Public Session – The Committee met in Public Session at 11:00 a.m.

Minutes of SamCERA’s Investment Committee

1.0

Call to Order: Ms. Colson called the Public Session of the Investment Committee of the Board of Retirement to order at 11:07 A.M., August 28, 2001, in SamCERA’s Board Room, Suite 280, 702 Marshall Street, Redwood City, California.

2.0

Roll Call: Ms. Arnott for Mr. Buffington, Mr. Bryan, Mr. Cottle and Ms. Colson. Board Members in Attendance: Mr. McMahon and Ms. Salas. Staff: Mr. Clifton and Mr. McCausland. Consultant: None Public: Two Retirees: One

3.0

Action: With minor wording revisions the Committee unanimously approved the Minutes of the July 24, 2001 meeting of the Investment Committee.

4.0

Oral Communications From the Committee Mr. Cottle stated that he would like to reiterate that it is his desire to have all Investment Committee participants act as professionals. • Ms. Colson wished to echo Mr. Cottle's comments. • Mr. Bryan hopes the Committee is able to engage in open and frank discussions without politics spawning side conversations.

5.0

Oral Communications From the Public None

6.1

Acceptance of Monthly Portfolio Performance Report Mr. Clifton reported on two issues outstanding from the prior month. • The first issue is variances in the real estate performance calculation between the Investment Manager and the Custodian. INVESCO Realty Advisors reports performance quarterly to conform to NCREIF, which is common for that asset class. The Board is accustom to receiving monthly real estate returns, but instructed the Custodian to utilize INVESCO’s quarterly performance calculation procedures, which is problematic. State Street’s spreadsheet incorporates monthly or quarterly numbers, but does not differentiate between them. Therefore, one account can not utilize both. In order for the Custodial report to replicate INVESCO’s return it must begin using quarterly performance numbers for INVESCO. This means in the non-quarter months the INVESCO return will appear as zero. In those months the Plan performance will be understated. When a new Investment Consultant is hired, staff will work with the Consultant to resolve those issues and others that may arise regarding the calculation of real estate returns. The Committee agreed to this course of action. • The second issue is SamCERA’s treatment of the tax reclaim receivable. Last month the Committee asked staff to survey other Plans regarding their treatment of tax reclaim receivables as it relates to posting, collection and performance calculation. The survey results indicate that the respondents’ procedures for the treatment of tax reclaims is similar to those of SamCERA. Most systems have not written off tax reclaim receivables. Based on the survey, staff recommends no change in SamCERA’s method of tax reclaim presentation and performance calculation. Ms. Colson noted that the line item is classified Transitional Fund Aggregate. She recommended changing the designation to Tax Reclaim Accounts Receivable. Without objection staff will rename the line item beginning in August. · The third outstanding item is an explanation of an apparent anomaly between asset aggregate returns and the total plan return. On the June 30^th performance report the individual aggregate returns outperform their benchmarks; however, total Plan return underperformed the Policy Benchmark by 21 basis points. Although each asset class beats its benchmark, the total return may under perform as a result of weighting. This occurred during the past quarter, when most of the asset classes beat the individual benchmark but the total plan did not. The policy target for equities was 65% but the actual investment was less than 60%. As a result, the plan was penalized for being under weight in equities when it was rallying. Conversely, the plan benefited from this under weighting when equities were tanking earlier in the year.

(1) The aggregate is a current return. A variance against the one-quarter lag in the NCREIF in misleading.

As of July 31, 2001 the Total Plan Return for the trailing twelve months is –3.58%, which out performed the Policy Benchmark of -5.50% by 1.92%.

Mr. Bryan stated that he thought staff had authority to rebalance the portfolio as required. Mr. Clifton confirmed that rebalancing is a duty delegated to him through SamCERA’s Investment Plan. Section 20.1 states the Investment & Finance Manager shall rebalance the portfolio quarterly or as needed in conformance with the Asset Allocation Tactical Ranges set forth in Section 8. All rebalancing activity shall be reported to the Board in writing at the next scheduled meeting. Since this is the first portfolio rebalancing and he thought it prudent to present it to the Committee prior to implementation.

6.2

Selection of Investment Consultant. Ms. Colson informed the Committee that selection of the Investment Consultant would be discussed at the Board Meeting. She asked the trustees if they wished to discuss anything before this afternoon. • Mr. Cottle clarified that a grid supplied with item 6.2 was a comparison of the Alameda, San Joaquin and Stanislaus Investment Consultant Agreements with Strategic Investment Solutions and the SamCERA Investment Consultant Agreement. • Mr. McMahon was concerned that the level of detail in SamCERA’s Agreement may cause the Investment Consultant to inflate the price of their service. Ms. Colson disagreed. She stated that SamCERA’s contract was very clear and we know exactly what we will receive for the retainer fee. The other Plans may incur additional costs when they request items that SamCERA receives under the Agreement. • Mr. Cottle reminded the Committee that the Board asks a lot of its consultant.

The Committee discussed an addendum to this item, which contains information provided by Wurts Associates. The information is a preview of what would be available on their website should they be the successful candidate. The consensus of the committee is that on-line information is useful and timely, but that performance data on line is not necessary at this time.

Action: None is required.

6.3

Annual Investment Manager Review – Deutsche Asset Management. Ms. Colson informed the Committee that this item would also be discussed at the Board Meeting. • Mr. Cottle expressed his displeasure with DAMI’s response to SamCERA’s Compliance Certification Statement. He intends to request that DAMI resubmit the Statement providing answers for each section and each question. • The Committee discussed the format of interviews before the Board. The Committee’s consensus is that an interview should be planned for an hour. The formal presentation should be twenty minutes and the remainder of the time reserved for questions and answers.

Action: None is required.

6.4

Approval of Topics for Investment Manager Review – INVESCO Realty Advisors. Several questions were proposed covering the decision making process followed by INVESCO’s regarding which properties would be sold, when a property would be sold and how the holding period of an individual property is determined. • Questions previously asked relating to international real estate investments will not be asked this year. The Committee agreed that there is no consensus for international real estate investment and they do not wish to imply that there is one.

Action: The Committee will recommend to the Board that staff be instructed to request INVESCO to respond to the approved questions prior to their annual review next month.

6.5

Mr. McCausland presented the results of an ad hoc survey of performance results as of June 30, 2001. The survey was submitted to CALAPRS and SACRS member systems twenty-six of which responded. He pointed out that the survey provides a glimpse into the construction of quartile rankings. The report also verifies the results of asset allocation studies, which state that over time the dispersion narrows. The range of returns for one-year performance is 7.62% top to bottom while the five-year range is only 3.87%. · Ms. Colson agreed with Mr. McCausland that these results would probably be very similar to those found in the consultants’ universe of plan sponsor returns. · Mr. Cottle pointed out that SamCERA is in the lower quartile of the three and five-year returns.

Action: There is no action required with this item.

7.0

Other Business:

8.0

Adjournment: There being no further business Ms. Colson adjourned the Committee at 12:05 p.m.