HomeMy WebLinkAbout1994-04-28 - Agendas - Final•
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AGENDA
FIREMEN'S PENSION AND RELIEF BOARD
April 28, 1994
11:00 a.m.
City Hall Room 326
1. Approval of the minutes of the March 31, 1994 meeting
2. Approval of Pension List for May, 1994
3 Old Business
4 New Business
1. Investment Report
5. Adjournment
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MINUTES OF A MEETING OF THE FIRE PENSION BOARD
A meeting of the Fayetteville Firemen's Pension and Relief Board
was held on Thursday, March 31, 1994, at 11:00 a.m. ih Room 326 of
the City Administration Building, 113 W. Mountain,Fayetteville,
Arkansas.
PRESENT: Marion Doss, Pete Reagan and Ron Wood, Retirees Richard
Baird and Darrell Judy, Mayor Fred Hanna, City Clerk
Sherry Thomas, and Treasurer Glyndon Bunton
CALL TO ORDER
Marion Doss called the meeting to order.
MINUTES
Reagan, seconded by Wood, made a motion to approve the minutes of
the February 24, 1994 meeting. The motion was approved
unanimously
PENSION LIST
Reagan, seconded by Doss, made a motion to approve the pension
lists for April 1994. There were no changes in the pension list.
The motion was approved unanimously.
OLD BUSINESS
DROP PLAN
Reagan stated he did not attend the meeting that was held on the
30th about the Drop Plan. The Pension Review Board will be
discussing this at their April 6 meeting, so he stated this should
be left on the table until the April meeting.
NEW BUSINESS
INVESTMENT REPORT
Richard Yada, Merrill Lynch, stated the portfolio balance through
February was $4,313,316 with New Mexico Capital and $3;406,680 in
the income account. New,.Mexico was up 2.56%, but the income
account was down .7%. The pension fund investment with Merrill
Lynch has basically doubled since originally invested in 1985-86.
The asset allocation is $2,446,430 in stocks, $4,166,579 in bonds,
$433,807 in cash, and $173,180 in other. The percentage allocation
is 5.62% in cash, 53.97% in fixed income, 38.17% in stocks, and
2.24% in other.
Yada stated the actuary report should be ready
He stated all pension plans are to be sound by
he feels Fayetteville will meet that deadline.
in July or August.
the year 2003, and
He discussed some
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March 31, 1994
of the figures from the 1992 actuary report. He stated if the
pension fund had sold everything in 1993, the fund would have been
sound. He reminded the board that the actuary report in based on
cost and not market figures.
Yada stated in 1988 there were 38 or 39 active members in the plan.
Now, there are only 26 still paying into the plan, so the rate of
retirement has been greater than expected. This is a negative to
the actuary. The projected payroll for 1993 was $750,000, but the
actual is around $600,000, so this too is a negative to the
actuary. The projected benefit payments for 1993 was $33,337, but
the actual amount is a little over $31,000.
Yada stated he hopes the fund will be actuarially sound by the 1995
actuary. He stated the actuary feels the Drop Plan will have a
zero effect on the actuarial soundness of the pension plans.
Reagan stated he read a memo from the Pension Review Board that
said the Drop Plan would have a zero effect on police pension
funds, but they expect there will be a 15% negative effect on fire
pension funds. He stated he would like to see this board not
approve the drop plan until the actual costs and effects are known.
Doss stated the Pension Board has to consider the future of the
people who are already retired as well. There can be no benefit
increases until the fund is sound. If the Drop Plan costs the fund
15%, he does not know whether the fund can afford the plan.
Yada stated the fund is on target, and perhaps even a little ahead,
on becoming actuarially sound.
Doss stated a member of the Harrison Fire Department Pension Board
called him to see if Fayetteville would be interested in doing
their own actuary report. He told the member he did not feel the
Pension Board would be interested, but he would report this to the
Pension Board and let them make a decision.
Yada stated the state Pension Review Board has some very
conservative projections and rules. A pension board is allowed to
select another actuary as long as it is certified.
No one expressed any interest in obtaining an outside actuary.
Reagan stated in May,
election. He asked
nominations, and then
ADJOURNMENT
ELECTION OF OFFICERS
his term and Darrell Judy's come up for re -
Thomas to mail out a letter asking for
a ballot to the full time retired firemen.
The meeting adjourned at 11:38 a.m.
NM Capital Management, Inc.
Quarterly Investment Comment
• First Quarter 1994
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FIRST QUARTER 1994 REVIEW
Signs of economic strength caused the
Federal Reserve to increase short-term
interest rates in February. This
adjustment signalled the end of a three-
year decline in rates and, therefore, was
viewed as a major turning point. New
inflation concerns convinced investors
that interest rates would be rising. The
Federal Reserve's action in raising short-
term rates was, in reality, relatively
modest. However, there were at least a
half-dozen more excuses given for the
decline in the bond and stock markets.
Unsettling international events in Russia,
Mexico and North Korea; Chinese and
Japanese trade negotiations; hedge bond
fund liquidations were just a few of the
reasons given.
The stock market averages peaked in
early February at record highs and
declined slightly with the Fed interest rate
increase. In late March, the S&P 500
dropped 5% in two weeks resulting in a
negative 3.8% return for the quarter
Government/Corporate Intermediate
Bond indices were also negative 2-3%.
ECONOMIC AND INVESTMENT
OUTLOOK
The economy has shown marked
improvement over the last six months
Current signs of increased consumer
confidence, retail spending, employment,
income growth and capital spending
plans suggest this increased growth rate
will continue in the months ahead. If
economic growth accelerates further,
inflation worries will likely force interest
rates higher, possibly influencing a
further stock market correction. Also,
rising interest rates could eventually stall
and abort the economic and corporate
earnings recovery and slow the flow of
new money into mutual funds which
have helped fuel the securities markets
over the last two years. On the other
hand, evidence of a slow down in growth
will tend to reduce upward pressure on
rates and, therefore, may be bullish for
stocks. The on and off -again inflation
fears will affect interest rates and the
stock market in the months ahead.
With interest rates trending higher, bond
investment performance will be
constrained. Improving economies of
Europe and Japan in 1994-95 should
sustain U.S. economic growth over the
next several years. A sustained
improvement in corporate earnings will
likely become the engine of the stock
market, and we still expect stocks to
outperform bonds during 1994.
EQUITY STRATEGY
Equity Focus Comment
"There are two types of remorse which
investors may feel. One is that felt when one
misses possible gains by selling and taking
profits early. This type of remorse is not taken
seriously.
The other type is felt when one misses a good
time to sell due to greediness ... and
consequently suffers a severe loss. This type
of remorse is very painful. One must restrain
oneself. "
Master Honma, Japanese Rice Trader
(1724-1803)
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As Master Honma noted almost three
hundred years ago, two basic human
emotions power the perpetual volatility of
any market place they are fear and greed
Investors must continually attempt to
navigate between the opposing natures of
these ancient, circling antagonists to
locate and remain within the eye of the
hurricane; that peaceful and perpetual
field of equilibrium wherein the rich
harvest of above-average investment
returns can consistently be made.
One of the first things we learn in this
regard, is the importance of discipline.
While it is certainly important to be
disciplined in one's buying decisions, it
is equally important to be disciplined in
one's decisions to sell.
Our recent decision to sell the shares of
the North American cement company,
LaFarge, just when the tide of consensus
thought seems ready to support the idea
of investing in them, provides an
excellent example of NMCM's sellmg
discipline in action.
When we first began buying the shares of
LaFarge in June, 1991, the consensus
outlook for cement was singularly
uninspired. It was, to put it bluntly,
boring.
Consequently, we had a unique
opportunity to invest m a collection of
sound economic assets, at prices which
were below replacement cost. We did not
know when the demand for cement
would once again be strong enough to
drive returns on those assets to acceptable
levels. But, given the ubiquitous utility of
cement, we believed that the odds were
profoundly in our favor that, eventually,
they would. The shares of LAF were also
selling below book value and at 7 times
the low end of our estimated range of
normalized earnings power; two classic
indications of a potentially undervalued
common stock. We also felt comfortable
with the idea that when investors as a
group again focused on the need to
rebuild America's crumbling
infrastructure, expectations for improved
earnings in the cement industry would
reemerge, driving multiples on projected
earnings at LAF to at least 10 times and
perhaps higher. 10-12 times a normalized
earnings power of $2 - 3 per share would
be likely to result in rates of return well
within our initial required range of 15 -
20% per year, even if the process took
four or five years. And so, we invested
in the shares.
One of the things we constantly stress to
our clients is that we really do sell stocks
when they reach our sell targets. When
the shares of LaFarge closed above $25
per share on 1-10-94, our commitment to
sell at a target of $25 was triggered. A
review of the fundamentals revealed no
material reason to change our initial
valuation parameters for the stock
Therefore, we sold the shares.
At 12-31-93, the average cost per share for
LaFarge in NMCM managed portfolios
was between $14 - 15 per share. Selling
at $24 - 25 resulted in a total annualized
21/2 year compound return in excess of
25%, well above the average return on
domestic equities over this time period
and above our hurdle rate of 20%.
There is no guarantee that the future will
provide opportunities as rewarding as
was our investment cycle in LaFarge.
However, time and precedent are heavily
weighted in our favor — human nature is
very slow to change.
FIXED INCOME STRATEGY
Not Boring Anymore. Many investors
consider the bond market and interest
rates to be one of the more boring aspects
of investing; but in the first 3 months of
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1994 the bond market took center stage,
and its activity was cited as the reason
behind the moves in a variety of other
markets. All U.S. interest rates ended
the first quarter higher than where they
started and two factors are noteworthy:
(1) The increase in rates, which actually
began in October of 1993, matches or
exceeds the increases that have occurred
since the long-term decline in rates
began in earnest in early 1989, so the
increase has been significant.; and (2)
The Federal Reserve made it very clear
that it wanted short-term interest rates
higher. These factors combined with the
current economic environment suggest
that the almost 5 -year decline in rates is,
in fact, over and the risk is for rates to
move higher. Further mcreases might
not be as dramatic as those recently
experienced, but the upward pressure
will be present and volatility will
remain high.
What should one do in such an
environment? For some time now we
have focused our attention on the 3 to
5 -year maturity government bonds, which
is the shorter end of the maturity
spectrum that extends out to 30 years.
The results of the first quarter of 1994
illustrate our reasons for doing so. The
30 -year U.S. government bond, which is
often cited as how the "bond market" is
doing, with a par value of $100,000, had
a market value of about $98,688 at the
beginning of the quarter. By the end of
the quarter it was worth 9% less or about
$89,719. In comparison, the 5 -year bond
fell only 4% from $99,625 to $95,656 while
earning only about $300 less in interest
income.
This example demonstrates the trade-off
between risk and return — striving for
higher returns means accepting higher
risk and vice versa. Since we feel that
upward pressure on rates will continue,
we plan to maintain our strategy of high
quality, short -intermediate maturity
bonds, which we believe is the best
balance between risk and return at this
time.
NM CAPITAL MANAGEMENT, INC. Page 1
CLIENT : FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND REPORTING PERIOD: 01/01/94 TO 03/31/94
M�YICER: NTSC
PORTFOLIO COMPOSITION STATEMENT OF CHANGES
MARKET % OF PORTFOLIO MARKET VALUE AT 01/01/94: $4,206,563.02
VALUE TOTAL
DEPOSITS 6,345.88
CASH AND EQUIVALENTS $97,627.82 2.4 WITHDRAWALS (4,514.94)
EQUITIES 2,843,945.00 69.2 INCOME EARNED 39,242.36
GOV'T/CORP BONDS 1,136,791.16 27.7 CAPITAL APPRECIATION (136,739.00)
ACCRUED INCOME 32,533 34 0.8
TOTAL $4,110,697.32 100.0 PORTFOLIO MARKET VALUE AT 03/31/94:
$4,110,897.32
THE FOLLOWING RETURNS ARE SHOWN GROSS OF MANAGEMENT FEES:
CUMULATIVE ANNUALIZED
01/01/94 TO 03/31/94 YEAR-TO-DATE PAST TWELVE MONTHS SINCE INCEPTION SINCE INCEPTION
TOTAL PORTFOLIO -2.3%
-2.3% 10.5%
60.0% 11.7%
CASH AND EQUIVALENTS 0.9% 0.9% 3.4% 23.9% 5.2%
EQUITIES -2.0% -2.0% 15.4% 70.6% 13.4%
GOV'T/CORP BONDS -2.7% -2.7% 2.5% 49.4% 9.9%
ED INDEX - I -3.0% -3.0% 2.0% 47.7% 9.6%
BILLS 0.8% 0.8% 3.2% 24.4% 5.3%
S0500 REINVESTED -3.8% -3.8% 1.5% 50.2% 10.0%
GOVT/CORP INTERMEDIATE 80N0 -2.0% -2.0% 2.5% 42.9% 8.8%
CONSUMER PRICE INDEX 0.8% 0.8% 2.4% 16.6% 3.7%
INVESTMENT EARNINGS (APPRECIATION + INCOME) SINCE INCEPTION 01/18/90: $1,244,416.15
NOTE: THE RETURNS SHOWN FOR THE VARIOUS SEGMENTS OF THE PORTFOLIO (CASH, EQUITY, ETC.) ARE SUPPLEMENTAL INFORMATION
TO THE TOTAL PORTFOLIO RETURN.
SEGMENT NOT HELD FOR THE DESIGNATED PERIOD THEREFORE SEGMENT RETURNS ARE NOT COMPARABLE TO THE INDICES.
NM CAPITAL MANAGEMENT, INC.
DATE PRINTED: 05/05/94 PortfolioSummary PRICING DATE: 03/31/94
DATE OF APPRAISAL: 03/31/94
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
ESTIMATED
MARKET % OF ANNUAL
VALUE PORTFOLIO INCOME YIELD
Cash and Equivalents
MONEY MARKET FUNDS
Fixed Income
GOVERNMENT ISSUES
Equities
COMMON STOCKS
97,627.82 2.4 2,851 2.9
1,136,791.16 27.7 85,025 7.5
2,843,945.00 69.2 68,307 2.4
ACCRUED INTEREST 28,652.34
ACCRUED DIVIDEND 3,881.00
TOTAL PORTFOLIO
0.7
0.1
4,110,897.32 100.0
156,183 3.8
NM CAPITAL MANAGEMENT, INC.
DATE PRINTED: 05/05/94 Common Stock Summary PRICING DATE: 03/31/94
DATE OF APPRAISAL: 03/31/94
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION ANO RELIEF FUND
% OF % OF
MARKET COMMON TOTAL
COMMON STOCKS VALUE STOCKS PORTFOLIO
Capital Goods - Industrial
Capital Goods - Technology
Consumer Durables
Consumer Non -Durables
Energy
Finance
Basic Industry
Transportation
Utilities
TOTAL COMMON STOCK
115,500.00
536,387.50
514,475.00
843,941.50
86,000.00
77,750.00
357,312.50
198,800.00
113,778.50
2,843,945.00
4.1
18.9
18.1
29.7
3.0
2.7
12.6
7.0
4.0
2.8
13.0
12.5
20.5
2.1
1.9
8.7
4.8
2.8
100.0 69.2
DATE PRINTED: 05/05/94
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SHARES /
FACE VALUE
DESCRIPTION
NM CAPITAL MANAGEMENT, INC. Page 1
Client Appraisal
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
Cash and Equivalents
MONEY MARKET FUNDS
97,627.82 MONEY MARKET FUND
UNIT
COST
TOTAL
COST
MARKET
PRICE
MARKET
VALUE
PRICING DATE: 03/31/94
DATE OF APPRAISAL: 03/31/94
% OF
% OF ASSET
PORTFOLIO CLASS
ESTIMATED
ANNUAL CUR
INCOME YLO
1.00 97,627.82 1.00 97,627.82 2.4 100.0 2,851 2.9
Fixed Income
GOVERNMENT ISSUES
220,000 US TREAS 8.500% 05/15/97 100.04
100,000 FNMA DEB 9.550% 09/10/97 99.34
100,000 FNMA DEB 9.150% 04/10/98 99.34
100,000 US TREAS 5.250% 07/31/98 101.25
300,000 US TREAS 7.875% 11/15/99 102.95
250,000 US TREAS 7.500% 11/15/01 101.00
TOTAL GOVERNMENT ISSUES
Equities
COMMON STOCKS
Capital Goods - Industrial
5,500 HARNISCHFEGER INDUSTRY
Capital Goods - Technology
4,200 AUGAT INC
3,500 BOEING CO
•4,500 DYNATECH CORP
3,400 PRECISION CASTPARTS CP
2,500 ROCKWELL INTL CORP
2,300
3,400
7,800
6,300
2,300
5,896
7,200
9,500
6,400
3,300
7,000
5,900
220,092.35 107.78
99,343.75 109.59
99,343.75 110.16
101,254.85 96.72
308,852.10 107.03
252,504.85 104.84
1,081,391.65
237,118.86
109,593.80
110,156.30
96,718.80
321,093.90
262,109.50
5.8 20.9 18,700 7.9
2.7 9.6 9.550 8.7
2.7 9.7 9,150 8.3
2.4 8.5 5,250 5.4
7.8 28.2 23,625 7.4
6.4 23.1 18,750 7.2
1,136,791.16 27.7 100.0 85,025 7.5
18.88 103,848.18 21.00 115,500.00 2.8 4.1 2,200 1.9
12.17
40.78
19.62
19.00
23.28
TOTAL Capital Goods - Technology
Consumer Durables
ARVIN INDS INC
BROWN GROUP INC
CROSS (A.T.) COMPANY
OUTBOARD MARINE CORP
TANDY CORP
TOTAL Consumer Durables
Consumer Non -Durables
ARCHER DANIELS MIDLAND
COORS ADOLPH
DELTA WOODSIDE
HANSON PLC SPONSRD
MERCANTILE STORES
RUSS BERRIE 8 CO INC
RYKOFF-SEXTON INC
TOTAL Consumer Non -Durables
22..07
30.94
14.56
18.43
27.15
21.12
19.19
12.46
19.43
34.97
15.54
17.67
51,123.55
142,736.60
88,294.85
64,587.65
58,189.85
404,932.70
50,754.35
105,179.14
113,561.55
116,092.54
62,453.25
448.040.83
20.00
44.50
18.50
33.63
39.63
28.00
36.63
15.50
19.25
36.25
124,541.50 24.00
138,172.85 18.13
118,362.05 11.63
124,371.40 19.88
115,399.35 38.25
108,799.70 13.50
104,249.75 19.25
84,000.00
155,750.00
83,250.00
114,325.00
99,062.50
2.0 3.0
3.8 5.5
2.0 2.9
2.8 4.0
2.4 3.5
0 0.0
3,500 2.2
0 0.0
816 0.7
2,500 2.5
536,387.50 13.0 18.9 6,816 1.3
64,400.00
124,525.00
120,900.00
121,275.00
83,375.00
1.6 2.3 1,748 2.7
3.0 4.4 5,440 4.4
2.9 4.3 4,992 4.1
3.0 4.3 2,520 2.1
2.0 2.9 1,380 1.7
514,475.00 12.5 18.1 16,080 3.1
141,504.00 3.4 5.0
130,500.00 3.2 4.6
110,437.50 2.7 3.9
127,200.00 3.1 4.5
126,225.00 3.1 4.4
94,500.00 2.3 3.3
113,575.00 2.8 4.0
590
3,600
3,800
5,651
3,366
4,200
0
0.4
2.8
3.4
4.4
2.7
4.4
0.0
833,896.60 843,941.50 20.5 29.7 21,207 2.5
DATE PRINTED: 05/05/94
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FACE VALUE
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DESCRIPTION
Energy
16,000 PARKER DRILLING CO
1,000
11,800
5,700
6,300
Finance
ST PAUL COS INC
NM CAPITAL MANAGEMENT, INC. Page 2
Client Appraisal PRICING DATE: 03/31/94
DATE OF APPRAISAL: 03/31/94
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
Basic Industry
CALGON CARBON CORP,
GLATFELTER COMPANY
JAMES RIVER CORP VA
TOTAL Basic Industry
X OF ESTIMATED
UNIT TOTAL MARKET MARKET X OF ASSET ANNUAL CUR
COST COST PRICE VALUE PORTFOLIO CLASS INCOME YLO
6.06 96,964.85 5.38 86,000.00 2.1 3.0 0 0.0
76.30 76,295.05 77.75 77,750.00 1.9 2.7 3,000 3.9
11.70 138,046.70 12.88 151,925.00 3.7 5.3 1.888 1.2
18.62 106,138 85 16.00 91,200.00 2.2 3.2 3,990 4.4
20.98 132,147.40 18.13 114,187.50 2.8 4.0 3,780 3.3
376,332.95 357,312.50 8.7 12.6 9,658 2.7
Transportation
7,800 AAR CORP 13.32 103,899.25 15.50 120,900.00 2.9 4.3 3,744 3.1
3,800 OVERSEAS SHIPHOLOING GROUP 19.19 72,926.85 20.50 77,900.00 1.9 2.7 2.280 2.9
3,322
TOTAL Transportation
Utilities
SPRINT CORP
TOTAL COMMON STOCKS
176,826.10 198,800.00 4.8 7.0 6,024 3.0
23.67 78,627.85 34.25 113,778.50 2.8 4.0 3.322 2.9
2,595,765.11 2,843,945.00 69.2 100.0 68,307 2.4
ACCRUED INTEREST 28,652.34 0.7
ACCRUED DIVIDEND 3,881.00 0.1
TOTAL PORTFOLIO
3,774,784.58 4,110,897.32 100.0 100.0 156,183 3.8