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CITY OF MUSKEGON
POLICE & FIRE RETIREHSNT SYSTEM INVESTMENT POLICY
INTRODUCTION
The City of Muskegon Police & Fire Retirement System Board of Trustees was
established by City Charter and ordinance and vested with the “authority and
responsibility for the general administration and management of the Police &
Fire Retirement System". One of the important charges of the Board is to
develop investment policies to be pursued in the management of the pension
plan’s assets which will help insure that the growth of income returned by
those assets will provide the maximum possible benefits to the members and
beneficiaries of the retirement system.
To help provide these benefits, the Board of Trustees will seek an investment
management organization which possesses, in the Board's opinion, capabilities
for the management of assets of a public retirement systen. The selected
organization will act as investment counselor and will be guided by the
investment policies and guidelines established herein.
BASIC INVESTMENT PHILOSOPHY AND GOALS
( basic investment philosophy of the Board of Trustees is to invest and
vest the assets of the Retirement System, firstly with regard to the
preservation of principal as opposed to speculation and secondly with regard
to potential return. In pursuit of this policy the Board of Trustees and its
investment advisors shall:
1) act with the same care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a similar
capacity and familiar with those matters would use in the conduct of a
similar enterprise with similar aims;
2) act with due regard for the management, reputation, and stability of
the issuer and the character of the particular investments being
considered; and
3) fully conform to the provisions of Act 55 of the Public Acts of 1982,
including all amendments thereto.
The investment portfolio will consist of fixed income securities of both long
and short maturities and equities, including convertible securities.
It is the aim of the Board that the overall investment portfolio will provide
on a consistent basis a "real" return (i.e. after inflation) of at least 4%
annually from interest, dividends, and net realized and unrealized capital
gains.
istency is of utmost importance and it is to be achieved by an insistence
af high standards of quality in both the fixed income and equity portfolios
and by a weighting of the portfolio between bonds and equities that reflects a
judicious evaluation of the current and prospective rates of return fron these
two sectors of the market.
Consistency is of such importance that the Board may be willing to accept an
investment performance below the median of comparable employee benefit funds
' ng rising securities markets in exchange for the expectation of a
-+-tdedly superior performance during falling or declining securities markets.
The Board and its investment advisor recognize that the goal of an annual real
return of at least
4% may not be achieved every year due to the vagaries of
the securities markets. However, the goal should be fulfilled over a full
economic cycle (normally 3-5 years). Over this cycle it is also expected that
the investment return realized on the total portfolio will exceed the return
achieved by a composite average of the Standard
and Poor’s 500 Stock Index and
the Salomon Brothers Broad Investment Grade Bond Index weighted in proportion
to the Fund’s mix of equity and fixed income holdings. Additionally, it is
expected that the rate of return will exceed the median return for the SEI
Balanced Fund Universe of managers having comparable asset allocations.
PARAMETERS OF PORTFOLIO CONSTRUCTION
The investment advisor is charged with the construction of a portfolio best
suited to achieve the investment goals outlined in this policy.
It is the policy of the Board, subject to review and modification when deemed
appropriate, to designate not less than 40% of the market value of the
oortfolio for fixed income investments, not less than 3% of the market value
of the portfolio for cash and cash equivalents and, not more than 50% of the
garket value of the portfolio for equity investments. "Cash equivalents" are
je “‘ned as fixed income securities maturing within one year.
: is important that the assets of the fund be invested to the fullest extent |
»ossible. Idle cash is to be avoided. The investment advisor (or custodian,
:f different than the advisor) agrees to handle the short-term investments of
the fund. Such investments must be permitted by the statutes of the State of.
fichigan applicable to a municipal employees retirement fund and may include
vsut are not necessarily limited to obligations of the U.S. Treasury,
certificates of deposit, and commercial paper. Funds available for short-term
-ovestment may include proceeds from the sale of bonds or equities, interest
ind dividend income and new contributions to the fund. The investment advisor
or custodian) agrees to invest such funds within one business day of their
iwailability.
‘ithin these parameters the investment advisor has discretion to buy and sell
ecurities when the investment outlook
is warranted.
FIXED INCOME INVESTMENT POLICY
onds will be utilized in this portfolio for income, price appreciation and
or their defensive characteristics.
t is imperative that the bond portfolio be of investment quality. The
nvestment advisor is therefore to purchase only bonds issued by the Federal
overnment and its agencies, and corporate bonds graded Baa or better by
ec 4y’s Investor Services. Marketability is extremely important; thus, all
5 purchased must be issued with an outstanding amount of at least $50 |
illion par value.
o single holding other than a U.S. Government or a U.S. Government agency
ond or note is to account for more than 5% of the market value of the total
ortfolio. Nor shall the bonds of any one issuer, other than the U.S.
3
Government or its agencies, account for more than 5% of the market value of
the total portfolio. :
{ is also” expected that the bond portfolio will be subject to active
m._agement in the interest of achieving maximum total return within
appropriate quality constraints. 7
EQUITY INVESTMENT POLICY
The equity portfolio is to be managed on a total return basis; that is,
equities will be selected on the basis of their anticipated return from the
combination of dividends and market appreciation within a three- to five~year
time horizon.
The equity portfolio is to be constructed on four fundamental building blocks:
1) diversification, 2) quality, 3) growth, and 4) value. The equity
portfolio may be concentrated in securities that appear to represent
particularly attractive value but the portfolio must be adequately
diversified. No single equity holding is to account for more than 2.5% of the
market value of the total portfolio nor are securities of a single industry
sector* to account for more than 20% of the portfolio’s market value. No more
than one-half of 1% of the capitalization of any company may be owned.
In accordance with Act 55 (Public Acts of 1982) at least 90% of the equity
vortfolio shall be comprised of stocks that have paid dividends in at least 3
of the past 5 consecutive years, and during that period aggregate net earnings
3s* ll have exceeded aggregate dividends paid. Also, all stocks purchased by
: fund shall be registered on a national securities exchange regulated under
( e I of the Securities Exchange Act of 1934, or on the National Association
of securities Dealers automated quotation systen.
fhe investment advisor has discretion to vary. the proportion of the portfolio
vhich is invested in equities or obligations convertible into equities between
4 and 50% of the current market value of the total portfolio. ‘The actual
sommitment to equities within this range shall be chosen based upon the
investment advisor’s investment outlook. However, it is the desire of the
3oard to have a significant position in the equity market except under the
post unusual circumstances.
*he purchase of convertible bonds is permitted provided they are graded in the
sop two major grades as determined by Moody’s Investor Services. The purchase
»f preferred stocks is permitted provided the underlying equity is of adequate
juality.
RESTRICTED TRANSACTIONS
‘he purchase of real estate, commodities, mineral rights, options, futures,
varrants and foreign securities is prohibited unless specifically authorized
‘y formal action of the Board of Trustees. Short selling and the purchase of
securities on margin are prohibited.
(
As defined by SEI Services, Inc. or some other mutually agreed upon
classification.
TRANSITION
is recognized that since this is the first written investment policy issued
v-~ the Board, that the current portfolio composition may not fully confor,
‘with the guidelines stated herein. Therefore, the investment advisor is
allowed a period of eighteen months from the approved date of this policy
document to bring the portfolio into conformity with this policy.
COMMUNICATION
The Board and the investment advisor recognize that frequent communication
between the two parties is a keystone to appropriate management of the fund.
The Board will report promptly to the investment advisor significant changes
in its assessment of the income requirements, risk-taking capabilities, . or
other vital characteristics of the fund.
Recognizing the dynamic nature of the capital markets, it is the obligation of
the investment advisor to report to the Board any suggestions or alterations
in these guidelines considered desirable for the achievement of satisfactory
investment results. Revisions will be considered from time to time.
The investment advisor (or custodian, where appropriate) is obligated to
provide the following reports to the Board:
1. A timely notification/confirmation of all transactions;
2. <A monthly summary of transactions:
f
3. A monthly statement of assets value at cost and market; {
4. A quarterly summary of performance with comparison to bond and stock
market performance indices; and,
5. A quarterly summary of performance with comparison to the objectives
and goals outlined in this policy.
In addition to providing these written reports, the investment. advisor is
obligated to make periodic personal appearances before the Board, at least
three times per year.
eee
TTEST: . .
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4 fELEL,
7 Secret! ary eee Chairman-Board of Trustees
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