HomeMy WebLinkAbout1994-07-28 - Agendas - FinalAGENDA
FIREMEN'S PENSION AND RELIEF BOARD
July 28, 1994
11:00 a.m.
City Hall Room 326
1. Approval of the minutes of the June 30, 1994 meeting
2 Approval of Pension List for August, 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, June 30, 1994, at 11:05 a.m. in Room 326 of
the City Administration Building, 113 W. Mountain, Fayetteville,
Arkansas.
PRESENT: Marion Doss, Ron Wood, Pete Reagan, Retiree Darrell Judy,
Mayor Fred Hanna, City Clerk Sherry Thomas, and Treasurer
Glyndon Bunton.
ABSENT: Retiree Richard Baird
CALL TO ORDER
Mayor Hanna called the meeting to order.
MINUTES
Doss, seconded by Judy, made a motion to approve the minutes of the
May 19, 1994 meeting. The motion was approved unanimously.
PENSION LIST
Thomas stated the only change in the Pension List was that Leonard
Bolain passed away May 30, 1994, and the pension has been changed
to his widow, Ann.
Doss, seconded by Reagan, made a motion to approve the pension list
for July 1994.
NEW BUSINESS
INVESTMENT REPORT
Richard Yada, Merrill Lynch, distributed a summary of the portfolio
performance as of May 31, 1994. He stated he would try and get New
Mexico Capital to come to a meeting within the next couple of
months and give a report.
He stated the balance with New Mexico is $4,111,159, down about
$95,000 from the year end or about 2.25%. The income account
balance is $3,257,753 which is down 3.96% from year end. This
balance includes some deposits and withdrawals. The S&P was down
2.13%, so compared with them, New Mexico did about the same as the
market, and they are 70% in stocks. The income account did a
little better than the average. He stated there is not one bond
market that was up for the first five months of this year. There
are $30,000 of dividends and interest coming into this account
monthly. As people retire, they will not be able to pay the
benefits from this monthly income, but they currently are able to
do that.
ARCHIVED
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June 30, 1994
Bunton asked how an increase in interest rates would affect this.
Yada stated the value of the bonds will go down when interest rates
go up.
Mayor Hanna stated given the market, the portfolio does not look
that bad.
Reagan stated he wanted to make sure the fund is in a valley and is
on the way up.
Yada stated within the latter part of this year and next year, they
are anticipating a bull market.
Reagan asked what 1/2 mill would mean in dollars to this pension
fund.
Mayor Hanna stated close to $150,000.
Reagan stated at one time, the fire pension received 1 mill, but
now it only gets 1/2 mill.
Yada stated there was a realignment in the late 1980's, and all
pension funds got cut. He stated there has to be an election to
get it back up to 1 mill.
Reagan stated the City is paying 12% into the pension fund, and he
was curious about the possibility of being able to reduce that
amount and increase the millage to the fund.
Mayor Hanna stated he does not know if there could be a real case
made for asking for a millage increase at this particular time. He
stated he felt the voters would approve an increase if the pension
fund got in trouble.
Reagan stated North Little Rock had a big campaign on this. They
lost 2 years ago in the election, but this year, they won by a 2 to
1 margin. He was trying to help save some of the City's 12%
contribution.
Mayor Hanna stated we are in pretty good shape in this City. The
City is not collecting any millage. The City Council could vote to
collect up to 5 mills.
Bunton asked if the actuarial report would help with this question.
Reagan stated they would not because they only deal with what has
happened and do not make any projections.
ADJOURNMENT
The meeting adjourned at 11:32 a.m.
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QUARTERLY REPORT
June 30, 1994
CITY OF FAYETTEVILLE
FIRE PENSION AND RELIEF FUND
FAYETTPP
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NM Capital Management, Inc.
Quarterly Investment Comment
Second Quarter 1994
SECOND QUARTER 1994 REVIEW
Continuing concerns over rising interest
rates impacted the financial markets
during the second quarter. The S&P 500
showed a modest 0.4% positive return
(including dividends), while broad
government/corporate bond indices
returns ranged from a negative 0.6% to a
negative 1.2%.
In general, stock and bond returns for
the second quarter were only slightly
better than the first quarter, resulting in
an S&P 500 return of a negative 3.5% for
the first six months of 1994 and bond
index returns ranging from negative
2.6% to negative 4.3%.
Interest rates bottomed last October, but
the dramatic upward move began in early
February when the Fed increased
overnight rates for the first time in three
years. Both short and long-term interest
rates increased steadily until early May
when indications of a slowing economy
caused rates to ease slightly. With the
threat of another increase by the Fed and
weakness of the dollar, rates reached
peak levels for this year by the end of
June. Since early February, 5 -year U.S.
Treasury yields have risen from 5.1% to
6.9%. The benchmark 30 -year Treasury
yield has risen from 6.3% to 7.6%.
ECONOMIC AND INVESTMENT
OUTLOOK
The Recovery Continues - Investment
Outlook Positive
The U.S. economy showed continued
growth in the second quarter, following a
strong fourth quarter of last year and a
slower, but good, first quarter of this
year. At mid -year 1994, the overall
economy appears to be in good shape
Most economic indicators are positive —
corporate profit growth is strong
compared with last year, employment is
improving, inflation remains moderate.
The primary negative is the surge in
interest rates since early February.
Current interest rate levels support
anticipated inflation of 3-4%, while the
Consumer Price and Producer Price
Indices currently reflect an annualized
inflation rate of under 3%. If inflation
continues at this moderate level for the
rest of the year, we would expect interest
rates to either stabilize or decline.
Our outlook suggests that the bond
market may be more stable in months
ahead and certainly more attractive than
it has been over the last six months. As
the European and Japanese economies
begin to recover, it should help sustam
U.S. economic growth during the 1994-96
period. For the stock market, the
prospect of more stable interest rates and
sustainable earnings growth should
provide a positive investment
environment.
EQUITY STRATEGY
While we favor stocks over bonds and
cash in the present environment, our
equity strategy is not driven by top-down
economic forecasts. After a disciplined
analysis of individual company
operations and balance sheet
fundamentals, we invest in stocics which
are good long-term values.
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Equity Focus Comment
Perspective
Throughout human history, poets,
philosophers and even physicists have
recognized the critical importance of
Perspective How we look at something,
our "point of view", determines our degree
of understanding, which determines our
course of action, which determines our
ultimate success or failure. Nowhere is
this more true than m the pursuit of
sustained, cumulative equity investment
success.
During periods of accelerating change and
uncertainty, the market becomes
increasingly volatile. When the Dow Jones
and other closely followed indices begin to
resemble rollercoasters, closing down with
increasing and alarming frequency, when
the mass media fuels investors' fears with
electric headlines such as "Is it Time to Get
Out Now'", Perspective becomes
imperative.
As the very successful investor, Warren
Buffet wrote in this year's Berkshire
Hathaway annual report, "... the true
investor welcomes volatility ... because a
wildly fluctuating market means that
irrationally low prices will periodically
be attached to solid businesses." Mr.
Buffet goes on to say that he finds it
impossible to see how volatility, which
creates investment opportunity, could ever
be considered hazardous or risky "... for
an investor who is totally free to either
ignore the market or exploit its folly."
What is it that "frees" the investor? It is
Perspective.
The Perspective of the disciplined, long-
term investor finds relatively cheap
individual stocks to invest in even in the
midst of the most volatile markets. For
example, the common shares of Russ
Berrie were recently a darling of the Wall
Street growth stock crowd as seemingly
unlimited enthusiasm for Troll Dolls
swept Russ's stock price to higher and
higher levels of both absolute and relative
valuation. Now the shares languish at one
and a half times book value in a market
which sells at over three times book value.
From the Perspective of the average
investor, there is nothing to recommend
Russ Berrie today. Sales have plummeted
and remain depressed. Earnings have
crumbled and who knows when, if ever,
another Troll will emerge to rekindle
growth prospects.
The value investor sees all of this in an
entirely different light. The engine
which drives Russ is a vast, unique and
probably irreplicable marketing and
distribution network. Management is
dedicated, focused and strategic. Low
overhead and efficient inventory controls
sustain cash flow and provide an above-
average dividend yield. A strong balance
sheet backs it all up. All of these factors
indicate that Russ will very probably be
able to produce a new marketing success
which will sweep through their efficient
distribution system, throwing off above-
average earnings. Investors will once
again "discover" the stock and the patient
value investor, having realized an above-
average retum, will gladly sell it to them.
The Perspective of the true value investor
will, once again, have allowed NMCM to
identify, invest in and subsequently
harvest another source of above-average
investment returns for the benefit of our
clients.
FIXED INCOME STRATEGY
Product Risk and Derivatives - The Bond
Market Becomes More Exciting.
Last quarter we discussed that the fixed
income markets had become much less
boring. The excitement continued in the
second quarter with rising and volatile
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interest rates. However, the real
excitement came from the news about the
big losses incurred by some investors who
were using derivatives in their portfolios
in the first quarter. The word derivative is
applied to a myriad of investment
products. The common element of all
these products is that their value is derived
from another investment, part of an
investment or contract, or some
combination of these. The losses were the
result of these derivative products not
behaving in the manner forecasted or
previously observed in combination with
the volatile markets. Because of the nature
of some investment products, they may
have a wide range of results depending
upon market conditions, and/or they may
exhibit different results under fairly
similar conditions. This type of
investment is said to possess product risk.
Derivatives are not the only products
which can exhibit unexpected behavior.
Some mortgage-backed securities and
certain asset-backed securities, among
others, may also possess product risk.
In analyzing any security, NM Capital is
guided by the strategy of only selecting
those securities which not only have a
superior positive potential but also limited
negative potential, i.e., an adequate "margin
of safety". For investments that possess
product risk, it is extremely difficult to assess
the margin of safety to the degree of
confidence that is acceptable to us Even
though these investments may possess
attractive potential returns and may be
appropriate investments depending upon
one's circumstances, it is our judgement that
they are not "worth the risk". Therefore, we
generally avoid investments with product
risk.
In accordance with our strategy, we
continue to believe that high quality, short
and intermediate maturity bonds offer the
best balance between risk and return at this
time.
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CLIENT
NM CAPITAL MANAGEMENT, INC. Page 1
: FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
NAGER: NTSC
REPORTING PERIOD: 04/01/94 TO 06/30/94
PORTFOLIO COMPOSITION
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ItASH AND EQUIVALENTS
QUI TIES
GOVT/CORP BONDS
IfCCRUED INCOME
OTAL
MARKET
VALUE
$135,600.85
2,820,973.76
1,104,431.50
18,442.19
$4,079,448.30
% OF
TOTAL
3.3
69.2
27.1
0.5
STATEMENT OF CHANGES
PORTFOLIO MARKET VALUE AT 04/01/94:
DEPOSITS
WITHDRAWALS
INCOME EARNED
CAPITAL APPRECIATION
100.0 PORTFOLIO MARKET VALUE AT 06/30/94:
IlLHE FOLLOWING RETURNS ARE SHOWN GROSS OF MANAGEMENT FEES:
1
TOTAL PORTFOLIO
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CASH AND EQUIVALENTS
IOUITIES
OV'T/CORP BONGS
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BALANCED INDEX - I
01 RES
0 REINVESTED
GOV'T/CORP INTERMEDIATE BOND
CONSUMER PRICE INDEX
$4,110,897.32
0.00
(10,583.36)
39,682.66
(60,548.32)
$4,079,448.30
04/01/94 TO 06/30/94 YEAR-TO-DATE
-0.5%
0.8%
-0.4%
-0.9%
0.1%
1.0%
0.4%
-0.6%
0.6%
INVESTMENT EARNINGS (APPRECIATION + INCOME)
-2.8%
-2.9%
1.8%
-3.5%
-2.8%
1.5%
SINCE INCEPTION 01/18/90:
PAST TWELVE MONTHS
7.6%
3.4%
13.0%
-1.4%
1.0%
3.4%
1.4%
-0.3%
2.5%
51,223,550.49
CUMULATIVE ANNUALIZED
SINCE INCEPTION SINCE INCEPTION
59.2%
24.9%
69.9%
48.0%
47.9%
25.6%
50.7%
42.0%
17.3%
,NOTE: THE RETURNS SHOWN FOR THE VARIOUS SEGMENTS OF THE PORTFOLIO (CASH, EQUITY, ETC.) ARE SUPPLEMENTAL INFORMATION
TO THE TOTAL PORTFOLIO RETURN.
1.
SEGMENT NOT HELD FOR THE DESIGNATED PERIOD THEREFORE SEGMENT RETURNS ARE NOT COMPARABLE TO THE INDICES.
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10.9%
5.1%
12.5%
9.1%
9.1%
5.2%
9.5%
8.1%
3.6%
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DATE PRINTED: 07/26/94
Cash and Equivalents
MONEY MARKET FUNDS
Fixed Income
GOVERNMENT ISSUES
Equities
COMMON STOCKS
ACCRUED INTEREST
ACCRUED DIVIDEND
TOTAL PORTFOLIO
NM CAPITAL MANAGEMENT, INC.
Portfolio S u m m a r y PRICING DATE: 06/30/94
DATE OF APPRAISAL: 06/30/94
FAYETTPP • CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
ESTIMATED
MARKET % OF ANNUAL
VALUE PORTFOLIO INCOME YIELD
135.600.85
1,104,431.50
2,820,973.76
14,761.19
3,681.00
4,079,448.30
3.3
27.1
69.2
0.4
0.1
100.0
5,085
85,025
69,710
3.7
7.7
2.5
159,620 3.9
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NM CAPITAL MANAGEMENT, INC.
DATE PRINTED: 07/26/94 C o m m o n Stock S u m m a r y PRICING DATE: 06/30/94
DATE OF APPRAISAL: 06/30/94
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND 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
107,250.00
460,012.50
513,275.00
815,631.51
96,000.00
177,750.00
360,550.00
174,650.00
115,854.75
2,820,973.76
3.8
16.3
18.2
28.9
3.4
6.3
12.8
6.2
4.1
2.6
11.3
12.6
20.0
2.4
4.4
8.8
4.3
2.8
100.0 69.2
DATE PRINTED: 07/26/94
11
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
135,600.85 MONEY MARKET FUND
1 220,000
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100,000
100,000
100,000
300,000
250,000
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Fixed Income
GOVERNMENT ISSUES
US TREAS 8.500% 05/15/97
FNMA
9.550% 09/10/97
FNMA
9.150% 04/10/98
US TREAS 5.250% 07/31/98
US TREAS 7.875% 11/15/99
US TREAS 7.500% 11/15/01
TOTAL GOVERNMENT ISSUES
Equities
COMMON STOCKS
Capital Goods - Industrial
5,500 HARNISCHFEGER INDUSTRY
Capital Goods • Technology
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
5,898
7,200
9,500
6,400
3,300
7,000
5,900
UNIT
COST
TOTAL
COST
1.00 135,600.85
100.04
99.34
99.34
101.25
102.95
101.00
MARKET
PRICE
MARKET
YALUE
1.00 135,600.85
220,092.35 105.13
99,343.75 106.53
99,343.75 106.91
101,254.85 94.44
308,852.10 103.84
252,504.85 101.50
1,081,391.65
18.88 103,848.18 19.50
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 SPONSORED ADR
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
142,736.60
88,294.85
64,587.85
58,189.85
353,809.15
50,754.35
105.179.14
113,561.55
116,092.54
62,453.25
448,040.83
124,541.50
138,172.85
118,362.05
124,371.40
115,399.35
108,799.70
104,249.75
833,896.60
46.25
21.50
31.75
37.38
24.00
37.63
16.00
20.00
34.50
PRICING DATE: 06/30/94
DATE OF APPRAISAL: 08/30/94
% OF
% OF ASSET
PORTFOLIO CLASS
231,275.00
106,531.30
106,906.30
94,437.50
311.531.40
253,750.00
ESTIMATED
ANNUAL CUR
INCOME YLD
3.3 100.0 5,085 3.8
5.7 20.9 18.700 8.1
2.6 9.6 9,550 9.0
2.6 9.7 9,150 8.6
2.3 8.6
7.6 28.2
6.2 23.0
5,250 5.6
23,625 7.6
18,750 7.4
1,104,431.50 27.1 100.0 85,025 7.7
107,250.00
161,875.00
96,750.00
107,950.00
93,437.50
2.6 3.8 2,200 2.1
4.0 5.7
2.4 3.4
2.6 3.8
2.3 3.3
460,012.50 11.3 16.3
55,200.00
127,925.00
124,800.00
126,000.00
79,350.00
3,500
0
816
2,700
2.2
0.0
0.8
2.9
7.016 1.5
1.4 2.0 1.748
3.1 4.5 5,440
3.1 4.4 4,992
3.1 4.5 2,520
1.9 2.8 1,380
3.2
4.3
4.0
2.0
1.7
513,275.00 12.6 18.2 16,080 3.1
23.38 137,819.01 3.4 4.9
17.50 126,000.00 3.1 4.5
11.75 111,625.00 2.7 4.0
18.25 116,800.00 2.9 4.1
32.13 106,012.50 2.6 3.8
15.25 106,750.00 2.6 3.8
18.75 110,625.00 2.7 3.9
590
3.600
3.800
6,254
3,366
4,200
0
0.4
2.9
3.4
5.4
3.2
3.9
0.0
815,631.51 20.0 28.9 21.810 2.7
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DATE PRINTED: 07/26/94
SHARES /
FACE VALUE
DESCRIPTION
Energy
16,000 PARKER DRILLING CO
NM CAPITAL MANAGEMENT, INC. Page 2
Client Appraisal PRICING DATE: 06/30/94
DATE OF APPRAISAL: 06/30/94
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
Finance
6,000 ALEXANDER 8 ALEXANDER
2.000 ST PAUL COS INC
11,800
5,700
6,300
TOTAL Finance
Basic Industry
CALGON CARBON CORP
GLATFELTER COMPANY
JAMES RIVER CORP VA
TOTAL Basic Industry
Transportation
7,800 AAR CORP
3,800 OVERSEAS SNIPHOLDING GROUP
oil 3.322
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TOTAL Transportation
Utilities
SPRINT CORP
TOTAL COMMON STOCKS
% OF ESTIMATED
UNIT TOTAL MARKET MARKET % OF ASSET ANNUAL CUR
COST COST PRICE VALUE PORTFOLIO CLASS INCOME YLD
6.06 96,964.85 6.00 96,000.00 2.4 3.4 0 0.0
14.35 86,104.85 16.25 97,500.00 2.4 3.5 600 0.6
38.15 76,295.05 40.13 80,250.00 2.0 2.8 3,000 3.7
162,399.90 177,750.00 4.4 6.3 3.600 2.0
11.70 138,046.70 13.75 162,250.00 4.0 5.8 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 17.00 107,100.00 2.6 3.8 3.780 3.5
376,332.95 360,550.00 8.8 12.8 9,658 2.7
13.32 103,899.25 13.50 105,300.00 2.6 3.7 3,744 3.6
19.19 72,926.85 18.25 69,350.00 1.7 2.5 2,280 3.3
176,826.10 174,650.00 4.3 6.2 6,024 3.4
23.67 78,627.85 34.88 115,854.75 2.8 4.1 3,322 2.9
2,630,746.41 2,820,973.76 69.2 100.0 69,710 2.5
ACCRUED INTEREST 14,761.19 0.4
ACCRUED DIVIDEND 3,681.00 0.1
TOTAL PORTFOLIO
3,847,738.91 4,079,448.30 100.0 100.0 159,820 3.9