MINUTES OF THE REGULAR MEETING OF THE POLICE OFFICERS' PENSION BOARD, AUGUST 26, 2011 Present: Chair Ron Baty, Vice-Chair Jody Hudgins, Secretary/reasurer Pamela Nadalini, Trustee Tim Van Schultz Absent: Trustee Kevin Stiff Others Present: Attorney Lee Dehner, Mr. Craig Maxwell and Brian Beda of Franklin Templeton, Larry Cole of Burgess Chambers, Commissioner Terry Turner, Pension Plans Administrator Benita Saldutti, Pension Analyst Gail Loeffler, and Staff Member Diane Torres CALL TO ORDER Chair Baty called the meeting to order at 8:19 a.m. APPROVAL OF THE REGULAR MEETING MINUTES OF JULY 22, 2011 On a motion of Vice-Chair Hudgins and a second of Trustee Van Schultz, it was moved to approve the minutes of the regular meeting of July 22, 2011. Motion carried unanimously. INVESTMENT REVIEW: FRANKLIN TEMPLETON Mr. Maxwell presented the portfolio performance for the quarter ending June 30, 2011, stating the average annual returns decreased by 0.8% versus the Russell 2000 Growth Index benchmark which decreased by 0.6%. He stated that the portfolio decreased by approximately 13% compared to the benchmark which decreased by 11% through August 24, 2011. He presented the holdings of the portfolio, stating Regal Entertainment has a yield of 6.8% which is unusual for a small-cap growth portfolio as the firm usually searches for capital appreciation. He continued that the firm believes Regal Entertainment will continue to be a good purchase while the firm waits for stocks to continue to increase to capture the yield. Vice Chair Hudgins requested information such as debt to equity, payout ratio, sustainability, and the research conducted by the firm for Regal Entertainment be provided to the Board. INVESTMENT REVIEW: BURGESS CHAMBERS Mr. Cole presented the investment review for the quarter ending June 30, 2011, stating the investment gain was $895,547. He stated that the investment return net of fees was 0.8%. He recommended that Aletheia be replaced. He stated that although the investment return is very good, he has lost confidence in the firm. Mr. Cole stated that a firm that has a different investment strategy than Fayez Sarofim is preferred and he will provide information to the Trustees within the next two weeks for review. Mr. Cole recommended that $1 million be moved from PIMCO to the convertible managers. August 26, 2011 On a motion of Vice-Chair Hudgins and a second of Trustee Van Schultz, it was moved to move $1 million from PIMCO and allocate $500,000 to each convertible manager. Motion carried unanimously. Mr. Cole stated that managers are asked to recommend changes to the investment guidelines if any provision prohibits them from investing in the normal manner. He continued that Fayez Sarofim (Fayez) requested the limit of 5% at cost for a single issuer be increased to 8% at market value. He continued that the requested increase is not seen as an issue that would have an adverse effect on the total investment portfolio. On a motion of Vice-Chair Hudgins and a second of Secretary/Treasurer Nadalini, it was moved to increase the limit of 5% at cost for a single issuer to 8% at market value for Fayez Sarofim & Company. Motion carried unanimously. Mr. Cole stated that Fayez likes to purchase very large multi-national companies and some American Depository Receipts (ADR) which are foreign companies which trade on the U.S. Exchange. He continued that Fayez is requesting the investment in foreign securities limit of 5% be increased to 10%. He continued that the request is supported as the Statute allows up to 25% of a portfolio to be invested in foreign securities. On a motion of Vice-Chair Hudgins and a second of Trustee Van Schultz, it was moved to increase the 5% investment in foreign securities limit to 10% for Fayez Sarofim & Company. Motion carried unanimously. Attorney Dehner stated that the approved changes must be signed and filed with the Division of Retirement with a copy to the actuary. He continued that the amended policy must be submitted to the City and that the effective date of the approved changes will be 31 days after the changes are filed with the City. Secretary/reasurer Nadalini stated that she does not wish to set a precedent of the Board's willingness to make exceptions to the investment policy frequently. DISCUSSION RE: ASSUMED RATE OF RETURN Mr. Cole gave a summary of the previous discussion concerning the Board's assumed rate of return of 8% and the assumed rate of return not being changed reactive to a short-term situation. He stated that short-term is defined as five to ten years. He continued that an assumed rate of return of 7.5% is more reasonable than 8%. He continued that no data other than the five to ten year data indicates an assumed rate of return of 8% is unreasonable. On a motion of Vice-Chair Hudgins and a second of Secretary/Treasurer Nadalini, it was moved to reduce the assumed rate of return by 25 basis points over the next four years to achieve a 7% assumed rate of return. Motion failed 1-3 with Chair Baty, Secretary Treasurer Nadalini and Trustee Van Schultz voting no. On a motion of Secretary/rreasurer Nadalini and a second of Trustee Van Schultz, it was moved to decrease the assumed rate of return from 8% to 7.75%. Motion carried unanimously. August 26, 2011 2 STATUS RE: DISABILITY REQUEST OF RICHARD CONWAY AND JANINE CROUGH Attorney Dehner stated that the disability request of Janine Crough should not be discussed at this time as the last update involved substantive and procedural issues which the Board cannot discuss. He continued that he is waiting to receive the response to the interrogatories for Richard Conway. Next Meeting The next regular meeting will be at 8:15 a.m. on Friday, September 23, 2011, in the City Commission Chambers. ADJOURN The meeting was adjourned at 9:57 a.m. Chair Baty Secretary/reasurer Nadalini August 26, 2011 3