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2014-01-16 - Agendas - Final
Meeting Date Adjourn Time Attendees: Fayetteville Policeman's Pension and Relief Fund wyl '1" ��ylitiirn, fLd��� l�nbe-tJ. V E/a4� � kIM4 cCoP- Subject: M I ruA.te I %� t Motion To: 9,1lila rt� /J Motion By: D.�en c� Seconded: rs7.ui�, Jerry Friend ✓ John Brown ✓ Frank Johnson ✓ Mayor Jordan ✓ Eldon Roberts Sondra Smith v Melvin Stanley M Cry Subject: M I ruA.te I %� t Motion To: 9,1lila rt� /J Motion By: D.�en c� Seconded: rs7.ui�, ,Jerry Friend ✓ John Brown Frank Johnson ✓ Mayor Jordan ✓ Eldon Roberts Sondra Smith v Melvin Stanley M Cry 'u} .: .- • A.- ��L;},l'g=.� �..I,LN �T fry C4411 Subject: f 16 Motion To: 9,1lila rt� /J Motion By: -F,3 Seconded: J Jerry Friend e/ John Brown Frank Johnson ✓ Mayor Jordan ✓ Eldon Roberts Sondra Smith v Melvin Stanley M Cry Subject: f 16 Motion To: J Motion By: 9 Seconded: ,Jerry Friend John Brown Frank Johnson ✓ Mayor Jordan Eldon Roberts Sondra Smith ! Melvin StanleyS Lioneld Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Position[ Policemen's Pension and Relief Fund Board of Trustees Meeting Agenda January 16, 2014 Jerry Friend John Brown Melvin Stanley Frank Johnson Retired Position 2 Retired Position 3 Retired Position 4 Retired Position 5 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees will be held on January 16, 2014 at 3:00 PM in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Roll Call Approval of the Minutes: Approval of the October 17, 2013 meeting minutes Pension List Changes:. None Approval of the Pension List: • Approval of the February, March and April 2014 pension lists Unfinished Business: • Fayetteville District Court fines disbursement calculation New Business: • Revenue & expense report: 4th Quarter — December 31, 2013 report • 2013 Local Pension Fund Report to the City Council • Pension Review Board 2014 estimated premium tax allocation letter Longer Investments: • Longer Investments monthly report • Longer Investments 4th Quarter report December 31, 2013 • The Longer View January 9, 2014 Informational: 9 2014 Meeting schedule Lioneld Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Position 1 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 1 of 13 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held on October 17, 2013 at 3:00 PM in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Eldon Roberts called the meeting to order. PRESENT: Frank Johnson, Eldon Roberts, Jerry Friend, John Brown, Kit Williams, City Attorney, Sondra Smith, City Clerk, Dee McCoy, City Clerk's office, Trish Leach, City Accounting Office, Elaine Longer and Kim Cooper, Longer Investments. ABSENT: Mayor Jordan, Melvin Stanley Approval of the Minutes: Approval of the July 18, 2013 meeting minutes Frank Johnson moved to approve the April 18, 2013 meeting minutes. John Brown seconded the motion. The minutes were approved in a unanimous vote. Pension List Changes: None Eldon Roberts: That will be for the next three months: November, December, and January? Sondra Smith: Yes sir. Eldon Roberts: Okay. No changes as of now. That always can change. Sondra Smith: If that changes, we will put a revised list in the next agenda packet. Approval of the Pension List: Approval of the November and December, 2013 and January, 2014 pension lists Jerry Friend Retired Position 2 John Brown Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held on October 17, 2013 at 3:00 PM in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Eldon Roberts called the meeting to order. PRESENT: Frank Johnson, Eldon Roberts, Jerry Friend, John Brown, Kit Williams, City Attorney, Sondra Smith, City Clerk, Dee McCoy, City Clerk's office, Trish Leach, City Accounting Office, Elaine Longer and Kim Cooper, Longer Investments. ABSENT: Mayor Jordan, Melvin Stanley Approval of the Minutes: Approval of the July 18, 2013 meeting minutes Frank Johnson moved to approve the April 18, 2013 meeting minutes. John Brown seconded the motion. The minutes were approved in a unanimous vote. Pension List Changes: None Eldon Roberts: That will be for the next three months: November, December, and January? Sondra Smith: Yes sir. Eldon Roberts: Okay. No changes as of now. That always can change. Sondra Smith: If that changes, we will put a revised list in the next agenda packet. Approval of the Pension List: Approval of the November and December, 2013 and January, 2014 pension lists Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 2 of 13 Jerry Friend moved to approve the November and December, 2013 and January, 2014 pension lists. Frank Johnson seconded the motion. The motion passed with a unanimous vote. Unfinished Business: None New Business: Revenue and Expense Report: 3`d Quarter -September 30, 2013 report Eldon Roberts: Accounting does this for us every time. They keep running totals. It's a handy document. You can find where we were four, five years ago versus where we are today. It covers every facet of revenue, expenditures, and market adjustment on our equities and portfolio. Frank Johnson: Sondra I have a question. On the 10% fines and forfeitures, is this a percentage off of a line item in the city? Kit Williams, City Attorney: Percent of fines and costs actually received. Frank Johnson: Any fines and forfeitures, anything that meets the state statutory requirement for what we get 10% is in one line item in the city's budget for revenue, or is it dispersed? Sondra Smith: In the City of Fayetteville's budget? Frank Johnson: Yes. Kit Williams: It all comes here, but I'm not sure if they have one line item or not. I would think it would, but I can't guarantee it. Sondra Smith: I remember that statute. Didn't it say it went to the court and the court dispersed it accordingly? I don't know for sure, we would have to talk to accounting. You would like to know how the 10% fines come to the city. Frank Johnson: Yes, if it's just 10% off of a line item that's in the city's budget, and does the city's budget accurately reflect any other revenue that's coming in that would fit the statute for what we would get 10% from. Sondra Smith: The pension funds are handled totally different than any other funds here at the city. I would assume that would come directly into the pension fund and not come into the city's general fund or anything like that. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 3 of 13 Eldon Roberts: That has stayed relatively consistent. I don't see any big jumps in it anywhere. I think it's the fine and forfeitures that's collected, not what's levied. 2012 Annual Actuarial Valuation Sondra Smith: Pages nine and ten are the pages that you probable want to look at because they show your unfunded liability. Eldon Roberts: Page ten, the last three columns there in the print out and the very last column has the funded percent. The last time one of these was done was for the end of 2011, we were 36.7% unfunded liability and now we are at 34%, we are going the wrong direction. You can see the numbers of the total unfunded liability in the first column of the three last ones. $13,467,000 in December 2011 and this time it is $13,684,739. Sondra Smith: The asterisk beside a year, those are the years that something changed, like benefits increase or an assumption changed or something. Kit Williams: The latest one was not you all. That was when the big board up there decided to change the amount. They were assuming 6% or 7%, then they decided another higher percent on the turn, right before the crash. Sondra Smith: If you'll look back in 1995 and 1997, you were 100% funded in 1997. The next year there was some time of large benefit increase given and you went from 102% to 68% funded in one year's time. This is the report that we will talk about a lot, the unfunded liability and the percent funded. Kit Williams: Keep in mind that this has been a good year for stocks. The final figure, if it maintains where it is now, will be significantly higher than it was in 2012 from the stocks coming in. Now, it's not enough to pay all your expenses, but it's been a good year for the stock market. I would imagine that you all would see some pretty good gains to the fund from that. Sondra Smith: Trish, you know the 10% fine that comes in for the Policemen's Pension fund, can you explain where that comes in? Does it come into the general fund and then go out or does it come directly into the pension fund? Trish Leach: I'm going to be honest and let you know I don't know much about that. I would be glad to find out. I believe it comes from the court. Kit Williams: We will try to get that answer to you for your next meeting Trish Leach: I'll get something together and send it to Sondra. Sondra Smith: I'll e-mail it out and we can discuss it again. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 4 of 13 Frank Johnson: If the assumption is that the district court is the only process that collects for fines or who else, like the parking people or a fine associated with not being in compliance with the folks in planning, I would just like to reconcile that. Sondra Smith: We might be able to get a copy of how they calculate that. Eldon Roberts: These parking enforcement officers, if they give someone a ticket for double parked or whatever, and the person just pays it, where do they pay it? Do they go to court? If they don't think they are guilty of this ticket they get, where do they go? Sondra Smith: If they don't think they are guilty of the ticket, I think they go to district court over it. If it's some type of small fine and they aren't going to go to court and don't want to mess with it, they can pay traffic tickets at the police department. Some little fines can come in downstairs, like parking, none of that would come into the pension fund, none of that would be considered because that's parking fines to pay for parking lots and other things. Frank Johnson: The only fines that a city collects, where we met the elements of the statute are fines collected by the court? Kit Williams: I would have to look at that. I think that's probably correct. I want to know for sure before I give you an answer. Jerry Friend: If you pay at the police department, they include court costs and that's what divided up between us and the library. Sondra Smith: State statute is pretty defining on where those fines come from. Eldon Roberts: That's where we get our portion, out of the court costs. Jerry Friend: When you pay the bond on a ticket to the police department, you pay court cost. Eldon Roberts: Right, then it's dived out between the library and us. Frank Johnson: I understand that as a process, but when I read the statute, I don't see that it has to be part of a court's collection, just a city. Kit Williams: They do the collection then turn it over to us. The judge levies the fine, or whatever it is, and then it's paid either through the police department or the court system and then we get paid. Eldon Roberts: What would you think if someone came in and paid a ticket that a parking enforcement officer gave them down on Dickson Street? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 5 of 13 Kit Williams: I think parking enforcement is not administered by the police department, instead parking enforcement. It might not be under that same statute. Jerry Friend: It has no court cost. Frank Johnson: It's still a fine though. Kit Williams: What can happen though is there can be a warrant fee on it if they don't pay it in time. Eldon Roberts: If you'll look into that and let us know how it all works. Budget discussion regarding communications, consulting, & NCPERS Conference Frank Johnson: This was just a conversation I had with Sondra about how we pay our bills and if we wanted to do a mailer, if we wanted to attend a conference or if we wanted to pay for some consulting outside of what we get from Elaine, should we have our own budget for it? Sondra Smith: You may not be aware, but you do have a budget. Every year I do that budget. There's not very much on the budget, mainly your actuary expense and your pension expense. We might buy a roll of stamps once a year. We send it down to our budget department. I have already done the budget for the Police Pension for 2014. We have to have that done in July before the coming year. Anything that needs to be added can be added by a motion of the board. The Firemen's Pension at one point in time was sending one person to the NCPERS conference. They aren't doing that anymore because they can't afford to do that. That one conference used to cost anywhere between $3,000 to 4,000 to send one person. Frank just asked me about a budget. I told him we do have a budget but it's very limited what we have in the budget. Frank Johnson: As long as we have the right as a board to adjust our budget. Kit Williams: You can adjust your budget. The City Council adjusts their budget throughout the year if something happens and they need to change it or add something. As long as you have reserves, which you have, then you can adjust the budget and amend it. Eldon Roberts: If this board votes in a majority, if it's a good faith effort in what we are trying to pursue, I think we can. It's like doing a special actuarial evaluation. If we vote to spend the $4,000 to do it, and it carries, then I guess we can. Frank Johnson: Just to get compensation for people, such as you, going back and forth to Little Rock and things like that. Eldon Roberts: I get to ride down there and back for free. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 6 of 13 Longer Investments: Longer View: A copy was given to the Board Longer Investments letter dated July 31, 2013 Longer Investments monthly report Elaine Longer: We wrote the newsletter on what's going on in the bond market, because if you remember the past several times I've been here, we've been warning about the price sensitivity of bonds in relation to an increase in interest rates. We've kept our maturity short, but you have high coupon treasury bonds in your portfolio that we can't replace, so it's not as if we can trade those, even though you had a good price appreciation as interest rates dropped. We can't sell out of those bonds because we can't replace that 4% coupon. The price decline has more than offset the income return on bonds this year. That's why bond returns are negative, year to date. It doesn't mean that your bonds are less than investment quality or that they are not a good portfolio holding, because that's a 4 '/4% coupon on treasuries that we can't replace. It's a fluctuation in the market price of the bond in response to what's going on in the interest rate market. This has happened across the entire fixed income spectrum, whether you're holding treasury bonds, agency bonds, corporate bonds or junk bonds. Bond prices are negative this year, more so than the coupon return. Total return on bonds is negative. That's the first time since 1994. We're finally here, where we thought we would be, and the good news is that back in 2011 we amended the investment policy so that we could incorporate other asset classes on the income side of the portfolio, such as your utility fund, high dividend bond fund, and master limited partnership fund so that we could achieve the income objective without necessarily having to have as much exposure to the bond market. Those assets have delivered positive return even while bonds have delivered negative returns. You still own bonds and they still did have a negative return year to date, but because of the fact that we've differentiated away from bonds in the income side of the portfolio the hit to total return was not as great as it could've been if you had more bonds. That's what the newsletter was about. We've had questions this year from clients like, why do I even own bonds? This is a good question. The last time we had this question asked this much was back in 1999. That was the year that tech stocks were going crazy. The NASDAQ index, which was the tech heavy index, was up 80% that year. The S&P was up about 25% and bonds were up 2%. Bonds were a four letter word back then, nobody wanted bonds. The reason you own bonds is because, in the next three years, the stock market went into a three year downturn. That was the first time we had a three year back to back negative return in stocks since 1939 to 1942. During that period of time, bonds returned anywhere from 25% to 36% depending on the maturity while stocks gave up 42% to 67% depending on whether we are looking at S&P or NASDAQ. Within a portfolio structure, bonds support the income needed to fund distributions. They are also the stabilizing factor in a negative stock market environment. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 7 of 13 In 1999 your stock return was only 5.7%. A lot of times, our disciplines are conservative. When the party has come out and something is taken off and it outruns our evaluation parameters, we can't go there. In 1999, your stock return was 5.7%, bonds were .3%, and other income assets were down 3.5%. Your total return in 1999 was 3.3%, even with all the party hats out and the NASDAQ up 80% and the S&P up 21%. The return that you achieved in a conservative profile was 3.3%. Over the next three years, while the markets lost between 45% and 67%, the total down draft in your portfolio was only about 4%. That's what really makes the difference in your funding requirements also, because when you lose money it's real hard to make it back. If you go down by 20%, then you've got to make 25% on what you have left to get back to break even. If you go down by 25%, you've got to make 33% on what you have left to get back to break even. That's why, if you look at the stabilization in the negative markets, you can see what bonds did during 2001 and 2002. They really stabilized the account and the other income assets did so that your net decline, in a really terrible bear market, was really minimal. Also, looking in 2008, stocks were down 40%, bonds were actually positive by 6 %2%, so your total hit to your total performance was minus 19%, which was made up fairly quickly in the next year and half. In a year like this, where you have stock performing, and bonds are flat to negative, we are getting that question. It harkens back to where we've been before where stocks have had a pretty good performance and bonds have a negative return in the 1990's. The fact of the matter is they're non -correlated assets. What that means is that the factors that give you strong bond returns are typically factors that give you not so strong stock returns. The factors that give you strong stock returns, higher economic growth, more monetary policy freedom can also give you negative bond returns. It's the asset diversification that stabilizes the performance over time. That's why we wrote the newsletter to address this because it's good to remember what part bonds play in the portfolio. If you look at the first pages of the portfolio, you'll see that equities make up about 51% of the total. The yield on your cost, which is just the dividend income yield, is 3.7%. That compares to, even though the treasury yield has increased dramatically, the ten year treasury is still yielding about 2.6%. On your equity side of the portfolio, you have and income yield that exceeds the ten year treasury by about 120 basis points. The other income category that we incorporated to diversify somewhat away from bonds but still be able to achieve the income objective of the portfolio, you can see that those assets make up about 12.3% of portfolio and yield on those assets is 5.8%. That's more than double the yield that we could get in the ten year treasury. In the meantime, the appreciation in those assets has been about 10%. These are Blackrock Bond America Bond Trust, it's a bond trust that has the Build America Bonds in it. It has a little bit of leverage, so you have a higher yield than off a straight bond. Then you see the Guggenheim Multi -Asset fund. This fund is a highly diversified fund that owns high dividend paying stocks, utility stocks, pharmaceutical, and energy. They also own a little bit of real estate investment trust, and a little bit of bonds. It's a highly diversified portfolio. That represents about 7% of the total portfolio and yields 6.21% on your cost. If you look at the utility fund, we paid 34 for the fund and it's trading for 37 3/8. We've made about 10% appreciation while we are earning a 4.3% dividend yield. That is only 4.1% of portfolio. The thing about incorporating these assets Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 8 of 13 into the portfolio, we want them there to offset some of the price risks that we see in bond. We have to be cognizant that in a 2008 event, these will act more like stocks than bonds. It's a little bit of a balancing act. You want to use these assets to boost income and to go for conservative income plus growth. At the same time, you can't get overly exuberant about them because in a market crisis they will act more like stocks than bonds. We considered them outside the equity class but because of the fact that they do own stocks, we do ask for the waiver of the 50% plus 10% on equity side of the portfolio that we have to have to be at that kind of equity exposure. We're looking at them as income equivalent. From a technical standpoint, we think it's prudent to get the approval at the pension board. Sondra Smith moved to approve the equity overage. Frank Johnson seconded the motion. The motion passed with a unanimous vote. Elaine Longer: If you go to the next page, you'll see that we also have an investment grade bond fund. The reason we buy a corporate bond fund as opposed to a number of corporate bonds, is because this is a highly diversified bond fund. You can get a much better diversification than what we can get trying to invest 14% of the portfolio in numerous different bond issues. You can see that it has appreciated in price from $108 to $113.50. It yields 4.06% and it's a bond fund that just holds investment grade bonds. Next, you'll see the government bonds. You can see the treasuries make up about 14.6% of total portfolio. Your yield on cost is 4.05%. If you look at the price for instance, the 5.125% treasury, we paid par for, or 100 cents on the dollar, it's got an appreciation of 12% because it's currently priced at $112.06. To give you an example of what's happened in terms of price function this year, on December 31, that bond was priced at $115.62. You can see that even though you have a 12% on realized gain in the bond and you own a 5.125% coupon that we can't replace, the market price has come down about 3.6% during the year because of the rising interest rates. There's really nothing to be done with a bond like that. You can't sell a 5.125% coupon, I can't come close to replacing it. This is just a market fluctuation that does impact performance but it doesn't really call for anything to be done about it. If you look at the next bond, $800,000 at the 4%, we paid $103.76. It closed the year at $117.50 and is trading at $112.77. There we've had almost a 5% price decline netted against approximately 3% in income return, year to date. That's a negative return of 2%. You look at the market value versus the par value or what we paid for it. We paid $980,000 for these bonds and they are trading at $1,077,000 and producing a yield that's over 4 % which we can't even begin to touch even if we went into 30 year bonds. We can't do that, that's too risky That's good to see that because you can understand what price fluctuation means in terms of total return but how it can impact the portfolio in a negative way in the short term. All it is really is taking away some of the price appreciation that has happened since those bonds were purchased because interest rates dropped. The next one is the Federal Farm Credit, 6.127%. You can see that it's trading at $112, we paid about par for it. It closed the year at $116.91, about a 4% to 4.50% price decline while the income has been about 4.50% year to date. We still have a little bit of the Central Fund of Canada. It's a gold fund that represents less than 1% total Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 9 of 13 portfolio value. Cash is about $61,000 or 0.8%. Then we have the Alerian Master Limited Partnership, this is a limited partnership of MLP's in the energy sector. It is a high income asset and it yields 6.13%. It's an energy and inflation beneficiary, 2.6% of total portfolio because we can't overweight an asset like this. In a 2008 type crisis, this performs more like a stock than bonds. That's why, six years ago, we could get bond market return of 6% fairly easily, so we were in agencies with five year maturity and two year costs we could get income easily without having to venture outside of the treasuries and the agency markets. What's happened now, you really have to go in a number of different directions to get the income into the portfolio in a prudent way without much exposure to the price risk that's in bonds at this point in the market. The total income on the portfolio is 4.16%, which exceeds the ten year treasury yield by 50%. That includes a 60% growth component in the portfolio with your stocks. The reason it's so high is because we've stuck to a conservative posture in your equity side of the portfolio where you can see that you've got high income paying stocks, high dividends, nearly 4%. Even on your growth side of your portfolio, you're generating more than bond income. The ending portfolio value of September 30 was about $7.358 million. Since September, we've had some interesting developments in the market between the Federal Reserve and the high wire act in Washington on will they default, will they not default. The market for the month to date is up about 2% through today. Everything has appreciated approximately 2% from where we closed on September 30`I'. The next page shows the realized gains year to date, about $117,000 net income, which is just dividends and interest income that have come in of $144,000. The next page shows the bond portfolio. We break it down to look at the average yield to maturity and the average maturity. What we've been looking for is a profile where we are holding high coupon bonds. The average yield to maturity is 4.4%, which greatly exceeds the yield on the thirty year treasury but your average maturity is only 4.1 years. We have a very high coupon bond on a very modest yield to maturity. That means you have good income with very little duration risk. The price volatility of bonds in response to a change in interest rates is called duration. We look to minimize the duration risk in a market environment like this. You can't eliminate exposure totally because you have to have bonds in the portfolio. If you look at the next table, you'll see that 30% of your bonds mature within three years. What this means is that is as good as cash to us, we don't have to hold a bond to maturity. If we see that interest rates spike and we want to roll and capture those higher interest rates, we can sell anything that's cash tomorrow to us to buy another bond. At this point in time, there's really nothing attractive enough out there for us to let go of a 4 or 4.25, 5 1/8 coupon to extend maturities into something that pays less income. It's there if we want to do it, but the markets aren't where that is an attractive trade just yet. The next report shows the performance inception to date by asset class. Year to date through September, stocks were up 8.1%, bonds down 3.5%, the other income assets, 11.7% but they only make up 12% of portfolio. The total return in 2.5% year to date because bonds are muting some of the equity return. However, if you look at the long term compounded returns, you can Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 10 of 13 see that equities have returned 5.4% compound annual. Fixed income has returned 5.6%, other income assets 8.8% so that the total compounded return, net of all expenses, is still at 6% compound annual. The next column over shows the actuary return assumptions behind the portfolio for the year's inception to date. When we started managing it was 6%, and back in 2008 to 2009 they popped up the actuary rate of return to 7%. Following the financial crisis, they came down to a 5% actuary rate of return which is where it is right now. The compounded actuary rate of return inception to date has been 5.91% and you've achieved 6% compound annual. Within your investment policy, the policy defines the return objective as to meet the actuary rate of return, and it has net of all expenses. The next page shows contributions and distributions year to date. The distributions have been about $524,000 year to date. The next page shows the beginning value back in 1990 which was $1.35 million. The additional contributions that have come in and transfer of securities as you consolidated into one portfolio. The total distributions inception to date have been just over $10 million. Then you have the components of return which are net income, realized gains, and unrealized gains so that your ending value is $7.358 million. Your net investment return has been $8.215 million. You can see that the $10 million in distributions has exceeded the net investment return of $8.215 million by about $1.8 million. That shows the weight of the benefits on the capital because the actuary rate of return assumption has been achieved. The next report is the investment policy. We like to review it. Basically every account that we manage has a policy that guides the investment of that portfolio. In that, we define the return object, the fiduciary responsibility or the risk level, in your case this also includes the prudent investor rule and the investment objective. The investment objective in the policy that guides what we do when we're investing the portfolio seeks to provide for growth and income within a balanced portfolio structure consistent with prudent levels of risk. Because this is a public pension fund, your fiduciaries and we're fiduciaries. It has to abide by the prudent expert rule for prudent levels of risk. To achieve the long term actuary return objective of 5% compound annual return over a long term time period, it's actually achieved 6% over that time period. Then, it defines the investments that are acceptable for the plan, and the ranges that we can operate within. Within the equity category in 35% to 50%, fixed income 25% to 65%, other and we are up from 0% to 10%, and cash can be anywhere from 0 to 25%. We are within all of those ranges. International securities are limited to 50% of the equity portfolio costs. At one point in time we had about 15% of the equity exposure invested in the international, but we left that a couple of years ago because the domestic outlook was so much better than the international. We still haven't really gone back into the international markets. The U.S. markets have outperformed international this year and have outperformed last year. We do have the authorization to use options in exchange traded funds for hedging purposes but not for gambling purposes. There's a difference. When you use hedging, that's cover call, that's a hedge on an underlying security. That's different from what's called naked options where you're just buying calls or puts that have no relationship to an underlying hedge. That's why I says that's gambling. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 11 of 13 Eldon Roberts: If there was anything you wanted us to change, you would bring it to our attention, right? Elaine Longer: We did change this recently. I think it gives us plenty of flexibility within the equity ranges to be very conservative. When we feel it's okay to be at 50% then we are at 50%. In this market environment our equity return is trailing the S&P 500 because we are invested in those conservative stocks. It's not unlike what happened in 1999. I kept telling Kim I can hear the party, I just can't get there. We have disciplines we follow and we invest according to our valuation models and there are certain market environments where our valuation models won't take us to where the party is. It's very frustrating, but over time it does tend to stabilize performance in the portfolio and achieve the growth and income needs for clients over a long time period. Jerry Friend: I have a question about sometime back, the Feds mentioned they were going to stop printing money. If they really stopped, how long of a term chunk would it be? Elaine Longer: This was the show of 2013, to taper or not to taper. The Feds surprised everybody and said timber with no taper. They've been hinting in May of taper. That's what caused the bond markets to go into total chaos. For bond interest rates to go from 1.6% on that ten year to 3% it started killing the housing recovery and the refinancing activity. Economic growth started to taper back, in particular, the just emerging housing recovery. By the time we got into August, the economic numbers were looking a little bit weaker. Retail growth was falling off the cliff. Then we're facing the government impasse that was eminent after the Fed met in September. They came out and surprised the world with no taper. With that, interest rates went back down. They haven't fully recovered the rise, but the ten year had tagged 3% and it's now trading at about 2.60%. It's nowhere near the 1.60% before they started talking taper. It was a pretty dramatic pull back off of that 3% level. What the Fed has done is drawn a line in the sand at 3% and said we will not take a ten year about 3%. The thirty year mortgage keys off the ten year treasury, that's why the ten year is so important. The stock market measured by the DOW hit its high in May. Since May, we came down 1,000 points, we went back up to the peak, and then we came off about 1,000 points and are now back up at the peak. We really haven't gone anywhere since May. Jerry Friend: How long can they print before we start using a wheelbarrow to go buy a pair of shoes? Elaine Longer: That's the big question. Everyone is watching. Our Federal Reserve has what's called a dual mandate. They have a mandate for price inflation protection, price stability, but also, maximum employment. The Fed is walking a tight wire because their only responsibility is not just inflation. The ECB, European Central Bank, has a single mandate, it is inflation, price stabilization. Our Fed has a dual mandate. So they are walking this road trying to accommodate both price stability and maximizing employment. What they've been saying is that their decision to taper will be data dependent, not calendar dependent. What confused everybody back in May is that they jumped ship. There wasn't anything in the data that made it look like they should be Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 12 of 13 tapering. It was total chaos. In September, he went back to data dependent and the economy is still soft and are facing this fiscal uncertainty and unemployment is still too high. Here we are again, data dependent. Now you have in the last twenty-four hours a resolution of the fiscal uncertainty. We're just basically kicking the can down the road again like we did in 2011. We face it all again. Back in July 2011, we couldn't arrive at a debt agreement to raise the debt ceiling. Then they punted to November and commissioned the super committee that was charged with finding the answer. With that, they attached sequestration cuts that would be so onerous that surely the committee wouldn't fail. The committee failed. That's how we moved into 2012 with sequestration. Now you've got a second layer of sequester cuts. They were supposed to hit the first of the year and there's no telling how this drama will unfold as we move toward January. We aren't out of it yet. The basic thing is it's the fiscal imbalance that's creating the uncertainty and holding the economy back because the Fed is doing all they can do in their power by buying $85 billion a month in treasury securities with money they create out of thin air. The problem is, while they are doing that the velocity of money has just gone down. They are putting the money into the banking systems but it's not going out the door. Nothing has happened to money supply, there's no jobs created, there's no increase in anybody's standard of living. The velocity of money is falling off as the Fed is creating all these reserves in the banking system because loan demand is still not there to move it through the economy. The Fed can only do so much. Frank Johnson: Thank you Elaine, very informative. Informational: 2014 Meeting schedule: A copy was given to the Board Sondra Smith: There was one thing on the agenda I wanted to point out. We received a letter from Elaine Longer that they are wanting to put in some better security. When something is e- mailed to us, there has to be a password to open that file so that you don't have to worry about someone else getting into your files that shouldn't be into the files. The budget for 2014, I budgeted $100 for office supplies. That's for postage. Audit expense is for your actuarial report. The only other thing we budget for is $60 for bank service charges. Eldon Roberts: Do we have to pay for those actuarial evaluations or only if we ask for a special one? Sondra Smith: We have to pay for one a year, the way I understand it. I will double check on that and see. Eldon Roberts: I thought they did that for us. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 17, 2013 Page 13 of 13 Sondra Smith: I will double check. If we have a special one, the other things we budgeted for in the past was when we've done a cash flow or an actuary study. We paid for an attorney in the TIFF district. Eldon Roberts: How much was that? Sondra Smith: I don't have that here but I can look it up if you want me too. Eldon Roberts: No, that's okay. I thought you had it right there in front of you. I remember when we did that. It seems like it was the schools and the maybe the fire and police pension plans that needed someone to look after their interest in that TIFF. That was a program where they were going to build that big high hotel or motel and they froze a lot of property tax. We were going to lose some percentage of our personal property tax on that. I don't think we lost any did we? The police, fire and school retained theirs. That's why Kit recommend we get legal counsel and we hired Jim Rose to watch after our interest in that little hearing. We fared as well as we could out of that. Frank Johnson moved to adjourn the meeting. Adjournment: 4:30 p.m. POLICE PENSION FUND 2 2 2 Febnlaly 2014 68009400 64009400 Month 2 Regular Mo sssso4 sa1s05 2 EMP# NAME Beuem YTD Reg Benefit Suppl. YTD Suppl. 154 ALLEN, CHARLES $ 2,584.64 $ 5,169.28 $ 50.00 $ 100.00 206 BAYLES, BOBBI J $ 1,687.41 $ 3,174.82 $ 50.00 $ 100.00 216 BLACK, MILDRED $ 1,125.64 $ 2,251.28 $ 00.00 $ 100.00 147 BRADLEY, GERALD $ 4,820.09 $ 9,640.18 $ 60.00 $ 100.00 139 BRADLEY, RANDALL $ 2,860.17 $ 5,720.34 $ 00.00 $ 100.00 167 BROWN, JOHN $ 4,362.01 $ 8,724.02 $ 50-00 $ 100.00 157 CARROLL,RONALD L $ 2,106.04 $ 4,212.08 $ 50.00 $ 100.00 151 COLE, RUSTON $ 3,065.74 $ 6,131.48 $ 50.00 $ 100.00 160 DUGGER,GARY $ 3,163.74 $ 6,327.48 $ 60.00 $ 100.00 140 FOSTER, BILLY D. $ 3,207.35 $ 6,414.70 $ 60.00 $ 100.00 148 FRIEND, JERRY $ 1,970.42 $ 3,940.84 $ 60.00 $ 100.00 161 HANNA, JANICE $ 1,368.59 $ 2,737.18 $ - $ - 145 HANNA, MARK $ 11368.59 $ 2,737.18 $ 50.00 $ 100.00 169 HELDER, TIM $ 5,838.12 $ 11,676.24 $ 50.00 $ 100.00 180 HOYT, RICK $ 7,460,01 $ 14,920.02 $ 50.00 $ 100,00 146 HUTCHENS, BERNICE $ 1,825.54 It 31651.08 $ 50.00 $ 100.00 194 JOHNSON, FRANK $ 7,974.81 $ 15,949.62 $ 50.00 $ 100.00 215 JOHNSON, JOYCE $ 2,465.60 $ 4,911.00 $ 60.00 $ 100.00 103 JOHNSON, WENDELL $ 783.15 $ 1,566.30 $ 60.00 $ 100.00 118 JONES, BOB $ 3,300.45 $ 61600.90 $ 50.00 $ 100.00 211 JONES, MICHELE $ 1,162.26 $ 2,364.52 int KILGORE, DONALD $ 2,046.48 $ 4,092.96 $ 50.00 $ 100.00 218 MARTIN, CONNIE $ 3,692.85 $ 7,385.70 $ 50.00 $ 50.00 126 MCCAWLEY, LARRY $ 1,694.79 $ 3,389.68 $ 50.00 $ 100.00 136 MITCHELL, MICHAEL $ 2,305.29 $ 4,610.68 $ 50.00 $ 100.00 141 MUELLER, ROSEMARY $ 2,063.93 $ 4,127.86 $ 60.00 $ 100.00 158 MUNSONANGELA $ 41198.15 $ 81398.30 $ 50,00 $ 100.00 112 MURPHY, JAKE $ 405.75 $ 811.50 $ 50.00 $ 100.00 137 PERDUE, LARRY $ 2,322.67 $ 4,645.34 $ 50.00 $ 100.00 164 PERSHALL, ROBIN $ 1,525.07 $ 3,060.14 $ - $ - 132 PHILLIPS, HOMER GENE $ 1,754.44 $ 31508.88 $ 50.00 $ 100.00 199 PRESTON, NORMA J $ 1,601.37 $ 3,202.74 $ 50.00 $ 100.00 135 RICKMAN, LOREN $ 2,231.07 $ 4,462,14 $ 50.00 $ 100.00 214 RIGGINS, BONNIE It 1,669.37 $ 3,338.74 $ 50.00 $ 100.00 183 ROBERTS, EtDON $ 4,263.24 $ 8,526.48 $ 50.00 $ 100.00 183 ROBERTS, ELDON Plus 25 add pay $ 587.09 $ 1,174.18 $ - $ - 212 ROBERTS, CAROLYN K $ 3,216.13 $ 6,432.26 $ - 212 ROBERTS, CAROLYN K Plus 25 add pay $ 44289 $ 885.78 $ - 159 SCHUSTER,JOHN H. $ 3,117.36 $ 6,234.72 $ 50.00 $ 100.00 168 STANLEY, MELVIN $ 4,880.07 $ 9,760.14 $ 00.00 $ 100.00 155 STOUT, BETTY $ 866.51 $ 1,733.02 $ 60.00 $ 100.00 133 SURLES, JERRY $ 2,721.40 $ 5,442.80 $ 50.00 It 100.00 142 TAYLOR, DENNIS $ 2,063.93 $ 4,127.88 $ 50.00 $ 100.00 163 WATSON, RICHARD $ 6,947.0.5 $ 13,894.10 $ 60.00 $ 100.00 163 Watson, Richard Plus 25 Add'I Pay $ 948.76 $ 1,897.52 $ - $ - 149 WILLIAMS, JOYCE $ 2,539.66 $ 5,079,32 $ 50.00 $ 100.00 195 WITT, BETTY $ 1,766.83 $ 3,533.66 $ 50.00 $ 100.00 213 WOOD, RUTHIE $ 1580.93 $ 316186 S 5000 $ 10000 $ 127,863.35 $ 255,726.70 $2,050.00 $ 4.060.00 POLICE PENSION FUND 3 3 3 March 2014 eeooseoo 6saamo Month 3 Repulat Mo saA".ao b98i06 3 EMP# NAME Benefit YTD Reg Benefit Supp, YTD Suppl. 154 ALLEN, CHARLES $ 2,584.64 $ 7,763.92 $ 50.00 $ 150A0 206 BAYLES, BOBBI J $ 1,587.41 $ 4,762.23 $ 50.00 $ 150.00 216 BLACK, MILDRED $ 1,125.64 $ 3,376.92 $ 50.00 $ 150.00 147 BRADLEY, GERALD $ 4,820.09 $ 14,460.27 $ 60.00 It 150.00 139 BRADLEY, RANDALL $ 2,860.17 $ 8,580.51 $ 50.00 $ 150.00 167 BROWN, JOHN $ 4,362.01 $ 131086.03 $ 50.00 $ 150.00 167 CARROLL,RONALD L $ 2,106.04 $ 6,318.12 $ 50.00 $ 150.00 151 COLE, RUSTON $ 3,065.74 $ 9,197.22 $ 50.00 $ 150.00 150 DUGGER,GARY $ 3,163.74 $ 9,491.22 $ 50.00 $ 150.00 140 FOSTER, BILLY D. $ 3,207.35 It 9,622.05 $ 50.00 $ 150.00 148 FRIEND, JERRY $ 1,970.42 $ 5,911.26 $ 50.00 $ 150.00 161 HANNA, JANICE $ 1,368.59 $ 4,105.77 $ - $ - 145 HANNA, MARK $ 1,368.59 $ 4,105.77 $ 50.00 $ 150.00 169 HELDER, TIM $ 5,838.12 $ 17,514.36 $ 50.00 $ 150.00 180 HOYT. RICK $ 7,460.01 $ 22,380.03 $ 50.00 $ 150.00 146 HUTCHENS, BERNICE $ 1,825.54 $ 5,476.62 $ 60.00 $ 150.00 194 JOHNSON, FRANK $ 7,974.81 $ 23,924A3 $ 50.00 $ 150.00 215 JOHNSON, JOYCE $ 2,455.50 $ 7,388.50 $ 50.00 $ 150.00 103 JOHNSON, WENDELL $ 783.15 $ 2,349.45 $ 50.00 $ 150.00 118 JONES, BOB $ 3,300.45 $ 91901.35 $ 60.00 $ 150.00 211 JONES, MICHELE $ 1,182.26 $ 3,546.78 144 KILGORE, DONALD $ 2,046.48 $ 6,139.44 $ 50.00 $ 150.00 218 MARTIN, CONNIE $ 3,692.85 $ 11,078.55 $ 50.00 $ 60.00 128 MCCAWLEY, LARRY $ 1,694.79 $ 5,004.37 $ 50.00 $ 150.00 136 MITCHELL, MICHAEL $ 2,305.29 $ 6,915.87 $ 50.00 $ 150.00 141 MUELLER, ROSEMARY $ 2,063.93 $ 6,191.79 $ 50.00 It 150.00 168 MUNSONANGELA $ 4,198.15 $ 12,594.45 $ 50.00 $ 150.00 112 MURPHY, JAKE $ 405.75 $ 1,217.25 $ 50.00 $ 150.00 137 PERDUE. LARRY $ 2,322.67 $ 6,968.01 $ 50.00 $ 150.01) 164 PERSHALL, ROBIN $ 1,525.07 $ 4,575.21 $ - $ - 132 PHILLIPS, HOMER GENE $ 1,754.44 $ 5,263.32 $ 50.00 $ 150.00 199 PRESTON, NORMA J $ 1,601.37 $ 4,804.11 $ 50.00 $ 150.00 135 RICKMAN. LOREN $ 2,231.07 $ 6,503.21 $ SOAD $ 150.00 214 RIGGINS, BONNIE $ 1,669.37 $ 5,005.11 $ 50.00 $ 150.00 183 ROBERTS, ELDON $ 4,263.24 $ 12,789.72 $ 50.00 $ 150.00 183 ROBERTS. ELDON Plus 25800 pay $ 687.09 $ 1,761.27 $ - $ - 212 ROBERTS, CAROLYN K $ 3,216.13 $ 9,648.39 $ - 212 ROBERTS, CAROLYN K Plus 25 add pay $ 442.89 $ 1,328.67 $ - 169 SCHUSTER,JOHN H. $ 3,117.36 $ 9,352.08 $ 50.00 $ 160.00 188 STANLEY, MELVIN $ 4,880.07 $ 14,640.21 $ 50.00 $ 150.00 165 STOUT, BETTY $ 868.61 $ 2,599.53 $ 50.00 $ 150.00 133 SURLES, JERRY $ 2,721.40 $ 8,164.20 $ 50.00 $ 150.00 142 TAYLOR, DENNIS $ 2,063.93 $ 6,191.79 $ 50.00 $ 150.00 163 WATSON, RICHARD $ 6,947.05 $ 20,841.15 $ 50.00 $ 150.00 163 Watson, Richard Plus 25 Add? Pay $ 948.78 $ 2,846.28 $ - $ - 149 WILLIAMS, JOYCE $ 2,650.66 $ 7,618.98 $ 50.00 $ 150.00 195 WITT. BETTY $ 1,766.83 $ 5,300.49 $ 50.00 $ 150.00 213 WOOD, RUTHIE $ 1,580.93 $ 4.742.79 $ 50-00 $ 150.00 $ 127,863.35 $ 383,590.05 $2.050.01) 6 6.050.00 POLICE PENSION FUND 4 4 4 April 2014 6800wo 68)0-8800 Month 4 Regular Mo 599600 663645 4 EMP# NAME Benefit YTD Reg BenefB Suppl. YTD Suppl. 154 ALLEN, CHARLES $ 2,584.64 $ 10,338.56 $ S0.00 $ 200.00 206 BAYLES, BOBBI J $ 1,687.41 It 6,349.64 $ 50.00 $ 200.00 216 BLACK MILDRED $ 1,125.64 $ 4502.56 $ %00 $ 200.00 147 BRADLEY, GERALD $ 4,820.09 It 19,280.36 $ 50.00 S 200.00 139 BRADLEY, RANDALL $ 2,860.17 It 11,440.68 $ 50.00 $ 200.00 167 BROWN, JOHN $ 4,362.01 $ 17,448.04 It 50.00 $ 200.00 157 CARROLL,RONALD L $ 2,106.04 $ 8,424.16 $ 50.00 $ 200.00 151 COLE, RUSTON $ 3,065.74 $ 12,262.96 $ 50.00 $ 200.00 160 DUGGER,GARY $ 3,163.74 $ 12,654.96 $ 50.00 $ 200.00 140 FOSTER, BILLY D. $ 3,207.35 $ 12,629.40 $ $0.00 S 200.00 148 FRIEND, JERRY $ 1,970.42 $ 7,881.68 $ 50.00 $ 200.00 161 HANNA, JANICE $ 1,368.59 $ 5,474.36 It - $ - 145 HANNA, MARK $ 1,368.59 $ 5,474.36 $ 50.00 It 200.00 169 HELDER, TIM $ 5,838.12 $ 23,352.48 $ 50.00 $ 200.00 180 HOYT, RICK $ 7,460.01 $ 29,840.04 $ 50.00 $ 200.00 146 HUTCHENS, BERNICE $ 1,825.54 S 7,302.16 $ 50.00 $ 200.00 194 JOHNSON, FRANK $ 7,974.81 $ 31,899.24 $ 50.00 $ 20D.00 215 JOHNSON, JOYCE It 2,455.50 $ 9,822.00 It 50.00 $ 200.00 103 JOHNSON, WENDELL $ 783.15 It 3,132.60 $ $0.00 $ 200.00 118 JONES, BOB $ 3,300.45 $ 13,201.80 $ 50.00 $ 200.00 211 JONES, MICHELE $ 1,182.26 $ 4,729.04 144 KILGORE, DONALD $ 2,046.48 $ 8,185.92 $ 50.00 $ 200.00- 218 MARTIN, CONNIE $ 3,692.85 It 14,771.40 $ 60.00 $ 50.00 128 MCCAWLEY. LARRY $ 1,694.79 $ 6,779.16 $ 50.00 $ 200.00 136 MITCHELL, MICHAEL It 2,305.29 $ 8,221.16 $ 50.00 $ 200.00 141 MUELLER, ROSEMARY $ 2,063.93 It 8,255.72 $ 50.00 $ 200.00 158 MUNSON,ANGELA $ 4,198.15 $ 16,792.00 $ 50.00 $ 200.00 112 MURPHY, JAKE $ 405.75 $ 1,623.00 $ 50.00 $ 200.00 137 PERDUE, LARRY $ 2,322.67 It 9,290.88 $ 50.00 $ 200.00 164 PERSHALL, ROBIN $ 1,525.07 $ 6,100.28 It - $ - 132 PHILLIPS, HOMER GENE $ 1,754.44 $ 7,017.76 $ 50.00 It 200.00 199 PRESTON, NORMA J $ 1,601.37 $ 6,405.48 $ S0.00 IS 200.00 136 RICKMAN, LOREN 3 2,231.07 $ 8,92428 It 50.00 $ 200.00 214 RIGGINS, BONNIE $ 1,869.37 It 6,677.48 $ 50.00 $ 200.00 183 ROBERTS, ELDON $ 4,253.24 It 17.052.96 $ 50.00 $ 200.00 183 ROBERTS, EL13ON Plus 25 add pay $ 587.09 $ 2,348.36 It - $ - 212 ROBERTS, CAROLYN K $ 3,216.13 It 12,864.62 $ - 212 ROBERTS, CAROLYN K Plus 25 add pay $ 442.89 It 1,771.56 $ - 159 SCHUSTERJOHN H. It 3,117.36 $ 12,469.44 It 00.00 $ 200.00 168 STANLEY, MELVIN $ 4880.07 $ 19,52028 It 50.00 $ 200.00 165 STOUT, BETTY $ 868.51 $ 3,466.04 It 50.00 $ 200.00 133 SURLES, JERRY It 2,721.40 It 10,885.60 It 50.00 $ 200.00 142 TAYLOR, DENNIS It 2,063.93 $ 8,255.72 It 50.00 $ 200.00 163 WATSON. RICHARD $ 6,947.05 It 27,788.20 $ 50.00 $ 200.00 163 Watson, RVAwd Plus 25 A001 Pay $ 948.76 $ 3,795.04 $ - $ - 149WILLIAMS, JOYCE $ 2,539.66 $ 10,158.64 $ 50.00 It 200.00 195 WITT, BETTVJ $ 1,766.83 $ 7,067.32 $ 60.00 $ 200.00 213 WOOD, RLTfHIE $ 1,580.93 $ 6,323.72 $ 50.00 $ 200.00 $ 127.863.35 1 511,453.40 $2.050.00 111 8.050.00 Flpl � a 1j'v 0 N-1 FAYETTEVILLE DISTRICT COURT DISBURSEMENT SEPTEMBER, 2013 STATE NIFS/SRFS 6032.50 HOT CHECK DIVISION SMALL CLAIMS/CIVIL DIVISION 15,997.74 CITY DIVISION 233,095.89 COUNTY DIVISION 6,477.81 MISC. POLICE 484.52 MISC. COURT 695.00 COURT AUTOMATION FEE 9,670.50 `(j it F_18914141 x@Aib7 � 61 CITY FINES PARK SUM VIOLATION COUNTY FINES TOTAL FINES CIVIL FEES SMALL CLAIMS FEES CRIMINAL FEES TRAFFIC FEES DWI FEES CITY ORDINANCE FEES DRUG SEAT BELT FAIL TO PRESENT INSURANCE TOTAL FEES TOTAL FEES PAID TO CITY TOTAL FINES PAID TO CITY TOTAL CITY DISTRIBUTION TOTAL FEES PAID TO COUNTY TOTAL FINES PAID TO COUNTY TOTAL COUNTY DISTRIBUTION TOTAL FEES PAID TO STATE * APPEALFEE * SMALL CLAIMS/CIVIL POSTAGE * GARNISHMENT/EXECUTION * MSC FEE (CERTIFICATION) HANDICAP LOCAL * AR CITZ 1ST RESPONDER SAFETY 20% CITY * ACT 988 FAILURE TO PAY REG. CITY * WARRANT FEE * CHILD PROTECTION ACT/LOCAL * PARKING SUMMONS VIOLATIONS * COURT AUTOMATION FEE CITY 272,453.966 92,998.09 485.00 II 2,708.50 96,191.59 11,065.00 700.00 11,604.12 51,208.68 24,176.50 3,250.00 1,835.00 4,075.00 1,475.00 109,389.30 38,760.06 92,998.09 134,758.95 18,486.30 2,708.50 21,194.80 �! 52,142.94 /3 97.74 1,380.00 595.00 330.00 (g — 530.00 986.00 /y �6 — 25.00 485.00 4,835.00 �' Total Expenses $ 1,675,328.66 $ 1,701,694.06 $ 1,701,741.33 $ 1,709,090.86 $ 1,766,553.62 $ 1,795,895.72 $ 1,788,766.00 $ 1,636,850.00 $ 1,532,151.00 Net Income (Loss) Before Market Adj*"* $ (415,374.05) $ �0 Ice pG'117J4 Ove $ (317,018.66) $ (151,674.09) $ (447,984.82) $ (1,482,401.40) $ (223,482.00) $ (15,908.00) $ (32,615.00) Market Adjustment $ 756,670.42 $ 770,169.29 $ 770,856.91 $ 410,382.51 $ (1,291,031.77) $ 151,740.00 $ 344,973.00 $ (361,860.00) Net Income (Loss) $ (415,374.05) $ Police Pension Fund Revenue Expense Summary $ (2,773,433.17) $ (71,742.00) $ 329,065.00 $ (394,475.00) 12/3112013 2012 2011 2010 2009 2008 2007 2006 2005 Revenues: Employee Contributions $ - $ - $ - $ - $ - $ - $ 4,139.00 $ 5,193.00 Employer Contributions $ - $ - $ - $ - $ - $ 8,278.00 $ 10,385.00 State Insurance Tax $ 142,151.31 $ 138,410.77 $ 205,694.53 $ 213,357.83 $ 214,429.30 $ 186,429.42 $ 190,192.00 $ 226,826.00 $ 353,271.00 Local Millage (A mills) $ 494,749.58 $ 511,961.22 $ 498,380.57 $ 508,192.07 $ 485,345.06 $ 441,696.50 $ 388,877.00 $ 370,649.00 $ 339,416.00 10% City Fines and Forfeitures $ 112,992.59 $ 125,274.87 $ 126,045.40 $ 130,723.07 $ 123,653.64 $ 131,583.83 $ 106,385.00 $ 119,147.00 $ 126,833.00 Sale of Confiscated Goods $ 1,898.28 $ 3,491.81 $ 5,026.40 $ 5,487.59 $ 9,732.16 $ 7,715.61 $ 10,806.00 $ 6,343.00 $ 120.00 Interest and Dividends $ 263,480.49 $ 285,514.18 $ 263,520.02 $ 267,714.80 $ 256,907.42 $ 359,998.26 $ 356,699.00 $ 373,776.00 $ 347,752.00 Gain (Loss) on Sales $ 160,066.59 $ 168,288.38 $ 209,001.15 $ 362,318.64 $ 153,193.23 $ (885,460.76) $ 395,378.00 $ 420,298.00 $ 231,691.00 Police Supplement $ 37,800.00 $ 39,900.00 $ 40,500.00 $ 42,000.00 $ 31,200.00 $ 30,000.00 $ 30,000.00 $ 30,300.00 $ 31,275.00 Future Supplement $ 46,620.00 $ 55,575.00 $ 36,450.00 $ 26,061.50 $ 38,350.00 $ 41,370.00 $ 86,040.00 $ 60,060.00 $ 51,199.00 Misc Revenue $ 195.77 $ 53.39 $ 104.60 $ 1,561.27 If 5,757.99 $ 161.46 $ 907.00 $ 1,126.00 $ 2,401.00 Total Revenue $ 1,259,954.61 $ 1,328,469.62 $ 1,384,722.67 $ 1,557,416.77 $ 1,318,568.80 $ 313,494.32 $ 1,565,284.00 $ 1,620,942.00 $ 1,499,536.00 Expenditures Regular Monthly Benefits $ 1,535,372.30 $ 1,551,087.50 $ 1,564,986.62 $ 1,582,900.00 $ 1,628,521.36 $ 1,638,067.76 $ 1,581,319.00 $ 1,456,466.00 $ 1,362,068.00 Police Supplement $ 24,650.00 $ 25,500.00 $ 26,400.00 $ 27,250.00 $ 29,300.00 $ 30,000.00 $ 30,000.00 $ 29,600.00 $ 29,800.00 Future Supplement $ 45,510.00 $ 51,870.00 $ 35,640.00 $ 24,952.50 $ 36,816.00 $ 41,370.00 $ 86,040.00 $ 60,060.00 $ 48,245.00 Investment Manager Fees $ 66,240.45 $ 69,500.53 $ 71,050.23 $ 70,369.02 $ 68,150.57 $ 82,754.75 $ 87,712.00 $ 86,243.00 $ 86,672.00 Other Expenses: Office Supplies/printing $ 56.81 $ 46.20 $ - $ 84.00 Audit Fees $ 3,400.00 $ 3,600.00 $ 3,500.00 $ 3,500.00 $ 3,500.00 $ 3,500.00 $ 3,500.00 $ 3,300.00 $ 3,210.00 Professional Services $ - $ 2,000.00 Legal Fees $ - $ 1,025.00 Bank Fees $ 99.10 $ 89.83 $ 164.48 $ 119.34 $ 181.69 $ 203.21 $ 195.00 $ 156.00 $ 156.00 Total Expenses $ 1,675,328.66 $ 1,701,694.06 $ 1,701,741.33 $ 1,709,090.86 $ 1,766,553.62 $ 1,795,895.72 $ 1,788,766.00 $ 1,636,850.00 $ 1,532,151.00 Net Income (Loss) Before Market Adj*"* $ (415,374.05) $ (373,224.44) $ (317,018.66) $ (151,674.09) $ (447,984.82) $ (1,482,401.40) $ (223,482.00) $ (15,908.00) $ (32,615.00) Market Adjustment $ 756,670.42 $ 770,169.29 $ 770,856.91 $ 410,382.51 $ (1,291,031.77) $ 151,740.00 $ 344,973.00 $ (361,860.00) Net Income (Loss) $ (415,374.05) $ 383,445.98 $ 453,150.63 $ 619,182.82 $ (37,602.31) $ (2,773,433.17) $ (71,742.00) $ 329,065.00 $ (394,475.00) Book Value Total Reserve Assets * $ 6,682,459.70 $ 7,081,891.04 $ 7,468,021.86 $ 7,785,041.00 $ 7,950,215.00 $ 8,398,199.00 $ 9,880,601.00 $ 10,104,083.00 $ 10,119,990.00 Market Value Total Reserve Assets * $ 7,443,057.63 $ 7,689,491.43 $ 8,1581105.82 $ 8,555,887.00 $ 8,360,804.00 $ 8,046,356.00 $ 10,819,789.00 $ 10,891,530.00 $ 10,662,465.00 *Assets less any liabilities Market Value calculated at year end 1/1512014 C:\Users\Ibmnson\AppData\Local\MicrosoMWindows\Temporary Internet Files\Content.Outlook\1OJOSLWF\Police Pension Summary Page 1 of 2 LOCAL PENSION FUND REPORT 2013 In keeping with statutory requirements, I am presenting this report for 2013 on the local Police and Fire Retirement and Relief Funds for the City of Fayetteville. Both of these plans were closed, by law, in 1983 and there are no longer any active working members remaining. There are currently 45 police and 54 fire retirees and beneficiaries in the system. At December 2013 projected expenses from the fire pension fund were approximately $1.4 million as compared to fund revenues of $950,000. Projected police pension fund expenses were approximately $1.6 million as compared to fund revenues in excess of $1.1 million. This is before adjusting investments to market value. However, on a cash flow basis, contributions are not covering expenses. Actuarial evaluations are the responsibility of the State of Arkansas Fire and Police Pension Review Board. The last evaluations completed were as of July, 2013 for the year ending December 31, 2012. Based on those evaluations the unfunded pension obligations of the Police and Fire Funds were $8.1 million and $10.5 million respectively and have grown considerably from prior years. The unfunded actuarially accrued liabilities for these funds were approximately $12.9 million for police and $15 million for fire. In the annual reports issued by the Arkansas Pension Review Board neither the fire nor police pension fund were found to be actuarially sound pursuant to established financial tests. Again, this actuarial valuation is for the 2012 fiscal year not 2013. On October 18, 2010 representatives of the Pension Review Board came to Fayetteville to present a special report on the Fire Pension Fund. Both Fire Pension Board members and City Council members attended the meeting when this report was presented .During that presentation, the PRB Board Actuary indicated that the fund ran a 90% risk of ruin within the next 5 to 10 years and conditions have not improved since then. The Fire Pension Board has again received correspondence in 2013 advising the Board of the funds risky financial condition. Page 2 of 2 In 2012 operating conditions of the Fire Pension Fund have been relatively the same so no improvement has been made. However the asset value of the fund has fallen to under $5,000,000 which makes it subject to further investment restrictions. These restrictions no longer allow investments in individual securities. Investments will be limited to cash, cash equivalents, government bonds and no load mutual funds. This means overall returns in the future are likely to be less than previously experienced which could bring about depletion of the fund even earlier unless the Pension Board does something. The Fire Pension Board has been aware of the unstable condition of the fund and has been discussing the situation and possible options since 2009 but has not decided on a plan of action supported by the majority of the Board. The primary option which has been discussed is the possible reduction of current benefits. The City Clerk and I have each introduced motions and had numerous votes to reduce benefits but all votes to do so up to this point in time have failed. The Pension Board has also been advised that there is no specific enabling legislation to reduce benefits and legal issues might prevent that option. All other options presented would require substantial financial contributions by the City. However, the City Attorney has advised the Pension Board that the City has no direct obligation to fund the pension plan; other than a .4 mill dedicated levy for each, plus state insurance turn back. The PRB has continued to classify the Fire Pension Fund as "projected insolvent". The Police Pension Fund is also considered actuarially unsound but not in immediate danger of becoming insolvent. The Police Pension Board is also aware of the Police Pension Fund status and has been considering options that would guarantee long term solvency. I will continue to monitor these pension funds in the future and keep you apprised of any new developments. Smith, Sondra From: Sent: To: Subject: Attachments: Categories: (130 /'U pev Leach, Trish Friday, October 25, 2013 11:31 AM Smith, Sondra; Becker, Paul; Hertweck, Marsha FW: 2014 Ptax Estimate Letter -Fayetteville Fayetteville Fire.pdf; Fayetteville Police.pdf Urgent From: Denise Reed [mai lto:sdreed@lopfi-prb.coml Sent: Friday, October 25, 2013 11:30 AM To: Leach, Trish Cc: Missy Leflar Subject: 2014 Ptax Estimate Letter -Fayetteville Good morning - The attached letter provides useful information of one of the changes in Act 979 of 2011. This act created a new source of funding for local fire and police pension funds titled Additional Allocation. The letter will inform your Local Pension Fund Board of Trustees of the estimated amount of the Additional Allocation your pension fund could receive. Please provide a copy of the letter to each trustee. You may view Act 979 of 2011 by going to the website at www.lopfi-prb.com. Select the Links tab, General Assembly, and then Acts. Should you have additional questions you may contact our office toll free at 866-859-1745. Sincerely, PRB Staff Osborn, Carreiro & Associates, Inc. ACTUARIES • CONSULTANTS • ANALYSTS October 25, 2013 Mr. David Clark, Executive Director Arkansas Fire and Police Pension Review Board 620 West Third Street, Suite 200 Little Rock, AR 72201 RE: Fayetteville Police Pension Fund Estimated 2014 Premium Tax Allocation Dear Mr. Clark: One Union National Plaza, Suite 1690 124 West Capitol Avenue Little Rock, Arkansas 72201 (501)376-8043 fax (501)376-7847 We have estimated the base benefit calculations needed for the Premium Tax Allocation formula created by Act 979 of 2011 and PRB Board Rule 12. This letter will provide these estimates for the above referenced local fire or police pension fund. Actual Benefits Valued 1/1/2013 $1,549,770 Base Benefits Valued 1/1/2013 $904,825 Actuarial Cost of Base Benefits $401,368 Estimated Premium Tax 2014 30% of Actuarial Cost $120,410 Estimated Additional Allocation 2014, if eligible 10% of Actuarial Cost $40,137 2013 Employer Contributions for Additional Allocation 2014 Eligibility 80% of Actuarial Cost $321,095 Actual 2012 Reported Employer Contribution other than premium tax $640,728 Shortfall based on 2012 contributions $0 Expected Eligibility based on 2012 contributions Yes The premium tax formula allocates monies based on an Actuarial Cost derived from a fund's Base Benefits (that is, 50% of Final Salary, minimum $350 per month for paid members, and $100 per month for volunteer members). Each fund receives 30% of this calculated Actuarial Cost as Premium Tax. Each fund is also eligible for an Additional Allocation equal to 10% of this Actuarial Cost, provided that the Employer Contributions other than Premium Tax made by the location are equal to at least 80% of the Actuarial Cost. We have included last year's contributions and the estimated shortfall to become eligible for the Additional Allocation if Employer Contributions were to remain level in 2013. As a reminder, these numbers constitute estimates, and they MAY vary materially from the figures shown here. In particular, an additional employer contribution equal to the shortfall estimate shown will not guarantee Additional Allocation eligibility in 2014. Please note that in 2013 the Additional Allocation was proportionally reduced by approximately 37% due to a shortfall in Premium Tax revenues. Any similar shortfall would also reduce Additional Allocation amounts in 2014. January 9, 2014 Ms. Sondra Smith City of Fayetteville Police Pension Fund 113 W. Mountain St. Fayetteville, Arkansas 72701 Dear Sondra: Enclosed please find the 2013 fourth-quarter reports for the City of Fayetteville Police Pension Fund. These reports include a portfolio appraisal, a summary of realized gains/losses and income/expenses, and a performance report. In accord with the board's instructions, the account at Northern Trust will be billed for the management fee. This quarter's Longer View includes an update on 2013 market activity and our outlook for the new year. The stock market delivered solid gains in 2013 (please see newsletter). The domestic economy continued to grow at a tepid pace of 2% (year over year), with calm restored in the Euro area. Congress reached a budget deal in the fourth quarter that alleviated the risk of another government shutdown, and consumer confidence remained strong enough that the holiday shopping season was solid, though not spectacular. The stock market gains far outpaced the earnings growth achieved by corporations (+7% on the S & P 500), so we close the year at valuations that are somewhat extended. Bond interest rates rose this year in the five- to 30 -year maturities. When interest rates rise, bonds decline in price (please see a discussion of this in the newsletter). As a result, the year-to- date fixed-income return reported on the enclosed portfolio reports reflects a slightly negative return. While you continue to earn the interest rate on your bonds, the income was offset by price depreciation during the year. This follows a string of years where interest rates have declined and bond performance has been positively affected by price appreciation. However, the "other income" category (see performance report), that includes the funds we are using to generate income and growth, has delivered a double-digit return this year, offsetting the lackluster returns in bond investments. Ms. Sondra Smith January 9, 2014 Page Two We appreciate the opportunity to assist with the management of the City of Fayetteville Police Pension Fund's assets. Please do not hesitate to call if you have any questions or comments, or if we can be of further service. Best wishes for a happy, healthy new year. Sincerely, Elaine M. Longer, CFA President EML/kmc Enclosure Quantity Security 35.16 America Bond Tr Common Stock Guggenheim 3,750 AT&T 220 Apple Inc. 2,350 BCE, Inc. 1,425 BHP Billiton Ltd. 2,840 CSX Corp 1,300 Caterpillar Inc. 810 Chart Industries Inc. 800 Chevron Corp. 3,475 Cisco Systems, Inc. 2,700 Coca-Cola 1,425 ConocoPhillips 1,765 E.I. DuPont de 53.93 Nemours & Co. 1,300 Ensco PLC 6,000 General Electric 4,000 Intel Corp. 515 International Business 114,844.81 Machines Corp. 1,250 Johnson & Johnson 2,000 Medtronic, Inc. 3,000 Microsoft Corp. 1,625 Northern Trust 91.59 Corporation 1,000 Occidental Petroleum 36.97 Corporation 3,600 Pfizer Inc. 2,000 Potash Corp. of 88.87 Saskatchewan, Inc. 1,350 Procter & Gamble Co. 1,800 Qualcomm Incorporated 2,000 Southwestern Energy 2,000 Vodafone Group PLC 1,025 Wal-Mart Stores Inc. 2,550 Waste Management Inc. 74.25 (New) 8,000 iShares Dow Jones 25.33 Select Dividend Index Other Income Securities 10,000 BlackRock Build 35.16 America Bond Tr 25,000 Guggenheim 24.40 Multi -Asset Income 43.29 Index 8,250 Utilities Select Sector 27.01 SPUR Fund 2,000 iShares U.S. Preferred 110,165.97 Stock Index Fund Longer Investments Inc. PORTFOLIO APPRAISAL City of Fayetteville Police Pension Fund December 31, 2013 Unit Total Market Pct Unit Cost Cost Price Value Assets Income 28.24 105,892.28 35.16 491.77 108,190.07 561.02 24.40 57,329.90 43.29 65.20 92,916.27 68.20 27.01 76,708.40 28.77 84.74 110,165.97 90.81 9173 74,299.36 95.64 85.21 68,169.23 124.91 19.01 66,062.08 22.43 30.98 83,651.01 41.31 53.93 76,843.33 70.65 58.33 102,949.96 64.97 56.76 73,793.79 57.18 19.14 114,844.81 28.03 20.53 82,138.17 25.96 172.39 88,780.07 187.57 64.70 80,869.69 91.59 48.69 97,372.69 57.39 36.97 110,906.75 37.41 43.31 70,386.07 61.89 88.87 88,868.90 95.10 20.12 72,441.75 30.63 32.61 65,215 60 32.96 55.82 75,353.17 81.41 63.62 114,509.50 74.25 36.97 73,930.28 39.33 25.33 50,656.42 39.31 56.30 57,704.75 78.69 41.80 106,587.17 44.87 52.23 417,855.93 71.35 18.97 189,745.61 19.15 21.92 548,055.09 24.77 34.14 281,679.38 37.97 37.55 75,094.90 36.83 131,850.00 1.8 123,424.40 1.7 101,731.50 1.4 97,185.00 1.3 81,706.80 LI 118,053.00 1.6 77,468.40 1.0 99,928.00 1.3 77,944.25 1.0 111,537.00 1.5 100,676.25 L4 114,672.05 1.5 74,334.00 1.0 168,180.00 2.3 103,820.00 1.4 96,598.55 1.3 114,487.50 1.5 114,780.00 1.5 112,230.00 15 100,571.25 1.4 95,100.00 1.3 110,268.00 1.5 65,920.00 0.9 109,903.50 1.5 133,650.00 1.8 78,660.00. 1.1 78,620.00 1.1 80,657.25 1.1 114,418.50 1.5 570,800.00 7.7 3,559,175.20 47.8 1.80 12.20 2.24 2.36 0.60 2.40 0.00 4.00 0.68 1.12 2.76 1.80 3.00 0.76 0.90 3.80 2.64 1.12 1.12 1.24 2.56 0.96 1.40 2.41 1.40 0.00 1.59 1.88 1.46 191,500.00 2.6 1.58 619,250.00 8.3 1.33 313,252.50 4.2 1.47 73,660.00 1.0 2.08 1,197,662.50 16.1 Mutual Funds -Fixed 8,100.0000 iShares iBoxx 108.28 877,057.43 114.19 924,922.80 12.4 4.39 Investment Grade Corp Bond Annual Cur. Income Yield 6,750.00 6.37 2,684.00 2.48 5,256.48 9.17 3,363.00 3.62 1,704.00 2.22 3,120.00 2.83 0.00 0.00 3,200.00 4.69 2,363.00 3.58 3,024.00 3.62 3,933.00 5.12 3,177.00 3.09 3,900.00 5.28 4,560.00 3.97 3,600.00 4.38 1,957.00 2.20 3,300.00 4.08 2,240.00 2.30 3,360.00 3.03 2,015.00 2.86 2,560.00 2.88 3,456.00 4.77 2,800.00 4.29 3,248.10 4.31 2,520.00 2.20 0.00 0.00 3,179.01 6.28 1,927.00 3.34 3,723.00 3.49 17,499.10 4.19 104,418.69 3.78 15,840.00 8.35 33,350.00 6.09 12,086.66 4.29 4,155.70 5.53 65,432.36 5.94 35,562.32 4.05 Longer Investments Inc. PORTFOLIO APPRAISAL City of Fayetteville Police Pension Fund December 31, 2013 NOTE: Please compare this statement with account statements received from the account custodian. Unit Total Market Pct. Unit Annual Cur. Quantity Security Cost Cost Price Value Assets Income Income Yield Government Bonds 150,000 U. S. Treasury Note 100.00 150,000.00 110.82 166,230.45 2.2 5.13 7,687.50 5.13 5.125% Due 05-15-16 800,000 U. S. Treasury Note 103.76 830,072.13 110.91 887,312.80 11.9 4.00 32,000.00 3.86 4.000% Due 08-15-18 Accrued Interest 12,976.86 0.2 _ 980,072.13 1,066,520.11 14.3 39,687.50 4.06 Government Agency 200,000 Federal Farm Credit 99.97 199,938.00 111.33 222,652.40 3.0 6.13 12,250.00 6.13 Bank (NC) 6.127% YTM 6.125% Due 12-29-15 Accrued Interest 68.06 0.0 199,938.00 222,720.46 3.0 12,250.00 6.13 Alternative Investments 1,200 SPDRGold Shares 121,11 145,334.08 116.12 139,344.00 1.9 0.00 0.00 0.00 Cash and Equivalents Dividends Accrued 9,231.98 9,231.98 0.1 0.00 0.00 0.00 Money Market 128,378.15 128,378.15 1.7 0.01 12.84 0.01 137,610.13 137,610.13 18 12.84 0.01 Limited Partnerships 11,000.00 ALPS Alerian MLP ETF 17.15 188,655.92 17.79 195,690.00 2.6 1.07 11,748.00 6.23 TOTAL POB`CFOLIO „ 6,488,63&04 7,-043,645.20 1611.0 269,111.71 4.20 NOTE: Please compare this statement with account statements received from the account custodian. Longer Investments Inc. REALIZED GAINS AND LOSSES WITH INCOME AND EXPENSES SUMMARY City of Fayetteville Police Pension Fund From 01-01-13 Through 11-31-13 Realized Gains and Losses TOTAL REALIZED GAINS AND LOSSES 129,183.79 Income and Expenses Income: Common Stock 106,944.02 Other Income Securities 44,670.68 Mutual Funds -Fixed 41,617.44 Preferred Debt Securities 1,703.52 Government Bonds 40,766.30 Government Agency 12,250.00 Alternative Investments 3,540.00 Cash and Equivalents 29.06 Limited Partnerships 10,051.95 Expenses: ADR Fee 87.00 Foreign Tax on Dividends 1,491.26 Miscellaneous Expense 10.00 Northern Trust Fee 3,719.84 Management Fee 62,510.61 NET INCOME 193,754.26 Longer Investments Inc. CONTRIBUTIONS/WITHDRAWALS City of Fayetteville Police Pension Fund From 01-01-13 To 12-31-13 Tran Trade Settle Code Date Date Security Amount CONTRIBUTIONS dp 12-30-13 12-30-13 Money Market 8.94 WorldCom Inc. class action distribution 8.94 WITHDRAWALS wd 02-01-13 02-01-13 Money Market 103,000.00 wd 03-01-13 03-01-13 Money Market 116,000.00 wd 04-01-13 04-01-13 Money Market 90,000.00 wd 05-01-13 05-01-13 Money Market 84,000.00 wd 08-01-13 08-01-13 Money Market 27,000.00 wd 09-01-13 09-01-13 Money Market 104,000.00 wd 10-01-13 10-01-13 Money Market 108,000.00 wd 11-01-13 11-01-13 Money Market 67,000.00 699,000.00 EXPENSE ACCOUNTS dp 08-07-13 08-07-13 ADR Fee 87.00 dp 01-15-13 01-15-13 Foreign Tax on Dividends 258.98 dp 01-29-13 01-29-13 Foreign Tax on Dividends 169.94 dp 04-15-13 04-15-13 Foreign Tax on Dividends 235.04 dp 04-26-13 04-26-13 Foreign Tax on Dividends 176.48 dp 06-03-13 06-03-13 Foreign Tax on Dividends 189.34 dp 07-15-13 07-15-13 Foreign Tax on Dividends 230.31 dp 10-15-13 10-15-13 Foreign Tax on Dividends 231.17 dp 06-25-13 06-25-13 Miscellaneous Expense 5.00 Class action service charge dp 12-30-13 12-30-13 Miscellaneous Expense 5.00 Class action service charge WorldCom Inc. dp 01-31-13 01-31-13 Northern Trust Fee 323.59 dp 02-28-13 02-28-13 Northern Trust Fee 325.69 dp 03-28-13 03-28-13 Northern Trust Fee 307.27 dp 04-30-13 04-30-13 Northern Trust Fee 322.21 dp 05-31-13 05-31-13 Northern Trust Fee 303.44 dp 06-28-13 06-28-13 Northern Trust Fee 323.34 dp 07-31-13 07-31-13 Northern Trust Fee 272.97 dp 08-31-13 08-31-13 Northern Trust Fee 308.34 dp 09-30-13 09-30-13 Northern Trust Fee 302.84 dp 10-31-13 10-31-13 Northern Trust Fee 322.48 dp 11-30-13 11-30-13 Northern Trust Fee 302.53 dp 12-31-13 12-31-13 Northern Trust Fee 305.14 5,308.10 AFTER FEE PERFORMANCE EXPENSE ACCOUNTS dp 01-10-13 01-10-13 Management Fee 15,851.11 dp 04-08-13 04-08-13 Management Fee 15,991.90 dp 07-10-13 07-10-13 Management Fee 15,350.87 dp 10-09-13 10-09-13 Management Fee 15,316.73 62,510.61 PORTFOLIO NET TOTAL -766,809.77 Broker Quantity Code Commission Longer Investments Inc. CONTRIBUTIONS/WITHDRAWALS City of Fayetteville Police Pension Fund From 01-01-13 To 12-31-13 Tran Trade Settle Code Date Date Security Amount EXPENSE ACCOUNTS PAID BY CLIENT 0.00 AFTER FEE PERFORMANCE EXPENSE ACCOUNTS PAID BY CLIENT 0.00 GRAND TOTAL -766,809.77 Broker Quantity Code Commission Longer Investments Inc. PERFORMANCE HISTORY NET OF FEES City of Fayetteville Police Pension Fund Combined Account Percent Return Per Period Time Period Total Equities Account 12-31-12 to 12-31-13 6.24 14.71 Date to Date 12-31-12 to 12-31-13 6.24 14.71 Fixed Other Income Income -3.17 16.47 -3.17 16.47 *Returns are reported net of all fees and ecpenses. Longer Investments Inc. PERFORMANCE SUMMARY City of Fayetteville Police Pension Fund December 31, 2013 Other Fixed- Income Equities Income Assets Total 1991 39.5% 17.2% 28.1% 1992 -1.0% 7.4% 0.6% 1993 12.1% 8.5% 9.3% 1994 -7.9% -5.7% -5.7% 1995 27.7% 14.7% 19.6% 1996 14.1% 2.5% 6.9% 1997 35.7% 6.7% 19.2% 1998 21.5% 7.4% 11.2% 13.0% 1999 5.7% 0.3% -3.5% 3.3% 2000 -10.0% 9.0% 22.0% -0.2% 2001 -16.7% 7.9% 25.1% -1.9% 2002 -32.9% 9.6% 8.0% -2.0% 2003 27.9% 2.2% 19.8% 11.1% 2004 7.4% 2.7% 8.1% 5.5% 2005 -1.1% 2.1% -1.6% 1.3% 2006 17.4% 3.5% 3.0% 10.5% 2007 10.8% 6.5% 1.8% 8.2% 2008 -40.2% 6.5% 4.5% -19.1% 2009 28.2% 1.9% 13.3% 15.7% 2010 12.7% 8.5% 6.9% 11.7% 2011 5.4% 9.4% 8.8% 5.2% 2012 4.0% 4.8% 3.2% 4.6% 2013 14.7% -3.2% 16.5% 6.2% Cumulative Return: 249.3% 246.5% 291.5% 293.2% Annualized Return: 5.6% 5.6% 8.9% 6.1% *Returns are reported net of all fees and ecpenses. December 31, 2013 City of Fayetteville Police Pension Fund 113 W. Mountain Fayetteville, Arkansas 72701 Longer Investments Inc. STATEMENT OF MANAGEMENT FEES For The Period Ending December 31, 2013 Portfolio Valuation as of 12-31-13 $ 7,430,600.28 3,000,000 @ 1.000%per annum 7,500.00 3,000,000 @0.750% per annum 5,625.00 1,430,600 @0.650% per annum - 2,324.73 Quarterly Management Fee $ 15,449.73 TOTAL DUE AND PAYABLE $ 15,449.73 Pursuant to Section 204-3 of the Investment Advisors Act of 1940, Part II of Form ADV is available to all clients of Longer Investments Inc. This statement may be obtained by submitting a written request to the company. As instructed, the management fee has been billed to the account. It is the responsibility of the client to verify the accuracy of the fee calculation. The custodian will not determine if the fee is properly calculated. fir-1-04T inov COMMENTS AND OUTLOOKS FROM LONGER INVESTMENTS INCORPORATED During 2013, we saw the strongest stock market performance since 1997 (as measuredby the S&P 500), but the weakest bond market performance since 1994. Last year exhibited the widest divergence between.. stock performance and bond perfor mance ever recorded. In this newsletter, we will consider the 2014 outlook for the markets and provide an update on the recent Fed policy changes. The Bond Market In 2013, we witnessed sharp increases in interest rates for five-year to 30 -year bonds, (see Table A) as the Federal Reserve moved toward "tapering" its. $85 billion monthly purchases of government and mortgage debt. Table A U.S. TREASURY YIELD CARVE MatbritV 12131112 114/30113 12f11/13 Five -Year 0.70% 0.68% 1.75% 10 -Year 1.751 1.67% 3.03% 30 -Year 2.95% 2.88% 3.96% As bond interest rates rise, bond prices decline. This;kads to anegative total return (market value change plus interest income returns) in a rising rate environment (see lable B). in fact, the last time bonds delivered such negative return was 1994, a year in which the Fed increased interest . rates five times. Last year's decline inbond prices (and risein yields) came with no corresponding rise in rates by the Federal Reserve. Rather, at the December Fed meeting, the governing board took a small step away from its massive Quantitative Easing (QE) program; It reduced. the monthly purchases of Federal debt and mortgage debt bySIO billion, from $85 billion to $75 billion. Since the crisis in 2008, the :Fed'sbalance sheet has ex- paneled from $800 billion to $4 trillion as the QE program progressed (see Chart I on the insert en- closed). T1e Fed has now reached the point where it is willing to experiment by tapering its purchases to a lower monthly amount. Even at this rate,: the red's balance sheet would approach $5 trillion by year-end 2014. The information provided herein is Illustrative only. It should not W constn ed as a formal recamrnendation by Conger Investments Ire January 9, 2014 Table B U.S. TREASURY: TOTAL RETURN January 1 through December 3l, 2013 At Longer Investments, our strategy has been to hold only the highest -quality U.S. Treasury, corporate, and municipal bonds of short- or moderate -maturity length. In 2011., we amended our investment policies to allow ourportfolios to include high -dividend stocks and utility funds, preferred stocks and energy master limited parmershrps in a class called "income assets," outside the "equity assets" class. We did this because of our concerns that bond values would decline if interest rates rose. These asset classes have delivered double-digit rates of return this year, somewhat offsetting the negative bond returns. However, in any stock market crisis,. such as the one we saw in 2008-2009, these. income growth assets (utility stocks, preferred stocks, energy master limited partnerships, etc.) will act more like stocks than like bonds. That is. they will drop in value — although.: less than stocks do. We believe that it is wise to allocate to these funds a portion of the total assets that our clients want to put instable, high-quality income investments. Such assets provide growth and income while offsetting the price sensitivity of bonds to rising interest rates. It would be imprudent to invest all income assets in these securities, however, because they can also display negative price volatility with stocks. The Stock Market Although 2013 was a turbulent year geopoliti- cally, the stock market was able to shake off the worries and deliver a strong return (sec Chart 2). There are several reasons for this. Compared with foreign markets, the U.S. markets are stable. The. U.S. stock marketoutperfonned foreign stock markets (with the exception of Japan's) in 2013. Also, with bond prices declining since May, Income Price Total Maturitv Return Change Return Five -Year 0.53% 2.160/. -1.54% 10 -Year 1.63% -8.80010 -7:170/a 30 -Year 2.75% -15.000/0 -15.25% At Longer Investments, our strategy has been to hold only the highest -quality U.S. Treasury, corporate, and municipal bonds of short- or moderate -maturity length. In 2011., we amended our investment policies to allow ourportfolios to include high -dividend stocks and utility funds, preferred stocks and energy master limited parmershrps in a class called "income assets," outside the "equity assets" class. We did this because of our concerns that bond values would decline if interest rates rose. These asset classes have delivered double-digit rates of return this year, somewhat offsetting the negative bond returns. However, in any stock market crisis,. such as the one we saw in 2008-2009, these. income growth assets (utility stocks, preferred stocks, energy master limited partnerships, etc.) will act more like stocks than like bonds. That is. they will drop in value — although.: less than stocks do. We believe that it is wise to allocate to these funds a portion of the total assets that our clients want to put instable, high-quality income investments. Such assets provide growth and income while offsetting the price sensitivity of bonds to rising interest rates. It would be imprudent to invest all income assets in these securities, however, because they can also display negative price volatility with stocks. The Stock Market Although 2013 was a turbulent year geopoliti- cally, the stock market was able to shake off the worries and deliver a strong return (sec Chart 2). There are several reasons for this. Compared with foreign markets, the U.S. markets are stable. The. U.S. stock marketoutperfonned foreign stock markets (with the exception of Japan's) in 2013. Also, with bond prices declining since May, LONGER iNVESTMENTS INCORPORATED more investors are shifting their money from bonds to stocks. Corporations delivered moderateeamings growth, about 7%. Cash -rich corporations (see Chart 3) continued to buy back their own stock (thereby reducing supply) and to increase their dividends, supporting stock valuations at these levels. Since the stock market low, of 2009, the S&P 500 has increased 173%, with underlying earnings growth of 106%. With market gains outperforming earnings so dramatically, the valuation applied to those earnings (In icucamings multiple) has increased to 18,1 times the trailing 12 -month earnings (see Table C). This approaches the valuationseen at prior bull market peaks. In short, the stock market is no longer cheap. However, stocks should still outper- form alternative asset classes (certificates of deposit, Treasury notes and bonds, inwstment-grade bonds), in the coming year. We anticipate a muted return in. 2014, however. Earnings growth is expected to be only about 6%. It would be too optimistic, we believe, to bet that another big bump in valuation would deliver a return greatly in excess of earnings growth again this year. In fact, history shows us that in the years that immediately follow years with S&P 500 performance greater than 25%, the average stock marketrehun was h% (see Table D). Int 35%of the years following a 25% gain, the market delivered a negative return. Weare not forecasting a negative year in the market; but a return in line with: earnings growth and historical averages seems reasonable. What are the risks that could cause its to adopt an evert more conservative posture? There are still a number of concerts that could derail the advance and lead to a market correction in 2014. The market is no longer undervalued. The sea of liquidity (provided by the Z'ed's Quantitative Easing program) that has supported the advance since 2009 is reaching unsustainable levels. ARhougb tapering has just begun, bond yields on the 1:0 -year Treasury have almost doubled from the low& ofApril. 'We still don't know how touch highervields will rise andwhat effect that might have on the housing market's nascent recovery. Unemployment, at 7%, is still stubbornly too high for this point in an economic recovery; it suggests a structural change in the long-term unem- ployed segment. The midterm elections in 2014 could bring political partisanship and brinkmanship back to the front pages of the newspapers. The Afliadable Care Act's (ACA) disastrous launch and the direct or collateral cancellation of millions ofhealth insurance policies may leave millions uninsured Wcwon'tknow the numbers until mid-January, but the ACA could hold some surprises for the economic outlook and market activity. The international markets remained calm in 2013, aided by massive monetization of government debt abroad by the Bank of England, the European Central Hank, and the Bank of Japan. The question remains: At what point is this monetization of debt no longer possible, and what happens then'? As usual, there are opportunities and risks facing us in the new year. Rarely do we face an environment that displays opportunity without risk, or risk without opportunity. Ourstrategy continues to be one of balance. We balance various asset classes to mitigate the volatility of any single class (for instance, as we saw with bonds in 2013 and stocks. in 2008). We concentrate on the highest quality securities within those asset classes. Today's probabilities and variables we have discussed in this newsletter may change before the end of the first quarter, when you'll lacar from as again. We remain vigilant.. We're willing to become more defensive should the ground shift. In the meantime, we are well positioned to participate in growth and to protect portfolio value. We wish all of you. a happy and healthy new ,year in 2014. We appreciate you, and we thank you for your trust.. We understand how complex and volatile these markets appear on die news reports. As always, we welcome your questions and feedback Please feel free to call us if you would like to schedule a meeting by phone or in person. Happy new year from all of us at Longer Investments Inc. LONGER INVESTMENTS INCORPORATED Sa vim PrvvwU by Eongrr Invsstmeub Inc: F¢rsama inrushxtrrt 1'Irrneiihyi •hsk 7olrmnat r 5�mmaj? • ikvet,711111mt (,'i ar: InvNmow Polity RdirarciPlsntntngv•tFt.Fats.n and Ent?fi;5iu<rari,l-tmualaaeat•Snryivorsivtp trris`staL'tim t+.tmi,i�a- {7taritaukTri>;? ,tiat;aEtnr+m! •,dor, pit�.Y Idaasi;."i rr anal lii�drwwnrr;i a1d;'mur,�r�nd'7%+x nrrv♦, Attot>,nEr�g Tt:e:fi7e;iu�t • R rn&rbk izr�tau Elssg A3en�u"rnp=d Pq Un 1269 � Iv rets Ur 7elep.tr97944asa5t 0111 MY. SR) 1u,-"'710 Fix: 471'.+V-7f2J-Hindit.(o0goflgermviom IN.^7o sive wvnv's<hnr�rrimrr:o; Chart I Federal Reserve Balance Sheet vs. European Central Bank Balance Sheet (Trillions) $4.0 $3.5 Now $4 Trillion €3.05 € AS €2.65 €2.45 €2.25 W €2.05 €1.85 €1.65 €1.45 €1.25 $1.0 $0.5 '08 1850 j GDP Report Tapering Asset Deficit 1800 elks stag military again 1,750 - Fed Reiterates Syria Shutdown Fednunntrs. 1700 suggest bond Monetary Policy buying changes 16501 Poor L'S USjobs consumer conffdeuce 1600 data 1550 109 110 111 '12 '13 Federal Reserve Bank —ECB Chart 2 2013—An Eventful Year S&P 500 - 2013 Janet Yeller testifies atStstate.Banking is Industrial data Committee Fedtapers Economic disappoints July Jobs Data l' 's Tape' data lJisappouus Ca. er Fed hints at Syria disappoints reducingbanrl US tub in chemical ei Y... t8 IU attack Strong . talks t ons Apr Retail � � Cleadersrional reach 4Q'12 GDP Sales data leaders mach growth budget deal l �r......:�s. %J• iii S Stmny3Q world �onomic outlook 1500 Cyprus Bank1 i s, lowe " Crisis. 1 davnal Japan in5.yrs Italianelections announces14511 ... Pis:alcliff causespalie ^a1.4tln aussterity impasse .talks a .cea,ent su-------- fanFeb Mar Apr Mny Jun, lobs Fed Hines At report GDP Report Tapering Asset Purchases LS mulls military actionin Govemment Fed Reiterates Syria Shutdown Accomodative Government Monetary Policy Shutdown Positive euls, debt USjobs ce3lingraised. Jul. Aug Sep Oct Nov Dec Chart 3 Corporate Cash at Levels Last Seen Consistently in the 1960's Table C S&P 500 Valuation at Bull Market Peaks ©ate Level TTM P/E NTM. P/$ 8/2/56 49.7 14.1 NA 12/12/61 72.6 24.2 NA 2/9/66 94.1 18.5 NA 11/29/68 108.4 19.5 NA 1/11/73 120.2 19.1 NA 11/28/80 140.5 9.8 NA 8/25/87 336.8 20.7 15.2 7/16/90 359.0 16:0 12.6 3/24./00 1527.5 29.6 24.7 10/9/07 1565.2 17.5 15.2 1213312013 1849.4 P8.1 15.4 20% AV awe* 18.9 16.9 °amruge e dudes current bull nrkt 31% 27% Table U Yews With S&P 500 Performance GmainrThan 25% FollowingFollowing Price Y"f 'Ptice Yews Year Yeax's Return Return ltet°r.n .Return. 1928 38% -12% 1950 26% -10% 191M 44% -5% 1985 26% 15% 1935 41% 28% -1989 27% -1% 1936 28% .39% 1991 26% 4% 1945 31% -12% 1995 34% 20% 1954 45% 26% 1997 31% 27% 1955. 26% 3% 1998 27% 20% 1958 38% 8% 200.3 26% 9% 1975 32% 19% 2013 a"{r ? Average 320/9 6°/a. Source: .Slrrrtegas 2014 Meeting Schedule City of Fayetteville Policemen's Pension and Relief Board of Trustees Third Thursday of the First Month of each Quarter 3:00 p.m. - City Administration Room 326 January 16, 2014 April 17, 2014 July 17, 2014 October 16, 2014 LONGER I NVESTM ENTS INCORPORATED City of Fayetteville Police Pension Board Meeting January 16, 2014 Longer Investments Inc. PORTFOLIO APPRAISAL City of Fayetteville Police Pension Fund December 31, 2013 Unit Total Market Pct. Unit Annual Cur. Quantity Security Cost Cost Price Value Assets Income Income Yield Common Stock 3,750 AT&T 28.24 105,892.28 35.16 131,850.00 1.8 1.840 6,900.00 6.5 220 Apple Inc. 491.77 108,190.07 561.02 123,424.40 1.7 12,200 2,684.00 2.5 2,350 BCE, Inc. 24.40 57,329.89 43.29 101,731.50 1.4 2.237 5,256.48 9.2 1,425 BI1P Billiton Ltd. 65.20 92,916.27 68.20 97,185.00 1.3 2.360 3,363.00 3.6 2,840 CSX Corp 27.01 76,708.40 28.77 81,706.80 1.1 0.600 1,704.00 2.2 1,300 Caterpillar Inc. 84.74 110,165.97 90.81 118,053.00 1.6 2.400 3,120.00 2.8 810 Chart Industries Inc. 91.73 74,299.36 95.64 77,468.40 1.0 0.000 0.00 0.0 800 Chevron Corp. 85.21 68,169.23 124.91 99,928.00 1.3 4.000 3,200.00 4.7 3,475 Cisco Systems, Inc. 19.01 66,062.08 22.43 77,944.25 1.0 0.680 2,363.00 3.6 2,700 Coca-Cola 30.98 83,651.01 41.31 111,537.00 1.5 1.120 3,024.00 3.6 1,425 ConocoPhillips 53.93 76,843.33 70.65 100,676.25 1.4 2.760 3,933.00 5.1 1,765 E.I. DuPont de Nemours 58.33 102,949.96 64.97 114,672.05 1.5 1.800 3,177.00 3.1 & Co. 1,300 Ensco PLC 56.76 73,793.78 57.18 74,334.00 1.0 3.000 3,900.00 5.3 6,000 General Electric 19.14 114,844.81 2803 168,180.00 2.3 0.880 5,280.00 4.6 4,000 heel Corp. 20.53 82,138.17 25.95 103,820.00 1.4 0.900 3,600.00 4.4 515 International Business 172.39 88,780.07 187.57 96,598.55 1.3 3.800 1,957.00 2.2 Machines Corp. 1,250 Johnson&Johnson 64.70 80,869.69 91.59 114,487.50 1.5 2.640 3,300.00 4.l 2,000 Medtronic, Inc. 48.69 97,372,69 57.39 114,780.00 1.5 1.120 2,240.00 2.3 3,000 Microsoft Corp. 36.97 110,906.75 37.41 112,230.00 1.5 1.120 3,360.00 3.0 1,625 Northern Trust 43.31 70,386.07 61.89 100,571.25 1.4 1.240 2,015.00 2.9 Corporation 1,000 Occidental Petroleum 88.87 88,868.90 95.10 95,100.00 1.3 2.560 2,560.00 2.9 Corporation 3,600 Pfizer Inc. 20.12 72,441.75 30.63 110,268.00 1.5 1.040 3,744.00 5.2 2,000 Potash Corp, of 32.61 65,215.60 32.96 65,920.00 0.9 1.400 2,800.00 4.3 Saskatchewan, Inc. 1,350 Procter & Gamble Co. 55.82 75,353.17 81.41 109,903.50 1.5 2.406 3,248.10 4.3 1,800 Qualcomm Incorporated 63.62 114,509.50 74.25 133,650.00 1.8 1.400 2,520.00 2.2 2,000 Southwestern Energy 36.97 73,930.28 39.33 78,660.00 1.1 0.000 0.00 0.0 2,000 Vodafone Group PLC 25.33 50,656.42 39.31 78,620.00 Ll 1.590 3,179.01 6.3 1,025 Wal-Mart Stores Inc. 56.30 57,70435 78.69 80,657.25 1.1 1.880 1,927.00 3.3 2,550 Waste Management Inc. 41.80 106,587.17 44.87 114,418.50 1.5 1.460 3,723.00 3.5 (New) 8,000 iShares Dow Jones 52.23 417.855.93 71.35 570,800.00 7.7 2.186 17,487.42 4.2 Select Dividend Index 2,865,393.36 3,559,175.20 47.8 105,565.01 3.8 Other Income Securities 10,000 BlackRock Build 18.97 189,745.61 19.15 191,500.00 2.6 1.584 15,840.00 8.3 America Bond Tr 25,000 Guggenheim 21.92 548,055.09 24.77 619,250.00 8.3 1.325 33,125.00 6.0 Multi -Asset Income Index 8,250 Utilities Select Sector 34.14 281,679.38 37.97 313,252.50 4.2 1.465 12,089.88 4.3 SPDR Fund 2,000 iShares U.S. Preferred 37.55 75,094.90 36.83 73,660.00 LO 2.432 4,864.46 6.5 Stock Index Fund 1,094,574.98 1,197,662.50 16.1 65,919.34 6.0 Mutual Funds -Fixed 8,100.0000 iShares iBoxx 10828 877,057.43 114.19 924,922.80 12.4 4.376 35,446.12 4.0 Investment Grade Corp Bond 877,057.43 924,922.80 12.4 35,446.12 4.0 LLONGER INVESTMENTS INCORPORATED i A Registered Investment Advisor Longer Investments Inc. PORTFOLIO APPRAISAL City of Fayetteville Police Pension Fund December 31, 2013 4.000% Due 08-15-18 Accrued Interest Government Agency I 200,000 Federal Form Credit Bank INC) 6.127% YTM 6.125% Due 12-29-15 Accrued Interest Alternative Investments 1,200 SPDRGoId Shares Cash and Equivalents Dividends Accred Money Market Limited Partnerships 11,000.00 ALPS Alerian MLP ETF TOTAL PORTFOLIO 99.97 12,976.86 0.2 980,072.13 1,066,520.11 14.3 199,938.00 111.33 222,652.40 3.0 6.125 39,687.50 4.1 12,250.00 6.1 Unit Total Market Pct. Unit Annual Cur. Quantity Security Cost Cost Price Value Assets Income Income Yield Government Bonds 0.0 145,334.08 139,344.00 1.9 0.00 0.0 150,000 U. S. Treasury Note 100.00 150,000.00 110.82 166,230.45 2.2 5.125 7,687.50 5.1 5.125% Due 05-15-16 0.010 12.84 0.0 138,170.13 138,170.13 1.9 800,000 U. S. Treasury Note 103.76 830,072.13 110.91 887,312.80 11.9 4.000 32,000.00 3.9 4.000% Due 08-15-18 Accrued Interest Government Agency I 200,000 Federal Form Credit Bank INC) 6.127% YTM 6.125% Due 12-29-15 Accrued Interest Alternative Investments 1,200 SPDRGoId Shares Cash and Equivalents Dividends Accred Money Market Limited Partnerships 11,000.00 ALPS Alerian MLP ETF TOTAL PORTFOLIO 99.97 12,976.86 0.2 980,072.13 1,066,520.11 14.3 199,938.00 111.33 222,652.40 3.0 6.125 39,687.50 4.1 12,250.00 6.1 LLONGER INVESTMENTS INCORPORATED A Registered Inveshnenl Advisor 68.06 0.0 199,938.00 222,720.46 3.0 12,250.00 6.1 121.11 145,334.08 116.12 139,344.00 1.9 0.000 0.00 0.0 145,334.08 139,344.00 1.9 0.00 0.0 9,791.98 9,791.98 0.1 0.000 0.00 0.0 128,378.15 128,378.15 1.7 0.010 12.84 0.0 138,170.13 138,170.13 1.9 12.84 0.0 17.15 188,655.92 17.79 195,690.00 2.6 1.068 11,748.00 6.2 188,655.92 195,690.00 2.6 11,748.00 6.2 6,489,196.04 7,444,205.20 100.0 270,628.81 4.2 LLONGER INVESTMENTS INCORPORATED A Registered Inveshnenl Advisor Longer Investments Inc. SUMMARY OF REALIZED GAINS & LOSSES AND INCOME & EXPENSES City of Fayetteville Police Pension Fund From 01-01-13 Through 12-31-13 TOTAL REALIZED GAINS AND LOSSES 129,183.79 Income and Expenses Income: Common Stock 106,944.02 Other Income Securities 44,670.68 Mutual Funds -Fixed 41,617.44 Preferred Debt Securities 1,703.52 Government Bonds 40,766.30 Government Agency 12,250.00 Alternative Investments 3,540.00 Cash and Equivalents 29.06 Limited Partnerships 10,051.95 Expenses: ADR Fee 87.00 Foreign Tax on Dividends 1,491.26 Miscellaneous Expense 10.00 Northern Trust Fee 3,719.84 Management Fee 62,510.61 NET INCOME 193,754.26 LLONGER INVESTMENTS INCORPORATED I A RegislerrA Lweshnenl Advism u Longer Investments Inc. FIXED INCOME DISTRIBUTION City of Fayetteville Police Pension Fund December 31, 2013 Totals Par Value $1,150,000 Market Value $1,289,241 Total Cost $1,180,010 Net Gain/Loss $109,230 Annual Income $51,938 Accrued Interest $13,045 Number of Issues 3 Summary Information Weighted Averages 12/31/13 VS. 12/31/12 Average YTM 4.4 4.4 Average Maturity (yrs) 3.9 4.9 Average Coupon (%) 4.5 4.5 Average Duration 3.6 4.4 Distribution by Maturity LLONGER INVESTMENTS INCORPORATED i /I Regisined Investment Advisor % Bond Average Average Average Maturity Number Mkt Value Holdings Y T M Coupon Duration 1 Yr - 3 Yrs 2 $389,928 30.2% 5.7 5.70% 2.1 3 Yrs - 5 Yrs 1 $899,313 69.8% 3.9 4.00% 4.2 LLONGER INVESTMENTS INCORPORATED i /I Regisined Investment Advisor *Returns are reported net ofall fees and expenses. LI LONGER INVESTMENTS INCORPORATED /I Kegislaed I111'es6nenl Advisor Longer Investments hie. PERFORMANCE SUMMARY City of Fayetteville Police Pension Fund December 31, 2013 Other Fixed- Income Actuarial Equities Income Assets Total Assumptions 1991 39.5% 17.2% 28.1% 1991 6% 1992 -1.0% 7.4% 0.6% 1992 6% 1993 12.1% 8.5% 9.3% 1993 6% 1994 -7.9% -5.7% - -5.7% 1994 6% 1995 27.7% 14.7% 19.6% 1995 6% 1996 14.1% 2.5% 6.9% 1996 6% 1997 35.7% 6.7% 19.2% 1997 6% 1998 21.5% 7.4% 11.2% 13.0% 1998 6% 1999 5.7% 0.3% -3.5% 3.3% 1999 6% 2000 -10.0% 9.0% 22.0% -0.2% 2000 6% 2001 -16.7% 7.9% 25.1% -1.9% 2001 6% 2002 -32.9% 9.6% 8.0% -2.0% 2002 6% 2003 27.9% 2.2% 19.8% 11.1% 2003 6% 2004 7.4% 2.7% 8.1% 5.5% 2004 6% 2005 -1.1% 2.1% -1.6% 1.3% 2005 6% 2006 17.4% 3.5% 3.0% 10.5% 2006 6% 2007 10.8% 6.5% 1.8% 8.2% 2007 6% 2008 -40.2% 6.5% 4.5% -19.1% 2008 7% 2009 28.2% 1.9% 13.3% 15.7% 2009 7% 2010 12.7% 8.5% 6.9% 11.7% 2010 5% 2011 5.4% 9.4% 8.8% 5.2% 2011 5% 2012 4.0% 4.8% 3.2% 4.6% 2012 5% 2013 14.7% -3.2% 16.5% 6.2% 2013 5% Cumulative Return: 249.3% 246.5% 291.5% 293.2% 5.913% Annualized Return: 5.6% 5.6% 8.9% 6.1% *Returns are reported net ofall fees and expenses. LI LONGER INVESTMENTS INCORPORATED /I Kegislaed I111'es6nenl Advisor Longer Investments Inc. CONTRIBUTIONS/WITHDRAWALS I City of Fayetteville Police Pension Fund From 01-01-13 To 12-31-13 CONTRIBUTIONS 12-30-13 Money Market (WorldCom Inc. class action distribution) WITHDRAWALS $8.94 $8.94 02-01-13 Money Market $103,000.00 03-01-13 Money Market $116,000.00 04-01-13 Money Market $90,000.00 05-01-13 Money Market $84,000.00 08-01-13 Money Market $27,000.00 09-01-13 Money Market $104,000.00 10-01-13 Money Market $108,000.00 11-01-13 Money Market $67,000.00 $699,000.00 LLONGER INVESTMENTS INCORPORATED A Rryistrrcd lnvesmimt Advism Longer Investments Inc. ACCOUNT RECONCILIATION City of Fayetteville Police Pension Fund December 31, 2013 Beginning Value (July 26, 1990) $ 1,350,354.18 Contributions $ 3,537,231.12 Transfer of Securities $ 4,320,415.91 Distributions $ (10,239,500.00) Net Income $ 5,093,870.63 Accrued Income $ (19,083.92) Realized Gains $ 2,573,563.57 Unrealized Gains $ 826,793.71 Ending Value (December 31, 2013) $ 7,443,645.20 NET INVESTMENT RETURN $ 8,475,143.99 LONGER INVESTMENTS INCORPORATED I A Rgpslered Lrveshnent Advisor LONGER INVESTMENTS INCORPORATED /I Kegisteatl Invrslnirnl iltivisor January 16, 2014 City of Fayetteville Police Pension Fund 113 W. Mountain Street Fayetteville, Arkansas 72701 Dear Pension Board Members: Please accept this notice of our intent to resign as investment manager for The City of Fayetteville Police Pension Fund. We are thankful for the 24 years we have been allowed to manage the pension fund and appreciate the trust that was placed in Longer Investments as a young firm, barely five years in existence, when we were hired in 1990. The growth in our business is in servicing the high -net -worth individuals, defined contribution plans, and non-profit foundations. The City of Fayetteville Police Pension Fund is our only public pension fund, and we have decided to leave management of public money pension funds at this time in our corporate lifecycle. We would like to transition within 90 days, but if this is not possible, we will continue to manage the account through June 30, 2014, to allow time for you to hire another manager. Again, thank you for the trust you have placed in our firm, and we appreciate the partnership we have shared with the Fayetteville Police Pension Fund since 1990. We will do all we can to effect a smooth transition for the pensioners. It has been a pleasure working with all of you. We hold you and the retirees you represent in high regard, and we wish all of you the very best. Sincerely, Elaine M. Longer, CFA President FMI✓tl e(r I!, I_"", IGdi,,I, in n. limon i n ,rIm CITY OF FAYETTEVILLE POLICE PENSION AND RELIEF FUND INVESTMENT POLICY OBJECTIVE & GUIDELINES INTRODUCTION This statement of investment policies and objectives of the City of Fayetteville Police Pension and Relief Fund (the "Fund") has been provided by Longer Investments, Inc. (the "Investment Advisor") to the Fund and is hereby adopted by the Board of Trustees to the Fund (the "Trustees") as follows: The Trustees shall clearly define investment polices and objectives as generally set forth below. 2. The Investment Advisor shall be given guidance as set forth below and understand what is expected of them by the Trustees. 3. The investment polices and objectives may be changed at any time by the Trustees and shall be reviewed at least annually. FIDUCIARY" RESPONSIBILITY The Trustees are charged with the responsibility of investing the assets of the Fund in accordance with the minimum asset management standards set forth in A.C.A. §24-11- 216 and the prudent investor rule set forth in A.C.A. §§24-2-610 -- 24-2-619 (the "Prudent Investor Rule"). PRUDENT INVESTOR RULE Pursuant to the Prudent Investor Rule, the Trustees are required to invest and manage Fund assets as a prudent investor would, by considering the purposes, terns, distribution requirements, and other circumstances of the Fund. In satisfying this standard, the Trustees must exercise reasonable care, skill, and caution. The Trustee's decisions with respect to individual assets must be evaluated not in isolation but in the context of the Fund portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the Fund. The following circumstances may be considered in investing and managing Fund assets to the extent such circumstances are relevant to the Fund or its beneficiaries: • General economic conditions; • The possible effect of inflation or deflation; • Needs for liquidity, regularity of income, and preservation or appreciation of capital. DELEGATION OF AUTHORITY Pursuant to A.C.A. §24-2-618, the Trustees are authorized to delegate the investment and uianagernent of the Fund to an Investment Advisor. Any Investment Advisor retained by the Trustees will be held responsible for making all investment decisions regarding the assets under their direction. The Investment Advisor will observe the guidelines and philosophies stated berein and will be required to operate within these guidelines. The Investment Advisor will ensure proper reporting is provided to the Trustees and includes, but is not limited to, the results of the Investment Advisor's performance versus their respective benclunarks. Such reporting will clearly disclose all of the Fund's investment -related fees and will occur at least twice annually. However, from time to time the Trustees may direct a specific investment activity and shall be fully responsible for the direction pursuant to A.C.A. §24-10- 402(a)(2)(E). INVESTMENT OBJECTIVES The investment guidelines set forth below consider the risk/reward characteristics of various and diversified asset classes in an effort to develop an investment plan designed to accomplish the investment objectives below. The investment objectives of the fund represent long tern expectations and will be evaluated over three (3) and five (5) year time periods. To provide for growth and income within a balanced portfolio structure, consistent with prudent levels of risk. To achieve the actuary return objective of 5% compound amoral return over a long-term time period. INVESTMENT GUIDELINES The Fund's assets will be invested pursuant to the guidelines set forth below. The Investment Advisor, within these investment guidelines, shall have full discretion with regard to the investment process. Maximum Equity 50% Maximum Fixed Income 65% Maximum Other 10% Maximum Cash & Equivalents 25% Minimum Equity 35% Minimum Fixed hiconne 25% Minimum Other 0% Minimum Cash & Equivalents 0% Investment in intentational securities will be limited to 50% of the equity portfolio at cost. Options and exchange -traded fiords may be used for hedging purposes. Policy guidelines may be amended from time to time by the Trustees after considering the advice and recommendations of the Fund's Investment Advisor. The Trustees believe that maintaining a balanced and diversified allocation is critical to the long-term success of the Fund. To maintain balance and diversification the Investment Advisor will be allowed to deviate plus or minus 10% of the Fund's target allocation set forth above if it sees fit. The Trustees will be notified of such deviations at the quarterly meeting. The Investment Advisor shall utilize security brokers that provide competitive cost, execution, and research on all transactions. All assets selected by the Investment Advisor must have a readily ascertainable market value and must be readily marketable. The following assets and/or transactions are prohibited: Naked Options — Puts or Calls Leveraging without specific prior approval Securities lending without approval It is recognized that mutual,fiends and/or collective trusts may include securities that deviate from the Fund's investment policy statement. It is understood that these investment positions are permitted if held and managed inside the fiord and filly disclosed in the prospectus. REVIEW PROCEDURES The Trustees will meet periodically with the Investment Advisor. The meetings will serve as review of the Investment Advisor's progress and adherence to the Fund's guidelines. The Trustees and the Investment Advisor will also discuss the outlook for the markets at these meetings. The Investment Advisor will meet with the Trustees at least twice amorally to review the performance of the Investment Advisor. BY THE CITY OF FAYETTEVILLE POLICE PENSION AND FUND BOARD OF TRUSTEES: 4 �or I.io❑ d ardan 0��_& Sondra Smith, City Clerk -ohm lrowo JB1 - I;IICILri ,�� w Frank,lnlyuson Lskfon Roberts MdfVistt` 11 "ley ATE 71/91/3 DATE _7//8 /13 DATE E�13 DA9Tl i DATE ATPD 'E M B R S AND O1� COThcL L I MMENTUTLOOKS FROM LONGER INVESTMENTS INCORPORATED During 2013, we saw the strongest stock market performance since 1997 (as measured by the S&P 500), but the weakest bond market performance since 1994. Last year exhibited the widest divergence between stock performance and bond performance ever recorded. In this newsletter, we will consider the 2014 outlook for the markets and provide an update on the recent Fed policy changes. The Bond Market In 2013, we witnessed sharp increases in interest rates for five-year to 30 -year bonds (see Table A) as the Federal Reserve moved toward "tapering" its $85 billion monthly purchases of government and mortgage debt. Table A U.S. TREASURY YIELD CURVE Maturi 12/31/12 04/30/13 12/31/13 Five -Year 0.70% 0.68% 1.75% 10 -Year 1.75% 1.67% 3.03% 30 -Year 2.95%. 2.88% 3.96% As bond interest rates rise, bond prices decline. This leads to a negative total return (market value change plus interest income returns) in a rising rate environment (see Table B). In fact, the last time bonds delivered such a negative return was 1994, a year in which the Fed increased interest rates five times. Last year's decline in bond prices (and rise in yields) came with no corresponding rise in rates by the Federal Reserve. Rather, at the December Fed meeting, the governing board took a small step away from its massive Quantitative Easing (QE) program: It reduced the monthly purchases of Federal debt and mortgage debt by$ 10 billion, from $85 billion to $75 billion. Since the crisis in 2008, the Fed's balance sheet has ex- panded from $800 billion to $4 trillion as the QE program progressed (see Chart 1 on the insert en- closed). The Fed has now reached the point where it is willing to experiment by tapering its purchases to a lower monthly amount Even at this rate, the Fed's balance sheet would approach $5 trillion by year-end 2014. The information provided herein is illustrative only. It should not be construed as a formal recommendation by Longer Investments Inc. January 9, 2014 Table B U.S. TREASURY: TOTAL RETURN January 1 through December3l, 2013 At Longer Investments, our strategy has been to hold only the highest -quality U.S. Treasury, corporate, and municipal bonds of short- or moderate -maturity length. In 2011, we amended our investment policies to allow our portfolios to include high -dividend stocks and utility funds, preferred stocks and energy master limited partnerships in a class called "income assets," outside the "equity assets" class. We did this because of our concerns that bond values would decline if interest rates rose. These asset classes have delivered double-digit rates of return this year, somewhat offsetting the negative bond returns. However, in any stock market crisis, such as the one we saw in 2008-2009, these income growth assets (utility stocks, preferred stocks, energy master limited partnerships, etc.) will act more like stocks than like bonds. That is, they will drop in value — although less than stocks do. We believe that it is wise to allocate to these funds a portion of the total assets that our clients want to put in stable, high-quality income investments. Such assets provide growth and income while offsetting the price sensitivity of bonds to rising interest rates. It would be imprudent to invest all income assets in these securities, however, because they can also display negative price volatility with stocks. The Stock Market Although 2013 was a turbulent year geopoliti- cally, the stock market was able to shake off the worries and deliver a strong return (see Chart 2). There are several reasons for this. Compared with foreign markets, the U.S. markets are stable. The U.S. stock market outperformed foreign stock markets (with the exception of Japan's) in 2013. Also, with bond prices declining since May, Income Price Total Maturity Return Change Return Five -Year 0.63% -2.16% -1.54% 10 -Year 1.63% -8.80% -7.17% 30 -Year 2.75% -18.00% -15.25% At Longer Investments, our strategy has been to hold only the highest -quality U.S. Treasury, corporate, and municipal bonds of short- or moderate -maturity length. In 2011, we amended our investment policies to allow our portfolios to include high -dividend stocks and utility funds, preferred stocks and energy master limited partnerships in a class called "income assets," outside the "equity assets" class. We did this because of our concerns that bond values would decline if interest rates rose. These asset classes have delivered double-digit rates of return this year, somewhat offsetting the negative bond returns. However, in any stock market crisis, such as the one we saw in 2008-2009, these income growth assets (utility stocks, preferred stocks, energy master limited partnerships, etc.) will act more like stocks than like bonds. That is, they will drop in value — although less than stocks do. We believe that it is wise to allocate to these funds a portion of the total assets that our clients want to put in stable, high-quality income investments. Such assets provide growth and income while offsetting the price sensitivity of bonds to rising interest rates. It would be imprudent to invest all income assets in these securities, however, because they can also display negative price volatility with stocks. The Stock Market Although 2013 was a turbulent year geopoliti- cally, the stock market was able to shake off the worries and deliver a strong return (see Chart 2). There are several reasons for this. Compared with foreign markets, the U.S. markets are stable. The U.S. stock market outperformed foreign stock markets (with the exception of Japan's) in 2013. Also, with bond prices declining since May, 0 LONGER INVESTMENTS INCORPORATED more investors are shifting their money from bonds to stocks. Corporations delivered moderate earnings growth, about 7%. Cash -rich corporations (see Chart 3) continued to buy back thew own stock (thereby reducing supply) and to increase their dividends, supporting stock valuations at these levels. Since the stock market low of 2009, the S&P 500 has increased 173%, with underlying earnings growth of 106%. With market gains outperforming earnings so dramatically, the valuation applied to those earnings (price/earnings multiple) has increased to 18.1 times the trailing 12 -month earnings (see Table C). This approaches the valuation seen at prior bull market peaks. In short, the stock market is no longer cheap. However, stocks should still outper- form alternative asset classes (certificates of deposit, Treasury notes and bonds, investment-grade bonds), in the coming year. We anticipate a muted return in 2014, however. Earnings growth is expected to be only about 6%. It would be too optimistic, we believe, to bet that another big bump in valuation would deliver a return greatly in excess of earnings growth again this year. In fact, history shows us that in the years that immediately follow years with S&P 500 performance greater than 25%, the average stock market return was 6% (see Table D). In 35% of the years following a 25% gain, the market delivered a negative return. We are not forecasting a negative year in the market; but a return in line with earnings growth and historical averages seems reasonable. What are the risks that could cause us to adopt an even more conservative posture? There are still a number of concerns that could derail the advance and lead to a market correction in 2014. The market is no longer undervalued. The sea of liquidity (provided by the Fed's Quantitative Easing program) that has supported the advance since 2009 is reaching unsustainable levels. Although tapering has just begun, bond yields on the 10 -year Treasury have almost doubled from the lows ofApril. We still don't know how much higher yields will rise and what effect that might have on the housing market's nascent recovery. Unemployment, at 7%, is still stubbornly too high for this point in an economic recovery; it suggests a structural change in the long -tern unem- ployed segment. The midterm elections in 2014 could ,— bring political partisanship and brinkmanship back to the front pages of the newspapers. The Affordable Care Act's (ACA) disastrous launch and the direct or collateral cancellation of millions of health insurance policies may leave millions uninsured. We won't know the numbers until mid-January, but the ACA could hold some surprises for the economic outlook and market activity. The international markets remained calm in 2013, aided by massive monetization of government debt abroad by the Bank of England, the European Central Bank, and the Bank of Japan. The question remains: At what point is this monetization of debt no longer possible, and what happens then? As usual, there are opportunities and risks facing us in the new year. Rarely do we face an environment that displays opportunity without risk, or risk without opportunity. Our strategy continues to be one of balance. We balance various asset classes to mitigate the volatility of any single class (for instance, as we saw with bonds in 2013 and stocks in 2008). We concentrate on the highest quality securities within those asset classes. Today's probabilities and variables we have discussed in this newsletter may change before the end of the fust quarter, when you'll hear from us again. We remain vigilant. We're willing to become more defensive should the ground shift. In the meantime, we are well positioned to participate in growth and to protect portfolio value. We wish all of you a happy and healthy new year in 2014. We appreciate you, and we thank you for your trust. We understand how complex and volatile these markets appear on the news reports. As always, we welcome your questions and feedback Please feel free to call us if you would like to schedule a meeting by phone or in person. Happy new year from all of ups at Longer Investments Inc. Oc LONGER INVESTMENTS INCORPORATED Service' Provided by Longer InvelmmLs Inc: Personal Inveunml Plannuug -Risk Tokrmur Asstmnml • Drvrlopmml of an Invaintml Policy •Re imnml Planning •IRA, Pmsion and Profit Sharing Managmuni -Survivorship and EstateTrarufer Planning Charitable Tntsl Managemaml • Nonprofit Foundation and Endomnml Mnruugmunt • Tax and Amounting facilitation • Reputable Rr-Based Asset Managmunl P0. Box 1269 • Fayeurvilk Arkansas 72702 Trlephonr: 479-443-5851 • Toll fret: 800-827-7710 • Fax: 479-443-7129 • E-mail: u fo@longerinvmm Web site: mvwlongerurv.mm Chart l Federal Reserve Balance Sheet vs. European Central Bank Balance Sheet (Trillions) $4.0 $3.5 Y $3.0 c ma a $2.5 d s $2.0 `m 'a w .. $1.5 $1.0 $0.5 — '08 Now $4 Trillion €3.25 €3.05 €2.85 €2.65 €2.45 €2.25 no €2.05 €1.85 €1.65 €1.45 €1.25 109 110 'll '12 '13 —Federal Reserve Bank —ECB Chart 2 2013 — An Eventful Year S&P 500 - 2013 Janet Yellen testifies atSenate Banking 1850 US Industrial data Committee Fed Economic disappoints July jobs Data Fed's Taper Deficit damDisappoints Ca 1800 mks stall Fed hints n Syria er disappoints reducingbond US/EU begin chemical again bu g free -trade attack 1%50 \ Strong talks I 'ons Fed minutes 1700 suggestbond buying changc 1650 Poor US consumer confidence Apr Retail Congressional 4'12 GCn Sales data leaders teach 0 growth 1600 data OECD ctft World 1550 economic outlook 1500 Cyprus Bank Jobless Crisis claims lowest Italianelecfirs om japan ins y R causes political announces G20 eases Fiscal cliff $1.4dn austerity a reearent impasse stimulus talks 1400 Jan Feb Mer Apr May Jun budget deal Stmn Strong 3Q Fed Hints At Lobs GDP Report reportTapering Asset Purchases US mulls military action in Gwemment Fed Reiterates Syria Shutdown Accomodative Government Monetary Policy Shutdown Positive ends, debt US jobs ceilingraised Jul Aug Sep Oct Nov Dec Chart 3 Corporate Cash at Levels Last Seen Consistently in the 1960's Table C S&P 500 Valuation at Bull Market Peaks Date Level TTM P/E NTM P/E 8/2/56 49.7 14.1 NA 12/12/61 72.6 24.2 NA 2/9/66 94.1 18.5 NA 11/29/68 108.4 19.5 NA 1/11/73 120.2 19.1 NA 11/28/80 140.5 9.8 NA 8/25/87 336.8 20.7 15.2 7/16/90 369.0 16.0 12.6 3/24/00 1527.5 29.6 24.7 10/9/07 1565.2 17.5 15.2 12/31/1013 1848.4 18.1 15.4 20% Avera e- 18.9 16.9 'average excludes current hull mkt 31% 27% Table D Years With S&P 500 Performance Greater Than 250/o Following Price Following Yeaz Rin Year's Year Year's Return Return Return 1928 38% -12% 1980 26% -10% 1933 44% -5% 1985 26% 15% 1935 41% 28% 1989 27% -7% 1936 28% -39% 1991 26% 4% 1945 31% -12% 1995 34% 20% 1954 45% 26% 1997 31% 27% 1955 26% 3% 1998 27% 20% 1958 38% 8% 2003 26% 9% 1975 32% 19% 2013 30% 7 Average 3 N 60/o Source: Strategas