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HomeMy WebLinkAbout1995-07-27 - Agendas - FinalAGENDA FIREMEN'S PENSION AND RELIEF BOARD July 27, 1995 11:00 a.m. City Hall Room 326 1. Approval of the minutes of May 25, 1995. 2. Approval of Pension List for August, 1995 3. Old Business 4. New Business A. Investment Report, Merrill Lynch 5. Adjournment MINUTES OF A MEETING OF THE FIRE PENSION BOARD A meeting of the Fayetteville Firemen's Pension and Relief Board was held on Thursday, May 25, 1995, at 11:00 a.m. in room 326 of the City Administration Building, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Marion Doss, Pete Reagan, Ron Wood, Darrell Judy, Howard Boudrey, Mayor Fred Hanna, and Jane Heth. CALL TO ORDER Mayor Hanna called the meeting to order. MINUTES Doss, seconded by Wood, made a motion to approve the minutes of the April 27, regular meeting and the May 5, special meeting. The motion passed unanimously. PENSION LIST In answer to a question Charlie Jordan had been Doss, seconded by Wood, for June 1995, with the passed unanimously. OLD BUSINESS from Mayor Hanna, Heth stated that added to the pension list. made a motion to approve the pension list addition of Charlie Jordan. The motion RETIRED MEMBER NOMINATION Mayor Hanna stated Randall Wright nominated Howard serve another term on the board Doss seconded by Wood, made a motion to accept the Howard Boudrey. The motion passed unanimously. Boudrey to nomination of ROGER LEWIS' PENSION BENEFITS Pete Reagan and Darrell Judy arrived. The Board reviewed and discussed a memo from City Attorney Jerry Rose. Wood asked if Jerry Rose had a copy of the divorce decree. Mayor Hanna stated Roger Lewis needs to decide if he is being treated unfairly. Doss suggested that, in the future, the City should not write separate pension checks to divorced couples. Payment should be between the two people. May 25, 1995 Judy stated that the Lewis' split payment issue was presented to the Pension Board. In answer to a question from Reagan, Heth stated the Board does have a copy of the divorce decree and it was forwarded to Jerry Rose. Discussion ensued regarding the City Attorney's memo and the Board came to the conclusion that Roger Lewis should review his divorce decree and discuss any bhanges with his attorney. NEW BUSINESS INVESTMENT REPORT Richard Yada, Merrill Lynch, diLtributed a summary of the portfolio performance as of April 30, 1995. Yada reported that New Mexico Capital is up since the beginning of the year. The Income Account is up to $3,442,417 with $45,000 being withdrawn to supplement the benefits. Using time weighted averages, the New Mexico account is up 7.67% for the year and the Income Account is up 7.10% for he year. Even though the are up 7%, they have under performed compared to the market indexes. In answer to a question from Mayor Hanna, Yada explained the difference between a value manager and a growth manager. They invest differently. When value managers are up, growth managers are down. As of yesterday, it appears the interest rate is going to stay the same or possibly go lower. If interest rates continue to come down, it will help the Bond Portfolio. Things are going well. The portfolio is well over $8 million dollars and climbing. Yada asked that the Board plan the July meeting. OTHER BUSINESS It o review some original targets at CERTIFICATES Doss reported that Larry Freedle, Robert Johnson, Dennis Ledbetter and Charlie Jordan arse each eligible to receive a certificate for twenty years of service and asked that the Board members sign each certificate. ADJOURNMENT The meeting adjourned at 11:25 .m. li FIREMEN'S RELIEF AND PENSION FUND AUGUST 1995 TRACI PAUL TREASURER alk THE FOLLOWING ARE THE OBLIGATIONS OF THE FIREMEN'S RELIEF FUND FOR THE MONTH OF AUGUST 1995. YOU ARE HEREBY INSTRUCTED TO ISSUE CHECKS TO THE PAYEES, IN THE AMOUNTS SHOWN, AND FOR THE PURISOSE SO STATED. I EMP# NAME 43 BAIRD, RICHARD H. 1 BARNES, ELIZABETH 2 BLACKARD, PAUL 63 BOLAIN, ANN 44 BOUDREY, BETTY MRS. 45 BOUDREY, HOWARD 49 BOUDREY, JACK 4 CARL, FLOYD JR 5 CASELMAN, ARTHUR 57 CATE, ROY 6 CHRISTIE, ARNOLD 7 COLE EVERETT 8 COUNTS, WAYNE 61 DAVIS, BEULAH F. 10 DEARING, EMMA MRS. 11 FARRAR, ALONZO 38 FRALEY, JOSEPH G. 33 HARRIS, BILL C. 34 HARRIS, JAMES E. 64 JORDAN, CHARLIE 47 JUDY, DARRELL 37 KING, ARNOLD D. 54 KING, ARVIL 12 LANE, HOPE MRS 13 LAYER, MERLIN 14 LEE, HAROLD 51 LEWIS, CHARLES 60 LEWIS, MARVIE 55 LEWIS, ROGER 40 LOGUE, PAUL D. 50 MASON, LARRY 39 MC ARTHUR, RONALD A. 35 MC CHRISTIAN, DWAYNE 15 MC WHORTER, CHARLES 29 MILLER, DONALD 42 MOORE, JAMES H. 17 MORRIS, WILKIE MRS. 16 MORRIS, WILLIAM H. 62 MORRISON, ELIENE 48 MULLENS, DENNIS W. 58 OSBURN, EDWARD 46 OSBURN, TROY 53 POAGE, LARRY 20 POLLY, GRACE A. MRS. 22 REED, JOE 30 SCHADER, EARVEL 41 SCHADER, TROY 23 SKELTON, BURL L. 24 SKELTON, LEE 56 SKELTON, ROY 36 SPRINGSTON, CARL 25 STOUT, ORVILLE GROSS 916.20 45.00 ' 55.00 55.00 1,266.21 1,066.66 837 68 45.00 75.00 909.50 45.00 375.00 55.00 377.50 50.00 707.84 953.38 55.00 55.00 1,192.17 837.68 828.42 1,131.00 45.00 • 41750 55.00 837 68 439.16 439.17 1,469.38 829.35 891 62 55.00 885.14 863.01 55.00 45.00 • 60.00 70.00 1,114.11 1,284.63 965.81 1,201.98 45.00 • 55.00 915.78 783.74 692.50 390.00 1,626.02 609.88 590 36 FED. TAX ST. TAX 100.00 66.21 287.68 32.50 100.00 100.00 130.00 175.00 29.35 100.00 30.00 50.00 125.00 160.00 65.81 200.00 20.00 42.50 126.02 50.00 NET 816.20 45.00 55.00 55.00 1,200.00 1,066.66 50.00 500.00 45.00 75.00 909.50 45.00 342.50 55.00 377.50 50.00 707.84 10.00 843.38 55.00 55.00 1,192.17 837 68 10.00 718.42 1,001.00 45.00 417.50 55.00 837.68 439.16 439.17 20.00 1,274.38 800 00 791.62 25.00 835 14 738.01 55.00 45.00 60.00 70.00 1,114.11 1,124.63 900.00 30.00 971.98 45.00 55.00 915.78 763.74 650.00 390.00 50.00 1,450.00 609.88 540.36 27 TUNE, MILDRED MRS. 26 TUNE, JESS 28 WATTS, DONALD 59 WATTS, WAYNE 52 WRIGHT, RANDALL 70.00 70.00 400.00 921.17 877.68 32,004.91 96.17 150.00 70.00 70.00 400.00 825.00 727 68 2,236.24 170.00 29,598.67 WE, THE UNDERSIGNED, DO SOLEMNLY SWEAR THAT THE ABOVE OBLIGATIONS ARE JUST AND CORRECT; THAT NO PART THEREOF HAS BEEN PREVIOUSLY PAID; THAT THE PENSION PAYMENTS SO CHARGED ARE IN ACCORDANCE WITH THE ACTIONS OF THE BOARD OF TRUSTEES OF THE FIREMEN'S RELIEF AND PENSION FUND; THAT THE SERVICES OR SUPPLIES FURNISHED, AS THE CASE MAY BE, WERE ACTUALLY RENDERED OR FURNISHED; AND THAT THE CHARGES MADE THEREFORE DO NOT EXCEED THE AMOUNT ALLOWED BY LAW OR THE CUSTOMARY CHARGE FOR SIMILAR SERVICES OR SUPPLIES. SECRETARY CHAIRMAN ACKNOWLEDGEMENT STATE OF ARKANSAS ) COUNTY OF WASHINGTON) )SS PRESID NT • SWORN TO AND SUBSCRIBED BEFORE ME THIS c28DAY OF ru /y , 1995. ARY PUBLIC MY COMMISSION EXPIRES: /Y7�� J nOOC 'JUN ES '55 @:33Rr1 MERRILL LYNCH L R "'”"- RECEIVED JUN 2 9 1995 CITY CLERK'S OFFICE FAYETTEVILLE FIRE DEPT PENSION AND RELIEF FUND • PORTFOLIO PERFORMANCE 1/31/94 TO 05/21/95 NM CAPITAL MANAGEMENT INCOME:ACCOUNT 3 — MONTHS TREASURY BILLS DJIA W/DIV REINVESTED S R P 5100 W/DIV REINVEST LONG TERM TREASURY PONDS H IGH GRADE CORP BONDS CPI (APR) 111 NM CAPITAL (tirne wtd) INCOME ACCT(tirne wtd) • W ITHDRAWALS: 03/10/91t $ 20,000. 04/11/35 25,000. 12/31/94 $4,240,646 3,260,081 12/31/94 2AU 7 -J 5;J- 8ZS'1 + 4 4.19 4.99 1.30 7.70 5.08 2.75 1.27 2. 44 05/21/95 $4,663,536 3,579,009 05/31/95 + 2.50 +17.76 + 17.25 + 16.80 + 14.70 + 1.47 + 10.24 + 11.06 KI CHAI2b'S COMM EATS • - -newt hkOFITS ON LONG-Efz ,?ESM MAZI�ITy iorJb3. 71-111•1 G.S AIzE G-12EAT. -4E WILL GIVE A Cowl Irl eHEMJSIVE I2EI✓OIZT I11 JULY en4k14 L4 (i) - 30) RECEIVED., Merrill Lynch Ant 1995 CITY CLERK;SOFFICE .1 July 1995 Investment h' sigh is A Special Report for Individual Investors Investment Strategy Focus: Primary Stock Trend Higher Our investment strategists think that the primary trend for U.S. stocks is toward higher prices. What's driving stocks upward? A key factor is inflation, or more precisely, the lack thereof. Rule of 20 A well-known measure for valuing stocks is the "Rule of 20". It states that adding the current inflation rate, represented by the Consumer Price Index (CPI) to the price/earnings ratio of the market will total 20 when stocks are fairly valued. If the total is higher than 20, stocks are overvalued. Below 20,•stocks are undervalued. With the CPI currently at 3% (and arguably closer to 2%), and the current price/earnings ratio of the S&P 500 at 16.5, the total comes to 19.5, suggesting that U.S. stocks currently are fairly valued [see chart]. Rule of 20 Sum of S&P 500 P/E Multiple and CPI Because we think the inflation rate is falling, the Rule of 20 indicates that a higher price/earnings ratio on stocks is justified. The Case for Low Inflation Our basic outlook is that in the global war between the forces of inflation and deflation, deflation is winning. We see inflation, defined as a rising general level of prices for goods and services, as too much money chasing too few goods. It occurs when money, or credit, grows faster than does output of the commodity that people want to buy, such as oil and gas in the 1970s and real estate in the 1980s. However, we don't see money or credit growing rapidly in the U.S. now, and think that the engines that pulled inflation higher in the 1970s and 1980s aren't running in the 1990s. Demographics and Real Estate. The housing boom of the 1980s, and resulting inflation of residential and commercial real estate values, was a direct result of surging growth in the number of 20 -to -34 year olds. Baby boomers needed housing and places to work. The robust growth of real estate ended in the late 1980s as the boomers' demand was met. Savings & Loans began collapsing immediately thereafter. Because the economy's largest asset is real estate, we think that real estate prices would have to rise strongly to ignite another round of credit inflation. We think this is unlikely given current demographic trends. Inflation in Developing Countries. Some argue that the growth of developing nations will siphon credit from developed nations, creating credit shortages in the lending countries. We think that there are inflationary and deflationary uses of credit, and that in the 1990s developing countries are using credit for deflationary uses such as building export capacity and servicing debt, a different story from the 1970s when oil money was used to fund consumption of imports and to build showcase investments. We also point out that the credit demands of developing nations at $100 billion annually are minuscule compared to $5 trillion in world savings. Inflation in Developed Countries. Developed countries are moderate users of credit. Increasingly they are service economies with modest credit needs. Business investment is tending increasingly toward technology instead of bricks and mortar, and technology is a moderate user of credit. Our Inflation Outlook U.S. inflation peaked at 12% in 1980, at 6% in' 1988 and we' think it will peak at about 3% in 1995. Implications for stocks and bonds are profound. Throughout the industrial world we see prevalent deflation and tight fiscal policies. This leaves monetary policy as the only reflationary tool, and monetary reflation typically pushes equity prices higher. Althougth we think low inflation will help drive U.S. stocks higher over the long run, three factors cloud the short term outlook for the stock market. First, the markets own strong performance so far this year has lowered its upside potential and increased the probability of a correction. Second, we see a risk that bond yields will move higher over the short term driven by the unwinding of recent speculation and leveraged trading that drove long rates below 7%. Third, we see an increased risk that the U.S. economy will slip into recession later this year. Although we think it is unlikely, we note that the economy grew slower in the second quarter of this year than most observers thought it would. We think that the Fed needs to quickly ease interest rates further to stimulate U.S. economic activity. Global Securities Research & Economics Group Research Products Group ® Copyright 1995 Merrill Lynch, Pierce, Fenner & Smith M All rights reserved, Printed in the U.S.A. Investment Strategy DBS As the 'Rule!Of c2billustrates, 'IoW Inflation rates are; positive (for overall Petrify[valuations. ,Below are two industries (favored 10'our investment strategic s rand !fundamental +analysts that ,ate ,potential +beneficianes lit 'low inflation. :Money :center banks benefit because Flow LinflatiOnfrends to steepen the yield curve [which makes9ong (term I oans'more;'probtable. [Growth [stocks, 'such as those n the long !term care rindusty, !benefit because Ilow inflation ,causes rother'economically lsans/UVe stocks to /peat Steiger'eariings l growth, making strong ,earings !growth an even lrareriandinore [valuableLcommodity. Sector! 'Financials Industry: !Money Center Banks [Meat money tenter banks :are in :the rriidst Of intensive Irestrtietunng programs and are aggressively merging and shrinking their balance sheets 'and Feigning in costs. In the process. they re enerating significant: amounts of cash that they are using to repurchase their owns shares. The net effect of these activities is an inprb_ving bottom .line. The stock buyback programs are resulting in higher earnings per share and improved returns on equity. The share buybacks are also compensating for a weakening loan environment caused by a slowing economy. Out outlook for .a more positively: sloped yield curve in the months ahead should :also help the group as improving operating margins usually .result from a .Widening spread between shod .term borrowing rates and longterm lending rates. Key Statistics for Recommended Stocks ESL 5 -Year 52 -Week Price/ Earnings Current Investment Recent Price Share Earnings Earnings Growth Indicated Company patina'rP ice. Range 1994 1995E 1395E Ballot Rata pividen4 Malta Republic NY Corp. (RNB) Ip/#I A-1-1-7 54 3)4 5942 $5.61 $4.40 $7.00 12.4 10% $1.44 2.6% J.P. Morgan (JPM) A-2-1-7 71 1/4 75-55 6.02 605 7.40 11.8 9.5 3.00 4.2 Chemical Banking (CHL) /w/ B-1-2-7 51 3/4 52-34 4.53 6.30 7.05 8.2 7.0 2.00 3.9 ' - See Investment Rating Key below. +- Price as of July 20, 1995 a- Based on 1995 estimate. Sector: Consumer Services Industry: Long Term Care We think. that currentweakness in the shares of long tett bare companies is providing investors .With a strong buying opportunity similarrto the opportunity that. emerged in the managed care ;group during the. Clinton Healthcare Reform debate. We see several reasons why the tong; term.care industry should continue to prosper First, by the .year 2010 those :aged 65 and older will number 53.3 million er 16% of the U.S. population, compared to only 12:8 today. :Second, there is a limited supply of nursing home beds • fora rapidly growing population. Third, the induSlry IS recusing on higher -margin specialty healthcare services. Fourth, operating costs and reimbutsements.are stabilizing. Finally, we think that I�ng :term .care providers are efficient service providers and very .much apart ofthe "solution to healthcare cost'..containment: These !factbrsiall'contribute lto.our view that+the;industry'should be able to ,post [sustainable 'earnings growth of 20% to 25%LannuallyEdunng'the [next five years. U Key Statistics for Recommended Stocks Est 5 -Year 52 -Week Price! Earnings Current Investment Recent Price Share Eaminas Earnings Growth Indicated Companyatin ' aka, Rana 1994 1995E 1996E RahoA gate bkateal j3atd Healthcare Retirement (HCR) /p/#/ 8-1-1-9 293/8 33-24 $1:26 $1.55 $1.85 19.0 22.5% NIL NIL Horizon Health (HBC) C-1-1-9 227/8 30.17 1.40(a) 1.60(a) 2.00(a) -2.05(a) 14.3 22.5 NIL NIL Sun Healthcare (SHG) D-2-1-9 141/4 28-12 1.10 1.40 1.70 10.2 20.0 NIL NIL ' - See Investment Rating Key below. . -Pdce as of July 20, 1995. E - Estimate. N - Based on 1995 estimate. (a) - FY May. Investment Rating Key A-= Low Risk, B = Average.Risk, C _ Abo a Average Risk. D-=.1Ggh Risk. Appreciation Rating: ! = Bay, 2 = Above Average. Income Rating: 7 = SaMPhiighe , 9.= Pays No Dividend. FCs: Use SPL Code fop-additional:copies. h 1. Copynght 1995 Merrill Lynch, [Pierce, IFenner:&I Smith'' 'Incorpbt teS[(MLPF&S). !Approved ;tor 1poblication !in 'the [United IKingdom by Merrill Lynch. Pierce. Fenner (& Smith Limited an affiliatedreompany.and member of:the Securities Land [Fate res authbnty'Cimited. The Information herein was:obtain ed tern varibussources, 'we ldolnol guarantee its'accuracy.,Aad lional:inlormaaon available. 'Neither'the :informabonl'nor any opinion*Tressed constitutesen Offer ,tb[buy !Or !sell !any !securities ler(options o'futures ,contracts. [MLPF&S Imay [trade [tor lits town account' as Toddlot [dealer, :market [maker, libck[positioner and/of [arbitrageur 'In'any[Securities for'options:ol'this'issuerls}.'MLPF&S,sits'aftiliates,:directors. (officers, empleyees'and'employee'benefit programsmay have'allong or ehon,position m any'seountresdroptions.ol th[slissuer(s), Foreign -du rrencyAenoniinated securities !are subledt:to 'tluctuatioh5 in,eXphange rates ;that 'could!have Ia 1pos[tive or adverse eHetI on Ian investors'return upon'tne [Convers'onlinto total currency:of dividends !Or Interestteceived, or proceedsltrom the !sale 'Of isUch %ecun(ies. I In 'addition, investors in securities au h'as,ADRs, Whose values 1are,influenced by toreignicurrencies, efIectivey'assume currency risk rpr MLPF&S was a rnanagerofdhe most recent public oftenng.ol secunnes otthis.compeny wmhinihe Iast three years. Fw An,afblmte of Meal Lyra ',serves as a specialist in this stock in its pnrrtry market. Such spedalist:mav have.a long:or short position to ihrstock.or imoptions on 'this stock, and may be on[,the opposite side:01 public orders. la/ 'anaffiliate bl Merrill Lyncrsorves.as a specialist in:this:Mock-once regioneke-Thange. Such :specialist: may, have along' or short pbsrtioh imthis stockor in.options on this stock.,and may;bemnLithe opposite Side:of public:orders. SPL Code #40061 • • • Fayetteville Fire Department Pension and Relief Fund Portfolio Performance 12/31/94 to 6/30/95 NM Capital Management Income Account 12/3.1/94 $4,240,646 $3,260,081 3 -Month Treasury Bills b3IA WIAiv Reinvested _ . S&P 500 W/Div Ret 0.VOstctlfis .ig6/.30/9. $4,708,090 $3,590,612 4.--12/31::: .................................... +4.19 +4.99 +1.30 6/30/95 +3.03 +20.42 +20.09 Long Tenn Treasury Bonds - 7.70 +18.21 High Gra CPI (M'ay) de Corp Bonds Income' pitaI (time wtd) Acct (tune wtd) Withdrawals : 3/10/95 $20,000. 4/11/95 $25,000. - 5.08 +2.75 +1.27 -2.44 +14.85 +1.74 +11.30 +11.42 "RECEIVED 'JUL 2 7 1995 CITY CLERK'S OFFICE • Fayetteville. Fire Department Asset Allocation as of 6/30/95 Fixed Income 45.50% O Fixed Income 45% Current • Cash 11.57% • Other 1.83% Target O Stocks 41.10% •:. ■ Cash • Other 5% . 3% O Stocks 47% Stocks $3,431,943 Bonds & Cds > 1 yr $3,799,828 Cash & Cds < 1 yr $965,901 Other 1 $153,030 MAT'ul2Iry MMI • 4 -- M L,E. SEC Tot? srl A -r1= crl FU N-1 b • • 1 1 • EXHIBIT 1 CONTRIBUTIONS The following contribution level reflects the payment of the current year Normal Cost for benefits attributable to said year (see Exhibit 2) plus an amount sufficient to pay off the Unfunded Actuarial Accrued Liability over a 1S -year period (9 -year period for any unfunded retiree liability). These costs do not include the contributions due to the Local Police and Firefight- ers Retirement System ("LOPFI") for persons hired after 1932. Annual 1994 contributions necessary to pay: 1. Normal Cost. plus Pay off the Unfunded Actuarial Accrued Liability 3. Total necessary Less 4. Expected Employee Contribution Necessary Employer Contribution (This is the amount needed in Addition to investment income) Covered Payroll Full Paid Volunteer or Part Paid Total. $ 157,217 $ 0 S 157.217 36,474 0 36,474 $ 193.691 $ 0 $ 193,691 - 37.207 - 0 - 37,207 S 156.484 S 0 S 156.484 $ 620.116 N/A S 620.116 Necessary Employer Rate 25.2% 0 25.2% These contributions assume that the dollar contribution grows at a rate of 4% per year. The contributions are assumed to be made continuously during the year. The actual 1993 contribution was 5339.322 from the employer. 4 4 • • EXHIBIT 3 SUMMARY OF FINANCIAL INFOR"LRTICN (Items D -E determined by Camus and Associates. Inc.) Year Ended Year Ended Year Ended 12/31/91 12/31/92 12/31/93 INCOME I. Contributions Employee 5 35.695 5 38.286 5 36.635 Donations 345 100 15 Employer/Court Fines/ 71,392 76,572 73.270 Other Insurance Tax 109.371 112,743 123.120 Local millage 131,933 137,614 143.432 . Adjustment to prior year 0 0 0 asset value Net Investment Income 446.372 561,855 738.433 TOTAL INCOME $ 795.103 5 927.170 $ 1.114.905 B. EXPENSES 1. Administrative $ 3,668 $ 2.246 $ 3,762 2. Benefits 375.094 375,573 374,223 3. Refunds 0 0 14,931 TOTAL EXPENSES 6 $ 378.762 $ 377,319 $ 392,966 EXHIBIT 3 (Continued) • 12/31/91 2/31/92 '2/31/93 ASSETS (at book value) L. Cash & Checking Accounts $ 0 5 0 Bank deposits 4.695 22.326 .263.540 3. Savings & Loan deposits 0 . 0 0 4. Other cash equivalents 333,100 820.987 504.195 5. U.S. Govt Securities 1.357.611 1.323.523 1.225.104 6. Non -U.S. Govt Securities 0 0 0 7. Mortgages 0 0 0 S. Corporate Bonds 1,497.792 1.316.090 1,253.400 9. Common stocks 2.137,395 2.933.793 3.957,476 10. Other 114.371 127,096 62.540 11. Payables - 0 - 0 - 0 TOTAL ASSETS $ 5.999.964 S 6.549.315 S 7.271,255 D. RATIO OF ASSETS TO ANNUAL EXPENSES: 15.8 E. INVESTMENT RETURN: 3.00 • 7 7.3 13.5 9.3% 10.9% EXHIBIT 4 • COMPARISON WITH PRIOR YEARS This Exhibit compares the current valuation resuits with those of prior years. Full Paid Actuarial Computed Active Members Employer Contrib. Unfunded Xormai Valuation Annual Percent Dollar. Actuarial Cost Date No. Payroll of Pay Amount Assets Liability Percent 12/31/81 44 614,909 25.3% 155,340 1.'84.269 793.351 20.59,1 12/31/82 50 310.926 -22.1`. 179.271 2.202.969 311.186 18.47% 12/31/84 45 307,438 27.7% 223.455 3,073,619 1.193.660 1_2.11% 12/31/86 37 723,894 29.6% 213,935 4,006,484 1,379,340 21.79% • 12/31/87* 38 788.348 31.3% 246,479 4,460,948 1,455,161 23.41% 12/31/89 27 639,962 36.0% 230,328 5,189.846 1,976,463 26.62% 12/31/91 23 585,898 33.3% 195,273 5,999,964 1.427.422 25.50% 12/31/93 22 620,116 25.2% 156,484 7,271,255 544,779 25.36% * Benefits changed Part -Paid or Volunteer Active Members Actuarial Computed Valuation Emylover Contrtb. Date No. 12/31/81 2 337 12/31/82 1 227 12/31/34 1 274 12/31/86 0 0 12/31/87 0 0 12/31/89 0 0 12/31/91 0 0 • 12/31/93 0 0 9 1 1 1 1 1 EXHIBIT 5 SHORT CONDITION TEST The Arkansas General .assembly has stated that the funding objective for these plans is to pay for benefits with contributions that remain level as a per- centage of employee payroll. Thus. the long-term condition test is met when the actual contributions are fairly level and are paid when due. A short conaition test can be used to measure a plan's progress. Under the short condition test. the fund's assets are compared with: 1) Active member contributions: 2) The liabilities for future benefits to the present retirees and inac- tive members: 3) The liabilities for service already rendered by active members. If the plan has been following level cost funding, liability (1) and liability (2) above will almost always be fully covered by the rest of the present assets. In addition, liability (3) above will be at least partially funded. The larger the funded portion of liability (3), the stronger the condition of the fund. For a closed plan (i.e., one like yours, where no new members are being admitted). the funded portion of liability (3) should be steadily increasing. The following table illustrates the history of the short condition test for this plan: Valuation Date 12/31/81 12/31/82 12/31/84 12/31/86 12/31/87 12/31/89 12/31/91 12/31/93 Computed Actuarial Liabilities Portion of Liabilities Covered by Assets (1) Active Member Contrib. 118,142 160,669 236.541 263,129 308,829 274,405 292,477 353,891 (2) Retirees and Inactives 891,852 898,272 1,464,696 2,753,772 2,754,276 4,560,672 5,072,169 5,005,131 (3) Actives -Employer Financed 1,567,626 1,955.214 2,571,042 2,368,923 2,853,004 2,331,232 2.062.7740 2,457,012 10 Valuation (1) (2) (3) Assets 1.784,269 100% 100% 48% 2.202,969 100% 100% 59% 3,078,619 100% 100% 54% 4.006,484 100% 100% 42%. 4,460,948 100% 100% 49% 5,189,846 100% 100% 15% 5.999,964 100% 100% 31% '.271,255 100% 100% 78% 0 1 b E 5y9£-8££(LI9) :[(e4 011Z-066 (008) Z09£ -8f £ (L 19) .-9911d V£05 -911Z0 511aSTl4Je TN `003509 iaans ,Salai3a9 OOZ op taainquasgp ivamrnnul auofr•(ay areoossy sales runo»y paReuey9 uemo9>yv /.>oar9 ' S1N3V193 Ni INO.LSAa)1 0 L 0 p First $ 3,000,000 1.00% o O v aL O %OS' 000`000'0Z $ 3XaN o- O v o 0 0 0 m 0 In --! O- O 0 O O' O O'- O O' R O. O O. �Vi 64 Zti Z 8 Z Minimum annual fee: $7,500. 0 b E u W u c 2 O O U 8 U U c0 O c L ,o N 8 a "c :: E cid CU U 0 0 o Gregory McGowan • FOR RROKERJDEALER USE ONLY w j 0> o _ i 0• m O ° • w 0 t • n0 of C O y U G g E c E • v> O 0 .E 0. > • -0 o lj 4-P y — c c h o U C F = E• . U GD Ou c C F F ocn 4) u E 0 U U y ui a..M o ^ c E N r y O y _c E o a OD x .E . u -0 y CL) 0 ▪ E p E o R y > O 0 O.L a i 0 C N U C V -0 C L O Oo CC • j, O 0 cj o x Fct 00 L F 0 U 0 0 CO F T -0 ✓ U CL.. 4. 4) O C v_ 0 o. .0 W U ✓ v -CI kJ 0 r.CJ O U i Id S S ^ ni r E ✓ -O O N CIO• u V C 0.. •y U — O F a._ E 0 4F ao ++ u t & u H E u C ▪ •u O -C-0 4 C U C7 3 U c 0 -0 O0 _a • C C 4) N C 3 4).- 4.1 - O • V ` O c • U y U ; u 0 u g 0 CL) 0. X 613 E O • • • • • • • KEYSTONE • N. V E S T .IVI .E .N T S • ItCE1V'ED JUL-271995 . ell" Y CLERKS OFFICE Quarterly 9nvestvnent Commentary Second Quarter 1995. • The Worse The Ijetter Stock and bond markets continued their major bull market advances during the second quarter even as the economy slowed and trends in any number of key indicators showed turns for the worse. A paradox? No, more of the same set of dynamics that prevailed dur- Index Second '.iivarter Scoreboard: (Price billy; not total return) 6/30/95 DJ Industrials 4556.10 DJ Transportation 1748.69 DJ Utilities 202.08 S&P 500 544.75 Russell 1000 289.29 NYSE Composite 291.84 Amex 500.19 Nasdaq OTC Composi e 93345 Russell 2000 283.63 S&P Mid -Cap 400 197.37 Value Line Comp. (geom.) 311.09, Wilshire 5000 (1311. $) 5348.77 90 -Day T -Bill Yield (%) 5.41 10 -Year T -Bond Yield (%) 6.20 30 -Year T -Bond Yield (%) 6.62 Dollar (in Yen) 84.75 Dollar (in Marks) 1.38 Gold (Troy oz., London) 385.95 Crude Oil (Nearby Future) 17.40 • KR-CRB Index 233.30 • • 3/31/95+- c%thg 4157.69, 9:6 1635.74, 6:9 187.65, • 7.:7 500'.73' is 8 266.1131 • • ' `8:7 4 271.4" :7.7 464.41; :7:7 81721' :14:2 260.277. '8.8 182371. 82 292.02; . 6.5 4920.41 1817 5.71 d5.3 7.193_ a3(8 7.43 40.9 86.50L F2:0 1:0 392.00?, 45 19.171•.9;2 232:94.-. 02 d' Source:- Keystone ing the firs! quarter. The slowdown was the desired con- sequence of the set of short-term rate increases engi- neered by the Fed since early 1994. At the start of the quarter, most prognosticators were betting on how many more rate increases would be needed before the economy slowed sufficiently, and accordingly there was high con- fidence that the Fed would persist in its mission of pre- empting any resurgence in inflation. That confidence has turned out to be justified so far, as declines in gold and oil prices and an unchanged CRB index during the quar- ter attest. In turn, the likelihood of controlled inflation and reduced economic growth combined to attract fresh flows of capital into the bond markets and to lower yields. At the same time, corporate earnings continued to con- found the pundits by surging to new momentum peaks in the first quarter, some five quarters after it was origi- nally thought that the peak in profits growth was at hand. So again in the second quarter a lower discount rate applied to a set of high and presumably rising cor- porate earnings resulted in an impressive (but by no means record-setting) advance in securities, prices. In the stock market, cyclicality, size (by iharket capital- ization) and potential earnings growth were most highly rewarded. More conservative qualities such as earnings stability, dividend yield, price -to -book value, and histo earnings and dividend growth characteristics performed least well. Smaller size stocks were not as much of a drag on performance as they were during the prior year, but their performance generally was neutral to sub -par. Also noteworthy is the fact that the cumulative breadth of the New York Stock Exchange succeeded finally in regaining all of the ground lost beginning in February 1994. The same cannot be said of the NASDAQ which still has a long way to go to recover lost breadth. Bonds showed gains on a par with stocks, with the inter- mediate sectors of the yield curve providing especially handsome returns. This phenomenon bears further com- ment because of the underlying dynamics. According to a Bank Credit Analyst article dated June 22, "The impact on Treasuries of such (mortgage) hedging has grown steadily during the past several years partly because homeowner responsiveness to changes in mortgage yields has increased... At the same time, the share of mortgage credit securitized and held in investment pools has surged from 15% in the early 1980s to over 45% dur- ing recent years. This is significant for the bond market because mortgage securities are rapidly marked to mar- ket and held by institutions that are very sensitive to shifts in portfolio -value and duration. As a result, the positive feedback loop running between Treasury yields • and mortgage hedging activity has strengthened... The decline in bond yields since November has generated an acceleration in mortgage pre -payments and an associated shortening of mortgage portfolios... In order to contain the duration erosion, mortgage fund managers have been forced to buy Treasuries or unwind short positions. One of our contacts in the mortgage industry has estimated that hedging activity may have generated the equivalent OS. Treasury yield Curve 7/1 /94 a5fi'^�•• n- - 6/30/95 . ii 6/2195 i 111 1 1 1 23 5 896 7 • 4 10 30 Source Barron's of $100 billion in additional deritandfor 5 -year bonds - during the past two months. There is a good chance that the hedging activity may become more pronounced if the bond market continues to rally, as we expect " MIN owCong, Oh Alan? The gentlemanly bickering over the timing and' extent of possible further Fed tightening moves came to a screeching halt around the first of June. At that time, jobless claims for the week ending May 27 were reported as having risen sharply, running on a , smoothed basis -at- thehighest level since late1992. The next day the unemployment report for May showed a decline of 101,000, much weaker than expected in that the consensus expectation was for a gain of 170,000. Whoops! %Further, the May report indicated weakness ' across the board: manufacturing'payrolls declined by 56,000, construction by 57;000, arid retail by 8,000. Only services payrolls showed a modest 60,000 rise. From that ' day, the debate has swung from the timing of the next tightening move to the timing and magnitude of the first easing move. There is now no question in anybody's mind (at•heast for publication) that the Fed ha's been . "tight." The usual spread of the Fed fund's rate over the inflation rate has been 175 basis points; it is now approx; imately 300 basis points.: With'economic activity clearly. . showing; the Fed is in a soundtactical_ position to ease ince it has said it might ease peremptorily -- before gns of serious weakness and possibly despite modestly accelerating inflation -- just as it tightened peremptorily. Consensus expectations call for a.50 -100 basis point cut in short rates before year end. - Capital goods vs. Consumer goods The current business cycle has.been characterized so far, by the bi-polar distribution of consumer and capital spending. The consumer spending cycle has been the weakest on record; the capital spending cycle has been the strongest on record. During the past three years, total business outlays on machinery and equipment have surged 64% and have directly boosted GDP growth by a -record-breaking 11/2 percentage, points per year. Rising capital spending has resulted in high levels of productivity and very tightly controlled unit ' labor costs. Capital, has-been substituted for labor to an unprecedented degree. The following table illustrates how these trends have unfolded in both the nonfarm and manufacturing sectors over the past few quarters. In the first quarter unit labor costs were up only 1% from a year earlier. , •Thile this trend is good neivs'for inflation and corporate profits, it has led to a point where constimers .are being - seriously squeezed: Real after-tax income has grown an . average 2.8% a year since the beginning of thecurrent cycle, only about 60% of the pace in six prior cycles. Job growth has been only about half as strong ds in the -six prior cycles, and wage rates have been rising at the slow= , est pace ever measured.. During the past year more than 50% of consumer spending growth was financed'by installment debt, an all-time record which does not - include auto leasing. Installment debt is just short of the all-time high set in 1989,' and total household debt including mortgage debt is ata record high in relation to income. Notsurprisingly, retail sales volumes 'have been essentially -flat for the past nine months. And in April, installment credit jumped by $11 billion even while retail sales declined, indicating distress borrowing. Against this background, it is highly unlikely that any upcoming cuts in short-term interest rates are liable to unleash a • tidal wave of consumer spending. Some revival in the pace of final demand can be anticipated; but it will be more of a late -cycle re -acceleration rather than an early cycle jump-start, • While the consumer digests debt, business is starting to digest an over=built inventory position. This process is expected to act as a drag on economic growth over the next several months, at least. As the following graph shows, inventories were surging at record rates just as final demand was starting to slow. Inventories increased by 6% during the past year and at an annual rate of • Productivity and Costs_. (Percent Change, SAAR) 9403 9404 9501 Nonfarm: Productivity Compensation Per Hour Unit Labor Costs 2.7 2.7 0.0 4,3 . 3.8 -0.4 Manufacturing: Productivity 3.4 3.7 Compensation Per Hour 2.4 3.8 Unit Labor Costs -10 .0.1 2.7 4.3 1.6 • 3.4 4.7 1.3 Source: Bureau of Labor Statistics / Merrill Lynch 71/2% during the first four months of 1995, a pace rival - ng peak rates achieved during all inventory cycles since 1975. If inventory accumulation were to drop to zero during the next two quarters, GDP growth would likely , be reduced by two percentage points. • The intriguing aspect of these trends, unfolding in the real economy, is the. fundamental support they provide for trends we see unfolding ih the capital markets and which we wrote on at some length last quarter, specifi- cally the emerging market leadership of capital goods - related equities and the end of the consumer stock lead- ership which has characterized the market since the early eighties. • Summary and Outlook Our market outlook remains constructive and we remain essentially fully invested. Policy contin- ues to call for a 50% stock, 50% bond mix in bal- anced accounts and modest 5% cash reserves in equity portfolios. The economy is slowing as a result of earlier Fed tightening, an over-extended consumer, and an ongoing inventory correction which will take some months to conclude. Nevertheless we do not anticipate a recession. hi fact, very recent economic reports suggest the economy may have more life left in it than is com- monly asumed. For example, existing home sales increased 4.7% in April; durable goods orders rose 2.5% for May; factory orders in May posted their first increase in four months; the National Association of Home Builders Housing Market Index, which combines read- ings on current purchases, future sales and traffic through model units, climbed to a seven-month high in early June; and initial unemployment insurance claims for the week ended June 244inexpectedly fell by 28,000. Obviously, housing -related developments have come about as a function of lower long-term interest and mort- gage rates. The "orders" and employment series have no specific causes, but are encouraging nevertheless. Even so, we believe the stage is set for the Fed to begin easing in the near-term future. This should not result in • an explosion in final demand, nor should it necessarily undermine the case for bonds. Historically; 30 -year Treasury yields have continued to fall when the Fed begins to cut rates. With inflation under control and long rates at least stable and possibly lower, there is a case to be made for a stable or expanding multiple on rising corporate profits which in the aggregate yields still -attractive potential total returns. George F. Wilkins, Jr., CFA, CMT. Sr. V.P. & Chairman, • Asset Allocation Committee Volume XV, No. 2, July 5, 1995 8% 7 6 5 4 3 2 1 0 -1 -2 -3 4 • Cross Domestic product Change in annual real growth rate, by quarter 80 :60 .40 20 :1 Inventories -^`: :1;__ in billions% O -20 l: -40 :-'87:' 88 '89 '91 '92,'93.'94 NMI roll IMPM I'M�I�I_III11 Al l l 1 l First report: 7-8%Second report: 27% Final report27% . recession '87 '88 '89 '90 '91 '92 '93 '94 '95 Source: Investor's Business Daily KEYSTONE INVESTMENTS 200;Berkeley;Si reer Boston • Massachusern 1021.7 :6-'5034 • • • • * * * * * * * * * * * * * * * * * * 1� KEYSTONE INVESTMENTS KEYSTONE HIGHLIGHTS RECEIVED JUL 271995 CITY CLERK'S OFFICE ONE OF THE COUNTRY'S ORIGINAL MUTUAL FUND COMPANIES (EST. 1932) MANAGING PRIVATE ACCOUNTS SINCE 1971 POSITIVE RETURNS 19 OF 20 YEARS (CORE BALANCED STYLE) RANKED IN TOP 8% OF MANAGERS IN 1992-1993 (CORE BALANCED) RANKED IN TOP 25% OF MANAGERS FOR 3 YEARS ENDING 12/94 (CORE BALANCED) BEAT INFLATION BY NEARLY 9% PER YEAR FOR 19 YEARS (1975-1993) PORTFOLIO MANAGERS AVERAGE 23 YEARS OF INVESTMENT EXPERIENCE AND 13 YEARS WITH KEYSTONE KEYSTONE ANALYSTS AND PORTFOLIO MANAGERS MEET WITH OVER 500 COMPANIES PER YEAR KEYSTONE IS 100% EMPLOYEE OWNED - MOTIVATING AND RETAINING A HIGHLY TALENTED STAFF • • 200 Berkeley Street, Boston, Massachusetts 02116-5034 Phone: (617) 338-3200 KEYSTONE • • KEYSTONE. PRIVATE ACCOUNTS TABLE. OF CONTENTS I. INTRODUCTION AND BUSINESS OBJECTIVES II. EQUITY MANAGEMENT III. FIXED INCOME MANAGEMENT IV. BALANCED ACCOUNT MANAGEMENT V. PERFORMANCE VI. THE PROFESSIONALS BEHIND KEYSTONE VII. FEE SCHEDULE RECEIVED JUL271995 CITY CLERK'S OFFICE • • • I. INTRODUCTION AND BUSINESS OBJECTIVES Introduction Keystone is a Boston based registered investment advisor providing mutual fund and separate account investment management to corporate and public pension funds, endowments, foundations, Taft -Hartley plans and high net worth individuals. Keystone was founded in 1932; and has managed equity and fixed income assets for over 60 years. From 1979-1989, Keystone was a wholly-owned subsidiary of the Travelers Corporation. In 1989, the management of Keystone and Venture capital partners acquired the company from Travelers. In 1993, Keystone's management bought out its equity partners and the firm became 100% employee -owned. All officers participate in ownership through stock and/or stock options. Keystone has approximately $11 billion under management and 560 employees including over 60 investment professionals. Keystone is located at 200 Berkeley Street in Boston. Business Objectives Keystone's mission is "to provide excellence in investment management services for investors and their advisors." We plan to grow our business by remaining independent and by focusing exclusively on investment management. Historically, Keystone has been known primarily as a mutual fund manager. While continuing to offer a family of open- end mutual funds, there is also an emphasis on increasing separate account assets under management. To reach this market, Keystone is relying upon a team of portfolio managers, analysts and traders with many years of experience and a proven track record. II. EQUITY MANAGEMENT Core Equity Portfolios of 30-50 stocks are selected from a universe of 1200 primarily domestic, investment • - quality securities having market capitalization of at least $250 Million and average- monthly • trading volume of at least $25 million. • In structuring and managing our core productwe follow the style definition set forth by a leading national investment consulting organization; ." portfolio holdings and. characteristics are similar to those of the broader market, as represented by.the S&P 500• Index, with the objective of adding value over and above the index,.typically.irom sector or issue selection. The core portfolio exhibits similar risk characteristics to the.broad market • " Portfolios are equal - weighted and have good diversification. Core Equity is frequently the product of choice: for clients preferring a well -diversified portfolio of mid -large cap, investment quality stocks; amore traditional approach to portfolio management and good current income. Universe # of stocks Minimum Market Cap Minimum Trading Volume Country 1200. $250M .: $25M/Mo. Primarily Domestic Process - We look to beat the market by .sector weighting and stock selection. Fundamental Research Technical Research Risk Control Monitoring Portfolio Characteristics # of stocks Weighing in Portfolio Diversification Target (vs. S&P Sectors) Beta Correlation to Market Turnover Yes Yes Quantitative/Qualitative Continuous 30-50 Equal +/-10% .90 - 1.10 High 75 - 100% • • III. FIXED-INCOME MANAGEMENT Keystone's fixed-income investment philosophy stems from our beliefs about the appropriate level of risk in a fixed-income portfolio. We believe that fixed income assets are most appropriately viewed as risk modifying instruments when viewed from the perspective of the total portfolio. This perspective implies that, barring specific client needs to the contrary, the fixed-income portfolio should be conservative in nature, forsaking risk unless significant excess returns are available. A risk averse perspective does not severely limit the return opportunities available. The history of the returns available in the capital markets suggests that investors can capture most of the available bond market returns with minimal risk using intermediate-term bonds of investment quality. Therefore, we concentrate our portfolios primarily in U.S. Treasury and Agency issues, using high quality corporate issues or GNMA's when justified by our valuation analysis. Our valuation work is based on our belief that shifts in the level and shape of the yield curve are influenced by both long-term and short-term factors Those factors that tend to persist for longer periods of time can be identified and are useful in predicting the direction of interest rates, allowing the development of strategies to take advantage of them. • For clients desiring tax-free income, the same basic disciplines are used in the management of tax-exempt bonds, and these can be focused on the bonds of a particular state, where appropriate. • • • IV. BALANCED ACCOUNT MANAGEMENT Keystone manages balanced accounts using the fixed-income approach described previously in combination with the equity approach discussed earlier. This flexibile style is one way in which we customize service to our clients. Another is to provide help in establishing realistic objectives and appropriate guidelines for the management of portfolios. This is especially important in balanced accounts where asset allocation decisionsamong stocks, bonds and cash reserves have a significant impact on total investment returns, current income generated and the volatility of the returns. We invite client participation in the formulation of the strategic, or long-term, asset mix guidelines tied to the investment objectives. Once these guidelines are set, we request discretion to work within them on a tactical basis to reflect current investment policy. Investment policy is set based on a rigorous review of fundamental, technical and quantitative factors. Policy is formally reviewed each month, or more frequently, if events require. Over the years, these policy judgments have been an important contributor to the successful investment record we have compiled. V. PERFORMANCE Keystone Core Equity Balanced Accounts Keystone 50/40/10* C.P.I.* 1975 18.2% 1976 20.3 1977 2.8 1978 10.7 1979 27.6 1980 22.1 1981 1.5 1982 25.8 1983 14.9 1984 6.0 • Notes: 24.2% 18.7 (1.9) 4.4 11.3 18.5 1.9 24.6 15.3 10.3 2 Yrs 3 Yrs 5 Yrs 10 Yrs 7.0% 4.8 6.8 9.0 13.3 12.4 8.9 3.9 3.8 4.0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Keystone 50/40/10* C.P.I.* 32.0% 21.2 0.5 13.0 16.5 0.3 18.9 14.6 12.5 (6.4) Multi -Year Returns (Period ending 1994) 25.0% 16.4 5.5 12.0 22.2 2.8 20.6 6.4 9.7 (0.2) Keystone 50/40/10 C.P.I. 2.6% 4.6% 2.7% 6.5 5.2 2.8 7.6 7.6 3.5 11.8 11.8 3.6 3.8% 1.1 4.4 4.4 4.6 6.1 3.1 2.9 2.8 2.7 Keystone figures are total returns, after commissions, size -weighted in accordance with the Association for Investment Management and Research (AIMR) standards but before management fees. (Fee schedule is on page VII). All discretionary, tax-exempt balanced accounts above $1,000,000 are included. Figures have been audited by KPMG Peat Marwick. 50/40/10 represents 50% S&P 500; 40% Lehman Bros. Govt./Corp. Index; 10% U.S. T -Bills (90 day). C.P.I. = Consumer Price Index Highlights: * Ranked in top 25% for 3 years ending 12/94. * Produced 19 out of 20 years of positive returns. * Beat inflation by nearly 8% per year for 20 years. Past performance does not, of course, guarantee future results. • VI. SENIOR MANAGEMENT Albert H. Elfner, III "Chip" is Chairman and Chief Executive Officer of Keystone Group, Inc. In addition, he is Vice Chairman of Keystone Custodian Funds, Inc., Keystone's mutual fund investment affiliate, and Chairman of Keystone Investment Management Corporation, Keystone's institutional account management affiliate. Chip has more than 25 years' experience in investment management. He joined Keystone in 1969 as an analyst. At Keystone, he has also served as a Portfolio Manager, President of Keystone Custodian Funds, Inc. and President of Keystone Investment Management Corporation. Chip is Director of Neworld Bancorp, Inc., of Boston; Director of Chronicle Investment Trust, Taipei, Taiwan; and a member of the Boston Security Analysts Federation and the Boston Economic Club. Chip is a Chartered Financial Analyst. He received a B.A. from Middlebury College. James R. McCall is President and Chief Investment Officer of Keystone Custodian Funds, Inc. An executive with 24 years' experience in investment management, Jim joined Keystone in 1971. Formerly Director of Equity Management and Research, he has worked as an Analyst and Portfolio Manager of several equity funds. Prior to joining Keystone, he was a Securities Analyst with Tucker Anthony and R.L. Day, Inc., in New York. Jim is a Chartered Financial Analyst and a former Director of the Boston Security Analysts Society. He graduated from Boston College with a B.A. and holds an M.B.A. from Iona College, New York, George F. Wilkins, Jr., is a Senior Vice President and Chairman of the Asset Allocation Committee. George also heads the firm's technical efforts and manages institutional portfolios. After graduating from Harvard College, where he earned his B.A. degree with honors, George served four years as an artillery officer in Europe. Subsequently, he obtained an M.B.A. with distinction from Babson College. His investment background includes four years as a senior research analyst for Scudder, Stevens and Clark, and eight years as an investment counselor with Loomis, Sayles and Co. George joined Keystone in 1981, and is a Chartered Financial Analyst and a Chartered Market Technician. Walter McCormick is Vice President, Senior Portfolio Manager, and Head of the Core Equity Team. Since joining Keystone, Walter has managed the Keystone K-1 Balanced Income Fund, Keystone Fund for Total Return, and Keystone K-2 Strategic Growth Fund. Prior to joining Keystone in 1984, he served as Director of Equity Investments for the Rhode Island Hospital Trust National Bank. He is a Chartered Financial Analyst. Walter received his B.A. degree from Providence College and his M.B.A. degree from Rutgers University Graduate School of Business Administration, 0 CORE EQUITY TEAM Walter McCormick George F. Wilkins, Jr. Walter Zagrobski is a Vice President and Portfolio Manager. He joined Keystone in 1981 following many years as a trust officer at State Street Bank and Trust Company in Boston. Walter obtained his B.S degree from the University of New Hampshire, graduating magna cum laude, and his M.B.A. from Babson College. Additionally, he successfully completed studies at Williams College and the National Graduate Trust School at Northwestern University. His thesis at Northwestern dealt with the historical caselaw involving investment responsibilities of trustees. Jonathan A. Noonan is a Vice President and Portfolio Manager. He received both his undergraduate degree and his M.B.A. from Northeastern University. Jon's investment background includes research positions with several firms in Boston in the late 1960's and 14 years with Fidelity Management and Research. At Fidelity, Jon was Chairman of the Equity and Fixed - Income Policy Committees for the firm's pension management division. Jon was also Regional V.P. and Director of Institutional Marketing for Integrated Resources, and subsequently was Managing Director of Global Linkages. Jon joined Keystone in 1990. His research focus is on the utility sector. Judith A. Warners is a Vice President, Senior Analyst for the automotive industry and the Portfolio Manager for Keystone's S-1 mutual fund. She has held various analyst positions at Keystone since 1981, and she is a member of the Boston Security Analysts Society. Judith received her B.A. from Curry College and her M.B.A. from Babson College. Andrew G. Baldassarre is a Vice President and Portfolio Manager for core equity managed accounts. He was most recently a Vice President and Portfolio Manager with Fleet Investment Advisors in Hartford, managing portfolios for both individuals and institutional clients. Andrew is a member of both the Hartford and Boston Analyst Societies. He received his B.A. from St. Anselm College and his M.S. in Finance from Boston College. Additionally, he is a Chartered Financial Analyst. PRIVATE ACCOUNT PORTFOLIO MANAGERS Walter Zagrobski Andrew G. Baldassarre SALES AND MARKETING J. Gregory McGowan is a Sales Associate for Private and Managed Accounts. He joined Keystone in February of 1994 and is responsible for marketing the portfolio management services of Keystone to brokers, financial planners, independent representatives, licensed agents and prospective clients throughout the country. Prior to joining Keystone, Greg worked as an investment executive at Lehman Brothers, Kidder Peabody and A.G. Edwards & Sons, Inc. Greg received his B.S. degree from the University of Rhode Island.