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 11:00 A.M., September 25, 2001, in SamCERA's Board Room, Suite 280, 702 Marshall Street, Redwood City, California

2.0

Roll Call: Mr. Buffington, Mr. Bryan, Mr. Cottle and Ms. Colson. Board Members in Attendance: Mr. McMahon, Mr. Lewis, Ms. Stuart and Ms. Salas. Alternate Board Member in Attendance: Ms. Arnott Staff: Mr. Clifton and Mr. McCausland. Consultant: Ms. Jadallah Custodian: Mr. Gleason Public: None Retirees: One

3.0

Action: The Committee unanimously approved the Minutes of the August 28, 2001 meeting of the Investment Committee.

4.0

Oral Communications From the Committee Mr. Murphy stated that he would like to see a report of how the portfolio reacted to the events of September 11, 2001. He was told a report would be made later in the meeting.

5.0

Oral Communications From the Public None

6.1

Acceptance of Monthly Portfolio Performance Report Mr. Clifton provided a report on the status of SamCERA's portfolio and Investment Managers in light of the tragic events of September 11^th. In general, SamCERA's Investment Managers were unscathed by the terrorist attacks. Deutsche Asset Management (DAMI) was impacted more directly than any other manager was. A large portion of DAMI's operations was housed directly across from the World Trade Center. Those operations are being relocated to their disaster recovery site in New Jersey or other office locations on Manhattan. It should be noted that the DAMI fixed income portfolio managers are located in Philadelphia. · Mr. Clifton distributed a report from Bank of Ireland Asset Management, which reminds the Board that the world's stock markets were already under pressure from the general economic slowdown prior to September 11^th. Most of the major markets have fallen 30% since the start of 2000 so a lot of bad news is already priced in. A table attached to the report relates the history of stock market recoveries during past crises. While no two shocks are ever the same, the table showed that history does suggest that the right thing to do, in the long-term, is to sit tight through a market shock.

Mr. Clifton reported that one would not expect an Indexed Fund to outperform the Index. However the BGI Russell 2000 Index Fund outperformed the Russell 2000 Index by 28 bp for the quarter and 31 bp for the trailing six months. Outperformance in both periods can be directly attributed to the Russell reconstitution. Each year on May 31, Russell ranks the 3,000 largest U.S. stocks by market capitalization. BGI, as a large indexer of funds, could be significantly impacted by the reconstitution of the Russell Indexes. Therefore, beginning in February, BGI initiates an analysis of the anticipated reconstitution and implements a trading strategy aimed at minimizing any negative impact from the reconstitution.

The BGI US Debt Index Fund also outperformed its benchmark, the Lehman Aggregate Index, in the trailing six and twelve months by 7 and 16 basis points respectively. Approximately 6 bp of the outperformance may be attributed to security lending. The remaining outperformance may be attributed to the fact that BGI optimizes rather than replicates the Lehman Index.

The portfolio rebalancing was completed on September 11, 2001.

SamCERA's Total Plan Return for the trailing twelve months is -9.66%, which is 2.30% ahead of the Policy Benchmark. The Fiscal Year To Date -2.82%, which is 0.73% ahead of the Policy Benchmark.

The Committee was reminded that beginning with the 10/31/2001performance report returns for INVESCO Realty Advisors will only be reported quarterly not monthly. In the two months between calendar quarter months the total Plan return with be slightly understated due to real estate not showing a return.

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

Action: The Committee unanimously accepted the Monthly Performance Report. The Committee will recommend that the Board accept the report.

6.2

Approval of Investment Consulting Contract - Strategic Investment Solutions. The Committee discussed the SIS Agreement. Several modifications were recommended.

• Mr. Cottle recommended that the Scope of Work clearly states that SIS would provide strategic guidance regarding alternative investments and the potential selection of fund of funds providers. He also wanted the contract to specify that quarterly performance reports will begin with the quarter ending June 30, 2001.
• Ms. Colson suggested that it should be part of the Board's due diligence to review and authorize all consultant travel expenses.
• Mr. Buffington noted that we do not need to specify that the consultant will be paid in cash.

Motion by Cottle, second by Bryan, carried three to one (Mr. Buffington), to accept and implement as soon as possible the rebalancing recommendation.

6.3

Annual Investment Manager Review - INVESCO Realty Advisors. INVESCO Realty Advisors will be present at the Board meeting to present the annual review.

Action: None is required.

6.4

Approval of Topics for Investment Manager Review - Barclays Global Investors. Several questions were reworded. The new structure requires a more definitive response from BGI.

• Mr. Lewis suggested that we should request a review of the manager's disaster recovery plan.

Action: The Committee will recommend to the Board that the list of questions be forwarded to Barclays Global Investors for their response prior to next month's annual review.

6.5

Acceptance of Final Report on Performance Survey of CALAPRS member systems.
Mr. McCausland reported that thirty of the thirty-five California public pension funds that belong to CALAPRS and SACRS responded to the survey. The survey indicates that most plans did not meet their actuarial assumption rate last year, or over the trailing three years as a result of the market decline that began in early 2000. These Plans will probably reevaluate their actuarial assumption rates over the mid-term.

Action: Without exception the Committee accepted the performance survey.

6.6

Acceptance of Report on San Mateo Housing Finance Workshop. This workshop was led by Scott Coe, Senior Housing Specialist with San Mateo County and Walter Zhovreboff of First Home, Inc. The workshop was scheduled in order to begin an exploration of whether or not there are investment vehicles that would be both (1) effective in providing housing finance to the County employees and (2) acceptable to SamCERA's fiduciaries.

After the presentation the Committee had some additional questions and Mr. Coe & Mr. Zhovreboff were invited to return next month.

Action: The Committee invited Mr. Coe and Mr. Zhovreboff to return next month.

7.0

Other Business:

8.0

Adjournment: There being no further business Mr. Colson adjourned the Committee at 12:00 p.m.