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Home My WebLink About2006 05 24 Document Corresponding To Regular 300Date: May 24, 2006 DOCUMENT CORRESPONDING TO REGULAR AGENDA ITEM 3 00 FOR THE MAY 24, 2006 SPECIAL BOARD OF TRUSTEES MEETING. Investment Consulting and Performance Evaluation Services BOGDAHN CONSULTING, LLC. Joe Bogdahn, CIMA Mike Welker, CFA Dave West, CFA 863-293-8289 Table of Contents I. Who is Bogdahn Consulting 2-~ II. Why Choose Bogdahn Consulting 8-16 III. Current Situation Evaluation a. Portfolio Review /Suggestion 1 ~ b. Index Level -Stage 1 18-20 c. Manager Level -Stage 2 21-26 d. Plan Level -Stage 3 27-28 e. Bulls-Eye Investing 29-32 IV. Services Offered 33 a. Investment Policy Statement Development 34 b. Manager Selection Process 35 c. Asset Allocation Modeling 36-43 d. Glossary 44 ~ Bogdahn Consulting, LLC. ^ J Who is Bogdahn Consulting? • An Independent Registered Investment Advisory Firm Registered with the Securities and Exchange Commission Licensed and filed with the State of Florida Largest independent pension consultant in the State of Florida • "Professionally Qualified Independent Consultant" Exceed State Requirements -Fixed Fee Only / No Association with IM NASD Series 65/66 Licensed -Registered Investment Advisors Speaker at FPPTA & Division of Retirement Schools Member of CFA Institute Always act as Fiduciary to the plan as outlined by ERISA ^ Team of 15, Firm based in downtown Winter Haven, Florida No employee termination since firm inception 100% employee owned r 5 consultants • Performance Evaluation and Consulting Only •- 85% of our business is serving the Florida public pension market r 100% of our business is investment consulting for a hard dollar fee. 2 Bogdahn Consulting, LLC. Who is Bogdahn Consulting? Joe Bogdahn, CIMA -Senior Consultant Public Pension Clients /Principal Joseph Bogdahn, Principal of Bogdahn Consulting, received his BBA in BusinessBconomics from the University of Mississippi, where he served as President of the Student Body. Mr. Bogdahn also received his Certified Investment Management Analyst designation from the IMCA program at the Wharton School of Business. Mr. Bogdahn has recently written a white paper outlining the problems pervasive in today's investment consulting industry. The white paper has garnered national attention, and has been quoted in the New York Times, Miami Herald, Fund Fire Magazine and Forbes. Joe lives in Winter Haven, Florida with his wife Heather, daughter Isabella, sons Garrison and Miles and boxer Duchess. Mr. Bogdahn is very active in the local community and serves as an Elder of First Presbyterian Church, is a past president and current member of Rotary, and has served on the Board of the Boys & Girls Club for twelve years, including an extended term as Board President. He also is the Vice President and Partner of the 6/10 Corporation, a real estate development partnership. Mr. Bogdahn recently accepted the 2005 Industry Award for Bogdahn Consulting from the Winter Haven Area Chamber of Commerce. Mike Welker, CFA -Senior Consultant Public Pension Clients /Partner Mike Welker, Partner and Senior Consultant of Bogdahn Consulting, received his B.A. in Economics from Rollins College, where he also played basketball for four years. Upon graduation Mr. Welker attended the Crummer Graduate School of Business where he received his MBA in Finance and Management. Mr. Welker also earned the Chartered Financial Analyst designation in 20(kl. Over the past 10 years Mr. Welker has worked on both the investment management side of the business as well as the consulting side of the investment business. Prior to joining Bogdahn Consulting, Mr. Welker worked for a leading institutional money management firm where he was responsible for asset allocation decisions and client servicing for institutional accounts. Mr. Welker also gained Wall Street experience working for a trading firm on the floor of the New York Stock Exchange. Mike currently lives in Orlando, Florida with wife and daughter Kindell. He is active in the community and serves on the board of directors for the downtown Orlando YMCA and the Rollins College Alumni Athletic Board. Mr. Welker is also a member of the CFA Institute of Orlando. Dave West, CFA - Senior Consultant Public Pension Clients /CIO Dave is the firm's chief investment officer. His responsibilities include developing optimal investment portfolios, preparing investment manager due diligence reviews, selecting investment managers, reviewing and developing investment policy guidelines, and preparing performance-monitoring reports. Prior to joining the firm, Mr. West was a senior consultant for a regional investment consulting firm where he was responsible for conducting asset allocation studies, strategic market recommendations and rebalancing strategies, custom benchmark development, program compliance, progress analysis and reporting. Prior to his consulting career Mr. West worked for a leading institutional money management firm as senior portfolio manager and co-chairman of the asset allocation committee. Along with fined income responsibilities Mr. West was also the co-manager of the firm's lifestyle mutual funds which posted top quintile performance, substantial growth and fund offering expansion. Dave has a Bachelors of Business Administration from Stetson University. He is also a Chartered Financial Analyst and Member of the Orlando Financial Analysts Society. s Bogdahn Consulting, LLC. Who is Bogdahn Consulting? Dick Boggs, Senior Consultant Taft Hartley Relationships Dick Boggs, Senior Consultant at Bogdahn Consulting, received his BS in Chemical Engineering (Tau Beta Pi) and MS from Purdue University. Mr. Boggs also completed his MBA from the University of Chicago with a concentration in Finance, and has completed coursework and exams for his PhD from the University of Chicago in Finance. After serving as an Officer in the U.S. Army Chemical Corps, he was a Finance Professor at DePaul University. He began his investment consulting career in 1976, with positions ranging from Senior Consultant to Chief Compliance Officer. Mr. Boggs was Director of Manager Searches for SEI Corporation before he founded his own investment consulting firm in 1992. Mr. Boggs merged his firm into Bogdahn Consulting in 2005, where he now serves as Senior Consultant and the Director of Taft Hartley relationships. Dick manages the firm's Midwest office, where he lives with his wife, Jane. With all three of his grown children living close by, he enjoys spending time with his grandchildren and cheering for Purdue's sports teams. Rob Little, CFA, CPA -Director of Manager Due Diligence Rob is the firm's director of research. His responsibilities include developing optimal investment portfolios, preparing investment manager due diligence reviews, selecting investment managers, reviewing and developing investment policy guidelines, and preparing performance-monitoring reports. Prior to joining the firm, Mr. Little was a consultant with a regional investment consulting firm where he was responsible for conducting asset allocation studies, investment manager seazches, developing investment manager performance reports, and client servicing. Previously, he worked for Deloitte & Touche, LLP as a systems consultant and the North Cazolina Banking Commission as a bank examiner. Rob has a Bachelor of Arts degree in economics from the University of North Carolina at Chapel Hill and Master of Accounting degree from the University of Florida. He is a licensed Certified Public Accountant (CPA) in the State of Florida and is a member of the CFA Institute and the CFA Society of Orlando. Steve Lansing, CIMC, CEBS -Consultant for Defined Contribution Clients Steve Lansing offers clients the advantages of more than 33 years' experience in various areas of the financial services industry. Prior to joining Bogdahn Consulting, he served for eight years as an asset consultant with Gabriel, Roeder, Smith & Company, Orlando. During that time, asset consulting clients of the company ranged from for-profit to non-profit and governmental entities. Mr. Lansing began his retirement plan consulting cazeer in 1981, founding Stephen J. Lansing & Associates, a pension administration firm. Prior to that, he spent twelve years as an agent for Northwest Mutual Life Insurance, becoming a Life Member of the Million Dollaz Roundtable. Mr. Lansing is a member of the International Foundation of Employee Benefits, the Investment Management Consultants Association, and the American Society of Charter Life Underwriters. Widely recognized as an authority on asset consulting, he has published numerous articles, and has lectured to such groups as the American Society of Women Accountants, the Institute of Management Accountants, the Financial Executives Institute, and numerous chapters of Charter Life Underwriters. 4 Bogdahn Consulting, LLC. Who is Bogdahn Consulting? Herb Whitehouse, JD -Compliance Officer & Chief Fiduciary Officer Herb Whitehouse has worked at Prudential, A.F.S.C.M.E., Johnson & Johnson, and Chase Manhattan Bank. He has performed numerous management audits of investment and administration practices; and he has advised organizations such as the Society for Human Resource Management (SHRM) in Arlington, Virginia, and Advest Trust in Hartford, Connecticut. As manager of executive compensation at J&J, Herb led the team that helped turn a section of the LR.C. - §401 (k) -into the ubiquitous reality that it is today. At Chase, he served as Secretary of its Board of Directors' Employee Benefits Review Committee and as Secretary to the Chase Named Fiduciaries. Herb is a Master Pension FiduciaNTM; a trained mediator; and an arbitrator at the New Jersey State Board of Mediation. He is admitted to practice law in the District of New Jersey, and in both the Southern and Eastern Districts of New York. He serves as a Commissioner on the New Jersey State Employment and Training Commission, and as a Director of Great Eastern Bank in New York. Mr. Whitehouse attended Drew University where he earned both a Bachelor and Master of Arts degrees in Political Science. Following his undergraduate studies Mr. Whitehouse attended Rutgers University Law School, Newark, N.J. where he received his Juris Doctor degree. Administrative Support Team Performance Analyst -Elizabeth Whittall Performance measurement & attribution analysis BS -Purdue University Portfolio Analyst /Office Manager -Donna Sullivan Security & Portfolio Analysis Transactional Auditing Fund Analyst -Nicole Davison Fund review Client education Administration -Celeste Richardville & Donna Gough Firm administration 5 Financial Administrator -Heather Bogdahn Firm accounting and auditing functions BS -University of Miami Database Analyst -Bill Stark Transactional Auditing & Report Coordination BS -University of Florida Database Analyst -Susan Sleik Transactional Auditing & Report Generation BS -Purdue University Bogdahn Consultsng, LLC. ^ Bogdahn Consulting =Florida Municipal Market Specialized Focus - Altamonte Springs General ^ Destin Fire Control District - Altamonte Springs Police ^ East Lake Tarpon Fire - Altamonte Springs Operating Reserves ^ Edgewater Firefighters - Anna Maria Fire Control District ^ Edgewater General Employees . Arcadia Police & Fire ^ Edgewater Police Officers - Atlantis Police ^ Englewood Firefighters ^ Eustis Firefighters . Avon Park Firefighters ^ Fernandina Beach General Employees - Avon Park Police Officers ^ Fernandina Beach Police Officers & Firefighters - Bartow Police Officers ^ Flagler Beach Police - Belleair Bluffs Firefighters ^ Flagler Beach Fire - Belleair Police Officers & Firefighters ^ Fort Myers Firefighters - Belle Glade Firefighters ^ Fort Myers General Employees - Belle Glade General Employee ^ Frostproof Police - Belle Glade Police Officers ^ Gulfport Police - Bonita Springs Fire Control District ^ Gulfport Firefighters - Brooksville Firefighters ^ Havana Firefighters ^ Haines City General - Brooksville Police Officers ^ Hialeah Gardens Police - Bunnell Firefighters ^ Holmes Beach Police - Casselberry Police Officers & Firefighters ^ Homestead Firefighters - Crescent City Police ^ Howey-in-the-Hills Police - Crescent City Fire ^ Indian Shores Police - Crestview General Employees ^ Kissimmee Police Officers - Crestview Police Officers & Firefighters ^ Lady Lake Police Officers - Dania Beach Police Officers & Firefighters ^ Lake Alfred General Employees - Deltona Firefighters ^ Lake Alfred Police Officers s Bogdahn Consulting, LLC. Bogdahn Consulting =Florida Municipal Market - Lake City Police Officers - Ponce Inlet Firefighters - Lake City Firefighters - Quincy Police & Fire - Lakeland Firefighters - Punta Gorda Police Officers - Lake Worth Division II Firefighters - St. Pete Beach Firefighters - Lynn Haven Firefighters - St. Pete Beach General Employees - Marianna Firefighters - St. Pete Beach Police Officers - Marianna Police - Sebring Firefighters - Melbourne Fire - Sebring Police Officers - Melbourne General - South Pasadena Firefighters - Midway Fire Protection District - Sout6 Walton Fire - Milton Firefighters - St. Augustine Firefighters - Monticello Firefighters - Sweetwater Police - Monticello Police Officers - Tarpon Springs General - Mount Dora General - Temple Terrace Fire - Mount Dora Police - Temple Terrace Police - Mount Dora Fire - Tequesta General - Neptune Beach Police - Tequesta Public Safety - North Bay Firefighters - Umatilla Police - North River Fire - Venice Firefighters - Oakland Park General Employees - Venice General Employees - Ocean City Wright Fire District - Venice Police Officers - Okaloosa Island Firefighters - West Melbourne Police - Orange Park Firefighters - West Palm Beach General - Oviedo Firefighters - Winter Garden General - Oviedo Police Officers - Winter Garden Firefighters & Police Officers - Palm Beach Gardens Firefighters - Winter Haven General - Palm Beach Gardens General Employees - Winter Haven Police Officers - Palmetto Police Officers - Winter Haven Firefighters - Perry Firefighters - Perry Police Officers 7 Bogdahn Consulting, LLC. Why Choose Bogdahn Consulting? Operational Value Added • Daily, Monthly and Quarterly Evaluation of Manager /Portfolio Manually input every transaction into the Advent Axys database. Proprietary program links Advent to Mobius Performance Software. Manual reconciliation of accounts with managers and custodians every month. Ongoing, regular evaluation of portfolio for manager performance and style. • Have an advocate /guide in the administration of the plan Assist in interpretation of actuarial evaluation. Assist in the education of the pension board regarding potential benefit improvements. Conduct in-house educational seminars Establish commission recapture programs to reduce trading costs Review alternative custodial services to lower cost of plan. • Assist in fulfilling /reducing your fiduciary responsibilities We readily accept fiduciary role. Outline likely scenarios to reveal risks in order to eliminate uncertainty. Contingency plans /All records and information is backed up in case of emergency Objective, unbiased interpretation of investment results. Independent! s Bogdahn Consulting, LLC. ~{ ~. Why Choose Bogdahn Consulting? Operational Value Added -Example Eustis Fire Beneftts Review Assumes $40,000 AFC, 25 years of service 15 x 2.5%=37.5% 15 x 2.5%=37.5% Assumes 10 x 3% = 30% 10 x 3% = 30% hired after 67.5% total 67.5% total 1998 Curent Option F Option K(a) Option K(b) mixed 4.0% M mixed 3.0% M 67.5% straight 100% straight 68% 75% Yr. Payment Payment 3% life cola 3% life cola 1 $ 27,000.00 $ 40,000.00 $ 27,000.00 $ 30,000.00 2 $ 27,000.00 $ 40,000.00 $ 27,810.00 $ 30,900.00 3 $ 27,000.00 $ 40,000.00 $ 28,644.30 $ 31,827.00 4 $ 27,000.00 $ 40,000.00 $ 29,503.63 $ 32,781.81 5 $ 27,000.00 $ 135,000.00 $ 40,000.00 $ 200,000.00 $ 30,388.74 $ 143,345.00 $ 33,765.26 $ 159,273.00 6 $ 27,000.00 $ 40,000.00 $ 31,300.40 $ 34,778.22 7 $ 27,000.00 $ 40,000.00 $ 32,239.41 $ 35,821.57 8 $ 27,000.00 $ 40,000.00 $ 33,206.59 $ 36,896.22 9 $ 27,000.00 $ 40,000.00 $ 34,202.79 $ 38,003.10 10 $ 27,000.00 $ 270,000.00 $ 40,000.00 $ 400,000.00 $ 35,228.88 $ 309,520.00 $ 39,143.20 $ 343,914.00 11 $ 27,000.00 $ 40,000.00 $ 36,285.74 $ 40,317.49 12 $ 27,000.00 $ 40,000.00 $ 37,374.31 $ 41,527.02 13 $ 27,000.00 $ 40,000.00 $ 38,495.54 $ 42,772.83 14 $ 27,000.00 $ 40,000.00 $ 39,650.41 $ 44,056.01 IS $ 27,000.00 $ 405,000.00 $ 40,000.00 $ 600,000.00 $ 40,839.92 $ 502,163.00 $ 45,377.69 $ 557,963.00 16 $ 27,000.00 $ 40,000.00 $ 42,065.12 $ 46,739.02 17 $ 27,000.00 $ 40,000.00 $ 43,327.07 $ 48,141.19 18 $ 27,000.00 $ 40,000.00 $ 44,626.89 $ 49,585.43 19 $ 27,000.00 $ 40,000.00 $ 45,965.69 $ 51,072.99 20 $ 27,000.00 $ 40,000.00 $ 47,344.66 $ 52,605.18 TOTE $ 540,000.00 $ 800,000.00 $ 725,500.11 $ 806,111.23 on data provided by Foster & Foster, Inc. 9 Bogdahn Consulting, LLC. ^ Why Choose Bogdahn Consulting? Operational Value Added -Example Bogdahn Consulting, LLC. MASTER TRANSACTION SUMMARY From 01-01-05 To 09-30-05 Tran Trade Settle Close SID SID Trade Code Security Date Date quantity Meth. Type Symbol Amount Lot City of Crestview-General sl General Motors Acceptance Corp 1/25/2005 1/28/2005 12000 f caus cash 12016.56 6.875% Due 08-28-12 in General Motors Acceptance Corp 1/25/2005 1/28/2005 caus cash 343.75 6.875% Due 08-28-12 Indian Shores Police sl General Motors Acceptance Corp 1/25/2005 1/28/2005 1000 f caus cash 1001.38 6.875% Due 08-28-12 in General Motors Acceptance Corp 1/25/2005 1/28/2005 caus cash 28.65 6.875% Due 08-28-12 1 1 Tran Trade Settle Code Security Date Date Atlantis Police Pension by General Motors Corp.Com 4/12/2005 4/15/2005 dv General Motors Corp.Com 6/10/2005 6/10/2005 Perry Fi re 719-05D34 by General Motors Corp.Com 3/9/2005 3/14/2005 sl General Motors Corp.Com 3/23/2005 3/29/2005 Close S1D SID Trade quantity Meth. Type Symbol Amount Lot 335 caus cash 9657.92 1 caus cash 167.5 370 caus cash 12572.6 1 370 f caus cash 10776.5 1 ~ o Bogdahn Consulting, LLC. Why Choose Bogdahn Consulting? Relationship Value Added • Passionate, Enthusiastic, Can-Do Business Philosophy ~ If you have a meeting, we will be there! If you ever need anything done we will find a way to do it. Educational meetings, fee studies, manager comparison, etc. These "extra" items are included in our fee, no extra charge! • Committed to our service model, but willing to adapt to meet client demands We will work to deliver any form of modified report requested by the board. Customized performance reports, date to date gain loss report, portfolio reconciliation reports, style characteristic studies on portfolio or individual managers, are just a few reports available. Executive summaries instead of complete book. We understand that our way is just one way to present information. Remembering WE work for YOU! Confidence If you are displeased with our services after the first year we will return our entire fee. Please call any of our clients, and ask about our services. Trustworthy No affiliation with brokers or money managers. 100% Independent! We welcome your auditors review our personal and professional financial statements. 11 Bogdahn Consulting, LLC. ;':; Why Choose Bogdahn Consulting? Investment Value Added - Screening Process 1) 2) 3) 4) 5) 6) 7) 8) 9) Stability of the Organization: The portfolio manager or management team needs to have been intact for a minimum of five years. Consistent Style: Consistent allocation to appropriate index based on return-based style analysis (asset loading to representative index should be at least 50%). Deference to holdings-based style analysis or actual holdings of portfolio if available. Return Consistency: We do not want to see large fluctuations in performance year-over-year Expense Ratio: The expense ratio should be below the median for the respective peer group. As an overlay to the expense ratio calculation there is consideration to funds with a high 12b-1 fee to determine the net investment cost (expense minus revenue share). ***pertain to mutual fund investment Turnover Ratio: As calculated by Morningstar, the fund's turnover ratio should not rank in the bottom 25th percentile within the respective peer group. ***pertain to mutual fund investment Sortino ratio: (annualized return minus risk-free rate divided by the standard deviation of negative returns) should consistently rank better than the median within the peer group and the representative index over rolling three and five-year periods. Alpha: This ratio provides a measure of manager `value-added'. It should be positive and consistently rank better than the median within the peer group over rolling three and five-year periods. Information ratio: This ratio provides a measure of `manager skill' and we would like for the ratio to be positive (preferably above 0.50) and consistently better than the median within the peer group over rolling five-year periods. Up and Down Market Capture Ratios: Prefer funds that have an up-market capture ratio greater than 100 and adown-market capture ratio below 100 over rolling three and five-year periods. For funds that do not have an up-market capture ratio greater than 100, the ratio should be greater than the down-market capture ratio. 10) Portfolio concentration: Typically, we prefer for the portfolio to have at least 30 holdings. 11) Absolute performance: Rolling three and five-year annualized performance should exceed the index and rank better than 60% of their peers. ~ 2 Bogdahn Consulting, I..LC. i' ~ illy i' ~ 11~ ~ ~ i~ i~ ~ ~ i' i' 11~ (' illll~ i~ il~ Why Choose Bogdahn Consulting? Investment Value Added -Review Process - Outline criteria in the policy statement that the manager must follow. - Violation of three individual guidelines results in probation recommendation. - Violation of 5 individual guidelines results in termination recommendation. 1. 4 consecutive quarters of relative under-performance verses benchmark index. 2. 3 and 5 year trailing returns below the 40th percentile and underperforming relative to index. 3. Downside volatility greater than index, measured by up/down market capture ratio. 4. Style Consistency, style purity. No style drift from mandate. 5. Manager turnover. Senior Portfolio Managers leave the company. 6. Investment process change. Willingness to change index or bogey frequently. 7. No adherence to the policy statement. Compliance issues. 8. Investigation of the firm by the SEC. 9. Significant asset flows into or out of the company. 100% of AUM 10. Merger or sale of firm. Loss of key personal. 11. Fee increase. 12. Servicing issues -Key personal stop servicing the account without proper notification. - Probation: Manager knows we are concerned. Termination would not be surprise. Three options are presented to trustees when probationary status occurs. 1. Monitor closely but no change. Review every quarter until issues are resolved or manager is terminated. 2. Introduce alternative managers in specific style to show trustees comparative risk/return profiles on an ongoing basis. Reduces transition timeline if termination is necessary. 3. Termination. Manager search. NOTE: Our adherence to this process has helped produced the results outlined on page 29 13 Bogdahn Consulting, LLC. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~^ ~ ~ ~ ~ ~ ~ s ~ ~ ^ _ ~~° ~ BOGDAHN CONSULTING LLC. simplifying your investment decisions MEMORANDUM TO: Board of Trustees, Mount Dora General FROM: Joe Bogdahn RE: `Official' communications with Trusco DATE: 30 April, 2004 October 13, 2003 Discussion with Bill Tarray QE 9/30 3~ consecutive at 50% or higher Rollout of SC and IBF December 9, 2003 Conference call with Bill Tarry • Underperformance and fee structure January 12, 2004 Meeting with Chris Jones, Elliot Perney, Earl Denney, Blake Myton, Bill Tarry, Lance Powers • Tactical allocation lag • Fee structure • Fixed Income strategy • Equity performance • Commission recapture January 20, 2004 Conference call with Bill Tarry • QE 12/31 performance • Notification of serious concern February 11, 2004 Discussion with Lance Powers, • January performance March, 5, 2004 Meeting with Blake Myton • Preliminary February performance • Allocation adjustment authority March 17, 2004 Conference Call with Chris Jones • Recapture status April 2, 2004 Meeting with Diane Garcia and Maria Goncalves • Administrative processes -payments • BenePay Online Services Meeting with Steve Gordon • Preliminary QE 3/31 performance • Potential beefing up of analysis April 26, 2004 Meeting with Steve Gordon • Mid Cap manager tenure • Fixed Income new hire • Open architecture 340 West Central Avenue, Suite 300 • Winter Haven, Florida 33880 Telephone (863) 293-8289 • Facsimile (863) 292-8717 14 Bogdahn Consulting, LLC. ~.. Why Choose Bogdahn Consulting? Cost Value Added ANNUAL FEE (All Inclusive, $18,000 This fee includes: Quarterly Mobius performance report for all asset classes Investment Policy Statement development, review and maintenance Asset Allocation Consulting /Modeling Investment Style analysis Investment Manager Searches Economic Overviews Educational Seminars Performance Reconciliation Customized reports /presentations Alternative investment seminars Additional investment manager performance monitoring Quarterly oral reports Feasibility Analysis /Fee audits Transactional Costs Analysis Fees guaranteed three years ~ s Bogdahn Consulting, LLC. ~~ Adding Value - Do our clients agree? ^ During the last 10 years, Bogdahn Consulting gained: %- Over 100 Florida Municipal Pension Clients r 6 Endowment /Foundation Clients r 5 Corporate Clients ^ During the last 10 years, Bogdahn Consulting lost: r 0 Clients! Steady growth over the last 10 years LU 00 80 60 40 20 n 1996 1997 1998 1999 2000 2001 2002 2003 2004 Client Distribution List Corporate 5% '~ th Net ~ortn E&F 3% 5% Florida Market Share 26 Other Firms unicipal 71 s~°i° Bogdahn ~onsuking 29% ~ s Bogdahn Consulting, LLC. ^ ~?_', Portfolio Review /Suggestions ^ Stage 1 -Index Level a) Current b) Proposed ^ Stage 2 -Manager Level a) Current Product b) Surgical Solution c) Wholesale Changes ^ Stage 3 -Portfolio Level a) Amend b) Re-balance c) Replace d) Monitor e) Analyze Best return Least risk Lowest cost Average return Average risk Average cost Worst return Most risk Highest cost ~ 7 Bogdahn Consulting, LLC. ~ s, r s, ~ s, ss s, s, s' s, s, ~ ~r s, . ~ ~ ~ Index Level ~ s Bogdahn Consulting, LLC. ^ Risk/Return: Current Portfolio vs. Proposed Portfolio Trailing Periods Ending 3/31 /06 -Scatter-plot comparison (risk vs. return) Universe: Mobius Broad Balanced Universe: Mobius Broad Balanced S Years Trailing ending 0313112006 3 Years Trailing ending 0313112006 1^ 1 a E m rr E d ~ -1 -1 -2i -2~ 4 19 Bogdahn Consulting, LLC. 4 6 8 10 12 14 16 18 20 Standan7 Deviation Unive rM: Mobius Broad Balanced Bear Market ending 0 3131120 0 3 4 5 6 7 8 9 10 11 12 Standani Deuation Universe: Mobius Broad Balanced 7 Years Trailing ending 03!3112006 6 8 10 12 14 16 18 20 Standani Deuation 4 6 8 10 12 14 16 18 Standard Deviation ..F3.;, ,- Risk/Return: Current Portfolio vs. Proposed Portfolio Trailing Periods Ending 3/31/06 - Balanced Index Universe Comparison Returns Universe: Mobius Broad Balanced 22 20 18 16 14 12 10 8 6 4 2 1Yr 3Yr ^ 5-25 %tile ^ 25-50 %tile • 50%S&P 10%MSCI 40% ML Govt/Credit 5Yr ^ 50-75 %tile 10Yr ^ 75-95 %tile Universe Percentile 1 Yr 3 Yrs 5 Yrs 10 Yrs 5th 18.22 21.52 10.98 12.65 25th 11.78 15.58 7.36 9.83 Median 9.16 12.36 5.76 8.45 75th 7.11 9.76 4.13 7.42 95th 4.20 7.36 2.32 5.93 Universe: Mobius Broad Balanced Returnset ^ Proposed Allocation Benchmartc (Winter Springs) -Index Universe: Mobius Broad Balanced so Percentile: Percentile: Percentile: Percentile: 1 Yr 3 Yrs 5 Yrs 10 Yrs 10.0 9.0 6.0 N/A J Bogdahn Consulting, LLC. `r~ ~~_~ ~ i f.~ 21 Bogdahn Consulting, LLC. _Manager Level ~^ . Ir r . . ~^ ~^^ lll~ lll^~ ~^~^ .^^ ~^^ 1. ~^^ . n^^ ~ ~^^ ~~~~ ~:x~~~- r ~~ Risk/Return: Current Portfolio vs. Proposed Portfolio(s) Trailing Periods Ending 3/31 /06 -Scatter-plot comparison (risk vs. return) Universe: Mobius Broad Balanced 3 Years Trailing ending 03/31/2006 22 20 * ~ ~ 18 ** * * * * ~ 14 * * * a~ * * * * * ~ ~ 12 ~ * ** * ~ ~ g *~ ** * * * 6 4 5 6 7 8 9 Standard Deviation * 10 11 12 Universe: Mobius Broad Balanced 5 Years Trailing ending 03/31/2006 14 12 ~ * * ^ 10 * * * ~ * ** *** * * * ~ * * a~ 4 Q! * * *~ * 2 0 -2 -4 4 6 8 10 12 14 16 18 20 Standarci Deviation 3 r r Returns Standard Deviation Returns Standard Deviation ^ Winter Springs Wholesale Changes -Gross Size 19.71 8.55 12.72 10.21 ^ Winter Springs Surgical Sdution -Gross Size 19.41 9.11 11.55 11.02 ^ Winter Springs Qrrerrt -Gross Size 12.87 7.52 5.38 10.88 • 60% S&P 50010% MSCI 30% l_eFYrtan Agg 14.20 7.90 5.20 11.64 ii Bogdahn Consulting, LLC. tl• ~ ~^^ ~^^ ~^^ t~^^ lill^~ l~ +~^~ 1. ~ ~ ~^~^ ~^^ is ti. ~^^ ~ s Risk/Return: Current Portfolio vs. Proposed Portfolio(s) Trailing Periods Ending 3/31/06 -Balanced Index Universe Comparison Returns Universe: Mobius Broad Balanced 22 -- _ -- _ _ _ - _--- 20 18 16 14 12 10 8 6 4 2 3Yr ^ 5-25 %tile ^ 25-50 %tile • 60% S&P 50010% MSG 30% Lehman AqA ^ 50-75 %tile 10Yr ^ 75-95 %tile ltiver9e P~ero~file 11fF 31fFs 5Yrs 101fFs 5th 1822 21.52 10.96 1266 25th 11.78 15.58 7.36 9.83 M~cian 9.16 1236 5.76 845 7~h 7.11 9:76 4.13 7.42 g6th 4.20 7.36 232 5.9(i - -- Retumset Peroerrtile: 1 Yr Percerrtile: 3 Yrs Peroentile: 5 Yrs Percerrtile: 10 Yrs i ^ Winter Springs Wholesale Changes -Gross Size 9.0 9.0 1.0 N/A ^ Winter Springs Surgical Sdution -Gross Size 9.0 9.0 4.0 WA ^ Winter Springs C~xrerit -Gross Size 39.0 45.0 56.0 IV~A Urr~erse: Mobius Broad Balanced 23 Bogdahn Consulting, LLC. 1Yr 5Yr ..~ i~ l~ I~ ~ i~ iii i~ it iilll~llr ~ iii i~ ~ l~ ~ r ~ S Performance: Market Capture Ratios Period Ending 3/31 /06 - Current Manager vs. Proposed Manager(s) Up-Market Ratio 140 120 100 80 60 40 20 0 5Yr 100 90 80 70 60 50 40 30 20 10 0 Down-Market Ratio 5Yr 140 130 120 ~ 110 ~ 100 ~ 90 ~ 80 ~ 70 60 506070809010(11(12(13(14(15( Down-Market Ratio Up-Market gown-Market Ratio Ratio ^ Winter Springs Wholesale Changes -Gross Size 133.00 50.58 ^ Winter Springs Surgical Solution -Gross Size 133.60 66.99 ^ Winter Springs Current -Gross Size 97.25 93.69 • 60% SS~P 500 10% MSCI 30% Lehman Agg Index: 60% S&P 500 10% MSCI 30% Lehman Agg Timeframe: 5 Years Trailing 100.00 100.00 24 Bogdahn Consulting, LLC. ;f: Performance: Relative Risk Statistics Trailin Periods Endin 3/31 /03 -Current Mana er vs. Pro osed Mana er s Alpha s 7 6 5 4 3 2 1 0 5Yr Treynor Ratio 14 12 10 8 6 4 2 0 5Yr 5Yr R-Squared 1UU yu ~u /u tiU 5U 4U ;iU LU 1U U 5Yr Information Ratio 2.5 2.0 1.5 1.0 0.5 0.0 5Yr Alpha Beta R-Squared Treynor Ratio Batting Average Irifomlation Ratio ^ Winter Springs Wholesale Changes - Gmss Size 7.61 0.86 94.62 12.15 95.00 2.40 ^ Winter Springs Surgical Solution -Gross Size 6.31 0.92 94.97 10.03 90.00 2.26 ^ Winter Springs Current -Grass Size 0.38 0.92 97.07 3.46 55.00 0.03 60% S&P 50010% MSCI 30% Lehman Agg 0.00 1.00 100.00 3.00 100.00 Timeframe: 5 Years Trailing Index: 60% SAP 50010% MSCI 30% Lehman Agg is Bogdahn Consulting, LLC. 1.U u.y u.~ u./ U.ti U.5 U.4 U.~ U .L U.1 U.U Beta 5Yr Batting Average 1UU yu tsU ~U tiU 5U 4U :iU L U 1u u r r r r rr r rr r^ ^^~ r~ rr ^r r rr rr ~r r rr r Performance: Trailing Returns Period Ending 3/31 /06 -Current Manager vs. Proposed Manager(s) l: (.~~ 1YF 3Yr 5Yr 10Yr ^ Winer Sprirgs Whdesale -Gross Size 3.55 15.43 19.71 1272 ^ Winter Springs Surgcal Solution -Gross Size 4.17 15.26 19.41 11.56 ^ Winer Springs Q.rrer~t -Goss Size 4.26 10.44 1287 5.38 • 60% S&P 50010% MSq 30% Lehrman Agg 3.26 10.13 14.20 5.20 8.27 is Bogdahn Consulting, LLC. Qtr 1Yr 3Yr 5Yr 10Yr ~ r ~^^i ~ ~ r r ~ ~ ~ ~ r ~ ~ ~ ~ ~ ~ ~ Plan Level Plan Level (Stage 3) _' 2~ Bogdahn Consulting, LLC. i~ ~ ~ ~ r ~ ~ ~ ~ i~ r i~ r ~ ~ l~ ~ ~ ~ Cost Analysis with Alternative Managers, Outside Custodian and Consultant . . . . . .. . . . Dow Jones W ilshire Reit 0.25% SunTrust High Grade Growth 0.75% 24.1% Lehman U.S. TIPS 0.20% SunTrust High Grade Relative Value 0.75% 24.0% NCREIF Property ODCE 1.00% SunTrust High Grade Bonds 0.75% 31.0% Capital Management Associates 0.75% SunTrust Small Cap Growth 0.75% 2.70% Freedom Capital 0.95% SunTrust Small Cap Value 0.75% 2.30% Dana Investment Advisors 0.70% SunTrust Retirement Mid Cap Equity 0.75% 5.3% Snow Capital 0.75% STI International Index 0.75% 10.6% Agincourt (Core Bond) 0.25% -. • Dow Jones W ilshire Reit 0.25% 5.0% Kissimmee Current 0.75% Lehman U.S. TIPS 0.20% 5.0% Kissimmee Surgical 0.67% NCREIF Property ODCE 1.00% 5.0% Kissimmee W holesale 0.56% SunTrust Small Cap Growth 0.75% 2.5% SunTrust Small Cap Value 0.75% 2.5% • SunTrust High Grade Bonds 0.75% 20.0% Bogdahn Consulting ($18,000) 0.14% Europacific Fund 0.95% 10.0% ICC Capital Management 0.50% 25.0% • • • - ~ Capital Management Associates 0.75% 25.0% Custodial Charge -All inclusive 0.04% • • • Dow Jones Wilshire Reit 0.25% 5.0% W inter Spring Current 0.75% Lehman U.S. TIPS 0.20% 5.0% W inter Springs Current (BC) 0.89% NCREIF Property ODCE 1 .00% 5.0% W inter Springs Surgical (BC) 0.81% Capital Management Associates 0.75% 25.0% W inter Springs W holesale (BC) 0.74% Europacfic Fund 0.65% 10.0% Snow Capital Management 0.70% 25.0% Agincourt 0 25% 25 0% 28 Bogdahn Consulting, LLC. Does our plan work? Plan Review Index Revie~ Manager Review Best return Least risk Lowest Cost Average Return Average Risk Average Cost Lowest Return Highest Risk Highest Cost is Bogdahn Consulting, LLC. ~ ~ S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i ~ ~ ~ ~ Investment Results -Plan Level All plan have less than 70% exposure to stock and are calculated net of investment fees 1 Year 3 Years 5 Years Winter Springs General Employees Retirement Plan 9.32% 14.43% 6.61 Lakeland Firefighters' Supplemental - Bogdahn Consulting (4 Yr. Smooth > 8%) -Surgical 15.32% 16.47% 8.40% Venice Police Officers - Bogdahn Consulting (4 Yr. Smooth > 8%) -Surgical (IPS Level) 13.16% 16.30% 7.61 Oviedo Police Officers - Bogdahn Consulting -Surgical (Manager Level) 13.72% 12.90% 7.20% Lake Worth Division II Fire - Bogdahn Consulting 10.82% 14.79% 6.63% 3o Bogdahn Consulting, LLC. -'~- ~~> `~. Investment Results -Plan Level Quarterly Performance -Recent Changes From Trusco Capital (All Accounts 60/40 -Net of Fees) Balanced ~ quities Winter Springs General Employees Retirement Plan 3.05 % ~ . ~ ~) "'o Sebring Firefighters 3.62% h. ~4~''0 South Pasadena Firefighters 3.68% 7.23°~0 West Manatee Fire & Rescue 3.14% 6.27% Holmes Beach Police Officers 3.13% 5.64% 31 Bogdahn Consulting, LLC. Why Choose Bogdahn Consulting? Performance Value Added Complete Business Cycle - 5 year annualized performance (Period ended 9/30/05 - FYE) y 93% of our plans rank in the top 40th percentile in their peer group. 87% rank in the top quartile (25th percentile or better). 40% are in the top decile (10th percentile or better). The average for the 7% that are not in the top 40% are at the median. All percentile rankings are compiled after investment management and custodial fees. ~ Performance Comparison Screening Procedure This comparison uses plans we have represented for 1 year Objectives determined by board of trustees as well as universe comparisons. We welcome an audit of our methodology and conclusions ~ Sustaining Solid Results Innovative investment management search criteria -introducing new managers This past year we recommended replacement of one of the market's largest investment managers. Even though historical returns are impressive we believe future returns may lag the policy and erode longer term numbers based on violations of our performance and operational criteria. 32 Bogdahn Consulting, LLC. Services - Quarterly Mobius performance report for all asset classes - Investment Policy Statement development, review and maintenance - Asset Allocation Consulting /Modeling - Investment Style Analysis - Investment Manager Searches - Portfolio Evaluation - Economic Overviews - Educational Seminars - Performance Reconciliation - Customized reports /presentations - Alternative investment seminars - Additional investment manager performance monitoring - Quarterly oral reports - Feasibility Analysis /Fee audits - Transactional Costs Analysis 33 Bogdahn Consulting, LLC. Investment Policy Statement Outline -Example ^ Determine objectives of client - Return -Real vs. Nominal - Risk -Demographics of plan, age of workforce, future liability payments, over or under funded - Incorporate statutory investment restrictions and limitations ^ Determine market forecasts based on historical data & economic evaluation - Modern portfolio theory and the efficient frontier. Maximizing return for the least amount of risk - Match portfolio objectives with long term risk/return predictions based on expectations -Based on current economic evaluation (macro & micro) as well as capital market expectations ^ Determine asset allocation and investment manager search - Matching portfolio objectives with market expectations will help determine the optimal portfolio. - Craft a portfolio that will maximize return and minimize risk tailored to your portfolio ^ Evaluate & Monitor Portfolio - Quarterly evaluations to make sure implemented strategy is achieving goals of plan sponsor -Attribution analysis is run to articulate where value added or lost -Objective ranking of the portfolio against benchmarks and peer universe ^ Adjust portfolio to changing portfolio objectives or changing market conditions - A dynamic process requiring on-going monitoring and evaluation. 34 Bogdahn Consulting, LLC. Investment Manager Selection Process - NO BIAS! - The first step in choosing an Investment Management firm is to conduct a detailed review and discussion with the Board of Trustees as to risk and style preference. - Next, we filter through our national database to focus on managers that meet the Board's requirements with regard to risk tolerance, policy objectives, minimum account size and the level of fees charged, to assess which managers may be well suited to the plan. Our due diligence process includes a rigorous review of references of similar plans based on size and geographic location as to the level of service provided, as well as verifying /auditing the firms past results and style integrity. - We combine this information with our on-going process of personal interviews and site visits. We feel that this regular `kicking of the tires' provides additional background information and insight that may otherwise be overlooked by reviewing charts, graphs and databases. - With the remaining firms, we then draw upon the MObius database to measure total performance for the manager in both up and down markets, review the manager's risk adjusted returns, and compare risk statistics. - Once our detailed analysis and comparisons are completed, we will narrow the list to four to six firms for each investment category, and then review the findings with the Board. Finalists will be introduced to the Board for individual presentations. Note: We will work with any investment management firm if they meet client objectives. We do not participate in any pay-to-play schemes. 35 Bogdahn Consulting, LLC. '': ,~„ Asset Allocation Drives Performance .6% 36 Bogdahn Consulting, LLC. Benefits of Long-Term Investing ~ ~///tS.4y ~ $10,000 $2,127.00 $1,000 '~ • 1 $100 $19.15 $10 $1 $0 00 r 1~ O M tD Qs N ~A oo ~ ~ 1~ O M t0 Q~ N O O r eF P O M N M M M ~ et ~ ~ O O O cC cC c0 h f~ 1~ f~ 00 00 00 C1 01 C1 O O Q1 Q1 01 O Q1 07 01 01 Q> 01 W 01 Q1 O~ Q1 Q1 Q1 Q1 07 O 01 01 01 O O r !~ T r r r r r r T r r r T r r !~ r r r r r T N N ~ Small Stocks O Common Stocks ~ Long-Term Gov't Bonds O Treasury Bills ~ Inflation Wealth Indices of Investments in the U.S. Capital Markets. f ' d t' t to Hypothetical value of $1 invested at year-end 1925, Assumes reinvestment o income an no transac ion cos s or xes. Source: Ibbotson Associate 37 Bogdahn Consulting, LLC. Inputs to Asset Allocation Portfolio expected return = w~ E(RA) + w2E(R2) Portfolio variance = w~2Q~2 + w22Q22 + 2w~w2covariance, or Portfolio variance = w~2Q~2 + w22Q22 + 2w~w2r~ where w~ =weight of asset 1 w2 =weight of asset 2 E(RA) =expected return of asset 1 E(RZ) =expected return of asset 2 Q~2 =variance of asset 1 Q22 =variance of asset 2 Most important term in modem portfolio theory r~ 2 =correlation between assets 1 and ~ Bogdahn Consulting, LLC. Quantifying The Relationship Between Asset Classes 39 ..................................................... ..................................................... .................................................... ..................................................... .................................................... ..................................................... .................................................... ..................................................... .................................................... ..................................................... .................................................... ..................................................... .................................................... ..................................................... Bogdahn Consulting, LLC. Positively Correlated Asset Classes (0.30 to 1.00) ~ ~ ~ . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ s .~~' Quantifying The Relationship Between Asset Classes Negatively Correlated Asset Classes (-0.30 to -1.00) 4o Bogdahn Consulting, LLC. ^ _ .., ., Quantifying The Relationship Between Asset Classes 41 Bogdahn Consulting, LLC. 100% Investment A 100% Investment B Diversification Effect - 50% A, 50% B Correlation Matrix Based on Historical Returns ^ Correlation is a measure of the extent to which returns of an asset class move Large with, or behave like, those Cap of another asset class. Large Cap 1.000 ^ A value of 1.0 indicates perfect positive correlation between two asset classes, Small Cap Growth 0.790 indicating that returns move up or down together. Small Cap Value 0.520 ^ A value of -1.0 International 0.590 demonstrates perfect negative correlation, indicating that returns Emerging Markets 0.380 move in the opposite direction. Fixed Income 0.290 Small Small Hedge Cap Cap Intematio Emerging Fixed Fund of Commodit Growth Value nal Markets Income Funds ies Cash 1.000 0.660 1.000 0.460 0.240 1.000 0.720 0.370 0.660 1.000 0.150 0.300 0.070 -0.030 1.000 ^ A value of 0 indicates that Alternative Assets 0.660 0.680 0.550 0.350 0.480 0.130 1.000 there is no relationship among the movement of Commodities -0.270 0.120 -0.030 -0.130 0 130 -0.070 0.290 1.000 returns. Cash 0.110 0.100 0.080 -0.030 -0.060 0.400 0.210 -0.040 .000 42 Bogdahn Consulting, LLC. f ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Pushing the Efficient Frontier to the Northwest Adding Hedge Fund of Funds and Commodities Improves Risk/Return Tradeoff ^ The Efficient Frontier on the right graphically depicts the output of our modeling exercise. Curve I, denoted by Expected Retum the black line, is the risk/return opportunity set 13.0 resulting from unconstrained 12.0 Small guidelines utilizing seven ~ Value 11.0 asset classes. Commodities Small ^ Curve II, denoted by the red line, represents the risk/return opportunity set resulting from unconstrained guidelines utilizing these same seven asset classes and adding Commodities and Alternative Asset Classes. • Curve II falls further toward the northwest indicating that it is comprised of an opportunity set of portfolios with higher return expectations and less volatility than the opportunity set of Curve I. This exercise is merely meant to demonstrate the importance of asset class selection. 10.0 9.0 a.o 7.0 6.0 5.0 4.0 3.0 2.0 10 Cash 0.0 Fixed ~ Income ~ ~ International ~ Growth Large Cap Alternative Asset Class Emerging Markets T~ 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0 Standard Deviation (Risk) 43 Bogdahn Consulting, LLC. Glossary of Terms ^ Alpha - A linear regressive constant that measures the manager's expected return independent of Beta. A measure of value above an index (independent). ^ Alpha Driver -Managers that are not constrained to style boxes or indexes. Look to add value in all market cycles. ^ Commingled Fund - An investment fund, offered by a bank or insurance company, which is similar to a mutual fund in that investors are permitted to purchase and redeem units that represent ownership in a pool of securities. ^ Core Manager - A type of investment approach that has approximately an equal weighting in both growth and value stocks. ^ Growth Manager - A growth manager tends to invest in companies with above average growth rates. These companies tend to have higher P/E ratios. ^ Value Manager - A value manager generally invests in companies that have low price to earnings and price to book ratios and/or above- average dividend yields. ^ Large Cap -Generally, the term refers to a company that has a market capitalization that exceeds $5 billion. ^ Mid Cap -Generally, the term refers to a company that has a market capitalization between $1 and $5 billion. ^ Small Cap -Generally, the term refers to a company that has a market capitalization from $250 million to $1 billion. ^ Sharpe Ratio -The ratio of the rate of return earned above the risk-free rate to the standard deviation of the portfolio. ^ Standard Deviation -Measure of the variability (dispersion) of historical returns around the mean. It measures how much exposure to volatility was experienced by the implementation of an investment strategy. ^ Systematic Risk -Measured by beta, it is the risk that can not be diversified away (market risk). ^ Beta - A measure of portfolio sensitivity (volatility) in relation to the market, based upon past experience. ^ Tracking Error - A measure of how closely a manager's performance tracks an index; it is the annualized standard deviation of the differences between the quarterly returns for the manager and the benchmark. ^ Up-Market Capture Ratio -Ratio that illustrates how a manager performed relative to the market during rising market periods; the higher the ratio, the better the manager performed (i.e., a ratio of 110 implies the manager performed 10% better than the market). 44 Bogdahn Consulting, LLC.