September 28, 2004 – Board Agenda

Call to Order: Mrs. Salas, Chair, called the Public Session of the Board of Retirement to order at 1:00pm, September 28, 2004 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores. Ms. Salas and Mr. Lewis shared the duties of chairing the meeting.

0409.2.1

Roll Call: Mr. Bryan, Mr. Buffington, Ms. Colson, Mr. Hooley, Mr. Lewis, Mr. McMahon, Ms. Salas, Ms. Stuart & Ms. Tashman. Ms. Arnott was also in attendance. Staff: Mr. McCausland, Mr. Hood, Mr. Clifton & Ms. Lamica. Counsel: Ms. Carlson. Consultants: Dr. Fracchia, Ms. Jadallah & Mr. Thomas. Retirees: 1, County: 5.

0409.3

Approval of the Minutes: Ms. Arnott submitted the following corrections to the Minutes: 0408.2.1: Ms. Arnott was not in attendance; 0408.2.4: “Per Mr. Boles’ recommendation that ~~the~~ there be…”; 0408.6.1: “SamCERA’s began the new fiscal year…”, “the situation with both parties and ~~have~~ has begun…”; 0408.8.2: “…a new Analyst to ~~the~~ help the firm.” Motion by Bryan, second by Lewis, carried unanimously to approve the Board Meeting Minutes of August 24, 2004 as corrected.

0409.4.1

Oral Communications From the Board: Ms. Salas indicated that the medical reports in the Consent Calendar were difficult to follow. Mr. Lewis suggested that each page clearly indicate the name of the doctor who produced the report and to find a way to better differentiate comments made by Dr. Fracchia. Dr. Fracchia indicated that he will work on the formatting and sequencing of the reports.

0409.4.2

Oral Communications From the Public: None.

0409.5

Benefit & Actuarial Services

0409.5.1

Adoption of Consent Calendar: Without objection, Ms. Salas removed the applications of Gabriel Gamper (Bryan) and Michael Bryant (Bryan) from the Consent Calendar for consideration under Agenda Item 5.2. Motion by Tashman, second by Bryan, carried unanimously to adopt the Consent Calendar as amended, as follows:

Disability Retirements:

The Board finds that Duane Minor is unable to perform his duties as a Road Maintenance Worker I,finds that his disability is Service-connected and, GRANTS his application for a Service-connected disability.

Routine Actions: 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:

Service Retirements:

Daw, Margaret

June 30, 2004 (from deferred)

Department of Social Services

George, Wilma

August 30, 2004 (from deferred)

Crystal Springs Rehabilitation Center

Oakes, James

August 31, 2004 (from deferred)

Planning Department

Watkins, Patricia

September 1, 2004 (from deferred)

Human Services Agency

Hagle, Diana

September 18, 2004

Human Services Agency

Hood, William

September 30, 2004

Assessors’ Office

Continuance of Benefits:

Johnson, Beth

Survivor of Richard Johnson

Deferred Retirements:

Addae, Richard

G4 vested

Becconsall, Paul

G2 vested

Heindel, Christine

G4 vested

Henry, Kathleen

G4 vested

McFarren-Nave, Ellen

3/G2 vested

Rivers, Carolyn

G2 vested

Smith, Patricia

G2 vested

Abramo, Iveta

G4 non-vested

Reciprocity

Marquez, Miguel

G4 non-vested

Reciprocity

Refunds For September 2004:

Baker, John C.

G4 non-vested

$2,419.79

Bedolla, Myrna

G4 vested

$10,837.73

Cortez, Ivonne

G4 non-vested

$45.83

Leslie, Clark G.

G4 non-vested

$22,169.05

Nojadera, Isabelita

G4 non-vested

$899.62

Nolasco, Ramil

G4 non-vested

$7,166.98

Nordli, Diana

G2 vested

$25,188.82

Pavis, Synthia

G4 non-vested

$3,214.93

Sloniker, Theodore

G4 non-vested

$5,720.03

Virgin, Maria

QDRO Division (non-member)

$1,114.82

Total Refunds September 2004:

$78,777.60

Rollovers for September 2004

Bianes, Juliana

G4 non-vested

$3,542.78

Chin, Judy

G4 non-vested

$627.59

Gomez-Revilla, Carmen

G4 non-vested

$1,109.34

Hall, Darlene

G4 non-vested

$6,486.92

Khaw, Jessie

G4 non-vested

$7,930.75

Mills, Constance

G4 vested

$16,317.88

Pratt, Sarah

G4 non-vested

$1,803.17

Singleton, James

G4 non-vested

$10,350.07

Tesconi, Sarah

P4 non-vested

$17,056.62

Trinh, Tien

G4 non-vested

$4,008.47

Yeh, Alexander

G4 non-vested

$7,054.59

Total Rollovers September 2004:

$76,288.18

0409.5.2

Consideration of items removed from Consent Calendar: Mr. Bryan recommended that the applications of Mr. Gamper and Mr. Bryant for Service-Connected disabilities be referred to a hearing officer. He indicated that he had difficulty tracking who was saying what in the Medical Officer’s report and with the cases’ degree of specialization, Mr. Bryan would find it best to send the applications to a hearing officer. In response to Ms. Colson’s question regarding Mr. Gamper’s 0.9 years of SamCERA service credit, Ms. Carlson stated that Mr. Gamper had been an Extra Help employee and was not a member of SamCERA until recently. In response to a question from Mr. Buffington, Dr. Fracchia indicated that the job descriptions come directly from the applicants’ supervisors. Ms. Colson then asked about the hearing officer process. Ms. Carlson stated that the Board has the authority to refer the disability applications to a hearing officer who would prepare a recommended determination for the Board to accept or reject. Motion by Bryan, second by Lewis, carried unanimously to refer the applications of Gabriel Gamper and Michael Bryant to a hearing officer.

0409.5.3

Introduction of June 30, 2004 Actuarial Valuation: Ira Summer from Public Pension Professionals provided an update on the Actuarial Valuation. He stated that he had not completed the valuations due to various transition issues. He estimated that the results would be ready by mid-October. Without objection, Mr. Lewis deferred this agenda item to October’s Board meeting.

0409.5.4

Introduction of 2004-2005 Fiscal Year Employer & Member Contribution Rates: Without objection, Mr. Lewis deferred this agenda item to October’s Board meeting.

0409.5.5

Approval of Amendments to SamCERA’s Interest Crediting policy: Mr. Clifton and Mr. Summer presented the amendments made to SamCERA’s Interest Crediting Policy. The Contingent Reserve will not be allowed to be less than zero but will allow a Contingency Account to have a negative balance. Motion by Colson, second by Hooley, carried unanimously (Mr. Bryan & Ms. Salas not present) to Amend Resolution 03-04-17, SamCERA’s Interest Crediting Policy, as follows:

Whereas, Government Code §31591 states, in part, that regular interest shall be credited semiannually on June 30th and December 31st to all contributions in the retirement fund which have been on deposit for six months immediately prior to such date...; &

Whereas, Government Code §31592 provides that earnings of the retirement fund during any year in excess of the total interest credited to contributions and reserves during such year shall remain in the fund as a reserve against deficiencies in interest earnings in other years, losses on investments and other contingencies...; &

Whereas, Government Code §31453 provides that with respect to the rates of interest to be credited to members and to the county or district, the board may, in its sound discretion, recommend a rate which is higher or lower than the interest assumption rate established by the actuarial survey. Therefore be it

Resolved that the Board hereby rescinds resolution 97-98-21, as amended and adopts the attached Interest Crediting Policy. Be it further

Resolved that the Board hereby authorizes the Chief Executive Officer to implement the provisions of the following Interest Crediting Policy and to report semi-annually on the amounts so credited.

Interest Crediting Policy

I. Overview

The San Mateo County Employees’ Retirement Association (SamCERA) Board (Board) establishes this policy to govern the crediting of interest to reserves under the County Employees’ Retirement Law of 1937 (CERL) subject to the requirements specified in Article 5 of the CERL.

II. Objectives

In the development and adoption of this policy, the Board has balanced the interests of the active members and the retired members and has determined that the policy set forth below best serves the interests of the membership as a whole. In addition, this policy has been developed with the following objectives:

To comply with appropriate legal and regulatory requirements.
To assure the prompt delivery of benefits and related services to the participants and their beneficiaries.
To limit, to the extent possible, the volatility of interest crediting from period to period.
To limit, to the extent possible, the charging of short-term losses to reserves.
To maintain consistency between the reserve structure and the actuarial funding of SamCERA.
To assure that the reserve values track the market value of assets over the long term.

III. General Concepts

This policy deals with the determination of Regular Interest as defined by Section 31472.1 of the CERL and the allocation of that interest to appropriate accounts and reserves. While the details for this allocation are provided below, this determination is based on several general concepts:

As a whole, Valuation and Non-Valuation Reserves will be credited at the assumed interest rate.
Individual member’s contribution accounts will be credited at the lesser of the actual earnings rate or the assumed interest rate, but the rate credited cannot be less than zero. If the actual earnings for the period are less than the assumed interest rate, the difference between the amount credited and the amount that would have been credited using the assumed interest rate will be credited to other Valuation Reserves.
The Contingency Reserve will be targeted at 3% of assets, but will be used to credit interest to Valuation and Non-Valuation Reserves as needed.

If the Contingency Reserve falls below 3% of assets, earnings in future periods not needed to credit interest will be used to increase the Contingency Reserve to 3% of assets before amounts are allocated to Undistributed Earnings.
The Contingency Reserve may be less than zero. This represents the amount that earnings fell short of the desired interest crediting levels. A Contingency Reserve less than zero will be subtracted from Valuation Reserves for the purpose of determining the required employer contributions.

IV. Adoption and Amendment

This policy has been adopted by a majority vote of the SamCERA Board, and can be amended by the SamCERA Board by a majority vote. It shall be effective for interest crediting on or after January 1, 2004.

V. Definition of Reserves

For the purpose of allocating earnings, all SamCERA Reserves will fall into one of three major categories:

(1) Valuation Reserves. These reserves are used to pay for those benefits which are guaranteed by the County, the Mosquito Abatement District, and any other participating employer. Guaranteed benefits include both Basic and Cost of Living benefits for both General and Safety members. Valuation Reserves are used to determine the employers’ contribution rates.

The following reserves are considered Valuation Reserves:

a) Members Reserve. This is the reserve into which member contributions are credited.

b) County Advance Reserve. This is the reserve into which employer Basic contributions are credited.

c) Retiree Reserves. These are the reserves into which amounts are transferred from the Member Reserve and the County Advance Reserve when a member retires.

§ Retirees – Annuity Reserve,

§ Retirees – Current Service Pension Reserve,

§ Retirees – Survivors Death Benefit Reserve, and

d) Cost of Living Reserve. This is the reserve into which any employer or member Cost of Living contributions are credited.

(2) Non-Valuation Reserves. These reserves have not been set aside to pay for benefits which are guaranteed by the County, the Mosquito Abatement District, or any other participating employer. Neither the benefits paid from these reserves nor the assets in the reserves themselves are included in the annual valuation to calculate the required employer contribution rate.

a) Contingency Reserve. This is an account set aside as a reserve against deficiencies in interest earnings, losses on investments or other contingencies under Section 31592.2 of the CERL.

b) Supplemental Benefit Reserves. These are reserves set aside to provide additional benefits for retired members and beneficiaries as determined by the Board. These additional benefits are ad hoc under CERL and are not guaranteed by SamCERA, the County or any other participating employer. Supplemental Benefit Reserves include the

· Medicare B Reserve, and

· 401(h) Reimbursement Reserve.

c) Other Specified Non-Valuation Reserves. These are other reserves created from Undistributed Earnings which have been designated by the Board for a specified purpose. Designation of these reserves do not create any vested rights for benefit payment. Other Specified Non-Valuation Reserves include the

· Ventura Reserve.

d) Undistributed Earnings Reserve. This reserve is for monies which have not been credited to other reserves.

(3) Financial Statement Reserves. These reserves are shown in the financial statements but are not a part of the annual valuation and are not included in the interest crediting process.

a) Market Stabilization Account. This is the difference between the current market value of assets and the actuarial value of assets used to establish the Valuation and Non-Valuation Reserves.

VI. Timing of Interest Crediting

SamCERA will credit Regular Interest twice each year to all Valuation and Non-Valuation Reserves (other than the Contingency Reserve and the Undistributed Earnings Reserve) that have been on deposit for six months, in accordance with Section 31591 of the CERL. The crediting of interest will take effect on June 30 and December 31 of each year.

VII. Determination of Allocable Earnings

The SamCERA Board will credit Regular Interest, in accordance with Section 31427.1 of the CERL, based on the amount of earnings that are available to be allocated for that purpose (Allocable Earnings). Allocable Earnings will be the sum of the following amounts:

(1) Actual Earnings for the current six-month period. The amount of earnings, whether positive or negative, to be allocated to SamCERA Reserves will be calculated using the asset smoothing method adopted by the SamCERA Board in the actuarial valuation for calculating the employer contribution rates for the Plan Year in which the allocation is taking place. The Actual Earnings Rate for the six-month period will be the Actual Earnings for that period, calculated using the asset smoothing method, divided by the average value of assets during the same period determined using the same asset smoothing method.

(2) Undistributed Earnings. The amount, if any, in the Undistributed Earnings Reserve.

The crediting of Regular Interest from these Allocable Earnings will take place in accordance with Section VIII of this Statement.

VIII. Crediting of Regular Interest

The Retirement Board will credit Regular Interest to the Valuation and Non-Valuation Reserves based on the amount of Allocable Earnings determined under Section VII of this Statement. The allocation will be done in the following order until all earnings have been allocated, or the allocation process has been suspended as described below.

1) Members Reserve. Members Reserve accounts will be credited at a rate equal to the lesser of one-half of the assumed interest rate adopted by the SamCERA Board in the actuarial valuation used to determine employer contribution rates for the Plan Year in which the allocation is taking place, or the Actual Earnings Rate, but the rate credited shall not be less than zero.

2) Other Valuation Reserves. The Valuation Reserves other than the Members Reserve will be credited with earnings at a rate of one-half of the assumed interest rate adopted by the SamCERA Board in the actuarial valuation used to determine employer contribution rates for the Plan Year in which the allocation is taking place.

3) Additional Credit to Valuation Reserves. If the actual earnings rate for the period is less than the assumed interest rate, the difference between the amount that would have been credited to the Members Reserve at a rate of one-half of the assumed interest rate, and the amount that was actually credited to the Members Reserve in step one above, will be credited to the County Advance Reserve.

The purpose of making the additional allocation is to produce a total amount credited to all Valuation Reserves that is equal to the amount that would have been credited to the Valuation Reserves, in aggregate, if all Valuation Reserves were credited with one-half of the assumed interest rate.

4) Contingency Reserve. If there are still Allocable Earnings to be distributed after the allocations in steps (1) through (3) above have been completed, the Contingency Reserve will be allocated earnings until the value of the Contingency Reserves is equal to 3% of the Market Value of Assets, or until all Allocable Earnings have been exhausted.

5) Supplemental Benefit Reserves. If there are still Allocable Earnings to be distributed after the allocations in steps (1) through (4) above have been completed, the Supplemental Benefit Reserves will be credited at a rate of one-half of the assumed interest rate adopted by the SamCERA Board in the actuarial valuation used to determine employer contribution rates for the Plan Year in which the allocation is taking place, or until all Allocable Earnings have been exhausted, whichever comes first.

6) Undistributed Earnings. If there are still Allocable Earnings to be distributed after the allocations in steps (1), (2), (3), (4) and (5) above have been completed, all remaining Allocable Earnings will be credited to the Undistributed Earnings Reserve. The use of Undistributed Earnings will be subject to the Undistributed Earnings policy, as modified from time to time by the Board.

7) Suspension of Crediting Process. If there are insufficient Allocable Earnings to credit the Reserves as specified in steps (1) through (5) above, the Contingency Reserve will be debited by the amount required to complete steps (1), (2), (3) and (4) with the following restrictions.

a) The crediting specified in step (1) will not be less than zero, no matter how far the Contingency Reserve is required to drop in order to make this occur. The Contingency Reserve will not be less than zero.

b) It is possible that the Contingency Account ~~Reserve~~ may reflect a negative balance. However, in no event may the total of the Non-Valuation Reserves be allowed to drop lower than 1% of the Market Value of Assets. In the unlikely event that the allocation specified under Steps (2) through (5) above would produce this situation, the allocation process shall be suspended at the point in which the total of the Non-Valuation Reserves reaches 1% of the Market Value of Assets until the Board adopts an alternative allocation.

IX. Review of Policy

This policy is subject to review and may be modified from time to time by the Board, pursuant to Section IV of this statement.

0409.5.6

Consideration of Issuance of Subpoena Duces Tecum Regarding Application of Delbert Lapin: Mr. Hood reported that Sheriff Don Horsley has filed a service connected disability application on behalf of Deputy Lapin. He then reminded the Board that there had been a similar request recently which had been later withdrawn when the applicant signed SamCERA’s medical release forms. Deputy Lapin, however, has failed to sign the appropriate forms. Motion by Colson, second by Buffington, carried unanimously to issue a subpoena for Deputy Lapin’s medical records so that the application can be processed in timely manner. Per Mr. Hood’s request, without objection, Ms. Salas authorized the withdrawal of the subpoena in the event SamCERA received a medical release form signed by Deputy Lapin.

0409.6

Investment Services

0409.6.1

Acceptance of Monthly Portfolio Performance Report: Mr. Lewis reported that the benchmark for real estate in the report is blank because of a lag in reporting. He also reported that Mr. Clifton will return next month with an updated report on the systematic differences between SamCERA’s fixed income managers’ and the custodian’s performance calculations. Mr. Clifton reported that the Investment Committee discussed the actuarial assumptions versus the expected return, which will be a main topic of discussion over the next several months. He stated that SamCERA’s performance fiscal-year-to-date is below the actuarial assumption rate of 8%. He then indicated that SamCERA’s consultants opine that the expected return should be close to 8% by the end of the year. Mr. Lewis stated that SIS will provide a Capital Market assumptions review at November’s Investment Committee. Mr. Clifton also reported that SamCERA’s Investment Plan will be updated to include curent Capital Market assumptions. Reviewing these assumptions will provide current projections of portfolio returns.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

$738,330,845

0.28%

11.41%

0.16%

International Equity

219,468,798

0.15%

17.84%

-0.34%

Total Equity

$957,799,643

0.25%

12.79%

-0.34%

Fixed Income

450,953,331

1.87%

6.73%

7.70%

Real Estate Aggregate

59,555,852

0.65%

8.55%

9.50%

Cash Equivalents

12,497,781

0.19%

2.26%

3.64%

Total Fund

$1,480,806,607

0.75%

10.98%

3.48%

Benchmark

0.82%

11.57%

2.98%

Without objection, Ms. Salas accepted the report.

0409.6.2

Review, Revision & Reaffirmation of Investment Committee Charter: Mr. Clifton briefly reviewed the Committee’s proposed amendments to the Investment Committee Charter for the Board. There were deletions from the Charter that were no longer applicable because of previous revisions to the Regulations of the Board. The Committee also recommended that the provisions regarding the Committee’s charge to evaluate manager performance be amended to instruct the consultant to include performance on both gross and net of investment management fees to the quarterly report. Per Mr. Buffington’s request, without objection, Mr. Lewis deferred further consideration of the Investment Committee Charter to the October Board meeting.

0409.6.3

Selection of SamCERA’s Core Plus Fixed Income Manager: The Board conducted interviews of the finalists in the Core Plus Fixed Income Manager searches. Each firm provided a 30-minute overview of their proposal and then responded to 15 minutes of questions.

Timothy C. Vile, CFA, Managing Director and Anthony R. Freitas, CFA, Managing Director represented Deutsche Asset Management.

Carl L Eichstaedt, CFA, Senior Portfolio Manager and Claudia Z. Schloss, CFA, Marketing Executive represented Western Asset Management.

After extensive discussion, motion by Colson, second by Stuart, carried unanimously to select Western Asset Management for the Core Plus Fixed Income mandate due to its style & diversification.

0409.6.4

Approval of Chadwick Saylor Capital Management’s Independent Fiduciary Work: Mr. Lewis introduced John McClelland, President of Chadwick Saylor Capital Management to the Board. Mr. McClelland presented the summary of the 5 properties CS independently evaluated on SamCERA’s behalf. CS negotiated a contribution price of $59.795 million by selling the 5 assets into INVESCO’s Core Fund. Mr. McClelland then introduced the other recommended prices CS had negotiated for the other founding investors who are considering simultaneous contributions into INVESCO’s Core Fund. After reviewing all investors’ portfolios and gross contribution values, he concluded that SamCERA’s value is fair. Mr. McClelland presented the property contribution agreement for the Board’s approval.

In response to Mr. Lewis’ question regarding the 3 Florida properties, Mr. McClelland indicated that none of the properties were materially affected by the hurricanes, all are insured, and that any minor damage would be fixed prior to September 30^th. In response to a question by Mr. McMahon, Mr. McClelland reported that there are 5 potential founding investors, 4 of which are in position for the closing to occur on September 30^th. The fifth plan, the City of Boston, is not likely to have completed its due diligence review by that date. It is possible that INVESCO will permit accommodations to give Boston a few more days to enter the initial closing. He noted that the reason for Boston’s delay is due to the fact that their staff and Board have not completed their analysis of CS’s report.

Ms. Colson questioned language in the contract that explicitly denied that the Board had relied on any recommendations or advice from INVESCO during the decision making process. She stated that she did not feel comfortable agreeing that she did not rely at least partly on their recommendation. Ms. Carlson indicated that the Board cannot change the wording of the document since it was past the negotiation stage. Mr. McClelland indicated that he had questioned that portion of the contract several times himself and was told that the language was due to a securities law provision that requires INVESCO to insert language similar to the one in question into the contract to ensure that the founding investors are not merely relying on INVESCO to allow them to be the buyer. Mr. McCausland indicated that he was familiar with similar language in other private placement memorandums. Mr. Lewis indicated that he felt comfortable entering the contract with or without INVESCO’s advice.

Mr. McClelland reported that, while INVESCO had accepted CS’s valuation of SamCERA’s properties, in the cases of other founding investors, CS was not successful in gaining INVESCO acceptance of some of CS’s initial recommended contribution value. He stated that he was comfortable with the negotiated value of the properties being contributed to the Core Fund.

Ms.Carlson briefly reported on her conversations with INVESCO’s counsel regarding issues she had raised with regard to the contract.

Motion by Lewis, second by Bryan, carried unanimously (Ms. Arnott sitting for Mr. Buffington) to adopt Resolution 04-05-08, approving Chadwick Saylor’s summary of its valuation conclusions and recommendations, the contribution agreement, and the Fairness Option, 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, The Board of Retirement opined that an open-end commingled fund real estate mandate would allow SamCERA to achieve the diversity of property type, geographical location and range of market values that the Plan could not achieve with its separate property mandate; and

Whereas, the Board reviewed several providers of core real estate funds before determining to invest in the INVESCO Core Real Estate – U.S.A., LLC as a “Founding Investor”; and

Whereas, the Board found it prudent to hire CS Capital Management, Inc. as an Independent Fiduciary to represent and advise it with respect to the due diligence related to the INVESCO Core Real Estate - U.S.A, LLC Fund, including: (i) evaluating the value of all pre-closing portfolio transfers to the Fund and issuing a fairness opinion; (ii) negotiating, preparing, and delivering a Contribution Agreement; (iii) presenting a summary of its valuation conclusions and recommendation to the Board and (iv) such other assignments as set forth in the contract; and

Whereas, the Board approves CS Capital Management’s Independent Fiduciary Report on INVESCO Core Real Estate – U.S.A., LLC, which includes CS Capital Management’s summary of its valuation conclusions and recommendations, the Property Contribution Agreement, and accepts the Fairness Opinion; and

Whereas, County Counsel has approved the Property Contribution Agreement and the Investment and Finance Manager has recommended approval of the documents and acceptance of the Fairness Opinion. Therefore, be it

Resolved that the Board hereby approves CS Capital Management’s summary of its valuation conclusions and recommendations, the Property Contribution Agreement, and accepts the Fairness Opinion. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Property Contribution Agreement on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the Property Contribution Agreement and hereby authorizes the Investment & Finance Manager 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 Property Contribution Agreement

0409.6.5

Approval of INVESCO Core Real Estate-U.S.A., LLC Subscription Documents & Fee Side Letter: Ms. Colson reminded the Board that the SEC had imposed AMVESCAP, INVESCO’s parent, with the largest fine against any investment management organization. She expressed her concern how this could severely adversely impact the firm. Ms. Colson then reported that she had spoken with Max Swango from INVESCO and he had informed her of discussions regarding the departure of some senior partners. In response to Ms. Colson, Mr. Clifton indicated that he has verbal but not written confirmation that the key partners will remain at the firm. Ms. Jadallah stated that the 6 senior members of the firm have 3 year contracts in which they must give at least 2 years notice before leaving the firm plus a 1 year non-solicitation agreement. The 2 portfolio managers do not have a contract but do have 30% profit sharing. Ms. Colson expressed that the SEC problem proves to be a huge issue and would like a written confirmation regarding the matter.

Motion by Lewis, second by Stuart, carried 7 ayes (Arnott, Bryan, Hooley, Lewis, Stuart, Salas & Tashman) to 2 noes (Colson & McMahon) to adopt Resolution 04-05-09 subject to (1) a side letter allowing SamCERA to leave the contract should less than 4 of the 6 key management partners remain at the firm or (2) a representation letter to the management consultants in writing signed by the members of INVESCO before closing:

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, the Board reviewed several providers of core real estate funds before determining to invest in the INVESCO Core Real Estate – U.S.A., LLC as a “Founding Investor”; and

Whereas, “Founding Investor” in INVESCO Core Real Estate – U.S.A., LLC recognize certain cost benefits expressed though Side Letters; and

Whereas, the Board found it prudent to hire CS Capital management, Inc. as an Independent Fiduciary to represent and advise it with respect to the due diligence related to the INVESCO Core Real Estate - U.S.A, LLC Fund, including: (i) evaluating the value of all pre-closing portfolio transfers to the Fund and issuing a fairness opinion; (ii) negotiating, preparing, and delivering a Contribution Agreement; (iii) presenting a summary of its valuation conclusions and recommendation to the Board and (iv) such other assignments as set forth in the contract; and

Whereas, the Board approved CS Capital Management’s work product, a portion of which is incorporated into the INVESCO Core Real Estate – U.S.A., LLC Fund Subscription Documents; and

Whereas, County Counsel has approved the Subscription Documents and the Investment Management Fee Side Letter as to form and the Investment and Finance Manager has recommended approval of the documents. Therefore, be it

Resolved that the Board hereby approves the INVESCO Core Real Estate – U.S.A., LLC Fund Subscription Documents and Investment Management Side Letter. Be it further

Resolved that the Board hereby delegates full discretionary authority to the INVESCO Core Real Estate – U.S.A., LLC Fund to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the amended and restated limited Liability Company Agreement (the “Operating Agreement”) of INVESCO Core Real Estate – U.S.A., LLC. Be it further

Resolved that the Board hereby approves the fees as specified in the Investment Management Fee Side Letter 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 Subscription Documents and the Investment Management Fee Side Letter on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the Fund documentation and hereby authorizes the Investment & Finance Manager 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 Fund Documents.

0409.6.6

Acceptance of Post Transition Report for the BGI Russell 1000 Alpha Tilts Fund: Mr. Clifton presented the post transition report provided by BGI which provided analysis of the transition from the Russell 1000 Index to the Russell 1000 Alpha tilts Fund. He indicated that BGI was able to cross more securities than initially estimated which saved money and basis points on explicit costs such as commission and fees. However, having had to trade at the end of the day, market exposure and opportunity risk resulted in a loss in basis points and dollars. Mr. Clifton opined that it had been a successful transition. Mr. Clifton then recommended that the Board permit BGI to oversee the transition of small cap and international equity. Implementation would start on October 29^th. Without objection, Mr. Lewis accepted the report.

0409.7

Board & Management Support Services

0409.7.1

Acceptance of Monthly Financial Reports: Mr. Clifton presented the preliminary monthly financial report for the period ending August 31, 2004. He indicated that SamCERA had initiated Ventura payments to 167 individuals for a total of $1,294,781.66; $1,277,897.71 which is for retroactive adjustments with the balance as an ongoing monthly increase in the retiree payroll. The present value of the Ventura enhancements calculated to date is approximately $9.9 million which will be charged against the Ventura Reserve and transferred to the Employer Retired Reserves. Without objection, Mr. Lewis accepted the report.

0409.7.2

Introduction of SamCERA’s Comprehensive Annual Financial Report: Mr. Clifton reported that this agenda item will be deferred to the October Board meeting.

0409.7.3

Acceptance of Status Report from the Ad Hoc Chief Executive Officer Selection Committee: Mary Welch, Director of EPS, provided an update on the progress of SamCERA’s CEO Selection. She reminded the Board that Ms. Tashman, Chair, Mr. Lewis, Ms. Salas and Mr. Bryan were serving on the Ad Hoc CEO Selection Committee. Ms. Welch reported that the Committee had screened the applicant pool to 7 qualified candidates who have then been invited for a semi-finalist interview on October 7^th at the San Mateo Marriott starting at 8am. Included in the invitation was an information packet containing the 2004/2005 SamCERA Budget, the proposed manager structure and the list of trustees. The candidates come from both the private and public sectors with over 10 years of experience. Ms. Welch indicated that 5 of the candidates are from the West Coast with 3 from California. On October 26^th, the full Board shall be interviewing two to four finalists. The Board will be provided with a binder containing the cover letter, applications, resumes, supplemental answers and a reference check summary of each of the finalists prior to the meeting. Ms. Welch will also provide a list of appropriate sample questions that the Board members may ask the finalist during their 1.5 hour interview. Ms. Welch requested that the full Board meet at 8:15am on the morning of October 26^th. Ms. Tashman commended Ms. Welch and her staff on their efforts with this selection process.

0409.7.4

Further consideration of the Appointment of an Alternate Retiree Trustee: Mr. McCausland presented the three legal provisions that relate to alternate trustees. In response to a question raised by Ms. Colson, Ms. Carlson indicated that, (1) there are currently no alternates for any of the directly elected trustee positions on the Board; (2) at the time of the next Safety trustee election, if both a Probation member and a Sheriff’s member run for the seat, by law one will be become the Safety Alternate eligible to sit for any directly elected trustee whenever one is absent; and (3) if the Board implements the retired trustee alternate law, then the Retired Alternate will sit when the Retired Trustee is absent and the Safety Alternate would be prohibited from sitting for the Retired Trustee. Ms. Colson and Ms. Stuart indicated that they preferred to have a Retired Alternate sit for the Retired Trustee rather than the Safety Alternate, since the law specifically provides for a Retired Alternate.

Motion by Colson, second by Buffington, carried unanimously (Bryan, McMahon & Salas not present) to instruct staff to schedule an agenda item regarding implementation of the alternate retiree trustee law for the earlier of (1) January 2006 or (2) in conjunction with the next Safety Trustee election.

0409.7.5

Approval of Amendments to SamCERA’s Educational Policy: Mr. Clifton presented the amendments proposed for SamCERA’s Education Policy, which included the addition of Callan Associates to the policy as well as moving Frank Russell Company and Milliman USA from the “not for profit organization” category to the “private enterprise” category. Motion by Tashman, second by Buffington, carried unanimously (Ms. Colson abstained due to the fact that her spouse is employed with Callan Associates, Bryan, McMahon & Salas not present) to adopt the amendments proposed on July 27, 2004 to Resolution 98-99-12 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 (SACRS), the California Association of Public Retirement Systems (CALAPRS), the Government Finance Officers Association (GFOA), the Institute for Fiduciary Education (IFE), International Foundation of Employee Benefit Plans (IFEBP), , the California Retired County Employees’ Association, the Pacific Pension Institute (PPI) and the Wharton program for pension fiduciaries, to the extent that the budget provides funds for such participation. Be it further

Resolved, that the Board hereby approves the following recommended progression of courses for new trustees to complete within their first three-year term: (1) SACRS Fall or Spring Conference &/or CALAPRS General Assembly, (2) CALAPRS’ Trustee Roundtables, (3) CALAPRS @ Stanford Principles of Pension Management, (4) IFEBP Certificates of Achievement in Public Plan Policy and (5) Wharton Pension Fund and Investment Management Program. Be it further

Resolved, that the Board hereby also approves the following programs for trustees with the recommendation that trustees complete the programs listed above in the 3^rd Resolve Clause prior to participation in the following: Fiduciary Institute @ Stanford, IFEBP Public Funds Annual Conference, GFOA Annual Conference, ~~Frank Russell Company, Milliman USA~~, and US-based programs of IFE & PPI. 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 Institutional Investor Institute, the Information Management Network, Opal Financial Group, Frank Russell Company, Milliman USA, and Callan Associates, 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 Chief Executive Officer to allocate $10,000 for each new trustee’s education during each of his or her first two years in office and $5,000 for each trustee’s education during each subsequent year. Trustees who wish to exceed these allocations may request Board approval for their participation in additional educational activities when placed on the agenda of a public meeting of the Board. 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 a progression of courses for staff, 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.

0409.7.6

Acceptance of Report on Recommendation of Computer Systems for Trustees: Mr. Hood reviewed the options for the Board to consider regarding computer systems that can be utilized for Board materials. He noted that SamCERA’s 2004/2005 budget includes $30,000 for trustee oriented computer services. After extensive discussion, this agenda item was deferred until a future Board meeting and Staff was instructed to report back to the Board regarding the provision of a secure FTP site.

0409.8

Approval or Acceptance of Reports

0409.8.1

Chief Executive Officer's Report: Mr. McCausland indicated that by September 30^th, 476 retirees will have been paid Retroactive Ventura benefits. He noted that 30% of the records that have been researched so far have Ventura pay codes in them. He estimated that the project will be finished by the end of December.

0409.8.2

Assistant Executive Officers’ Report: Mr. Hood presented the Pension Gold Status Report. He noted the jump in maintenance fees due to LRS’s new policy of charging 15% for the maintenance of enhancements versus the previous policy of charging a flat maintenance fee. Two major recent enhancements are the IRC§415 limits test and the integration of the new Member Cost Sharing Contribution Rates. Mr. Hood also provided current work load statistics as part of an evolving monthly operations status report.

0409.8.3

Investment & Finance Manager’s Report: Mr. Clifton noted INVESCO’s settlement as being among the largest settlement with the SEC.

He then reported that Deleware International Advisors Ltd. has completed its merger and changed its name to Mondrian Investment Partners Ltd.

Mr. Clifton also reported that Bank of Ireland Asset Management has lost four key managers as SamCERA prepares for the transition of international assets towards the end of October. He opined that the firm is capable of performing its fiduciary duties throughout the transition.

0409.8.4

County Counsel's Report: None.

0409.8.5

Report on Actions taken in Closed Session: None

0409.9

Adjournment in Memory of the following Deceased Members: There being no further business, Mr. Lewis adjourned the meeting at 4:43pm, in memory of the following deceased members:

Mosley, Wordie

July 30, 2004

Department Of Civil Service Commission

Johnston, Mary

August 10, 2004

Information Services Division

Mott, Janet

August 12, 2004

San Mateo County Municipal Court

Parker, Anette

August 22, 2004

Crystal Springs Rehabilitation Center

Goff, Phyllis

August 30, 2004

Beneficiary Of Rex

Parlett, Marie

September 1, 2004

Beneficiary Of Thomas

Beauford, Willis

September 4, 2004

Department Of Public Works

Bjorling, Richard

September 4, 2004

Building & Grounds Maintenance

Polson, Adam Dr.

September 4, 2004

Department Of Mental Health

ALMA R. SALAS, Chair

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