HomeMy WebLinkAbout2001-03-29 - Agendas - FinalFIRE PENSION AND RELIEF FUND BOARD
AGENDA
MARCH 29, 2001
•
A meeting of the Fayetteville Fire Pension and Relief Fund Board will be held at 11:00 a.m. on
March 29, 2001, in Room 326 of the City Administration Building located at 113 W. Mountain.
1. Approval of the minutes.
2. Approval of the pension list.
3. Roy Skelton
1. Kathy Skelton
2. 2 daughters
4. Investment Report
5. Other business.
MINUTES OF A MEETING
OF THE
FAYETTEVILLE FIRE PENSION AND RELIEF FUND BOARD
FEBRUARY 22,2001
A meeting of the Fayetteville Fire Pension and Relief Fund Board was held on February 22, 2001
at 11:00 a.m. in Room 313 of the City Admmistratton Building.
PRESENT: Marion Doss, Ron Wood, Danny Farrar, Pete Reagan, Heather Woodruff,
ABSENT: Mayor Coody and John Dill.
APPROVAL OF THE MINUTES
Mr. Wood moved to approve the minutes. Mr. Reagan seconded the motion. The motion carried
unanimously.
APPROVAL OF THE PENSION LIST
Ms. Woodruff stated they needed to amend their pension list. Larry Phillips needed to be added
to the pension list. His retirement should be affective March 1, 2001.
• Mr. Reagan moved to approve the pension list with the addition of Larry Phillips. Mr. Wood
seconded the motion. The motion carried unanimously.
Ms Woodruff stated Mr. Phillips' monthly benefit would be $1,827.55.
INVESTMENT REPORT
•
Mr. Yada stated the Dow Jones was up 1%. The S&P 500 was up 3.5%. Treasuries were down
and High Grade Corporate was up. They believed there would be more deceases in interest rates..
By the end of the year they should be looking at interest going back up because of inflation. The
month of January, the Private Portfolio Group was up 9/10 of 1%. Mercury Group was up
2.79%. The Income Account was 2.1%. Ashland was down 'A of 1%. This year would be
another challenging year. He did not expect any big moves like they had in 1999. Their asset
allocation was serving them well now.
In response to questions from Mr. Reagn, Mr. Yada explained that Mercury and Ashland were
growth accounts.
Mr. Maguire stated the Private Portfolio Group had a trading account, were they charging
transaction fees on trades?
Mr. Yada replied they were not supposed to charge transaction fees and to call him if he received
any.
•
•
OTHER BUSINESS
Mr. Reagan asked if letters regarding the member election had been sent out.
Ms. Woodruff replied they had not, but she would send them out next week. She added the
report needed for their benefit increase should be complete the first week in March
Mr. Reagan asked when they sent out affidavits?
Ms. Woodruff replied they had been sent out in January. She had received most of them back.
There were approximately, six to seven people who she needed to go to their homes to notanze
their affidavit. They were house bound and could not get out.
Meeting adjourned.
•
•
•
FAYET T EVILLE
• THE CITY OF FAYETTEVILLE, ARKANSAS
•
DEPARTMENTAL CORRESPONDENCE
•
To: Fire Pension Board
From: Kit Williams, City Attorney
Date: March 15, 2001
•
Re: Death benefits regarding Roy Skelton
I have reviewed the Qualified Domestic Relations Order
following the divorce of Roy Skelton and Kathy Skelton as well as the
• state statute (A.C.A. § 24-11-820) Attached are copies of both.
It is important to note in paragraph 6 that Kathy Skelton was
granted the right to receive a portion of Roy's retirement check "so
long as Roy A. Skelton might be entitled to receive said benefit."
Obviously, Roy's right to receive the benefit ended with his death.
Significantly, the Court held that "this QDRO does not require the
City of Fayetteville or the Fireman Relief and Pension Fund to
provide any type or form of benefit to Roy A. Skelton or Kathy D.
Skelton which is not otherwise provided pursuant to the retirement
plan "
The State law clearly limits pension benefits to a surviving
spouse and minor children (up to age 23 if a full-time student).
"Whenever ... any retired member shall die,
leaving a spouse . a monthly pension ..
shall be paid for life to the spouse ...."
A C A §24-11-820(a)(1)
A 'spouse" is defined by Black's Law Dictionary as ' One's
husband or wife by lawful marriage, a married person. The divorce
between the Skeltons terminated Kathy's status as a married person
so she cannot now be termed a spouse.
The statute for death benefits clearly anticipates there might not
be a surviving spouse eligible to receive a pension by stating' "If
there is no eligible spouse at the time of the member's death, then the
total sums shall be paid to his children . "
Later the statute expressly provides for termination of pension
benefits if "any spouse or child shall marry." This shows the
legislative intent to closely limit the pension benefits to actual
surviving spouses who do not remarry.
The Court's QDRO expressly did not try to supercede this law
so this state statute controls disqualifying Kathy Skelton from
• pension benefits after Roy Skelton's death.
•
•
24=11:820 '. RETIREMENT AND PENSIONS •- - - 52:
board''administenng`fu'ndsunder; § 24-i1-801 et `seq as'a, rein§tate_
went of employment ina-:fire department '•:- 1'; •
History: Acts 1921, No. 491 § 4; Popes Amendments, tithe :1999 amendment
nig4r.:§ ..7740; Acts -1943 : No::167„:§!2;,:,-: by No. 901 added the language beginning. -
1953, No. 68 §'1; 1955, N6:71,-* 1; 1957, and, -:.notwithstanding' in. (d)(2);' -and,' : d
No. 265, § '1;1967, No. 233; § 7;1983; No made.styhsticchaiges
611, § 1;-ASA:1947; § 19=2204; Acts the 1999 amendment by"No 1114 t
1987; No: 389 § �1; 1987 No -396 § 1;<i added -'the language beginning "or any ''r
' 1987, No. 797 § 1; 1989, No 182 §§.173; expendituies:by a municipality' in (0(1),
1993,;No..546 §.3;.•1993, No. -1137 §3;a, and made styhstic changes. .
9, N
199o:`9o1 § 5;:1999, No."1114, § 1.
2441=820 Benefits= -Death of active o"r retired member other
;than while. employed. otitside department.
(a)(1)1Whenever any member :of afire department of any city, town, ,
or fire ifnprovement:district covered by this act shall lost his 'life,
except While -actually performing work in• gainful ,employment outside :.
the firedepartment or July retired member; shall die,-leavitig ti -Spouse,: ,
or children under the age ofnineteen:(19) years ,then, uponiatisfactory
proof of thosefacts-made"to it,;'the:board-of trustees`•'shall:order and -
direct;m the case of volunteer or part -.paid fire fighters, that a monthly. .
pension equal -to the•amount of: the .pension or retirement pay,attached`
to the rank ofthe'men►ber.ofthe fire department atthe time of his death;
shallbe.paid.for life to the spouse, andthe monthly-pension:shall not be
less.than thirty dollars •,:($30 00) ,
.!:(2)-_, In the ; case of .full-paidfire-fighters'. classifications,• a. monthly:
pension shall be:paid:for life to the spouse intlie amountof the -pension
received' by the,• retired';fire fighter at the -time of^his death, or the:;
• ,amountof.the pension to -width •the member would liavebeen'entitled
on the day hedied had he been retired; but in no event shall the benefit,'
• of the spouse .be less tha• n_:three hundred'fifty dollars ($350) per month":'.
-regaidlegat of Whether :the spouse has already, been receiving,.
• payments, and regardless of whether the fire'fighterwas4n active duty:
or retired t:
'(b)(1)(A) In addition ta- the monthly pension provided • in ,subsection
(a) of this section,'the board of:trustees: May "order and -direct the
payment of;:in the case:ofvolunteer or;part=paid:fire fighters the sum:_.
• 4 of, twenty five °dollars" ($25:00) 'Per month fore each. child. ;under •
nmeteen:(19) years"of age who Las not completed liigh school'and,
the•case of full -paid fire: fighters,. the- sum: of one handredtwenty-five
dolls s ($125) per-montli'for each child. undernineteen.(19) years'of
age who has not completed highschool: ="-
(B)However, if the child -enrolls in an institution of higher educa-
tion-after'completing highschool, the payments shall continue: as long::
as the child is a full-time student, but in -,no instance t.beyond the
child's twenty-third birthday : ,,
(2)(A);.Ifthere,is no eligible spouse at thetime of the member's'death,
thesthe total sums shall. be paid to his children until thershall have
reaclied _ nineteen
•completed.highsc
a(B) However,if
after completing l
. the:child is a full -
twenty -third birti
(3)-T11e suine."tot:
qualifying children
exceed one-half (i)
at the :time of his de:
fire•'department 'no
month.
(4) If;any; spouse
shall thereafter -regi
the operations of th
(5) 'If any retired
spouse; or that spo'
(c)(1)'i'In• computii
to' participate in bei
person from whoinJb
in some' fire departi
the. service_- shall -be
regardless of.wheth
§§ 241'11801-'24-
815, and>24-11=818
(2) It is the inte:
children bf full -paid;
at least•the minima
whether :the • 'servwCi
deriv`e`d; the: benefit
§§ 2411=801 -24:
815 and 24-11,818;
(d) Any payment
this section sfiall no'
will remain actuar i
(e)(1) it is the'iiii
the spouses and der
after -leaving :`activi
duty -related injury,
service; retirement,
section.'
(2).'.However, •payt
not be: made retro2
section.'
(f)(1): If a retirant
they have received:
accumulated contrit
•
52:
a reinstate-:
99 am"endmen't'
vage^beginning
m (d)(2) and
a 1
o:;,1114s:.
ening :.or any '.
pabtyy' in (f)(1) .
•
ether'other
1t ✓ ::' t-114'
s ,
ay eiVrtown,
lost his
ment outside
mg a spouse,
a satisfactory
all order�and;
rat •monthly
p ached':
e.o s_'fleath
n shall `not be ;
r
s a monthly'."
if the pension,
heath; or, the =
beew entitled ,
ill the benefit
9) Per month;
vmg,pension
in active duty
m 'subsection '
rid direct •t) t
tern,`th'e sum -
cluld tinder
ichooL.and m"
d enty five s
(19).:years of
ngher e•duce ,
itue:a
ms long
e beyondkthe
death,.;
have
•
53 . -. LOCAL POLICE-& FIRE PENSION &'RELIEF FUNDS 1.24-41A20.'
reached'.riineteen:(19) years of "age `or -'until the";:children ''have
completed ugh school, whi'cliever. occurs first•
(B)
Hokvefetic if a child enrolls man institution of lugh'er education
Falter completing high school the payments shall continue as long"as
'the child is a fu11'time student, btuun.no instance beyond theyclpld's
k = twenty-third birthday
(3)-
l'he7 sum total"of the pension ` to be =paid the . "spouse or, the • ' .
qualifying children •of'volunteer or :part paid fire fighters shall' not
exceed one-half ('):of the salary attached to therank the member held
„ at the :tune `of lnsdeath as an active"member of:a volunteer or�part-paid
fire' department, no 'shall itbe less than` thirty dollars:($30 00)rp'er
x s (4) I• ,any.. spouse or, child shall marry, then the person: so marrying
Shalt thereafter receive nothfurther pension from the funds provided for
•e''operations'of flus act' ""`; M `T
" -(5) If any retattFTA.fe hter shallmarry after lis retirement;- the
spouse c or that spouse's children, sham..nte.raCSivelienefiti from,the
funds a; t t
(c)(1) In computing sercnce'require l under this sectiorif for ehgibihty
to.participate m benefits, service shallyhe computed from the day the
person from;whom benefits arederived wasdulyapp'omted and enrolled
m 'some fire' department "in the'State _ofArkansas as a fire fighter,; and
the serince': shallbe ;considered m determining' eligibility for benefits
_;regardless of •whether it was performed before or after the passage of
§t‘..:24.41.‘801::41. 24.11 807,"24-11 809,
815; and 24-11 818 24-11=821 ` ` °t-'
7 ,2'
(2) .It us the intention of this act fiat all spouses and dependent
Ofeer.fire fighters shall receive
at least'tle mmnum'benefits' prescribed un flus`section;;regardless of
whether: the_ service, upon which the spouses: or dependent children -
derived' the'benefit:"was {;performed' before or: after the , passage of ,
§§•.2411=801 2411807;:2411809 24-118Y0 2411=813 2411
u'w
'81$ Litild.24-1f=818 = 24.11'821 F �
(d) Any payment of benefits above the•mumounts stated inn
flus section shall not bmmu"am
e •made except.upon determmation'that the.'fund
k •
-wi11 remain actuarially sound
:'(e)(1):It us the intention of this section to make eligible for benefits
the spouses and dependent children•of members who died from'illnese
after leaving active_ serviceafter beingEietired'for a
4143rielated'injury, 'as 'describd m alis section,' regardless if"the
service;-retirement;=or death occurred -before or,after the passage of this
sectnio; , •,,...
;(2) However, payment to survivor's made eligible by this section• shall
=not sbe Smade retroactively but shall begun vcnth the passage of. this ec"tion w > Wr
nJ �`
-'40(1.-4):70a retirant and; if any, lis eligible beneficiary .both die before.
th•
ey have'-receivSfi anniiuty Payments a` total amount equal to the`
accumulated contiibiutions `including any interest credits, standing to
tra
•
24-11-830 RETIREMENT AND PENSIONS
54
the retirant's credit in the system at the time of his retirement, the
difference between the accumulated contributions and the total amount
of annuities received by them shall be paid to such person or persons as
the retirant shall have nominated by written designation duly executed
and filed with the board.
(2) If no designated person survives the retirant and his beneficiary,
the difference shall be paid to the estate of the survivor of the retirant
and his beneficiary
History. Acts 1921, No. 491, § 8; Pope's
Dig., § 7744; Acts 1943, No. 167, § 3;
1953, No. 68, § 2; 1955, No. 77, § 2; 1957,
No. 94, § 1; 1969, No. 69, § 1; 1981, No.
253, § 1; 1983, No. 48, § 1; 1983, No. 397,
§§ 1, 3; 1985, No. 145, §§ 1, 2; A.S.A.
1947, §§ 19-2208, 19-2208n, 19-2208.1;
Acts 1989, No. 821, § 9; 1993, No. 1197,
§ 4; 1997, No. 536, § 1.
A.C.R.C. Notes. Acts 1997, No. • 695,
§ 1, codified as § 24-10-617, provided:
"(a) When a municipal employee who is
vested in a municipal retirement system
under the Arkansas Local Police and Fire
Retirement System, § 24-10-101, et seq.,
or under a local police pension and relief
fund, § .24-11-401, et seq., or under a fire
pension and relief fund, § 24-11-801, et
seq., is killed or dies in the course of his
employment and is survived by a spouse,
or has surviving dependents actively
drawing a benefit from those municipal
retirement systems, then the surviving
spouse or surviving dependents may con-
tinue to participate in the municipality's
health care plan as long as the surviving
spouse or surviving dependents pay both
employer and employee contributions to
the health care plan.
"(b) Provided, however, a surviving
spouse or surviving dependent may qual-
ify to continue on the health care plan
only so long as they remain an eligible
beneficiaries under the retirement sys-
tem."
Amendments. The 1997 amendment
added the last sentence in (b)(1) and
(b)(2).
Cross References. Applicability of
this section, § 24-11-832.
24-11-830. Deferred retirement option plan.
(a) In lieu of terminating employment and accepting a service
retirement pension pursuant to §§ 24 11 801 et seq., any full -paid fire
fighter who is a member of a firemen's pension and relief fund who has
not less than twenty (20) years of credited service and who is eligible to
receive a service retirement pension may elect to participate in the
Arkansas Fire Fighters' Deferred Retirement Option Plan and defer the
receipt of benefits in accordance with the provisions of this section,
provided the local firemen's pension and relief fund board of trustees
approves the participation in the plan.
(b) For purposes of this section, credited service shall include service
credit recognized pursuant to §§ 24-11-801 et seq.
(c)(1) The duration of participation in the Arkansas Fire Fighters'
Deferred Retirement Option Plan for active full -paid fire fighters shall
not exceed five (5) years. -
(2) At the conclusion of a member's participation in the Arkansas
Fire Fighters' Deferred Retirement Option Plan, the member shall
terminate employment with all participating municipalities as a fire
fighter and shall start receiving the member's accrued monthly retire-
ment benefit from the firemen's pension and relief fund.
55
(d)(1) S
Fighters'.
fighter an
(2)(A) I
(20,000:
who ele
Plan sh.
and tot
or at the
trustee:
this sec
(B)
(20,000)
ployees
Option
relief fu
the mer
Plan as
(3) The
had the n
retirement
Retiremen
(e)(1) T]
unless the
(2)(A) A
a rate o
investmi
certified
Police Pi
actuaria
assumed
(B) TI
of the m
(f) A pa
participant
payments 1
participant
the board
(g) If th
plan, a lu
participant
History. 2
1997, No. 49:
Amendme
inserted "as c
contract with
lice Pension ;
•
• IN THE CHANCERY COURT OF WASHINGTON COUNTY, ARKANSAS
KATHY DIANE SKELTON
•
VS. NO. E98-804
ROY ALLEN SKELTON
PLAIN IFFra
COUNTER -DEF NIgQN
• 2 --1 rn
n
2 f-+
a 0 ,t -n
c
DEFErAN•F�
COUNTER -CLAIMANT o
QUALIFIED DOMESTIC RELATIONS ORDER to v
1. The Plaintiff and Defendant were married on September 6, 1974, and
pursuant to a Decree of Divorce the marriage was terminated on September 9, 1998:
2. The Court has first jurisdiction over the Plaintiff and Defendant and
jurisdiction over the subject matter of this Order and the dissolution proceedings.
3. The Court intends this Order to be a Qualified Domestic Relations Order
• (hereinafter referred to as "QDRO") as that terms is used in Section 414(p) of the Internal
Revenue Code of 1986, as amended, (the."Code"). This Order creates and recognizes
the existence of Kathy Diane Skelton's right to receive a portion of the benefits payable
from the Fireman Relief and Pension Fund, the management of which is overseen by the
City of Fayetteville, Arkansas, with respect to the Retiree, Roy Allen Skelton.
4. Pursuant to an Order of the Circuit Court of Washington County, Arkansas,
•
entered of record on the 31st day of January, 1991, Roy Allen Skelton was awarded the
following:
•
a. Regular monthly retirement benefits equal to one-half (1/2) of his
monthly salary on the 15th day of February, 1990, or $1,204.63 plus
•
$60.00 which reflects $20.00 per year for each service year in
S:t AMARP\SKELTOMODRO.928
excess of twenty (20) years or a total regular retirement benefit of
$1,264.63 per month. In addition Roy Skelton was awarded a
•
disability benefit equal to fifteen percent (15%) of his pay on the 15th
day of February, 1990, or $361.38 per month.
5. Kathy Skelton is not now nor shall ever be entitled to any portion of the
monthly disability retirement benefit in the sum of $361.38 or any increases thereof which
might result from cost of living increases or other increases provided to Mr. Skelton by the
City of Fayetteville or the Fireman Relief and Pension Fund.
6. Commencing with the retirement check payable for the month of October
1998, and each month thereafter, so long as Roy A. Skelton might be entitled to receive •
said benefit, Kathy D. Skelton is entitled to receive 33.035 percent of Roy A. Skelton's
• regular retirement pay ($1,264.63) and any increases thereof as a result of cost of living
adjustments or other increases provided by the City of Fayetteville or the Fireman Relief
and Pension Fund after October 1, 1998. This percentage equals to the sum of $417.80
per month. The $417.80 per month reflects the gross (before tax dollars) to be paid to
Kathy Skelton. Kathy Skelton shall be responsible for payment of any and all State,
Federal, Social Security and Medicare taxes which might be assessed against the gross
payment to her. The social security number for Kathy Diane Skelton is 431-06-2649 and
her mailing address is 324 South Buchanan Street, Fayetteville, Arkansas.
NOW THEREFORE rt is hereby ordered that the City of Fayetteville or the Fireman
Relief and Pension Fund board or the Administrator of the Fireman Relief and Pension
Fund, which pays monthly retirement benefits to Roy A. Skelton, shall make appropriate
•
S:UAMARPISKELTOMODR0.928 2
•
•
• entries to provide for the division of the funds pursuant to the findings of this Court:
IT IS FURTHER ORDERED this QDRO does not require the City of Fayetteville
•
or the Fireman Relief and Pension Fund to provide any type or form of benefit to
Roy A. Skelton or Kathy D. Skelton which is not otherwise provided pursuant to the
retirement plan, nor does the QDRO require the retirement plan to provide increased
benefits to either party.
IT IS FURTHER ORDERED that Kathy Diane Skelton be and she is hereby solely
responsible for the tax consequences of the distributions to her under this QDRO.
IT IS FURTHER ORDERED that this. QDRO supersedes any beneficiary
designation or payment election made by Roy Allen Skelton under his retirement plan but
only with respect to that portion allocated to Kathy Diane Skelton.
• IT IS FURTHER ORDERED that this Court retains jurisdiction over this matter to
amend this order so as to establish and/or maintain its qualifications as a QDRO under
the Code.
IT IS SO ORDERED.
APPROVED AS TO FORM:
l Xath
Donna. Hayden Lyl
.Qt [ j"Roy Allen Skelton
_,4C,
E Lamar Pettus
S:LLAMARPLSKELTOMQDRO.928
•
3
John Lineberger, Chancellor
/ 3-48
MerrillLynch Investment Managers
quarterly News
and Views
Global Large Cap Equity
Private Investors
First Quarter, 2001
During the first quarter, world equity markets
accelerated their declines as investors became
increasingly risk averse in an environment of
deteriorating corporate earnings and an uncertain
economic outlook.
Source: Bloomberg
The MSCI World Index has now fallen for four
ensecutive quarters and has lost a quarter of its
lue over the last twelve months. Over the first
quarter, the weakness in equities has broadened out.
Initially, weakness in the market was largely
concentrated in the "New Economy" sectors of
Technology, Telecommunications and Media. The U.S.
has the highest concentration of these companies and
the Nasdaq Composite index, which largely consists of
technology -related companies, has lost over half of its
value in the last year. The inversion in investor
sentiment has resulted in significant selling pressure
on many of these stocks, almost without regard to
price, much in the same way that scant regard was
paid to price at the height of the "dot.com" bubble in
late 1999. Just as investors focused too much on
concept and not enough on valuation then, now the
inverse is arguably true with valuations being defined
more by short-term earnings visibility than by the
long-term prospects for many of these companies.
The unusual decision by the U.S. Federal Reserve to
cut interest rates intra -meeting at the start of January
sparked a rally, led by the technology stocks.
However, this was short-lived as the rapid slowdown
• the economy that led to the Fed's shift to an
aggressive easing bias had a pronounced negative
impact on the near-term outlook for corporate
profitability. As corporate earnings guidance
deteriorated, equity markets were unable to sustain
positive returns in January and both February and
March saw negative returns in all markets. In the U.S.,
the Fed has aggressively reduced rates by a total of
150 basis points over the last three months, resulting
in a significant increase in liquidity. However, the
economy has yet to see this liquidity put to work as
both the corporate sector and the consumer continue
to cut back on spending. As a result, corporate
earnings in the first quarter will be negative on a
year -over -year basis versus the double-digit gains that
were anticipated as recently as six months ago. Given
the scale of contraction in corporate profitability in
the short-term, investor psychology has taken a
significant turn to the negative, leadingto a rapid
reduction in the appetite for risk.
In Europe, U.S. dollar investors have seen their returns
fall below those in the U.S. as the Euro currency has
weakened against the dollar since the start of the
year, reversing the rally seen late last year. Similarly in
Japan, where the economic outlook has deteriorated,
various factors have conspired to significantly weaken
the yen. The incumbent government has low approval
ratings, and the Ministry of Finance's credibility has
been damaged after being forced in March to readopt
the zero interest rate policy it abandoned last summer.
The fiscal year-end for Japan is March. With their
market back to its historic lows over the last decade,
concerns about the financial health of the banking
system were renewed given that equity cross -
shareholdings in many cases constitute significant
portions of a bank's capital. However, the positive
news is that this situation is forcing the government to
be more aggressive in implementing the long -needed
reforms necessary to unburden the Japanese economy
and enable them to avoid returning to a deflationary,
negative growth economic spiral.
04-23-01A08:49 RCVD
Sector iPeriformance uersuss ^the MSCI Wor;Id !Equity ndext
/At {the sector level, rd"efens'ive areas of "the rrnarket
remained iithe best performers asfinvestbrs looked
for.a'higher degree :&f earnings visibility. However,
that Said, every sector [had (negative [returns'for "the
ig uarher. The rdev.iatio:n wersu"s The broad market swas
Iless'than cwas seen last year with he exception sof
the "tethnd'ogy'settor,^;w,hid:fell bbyrover'27peKcent
rdurig9 ih:e ' uarter. [Ernergy stocks ite:ma ned
relatively ;:strong, .:as rearn•'ings ^.vis[6ili.ty re.rnamed
0%
- 10%
— 20%
— 30%
-13.1%
MSCI Worldt
-4.9%
-8.2%
-11.9%
Materials
Industrials
-5.3%
The lectntilogy sectbF!renialpeel <the rgre.aite3t idyag
en ie:gulity 'markets. Siowin.g reconorni: gPow h,
especially 'in the U S., h:as rresulte.d `in a Bran at.it
r.eCiuction'in business visibility at rlost:companies in
this iindustry. [Management has [[been ;forced ;to
,aggressive'lyiireise idown earnings lin {the fist fh.a'lf
of this year, and [m,any,are not w;(Il;ing tb Iprov'id.e
,guidance ifor the (latter half ,as tthe,y!haye [no:way;of
iknowingivuheitherithe'abruptireduction rd. (demand
tI 7temporary. Tlirs wnerta[nty its •fuel[ng Tinuestor
cpn:cerns'and has greatly contributed'IVO the
(high) given rlthatKerierigy prices remain well abo
[recent historical norms, und'er,pinn[ng a continue
irobust ear•niggs outlook, The •Consumer
IDi:scretionary sector also .didwell lin ant'ic'ipation of
a (recovery Pn 2on"sum, ertspending due (to (increased
idiscr.etiethary ccash ',fl'ow rat li:nterest rates 'fall.'The
(B'as'ic lMateriials 'sector iwas helped Iby ron;g:oing
'indu"stry ticorasdlidation rand (better than expected
Ipri:cin:g in'som.e•cornmodty:areas.
-11.0%
-13.9% -12.3%
V N
W W
E343a
NC es
O
0
Health Care
Financials
-27.1%
C
001
E °C
O "
cr
-12.2 /o
Telecommunications
-10.4%
nedtttion lin disk appetite by in.ves'to:rs. 'The
resultmg'inwentory glut is ralso;r.educingPne.ar-:term
earnings as the industry catteiv,nptS :to adjust to :a
sharp reduction in demand; having been ir.apidly
iadding tapatfity tb [meet:demand `growth :oyer .the
!last flew years: !Health Care Cwas the lon'ly other
;setter 'to iunderperforrn. IlTh this [mote ir;isk ;averse
cenuirotirnent investors stook <some Iprof,its lin these
rtiornpapies idespite tcontiir7ued :strong rearn,'ings
visibility sfollowrnglithe sector's irnarke*
outperformance in 2000..
•
: c
-Your
PoPortfolio -Transactions & Portfolio Stratee gy
We have maintained a broadly neutral stance in the
portfolio over this quarter given the volatility and
our belief that the scale of the style rotations out of
large cap and into value are excessive and so we
should not chase performance. In terms of asset
allocation, we have maintained an overweight
exposure to Europe. While we were right on a
fundamental basis, as Europe is now expected to
grow faster than the U.S. for the first time in a
decade, the continued strength of the dollar has
devalued investment returns in Europe, resulting in
a negative overall contribution in U.S. dollar terms.
Your portfolio has remained slightly underweight in
North America, which has been beneficial. In Japan,
we started the year underweight, but have been
moving to an overweight stance. We are.
encouraged by the recent signs of an increased
appetite to implement reforms and the shift in fiscal
policy, which reflect a greater appetite to address
60%
S0%
40%
30
20%
10%
Geographic Allocation*
• Mercury Advisors
• MSCI Wotltlr
OO%L'01M.
Pacific Basin Europe
Japan
North America
the real reasons behind the inability of Japan to
revive economic growth.
Your portfolio remains broadly diversified, with
broad market exposure in terms of sector allocation.
Consumer Staples has remained a preferred sector
given its defensive qualities. Although, during the
quarter we have reduced the scale of this
overweight, given the relatively full valuations in
the sector. We have used the proceeds to increase
your holdings in the Consumer Discretionary sector,
where we had been notably underweight given our
concerns over the impact of slowing consumer
spending. This was achieved through the sale of
General Mills and Heineken, funding the purchases
of News Corp and Toyota Motor. Essentially we have
been adding cyclicality to the portfolio, reflecting
our continued belief that the economy will start to
recover late this year and into next.
25.0%
1S.o
Sector Allocation*
f r
Mercury Advisors
MSCI World,
%JIlie1_II
-- E2
I Top Holdings by Region*
[North America
%
Europe
IS
Japan
In
eel=
ea
General Electric
Microsoft
AIG
Pfizer
3.4.
2.9
2.7
2.7 7
AstraZeneca
Vodafone
TAXA
2.6
2.2
2.1
Mitsubishi
Tokyo Finance**
Sony
2.0
2.0
News Corp
y
1.2
*Data as of 3/31/01
**New entity following merger of Bank of Tokyo -Mitsubishi with Mitsubishi Trust and Banking and with Nippon Trust Bank
In the Technology sector, stock valuations have fallen
across the board, to some degree regardless of
prospects. We have selectively added to some
positions, including increasing the portfolio's
holding in EMC, whose data storage products We
view as mission critical and less vulnerable to cuts in
corporate IT spending budgets. We also added to
Microsoft given our belief that the range of new
products provides better than expected earnings
visibility. We recently sold Dell and switched the
proceeds into Compaq, which we believe has better
prospects due to its attractive positioning within the
server market, as investors perception of Compaq's
business model changes to reflect the main drivers
of their profitability. In Telecommunications we
have retained the focus on selective names especially
in (mobile ..tel"e.communications. However, inve"stor8
have continued to avoid these stocks, despite what we
believe are[Very ,exciting prospects, particularly in the
IU.:S., 'Which continues to lag [Europe rand Japan lin
terms [of service (quality land(ava'iIab'iIity.
Overall, The 'portfolio (remains (s'l'ightly [onderwelg'ht:lln
tfhe (Fin, anci'al sector ;and (has remained 'focused ion
raternationa'lly d:Gversifi;e;d rb'ankks rand ifeeitta3ed
financials. andlinserrers. Weire.ma'rn.0rad erwei:ght[(n the
<tradi:tioonalbra nk n9-industry''where•business,prespec'•ts
are less exciting. The recent:merger of Bank of Tokyo...
Mitsubishi has underlined to ((investors the ongoing
restructuring :of the Japanese banking ;system and the
stock [lias (recovered rafter Ea :weak3tartto'the quarter.
We have also [maintained tan overweight stance
towards the IHea'Ith stare sector rand (drug tom•pan,'iesti n
particular, Where 1we expedtLAO see (better per',for,ma Oce
as lirvVestbrs'.reward,these(companies fah thei r reanni nags
[visibiliity and (attractive (relative valuations 'when
(compared .to [the (broad ima1ket and ills iearn.ings
1Prospects.
(Outiook• .!
Glo'ba'l;econOnlie growth lis isitio/Lin'g land the resulting
impact on (Corporate [profitability has (led to ,a (m'a'jor
fnega'tive [shift lin Ii;nVestor {psydhology over iteeei t
weeks. We still believe that rour(central Iscenano Of (an.
(economic soft (landing [remains kvaIid. However; Whii.l'e
:the marked [ig:r:eases in'gldba111igwdity iu ode rpiti tills
'ass'erti'on; .we 'a7;e also reli:arit :on sentiment.
Psychology a (by ':definition :unpredictable, but we
believe the -.Orre.nt;environrnent essentially marks the
inversion '.of the "priced -for (perfection" mentality
-seen lin late 1999.
While .w.e rare (currently Lin a icorpora'te [earnings
[recession, (We'do [nottsee Cevide fte to suggest'' that 'w
rare entering a (prolonged (economic tnecession. `Tihe
[m, ariket [has 'experienced to Aromatic rev.er,'sal of
tifontune.'We (now believe that the 'risk [for investors lis
imore cone col [time .than of price 'a"s imarket :valuation's
'have fallen to rmulti=:year El:ow3. [Liquidity Iev:elt (have
•risen :and so provide the 'fuel for an (ecgn.o02
[recovery,' a swas•lintended Ibyfthe tentraI [b'ankerswvho
bravo rand ',will continue 'to (cut [interest [rates. [ We
believe That' we +are dmaw;ing (near to o ccapitulafion
lleve[I,
but identifying [the [precise [cata'ly'sts [rema'in:s
idiftficult. We (believe ;that gas !in.v.estofs' 'confidence lin
the 1prespects iforaneconomrc(r:ecoverynext .[year rises,
so,:th"e market .will shift`to more of apredictive than
ireactive stance. in this scenario, :weexpect .a mof:e
national investment :environment [Where companies
aY.e likely to be evaluated on their profitability
prospects:over the next few,years [-ratherthan [over the
nett [few (months. [Ultimately, the market (Should rally
OS ,uncertainty lis [reduced; ,whir ch should Inesu'It lin ;an
lincreased a;pp.etite for (ri`s'k'by investors. (Equity [market
valuations !are (back ito (levels, partic:ular],y 'for some
stocks,;we [have not [seen hn (many !years, (so we (do inot
Ibel:evethat 'itwo ildb:eYi•ght+toIp-e itionAbe[portfol'io
,(more defensively iat`,this juncture or that inow !is (the
time to .raise; cash..
p provides the .weighted `arithmetic average of [
Tihe ,MSCI �world'ilFldex, which rcoYers ;a'll .of the deV.elo, ed "markets worldwide,lits
[constituents (daily price (moves.
'if h'e link rrnation provided lin {this ifl'eporf [ih'ou''I'd [not he (8'onsiidered m freaomrnend'a'fioh'to Ipurdh'ase :Or sell,any (particular ssecur.ity. 'th'e're lis
no [assurance that 'any (securities (discussed (wiII [remain Lin 'andeo: lt's (portfolio(at'the'time (you irecei,ve [this report (or (th"at isecur:ities IsoId
have [net been (repurchased. 'Lhe rsec:urities(discussed de inat irepresentran accounts entire (portfolio land lin tithe aggre•g"ate;may [represent t
(only'a (small; pertenta•ge [Of an ra22ouOtis [portfolio holdings.
t [should [not Ibeassumed [that any col the [securities'transactions orIholdings idistussed'were (or \Will prove (to Ibe (profitable, for {that Oce(investment'recommendations (or [decisions we make lin ;the fdture ,Wilk( e pr..ofrtab'le :orwill (equal ;the [investment (performance rof f45e
(securities (discussed (herein.
iIFhe lit formation ;contained [herein 'has 'been .obtained ::fr"om ;various sop�.ces (believed to be rel iabl:e, but^we Cahn-el•guarantee .as.ito [itis
.accuracy of K;completeness. ,Any opiri'ions expressed herein are subject'to change, and ,there can l.be no assurance that any :opinions
.contained I:erem will come to pass: :our, past performance is oftourse not a guarantee;of fature perform:ante.
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