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HomeMy WebLinkAbout2003-04-24 MinutesFireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 1 of 10 MINUTES OF A MEETING OF THE FIREMAN'S PENSION AND RELIEF FUND BOARD APRIL 24, 2003 A meeting of the Fayetteville Fire Pension Board was held on April 24, 2003 at 11:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Doss, Reagan, Farrar, Johnson, Wood, Treasurer Sondra Smith, City Attorney Kit Williams, Longer Investments, Attorneys Chuck Stutte and Mark L. Martin. Mayor Dan Coody was absent. Marion Doss calls the meeting to order Approval of the minutes: March 27, 2003 Sondra Smith said she emailed the minutes to the Board. She asked the Board if they had received them. She said she emailed them the same day that as the March meeting. The Board said they did receive them. There was a discussion on if Lucille Morton Day was a widow of a Fireman or a Policeman. The Board said she was the widow of a Policeman. Pete Reagan asked if that was all the changes to the minutes. The Board said yes. Pete Reagan moved to approve the minutes as amended. Ronnie Wood seconded. The motion passed unanimously. Approval of the pension lists. Marion Doss asked, on the pension list it said Teddy O'Neil was added to the April pension list should that not be added to the DROP list. Sondra Smith answered yes. Marion Doss said next we have the pension list for May 2003. Do we have any changes? Sondra Smith said yes. Marion Doss said Larry Freedle has been removed from the Drop List and added to the May Pension List. Sondra Smith answered yes. Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 2 of 10 Marion Doss said he retired effective May 1st, 2003. Sondra Smith said Burl Skelton deceased. I haven't received a death certificate or anything yet but I went ahead and told accounting so they would not send a check out for May. Marion Doss asked is his daughter well aware of that because his son-in-law is a retired fireman also. Sondra Smith said yes, she called because of receiving the April check and wanted to make sure that it was okay if she cashed it. I said yes because he deceased in the month of April. So she's aware that the checks will stop on Mr. Skelton. Pete Reagan moved to approve the pension list. Robert Johnson seconded. The motion carried unanimously. Investment Report: Longer Investments Kim with Longer Investments said Elaine was not here today because she is in San Antonio at an investment conference sponsored by Northern Trust. Tina and I will be delivering your report today. 1st page of report is Portfolio Appraisal as of March 31st. We're showing you this because that's the end of the quarter and wanted you to see where you were then. Your equities as of that time, that's your mutual funds plus your common stocks were at 26.2%, that's at the low end of the asset allocation range in your investment policy which 25 to 50%, along with being at the low end on stocks there are also a few positions that we had partially hedged and those are listed on the second page under the calls. What we've done we had hedged those positions going into the war, keep you on the light side of your equities and since the war started we've seen what the market's done. We've worked you out of those calls by either letting the stock get called or buying back the calls. I'm kind of going to skip over this March report and go to the next report which is the report as of the end of last week, just to show you the changes that we've made since then and that's listed on page 8, is where that report starts and that's as of April 17th. As you can see now your equities are at about 32.9% up from that 26% at the end of March. The reason that we've started to increase the equities a little bit is once the war began, we saw 1,000 point increase in the DOW. It was a very emotional rally which was followed by a 55% pull back. We lost about 550 of those 1,000 points after the war started and at that point things just kind of rested, we've waited for earnings to come out which started about the middle of this month. The first report that came out was on Alcola which is a cyclical company and they reported very good earnings considering we're kind of in a trough in the economy. The stock was up 10% and people started to Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 3 of 10 thinking; well it's not as bad as it could be, and after that other companies like General Electric, some of the financials, of which you own Citigroup, technology stocks like Intel, IBM, and Microsoft, they all have come out with very good earnings. So far in this first quarter earnings season we've seen about 60% of the companies report and it looks like earnings are going to be up about 12%. Once we saw this and saw that we're seeing a little bit of growth, it looks more like the rally we've seen since the first of April is more rally based on fundamentals as apposed to the emotional rally that we saw earlier, and that's where we come in. With earnings looking better we decided to increase equity exposure a little bit and we've done that by buying some individual equities for you. We also sold those Standard & Poore's Depository Receipts which we said was a kind of proxy for stocks without buying the individual ones; we've sold those at $89. The market pulled back a little bit and we bought them back at $86. So we're still using them as a plug but we have reduced those a little bit since the first of April. We can take those off and also the S&P midcap depository receipts which is another proxy for the market. We can take those out without disturbing your equities at all. That's just kind of an update on why we've increased equities by using little bit more buying in individual stocks. The last part of that page, it lists your Real Estate Investment Trust. Right now those are about 4 1/2% of your portfolio. They have a yield of 6.7%, which is a great yield plus being equity, you're getting some growth in it too; it's not just a straight fixed income investment. The next page lists your preferred stocks, preferred debt securities goes into the corporate bonds that you own, and that follows through on the next couple pages. Your corporate bond plus preferred stocks are about 16.7% of your total portfolio. I'm on page 11. Your government bonds are 6% of the portfolio, and then the rest of it is in the Government Agencies which Government Agencies plus your Jeannie Mae which is a mortgage type bond, those are 27% of your portfolio. Your cash and CD's are about 12%. Your total market value as of April 17 was $9.5 million and the over all income yield on the portfolio, that's just the income that you earn on it, is 3.6%. That compares to a five treasury which is yielding 2.85%. So you've got over 30% in growth and you're still earning more than you could earn in a five year treasury. On Page 15. It lists your largest equity holdings, General Dynamics, Pfiser, Chevron, Texaco, Microsoft, and Emerson Electric. All of those are between 1.1% and 1.5% of your total portfolio which is well below your policy restriction of 2.5%, so we're keeping you very diversified. Page 16 through 19 is a report that lists just your fixed income holdings. It shows how much you own in each one, what the S&P and Moody's ratings are on them and any call features. Right now everything that's in the portfolio is investment grade bonds. We've got about a million dollars worth of very short term government agencies that we're targeting to reinvest once we have a better buying opportunity. We're keeping those Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 4 of 10 invested in the agencies because we're getting a higher interest rate than what you get on your cash which is only about .8%. So we'll use up all your cash first before we liquidate these agencies. As we see these stocks start to recovering we'll probably see bonds go down as interest rates go up a little bit and we think we'll have a better buying opportunity later in the bond side of the market for in the bond side of the portfolio. If I'm going to fast on any of these, or if you have any question feel free to stop me. Let's go to page 20 now, that's just a summary of your income and realized gains year-to-date. Your realized losses are about $29,000. Your net income, that's just the income generated on the portfolio through March 31, has been $64,000. We usually try to even that up before the end of the year but this is just where you stood at the end of the quarter. The next page shows your yield on your fixed income securities and on your total portfolio, that 3.6% on total portfolio we've talked about, just your bonds alone are earning 4.9%, which is again compared that five year at 2.85 at ten at 3.95. So your bonds, your weighted average maturity is 8.8 years. But you have a much higher yield than what we can get right now in a ten year treasury. Page 22 is just the distributions that have come out of the account since the inception of the account. Page 23 is the performance summary and through March 31st your total account was down 2.6%. That was equities down about 10 1/2%, and then your bonds offset that being up 5.5%. Your equity performance was lower than the market overall, but that was while we were in a period of restructuring the portfolio getting rid of some of the things that we didn't feel should be kept in there buying new stock. We think that starting with this year you'll see more of a better performance relative to the market because we'll have the opportunity to have the stocks in there that we want in there. Just to give you an update through April 22", your account is up 3.2% since inception with your stocks up 7.8%, so three weeks have made a big difference and year to date your account is up 2.9% and your stocks are up about 1%. Stocks this month only are up 9%, so things change quickly. The next report, that's called the Model Portfolio Report. That shows where your stocks lay in relation to the economic sectors and industries of the S&P 500, about the middle of the page where it says total capital goods, you can see your capital goods are overweighted to the market, you are at about 13% and the market is about 7%. And then on the next page on the non cyclicals, consumers stocks were under weighted on that and that's just because we think we're on the cusp of cyclical economic recovery. So we're over weighted in the cyclical stocks and a little bit underweighted in the consumer noncyclically stocks. Page 26 under the energy portion of it, your still overweighted in energy but we are moving more to a neutral weighting in energy, using that as a source of funds as we buy into other stock. Financial, we're underweighted compared to the market, the market is Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 5 of 10 at about 21%, and we are at 8%. We think there is still a lot of credit risk out there for banks, so we're staying underweighted there. Banks that do own, Citigroup, Sun Trust and MB&A, we think those are just the highest quality in the sector and that's why you're in those. Pharmaceuticals. You're at about an equal rating to the market and the same with technology. We've moved to that neutral rating but we've had some good earnings, like I said before in DOW, Intel, Microsoft, IBM, we're just waiting to see another card turned up before we commit more into the market, we've seen the NASDAQ out perform the DOW this month but we just need to see one more card turned up. Page 29. That just shows you our calculations on how we arrived at your weighted average, S&P rating for equities that you own, so that we're sure we're staying in compliance with your investment policy and right now you're at about A- weighted average equity rating. And then we've put a copy of your investment policy in there just to always keep that in front of you. We use this as our game plan and we just want you to make sure that it still adequately reflects what you want us to do. The main point that Elaine wanted me to share with you is that we're in a period right now where we think that stocks can out perform bonds, but that might only be for a quarter or two that we think that way. There are still a lot of things that need to go on in the market; there are some long term macro- economic factors like the huge consumer debt. There's an over leverage federal government, state government, and local government, and also corporations are over leverage so we need to see a lot of repair in government and personnel balance sheets before we think the market can move forward. It will provide a strong head wind for better market once all of the repair is through. Pete Reagan asked do you think that will happen within the next two or three quarters or do you think that your election cycle coming around a year from November will affect that. Kim with Longer Investments said what Elaine feels is that even though we're seeing some good things in the market right now it's not going to last, or she doesn't think it can last because there are so many other things that are going on in the market, and things like the elections will probably affect that. How Bush's economic package is taken and how much of it is passed how much isn't, there's a lot of things like that that will affect the market. Pete Reagan: I have a question on page 17, on our Enron Bonds, are these the ones we tried to sell and couldn't. Kim: Yes. Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 6 of 10 Reagan: I saw a deal on CNBC the other day that they are changing their name and trying to restructure, what's your position on this, are we going to hold on to these and see what happens? Kim: If we can get bids on them we'll try to sell them. We've been checking, Tina handles our bond trading and she can't find a bond trader anywhere who wants to touch them. When we have an opportunity, if we can get something for them for you we will. Reagan: We've already written those off. Kim: They are written down to zero so all the performance numbers they have that factored in. Doss: Great job. Reagan: Keep up the good work Kim: We will try Thank you very much and Elaine should be here for the next quarterly meeting. How is it going with the reports that we're sending on the two months interim. Is that working out? Reagan. It's working. Kim: I do have one other question for you. This is something that the Accounting Department had asked me about, initially when you set up your account we had put Heather and Marion down as the people that are authorized to do the withdrawals, and with Heather the Accounting Department tries to run Marion down to sign those authorizations, I didn't know if you wanted to have someone else or put Sondra on there. Marion Doss: We probably ought to put Sondra on there. Pete Reagan: Sondra. Kit Williams: Why don't you just make a formal motion to that effect? Pete Reagan: Moved to give Sondra signature authority. Danny Farrar seconded. Motion carried unanimously. Kim: The wire transfers that they do, from their account to it, goes directly from the fire pension account that we manage directly to a checking account in the name of the firemen's pension. So it's not authorizing funds to be paid out to someone else. It just goes directly to your checking account to pay your checks. Marion Doss: I think we just forgot about that when Heather left. Kim: Thank you very much. Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 7 of 10 Pete Reagan: Thank you. Appreciate your time. Kim: We appreciate you too. Sondra Smith: Do you want to go ahead and let the attorneys talk? Kit Williams: 1 didn't see them on the agenda. Sondra Smith: I didn't know they were going to be here. Stutte: We're not on the agenda. I think that at the last meeting it was left that we continue to do whatever it is until you all wanted a report and called us in. What we wanted to do because we're a part of the process that we hurry up to get something to do rather than wait, that I thought we would at least keep them apprised which level we were at in the hurrying up process. We're really in the final stages of lining up the ducks, we're still herding a few of them but we're kind of doing our due diligent before we finally pull the trigger on the type of claim that we are going to do I think I indicated at our last meeting that our preference from all indication was that we would file probably arbitration proceedings. There is a service that's called a security arbitration commentator; it's a recording service that will give you all the awards that are being done in security industry under arbitration, kind of like a case reporter on jury verdicts. I didn't know this until doing some research that there is a wealth of information on reported arbitration decisions. Also you can look up each of the individual arbitrators when it comes time to having to handle an arbitrator they will give us a list. We can strike people or pick one that we would agree to. Reagan: That's collective bargaining, isn't it? Stutte: Mostly we're sitting up so that we're going to be prepared to have that research on tap and ready to go if we do the arbitration of it. The second thing that we're doing is, in a lot of cases and news on various claims whether the brokers, Merrill Lynch on wolves on lawsuits. Time Magazine and ATLA, the association of trial lawyers for plaintiffs. We also have access to lawsuits that have been filed by the plaintiff's lawyers on similar type cases and we're running that search through them to see which actions have been taken, so that we're not overlooking anything that is obvious. A lot of this is just us doing some due diligence to make sure that we are not overlooking a cause of action or an avenue that we would like better than what I think the arbitration is. We've already retained a guy on board, an expert consultant out of Bank of America, Hazards Securities Division in Chicago to review the case for us. We've got a law clerk assigned on doing all the case law in various areas, and we're about to hire an intern to do nothing but assimilate the information. I would expect that prior to the next meeting we want to be able to have a statement of claim in arbitration commission form ready to go. That's kind of where I'm coming from in terms of preparation, and the only thing would keep me from making that recommendation is this, in this research that we are doing on other avenues if some thing comes to change our mind, I might suggest that we have a look at Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 8 of 10 some other avenue. We're looking to have a claim ready for submission and approval to you to decide this is okay, this is what we want to do and why. So I think we're getting close. Kit Williams: Does anybody have any questions for him? Pete Reagan: I feel good about it. Marion Doss: I think we appreciate you coming and just letting us know what's going on. I know I feel better just knowing where it's at. We'll probably have someone asking us, some of our members. Stutte: I think at this stage it's important because we're going to be making and having to make some real decision strategically. I want you to know our thought process as we are gathering the information, so that when we finally presume to court you know where we're at and where we're coming from in terms of final recommendations to you so that you can make some kind of an informed decision. I think you ought to look proceeding in a federal court, possibly to a jury trial. Let's hash it out and make informed decisions to go all along the way. After a case gets submitted I think we're going to hit doldrums whether it's a civil lawsuit or whether its arbitration. We get it submitted and we're going to be waiting for them to do a response. It will at least be 30 days by the time we get something, then there will be some discovery process. There will be a lot not happening or not to report on other than you will wait to get somewhere on the case. Until we are in the middle of doldrums I think you all deserve to know where we are at and what we're thinking and we certainly do not mind coming. Pete Reagan: Do you plan on being at the next meeting? Stutte: Yes. Pete Reagan: Sondra if you can, can we get them on the first item on the agenda? Kit Williams: They're old business. Sondra Smith: Yes. Stutte: That's all we have. Thank you very much. Pete Reagan: Appreciate it. Stutte: Do you know the date of your next meeting? Pete Reagan: The last Thursday of the month it will be May the 29th at 11:00 AM. Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 9 of 10 Old Business: Election of officers: Sondra Smith said all the letters for selection of Board members that were nominated to fill the expiring terms have been mailed. The Drop Pension list was sent to the Fire Station for distribution. There was a discussion about some of the Drop retirees not receiving their letter. Pete Reagan said Sondra and I have talked about this and when we do this for Drop participations we will get their home addresses and mail them to their home address. Pete Reagan said Sondra brought up a point, in the State Statues it says the election of board members shall be held in May I think what we should do is send out one more letter and tell the Pensioners that the ballots are due by May 28th and that way we can have them for our May 29th meeting. Sondra Smith said that would be fine. She said she could also point out if we send out new letters that they need to select three nominees. Kit Williams said why don't we say May 15th so that we don't receive some after the May 29th meeting. A discussion followed on the date that the form should be received by the City Clerk, it was decided that they should be postmarked by May 15th and that all previous forms that were received should be destroyed. Pete Regan said to tell those that have already voted that there was a misunderstanding and those ballots have been destroyed and please send another one. Sondra Smith said we have the term end dates as April 30th, to me it does not make sense to have the term end dates of April 30th when the State Status says the elections shall be in May. I would suggest the terms end May 31st and the newly elected Board members start on June 1. There was a discussion on the term end dates. Pete Reagan moved to change the term end date to May 31st. Ronnie Wood seconded. Motion carried unanimously. New Business: Burl Skelton (Deceased): Already discussed. Fireman's Pension and Relief Fund Board Meeting April 24, 2003 Page 10 of 10 Kelly Skelton Schooling: Sondra Smith said Kelly Skelton has asked if she attends a massage therapy school if she will still be able to draw her portion of her dad's retirement check. State Statues says they have to be enrolled in a school of higher education. I spoke with Kit about this and to us that means a college, junior college, community college. Marion Doss said I think we have to go with what the State Statues says, if we don't I think we could be in trouble. That's not anything against Kelly or anyone else. Sondra Smith said we have not received from Kelly her form showing that she is enrolled; we received her form showing that she is pre -registered, but it does not say she has enrolled. I spoke to her and told her that we needed the form showing that she is enrolled. I received a phone call from Kelly's mother saying that they could not provide the registration form until they paid the rest of the tuition. Pete Reagan moved that the City Clerk contact the NW Arkansas Community College and inquire if Kelly is enrolled there and also send a letter to Kelly asking for proof of registration. If she is not enrolled in a school of higher education the City Clerk will notify her that her benefit will cease. Danny Farrar seconded. The motion passed unanimously. A discussion followed on whether the school would give us that information or not. Marion Doss said is Kelly over the age of 18 and if so we can send her a letter directly instead of dealing with her mother. Robert Johnson moved to deny Kelly Skelton's request to attend the White River School of Massage. Danny Farrar seconded. The motion carried unanimously. Pete Reagan asked the City Clerk to notify Kelly Skelton that according to the attorney of the fire pension board and the members of the board that we have concluded that a school of massage is not a school of higher education. Larry Freedle from DROP to retired: Approved when pension list was approved. Budget Reports: A copy of the budget reports was provided to the board. Pete Regan said the parking permits are up and need to be renewed. Sondra Smith said she will let them know who is on the board and that they need parking permits. Meeting adjourned 12:05 PM.