HomeMy WebLinkAbout1998-08-27 - Agendas - Final1. Call to order
2. Approval of minutes
3. Pension List
4. Investment Report
5. Old Business
FIRE PENSION
AGENDA
Thursday, August 27, 1998
City Administration Building, Room 326
MINUTES OF ,
FIRE PENSION BOARD
A meeting of the Fayetteville Firemen's Pension and Relief Board was held on Thursday, July 30,
1998 at 11.00 A. M. in room 326 of the City Administration Building, 113 W. Mountain,
Fayetteville, Arkansas
PRESENT: Mayor Hanna, Marion Doss, Darrel Judy, Bill Morris, Pete Reagan, Ron Wood, City
Clerk/Treasurer Heather Woodruff
Richard Yada and Curtis Williams of Merrill Lynch.
CALL TO ORDER
Mayor Hanna called the meeting to order.
APPROVAL OF THE MINUTES
Mr. Reagan moved to approve the minutes. Mr. Doss seconded the motion. The motion carried
unanimously.
PENSION LIST
Mr. Reagan moved to approve the minutes. Mr. Wood moved to second the motion. The
motion passed unanimously.
INVESTMENT REPORT
Mr. Yada read the Actuary Report. He stated there was enough annual income to fully fund the
Pension Fund. Mr. Yada reported the fund needs to be at 75 percent to be actuary sound and it
was only at 70 percent as the end of 1997. The reason the fund was not sound at the end of 1997,
the Drop program in the liability was added to the actuary of the Fund. The fund has four years
to make up the default.
Mr. Williams stated in the past when benefits have been increased that it had a major temporary
effect on the actuary of the plan.
Mr. Reagan made the motion to pay Keystone. Mr. Doss second the motion. The motion passed
unanimously.
OLD BUSINESS
Mr. Morns requested Ms. Woodruff to write a letter to Ms. Hinshaw requesting information on
what other cities pay their retired volunteer firemen.
The meeting adjourned at 11:30 A. M.
•
MEETING THE CHALLENGE
By Harold Schaitberger
As expected, the President signed the IRS Overhaul
bill into law on Wednesday, July 22, with Republicans at
his side sharing the credit. This legislation, if enforced, will
have a wide reaching impact on all taxpayers. The new
law will shift the burden of proof from the taxpayer to the
IRS. It also creates a watchdog of sorts to look after the
IRS. A nine -member board, including six private citizens,
who will oversee the general operations of the
organization and recommend the hiring and firing of the
IRS commissioner has also been created. They will not,
howex er, have the authority to intervene in individual
cases. At the bill signing, Clinton stated, "We've all
worked hard to give the American people an IRS that
reflects America's values and respects America's
taxpayers."
President Clinton is once again trying to bring the issue
of Social Security reform to the forefront. "After 29 years, it
seems to me it's worth taking one year to address the
challenge offixing the Social Security system before we start
spending the surplus on tax cuts or new spending
programs, however worthy they might be," he said. And he
pointed the finger directly at the Republicans when he
stated, "1 know there are many people who think we should
spend the surplus now and spend hundreds of billions of
dollars on tax cuts before we have the bipartisan plan to
save Social Security. I think it's the wrong course for
America."
With fifteen bills out there containing a
mandatory coverage provision, NCPERS is keeping
on top of monitoring this legislation, which,
however, is not expected to see any movement until
the 106th Congress is seated. NCPERS is actively
•making trips to the Hill to remind legislators how
damaging such a provision would be to public
employees.
With summer in full swing, Congress about to
recess in August, and only nine state legislatures still
in session, I once again remind you that we need you
to contact us anytime you learn of something
important that is happening legislatively. Ed Braman,
NCPERS Legislative Coordinator, is always happy to
hear from you. He can be reached at the Washington
office.
•
NCPERS
1620 Eye Street, N.W.
Suite 220
Washington, D.C. 20006
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'The Monthly Monitor" is published by the National Conference on Public Employee Retirement Systems. Material published in
"The Monthly Monitor" may be reproduced with prior written permission from NCPERS.
•Privatizing Social Security — A recent congressional study says privatizing Social Security to include investment accounts
would result in smaller guaranteed retirement benefits for today's workers. Rep. Charles Rangel (D -NY) says the report
suggests that some guaranteed benefit cuts would be so large that many future retirees would have a difficult time
recovering lost benefits in the stock market. Supporters of privatization note that without change, the program will be able
to pay only 75 percent of the benefits that have been promised to retirees after 2032. The new CRS study indicates that
privatizing Social Security would reduce the benefits of a 38 -year old worker with an average income who retires at age 65
by 33 percent.
Federal Developments
The technical corrections to the Taxpayer Relief Act of 1997
were approved by both the House and Senate Conference
Committees. To help explain the impact the corrections will
have on America, Douglas Fisher, a former tax counsel to the
U.S. Senate Finance Committee and current Vice President of
government relations for Fidelity Investments, will be avail-
able to discuss these issues. To arrange an interview with
Doug Fisher, contactFidelity Corporate Communications at
617-563-5800.
Gore Against Privatization —
Standing in for President Clinton,
Vice President Al Gore addressed
1,500 people about the future of
Social Security. During the meeting,
Gore said, "allowing private
investment would make the system
not 'all for one, but everybody for
himself." Gore stayed away from the
debate between Rep. Charles Rangel
(D -NY) and conservative Republicans
who are interested in privatizing the
Social Security system (see story
above). Gore ended in stating, "we
fully agree there ought to be more
private savings," but added that
something needs to be done to protect workers who do not make enough money to contribute to a 401 (k) or a private
pension.
kc
•IRS-411111-imMay=s-Monitoi_^tl at the-Senate.passed•tlae-IRS-Overhaul bill (H.R. 2676) with a
unanimous vote of 96-0. On June 25, the House passed their own version of the bill by an overwhelming vote of 402-8.
The bill will increase the rights and legal protections provided to taxpayers, shifting the burden of proof in many tax
disputes from the taxpayer to the IRS. The Overhaul bill would allow the suspension of interest payments and fines
when the agency does not promptly notify taxpayers of their outstanding debts, thereby reducing the responsibilities of
the "innocent spouse." The bill would also create an independent board charged with developing and approving the
agency's strategic plans and overseeing the agency's enforcement and collection activities. After months of negotiations
over how to payfor the bill, it will be funded at approximately $13 billion overthe next 10 years. The funding formula
will allow more people to transfer traditional individual retirement accounts to Roth IRA's, a move that will raise $8
billion in additional tax payments in three years. The bill would also restrict employee deductions for vacation pay. The
President is expected to sign the bill 'after the Fourth of July recess. (As we go to press, NCPERS has learned the
President has signed the bill. See "Meeting the Challenge" for further details.)
Senate Democrat's' Introduce New Pension Legislation — NCPERS has been told by high level Senate insiders that Sens.
Bob Graham (D -FL) ai d Charles Grassley (R -IA) are expected to introduce a bipartisan bill next week that is very similar
to the Portman/Cardin portability legislation. The legislation is designed to create a simplified retirement plan for small
businesses. To ease the administrative costs involved in setting up new retirement plans, the legislation calls for small
business tax credits. It would also make it easier for Americans to save for retirement by improving pension portability
between 401 (k) plans, individual retirement plans, 403 (b) or 457 plans. It also works to ensure that women get their fair
share of pensions. The bill calls for giving temporary workers the opportunity to participate in retirement plans. Similar
legislation is expected to be introduced by Democrats in the House.
More on DB vs. DC — The House Ways and Means Committee approved a bill in late June that would let federal
government workers switch pension plans and require federal government agencies to make retroactive contributions.
This legislation was designed to solve the problems of federal workers covered by the wrong pension plan, and it would
ensure the following: that the changes will not affect the way the IRS handles retirement plans; that plan participants
whose retirement accounts are adjusted do not have to pay taxes on the additional money; and that the money transferred
from one plan to another is not subject to payroll taxes.
•
MEETING � ,EETTNG `THE C H A; ,LE GI
By'IHallold Sala itberger
AscexpectedyllhelPresii en'tisigneel *lit IRS itWee'rhaiil
billsintol]aw nn IWeilnesday IJu11y'22 w ithiRepubhcansat
Fstdeshaeing Ate ccredd. This hegislahon, 5forriforced, Will
ihaye is ",,‘title 'teaching tineat t.fon id11:taxpary.erg: The ii):
lat+ "will [shiftthebur&encol proot'from[6hekaxppier'ttoidae
URS. Ut talseccreates,a •watohdog:oif rsont<;to aook,aiterifhe
UR5..'A nine=rnemrerlboard,'o-ncludmgs'iz;priiafe[cil zeas;
who the. eneral•operations of the
bfganiiatinn and reeoaimaid el lid ring :and fni i :df :alae
7[3S commigstoner has also been created: Theynot,
ho1e2ver,:have the.authority.to !ifife rvene in;mdividiial
cases: At [lie rill signing, Clinton stated, "S1.e've all
Worked [hard [to give the/American peiiplean IRS Malt
rrefleasAffteiaca`s values land tespects,An idlers
to x,paveos r
Presi61fanion 'is ome,a'ga'in[theJssue
1ofSooa]Securityteforrn;to Ithe[forefront After29years,G
seems irorite iit is Volith'taking [inneLy,ear Ito a8iiress the
Ohallengeo?ffixirtglihe6ocial;Securit} systembeforeiwelstart
spend ing lthe surplus inn (tax (MIS cor new [spending
[programs,lhoH elter•a ortlay thery;mightlbe,`' Ihersaid.,A'nd the
[pointed [the [finger rdii:eefLy,at [the Republicansfhe
stated, °U know' ithef'e'are oma by Ipe oplew lie [think we shou] d
[spent' [fl surplus [1) Ow and huitdreds 1flif1io tjT
dollars ton [tax icutslb6fore c+e hats the lhtpaihsan !plan fto
,sawccSSoci-i1 SecuritwAl Ifliirikfiifs Itht a+7ongtcourse :for
America"
th'f:iiteeniIl.iIts bill there[confa;iniwg a
cmandafory coverageprovis:10_1i2 NC.PCRS is;keeping
Lon #op z;( momaoring this ]egi*laition. which,
:hoN ever". isinot:exper tee] 'to see any movement until
tl e lf)hth Congress;is seated, NCPFRS isAt:ivo:1y
making trips to •the 1 II to:reTrlmd aeg:islators lion•
'damaging such prodisi-On av,ould llie'to [public
:employees:
WirfliiIsammer lin ni lil fsw'ing, .Coia,gress aboutlto
lrecess in August. ;andonly nine'state ile;gisleafes rsl'iil]
in session, 11 ionee tagam irem'in:d ;you Ithalt lee Sneed you
(tovcowta'c't pusLEA nytin e+vou[learn sof something
Ilmportanit,Yhat:islhappening'ilegts]atia;e]V.'Ed [Braman;
[NCiPEiRS trogtg.latiaie CoordinNior, is always ihalppry It )
Puba•r lfrtim you ..He roan lbe;reaiihed'a't [the 11tashlington
t&ffiee.
NCPERS
1[(,20 Eye Street,'N.11'.
Suite 220
Washington; D.C.20006
igavetiet lle i•ia 1RiRiStersigension (& Relief
tAiTTN Gih [Clerk
e'h13'»il) [r)1ntaidLSteeet
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F.IRST:C'rPSS MAIL
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Mo'nthIy�7Jfonftor" nmyrbr'Icccproduced iu�;ith[prderlu!ntlh.7v ipettrlssign pom s'VIGFEAS,
4
News from
State Capitols
The issue of divestiture keeps popping up. Last week,
the Texas Board of Education voted to divest the $43
million in Walt Disney Company stock that is held by the
Texas Permanent School Board Fund. The board made the
decision based on concern over the content of films made
by Miramax Films, a Disney subsidiary.
The New York City Employees' Retirement System
(NYCERS) has spent four years and approximately
5150,000 on four different tobacco investment studies that
came to the same, obvious conclusion: The tobacco stock's
investment outlook was poor and NYCERS should take
action with regard to their tobacco holdings. NYCERS'
trustees, however, decided in mid-June to freeze the
tobacco holdings, and during this inactive time, NYCERS'
tobacco holdings lost an estimated $50 million in value,
according to trustee Mark Green, the city's public
advocate who favored total divestment. Other trustees
have defended the lengthy studies, saying such a
politically charged issue required caution. In fact, at a
tobacco committee meeting in April, trustees voted to
have a fourth study performed at a cost of between
--.
$40,000 and 50;000, even though the results from the
prior disappointing studies were in. Other pension funds,
including those in Maryland, San Francisco and Florida, •
began their studies later than NYCERS yet came to a
decision as to what to do with their tobacco holdings
much earlier and, in some cases, profited from their
divestment.
•
The debate between defined contribution and defined
benefit plans continues. Virginia Retirement System
(VRS) Chairman Edwin T. Burton III, is again trying to get
state lawmakers to create an optional defined contribution
plan for new employees. Burton unsuccessfully attempted
to have a DC plan approved in the mid 1990's, but the
state legislature, which favors DB plans, rejected the
legislation. The debate has reappeared now during Gov.
Jim Gilmore's administration. Virginia's Secretary of
Finance, Ronald L. Tillett, said the Gilmore administration
is studying Burton's proposal, which would allow current
state employees to stay in the DB plan. The DC plan
would only be for new hires. The state DB plan currently
contributes 9.41 percent of pay for the 356,000 state
employee and retirees. Many groups, such as the State
Teachers, are against Burton's plan. NCPERS traditionally
opposes DC plans. Tillett said that it is "highly possible"
that lawmakers will commission a study of the proposal
by the end of this legislative session.
The pension plan in the county of Saginaw, Michigan,
is another plan that is moving to a defined contribution
system. Starting in October, all new employees will be
covered by a defined contribution and the 600 current
employees will have the option to convert. Further details
are not available, as not all employees have been alerted
to the changes.
Members of the California Public Employees'
Retirement System will soon be celebrating. Early this
month, Gov. Pete Wilson signed a bill appropriating $332.8
million in back -interest to the group. The bill stems from a
1994 lawsuit filed by Ca1PERS against the state seeking
repayment of missed contributions from 1992-1993.
Although this is good news for CaIPERS, they are still not
satisfied with the decision. Jake Petrosino, research
director for the PERS Betterment Committee, said the state
only paid 8.75% in compound interest, while the plan has
been making an annualized return of about 19%.
Thanks to a
new state law
signed by Gov.
Thomas Ridge last
month, two city
funds in
Pennsylvania will
be able to greatly
boost their funded
status. The law
allows the
Philadelphia
Municipal
Employees
Retirement System
to issue pension
obligation bonds for
the first time and
the City of
Pittsburgh
Comprehensive
Municipal Pension
Trust Fund to
extend the time
period for paying
off its obligations
under a previous
bond issue The
city's $2 billion
unfunded liability
could be
dramatically
reduced due to the
pension obligation bond issue. The law also includes a
provision that state aid could be available to assist the
pension fund if it is unable to meet its debt obligations.
Most -of the electorate_
does not look forward to
elections with all the
"mud -slinging" that goes
on. Residents in CON-
NECTICUT; however, do
have. something to
forward to. All taxpayers
will be receiving a one-
time rebate check. Democ-
rats, calling it an "election- -
year gimmick," only
agreed.to the checks when -
it was decided.that the let-
ter accompanying the
checks will be signed by
four Democratic leaders
and two Republican lead-
ers, while the Governor's
signature will be conspicu-
ously missing. The checks,
in the amount of $150 for -
families and $75 for single -
filers, will be mailed in
late July.
2
NCPER S
NATIONAL
CONFERENCE
ON PUBLIC
EMPLOYEE
RETIREMENT
SYS1F.
- ^ i
(ni7c. sn w
•
•
4 Representing the Retirement Interests of Over 5 MSian Public WOrkers O
he Mt:tIy Mon1 or
Tracking Government Legislation and Regulations July/August 1998
THE RETIREMENT ACCOUNT PORTABILITY (RAP) ACT OF 1998
By Congressman Earl Pomeroy
In March, Representative Jim Kolbe (R -AZ) and 20 other House members joined me in introducing the Retirement
Account Portability (RAP) Act of 1998 [H.R. 3503]. RAP would knock down barriers in current law that prevent workers
from taking their retirement savings with them when they switch jobs and cut the red tape that has discouraged
companies from providing pension portability options to their employees.
Under RAP, workers could move retirement benefits between the different varieties of defined contribution plans
offered by for-profit (401(k), non-profit (403(b) and state and local government employers (457). In addition to
encouraging the accumulation of retirement benefits by
providing pension portability to workers, RAP allows
workers to build up more meaningful retirement benefits in a
shorter amount of time by reducing the vesting period for
employer matching contributions to 401(k) plans from five to
three years. RAP will also allow teachers and other public
employees to use_savings in their 403(b).andA57 plans to
purchase past service credits in their defined benefit pension
plans.
Since the introduction of RAP, we have continued to
build bipartisan cosponsors in the House of Representatives,
increasing the list to 37 members. RAP has also gained the
attention of other pension legislators who have included
many of RAP's provisions in subsequent bills. Much of RAP
is contained in H.R. 3788, a comprehensive pension reform
bill introduced by Reps. Rob Portman (R -OH) and Benjamin
Cardin (D -MD), and in the recent recommendations of the
National Commission on Retirement Policy, chaired by Sens
Judd Gregg (R -NH) and John Breaux (D -LA). Several
provisions of RAP — including the provision facilitating the
purchase of service credits by public employees — are also included in the pension bill (H.R. 4152/ S. 2249) that was
introduced late last month by Democratic leadership in both the House and Senate.
In addition to the House's bipartisan support of RAP, Sens. Jim Jeffords (R -VT), Jeff Bingaman (D -NM) and Bob
Graham (D -FL) recently introduced a Senate companion to RAP (S. 2329) on July 17, 1998. We will also be working to try
and include RAP in any tax bill crafted this year by the Ways and Means Committee. Given Senators Jeffords and
Graham's positions on the Senate Finance Committee, there is a good chance that RAP could be similarly included in a
Senate tax bill.,
It makes,sense that as weslook-to increase retireh ent security 'live move to simplify the retirement system and make it
easier for workers=to save. RAP accomplishes these goals, and considering the bipartisan, bicameral support of the
proposal, and the Administration's support of thebill,1 am iopeful we will' "see passageof the legislation later'th'is'.year:"
Called the "champion of pensions on Capitol
Hill," Rep. Earl Pomeroy fD-ND) has made en-
hancing retirement security of Americans his fore-
most legislative goal, and this month, NCPERS is
proud to have him contribute to the Monitor. Rep.
Pomeroy has introduced one of the leading pieces
of portability legislation currently in Congress.
NCPERS was also honored to have Rep. Pomeroy
speak at our 57th Annual Conference in Denver,
Colorado.
•
r.
National Conference On Public Employee Retirement Systems
1620 Eye Street, N.W. • Suite 220 • Washington, D.O. 20006 • (202) 429-2230
New,s from
State Capitols
Theussuetof ditestitore:kceps[prof ping.u;pALast week,
the Texas Board di:Eduration iec2ted to, divest the $43
niilhon i.niWalt Disney Company stock th t R helii'.by'fhe
Texas P.ermanerif Schoch Board Fund. The board made [the
.:decision based :on conceit the contentcof films made
i13y iMiiarnovfilms,ra Disney tsubsidiia v.
TheINeH `Vork(C(ily 1Emplryee"S'Ret'iremeTat System
$iM' &GE'RS) lb 'a s spent .'!ou r y eaEs rami ra,p,proxmaat ely
2515.(11x)00(on',feur,dli!fi,rnerd itel:aceo maeestmendrstudies (th'a't
.cameitoAre !same,roibrious[conc1usion: The [tobactotstock';s
i nv.estmen't uou• •flook a+was]poora:nd?Nl'.GERSshooId .take
action With regard tto [Nei rltobaceolheddings::1 �'GE'RS'
t•rusteesilhoweeer.,idedided`i:ncrnitilimetofreeze the
:tnbaern lioldiiags, and :d u.rinK tla sinactii°.e tiling, NYCERS'
tiibacco holdings lost :an:estirnated55O million in value,
according to till iee Mark Greven the rcity`spublic
;advocate :Who fa%.ored(total ldi.. Jtment..Other (trustees
have defended the lengthy sludies,rsayingrsuch to
ptolftietal'y(charged [issue (aegwired caution. Gln fact,rata
toba2co rco m mittee vane etin g lin [Apifi 1, Ins -lees Te Led Ito
Ihaye,atourtb shuny3,per'f.;rmod:Otto ccostoftbeta<-een
$+401,00.0 rand 50 (dOtlioLN'enIthiou h the resgtttchorn [the
[pnorrdtisa•ppdmtin;g studies W.ere on.00ther Iperii'on (funds,
I tielruding those In.Ylary;landdSaniEiran iscotand IFlot1ida.,
[began ;theirsty dies[later Jhan;' 1'.CGERSyet [cameitoas
decision :as to isihat to' do ns,i[t(latlseir tobacco holdings
much gathet:and,<in sortie ca ses;profited'fromtheir
d ivestrneht-:
Tdie'deba'teIbetin?.een Iiie'fined Iconttibution [and :dedited
beinefit[plans (cantinnes urrgin4aiRet,rernent[System
[N[7.5.1) Chat rmmn hds'ym LT `Burtonnit ,istaKam trying Ito [get
Statek WirtakersIto(cre:atean:optiona1rdnfined(con'tribution
plan :for mewcemployees Burttoncunsuecessin:IV ottempted
tto ]have ra DC )plan ia.piproved tin [the :mid ,l'9901s, Iba•t (the
tstat€)teg slalu•re, aiiliidia (faaors IDB 0fans„ieleeted litre
7lcgislaf on. The[debate has %reappeared+now;duringCo .
Alirn(Gilrnore's adorn:inistrati -A. Virginia `s'•Seeretary'n1
Fire,3ncp,:Ronald iL: Tillett, said it:he:Gil:moue administration
is studying Burton's proposal; Whin would all ow:curre.rit
stateremployeesto stay in the DB ;plan. The DC plan
sw,ould ro'n'1-y beifor,new1hires. till state DB plan:curren'tly
.te.ontr'ibutes[441 percent of spay;forthe;356!OOt) state
remp'loyeelanJ retirees. Many Fp.?op, [such ray Pp? ;State
Teachers,, ore [agahins't.IBur,ton,'°rsplan. IX01'ERS[tradiihcna'l]y
.opposes DCplans.'Tillett(sa'id [ilia rt s".highly possib]e
Itha't [lawmakers [ss'iII [commission a 1st [pity [of ,rhe;pia p nsa]
1by tthetend;Tit ,this IlegidatiMe S'ess'ion.
The pension p`l'an ,n the'tann y of Saginaw Michigan,
sniintlier plan [final Is moving to a defined coninbw`trinn
isystem,`Start`igg in(C)ctOber, a'ilil IiET lernpio),ees`M ill ibe
,cm eyed » ra cdefined contribution and [thei600 cumrenl
reniployec.sin\illihaye tile toptionitoral.Vett.Further •:details
ar r isavailable,ras[not011tempMueeslhasebeen alerted
to the :changes.
hlembersnf the Califomio J'ublic Employees
Retireriient System .will soon be telebtaling7 Early this
mon. th; C,con Pete Wilson signed a [hilirappropriating 5332:8
truttion in Ibaek,'intetest Ito [the [};roup. The brill rstens from 3
1r991}ilas+csuitailed 'bv Cn[1IP RS,agaiia51 ftltie(ctnte seek'i:rig
re,payinent [of [missed [con tributions;frem 1992=11993.
Although fthis,isigooid nett sdor'C irlElZS,'Yht , .are[still (not
satas'fied oaithttrhecdedisioniJa'ke[13:&t sine; research
di rectoricor[the [MRS 'IBettesnieiNtlCommi:ttee,.,said 'fhe'.c.'ta'te
tonicy paid 8775%r9iti(coin pou.nd:i•nteieshisVh'ile[thep1an has
ibeen inaking an annualized return'pLabout
Most of the electorate
does not look forward to
elections with all the
"mud -slinging” that goes
on. Residents in CON-
NECTICUT, however, do
._have-snmething to_look forward to. All taxpayers
will be receiving a one-
time rebate check. Democ-
rats, calling it an "election -
year gimmick," only
agreed to the checks when
it was decided that the let-
ter accompanying the
checks will be signed by
four Democratic leaders
and two Republican lead-
ers, while the Governor's
signature will be conspicu-
ously missing. The checks,
in the amount of $150 for
families and $75 for single
filers, will be mailed in
late July.
Thanks to i
[new state law
signed by Co'.
Thomas Ridge last
•[month, [hs,o rciiy
[funds in
Pennsylvani'a twat
beable in[greatly
boost (their [funded
,status The3a.r;' •
Philaaetpliia
Mnn:icipal
Employees,
Retirement System
1o'issue pension
Obligation 'bonds for
[the (first .ti rice and
the City rot
pittsburglt
[C �rnprrhens`i�,e
Municipal :Pension
'Trust Etind in)
:eat en) idle Tiny
period fonpaying
:off its :obligations
under a previous
bond issue. The
eit 's 52 billion
unfundediliabilitx
couldIbe
rd nariaatiaal l i
bite -ducted due fto (the
pensionrcibiigat`ion[benoll ssue Thellai5'.iallsoIndio des ra
iproa,ision that !staaera'id rc'ou]d lbe LXVkaillable Ito;ass[ist [the
[pension [fund Sif fi'tiis tunable ttolrneeI ills [debtnililrgations.
d.
2
TEL: Aug 20'98 14:00 No.002 P.02
ASHLAND MANAGEMENT
• INCORPORATED
.16 S$ibadu ego, ./bear ijomit /0004 -1198
NEW YOU TELEANONa: (2121 a233BW
NEW WRXE C5INRE: (212)423-6026
•
•
August 20, 1998
Ms. Heather Woodruff
City Clerk
City of Fayetteville
Fayetteville Fire Pension and Relief Fund
113 West Mountain Street
Fayetteville, AR 72701
via facsimile, .501.575.8257
Dear Ms. Woodruff
Recently the Securities Exchange Commission has asked that investment managers confirm, in
writing, that clients are aware that their name is used in a representative client list. With this in mind we
are writing to remind you that your name does appear and we would appreciate your confirming, in the
spay provided on the duplicate copy of this letter, the continued use of your entity's name on such list.
Thank you in adwmcc for your time and consideration. Enclosed please find a return envelope
for your convenience.
Consented to by
Sincerely,
Terertj J. McLau
Managing Director
REPRESENTATIVE LISTING OF OUR CLIENTS
TEL: Rug 20'98 14:00 No.002 P.03
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ARKANSAS FIRE & POLICE PENSION REVIEW BOARD
, P.O. DRAWER 34164
LITTLE ROCK, ARKANSAS 72203
TELEPHONE (501) 682-1745
FAX: (501) 682-1751
•
•MEMORANDUM
Local Police and Fire Pension Funds with the Deferred Retirement Option Plan
(DROP)
FROM: Cathym Hinshaw, Executive Director
'^-`Ark"ansa's Fire and Police Pension Review Boaru
RE: Certification of DROP interest rates for 1997
DATE: July 28, 1998
Acts 957 and 1004 of 1993, which created the Deferred Retirement Option Plan (DROP),
provide that the interest rate credited to the DROP accounts shall be certified by the actuary.
Attached please find the letter of the actuary which certifies the interest rate as provided by law
to be credited for the year 1997 to your police or fire DROP account.
Please call me at 682-1745 if you have questions orneed assistance regarding this.
•
r
Osborn, Carreiro & Associates, Inc.
ACTUARIES • CONSULTANTS • ANALYSTS
July 26, 1998
Ms. Cathym Hinshaw, Executive Director
Arkansas Fire and Police Pension Review Board
One Union National Plaza, Suite 940
124 West Capitol Avenue
- Little Rock, AR 72201
Re:
1997 DROP Interest Rate Certification
'Fayetteville rireiignters Pension rund
Dear Cathyrn:
One Union National Plaza.Suite 1690
124 West Capitol Avenue
Little Rock, Arkansas 72201
(501)376-8043
The Deferred Retirement Option Plan (DROP) was established by Act 757 and Act 1004 of 1993. These
acts state that the interest rate credited to the DROP accounts would be certified by the actuary for the
pension funds. This letter will certify the interest rate as described in the law to be credited for the year
1997.
Pension Fund Fayetteville Firefighters
1. Net Investment Income Rate 8.9%
2. Less 2 0% - 2.0%
-3. Preliminary DROP Rate 6.9%
4. Actuarial Valuation Rate 6.0%
5. Certified Drop Rate 6.9%
Greater of (3) or (4)
The above rate is certified to be the rate to be credited to DROP accounts in 1997. The Net Investment
Income Rate was based on the financial reports provided by the Arkanasas Fire and Police Pension
Review Board. Thesereports were not audited, but were reviewed for reasonableness and completeness.
If you have any questions or comments, please let me know.
Sincerely,
ontito
Carreiro, A.S.A., M.A.A.A.
- Associate Actuary
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Merrill Lynch
Investment Insights — Fall 1998
• Food Industry
In uncertain markets, investors often look to food
companies because of their predictable earnings, stable
cash flow, and low volatility. We believe that the
price/earnings multiples of a number of stocks in the group
are too low in relation to the market, and we think that
selected issues could do well during the second half of the
year. We also like some individual companies because
their current restructuring efforts should improve their
operating efficiency and profitability in the years ahead.
• Household/Personal Care Products
The Household/Personal Care Products sector has, in the
past, been a comparatively safe and defensive group,
characterized by consistent double-digit earnings growth
and relative insensitivity to the fluctuations of the
economy. The group has tended to outperform the market
during weak economic conditions and market corrections;
that suggests that investors might well take a positive view
of these stocks in the second half of 1998, when the U.S.
economy seems likely to slow. The large multi -national
companies are well diversified geographically, offsetting
some of the ongoing concerns surrounding the Asian crisis.
• Life Insurance
Second-quarter earnings for the life insurance industry
suggest that the group could be an attractive place to be
during a difficult stock market environment. Eight of the
12 companies we follow exceeded our second-quarter
estimates; the average earnings growth rate was 16%. We
expect earnings to increase by 13 -to -14% next year after
projected gains of 16% for all of 1998. The companies we
favor also have essentially no Asian exposure and limited
sensitivity to the overall economy.
• Property/Casualty Insurance
Based on our outlook for lower interest rates, we like
property and casualty insurance companies. One reason is
that about 70% of their assets are invested in bonds. Low
inflation also helps the loss reserves of most insurance
companies because the reserves are established to pay
claims at some future date. Because an assumption about
inflation is built into the reserves when they arc
established, lower actual rates of inflation can "free up"
some of the reserves. The average price/earnings multiple
of the stocks in the group have recently been equal to about
55% of the market's multiple, one of the lowest valuations
in a decade. The average is 66%. We think that selected
stocks represent good value at these levels.
• Electric Utilities
We think that investors who want to stay defensive should
look into electric utility stocks. Electric utilities tend to do
well when inflation is low, economic conditions are
weakening, and bond "yields are falling. Other key positives
for the group include valuations that we think are
attractive, improving earnings results, and strong value -
creation through the sale of selected assets. We also look
for consolidation activity to pick up in the years ahead.
For information on specific stock recommendations,
please contact your Financial Consultant.
Investment Strategies
We continue to be bullish on stocks for the long term and
we think that investors should realize that bouts of
volatility are likely to occur from time to time. With that in
mind, we suggest that investors consider the following
strategies when managing their portfolios:
• Use dollar cost averaging. This method of investing the
same dollar amount in stocks and bonds on a periodic
basis should help smooth out the fluctuations in priccs
and, ultimately, the returns that investors will realize.
• Maintain a long-term perspective. Although we have
always suggested that our clients take a long-term
approach to investing, the benefits of a fairly long-term
horizon are especially apparent in volatile markets.
• Diversify. Historical studies have shown that
diversification among different types of assets can
reduce overall portfolio risk and increase portfolio
returns. The risk of holding one type of asset increases
as markets become more volatile; that makes it
particularly important to look for opportunities in other
asset classes.
•
NM Capital Management, Inc.
Quarterly Investment Comment
June 30, 1998
Second Quarter 1998 Review
graying bull labored through the second
quarter, harassed by mounting
economic uncertainty. Fears of a slowdown
in U.S. earnings growth, Asia's financial
turmoil, and a deteriorating Japanese
economy contributed to a -dampening of
Wall Street's euphoria.
Investors continued their infatuation with
large -cap issues during the quarter. The
S&P 500, including dividends, returned
3.2% compared to a negative 4.7% for the
Russell 2000 Index of smaller cap stocks.
The divergence is more pronounced in the
year-to-date figures of 17.6% for the S&P
and 4.9% for the Russell 2000.
If your investments have not outperformed
the S&P this year, do not despair. The
S&P's numbers are somewhat skewed. The
largest seven stocks In the S&P (GE,
Coke, Microsoft, Exxon, Merck, Pfizer, and
Wal-Mart) accounted for approximately
one-third of the Index's performance
year to date. (If the largest 60 stocks are
taken out of the index, the year-to-date gain
is reduced to only 4.6%.)
Intermediate and longer maturity
government/corporate bond indices
returned 1.9%-2.6% for the second quarter.
Interest rates, with the exception of very
short-term rates, eased in May and June.
Yields on two-year Treasury notes were
5.48% versus 5.63% for the 30 -year bond at
quarter end.
1
Economic Outlook
riche fundamentals that support the
I domestic economy remain strong with
rising incomes, benign interest rates, low
inflation, and an abundance of lobs. The May
unemployment rate of 4.3% was the lowest in
nearly 30 years. Consumer spending and
income accelerated in May, suggesting that
domestic demand is keeping the U.S.
economy growing and offsetting the drag from
the Asian economic crisis. Economists look for
some moderation in growth in the months
ahead due to a slowdown in manufacturing
exports to Asia and the current GM strike,
which may begin to impact industrial products
this summer.
lEquity Strategy Review
Do you think everyone suddenly decided
to smoke cigars?
Fads. They are a part of our culture and can
be an enjoyable diversion; but fads, by their
very nature, are temporary. There is
nothing to sustain them; therefore, they are
easily replaced by the next fad to come
along. Buying what the crowd buys can be
expensive. As a fad becomes more popular
and demand for the item increases, so does
the price—at times, well beyond its true
value.
When the fad has run its course and
demand slackens, prices become more
reflective of the item's true value. At this
point, those who followed the crowd may
find that they own something no longer
fashionable, for which they have overpaid.
(After all, someone bought the last full price
Nehru jacket.)
Stocks also go through fads. At times the
market gets so enamored with a company
or an industry that it drives prices well above
what a prudent investor would pay. Those
who bought a stock near the peak of its
popularity may well see demand for their
NM CAPJAL MANAGEMENT, INC.
1-800-869-1756
1
TX
investment drop when the market rotates to
a new idea. With this lessening of demand
comes the inevitable reduction in price.
At NM Capital Management, we don't
follow the crowd and do not think chasing
fads is the way to invest. It's one thing to
overpay for a few cigars; it's quite another
to invest in a stock at an inflated price. We
stress value not market conformity. Our
philosophy focuses on finding stocks that
are selling below their true value, i.e.,
companies ignored by the crowd.
So, follow the crowd when it comes to
frivolous pursuits if you choose, but beware
of fads in your approach to investing.
Unlike the Nehru jacket, you cannot hide
your portfolio in a closet and forget it.
1
Stock Update
e continue to find value in spite of
what appears to be an overvalued
stock market. Companies encountering
problems that we judge to be short-term in
nature and whose prices are low provide
unique opportunities.
Inco Limited is an example. Inco is the
world's largest producer of nickel, a much
needed industrial metal whose primary use
is in stainless steel production. The
company possesses the world's largest and
highest quality reserve base and the lowest
production cost profile. Despite its excellent
asset base and market position, Inco's
stock is selling near its 10 -year low. The
problem is that the current nickel price of
$2.00 per pound is also at a 10 -year low.
This is due to concerns about Asian
demand and new planned worldwide mine
expansion. Therefore, Inco is expected to
post a net loss this year. We think that
nickel prices will improve during the next
few years because the majority of the
world's mines cannot produce nickel
profitably at current prices. Should prices
stay low, many mines will be forced to shut
down, thereby reducing supply. Much of
the new capacity expansion may, therefore,
be delayed or cancelled. We think this will
lead to substantially higher nickel prices
and improved fundamentals for Into
Another company experiencing short-term
problems is Union Pacific Corporation.
Union Pacific is the country's largest
railroad, sharing a virtual duopoly with
Burlington Northern Santa Fe for the West's
railroad freight traffic. Union Pacific's stock
price and current earnings are depressed
because of congestion problems on its lines
as it tries to assimilate the recent purchase
of Southern Pacific. Plans are in place,
however, to resolve the problem over the
next year or two that may result in
substantial cost savings and strengthen the
company.
Even the intelligent investor is likely to need
considerable will power to keep from following
the crowd.
Benjamin Graham
IFixed Income Strategy
As we stated in our last commentary,
there are strong countervailing forces
that could lead to dramatically different
interest rate environments in the future.
The Asian situation worsened as the
Japanese economy is officially in recession,
and output in the rest of Asia is expected to
decline in 1998 for the first time in 20 years.
Given this news, bond investors seem to
anticipate a slowing in the U.S. economy
that could lead to a subsequent drop in
interest rates.
In the meantime, a strengthened U.S.
economy and a tight labor market are
causing some concern over the possibility
of renewed inflation. The evidence of a
yield curve currently inverted from the
three- to ten-year maturity range (higher
rates for shorter maturities), suggests that
the prudent investment is in high quality
bonds of between two- and five-year
maturities.
NM CAPITAL MANAGEMENT, INC.
1-800-869-1156
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Merrill Lynch Comment
Economic &
Financial UPDATE
18 August 1998
Bruce Steinberg
Chief Economist
(1) 212 449-0928
Global 1
Global Slowdown
1
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v
M9rflll Lynch
350 Salem Road, Suite 9
Conway, Arkansas 72032
501 329 7420
800 383 6596 WATS
FAX 501 329 8374
Curtis Williams
• The economic fundamentals that led to the equity market correction are
likely to get worse before they get better.
• Specifically, the global slowdown is almost certain to deepen in coming
month and persist well into 1999.
• We're hopeful that both the U.S. and continental Europe can grow
2.5 -to -3% in 1999.
• But those regions are now supporting the entire world economy, making
the 1999 outlook more uncertain.
The equity market had a strong rebound from an oversold condition but the economic
fundamentals that led to the correction are still very much in place. Indeed, they are getting
worse. Specifically, the global slowdown is almost certain to deepen in coming months and
persist well into 1999.
Two events that occurred during the past few days have negative implications for
currency stability and world economic growth. First, the devaluation of the Russian
ruble. Second, the intervention by Hong Kong authorities in the currency, real estate,
and equity markets there.
The Russian devaluation was shrugged off by global markets. The devaluation had been
widely anticipated and Russia is not all that economically consequential. But with the ruble
devalued, interest rates in all emerging markets will remain higher for longer than might
otherwise have been the case. That includes those in Asia, eastern Europe, and Latin
America. Higher interest rates will further slow growth in those regions.
Brazil, which otherwise has an economy unlike Russia, has a similar currency system. One
has to believe that the Brazilian real will be tested in coming weeks. Even if the current
crawling peg survives—and that is an increasingly big if --Brazilian growth prospects are
taking another hit. More broadly, we will probably have to mark down our growth estimates
for all of Latin America, including Mexico, though Mexico remains in better shape than other
countries in the region. Argentina is particularly at risk.
Meanwhile, Asia still shows no sign of stabilization. We find the news from Hong Kong
particularly disturbing. That authorities in the previously most laissez-faire economy on earth
have intervened in currency, real estate, and stock markets shows that they are panicking. A
currency board system is supposed to be automatic, with no discretion for policymakers.
Hong Kong's actions shows that authorities doubt that they can hold the line.
Hedge funds that bet against the Hong Kong dollar peg can only be smiling. Whatever short-
term hit speculators may lust have taken, they've gotten the Hong Kong authorities to blink.
That does not auger well for the peg. We don't believe that China will devalue the yuan in
1998, but the sustainability of its exchange rate in 1999 looks increasingly dubious. In other
words, the risk of further rounds of competitive devaluations is rising.
Merrill Lynch & Co.
Global Securities Research & Economics Group
Economics Department
80/40323005
193
Economic & Financial UPDATE — 18 August 1998
Merrill Lynch
Elsewhere, Japan remains mired in its slump. Japanese
authorities are once again threatening to intervene in
currency markets, putting a temporary floor under the yen.
But unless the banking system resolution process becomes
far transparent than it currently is, further yen weakness
seem inevitable.
On the other side of the world, the UK is about to
experience an abrupt policy -induced slowdown. In other
words, the entire world economy is basically being
supported by continental Europe and, especially, the U.S.
We're hopeful that both the U.S. and Euroland can grow
2.5 -to -3% in 1999, which would hopefully lead to decent
earnings momentum. But growth and earnings prospects in
both those regions look a little shakier for 1999 than was
once the case.
The Fed left policy unchanged at the August 18 FOMC
meeting. Given recent global developments, the idea the
Fed would tighten looks increasingly far-fetched. More
analysts are coming around to our view that the next move
will be an easing. But the timing of that move may have a
crucial bearing on equity market prospects going forward.
The long -bond yield is already right on top of the Fed
funds rate. The bond will not be able to make signficant
further gains until the Fed eases or expectations for an
easing are overwhelming. We look for an easing in
December. But that is probably the soonest the Fed would
act and it may well act later. That means that the bond is
probably going to stall out during the next few months. So
equities won't be getting further help from lower yields just
as yet.
•
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194
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Merrill Lynch
Fa11.1998
i
Investment Insights
United States '
Merrill Lynch's View of the Market's Volatility
A Special Report For Individual Investors
1
The stock market's volatile performance of the past few weeks seems to have caught some investors by surprise. Closer
examination shows, however, that the market's advance during the past several months has been dominated by only a
handful of large -cap and Internet related issues. In fact, if we consider the entire stock universe instead of just the major
averages, it would be difficult not to conclude that a bear market has been under way for months in most stocks. As of
August 6th, more than half (55%n) of all stocks were down 30% or more from their 1997-1998 highs and 74% were down
20% or more.
Slowing Earnings
Those statistics, of course, provide cold comfort, and they
do not address the question, "What is ahead?" As we see it,
the current market decline does not appear to be a "typical"
one — that is, a decline triggered by a decision by the
Federal Reserve to boost interest rates in the face of rising
inflation. Instead, we think the current decline is associated
with a disinflation -induced slowdown in earnings.
For the second quarter, S&P 500 operating earnings were
up by only 2% on a year-to-year basis. Industries exposed
to Asia, including technology, energy, basic industry, and
capital goods, had down earnings, while areas with less
exposure, such as financials, consumer staples,
pharmaceuticals, and telecommunications, had double-digit
gains. Because signs of weakness have spread, we think
that S&P 500 earnings growth for the year will only be 1%
vs. 8.4% last year. Our earnings -growth forecast for 1999
is 8%.
The root cause of the earnings slowdown, in our view, is
the fact that corporate capital investment has been growing
much faster than demand. Industrial production has
increased by 25% during the past five years while capacity -
utilization has essentially been flat. Now demand is
weakening, taking profits with it. In our opinion, earnings
difficulties in the manufacturing sector are likely to worsen
and spread to the consumer cyclical and consumer services
sectors in the months ahead.
12 Merrill Lynch
350 Salem Road, Suite 9
Conway, Arkansas 72032
501 329 7420
800 383 6596 WATS
FAX 501 329 8374
Curtis Williams
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Equity Research
M
Healthy Economy
with Low Inflation
That said, we believe that the U.S. economy is
fundamentally sound, with virtually no sign of inflation.
The shock from Asia has slowed the economy, but its only
intrinsic problem seems to be a potential shortage of
workers. In the past, low unemployment led to inflation.
However, with commodity prices deflating and pricing
weak in nearly all sectors, we believe that inflation is not a
risk. In a hyper -competitive economy, labor shortages tend
to slow growth and put pressure on profit margins rather
than spur inflation.
In that environment, we recommend high-quality bonds
and high-quality stocks.
A Case for Bonds
Although it may take some time to come about, we believe
that the next big move in interest rates is down. The fixed-
income market offers investors the potential for relatively
generous inflation-adjusted yields and the potential for
capital gains should yields fall.
Our primary reason for optimism toward fixed-income
investments is that inflation is low and is unlikely to rise
materially. In fact, that arc very powerful downward
influences on inflation. Most notably, import prices and
commodity prices are declining, largely as a result of the
financial turmoil in Asia. We believe that the bond market
has not fully adjusted to the low inflation environment.
ROM 1223302
Investment Insights — Fall 1998
Merrill Lynch
The bond market is also benefiting from a fairly ]ow level
of new issuance. The growth in debt throughout the
economy has been in a 4.5 -to -5.5% range for most of the
1990s, compared with a double-digit pace during the 1970s
and 1980s. The Federal government has led the way.
moving from a budget deficit of $290 billion in 1992 to an
estimated surplus of $60 billion this year. As a result, a
sharp swing in Treasury financing has offset the increased
issuance by corporations and municipalities.
We recommend the following:
• Investors should avoid putting a disproportionate share
of funds in very short-term assets such as money-
market funds. If interest rates decline, the income from
money funds will decline as well. In the taxable
market, we think the best value is in the l0 -to -15 year
maturity range. In the municipal market, we think the
hest value is in the 10 -to -20 year range. For investors
with shorter time horizons, we recommend the two -to -
five year maturity range.
• We recommend an overweighting of the municipal
market for investors in the top tax brackets. Municipals
presently offer an especially large after-tax yield
advantage over taxable securities in the high tax
brackets.
• We see selected opportunities in the investment-grade
corporate -bond market. Yield spreads of corporates to
Treasuries have widened to their widest levels in five
years. Selected preferred shares also look attractive, in
our view.
• Stay with high quality. If the economy slows, the bond
market will become more concerned about credit
quality and profit performance. Low-grade issues
would probably underperform in that environment, as
they have for most of this year.
A Case for High -Quality Stocks
Perceptions and expectations always play an important role
in the outlook for the stock market. Right now, we believe
that the certainty of earnings for the market as a whole and
for individual companies may be more important than the
rate of earnings growth or the fundamentals themselves.
For example, a company in a high-risk field may have a
high projected five-year earnings growth rate, but investors
might feel more comfortable with the shares of another
company that has a lower, but more certain growth
outlook.
In light of the"profits recession" that we see,.one would
think that stocks rated A+ and A by Standard & Pool's
would be selling at significant valuation premiums because
investors would be drawn to the safety of those predictable
companies. One might also expect shares of lower -quality
companies to sell at significant discounts to compensate
investors for the risks associated with those more
unpredictable companies.
However, as the chart points out. valuations based on
expected price-earnings multiples suggest that the
valuation disparity between higher and lower -quality
stocks is not wide enough to compensate investors for the
risks associated with lower -quality companies. That
suggests that the recent period of strong relative
performance by higher -quality companies may last longer
than many people expect.
Among higher -quality stocks, we recommend that investors
focus on consumer stocks, selected financials, and electric
utilities, and we would generally avoid small -capitalization
stocks, industrial -cyclical issues, and the shares of
commodity -oriented companies.
• Pharmaceutical Industry
Earnings growth for the major U.S. drug companies has
been strong in recent years and should run at a rate of 17 -
to -18% in 1998 and 1999. Accordingly, we believe that the
shares of selected major drug companies may provide a
"safe haven," in a relative sense, from the economic and
financial market concerns in Asia and Latin America. In
fact, U.S. drug companies' sales exposure to those markets
is generally in the single -digit area as a percentage of total
revenue. We believe that a wave of new products in the
group should also help to boos( the shares of selected
companies.
2
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Merrill Lynch
Investment Insights — Fall 1998
• Food Industry
In uncertain markets, investors often look to food
companies because of their predictable earnings, stable
cash flow, and low volatility. We believe that the
price/earnings multiples of a number of stocks in the group
are too low in relation to the market, and we think that
selected issues could do well during the second half of the
year. We also like some individual companies because
their current restructuring efforts should improve their
operating efficiency and profitability in the years ahead.
of Household/Personal Care Products
The Household/Personal Care Products sector has, in the
past, been a comparatively safe and defensive group,
characterized by consistent double-digit earnings growth
and relative insensitivity to the fluctuations of the
economy. The group has tended to outperform the market
during weak economic conditions and market corrections;
that suggests that investors might well take a positive view
of these stocks in the second half of 1998, when the U.S.
economy seems likely to slow. The large multi -national
companies are well diversified geographically, offsetting
some of the ongoing concerns surrounding the Asian crisis.
• Life Insurance
Second-quarter earnings for the life insurance industry
suggest that the group could be an attractive place to be
during a difficult stock market environment. Eight of the
12 companies we follow exceeded our second-quarter
estimates; the average earnings growth rate was 16%. We
expect earnings to increase by 13 -to -14% next year after
projected gains of 16% for all of 1998. The companies we
favor also have essentially no Asian exposure and limited
sensitivity to the overall economy.
• Property/Casualty Insurance
Based on our outlook for lower interest rates, we like
property and casualty insurance companies. One reason is
that about 70% of their assets are invested in bonds. Low
inflation also helps the loss reserves of most insurance
companies because the reserves are established to pay
claims at some future date. Because an assumption about
inflation is built into the reserves when they are
established, lower actual rates of inflation can "free up"
some of the reserves. The average price/earnings multiple
of the stocks in the group have recently been equal to about
55% of the market's multiple, one of the lowest valuations
in a decade. The average is 66%. We think that selected
stocks represent good value at these levels.
3
• Electric Utilities
We think that investors who want to stay defensive should
look into electric utility stocks. Electric utilities tend to do
well when inflation is low, economic conditions are
weakening, and bond "yields are falling. Other key positives
for the group include valuations that we think are
attractive, improving earnings results, and strong value -
creation through the sale of selected assets. We also look
for consolidation activity to pick up in the years ahead.
For information on specific stock recommendations,
please contact your Financial Consultant.
Investment Strategies
We continue to be bullish on stocks for the long term and
we think that investors should realize that bouts of
volatility are likely to occur from time to time. With that in
mind, we suggest that investors consider the following
strategies when managing their portfolios:
• Use dollar cost averaging. This method of investing the
same dollar amount in stocks and bonds on a periodic
basis should help smooth out the fluctuations in prices
and, ultimately, the returns that investors will realize.
• Maintain a long-term perspective. Although we have
always suggested that our clients take a long-term
approach to investing, the benefits of a fairly long-term
horizon are especially apparent in volatile markets.
• Diversify. Historical studies have shown that
diversification among different types of assets can
reduce overall portfolio risk and increase portfolio
returns. The risk of holding one type of asset increases
as markets become more volatile; that makes it
particularly important to look for opportunities in other
asset classes.
August 11, 1998 INVOICE
NM CAPITAL MANAGEMENT, INC.
6501 AMERICAS PARKWAY, SUITE 950
ALBUQUERQUE, NM 87110
August 11, 1998
Mr. Richard Yada
Merrill Lynch
2200 N Rodney Parham Rd #300
Little Rock, AR 72212
NM CAPITAL
MANAGEMENT, INC.
INVESTMENT COUNSEL
Re: City of Fayetteville Fire Pension & Relief Fund
' Account#563-966346 -- --
STATEMENT OF MANAGEMENT FEES:
For the period from April 01, 1998 through June 30, 1998
CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
Portfolio Valuation as of 06-30-98 * $ 4,892,384.38
$ 4,892,384.38 @ 0.5000% per annum $ 6,115.48
Quarterly Management Fee $ 6,115.48
TOTAL DUB AND PAYABLE
$ 6,115.48
ALL INVOICES ARE DUE UPON RECEIPT. TO INSURE PROPER CREDIT,
PLEASE INDICATE ACCOUNT NAME ON CHECK.
OM
*Portfolio Valuation used for fee computation has been reduced by
accruals amounting to $24,808.94.
A copy of this invoice has been sent to the client for their review and record. Client is responsible to verify the information provided hereon.
ASHLAND MANAGEMENT
INCORPORATED
QUARTERLY REVIEW - JULY 1998
Page I of 2
AS WE SEE IT -THE ECONOMY AND THE MARKETS
While many foreign markets continued to struggle, the U.S. stock market shined brightly during the second
quarter of 1998, as did the portfolios we manage. Ashland Management outperformed the S&P 500 during
the second quarter and the first six months of the year.
Elsewhere, the problems associated with emerging Asian markets and, most recently, Japan continued to
.y haunt many ofthe world's economies. The extent to which these problems will impact the U.S. economy is
a questu3illh�a is on many investors minds; however, there are signs That our economy will continue to
prosper in the months ahead. Let's review a few.
First and foremost is the still healthy, if somewhat more erratic, behavior of the U.S. stock market. After
experiencing numerous declines and advances, often with one day's losses erased by the next day's gains,
the stock market remained above 9,000 at the end of the second quarter of 1998, and hit a new high in mid-
July, this despite fresh rounds of negative news from the Far East.
Housing starts and commercial construction as a whole remain very strong, reflecting equally strong consumer
and corporate confidence in the economy. In these and other areas, domestic dLmand served to fill the gaps
created by declining demand from Asian countries for the goods and services that we provide. The National
Association of Purchasing Management in June, for example, noted that orders were still increasing in May,
albeit at a slower pace than in April. Inflation in the second quarter was almost invisible. The Federal
Reserve Bank of Philadelphia projected that the unemployment rate, now at 4.5%, should remain below 5%
at least through the end of 1999. And the consensus puts second quarter growth at an annual pace exceeding
2%, slower than in recent years, but reflecting a more moderate, sustainable expansion that is less likely to
result in substantive inflationary pressures.
Looking at Japan alone, many might remember the early 80s, a time when Japan was teaching our business
people some painful lessons in quality and what it took to be profitable in an increasingly global economy.
Nrnr; as -was captured -so -forcefully in ea,ly July by the 1esignation of tharcountry's-Prim mister, what
was once known as "Japan, Inc." has fallen on some hard times.
As we needed Japan then to deflate our excessive pride and consequently inspire us to greater achievements,
we need them now to do the same for what might be called their economic step-children—Thailand, South
Korea, Hong Kong, Indonesia, and others—several of which patterned themselves after Japan's previously
ascendant business and financial model, much to their present distress.
In the interim, we remain focused on those companies with proven abilities to grow their earnings, regardless
of the economic environment, as is detailed in the following review of our performance and changes to our
clients' 'during the second quarter of this year.
Asnland management Incorporated, 26 Broadway, New York, NY 10004 (212) 425-2803 - fax (212) 425-6026
t Memphis Office -(901)527-1500 Palm Beach Office -(561)833-7188 Southern California Office -(310)541-1455
ASHLAND MANAGEMENT 1NGO
®IU
ORATE()
1Ragc '2 [6f>2
PORTFO IO C.OI M ENTARY
Our iportfol os.fared 'Well yin':thetsec:ond'quante'r, +4;^5°%o:Gandly': ai=iso?da:te; +jl To., dueninhllacgetpartCtorour
.continued•focusori the largest capitalization companies.
Our overweiglitinginilk technologysector boogied :our pet orrtiarke with our tech stades ireturtiing 110% vs
8'5%o'for the ,S&15 $00, Two noteworthy performers among these were Cisco, --35V for;ihe quarter, And
Ericsson;+20°?o;'O Our continuedrverweigrhting tinthe (consumer fse"rvicefandavii duzablesr,sectors!alsoaide--d
performance: Onelhold`ing; TcDonaildrs,was wip some 'ito% fortthe rguartetand[either, CalniVal lOruise
Cines, was tup it 3,;1g97o. Eitiialk we benefited from The icons 'imed Strength ofitwo Cher ilarge ihdldings, Allli'ed
Signal land Gene all Electric, both o'fWhtch Iperformedw,diil [during the quarter:
PIHealthcare a !sector ,we lhameiFoi'ig focused <on performed CH;el1 ottlall, ,Foe It1u. [yuanter, [a rfea •1ofour 'stro.ng
performeis neliitittiM.edtroti:i0,1=e4s0%,1ecton,D'reanson;+it4'3m..indSe-heningIRloueh =i1r253%,
(O J;ezalll,:westil kifew.rstodks(lifiui giiheijuafter.w.)tihHthelli lto kotable4being+Cendant Which iannounced-
accounfingitrregulantiesithatsentiitststoeklp'lummetinglmoretthaivW0 n�%hereupon(oursellidtscipti'nerequdred
[fhat , .erdts0.6secof4thestoek 11n,retrospect, was[algoodre-ditl;;a'sadditional *announcorients ':offin ane:ial
iir,'regukar"iiies :have Noused tthelcorkpally'slstokato fa1111 e.'en fatih i We al`so!sold Jlewwlett-Pa ckard,las it
fat led to;ad-U.0 e.eonsisten'tly;positiMe earnings .grox nh.'aircguireerent Itnel usion In ourl:pottfolios.'Philip
Morr;is:and Richfood Ylpldingg we also 'sol. d,los ityoth v:ii'olated our:technica] sell :rule__ as well as shares: in 7a
spin loft oftort pbel'l Soup that di ln'it meet our inv.estnieiit :ciat&ia.
During the second quay -ter; we :added 'ito (our Iweightiirg; h ithe;fstnanciall'sector *h two new securities;
Aimer'ic:an ikcxPressand lFfed'd'ieiNac. ]B'olhcompaniesArte 1posiitiored igrow :Strongly.in ce tntmg,yearsl
Alrmele:an &tpre;ss:has bulkiatdiake s fed product ill ine8'hat Ihas111ed touhe company EaehieVing lits rearniiigs
targets fLinr;2l):oonsecutivequarters, 'F-reddie Mac:. otherwise known +astthe [Federal 11dame LooanlMod:gage
C(onpoilation361'a rmaltor- sgov ennnienitsponsorlediproOder[of cap'iial,tor ncosidenti'all firnortgages. We Ilook';int
iboth(conipamesltoael es•;e15°o annual (earnings groAdlaOSiare along?erm: tslifhaupstde,lpoternilalrshnuslid
credit 'Oen ds torn MueR'o+irnproue.
EVIQID=C'AIPA1rDri iXiE
ITSCOMEIPORTEONO MANACETSIIENT
tMlydd'lerstocks continue ?to be %a x ab'I:e away tocalllocat'elone's equi3.yosseis. (Our niidd'le
capitalization!portfohos are iahod.for The:year bysome `?%< Further, valuations f nJhe mrdecap area.art
attractive when compared :to sonic .of.: he'more prom ne-nt!larger•:cap,tssues, Pi ease your.Ashiarid
representafis'4tot-Ai/mu in/Amin-40n,
Our ifuked ,income (approach (consistently radds'Malue tto [our[ l ;eats" Ino:at: `los: Our Thr (the ifirst IS 'fit
rnonfhs are in 4;ine with the ILe.hnaan Jnt ertnediate iBonII Index (Comes, xw`ho beads fixed;:income
nianagement,!also+managesOcustom`izedmuniiciipa'port'fotios. iB;iFilWillIsa']sopros•lidetanfin[depth fana'lyss(oif
yOur(e:urrent,heldtngs,;promidingKyou .01:111 useful IinHforrnauon on ItemsThke income,Cylualli;ty, duitationtand
risk. This fixed sinc,oinerea sew fi"s free kof zcliarge `,to tiny (of tour rclhh'ents: iP1case feel Tree tto rcalil 1B'illil ten-ec•'tly
ear i8:Ot)!..661.1l]r 7.
icr4-,:I M IS 111 \l'e I416 1+.111 `OO Ja'iRjYINFIYN ILfiLRPS1'nR'a}I11'(.\J';IY.IIN•6kS1?.\'l'M'i I'LI1111.11R\k'iIII1i Iu\9 nkIPf:iPiI';k SIIR'2•'\18d IIC61 �`ff_fl1.3 d1iR":\}'I 'p.+1 s'''"3"1) .1111 ]1F p1'
UI1;113RI \M1I'Y1hI1\VI i i 1'011+1%IIFIi\JT) '.P''i I'k1(1 11'111-'AI•n9.1 '.VIII 4.`411N.STIOS1111 LI 11111110k 11 II4 \xI 1101 ,\I W. ) i AIIYI\ill A Ill] RIp'zM IIQ .RIJ 1,V110T 'a' S W (k ".1'
• ill) t1.11\.;lI'4 • •ASill'1 WIJ''Bnxr111,.H"ABR:'0163IN1aad'�IY UT;b..Wi�111 (':nMPkYJ I1pM l'=did\.11R•111 s Ai 411A1'1111„'i DU Ip:, . iS
�TSill 14y'n :ti [St Rl ra;tr'5enta 4. 01 :P?IilanA'b'latiagemcit[Ir'; . 9 ieL' k 11n r,[iI: VAiM rnvrp95na}elne'il tln. yr(\lra led r'$IIIRIk'HI' IRTxrnir]
1
1
•
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FAYETTEVILLE FIRE DEPT PENSION AND RELIEF FUND
PORTFOLIO PERFORMANCE 12/31/97 TO 7/31/98
NM CAPITAL MANAGEMENT
INCOME ACCOUNT
ASHLAND ASSET MGNT
3 -MONTHS TREASURY BILLS
DMA W/DIV REINVESTED
S & P 500 W/DIV REINVEST
LONG TERM TREASURY BONDS
HIGH GRADE CORP BONDS
CPI {June}
NM CAPITAL {time wtd}
INCOME ACCOUNT
ASHLAND ASSET MGNT
JANUARY 1996
Dow
United Kingdom
MAY 1996
Dow
United Kingdom
SEPT 1996
Dow
United Kingdom
12/31/97
4,647,115
4,897,44
1.561.424
11,106,027
12/31/95
+ 5.46.1
+35.53
+34.94
+27.63
+23.51 36
+ 2.67
+15.68 .
+15.61
original inv.
$75,000
75,000
$75,000
75,000
$75,000
75,000
6/30/98
4,912,891
5,101,858
1.820.072
11,834,821
12/31/96
+ 5.31
+29.49
+22.98
- 1.21
+ 1.61
+ 3.32
+11.37
+ 4 25
+17.91
7/31/98
4,716,966
5,085,539
1.818.853
11,621 358
12/31/97
+ 5.33
+24.87
+33.36
+15.38.
+13.42
+ 1.70
+16.97
+ 6.38
+30.80
7/31/98
+3.06 •
+13.42
+16.47
+5.88
+5.02 •
+1.05
+1.77
+3.34 •
+16.48 '
6/30/98 7/31/98
116,417
107,420
105,337
114,849
110,274
112,663
118,226
103,266
109,773
113,614
111,823
114,119
ASHLAND MANAGEMENT INCORPORATED
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