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06/13/2016Monday, June 13, 2016 1:00 PM City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 Council Chambers Pension Trustees Meeting Agenda June 13, 2016Pension Trustees Meeting Agenda 1. Call To Order 2. Approval of Minutes 2.1 Approve the minutes of the May 16, 2016 Pension Trustees Meeting as submitted in written summation by the City Clerk. 3. Citizens to be Heard Regarding Items Not on the Agenda 4. New Business Items 4.1 Approve the new hires for acceptance into the Pension Plan as listed. 4.2 Approve the following request of employees Gary Kepner, Solid Waste General Services Department and Shari Lepper, Human Resources Department, to vest their pensions as provided by Section 2.419 of the Employees’ Pension Plan. 4.3 Approve changes to the City of Clearwater Employees’ Pension Statement of Investment Objectives and Guidelines (Investment Policy) to add scrutinized companies restrictions required by Florida Statutes; update portfolio asset allocation limits; update investment performance benchmark indexes and benchmarks; increase allowable leverage for real estate money managers; and to make grammatical and other minor changes as recommended by the Plan’s Investment Committee. 5. Adjourn Page 2 City of Clearwater Printed on 6/9/2016 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#16-2521 Agenda Date: 6/13/2016 Status: Agenda ReadyVersion: 1 File Type: MinutesIn Control: Pension Trustees Agenda Number: 2.1 SUBJECT/RECOMMENDATION: Approve the minutes of the May 16, 2016 Pension Trustees Meeting as submitted in written summation by the City Clerk. SUMMARY: APPROPRIATION CODE AND AMOUNT: USE OF RESERVE FUNDS: Page 1 City of Clearwater Printed on 6/9/2016 Pension Trustees Meeting Minutes May 16, 2016 City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 Meeting Minutes Monday, May 16, 2016 1:00 PM Council Chambers Pension Trustees Page 1 City of Clearwater Draft Pension Trustees Meeting Minutes May 16, 2016 Roll Call Present 4 - Chair George N. Cretekos, Trustee Doreen Caudell, Trustee Bob Cundiff, and Trustee Bill Jonson Absent 1 - Trustee Hoyt Hamilton Also Present – William B. Horne – City Manager, Jill Silverboard – Assistant City Manager, Pamela K. Akin – City Attorney, Rosemarie Call – City Clerk, Nicole Sprague – Official Records and Legislative Services Coordinator To provide continui ty for research, items are listed in agenda order although not necessarily discussed in that order. Unapproved 1. Call To Order – Chair Cretekos The meeting was called to order at 1:46 p.m. at City Hall. 2. Approval of Minutes 2.1 Approve the minutes of the April 18, 2016 Pension Trustees Meeting as submitted in written summation by the City Clerk. Trustee Jonson moved to approve the minutes of the April 18, 2016 Pension Trustees Meeting as submitted in written summation by the City Clerk. The motion was duly seconded and carried unanimously. 3. Citizens to be Heard Regarding Items Not on the Agenda – None. 4. New Business Items 4.1 Approve the new hires for acceptance into the Pension Plan as listed. Name/Job Classification/Department Pension Eligibility Date Robert Waite */Solid Waste Worker/Solid Waste 03/05/2016 Candace Tuetken/Police Comm. Operator Trainee/Police Dept 03/07/2016 Christopher Damm/Water Dist. Operator Trainee/Public Utilities 03/07/2016 Tyler Jones/Water Distribution Operator Trainee/Public Utilities 03/07/2016 Nicholas Gossard/Customer Service Rep. Customer Service 03/07/2016 Jamie Thomas/Solid Waste Worker/Solid Waste 03/07/2016 Courtney Schultz **/Recreation Leader/Parks and Recreation 03/19/2016 Tonya Sandy/Customer Service Rep./Gas Department 03/21/2016 Valerie McHargue/Paralegal/Legal Department 03/21/2016 Page 2 City of Clearwater Draft Pension Trustees Meeting Minutes May 16, 2016 Daniel Castellano /Parks Service Technician I/Parks and Rec. 03/21/2016 Gregory Graff/Police Service Technician/Police Department 03/21/2016 Jada Grabis ***/Parking, Facility and Security Aide/Marine & Aviation 03/19/2016 Trustee Caudell moved to approve the new hires for acceptance into the Pension Plan as listed. The motion was duly seconded and carried unanimously. 4.2 Approve the following request of employee Brent Peters, Information Technology Department to vest his pension as provided by Section 2.419 of the Employees’ Pension Plan. Brent Peters, Senior Systems Programmer, Information Technology Department, was employed by the City on May 20, 2002, and began participating in the Pension Plan on that date. Mr. Peters terminated from City employment on January 8, 2016. The Employees’ Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full-time to part-time 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 2.416 provides for normal retirement eligibility for non-hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty-five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty-five years of credited service; or the date on which a participant has reached the age of sixty-five years and completed ten years of credited service. Mr. Peters will meet the non-hazardous duty criteria and begin collecting a pension in June 2022. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five Page 3 City of Clearwater Draft Pension Trustees Meeting Minutes May 16, 2016 years and completed ten years of credited service. Trustee Cundiff moved to approve the following request of employee Brent Peters, Information Technology Department to vest his pension as provided by Section 2.419 of the Employees’ Pension Plan. The motion was duly seconded and carried unanimously. 4.3 Approve the following request of employees Dale Johnson, Public Utilities Department, Terry Avery, Solid Waste General Services Department and Russell Shawen, Engineering Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. Dale Johnson, Wastewater Treatment Plant Oper A, Public Utilities Department, was employed by the City on January 19, 1987, and his pension service credit is effective on that date. His pension will be effective May 1, 2016. Based on an average salary of approximately $71,663.09 over the past five years, the formula for computing regular pensions and Mr. Johnson’s selection of the Life Annuity, this pension benefit will be approximately $57,704.16 annually. Terry Avery, Fleet Mechanic Supervisor, Solid Waste General Services Department, was employed by the City on February 17, 1987, and his pension service credit is effective on that date. His pension will be effective May 1, 2016. Based on an average salary of approximately $68,037.87 over the past five years, the formula for computing regular pensions and Mr. Avery’s selection of the Life Annuity with a 20% Partial Lump Sum payment, this pension benefit will be approximately $43,711.68 annually. Russell Shawen, Parking Operations Supervisor, Engineering Department, was employed by the City on October 27, 1997, and his pension service credit is effective on that date. His pension will be effective April 1, 2016. Based on an average salary of approximately $40,635.22 over the past five years, the formula for computing regular pensions and Mr. Shawen’s selection of the 100% Joint and Survivor Annuity, this pension benefit will be approximately $17,403.24 annually. Section 2.416 provides for normal retirement eligibility for non-hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty-five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For Page 4 City of Clearwater Draft Pension Trustees Meeting Minutes May 16, 2016 non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty-five years of credited service; or the date on which a participant has reached the age of sixty-five years and completed ten years of credited service. Mr. Johnson, Mr. Avery and Mr. Shawen have met the non-hazardous duty criteria. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five years and completed ten years of credited service. Trustee Jonson move to approve the following request of employees Dale Johnson, Public Utilities Department, Terry Avery, Solid Waste General Services Department and Russell Shawen, Engineering Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. The motion was duly seconded and carried unanimously. 4.4 Approve Class A Interests fee structure for IFM Global Infrastructure money manager, to include foreign currency hedging. The Trustees recently approved the hiring of IFM Global as the pension plan’s infrastructure money manager under the existing fee structure for the money manager at the time. IFM Global has recently notified us that they are adopting a new fee structure for new investors. They are also offering the new fee structure as an option to existing investors such as Clearwater’s pension plan. The new fee structure lowers the base management fee, from 0.97% to 0.77%, but accelerates the money managers timing of sharing of earnings over the 8% hurdle rate. Additionally, the new fee structure will include foreign currency hedging. The foreign currency hedging is intended to reduce the volatility of returns from year to year caused by currency exchange rates. An irrevocable election is required by May 20, 2016, for any existing investors that would like to opt for the new Class A Interests fee structure with foreign Page 5 City of Clearwater Draft Pension Trustees Meeting Minutes May 16, 2016 currency hedging. Any existing investors not responding by the deadline will remain in the existing Class B Interests fee structure. The plan’s investment consultant, CapTrust, recommends adoption of the new fee structure as being in the best interests of the plan, as it decreases net management fees up to an earning threshold of 9.5% and increases manager incentives for performance in excess of the 8% hurdle rate. Additionally the foreign currency hedging is expected to produce the desired result of decreasing the volatility of investment returns from year to year. In response to questions, CapTrust Advisors Consultant John Griffith said there is no intent to engage in currency hedging to make profits; the idea is to mitigate differences between different investors, making the returns more consistent without invoking the changes in currency. The new fee schedule with the hedging strategy (Option A) helps to moderate volatility. If the new fee schedule with the hedging strategy is not approved, the City would return to the previous fee schedule, which was higher (8%). Mr. Griffith said the new fee schedule would lower the cost if the fund does not perform above 8%. He said the consultant provides advice and is not involved in the brokerage aspect. Trustee Jonson moved to approve Class A Interests fee structure for IFM Global Infrastructure money manager, to include foreign currency hedging. The motion was duly seconded and carried unanimously. 5. Adjourn The meeting adjourned at 1:59 p.m. Chair Employees’ Pension Plan Trustees Attest City Clerk Page 6 City of Clearwater Draft Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#16-2427 Agenda Date: 6/13/2016 Status: Agenda ReadyVersion: 2 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.1 SUBJECT/RECOMMENDATION: Approve the new hires for acceptance into the Pension Plan as listed. SUMMARY: Name/Job Classification/Department Pension Eligibility Date Jenae Swann */Recreation Leader/Parks and Recreation 04/02/2016 Ernesto Vildostegui **/Wastewater Treatment Plant Operator Trainee/Public Utilities 04/02/2016 Marilyn John/Librarian II/Library 04/04/2016 Jason Alber/Drafting & Mapping Technician/Engineering 04/04/2016 Lisa Weber/Accounting Technician/Gas Department 04/04/2016 John San Antonio/Fleet Mechanic/General Services 04/04/2016 Kelsey Viars/Police Officer/Police Department 04/18/2016 Langston Woodie/Police Officer/Police Department 04/18/2016 Matthew Prianciani/Police Officer/Police Department 04/18/2016 Kyle McCall/Police Communications Operator Trainee/Police Department 04/18/2016 Nicholas Lawn/Economic Development Specialist/Economic Development & Housing 04/18/2016 Matthew Fretwell/Field Service Representative I/Customer Service 04/18/2016 Rohan Thomas/Stormwater Technician I/Engineering 04/18/2016 Cody Foster/Gas Technician I/Gas Department 04/18/2016 Brett Jennings ***/Gas Technician I/Gas Department 04/18/2016 Phillip Greene/Gas Technician I/Gas Department 04/18/2016 Kyle Lantz/Systems Analyst/Information Technology 04/18/2016 Dominic Sharp ****/Solid Waste Worker/Solid Waste 04/18/2016 Dale Evans/Parks Service Technician I/Parks and Recreation 04/18/2016 * Jenae Swann was employed in a seasonal position from 05/30/2015 to 01/08/2016, and then rehired into a part time position on 01/09/2016. She was hired into a full time full time position on 04/02/2016 and will be eligible for pension as of 04/02/2016. ** Ernesto Vildostegui was employed in a seasonal part-time positions from 03/06/2011 to 04/05/2012, 05/08/2012 to 11/30/2012, and 07/13/2015 to 11/27/2015. He was employed in a part time position from 11/28/2015 to 04/01/2016 and then hired into a full time position on 04/02/2016. He will be eligible for pension as of 04/02/2016. *** Brett Jennings was previously employed with the City of Clearwater. He was initially in a temporary position from 11/23/2009 to 02/28/2010, and was then hired into a full time position 03/01/2010. He resigned effective 08/17/2012, and was rehired 04/18/2016. He is eligible for pension as of 04/18/2016. **** Dominic Sharp was employed in a temporary position from 02/22/2016 to 04/17/2016. He was hired into a full time full time position on 04/18/2016 and will be eligible for pension as of 04/18/2016. APPROPRIATION CODE AND AMOUNT: N/A Page 1 City of Clearwater Printed on 6/9/2016 File Number: ID#16-2427 USE OF RESERVE FUNDS: N/A Page 2 City of Clearwater Printed on 6/9/2016 Interoffice Correspondence Sheet TO:Pension Advisory Committee FROM:Joseph Roseto, Human Resources Director SUBJECT:Recommendation for Acceptance into Pension Plan DATE: Subject/Recommendation: Recommend approval of the new hires for acceptance into the Pension Plan as listed. Name Job Classification Department Pension Eligibility Date Jenae Swann *Recreation Leader Parks and Recreation 04/02/2016 Ernesto Vildostegui **Wastewater Treatment Plant Operator Trainee Public Utilities 04/02/2016 Marilyn John Librarian II Library 04/04/2016 Jason Alber Drafting & Mapping Technician Engineering 04/04/2016 Lisa Weber Accounting Technician Gas Department 04/04/2016 John San Antonio Fleet Mechanic General Services 04/04/2016 Kelsey Viars Police Officer Police Department 04/18/2016 Langston Woodie Police Officer Police Department 04/18/2016 Matthew Prianciani Police Officer Police Department 04/18/2016 Kyle McCall Police Communications Operator Trainee Police Department 04/18/2016 Nicholas Lawn Economic Development Specialist Economic Development & Housing 04/18/2016 Matthew Fretwell Field Service Representative I Customer Service 04/18/2016 Rohan Thomas Stormwater Technician I Engineering 04/18/2016 Cody Foster Gas Technician I Gas Department 04/18/2016 Brett Jennings ***Gas Technician I Gas Department 04/18/2016 Phillip Greene Gas Technician I Gas Department 04/18/2016 Kyle Lantz Systems Analyst Information Technology 04/18/2016 Dominic Sharp ****Solid Waste Worker Solid Waste 04/18/2016 Dale Evans Parks Service Technician I Parks and Recreation 04/18/2016 * Jenae Swann was employed in a seasonal position from 05/30/2015 to 01/08/2016, and then rehired into a part time position on 01/09/2016. She was hired into a full time full time position on 04/02/2016 and will be eligible for pension as of 04/02/2016. ** Ernesto Vildostegui was employed in a seasonal part-time positions from 03/06/2011 to 04/05/2012, 05/08/2012 to 11/30/2012, and 07/13/2015 to 11/27/2015. He was employed in a part time position from 11/28/2015 to 04/01/2016 and then hired into a full time position on 04/02/2016. He will be eligible for pension as of 04/02/2016. *** Brett Jennings was previously employed with the City of Clearwater. He was initially in a temporary position from 11/23/2009 to 02/28/2010, and was then hired into a full time position 03/01/2010. He resigned effective 08/17/2012, and was rehired 04/18/2016. He is eligible for pension as of 04/18/2016. **** Dominic Sharp was employed in a temporary position from 02/22/2016 to 04/17/2016. He was hired into a full time full time position on 04/18/2016 and will be eligible for pension as of 04/18/2016. Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#16-2428 Agenda Date: 6/13/2016 Status: Agenda ReadyVersion: 2 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.2 SUBJECT/RECOMMENDATION: Approve the following request of employees Gary Kepner, Solid Waste General Services Department and Shari Lepper, Human Resources Department, to vest their pensions as provided by Section 2.419 of the Employees’ Pension Plan. SUMMARY: Gary Kepner, Solid Waste Supervisor I, Solid Waste General Services Department, was employed by the City on October 13, 1997, and began participating in the Pension Plan on that date. Mr. Kepner terminated from city employment on April 9, 2016. Shari Lepper, Human Resources Office Assistant, Human Resources Department, was employed by the City on June 16, 2003, and began participating in the Pension Plan on that date. Ms. Lepper changed status from full-time to part-time on October 4, 2014. The Employees’ Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full -time to part-time 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 2.416 provides for normal retirement eligibility for non -hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty -five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty -five years of credited service; or the date on which a participant has reached the age of sixty -five years and completed ten years of credited service. Mr. Kepner will meet the non -hazardous duty criteria and begin collecting a pension in November 2019. Ms. Lepper will meet the non -hazardous duty criteria and begin collecting a pension in July 2023. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five years and completed ten years of credited service. Page 1 City of Clearwater Printed on 6/9/2016 File Number: ID#16-2428 APPROPRIATION CODE AND AMOUNT: N/A USE OF RESERVE FUNDS: N/A Page 2 City of Clearwater Printed on 6/9/2016 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#16-2512 Agenda Date: 6/13/2016 Status: Agenda ReadyVersion: 1 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.3 SUBJECT/RECOMMENDATION: Approve changes to the City of Clearwater Employees’ Pension Statement of Investment Objectives and Guidelines (Investment Policy) to add scrutinized companies restrictions required by Florida Statutes; update portfolio asset allocation limits; update investment performance benchmark indexes and benchmarks; increase allowable leverage for real estate money managers; and to make grammatical and other minor changes as recommended by the Plan’s Investment Committee. SUMMARY: The Pension Plan’s Investment Policy was reviewed by the Plan ’s investment consultant, CapTrust; the Plan’s pension attorney, Klausner, Kaufman, Jensen & Levinson; and the Plan ’s Investment Committee for necessary revisions. A significant change to the policy is the addition of “scrutinized companies” restrictions per Florida Statutes Section 215.473(t), as recommended by the pension attorney. Updates have also been made to several performance measurement indexes and asset allocation limits. The average debt leverage limit for real estate money managers has been increased from 40% to 50% to reflect the recent addition of core plus real estate as an investment category. Grammatical corrections and other minor changes have been made upon recommendations of the investment consultant, pension attorney, and Pension Investment Committee. APPROPRIATION CODE AND AMOUNT: N/A Page 1 City of Clearwater Printed on 6/9/2016 STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES CITYOF CLEARWATER EMPLOYEES’ PENSIONPLAN Adopted June 13, 2016 December 13,2011 1 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 Clearwater Employees’ Pension Plan (hereafter referred to as the fund) in more effectively supervising and monitoring the investment of theFund's assets. In thevarioussections ofthispolicydocument, theFund defines its investmentprogram by: stating in a written document the Fund's attitudes, expectations and objectives in the investmentof Fundassets. setting forth an investment "structure" for managing assets. This structure includes various asset classes and investment management styles that, in aggregate, are expected to producea prudentlevel of diversificationandinvestmentreturnover time. providing guidelines for each investment portfolio that control the level of risk assumed in theportfolioand ensurethat assets are managedin accordancewith stated objectives. encouraging criteria to monitor and evaluate the performance results achieved by the investmentmanagers. 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 notnecessarilybe bound solelyby its contents. PRUDENCE AND ETHICAL STANDARDS Thestandardof prudence to be appliedbythetrustees shall bethe"PrudentPerson"rule, which states: "Investments shall bemadewith judgment and care, undercircumstancesthen prevailing, which persons ofprudence,discretion and intelligenceexercisein the managementof theirown affairs,not for speculation,butforinvestment, consideringtheprobablesafetyoftheircapitalas well astheprobable income derived." The "Prudent Person"ruleshall be appliedin thecontextof managingtheoverallportfolio. Thetrustees shall alsobegovernedbythe fiduciarystandard set forthin the EmployeeRetirement Income Security Act of 1974 at 29U.S.C. s. 1104 (a) (1) (A) – (C).In the event of a conflict betweenthePolicyand Florida StatutesorCityordinances,thestatutes and ordinancesshall prevail. Funding Philosophy TheFund's fundingobjectives areto be as fullyfunded aspossibleso that: the ability to pay all benefits and expense obligations from the Fund when due is ensured; 2 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 possiblefuture increasesin benefitstructureand 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. Investmentresults within theFund are considered to be themajor critical elementin achievingthese fundingobjectives stated abovewhilereliance on contributionsis a secondaryelement. 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, in amounts sufficient to provide, in whole or in part, benefits to which all of the participants shall be or become entitled to 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 three percent (3%)of theinsurance company’sassets. 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. 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. 3 Student Loan Marketing Association (Sallie Mae), 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), Financial Assistance Corporation and Federal Agriculture Mortgage Corporation (Farmer Mac). e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage Investment Conduits (REMIC), rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies which are backed by 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. Securities of countries, states, municipalities and county governments or their public agencies, which are, rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies. g. Asset-backed securities, which are,rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies. 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 any one 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 format; 2. Unless an asset allocation for less than investment grade corporate bonds is established, 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 percent (3%) of the equity assets of the pension Fund shall be invested in the common stock or capital stock of any one 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 4 500 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 twenty five percent (25%) of the pension Fund's assets at market. i. Real estate including but not limited to REITS, comingled or limited partnerships. Investments in timber through vehicles such as comingled or limited partnerships shall be treated as a are a subclass of real estate. Such investments shall not exceed, in the aggregate, twenty percent (20%) of the fund. j. Alternative Investments, with no more, in the aggregate, than twenty percent (20%)ten percent (10%)of the Fund in alternative investments, through participation in securities or investments or an alternative investment vehicle that is not publicly traded and is not otherwise authorized by this section. Alternative Investments include securities which fall outside the scope of traditional investments (stocks, bonds, and cash) or are strategies investing in securities using alternative means (derivatives, leverage, short selling), or some combination thereof. An “alternative investment vehicle" is a limited partnership, limited liability company, or similar legal structure or investment manager through which the fund invests in a portfolio company. Investments in infrastructure projects will be considered an alternative investment. Real Estate in timber investments are not considered alternative investments for this policy. k. Effective July 1, 2009, Florida law was amended to require police and fire retirement plans to identify, publicly report and divest from investments in “scrutinized companies” as identified under Florida law. As a Florida Statute police plan, the Board of Trustees must follow this law. First, the System must identify its holding in “scrutinized companies.” 215.473(t) “Scrutinized Company” means any company that meets any of the following criteria: 1. The company has business operations that involve contracts with or provision of supplies or services to the government of Sudan, companies in which the government of Sudan has any direct or indirect equity share, consortiums or projects commissioned by the government of Sudan, or companies involved in consortiums or projects commissioned by the government of Sudan, and: a.) More than 10 percent of the company’s revenues or assets linked to Sudan involve oil-related activities or mineral-extraction activities; less than 75 percent of the company’s revenues or assets linked to Sudan involve contracts with or provision of oil-related or mineral- extracting products or services to the regional government of Southern Sudan or a project or consortium created exclusively by that regional government; and the company has failed to take substantial action; or 5 b.) More than 10 percent of the company’s revenues or assets linked to Sudan involve power-production activities include projects whose intent is to provide power or electricity to the marginalized populations of Sudan; and the company has failed to take substantial action. 2. The company is complicit in the Darfur genocide. 3. The company supplies military equipment within Sudan, unless it clearly shows that the military equipment cannot be used to facilitate offensive military actions in Sudan or the company implements rigorous and verifiable safeguards to prevent use of that equipment by forces actively participating in armed conflict. Examples of safeguards include post-sale tracking of such equipment by the company, certification from a reputable and objective third party that such equipment is not being used by a party participating in armed conflict in Sudan, or sale of such equipment solely to the regional government of southern Sudan or any internationally recognized peacekeeping force or humanitarian organization. 4. The company has business operations that involve contracts with or provision of supplies or services to the government of Iran, companies in which the government of Iran has any direct or indirect equity share, consortiums, or projects commissioned by the government of Iran and: a.) More than 10 percent of the company’s total revenues or assets are linked to Iran and involve oil-related activities or mineral- extraction activities; and the company has failed to take substantial action; or b.) The company has, with actual knowledge, on or after August 5, 1996, made an investment of $20 million or more, or any combination of investments of at least $10 million each, which in the aggregate equals or exceeds $20 million in any 12-month period, and which directly or significantly contributes to the enhancement of Iran’s ability to develop the petroleum resources of Iran. The definition of scrutinized company is detailed here for your information. However, to be compliant with the statutory requirements, the Board may look to the Florida State Board of Administration quarterly reports on identified scrutinized companies. Regular quarterly updates can be found at: http://www.sbafla.com/fsb/Home/tabid/369/Default.aspx. Second, the law requires that beginning January 1, 2010, the Board must publicly report any direct or indirect holdings in scrutinized companies. As new companies are identified the Board must divest within 12 months of when the company was first added to the list. The Board’s third responsibility is one of two actions depending upon whether the holding is direct (securities are held directly by a public fund) or indirect (securities are held in an 6 account or by a mutual fund in which the public fund owns shares or interests together with other investors not subject to the provisions of Florida Statutes §215.473.) If the holdings are direct, the law requires the Board to divest from its holdings. The divestiture must be completed by September 30, 2010. No further investments may be made in such companies. Private equity funds are deemed to be an actively managed investment fund. If the holdings are indirect, the Board must notify the investment manager of the companies on the list and request that the manager remove such companies from your investment fund or create a similar actively managed fund without such holdings. 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. Illiquid Investments The Fund will not invest in illiquid investments. Illiquid investments being defined as an investment for which there is no generally recognized market or generally accepted pricing mechanism. Once an investment becomes illiquid the money manager will notify the plan of the illiquid investment. Includedin that notificationwill behowthemoney manager will handletheilliquid investment. INVESTMENT MANAGEMENT STRUCTURE Five distinct asset classes will be considered for inclusion in the portfolio which will include Domestic Equities, International Equities, Domestic Fixed Income, Real Estate, and Alternative Investments. A permanent commitment to these five 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'sobjectives. 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, at least one core bond manager will be utilized to stabilize the Fund. In the International Equity market, diversified non-U.S. managers will be hired to achieve diversification. In the Real Estate market, the Fund will utilize collective funds or REIT’s for purposes of diversification. In the Alternatives market, the Fund will hire fund of funds managers to optimize strategies and provide adequate safety of capital and diversification. 7 the Cash & Investments Manager 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 accountto meetthecurrent obligations oftheFund. Theguidelinesfor theallocationofassets, atmarket,to investment managersareas follows: Asset Class Lower Limit Upper Limit Market U.S.Market Equities Growth Value 20% 10% 10% 60% 30% 30% Market Market Market International Equity 10%25%Market Domestic Fixed Income 25%30%40%Market Real Estate 0%15%20%Market Alternative Investments 0%10%20%Market 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 manner. 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 without the approval of the trustees, if required, or by the approval of the Pension Investment Committee if trustee approval is not required. Trustee approval is not required for rebalancing of 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 trusteesor Cityemployees. Makeup of the Investment Committee The Pension Investment Committee shall consist (at a minimum)of the following: Finance Director (Treasurer for the Trustees), Assistant Finance Director,Finance 8 Accounting Manager, Finance Debt Manager, and one member from the general public appointed by the Trustees. The Treasurer for the Trustees shall appoint/remove other Finance professionals City employees as needs warrant. One representative for each of the employee unions may also serve on the Investment Committee. The Finance Director or its designee will chair the committee. A quorum of at least three (3) members must be physically present for all meetings. The Treasurer for the Trustees will make recommendations to the Trustees as to any changes in the makeup 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 Finance Director will complete no less than eight (8) hours of continuing educational opportunities onpensioninvestments eachfiscal year. INVESTMENT RETURN OBJECTIVES In formulatinginvestment return objectives for the Funds’ assets, theFund placedprimary emphasis onthefollowing goals: Achieve investment performance that exceeds the rate of inflation over time thereby providinga real rateofreturn. Achieveinvestmentresultsof atleast theactuarial rate ofreturn. Achieve investment performance that is materially above average when compared to: -Otherinvestment managers -Otherinvestment manager peers of related investmentstyle -Other publicretirementplans -Several capital marketindices The Trustees will determine the expected rate of return of the current year, and future years. The expected rate of return for the foreseeable future is 7.0%. Thetotal Fundand asset segmentreturn expectations are as follows: a.TotalFundReturn Objectives The following minimum comparative objectives have been established for thetotal Fund: 1.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 9 maximum five(5) years. 2.The Fund's 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 measurement style database for each asset class segment. 3.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 rolling three (3) or maximum of five (5) yearperiod. 4.The Fund's overall annualized total return should exceed the returns that would have collectively been achieved if the Fund had been fullyinvested in theappropriatepercentage of: - Standard & Poor's 500Stock Index - Barclay’sCapital Aggregate Index - MSCIACWIEx USA This is a custom benchmark that will be calculated relative to the actual collective asset class mix of the Fund measured over a minimum ofthree(3) or maximum offive (5) years. b. EquitySegmentReturnObjectives The following minimum performance goals have been established forthe Fund's domestic equitysegment: 1.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 five (5) years. 2. The individual domestic equity 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 U.S. equity database measured over a minimum period of three (3) or maximum offive (5) years. 3. The domestic equity segment total return should exceed the total return of the Standard & Poor's 500 Stock Index by at least 100 basis points per year measured over a minimum period of three (3) or maximum of (5) years. 10 c.InternationalEquitySegmentReturn Objectives The following minimum performance goals have been established for the Fund's international equitysegment: 1. 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 five (5) years. 2. 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 five (5) years. 3. The international equity segment total return should exceed the total return of the Morgan Stanley Capital All Country World Index Ex United States by at least 200 basis points per year measured over a minimum of three (3) or maximum offive (5) years. d. Fixed IncomeSegmentReturn Objectives .The following minimum performance goals have been established forthe Fund's domestic fixed-incomesegment: 1. 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 five (5) years. 2. 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 five (5) years. 3. The domestic fixed income segment total returns should exceed the total return of the Barclays Aggregate Bond Index by at least 50 basis points per year measured over a minimum period of three (3) or maximum of five (5) years. 11 e. RealEstateSegmentReturn Objectives The following minimum performance goals have been established for the Fund’s Real EstateSegment: 1.The Real Estate segment total return should perform at least at the upper fiftieth (50th) percentile compared to recognized performance measurement database measured over a minimum period of three (3) or maximum offive (5) years. 2.The Real Estate 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 measurement company’s database measured over a minimum period of three (3) or maximum of five (5) years. 3.The Real Estate managers total return should exceed the total return for comparable strategies of the Wilshire RESI Index over a minimum of three (3) or maximum offive (5) years. f.AlternativeSegmentReturn Objectives The following minimum performance goals have been established for the Fund’s alternativeinvestment segment. 1.The Alternative total return should perform at least at the upper fiftieth (50th)percentile compared to recognized performance measurement database measured over a minimum period of three (3) or maximumoffive (5) years. 2.The alternative manager’s 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 measurement company’s database measured over a minimum period of three (3) or maximum offive (5) years. 3.The alternative manager’s total return should exceed the total return for comparable strategies of the alternative asset class’ specific recognized index Credit Suisse/Tremont Hedge Fund Index measured over a minimum of three (3) or maximum of five (5) years. 12 Criteriafor Investment Manager Review Consistent under-performanceofthestated targetindex over rolling3-year periods. Failure to out-perform the manager’s chosen performance benchmark or index measuredover a minimum ofthree(3) years or maximumoffive(5) years. Failure to out-perform the manager’s investment style peer group measured over a minimum periodof three(3) yearsormaximum of(5) years. Loss by the Manager of any senior personnel deemed detrimental to the Manager’s ability to perform required duties or any potentially detrimental organizational issues that mayariseand have aneffect onthemanagementofthePlan’s assets. Substantial changein basicinvestment philosophybytheManager. Substantial change of ownership of the firm deemed detrimental to the Manager’s abilityto perform therequired duties. Failureto observeanyguidelinesasstated in this policy. ROLES AND RESPONSIBILITIES Responsibilities of theThird Party Custodian A third party custodian will hold all Fund assets other than commingled accounts. In order to maximize the Fund's 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. Security lending is permitted if the agreements meet the credit standards of the City of Clearwater and no credit exposure liability is taken to end user borrowers. Thecustodianwill beresponsiblefor performingthe following functions: Acceptdailyinstructions from theinvestment managers; Advise investmentmanagersdailyofchanges in cash equivalent balances; Immediatelyadviseinvestmentmanagers ofadditionsorwithdrawals from account; Dispositions ofholdings; Resolve any problems that investment managers may have relating to custodial account; Safekeepingofsecurities; 13 Interestand dividendcollection;  Dailycash sweepofidle principal and incomecashbalance;  Processall investment managertransactions ona deliveryvs. payment basis;  Collectproceeds frommaturingsecurities;  Provide monthlystatementsbyinvestmentmanager 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 authorizedmemberofthecommitteeorthecommittee’s designee. Responsibilities of Investment Managers The duties and responsibilities of each of the registered investment advisors retained by the Fundinclude: Managing the assets under its management in accordance with the policy guidelines and objectives expressed herein, or expressed in a separate written agreement when deviationis deemedprudent and desirable. 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 manager's current investment strategy and compatible with investmentobjectives. Promptly informing the Fund regarding all significant matters pertaining to the investmentof theFundassets,for example: a.changes in investment strategy, portfolio structure and market value of managed assets; b.the manager's progress in meeting the investment objectives set forth in this document; and c.significant changes in the ownership, affiliations, organizational structure, financial condition, professional personnel staffing and clientele of the investmentmanagement organizations. No deviation from guidelines and objectives established in the Statement should occur until after such communication has occurred and the Fund has approved such deviationin writing. 14 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 manager's policies and actions in this area. 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 use 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 responsibilities. Each new Money Manager will sign off acknowledging they have read investment policy and will comply. Notifying the Fund of the filing of a lawsuit by a client against the manager alleging breach of fiduciarydutyor otherwillfulconduct. EVALUATION AND REVIEW 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 policyguidelines set forthherein;and theinvestmentmanagers performedsatisfactorilywhen comparedwith: a. theobjectivesset forthin Appendix"A",as a primaryconsideration, b. theirown previouslystated investmentstyle, c. other investmentmanagers,both in asset class and in style group, d. other retirementfunds, e. severaldifferent marketindices. 15 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 evaluationof thecontinued appropriatenessof: (1) themanager structureset forthin 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 investmentprogram over time. Filingof Investment Policy Uponadoptionbythetrustees,the investmentpolicyshall bepromptlyfiledwith theDepartmentof ManagementServices, theCityClerk, and theconsultingactuary. The effectivedateofchanges to theInvestmentpolicywill be31 days after the filingdatewith thecity. 16 APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES CITY OF CLEARWATER EMPLOYEES PENSION FUND INVESTMENT STRUCTURE Target Investment Manager Allocation DomesticEquity ValueOrientation 10%- 30% DomesticEquity Growth Orientation 10%- 30% International Equity 10%- 25% DomesticFixed Income - 40% Real Estate 0%- 20%15% Alternative Investments 0% - December 13,2011 25%30% 20%10% 17 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 consistentwith thepracticesof othersimilar-sized retirementfunds; and offers an appropriate "blend" of investment styles that will produce a sufficientlevel ofdiversificationand investmentreturnover 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 practical, it is expected that any cash flow will be allocated to or taken 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 UtilizationRestrictions 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 ofthenormal protectionof theFund’s assetsis 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 investmenttransactionsshall be executedthrough. 5.Short Sellingand RelatedRestrictions 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 or debt private placements or lease-backs or any other specialized investment activity withouttheprior written consent oftheFund. APPENDIX A (continued): FUNDSEGMENTAND INDIVIDUALMANAGER GUIDELINES 18 6.Liquidityand Marketability 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 Fund’s 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 atanytime. 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 Fund's collectiveliquidationand marketrisk. 7.Usageof 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 manager's portfolios. 8.Usageof Cross Asset Segment Investment GuidelineRestrictions When a manager's 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 assignedsegment guidelines. 9.DiversificationRestrictions 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, industry, duration, and sector is within the full discretion and responsibility of the investmentmanagers. 10.Other Objectives, Guidelines and Restrictions Forthcoming The Fund maydevelop additional objectives, guidelines and restrictions and may amend the Policyfrom time to time. 19 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 Objectives and Guidelines. a.Domestic Equity Segment Eachequitymanager is expectedto adhereto thefollowing guidelines: Equity holdings in any one company (including common and preferred stock, convertible securities and debt) should not exceed ten percent (10%) of the market value of the manager's portion of the Fund without the consent oftheFund. Equity holdings in any one industry (as defined by Standard & Poor's) should not exceed fifty percent (50%) of the market value of the manager's portionof theFund. 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 withoutthepriorwrittenconsent oftheFund. No purchase shall be made by an investment manager that would cause a holdingto exceedfivepercent (5%)of theissueoutstanding. b.International EquitySegment Each international equity manager is expected to adhere to the following minimum guidelines: Equity holdings in any one 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 withoutthepriorwrittenconsent oftheFund. Equity holdings in any one industry should not exceed fifty percent (50%) of the market value of the manager's portion of the Fund portfolio. Equity holdings in any one sector (e.g., consumer cyclical, energy, technology, etc.) should not exceed fifty percent (50%) of the market value of the manager's portfolio withoutthepriorwrittenconsent oftheFund. 20 Cash equivalents and fixed income positions should not exceed fifty percent (50%) of the manager's portion of the Fund assets. A manager may invest in fixed income securities (i.e. securities with more than two years to maturity) if projected returns on such securities are perceived to be competitive with potential equityreturns. 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 currencyspeculationor anyrelated investmentactivity. The manager may purchase or sell currency on a spot basis to accommodate specificsecurities settlements. c.Fixed IncomeSegment Eachfixedincomemanageris expectedto adhere to thefollowingguidelines: All Fixed Income Securities held in each portfolio should have a Moody's, Fitch, 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 handlethebelowinvestmentgrade security. The diversification of securities by maturity, quality, sector, coupon and geographyis theresponsibilityof themanager. 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 percent (5%)of the manager's portionof theFund measuredat marketvalue. No purchase shall be made by a Fixed Income Manager, which would cause a holdingto exceed ten percent (10%) oftheissueoutstanding. 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 ten percent (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 institutionorfinancial institution holdingcompanyfamily. 21 d.Real Estate Segment EachReal Estate manager is expected to adhereto the followingguidelines: REIT managers will limit holdings in any one company to fifteen percent (15%) of the market value of the manager’s Fund, cash equivalents and positions in fixed income vehicles should not exceed twenty five percent (25%) of the managers portfolio and no purchase shall be made that would causea holdingto exceed ten percent (10%) oftheissues outstanding. Managers of direct investments in real estate structured as limited partnerships, limited liability companies or separate accounts will operate strictly within conformance to the regulations of their state of domicile and complywith anyapplicable federal or statesecuritylaws. Managers of direct investments in real estate may be income oriented or capital gains oriented but in no event will the manager apply average leverage in excess of fifty portfolio. percent (%) of the value of the total Managers of direct investments in real estate shall seek to diversify the portfolioin termsof geographiclocation, tenant usage, and lease schedules. Timberland managers shall maintain portfolios of geographically diversified stands of biological tree growth with the potential for land value appreciation, alternative use and leasing potential, diversified product opportunities and longterm landappreciationpossibilities. e.Alternative Investment Segment Academic research supports the use of alternative investments as a mechanism to potentially reduce the volatility and/or enhance the expected return of an investment portfolio. However, the use of alternative investments can introduce unique types of risks due to their inherent structure and characteristics which include but are not limited to: leverage, illiquidity, short sales, derivatives, and lack of transparency and regulation. In light of these unique risks, the Fund does not attempt to define or limit the manager’s discretion as to the use of financial instruments. The Fund will actively monitor the investment manager’s performance and activities to limit exposure to these unique risks. f.Cash andEquivalents Segment 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 forty 5040 22 daily via an automatic sweep STIF managed by the custodian.It is the Fund's objectiveto havenoidle cash atany time in anymanager's portfolio. g.PooledVehicles To the extent that the Fund invests a portion of the Fund’s assets in commingled vehicles or institutional mutual funds, then the investment guidelines of the fund's prospectus will beadoptedas this fund's guidelines. h.Master RepurchaseAgreement The money managers and safekeeping custodian will use a master repurchase agreement whenever appropriate. All repurchase agreements transactions shall adhere to therequirements ofthemaster repurchase agreement. 12.Individual Manager Descriptions and Five-Year Expectations Allexpectations are minimums. Allinvestmentmanagers shall exceedthestated expectations. Investment Manager Percentile Expectation Percentile Relative To Expectation Other Relative To Managers Style Peers Domestic Equity SpecialistManager Value Orientation 50th 50th Domestic Equity SpecialistManager Growth Orientation 50th 50th International Equity Specialist Manager 50th 50th Domestic Fixed Income Specialist Manager CoreFixed Income Orientation 50th 50th Real Estate Specialist Manager 50th 50th Alternatives Specialist Manager 50th 50th In addition,each domestic equity and fixed income manager is expected to achieve positive risk-adjusted (alpha)performance over a three (3)or five (5) year period. 23 (12) 13.ReportingRequirements: a.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 Managerand thetotalFund: Overviewofthemost recent quarterand year-to-dateinvestmentindicators Total Fundasset allocation Comparisonof totalFundreturn versusthecustomized benchmark Performance results by individual Manager and Total Fund compared to appropriatebenchmarks. b.Investment Reporting: On not less than 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 filedwith theCity. c.Proxy Voting: On not less than a quarterly basis, money managers will report to the Plan their proxyvotingduringthelast period. 14.Review of Policy This Statementof InvestmentPolicymust bereviewedannuallybythePensionInvestment Committee with a recommendationto revise or confirm to theTrustees. 15.Meeting Agenda Ateach meeting, thewrittenand oral presentations shall cover thefollowingpoints: A report of performance for past periods. Standard time periods for each report will be last quarter,last year,year to date,latest twelve months, last year, 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. 24 Discussion of the rationale for performance results by relating them specifically to investment strategy and tactical decisions implemented during thecurrentreview period. Discussion of the investment manager's specific strategy for the portfolio over the next six to twelve months with specific reference to asset allocation and sector weighting, as appropriate. Supporting discussion of the next period's strategy with reference to investment manager's capital market and economic assumptions, if applicable. bytheFundatleast of the written summary should be received businessdays priorto themeeting. The Fund is interested in fostering an effective working relationship with its investment managers through a discipline of good communication. The establishment of Objectives, Performance 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 progresstowardoverallinvestmentobjectives. The Fund shall be using a third party consultant selected, hired and directed by the Fund to: (1) assist in appraising performance, (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 assisttheconsultant with theirfullest cooperation. Twelve (12)copies An electronic copy three five (5) STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES CITY OF CLEARWATER EMPLOYEES’ PENSION PLAN Adopted June 13, 2016 1 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 Clearwater Employees’ Pension Plan (hereafter referred to as the fund) in more effectively supervising and monitoring the investment of the Fund's assets. In the various sections of this policy document, the Fund defines its investment program by: stating in a written document the Fund's attitudes, expectations and objectives in the investment of Fund assets. setting forth an investment "structure" for managing assets. This structure includes various asset classes and investment management styles that, in aggregate, are expected to produce a prudent level of diversification and investment return over time. providing guidelines for each investment portfolio that control the level of risk assumed in the portfolio and ensure that assets are managed in accordance with stated objectives. 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 "Prudent Person" rule, which states: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income derived." The "Prudent Person" rule shall be applied in the context of managing the overall portfolio. The trustees shall also be governed by the fiduciary standard set forth in the Employee Retirement Income Security Act of 1974 at 29U.S.C. s. 1104 (a) (1) (A) – (C). 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 are 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; 2 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, in amounts sufficient to provide, in whole or in part, benefits to which all of the participants shall be or become entitled to 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 three percent (3%) of the insurance company’s assets. 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. 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. 3 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), Financial Assistance Corporation and Federal Agriculture Mortgage Corporation (Farmer Mac). e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage Investment Conduits (REMIC), rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies which are backed by 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. Securities of countries, states, municipalities and county governments or their public agencies, which are, rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies. g. Asset-backed securities, which are rated investment grade or equivalent by Standard and Poor's, Moody's, Fitch, or other recognized national rating agencies. 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 any one 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 format; 2. Unless an asset allocation for less than investment grade corporate bonds is established, 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 percent (3%) of the equity assets of the pension Fund shall be invested in the common stock or capital stock of any one 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 4 committee that such higher percentage is in the best interest of the Fund; nor shall the non-U.S. investments exceed twenty five percent (25%) of the pension Fund's assets at market. i.Real estate including but not limited to REITS, comingled or limited partnerships. Investments in timber through vehicles such as comingled or limited partnerships shall be treated as a subclass of real estate. k. Alternative Investments, with no more, in the aggregate, than twenty percent (20%) of the Fund in alternative investments, through participation in securities or investments or an alternative investment vehicle that is not publicly traded and is not otherwise authorized by this section. Alternative Investments include securities which fall outside the scope of traditional investments (stocks, bonds, and cash) or are strategies investing in securities using alternative means (derivatives, leverage, short selling), or some combination thereof. An “alternative investment vehicle" is a limited partnership, limited liability company, or similar legal structure or investment manager through which the fund invests in a portfolio company. Investments in public infrastructure projects will be considered an alternative investment. Real estate, including timber investments, are not considered alternative investments for this policy. k. Effective July 1, 2009, Florida law was amended to require police and fire retirement plans to identify, publicly report and divest from investments in “scrutinized companies” as identified under Florida law. As a Florida Statute police plan, the Board of Trustees must follow this law. First, the System must identify its holding in “scrutinized companies.” 215.473(t) “Scrutinized Company” means any company that meets any of the following criteria: 1. The company has business operations that involve contracts with or provision of supplies or services to the government of Sudan, companies in which the government of Sudan has any direct or indirect equity share, consortiums or projects commissioned by the government of Sudan, or companies involved in consortiums or projects commissioned by the government of Sudan, and: a.) More than 10 percent of the company’s revenues or assets linked to Sudan involve oil-related activities or mineral-extraction activities; less than 75 percent of the company’s revenues or assets linked to Sudan involve contracts with or provision of oil-related or mineral- extracting products or services to the regional government of Southern Sudan or a project or consortium created exclusively by that regional government; and the company has failed to take substantial action; or b.) More than 10 percent of the company’s revenues or assets linked to Sudan involve power-production activities include projects whose intent is to provide power or electricity to the marginalized 5 populations of Sudan; and the company has failed to take substantial action. 2. The company is complicit in the Darfur genocide. 3. The company supplies military equipment within Sudan, unless it clearly shows that the military equipment cannot be used to facilitate offensive military actions in Sudan or the company implements rigorous and verifiable safeguards to prevent use of that equipment by forces actively participating in armed conflict. Examples of safeguards include post-sale tracking of such equipment by the company, certification from a reputable and objective third party that such equipment is not being used by a party participating in armed conflict in Sudan, or sale of such equipment solely to the regional government of southern Sudan or any internationally recognized peacekeeping force or humanitarian organization. 4. The company has business operations that involve contracts with or provision of supplies or services to the government of Iran, companies in which the government of Iran has any direct or indirect equity share, consortiums, or projects commissioned bythe government of Iran and: a.) More than 10 percent of the company’s total revenues or assets are linked to Iran and involve oil-related activities or mineral- extraction activities; and the company has failed to take substantial action; or b.) The company has, with actual knowledge, on or after August 5, 1996, made an investment of $20 million or more, or any combination of investments of at least $10 million each, which in the aggregate equals or exceeds $20 million in any 12-month period, and which directly or significantly contributes to the enhancement of Iran’s ability to develop the petroleum resources of Iran. The definition of scrutinized company is detailed here for your information. However, to be compliant with the statutory requirements, the Board may look to the Florida State Board of Administration quarterly reports on identified scrutinized companies. Regular quarterly updates can be found at: http://www.sbafla.com/fsb/Home/tabid/369/Default.aspx. Second, the law requires that beginning January 1, 2010, the Board must publicly report any direct or indirect holdings in scrutinized companies. As new companies are identified the Board must divest within 12 months of when the company was first added to the list. The Board’s third responsibility is one of two actions depending upon whether the holding is direct (securities are held directly by a public fund) or indirect (securities are held in an account or by a mutual fund in which the public fund owns shares or interests together with other investors not subject to the provisions of Florida Statutes §215.473.) 6 If the holdings are direct, the law requires the Board to divest from its holdings. The divestiture must be completed by September 30, 2010. No further investments may be made in such companies. Private equity funds are deemed to be an actively managed investment fund. If the holdings are indirect, the Board must notify the investment manager of the companies on the list and request that the manager remove such companies from your investment fund or create a similar actively managed fund without such holdings. 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. INVESTMENT MANAGEMENT STRUCTURE Five distinct asset classes will be considered for inclusion in the portfolio which will include Domestic Equities, International Equities, Domestic Fixed Income, Real Estate, and Alternative Investments. A permanent commitment to these five 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, at least one core bond manager will be utilized to stabilize the Fund. In the International Equity market, diversified non-U.S. managers will be hired to achieve diversification. In the Real Estate market, the Fund will utilize collective funds or REIT’s for purposes of diversification. In the Alternatives market, the Fund will hire fund of funds managers to optimize strategies and provide adequate safety of capital and 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 market, to investment managers are as follows: Asset Class Lower Limit Upper Limit Market 7 U.S. Market Equities Growth Value 20% 10% 10% 60% 30% 30% Market Market Market International Equity 10%25%Market Domestic Fixed Income 25%40%Market Real Estate 0%15%Market Alternative Investments 0%20%Market 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 manner. 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 without the approval of the trustees, if required, or by the approval of the Pension Investment Committee if trustee approval is not required. Trustee approval is not required for rebalancing of 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. Makeup of the Investment Committee The Pension Investment Committee shall consist (at a minimum)of the following: Finance Director (Treasurer for the Trustees), Assistant Finance Director, Finance Accounting Manager, Finance Debt Manager, and one member from the general public appointed by the Trustees. The Treasurer for the Trustees shall appoint/remove other City employees as needs warrant. One representative for each of the employee unions may also serve on the Investment Committee. The Finance Director or its designee will chair the committee. A quorum of at least three (3) members must be physically present for all meetings. The Treasurer for the Trustees will make recommendations to the Trustees as to any changes in the makeup 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 8 responsibilities as well as investments in general. The Finance Director, as Treasurer for the Trustees, will complete no less than eight (8) hours of continuing educational opportunities on pension investments each fiscal year. INVESTMENT RETURN OBJECTIVES In formulating investment return objectives for the Funds’ 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. 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 The Trustees will determine the expected rate of return of the current year, and future years. The expected rate of return for the foreseeable future is 7.0%. The total Fund and asset segment return expectations are as follows: a.Total Fund Return Objectives The following minimum comparative objectives have been established for the total Fund: 1.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. 2. The Fund's 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 measurement style database for each asset class segment. 3. 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 rolling three (3) or maximum of five (5) year period. 4. 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: 9 -Standard & Poor's 500 Stock Index -Barclay’s Capital Aggregate Index -MSCI ACWI Ex USA 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. b.Equity Segment Return Objectives The following minimum performance goals have been established for the Fund's domestic equity segment: 1. 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 five (5) years. 2. The individual domestic equity 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 U.S. equity database measured over a minimum period of three (3) or maximum of five (5) years. 3. The domestic equity segment total return should exceed the total return of the Standard & Poor's 500 Stock Index measured over a minimum period of three (3) or maximum of (5) years. c.International Equity Segment Return Objectives The following minimum performance goals have been established for the Fund's international equity segment: 1. 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 five (5) years. 2. 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 five (5) years. 10 3. The international equity segment total return should exceed the total return of the Morgan Stanley Capital All Country World Index Ex United States measured over a minimum of three (3) or maximum of five (5) years. d.Fixed Income Segment Return Objectives .The following minimum performance goals have been established for the Fund's domestic fixed-income segment: 1. 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 five (5) years. 2. 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 five (5) years. 3. The domestic fixed income segment total returns should exceed the total return of the Barclays Aggregate Bond Index measured over a minimum period of three (3) or maximum of five (5) years. e. Real Estate Segment Return Objectives The following minimum performance goals have been established for the Fund’s Real Estate Segment: 1. The Real Estate segment total return should perform at least at the upper fiftieth (50th) percentile compared to recognized performance measurement database measured over a minimum period of three (3) or maximum of five (5) years. 2. The Real Estate 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 measurement company’s database measured over a minimum period of three (3) or maximum of five (5) years. 3. The Real Estate managers total return should exceed the total return for comparable strategies of the Wilshire RESI Index over a minimum of three (3) or maximum of five (5) years. f. Alternative Segment Return Objectives 11 The following minimum performance goals have been established for the Fund’s alternative investment segment. 1. The Alternative total return should perform at least at the upper fiftieth (50th) percentile compared to recognized performance measurement database measured over a minimum period of three (3) or maximum of five (5) years. 2. The alternative manager’s 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 measurement company’s database measured over a minimum period of three (3) or maximum of five (5) years. 3. The alternative manager’s total return should exceed the total return for comparable strategies of the alternative asset class’s specific recognized index measured over a minimum of three (3) or maximum of five (5) years. Criteria for Investment Manager Review Consistent under-performance of the stated target index over rolling 3-year periods. Failure to out-perform the manager’s chosen performance benchmark or index measured over a minimum of three (3) years or maximum of five (5) years. Failure to out-perform the manager’s investment style peer group measured over a minimum period of three (3) years or maximum of (5) years. Loss by the Manager of any senior personnel deemed detrimental to the Manager’s ability to perform required duties or any potentially detrimental organizational issues that may arise and have an effect on the management of the Plan’s assets. Substantial change in basic investment philosophy by the Manager. Substantial change of ownership of the firm deemed detrimental to the Manager’s ability to perform the required duties. Failure to observe any guidelines as stated in this policy. ROLES AND RESPONSIBILITIES Responsibilities of the Third Party Custodian 12 A third party custodian will hold all Fund assets other than commingled accounts. In order to maximize the Fund's 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. Security lending is permitted if the agreements meet the credit standards of the City of Clearwater and no credit exposure liability is taken to end user borrowers. The custodian will be responsible for performing the following functions: Accept daily instructions from the investment managers; Advise investment managers daily of changes in cash equivalent balances; Immediately advise investment managers of additions or withdrawals from account; 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. Responsibilities of Investment Managers The duties and responsibilities of each of the registered investment advisors retained by the Fund include: 13 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. 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 manager's current investment strategy and compatible with investment objectives. Promptly informing the Fund regarding all significant matters pertaining to the investment of the Fund assets, for example: a.changes in investment strategy, portfolio structure and market value of managed assets; b.the manager's progress in meeting the investment objectives set forth in this document; and c.significant changes in the ownership, affiliations, organizational structure, financial condition, professional personnel staffing and clientele of the investment management organizations. 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. 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 manager's policies and actions in this area. 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 use 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 responsibilities. Notifying the Fund of the filing of a lawsuit by a client against the manager alleging breach of fiduciary duty or other willful conduct. 14 EVALUATION AND REVIEW 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: a. the objectives set forth in Appendix "A", as a primary consideration, b. their own previously stated investment style, c. other investment managers, both in asset class and in style group, d. other retirement funds, e. 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 shall be promptly filed with the Department of Management Services, the City Clerk, and the consulting actuary. The effective date of changes to the Investment policy will be 31 days after the filing date with the city. 15 APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES CITY OF CLEARWATER EMPLOYEES PENSION FUND INVESTMENT STRUCTURE Target Investment Manager Allocation Domestic Equity Value Orientation 10% - 30% Domestic Equity Growth Orientation 10% - 30% International Equity 10% - 25% 16 Domestic Fixed Income 25% - 40% Real Estate 0% - 15% Alternative Investments 0% - 20% 17 APPENDIX A (continued): 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 practical, it is expected that any cash flow will be allocated to or taken 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 of the 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 or debt private placements or lease-backs or any other specialized investment activity without the prior written consent of the Fund. 6.Liquidity and Marketability Restrictions 18 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 Fund’s 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 Fund's collective liquidation and market risk. 7.Usage 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 manager's portfolios. 8.Usage of Cross Asset Segment Investment Guideline Restrictions When a manager's 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, industry, duration, and sector is within the full discretion and responsibility of the investment managers. 10.Other Objectives, Guidelines and Restrictions Forthcoming The Fund may 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 19 consistent, in aggregate, with the total Fund asset allocation guidelines and investment objectives set forth in the Statement of Investment Objectives and Guidelines. a.Domestic Equity Segment Each equity manager is expected to adhere to the following guidelines: Equity holdings in any one company (including common and preferred stock, convertible securities and debt) should not exceed ten percent (10%) of the market value of the manager's portion of the Fund without the consent of the Fund. Equity holdings in any one industry (as defined by Standard & Poor's) should not exceed fifty percent (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 five percent (5%) of the issue outstanding. b.International Equity Segment Each international equity manager is expected to adhere to the following minimum guidelines: Equity holdings in any one 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 any one industry should not exceed fifty percent (50%) of the market value of the manager's portion of the Fund portfolio. Equity holdings in any one sector (e.g., consumer cyclical, energy, technology, etc.) should not exceed fifty percent (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 manager's portion of the Fund assets. A manager may invest in fixed income securities (i.e. securities with more than two years to maturity) 20 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. 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, Fitch, 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. The diversification of securities by maturity, quality, sector, coupon and geography is the responsibilityof 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 percent (5%)of the manager's 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 percent (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 ten percent (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. 21 d. Real Estate Segment Each Real Estate manager is expected to adhere to the following guidelines: REIT managers will limit holdings in any one company to fifteen percent (15%) of the market value of the manager’s Fund, cash equivalents and positions in fixed income vehicles should not exceed twenty five percent (25%) of the managers portfolio and no purchase shall be made that would cause a holding to exceed ten percent (10%) of the issues outstanding. Managers of direct investments in real estate structured as limited partnerships, limited liability companies or separate accounts will operate strictly within conformance to the regulations of their state of domicile and comply with any applicable federal or state security laws. Managers of direct investments in real estate may be income oriented or capital gains oriented but in no event will the manager apply average leverage in excess of fifty percent (50%) of the value of the total portfolio. Managers of direct investments in real estate shall seek to diversify the portfolio in terms of geographic location, tenant usage, and lease schedules. Timberland managers shall maintain portfolios of geographically diversified stands of biological tree growth with the potential for land value appreciation, alternative use and leasing potential, diversified product opportunities and long term land appreciation possibilities. e. Alternative Investment Segment Academic research supports the use of alternative investments as a mechanism to potentially reduce the volatility and/or enhance the expected return of an investment portfolio. However, the use of alternative investments can introduce unique types of risks due to their inherent structure and characteristics which include but are not limited to: leverage, illiquidity, short sales, derivatives, and lack of transparency and regulation. In light of these unique risks, the Fund does not attempt to define or limit the manager’s discretion as to the use of financial instruments. The Fund will actively monitor the investment manager’s performance and activities to limit exposure to these unique risks. f. Cash and Equivalents Segment 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 22 daily via an automatic sweep STIF managed by the custodian. It is the Fund's objective to have no idle cash at anytime in anymanager's portfolio. g.Pooled Vehicles To the extent that the Fund invests a portion of the Fund’s assets in commingled vehicles or institutional mutual funds, then the investment guidelines of the fund's prospectus will be adopted as this fund's guidelines. h.Master Repurchase Agreement 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. 12.Individual Manager Descriptions and Five-Year Expectations All expectations are minimums. All investment managers shall exceed the stated expectations. Investment Manager Percentile Expectation Relative To Other Managers Percentile Expectation Relative To Style Peers Domestic Equity Specialist Manager Value Orientation 50th 50th Domestic Equity Specialist Manager Growth Orientation 50th 50th International Equity Specialist Manager 50th 50th Domestic Fixed Income Specialist Manager Core Fixed Income Orientation 50th 50th Real Estate Specialist Manager 50th 50th Alternatives Specialist Manager 50th 50th 23 13.Reporting Requirements: a.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. b.Investment Reporting: On not less than 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. c. Proxy Voting: On not less than a quarterly basis, money managers will report to the Plan their proxy voting during the last period. 14.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. 15.Meeting Agenda 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, year-to-date, last year, 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. 24 Discussion of the rationale for performance results by relating them specifically to investment strategy and tactical decisions implemented during the current review period. Discussion of the investment manager's specific strategy for the portfolio over the next six to twelve months with specific reference to asset allocation and sector weighting, as appropriate. Supporting discussion of the next period's strategy with reference to investment manager's capital market and economic assumptions, if applicable. An electronic copy of the written summary should be received by the Fund at least three 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, Performance 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 performance, (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.