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HomeMy WebLinkAboutAgenda Fire Pension 111708THE PENSION RESOURCE CENTER, LLC 4360 Northlake Boulevard, Suite 206 :• Palm Beach Gardens, FL 33410 Phone (561) 624 -3277 ❖ Fax (561) 624 -3278 ❖ www.RESOURCECENTERS.COM PALM BEACH GARDENS FIREFIGHTERS' PENSION FUND Meeting of Monday, November 17, 2008 Location: Council Chambers, Palm Beach Gardens City Hall 10500 North Military Trail Palm Beach Gardens, FL 33410 Time: 9:00 A.M. AGENDA 1. Call Meeting to Order 2. Minutes of Meeting Held October 20, 2008 3. Investment Manager Report: Dana Investment Advisors 4. Presentation by Davis Hamilton Jackson on TIPS /CIPS 5. Investment Monitor Report: Bogdahn Consulting International Growth Manager Search 6. Attorney Report: Bob Sugarman • Status of Disability Hearing for Toby Bivins 7. Administrative Report: Margie Adcock 8. Disbursements 9. Other Business Status of Research Regarding Crediting to Share Accounts • 2009 Meeting Dates 10. Schedule Next Meeting: Monday, January 12, 2009 at 9:00 A.M. 11. Adjourn PLEASE NOTE: Should any interested party seek to appeal any decision made by the Board with respect to any matter considered at such meeting or hearing, he will need a record of the proceedings, and for such purpose he may need to insure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. In accordance with the Americans With Disabilities Act of 1990, persons needing a special accommodation to participate in this meeting should contact The Pension Resource Center, Inc. no later than four days prior to the meeting. PALM BEACH GARDENS FIREFIGHTERS' PENSION FUND MINUTES OF MEETING HELD October 20, 2008 A meeting of the Board of Trustees was called to order at 9:05 A.M. at Council Chambers, Palm Beach Gardens, Florida. Those persons present were: TRUSTEES Ed Morejon Tom Murphy Rick Rhodes Steve Rogers MINUTES OTHERS Margie Adcock, Administrator Bob Sugarman, Attorney (9:25 A.M.) Joe Bogdahn, Investment Monitor The Board reviewed the minutes of the meeting held August 18, 2008. A motion was made, seconded and carried 4 -0 to accept the minutes of the meeting held August 18, 2008. ADMINISTRATIVE REPORT Ms. Adcock presented the engagement letter from Steve Gordon for the audit for the fiscal year ended September 30, 2008. A motion was made, seconded and carried 4 -0 to authorize the Chairman to execute the engagement letter. Ms. Adcock presented the list of disbursements to be made. A motion was made, seconded and carried 4 -0 to approve the disbursements listed. Ms. Adcock provided the Board with a copy of the Investment Policy Statement for their Trustee Handbooks. INVESTMENT MONITOR REPORT Joe Bogdahn appeared before the Board. He discussed the market environment and asset class performance. He stated that there was a lack of confidence in the market. He noted that all asset classes were negative except for government- backed securities and mortgage backed securities. He noted that small cap did better than large cap and growth did better than value. He reviewed information on historical bear markets. He stated that being able to add in money is always a positive thing. Mr. Bogdahn reviewed the investment performance for the quarter ending September 30, 2008. The total market value of the Fund as of September 30, 2008 was $22,595,024. He noted that Agincourt was funded and the money in Galliard was taken out during the quarter. He stated that DHJ had a little in Lehman Brothers and sold right out of it. 2 Bob Sugarman entered the meeting. The Fund was down 6.48% net of fees for the quarter while the benchmark was down 6.94 %. For the fiscal year the Fund was down 12.30% net of fees while the benchmark was down 14.06 %. The equity portfolio managed by Dana was down 8.75% for the quarter while the benchmark was down 8.73 %. The international portfolio managed by Voyageur was down 16.50% for the quarter while the EAFE was down 20.50 %. The real estate portfolio managed by American Realty was down .56% for the quarter while the NCREIF was down .52 %. The fixed income portfolio managed by DHJ was down 2.88% for the quarter while the benchmark was down .13 %. Mr. Bogdahn noted that Agincourt did not have the money for the full quarter. There was discussion on the actuarial assumption rate of 8.25% and if that was realistic in the long term. Mr. Bogdahn stated that it could get problematic depending on what happens with the 60T workshop. He discussed the proposed changes to 60T with respect to the rate of return. He stated that if the Fund can add TIPS, timber and infrastructure that would help diversify the Fund even more and would add more value. However, there would need to be an Ordinance change to allow some of those asset classes. There was discussion on the sanctions, if any, of not following the proposed 60T rules if they are adopted. Mr. Sugarman stated that the sanctions would be the withholding of State monies. Mr. Bogdahn discussed Inflation Protected Securities — TIPS and CIPS. He stated that inflation protected securities are a negative correlation to equities. Over time they will underperform bond managers. The reason to have them in the portfolio is that during times of inflation or stress, they offer greater protection. Mr. Bogdahn reviewed the comparison between TIPS and CIPS. He stated that it is a great time to be buying long- term corporate stocks. However, the issue is whether the company will be around. CIPS are in a senior position for payment purposes. He stated that DHJ has a TIPS /CIPS program that has been in place for two years. He noted that CIPS have only been around since 2003 while TIPS have been around since 1997. He stated that the Fund could earmark 5% of the portfolio in a separate account for TIPS /CIPS. He stated that it would be a nice piece. He would need to add it to the Investment Policy Statement. Mr. Sugarman stated that it was a legal investment. There was a lengthy discussion on the concern of bond ratings, especially on the CIPS side. It was noted that a restriction would be placed that they could only buy domestic TIPS /CIPS so as not to exceed the international restriction. There was discussion on whether the Board could direct the manager to buy only TIPS and not CIPS. Mr. Bogdahn stated that he would not want to do that. He would want to give the manager the ability to purchase CIPS if they see an opportunity. However, they could place a restriction to purchase only CIPS that are AA rated or better. There was a discussion on the liquidity of such an investment. Mr. Bogdahn stated that the process of DHJ is longer term on TIPS and shorter term on CIPS to get a yield kick. He stated that with respect to the IPS he would add TIPS in the total Fund performance and on the fixed income side he would add TIPS as a component. The Board directed Mr. Bogdahn to invite Gilbert Garcia from DHJ to the next meeting to 3 make a presentation on TIPS /CIPS. Mr. Bogdahn stated that he would prepare a draft revised Investment Policy Statement for TIPS /CIPS. The Board inquired if diversifying into TIPS /CIPS. would affect the 8.25% assumed rate of return. Mr. Bogdahn stated that it helps the Fund achieve that rate by adding additional diversification and it is a hedge against the downside of equities. He stated that he would like the Fund to go into other fixed income asset classes like timber or infrastructure. Mr. Sugarman asked if the 8.25% assumed rate is realistic. He noted that most of his plans are at 8 %. Mr. Bogdahn stated that 8% is predominately the number. He stated that if the Board could change it without any negative consequences he would recommend it. However, the Board needs to weigh the consequences to the benefits. It will increase the funding requirement, which puts more money into the Plan. He stated that he does think the Fund can achieve 8.25% in the long term. If that rate could be reduced, it would give more wiggle room and he would encourage that. Mr. Bogdahn provided the Board with an international equity manager search. He stated that the Fund currently has Voyageur as the international manager, which is a value manager. He would like to add a growth piece of about $1 million. He reviewed the manager search process and provided three candidates to consider: American Funds EuroPacific Growth; MFS International Growth; and Harding Loevner International Equity. He reviewed the performance versus the universe through September 30, 2008 for the quarter, year to date, 1, 2, 3, 4, 5, 6 and 7 year time periods. He reviewed the risk and return analysis and the up and down capture ratios. He noted that EuroPacific has better risk adjusted numbers on both ends and also a higher return. However, they need to look at how the managers would pair up with Voyageur. He reviewed the performance rankings with 50% in Voyageur and 50% with each candidate. He reviewed the risk return analysis and the up and down capture ratios of each of the blended managers. It was noted that EuroPacific was an institutional mutual fund, which the Custodian can buy directly, and the fee is 67 basis points. The funding for the growth international manager would come from Voyageur. Mr. Sugarman stated that he was familiar with all three managers. Mr. Bogdahn recommended the EuroPacific Growth R5. It is the least expensive, it an institutional fund and is only offered to retirement plans that have over $1 million in assets. A motion was made, seconded and carried 4 -0 to accept the recommendation of the Investment Monitor and hire EuroPacific Growth R5. Mr. Sugarman discussed the fiduciary obligation of the managers. He stated that if the Board hires EuroPacific there would be no agreement where they will accept fiduciary duty. All that will exist is an agreement to buy the mutual fund. EuroPacific is obligated to go by whatever their prospectus says and must act in the best interests of the shareholders. Other managers are required to act in the best interests of the Participants and Beneficiaries of the Fund. Mr. Bogdahn stated that the Board could look at some additional managers who would agree to a side letter and he could bring that list back for the next meeting. Mr. Sugarman stated that the Board could direct Mr. Bogdahn to only bring companies that would acknowledge that they would be a fiduciary to the Plan either through an agreement or a side letter or the Board could take a risk with EuroPacific but he could not recommend that. He stated that he feels if a manager acknowledges a 4 fiduciary duty the Fund is better protected. However, if the Board decided to hire EuroPacific, it would be based on Mr. Bogdahn's recommendation and he is a fiduciary. There was a lengthy discussion. The Board decided to take a look at other managers because of the Attorney's recommendation. A motion was made, seconded and carried 3 -1 to reconsider the vote on the motion to hire EuroPacific. Mr. Rhodes opposed the motion. Mr. Sugarman stated that that wiped out the prior vote but not the prior motion. A motion was made, seconded and carried 4 -0 to table the motion to hire EuroPacific until the next meeting. ATTORNEY REPORT Mr. Sugarman discussed the status of the disability hearing for Toby Bivins. He stated that the hearing had been scheduled for today. However, the Board learned late last week that Mr. Hitchins would not be able to attend the meeting. A copy of that notice was sent to Mr. Sicking to give him the opportunity to reschedule if he wanted to have a full Board. Mr. Sicking called Mr. Sugarman and advised that he wanted a full Board. Mr. Sugarman recommended that the Board reschedule the hearing. Mr. Sugarman stated that he was asked if Mr. Bivins could receive his Share Account. The Ordinance provides that a terminated employee can received their Share Account after the fiscal year end of when they were terminated. However, because of investments the Actuary advised that Mr. Bivins could be give 50% of his Share Account Balance as of September 30, 2007. Mr. Sugarman reported that Jayne Goldstein sent a letter advising that she is with a new firm. He stated that she was asking the Board to sign an agreement to hire her with her new firm. A motion was made, seconded and carried 4 -0 to replace Mager and Goldstein with Shepherd & Finkelman and authorize the Chairman to execute the agreement. Mr. Sugarman discussed the issue concerning the Share Account balances and certain individuals that were hired at the same time but having different Share Account balances. Mr. Armstrong sent an e-mail stating that up until 2001 the shares were allocated to the salary of a member compared to total fire department payroll. After that the shares were allocated according to years of service and not pay. The Board did not recall that there had been two methods of allocation and thought it was only based on years of service. Mr. Sugarman stated that Mr. Armstrong was correct as to the way the Ordinance reads. The Board requested that Evan Bestland be called to come to the meeting as he was on the Board and might remember this issue. Mr. Sugarman discussed filing for an IRS Determination Letter. He stated that he was reversing their recommendation to submit for an IRS Determination Letter at this time. He stated that the IRS is sending out questionnaires to various plan and he thinks the chances of them selecting this Fund is very small. He stated that there have been two recent laws that need to be put in the Ordinance: PPA and the HEART Bill. The Fund has until 2012 to amend the Plan for these. Even if the Plan adds the necessary language for E these laws now, the IRS will not take a look at them if a Determination Letter submission was made now. Then the Board would need to go back in five years and do it again. He was not sure it was worth spending money now for something that they would have to do again in five years versus the risk of the IRS approaching the Fund. There was a lengthy discussion. A motion was made, seconded and carried 4 -0 to hold off on the IRS Determination Letter filing until the next cycle unless the Attorney makes a determination that it needs to be done earlier. Evan Bestland entered the meeting. There was a continuation of the discussion regarding the crediting to the Share Accounts. Mr. Bestland stated that to the best of his recollection the Share Accounts were set up to be fair and so they did it based on years of service and not pay. However, he did recall something that the attorney at the time said had to be done because of the State initially and then would be changed. It was determined that more research would need to be done. A motion was made, seconded and carried 4 -0 to have the Secretary research this further and report back at a future meeting. There was further discussion on the disability hearing for Toby Bivins. The Board asked if clarification was received from Dr. McFarland. Mr. Sugarman stated he provided the Board with all that was received. Mr. Murphy stated that he found that there was nothing to be found by talking to Mr. Bivins' co- workers for the time period of February 27 to March 27, 2007. He stated that he asked the questions that Mr. Sugarman provided and asked everyone the same thing. He stated that no one recalled where Mr. Bivins was not doing his share of the work. Mr. Sugarman stated that the option to send Mr. Bivins to Dr. Sherman for an FCE was not there because Dr. Sherman did not have the capability to do that. There was discussion on who else might be able to do that. The Board directed Mr. Sugarman to check with Dr. Lichtblau to get a FCE done and then have Dr. Sherman review the FCE before the disability hearing. Mr. Sugarman stated that he did not think that all would be done before the next meeting. The Board stated that they would call a special meeting for this matter if necessary. Mr. Sugarman provided an update on the proposed changes to the State Administrative Rules pertaining to funding and disclosure. He stated that there is a Rule 60T workshop tomorrow morning. He stated that Mr. Harrison and himself would be there representing the Fund and their other clients. A motion was made, seconded and carried 4 -0 to reimburse any Trustee for the cost of a renal car if they wanted to attend the workshop. Mr. Sugarman stated that it was a legitimate educational expense. Mr. Sugarman stated that there was a widely published newspaper article that stated that the IRS was going to eliminate the early retirement option. He stated that that issue has been put off for three more years until October 1, 2011 for this Plan. Mr. Sugarman discussed the issue. He stated that the problem has not gone away, it is just further down the road. 6 It was reported that the City has advised the Union that they are having a committee to research the issue of going to FRS. The committee consists of the City Manager; Fire Chief; Police Chief, HR Director; representative from the Fire Union and the Police Union; and the Finance Director. Mr. Sugarman advised Mr. Morejon to ask to be on the committee as the Firefighters Pension Fund's Chairman. Mr. Sugarman stated that it was disappointing to him that the expertise and value of this Plan is not recognized by the City to decide what this Plan is going to be. FRS is a good plan but the 175 monies would cease and there are the issues of the transition to FRS such as buying back past years in FRS at 2 %. Mr. Sugarman suggested that the Chairman formally request to put a person from this Board on the committee. A motion was made, seconded and carried 4 -0 to direct the Chairman to request the City Manager to have a representative of the Pension Board on the committee and copy the letter to the City Council and authorize the Chair to decide who that representative should be and give the Chair the authority to engage the Attorney and Actuary to perform whatever services are needed. OTHER BUSINESS There being no further business, the meeting adjourned. Respectfully submitted, Tom Murphy, Secretary PALM BEACH GARDENS FIREFIGHTERS' PENSION FUND DISBURSEMENTS November 17, 2008 • PENSION RESOURCE CENTER, LLC. $ 1,709.56 (Bill for services for November 2008 including overnight mailings) • REGIONS MORGAN KEEGAN TRUST $ 734.24 (Custodial Fees for September 2008) • SUGARMAN & SUSSKIND $ 1,695.75 (Fees for legal services for October 2008) • DANA INVESTMENT ADVISORS INC. $ 14,670.04 (3rd Quarter 2008 Management Fee) • GALLIARD CAPITAL MANAGEMENT $ 1,856.00 (3rd Quarter 2008 Management Fee- prorated) • VOYAGEUR ASSET MANAGEMENT INC. $ 2,806.35 (3rd Quarter 2008 Management Fee) • DAVIS HAMILTON JACKSON & ASSOCIATES $ 2,294.46 (3`d Quarter 2008 Management Fee) • AGINCOURT CAPITAL MANAGEMENT $ 326.97 (3rd Quarter 2008 Management Fee - prorated) Total Disbursements for Approval $ 26,093.37 (Trustee) (Trustee) Tegrit mimstrators 4360 Northlake Blvd Suite 206 Palm Beach Gardens, FL 33410 Bill To Palm Beach Gardens Firefighters' Invoice I Tax ID Numbers Tegrit Plan Administrators 80- 0182332 Resource Centers 87- 0800468 Pension Resource Center 36- 4504183 20- 2901035 W Description Palm Beach Gardens Firefighters' Pension Fund Qty Date Invoice # 11/4/2008 P080491 i 1,625.00 j FedEx Overnitc Package (s) i I Tax ID Numbers Tegrit Plan Administrators 80- 0182332 Resource Centers 87- 0800468 Pension Resource Center 36- 4504183 20- 2901035 W Description Palm Beach Gardens Firefighters' Pension Fund Qty Rate Amount j 1,625.00 i 1,625.00 j FedEx Overnitc Package (s) i € 84.56 i 84.56 I i 1 f f Total Amount Due! x1,709.56 Mail Payments to: Tegrit Plan Administrators, LLC at Palm Beach Gardens Address OR ACH Payment to: First Southern Bank Tegrit Plan Administrators ABA #: 067012895 Account #: 8061911606 First Southern Bank Pension Resource Center ABA #: 067012895 Account #: 8061093306 If you have any questions concerning this invoice, please contact Jim Jameson at Tegrit Plan Administrators, LLC Phone 561- 459 -2960 or Email - Jim.Jameson @tegrit- tpa.com - REGIONS MORGAN KEEGAN Post Office Box 12385 Birmingham, Alabama 35202 -2385 STATEMM -rr OF TRI3STEES FLEES TKVOICE DATE 10;09/2008 ACCOUNT ! 33200050'17 ACCOUNT NAME: PR t;A.RJENS FIRE J. SCOTT BAUR THE PENSION RESOURCE CENTER, INC 4360 NORTHI.AAE BLVD, SUITE 206 PALM! BEACH GARDEN FL 33410 IN"X -TCE; NL'ME:R 45256 $ 2, 047.32 C:WMARY nF ACCOUNT !r. ## # ►y #t ##r #i# **. * *a * *s * #r *# * * *r # *t** s *r#�# * # #+4 ## r # #+w #w * ♦rr PRSVIOUB SALANCE 1,315.08 CURREM FFE: 734.24 SIT -Am= Dux 5 9.049.32 FEE. CALMLAT'LON DETAIL C9/01/2008 - 09/30/20DBB # #a1 *+r * # #:, # *# +r !•iy #r1 ►* #* #. rr1 J* *r # *+ *#1# + ## *# * * >+ * #r� *#* # *r #* CE.�C il?TIO�I/ RATE FEE TOTAL BASIS Yr3RKPI' VALUE PEF?IOD. F..NCLNG 09/30/2008 22,027,208.62 0.0000083333, X8,355,93 19,355.93 S 18,355.93 FFE '- ALCC.T,',AT1UN DETAIL 09/01/2C08 - "9130/20CS ITZM AMOUNT - - --- DISCOUhT PERTOU ENDING, 09/30/2002 17.521.69 - Ir.-TAL $ 171621.69- SU.`Q"RY OF FEE CALCULATION DETAIL r / * # + #i ♦ *rr # # #*I* #vrra +*�► * * # *'t l * # # #rfY'� # #r #r *1 **YIr #r rrr ***hit. # # #+ =TEE% AMOUNT - -- - - - -- - - -- --------- MARKET VALUE 18, 35".93 DISCOUNT 17,621.69 - TOTAL ANOUtNT DUE FOR CURRENT PERIOD $ 734.24 FnR FEE CALCULATION PER= C9/01/2C09 - 09/30/2008 nOWSOLIDATEV ACCOUNT PRORATTON FOR MAs'PER AC^_O7,3NT M214115 PALM BCH WARDENS ACCOUNT NAME PERCENTAGE AMOUNT C WARGE /BTLI, FEE 3320005077 PB GA."ENS FIRE 10.0;986233% 73.86 BILL 3320CIO132 PB GARDENS FREED 10.96884145% 60.54 BILL '.'O A/C 3320005077 33330000086 PR CARD 177R -. EQ 48.19828365 -% 353.89 BILI, 9ti A/C 3320005077 3350000097 PB GARD FTRE FXD 16.48656252; 121.05 BTT.!, TO A/C 3320005077 335003; --04 1-H GX70 F1KE AGN '14.28745005$ 104.90 B':.L TO A/C 332000Su77 OCT I f; 2008 Robert A. Sugarman Howard S. Susskind Kenneth R. Harrison, Sr. D. Marcus Braswell, Jr. Pedro A. Herrera Ivelisse Berio- LeBeau Noah S. Warman SUGARMAN & SUSSKIND PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW November 5, 2008 City of Palm Beach Gardens Firefighters' Pension Fund c/o Margaret M. Adcock, Administrator The Pension Resource Center, Inc. 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, Florida 33410 CURRENT FEES: 1,695.75 CURRENT COSTS: 0.00 PREVIOUS BALANCE: 2,455.19 PAYMENTS RECEIVED: 0.00 TOTAL AMOUNT DUE: 4,150.94 100 Miracle Mile Suite 300 Coral Gables, Florida 33134 (305 ) 529 -2801 Broward 763 -2566 Toll Free 1-800 -329 -2122 Facsimile (305) 447 -8115 SUGARMAN & SUSSKIND 100 Miracle Mile Suite 300 Coral Gables, Florida 33134 Telephone: 305- 529 -2801 Fax: 305-447-8115 www.sugarmansusskind.net City of Palm Beach Gardens Firefighters' Pension Fund c/o Margaret M. Adcock, Administrator The Pension Resource Center, Inc. 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens FL 33410 Client:Matter PBGF:DISA -BIVI In Reference To: Toby Bivins Disability Professional Services 10/10/2008 Receipt and review of email on share payout, email to client 10/20/2008 Email to Sicking For professional services rendered Previous balance Balance due Client:Matter PBGF:MEET In Reference To: Meeting Professional Services 10/20/2008 Prepare for meeting, Attend meeting November 05, 2008 Invoice #57258 Hrs /Rate Amount 0.25 71.25 285.00/hr 0.20 57.00 285.00/hr 0.45 $128.25 $887.69 Hrs /Rate 4.00 285.00/hr $1,015.94 Amount 1,140.00 City of Palm Beach Gardens Firefighters' Pension Fund For professional services rendered Previous balance Balance due Client:Matter PBGF:PLAN In Reference To: Plan Professional Services 10/16/2008 Receipt and review of email from Actuary regarding Share plan. For professional services rendered Balance due Client:Matter PBGF:SIPO In Reference To: Statement of Investment Policy Professional Services 10/21/2008 Review and edit SIPO. For professional services rendered Balance due Page 2 Hours Amount 4.00 $1,140.00 $1,567.50 $2.707.50 Hrs /Rate Amount 0.50 142.50 285.00/hr 0.50 $142.50 4041.W Hrs /Rate Amount 1.00 285.00 285.00/hr 1.00 $285.00 $285.00 November 10, 2008 Pension Resource Center, LLC For City of Palm Beach Gardens Firefighters ( #7151cv #715leg) Attn: Margie ii?ResourceCenters.com 4360 Northlake Blvd Suite 206 Palm Beach Gardens, FL 33410 Dana Investment Advisors STATEMENT OF MANAGEMENT FEES REVISED For the Period 3rd Quarter 2008 Trust #3320005077 Custodian Market Value as of 09 -30 -08 $ 10,626,183.00 per annum /4 Fixed Holdings $ 164,940.00 @ 0.25% $ 103.09 Equity Holdings 3,000,000.00 @ 0.75% 5,625.00 7,461,243.00 @ 0.60% 11,191.86 $ 10,626,183.00 $ 16,919.95 Less: Partial Payment $ (2,249.91) TOTAL DUE AND PAYABLE $ - 14,670.04 Cc: C cleste ri%13o(_YdahnConsultinLy.com CITY OF PALM BEACH GARDENS FIREFIGHTERS' RETIREMENT SYSTEM Attn: Ms. Margie Adcock Pension Resource Center, LLC 4360 Northlake Blvd., Suite 206 Palm Beach Gardens, FL 33410 Ph: 561- 624 -3277 ext. 11 Fax: 561-624-3278 nc ,, trctie .adcack(d)resource- team.com Quarter End 9/30/2008 Reference Account # 22387100 Mode of Payment Bill Market Value - Total Q -End Portfolio Fees 9/8/2008 3,234,747 1,856.00 Total Fees Due S 1,856.00 FINAL INVOICE Fee Schedule. On Ouarter End Market Value First SIII Million a .300ib Nest $40 Million ,a 2i% Next SiO Million it .209�� Balance Negotiable By Check: Galliard Capital Management, Inc. Attn Linh Nguyen 800 LaSalle Ave. Suite 2060 Minneapolis, MN 55402 -2033 By wire: Wells Fargo Bank, N.A ABA: 121000248 Acct No: 12450091270054321 AcctName: Trust Wire Clearing FFC: Fee Processing in Payment of Invoice #22387100 Fee Processing / AU 09127 Prepared By Linh Nguyen Galliard Capital Management Ph: 612.667.1160 Fax: 612.667.3223 VOyageUr ASSET MANAGEMENT INC. Margaret M. Adcock Invoice Number The Pension Resource Center, LLC Invoice Date: 4360 Northlake Blvd., Suite 206 Billing Period: Palm Beach Gardens FL 33410 Custodian Account Number: Account Number: INVESTMENT MANAGEMENT FEE For the Arrears Period of 07/01/2008 to 09/30/2008 Account Name: City of Palm Beach Gardens Firefighters' Pension Trust Fund Ending Market Value for Account P703000: July 2008: 1,372,153.78 USD August 2008: 1,350,717.71 USD September 2008: 1,103,970.12 USD Average Market Value 1,275,613.87 USD Market Value Based Fees 1,275,613.87 @ 0.8800% x 90 / 360 Total Current Period Fees Total Amount Due Upon Receipt 9235 10/14/2008 07/01/2008 - 09/30/2008 CF -RSY8 P703000 �E('E1VED NOY 0 g -Not 2,806.35 2,806.35 USD 2,806.35 USD If you have any questions, please call Portfolio Administration at 612 -376 -7151 or 1- 866 - 759 -9083 or send an email to vambilling @voyageur.net [Keep this portion for your financial records] -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Invoice Number: 9235 Invoice Date: 10/14/2008 Billing Period: 07/01/2008 - 09/30/2008 Custodian Account Number: CF -RSY8 Account Number: P703000 Account Name: City of Palm Beach Gardens Firefighters' Pension Trust Fund Wire Instructions: Bank: US Bank ABA: 091000022 Account: 1- 602 -3318 -3526 RBC Wealth Management Reference: Invoice 9235 Amount Due 2,806.35 USD Payment Mailing Address: VOYE19cur ASSET MANAGEMENT INC PO Box 9195 Minneapolis, MN 55480 -9934 Remittance Amount USD Mail this portion with your payment. Thank you for your business. 0 INVOICE# 21042 October 28, 2008 DH DAVIS HAMILTON JACKSON VASSOCIATES,L.P CITY OF PALM BEACH GARDENS FIREFIGHTERS' PENSION FUND (3350000097) palmii Attn: Margie Adcock 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 DAVIS HAMILTON JACKSON & ASSOCIATES STATEMENT OF MANAGEMENT FEES For The Period July 1, 2008 through September 30, 2008 Portfolio Valuation with Accrued Interest as of 09 -30 -08 3,671,132 @0.250% per annum Quarterly Management Fee TOTAL DUE AND PAYABLE none 5 HOUSTON CENTER 1401 MCKINNEY, SUITE 1600 HOUSTON, TX 77010 -4035 TEL: (713) 853 -2322 FAX: (713) 853 -2308 WWW.DHJA.COM $ 3,671,132.40 2,294.46 $ 2,294.46 $ 2,294.46 NOV 0 3 2008 I TT CAPITAL MANAGEMENT, LLC Date: 11/5/2008 Invoice: Ms. Margaret M. Adcock �•,, City of Palm Beach Gardens Firefighters' Retirement System The Pension Resource Center, Inc. 4360 Northlake Blvd., Ste. 206 Palm Beach Gardens, FL 33410 Re: City of Palm Beach Garden Firefighters' Retirem Account #: 3350000104 Per our Investment Management Agreement, the fees to Agincourt Capital Management in payment for investment services rendered from 9/16/2008 - 9/30/2008: Monti Market Values: __ 9/30/2008 $3,173,827.17 Average Market Value: $3,173,827.17 $3,173,827.17 x 0.2500% = $7,934.57 Total Annual Fee: Total uarteirly Fee -: - -- - - -- - -- - - - - Total Pro -Rated Fee: - - ' Agincourt Capital Management, LLC Federal Tax /D: 54- 1947440 CC: Joe Bogdahn $7,934.57 - $1,983.64 _ -- - - - — 26.97 - Payment Due Within 30 Days to: Agincourt Capital Management, LLC Wire/ACH. Branch Banking & Trust (BB &T) or Agincourt Capital Management, LLC 823 East Main Street ATTN. Laura Haynie Richmond, VA 23219 600 East Main Street, Suite 2120 ABA# 051404260 Richmond, VA 23219 Account# 5131381532 FBO: Agincourt Capital Management, LLC Please let us know if you would like a copy of our latest SEC Form ADV or our Code of Ethics Ac,INCOURT CAPITAL MANAGEMENT, LLC M SHEPHERD FINKELMAN MILLER & SHAH LLP w VC The City of Palm Beach Gardens Firefighters' Pension Fund Monitoring Report OCTOBER 2008 SHEPHERD FINKELMAN MILLER & SHAH LLP Attorneys at Law I. UPDATE ON NEW SECURITIES CLASS ACTIONS!! We have not identified any purchases by your plan in newly filed securities cases during the putative class periods. II. UPDATE ON SETTLED CLASS ACTIONS!! We have not identified any purchases by your plan in recently settled class actions. Our records are limited to a more recent time period, so therefore we are enclosing a list of settled cases to forward to your custodial bank. Proof of Class Class Claim Period Period Total :Stock Ticker Deadline Start End Settlement ' American Business FI 1/2/2009 1/08/2002 1/20/2005 $16,767,500 Financial :Services American Pharmaceutical ABII ABBI 1/29/200811/27 /2005 9/10/2008 $14,300,000 Partners, Inc. APPX Arch Leasing 11/26/2008 5/19/1995 1/1/2001 $2,100,000 Corporation Trust (Ser. 1 Coll. Tr. Bonds) Atlas Cold ZR-U 3/2/2009 3/1/200218/29/20031 $40,000,000 `Storage Holdings ;Inc. (Canada) Bayer AG BAY 11/25/2008 8/4/2000 2/21/2003 $18,500,000 AYRY AYZF BUCA, Inc. BUCA 11/14/2008 2/6/2001 3/11/2005 $1,600,000 Career Education CECO 10/17/2008 4/22/2002 2/15/2005 $4,900,000 Corp. Chiron Corp. CHIR 11/1/2008 7/23/2003 10/5/2004 $30,000,000 (2004) Coca -Cola KO 11/21/200810/21 /1999 302000$137,500,000 Company (2000) Converium HR Holding AG 12/9/2008 1/7/2002 9/2/2004 $84,600,000 X2004) HRN CP Ships TEU 1 1/29/2003 8/9/2004 $1,300,000 Limited cala Group, SCL 12/29/2008 9/5/2003 5/8/2006 $18,000,000 Inc. T MAI Exodus ;Communications; EXDSQ 11/5/2008 4/20/2000 9/25/2001 $5,000,000 Inc. (2001) FARO FARO 10/30/2008 4/15/2004 3/15/2006 $6,875,000 Technologies, Inc. First Horizon FHRX 10/10/2008 4/24/2002 4/29/2003 _ $4,650,000 Pharmaceutical Corp. CUBE Harmonic Inc. 11/20/2008 3/23/2000 6/26/2000 $15,000,000 LIT Heritage 10/8/2008 2/1/1996 8/31/1999 $5,233,966 Municipal Bonds (SEC) Iridium World IRILLC Communications, Ltd. (Individual 11117/2008 9/8/1998 5/13/1999 $14,850,OOOi Defendants) IRID Iridium World RILLC ;Communications, Ltd. (Motorola, IRID 11/17/2008 9/8/1998 5/13/1999 $20,000,000 Inc.) Iridium. World Communications, ILLC Ltd. 11/17/2008 9/8/1998 5/13/1999 $8,250,000 {Underwriter IM Defendants) Levi Strauss & EVI 11/7/2008 4/6/2001 6/16/2003 $5,000,000 Lumenis, Ltd. LUME TV10/9/2008 10/2/2000 3/7/2006 $20,100,000 Magma Design LAVA 12/17/200810/23 /2002 4/12/2005 $13,500,000 Automation, Inc. 1VICSi, Inc. CSI 12/11/2008 7/24/2001 2/26/20031 $2,250,000 1Vlercury ERQE 11/29/2008 9/8/2001 7/3/2006$117,500,000 Interactive Corp. Merge "Technologies, Inc. (settled RGE 11/12/2008 4/25/2002 7/3/2006 $16,000,000 partially 1st part) : Nvidia DA 12/27/2008 5/16/2000 �__ 8/14___/2000 $596,000 Corporation ' SEC) PainCare PRZ 10/14/2008 3/24/2003 3/15/2006 $2,000,000 Holdings, Inc. Parmalat PARAF 1/12/2009 1/5/199912/18/2003 TBD Finanziaria, PMLFF 'S.p.A. (settled PRF partially 2nd per) I PETCO Animal PETC 11/14/200811/18 /2004 4/15/2005 $20,250,000 Supplies, Inc. {2005) Restoration RSTO 10/14/2008; 6/18/2008 6/18/2008 $3,700,000 Hardware, Inc. k2007) Royal Dutch various 11/18/2008 4/8/1999 3/18/2004 $89,508,000 Petroleum Company /The ll ort She Transp and Trading Company PLC RD.AS Royal Dutch Petroleum/Shell RD 11/18/2008 4/8/1999 3/17/2004$120,000,000! Transport (SEC) SHELL Scottish Re SCT 1/24/2009 _ 2/17/2005 2/20/2007 $37,500,000 :Group Ltd. SCT -PB SKRRF ?Team Telecom TTIL 10/25/2008 2/6/200211/14/2002 $4,300,000 International Ltd. Tenet Healthcare THC 10/30/2008 1/11/2000 11/7/2002 $65,000 000 ;Corp. (settled partially 2nd Pte) Tommy Hilfiger Corp. OM 10/29/2008 11/3/1999 9/24/2004 $16,000,000 ;Tube Media TUBM 11/17/2008 8/19/200511/21/2006 $600,000 Corp. U.S. Auto Parts Network, Inc. RTS 10/29/2008 2/8/2007 2/8/2007 $10,000,000 Viseon, Inc. VSNI 11/19/2008 11/3/2004 5/15/2006 $550,000 Vitesse VTSS 11/24/2008 1/27/2003 4/27/2006 $7,750,000 ,Semiconductor Corp (settled part. 2nd part) Wireless II 12/22/2008 5/5/2003 8/4/2004 $12,000,000 Facilities, Inc. X2004) Wireless WFII 12/22/2008 3/19/2002 3/12/2007 $4,500,000 Facilities (2007) ;Xerox Corp. XRX 10/15/2008 2/17/19T8/27/2002$750,000,000 (2000) City of Palm Beach Gardens Firefighters' Retirement System 1) A'�.A INVESTMENT ADVISORS, INC. As of September 30, 2008 �Uel4 Ual AIleuoljua;ul abed slyl Table of Contents Pa e s 3 Client Performance 4 -6 Asset Allocation 7 -9 Holdings as of 9 -30 -08 10 -12 Equity Review 14 -39 Articles This page intentionally left blank City of Palm Beach Gardens Firefighters' Retirement System Pension Fund Fiscal = 9 -30 * Unannualized "The information set forth above is based upon information believed to be accurate and reliable but we do not guarantee its accuracy." Achieve a return over 3 -5 years in excess of target index. Rank in top 40% of representative portfolios 3 -5 years. Volatility Investment Objectives: of fund's total return is expected to be similar to target index Comparative Indices: Russell 3000 Value/ Russell 1000 Growth Investment Restrictions: Investment in stocks not to exceed 65% @ cost. No more than 3% of assets in any one issuing company. Fiscal = 9 -30 * Unannualized "The information set forth above is based upon information believed to be accurate and reliable but we do not guarantee its accuracy." Total Return Through 9 -30-08 Stocks Total Portfolio Average Annual Since Inception 6 -10 -02 3rd Quarter 2008* Fiscal Year End 2008 Fire fighters' Retire ment Fund -8.70% - 20.18% 4.73% Russell 3000 Value -8.73% - 21.52% 4.50% Russell 1000 Growth - 12.33% - 20.88% Fiscal = 9 -30 * Unannualized "The information set forth above is based upon information believed to be accurate and reliable but we do not guarantee its accuracy." City of Palm Beach Gardens Firefighters' Retirement System Pension Fund Dana Small Cap 8.6% Accrued & Receivable; 0.1% Money Market 1.4% Combined Account Data as of 9 -30 -08 Dana Large Cap Growth Dana Large Cap Value 34.5% City of Palm Beach Gardens Firefighters' Retirement System Pension Fund 25% 20 % 15% 10% 5% 0% Financials Industrials Info Tech Health Care Cons Disc Combined Account Data as of 9 -30 -08 30% 25% 20% -- — — 15% 10% 5% 0% - FIE" Info Tech Health Care Cons Staples Industrials 30% 25% 20% 15% 10% 5% 0% Financials Energy Materials Cons Staples Utilities Telecom Client Large Growth Portfolio Russell 1000 Growth on—IF Ogg= Energy Cons Disc Financials Materials Utilities Telecom Energy Health Care Industrials Cons Staples Cons Disc Utilities —{ 0 Client Large Value Portfolio J a Russell 1000 Value Telecom Materials Info Tech e.1 5 This page intentionally left blank PORTFOLIO APPRAISAL City of Palm Beach Gardens Firefighters' Retirement System Pension Funds September 30, 2008 Quantity Security Market Pct. Price Value Assets CASH AND EQUIVALENTS Cash - Money Fund 150,480.89 1.4 causDANA 0.00 0.0 150,480.89 1.4 COMMON STOCK 3,646 AT &T Inc. 27.92 101,796.32 1.0 585 ATC Technology Corp. 23.74 13,887.90 0.1 3,956 Abbott Laboratories 57.58 227,786.48 2.1 3,434 Accenture Ltd. Class A 38.00 130,492.00 1.2 610 Actuant Corp. Class A 25.24 15,396.40 0.1 2,731 Airgas Inc. 49.65 135,594.15 1.3 415 Alexander & Baldwin 44.03 18,272.45 0.2 6,068 Alters Corporation 20.68 125,486.24 1.2 2,803 Amphenol Corp Class A 40.14 112,512.42 1.1 365 Anixter International Inc. 59.51 21,721.15 0.2 1,778 Apache Corp 104.28 185,409.84 1.7 840 Apple Computer Inc. 113.66 95,474.40 0.9 1,119 Assurant Inc 55.00 61,545.00 0.6 523 Atheros Communications 23.58 12,332.34 0.1 4,187 Autodesk Inc. 33.55 140,473.85 1.3 640 Avocent 20.46 13,094.40 0.1 1,901 BB &T Corporation 37.80 71,857.80 0.7 533 Baldor Electric 28.81 15,355.73 0.1 2,003 Bank of America Corporation 35.00 70,105.00 0.7 2,553 Becton Dickinson & Co 80.26 204,903.78 1.9 2,974 CVS Corporation 33.66 100,104.84 0.9 4,553 Charles Schwab Corp. 26.00 118,378.00 1.1 379 Chart Industries Inc 28.56 10,824.24 0.1 931 Chevron 82.48 76,788.88 0.7 8,874 Cisco Systems 22.56 200,197.44 1.9 3,467 Coca -Cola Company 52.88 183,334.96 1.7 833 Conocophillips 73.25 61,017.25 0.6 100 Core Laboratories N.V. 101.32 10,132.00 0.1 1,928 Cummins Inc 43.72 84,292.16 0.8 3,698 DIRECTV Group Inc. 26.18 96,813.64 0.9 1,823 Deere & Company 49.50 90,238.50 0.8 703 Delphi Financial Group 28.04 19,712.12 0.2 2,540 Diageo PLC 68.86 174,904.40 1.6 589 Diodes Inc. 18.45 10,867.05 0.1 2,205 Disney Walt Company Holding Company 30.69 67,671.45 0.6 1,278 EDISON INTERNATIONAL 39.90 50,992.20 0.5 675 East West Bancorp Inc. 13.70 9,247.50 0.1 1,108 Eaton Corp. 56.18 62,247.44 0.6 2,260 Ecolab Inc. 48.52 109,655.20 1.0 630 Emcor Group Inc. 26.32 16,581.60 0.2 2,627 Emerson Electric Co. 40.79 107,155.33 1.0 325 Entertainment Properties Trust 54.72 17,784.00 0.2 1,779 Express Scripts Inc 73.82 131,325.78 1.2 1,038 Exxon Mobil Corporation 77.66 80,611.08 0.8 3,242 FPL Group 50.30 163,072.60 1.5 806 Firstenergy Corp. 66.99 53,993.94 0.5 514 Freeport- Mcmoran Copper 56.85 29,220.90 0.3 1,459 Frontier Communications Corp. 11.50 16,778.50 0.2 1,563 General Dynamics 73.62 115,068.06 1.1 2,317 General Electric 25.50 59,083.50 0.6 1,017 General Mills Inc. 68.72 69,888.24 0.7 1,748 Genzyme Corp. 80.89 141,395.72 1.3 r` PORTFOLIO APPRAISAL City of Palm Beach Gardens Firefighters' Retirement System Pension Fends September 30, 2008 Quantity Security 2,711 Gilead Sciences Inc 1,112 Glacier Bancorp Inc. 417 Goldman Sachs 282 Google Inc. Class A 679 Graftech International LTD 274 Greif Inc. 969 Gulfport Energy Corp. 655 H.B. Fuller Co. 500 Hain Celestial Group Inc 4,340 Halliburton Co. 2,194 Harsco Corp 2,150 Helmerich & Payne 624 Hess Corp 4,316 Hewlett Packard Company 568 Immucor Inc. 3,390 Infosys Technologies - SP ADR 375 Integra Lifesciences 5,959 Intel Corporation 621 Interactive Brokers Gro CL A 1,615 J. P. Morgan Chase & Company 737 Jack in the Box Inc. 743 Jarden Corporation 334 John Wiley & Sons 1,335 Johnson & Johnson 3,313 Johnson Controls Inc. 387 Kirby Corp. 1,683 Lincoln National Corp. 615 Lockheed Martin Corporation 300 Longs Drug Stores Corp 3,020 Lubrizol Corp. 465 Martek Biosciences Corp 2,831 McDonald's Corporation 1,700 Medtronic Inc. 1,458 MetLife Inc 4,227 Microchip Technology Inc. 477 Micros Systems Inc. 5,192 Microsoft Corporation 2,312 Nasdaq OMX Group 335 National Fuel Gas Co. 1,602 National Oilwell Varco Inc 1,299 National Penn Bancshares 345 Navigators Group Inc. 635 Netgear Inc. 1,705 Nike Inc. Class B 2,714 Noble Energy 244 OIL STS INTL INC 341 OSI Pharmaceutical Inc 816 Occidental Petroleum Corporation 989 Omega Healthcare Investors 3,927 Omnicom Group 5,977 Oracle Corporation 1,037 PNC Global Investment Servicing 640 Parexel International Corp 1,232 Parker Hannifin Corp. 1,742 Pepsico Inc 3,616 Philip Morris International 435 Phillips -Van Heusen Corporation 842 Precision Castparts Corp. Price 45.63 24.77 128.00 400.52 15.11 65.62 10.05 20.87 27.53 32.39 37.19 43.19 82.08 46.24 31.96 33.31 44.03 18.73 22.17 46.70 21.10 23.45 40.45 69.28 30.33 37.94 42.81 109.67 75.64 43.14 31.42 61.70 50.10 56.00 29.43 26.66 26.69 30.57 42.18 50.23 14.60 58.00 15.00 66.90 55.59 35.35 49.29 70.45 19.66 38.56 20.31 74.70 28.66 53.00 71.27 48.10 37.91 78.78 Market Value 123,702.93 27,544.24 53,376.00 112,946.64 10,259.69 17,979.88 9,738.45 13,669.85 13,765.00 140,572.60 81,594.86 92,858.50 51,217.92 199,571.84 18,153.28 112,920.90 16,511.25 111,612.07 13,767.57 75,420.50 15,550.70 17,423.35 13,510.30 92,488.80 100,483.29 14,682.78 72,049.23 67,447.05 22,692.00 130,282.80 14,610.30 174,672.70 85,170.00 81,648.00 124,400.61 12,716.82 138,574.48 70,677.84 14,130.30 80,468.46 18,965.40 20,010.00 9,525.00 114,064.50 150,871.26 8,625.40 16,807.89 57,487.20 19,443.74 151,425.12 121,392.87 77,463.90 18,342.40 65,296.00 124,152.34 173,929.60 16,490.85 66,332.76 Pct. Assets 1.2 0.3 0.5 1.1 0.1 0.2 0.1 0.1 0.1 1.3 0.8 0.9 0.5 1.9 0.2 1.1 0.2 1.1 0.1 0.7 0.1 0.2 0.1 0.9 0.9 0.1 0.7 0.6 0.2 1.2 0.1 1.6 0.8 0.8 1.2 0.1 1.3 0.7 0.1 0.8 0.2 0.2 0.1 1.1 1.4 0.1 0.2 0.5 0.2 1.4 1.1 0.7 0.2 0.6 1.2 1.6 0.2 0.6 �.g 0 5d0 N3 0 O � C n � `�sAO•z,a ►� Y cD �5 0 7do N CA N ..r N .-+ .-. I--• N N �-` N t!i W IV W W 00 LA .1 W to ,�O N 00 C Gr O •A ON "o w J 00 R O O O d J J N W J✓ J J l!i W .A C� O J .-- W J ',A C� N W W ?? A J -A 1,0 00 N O fi`c O rr. 00N J P Ul (ON .pC�,000n\CJ�oInto ;h. . 4�t1i Ow W O(A A ?�- AJD1NQ\Ooto < `3 tnI'l o � o c� C w � w CD CD 0 0 w p �A q C h C bV y , n C n E. i -G f O CD ° O VO D O y -�y O V) O - — pU 0 O O0 m p n � CD C C y A N O OO° Z n w G 0 0 -BD En ° D H r a r c ° w w 0 w b••� RGc0 n pP '���d r o i CD 0 CD 0 0 0 o CD � a 11 ° n o Qa a CD n 5 n X �. ZI 4 ts� y p 0.y 0. ° fi A p R 0 a n -•r�As e try. b a �'`A�'p a ►rJ n y y ry N •P W tJ� W J N O\ J W l� O lh J J I--` N W W W W l.Ji Vi W W lJ� .- .p. N N W J A N 0, o o � C� 00 J �D � N J .p O � O� V>, �D to ►. N O� O O 00 � O J O� N O J N oo w W w �O O� N � to �D r+ A � A• � ; •P 0o i.n J N O W �° C I--' O J 0o O � �--' O\ 00 l.Ji O� �' •A t!� 0o O IJ O� O� W \p � �l o0 00 O ON 1%0 O1 C*1 C, �o N C\ •- O J �° D O O 3 ON 00 ✓ C� �o C1 m ON I..r N .r I--� r--• �-+ I--. C Tr O ? 00 O� J W O CN N J O tJ� 00 1p t!� J W A (Ji A V 1 Vii N� J 00 Vii �_ O w w O� ? W J W W �D lh N �P tJ 00 N _O N W 00 W W �p (!� N 00 J N 00 A 00 lJ� lh P \4° D, O� C\ O �-- W J - N ON ,A 00 00 O ON O O N C.A .r W w O N .r O,, N 00 00 ? N W �--• J �--• C> P. In 91 N? lJi 00 l!i J 00 O� J N �D D\ O J 00 (!i W N O W W N N N O 00 N �--• W C CN w O 0 \o V A O ON �o \.° O J 0 4 O �O O N O? O 00 00 v O W 00 a, N O O t-A O,, O — 0 (-A 00 N ON 00 O O H 4 A a1 ON JOJ ll N �O O O J ON J �l O., ;o. ,v O O 000 000000000 000000 000000 eD ^ C I-' C �--• O •A. � [J 00 N N J �I N �- .-- 00 �--. U � �] �--• 00 `••+ T �-- �--- tJ tJ l!� N N J �-' .-. �-- � � .-• � J t!i N 00 H A A Q v, Q � � Q O � b O � �0 A 0• w� 0 This page intentionally left blank 3rd Quarter 2008 Equity Review luity Markets ➢ U.S. equity markets experience one of their largest one -month drops ever in September 2008. The S &P 500 declines 8.4% in Q3 and over 19% year -to -date. ➢ Foreign markets generally drop much further than U.S. markets. The EAFE and Emerging markets indices suffer losses of 18% and 24% respectively in Q3. ➢ Escalating liquidity pressures force the Federal Government to provide financial backing for Fannie Mae, Freddie Mac and AIG. Merrill Lynch, Lehman Brothers, Washington Mutual and Wachovia are forced into mergers with stronger rivals. ➢ Performance within the S &P 500 varies widely by sector. Financials, Healthcare and Consumer Staples experience near break even or better performance, while Energy, Materials and Utilities suffer losses of 18% in the quarter. ➢ Value materially outperforms Growth across all market cap spectrums. ➢ Small caps significantly outperform large and midcaps across all styles. -,bt Markets ➢ Liquidity fears fuel panic conditions within fixed income instruments. Credit default swap prices and credit spreads surge to near record levels, and several money market funds "break the buck ". onetary / Fiscal Policy ➢ The Fed, Treasury and central banks worldwide continue a number of unprecedented efforts to improve liquidity and shore up financial balance sheets, but so far it has not been enough to stem the crisis in confidence. mmodities ➢ Oil, industrial metals and agricultural commodities all suffer sharp corrections. DANA INVESTMENT ADVISORS, INC. 10 3rd Quarter 2008 Equity Review Most Dana large cap strategies delivered on their goal of providing superior downside protection in bearish market environments. Large Core, Growth and Socially Responsible all surpass their respective benchmarks by 200 basis points in Q3. All Dana large cap strategies delivered attractive relative performance on a YTD basis, with Lg Core, Lg Value and Social ahead of their respective indices by over 450 basis points. Lg Growth surpassed the R l OOOG index by almost 200 basis points YTD. Y Many companies with significant international exposure (McDonalds, Nike, Accenture, etc.) continue to report favorable business trends despite the global economic slowdown. Concentration in these types of companies has been very accretive to performance both QTD and YTD. Prior emphasis on corporate governance issues also bearing fruit. Corporate profit margins are under pressure across a number of fronts. Emphasis on companies that possess above - average pricing power has allowed us to avoid a number of high profile negative earning surprises. y Performance within the Financial sector benefitted significantly from what we didn't own - such as avoidance of Merrill, Lehman, Fannie Mae, Freddie Mac, Washington Mutual, National City, Wachovia, etc. Decision to boost exposure to super regional banks (BBT, Wells Fargo, US Bank, etc.) mid quarter was accretive to several strategies. All of these higher quality financial holdings experienced gains of 30% or more in Q3. We continue to recommend caution towards many lower quality regional banks, consumer finance and insurance companies. r The Energy and Industrial sectors generally presented the biggest drags on relative performance. Sharp corrections in energy and commodity prices resulted in a rapid stampede out of previously strong performing holdings that serve those markets. DANA INVESTMENT ADVISORS. INC. 3rd Quarter 2008 Equity Review y Both the bull and bear camps have solid arguments. The markets are enduring the most severe credit crisis of our generation, and we believe that further global coordinated monetary and fiscal responses will be needed to restore confidence to world financial markets. There are many signals that indicate we are getting closer to a market bottom, although timing is still uncertain due to the inability to forecast when global credit markets will return to some sense of normalcy. ➢ Panic conditions have resulted in a near decoupling between fundamentals and equity prices unless one subscribes to a "worst case" scenario for the economic outlook. The market's extreme pessimism appears to be overshooting reality, but that doesn't mean it can't stay like that for an extended period of time. Y Equity prices already discount a lot of potential bad news. We believe the next few quarters are going to be very difficult for the global economy, however, which heightens the risk of additional negative news that is not yet discounted into equity prices. As a result, we believe a continued period of high volatility seems more likely than a sharp "V- shaped" rebound for equities. First Call now expects a 6% decline in operating profits for the S &P 500 in 2008. We suspect that future expectations are still too high, particularly with regard to expectations for a sharp rebound in profits in 2009. The market's reaction to the barrage of upcoming Q308 corporate earnings reports and guidance should give investors some clarity regarding how well corporate America is weathering this economic storm. Shoppers typically react quite predictably when favorite national brands go on sale at 30 -40% off. Stocks are a totally different story, however, as equity investors have made a stampede for the exits despite similar markdowns. This market is providing long term investors with the opportunity to purchase a number of high quality businesses at very reasonable levels. low We remain committed to the relative value, sector neutral investment philosophy that has served our clients so well this past decade. Uncertainty breeds opportunity, and we remain optimistic that long term investors will be amply rewarded for their patience in these turbulent times. DANA INVESTMENT ADVISORS, INC. 12 This page intentionally left blank Articles DANA INVESTM - \T ADVISORS, INC. DANA INVESTMENT ADVISORS, INC. 14 Table of Contents :l Page(s) 16 Dana Investment — "A Step in the Right Direction" 18 -23 Chairman Bernanke — "Stabilizing the Financial Markets and the Economy" 24 -28 Barron's — "Closer to the Bottom" 30 -34 Barron's — "Sorry, Chicken Little" 36 -38 Warren Buffett — "Buy American. I Am." AA) DANA LfvzsTKLNT ADvnau, INC. The Win Choice September 8, 2008 A STEP IN THE RIGHT DIRECTION food news for Fannie Mae and Freddie Mac mortgage and debt holders the Treasury and the Federal Housing Finance Authority issued a joint announcement over the weekend that Fannie Mae and Freddie Mac were being ilaced into conservatorship. We had expected that this action was imminent over the last few months. The key aspects of the action are as follows: - The U.S. government will stand behind and guarantee all mortgage backed, senior, and subordinated debt of the two entities. - The Treasury will provide $1 billion in capital and receive senior preferred stock representing 80% ownership stakes in both companies. - The Treasury will provide a secured lending facility to both agencies and remove their capital requirements. This virtually eliminates the chance of any liquidity crisis with the two companies. - The common and preferred stock will continue to trade, but dividends will be eliminated. - The government has replaced the CEO's of both companies. The adjustable rate mortgage backed securities we hold in many client portfolios have performed very well this year, with minimal price volatility and >trong returns. Since these securities experienced little price volatility, we would not expect a large price jump as a result of the recent government action. Nevertheless, there should be some positive price movement, which will tend to increase overall returns over the next few months. This will only add to ;ross total returns that have been around 3% unannualized, or 4.5% annualized, through the first eight months of 2008. These returns are well above short :erm rates and have been delivered with much lower volatility than many other areas of the fixed income markets. We realize that events of the past year have resulted in increased stress and uncertainty in the markets and among some of our client base. We are confident :hat our approach to short term fixed income management provides real value, especially during periods of market stress and uncertainty. We appreciate the ,onfidence and respect our clients have in Dana Investment Advisors, and we will continue to work to deliver superior investment management services. If you have any questions, please feel free to call Joe Veranth, Chief Investment Officer, it 262 - 782 -7273. 16 This page intentionally left blank 00 Chairman Ben S. Bernanke Stabilizing the Financial Markets and the Economy October 15, 2008 Speech Chairman Ben S. Bernanke At the Economic Club of New York, New York, New York October 15, 2008 Stabilizing the Financial Markets and the Economy Good afternoon. I am pleased once again to share a meal and some thoughts with the Economic Club of New York. I will focus today on the economic and financial challenges we face and why I believe we are well positioned to move forward. The problems now evident in the markets and in the economy are large and complex, but, in my judgment, our government now has the tools it needs to confront and solve them. Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system and restoring prosperity. The crisis we face in the financial markets has many novel aspects, largely arising from the complexity and sophistication of today's financial institutions and instruments and the remarkable degree of global financial integration that allows financial shocks to be transmitted around the world at the speed of light. However, as a long -time student of banking and financial crises, I can attest that the current situation also has much in common with past experiences. As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets. The crisis will end when comprehensive responses by political and financial leaders restore that trust, bringing investors back into the market and allowing the normal business of extending credit to households and firms to resume. In that regard, we are, in one respect at least, better off than those who dealt with earlier financial crises: Generally, during past crises, broad - based government engagement came late, usually at a point at which most financial institutions were insolvent or nearly so. Waiting too long to respond has usually led to much greater direct costs of the intervention itself and, more importantly, magnified the painful effects of financial turmoil on households and businesses. That is not the situation we face today. Fortunately, the Congress and the Administration have acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain strong and capable of fulfilling their critical function of providing new credit for our economy. This prompt and decisive action by our political leaders will allow us to restore more normal market functioning much more quickly and at lower ultimate cost than would otherwise have been the case. Moreover, we are seeing not just a national response but a global response to the crisis, commensurate with its global nature. This financial crisis has been with us for more than a year. It was sparked by the end of the U.S. housing boom, which revealed the weaknesses and excesses that had occurred in subprime mortgage lending. However, as subsequent events have demonstrated, the problem was much broader than subprime lending. Large inflows of capital into the United States and other countries stimulated a reaching for yield, an underpricing of risk, excessive leverage, and the development of complex and opaque financial instruments that seemed to work well during the credit boom but have been shown to be fragile under stress. The unwinding of these developments, including a sharp deleveraging and a headlong retreat from credit risk, led to highly strained conditions in financial markets and a tightening of credit that has hamstrung economic growth. The Federal Reserve responded to these developments in two broad ways. First, following classic tenets of central banking, the Fed has provided large amounts of liquidity to the financial system to cushion the effects of tight conditions in short-term funding markets. Second, to reduce the downside risks to growth emanating from the tightening of credit, the Fed, in a series of moves that began last 0 N September, has significantly lowered its target for the federal funds rate. Indeed, last week, in an unprecedented joint action with five other major central banks and in response to the adverse implications of the deepening crisis for the economic outlook, the Federal Reserve again eased the stance of monetary policy. We will continue to use all the tools at our disposal to improve market functioning and liquidity, to reduce pressures in key credit and funding markets, and to complement the steps the Treasury and foreign governments will be taking to strengthen the financial system. Notwithstanding our efforts and those of other policymakers, the financial crisis intensified over the summer as mortgage- related assets deteriorated further, economic growth slowed, and uncertainty about the financial and economic outlook increased. As investors and creditors lost confidence in the ability of certain firms to meet their obligations, their access to capital markets as well as to short- term funding markets became increasingly impaired, and their stock prices fell sharply. Prominent companies that experienced this dynamic most acutely included the government- sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, the investment bank Lehman Brothers, and the insurance company American International Group (AIG). The Federal Reserve believes that, whenever possible, the difficulties experienced by firms in financial distress should be addressed through private- sector arrangements- -for example, by raising new equity capital, as many firms have done; by negotiations leading to a merger or acquisition; or by an orderly wind -down. Government assistance should be provided with the greatest reluctance and only when the stability of the financial system, and thus the health of the broader economy, is at risk. In those cases when financial stability is broadly threatened, however, intervention to protect the public interest is not only justified but must be undertaken forcefully and without hesitation. Fannie Mae and Freddie Mac present cases in point. To avoid unacceptably large dislocations in the mortgage markets, the financial sector, and the economy as a whole, the Federal Housing Finance Agency put Fannie and Freddie into conservatorship, and the Treasury, drawing on authorities recently granted by the Congress, made financial support available. The government's actions appear to have stabilized the GSEs, although, like virtually all other firms, they are experiencing effects of the current crisis. We have already seen benefits of their stabilization in the form of lower mortgage rates, which will help the housing market. The difficulties at Lehman and AIG raised different issues. Like the GSEs, both companies were large, complex, and deeply embedded in our financial system. In both cases, the Treasury and the Federal Reserve sought private- sector solutions, but none was forthcoming. A public- sector solution for Lehman proved infeasible, as the firm could not post sufficient collateral to provide reasonable assurance that a loan from the Federal Reserve would be repaid, and the Treasury did not have the authority to absorb billions of dollars of expected losses to facilitate Lehman's acquisition by another firm. Consequently, little could be done except to attempt to ameliorate the effects of Lehman's failure on the financial system. Importantly, the financial rescue legislation, which I will discuss later, will give us better choices. In the future, the Treasury will have greater resources available to prevent the failure of a financial institution when such a failure would pose unacceptable risks to the financial system as a whole. The Federal Reserve will work closely and actively with the Treasury and other authorities to minimize systemic risk. In the case of AIG, the Federal Reserve and the Treasury judged that a disorderly failure would have severely threatened global financial stability and the performance of the U.S. economy. We also judged that emergency Federal Reserve credit to AIG would be adequately secured by AIG's assets. To protect U.S. taxpayers and to mitigate the possibility that lending to AIG would encourage inappropriate risk - taking by financial firms in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. AIG's difficulties and Lehman's failure, along with growing concerns about the U.S. economy and other economies, contributed to extraordinarily turbulent conditions in global financial markets in recent weeks. Equity prices fell sharply. Withdrawals from prime money market mutual funds led them to reduce their holdings of commercial paper - -an important source of financing for the nation's nonfinancial businesses as well as for many financial firms. The cost of short-term credit, where such credit has been available, jumped for virtually all firms, and liquidity dried up in many markets. By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth. The Treasury and the Fed have taken a range of actions to address financial problems. To address illiquidity and impaired functioning in commercial paper markets, the Treasury implemented a temporary guarantee program for balances held in money market mutual funds to help stem the outflows from these funds. The Federal Reserve put in place a temporary lending facility that provides financing for banks to purchase high - quality asset - backed commercial paper from money market funds, thus reducing their need to sell the commercial paper into already distressed markets. Moreover, we soon will implement a new, temporary Commercial Paper Funding Facility that will provide a backstop to commercial paper markets by purchasing highly rated commercial paper directly from issuers at a term of three months when those markets are illiquid. To address ongoing problems in interbank funding markets, the Federal Reserve has significantly increased the quantity of term funds it auctions to banks and accommodated heightened demands for temporary funding from banks and primary dealers. Also, to try to mitigate dollar funding pressures worldwide, we have greatly expanded reciprocal currency arrangements (so- called swap agreements) with other central banks. Indeed, this week we agreed to extend unlimited dollar funding to the European Central Bank, the Bank of England, the Bank of Japan, and the Swiss National Bank. These agreements enable foreign central banks to provide dollars to financial institutions in their jurisdictions, which helps improve the functioning of dollar funding markets globally and relieve pressures on U.S. funding markets. It bears noting that these arrangements carry no risk to the U.S. taxpayer, as our loans are to the foreign central banks themselves, who take responsibility for the extension of dollar credit within their jurisdictions. The expansion of Federal Reserve lending is helping financial firms cope with reduced access to their usual sources of funding and thus is supporting their lending to nonfinancial firms and households. Nonetheless, the intensification of the financial crisis over the past month or so made clear that a more powerful, comprehensive approach involving the fiscal authorities was needed to address these problems more effectively. On that basis, the Administration, with the support of the Federal Reserve, asked the Congress for a new program aimed at stabilizing our financial markets. The resulting legislation, the Emergency Economic Stabilization Act, provides important new tools for addressing the distress in financial markets and thus mitigating the risks to the economy. The act allows Treasury to buy troubled assets, to provide guarantees, and to inject capital to strengthen the balance sheets of financial institutions. The act also raises the limit on deposit insurance from $100,000 to $250,000 per account, effectively immediately. The Troubled Asset Relief Program (TARP) authorized by the legislation will allow the Treasury, under the supervision of an oversight board that I will head, to undertake two highly complementary activities. First, the Treasury will use the TARP funds to help recapitalize our banking system by purchasing non- voting equity in financial institutions. Details of this program were announced yesterday. Initially, the Treasury will dedicate $250 billion toward purchases of preferred shares in banks and thrifts of all sizes. The program is voluntary and designed both to encourage participation by healthy institutions and to make it attractive for private capital to come in along with public capital. We look to strong institutions to participate in this capital program, because today even strong institutions are reluctant to expand their balance sheets to extend credit; with fresh capital, that constraint will be eased. The terms offered under the TARP include the acquisition by the Treasury of warrants to ensure that taxpayers receive a share of the upside as the financial system recovers. Moreover, as required by the legislation, institutions that receive capital will have to meet certain standards regarding executive compensation practices. Second, the Treasury will use some of the resources provided under the bill to purchase troubled assets from banks and other financial institutions, in most cases using market -based mechanisms. Mortgage - related assets, including mortgage- backed securities and whole loans, will be the focus of N N the program, although the law permits flexibility in the types of assets purchased as needed to promote financial stability. Removing these assets from private balance sheets should increase liquidity and promote price discovery in the markets for these assets, thereby reducing investor uncertainty about the current value and prospects of financial institutions. Unclogging the markets for mortgage - related assets should put banks and other institutions in a better position to raise capital from the private sector and increase the willingness of counterparties to engage. With time, the provision of equity capital to the banking system and the purchase of troubled assets will help credit flow more freely, thus supporting economic growth. These measures will lead to a much stronger financial system over time, but steps are also necessary to address the immediate problem of lack of trust and confidence. Accordingly, also announced yesterday was a plan by the Federal Deposit Insurance Corporation (FDIC) to provide a broad range of guarantees of the liabilities of FDIC - insured depository institutions, including their associated holding companies. The guarantee covers all newly issued senior unsecured debt, including commercial paper and interbank funding, and it will also cover all funds held in non - interest - bearing transactions accounts, such as payroll accounts. This broad guarantee will be effectively immediately, and fees for coverage will be waived for 30 days. After the 30 -day grace period, banks may continue to participate in the guarantee program by paying reasonable fees. I would like to stress once again that the taxpayers' interests were very much in our minds and those of the Congress when these programs were designed. The costs of the FDIC guarantee are expected to be covered by fees and assessments on the banking system, not by the taxpayer. In the case of the TARP program, the funds allocated are not simple expenditures, but rather acquisitions of assets or equity positions, which the Treasury will be able to sell or redeem down the road. Indeed, it is possible that taxpayers could turn a profit from the program, although, given the great uncertainties, no assurances can be provided. Moreover, the program is subject to extensive controls and to oversight by several bodies. The larger point, though, is that the economic benefit of these programs to taxpayers will not be determined primarily by the financial return to TARP funds, but rather by the impact of the program on the financial markets and the economy. If the TARP, together with the other measures that have been taken, is successful in promoting financial stability and, consequently, in supporting stronger economic growth and job creation, it will have proved itself a very good investment indeed, to everyone's benefit. Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away. Economic activity had been decelerating even before the recent intensification of the crisis. The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdowns in consumer spending, business investment, and the labor market. Credit markets will take some time to unfreeze. And with the economies of our trading partners slowing, our export sales, which have been a source of strength, very probably will slow as well. These restraining influences on economic activity, however, will be offset somewhat by the favorable effects of lower prices for oil and other commodities on household purchasing power. Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning. Inflation has been elevated recently, reflecting the steep increases in the prices of oil, other commodities, and imports that occurred earlier this year, as well as some pass- through by firms of their higher costs of production. However, expected inflation, as measured by consumer surveys and inflation- indexed Treasury securities, has held steady or eased, and prices of imports now appear to be decelerating. These developments, together with the recent declines in prices of oil and other commodities as well as the likelihood that economic activity will fall short of potential for a time, should lead to rates of inflation more consistent with price stability. This past weekend, the finance ministers and central bank governors of the Group of Seven industrialized countries met in Washington. We committed to work together to stabilize financial markets and restore the flow of credit to support global economic growth. We agreed to use all available tools to prevent failures that pose systemic risk. We affirmed we will ensure our deposit insurance programs instill confidence in the safety of savings. We agreed to ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources. We further agreed that we would take all necessary steps to unfreeze interbank and money markets, and that we will act to restart the secondary markets for mortgages and other securitized assets. Finally, we recognized that we should take these actions in ways that protect taxpayers and avoid potentially damaging effects on other countries. I believe that these are the right principles for action, and I see the steps announced by our government yesterday as fully consistent with them. I have laid out for you today an extraordinary series of actions taken by policymakers throughout our government and around the globe. Americans can be confident that every resource is being brought to bear to address the current crisis: historical understanding, technical expertise, economic analysis, financial insight, and political leadership. I am not suggesting the way forward will be easy, but I strongly believe that we now have the tools we need to respond with the necessary force to these challenges. Although much work remains and more difficulties surely lie ahead, I remain confident that the American economy, with its great intrinsic vitality and aided by the measures now available, will emerge from this period with renewed vigor. N Closer to the Bottom By JACQUELINE DOHERTY ,_ P� Monday, October 13, 2008 FEATURES MAIN Closer to the Bottom By JACQUELINE DOHERTY There's reason to believe that the stock - market averages will hit bottom sometime in the nextfew months, even if the economy is still in the middle of a recession. The buy -and -hold approach still applies. FOR THE TENS OF MILLIONS OF INVESTORS WHO HAVE been nervously watching the U.S. stock market's 40% decline in the past 12 months, and it's 18% drop in the past week alone, history holds some solace: There is a case to be made that the averages will hit bottom sometime in the next few months, even if the economy is in the middle of a recession. Indeed, stocks showed some signs of finding a bottom late Friday, with the Dow Jones industrial average closing down just 128 points on the day, after having plummeted about 700 points earlier in the session. The Nasdaq Composite even managed a small gain on the day. Investors will be watching for a possible market bounce that could occur early this week, especially if any new measures to ease the global economic crisis emerge from the weekend's meeting in Washington of the finance ministers of the so- called G -7 industrial nations. The lesson of history is this: The average U.S. recession since the late 1940s has lasted 10 months, and stocks typically hit their low point about three months before the recession ends. So, if the U.S. entered a recession on July 1, as many economists now suggest, and the recession was to last until April 2009, a typical bottom for stocks would occur some time in the next few months. Scott Pollack for Barron's Granted, much depends on the ability of the Federal Reserve and the U.S. Treasury to put rescue measures in place that will unlock today's frozen capital markets. And there are nagging concerns that the next disaster may lurk in the unregulated $60 trillion market for credit - default swaps. But the fear that sent the market down so sharply last week may have driven stocks close to their ultimate lows. "I don't think this is the end of America as we know it," says Byron Wien, chief investment strategist at N Pequot Capital Management. "I think it's conceivable that the markets will bottom before year end." Wien cites a number of positive events in recent weeks. The Treasury now has the ability, through the $700 billion Troubled Asset Relief Program (TARP), to start buying distressed assets from banks. There is speculation the federal government will come up with yet another program to help the housing market. Oil prices have fallen below $80 a barrel from levels above $140, a slide that on its own should boost economic growth. And smart investors have started buying at what they hope are good prices. Barclays (ticker: BCS) purchased Lehman Brothers' investment - banking operations in the U.S. Warren Buffett took stakes in General Electric (GE) and Goldman Sachs (GS). Citigroup (C) and Wells Fargo (WFC) actually fought over the right to buy Wachovia (WB). Recessions certainly have been both shorter and longer than the 10 -month average. On a positive note, five recent recessions were shorter. The 1980 recession lasted a mere six months, and there were four recessions that lasted only eight months, according to data from Bespoke Investment Group. But a mild recession wasn't what the market feared last week. Investors were worried the current economic slump will be "different" from those in the past. American consumers are carrying more debt this time around, and the banking system is in much more fragile shape. THOUGH A TYPICAL RECESSION would end by next spring, economists are paying increasing attention to longer downturns, specifically the two recessions since 1940 that each lasted 16 months. The November 1973 to August 1975 downdraft was sparked by the Arab oil embargo, while the July 1981 to November 1982 recession was triggered by the Federal Reserve hiking interest rates dramatically to curtail runaway inflation. In each case stocks bottomed about three months before the recession ended. • • i•�i This year's momentous decline in stocks already surpasses the average bear- market slide of 30% since 1940. Recent YTD Price Return P/E DJ IA 8451.19 — 35.3:, N.A. S &P 500 899.22 —38.8 IT I Nasdaq 1549.51 —37.8 19.5 • Based on earnings estimates for the pr %Sous W quarters. KA.- ham[appicabV_. Sour>?s; BiArryS Asvxiates; WSJ M.31NA C0.3t3 The good news today is that stocks appear to have gotten out ahead of any recession, falling so sharply that they might already have priced in pretty horrible times ahead. The Dow is down almost as much in the past year as the 45% it fell in the 1973 -1975 recession, and its 12 -month decline far exceeds the 24% it lost in the period leading up to and during the 1981 -1982 recession, according to Birinyi Associates. Today's 40% drop also far surpasses the average bear - market slide of 30% since 1940. Markets that decline for more than a year average a loss of 42 %, says Paul Desmond, President of Lowry Research Corp. The Dow has fallen by more than 40% 10 other times, with all but one such drop occurring between 1900 and 1930. It slid by more than 50% only once, between 1929 and 1932, when it shed 89 %. That bear was bracketed by the Great Depression, which lasted for 44 months. A recession is labeled a depression when economic activity shrinks by 10% or more. From August 1929 to March 1933 U.S. economic output contracted by more than 30 %. That's what made it "Great." Table: Stocks and Recessions: What History But back in the 'Thirties, the financial markets lacked many of Tells Us on Last Page today's safety nets, like deposit insurance, and the Federal Reserve didn't loosen the purse strings quickly, as the Fed lately has done. Also, the stock- market rally leading up to the Depression was much more frenzied. From 1921 to 1929, the market rose almost 500 %. In the rally from 1987 to 2000, stocks jumped 574 %, but did so over a much longer period. From 2002 to the market's peak in October 2007, the Dow rose 94 %. Given stocks' swoon in the past 12 months, prices look much more reasonable today. The companies in the Standard & Poor's 500 trade for an average of 11.6 times the profits that analysts expect them to earn next year. And the index trades at 17.1 times the companies' most recent earnings. That's only slightly below the market's 60 -year average price /earnings multiple of 17.8, according to Birinyi Associates. The current P/E is still high compared to the low P /Es of previous major recessions. During the '74, '80 and '82 recessions, the S &P's trailing P/E dropped to between 6.8 and 7.2. But in the '70, '90 and '01 economic downturns, the P/E ranged from 12.9 to 23.5. One person who fears further market declines is Wayne Nordberg, ; The Bottom Line chairman of Hollow Brook Associates. "This is the end of the great credit supercycle," he says. "It takes a very long time to unwind." Though dangers aplenty still lurk for the economy and the market, studies of stock- market performance through recessions Or, as Doug Cliggott, manager of the Dover Management Long- suggest the Dow could see its low shortly. Short Sector Fund, put it with regard to the TARP, "we're fighting a forest fire with a garden hose." But such gloomy sentiments aren't a reason to get out of the stock market. It could be quite the opposite, in fact. Consider that $1 invested in stocks from February 1966 through May 2007 would have grown to $16.58 in that period. That's a 7% annual return. By contrast, investors who were out of the market in the five best days each year during that span were left with only 11 cents. That's a pretty good case for the buy and hold philosophy, or, if you're out of the market, for getting back in soon. Stocks, down 40% in the past 12 months, could bottom soon if a recession started in July and proves to be of average length. Since the late 1940s, recessions have lasted an average of 10 months, and stocks have hit bottom an average of three months before the economic downturn ends. The worry now is that, if the world's financial system doesn't right itself, a recession could last longer, perhaps even as long as the 16 -month slump that ended in 1975. It seems unlikely the nation is headed for something much worse, like the Great Depression, which saw the economy shrink for nearly four straight years. The small charts show the Dow's moves shortly before, during and right after the 13 recessions of the past 80 years. The big than shoats the Dow over eight decades, with recessions shaded in gray. RECESSIONS 0 Aug. 1929 - March 1933 ()May 1937 June 1938 ()Feb. 1945 - Oct. 1945 0 Nov. 1948 - Oct. 1949 i 0 July 1953 - May 1954 - 400 -200 -200 -205 350 - 300 -160 - 1 SO -195 -325 - 200 -185 -300 100 -120 -160 -175 -275 0 90 140 165 250 '30 '31 '32 '45 '49 '54 Recession starts: Aug. 1929 Dow peak: March 1937 Dow trough: N.A. Dow peak: June 1948 Dow peak: Jan. 1953 Dow peak: Sept. 1929 Recession starts: May 1937 Recession starts: Feb. 1945 Recession starts: Nov. 1948 Recession starts: July 1953 Dow trough: July 1932 Dow trough: March 1938 Dow peak: May 1946 1 Dow trough: June 1949 Dow trough: Sept. 1953 Recession ends: March 1933 Recession ends: June 1938 Recession ends: Oct. 1945 Recession ends: Oct. 1949 Recession ends: May 1954 Dow change: -89% Dow change: -49% Dow change: N.A. Dow change: -16% Dow change: -13% ---------------------------------------------------------- - - - - -- --------------------------------------------------------------- - - - - -- ----------------------------- 0 Aug. 1957 - April 1958 0 April 1960 - Feb. 1961 0 Dec. 1969 - Nov. 1970 ID Nov. 1973 - March 1975 - 510 -700 -900 -1000 - 490 - 650 - 800 -900 - 470 -800 - 450 -600 - 700 - 700 430 550 600 650 '58 '61 TO '71 '74 '75 Dow peak: April 1956 Dow peak: Jan. 1960 Dow peak: Dec. 1968 Dow peak: Jan. 1973 Recession starts: Aug. 1957 Recession starts: April 1960 Recession starts: Dec. 1969 Recession starts: Nov. 1973 Dow trough: Oct. 1957 Dow trough: Oct. 1960 Dow trough: May 1970 Dow trough: Dec. 1974 Recession ends: April 1958 Recession ends: Feb. 1961 Recession ends: Nov. 1970 Recession ends: Mar. 1975 Dow change: -19% Dow change: -17% Dow change: -36% Dow change: -45% Jan. 1980 - July 1980 iD July 1981 - Nov. 1982 (D July 1990 - March 1991 ® March 2001 - Nov. 2001 -950 -1100 -3200 - 11.500 -900 -1000 3000 - 10.500 -850 2800 -800 -900 -2600 - 9500 750 800 2400 8500 80 '82 '91 '01 '02 Dow peak: Sept. 1978 Dow peak: Apr. 1981 Dow peak: July 1990 Dow peak: Jan. 2000 Recession starts: Jan. 1980 Recession starts: July 1981 Recession starts: July 1990 Recession starts: March 2001 Dow trough: Apr. 1980 Dow trough: Aug. 1982 Dow trough: Oct. 1990 Dow trough: Sept 2001 Recession ends: Jul. 1980 Recession ends: Nov. 1982 Recession ends: March 1991 Recession ends: Nov. 2001 Dow change: -16% Dow change: -24% Dow change: -21% Dow change: -30% —15,000 —12. AX) 111 •111 Today's Market Dow peak: Oct. 2007 — 3000 Recession starts: ? Dow trough: ? 0 © 0 0 0 0 0 0 0 G( ® Recession ends: ? Dow change:* -40% 0 1930 '35 '40 '45 '50 '55 '60 65 To i '80 '85 190 '95 '00 '05 '08 Note: Dow change =peak to trough. N.A. =Not applicable. *From Oct. 9, '07 through Oct. 10, '08. Sources: Bespoke Investment Group; Bloomberg; Stock Trader's Almanac28 This page intentionally left blank O M Sorry, Chicken Little By GENE EPSTEIN Monday, October 20, 2008 BARRON'S COVER Sorry, Chicken Little By GENE EPSTEIN Iy may feel as if the sky is falling, but things aren't as bad as they seem. Our saviors: cheap oil, strong exports and inventory rebuilding. THESE ARE HARDLY THE BEST OF TIMES FOR THE U.S. ECONOMY. But they may not be as bad as you think. The credit crisis, stock - market crash and fall in home prices have raised legitimate fears of a nasty and protracted recession. Yet the economy has often proved more resilient than is commonly thought -- and constructive factors that have gotten scant attention should help the U.S. skirt a deep recession. In fact, it's possible that the downturn could prove to be one of the briefest and mildest on record. The main positive is the huge boost to consumer spending that will come from the decline in energy costs. Although the run -up in oil, which punished consumers in the spring and summer, made front -page news, far less attention has been paid to the benefits of petroleum's recent slide. The wide swing in both the percentage and sheer dollar magnitude of prices has been unprecedented. Over the past 14 months, the bellwether price of crude oil has made a stunning round trip, rising from around $70 a barrel in mid - August 2007 to $147 by mid -July, and falling below $70 Thursday. Natural gas has also slid about 50% from its early -July peak. If oil's price averages around $80, consumers will get a big dose of relief. Soaring energy costs had body - slammed them in July, August and September. Hence the dismal performance of retail sales over that stretch. But beginning with the current month, the energy payback will be enormous. This economic shock absorber should help offset the cruel blows of the credit crunch and declining wealth from equities and homes. The cavalry hasn't exactly swept in to rescue the economy. But the energy benefit could keep a significant recession at bay until reinforcements -- particularly inventory rebuilding -- arrive early next year, and as credit starts to flow more freely. What's the most likely scenario? We're now in the roughest patch. Real -- that is, inflation- adjusted -- gross domestic product probably grew at an annual rate of 0% to 1% in the three months ended Sept. 30 and will do no better in the current quarter. Growth should then accelerate, to an annualized pace exceeding 1% by 2009's first quarter and 2% by the second. By the third and fourth quarters, something resembling a recovery will have begun, with annual GDP growth topping 3 %. However, the unemployment rate will N M continue to rise through mid -2009. This reflects the reality that, since mid -2007, real GDP hasn't risen fast enough to prevent joblessness from climbing and won't until the end of 2009. Such forecasts may sound surprisingly upbeat, given all the scare headlines. But they're roughly in line with the consensus of the 10 most optimistic forecasts in the latest survey published by Kansas City -based Blue Chip Economic Indicators. This organization, which surveys 50 forecasts each month, reported in its Oct. 10 release that the overall consensus now believes a recession began in this year's third quarter and will persist through 2009's first three months. However, the average of the 10 most optimistic predictions put economic expansion at an annual rate of 0.6% in both 2008's third and fourth quarters. DOW JONES REPRINTS Weak, Not Terrible The 10 most optimistic forecasts from Blue Chip Economic Indicators see consumer spending swinging from a negative in the third quarter to a positive in the current one, with no quarters of declining economic growth between now and the end of 2009... 3 5'� 30 15 2.0 15 10 0.5 no -0.5 1n 2008 2009 Real GDP Personal Consumption Expenditures aq Unemployment Rate �. I ,..., I 6.0°�u 6.290 6.4% 6.6°% 6.6°% 6.5% 4.9% Room 10 20 30 40 10 2Q 30 4Q 2008 2009 SOUflef. Gufeeu al Ecommic Aralysm, ©uceau of labor Stdlmk,; Blur Chip €—nomi, Indicator In a story last month ( "And Now Some Good News -- Courtesy of Oil," Sept. 22), I noted that a bellwether crude price of $90 would produce an estimated overall energy savings of $150 billion over about six months. If the price holds at $80, the energy dividend could be closer to $170 billion. Assume that $75 billion of that is spent in the fourth quarter and another $75 billion is spent in 2009's first quarter, and the boost to real consumer spending from the energy dividend alone would run at an annual rate of 3.5% in each period. Unfortunately, declining credit and decreased wealth in homes and stocks will drain away most of the gains from energy in both quarters. In fact, the net contribution from energy will be quite small when the full debit from credit - and - wealth woes is applied. What, then, will help boost real consumer spending? For one thing, labor income should rise. The projected jobless rate of 6.2% is still fairly low by historical standards, and should be enough to lift wages and salaries. With energy prices falling and food tabs moderating, the headline consumer price index may even go negative for a few months. It should certainly be low enough to permit an increase in real wages and salaries. What this comes down to, after due allowance for credit - and - wealth shocks, is projected growth in real consumer spending of only 0.9% in the fourth quarter and 1.5% in the first. Since consumer spending accounts for 70% of gross domestic product, this should push GDP into plus territory. And by next year, in addition to the freer flow of credit, other reinforcements should begin to arrive. The expansion phase of this business cycle produced relatively modest increases in capital investment. Thus, there's no capital overhang to work off. Manufacturing capacity, in high -tech and other industries, grew at a subdued rate. Sometime in 2009, then, capital investment could start contributing to growth. EARLY IN 2009, inventory rebuilding could resume, to remedy the inventory liquidation that started late last year and that has pushed inventory -to -sales ratios unusually low. The only inventory overhang currently is in vehicles, and is partly attributable to a scarcity of auto loans. But as the credit crunch eases, auto sales probably will pick up. If gasoline prices don't rise, consumers may be more willing to buy the now- unwanted cars that are less than fuel- efficient. In any case, the stage could be set for inventory rebuilding of all other manufactured goods. In addition, exports, which boost GDP growth, are rising faster than imports, which reduce it. The slowdown in the growth of foreign markets will trim export gains, as will the appreciation of the trade - weighted dollar. But net exports should keep boosting gross domestic product growth through 2009, although at a diminished rate. A comparison with the economic landscape after 9/11 is constructive. Reflecting the general pessimism at the time, one Wall Street economist observed on Oct. 22, 2001, that with "layoffs mounting, debt burdens elevated, saving rates low, wealth effects tapped out and year -end bonuses likely to be very disappointing, I find it hard to envision a prompt rebound in consumer demand over the next couple of months." Reasons for Hope Why a major recession seems unlikely: 1. Starting in the current quarter, consumer spending, which accounts for 70% of gross domestic product, is likely to post gains, bolstered by lower energy prices. 2. Inventory-to -sales ratios are already lean, holding out the chance of inventory rebuilding by early next year. 3. Capital spending was subdued during the recent expan- sion, leaving no need to work off excess industrial capacity. 4. Net exports are likely to continue to boost growth. Yet, the rebound in demand was not only prompt, it was virtually off the charts. After rising at an annualized 1.8% in 2001's third quarter, real consumer spending soared at a 7% clip in the fourth. By 2002's first quarter, consumption was up by 1.4 %; by the second, 2.4 %. True, as scary a month as October 2001 was for the U.S. economy, October 2008 seems far worse. For one thing, while the decline in wealth was quite large seven years ago, it was far smaller than it is now. But, remember, I'm not looking for anything like a 7% jump in consumer spending coming on top of a previous 1.8% gain. As mentioned, the projected increase in this year's fourth quarter is a mere 0.9 %, against a probable 1% decline in the previous quarter. (Third - quarter estimates won't arrive until Oct. 30.) MORE TO THE POINT, why didn't consumers fiercely tighten their belts after 9/11? A March 2005 staff report from the New York Federal Reserve seems to have the answer: "While consumption responds to permanent changes in wealth in the expected manner, most changes in wealth are transitory with no effect on consumption." M In October 2001, then, consumers must have viewed the change in their wealth as transitory, rather than permanent. How do they view the current decline? No one knows yet. I assume that there will be a substantial blow to consumption. But I don't assume that it will be nearly as great as do those who believe that all large drops in wealth, however temporary, hurt consumption. If I'm right, then, the only quarter of contraction this time around (barring revisions) will have been 2007's fourth, in which GDP fell at an annualized 0.2 %. The economy won't be great through the end of 2009, but it should do far better than the gloom- mongers expect. URL for this article: http: / /online.barrons.com /article /SB 122428335256346205.html Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved This page intentionally left blank M Buy American. I Am. By WARREN E. BUFFETT Ghc Nau Dork ;imco October r7, 2008 OP -EP CONTRTRUTOR Buy American. I Am. By WARREN E. BUFFETT Omaha THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non - Berkshire net worth will soon be loo percent in United States equities. Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long -term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over. A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933• By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 198os, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked -down price. Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497• 0 You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy. Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long -term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been." I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities. Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company. Copyright 2008 The New York Times Company This page intentionally left blank _.l 1 y a `e'3i • •.'7- f' "ry Y y / �JF ~' f Y +St Yt! • f ,N.K "i: r Arb �INr• DANA INVESTMENT ADVISORS, INC. The Wise Choice Dana Investment Advisors, Inc. • 15800 West Bluemound Road, Suite 250 • Brookfield, WI 53005 ° 800 - 765 -0157