% 20% 43 0% 15% 15%
53 0% 0% 0% 20% 44 0% 15% 15%
54 0% 0% 0% 20% 45 0% 15% 15%
55 0% 0% 30% 25% 46 0% 15% 15%
56 0% 0% 30% 25% 47 0% 15% 15%
57 0% 0% 30% 25% 48 0% 15% 15%
58 0% 0% 30% 25% 49 0% 15% 15%
59 0% 0% 30% 25% 50 0% 20% 20%
60 0% 10% 30% 25% 51 0% 20% 20%
61 0% 10% 30% 25% 52 0% 20% 20%
62 0% 10% 30% 25% 53 0% 20% 20%
63 0% 10% 30% 25% 54 0% 20% 20%
64 0% 10% 30% 25% 55 0% 20% 35%
65 0% 35% 75% 75% 56 0% 20% 35%
66 0% 35% 75% 75% 57 0% 20% 35%
67 0% 35% 75% 75% 58 0% 20% 35%
68 0% 35% 75% 75% 59 0% 20% 35%
69 0% 35% 75% 75% 60 0% 100% 100%
70 0% 100% 100% 100%
Item # 4
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Approve a contract with Independence Investments LLC as a small cap growth manager for the Employees' Pension Plan.
SUMMARY:
The Trustees authorized a search for a small cap growth manager in accordance with the asset allocation study. Dahab and Associates was
retained to help staff with the search. Dahab issued a RFP and received 59 responses. Dahab reduced that list to the following five finalists:
. Independence Investments LLC
. Missouri Valley Partners
. Oppenheimer Investment Management
. The Boston Company
. Wells Capital Management
After presentations from the five firms listed above, the Pension Investment Committee recommends hiring Independence Investments
LLC. Independence will be given an initial allocation of $30 million that will come from a reduction of assets of the plan's existing
managers.
Independence management fee is .85% for the first $25 million and .75% for amounts between $25 and $100 million. This is compatible to
what we are paying our other small cap managers and is within the industry norm.
The contract has been approved by Pension Attorney Stuart Kaufman.
Type:
Current Year Budget'!:
Operating Expenditure
None
Budget Adjustment:
None
Budget Adjustment Comments:
Current Year Cost:
Not to Exceed:
For Fiscal Year:
Annual Operating Cost:
Total Cost:
to
Appropration Code
646-07410-530100-585 -000
Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) City Manager 5) Clerk 6) City Manager 7) Clerk
Amount
Appropriation Comment
Cover Memo
Item # 5
Page 1 of 45
~, J-I
~ependence
ItlVEST~IEJlTS
December 21,2006
Finance Director
City of Clearwater
100 So. Myrtle Avenue
Box 4748
Clearwater, FL 33758-4748
Re: Investment Advisory Agreement dated as of December 21,2006 (the "Agreement") between
the City of Clearwater Employees' Pension Fund and Independence Investments LLC
("Independence")
Dear SirIMadam:
We would like to thank the Board of Trustees for recently awarding the small cap growth mandate
of the City of Clearwater Employees' Pension Fund (the "Pension") to Independence. We hope to
justify your confidence in us by meeting or exceeding your expectations in our management of this
account. As noted below, we also wanted to set Qut our understanding of a few points we noted
during our review ofthe Statement of Investment Objectives and Guidelines for the Pension.
1. We would like to clarify the following language on Page 16, Section (6) of the Statement of
Investment Objectives and Guidelines for the Pension that states: "The Plan believes than an
investment manager should not buy or hold a security for the Funds portfolio if the
aggregate holdings among all of that manager's other accounts in that same security would
restrict the manager's ability to expeditiously liquidate the position at any time".
Since Independence does hold small cap securities from time to time where the aggregate
holdings among all of our small cap accounts may restrict our ability to expeditiously
liquidate a position, we would like you to aclrnowledge and authorize Independence's ability
to liquidate such positions in a prudent and reasonable manner which may sometimes take
several days or more.
2. We request approval to invest in (i) Exchange Traded Funds (ETFs) for purposes of cash
management and (ii) shares of initial public offerings (IPOs), in each case, as appropriate.
Please aclrnowledge affirmatively your agreement with the above by executing below.
Sincerely,
ftVVl}- ~
Miriam F. Cooper
Chief Operating Officer
{;~;)
\~.i.
Item # 5
Page 2 of 45
Finance Director
City of Clearwater
December 21,2006
Page 2
~ependence
IIIVESTMEIITS
ACCEPTED AND AGREED:
BOARD OF TRUSTEES OF THE EMPLOYEES' PENSION
PLAN OF THE CITY OF CLEARWATER, FLORIDA
By:
Frank V. Hibbard, Chai1persoll
. . . . . . + . . .
, . . . , . t . . .
I . . .. ." .._~ . .. . . . . . . . . . .
. . '.' .. , . . . . .
I . ..... ',t 01 . . . . .
Attest:
,~~~\~/<
, .. . .. '.' . . . .
. t, . .'.,' . . . . .
. . ,,-,'" .. . . . . .
. . . . . . . . . .
" + , . .. . . . .
. . , . . . . . . .
. . .. . . .. ... .. - .
Cynthia E. Goudeau
City Clerk
(;~~'~
';..;.:;;.r.)
'.~'
Item # 5
Page 3 of 45
INVESTMENT ADVISORY AGREEMENT BETWEEN
THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES'
PENSION FUND AND INDEPENDENCE INVESTMENTS LLC
THIS AGREEf.o.:lENT,
~~, 2006,
is made and entered into this c2J!!. day of
by and between the BOARD OF TRUSTEES OF
THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND, an autonomous
governmental body, hereinafter referred to as the "BOARD" and
INDEPENDENCE INVESTMENTS LLC, hereinafter referred to as the
"INVESTf.o.:lENT ADVISOR":
WITNESSETH:
WHEREAS, Florida Statutes Chapter 112 vests the BOARD with
full authority, power and responsibility to manage and administer
the Pension Fundi and
WHEREAS, the INVESTMENT ADVISOR has expressed an interest in
managing the small-cap growth component of the Pension Fund and
any additions thereto, including proceeds of sales, dividends and
interest (hereinafter referred to as the "Account") i
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties
agree as follows:
1. APPOINTMENT OF THE INVESTMENT ADVISOR. The BOARD does
~
hereby appoint the INVESTMENT ADVISOR as the manager for the
Account.
The INVESTMENT ADVISOR hereby accepts such appointment
and agrees to manage the investment and reinvestment of assets
-1-
Item # 5
Page 4 of 45
dedicated to the Account.
The BOARD represents that it has the
authori ty to so appoint the INVESTMENT ADVISOR to manage the
Account and any investment guidelines furnished hereunder are and
will be permissible investments for the Account.
The BOARD
further represents that the Account constitutes only a portion of
the total assets of the Pension Fund and that any duty on the
part of the INVESTMENT ADVISOR to diversify investments is
limited by this fact and by the INVESTMENT ADVISOR's mandate to
invest only in certain types of assets on behalf of the Account.
The BOARD acknowledges that the portfolio strategies contemplated
by this Agreement and the guidelines involve risks, including the
possible loss of principal.
2 .
TERM.
This Agreement shall commence upon the date set
forth above and shall terminate as provided herein.
3. DISCRETION. The INVESTMENT ADVISOR hereby acknowledges
and agrees that it has been provided with the statement of
investment policy duly adopted by the BOARD in accordance with
its authority under state law. Consistent with that policy and
the investment guidelines set forth herein as Exhibit C, the
INVESTMENT ADVISOR shall place orders for the purchase, sale, or
exchange of securities on behalf of the Account whenever the
INVESTMENT ADVISOR deems it to be in the best interest of the
-2-
Item # 5
Page 5 of 45
Account to do so.
In this connection, the INVESTMENT ADVISOR
shall have investment discretion and shall have full power and
authority on behalf of the Account to (i) make purchases and
sales of securities or other property; (ii) exercise or abstain
from exercising any optiont warrantt privilege or right with
respect to the assets in the Account; (iii) issue orders for, or
make purchases or sales oft securities or other property directly
to or with a broker, dealer or other personj (iv) in its
discretion to vote all proxies with respect to the assets in the
Account; and (v) take any other action reasonably deemed
necessary by it in the carrying out of the investment authority
or powers necessary to perform its investment advisory services
and other duties and responsibilities as set forth in this
Agreement; provided that the INVESTMENT ADVISOR shall have no
authori ty or responsibility to take any action or provide any
legal advice concerning legal action with respect to holdings of
securities in the Account that become subject to any legal
notices or proceedings, including securities class actions and
bankruptcies, or for otherwise pursuing litigation on behalf of
the Account or Pension Fund.
The
INVESTMENT
ADVISOR
shall
diligently
execute
all
transactions in securities in a method and manner and at such
times as to procure best execution.
The INVESTMENT ADVISOR
further acknowledges that it has been provided with and
-3-
Item # 5
Page 6 of 45
understands the Commission Recapture Program duly adopted by the
BOARD, together with a list of recapture agents.
Subject to its
continuing duty to secure best execution on behalf of the
Account, the INVESTMENT ADVISOR agrees to utilize the recapture
agents in all transactions where it is reasonable to do so.
In
selecting brokers
or dealers
for execution,
the
INVESTMENT ADVISOR will consider a number of factors including,
but not limited to, price (including commissions or mark-up), the
size and difficulty of the order, the reliability, integrity and
financial soundness of the broker or dealer,
the general
operation or execution capabilities of the broker or dealer, the
broker or dealer's expertise in particular markets and the
research services provided by the broker or dealer. The
INVESTMENT ADVISOR may pay a broker or dealer a commission in
excess of that which another broker or dealer might have charged
for executing a transaction if the INVESTMENT ADVISOR determines,
in good faith, that the commission is reasonable in relation to
the value of the brokerage and/or research services provided by
such broker or dealer.
Research services obtained by brokers or
dealers may be used in servicing all accounts managed by the
INVESTMENT ADVISOR and its affiliates.
The BOARD shall provide the INVESTMENT ADVISOR, on a timely
basis, with all material necessary to permit the INVESTMENT
ADVISOR to vote all proxies with respect to the assets in the
Account.
The initial proxy voting policy which the INVESTMENT
-4-
Item # 5
Page 7 of 45
ADVISOR shall follow with respect to the assets in the Account is
attached hereto as Exhibit A, and the INVESTMENT ADVISOR shall
notify the BOARD from time to time of any changes in such policy.
The BOARD may at any time notify the INVESTMENT ADVISOR ln
writing that the BOARD will assume full responsibility for voting
all proxies with respect to the assets in the Account. Upon
receipt of any such notification, the INVESTMENT ADVISOR shall
have no responsibility with respect to the voting of proxies and
shall be expressly precluded from voting proxies with respect to
the assets in the Account.
4. INVESTMENT GUIDELINES.
The INVESTMENT ADVISOR agrees to observe (i)
of the Code of the City of Clearwater and (ii)
Clearwater Employees' Pension Fund Statement
Objectives and Guidelines as set forth by the
Section 2.399
the city of
of Investment
BOARD and as
attached hereto as Exhibit C. Any changes ln the guidelines must
be in writing and shall make due allowance for the time needed by
the INVESTMENT ADVISOR to come into compliance with such changed
guidelines. In the event that the INVESTMENT ADVISOR should
purchase any security in violation of this Agreement, and as a
result of any sale thereof realizes a loss as measured by the
ini tial purchase price of the security, the INVESTMENT ADVISOR
shall make the BOARD whole for any such losses.
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5. COMPENSATION AND EXPENSES.
The BOARD shall compensate from the Pension Fund the
INVESTMENT ADVISOR for its services under this Agreement in such
amounts and manner as the BOARD and the INVESTMENT ADVISOR shall
agree to in writing from time to time.
Such compensation shall
be computed in accordance with the fee schedule attached hereto
as Exhibit B. It is understood that the INVESTMENT ADVISOR shall
be responsible and liable for all expenses incurred by it in
performing its obligations hereunder, except that any brokerage
commissions, stock transfers and other similar charges which may
become due on account of transactions for the Account shall be
payable from the Account hereunder.
6.
DELIVERY OF SECURITIES.
The INVESTMENT ADVISOR shall
direct that all securities purchased for the Pension Fund be
registered in the name of, and be delivered to, the Pension Fund
and/or the Trustee, custodian or its nominee.
7.
REPORTS.
The INVESTMENT ADVISOR shall provide the
BOARD with a monthly statement of the status of the Account. In
addition, the INVESTMENT ADVISOR shall provide quarterly written
reviews of the performance of the Account, presented in person to
the BOARD when reasonably requested by the BOARD, and such other
periodic reports or information as the BOARD may reasonably
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request. All performance reports reported to the BOARD shall be
gross of all fees and transaction costs and shall be time
weighted. The written quarterly report shall outline the overall
posi tion of the Account's portfolio with a complete listing of
each security showing the cost and market value at the close of
the reporting period. The report shall also include all
portfolio transactions for the Account during the preceding
quarter. All monthly reports shall include a listing of all
trades, broker utilized and the cost of the trade.
8 .
NON-DISCRIMINATION.
The INVESTMENT ADVISOR shall not
discriminate in its employment practices during the term of this
Agreement on the basis on race, creed, color, sex, age, physical
handicap, marital status, or national origin.
9 .
PROHIBITION AGAINST CONTINGENT FEES.
The INVESTMENT
ADVISOR warrants that it has not employed or retained any company
or person, other than a bona fide employee working solely for the
INVESTMENT ADVISOR, to solicit or secure this Agreement and that
it has not paid or agreed to pay any person, company,
corporation, individual, or firm other than a bona fide employee
working solely for the INVESTMENT ADVISOR, any fee, commission,
percentage, gift, or other consideration contingent upon or
resulting from the award or making of this Agreement.
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10. DISCLOSURE.
The INVESTMENT ADVISOR agrees to disclose,
In writing to the BOARD, within 10 business days, if the
INVESTMENT ADVISOR becomes the subject of an investigation by the
Securities and Exchange Commission for alleged breach of federal
securities
laws;
any investigation by the U.
S.
Department of
of federal
Justice for allegations relating to
securities laws or related allegations
violation
of
fraud;
or
if
the
INVESTMENT ADVISOR is named as the defendant in any civil action
alleging fraud, negligence or breach of fiduciary responsibility.
11. ACTING FOR OTHER ACCOUNTS. The INVESTMENT ADVISOR may
act and continue to act as an investment manager for others and
nothing in this Agreement shall in any way be deemed to restrict
the right of the INVESTMENT ADVISOR to perform investment
management or other services for any other person or entity, and
the performance of such services for others shall not be deemed
to violate or give rise to any duty or obligation to the BOARD,
Account or Pension Fund.
Nothing in this Agreement shall limit or restrict the
INVESTMENT ADVISOR or any of its officers, directors, members,
managers, controlling persons, employees or affiliates from
buying, selling or trading in any securities for its or their own
account or accounts or for the accounts of other clients. The
BOARD acknowledges that the INVESTMENT ADVISOR and its officers,
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directors, members, managers, controlling persons, employees and
affiliates, and its and their other clients may at any time have,
acquire, increase, decrease or dispose of positions in
investments which are at the same time being acquired or disposed
of for the Account under this Agreement. The INVESTMENT ADVISOR
shall have no obligation to acquire with respect to the Account a
posi tion in any investment which the INVESTMENT ADVISOR, its
officers, directors, members, managers, controlling persons,
employees or affiliates may acquire for its or their own accounts
or for the account of another client, if in the sole discretion
of the INVESTMENT ADVISOR, it is not feasible or desirable to
acquire a position in such investment under this Agreement.
12.
CONFIDENTIAL INFORMATION.
Any information supplied by
INVESTMENT ADVISOR, which is not otherwise in the public domain,
in connection with the performance of its duties hereunder is to
be regarded as confidential, provided that such information may
be disclosed as required by law, rule or regulation or by order
of a court or governmental authority.
13 . GENERAL .
(a) The INVESTMENT ADVISOR warrants that it is registered
as an investment advisor under the Investment Advisers Act of
1940, and that it will maintain such registration during the term
of this Agreement.
The INVESTMENT ADVISOR acknowledges that it
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is a fiduciary with respect to the management of the assets of
the Account and that it is subject to and shall be governed by
the "prudent man rule," and the "prudent investor rule" as those
terms are defined and interpreted under the provisions of the
Employee Retirement Income Security Act and under the provisions
of the law of Florida.
(b) This Agreement may be terminated by either the
INVESTMENT ADVISOR or the BOARD, on thirty (30) days I prior
written notice, with or without cause. within 30 days of the
termination of this Agreement by either party, the INVESTMENT
ADVISOR shall be paid any accrued but unpaid fees as of the date
such termination.
(cl No assignment of this Agreement shall be made by either
party without the consent of the other party, and any attempted
assignment without such consent shall be void. with respect to
the INVESTMENT ADVISOR, the term "assignment" shall be construed
in accordance with the provisions of the Investment Advisers Act
of 1940 and the rules and regulations thereunder.
(d) The INVESTMENT ADVISOR acknowledges that it is fully
familiar with (i) the laws of the State of Florida governing
public employee retirement systems (Chapter 112, Part VII) and
(ii) Section 2.399 of the Code of the City of Clearwater, in each
case I relating specifically to the management of this Pension
Fund. The Agreement shall be performed in accordance with all
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applicable federal, state, and local laws and administrative
regulations and shall in its interpretation be governed by the
laws of the State of Florida.
(e) In any action to enforce the provisions of this
Agreement venue shall be in pinellas County, Florida. Should any
action be necessary to enforce the terms of this Agreement, the
prevailing party shall be made whole, including any reasonable
costs and legal fees.
(f) The BOARD agrees to furnish the INVESTMENT ADVISOR with
all documents, authorizations and powers as might be reasonably
required by the INVESTMENT ADVISOR to carry out its obligations
according to the terms of this Agreement.
(g) The BOARD hereby acknowledges receipt of Part II of the
INVESTMENT ADVISOR's Form ADV at least 48 hours prior to
execution of this Agreement. The INVESTMENT ADVISOR shall, on an
annual basis, provide the BOARD with a current copy of its Form
ADV.
(h) The INVESTMENT ADVISOR shall for the term of this
Agreement maintain an errors and omissions insurance policy in
the amount of one million dollars. The INVESTMENT ADVISOR shall
furnish the BOARD with proof of its errors and omissions
insurance. The Board will maintain a fidelity bond satisfying the
requirements of Section 412 of ERISA and shall include the
INVESTMENT ADVISOR as its agent in its coverage.
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(i) The INVESTMENT ADVISOR will forward from time to time
to the BOARD or its agents a list and specimen signatures of the
parties who are authorized to act on its behalf. The BOARD and,
if necessary, the trustee and/or the custodian of the Pension
Fund will forward to the INVESTMENT ADVISOR a like list and
specimen signatures.
(j) The INVESTMENT ADVISOR will promptly inform the BOARD
if any portfolio manager or other key personnel assigned by the
INVESTMENT ADVISOR to performance under this Agreement is removed
by the INVESTMENT ADVISOR.
(k) In the event of a dispute between the parties, the
parties may by mutual consent agree to submit the matter to
binding arbitration.
(I) This Agreement constitutes the entire understanding of
the BOARD and the INVESTMENT ADVISOR and may be amended only by
written instrument executed by both parties.
(m) Notices hereunder shall be in writing and shall be sent
by first class mail, postage prepaid, by facsimile, or delivered
by hand or by courier service, addressed as follows:
A. To the BOARD:
Board of Trustees of the Employees' Pension plan of the
City of Clearwater, Florida
100 So. Myrtle Avenue
Box 4748
Clearwater, Florida 33758-4748
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Item # 5
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E . To the INVESTMENT ADVISOR:
Independence Investments LLC
160 Federal Street
Boston, MA 02110
Attention: Mark C. Lapman, President
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
Attested:
BOARD OF TRUSTEES OF THE EMPLOYEES'
PENSION PLAN OF THE CITY OF
CLEARWATER, FLORIDA
By:
Frank V. Hibbard
Chairperson
, . . .. . . I .. . ..
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Attest:
Cynthia E. Goudeau
City Clerk
INDEPENDENCE INVESTMENTS LLC
By: v#J/l+ ~
Miriam F. Cooper
Chief Operating Officer
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EXHIBIT A
Independence Investments LLC
Proxy Voting Policy and Procedures
At Independence we recognize that many decisions regarding proxy
voting may affect the value of a client's account, and,
therefore, should be resolved based on in-depth analysis and
careful consideration. The following proxy voting policy sets
forth both our principles and our process for voting proxies on
securities held in client accounts where Independence has
discretion to vote the proxies.
I. General Principles
In order to set a framework within which proxy questions should
be considered and voted, the following general principles should
be applied:
1) As a fiduciary under ERISA or otherwise, the discretion to
vote proxies for a client's account should be exercised
keeping in mind a fiduciary's duty to use its best efforts
to preserve or enhance the value of the client's account.
We should vote on proxy questions with the goal of fostering
the interests of the client (or the participants and
beneficiaries in the case of an ERISA account) .
2) Proxy questions should be considered within the individual
circumstances of the issuer. It is possible that individual
circumstances might mean that a given proxy question could
be voted differently than what is generally done in other
cases.
3) If a proxy question clearly has the capability of affecting
the economic value of the issuer's stock, the question
should be voted in a way that attempts to preserve, or give
the opportunity for enhancement of, the stock's economic
value.
4) In certain circumstances, even though a proposal might
appear to be beneficial or detrimental in the short term,
our analysis will conclude that over the long term greater
value may be realized by voting in a different manner.
5) It is our general policy that when we are given authority to
vote proxies for a client's account, we must be authorized
to vote all proxies for the account in our discretion. We
do not generally accept partial voting authority nor do we
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generally accept instructions from clients on how to vote on
specific issues, except in the case of registered investment
companies and, in limited instances, certain clients such as
labor unions may direct us to vote proxies in accordance
with a specific set of guidelines or recommendations
appropriate to their circumstances, in which case we will
not have voting discretion but will vote in accordance with
the client r s direction. Other clients may wish to retain
proxy voting authority and vote their own proxies if
necessary in order to satisfy their individual social,
environmental or other goals.
We maintain a set of proxy voting guidelines that describe in
greater detail how we generally vote specific issues for our
clients. While it is not an exhaustive list, it is intended to
serve as the foundation on which we make most of our proxy voting
decisions. The guidelines are available to clients upon request.
We will from time to time review this proxy voting policy and our
guidelines and may adopt changes from time to time. Clients may
contact the Compliance Office by calling 617-228-8603 or via e-
mail at compliance@independence. com for a copy of our current
guidelines or to obtain a record of how we voted the proxies for
their account.
II. Process
At Independence, the fundamental analysts are responsible for
performing research on the companies in which we invest. The
same analysts are generally responsible for decisions regarding
proxy voting, as they are the most familiar with company-specific
issues. Portfolio managers also provide input when appropriate.
We currently use Glass Lewis & Co. (~Glass Lewis") to monitor and
complete the proxy voting process for our equity portfolio
holdings. Glass Lewis is responsible for ascertaining that proxies
are received, voted and sent back on a timely basis, as well as
maintaining all of the proxy voting records with respect to our
clients' holdings. Each day we send Glass Lewis our complete list
of portfolio holdings. Glass Lewis notifies us of shareholder
meetings and provides us with an electronic platform on which to
vote the proxies. Glass Lewis also provides us with
recommendations for voting, based on criteria that we have
approved. Our analysts will consider Glass Lewis's
recommendations, but voting will be based upon our own analysis.
Our analysts direct the manner in which proxies are to be voted,
and Glass Lewis completes the voting process.
Limitations on Exercising Right to Vote
III.
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We may abstain from voting a client proxy if we conclude that the
effect on the client's economic interests or the value of the
portfolio holding is indeterminable or insignificant. We may also
abstain from voting a client proxy for cost reasons (e. g., costs
associated with voting proxies of non-U.S. securities). In
accordance with our fiduciary duties, we weigh the costs and
benefits of voting proxy proposals relating to foreign securities
and make an informed decision with respect to whether voting a
given proxy proposal is prudent. Our decision takes into account
the effect that the vote of our client, either by itself or
together with other votes, is expected to have on the value of our
client's investment and whether this expected effect would outweigh
the cost of voting.
Certain of our clients engage in securities lending programs
under which shares of an issuer could be on loan while that
issuer is conducting a proxy solicitation. As part of the
securities lending program, if the securities are on loan at the
record date, the client lending the security cannot vote that
proxy. Because we generally are not aware of when a security may
be on loan, we do not have an opportunity to recall the security
prior to the record date. Therefore, in most cases, those shares
will not be voted and we may not be able fully to reconcile the
securities held at record date with the securities actually
voted.
IV. Conflicts of Interest
We manage the assets of various public and private company clients,
and invest in the equity securities of certain public companies on
behalf of our clients)' We recognize that the potential for
conflicts of interest could arise in situations where we have
discretion to vote client proxies and where we have material
business relationships~ or material personal/family relationships2.
! It is Independence's general policy not to invest in private securities such as Rule 144A securities. If a portfolio
were to hold a private security, however, and a proxy needed to be voted, we would vote in accordance with our
established proxy voting policy including our process for voting securities where a conflict of interest was present.
1 For purposes of this proxy voting policy, a "material business relationship" is considered to arise in the event a
client has contributed more than 5% of Independence's annual revenues for the most recent fiscal year or is
reasonably expected to contribute this amount for the current fiscal year.
1 For purposes of this proxy voting policy, a "material personal/family relationship" is one that would be reasonably
likely to influence how we vote proxies. To identify any such relationships, the Proxy Voting Committee will obtain
information on a regular basis about (i) personal and/or family relationships between any Independence employee
who is involved in the proxy voting process (e.g., analyst, portfolio manager, and/or members of the Proxy Voting
Committee, as applicable) or senior executives, and directors or senior executives of issuers for which the adviser
may vote proxies, and (ii) personal and/or immediate family investments of such employees in issuers which exceed
5% of the outstanding stock of the issuers.
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with these issuers (or with a potential target or acquirer, in the
case of proxy vote in connection with a takeover). To address
these potential conflicts we have established a Proxy voting
Committee (the "CommitteeU). The Committee consists of the Chief
Operating Officer, the Director of Research and the members of the
Compliance Office. The Committee will use reasonable efforts to
determine whether a potential conflict may exist, including
maintaining a list of clients with whom we have a material business
relationship, and requiring analysts to screen the proxies
identified by Glass Lewis against such list and to bring such
conflicts, and any other conflicts of which they are aware, to the
attention of the Committee. However, a potential conflict shall be
deemed to exist only if one or more of the members of the
Committee, or the analyst responsible for voting the proxy,
actually knows of the potential conflict. The Committee will work
with the analyst assigned to the specific security to oversee the
proxy voting process for securities where we believe we may have
potential conflicts.
The Committee will meet to decide how to vote the proxy of any
securi ty with respect to which we have identified a potential
conflict. The Committee will consider the analyst's
recormnendation, make a decision on how to vote the proxy and
document the Committee's rationale for its decision.
Independence is an indirect majority owned subsidiary of City
National Corporation ("CNCU), a public company. It is our general
policy not to acquire or hold CNC stock on behalf of our clients.
However, in the event that a client were to hold CNC stock in a
portfolio which we manage, and we were responsible for voting a CNC
proxy on behalf of the client, the Committee would decide on how to
vote the CNC proxy. The Committee would, in most cases, base its
proxy voting decision according to the guidance provided by Glass
Lewis. The Committee will document the rationale for its decision.
It is Independence's policy not to accept any input from any other
person or entity, including its affiliates when voting proxies for
any security. In the event that an Independence employee was
contacted by any affiliate, or any other person or entity, other
than Glass Lewis or through standard materials available to all
shareholders, with a recormnendation on how to vote a specific
proxy, the event would be reported to the Compliance Office and
would be documented. The Committee would then decide how to vote
the proxy in question and would document the rationale for its
decision.
If there is controversy or uncertainty about how any particular
proxy question should be voted, or if an analyst or a Committee
member believes that he or she has been pressured to vote in a
certain way, he or she will consult with the Committee or with a
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Item # 5
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member of the Compliance Office, and a decision will be made
whether to refer the proxy to the Cormnittee for voting. Final
decisions on proxy voting will ultimately be made with the goal of
enhancing the value of our clients' investments.
Adopted 10/06
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EXHIBIT B
The Investment Management Agreement between the BOARD OF
TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND ("the
Board") and Independence Investments LLC (the "Investment
Advisor") provides that the Board shall compensate from the
Pension Fund the Investment Advisor for its services under this
Agreement in such amounts and manner as the Board and the
Investment Advisor shall agree to in writing from time to time.
It is hereby agreed that fees will be payable to the
Investment Advisor at the completion of each calendar quarter,
commencing with the partial quarter ending 3/J I (lJ"7 Such
fees will be one-quarter of the "Annual Fee Rate" computed on the
market value of the Account as determined by the Investment
Advisor as of the end of each quarter for which such fee is paid,
using an average of the end of month values for the three months
comprising the quarter (or a pro-rated portion for a period of
time less than a calendar quarter). The "Annual Fee Rate" will
be 0.85% on the first $25 million of assets in the Account, and
0.75% on assets greater than $25 million but less than $100
million and 0.65% on assets greater than $100 million.
This agreement will remain in effect until otherwise agreed
upon in writing.
INDEPENDENCE INVESTMENTS LLC
By:
~:} 07________
Miriam F. Cooper
Chief Operating Officer
.]'xc. 12 I 90tJ&
/
Date:
BOARD OF TRUSTEES OF THE EMPLOYEES'
PENSION PLAN OF THE CITY OF
CLEARWATER, FLORIDA
By:
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.. .. II II II Ii II t II
~ .. II .. . II Ii . . Ii
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Frank V. Hibbard
Chairperson
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III . II II II . . II .. .-
II II oil . . .. .. .. ..
oil . . II " . . .. .. ..
Attest:
A. Kaufman
n Attorney
Cynthia E. Goudeau
City Clerk
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Item # 5
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EXIDBIT C
STATEIvlENT OF INVESTMENT
OBJECTIVES AND GUIDELINES
CITY OF CLEARWATER EMPLOYEES'
PENSION FUND
2004
Item # 5
Page 23 of 45
PURPOSE
The purpose of this Statement of Investment Objectives and Guidelines hereinafter referred to as
the ''Policy Statement" or "Policy" is to assist the City of Clemwater Employees' . 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 "structurelt 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.
.
encouraging criteria to monitor and evaluate the performance results achieved by the
investment managers.
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 ltPrudent Person II rule, which
states: ItInvestments 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.lt 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 29D.S.C. s. 1104 (a) (1) (A) - (C).
Item # 5
1
Page 24 of 45
In the event of a conflict between the Policy and Florida Statutes or City ordinances, the
_statutes and ordinances shall prevail.
Funding Philosophy
The Fund's funding objectives for the Fund is to be as fully funded as possible so that:
· the ability to pay all benefits and expense obligations from the Fund when due is
ensured;
· there will 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 increases in benefit structure and expense levels;
· the Fund assets should earn sufficient total rate of return over time to reduce the
Fund's dependency on employer contributions to meet all benefit and expense
obligations.
Investment results within the Fund are considered to be the major critical element in achieving
these funding objectives stated above while reliance on contributions is a secondary element.
Liquidity Posture
The Investment Portfolio shall be structured in such a manner as to provide sufficient liquidity to
pay obligations as they come due. Liquidity considerations are low in the short-term and
intermediate-term resulting in an immaterial impact upon investment policy, objectives and
guidelines.
Authorized Investments
The following is a list of authorized investments:
. Invest and reinvest the assets of the pension fund in annuity (including group annuity
contracts of the pension investment type) and life insurance contracts of legal reserve life
insurance companies licensed to do business in the State of Florida, in amounts sufficient
to provide, in whole or in part, benefits to which all of the participants shall be or become
entitled under the provisions of the Fund, and pay the initial and subsequent premiums
thereon. Provided that the amount invested with a life insurance company shall not exceed
3% of the insurance companies assets.
Item # 5
2
Page 25 of 45
. Invest and reinvest the assets of the pension fund 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 Government or any agency thereof
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
(Government Sponsored Entities) 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 (Fanner 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
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 {that 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. The bonds of the municipal authority shall be rated in any of the three highest
rated categories by either of the three nationally recognized rating services; provided that
Item # 5
3
Page 26 of 45
if the bonds are split rated that the bond must be rated in one of the two hlghest
classifications by one of the finns. (
h. Common stocks, preferred stocks and 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 or any non-U.S.
corporation, provided:
1. The corporation is listed on anyone or more of the recognized national or
international stock exchanges and/or in the case of bonds and mortgage backed
securities, traded among dealers and investors in a recognized and agreed upon
conventional fonnat;
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 three (3) percent of the equity assets of the pension fund shall be
invested in the common stock or capital stock of anyone issuing corporation
except to the extent a higher percentage of the same issue is included in a
nationally recognized market index, based on market values, at least as broad as
the Standard and Poor's Composite Index of 500 Companies, or except upon a
specific finding by the investment committee that such higher percentage is in the
best interest of the fund; 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 pension fund's assets at
cost.
Investments not listed above in this section are prohibited.
Bid Requirements
All securities shall be competitively bid where feasible and appropriate. Except as otherwise
required by law, the most economically advantageous bid must be selected. Executions must be
made on a best-execution basis.
TIliquid Invesbnents
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. Once an investment becomes illiquid the money manager will notify the plan of the
illiquid investment. Included in that notification will be how the money manager will handle the
illiquid investment.
Investment Management Structure
Item # 5
4
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The Fund has reviewed the investment program for the City of Clearwater Employees' Pension
Fund. The result of the review is an updated, long-term strategic asset allocation Fund.
Initially, four distinct asset classes were considered for inclusion in the portfolio:
Domestic Equities
Internationa1JNon US Equities
Domestic Fixed Income
Cash
After a thorough review, a permanent commitment to these four 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.
It is not 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 consistent
with the Policy's objectives.
Each asset class will have its own investment managers. Diversification of the u.s. Market Equity
commitment will be achieved through the employment of managers of complementary investment
styles, Growth and Value. In the u.s. Fixed Income market a core bond managers will be utilized
to stabilize the fund. In the International Equity market a diversified non-U.S. managers will be
hired and achieve diversification. Cash and cash equivalents will be 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. All cash placed in the
City's pooled cash account shall be separately accounted for and listed as an asset of the Fund. The
Fund will keep sufficient funds in the City's pooled cash 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 Limit Cost or Market
U.S. Market Equities 40% 65% Cost
Growth 10% 40% Cost
Val ue 10% 40% Cost
Fixed Income 30% 50.0% Cost
International Equity 5.0% 10.0% Cost
Because the asset classes do not move in concert, deviations from the normal commitments will
occur through normal market activity. The Upper and Lower Limits define the ranges within which
market activity will be allowed to shift the allocations. The ranges are designed to allow for a
reasonable period of time to elapse before rebalancing the portfolio. When the investments are out
of policy the assets will be moved from the over-allocated to the under-allocated in a prudent
manor.
Item # 5
5
Page 28 of 45
When in market equilibrium, cash flows will be deployed in a manner that returns the portfolio to
its normal commitments.
Internal Controls
As part of the city's annual financial audit the external CPA firm will review the internal controls of
the Fund. The hiring or termination of all money managers, consultants or safekeeping custodians
must be made by the trustees. No individual associated with the Fund may authorize any
movement of monies or securities with out the approval of the trustees, if required, or by the
approval of the Pension Investment Committee if trustee approval is not required. An instance not
requiring trustee approval is rebalancing the portfolio. Internal controls will be designed to prevent
losses of funds which might arise from fraud, error, and misrepresentation by third parties or
imprudent actions by the trustees or city employees.
Malceup of The Investment Committee
The Pension Investment Committee shall be made up (at a minimum) of the following: Finance
Director (Treasurer for the Trustees), Assistant Finance Director, and the Cash & Investments
Manager. The Treasurer for the Trustees shall appoint/remove other Finance professionals as
needs warrant. One representative for each of the unions will also serve on the Investment
Committee. The Financial Director or their designee will chair the committee.
The City Treasurer will make a recommendation to the Trustees as to any changes in the malceup
of the committee.
Continuing Education
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 Objectives
In formulating investment return objectives for the Fund objectives for the Fund assets, the Fund
placed primary emphasis on the following 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.
6
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.
Achieve investment performance that is materially above average when compared
to:
Other investment managers
Other investment manager peers of related investment style
Other public retirement plans
Several capital market indices
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 of return for the current year is 7.5%. The expected rate of return for the foreseeable future is
also 7.5%.
1. Total Fund Return Objectives
The following minimum comparative objectives have been established for the total Fund:
. The total fund should rank in the upper fiftieth (50th) percentile compared to a
recognized performance measure company's total public plan sponsor database
measured over a minimum period of three (3) or maximum five (5) years.
. The Fundts overall annualized total return should perform at least at the upper
fiftieth (50th) percentile compared to investment style peers of similar type as
found in recognized performance measure company's style database for each
asset class segment.
. The Fund's overall annualized total return (which is defined as all price changes
plus all income and/or dividends) should exceed the actuarial assumption over a
roIling three Q) or maximum of five (5) year period.
. The Fund's overall annualized total return should exceed the returns that would
have collectively been achieved if the Fund had been fully invested in the
appropriate percentage of :
Standard & Poor's 500 Stock Index
Lehman Brothers Aggregate Bond Index
Morgan Stanley Capital International EAFE Index
This is a custom benchmark that will be calculated relative to the actual
collective asset class mix of the Fund measured over a minimum of three (3)
or maximum of five (5) years.
7
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2. Equity Segment Return Objectives
A. The following minimum performance goals have been established for the Fund's
domestic equity segment:
.
The domestic equity segment total return should perform at least at
the upper fiftieth (50th) percentile compared to a recognized
performance measurement company's total U.S. equity database
measured over a minimum period of three (3) or maximum of (5)
years.
.
The individual domestic equity managers total return should perform
at least at the upper fifth (50th) percentile compared 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 maximum of (5) years.
.
The total domestic equity segment total return should exceed the
total return of the Standard & Poor's 500 Stock Index by at least one
(1) percentage point per year measured over a minimum period of
three (3) or maximum of (5) years.
b. The following minimum performance goals have been established for the Fund's
international equity segment:
.
The international equity segment total return should perform at least
at the upper fiftieth (50th) percentile compared to recognized
performance measure 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 return should
perform at least at the upper fiftieth (50th) percentile compared to
the investment style peers of similar type as found in a recognized
performance measure company's total non U.S. equity database
measured over a minimum 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 International Europe, Australia,
8
Item # 5
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Far East Index (EAFE) by at least two (2) percentage points per year
over a minimum of three (3) or maximum of (5) years.
3. Fixed Income Segment Return Objectives
A. The following minimum performance goals have been established for the Fund's
domestic fixed-income segment:
· The domestic fixed-income segment total return should perform at
least at the upper fiftieth (50th) percentile compared to the
recognized performance measure company's total domestic fixed
income database measured over a minimum period of three (3) or
maximum of (5) years.
· The individual domestic fixed income managers total return should
perform at least at the upper fiftieth (50th) percentile compared to
investment style peers of similar type as found in a recognized
performance measure company's total domestic fixed income
database measured over a minimum period of three (3) or maximum
of (5) years.
· The domestic fixed income segment total returns should exceed the
total return of the Lehman Brothers Aggregate Bond Index by at
least one-half (.5) percentage point per year measured over a
minimum period of three (3) or maximum of (5) years.
4. Responsibilities of the Third Party Custodian
A third party custodian will hold all Fund assets other than commingled accounts.
In order to maximize the Fund1s return, no money should be allowed to remain idle.
Dividends, interest, proceeds from sales, new contributions and all other monies are to be
invested or reinvested promptly. If funds are not reinvested, then they will be placed in
money market instruments or a money market fund immediately by the designated cash
manager working in concert with the custodian.
The custodian will be responsible for perfomring the following functions:
· Accept daily instructions from the investment managers;
· Advise investment managers daily of changes in cash equivalent balances;
9
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.
Immediately advise investment managers of additions or withdrawals from
account;
.
Notify investment managers of tenders, rights, fractional shares or other
dispositions of holdings;
.
Resolve any problems that investment managers may have relating to
custodial account;
.
Safekeeping of securities;
.
Interest and dividend collection;
.
Daily cash sweep of idle principal and income cash balance;
.
Process all investment manager transactions on a delivery vs. payment basis;
.
Collect proceeds from maturing securities;
.
Provide monthly statements by investment manager account;
.
All securities purchased by the Fund shall be properly designated as an asset
of the Fund;
.
No withdrawal of securities, in whole or in part shall be made except by an
authorized member of the committee or the committee's designee.
RESPONSIBlLITIES OF lNVES'Th1ENT MANAGERS
The duties and responsibilities of each of the registered investment advisors retained by the Fund
include:
1. Managing the assets under its management in accordance with the policy guidelines
and objectives expressed herein, or expressed in a separate written agreement when
deviation is deemed prudent and desirable.
2. Exercising full investment discretion within the guidelines and objectives stated
herein. Such discretion includes decisions to buy, hold or sell securities in amounts
and proportions reflective of the manager1s current investment strategy and
compatible with investment objectives.
10
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3. Promptly informing the Fund regarding all significant matters pertaining to the
investment of the fund assets, for example:
.
changes in investment strategy, portfolio structure and market value
of managed assets;
.
the manager's progress in meeting the investment objectives set forth
in this document; and
.
significant changes in the ownership, affiliations, organizational
structure, financial condition, professional personnel staffing and
clientele of the investment management organizations.
4. No deviation from guidelines and objectives established in the Statement should
occur until after such communication has occurred and the Fund has approved such
deviation in writing.
5. The Fund formally delegates full authority to each investment manager for
exercising all proxy and related actions of the Fund's investment assets assigned to
it. Each manager shall promptly vote all proxies and related actions in a manner
consistent with the long-term interests of the Fund and its Participants and
Beneficiaries. Each investment manager shall keep detailed records of all said
voting of proxies and related actions and will comply with all regulatory obligations
related thereto. The Fund shall periodically audit and review each investment
manager1s policies and actions in this area.
6. Each Investment Manager shall utilize the same due care, skill, prudence and
diligence under the circumstances then prevailing that experienced, investment
professionals acting in a like capacity, as a fiduciary, and fully familiar with such
matters would llse in like activities for like Funds with like aims, while maintaining
appropriate diversification to avoid the risks of large losses, in accordance and
compliance with all applicable laws, rules and regulations from local, state, federal
and international political entities as it pertains to fiduciary duties and
respon si bi li ti es.
7. Notifying the Fund of the filing of a lawsuit by a client against the manager alleging
breach of fiduciary duty or other willful conduct.
EVALUATION AND REVIEW
11
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On a timely basis, but not less than four times a year, the Fund will review actual investment results
achieved by each manager (with a perspective toward a five-year time horizon) to determine
whether:
· the investment managers performed in adherence to the investment philosophy and
policy guidelines set forth herein; and
· the investment managers performed satisfactorily when compared with:
the objectives set forth in Appendix "A", as a primary consideration,
their own previously stated investment style,
other investment managers, both in asset class and in style group,
other retirement Funds,
several different market indices.
In addition to reviewing each investment manager's results, the Fund will re-evaluate, from time to
time, its progress in achieving the total fund, equity, fixed-income, international, and cash and
equivalents segment objectives previously outlined. The periodic re-evaluation also will involve an
evaluation of the continued appropriateness of: (1) the manager structure set forth in Appendix
"A"; (2) the allocation of 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
similar retirement plans and will be responsible for suggesting appropriate changes in the Fund's
investment program over time.
Filing of Investment Policy
Upon adoption by the trustees, the investment policy shan 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.
12
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APPENDIX A:
FUND SEGrvIENT AND INDIVIDUAL MANAGER GUIDELINES
13
Item # 5
CITY OF CLEARWATER EMPLOYEES PENSION FUND
INVESTMENT STRUCTURE
January, 2003
Investment Mana~er
Target
Allocation
Domestic Equity Specialist Manager
Value Orientation
10% - 40%
Domestic Equity Specialist Manager
Growth Orientation
10% - 40%
International Equity Specialist Manager
5% - 10%
Domestic Fixed Income Specialist Manager
Core Fixed Income Orientation
30% - 50%
14
Page 36 of 45
Item # 5
Page 37 of 45
APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES
1. Manager Structure
The Fund will retain investment managers that specialize in the use of particular asset
classes. The targeted distribution of Fund assets among specialist managers will be as
illustrated on 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 investment styles that will produce a
sufficient level of diversification and investment return over time.
2. Cash Flow Allocation
The allocation of assets is consistent with the Fund's desire to diversify its investment
management program.
The Fund intends to review on a periodic basis the allocation of assets among its investment
managers. To the extent that it is practically possible, it is expected that any cash flow will
be allocated to or talcen from the managers in the same proportions that each manager's
assets represent to total fund assets in the target asset allocation outlined previously.
3. Trustee Utilization Restrictions
All domestic Fund assets, in any form, shall be solely and exclusively: (a) settled at, (b)
held in custody at, and (c) safe-kept only at custodians designated by the Fund at its sole
discretion. International Fund assets may be held in commingled accounts provided that all
of the normal protection ofthe Fund's assets is provided for.
4. Transaction Agent Assignment Restrictions
Assignment of specific brokerage firms, dealers, financial institutions, and other transaction
execution agents to all investment managers shall be the sole responsibility of the Fund.
From time to time, the Fund at its sole discretion may specify certain transaction agents that
investment transactions shall be executed through.
5. Short Selling and Related Restrictions
There shall be no: short selling, non-collateralized and/or non-delivered repurchase
agreements, use of financial futures or options, non-marketable direct investments in equity
15
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or debt private placements or lease-backs or any other specialized investment activity
without the prior written consent of the Fund.
6. Liquidity and Marketabilitv Restrictions
Liquidity and marketability frequently are perceived to be a function of the quality and the
market capitalization of each security holding. From the Fund's perspective, liquidity and
marketability also may be a function of a manager's aggregate holdings in a particular
security. The Plan believes that an investment manager should not buy or hold a security
for the Funds portfolio if the aggregate holdings among all of that manager's other accounts
in that same security would restrict the manager's ability to expeditiously liquidate the
position at any time.
From a total Fund perspective, the Fund believes the collective holdings among all Fund
managers accounts in that same security would restrict all managers collective ability to
expeditiously liquidate their respective positions in that same security. Therefore, the Fund
retains the sole right to limit any manager's holding of any security in the Fund at any time
in order to prevent the potential for said Fund1s collective liquidation and market risk.
7. Usa?,e of Custodian STIF on all Idle Cash Restrictions
Any idle cash not invested by the investment managers shall be invested daily via an
automatic sweep STIF managed 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 managds
portfolios.
8. Usage of Cross Asset Segment Investment Guideline Restrictions
When a manager1s holdings include Fund assets outside of their primary assigned asset
segment assignment (e.g. a primary domestic equity manager also holds some cash
equivalents or fixed income securities as well as equities) the guidelines stated therein for
the non primary asset segment shall fully apply to the manager, in addition to the primary
asset assigned segment guidelines.
9. Diversification Restrictions
Except for criteria noted elsewhere in this Policy and in specific written contracts with each
manager, the appropriate and reasonable diversification of securities by such factors as
geography, region, sovereign risk, native currency, quality, coupon, country risk, maturity,
16
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industry, duration, and sector IS within the full discretion and responsibility of the
investment managers.
10. Other Obiectives, Guidelines and Restrictions Forthcoming
The Fund may 1 develop additional objectives, guidelines and restrictions and may amend
the Policy from time to time.
11. Fund Segment Guidelines
Following are guidelines and objectives established for the fund segments and for each
investment manager retained by the Fund. Individual manager guidelines are designed to be
consistent, in aggregate, with the total fund asset allocation guidelines and investment
objectives set forth in the Statement of Investment Obiectives and Guidelines.
1lA Domestic Equity Segment
Each equity manager is expected to adhere to the following guidelines:
.
Equity holdings in anyone company (including common and preferred
stock, convertible securities and debt) should not exceed 10% of the market
value of the manager's portion of the Fund without the consent of the Fund.
.
Equity holdings in anyone industry (as defined by Standard & Poor's)
should not exceed 50% of the market value of the manager's portion of the
Fund.
.
Cash equivalents and fixed income positions should not exceed twenty five
percent (25%) of the manager's portfolio. A manager may invest in fixed
income securities if projected returns on such securities are perceived to be
competitive with potential equity returns. However, fixed income securities
will not represent more than twenty-five percent (25%) of a manager's
portfolio without the prior written consent of the Fund.
.
No purchase shall be made by an investment manager that would cause a
holding to exceed 5% of the issue outstanding.
lIB. International Equity Segment
17
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Each international equity manager is expected to adhere to the following ll11mmum
guidelines:
.
Equity holdings in anyone company and all of its subsidiaries and affiliates
(including equities, convertible securities and debt) should not exceed five
percent (5%) of the market value of the manager's portion of the Fund
portfolio without the prior written consent of the Fund.
.
Equity holdings in anyone industry should not exceed fifty percent (50%) of
the market value of the managds portion of the Fund portfolio. Equity
holdings in anyone sector (e.g., consumer cyclical, energy, technology, etc.)
should not exceed fifty (50%) of the market value of the manager's portfolio
without the prior written consent of the Fund.
.
Cash equivalents and fixed income positions should not exceed fifty percent
(50%) of the manager1s 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 returns on such securities are perceived to be competitive with
potential equity returns.
.
The manager may enter into foreign exchange contracts on currency
provided that: (a) such contracts have a maturity of one year or less, and (b)
use of such contracts is limited solely and exclusively to hedging currency
exposure existing within the manager's portfolio. The intent is to dampen
portfolio volatility and prevent currency loss. There shall be no direct
foreign currency speculation or any related investment activity.
.
The manager may purchase or sell currency on a spot basis to accommodate
specific securities settlements.
11 C. Fixed Income Segment
Each fixed income manager is expected to 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. Once a security falls below investment
grade the money manager will notify the plan of the downgrade as soon as
practical. Included in that notification will be how the money manager will
handle the below investment grade security.
18
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.
The diversification of securities by maturity, quality, sector, coupon and
geography is the responsibility of the manager.
.
The exposure of each manager's portfolio to any single security other than a
security backed by the full faith and credit of the U.S. Government or any of
its instrumentalities should be limited to five (5) of the manager1s portion of
the Fund measured at market value.
.
No purchase shall be made by a Fixed Income Manager which would cause
a holding to exceed ten (10) of the issue outstanding.
.
There shall be no use of options, financial futures, derivatives or other
specialized investment activity without the prior written approval of the
Fund.
.
Not more than 10% of an investment manager's portfolio, valued at market,
shall be invested in certificates of deposit, time deposits, bankers
acceptances, commercial paper, or related investments of a single issuer
financial institution or financial institution holding company family.
lID. Cash and Equivalents Se!m1ent
Although investment managers will be retained for their expertise in a certain investment
segment, it is expected that from time-to-time each will have some cash and equivalents in
their portfolios as a result of discretionary asset allocation decisions. Any idle cash not
invested by the investment managers shall be invested daily via an automatic sweep STIF
managed by the custodian. It is the Fund1s objective to have no idle cash at any time in any
manager1s portfolio.
lIE. Pooled Vehicles
To the extent that the Fund invests a portion of the Fund1s assets in commingled vehicles or
institutional mutual funds, then the investment guidelines of the Fund's prospectus will be
adopted as this fundts guidelines.
11F. Master Repurchase Agreement
19
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The money managers and safekeeping custodian will use a master repurchase agreement
whenever appropriate. All repurchase agreements transactions shall adhere to the
requirements of the master repurchase agreement.
20
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12. Individual Manager Descriptions and Five-Year Expectations
All expectations are minimums. All investment managers shall exceed the stated
ex pec tati ons.
In vesttnent Manager Percentile Percentile
ExpecUltion ExpecUltion
Relative To Relative To
Other Managers Style Peers
Domestic Equity Specialist Manager 50th 50th
Value OrienUltion
Domestic Equity Specialist Manager 50th 50Ul
Growth OrienUltion
International Equity 50th 50dl
Specialist Manager
Domestic Fixed Income Specialist Manager 50th 50d.
Core FIXed Income OrienUltion
Cash and Equivalents and 50th 50th
STlF Portfolios
In addition, each domestic equity and fixed income manager is expected to achieve
positive risk-adjusted (alpha) performance over a three (3) or maximum of (5) year
periods.
13. Reportin?, Requirements:
Consultant Reporting
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 and the Total Fund:
.
Overview of the most recent quarter and year-to-date investment indicators
.
Total Fund asset allocation
.
Comparison of total Fund return versus the customized benchmark
.
Performance results by individual Manager and Total Fund compared to
appropriate benchmarks.
21
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Investment Reporting:
. On not less that an annual basis the Trustees will receive a report showing a list
of all of the securities held by investment manager. This report will be provided
by the safekeeping custodians 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.
Proxy Voting:
. On not less that a quarterly basis, money manager will report to the Plan their
proxy voting during the last period.
Review of Policy
This Statement of Investment Policy must be reviewed annually by the Pension Investment
Committee with a recommendation to revise or confirm to the Trustees.
Meeting A€!enda
At each meeting, the written and oral presentations shall cover the following points:
.
A report of performance for past periods. Standard time periods for each
report will be last quarter, last year, year to date, latest twelve (12) months,
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 perlormance 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.
Item # 5
22
Page 45 of 45
· Supporting discussion of the next period1s strategy with reference 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 least 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 communication. The
establishment of Objectives, Perlormance Standards, Policies and Guidelines, and
Reporting Requirements is intended to provide the Fund with a good foundation
from which to understand specific management styles and strategies, evaluate
results and oversee progress toward overall investment objectives.
The Fund shall be using a third party consultant selected, hired and directed by the
Fund to: (1) assist in appraising perlormance, (2) to provide performance
comparison data with other retirement plans, several capital market indices, and to
other investment managers, (3) assist in evaluating manager style discipline and peer
comparisons, (4) assist in strategic funding and management of the Fund, and (5)
other factors the Fund deems appropriate. Investment managers are required to
support and assist the consultant with their fullest cooperation.
Item # 5
23
Meeting Date: 1/16/2007
Pension Trustees Agenda
Council Cham bers - City Hall
SUBJECT / RECOMMENDATION:
Approve a contract with Wedge Capital Management LLP as a mid cap value manager for the Employees' Pension Plan.
SUMMARY:
The Trustees authorized a search for a mid cap value manager in accordance with the asset allocation study. Marquette Associates was
retained to help staff with the search. Using Marquette's data base of managers and other data bases they reduced that list of candidates to
the following three finalists:
. Wedge Capital Management
. Systematic Financial Management
. Keeley Asset Management Corporation
After presentations from the three firms listed above, the Pension Investment Committee recommends hiring Wedge Capital Management.
Wedge will be given an initial allocation of $30 million that will come from a reduction of assets of the plan's existing managers.
Wedge's management fee is .75% for the first $10 million and .65% for the next $15 million and .50% for all amounts over $25 million.
This is compatible to what we are paying our other mid cap managers and is within the industry norm.
Type:
Current Year Budget'!:
Operating Expenditure
None
Budget Adjustment:
None
Budget Adjustment Comments:
Current Year Cost:
Not to Exceed:
For Fiscal Year:
Annual Operating Cost:
Total Cost:
to
Appropration Code
646-07410-530100-585 -000
Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) City Manager 5) Clerk 6) City Manager 7) Clerk
Amount
Appropriation Comment
Cover Memo
Item # 6
Attachment number 1
Page 1 of 15
MID CAP VALUE INVESTMENT ADVISORY AGREEMENT BETWEEN
THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES'
PENSION FUND AND WEDGE CAPITAL MANAGEMENT L.L.P.
THIS AGREEMENT, is made and entered into this ____ day of
December, 2006, by and between the BOARD OF TRUSTEES OF THE CITY
OF CLEARWATER EMPLOYEES' PENSION FUND, an autonomous governmental
body, hereinafter referred to as the ',"BOARD" and WEDGE Capital
Management L. L. P., hereinafter referred to as the "INVESTMENT
ADVISOR":
WITNESSETH:
WHEREAS, Florida Statutes Chapter 112 vests the BOARD with
full authority, power and responsibility to manage and administer
the Pension Fund; and
WHEREAS, the INVESTMENT ADVISOR has expressed an interest in
serving the BOARD to manage the mid cap value component of the
BOARD'S portfolio, hereinafter referred to as the "Account";
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties
agree as follows:
1.
APPOINTMENT OF MID CAP VALUE INVESTMENT ADVISOR.
The
BOARD does hereby appoint the INVESTMENT ADVISOR as the manager
for the mid cap value portfolio of the Pension Fund, and any
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additions thereto, including proceeds of sales, dividends and
interest. The INVESTMENT ADVISOR hereby accepts such appointment
and agrees to manage the investment and reinvestment of such
assets of the Pension Fund.
2.
TERM.
This Agreement shall commence upon the date set
forth above and shall terminate as provided herein.
3. CUSTODY. The BOARD will appoint a custodian to take
and have possession of the assets of the Account.
INVESTMENT
ADVISOR shall not be the custodian of the assets.
4.
DISCRETION.
INVESTMENT ADVISOR shall have full power
to supervise and direct the investment of the Account, making and
implementing investment decisions, all without prior consultation
wi th the BOARD.
The INVESTMENT ADVISOR hereby acknowledges and
agrees that it has been provided with the statement of investment
policy duly adopted by the BOARD in accordance with its authority
under state law.
Consistent with that policy the INVESTMENT
ADVISOR shall, in the performance of its duties, place orders for
the purchase, sale, or exchange of equity securities on behalf of
the Pension Fund whenever the INVESTMENT ADVISOR deems it to be
in the best interest of the Pension Fund to do so. The
INVESTMENT ADVISOR shall diligently execute such transactions in
a method and manner and at such times as to procure the best
realized price.
The BOARD acknowledges and agrees that
INVESTMENT ADVISOR may aggregate purchase or sale orders for the
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Account with purchase or sale orders for the same security for
other clients' accounts where such aggregation is likely to
result generally in a more favorable net result for its clients.
However, INVESTMENT ADVISOR is under no obligation to aggregate
orders. The BOARD further acknowledges that circumstances may
arise under which INVESTMENT ADVISOR determines there is a
limited supply or demand for the security.
Under such
circumstances, the BOARD acknowledges that, while INVESTMENT
ADVISOR intends to allocate the opportunity to purchase or sell
that security among those accounts on an equitable basis,
INVESTMENT ADVISOR is not required to assure equality of
treatment among all accounts in connection with every trade.
Where, because of prevailing market conditions, it is not
possible to obtain the same price or time of execution for all
securi ties purchased or sold for clients' accounts, INVESTMENT
ADVISOR will allocate the securities
in accordance with
INVESTMENT ADVISOR's order allocation procedures.
The INVESTMENT ADVISOR further acknowledges that it has been
provided with and understands the Commission Recapture Program
duly adopted by the BOARD, together with a list of recapture
agents. Subject to its continuing duty to secure best execution
on behalf of the Pension Fund, the INVESTMENT ADVISOR agrees to
utilize the recapture agents in all transactions where it is
reasonable to do so and as long as one of the recapture agents
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appears on the INVESTMENT ADVISOR's approved broker list. In
selecting brokers or dealers for execution, the INVESTMENT
ADVISOR will consider a number of factors including, but not
limited to, price (including commissions or mark-up), the size
and difficulty of the order, the reliability, integrity and
financial soundness of the broker or dealer, the general
operation or execution capabilities or the broker or dealer, the
broker or dealer's expertise in particular markets and the
research services provided by the broker or dealer. The
INVESTMENT ADVISOR may pay a broker or dealer a commission in
excess of that which another broker or dealer might have charged
for executing a transaction.
If the INVESTMENT ADVISOR
determines, in good faith, that the commission is reasonable in
relation to the value of the brokerage and/or research services
provided by such broker or dealer. Research services obtained by
brokers or dealers may be used in servicing all accounts managed
by the INVESTMENT ADVISOR and its affiliates.
5. INVESTMENT OBJECTIVE AND POLICY. The primary objective
of the mid cap value portfolio is to seek as high a level of
total return that is consistent with prudent risk through
investments in a diversified portfolio of equity securities and
cash equivalents.
Eligible cash equivalents would generally
include the following categories with maturities of less than one
year:
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a.
Any United States Government
securi ty which
is
guaranteed by the full faith and credit of the United
States;
b. Any United States Government security which is an
obligation of, and issued by, any of its agencies or
instrumentalities,
including the
Federal National
Mortgage Association;
c. Certificates of depositor money market certificates
issued and guaranteed by any commercial bank, trust
company or savings and loan association having its
principal place of business in the City;
d. Commercial paper rated A-lor P-l by a nationally
recognized rating service;
e. Bankers Acceptances of United States banks rated AAA by
a nationally recognized rating service;
f. Any other cash or equivalent security authorized under
the laws governing the Fund.
The INVESTMENT ADVISOR agrees to observe the Code of the
City of Clearwater and the investment policy as set forth by the
BOARD.
In the event that the INVESTMENT ADVISOR should purchase
any security in violation of the policy of the BOARD, and as a
result of any sale thereof realizes a loss as measured by the
ini tial purchase price of the security, the INVESTMENT ADVISOR
shall make the Board whole for any such losses.
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6. COMPENSATION AND EXPENSES. The BOARD shall compensate
from the Pension Fund the INVESTMENT ADVISOR for all services
actually, timely and faithfully rendered hereunder, for the
period of this Agreement to be billed and paid at the end of each
calendar quarter.
Said fee shall be computed according to the
attached schedule A.
A statement showing the amount of the fee payable shall be
submitted to the BOARD by the INVESTMENT ADVISOR promptly after
the start of each quarterly period.
It is understood that the
INVESTMENT ADVISOR shall be responsible and liable for all
expenses incurred by it in performing its obligations hereunder,
except that any brokerage commissions, stock transfers and other
similar charges which may become due on account of transactions
for the account shall be payable from the account hereunder,
subject to the availability of funds.
7 .
DELIVERY OF SECURITIES.
The INVESTMENT ADVISOR shall
direct that all securities purchased for the Pension Fund be
registered in the name of, and be delivered to, the Pension Fund
and/or the Trustee, custodian or its nominee.
8.
REPORTS.
The INVESTMENT ADVISOR shall provide the
BOARD with a monthly statement of the status of the Account. In
addition, the INVESTMENT ADVISOR shall provide quarterly written
reviews of the performance of the Account, presented in person to
the BOARD, and such other periodic reports or information as the
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BOARD may reasonably request.
All performance reports reported
to the Fund shall be gross of all fees and transaction costs and
shall be time weighted.
The written quarterly report shall
outline the overall position of the portfolio with a complete
lis~ing of each security showing the cost, market value and yield
at the close of the reporting period.
The report shall also
include all portfolio transactions during the preceding quarter.
The report shall also include a listing of those transactions in
which the Commission Recapture Program was utilized and those in
which it was not. All monthly reports shall include a listing of
all trades, broker utilized and the cost of the trade.
9.
NON-DISCRIMINATION.
The INVESTMENT ADVISOR shall not
discriminate in its employment practices during the term of this
Agreement on the basis on race, creed, color, sex, age, physical
handicap, marital status, or national origin.
10 . PROHIBITION AGAINST CONTINGENT FEES.
The INVESTMENT
ADVISOR warrants that it has not employed or retained any company
or person, other than a bona fide employee working solely for the
INVESTMENT ADVISOR, to solicit or secure this Agreement and that
it has not paid or agreed to pay any person,
company,
corporation, individual, or firm other than a bona fide employee
working solely for the INVESTMENT ADVISOR, any fee, commission,
percentage, gift, or other consideration contingent upon or
resulting from the award or making of this Agreement.
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11. DISCLOSURE. The INVESTMENT ADVISOR agrees to disclose,
in writing to the BOARD within 10 business days, if the
INVESTMENT ADVISOR becomes the subject of an investigation by the
Securities and Exchange Commission for alleged breach of federal
securi ties laws; any investigation by the U. S. Department of
Justice for allegations relating to violation of federal
securities laws or related allegations of fraud; or if the
INVESTMENT ADVISOR is named as the defendant in any civil action
alleging fraud, negligence or breach of fiduciary responsibility.
12. CONFIDENTIAL RELATIONSHIP. All information and advice
furnished by either party to. the other shall be treated as
confidential and shall not be disclosed to third parties unless
requested by a regulatory authority or otherwise as required by
law. Notwithstanding the foregoing, institutional clients
acknowledge that INVESTMENT ADVISOR may inform others that they
are a client of INVESTMENT ADVISOR by appearance on a
representative client list or other means.
13. NON-EXCLUSIVE CONTRACT.
INVESTMENT ADVISOR acts as
INVESTMENT ADVISOR to other clients and may give advice, and take
action, with respect to any of those which may differ from the
advice given, or the timing or nature of action taken, with
respect to the Account.
INVESTMENT ADVISOR shall have no
obligation to purchase or sell for the Account, or to recommend
for purchase or sale by the Account, any security which
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INVESTMENT ADVISOR, its principals, affiliates or employees may
purchase or sell for themselves or for any other clients.
14. AGREEMENT NOT ASSIGNABLE. No assignment (as that term
is defined in the Investment Advisors Act of 1940) of this
agreement may be made by INVESTMENT ADVISOR without written
consent of the BOARD.
15. NOTICE OF PARTNERSHIP CHANGES. INVESTMENT ADVISOR will
notify the BOARD of any change in the membership of its
partnership within a reasonable time after such change.
16. COMMUNICATIONS. Instructions with respect to securities
transactions may be given orally and, where deemed necessary, may
be confirmed in writing as soon as practicable. Notices required
to be given under this agreement shall be sent in person, by u.S.
mail, by overnight mail, or by facsimile transmission (with a
hard copy sent by U. S. mail) and shall be deemed given when
received at the addresses specified below, and, as to the
Custodian, at the address that it may specify to INVESTMENT
ADVISOR in writing, or at such other address as a party to
receive notice may specify in a notice given in accordance with
this provision.
INVESTMENT ADVISOR may rely on any notice from
any person reasonably believed to be genuine and authorized.
If to BOARD:
If to INVESTMENT ADVISOR:
Finance Director
John G. Norman
City of Clearwater
WEDGE Capital Management L.L.P.
P.O. Box 4748
Suite 2920
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Clearwater, FL 33758-4748
301 South College Street
Charlotte, NC 28202-6002
17. DISCLOSURE STATEMENT. The BOARD acknowledges receipt of
INVESTMENT ADVISOR's Disclosure Statement, as required by Rule
204-3 under the Investment Advisors Act of 1940, prior to the
execution of this agreement. If provided less than 48 hours
prior to the date of execution of this agreement, the BOARD shall
have the option to terminate this agreement without penalty in
writing within five business days after that date of execution;
provided, however, that any investment action taken by INVESTMENT
ADVISOR with respect to the Account prior to the effective date
of such termination shall be at the BOARD's risk.
18. FORM W-g. The BOARD authorizes INVESTMENT ADVISOR to
execute and deliver for the fund IRS Form W-9 (Request for
Taxpayer Identification Number and Certification).
The fund is
not now (and the Board will promptly notify INVESTMENT ADVISOR
should ~t become) subject to back-up withholding.
19. GENERAL.
(a) The INVESTMENT ADVISOR warrants that it is registered
as an investment advisor under the Investment Advisers Act of
1940, and that it will maintain such registration during the term
of this Agreement.
The INVESTMENT ADVISOR acknowledges that it
is a fiduciary with respect to the management of the assets of
the Fund and that it is subject to and shall be governed by the
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"prudent man rule," and the "prudent investor rule" as those
terms are defined and interpreted under the provisions of the
Employee Retirement Income Security Act and under the provisions
of the law of Florida.
(b) This Agreement may be terminated by either the
INVESTMENT ADVISOR or the BOARD on thirty (30) days' written
notice, with or without cause. Fees will be prorated to date of
termination.
Termination will not affect commitments made for
the BOARD prior to that notice.
Upon termination of this
agreement INVESTMENT ADVISOR is under no obligation to recommend
any action with respect to the securities or other property held
in the Account.
(c) The INVESTMENT ADVISOR acknowledges that it is fully
familiar with the laws of the State of Florida governing public
employee retirement systems (Chapter 112, Part VII), and is fully
familiar with the provisions of the Code of the City of
Clearwater relating specifically to the management of this
Pension Fund.
The Agreement shall be performed in accordance
wi th all applicable federal,
state,
and local laws and
administrati ve regulations and shall in its interpretation be
governed by the laws of the State of Florida.
(d) In any action to enforce the provisions of this
Agreement venue shall be in Pinellas County, Florida, and should
any action be necessary to enforce the terms of this Agreement,
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the prevailing party shall be made whole, including any costs and
legal fees.
(e) The BOARD agrees to furnish the INVESTMENT ADVISOR with
all documents, authorizations and powers as might be reasonably
required by the INVESTMENT ADVISOR to carry out its obligations
according to the terms of this Agreement.
(f) The INVESTMENT ADVISOR shall on an annual basis provide
the BOARD with Securities and Exchange Commission form ADV.
(g) The INVESTMENT ADVISOR shall for the term of this
Agreement maintain an errors and omissions insurance policy in
the amount of at least one million dollars.
The INVESTMENT
ADVISOR shall furnish the BOARD with proof of its errors and
omissions insurance. The Board will maintain a fidelity bond
satisfying the requirements of Section 412 of ERISA and shall
include the Investment Advisor as its agent in its coverage.
(h) All proxy materials relating to any security held by
the INVESTMENT ADVISOR shall be voted in accordance with the
proxy voting policy adopted by the INVESTMENT ADVISOR. The BOARD
represents that such delegation of such voting rights is duly
authorized and is consistent with applicable plan documents. The
BOARD agrees to instruct the Custodian to forward all proxy
materials
and
related
shareholder
communications
to
the
INVESTMENT ADVISOR promptly upon receipt.
INVESTMENT ADVISOR
shall not be liable with regard to voting of proxies if the
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INVESTMENT ADVISOR does not receive the proxy materials and
related communications in a timely manner.
(i) Any portfolio manager or other key personnel assigned
by the INVESTMENT ADVISOR to performance under this Agreement may
not be removed by the INVESTMENT ADVISOR without promptly
providing notice to the BOARD subsequent to his or her departure.
(j ) In the event of a dispute between the parties, the
parties may by mutual consent agree to submit the matter to
binding arbitration.
(k) This Agreement constitutes the entire understanding of
the BOARD and the INVESTMENT ADVISOR and may be amended only by
written instrument executed by both parties.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
Attested:
BOARD OF TRUSTEES OF THE EMPLOYEES'
PENSION PLAN OF THE CITY OF
CLEARWATER, FLORIDA
By:
Frank V. Hibbard
Chairperson
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Approved as to form:
Attest:
Cynthia E. Goudeau
Pension Attorney
City Clerk
WEDGE Capital Management L.L.P.
Officer
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EXHIBIT A
City of Clearwater Employees' Pension Fund Fee Schedule
WEDGE Capital Management L.L.P. Mid Cap Value
.75 per cent per year on the first $10,000,000
.65 per cent per year on the next $15,000,000
.50 per cent per year on allover $25,000,000
Initial as applicable:
INVESTMENT ADVISOR is instructed to bill the
BOARD for its advisory services.
Fees for advisory services will be billed
directly to the Custodian and automatically paid from
the Account. INVESTMENT ADVISOR is instructed to
provide a quarterly invoice, including all
calculations, to BOARD at the same time billing is
performed for the Custodian. Custodian will provide
BOARD with a quarterly notice of the amount of advisory
fees withdrawn from the Account and paid to INVESTMENT
ADVISOR.
Fees will be billed quarterly in arrears, based on
market value as of the last business day of the
quarter. Deposits or withdrawals, made any time during
the quarter, exceeding a net aggregate of ten percent
of the Account's market value on the last business day
of the quarter, will be prorated over the quarter on
the basis of the number of days the funds were in the
Account. INVESTMENT ADVISOR shall not be compensated
on the basis of a share of capital gains upon, or
capital appreciation of, the Account.
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