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Agenda Police Pension 021407
i i Agenda City of Palm Beach Gardens Police Officers' Pension Fund MEETING OF FEBRUARY 14TH, 2007 LOCATION: City Council Chambers' City Hall 10500 North Military Trail Palm Beach Gardens, FL 33410 TIME: 9:00 AM 1. Call Meeting To Order 2. Roll Call: • Lt. Jay Spencer, Chairman • David Pierson, Secretary • Jules Barone, Trustee • Brad Seidensticker, Trustee • Wayne Sidey, Trustee 3. Approval of Minutes: November 16th, 2006 Regular Meeting 4. Election Results 5. Reporting of Plan Financials • Audited Financial Statement (Cherry Bekaert & Holland) • Unaudited Financial Statements • Disbursements Approval 6. Investment Manager Reports • ICC Capital (Grant McMurry) • Rhumbline Advisors (Denise D'Entremont) 7. Investment Consultant Report: GRS Asset Consulting (John McCann) 8. Attorney Report: Hanson, Perry, & Jensen, P.A. (Bonni Jensen) 9. Disbursements Approval 10. Administrative Report (Scott Baur) 11. Other Business 12. Schedule Next Meeting . . 13. Adjourn PLEASE NOTE: Should any interested party seek to appeal any decision of this Board with respect.to any matter considered at such meeting or hearing, s /he will need a record of the proceedings and for such purpose may need to ensure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. In accordance with the Americans with Disabilities Act of 1990, persons needing a special accommodation to participate in this meeting.should contact the The Pension Resource Center, PLC no later than four days prior to the meeting. ... t f DRAFT FOR DISCUSSION 2/13/2007 1:30 PM G PALM BEACH GARDENS fx. POLICE OFFICERS PENSION FUND N t,p -PALM BEACH GARDENS POLICE OFFICERS' PENSION FUND Contents Page Report of Independent Auditors ...... ............................... .......... .............. 2 - 3 Management's Discussion and Analysis .............. ti ............................ : . . . . . . . 4 - 9 BASIC FINANCIAL STATEMENTS Statements of Plan Net Assets .... ............................... ...... ............................... 10 Statements of Changes in Plan Net Assets ..................... ............................... 11 Notes to Financial Statements ................... ....... ,...........:............:... 12 - 16 REQUIRED SUPPLEMENTARYF,INFORMATION (UNAUDITEb)- Schedule of FundmgxHPogress ... 17 s from the mployer Schedule of Contribution E and Other Contributing Entities ` ........................... ...................... 18 Note to Schedule of Funding Progress and Schedul:e;.of Contributions from the -Eat ojrer .. and OtherContributing Enfities ........ .. .......................................... ............................... - 19 20 OTHER SUPPLEMENTARY1NFORMATION .Schedule of Administrative and Investment Expenses ................:... ............................... 21 OTHER REPORTS Report on Internal Control Over Financial Reporting and on Compliance And Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ..... ............................... 22-23 4 Report of Independent Auditors Board of Trustees Palm Beach Gardens Police Officers' Pension. Fund Palm Beach Gardens, Florida We have audited the accompanying statements of plan netTassets of the ;Palm Beach Gardens Police Officers' Pension Fund (the "Fund ") as of Septoi6ber 30, 2006 -and 200.5,,,and the related statements of changes in plan net assets for the years then ended. These financial statements are the responsibility of the Fund's Board. of. Trustees and Officers. Our responsibility is to express an opinion on these financial statements basedon our audits. We conducted our audits in accordance with .auditing standards generally accepted in the United States of America and the standards applicable -`to financial audits contained in Government Auditing Standards issued by the Comptroller General; of the United States. Those standards require that we plan and perform 'the audit to obtain ;reasonable assurance about whether the financial statements are free', of material - «misstatement. An audit includes examining, on a test basis_ev dence supporting,�tt= e -amours °and r disclosures in the financial statements. An audit also mclrides assessingfhe accounting principles used and significant estimates made by,,,management, as well as, evaluating the overall. financial statement presentation. We beliem0at our audits provide va reasonable basis for our opinion. As discussed in Note 1, tie financi entsr present only the Fund and do not purport to, and do not,,present fairly theRf Mancial posi M_ the City of Palm Beach Gardens, Florida as of September' 30, 2006 arid,.. 200E,`� d the changes in its financial. position for the years then ended inM conformity withaccounting� standards generally accepted in the United States of America In our opinion,the financial statements referred to above present fairly, in all material respects, information ref8t, iJ g the Palm Beach Gardens Police, Officers' Pension Fund's plan net assets as of September 30 ,2006 and 2005, a. nd the changes therein for the years then ended in conformity with accountn.gm principles generally accepted, in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 12, 2007 on our consideration of the Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report 'is to describe-the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in .accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 2 4 Report of Independent Auditors Board of Trustees Palm Beach Gardens Police Officers' Pension. Fund Palm Beach Gardens, Florida We have audited the accompanying statements of plan netTassets of the ;Palm Beach Gardens Police Officers' Pension Fund (the "Fund ") as of Septoi6ber 30, 2006 -and 200.5,,,and the related statements of changes in plan net assets for the years then ended. These financial statements are the responsibility of the Fund's Board. of. Trustees and Officers. Our responsibility is to express an opinion on these financial statements basedon our audits. We conducted our audits in accordance with .auditing standards generally accepted in the United States of America and the standards applicable -`to financial audits contained in Government Auditing Standards issued by the Comptroller General; of the United States. Those standards require that we plan and perform 'the audit to obtain ;reasonable assurance about whether the financial statements are free', of material - «misstatement. An audit includes examining, on a test basis_ev dence supporting,�tt= e -amours °and r disclosures in the financial statements. An audit also mclrides assessingfhe accounting principles used and significant estimates made by,,,management, as well as, evaluating the overall. financial statement presentation. We beliem0at our audits provide va reasonable basis for our opinion. As discussed in Note 1, tie financi entsr present only the Fund and do not purport to, and do not,,present fairly theRf Mancial posi M_ the City of Palm Beach Gardens, Florida as of September' 30, 2006 arid,.. 200E,`� d the changes in its financial. position for the years then ended inM conformity withaccounting� standards generally accepted in the United States of America In our opinion,the financial statements referred to above present fairly, in all material respects, information ref8t, iJ g the Palm Beach Gardens Police, Officers' Pension Fund's plan net assets as of September 30 ,2006 and 2005, a. nd the changes therein for the years then ended in conformity with accountn.gm principles generally accepted, in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 12, 2007 on our consideration of the Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report 'is to describe-the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in .accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management's discussion and analysis, and the required supplementary information listed on the "table of contents; are not required parts of the basic financial . statements but are supplementary information .required by the Governmental Accounting Standards Board. We have applied certain limited' procedures which consisted principally of inquiries of management regarding the methods of measurement and,-, _presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audits were conducted for the purpose of , forming an opinion on the basic financial statements taken as a whole. The other supplementary information listed on the accompanying table of contents is presented for the purposes of _additional analysis and,is not a required part of the basic financial statements. The other supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly statPrl in rPlatinn th the hasic financial statements taken as auwh'ole. L . }Ilk c, Y � Y r b Management's Discussion and Analysis -As management of the Palm Beach Gardens Police Officers' Pension Fund (Fund), we offer readers of the Fund's financial statements this narrative overview of the financial activities of the Fund for the years ended September 30,', 2006 and 2005. This narrative is intended to supplement the Fund's financial statements, and we encourage readers to consider the information presented here in'conjunction with these statements, which begin on page 10. f W Overview of the financial statements The following discussion and analysis are intended to serve as an introduction to the Fund's financial, statements. The financial statements are: • Statements of Plan Net Assets • Statements of Changes in Plan Net Assets • Notes to the Financial Statements This report also contains the following "Required Supplementary Information" 4to the financial statements: • Schedule of Funding Progress • Schedule of Employer Contributions • Notes to the Required Supplementary Information The financial statements contained in the report are.adescnbedbelow: • The Statements.. of Pan.�Net Assets 'i's a point mktime snapshot of account balances at fiscal year -end:'_lt reports the�assets available for future payments to retirees and any current liabilities that are owed as of the statement date. The resulting Net Assets -, ,-value %(Assets — Liabil'ities = Net Assets) represents the value of assets held m °trust for pension benefits. ' • The Statements of Changek_ n Net; Assets displays the effect of pension fund transactions that occurred cf ing the fiscal year, where Additions — Deductions = Netncrease (Decrease) in Net Assets.. This Net Increase (Decrease) in Net Assets reflects the ddahge in the net asset value of the Statement of Plan Net Assets from the prig-r,,,, year to the current year. Both statements are in compliance -with Governmental 'Accounting Standards Board (GASB) Pronouncements • The Notes to .the Financial Statements are an integral . part of the financial. rystatements and provide additional information that is essential -to the comprehensive understanding of the data provided in the financial statements. These notes describe the accounting and administrative policies under which the Fund operates and provide additional levels of detail - for select financial statement items (See Notes to Financial Statements on pages 12 to 16 of this i report.) 4 Because of the long term nature of a defined benefit pension plan, financial statements alone cannot'provide sufficient information to properly reflect the ongoing plan perspective. Therefore, in addition to the financial statements explained above, this financial report includes two G additional "Required Supplementary Information" schedules with historical trend information. • The Schedule of Funding Progress. (page 17) includes actuarial information about the status of the plan from an ongoing, long -term perspective and the progress made in accumulating sufficient assets to pay pension benefits when due. Valuation Assets in excess of Actuarial Accrued Liabilities indicate that. sufficient assets exist to fund future pension benefits of the current members and benefits recipients. • The Schedule of Contributions from the Employer and °Other Contributing Entities (page 18) presents historical trend information regard'i�Qg the v8106;of total annual ' contributions required to be paid by the City and` State a� the actual performance of the City and State in meeting this requirement.. The Notes to Required Supplementary Information_ provide back- and information and explanatory detail to aid`` m understanding the 6quired supplementary schedules. Financial highlights The net assets of the Fund exceeded its iiabi itiesat the cl. e of the fiscal years ended September 30, 2006 and 2005;vvith $22;997,, «225aand $19,539,635 in net assets held in trust forpension benefits,mreepectively" • Net assets increased by $3457,590 or 1.7.7 percent during 2006, primarily due to y employer and employee contributions. Net assets in creased' by $3;525,27,1 or 22.0 percent during 2005, primarily due to empioyerand employee contributions • The Fund's funding, objective is to meet long -term benefit obligations. As of October 1, 2005, the date of th'6 latest actuarial valuation, the funded ratio of the Fund was 63.7 percent: In general,, this'means that for. every dollar of pension benefits`_due, the Fun"as $0.63 of n; et.assets available for payment. - • Additions topian net assets for the, year ended September 30, 2006 were hich $4,173,063 w includes member, employer and state contributions of, $2,864,399 an,(� et gains from investment activities totaling $1,308,664. • Additions to plan net assets for the year ended September 30, 2005 were $4,221,203 which includes member,. employer and state contributions of $2,658,361 and net gains from investment activities totaling $1,562,842. • Deductions from plan net assets increased from $695,932 during 2005 to $715,473 in 2006 or about 2.80% percent. Most of. the increase relates to new retirees and disability benefit payments made in 2006. 5 t Analysis of financial activities The Fund's funding objective is to meet longterm benefit obligations through investment income and contributions. Accordingly, the collection of employer and member contributions, and the income from investments`provide the reserves needed to finance future retirement benefits. r Contributions from the City of Palm Beach Gardens are made at levels determined by the Fund's actuary. Because .of low_ er than expected investment returns and experience losses incurred in previous years, the City's contribution requirement has Increased. The, Fund's investment portfolio' produced positive returns in 2006 and 2005 Net assets held in ,trust for pension benefits rose by $3,457,590 in 2006, compared to a $3x525270 increase experienced in 2005. Since these net assets are used to meet ongoing beneft obligations to plan participants and their beneficiaries, 2006's positive returns Flave improved the Fund's funding status. Net Assets (Table 1) As of Se te.mber 30, 2006, 2005 and 2004 increase Decrease 2006 to 2005 _ 2005_ to 2,004 2006 200a-1 2004. Current and other $ 875,498 $ 338,35',3:' $ .337,679 $ 53'7,_145 158.86/6 $ 674 0:1 % assets Investments, at fair 22,154,855 19,224,255 X15;696 143 2 ;930,600 15.2 3,528,112 22.5 value ., Total assets 23`;030,353 1_9;562,608 16;033,822 1 3,467,745` 17.7 3,528,786 22.0 Current liabilities 3s3;;128 22,973. 1 10,155 . 44.2 3,515 18.1 _ $22,997,225 ,;,$19,539 6�& �$„16 014,364: $3,457,590 -. `17.7 � $3,525,271 22.0 Net assets . -- As the years roll forwardand the totet assets and liabilities_grow, the Fund's investment income will play: ,significant roll in. unding� future retirement. Investment return over the long term is critical toitheJunding status b - --the reti 6ment ;.Fund. During 2006 and..2005, the =und's investment portfolio returned gains of approximately 9.6 percent. It is important to remember that a retirement Fund's funding is based on a long time horizon, where temporary ups and downs in the market are expected. The more critical factor..is that the Fund be able tb- meet an expected earnings yield of 8.5:percent: annual return on investments. Based on our latest actuarial valuation for the year, ended September 30, 2005, the Fund's actuarial value of liabilities exceeds its actuarial value of assets by $10.78 million, producing a funded ratio of 63.7 percent. The funded ratio is a key indication of financial strength of a . retirement Fund and analyzing this percentage over time indicates whether the Fund is becoming stronger or weaker. Investment and experience losses incurred in the previous years have caused a downward trend; in the funded ratio for recent years. 0 I�r , Financial analysis — summary 'As previously noted, net assets viewed over, time may serve as a useful 'indication of the Fund's financial position (See Table.1 above.) At the.close of fiscal years 2006 and 2005, the assets of the Fund exceeded its current liabilities by $22,997,225 and $19,539,635 respectively, shown as net assets. held,in trust`for pension benefits:- The net assets are available to meet the Fund's ongoing obligation to plan participants and their beneficiaries. Net assets a. The Fund's net 'assets are established from employer and member contributions; and the accumulation of investment income, net of investment and administrative expenses and benefit payments. Additions to plan net assets As noted ,above, the net assets needed to finance retirement benefits are accurnblated through the collection of employer and member contributions and th.rou" 4h investrent earnings net of �. 9` ��.' k 9( investment expenses.) The additions totaled $4,173,063 for the year ended September`30, 2006. This was $48,140 less than the prior year. primarily dueto a lower investment return. The additions totaled $4,221,203 for the year =ended September 30, 2005. i } y 4 Additions to Net Assets (Table 2) For the Years Ended September 30, 2006, 2005 and 2004' Increase Decrease 2006 to 2005 2005 to 2004 2006 2005 2004 $ % $ % . Employer contributions ,95 2 36 $1. 6 Fvm $1,468,223 Ym $1 239;522 $227,013 15.5% $228,701 18.5% Membercontnbutions 74d�08 X79,091 649,166 (37,983) (4.9) 129,925 20.0 is State of FIM-ida contributions 428 55 .. o 411,047 364,985 17,008 4.1 46,062 12.6 i Net investments income 3.08,664 1;562,842 1,154,749 254,178 16.3 408,093 35:3 Total additions $4 Iffi7�,063 $4,221,203 3408,422 . $' ($48,140) (1.2 $812;781. 23.8 . Deductions from °plan net assets The Fund was creatWto provide retirement, survivor and disability benefits to qualified members and their .beneficiaries. The cost of such programs includes recurring benefit payments, refunds of contributions to employees who terminate employment, and the cost of administering the Fund. 7 , Deductions from Net Assets (Table 3) For the Years Ended Septe ber 30, 2006, 2005 and 2004 2006 2005, -,-, n 2004:-,-.-E"'� Increase (Decrease) Increase (Decrease) 2006 to 2005 2005 to 2004 % $ % Normal retirement payments Disability pension payments, - DROP account withdrawals I Total benefit pav 2006 2005 2004 $ % $ % Benefit payments $616,890 $573,761 i $419,229 $43,129 7.5% $154,532 36.9% Refund of contributions 13,110 34,050 51,376 (20,940) _(61.5) (17,326) (33.7) ,Administrative expenses 1 85,473 88,121 1 77,612 7 (2 ,64,0) (3.0) 10,509 1 13. Total deductions $715,473 $695,932 $548,217 -�$19 j54I-1—Z- 2.8 $147,715 1 26.9 Expenses for the year ended September 30 2006 tota[d'-&--$-715'473 an increase of 3.2 percent from 2005. The increase was primarily due to benefit's` 'paid to new, retirees N 52006. Expenses f6r.,the,'year ended September 30, 2005 totaled -,095,932 an increase of 1�&-8 P¢ from 2004. The increase was primarily due to more reUn"Binof contributions to termiri=at-e- mployees than experienced in 2004 Further analysis of benefit P#y, e 4 below. ,,prltf provided in Table For the Year Ended Se tember 30, 2006, 2005 and-2 2006 2005, -,-, n 2004:-,-.-E"'� Increase (Decrease) 20.06 to 2005 2.005 to 2004 % $ % Normal retirement payments Disability pension payments, - DROP account withdrawals I Total benefit pav .$198,886=r 320,649 54,224 �7 $134,7114 284,518 $ 418,002 640) 4H (54,221H 210.2% '(1. 0 6., Q) N/A $64,177 36,131 54,224 8.8% 12.7 N $419,229 $43, $154,532 36.9 Z. I Benefit Payments (Table 4) -h Eassets=ff-47-15,473 and additions to plan net assets of $4,173,063 The d ctions of plan -h -e- r 'Itedz ---an overall increase of $3,457,590 in net assets held in trust for pension benefits for esu. in= the year ended SepternbefE30, 2006. TheAeductions of plan net assets of $695,932 and additions to Ojin,--riet assets of $4,221,203 resulted in an overall increase of,$3,525,271 in net assets held in tr,Uk-for pen§idh7"benefits for the year ended September 30, 2005. Fiduciary responsrbffftjos The Board of Trusteeg is the fiduciary of 'the pension trust fund., Fiduciaries are charged with the responsibility of assuring that the assets of the Fund are used exclusively for the benefit of plan participants and their beneficiaries and defraying reasonable expenses of administering the Fund. 8 ._ ,� t i See notes to financial statements. Palm Beach Gardens Police Officers' Pension "Fund Statements of Plan Net Assets `.' September 30, Y v. 2006 2005 Assets Cash and'cash equivalents $ 333,513 $184,948 Prepaid expenses Prepaid others 2,536 Receivables: Interest and dividends 111,394 71,225 Police officers - 82,180 City of Palm Beach Gardens 428,055 - -Total receivables 539,449 153,405 Investments, at fair value ,q U. S. government obligations 4,036,948 3,301,213 Mortgage backed securities 2,652,177 3,033,822 Corporate obligations 2,500,384 1,782,891 Equity securities 11,478,004 10,472,796 International funds 854,756 - Money market funds 632,586 633,533 y " Total investments 22,154,855 199224,255 a Total assets ,030,.3`53 - 19;562,608:_ Liabilities 1 Accounts payable and :accrued expenses _ 33,128_ 22,973 Total liabilities 33,128 22,973 Net assets held in trust for pension benefits (A schedule of funding progress is presented on page 17) 4 63 9' '$2299;7225- $19;;635 _ 4 See notes to financial statements. , Palm Beach.Gardens Police Officers' Pension Fund Statements of Changes in Plan Net Assets Year -Ended September 30, e. 2006 2005 Additions Contributions City of Palm Beach Gardens $ 1,695,236 $ 1,468,223 State. of Florida 428,055 411,047 Police Officers 741,108 779,091 Total contributions 2;864,399 2,658,361' t Investment income Net appreciation in fair value of investments 741,718 1,337,175 Interest'and dividends 647,766 289,491 1,389,484 1,626,666 Less investment expenses 80,820 63,824 Net investment income 1,308,664 1,562,842 .Total additions 4,173,063 4,221,203 r Deductions Participant benefit payments 616,890 573,761 Refund of participant contributions 13,110 34,050 Administrative expenses 85,473 88,121 Total deductions - =715,473 -695,932': Net increase 3,457,,590' 3,525,271, • Net assets held in trust for pension benefits' Beginning of year _19,5391635; 16,014,364 . End of year $; 22,997;225, $ a 19;53;9;635; See notes to financial statements. 11 Palm Beach Gardens Police Officers' Pension Fund Notes to Financial Statements Years Ended September 30, 2006 and 2005 Note 1 - Summary of significant accounting policies Reporting entity - The Palm Beach Gardens Police Officers' Pension Fund (Fund), was established to account, for the financial activity of the City of Palm Beach Police Pension Plan. The Fund is managed by a! five member Board of Trustees comprised of two members appointed by the Council of the;; City of 'Palm Beach Gardens, Florida (City), two- members elected by /from the plan membership and one member elected by the other four members. The Fund is reported in the fiduciary funds (pension trust) "n.-'the City's basic financial statements. Basis of accounting - The- Fund's financial statements are prepared using the accrual basis of accounting. Contributions from the Fund's members are recognized as %venue in the period in which the contributions are due. Contributions from the,_City of Palm FBeach Gardens, as calculated by the Fund's actuary, are recognized as revenuo"when due and when the City has made, a formal commitment to provide the contributions. „;Expenses are recogznized in the accounting period incurred, if measurable. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Method used to value investments - Investments are reported at fair value. Money market mutual fund's are reported at cost which approximates fair value,_ Securities traded on national or, international exchanges are valued at ,the last reported sales price, --or exchange rates. The value of the Fund's participation in pooled"" _uity tryst funds is based on the beginning of year value of the Fund's interest in the `trust, plus actu *-'- ntributions and allocated investment income, less actual distributions and allocatednadm 'mistrativexpenses. Quoted market prices are used to value invest rnenfs �nsthe trust funds` 'Net appreciation (depreciation) in fair value of investments includes the. difference between cost and fair ,value of investments held as well as the net realized gaipsiandjosses forsecurities.wliich are sold. Interest and dividend income are recognized on the ac67r L:basis when earned Purchases and sales of 'investments are recorded on a trade date basis w Tie„ _preparation of financial A Use of esfimates statements in conformity with accounting principle! rygenerally accepxed in the,'J'United States of America requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures.' Accordingly, actual results may differfrom those estimates. Note 2- Plan description and contribution information Plan description The following brief description of the Fund, is provided. for general information purposes only. Participants should refer.to City ordinances for more complete information. The City of Palm Beach Gardens, Florida adopted this single employer, defined benefit pension plan. The Fund is governed by Florida Statutes Chapter 185, as revised by ordinances passed by the Palm Beach Gardens City Council: All full time police officers are covered under the plan. 12 Palm Beach Gardens Police Officers' Pension Fund Notes to Financial Statements Years Ended September 30, 2006 and 2005 Note 2 - Plan description and contribution information (continued) i` I Plan description (continued) The Plan provides retirement, death and disability benefits for its members. Benefit provisions are established and may be amended by the City of Palm Beach Gardens; in conjunction with the Palm Beach County Police Benevolent Association. A member may retire with normal. benefits after the earlier of age 52 with 10 years of service, or 20 yearsof service regardless of age. Reduced early retirement benefits are available once a member 'reaches age 50 and accumulates 10 years of credited service. Normal retirementbenefits are 3.50% of the member's average final compensation times his or her credited service :.years, up to a maximum of 100% of average final compensation. Early retirement ' tenefits are .the same as normal retirement benefits, reduced by 3.0% for each year by wh -ic _ early ret ement precedes the normal retirement date. Average final compensation for purposes of calculating benefits is the average compensation over the last five years of�:service including lump sums payments of unused leave. Eligibility for disability benefits begins from the member's date of hire, if the disability is 'service connected, or after 10 years of service if non- service connnected. Service - incurred disability benefits are 60% of the member's current . °compensation, but'not less than the accrued pension. Non- service incurred disability benefits are 2 5 %nof the membersayerage final compensation times his or her credited service years, but not less than 25% of salary or the accrued pension benefit, whichever is greater. Pre- retirement death benefitsNT 'ervice related;�deaths arepaid to the member's widow for life. Benefits are calculated,, t 50% of ;the me�mber's4inal average salary, with a minimum equal to the accrued pension ( ;,,no early�retirement reduction). Pre- retirement death benefit for,;non service related deaths are paid to the member's widow for life. For members with lessthan 5 years °'of contributing service at the date of death, the benefit is the retuwrn of the member's contributions without interest. For in embers with 5 years or more of contributingservice at the.date ofrveath; the benefit is equal to that payable at early or normal retirement age. If the member is eligple •for', normal retirement, the benefit is equal -to his or her accrued be efit, and is payable for life: Termination ben - its for unvested members are the return of the member's contributions. For members who are. nested when they terminate, their• vested accrued benefit is payable at the early or normal retirement-;date. Membership in the Phan consisted of the following at October 1, 2005, the date of the latest. actuarial valuation: Retirees and beneficiaries receiving benefits 21 Terminated employees entitled to benefits but not yet receiving them 2 Active members 105 Total 128 13 Palm Beach Gardens Police- Officers' Pension Fund Notes to Financial Statements Years Ended September 30, 2006 and 2005 .r Note 2 - Plan description and contribution information (continued) Contributions Contribution requirements are established and may be amended by the City of Palm Beach.. Gardens in conjunction with the Palm Beach County; Police Benevolent Association. Contribution requirements are based on the benefit structure established by the City. Members° are required to contribute 8.6% of their covered salary. Pursuant to°--.Chapter 185 of Florida Statutes, a premium tax on certain casualty insurance contracts written on &Palm Beach Gardens properties is collected by the state and remitted to the Fund for tfie;_�state's annual contribution amount. The Fund is required to contribute the remaining amounts anecessary to finance the, benefits through periodic contributions at actuarially determined rates Administrative costs are financed through investment earnings. A rehired member may buy back one or more years' of continuous past servlceby paying into the Fund the amount of contributions the .employee would otherwise have paid for such service, plus the investment earnings that would have been earned had such funds been.nvested by the Fund during that time. Note 3 - Deposits and investments Deposits Custodial credit risk - Florida,-Statutes require, the .Fund to_rna ntain its deposits with financial institutions in, a qualified ,.public _depository, as determine 6y the Treasurer of the State of Florida. The Fund's accounts maintained in,qudlified public depositories: are covered by federal depository insurance for'an amount- -equal to the aggregate of each participant's ascertainable, non- contingent interest In _.the Fun,0_(up to $100,000ra per participant). Amounts in excess of federal depository insurance pare secure Ly, theme "Public Depository Trust - Fund (Trust Fund) . . maintained -by-. ,,, T7easurer`�"The Trust`'FRU-is'a multiple financial institution pool with the ability toeassess its member financiahinstitutions for collateral shortfalls if a member;fails. Cash and nvestments at f si cal year endF�consist of the following at September 30, 2006: „ Creij,it Investment maturi in ears �,. rating Less Than More Than Investment types: _ (Moody's) Fair Value 1 1 -5 6 -10 _10 Money market funds Not.rated $ 632,586 $ 632,586 $ - $ . - $ - Governmental securities N/A 4,036,948 XX)<X - i xxx Mortgage back notes N/A 2,652,177 = Xxx XxxXx International funds N/A 854,756 X X X X Domestic corporate fixed income A1-AA3 2,500,384 ;:- _ - xzxX _ xxicX Subtotal 10,676,851 $ 1 Pooled equity trust funds 4 Y Total investments N/A 11,478,004 ` ` � $22,154,855 14 s Palm Beach Gardens Police Officers' Pension Fund Notes to Financial Statements Years Ended September 30, 2006 and 2005 4 " Note 3 - Deposits and investments (continued) Interest rate risk - Although the Fund's investment policy does not provide limitations as to maturities, the Fund minimizes risk of fair value losses in its fixed income portfolio due to "rising interest rates by structuring its investment portfolio so that securities mature to meet ongoing cash requirements, thereby avoiding the need to sell securities on the open market prior to maturity; and by investing operating funds primarily in shorter -term securities or by cash flow projections. Credit Risk: Florida Statutes and the Fund's investment policy limifiz i:nyestments to: • Time, savings 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; • Obligations issued by the United : States,4 Government or. in otti ions guaranteed as, to principal and interest by the United,�States Governmeffit • Stocks, bonds or other evidences of indebtedness issued or guaranteed by a corporation organized under the"laws of the Unated,� States, any state or organized territory of the UnitedState:or the District- ofC.olumbia; • Commingled stock, bond or money market f -o- s� -sand ' • Bonds issued -by the State of Israel • Equity investments mustbe traded on one or�more. of the recognized national exchanges and meet certain rating criteria. Investments in fixed income securities, are limited�`to issuers whose obligations are rated at the time of purchase atone of three highest - classifications established by at least two nationally reco °gnized "statistical rating organizations (NRSROs). Custodial credit risk: For anEi'nvestmenf, custodial credit risk is the risk that, in. the event of the failure of tfie, counterparty, therFund' -will not be able to recover the value of.its investments or collateral securJtes that are_n the possession of` an outside party. The Fund's policy is to maintain its se O ty.investments in custodial accounts that identify securities held in the name of the Fund. by registe_nng j securities in thekname of the Fund, or in street name or nominee name as the Fund's Concentration of credit risk: The Fund's investment policy limits investments in the stock of any one issuing company to five percent (5 %) of the Fund's assets, and to five percent (5 %) of the outstanding capital stock of any issuing company. As of September 30, 2006, none of the Fund's investments (other than those in mutual funds, external investment pools, and other pooled investments) exceeded five percent (5 %) of plan net assets. 15 Palm Beach Gardens Police Officers' Pension Fund Notes to Financial Statements Years Ended September 30, 2006 and 2005 Note 4 - Income taxes The Fund's tax counsel believes that the Fund is designed and is currently being operated in compliance with applicable requirements of the Internal Revenue Code.: . Note 5 Pending litigation, claims and assessments The. Fund is party to various actions and claims which it is vigorously xdefending or pursuing. These matters arise out of the normal course' of its operations While the results of litigation cannot be predicted with certainty, management believes.the final outcome of such litigation will not have 'a material effect on the Fund's financial position. Note 6 - Amendments During the fiscal years -ended September 30, 2006, and 2005, the City Council -of Palm Beach Gardens adopted ordinances amending certainprovisions of the Fund. The substantial effects of the ordinances are listed below. Ordinance 8, 2006 Amending the benefit for normal retirement t`o be changed to 5z: 596�`of the member's average final compensation times his or her credited service years ups -to a maximum of 100% of average final compensation. The ordinance was passed June 1.5, 2006. Ordinance 9, 2004 • Require for the Police Chief to p'artiq {�atextvn the Plan. • •Amending the benefit forwearly retirement46 be reduced by 3.0% per year for each year by which�early retir&ffe7h ._prec6a, the normal retirement date. Provide for the line of duty disability benefit to be, at a -minimum, the member's accrued pension benefit. • Provid4., r buyback of prior military service. d • Provide 06- a monthly supplemental benefit to be funded by excess Chapter 185 F.S. money received each :calendar year. The ordinance was pasxsed'mApril 15, 2004 and was effective retroactively to October 1, 2003. 16 Palm Beach Gardens Police Officers' Pension Fund S Schedule of Funding Progress (Unaudited) Actuarial Accrued UAAL As Actuarial Liability Unfunded Percentage 3, Actuarial Value (AAL) AAL Funded Covered of Covered Valuation of Assets Entry,-Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b - a) (a/b) (c) ((b -a) /c) 10/1/00 $ 9,795,534 $14,097,068 ` $4,301,534 69.5% $5,156,136 83.4% 10/1/01 11,417,844. 16,106,731 - 4,688,887 70 9 y . 4,908,315' 95.5 10/1/02 12,303,486 19,140,962 6,837,476 6_43 5,572,514 122.7 10/1/03 14,231;515 22,196,4;13 7;964,898 641 5,989,146- 133.0 10/1%04 16,405,794 24,962,551 8,556,757 - 6 37-7=-, 6;755,078 126.7 10/1/05 18,950,104 29,730,475 10,780,371' 63 7 p`M 7,332,448: 147.0 z -17 Palm Beach Gardens Police Officers' Pension. Fund Schedule of Contributions from the Employer and Other Contributing Entities (Unaudited) Fiscal Annual Year Ended Required Percentage September 30 Contributions Contributed 2001 $ 935,273 101.1% 2002 1,005,662. 103.7 2003 1;425;328' 104.0 2004 1,475,340 108.6 2005 1,704,041 110.3 2006 1,931,054- 109.9 Note: Annual required contributions reported above include--6 tribLiff oh from both the City of Palm Beach Gardens and the State of Florida. 18 Palm Beach Gardens Police. Officers' Pension Fund u,r , Note to the Schedule of Funding Progress K'..` and Schedule of Contributions from the Employer and Other Contributing Entities The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the , latest actuarial valuation follows: Valuation date October 1, 2005 Actuarial cost method Frozen entry age Amortization method Level percent, closed Remaining amortization period 30 years Asset valuation method u. 5-year! hed market Actuarial assumptions: Investment rate of return 8.5% Projected salary increases* 90% *Includes inflation at 3.5% Cost of living adjustments NA° Significant factors. affecting trends in actuarial information 2005 Changes in plan pjr isions apid actuarial methods since prior valuations e Amending the -15 for normal retirement to be changed to 3.5% of the member's average final compensatiohEtimes his or her credited service years up to a maximum of 100% of average 1•in:a1 °&onj&Wyori. 2004 Changes in 'plan provisions and actuarial methods since prior valuations'' - None. 2003 MdAh es in plan provisions and actuarial methods since prior valuations The -early retirement pyfialty was reduced,to 3.0 %.per year. • Minimumdisability benefits equal to the.accrued pension were enacted. 2002 Changes' in planprousions and actuarial methods since prior valuations • None. 2001 Changes in plan provisions and actuarial methods since prior valuations • None. 2000 Changes in plan provisions and actuarial methods since prior valuations • Normal retirement allowed after 20 years of service regardless of age. • The multiplier was raised to 3 % for all years of service, with a maximum of.75 %. 10 Palm Beach Gardens Police Officers' Pension Fund Note to the Schedule of Funding Progress and Schedule of Contributions from the Employer and Other Contributing Entities Significant factors affecting trends in actuarial information (continued) 2000 Changes in plan provisions and actuarial methods since prior valuations (continued) • The line of duty disability benefit was.reduced from 66 2/3% of pay to 60 %. • The pre- retirement non -duty death benefit was changed from a ten year to a lifetime distribution. • A minimum duty de'iath benefit was established in an amount.. equal to the accrued pension (with no early retirement reduction). • A non - guaranteed COLA provision tied to actuarial experience was implemented. • The member contribution rate was raised from 6% of pay • The assumed rate of return has been raised from 8 %7C6 8.5% • The salary increase assumption was reduced from 6,x.5% to 6% T ,.,he new rate reflects a new pay plan that has been effective for less th, two years. • Assumed rates of employment termination were reduced by about one half • Assumed rates of disability were increased y50 %. • 'Amortization of I the unfunded actuarial IiabilityN was changed from level. --dollar to level percent funding. It is being assumed that covered payroll will increase by 3.5% per year. • The assumed rate of inflation has.been changed fr6rnxs4% to 3.5 %. 1.999 Changes in plan provisions and actuarial methods since pfk r valuations. • None. h. 20 Palm Beach Gardens Police Officers' Pension Fund Schedule of Administrative and Investment Expenses Year Ended September 30, 2006 2005 Administrative Expenses Accounting services $ . 9,915 -$ 11,145 " Professional fees actuarial services 22,529 34,134 Professional fees legal services 22,998 15,462 Professional fees administrative services 17,804 10,297 Fiduciary liability insurance 6,250 - Annual membership fees 450 - ' Trustee expenses 1,257 d 2,672 Bank charges 2,622 7,757 Miscellaneous expenses 1,648 6,654 85,473 $' 88;121 , Investment Expenses Rhumbline investment management fees $ 10;580 $ 11,917 ICC- investment mahagemerit fees 58,290 36,657 Custodial fees 5,376 5,000 Performance monitor 5,250 - GRS asset consulting group fees 1,324 10,250. $ . ,80,820 `$ ".: 63,824; r 21 y . ,, ;,�� _ . ti, 1., Report on Internal.Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government AuditingwStandar ` ds Board of Trustees Palm Beach Gardens Police Officers' Pension Fund Palm Beach Gardens, Florida e We have audited the financial statements of Palm ° - Beach- Gardens Police Officers' .Pension Fund (Fund) as of and for the years ended Septemberz30, 200&:and 2005, and`have''issued our report thereon, dated February 12, 2007. We conducted our audit,�in accordance with auditing standards generally accepted in the United States of Am&i6a and the standards applicable to the financial audits in Government Auditing Standards, issue'd,A -by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Fund's internal control over financial reporting in order to determine our auditing procedures for the purposes of expressing our opinion on the financidf�statements. and not,to`rprovide assurance on the internal control over financial reporting Our; consideration of the internal control over financial reporting that might be material weaknesses A;,mater al weakness is a--reportable condition in which the design or operation of one or more of the internal control.co`mponents does not reduce to a relatively'low level the risk that misstatements�in amounts caused by error or fraud that would be material in relation to the financialmstatemeni being audited may occur and not be detected within a timely period, by employees iri` °thenormal rcourse of performing their assigned functions. We noted no matters iriuolving the internalcontrol over financial reporting and its operation that we consider to be mate&4 weaknesses Compliance antl nOther Matters 'As part of obtaining reasonable assurance about whether the Fund's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective. of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no,instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 22 G D C Gabriel Roeder Smith & Company 301 East Las Olas Blvd. 954.527.1616 phone Consultants & Actuaries Suite 200 954.525.0083 fax Ft. Lauderdale, FL 33301 -2254 www.gabrielroeder.com A. DEC G J. 2 C6 t I November 30, 2006 Mr. J. Scott Baur The Pension Resource. Center 4360 Northlake Blvd., Suite 206 Palm Beach Gardens, FL 33410 Re Palm Beach Gardens Police Officers' Pension Fund Dear Scott: As requested, we have prepared the enclosed summary showing the required City contribution for the fiscal year ending September 30, 2007 under several proposed plan changes. We have determined that the member contribution rate would need to be increased by 6:94 %, from 8.6% to 15.54 %, to cover the increase in the City contribution if the averaging period to calculate Average Final Compensation is reduced from five years to three years. The enclosed exhibit shows the impact on projected benefits and member contributions for three sample participants under this scenario. We welcome your questions and comments. Sincerely yours, J. Stephen Palmquist, ASA Senior Consultant & Actuary JSP /ta Enclosures cc: Jay Spencer BonniJensen SUPPLEMENTAL ACTUARIAL VALUATION REPORT Palm Beach Gardens. Police Officers' Pension Fund Valuation Date October 1, 2005 Date of Report November 30, 2006 Report Requested by Board of Trustees Prepared by J. Stephen Palmquist Group Valued All members of the Plan Plan Provisions Being Considered for Change Provisions Before Changes 1. There is no cost of living adjustment for retiree benefits. 2. There is no cost of living adjustment for retiree benefits. 3. The averaging period for calculating Average Final Compensation is 5 years. 4. The averaging period for calculating Average Final Compensation is 5 years. 5. The averaging period for calculating Average Final Compensation is 5 years. 6. The averaging period for calculating Average Final Compensation is 5 years. 7. The averaging period for calculating Average Final Compensation is 5 years. Provisions After Changes 1. There is a 3% cost of living adjustment for retiree benefits, excluding current retirees. 2. There is a 3% cost of living adjustment for retiree benefits, including current retirees. 3. The averaging period for calculating Average Final Compensation is 4 years. 4. The averaging period for calculating Average Final Compensation is 3.5 years. 5. The averaging period'for calculating Average Final Compensation is 3 years. 6. The averaging period for calculating Average Final Compensation is 2.5 years. 7. The averaging period for calculating Average Final Compensation is 2 years. Participants Affected 1. All members who retire or terminate employment after the plan is amended. 2. All members who retire or terminate employment after the plan is amended as well as present retirees. 3. All members who retire or terminate employment after the plan is amended. 4. All members who retire or terminate employment after the plan is amended. 5. All members who retire or terminate employment after the plan is amended. 6. All members who retire or terminate employment after the plan is amended. 7. All members who retire nor terminate employment after the plan is amended. Actuarial Assumptions and Methods Some of the key assumptions /methods are: Investment return — 7.5 %,per year Salary increase — 7.5% per year Cost Method - Entry Age Normal with .15 -year amortization period Mortality - RP 2000 Generational Healthy Annuitants Mortality Table for males and females Retirement Rates — Rates based on age and service In addition, the -load on projected benefits due to the inclusion of unused leave in Average Final Compensation was adjusted accordingly based on the averaging, period described above. All other assumptions and methods are the same as those used in the.October 1, 2005. Actuarial Valuation Report. Amortization Period for Any Increase in, Actuarial Accrued Liability 15 years Summary of Data Used in Report See attached page. Actuarial Impact of Proposal(s) See attached page. Special Risks Involved With the Proposal That the Plan Has Not Been Exposed to Previously None Other Cost Considerations Due to the gradual recognition of investment losses occurring in 2002, the annual cost of this Plan will increase for at least one more year after 2006. Possible Conflicts With IRS Qualification Rules None J. tephe Palmquist, ASA, , FCA Enrolled Actuary No. 05 -1560 City of Palm Beach Gardens Police Officers' Pension fund Comparison of Required City Contributions for Fiscal Year Ending September 30, 2007 Gabriel, Roeder, Smith and Company November 30, 2006 Required City Contribution Change from Baseline Amount % of Payroll Amount % of Payroll A. Baseline: New Methods and Assumptions (7.5% Investment Earnings Assumption) $ 2,628,315 34.42% N/A N/A B. 3% COLA Starting at Age 55 without Current Retirees 3,973,148 52.03 $ 1,344,833 17.61 % C. 3% COLA Starting at Age 55 with Current Retirees 4,139,630 54.21 1,511,315 19.79 D. 4 -Year Average Final Compensation 2,865,054 37.52 236,739 3.10 E. 3.5 -Year Average Final Compensation 3,011,680 39.44 383,365 5.02 F. 3 -Year Average Final Compensation 3,158,306 41.36 529,991 6.94 G. 2.5 -.Year Average Final Compensation 3,373,663 44.1.8 745,348 9.76 H. 2 -Year Average Final Compensation 3,589,019 47.00 960,704 12.58 Gabriel, Roeder, Smith and Company November 30, 2006 City of Palm Beach Gardens Police Officers' Pension Fund Exhibit Showing Comparison of Projected Normal Retirement Benefits and Member Contributions for Sample Participants Sample 1 Sample 2 Sample 3 Participant Data Date of Birth 2/8/1976 4/25/1970 5/23/1961 Date of Hire 8/22/2005 1/3/1994 7/29/1987 FYE 2005 Salary $40,675 $62,555 $105,127 `Accumulated Contributions as of $11,586 $8,646 $13,499 September 30, 2005 $267 $40,233 $70,001 Normal Retirement Date 9/1/2025 2/1/2014 8/1/2007 Service at Normal Retirement Date 20.00 20.00 20.00 Proiected Normal Retirement Benefit Current Provisions (5 -Year AFC) $106,739 $80,411. $76,672 Proposed Provisions (3 -Year AFC) $118,326 $89,057 $90;171 Annual Increase as Dollar Amount $11,586 $8,646 $13,499 as Percentage 10.9% 10.8% 17.6% Total Member Contributions Current Provisions (8.6% Rate) $151,749 $110,961 $81,272 Proposed Provisions (15.54% Rate) $273,991 $168,039 $97,546 Increase as Dollar Amount $122,242 $57,078 $16,274 as Percentage 80.6% 51.4% 20.0% Number of Years to Recoup Additional Contributions 10.6 6.6 1.2 Note: `Benefits were projected using the actuarial assumptions described in the Supplemental Valuation attachment. Gabriel, Roeder, Smith and Company November 30, 2006 �N 1 ORDINANCE , 2007 2 3 4 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PALM 5 BEACH GARDENS, FLORIDA RELATING TO THE POLICE 6 OFFICERS' RETIREMENT TRUST FUND; AMENDING SECTION 7 50 -127, CODE OF ORDINANCES, ENTITLED "PRIOR POLICE 8 OFFICER SERVICE "; PROVIDING FOR CODIFICATION;. AND 9 PROVIDING AN EFFECTIVE DATE. 10 11 12 WHEREAS, the Board of Trustees of the Palm Beach Gardens Police Officers' 13 Retirement Trust Fund has determined to amend the provision regarding he buy back of 14 service; and 15 16 WHEREAS, the Board of Trustees of the Fund has determined that it is in 'the 17 best interest of the Participants and Beneficiaries of the Fund to make this changes to 18 the Palm Beach Gardens Police Officers' Retirement Trust Fund; and 19 20 WHEREAS, the City Council of the City of Palm Beach Gardens, Florida desires 21 to revise its Police Officers' Pension Ordinance in order to implement this change; and 22 23 WHEREAS, the City Council has determined that adoption of this Ordinance is in 24 the best interest of the citizens and residents of the City of Palm Beach Gardens. 25 26. NOW, THEREFORE, BE IT ORDAINED 'BY THE CITY COUNCIL OF THE CITY 27 OF PALM, BEACH GARDENS, FLORIDA that: 28 TION 1. Section 50 -127, Code of Ordinances, entitled "Prior police officer` tereby amended as follows: T. Prior police officer service. ss,:otherwise prohibited 'by law, the years or fractional parts of years that as er previously served in the United States Military Service, or the years or arts of years that a police officer previously served as'a police. officer with the a period of employment and for which accumulated contributions were from the fund, or the years and fractional parts of years. that a police officer a police officer with any other municipal, county, state or federal law qt agency shall be added to the years of credited service provided that: The police officer contributes to .the fund the sum that would have been. contributed, based on the police officer's salary and the` employee i contribution rate in effect at the time that the credited service'is requested, -'had'.,the police officer been a member of this system for the years or fractional parts of years for which the credit is requested, plus amount actuarially determined such that the crediting of service does not result in any cost, to the fund, plus payment of costs for all'professional services r rendered to the board in connection with the purchase of years'of.credited service. 1 , (2) Payment by the police officer of the required amount may be made within 2 six -months of the request for credit and in one lump sum payment, 'or the 3. police officer can buy back this time over a period equal to the length of 4 time being purchased or five years, whichever is greater, at an interest t 5 rate which is equal to the fund's actuarial assumption., Xpolice officer may 6. request to purchase some or all years of service. No credit shall be given 7K for any service until all years of service which are to be repurchased, have 8 been repurchased. 9 10 (3) The credit purchased under this section shall count for all purposes, 11 except Wig- vesting. 12 13 (4) In no event, however, may credited service be purchased pursuant to this 14 section for prior service with any other municipal, county, or state police 15 department, if such prior service forms or will for a basis of a retirement 16 benefit or pension from another retirement system or plan. This subsection 17 does not apply to military service. 18 SECTION 2. Codification of this Ordinance is hereby, authorized and directed. 20 21, SECTION 3. This Ordinance shall become effective immediately upon adoption. 22 23 1. PASSED this day of _ , 2007; upon -first reading. 2 ' 3 PASSED AND ADOPTED this day of , 2007, upon second and 4 ,:` final hearing. 5 6 CITY OF PALM BEACH GARDENS FOR AGAINST 'ABSENT . 8 BY: 9 Joseph R. Russo, Mayor,, 10 12 Eric Jablin, Vice Mayor 13 14 ,15 David Levy, Councilmember' 16 . 17 . 18 Hal R. Valeche, Councilmember 19 20 21 Jody Barnett; Councilmember 22 .23 24 ATTEST: 26 27-, BY: , 28 Patricia Snider, CMC, City Clerk 29 X30 Y 31 APPROVED AS TO FORM AND 32 LEGAL SUFFICIENCY 33 34: 35 BY'' 36 Christine, P. Tatum, City Attorney 37 38 a 39 40 HAPBG 00031Plan Docs\Arnend%2007 1prior police'service - no vesting.wpd' February 13, 2007' HANSON, PERRY & JENSEN, P.A. 400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401 -2922 JILL HANSON* TELEPHONE (561) 686 -6550 mjhanson ®hpjlaw.com FACSIMILE (561) 686 -2802 ANN H. PERRY aperry@hpjlaw.com BONNI SPATARA JENSEN bsjenseri@hpilaw.com 'A so Mmmm w N.Y. - TO: FROM: DATE: RE: MEMO Board of Trustees Palm Beach Gardens Police Pension Fund Bonni S. JensenIl,11 Hanson, Perry & Jensen, P.A. February 14, 2007 PENSION PROTECTION ACT OF 2006 and IRS Notice 2007 -7 IRS Notice 2007 -7 outlines some of the Administrative, Procedural and Miscellaneous changes with respect to the Pension Protection Act of 2006 ("PPA'06"). Paragraph IV, Section 828 of PPA '06 and VI Paragraph VI, Section 845 of PPA '06 contain information pertinent to your Fund. Those paragraphs read as follows: IV. SECTION 828 OF PPA'06 Section 72(t)(1) of the Code provides for a 10% additional tax on an early distribution from a qualified retirement plan (as defined in §4974(c))., unless the early distribution qualifies for one of the exceptions listed in §72(t)(2). For example, §72(t)(2)(A)(v) provides an exception to the 10% additional tax, for distributions made to an employee who separates from service after attainment of age 55. Under §72(t)(3)(A), §72(t)(2)(A)(v) does not apply to individual retirement plans. Section 828 of PPA'06 amended §72 of the Code by adding §72(t)(10), which provides that in the case of a distribution to a qualified public safety employee from a governmental defined benefit plan, §72(t)(2)(A)(v) is applied by substituting age 50 for age 55. Thus, the 10 %.additional tax on early distributions under §72(t)(1) does not apply to a distribution from a governmental defined benefit plan made to a qualified public safety employee who separates from service after attainment of age 50. This exception to the 10% additional tax applies to distributions made after August 17, 2006 (the date of enactment of PPA'06). Q -6. Who is a qualified public safety employee? A -6. For purposes of §72(t)(10), the term "qualified public safety employee" means an employee of a State or of a political subdivision of a State (such as a county or city) whose principal duties include services requiring specialized training in the area of police protection, firefighting: services, or emergency medical services for any area within the jurisdiction of the State or the political subdivision of the State. r Pension Protection Act of 2006 IRS Notice 2007 -7 Regarding Clarification of PPA -2006 February 14, 2007 Page 2 of 5 Q -7. How does a qualified public safety employee qualify for the exception to the. 10% additional tax under §72(t)(10)? A -7. In order to qualify for the exception to the 10% additional tax under §72(t)(10), a qualified public safety employee (i) must have received the distribution from a governmental defined benefit plan after separating from service with the employer maintaining the plan and (ii) the separation from service must have occurred during or after the calendar .year in which the qualified public safety employee attained age 50. For example, a qualified public safety employee who separated from service on June 30, 2006, and attained age 50 on December 12, 2006, is eligible for the exception under §72(t)(10) with respect to distributions made after August 17, 2006. Q -8. What are the consequences if, before August 18, 2006, a qualified public safety employee began receiving substantially equal periodic payments that qualify for the exception to the 10% additional tax described in §72(t)(2)(A)(iv) and then modified the periodic payments after August 17, 2006? A -8. If the payments satisfy the requirements in Q &A -7 of this notice, payments received by the qualified public safety employee after August 17, 2006, would qualify for the exception to the 10% additional tax under §72(t)(10). However, if the modification would result in the imposition of the recapture tax under the rules of §72(t)(4), then the recapture taxeapplies to the payments made before August 18, 2006. Q -9. Does the exception to the 10% additional tax under §72(t)(10) apply if the qualified public safety employee rolls over distributions from a governmental defined benefit plan into an IRA or a defined contribution plan and subsequently takes an early distribution from the IRA or defined contribution plan? A -9. No. The exception to the 10% additional tax under §72(t)(10) applies only to amounts distributed from a governmental .defined benefit plan and does not apply to distributions from a defined contribution plan or an individual retirement plan. Q -10. How does a payer report distributions .that qualify for the exception to the 10% additional tax under §72(t)(10) on Form 1099 -R? A -10. A payer is permitted to use distribution code 2 (early distribution, exception applies) in box 7 of Form 1099 -R. However, a payer is also permitted to use distribution code 1 (early distribution, no known exception) in box 7 of Form 1099 -R, if the payer does not know whether the exception under §72(t)(10) applies. For further information on .reporting, see Instructions for Forms 1099 -R and 5498. Pension Protection Act of 2006 IRS.Notice 2007 -7 Regarding Clarification of PPA -2006 February 14, 2007 Page 3 of 5 VI. SECTION 845 OF PPA `06 Code §402(1), which was added by §845(a) of PPA `06, provides for an exclusion from gross income for distributions from certain retirement plans (referred to in this notice as "Eligible Government Plans ") used to pay qualified health insurance premiums of an eligible retired public safety officer. The exclusion applies with respect to an eligible retired public safety officer who elects to have qualified health insurance premiums deducted from amounts distributed from an Eligible Government Plan and paid directly to the insurer. Qualified health insurance premiums include premiums for accident and health insurance or qualified long -term care insurance contracts for the eligible retired public safety officer and his or her spouse and dependents. The distribution is excluded from gross income to the extentthatthe aggregate amount of the distributions does not exceed the amount used to pay the qualified health insurance premiums of the eligible retired public safety officer and his or her spouse and dependents. An "Eligible Government Plan" is a governmental plan described in §414(d) that is either: a §401(a), §403(a), or §403(b) plan; or an eligible governmental plan under §457(b). Section 402(1) applies to distributions in taxable years beginning after December 31, 2006. .Q -20. Who is an eligible retired public safety officer for purposes of the exclusion under §402(1)? A -20. An employee is an eligible retired -public safety officer for purposes of the exclusion under §402(1) only if the employee is an individual who separated from service, either by reason of disability or after attainment of normal retirement age, as a public safety officer with the employer who maintains the Eligible Government Plan from which the distributions to pay qualified health insurance premiums are, made. Thus, a public safety officer who retires before attainment 'of normal retirement `age is not an eligible retired public safety officer unless the public .safety officer retires . by reason of disability. The terms of the Eligible Government Plan from which the participant will be receiving the distributions apply. in determining whether a public safety officer has separated from service by reason of disability or after attainment of normal retirement age. Q -21. Who is a public safety officer? A -21. For purposes of §402(1), the term., "public safety officer" means an individual serving a public agency in an official capacity, with or without compensation, as a. law enforcement officer, a firefighter, a chaplain, or as a member of a rescue squad or ambulance crew. See §1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968 (42 U.S.C. 3796b(9)(A)). Q -22. Under what circumstances are the provisions of §402(1) available for eligible retired public safety officers? Pension Protection Act of 2006 IRS Notice 2007 -7 Regarding Clarification of PPA -2006 February 94, 2007 Page 4 of 5 A -22. The favorable tax treatment under §402(1) is available. only when an eligible retired public safety officer elects to have an amount subtracted from his or her distributions from an Eligible Government Plan and such amount is used to pay qualified health insurance premiums. The employer sponsoring the Eligible Government Plan is not required to offer such an election. Q -23. Can the accident or health plan receiving the payments of qualified health insurance premiums be a self - insured plan? A -23. No. The accident or health plan must be an .accident or health insurance plan. Thus, the plan must be providing insurance issued by an insurance company regulated by a State (including a managed care organization that is'treated as issuing insurance). Q -24. Will an eligible retired public safety officer be entitled to favorable tax treatment under §4020) with respect to benefits attributable to service other than as a public safety officer? A -24. Yes. Benefits attributable to service other than as a public safety officer are eligible for favorable tax treatment under §402(1), as long as the individual separates from service as a public safety officer, by reason of disability or after attainment of normal retirement age, with the employer maintaining the Eligible Government Plan. Q -25. If an eligible retired public safety officer dies, are amounts subtracted from distributions made to the decedent's surviving spouse or dependents eligible for favorable tax treatment under §402(1)? A -25. No. Section 402(1) provides that the distribution is not .includible in the gross income of an employee who is an eligible retired public safety officer. Thus, the exclusion would not extend to amounts subtracted from distributions to other distributees. Q -26. Is an eligible retired public safety officer limited in the amount that the officer can exclude from gross income for distributions from an Eligible Government Plan used to pay qualified health insurance premiums? A -26. Yes. The aggregate amount that is permitted to be excluded, with respect to any taxable year, from an eligible retired public safety officer's gross income by reason of §402(1) is limited to $3,000. For purposes of applying this $3,000 limitation, distributions with respect to the eligible retired public safety officer that are used to pay for qualified health insurance premiums from all Eligible Government Plans are aggregated. �°` V:y.:rfrcrt 1 i City of Palm Beach Gardens Police Officers' Pension Fund Minutes of the Meeting Held November. 16, 2006 The regular meeting of the Board of Trustees of the City of Palm Beach Gardens Police Officers' Pension Fund was called to order at 9:05 AM by Chairman Jay Spencer in the Council Chambers, at the Palm Beach Gardens. City Hall at 10500 North Military Trail, Palm Beach Gardens, Florida. TRUSTEES PRESENT Jay Spencer, Chairman David Pierson, Secretary Jules Barone Brad Seidensticker Wayne Sidey MINUTES OTHERS PRESENT Peter Alfele, Cherry, Bekaert & Holland, L.L.P. Steve Palmquist, Gabriel, Roeder, Smith & Company Wayne Owen, RhumbLine Advisers John McCann, GRS Asset Consulting Bonni Jensen, Hanson, Perry, & Jensen, P.A. Scott Baur, Pension Resource Center, LLC Bonnie Lindberg, Pension Resource r Center, LLC MOTION: Brad Seidensticker made a motion to approve the minutes of the meeting held.on August 11"', 2006. SECOND: David Pierson seconded. CARRIED: The motion carried unanimously. ELECTION OF FIFTH TRUSTEE Chairman Spencer asked Wayne Sidey if he would like to continue to serve as fifth trustee on the Board. Mr. Sidey has interest to continue to serve. Wayne becomes the third Police Officer on the Board and Chairman Spencer does not want the balance to appear unfair and wants to make sure that everyone is comfortable with this nomination. MOTION: Brad Seidensticker made a motion to nominate Wayne Sidey to serve as Fifth Trustee. SECOND: David Pierson seconded. CARRIED: The motion carried unamiously. Chairman Spencer thanked David Pierson and Brad: Seidensticker for agreeing to serve another term as Trustees. The reappointments will go before council on December 7, 2006 INVESTMENT MANAGER REPORT RhumbLine Advisers — Wayne Owen Mr. Owen reviewed the three index strategies for the plan: S &P 500 Pooled Index Fund (Large -Cap Core), S &P 400 Pooled Index fund .(Mid -Cap Core) and S &P 600 Pooled Index Fund (Small -Cap Core). RhumbLine total assets were $11,902,737.67 as of October 31, 2006. no 1.1 -es t';.nde ,�.,; i,.in.4:'.;..'e atE r' The S &P 500 Large -Cap matched the index return of 5.67% (best Q3 return for S &P since 1997) and the October return is up at 3.26 %. RhumbLine has successfully managed changes to index. The S &P 500 Portfolio has a total of 30 participants. Mr. Owen reviewed the top holdings performance, as well as the best and worst performances in index. Fund trades very efficiently at an average rate of 1.76 per share. The S &P 400 Mid -Cap Portfolio had returns for October of 4.15% versus the index at 4.16% and return is at 17.49% since inception (November 20, 2002). The fund has a total of 20 participants. Mr. Owen again reviewed the top holdings performance, as well as the best and worst performances in index. This fund traded at an average rate of 2.13 per share. The S &P 600 Small -Cap Portfolio had returns for October of 4.96% versus the index at 4.95% and return is at 15.96% since inception (October 14, 2003). The fund has a total of 7 participants. Mr. Owen again reviewed the top holdings performance, as well as the best and worst performances in index. This fund traded at an average rate of 2.4� per share. Mr. Owen noted that he likes the S &P market since they have a committee that meets frequently to determine and adjust holdings. Mr. Owen then reviewed the article in The Wall Street Journal - November 2, 2006 which reports on the Merrill Lynch & Co. report released last month titled "Time to Index ?" Mr. Owen then reviewed the Company update and reported that RhumbLine is an employee owned company with $14.5 Billion assets under management. ._.AUDITOR REPORT Cherry, Bekaert & Holland, L.L.P. - Peter Alfele, CPA Mr. Alfele presented the Financial Statement for September 30, 2005 to the Board. The auditor gives opinion on the financial statement numbers and presentation to conform to GAAP (generally accepted accounting principles) set by GASB (governmental accounting standards board) statement no. 25. The report includes management's discussion and analysis. Mr. Alfele issued an unqualified opinion. He discussed internal controls and the new industry standards to increase awareness of possible fraud in process. Process example given was payments to a new retiree. Plan had total assets of $19,539,635 as of September 30, 2005 up from $16,014,364. The increases were attributed to higher contributions and gains on investments. Mr. Alfele reported that expenses had an increase of 26.5% from 2004. The increase was primarily due to an increase in benefits paid to new retirees in 2005, which was up $154,533 from 2004. Chairman Spencer talked about the timing and release of reports. Mr. Alfele believes he can complete the process this year in January.. He noted that Cherry, Bekaert & Holland have addressed staffing and scheduling issues. r. ACTUARIAL VALUATION REPORT Gabriel, Roeder, Smith & Company — Steve Palmquist Mr. Palmquist began with review of current assumptions. Siginificant changes would include, possible revisions to earnings assumption and change to entry .age normal cost method using 15 -year amortization of bases not frozen entry age cost method using 30 -year amortization of bases. He also considered changes to smoothing of returns, changes to mortality table, retirement rate, salary increase assumption and the inflation assumption. The Board discussed salary increase, retirement rates and amortization periods in greater detail. Chairman Spencer would like to be conservative and keep the salary increase at 9% for one additional year before lowering the assumption. The net impact of changes lowers the required employer contribution from 36.42% of payroll to 34.42% of payroll using 7.5% investment earnings assumption, a reduction of 2% and using 8% investment earnings assumption would lower the required employer contribution of payroll to 30.65 %, a reduction of 5.77 %. Mr. Palmquist prefers the more conservative approach. MOTION: Brad Seidensticker made a motion with exception of delay for one year on salary increase assumption, to change the earnings assumption to 7.5% SECOND: Wayne Sidey seconded. CARRIED: The motion carried unanimously. Ms. Jensen asked for clarification of supplemental benefit. She interprets that beneficiaries should continue to receive (surviving spouse) same benefit without reduction for optional form of benefit payment. Chairman Spencer confirmed that was the interpretation. INVESTMENT CONSULTANT REPORT GRS Asset Consulting — John McCann Mr. McCann presented the return of market indices and compliance with investment policy report. He commented that this is a nicely diversified fund. The plan had $21,277 total assets as of September 30, 2006; 55% equities, 45% fixed income and cash. Plan had return of 3.41% compared to 3.62% benchmark for the quarter and a return of 6.76% compared to 7.08% benchmark for fiscal year. The plan out performed the benchmark 11.26% to 9.36% for three years and out performed the benchmark 7.71% to 6.98% for five years. There was discussion on possible brokerage account to handle exchange- traded funds (ETFs) and dialogue on active versus passive management. Mr. Pierson also discussed allocation to hedge funds and would like hedge fund information. Mr. McCann will report back to the Board if they find a manager that is currently speaking to a hedge fund manager. Mr. McCann reported that the Mid -Cap index did not perform well. He then reviewed the performance of the International Funds which have done very well for the short term. The Board will consider increasing position to international down the road. Ms. Jensen asked if the Board should be concerned that this represents 11% of the portfolio. Mr. McCann replied that he is not concerned about it. x.1 3 -. o-e 1. !,t)-06 Pr" im Beach Gai'd£-'i s Po.I?ce Facie 3 01 6 Ms. Jensen then inquired about the fixed income performance checklist that was not in compliance. Mr. McCann replied that he has faith in ICC Capital and thinks they are a great manager.. Mr. Pierson asked about the Board taking control of fixed income by purchasing treasury securities. The Board requested that .ICC Capital attend the next meeting. ATTORNEY REPORT Hanson, Perry & Jensen, P.A. — Bonni Jensen Ms. Jensen reviewed the proposed Buyback Policy. _Chairman Spencer asked about removing the limit on number of years member -could purchase once pension becomes vested. He suggested that the member be 100% vested prior to buyback of service. Ms. Jensen will change the policy to reflect that the credit purchased will count for all purposes, except vesting (pending passage of ordinance). Chairman Spencer wants members to have Palm Beach Gardens Police as a career opportunity and not a pension opportunity. Mr. Sidey agrees with the Chairman. The Board would also like to eliminate the chart showing examples of buyback costs. Ms. Jensen will bring back proposed changes to the next meeting. MOTION: David Pierson made a motion to approve the Buyback policy with the proposed changes. SECOND: Wayne Sidey seconded. CARRIED: The motion carried unanimously. The Board had some discussion on pre -tax and post -tax contribution totals in line with payment of benefits and safe harbor. Letter to the Trustees and Ms. Jensen from Samuel Nasca dated November 1, 2006 requesting the Board to consider the monthly health stipend for the retirees receiving disability benefits was received and filed. Ms. Jensen reported that the Summary Description Plan is complete. Chairman Spencer wants to distribute the new guides to members during training. Ms. Jensen then reported on the changes to the Statement of Policy for Trustee Expenses which mirrors the City policy. The food expense is now $40 per day and the miles traveled is $0.445 per mile or the IRS standard mileage rate, whichever is greater. MOTION: David Pierson made a motion to accept the revised Statement, of Policy for Trustee Expenses. SECOND: Wayne Sidey seconded. CARRIED: The motion carried unanimously. Ms. Jensen had discussion on the Pension Protection Act of 2006 (PPA). She reviewed the provisions for the $3,000 tax free benefit for deductions from pension remitted to the City for health insurance premiums. Ms. Jensen commented that the Plan can only make deductions back to the City according to the Florida statute. She recommends that members complete a Health Insurance Premium Election Form. Ms. Jensen will contact the HR director to discuss the City age requirement that does not conform to the statute. Page, 4 of 6 DISBURSEMENTS AND BENEFIT APPROVALS There was some discussion on the total amount paid to ICC Capital Management. Mr. Baur explained that this invoice included the current quarter along with last quarter's fee, which had not been reimbursed. Chairman Spencer requested the administrator make one document to include both the disbursements and benefit approvals. MOTION: Jay Spencer made a motion to approve the disbursements and the Benefit approvals. SECOND: Jules Barone seconded. CARRIED: The motion carried unanimously. BANKING LETTER OF RECOMMENDATION Mr. Baur reviewed the Bank Checking Account Comparison spreadsheet that he prepared for the Board. His recommendation is to move the checking account from Bank of America to either BankAtlantic or SunTrust Bank. Mr. Baur commented that SunTrust was not as competitive as BankAtlantic. Mr. Seidensticker asked what the bank balance runs and Mr. Baur replied that the balance runs between $275K - $300K. MOTION: David Pierson made a motion to move the checking account from Bank of America to BankAtlantic. SECOND: Brad Seidensticker seconded. CARRIED: The motion carried unanimously. ADMINISTRATOR REPORT The Pension Resource Center, LLC - Scott Baur Mr. Baur reported that there have been a lot of improvements made to the Resource Centers website www.resourcecenters.com and that content can be made available immediately, if passed electronically. He also discussed the online pension calculator that will be available in the near future. Mr. Baur then gave a status on the transition update. He reported that he is not comfortable using the data that ASI has provided and that he has a meeting with the City next week to discuss obtaining. this data directly from them. Mr. Baur is concerned that when ASI received the data that it was not recorded very carefully. He will be talking to the City about the format in which the data is being sent. Chairman Spencer would like for Scott to give an update at the next meeting on how the meeting with the City went. OTHER BUSINESS Chairman Spencer talked about the 4 - 8 hour training for members on pension that he would like to have in the March /April timeframe. He encourages the Board to attend this training. Mr. Baur commented that another fund had a Lifestyle Consultant after retirement at their training that was a success. Ira 5,ea '# _ 1.3ar dens 13 s1 ce Mr. Pierson wants to have his address updated to reflect his home address with the State of Florida. Mr. Baur commented that when the next annual report is submitted on 3/15/07 the change would be made. Chairman Spencer inquired on whether or not the Chapter 185 money in the amount of $428K was deposited and asked the administrator to verify with the custodian that the money has been received, Chairman Spencer asked for permission to have Steve Palmquist complete a benefit study reducing the final average compensation from five years to three years. MOTION: Wayne Sidey made a motion to complete a benefit study reducing the final average compensation from five years to three - years. SECOND: David Pierson seconded. CARRIED: The motion carried unanimously. SCHEDULE NEXT MEETING The next Meeting was not scheduled. Respectfully submitted, Knu,re s 11- 1.6 -0,6 Palm Beach. Gardens Police Pack 6 of 6 :ms's i Palm Beach Gardens .Police Balance Sheet FY 2006 -2007 ?�cat�esttiait, obe ovem er O'ecember 1001 -00 Bank of America..Checkin 332 712.24 308 007.80 333 410.72 20-15 N 1527 -00 P,rdjj sums RhumbLine S &P 500 Large-Cap 7,881,706.67 2 1 8 030 333.09 q i TO ?r�.,.si` 8,142,751.18 1528 -00 RhumbLine S &P 400 Mid-Cap 1,885,230.58 1 945 691.23 1,935,925.75 1529 -00 RhumbLine S &P 600 Small-Cap 2,135,800.42 2 194 207.85 2,195,566.00 1531 -00 ICAP International Fund 214 357.83 219 966.35 227 879.10 1532 -00 Vanguard Intl Value 216 958.27 216 958.27 238 760.60 1533 -00 Van uard Global Equity 213 826.67 213 826.67 234 791.86 1534 -00 Van uard Int'I Growth 217 015.67 217 015.67 239 913.52 1660 -00 ICC Capita 10 418 533.63 10,517,171.60 11 145 074.64 dblom MMMMOOM � ...l 7� «�4 2i3M GM' r TOTAL RESERVE FUND MARKET VALUE 23,575,352.00 23,927,685.87 24,753,283.39 Palm Beach Gardens. Police Statement of Income and Expense FY 2006 -2007 - ;EndOCtflberEnd,November,.End B,ecember, >w Year;To =Date Income: 4005 -00 Contributions -State 428 055.49 0.00 0.00 428 055.49 4010 -00 Contributions-Employer 0.00 0.00 0.00 0.00 4020 -00 Contributions-Employee 57 261.02 62 109.84 93 612.33 212 983.19 4045 -00 Contributions- Buy Back 0.00 0.00 0.00 0.00 4100 -00 Commission Recapture 0.00 - 0.00 0.00 0.00 4001 -00 Interest Income 26.98 18.18 12.96 58.12 4127 -00 Investment Income- Rhumbline500 248 661.89 148 626.42 112 418.09 509 706.40 4128 -00 Investment Income- RhumbLine400 75 047.74 60 460.65 (9,765.48) 125 742.91 4129 -00 Investment Income- RhumbLine600 101-10-24.48 58 407.43 1 358.15 160 790.06 4131 -00 Investment Income -ICAP Int'I 7,403.26 5,608.52 7,912.75 20 924.53 4132 -00 Investment Income-Vanguard VAL 0.00 0.00 21 802.33 21 802.33 4133 -00 Investment Income-Vanguard EQ 0.00 0.00 20 965.19 20 965.19 4134 -00 lInvestment Income-Vanguard GR 0 .'00 0.00 22 897.85 22 897.85 4230 -00 lInvestment Income ICC Capital 58 549.88 98 637.97 627 903.04 785 090.89 Total Income 976,030.74 433,869.01 899,117.21 2,309,016.96 „3' Account lDescre 't%on °= 3W ,End O_ci "obey ;. , ': End!No� hilt s.Erid D,e ember, Y.e ? To, .D,ate,. '> Expense: 5000 -00 Investment Management Fees 11452.77 24 905.53 0.00 26 358.30 5005 -00 Custodial Fees 0.00 0.00 0.00 0.00 5010 -00 Performance Monitor 0.00 0.00 0.00 0.00 5011 -00 Printing/Stationary 0.00 0.00 0.00 0.00 5100 -00 Benefit Payments 49 232.73 49 232.73. 62 963.25 161 428.71 5105 -00 Share Account Withdrawals 0.00 0.00 0.00 0.00 5110 -00 Drop Account Withdrawals 0.00 0.00 0.00 0.00 5115 -00 Termination Refunds 3 393.05 1,630.86 0.00 5,023.91 5205 -00 Prof. Fees-Accounting Fees 0.00 1900.00 0.00 900.00 5210 -00 Prof. Fees-Actuarial Fees 3,649.00 1,32-4.00 0.00 973.00 5215 -00 Prof.Fees -Le al Fees 288.70 0.00 1,790.62 079.32 06,244.00 5220 -00 Prof. Fees-Administrative Fees 2,275.00 2,296.34 21275.00 846.34 5222 -00 Prof. Fees - Custodial Fees 0.00 0.00 0.00 0.00 5231 -00 Fiduciary Liability Insurance 0.00 0.00 6,244.00 5235 -00 Annual Membership Fees 0.00 0.00 0.00 0.00 5240 -00 Trustee Expenses 450.00 0.00 0.00 450.00 5241 -00 Computer Services 1,060.00 0.00 0.00 1,060.00- 5245 -00 1postage 0.00 0.00 0.00 0.00 5250 -00 jBank Charges 275.63 245.68 246.82 768.13 5255 -00 IMiscellaneous Expenses 0.00 1 0.00 0.00 0.00 Total Expense 62,076.88 81,535.14 73,519.69 217,131.71 Reserve Fund Last Period 22 661 398.14 23 575 352.00 1 23 927 685.87 22 661 398.14 Balance To/ From Reserve 913 953.86 1 352 333.87 1 825 597.52 1 2 091 885.25 TOTAL RESERVE FUND 23,575,352.00 1 23,927,685.87 1 24,753,283.39 1 24,753,283.39 7r�� a JILL HANSON* mjhanson@hpilaw.com ANN H. PERRY aperry®hpjlaw.com 13ONN1 SPATARA JENSEN bsiensen@hpjlaw.com •A so AamrnED iN N.Y. TO: FROM: DATE: RE: HANSON, PERRY JENSEN, P.A. 400 EXECu -nVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401 -2922 TELEPHONE (561) 686 -6550 FACSIMILE (561) 686 -2802 MEMORANDUM Board of Trustees Palm Beach Gardens Police Pension Fund Bonni S. Jensen Hanson, Perry & Jensen, P.A. February 14, 2007 IRS Circular IR- 2006 -168 Regarding Standard Mileage Rate Increase Attached is IRS Circular IR -2006 -168 regarding the 2007 Standard Mileage Reimbursement rate for the use of your personal vehicle for business. The IRS current rate is 48.5 -cents per mile. Please let me know if you have any questions. BSJ/ka Enclosure HAPBG 00031Board\2007Unemo - IRS Std Mlg Rate 2007.wpd 13 If IRS Announces 2007 Standard Mileage Rates IR- 2006 -168, Nov. 1, 2006 WASHINGTON — The Internal Revenue Service today issued the 2007 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be_ s 48.5 cents per mile for business miles driven; • 20 cents per mile driven for medical or moving purposes; and • 14 cents per mile driven in service to a charitable organization. The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October. The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. Runzheimer International, an independent contractor, conducted the study for the IRS. The mileage rate for charitable miles is set by statute. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously. Revenue Procedure 2006 -49 contains additional information on these standard mileage rates. Related Items: • Revenue Procedure 2006 -49 Subscribe to IRS Newswire . usv a va http:// www. irs. gov/ newsroom /article /0 „id= l63828,00.html 1/23/2007 PENSION RESOURCE CENTERS Accounts Payable Check Register FOR: PALM BEACH GARDENS POLICE. Check Numbe Date Payee and. Description Amount Performance Monitoring Qtr Ended 9/30/06 2038 February 6, 2007 Gabriel Roeder Smith & Company $2,084.00 2026 December 6, 2006 Hanson, Perry & Jensen $792.02 Investment Advisory Fees 3rd Qtr 2006 Legal Services Through October 17, 2006 Rhumline Advisers $2,870.25 2027 December 6, 2006 Hanson, Perry & Jensen $998.60 Legal Services Through November 20, 2006 2028 December 6, 2006 Pension Resource Center $2,275.00 December Administrative Fee 2029 December 11, 2006 United Members Insurance $6,244.00 - Fiduciary Liability Insurance 2030 January 3, 2007 Gabriel Roeder Smith & Company $6,181.00 Actuarial Services rendered through 11/30/06 2031 January 3, 2007 Hanson, Perry & Jensen, P.A. $1,117.82 Legal Services rendered through 12/15/06 2032 January 3, 2007 Pension Resource Center $2,275.00 Administrative Services - January 2033 February 6, 2007 A Better Copy Center $334.48 Copies - Summary Plan Description 2034 February 6,2007 Hanson, Perry & Jensen $260.66 Legal Services Rendered Thru January 15, 2007 2035 February 6, 2007 GRS Asset Consulting Group, Inc. $2,756.00 Performance Monitoring Qtr Ended 6/30/06 2036 February 6, 2007 GRS Asset Consulting Group. Inc. $2,756.00 Performance Monitoring Qtr Ended 12/31/06 $6 746.00 2037 February 6, 2007 GRS Asset Consulting Group, Inc. Performance Monitoring Qtr Ended 9/30/06 2038 February 6, 2007 Gabriel Roeder Smith & Company $2,084.00 Actuarial Services Rendered Thru 1/31/07 2039 February 6, 2007 Rhumline Advisers $2,719.57 Investment Advisory Fees 3rd Qtr 2006 '. 2040 February 6, 2007 Rhumline Advisers $2,870.25 _. Investment Advisory Fees 4th. Qtr 2006 2041 February 6, 2007 Ellen Schaffer $90.00 Programming & Consulting Services 2042 February 6, 2007 ICC Capital Management $13,023.15 Management Fees Period 10/01- 12/31/06 M 2043 February 6, 2007 Pension Resource Center -$2,308.58 February Administrative Fee - Total $55,832.13 Chairman Secretary . A: HANSON,„ PERRY JENSEN, P.A. 400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401 -2922 JILL HANSON* TELEPHONE (561) 686-6550 mjhanson ®hpjlaw.com FACSIMILE (561) 686 -2802 ANN H. PERRY aperry®hpjlaw.com BONNI SPATARA JENSEN bsjensen ®hpjlaw.com October 17, 2006 'uso Aommen w N.Y. Via Email Palm Beach Gardens Police Pension Fund Pension Resource Center Attn: Scott Baur & Denise Clougherty 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Re: Hanson, Perry & Jensen Billing Statement Dear Scott: Enclosed please find the Firm's invoice for services rendered for the period that ended 1011512006. Thank you for your payment of $288.70. Your current balance due is $866.77. If you have any questions, please do not hesitate to contact me. Sincerely, Bonni S. Jens n BSJ /adt Enclosure Copy to: Jay Spencer, Chairman David Pierson, Secretary Denise Clougherty., Administrator Via Email Only HANSON, PERRY & JENSEN, P.A. 400 Executive Center` Drive Suite 207 West Palm Beach, FL 33401 Phone: 561- 686 -6550 Invoice submitted to: P.B. Gardens Police Pension Fund Attn: Scott Baur & Denise Clougherty - via email c/o Pension Resource Center 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens FL 33410 Copy to: Chairman & Secretary October 17, 2006 In Reference To: FOR PROFESSIONAL SERVICES RENDERED AS FOLLOWS: Client/ File No.: 0003 Invoice # 61030 Professional Services Hrs /Rate Amount 13th Check 9/25/2006 BSJ Telephone call 0.25 42.50 Telephone call with Pat Ochoa re: Supplemental Pension 170.00/hr Plans 13th Check SUBTOTAL: , . "0.25 42.50] Auditor 10/8/2006 BSJ Telephone call 0.10 17 00 Telephone call with Peter Alfele 170.00 /hr Auditor 10/13/2006 BSJ E -Mail 0.10 17.00 E -Mail to Peter Alfele re: end of year 170.00 /hr Auditor SUBTOTAL: [ _...0.20 34.0.01 P.B. Gardens Police Pension Fund Buyback 9/21/2006 KA Telephone call Telephone call from Bonnie Lindberg at Pension Resource Center re: Buyback Policy Research Buyback policy history for Pension Resource Center E -mail to Pension Resource Center results of search Buyback 9/27/2006 BSJ Review Review Plan Document Review Proposed' Buyback Policy E -mail to Bonnie Lindberg Review Email from Bonnie Lindberg Buyback 10/3/2006 BSJ Review Review email from Bonnie Lindberg E -mail to Bonnie Lindberg Buyback SUBTOTAL: Investment Guidelines 10/13/2006 BSJ Review Review status of signed policy Investment Guidelines Page 2 Hrs /Rate Amount 0.90 65.00 /hr 0.75 170.00 /hr 58.50 127.50 0.50 85.00 170.00 /hr [ 2.15 271.001 0.10 170.00 /hr SUBTOTAL: [ 0.10 Misc Matters 9/22/2006 BSJ Telephone call 0.35 Telephone call with Jay Spencer re: Boca Benefits 170.00 /hr Telephone call with Scott Baur re: Boca Benefits Misc Matters SUBTOTAL: [ 0.35 17.00 w P.B. Gardens Police Pension Fund Page 3 Hrs /Rate Amount Participant - Nasca Sam - Disability Application 9/25/2006 KA Scan 0.15 9.75 Scan and E -mail cover letter from Bonni S. Jensen and 65.00 /hr requested Documents Participant - Nasca Sam - Disability Application KA Prepare 0.25 16.25 Prepare Disability Section of Plan Document for Sam 65.00 /hr Nasca Participant - Nasca Sam - Disability Application SUBTOTAL: [ 0.40 26.00] Plan Document 10/3/2006 BSJ Review 0.50 85.00 Review Budget Advisory Committee report to City 170.00 /hr Council (with management responses) Plan Document 10/4/2006 BSJ Telephone call 0.25 42.50 Telephone call with Jay Spencer 170.00 /hr Plan Document SUBTOTAL: [ 0.75 127.50] Trustee Election 10/10/2006 KA E -Mail 0.50 32.50 E -Mail to Scott Baur and Bonnie @ Pension Resource 65.00 /hr Center re: Trustees terms to expire February 7, 2007 (Jay Spencer & Jules Barone) with election policy Trustee Election w SUBTOTAL: [ 0.50 32.50] § 175/185 Compliance 9/22/2006 BSJ Telephone call 0.10 17.00 Telephone call with Martha Moneyham re: status of 170.00 /hr Annual Report § 175/185 Compliance P.B. Gardens Police Pension Fund M 9/26/2006 KA Telephone call Telephone call from Bonnie @ Pension Resource Center re: Disability Pension - is it duty disability Research for Bonnie @ Pension Resource Center E -mail to Bonnie results of research § 175/185 Compliance KA >Rese ne call n ne c from Bonnie @Pension Resource Center ' ' Pension - is it duty disability or Bonnie @Palm Beach County. Bo ie results of research 5 Com ance BSJ Review Review prior annual reports re: Disability Status § 175/185 Compliance SUBTOTAL: For professional services rendered Additional Charges : Bill File 10/15/2006 HPJ Postage$ Postage Bill File HPJ Photocopies$ Copy Charges Bill File SUBTOTAL: Total additional charges Total amount of this bill Page . 4 Hrs /Rate Amount 1.15 74.75 65.00 /hr 1 7 65. hr 0.50 85.00 170.00 /hr [ 2.90 251.50] 7.60 $861.50 QW /Price P.B. Gardens Police Pension Fund Page 5 Amount Previous balance $288.70 Total payments ($288.70) Balance due $866.77 HANSON, PERRY JENSEN� P.A.. 400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401 -2922 JILL HANSON* TELEPHONE (561) 686 -6550 mjhanson ®hpjlaw.com FAcsIMILE (561) 686 -2802 ANN H. PERRY aperry @hpjlaw.com BONNI SPATARA JENSEN bsjensen ®hpjlaw.com *aso ADMrrreo M N.Y. November 21, 2006 Via Email Palm Beach Gardens Police Pension Fund Pension Resource Center Attn: Scott Baur & Denise Clougherty 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Re; Hanson, Perry & Jensen Billing Statement Dear Scott & Denise: Enclosed please find the Firm's invoice for services rendered for the period that ended 1111512006. Your current balance due is $1,865.37. If you have any questions, please do not hesitate to contact me. BSJ /adt Enclosure Copy to: Jay Spencer, Chairman David Pierson, Secretary Via Email Only Sincerely, onni S. Jense HANSON, PERRY & JENSEN, P.A. 400 Executive Center Drive Suite 207 West Palm Beach, FL 33401 Phone: 561- 686 -6550 Invoice submitted to: P.B. Gardens Police Pension Fund Attn: Scott Baur & Denise Clougherty - via email c/o Pension Resource Center 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens FL 33410 Copy to: Chairman & Secretary November 20, 2006 In Reference To: FOR PROFESSIONAL SERVICES RENDERED AS FOLLOWS: Client/ File No.: 0003 Invoice # 61099 Professional Services 10/30/2006 BSJ Research Research Change of Beneficiary Research Florida Statutes §185.161 & §185.341 Review Email from Bonnie Lindberg E -mail to Bonnie Lindberg Telephone call with Trish Shoemaker Participant - General Correspondence 10/20/2006 KA Telephone call Telephone call from Bonnie @ Pension Resource Center re: current Trustee Expense Policy Telephone call with Jay Spencer re: meal increase on Expense Reimbursement Policy Trustee Expense Policy Hrs /Rate 1.10 170.00 /hr 0.25 65.00. /hr 10/30/2006 KA Telephone call 0.25 Telephone call from Pension Resource Center (Bonnie) 65.00 /hr re: change of beneficiary after retirement Participant - General Correspondence Amount 187.00 11/2/2006 KA Telephone call 1.00 65.00 Telephone call from Jay Spencer re: Trustee terms 65.00 /hr E -mail to Pension Resource Center re: election P.B. Gardens Police Pension Fund Prepare all forms and Election Policy for Pension Resource Center Trustee Expense Policy 10/31/2006 BSJ Telephone call Telephone call with Jay Spencer Auditor 11/6/2006 BSJ Review Review Resolutions from City re: City Appointments Trustee Election 11 /15/2006 BSJ Review & revise Review and revise Summary Plan Description Summary Plan Description 11/6/2006 KA Review Review and E -mails to Pension Resource Center DROP Forms DROP Page 2 Hrs /Rate Amount 0.25 42.50 170.00/hr 0.25 42.50 170.00 /hr 0.75 127.50 170.00 /hr 0.25 16.25 65.00 /hr 11/9/2006 BSJ Draft 0.50 Draft Memorandum re: Pension Protection Act 2006 - 170.00 /hr Draft Form for Health Insurance Premium Health Insurance Premiums Election Forms (PPA 2006) KA Draft 0.50 32.50 Draft Special Tax Notice 65.00 /hr Special Tax Notice 11/15/2006 KA Telephone calls 0.10 6.50 Telephone calls with Rhumbline (Denise) and Jay re: 65.00 /hr Investment Policy Guidelines signatures , E -mail to Jay Spencer re: signatures; follow up to phone ti call Investment Policy Guidelines 11/1312006 KA Draft 0.75 48.75 Draft letters to Rhumbline & ICC re: Investment Policy 65.00 /hr Guidelines to be signed and returned to us Investment Policy Guidelines I P.B. Gardens Police Pension Fund 11 /15/2006 KA E -Mail E -Mail with Jay Spencer re: (2nd request) to obtain dates for educational seminar for participants Participant - General Correspondence KA Review & revise Review and revise from attorney final markup Summary Plan Description KA Review Review City Expense Policy Draft Revised Expense Policy to increase meals, mileage Trustee Expense Policy KA E -Mail E -Mail to Pension Resource Center request copy of letters they received from participant Participant - Nasca Sam - Disability Application Page 3 Hrs /Rate Amount 0.15 9.75 65.00 /hr 0.25 16.25 65.00 /hr 0.75 48.75 65.00 /hr 0.25 16.25 65.00 /hr KA Prep Atty Rept 2.00 130.00 Prepare Attorney Report, Handouts, and Notebook for 65.00 /hr upcoming Meeting - 11/16/06 Attendance at Trustee Meetings For professional services rendered 9.35 $907.00 Additional Charges nfii /Prins 11/15/2006 HPJ Photocopies$ Copy Charges Bill File Total additional charges Total amount of this bill Previous balance 91.60 $91.60 $998.60 . $866.77 Balance due $1,865.37 PENSION RESOURCE CENTER 4360 Norkhlake Boulevard, Suite 206 West Palm Beach, FL 33410 Bill To Palm Beach Gardens Police Pension Fund Ship To Invoice Date Invoice # 12/1/2006 1712 P.O. Number Terms Rep Ship Via F.O.B. Project 12/1/2006 Quantity Item Code Description Price Each Amount 1 Admin Fee - PBGPPF Palm Beach Gardens Police Pension Fund - Admin Fee - December 2006 2,275.00 2,275.00 Total $2,275.00 p:: UNITED MEMBERS INSURANCE, IN J.R. "JIM" SOLOMON President HERMAN "CoCo" ARANGO Agency Director 324 Dale Mabry Highway - Suite 300 Tampa, Florida 33609 (813) 873 -0623 (800) 940 -5432 - (813) 879 -9867 Fax December 1, 2006 Ms. Bonnie Lindberg, Administrator The Pension Resource Center, LLC 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, Florida 33140 Re: Palm Beach Gardens Police Officers' Pension Fund Fiduciary Liability Policy, Binder #200601201, Carrier: Ulico.lnsurance Group (State National Insurance Company) Effective December 1, 2006 to December 1, 2007 Dear Bonnie: CHARLIE HARRIS DF_Fxefid ntM itus FL- AFL - - O ° ^b^ ('ozs_ultant Per your request, we have bound Fiduciary Liability Coverage for the above referenced Fund, with Uiico Insurance Group (State National Insurance Company), effective December 1, 2006. Per Ulico's quote, the annual premium is $6,244.00. A. premium invoice and postage -paid return envelope are enclosed. As always, we at United Members appreciate your business. If you have any questions, please give us a call 'Since I , S yser Account Executive (ext. 8) ` 3y, United Members Insurance 324 North Dale Mabry Highway e Suite 300 Involc G Tampa, FL 33609 Telephone: (800) 940 -5432 INVOICE NO: 03735 REFERENCE NO: 2757 DATE: 12/01/2006 PAYMENT DUE DATE: 12/28/2006 Bill To: Insured: The Pension Resource Center, LLC Palm Beach. Gardens Police Officers' 4360 Northlake. Blvd. Pension Fund Suite # 206 4360 Northlake Boulevard Palm Beach Gardens, FL 33410 Suite 206 Palm Beach Gardens, FL 33140 Description: iduciary Liability Policy - Premium Invoice Producer Company Policy Effective Expires Customer Service Rep Uiico Casualty (Fiduciary) Binder #200601201 12/01/2006 12/01 /2007 W Premium 6,244.00 Total Due 6,244.00 Please pay by 12/2812006 to ensure continuing coverage. Thank you for your business Please return a copy of this invoice with your payment. THANK YOU FOR YOUR BUSINESS! GRSGabriel Roeder Smith & Company Invoice Consultants &Actuaries f)F(' l 2006 301 East Las Olas Blvd. Suite 870 . Ft. Lauderdale, Florida 33301 -2254 (954) 527 -1616 12/7/2006 99890 e PIC BOARD OF TRUSTEES, CITY OF PALM BEACH GARDENS POLICE OFFICERS PENSION FUND Dept. # 78009 Gabriel Roeder Smith & Company . Mr. J. Scott Baur, Administrator _ PO Box 78000 The Pension Resource Center, Inc. Detroit, Michigan 48278 -0009 4360 Northlake Blvd., Suite 206 or Palm Beach Gardens, FL 33410 ACH Payment to: Gabriel Roeder Smith. & Company JPMorgan Chase, ABA #: 072000326 Account #: 0486723 For services rendered through 11/30/06 1.. Regarding changes in actuarial assumptions and methods 100360 -206 $3,306 • Preparation of 11/16/06 recommendations and cost results • Preparation for and attendance at 11/16/06 Board Meeting 2. 11/30/06 report showing cost impact of several proposed 100360 -206 $1,873 changes in benefits 3. 9/30/06 DROP statements 100360 -306 $300 4. Retirement Benefit Calculation for: Bunch 100360 -406 $300 5. Changes since 9/30/06 for preparation of the 10/1/06 Actuarial- Valuation Report 100360 -106 $402 Invoice Total $6,181 Paid to Date Client No. 100360 Amount Due $6,181 PLEASE INDICATE THE INVOICE NUMBER ON YOUR REMITTANCE. THANK YOU. HANSON, PERRY JENSEN9 P.A.o 400 EXECUTIVE CENTER DRIVE, SURE 207 — WEST PALM BEACH, FLORIDA 33401-2922 JILL HANSON* TELEPHONE (561) 686 -6550 mjhanson ®hpjlaw.com FACSIMILE (561) 686 -2802 ANN H. PERRY aperry®hpilaw.com BONNI SPATARA JENSEN bsjensen ®hpjlaw.com 'uso AoMrttm w N.Y. December 19, 2006 Via Email Palm Beach Gardens Police Pension Fund Pension Resource Center Attn: Scott Baur & Bonnie Lindberg 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Re: Hanson, Perry & Jensen Billing Statement 1 Dear Scott & Bonnie: Enclosed please find the Firms invoice for services rendered for the period that ended 12/15/2006. Thank you for your payment of $1,865.37. Your current balance due is $1,117.82. If you have any questions, please do not hesitate to contact me. Sincerely, Bonni S. Jensen HANSON, PERRY & JENSEN, P.A. 400 Executive Center Drive Suite 207 West Palm Beach, FL 33401 Phone: 561 - 686 -6550 Invoice submitted to: P.B. Gardens Police Pension Fund . Attn: Scott Baur & Bonnie Lindberg - via email ' c/o Pension Resource Center 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens FL 33410 Copy to: Chairman & Secretary December 19, 2006 In Reference To: FOR PROFESSIONAL SERVICES RENDERED AS FOLLOWS: Client/ File No.: 0003 Invoice # 61180. Professional Services Hrs /Rate Amount Attendance at Trustee Meetings 11/15/2006 KA Prep Atty Rept 1.00 65.00 Prepare Attorney Report, Handouts, and Notebook for 65.00 /hr upcoming Meeting - 1111.6/06 Attendance at Trustee Meetings 11/16/2006 BSJ Prepare 0.25 42.50 Prepare for meeting 170.00 /hr Attendance at Trustee. Meetings BSJ Attend 3.00 510.00 Attend meeting 170.00 /hr Attendance at Trustee Meetings SUBTOTAL: [ 4.25 617.501 Buyback 12/7/2006 KA Review & revise 0.50 32.50 Review and revise Buyback Policy per attorney markup 65.00 /hr Buyback P.B. Gardens Police Pension Fund SUBTOTAL: Inv MQr - RhumbLine 12/8/2006 BSJ Review Review Financial Statements Inv Mgr - RhumbLine SUBTOTAL: Investment Policy Guidelines 12/5/2006 KA Prepare Prepare Mailers for return of Investment Policy Guidelines to Hanson, Perry & Jensen, P.A. Investment Policy Guidelines. BSJ Correspondence with Correspondence with Richelle Hayes Investment Policy Guidelines 12/14/2006 BSJ Correspondence with Correspondence with ICC; Rhumbline; and Pension Resource Center with Executed Investment Policy Guidelines Investment Policy Guidelines KA E -Mail E -mails to ICC, Rhumbline, Pension Resource Center and Chairman & Secretary with Executed Investment ... Policy Guidelines Investment Policy Guidelines SUBTOTAL: Summary Plan Description 12/8/2006 KA Review Review and E -mail previous order and GBC to Order 50 Additional Binders for Summary Plan Description Summary Plan Description Page 2 Hrs /Rate Amount [ 0.50 32.501 0.25 42.50 170.00 /hr [ 0.25 42.50] 0.25 16.25 65.00 /hr 0.50 85.00 170.00 /hr 1.00. 170.00 170.00 /hr 0.25 16.25 65.00 /hr P.B. Gardens Police Pension Fund SUBTOTAL: Trustee Expense Policy 12/5/2006 KA E -Mail E -Mail to Chairman and Secretary and Administrator Trustee Expense Policy BSJ Correspondence with Correspondence with. Pension Resource Center with Executed Expense Policy Trustee Expense Policy SUBTOTAL: For professional services rendered Additional Charges: Bill File 11113/2006 HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280466 Tracking #1ZF492800390472026 to Denise D'Etremont (Investment Policy Guidelines for signature) Bill File HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280466 Tracking #1 ZF492808493794237 return from Denise D'Etremont Bill File 12/5/2006 HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280496 Tracking #1ZF492800395903356 to Richelle Hayes @ ICC Mgmt (Investment Policy Guidelines for signature) Bill File Hrs /Rake [ 0.50 0.25 65.00 /hr 0.25 170.00 /hr [ 0.50 8.00 Qty /Price 1. 16.33 1 0.50 1 8.07 Page 3 Amount 32.50] 16.25 42.50 58.75] %PI,V/ 1.4(.l 16.33 0.50 P.B. Gardens Police Pension Fund 12/5/2006 HPJ UPS overnight$ United Parcel Service Invoice No.: OOOF49280496 Tracking #1 ZF492800397679177 to Scott Baur & Bonnie @ Pension Resource Center (Expense Reimbursement Policy Document) Bill File HPJ UPS overnight$ United Parcel Service Invoice No.: OOOF49280496 Tracking #1 ZF492809097758561 Return Label (Richelle Hayes - ICC Mgmt) Bill File 12/15/2006 HPJ Postage$ Postage Bill File HPJ Photocopies$ Copy Charges Bill File SUBTOTAL: Total additional charges Total amount of this bill Previous balance Total payments Total credits Page 4 Qty/Price Amount 1 8.07 8.07 1 0.50 0.50 1 2.50 2.50 53 10.60 0.20 Balance due ' Wishing you a safe and happy Holiday Season and a bright and prosperous New Year. L - r%.,...,. $1,117.82 $1,865.37 ($1,790.62) ($74.75) $1,117.82 PENSION RESOURCE CENTER 4360 Northlake Boulevard, Suite 206 West Palm Beach, FL 33410 Bill To Palm Beach Gardens Police Pension Fund Invoice Date Invoice # 1/1/2007 .1756 P.O. Number Terms Rep Ship Via F.O.B. Project 1/1/2007 Quantity Item Code Description Price Each Amount Admin Fee - PBGPPF Palm Beach Gardens Police Pension Fund - Admin Fee • 2,275.00 2;275.00 January 2007 Total $2,275.00 HANSON, PERRY & JENSEN9 P.A. 400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLoRIOA 33401 -2922 . JILL HANSON* TELEPHONE (561) 686 -6550 mjhanson @hpilaw.com FACSIMILE (561) 686 -2802 ANN H. PERRY aperry@hpjlaw.com BONNI SPATARA JENSEN bsjensen®hpjlaw,com •ALsoAoMm owN.Y. January 16, 2007 VIA Eig IL AND FIRST CLASS MAIL Palm Beach Gardens Police Pension Fund Pension Resource Center, LLC 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Re: Palm Beach Gardens Police Pension Fund Invoice - 2006 . SPD Printing Our File Number: 0003.0051 Dear $onnie: Enclosed is invoice #157159 for the printing, hole - punching and paper4jpping of the Summary Plan Description inserts that were printed at the request of the Board. The printing was done by A Better Copy Center. Please pay this invoice for the Fund directly to A Better Copy Center as indicated on their invoice. If you have any questions please contact us. Sincerely yours, Bonne S. Jensen Signed for Ms. Jensen to expedite delivery BSJ1k@ - Encloup HAPBG 0005kPPlan Docs\S P D\2006 \cvrltr ABCC Invoice for SPD to PRC,wpd A - COPY CENTER zoos Invoice 919 North- Dixie Highway W. Palm Beach, FL 33401 (561) 655 -4944 www. better 20 Fax www. bettercapycenler.com "S th Florid-Vince ' 19861" ervm-4 sou FED ID #: 59- 2693869 INVOICES AFTER JANUARY 1, 2007 .� N r ! S�. �•.•: ;. .tir - tf' � 5- :'y:..+� ,�'1?C::.`:L�• "Y i''''i'•�': NY •�' -�v *� 0 0 1. rte• a fc7'r�:l:.+,f`�'�+'�F� �� f'�i � � P ?� r t Y� 1 cr Ly Z•`3 15.,; ..,U, is. 3d�.. =1� � f z � ��' -y r .A.� #,i�. � e r sw f�- ,Lu _ �.�...; J, �¢jt 9 ti's. fp^,u -T�'� t���}•n. r�.1.- L.xkyr`n.z�fl�. r r �.. L J� .Ftt"n, ?f.'i }�i. 1 �r } 'rx�c ^ :.i:i-+r -- .L' l :�.•Ct. ii"4 ur ,,,e�� Hanson, Perry & Jensen, PA 400 Executive Center Drive, Suite 207 West Palm Beach, FL 33401 -2922 Hanson, Perry & Jensen, PA ATTN: BONNIE JENSEN 400 Executive Center Drive, Suite 207 West Palm Beach, FL 33401 -2922 561/6865-6550 Our Terms: Established Accounts Net 10 Days /All others are COD until established .ATii•Y Y'90 f" N ?" Tr. ; i1•, E syr,C Yr ? , 4 Y 'X:1 f« N ±T{sr, . ' d 6i ° �s r,>z 1/15/2007 157159 ervm-4 sou FED ID #: 59- 2693869 INVOICES AFTER JANUARY 1, 2007 .� N r ! S�. �•.•: ;. .tir - tf' � 5- :'y:..+� ,�'1?C::.`:L�• "Y i''''i'•�': NY •�' -�v *� 0 0 1. rte• a fc7'r�:l:.+,f`�'�+'�F� �� f'�i � � P ?� r t Y� 1 cr Ly Z•`3 15.,; ..,U, is. 3d�.. =1� � f z � ��' -y r .A.� #,i�. � e r sw f�- ,Lu _ �.�...; J, �¢jt 9 ti's. fp^,u -T�'� t���}•n. r�.1.- L.xkyr`n.z�fl�. r r �.. L J� .Ftt"n, ?f.'i }�i. 1 �r } 'rx�c ^ :.i:i-+r -- .L' l :�.•Ct. ii"4 ur ,,,e�� Hanson, Perry & Jensen, PA 400 Executive Center Drive, Suite 207 West Palm Beach, FL 33401 -2922 Hanson, Perry & Jensen, PA ATTN: BONNIE JENSEN 400 Executive Center Drive, Suite 207 West Palm Beach, FL 33401 -2922 561/6865-6550 Our Terms: Established Accounts Net 10 Days /All others are COD until established .ATii•Y Y'90 f" N ?" Tr. ; i1•, E syr,C Yr ? , 4 Y 'X:1 f« N ±T{sr, . ' d 6i ° �s r,>z ri.: K .,. °..•.° . 4° @�° - U CON, ° 0 r I:N .. f., , . 0 0 S � PSG POLICE PENSION FUND BONNI JENSEN ABenerCopy 93 HLMIyC Net 10 Decays 1+ 16° I. 3M}(,�' �r+ T�'•e�LfF .+,�, Ty ,� '' - "' .i ' 7 -y'�: °- 'r'o<i�"ri..'.` et. ✓ i �xi r...L t may- ,�';} �- t �_ -- �. (S r,.. .� YSf' 'y fit- ,- "1..�,`�u.l° °i�Y.; r �.. :,N . •,,.v� ..,... �.. l:A s�,' r gym.{- R7• °ft ,•B7r r: - - :.( ?¢�. - 1 RIP Digital file processing to print (minimum) 10.00 10.00T 2,975 copyVolume (from e-mail attachment/ .pdf of 17 page document) Multiple copies of each original (175 sets of 17 page PBG Police Pension Fund / Summary Plan 0.0825 245.44T 2,975 175 hind3hole bindolip Description) 3 hole punching (side) Affix Paper Clip to each set "(includes clip) 0.015 0.08 44.63T 14.00T - Subtotal $314.07 Please pay from this ince. Reference Invoice Number or enclose a copy with your payment and vpi remit to 919 North Dixie Highway, West Palm Beach, FL 33401. Sales Tax (6.6%) $20.41 CELEBRATING OUR, 21st YEAR SERVING THE LEGAL AND BUSINESS COMMUNITIES Total $334.48 OF PALM BEACH COUNTY Note the New Look of our Invoices. HAP PYNEW YEAlz! We look forward to working with you in. the New Year! JILL HANSON* mjhanson ®hpjlaw.com ANN H. PERRY aperry@hpilaw.com SONNI SPATARA JENSEN bsjensen ®hpjlaw.com 'Also AOMR7eD IN N.Y. HANSON, PERRY & JENSEN, P.A. 400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401 -2922 January 18, 2007 Via Email Palm Beach Gardens Police Pension fund Pension Resource Center Attn: Scott Baur & Bonnie Lindberg .4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 — (;0- TELEPHONE (561) 686 -6550 FACSIMILE (561) 686 -2802 Re: Hanson, Perry & Jensen Billing Statement Deer SCOU & Bonnie: inclosed please find the Firm's invoice for services rendered for the period that ended 1/15;2507. Thank you for your payment of $1,117.82. Your current balance due is $200,06, If you have any questions, please do not hesitate.to contact me. Sincerely, Bonni S. Jensen EAplosure Copy to; Jay Spencer, Chairman David Pierson, Secretary Via Email Only , MI. M HANSON, PERRY & JENSEN, P.A. 400 Executive Center Drive Suite 207 West Palm Beach, FL 33401 Phone: 561- 686 -6550 Invoice submitted to: P.B. Gardens Police Pension Fund Attn: Scott Baur & Bonnie Lindberg - via email c/o Pension Resource Center 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens FL 33410 Copy to: Chairman & Secretary January 17, 2007 In Reference To; FOR PROFESSIONAL SERVICES RENDERED AS FOLLOWS: Client/ File No.: 0003 Invoice. # 61226 Professional Services rs /Rae Amount Health Insurance Premiums Election Forms (PPA 2006) 12/19/2006 KA 9-can Q125 16.25 aoan letter to Sheryl Stewart 05,QO /hr E -mail to Trustees and Administrator Health Insurance Premiums Election Forms (PPA 2006) B aJ Correspondence with 0.50 85.00 Correspondence with Sheryl Stewart re: Health 1 7Q.Q0 /hr Insurance for Retirees Hoalth Insurance Premiums Election Forms (PPA 2006) SU13TC) AL: [ 0.75 101.25] Mis _}rrorpondence 1/8/2007 KA E -mails 0,25 16.25 EE-mails to Scott Baur & Jay Spencer re: Pension 65,00 /hr Education Meetings confirmed Misc Correspondence I 1 P.B. Gardens Police Pension Fund SUBTOTAL: Summary Plan Description 12/18/2006 KA E -Mail E -Mail to Jay Spencer re: quantity of Summary Plan Description's for printing Summary Plan Description. 12/26/2006 BSJ Review Review email from Jim Northcutt E -mail to Jim Northcutt renumber of binders summary Plan Description 119/2007 KA Telephone call Telephone call from Pension Resource Center E -mail Summary Plan Description to Pension Resource Center Summary Plan Description 1/12/2007 KA Telephone calls `telephone calls with Hugh and Chris @ A Better Copy Center re: printing - sorting - dividing Summary Plan Description SUBTOTAL: For professional services rendered Additional Charges: i 12/12/2006 HP4 UPS overnight$ United Parcel Service Invoice No.: 000F49280506 Tracking #1 ZF492800398593409 to Jim Northcutt GBC Binder for Summary Plan Description Sample Bill File Page 2 Hrs /Rate Amount 0.25 16.251 0.15 9.75 60,00 /hr 0.20 _ 34.00 °170.00/hr 0.25 16.25 85.00 /hr 0.50 32.50 55.00 /hr [ 1.10 92.501 2.10 $210.00 Q Price 1 9.88, 9.88 P.B. Gardens Police Pension Fund 12/13/2006 HPJ UPS overnight$ - S UBTQTAL: Total additional charges Total amount of this bill Previous balance Page 3 QW /Price Amount 1 3.93 3.93 1 . 8.07 8.07 1 8.07 8.07 1 20.12 20.12 1 0.39 0.89 United Parcel Service Invoice No.: 000F49280506 Tracking #1 ZF4928009097758561 to Richelle Hayes (ICC) (return package) Bill File 12/14/2006 HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280506 Tracking #1 ZF492800396552233 to Scott Baur (Executed 2006 Investment Policy Guidelines) Bill File HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280506 Tracking #1 ZF492800397123221 to Richelle Hayes - ICC (Executed 2006 Investment Policy Guidelines) Bill File HPJ UPS overnight$ United Parcel Service Invoice No.: 000F49280506 Tracking #1 ZF492801397458646 to Denise D'Entremont - Rhumbline (Executed Investment Policy Guidelines) . Qill File 1115/2007 HPJ Postage$ Postage Bill File HPJ Photocopies$ Gopy Charges SIN File - S UBTQTAL: Total additional charges Total amount of this bill Previous balance Page 3 QW /Price Amount 1 3.93 3.93 1 . 8.07 8.07 1 8.07 8.07 1 20.12 20.12 1 0.39 0.89 United States JAN 15 200 N%iprws Department of Labor Bureau of Labor Statistics Washington, D.C. 20212 FOR TECHNICAL INFORMATION: Patrick C. Jackman (202) 691 -7000 USDL -06 -693 CPI QUICKLIME: (202) 691 -6994 TRANSMISSION OF FOR CURRENT AND HISTORICAL MATERIAL IN THIS INFORMATION: (202) 691 -5200 RELEASE IS EMBARGOED MEDIA CONTACT: (202) 691 -5902 UNTIL 8:30 A.M. (EDT) INTERNET ADDRESS: http://www.bls.gov/ci)i/ Wednesday, April 19, 2006 CONSUMER PRICE INDEX: MARCH 2006 The Consumer Price Index for All Urban Consumers (CPI -U) increased 0.6 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 199.8 (1982 -84 =100) was 3.4 percent higher than in March 2005. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI -W) increased 0.6 percent in March, prior to seasonal adjustment. The March level of 195.3 (1982 =84 =100) was 3.6 percent higher than in March 2005. The Chained Consumer Price Index for All Urban Consumers (C- CPI -U) increased 0.5 percent in March on a not seasonally adjusted basis. The March level of 1`16.1(December 1999 =100) was 3.0 percent higher than in March 2005. Please note that the indexes for the post -2004 period are subject to revision. CPI for All Urban Consumers.(CPI -U) On a seasonally adjusted basis, the CPI -U advanced 0.4 percent in March, following a 0.1 percent rise in February. Energy costs, which declined 1.2 percent in February, increased 1.3 percent in March. Within energy, the index for motor fuels increased 3.6 percent, while the index for household fuels fell 1.0 percent. The food index rose 0.1 percent in March, the same as in February. The index for food at home declined 0.1 percent, reflecting a 1.7 percent decrease in the index for fruits and vegetables. The index for all items less food and energgyy rose 0.3 percent in March, following a 0.1 percent increase in February; the indexes for apparel and for shelter accounted for about 70 percent of the March increase. Table A. Percent changes in CPI for Urban Consumers (CPI -U Seasonally adjusted Un- Compound adjusted Expenditure Changes from prec edin month annual rate 12 -mos. Category 3 -mos. ended ended 2005 2006 Sep. Oct. Nov. Dec. Jan. Feb. Mar. Mar. '06 Mar. '06 All Items 1.2 .3 -.7 -.1 .7 .1 .4 4.3 3.4 Food and beverages .3 .2 .3 .1 .5 .2 .1 2.7 2.6 Housing .5 .9 .4 .2 .5 .1 .2 12 3.7 Apparel -.1 -.3 .l -3 .3 -1.0 1.0 1.4 -1.2 Transportation 5.0 -1.2 -4.9 -.7 .1:8 -.2 .9 10.5 5.1 Medical care .3 .6 .5 .2 .1 .5 .4 4.2 4.1 Recreation .4 .2 -.1 1 .0 1 .4 1.8 1.5 Education and communication .6 .0 .4 .2 .4 .2 .2 3.2 2.6 Other goods and services .2 .1 .3 .4 .3 1 .2 2.3 2.8 Special. Indexes Energy 11.8 .0 -8.1 -2.1 5.0 -1.2 1.3 21.8 17.3 Food 2 3 3 1 5 1 .1 15 2.6 All Items less food and energy 1 .2 .2- .1 .2 .1 .3 2.8 2.1 GRS Asset Consulting Group, Inc Invoice 433 Plaza Real Suite 275 �4 - Invoice' Boca Raton FL.33432 j 1/9/2007 2006184 , (561) 962 -4155 • Please Remit. • Palm Beach Gardens Police Pension Fund GRS Asset Consulting Group, Inc. Mr. Scott Bauer Mizner Park Center The Pension Resource Center, LLC 433 Plaza Real, Suite 275 4360 Northlake Boulevard, Suite 206. Boca Raton, FL 33432 Palm Beach Gardens, FL 33410 USA 2, GRS Asset Consulting Group, Inc%` b s1h ?f' 433 Plaza Real Invoice Suite 275. JAN X 5 2007 Boca Raton FL. 33432 BY; 1'/9/2007 2006183 (561) 962 -4155 Palm Beach Gardens Police Pension Fund GRS Asset Consulting Group, Inc. Mr. Scott Bauer Mizner Park Center The Pension Resource Center, LLC 433 Plaza Real, Suite 275 4360 Northlake Boulevard, Suite 206 Boca Raton, FL 33432 Palm Beach Gardens, FL 33410 USA Description Performance Monitoring for the quarter ending September 30, 2006. 011 2,756.00 Special Meetings with City Members and travel time: 19 hours x $210 = 3,990.00 $3,990 My apologies for sending this invoice so late but .1 believed it had already gone out. t Investment Advisory Fees JAN 2 2 2007 Oct. 5, 2006 3rd Otr2006 Invoice # 26JF084 Account: Palm Beach Gardens Police Fund S &P 500 Pooled Index Fund S &P 400 Pooled Index Fund S &P 600 Pooled Index Fund Pooled Combined Market Values - Period ending L811 7/31/2006 $11,029,509 8/31/2006 $11,256,610 9/30/2006 $11,478,004 Total $33,764,123.00 Avorage Market Value $11,254,707.67 Sasis Points 0.0010 X 10,000,000.00 10,000.00 0.0007 X 1,254,707.67 878.30 Annual Fee: $10,878.30 Please Pay Quarterly Fee: Please make payment to: RhumbLine Advisers 30 Rowes Wharf, suite 350 Boston, MA 02110-3326 RhumbUite Advisers • 30 Rowes Wharf, Boston, MA 02110-3.126 • Tel: (617) 345 - 0934, Fax: (fill) 345- -0675 s RhnmbLine Advisers • 30 Rowes Wharf, Boston, MA 02110 -3326 • Tel: (617) 345 -0434, Fax: (617) 345 -0675 �lJ Invests ent Advisory Fees JAN .22 2007. Jan. 18, 2007 4th Qtr 2006 Invoice # 27AO84 Account: Palm 'Beach Gardens P lice Fund S &P 50 Pooled Index Fund S &P 40 Pooled Index Fund S &P 60 Pooled Index Fund x Pooled r �f N A l.fn , F Combined, Market Values v Period ending L811 10/31/2006 $11,902,738 11/30/2006 $12,170,232 12/31/2006 $12,274,243 M Total $36,347,212.77 Average Market Value $12,1.15,737.59 -* Basis Points 0.001.0 X 10,000,000.00 10,000.00 0.0007 X 2,115,737.59 1,481.02 Annyal Fee: $11,481.02 Please Pay Quarterly Fee: $2,870.25 Please make payment to: RhumbLine Advisers 30 Row-e s Wharf, Suite 350 ' Boston, MA 02110 -3326 RhnmbLine Advisers • 30 Rowes Wharf, Boston, MA 02110 -3326 • Tel: (617) 345 -0434, Fax: (617) 345 -0675 I N V O I C E ELLEN .SCHAFFER INVOICE: 1906 .339 N.W. 99 WAY DATE 12/22/2006 CORAL SPRINGS, FL. 33071 REF.:: 61 Home: (954) 341- 5032 Fax: (954) 345 -0748 Public.Pension.Software Consultant SOLD TO:. PENSION RESOURCE CENTER 4360 NORTHLAKE BLVD. SUITE 206 PALM BEACH GARDENS.,.FL. 33410 ATTN: DENISE .MC NEILL QTY DESCRIPTION TOTAL AMOUNT 1.0 HOUR (S) PROGRAMMING & CONSULTING SERVICES 90.00 90.00 FOR PBG POLICE TO COMPUTE YTD BENEFIT AND REFUND TOTALS FOR 1099R; _. NO TOTALS WERE PROVIDED AT CONVERSION. 7` ©po I� ni 0 8 2007 CAPITAL MANAGEMENT - Ba January 1, 2007 PALM BEACH GARDENS POLICE PENSION FUND Bonnie Lindberg, Administrator The Pension Resource Center 4360 Northlake Blvd, Suite 206 Palm Beach Gardens, FL 33410 • Invoice Number: 101159 ICC Capital Management, Inc. STATEMENT OF MANAGEMENT FEES For the Period October 1, 2006 thru December 31, 2006 Portfolio Valuation with Accrued Interest as of 12 -31 -06 $ 10,418,523.15 10,418;523 @ 0.500% per annum 13,023.1.5 Quarterly Management Fee $ 13,023.1.5 .TOTAL DUE AND PAYABLE $ 13,023.15 A. 390 North Orange Avenue . 27th Floor . Orlando, Florida 328011. PH 800 - 480 -6445 . PH 407- 839 - 8440. FX 407 -841 -2814 WEB viHal f c 3lniai rpm PENSION RESOURCE CENTER 4360 Northlake Boulevard, Suite 206 West Palm Beach, FL 33410 - Bill To Palm Beach Gardens Police Pension Fund Invoice Date Invoice # 2/1/2007 1799 P.O. Number Terms Rep Ship Vi a F.O.B. Project 2/l/2007 Quantity Item Code Description Price Each Amount Admin Fee-PBGPPF Palm Beach Gardens Police Pension Fund - Admin Fee - 2,275.00 2,275.00 February 2007 26 Copies Copies-1099R - 2006 Tax Year 0.15 3.90 26 Forms& Envelopes Forms and Envelopes-1099R - 2006 Tax Year 0.29 7.54 I Labor Labor 1099R -2006 Tax Year 12.00 12.00 26 Postage Postage-1099R -2006 Tax Year 0.39 10.14 Total $2,308.58 1_ Iowa 4� a ICUU W Lh � N 1n t0 O 7 �y a In O si 0 stnud.tannnnM��'�'...`ry In �f,,,1 anad� 1n t0 O 7 �y In O n 01 01 a0 O M ` ei M M M M.-�MONNNM: M ''O 0 a OD O t 0 N N N N C! 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N O 0 0 w u o.� � c4 0 m °: v � u v u D :; :o , m U ai w a 0, A u ,o � � as a0i o DD 0 v bA •> Fg cu d 'C U���' oxd Cn Cb p bO CU C > b0 $ uQwcnM- O N Q U U j C V C 9 U � Palm Beach Gardens Police Review of International Equity Funds February 14, 2007 1. Vanguard Global Equity (VHGEX) [0.74 %] MorningStar Rating: * * * ** (out of 326 funds over 5- years) Comparative Index: World Stock ie. MSCI World 1 Year 3 Year 5 Year Fund: 23.59% 18.38% 17.74% Policy: 20.07% 14.68% 9.97% Diff : 3.52% 3.70% 7.77% Received an excellent rating and review from Morningstar. No change recommended. 2. Vanguard International Growth Admiral Shares (VWILX) [0.45 %] MorningStar Rating: ** *(out of 435 funds over 5- years) Comparative Index: Foreign Large Blend ie. MSCI EAFE 1 Year 3 Year 5 Year Fund: 25.95% 20.03% 13-91% Policy: 26.34% 20.10% 15.25% Diff : -0.39% -0.07% -1.34% Received an average rating and excellent review from Morningstar. No change recommended. 3. Vanguard International Value (VTRIX) [0.44°/x] MorningStar Rating: * ** *(out of 537 funds over 3- years) Comparative Index: Foreign Large Blend ie. MSCI EAFE. 1 Year 3 Year 5 Year Fund: 27.15% 21.56% 17.17% Policy: 26.34% 19.93% 14.98% Diff: 0.81% 1.63% 2.19% Good rating and review from Morningstar. No change recommended. 4. Mainstay ICAP International (ICEUX) [0.93 %] MorningStar Rating: * ** *(out of 177 funds over 3- years) Comparative Index: Foreign Large Value ie. MSCI EAFE. 1 Year 3 Year 5 Year Fund: 24.30% 23.40% 16.82% Policy: 26.34% 19.93% 14.98% Diff : -2.04% 3.47% 1.84% Good rating and review from Morningstar. No change recommended. COMPLEXITY DEFENSIVE CONSISTENT DIVERSIFICATION QUANTITATIVE VOLATILITY DURATION GROWTH ACTIVE ROTATION STRATEGY INNOVATION DISCIPLINE RISK CONTROL YIELD BENCHMARKS PIE RATIO I C C CAPITAL MANAGEMENT GLOBALIZATION ASSET ALLOCATION PERFORMANCE STABILITY INTEGRITY SECTOR MARKETS SECURITIES 1 1 1 PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME ' Investment Review Quarter Ending December 31, 2006 ICC Capital Management, Inc. PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOMF ' Investment Performance Report Quarter Ending ' December 31, 2006 1 1 1 _J IICC Capital Management, Inc. Total Return Summary Page...... 1 ' Portfolio Allocation Page...... 2 Investment Performance by Asset Category Page...... 3 ' Fixed - Income Analysis Page...... 4 tRealized Purchases & Sales Page...... Page...... 6 10 Gains/ Losses Portfolio Summary Page...... 13 tPortfolio Appraisal Page ...... 14 IICC Capital Management, Inc. PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME Total Return Summary Quarter Ending December 31, 2006 Starting Value $9,920,193 $8,760,412 Ending Value $11,137,235 $11,137,235 Difference $1,217,042 $2,376,823 Net Contributions / (Withdrawals) $1,117,640 $2,008,791 Gait&/(Loss) from Investments $99,402 $368,032 $5,551,720 $11,137,235 $5,585,515 $4,264,513 $1,321,002 TOTAL RETURN I 0.98% I 3.870/. I 22.81% ANNUALIZED TOTAL RETURN 4.20% ICC Capital Management, Inc. 1 PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME ' Portfolio Allocation at Market Quarter Ending ' December 31, 2006 Asset Allocation: 100 (Mkt) Market Value CASH /EQUIVS as of 9130106 6.4% FIXED INCOME 93.6% FIXED INCOME Market Value CASH /EQUIVS 90.7 % as of 12,131106 9.3% 4 0 1 Mkt Value Mkt Value % Mkt Value Mkt Value % as of 9/30/06 as of 9/30/06 as of 12,/31/06 as of 12,/31/06 CashllE uivs $632,586 6.4% $1,040,372 9.3% Fixed $9,288,927 93.6% $10,096,863 90.7% Total $9,921,513 100.0% $11,137,235 100.0% ICC Capital Management, Inc. 1 2 PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME Investment Performance by Asset Category Quarter Ending December 31, 2006 uarter 5.00 2.50 1 11 ■ ACCOUNT ■LBGC Calendar YTD (12131 5.00 4.00 3.00 2.00 1.00 0.00 BONDS TOTAL ■ ACCOUNT ■ LBGC 5 Year Annualized r7 CA BONDS TOTAL ■ACCOUNT ■LBGC BONDS represents ICC Capital Management, Inc. 3 TOTAL PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME Fixed Income Analysis (Page 1 of 2) Quarter Ending December 31, 2006 Average Quality — AAA Average Duration — 3.96 Current Yield — 5.33 MBS 31.7% Federal Agencies 19.9% Corporate Bonds US Treasuries 28.5% 19.9% Corporate Bonds S &P Rating Moody Rating General Electric Cap Crop AAA AAA Goldman Sachs AA- AA3 Citigroup Inc AA- Aal Intl Lease Fin Aig 5 7/8 AA- Al Fleetboston Finl Corp A+ Aa3 Lowe's Companies A+ Al Lehman Brothers Holdings A+ Al IBM Corp A+ Al Bear Stearns A+ Al Alcoa Inc A- A2 Conoco Inc A- Al Dell Computer A A2 Avon Products Inc A A2 Morgan Stanley A Al Jpmorgan Chase & Co A Al Jp Morgan Chase A Al Jp Morgan Chase A Al Kohls Corp BBB+ A3 Government/A enc Bonds S&P Rating Moody Rating Federal National Mortgage Assn AAA AAA United States Treasury AAA AAA U.S. Treasury Strips AAA AAA Mortgage Backed Securities S&P Rating Moody Rating Fglmc #g02268 AAA AAA Fgci N #g12323 AAA AAA Fgci N #bl3978 AAA AAA Fgci N #g11690 AAA AAA Fgci N #812208 AAA AAA Fnci N #725445 AAA AAA Gnsf M #552509 AAA AAA ICC Capital Management, Inc. 1 4 1 PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME ' Fixed Income Analysis (Page 2 of 2) Quarter Ending December 31, 2006 t 1 L Mortgage Backed Securities S&P Rating Moody Rating Fgci N #b13455 AAA AAA Fnci M #254371 AAA AAA Fnci N #255888 AAA AAA Gnjo M #781313 AAA AAA Fnci N #825335 AAA AAA Fnci N #829053 AAA AAA Gnsf M #582153 AAA AAA Portfolio Duration vs. Index Duration (Ratio) —0-- INDEX f ACCT 1.8% AGGRESSIVE 1.4% 1.0% NEUTRAL DEFENSIVE 0.2% 12/31/2004 3/31/2005 6/30/2005 9/30/2005 12/31/2005 3/31/2006 6/30/2006 9/30/2006 12/31/2006 IICC Capital Management, Inc. ICC Capital Management PURCHASE AND SALE PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 To 12 -31 -06 "Trade Settle Unit Date Date Quantity Security Price Amount PURCHASES 11 -20 -06 11 -24 -06 225,000.000 AVON PRODUCTS INC 99.52 223,915.50 5.125% Due 01 -15 -11 10 -17 -06 10 -20 -06 50,000.000 CITIGROUP INC 104.86 52,430.50 6.500% Due 01 -18 -11 11 -15 -06 11 -20 -06 25,000.000 CITIGROUP INC 105.18 26,294.75 6.500% Due 01 -18 -11 10 -17 -06 10 -20 -06 30,000.000 CONOCOINC 114.29 34,286.70 6.950% Due 04 -15 -29 11 -15 -06 11 -20 -06 30,000.000 CONOCOINC 116.26 34,876.80 6.950% Due 04 -15 -29 10 -17 -06 10 -20 -06 130,000.000 FEDERAL NATIONAL MORTGAGE 101.38 131,797.90 ASSN 6.000 % Due 05 -15 -08 11 -02 -06 11 -03 -06 30,000.000 FEDERAL NATIONAL MORTGAGE 101.56 30,467.40 ASSN 6.000% Due 05 -15 -08 12 -15 -06 01 -11 -07 645,326.000 FGLMC #G02268 102.08 658,737.67 6.500% Due 08 -01 -36 10 -17 -06 10 -20 -06 10,000.000 FREDDIE MAC 6.75 03/31 121.17 12,117.40 6.750 % Due 03 -15 -31 11 -03 -06 11 -06 -06 10,000.000 FREDDIE MAC 6.75 03/31 121.34 12,134.07 6.750% Due 03 -15 -31 11 -15 -06 11 -20 -06 15,000.000 GOLDMAN SACHS 98.00 14,700.60 5.125% Due 01 -15 -15 11 -15 -06 11 -20 -06 20,000.000 LEHMAN BROTHERS HOLDINGS 102.22 20,444.60 5.750% Due 05 -17 -13 11 -27 -06 11-30-06 220,000.000 LOWE'S COMPANIES 102.42 225,324.00 5.800% Due 10 -15 -36 12 -14 -06 12 -19 -06 385,000.000 U.S. TREASURY STRIPS 40.30 155,162.70 0.000% Due 11 -15 -25 10 -13 -06 10 -18 -06 10,000.000 UNITED STATES TREAS BOND 129.37 12,937.50 7.875% Due 02 -15 -21 11 -02 -06 11 -07 -06 10,000.000 UNITED STATES TREAS BOND 131.74 13,174.22 7.875% Due 02 -15 -21 10 -13 -06 10 -18 -06 75,000.000 UNITED STATES TREASURY 96.09 72,070.32 3.500% Due 02 -15 -10 11 -02 -06 11 -07 -06 75,000.000 UNITED STATES TREASURY 96.80 72,597.66 3.500% Due 02 -15 -10 1,803,470.29 b ICC Capital Management PURCHASE AND SALE PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 To 12 -31 -06 Trade Date Settle Date Quantity Security Unit Price Amount _ SALES 100.00 1,305.25 12 -15 -06 12 -29 -06 53,695.000 FGCI N #G12323 96.83 51,992.64 1,994.240 FGCI N #13 13455 100.00 4.500% Due 08 -01 -21 11 -20 -06 11 -20 -06 255,000.000 FIRST DATA CORP 98.10 250,152.45 1,550.380 FGCI N #13 13455 100.00 4.500% Due 06 -15 -10 11 -27 -06 11 -30 -06 65,000.000 FREDDIE MAC 6.75 03/31 124.17 80,708.55 2,776.340 FGCI N #13 13978 100.00 6.750% Due 03 -15 -31 11 -27 -06 11 -30 -06 10,000.000 FREDDIE MAC 6.75 03/31 124.17 12,416.70 2,469.730 FGCI N #13 13978 100.00 6.750% Due 03 -15 -31 11 -27 -06 11 -30 -06 10,000.000 FREDDIE MAC 6.75 03/31 124.17 12,416.70 2,138.290 FGCI N #13 13978 100.00 6.750% Due 03 -15 -31 11 -27 -06 11 -30 -06 5,000.000 FREDDIE MAC 6.75 03/31 124.17 6,208.35 1,712.811 FGCI N #G11690 100.00 6.750% Due 03 -15 -31 11 -27 -06 11 -30 -06 110,000.000 FREDDIE MAC 6.75 03/31 124.17 136,583.70 796.906 FGCI N #G11690 100.00 6.750% Due 03 -15 -31 12 -14 -06 12 -19 -06 10,000.000 UNITED STATES TREAS BOND 131.66 13,165.63 7.875% Due 02 -15 -21 12 -14 -06 12 -19 -06 10,000.000 UNITED STATES TREAS BOND 131.66 13,165.62 7.875% Due 02 -15 -21 12 -14 -06 12 -19 -06 65,000.000 UNITED STATES TREAS BOND 131.66 85,576.56 7.875% Due 02 -15 -21 12 -14 -06 12 -19 -06 15,000.000 UNITED STATES TREAS BOND 131.66 19,748.44 7.875% Due 02 -15 -21 12 -14 -06 12 -19 -06 135,000.000 UNITED STATES TREAS BOND 131.66 177,735.94 7.875% Due 02 -15 -21 859,871.28 PRINCIPAL PAYDOWNS 10 -15 -06 10 -15 -06 1,305.250 FGCI N #13 13455 100.00 1,305.25 4.500% Due 04 -01 -19 11 -15 -06 11 -15 -06 1,994.240 FGCI N #13 13455 100.00 1,994.24 4.500% Due 04 -01 -19 12 -15 -06 12 -15 -06 1,550.380 FGCI N #13 13455 100.00 1,550.38 4.500 % Due 04 -01 -19 10 -15 -06 10 -15 -06 2,776.340 FGCI N #13 13978 100.00 2,776.34 4.000% Due 05 -01 -19 11 -15 -06 11 -15 -06 2,469.730 FGCI N #13 13978 100.00 2,469.73 4.000% Due 05 -01 -19 12 -15 -06 12 -15 -06 2,138.290 FGCI N #13 13978 100.00 2,138.29 4.000% Due 05 -01 -19 10 -15 -06 10 -15 -06 1,712.811 FGCI N #G11690 100.00 1,712.81 4.000 % Due 02 -01 -20 10 -15 -06 10 -15 -06 796.906 FGCI N #G11690 100.00 796.91 4.000% Due 02 -01 -20 ICC Capital Management PURCHASE AND SALE PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 To 12 -31 -06 Trade Settle Unit Date Date Quantity Security Price Amount 10 -15 -06 10 -15 -06 767.133 FGCI N #G1 1690 100.00 767.13 4.000% Due 02 -01 -20 10 -15 -06 10 -15 -06 667.330 FGCI N #G11690 100.00 667.33 4.000% Due 02 -01 -20 11 -15 -06 11 -15 -06 1,795.777 FGCI N #G11690 100.00 1,795.78 4.000% Due 02 -01 -20 11 -15 -06 11 -15 -06 835.507 FGCI N #G11690 100.00 835.51 4.000% Due 02 -01 -20 11 -15 -06 11 -15 -06 804.292 FGCI N #G11690 100.00 804.29 4.000% Due 02 -01 -20 11 -15 -06 11 -15 -06 699.655 FGCI N #G11690 100.00 699.65 4.000% Due 02 -01 -20 12 -15 -06 12 -15 -06 1,463.861 FGCI N #G11690 100.00 1,463.86 4.000 % Due 02- 01 -20' 12 -15 -06 12 -15 -06 681.079 FGCI N #G11690 100.00 681.08 4.000% Due 02 -01 -20 12 -15 -06 12 -15 -06 655.634 FGCI N #G11690 100.00 655.63 4.000% Due 02 -01 -20 12 -15 -06 12 -15 -06 570.336 FGCI N #G11690 100.00 570.34 4.000% Due 02 -01 -20 10 -15 -06 10 -15 -06 1,966.284 FGCI N #G12208 100.00 1,966.28 4.000% Due 02 -01 -21 10 -15 -06 10 -15 -06 642.826 FGCI N #G 12208 100.00 642.83 4.000% Due 02 -01 -21 11 -15 -06 11 -15 -06 2,288.940 FGCI N #G12208 100.00 2,288.94 4.000% Due 02 -01 -21 11 -15 -06 11 -15 -06 748.310 FGCI N #G12208 100.00 748.31 4.000% Due 02 -01 -21 12 -15 -06 12 -15 -06 1,816.878 FGCI N #G 12208 100.00 1,816.88 4.000 % Due 02 -01 -21 12 -15 -06 12 -15 -06 593.982 FGC1 N #G12208 100.00 593.98 4.000% Due 02 -01 -21 10 -15 -06 10 -15 -06 6,090.260 FGCI N #G12323 100.00 6,090.26 4.500% Due 08 -01 -21 11 -15 -06 11 -15 -06 5,797.040 FGCI N #G12323 100.00 5,797.04 4.500% Due 08 -01 -21 12 -15 -06 12 -15 -06 5,133.740 FGCI N #G 12323 100.00 5,133.74 4.500% Due 08 -01 -21 10 -25 -06 10 -25 -06 1,576.630 FNCI M #254371 100.00 1,576.63 5.500% Due 07 -01 -17 11 -25 -06 11 -25 -06 2,372.170 FNCI M #254371 100.00 2,372.17 5.500% Due 07 -01 -17 12 -25 -06 12 -25 -06 2,344.050 FNCI M #254371 100.00 2,344.05 5.500% Due 07 -01 -17 s t ICC Capital Management PURCHASE AND SALE PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 To 12 -31 -06 Trade Settle Unit Date Date Quantity_ Security Price Amount 10 -25 -06 10 -25 -06 333.330 FNCI N #255888 100.00 333.33 4.000% Due 08 -01 -20 11 -25 -06 11 -25 -06 1,000.230 FNCI N #255888 100.00 1,000.23 4.000% Due 08 -01 -20 12 -25 -06 12 -25 -06 331.530 FNCI N #255888 100.00 331.53 4.000% Due 08 -01 -20 10 -25 -06 10 -25 -06 3,225.180 FNCI N #725445 100.00 3,225.18 4.500% Due 05 -01 -19 11 -25 -06 11 -25 -06 3,627.310 FNCI N #725445 100.00 3,627.31 4.500% Due 05 -01 -19 12 -25 -06 12 -25 -06 3,271.020 FNCI N #725445 100.00 3,271.02 4.500% Due 05 -01 -19 10 -25 -06 10 -25 -06 317.890 FNCI N #825335 100.00 317.89 4.000% Due 05 -01 -20 11 -25 -06 11 -25 -06 353.790 FNCI N #825335 100.00 353.79 4.000% Due 05 -01 -20 12 -25 -06 12 -25 -06 2,949.470 FNCI N #825335 100.00 2,949.47 4.000% Due 05 -01 -20 10 -25 -06 10 -25 -06 623.380 FNCI N #829053 100.00 623.38 4.000% Due 08 -01 -20 11 -25 -06 11 -25 -06 736.370 FNCI N #829053 100.00 736.37 4.000 % Due 08 -01 -20 12 -25 -06 12 -25 -06 687.800 FNCI N #829053 100.00 687.80 4.000% Due 08 -01 -20 10 -15 -06 10 -15 -06 998.250 GNJO M #781313 100.00 998.25 6.000% Due 07 -15 -16 11 -15 -06 11 -15 -06 818.020 GNJO M #781313 100.00 818.02 6.000% Due 07 -15 -16 12 -15 -06 12 -15 -06 1,203.200 GNJO M #781313 100.00 1,203.20 6.000% Due 07 -15 -16 10 -15 -06 10 -15 -06 4,211.800 GNSF M #552509 100.00 4,211.80 6.000% Due 04 -15 -32 11-15-06 11 -15 -06 341.750 GNSF M #552509 100.00 341.75 6.000% Due 04 -15 -32 12 -15 -06 12 -15 -06 1,598.870 GNSF M #552509 100.00 1,598.87 6.000% Due 04 -15 -32 10 -15 -06 10 -15 -06 68.660 GNSF M #582153 100.00 68.66 6.000% Due 06 -15 -32 11 -15 -06 11 -15 -06 78.950 GNSF M #582153 100.00 78.95 6.000% Due 06 -15 -32 12 -15 -06 12 -15 -06 2,040.570 GNSF M #582153 100.00 2,040.57 6.000% Due 06 -15 -32 83,873.03 9 1 ICC Capital Management REALIZED GAINS AND LOSSES PALM BEA CH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 Through 12 -31 -06 Open Date Close Date Quantity Security Cost Basis Proceeds Gain Or Loss Short Term Long Term 04 -15 -02 10 -15 -06 4,211.800 GNSF M #552509 4,159.81 4,211.80 51.99 6.000% Due 04 -15 -32 06 -13 -02 10 -15 -06 68.660 GNSF M #582153 68.54 68.66 0.12 6.000% Due 06 -15 -32 07 -02 -02 10 -15 -06 998.250 GNJO M #781313 1,029.45 998.25 -31.20 6.000% Due 07 -15 -16 09 -08 -04 10 -15 -06 1,305.250 FGCI N #13 13455 1,301.40 1,305.25 3.85 4.500% Due 04 -01 -19 09 -23 -04 10 -15 -06 2,776.340 FGCI N #1313978 2,733.39 2,776.34 42.95 4.000% Due 05 -01 -19 05 -11 -05 10 -15 -06 1,712.811 FGCI N #G11690 1,661.96 1,712.81 50.85 4.000% Due 02 -01 -20 01 -30 -06 10 -15 -06 796.906 FGCI N #G1 1690 759,55 796.91 37.36 4.000% Due 02 -01 -20 04 -12 -06 10 -15 -06 767.133 FGC1 N #G1 1690 716.31 767.13 50.82 4.000 % Due 02 -01 -20 06 -27 -06 10 -15 -06 667.330 FGCI N #G1 1690 612.28 667.33 55.05 4.000% Due 02 -01 -20 07 -21 -06 10 -15 -06 1,966.284 FGCI N #G 12208 1,824.04 1,966.28 142.24 4.000% Due 02 -01 -21 07 -24 -06 10 -15 -06 642.826 FGCI N #G 12208 595.02 642.83 47.81 4.000% Due 02 -01 -21 08 -24 -06 10 -15 -06 6,090.260 FGCI N #G 12323 5,839.04 6,090.26 251.22 4.500% Due 08 -01 -21 09 -08 -05 10 -25 -06 333.330 FNCI N #255888 324.37 333.33 8.96 4.000 % Due 08 -01 -20 05 -23 -02 10 -25 -06 1,576.630 FNCIM #254371 1,569.73 1,576.63 6.90 5.500% Due 07 -01 -17 09 -15 -04 10 -25 -06 3,225.180 FNCI N #725445 3,227.63 3,225.18 -2.45 4.500% Due 05 -01 -19 08 -23 -05 10 -25 -06 623.380 FNCI N #829053 604.68 623.38 18.70 4.000% Due 08 -01 -20 09 -08 -05 10 -25 -06 317.890 FNCI N #825335 309.35 317.89 8.54 4.000% Due 05 -01 -20 04 -15 -02 11 -15 -06 341.750 GNSF M #552509 337.53 341.75 4.22 6.000% Due 04 -15 -32 06 -13 -02 11 -15 -06 78.950 GNSF M #582153 78.81 78.95 0.14 6.000% Due 06 -15 -32 07 -02 -02 11 -15 -06 818.020 GNJO M #781313 843.58 818.02 -25.56 6.000% Due 07 -15 -16 09 -08 -04 11 -15 -06 1,994240 FGCI N #1313455 1,988.36 1,994.24 5.88 4.500% Due 04 -01 -19 09 -23 -04 11 -15 -06 2,469.730 FGCI N #13 13978 2,431.53 2,469.73 38.20 4.000% Due 05 -01 -19 05 -11 -05 11 -15 -06 1,795.777 FGCI N #G11690 1,742.46 1,795.78 53.32 4.000 % Due 02 -01 -20 01 -30 -06 11 -15 -06 835.507 FGCI N #G11690 796.34 835.51 39.17 4.000% Due 02 -01 -20 04 -12 -06 11 -15 -06 804.292 FGCI N #G11690 751.01 804.29 53.28 4.000% Due 02 -01 -20 06 -27 -06 11 -15 -06 699.655 FGCI N #Gl 1690 641.93 699.65 57.72 4.000 % Due 02 -01 -20 07 -21 -06 11 -15 -06 2,288.940 FGC1 N #G12208 2,123.35 2,288.94 165.59 4.000% Due 02 -01 -21 10 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 i 1 1 ICC Capital Management REALIZED GAINS AND LOSSES Open Date PALM BEA CH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 Through 12 -31 -06 Gain_ Or Loss Close Cost Date Quantity Security Basis Proceeds Short Term Long Term 07 -24 -06 11 -15 -06 748.310 FGCI N #G12208 692.65 748.31 55.66 4.000% Due 02 -01 -21 08 -24 -06 11 -15 -06 5,797.040 FGCI N #G12323 5,557.91 5,797.04 239.13 4.500% Due 08 -01 -21 01 -25 -06 11 -20 -06 255,000.000 FIRST DATA CORP 246,340.20 250,152.45 3,812.25 4.500% Due 06 -15 -10 09 -08 -05 11 -25 -06 1,000.230 FNCIN #255888 973.35 1,000.23 26.88 4.000% Due 08 -01 -20 05 -23 -02 11 -25 -06 2,372.170 F NCI M #254371 2,361.79 2,372.17 10.38 5.500% Due 07 -01 -17 09 -15 -04 11 -25 -06 3,627.310 F NCI N #725445 3,630.07 3,627.31 -2.76 4.500% Due 05 -01 -19 08 -23 -05 11 -25 -06 736.370 FNCI N #829053 714.28 736.37 22.09 4.000% Due 08 -01 -20 09 -08 -05 11 -25 -06 353.790 F NCI N #825335 344.28 353.79 9.51 4.000% Due 05 -01 -20 08 -29 -06 11 -27 -06 65,000.000 FREDDIE MAC 6.75 03/31 77,340.90 80,708.55 3,367.65 6.750% Due 03 -15 -31 10 -17 -06 11 -27 -06 10,000.000 FREDDIE MAC 6.75 03/31 12,117.40 12,416.70 299.30 6.750% Due 03 -15 -31 11 -03 -06 11 -27 -06 10,000.000 FREDDIE MAC 6.75 03/31 12,134.07 12,416.70 282.63 6.750% Due 03 -15 -31 01 -30 -06 11 -27 -06 5,000.000 FREDDIE MAC 6.75 03/31 6,216.80 6,208.35 -8.45 6.750% Due 03 -15 -31 06 -09 -05 11 -27 -06 110,000.000 FREDDIE MAC 6.75 03/31 145,344.10 136,583.70 - 8,760.40 6.750% Due 03 -15 -31 10 -13 -06 12 -14 -06 10,000.000 UNITED STATES TREAS 12,937.50 13,165.63 228.13 BOND 7.875% Due 02 -15 -21 11 -02 -06 12 -14 -06 10,000.000 UNITED STATES TREAS 13,174.22 13,165.62 -8.60 BOND 7.875% Due 02 -15 -21 10 -27 -05 12 -14 -06 65,000.000 UNITED STATES TREAS 86,185.94 85,576.56 - 609.38 BOND 7.875% Due 02 -15 -21 01 -30 -06 12 -14 -06 15,000.000 UNITED STATES TREAS 20,025.00 19,748.44 - 276.56 BOND 7.875% Due 02 -15 -21 05 -25 -05 12 -14 -06 135,000.000 UNITED STATES TREAS 188,789.06 177,735.94 -1 1,053.12 BOND 7.875% Due 02 -15 -21 08 -24 -06 12 -15 -06 53,695.000 FGCI N #G12323 51,480.08 51,992.64 512.56 4.500% Due 08 -01 -21 04 -15 -02 12 -15 -06 1,598.870 GNSF M #552509 1,579.13 1,598.87 19.74 6.000% Due 04 -15 -32 06 -13 -02 12 -15 -06 2,040.570 GNSF M #582153 2,037.06 2,040.57 3.51 6.000% Due 06 -15 -32 07 -02 -02 12 -15 -06 1,203.200 GNJO M #781313 1,240.80 1,203.20 -37.60 6.000% Due 07 -15 -16 09 -08 -04 12 -15 -06 1,550.380 FGCI N #B 13455 1,545.81 1,550.38 4.57 4.500% Due 04 -01 -19 09 -23 -04 12 -15 -06 2,138.290 FGCI N #B13978 2,105.21 2,138.29 33.08 4.000% Due 05 -01 -19 05 -11 -05 12 -15 -06 1,463.861 FGCI N #G11690 1,420.40 1,463.86 43.46 4.000% Due 02 -01 -20 i 1 ICC Capital Management REALIZED GAINS AND LOSSES PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME From 09 -30 -06 Through 12 -31 -06 Open Close Gain Or Loss Short Term Long Term Date Date Quantity Security 01 -30 -06 12 -15 -06 681.079 FGCI N #Gl 1690 43.43 4.000% Due 02 -01 -20 04 -12 -06 12 -15 -06 655.634 FGCI N #G1 1690 1,685.44 1,816.88 4.000% Due 02 -01 -20 06 -27 -06 12 -15 -06 570.336 FGCI N #G1 1690 44.18 4.000% Due 02 -01 -20 07 -21 -06 12 -15 -06 1,816.878 FGCI N #G12208 322.62 331.53 4.000% Due 02 -01 -21 07 -24 -06 12 -15 -06 593.982 FGCI N #G12208 10.26 4.000% Due 02 -01 -21 08 -24 -06 12 -15 -06 5,133.740 FGCI N #G12323 667.17 687.80 4.500 % Due 08 -01 -21 09 -08 -05 12 -25 -06 331.530 FNCI N #255888 79.27 4.000% Due 08 -01 -20 05 -23 -02 12 -25 -06 2,344.050 FNCI M #254371 5.500% Due 07 -01 -17 09 -15 -04 12 -25 -06 3,271.020 FNCI N #725445 9,913.76 - 19,938.08 4.500% Due 05 -01 -19 08 -23 -05 12 -25 -06 687.800 FNCI N #829053 4.000% Due 08 -01 -20 09 -08 -05 12 -25 -06 2,949.470 FNCI N #825335 4.000% Due 05 -01 -20 TOTAL GAINS TOTAL LOSSES TOTAL REALIZED GAIN /LOSS - 10,024.31 12 Cost Basis Proceeds Gain Or Loss Short Term Long Term 649.15 681.08 31.93 612.20 655.63 43.43 523.28 570.34 47.06 1,685.44 1,816.88 131.44 549.80 593.98 44.18 4,921.97 5,133.74 211.77 322.62 331.53 8.91 2,333.79 2,344.05 10.26 3,273.51 3,271.02 -2.49 667.17 687.80 20.63 2,870.20 2,949.47 79.27 10,207.37 -- 586.88 - 293.61 - 20,524.95 953,768.62 943,744.31 9,913.76 - 19,938.08 1 1 1 1 1 1 1 1 1 1 1 ICC Capital Management PORTFOLIO SUMMARY PALM BEACH GARDENS POLICE PENSION FUND FIXED INCOME December 31, 2006 Pct. Cur. Est.Annual Security Type Total Cost Market Value Assets Yield Income Cash & Equivalents CASH AND 1,041,537.17 1,041,537.17 9.4 1.4 14,581.52 EQUIVALENTS 1,041,537.17 1,041,537.17 9.4 1.4 14,581.52 Fixed Income CORPORATE BONDS 2,920,400.80 2,851,535.05 25.6 6.3 178,290.00 GOVERNMENT 1,981,065.84 1,990,480.85 17.9 3.3 66,675.00 BONDS MORTGAGE POOLS 3,202,116.59 3,171,992.88 28.5 5.0 158,998.00 GOVERNMENT 2,027,651.30 1,992,162.50 17.9 5.9 118,200.00 SPONSORED BOND Accrued Interest 89,526.31 0.8 10,131,234.53 10,095,697.58 90.6 5.2 522,163.00 TOTAL PORTFOLIO 11,172,771.70 11,137,234.75 100.0 4.9 536,744.52 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ICC Capital Management PORTFOLIO APPRAISAL PALM BEA CH GARDENS POLICE PENSION FUND FIXED INCOME December 31, 2006 Unit Total Market Pct. Cur. Quantity Security Cost Cost Price Value Assets Yield CASH AND EQUIVALENTS CASH & CASH EQUIVALENTS 1,041,537.17 1,041,537.17 9.4 1.4 14 1,041,537.17 1,041,537.17 9.4 1.4 CORPORATE BONDS 80,000.000 GENERAL ELECTRIC 110.79 88,629.60 107.80 86,240.80 0.8 7.7 CAP CROP 8.300% Due 09 -20 -09 235,000.000 FLEETBOSTON F1NL 106.28 249,762.70 105.56 248,063.65 2.2 7.0 CORP 7.375% Due 12 -01 -09 280,000.000 JPMORGAN CHASE & 108.76 304,525.20 108.23 303,044.00 2.7 7.3 CO 7.875% Due 06 -15 -10 200,000.000 ALCOA INC 107.37 214,736.00 106.60 213,210.00 1.9 6.9 7.375% Due 08 -01 -10 225,000.000 AVON PRODUCTS 99.52 223,915.50 99.05 222,860.25 2.0 5.2 INC 5.125% Due 0 1 -15-11 255,000.000 CITIGROUP INC 104.86 267,383.25 104.63 266,806.50 2.4 6.2 6.500% Due 01 -18 -11 195,000.000 INTL LEASE FIN AIG 105.64 205,999.95 102.11 199,110.60 1.8 5.8 57/8 5.875% Due 05 -01 -13 25,000.000 LEHMAN BROTHERS 102.01 25,502.30 101.58 25,394.50 0.2 5.7 HOLDINGS 5.750% Due 05 -17 -13 100,000.000 JP MORGAN CHASE 99.68 99,682.00 97.03 97,033.00 0.9 5.0 4.875% Due 03 -15 -14 80,000.000 MORGAN STANLEY 98.28 78,620.80 95.61 76,490.40 0.7 5.0 4.750% Due 04 -01 -14 45,000.000 BEAR STEARNS 97.40 43,829.55 101.51 45,680.85 0.4 5.6 5.700% Due 11 -15 -14 65,000.000 GOLDMAN SACHS 99.74 64,829.10 97.71 63,510.20 0.6 5.2 5.125% Due 01 -15 -15 50,000.000 JP MORGAN CHASE 101.59 50,797.00 98.34 49,170.00 0.4 5.3 5.250% Due 05 -01 -15 75,000.000 IBM CORP 105.60 79,202.05 109.21 81,907.50 0.7 6.0 6.500% Due 01 -15 -28 115,000.000 DELL COMPUTER 122.15 140,469.05 108.80 125,117.70 1.1 6.5 7.100% Due 04 -15 -28 305,000.000 CONOCO INC. 115.80 353,187.65 113.59 346,443.40 3.1 6.1 6.950% Due 04 -15 -29 170,000.000 KOHLS CORP 120.00 204,005.10 1 10.67 188,144.10 1.7 6.6 7.250% Due 06 -01 -29 220,000.000 LOWE'S COMPANIES 102.42 225,324.00 96.96 213,307.60 1.9 6.0 5.800% Due 10 -15 -36 Accrued Interest 42,371.53 0.4 2,920,400.80 2,893,906.58 26.0 6.3 GOVERNMENT BONDS 1,905,000.000 UNITED STATES 95.85 1,825,903.14 96.50 1,838,325.00 16.5 3.6 TREASURY 3.500% Due 02 -15 -10 14 ICC Capital Management PORTFOLIO APPRAISAL PALM BEA CH GARDENS POLICE PENSION FUND FIXED INCOME December 31, 2006 Unit Total Market Pct. Cur. quantity Security Cost Cost Price Value Assets Yield 385,000.000 U.S. TREASURY 40.30 155,162.70 39.52 152,155.85 1.4 0.0 15 STRIPS 0.000% Due 11 -15 -25 Accrued Interest 25,003.12 0.2 1,981,065.84 2,015,483.97 18.1 3.3 MORTGAGE POOLS 52,538.440 GNJO M #781313 103.12 54,180.27 101.71 53,438.42 0.5 5.9 6.000% Due 07 -15 -16 133,523.910 FNCI M #254371 99.56 132,939.74 100.24 133,843.03 1.2 5.5 5.500% Due 07 -01 -17 163,291.540 FGCI N #13 13455 99.71 162,810.14 96.48 157,551.84 1.4 4.7 4.500% Due 04 -01 -19 382,544.169 FGCI N #13 13978 98.45 376,626.69 94.12 360,062.05 3.2 4.2 4.000% Due 05 -01 -19 290,279.880 FNCI N #725445 100.08 290,500.52 96.59 280,369.72 2.5 4.7 4.500% Due 05 -01 -19 393,001.890 FGCI N #G11690 95.08 373,663.45 94.12 369,905.17 3.3 4.2 4.000% Due 02 -01 -20 60,944.660 FNCI N #825335 97.31 59,306.77 94.15 57,381.23 0.5 4.2 4.000 % Due 05 -01 -20 70,480.410 FNCI N #255888 97.31 68,586.25 94.15 66,359.42 0.6 4.2 4.000% Due 08 -01 -20 60,624.050 FNCI N #829053 97.00 58,805.33 94.15 57,079.36 0.5 4.2 4.000% Due 08 -01 -20 330,413.485 FGCI N #G 12208 92.72 306,344.78 94.03 310,701.02 2.8 4.3 4.000% Due 02 -01 -21 439,283.812 FGCI N #G12323 95.88 421,163.36 96.39 423,434.45 3.8 4.7 4.500% Due 08 -01 -21 195,939.260 GNSF M #552509 98.77 193,520.63 101.53 198,943.01 1.8 5.9 6.000% Due 04 -15 -32 45,008.360 GNSF M #582153 99.83 44,931.00 101.53 45,698.34 0.4 5.9 6.000% Due 06 -15 -32 645,326.000 FGLMC #G02268 102.08 658,737.67 101.84 657,225.81 5.9 6.4 6.500 % Due 08 -01 -36 Accrued Interest 7,048.31 0.1 3,202,116.59 3,179,041.19 28.5 5.0 GOVERNMENT SPONSORED BOND 1,970,000.000 FEDERAL NATIONAL 102.93 2,027,651.30 101.12 1,992,162.50 17.9 5.9 MORTGAGE ASSN 6.000% Due 05 -15 -08 Accrued Interest 15,103.33 0.1 2,027,651.30 2,007,265.83 18.0 5.9 TOTAL PORTFOLIO 11,172,771.70 11,137,234.75 100.0 4.9 15 CAPITAL MANAGEMENT. 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O 3 d S�- Q 2 3 v °' m .+ fO a S 3 m CD n M n 5, o CO M d - 7r d CD cep O CD 7 O C O�, n 7 N cD O w 0. 7 0 (O a a d 7 7 (D N 'O 7 S I a s w 0 < C fD A CD A y m .7+ K d d (D m de n r d H D 0. (D p S (D �^ d (G S ? cr O , 7 (D O N d m 5+ H d c- 3 O D to r N 0 3< Q (D - .y 3 N O N V� d CD Q' <' S O N o 7 v 7 °i fD n d n. o m d C H O^ a+ `N a O 7 C m ,Ci a Q .7. d 0 (D m N '-' y j S (D 0 7 �n .. C < 7• 7 O IS < .'". A O 3 ,. a fD can S ° 7' o < .dJ. c m v H to m_ `� .0 m^ M 7 3 fiD i d (a (D d fD fD (0 fD 7r (n S O c O N O v 7 C a d �' d o S o < I IC DL 3 N S m m CD 0 3• 0 7 w 0 7 (D 0 7 y ry 7 CO m 0 M CD CL (p N d C O0 Q 0 'D ,�y fD 0 3 0 A C d ° 3 3 O O S N a d _Ll g \ I,— What Lies Beneath: Navigating the Hedge -Fund Market Jon Ruff Daniel J. Loewy Director — Wealth Management Group Director of Research. and Analytics — Wealth Management Group 1. INTRODUCTION: CHARTING A ROAD MAP FOR HEDGE FUNDS Since the early 1990s, hedge funds have grown at a stag- gering rate. Once the exclusive province of the ultra - wealthy investor, today hedge funds are attracting a broader group of private investors; they are increasingly popular in the institutional arena as well. Between 1990 and the end of 2005, the number of hedge funds burgeoned from a few hundred to some 8,200, repre- senting more than $1.1 trillion in net assets — explosive growth that has been well documented. Receiving less attention, though much more significant for investors, is the difficulty of finding a road map or a means of assessing how hedge funds earn returns and assume risk — information that is essential when determining how much to allocate to them. This is especially important because hedge funds can be far more puzzling than traditional investments. The strate- gies employed are varied, the manager track records typically short, and information about their ongoing investments often thin. Further, the growth of hedge -fund assets notwith- standing, there's no consensus among investors on the degree to which they should be used —if at all, as noted in two recent surveys.' Though university endowments were among the early converts to hedge funds, nearly 40% of them still have no allocation. A survey of wealthy private investors found that approximately one in five had no exposure, while nearly one -third of the respondents reported allocations of more than 25 %. Are some investors too cautious and others too aggressive? With little common ground among investors about the utility of hedge funds, we undertook in -depth research on thousands of funds — greatly expanding our 2002 study, Hedge Fund Myths and Realities. Our goal was to help investors —both private and institutional— better understand the drivers of success in hedge -fund invest- ing and the key variables in determining an allocation. ■ t National Association of College and University Business Officers and Institute for Private Investors; 2005 surveys What Lies Beneath: Navigating the Hedge -Fund Market 3 2. THE LURE OF HEDGE FUNDS: NIRVANA OR SIREN SONG? A hedge fund is a lightly regulated investment pool, generally limited to high- net -worth individuals and institutions, in which the manager is given great flex- ibility to exploit inefficiencies in the global investment markets. To accomplish their investment goals, hedge - fund managers utilize a far wider set of tools than traditional portfolio managers. In the classic config- uration, hedge -fund managers not only "go long" securities they believe are likely to appreciate, but also "short- sell" securities poised, in their judgment; to fall in price. But these aren't the only tools available to hedge -fund managers. Hedge funds may utilize financial derivatives or employ leverage. Some invest in non - traditional or illiquid assets, such as loans or private equity. Others may invest in distressed assets or employ arbitrage techniques that attempt to capitalize on merger oppor- tunities or perceived misvaluations between two closely related securities. (Also see More Information About Hedge Funds, page 20.) This expanded tool kit is designed to capture more return while at the same time hedging out many unwanted investment risks. In fact, for many so- called market - neutral hedge funds, the target is to eliminate the portfolio's sensitivity to the markets' ups and downs —say, by short - selling securities as much as they buy long. We'll see, however, that while hedge funds mitigate some types of risk, they add others. 67d How Hedge Funds Are Different Given the wide array of hedge -fund strategies, it's not surprising that the return profile of hedge funds is heavily dependent on a manager's investment skill — much more so than most traditional investment port- folios. If investment strategies are arrayed according to their dependence on the market (Display 1), index funds, which aim to replicate a benchmark, are at one end of the spectrum. In the middle are traditionally managed portfolios, which usually aren't structured very differently from the market—but rely on manag- ers' investment selections to earn a premium return. At the far end of the spectrum are hedge funds, whose returns are driven primarily by manager strategies rather than by broad market direction. For example, over the 10 years ending in 2005, the market accounted for better than 80% of the ups and downs generated by the average traditional equity manager (Display 2, next page).z In contrast, hedge funds were virtually a mirror image: only 20% depen- dent on the broad market and fully 80% on manager decision making. When so much of a portfolio's return is a function of alpha rather than beta, successful managers have the potential to produce a very attrac- tive return profile. They can avoid the inevitable market downturns_ and target . positive absolute returns._ regardless of the prevailing environment. Of course, Display 1 Hedge Funds Are Substantively Different from Traditional Portfolios in Their Approach to Investing Index Fund Traditionally Managed Portfolio Typical Hedge Fund Goal Market return Premium over market return Positive return in up and down markets Strategy Replicate the market Benefit from rising markets Reduce /eliminate risk of declining markets Manager uses expertise in security selection Fully exploit manager's ability to generate alpha through to generate alpha flexible investing format Potential Sources N/A Long -only security selection Long security selection of Alpha Short security selection Access to various investment markets Range of financial instruments Leverage Specialized strategies (e.g., arbitrage) Risks Market decline Market decline Poor investment selection /use of techniques Poor investment selection and tools Underperforming a rising market 2 Traditionally managed bond portfolios rely most heavily on broad movements in the market to generate their returns too. We found that 89% o£the variation in the average active bond manager's return was driven by broad bond market movements, with the remaining 11% driven by manager decisions. 4 AllianceBernstein i Display 2 ...As Reflected by Their Far Heavier Reliance on Manager Skill Drivers of Returns: Stock - Market Movements vs. Manager Decisions* 1996 -2005 Index Fund Average Traditional Average Active Manager Hedge Fund er We measured the variation in monthly returns (using a statistical measure called r- squared) that is attributable to the Russell 3000 Index for each fund in our sample universes and took the average result to represent the market return driver. We at- tributed all returns not explained by the Russell 3000 movements to active manager decisions. See The TASS Database and The Mercer Database of Equity and Fixed - Income Managers, seepage 23 for details. Source: Mercer, Russell Investment Group, TASS and AllianceBernstein such heavy reliance on manager skill is a double -edged sword: If achieving alpha proves elusive, a fund can do very poorly. Throughout this study, we consider how the shift from primarily market -based to primarily manager -based returns creates unique opportunities and unique risks that must be understood and factored into asset allocation decisions. Display 3 Even After Adjusting for the Upward Biases in Reporting, Hedge Funds Showed an Attractive Profile 14 12 10 8 a 6 4 ® T -Bills 2 0 0 2 ReturnNolatility Trade-Off* 1996 -2005 Annualized ® Bonds ® Avg. of Hedge -Fund Indicest ® Hedge -Fund Composite: ® Stocks Bernstein Estimates 8 10 12 14 16 18 Volatility ( %) *Past performance does not guarantee future results. See page 23 for information on how we used and adjusted the TASS database of hedge funds. tSeven widely used hedge-fund indices Source: Lehman Brothers, Standard £r Poors, TASS and AllianceBernstein Stock -Like Returns Without the Risk? To see whether hedge -fund investing fulfills its prom- ise, we looked at a number of widely used indices that attempt to characterize industry performance. As shown in Display 3, the average, of those indices from 1996 through 2005 —the box at the top center of the chart —shows enviable results: a compound return about four percentage points above the S &P 500's but with volatility closer to the level of bonds than stocks. But were these results too good to be true? We took a harder look, trying to adjust for the biases that come with the territory in hedge -fund performance reporting. It is at a fund's discretion to submit results — or not —and for however long a time period it chooses. Given this large degree of reporting discretion, hedge- fund index results tend to be significantly overstated. We created our own composite) of hedge -fund returns by researching the performance of the 6,000+ funds in the TASS database and adjusting the reported returns with the goal of correcting for several biases. (See A Good Hedge -Fund Index Is Hard to Find, page 6, for details on our approach to analyzing hedge -fund returns.) The result was a hedge -fund composite whose performance was in line with that of the S &P 500 rather than exceeding it (see the Hedge -Fund Composite box in Display 3). But earning stock -like returns with much reduced volatility is still a compelling combination. In fact, our hedge -fund composite (the basis of our findings throughout the rest of this study) looked even better when we examined the decade from 1996 through 2005 year by year (Display 4). In a period of Display 4 Hedge Funds Participated in Rising Markets and Preserved Capital When Stocks Tumbled... Annual Returns for the Stock Market and Hedge Funds* 1996 -2005 40 , 20 i= 0 d (20) (40) 96 97 98 99 00 01 02 03 04 05 Hedge -Fund Compositet *Past performance does not guarantee future results. tNot including fund of funds. See page 23 for information about the TASS database of hedge funds and our methodology. Source: Standard £r Poor's, TASS and AllianceBernstein What Lies Beneath: Navigating the Hedge -Fund Market 5 A CLOSER LOOK: A Good Hedge -Fund Index Is Hard to Find Investors in traditional asset classes have the benefit of a long data series of index returns that profile their risk and return characteristics. For example, the S &P 500 and its predecessors com- prise 80 years of stock - return history. Indeed, a recent study presented risk and return statistics for equities as well as government bills and bonds for the last 100 years in 16 countries.` Underpinning results like these are indices comprising securi- ties selected on the basis of a consistent method- ology, with performance monitored over time. Given a reliable proxy for an asset class, investors have some basis for analyzing performance in a host of market environments — periods of strong economic growth, recessions, inflationary spirals, wars, etc. —and can draw reasonable conclusions about the risk and return potential of making large or small allocation commitments. When it comes to hedge funds, however, the indices do not represent a consistent group of assets selected and monitored over time. They are a collection of fund returns self - reported by the managers; hence, they include only managers who choose to report. In fact, managers can stop reporting at their discretion. Gaps such as these create the potential for a number of biases in reported results that must be factored in. To get a better handle on the performance actually experienced by investors, we started with a vast universe of 6,000 hedge -fund managers, derived from one of the largest commercially available databases, provided by TASS. When we analyzed the historical results of all funds reporting to the database as of year -end 2005, we calculated an average compound return of 15.1% over the prior 10 years. We then adjusted the results to correct as much as we could for several important biases: Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns, Princeton University Press, 2002. 6 AllianceBernstein Backfill Bias: With the hope of creating a longer, more comprehensive series of historical returns, some indices include a fund's prior returns even though they have just begun to report their results to the index provider. Funds tended to "backfill" when their earlier results were superior; weak performance was far less likely to be added ex post facto. To correct for this problem, we included only fund returns from the point the manager began reporting to the database. This reduced our return estimate to 13.4 %. Survivorship Bias: Some indices exclude the historical returns of funds that were once in their database but are no longer reporting. The bias here is the mirror image of backfill bias. Not surprisingly, we found that many such funds had been underperforming their peers when they stopped reporting. We included all of these funds in our analysis — reducing our return estimate to 8.9 %. Short History: Most hedge -fund indices began in the early 1990s, when there were few funds in the universe. When we corrected for back- fill, there were even fewer. We therefore began our performance history in 1996, the point at which we felt we had a reliable sample of funds. After making these adjustments to the data, we found that very few funds had reported returns for as long as 10 years: Only 18% of the funds that reported in 1996 were still reporting at the end of 2005 (display, facing page). Even three -year records proved elusive: Fewer than two- thirds of the funds reporting in 2003 were still in the database by the end of 2005. The reason for the thin history was clear enough: Funds that stopped reporting had underperformed their peers during the prior 12 months by an average of 10 %. Many Hedge Funds Have Short Track Records, Either Because They Haven't Been Around Long or They Stopped Reporting After Hitting a Rough Patch Percent of Hedge Funds That Continued to Report Returns in 2005* Many index providers have attempted to adjust for some of these biases, with varying degrees of success. We don't claim that our own database is perfect —but we've tried to create a reliable proxy using a sound methodology.t And as we illus- trated in Display 3 (page 5), our research indicates that hedge -fund returns have been substantially lower than the average of a group of commonly cited indices —still superior results, mind you, but not as stellar as they would appear at first glance. t We weren't able to account for all the biases that could impact hedge -fund performance. For example, there is no way of getting access to a fund's returns in the months after it stops reporting to a database. Another is the potential impact of the time - sensitivity of our analysis: The 10 -year period we studied (1996 -2005) may in retrospect turn out to have been unusually good for hedge funds or unusually poor. Further, numerous commentators have discussed the possibility that hedge -fund returns are more volatile than they appear owing to the difficulty of accurately marking many of their illiquid holdings to market. extraordinary stock - market volatility —which included both superb years and one of the worst bear markets since the Great Depression — hedge funds, on average, did what they were supposed to do. They participated in —or beat —the S &P in six of lthe seven up years, and when the market dropped by 38% between 2000 and 2002, they gained a cumulative'i 5% (posting .positive returns each year). In fact, when the S &P tanked, cash flows into hedge funds spiked as investors looked to them for potential insulation from market risk. Further, although hedge -fund correlations to the stock market haven't been quite as low as those of bonds (Display 5), they were a diversifying investment —since their average exposure to the market, was low. In light of this performance history, hedge funds appear to be a natural fit in the ,traditional asset alloca- tion framework, designed to combine asset classes with attractive return, volatility and correlation character- istics. Indeed, it wouldn't be surprising if an allocation model placed all of an investor'si capital in hedge funds, barring a weighting cap by the investor or his advisor. But in our view, simply using annualized return and standard deviations to make allocation decisions would be a serious mistake, because hedge fund risks aren't adequately captured by volatility alone. Display 5 ...While Offering a Diversification Benefit for Equity Portfolios Correlations to S &P 500* 1996 -2005 High Correlation US Growth Stocks US Value Stocks International Stocks Hedge -Fund Composite Real Estate Low Correlation Bonds *Correlation between the S&P 500 and other investment alternatives, which are represented by the following —US Growth Stocks: Russell 1000 Growth Index; US Value Stocks: Russell 1000 Value Index; International Stocks: MSCIAll Country World Index ex USA; REITs: National Association of Real Estate Investment Trusts (NAREIT) Index; Hedge Funds: TASS and AllianceBernstein; Bonds: Lehman Brothers US Aggregate Index. Past correlations are not necessarily indicative offuture results. What Lies Beneath: Navigating the Hedge -Fund Market 7 Hedge -Fund Risk Is About Manager Mistakes For one thing, during hedge funds' short history, the industry has experienced massive change: growth in the array of fund strategies, tremendous capital inflows and a surge in the number of managers. As more assets chase "alpha" in the global markets, the heightened competi- tion may make it harder for managers to add value. But the need to carefully assess hedge -fund risks runs deeper. Hedge funds are not an asset class —like stocks or bonds —whose returns are underpinned by fundamentals like corporate earnings growth or the cash - flow - generating power of companies or govern- ments. Rather, hedge funds are collections of discrete managers, each relying on his or her own ability to exploit inefficiencies in the capital markets by means of a spe- cific tool set and orientation (stock picking, arbitrage, wagering on macro scenarios and so forth). As a result, performance dispersion —the difference between the results of a particular manager and the index —runs high in hedge funds; much higher, inci- dentally, than in traditionally managed stock and bond portfolios. In Display 6, we show annual results from 1996 through 2005 for the same adjusted hedge -fund composite we used in Display 4— that's the middle line running across the bars. The tops of the boxes are the results achieved by the manager who outper- formed 90% of his peers; at the bottom are the returns of the manager who underperformed to a correspond- ing degree. In some years the range between top- and bottom- decile managers was eye - popping: some 80 Display 6 Hedge -Fund Index Returns Tell Investors Little; the Disparity Among Manager Performance Has Been Notable 80 60 40 20 0 (20) (40) Range of Annual Hedge -Fund Manager Returns* 1996 -2005 96 97 98 99 00 01 02 03 04 05 Top - Decile Manager Hedge -Fund Composite[ Bottom - Decile Manager *Past performance does not guarantee future results. Also seepage 23 for information about the TASS database and our methodology. tNot including fund offunds Source: TA SS and AllianceBernstein 8 Alliance Bernstein Display 7 Going with Today's Hot Fund Is Not a Winning Formula Consistency of Hedge -Fund Performance* 1996 -2005 Ranking over Ranking over Prior 3 Years Forward 3 Years Top Quartile Top Quartile PO ��RXSe cond Quartile Third Quartile Bottom Quartile We looked at all funds in the TASS database (see page 23) that met our index - inclusion criteria (excluding funds of funds) and that had at least a three -year perfor- mance track record at the end of 1998, 1999, 2000, 2001 or 2002. Those whose performance track records would have placed them in the top quartile of hedge fund managers were tracked as to their quartile rankings over the subsequent three years. Source: TASS and AllianceBernstein percentage points in 1999 and 55 points in the previous year. But in all years, the dispersion was notable. So while it's always important to choose good managers, in the hedge -fund landscape it's critical— because know- ing the results of a hedge -fund index does little to prepare the investor for what to expect from the fund he or she has chosen. Unfortunately, simple techniques to differentiate between managers, such as relying on a fund's past return levels, are a poor guide to future success. We found that managers' total returns in the past were weakly correlated with their performance in subsequent periods (Display 7). For example, between 1996 and 2005, only 28% of top - quartile hedge -fund managers over three -year periods maintained. their edge over the next three -year period; in fact, another 28% of these managers fell to the bottom of the pack.' In other words, the odds of top managers maintaining their rankings were in line with a random distribution. And so hedge funds are neither "Nirvana" for investors nor a siren song. They're complex vehicles with cor- respondingly complex risk /return profiles. Using them to their best advantage requires an astute understanding of their dynamics —and as always, it's the details that make the difference. ■ 3 More sophisticated techniques to differentiate between managers, such as selecting based on past Sharpe and information ratios — statistical measures of return per unit of risk —may offer a better indication o£future performance, but our analysis found that, even so, the correlations were generally weak and variable by strategy.