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.