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08/13/2007 PENSION TRUSTEES AGENDA Location: Council Chambers - City Hall Date: 8/13/2007- 4 :00 PM 1. Call to Order 2. Approval of Minutes 2.1 Approve the minutes of the July 16, 2007 Pension Trustees meeting as submitted in written summation by the City Clerk. ~ Attachments 3. Pension Trustee Items 3.1 Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan. ~ Attachments 3.2 Pension Investment Discussion and Direction @ Attachments 3.3 John Correll, Public Utilities Department; Lester Pulfer, Solid Waste/General Services Department; Yacub Bilal, Engineering Department; Lloyd Wentz, Police Department; and Timothy Treble, Police Department, be granted regular pensions under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. @ Attachments 3.4 David Nardin, Development and Neighborhood Services Department; Kevin Slattery, Public Utilities Department; and Robyn Haywood Thomas, Fire Department, be allowed to vest their pensions under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. @ Attachments 4. Other Business 5. Adjourn Meeting Date:8/13/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Approve the minutes of the July 16,2007 Pension Trustees meeting as submitted in written summation by the City Clerk. SUMMARY: Review Approval: 1) Clerk Cover Memo Item # 1 Attachment number 1 Page 1 of 4 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES CITY OF CLEARWATER July 16, 2007 Unapproved Present: Frank Hibbard John Doran George N. Cretekos Paul Gibson Absent: Carlen Petersen Also Present: William B. Horne, II Garry Brumback Rod Irwin Pamela K. Akin Cynthia E. Goudeau Patricia O. Sullivan The Chair called the meeting to order at 2: To provide continuity for research, it necessarily discussed in that order. 2 - Approval of Minutes r B/Public Utilities ems Programmer/IT ng Technician/Engineering e Cadet/Police Chair Trustee Trustee Trustee Trustee City Manage Assistant City M Assistant City Ma City Attorney City Clerk Board 007, meeting, as each Trustee. The motion 10 ees' Pension Plan. Hire Date Pension Eligible Date 04/16/07 04/30/07 04/30/07 04/30/07 04/16/07 04/30/07 04/30/07 04/30/07 Trustee Cretekos moved to accept the listed employees into membership in the City of Clearwater's Employees' Pension Plan. The motion was duly seconded and carried unanimously. Pension Trustees 2007-07-16 Item # 1 Attachment number 1 Page 2 of 4 3.2 Approve the recommended administrative expenditures for Fiscal Year 2007/08 totalinq $334,500. Accountant Joyce Hunt reviewed the request. The Employees' Pension Plan does not have a legal requirement to have a budget. The Trustees must approve all expenditures. The following are routine expenditures that staff is requesting approval for the sake of fficiency. These expenditures involve routine business matters and are mostly small dollar. ounts. Printing and binding is for the statutorily required annual information di lion me of the pension plan. This number has been decreased due to actua ce for certified mailings required under a rule passed by the Pension sand otti related materials. Membership dues are for the annual dues for th 'da Publi Trust Association. Training is for the mandatory training required b st estimated cost for training. Klausner & Kaufman is the pension attor fees also include medical bills that are for the medical services author' Advisory Committee. Reimbursement to the General Fund and the the cost of the oversight of the Plan and is recognized as revenue to e fu reimbursement covers the services provided by Human Re es, Payroll, At this time, staff is not budgeting for a Refe needed approval will be sought at that time. Mo contractual fees are all set by contracts approv budget. In response to a question, training required by law. No tr el ney said it is sion Trustees receive ort on the cost of in- om mended administrative expenditures for n was duly seconded and carried on, Solid Waste Equipment Operator, Solid Waste/General Services employed by the City on July 12, 1971, and his pension service credit is effective on at date. His pension will be effective July 1, 2007. Based on an average salary of approximately $42,283 per year over the past five years, the formula for computing regular pensions, and Mr. Hudson's selection of the 100% Joint & Survivor Annuity, this pension will approximate $40,307 annually. Pension Trustees 2007-07-16 2 Item # 1 Attachment number 1 Page 3 of 4 Barbara Downs, Staff Assistant, Parks & Recreation Department, was employed by the City on February 5, 1996, and her pension service credit is effective on January 10, 1997. Her pension will be effective July 1,2007. Based on an average salary of approximately $26,622 per year over the past five years, the formula for computing regular pensions, and Ms. Downs' selection of the Joint & Survivor Annuity, this pension will approximate $7,665 an ally. Jack Howell, Licensed Electrician, Solid Waste/General Servic employed by the City on June 27, 1977, and his pension service cr 1977. His pension will be effective September 1,2007. Based on an ver approximately $46,629 per year over the past five years, th ula for com pensions, and Mr. Howell's selection of the Joint & Su this pensl approximate $38,469 annually. Ellen Foster, Senior Service Dispatcher, Gas Department, was January 21, 1974, and her pension service credit is effective on Jul~ be effective May 1, 2007. Based on an average salary of approxi the past five years, the formula for computing regular pensions, an the Joint & Survivor Annuity, this pension will approximate $32,795 Ronald Heck, Police Officer, Police Dep 1977, and his pension service credit is effectiv September 1, 2007. Based on an a sal past five years, the formula for co gul ensio Joint & Survivor Annuity, this s approximate by the Pensio e on June 14, 2007. ment eligibility has reached age 55 ervice, has co ears of credited service, ears of credite e. Section 2.393 also a participant has completed twenty years of mpleted ten years of credited service in a type of further defines service as a Police Officer as nd Ms. Foster qualify under both the age 55 he thirty ye of service criteria. Mr. Howell qualifies under Ms. Downs qualifies under the age 65 and ten years of s under the hazardous duty criteria. Ba Soli regula approve unanimous hat George Hudson, Solid Waste/General Services Department; reation Department; Ellen Foster, Gas Department; Jack Howell, ces Department, and Ronald Heck, Police Department, be granted Section(s) 2.393 and 2.397 of the Employees' Pension Plan as nsion Advisory Committee. The motion was duly seconded and carried 3.4 Daniel Carpenter, Fire Department, be allowed to vest his pension in accordance with Section 2.397 and 2.398 of the Emplovees' Pension Plan as approved bv the Pension Advisorv Committee. Pension Trustees 2007-07-16 3 Item # 1 Attachment number 1 Page 4 of 4 Daniel Carpenter, Administrative Support Manager, Fire Department, was employed by the City on April 18, 1992, and began participating in the Pension Plan on that date. Mr. Carpenter terminated from City employment on May 8,2007. The Employees' Pension Plan provides that should an employee cease to employee of the City of Clearwater after completing ten or more years of credita (pension participation), such employee shall acquire a vested interest i reti Vested pension payments commence on the first of the month folio mon employee normally would have been eligible for retirement. Sectio (p) prov normal retirement eligibility when a participant has reached age 55 omplete of credited service, has completed 30 years of credited service, or ch completed ten years of credited service. Mr. Carpenter would have completed at least 30 years of se pension will be effective May 1, 2022. This pension was approved b Committee on June 14, 2007. Trustee Doran moved that Daniel Carpenter: pension in accordance with Section 2.397 and 2. approved by the Pension Advisory Committee. unanimously. 4 - Other Business Chair Employee's Pension Plan Trustees Pension Trustees 2007-07-16 4 Item # 1 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan. SUMMARY: Name, Job Class, & Dept./Div. John McDowell, Police Com. Operator/Police Fatos Pojani, Electronics Tech./Public Utilities Richard Rozzi, Solid Waste Wkr./Solid Waste Brian Whitehead, Police Officer/Police Douglas Ambrose, Police Officer/Police Ronald Wichowski, WWTP Oper. Trainee/Pub. Util. Hire Date Pension Elig. Date Meeting Date:8/13/2007 Review Approval: 1) Clerk 4/30/07 6/11107 6/11107 6/11107 6/11107 6/25/07 4/30/07 6/11107 6/11107 6/11107 6/11107 6/25/07 Cover Memo Item # 2 Meeting Date:8/13/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Pension Investment Discussion and Direction SUMMARY: At the annual pension plan update to the Trustees in May, the Trustees expressed interest in discussing and providing direction to staff regarding the pension plan investments. Please refer to the white paper outlining the recommendations of the Asset Allocation Study and the status with respect to the implementation of those recommendations. Also provided in the white paper is performance information on the pension plan's investments, including the overall plan performance, performance by asset category, and performance by individual manager. The performance is given for three and five year rolling periods since that is the criteria that is used to judge a manager's performance. In the cases where the manager is new and not enough history exists for three and five year rolling performance, data for the last quarter and last year has been presented. There are four managers that are new and no performance numbers are available. All performance is using the Callan database of active money managers with a score of one being the best and 100 being the worst. Additional information is also included in the paper such as: Duties of the Trustees Current Advisors to the Pension Plan The process to hire a manager The process to terminate a manager Current manager benchmarks Other public pension plan invest mixes Allowable investments and restrictions Other investment vehicles Pension Investment Objectives and Guidelines While the document is too large to cover in detail at the meeting, a power point presentation will be made which includes the major points and will provide opportunity for the Trustees to provide direction to staff. Review Approval: 1) Clerk Cover Memo Item # 3 Actuary Assumption Last Year Last 3 Years Last 5 Years Last 19+ Years As of 3/31/07 7.5 8.6 8.9 7.7 10.3 Add small cap growth mana Add mid cap value manager Increase international to 200 Increase equity to 700/0 ASSET ALLOCATION GOAL 22% Growth Equity Domestic 60% 42% Internat'l 18% REITS 10% GrowthlValue 10~ 2: 2007 Item # 3 Attachment number 2 Page 1 of 69 City of Clearwater Employee's Pension Plan August 13, 2007 Item # 3 Table of Contents Duties of Trustees......................................................................3 Current Advisors to the plan... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...6 Plans Current Asset Managers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Market performance by sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8 Asset all ocati on study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Implementation of the asset allocation study...................................... .11 Current status of the asset allocation study recommendations.................. .12 Current asset allocation goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Pension Plan Position After Rebalancing. ..................... .................... .15 How we hire a manager.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 How a manager is terminated...................................................... ...16 Current manager performance benchmarks....................................... .18 Pension plan performance........................................................... .19 Manager with no history to report................................................... 38 What other public pension plans invest in.......................................... .39 Allowable investment and restrictions .............................................43 Other investment vehicles............................................................ ..44 Training .............................................................................. ...44 Pension investment policy............................................................ ..45 2 Attachment number 2 Page 2 of 69 Item # 3 Attachment number 2 Page 3 of 69 Clearwater Code of Ordinances Duties of Trustees DIVISION 3. EMPLOYEES PENSION PLAN Sec. 2.394. Plan administration. (a) Administration ofthe plan. The trustees, in conjunction with the committee, shall control and manage, the operation and administration of the plan as provided in this division. (b) Trustees. (1) The members of the city commission of the employer, whether elected or appointed, shall serve as the trustees. The term of office of each trustee shall be consistent with his term of office as a member of the city commission. (2) The finance director of the employer shall be the treasurer for the trustees and shall provide such bond as may be prescribed by the trustees. (3) Each trustee shall be entitled to one vote. Three affirmative votes shall be necessary for any decision by the trustees at a meeting of the trustees. A trustee shall have the right to recuse himself from voting as the result of a conflict of interest provided that the trustee states in writing the nature of the conflict. (4) The trustees shall not receive any compensation for service as a trustee, but may be reimbursed expenses as provided by law; provided, however, that the trustees may receive compensation for services as a member of the city commission. ( c) Powers and duties of trustees. The trustees shall have final authority and control over the administration of the plan herein embodied, with all powers necessary to enable them to carry out their duties in that respect. Not in 3 Item # 3 Attachment number 2 Page 4 of 69 limitation, but in amplification of the foregoing, the trustees shall have the power and discretion to interpret or construe this plan and to determine all questions that may arise as to the status and rights of the participants and others hereunder (d) Pension advisory committee. (1) a. There shall be a pension advisory committee comprised of seven persons. Three members of the committee shall be employees who are active employees and participants in the plan; three members shall be city commissioners or appointees of the city commission; and the seventh member, who shall be a resident of the City of Clearwater, shall be appointed by the other six members. b. Except as provided in subparagraph (3) below, terms of members shall be for two years. (2) Committee members representing the employees shall be elected by a majority of the active employees who are participants in the plan. Committee members representing the city commission shall be appointed by a majority vote of the city commission. The seventh member shall be appointed by a majority vote of the other six members of the committee. (3) Terms of office of employee elected committee members shall overlap, with two of the members to be initially elected for two years and the third member to be initially elected for one year. Terms of office of city commission appointed members shall overlap, with two of the members to be initially appointed for two years and the third member to be initially appointed for one year. (4) a. Members of the committee last elected by employees on the date of adoption of this amended and restated plan shall continue to serve as the employee elected committee members for the remainder of their respective terms. b. Not less than 60 days before each election to be scheduled for an employee elected committee member, the existing employee elected committee members, shall select and appoint a nominee group composed of five persons from employees participating in the plan to conduct the election process. The department of the city clerk shall provide necessary assistance to the employees for the administration of elections. (5) Any vacancy on the committee, whether employee elected, city commission term and in the same manner as the original committee member who vacated the position. (6) Members of the committee shall serve without compensation additional to that earned in their respective capacities as regular employees or elected city com missioners. (7) Each committee member shall be entitled to one vote. Four affirmative votes shall be necessary for any decision by the committee at any meeting. A committee member shall have the right to recuse himself from voting as a result 4 Item # 3 Attachment number 2 Page 5 of 69 of a conflict of interest provided that the committee member states in writing the nature of the conflict. (e) Powers and duties of committee. (1) The committee shall have authority to: a. Arrange for the necessary physicians to pass upon all medical examinations required under this plan. Such physicians shall report in writing to the committee their conclusions and recommendations. The committee shall review such physicians' reports and prepare its recommendations as to the acceptance or denial of employees as participants and forward same to the trustees. b. In conjunction with the employer and medical consultants, establish the scope of the medical examinations to be used for benefit eligibility and medical standards to be used for benefit eligibility and to guide the examining physicians in reaching their conclusions and recommendations. Such medical standards shall give due consideration to the nature of the job classification in which participants are to be placed. c. Investigate and recommend to the trustees, in conjunction with the actuaries, such mortality/service and other tables as shall be deemed necessary for the operation of the plan. d. Make recommendations to the trustees for improvements or changes in the plan. e. Receive all applications for benefits under this plan and determine all facts that are necessary to establish the right of an applicant to benefits under the plan. t. Prepare and distribute to the participants information relating to the plan. g. Investigate and determine the eligibility of participants for disability pension as provided in section 2.397, paragraph (c). (2) The committee shall, from time to time as it deems appropriate, submit recommendations to the trustees as to rules, procedures, forms and general administrative procedures relating to the responsibilities of the committee. (3) No benefits or relief shall be provided to any participant under the plan unless the same has been reviewed by the committee and a recommendation provided to the trustees. f) Conflict in terms. In the event of any conflict between the terms of this plan and any explanatory booklet, this plan shall control. 5 Item # 3 Attachment number 2 Page 6 of 69 (g) Nondiscrimination. The trustees and the committee shall not take any action whatsoever that would result in unfairly benefiting one participant or group of participants at the expense of another or in discriminating between participants similarly situated or in the application of different rules to substantially similar sets of facts. (h) Procedures and records. (1) The trustees and, subject to the approval of the trustees, the committee, may establish rules and procedures as are necessary to administer the plan, which rules and procedures shall be applied in a uniform and nondiscriminatory manner. (2) The trustees and the committee shall keep a complete record of all their proceedings and all data necessary for the administration of the plan. All of the foregoing records and data shall be located at the principal office of the em ployer. (i) Final authority. Except to the extent otherwise required by law or by this plan, the decision of the trustees in matters within their jurisdiction shall be final, binding and conclusive upon the employer, the committee, each employee and beneficiary, and every other interested or concerned person or party. U) Appointment of advisors. The trustees may appoint such actuaries, accountants, professional investment counsel, legal counsel, specialists, third party pension administrators, and other persons that they deem necessary and desirable in connection with the administration of this plan or to assist them in the performance of their duties as trustees. The trustees are authorized to pay for such services from the pension fund. Financial Advisor Performance Measure Asset Allocation Study Manager Searches Actuary Pension Attorney Pension Attorney Custodian Asset Transition Current Advisors to the Plan John Willoughby Paul Troup Grant Kalson Greg McNeillie Steve Metz Stuart Kaufman Robert Klausner Mike Peska Mac Nickey Charles D. Hyman, Inc. Callan Associates Kalson & Associates Dahab Associates Price Waterhouse Coopers Klausner & Kaufman Klausner & Kaufman Northern Trust Northern Trust 6 Item # 3 Attachment number 2 Page 7 of 69 Plan's Current Asset Managers Category Manager Name Domestic Equity Aletheia Research & Management Northern Trust Russell 1000 Index ING Artisan Partners Denver Investment Advisors Wedge Capital Management Atlanta Capital Management Systematic Financial Independence Investments LLC International Equity Northern Trust Enhanced EAFE Fixed Income Dodge & Cox Western Asset Management Northern Trust Agg Bond Index Fund Asset Class Large Cap Value Large Cap Value Large Cap Growth Mid Cap Growth Mid Cap Growth Mid Cap Value Small Cap Value Small Cap Value Small Cap Growth EAFE Lehman Brothers Aggregate Lehman Brothers Aggregate Lehman Brothers Aggregate 7 Item # 3 Market Performance by Sector The following chart is the overall market performance by sector for the last twenty years. 8 Attachment number 2 Page 8 of 69 Item # 3 . Attachment number 2 Page 9 of 69 ~ ~t] fi ~ ~, .t 1 ~J' i 1'1: i tll 1 ~I r ~ 1 i I], ~ 1 i ,~ -A ~ J . B lij~1 .. ] ~:>~ J ~Ii J S'~ l.f, ~ J 1'1 i. I .Il' ! ~j: U ; 1 'f~ t ~ ~ ~ I ~ ie1J j 1~' 'S~is ': ii ~l i n i.lft ~ {,! f 1]r1 1 ~ 1. lI~jl'rl ~ p II S ~] I U ] j l: ~ i t11 ~ '.1: II ~ ~!lli ~ 14 i t ~ ,t] :i I t~, IIj . Jl t .j~. ~ J ' 1 : :I jUf PI: .11'1 I tj. II ~"'{ 1~'t1~ft: II ~ l};i 1j~d: u I ,111 h .J U ~l h~ H~ ~1 U J11I' ~ I~ il ~ ~ ~ 1 'I] ~ ], · · Itemll3- I n I I n I I I 5 en t: I L. :J""" I ~C.D t>>8 ~ ~ Ii r- tg:JI G) C~ E en.e I G) ... ~ ,~l. eu ~ ... > - . t: ~ ... - t>> .... ~ I o L. ... o 'C; ~ ';; t I .c E: ca L..1i; I i I . ~J);i1! .- "'C -; I o:J ... ._ E: L. E: m< c.. I: ea - - co tJ t>> J: I- Attachment number 2 Page 10 of 69 Asset Allocation Study On October 18, 2004 the trustees authorized Kalson & Associates to do an asset allocation study for the employees pension plan. The goal of the study was to find the asset mix that would generate the highest possible rate of return with an acceptable amount of risk. On March 14,2005 the Asset Allocation Study was presented to the Trustees. The Trustees accepted the recommendations of the Asset Allocation Study and authorized staff to take the necessary actions to implement the recommendations. The following is a summary of the recommendations of the Asset Allocation Study Changes requiring voter approval via referendum: 1. Add Real Estate Investment Trusts (REITs) as an allowable investment up to 15% of the portfolio. REITS are companies that primarily own buildings and land. 2. Increase the allowable amount of International Investments from 10% to 20% of the portfolio to provide for the additional of emerging market equity investments. (State law limits the amount ofInternational Investments to 25%.) 3. Increase the maximum equity allocation from 65% to 70%. (State law limits the maximum domestic equity allocation to 80%.) 4. Allow up to 10% of the portfolio to be invested in High Yield Bonds. Changes not requiring voter approval via a referendum: 5. Add a Mid Capitalization Value Equity Manager. 6. Add a Small Capitalization Growth Equity Manager. 7. Add an active International Europe Asia Far East (EAFE) Manager to replace the current passive EAFE Manager. 10 Item # 3 Attachment number 2 Page 11 of 69 Implementation of the Asset Allocation Study At the June 13,2005 trustee meeting the trustees decided that the recommended changed to the Employees Pension Plan's allowable investments bore a striking resemblance to that of State Statute. The trustees decided with the pension plan's attorneys recommendation that the Trustees adopt the state's investments restrictions as the plan's investments restrictions. There is only one minor modification to the state investment restriction. That modification is that the plan cannot own any assets in the corporate limits of the City of Clearwater. The trustees approved changing allowable pension investments to be set by State Statute and forwarded to City Council and voters for approval in a referendum. The referendum was originally scheduled for March 14,2006. The referendum was first moved to November 7,2006 and then to March 13,2007 where it passed. The Investment Policy was updated on May 15,2007 to reflect the approved investment restrictions. Decision Point Do the trustees want to continue with the implementation of the Asset Allocation Study? If not, do the trustees want to have a new Asset Allocation Study? Who do you want to do the study? Existing consultant? Take about three months. New consultant? With RFQ, it will take about eight months. Any assets classes you do or do not want included in an assets allocation study? 11 Item # 3 Attachment number 2 Page 12 of 69 Current status of the Asset Allocation Study recommendations 1. Add Real Estate Investment Trusts (REITs) as an allowable investment up to 15% of the portfolio. Decision Point Do the trustees want to continue with the allocation to REIT' s? Do the trustees want to use Dahab to conduct the search for the REIT Manager? If so, staff needs a motion for Dahab to assist in the search for a REIT manager(s) for a fixed fee of $15,000. 2. Increase the allowable amount of International Investments from 10% to 20% of the portfolio to provide for the additional of emerging market equity investments. State Statue limits Florida public pension plans to 25% international exposure. As an interim measure the 20% allocation has been place with the Northern Trust hybrid EAFE index fund. The asset allocate study has recommended that international exposure be divided somewhat equally between emerging markets manager and that the other half be placed with an active EAFE manager. The Pension Investment Committee has also been researching the performance of index funds against active managers to see if the active managers add value net of fees. At this time the committee is not sure if an active EAFE manager will add value net of fees as compared to the product we currently use. 12 Item # 3 Attachment number 2 Page 13 of 69 Decision Point Assumption, the trustees want a maximum 20% exposure to international equity. Do the trustees want to do 10% allocation to EAFE and a 8% allocation to emerging markets? Do the trustees want to remain with the current hybrid Northern Trust Index Fund and reexamine the active vs. passive issue at a later date when staff is done studying the issue or, do the trustees want an active EAFE manager as soon as possible? Do the trustees want to authorize Dahab Associates to conduct the search of the new emerging marker and or active EAFE manager search(s)? Dahab Associates fee is $15,000 per search. This is a lower fee that they would charge a new client and is a very competitive fee. 3. Increase the maximum equity allocation from 65% to 70%. Accomplished as part of the recent realignment in the plan's managers. 4. Allow up to 10% of the portfolio to be invested in High Yield Bonds. For many years the pension plan had problems with the performance of the fixed income managers. The plan finally has two fixed income managers that have achieved consist and better than average performance. These managers are also able to manage high yield securities with the same above average performance. Decision Point Do the trustees want to allow up to 10% of the portfolio to be invested in High Yield Bonds? Do the trustees want our existing fixed income managers to manager this money or do the trustees want to add a high yield bond manager? 5 Add a Mid Capitalization Value Equity Manager. Done 6 Add a Small Capitalization Growth Equity Manager. Done 7 Add an active International EAFE Manager to replace the current passive EAFE Manager. See #2 above. 13 Item # 3 Attachment number 2 Page 14 of 69 Current Asset Allocation Goals Asset Allocation Goal Equity 60% Domestic 42% 22% 20% Value International 18% REITS 10% 10% Growth/Value 100% 22% 20% 14 Item # 3 Attachment number 2 Page 15 of 69 Anticipated Plan Position After Rebalancing: Planned Position After Julv Rebalancinq Equity 67.20% Domestic 49.46% Growth Managers Value International 17.74% REITS 0.00% 0% GrowthNalue 100% 26% 100.00% 23% 15 Item # 3 Attachment number 2 Page 16 of 69 How We Hire A Manager Determine what asset class needs to add a manager. Assets Allocation Study Replacing Existing Manager Get approval from trustees for a placement in that asset class and hire a consultant to assist in the search for a manager. Issue RFQ for Manager. Search consultant searches their data base and places the RFQ on their website if appropriate. Search consultant presents to the Pension Investment Committee a summary of all of the RFQ's that were received. Search consultant and the Pension Investment Committee determine who will make finals presentations. The search consultant and staff conduct due diligence on the finalists. Final presentations are made to search consultant and the Pension Investment Committee. The committee ranks the firms and makes a recommendation to the trustees. The trustees approve the hiring. Staff works with Northern Trust to transition assets to the new manager. How A Manager Is Terminated The performance of all managers is reviewed on a quarterly basis. A performance report is created every quarter by Callan Associates and reviewed in depth by the Pension Investment Committee. When a manager has a performance that has fallen below what is acceptable as defined by in the Investment Policy at least three things happen. 16 Item # 3 Attachment number 2 Page 17 of 69 1 Callan is asked to determine if this is a temporary situation or a bigger problem. 2. Staff contacts the manager to get an explanation as to their lack of performance. 3.The company is invited to the next Pension Investment Committee meeting. Ifwarranted, the Pension Investment Committee will call a special meeting before the next regular meeting to discuss the money manager in question. At the next Pension Investment Committee Meeting the manager's performance will be reviewed and the manager will be present to discuss their current situation. If the Investment Committee and consultants are satisfied that the manager's situation is only temporary the manager will be under close scrutiny but termination will not be recommended. If the committee feels otherwise they will recommend termination to the trustees. Trustees terminate underperforming money manager. Staff works with Northern Trust to transfer assets from the underperforming money manager to the designated manager. Decision Point Do the Trustees want to continue with the current benchmarks? If not do the trustees want an obj ective or subj ective trigger point? Do the trustees want the plan custodian, Northern Trust to have index funds available for the plan to move into instead of the fund having to hire a new manager before terminating a manager? If the trustees want Northern Trust to have index funds available we need a motion from the trustees for staff to enter into an agreement with Northern Trust to have the index funds available. 17 Item # 3 Attachment number 2 Page 18 of 69 Current Manager Performance Benchmarks Currently our money managers are compared against their peer groups and an appropriate index. The following are the indices are money managers are compared against: Asset Class Peer Group Index Large Cap Value Callan Large Cap Value Style Standard & Poor's 500 Large Cap Growth Callan Large Cap Growth Style Standard & Poor's 500 Mid Cap Value Callan Mid Cap Value Style S&P 400 Mid Cap Mid Cap Growth Callan Mid Cap Growth Style S&P 400 Mid Cap Small Cap Value Callan Small Cap Value Style Russell 2000 Value Index Small Cap Growth Callan Small Cap Growth Style Russell 2000 Growth Index EAFE Callan Non-U.S. Equity Style MSCI EAFE Index Domestic Fixed Income Callan Core Bond Style Lehman Brothers Aggregate Total Fund Callan Public Fund Data Base 51 % S&P500, 40% LIB Agg and 9% MSCI EAFE Index The Pension Investment Committee has been considering making the index benchmarks more specific i.e. more value or growth specific as appropriate. This has been done with the small cap stocks. Decision Point Do the trustees want to keep the current performance benchmarks? Do the trustees want the Pension Investment Committee to continue to further refine and make more specific the performance benchmarks? Do the trustees want to make other changes to the performance benchmarks? 18 Item # 3 Attachment number 2 Page 19 of 69 Pension Plan Performance 19 Item # 3 City of Clearwater Employees' Pension Plan Overall. All. Performance VB. Benchmark 3-Year and 5-Year Rolling Performance Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Benchmark % Average % Benchmark % Ended Return Return Return Return Jun-04 12.52% 2.10% Sep-04 5.83% 2.89% Dec-04 5.95% 2.43% Mar-OS 5.41% 1.70% Jun-05 8.08% 2.25% Sep-05 12.35% 2.63% Dee-OS 10.97% 3.60% Mar-06 12.65% 5.44% Jun-06 8.68% 4.65% Sep-06 9.64% 7.15% Dec-06 8.61% 6.89% Mar-07 8.24% 7.12% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Sponsor Data Base = Beat benchmark = Underperformed 20 Attachment number 2 Page 20 of 69 Item # 3 City of Clearwater Employees' Pension Plan Domestic Equity 3-Year and 5-Year Rolling Performance VS Benchmark Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 35 54 Sep-04 29 49 Dec-04 21 83 Mar-OS 29 78 Jun-05 20 75 Sep-05 22 84 Dee-OS 21 34 Mar-06 27 27 Jun-06 37 32 Sep-06 45 26 Dec-06 48 29 Mar-07 71 43 * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Domestic Equity Data Base = Beat benchmark = Underperformed 21 Attachment number 2 Page 21 of 69 Item # 3 City of Clearwater Employees' Pension Plan International. Equ ity 3-Year and 5-Year Rolling Performance VS Benchmark Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 2.46% Sep-04 8.07% Dec-04 10.28% Mar-OS 8.89% Jun-OS 9.45% Sep-OS 21.94% Dee-OS 20.39% Mar-06 28.02% N/A N/A Jun-06 21.82% 9.47% Sep-06 21.22% 13.74% Dec-06 19.32% 14.13% Mar-07 20.02% 14.42% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Sponsor Inti Equity Data Base = Beat benchmark = Underperformed 22 Attachment number 2 Page 22 of 69 Item # 3 City of Clearwater Employees' Pension Plan Fixedlncorne 3-Year and 5-Year Rolling Performance VS Benchmark Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 4.94% 5.78% Sep-04 4.57% 6.23% Dec-04 5.24% 6.46% Mar-OS 5.41% 5.86% Jun-05 5.45% 6.10% Sep-05 3.73% 5.61% Dee-OS 3.43% 4.77% Mar-06 2.89% 4.17% Jun-06 2.11% 4.25% Sep-06 3.48% 4.22% Dec-06 3.86% 4.67% Mar-07 3.61% 5.17% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Sponsor Dom Fixed Data Base = Beat benchmark = Underperformed 23 Attachment number 2 Page 23 of 69 Item # 3 Attachment number 2 Page 24 of 69 Review of Existing Managers 24 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: INGlnvestmentsManagell1ent 3-Year and 5-Year Rolling Performance VS Benchmark Large Cap Growth Manager Hired 1st Qtr 1995 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 -2.88% -1.75% Sep-04 2.49% -1.34% Dec-04 3.69% -3.20% Mar-OS 3.09% -4.90% Jun-05 7.91% -4.38% Sep-05 16.36% -3.52% Dee-OS 17.1 0% -0.34% Mar-06 18.32% 4.08% Jun-06 11 .92% 1.65% Sep-06 12.09% 6.40% Dec-06 9.80% 6.00% Mar-07 9.10% 5.99% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Large Cap Growth Data Base = Beat benchmark = Underperformed 25 Attachment number 2 Page 25 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Artisan Partners 3-Year and 5-Year Rolling Performance VS Benchmark Mid Cap Growth Manager Hired 2nd Quarter 2001 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 N/A N/A Sep-04 9.91% Dec-04 5.98% Mar-OS 5.59% Jun-05 11.38% Sep-05 20.87% Dee-OS 19.63% Mar-06 23.93% Jun-06 16.24% N/A N/A Sep-06 14.17% 11.52% Dec-06 12.38% 7.80% Mar-07 11.67% 8.89% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Mid Cap Growth Data Base = Beat benchmark = Underperformed 26 Attachment number 2 Page 26 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Denverlnvestment 3-Year and 5-Year Rolling Performance VS Benchmark Mid Cap Growth Manager Hired 1st Quarter 1995 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 5.70% 6.33% Sep-04 12.00% 5.91% Dec-04 9.99% 0.63% Mar-OS 6.53% -3.39% Jun-05 11.66% -0.12% Sep-05 19.71% 0.10% Dee-OS 19.59% 5.41% Mar-06 22.51 % 10.87% Jun-06 12.79% 6.93% Sep-06 11.85% 12.63% Dec-06 11.07% 9.94% Mar-07 10.03% 9.77% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Mid Cap Growth Data Base = Beat benchmark = Underperformed 27 Attachment number 2 Page 27 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Atlanta Capital Management 3-Year and 5-Year Rolling Performance VS Benchmark Small Cap Value Manager Hired 3rd Quarter 2003 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 Sep-04 Dec-04 Mar-OS Jun-OS Sep-OS Dee-OS Mar-06 Jun-06 N/A N/A Sep-06 15.22% Dec-06 14.06% Mar-07 13.32% N/A N/A * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Plan Small Cap Value Data Base = Beat benchmark = Underperformed 28 Attachment number 2 Page 28 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Atlanta Capital Management Small Cap Value Manager Hired 3rd Quarter 2003 Rolling Period Last Quarter % Last Quarter Last-Year Last-Year Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 2.73% N/A N/A Sep-04 0.74% 18.32% Dec-04 11.38% 20.24% Mar-OS -2.26% 12.67% Jun-05 2.27% 12.17% Sep-05 6.82% 18.94% Dee-OS -0.54% 6.21% Mar-06 10.35% 19.91 % Jun-06 -2.64% 14.15% Sep-06 1.71% 8.69% Dec-06 6.35% 16.21% Mar-07 2.26% 7.70% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Small Cap Value Data Base = Beat benchmark = Underperformed 29 Attachment number 2 Page 29 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Systematic.Financial.Management 3-Year and 5-Year Rolling Performance VS Benchmark Small Cap Value Manager Hired 3rd Quarter 2003 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 Sep-04 Dec-04 Mar-OS Jun-OS Sep-OS Dee-OS Mar-06 Jun-06 Sep-06 15.98% Dec-06 12.66% Mar-07 12.71% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Small Cap Value Data Base = Beat benchmark = Underperformed 30 Attachment number 2 Page 30 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Systematic Financial Management Small Cap Value Manager Hired 3rd Quarter 2003 Rolling Period Last Quarter % Last Quarter Last-Year Percentile Average % Ended Return Ranking * Return Jun-04 -2.17% N/A Sep-04 -5.21 % 13.60% Dec-04 14.07% 11 .40% Mar-OS -3.67% 1.89% Jun-05 1.97% 6.20% Sep-05 5.62% 18.34% Dee-OS 4.34% 8.25% Mar-06 13.52% 27.57% Jun-06 -2.92% 21.46% Sep-06 0.92% 16.05% Dec-06 6.63% 18.60% Mar-07 5.43% 10.14% Last-Year Percentile Ranking * N/A 50 * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Small Cap Value Data Base = Beat benchmark = Underperformed 31 Attachment number 2 Page 31 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: NorthernTrustEnhancedEAFE International Equity Index Hired 3rd Quarter 2004 Rolling Period Last Quarter % Last Quarter Last-Year Last-Year Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 Sep-04 N/A N/A Dec-04 15.24% Mar-OS -0.19% Jun-05 -0.67% N/A N/A Sep-05 9.65% 25.27% Dee-OS 3.78% 12.81 % Mar-06 10.58% 24.98% Jun-06 1.29% 27.44% Sep-06 4.21% 21.13% Dec-06 10.09% 28.49% Mar-07 4.66% 21.62% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Inti Equity Data Base = Beat benchmark = Underperformed 32 Attachment number 2 Page 32 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Dodge & Cox 3-Year and 5-Year Rolling Performance VS Benchmark Fixed Income Manager Hired 1st Quarter 2004 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 Sep-04 Dec-04 Mar-OS Jun-OS Sep-OS Dee-OS Mar-06 Jun-06 Sep-06 Dec-06 N/A N/A Mar-07 3.80% N/A N/A * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and SO the median. Benchmark is the Callan Public Core Bond Data Base = Beat benchmark = Underperformed 33 Attachment number 2 Page 33 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Dodge & Cox Fixed Income Manager Hired 1st Quarter 2004 Rolling Period Last Quarter % Last Quarter Last-Year Last-Year Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 -2.33% Sep-04 2.81% Dec-04 1.41% N/A N/A Mar-OS -0.28% 1.54% Jun-05 2.22% 6.27% Sep-05 -0.12% 3.24% Dee-OS 0.58% 2.39% Mar-06 0.04% 2.72% Jun-06 0.28% 0.77% Sep-06 3.56% 4.49% Dec-06 1.67% 5.62% Mar-07 1.55% 7.23% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Core Bond Data Base = Beat benchmark = Underperformed 34 Attachment number 2 Page 34 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: Western.Asset.Managell1ent Domestic Fixed Income Manager Hired 3rd Quarter 2004 Quarter One-Year % One -Year Quarter Ended Quarter % Return Percentile Return Percentile Ranking * Ranking * Sep-04 N/A N/A Dec-04 1.07% Mar-OS -0.37% Jun-05 2.91% N/A N/A Sep-05 -0.20% 3.41% Dee-OS 0.45% 2.78% Mar-06 -0.56% 2.59% Jun-06 -0.14% -0.45% Sep-06 4.00% 3.75% Dec-06 1.33% 4.65% Mar-07 1.62% 6.94% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Core Bond Data Base = Beat benchmark = Underperformed 35 Attachment number 2 Page 35 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: NorthernTrustBondlndex 3-Year and 5-Year Rolling Performance VS Benchmark Fixed Income Bond Index Hired 2nd Quarter 2003 Rolling Period Three-Year Three-Year Five-Year Five-Year Average % Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 Sep-04 Dec-04 Mar-OS Jun-OS Sep-OS Dee-OS Mar-06 N/A N/A Jun-06 2.07% Sep-06 3.40% Dec-06 3.73% Mar-07 3.36% N/A N/A * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and SO the median. Benchmark is the Callan Public Fund Core Bond Data Base of active managers. = Beat benchmark = Underperformed 36 Attachment number 2 Page 36 of 69 Item # 3 City of Clearwater Employees' Pension Plan Money Manager: NorthernTrustBondlndex Fixed Income Manager Hired 2nd Quarter 2003 Rolling Period Last Quarter % Last Quarter Last-Year Last-Year Percentile Average % Percentile Ended Return Ranking * Return Ranking * Jun-04 -2.43% 0.27% Sep-04 3.21% 3.66% Dec-04 0.96% 4.37% Mar-OS -0.46% 1.19% Jun-05 3.05% 6.88% Sep-05 -0.70% 2.83% Dee-OS 0.59% 2.45% Mar-06 -0.60% 2.31% Jun-06 -0.06% -0.78% Sep-06 3.81% 3.73% Dec-06 1.23% 4.39% Mar-07 1.58% 6.68% * The lower the percentile ranking, the better the performance, with 1 being the best percentile rating possible and 50 the median. Benchmark is the Callan Public Fund Core Bond Data Base of active managers. = Beat benchmark = Underperformed 37 Attachment number 2 Page 37 of 69 Item # 3 Managers with no history to report: Manager Independence Investments LLC Wedge Capital Management Aletheia Research & Management Northern Trust Russell 1000 Index Style Date Added Small Cap Growth 15t Quarter 2007 Mid Cap Value 15t Quarter 2007 Large Cap Value 2nd Quarter 2007 Large Cap Value 2nd Quarter 2007 38 Attachment number 2 Page 38 of 69 Item # 3 Attachment number 2 Page 39 of 69 What Other Public Pension Plans Invest In Fixed Income Allocation. A concern has been raised about the percentage allocation to fixed income in the employees pension plan. Before the referendum the fixed income allocation had a target level of 35%. The asset allocation study recommends a target allocation of 30%. Florida statutes has no minimum or maximum level of fixed income. The following chart is the employee's pension plan verses the Callan public pension plan database. There are over one thousand plans in this database and the database includes universities, states, counties etc. The chart shows our migration to the implementation of the asset allocation study. Clearwater VS. Public Plans 60 10 Public Plans Today Clearwater Today o Clearwater + Asset All 50 40 30 20 o rl> ~ <(~ <vC>. o~ o~ <) <) q- ~0 ~ rl> 01> /A.1>. <vC>. <(~ lit v ~ ,~ <<;-0 ~ ~ 39 Item # 3 Attachment number 2 Page 40 of 69 The second chart shows the percentage of fixed income in public pension plan in Florida. There are seventy public pension plans that have over a 30% allocation to fixed income. Thirteen public pension plans have a 30% allocation of 30% fixed income. Only five pension plans have an allocation ofless than 30%. Of those five plans four of them have a 25% allocation to fixed Income. Florida Public Pensions Plans Fixed Income Percentage Total 88 Plans 80 10 70 60 50 40 30 20 o Under 30% 30% Over 30% 40 Item # 3 Attachment number 2 Page 41 of 69 The next chart shows the employee's pension plans target asset allocation after the full implementation of the asset allocation study as compared to that of the California Public Employees Retirement System (CaIPERS). CalPERS is the largest pension plan in the world. Florida public pension plans have a maximum limit of 25% international exposure. CalPERS does not have this limit. Both pension plans have an approximately a 20% exposure to international equity. In addition, CalPERS has it's fixed income allocation of approximately 27% also with an international element via global fixed. The Clearwater plan is totally domestic fixed income. Clearwater VS.CaIPERS Asset Allocation 45 40 35 30 25 20 15 10 5 o CalPERS Clearwater + Asset All Private Equity Global Fix Dam Equity Real Est Int Equity Dam Fix 41 Item # 3 Attachment number 2 Page 42 of 69 Decision Point What target percentage of the assets of the employees pension plan do the trustees want in fixed income? Greater than 30% 30% (as per the assets allocation study) Less than 30% If the allocation target is other than the asset allocate study recommends what level would the trustees like? The asset allocation study recommends that the entire international exposure be in the equity area. Would the trustees like some of the international exposure to be in the fixed income area? If so, how much? 42 Item # 3 Attachment number 2 Page 43 of 69 Allowable Investment and Restrictions Attached is our current Investment Policy, which our attorney Stuart Kaufman has reviewed and approved. Since our current policy is stricter that state law the following are the restrictions of state law and some of the allowable investment vehicles allowable by state law that we are not currently using. A. Up to 80% of the portfolio may be invested in publicly traded domestic companies. B. Up to 25% of the portfolio may be invested in foreign companies. This includes American Depository Receipts. C. Up to 5% in "alternative" investments. D. Buy and sell futures and options provided that they are traded on a regulated security exchange. E. Up to 25% in bonds of municipalities or other political subdivisions of the State of Florida, notes secured by first mortgages, group annuity contracts, certain interests in real property, fixed income obligations issued by foreign governments, Israel bonds, obligations of agencies of the government of the United States, as long as they are authorized by the Florida Retirement System Defined Benefit Plan Investment Policy, United States dollar denominated obligations issued by foreign governments, and asset backed securities. With regard to real estate investments, the pension plan is specially prohibited from investing in business or property within the City. 43 Item # 3 Attachment number 2 Page 44 of 69 Other Investment Vehicles The following other investment vehicles are available but are have not been recommend at the current time. Direct Real Estate Owners hi p Timber Private Equity Hedge Funds 130/30 or Long Short Funds Commodities Futures and Options First Mortgages Group Annuity Contracts Foreign Government Debt Portable Alpha Training All of the various parties involved with the employees pension plan from the pension attorney, the pension consultants, the money managers and numerous others would like to offer a half day of training to the trustees. Weare happy to meet any date and time the trustees are available. 44 Item # 3 Exhibit A "Statement of Objectives and Guidelines" 45 Attachment number 2 Page 45 of 69 Item # 3 Attachment number 2 Page 46 of 69 ST ATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES CITY OF CLEARWATER EMPLOYEES' PENSION FUND Approved 5/15/2007 46 Item # 3 Attachment number 2 Page 47 of 69 47 Item # 3 Attachment number 2 Page 48 of 69 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 Fund (hereafter referred to as the Fund) in more effectively supervising and monitoring the investment of the Fund's assets. In the various sections of this policy document, the Fund defines its investment program by: · stating in a written document the Fund's attitudes, expectations and objectives in the investment of Fund assets. · setting forth an investment "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 29US.C. s. 1104 (a) (1) (A) - (C). In the event of a conflict between the Policy and Florida Statutes or City ordinances, the Item # 3 1 Attachment number 2 Page 49 of 69 statutes and ordinances shall prevail. Funding Philosophy The Fund's funding objectives for the Fund is to be as fully funded as possible so that: · the ability to pay all benefits and expense obligations from the Fund when due is ensured; · there will be no principal erosion of contributed funds or the purchasing power thereof. · a "funding cushion" is maintained within the Fund for unexpected developments and for possible future increases in benefit structure and expense levels; · the Fund assets should earn sufficient total rate of return over time to reduce the Fund's dependency on employer contributions to meet all benefit and expense obligations. Investment results within the Fund are considered to be the major critical element in achieving these funding objectives stated above while reliance on contributions is a secondary element. Liquidity Posture The Investment Portfolio shall be structured in such a manner as to provide sufficient liquidity to pay obligations as they come due. Liquidity considerations are low in the short-term and intermediate-term resulting in an immaterial impact upon investment policy, objectives and guidelines. Authorized Investments The following is a list of authorized investments: . Invest and reinvest the assets of the pension fund in annuity (including group annuity contracts of the pension investment type) and life insurance contracts of legal reserve life insurance companies, in amounts sufficient to provide, in whole or in part, benefits to which all of the participants shall be or become entitled under the provisions of the Fund, and pay the initial and subsequent premiums thereon. Provided that the amount invested with a life insurance company shall not exceed 3% of the insurance companies assets. . Invest and reinvest the assets of the pension fund in: Item # 3 2 Attachment number 2 Page 50 of 69 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. c. Fully collateralized United States Agency obligations, which carry an implied guarantee and the implied full faith and credit of the United States government. Investments in this category would include but not be limited to the following: obligations of the Federal Home Loan Banks System (FHLB) or its distinct banks and Financing Corporation (FICO). d. Other United States Agency obligations, which carry an implied guarantee (Government Sponsored Entities) and the implied full faith and credit of the United States Government. Investments in this category would include but not be limited to the following: obligations of the Federal Farm Credit Bank, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Student Loan Marketing Association (Sallie Mae), Financial Assistance Corporation and Federal Agriculture Mortgage Corporation (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 US. 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 anyone or more of the recognized national or international stock exchanges and/or in the case of bonds and mortgage backed securities, traded among dealers and investors in a recognized and agreed upon conventional format; Item # 3 3 Attachment number 2 Page 51 of 69 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 (3) percent of the equity assets of the pension fund shall be invested in the common stock or capital stock of anyone issuing corporation except to the extent a higher percentage of the same issue is included in a nationally recognized market index, based on market values, at least as broad as the Standard and Poor's Composite Index of 500 Companies, or except upon a specific finding by the investment committee that such higher percentage is in the best interest of the fund; nor shall the non-US. investments exceed twenty percent of the pension fund's assets at cost; nor shall the aggregate of the investments under this subparagraph at cost exceed seventy percent of the pension fund's assets at cost. Investments not listed above in this section are prohibited. Bid Requirements All securities shall be competitively bid where feasible and appropriate. Except as otherwise required by law, the most economically advantageous bid must be selected. Executions must be made on a best-execution basis. Illiquid Investments The Fund will not invest in illiquid investments. llliquid investments being defined as an investment for which there is no generally recognized market or generally accepted pricing mechanism. Once an investment becomes illiquid the money manager will notify the plan of the illiquid investment. Included in that notification will be how the money manager will handle the illiquid investment. Investment Management Structure The Fund has reviewed the investment program for the City of Clearwater Employees' Pension Fund. The result of the review is an updated, long-term strategic asset allocation Fund. Initially, four distinct asset classes were considered for inclusion in the portfolio: Domestic Equities International/Non US Equities Domestic Fixed Income REITS / Real Estate Mter a thorough review, a permanent commitment to these four asset classes will be made to ensure diversification at the Fund level. The Fund may consider investments in other asset classes, which offer potential enhancement to total return at risks no greater than the exposures under the initially selected asset classes. Item # 3 4 Attachment number 2 Page 52 of 69 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 obj ectives. Each asset class will have its own investment managers. Diversification of the US. Market Equity commitment will be achieved through the employment of managers of complementary investment styles, Growth and Value. In the US. Fixed Income market a core bond managers will be utilized to stabilize the fund. In the International Equity market a diversified non-US. managers will be hired to achieve diversification. Cash and cash equivalents will be managed either by the Investment Managers or the custodian. In addition the City uses the pooling concept to meet the immediate cash needs of the city and to maximize the interest earnings. All cash placed in the City's pooled cash account shall be separately accounted for and listed as an asset of the Fund. The Fund will keep sufficient funds in the City's pooled cash account to meet the current obligations of the Fund. The guidelines for the allocation of assets, at cost, to investment managers are as follows: Lower Limit Upper Limit Cost or Market US. Market Equities 40% 70% Cost Growth 15% 40% Cost Value 15% 40% Cost Domestic Fixed Income 30% 40% Cost Real Estate / REITS 0% 10% Cost International Equity 10% 20% Cost Because the asset classes do not move in concert, deviations from the normal commitments will occur through normal market activity. The Upper and Lower Limits define the ranges within which market activity will be allowed to shift the allocations. The ranges are designed to allow for a reasonable period of time to elapse before rebalancing the portfolio. When the investments are out of policy the assets will be moved from the over-allocated to the under-allocated in a prudent 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 with out the approval of the trustees, if required, or by the approval of the Pension Investment Committee if trustee approval is not required. An instance not requiring trustee approval is rebalancing the portfolio. Internal controls will be designed to prevent losses of funds Item # 3 5 Attachment number 2 Page 53 of 69 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 be made up (at a minimum) of the following: Finance Director (Treasurer for the Trustees), Assistant Finance Director, the Cash & Investments Manager and one member from the general public appointed by the Trustees. The Treasurer for the Trustees shall appoint/remove other Finance professionals as needs warrant. One representative for each of the unions will also serve on the Investment Committee. The Financial Director or their designee will chair the committee. The City Treasurer will make a recommendation to the Trustees as to any changes in the 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 will complete no less than 8 hours of continuing educational opportunities on pension investments each fiscal year. Investment Return Objectives In formulating investment return objectives for the Fund objectives for the Fund assets, the Fund placed primary emphasis on the following goals: · Achieve investment performance that exceeds the rate of inflation over time thereby providing a real rate of return. · Achieve investment results of at least the actuarial rate of return. · 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 6 Item # 3 Attachment number 2 Page 54 of 69 F or each actual valuation the Trustees will determine the expected rate of return of the current year, next several years and the long term. Based upon the above and the following the expected annual rate of return for the current year is 7.5%. The expected rate of return for the foreseeable future is also 7.5%. 1. Total Fund Return Objectives The following minimum comparative objectives have been established for the total Fund: . The total fund should rank in the upper fiftieth (50th) percentile compared to a recognized performance measure company's total public plan sponsor database measured over a minimum period of three (3) or maximum five (5) years. . The 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 measure company's style database for each asset class segment. . The Fund's overall annualized total return (which is defined as all price changes plus all income and/or dividends) should exceed the actuarial assumption over a rolling three (3) or maximum of five (5) year period. . The Fund's overall annualized total return should exceed the returns that would have collectively been achieved if the Fund had been fully invested in the appropriate percentage of : Standard & Poor's 500 Stock Index Lehman Brothers Aggregate Bond Index Morgan Stanley Capital International EAFE Index This is a custom benchmark that will be calculated relative to the actual collective asset class mix of the Fund measured over a minimum of three (3) or maximum of five (5) years. 2. Equity Segment Return Objectives A. The following minimum performance goals have been established for the Fund's domestic equity segment: · The domestic equity segment total return should perform at least at the upper fiftieth (50th) percentile compared to a recognized performance measurement company's total US. equity database 7 Item # 3 Attachment number 2 Page 55 of 69 measured over a minimum period of three (3) or maximum of (5) years. · The individual domestic equity managers total return should perform at least at the upper fifth (50th) percentile compared to investment style peers of similar type as found in a recognized performance measure company's total US. equity database measured over a minimum period of three (3) or maximum of (5) years. · The total domestic equity segment total return should exceed the total return of the Standard & Poor's 500 Stock Index by at least 100 basis points per year measured over a minimum period of three (3) or maximum of (5) years. b. The following minimum performance goals have been established for the Fund's international equity segment: · The international equity segment total return should perform at least at the upper fiftieth (50th) percentile compared to recognized performance measure company's total non US. equity database measured over a minimum period of three (3) or maximum of (5) years. · The individual international equity managers total return should perform at least at the upper fiftieth (50th) percentile compared to the investment style peers of similar type as found in a recognized performance measure company's total non US. equity database measured over a minimum period of three (3) or maximum of (5) years. · The international equity segment total return should exceed the total return of the Morgan Stanley Capital International Europe, Australia, Far East Index (EAFE) by at least 200 basis points per year over a minimum of three (3) or maximum of (5) years. 3. Fixed Income Segment Return Obj ectives A. The following minimum performance goals have been established for the Fund's domestic fixed-income segment: · The domestic fixed-income segment total return should perform at least at the upper fiftieth (50th) percentile compared to the recognized performance measure company's total domestic fixed 8 Item # 3 Attachment number 2 Page 56 of 69 income database measured over a minimum period of three (3) or maximum of (5) years. · The individual domestic fixed income managers total return should perform at least at the upper fiftieth (50th) percentile compared to investment style peers of similar type as found in a recognized performance measure company's total domestic fixed income database measured over a minimum period of three (3) or maximum of (5) years. · The domestic fixed income segment total returns should exceed the total return of the Lehman Brothers Aggregate Bond Index by at least 50 basis points per year measured over a minimum period of three (3) or maximum of (5) years. Criteria for Investment Manager Review 1 Consistent performance below the 50th percentile in the specified universe over rolling 3-year periods. 2 Consistent under-performance of the stated target index over rolling 3-year periods. 3 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. 4 Substantial change in basic investment philosophy by the Manager. 5 Substantial change of ownership of the firm deemed detrimental to the Manager's ability to perform the required duties. 6 Failure to observe any guidelines as stated in this policy. Responsibilities of the Third 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. 9 Item # 3 Attachment number 2 Page 57 of 69 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; · Notify investment managers of tenders, rights, fractional shares or other dispositions of holdings; · Resolve any problems that investment managers may have relating to custodial account; · Safekeeping of securities; · Interest and dividend collection; · Daily cash sweep of idle principal and income cash balance; · Process all investment manager transactions on a delivery vs. payment basis; · Collect proceeds from maturing securities; · Provide monthly statements by investment manager account; · All securities purchased by the Fund shall be properly designated as an asset of the Fund; · No withdrawal of securities, in whole or in part shall be made except by an authorized member of the committee or the committee's designee. RESPONSIBILITIES OF INVESTMENT MANAGERS The duties and responsibilities of each of the registered investment advisors retained by the Fund include: 1. Managing the assets under its management in accordance with the policy guidelines and objectives expressed herein, or expressed in a separate written agreement when deviation is deemed prudent and desirable. 10 Item # 3 Attachment number 2 Page 58 of 69 2. Exercising full investment discretion within the guidelines and objectives stated herein. Such discretion includes decisions to buy, hold or sell securities in amounts and proportions reflective of the manager's current investment strategy and compatible with investment objectives. 3. Promptly informing the Fund regarding all significant matters pertaining to the investment of the fund assets, for example: · changes in investment strategy, portfolio structure and market value of managed assets; · the manager's progress in meeting the investment objectives set forth in this document; and · significant changes in the ownership, affiliations, organizational structure, financial condition, professional personnel staffing and clientele of the investment management organizations. 4. No deviation from guidelines and objectives established in the Statement should occur until after such communication has occurred and the Fund has approved such deviation in writing. 5. The Fund formally delegates full authority to each investment manager for exercising all proxy and related actions of the Fund's investment assets assigned to it. Each manager shall promptly vote all proxies and related actions in a manner consistent with the long-term interests of the Fund and its Participants and Beneficiaries. Each investment manager shall keep detailed records of all said voting of proxies and related actions and will comply with all regulatory obligations related thereto. The Fund shall periodically audit and review each investment manager's policies and actions in this area. 6. Each Investment Manager shall utilize the same due care, skill, prudence and diligence under the circumstances then prevailing that experienced, investment professionals acting in a like capacity, as a fiduciary, and fully familiar with such matters would 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. 7. Notifying the Fund of the filing of a lawsuit by a client against the manager alleging breach of fiduciary duty or other willful conduct. 11 Item # 3 Attachment number 2 Page 59 of 69 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: the objectives set forth in Appendix "A", as a primary consideration, their own previously stated investment style, other investment managers, both in asset class and in style group, other retirement Funds, several different market indices. In addition to reviewing each investment manager's results, the Fund will re-evaluate, from time to time, its progress in achieving the total fund, equity, fixed-income, international, and cash and equivalents segment objectives previously outlined. The periodic re-evaluation also will involve an evaluation of the continued appropriateness of: (1) the manager structure set forth in Appendix "A"; (2) the allocation of assets among the managers; and (3) the investment objectives for the Fund's assets. The Fund may appoint investment consultants to assist in the on-going evaluation process. The consultants selected by the Fund are expected to be familiar with the investment practices of other similar retirement plans and will be responsible for suggesting appropriate changes in the Fund's investment program over time. Filing of Investment Policy Upon adoption by the trustees, the investment policy 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. 12 Item # 3 APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES 13 Attachment number 2 Page 60 of 69 Item # 3 CITY OF CLEARWATER EMPLOYEES PENSION FUND Investment Manager Domestic Equity Value Orientation Domestic Equity Growth Orientation International Equity Domestic Fixed Income REITS /Real Estate INVESTMENT STRUCTURE MaV,2007 Target Allocation 20%- 25% 20% - 25 10% - 20% 30% - 40% Future Addition 14 Attachment number 2 Page 61 of 69 Item # 3 Attachment number 2 Page 62 of 69 APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES 1. Manager Structure The Fund will retain investment managers that specialize in the use of particular asset classes. The targeted distribution of Fund assets among specialist managers will be as illustrated on the previous page. The Fund believes that the established structure: · is consistent with the practices of other similar-sized retirement funds; and · offers an appropriate "blend" of investment styles that will produce a sufficient level of diversification and investment return over time. 2. Cash Flow Allocation The allocation of assets is consistent with the Fund's desire to diversify its investment management program. The Fund intends to review on a periodic basis the allocation of assets among its investment managers. To the extent that it is practically possible, it is expected that any cash flow will be allocated to or 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. 15 Item # 3 Attachment number 2 Page 63 of 69 6. Liquidity and 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 Funds portfolio if the aggregate holdings among all of that manager's other accounts in that same security would restrict the manager's ability to expeditiously liquidate the position at any time. From a total Fund perspective, the Fund believes the collective holdings among all Fund managers accounts in that same security would restrict all managers collective ability to expeditiously liquidate their respective positions in that same security. Therefore, the Fund retains the sole right to limit any manager's holding of any security in the Fund at any time in order to prevent the potential for said 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 Obiectives, Guidelines and Restrictions Forthcoming 16 Item # 3 Attachment number 2 Page 64 of 69 The Fund may 1 develop additional objectives, guidelines and restrictions and may amend the Policy from time to time. 11. Fund Segment Guidelines Following are guidelines and objectives established for the fund segments and for each investment manager retained by the Fund. Individual manager guidelines are designed to be consistent, in aggregate, with the total fund asset allocation guidelines and investment objectives set forth in the Statement of Investment Obiectives and Guidelines. llA. Domestic Equity Segment Each equity manager is expected to adhere to the following guidelines: · Equity holdings in anyone company (including common and preferred stock, convertible securities and debt) should not exceed 10% of the market value of the manager's portion of the Fund without the consent of the Fund. · Equity holdings in anyone industry (as defined by Standard & Poor's) should not exceed 50% of the market value of the manager's portion of the Fund. · Cash equivalents and fixed income positions should not exceed twenty five percent (25%) of the manager's portfolio. A manager may invest in fixed income securities if projected returns on such securities are perceived to be competitive with potential equity returns. However, fixed income securities will not represent more than twenty-five percent (25%) of a manager's portfolio without the prior written consent of the Fund. · No purchase shall be made by an investment manager that would cause a holding to exceed 5% of the issue outstanding. IIB. International Equity Segment Each international equity manager IS expected to adhere to the following mInImUm guidelines: · Equity holdings in anyone company and all of its subsidiaries and affiliates (including equities, convertible securities and debt) should not exceed five percent (5%) of the market value of the manager's portion of the Fund portfolio without the prior written consent of the Fund. 17 Item # 3 Attachment number 2 Page 65 of 69 · Equity holdings in anyone industry should not exceed fifty percent (50%) of the market value of the manager's portion of the Fund portfolio. Equity holdings in anyone sector (e.g., consumer cyclical, energy, technology, etc.) should not exceed fifty (50%) of the market value of the manager's portfolio without the prior written consent of the Fund. · Cash equivalents and fixed income positions should not exceed fifty percent (50%) of the 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 equity returns. · The manager may enter into foreign exchange contracts on currency provided that: (a) such contracts have a maturity of one year or less, and (b) use of such contracts is limited solely and exclusively to hedging currency exposure existing within the manager's portfolio. The intent is to dampen portfolio volatility and prevent currency loss. There shall be no direct foreign currency speculation or any related investment activity. · The manager may purchase or sell currency on a spot basis to accommodate specific securities settlements. 11 C. Fixed Income Segment Each fixed income manager is expected to adhere to the following guidelines: · All Fixed Income Securities held in each portfolio should have a Moody's, or Standard & Poor's quality rating of no less than Investment Grade from any of these rating services. (For an issue, which is split-rated, the lower quality designation will govern. Once a security falls below investment grade the money manager will notify the plan of the downgrade as soon as practical. Included in that notification will be how the money manager will handle the below investment grade security. · The diversification of securities by maturity, quality, sector, coupon and geography is the responsibility of the manager. · The exposure of each manager's portfolio to any single security other than a security backed by the full faith and credit of the US. Government or any of its instrumentalities should be limited to five (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 (10) of the issue outstanding. 18 Item # 3 Attachment number 2 Page 66 of 69 · There shall be no use of options, financial futures, derivatives or other specialized investment activity without the prior written approval of the Fund. · Not more than 10% of an investment manager's portfolio, valued at market, shall be invested in certificates of deposit, time deposits, bankers acceptances, commercial paper, or related investments of a single issuer financial institution or financial institution holding company family. IID. 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 daily via an automatic sweep STIF managed by the custodian. It is the Fund's objective to have no idle cash at any time in any manager's portfolio. llE. 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. IIF. 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. 19 Item # 3 Attachment number 2 Page 67 of 69 12. Individual Manager Descriptions and Five-Year Expectations All expectations are minimums. All investment managers shall exceed the stated expectations. Investment Manager Percentile Percentile Expectation Expectation Relative To Relative To Other Managers Style Peers Domestic Equity Specialist Manager 50th 50th Value Orientation Domestic Equity Specialist Manager 50th 50th Growth Orientation International Equity 50th 50th Specialist Manager Domestic Fixed Income Specialist Manager 50th 50th Core Fixed Income Orientation Cash and Equivalents and 50th 50th STlF Porllolios In addition, each domestic equity and fixed income manager is expected to achieve positive risk-adjusted (alpha) performance over a three (3) or maximum of (5) year periods. 20 Item # 3 Attachment number 2 Page 68 of 69 13. Reporting Requirements: Consultant Reporting The Pension Fund's Consultant will provide quarterly reports to the Pension Fund which, at a minimum, will review the following information about each Investment Manager and the Total Fund: · Overview of the most recent quarter and year-to-date investment indicators · Total Fund asset allocation · Comparison of total Fund return versus the customized benchmark · Performance results by individual Manager and Total Fund compared to appropriate benchmarks. Investment Reporting: . On not less that an annual basis the Trustees will receive a report showing a list of all of the securities held by investment manager. This report will be provided by the safekeeping custodians and shall include the portfolio by class or type, book value, income earned, and market value as of the date of the report. This report will be filed with the city. Proxy Voting: . On not less that a quarterly basis, money manager will report to the Plan their proxy voting during the last period. Review of Policy This Statement of Investment Policy must be reviewed annually by the Pension Investment Committee with a recommendation to revise or confirm to the Trustees. Meeting Agenda It6flb # 3 Attachment number 2 Page 69 of 69 At each meeting, the written and oral presentations shall cover the following points: · A report of performance for past periods. Standard time periods for each report will be last quarter, last year, year to date, latest twelve (12) months, two years, three years, etc., and since inception and by calendar year. Returns should be annualized and calculated on a time-weighted basis for the total portfolio. All returns should include price change plus income and/or dividends. · Discussion of the rationale for 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. Ten (12) copies of the written summary should be received by the Fund at least five (5) business days prior to the meeting. The Fund is interested in fostering an effective working relationship with its investment managers through a discipline of good communication. The establishment of Objectives, 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. It6Wl # 3 Meeting Date:8/13/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: John Correll, Public Utilities Department; Lester Pulfer, Solid Waste/General Services Department; Yacub Bilal, Engineering Department; Lloyd Wentz, Police Department; and Timothy Treble, Police Department, be granted regular pensions under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: John Correll, Wastewater Treatment Plant Operator A, Public Utilities Department, was employed by the City on October 26, 1987, and his pension service credit is effective on that date. His pension will be effective November 1,2007. Based on an average salary of approximately $46,809 per year over the past five years, the formula for computing regular pensions, and Mr. Correll's selection of the 100% Joint & Survivor Annuity, this pension will approximate $25,243 annually. Lester Pulfer, Solid Waste Equipment Operator, Solid Waste/General Services Department, was employed by the City on January 6, 1986, and his pension service credit is effective on that date. His pension will be effective September 1, 2007. Based on an average salary of approximately $44,998 per year over the past five years, the formula for computing regular pensions, and Mr. Pulfer's selection of the lO-year Certain & Life Annuity, this pension will approximate $32,046 annually. Yacub Bilal, Electronics Technician, Engineering Department, was employed by the City on February 21, 1980, and his pension service credit is effective on that date. His pension will be effective December 1, 2007. Based on an average salary of approximately $44,873 per year over the past five years, the formula for computing regular pensions, and Mr. Bilal's selection of the 100% Joint & Survivor Annuity, this pension will approximate $33,474 annually. Lloyd Wentz, Police Sergeant, Police Department, was employed by the City on May 16, 1983, and his pension service credit is effective on that date. His pension will be effective July 1,2007. Based on an average salary of approximately $82,014 per year over the past five years, the formula for computing regular pensions, and Mr. Wentz' selection of the 100% Joint & Survivor Annuity, this pension will approximate $53,662 annually. Timothy Treble, Police Officer, Police Department, was employed by the City on February 17, 1987, and his pension service credit is effective on June 30, 1987. His pension will be effective July 1,2007. Based on an average salary of approximately $62,726 per year over the past five years, the formula for computing regular pensions, and Mr. Treble's selection of the Life Annuity, this pension will approximate $35,642 annually. These pensions were approved by the Pension Advisory Committee on July 12,2007. Section 2.393 provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed thirty years of credited service, or has reached age 65 and completed ten years of credited service. Section 2.393 also provides for normal retirement eligibility when a participant has completed twenty years of credited service or has reached age 55 and completed ten years of credited service in a type of employment described as "hazardous duty" and further defines service as a Police Sergeant and Police Officer as meeting the hazardous duty criteria. Mr. Correll and Mr. Bilal qualify under the age 55 and twenty years of service criteria. Mr. Pulfer qualifies under both the age 55 and twenty years of service and the age 65 and 10 years of service criteria. Mr. Wentz and Mr. Treble qualify under the hazardous duty criteria. Review Approval: 1) Clerk Cover Memo Item # 4 Meeting Date:8/13/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: David Nardin, Development and Neighborhood Services Department; Kevin Slattery, Public Utilities Department; and Robyn Haywood Thomas, Fire Department, be allowed to vest their pensions under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: David Nardin, Building Inspector, Development and Neighborhood Services Department, was employed by the City on February 22, 1994, and began participating in the Pension Plan on that date. Mr. Nardin terminated from City employment on July 20, 2007. Kevin Slattery, Public Utilities Supervisor II, Public Utilities Department, was employed by the City on September 23, 1985, and began participating in the Pension Plan on that date. Mr. Slattery terminated from City employment on June 19,2007. Robyn Haywood Thomas, Fire Medic, Fire Department, was employed by the City on May 28, 1996, and began participating in the Pension Plan on that date. Ms. Haywood Thomas terminated from City employment on March 25, 2007. The Employees' Pension Plan provides that should an employee cease to be an employee of the City of Clearwater after completing ten or more years of creditable service (pension participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed 30 years of credited service, or has reached age 65 and completed ten years of credited service. Section 2.393 (p) also provides for normal retirement eligibility when a participant has completed twenty years of credited service in a type of employment described as "hazardous duty" and further specifically defines service as a Fire Medic as meeting the hazardous duty criteria. Mr. Nardin would have completed at least 20 years of service and reached age 55 on August 26,2018. His pension will be effective September 1, 2018. Mr. Slattery would have completed at least 20 years of service and reached age 55 on February 3, 2015. His pension will be effective March 1, 2015. Ms. Haywood would have completed 20 years of hazardous duty service on May 28, 2016. Her pension will be effective June 1, 2016. These pensions were approved by the Pension Advisory Committee on July 12, 2007. Review Approval: 1) Clerk Cover Memo Item # 5