PUBLIC SESSIONT - The Board will meet in Public Session at 1:00 p.m.

1.0

Call to Order

2.0

Roll Call & Swearing-in of Trustees

2.1

Roll Call

2.2

Swearing-in of Trustees

3.0

Approval of the Minutes

4.0

Oral Communications

4.1

Oral Communications From the Board

4.2

Oral Communications From the Public

5.0

Benefit & Actuarial Services

5.1

Adoption of Consent Calendar

5.2

Consideration of items removed from Consent Calendar - None

5.3

Introduction of Regulation authorizing Purchase of Upgrade of Plan 3 Service Credit

6.0

Investment Management Services & Investment Committee Report

6.1

Acceptance of Monthly Portfolio Performance Report

6.2

Approval of Investment Consulting Contract – Strategic Investment Solutions

6.3

Annual Investment Manager Review – INVESCO Realty Advisors

6.4

Approval of Topics for Investment Manager Review – Barclays Global Investors

6.5

Acceptance of Final Report on Performance Survey of CALAPRS member systems

6.6

Acceptance of Report on San Mateo County Housing Finance Workshop

7.0

Board and Management Support Services & Audit Committee Report

7.1

Approval of Topics for the January Planning Retreat

7.2

Approval of new Retirement Analyst position

7.3

Approval of participation in California Retired County Employees’ Association Conference

8.0

Approval or Acceptance of Reports

8.1

Report of Actions Taken in Closed Session - None

8.2

Chief Executive Officer's Report

8.3

County Counsel's Report - None

8.4

Investment & Finance Manager’s Report

8.5

Information Technology Manager’s Report

9.0

Adjournment

September 25, 2001 - Board Minutes, as amended

0109.1

Call to Order: Mr. Cottle, Chair, called the Public Session of the Board of Retirement to order at 1:00 p.m., September 25, 2001 in SamCERA’s Board Room, Suite 280, 702 Marshall, Redwood City.

0109.2

ROLL CALL & SWEARING-IN OF TRUSTEES

0109.2.1

Roll Call: Mr. Bryan, Mr. Buffington, Ms. Colson, Mr. Cottle, Mr. Lewis, Mr. Hoffman, Mr. McMahon, Ms. Salas & Ms. Stuart. Staff: Mr. McCausland, Ms. Manning, Mr. Clifton & Mr. Hood. Counsel: Ms. Carlson. Consultants: Ms. Jaddalah. Retirees 2, Actives 1, County 5, Public 2.

0109.2.2

Swearing-in of Trustees: Mr. McCausland reported that the Board of Supervisors had re-appointed Ms. Colson and appointed Mr. Kenneth A. Lewis to the Board.

Ms. Colson and Mr. Lewis were sworn in by Mr. Cottle.

0109.3

Approval of the Minutes: Mr. Cottle offered the following correction to 0108.6.1 ¶5 last sentence: "…accepted the staff recommendation to adhere to the rebalancing proposal Plan." Motion by Bryan, second by Hoffman, carried unanimously, to approve the Minutes of the Meeting of August 28, 2001, as corrected.

0109.4.1

Oral Communications From the Board: In response to a question from Mr. Cottle, Mr. McCausland reported that the invoices for the trustees’ non-recourse insurance should be distributed prior to the next meeting.

Ms. Stuart reported that thirteen SCORPA volunteers have worked 77 hours in SamCERA’s office during the past year. Mr. Cottle expressed his desire to send a thank you note to the volunteers. Ms. Stuart encouraged all trustees to attend the SCORPA annual picnic.

0109.4.2

Oral Communications From the Public: John Murphy requested an analysis of the impact on the investment portfolio of the September 11^th terrorist attacks. Mr. McCausland noted that the September 30^th portfolio report would capture the effect of recent events.

0109.5

BENEFIT & ACTUARIAL SERVICES

0109.5.1

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

Disability Retirements: Staff recommends that the Board (a) find that Dewitt Sprague filed for disability on April 10, 2000, (b) find that he has not processed his application in a timely manner and (c) terminate his application

Service Retirements:
Schupbach, Viviane	June 30, 2001 (from deferred)	Social Services
Kelly, Parker	August 4, 2001	District Attorney
Mc Murdo, Timothy	August 4, 2001	General Hospital
Haas, Patricia	August 8, 2001	Human Services Agency
Radetich, Ronald	August 14, 2001	Sheriff’s Office
Flynn, Sharon	August 15, 2001 (from deferred)	Public Health
Alvarez, Julio	August 25, 2001 (from deferred)	Treasurer’s Office
Mercado, Genoveva	August 29, 2001 (from deferred)	General Hospital
Barrie, Eileen	August 31, 2001	Library
Gee, Elizabeth	September 1, 2001	Superior Court
Tozier, Dennis	September 5, 2001 (from deferred)	Probation
Furness, Diana	September 15, 2001	Superior Court
Mac Laren, Janice	September 15, 2001	Probation
Mendoza, Corazon	September 29, 2001	Assessor County Clerk Recorder
Deferred Retirements:
Beede, Linda	G2 vested	Reciprocity
Ramos, Beverly	G2 vested	Reciprocity
Borg, Rosalie	G2 vested
Burgos, Suzanne	G2 vested
Hall Lisette	G2 vested
Heymann, Ellie	G2 vested
Menn, Curtis	G2 vested
Shaffer, Craig	G2 vested
Withdrawal Refunds:
Acevedo, Patricia	G4 non-vested	202.58
Jackson, Jacqueline	G2 vested	32,385.66
Laurente, Ray	G4 non-vested	3,141.08
Massengle, George	G4 non-vested	3,672.60
Miller, Kimi	G4 non-vested	1,473.76
Morrison, Jennifer	G4 non-vested	230.08
Samson, Devina	G4 non-vested	523.98
Tronstad, Erik	G4 non-vested	,577.37
TOTAL FOR SEPTEMBER:		$43,207.11
Withdrawal Rollover:
Baus, Tamra	G4 non-vested	1,067.66
Granick, Mary	G4 non-vested	3,623.81
Hanna, Pauline	G4 non-vested	2,944.00
Leonetti, Aimee	G4 non-vested	6,607.40
Lew, Tina	G4 non-vested	3,041.87
Luna, Amina	G2 vested	19,876.66
Magana, Emma	G4 non-vested	5,459.27
Muzzi, Mario	G4 non-vested	6,879.00
Rosado, Aileen	G4 non-vested	668.32
Sewell, Paul	G2 vested	18,109.10
Stuart, Virginia	G4 non-vested	6,726.78
Tan, Eric	G4 non-vested	646.85
Taylor, Arthur	G4 non-vested	5,783.47
Vijil, Maria	G4 non-vested	3,788.80
TOTAL FOR SEPTEMBER:		$85,222.99

0109.5.2

Consideration of items removed from Consent Calendar: None.

0109.5.3

Introduction of Regulation authorizing Purchase of Upgrade of Plan 3 Service Credit: Mr. McCausland reported that the Board of Supervisors will be considering a proposal to permit members of a contributory plan who also have Plan 3 service credit to pay for the full cost of upgrading their Plan 3 service to their contributory plan. He noted that if the Board of Supervisors does not adopt the proposal, then SamCERA would not need to hold a public hearing on the draft regulation.

Ms. Stuart expressed concern that the County was granting benefits to active members, but not extending those same benefits to retired members. She noted that both the inclusion of Voluntary Time Off Hours in service credit and the Plan 3 upgrade proposal exclude retirees. Ms. Carlson noted that the courts have ruled that there is no requirement for the County to extend benefit enhancements to current retirees.

The Board reviewed the differences between Plan 3 and the contributory plans.

Without objection, Mr. Cottle set the proposed regulation for Public Hearing on October 23^rd.

0109.6

INVESTMENT MANAGEMENT SERVICES & INVESTMENT COMMITTEE REPORT: Ms. Colson presented the Investment Committee Report.

0109.6.1

Acceptance of Monthly Portfolio Performance Report: Ms. Colson reported that the Investment Committee’s initiative for monthly reconciliation of the custodian’s and managers’ calculations of performance has been successful.

Ms. Colson reported that SamCERA’s return for the 12-months ending August 31^st was –9.66% vs.
–11.96% for the policy benchmark.

Market value and performance for the month ending August 31^st were as follows:

In response to a question from Mr. Hoffman, Ms. Colson reported that the rebalancing of the portfolio had been back to target as set forth in SamCERA’s Investment Plan. However, equities were funded at 62%, rather than the 65% target, with the difference tied up in the current over allocation to real estate.

0109.6.2

Approval of Investment Consulting Contract – Strategic Investment Solutions: Ms. Colson reported that the Investment Committee had reviewed and amended the proposed contract with Strategic Investment Solutions. She reviewed the amendments with the Board. Ms. Colson reported that the Committee recommends approval of the contract by the Board. Motion by Colson, second by Bryan, carried 7 ayes (Bryan, Colson, Cottle, Hoffman, Lewis, Salas & Stuart) to 2 noes (Buffington & McMahon), to adopt Resolution 01-02-01, approving the 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 consultants ". . . in connection with administration of the Board's investment program . . . "; and

WHEREAS, On July 24, 2001the Board’s Investment Consultant, Gray & Company, tendered its resignation and the Board wished to interview for a full retainer investment consultant from the finalist list of the January, 2000 Investment Consultant Request for Information; and

WHEREAS, On August 8, 2001 the Board reviewed updated proposals and interviewed representatives from Wurts Associates and Strategic Investment Solutions, Inc., as the finalists proposing to perform investment consulting services for the Board; and

WHEREAS, on August 28, 2001, the Board selected Strategic Investment Solutions as the successful candidate for a full retainer investment consultant relationship; and

WHEREAS, County Counsel has approved the contract 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 Strategic Investment Solutions, Inc. for a term of three years, cancelable by either party on thirty days notice. 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 Government Code §31596.1 in accordance with SamCERA's internal controls. Be it further

RESOLVED that the Board hereby authorizes the Chair, to execute the contract on behalf of the Board. 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. Be it further

RESOLVED that the Board hereby reserves to itself sole authority to accept, modify, or reject the recommendations that the investment consultant may present from time to time pursuant to the provisions of the contract.

0109.6.3

Annual Investment Manager Review – INVESCO Realty Advisors: David Ridley, Mark Roberts, Max Swango and Sally Kittles were present for the annual review.

Mr. Ridley reported INVESCO was relatively unscathed by the events of September 11^th.

Mr. Ridley noted that the company’s fundamentals were unchanged since he met with the Board in the Spring. INVESCO continues to believe that real estate provides stable cash flows with minimal volatility. INVESCO’s portfolios have grown by $1 billion over the past year. Mr. Ridley reviewed INVESCO’s acquisition of UK-based Parkes and Company.

Mr. Ridley reported that INVESCO Realty Advisors has been closed to new accounts for two years and continues to focus all of the team’s attention on their 25 separate account clients.

Mr. Swango reviewed SamCERA’s real estate investment objectives highlighting the objective of generating 70% of total return from income.

Mr. Swango reported that the since inception return, gross of fees, for the separate properties portfolio is 12.45%, with 8.93% of that attributable to income and 3.3% to appreciation. This compares to NCREIF’s returns of 12.95% for the same period (8.66% income, 4.03% appreciation). Mr. Swango also reported that SamCERA’s REIT exposure during the decline in the REIT market resulted in an aggregate portfolio return of 8.30% since inception.

Mr. Swango reported that the Fremont property was sold to AMB for $12.35 million, with a 14.4% internal rate of return.

Mr. Roberts reviewed the economic outlook. Business investment and consumer spending drove growth over the past two years, but going forward government stimulus and government spending will be required to generate positive growth. The forecast is for a negative 3^rd and 4^th quarter. He noted that the outlook for 1^st quarter growth of 1.5%, increasing to 3.5% over the balance of next year, assumes an absence of future shocks and significant federal stimulus. He noted that real estate inventories are more in line with expected demand than in past downturns, which should dampen the weaker economy’s impact on the asset class.

Ms. Kittles reviewed the highlights of the value optimization plans for each of SamCERA’s properties, with Mr. Roberts adding commentary on the local economies.

Mr. Lewis asked if INVESCO has altered its internal rate of return assumptions on any of the properties since they were purchased. Mr. Roberts noted that real estate is still expected to produce returns of 200 to 400 basis points over 10-year Treasuries. Mr. Swango and Mr. Ridley noted that INVESCO expects real estate returns to trend back toward 9.5%, with the current 12% returns being higher than can be sustained. They also stressed the emphasis on cash flow in SamCERA’s portfolio, which provides the portfolio a shelter from potential pricing volatility.

In response to a question from Ms. Colson, Ms. Kittles reported that the relationship with State Street is going very well and the performance will be fully reconciled.

In response to a question from Mr. Cottle, Mr. Ridley reported that by the end of 2002 INVESCO should be able to provide its clients with password-protected web-based data and analytics on their portfolios.

In response to a question from Mr. Buffington regarding the potential impact of the increased liquidity provided by the Federal Reserve following September 11^th, Mr. Roberts noted that mortgage rates will continue to trend down, Mr. Ridley noted that INVESCO expects supply to stay in balance and Mr. Swango noted that high-net-worth individuals have been entering the institutional real estate market since the enactment of the new tax law and this trend will be accelerated by lower interest rates. Mr. Swango estimated that half of recent institutional grade property sales have been to high net worth individuals.

In response to a question from Mr. Cottle, Mr. Roberts indicated that INVESCO expects real estate returns over the next year to be between 7.5% and 9.5%, with no appreciation.

In response to a question from Ms. Colson, Mr. Roberts reported that each INVESCO manager has specific disaster recovery responsibilities. Mr. Ridley noted that INVESCO moved its operations to Austin during the major floods and "never missed a beat".

0109.6.4

Approval of Topics for Investment Manager Review – Barclays Global Investors: Ms. Colson reviewed the Committee’s amendments to the list of topics for the BGI review. Without objection, Mr. Cottle authorized Mr. Clifton to forward the topics to Barclays Global Investors.

0109.6.5

Acceptance of Final Report on Performance Survey of CALAPRS member systems: Ms. Colson reported that Mr. McCausland had submitted the final report from his survey of California pension systems. She noted that for the trailing one-year and three-year periods only one fund had achieved its actuarial interest rate.

Mr. McCausland distributed charts detailing the results of the survey, which can be summarized as follows:

0109.6.6

Acceptance of Report on San Mateo County Housing Finance Workshop: Ms. Colson reported that representatives of the County and First Home, Inc. had participated in a workshop with the Committee on the housing issues facing the County’s employees. She noted that the Committee will continue the workshop next month.

0109.7

BOARD AND MANAGEMENT SUPPORT SERVICES & AUDIT COMMITTEE REPORT

0109.7.1

Approval of Topics for the January Planning Retreat: Mr. McCausland indicated that it was time for the Board to set its agenda for the January Planning Retreat. He provided the Board with a summary of the topics trustees had proposed in recent meetings. Ms. Stuart noted her desire to have a review of post-retirement benefits provided by other counties and retirement boards. In response to a question from Mr. Cottle, Ms. Jaddalah stated that if all of the actuarial liability data was readily available, SIS could be prepared to present the asset/liability modeling study in January, assuming the Investment Committee discussions went smoothly. Mr. Hoffman suggested a Funding Ratio update based on post-September 11^th investment performance. Mr. Buffington suggested a San Mateo County and California economic forecast with emphasis on the outlook for government revenues and expenditures. Ms. Colson suggested a discussion of how disasters will effect funding status. Mr. McCausland suggested a review of SamCERA’s Business Continuity Plan.

Without objection, Mr. Cottle appointed Mr. Lewis (Chair), Ms. Colson and Ms. Salas to serve as an Ad Hoc Planning Committee for the retreat.

0109.7.2

Approval of new Retirement Analyst position: Mr. McCausland noted that, in response to his request to upgrade a current position, Employee & Public Services had recommended the addition of a Retirement Analyst position. Mr. Buffington suggested two changes to the duty statement, which Mr. McCausland agreed to amend. In response to a question from Mr. Cottle, Mr. McCausland noted that the law firm across the hall is interested in giving up a portion of its space, which would accommodate a new staff member. Mr. Bryan reminded Mr. McCausland that he wanted the January retreat to discuss SamCERA’s space requirements. Motion by Stuart, second by Colson, carried unanimously, to adopt Resolution 01-02-02, as follows:

WHEREAS, Article XVI, §17(a) of the Constitution of the State of California states in part that "the retirement board...shall have plenary authority and fiduciary responsibility for investment of monies and administration of the system...;" &

WHEREAS, Government Code §31520 vests the management of SamCERA in the Board; &

WHEREAS, the Board has appointed a Retirement Administrator per GC§31522.2 and has delegated specified authority to the Retirement Administrator/Chief Executive Officer; &

WHEREAS, the Board has adopted SamCERA’s Human Resources Plan dated November 24, 1998; &

WHEREAS, Employee & Public Services (EPS) reviewed the Chief Executive Officer’s request to evaluate the expanded duties of SamCERA’s Office Specialist and EPS has recommended the addition of a new Retirement Analyst position; &

WHEREAS, the Chief Executive Officer recommends that the Board create a new Retirement Analyst – Retiree Services position. Now, therefore, be it

RESOLVED that the Board hereby amends SamCERA’s Human Resources Plan dated November 24, 1998 to include a Retirement Analyst – Retiree Services position. Be if further

RESOLVED that the compensation of this position shall be adjusted as the compensation of the benchmark positions for the Retirement Analyst series is adjusted. In the event that any of the bench mark positions is subsequently eliminated, then compensation shall be based on equivalent successor positions. Be if further

RESOLVED that the Board hereby authorizes the Chief Executive Officer to perform all tasks necessary to implement the provisions of this amendment to SamCERA’s Human Resources Plan. Be if further

RESOLVEDthat the Board hereby orders the Chief Executive Officer to report to the Board on matters of importance related to the implementation and maintenance of SamCERA’s Human Resources Plan.

0109.7.3

Approval of participation in California Retired County Employees’ Association Conference: Mr. McCausland reported that Ms. Stuart requests permission to participate in the California Retired County Employees’ Association’s Conference in Oakland. Motion by Bryan, second by Salas, carried unanimously, to approve Ms. Stuart’s participation in the California Retired County Employees’ Association’s Conference.

0109.8

APPROVAL OR ACCEPTANCE OF REPORTS

0109.8.1

Report of Actions Taken in Closed Session: No Closed Session.

0109.8.2

Chief Executive Officer's Report: Mr. McCausland reported that SamCERA’s ability to recover from a disaster is becoming increasingly comprehensive. He reported that the consultant has completed five of SamCERA’s staff manuals and is beginning to work with the Investment & Finance staff. When completed the manuals will be cross-referenced and hyper-linked on CD’s, which will be designed for use by replacement personnel to complete mission critical procedures from any location. The plan is to update the manuals at least semi-annually. He noted that he hoped to enter into an agreement with the County’s paying agent to re-issue the prior month’s retiree payroll in the event of a total shut down of SamCERA’s ability to generate a current month’s payroll. Mr. Buffington noted that the paying agent would require an authorization to perform such a function and Mr. McCausland indicated that the Treasurer or another trustee could be granted that authority. Mr. McCausland reported that the only scenario under which SamCERA would be unable to meet its obligations would be a statewide power failure, which would result in an inability to execute direct deposit electronic funds transfers. He noted that Mr. Hood would report on the status of our ability to restore computer-based operations.

Mr. McCausland reminded the Board of the upcoming SACRS Fall Conference in Long Beach.

0109.8.3

County Counsel's Report: None.

0109.8.4

Investment & Finance Manager’s Report: Mr. Clifton distributed letters from each of SamCERA’s managers reporting on the impact of the events of September 11^th on their operations.

Mr. Clifton distributed an analysis prepared by Bank of Ireland following the September 11^th terrorist attacks. The analysis indicated that the outlook for the already weakening global economy suffered a significant setback as a result of the terrorist attacks. It also reported that equity markets around the globe had been in decline throughout the third quarter, but that the depth of the decline doubled as a result of the attacks. For example, the S&P 500 declined 19.6% between July 1^st and September 20^th, with 9.9% of that decline coming in the ten days between September 10^th and 20^th.

He also distributed Deutsche Asset Management’s completed Compliance Certification Statement and a letter from INVESCO reporting the acquisition of Parkes and Company.

Mr. Clifton reported that the last transaction in the portfolio rebalancing program was completed on the morning of September 11^th before the market was closed.

He reported that the Gray & Company March 31^st report had been corrected to his satisfaction.

In response to a question from Mr. Cottle, Ms. Jaddalah reported that SIS has possession of all of the information needed to complete the June 30^th report.

Mr. Clifton reported that Deutsche Bank has acquired Zurich Scudder. Ms. Colson noted that the Deutsche fixed income team is the stronger of the two and that the team has assured her that they will control the assimilation of Zurich Scudder assets so as to not dilute Deutsche current strategy which relies on the use of a percentage of less liquid securities.

0109.8.5

Information Technology Manager’s Report: Mr. Hood reported that SamCERA’s mission critical software includes PensionGold and Great Plains, as well as Microsoft Word and Excel. SamCERA’s databases and software are protected in four ways. (1) Each weeknight a full backup tape is generated of the contents of SamCERA’s server. The nightly tapes are on a fourteen day rotation and are stored off site. (2) Once each week a tape of the full server is transported to the County’s remote data storage site. (3) Each evening a rotating portion of the contents of the server is electronically transmitted to the County’s Information Services Department’s automated backup system. (4) Levi, Ray & Shoup receives a copy of the current PensionGold database quarterly.

Mr. Hood reported that he has conducted successful cold-start recovery operations from the back-up tapes.

Mr. Hood reported that SamCERA has three hardware recovery alternatives. (1) SamCERA maintains a duplicate off-site server in the Information Services Department computer room that enables SamCERA to start-up in an alternate site within three or four hours. (2) All of SamCERA’s mission critical applications and databases fit on a laptop, which allows staff to set up operations in any location. (3) If necessary, the backup server can be moved from ISD to any location with power.

Without objection, Mr. Cottle referred the Business Continuity Plan to the Audit Committee for further review.

0109.9.0

Adjournment in Memory of the following Deceased Members: There being no further business, Mr. Cottle adjourned the meeting at 3:13 p.m. in memory of the following recently deceased members:

NUTTALL, JEAN	AUGUST 1, 2001	HEALTH & WELFARE
MEYER, CHESTER	AUGUST 2, 2001	LIBRARY
SCHMIDT, ORABELLE	AUGUST 4, 2001	TREASURER
TRIAS, GERVACIO	AUGUST 5, 2001	CONTROLLER
STARR, HOWARD	AUGUST 9, 2001	BENEFICIARY OF JEAN
BAILEY, RUTH	AUGUST 17, 2001	BENEFICIARY OF FRED
BEACH, LILLIAN	AUGUST 18, 2001	BENEFICIARY OF WILLIAM
COWAN, ALICE	AUGUST 28, 2001	BLDG. CONSTR. & GENERAL SERVICES