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HomeMy WebLinkAboutAgenda Police Pension 021309Agenda City of Palm Beach Gardens Police Officers' Pension Fund Special Meeting MEETING OF FEBRUARY 13, 2009 LOCATION: City Council Chambers' 10500 North Military Trail Palm Beach Gardens, FL 33410 TIME: 1:OOPM 1. Call Meeting To Order 2. Roll Call: Lt. lay Spencer, Chairman David Pierson, Secretary Jules Barone, Trustee Brad Seidensticker, Trustee Wayne Sidey, Trustee 3. 2008 Actuarial Valuation Report Palmquist) Gabriel, Roeder, Smith & Company (Steve 4. Investment Manager Report - RhumbLine Advisors (Denise D'Entremont) 5. Investment Manager Report - ICC Capital (Steve Stack) 6. Investment Consultant Report - Thistle Assets Consulting (John McCann) 12/31/08 Performance Report 12 Month Trailing Report Investment Manager Search (Alternatives) 7. Administrator Report - TPA (Audrey Ross) Approval of minutes that were tabled at the last meeting: 10/30/08 Regular Meeting 12/16/08 Special Meeting 1/14/09 Special Meeting 8. Attorney Report - Hanson, Perry & Jensen, P.A. (Bonni Jensen) Approval of the DROP Distribution Policy NW Meetina Date; *Thursday April 30, 2009 @I 9AM I I1 DROP DISTRIBUTIONS I I PALM BEACH GARDENS POLICE PENSION FUND STATEMENT OF POLICY REGARDING WHEREAS, the Palm Beach Gardens Police Pension Plan (“Plan”) provides for Deferred Retirement Option Plan (“DROP) benefits; WHEREAS, the Board of Trustees of the Plan (“Trustees”) desire to adopt a Statement of Policy regarding the distributions of these benefits; NOW, THEREFORE, it is hereby resolved that the following Statement of Policy Regarding DROP and Share Account Distributions is hereby adopted. I. DISTRIBUTION METHODS A. Lump sum - If the lump sum method of distribution is selected then the entire account balance will be paid. The full amount, or a portion thereof, will be paid to the Retiree or can be rolled over to another qualified plan, at the discretion of the Retiree. The payouthollover can be made in any amount of the Retiree’s choosing but the full amount must be taken from the plan. Any amounts paid directly to a Retiree will have a 20% withholding deduction and may be subject to other taxes and/or penalties. Annuity - If a Retiree chooses monthly installments, then the account balance will be paid out on a monthly basis. The following rules will apply to this method of distribution: B. 1. For retirees who are aae under 50 won separation from service -The Retiree may choose any amount provided the amount of the payment Page 1 of 5 is within the minimum and maximum as determined in accordance with the attached annuity tables. The amount chosen cannot be modified beforethe Retiree attains age 59% orwithin 5 yearsfrom the date of the first payment, whichever occur?. last. If the amount of the payment is above the maximum, the Retiree can be subject to additional taxes and/or penalties. At age 70%, the monthly installment shall be paid at a rate which meets the minimum distribution rules of Internal Revenue Code §401(a)(9). For Retirees who are ase 50 and older won seDaration from sewice when the monthly installments beain - The monthly amounts may be determined by the Retiree according to his or her need. The amount of the monthly benefit or the method of payment (for example, from monthly to lump sum) can be changed on an annual basis during the open enrollment period. The amount of the monthly payment can be reduced to zero unless the payee has reached age 70%. The open enrollment period will be during the months of August and February each year. Additionally, during the open enrollment period only, a member may request a partial lump sum withdrawal and still continue to receive the monthly payments. A 20% withholding tax applies to all payments paid directly to a Retiree. If there are less than 15 times the monthly installment at the start of the fiscal year, then the remaining balance will be paid in a lump sum. 2. 3. 4. Page 2 of 5 5. Between open enrollment periods, there will be no changes in the method or amount of the payment unless a Retiree has a hardship. Hardship withdrawals are permitted if both a and b below are met. a. The Retiree has an immediate and heavy financial need -A need may be immediate and heavy even though it was foreseeable or voluntarily incurred. A need is deemed to be immediate and heavy if it is: 1) medical expenses previously incurred by the Retiree, the Retiree’s spouse or dependents, or amounts necessary for these persons to obtain medical care; costs related to the Retiree’s purchase of a principal residence (not including mortgage payments); payment of tuition and related educational fees and room and board expenses for the next 12 months of post-secondary education for the Retiree, the Retiree’s spouse, children or dependents; or payments necessary to prevent the eviction of the employee from the principal residence or to avoid foreclosure on the mortgage on that residence. the distribution is necessary to satisfy the Retiree’s financial need - A distribution generally may be treated as necessary to satisfy a financial need if the need cannot be relieved: 2) 3) 4) b. Page 3 of 5 through reimbursement or compensation by insurance or otherwise; by reasonable liquidation of the participants’sassets (to the extent that such liquidation would not itself cause an immediate and heavy financial need); by other distributions or nontaxable (at the time of the loan) loans from the plans of the employer or by borrowing from commercial sources at reasonable terms; or by cessation of elective contributions to other plans. II. GENERAL CONSIDERATIONS A. A Retiree may defer election of payment until age 70%. Any account balances participate in earnings according to the Retiree’s election of earnings method. Final distributionsfrom the DROP account will be subject to a 10% hold back to account for the crediting of earningdlosses and administrative fees. Final disbursements of DROP accounts will be made once the DROP statements for the prior quarter have been distributed. Participants and Retirees may designate beneficiaries to receive any balances in the DROP accounts upon their death. In the absence of such designation, the benefit will be paid to the Retiree’s estate. B. C. Page 4 of 5 D. Lump sum payments in excess of $50,000.00 will be paid as soon as administratively possible but no later than 60 days after the date of approval by the Board of Trustees. No amount or number of payrnentsfrom the DROP accounts are guaranteed . No member is entitled to paymentsgreater than the balance in the account, as maybe reduced by losses and/or expenses. E. IN WITNESS WHEREOF the Board of Trustees of the Palm Beach Gardens Police Pension Fund has adopted this STATEMENT OF POLICY REGARDING DROP AND SHARE ACCOUNT DISTRIBUTIONS this __ day of ,2009 TRUSTEES Witnessed by: H:\PBG 0003\POLICY\DROP 8 Share PMTMETH.wpd ESJ/ka - December 15.2008 January 22, 2009 February 4, 2009 February 12,2009 February 13.2009 Page 5 of 5 I I- -. . .- PALM BEACH GARDENS POLICE PENSION FUND EXECUTIVE SUMMARY DECEMBER 31,2008 + I Palm Beach Gardens Police Pension Fund Executive Summary Report Table of Contents SECTION Market Snapshot Index Comparisons Compliance Report Total Portfolio Pie Chart Manager Pie Chart Asset Allocation Table Total Ranks Table Manager Ranks Scatterplot Graphs: Total Fund Graph Rhumbline Equities Graph ICC Fixed income Graph Beta Graph Alpha Graph Beta/Alpha Table Batting Average Graph Batting Average/ R-Squared Table Other Managers' Page PAGE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 * Index Comparison December 31,2008 ..-43,38%ENE 5.56%LBGC 6.42% BCGC l_______l_._.__l__..___. 5.7WhLBGC 20.00 I I I I 10.00 I aw -10.00 -20.00 -30.00 4.00 -50.00 ’ I 3 Months Last 12 Months Last3 Years (Annualized) Bmdays &,Cmdit BDnd .Bardays Gm,Cmdit-lntennediate .S&P 5w mRusseU IWO Gmtk .Russell IWO Value mRussell2WO Gmth mRusseff 2WO Value .Russell 3W0 .MSCI EAFE Page 2 t Pnlm Beach Weas Police Pemion Fund Compliance Reporr December 31,2008 TOTAL FUND - 1. Did the total return over the trailing %year period, exceed the policy, which is mmprised of 25% D r SbP500,10% Wm, 10% sbP600.10% RIOWG, 10% EAFE and 35% LBGC? [-297 vs. 3.501 r 2 Did the total return overthe trdq3year period, rankin the top50% ofthe Universecomprised of25% Mobius hd Large Cae, 10% Mid Cap, 10% smnll Cap, 10% Broad Large Cap Growth 10% International and 35% Bmd Fixed? [2Oth] rate of return)? [-2.97 vu. 7.501 p 3. Did the total return of the fund over the tniling %year period equal or exceed 7.5% (aauarial assumption r D TOTAL EOUITY - 1. Did the equity return overthe trailing %year period, exceed the38.4% WSW, 15.4% W4w, 15.4% r 67 S&F' 600,15.4% RlOWG index and 15.4% EAFE? P.69 v8. -8.561 2 Didthenluityreturnoverthetrailing5yenrperiod,exceedthe38.4%WSW,15.4%W400,15.4% S&F' 60315.4% RlODOG index and 15.4% EAFE? [-1.63 VB. -1.331 Did the equity return over the trailing %year period rank in the top 50% of the Mobius 38.4% &oad Large Cap, 15.4% Mid Cap, 15.4% Small Cap, 15.4% Broad Large Cap Gmwth and 15.4% International Did the equity return, over the trailing 5yem period, rank in the top 50% of the Mobius 38.4% Broad Large Cap, 15.4% Mid Cap, 15.4% Small Cap, 15.4% Bd Large Cap Gmwth and 15.4% International 3. UNvm? [s2nd] 4. Universe? [Gth] la the amount invfsted in my singe security less than or eqd to 5% of the market value ofthe total equity portfolio? equity portrolio? 5. 6. la the lllllDunt invested in my single industry less than or equal to 20% of the market value of the tots1 P D U r r FIXED INCOME - ICC CAPITAL 1 Lhd the &xed mom return over the trabn~ >year period, aced the BCGC? 14 65 VR 5 511 r D 2 Did the fired income return over the tr&g%year period nnk in the tops% of the Mobius Broad Fixed Inmme Universe? [13th] Did the fired income return over the trailing 5-ym period, exceed the BCGC? I3.W VL 4.651 Did the fired home return over the trailing %year period nnk in the top50% ofthe Mobius hd Fixed home Universe? [12th] Is the mmt invested in any single dty (with eveption of US. Government and its agencies) lese than orequalto5% of the market value ofthe total fixed income prtfolio? la the minimwn quality rating of the bond investments EBB Imm Standard b Poor's 01 BAA from Mmtyl~?(L&nnnBIothenBond) 3. 4. 5. 6. P r r I? PaLm Beach Gardens Police Pension Fund Total Assets December 31,2008 Cash 12% Equities 8 Fixed Income Cash Page 4 Palm Beach Gardens Police Pension Fund Total Assets December 31,2008 Rhumbline SbP500 1 18% ICC Lg. Growth 10% Rhumbline St3P400 6% I LRhumbZine SbP600 7% lntl. Equity 8% WU~umbline S&P500 .Rhumbline SbP400 .Rhumbline SbP600 Mlntl. Equity .ICC Lg. Growth MICC Fixed Page 5 Palm Beach Gardens Police Pension Fund Pedomance Evaluation Summq - December 31,2008 -~ Manager Rhumbline S(Bp500 Rhumbline S(BP400 Rhumbline S(Bp600 IntL Equity ICC Lg. Growth ICC Fiwed Total Equities Fixed Income $4,622,000 $0 $1,596,000 $0 $1,736,000 $0 $1,880,000 $0 $2,604,000 $0 $0 $9,87 1,000 $12,438,000 $9,871,000 Cash $0 $0 $0 $0 $0 $2,952,000 $2,952,000 Total $4,622,000 $1,596,000 $1,736,000 $1,880,000 $2,604,000 $12,823,000 $25,261,000 % of Total 18.3% 6.3% 6.9% 7.4% 10.3% 50.8% 100.0% % of Total 49.2% 39.1% 11.7% 100.0% Target % 60.0% 40.0% 0.0% 100.0% Page 6 Ph Beach Gardens Police Pension Fund Performace Evaluation Summq December 31,2008 Current Fiscal Year ouatter - m One Year Thre Years Five Years 2008 TOTAL FUND (Net of Fees) -10.20% -10.20% -21.23% -2.97% 0.73% -13.73% 11.90% 6.n% 9.78% 8.97% -13.66% -13.66% -24.03% -3.50% 0.76% -12.83% 12.98% 7.22% 10.33% 10.94% 5 5 25 20 17 56 21 52 24 59 TOTAL EQUITIES Return -21.77% -21.77% -37.22% -8.69% -1.63% -23.23% 17.99% 9.59% 15.33% 15.36% Policy Return (38.4%S&P500, 15.4%S&P400,15.4%S&P600, 15.4% RIOOOG, 15.4% EAFE) -22.78% -22.78% -37.09% -8.56% -1.33% -21.04% 17.05% 9.27% 16.00% 16.21% 99 99 100 82 45 99 3 3 7 15 Runking r"9 TOTAL FIXED INCOME Return Rnnking @mad Fired) 3.04% 4.65% 3.90% 1.22% 4.98% 3.56% 3.36% 1.83% 4.94% 4.94% 6 6 17 13 12 25 27 59 28 75 Policy Return @CAB) 4.57% 4.57% 5.24% 5.51 % 4.65% 3.66% 5.13% 3.67% 2.80% 3.68% '25% Broad Large Cap Core, 10% Mid Cnp, 10% Small Cap, 10% Bmad Large Growth, 10% Internatiaal, 35% Broad Fixed ~25% S&P500,10% S&P400,10% S&P600,10% R1000G, 10% EAFE, 35% BCAB **38.4% Broad Large Cap Core, 15.4% Mid Cap, 15.4% Small Cnp, 15.4% Broad Large Cap Growth, 15.4% International Gold indicuks equal to or beat the inh, or in upper 40% ofuniwrse Red indicates bottom 40% of universe Page 7 Pnlm Beach Gprdens Pofice Pension Fund Perfbnoance Evalmdon Summafy December 31,2008 RHUMBUNE S&P 500 EQUITY PORTFOLIO -21.61% -36.57% -8.05% -1.99% 21 18 18 36 -21.72% 16.63% 10.88% 12.22% 13.84% 36 39 27 57 35 -21.94% -37.00% -8.36% -2.19% -21.98% 16.44% 10.79% 12.25% 13.87% RHUMBLINE SbP 400 EQUITY PORTFOLIO Return (50%Br.Lg.Cap&50% Br.Sm.Cap) Rznldng -2!5.29% -35.97% -8.63% 0.07% 79 48 48 16 -1654% 18.74% 6.60% 22.37% 17.62% 14 26 81 5 30 Pol@ (S&P 400) -25.55% -36.23% -8.76% -0.08% -16.68% 18.76% 6.56% 22.16% 17.55% RHUMBLINE S&P 600 EQUITY PORTFOUO -25.01% -30.77% -7.17% 1.11% 39 20 30 25 -13.64% 15.17% 7.61% 21.16% n/a 22 51 52 32 n/a -25.17% 41.07% -7.51% 0.88% -13.83% 14.93% 7.16% 21.22% n/a Policy (S&P 600) ICC LARGE CAP GROW EQUITY PORTFOLIO &Q& er Relurn -16.94% -31.54% -29.14% -37.80% -30.79% n/n Ranking (Bd hg?? Cap Gmth) 1 43 13 31 100 n/a Policy ('QIOOOG) -20.88% n/a INTERNATIONAL EQUITY I-yem 2-ycar Return -22.54% -38.45% -43.97% -19.79% -29.10% 27.48% n/a 65 49 49 40 36 36 n/a Policy (MSCI EAFE) -19.90% -37.55% -43.06% -20.27% -30.12% 25.38% n/n Cold indicnks eqrral lo mhl the index, or in upper 40% ofuniverse Red indicnb bottom 40% ofuniverse 4 0 December 31,2008 EXPLANATION OF RlSK/REWARD SCATTERPLOT GRAPHS The crossing lines represent the 5-year return (horizontal line) and 5-year standard deviation or volatility or risk (vertical line) of the index against which the Fund is being measured. Each point represents the Fund's 5-year return (vertically) and standard deviation or volatility (horizontally), relative to the index. If a point is in the southwest quadrant, for example, the 5-year return of the Fund has been less than (below) the index line, and the 5-year standard deviation (volatility) has also been less than (to the lefl on the index line. There are fourpoints, one for each of the last four quarters. The earliest one is the smallest and the quarter just ended being the largest. Each point shows the 5-year relative position of the Fund versus the index for that quarter, The movement of the points shows the trend, or direction, over time. As noted in the graph, the best place to be is the northwest quadrant (less risk and a higher return); the worst place to be is the southeast quadrant (more risk and a lower return). b Palm Beach Gardens PoLice Pension Fund Total Fund Tdng 5- Years (versus 25% S&P5M, 10% S&PW, 10% S&P6M,10% JUOMG, 10% EAFe 35% BCGC) December 31,2008 - I 2 Good Aggressive -2 L Conserzative -2 A 0 Risk (Dinereme in Standard Deviations) 2 Page 9 Palm Beach Gardens Police Pension Fund Total Equity Trailing 5- Years (wrsus384%S&P~, 15.4% S&P400, 15.4%S&P600, 15.4%RllWG&ts.4% Id..) December 31,2008 -2 0 Risk (Difference in Standard Deviations) 2 Page 10 Palm Beach Gardens Police Pension Fund ICC Fiwed Income Trailing Since Inception (versus BCGC) December 31,2008 2 Good Aggressive 0 -2 A Conservative I Bad -2 0 Risk @iflerence in Standard Deviations) 2 Page 11 1 Palm Beach Gardens Pofice Pension Fund Beta: Trailing 5- Year Risk I I I I' 1 I I I I I I 'I I I I I I I Jun-08 Mar48 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1 .oo 1.10 0.00 .Total Fund .Largecap OMidcap OSmallCng mICCFixed BIntematid DLargeGmth Page 12 Palm Beach Gardens Police Pension Fund Alpha: Trailing 5- Year Reward December 31,2008 TOTAL FUND b INDIVIDUAL MANAGERS -10.0% y Dec-08 Sep-08 Jun-08 Mar08 rn Total Fund 0 Large Cnp OMid Cap OSmall Cap HICC Fixed .International Large Gmwth - Page 13 Palm Beach Gardens Poke Pension Fund Mpha & Beta: 5- Years TraXng (or Inception if Less) December31.2008 BETA Current policu Dec-08 Sea-08 Total Fund Managers, Fixed Income ICC Fixed * BCAB 0.80 0.90 0.89 0.91 0.86 0.7l 0.84 0.57 Managers, Equities Large Cap s&P5OO 0.99 0.99 0.99 0.99 Mid Cap s&P400 0.99 0.99 0.99 1.00 Small Cap S&P600 0.99 0.99 0.99 0.99 International EAFE 0.37 0.47 0.32 0.41 Large Growth RlOOOG 1.04 1.24 ALPHA Totn2 Fund * 0.12% -0.40% 0.15% 0.10% Managers, Fixed Income ICC Fixed BCAB -0.27% -0.47% 0.92% Managers, Equities s&P500 0.18% 0.14% 0.11% 0.12% Large cap Mid Cap s&P400 0.15% 0.14% Small Cap S&P600 0.24% 0.23% 0.37% International EAFE -9.28% -1.89% 4.98% Large Growth RlOOOG -1.94% * 25% S&P500,10% S&P400,10% SbP600,10% R1000G, 10% EAFE, 35% BCAB 1.44% 0.12% 0.12% 0.24% 5.63% Page 14 Palm Beach Gardens Police Pension Fund Barnng Average: 5-Years Trailing December 31,2008 75 50 25 TOTAL FUND &3 INDIVIDUAL MANAGERS 0 Dee-08 Sep-08 Jun-08 Mar48 mTota2 Fund Ohrge Cap OMid Cnp OSrnall Cnp 8ICC Fixed mIntemationa1 Large Growth Page 15 Palm Beach Gardens Poke Pension Fund Battihg Avenge: 5- Years TmXhg (or Inception ifless) December 31,2008 BA7TING AVERAGE Total Fund Managers, Fixed Income ICC Fixed Cumt poIirv DeC-08 &&? Mar-08 . 35.00 30.00 30.00 25.00 BCAB 55.00 55.00 60.00 50.00 Managers, Equities Lmge cap s&P500 75.00 70.00 65.00 60.00 Mid cap s&P400 60.00 60.00 55.00 55.00 Small cap s&P600 65.00 61.03 64.30 62.28 Intetnatiml EAFE 44.44 50.00 42.86 33.33 Lmge Gmth RlOOOG 40.00 25.00 Total Fund Managers, Fixed lncotne ICC Fixed Managers, Equities Large cap Mid cap Small Cap International Large Gmth * BCAB s&PWO S&P400 S&P600 EAFE RlOOOG 0.96 0.78 1.00 1.00 1.00 0.25 0.81 0.97 0.71 1.00 1.00 1.00 0.33 0.84 O.% 0.78 1.00 1.00 1.00 0.14 25% S&P500, 10% SbP400,10% S&P600,10% RIWOG, 10% EAFE, 35% BCAB 0.96 0.76 1.00 1.00 1.00 0.16 Page 16 perlormmnnce of0therMmsp-s December 31,2008 CORE EQUrrY Qtr YTD 1Yr 3Yr 5Yr lOYr ____ '. Atlnnta Capital Management Co., LLC - Higk Quality Growth Plus - Gross Size -24.18 -24.18 -36.40 -7.29 -2.31 -1.20 Eagle Asset Management - Conmafive lnrge Cap Equity - Gross Size -23.81 -23.81 -38.57 -9.74 -2.95 1.35 ICC Capif~l Management, Inc - Core Value - Gross Size -23.77 -23.77 -36.02 -6.78 -0.61 1.28 Inoolffis Counsel - Miami Beach Fire b Police - Gross Sue Equity Only) -22.48 -22.48 -35.77 -4.03 0.94 1.05 INVESCO - Structured Core Equity - Gross Size -20.22 -20.22 -33.08 -4.78 0.85 IronOak Aduisors - Large Cap Core - Gross Size -21.87 -21.87 -36.67 -8.74 -0.82 1.01 Madism Investment Advisms, Inc. - Large Cap Equity (InstlJ - Gross Size -22.94 -22.94 -31.85 -6.98 -2.31 0.78 Rkumbline Advisers Corporation - Russell 1000 Index Fund - Gross Size -22.11 -22.11 -37.22 -8.47 -1.95 Rkumbline Advisers Corporation - SbP 500 Index Fund - Gross Sue -21.93 -21.93 -36.82 -8.23 -2.11 -1.22 Robeco Inwsfment Management, Inc. - WPG Disc Equity Large Cap - Gross Size -21.68 -21.68 -35.61 -7.40 -1.05 -0.14 Voyageur Asset Management - Large Cap Core -20.27 -34.79 -34.79 -5.92 1.88 2.37 Russell 1wO -22.48 -22.48 -37.60 -8.66 -2.04 -1.09 -21.94 -21.94 -37.00 -8.36 -2.19 -1.38 -24.87 -24.87 42.19 -10.94 -3.47 2.85 -23.45 -23.45 -36.20 -8.48 -3.21 -1.81 .' :.Denver Investment Advisors, LLC - Grawtk - Gmss Size -22.57 -22.57 -44.32 -9.90 -2.49 1.76 - ' . Montag b Caldwell, Inc. - lnrge Cap Growth - Gross Size -20.23 -20.23 -32.08 -3.28 0.24 -0.76 :,x ,:. S?zP 500 GROWTH EQW7Y ~~ :. ~ 2 ZCC Capital Management, Inc - Large Cap Growth Equity - Gross Size -16.22 -16.22 -35.43 -10.48 -4.49 . . OakBnwk Investments, LLC - OakBrwk Select Equity - Gross Sire -20.70 -20.70 -24.96 -3.27 -0.97 2.. -22.72 -38.35 -38.35 -8.98 -3.35 -21.68 -21.68 -36.79 -7.56 -1.76 -0.43 -21.60 -21.60 -37.65 -5.69 -0.29 -22.20 -22.20 -30.99 -3.14 1.02 -21.73 -35.91 -35.91 -8.03 -1.86 -3.89 -26.77 -26.77 -40.38 -12.04 -4.59 -1.02 -22.79 -22.79 -38.44 -9.11 -3.42 -4.27 -20.24 -20.24 -34.92 -7.62 -2.74 -3.11 -21.61 -21.61 -36.57 -8.05 -1.99 n/a -25.29 -25.29 -35.97 -8.63 0.07 n/a -25.01 -25.01 -30.77 -7.17 1.11 n/a I i Inkmafionai EquihdFYEJ -22.54 -22.54 -43.97 n/a n/a n/a -16.94 -16.94 -37.80 n/a n/a n/a @91.aw.tutem@ Page 17 PurOrmnnce of Other Mmngus Deder 31.2z YTD 1Yr 3Yr 5Yr lOYr __ - Alethein Research and Management,Inc - Alethein Value - Gross Size BlackRmk - Active Quant Large Cap Value - Gross Sue -23.62 -36.45 -36.45 -7.26 0.31 BucW Capital Management - Value Equity - Lorv P/E - Gross Size -18.83 -18.83 -29.74 -7.10 -1.17 3.22 We Inmfment Counsel, LLC - Large Cnp Value - Gross Size -19.08 -19.08 -33.95 -1.84 6.99 7.30 Cohen 6 Steers Capital Mgml., lnc. - Cohen 6 Steers Large Cap Value - Gross Size -21.40 -21.40 -33.29 -3.90 3.M) Crawford InDeStmmt Counsel, Inc. - Dividend Gmwtk - Gross Sue -18.84 -18.84 -26.27 -3.39 0.07 1.90 &Prince, Race, Zollo, Inc. - Large Cap Value Equity - Gross Size -28.36 -28.36 -39.09 -10.48 -2.96 3.59 Eagle Asset Management - Value - Institutional - Gmss Size -24.98 -24.98 -34.45 -6.53 0.86 1.23 ICC Capital Management, Inc - Core Value - Gmss Size -23.77 -23.77 -36.02 -6.78 -0.61 1.28 Loomis, Sayles &Company, L.P. - Large Cap Value - Gross Size -19.42 -19.42 -33.42 -3.54 3.45 2.47 Mismm' Valley Partners - Large Cap Value - Gmss Size -21.10 -21.10 -34.75 -7.60 -1.96 oppolheimn Capital - Large Cap Value - Gross Size -24.20 -24.20 -51.17 -17.92 -7.89 -3.22 Rhumbline Advisers Corporation - Russell 1000 Value Index Fund - Gross Size -21.94 -21.94 -36.51 -8.11 -0.67 1.52 Stale Street Global Adviwrs - Active US. Large Cap Value Strategy - Gross Size -20.85 -36.92 -36.92 -7.90 -0.27 2.14 The Boston Company Assel Mgmt., LLC - US Large Cap Value Equity Management -20.32 -20.32 -35.14 -6.20 -0.48 2.10 Ceredex Value Ad Inrge Cap Value -18.78 -18.78 -31.50 -3.94 1.52 2.35 Voyageur Asset Management, Inc. - Large Cap Value - Gross Size -20.81 -20.81 -35.71 -6.72 1.85 2.22 We& Management Corporation - LargeCap Equity - Gross Size -20.24 -20.24 -32.44 -2.80 3.95 4.25 Russell 1wO Value -22.18 -22.18 -36.85 -8.32 -0.79 1.36 SkP 5oo/cilipp Value -23.83 -23.83 -39.22 -9.19 -1.72 0.10 4ID-CAP EQUITY ::;. ,! Amalgamfed Bank - Longview 400 MidCap Index tund - Gross Size -25.57 -25.57 -36.27 -8.73 -0.08 4.47 t.4: :. Baftgmrarch Financinl Mgmt., Inc. - US Mid Cap S6P 400 - Gross Size ' '. Chiago Equity Parhers, LLC - Mid Cap Core Equity - Gross Size -27.01 -27.01 41.60 -13.40 -2.60 3.55 : Rhumbline Advism Corporation - S6P 400 Index Fund - Gross Size -25.28 -25.28 -38.43 -9.83 -0.72 4.17 Robeco Inoesfmmt Management, Inc. - BPAM Mid Cap Value Equity - Gross Size -21.90 -21.90 -31.84 -4.90 3.23 5.62 State Street Global Advisors - Mid Cap CoreSfmlegy - Gross Size -25.51 -43.74 43.74 -13.79 -2.14 3.34 Russell Midcap -27.27 -27.27 -41.46 -10.68 -0.71 3.18 S&P Midcap 400 -25.55 -25.55 -36.23 -8.76 -0.08 4.46 Rhumbline We Cnp(FYE) -21.61 -21.61 -36.57 -8.05 -1.99 n/a Rhumbline Mid CapfFYE) -25.29 -25.29 -35.97 -8.63 0.07 n/a Rhumbline Small CapfFYE) -25.01 -25.01 -30.77 -7.17 1.11 n/a International EquityfFYE) -22.54 -22.54 -43.97 n/a n/a n/a ICC Large Gmth(FYE) -16.94 -16.94 -37.80 n/a n/a n/a @MhW@ Page 18 ....e.- "1. -':: . WBrmk lnwsfments, LLC - Enhanced MidCap Strategy - Gross Sue -26.01 -26.01 -37.15 -8.30 0.64 PerEOrmmnnce of Other Managers December31.2008 Qtr YTD 1Yr 3Yr 5Yr lOYr Advanced Inwstment Partners - AllCap - Gross Size -22.09 -22.09 -35.16 -9.54 -1.83 0.40 BuckhendCaotinl Manamwnt -All Cao - Gross Size -22.49 -22.49 -32.11 -5.70 1.07 ALL CAP EQUIIT~ &nd Hi1 Capital knagement, ln;. - Diamond Hill Select Equity - Gross Sue Inhppid Capital Management, Inc. - lntrepur Multi-Cap Equity - Gmss Size Oak Ridge lnuestments, LLC - All-Cap - Gmss Size Oppenheiw cnpltal -All Cap Equity - Grow; Size Rockwood Capital - Strntegic Equity Rm.nell Ym -21.90 -21.90 -33.25 -6.66 4.35 -15.30 -15.30 -19.89 -1.96 2.44 5.60 -21.95 -21.95 -36.88 -8.67 0.61 -24.41 -24.41 -42.09 -11.02 -1.60 2.81 -21.79 -21.79 -36.16 -6.39 1.54 -22.78 -22.78 -37.31 -8.63 -1.95 -0.80 _.-""_- ---- -22.92 -22.92 -37.34 -8.43 -1.67 _--0:63 DO~ Jones Wilshire 5ooo (Full Cap) __- SMALl..PEQLnn - __ Atlantn mtal Manafement Co., LLC - Hifh Quality Small Cap - Gross Size -16.57 -16.57 -19.41 0.00 5.01 7.15 Cereder - Value Ad S&lI Cap Value - Gross Size hgle Asset Manngement - Small Cap Core - Institutional - Gmss Size GW Gmital. Inc. - Small Cav Value Eauitu - Grms Size -27.31 -27.31 -31.93 -5.84 3.83 9.05 -22.64 -22.64 -31.96 -3.31 3.61 10.11 -30.59 -30.59 -38.34 -6.35 7.40 11.48 . Intrepid Capital Manag&t. lnc. -Intrepid Small Cap - Gross Size -4.69 -4.69 -6.04 4.96 6.66 9.09 Kqme Andm Rudnick Inust. - Small Cap - Gross Size -20.42 -20.42 -27.65 -5.38 2.41 6.08 P- lnwstment Management, LLC -Pim Small Cap Value Seruice - Gross Size Rhumbline Adv*ers Corporation - Russell 2oW Index Fund - Gmss Size -24.99 -24.99 -30.75 -7.18 1.10 -26.91 -26.91 -43.69 -13.63 -5.11 -2.11 Smogmss Asset Management. LLC - Small Cap Growth Equity - Gross Size State Street Global Ad& - Small Cap Equity Strategy - Gross Sue -25.63 -37.01 -37.01 -14.78 -4.30 0.62 Silmnt Cnpital - Small Cnp Growth - Gross Size -27.77 -27.77 -40.23 -11.41 -1.93 -26.12 -26.12 -33.79 -8.29 -0.93 3.02 SkP Smallcap 600 -25.17 -25.17 -31.07 -7.51 0.88 5.18 REAL ESTATE (W/30/2zwS) American Realty Advisors - Core Equity Real Estate-Sep. Accts. -Gross Size ASB Capital Management, lnc. - EB Real Estate Fund - Gross Size -0.66 -0.66 4.54 13.89 14.62 11.73 JPMorgan Asset Management - Strategic Property Fund - Gross Size -1.19 -1.19 3.49 12.98 14.78 12.58 Principl Global Inwstors -Real Estate Core Property - Gross Size -1.13 -1.13 1.28 11.36 13.07 11.37 Dow Jones Wilshire RElT Index 4.78 4.78 -12.47 5.21 13.44 13.05 NCREIF property Index -0.17 -0.17 5.27 13.24 14.24 11.83 INTERNATIONAL EQLnn DePrince, Race. Zollo, lnc. - Internatwnal Equity - Gm Size -17.06 -17.06 -41.05 -7.07 1.73 4.77 ICC Grpital Management, Inc - lnternutional ADR Equity - Gross Size -19.65 -19.65 -39.11 -5.94 0.23 1.12 INVESCO - Internatirmal Equity - Gross Size -19.02 -40.07 -40.07 -6.02 2.46 2.91 Oppenhziw Capitnl - International Equity - Gmss Size -24.20 -24.20 49.39 -9.40 -0.04 3.99 State Sheet Global Advisors - MSCl EAFE Index Strategy - Gross Equnl -19.90 -43.14 43.14 -7.10 1.89 0.99 The Boston Compny Asset Mgmt., LLC - lntemtwnal Core Equity Management -22.94 -22.94 47.65 -9.68 2.00 4.34 Wenhrth, Hauw and Vwlich - WHV International Equity - Gmss Size -36.12 -36.12 -49.27 -3.22 10.71 12.38 MSCl EAFE -19.90 -19.90 -43.06 -6.92 2.10 1'" -21.61 -21.61 -36.57 -8.05 -1.99 I , Rhumbline Lwfe Cnp(FYE) Rhumbline Mid CnpfFYE) -25.29 -25.29 -35.97 -8.63 0.07 3 Rhumbline Small CapfFYEJ -25.01 -25.01 -30.77 -7.17 1.11 lnternationnl Equih/(FYEJ -22.54 -22.54 -43.97 nfa nfa ICC Lnrp Growth(FYE) -16.94 -16.94 -37.80 nfa nfa Russell u)(10 December 31,2008 Qlr___YTD 1Yr 3Yr LYr lOYr Atlnnta Cap'tal Management Co., LLC - High Quality Brwd Market - Gross 5ize 5.74 5.74 8.72 6.92 5.69 5.96 Eagle Asset Management - Core Fired Institutional - Gross Siz 3.19 3.19 4.69 5.58 4.57 5.42 Gnllinrd Cnpitni Management - Brwd Market Core Composite - Gross Size 0.13 0.13 -1.44 3.25 3.60 5.47 ICC Capital Management, Inc - Core Fixed Income - Gross Size 4.46 4.46 3.29 4.65 3.98 5.20 oppmhermet. Cnpitnl - Fixed Income Aggregnte - Gross Siz 7.95 7.95 8.02 6.35 5.11 5.88 Rodnumd Capital - Core Bond - Gms Size 2.21 2.21 2.71 4.61 3.81 5.03 Smgrass Asset Management. LLC - Core Fixed Income - Gross Size 6.89 6.89 7.03 6.10 5.04 5.92 Voyaseur Asset Management, Inc. - Brcmd Market Core - Gross Size -1.07 -1.07 -3.50 2.21 2.78 4.63 Barchys Aggregate Bond 4.57 4.57 5.24 5.51 4.65 5.63 CORE FIXED-~@COME ~-.. Barclays GovlCredit Bond 6.42 6.42 5.n 5.57 4.64 5.64 INTERMEDG~~FIXED INCOME ~~ ._ Allegiant Asset Management - lntermedinte Gm'tKredit - Gmss Size 4.08 4.08 4.87 5.54 4.36 5.39 Dmis Hamilton JaCkMlfi Asslcintes - lntermedinle Fixed Income - Gross Size 5.03 5.03 5.53 6.04 4.87 5.69 Engle Assel Management - Institutionnl Conmtive - Gms Size 4.89 4.89 7.11 6.36 4.69 5.54 Missouri Vnllq Partners - Intdinte GmmmentKredit Fixed Income - Gross Size 6.06 6.06 8.78 7.03 5.25 Smogrnss Asset Management, LLC - lntermedinte Fired Income - Gross Size 6.99 6.99 7.20 6.32 4.73 5.64 Sit Investment Associntes, Inc. - Intermedinte GmtKorp - Gross Size -2.18 -2.28 -2.28 2.92 3.11 4.86 Voyagpur Asset Management, Inc. - Intermedinte Core - Gross Siz -1.65 -1.65 -4.39 1.96 2.21 4.64 ICC Fired IncomefFYEJ 4.94 4.94 3.04 4.65 3.90 5.04 Barchys GovlCredit-Intermediate 4.84 4.84 5.08 5.51 4.22 5.43 Page 20 PALM BEACH GARDENS POLICE PENSION FUND REVIEW OF hTERNA'l7ONAL EQUITYFUNDS DECEMBER 31,2008 Palm Beach Gardens Police Review of International Eauitv Funds December 31,2008 1. Vanguard Global Equity (VHGEX) Morningstar Rating: Comparative Index: [0.64%] * (out of 420 funds over 5-years) World Stock ie. MSCl World 3 Month Fund: -24.00% Policy: -21.77% Diff: -2.23% m -46.66% -40.71% -5.95% m -9.71 % -0.24% -8.10% -0.51 % -1.61 % 0.27% Received an average rating but good review from Morningstar. Down from 4-stars last quarter. Not impressed with the multi-manager change made in 2004 but we like the long term prospects. No change recommended. www.vanquard.com 2. Vanguard International Growth Admiral Shares (VWILX) Morningstar Rating: Comparative Index: [0.35%] * (out of 570 funds over 3-years) Foreign Large Blend ie. MSCl EAFE 3 Month Fund: -23.16% Policy: -19.95% D iff: -3.21% -44.83% -4 3.38% -1.45% -.6.81% -7.35% 0.54% 5 Year 2.13% 1.66% 0.47% Received an average rating but good review from Morningstar. Down from 4-stars last quarter. Added a third sub-advisor in February 2008.No change recommended. www.vanquard.com 3. Vanguard international Value (VTRIX) Morningstar Rating: Comparative Index: [0.43%] * (out of 246 funds over 3-years) Foreign Large Value ie. MSCl EAFE Value 3 Month Fund: -20.51% Policy: -19.81% Diff: -0.70% 1 Year -41.74% -44.09% 2.35% -5.80% -8.25% 2.45% 3.38% 1.79% 1.59% Good rating and review from Morningstar. Down from 4-stars last quarter. Added a fourth sub-advisor in May 2008, Edinburgh Partners. No change recommended. www.vanquard.com I .I I I I I I II I I I I I I W I I I I I W I I I I I I I W I I I REPORT BY GABRIEL, ROEDER, SMITH AND COMPANY FOR PALM BEACH GARDENS POLICE OFFICERS PENSION FUND Regarding Possible Coverage of City’s Police Ofticers By the Florida Retirement System February 12,2009 Board of Trustees Palm Beach Gardens Police Officers Pension Fund 10500 N. Military Trail Palm Beach Gardens, FL 33410 Re: Dear Trustees: Pursuant to your request, we have prepared this Report regarding the possible coverage by the Florida Retirement System of the City’s police officers who will be hired in the future. The Report includes: FRS Coverage of Police Officers Pensions An overview of FRS in terms of its operation as well as discussion of its advantages and disadvantages Information as to the possible ways the transfer of coverage would occur Effect of closing the Pension Fund to new hires Explanation of the recent increases in the City contribution requirements to the Police Officers Pension Fund A discussion of Chapter 185, Florida Statutes A comparison of the City’s pension benefit provisions to those of FRS A discussion of long range cost and a 15 year projection of required contributions. We would be pleased to meet with you to review this Report and answer any questions As indicated below, the undersigned are members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the Academy of Actuaries to render the actuarial opinion herein. Respectfully Submitted, GABRIEL, ROEDER, SMITH AND COMPANY Q JAtepheh Palmquist, AS&$lAAA, FCA Enrolled Actuary No. 08-1560 JSP/gz ld.L.$k &/& Melissa Algayer, hkAAA, 6dA Enrolled Actuary No. 08-6467 1 OVERVIEW The Board of Trustees has retained Gabriel, Roeder, Smith and Company to examine the possibility of providing retirement benefits for the City’s future police officers by the Florida Retirement System (FRS) rather than the Palm Beach Gardens Police Officers Pension Fund. This Report sets forth our findings. Florida Retirement Svstem - A Brief Summary FRS is a relatively well funded retirement system covering all State, county and public school employees as well as employees of many other entities including some cities. There are approximately 700,000 employees covered by the system and another 300,000 receiving benefits. Assets at December 31, 2008 were $97.36 billion. FRS benefits for police officers are very good especially considering that officers do not have to contribute to the plan and that there is a 3% annual COLA for retirees. A comparison of benefits with those of the City is shown later in this Report. The portability of FRS benefits and service to other FRS-covered employers is also very For example, a Palm Beach Gardens police officer could leave the City and work for the attractive. County Sheriff‘s Department with no interruption or effect on hisiber retirement benefits. While few police officers would be interested in this option, it is worthy to note that each person bas the option of being covered by the traditional defined benefit plan or a defined contribution plan. There is also an opportunity to change this election at a later point in one’s career. As far as we can tell, FRS administration is efficient and effective. The total of investment and administrative expenses is only about 0.1 8% of assets, i.e., 18 basis points. Recruiting and Retaining Police Officers We believe that FRS’s portability and lack of employee contributions would be a plus in terms of recruiting both new and experienced officers. While we have no way of verifying this claim, some have argued that portability may result in higher turnover. In other words, if an officer’s pension is not affected by going to another FRS - covered employer, the decision to leave the City may be easier. 2 Collective Bargaining If the City’s police off~cers hired in the future are covered by FRS, there will be less to negotiate for these officers in terms of pensions during collective bargaining. There still could be pension issues to discuss but their scope would be limited. The officers who remain in the City Plan will have dwindling influence in collective bargaining as time goes by. City’s Financial Statements GASB Statement Number 27 requires certain pension disclosures in the City’s financial statements. One of the disclosures called the Schedule of Funding Progress shows the ratio of plan assets to accrued liabilities. There are reports that this ratio is one of the measures used by investment banks to determine the creditworthiness of governmental entities seeking funds from the bond market. A low ratio could possibly affect a city’s bond rating. Governmental entities covered by statewide retirement systems do not have to include the schedule of funding progress in their financial statements. As a result, there would be one less issue for the bond market to consider in determining the government’s bond rating Local Control vs. No Control As will be seen later in this Report, there is a material difference in City cost as between FRS and the City’s Retirement System. Probably the most important consideration other than cost is a matter of philosophy. Does the City wish to relinquish control over this valuable part of the police officers’ benefit package? A decision to join FRS is irrevocable - once a city joins FRS, it may never withdraw. To be sure, ceding this responsibility to FRS would clear away a number of local responsibilities with respect to future hires: > > P The City would simply send money to FRS each payday. All pension questions would be directed to FRS. There would be no Board of Trustees and related meetings, minutes, etc. (Although this may not be possible for some time; see the later discussion.) There would be no actuary or actuarial reports. P I I I I 3 P The City auditors would not have to review financial statements of the Police Retirement System. On the other hand, the City would have no control over the mandates of the State and would not be able to use the local retirement plan to accomplish management goals and objectives. A case in point is the so-called rate stabilization reserve that FRS established a few years ago. The use of this reserve has been very successful in keeping the FRS cost stable over the past few years while nearly all other plans have had dramatic cost increases. There is now pressure mounting from employee groups who feel that employers have benefited from the reserve at the expense of employees. These groups are pushing to raise benefits. The City would have virtually no say in this battle. The issue of local control versus no control is one of philosophy and outlook. Only City officials can determine which side they feel would best serve the City and its police officers. Prowsal to Close the FRS Defined Benefit Plan There is a proposed bill to be considered by the Florida Legislature this spring that would require all employees entering FRS after 2009 to be covered by the FRS defined contribution plan. Senate Bill 534 would result in the FRS defmed benefit plan only covering those who began membership before 2010. We have no way of determining the likelihood that this bill will become law. A change to FRS like this would certainly have a bearing on the decision to send new hires to FRS. 4 TRANSFERRING PENSION COVERAGE TO FRS In order to cover the City’s police officers by FRS, a number of steps would have to be taken The following discussion briefly describes the process. Much more detail would be necessary if the City wishes to pursue this transfer. Terminate the Retirement System (We understand that the City is not considering this alternative but we include it in this Report for the sake of completeness.) Under a plan termination, the actuarial present value of each member’s accrued pension is calculated. The total value for all members including retirees is then compared to the value of the pension fund. If the value of benefits exceeds the value of assets, then the City will have to fund the difference over some period of time. We are certain that Plan assets are less than the value of accrued benefits. If assets did exceed the value of benefits, the excess will be returned to the City and State in proportion to the amount each entity contributed to the System since its inception. Once plan assets have been allocated, there would be a lump sum payment made to each person (or to hisiher IRA, 457 plan, etc.). Alternatively, a successor trust fund could be established to pay monthly benefits as they become due. Of course, annuities could be purchased, but the cost would be prohibitive. Maintaining the Plan for Existing Members Another option is to allow current members the option of staying in the Plan or choosing FRS and placing future hires into FRS. The Plan would continue to operate and would be subject to funding requirements based on the remaining population. For existing members who choose FRS, a decision would have to be made whether to cover past service under FRS (described below) or provide the accrued-todate benefits under the Plan and only have &hue service count under FRS. I I I I I I I I I I I I I I I I I I I I I I I I I I I I m 5 Paving for Past Service Under FRS One of the most important issues in considering a move to FRS is how the past service of present employees will be treated. FRS will only cover past service if full payment is made of all past contributions that would have been paid to FRS, plus interest on those amounts. Once such payment is completed, the employee only receives credit of a 2% multiplier for those past years. (We understand that certain groups are lobbying the Legislature to raise the 2% multiplier to 3%.) illustration of how the past service calculation is made. Shown below is an ILLUSTRATION OF PAST SERVICE BUY-BACK CALCULATION UNDER FRS PENSION PLAN Example: Police Officer hired 7/1/98; current year’s pay= $60,000; 4% increase in pay each previous year Year 711 107-6/30/08 1/1/05-6/30/06 I/ 1/04-6/30/05 711103-6/30/04 7/1/02-6/30103 7/1/01-6/30/02 7/1100-6/30/0 1 711199-6130100 7/1/98-6/30/99 711 106-6/30/07 Pay $60,000 57,692 55,473 53,340 51,288 49,316 47,419 45,595 43,841 42,155 FRS Contribution Rate 20.92% 20.92 18.53 18.53 18.53 16.01 18.44 20.29 21.16 25.32 I Contribution For Interest at 6.5% Year Through 6/30/08 I $12,552 12,069 10,279 9,884 9.504 7,895 8,744 9,25 1 9,277 10.674 100,129 $402 1,196 1,753 2,437 3,114 3,268 4,423 5,585 6,568 8.741 37,487 Total payment needed to purchase 10 years ofpast service is $100,129 + $37,487 = $137,616 CR C 6 EFFECT OF CLOSING THE PENSION FUND TO NEW HIRES If newly hired police officers are covered by FRS, the funding of the Palm Beach Gardens Police Officers Pension Fund would have to be changed in two ways. First, we would revise the way the payment on the unfunded accrued liability is calculated. We now calculate the payment as a level percent of covered payroll under the assumption that such payroll will rise by 5% per year. If the Plan is closed to new members, we cannot assume that the covered payroll will keep growing so the payroll growth assumption will change from 5% to 0% which will raise the annual required contribution. Second, it will be advisable sooner or later to change the actuarial cost method from the Entry Age Method to the Aggregate Method. This change would ensure that the Plan’s obligations would be funded over the future working years of the remaining members, and that there would be no outstanding unfunded obligations when the last member retires. Near the end of this Report is a projection of required contributions taking into account the changes just described. PD C 7 REASONS FOR CITY’S COST INCREASE Cost Comparison II I Required City Contribution for EYE11 Slptember 30 2004 2010 Increase Dollar Amount $1,239,522 $3,962,169 $2,722,647 As % of Payroll 2 1.49% 38.34% 16.85% Investment Losses in 2001.2002 and 2008 For years ending September 30, 2001, 2002 and 2008, the City’s Plan as well as nearly every pension plan in the country suffered investment losses. For the three years combined, the difference between actual and expected returns was a loss of approximately $10 million. These losses are recognized gradually pursuant to the asset smoothing mechanism. The required contribution has risen by at least 5% of payroll due to these losses. It is likely that recent market losses after September 30, 2008 will further increase the required contribution by the City in the 201 1 fiscal year. The FRS contribution rates will also be affected by the 2008 and 2009 investment losses. Plan Amendment An amendment in 2006 raising the multiplier and adding a supplemental benefit raised the required City contribution by 7% of covered payroll. Covered Pavroll The covered payroll over the six years from October 1,2002 to October 1,2008 increased by 77%, from $5,572,514 million to $9,842,874 million. The required contribution to the Plan is directly affected by the increase in payroll. PD C I CbaDter Revenue Because the Plan mec 8 CHAPTER 185. FLORIDA STATUTES the requiremer of ChaI r : Plan receives revenue from the State. This revenue is equal to 0.85% of casualty insurance premiums written within the City limits. A table following this discussion shows the amount of Chapter revenue over the past 11 years. Generally, the Chapter revenue must be used to provide additional benefits for police officers. This year the City may use $412,644 of the total revenue of $440,115 as a credit against its required contribution to the Plan. Chapter revenue in excess of this amount is held in reserve to provide additional benefits at a later date. The Chapter has a list of minimum benefits that each plan must include. The Plan has met all the minimums. Particbation in FRS Once a city decides to cover its police officers by FRS, Chapter 185 revenue ceases. Cessation of Chapter revenue would also occur if new hires were to be covered by FRS with present members remaining in the present plan. The City would have to pay $412,644 more each year if the Chapter revenue ends. We understand that there is a legislative proposal to allow Chapter revenue to continue if new hires are covered by FRS. We will have to monitor the upcoming session of the Legislature to see if this proposal is enacted. I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Chapter 185 Revenue Year of Receipt 1998 1999 2000 200 1 2002 2003 2004 2005 2006 2007 2008 I Premium Tax Revenue Received $23531 8 236,636 215,773 225,892 262,919 292,446 364,985 41 1,047 428,055 460,438 440,115 Average Annual Increase 1998-2008 9 PD C I 10 BENEFIT COMPARISONS I Areas Where City’s Plan is Materially Better Than FRS > Multiplier 3.5% versus 3.0% > Supplemental Pension $12.50 per year of service versus $5.00 > Normal Retirement Date Age 55 with six years of special risk service or 25 years of special risk service for FRS. The City allows retirement at 20 years of service, regardless of age, or at age 52 with ten years of service. Areas Where FRS is Materially Better Than The City’s Plan COLA 3.0% for FRS versus 0% for City, except that a COLA may be provided from actuarial gains. Employee Contributions 0% for FRS versus 8.6% Vesting FRS requires six years of service for 100% vesting. The City plan starts at 25% at 5 years, 40% at 6 years, etc. up to 100% at ten years. Line of Duty Disability FRS provides a benefit of 65% of average final compensation versus 60% from the City. 11 COMPARISON OF PENSIONABLE COMPENSATION Pensionable Compensation Base pay Incentive pay Longevity pay Overtime pay Bonuses Annual sick and vacation buy-back Lump sum payment of accumulated vacation pay upon termination of employment Lump sum payment of accumulated sick leave upon termination of employment City’s Plan ~ X X X X X X X X FRS X X X X X X X* * Limited to 500 hours. DROP Particioants Under the City’s Plan, DROP participants are considered to be retired so no further normal cost contributions are made on their behalf. Under FRS, each employer must pay 10.91% of the pensionable pay of each DROP participant. I I 12 LONG RANGE COST Florida Retirement System The current contribution rate to FRS is 20.92% of payroll for those not in the DROP and 10.91% for those in the DROP. It is likely that these rates will continue for the year July 1, 2009 to June 30, 2010. However, due to the steep investment losses since June 30, 2008, we estimate that the FRS contribution rate starting July 1,2010 will he about 26% of payroll. The rate will rise to a peak of about 28% of payroll. These very rough estimates are based on the assumption that the FRS market value return will he (20)% this plan year, 15% next year and 8% thereafter. Palm Beach Gardens Police Officers Pension Fund Our October 1, 2008 actuarial valuation indicates that the required City contribution starting October 1, 2009 will he 38.34% of payroll. When the State and member contributions are added, we see the total needed to fund this Plan is 50.93% of payroll. In the absence of offsetting actuarial gains, the City contribution rate will increase over the next several years to about 47% of payroll. See Appendix A for an estimate of City contributions under different investment return scenarios. FRS for New Hires In the tables that follow, we are providing a projection over the next 15 years of required City contributions for the present Plan without change and for requiring future new hires to be covered by FRS. Under the second scenario, we are assuming that those already employed by the City will be given the option to join FRS, and that all members with less than five years of service will elect to do so. The present members who elect to join FRS will receive from the Plan a refund of their own contributions. RECENT HISTORY OF FRS PENSION CONTRIBUTION RATES FOR POLICE OFFICERS I I R 7/1/07 - 6130108 7/1/06 - 6/30/07 7/1/05 ~ 6/30/06 7/1/04 ~ 6/30/05 7/1/03 - 6/30/04 7/1/02 - 6/30/03 7/1/01 - 6/30/02 7/1/00 - 6/30/01 7/1/99 ~ 6/30/00 7/1/98 - 6130199 7/1/96 - 6/30/98 1/1/96 - 6130196 1/1/95 -12131195 1/1/94 -12131194 1 11 193 -1 213 1 193 1/1/92 -12131192 1/1/91 -12131191 1/1/90 -12/31/90 1/1/89 -12/31/89 10/1/87-12/3 1/88 1011186- 9/30/87 10/1/84- 9/30/86 10/1/81- 9/30/84 10/1/78- 9/30/81 13 20.92% 20.92 20.92 18.53 18.53 18.53 16.01 18.44 20.29 21.16 25.32 27.10 27.50 27.49 27.59 27.62 26.83 26.00 20.38 17.98 15.35 15.11 14.67 13.91 13.95 Notes: b unfunded actuarial liability (surplus) is about 23%. expected long-term contribution rate. temporary cost decrease due to a funding surplus. 3 b insurance subsidy and administrative charges. 3 The FRS contribution rate excluding payments (credits) due to the The 23% rate is the The present rate of 20.92% reflects a No employee contributions are required by FRS. Rates shown above include the cost for the post-retirement health The current contribution rate for members in the DROP is 10.91% I I I I I I I I 1 I I I I I I I I I m I I I I I I I I I I I I I I I I I I I I I II I I U m I m m A. UAAL Amoritzation Period and Payments Years 7/1/1986 . 10/1/1991 ' 10/1/1991 . 10/1/1992 . 10/1/1993 10/1/1995. 10/1/1996. 10/1/2000 ' 10/1/2005 ' 10/1/2OO5 10/1/2006 10/1/2007 ' 1 O/ 1 /2008 Qmortization Period Years (Years) Amount Remaining 30 30 30 30 30 30 30 30 30 30. 30 15 15 4,147. (1,504) 286,223 122,611 796,975 (1 89,977) 3,6 3 9,2 7 3 975,210 5,273,728 12,571.5 15 (251,668) 3.376.020 $ 26,408,109 (1 94,444) 8' 13 ', 13 14 ' 15 17 18 ' 22 27 ' 27 ' 28 ' 14 . 15 Amount Payment $ 2,027 '$ ' 190,508 * 16,811 4 275 (1,004) e (89) ' 85,287 7,067 (141,682) * (11,079) m 755,219 * 53,276 I (192,578) 0 (12,971) * 4,215,642 242,613 * 1,069,833 52,909 5,785,424 286,122 * 13,348,674 * 643,312 - (247,737) (20,527) * 3,376.020 ' 264,001 $ 28,245,693 *$ 1,521,720 I' Special Report Palm Beach Gardens Police Pension Fund fw For the Period Ending December 31,2008 e 69 69169 ss t-Fj 1 38 tft e 69169 69 ETF Snapshot: State Street Global Advisors http:llstatestreetspdrs.comisnapshotsi books1print_view/29 Prsciss in a world that isn't: 1 US ETF Snapshot: December 2008 SNAPSHOT OMRVlEW As of December 31,747 ETFs in the US -with assets totaling approximately $533.5BN -were managed by 22 ETF managers. ETF industry assets rose $56.6BN for the month - up 11.9%. 13 new ETFs were launched in December and one was liquidated. FIGURE 1: US ETF ASSET GROWTH 800 c4n 320 ak -Assets (BN) - Number of Funds I Alter 3 months of dechne, ETF aseis grew In December Gains were drien predomtnanUy by Size and lnternabonal asset classes STATE STREET HIGHLIGHTS, DECEMBER 2008 State Street Global Advisors' (State Street's) US ETF market share was 30.0% as of month end. an ETF Snapshot State Street Global Advisors http://statestreetspdrs .comisnapshotslbooks/print-vi ewi29 increase of 4.0% since the beginning of the year. o Despite steep losses in the equity and credit markets, State Street saw $70BN in combined net flows into the SPDR@ ETF familyfor 2008, raising assets by $2BN to $160.1 BN. State Street introduced the newly redesignedspdrscom; visit www.spdrs.com today to: o View performance data, holdings, and index information; o Download fact sheets and other literature supporting our full family of SPDR" ETFs; o Create and analyze ETF portfolios with our online tools; and o Leverage premium content and educational resources through a simple registration process that offers full access to SPDRs.com and SPDRU.com, our online educational resource exclusively designed for Investment Professionals. I For more information and afull prospectus covering our SPDR'funds, please visit www.spdrs.com. - ETF Snapshot: State Weet Global Advisors http://statestreetspdrs .comisnapshots/books/print-vi ewi29 ASSET CLASSES - OVERALL The S8P 500@gained 1 .I% in December, but fell 37% for the year. MSCl EAFE@ gained 6.0% for the month in USD terms but closed down 43.0% for the year. The Barclays Capital U.S. Treasury Index rose 3.4% in December, gaining 13.7% for the year, while the Lehman US Aggregate Index increased 3.7% and rose 5.2% in 2008. Gold climbed to $869.75 an ounce, an increase of 6.8% from last month's close. Nine of the twelve categories gained assets with Size and International ETF assets gaining the most, $25.7BN and $14.6BN, respectively. Sector assets lost $1.4BN, or 2.8%. ~ ~ FIGURE 2: CHANGE IN ETF ASSETS AND NUMBERS BY TYPE CATEGORY ! BROAD cormoom CURRENCY DNDENOlFLMDAMENTAL FED INCOME GLOBAL INTERNATIONAL IMlERSElLMRAGEO SECTOR SEE SPECWLTY STYLE TOTALS ~ DECEMBER CURRENT Ems TF 10 514,322 22 532,854 19 $3.393 106 59.582 52 556,459 23 $3.843 131 51W,015 104 521,711 118 550,368 33 5175,400 83 57.208 46 554,376 747 $533.532 NOVEMBER A . 51,507 11.8 - 54,269 14.9 -546 -1.3 1 5421 4.6 - S6,m 12.1 $246 6.9 - 514,638 16.4 10 -a 0.0 -1 41,436 -2.8 - $25,699 17.2 2 $943 15.1 - 54,240 8.5 12 $56.564 11.9 MD A - -51,622 -10.2 2 $7,197 28.1 8 -5129 -3.7 5 -54,841 -33.6 4 $21,694 62.4 10 -$1,401 -26.7 42 -W,932 -36.9 42 512,100 125.9 -20 -57,335 -12.7 2 -521,520 -10.9 25 4236 -3.2 -2 -517,113 -23.9 118 -t74.141 -12.2 SlZElSTYLE The majority of gains was concentrated in the Large Cap categoty with a gain of $21.4BN, or 17.5%. FIGURE 3: CHANGE IN ETF ASSETS AND NUMBERS BY MARKET CAPlSME DECEMBER NOVWER A MD A =ET ASSET CURRENT CATEGORY ETFs &SETS gs @$r CHANGE yMy CHANGE (MM) (xl Vd ALLCAP 10 514,322 - 51,507 11.8 SEE - LARGE 16 5143585 - 521,378 17.5 CAP SEE - MICRO 3 $355 $67 23.2 CAP SEE-MIOCAP 7 $15,525 - 51,753 12.7 SEE - SMALL 7 515,934 - $2,501 18.6 CAP STYLE-ALLCAP 1 $440 $59 GROWTH STYLE-ALLCAP 1 5414 VALUE 15.4 18.9 -51,622 -10.2 1 -515,958 -10.0 -5102 -22.3 -54,547 -2.27 1 -5914 -5.4 54 1.0 -5283 -40.6 STYLE-LARGE 8 519.367 - 51,317 7.3 -57,632 -28.3 GROWTH TOTALS 89 s244,m - $31,446 14.8 - -540,266 -14.2 ETF Snapshot: State Street Global Advisors DECEMBER CURRENT IMW SME-LARGE 8 $15,181 VALUE GROWTH VALUE GROWTH CATEGORY ETFs ASSETS STYLE - MID 7 $4,265 STYLE - MID 7 $4.380 STYLE-SMALL 7 $4.389 NOVEMBER A YIDA ASSET CHANGE #OF ASSETS #OF ASSETS 1% ETFs (MM) ETFS IMM) - $1.702 12.6 42,650 -14.9 $83 2.0 -1 42,604 -37.9 $316 7.8 -$1.526 -25.8 $1 58 3.7 -$1.6@5 -27.7 $539 10.0 -1 4737 -11.0 STYLE-SMALL 7 $5.941 VALUE TOTALS 89 $244,098 - $31,446 14.8 - -c10,256 -14.2 SECTOR Assets were mixed with Materials and RElTs gaining the most in absolute terms Energy fell $912MM, while Financials fell $626MM. FIGURE 4 CHANGE IN ETF ASSETS BY US SECTOR DECEMBER NOVEMBER A CATEGORY COMER DISCRETIONARY COWER STAPLES I 1 ENRGY FIWWLS HEALTH CARE INDVSTRWLS MATERIAL REK TECHWLOGY I CURRENT ASSET ASSETS Tr CHANGE (MM) ('N ETFS 8 $1,637 10 $3,569 11 $7,618 15 $11,216 18 $5,001 9 $2,348 7 $4,331 11 $5.965 23 $5.807 $62 $378 -5912 -5626 $22 -5134 5594 $1 86 -1 -5171 3.9 -9.6 -10.7 -5.3 0.4 -5.4 15.9 3.2 -2.9 ASSET 1% #OF ASSETS ETFs (MM) $30 1.9 $357 11.1 -54,837 -38.8 1 $4.072 57.0 .I5 -SI2 -9.3 -$1.054 -31.0 $127 3.0 -6 -$749 -11.2 43,888 -40.1 WILKIES 6 $2,875 479 -2.7 -$sal -23.5 -20 47,336 -12.7 TOTALS 118 $50,368 -1 -11,436 -2.8 MANAGER AND FUND DETAIL The top three managers in the US ETF marketplace were: Barclays Global Investors (BGI); State Street; and Vanguard. Collectively, they accounted for approximately 86.8% of the US-listed ETF market FIGURE 5 US ETF ASSETS BY MANAGER DECEMBER 2008 YIDA #OF ASSETS MARKET #OF ASSETS MARKET ETFs (MMI SHARE(% ETFs IMW SHARE ('4 MANAGER STATE STREET 80 516Q134 30.0 15 $2,029 4.0 ALPS 1 $5 1 $5 BGI 178 $257,671 48.3 24 -$71,409 -5.8 3 .. c 0 .e * .e i; a a N iij Y 5 E c) E E -I I American Core Realty Fund, LLC PEFFnpMANrF HlfTORY (PRELIMINARY) Cross of Fees I Income Return 1 .03% 4.38% 5.01 'lo 5.1 4 % 4.93% Appreciation Return -8.56% -9.37% 2.14% 5.1 8% 5.06% Total Return -7.53% -5,30% 7.22% 1 0.5 1 % 10.16% Income Return 0.80% 3.43% 4.05% 4.14% 3.93% Appreciation Return -8.56% -9.37% 2.14% 5.18% 5.06% Total Return -7.76% -6.1 9% 6.25% 9.47% 9.1 3% lnceplion Date: November 21, 2003 'Annualized PERFORMANCE DISCLAIMER The American Core Realty Fund refurns above include leveraged returns before Igrorr) and alter lneO the deduction of invertmenf management leer and reflm the reinvestment of -me income. The above returns are calculated at the Fund lwel and may not be refleaive of the actual performance re~mr experienced by any one inmtor. The returns abwe are preliminary and rubjm to revision. The rum of annualized component returns may not equal the mal return due TO the chain-linking of quaneerly returns. Past performance is not P guarante of future results and it is impanant fo understand that Imwrtments 01 the hjpe made by the Fund pay the potential for loss of capital over any time period. A F\MARKETINC_DEPnPerformanceV008\4~8~merica" Core Realty Fund. Preliminan/ 4Q08 Perforrnance.doc L c m a c L Lc - m 0 0 I 0 u) a 3 c ij E * a Q) .. rc c .- m a, 0 0 a, E E I ..... ..... . . '. >. : :.GI .... .. I... . .!","' .... 2.' in e c, c, i! in Q) > c - Q) S 0 S in m e L CI L CI L IC I h U C 5 G 3 n 0 a- d bq od G 3 a 0 - 0 e B U a c 5 C .- A c\i tt) 1 - a 3 a a, P - e U a U C C a ? E8 I- I 3QOS Snapshot ~mdpmAkasdsepternber30,m investment performance as of September 30,2008 (Fund)' Gm& valw [Wok $WlO.l35 .- Net&valw~ooo): $2,045,103 Total (gross of fees) -9.54% 0.79% 8.31% 10.37% Cum longterm levem 59% Total (net of management fees) -9.93% -0.48% 6.47% 8.03% Year to date One year Since inceptionZ .~ Quarter To ow clients: Over the past six months we have all lived through virtually unprecedented volatility in equity. fixed income and com- modities markets. as well as extraordinary steps taken by central banks and governments to stabilize financial markets and banking systems, and cushion the blows to economies around the world. In the midst of this maclslrom, the JPMorgan Infrastructure Investments Fund ("the Fund) reached a fundraising milestone in the third quarter of approxi- mately $3 billion in total investor commitments. The Fund's portfolio of monopoly assets continue to perform in line with, or better than, expectations, resulting in increased valuations and positive performance when mcasurcd in the cur- rency ofthe countries where our assets are located. However. we did not escape the volatility of the past six months completely unscathed. As a result of rapid appreciation of the US dollar against the pound sterling (which depreciated approximately I I% versus the US dollar in the third quarter alone), the Fund delivered a total gross return of -9.54% for the quarter ended September 30,2008. in US dollar terms. The Fund's since inception gross total return in US dollar terms is 10.37%. On July II, 2008. the Fund invested approximately $190 million to acquire a 45% equity interest (with co-equal gover- nance rights) in Southwest Generation (.SWG). a portfolio of gas-fired contracted power gcncration plants that is diversified across the western United States. SWG is comprised of scven facilities \r,ith a total existing generating capacity of 914 megawatts of power, and has potential for expansion. On July 23, 200R. thc Fund invested approximately $25 million in Southern Missouri Natural Gas ("SMNG"). a 450- mile regulated natural gas distribution system with operations in the Midwcstern state of Missouri. This privately-nego- tiated initial investment in equity and senior notes of SMNG resulted in the Fund acquiring a 98% controlling interest in the business. The Fund invested an additional $15 million in early Octobcr, with a further $20 million in SMNG equity and senior notes planned for the first half of 2009, to provide growth capital for management's expansion plans. The Fund made a distribution ofapproxirnately SI3 million to investors in late September, representing cash received from second quarter operations at Electricity North Wesi and Zephyr Investments Limited. Our fourth and final distnbu- tion of 2008. of approximately $42 million, will bc made on December 30th. Looking ahead at the fourth quarter, we are plcased to announce that the Fund has entcrcd into a definitive agreement to make a $260 million equity investment in Coastal States Wind Holdings. a ponfolio ofwind farms with a total generat- ing capacity of354 megawatts. The three wind farms havc long-term contracted cashflows. environmentally advanced technologies, and an experienced wind generation operatorlpartncr. The portfolio is geographically diversified across the US with facilities and connections to transmission gnds located in New York. Texas. and Oregon. This acquisition marks the Fund's first investment in the US wind generation market. The Fund has also entered into a purchase agreement to makc an investment in the approximate amount ofA$345 mil- lion (US$237 million) that will result in an equal joint venture co-ownership interest of a 99-year concession to operate the Cairns and Mackay Airports located in Queensland, Australia. in a transaction that marked the last major Australian airport privatization opportunity. The Fund pamered with Australian-based Hastings Fund Management. which is also our partner in Southwest Generation. We wish to thank you for your commitment to the Fund and we look fonvard to sharing iurthcr details in subsequent reports. Mark A. Weisdorf CIO and Portfolio Manager Please coni~ci Lon) Kvhn 01 212-648-2227 (l~-:a.k"h~~~jpmo~~X.~~m) or Lori Pollon m 212~648-2IY2 /larrren.opollon~~~~orb.an.roml with ov quesliom obvir1 the Fzmd. FOR QUALIFIED INVESTORS ONLY. This fact rhcct has bccn prcparcd for inrerlors who quahfy 10 L~YCS~ m fhlr 'ypc of Fund. Gcncmll) thcy would include inveslors who an "Accdited I~Y~PIoR" for purposcs ofthc U.S SccuriU~s kf or1933 and arc "Qualcficd Purcharcri' for lhc pyrpos ofthc U S. lnv~srmenl Company Act of 1940. This sheel may not bc rcproduccd or vscd as sdcs lhte~~l~rc wilh rncmben 01 the gencrai public. A" invcstmcnf dccision with mpcd IO thc Fund should bc hoed solely on fhc mfomation confamcd ~n thc ConBdcntial Prirate Placemen1 Mcrnorandum for thc Fund. thc Chaner Docummls and thc Subscription Bcnklcl J.€?Morgaj J.P. Morgan lnsim~i~nal lnvestmcnfs. inc. Owrnkr FiNRNSIPC) IS thc Fund's placcmant agcnl Asset Management PALM BEACH GARDENS POLICE PENSION FUND BOARD OF TRUSTEES COMBINED INVESTMENT POLICY STATEMENT FOR ICC CAPITAL MANAGEMENT & RHUMBLINE GLOBAL ADVISORS Amended Julv 2008 1. PURPOSE OF INVESTMENT POLICY STATEMENT The Pension Board Trustees maintain that an important determinant of future investment returns is the expression and periodic review of the Fund's investment objectives. To that end, the Trustees have adopted this statement of Investment Policy. In fulfilling their fiduciary responsibility, the Trustees recognize that the retirement system is an essential vehicle for providing income benefits to retired participants or their beneficiaries. The Board also recognizes that the obligations of the Fund are long-term and that investment policy should be made with a view toward performance and return over a number of years. The general investment objective, then, is to obtain a reasonable total rate of return - defined as interest and dividend income plus realized and unrealized capital gains or losses - commensurate with the Prudent Investor Rule and any other applicable statute or requirement. A reasonably consistent and adequate return, protection of the assets against the inroads of inflation and safety of the assets are paramount. However, the volatility of interest rates and securities markets make it necessary to judge results within the context of several years rather than over short periods of one or two years or less. Performance will be measured quarterly. II. INVESTMENT PERFORMANCE OBJECTIVES - QUARTERLY EVALUATION MECHANISMS The below listed performance measures will be used as objective criteria for evaluating effectiveness of the Investment Managers: A. Total Return of the Combined Managers: 1. The performance of the total fund will be measured each quarter for rolling three and five year periods. These periods are considered sufficient to accommodate the different market cycles commonly experienced with investments. The return of this portfolio is expected to exceed the return of a portfolio comprising: Since Inception (3/31/92) until 11/30/95 - 25% S&P500,60% Lehman Brothers Aggregate Bond (LBAB), and 15% Citigroup Treasury Bill - 3 month (TBill); From 12/1/95 until 11/30/96 - 30% S&P500,6O% LBAB and 10% TBill; 1 From 12/1/96 until 11/30/97 - 40% S&P500,50% LBAB, and 10% TBill; From 12/1/97 until 12/31/98 - 60% S8P500 and 40% LBAB; rrom 1/1/99 until 6/30/00 - 30% Russell 1000 Growth, 30% Russell 1000 Value, and 40% LBAB; From 7/01/2000 until 12/31/2002 the combined performance is expected to exceed the return of a portfolio comprising: 60% S&P500 and 40% LBAB. From 01/01/2003 until 12/31/2003 the combined performance is expected to exceed the return of a portfolio comprising: 50% S&P500,10% S&P MidCap 400 and 40% LBAB. From 01/01/2004 until 09/30/2006 onwards the combined performance is expected to exceed the return of a portfolio comprising: 40% S&P500,10% S&P MidCap 400,10% S&P SmallCap 600 and 40% LBAB. From 10/01/2006 until 09/30/2007 the combined performance is expected to exceed the return of a portfolio comprising: 35% S&P500,10% S&P MidCap 400,10% S&P SmallCap 600,5% MSCl EAFE and 40% LBAB. From 10/01/2007 until 9/30/2008 the combined performance is expected to exceed the return of a portfolio comprising: 25% S&P500, 10% S&P MidCap 400,10% S&P SmallCap 600, 10% Russell 1000 Growth, 5% MSCl EAFE and 40% LBAB. From 10/01/2008 onwards the combined performance is expected to exceed the return of a portfolio comprising: 25% SBP500, 10% S8P MidCap 400,10% S8P SmallCap 600,10% Russell 1000 Growth, 10% MSCl EAFE and 35% LBAB. B. For ICC Capital Management. The performance of the total fund will be measured each quarter for rolling three and five year periods. These periods are considered sufficient to accommodate the market cycles commonly experienced with investments. After July 1, 2000 the return of this portfolio is expected to exceed the return of the LBAB. After October 1, 2008 the return of this portfolio is expected to exceed the return of 78% of the LBAB Index and 22% of the Russell 1000 Growth Index. C. For Rhumbline Global Advisors The performance of the total fund will be measured each quarter for rolling three and five year periods. These periods are considered sufficient to accommodate the market cycles commonly experienced with investments. After July 1, 2000 until December 31, 2002 the return of this portfolio is expected to match the return of the SBPSOO Index. From January 1, 2003 until December 31, 2003 the return of this portfolio is expected to match the return of an 80% S&P500 and 20% S&P MidCap 400 policy. After January 1, 2004 the return of this portfolio is expected to match the return of a 60% S&P500, 20% S&P MidCap 400 and 20% S&P SmallCap 600 policy. After October 1, 2007 the return of this portfolio is expected to match the return of a 56% S&P500, 22% S&P MidCap 400 and 22% S&P SmallCap 600 policy. D. For International Equity Mutual Funds After October 1, 2006 the return of this portfolio, which is made up of three (3) Vanguard Mutual Funds, is expected to exceed the return of the MSCl EAFE Index Fund. F For Each Investment Manager: 1. Relative to other similar investment managers, it is expected the manager's performance with regard to the total return of the fund will be in the top forty percent (40%) of the appropriate Performa Universe over three to five year periods. When performance is below the standard, the manager will report to the Trustees the reasons for the occurrence and the steps taken to avoid reoccurrence. a. On an absolute basis, it is expected that the total return of the fund will equal or exceed the actuarial earnings assumption, and equal or exceed the Consumer Price Index, plus 3% over three to five year periods. When performance is below these standards, the manager will report to the Trustees the reasons for occurrence and the steps taken to avoid reoccurrence. b. From time to time the performance monitor may adjust or change the evaluation indices andlor universes so as to more adequately measure and evaluate the investment manager's particular equity and fixed income investment style. Any such adjustment or change would be communicated to both the Investment Manager and the Pension Board Trustees at the time of said adjustment or change. 111. INVESTMENT GUIDELINES A. Authorized Investments 1. To include Certificates of Deposit up to a $100,000 maximum value and money market deposit accounts of a national bank, a state bank or a savings and loan association insured by the Federal Deposit Insurance Corporation. 2. Obligations issued by the United States Government or obligations guaranteed as to principal and interest by the United States Government. 3. Stocks, bonds or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia, provided: i. Equities will be traded on one or more of the following recognized national exchanges: 1. New York Stock Exchange 2. American Stock Exchange 3. The NASDAQ Stock Market b. The individual issue meets the following rating criteria: 1. Fixed income: Standard & Poor's, AAA, AA, A or Moody's Aaa, Aa, A 2. Equities: Value Line Investment Survey Rank for Safety, 1, 2, and 3 or Standard & Poor's A+, A or A- 3. Money Market: Standard & Poor's A1 or Moody's P1 Not more than five percent of the Fund's assets shall be invested in the common stock or capital stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed five percent (5%) of the outstanding capital stock of the company. Fixed income investments shall mean publicly traded debt securities issued by the United States Government or agencies of the United States Government, sovereign and supranational debt, domestic corporations and domestic banks and other United States financial institutions or mortgage/asset backed securities. "Yankee bonds" (debt securities issued by foreign entities denominated in U.S. dollars which are traded domestically) are also available for investment. Use of To Be Announced (TBA) Securities. All investments in TBA securities shall be issued by a Federal Agency or be of investment grade. Cash equivalent balances to satisfy the transaction must be available at the time of purchase and held until final settlement. Prohibited Securities. The following types of asset backed securities and collaterized mortgage obligations are not permissible for investment using the Fund's assets without the Trustees' prior written approval: 1. Securities paying Interest Only (IDS). 2. Securities representing Principal Only (Po's). 3. Accrual Bonds (z-tranches). 4. Inverse or Reverse Floaters with a multiplier greater than 1 .OO or less than 5. Asset pools not domiciled in the United States. 6. Collateralized Bond Obligations (CBO's) 7. Collateralized Debt Obligations (CDO's) 8. Collateralized Loan Obligations (CLO's) -1 .oo. 4 9. Companion bonds. 4. Mutual Funds, commingled stock, bond or money market funds whose individual investments are restricted to securities meeting the criteria expressed in 111. 5. Bonds issued by the State of Israel 6. The use of unhedged andlor leveraged derivatives will not be allowed in any form. 7. International Equity Stocks or Mutual Funds may be purchased B. Limitations Investments in corporate common stock, international equities, convertible bonds and convertible preferred issues should be targeted at sixty percent (60%) of the fund at market value and shall not exceed seventy percent (70%) of the fund assets at cost. No restriction is placed on the Fund's percentage holdings of bonds or cash. IV. COMMUNICATIONS AFFECTING BOTH MANAGERS A. 0. C. D. F. The custodian shall apprise the Trustees of all transactions and shall forward all proxies to the Managers within five calendar days. On a monthly basis, the custodian shall supply an accounting statement which will include a summary of all receipts and disbursements and the cost and the market value of all assets. On a quarterly basis, the Managers shall provide a written report affirming compliance with the security restrictions of Section 111 above and a summary of common stock diversification and attendant schedules. In addition, the Managers shall provide each quarter a report detailing the fund's performance, adherence to the investment policy, forecast of the market and economy, porlfolio analysis and current assets of the Trust. Written reports shall be mailed to the Trustees within 60 days of the end of the quarter. The Managers will provide immediate written and telephone notice to the Chairman of the Board of Trustees and the Performance Monitor of any significant market related or non-market related event, specifically including, but not limited to the resignation, termination or incapacity of any senior personnel. The Managers will disclose any securities which are not in compliance with Section 111 in each quarterly report. If the fund owns securities, which complied with Section 111 at the time of purchase, that are subsequently down graded below permissible levels, the Managers will dispose of such securities in the normal course of business. The Managers' quarterly reports will list separately any security whose value has diminished twenty- five percent (25%) or more from purchase price. The Trustees intend to meet periodically with the monitoring service's representative to review the Performance Report. The Trustees will meet with the Investment Managers and appropriate outside consultants to discuss performance results, economic outlook, investment strategy and tactics and other pertinent matters affecting the Fund as needed. 5 G. The Managers shall report to the Trustees on an annual basis how each proxy was voted, the issue as to each, and the date the proxy was voted. If a proxy was not voted, the Managers shall provide a written statement indicating the reason that particular proxy was not voted. The Trustees may wish to recapture as many of their commission dollars as possible consistent with obtaining the "best execution" as defined in ERISA Technical Release 86-1 which is made part of this agreement by reference. When there is any change in ownership of the investment management firm, the new firm will provide the Trustees with an audited balance sheet and will keep the Trustees fully informed of all material events. This is to include, but not be limited to, the loss of any clients, deterioration of the financial health of the firm and all employment contracts. H. I. V. CRITERIA FOR INVESTMENT MANAGER REVIEW The Board wishes to adopt standards by which judgments of the ongoing performance of an Investment Manager may be made. With this in mind, the following are adopted: If, at any time, any one of the following is breached, the Managers will be warned of the Board's serious concern for the Fund's continued safety and performance. 1. Four consecutive quarters of total fund performance below the fiftieth percentile (50*) in the Performa Mutual Fund Manager performance rankings. 2. Standard deviation for the Fund in excess of one hundred-twenty percent (120%) of the investment policy. 3. Loss by the Manager of any senior investment personnel. 4. Any change in basic investment philosophy by the Manager 5. Failure to attain a sixty percent (60%) vote of confidence by the Board members 6. Failure to observe the security quality restrictions of Section 111 7. Failure to maintain a positive three-year alpha. This shall in no way limit or diminish the Trustee's right to terminate the Manager at any time for any reason. VI. FLORIDA STATUTES AND APPLICABLE CITY ORDINANCES If at any time this document is found to be in conflict with Florida Statutes, or applicable City Ordinances, the Statute and Ordinances shall prevail. VII. REVIEW AND AMENDMENTS It is intended the Investment Managers and Trustees review this document periodically. If at any time the Manager feels that the specific objectives defined herein cannot be met, or the guidelines constrict 6 performance, the Trustees should be so notified in writing. By the initial and continuing acceptance of this investment policy statement, the Investment Manager concurs with the provisions of this document. For ICC Capital Management Date For Rhumbline Global Advisors Date For the Pension Board of Palm Beach Gardens Police Date ... Palm Beach Gardens Police Officers Pension Fund Summary of October 1,2008 Actuarial Valuation Report (Final Report will be completed by February 27th.) Reauired Contributions For FYE Total Required Contribution 9/30/20 1 0 $ 5,263,625 % of Payroll 50.93 % Estimated Member Contribution $ 888,812 % of Payroll 8.60 % Allowable Credit for State Contribution $ 412,644 % of Payroll 3.99 % City Contribution % of Payroll $ 3,962,169 38.34 % Covered Payroll $ 10,335,018 For FYE 9/30/2009 $ 4,567,398 48.79 % 805,075 8.60 % 412,644 4.41 % 3,349,679 35.78 % 9,361,341 Difference 2.14 Yo 83,737 0.00 % 0 (0.42) % 612,490 2.56 % 973,677 Exoerience Gain (Loss1 for 2008 $ (1 ,I 79,690) due to investments (2,196,330) (3,376,020) total due to other sources, primarily salary increases Investment Return: (13.6) % on market value of assets 3.6 % on actuarial value of assets Average Salary Increase: 13.8 % vs. 7.5% expected Funded Ratio 10/1/2008 53.3 % 10/1/2007 53.2 10/1/2006 48.9 Unfunded Actuarial Accrued Liability 10/1/2008 $ 28.2 million 1 O/ 1 /2007 24.4 million 1 O/ 1 /2006 23.8 million Note: The 2008 results listed above are not final. We will prepare final figures once we receive the audit report for 2008. Prepared by Gabriel, Roeder, Smith and Company February 13,2009 d W m m m T 9 9 E 4 a h e 0 .- .a 2 - 0 w L 0 0 I -hi m a' v; w t-: W& N B 3 E P E 00 I D I D D D D I I I I D D I D I D I I I D I I I I I I I I I e Investment Review to the Trustees of the Palm Beach Gardens Police Pension Fund February 13,2009 Denise D'Entremont Marketing Director dad@indexmngr.com I I W W rn W W W W W m 0 m W N rn m W W I - TABLE OF CONTENTS I. S&P 500 Pooled Index Fund 11. S&P 400 Pooled Index Fund 111. S&P 600 Pooled Index Fund IV. Benchmark Returns V. RhumbLine Update m m m m m w m m 8 m a m a m - PALM BEACH GARDENS POLICE PENSION FUND MARKET VALUE SLLMMARY S&P 500 POOLED INDEX FUND - Large-Cap Core Original Contribution (6/27/00) $5,461,008.87 Additional Contributions (11) x lPv $2,481,187.37 Withdrawal (2) $2,561,000.00 Net Investment $5,381,196.24 Market Value as of 1/31/09 $4.333.112.04 S&P 400 POOLED INDEX FUND - Mid-Cap Core Original Contribution (11/20/02) $1,000,000.00 Additional Contributions (3) + 160" $419,759.19 Net Investment $1,419,759.19 Market Value as of 1/31/09 $1.578.704.55 S&P 600 POOLED INDEXFUND - Small-Cap Core Original Contribution (10/14/03) $1,000,000.00 Additional Contributions (5) \(DW $792,744.30 Net Investment $1,792,744.30 Market Value as of 1/31/09 * * * * * * TOTAL NET INVESTMENT: $8,593,699.73 S&P 500 Pooled Index Fund $4,333,112.04 S&P 400 Pooled Index Fund $1,578,704.55 S&P 600 Pooled Index Fund $1,615,852.67 TOTAL ASSETS MANAGED as of 1/31/09 $7.527.669.26 1 PALM BEACH GARDENS POLICE PENSION FUND PORTFOLIO RETURNS S&P 500 POOLED INDEX FUND - Large-Cap Core Date ofInception: June 27,2000 PORTFOLIO m /. 32- 2009 (YTD) -8.38% January -8.38 2008 Q4 Q3 42 Q1 2007' 2006 2005 2004 2003 2002 2003 2000 Q4 Q3 -36.57% k$+ ra(f -21.61 -8.21 -8.40 -9.40 5.56% 15.86% 4.89% 10.86% 28.59% -21.91% -11.67% -8.25% -7.55 -0.75 S&P 500 INDEX -8.43% -8.43 -37.00% -21.94 -8.37 -8.43 -9.44 5.49% 15.79% 4.88% 10.88% 28.68% -22.10% -11.89°/o -8.73% -7.84 -0.97 -4.72% 2 I I m rn m m 4 m I I I I I m H CHARACTERISTICS (as ofJanuary 31,2009) Number of Holdings Weighted Market Cap ($MM) P/E! Ratio P/E Ratio Dividend Yield (%) 5 Year Earnings Growth (“A) Return on Equity (“A) Beta PORTFOLIO 500 72,709 1.5 11.2 3.11 15.80 21.48 1.00 S&P 500 INDEX 500 72,080 1.5 11.2 3.11 15.77 21.43 1 .oo S&P 500 POOLED INDEXFUND (as ofJanuary 31,2009) Assets: Number of Participants: % of Fund: $980.5 mion 33 0.43% 3 rn I I I I I I D m D I I 1 m m m I m I S&P 500 INDEX SECTOR PEAFORMANCE (as ofDecember 32,2008) SECTORS t of STOCKS WEIGHT Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Totals: 80 41 39 85 54 58 74 27 9 33 500 8.35% 12.79 13.25 13.90 14.72 10.99 15.17 2.91 3.82 4.11 100.00% 2008 RETURNS -33.43% -15.45 -34.81 -54.72 -22.89 -39.87 -42.97 -45.08 -30.47 -29.07 4 II m 8 rn rn m a a m I I I D rn rn I m NAME Exxon Mobil Corp Proder & Gamble General Electric AT&T Inc Johnson &Johnson Chevron Corp Microsoft Corp Wal Mart Stores Pfizer Inc J P Morgan Chase Totals: TOP 10 HOLDINGS (as of December 32,2008) X OF SHARES 680,995 399,817 1,406,087 788,929 373,310 274,465 1,024,153 299,578 900,465 499,704 6,647203 WEIGHT 5.14% 2.34 2.15 2.12 2.11 1.92 1.88 1.59 1.51 1.49 22.24% 2008 RETURN -13.14% -13.77 -53.98 -28.01 -7.77 -18.31 -44.39 20.00 -16.85 -25.13 ~ 5 TOP 5 PERFORMERS FOR S&P 500 RVDEX (us of December 31,2008) 2008 COMPANY INDUSTRY RETURN WEIGHT Family Dollar Stores Inc Retail 38.62% 0.05% UST Inc Tobacco 31.96 0.13 H&R Block Inc Business Services 25.77 0.09 Amgen Drugs & Medicine 24.35 0.77 Wal Mart Stores Inc Retail 20.00 1.59 BOTTOM 5 PERFORMERS FOR S&P 500 INDEX (as of December 31,2008) COMPANY INDUSTRY American Int'l Group Insurance XL Cap Ltd Insurance American Cap Ltd Miscellaneous Finance National City Corp Banks Genworth Finl Inc InSUranCe 2008 RETURN WEIGHT -97.25% 0.05% -92.15 0.01 -89.05 0.01 -88.75 0.05 -88.48 0.02 6 I I I I I I II I I I I I I I m M M m - e POATFOLIO COMMISSIONS (January 1 -December 32,2008) Brokers Utilized Total Commissions: Fund's Pro-rata Estimate: Total Shares Traded: Average Commissions per Share: ITG & Instinet $73,302 $315 4,101,122 1.84 /share I I PALM BEACH GARDENS POLICE PENSION FUND PORTFOLIO RETURNS S&P 400 POOLED INDEXFUND - Mid-Cap Core Date of Inception: November 20,2002 & 231 2009 (YTD) January 2008 Q4 Q3 Q2 Q1 2007 2006 2005 2004 2003 2002 December November* Since Inception (Annualized) ‘Partial Return (11/20/02 - 11/30/02) PORTFOLIO S&P 400 INDEX -7.23% -7.23 -35.96% -25.28 -10.82 5.42 -8.83 8.02% 10.20% 12.02% 16.52% 35.44Oh -1.17% -4.09 3.04 3.61% -7.25% 4% -7.25 -36.23% -25.55 -10.87 5.43 -8.85 4 7.98% 10.32% 11.78% 16.49% 35.62% -0.96% -4.11 3.29 3.55% xd 1 m I m D IB m I I CHARACTENSTICS (as of January 31,2009) PORTFOLIO Number of Holdings 400 Weighted Market Cap ($W 2,229 P/B Ratio 1.2 P/E Ratio 12.9 Dividend Yield (%) 2.31 5 Year Earnings Growth (%) Retum on Equity (%) Beta 12.52 15.26 1.41 S&P 400 INDEX 400 2,193 1.2 12.9 2.31 12.49 15.24 1.41 S&P 400 POOLED INDEX FUND (as ofJanuary 31,2009) Assets: $361.1MM Number of Participants: % of Fund 23 0.41% 2 D m m m m m m lm I m SECTORS S&P 400 INDEX SECTOR PERFORMANCE (as of December 31,2008) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Totals: # of STOCKS WEIGHT 73 16 25 72 40 62 59 30 2 21 400 13.83% 4.51 6.28 22.07 11.28 14.31 12.28 6.68 0.58 8.18 100.00% 2008 RETURNS -38.95% -24.88 -57.46 -27.20 -33.33 -36.67 -40.98 -44.49 -50.20 -20.33 3 B R w m D D D B m D B m D m m m m m TOP IO HOLDINGS (as ofDecember 31,2008) NAME Everest Re Group Vertex Pharmaceuticals Health Care Reit Inc Berkley W R Corp OReilly Automotive New York Bancorp Martin Marietta Materials Inc MDU Res Group Inc SAIC Inc Church & Dwight Inc Totals: t OF SHARES 35,461 87,800 60,400 80,912 78,500 200,826 24,195 107,125 118,300 40,927 834,446 WEIGHT 0.70% 0.69 0.66 0.65 0.63 0.62 0.61 0.60 0.60 0.60 6.36% 2008 RETURN -22.33% 30.78 0.30 4.91 -5.21 -27.73 -25.74 -20.04 -3.18 4.42 4 D m D I m m I D I I rn m a I rn I I m U rn rn a D I m m m m - e TOP 5 PERFORMERS FOR SbP 400 INDEX (as of December 31,2008) 2008 COMPANY SECTOR RETURN WEIGHT Valeant Pharmaceuticals Drugs & Medicine 91.31% 0.28% Dollar Tree Inc Retail 61.27 0.57 First Niagara Finl Group Banks 39.76 0.29 99 Cents Only Stores Retail 37.31 0.07 Thoratec Corp Drugs & Medicine 36.06 0.27 BOTTOM 5 PERFORMERS FOR SbP 400 INDEX (as of December 31,2008) 2008 COMPANY INDUSTRY RETURN WEIGHT Pacific Sunwear Retail -88.73% 0.02% Louisiana Pac Corp Paper Products -88.30 0.02 Patriot Coal Corp Miscellaneous -88.21 0.06 Belo A H Corp Media -88.05 0.02 iMymetrix Inc Business Services -87.08 0.03 5 h I I I I I I I I I I I I I I I I I D I I rn I D PORTFOLIO COMMISSIONS (January 1 -December 31,2008) Brokers Utilized: Total Commissions: Fund's Pro-rata Estimate: Total Shares Traded: Average Commissions per Share: ITG, Instinet & Jefferies $151,318 $620 8,048,883 18q hare P 6 PALM BEACH GARDENS POLICE PENSION FUND PORTFOLIO RETURNS SbP 600 POOLED INDEXFUND - Small-Cap Core Date of Inception: October 14,2003 2009 WD) January 2008 Q4 Q3 Q2 Q1 2007 2006 2005 2004 PORTFOLIO S&P 600 INDEX -12.48% -12.70% -12.48 1% -12.70 -30.76% ,+31 -25.00 -1.36 0.84 -7.20 -0.18% 15.7l% 8.81% 22.61% -31.07% -25.17 -0.85 0.40 -7.46 -0.30% 15.12% 8.68% 22.65% 2003 5.67% 5.90% December 1.59 1.77 November 3.61 3.78 October* 0.39 0.26 Since Inception (Annualized) 4.44% -0.65% x 2’ ‘Partial Return f10114103 - 10/31/03) CHAM CTERISTICS (as oflanuay 31,2009) Number of Stocks: Weighted Market Cap ($MM): P/B Ratio: .. :. . 1 P/E Ratio: .. . ../ .; :‘.q , ’ j-::: ::.,$ ’ I’ ..i : t . ~ .. . .I I ., Dividend Yield (“3): 5 Year Earnings Growth Rate (“3): Return on Equity (%) Beta: DebtBquity Ratio PORTFOLIO 600 835 1.1 13.3 1.91 11.98 13.01 1.49 33.60 S&P 600 INDEX 600 805 S&P 600 POOLED INDEXFUND (as of January 31,2009) Assets: Number of Participants: % of Fund $28.2MM 13 5.4% 1.1 13.2 1.91 11.97 12.91 1.50 33.76 2 SECTORS S&P 600 INDEX SECTOR PERFOZXMANCE (as ofDecember 32,2008) Consumer Discretionary Consumer Staples Energy FinanCialS Health Care Industrials Information Technology Materials Telecommunication Services Utilities Totals: t of STOCKS WEIGHT 118 21 24 107 73 90 119 30 2 16 600 12.86% 3.57 4.26 21.19 13.70 19.04 15.77 3.84 0.19 5.58 100.00% 2008 RETURNS -42.57% -14.39 -46.90 -25.29 -27.21 -26.88 -39.72 -48.51 -49.33 -3.99 3 TOP IO HOLDINGS (as ofDecember 31,2008) NAME # OF SHARES Piedmont Natural Gas Inc Itron Inc Atmos Energy Corp Landstar Sys Inc Senior Housing Properties Trust Watson Wyatt & Co Immucor Inc Proassurance Corp New Jersey Resources COT Clarcor Inc Totals: 6,795 3,183 8,360 4,945 10,600 3.936 6,513 3,130 4,028 4,721 56,211 WEIGHT 0.71% 0.67 0.65 0.62 0.62 0.62 0.57 0.54 0.52 0.51 6.03% 2008 RETURN 25.49% -33.58 -11.20 -8.51 -15.26 3.64 -21.80 -3.90 22.08 -11.78 4 TOP 5 PERFORMERS FOR S&P 600 INDEX (as of December 32,2008) 2008 COMPANY SECTOR RETURN WEIGHT Viopharma Inc Drugs & Medicine 63.98% 0.03% Hot Topic Inc Retail 59.28 0.12 National Presto Industries Consumer Durables 58.74 0.12 First Bancorp Banks 57.43 0.25 Gentiva Health Services Business Services 53.68 0.26 BOTTOM 5 PERFORMERS FOR S&P 600 INDEX (as of December 32,2008) COMPANY Crocs Inc Champion EI pris Arthrocare Corp INDUSTRY Apparel Consumer D cable Drugs & Medicine 2008 RETURN WEIGHT -96.63% 0.03% -94.06 0.01 -90.07 0.04 Flagstar Bancorp Inc Miscellaneous Finance -89.81 0.01 Corus Bankshares Inc Banks -89.36 0.01 5 I PORTFOLIO coMMI;ssIoNs (January 1 -December 31,2008) Brokers Utilized Total Commissions: Fund's Pro-rata Estimate: Total Shares Traded Average Commissions per Share: lTG, Instinet & Jefferies $20,446 $1,104 1,070,594 1.96 /share 6 m I m H B ID a $a 3 e, us I I D I B B B H m &POORS November 12,2008 Standard & Poor's Indices Versus Active Funds Scorecard, Mid Year 2008 0 The S&P Indices Versus Active Funds (SPIVA) Scorecard report performance comparisons corrected for survivorship bias, shows equal- and asset-weighted peer averages, and provides measures of style consistency covering actively managed US. equity, international equity and fixed income mutual funds. 0 Starting with this report, we reintroduce an enhanced SPIVA with broader asset class coverage. Data for enhanced SPIVA is from the CRSP Survivor-Bias-Free U.S. Mutual Fund Database. To accommodate CRSP release schedules, the new SPrVA will be published semi-annually with a fourteen week lag. 0 Over five years ending June 2008, S&P 500 outperformed 68.6% of actively managed large cap funds, S&P MidCap 400 outperformed 75.9% of mid cap funds and S&P SmallCap 600 outperformed 77.8% of small cap hnds. 0 Among global equity funds, five-year results show S&P Global 1200 outperforming 70.1% of giobal equity funds, S&P 700 outperforming 86.5% of international equity funds, and S&P IFCI Composite outperforming 73.9% of emerging market funds. L Media Contacts Dave Guarina (212) 438-1471 .~ :,.: ;.,*~''; ,., :;:.?,::':! 0 Among fixed income funds, indices outperformed twelve of thirteen categories over a five-year horizon. Only emerging market bond funds outperformed their benchmark index. D Funds disappear at a meaninghl rate. Over five years, 26.8% of U.S. equity funds, 22.5% of global equity hnds and 24.7% of fixed income funds have been merged or liquidated. This highlights the importance of addressing survivorship bias in mutual fund analysis. Standard 8 Poor's Indices Versus Active Funds Scorecard I I I I I I rn rn rn B rn rn A Uniaue Scorecard for the Active Versus Passive Debtate The Standard & Poor's Indices Versus Active Funds (SPIVA) Scorecard presents the performances of actively managed mutual funds as compared to benchmark indices. It reports c0verU.S. equity, international equity and fixed income categories. The popularity of SPIVA stems from a few unique attributes: Survivorship bias correction: Many funds might be liquidated or merged during a period of study, However, for someone making an investment decision at the beginning of the period, these funds are part of the opportunity set. Unlike commonly available comparison reports, SPIVA removes this survivorship bias. Apples-to-apples comparison: Fund returns are often compared to popular benchmarks such as the S&P 500, regardless of size or style classification. An appropriate comparison would be to measure a fund's returns against the returns of a benchmark for that particular style and size category. SPIVA reports do this. Asset-weighted refurns: Average returns for a fund group are often calculatea using only equal weighting, which results in the returns of a $10 billion fund affecting the average in the same manner as the returns of a $10 million fund. An accurate representation of how investors fared in a particular period can be ascertained by calculating weighted-average returns, where each fund's return is weighted by net assets. SPIVA reports show both equal- and asset-weighted averages. Style consisfency: SPIVA reports measure style consistency for each style category across different time horizons. Style consistency is an important metric because style drift (the tendency of funds to move away from their initial investment categorization) can have an impact on asset allocation decisions. Dafa Cleaning: SPIVA avoids double counting of multiple share classes in all count based calculations, where only the share class with bigger assets is used. Since this is meant to be a scorecard for active managers, index funds, leveraged and inverse funds and other index-linked products are excluded. SPIVA reports are the only comprehensive, periodic and publicly available sources of such data. SPIVA reports can be found online at Enhancements to SPIVA SPIVA has been a popular keeper of statistics on the active versus passive debate fore more than five years. Till first quarter of 2007, it was based upon the S&P Mutual Fund database, a continuous, consistent, survivorship-bias free database. In 2007, that database lost much Of its continuity and consistency following its sale and reshuctwing. Therefore, we had to seek alternative data sources to which we could apply the SPIVA methodology. Standard & Poor's Indices Versus Active Funds Scorecard I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Chdarrl R Dnnrk The Center for Research in Security Prices (CRSP), a research center at the University of Chicago, Graduate School of Business, is well-known for its survivorship bias fiee databases used in academic research. The CRSP Survivor-Bias-Free US. Mutual Fund Database is currently the only complete database ofboth active and liquidatdmaged mutual funds. (That database used the S&P Mutual Fund database as itn source data and had to be rebuilt with Lipper data since the sale of the S&P database.) The data we use in enhanced SPIVA is drawn from the CRSP Survivor-Bias-Free US. Mutual Fund Database. The fund categories we use in SPlVA are drawn from Lipper's style classifications. Appendix A explains how the SPIVA categories map into Lipper Classifications. CRSP updates its database with a three-month lag. Therefore, SPIVA reports Will be published every six months, with a three month lag, and focus on longer- term metrics. The new SPIVA offers a few enhancements over its prior incarnation. The use of a respected survivorship-bias free database provides a solid foundation for the reports. The CRSP database sets the standard for academic research databases and is widely used by researchers. Fund category coverage has been expanded and streamlined to cover almost all mainstream mutua! fund categories across U.S. equity, international equity and fixed income. The breadth of SPIVA has been expanded to cover more than 3500 unique fund portfolios. (Reports 2,7 and 12 give precise counts used for each category in each time period.) - U.S. Equity Funds Over longer time horizons, indices continue to outperform active managers. For the three years ending June 30,2008, the S&P 500 outperformed 57.5% of active large-cap funds, the S&P MidCap 400 led 63.5% of mid-cap funds, the S&P SmallCap 600 outperformed 59.6% of small-cap funds and the S&P Composite 1500 led 53.7% of multi-cap funds. Over the past five years, indices also outperfarmed active funds. The S&P 500 outperformed 68.6% of active large-cap funds, the S&P MidCap 400 led 75.9% ofmid-cap funds, the S&P SmallCap 600 outperformed 77.8% of small-cap funds and the S&P Composite 1500 outperformed 58.2% of multi-cap funds. For the one-year period ending June 30,2008,59.2% ofactive large-cap funds outperformed the S&P 500 Index and 56.3% of multi-cap funds outperformed the S&P Composite 1500 Index. As the credit crisis unfolded last year, active managers who were overweight in energy and materials and/or underweight fmancials and holding higher than average cash positions outperfanned benchmark indices. The S&P Midcap 400 Index outperformed 63.5% of active mid-cap funds and the S&P SmallCap 600 outperformed 59.5% of active small-cap funds. At a more granular style box level, results were a tie. I I I I I I I Standard &Poor‘s Indices Versus Active Funds Scorecard Looking at the real estate fund category, the S&P BMI U.S. REIT Index outperformed a majority of active manager; over one, three and five year horizons. International Eauitv Funds As in the U.S. equity category, indices led a majority of active funds over longer time horizons. Over three and five year horizons, the S&P Global 1200 outperformed actively managed global funds by 61.5% and 70.1% respectively. Comparable figures for S&P 700 versus international funds were 85.1% and 86.5%. (Wlobal” funds invest in global equity markets including the U.S., while “International” funds invest in ex- U.S. markets.) The results for indices leading a majority of active funds persisted in less eficient markets such as international small caps and emerging markets. The S&P Developed Ex-U.S. SmallCap Index outperformed 54.3% and 55.3% of international small cap funds for three- and five-year periods respectively. The S&P IFCI Composite index outperformed 73.0% and 73.9% of active emerging market funds over three and five years respectively. Over the one-year horizon, the S&P 700 Index outperformed 69.7% of active international funds. With the outperformance of the energyhaterials sectors, emerging market funds benefited from overweights in Brazil and Russia. 54.0% of emerging market funds outperformed the S&P/IFCI Composite Index. 52.1% of international small-cap funds outperformed the S&P Developed Ex-US. SmallCap Index. At the global funds level, results were a tie. Fixed Income Funds Over five years, indices outperfomed more than three quarters of actively managed funds in all of the domestic bond fund categories. Only active emerging madcet band funds outperformed their index. Over three years, indices outperformed a inajorjty of active managers in 1 1 of 13 fixed income categories. Over a one-year horizon, indices outperformed a majority in all categories. The degree of outperfomance of indices versus active funds over longer time horizons is much higher for fixed income funds compared to equity funds. We theorize that there could be two reasons for this. First, the comparatively lower liquidity and higher transaction costs of fixed income securities increases relative costs for real world portfolio management. Note that index returns do not have any frictional costs. Second, there is lower cross-sectional dispersion which presents fewer active selection opportunities. Survivorship Over five years, 26.8% of US. equity funds, 22.5% of global equity funds and 24.7% of ked income funds have been merged or liquidated. Over three years, the comparable numbers were 15.3%, 9.3% and 16.0% respectively. This highlights the importance of addressing survivorship bias in mutual hd analysis. li I I I I I I B I I s I I I I I I I I I - 1 I V Standard Poor's Indices Versus Active Funds Scorecard Report 1: Percentage of U.S. Equity Funds Outperformed by Benchmarks Real Estate Funds Source: Standard & Poo115, CRSP For peilods endlny June 30. 2008. Outperformance is based "pol equalweig?ted fuld Counts. i I I I I I I I I I I I I I I I I I I I I I - r RhumbLine’s ofice located at 30 Rowes Wharf-Boston q- RHUMBLINE UPDATE I I I I I I D I D I I D I I I I I CURRENT PROFILE (as of December 3 I, 2008) Assets Under Management: $14.7 Billion Diversified Client Base 65 Public Funds 23 Corporate/ERISA 24 Endowments/Foundations 22 Taft-Hartley’s 2 Private Trusts 2 Sub-Advisory Relationships Committed Team of Experienced Professionals 1 I D I D I D D D I I D I I I D I I I I I I I I D I I I I I I I I N Y & 0 Y 2 I I D I I I D I D I D I I I I I D I I I I I I I I I I I I -I L ! c * 0 w N 0 w L-I L I E N I I b I L I k I 5 3 z 3 3 g: - d I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I a 3 si 0 Y 3 0 2 4 0 b % 8 2 3 rn 2 3 d c % 3 d b F: . i s s 0 0 2 3 m 0 s * 0 0 m 3 m .. a a = QJ v) 3 d I D I I I I I D I I I D I B I I I D I D I I I D D I I - Y 7 1 D I I .......................................... ...................... ....... ................... I I I I I B I I I I I I I B I I I I I I I I I I I I I I I I I -0 I: M !! .- 3 ,. .. mb Last I Year Year Comwnv Asset Managers Atlanta, GA Paul E. Viera 1999 50 $22.391 I 2 Ariel Investments LLC: SI Chicago, I1 John W. Rogers Jr. 1983 102 13.155 I 5 I 4 Advent Capital Management LLL New Yo* NY Tracy V. Maitbnd 19% 46 +l% I " I 7 I 6 UtendahlCapitalManagementLP New York, NY Penny Zuckrwise 1992 n 2.036 *< +.- 4-4 2059 ..< ". 9 1 9 HollandCapitalManagementLLC. Chicago, u. Monica L Walker 1991 23 ll I 5 BrownfapitalManagement Inc. Baltimore, MD Eddie C. Brown 1983 25 1.980 Sp~ingfield, VA Randall R. Eley 1986 10 Ronald D. Brown 1% I JUNE 2008 :BLACK ENTERPRISE ; WWW.ELACKENTERPRISE.COM I I I I I I I I I I I I I I I I E I I I I I The RhumbLine Team I To the Trustees of the Palm Beach Gardens Police Pension Fund THANK YOU Your Business and Your Continued Support of RhumbLine 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr -46.3 -13.53 -16.52 -18.15 -19.53 -22.95 -6.59 -8.48 -9.85 -1 1.28 -13.3 -3.18 -4.95 -5.97 -7.02 -8.77 -0.41 -2.14 -3.14 -4.21 -6.07 3.8 2.47 1.6 0.24 -1.58 -0.15 -2.78 -3.96 -5.33 -1.61 -1.92 -3.17 4.51 -5.93 -7.82 Fiscal Year Returns Ending September Fund Return %-tile Policy Return %-tile Universe 5th %-tile Diff Incept #of Negative Qtrs #of Positive Qtrs Batting Average Worst Qtr Best Qtr Range Worst 4 Qtrs Standard Deviation Beta Annualized Alpha R-Squared Sharpe Ratio Treynor Ratio Tracking Error Information Ratio Fund Policy 0 0 0 0 5.21 2.25 -2.96 0.64 3.46 0.05 2.57 -0.17 0.26 2.53 10.81 4 1 40 -17.58 3.5 21.08 -37.8 24.44 1.04 -1.94 0.81 -1.56 -36.56 10.69 -0.3 4 1 60 25th %-tile 50th %-tile 75th %-tile 95th %-tile Qtr -16.94 1 -22.79 50 -20.31 -21.89 -22.82 -24.41 -26.99 -16.94 1 -22.79 50 -20.31 -21.89 -22.82 -24.41 -26.99 2008 -30.79 100 -20.88 32 -15.25 -20.07 -22.53 -25.72 -29.44 2007 27.74 21 53 18.79 15.69 10.15 2006 11.56 8.5 5.96 3.16 -3.37 2005 26.56 18.97 14.4 11.48 7.67 -0.1694 -0.2279 -0.1694 -0.2279 -22.79 1.25 24.04 -38.44 21.18 1 0 1 -1.64 -34.82 0 Diff 0 0 -20 5.21 2.25 -2.96 0.64 3.26 0.04 -1.94 -0.19 0.08 -1.74 10.69 Palm Beach Gardens Police Pension Fund 2004 17.89 11.72 8.74 6.26 2.04 2003 34.24 24.4 21.58 18.63 13.1 2002 -12.54 -18.67 -21.5 -24.59 -30.7 2001 -27.62 -33.35 -38.5 -46.64 -56.07 3 Qtrs Z Yr -31.54 43 -32.31 50 -27.34 -30.16 -32.36 -34.74 -40.42 ICC LARGE CAP UNIVERSE HERE Palm Beach Gardens Police Pension Fund ICC Large Cap Growth Universe Comparisons Risk Measures ICC LARGE CAP RISK MEAS. HERE Palm Beach Gardens Police Pension Fund ICC Large Cap Growth Broad Large Cap Growth 51 39 1 Yr Returns are in percent. "%-tile" is the percentile ranking within the ur # of Negative Qtrs Returns for periods exceeding one year are annualized. Incept is September 30,2007 to December 31,2008 Trailing Returns through December 31, 2008 Fund Best Qtr Return Range %-tile Worst 4 Qtrs Policy Standard Deviation Return Beta %-tile Annualized Alpha Universe R-Squared 5th %-tile Sharpe Ratio 25th %-tile Treynor Ratio 50th %-tile Tracking Error 75th %-tile Information Ratio 95th %-tile Fund 2 Qtrs #of Positive Qtrs Batting Average Worst Qtr -0.3154 -29.14 13 -31.46 50 -27.94 -30.21 -31.47 -34.49 -38.7 -37.8 31 -38.44 43 -37.61 -39.5 -32.98 -42.38 -0.3231 -0.2914 -0.3146 Policy -0.378 -0.3844 3 I 1 50 3.5 21.08 -37.8 25.95 1.05 2.57 -1.53 -17.58 0.83 10.81 -37.71 0.06 3 1 50 -22.79 1.25 24.04 22.49 1 0 1 -1.79 40.24 -38.44 -32.58 3.2 Fiscal Year Returns Ending September Fund Policy Diff Qtr 1213 1 /ZOO8 YTD -16.94 -22.79 2009 -16.94 -22.79 2008 -30.79 5.85 5.85 -20.88 -9.91 2007 2006 2005 2004 2003 2002 2001 2000 Returns in UD Markets Fund Policy Ratio 1 Yr Incept Returns in Down Markets Fund Policy Ratio 1 Yr -0.1 308 Incept 3.5 1.2 9/30/2007 3.5 1.2 280 280 -39.9 -39.2 101.8 9/30/2007 -44.5 -39.7 112.1 LOCK -und ICC LARGE CAP EXECUTIVE HERE Palm Beach Gardens Police Pension Fund ICC Large Cap Growth Executive Summary Inception date is September 30, 2007 All dollar values are shown in thousands. Returns for periods exceeding one year are annualized. Returns are gross of fees. Account Reconciliation Beginning Value Net Flows Investment G/L Ending Value 31 Qtr MD Incept 12/31/2008 2,863 238 -498 2,604 2009 2,863 238 498 9/30/2007 2,320 1,919 -1,635 2,604 2604000 2,604 2604000 Investment Poky Index Russell 1000 Growth Total Weight 100 100 Trailing Retums through December 31, 2008 Fund Policy Diff 1 Yr -37.8 -38.44 0.64 2Yr 3Yr4Yr 5Yr6Yr 7 Yr 8Yr9Yr 10Yr 9/30/2007 Incept -35.70 2 Yr 3 Yr 4 Yr -54.64 -19.79 -0.1979 40 -20.27 -0.2027 45 -14.94 -18.71 -20.71 -23.43 -29.21 -2.87 -5.77 -7.49 -10.13 -14.88 2.54 -0.79 -2.32 4.1 -7.94 5 Yr 6.64 3.31 1.77 n nr Diff 2 Yr #of Negative Qtrs #of Positive Qtrs Batting Average Worst Qtr Best Qtr Range Worst 4 Qtrs Standard Deviation Beta Annualized Alpha n e-..---* 0 0 0 0 -2.04 0.61 2.65 -0.91 -12.88 -0.89 -39.1 3 -0.95 -1.77 -371.23 26.33 Return %-tile Universe 5th %-tile 25th %-tile 50th %-tile 75th %-tile 95th %-tile Qtr MD #VALUE! #VALUE! #VALUE! #VALUE! -22.54 -0.2254 -19.9 -0.199 65 37 -14.76 -19.25 -20.88 -24.27 -28.77 -22.54 65 -19.9 37 -14.76 -19.25 -20.88 -24.27 -28.77 2008 -29.1 -0.291 36 -30.12 -0.3012 45 -23.37 -27.72 -30.7 -33.93 40.21 2007 27.48 43 25.38 57 45.57 31.15 26.18 23.56 18.63 2006 26.04 20.73 18.6 Diff Incept #of Negative Qtrs #of Positive Qtrs Batting Average Worst Qtr Best Qtr Range Worst 4 Qtrs Standard Deviation Beta Annualized Alpha R-Squared Sharpe Ratio Treynor Ratio Tracking Error Information Ratio Fund -20.5 6.67 27.17 43.06 21.49 1 0 1 -1.09 -23.53 0 0 0 0 -2.04 2.1 4.14 -0.91 -6.66 -0.67 -13.08 -0.77 -0.46 46.32 19.4 5 4 44.44 -22.54 8.82 31.36 43.97 15.55 0.37 16.77 13.32 2005 48.69 34 26.71 24.1 20.79 2004 33.21 25.4 21.35 17.89 13.13 2003 51.17 34.61 26.12 21.8 17.28 2002 11.68 -0.47 -12.57 -16.62 -21.09 2001 -14.24 -25.9 -31.34 -37.03 -45.47 Policy -9.28 0.25 -1.16 -48.95 18.91 0 Diff 5 4 55.56 -20.5 10.4 30.9 -43.06 20.99 1 0 1 -0.86 -18.03 0 0 0 -11.12 -2.04 -1.58 0.46 -0.91 -5.44 -0.63 -9.28 -0.75 -0.3 -30.92 18.91