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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 ti 1 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 • • 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. 1 •1 1 1 1 1 1 M 1 1 1 1 1 1 I. 1 1 QUARTERLY REPORT June 30, 1994 CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND FAYETTPP 4 1 1 1 1 1 I. 1 1 1 1 1 1 1. 1 1 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. 1 1 1 1 1 i 1 1 N 1 1 1 1 1 I• 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 1 1 1 1 1 1 1• 1 1 1 1 1 1 1• 1 1 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. 1 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 1 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 1 CASH AND EQUIVALENTS IOUITIES OV'T/CORP BONGS 1 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. 1 1 1 1• 1 1 10.9% 5.1% 12.5% 9.1% 9.1% 5.2% 9.5% 8.1% 3.6% 1 1 1 1 1 1 N 1 1 1 1 1 1 1. 1 1 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 1 1 1 1 1 1 • 1 1 1 1 1 1 1. 1 1 • 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 1 1 1 1 • 1 1 100,000 100,000 100,000 300,000 250,000 1 1 1 1 1• 1 1 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 1 1 1 1 1 1 1 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 1 1 1 1 1 1 1. 1 1 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