Approval of the Minutes: Mr. Cottle submitted the following amendments to the Minutes: 0102.6.2 last line of the return table Benchmark/5 years, insert "N/A" for not available; 0102.7.2, ¶4, line 4, "there is no not need"; 0102.7.3, ¶9, line 2, "for its inclusion in if final compensation"; & 0102.8.5, line 2, "changes changed to the Code". Mr. McCausland submitted the following amendment: 0102.7.2, ¶3 delete the first three sentences: "Ms. Colson noted that there is a broad range of interests represented on the Board and that it should not be assumed that the only duty of trustees is to represent the interests of employees and retirees. Ms. Stuart stated that it is the trustees' duty to represent the interests of the members. Ms. Colson noted that, while the trustees have empathy for the problems faced by retirees in our County, the Board's duty is to assure adequate funding for the payment of retirement benefits. Ms. Colson, Mr. Buffington & Mr. Carberry noted that all trustees are sympathetic to the problems related to medical costs, but that the Board should not get involved in the collective bargaining process, since the Board is not a party to the process."

Motion by Cottle, second by Colson, carried unanimously, to approve the Minutes of February 27, 2001, as amended.

Oral Communications From the Board: Mr. McMahon & Mr. Bryan reported that the CALAPRS General Assembly in Monterrey had been particularly valuable, noting that the presentations on securities litigation, social security and demographics. Mr. McMahon reported that the Legal & Tax Seminar day had provided him with new insight into the complexities of the issues which our staff faces on a daily basis.

Mr. Hoffman encouraged trustees to consider attending the April meeting of Institutional Investor Institute in Santa Barbara.

Adoption of Consent Calendar: Motion by Bryan, second by Cottle, carried unanimously to adopt the Consent Calendar, as follows:

The Board (1) finds that Heddie Wolowski is unable to perform her usual and customary duties as a Staff Nurse, and (2) grants her a Service-connected Disability Retirement.

The Board ratifies the following actions taken by staff pursuant to the Board's Delegation of Authority and the Regulations of the Board of Retirement:

Further consideration of request from Dennis Cosgrove for inclusion of Probation Officer
Work Group 3 one-time cash-out in compensation earnable: Mr. McCausland reported that Mr. Cosgrove had phoned him to request that the Board defer reconsideration of Mr. Cosgrove's proposal until the Fall after the Board elections have been completed to fill Sgt. Hoffman's position. Mr. Hoffman ruled that Mr. Cosgrove should have been present to make the request in person and that waiting for the Board to be reconstituted was an unreasonable delay. Mr. Bryan & Mr. Cottle expressed a preference to provide Mr. Cosgrove the courtesy of putting the matter over until the April meeting.

The Board reviewed the facts of the one-time cash out. In response to a question from Ms. Colson, Ms. Carlson reviewed the statutory and judicial definitions of "compensation", "compensation earnable" and "final average compensation". Ms. Colson noted that Mr. McCausland's memorandum indicated that, if the Board granted Mr. Cosgrove's request, the sixty members who received the cash out would be required to pay contributions, but only three members would actually receive an increase in monthly retirement benefit as a result of the cash out. In response to a question from Mr. Cottle, Ms. Carlson indicated that "average annual" excludes non-recurring payments and that hours accrued do not become compensation until actually cashed out. In response to a question from Ms. Colson, Mr. McCausland reported that he did not feel that hours accumulated were the functional equivalent of overtime, but that he agreed with Ms. Carlson's argument that a single, one-time cash out could not meet the "average annual" threshold test for inclusion in Final Average Compensation. In response to a question from Mr. McMahon, Ms. Carlson noted that the Board has the discretion to make an independent determination of whether or not the cash out should be included in Final Average Compensation.

Motion by Colson, second by McMahon, carried unanimously, to deny Mr. Cogrove's request for inclusion of Probation Officer Work Group 3 one-time cash-out in compensation earnable.

Acceptance of Report on the Targeted Sale of the Albrae Street Property: Mr. Cottle reported that INVESCO had submitted three requests, which the Investment Committee recommends that the Board reject. The Board reviewed its real estate asset allocation and rebalancing policies. It was noted that SamCERA's allocation to INVESCO is currently $17.5 million over target on a market value basis. It was agreed that future funding for real estate and appropriate investment vehicles deserved further study.

Motion by Cottle, second by Bryan, carried unanimously, (1) to deny INVESCO's requests (a) to use net equity values in the calculation of asset allocation, (b) to reinvest the proceeds of sales while the asset allocation is in excess of the 6% asset allocation target and (c) to use leverage to increase the number of properties in the portfolio and (2) to reassure INVESCO that the Board will allocate additional funds to real estate when the asset class is below its asset allocation target of 6% in conformance with the provisions of SamCERA's Investment Plan.

Review and Approval of Deutsche Asset Management Contract Extension: Mr. Cottle reported that the Investment Committee recommends that the Board approve the extension of the contract subject to inclusion of technical and clarifying amendments proposed by the Committee.

Motion by Buffington, second by Bryan, carried unanimously, to adopt Resolution 00-01-04, approving the extension of the Deutsche Asset Management contract, as follows:

Whereas, Article XVI, §17 of the Constitution of the State of California vests the Board with "plenary authority and fiduciary responsibility for the investment of moneys and the administration of the system"; and

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on February 23, 1995, the Board reviewed proposals and interviewed representatives from five firms proposing to perform fixed income investment management services for the Board, and the Board selected the firm of Deutsche Asset Management Investment Services (DeAM) then known as Morgan Grenfell Investment Services Limited (MGIS); and

Whereas, Board Resolution 94-95-25 approved the contract between the Board and DeAM for an initial term of three-years, effective March 31, 1995, and Board Resolution 97-98-19 extended the Agreement for an additional three-year term, effective April 28, 1998; and

Whereas, on June 1, 2000 the Board executed a letter of sub-delegation that permits Deutsche Asset Management Investment Services Ltd. to appoint Deutsche Asset Management, Inc. to manage a portion of The San Mateo County Employees Retirement Association account; and

Whereas, the contract has been approved by County Counsel as to form and the Investment and Finance Manager has recommended approval of the contract. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Deutsche Asset Management, Inc. (DAMI) for a term of three years, cancelable by either party on thirty days notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Investment Managers to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the contract, the Investment Plan (as incorporated into the contract), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby approves the fees as specified in the contract and authorizes the disbursement of funds as provided for in GC§31596.1 in accordance with SamCERA's internal controls. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the contract as amended on behalf of the Board, following review and approval by the Chair of the Investment Committee. Be it further

Resolved that the Board hereby designates the Chief Executive Officer as its designee to perform those functions so identified in the contract and hereby authorizes the Chief Executive Officer to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the Board with timely reports regarding the progress and satisfactory completion of the assignments authorized pursuant to the contract.

Annual Review of SamCERA's Education Policy: Mr. McCausland reported that the subcommittee had reviewed the Education Policy and proposed changes as reflected in the following resolution.

Mr. Cottle encouraged the trustees to put the Fresno City Educational Conference on their calendars, the dates are October 24-25, 2001.

Motion by Cottle, second by Bryan, carried unanimously, to amend Resolution 98-99-12, setting forth SamCERA's Education Policy, as follows:

Whereas, Article XVI, §17(c) of the Constitution of the State of California states in part that

The members of the retirement board...shall discharge their duties with respect to the system with the care, skill, prudence, and diligence...that a prudent person acting in like capacity and familiar with these matters would use in the conduct of an enterprise of like character and with like aims; and

Whereas, Government Code §31520 vests the management of SamCERA in the Board; and

Whereas, the Board acknowledges the vital importance of making informed judgments on all matters which come before it and has adopted a Code of Fiduciary Conduct to guide its actions; and

Whereas, Associations and institutes exist which offer specialized training for pension fund trustees and staff; and

Whereas, the Board wishes to encourage its trustees and staff to become as expert as is cost-effective in the matters of pension fund investments, service and disability retirements and plan administration. Now, therefore, be it

Resolved, that the Board hereby stipulates that all trustees and staff shall participate to the fullest extent possible in approved educational activities, and that each trustee and staff member shall be expected to complete at least three endorsed educational activities each year. Be it further

Resolved, that the Board hereby authorizes the participation of trustees and staff in the educational activities of the State Association of County Retirement Systems, the California Association of Public Retirement Systems, the Government Finance Officers Association, the Institute for Fiduciary Education, the Investment Risk Institute, International Foundation of Employee Benefit Plans and the Wharton program & Kellogg programs for pension fiduciaries, to the extent that the budget provides funds for such participation. Be it further

Resolved, that the Board hereby authorizes the participation of trustees and staff in the educational activities of the Institute for International Research, the Public Pension Fund Forum, Investors Press, the Investment Risk Institute, the Pacific Pension Institute and the Institutional Investor Institute, when such activities are conducted in the vicinity, to the extent that the budget provides funds for such participation. Be it further

Resolved, that participants shall provide the Board with a summary oral report on the content of educational activities, including a recommendation regarding SamCERA's participation in future activities offered by the same sponsor. Be it further

Resolved, that, in addition to the organizations listed above, other educational activities which may be counted toward the Board's educational requirement are subscriptions to Pensions & Investments, the Public Retirement Journal, or other pension, investment or financial publications; completion of recommended readings from SACRS or SamCERA reading lists; participation in due diligence activities to meet with and monitor service providers; and/or participation in SACRS or SamCERA sponsored mentoring programs. Be it further,

Resolved, that the Board authorizes the Chief Executive Officer to enroll SamCERA as a pension fund member of the organizations set forth above and the National Conference of Public Employees Retirement Systems and to submit recommendations to the Board for additional educational activities, to the extent that the budget provides funds for such activities. Be it further,

Resolved, that the Board hereby authorizes the Chairman to approve the participation and associated travel for trustees, the Treasurer’s Constitutional alternate and the Chief Executive Officer in the educational activities of the organizations set forth above, to the extent that the budget provides funds for such activities. Be it further,

Resolved, that the Board hereby authorizes the Chief Executive Officer to approve the participation and associated travel of staff in the educational activities of the organizations set forth above, to the extent that the Chief Executive Officer finds that such participation will contribute to the staff member’s ability to perform her or his duties and the budget provides funds for such activities. Be it further,

Resolved, that the Board may approve participation in additional educational activities when placed on the agenda of a public meeting of the Board.

Annual Review of Internal Controls Policy: Mr. McCausland reported that the subcommittee recommended adopting the technical amendments set forth in the following resolution.

Mr. Buffington noted that the background memo implied that the Chief Executive Officer was precluded from participating in the drafting of contracts, et al. Mr. McCausland responded that the resolution precludes him from initiating expenditures. Others must initiate transactions for his review and approval, but he can participate in the drafting of contracts.

Motion by Carberry, second by Colson, carried unanimously, to amend Resolution 95-96-16, relating to Internal Controls, as follows:

Whereas, Government Code §31520 vests the management of the Association in the Board; and §31525 empowers the Board to adopt regulations; and

Whereas, Government Code §31590 provides specific guidance for disbursements from the Retirement Fund; and

Whereas, Section 17 of Article XVI of the Constitution of the State of California states that the retirement board of a public pension or retirement system shall have plenary authority and fiduciary responsibility for the...administration of the system; and

Whereas, The Board has appointed a Chief Executive Officer Administrator pursuant to Government Code §31522.2 & has resolved to delegate specific powers and duties to the Chief Executive Officer Administrator, including the duty to provide for an effective system of internal controls; and

Whereas, The Chief Executive Officer Administrator has recommended the following controls to help assure that the assets of the Fund cannot be compromised. Therefore be it

Resolved that the Chief Executive Officer Administrator will implement the following internal controls for the disbursement of moneys from the Retirement Fund.

1. The Retirement Payroll Checks shall bear the signature of the County Controller. The Board delegates safekeeping of the retirement payroll check stock to the County Controller.

2. Changes to the retirement payroll may only be performed by designated retirement staff.

3. All other Checks drawn on the Retirement Fund shall bear the signature of the Chief Executive Officer Retirement Administrator or a staff member he has delegated and the facsimile signature of the Board Secretary & County Controller in accordance with Government Code 31590 & Board Resolution 95-96-15.

4. The Board delegates safekeeping of the blank check stock to the Investment & Finance Manager Senior Accountant. The Investment & Finance Manager accountant is hereby prohibited from initiating or granting final approval for retirement disbursements via check stock. Blank check stock shall not be released The accountant shall not release blank stock to a staff member authorized to approve disbursements. The Investment & Finance Manager He shall maintain a log which documents inventory released, date, amount, stated intent of the disbursement and require a signature or initial from the staff member receiving the blank stock.

5. The County Controller shall not honor any Journal Entries, Claims, Purchase Orders, Transmittals, Appropriation Transfer Requests, or other charges against the Retirement Fund without the written approval of the Chief Executive Officer or, in his absence, his designee Administrator

6. The Treasurer shall not honor any Claims, Transmittals, or other charges against the Retirement Fund without the approval of Chief Executive Officer or, in his absence, his designee. an authorized signatory.

7. The Chief Executive Officer's or, in his absence, his designee's Administrator's approval shall be evidenced by his signature or initials on the document initiating the transaction. The document may be any standard form, including, but not limited to, a register authorizing electronic funds transfers.

8. Pursuant to his Delegation of Authority, the Chief Executive Officer Administrator shall delegate to staff the task of preparing the documents & transactions referred to above, and shall supervise & audit staff's work.

9. The Chief Executive Officer and his designee are Administrator is hereby prohibited from having access to check stock or performing the functions required to prepare any and all documents and transactions which allow disbursement of moneys from the Retirement Fund, but shall audit the work of others prior to granting his approval. Document approval is specified in number seven above. Check approval from the blank stock will be further evidenced by the appropriate his signature and affixing the facsimile signature of the Board Secretary prior to forwarding it to the County Controller for his signature.

10. The Board delegates safekeeping of the Board Secretary's facsimile signature to the Chief Executive Officer Retirement Administrator.

11. The Chief Executive Officer Administrator may delegate disbursement approval and check signing authority to one employee of the Association, who may act only in the absence of the Chief Executive Officer Administrator. That employee is prohibited from having access to the blank check stock. In acting for the Chief Executive Officer Administrator, the employee agrees to all responsibilities and prohibitions stated above.

12. Pursuant to his Delegation of Authority, the Chief Executive Officer Administrator shall report to the Board regularly on matters of significance related to the Association's Internal Controls.

Authorization to procure Fiduciary Liability Insurance: Mr. McCausland reported that the current policy expires on May 27, 2001. He reported that the subcommittee recommends that the Board authorize him to work with the County Risk Manager to solicit proposals for a new policy.

Motion by Cottle, second by Colson, carried unanimously, to authorize the Chief Executive Officer to work with the County Risk Manager to solicit proposals for fiduciary liability insurance for trustees and staff.

Approval of Financial Audit Engagement Letter for the June 30, 2001 audit: Mr. Clifton noted that the subcommittee had reviewed the County Auditor's proposed engagement letter. Mr. Hoffman noted that the subcommittee recommended using the County Auditor this year and to consider issuing a request for proposals for next year to assess the options available in the market place.

The Board discussed the fiduciary need to periodically review its audit program and consider other firms, even if it is unlikely that an outside auditor could provide the service at a competitive fee. Mr. Clifton noted that it is difficult for a firm to respond to a proposal for a single year audit. Mr. Buffington suggested that the request for proposals ask for single-year and three-year fees.

Motion by Cottle, second by Carberry, carried unanimously, to authorize the Chair to approve the financial audit engagement letter from the County Auditor dated February 22^nd for the June 30, 2001 audit.

Motion by Cottle, second by Carberry, carried five ayes (Buffington, Carberry, Colson, Cottle & Hoffman) to two noes (Bryan & McMahon), to instruct the Chief Executive Officer to prepare for the issuance of a Request for Proposals to qualified firms, including the County Auditor, for the June 30, 2002 audit.

Chief Executive Officer's Report: Mr. McCausland noted that this will be a very difficult market in which to recruit an experienced '37 Act specialist. He noted that when Ms. Manning retires there will be no one left in the office with benefits experience who was here when he came. SamCERA's current benefits staff members will have three years or less experience after her departure.

Mr. McCausland noted that the Board of Supervisors has approved the amendments to the Regulations of the Board of Retirement adopted by the Board of Retirement of February 27^th.

Mr. McCausland reported that Bob Blum had retired from William M. Mercer, but that his role with SamCERA had been minimal. Mr. Clifton noted that Mr. Yeung will be present next month to review this year's actuarial study. It was noted that SamCERA has had a continuous actuarial relationship since the inception of the Fund, even though the original firm was acquired, a succession of actuaries managed our account and Mr. James and Mr. Yeung moved to William M. Mercer with the SamCERA account following them. It was noted that it would be appropriate for the Board to issue an request for proposals for actuarial services during the next fiscal year.

Investment & Finance Reports: Mr. Hoffman noted that the subcommittee had authorized staff to assess the current compensation of comparable positions in public pension systems in the area.

Mr. Clifton reviewed the impact of the Seattle earthquake on SamCERA's Pacific Corporate Center, noting that the preliminary report was that damage was not substantial, but that further engineering evaluations were scheduled.

Mr. Clifton reported that (1) Gray & Company has opened an additional office in the East Bay; (2) INVESCO has submitted its Compliance Certification Statement; (3) the BGI agreement has been amended to reflect the changes requested by the Board on February 27^th; (4) the Deutsche Asset Management SEC Form 10-K and 10-Q and SEC audit are available for review; (5) Deborah Johansen of State Street will be replaced by Karen Jacobs; and (6) BGI will hold its client conference on June 14-15.