HomeMy WebLinkAbout1995-01-19 Minutes•
•
MINUTES OF A POLICE PENSION BOARD MEETING
A meeting of the Police Pension Board was held on January 19,
1995, at 2:30 p.m. in Room 326 of the City Administration
Building, 113 W. Mountain, Fayetteville, Arkansas.
PRESENT: Jerry Friend, Hollis Spencer, Dr. James Mashburn, City
Clerk/Treasurer Traci Paul, and Administrative Services
Director Ben Mayes.
ABSENT: Mayor Fred Hanna and Eldon Roberts
CALL TO ORDER
The meeting was called to order by Hollis Spencer.
MINUTES
Mashburn, seconded
of the October 27,
NEW BUSINESS
by Paul, made a motion to approve the minutes
1994 meeting. The motion passed unanimously.
LONGER INVESTMENTS REPORT
Elaine Longer, Longer Investments, distributed and reviewed
various portfolio documents summarizing 1994.
Longer stated in the Combined Account at the close of 1994,
stocks, as a total percent of the total portfolio, were about
36%. Bonds made up most of the balance. Cash closed the year at
5.2%. All through the year there has been an increase in the
income yield on the portfolio. The annual income has increased
which represents 5.4% income yield.
In answer to a question from Mashburn, Longer explained that the
income yield numbers where for the part of the portfolio that she
has.
Mashburn asked if it was costing around $400,000 a year to fund
the retirees.
Mayes stated yes.
In answer
income on
In answer
positives
to a question from Mayes regarding the base for annual
stocks, Longer stated it was their annual dividend.
to a question from Mashburn, Longer explained the
and negatives of the portfolio for 1994.
•
•
January 19, 1995
Longer stated that during the year taking advantage of rising
rates and continuing to build the income on the portfolio has
allowed the start of 1995 to be much better structured. The cash
flow is the highest that it has been in terms of yield on market
value on the total portfolio. If the stock market gets cheap
relative to where bond interest rates are, the stock side of the
portfolio can be increased. At this time stocks cannot go
anywhere higher on a sustainable basis without interest rates
declining. If interest rates come down, we will earn a 7.5%
coupon plus some price appreciation.
Longer stated many people are expecting the Fed to increase
interest rates again the first part of February. That is finally
already discounted in the market.
In the Longer Investments newsletter there is a copy of the yield
curve. The yield curve is the interest rate available on various
maturity securities. In the past year, every time the Federal
Reserve increased the short term rates, the intermediate term
rates and the long term rates would go up. The increase in
November gave a significant flattening in the yield curve. Since
November, the ten year and thirty year interest rates have
declined. When the yield curve starts to flatten and actually
invert there will be slower economic growth. Also since
November, there has been a sustainable rally of the dollar. That
means inflation expectations are starting to come down. The
combination of the dollar strength and what is happening in the
yield curve means the ten to thirty year rates probably peeked in
the fourth quarter.
Last year, bonds had their most negative year since 1927. This
year on the bond part of the portfolio, we should at least earn
the coupon and have potential for additional return above that.
In 1994, the maximum heat has been taken as far as the bond
market is concerned. The interest rate pressure should subside.
There is still good economic growth so earnings are still strong.
1995 starts out with better valuation and a better interest rate
outlook. It should be a better year.
The structure of the total
yield with about one third
number of maturities.
account at this time is 5.5% dividend
of it invested in stocks. There are a
In the total return on the portfolio, the average annual return
on the equity side is 9%. Fixed income was -5.6%. The bond side
of the portfolio has delivered a 7.7% return. The total average
annual return has been 7.1%. That is net of all fees and
expenses. The S & P, on a price basis, has returned an
annualized 5.9%. The S & P, compounding dividends, has returned
9.2%. The Wilshire 5000 has delivered an average annual return
•
•
•
January 19, 1995
of 6.8%. The total portfolio is off about 5.5% for the year.
In reviewing the portfolio parameters, Longer explained that
nothing much had changed. One thing that has changed is the
price earnings multiple. The realized gains for 1994 were about
$77,000.00.
Longer reviewed and explained the individual stock worksheet.
In comparing 1994 to 1993, Longer stated in December of 1993 the
total portfolio income was $119,746. That represents a 3.7%
yield on market value. The total portfolio income closed in 1994
at $172,408 which is about a 5.4% yield on market value.
In answer to a question from Mayes, Longer stated the numbers are
based on current holdings at the end of the year.
The weighted average maturity on the bonds is still about five
years, the weighted average yield to maturity is 7.87%, and the
weighted average duration is 3.90. Fixed income securities
maturing in three years or less represent 20.7% of the stock
portfolio and 58.1% if the bond portfolio. With 58% of the bond
portfolio maturing within three years we have the flexibility
to go ahead and extend maturities to five or six years on some of
the bonds.
Longer briefly reviewed a list of interest, dividends, and
expenses for 1994.
In reviewing the 1994 expense summary, Longer stated the total
package of all expenses on the entire portfolio is about a 1.5%
expense ratio.
There has been a big improvement in terms of the valuation of the
market in the past year. We start 1995 at a much more moderate
valuation than we have been in since before the Gulf War crisis.
There is a better outlook as far as valuation and interest rates
than last year.
In answer to a question from Mashburn, Longer stated the income
plus the realized gains last year came to about 177,000. This
year we start with income alone at 172,000.
Mashburn commended Longer for her work.
DEAN WITTER INVESTMENT REPORT
Mike Kirkland, Dean Witter, distributed the year end statements.
•
January 19, 1995
Kirkland stated he had purchased CD's maturing in June,
September, December of 1995 and June of 1996 with yields ranging
from 5.95% on six month to 7% on 18 months. In mid 1996,
$200,000 will be maturing. There is still about $24,000 in the
money market fund and $252,000 in certificates of deposit.
In the Balanced Account, TCW's first year was not good. Because
of the Mexican economy, they are going to zero out the positions
in Mexico. TCW made two mistakes in 1994. There was too much
in Mexico and there was a situation that did not work out with
MCI. The rest of the portfolio has a price to earnings ratio of
about 11 and the market is selling at 16 price to earnings ratio.
For the first full year, the portfolio was down about 5.4%.
There were two mistakes and TCW will try to move forward. This
has been the third worst bond market in the last 70 years.
Kirkland stated he would get back in contact with TCW and discuss
the situation further.
In reviewing the Madison Report, Kirkland stated Madison went to
a defensive strategy about one year ago. They have outperformed
as far as comparing with other indices. They look forward to a
better 1995.
At the end of the year, the Madison Account was at $1,446,982.88.
It has recovered $14,000 in the last two weeks. The TCW account
is up about $5,000 since the end of 1995.
In answer to a question from Mayes, Kirkland stated the Madison
Account was flat for the year.
Mashburn expressed concern that the demand on the pension fund is
greater now than in the past.
Friend asked for clarification on Kirkland's reports.
CLINT HUTCHENS REPLACEMENT
Mashburn asked the status on replacing Clint Hutchens.
Spencer stated the retired members have a replacement in mind.
The members will be contacted regarding this replacement and a
letter will be forwarded to the Board. The Board will vote on
the replacement at the next meeting.
January 19, 1995
MAYES - COST BASIS SUMMARY
Mayes distributed a cost basis summary. Dean Witter has $3.4
million and Longer has $3.82 million. The CD's that the City
holds are just to meet the cash flow. That amount is
$6,669,808.00. Cash and investments are 12%, fixed income is
57%, and equities are 31%.
OLD BUSINESS
JERRY SURLES & CLINT HUTCHES - ADDITIONAL. BENEFITS
In answer to a question from Friend regarding Jerry Surles' case,
Mayes stated Surles is not qualified for additional benefits.
City Attorney Jerry Rose concludes that there will not be any
additional time for Surles' computation.
Spencer made a motion that the Board accept the written opinions
of Jerry Rose and ask the City Clerk to forward the opinions to
the involved parties.
Mayes suggested someone verbally contact the involved parties in
addition to a letter.
Spencer stated he would contact Ms. Hutchens.
Friend stated he would contact Jerry Surles.
Mashburn requested that the letters be sent certified.
In answer to a question regarding the amount Ms. Hutchens would
be drawing, Spencer stated she would draw the same amount.
ADJOURNMENT
The meeting adjourned at 3:40 p.m.