DRAFT AGENDA AS OF 09/09/09 - Tucson · 2017-03-03 · TSRS Quarterly Performance Review for 12/31/2016 – Callan Associates 2. Asset Allocation Update – Note 1Callan Associates

TUCSON SUPPLEMENTAL RETIREMENT SYSTEM

BOARD OF TRUSTEES Notice of Regular Meeting / Agenda

DATE: Thursday, February 23, 2017 TIME: 8:30 a.m. PLACE: Finance Department Conference Room, 5th floor

City Hall, 255 West Alameda Tucson, Arizona 85701

A. Consent Agenda

1. Approval of January 26, 2017 TSRS Board Meeting Minutes 2. Retirement Ratifications for February 2017 3. January 2017 TSRS Budget Vs Actual Expenses 4. TSRS Portfolio Composition, Transactions and Performance Review January 2017

B. Legal Updates – Catherine Langford*

1. Support Orders Note 1 2. Disability Application Process

C. Investment Activity Report

1. TSRS Quarterly Performance Review for 12/31/2016 – Callan Associates 2. Asset Allocation Update – Callan Associates Note 1 3. Discussion of J.P. Morgan Presentation from January Meeting 4. Investment Manager Fee Analysis – Callan Associates

D. Plan Administrator’s Report

1. Report Office Operations and Key Facts & Figures for the Past Month 2. Operational Highlight – The Comprehensive Annual Financial Report

E. Administrative Discussions 1. Report from Board Member – OPAL Conference

F. Articles for Board Member Education / Discussion

1. J.P. Morgan Eye on the Market – The Rules of the Game 2. Governing – A Relic of Recession, Fewer Local Government Workers

G. Call to Audience

H. Future Agenda Items 1. TSRS Board Annual Evaluation of Staff and Consultants 2. Board Education on the Role of the City HR in the Disability Accommodation Process

I. Adjournment

Note 1: at the time this packet was assembled this item was unavailable but will be provided at the meeting

Please Note: Legal Action may be taken on any agenda item *Pursuant to ARS 38-431.03(A)(3) and (4): the board may hold an executive session for the purposes of obtaining legal advice from an attorney or attorneys for the Board or to consider its position and instruct its attorney(s) in pending or contemplated litigation. The board may also hold an executive session pursuant to A.R.S. 38-431.03(A)(2) for purposes of discussion or consideration of records, information or testimony exempt by law from public inspection.

TUCSON SUPPLEMENTAL RETIREMENT SYSTEM BOARD OF TRUSTEES

MEETING MINUTES

DATE: Thursday, January 26, 2017 TIME: 8:30 a.m. PLACE: Finance Department Conference Room, 5th floor

City Hall, 255 West Alameda Tucson, Arizona 85701

Members Present: Robert Fleming, Chairman Kevin Larson, City Manager Appointee

Betsy Conroy, HR Deputy Director (Arrived 8:01 AM) Karen Tenace, Deputy Director of Finance Michael Coffey, Elected Representative Jorge Hernández, Elected Representative John O’Hare, Elected Retiree Representative

Staff Present Dave Deibel, Deputy City Attorney Antonio Figueroa, Budget Analyst (Arrived 9:28 AM)

Neil Galassi, Pension Administrator Bob Szelewski, Lead Pension Analyst (Departed 10:38 AM) Dawn Davis, Management Analyst (Arrived 9:03AM Departed 10:10AM) Ginny Rath Pepper, Administrative Assistant

Guests Present Rigo Almader, City of Tucson Employee (Departed 8:56 AM)

Kenneth Hampton, City of Tucson Employee (Departed 9:02 AM) Renee Hampton, Spouse of City of Tucson Employee (Departed 9:02 AM) Alexia Gottschalch, J.P. Morgan (Arrived 9:11 AM Departed 10:14 AM) Darren Smith, J.P. Morgan (Arrived 9:11 AM Departed 10:14 AM)

Michael Winiarski, J.P. Morgan (Arrived 9:11 AM Departed 10:14 AM) * Leslie Thompson, Gabriel Roeder Smith & Assoc. (*via telephone 10:15 AM – 10:38 AM)

Absent/Excused: None

Chairman Fleming called the meeting to order at 8:30AM. A. Consent Agenda

1. Approval of December 22, 2016 TSRS Board Meeting Minutes 2. Retirement Ratifications for January 2017 3. December 2017 TSRS Budget Vs Actual Expenses 4. TSRS Portfolio Composition, Transactions and Performance Review December 2016

A motion to approve the Consent Agenda was made by Kevin Larson, 2nd by Jorge Hernandez and passed by a vote of 7 to 0. B. Disability Applications *

1. Jose Ruiz 2. Rigo Almader 3. Kenneth Hampton

A motion to enter executive session for all three disability retirement applications was made by Michael Coffey, 2nd by Kevin Larson, and passed by a vote of 7 to 0. A motion to return to regular session was made by Karen Tenace, 2nd by Jorge Hernandez, and passed by a vote of 7 to 0.

Kevin Larsen stated that he would like to make a motion to decline Rigo Almader’s application due to the independent doctor that evaluated Mr. Almader doesn’t support disability and Mr. Almader’s particular department indicates that he can still do his job. Mr. Almader has the option to re-apply once he’s had a chance to see how his Social Security application proceeds. A motion to deny the Disability Retirement Application of Rigo Almader was made by Kevin Larson, 2nd by John O’Hare, and passed by a vote of 7 to 0. Chairman Fleming stated to Mr. Almader if he gets the Social Security disability, he can speak with the Retirement office about reinitiating. That isn’t the only circumstance in which he can reinitiate but that would clearly make a difference. Rigo Almader asked if he will receive something in writing regarding this. Bob Szelewski answered yes. A motion to approve the Disability Retirement Application of Jose Ruiz was made by Michael Coffey, 2nd by Karen Tenace, and passed by a vote of 7 to 0. Kevin Larsen stated that he recommends declining Mr. Hampton’s application for disability for a couple of reasons. Our independent doctor doesn’t support the disability request, and Mr. Hampton’s department indicates that he can continue to do his work. It does appear that the applicant has indicated to us that he may be deteriorating in that his conditions may be getting worse. He can certainly consider applying in the future, especially given how Social Security may evaluate his application. Michael Coffey asked Mr. Hampton if he has been in communication with the City HR department. Kenneth Hampton answered in the affirmative. Michael Coffey asked Mr. Hampton what HR indicated to him. Kenneth Hampton answered that they sent him FLMA paperwork. Renee Hampton discussed with the Board the struggles Mr. Hampton is experiencing. Betsy Conroy asked Mr. Hampton if he sought any accommodations through human resources. Kenneth Hampton answered that every place he’s been, he comes to this point where they put him in an office. He was doing the job and getting good at it, but he can’t physically get to work. It’s not that he doesn’t want to work. It’s that he can’t make it. A motion to deny the Disability Retirement Application of Kenneth Hampton was made by Kevin Larson, 2nd by John O’Hare, and passed by a vote of 5 to 2 (Michael Coffey and Jorge Hernandez dissented). Chairman Fleming stated to Mr. Hampton that the Board is denying the application today. That doesn’t mean that it can’t be brought again. He thinks if he has Social Security disability that his circumstances would change. He can talk to the retirement staff about what other changes might make sense for another application. We don’t dislike you, or want to hurt you, we are applying our rules. We feel very sorry for your circumstance. Renee Hampton stated she understands where the Board is coming from. What is it that she and Mr. Hampton can do to be able to earn a living until this comes up? Chairman Fleming stated that the TSRS Board is a narrow slice of the picture. We are just the trustees of the retirement plan which has a set of rules about when people can get paid from the retirement plan on an early basis because of a disability.

Renee Hampton asked what other options or direction does she and Mr. Hampton need to go. Chairman Fleming answered that we are not Human Resources, we are not counselors, but there are people in Human Resources that may be able to help. Renee Hampton thanked the Board. Chairman Fleming stated good luck to Mr. and Mrs. Hampton. C. Investment Activity Report

1. Real Estate Manager Review and Education – J.P. Morgan Asset Management * This item was taken out of order and considered after item D1. Neil Galassi stated that before he brings in J.P. Morgan, he wants to remind the Board that their presentation is a result of discussion the Board had at the Annual Retreat. The Board wanted more educational type sessions from our investment manager’s where they could actually teach the Board something. Today’s presentation is designed to teach the Board about the TSRS’ Strategic Property and Income & Growth real estate investments with J.P. Morgan. Also per Mr. O’Hare’s request, J.P. Morgan is going to provide some education on REITs. Going forward as the Board makes investment decisions, such educational topics will help us understand vehicles we may be getting into in the future; what our investments are potentially going to look like, and how to understand them. This is a step in that direction. Darren Smith introduced the JP Morgan team that was with him today. Lauren Brants, the Relationship Manager for TSRS was unable to make it today. Mr. Smith manages the team that Ms. Brants is a part of. Michael Winiarski and Alexia Gottschalch are from the Global Real Assets team. Both today will be discussing several different topics. The topics will include: the inclusion of real assets and/or real estate that TSRS invests with J.P. Morgan in a portfolio and what role they play as well as education on REITs. J.P. Morgan wants TSRS to have a good understanding of both strategies that are invested with J.P. Morgan; what role they both play inside the portfolio and why it’s beneficial to have both of those as investments. They will also present some analysis in regards to having real assets in REITs inside of a portfolio to TSRS’s actual portfolio data and crunching numbers around that. Alexia Gotschalch stated she runs a team of people who run a client portfolio manager. They are specialists in the real estate space. Alexia Gotschach reviewed some high level areas of the TSRS portfolio. Michael Winiarski reviewed Core, direct real estate as TSRS has it, and how real estate securities aka REITs fit in to the TSRS portfolio. J.P. Morgan primarily focused their presentation on page 50 of the J.P. Morgan Asset Management Global Real Assets - JPMCB Strategic Property Fund/J.P. Morgan US Real Estate Income and Growth Fund, and OMNI as referenced below. The three strategies show how REIT’s would fit in the TSRS portfolio. The Board asked J.P. Morgan questions and requested more detail in a future meeting from Callan.

Presentation given, discussion held, and no formal action taken. D. Plan Administrator’s Report

1. Report Office Operations and Key Facts & Figures for the Past Month Neil Galassi presented the Board with his administrator’s report. Over the period of 12/11/16 to 1/10/17 the Office reported 19 retirements on the ratification report. 8 were normal retirements, one was an early retirement, 4 represented deferred retirees, and the estimated benefit payment from the month of November was finalized for 6 retirees. There were a total of 2,963 pension payments across all categories during the month. By Category- 153 represented disability pensions and 350 represented survivor pensions with the remainder representing normal pensions. 2,935 pension payments were paid via direct deposit and only 28 were live checks. 16 refunds/rollovers were processed during the month of December totaling approximately $45,775.02. We also processed one death benefit in the amount of $220,332.58. You will notice the higher volume of refund/rollover activity. This is due to a mailer the TSRS office sent out to individuals in our records with account balances who are not vested. Code provision Sec 22-41(b) has provisions regarding the refund of balances to non-vested members. Upon my coming on as Pension Administrator, we noticed non-vested individuals who had been separated for some time still have balances that are earning interest with the TSRS. Therefore, upon consultation with external legal counsel, we are began the process mitigating the list by notifying these individuals that they have money with TSRS, that they are not vested, and in turn giving them their options for receipt their account balance. The mailers went out in late November, and a total of 51 letters were sent. To date we have only been contacted by 15 individuals. Once a quarter has gone by, Mr. Galassi plan’s on contacting legal counsel again as to the timing of applying code provisions mentioned above. Mr. Galassi stated that he will not go into the provisions in detail at this time; however the actions are dependent of the size of the account balance. Michael Coffey asked if these are the non-vested members.

Neil Galassi answered in the affirmative. Michael Coffey asked if the actions are dependent on the size of the balance. Neil Galassi answered in the affirmative. He didn’t want to go into detail on the code until we are at that point. Basically there are IRS rules that govern. If the account is under $1000, he can write a check to the individual but doesn’t want to do so unless he has a good physical address. Above $5000 is when escheatment can happen after a period of time. Mr. Galssi will educate the Board on these provisions once we are at the point of applying them. Mr. Galassi went on to state that on December 27th the Retirement Office hosted a U of A economics student, Regis Wiegand for a ½ day externship. This was a job shadow. He took Regis around the various areas of the Finance Department to give him an idea of the functions that go into operating a Finance Department for a large City. He got to expose him to our investment portfolio, and also taught him the differences between pensions and 401k’s. Jorge was gracious enough to have lunch with us to give him some time and exposure to a Board Member. John O’Hare asked if the student was from the U of A Graduate School. Neil Galassi answered that he was actually contacted by the UofA accounting department career coach regarding this externship program. As it has been noted, the Board has asked staff to evaluate the potential to hire interns for the retirement office. This was a first step in that direction. When we discuss the budget, Mr. Galassi will be requesting budget to pay for an intern in FY18. He is hopeful to leverage his relationship with the career coach at the U of A to facilitate this in the near future. John O’Hare asked if it someone that has a relationship established with the Finance Department at the U of A. Neil Galassi stated that at this time the only relationship established is with the career coach with the U of A Accounting Department. John O’Hare told Mr. Galassi to let me know if he needs any help. Neil Galassi answered in the affirmative. Mr Galassi Stated the Mayor and Council unanimously adopted the recommended contribution rates for fiscal year 2016 last Tuesday. Karen Tenace was helpful to Mr. Galassi in generating the council action. Karen Tenace stated that it passed unanimously this week. There will be a study session early March. The counsel asks for updates during the budget cycles. We will be working during the next several weeks putting that together. Neil Galassi stated that it’s his practice and intent to give the Board some of prospective on what has occurred in the portfolio from the last Board meeting to today. There were 2 macro factors affecting the portfolio. Those were the Fed raising interest rates by 25 basis points in the beginning of December, and favorable asset returns in equities to end the year that has carried to the beginning of the year. However, as he highlighted in the prior meeting this environment is still driven by speculation with much of it coming from promises of lower financial regulation and increased domestic investment from the incoming Trump Administration. This has led to the increases we have seen in domestic small-mid cap strategies as these areas typically have investments in financial, industrial, and material sectors which would stand to benefit from those changes in policies and spending. Also, there have been indicators that Wall Street has high hopes for 4th quarter earnings so, as those figures come in over this month and the next, the market may react in a negative manner if investor expectations are not met. Overall, as you can see in the investment activity report, the portfolio gained $8.6m during the first 18 days of the month and most of the increase is in the domestic equity allocations. So, we are benefiting from this current environment of speculation. However, it is important to note that this speculation can lead to overvaluation as we have seen valuations rise to all-time highs as indicated by the DOW actually topping 20,000 during Wednesday’s trading. A speculative market environment logically leads to an eventual correction and the Board has acknowledged that by the decision to change our risk profile in fixed income to

have less correlation to equities in the prior meeting. Next month we will hear the capital market projections from Callan for the coming calendar year. In that presentation the Board will hear what their 5 to 10 year projections are in light of this current environment. Mr. Galassi stated he did not include an operational highlight with his administrator’s report for this meeting, as we will be discussing the TSRS budget process during one of our agenda items today. Therefore, the operational highlight for this meeting will be a part of that item as described in the budget development process. Presentation given, discussion held, and no formal action taken.

E. Administrative Discussions

1. Changing the Interest Rate Allocated to Member Account Balances Neil Galassi stated that we had the interest rate discussion in the November 2016 Board meeting. At the time, the Board generated some good discussion and questions. He requested that Leslie Thompson with Gabriel Roeder Smith produce a document to address those questions. Ms. Thompson read through the minutes of the November meeting and was able to see the discussion and questions generated. Leslie Thompson thanked the TSRS Board for the minutes as it clearly represented the discussion about this issue. From reading the minutes, the real issue that we kept coming back to is: what is the basis for the interest rate crediting on the employee’s contributions and what is the reason. In regards to the basis for interest rate crediting, she would view the employee contribution as a value for a person’s future benefit. It’s an investment in their future, in exchange for contributions during employment. So, she would risk align the rate of return; look at the market and look to see where else can you put your money and have a guarantee of principal/guarantee of not getting a negative rate of return. Doing a risk alignment survey, those rates are around 1% as referenced on pages 2 and 3 below of the GRS Memorandum. She doesn’t recommend 1% but recommends that the Board consider looking at a risk aligned rate that would be close to what the market delivers as well as add a liquidity premium because these are mandatary contributions. Her final recommendation is benchmarking to the to the long term rate of inflation. When she looks at a long term rate of inflation right now, by the Social Security Administration, it’s at 2.6%. The shorter term that comes from many investment consultants is around 2%. As mentioned in the final paragraph of page 3, something closer to 3% could create a win win where the members would be getting a 3% guarantee so they don’t have to worry about negative returns. The plan would also be protected because it’s expected to earn more than the 3%. The history on the grid of page 2 as referenced below showcases the history of the actuarial assumption and compared it to the interest rate credited on employee contributions on the last column. Ms. Thompson stated that she didn’t start working with TSRS until 2008, so doesn’t know why the move was made from 7.5% to 6%.

Neil Galassi stated that Ms. Thompson is presenting to the Board that the rate be tied to the inflation assumption in our long term rate of return. What staff is recommending is that we establish that as a floor. He wants to give the Board the opportunity if it comes to the point when we revisit this annually at the retreat, which we plan on doing, that they feel it may be prudent to go more than our inflation assumption that the opportunity would be there. Mr. Galassi recommends that our ceiling be 1% less our expected rate of return of 7.25%. What Ms. Thompson has done is establish what is reasonable and this leads us to a good floor as this inflation rate is evaluated every 5 years with our actuarial experience study. So that number will be looked at. We can also review the reasonableness of the rate at the annual retreat every year and say, we have our 3% floor, we can go up to 6.25%, and do what we feel is prudent right now. At this time, given the current market environment, Mr. Galassi recommends adoption of the floor of 3%.

Karen Tenace asked Mr. Galassi as part of the recommendation, when he is looking to have it begin. Neil Galassi stated that we would like to start July 1, 2017; to be effective beginning FY2018. Michael Coffey stated that he doesn’t like revisiting this on an annual basis. It should be formative driven. Then we can stand over it and can say this is how we derive it. It’s not question of discussion or debate but rather based on factors. For example, looking at Ms. Thompson’s analysis, she went two ways with it. What might you expect elsewhere and Ms. Thompson arrived at a 1% figure. Then Ms. Thompson when down the inflation rate approach, and arrived at a 2.5%. And somehow they got added together to reach 3%. He isn’t quite sure of the logic of it but he is willing to think of the idea of an inflation rate plus the liquidity premium that Ms. Thompson referred to on page 3 as referenced above. If that is what helps us reach a certain number and we decide the liquidity premium to be ½% or 1%, that to him would be something that he could justify if anyone asked him the question. Chairman Fleming stated that he believes what Ms. Thompson stated is that long term inflation might be 2.6% based on Social Security, but she doesn’t explicitly say it. But he thinks what she means is in the last sentence in that paragraph is; since we decided 3% is our guess of inflation, let’s use that instead of the Social Security rate because we already decided that. Neil Galassi stated that is correct. Leslie Thompson stated that is correct. Trustee Coffey has a very good point. She doesn’t think she did a good job in distinguishing between the 1% which she would recognize as something tied more closely to very short term inflation. The 3% is a very long term inflation figure. The time horizons are different. Michael Coffey thanked Ms. Thompson for the clarification. Leslie Thompson stated that the floor and ceiling that staff recommends can help us in a time we can possibly get upside down where inflation could drop really low but we want to credit more. It gives the Board flexibility. The annual Board retreat isn’t in her prevue but she will be there and able to talk if the Board decides to review this every year. Chairman Fleming stated that he would like to have a fixed rate. John O’Hare stated that he would like to see something that is fair, simple to explain, and is formula driven so that we don’t go through this exercise every year. He would propose that we use the 30 year Federal bond rate which includes an inflation of a proponent in that rate. If inflation goes up to 5%, 6%, 7%, 8%, 9%, the 30 year Federal bond would go up and is an easy calculable thing. Building on what Mr. Coffey says, we can use that as an index. Michael Coffey asked if we are talking about essentially keeping the member whole in terms of inflation. Neil Galassi stated yes. John O’Hare stated yes; something fair. Chairman Fleming stated that Trustee Coffey is saying that if just use inflation then all we are doing is protecting their investment. Trustee Coffey stated that fairness is not a criteria. Neil Galassi stated that he would like Ms.Thompson’s comment on how she feels about Mr. O’Hare’s suggestion. Leslie Thompson stated when you tie it to that index, are you going to be automatically moving it at regular intervals. John O’Hare answered once each year.

Leslie Thompson stated that she doesn’t see that in the public sector generally. It doesn’t mean that the TSRS Board can’t do it. Generally the public sector sets a rate and changes it. She doesn’t see a lot of benchmarking like you do in the private sector. She just wants to be careful not to get us in the mindset that this is a defined contribution plan with periodic interest rate crediting and we want people to be watching it. It’s not really what it is. It’s shared responsibility in funding a retirement benefit. In summary, she doesn’t have a problem with Mr. O’Hare’s suggestion. As TSRS’s actuary, it’s more an optics issue with TSRS’s participants and administration if the TSRS Board wants to change it every year. Chairman Fleming asked John O’Hare what that number is right now. John O’Hare stated it’s in the area of 3.06, 3.11. Neil Galassi stated that is kind of the genesis of where he came in with the staff recommendation. We go through every five years to establish this inflation rate. We can look at that in relation to what the market currently is doing and if we have that floor of our inflation rate that it is looked at every five years we know we can have something to start with. We know it has the component of mandatory contributions built in and the members are also doing a little better than they would have done if they went to a bank and got a 1% return. By having the range with the Plan inflation rate as the floor, if returns start looking good, and if the Board feels it’s prudent to move off of that rate, we have the flexibility to do so. We don’t have to do it annually but we have the flexibility to go up to 1% less our plan expected rate of return. Mr. Galassi tried to build this so we have a floor to start with, and a ceiling that makes sense; 1% less our expected rate of return. Karen Tenace stated that she personally likes the longer term horizon. Look at it every 5 years. It’s a reasonable approach. She didn’t like the 6%; especially since this is a risk free rate of return not found in the market. Going too low is 1%; not acceptable considering a mandatory program. She is happy with a 3% floor and with the potential change of an every 5 years reevaluation. Neil Galassi stated that Ms. Tenace makes a great point. It aligns it with our actuarial experience study. We know every 5 years we are going to be looking at that inflation component and then we will have more basis for what’s reasonable here. He is in alignment with Ms. Tenace. Chairman Coffey stated just for clarification from the comments; every 5 years we make an inflation assumption. That inflation assumption will hold for the next 5 years as the rate of return on all of these. Karen Tenace answered in the affirmative. It’s actually a part of the actuarial assumption review that we do every 5 years. Chairman Coffey stated that is very good. John O’Hare asked what is it if we see some hyper in the inflation. Are we going to be able to adjust it if the inflation rate goes up to 6%, 7%, or 10%? Karen Tenace stated that she thinks the Board can evaluate it at that time and make a change. Neil Galassi stated that the code gives the TSRS Board the freedom to set the interest rate. If we feel at 5 or 10 years from now, that we need to adjust our philosophy, we have that room. He believes what we are presenting here is prudent giving all of the facts and circumstances that we currently have available to us. Betsy Conroy asked if somebody chooses to separate prior to their eligibility for retirement and take their contributions plus interest with them, as of July 1, 2018, it will be a fixed rate of return that they will receive regardless of how long they have been here. Neil Galassi stated that the 6% that they have been earning before that stays the same. It’s from July 1, 2018 forward that is at 3%. Betsy Conroy asked if they will still get the benefit of the 6% that they have been earning.

Neil Galassi answered in the affirmative. It will be compounding on top of the 6%. Karen Tenace stated that it will be perspective not retroactive. Presentation given, discussion held. A motion to set the interest rate at a floor of 3% that ties to TSRS’s actuarial assumption for interest rate on the earnings of the plan effective July 1, 2017 with the option to have a ceiling that can be considered by the Board of the rate of return less 1% was made by Karen Tenace, 2nd by Jorge Hernandez, and passed by a 6 to 1 vote (John O’Hare dissented). Neil Galassi thanked Ms. Thompson for her hard work on this issue. Mr. Galassi also wanted to recognize Bob Szelewski as he was very instrumental in helping to develop this. Mr. Szelewski was actually the genesis of this idea and wanted to give him credit for it. Chairman Fleming asked Mr. Galassi to let the Board know that the July or August meeting, once the word gets out, whether there is a significant migration of existing accounts. Neil Galassi answered that we will definitely monitor this. Chairman Fleming stated the he thinks Mr. Galassi told the Board that there will only be a handful immediately affected. Michael Coffey stated that is a good point. How does the word get out? Neil Galassi answered that what he is planning to do is; send out a mailer along with the annual contribution statements to everybody that has an active member balance which will cover our active employees. Participants that are in the deferred realm, we are looking at about 40-50 of them; we could easily run those addresses and send them a separate letter in that same time frame. Michael Coffey stated that this will be community knowledge then. Neil Galassi answered in the affirmative. He is looking to keep everything cost effective. He was planning to do the communication when we send out the contributions to the active employees in April. Kevin Larson stated that he agrees with the decision that we made. Given that Ms. Thompson is still on the phone; to him the big issue is the people that leave the City, and because they like the 3%, where in this case it’s 6% in the past, they will hang on to it because it is a risk free return and it is 6%, he would go all day as well too. Then 10 years later, they decide to take the lump sum. Ms. Thompson had it in her memo that basically states that if you ultimately take your pension, this crediting rate doesn’t have anything to do with it. Mr. Larson’s thought is that it should be 3% to the person that is an active employee because you are being requested to put in cash, but if once you leave the City, maybe the rate goes to 0%; you are no longer forced to put capital into the plan. As long as you stick around to collect your pension benefit when you reach your retirement age, that crediting rate doesn’t make any difference. In some respect, it’s whether or not we want the person to take their lump sum and leave; which he’s guessing the answer is yes. Not to complicate it, that’s the problem we are trying to address. Neil Galassi stated exactly. We did think about that in the discussion. He wanted to first broach the overall interest rate first. He didn’t want to add more layers onto this current discussion. One thing that did come out of the discussion is that we are fiduciaries with a responsibility to provide the retirement benefit for our members. That is the risk alignment that Ms. Thompson was talking about. Trying to maximize that those benefits are there for people who earn the retirement benefit and that is our fiduciary responsibility. Leslie Thompson stated that if the TSRS Board wanted to pursue that option, that the TSRS Board can speak to Catherine Langford about whether we could be crediting zero. She imagines that we can. Kevin Larson asked Leslie Thompson what she thinks about that concept and the reasoning behind it in general.

Leslie Thompson stated that she is in total agreement. If the City was paying her 6%, she would put all of her assets with us and do it day in and day out. However, if the City moves to 3%, then you are paying 3% on those account balances of the terminated people but are using their money to earn 7%; so it’s not so bad for the plan. Therefore, she isn’t convinced to chase them away with zero unless there are other reasons. She’s just talking actuarial. Chairman Fleming stated that is why he would like to know how large the issue is. If there are only 3 people left in the plan that are separated but leaving their money in, they must not be spending a lot of their energy thinking about it.

2. Board Member Term Expiration and Formation of Election Committee Neil Galassi stated that this is for the seat that Jorge Hernandez has filled out the term for. He apologized to the Board as he was under the impression that Mr. Hernandez’s seat expired the end of December 2017. When he double checked with the City Clerk’s office, it was actually January of this year. John O’Hare asked to clarify the expiration of his term in December. Neil Galassi stated that he confirmed that Mr. O’Hare’s term expires in December. Chairman Fleming stated that the TSRS Board doesn’t have anything to do with Mr. O’Hare’s successor’s selection. John O’Hare stated that he doesn’t believe so. He thinks that the retirees (CTRA) handle it. Neil Galassi stated that he provided for the Board, our policies/bylaws and the detail in how we go about doing the election for the Board member representative. There is also a synopsis that the prior administrator left. The process starts with the formation of an election committee. We traditionally ask that the member representative who is not running be the Chair of the committee. He called Trustee Coffey yesterday and gave him the heads up. Mr. Coffey indicated that he would be the chair if the Board felt it was prudent. Chairman Fleming stated that we just recently went through this election process to get Trustee Hernandez on. Neil Galassi answered in the affirmative. It was to fill out the term. He was instructed to clerk’s office to hold an election. Chairman Fleming asked Mr. Galassi who were the nomination committee members for that cycle. Neil Galassi answered that he does not recall. Chairman Fleming stated that he wondered since it was done recently and would like the same committee. Michael Coffee stated that he has not done it. This will be the first time. Mr. Hernandez replaced a resigning member. Jorge Hernandez answered in the affirmative. Chairman Fleming asked Mr. Coffey if they chaired it. Michael Coffee answered no. The Board simply chose Mr. Hernandez as the runner up of the subsequent election. Neil Galassi stated Mr. Coffey is fairly correct. Basically what had happened was they contacted the folks who ran in the subsequent election. They were brought before the Board and interviewed. Jorge Hernandez was selected from that pool to finish out the term that is to end at the end of this month. We are at the discretion of who Mr. Coffey would like on the committee.

Michael Coffey asked Mr. Galassi to find him two people please. Mr. Galassi answered in the affirmative. Presentation given, discussion held. Chairman Fleming appointed Michael Coffey to be the chair of the nominating committee. Neil Galassi stated that we are set to move quickly on this. He already pulled the notice from the prior election. He will get the notice prepared and sent to Mr. Coffey for approval. At least in absence of getting the committee formed, we can get moving on starting to solicit notices as Trustee Coffey feels it’s prudent. Michael Coffey said thank you. When is this going to be completed by? Neil Galassi answered as soon as possible. Chairman Fleming asked what happens at the February meeting. Does Trustee Hernandez have to refrain from voting? Neil Galassi answered that he was told by the clerk’s office that he can continue to serve in his current capacity until a new member is elected.

3. Fiscal Year 2018 TSRS Budget Neil Galassi stated that the Board requested to see the City budget calendar in the last meeting and he provided that as part of the Board packet. The calendar gives the Board an idea of the timing of the budget process. Part of the development of the budget is that you start with what you have done in the past and what we have done last year. Given that the mission of our plan doesn’t change, it’s still to provide member benefits timely and accurately. Our budget isn’t that robust. The majority of it is paying the benefits and then paying the administrative costs that go to servicing that benefit. We spend more time on focusing what the administrative expenditures are going to be as that is the element that drives the staff time to the plan. There is no real control over the benefit cost. Mr. Galassi briefly reviewed the memo for the Board describing the differences he’s proposing in the FY18 budget vs the FY17 budget as referenced below. We increased our budget for pension benefits based on what the actuary is projecting. We are requesting an increase in personnel services: a planned increase in wages for the Management Analyst upon passage of the probationary period, requesting to bring in an intern to equate for approximately 500 hours into the TSRS office and setting it up to bring in an intern to help with the year-end financial reporting.

Dave Deibel asked if the intern has to go through HR. Betsy Conroy stated that HR does have a municipal intern classification which is an unclassified position. It’s a manager’s appointee. Neil Galassi stated that it was put in that classification which is object 104, which is the object he believes Ms. Conroy is talking about. Betsy Conroy stated that it is intended to be a manager’s appointee only within the manager’s office. So HR would have to look at how those interns are defined because they see this occurring more frequently. Dave Deibel stated that the City Manager also put out a memo earlier this week about hiring.

Betsy Conroy agreed with Dave Deibel. Neil Galassi stated that this is for FY18 and he is trying to give the room to plan for some of the Board’s indicated initiatives like having interns in the Retirement Office. He is hoping to be able to get to a point where an intern can be hired. What he is looking for today is the authority to have the budget for interns should we be able to accomplish that. Betsy Conroy stated that she thinks it wise to budget. It’s just that the actual hire may not be approved. Dave Deibel stated to just keep that in mind is all. Neil Galassi answered in the affirmative. Mr. Galassi reiterated that he isn’t looking at this until FY18. Dave Deibel stated that what his is talking about is FY18. The services formerly performed by Treasury as of FY18 will be completely transitioned to TSRS. They spent time in FY17 training Mr. Galassi and providing backup to the TSRS office. That $60K is not going to be there for FY18, so that money was allocated to external audit services in the budget. The City’s Budget Division started to break that out in the City’s budget separate from professional services. Mr. Galassi is also requesting $35K to address one of the future agenda items for actuarial services. He’s done a little research and spoke with ASRS. It is best practice of the Government Finance Officers Association to actually perform a solicitation to hire an independent actuary to do an evaluation of your current actuary. Mr. Galassi proposed as a first step to evaluate what we currently have; is our actuary serving our needs. He has already received some of the solicitation documents from the Arizona State Retirement System and has done a little research. With a plan our size, we are looking at approximately a cost of $30K - $40K. Michael Coffey asked how frequently the audit will occur. Neil Galassi answered that this will be the first one. He proposes that we hire the actuary to do it, go through the process, look at the results, and have a conversation regarding frequency at the end. Kevin Larson asked what the person we are going to hire will be doing. Neil Galassi answered that they will basically audit what our actuary does for us; are they using sound actuarial principals, are they using sound actuarial practices, ect. It’s an in depth audit. ASRS paid over $100K for theirs. He will bring a scope of work before the Board before we get to the procurement process. Mr. Galassi continued to briefly review the TSRS FY2018 Budget as referenced above. The external audit services were previously budgeted for in a different object but he has elected use the budget freed up from the removal of Treasury Services in lieu of decreasing the budget for professional services because that is where our managers and consultants are paid from. Therefore, he isn’t requesting any budget increases or decreases for professional services. We also added a requested increase of $10K for potential IT services; we want to do more revamping of the TSRS website in order to make it more accessible to members. Lastly there was a $1200 increase for hazardous waste insurance; it’s a required personnel item from Risk Management. It’s an internal charge accessed to all personnel positions of the City to fund the hazardous waste program. We started incurring this expense in FY 2016. John O’Hare asked how much the cost of that is. Neil Galassi answered the budget that he got from Risk Management for this is $1200 a year. Mr. Galassi continued to state that he wanted to thank Karen Tenace for her help as well as Antonio Figueroa who our Budget Analyst for the Finance department. He is here with us today to see the process and the adoption of our budget. Michael Coffey stated that it seems sensible and straight forward to him.

John O’Hare stated that he would like to see the retirement staff add another person to handle the administrative running of the fund. The executive director has two functions; one is a Chief Investment Officer type of function and the other one is the Administrative function. He would like Mr. Galassi to get more into the CIO type of functions so that he can gain the expertise to do the push back and discussions with all of our managers and consultants. That is going to take a lot of education. If you hire someone for $50K, isn’t it like 50% overhead? Karen Tenace answered that it is only like 35, 37. A chunk of it is pension. John O’Hare stated good but if that only yields a one basis point increase in the return of the fund, which would be a $75K additional return. He thinks that is money well spent and we can do that on just a temporary basis or we can do it on a permanent employee basis. Karen Tenace stated that we have done a lot of changes in the pension staff. We have four people in pension. All of them have been in their positions for less than a year. They are not at full capacity yet. They are in the learning curve mode and suggest that we defer hiring anyone on a full-time basis and adding a fixed cost to the plan and we re-visit this at a time when staff is in a better strategic position. It probably takes about two years to really get in the mode of learning the job, learning the day in and day out, and she anticipates over time that the administrator through education will be able to challenge the fund managers and Callan. It’s part of the role of the administrator but is also part of the role of this Board through education to do that. Maybe perhaps look at a phased approach. We have already established a relationship with U of A on interns. We have had some success on getting some bright people interested in putting some eyes on finance and pension in particular. She wouldn’t recommend a full-time equivalent for FY 2018 but to perhaps approve the intern so that we could explore bringing them in to supplement the staff. That would provide some relief for Mr. Galassi to delegate more work to the other staff while he is able to attend training on the investment side so that he can contribute in the manner that Mr. O’Hare is looking for. Neil Galassi stated that he is in alignment with what Ms. Tenace said. Michael Coffey asked if there is a role to play in determining the size and qualifications of the staff. Karen Tenace answered that by approving the budget, the Board has a role. With that said, the City also plays into hiring practices with how it’s done. Currently we are in a hard freeze in terms of hiring. There are the City practices going on as well as the Board’s recommendation. Michael Coffey asked if the Board would make a recommendation as to the need of the expansion of the labor force. That is usually made by the City Manager. Karen Tenace answered that the Board would make a recommendation and then the budget is approved by Mayor and Council. John O’Hare asked why we are waiting. Neil Galassi answered that if we are going to bring somebody in, effectively onboard them and make them effective, then he truly feels that as The Retirement Office Staff is still learning their roles it would not be a conducive environment. In addition, he is still trying to assess the capabilities of the current staff and is in relation to what our staffing needs are in order to ensure duties are properly allocated. Once we are at that point, it’s time to take a look at any staffing gaps and decide what initiatives we want to move on. For example, providing time for Mr. Galassi to obtain investment education himself in order to challenge and evaluate our consultants and managers. He wants a phased approach like Ms. Tenace mentioned. He wants to be able to have time to get the office in order, leverage and maximize the resources he currently has. Then maybe in FY 2019, filling in those gaps and having staff align to that. Karen Tenace stated that the Board of course would have input on what that alignment looks like; what gaps do we have as the plan and servicing the members.

Neil Galassi agreed with Ms. Tenace’s statement. He wants to give us a chance to learn our jobs. If we are still learning and bringing someone in to do at a higher level; he doesn’t know if we would be efficient with that new position at this point in time. John O’Hare stated the Mr. Galassi will be doing that at a higher level. He is not going to be here at the end of the year and would like to see things in good shape. Why not start working on that now. He understands what Mr. Galassi is saying and thinks Mr. Galassi has more capability to get this rolling in 5 months. You can put that in the budget now so that we have budget capacity. He thinks if you tell the City Manager that we need an exception from the freeze that it he would be open to it. Dave Deibel stated that the budget capacity doesn’t come from us. It comes from budget. They are told how many people and what their budget capacity is. We can’t add to the budget process. Michael Coffey asked how one requests an addition to the staff. Dave Deibel stated that there is an HR process. You justify an additional staff person. The memo goes to budget, HR, and then up to the City Manager. The City Manager has told the City to stop doing that process. Betsy Conroy stated that there are currently no reclassifications, no reallocations, and no additions. Even if we are in a recruiting process, we can continue with the process, but no offers are to be made without the explicit approval of the City Manager. John O’Hare stated okay. Michael Coffey stated if we did decide that we needed more expertise, the way to start the process then would be to create a request for extra staffing. Dave Deibel stated that it’s nice that TSRS is getting an intern or looking at an intern and have the capacity to do it. John O’Hare stated that he moves to start the process to add an administrative position in the pension budget for FY17-18. Chairman Fleming stated that the motion failed for lack of a second. Presentation given, discussion held. Motion to approve the FY 2018 TSRS Budget as presented was made by Karen Tenace, 2nd by Michael Coffey, and passed by a 6 to 1 vote (John O’Hare dissented). Michael Coffey suggested that we may want to revisit this idea in the future. Karen Tenace agreed with Mr. Coffey. It should be evaluated. Any gaps that the Board feels exists, we need to know about that. We should keep it on future agendas and work towards filling those gaps through interns, part-times, non-perms, and outsourcing. There are lots of different options we can look at. Dave Deibel stated that the Board can also pass resolutions to Mayor and Council that TSRS needs this kind of staffing. There are other ways of letting your voice be known.

4. Report from Board Member – OPAL Conference John O’Hare stated that since we are running late, we can defer this portion of the agenda to the next meeting. Add to future agenda to be discussed at TSRS Board Meeting on February 23, 2017.

F. Articles for Board Member Education / Discussion

1. Fidelity – Fidelity’s Perspective on Rising Interest Rates 2. Governing – This Week in Finance

G. Call to Audience – None heard.

H. Future Agenda Items

1. TSRS Board Annual Evaluation of Staff and Consultant Neil Galassi asked the Board to remove the RFQ for Actual Services from the future agenda items in favor of the fact that we approved budget to do an evaluation and audit of our actuary. Chairman Fleming stated okay.

2. RFQ for Actuarial Services 3. Investment Manager Fees 4. Support Orders

Betsy Conroy asked the Board about the policy, practice, and legal advice of the role HR Director/Personnel Director in regards to disability applications. Neil Galassi stated that it’s one of the reasons and in the code as to why the HR Director sits on the Board. The code is set up for various skills to complement each other. Michael Coffey agreed that it would be beneficial to be part of a presentation. Chairman Fleming stated that the employees might be entitled to know that we are going to talk about that.

1. Board Education on the Role of the City HR in the Disability Accommodation Process 2. Report from Board Member – OPAL Conference

John O’Hare asked Mr. Galassi if he has the schedule of the managers that are coming that he can give the Board so that he can get some of those managers to speak at a CFA luncheon while they are here. Neil Galassi stated that he has been speaking with all of our managers and is in the process of attempting to get a schedule for the year. I. Adjournment – 11:11 AM

Approved: __________________________ _______ _________________________ ________ Robert Fleming Date Neil S. Galassi Date Chairman of the Board Plan Administrator

Rachel V Duarte Fire Department Normal Retirement 1/21/2017 7/18/1954 62.51 15.606 124,048.81 35,081.12 2,712.67 J&S 75 892.31 Ricardo H Moreno Planning & Development Services Normal Retirement 1/21/2017 1/19/1955 62.01 8.3179 82,151.40 36,360.51 3,460.36 J&S 100 545.06 Jeffrey N Sales City Manager Deferred Retirement 1/25/2017 1/25/1955 62.00 14.4002 235,216.28 139,718.96 5,722.87 J&S 100 1,669.74 Gregory J Shelko City Manager Deferred Retirement 1/24/2017 1/24/1955 62.00 5.2935 157,965.22 57,780.89 10,455.42 J&S 100 1,121.36 **William E Bruce General Services Normal Retirement 12/28/2016 1/17/1954 62.95 9.2658 108,756.73 51,916.73 4,187.73 J&S 100 782.45 **Gordon A Grimsey General Services Normal Retirement 1/7/2017 5/13/1956 60.65 20.3416 259,760.02 79,878.29 4,397.47 J&S 100 1,781.96 **Charles M Hicks Transportation Normal Retirement 1/4/2017 10/27/1958 58.19 22.8963 477,405.42 128,366.55 6,853.60 J&S 100 3,086.44 **Edward M McMahon General Services Normal Retirement 1/4/2017 9/21/1951 65.29 32.4982 404,422.03 198,593.97 4,617.60 J&S 50 3,104.83 **Jessie N Ronquillo Police Department Normal Retirement 1/5/2017 12/29/1950 66.02 18.8027 159,609.49 51,528.41 3,055.87 J&S 75 1,104.11 **Jesus G Scaff Parks & Recreation Normal Retirement 1/7/2017 2/22/1958 58.88 31.8695 403,928.71 153,320.86 4,227.60 J&S 50 2,879.07 **Carolyn D Spickard Parks & Recreation Early Retirement 1/7/2017 9/6/1958 58.34 20.5488 288,434.37 83,215.84 4,773.60 J&S 75 1,908.54 **Verlyn R Wilson Water Normal Retirement 1/7/2017 10/22/1958 58.21 21.8224 576,306.05 217,872.35 8,680.53 J&S 100 3,872.88 **Michael W Wyneken Environmental Services Normal Retirement 2/3/2017 2/25/1955 61.94 20.22 ** 108,986.89 7,311.20 J&S 75 3,136.44 **Deborah J Kelly-Harris Water Normal Retirement 2/2/2017 6/6/1962 54.66 26.18 ** 163,339.72 6,621.33 SL 3,900.82 **Hector Estrada Water Normal Retirement 2/4/2017 1/18/1965 52.04 28 ** 151,709.42 4,985.07 J&S 100 2,969.91 **Larry D Castaneda Transportation Normal Retirement 2/4/2017 1/7/1955 62.08 16.89 ** 50,304.12 3,484.00 SL 1,324.38

85,546.92 34,080.30 Averages 40.32 273,167.04$ 106,748.41 5,346.68 2,130.02

Plan Year beginning 07/01/2015 (*from GRS annual valuation) Monthly Annual Annualized Annual change since

July 1, 2015 % change

Service Pensions 2,305 5,007,097.17 60,085,166 2,468 5,424,540 65,094,474.72 5,009,308.72$ 8.34%Disability Pensions 160 174,259 2,091,109 153 170,925 2,051,094.48 (40,014.52)$ -1.91%Survivor Pensions 344 298,979 3,587,750 347 343,804 4,125,648.84 537,898.84$ 14.99%

2,809 5,480,335 65,764,025 2,968 5,939,268 71,271,218 5,507,193.04$ 8.37%57 161,335$

S:\treasdiv\tsrs\retirement\facts&figures\F&F 15-16.xls prior month 2,911 5,777,933.08$

Member's Accumulated Contributions

AFC Option Pension

** Due to the timing of employee leave payout processing, the Retirement Office did not have the related final amounts in time to finalize the benefit payment for the first month of retirement for these employees. In the interest of providing these benefits timely to members, the pension payment presented for ratification is an estimated payment based on all available information. In the next month's meeting the final amounts will be reported on this report to the Board for the effected members.

Comparison of Monthly Pension Payments - Beginning of FY 2017 to Current Monthly Pension Payments

January 2017 Pension Payroll

(net) change from previous month

Service & Disability Retirements, End of Service Entrants for TSRS Board of Trustees Ratification 1/11/17 - 2/10/17 - February 2017

Name of Applicant Department Type Effective Date Date of Birth Age Credited Service Present Value

Parameter Page

Parameters and PromptsFiscal YearAccounting PeriodFund

20177

072

Unit*

*

Object Code

Department *

Report DescriptionThe Expenses vs. Actual Report shows expenditures and encumbrances for the selected accounting period and for the selected fiscal year compared against the current expense budget and the unobligatedbudget balance. The report is sectioned by Department, Fund and Unit and summarized by Object.

City of Tucson

Through: January, 2017For Fiscal Year 2017

Report ID : FIN-COT-BA-0001

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01:14 PMRun Time

Budget vs Actual Expenses

City of Tucson



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Department 900 - TUCSON SUPPL RETIREMENT SYSTEM

Unit 9001 - Normal Retiree Benefit

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure

Current TotalObligations

YTDEncumbrance

YTDExpenditure

YTD TotalObligations

CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

105 - PAYROLL PENSION 0.00 5,419,687.05 5,419,687.05 0.00 37,638,062.53 37,638,062.53 68,300,000 30,661,937.47 44.89 %

Total for 100 - PAYROLL CHGS 0.00 5,419,687.05 5,419,687.05 0.00 37,638,062.53 37,638,062.53 68,300,000 30,661,937.47 44.89 %

Total for Unit 9001 - Normal Retiree Benefit 0.00 5,419,687.05 5,419,687.05 0.00 37,638,062.53 37,638,062.53 68,300,000 30,661,937.47 44.89 %

Fund 072 - TUCSON SUPP RETIREMENT SYSTEM


City of Tucson



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Unit 9003 - Normal Retiree Beneficiary Benefit

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

105 - PAYROLL PENSION 0.00 313,197.18 313,197.18 0.00 2,193,011.20 2,193,011.20 3,100,000 906,988.80 29.26 %

Total for 100 - PAYROLL CHGS 0.00 313,197.18 313,197.18 0.00 2,193,011.20 2,193,011.20 3,100,000 906,988.80 29.26 %

Total for Unit 9003 - Normal Retiree Beneficiary Benefit 0.00 313,197.18 313,197.18 0.00 2,193,011.20 2,193,011.20 3,100,000 906,988.80 29.26 %



City of Tucson



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Unit 9020 - Disability Retiree Benefit

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

105 - PAYROLL PENSION 0.00 170,136.29 170,136.29 0.00 1,196,723.31 1,196,723.31 1,975,000 778,276.69 39.41 %

Total for 100 - PAYROLL CHGS 0.00 170,136.29 170,136.29 0.00 1,196,723.31 1,196,723.31 1,975,000 778,276.69 39.41 %

Total for Unit 9020 - Disability Retiree Benefit 0.00 170,136.29 170,136.29 0.00 1,196,723.31 1,196,723.31 1,975,000 778,276.69 39.41 %



City of Tucson



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Unit 9021 - Pension Fund Administration

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

101 - SALARIES & WAGES FOR PERMANENTEMPLOYEES 0.00 18,289.60 18,289.60 0.00 131,282.21 131,282.21 230,100 98,817.79 42.95 %

103 - OVERTIME WAGES 0.00 4.59 4.59 0.00 609.65 609.65 0 (609.65) 0.00%

108 - DOWNTOWN ALLOWANCE & DISCOUNTEDTRANSIT PASSES 0.00 92.32 92.32 0.00 652.84 652.84 1,200 547.16 45.60 %

113 - TSRS PENSION CONTRIBUTION 0.00 5,029.64 5,029.64 0.00 35,635.48 35,635.48 63,280 27,644.52 43.69 %

114 - FICA (SOCIAL SECURITY) 0.00 1,406.43 1,406.43 0.00 10,160.52 10,160.52 17,600 7,439.48 42.27 %

115 - WORKERS COMPENSATION INSURANCE 0.00 382.92 382.92 0.00 1,906.91 1,906.91 6,440 4,533.09 70.39 %

116 - GROUP PLAN INSURANCE 0.00 1,081.36 1,081.36 0.00 8,392.34 8,392.34 32,760 24,367.66 74.38 %

117 - STATE UNEMPLOYMENT 0.00 23.12 23.12 0.00 164.53 164.53 300 135.47 45.16 %

196 - INTERDEPARTMENTAL LABOR 0.00 0.00 0.00 0.00 0.00 0.00 156,000 156,000.00 100.00 %

Total for 100 - PAYROLL CHGS 0.00 26,309.98 26,309.98 0.00 188,804.48 188,804.48 507,680 318,875.52 62.81 %

202 - TRAVEL 0.00 1,026.39 1,026.39 0.00 1,026.39 1,026.39 4,000 2,973.61 74.34 %

204 - TRAINING 0.00 370.00 370.00 0.00 685.00 685.00 14,000 13,315.00 95.11 %

205 - PARKING SERVICE 0.00 0.00 0.00 0.00 0.00 0.00 220 220.00 100.00 %

212 - CONSULTANTS AND SURVEYS 0.00 0.00 0.00 0.00 2,050.00 2,050.00 50,000 47,950.00 95.90 %

213 - LEGAL 0.00 0.00 0.00 0.00 5,413.50 5,413.50 50,000 44,586.50 89.17 %

215 - AUDITING AND BANK SERVICES (3,800.00) 3,800.00 0.00 0.00 24,300.00 24,300.00 25,000 700.00 2.80 %

219 - MISCELLANEOUS PROFESSIONALSERVICES 0.00 1,073,737.31 1,073,737.31 0.00 2,092,411.21 2,092,411.21 4,126,850 2,034,438.79 49.30 %

221 - INSUR-PUBLIC LIABILITY 0.00 343.58 343.58 0.00 2,140.16 2,140.16 32,100 29,959.84 93.33 %



City of Tucson



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ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

228 - HAZARDOUS WASTE INSURANCE 0.00 55.87 55.87 0.00 406.60 406.60 0 (406.60) 0.00%

232 - R&M MACHINERY & EQUIPMENT 0.00 0.00 0.00 0.00 0.00 0.00 1,200 1,200.00 100.00 %

235 - MINOR REHAB, REMODEL & ALTER 0.00 0.00 0.00 0.00 407.00 407.00 1,550 1,143.00 73.74 %

245 - TELEPHONE 0.00 0.00 0.00 0.00 420.00 420.00 1,200 780.00 65.00 %

260 - COMPUTER SOFTWARE MAINTENANCEAGREEMENTS 0.00 0.00 0.00 0.00 0.00 0.00 41,000 41,000.00 100.00 %

263 - PUBLIC RELATIONS 0.00 0.00 0.00 0.00 2,432.25 2,432.25 2,560 127.75 4.99 %

284 - MEMBERSHIPS AND SUBSCRIPTIONS 0.00 0.00 0.00 0.00 458.94 458.94 1,500 1,041.06 69.40 %

298 - PLANNED BUILDING MAINTENANCE 0.00 0.00 0.00 0.00 0.00 0.00 0 0.00 0.00%

Total for 200 - PROF CHARGES (3,800.00) 1,079,333.15 1,075,533.15 0.00 2,132,151.05 2,132,151.05 4,351,180 2,219,028.95 51.00 %

311 - OFFICE SUPPLIES 0.00 258.14 258.14 0.00 1,711.12 1,711.12 9,000 7,288.88 80.99 %

312 - PRINTING,PHOTOGRAPHY,REPRODUCTION 0.00 1,535.96 1,535.96 0.00 2,530.94 2,530.94 9,000 6,469.06 71.88 %

314 - POSTAGE 0.00 146.56 146.56 0.00 6,855.79 6,855.79 12,000 5,144.21 42.87 %

317 - COMPUTER SOFTWARE < $100,000 0.00 0.00 0.00 0.00 314.06 314.06 550 235.94 42.90 %

341 - BOOK, PERIODICALS AND RECORDS 0.00 0.00 0.00 0.00 0.00 0.00 250 250.00 100.00 %

345 - FURNISHINGS, EQUIPMENT AND TOOLS <$5,000 0.00 0.00 0.00 0.00 0.00 0.00 4,700 4,700.00 100.00 %

346 - COMPUTER EQUIPMENT < $5,000 0.00 0.00 0.00 0.00 0.00 0.00 650 650.00 100.00 %

Total for 300 - SUPPLIES 0.00 1,940.66 1,940.66 0.00 11,411.91 11,411.91 36,150 24,738.09 68.43 %

455 - COMPUTER EQ >= $5,000 0.00 0.00 0.00 0.00 0.00 0.00 2,700 2,700.00 100.00 %



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ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

Total for 400 - CAPITAL OUT 0.00 0.00 0.00 0.00 0.00 0.00 2,700 2,700.00 100.00 %

Total for Unit 9021 - Pension Fund Administration (3,800.00) 1,107,583.79 1,103,783.79 0.00 2,332,367.44 2,332,367.44 4,897,710 2,565,342.56 52.38 %



City of Tucson



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Unit 9022 - Disability Retiree Beneficiary Benefit

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

105 - PAYROLL PENSION 0.00 30,418.52 30,418.52 0.00 212,929.64 212,929.64 350,000 137,070.36 39.16 %


Total for Unit 9022 - Disability Retiree Beneficiary Benefit 0.00 30,418.52 30,418.52 0.00 212,929.64 212,929.64 350,000 137,070.36 39.16 %



City of Tucson



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Unit 9023 - ACTIVE MEMBER REFUNDS-CONTRBS

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

186 - TSRS REFUNDS 0.00 173,021.07 173,021.07 0.00 1,075,177.07 1,075,177.07 2,400,000 1,324,822.93 55.20 %

Total for 100 - PAYROLL CHGS 0.00 173,021.07 173,021.07 0.00 1,075,177.07 1,075,177.07 2,400,000 1,324,822.93 55.20 %

Total for Unit 9023 - ACTIVE MEMBER REFUNDS-CONTRBS 0.00 173,021.07 173,021.07 0.00 1,075,177.07 1,075,177.07 2,400,000 1,324,822.93 55.20 %



City of Tucson



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Unit 9025 - INTEREST ON REFUNDS

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

186 - TSRS REFUNDS 0.00 549.29 549.29 0.00 10,980.69 10,980.69 50,000 39,019.31 78.04 %

Total for 100 - PAYROLL CHGS 0.00 549.29 549.29 0.00 10,980.69 10,980.69 50,000 39,019.31 78.04 %

Total for Unit 9025 - INTEREST ON REFUNDS 0.00 549.29 549.29 0.00 10,980.69 10,980.69 50,000 39,019.31 78.04 %



City of Tucson



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Unit 9026 - DWE SYSTEM BENEFIT PAYMENT

ObjectCurrentPeriod

Encumbrance

CurrentPeriod

Expenditure


YTDEncumbrance

YTDExpenditure


CurrentBudgeted

Amount

UnobligatedBudget

BalancePercent

186 - TSRS REFUNDS 0.00 110,166.29 110,166.29 0.00 110,166.29 110,166.29 200,000 89,833.71 44.92 %


Total for Unit 9026 - DWE SYSTEM BENEFIT PAYMENT 0.00 110,166.29 110,166.29 0.00 110,166.29 110,166.29 200,000 89,833.71 44.92 %


Total for Fund 072 - TUCSON SUPP RETIREMENT SYSTEM (3,800.00) 7,324,759.48 7,320,959.48 0.00 44,769,418.17 44,769,418.17 81,272,710 36,503,291.83 44.91 %

Total for Department 900 - TUCSON SUPPL RETIREMENT SYSTEM(3,800.00) 7,324,759.48 7,320,959.48 0.00 44,769,418.17 44,769,418.17 81,272,710 36,503,291.83 44.91 %

Grand Totals (3,800.00) 7,324,759.48 7,320,959.48 0.00 44,769,418.17 44,769,418.17 81,272,710 36,503,291.83 44.91 %


DATE: February 17, 2016 TO: The Board of Trustees Tucson Supplemental Retirement System FROM: Neil S. Galassi, CPA Pension Administrator SUBJECT: January 2017 Summary Performance Report SUMMARY: This report presents the Tucson Supplemental Retirement System’s investment portfolio as of January, 2017. Attached to this summary is the Callan prepared Investment Measurement Service Monthly Review Report which serves as the basis for this summary. As of December 31, 2016 and January 31, 2017, the Total Fund balance of was $735.8 million and $747.6 million respectively. This represents an approximate $11.8 million decrease from the prior month. There were withdrawals totaling $3.0 million from the Total Fund to support pension payments during the recent month, and $20.0 million has been withdrawn during fiscal year 2017. For the month of January, the Total Fund performance, net of fees, was a positive 2.06% which was above the custom benchmark return of 1.66%. Total Fund performance was primarily impacted by positive returns during the month in domestic equity of 2.29% while international equity returned a positive 4.36%. Fixed Income allocations saw positive returns of .71%. Real Estate investment allocations saw negative returns during the month of 0.03%, while Infrastructure returns were a positive 1.07%; the S&P 500 Index returned 1.90% during the month. For the last twelve months the Total Fund performance was a positive 14.18% which was above of the custom benchmark return of 12.48% by 1.36%. The Total Fund performance was primarily impacted by Domestic equity market returns of positive 24.87% which was above the benchmark by 2.93%. International Equity allocations returned a positive 15.25% which was above the benchmark by 90 basis points. The Fund experienced 12 month positive returns on Fixed Income of 7.23% which outperformed relative the Barclays Aggregate benchmark by 5.77%. Returns on Real Estate and Infrastructure were 4.73% and 5.51% respectively. In regards to equity funds over the past 12 month period, the Small/Mid Cap Equity funds for Champlain Mid-Cap performed well above their benchmark by 5.91% while Fidelity (formerly Pyramis) Small Cap underperformed relative to the benchmark by 8.06%. Large Cap Equity fund managers were relatively consistent with their benchmark except for T-Rowe Price and PIMCO Stocks Plus who both outperformed relative to the benchmark by 2.67% and 1.93% respectively. The international equity fund managed by Causeway trailed the benchmark by 2.21% while the Aberdeen international equity fund also underperformed relative to the benchmark by 3.25%. The return since inception (8 months) for the American Century international equity fund was a positive 2.29% which was 2.64% below the benchmark for the same period. Twelve month period returns are not yet available for this investment manager given the strategy was funded in May of 2016. For fixed income allocations, the PIMCO Fixed Income Fund outperformed relative to benchmark by 3.05%, while the BlackRock U.S. Debt Fund was consistent with the benchmark of 1.46% at a return of 1.46%. For Real Estate fund managers, both the JPM Strategic Property Fund was above the benchmark by 2.94 while the JPM Income and Growth Fund trailed the benchmark by 3.45%. The Macquarie European Infrastructure Fund was 5.77% above the benchmark, and the SteelRiver Infrastructure fund underperformed relative to the benchmark by 6.51%

TSRS Portfolio Performance Review

The Total Fund total as of today, February 17, 2017 was $755.5 million. This represents an increase of $7.9 million (100 basis points), over the balance as of January 31, 2017. The increase was primarily a result of an increase of 2.2% in Domestic Equity allocations. Summary graphs are as follows: Calendar Year Metrics:

Fiscal Year Metrics:

One Year to Date Performance Metrics:

December 31, 2016

Tucson Supplemental Retirement

System

Investment Measurement Service

Quarterly Review

The following report was prepared by Callan Associates Inc. ("CAI") using information from sources that include the following: fund trustee(s); fund

custodian(s); investment manager(s); CAI computer software; CAI investment manager and fund sponsor database; third party data vendors; and other outside

sources as directed by the client. CAI assumes no responsibility for the accuracy or completeness of the information provided, or methodologies employed, by

any information providers external to CAI. Reasonable care has been taken to assure the accuracy of the CAI database and computer software. Callan does

not provide advice regarding, nor shall Callan be responsible for, the purchase, sale, hedge or holding of individual securities, including, without limitation

securities of the client (i.e., company stock) or derivatives in the client’s accounts. In preparing the following report, CAI has not reviewed the risks of individual

security holdings or the conformity of individual security holdings with the client’s investment policies and guidelines, nor has it assumed any responsibility to do

so. Advice pertaining to the merits of individual securities and derivatives should be discussed with a third party securities expert. Copyright 2017 by Callan

Associates Inc.

February 13, 2017 Callan Associates Inc.

Tucson Supplemental Retirement System Executive Summary for Period Ending December 31, 2016

Asset Allocation

Total Fund Performance Returns for Periods Ended December 31, 2016

Last

Quarter Last Year Last 3 Years

Last 5 Years

Last 10 years

Total Fund Gross 0.43% 8.41% 5.85% 10.72% 5.75% Total Fund Net 0.34% 7.95% 5.38% 10.20% 5.22% Total Fund Benchmark* 0.55% 7.44% 5.39% 9.19% 5.42% Fiscal Year Returns YTD 2017 2016 2015 2014 2013 Total Fund Gross 4.61% 2.33% 4.63% 19.64% 14.84% Total Fund Net 4.39% 1.89% 4.17% 19.11% 14.21% Total Fund Benchmark* 4.21% 1.82% 4.34% 16.97% 12.87%

Recent Developments

NA Organizational Announcements

On November 2, 2016, T.Rowe Price announced the retirement of Chairman and CIO Brian Rogers, effective March 31, 2017. Rogers has been with the firm for nearly 35 years and has been CIO since 2004. Rogers will remain on T. Rowe Price's Board of Directors after his retirement and serve as non-executive chair. Henry Ellenbogen will be assuming the role of CIO, U.S. Equity Growth, upon Rogers’ retirement. He will also retain his existing portfolio management responsibilities. Reporting lines will not change under this new structure.

On November 4, 2016, Aberdeen announced the resignation of Head of UK and European Equities Jeremy Whitley, effective March 2017. As a result of this announcement, Aberdeen appointed Ben Ritchie as the new head of the team. Most recently, Ritchie, who joined Aberdeen in 2002, was named deputy head of UK and European equities in June 2016.

February 13, 2017 Callan Associates Inc.

On November 15, 2016, J.P. Morgan announced changes to the organizational structure of the Global Real Assets (GRA) organization in conjunction with the announcement that Joe Azelby, head of Global Real Assets, will retire from the firm in February 2017. The Global Real Assets organization will now report to Anton Pil and Chris Hayward, who are the managing partners of the J.P. Morgan Global Alternatives platform. The private real estate investment teams, which include the Americas, Asia, and Europe, and the public REITs business, Security Capital, will report to Pil. The newly combined Global Infrastructure investment team will also report to Pil. The Global Infrastructure investment team is led by Paul Ryan and comprises the OECD Infrastructure team, led by Matt LeBlanc, and the Asian Infrastructure team, led by Vijay Pattabhiraman. J.P. Morgan indicated that the change should not impact the investment strategy or day-to-day management activities of any real estate, infrastructure, or maritime portfolios.

Active Manager Performance Peer Group Ranking

Fund Last Year

Last 3 Years

Last 5 Years

PIMCO Stocks Plus 29 14 5 T. Rowe Price Large Cap Growth 53 40 [5] Champlain Mid Cap 16 9 18 FIAM Small Cap 66 46 20 Causeway International Opportunities** 43 66 25 Aberdeen EAFE Plus 5 96 [99] American Century Int'l Small Cap [93] [86] [64] PIMCO Fixed Income 1 3 2 JP Morgan Strategic Property Fund 50 44 20 JP Morgan Income and Growth Fund 57 66 39 * Brackets indicate actual performance linked with manager composite ** Transitioned from International Value to International Opportunities, in Ma

Aberdeen EAFE Plus had a strong calendar year 2016. The strategy ranked 5th in its peer group during the last one year period as of 12/31/16 and exceeded the benchmark by 2.9% (7.4% versus 4.5% for the benchmark) for the trailing 12-months. Aberdeen tries to invest in high quality businesses with strong fundamentals at reasonable prices. Aberdeen manages a concentrated portfolio for TSRS with 40-50 stocks. In calendar year 2016, their stock selection was positive and they were able to make up some of their underperformance since inception for TSRS. The Board has been invested for 4.5 years and the portfolio returned +2.2% versus 4.9% for the benchmark.

Gordon Weightman, CFA Paul Erlendson Vice President Senior Vice President

Table of ContentsDecember 31, 2016

Market Overview

Capital Markets Review 3

Total Fund

Actual Asset Allocation vs Target 26

Asset Allocation Across Investment Managers 27

Investment Manager Returns 28

Investment Manager Returns 32

Total Fund Attribution 36

Total Fund Performance 41

Domestic Equity

Domestic Equity 43

Alliance S&P 500 Index 45

PIMCO StocksPLUS 47

BlackRock Russell 1000 Value 49

T. Rowe Price Large Cap Growth 51

Champlain Mid Cap 53

Pyramis Small Cap 55

International Equity

International Equity 58

Causeway International Opportunities 60

Aberdeen EAFE Plus 62

American Century Non-US SC 64

Fixed Income

Fixed Income 67

BlackRock U.S. Debt Fund 69

PIMCO Fixed Income 71

Real Estate

Real Estate 74

JP Morgan Strategic Property Fund 76

JP Morgan Income and Growth Fund 78

Infrastructure

Infrastructure 81

Macquarie European Infrastructure 82

SteelRiver Infrastructure North America 83

Callan Research/Education 84

Disclosures 87

Ma

rke

t Ove

rvie

w

Market Overview

Ca

pita

l Ma

rke

ts R

evie

w

Capital Markets Review

Dοων βυτ Φαρ

Φροm Ουτ

ΠΡΙςΑΤΕ ΕΘΥΙΤΨ

Χοmπανψ ινϖεστmεντσ

ανδ εξιτσ τρενδεδ δοων

δυρινγ τηε ψεαρ ανδ τηε

θυαρτερ φορ βοτη βυψουτσ ανδ ϖεν−

τυρε χαπιταλ, βυτ αχτιϖιτψ χοντινυεδ

ατ ρελατιϖελψ ηιγη λεϖελσ (εξχεπτ φορ

ΙΠΟσ). Τηε ονε οτηερ ανοmαλψ ωασ

τηατ τηε αννουνχεδ δολλαρ ϖολυmε

φορ βυψουτσ ιν 2016 ρεαχηεδ αν

ειγητ−ψεαρ ηιγη.

Α Dεπρεσσινγ Dολλαρ

ΝΟΝ−Υ.Σ. ΕΘΥΙΤΨ

Τηε δολλαρ�σ στρενγτη

ηαmπερεδ ρετυρνσ φορ

Υ.Σ. ινϖεστορσ φροm νον−

Υ.Σ. εθυιτψ mαρκετσ ιν τηε φουρτη

θυαρτερ; λοχαλ ινϖεστορσ φαρεδ βεττερ.

Φορ τηε ψεαρ mοστ ωορλδ στοχκ mαρ−

κετσ ποστεδ ποσιτιϖε ρεσυλτσ, δριϖεν

βψ εχονοmιχ ιmπροϖεmεντσ, αχχοm−

mοδατιϖε χεντραλ βανκ πολιχιεσ, ανδ

πριχε ηικεσ φορ χοmmοδιτιεσ.

Μακινγ Αλπηα Γρεατ

Αγαιν

ΗΕDΓΕ ΦΥΝDΣ

Τηε Χρεδιτ Συισσε

Ηεδγε Φυνδ Ινδεξ

αδϖανχεδ 1.15% ιν τηε

θυαρτερ, ωηιλε τηε Χαλλαν Ηεδγε

Φυνδ−οφ−Φυνδσ Dαταβασε, α προξψ

φορ λιϖε πορτφολιοσ, γρεω 1.33%.

Τηε βεστ−περφορmινγ στρατεγψ ωασ

Γλοβαλ Μαχρο (+4.59%), ωηιλε

Μαναγεδ Φυτυρεσ (−5.65%) τοοκ τηε

ωορστ ηιτ.

Α Χασε οφ τηε ϑιττερσ

DΕΦΙΝΕD ΧΟΝΤΡΙΒΥΤΙΟΝ

Τηε αϖεραγε DΧ πλαν

γαινεδ 3.92% ιν τηε

τηιρδ θυαρτερ, ασ mεα−

συρεδ βψ τηε Χαλλαν DΧ Ινδεξ�,

βυτ τραιλεδ τηε Αγε 45 Ταργετ Dατε

Φυνδ�σ ρετυρν οφ 4.53%. Πλαν βαλ−

ανχεσ γρεω 3.67%, αλτηουγη mονεψ

lowed out of plans on a net basis ατ τηε ηιγηεστ λεϖελ σινχε τηε τηιρδ

θυαρτερ οφ 2006.

Ρατεσ Τρυmπ

Φυνδαmενταλσ

ΡΕΑΛ ΕΣΤΑΤΕ

Τηε ΝΧΡΕΙΦ Προπερτψ

Ινδεξ αγαιν τυρνεδ ιν

ιτσ ωορστ περφορmανχε

since the irst quarter of 2010, and τηε NCREIF Open End Diversiied Χορε Εθυιτψ Ινδεξ βαρελψ εχλιπσεδ

the third quarter’s ive-year low ρετυρν. Υ.Σ. ΡΕΙΤσ ουτπερφορmεδ

γλοβαλ ΡΕΙΤσ, βυτ στιλλ ποστεδ νεγα−

τιϖε ρετυρνσ.

Φριενδσ Ματτερεδ

ΦΥΝD ΣΠΟΝΣΟΡ

Φυνδσ φαχεδ α τουγη

φουρτη θυαρτερ. Ταφτ−

Ηαρτλεψ πλανσ φαρεδ βεστ,

υπ 1.20%, ωηιλε χορπορατε φυνδσ

ηαδ τηε ωεακεστ ρετυρνσ, φαλλινγ

0.09%. Ρεσυλτσ στεmmεδ πριmαριλψ

φροm ηοω τηεψ χηοσε �φριενδσ� ιν τηε

σεχυριτιεσ mαρκετσ.

Κνοωλεδγε. Εξπεριενχε. Ιντεγριτψ.

Βροαδ Μαρκετ Θυαρτερλψ Ρετυρνσ

Φουρτη Θυαρτερ 2016

Cash (90-Day T-Bills)

U.S. Equity (Russell 3000)

Non-U.S. Equity (MSCI ACWI ex USA)

Emerging Equity (MSCI Emerging Markets)

U.S. Fixed (Bloomberg Barclays Aggregate)

Non-U.S. Fixed (Bloomberg Barclays Global ex US)

Real Estate (NCREIF Property)

Hedge Funds (CS HFI)

Commodities (Bloomberg)

Sources: Bloomberg Barclays, Bloomberg, Credit Suisse Hedge Index, Merrill Lynch, MSCI,

NCREIF, Russell Investment Group

-2.98%

-10.26%

1.15%

0.09%

2.66%

4.21%

-1.25%

-4.16%

1.73%

Ελεχτιον Ραλλψ

Υ.Σ. ΕΘΥΙΤΨ

Τηε Σ&Π 500 Ινδεξ ηιτ

αν αλλ−τιmε ηιγη δυρινγ

τηε θυαρτερ ανδ ενδεδ

υπ 3.82% αmιδ α βυλλιση ραλλψ ιν

τηε ωακε οφ τηε πρεσιδεντιαλ ελεχ−

τιον ανδ α στρινγ οφ ενχουραγινγ

εχονοmιχ ρεπορτσ. ςαλυε δοmινατεδ

γροωτη δυρινγ τηε θυαρτερ, ανδ σmαλλ

cap particularly beneited from Τρυmπ−φυελεδ εντηυσιασm.

Α Σεντιmενταλ

ϑουρνεψ

ΕΧΟΝΟΜΨ

Ρεαλ ΓDΠ γρεω 1.9% ιν

τηε φουρτη θυαρτερ ανδ

1.6% φορ τηε ψεαρ. Τηε

δολλαρ στρενγτηενεδ, ραισινγ τηε χοστ

οφ εξπορτσ. Τηε υνεmπλοψmεντ ρατε

στοοδ ατ 4.7% ατ τηε ενδ οφ τηε ψεαρ,

τηε λοωεστ σινχε Αυγυστ 2007.

6Π Α Γ Ε

2Π Α Γ Ε

19Π Α Γ Ε

Τρεαχηερουσ

Τρεασυριεσ

Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ

Τηε Βλοοmβεργ

Βαρχλαψσ Υ.Σ.

Αγγρεγατε Βονδ Ινδεξ

φελλ 2.98% δυρινγ τηε τυmυλτυουσ

θυαρτερ, βυτ ενδεδ υπ 2.65% φορ

τηε ψεαρ. Ρισινγ ψιελδσ σεντ ρετυρνσ

across the ixed income sector δοων φορ τηε θυαρτερ, ανδ σπρεαδσ

τιγητενεδ ασ ρεχορδ νεω βονδ ισσυ−

ανχεσ mετ στρονγ γλοβαλ δεmανδ.

9Π Α Γ Ε

4Π Α Γ Ε

Βιγ−Λεαγυε Ψιελδσ

ΝΟΝ−Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ

Ψιελδσ οϖερσεασ

ινχρεασεδ ανδ τηε δολλαρ

συργεδ, ωειγηινγ ηεαϖ−

ιλψ ον σοϖερειγν δεβτ περφορmανχε.

Τηε Βλοοmβεργ Βαρχλαψσ Γλοβαλ

Αγγρεγατε εξ ΥΣ φελλ 10.26%.

Γεοπολιτιχαλ ρισκ δοmινατεδ τηε

θυαρτερ, ωιτη τηε Υ.Σ. ελεχτιον, τηε

Βρεξιτ ϖοτε, ανδ α ρεφερενδυm ιν

Ιταλψ.

15Π Α Γ Ε

12Π Α Γ Ε

20Π Α Γ Ε

21Π Α Γ Ε

17Π Α Γ Ε

ΧΑΛΛΑΝ

ΙΝΣΤΙΤΥΤΕ Χαπιταλ Μαρκετ Ρεϖιεω

2

Α Σεντιmενταλ ϑουρνεψ

ΕΧΟΝΟΜΨ | ϑαψ Κλοεπφερ

Λαστ ψεαρ τυρνεδ ουτ το βε α τυmυλτυουσ ονε, ωιτη τωο εσσεν−

τιαλλψ νον−εχονοmιχ εϖεντσ ϕολτινγ τηε χαπιταλ mαρκετσ φορ ρεα−

σονσ σολελψ ρελατεδ το ινϖεστορ σεντιmεντ: τηε Υ.Κ. Βρεξιτ ϖοτε

ιν ϑυνε ανδ τηε Υ.Σ. πρεσιδεντιαλ ελεχτιον ιν Νοϖεmβερ. Ιν βοτη

instances, wild swings in sentiment and in conidence about the φυτυρε mοϖεδ mαρκετσ αρουνδ τηε γλοβε ωιτηουτ ρεγαρδ το τηε

υνδερλψινγ εχονοmιχ δατα. Ιντερεστ ρατεσ ανδ τηε στοχκ mαρκετ

ωερε τακεν ον α ωιλδ ριδε τηρουγη τηε ψεαρ, ωιτη στοχκσ πλυνγινγ

τηρουγη τηε συmmερ ανδ τηεν συργινγ φολλοωινγ τηε Υ.Σ. ελεχ−

τιον, ανδ ιντερεστ ρατεσ σλιδινγ ωηιλε βονδσ ραλλιεδ, ονλψ το σεε

ρατεσ ηεαδ βαχκ υπ ιν α ηυρρψ ιν Νοϖεmβερ ανδ Dεχεmβερ. Τηισ

ϕουρνεψ ωασ δριϖεν αλmοστ εντιρελψ βψ σεντιmεντ ρατηερ τηαν ανψ

sudden changes in economic fortune or inancial fundamentals.

Ρεαλ ΓDΠ γροωτη ιν τηε Υ.Σ. χαmε ιν ατ α mοδεστ 1.9% ιν τηε

φουρτη θυαρτερ, δοων φροm τηε 3.5% γαιν ιν τηε τηιρδ θυαρτερ.

Combined with the weak growth in the irst two quarters, total ΓDΠ γροωτη φορ τηε ψεαρ ωασ 1.6%, δοων φροm τηε 2.6% γαιν ιν

2015. Α συσταινεδ ινϖεντορψ χορρεχτιον τηατ βεγαν ιν 2015 ηυνγ α

black cloud over business sentiment during the irst half of 2016, ανδ τηε λινγερινγ εφφεχτ οφ τηε βυστ ιν ενεργψ−σεχτορ ινϖεστmεντ

σπυρρεδ βψ τηε χολλαπσε ιν οιλ πριχεσ ιν 2015 ηελδ βαχκ εχονοmιχ

γροωτη φορ mυχη οφ τηε ψεαρ. Τηε δολλαρ στρενγτηενεδ οϖερ τηε

χουρσε οφ τηε ψεαρ, ραισινγ τηε χοστ οφ Υ.Σ. εξπορτσ. Τηε στρον−

γερ δολλαρ χοmβινεδ ωιτη ανεmιχ γροωτη ιν Ευροπε ανδ ϑαπαν

ανδ σλοωινγ γροωτη ιν δεϖελοπινγ mαρκετσ ηελδ βαχκ δεmανδ

φορ Υ.Σ. εξπορτσ, ωηιλε συππρεσσινγ τηε χοστ οφ ιmπορτσ ανδ δριϖ−

ινγ δεmανδ φορ τηεm ηιγηερ. Ιmπορτσ αρε α νεγατιϖε ιν τηε ΓDΠ

χαλχυλατιον ανδ ωειγη ον τηε mεασυρε οφ τοταλ ΓDΠ γροωτη. Ασ

α ρεσυλτ, νετ εξπορτσ (εξπορτσ mινυσ ιmπορτσ) συβτραχτεδ α ηεφτψ

1.7% φροm ΓDΠ γροωτη δυρινγ τηε φουρτη θυαρτερ, α ρεδυχτιον

εθυαλ το τηε 1.7% γαιν προϖιδεδ βψ γροωτη ιν χονσυmπτιον,

ωηιχη αχχουντσ φορ 70% οφ τοταλ ΓDΠ.

Ονε βριγητ σποτ ιν τηε φουρτη θυαρτερ ΓDΠ ρεπορτ ωασ α ρεβουνδ

in ixed non-residential investment, which means capital spend−

ινγ: εθυιπmεντ, στρυχτυρεσ, ανδ ιντελλεχτυαλ προπερτψ. Το γιϖε αν

ιδεα οφ ϕυστ ηοω δεπρεσσεδ τηε δοmεστιχ οιλ ανδ γασ ινδυστρψ

γοτ, τηε δριλλινγ ριγ χουντ πυβλισηεδ βψ Βακερ Ηυγηεσ δροππεδ

το α 71−ψεαρ λοω οφ 404 ιν Μαψ 2016; τηε χουντ ρεβουνδεδ το

mορε τηαν 650 βψ τηε ενδ οφ τηε ψεαρ, ασ ενεργψ πριχεσ αππεαρ

το ηαϖε mοϖεδ οφφ οφ α βοττοm. Τηε δοωνωαρδ πρεσσυρε ον

χαπιταλ σπενδινγ φροm ενεργψ ηασ τηερεφορε αβατεδ, ανδ χαπιταλ

σπενδινγ ωασ φυρτηερ αιδεδ ιν τηε τηιρδ ανδ φουρτη θυαρτερσ βψ α

ρεβουνδ ιν αιρχραφτ ινϖεστmεντ.

02 0397 98 99 00 01 04 05 06 07 08 09 10 11 12 13 14 15 16

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Θυαρτερλψ Ρεαλ ΓDΠ Γροωτη (20 Ψεαρσ)

-15%

-10%

-5%

0%

5%

10%

15%

20%

PPI (All Commodities)CPI (All Urban Consumers)

02 0397 98 99 00 01 04 05 06 07 08 09 10 11 12 13 14 15 16

Inlation Year-Over-Year

Source: Bureau of Labor Statistics

Source: Bureau of Economic Analysis

3Κνοωλεδγε. Εξπεριενχε. Ιντεγριτψ.

Υ.Σ. ΕΧΟΝΟΜΨ (Χοντινυεδ)

Χονσυmπτιον σπενδινγ ροσε 2.5%, λεαδινγ ΓDΠ γαινσ, συππορτεδ

βψ γαινσ ιν ρεαλ δισποσαβλε ινχοmε ανδ ηουσεηολδ νετ ωορτη. Ασ

the year drew to a close, household inances appeared to be in γρεατ σηαπε ον αν αγγρεγατε βασισ, ηελπεδ βψ τηε ποστ−ελεχτιον

στοχκ mαρκετ ραλλψ, ρισινγ ηοmε πριχεσ, ανδ αλmοστ α δεχαδε οφ

ρεστραιντ ιν χονσυmερ βορροωινγ. Χονσυmερ σεντιmεντ ινδιχεσ

τοοκ βιγ ηιτσ ιν Οχτοβερ ασ τηε Υ.Σ. ελεχτιον λοοmεδ, ονλψ το σπικε

βαχκ υπ ιν Νοϖεmβερ ανδ Dεχεmβερ το λεϖελσ λαστ σεεν ιν 2004.

Τηε ϕοβ mαρκετ ηασ χοοπερατεδ, σηοωινγ α στρονγ 204,000 γαιν

ιν Νοϖεmβερ αφτερ α ωεακ Οχτοβερ ρεπορτ, ανδ αδδινγ ανοτηερ

156,000 ιν Dεχεmβερ. Τηε υνεmπλοψmεντ ρατε ισ νοω 4.7%,

νεαρ α νινε−ψεαρ λοω ανδ ωελλ βελοω ανψ ταργετ ονχε αρτιχυλατεδ

by policymakers as suficient to handle a rise in interest rates.

With the economy at or near full employment, interest in inlation has perked up once again, although the measures of inlation ρεmαιν ρελατιϖελψ βενιγν. Τηε ηεαδλινε αλλ−υρβαν ΧΠΙ ωασ υπ

2.1% in December year-over-year, and core inlation (less food and energy) rose 2.2%, while the GDP delator used by the Fed to target inlation was up 2.2%. Energy prices dragged down headline inlation until the second half of 2016, when the energy ινδεξ ινχρεασεδ φορ φουρ χονσεχυτιϖε mοντησ τηρουγη Dεχεmβερ.

Tight labor markets, conident consumers, and a potential for continued capital spending all point to the chance for inlation to mοϖε βεψονδ τηε 1% το 2% ρανγε ιν ωηιχη ιτ ηασ βεεν βουνδ φορ

τηε παστ σεϖεραλ ψεαρσ; χουντερινγ τηισ υπωαρδ πρεσσυρε ισ τηε

strong U.S. dollar, which allows the U.S. to import delationary πρεσσυρε τηρουγη φαλλινγ ιmπορτ πριχεσ.

Τηε Λονγ−Τερm ςιεω

2016

4τη Θτρ

Περιοδσ ενδεδ Dεχ. 31, 2016

Ινδεξ 1 Ψεαρ 5 Ψρσ 10 Ψρσ 25 Ψρσ

Υ.Σ. Εθυιτψ

Ρυσσελλ 3000 4.21 12.74 14.67 7.07 9.29

Σ&Π 500 3.82 11.96 14.66 6.95 9.15

Ρυσσελλ 2000 8.83 21.31 14.46 7.07 9.69

Νον−Υ.Σ. Εθυιτψ

ΜΣΧΙ ΕΑΦΕ −0.71 1.00 6.53 0.75 4.95

ΜΣΧΙ Εmεργινγ Μαρκετσ −4.16 11.19 1.28 1.84 �

Σ&Π εξ−Υ.Σ. Σmαλλ Χαπ −3.12 3.78 9.67 3.03 6.70

Φιξεδ Ινχοmε

Βλοοmβεργ Βαρχλαψσ Αγγ −2.98 2.65 2.23 4.34 5.63

90−Dαψ Τ−Βιλλσ 0.09 0.33 0.12 0.80 2.71

Βλοοmβεργ Βαρχλαψσ Λονγ Γ/Χ −7.84 6.67 4.07 6.85 7.58

Βλοοmβεργ Βαρχλαψσ Γλ Αγγ εξ ΥΣ −10.26 1.49 −1.39 2.44 4.73

Ρεαλ Εστατε

ΝΧΡΕΙΦ Προπερτψ 1.73 7.97 10.91 6.93 8.63

ΦΤΣΕ ΝΑΡΕΙΤ Εθυιτψ −2.89 8.52 12.01 5.08 11.13

Αλτερνατιϖεσ

ΧΣ Ηεδγε Φυνδ 1.15 1.25 4.34 3.75 �

Χαmβριδγε ΠΕ∗ � 3.95 10.89 10.33 14.35

Βλοοmβεργ Χοmmοδιτψ 2.66 11.77 −8.95 −5.57 2.55

Γολδ Σποτ Πριχε −12.56 8.63 −5.97 6.08 4.82

Inlation � ΧΠΙ−Υ 0.00 2.07 1.36 1.81 2.26

*Private equity returns show pooled horizon IRRs for periods ended June 30, 2016. Most recent

quarterly data not available.

Sources: Bloomberg Barclays, Bloomberg, Credit Suisse, FTSE, MSCI, NCREIF, Russell

Investment Group, Standard & Poor’s, Thomson/Cambridge, Bureau of Economic Analysis.

Ρεχεντ Θυαρτερλψ Εχονοmιχ Ινδιχατορσ

4Θ16 3Θ16 2Θ16 1Θ16 4Θ15 3Θ15 2Θ15 1Θ15

Εmπλοψmεντ Χοστ�Τοταλ Χοmπενσατιον Γροωτη 2.2% 2.3% 2.3% 1.9% 2.0% 2.0% 2.0% 2.6%

Νονφαρm Βυσινεσσ�Προδυχτιϖιτψ Γροωτη −0.2%∗ 3.1% −0.2% −0.6% −1.7% 2.0% 3.1% −0.8%

ΓDΠ Γροωτη 1.9% 3.5% 1.4% 0.8% 0.9% 2.0% 2.6% 2.0%

Μανυφαχτυρινγ Χαπαχιτψ Υτιλιζατιον 74.8% 74.8% 74.9% 75.3% 75.4% 75.6% 75.5% 75.5%

Χονσυmερ Σεντιmεντ Ινδεξ (1966=100) 93.2 90.3 92.4 91.5 91.3 90.8 94.2 95.5

*Estimate.

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, IHS Economics, Reuters/University of Michigan.

4

Φριενδσ Ματτερεδ

ΦΥΝD ΣΠΟΝΣΟΡ | Κιττψ Λιν

Τηε συρπρισινγ ελεχτιον ρεσυλτσ ιν τηε Υ.Σ.�ανδ τηε υνσυρπρισ−

ing December interest rate hike—spurred a signiicant diver−γενχε ιν Υ.Σ. σεχυριτιεσ mαρκετσ. Dεσπιτε σοmε πρεδιχτιονσ

otherwise, U.S. stocks caught ire with the election of what ινϖεστορσ σαω ασ α προ−βυσινεσσ πρεσιδεντ ωηο ωιλλ λοωερ ταξεσ

and cut regulations. U.S. ixed income markets, on the other ηανδ, ωερε σηαρπλψ λοωερ ασ τηεψ πρεπαρεδ φορ ηιγηερ ιντερεστ

ρατεσ ιν τηε φυτυρε.

These events had a signiicant impact on the results of institu−

τιοναλ φυνδσ τραχκεδ βψ Χαλλαν, ασ αλλ τψπεσ εξπεριενχεδ ωεακερ

περφορmανχε χοmπαρεδ το τηε πρεϖιουσ θυαρτερ. Αχχορδινγ το

Χαλλαν�σ δαταβασε, τηε mεδιαν ρετυρν φορ αλλ φυνδ τψπεσ ωασ

+0.65% ιν τηε φουρτη θυαρτερ, χοmπαρεδ το +3.44% ιν τηε τηιρδ.

Βυτ ηοω φυνδσ διδ δεπενδεδ ον ηοω ωελλ τηεψ χηοσε τηειρ

�φριενδσ� ιν τηε mαρκετσ. Χορπορατε πλανσ περφορmεδ τηε ωορστ

ωιτη α −0.09% ρετυρν ανδ Ταφτ−Ηαρτλεψ πλανσ τηε βεστ ατ +1.20%.

Ταφτ−Ηαρτλεψ πλανσ σαω βεττερ ρεσυλτσ βεχαυσε τηεψ ηαδ ηιγηερ

αλλοχατιονσ το Υ.Σ. εθυιτψ τηαν οτηερ πλαν τψπεσ, ανδ τηε λοω−

εστ αmονγ αλλ τψπεσ το νον−Υ.Σ. εθυιτψ. Τηε Σ&Π 500 Ινδεξ

ϕυmπεδ 3.82% φορ τηε θυαρτερ, ωηιλε τηε ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ

Ινδεξ δροππεδ 1.25%. Αλτηουγη νον−Υ.Σ. εθυιτιεσ ηελπεδ

περφορmανχε ιν τηε τηιρδ θυαρτερ, mαϕορ υπχοmινγ ελεχτιονσ ιν

Ευροπε ανδ Ασια mαψ ηαϖε χοντριβυτεδ το τηε σηιφτ ιν σεντι−

mεντ, χοντριβυτινγ το τηε λαχκλυστερ περφορmανχε βψ στοχκσ ιν

τηε φουρτη θυαρτερ.

Ον τηε οτηερ ενδ οφ τηε σπεχτρυm, τηε ωεακ περφορmανχε βψ χορ−

πορατε πλανσ mαψ ηαϖε στεmmεδ φροm τηειρ ηιγηερ αλλοχατιονσ το

U.S. ixed income. While Taft-Hartley plans had an average of 25% of their portfolios allocated to U.S. ixed income, corporate πλανσ ηαδ αν αϖεραγε οφ 40%, ανδ τηε λοωεστ αλλοχατιον το Υ.Σ.

εθυιτψ αmονγ τηε τψπεσ οφ πλανσ Χαλλαν τραχκσ. Τηε Βλοοmβεργ

Βαρχλαψσ Υ.Σ. Αγγρεγατε Ινδεξ ωασ οφφ 2.98% φορ τηε θυαρ−

τερ, ωηερεασ τηε Ρυσσελλ 2000 Ινδεξ ϕυmπεδ 8.83% ανδ τηε

Ρυσσελλ 1000 Ινδεξ ροσε 3.83%. Αλτηουγη χορπορατε πλανσ ηαδ

α τουγη φουρτη θυαρτερ, τηεψ τοππεδ αλλ οτηερ ινστιτυτιοναλ φυνδσ

ιν τηε παστ ψεαρ ωιτη α +7.88% ρετυρν. Ιν αδδιτιον το τηειρ σολιδ

Χαλλαν Dαταβασε Μεδιαν Ρετυρνσ∗ φορ Περιοδσ ενδεδ Dεχεmβερ 31, 2016

Φυνδ Σπονσορ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Πυβλιχ Φυνδσ 0.80 7.49 7.49 4.62 8.32 5.25 6.34

Χορπορατε Φυνδσ −0.09 7.88 7.88 4.70 8.02 5.36 6.37

Ενδοωmεντσ/Φουνδατιονσ 0.83 7.09 7.09 3.59 7.84 4.94 6.13

Ταφτ−Ηαρτλεψ 1.20 7.81 7.81 5.26 8.87 5.23 6.01

*Returns less than one year are not annualized.

Source: Callan. Callan’s database includes the following groups: public deined beneit, corporate deined beneit, endowments/foundations, and Taft-Hartley plans. Approxi-

mately 10% to 15% of the database constituents are Callan’s clients. All database group returns presented gross of fees. Past performance is no guarantee of future results.

Reference to or inclusion in this report of any product, service, or entity should not be construed as a recommendation, approval, ailiation, or endorsement of such product,

service, or entity by Callan.

-4%

-2%

0%

2%

4%

Public Corporate Endow/Fndn Taft-Hartley Database Database Database Database

10th Percentile 1.51 1.20 1.90 2.24

25th Percentile 1.22 0.70 1.24 1.63

Median 0.80 -0.09 0.83 1.20

75th Percentile 0.31 -1.36 0.29 0.62

90th Percentile -0.09 -2.88 -0.37 0.08

Χαλλαν Φυνδ Σπονσορ Ρετυρνσ φορ τηε Θυαρτερ

Source: Callan


ΦΥΝD ΣΠΟΝΣΟΡ (Χοντινυεδ)

1.8%3.2%3.5%

3.8%

U.S. Fixed

Non-U.S. Fixed

Global Balanced

Real Estate

Hedge Funds

Other Alternatives

Cash

Public

0.80%*

34.4%

15.9%

26.9%

1.7%

2.6%

6.5%

1.1%

3.9%3.8%

5.0%

1.4%

Endowment/

Foundation

0.83%*

33.6%

17.5%

20.0%

2.2%

1.0%

0.7%

7.2%

2.1% 10.0%

1.7%

Taft-Hartley

1.20%* 0.4%

U.S. Balanced

U.S. Equity

Non-U.S. Equity

Global Equity

Corporate

-0.09%*

1.0%

2.3%

1.6% 0.6%

35.3%

25.6%

10.8%

1.7%

4.7%

12.1%

4.4%

13.6%

2.3%

27.6%

40.0%

2.6%0.6%0.7%

0%

20%

40%

60%

80%

100%

07 08 09 10 11 12 13

U.S. Fixed

Non-U.S. Fixed

Global Balanced

Real Estate

Hedge Funds

Other Alternatives

Cash

U.S. Balanced

U.S. Equity

Non-U.S. Equity

Global Equity

14 15 16

Χαλλαν Φυνδ Σπονσορ Αϖεραγε Ασσετ Αλλοχατιον

Χαλλαν Πυβλιχ Φυνδ Dαταβασε Αϖεραγε Ασσετ Αλλοχατιον (10 Ψεαρσ)

Source: Callan. Callan’s database includes the following groups: public deined beneit, corporate deined beneit, endowments/foundations, and Taft-Hartley plans. Approxi-

mately 10% to 15% of the database constituents are Callan’s clients. All database group returns presented gross of fees. Past performance is no guarantee of future results.

Reference to or inclusion in this report of any product, service, or entity should not be construed as a recommendation, approval, ailiation, or endorsement of such product,

service, or entity by Callan.

*Latest median quarter return.

Note: charts may not sum to 100% due to rounding.

Source: Callan

περφορmανχε τηισ θυαρτερ, Ταφτ−Ηαρτλεψ πλανσ ηαϖε περφορmεδ

well over the past one, three, and ive years compared to other ινστιτυτιοναλ φυνδσ.

Βψ σιζε, σmαλλ φυνδσ λεδ δυρινγ τηε φουρτη θυαρτερ ωιτη α mεδιαν

ρετυρν οφ +0.72% ωηιλε λαργε φυνδσ ηαδ τηε λοωεστ ρετυρν ατ

+0.56%. Ον τηε οτηερ ηανδ, λαργε φυνδσ περφορmεδ τηε βεστ

ωηεν λοοκινγ ατ φυνδσ ιν τηε 10τη περχεντιλε, υπ 1.82%.

6

Source: Russell Investment Group

Ελεχτιον Ραλλψ

Υ.Σ. ΕΘΥΙΤΨ | Λαυρεν Ματηιασ, ΧΦΑ

Τηε Σ&Π 500 Ινδεξ νοτχηεδ α +3.82% ρετυρν φορ τηε φουρτη

θυαρτερ αφτερ ρεαχηινγ αν αλλ−τιmε ηιγη (2,239) ϕυστ δαψσ βεφορε

τηε ενδ οφ 2016. Εϖεν mορε ιmπρεσσιϖε ωασ τηε ρετυρν φροm

σmαλλ−χαπιταλιζατιον χοmπανιεσ (Ρυσσελλ 2000 Ινδεξ: +8.83%),

ασ ωασ τηε διϖεργενχε βετωεεν ϖαλυε ανδ γροωτη αχροσσ τηε

σιζε σπεχτρυm (Ρυσσελλ 1000 ςαλυε Ινδεξ: +6.68% ϖσ. Ρυσσελλ

1000 Γροωτη Ινδεξ: +1.01%; Ρυσσελλ 2000 ςαλυε Ινδεξ:

+14.07% ϖσ. Ρυσσελλ 2000 Γροωτη Ινδεξ: +3.57%).

Τηε mαρκετ ιν τηε φουρτη θυαρτερ ωασ τρυmπεδ βψ πολιτιχσ ασ

τηε ινχοmινγ αδmινιστρατιον προmισεδ το λοωερ περσοναλ ανδ

χορπορατε ινχοmε ταξεσ, δεχρεασε βυσινεσσ ανδ ενϖιρονmεν−

ταλ ρεγυλατιον, ανδ ινχρεασε ινφραστρυχτυρε σπενδινγ. Ινϖεστορσ

αππεαρεδ το αππροϖε; Νοϖεmβερ σαω τηε ηιγηεστ mοντηλψ ρετυρν

οφ τηε θυαρτερ (+3.70%). Οτηερ ταιλωινδσ φυρτηερεδ τηε φρενζψ,

ινχλυδινγ υπωαρδλψ ρεϖισεδ τηιρδ−θυαρτερ ΓDΠ (το +3.5%), συβ−

δυεδ ινιτιαλ ϕοβλεσσ χλαιmσ, υνεmπλοψmεντ ατ τηε λοωεστ λεϖελ ιν

νινε ψεαρσ (4.6%), αϖεραγε ωαγε γροωτη οφ 2.9% ιν Dεχεmβερ,

ανδ α συργινγ Υ.Σ. δολλαρ; ηοmε ανδ αυτοmοβιλε πριχεσ ηιτ αλλ−

time highs, as did consumer conidence. In light of the progress, τηε Φεδ Φυνδσ ρατε ωασ ινχρεασεδ ιν Dεχεmβερ το α ρανγε οφ

0.50% το 0.75%. Τηερε αρε στιλλ ποχκετσ οφ υνχερταιντψ, ηοωεϖερ;

αχροσσ τηε πονδ τηε Ευροπεαν Χεντραλ Βανκ χοντινυεδ θυαντιτα−

τιϖε εασινγ ανδ βαχκ ατ ηοmε α Τρυmπ γοϖερνmεντ χουλδ mεαν

higher debt and subsequently inlation. Sentiment is nonethe−

λεσσ ρεϖϖεδ υπ, ατ λεαστ φορ νοω.

Υ.Σ. εθυιτψ ωασ τηε πρεφερρεδ mαρκετ γλοβαλλψ; σmαλλ χαπ παρ−

ticularly beneited from Trump-fueled enthusiasm. Micro and σmαλλ χαπιταλιζατιον χοmπανιεσ ουτπαχεδ mιδ ανδ λαργε χαπ

στοχκσ (Ρυσσελλ Μιχροχαπ Ινδεξ: +10.05%, Ρυσσελλ 2000

Ινδεξ: +8.83%, Ρυσσελλ Μιδχαπ Ινδεξ: +3.21%, ανδ Ρυσσελλ

1000 Ινδεξ: +3.83%). ςαλυε ρεγαινεδ ιτσ λεαδ οϖερ γροωτη ιν αλλ

χαπιταλιζατιονσ; τηε δισπερσιον ιν στψλε ρετυρνσ ωασ βροαδ αχροσσ

mαρκετ χαπιταλιζατιονσ, ωιτη τηε ωιδεστ (1,050 βπσ) ιν σmαλλ χαπ

(Ρυσσελλ 2000 ςαλυε mινυσ Ρυσσελλ 2000 Γροωτη)�τηε mοστ

σινχε τηε τεχηνολογψ βυββλε βυρστ ιν 2001.

Russell 1000 Russell 2000

Health CareConsumer

Staples

TechnologyConsumer

Discretionary

UtilitiesMaterials &

Processing

EnergyProducer

Durables

Financial

Services

12.6%

16.9%

7.9%

11.5%

16.4%

5.0%

11.8%

2.6%

6.6%

1.8%

7.1%

1.3%

5.6%

-1.8%

5.6%

-4.1%

-5.7%

7.0%

Εχονοmιχ Σεχτορ Θυαρτερλψ Περφορmανχε

Note: As of the fourth quarter of 2015, the Capital Market Review reports sector-speciic returns using the Russell Global Sectors (RGS) classiication system rather than the

Global Industry Classiication Standard (GICS) system. RGS uses a three-tier classiication system containing nine sectors; GICS uses a four-tier system containing 11 sectors.


Υ.Σ. ΕΘΥΙΤΨ (Χοντινυεδ)

Sector performance relected the style shift; the best-perform−

ινγ σεχτορσ ιν τηε Σ&Π 500 δυρινγ τηε θυαρτερ ωερε ϖαλυε−ορι−

εντεδ, ινχλυδινγ Φινανχιαλσ (+21.10%), Ενεργψ (+7.28%), ανδ

Ματεριαλσ (+4.70%). Wιτηιν Φινανχιαλσ, βανκσ διδ εσπεχιαλλψ

well, beneiting from both an increase in interest rates and ταλκ οφ δερεγυλατιον. Τηε Οργανιζατιον οφ Πετρολευm Εξπορτινγ

Χουντριεσ (ΟΠΕΧ) αγρεεδ ον οιλ προδυχτιον χυτσ ιν τηε θυαρτερ,

βοοστινγ Ενεργψ στοχκσ. Ιν γενεραλ, ινϖεστορσ πρεφερρεδ χοm−

πανιεσ ωιτη λοωερ λεϖεραγε ανδ ηιγηερ οπερατινγ mαργινσ ανδ

ρετυρν ον εθυιτψ. Τηε γροωτη−οριεντεδ, mοmεντυm αρεασ οφ τηε

mαρκετ δεχλινεδ, ινχλυδινγ Ηεαλτη Χαρε (−4.00%) ανδ Χονσυmερ

Σταπλεσ (−2.02%). Τηε νεω Ρεαλ Εστατε σεχτορ, ρεπρεσεντινγ

2.9% of the S&P 500, inished the quarter down 4.41% as these ινϖεστmεντσ τενδ το mοϖε ιν τηε οπποσιτε διρεχτιον οφ ιντερεστ

ρατεσ.

Υ.Σ. εθυιτψ ϖαλυατιονσ ωερε ελεϖατεδ; τηε Σ&Π 500 Ινδεξ Φορωαρδ

Π/Ε ωασ 16.9ξ ατ τηε ενδ οφ τηε ψεαρ ϖερσυσ τηε 25−ψεαρ αϖεραγε

οφ 15.9ξ. Ιν τηισ ενϖιρονmεντ αχτιϖε mαναγερσ ωερε χηαλλενγεδ;

outlows from this group have totaled over $1 trillion since 2005. Ηοωεϖερ, α φυτυρε ωιτη mορε ϖολατιλιτψ, λοωερ ρετυρνσ, ανδ ηιγηερ

ιντερεστ ρατεσ σηουλδ φαϖορ αχτιϖε mαναγεmεντ.

Large Cap Large Cap Small Cap Small Cap Growth Style Value Style Growth Style Value Style

10th Percentile 1.91 10.41 5.84 16.56

25th Percentile 0.96 8.81 3.73 15.18

Median -0.43 7.09 2.53 13.73

75th Percentile -1.57 6.02 -0.06 12.01

90th Percentile -3.16 4.75 -2.28 10.43

R1000 Growth R1000 Value R2000 Growth R2000 Value

Benchmark 1.01 6.68 3.57 14.07

-5%

0%

5%

10%

15%

20%

Χαλλαν Στψλε Γρουπ Θυαρτερλψ Ρετυρνσ

02 0397 98 99 00 01-30%

-20%

-10%

0%

10%

20%

30%

04 05 06 07 08 09 10 11 12 13 14 15

Russell 1000 Growth Russell 1000Russell 1000 Value

16

Ρολλινγ Ονε−Ψεαρ Ρελατιϖε Ρετυρνσ (ϖσ. Ρυσσελλ 1000)

Υ.Σ. Εθυιτψ Ινδεξ Χηαραχτεριστιχσ ασ οφ Dεχεmβερ 31, 2016

Σ&Π 500 Ρυσ 3000 Ρυσ 1000 Ρυσ Μιδχαπ Ρυσ 2500 Ρυσ 2000

Νυmβερ οφ Ισσυεσ 505 2,972 994 793 2,473 1,978

Wtd Avg Mkt Cap ($bn) 139.0 115.8 125.6 13.0 4.2 2.1

Πριχε/Βοοκ Ρατιο 2.8 2.7 2.7 2.4 2.2 2.1

Φορωαρδ Π/Ε Ρατιο 17.1 17.6 17.4 18.9 20.0 21.1

Dιϖιδενδ Ψιελδ 2.1% 2.0% 2.0% 1.7% 1.5% 1.4%

5−Ψρ Εαρνινγσ (φορεχαστεδ) 12.3% 12.3% 12.2% 10.9% 11.8% 12.8%

Sources: Russell Investment Group, Standard & Poor’s.

Source: Russell Investment Group Sources: Callan, Russell Investment Group

8

Χαλλαν Στψλε Μεδιαν ανδ Ινδεξ Ρετυρνσ∗ φορ Περιοδσ ενδεδ Dεχεmβερ 31, 2016

Λαργε Χαπ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Λαργε Χαπ Χορε Στψλε 3.83 10.40 10.40 8.30 14.44 7.22 7.26

Ρυσσελλ 3000 4.21 12.74 12.74 8.43 14.67 7.07 7.11

Ρυσσελλ 1000 3.83 12.05 12.05 8.59 14.69 7.08 7.00

Σ&Π 500 3.82 11.96 11.96 8.87 14.66 6.95 6.69

Λαργε Χαπ Γροωτη Στψλε −0.43 3.42 3.42 7.31 13.98 8.18 6.55

Ρυσσελλ 1000 Γροωτη 1.01 7.08 7.08 8.55 14.50 8.33 6.42

Λαργε Χαπ ςαλυε Στψλε 7.09 15.25 15.25 8.28 14.69 6.51 8.11

Ρυσσελλ 1000 ςαλυε 6.68 17.34 17.34 8.59 14.8 5.72 7.41

Μιδ Χαπ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Μιδ Χαπ Χορε Στψλε 5.47 14.48 14.48 8.53 15.49 8.83 10.13

Ρυσσελλ Μιδχαπ 3.21 13.80 13.80 7.92 14.72 7.86 9.51

Μιδ Χαπ Γροωτη Στψλε 0.30 4.23 4.23 4.36 12.33 8.09 8.30

Ρυσσελλ Μιδχαπ Γροωτη 0.46 7.33 7.33 6.23 13.51 7.83 7.96

Μιδ Χαπ ςαλυε Στψλε 6.55 17.10 17.10 8.26 15.03 8.41 10.45

Ρυσσελλ Μιδχαπ ςαλυε 5.52 20.00 20.00 9.45 15.70 7.59 10.28

Σmαλλ Χαπ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Σmαλλ Χαπ Χορε Στψλε 9.76 20.58 20.58 8.53 16.32 8.47 10.60

Ρυσσελλ 2000 8.83 21.31 21.31 6.74 14.46 7.07 8.49

Σmαλλ Χαπ Γροωτη Στψλε 2.53 8.63 8.63 3.44 13.40 8.62 8.54

Ρυσσελλ 2000 Γροωτη 3.57 11.32 11.32 5.05 13.74 7.76 7.48

Σmαλλ Χαπ ςαλυε Στψλε 13.73 27.75 27.75 9.13 16.43 8.61 11.17

Ρυσσελλ 2000 ςαλυε 14.07 31.74 31.74 8.31 15.07 6.26 9.22

Σmιδ Χαπ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Σmιδ Χαπ Χορε Στψλε 5.56 16.00 16.00 6.84 15.17 9.47 �

Ρυσσελλ 2500 6.12 17.59 17.59 6.93 14.54 7.69 9.17

Σmιδ Χαπ Γροωτη Στψλε 1.81 7.70 7.70 3.95 13.11 8.95 8.91

Ρυσσελλ 2500 Γροωτη 2.60 9.73 9.73 5.45 13.88 8.24 8.03

Σmιδ Χαπ ςαλυε Στψλε 10.12 22.16 22.16 7.93 14.78 8.59 10.96

Ρυσσελλ 2500 ςαλυε 9.34 25.20 25.20 8.22 15.04 6.94 9.72

Ρυσσελλ 3000 Σεχτορσ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Χονσυmερ Dισχρετιοναρψ 2.22 6.85 6.85 6.90 16.75 10.79 �

Χονσυmερ Σταπλεσ −1.57 5.79 5.79 10.14 13.53 10.79 �

Ενεργψ 7.31 26.29 26.29 −4.45 2.64 3.40 �

Φινανχιαλ Σερϖιχεσ 13.04 17.96 17.96 10.65 18.18 1.41 �

Ηεαλτη Χαρε −4.22 −3.33 −3.33 9.10 17.25 10.15 �

Ματεριαλσ & Προχεσσινγ 5.95 23.09 23.09 5.65 11.94 6.42 �

Προδυχερ Dυραβλεσ 8.23 20.13 20.13 8.07 15.81 7.44 �

Τεχηνολογψ 1.55 14.82 14.82 12.56 15.52 9.81 �

Υτιλιτιεσ 2.87 20.49 20.49 11.26 11.34 6.41 �


Sources: Callan, Russell Investment Group, Standard & Poor’s.

Υ.Σ. ΕΘΥΙΤΨ (Χοντινυεδ)


Α Dεπρεσσινγ Dολλαρ

ΝΟΝ−Υ.Σ. ΕΘΥΙΤΨ | Ιρινα Συσηχη

During the inal quarter of 2016, foreign developed and emerg−

ing markets loundered in U.S. dollar terms despite hearty local ρετυρνσ. Dοναλδ Τρυmπ�σ ελεχτιον δροϖε Υ.Σ. στοχκσ το ρεχορδ

ηιγησ, ασ ινϖεστορσ ρεαχτεδ ποσιτιϖελψ το ηισ βυσινεσσ−φριενδλψ

στανχεσ ον ταξεσ, τραδε, ανδ ρεγυλατιονσ. Τηε Υ.Σ. δολλαρ ηιτ α

mυλτι−ψεαρ ηιγη ϖερσυσ τηε ευρο ανδ τηε ψεν ανδ αππρεχιατεδ

ρουγηλψ 7% χοmπαρεδ το α βασκετ οφ χυρρενχιεσ.

Τηατ βροαδ−βασεδ δολλαρ στρενγτη δετραχτεδ φροm οϖερσεασ

ρετυρνσ φορ Υ.Σ. ινϖεστορσ. Τηε ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ Ινδεξ ωασ

δοων 1.25% φορ τηε θυαρτερ (βυτ υπ 4.93% ιν λοχαλ χυρρενχψ). Ασ

ιν τηε πρεϖιουσ θυαρτερ, τηε δεφενσιϖε−οριεντεδ σεχτορσ δραγγεδ

δοων ρετυρνσ (Χονσυmερ Σταπλεσ: −10.09%, Ηεαλτη Χαρε:

−8.08%, ΡΕΙΤσ: −7.90%, Υτιλιτιεσ: −7.19%). Τηε ιντερεστ ρατε−

σενσιτιϖε σεχτορσ ηελπεδ λιmιτ τηε δαmαγε (Ενεργψ: +8.32%,

Φινανχιαλσ: +6.84%).

Ιν δολλαρ−δενοmινατεδ ρεσυλτσ, εmεργινγ mαρκετσ (ΜΣΧΙ

Εmεργινγ Μαρκετσ Ινδεξ: −4.16%) τραιλεδ τηειρ δεϖελοπεδ

πεερσ (ΜΣΧΙ Wορλδ εξ ΥΣΑ Ινδεξ: −0.36%, ΜΣΧΙ ΕΑΦΕ Ινδεξ:

−0.71%). Τηε ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ ςαλυε Ινδεξ (+3.29%) φαρεδ

mυχη βεττερ τηαν τηε ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ Γροωτη Ινδεξ

(−5.72%). Σmαλλ χαπ στοχκσ ϕοινεδ γροωτη ανδ εmεργινγ mαρκετ

στοχκσ ατ τηε βοττοm οφ τηε βαρρελ (ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ Σmαλλ

Χαπ Ινδεξ: −3.52%). Dεσπιτε mυλτιπλε ηεαδωινδσ, τηε ΜΣΧΙ

ΑΧWΙ εξ ΥΣΑ Ινδεξ ενδεδ τηε ψεαρ υπ 4.50%.

Τηε Ευροπεαν Χεντραλ Βανκ αννουνχεδ τηατ ιτ ωουλδ εξτενδ

ιτσ βονδ πυρχηασε προγραm, αλτηουγη ιτ πλανσ το λοωερ ινϖεστ−

mεντσ φροm �80 βιλλιον το �60 βιλλιον περ mοντη. Τηε υνεmπλοψ−

mεντ ρατε ιν τηε ευρο ζονε δεχλινεδ το 9.8%, τηε λοωεστ σινχε

ϑυλψ 2009. Χονσυmερ πριχεσ τιχκεδ υπ 0.6% ψεαρ−οϖερ−ψεαρ ιν

Νοϖεmβερ, ανδ ΓDΠ ωασ ον τραχκ το ινχρεασε ατ α 0.4% το 0.5%

παχε φροm 0.3% ιν τηε τηιρδ θυαρτερ, βασεδ ον εαρλψ ινδιχατιονσ

ahead of the release of the oficial igures in early 2017. Against τηισ βαχκδροπ, τηε ΜΣΧΙ Ευροπε Ινδεξ ροσε 5.44% ιν τηε φουρτη

θυαρτερ ανδ 7.23% δυρινγ τηε ψεαρ φορ λοχαλ ινϖεστορσ; ηοωεϖερ,

in U.S. dollar terms, the Index was essentially lat for the quarter

Global Eq Non-U.S. Eq Emg Mkt Non-U.S. Style Style Style SC Style

10th Percentile 4.42 1.23 -1.87 -0.05

25th Percentile 2.68 0.00 -2.84 -1.75

Median 0.67 -1.80 -3.92 -3.71

75th Percentile -1.80 -3.71 -6.25 -5.66

90th Percentile -3.16 -5.39 -7.73 -7.39

MSCI MSCI MSCI MSCI ACWI ACWI ACWI ex USA Emg Mkts ex USA SC

Benchmark 1.19 -1.25 -4.16 -3.52

Sources: Callan, MSCI

-10%

-5%

0%

5%


ανδ ψεαρ (−0.40% φορ βοτη περιοδσ). Ιταλψ (+10.75%) λεδ τηε

παχκ δυρινγ τηε θυαρτερ, ωηιλε Βελγιυm (−11.80%) βρουγητ υπ

τηε ρεαρ. Αχροσσ τηε ευρο ζονε, εχονοmιχαλλψ σενσιτιϖε Φινανχιαλ

(+11.45%) ανδ Ενεργψ (+11.16%) στοχκσ ποστεδ ηεαλτηψ ρετυρνσ,

ωηιλε δεφενσιϖελψ οριεντεδ ΡΕΙΤ (−9.96%) ανδ Υτιλιτψ (−9.40%)

στοχκσ φαλτερεδ.

-40%

-20%

0%

20%

40%

60%

02 0397 98 99 00 01 04 05 06 07 08 09 10 11 12 13 14 15

Japanese yen U.K. sterling euro*

16

Swiss franc

Μαϕορ Χυρρενχιεσ� Χυmυλατιϖε Ρετυρνσ (ϖσ. Υ.Σ. Dολλαρ)

Sources: Callan, MSCI

* German mark returns before 1Q99

Source: MSCI

10

ΝΟΝ−Υ.Σ. ΕΘΥΙΤΨ (Χοντινυεδ)

In Southeast Asia and the Paciic, Japan’s stimulus measures βοοστεδ ρετυρνσ φορ λοχαλ ινϖεστορσ (+14.99%). Βυτ τηε δολλαρ ηιτ α

14−ψεαρ ηιγη ϖερσυσ τηε ψεν, ηαmmερινγ ρετυρνσ φορ Υ.Σ. ινϖεσ−

τορσ (−0.16%). Νεω Ζεαλανδ ηαδ α ρουγη θυαρτερ (−10.88%),

αλτηουγη ιτ χλοσεδ ουτ τηε ψεαρ υπ 18.37%. Αυστραλια ωασ τηε

ονλψ χουντρψ ιν τηε ρεγιον το ενδ τηε θυαρτερ ιν τηε βλαχκ, υπ

0.69% (ανδ +11.45% φορ τηε ψεαρ), βυοψεδ βψ ρεβουνδινγ χοm−

mοδιτψ πριχεσ ανδ ηιγηερ ιντερεστ ρατεσ. Τηε MSCI Paciic Index

σλυmπεδ 1.03% φορ τηε θυαρτερ, βυτ ροσε φορ τηε ψεαρ (+4.18%).

Dεσπιτε τηε ΜΣΧΙ Εmεργινγ Μαρκετσ Ινδεξ�σ δεχλινε δυρινγ τηε

θυαρτερ, ιτ ϕυmπεδ α ροβυστ 11.19% δυρινγ 2016, βυττρεσσεδ βψ

στρενγτηενινγ χοmmοδιτψ πριχεσ ασ ωελλ ασ ρεφορm εφφορτσ ανδ

αχχοmmοδατιϖε mονεταρψ πολιχιεσ ιν σεϖεραλ χουντριεσ. Ρυσσια,

υπ 18.56% ιν τηε θυαρτερ ανδ 54.82% φορ τηε ψεαρ, ανδ Βραζιλ, υπ

2.05% in the quarter and 66.24% for the year, beneited richly φροm ρισινγ πριχεσ φορ οιλ ανδ ινδυστριαλ χοmmοδιτιεσ. Χηινα φελλ

EM

Quarter Year

ACWI ex USA

Health CareConsumerStaples

FinancialsEnergy

Turkey

Egypt

Israel

Belgium

Greece

Russia

Austria

Italy

Source: MSCI

8.04% 8.32%

-0.74%

6.84%

-10.48%

18.56%

54.82%

15.34%

-12.13%

-7.57%

-11.80%

-11.32

-24.87%

-11.53%

-13.72%

-8.46%

-23.34%

-10.09%-9.56%

11.26%

6.51%

-8.08%

10.75%

-10.45%

Wo

rld

ex-U

SA

EM

Wo

rld

ex-U

SA

EM

Best

Qu

art

erl

y P

erf

orm

ers

Wo

rst

Qu

art

erl

y P

erf

orm

ers

Best Performers Worst Performers

Θυαρτερλψ ανδ Αννυαλ Χουντρψ Περφορmανχε Σναπσηοτ

Θυαρτερλψ Ρετυρνσ: Στρονγ ανδ Στρυγγλινγ Σεχτορσ

Θυαρτερλψ Ρετυρνσ φορ Νον−Υ.Σ. Dεϖελοπεδ Χουντριεσ

Εθυιτψ Ινδεξ

Χουντρψ

(ΥΣ∃) (Λοχαλ

Χυρρενχψ)Λοχαλ

Χυρρενχψ Wειγητ∗

Αυστραλια 0.69% 6.41% −5.38% 5.20%

Αυστρια 6.51% 13.48% −6.14% 0.14%

Βελγιυm −11.80% −6.03% −6.14% 0.83%

Χαναδα 3.26% 5.36% −2.00% 7.05%

Dενmαρκ −8.74% −2.90% −6.01% 1.16%

Φινλανδ −4.40% 1.86% −6.14% 0.68%

Φρανχε 2.93% 9.67% −6.14% 7.16%

Γερmανψ 1.45% 8.10% −6.14% 6.53%

Ηονγ Κονγ −8.97% −9.00% 0.04% 2.28%

Ιρελανδ 0.14% 6.69% −6.14% 0.33%

Ισραελ −11.32% −9.61% −2.51% 0.48%

Ιταλψ 10.75% 18.01% −6.14% 1.46%

ϑαπαν −0.16% 14.99% −13.18% 16.95%

Νετηερλανδσ −2.10% 3.72% −6.14% 2.33%

Νεω Ζεαλανδ −10.88% −7.06% −4.11% 0.13%

Νορωαψ 2.40% 10.29% −7.15% 0.47%

Πορτυγαλ −2.92% 3.44% −6.14% 0.11%

Σινγαπορε −3.64% 2.02% −5.62% 0.87%

Σπαιν 2.24% 8.94% −6.14% 2.21%

Σωεδεν −0.84% 5.15% −5.69% 2.00%

Σωιτζερλανδ −3.86% 0.80% −4.62% 6.08%

Υ.Κ. −0.90% 4.19% −4.88% 12.89%

*Weight in the MSCI ACWI ex USA Index

Sources: MSCI, Russell Investment Group, Standard & Poor’s.

during the quarter (-7.07%) but ended the year essentially lat (+0.90%). Μοστ εmεργινγ Ασιαν mαρκετσ γαινεδ γρουνδ δυρινγ

τηε ψεαρ (ΜΣΧΙ ΕΜ Ασια: +6.14%), δεσπιτε α ρουγη φουρτη θυαρ−

τερ (−6.06%), δριϖεν βψ εχονοmιχ ρεφορm ανδ τεχηνολογψ στοχκσ.

Μεξιχο δροππεδ 7.88% φορ τηε θυαρτερ ανδ 9.16% φορ τηε ψεαρ,

ηυρτ βψ πεσο ωεακνεσσ ανδ Τρυmπ�σ ελεχτιον.

Source: MSCI

Source: MSCI



Γλοβαλ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Γλοβαλ Εθυιτψ Στψλε 0.67 6.41 6.41 3.53 10.74 4.86 7.11

ΜΣΧΙ Wορλδ 1.86 7.51 7.51 3.80 10.41 3.83 5.83

ΜΣΧΙ ΑΧWΙ 1.19 7.86 7.86 3.13 9.36 3.56 5.92

Νον−Υ.Σ. Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Νον−Υ.Σ. Εθυιτψ Στψλε −1.80 1.47 1.47 −0.55 7.39 2.01 7.00

ΜΣΧΙ Wορλδ εξ ΥΣΑ −0.36 2.75 2.75 −1.59 6.07 0.86 5.45

ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ −1.25 4.50 4.50 −1.78 5.00 0.96 5.87

Ρεγιοναλ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

ΜΣΧΙ Χηινα −7.07 0.90 0.90 0.14 5.02 3.76 11.62

ΜΣΧΙ Ευροπε εξ ΥΚ −0.20 −0.56 −0.56 −2.62 7.41 0.36 5.22

ΜΣΧΙ ϑαπαν −0.16 2.38 2.38 2.49 8.17 0.54 4.69

ΜΣΧΙ ϑαπαν (λοχαλ) 14.99 −0.74 −0.74 6.11 17.56 0.32 3.88

MSCI Paciic −1.03 4.18 4.18 1.43 7.15 1.62 6.05

MSCI Paciic (local) 10.16 2.26 2.26 5.34 14.46 1.24 4.70

MSCI Paciic ex Japan −2.72 7.85 7.85 −0.59 5.24 3.94 9.45

MSCI Paciic ex Japan (local) 1.23 8.34 8.34 4.28 10.08 4.25 7.43

ΜΣΧΙ Υνιτεδ Κινγδοm −0.90 −0.10 −0.10 −4.40 3.97 0.32 4.51

ΜΣΧΙ Υνιτεδ Κινγδοm (λοχαλ) 4.19 19.16 19.16 5.41 8.85 5.05 5.66

Εmεργινγ/Φροντιερ Μαρκετσ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Εmεργινγ Μαρκετ Στψλε −3.92 11.66 11.66 −1.25 3.09 3.06 10.94

ΜΣΧΙ Εmεργινγ Μαρκετσ −4.16 11.19 11.19 −2.55 1.28 1.84 9.50

ΜΣΧΙ Εmεργινγ Μαρκετσ (λοχαλ) −1.44 9.69 9.69 2.83 5.64 4.35 10.02

ΜΣΧΙ Φροντιερ Μαρκετσ 0.49 2.66 2.66 −2.10 5.16 −0.62 �

Γλοβαλ/Νον−Υ.Σ. Σmαλλ Χαπ Εθυιτψ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Νον−Υ.Σ. Σmαλλ Χαπ Στψλε −3.71 −0.17 −0.17 2.35 11.72 4.69 11.27

ΜΣΧΙ Wορλδ Σmαλλ Χαπ 2.74 12.71 12.71 4.62 12.21 5.59 9.40

ΜΣΧΙ ΑΧWΙ Σmαλλ Χαπ 1.76 11.59 11.59 3.97 11.29 5.66 9.66

ΜΣΧΙ Wορλδ εξ ΥΣΑ Σmαλλ Χαπ −2.74 4.32 4.32 1.36 8.96 2.69 9.26

ΜΣΧΙ ΑΧWΙ εξ ΥΣΑ Σmαλλ Χαπ −3.52 3.91 3.91 0.76 7.74 2.89 9.64


Sources: Callan, MSCI.

ΝΟΝ−Υ.Σ. ΕΘΥΙΤΨ (Χοντινυεδ)

MSCI Europe

MSCI Emerging Markets

MSCI Japan-0.16%

-4.16%

-0.40%

-1.25%

-2.72%

-7.07%

MSCI World ex USA

MSCI ACWI ex USA

MSCI Pacific ex Japan

MSCI China

-0.36%

Ρολλινγ Ονε−ψεαρ Ρελατιϖε Ρετυρνσ (ϖσ. ΜΣΧΙ Wορλδ εξ ΥΣΑ)

02 0397 98 99 00 01

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

04 05 06 07 08 09 10 11 12 13 14 15

MSCI Pacific MSCI World ex USAMSCI Europe

16

Ρεγιοναλ Θυαρτερλψ Περφορmανχε (Υ.Σ. Dολλαρ)

Source: MSCI

Source: MSCI

12

Τρεαχηερουσ Τρεασυριεσ

Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ | Ρυφαση Λαmα

Τηε Υ.Σ. βονδ mαρκετ εξπεριενχεδ α τυmυλτυουσ φουρτη θυαρτερ,

τριγγερεδ βψ τηε υνεξπεχτεδ ελεχτιον ρεσυλτσ ανδ στρονγ εχο−

νοmιχ δατα, αmονγ οτηερ φαχτορσ. Τηε Βλοοmβεργ Βαρχλαψσ Υ.Σ.

Αγγρεγατε Βονδ Ινδεξ δροππεδ 2.98%, ωηιλε τηε Βλοοmβεργ

Βαρχλαψσ Ηιγη Ψιελδ Ινδεξ ροσε 1.75%. Βυτ τηε ψεαρ ενδεδ

ον αν υπβεατ νοτε, ωιτη τηε Αγγρεγατε υπ 2.65% ανδ τηε Ηιγη

Ψιελδ Ινδεξ δελιϖερινγ εθυιτψ−λικε ρετυρνσ ατ 17.13%.

Τηε ψιελδ χυρϖε ροσε φολλοωινγ τηε πρεσιδεντιαλ ελεχτιον ανδ

αν υπωαρδ ρεϖισιον φορ τηιρδ−θυαρτερ ΓDΠ το 3.5%, τηε ηιγηεστ

θυαρτερλψ ινχρεασε ιν τωο ψεαρσ. Ψιελδσ ροσε αχροσσ τηε mατυριτψ

σπεχτρυm. Τηε βενχηmαρκ 10−ψεαρ Τρεασυρψ νοτε σηοωεδ τηε

βιγγεστ χηανγε, ενδινγ τηε θυαρτερ ατ 2.45% (αν ινχρεασε οφ 85

bps). Yields on the 5-year and 30-year inished at 1.93% and 3.07%, ρεσπεχτιϖελψ.

Μαρκετσ εντερεδ 2016 εξπεχτινγ φουρ ρατε ηικεσ, βυτ τηε Φεδ

ινχρεασεδ τηε Φεδεραλ Φυνδσ ρατε ονλψ ονχε, βψ 25 βπσ το α

ρανγε οφ 0.50% το 0.75% ιν Dεχεmβερ. Ασ α ρεσυλτ οφ ρισινγ

yields, returns across the broad ixed income sector were nega−

τιϖε φορ τηε θυαρτερ. Ταξ−εξεmπτ mυνιχιπαλ βονδσ ανδ Τρεασυριεσ

δροππεδ 3.62% ανδ 3.84%, ρεσπεχτιϖελψ. Ον α δυρατιον−αδϕυστεδ

βασισ, Τρεασυριεσ υνδερπερφορmεδ χρεδιτ σεχυριτιεσ βψ 156 βπσ.

Λονγ Τρεασυριεσ ωερε ηιτ παρτιχυλαρλψ ηαρδ, φαλλινγ 11.67%.

Σπρεαδσ τιγητενεδ δυρινγ τηε θυαρτερ. Ινϖεστmεντ−γραδε χορπο−

ρατε σπρεαδσ οϖερ χοmπαραβλε Τρεασυριεσ τιγητενεδ 42 βπσ ανδ

ended the year at 123 bps—a stark contrast to the irst half of the ψεαρ, ιν ωηιχη σπρεαδσ ηαδ ωιδενεδ υπ το 214 βπσ ιν Φεβρυαρψ.

Core Bond Core Plus Interm Ext Maturity High Yld Style Style Style G/C Style Style

10th Percentile -2.41 -1.74 -1.60 -7.20 2.58

25th Percentile -2.55 -2.13 -1.72 -7.51 2.21

Median -2.73 -2.33 -1.91 -7.60 1.76

75th Percentile -2.86 -2.58 -2.03 -7.75 1.43

90th Percentile -2.98 -2.75 -2.11 -7.87 0.93

Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg Barclays Barclays Barclays Barclays Barclays Agg Agg Interm G/C Long G/C High Yld

Benchmark -2.98 -2.98 -2.07 -7.84 1.75

-9%

-6%

-3%

0%

3%


Υ.Σ. Τρεασυρψ Ψιελδ Χυρϖεσ

-1%

0%

1%

2%

3%

4%

5%

6%

U.S. 10-Year Treasury Yield 10-Year TIPS Yield Breakeven Inflation Rate

07 08 09 10 11 12 13 14 15 16

Ηιστοριχαλ 10−Ψεαρ Ψιελδσ

0%

1%

2%

3%

4%

Maturity (Years)

December 31, 2016 September 30, 2016 December 31, 2015

302520151050

Source: Bloomberg

Source: Bloomberg

Sources: Bloomberg Barclays, Callan


Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ (Χοντινυεδ)

Χορπορατεσ δεχλινεδ 2.8% φορ τηε θυαρτερ, βυτ γενερατεδ α στρονγ

ρετυρν (+6.11%) φορ τηε ψεαρ. Ον α δυρατιον−αδϕυστεδ βασισ, λονγ

χρεδιτ ουτπερφορmεδ ιντερmεδιατε χρεδιτ βψ 330 βπσ. Dεσπιτε α

σλοω σταρτ, ηιγη ψιελδ χορπορατεσ mαδε α ποωερφυλ χοmεβαχκ το

ενδ τηε ψεαρ ον α στρονγ νοτε; τηεψ δελιϖερεδ 407 βπσ οφ εξχεσσ

ρετυρνσ φορ τηε θυαρτερ. Μορτγαγε−βαχκεδ σεχυριτιεσ (ΜΒΣ),

πλαγυεδ βψ ρατε ϖολατιλιτψ ανδ ελεϖατεδ πρεπαψmεντ χονχερνσ,

φελλ 1.97% φορ τηε θυαρτερ (βυτ ωερε υπ 1.67% φορ τηε ψεαρ)

ανδ υνδερπερφορmεδ δυρατιον−mατχηεδ Τρεασυριεσ βψ 39 βπσ.

Υ.Σ. Φιξεδ Ινχοmε Ινδεξ Χηαραχτεριστιχσ ασ οφ Dεχ. 31, 2016

Βλοοmβεργ Βαρχλαψσ Ινδιχεσ

Ψιελδ το

Wορστ

Μοδ Αδϕ

Dυρατιον

Αϖγ

Ματυριτψ

Βλοοmβεργ Βαρχλαψσ Αγγρεγατε 2.61 5.89 8.19

Βλοοmβεργ Βαρχλαψσ Υνιϖερσαλ 2.99 5.69 7.97

Βλοοmβεργ Βαρχλαψσ Γοϖ/Χρεδιτ 2.51 6.45 8.74

1−3 Ψεαρ 1.45 1.92 1.98

Ιντερmεδιατε 2.11 4.05 4.39

Λονγ−Τερm 3.95 14.97 24.18

Βλοοmβεργ Βαρχλαψσ Λονγ Χρεδιτ 4.55 13.57 23.77

Βλοοmβεργ Βαρχλαψσ Χορπ Ηιγη Ψιελδ 6.12 4.11 6.30

Βλοοmβεργ Βαρχλαψσ ΤΙΠΣ 2.20 4.87 8.25

Βλοοmβεργ Βαρχλαψσ Μυνι Βονδ 1−5 Ψεαρ 1.76 2.69 3.17

Βλοοmβεργ Βαρχλαψσ Μυνι 1−10 Ψεαρ 2.11 4.04 5.79

Βλοοmβεργ Βαρχλαψσ Μυνιχιπαλ 2.65 6.24 12.82

Source: Bloomberg Barclays

Excess Return versus Like-Duration Treasuries

0.00%

0.39%

-0.04%

0.46%

0.03%

-0.39%

1.56%

1.75%

Absolute Return

-3.84%

-2.98%

-1.96%

-3.03%

-0.70%

-1.97%

-2.97%

5.76%

-2.41%

Bloomberg Barclays Treasury

Bloomberg Barclays Aggregate

Bloomberg Barclays Agencies

Bloomberg Barclays MBS

Bloomberg Barclays CMBS

Bloomberg Barclays ABS

Bloomberg Barclays Credit

Bloomberg Barclays Corp. High Yield

Bloomberg Barclays US TIPS

-5%

0%

5%

10%

15%

20%

U.S. Credit Bellwether 10-Year Swap

High YieldMBS

ABS

CMBS ERISA

07 08 09 10 11 12 13 14 15 16

Φιξεδ Ινχοmε Ινδεξ Θυαρτερλψ Ρετυρνσ

Εφφεχτιϖε Ψιελδ Οϖερ Τρεασυριεσ

Ασσετ−βαχκεδ σεχυριτιεσ (ΑΒΣ) ωερε οφφ 0.70% φορ τηε θυαρτερ

βυτ υπ 2.03% φορ τηε ψεαρ. Χοmmερχιαλ mορτγαγε−βαχκεδ σεχυρι−

τιεσ (ΧΜΒΣ) εξπεριενχεδ α σιmιλαρ διϖεργενχε, φαλλινγ 3.03% ιν

τηε θυαρτερ βυτ ρισινγ 3.32% οϖερ τηε ψεαρ.

Ιν 2016, Υ.Σ. χορπορατιονσ σετ α mιλεστονε ωιτη νεω ηιγη ψιελδ

and investment-grade issuances that totaled $1.5 trillion. The mυνιχιπαλ βονδ mαρκετ αλσο σετ α ρεχορδ ωιτη νεω οφφερινγσ

totaling $445 billion.



14


Βροαδ Φιξεδ Ινχοmε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Χορε Βονδ Στψλε −2.73 3.13 3.13 3.39 2.86 4.90 5.05

Χορε Βονδ Πλυσ Στψλε −2.33 4.67 4.67 3.54 3.72 5.35 5.67

Βλοοmβεργ Βαρχλαψσ Αγγρεγατε −2.98 2.65 2.65 3.03 2.23 4.34 4.58

Βλοοmβεργ Βαρχλαψσ Υνιϖερσαλ −2.61 3.91 3.91 3.27 2.78 4.57 4.92

Λονγ−Τερm Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Εξτενδεδ Ματυριτψ Χρεδιτ Στψλε −5.33 10.77 10.77 7.47 6.09 7.27 �

Βλοοmβεργ Βαρχλαψσ Λονγ Χρεδιτ −5.40 10.22 10.22 6.98 5.20 6.87 7.15

Εξτενδεδ Ματυριτψ Γοϖ/Χρεδιτ Στψλε −7.60 7.28 7.28 7.33 4.64 7.45 7.46

Βλοοmβεργ Βαρχλαψσ Λονγ Γοϖ/Χρεδιτ −7.84 6.67 6.67 7.16 4.07 6.85 7.03

Ιντερmεδιατε−Τερm Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Ιντερmεδιατε Στψλε −1.91 2.33 2.33 2.31 2.27 4.27 4.50

Βλοοmβεργ Βαρχλαψσ Ιντερm Γοϖ/Χρεδιτ −2.07 2.08 2.08 2.09 1.85 3.84 4.07

Σηορτ−Τερm Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Dεφενσιϖε Στψλε −0.33 1.54 1.54 1.19 1.29 2.74 2.98

Βλοοmβεργ Βαρχλαψσ Γοϖ/Χρεδιτ 1−3 Ψρ −0.39 1.28 1.28 0.90 0.92 2.44 2.72

Βανκ Λοανσ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Βανκ Λοαν Στψλε 2.13 9.38 9.38 3.90 5.43 4.89 5.17

Χρεδιτ Συισσε Λεϖεραγεδ Λοανσ 2.25 9.88 9.88 3.76 5.21 4.26 4.87

Ηιγη Ψιελδ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Ηιγη Ψιελδ Στψλε 1.76 14.74 14.74 4.61 7.36 7.42 8.26

Βλοοmβεργ Βαρχλαψσ Χορπ Ηιγη Ψιελδ 1.75 17.13 17.13 4.66 7.36 7.45 8.35

Υνχονστραινεδ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Υνχονστραινεδ Φιξεδ Στψλε 0.79 5.07 5.07 2.34 3.89 4.59 6.33

90 Dαψ Τ−Βιλλ + 3% 0.82 3.33 3.33 3.14 3.12 3.80 4.34

Σταβλε ςαλυε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Σταβλε ςαλυε Στψλε 0.48 1.87 1.87 1.78 1.89 2.76 3.44

ιΜονεψΝετ Μυτυαλ Φυνδ Αϖγ 0.05 0.13 0.13 0.05 0.04 0.71 �

ΤΙΠΣ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Inlation-Linked Style −2.34 4.82 4.82 2.27 0.93 4.44 5.39

Βλοοmβεργ Βαρχλαψσ ΤΙΠΣ −2.41 4.68 4.68 2.26 0.89 4.36 5.30

Μυνιχιπαλ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Σηορτ Μυνιχιπαλ Στψλε −0.91 −0.10 −0.10 0.45 0.64 1.65 1.88

Βλοοmβεργ Βαρχλαψσ Μυνιχιπαλ 1−5 Ψρ −1.36 0.00 0.00 1.08 1.25 2.86 2.99

Ιντερmεδιατε Μυνιχιπαλ Στψλε −3.47 −0.29 −0.29 2.84 2.35 3.47 3.77

Βλοοmβεργ Βαρχλαψσ Μυνιχιπαλ 1−10 Ψρ −2.62 −0.10 −0.10 2.32 2.03 3.69 3.87

Λονγ Μυνιχιπαλ Στψλε −3.50 0.50 0.50 4.32 3.60 4.54 4.97

Βλοοmβεργ Βαρχλαψσ Μυνιχιπαλ −3.62 0.25 0.25 4.14 3.28 4.25 4.67

*Returns for less than one year are not annualized.

Sources: Bloomberg Barclays, Callan, Credit Suisse, Merrill Lynch

Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ (Χοντινυεδ)


Βιγ−Λεαγυε Ψιελδσ

ΝΟΝ−Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ | Κψλε Φεκετε

Τηε Υ.Σ. δολλαρ σκψροχκετεδ αγαινστ α τραδε−ωειγητεδ βασκετ

οφ χυρρενχιεσ ον τηε βαχκ οφ τηε Νοϖεmβερ Υ.Σ. ελεχτιον ανδ

ηιγηερ Υ.Σ. ιντερεστ ρατεσ. Ινϖεστmεντ στρατεγιεσ ωιτη φορειγν

χυρρενχψ εξποσυρε φαχεδ στρονγ ηεαδωινδσ ασ τηε Βλοοmβεργ

Βαρχλαψσ Γλοβαλ Αγγρεγατε εξ ΥΣ φελλ 10.26% (−1.86% ον α

ηεδγεδ βασισ).

Χοντινυινγ 2016�σ αντι−εσταβλισηmεντ γεοπολιτιχαλ τηεmε,

Ιταλιανσ ϖοτεδ αγαινστ ρεφορmσ προποσεδ βψ τηε γοϖερν−

mεντ, λεαδινγ το Ιταλιαν Πρεσιδεντ Ματτεο Ρενζι�σ ρεσιγνα−

τιον. Ιν Dεχεmβερ, Ευροπεαν Χεντραλ Βανκ Πρεσιδεντ Μαριο

Dραγηι αννουνχεδ τηε εξτενσιον οφ ιτσ στιmυλυσ προγραm ουτ

το Dεχεmβερ 2017; ηοωεϖερ, τηε βονδ βυψινγ ωιλλ βε διαλεδ

Θυαρτερλψ Ρετυρνσ φορ Νον−Υ.Σ. Γοϖερνmεντ Ινδιχεσ

Χουντρψ

Χουντρψ

Dεβτ (∃)

Χουντρψ

Dεβτ

Λοχαλ

Χυρρενχψ Wειγητ∗

Αυστραλια −9.22% −4.06% −5.38% 2.45%

Αυστρια −8.58% −2.60% −6.14% 1.85%

Βελγιυm −9.47% −3.54% −6.14% 3.03%

Χαναδα −5.79% −3.87% −2.00% 2.55%

Dενmαρκ −8.77% −2.93% −6.01% 0.77%

Φινλανδ −8.12% −2.11% −6.14% 0.72%

Φρανχε −9.35% −3.42% −6.14% 11.80%

Γερmανψ −8.47% −2.48% −6.14% 8.85%

Ιρελανδ −7.81% −1.77% −6.14% 0.93%

Ιταλψ −9.24% −3.30% −6.14% 11.41%

ϑαπαν −14.72% −1.78% −13.18% 33.08%

Μαλαψσια −10.17% −2.55% −7.81% 0.52%

Μεξιχο −11.18% −5.46% −6.06% 0.94%

Νετηερλανδσ −8.70% −2.73% −6.14% 2.82%

Νορωαψ −8.54% −1.50% −7.15% 0.33%

Πολανδ −10.13% −1.98% −8.31% 0.72%

Σινγαπορε −8.91% −3.49% −5.62% 0.45%

Σουτη Αφριχα 0.72% 0.16% 0.56% 0.64%

Σπαιν −8.80% −2.83% −6.14% 6.61%

Σωεδεν −7.73% −2.16% −5.69% 0.56%

Σωιτζερλανδ −6.03% −1.48% −4.62% 0.29%

Υ.Κ. −8.40% −3.70% −4.88% 8.69%

*Weight in the Citi Non-U.S. World Government Bond Index.

Source: Citigroup

βαχκ το �60 βιλλιον περ mοντη, δοων φροm �80 βιλλιον. Τηε

θυαντιτατιϖε εασινγ προγραm ρεαχηεδ αππροξιmατελψ �1.7 τριλ−

λιον ιν 2016, ανδ σηουλδ τοπ �2.2 τριλλιον βψ τηε ενδ οφ 2017.

Ψιελδσ ον 10−ψεαρ Γερmαν γοϖερνmεντ βονδσ ινχρεασεδ το

0.21%, 224 βπσ βελοω τηατ οφ τηε 10−ψεαρ Τρεασυρψ. Τηε Υ.Σ./

Γερmαν 10−ψεαρ δεβτ σπρεαδ ρεαχηεδ τηε ωιδεστ ιτ ηασ βεεν

σινχε 1990. Τηε ευρο δεχλινεδ 6.14% αγαινστ τηε δολλαρ.

Αηεαδ οφ τηε υνχερταιντψ συρρουνδινγ τηε Βρεξιτ προχεσσ, τηε

Βανκ οφ Ενγλανδ (ΒΟΕ) ελεχτεδ το ηολδ τηε βενχηmαρκ ρατε

ατ 0.25% ανδ mαινταιν τηε σαmε ρατε οφ βονδ πυρχηασινγ,

σαψινγ τηε στερλινγ�σ ρεχεντ αππρεχιατιον αγαινστ τηε ευρο

may curtail inlation. The U.K. 10-year yield jumped 49 bps το 1.24% ανδ τηε στερλινγ δεχλινεδ 4.9% αγαινστ τηε δολλαρ.

Χηανγεσ το ϑαπαν�σ mονεταρψ πολιχψ ωερε αλσο πυτ ον ηολδ ασ

τηε υνεmπλοψmεντ ρατε ρεαχηεδ α ηεαλτηψ λεϖελ ανδ α ωεακ−

ενεδ ψεν στοοδ ποισεδ το βοοστ ποτεντιαλ εαρνινγσ γροωτη.

Τηε Βανκ οφ ϑαπαν υπηελδ ιτσ πλεδγε το κεεπ τηε ψιελδ οφ

10−ψεαρ ϑαπανεσε δεβτ νεαρ 0%; ιτσ ψιελδ σεττλεδ ατ 0.05%.

Εmεργινγ mαρκετ δεβτ ωεακενεδ ανδ υνδερπερφορmεδ δεϖελ−

οπεδ mαρκετσ. Τηε λοχαλ χυρρενχψ−δενοmινατεδ ϑΠ Μοργαν

GBI-EM Global Diversiied Index φελλ 6.09%. Τηε ΥΣD−

δενοmινατεδ JPM EM Global Diversiied Index φελλ 4.02%.

Εmεργινγ Σπρεαδσ Οϖερ Dεϖελοπεδ (Βψ Ρεγιον)

0%

2%

4%

6%

8%

12 13 15 16

Emerging Americas Emerging EMEA (Europe, Middle East, Africa) Emerging Asia

14


16

ΝΟΝ−Υ.Σ. ΦΙΞΕD ΙΝΧΟΜΕ (Χοντινυεδ)

Τυρκεψ ανδ Μεξιχο ωερε αmονγ τηε ωορστ περφορmερσ ιν βοτη

ινδιχεσ. Ηοωεϖερ, εmεργινγ mαρκετ σοϖερειγν δεβτ προϖεδ το

βε ονε οφ τηε στρονγεστ ασσετ χλασσεσ ιν 2016, γαινινγ ρουγηλψ

10% in both JP Morgan indices, beneiting from the tailwind of ινχρεασεδ χοmmοδιτψ πριχεσ.

Global Non-U.S. Global Em Debt Em Debt Fixed Style Fixed Style High Yld USD DB Local

10th Percentile -4.21 -4.38 2.48 -1.17 -3.57

25th Percentile -6.15 -7.24 1.76 -2.89 -5.06

Median -6.64 -9.92 1.09 -3.54 -5.83

75th Percentile -7.70 -10.42 -0.04 -3.90 -6.28

90th Percentile -8.25 -11.22 -1.46 -4.32 -7.00

Bloomberg Bloomberg Bloomberg JPM EMBI JPM GBI-EM

Barclays Barclays Barclays Global Global Gl Agg Gl Agg ex US Gl High Yld Diversified Diversified

Benchmark -7.07 -10.26 -0.19 -4.02 -6.09

-12%

-8%

-4%

0%

4%



Γλοβαλ Φιξεδ Ινχοmε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Γλοβαλ Φιξεδ Ινχοmε Στψλε −6.64 2.23 2.23 0.08 0.69 3.77 5.69

Βλοοmβεργ Βαρχλαψσ Γλοβαλ Αγγρεγατε −7.07 2.09 2.09 −0.19 0.21 3.29 4.79

Γλοβαλ Φιξεδ Ινχοmε Στψλε (ηεδγεδ) −2.32 4.37 4.37 4.29 4.17 4.96 5.36

Βλοοmβεργ Βαρχλαψσ Γλοβαλ Αγγρεγατε (ηεδγεδ) −2.34 3.95 3.95 4.15 3.59 4.39 4.55

Ηιγη Ψιελδ Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Γλοβαλ Ηιγη Ψιελδ Στψλε 1.09 14.82 14.82 3.10 6.43 6.76 9.15

Βλοοmβεργ Βαρχλαψσ Γλοβαλ Ηιγη Ψιελδ −0.19 14.27 14.27 3.60 7.37 7.35 9.18

Νον−Υ.Σ. Φιξεδ Ινχοmε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Νον−Υ.Σ. Φιξεδ Ινχοmε Στψλε −9.92 2.28 2.28 −1.70 −0.15 3.48 5.70

Βλοοmβεργ Βαρχλαψσ Γλοβαλ Αγγρεγατε εξ ΥΣ −10.26 1.49 1.49 −2.59 −1.39 2.44 4.96

Εmεργινγ Μαρκετσ Φιξεδ Ινχοmε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Εmεργινγ Dεβτ Στψλε (ΥΣ∃) −3.54 12.05 12.05 5.46 5.94 7.28 10.23

JPM EMBI Global Diversiied −4.02 10.15 10.15 6.19 5.91 6.89 9.02

Εmεργινγ Dεβτ Στψλε (λοχαλ) −5.83 9.97 9.97 −3.77 −0.93 3.64 7.04

JPM GBI-EM Global Diversiied −6.09 9.94 9.94 −4.10 −1.29 3.82 �

Εmεργινγ Dεβτ Βλενδ Στψλε −3.98 10.25 10.25 0.69 2.48 6.50 11.84

ϑΠΜ ΕΜΒΙ Γλ Dιϖ/ϑΠΜ ΓΒΙ−ΕΜ Γλ Dιϖ −5.06 10.24 10.24 1.05 2.36 5.44 �

Εmεργινγ Dεβτ Χορπορατε Στψλε −1.19 11.51 11.51 5.42 6.51 � �

ϑΠΜ ΧΕΜΒΙ −1.29 11.11 11.11 5.33 5.90 6.74 7.83


Sources: Bloomberg Barclays, Callan, JPMorgan

Sources: Bloomberg Barclays, Callan, JPMorgan Chase

-1%

0%

1%

2%

3%

4%

5%

6%

GermanyU.S. Treasury U.K. Canada Japan

07 08 09 10 11 12 13 14 15

Change in 10-Year Yields from 3Q16 to 4Q16

85 bps

33 bps

49 bps

73 bps

14 bps

Germany

U.S. Treasury

U.K.

Canada

Japan

16

10−Ψεαρ Γλοβαλ Γοϖερνmεντ Βονδ Ψιελδσ

Source: Bloomberg


Ρατεσ Τρυmπ Φυνδαmενταλσ

ΡΕΑΛ ΕΣΤΑΤΕ | Κεϖιν Ναγψ

Τηε ΝΧΡΕΙΦ Προπερτψ Ινδεξ αδϖανχεδ 1.73% δυρινγ τηε

φουρτη θυαρτερ (1.14% φροm ινχοmε ανδ 0.59% φροm αππρεχια−

τιον). Τηισ ωασ τηε λοωεστ ρετυρν σινχε 2010, εχλιπσινγ τηε τηιρδ

θυαρτερ�σ mαρκ οφ 1.78%. Αππρεχιατιον φελλ φορ τηε σεϖεντη χον−

σεχυτιϖε θυαρτερ.

Ινδυστριαλ (+2.89%) ωασ τηε βεστ−περφορmινγ σεχτορ φορ τηε

τηιρδ θυαρτερ ιν α ροω ανδ Απαρτmεντσ (+1.67%) ανδ Ρεταιλ

(+1.65%) αλσο ποστεδ στρονγ ρελατιϖε ρετυρνσ; Ηοτελσ (+0.37%)

ωερε τηε ωορστ περφορmερσ. Τηε Wεστ ρεγιον ποστεδ τηε στρον−

γεστ ρεσυλτσ (+2.22%), ανδ τηε Μιδωεστ ωασ τηε ωεακεστ

(+1.29%). Transaction volume totaled $14 billion, the highest ον ρεχορδ, α 45% ϕυmπ οϖερ τηε πρεϖιουσ θυαρτερ, ανδ α 24%

ινχρεασε οϖερ τηε σαmε περιοδ ιν 2015. Αππραισαλ χαπιταλιζατιον

ρατεσ φελλ το 4.43%, α νεω αλλ−τιmε λοω, υνδερχυττινγ τηε τηιρδ

θυαρτερ�σ 4.48%. Τρανσαχτιον χαπιταλιζατιον ρατεσ φελλ σηαρπλψ

φροm 6.2% το 5.7% ιν τηε φουρτη θυαρτερ, τιγητενινγ τηε σπρεαδ

βετωεεν αππραισαλ ανδ τρανσαχτιοναλ ρατεσ το 123 βασισ ποιντσ.

Οχχυπανχψ ρατεσ σταψεδ στεαδψ ατ 93.22%, α 15−ψεαρ ηιγη ηιτ

ιν τηε τηιρδ θυαρτερ. Φορ τηε σεχονδ στραιγητ θυαρτερ Ρεταιλ ανδ

Apartment occupancy rates fell slightly, and Industrial and Ofice ρατεσ ινχρεασεδ.

Τηε NCREIF Open End Diversiied Core Equity Index ροσε

1.88% (0.84% φροm ινχοmε ανδ 1.04% φροm αππρεχιατιον). Τηισ

mαρκεδ α 5 βπσ ινχρεασε οϖερ τηε τηιρδ θυαρτερ ρετυρν οφ 1.83%,

ωηιχη ωασ τηε λοωεστ φορ τηε Ινδεξ σινχε 2010. Ινχοmε ρετυρνσ

fell slightly, but appreciation bounced back from a ive-year low ιν τηε τηιρδ θυαρτερ.

Γλοβαλ ρεαλ εστατε ινϖεστmεντ τρυστσ (ΡΕΙΤσ), τραχκεδ βψ τηε

ΦΤΣΕ ΕΠΡΑ/ΝΑΡΕΙΤ Dεϖελοπεδ ΡΕΙΤ Ινδεξ (ΥΣD), λαγγεδ

βεηινδ τηειρ Υ.Σ. χουντερπαρτσ ανδ δροππεδ 5.39%. Υ.Σ. ΡΕΙΤσ,

ασ mεασυρεδ βψ τηε ΦΤΣΕ ΝΑΡΕΙΤ Εθυιτψ ΡΕΙΤσ Ινδεξ, λοστ

2.89% φορ τηε θυαρτερ.

Ιν τηε Υ.Σ., ΡΕΙΤσ σταρτεδ τηε θυαρτερ ωιτη α σηαρπ δεχλινε δυε

το αν ινχρεασε ιν ιντερεστ ρατεσ. Dοναλδ Τρυmπ�σ συρπρισε ϖιχτορψ

ιν τηε πρεσιδεντιαλ ελεχτιον σεντ ρατεσ εϖεν ηιγηερ ανδ φυρτηερ

πυνισηεδ mανψ ΡΕΙΤ σεχτορσ, εσπεχιαλλψ τηοσε τηατ ρεπρεσεντ

α ηιγηερ ωειγητ ιν τηε Ινδεξ. Ηεαλτη Χαρε (−10.80%) ωασ τηε

ωορστ περφορmερ, ηαmmερεδ βψ τηε ποσσιβιλιτψ τηατ τηε ινχοmινγ

Ρεπυβλιχαν αδmινιστρατιον ωουλδ ρεπεαλ τηε Αφφορδαβλε Χαρε Αχτ.

Ρεταιλ (−10.73%) ανδ Ινφραστρυχτυρε (−6.95%) αλσο συφφερεδ λαργε

λοσσεσ. Τηε βιγγεστ ωιννερ φορ τηε θυαρτερ ωασ τηε Ηοτελ σεχτορ,

ωηιχη σκψροχκετεδ 20.39% ωιτη τηε ελεχτιον οφ Dοναλδ Τρυmπ, α

ηοτελιερ. Σπεχιαλτψ (+6.67%) ανδ Dατα Χεντερσ (+0.82%) ωερε

οτηερ στρονγ−περφορmινγ σεχτορσ φορ τηε θυαρτερ. Πολιτιχσ ανδ

ιντερεστ ρατεσ δροϖε σοmε ΡΕΙΤ ϖαλυατιονσ δοωνωαρδ, δεσπιτε

γενεραλλψ στρονγ φυνδαmενταλσ.

Πολιτιχαλ ισσυεσ αλσο ιmπαχτεδ τηε Ευροπεαν mαρκετ. Φεαρσ οφ α

ηαρδ Βρεξιτ σλοωεδ τρανσαχτιον ϖολυmε ιν τηε Υ.Κ., δεσπιτε στρονγ

εχονοmιχ δατα συγγεστινγ τηατ τηε εχονοmψ ωασ στιλλ ον τραχκ.

Ον τηε χοντινεντ, πριχινγ ανδ τρανσαχτιονσ ωερε ωειγηεδ δοων

βψ φεαρσ οφ αν Ιταλιαν βανκινγ χρισισ ανδ υνχερταιντψ χονχερνινγ

Φρανχε�σ υπχοmινγ ελεχτιονσ.

Ρολλινγ Ονε−Ψεαρ Ρετυρνσ

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

REIT Database Global REIT DatabasePrivate Real Estate Database

02 0397 98 99 00 01 04 05 06 07 08 09 10 11 12 13 14 15 16

*Index subreturns are calculated separately from index return and may not total.

Source: Callan

18

Χοmmερχιαλ mορτγαγε−βαχκεδ σεχυριτιεσ (ΧΜΒΣ) ισσυανχε φορ

the quarter jumped 31% to $26.0 billion from the $19.8 billion in τηε τηιρδ θυαρτερ. Τηισ αλσο ρεπρεσεντεδ α 19.3% ινχρεασε οϖερ

the fourth quarter of 2015 ($21.8 billion).

ΡΕΑΛ ΕΣΤΑΤΕ (Χοντινυεδ)

Χαλλαν Dαταβασε Μεδιαν ανδ Ινδεξ Ρετυρνσ∗ φορ Περιοδσ ενδεδ Dεχεmβερ 31, 2016

Πριϖατε Ρεαλ Εστατε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Ρεαλ Εστατε Dαταβασε (νετ οφ φεεσ) 1.87 8.34 8.34 11.89 11.89 4.56 7.57

ΝΧΡΕΙΦ Προπερτψ 1.73 7.97 7.97 11.02 10.91 6.93 9.00

ΝΦΙ−ΟDΧΕ (ϖαλυε ωτδ. νετ) 1.88 7.79 7.79 11.04 11.16 4.84 7.15

Πυβλιχ Ρεαλ Εστατε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

ΡΕΙΤ Dαταβασε −2.66 6.87 6.87 13.59 12.26 5.65 11.85

ΦΤΣΕ ΝΑΡΕΙΤ Εθυιτψ −2.89 8.52 8.52 13.38 12.01 5.08 10.80

Γλοβαλ Πυβλιχ Ρεαλ Εστατε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Γλοβαλ ΡΕΙΤ Dαταβασε −5.11 3.97 3.97 7.26 10.83 2.82 10.55

ΦΤΣΕ ΕΠΡΑ/ΝΑΡΕΙΤ Dεϖελοπεδ ΡΕΙΤ −5.39 4.99 4.99 6.78 10.34 2.23 9.84

Γλοβαλ εξ Υ.Σ. Πυβλιχ Ρεαλ Εστατε Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Γλοβαλ εξ−Υ.Σ. ΡΕΙΤ Dαταβασε −7.77 0.48 0.48 1.13 8.95 −0.12 10.03

ΕΠΡΑ/ΝΑΡΕΙΤ Dεϖ ΡΕΙΤσ εξ−Υ.Σ. −7.68 1.97 1.97 0.61 8.42 0.12 9.24

*Returns for less than one year are not annualized.

All REIT returns are reported gross in USD.

Sources: Callan, NAREIT, NCREIF, The FTSE Group. NCREIF statistics are the product of direct queries and may luctuate over time.

ΝΧΡΕΙΦ Τρανσαχτιον ανδ Αππραισαλ Χαπιταλιζατιον Ρατεσ ΝΧΡΕΙΦ Χαπιταλιζατιον Ρατεσ βψ Προπερτψ Τψπε

0%

3%

6%

9%

Appraisal Capitalization RatesTransaction Capitalization Rates

07 08 09 10 11 12 13 14 15 160%

3%

6%

9%

IndustrialApartment RetailOffice

07 08 09 10 11 12 13 14 15 16

Source: NCREIF

Note: Transaction capitalization rate is equal weighted.

Source: NCREIF

Note: Capitalization rates are appraisal-based.


Πριϖατε Εθυιτψ Περφορmανχε Dαταβασε (%) (Ποολεδ Ηοριζον ΙΡΡσ τηρουγη ϑυνε 30, 2016∗)

Στρατεγψ 3 Μοντησ Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ 20 Ψεαρσ

Αλλ ςεντυρε 0.26 −0.09 19.18 13.63 10.38 5.66 20.65

Γροωτη Εθυιτψ 1.60 1.83 12.86 10.13 11.25 10.25 13.65

Αλλ Βυψουτσ 2.85 6.29 12.91 10.81 10.40 12.32 12.62

Μεζζανινε 2.25 7.09 8.79 9.67 9.35 8.12 9.19

Dιστρεσσεδ 2.34 1.41 7.34 8.73 9.26 10.50 10.55

Αλλ Πριϖατε Εθυιτψ 2.13 3.95 13.11 10.89 10.33 10.32 13.26

Σ&Π 500 2.46 3.99 11.66 12.10 7.42 5.75 7.87

Ρυσσελλ 3000 2.63 2.14 11.13 11.60 7.40 6.09 7.96

*Most recent data available at time of publication.

Notes: Private equity returns are net of fees. Transaction count and dollar volume igures across all private equity measures are preliminary igures and are subject to update

in subsequent versions of Capital Market Review and other Callan publications.

Sources: Russell Investment Group, Standard & Poor’s, Thomson Reuters/Cambridge

Dοων βυτ Φαρ Φροm Ουτ

ΠΡΙςΑΤΕ ΕΘΥΙΤΨ | Γαρψ Ροβερτσον

Based on preliminary data, private equity funds raised $281 bil−lion in 2016, a moderate $24.2 billion (9%) increase over 2015, ανδ 783 παρτνερσηιπσ ωερε φορmεδ, υπ βψ 101 (15%) οϖερ τηε

πρεϖιουσ ψεαρ, αχχορδινγ το Πριϖατε Εθυιτψ Αναλψστ.

In the fourth quarter, commitments totaled $86.9 billion and 267 φυνδσ ωερε χρεατεδ. Τηε αmουντ ραισεδ σκψροχκετεδ βψ 125%

compared to the third quarter’s $38.6 billion, and the number of νεω φυνδσ ϕυmπεδ βψ 87% φροm τηε πριορ θυαρτερ�σ 143.

Private equity irms purchased 1,728 companies in 2016, down 14% φροm 2,006 ιν 2015, αχχορδινγ το Βυψουτσ νεωσλεττερ. Τηε

year’s announced dollar volume was $163.2 billion, an eight-year high and up 39% from $117.5 billion in 2015. The fourth quarter σαω 322 τρανσαχτιονσ, δοων φροm 385 ιν τηε τηιρδ θυαρτερ, ανδ δισ−

closed dollar volume totaled $28.3 billion, down from $39.0 billion.

Τηε ψεαρ προδυχεδ 8,136 ρουνδσ οφ νεω ινϖεστmεντ ιν ϖεντυρε

χαπιταλ χοmπανιεσ, δοων 22% φροm 2015�σ 10,468, αχχορδινγ το

τηε Νατιοναλ ςεντυρε Χαπιταλ Ασσοχιατιον. Τηε αννουνχεδ ϖολυmε

of $69.1 billion for the year was down 13% from $79.3 billion in 2015. Φουρτη θυαρτερ ςΧ ινϖεστmεντσ τοταλεδ 1,744 ρουνδσ ανδ

$12.7 billion of announced inancing, down from 1,979 rounds and $15.7 billion in the previous quarter.

Φυνδσ Χλοσεδ ϑανυαρψ 1 το Dεχεmβερ 31, 2016

Στρατεγψ Νο. οφ Φυνδσ Αmτ (∃mm) Περχεντ

ςεντυρε Χαπιταλ 401 41,060 15%

Βυψουτσ 278 168,798 60%

Συβορδινατεδ Dεβτ 22 17,739 6%

Dιστρεσσεδ Dεβτ 20 21,972 8%

Σεχονδαρψ ανδ Οτηερ 23 22,525 8%

Φυνδ−οφ−φυνδσ 39 8,808 3%

Τοταλσ 783 280,902 100%

Source: Private Equity Analyst

Βυψουτσ ρεπορτσ τηατ 2016�σ 505 πριϖατε Μ&Α εξιτσ οφ βυψουτ−

βαχκεδ χοmπανιεσ ωασ δοων 11% φροm τηε 567 ιν 2015. Τηε

year’s aggregate disclosed M&A exit values of $85.7 billion was down 35% from 2015’s $131.4 billion. In the fourth quarter, there were 105 M&A exits, and announced values totaled $18.1 bil−lion, down from 142 exits totaling $27.5 billion in the third quarter. There were three buyout-backed IPOs, with a total value of $2.0 billion, and eight for the full year, raising a total of $4.1 billion.

ςεντυρε−βαχκεδ Μ&Α εξιτσ φορ τηε ψεαρ τοταλεδ 687, δοων 22%

from 884 in 2015, with announced values of $43.9 billion, up 3.8% from $42.3 billion in 2015. The quarter had 184 exits with announced values totaling $7.52 billion, compared to 192 and $13.4 billion in the third quarter. The year produced 39 venture-backed IPOs raising $2.9 billion, down from the 77 IPOs in 2015 that raised $8.1 billion.

20

Χαλλαν Dαταβασε Μεδιαν ανδ Ινδεξ Ρετυρνσ∗ φορ Περιοδσ ενδεδ Dεχεmβερ 31, 2016

Θυαρτερ ΨΤD Ψεαρ 3 Ψεαρσ 5 Ψεαρσ 10 Ψεαρσ 15 Ψεαρσ

Ηεδγε Φυνδ−οφ−Φυνδσ Dαταβασε 1.26 1.19 1.19 1.43 4.91 3.31 4.74

ΧΣ Ηεδγε Φυνδ Ινδεξ 1.15 1.25 1.25 1.54 4.34 3.75 5.74

ΧΣ Εθυιτψ Μαρκετ Νευτραλ −2.65 −4.58 −4.58 −1.40 1.11 −2.93 0.47

ΧΣ Χονϖερτιβλε Αρβιτραγε 0.42 6.60 6.60 1.85 3.85 3.69 4.43

ΧΣ Φιξεδ Ινχοmε Αρβιτραγε 1.85 4.29 4.29 3.07 4.76 3.42 4.25

ΧΣ Μυλτι−Στρατεγψ 1.16 4.41 4.41 4.78 7.30 5.19 6.81

ΧΣ Dιστρεσσεδ 3.57 6.38 6.38 1.09 6.02 3.96 6.94

ΧΣ Ρισκ Αρβιτραγε 0.77 5.89 5.89 1.62 2.51 3.33 3.66

ΧΣ Εϖεντ−Dριϖεν Μυλτι−Στρατεγψ 1.77 1.25 1.25 −1.50 3.95 3.67 6.07

ΧΣ Λονγ/Σηορτ Εθυιτψ −0.20 −3.43 −3.43 1.82 6.10 4.03 6.00

ΧΣ Dεδιχατεδ Σηορτ Βιασ 1.82 −16.87 −16.87 −7.04 −13.65 −9.95 −8.11

ΧΣ Γλοβαλ Μαχρο 4.59 3.58 3.58 2.28 3.14 5.82 8.07

ΧΣ Μαναγεδ Φυτυρεσ −5.65 −6.84 −6.84 2.99 0.66 2.67 4.77

ΧΣ Εmεργινγ Μαρκετσ −0.27 4.47 4.47 1.91 4.89 3.68 7.97

*Returns less than one year are not annualized. Sources: Callan, Credit Suisse.

Μακινγ Αλπηα Γρεατ Αγαιν

ΗΕDΓΕ ΦΥΝDΣ | ϑιm ΜχΚεε

In the wake of the U.S. presidential election, the relation trade εξπλοδεδ ασ Υ.Σ. στοχκσ ϕυmπεδ ανδ Τρεασυριεσ ωερε δυmπεδ.

Τηε δολλαρ αλσο στρενγτηενεδ δραmατιχαλλψ. Dυρινγ τηισ ραπιδ

mαρκετ παραδιγm σηιφτ, τηε αϖεραγε ηεδγε φυνδ αππεαρεδ το

γαιν λιττλε οϖερ εmβεδδεδ βετασ, ασ mοστ χονσερϖατιϖελψ ποσι−

τιονεδ τηειρ γροσσ ανδ νετ εξποσυρεσ γοινγ ιντο τηε ελεχτιον.

Ηοωεϖερ, τηε ηεδγε φυνδ χοmmυνιτψ ωιλλ λικελψ σεε α χοmβινα−

tion of more iscal policy and less monetary policy as a better τραδινγ ενϖιρονmεντ.

Ρεπρεσεντινγ τηε αϖεραγε φυνδ�σ περφορmανχε ωιτηουτ ιmπλε−

mεντατιον χοστσ, τηε Χρεδιτ Συισσε Ηεδγε Φυνδ Ινδεξ (ΧΣ

ΗΦΙ) ροσε 1.15% ιν τηε φουρτη θυαρτερ. Ασ α προξψ φορ λιϖε πορτφο−

λιοσ, τηε mεδιαν mαναγερ ιν τηε Χαλλαν Ηεδγε Φυνδ−οφ−Φυνδσ

Dαταβασε αδϖανχεδ 1.26%, νετ οφ αλλ φεεσ.

Wιτηιν ΧΣ ΗΦΙ, τηε βεστ−περφορmινγ στρατεγψ ωασ Γλοβαλ Μαχρο

(+4.59%), αιδεδ βψ α στρονγερ δολλαρ. Dιστρεσσεδ γαινεδ 3.57%.

Τηε σηαρπ ρεϖερσαλσ φολλοωινγ τηε ελεχτιον αχροσσ χυρρεν−

χιεσ, ρατεσ, ανδ εθυιτιεσ υπσετ τηε τρενδ−φολλοωινγ mαντρα οφ

Μαναγεδ Φυτυρεσ (−5.65%). Λονγ/Σηορτ Εθυιτψ (−0.20%) ωασ

also caught lat-footed by the unexpected Trump effect.

Wιτηιν Χαλλαν�σ Ηεδγε Φυνδ−οφ−Φυνδσ Dαταβασε, mαρκετ εξπο−

συρεσ mαργιναλλψ αφφεχτεδ περφορmανχε ιν τηε φουρτη θυαρτερ.

Αιδεδ βψ τιγητενινγ χρεδιτσ ανδ συππορτιϖε φυνδαmενταλσ, τηε

mεδιαν Χαλλαν Αβσολυτε Ρετυρν ΦοΦ (+2.23%) ουτπαχεδ τηε

Χαλλαν Λονγ/Σηορτ Εθυιτψ ΦοΦ (+0.64%). Wιτη διϖερσιφψινγ

εξποσυρεσ το βοτη νον−διρεχτιοναλ ανδ διρεχτιοναλ στψλεσ, τηε

Callan Core Diversiied FoF γαινεδ 1.64%.

Absolute Return Core Diversified Long/Short Eq FOF Style FOF Style FOF Style

10th Percentile 3.08 2.38 3.03

25th Percentile 2.47 2.14 1.38

Median 2.23 1.64 0.64

75th Percentile 1.00 0.76 -0.08

90th Percentile 0.75 0.22 -0.58

T-Bills + 5% 1.31 1.31 1.31

-2%

0%

2%

4%


Sources: Callan, Merrill Lynch


The Callan DC Index is an equally weighted index tracking the cash lows ανδ περφορmανχε οφ νεαρλψ 90 πλανσ, ρεπρεσεντινγ mορε τηαν ονε mιλλιον

DΧ παρτιχιπαντσ ανδ οϖερ ∃135 βιλλιον ιν ασσετσ. Τηε Ινδεξ ισ υπδατεδ

θυαρτερλψ ανδ ισ αϖαιλαβλε ον Χαλλαν�σ ωεβσιτε, ασ ισ τηε θυαρτερλψ DΧ

Οβσερϖερ νεωσλεττερ.

The average deined contribution (DC) plan gained 3.92% ιν τηε τηιρδ θυαρτερ οφ 2016, ασ mεασυρεδ βψ τηε Χαλλαν DΧ

Ινδεξ�. Στιλλ, τηε Ινδεξ τραιλεδ τηε Αγε 45 Ταργετ Dατε Φυνδ�

τηε αϖεραγε οφ ταργετ δατε φυνδσ τηατ ωουλδ βε σελεχτεδ βψ παρ−

τιχιπαντσ αγε 45 ανδ ρετιρινγ ατ αγε 65�ωηιχη γαινεδ 4.53%.

Σινχε ινχεπτιον, τηε DΧ Ινδεξ�σ αννυαλ ρετυρν οφ 5.41% ηασ

τραιλεδ τηε Αγε 45 Ταργετ Dατε Φυνδ βψ 74 βασισ ποιντσ.

Dυρινγ τηε τηιρδ θυαρτερ, DΧ πλαν βαλανχεσ γρεω βψ 3.67%,

δριϖεν εντιρελψ βψ mαρκετ ρετυρνσ. Παρτιχιπαντσ αππεαρεδ το βε

jittery; money lowed out of plans on a net basis, reducing total balance growth by 25 basis points. The quarter’s outlows were τηε ηιγηεστ σινχε τηε τηιρδ θυαρτερ οφ 2006. Ανδ τηιρδ θυαρτερ

τυρνοϖερ (ι.ε., νετ τρανσφερ αχτιϖιτψ λεϖελσ ωιτηιν DΧ πλανσ) ιν τηε

DΧ Ινδεξ χαmε ιν ατ 0.82%, ιτσ ηιγηεστ λεϖελ σινχε τηε τηιρδ

θυαρτερ οφ 2012.

Stable value experienced its ifth quarter in a row of net inlows—and the highest of the ive—during the period. Meanwhile, U.S. large, small, and mid cap equity saw signiicant outlows. Even non-U.S. equity experienced outlows, despite its exceptional περφορmανχε δυρινγ τηε θυαρτερ. Ταργετ δατε φυνδσ ηελδ φαστ;

φορ τηε τηιρδ θυαρτερ, οϖερ 55 χεντσ οφ εϖερψ δολλαρ τηατ mοϖεδ

within DC plans lowed to TDFs. Target date funds now make υπ 27.7% οφ τηε αϖεραγε DΧ πλαν.

Τηε Χαλλαν DΧ Ινδεξ�σ οϖεραλλ εθυιτψ αλλοχατιον ενδεδ τηε θυαρ−

τερ ατ 68%, mοδεστλψ αβοϖε τηε Ινδεξ�σ ηιστοριχαλ αϖεραγε (67%).

Ταργετ δατε φυνδσ αρε λεσσ πρεϖαλεντ τηαν Υ.Σ. λαργε χαπ εθυιτψ;

ηοωεϖερ, ωηεν ταργετ δατε φυνδσ αρε αϖαιλαβλε ιν α DΧ πλαν,

τηεψ ηολδ α mυχη γρεατερ πορτιον οφ ασσετσ (32%) τηαν Υ.Σ.

λαργε χαπ εθυιτψ φυνδσ (23%).

Α Χασε οφ τηε ϑιττερσ

DΕΦΙΝΕD ΧΟΝΤΡΙΒΥΤΙΟΝ | Τοm Σζκωαρλα

Νετ Χαση Φλοω Αναλψσισ (Τηιρδ Θυαρτερ 2016)

(Τοπ Τωο ανδ Βοττοm Τωο Ασσετ Γατηερερσ)

Ασσετ Χλασσ

Φλοωσ ασ % οφ

Τοταλ Νετ Φλοωσ

Ταργετ Dατε Φυνδσ 55.31%

Σταβλε ςαλυε 28.35%

Χοmπανψ Στοχκ −20.41%

Υ.Σ. Λαργε Χαπ −33.88%

Τοταλ Τυρνοϖερ∗∗ 0.82%

Source: Callan DC Index

Data provided here is the most recent available at time of publication.

* DC Index inception date is January 2006.

** Total Index “turnover” measures the percentage of total invested assets (transfers

only, excluding contributions and withdrawals) that moved between asset classes.

Ινϖεστmεντ Περφορmανχε∗

Γροωτη Σουρχεσ∗

Third Quarter 2016

Age 45 Target Date* Total DC Index

3.92%

4.53%

5.41%

Annualized Since

Inception

7.66%

6.29%6.15%

Year-to-Date

Third Quarter 2016

% Net Flows % Return Growth% Total Growth

7.57%

Annualized Since

Inception

2.17%

-0.25%

0.00%

5.41%

3.67%3.92%

6.30% 6.29%

Year-to-Date

To

tal F

un

d

Total Fund

Actual vs Target Asset AllocationAs of December 31, 2016

The top left chart shows the Fund’s asset allocation as of December 31, 2016. The top right chart shows the Fund’s targetasset allocation as outlined in the investment policy statement. The bottom chart ranks the fund’s asset allocation and thetarget allocation versus the CAI Public Fund Sponsor Database.

Actual Asset Allocation

Domestic Equity34%

International Equity24%

Fixed Income26%

Real Estate10%

Infrastructure6%

Cash0%

Target Asset Allocation

Domestic Equity34%

International Equity25%

Fixed Income27%

Real Estate9%

Infrastructure5%

$000s Weight Percent $000sAsset Class Actual Actual Target Difference DifferenceDomestic Equity 248,335 33.7% 34.0% (0.3%) (2,083)International Equity 175,352 23.8% 25.0% (1.2%) (8,779)Fixed Income 192,891 26.2% 27.0% (0.8%) (5,971)Real Estate 73,102 9.9% 9.0% 0.9% 6,815Infrastructure 44,613 6.1% 5.0% 1.1% 7,787Cash 2,230 0.3% 0.0% 0.3% 2,230Total 736,524 100.0% 100.0%

Asset Class Weights vs CAI Public Fund Sponsor Database

We

igh

ts

(10%)

0%

10%

20%

30%

40%

50%

60%

Domestic Fixed Cash Real InternationalEquity Income Estate Equity

(61)(61)

(51)(50)

(78)(100)

(12)(17)

(15)(9)

10th Percentile 51.17 40.27 3.68 17.61 24.5925th Percentile 45.05 34.00 2.19 11.77 22.16

Median 36.38 27.15 1.07 10.21 18.8575th Percentile 29.33 20.93 0.36 7.40 14.8190th Percentile 24.18 15.14 0.14 5.23 11.14

Fund 33.72 26.19 0.30 15.98 23.81

Target 34.00 27.00 0.00 14.00 25.00

% Group Invested 98.88% 97.75% 69.10% 62.92% 97.75%

* Current Quarter Target = 27.0% Blmbg Aggregate Idx, 26.0% S&P 500 Index, 25.0% MSCI ACWI ex US IMI, 9.0% NFI-ODCE Value Weight Gr, 8.0%

Russell 2500 Index and 5.0% CPI+4.0%.

26Tucson Supplemental Retirement System

Investment Manager Asset Allocation

The table below contrasts the distribution of assets across the Fund’s investment managers as of December 31, 2016, withthe distribution as of September 30, 2016. The change in asset distribution is broken down into the dollar change due to NetNew Investment and the dollar change due to Investment Return.

Asset Distribution Across Investment Managers

December 31, 2016 September 30, 2016

Market Value Weight Net New Inv. Inv. Return Market Value WeightDomestic Equity $248,335,326 33.72% $(8,688,817) $10,519,990 $246,504,152 33.24%

Large Cap Equity $189,810,420 25.77% $(3,073,318) $7,489,607 $185,394,130 25.00%Transition Account [1] 10,615 0.00% 0 8 10,607 0.00%Alliance S&P Index 56,730,558 7.70% (1,004,998) 2,102,306 55,633,251 7.50%PIMCO StocksPLUS 30,156,403 4.09% 0 1,191,272 28,965,131 3.91%BlackRock Russell 1000 Value 52,087,744 7.07% (5,114) 3,237,893 48,854,965 6.59%T. Rowe Price Large Cap Growth 50,825,099 6.90% (2,063,205) 953,371 51,934,933 7.00%

Small/Mid Cap Equity $58,524,906 7.95% $(5,615,499) $3,030,383 $61,110,022 8.24%Champlain Mid Cap 28,933,434 3.93% (3,562,822) 1,306,010 31,190,246 4.21%Pyramis Small Cap 29,591,472 4.02% (2,052,677) 1,724,374 29,919,775 4.03%

International Equity $175,352,219 23.81% $(209,229) $(5,034,559) $180,596,008 24.35%Causeway International Opportunities (3) 72,985,926 9.91% (68,522) 508,963 72,545,485 9.78%Aberdeen EAFE Plus 70,307,388 9.55% (140,707) (2,541,780) 72,989,875 9.84%American Century Non-US SC [2] 32,058,905 4.35% 0 (3,001,742) 35,060,647 4.73%

Fixed Income $192,890,852 26.19% $(1,659,530) $(4,259,803) $198,810,185 26.81%BlackRock U.S. Debt Fund 70,173,029 9.53% (9,953) (2,152,157) 72,335,139 9.75%PIMCO Fixed Income 122,717,823 16.66% (1,649,577) (2,107,646) 126,475,046 17.05%

Real Estate $73,102,344 9.93% $5,883,725 $1,759,993 $65,458,626 8.83%JP Morgan Strategic Property Fund 48,256,867 6.55% (116,275) 1,019,979 47,353,163 6.38%JP Morgan Income and Growth Fund 24,845,477 3.37% 6,000,000 740,014 18,105,463 2.44%

Infrastructure $44,613,422 6.06% $(3,230,935) $(426,164) $48,270,522 6.51%Macquarie European Infrastructure 19,355,145 2.63% (2,750,757) 181,525 21,924,377 2.96%SteelRiver Infrastructure 25,258,277 3.43% (480,179) () 25,738,456 3.47%

Cash Composite $2,229,814 0.30% $186,444 $1,771 $2,041,598 0.28%Cash 2,229,814 0.30% 186,444 1,771 2,041,598 0.28%

Total Plan $736,523,976 100.0% $(7,718,343) $2,561,228 $741,681,091 100.0%

[1] The Domestic Equity transition account was funded for the May 2016 plan rebalancing.

[2] American Century was funded May 2016.


Investment Manager Returns

The table below details the rates of return for the Fund’s investment managers over various time periods ended December31, 2016. Negative returns are shown in red, positive returns in black. Returns for one year or greater are annualized. Thefirst set of returns for each asset class represents the composite returns for all the fund’s accounts for that asset class.

Returns for Periods Ended December 31, 2016

Last Last LastLast Last 3 5 10

Quarter Year Years Years YearsGross of Fees

Domestic Equity 4.33% 12.40% 8.72% 15.91% 7.19% Total Domestic Equity Target (1) 4.33% 13.19% 8.47% 14.66% 7.14%

Large Cap Equity 4.08% 10.92% 8.54% 15.58% 6.56% S&P 500 Index 3.82% 11.96% 8.87% 14.66% 6.95%

Alliance S&P Index 3.76% 11.74% 8.82% 14.61% 6.99%PIMCO StocksPLUS 4.11% 12.99% 9.24% 16.57% 8.89% S&P 500 Index 3.82% 11.96% 8.87% 14.66% 6.95%

BlackRock Russell 1000 Value Index 6.63% 17.06% 8.61% 14.84% 5.85% Russell 1000 Value Index 6.68% 17.34% 8.59% 14.80% 5.72%

T. Rowe Price Large Cap Growth 1.91% 3.27% 7.70% 16.61% 9.61% Russell 1000 Growth Index 1.01% 7.08% 8.55% 14.50% 8.33%

Small/Mid Cap Equity U.S. Equity 5.12% 17.52% 9.30% 16.89% 9.39% Russell 2500 Index 6.12% 17.59% 6.93% 14.54% 7.69%

Champlain Mid Cap 4.41% 20.24% 10.41% 16.24% 11.51% Russell MidCap Index 3.21% 13.80% 7.92% 14.72% 7.86%

Pyramis Small Cap 5.77% 14.47% 8.00% 17.39% 10.12% Russell 2000 Index 8.83% 21.31% 6.74% 14.46% 7.07%

International Equity (2.79%) 3.12% (2.66%) 6.07% 0.70% MSCI ACWI x US (Net) (1.25%) 4.50% (1.78%) 5.00% 0.96%

Causeway International Opportunities (3) 0.70% 1.88% (1.67%) 8.50% 2.88% Causeway Linked Index (3) (1.25%) 1.74% (1.36%) 6.69% 0.82%

Aberdeen EAFE Plus (3.48%) 7.37% (3.31%) 2.85% 2.46% MSCI ACWI x US (Net) (1.25%) 4.50% (1.78%) 5.00% 0.96%

American Century Non-US SC (4) (8.56%) - - - - MSCI ACWI ex US Small Cap (3.52%) 3.91% 0.76% 7.74% 2.89%

Fixed Income (2.16%) 7.31% 4.31% 4.40% 5.51% Blmbg Aggregate Index (2.98%) 2.65% 3.03% 2.23% 4.34%

BlackRock U.S. Debt Fund (2.98%) 2.75% 3.18% 2.37% 4.47% Blmbg Aggregate Index (2.98%) 2.65% 3.03% 2.23% 4.34%

PIMCO Fixed Income (1.69%) 10.09% 4.97% 5.55% 6.25% Custom Index (2) (2.46%) 7.44% 4.66% 4.60% 5.73%

(1) The Total Domestic Equity target is currently composed of 78% S&P 500 and 22% Russell2500 Index.(2) The custom index is currently composed of 25% Barclays Mortgage, 25% Barclays Credit, 25%Barclays High Yield, and 25% JP Morgan EMBI Global. Prior to 2/1/2012, the custom index wascomposed of 70% Barclays Mortgage, 15% Barclays Credit, and 15% Barclays High Yield.(3) Causeway International Value transitioned to International Opportunities in May 2016; as such, the index has beenchanged accordingly from EAFE to ACWI ex-US (Net Div).(4) American Century Non-US SC was funded during second quarter 2016.






Quarter Year Years Years Years

Gross of Fees

Real Estate 2.47% 8.56% 11.54% 12.74% 5.28% NFI-ODCE Value Weight Gr 2.11% 8.77% 12.07% 12.21% 5.82%

JP Morgan Strategic Property Fund 2.16% 8.38% 11.55% 12.46% 6.50% NFI-ODCE Value Weight Gr 2.11% 8.77% 12.07% 12.21% 5.82%

JP Morgan Income and Growth Fund 3.07% 8.81% 11.79% 14.80% 3.75% NFI-ODCE Value Weight Gr 2.11% 8.77% 12.07% 12.21% 5.82%

Infrastructure 0.31% 11.69% 7.19% 7.91% - CPI + 4% 0.94% 5.99% 4.90% 5.17% 5.79%

Macquarie European Infrastructure 0.48% 10.07% 0.86% 7.30% -SteelRiver Infrastructure 0.00% 10.31% 13.81% 7.73% - CPI + 4% 0.94% 5.99% 4.90% 5.17% 5.79%

Cash Composite 0.07% 0.25% 0.09% 0.07% 0.95%

Total Fund 0.43% 8.41% 5.85% 10.72% 5.75%Total Fund Benchmark* 0.55% 7.44% 5.39% 9.19% 5.42%

* Current Quarter Target = 27.0% Blmbg Aggregate Idx, 26.0% S&P 500 Index, 25.0% MSCI ACWI ex US IMI, 9.0%NFI-ODCE Value Weight Gr, 8.0% Russell 2500 Index and 5.0% CPI+4.0%.




6/2016-12/2016 FY 2016 FY 2015 FY 2014 FY 2013

Gross of Fees



Alliance S&P Index 7.73% 3.97% 7.43% 24.50% 20.51%

PIMCO StocksPLUS 8.77% 2.68% 7.57% 27.61% 24.51%

S&P 500 Index 7.82% 3.99% 7.42% 24.61% 20.60%

BlackRock Russell 1000 Value Index 10.36% 2.75% 4.34% 23.88% 25.36%

Russell 1000 Value Index 10.39% 2.86% 4.13% 23.81% 25.32%

T. Rowe Price Large Cap Growth 10.12% (2.64%) 12.35% 32.80% 20.37%

Russell 1000 Growth Index 5.64% 3.02% 10.56% 26.92% 17.07%

Small/Mid Cap Equity U.S. Equity 11.83% 0.17% 12.68% 24.97% 26.35% Russell 2500 Index 13.09% (3.67%) 5.92% 25.58% 25.61%

Champlain Mid Cap 10.13% 4.64% 10.27% 26.20% 22.88%

Russell MidCap Index 7.87% 0.56% 6.63% 26.85% 25.41%

Pyramis Small Cap 13.46% (4.41%) 15.07% 23.59% 29.74%

Russell 2000 Index 18.68% (6.73%) 6.49% 23.64% 24.21%

International Equity 2.94% (9.40%) (5.79%) 21.26% 17.18% MSCI ACWI x US (Net) 5.57% (10.24%) (5.26%) 21.75% 13.63%

Causeway International Opportunities (3) 7.46% (11.66%) (2.38%) 23.76% 22.07%

Causeway Linked Index (3) 5.57% (9.42%) (4.22%) 23.57% 18.62%

Aberdeen EAFE Plus 0.66% (7.60%) (10.16%) 18.20% 11.69%

MSCI ACWI x US (Net) 5.57% (10.24%) (5.26%) 21.75% 13.63%

American Century Non-US SC (1.57%) - - - -

MSCI ACWI ex US Small Cap 4.11% (5.46%) (3.07%) 26.09% 15.94%

Fixed Income 0.17% 6.39% 0.78% 7.64% 1.84% Blmbg Aggregate Index (2.53%) 6.00% 1.86% 4.37% (0.69%)

BlackRock U.S. Debt Fund (2.51%) 6.13% 1.99% 4.49% (0.48%)

Blmbg Aggregate Index (2.53%) 6.00% 1.86% 4.37% (0.69%)

PIMCO Fixed Income 1.76% 6.55% 0.05% 9.60% 3.27%

Custom Index (2) (0.18%) 7.28% 0.75% 8.48% 2.41%

(1) The Total Domestic Equity target is currently composed of 78% S&P 500 and 22% Russell

2500 Index.

(2) The custom index is currently composed of 25% Barclays Mortgage, 25% Barclays Credit, 25%

Barclays High Yield, and 25% JP Morgan EMBI Global. Prior to 2/1/2012, the custom index was

composed of 70% Barclays Mortgage, 15% Barclays Credit, and 15% Barclays High Yield.

(3) Causeway International Value transitioned to International Opportunities in May 2016; as such, the index has been

changed accordingly from EAFE to ACWI ex-US (Net Div).




6/2016-12/2016 FY 2016 FY 2015 FY 2014 FY 2013

Gross of Fees

Real Estate 4.50% 10.80% 13.92% 13.27% 16.00% NFI-ODCE Value Weight Gr 4.22% 11.82% 14.43% 12.75% 12.17%

JP Morgan Strategic Property Fund 4.27% 11.10% 13.37% 14.08% 14.08% NFI-ODCE Value Weight Gr 4.22% 11.82% 14.43% 12.75% 12.17%

JP Morgan Income and Growth Fund 4.91% 10.06% 16.19% 11.66% 25.49% NFI-ODCE Value Weight Gr 4.22% 11.82% 14.43% 12.75% 12.17%

Infrastructure 2.59% 12.61% (2.75%) 16.31% 3.27% CPI + 4% 2.02% 4.64% 3.62% 6.05% 5.76%

Macquarie European Infrastructure 2.49% 6.82% (9.64%) 14.63% 13.28%SteelRiver Infrastructure 0.14% 17.75% 5.97% 18.46% (7.19%) CPI + 4% 2.02% 4.64% 3.62% 6.05% 5.76%

Cash Composite 0.14% 0.12% 0.00% 0.00% 0.05%









Net of Fees





S&P 500 Index 3.82% 11.96% 8.87% 14.66% 6.95%



T. Rowe Price Large Cap Growth 1.78% 2.72% 7.20% 16.06% 9.08%


Small/Mid Cap Equity U.S. Equity 4.91% 16.55% 8.43% 15.97% 8.54% Russell 2500 Index 6.12% 17.59% 6.93% 14.54% 7.69%



Pyramis Small Cap 5.56% 13.58% 7.20% 16.53% 9.31%

Russell 2000 Index 8.83% 21.31% 6.74% 14.46% 7.07%

International Equity (2.91%) 2.60% (3.29%) 5.36% (0.04%) MSCI ACWI x US (Net) (1.25%) 4.50% (1.78%) 5.00% 0.96%

Causeway International Opportunities (3) 0.60% 1.33% (2.27%) 7.83% 2.21%

Causeway Linked Index (3) (1.25%) 1.74% (1.36%) 6.69% 0.82%

Aberdeen EAFE Plus (3.68%) 6.78% (4.02%) 2.07% 1.66%

MSCI ACWI x US (Net) (1.25%) 4.50% (1.78%) 5.00% 0.96%


MSCI ACWI ex US Small Cap (3.52%) 3.91% 0.76% 7.74% 2.89%

Fixed Income (2.23%) 6.97% 3.98% 4.07% 5.23% Blmbg Aggregate Index (2.98%) 2.65% 3.03% 2.23% 4.34%

BlackRock U.S. Debt Fund (2.98%) 2.72% 3.15% 2.34% 4.46%

Blmbg Aggregate Index (2.98%) 2.65% 3.03% 2.23% 4.34%

PIMCO Fixed Income (1.80%) 9.57% 4.47% 5.05% 5.82%

Custom Index (2) (2.46%) 7.44% 4.66% 4.60% 5.73%


2500 Index.












Net of Fees

Real Estate 2.30% 7.53% 10.38% 11.54% 4.07% NFI-ODCE Equal Weight Net 1.95% 8.36% 11.29% 11.23% 4.70%

JP Morgan Strategic Property Fund 1.91% 7.32% 10.47% 11.37% 5.45% NFI-ODCE Equal Weight Net 1.95% 8.36% 11.29% 11.23% 4.70%

JP Morgan Income and Growth Fund 3.07% 7.80% 10.40% 13.32% 2.18% NFI-ODCE Equal Weight Net 1.95% 8.36% 11.29% 11.23% 4.70%

Infrastructure 0.21% 10.92% 6.23% 6.71% - CPI + 4% 0.94% 5.99% 4.90% 5.17% 5.79%

Macquarie European Infrastructure 0.44% 9.16% 0.05% 6.28% -SteelRiver Infrastructure (0.14%) 9.67% 12.65% 6.29% - CPI + 4% 0.94% 5.99% 4.90% 5.17% 5.79%

Cash Composite 0.07% 0.25% 0.09% 0.07% 0.95%






6/2016-12/2016 FY 2016 FY 2015 FY 2014 FY 2013

Net of Fees





S&P 500 Index 7.82% 3.99% 7.42% 24.61% 20.60%



T. Rowe Price Large Cap Growth 9.82% (3.13%) 11.93% 32.16% 19.79%


Small/Mid Cap Equity U.S. Equity 11.34% (0.61%) 11.80% 24.00% 25.36% Russell 2500 Index 13.09% (3.67%) 5.92% 25.58% 25.61%



Pyramis Small Cap 12.99% (5.10%) 14.24% 22.70% 28.79%

Russell 2000 Index 18.68% (6.73%) 6.49% 23.64% 24.21%

International Equity 2.77% (10.04%) (6.46%) 20.41% 16.34% MSCI ACWI x US (Net) 5.57% (10.24%) (5.26%) 21.75% 13.63%

Causeway International Opportunities (3) 7.23% (12.24%) (3.01%) 22.98% 21.27%

Causeway Linked Index (3) 5.57% (9.42%) (4.22%) 23.57% 18.62%

Aberdeen EAFE Plus 0.46% (8.32%) (10.90%) 17.28% 10.80%

MSCI ACWI x US (Net) 5.57% (10.24%) (5.26%) 21.75% 13.63%


MSCI ACWI ex US Small Cap 4.11% (5.46%) (3.07%) 26.09% 15.94%

Fixed Income 0.02% 6.06% 0.46% 7.30% 1.51% Blmbg Aggregate Index (2.53%) 6.00% 1.86% 4.37% (0.69%)

BlackRock U.S. Debt Fund (2.51%) 6.09% 1.97% 4.43% (0.49%)

Blmbg Aggregate Index (2.53%) 6.00% 1.86% 4.37% (0.69%)

PIMCO Fixed Income 1.51% 6.04% (0.43%) 9.07% 2.77%

Custom Index (2) (0.18%) 7.28% 0.75% 8.48% 2.41%


2500 Index.









6/2016-12/2016 FY 2016 FY 2015 FY 2014 FY 2013

Net of Fees

Real Estate 4.06% 9.64% 12.74% 12.03% 14.67% NFI-ODCE Equal Weight Net 3.95% 11.24% 13.64% 11.37% 10.80%

JP Morgan Strategic Property Fund 3.76% 10.02% 12.28% 12.98% 12.95% NFI-ODCE Equal Weight Net 3.95% 11.24% 13.64% 11.37% 10.80%

JP Morgan Income and Growth Fund 4.58% 8.69% 14.74% 9.93% 23.54% NFI-ODCE Equal Weight Net 3.95% 11.24% 13.64% 11.37% 10.80%

Infrastructure 2.04% 12.30% (3.82%) 15.32% 1.39% CPI + 4% 2.02% 4.64% 3.62% 6.05% 5.76%

Macquarie European Infrastructure 1.64% 6.82% (10.56%) 14.11% 11.61%SteelRiver Infrastructure (0.14%) 17.13% 4.67% 16.80% (9.28%) CPI + 4% 2.02% 4.64% 3.62% 6.05% 5.76%

Cash Composite 0.14% 0.12% (0.00%) 0.00% 0.05%




Quarterly Style Attribution - December 31, 2016

The following analysis approaches Total Fund Attribution from the perspective of relative return. Relative return attributionseparates and quantifies the sources of total fund excess return relative to its target. This excess return is separated into tworelative attribution effects: Style Allocation Effect and Manager Selection Effect. The Style Allocation Effect represents theexcess return due to the actual total fund style allocation differing from the target style allocation. Manager Selection Effectrepresents the total fund impact of the individual managers excess returns relative to their benchmarks.

Style Class Under or Overweighting

(1.5%) (1.0%) (0.5%) 0.0% 0.5% 1.0% 1.5% 2.0%

Large Cap Equity (0.90 )

Small/Mid Cap Equity 0.13

Fixed Income (0.31 )

Real Estate 0.76

Infrastructure 1.19

International Equity (0.88 )

Large Cap Equity

Small/Mid Cap Equity

Fixed Income

Real Estate

Infrastructure


Total

Actual vs Target Returns

(5%) 0% 5% 10%

4.08

3.82

5.12

6.12

(2.16 )

(2.98 )

2.47

2.11

0.31

0.94

(2.79 )

(1.57 )

0.43

0.55

Actual Target

Relative Attribution by Style Class

(0.40%)(0.30%)(0.20%)(0.10%) 0.00% 0.10% 0.20% 0.30% 0.40%

0.06(0.03 )

0.03

(0.09 )(0.01 )

(0.10 )

0.220.01

0.23

0.030.01

0.04

(0.04 )0.01

(0.03 )

(0.30 )0.01

(0.29 )

(0.10 )(0.01 )

(0.11 )

Manager Effect Style Allocation Total

Relative Attribution Effects for Quarter ended December 31, 2016

Effective Effective TotalActual Target Actual Target Manager Style Relative

Style Class Weight Weight Return Return Effect Allocation ReturnLarge Cap Equity 25% 26% 4.08% 3.82% 0.06% (0.03%) 0.03%Small/Mid Cap Equity 8% 8% 5.12% 6.12% (0.09%) (0.01%) (0.10%)Fixed Income 27% 27% (2.16%) (2.98%) 0.22% 0.01% 0.23%Real Estate 10% 9% 2.47% 2.11% 0.03% 0.01% 0.04%Infrastructure 6% 5% 0.31% 0.94% (0.04%) 0.01% (0.03%)International Equity 24% 25% (2.79%) (1.57%) (0.30%) 0.01% (0.29%)

Total = + +0.43% 0.55% (0.10%) (0.01%) (0.11%)




Cumulative Style Relative Attribution - December 31, 2016

The charts below accumulate the Total Fund Attribution Analysis (shown earlier) over multiple periods to examine thecumulative sources of excess total fund performance relative to target. These cumulative results quantify the longer-termsources of total fund excess return relative to target by style class. These relative attribution effects separate the cumulativesources of total fund excess return into Style Allocation Effect and Manager Selection Effect.

One Year Relative Attribution Effects

(1%) 0% 1% 2%

Large Cap Equity


Fixed Income

Real Estate

Infrastructure


Total


Cumulative Relative Attribution Effects

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2016

Manager Effect

Style Allocation

Total

One Year Relative Attribution Effects


Style Class Weight Weight Return Return Effect Allocation ReturnLarge Cap Equity 30% 29% 10.92% 11.96% (0.45%) 0.03% (0.42%)Small/Mid Cap Equity 9% 9% 17.52% 17.59% 0.04% 0.01% 0.05%Fixed Income 26% 27% 7.31% 2.65% 1.22% (0.07%) 1.15%Real Estate 9% 9% 8.56% 8.82% (0.02%) (0.00%) (0.02%)Infrastructure 6% 5% 11.69% 5.99% 0.37% (0.03%) 0.33%International Equity 20% 22% 3.12% 4.23% (0.25%) 0.13% (0.12%)

Total = + +8.41% 7.44% 0.89% 0.07% 0.97%




Cumulative Style Relative Attribution - December 31, 2016

The charts below accumulate the Total Fund Attribution Analysis (shown earlier) over multiple periods to examine thecumulative sources of excess total fund performance relative to target. These cumulative results quantify the longer-termsources of total fund excess return relative to target by style class. These relative attribution effects separate the cumulativesources of total fund excess return into Style Allocation Effect and Manager Selection Effect.

Five Year Annualized Relative Attribution Effects

(0.5%) 0.0% 0.5% 1.0% 1.5% 2.0%

Large Cap Equity


Fixed Income

Real Estate

Infrastructure


Total


Cumulative Relative Attribution Effects

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016

Manager Effect

Style Allocation

Total

Five Year Annualized Relative Attribution Effects


Style Class Weight Weight Return Return Effect Allocation ReturnLarge Cap Equity 36% 35% 15.58% 14.66% 0.30% 0.05% 0.35%Small/Mid Cap Equity 11% 10% 16.89% 14.54% 0.26% 0.00% 0.26%Fixed Income 24% 26% 4.40% 2.34% 0.55% 0.04% 0.59%Real Estate 8% 8% 12.74% 12.22% 0.04% (0.02%) 0.02%Infrastructure 6% 5% 7.91% 5.17% 0.18% (0.07%) 0.11%International Equity 15% 16% 6.07% 4.95% 0.14% 0.06% 0.19%

Total = + +10.72% 9.19% 1.47% 0.05% 1.53%




Cumulative Performance Relative to Target

The first chart below illustrates the cumulative performance of the Total Fund relative to the cumulative performance of theFund’s Target Asset Mix. The Target Mix is assumed to be rebalanced each quarter with no transaction costs. The secondchart below shows the return and the risk of the Total Fund and the Target Mix, contrasted with the returns and risks of thefunds in the CAI Public Fund Sponsor Database.

Cumulative Returns Actual vs Target

Cu

mu

lative

Re

turn

s

0%

200%

400%

600%

800%

1000%

1200%

8889 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Total Fund

Total Fund Target

Twenty-Eight and One-Quarter Year Annualized Risk vs Return

5% 6% 7% 8% 9% 10% 11% 12%2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Total Fund

Total Fund Target

Standard Deviation

Re

turn

s

Squares represent membership of the CAI Public Fund Sponsor Database




Total Fund Ranking

The first two charts show the ranking of the Total Fund’s performance relative to that of the CAI Public Fund SponsorDatabase for periods ended December 31, 2016. The first chart is a standard unadjusted ranking. In the second chart eachfund in the database is adjusted to have the same historical asset allocation as that of the Total Fund.

CAI Public Fund Sponsor DatabaseR

etu

rns

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

Last Last Last LastYear 3 Years 5 Years 7 Years

(19)

(52)

(5)(13)

(1)

(22)(3)

(14)

10th Percentile 8.80 5.51 9.69 8.9525th Percentile 8.24 5.05 9.13 8.45

Median 7.49 4.62 8.32 7.8675th Percentile 6.82 3.93 7.45 7.1090th Percentile 6.09 3.14 6.47 6.57

Total Fund 8.41 5.85 10.72 9.54

Policy Target 7.44 5.39 9.19 8.80

Asset Allocation Adjusted Ranking

Re

turn

s

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

Last Last Last LastYear 3 Years 5 Years 7 Years

(37)

(73)

(39)(69)

(7)

(81)(22)

(73)

10th Percentile 9.84 6.41 10.51 9.8325th Percentile 8.88 6.03 10.11 9.51

Median 8.06 5.70 9.82 9.2075th Percentile 7.37 5.19 9.30 8.7790th Percentile 6.48 4.59 8.88 8.40

Total Fund 8.41 5.85 10.72 9.54

Policy Target 7.44 5.39 9.19 8.80




Total FundPeriod Ended December 31, 2016

Investment PhilosophyThe total fund return stream starts the third quarter of 1988.

Quarterly Summary and HighlightsTotal Fund’s portfolio posted a 0.43% return for the quarter placing it in the 71 percentile of the CAI Public FundSponsor Database group for the quarter and in the 19 percentile for the last year.

Total Fund’s portfolio underperformed the Total Fund Benchmark by 0.11% for the quarter and outperformed the TotalFund Benchmark for the year by 0.97%.

Performance vs CAI Public Fund Sponsor Database (Gross)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

Last Quarter Last Last 3 Years Last 5 Years Last 10 Years Last 28-1/4Year Years

(71)(66)

(19)

(52)

(5)(13)

(1)

(22)

(19)(39)

(61)(47)

10th Percentile 1.51 8.80 5.51 9.69 6.12 9.1825th Percentile 1.22 8.24 5.05 9.13 5.66 8.91

Median 0.80 7.49 4.62 8.32 5.25 8.4275th Percentile 0.31 6.82 3.93 7.45 4.79 8.1390th Percentile (0.09) 6.09 3.14 6.47 4.26 7.53

Total Fund 0.43 8.41 5.85 10.72 5.75 8.28

Total FundBenchmark 0.55 7.44 5.39 9.19 5.42 8.56

Relative Return vs Total Fund Benchmark

Rela

tive

Re

turn

s

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2012 2013 2014 2015 2016

Total Fund

CAI Public Fund Sponsor Database (Gross)Annualized Five Year Risk vs Return

1 2 3 4 5 6 7 8 90%

2%

4%

6%

8%

10%

12%

14%

Total Fund

Total Fund Benchmark

Standard Deviation

Re

turn

s


Do

me

stic

Eq

uity

Domestic Equity

Domestic EquityPeriod Ended December 31, 2016

Investment PhilosophyThe Total Domestic Equity target is currently composed of 78% S&P 500 Index and 22% Russell 2500 Index.

Quarterly Summary and HighlightsDomestic Equity’s portfolio posted a 4.33% return for the quarter placing it in the 53 percentile of the Pub Pln- DomesticEquity group for the quarter and in the 63 percentile for the last year.

Domestic Equity’s portfolio outperformed the Total Domestic Equity Target by 0.00% for the quarter andunderperformed the Total Domestic Equity Target for the year by 0.79%.

Performance vs Pub Pln- Domestic Equity (Gross)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Last Quarter Last Year Last 3 Years Last 5 Years Last 10 Years

(53)(53)

(63)

(41)

(20)(28)

(1)

(32)

(42)(45)


Median 4.44 12.79 7.92 14.34 7.0875th Percentile 3.89 11.72 7.06 13.78 6.7890th Percentile 3.31 9.42 6.00 13.00 6.20

Domestic Equity 4.33 12.40 8.72 15.91 7.19

Total DomesticEquity Target 4.33 13.19 8.47 14.66 7.14

Relative Returns vsTotal Domestic Equity Target

Rela

tive

Re

turn

s

(2.5%)

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015 2016

Domestic Equity

Pub Pln- Domestic Equity (Gross)Annualized Five Year Risk vs Return

4 6 8 10 12 142%

4%

6%

8%

10%

12%

14%

16%

18%

Domestic Equity

Total Domestic Equity Target

Standard Deviation

Re

turn

s


Domestic EquityReturn Analysis Summary

Return AnalysisThe graphs below analyze the manager’s return on both a risk-adjusted and unadjusted basis. The first chart illustrates themanager’s ranking over different periods versus the appropriate style group. The second chart shows the historical quarterlyand cumulative manager returns versus the appropriate market benchmark. The last two charts illustrate the manager’sranking relative to their style using various risk-adjusted return measures and returns for rising/declining periods.

Performance vs Pub Pln- Domestic Equity (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

6341240

4521

869

437

7029

28598468

7640

4563

10th Percentile 15.69 1.70 12.91 37.22 17.42 2.34 21.49 34.93 (35.14) 8.1125th Percentile 14.16 0.89 12.06 35.51 16.80 1.36 19.60 32.55 (36.36) 6.44

Median 12.79 0.17 11.33 34.39 16.07 0.33 17.92 29.51 (37.42) 5.1875th Percentile 11.72 (1.03) 10.05 33.14 15.14 (1.19) 16.90 27.35 (39.33) 3.8990th Percentile 9.42 (2.49) 8.41 31.92 14.16 (2.61) 15.71 25.69 (41.20) 2.96

Domestic Equity 12.40 2.59 11.46 37.46 18.44 (0.99) 19.45 26.46 (39.36) 5.48

Total DomesticEquity Target 13.19 0.47 12.25 33.37 16.43 1.16 17.56 28.20 (36.92) 4.60

Cumulative and Quarterly Relative Return vs Total Domestic Equity Target

Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

2012 2013 2014 2015 2016

Domestic Equity Pub Pln- Dom Equity

Risk Adjusted Return Measures vs Total Domestic Equity TargetRankings Against Pub Pln- Domestic Equity (Gross)Five Years Ended December 31, 2016

(3)

(2)

(1)

0

1

2

3

Alpha Sharpe Excess ReturnRatio Ratio

(18)

(20)

(2)

10th Percentile 0.51 1.59 0.3725th Percentile 0.05 1.54 0.10

Median (0.54) 1.46 (0.16)75th Percentile (1.47) 1.36 (0.40)90th Percentile (2.41) 1.24 (0.74)

Domestic Equity 0.21 1.56 0.72

Returns for Domestic EquityRising/Declining Periods

Five Years Ended December 31, 2016

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

Rising201203-201612

(1)

(32)

10th Percentile 15.1625th Percentile 14.83

Median 14.3475th Percentile 13.7890th Percentile 13.00

Domestic Equity 15.91

Total DomesticEquity Target 14.66


Alliance S&P IndexPeriod Ended December 31, 2016

Investment PhilosophyAlliance uses a stratified sampling methodology and purchases a majority of the index stocks to replicate the Standard andPoor’s 500. The product was funded during the third quarter of 1988.

Quarterly Summary and HighlightsAlliance S&P Index’s portfolio posted a 3.76% return for the quarter placing it in the 55 percentile of the CAI Large CapCore group for the quarter and in the 23 percentile for the last year.

Alliance S&P Index’s portfolio underperformed the S&P 500 Index by 0.07% for the quarter and underperformed theS&P 500 Index for the year by 0.22%.

Performance vs CAI Large Cap Core (Gross)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Last Quarter Last Last 3 Years Last 5 Years Last 10 Years Last 28 YearsYear

(55)(51)

(23)(20)

(30)(28)

(44)(41)

(63)(64)

(82)(82)


Median 3.83 10.40 8.30 14.44 7.22 11.0475th Percentile 2.85 8.50 7.32 13.69 6.47 10.3290th Percentile 1.73 7.55 6.44 13.00 6.16 9.86

Alliance S&P Index 3.76 11.74 8.82 14.61 6.99 10.11

S&P 500 Index 3.82 11.96 8.87 14.66 6.95 10.12

Relative Return vs S&P 500 Index

Rela

tive

Re

turn

s

(0.15%)

(0.10%)

(0.05%)

0.00%

0.05%

0.10%

0.15%

2012 2013 2014 2015 2016

Alliance S&P Index

CAI Large Cap Core (Gross)Annualized Five Year Risk vs Return

7 8 9 10 11 12 1310%

11%

12%

13%

14%

15%

16%

17%

Alliance S&P Index

S&P 500 Index

Standard Deviation

Re

turn

s


Alliance S&P IndexReturn Analysis Summary


Performance vs CAI Large Cap Core (Gross)

(50%)(40%)(30%)(20%)(10%)

0%10%20%30%40%50%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

23204651

4948

7777

4948

3736

3642

5050

6365

6162


Median 10.40 1.41 13.63 34.49 15.89 1.46 14.21 26.51 (36.36) 6.4275th Percentile 8.50 (1.10) 12.82 32.62 14.42 (1.56) 13.41 23.00 (37.90) 3.8390th Percentile 7.55 (2.41) 11.17 31.15 11.41 (3.63) 10.96 21.05 (40.00) 1.70

AllianceS&P Index 11.74 1.48 13.65 32.31 15.95 2.03 15.41 26.26 (36.73) 5.63

S&P 500 Index 11.96 1.38 13.69 32.39 16.00 2.11 15.06 26.47 (37.00) 5.49

Cumulative and Quarterly Relative Return vs S&P 500 Index

Re

lative

Re

turn

s

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015 2016

Alliance S&P Index CAI Large Cap Core

Risk Adjusted Return Measures vs S&P 500 IndexRankings Against CAI Large Cap Core (Gross)Five Years Ended December 31, 2016

(3)

(2)

(1)

0

1

2

3


(26)

(20)

(91)



AllianceS&P Index 0.01 1.59 (0.65)



12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

Rising201203-201612

(44)(41)



Alliance S&P Index 14.61

S&P 500 Index 14.66


PIMCO StocksPLUSPeriod Ended December 31, 2016

Investment PhilosophyPIMCO’s StocksPLUS investment philosophy is based on the principal that stock index futures and swaps, when used as anon-leveraged vehicle for obtaining long-term equity exposure, offer an attractive means for enhancing equity marketreturns. The strategy seeks a longer time horizon of their investors relative to that of typical money market investors. Thislong time horizon allows PIMCO to use their fixed income and associated risk management skill set to seek out attractiveyields relative to money market financing rates on a portion of the high quality fixed-income securities they use to back thefutures contracts. Since they only require sufficient liquidity to meet a worst case margin outflow caused by a stock marketdecline, a portion of their fixed-income portfolio can be invested in somewhat less liquid, higher yielding securities. Inaddition, they generally take advantage of the typical upward slope of the short end of the yield curve by extending theirduration to six months in most market environments and sometimes up to one year. PIMCO also feels that it is appropriatein most market environments to capture both the credit yield premium provided by holding a portion of the fixed-incomeportfolio in low duration corporate securities and the volatility yield premium provided by holding high quality mortgagesecurities. The product was funded during the first quarter of 2006.

Quarterly Summary and HighlightsPIMCO StocksPLUS’s portfolio posted a 4.11% return for the quarter placing it in the 46 percentile of the CAI LargeCapitalization group for the quarter and in the 29 percentile for the last year.

PIMCO StocksPLUS’s portfolio outperformed the S&P 500 Index by 0.29% for the quarter and outperformed the S&P500 Index for the year by 1.03%.

Performance vs CAI Large Capitalization (Gross)

(5%)

0%

5%

10%

15%

20%


(46)(49)

(29)(35)

(14)(24)

(5)(41)

(10)(60)

(6)(59)



PIMCO StocksPLUS 4.11 12.99 9.24 16.57 8.89 9.33

S&P 500 Index 3.82 11.96 8.87 14.66 6.95 7.49

Relative Return vs S&P 500 Index

Rela

tive

Re

turn

s

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2012 2013 2014 2015 2016

PIMCO StocksPLUS

CAI Large Capitalization (Gross)Annualized Five Year Risk vs Return

6 8 10 12 14 16 18 209%

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

PIMCO StocksPLUS

S&P 500 Index

Standard Deviation

Re

turn

s


PIMCO StocksPLUSReturn Analysis Summary


Performance vs CAI Large Capitalization (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

29355651

1631

52761

55

4330

648

8

53

8052

5055


Median 10.17 1.43 12.72 34.64 16.19 0.34 14.91 26.85 (36.77) 6.1775th Percentile 4.70 (2.03) 11.27 32.47 14.26 (2.70) 13.21 21.94 (39.91) 1.9690th Percentile 1.68 (4.20) 9.23 30.90 12.63 (4.54) 11.84 18.92 (43.92) (2.70)

PIMCOStocksPLUS 12.99 0.34 14.97 34.59 22.68 1.07 20.60 43.04 (41.18) 6.19

S&P 500 Index 11.96 1.38 13.69 32.39 16.00 2.11 15.06 26.47 (37.00) 5.49

Cumulative and Quarterly Relative Return vs S&P 500 Index

Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015 2016

PIMCO StocksPLUS CAI Large Capitalization

Risk Adjusted Return Measures vs S&P 500 IndexRankings Against CAI Large Capitalization (Gross)Five Years Ended December 31, 2016

(4)

(3)

(2)

(1)

0

1

2

3


(22)

(9)(1)



PIMCOStocksPLUS 0.23 1.60 0.91



12

13

14

15

16

17

18

Rising201203-201612

(5)

(41)



PIMCO StocksPLUS 16.57

S&P 500 Index 14.66


BlackRock Russell 1000 ValuePeriod Ended December 31, 2016

Investment PhilosophyThe objective of the Russell 1000 Value Index Fund is to track the performance of its benchmark, the Russell 1000 ValueIndex. They seek to deliver a high quality and cost-effective index-based solution to institutional investors. The productwas funded during the second quarter of 2001.

Quarterly Summary and HighlightsBlackRock Russell 1000 Value’s portfolio posted a 6.63% return for the quarter placing it in the 62 percentile of the CAILarge Cap Value group for the quarter and in the 26 percentile for the last year.

BlackRock Russell 1000 Value’s portfolio underperformed the Russell 1000 Value Index by 0.05% for the quarter andunderperformed the Russell 1000 Value Index for the year by 0.28%.

Performance vs CAI Large Cap Value (Gross)

0%

5%

10%

15%

20%

25%


(62)(61)

(26)(26)

(39)(39)

(41)(43)

(73)(77)

(76)(77)



BlackRockRussell 1000 Value 6.63 17.06 8.61 14.84 5.85 6.94

Russell 1000Value Index 6.68 17.34 8.59 14.80 5.72 6.85

Relative Return vs Russell 1000 Value Index

Rela

tive

Re

turn

s

(0.30%)

(0.25%)

(0.20%)

(0.15%)

(0.10%)

(0.05%)

0.00%

0.05%

0.10%

0.15%

2012 2013 2014 2015 2016

BlackRock Russell 1000 Value

CAI Large Cap Value (Gross)Annualized Five Year Risk vs Return

7 8 9 10 11 12 13 1410%

11%

12%

13%

14%

15%

16%

17%

18%

19%

BlackRock Russell 1000 Value

Russell 1000 Value Index

Standard Deviation

Re

turn

s


BlackRock Russell 1000 ValueReturn Analysis Summary


Performance vs CAI Large Cap Value (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

2626

6770

2931

7171

3535

5253

2628 7075

5961

6061

10th Percentile 20.96 0.42 15.03 40.19 21.13 4.62 18.13 34.50 (32.84) 6.9725th Percentile 17.69 (1.15) 13.73 36.85 19.12 2.42 16.01 26.82 (34.74) 4.19

Median 15.25 (2.56) 12.54 34.59 16.78 0.61 14.27 22.37 (35.88) 1.1275th Percentile 13.65 (4.58) 11.36 32.38 15.08 (2.48) 12.55 19.65 (38.61) (1.81)90th Percentile 11.52 (6.38) 8.98 30.80 12.71 (5.19) 11.75 15.46 (44.92) (6.22)

BlackRockRussell 1000 Value 17.06 (3.62) 13.56 32.57 17.60 0.49 15.73 20.15 (36.74) (0.00)

Russell 1000Value Index 17.34 (3.83) 13.45 32.53 17.51 0.39 15.51 19.69 (36.85) (0.17)

Cumulative and Quarterly Relative Return vs Russell 1000 Value Index

Re

lative

Re

turn

s

(2.5%)

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2012 2013 2014 2015 2016

BlackRock Russell 1000 Value CAI Large Cap Value

Risk Adjusted Return Measures vs Russell 1000 Value IndexRankings Against CAI Large Cap Value (Gross)Five Years Ended December 31, 2016

(3)

(2)

(1)

0

1

2

3


(47)

(21)

(18)



BlackRockRussell 1000 Value 0.07 1.55 0.29



12.513.013.514.014.515.015.516.016.517.0

Rising201203-201612

(41)(43)



BlackRockRussell 1000 Value 14.84

Russell 1000Value Index 14.80


T. Rowe Price Large Cap GrowthPeriod Ended December 31, 2016

Investment PhilosophyThe Large-Cap Growth Strategy is a fundamentally driven, active approach to large company growth investing. Theinvestment philosophy is centered around the manager’s belief that long-term growth in earnings and cash flow drivestockholder returns. The product was funded during the first quarter of 2012. Performance prior is that of the composite.

Quarterly Summary and HighlightsT. Rowe Price Large Cap Growth’s portfolio posted a 1.91% return for the quarter placing it in the 10 percentile of theCAI Large Cap Growth group for the quarter and in the 53 percentile for the last year.

T. Rowe Price Large Cap Growth’s portfolio outperformed the Russell 1000 Growth Index by 0.90% for the quarter andunderperformed the Russell 1000 Growth Index for the year by 3.81%.

Performance vs CAI Large Cap Growth (Gross)

(10%)

(5%)

0%

5%

10%

15%

20%

Last Quarter Last Last 3 Years Last 4-3/4 Last 5 Years Last 10 YearsYear Years

(10)(22)

(53)

(8)(40)

(27)

(9)(30)

(5)

(35)

(11)(43)


Median (0.43) 3.42 7.31 11.25 13.98 8.1875th Percentile (1.57) 1.55 5.91 9.94 12.99 7.2890th Percentile (3.16) (2.03) 4.55 9.18 12.32 6.48

T. Rowe PriceLarge Cap Growth 1.91 3.27 7.70 13.16 16.61 9.61

Russell 1000Growth Index 1.01 7.08 8.55 12.04 14.50 8.33

Relative Return vs Russell 1000 Growth Index

Rela

tive

Re

turn

s

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

2012 2013 2014 2015 2016

T. Rowe Price Large Cap Growth

CAI Large Cap Growth (Gross)Annualized Five Year Risk vs Return

8 10 12 14 16 18 209%

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

Russell 1000 Growth Index

T. Rowe Price Large Cap Growth

Standard Deviation

Re

turn

s


T. Rowe Price Large Cap GrowthReturn Analysis Summary


Performance vs CAI Large Cap Growth (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

538 1260 8629

174

12595520

5053

4

38

6040

8070


Median 3.42 6.43 11.83 35.60 16.14 (0.28) 16.77 34.39 (39.49) 16.0175th Percentile 1.55 3.77 10.23 33.15 14.05 (3.30) 13.37 29.79 (42.96) 11.1390th Percentile (2.03) 2.18 8.44 30.57 12.87 (4.87) 12.24 25.86 (46.98) 7.46

T. Rowe PriceLarge Cap Growth 3.27 10.69 9.27 45.54 18.63 (1.19) 16.79 54.25 (40.39) 9.42

Russell 1000Growth Index 7.08 5.67 13.05 33.48 15.26 2.64 16.71 37.21 (38.44) 11.81

Cumulative and Quarterly Relative Return vs Russell 1000 Growth Index

Re

lative

Re

turn

s

(10%)

(5%)

0%

5%

10%

15%

20%

2012 2013 2014 2015 2016

T. Rowe Price Large Cap Growth CAI Large Cap Growth

Risk Adjusted Return Measures vs Russell 1000 Growth IndexRankings Against CAI Large Cap Growth (Gross)Five Years Ended December 31, 2016

(6)

(5)

(4)

(3)

(2)

(1)

0

1

2

3


(58)

(60)(12)

10th Percentile 0.84 1.50 0.3525th Percentile (0.74) 1.33 0.13


T. Rowe PriceLarge Cap Growth (1.66) 1.22 0.33



11

12

13

14

15

16

17

18

Rising201203-201612

(5)

(35)



T. Rowe PriceLarge Cap Growth 16.61

Russell 1000Growth Index 14.50


Champlain Mid CapPeriod Ended December 31, 2016

Investment PhilosophyChamplain Investment Partners believes buying the shares of superior businesses with credible and sincere managementsat a discount to fair or intrinsic value gives investors several potential paths to wealth creation. First, the market may bid theshares to a premium over fair value. Second, management may grow the fair value over time at a faster rate than marketappreciation. Third, the company may be bought by a larger company or private market investor. They are willing to sellover-priced stocks and harvest gains, reducing valuation risk. The product was funded during the third quarter of 2010.Performance prior is that of the composite.

Quarterly Summary and HighlightsChamplain Mid Cap’s portfolio posted a 4.41% return for the quarter placing it in the 48 percentile of the CAI MidCapitalization group for the quarter and in the 16 percentile for the last year.

Champlain Mid Cap’s portfolio outperformed the Russell MidCap Index by 1.21% for the quarter and outperformed theRussell MidCap Index for the year by 6.44%.

Performance vs CAI Mid Capitalization (Gross)

(5%)

0%

5%

10%

15%

20%

25%

Last Quarter Last Last 3 Years Last 5 Years Last 6-1/4 Last 10 YearsYear Years

(48)(53)

(16)

(42)

(9)

(35)

(18)(42)

(13)

(45)

(2)

(68)



Champlain Mid Cap 4.41 20.24 10.41 16.24 15.54 11.51

Russell MidCap Index 3.21 13.80 7.92 14.72 13.54 7.86

Relative Return vs Russell MidCap Index

Rela

tive

Re

turn

s

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

2012 2013 2014 2015 2016

Champlain Mid Cap

CAI Mid Capitalization (Gross)Annualized Five Year Risk vs Return

6 8 10 12 14 16 184%

6%

8%

10%

12%

14%

16%

18%

20%

22%

Champlain Mid Cap

Russell MidCap Index

Standard Deviation

Re

turn

s


Champlain Mid CapReturn Analysis Summary


Performance vs CAI Mid Capitalization (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

16421467

5523

2463

76411046

8051 8539

256

2966


Median 12.23 (0.69) 9.88 35.84 16.26 (1.92) 25.49 36.99 (40.60) 10.1375th Percentile 4.38 (3.22) 6.71 33.70 13.33 (5.57) 22.01 31.76 (44.60) 3.5290th Percentile 2.07 (7.11) 4.30 31.61 9.94 (7.82) 20.32 26.52 (47.94) (0.99)

ChamplainMid Cap 20.24 2.55 9.17 39.44 13.05 3.53 21.21 28.91 (25.71) 16.57

RussellMidCap Index 13.80 (2.44) 13.22 34.76 17.28 (1.55) 25.48 40.48 (41.46) 5.60

Cumulative and Quarterly Relative Return vs Russell MidCap Index

Re

lative

Re

turn

s

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 2016

Champlain Mid Cap CAI Mid Capitalization

Risk Adjusted Return Measures vs Russell MidCap IndexRankings Against CAI Mid Capitalization (Gross)Five Years Ended December 31, 2016

(6)(5)(4)(3)(2)(1)

01234


(18) (16)

(20)



ChamplainMid Cap 1.50 1.52 0.39



10

11

12

13

14

15

16

17

18

Rising201203-201612

(18)

(42)



Champlain Mid Cap 16.24

Russell MidCap Index 14.72


Pyramis Small CapPeriod Ended December 31, 2016

Investment PhilosophyFIAM believes that equity markets are semi-efficient and that pricing anomalies exist within the marketplace. The SmallCap Core strategy seeks to build a balanced portfolio where returns will be driven by stock selections and not by systemicbiases or exposures to market factors. The product was funded during the third quarter of 1998.

Quarterly Summary and HighlightsPyramis Small Cap’s portfolio posted a 5.77% return for the quarter placing it in the 63 percentile of the CAI SmallCapitalization group for the quarter and in the 66 percentile for the last year.

Pyramis Small Cap’s portfolio underperformed the Russell 2000 Index by 3.06% for the quarter and underperformed theRussell 2000 Index for the year by 6.84%.

Performance vs CAI Small Capitalization (Gross)

0%

5%

10%

15%

20%

25%

30%

35%


(63)

(50)

(66)

(42)

(46)(56)

(20)

(61)

(17)

(81)

(50)

(87)



Pyramis Small Cap 5.77 14.47 8.00 17.39 10.12 11.34

Russell 2000 Index 8.83 21.31 6.74 14.46 7.07 8.92

Relative Return vs Russell 2000 Index

Rela

tive

Re

turn

s

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

2012 2013 2014 2015 2016

Pyramis Small Cap

CAI Small Capitalization (Gross)Annualized Five Year Risk vs Return

8 10 12 14 16 18 20 22 240%

5%

10%

15%

20%

25%

Pyramis Small Cap

Russell 2000 Index

Standard Deviation

Re

turn

s


Pyramis Small CapReturn Analysis Summary


Performance vs CAI Small Capitalization (Gross)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

6642

870

5158

43695

51

5867

1164

16

69

7329

3560

10th Percentile 30.34 3.80 10.36 52.61 22.77 5.11 35.51 49.83 (29.60) 20.2125th Percentile 25.35 (0.08) 8.22 46.90 19.49 1.82 31.51 44.51 (33.01) 10.32

Median 19.33 (2.32) 5.65 42.33 16.47 (1.75) 28.25 33.93 (37.46) 1.3975th Percentile 11.03 (5.11) 2.28 37.61 13.28 (5.70) 24.96 25.06 (42.30) (5.47)90th Percentile 5.70 (8.08) (2.43) 34.67 10.51 (8.62) 22.04 17.68 (46.47) (11.41)

PyramisSmall Cap 14.47 4.27 5.54 43.26 23.54 (2.91) 34.34 47.54 (42.02) 5.40

Russell2000 Index 21.31 (4.41) 4.89 38.82 16.35 (4.18) 26.85 27.17 (33.79) (1.57)

Cumulative and Quarterly Relative Return vs Russell 2000 Index

Re

lative

Re

turn

s

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016

Pyramis Small Cap CAI Small Capitalization

Risk Adjusted Return Measures vs Russell 2000 IndexRankings Against CAI Small Capitalization (Gross)Five Years Ended December 31, 2016

(6)

(4)

(2)

0

2

4

6


(16)

(14)(16)


Median 1.50 1.17 0.1775th Percentile (0.81) 0.93 (0.20)90th Percentile (3.52) 0.75 (0.46)

PyramisSmall Cap 3.81 1.41 0.68



1011121314151617181920

Rising201203-201612

(20)

(61)



Pyramis Small Cap 17.39

Russell 2000 Index 14.46


Inte

rna

tion

al E

qu

ity


International EquityPeriod Ended December 31, 2016

Quarterly Summary and HighlightsInternational Equity’s portfolio posted a (2.79)% return for the quarter placing it in the 86 percentile of the Pub Pln-International Equity group for the quarter and in the 72 percentile for the last year.

International Equity’s portfolio underperformed the MSCI ACWI ex US by 1.53% for the quarter and underperformed theMSCI ACWI ex US for the year by 1.37%.

Performance vs Pub Pln- International Equity (Gross)

(5%)

0%

5%

10%


(86)

(42)

(72)

(52)

(87)

(72)

(63)

(77)

(77)(76)

10th Percentile (0.76) 8.49 0.75 8.23 3.0125th Percentile (1.04) 6.15 (0.03) 7.27 2.61

Median (1.37) 4.59 (0.88) 6.46 1.8475th Percentile (2.00) 2.93 (1.87) 5.32 0.9890th Percentile (3.47) 1.11 (2.82) 3.14 (0.28)

InternationalEquity (2.79) 3.12 (2.66) 6.07 0.70

MSCIACWI ex US (1.25) 4.50 (1.78) 5.00 0.96

Relative Return vs MSCI ACWI ex US

Re

lative

Re

turn

s

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

2012 2013 2014 2015 2016


Pub Pln- International Equity (Gross)Annualized Five Year Risk vs Return

8 10 12 14 16 180%

2%

4%

6%

8%

10%

12%


MSCI ACWI ex US

Standard Deviation

Re

turn

s


International EquityReturn Analysis Summary


Performance vs Pub Pln- International Equity (Gross)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

72528067 6467

3970 579

8657

5162

8228

4269

5730

10th Percentile 8.49 (0.21) (0.11) 23.42 21.01 (9.81) 16.23 49.71 (39.12) 19.2125th Percentile 6.15 (1.55) (1.90) 20.60 20.09 (11.83) 14.28 41.83 (41.67) 17.23

Median 4.59 (3.79) (3.21) 17.98 18.60 (13.40) 12.11 37.39 (43.71) 14.8275th Percentile 2.93 (6.47) (4.32) 14.89 17.09 (15.01) 9.72 32.05 (46.07) 11.6390th Percentile 1.11 (10.71) (5.43) 9.01 15.56 (17.58) 8.52 27.81 (48.72) 8.35

InternationalEquity 3.12 (7.06) (3.78) 19.30 22.05 (16.34) 12.02 30.89 (43.07) 14.37

MSCIACWI ex US 4.50 (5.66) (3.87) 15.29 16.83 (13.71) 11.15 41.45 (45.53) 16.65

Cumulative and Quarterly Relative Return vs MSCI ACWI ex US

Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015 2016

International Equity Pub Pln- Intl Equity

Risk Adjusted Return Measures vs MSCI ACWI ex USRankings Against Pub Pln- International Equity (Gross)Five Years Ended December 31, 2016

(3)

(2)

(1)

0

1

2

3

4


(60)(62) (65)


Median 1.56 0.54 0.7475th Percentile 0.31 0.43 0.1590th Percentile (1.84) 0.21 (0.31)

InternationalEquity 1.19 0.50 0.35

Returns for International EquityRising/Declining Periods


(10)

(5)

0

5

10

15

20

25

Declining Rising201409- 201203-201612 201406

(88)(74)

(17)(68)

10th Percentile (1.40) 19.7025th Percentile (2.05) 18.20

Median (2.93) 16.7275th Percentile (4.43) 14.4590th Percentile (5.54) 11.97

International Equity (5.04) 18.49

MSCI ACWI ex US (4.22) 15.12


Causeway International OpportunitiesPeriod Ended December 31, 2016

Investment PhilosophyCauseway’s strategy consists of a three step process: 1) The International Value piece (developed markets only) utilizesbottom-up selection of undervalued stocks as well as the compounding of dividend returns; 2) The Emerging Marketsportion implements through the use of proprietary quantitative models that are a combination of bottom-up and top-downfactors; 3) The team also utilizes quantitative allocation models to tactically allocate (within specified ranges) betweenEmerging Markets and Developed Markets based on their relative attractiveness. The product was funded during the firstquarter of 2005. In May 2016 the strategy transitioned from International Value to International Opportunities. As such, theindex has been updated accordingly from EAFE to ACWI ex-US (Net Div).

Quarterly Summary and HighlightsCauseway International Opportunities’s portfolio posted a 0.70% return for the quarter placing it in the 18 percentile ofthe CAI Non-U.S. Equity Style group for the quarter and in the 43 percentile for the last year.

Causeway International Opportunities’s portfolio outperformed the Causeway Linked Index by 1.96% for the quarterand outperformed the Causeway Linked Index for the year by 0.15%.

Performance vs CAI Non-U.S. Equity Style (Gross)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%


(18)

(44)

(43)(45)

(66)(62)

(25)

(70)

(30)

(91)

(42)

(94)


Median (1.80) 1.47 (0.55) 7.39 2.01 5.2275th Percentile (3.70) (0.44) (1.97) 6.50 1.41 4.6190th Percentile (5.39) (3.77) (2.73) 5.42 0.87 4.03

Causeway InternationalOpportunities 0.70 1.88 (1.67) 8.50 2.88 5.38

CausewayLinked Index (1.25) 1.74 (1.36) 6.69 0.82 3.85

Relative Return vs Causeway Linked Index

Rela

tive

Re

turn

s

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

2012 2013 2014 2015 2016

Causeway International Opportunities

CAI Non-U.S. Equity Style (Gross)Annualized Five Year Risk vs Return

6 8 10 12 14 16 18 200%

2%

4%

6%

8%

10%

12%

14%

Causeway International Opportunities

Causeway Linked Index

Standard Deviation

Re

turn

s


Causeway International OpportunitiesReturn Analysis Summary



(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

4345 7262 5961

1647 970

3460

3684

3560

4652

7464

10th Percentile 6.19 4.92 (0.30) 28.92 23.79 (6.44) 17.43 48.53 (36.56) 24.1225th Percentile 3.43 2.71 (2.06) 26.07 21.76 (9.49) 15.06 41.35 (40.10) 18.89

Median 1.47 0.48 (3.88) 22.49 19.26 (11.30) 11.62 33.82 (43.20) 13.5575th Percentile (0.44) (2.53) (5.71) 18.59 16.97 (13.96) 9.02 29.20 (46.54) 9.7390th Percentile (3.77) (4.70) (7.81) 15.53 14.91 (16.62) 6.27 25.12 (49.29) 6.41

Causeway InternationalOpportunities 1.88 (2.09) (4.70) 27.47 24.10 (10.24) 14.06 37.35 (42.83) 9.82

CausewayLinked Index 1.74 (0.81) (4.90) 22.78 17.32 (12.14) 7.75 31.78 (43.38) 11.17

Cumulative and Quarterly Relative Return vs Causeway Linked Index

Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016

Causeway International Opportunities CAI Non-U.S. Eq. Style

Risk Adjusted Return Measures vs Causeway Linked IndexRankings Against CAI Non-U.S. Equity Style (Gross)Five Years Ended December 31, 2016

(2)

(1)

0

1

2

3

4


(31)

(35) (28)



Causeway InternationalOpportunities 1.64 0.66 0.46



(10)

(5)

0

5

10

15

20

25


(59)(68)

(12)(55)



Causeway InternationalOpportunities (3.00) 21.37

CausewayLinked Index (3.45) 17.90


Aberdeen EAFE PlusPeriod Ended December 31, 2016

Investment PhilosophyAberdeen believes that given the inefficiency of markets, superior long-term returns are achieved by identifying high qualitystocks, buying them at reasonable/cheap prices, and ultimately investing in those securities for the long term. Absolutereturn is held to be of the utmost importance. The strategy is benchmark aware, but not benchmark driven. This benchmarkstance is born from their belief that indices do not provide meaningful guidance to the prospects of a company or itsinherent worth.

Quarterly Summary and HighlightsAberdeen EAFE Plus’s portfolio posted a (3.48)% return for the quarter placing it in the 72 percentile of the CAINon-U.S. Equity Style group for the quarter and in the 5 percentile for the last year.

Aberdeen EAFE Plus’s portfolio underperformed the MSCI ACWI ex US by 2.23% for the quarter and outperformed theMSCI ACWI ex US for the year by 2.88%.


(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

Last Quarter Last Last 3 Years Last 4-1/2 Last 5 Years Last 10 YearsYear Years

(72)

(44)

(5)

(19)

(96)

(68)

(99)

(92)

(99)

(93)

(40)

(87)


Median (1.80) 1.47 (0.55) 7.02 7.39 2.0175th Percentile (3.70) (0.44) (1.97) 6.25 6.50 1.4190th Percentile (5.39) (3.77) (2.73) 5.21 5.42 0.87

AberdeenEAFE Plus (3.48) 7.37 (3.31) 2.21 2.85 2.46

MSCI ACWI ex US (1.25) 4.50 (1.78) 4.93 5.00 0.96

Portfolio Characteristics asa Percentage of the MSCI ACWI ex US

0% 50% 100% 150% 200%

Forecast Earnings Growth8.2

10.410.3

Yield2.52.6

3.0

Price/Book2.3

1.81.6

Forecast Price/Earnings17.4

14.714.1

Wght Median Market Cap31.4

26.728.2

Aberdeen EAFE Plus CAI Non-U.S. Equity Style

MSCI ACWI ex US

CAI Non-U.S. Equity Style (Gross)Annualized Three Year Risk vs Return

6 8 10 12 14 16(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

Aberdeen EAFE Plus

MSCI ACWI ex US

Standard Deviation

Re

turn

s


Aberdeen EAFE PlusReturn Analysis Summary



(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

51999

93 32509990 8276

473

2655

2025

2269

4235


Median 1.47 0.48 (3.88) 22.49 19.26 (11.30) 11.62 33.82 (43.20) 13.5575th Percentile (0.44) (2.53) (5.71) 18.59 16.97 (13.96) 9.02 29.20 (46.54) 9.7390th Percentile (3.77) (4.70) (7.81) 15.53 14.91 (16.62) 6.27 25.12 (49.29) 6.41

AberdeenEAFE Plus 7.37 (13.63) (2.53) 9.79 15.94 (3.72) 15.02 43.55 (39.68) 15.54

MSCIACWI ex US 4.50 (5.66) (3.87) 15.29 16.83 (13.71) 11.15 41.45 (45.53) 16.65

Cumulative and Quarterly Relative Return vs MSCI ACWI ex US

Re

lative

Re

turn

s

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

2012 2013 2014 2015 2016

Aberdeen EAFE Plus CAI Non-U.S. Eq. Style

Risk Adjusted Return Measures vs MSCI ACWI ex USRankings Against CAI Non-U.S. Equity Style (Gross)Five Years Ended December 31, 2016

(3)

(2)

(1)

0

1

2

3

4

5

6


(99)

(99)(99)


Median 2.48 0.60 0.5975th Percentile 1.48 0.52 0.3990th Percentile 0.35 0.42 0.09

AberdeenEAFE Plus (1.44) 0.24 (0.45)



(15)

(10)

(5)

0

5

10

15

20

25


(98)(81)

(96)(87)



Aberdeen EAFE Plus (6.93) 13.65

MSCI ACWI ex US (4.22) 15.12


American Century Non-US SCPeriod Ended December 31, 2016

Investment PhilosophyAmerican Century s philosophy of growth investing is centered on the belief that accelerating growth in earnings andrevenues, rather than the absolute level of growth, is more highly correlated to stock price performance. This philosophyoften directs analysts to research different companies than other growth managers, as they do not require an absolutethreshold of earnings or revenue growth. This philosophy allows American Century to take advantage of both the normalprice appreciation that results from a company’s earnings growth, and the markets re-rating of a company’sprice-to-earnings multiple. The goal is to construct a portfolio of international stocks that are experiencing acceleratinggrowth that are believed to be sustainable over time. The product was funded during the second quarter of 2016. Priorperformance represents that of the composite for supplementary purposes.

Quarterly Summary and HighlightsAmerican Century Non-US SC’s portfolio posted a (8.56)% return for the quarter placing it in the 95 percentile of theCAI International Small Cap group for the quarter and in the 93 percentile for the last year.

American Century Non-US SC’s portfolio underperformed the MSCI ACWI ex US Small Cap by 5.04% for the quarterand underperformed the MSCI ACWI ex US Small Cap for the year by 9.53%.

Performance vs CAI International Small Cap (Gross)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

Last Quarter Last 1/2 Year Last Last 3 Years Last 5 Years Last 10 YearsYear

(95)

(45)(92)

(53)

(93)

(25)

(86)(75)

(64)

(92)

(43)(87)

10th Percentile (0.05) 8.59 7.72 5.62 14.64 7.4725th Percentile (1.75) 6.76 4.00 3.87 13.24 5.86

Median (3.70) 4.50 (0.17) 2.35 11.72 4.6975th Percentile (5.66) 0.97 (2.58) 0.71 10.15 3.4290th Percentile (7.39) (1.01) (4.57) (1.22) 8.35 2.48

AmericanCentury Non-US SC (8.56) (1.57) (5.63) (0.01) 11.01 4.97

MSCI ACWI exUS Small Cap (3.52) 4.11 3.91 0.76 7.74 2.89

Relative Returns vsMSCI ACWI ex US Small Cap

Rela

tive

Re

turn

s

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

2012 2013 2014 2015 2016

American Century Non-US SC

CAI International Small Cap (Gross)Annualized Five Year Risk vs Return

10 12 14 16 18 204%

6%

8%

10%

12%

14%

16%

18%

20%

American Century Non-US SC

MSCI ACWI ex US Small Cap

Standard Deviation

Re

turn

s


American Century Non-US SCReturn Analysis Summary


Performance vs CAI International Small Cap (Gross)

(80%)(60%)(40%)(20%)

0%20%40%60%80%

100%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

9325 30

93 6859

3197 1784

5396

4841

5316

7370

835


Median (0.17) 10.05 (3.42) 31.13 23.55 (13.64) 24.28 48.29 (48.22) 8.8775th Percentile (2.58) 6.62 (6.43) 28.47 20.84 (15.72) 22.33 36.58 (51.35) 2.8490th Percentile (4.57) 3.40 (9.15) 23.74 15.91 (17.79) 19.96 29.42 (53.33) (2.30)

AmericanCentury Non-US SC (5.63) 12.24 (5.61) 33.23 26.58 (13.72) 24.55 48.01 (51.31) 24.35

MSCI ACWI exUS Small Cap 3.91 2.60 (4.03) 19.73 18.52 (18.50) 25.20 62.91 (50.23) 10.74

Cumulative and Quarterly Relative Return vs MSCI ACWI ex US Small Cap

Re

lative

Re

turn

s

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

35%

2012 2013 2014 2015 2016

American Century Non-US SC CAI Intl Small Cap

Risk Adjusted Return Measures vs MSCI ACWI ex US Small CapRankings Against CAI International Small Cap (Gross)Five Years Ended December 31, 2016

0

1

2

3

4

5

6

7

8

9


(55)

(56) (68)



AmericanCentury Non-US SC 3.96 0.83 0.54



(10)(5)

05

101520253035


(85)(85)

(30)

(95)

10th Percentile 3.64 28.3525th Percentile 1.90 26.04

Median 0.24 24.1675th Percentile (1.15) 21.4090th Percentile (2.84) 19.19

AmericanCentury Non-US SC (1.83) 25.54

MSCI ACWI exUS Small Cap (1.86) 18.29


Fix

ed

Inco

me

Fixed Income

Fixed IncomePeriod Ended December 31, 2016

Quarterly Summary and HighlightsFixed Income’s portfolio posted a (2.16)% return for the quarter placing it in the 62 percentile of the Pub Pln- DomesticFixed group for the quarter and in the 10 percentile for the last year.

Fixed Income’s portfolio outperformed the Blmbg Aggregate Index by 0.82% for the quarter and outperformed theBlmbg Aggregate Index for the year by 4.66%.

Performance vs Pub Pln- Domestic Fixed (Gross)

(5%)

0%

5%

10%


(62)

(91)

(10)

(74)

(7)

(62)

(8)

(71)

(16)

(61)

10th Percentile (0.94) 7.26 4.00 4.33 5.8825th Percentile (1.64) 5.79 3.68 3.65 5.12

Median (2.02) 3.90 3.32 2.87 4.5975th Percentile (2.54) 2.53 2.55 2.10 3.9390th Percentile (2.95) 2.00 2.05 1.75 3.52

Fixed Income (2.16) 7.31 4.31 4.40 5.51

BlmbgAggregate Index (2.98) 2.65 3.03 2.23 4.34

Relative Return vs Blmbg Aggregate Index

Re

lative

Re

turn

s

(3%)

(2%)

(1%)

0%

1%

2%

3%

2012 2013 2014 2015 2016

Fixed Income

Pub Pln- Domestic Fixed (Gross)Annualized Five Year Risk vs Return

1 2 3 4 5 6 70%

1%

2%

3%

4%

5%

6%

7%

8%

Fixed Income

Blmbg Aggregate Index

Standard Deviation

Re

turn

s


Fixed IncomeReturn Analysis Summary


Performance vs Pub Pln- Domestic Fixed (Gross)

(20%)

(10%)

0%

10%

20%

30%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

1074

62384237

4577

19

85 7234 7281

32

79

55

232239

10th Percentile 7.26 1.26 7.82 1.78 11.28 9.66 11.47 23.86 8.26 8.4125th Percentile 5.79 0.80 6.33 0.12 9.15 8.11 9.80 17.41 4.70 7.67

Median 3.90 0.34 5.57 (1.02) 7.23 7.19 8.60 12.39 (1.76) 6.5675th Percentile 2.53 (0.49) 4.35 (1.96) 5.14 5.94 6.85 6.66 (8.50) 5.5490th Percentile 2.00 (2.14) 2.89 (2.92) 3.84 4.44 5.36 1.77 (11.37) 4.39

Fixed Income 7.31 (0.00) 5.77 (0.81) 10.15 6.05 7.04 15.41 (2.32) 7.77

BlmbgAggregate Index 2.65 0.55 5.97 (2.02) 4.21 7.84 6.54 5.93 5.24 6.97

Cumulative and Quarterly Relative Return vs Blmbg Aggregate Index

Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016

Fixed Income Pub Pln- Dom Fixed

Risk Adjusted Return Measures vs Blmbg Aggregate IndexRankings Against Pub Pln- Domestic Fixed (Gross)Five Years Ended December 31, 2016

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0


(23)

(26) (19)


Median 0.86 0.91 0.5675th Percentile 0.22 0.72 (0.10)90th Percentile (0.10) 0.61 (0.43)

Fixed Income 2.03 1.08 1.00

Returns for Domestic Fixed-IncomeRising/Declining Periods


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Rising201203-201612

(8)

(71)



Fixed Income 4.40

BlmbgAggregate Index 2.23


BlackRock U.S. Debt FundPeriod Ended December 31, 2016

Investment PhilosophyThe product was funded during the fourth quarter of 2011. Performance prior is that of the composite.

Quarterly Summary and HighlightsBlackRock U.S. Debt Fund’s portfolio posted a (2.98)% return for the quarter placing it in the 87 percentile of the CAICore Bond Fixed Income group for the quarter and in the 80 percentile for the last year.

BlackRock U.S. Debt Fund’s portfolio outperformed the Blmbg Aggregate Idx by 0.00% for the quarter andoutperformed the Blmbg Aggregate Idx for the year by 0.10%.

Performance vs CAI Core Bond Fixed Income (Gross)

(4%)

(2%)

0%

2%

4%

6%

8%


(87)(87)

(80)(86)

(77)(87)

(95)(97) (95)(97)

(87)(90)


Median (2.73) 3.13 3.39 2.86 2.86 4.9075th Percentile (2.86) 2.80 3.21 2.58 2.58 4.6790th Percentile (2.98) 2.59 2.91 2.42 2.42 4.33

BlackRockU.S. Debt Fund (2.98) 2.75 3.18 2.37 2.37 4.47

Blmbg Aggregate Idx (2.98) 2.65 3.03 2.23 2.23 4.34

Relative Return vs Blmbg Aggregate Idx

Rela

tive

Re

turn

s

(0.10%)

0.00%

0.10%

0.20%

2012 2013 2014 2015 2016

BlackRock U.S. Debt Fund

CAI Core Bond Fixed Income (Gross)Annualized Five Year Risk vs Return

2.0 2.5 3.0 3.5 4.02.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

BlackRock U.S. Debt Fund

Blmbg Aggregate Idx

Standard Deviation

Re

turn

s


BlackRock U.S. Debt FundReturn Analysis Summary


Performance vs CAI Core Bond Fixed Income (Gross)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

80866972

4669

7985

96975059 8590 9696 2222 2022

10th Percentile 4.43 1.51 7.21 (0.66) 8.11 8.78 9.35 17.43 6.50 7.3925th Percentile 3.79 1.13 6.64 (1.10) 7.37 8.21 8.39 13.73 4.78 6.93

Median 3.13 0.84 6.19 (1.46) 6.15 7.89 7.56 10.71 0.96 6.4675th Percentile 2.80 0.52 5.88 (1.84) 5.43 7.22 6.89 8.76 (2.45) 5.6190th Percentile 2.59 (0.03) 5.35 (2.32) 4.74 6.43 6.57 7.10 (7.12) 4.30

BlackRockU.S. Debt Fund 2.75 0.63 6.24 (1.92) 4.34 7.89 6.75 6.02 5.42 7.07

BlmbgAggregate Idx 2.65 0.55 5.97 (2.02) 4.21 7.84 6.54 5.93 5.24 6.97

Cumulative and Quarterly Relative Return vs Blmbg Aggregate Idx

Re

lative

Re

turn

s

(1%)

0%

1%

2%

3%

4%

5%

2012 2013 2014 2015 2016

BlackRock U.S. Debt Fund CAI Core Bond FI

Risk Adjusted Return Measures vs Blmbg Aggregate IdxRankings Against CAI Core Bond Fixed Income (Gross)Five Years Ended December 31, 2016

0.00.20.40.60.81.01.21.41.61.82.0


(92)

(92)

(12)



BlackRockU.S. Debt Fund 0.12 0.71 1.70



2.02.22.42.62.83.03.23.43.63.84.0

Rising201203-201612

(95)(97)



BlackRockU.S. Debt Fund 2.37

Blmbg Aggregate Idx 2.23


PIMCO Fixed IncomePeriod Ended December 31, 2016

Investment PhilosophyPIMCO emphasizes adding value by rotating through the major sectors of the domestic and international bond markets.They also seek to enhance returns through duration management. The product was funded during the third quarter of2002. The custom index is currently composed of 25% Barclays Mortgage, 25% Barclays Credit, 25% Barclays High Yield,and 25% JP Morgan EMBI Global. Prior to 2/1/2012, the custom index was composed of 70% Barclays Mortgage, 15%Barclays Credit, and 15% Barclays High Yield.

Quarterly Summary and HighlightsPIMCO Fixed Income’s portfolio posted a (1.69)% return for the quarter placing it in the 9 percentile of the CAI CorePlus Fixed Income group for the quarter and in the 1 percentile for the last year.

PIMCO Fixed Income’s portfolio outperformed the Custom Index by 0.77% for the quarter and outperformed theCustom Index for the year by 2.65%.

Performance vs CAI Core Plus Fixed Income (Gross)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%


A(9)

B(99)(68)

A(1)

B(99)

(5)

A(3)

B(94)

(4)A(2)

B(100)

(11)

A(14)

B(97)

(30)A(13)

B(97)

(45)


Median (2.33) 4.67 3.54 3.72 5.35 5.5975th Percentile (2.58) 3.78 3.32 3.36 5.11 5.1490th Percentile (2.75) 3.22 3.15 2.99 4.74 4.81

PIMCO Fixed Income A (1.69) 10.09 4.97 5.55 6.25 6.54Blmbg

Aggregate Index B (2.98) 2.65 3.03 2.23 4.34 4.23

Custom Index (2.46) 7.44 4.66 4.60 5.73 5.72

Relative Return vs Custom Index

Rela

tive

Re

turn

s

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2012 2013 2014 2015 2016

PIMCO Fixed Income

CAI Core Plus Fixed Income (Gross)Annualized Five Year Risk vs Return

2.5 3.0 3.5 4.0 4.5 5.01.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

Blmbg Aggregate Index

Custom Index

PIMCO Fixed Income

Standard Deviation

Re

turn

s


PIMCO Fixed IncomeReturn Analysis Summary


Performance vs CAI Core Plus Fixed Income (Gross)

(20%)

(10%)

0%

10%

20%

30%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

A(1)

B(99)5

B(38)A(75)

49

B(61)A(85)

46A(25)B(96)80

A(1)

B(100)17 B(39)

A(77)75A(74)B(100)93

A(34)

B(99)

64

B(5)

A(63)

27

A(8)B(23)48

10th Percentile 6.62 1.04 7.34 1.10 11.56 8.23 11.79 24.21 4.01 7.8425th Percentile 5.46 0.76 6.88 (0.13) 9.75 8.08 10.72 20.69 1.96 6.91

Median 4.67 0.34 6.20 (0.68) 8.67 7.63 9.26 17.42 (5.17) 5.8775th Percentile 3.78 (0.36) 5.69 (1.07) 7.08 6.45 8.11 12.53 (9.33) 5.1490th Percentile 3.22 (1.08) 5.36 (1.66) 6.13 5.54 7.58 11.04 (13.26) 3.79

PIMCOFixed Income A 10.09 (0.39) 5.48 (0.12) 13.40 6.22 8.14 19.85 (5.85) 8.00

BlmbgAggregate Index B 2.65 0.55 5.97 (2.02) 4.21 7.84 6.54 5.93 5.24 6.97

Custom Index 7.44 0.37 6.31 (1.28) 10.62 6.42 7.28 14.24 1.00 5.89

Cumulative and Quarterly Relative Return vs Custom Index

Re

lative

Re

turn

s

(15%)

(10%)

(5%)

0%

5%

10%

2012 2013 2014 2015 2016

PIMCO Fixed Income Blmbg Aggregate Index CAI Core Plus FI

Risk Adjusted Return Measures vs Custom IndexRankings Against CAI Core Plus Fixed Income (Gross)Five Years Ended December 31, 2016

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0


A(26)

B(99)

A(36)

B(100) A(1)

B(97)

10th Percentile 0.89 1.28 0.0225th Percentile 0.54 1.18 (0.26)

Median 0.21 1.07 (0.57)75th Percentile (0.04) 0.98 (0.77)90th Percentile (0.35) 0.88 (0.91)

PIMCOFixed Income A 0.49 1.13 0.61

BlmbgAggregate Index B (0.75) 0.67 (1.01)



1.52.02.53.03.54.04.55.05.56.0

Rising201203-201612

A(2)

B(100)

(11)



PIMCO Fixed Income A 5.55Blmbg

Aggregate Index B 2.23

Custom Index 4.60


Re

al E

sta

te

Real Estate

Real EstatePeriod Ended December 31, 2016

Investment PhilosophyThe Total Real Estate Funds Database consists of both open and closed-end commingled funds as well as separateaccounts managed by real estate firms. The returns represent the overall performance of institutional capital invested inreal estate properties.

Quarterly Summary and HighlightsReal Estate’s portfolio posted a 2.47% return for the quarter placing it in the 24 percentile of the Pub Pln- Real Estategroup for the quarter and in the 44 percentile for the last year.

Real Estate’s portfolio outperformed the NFI-ODCE Value Weight Gr by 0.35% for the quarter and underperformed theNFI-ODCE Value Weight Gr for the year by 0.21%.

Performance vs Pub Pln- Real Estate (Gross)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

16%


(24)(37)

(44)(40)

(42)(22)

(7)(13)

(30)(24)


Median 1.50 8.44 11.18 10.83 4.8075th Percentile (0.16) 6.48 8.97 10.50 4.4990th Percentile (1.55) 4.61 6.39 7.98 4.11

Real Estate 2.47 8.56 11.54 12.74 5.28

NFI-ODCEValue Weight Gr 2.11 8.77 12.07 12.21 5.82

Relative Return vs NFI-ODCE Value Weight Gr

Rela

tive

Re

turn

s

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2012 2013 2014 2015 2016

Real Estate

Pub Pln- Real Estate (Gross)Annualized Five Year Risk vs Return

0 2 4 6 8 10 12 146%

7%

8%

9%

10%

11%

12%

13%

14%

NFI-ODCE Value Weight Gr

Real Estate

Standard Deviation

Re

turn

s


Real EstateReturn Analysis Summary

Return AnalysisThe graphs below analyze the manager’s return on both a risk-adjusted and unadjusted basis. The first chart illustrates themanager’s ranking over different periods versus the appropriate style group. The second chart shows the historical quarterlyand cumulative manager returns versus the appropriate market benchmark. The last chart illustrates the manager’s rankingrelative to their style using various risk-adjusted return measures.

Performance vs Pub Pln- Real Estate (Gross)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

44401114

7954528 4663

383355

33

6262

5940

2525

10th Percentile 9.33 15.46 18.97 16.01 17.55 19.31 23.45 25.44 (2.71) 20.7225th Percentile 8.85 14.13 14.70 14.12 14.46 16.81 17.28 (12.77) (8.25) 15.99

Median 8.44 12.31 12.63 12.28 12.18 13.48 12.53 (25.86) (11.84) 13.4875th Percentile 6.48 8.04 10.89 9.99 9.79 10.89 6.85 (32.60) (18.58) 7.0990th Percentile 4.61 2.72 7.92 6.82 7.71 7.03 (0.23) (41.02) (38.31) (11.60)

Real Estate 8.56 15.38 10.78 16.82 12.36 15.36 12.05 (29.69) (12.89) 15.97

NFI-ODCE ValueWeight Gross 8.77 15.02 12.50 13.94 10.94 15.99 16.36 (29.76) (10.01) 15.97

Cumulative and Quarterly Relative Return vs NFI-ODCE Value Weight Gross

Re

lative

Re

turn

s

(6%)

(4%)

(2%)

0%

2%

4%

6%

2012 2013 2014 2015 2016

Real Estate Pub Pln- Real Estate

Risk Adjusted Return Measures vs NFI-ODCE Value Weight GrossRankings Against Pub Pln- Real Estate (Gross)Five Years Ended December 31, 2016

(10)

0

10

20

30

40

50


(96)

(10)

(1)


Median 12.93 2.53 (0.30)75th Percentile 6.24 1.87 (0.51)90th Percentile 3.06 1.07 (1.06)

Real Estate (0.67) 7.51 0.44


JP Morgan Strategic Property FundPeriod Ended December 31, 2016

Investment PhilosophyJ.P. Morgan’s Strategic Property Fund is an actively managed diversified, core, open-end commingled pension trust fund. Itseeks an income-driven rate of return of 100 basis points over the NFI-ODCE Equal Weight Net Index over a full marketcycle (three to five year horizon) through asset, geographic and sector selection and active asset management. The Fundinvests in high quality stabilized assets with dominant competitive characteristics in markets with attractive demographicsthroughout the United States. The product was funded in the fourth quarter of 2008.

Quarterly Summary and HighlightsJP Morgan Strategic Property Fund’s portfolio posted a 2.16% return for the quarter placing it in the 27 percentile of theCAI Open End Core Commingled Real Estate group for the quarter and in the 50 percentile for the last year.

JP Morgan Strategic Property Fund’s portfolio outperformed the NFI-ODCE Value Weight Gross by 0.04% for thequarter and underperformed the NFI-ODCE Value Weight Gross for the year by 0.40%.

Performance vs CAI Open End Core Commingled Real Estate (Net)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


(27)(32)

(50)(30)

(44)(35)

(20)(21)

(10)(22)

(8)(28)



JP Morgan StrategicProperty Fund 2.16 8.38 11.55 12.46 6.50 8.78

NFI-ODCE ValueWeight Gross 2.11 8.77 12.07 12.21 5.82 7.99

Relative Returns vsNFI-ODCE Value Weight Gross

Rela

tive

Re

turn

s

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

2012 2013 2014 2015 2016

JP Morgan Strategic Property Fund

CAI Open End Core Commingled Real Estate (Net)Annualized Five Year Risk vs Return

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.58%

9%

10%

11%

12%

13%

14%

15%

16%

17%

JP Morgan Strategic Property Fund

NFI-ODCE Value Weight Gross

Standard Deviation

Re

turn

s


JP Morgan Strategic Property FundReturn Analysis Summary


Performance vs CAI Open End Core Commingled Real Estate (Net)

(60%)(50%)(40%)(30%)(20%)(10%)

0%10%20%30%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

50303237 6842 1128 1948

3333 6824

3656

3647

1526

10th Percentile 12.55 18.90 16.81 16.41 12.79 19.15 18.90 (20.77) (2.54) 17.8025th Percentile 9.24 15.77 13.36 14.28 11.67 16.29 15.94 (25.92) (5.51) 16.15

Median 8.39 14.30 11.99 12.66 10.80 15.33 15.09 (28.89) (10.25) 14.5975th Percentile 7.28 13.27 10.53 10.02 8.95 13.91 13.02 (33.22) (14.99) 12.8490th Percentile 6.20 10.26 9.38 8.65 5.49 12.22 9.80 (43.44) (25.83) 7.34

JP Morgan StrategicProperty Fund 8.38 15.24 11.14 15.90 11.84 15.99 14.16 (26.53) (8.09) 16.67



Re

lative

Re

turn

s

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

2012 2013 2014 2015 2016

JP Morgan Strategic Property Fund CAI OE Core Commingled RE

Risk Adjusted Return Measures vs NFI-ODCE Value Weight GrossRankings Against CAI Open End Core Commingled Real Estate (Net)Five Years Ended December 31, 2016

(6)

(4)

(2)

0

2

4

6

8

10

12


(30)

(9)

(20)



JP Morgan StrategicProperty Fund 0.46 8.69 0.27


JP Morgan Income and Growth FundPeriod Ended December 31, 2016

Investment PhilosophyThe product was funded in the fourth quarter of 2005.

Quarterly Summary and HighlightsJP Morgan Income and Growth Fund’s portfolio posted a 3.07% return for the quarter placing it in the 10 percentile ofthe CAI Real Estate Val Added Open End Fds group for the quarter and in the 57 percentile for the last year.

JP Morgan Income and Growth Fund’s portfolio outperformed the NFI-ODCE Value Weight Gross by 0.96% for thequarter and outperformed the NFI-ODCE Value Weight Gross for the year by 0.04%.

Performance vs CAI Real Estate Val Added Open End Fds (Net)

(10%)

(5%)

0%

5%

10%

15%

20%


(10)(33)

(57)(59)

(66)(65)

(39)

(75)

(49)

(4)(34)

(9)


Median 1.80 9.03 13.18 13.77 3.73 4.8475th Percentile 1.29 8.08 9.76 12.20 1.44 1.8690th Percentile 1.09 (1.21) 9.60 9.62 (3.79) (2.72)

JP Morgan Incomeand Growth Fund 3.07 8.81 11.79 14.80 3.75 5.21

NFI-ODCE ValueWeight Gross 2.11 8.77 12.07 12.21 5.82 6.73

Relative Returns vsNFI-ODCE Value Weight Gross

Rela

tive

Re

turn

s

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

2012 2013 2014 2015 2016

JP Morgan Income and Growth Fund

CAI Real Estate Val Added Open End Fds (Net)Annualized Five Year Risk vs Return

0 2 4 6 8 108%

9%

10%

11%

12%

13%

14%

15%

16%

17%

NFI-ODCE Value Weight Gross

JP Morgan Income and Growth Fund

Standard Deviation

Re

turn

s


JPM Income and Growth FundReturn Analysis Summary


Performance vs CAI Real Estate Val Added Open End Fds (Net)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

57596669 7760

370 24

68

1549 5255

361 77

18

4884

10th Percentile 14.39 22.58 24.91 18.81 21.75 45.34 23.11 (41.24) (4.81) 26.1725th Percentile 11.73 19.29 14.68 17.45 17.17 22.42 20.00 (42.72) (13.03) 25.97

Median 9.03 17.05 13.32 15.13 13.28 15.42 17.62 (45.40) (16.25) 17.8075th Percentile 8.08 12.91 11.17 12.70 10.39 11.66 11.32 (61.06) (25.95) 16.4790th Percentile (1.21) 7.73 8.81 10.69 8.43 9.06 2.94 (66.35) (42.95) 15.61

JPM Incomeand Growth Fund 8.81 15.83 10.85 21.23 17.74 28.52 17.11 (44.09) (27.07) 18.11



Re

lative

Re

turn

s

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014 2015 2016

JPM Income and Growth Fund CAI RE Value Add Open End

Risk Adjusted Return Measures vs NFI-ODCE Value Weight GrossRankings Against CAI Real Estate Val Added Open End Fds (Net)Five Years Ended December 31, 2016

(10)

(5)

0

5

10

15

20


(77)

(74)

(44)



JPM Income and Growth Fund (2.61) 4.12 0.73


Infra

stru

ctu

re

Infrastructure

InfrastructurePeriod Ended December 31, 2016

Quarterly Summary and HighlightsInfrastructure’s portfolio underperformed the CPI + 4% by 0.64% for the quarter and outperformed the CPI + 4% for theyear by 5.69%.

0%

2%

4%

6%

8%

10%

12%

14%

Last Quarter

0.31

0.94

Last Year

11.69

5.99

Last 3 Years

7.19

4.90

Last 5 Years

7.91

5.17

Last 8 Years

7.51

5.76

Re

turn

s

Infrastructure CPI + 4%

Relative Return vs CPI + 4%

Re

lative

Re

turn

s

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

2012 2013 2014 2015 2016

Infrastructure

Annualized Five Year Risk vs Return

1 2 3 4 5 6 7 84.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

CPI + 4%

Infrastructure

Standard Deviation

Re

turn

s


Macquarie European InfrastructurePeriod Ended December 31, 2016


Quarterly Summary and HighlightsMacquarie European Infrastructure’s portfolio underperformed the CPI + 4% by 0.46% for the quarter and outperformedthe CPI + 4% for the year by 4.07%.

0%

2%

4%

6%

8%

10%

12%

Last Quarter

0.48

0.94

Last Year

10.07

5.99

Last 3 Years

0.86

4.90

Last 5 Years

7.30

5.17

Last 8 Years

5.18

5.76

Re

turn

s

Macquarie European Infrastructure CPI + 4%


Re

lative

Re

turn

s

(15%)

(10%)

(5%)

0%

5%

10%

15%

2012 2013 2014 2015 2016

Macquarie European Infrastructure


0 2 4 6 8 104.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Macquarie European Infrastructure

CPI + 4%

Standard Deviation

Re

turn

s


SteelRiver Infrastructure North AmericaPeriod Ended December 31, 2016


Quarterly Summary and HighlightsSteelRiver Infrastructure North America’s portfolio underperformed the CPI + 4% by 0.94% for the quarter andoutperformed the CPI + 4% for the year by 4.31%.

0%

5%

10%

15%

20%

Last Quarter

0.94

Last Year

10.31

5.99

Last 3 Years

13.81

4.90

Last 5 Years

7.73

5.17

Last 8 Years

10.15

5.76

Re

turn

s

SteelRiver Infrastructure North America CPI + 4%


Re

lative

Re

turn

s

(15%)

(10%)

(5%)

0%

5%

10%

15%

2012 2013 2014 2015 2016

SteelRiver Infrastructure North America


0 2 4 6 8 104.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

SteelRiver Infrastructure North America

CPI + 4%

Standard Deviation

Re

turn

s


Ca

llan

Re

se

arc

h/E

du

ca

tion

Callan Research/Education

Ρεσεαρχη ανδ Εδυχατιοναλ Προγραmσ

Τηε Χαλλαν Ινστιτυτε προϖιδεσ ρεσεαρχη τηατ υπδατεσ χλιεντσ ον τηε λατεστ ινδυστρψ τρενδσ ωηιλε ηελπινγ τηεm λεαρν τηρουγη χαρεφυλλψ στρυχ−

τυρεδ εδυχατιοναλ προγραmσ. ςισιτ ωωω.χαλλαν.χοm/ρεσεαρχη το σεε αλλ οφ ουρ πυβλιχατιονσ, ορ φορ mορε ινφορmατιον χονταχτ Αννα Wεστ ατ

415.974.5060 / ινστιτυτε≅χαλλαν.χοm.

Νεω Ρεσεαρχη φροm Χαλλαν�σ Εξπερτσ

2017 Deined Contribution Trends Survey | Χαλλαν�σ 10τη

Αννυαλ DΧ Τρενδσ Συρϖεψ ηιγηλιγητσ πλαν σπονσορσ� κεψ

τηεmεσ φροm 2016 ανδ εξπεχτατιονσ φορ 2017.

ESG Factors: U.S. Investor Usage Crystalizes | Τηισ

χηαρτιχλε λοοκσ ατ ενϖιρονmενταλ, σοχιαλ, ανδ

γοϖερνανχε (ΕΣΓ) φαχτορσ φροm τηε περσπεχτιϖεσ

οφ Υ.Σ. ασσετ οωνερσ ανδ γλοβαλ ινϖεστmεντ

mαναγερσ, ρεϖεαλινγ τηε γροωινγ ινχορπορατιον οφ

ΕΣΓ φαχτορσ ιν ινϖεστmεντ δεχισιον mακινγ.

Fixed Income: A Macroeconomic Lightning Rod | Χαλλαν�σ

Οχτοβερ 2016 Ρεγιοναλ Wορκσηοπ αδδρεσσεδ αλτερνατιϖε

ixed income strategies to deal with the shifting market and εχονοmιχ ενϖιρονmεντ ινϖεστορσ φαχε, ασ τηε εξτενδεδ πε−

ριοδ οφ λοω ψιελδσ ιν τηε ωακε οφ τηε Γλοβαλ Φινανχιαλ Χρισισ

αππεαρσ το βε ενδινγ.

ESG Interest and Implementation Survey | Χαλλαν�σ φουρτη

αννυαλ συρϖεψ ον τηε στατυσ οφ ΕΣΓ φαχτορ ιντεγρατιον ιν τηε

U.S. institutional market relects responses from 84 funds representing approximately $843 billion in assets.

2016 Cost of Doing Business Survey | Ιν τηισ συρϖεψ,

Χαλλαν χοmπαρεσ τηε χοστσ οφ αδmινιστερινγ ανδ οπερατινγ

φυνδσ ανδ τρυστσ αχροσσ αλλ

τψπεσ οφ ταξ−εξεmπτ ανδ ταξ−

qualiied organizations in the Υ.Σ. Wε ιδεντιφψ πραχτιχεσ ανδ

τρενδσ το ηελπ ινστιτυτιοναλ ιν−

ϖεστορσ mαναγε εξπενσεσ.

ESG and Investors: What, Why, and Who | Ιν τηισ ϖιδεο,

Μαρκ Wοοδ, ΧΦΑ, οφ Χαλλαν�σ Γλοβαλ Μαναγερ Ρεσεαρχη

γρουπ εξπλαινσ ΕΣΓ ινϖεστινγ πρινχιπλεσ ανδ ηοω ασσετ mαν−

αγερσ χαν ιmπλεmεντ τηεm.

Momentum: The Trend Is Your Friend | Χαλλαν�σ διρεχτορ

οφ Ηεδγε Φυνδ Ρεσεαρχη, ϑιm ΜχΚεε, εξπλορεσ τηε αδϖαν−

tages of momentum-based investing strategies, which proit φροm mαρκετ τρενδσ ιν ωηιχηεϖερ διρεχτιον. Ηε δισχυσσεσ τηε

rationale behind them, how they are deined and harnessed for different diversiication needs, and whether they are ap−

προπριατε φορ φυνδ σπονσορσ.

Περιοδιχαλσ

Private Markets Trends, Fall 2016 | Γαρψ Ροβερτσον, mαν−

αγερ οφ Χαλλαν�σ Πριϖατε Εθυιτψ Ρεσεαρχη γρουπ, δισχυσσεσ

τηε στεαδψ περφορmανχε οφ πριϖατε mαρκετσ ιν 2016, ωιτη ψεαρ−

to-date igures tracking very close to 2015’s levels.

DC Observer, 3rd Quarter 2016 | Τηισ θυαρτερ�σ χοϖερ στορψ

ισ �Μεργινγ DΧ Πλανσ: Μακινγ τηε Τρανσιτιον Σmοοτη.�

Hedge Fund Monitor, 3rd Quarter 2016 | Τηισ θυαρτερ�σ

χοϖερ στορψ ισ �Μυσκετεερσ ορ Μερχεναριεσ...,� ον τηε γροωινγ

αππεαλ οφ τηε mυλτι−στρατεγψ ηεδγε φυνδ χατεγορψ.

Capital Market Review, 3rd Quarter 2016 | Α θυαρτερλψ

mαχροεχονοmιχ νεωσλεττερ προϖιδινγ τηουγητφυλ ινσιγητσ

on the economy and recent performance in equity, ixed in−

χοmε, αλτερνατιϖεσ, ιντερνατιοναλ, ρεαλ εστατε, ανδ οτηερ χαπι−

ταλ mαρκετσ.

ΧΑΛΛΑΝ

ΙΝΣΤΙΤΥΤΕ

Εδυχατιον

4th Quarter 2016

2016 Χοστ οφ Dοινγ Βυσινεσσ Συρϖεψ

Υ.Σ. Φυνδσ ανδ Τρυστσ

ΧΑΛΛΑΝ

ΙΝΣΤΙΤΥΤΕ

Συρϖεψ

Νοϖεmβερ 2016

�Wε τηινκ τηε βεστ ωαψ το λεαρν σοmετηινγ ισ το τεαχη ιτ.

Εντρυστινγ χλιεντ εδυχατιον το ουρ χονσυλταντσ ανδ σπεχιαλιστσ

ενσυρεσ τηατ τηεψ ηαϖε α τοταλ χοmmανδ οφ τηειρ συβϕεχτ

mαττερ. Τηισ ισ ονε ρεασον ωηψ εδυχατιον ανδ ρεσεαρχη ηαϖε

been cornerstones of our irm for more than 40 years.”

Ρον Πεψτον, Χηαιρmαν ανδ ΧΕΟ

EventsΜισσ ουτ ον α Χαλλαν χονφερενχε ορ ωορκσηοπ? Εϖεντ συmmα−

ριεσ ανδ σπεακερσ� πρεσεντατιονσ αρε αϖαιλαβλε ον ουρ ωεβσιτε:

ηττπσ://ωωω.χαλλαν.χοm/εδυχατιον/ΧΙΙ/

Μαρκ ψουρ χαλενδαρσ φορ ουρ Νατιοναλ Χονφερενχε, January 23–25, 2017, ατ τηε Παλαχε Ηοτελ ιν Σαν Φρανχισχο.

For more information about events, please contact Barb Gerraty: 415.274.3093 / [email protected]

The Center for Investment Training Educational SessionsΤηε Χεντερ φορ Ινϖεστmεντ Τραινινγ, βεττερ κνοων ασ τηε �Χαλλαν

Χολλεγε,� προϖιδεσ α φουνδατιον οφ κνοωλεδγε φορ ινδυστρψ προφεσ−

σιοναλσ ωηο αρε ινϖολϖεδ ιν τηε ινϖεστmεντ δεχισιον−mακινγ προ−

χεσσ. Ιτ ωασ φουνδεδ ιν 1994 το προϖιδε χλιεντσ ανδ νον−χλιεντσ αλικε

ωιτη βασιχ− το ιντερmεδιατε−λεϖελ ινστρυχτιον. Ουρ νεξτ σεσσιονσ αρε:

Introduction to InvestmentsΣαν Φρανχισχο, Απριλ 18−19, 2017

Σαν Φρανχισχο, ϑυλψ 25−26, 2017

Χηιχαγο, Οχτοβερ 24−25, 2017

This program familiarizes fund sponsor trustees, staff, and asset mαναγεmεντ αδϖισορσ ωιτη βασιχ ινϖεστmεντ τηεορψ, τερmινολογψ,

ανδ πραχτιχεσ. Ιτ λαστσ ονε−ανδ−α−ηαλφ δαψσ ανδ ισ δεσιγνεδ φορ ιν−

διϖιδυαλσ ωηο ηαϖε λεσσ τηαν τωο ψεαρσ οφ εξπεριενχε ωιτη ασσετ−

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the Introductory “Callan College” session is $2,350 per person. Τυιτιον ινχλυδεσ ινστρυχτιον, αλλ mατεριαλσ, βρεακφαστ ανδ λυνχη ον

each day, and dinner on the irst evening with the instructors.

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take place anywhere—even at your ofice.

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Ινστιτυτε γενερατεσ εαχη ψεαρ50+Τοταλ αττενδεεσ οφ τηε �Χαλλαν

Χολλεγε� σινχε 19943,500 Ψεαρ τηε Χαλλαν Ινστιτυτε

ωασ φουνδεδ1980

Αττενδεεσ (ον αϖεραγε) οφ τηε

Ινστιτυτε�σ αννυαλ Νατιοναλ Χονφερενχε500

Education: By the Numbers

≅ΧαλλανΑσσοχ Χαλλαν Ασσοχιατεσ

Dis

clo

su

res

Disclosures

List of Callan’s Investment Manager Clients

Confidential – For Callan Client Use Only Callan takes its fiduciary and disclosure responsibilities to clients very seriously. We recognize that there are numerous potential conflicts of interest encountered in the investment consulting industry and that it is our responsibility to manage those conflicts effectively and in the best interest of our clients. At Callan, we employ a robust process to identify, manage, monitor and disclose potential conflicts on an on-going basis. The list below is an important component of our conflicts management and disclosure process. It identifies those investment managers that pay Callan fees for educational, consulting, software, database or reporting products and services. We update the list quarterly because we believe that our fund sponsor clients should know the investment managers that do business with Callan, particularly those investment manager clients that the fund sponsor clients may be using or considering using. Please refer to Callan’s ADV Part 2A for a more detailed description of the services and products that Callan makes available to investment manager clients through our Institutional Consulting Group, Independent Adviser Group and Fund Sponsor Consulting Group. Due to the complex corporate and organizational ownership structures of many investment management firms, parent and affiliate firm relationships are not indicated on our list. Fund sponsor clients may request a copy of the most currently available list at any time. Fund sponsor clients may also request specific information regarding the fees paid to Callan by particular fund manager clients. Per company policy, information requests regarding fees are handled exclusively by Callan’s Compliance Department.

Quarterly List as of

December 31, 2016

Knowledge. Experience. Integrity. Page 1 of 2

Manager Name 1607 Capital Partners, LLC Aberdeen Asset Management PLC Acadian Asset Management LLC AEGON USA Investment Management Affiliated Managers Group, Inc. AllianceBernstein Allianz Global Investors Allianz Life Insurance Company of North America American Century Investment Management Amundi Smith Breeden LLC Analytic Investors Angelo, Gordon & Co. Apollo Global Management AQR Capital Management Ares Management LLC Ariel Investments, LLC Aristotle Capital Management, LLC Artisan Holdings Atlanta Capital Management Co., LLC Aviva Investors Americas AXA Investment Managers Babson Capital Management Baillie Gifford Overseas Limited Baird Advisors Bank of America Baring Asset Management Barings LLC Baron Capital Management, Inc. Barrow, Hanley, Mewhinney & Strauss, LLC BlackRock BMO Global Asset Management BNP Paribas Investment Partners BNY Mellon Asset Management Boston Partners Brandes Investment Partners, L.P. Brandywine Global Investment Management, LLC Brown Brothers Harriman & Company

Manager Name Cambiar Investors, LLC Capital Group CastleArk Management, LLC Causeway Capital Management Channing Capital Management, LLC Chartwell Investment Partners ClearBridge Investments, LLC Cohen & Steers Capital Management, Inc. Columbia Management Investment Advisers, LLC Columbia Threadneedle Investments Columbus Circle Investors Corbin Capital Partners, L.P. Cornerstone Capital Management Cramer Rosenthal McGlynn, LLC Credit Suisse Asset Management Crestline Investors, Inc. D.E. Shaw Investment Management, L.L.C. Delaware Investments DePrince, Race & Zollo, Inc. Deutsche Asset Management Diamond Hill Capital Management, Inc. Duff & Phelps Investment Mgmt. Co. Eagle Asset Management, Inc. EARNEST Partners, LLC Eaton Vance Management Epoch Investment Partners, Inc. Fayez Sarofim & Company Federated Investors Fidelity Institutional Asset Management Fiera Capital Global Asset Management First Eagle Investment Management, LLC First Hawaiian Bank Wealth Management Division First Quadrant L.P. Fisher Investments Fort Washington Investment Advisors, Inc. Franklin Templeton Institutional Fred Alger Management, Inc.

Knowledge. Experience. Integrity. December 31, 2016 Page 2 of 2

Manager Name

Fuller & Thaler Asset Management, Inc.

GAM (USA) Inc.

GE Asset Management

GMO

Goldman Sachs Asset Management

Guggenheim Investments

GW&K Investment Management

Harbor Capital Group Trust

Hartford Funds

Hartford Investment Management Co.

Henderson Global Investors

Holland Capital Management

Hotchkis & Wiley Capital Management, LLC

HSBC Global Asset Management

Income Research + Management, Inc.

Insight Investment Management Limited

Institutional Capital LLC

INTECH Investment Management, LLC

Invesco

Investec Asset Management

Ivy Investments

Janus Capital Management, LLC

Jennison Associates LLC

Jensen Investment Management

J.P. Morgan Asset Management

KeyCorp

Lazard Asset Management

Legal & General Investment Management America

Lincoln National Corporation

LMCG Investments, LLC

Logan Capital Management

Logan Circle Partners, L.P.

Longview Partners

Loomis, Sayles & Company, L.P.

Lord Abbett & Company

Los Angeles Capital Management

LSV Asset Management

MacKay Shields LLC

Man Investments Inc.

Manning & Napier Advisors, LLC

Manulife Asset Management

Martin Currie Inc.

Mellon Capital Management

MFS Investment Management

MidFirst Bank

Mondrian Investment Partners Limited

Montag & Caldwell, LLC

Morgan Stanley Investment Management

Mountain Lake Investment Management LLC

MUFG Union Bank, N.A.

Neuberger Berman

Newton Investment Management (fka Newton Capital Management)

Nicholas Investment Partners

Nikko Asset Management Co., Ltd.

Northern Trust Asset Management

Nuveen Investments, Inc.

OFI Global Asset Management

Old Mutual Asset Management

Manager Name

Opus Capital Management Inc.

Pacific Investment Management Company

Parametric Portfolio Associates

Peregrine Capital Management, Inc.

PGIM

PGIM Fixed Income

Pictet Asset Management Ltd.

PineBridge Investments

Pinnacle Asset Management L.P.

Pioneer Investments

PNC Capital Advisors, LLC

Principal Global Investors

Private Advisors, LLC

Putnam Investments, LLC

QMA (Quantitative Management Associates)

RBC Global Asset Management

Regions Financial Corporation

RidgeWorth Capital Management, Inc.

Rockefeller & Co., Inc.

Rothschild Asset Management, Inc.

Russell Investments

Santander Global Facilities

Schroder Investment Management North America Inc.

Scout Investments

SEI Investments

Smith, Graham & Co. Investment Advisors, L.P.

Smith Group Asset Management

Standard Life Investments Limited

Standish

State Street Global Advisors

Stone Harbor Investment Partners, L.P.

Systematic Financial Management

T. Rowe Price Associates, Inc.

Taplin, Canida & Habacht

The Boston Company Asset Management, LLC

The Davis Companies

The Hartford

The London Company

The TCW Group, Inc.

Thompson, Siegel & Walmsley LLC

Timberland Investment Resources, LLC

Tri-Star Trust Bank

UBS Asset Management

Van Eck Global

Versus Capital Group

Victory Capital Management Inc.

Vontobel Asset Management, Inc.

Voya Financial

Voya Investment Management (fka ING)

Waddell & Reed Asset Management Group

WCM Investment Management

WEDGE Capital Management

Wellington Management Company, LLP

Wells Capital Management

Western Asset Management Company

William Blair & Company

Windham Capital Management, LLC

Tucson Supplemental Retirement Plan

4th Quarter 2016 Market Update

February 23, 2017

Gordie Weightman, CFAFund Sponsor Consulting

Paul ErlendsonFund Sponsor Consulting

1Fourth Quarter 2016Knowledge. Experience. Integrity.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Quarterly Real GDP Growth (20 Years)

U.S. Economy

● The first estimate of 4th quarter GDP came out at 1.9%, lagging the 3rd quarter, up 3.5%.● December headline inflation rose 2.1% over the trailing twelve months. Core CPI increased 2.2%. ● December unemployment was 4.7% (down 0.3% from September) and the labor force participation

rate fell to 62.7% (down 0.2%).● The Fed increased the target overnight rate to 0.50% - 0.75% on December 14.● Post the U.S. presidential election, markets diverged – equities up, bonds down

Periods Ending December 31, 2016

Source: Bureau of Labor StatisticsSource: Bureau of Economic Analysis

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-20%

-10%

0%

10%

20%

Inflation Year-Over-Year

CPI (All Urban Consumers) PPI (All Commodities)


Asset Class Performance

for Periods Ended December 31, 2016Periodic Table of Investment Returns

MSCI:EM Gross

(4.1%)

MSCI:EM Gross

11.6%

MSCI:EM Gross

(2.2%)

MSCI:EM Gross

1.6%

MSCI:EM Gross

2.2%MSCI:EAFE

(0.7%)MSCI:EAFE

1.0%

MSCI:EAFE

(1.6%)

MSCI:EAFE

6.5%

MSCI:EAFE

0.7%

Blmbg:Aggregate Idx

(3.0%)

Blmbg:Aggregate Idx

2.6%

Blmbg:Aggregate Idx

3.0%Blmbg:Aggregate Idx

2.2%

Blmbg:Aggregate Idx

4.3%3 Month T-Bill

0.1%

3 Month T-Bill

0.3%

3 Month T-Bill

0.1%

3 Month T-Bill

0.1%

3 Month T-Bill

0.8%

S&P:500

3.8%

S&P:500

12.0%

S&P:500

8.9%

S&P:500

14.7%S&P:500

6.9%

Russell:2000 Index

8.8%

Russell:2000 Index

21.3%Russell:2000 Index

6.7%

Russell:2000 Index

14.5%

Russell:2000 Index

7.1%

Price IdxBlmbg:Commodity

2.5%


11.4%


(11.4%)Price Idx

Blmbg:Commodity

(9.1%)Price Idx

Blmbg:Commodity

(6.2%)

Last Quarter Last Year Last 3 Years Last 5 Years Last 10 YearsBest

Worst


U.S. Equity ReturnsPeriods Ending December 31, 2016

● The RU 1000 was up 3.8% - Financials (+20.3%) and Industrials (+7.7%) were the best performing sectors.

● The RU 2000 was up 8.7% - Financials (+23.3%) and Energy (+17.9%) were the best performing sectors.

● Some top performing sectors through June lagged in fourth quarter - Utilities (+0.7%); Consumer Staples (-1.6%), and REITS (-3.0%).

Source: Barrow Hanley Quarterly Benchmark Review

-4.2%

-3.0%

-1.6%

0.7%

1.2%

3.0%

4.2%

5.2%

5.3%

7.4%

8.2%

20.6%

Health Care

Real Estate

Cons Staples

Utilities

IT

Cons Disc

Russell 3000

Materials

Telecom

Energy

Industrials

Financials

Russell 3000 Sector Returns

2.5%3.2% 3.1%

4.0%

6.9%

8.3%

10.9%

12.5%15.6%

13.1%

20.0%

Economic Sector Exposure (Russell 3000)

Telecom

Utilities

Materials

Real Estate

Energy

Cons Staples

Industrials

Cons Disc

Financials

Health Care

IT


U.S. Equity Style Returns

● Last Quarter: Small cap and value outperformed● Last Year: Small cap outperformed; growth underperformed


Represents 3 best performing asset classes in time period

Represents 3 worst performing asset classes in time period

Represents 3 middle performing asset classes in time period

Large Cap Core is represented by the Russell 1000 Index, Large Cap Value is represented by the Russell 1000 Value Index and Large Cap Growth is represented by the Russell 1000 Growth Index.Mid Cap Core is represented by the Russell Midcap Index, Mid Cap Value is represented by the Russell Midcap Value Index and Mid Cap Growth is represented by the Russell Midcap Growth Index.Small Cap Core is represented by the Russell 2000 Index, Small Cap Value is represented by the Russell 2000 Value Index and Small Cap Growth is represented by the Russell 2000 Growth Index.

R

R R

R

R R

Y

Y

YY

Y Y

G G G G

G

G

G

G G

G G G

Y

Y Y Y

Y Y Y

R R R R R

Value Core Growth Value Core Growth

Large Large

Mid Mid

Small Small 14.1% 8.8% 3.6% 31.7% 21.3% 11.3%

5.5% 3.2% 0.5% 20.0% 13.8% 7.3%

4Q 2016 Annualized 1 Year Returns

6.7% 3.8% 1.0% 17.3% 12.1% 7.1%


97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-40%

-20%

0%

20%

40%

Major Currencies' Cumulative Returns (vs. U.S. Dollar)

Japanese yen U.K. sterling Euro

MSCI:ACWI ex US

MSCI World ex USA

MSCI:EM

MSCI Europe

MSCI Japan

MSCI Pacific ex Japan

Regional Quarterly Performance (U.S. Dollar)

-1.25%

-0.36%

-4.16%

-0.40%

-0.16%

-2.72%

International Equity Returns

● Best performing region was Japan (-0.2%).

● Dollar strength hurt returns: yen (-13%), euro (-6%), and the pound (-5%).

● Energy and Financials were the top and Consumer Staples and REITS the worst performing sectors.

Source: Barrow Hanley Quarterly Benchmark Review

Source: MSCI

*Euro returns from 1Q99. German mark prior to 1Q99.Source: MSCI


-9.7%

-8.7%

-7.8%

-7.1%

-7.1%

-3.3%

-1.4%

-0.7%

2.1%

4.4%

8.9%

10.4%

Cons Staples

Real Estate

Health Care

Utilities

Telecom

IT

Industrials

MSCI EAFE

Cons Disc

Materials

Financials

Energy

MSCI EAFE Sector Returns


-2%

0%

2%

4%

6%

4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

U.S. 10-Year Treasury Yield 10-Year TIPS Yield

Breakeven Inflation Rate

Historical 10-Year Yields

0%

1%

2%

3%

4%

0 5 10 15 20 25 30Maturity (Years)

December 30, 2016 September 30, 2016 December 31, 2015

U.S. Treasury Yield Curves

Yield Curve Changes

● Treasury yields rose across all segments of the curve, most notably near the middle and at the end where increases were greatest. The yield on the 10-year increased 85 bps and the 30-year increased 74 bps.

● Breakeven inflation edged higher on healthy core inflation figures and stable oil prices.

● Worldwide, rates still remain low.


Source: Bloomberg Source: U.S. Department of the Treasury


● Rising rates produced negative returns for all sectors except high yield (+1.8%).

● Worst performing sector of the Aggregate was Treasuries (-3.8%).

● Treasury Inflation Protected Securities (TIPS) outperformed Treasuries on rising inflation expectations (-2.4%).


Total Rates of Return by Bond Sector

Blmbg:Aggregate Idx

Blmbg:Treasury Idx

Blmbg:Credit

Blmbg:Mortgage Idx

Blmbg:Corp High Yld

Blmbg:US TIPS Index

Absolute Returns for Quarter ended December 31, 2016

-2.98%

-3.84%

-2.97%

-1.97%

1.75%

-2.41% -5%

0%

5%

10%

15%

20%

4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

Effective Yield Over Treasuries

U.S. Credit MBSABS CMBSHigh Yield Bellwether 10-Year Swap


Many Equity Markets are Expensive

Source: January 2017 Eaton Vance Monthly Market Monitor


Bonds Appear to be Rich

Source: January 2017 Eaton Vance Monthly Market Monitor

Tucson Supplemental Retirement System

Investment Management Fee Review

February 23, 2017

Gordon Weightman, CFAFund Sponsor Consulting

Paul ErlendsonFund Sponsor Consulting

1Investment Manager Fee ReviewKnowledge. Experience. Integrity.


Peer Group Source: Callan 2014 Investment Management Fee Survey.

Annual Investment Management Fee is based on the contracted fee schedule.

Annual Asset Based Fees Paid to Investment Managers as of 12/31/16

Investment Manager Mandate Vehicle12/31/16 Assets

Annual Investment

Management Fee (%)

Peer Median

(%)

Peer Range (bps)

Alliance Bernstein S&P 500 Index Fund Separate Account $ 56,730,558 0.04% 0.05% 5-9Blackrock Russell 1000 Value Index Fund Commingled Fund $ 52,087,744 0.04% 0.05% 5-9T. Rowe Price US Large Cap Growth Equity Separate Account $ 50,825,099 0.49% 0.56% 48-73Champlain US Mid Cap Core Equity Separate Account $ 28,933,434 0.85% 0.73% 55-85Fidelity Institutional Asset Management US Small Cap Core Equity Separate Account $ 29,591,472 0.77% 0.88% 73-100Causeway International Equity Separate Account $ 72,985,926 0.62% 0.67% 52-80Aberdeen International Equity Commingled Fund $ 70,307,388 0.80% 0.67% 52-80American Century Int'l Small Cap Equity Commingled Fund $ 32,058,905 0.95% 0.90% 76-100Blackrock Passive Core Fixed Income Commingled Fund $ 70,173,029 0.06% 0.06% 4-9PIMCO US Core Plus Fixed Income Separate Account $ 122,717,823 0.49% 0.26% 24-33JP Morgan Strategic Property Fund Core Private Real Estate Commingled Fund $ 48,256,867 1.00% 1.00% 80-110JP Morgan Income and Growth Value Added Private Real Estate Limited Partnership $ 24,105,460 1.20% 1.35% 89-158



Peer Group Source: Callan 2014 Investment Management Fee Survey.

Annual Investment Management Fee is based on the contracted fee schedule.

Annual Asset Based and Incentive Fees Paid to Investment Managers as of 12/31/16

● Three investment products charge asset based fees and incentive fees.– * Macquarie’s performance fee is 20% of returns over 8% hurdle. No performance fees have been paid to date. Fund

inception 3/31/2008. – ** SteelRiver has a 1.5% management fee on invested capital. No carried interest bas been netted from TSRS’ cash

distributions to date. Carried interest would be charged as the fund is liquidated. – *** PIMCO Stocks Plus has a management fee of 0.08% + Incentive Fee of 0.06% = Total Annual Fee of 0.14% for 2016.

– Management Fee: 50% of the first .40% of the amount by which the Partnership’s trading performance exceeds the total rate of return on the S&P 500 for the previous 12-month period.

– Incentive Fee: 20% of the amount by which the Partnership’s trading performance exceeds a sum equal to the total rate of return on the S&P 500 plus .40% for the previous 12-mont period.

Investment Manager Mandate Vehicle

Annual Investment

Management Fee (%)

Peer Median

(%)

Peer Range (bps)

Macquarie* Infrastructure Unlisted European Infrastructure Fund 1.25% NA NASteelRiver** Infrastructure Delaware Limited Partnership 1.50% NA NAPIMCO*** US Large Cap Equity Limited Partnership 0.14% 0.59% 50-75


Summary & Conclusions

Process Summary

● This fee study documents annual investment management fees and incentive fees paid to investment managers employed by the Tucson Supplemental Retirement System.

● Each of TSRS’ managers is benchmarked to an appropriate peer group based on asset class, investment style and amount of assets invested. – Many products have fee schedules with lower cost tiers for different asset thresholds.

● Peer data is from Callan’s 2014 Investment Management Fee Survey. Survey results incorporate responses to a questionnaire from over 200 investment management organizations and 70 fund sponsors.– The survey is available on Callan’s website: www.callan.com

Conclusions

● Four investment products have annual fees that are higher then the median of their respective peer group. – Champlain is 12 bps higher than the median– Aberdeen is 13 bps higher than the median– American Century is 5 bps higher than the median– PIMCO is 23 bps higher than the median

● The majority of TSRS’ managers have lower annual fees than the peer group median and are within the range of fees of the respective peer group.

CITY OF TUCSON, ARIZONA

A Component of the City of Tucson

Fiscal Year JulY 1, 2015 - June 30, 2016

TUCSON SUPPLEMENTAL RETIREMENT SYSTEM

Comprehensive AnnuAl FinAnCiAl report

TUCSON SUPPLEMENTAL RETIREMENT SYSTEM (A Component Unit of the City of Tucson, Arizona)

Comprehensive Annual Financial Report For Fiscal Year Ended

JUNE 30, 2016

Issued by the City of Tucson, Finance Department, Retirement Division

Tucson Supplemental Retirement System June 30, 2016

Table of Contents

Introductory Section Certificate of Achievement for Excellence in Financial Reporting ........................... i Letter of Transmittal ............................................................................................... ii Organization Chart ................................................................................................ vi Administrative Organization / External Investment Managers ............................. vii

Financial Section

Independent Auditors’ Report ............................................................................... 1 Management’s Discussion and Analysis ............................................................... 3 Basic Financial Statements: Statement of Fiduciary Net Position .................................................................... 8 Statement of Changes in Fiduciary Net Position ................................................ 9 Notes to Financial Statements: Summary of Significant Accounting Policies and Discussion of Plan Net Position ..................................................................................... 10 Description of the Plan ............................................................................ 11 Plan Benefits ………. .............................................................................. 12 Contributions and Reserves ................................................................... 13 Net Position……… .................................................................................. 14 Investments ……………. ......................................................................... 14 Credit Risk .............................................................................................. 17 Interest Rate Risk ................................................................................... 19 Foreign Currency Risk ........................................................................... 20 Securities Lending .................................................................................. 22 Derivatives ............................................................................................. 22 Actuarial Methods and Assumptions ...................................................... 24 Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios ......... 25 Schedule of Pension Investment Returns ............................................... 26 Schedule of Contributions ....................................................................... 27 Summary of Actuarial Methods and Assumptions .................................. 28 Other Supplemental Information: Schedule of Administrative Expenses ..................................................... 29 Schedule of Investment Services Expense ............................................. 29

Investment Section (Unaudited) Investment Consultant Letter of Investment Activity ........................................... 30 Outline of Investment Policies ............................................................................. 32 Investment Objectives ......................................................................................... 33 Individual Managers Performance Objectives .................................................... 34


Table of Contents (continued)

Investment Section (Unaudited, continued) Investment Results by Year - Last Ten Fiscal Years ......................................... 35 Schedule of Investment Results ........................................................................ 36 Asset Summary by Manager and Type of Investment ........................................ 38 Manager and Asset Diversification ..................................................................... 39 Asset Allocation – Last Five Fiscal Years ........................................................... 40 Ten Largest Bond Holdings ................................................................................ 41 Ten Largest Stock Holdings ................................................................................ 41 Schedule of Fees ................................................................................................ 42 Schedule of Commissions .................................................................................. 43

Actuarial Section (Unaudited) Actuary’s Certification Letter ............................................................................... 44 Actuarial Cost Method ......................................................................................... 47 Actuarial Assumptions ........................................................................................ 48 Active Members Counts by Age and Service ..................................................... 54 Schedule of Funding Progress ............................................................................ 55 Schedule of Employer Contributions ................................................................... 56 Solvency Test .................................................................................................... 57 Comparative Schedule of Annual Pension Benefits Paid ................................... 58 Schedule of Retirees and Beneficiaries Added / Removed from the Rolls ......... 59 Summary of Benefit Provisions Evaluated or Considered .................................. 60

Statistical Section (Unaudited) Discussion of Statistical Section ......................................................................... 63 Statement of Changes in Plan Net Position, Last Ten Fiscal Years ................... 64 Retired Members by Type of Benefit .................................................................. 66 Average Monthly Payments to New Retirees ..................................................... 67 Demographics of Retired and Active Members .................................................. 68 Employee and Employer Contribution Rates, Last Ten Fiscal Years ................. 69 Benefit and Refund Deductions From Net Position by Type, Last 10 FY’s ......... 70 Retiree Benefit and Service Summary ................................................................ 71

Introductory Section

INTRODUCTORY SECTION


Introductory Section i


Introductory Section ii

December 30, 2016 To the Chairman and Members of the Retirement Board, Tucson Supplemental Retirement System

The Comprehensive Annual Financial Report (CAFR) of the Tucson Supplemental Retirement System (“TSRS” or the “System”) for the year ended June 30, 2016, is herewith submitted. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation rests with the management of TSRS. A narrative introduction to financial statement highlights, overview and analysis for fiscal year 2016 can be found in the Management’s Discussion and Analysis beginning on page 3 of the Financial Section. The Tucson Supplemental Retirement System was established in 1953 to provide a monthly retirement supplement to social security benefits and to the personal retirement savings of its members. The benefits provided to members are supported by payroll contributions made by active members, City contributions and investment returns from the retirement system asset portfolio. For the third consecutive year, the System’s funded status improved, rising from 69.2% to 71.1% for the year ended June 30, 2016. The latest increase is primarily due to asset gains on the smoothed or actuarial value of assets, as well as liability gains due to salary increases coming in less than expected. The TSRS Board of Trustees (the “Board”) has recommended changes during the past several years specifically aimed at improving the financial sustainability of the System. In 2006, the Board initiated variable contribution rates for employees hired after June 30, 2006. In 2011, the Board implemented a reduced cost Tier II plan design for all new employees hired after June 30, 2011. In 2013, the Board adopted a funding policy that changed the amortization period from 15 to 20 years. In 2014, the Board added a rounding policy designed to pay-off the unfunded liability sooner, and reduced the assumed investment rate of return from 7.75% to 7.25%. Record keeping is the responsibility of the Human Resource Department, Employee Benefits and Retirement Section. Preparation of financial statements and control over investment responsibilities for TSRS are performed by the Accounting and Treasury Divisions of the City’s Finance Department. TSRS uses the accrual basis of accounting. This CAFR was prepared in conformance with principles of governmental accounting and reporting set forth by the Governmental Accounting Standards Board (GASB). Internal control is the responsibility of management, with an objective that they are responsible for an accounting of their stewardship of the resources entrusted to their care. Internal accounting controls provide reasonable, but not absolute, assurance that the financial statements are free of any material misstatements because the cost of a control should not exceed the benefits to be derived, the objective is to provide reasonable, rather than absolute assurance the financial statements are free of any material misstatement.


Introductory Section iii

Annually, the budget for the System must be approved by the Board. The budget is also included in the City of Tucson annual budget which is recommended by the City Manager for adoption by the Mayor and Council. Provisions of the Tucson City Code require unanimous approval of all System expenses by the Board. Quarterly, the Board reviews the financial report and expenses listing and ratifies all expenses. Contributions to the System are based on principles of level-cost financing with current service financed as a level percent of payroll on a current basis and prior service amortized as a level percent of payroll over a fixed period of twenty years beginning July 1, 2014.

Funding Status Analysis of the funding progress for TSRS measures the net assets available for benefits against the actuarial accrued liability, in order to arrive at the System’s percent funded ratio. As of June 30, 2016, the System’s funded ratio increased from 69.2% to a 71.1% funded level on an actuarial basis. On a market basis, the System’s funded ratio slightly decreased from 72.4% to 70.6%. The actuarial accrued liability increased from $1,021,377,564 to $1,030,694,946, an increase of .91%. The actuarial value of assets allocated to funding and available for benefits increased by 3.7%, from $706,773,630 to $732,926,710. The unfunded actuarial accrued liability decreased by $16,835,698, or 5.4% in the current year. The System experienced an asset gain of $5.5 million during fiscal year 2016. Although the market value of assets returned less than 7.25% during the year, there were deferred gains in the actuarial value of assets as of June 30, 2015 which were partially recognized in the June 30, 2016 valuation, creating the observed gain. The changes in accrued actuarial liability are primarily due to salary increases less than expected.

Investment Activities

Net investment income amounted to $18,074,097. The net investment income or loss is comprised of bond interest, dividend income, real estate income, security lending income, investment expenses and realized and unrealized gains and losses on securities. The rate of return, on a money-weighted basis, for the total fund for the year was 2.38% (gross of fees). For the last three and five years, the System had annualized returns of 8.13% and 8.01%, respectively.

TSRS asset allocation targets are 34% U.S. equities, 25% foreign equities, 9% real estate, 27% fixed income and 5% infrastructure. These percentages reflect the current diversification posture as of June 30, 2016 and represent the Board’s prudent judgment in the pursuit of maximum returns at acceptable levels of risk.

In accordance with current investment policy, the System’s asset classes were rebalanced throughout the fiscal year. Due to ongoing liquidity requirements needed to pay retiree pensions, $29.0 million was moved out of various asset classes, in monthly increments, to the City’s investment pool account. This amount was utilized throughout the fiscal year to make up the shortfall between pension contributions and distributions. This movement of funds had a “self-balancing” effect between equities, fixed income, real estate and infrastructure which helped to keep those asset classes within their current target allocation percentage ranges.


iv

Major Initiatives Every five years the System’s investment consultant and actuary complete an asset/liability and experience study. These were both completed during the fiscal year ended June 30, 2014, based on data from the June 30, 2013 plan year end. As a result of these studies, a significant reallocation of assets were recommended by the investment consultant and approved in principle by the Board. The new investment policy was approved and implemented during the plan year ended June 30, 2016. This resulted in a reduction of target allocations to U.S. equities by 12% and increase target allocations to international equities, fixed income and real estate by 10%, 1% and 1%, respectively. The increase in the allocation to international equities resulted in an additional allocation to international small-cap equities. American Century Investments was retained by the Board to manage this strategy. Similar to previous years, tight budgets continue to be the norm, restricting the number of employees hired since 2008, thereby reducing the number of employees hired to replace those from attrition. The City offered retirement incentives during fiscal year 2016 as part of the budget development process for fiscal year 2017. As a result of the incentive, there were a total of 188 retirements this fiscal year as opposed to 101 in the prior year.

Professional Services

The Retirement Board retains money managers and other professionals to prudently discharge its fiduciary responsibility for the proper administration of the System. Opinions of the independent auditors and the actuary are included in this report. The professionals retained by the Board are listed on page vii of this report.

Acknowledgments

This report is intended to provide information as a means for making management decisions, complying with statutory provisions, and demonstrating responsible stewardship for assets of the System. The preparation of this report reflects the combined efforts of TSRS staff, the City of Tucson Finance Department, and others that have worked diligently to assure the successful operation of TSRS. Special words of appreciation are due to: Karen Tenace, Deputy Finance Director, Bob Szelewski, Lead Pension Analyst, Dawn Davis, Management Analyst, Ginny Rath-Pepper, Administrative Assistant, Silvia Navarro, Treasury Administrator, Art Cuaron, Finance Manager, Shane Oman, Accounting Administrator, Aaron Williams, Finance Manager and David Roels, Principal Accountant. The direction and support extended by the Board of Trustees is also greatly appreciated. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Tucson Supplemental Retirement System for its comprehensive annual financial report for the fiscal year ended June 30, 2015. This was the 20th consecutive year that the Tucson Supplemental Retirement System has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.



Introductory Section v

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Respectfully submitted,

Neil S. Galassi, CPA Pension Administrator Tucson Supplemental Retirement System


vi

Organization Chart

Pension Administrator

Finance Director

Lead Pension Analyst ManagementAnalyst

AdministrativeAssistant

Board of Trustees

Deputy Director



Introductory Section vii

Administrative Organization

BOARD OF TRUSTEES Robert Fleming Chairman Kevin Larson City Manager’s Appointee Silvia Amparano Finance Director Rebecca Hill Interim Human Resources Director Jorge Hernández Employee Representative Michael Coffey Employee Representative John O’Hare Retiree Representative FINANCE DEPARTMENT Karen Tenace, Deputy Director TREASURY DIVISION STAFF Silvia Navarro Treasury Administrator Art Cuaron Finance Manager RETIREMENT STAFF Neil S. Galassi, CPA Pension Administrator Bob Szelewski Lead Pension Analyst Dawn Davis Management Analyst Ginny Rath-Pepper Administrative Assistant ACCOUNTING David Roels Principal Accountant LEGAL David Deibel Principal Assistant City Attorney External Counsel Yoder & Langford, P.C. Phoenix, AZ

ACTUARY Gabriel, Roeder, Smith & Company Denver, CO AUDITOR CliftonLarsonAllen LLP Tucson, AZ INVESTMENT MANAGERS Aberdeen Asset Management Philadelphia, PA Alliance Capital Management Corporation New York, NY American Century Investments Kansas City, MO BlackRock Institutional Trust Company, N.A. San Francisco, CA Causeway Capital Management Los Angeles, CA Pyramis Global Advisors Smithfield, RI JP Morgan Asset Management San Francisco, CA Pacific Investment Management Company Newport Beach, CA Champlain Investment Partners Burlington, VT Macquarie Capital (USA), Inc. New York, NY SteelRiver Infrastructure New York, NY T. Rowe Price Associates Baltimore, MD INVESTMENT CONSULTANT Callan Associates, Inc. San Francisco, CA CUSTODIAN BANK BNY Mellon – New York, NY

FINANCIAL SECTION

Financial Section


Financial Section 1


Financial Section 2


Financial Section 3

MANAGEMENT’S DISCUSSION AND ANALYSIS We are pleased to provide this overview and analysis of the financial activities of the Tucson Supplemental Retirement System (TSRS) for the plan year ended June 30, 2016. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our Letter of Transmittal, which begins on page ii of this report. Financial Highlights The net position of TSRS as of the close of the plan year ended June 30, 2016 was $726,782,879

(net position restricted for pensions). The net position is available to meet TSRS’s ongoing obligations to plan participants and their beneficiaries.

TSRS’s decrease in total net position restricted for pension benefits was $13,010,668. The

decrease of 1.7% over the prior year was primarily a result of payments to participants exceeding employer and employee contributions and investment income.

TSRS’s funding objective is to establish and receive contributions, which will remain approximately

level from year to year and thereby minimize inter-generational cost transfers. As of June 30, 2016, the date of our last actuarial valuation, the funded ratio for TSRS was 71.1% on an actuarial basis, 70.7% using the market value basis.

Revenues (Additions to Plan Net Position) for the year were $58,332,789, which includes member

and employer contributions plus transfers from other systems and contributions from other sources totaling $40,364,405, investment earnings income and securities lending income and expense of $13,147,097 and a net gain in fair value of investments of $8,758,641 reduced by investment expenses of $3,937,354.

Expenses (Deductions from Plan Net Position) increased from $68,262,756 in the prior year to

$71,343,458 or approximately 4.5%. The net increase in deductions primarily resulted from an increase in pension benefits paid of $2,694,038.

Overview of the Financial Statements The following discussion and analysis is intended to serve as an introduction to TSRS’s financial statements, which are comprised of these components: 1. Statement of Fiduciary Net Position 2. Statement of Changes in Fiduciary Net Position 3. Notes to the Financial Statements Please note that this report also contains other supplementary information in addition to the basic financial statements themselves, including details of the system’s investments, actuarial analysis, and various statistical information found in sections under those names. The Statement of Fiduciary Net Position is a snapshot of account balances at year-end. It indicates the assets available for future payments to retirees and any current liabilities that are owed at this time.


4

The Statement of Changes in Fiduciary Net Position, on the other hand, provides a view of current year additions to and deductions from the plan. Both statements comply with applicable Governmental Accounting Standards Board (GASB) Statements. These pronouncements require certain disclosures and require state and local governments to report using the full accrual method of accounting. TSRS complies with all material requirements of these pronouncements. The Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position report information about TSRS’s activities. These statements include all assets, deferred outflows, liabilities and deferred inflows, using the full accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses were taken into account regardless of when cash is received or paid. All investment gains and losses are shown at trade date, not settlement date. In addition, both realized and unrealized gains and losses are shown on investments, and all capital assets (fixed assets) are depreciated over their useful lives. TSRS’s net position restricted for pensions is displayed on the Statement of Fiduciary Net Position as the difference between assets and liabilities. Over time, increases and decreases in TSRS’s net position is one indicator of whether its financial condition is improving or deteriorating. (See TSRS’s financial statements on pages 8 and 9 of this report). Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the financial statements. (See Notes to Financial Statements on pages 10-24 of this report). The Required Supplementary Information that follows immediately after the notes to financial statements provides new information and schedules due to the GASB 67 implementation in fiscal year 2014. These schedules started with one year as of June 30, 2014, but eventually will build up to ten years of information. Financial Analysis As previously noted, net position may serve over time as a useful indication of TSRS’s financial position (see table on page 5). The total assets of TSRS exceeded its liabilities at the close of the plan year ended June 30, 2016 with $726,782,879 in net position held in trust for payment of ongoing obligations to plan participants and their beneficiaries.

Financial Section


Financial Section 5

Net Position of the Plan

Assets 6/30/16 6/30/15 % changeCash, Cash Equivalents and Receivables 4,828,822 6,759,380 -28.6%Investments 722,370,463 735,578,360 -1.8%Securities Lending Cash Collateral 20,407,804 19,876,248 2.7%Total Assets 747,607,089$ 762,213,988$ -1.9%

LiabilitiesAccounts Payable and Other Payables 416,406 400,538 4.0%Due to Securities Lending Borrowers 20,407,804 19,876,248 2.7%Due to Brokers - 2,143,655 -100.0%Total Liabilities 20,824,210$ 22,420,441$ -7.1%

Total Net Position 726,782,879$ 739,793,547$ -1.8%

At June 30, 2016, the Total Net Position Restricted for Pension of $728,234,240 was available for payment of pension benefits, as shown in the Statement of Plan Position on page 8. This amount represents a decrease of 1.6% from June 30, 2015. Additions to Plan Net Position

6/30/16 6/30/15 % changeEmployer Contributions 33,175,307 33,985,523 -2.4%Employee Contributions 7,083,385 7,531,845 -6.0%Net gain (loss) in Fair Value of Investments 8,758,641 22,467,139 -61.0%Investment and securities lending income (net) 9,315,456 8,335,296 11.8%Total Additions 58,332,789$ 72,319,803$ -19.3%

Additions to Net Assets - TSRS

Employer contributions decreased by $810,216; or 2.4%, and employee contributions decreased by $448,460, or 6.0%. A total of $755,299 was received from employees purchasing service credits, and transfers into the Plan from other systems totaled $27,372 during this fiscal year. Net gain in Fair Value of Investments decreased by $13,708,498, or 61.0% over the prior year; and income from investment and securities lending increased for the current year by $980,160 or 11.8%, resulting primarily from increases in dividends and interest income received during the fiscal year. Deductions from Plan Net Position

The principal purpose for which the System was created was to provide supplemental retirement annuities, survivor benefits, and total and permanent disability benefits to qualified members and their beneficiaries. The costs of such programs include recurring benefit payments as required by the plan design, refunds of contributions to terminated employees, the cost of administering the System and expenses incurred in the investment of the Systems assets.


6

Total deductions for fiscal year 2016 were $71,343,458 representing an increase of 4.5% from fiscal year 2015 deductions. An increase in the payment of retirement benefits of $2,694,038 was the largest factor contributing to the increase in deductions. This was primarily due to retirement incentives offered by the City that resulted in 188 members retiring during the fiscal year which represents an 86.1% increase over prior year member retirements of 101. Additional deductions were transfers to other systems in the amount of $35,912 and member contribution refunds in the amount of $2,499,342. Deductions from Plan Net Position

06/30/16 06/30/15 % changeRetirement Benefits 67,910,496 65,216,458 4.1%Refund of Contributions 2,499,342 2,254,185 10.9%Transfers to Other Retirement Plans 35,912 141,708 -74.7%Administrative Expenses 786,028 650,405 20.9%Miscellaneous Deductions 111,679 - 100.0%Total Deductions 71,343,457$ 68,262,756$ 4.5%

Net Increase/(Decrease) in Plan Position (13,010,668)$ 4,057,047$ -420.7%

Reserves Within net position, the System internally places an amount into a separate Reserve for Employee Contributions for all amounts contributed by members. Deductions are made from this account when the member retires, transfers balances to other retirement systems, or when a member terminates employment and requests a refund. As of the plan year ended June 30, 2016, the balance in this reserve account decreased by $10,448,295 to $133,200,540. Upon retirement, the system places an amount in Reserves for Retirement Benefits equivalent to the present value of the actuarial benefit selected by the member. When the present value is determined, amounts are added to this reserve from amounts in the Reserve for Employee Contributions and from the Unreserved Net Position balance to fully fund the expected liability. As a result of the change in market value of the system assets, the reserve increased for the plan year ended June 30, 2016 by $38,285,643 to $699,577,704. The impact of gains or losses recognized during the plan year ended June 30, 2016 affects the amount remaining in the Unreserved Net Position. Employer funding is added to the Unreserved Net Position balance. At retirement, amounts needed to fully fund retirement benefits are transferred from the Unreserved Net Position to the Reserves for Retirement Benefits. As a result of the change in market values of the system’s assets, the Unreserved Net Position decreased by $40,848,016 to a negative ending balance of $105,995,365. TSRS’s Fiduciary Responsibilities TSRS’s Board of Trustees and management staff are fiduciaries of the pension trust fund. Under the City of Tucson Code the assets can only be used for the exclusive benefit of plan participants and their beneficiaries.

Financial Section


Financial Section 7

Requests for Information This financial report is designed to provide the Retirement Board of Trustees, our membership, taxpayers, investment managers and other interested parties with a general overview of TSRS’s finances and to account for the money it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to:

Tucson Supplemental Retirement System Attention: TSRS Pension Administrator City Hall, 5th floor – Finance Administration Office

255 West Alameda Street Tucson, Arizona 85701 (520) 791-4598


8


Statement of Fiduciary Net Position June 30, 2016

See Accompanying Notes to Financial Statements

Pension TrustASSETSCash and Cash Equivalents 2,058,745$ Interest & Dividends Receivable 1,857,456 Due from Brokers 912,621 Short Term Investments 26,974,161 Securities Lending Cash Collateral 20,407,804 U.S. Treasuries, Agencies & Other Governmental Bonds 73,736,561 Bonds and Preferred Stock 52,865,484 U.S. Equity 242,729,611 International Bonds & Other Fixed Income Instruments 45,039,947 International Equity & Comingled Equity Funds 167,960,887 Real Estate & Comingled Real Estate Funds 64,188,363 Infrastructure Investment Funds 48,875,449 Total assets 747,607,089

LIABILITIESAccounts Payable 411,873 Accrued Payroll Liabilities 4,334 Due to Securities Borrowers 20,407,804 Refundable Deposits 199 Total liabilities 20,824,210

NET POSITIONResticted for Pensions 726,782,879$

Financial Section


Financial Section 9


Statement of Changes in Fiduciary Net Position Year Ended June 30, 2016

See Accompanying Notes to Financial Statements

Additions: Employer Contributions 33,175,307$ Employee Contributions 7,083,385 Net Increase in Fair Value of Investment 8,758,641 Interest, Dividends and Other Income 13,058,239 Securities Lending Income 148,059 Less: Investment Activity Expense (3,937,354) Less: Securities Lending Expense (59,201) Miscellaneous Additions 105,713 Total additions 58,332,789

Deductions: Payments to Participants 67,910,496 Refunds and Transfers to Other Plans 2,535,254 Administrative Expense 786,028 Miscellaneous Deductions 111,679 Total deductions 71,343,457

Change in net position (13,010,668)

Net position, beginning of year 739,793,547

Net position, end of year 726,782,879$


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Notes to Financial Statements Year Ended June 30, 2016

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DISCUSSION OF PLAN NET

POSITION

A. Reporting Entity - Due to the extent of the System’s financial and operational relationship with the City of Tucson, the System is considered a component unit of the City’s financial reporting entity and is included in its Comprehensive Annual Financial Report as a pension trust fund.

B. Basis of Accounting - The System’s financial statements are prepared using the accrual basis of accounting and economic resources measurement focus. Employee and employer contributions are recognized when due, pursuant to formal commitments. Benefits and refunds are recognized when due and payable in accordance with the plan provisions.

C. Investments - Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair value, which is determined by the System custodian in consultation with the System’s investment managers.

The cost of common stock sold is determined on the average cost method. Realized and unrealized gains or losses are reflected in revenues.

D. Cash and Cash Equivalents – Amounts reported as cash and cash equivalents represent the System’s proportionate share of the City’s Investment Pool Account.

E. Deposits - In accordance with the City Charter and state statutes, the System is authorized to deposit money in certificates of deposit and interest-bearing accounts provided that deposits in excess of the insured amount are collateralized. State statutes require collateral pledged for deposits to be held in the System’s name by a bank other than the pledging bank or by the pledging bank’s trust department.

F. Capital Assets – Capital assets of the System currently include moveable equipment items and the capitalized cost of pension administration software, stated at historical cost net of accumulated depreciation. The straight-line method of depreciation for capitalized equipment and software is used over an estimated useful life of 6 years. The capitalization threshold is $5,000. The capital assets were fully depreciated as of June 30, 2016.

G. Benefit Changes – The TSRS Board of Trustees shall determine, pursuant to its formal policy and in its discretion whether the System shall fund an annual supplemental post-retirement benefit payment to retired members and beneficiaries.

H. Administrative Costs - All costs of administering the plan are financed by the employer and member contributions made, based upon recommended contribution rates in effect for the year, applied on active member covered payroll.

Financial Section


Financial Section 11

I. Net Pension Liability – The components of the net pension liability as of June 30, 2016 are as follows:

Total Pension Liability $ 1,030,694,946 Plan’s Fiduciary Net Position 726,782,879 Net Pension Liability 303,912,067

Plan Fiduciary Net Position as a Percentage of Total Pension Liability 70.51%

Covered Employee Payroll $ 115,183,349 Net Pension Liability as a Percentage of

Covered Employee Payroll 262.59%

J. Tax Status of the Plan – The System applied for an IRS determination letter in January 2015. However as of fiscal year end, the IRS has acknowledged receipt but has yet to process the determination. The System received its last favorable determination (qualified status) from the IRS on July 19, 2012.

K. Adoption of GASB No. 72 – In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015. The System reported fair market values in Note 4 as required.

2. DESCRIPTION OF THE PLAN

A. Authorization, Purpose, and Administration of the System - The Tucson Supplemental Retirement System (the “System” or “TSRS”) is a single-employer defined benefit plan for City of Tucson, Arizona (“City”) employees. It was established in the City Charter to provide its members with a supplement to the retirement and disability benefits of the social security system. The System is governed by a seven member Board of Trustees: a chairman who is appointed by the Mayor and Council, the City’s directors of human resources and of finance, two members elected by the membership of the System, a retired member elected by the System’s retirees, and one member appointed by the City Manager. Benefit provisions and changes in benefits or funding are recommended by the Board of Trustees and must be approved by Mayor and Council. B. Plan Membership - The System covers substantially all City of Tucson, Arizona, employees, except for appointed officials and staff who may elect not to join, commissioned police and fire personnel, and elected officials, who are covered under other plans. Employees participate in the System immediately upon beginning employment with the City. Employee membership data as of June 30, 2016 is as follows:

Membership – number of: Retirees and Beneficiaries 2,945 Inactive, Non-retired Members (78 non vested) 390

Active plan participants 2,495 Total Membership 5,830


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C. Plan Benefits

1. Retirement Benefits

Tier I benefit plan: Any employee hired prior to July 1, 2011, who has attained the earlier of age 62, or a combination of the employee’s age and years of creditable service equaling the sum of 80, is entitled to receive monthly retirement benefits calculated at 2.25% of average final monthly compensation multiplied by the number of years of creditable service. Employees hired after July 1, 2009 receive the same benefit, but are required to have a minimum of five years accrued service. Average final monthly compensation is defined as the highest compensation of 36 consecutive months during the 120 months immediately preceding retirement. Accrued unused sick leave and vacation leave at the final salary is included in the member’s service period and is substituted for an equal number of hours at the beginning of the 36 month period for determining the average final salary calculation.

Tier II benefit plan: Any employee hired after June 30, 2011, who has attained the minimum retirement age of age 60, and who also has a combination of employee age and years of service equaling the sum of 85, is entitled to receive monthly retirement benefits calculated at 2.00% of average final monthly compensation multiplied by the number of years of creditable service. Average final monthly compensation is defined as the highest compensation of 60 consecutive months during the 120 months immediately preceding retirement. Accrued unused sick leave and vacation leave at the final salary is not included for member service credits or as a substitution for an equal number of hours at the beginning of the 60 month period final average salary calculation.

An employee who retires after attaining age 55 with 20 or more years of creditable service under Tier I; or after attaining age 60 with 20 or more years of credited service under Tier II, is entitled to early retirement benefits reduced to the actuarial equivalent of the amount to which the employee would have been entitled upon attaining normal retirement.

An employee is always fully vested in his/her individual contributions. Upon termination of employment for reasons other than retirement, employees having five or more years of creditable service (terminated vested participants) may leave their contributions in the System as a deferred retirement, and begin drawing a retirement allowance when they reach either their normal or early retirement eligibility date.

2. Disability Benefits - Employees with ten or more years of accrued service, who are not yet eligible to retire and who have a total and permanent disability may apply for disability retirement.

3. Death Benefits - The beneficiary of an employee who pre-selected a retirement option and died while eligible to retire, shall receive a benefit based upon the selected option if the member has made such an election by June 30, 2009.

The spousal beneficiary of an employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, may choose to receive a benefit equal to a 100% joint and survivor annuity based on the member’s years of credited service and average final monthly compensation at the time of the member’s death, or may elect to receive a lump sum payment of twice the members account balance plus interest, measured on the date of death.

Financial Section



The named beneficiary of an employee who is other than the spouse of the employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, may choose to receive a benefit equal to a 15 year term certain benefit to the named beneficiary, or the beneficiary may elect to receive a lump sum payment of twice the members account balance plus interest, measured on the date of death.

Multiple designated beneficiaries of an employee who died while eligible to receive benefits but who had not pre-selected a benefit option by June 30, 2009, receive a lump sum payment of twice the member’s account balance plus interest, measured on the date of death.

The beneficiary of an employee who was not eligible for any retirement benefits, but had more than five years of creditable service, may receive a lump sum payment of twice the member account balance plus interest, measured on the date of death.

3. CONTRIBUTIONS AND RESERVES

A. Funding Requirements

1. Employee Contributions - Employee contributions are 5% of active member covered payroll for employees hired prior to July 1, 2006. Employees hired after June 30, 2006 are contributing an amount equal to 40% of the actuarially required contribution rate determined annually by the system Actuary. For the fiscal year ended June 30, 2016, the employee blended contribution rate was 5.15%. All member contributions are made by payroll deductions applied to regular pay, based on the approved contribution rates established by the system Actuary, applied as a percent of payroll.

Effective July 1, 2013, the funding policy changed for employees hired after June 30, 2006; requiring a contribution rate that is equal to a range of between 50% and 100% of the normal cost of the members benefit Tier. For Tier I members (hired between July 1, 2006 and June 30, 2011), the contribution rate for fiscal year 2016 was 6.75%. For Tier II members (hired after July 1, 2011), the contribution rate for fiscal year 2016 was 5.25%. A reserve is established for contributions and earnings allocations, less amounts transferred to the reserve for retirement benefits which includes retirement and disability and amounts reserved for terminated employees. If an employee leaves covered employment before attaining five years of service credit, the accumulated contributions plus interest are refunded to the employee or his designated beneficiary. There are no long-term contracts for employee contributions to the plan, and all contributions are made on a bi-weekly basis.

2. Employer Contributions – Employer contributions are based on the annual required contribution rate determined by the Actuary, and are equal to the difference between the recommended total contribution rate and the employee rates, based on a level percentage of payroll method. The contribution rate is determined by the actuary at a level necessary to finance employee participation in the System and to fund the costs of administering the System. The annual rate determined by the Actuary is recommended to the Board of Trustees and considered for approval and adoption by Mayor and Council. There are no long-term contracts for employer contributions to the plan, and all contributions are made on a bi-weekly basis.


14

B. Net Position

Two general types of net position reserves are maintained within the System. The Reserve for Employee Contributions contains the employee contributions for all contributing members of the System, plus allocated interest earnings. At the time an employee retires or defers retirement, the actuarial value of the individual’s retirement benefits is transferred to the Reserve for Retirement Benefits, which is decreased by payments to retirees and increased by interest earnings. The reserves for employee contributions and retirement benefits are fully funded.

Earnings of the System are allocated semi-annually (at June 30 and December 31) to the reserves which comprise net position. For the year ended June 30, 2016, allocations were based on rates of return of 6.00% per annum. Any unallocated earnings remain in unreserved net position.

The net position at June 30, 2016, consisted of the following components:

4. INVESTMENTS

The System is governed by a Board of Trustees. The Board of Trustees is required by City Code,in making investment decisions, to exercise the judgment and care under the circumstances thenprevailing which persons of ordinary prudence, discretion and intelligence exercise in managementof their own affairs, not in regard to speculation, but in regard to the permanent disposition of theirfunds, considering the probable income there from, as well as the probable safety of the capital.Investments of the System are held and managed by investment professionals separately fromthose of other City funds. Quoted market prices have been used to value investments as of June30, 2016.

For those investments that do not have established market exchanges, the fair value is estimatedas objectively as possible by third party appraisals. Real Estate and Infrastructure investmentmanagers utilize third party appraisals to determine fair value of assets under investment.Infrastructure investments pertain to forms of “real” property used for general public purposes thattypically involve partnerships between governmental and private entities. Examples ofinfrastructure investments are toll roads, bridges, pipelines, airports, shipping ports, etc. TheSystem currently participates in two pooled infrastructure funds as well as two real estate funds.

The System’s investments at June 30, 2016 are listed below. These investments are either heldby the System or its agent in the System’s name and are insured, registered or collateralized. Aportion of these investments is subject to credit risk (including custodial credit risk andconcentrations of credit risk), interest rate risk and/or foreign currency risk. The GovernmentAccounting Standards Board (GASB) Statement No. 40 requires the System to disclose such riskswhich are all discussed in the sections that follow.

Reserved for employee contributions $ 133,200,540Reserved for retirement benefits 699,577,704Unreserved net position (deficit) (105,995,365)

Net Position $ 726,782,879

Financial Section



All System investments are reflected in the following schedule at fair value net of accruals with the exception of amounts held in the City’s investment pool account. The City maintains an investment pool account for City funds. Bi-weekly contributions for the Tucson Supplemental Retirement System are held in the City’s investment pool account and are used to pay recurring expenditures. The $2,058,745 cash balance in the City investment pool account is invested in money market funds consisting of U.S. Treasuries and Agencies and separately held issues of federal agency and U.S. corporate bonds with ratings no lower than A2 as reported by Moody’s. The System’s investment in the City’s investment pool represents a proportionate interest in the pool’s portfolio; however, the System’s portion is not identified with specific investments and is not subject to custodial credit risk.

The System categorizes its fair value measurements within the fair value hierarchy established by Generally Accepted Accounting Principles. The hierarchy is based on the valuation inputs used to measure the fair value of assets. The fair value hierarchy, which as three levels, is based on the valuation inputs used to measure an asset’s fair value: Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The System has the following recurring fair value measurements as of June 30, 2016:

Investments Fair Value Level 1 Level 2 Level 3U.S. Issues not on Securities Loan: U.S. Treasuries, Agencies, Governmental Bonds & Comingled U.S. Debt 73,736,561$ 682,742$ 1,055,236$ 71,998,583$

Corporate Bonds & Other Fixed Income Instruments 49,605,225 - 47,730,271 1,874,954 U.S. Equity & Commingled Equity Funds 227,405,668 146,255,603 - 81,150,065 Non-U.S. Issues not on Securities Loan: International Bonds & Other Fixed Income Instruments 45,039,947 - 42,728,235 2,311,712 International Equity & Commingled Equity Funds 166,658,890 63,961,945 - 102,696,945 Subtotal 562,446,291 210,900,290 91,513,742 260,032,259

Investments Held by Broker-Dealers Under Securities Loans with Cash Collateral: U.S. Corporate Bonds & Other Fixed Income Instruments 3,260,259 - 3,260,259 - U.S. Equity 15,323,943 15,323,943 - - International Equity 1,301,997 1,301,997 - - Subtotal 19,886,199 16,625,940 3,260,259 -

Securities Lending Short-Term Collateral Investment Pool 20,407,804 - - 20,407,804 Money Market Funds/Short-Term Investments 26,974,161 - 1,506,595 25,467,566 Real Estate & Commingled Real Estate Funds 64,188,363 - - 64,188,363 Infrastructure Investment Funds 48,875,449 - - 48,875,449 Subtotal 160,445,777 - 1,506,595 158,939,182 Total Deposits and Investments 742,778,267$ 227,526,230$ 96,280,596$ 418,971,441$

U.S. treasuries, agencies, money market, and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for identical securities.


16

Governmental bonds, corporate bonds, other fixed income instruments, and international bonds classified in Level 2 of the fair value hierarchy are valued based on significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs. Securities valued at Level 3 are based on significant unobservable outputs based on all information available in the circumstances to the extent observable outputs are not available. The fair value of comingled U.S. debt, comingled equity funds, and related short-term investments classified in level 3 represent the value of unit positions in funds that are not publicly traded on an exchange. Fair value of these securities can be impacted by redemption restrictions imposed by the fund managers. Real estate, comingled real estate funds, and infrastructure investment funds are valued using discounted cash flow techniques. Investment Policy – TSRS Investment Policy and asset class allocations are established by the TSRS Board of Trustees and may be amended by majority vote of its members. The TSRS Board establishes investment policies to pursue an investment strategy that reduces risk through prudent diversification of the portfolio across a broad selection of distinct asset classes. Long-term Expected Return on Plan Assets - Expected rates of return are determined using a building-block method in which best-estimated ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return were adopted by the Plan’s trustees after considering input from the Plan’s investment consultant and actuary. For each major asset class that is included in the Plan’s adopted target asset allocation as of June 30, 2016, these best estimates are summarized in the table shown below: Long term expected return on Plan Assets:

Asset Class Target Allocation

Expected Arithmetic

Returns Large Cap U.S. Equities 26% 6.35% Small/Mid Cap U.S. Equities 8% 7.60% International Equities 25% 7.30% Fixed Income 27% 0.80% Real Estate 9% 4.95% Infrastructure 5% 6.50% Total

100%

Weighted Average Arithmetic Returns, in proportion to asset allocation

5.07%

Financial Section



Concentrations – TSRS did not hold investments (other than those explicitly guaranteed by the U.S.Government) in any one organization that represents 5 percent or more of the Plan’s fiduciary netposition at June 30, 2016. Rate of Return – For the year ended June 30, 2016, the annual money-weighted rate of return on thePlan’s investments, net of pension plan investment expenses, was 2.38%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Below is a table providing the sensitivity of the net pension liability to changes in the discount rate. In particular, the table presents the plan’s net pension liability, if it were calculated using a single discountrate that is 1 percentage-point lower or 1 percentage-point higher than the single discount rate:

Current Single Dis count

1% Decrease Rate Assumption 1% Increase 6.25% 7.25% 8.25%

$ 407,718,893 $ 302,460,706 $ 212,694,267

Credit Risk – As defined by GASB Statement No. 40, credit risk is the risk that an issuer or othercounterparty to an investment will not fulfill its obligations. Associated with credit risk is concentrationof credit risk and custodial credit risk. Concentration of credit risk is the risk of loss attributed to themagnitude of a government’s investment in a single issuer. Custodial credit risk for deposits and investments is the risk that, in the event of the failure of a depository financial institution or the counterparty to a transaction, a government will not be able to recover deposits or will not be able torecover collateral securities that are in the possession of an outside party. The System presently maintains two externally managed fixed income (bond) accounts which areexposed to some form of credit risk. The assets in the first account are actively managed while the assets in the second account are invested in a commingled bond index fund (passively managed). The TSRS Board has given the actively managed account manager discretion to invest in a broad arrayof public and private asset classes, instruments and investment vehicles in order to meet or exceed theagreed upon investment return custom benchmark. However, the following specific investment policyguidelines pertain to this manager:

The maximum position in a single issuer (excluding obligations of U.S. Government and its Agencies) should not exceed 5% of the portfolio’s assets at current market value

The portfolio should maintain an average quality of at least “BB+” Money market instruments must be rated in one of the two highest categories by a nationally

recognized rating agency The minimum rating of individual issues should be CCC (based on market value) as rated by

Moody’s, Standard & Poor’s or Fitch The passive fund is expected to replicate, as close as possible, the characteristics, quality and performance of its underlying index, the BC Aggregate Bond Index.

The System currently does not have a policy regarding custodial credit risk for deposits or investmentsas defined in the Credit Risk section above.


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The System had the following credit risk structure as of June 30, 2016:

Investment Type HoldingsAverage Credit

Rating (1) Fair Value Percent of

TotalCash & Short Term Investment Funds: Cash and Cash Equivalents 26 Aa1 26,668,184 Fixed Income Sw aps & Options 23 Aa1 305,977

Subtotal 49 26,974,161 13.58%

U.S. Agency & Other Governmental Obligations: Municipal Bonds 5 B3 1,055,236 Futures 3 Aaa 682,742 BlackRock U.S. Debt Fund 1 Aaa 71,998,583

Subtotal 9 73,736,561 37.12%

U.S. Corporate Bonds & Other Fixed Income Instruments: Asset Backed Securities 3 Baa3 321,680 Collateralized Mortgage Obligations 5 Aa2 557,771 Fixed Income Sw aps & Options 19 Baa3 (540,314) (2) Banking & Finance 19 Ba3 7,647,612 Health Care 2 Ba1 1,096,375 Oil, Gas & Chemicals 25 Baa1 6,144,979 Communications 3 Ba3 926,698 Utilities 14 Baa3 4,460,556 Other Corporate Issues 47 Ba3 15,114,616 PIMCO Private Mortgage Sector Fund 4 Aa1 17,135,511

Subtotal 141 52,865,484 26.62%

International Bonds & Other Fixed Income Instruments: Banking & Finance 19 Baa1 6,674,294 Fixed Income Sw aps & Options 18 Aa1 (244,992) (2) Government Bonds 23 Baa3 8,711,287 Futures 4 Aaa (98,464) (2) Communications 7 B3 1,952,317 Oil, Gas & Chemicals 12 Ba1 5,581,777 Utilities 5 Ba3 1,582,762 Other Corporate Issues 58 Ba2 20,880,966

Subtotal 146 45,039,947 22.68%

TOTAL 199 198,616,153 100%

Footnotes (1) Per Moody’s Investors Service, Inc. (Moody’s) (2) A negative value in any of the instruments noted above is the result of netting long and short positions against each other. This strategy is utilized as a means to mitigate interest rate risk from holding long positions in mortgages and / or corporate bonds.

Financial Section



Interest Rate Risk – As defined by the Government Accounting Standards Board (GASB) in Statement 40, interest rate risk is the risk that changes in interest rates will adversely affect the fair value of investments. For fixed income securities, there is an inverse relationship between the change in interest rates and their fair value. For example, in a rising interest rate environment the value of fixed income securities will tend to fall by varying degrees depending on the length of their maturities. In general, the value of fixed income securities with a longer duration will tend to decrease more than shorter duration securities in a rising interest rate environment.

The System’s investment policy regarding interest rate risk for the actively managed fixed income account, is to limit duration to within 30% of the custom benchmark which is defined as 25% BC Mortgage Index, 25% BC Credit Index, 25% BC High Yield Index and 25% JPM EMBI Global Index. The passive fund should match, as close as possible, the maturity structure and duration of the BC Aggregate Bond Index.

The System had the following maturity structure as of June 30, 2016:

Investment Type Less Than 1 1 - 5 6 - 10 More Than 10 Fair ValueCash & Short Term Investment Fund 26,974,161$ -$ -$ -$ 26,974,161$

U.S. Agency & Other Governmental Obligations - - 362,352 1,375,626 1,737,978

BlackRock U.S. Debt Fund - - 71,998,583 - 71,998,583

U.S. Corporate & Other Fixed Income Instruments 22,071,318 11,681,347 13,866,723 5,246,096 52,865,484

International Bonds & Other Fixed Income Instruments 3,349,845 11,708,824 18,677,862 11,303,416 45,039,947

TOTAL 52,395,324$ 23,390,171$ 104,905,520$ 17,925,138$ 198,616,153$

Effective Duration:Active Account 4.69 years

Passive Account 5.17 yearsNote: The information indicated has been presented using the specific identification method

Maturity StructureInvestment Maturities (in Years)


20

Foreign Currency Risk – As defined by the Governmental Accounting Standards Board (GASB) in Statement 40, foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit.

The TSRS Board has given the System’s international equity managers discretion to invest in a broad array of common and preferred stocks, convertibles and warrants of companies headquartered outside of the United States in order to meet or exceed their agreed upon investment return benchmarks. However, the following specific investment policy guidelines pertain to these managers:

Investments in any single country market should not exceed more than 4 times the weight of the country in the benchmark index or 50% of portfolio assets, whichever is lower

If a country has a greater than 50% weight in the index, the maximum exposure to that country in the portfolio may be as high as its weight in the index

No more than 35% of each manager’s portfolio should be invested in “emerging markets” (i.e., markets that are not included in the Morgan Stanley Capital International Europe, Australia and Far East Index)

Managers are permitted to enter into hedging strategies, including cross-currency hedges, using forward currency exchange contracts and currency options

Derivatives should not be used for the purpose of speculation or for leveraging the portfolio

Financial Section



Foreign Currency Risk (continued from previous page)

The TSRS fund had the following foreign currency risk exposure as of June 30, 2016:

Currency Type

Cash & Cash Equivalents

(1)Fixed Income

(1) Equity Real EstateInfra-

structure

Foreign Exchange Contracts

(2) Fair ValuePercent of

TotalAustralian Dollar (30,354)$ 676,745$ $ 646,391 0.089%

Brazil Real 31,461 31,461 0.004%

Canadian Dollar 390 115,502 115,892 0.016%

Euro Currency Unit 339,903 14,041,146 18,242,406 23,137,016 (122,727) 55,637,744 7.702%

Japanese Yen 19,432 8,673,840 8,693,272 1.203%

Mexican Peso 31 31 0.000%

Polish Zloty 11,663 11,663 0.002%

British Pound Sterling 187,345 4,433,413 14,958,329 24,263 19,603,350 2.714%

S. African Comm Rand 8,361 8,361 0.001%

Swiss Franc 723 89,561 7,747,594 7,837,878 1.085%

Currency Subtotals 568,955 18,564,120 50,414,416 - 23,137,016 (98,464) 92,586,043 12.816%

U.S. Dollar 26,443,737 148,597,471 364,133,674 64,188,363 25,738,433 682,742 629,784,420 87.183%

TOTAL 27,012,692$ 167,161,591$ 414,548,090$ 64,188,363$ 48,875,449$ 584,278$ 722,370,463$ 100%3.74% 23.14% 57.39% 8.89% 6.77% 0.08% 100%

Footnotes:(1) A negative value in the instruments noted above is the result of netting long and short positions against each other. This strategy is utilized as a means to mitigate interest rate risk obtained from holding long positions in mortgages and/or corporate bonds.(2) A negative currency position is obtained by accepting an obligation to deliver the designated currency to a counterparty at a specified date in the future. This position is favorable for portfolio returns if the currency depreciates in value versus the U.S. dollar over the period of the contract.

Foreign Currency Risk Exposure


22

5. SECURITIES LENDING

The Board of Trustees for the Tucson Supplemental Retirement System permits the custodian bank, BNY Mellon, to lend securities to broker-dealers and other entities. Each loan is executed with a simultaneous agreement to return the collateral for the same securities in the future. The custodian bank lends U.S. securities for collateral initially valued at 102% of the fair value of the securities plus any accrued interest. Non-U.S. securities are loaned for collateral initially valued at 105% of the fair value of the securities plus any accrued interest. Collateral is marked-to-market daily. As of June 30, 2016, the carrying amount and fair value of securities on loan was $19,886,199. If the fair value of the pledged collateral falls below the specified levels, additional collateral is required to be pledged by the close of the next business day. In the event of a borrower’s default, the custodian bank is obligated to indemnify the lender if, and to the extent that, the fair value of the collateral is insufficient to replace the loaned securities. BNY Mellon’s responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examination Council regulations covering securities lending. Although the average term of the security loans is one week, each loan can be terminated at will by either the lender or the borrower. Cash collateral is invested in a short-term investment pool, which on average had a weighted maturity of 30 days. The relationship between the maturities of the investment pool and the security loans are affected by the maturities of the loans made by other entities that use the agent’s pool. The lender cannot pledge or sell collateral securities received until, and unless, a borrower defaults. There were no significant violations of legal or contractual provisions and no borrower or lending agent default losses known to the securities lending agent during the fiscal year. As of June 30, 2016, the lenders had no credit risk exposure to borrowers because the fair value of collateral held exceeded the fair value of securities loaned. 6. DERIVATIVES

The Tucson Supplemental Retirement System permits the limited use of derivatives by its international equity and external fixed income managers. Examples of derivative instruments permitted, but not limited to, are forward foreign currency exchange contracts, financial futures, options, swaps and swaptions. All derivative instruments utilized are considered “Investment Derivative Instruments” as defined in GASB 53 “Accounting and Financial Reporting for Derivative Instruments.” The statement addresses the recognition, measurement, and disclosure regarding derivative instruments entered into by the System. The following table is a summary of the various derivative instruments utilized by the System’s external fixed income manager as of June 30, 2016. Changes in Fair Value are included as part of the overall Increase (Decrease) in Fair Value of Investments in the Statement of Changes in Plan Net Position. Fair Value is included as part of investments listed under Corporate Bonds & Other Fixed Income Instruments in the Statement of Plan Net Position.

Financial Section



Investment Derivative Instrument

Notional Amount (1)

Changes in Fair Value Fair Value (2) Principal Risk

Government Futures 8,400,000 3,508,833$ 11,428,985$ Interest Rate

Options 21,700,000 35,969$ (27,540)$ Credit

Currency Forwards (Net) 1,469,008,379 1,978,981$ 24,466,767$ Foreign Currency

Credit Default Swaps 1,665,000 370,598$ (559,508)$ Credit

Interest Rate Swaps (15,050,000) (182,802)$ (225,643)$ Interest Rate

Footnotes:(1) The Notional Amount is the number of currency units (stated in U.S. and/or foreign currencies), shares or other units specified in the derivative instrument. It is a stated amount on which payments depend. (2) The notional fair value of the underlying securities is reported in this schedule. Fair market value as reported in the financial statements is presented net of long and short posiitons.

Derivatives

Whenever possible, the investment manager bases the valuation of derivatives on market information; however, where market quotes are not readily available, an independent third party pricing vendor is utilized. Exchange traded derivatives are an example of derivatives where market quotes are available, whereas over-the counter (OTC) derivatives are not traded over standardized markets. In addition to the principal risks noted above, Forward Foreign Currencies, Credit Default Swaps and Interest Rate Swaps are also subject to counterparty risk. In general, counterparty risk is the risk of loss of an amount expected to be delivered under an agreement in the event of the default or bankruptcy of the counterparty. Generally, counterparty risk is controlled through dealing with a number of different counterparties reasonably deemed to be creditworthy by the investment manager and using agreements with counterparties that permit netting of obligations. Counterparty risk with swaps is limited by execution under standardized International Swap and Derivatives Association Agreements. These contracts allow for the mutual exchange of collateral should an overall unsecured market value exceed a certain threshold (e.g., $250,000). Credit, interest rate and foreign currency risks are addressed in previous sections of Note 4. These risks, applicable to other fixed income and foreign investments, are not substantially different from principal risks associated with derivative instruments.


24

7. ACTUARIAL METHODS AND ASSUMPTIONS

The total pension liability was determined by an actuarial valuation as of June 30, 2016, using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation 3.00% Salary increases 3.00% to 6.50% including inflation Investment Rate of Return 7.25% Mortality rates were based on the RP-2000 Combined Mortality Table for males and females, projected with Scale BB to 2020. The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for period July 1, 2008 – June 30, 2013. Additional Details: In the June 30, 2016 actuarial valuation, the level-percent contribution requirements and actuarial present values are calculated using the entry age actuarial cost method. The actuarial assumptions included (a) 7.25 percent investment rate of return (net of administrative expenses); (b) projected salary increases at 3.00% compounded annually; and (c) additional projected salary increases of 0.00% to 3.50% attributable to seniority / merit. The assumptions do not include postretirement benefit increases or inflation assumptions, because there is no guarantee or requirement that future increases will be granted. The projection of benefits for financial accounting purposes also does not explicitly incorporate the potential effects of legal or contractual funding limitations, since they do not apply. The actuarial value of assets was determined using techniques that spread the effects of short term volatility in the market value of assets over a five-year smoothing period, which was first adopted for the plan year ended June 30, 2009. The Unfunded Actuarial Accrued Liability is being amortized as a level percentage of payroll on an open period of 20 years; the new amortization period was first adopted for the plan year ended June 30, 2013. There were no benefit changes during the year ended June 30, 2016. The assumptions are selected based upon the recommendation of the plan’s actuary and adopted by the Board of Trustees. Measurement of Net Pension Liability: The net pension liability is measured as the total pension liability, less the amount of the pension plan’s fiduciary net position. In actuarial terms, this will be the accrued liability less the market value of assets not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer’s contribution requirements. A single discount rate of 7.25% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.25%. The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investment was applied to all period of projected benefit payments to determine the total pension liability.

Financial Section



REQUIRED SUPPLEMENTARY INFORMATION

2016 2015 2014Total Pension Liability

Service Cost 14,279,065$ 15,753,944$ 14,825,019$ Interest Cost 72,013,831 70,688,775 66,915,612Differences Between Expected and Actual Experience (6,529,764) (7,815,270) 325,889Changes of Assumptions - (31,210,057) 76,945,563Benefit Payments, Including Refunds of Member Contributions (70,445,750) (67,612,351) (66,002,013)Net Change in Total Pension Liability 9,317,382 (20,194,959) 93,010,070

Total Pension Liability - Beginning 1,021,377,564 1,041,572,523 948,562,453Total Pension Liability - Ending 1,030,694,946$ 1,021,377,564$ 1,041,572,523$

Plan Fiduciary Net PositionContributions - Employer 33,175,307$ 33,985,523$ 34,189,288$ Contributions - Member 7,083,385 7,531,845 7,338,543Net Investment Income 17,820,325 30,684,188 119,729,154Benefit Payments, Including Refunds of Member Contributions (70,445,750) (67,612,351) (66,002,013)Administrative Expense (786,028) (650,405) (735,739)Other 142,093 118,247 171,077Net Change in Plan Fiduciary Net Position (13,010,668) 4,057,047 94,690,310

Plan Fiduciary Net Position - Beginning 739,793,547 735,736,500 641,046,190Plan Fiduciary Net Position - Ending 726,782,879$ 739,793,547$ 735,736,500$

Net Pension Liability - Ending 303,912,067$ 281,584,017$ 305,836,023$

Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 70.65% 72.43% 70.64%

Covered Employee Payroll 115,183,349$ 123,414,560$ 126,639,423$

Net Pension Liability as a Percentage of Covered Employee Payroll 262.59% 228.16% 241.50%

Note: This schedule is intended to display ten years of information. The additional years will be displayed as they become available.

SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOSYEAR ENDED JUNE 30, 2016


26

2016 2015 2014

Annual Money-Weighted Rate of Return, Net of Investment Expense 2.38% 4.17% 19.11%

displayed as they become available.

CITY OF TUCSON, ARIZONAREQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF PENSION INVESTMENT RETURNS

Note: This schedule is intended to display ten years of information. The additional years will be

Financial Section



Schedule of Contributions

Fiscal Year Ending

June 30,

Actuarial Valuation Date

June 30,

Actuarially Determined

Rate (%)

Actual Contribution

Rate (%)Actual Contribution

Rate Deficiency

(Excess) (%)

Contribution Deficiency (Excess)

Covered Payroll at Val

Date

Covered Payroll during

FY

2007 2005 15.04 15.04 25,958,330 0.00 n/a 162,149,200 162,149,200 2008 2006 15.21 15.21 25,232,745 0.00 n/a 155,855,162 155,855,162 2009 2007 14.67 14.67 24,358,460 0.00 n/a 159,249,822 159,249,822 2010 2008 16.84 16.84 27,601,156 0.00 n/a 153,982,399 153,982,399 2011 2009 18.02 18.02 28,756,890 0.00 n/a 149,924,649 149,924,649 2012 2010 23.38 23.38 34,824,621 0.00 n/a 141,459,257 141,459,257 2013 2011 28.77 28.77 34,523,315 0.00 n/a 121,631,362 121,631,362 2014 2012 27.09 27.09 34,189,288 0.00 (94,382)$ 125,003,023 125,857,903 2015 2013 26.95 27.50 33,985,523 -0.55 143,801$ 125,857,903 126,639,423 2016 2014 27.03 27.50 33,175,307 -0.47 183,649$ 126,639,423 123,414,560


28

Summary of Actuarial Methods and Assumptions

NOTES TO SCHEDULE OF CONTRIBUTIONS

Valuation Date:

June 30, 2014

Notes

Actuarially determined contribution rates are calculated for the fiscal year beginning one year after the valuation date (one year lag).

Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Open Remaining Amortization Period 20 years Asset Valuation Method 5 Year smoothed market Inflation 3.00%

Salary Increases 3.00% to 6.50% including inflation Investment Rate of Return 7.25%

Retirement Age Age-based table of rates that are specific to the type of eligibility condition. Last updated for the 2009 valuation pursuant to an experience study of the period 2009 - 2013.

Mortality

Pre and Post-retirement: RP-2000 Combined Mortality Table for males and females projected with Scale BB to 2020. Disabled retirement: RP-2000 Disabled Mortality Table for males and females.

Other Information: Notes There were no benefit changes during the year.

Financial Section



Supporting Schedules June 30, 2016

Schedule of Administrative Expenses

Personal ServicesStaff Salaries 233,171$ Fringe Benefits 125,278

Total Personal Services 358,449

Professional ServicesAccounting 204,200 Actuary 59,282 Audit 23,845 Physician Services 3,600 Legal 34,403

Total Professional Services 325,330

Other Administrative ExpensesComputer Software Maint. & Hosting 36,510 Insurance 29,160 Other 13,356 Postage 9,557 Printing and Supplies 10,611 Professional Development 3,055

Total Other Administrative Expense 102,249

Total Administrative Expenses 786,028$

Trust & Custody 291,919$

Investment Consultant 204,435

Investment Management 3,441,000

Total Investment Expenses 3,937,354$

Schedule of Investment Services Expense

INVESTMENT SECTION

Investment Section

Investment Section 30

Callan Associates Inc. 1900 16th Street Suite 1175 Denver, CO 80202

.

Main 303.861.1900 Fax 303.832.8230 www.callan.com

September 26, 2016 The Board of Trustees Tucson Supplemental Retirement System 255 W. Alameda Street Tucson, AZ 85701 Dear Board Members, This letter reviews the general economic environment, capital markets and investment performance of the Tucson Supplemental Retirement System (“TSRS”) for the fiscal year ended June 30, 2016. Economic Overview as of June 30, 2016 There were several macro level events that created volatility in capital markets in the second half of calendar year 2015. Among these were fears of Greece exiting the E.U., unrest in the Middle East, a slowing Chinese economy, and oil prices that slid 34% over those six months. In December, spurred by positive jobs numbers and inflation figures, the Federal Open Market Committee (FOMC) moved off of its zero rate policy and increased the federal funds target range to 0.25%-0.50%. In the first half of 2016, as oil prices stabilized in mid-February, major global indices reversed course and began to climb. The FOMC chose not to raise rates further at their June 2016 meeting and cited weak business investment and a disappointing May jobs figure as the main reasons. Employers added an average of 175,000 positions to payrolls each month throughout the second half of the fiscal year, and the unemployment rate ended June at 4.9%, down from the July 2015 reading of 5.3%. June headline and core CPI rose 1.0% and 2.3% year-over-year, respectively. U.S. GDP growth has been positive and modest over the last fiscal year. Based on the most recent estimate, quarterly annualized GDP growth for the second quarter 2016 was 1.1%. Mirroring the slow growth rate in the U.S., euro zone GDP rose 1.6% during the same time period. As the calendar turned from 2015 to 2016, concerns about global growth were reaffirmed. Japan continued its quantitative easing tactics by reducing its benchmark interest rate to -0.1% in an attempt to stimulate its growth and capital markets. Japan and Germany became the second and third countries to issue negative yielding 10- year debt. In December, the European Central Bank announced a new stimulus package that investors found uninspiring. Despite these events, markets rallied in March and April but momentum stalled in late May when concerns regarding mediocre global growth compounded with anxiety about the June U.K. referendum vote choked the market’s progress. The U.K. surprised the world on June 23rd by voting to exit the E.U., leading to a sharp selloff erasing two trillion dollars from global equity markets in a single day. The pound hit a 31-year low and the U.S. dollar rallied. Global markets recovered swiftly after the initial downturn reducing fears of a systemic event. Total Fund Review In fiscal year 2016, TSRS returned 2.38% before investment management fees, which ranked 10th percentile versus other public defined benefit plans. TSRS returned 1.89% net of fees for the fiscal year, which was above the benchmark return of 1.82%. Domestic Equity Overview The fiscal year ended June 30, 2016 brought positive yet muted returns across most of the domestic equity market. The Russell 3000 Index, a broad market indicator for the U.S. stock market, finished the fiscal year up 2.14%. Large cap stocks performed better than small cap stocks during the time period. The Russell 1000, a gauge of large cap stock performance, outperformed its small cap peer by a wide margin. The Russell 1000 rose 2.93% while the Russell 2000 returned -6.73%. Value stocks outperformed growth stocks. The Russell 3000 Value Index advanced 2.42% versus a gain of 1.88% for the Russell 3000 Growth Index.



Tucson Supplemental Retirement System September 26, 2016

During the fiscal year ended June 30, 2016 the TSRS domestic equity investments returned 0.94% net of fees. International Equity Overview Developed International equity markets, as represented by the MSCI EAFE Index, suffered in fiscal year 2016. The index dropped 10.16%, lagging the -4.22% performance in fiscal year 2015. Growth fared better than Value in the international developed equity space. For the trailing twelve-months ended June 30, 2016, the MSCI EAFE Growth Index lost only 4.80% while the MSCI EAFE Value Index plummeted 15.43%. Emerging market returns trailed developed market returns for the fiscal year despite the emerging market rally the second quarter of the calendar year. The MSCI Emerging Markets Index dipped 12.05% over the trailing 12-months ended June 30, 2016. Overall, it was a lackluster year for international stock markets. For the fiscal year of 2016, the international equity asset class returned -10.04% net of fees for TSRS. Domestic Fixed Income Overview The U.S. bond market, as measured by the Barclays Aggregate Bond Index, jumped 6.00% in fiscal year 2016. The yield curve shifted downward and flattened throughout the period, rewarding holders of longer duration bonds. The Barclays Government Index rose 6.04% over the 12-month period. Given the environment, the Barclays Government Long Index returned a generous 18.98%. The Barclays Credit Index rose 7.55% for the same time period as spreads compressed versus Treasuries. High yield bonds, despite a rally in the first six months of 2016, returned only 1.62% over the trailing 12-months (Barclays Corporate High Yield Index). For the fiscal year 2016, TSRS’ domestic fixed income investments returned 6.06% net of fees. Real Estate Overview The NCREIF Property Index, a measure of the private real estate market, gained 10.64% during the 2016 fiscal year. The index was positive in each of the four quarters, extending its winning streak to 26 straight quarters. The FTSE NAREIT Equity Index, a measure of the public securities real estate market, skyrocketed 24.04%. During the year ended June 30, 2016 TSRS’ real estate portfolio returned 9.64% net of fees. Infrastructure Overview By definition, infrastructure assets are essential to the economic health and productivity of civilized society. They include the basic facilities, services, and installations needed for the functioning of a community, such as transit and communications systems; both potable and sewage water lines; and electricity access. They also include such public entities as schools, post offices, and incarceration facilities. Most of these facilities have traditionally been owned and regulated by municipalities and states. The private sector’s participation has been limited, to varying degrees, to the areas of design, construction, and operation. Budget and fiscal pressures limit the ability of public authorities to maintain existing infrastructure, much less to build the new facilities required by a growing population. In response to these problems, many municipalities and states have sold or are contemplating the sale of their infrastructure assets to private investors. Over the Trailing 12-month period ended June 30, 2016, the infrastructure investment program for TSRS returned 12.30% net of fees. The market values and performance stated in this CAFR letter are independently calculated based on financial statements from the Plan’s custodian. The statements are believed to be reliable and accurate. Performance is calculated using either a daily time weighted rate of return methodology or modified Bank Administration Institute methodology based upon the frequency and availability of security pricing. Cordially,

Paul Erlendson Gordon Weightman, CFA Senior Vice President Vice President



Outline of Investment Policies The asset allocation policy includes a 59% allocation to equity securities: 26% to large U.S. stocks; split among S&P 500 index, enhanced index, large capitalization growth and value accounts; 8% to mid-cap and small-cap U.S. stock accounts; and 25% to foreign stock accounts. There is also an allocation of 27% to fixed income, 9% to equity real estate and 5% to infrastructure. The Board has set an asset allocation target range on each asset class, sub-class, and manager. The Board of Trustees has adopted a policy of rebalancing the portfolio when the actual allocation falls above or below the target range. Over the long term, asset allocation policy will be the primary determinant of the returns generated by the TSRS pension fund and the associated volatility of returns. In particular, the level of equity exposure is the key element within the TSRS pension investment policies.

In developing asset allocation policies for its pension plan, the Board examined asset and liability projections to evaluate possible results over the next ten years. These projections examined the risk/return tradeoffs of alternative asset classes, as well as alternative levels of equity exposure. Through incorporating the results of these projections with its risk posture, as well as considering typical practices and practical investment issues, the Board has developed the following asset mix guidelines:

Minimum Target Maximum

Equities: Large Capitalization 21% 26% 31% Small/Mid Capitalization 4% 8% 12% International 20% 25% 30%

Total Equities 54% 59% 64%

Fixed Income 22% 27% 32%

Real Estate 7% 9% 11%

Infrastructure 3% 5% 7%

Percent of Total Pension Fund


33

Separate target ranges are also set for each investment manager within an asset class and are monitored in conjunction with the overall asset allocation. TSRS monitors its asset mix and rebalances its portfolio mix at any time that a primary asset class (i.e., equities, fixed-income, and real estate), secondary asset class (i.e., domestic equities, international equities), portfolio style, or manager reaches the minimum or maximum allocation specified. Staff is authorized to direct rebalancing and report to the Board.

Investment Objectives Total Pension Fund Performance Objectives:1 The TSRS Pension Fund’s return will be, in part, a function of the capital market environment in which the plan’s investment managers operate. Therefore, regardless of whether or not the market environment permits the achievement of substantial real returns, the TSRS expects any active investment managers that it retains to produce results that are above average relative to other actively-managed funds and relative to passive alternatives. Investment managers should cover the fees paid and provide a return increment that justifies the risk assumed in active management. On a rolling three-year basis, the annualized total return of the portfolio should exceed the annualized total return of the following custom index: Standard & Poor’s 500 Stock Index (26% weight) Russell 2500 Stock Index (8% weight) MSCI All Country World, ex-U.S. Investable Market Index (25% weight) Barclays Capital Aggregate Bond Index (27% weight) NCREIF ODCE Real Estate Index (9% weight) CPI + 4% (5% weight)

1 The investment objectives defined herein assume that performance comparisons will be based on a before-fee analysis, unless otherwise indicated.

Investment Section



Individual Managers Performance Objectives On a rolling three-year basis, the annualized total return earned by an actively managed portfolio should place the account in a competitive ranking (i.e., top 40%) relative to a peer group of managers. In addition, the managers should outperform the following market index benchmarks: T. Rowe Price (Large Cap Growth Equity) Exceed the annualized total return of the Russell 1000 Growth Index

BlackRock Value (Russell 1000 Value Index) Match the annualized total return of the Russell 1000 Value Index

Alliance Capital (S&P 500 Index) Match the annualized total return of the S&P 500 Index

PIMCO StocksPlus (Enhanced Index) Exceed the annualized total return of the S&P 500 Index

Champlain Investment Partners (Mid Cap Core Equity) Exceed the annualized total return of the Russell Mid Cap Index

Fidelity Institutional Asset Management (Small Cap Equity)1 Exceed the annualized total return of the Russell 2000 Stock Index

Aberdeen Asset Management (International Core Equity) Exceed the annualized total return of the MSCI AC World ex-U.S. Index

Causeway Capital Management (International Value Equity) Exceed the annualized total return of the MSCI AC World ex-U.S. Index

American Century Investments (International Small Cap) Exceed the annualized total return of the MSCI AC World ex-U.S. Small Cap Index

PIMCO (Custom Fixed Income) Exceed the annualized total return of a customized fixed income benchmark composed of 25% BC Mortgage,

25% BC Credit, 25% BC High Yield and 25% JP Morgan EMBI index BlackRock U.S. Debt Index Fund (U.S. Investment Grade Fixed Income) Match the annualized total return of the BC Aggregate Bond Index

JP Morgan Strategic Property Fund (Core Real Estate) Exceed the annualized total return of the NCREIF ODCE Real Estate Index

JP Morgan Income & Growth Fund (Value Added Real Estate) Exceed the annualized total return of the NCREIF ODCE Real Estate Index

Macquarie European Infrastructure Fund 3 (European Infrastructure) Exceed the annualized total return of the CPI + 4%

SteelRiver Infrastructure Fund North America (North America Infrastructure) Exceed the annualized total return of the CPI + 4% 1This Manager was formerly known as Pyramis Global Advisors


35

Year Ended

Annual Return

3-Year Annualized

Return

5-Year Annualized

Return

10-Year Annualized

Return

6/30/16 2.3% 8.1% 8.0% 5.7%

6/30/15 4.6% 12.9% 12.6% 7.1%

6/30/14 19.6% 12.1% 14.1% 7.5%

6/30/13 14.8% 13.2% 5.0% 7.4%

6/30/12 2.4% 12.1% 1.2% 6.2%

6/30/11 23.2% 2.8% 4.0% 5.1%

6/30/10 11.6% -5.6% 1.8% 2.1%

6/30/09 -21.0% -4.1% 1.3% 2.0%

6/30/08 -4.6% 7.3% 9.8% 5.5%

6/30/07 17.2% 12.3% 11.5% 7.8%

Note: The above returns represent geometrically compounded, time-w eighted rates of return reported gross of fees.

Last Ten Fiscal Years Ended June 30, 2016Investment Results by Year

Investment Section



One Three FiveYear Years Years

TOTAL PORTFOLIOTSRS 2.33% 8.13% 8.01%Custom Benchmark (2) 1.82% 7.51% 7.64%

EQUITY FUNDSAlliance S&P 500 Index 3.93% 11.58% 12.02%S & P 500 Index 3.99% 11.66% 12.10%

PIMCO StocksPlus 2.68% 12.12% 13.00%S & P 500 Index 3.99% 11.66% 12.10%

BlackRock Russell 1000 Value Index 2.71% 9.88% 11.38%Russell 1000 Value Index 2.86% 9.87% 11.35%

T. Rowe Price Large Cap Growth (Inception date: 2/12) -3.13% 12.74% 12.43%Russell 1000 Growth Index 3.02% 13.07% 12.35%

Champlain Investment Partners (Inception date: 7/10) 3.76% 12.40% 11.57%Russell Mid Cap Index 0.56% 10.80% 10.90%

Fidelity Insitutional Asset Management Small Cap -5.10% 9.98% 11.30%Russell 2000 Index -6.73% 7.09% 8.35%

Causeway International Value Equity -12.24% 1.54% 2.37%MSCI EAFE Index -9.42% 2.35% 1.85%

Aberdeen EAFE Plus Equity (Inception date: 4/12) -8.32% -1.42% 0.16%MSCI All Country World ex-U.S. Index (Net) -10.24% 1.16% 0.10%

American Century Non U.S. Small Cap (Inception date: 5/16) (4) N/A N/A N/AMSCI All Country World ex-U.S. Small Cap N/A N/A N/A

FIXED INCOME FUNDSBlackRock U.S. Debt Fund (Inception date: 1/12) 6.09% 4.15% 3.87%Barclays Aggregate Bond Index 6.00% 4.06% 3.76%

PIMCO Custom Fixed Income 6.04% 4.82% 5.25%Custom Index (3) 7.28% 5.45% 5.27%

REAL ESTATE FUNDSJP Morgan Strategic Property Fund 10.02% 11.75% 11.82%NCREIF ODCE Index 11.24% 12.08% 11.70%

JP Morgan Income and Growth Fund 8.69% 11.09% 14.56%NCREIF ODCE Index 11.24% 12.08% 11.70%

Notes: All data provided by independent investment consultant, Callan Associates Inc. (1) Geometrically compounded, time-weighted rates of return (all returns reported gross of fees) (2) Custom Benchmark = 36% S&P 500 Index + 10% Russell 2500 + 15% MSCI ACWI ex-U.S (Net) + 26% Barclays Capital Aggregate + 8% NCREIF ODCE + 5% CPI+4% (3) Custom Index = 25% Barclays Capital Mortgage + 25% Barclays Capital Credit + 25% Barclays Capital High Yield + 25% JP Morgan EMBI Global (4) As the American Century Non-U.S. Small Mid Cap Strategy was funded in May of 2016 the one year and annualized return data is not yet available.

Schedule of Investment ResultsFor Periods Ended June 30, 2016

Annualized Returns (1)


37

One Three FiveYear Years Years

INFRASTRUCTURE FUNDSMacquarie European Infrastructure Fund 3 (Funding Completed) 6.82% 2.92% 3.70%CPI + 4% 4.65% 4.77% 5.13%

SteelRiver Infrastructure Fund North America (Funding in progres 17.13% 12.71% 7.57%CPI + 4% 4.65% 4.77% 5.13%

Notes: All data provided by independent investment consultant, Callan Associates Inc. (1) Geometrically compounded, time-weighted rates of return (all returns reported gross of fees)

Schedule of Investment ResultsFor Periods Ended June 30, 2016 (Continued)

Annualized Returns (1)

Investment Section



Manager StyleLarge U.S.

StocksSmall/Mid

U.S. StocksForeign Stocks

Fixed Income

Real Estate

Infra-structure

Short Term Total

Alliance Capital S & P 500 Index 55,432$ -$ -$ -$ -$ -$ 81$ 55,513$

T. Row e PriceLarge Cap

Grow th 49,626 - - - - - 286 49,912

BlackRock Russell Value

Large Cap Value Index 51,094 - - - - - - 51,094

PIMCO StocksPlus Enhanced Index 29,162 - - - - - - 29,162

Champlain Investments Mid-Cap Core - 28,452 - - - - 1,030 29,482

Fidelity Institutional

Asset Mgmt.Small-Cap Core - 28,964 115 - - - 326 29,405

Causew ay Capital

Foreign Stocks-Value - - 65,149 - - - 2,218 67,367

Aberdeen Asset Mgmt

Foreign Stocks-Core - - 70,125 - - - - 70,125

American Century

Investments

Foreign Stocks-Small Cap - - 32,572 - - - - 32,572

BlackRock U.S. Debt

U.S. Govt/Credit Bonds - - - 71,999 - - - 71,999

PIMCO Custom Fixed Income

U.S. & Foreign Bonds

- - - 99,643 - - 20,966 120,609

JPM Strategic Property Fund Core Real Estate - - - - 46,510 - - 46,510

JPM Income & Grow th Fund

Value Added Real Estate - - - - 17,678 - - 17,678

Macquarie (MEIF3)

European Infrastructure - - - - - 23,137 - 23,137

SteelRiver IFNANorth American Infrastructure - - - - - 25,738 - 25,738

Liquidity FundCash & Cash Equivalents - - - - - - 2,067 2,067

TOTAL 185,314$ 57,416$ 167,961$ 171,642$ 64,188$ 48,875$ 26,974$ 722,370$

Notes:(1) The Asset Summary does not include the City pooled investment account. (2) Assets are reflected on a trade date basis.(3) Short-term investments have been adjusted for the net impact of unsettled transactions in order to report on a trade datebasis. (4) Each asset class includes receivables and payables.

Asset SummaryBy Manager and Type of Investment (in thousands)

June 30, 2016


39

Manager Amount Percentage Amount PercentageAlliance Capital 55,513$ 7.7% 50,566$ 7.0%

T. Rowe Price 49,912 6.9% 50,566 7.0%

BlackRock Russell Value 51,094 7.1% 57,790 8.0%PIMCO StocksPlus 29,162 4.0% 28,894 4.0%

Large U.S. Stocks 185,681 25.7% 187,816 26.0%

Champlain Investment Partners 29,482 4.1% 28,895 4.0%Fidelity Institutional Asset Mgmt. 29,405 4.1% 28,895 4.0%

Small/Mid-Cap U.S. Stocks 58,887 8.2% 57,790 8.0%

Causeway Capital 67,367 9.3% 72,237 10.0%

Aberdeen Asset Management 70,125 9.7% 72,237 10.0%American Century Investments 32,572 4.5% 36,119 5.0%

Foreign (International) Stocks 170,064 23.5% 180,593 25.0%

Total Equities 414,632 57.4% 426,199 59.0%

BlackRock U.S. Debt 71,999 10.0% 122,802 17.0%

PIMCO Custom Fixed Income 120,609 16.7% 72,237 10.0%

Fixed Income (Bonds) 192,608 26.7% 195,039 27.0%

JPM Strategic Property Fund 46,510 6.4% 43,342 6.0%

JPM Income & Growth Fund 17,678 2.4% 21,671 3.0%

Real Estate 64,188 8.8% 65,013 9.0%

Macquarie (MEIF3) 23,137 3.2% 18,059 2.5%SteelRiver IFNA 25,738 3.6% 18,060 2.5%

Infrastructure 48,875 6.8% 36,119 5.0%

Liquidity Fund 2,067 0.3% - 0.0%Total 722,370$ 100% 722,370$ 100%

Manager and Asset Diversification (in thousands)June 30, 2016

Actual Target

Investment Section



Asset Class 2016 2015 2014 2013 2012

U.S. Stocks 34% 51% 50% 48% 46%

Foreign (International) Stocks 23% 13% 14% 14% 13%

Total Equities 57% 64% 64% 62% 59%

Fixed Income (Bonds) 27% 22% 22% 24% 26%

Real Estate 9% 8% 8% 8% 8%

Infrastructure 7% 6% 6% 6% 7%

Cash 0% 0% 0% 0% 0%

100% 100% 100% 100% 100%

Asset Allocation by Asset ClassLast Five Fiscal Years


Rating FairPar Value Bond Coupon Rate Due (1) Value

1,250$ UBS AG/Samford CT 7.625% 08/17/22 Baa1 1,416 1,200 Rockies Express Pipeline 144A 6.850% 07/15/18 Ba2 1,245 1,300 Petrobras Global Finanace BV 5.375% 01/27/21 B3 1,191 1,100 Columbia Government International 5.000% 06/15/45 Baa2 1,141 1,100 Petroleos Mexicanos Regs 2.750% 04/21/17 Baa3 1,019 1,000 International Lease Finance 144A 6.750% 09/01/16 Baa3 1,005

900 HCA Inc. 6.500% 02/15/20 Ba1 996 1,000 Heta asset Resolution AG 4.375% 12/31/23 Ca 949

800 Bank of America Corp 4.000% 4/01/204 Baa1 854 800 Credit Suisse AG 114A 6.500% 08/08/23 Baa1 836

(1) Per Moody's Investors Service, Inc.

FairShares Stock Value

7,095 Amazon.com Inc. 5,077$ 24,446 Facebook Inc. 2,794

3,642 Alphabet Inc-CL A 2,562 49,918 Microsoft Corp 2,554

1,986 Priceline Group Inc. 2,479 30,490 Visa Inc. 2,261 34,140 British American Tobacco PLC 2,210 21,220 Danaher Corp 2,143 21,872 Apple Inc. 2,091 68,100 KDDI Corp 2,066

A complete list of portfolio holdings is availab le by contacting the City of Tucson, Treasury Division, 255 W. Alameda Street, 5 West, Tucson, AZ 85701-1303

Ten Largest Bond Holdings(By Market Value)

June 30, 2016(dollars in thousands)

June 30, 2016(dollars in thousands)

Ten Largest Stock Holdings(By Market Value)




Assets UnderManagement Fees

Investment Manager FeesFixed Income Managers

BlackRock U.S. Debt 71,998,584$ 35,221$ PIMCO (Custom Fixed Income) 120,610,311 491,481

Total Fixed Income 192,608,895$ 526,702$

Equity ManagersAlliance Capital Management 55,513,281$ 33,331$ BlackRock Russell Value Index 51,094,305 27,677 T. Row e Price 49,911,562 345,033 Causew ay Capital Management 67,366,787 340,637 Fidelity Institutional Asset Management 29,405,121 279,281 Aberdeen Asset Management 70,125,135 335,469 American Century Investments 32,571,810 32,447 PIMCO StocksPlus 29,161,575 - (1)Champlain Investment Partners 29,481,575 326,842

Total Equity 414,631,151$ 1,720,717$

Liquidity Account 2,066,639 -

Real Estate ManagersJPM Strategic Property Fund 46,510,048$ 449,675$ JPM Income & Grow th Fund 17,678,315 218,938

Total Real Estate 64,188,363$ 668,613$

Infrastructure ManagersMacquarie (MEIF3) 23,137,016$ 179,411$ SteelRiver IFNA 25,738,433 185,888

Total Infrastructure 48,875,449$ 365,299$

Total Assets (Trade date basis) 722,370,497$ Total Investment Management Fees 3,281,331$

Other Investment Service FeesTrust & Custodian Fees

BNY Mellon 291,919$ Security Lending - Bank & Administration Fees

BNY Mellon 59,201 Consulting & Performance Management

Callan Associates Inc. 204,435 Portfolio Restructre Fees

BlackRock Institutional Trust Company, N.A. 159,669

Total Other Investment Service Fees 715,224$

(1) For the tw elve month period ending June 30, 2016, the PIMCO StocksPLUS LP B Fund underperformed the S&P 500 .As a result, this strategy did not generate management fees for that strategy this f iscal year.

Schedule of FeesJune 30, 2016


Broker Description Shares CommissionsCommissions

Per ShareCREDIT SUISSE, NEW YORK (CSUS) 1,819,651 19,944$ 0.0110$ MERRILL LYNCH INTL LONDON EQUITIES 2,630,113 11,470 0.0044 MORGAN STANLEY & CO INC, NY 448,206 8,305 0.0185 GOLDMAN SACHS & CO, NY 295,939 5,276 0.0178 UBS WARBURG, LONDON 269,233 4,352 0.0162 J.P. MORGAN CLEARING CORP, NEW YORK 188,002 3,616 0.0192 BARCLAYS CAPITAL, LONDON (BARCGB33) 116,508 3,507 0.0301 DEUTSCHE BK SECS INC, NY (NWSCUS33) 128,350 3,265 0.0254 RBC CAPITAL MARKETS LLC, NEW YORK 238,129 3,129 0.0131 STIFEL NICOLAUS 107,979 3,107 0.0288 MERRILL LYNCH PIERCE FENNER SMITH INC NY 154,906 2,975 0.0192 JEFFERIES & CO INC, NEW YORK 142,261 2,971 0.0209 INVESTMENT TECHNOLOGY GROUP, NEW YORK 99,016 2,447 0.0247 CITIGROUP GBL MKTS INC, NEW YORK 122,152 2,430 0.0199 LIQUIDNET INC, NEW YORK 89,220 2,230 0.0250 UBS SECURITIES LLC, STAMFORD 120,613 2,002 0.0166 UBS WARBURG ASIA LTD, HONG KONG 94,587 1,944 0.0206 CITIGROUP GLOBAL MARKETS LTD, LONDON 124,367 1,919 0.0154 INSTINET EUROPE LIMITED, LONDON 73,667 1,596 0.0217 BARCLAYS CAPITAL LE, JERSEY CITY 109,240 1,356 0.0124 BAIRD, ROBERT W & CO INC, MILWAUKEE 36,284 1,276 0.0352 J P MORGAN SECS LTD, LONDON 76,621 1,249 0.0163 LIQUIDNET INC, BROOKLYN 49,200 1,230 0.0250 WILLIAM BLAIR & CO, CHICAGO 32,117 1,204 0.0375 S G WARBURG, SEOUL 3,765 1,118 0.2969 STATE STREET BROKERAGE SVCS, BOSTON 55,364 1,063 0.0192 GOLDMAN SACHS EXECUTION & CLEARING, NY 63,723 1,034 0.0162 RAYMOND JAMES & ASSOC INC, ST PETERSBURG 30,000 1,028 0.0343 VARIOUS BROKERS - LESS THAN $1000 1,386,946 22,762 TOTAL 9,106,159 119,805$ AVERAGE COMMISSION RATE 0.0132$

Schedule of CommissionsJune 30, 2016


Actuarial Section

ACTUARIAL SECTION


Actuarial Section 44

October 5, 2016

The Board of Trustees

Tucson Supplemental Retirement System Tucson, Arizona Re: June 30, 2016 Actuarial Valuation and CAFR information

Dear Board Members:

The purpose of this letter is to provide the certification related to materials presented in the Comprehensive Annual Financial Report (CAFR) for the City of Tucson Supplemental Retirement System (TSRS).

Actuarial Valuation Used for Funding Purposes

The valuation report presents the results of the June 30, 2016 actuarial valuation of the Tucson Supplemental Retirement System. The report describes the current actuarial condition of the Tucson Supplemental Retirement System, determines recommended annual employer and employee contribution rates, and analyzes changes in these required rates. This report should not be relied on for any purpose other than the purpose described in the primary communication. Please refer to that report for any information concerning the funding, assumptions and methods of the TSRS.

Certification

The valuation report includes the following exhibits which provide further related information necessary to complete your annual financial report:

Summary of Actuarial Assumptions and Methods Schedule of Active Members Counts by Age and Service Schedule of Funding Progress Schedule of Employer Contributions Solvency Test Comparative Schedule of Annual Pension Benefits Paid Schedule of Retirees and Beneficiaries Added to and Removed from Rolls Summary of Benefit Provisions

The schedules which are required to contain 10 years’ worth of information will be completed with each passing year. We certify that the information included herein and contained in the June 30, 2016 Actuarial Valuation Report is accurate and fairly presents the actuarial position of the Tucson Supplemental Retirement System as of the valuation date.

The TSRS Board is responsible for establishing the funding policy, and an outline of that policy can be found in the appendix of the June 30, 2016 actuarial valuation report. The actuarial methods and assumptions used in the valuation are adopted by the TSRS Board based upon experience studies and in consideration of the recommendations of the TSRS’ actuary. The actuarial assumptions and methods employed in the funding valuation are the same as those used for financial reporting purposes under GASB 67 and GASB 68.



The Board of Trustees November 2, 2016 Page 2 Contribution Rates

There are no recommended changes to the contribution rates for FY 2018. Based on the TSRS funding policy, the recommended employer rate will remain at 27.5%, and the recommended employee rates by tier will remain at 5.00%, 6.75% and 5.25%. Full details of these calculations are in the June 30, 2016 actuarial valuation report.

The contribution rate in the June 30, 2016 actuarial valuation report is determined using the actuarial assumptions and methods disclosed in Section G of the valuation report. The report does not include an assessment of the risks of future experience not meeting the actuarial assumptions. Additional assessment of risks was outside the scope of this assignment. We encourage a review and assessment of investment and other significant risks that may have a material effect on the System’s financial condition.

Financing Objectives

The employer contributions, when combined with the contributions made by members, are intended to cover the Actuarially Determined Contribution (ADC)), which is the sum of the Normal Cost and expenses, plus a 20-year open level percent-of-pay amortization payment of the Unfunded Actuarial Accrued Liability (UAAL). The ADC is then rounded up in accordance with the Board’s rounding policy. Based on this funding policy, the System is projected to reach full funding in 2035. Contributions less than the ADC will extend the period to attain full funding.

Benefit Provisions

All of the benefit provisions reflected in the June 30, 2016 actuarial valuation are those which were in effect on June 30, 2016. There were no changes to the benefit provisions since the prior valuation. The benefit provisions are summarized in Section D of the valuation Report.

Assumptions and Methods

There were no changes in actuarial methods and assumptions since the prior report. The Board has sole authority to determine the actuarial assumptions used for the Plan.

The mortality tables include projection to 2020 to provide margin for future mortality improvement.

Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or applicable law. The actuarial calculations presented in this Report are intended to provide information for rational decision making.

Data

The valuation was based upon information as of June 30, 2016, furnished by Tucson Supplemental Retirement System staff, concerning Plan benefits, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. We checked for internal and year-to-year consistency, but did not otherwise audit the data. We are not responsible for the accuracy or completeness of the information provided by Tucson Supplemental Retirement System staff.



The Board of Trustees November 2, 2016 Page 3

Actuarial reports used for GASB 67 and GASB 68 reporting

For the GASB 67 and GASB 68 reporting purposes, the valuation date, measurement date of the Net Pension Liability and the reporting date are all June 30, 2016. Please refer to the Tucson Supplemental Retirement System GASB Statement Nos. 67 and 68 Accounting and financial reporting for pensions - June 30 2016- report for further information on the financial reporting.

We prepared the following scheduled for inclusion in the Financial Section of the TSRS CAFR:

Schedule of Changes in Net Pension Liability and Related Ratios

Sensitivity of Net Pension Liability to the Single Discount Rate Assumption

Schedule of Contributions

Compliance with ASOPs and Qualification Standards

All of our work conforms with generally accepted actuarial principles and practices, and to the Actuarial Standards of Practice issued by the Actuarial Standards Board. In our opinion, our calculations also comply with the requirements of, where applicable, the Internal Revenue Code, and ERISA.

The signing actuaries are independent of the plan sponsor. Leslie Thompson and Dana Woolfrey are Enrolled Actuaries and are Members of the American Academy of Actuaries, and meet the Qualification Standards of the American Academy of Actuaries. Finally, both of the undersigned are experienced in performing valuations for large public retirement systems.

Respectfully submitted,

Gabriel,Roeder,Smith&Company Leslie Thompson, FSA, FCA, EA, MAAA Senior

Consultant

Dana Woolfrey, FSA, FCA, EA, MAAA Consultant


47

SUMMARY OF ACTUARIAL METHODS AND ASSUMPTIONS

I. Valuation Date

The valuation date is July 1st of each plan year. This is the date as of which the actuarial present value of future benefits and the actuarial value of assets are determined.

II. Actuarial Cost Method

The actuarial valuation uses the Entry Age Normal actuarial cost method. Under this method, the employer contribution rate is the sum of (i) the employer normal cost rate, and (ii) a rate that will amortize the unfunded actuarial liability.

1. The valuation is prepared on the projected benefit basis. The present value of

each participant's expected benefit payable at retirement or termination is determined, based on age, service, sex, compensation, and the interest rate assumed to be earned in the future (7.25%). The calculations take into account the probability of a participant's death or termination of employment prior to becoming eligible for a benefit, as well as the possibility of his terminating with a service benefit. Future salary increases are also anticipated. The present value of the expected benefits payable on account of the active participants is added to the present value of the expected future payments to retired participants and beneficiaries to obtain the present value of all expected benefits payable from the Plan on account of the present group of participants and beneficiaries.

2. The employer contributions required to support the benefits of the Plan are

determined following a level funding approach, and consist of a normal cost contribution and an accrued liability contribution.

3. The normal contribution is determined using the Entry Age Normal method. Under

this method, a calculation is made to determine the average uniform and constant percentage rate of employer contribution which, if applied to the compensation of each new participant during the entire period of his anticipated covered service, would be required in addition to the contributions of the participant to meet the cost of all benefits payable on their behalf. Effective July 1, 2013 the TSRS funding policy requires the computation of normal cost separately for those members in Tier 1 and Tier 2 (the variable rate tiers).

4. The unfunded accrued liability contributions are determined by subtracting the

actuarial value of assets from the actuarial accrued liability and amortizing the result over 20 years from the valuation date as a level percentage of pay. It is assumed that payments are made throughout the year.

5. Administrative expenses for the recent year will be added to the employer

Actuarial Section



normal cost in the current valuation and will be reflected in the recommended employer rate for the upcoming fiscal year.

III. Actuarial Value of Assets

The actuarial value of assets is based on recognizing gains and losses over a five-year period where gains and losses are determined by comparing the projected market value return (based on the prior year’s market value of assets, cash flows during the year and expected investment returns on those amounts) to the actual market investment return.

IV. Actuarial Assumptions

A. Economic Assumptions

1. Investment return: 7.25% per annum, compounded annually, composed of an assumed 3.00% inflation rate and a 4.25% real rate of return. This rate represents the assumed return, net of all investment expenses.

2. Salary increase rate:

Sample Attained

Age

Percentage Increase in Salary with Less than Five Years of Service Merit Inflation Total

0

3.50 %

3.00 %

6.50 %

1 3.00 3.00 6.00 2 2.50 3.00 5.50 3 2.00 3.00 5.00 4 1.50 3.00 4.50

Sample Attained

Age

Percentage Increase in Salary with Five or More Years of Service Merit Inflation Total

25

1.50 %

3.00 %

4.50 %

30 1.50 3.00 4.50 35 1.50 3.00 4.50 40 1.00 3.00 4.00 45 0.50 3.00 3.50

50 0.25 3.00 3.25 55 0.25 3.00 3.25 60 0.25 3.00 3.25 65 0.00 3.00 3.00


49

3. Payroll growth rate: In the amortization of the unfunded actuarial accrued liability, payroll is assumed to increase 3.00% per year. This increase rate is primarily due to the effect of inflation on salaries, with no allowance for future membership growth.

B. Demographic Assumptions

1. Mortality rates (pre- and post-retirement) – RP-2000 Combined Mortality Table for males and females projected with Scale BB to 2020. Mortality rates were adjusted to include margin for future mortality improvement as described in the table name above.

2. Mortality rates (post-disablement) – RP-2000 Disabled Mortality Table for

males and females.

Sample Attained

Ages

Probability of Death Pre- and Post-Retirement

Men Women

20

0.03 %

0.02 % 25 0.04 0.02 30 0.04 0.02 35 0.07 0.04 40 0.10 0.07

45 0.14 0.11 50 0.20 0.16 55 0.34 0.25 60 0.59 0.41 65 1.00 0.76

70 1.64 1.32 75 2.80 2.21 80 4.76 3.60 85 8.19 6.08 90 14.70 10.55

Sample Attained

Ages

Probability of Death Post-Disability

Men Women

20

2.26 %

0.75 % 25 2.26 0.75 30 2.26 0.75 35 2.26 0.75 40 2.26 0.75

45 2.26 0.75 50 2.90 1.15 55 3.54 1.65 60 4.20 2.18 65 5.02 2.80

70 6.26 3.76 75 8.21 5.22 80 10.94 7.23 85 14.16 10.02 90 18.34 14.00

Actuarial Section



3. Disability rates. Sample rates shown below:

4. Termination rates (for causes other than death, disability or retirement): Termination rates are based on service and age. Termination rates are not applied after a member becomes eligible for a retirement benefit. Rates are shown:

Sample Attained

Age

Years of Credible Service

Probability of Termination

Any

0

18.00 %

1 13.00 2 10.00 3 8.00 4 7.50

20 5 & over 7.05 25 7.05 30 6.65 35 4.65 40 3.65 45 2.95 50 2.55 55 2.45

Sample Attained

Ages

Probability of Disablement Next Year

Men Women

25

0.01 %

0.01 % 30 0.07 0.07 35 0.09 0.09 40 0.14 0.14 45 0.17 0.17 50 0.25 0.25 55 0.36 0.36 60 0.48 0.48


51

5. Forfeiture rates: The percentages below represent the probability that a vested terminated member will take a refund of contributions rather than receive a deferred annuity benefit.

Sample Ages

% of Vested Terminating Members Choosing

Refund at Termination Under 30 50 %

30 45 35 40 40 35 45 30 50 25 55 20

60 and Over 0

6. Retirement rates for Tier 1. For those ages 62+, the Rule of 80 retirement rates only applies if the Rule of 80 is attained by age 62.

Attained

Age

Tier 1 Members Percentage of Those Eligible Retiring During the Year

Rule of 80 Age Based Early 50-54 27.0 %

33.0 %

8.5 % 55-59 27.0

60 27.0 61 27.0 62 27.0 63 27.0 16.0 64 27.0 20.0 65 27.0 24.0

66-69 27.0 35.0 70 & Over 100.0 100.0

Actuarial Section



Retirement rates for Tier 2. For those ages 65+, the Rule of 85 retirement rates only applies if the Rule of 85 is attained by age 65.

Attained

Age

Tier 2 Members Percentage of Those Eligible Retiring During the Year

Rule of 80 Age Based Early

60

27.0 %

24.0 %

8.5 %

61 27.0 8.5 62 27.0 8.5 63 27.0 8.5 64 27.0 8.5 65 27.0

66-69 27.0 35.0 70 & Over 100.0 100.0

Deferred vested members are assumed to retire at age first eligibility for unreduced benefits.

C. Other Assumptions

1. Percent married: 80% of employees are assumed to be married.

2. Age difference: Male members are assumed to be three years older than their spouses, and female members are assumed to be three years younger than their spouses.

3. Cost of living adjustment: None.

4. Optional forms: Members are assumed to elect the normal form of benefit.

5. Current and future deferred vested participants are assumed to retire at the earlier of age 62 and eligibility for rule of 80 for Tier 1 and the earlier of age 65 and eligibility for the rules of 85 (but at least 60) for Tier 2.

6. Administrative expenses: Administrative expenses are added to the employer normal cost, before application of the round up policy.

7. Pay increase timing: End of year.

8. Decrement timing: Decrements of all types are assumed to occur mid-year.


53

9. Eligibility testing: Eligibility for benefits is determined based upon the age nearest

birthday and service nearest whole year on the date the decrement is assumed to occur.

10. Decrement relativity: Decrement rates are used directly, without adjustment for multiple decrement table effects.

11. Incidence of Contributions: Contributions are assumed to be received continuously throughout the year based upon the computed percent of payroll shown in this report, and the actual payroll payable at the time contributions are made.

12. Benefit and Eligibility Service due to Accrued Sick and Vacation Leave at Retirement and Termination: Tier 1 Members are assumed to have an additional 0.019 years per year of benefit and eligibility service at early or normal retirement and termination due to accrued sick and vacation leave. This assumption was developed using sick and vacation leave and service amounts for active members included in the actuarial valuation as of June 30, 2013.

Actuarial Section



Active Member Counts by Age and Service

as of July 1, 2016

Age Service

0-4 5-9 10-14 15-19 20-24 25-29 Over 30 Total

Under 20 1 0 0 0 0 0 0 1

20-24 27 0 0 0 0 0 0 27

25-29 126 5 1 0 0 0 0 132

30-34 149 38 20 2 0 0 0 209

35-39 120 43 49 30 0 0 0 242

40-44 102 56 85 66 21 0 0 330

45-49 89 47 87 98 60 11 1 393

50-54 78 52 83 89 99 26 14 441

55-59 73 45 83 117 56 35 25 434

60-64 50 25 40 46 24 23 16 224

65-69 5 3 12 9 6 5 12 52

Over 70 1 1 2 2 2 1 1 10

Total 821 315 462 459 268 101 69 2,495


55


Schedule of Funding Progress $ in thousands

Actuarial

Actuarial

Actuarial

Unfunded

UAAL as a

Valuation Value of Accrued AAL Funded Covered Percentage of Date Assets Liability (AAL) (UAAL) Ratio Payroll Covered Payroll

(1) (2) (3) (4)=(3)-(2) (5)=(2)/(3) (6) (7)=(4)/(6)

6/30/1991

$

164,268

$ 175,537

$

11,269

93.6%

$86,830

13.0%

6/30/1992 179,570 187,812 8,242 95.6% 86,205 9.6% 6/30/1993 197,282 208,024 10,742 94.8% 92,867 11.6% 6/30/1994 213,541 230,026 16,485 92.8% 94,180 17.5% 6/30/1995 237,713 249,049 11,336 95.4% 99,847 11.4% 6/30/1996 266,740 269,186 2,446 99.1% 105,230 2.3% 6/30/1997 304,684 297,490 (7,194) 102.4% 110,189 -6.5% 6/30/1998 353,057 348,966 (4,090) 101.2% 113,729 -3.6% 6/30/1999 402,875 400,224 (2,651) 100.7% 126,817 -2.1% 6/30/2000 453,954 437,750 (16,204) 103.7% 134,088 -12.1% 6/30/20011 470,672 486,702 16,030 96.7% 145,059 11.1% 6/30/20012 470,672 495,359 24,687 95.0% 145,059 17.0% 6/30/2002 463,102 553,947 90,845 83.6% 153,580 59.2% 6/30/2003 458,857 601,173 142,316 76.3% 143,164 99.4% 6/30/2004 494,987 645,351 150,364 76.7% 149,782 100.4% 6/30/2005 538,789 693,871 155,082 77.6% 162,149 95.6% 6/30/20061 588,228 734,377 146,149 80.1% 155,855 93.8% 6/30/20062 588,228 735,793 147,565 79.9% 155,855 94.7% 6/30/20071 634,763 758,427 123,663 83.7% 159,250 77.7% 6/30/20072,3 634,763 763,539 128,776 83.1% 159,250 80.9% 6/30/2008 650,227 822,205 171,978 79.1% 153,982 111.7% 6/30/2009 665,298 859,485 194,187 77.4% 149,925 129.5% 6/30/2010 641,819 904,480 262,662 71.0% 141,459 185.7% 6/30/2011 624,665 928,609 303,944 67.3% 121,631 249.9% 6/30/2012 597,107 940,939 343,832 63.5% 125,003 275.1% 6/30/2013 600,330 948,562 348,232 63.3% 125,858 276.7% 6/30/2014 655,998 1,012,393 356,396 64.8% 126,639 281.4% 6/30/2015 706,774 1,021,378 314,604 69.2% 123,415 254.9% 6/30/2016 732,927 1,030,695 297,768 71.1% 115,183 258.5%

1 Before benefit changes 2 After benefit changes 3 Reflects an ad-hoc pension increase

Actuarial Section




Schedule of Employer Contributions

Fiscal Year Ended

June 30,

Annual Required

Contribution

Actual City

Contribution

Percentage Contributed

1996

8.55 %

8.18 %

95.67

%

1997 8.05 8.38 104.10 1998 8.05 8.38 104.10 1999 7.41 7.91 106.75 2000 6.07 7.35 121.09 2001 6.77 7.35 108.57 2002 6.30 7.35 116.67 2003 8.41 8.41 100.00 2004 11.17 11.17 100.00 2005 14.06 14.06 100.00 2006 14.83 14.83 100.00 2007 15.04 15.04 100.00 2008 15.21 15.21 100.00 2009 14.37 14.37 100.00 2010 16.84 16.84 100.00 2011 18.02 18.02 100.00 2012 23.38 23.38 100.00 2013 28.77 28.77 100.00 2014 27.09 27.09 100.00 2015 26.95 27.50 102.04 2016 27.03 27.50 101.74 2017 25.52 N/A N/A 2018 25.78 N/A N/A

Tucs

on S

uppl

emen

tal R

etir

emen

t Sys

tem

So

lven

cy T

est

Agg

rega

te A

ccru

ed L

iabi

litie

s Fo

r

(1)

(2)

(3)

Act

ive

Ret

iran

ts

Act

ive

Mem

ber

Val

uatio

n

Mem

ber

an

d

(Em

ploy

er

Val

uatio

n D

ate

Con

trib

utio

ns

Ben

efic

iari

es

Fina

nced

Por

tion)

A

sset

s

Po

rtio

n of

Acc

rued

Lia

bilit

ies

Cov

ered

by

Rep

orte

d A

sset

s (1

) (2

) (3

)

6/30

/199

1

$ 44

,496

,039

$ 72

,419

,436

$ 86

,372

,322

$164

,268

,134

10

0.0

%

10

0.0

%

54

.8 %

6/

30/1

992

49,2

38,0

19

80,3

42,6

04

86,9

02,6

48

179,

569,

858

100.

0

100.

0

57.5

6/

30/1

993

55,1

46,7

86

85,8

32,4

84

98,4

92,3

44

197,

281,

861

100.

0

100.

0

57.2

6/

30/1

994

60,4

24,1

61

95,4

49,3

08

105,

838,

311

213,

540,

661

100.

0

100.

0

54.5

6/

30/1

995

66,3

16,4

08

102,

511,

728

113,

211,

848

237,

712,

863

100.

0

100.

0

60.8

6/

30/1

996

72,2

94,2

35

109,

572,

672

118,

739,

900

266,

740,

007

100.

0

100.

0

71.5

6/

30/1

997

78,9

91,3

58

119,

508,

312

128,

878,

531

304,

684,

444

100.

0

100.

0

82.4

6/

30/1

998

85,1

06,1

75

129,

345,

816

134,

514,

294

353,

056,

577

100.

0

100.

0

103.

0

6/30

/199

9 92

,367

,491

13

9,80

5,83

2 16

8,05

0,79

4 40

2,87

5,15

8 10

0.0

10

0.0

10

1.6

6/

30/2

000

100,

413,

022

150,

527,

136

186,

809,

583

453,

953,

722

100.

0

100.

0

108.

7

6/30

/200

1 10

8,69

6,39

4 16

1,74

0,96

8 22

4,92

1,22

3 47

0,67

1,66

7 10

0.0

10

0.0

89

.0

6/30

/200

2 11

8,91

3,97

9 18

7,50

8,56

8 24

7,52

4,18

6 46

3,10

1,52

6 10

0.0

10

0.0

63

.3

6/30

/200

3 11

0,19

5,70

9 27

5,19

3,38

4 21

5,78

4,32

9 45

8,85

6,83

1 10

0.0

10

0.0

34

.0

6/30

/200

4 12

3,64

3,52

7 28

6,69

8,08

4 23

5,00

9,32

1 49

4,98

6,79

8 10

0.0

10

0.0

36

.0

6/30

/200

5 13

5,34

6,29

7 29

8,39

5,39

6 26

0,12

9,13

8 53

8,78

8,82

8 10

0.0

10

0.0

40

.4

6/30

/200

6 14

0,38

7,53

2 32

6,82

8,08

8 26

8,57

7,86

3 58

8,22

7,84

5 10

0.0

10

0.0

45

.1

6/30

/200

7 13

6,02

8,89

6 37

1,49

7,68

0 25

6,01

2,35

4 63

4,76

3,19

3 10

0.0

10

0.0

49

.7

6/30

/200

8 12

5,33

1,43

2 47

3,24

0,97

6 22

3,63

2,38

0 65

0,22

7,21

5 10

0.0

10

0.0

23

.1

6/30

/200

9 13

3,63

3,94

7 49

4,92

3,02

1 23

0,92

8,19

0 66

5,29

8,49

4 10

0.0

10

0.0

15

.9

6/30

/201

0 14

0,22

4,99

8 52

5,20

0,23

2 23

9,05

5,10

6 64

1,81

8,55

1 10

0.0

95

.5

0.0

6/

30/2

011

119,

049,

097

614,

497,

202

195,

062,

492

624,

664,

880

100.

0

82.3

0.

0

6/30

/201

2 12

2,24

0,39

6 60

7,45

0,33

1 21

1,24

7,99

5 59

7,10

6,51

1 10

0.0

78

.2

0.0

6/

30/2

013

138,

342,

388

609,

558,

963

200,

661,

102

600,

330,

066

100.

0

75.8

0.

0

6/30

/201

4 14

2,41

8,79

1 64

7,81

1,68

8 22

2,16

2,85

8 65

5,99

7,80

2 10

0.0

79

.3

0.0

6/

30/2

015

143,

648,

835

661,

292,

061

216,

436,

668

706,

773,

630

100.

0

85.2

0.

0

6/30

/201

6 13

3,20

0,54

0 69

9,57

7,70

4 19

7,91

6,70

2 73

2,92

6,71

0 10

0.0

85

.7

0.0


57

Actuarial Section

Tuc

son

Supp

lem

enta

l Ret

irem

ent

Syst

em

Com

para

tive

Sche

dule

of

Ann

ual P

ensi

on B

enef

its P

aid

Yea

r E

ndin

g Ju

ne 3

0

R

etir

ed

Mem

bers

A

nnua

l Pe

nsio

ns

%

In

crea

se

N

o. o

f A

ctiv

e Pe

r R

etir

ed

Pe

nsio

ns a

s %

of

Act

ive

Payr

oll

A

vera

ge

Pens

ions

A

ctua

rial

Pre

sent

V

alue

of

Pens

ions

Exp

ecte

d R

emov

als

No.

Pe

nsio

ns

19

89 1

78

0

$ 5,

344,

719

17

.6 %

4.

2 2

6.

6 %

$ 6,

852

$

46,5

56,3

52

26

.6

$

133,

860

1990

83

2 6,

488,

714

21.4

3.

9

7.5

7,79

9 57

,430

,128

28

.5

150,

864

1991

1 91

8 8,

111,

103

25.0

3.

5

9.3

8,83

6 72

,419

,436

29

.8

172,

608

1992

96

5 9,

010,

345

11.1

3.

3

10.5

9,

337

80,3

42,6

04

32.3

20

8,06

8 19

93 1

989

9,70

4,92

9 7.

7 3.

3

10.5

9,

813

85,8

32,4

84

34.3

23

5,06

8 19

94

1,03

5 10

,612

,612

9.

4 3.

2

11.3

10

,254

95

,449

,308

35

.8

263,

340

1995

1 1,

065

11,4

29,4

02

7.7

3.1

11.4

10

,732

10

2,51

1,72

8 35

.8

270,

600

1996

1,

105

12,2

36,2

98

7.1

3.1

11.6

11

,074

10

9,57

2,67

2 37

.7

302,

952

1997

1 1,

156

13,3

91,1

85

9.4

3.0

12.2

11

,594

11

9,50

8,31

2 39

.4

325,

440

1998

1,

208

14,4

79,4

76

8.1

2.9

12.7

11

,986

12

9,34

5,81

6 42

.4

370,

344

1999

1 1,

260

15,7

21,8

65

8.6

2.8

12.4

12

,478

13

9,80

5,83

2 44

.2

402,

504

2000

1 1,

301

16,9

66,0

42

7.9

2.8

12.7

13

,041

15

0,52

7,13

6 46

.2

445,

464

2001

1 1,

355

18,5

05,2

47

9.1

2.7

12.8

13

,657

16

1,74

0,96

8 47

.1

484,

776

2002

1 1,

442

21,2

73,1

62

15.0

2.

5

13.9

14

,753

18

7,50

8,56

8 53

.3

622,

236

2003

1 1,

742

29,7

67,5

00

39.9

1.

9

20.8

17

,088

27

5,19

3,38

4 58

.2

742,

908

2004

1 1,

753

30,4

91,8

64

2.4

2.0

20.4

17

,394

28

6,69

8,08

4 55

.7

717,

888

2005

1 1,

793

32,0

27,3

05

5.0

2.0

19.8

17

,862

29

8,39

5,39

6 58

.3

781,

152

2006

1 1,

878

35,0

91,4

68

9.6

1.7

22.5

18

,686

32

6,82

8,08

8 61

.1

857,

760

2007

1 2,

018

39,8

83,0

32

13.7

1.

6

25.0

19

,764

37

1,49

7,68

0 66

.3

977,

328

2008

2,

307

49,4

89,6

43

24.1

1.

4

32.1

21

,452

47

3,24

0,97

6 74

.4

1,13

4,01

9 20

09

2,36

5 50

,810

,927

2.

7 1.

3

33.9

21

,485

49

4,92

3,02

1 63

.8

994,

553

2010

2,

450

53,1

15,2

67

4.5

1.2

37.5

21

,680

52

5,20

0,23

2 58

.9

948,

815

2011

2,

709

61,7

10,5

76

16.2

1.

0

50.7

22

,780

61

4,49

7,20

2 63

.5

1,05

9,17

1 20

12

2,70

4 61

,737

,864

0.

0 1.

0

49.4

22

,832

60

7,45

0,33

1 66

.1

1,12

5,30

2 20

13

2,71

9 62

,548

,233

1.

3 1.

0

49.7

23

,004

60

9,55

8,96

3 69

.0

1,20

0,74

4 20

14

2,76

4 64

,275

,837

2.

8 1.

0

50.8

23

,255

64

7,81

1,68

8 70

.4

1,21

9,11

2 20

15

2,80

9 66

,133

,217

2.

9 0.

9 53

.6

23,5

43

661,

292,

061

73.7

1,

301,

409

2016

2,

945

70,2

56,7

88

6.2

0.8

61.0

23

,856

69

9,57

7,70

4 75

.9

1,39

2,57

3



Tuc

son

Supp

lem

enta

l Ret

irem

ent S

yste

m

Sche

dule

of R

etir

ees a

nd B

enef

icia

ries

Add

ed to

and

Rem

oved

from

Rol

ls

Fisc

al Y

ear

Add

ed to

Rol

ls

A

nnua

l N

umbe

r A

llow

ance

s

Rem

oved

from

Rol

ls

A

nnua

l N

umbe

r A

llow

ance

s

Rol

ls E

nd o

f Yea

r

N

umbe

r A

nnua

l Allo

wan

ce

Ave

rage

A

nnua

l A

llow

ance

Perc

enta

ge

Incr

ease

in

Allo

wan

ce

6/

30/2

005

68

$3

,498

,948

42

$485

,633

1,79

1 $

31,9

90,8

42

17

,796

6/30

/200

6 10

1 $2

,335

,032

53

$6

56,3

83

1,87

8 $

35,0

92,3

08

18,6

86

4.61

%

6/30

/200

7 21

3 $6

,055

,096

36

$4

03,3

47

2,01

8 $

39,8

83,0

32

19,7

64

5.77

%

6/30

/200

8 31

3 $1

0,00

1,85

7 24

$3

95,2

46

2,30

7 $

49,4

89,6

43

21,4

52

8.54

%

6/30

/200

9 11

2 $2

,005

,399

54

$6

84,1

15

2,36

5 $

50,8

10,9

27

21,4

85

0.15

%

6/30

/201

0 14

1 $3

,089

,275

56

$7

84,9

35

2,45

0 $

53,1

15,2

67

21,6

80

0.91

%

6/30

/201

1 33

2 $9

,880

,306

73

$1

,284

,997

2,

709

$ 61

,710

,576

22

,780

5.

07%

6/

30/2

012

64

$1,0

84,8

48

69

$1,0

57,5

60

2,70

4 $

61,7

37,8

64

22,8

32

0.23

%

6/30

/201

3 96

$2

,027

,292

81

$1

,216

,923

2,

719

$ 62

,548

,233

23

,004

0.

75%

6/

30/2

014

114

$2,6

35,1

01

69

$907

,497

2,

764

$ 64

,275

,837

23

,255

1.

09%

6/

30/2

015

127

$3,1

57,0

78

82

$1,2

99,6

98

2,80

9 $

66,1

33,2

17

23,5

43

1.24

%

6/30

/201

6 21

4 $5

,463

,524

78

$1

,339

,953

2,

945

$ 70

,256

,788

23

,856

1.

33%

59


Actuarial Section



SUMMARY OF BENEFIT PROVISONS

JUNE 30, 2016

NORMAL RETIREMENT (NO REDUCTION FACTOR)

Eligibility: Tier 1 – Members hired before July 1, 2011. Age 62, or a combination of age and creditable service equal to 80 (for those hired on or after July 1, 2009, eligibility at age 62 requires a minimum of 5 years of accrued service). Tier 2 – Members hired on or after July 1, 2011. Age 65 with 5 years of service or a combination of age and creditable service equal to 85 and the attainment of age 60.

Amount - Creditable service times 2.25% of average final compensation for Tier 1 and 2.00% of average final compensation for Tier 2.

Average Final Compensation - The average monthly creditable compensation for the period of 36 consecutive months during which the member’s creditable compensation was the highest during the 120 months immediately preceding the date of retirement for Tier 1 and 60 consecutive months during which the member’s creditable compensation was the highest during the 120 months immediately preceding the date of retirement for Tier 2. Effective July 1, 2000, accrued unused sick leave at the final salary may be substituted for an equal number of hours at the beginning of the 36 month period for Tier 1.

EARLY RETIREMENT (REDUCTION FACTOR)

Eligibility - Age 55 with 20 or more years of creditable service for Tier 1 and age 60 with 20 or more years of creditable service tor Tier 2.

Amount - An amount computed as for normal retirement but reduced by 1/2 of 1% per month for each month (6% per year) retirement precedes normal retirement.

DEFERRED RETIREMENT (VESTED TERMINATION)

Eligibility - 5 or more years of accrued service. Deferred retirement benefits for terminated vested employee becomes automatic at age 62 (age 65 for Tier 2) or when a combination of age and creditable service equals 80 (85 with the attainment of age 60 for Tier 2), unless the member elects to withdraw the employee contribution account in lieu of a deferred retirement benefit. In addition to the eligibility listed above, the term-vested member may chose an Early Retirement (minimum age of 55 for Tier 1 and 60 for Tier 2 and minimum service of 20 yrs) subject to the same reduction – reduced by ½ of 1% per month for each month (6% per year) retirement precedes normal retirement eligibility.

Amount - An amount computed as for normal retirement.


DISABILITY RETIREMENT

Eligibility - Eligibility requires 10 or more years of credited service and a disability that is total and permanent. Amount - An amount computed as for normal retirement. Disability Retirement Benefits are offset, if the combination of all employer-provided benefits exceeds 100% of the members adjusted income base, then members pension benefit from TSRS is reduced so income does not exceed the 100% maximum allowed.

PRE-RETIREMENT SURVIVOR BENEFITS

Eligibility - 5 or more years of accrued service and not eligible to retire.

Amount - Lump sum payment equal to twice the member’s contributions, with interest.

Eligibility - After attaining eligibility for retirement, in the event the member dies prior to submitting an application for retirement benefits:

Amount - If the member is married, a default provision allows the member’s spouse to elect to receive either a lump sum payment of twice the member’s contributions account, or receive a lifetime annuity benefit determined as if the member had elected a joint & last survivor benefit of 100% survivor annuity prior to death. If the member is not married and has named a single non-spousal beneficiary, the beneficiary may elect to receive either a lump sum payment of twice the member’s contributions account, or receive a 15 year annuity benefit determined as if the member elected payment of a 15 year term certain annuity. If the member has named multiple designated beneficiaries, a lump sum refund of the member’s account balance will be paid to the named beneficiaries.

OTHER TERMINATION BENEFITS

Eligibility - Termination of employment without eligibility for any other benefit.

Amount - Accumulated contributions and interest in members account at time of termination.

EMPLOYEE CONTRIBUTIONS

Interest is credited to member accumulated contributions accounts as simple interest two times per year at an annual interest rate of 6%. For those hired prior to July 1, 2006, employee contributions are 5.00% of salary. For those hired between July 1, 2006 and June 30, 2011 (Tier I variable class) and for those hired after July 1, 2011 (Tier II variable class), employee contributions are 50% of the respective Normal Cost for each class, with a floor of 5.0%. The employee contributions for the Tier I and Tier II variable classes for FY 17/18 are 6.55% and 4.89%, respectively, before application of the floor or roundup policy.




CITY CONTRIBUTIONS

City Contributions are actuarially determined; which together with employee contributions and investment earnings will fund the obligations of the System in accordance with generally accepted actuarial principles. (Please refer to the Funding Policy in Section I of this report).

POST-RETIREMENT ADJUSTMENTS

The TSRS Board has established formal policies to determine whether the system shall fund an annual supplemental post-retirement benefit payment to retired members and beneficiaries.

Statistical Section

STATISTICAL SECTION


Statistical Section 63

Discussion of Statistical Section This section of the Tucson Supplemental Retirement System’s comprehensive annual financial report (CAFR) provides detailed financial and non-financial information, often considered relevant to users. The statistical section presents certain information on a trend basis; that is, a summary of information that is provided for each year in a ten-year period. Other non-trend schedules present demographic and participation information for our active and retired membership. Each schedule is defined below with an explanation and an identification of the source of the data. Statement of Changes in Plan Net Position This schedule provides the additions and deductions to the plan for the past ten years. The change in net position is provided to illustrate whether or not sufficient resources are available in the current fiscal year to cover plan benefits. This schedule is developed using the Statements of Changes in Plan Net Position for the past ten years. Retired Members by Type of Benefit This schedule provides the number of retired members by type of benefit. The TSRS plan benefits include payments for normal retirement benefits, disability benefits, survivor benefits, and term certain benefits paid to members, beneficiaries and alternate payees. The schedule is developed using TSRS’ database. Average Monthly Benefit Payments to New Retirees This schedule provides the average monthly benefit payments made to new retirees, using six ranges of years of credited service by year. This information is provided to illustrate changes in benefit payments as the amount of service earned increases and indicates the number of employees retired during each of the last 10 years. This schedule is developed using TSRS’ database. Demographics of Retired and Active Members This schedule provides the age demographics of all retirees, survivors and beneficiaries of retired members for this year only. Similarly, age demographics for the systems active membership are indicated as well as the relative composition of membership categorized by Tier. This schedule is developed using TSRS’ membership database. Employee and Employer Contribution Rates This schedule provides the contribution rates paid by the Plan sponsor and by City employees during the past 10 years. This schedule is a historical summary of the actual rates paid. Benefit and Refund Deductions from Net Position by Type This schedule provides the benefits paid to all service and disability retirees during each of the last 10 years. In addition, the lump sum payments to members elected to participate in the End of Service program since 2007 and refunds associated with member deaths, separation from service and transfers to other retirement systems are summarized. This schedule is developed using the Statements of Changes in Plan Net Position for the past ten years. Retiree Benefit and Service Summary This schedule indicates average retiree benefits paid to retirees, based on the number of years retired, indicating eight age categories and the years of credited service served. This schedule is developed using TSRS’ membership database.



2016 2015 2014 2013 2012Additions City Contributions 33,175,307$ 33,985,523$ 34,189,288$ 34,523,315$ 27,429,666$ Employee Contributions 6,300,714 6,512,180 6,636,833 9,200,262 7,685,264 Purchase of Service 755,299 1,019,665 701,711 1,014,301 1,280,263 Contributions from Other Sources - - - - 50,000 Transfers from Other Systems 27,372 - - - 204,404 Total Contributions 40,258,692$ 41,517,368$ 41,527,832$ 44,737,878$ 36,649,597$

Investment Income Net Gain (Loss) in Fair Value of Investments 8,758,641$ 22,467,139$ 111,063,362$ 73,705,613$ 566,661$ Interest 6,649,353 6,393,666 5,901,539 4,174,559 6,319,874 Dividends 6,408,886 5,915,832 6,786,728 7,158,084 4,981,339 Securities Lending Income 148,059 163,140 134,036 184,733 157,562 Miscellaneous Income 105,713 20,783 91,630 98,400 16,833 Net Income from Investment Activity 22,070,652$ 34,960,560$ 123,977,295$ 85,321,389$ 12,042,269$

Less Investment Expenses: Securities Lending Fees 59,201$ 65,676$ 54,589$ 78,604$ 68,370$ Investment Services 3,937,354 4,092,449 4,022,476 3,805,861 3,460,730 Total Investment Expense 3,996,555$ 4,158,125$ 4,077,065$ 3,884,465$ 3,529,100$ Net Investment Gain 18,074,097$ 30,802,435$ 119,900,230$ 81,436,924$ 8,513,169$ Total Additions 58,332,789$ 72,319,803$ 161,428,062$ 126,174,802$ 45,162,766$ Deductions Benefits 67,910,496$ 65,216,458$ 63,477,074$ 62,191,480$ 61,693,408$ Refunds 2,499,342 2,395,893 2,524,939 2,631,221 2,247,225 Transfers to Other Systems 35,912 - - - - Administrative Expenses 786,028 650,405 735,739 689,252 550,604 Miscellaneous Deductions 111,679 - - - - Total Deductions 71,343,457$ 68,262,756$ 66,737,752$ 65,511,953$ 64,491,237$

Net Change in Plan Net Position (13,010,668)$ 4,057,047$ 94,690,310$ 60,662,849$ (19,328,471)$

Statement of Changes in Plan Net Position - Last Ten Fiscal Years

For the Fiscal Years Ending June 30,




2011 2010 2009 2008 2007

Additions City Contributions 23,432,916$ 23,260,609$ 21,279,535$ 23,902,286$ 22,670,418$ Employee Contributions 7,562,294 8,041,748 8,156,115 8,591,124 8,120,057 Purchase of Service 3,772,923 1,556,832 1,565,164 5,186,289 1,008,980 Contributions from Other Sources 50,000 50,000 140,512 130,784 41,595 Transfers from Other Systems 700,009 1,652,656 1,589,190 2,012,917 3,794,093 Total Contributions 35,518,142$ 34,561,845$ 32,730,516$ 39,823,400$ 35,635,143$

Investment Income Net Gain (Loss) in Fair Value of Investments 106,114,437$ 40,143,355$ (155,121,980)$ (50,256,771)$ 85,493,111$ Interest 6,361,246 7,441,435 11,087,144 10,815,803 7,649,621 Dividends 5,589,052 6,743,309 7,219,584 10,009,694 9,537,064 Securities Lending Income 124,158 91,625 359,394 1,881,706 2,594,083 Miscellaneous Income 45,681 3,640 120,820 152,848 6,038 Net Income from Investment Activity 118,234,574$ 54,423,364$ (136,335,038)$ (27,396,720)$ 105,279,917$

Less Investment Expenses: Securities Lending Fees 35,027$ 25,401$ 197,429$ 1,708,227$ 2,517,081$ Investment Services 3,871,641 4,096,007 4,580,028 4,129,652 3,433,243 Total Investment Expense 3,906,668$ 4,121,408$ 4,777,457$ 5,837,879$ 5,950,324$ Net Investment Gain 114,327,906$ 50,301,956$ (141,112,495)$ (33,234,599)$ 99,329,593$ Total Additions 149,846,048$ 84,863,801$ (108,381,979)$ 6,588,801$ 134,964,736$ Deductions Benefits 58,247,882$ 51,700,541$ 51,996,508$ 46,211,560$ 40,419,922$ Refunds 2,350,626 2,110,360 1,689,956 1,265,235 1,573,276 Transfers to Other Systems 2,928,607 898,085 2,655,061 4,340,520 11,886,941 Administrative Expenses 728,642 672,622 864,382 519,346 485,469

Total Deductions 64,255,757$ 55,381,608$ 57,205,907$ 52,336,661$ 54,365,608$

Net Change in Plan Net Position 85,590,291$ 29,482,193$ (165,587,886)$ (45,747,860)$ 80,599,128$

For the Fiscal Years Ending June 30,

Tucson Supplemental Retirement SystemStatement of Changes in Plan Net Position - Last Ten Fiscal Years

Num

ber

ofRe

tiree

s1

23

41

23

45

67

1$

-25

0$

41

24

13

1

3

28

1

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2

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25

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172

97

55

12

8

110

1

2

5

19

9

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50

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238

13

1

70

32

5

133

1

2

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47

17

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$

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14

1

54

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6

126

2

48

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9

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36

37

66

1,

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$

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$

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19

0

33

15

3

104

1

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1

46

34

54

1,

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$

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$

263

23

5

13

13

2

118

1

2

51

36

55

1,

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$

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$

276

25

5

10

10

1

123

3

2

55

41

52

2,

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$

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$

219

20

4

8

6

1

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1

5

1

52

22

38

2,

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$

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$

207

19

7

4

4

2

92

1

55

17

42

2,

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$

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$

170

16

4

5

1

92

2

1

27

15

33

2,75

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11

4

113

1

69

13

15

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91

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1

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6

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3,

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$

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$

62

61

1

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1

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9

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60

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33

7

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$

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$

51

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1

31

1

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13

4,

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$

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$

41

40

1

20

1

6

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11

4,

251

$

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$

33

33

20

5

6

2

4,

501

$

-an

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er16

1

160

1

83

1

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25

22

27

2,94

5

2,

435

31

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1,

490

5

19

23

52

7

31

5

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Note

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, 201

6






Average Monthly Payments to New Retirees June 30, 2016

Retirement Effective DatesFor Fiscal Years Ending June 30 <5 5-9 10-14 15-19 20-24 25-29 > 30

2016Avg Monthly Benefit n/a 677$ 1,001$ 1,439$ 2,155$ 2,868$ 3,854$ Avg Monthly Final Avg Comp. n/a 3,829$ 4,076$ 3,883$ 4,465$ 4,977$ 5,660$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a



2013Avg Monthly Benefit 507$ 578$ 1,275$ 1,669$ 2,060$ 2,956$ 3,876$ Avg Monthly Final Avg Comp. 5,609$ 3,077$ 4,497$ 4,121$ 4,041$ 4,680$ 5,124$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2012*Avg Monthly Benefit 237$ 563$ 923$ 1,829$ 1,428$ 2,401$ 2,745$ Avg Monthly Final Avg Comp. 2,728$ 3,355$ 3,240$ 4,787$ 2,767$ 3,869$ 3,745$ Number of Active/EOSP retirees n/a n/a n/a n/a n/a n/a n/a

2011*Avg Monthly Benefit 519$ 560$ 964$ 1,913$ 2,303$ 2,998$ 3,780$ Avg Monthly Final Avg Comp. 2,865$ 3,350$ 3,352$ 4,774$ 4,509$ 4,899$ 5,044$ Number of Active/EOSP retirees 5 12 18 24 83 107 58

2010*1-9 10-14 15-19 20-24 25-29 >30

Avg Monthly Benefit 481$ 931$ 1,466$ 2,374$ 2,386$ 3,376$ Avg Monthly Final Avg Comp. 3,229$ 2,976$ 3,841$ 5,148$ 4,251$ 4,871$ Number of Active/EOSP retirees 23 16 13 35 23 13

2009*Avg Monthly Benefit 620$ 1,117$ 1,452$ 2,165$ 3,475$ 2,811$ Avg Monthly Final Avg Comp. 3,474$ 3,823$ 3,671$ 4,281$ 5,775$ 3,942$ Number of Active/EOSP retirees 14 13 12 23 15 9

2008*Avg Monthly Benefit 645$ 1,076$ 1,502$ 2,258$ 3,133$ 3,944$ Avg Monthly Final Avg Comp. 4,302$ 4,542$ 3,869$ 5,094$ 5,310$ 6,222$ Number of Active/EOSP retirees 18 16 27 74 84 63

2007Avg Monthly Benefit 648$ 725$ 1,360$ 2,010$ 2,999$ 3,730$ Avg Monthly Final Avg Comp. 3,947$ 2,922$ 3,687$ 4,258$ 5,086$ 5,589$ Number of Active Retirees 12 11 33 42 55 48



Years of Credited Service

*includes EOSP Participants still employed and alt. payees receiving benefits


Retired Members

Ages Male Female Total Male Female Total

Under 55 26 34 60 2 16 1855 to 59 130 120 250 0 20 2060 to 64 310 239 549 6 29 3565 to 69 468 236 704 6 47 5370 to 74 294 151 445 3 54 5775 to 79 172 98 270 2 59 6180 to 84 136 49 185 5 50 5585 to 89 51 32 83 2 24 2690 to 94 18 16 34 4 19 2395 to 100 6 4 10 1 6 7101 and over 0 0 0 0 0 0

Total 1,611 979 2,590 31 324 355

Active Members

Ages Male Female Total Male Female Total

Under 20 1 0 1 0.04% 0.00% 0.04%20 to 29 73 86 159 2.93% 3.45% 6.38%30 to 39 259 192 451 10.38% 7.70% 18.08%40 to 49 393 330 723 15.74% 13.23% 28.97%50 to 59 542 333 875 21.71% 13.35% 35.06%60 to 69 188 88 276 7.54% 3.53% 11.07%70 and over 8 2 10 0.32% 0.08% 0.40%

Total 1,464 1,031 2,495 58.66% 41.34% 100.00%

Composition of Active TSRS Membership by Tier

Membership Payroll % of PayrollTier 1 - Fixed Contribution Rates 1,355 69,209,026 60.09%Tier 1 - Variable Contribution Rates 315 13,246,459 11.50%Tier 2 - Variable Contribution Rates 825 32,727,864 28.41%

2,495 115,183,349 100.00%


Active Members Percentage Distribution

Demographics of Retired and Active MembersJune 30, 2016

Retirees Survivors/Beneficiaries




Fiscal Year

Total Contribution (percentage)

Fixed Variable Fixed Variable02/03 5.0 n/a 8.41 n/a 13.4103/04 5.0 n/a 11.17 n/a 16.1704/05 5.0 n/a 14.06 n/a 19.0605/06 5.0 n/a 14.83 n/a 19.83

06/07* 5.0 7.5 15.04 12.54 20.04 07/08* 5.0 8.084 15.21 12.126 20.21 08/09* 5.0 7.788 14.47 11.682 19.47 09/10* 5.0 8.852 17.13 13.278 22.1310/11* 5.0 9.428 18.57 14.142 23.5711/12* 5.0 11.62 24.05 17.43 29.0512/13* 5.0 13.976 29.94 20.964 34.9413/14 Tier I 5.0 27.32 32.32

13/141 Tier I 6.715 25.61 32.32 13/141 Tier II 5.06 27.26 32.3214/15 Tier I 5.0 27.22 32.22

14/151 Tier I 6.67 25.55 32.22 14/151 Tier II 5.14 27.08 32.2215/16 Tier I 5.0 27.23 32.2315/16 Tier I 6.62 25.61 32.2315/16 Tier II 4.91 27.32 32.23

*Employees hired on or after July 1, 2006 pay a variable rate, w hich changes annually, to 40% of the actuarially recommended

contribution rate (ARC) for the system.

Note 1: Effective July 1, 2013, variable rates are based on the normal cost of the Benefit Tier of membership. Numbers show n


Employer Rate (percentage)

Employee and Employer Contribution RatesLast Ten Fiscal Years as of June 30, 2016

Employee Rate (percentage)

Tu

cson

Sup

plem

enta

l Ret

irem

ent S

yste

m

Ben

efit

and

Ref

und

Ded

uctio

ns fr

om N

et P

ositi

on b

y Ty

pe

Last

Ten

Fis

cal Y

ears

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

Type

of B

enef

it

Serv

ice

Bene

fits:

Ret

irees

61,9

59,7

26$

59,3

84,7

28$

57,5

42,2

60$

56,4

06,4

78$

48,4

75,8

37$

51,3

77,4

74$

45,5

80,6

06$

40,1

23,5

80$

39,9

40,4

72$

31,9

93,3

40$

EO

SP lu

mp

sum

(1)

-

-

-

-

7,65

6,80

1

1,

517,

252

997,

448

6,

805,

342

1,49

5,13

6

4,

069,

547

Sur

vivor

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3,55

0,46

5

3,

422,

222

3,53

3,53

9

3,

397,

302

3,16

6,73

7

2,

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507

2,75

7,94

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2,49

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Dis

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Ben

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396

2,06

6,74

6

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266

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1,96

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9

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1,84

7,72

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37

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318,

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0,95

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4,17

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349,

299

39

7,55

6

277,

235

27

2,98

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Tota

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efits

67,9

10,4

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65,2

16,4

58$

63,4

77,0

74$

62,1

91,4

80$

61,6

93,4

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58,2

47,8

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51,7

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51,9

96,5

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19,9

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Type

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9,60

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$

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2,48

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495

$

31

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305,

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7,36

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312

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7

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$

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4,

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$

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(1) E

OSP

- An

End

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ervic

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it op

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beca

me

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Dea

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Jun

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,



<55

55‐59

60‐64

65‐69

70‐74

75‐79

80‐84

85 +

<10

10‐19

20>

<52,087

1,091,673

523

47136

193

117

234

30

83134

306

5 to 9

2,412

2,385,960

989

20117

291

368

156

306

192

172

725

10 to

14

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1,281,107

609

79

80234

186

829

255

128

426

15 to

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1,408

471,825

335

47

1526

113

113

543

3787

211

20 to

24

1,366

331,826

243

00

310

1774

9049

2367

153

25 to

29

1,361

231,369

170

01

21

720

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1243

115

30>

802

60,972

760

00

10

813

5414

2834

5,854,732

2945

78270

584

757

502

331

240

183

316

659

1970

Notes:

(1) A

verage

Ben

efit for all retiree

s is $

1,988 pe

r mon

th(2) #

of R

etire

es includ

es alte

rnate payees and

survivors

Tucson

Sup

plem

ental R

etire

men

t System

Retiree

Ben

efit and Service Summary

# yrs

Retired

Average

Bene

fit

(1)

Total

Mon

thly

Bene

fit pmts

# of

Retiree

s (2)

Age at 6/30/16

Years o

f Credited Service



EYE ON THE MARKET MICHAEL CEMBALEST J .P . MORGAN ASSET MANAGEMENT FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION January 23, 2017

1

Eye on the Market, January 23, 2017 The Rules of the Game: on regulation and deregulation

That was a remarkable and unique 72 hours by any historical measure. The challenge for investors will be to focus on things that affect markets (profits, employment, inflation, growth and productivity) and not on the distractions. At this point, markets may be over-estimating the magnitude of some Trump initiatives, or under-estimating the time it will take to enact them (corporate and personal tax reform, infrastructure spending); under-estimating the risks of trade disputes and tariffs1; but also under-estimating the benefits of deregulation, the latter being the topic of this note. As I wrote in the 2017 Outlook, the cross-currents add up in my view to another single digit return year for diversified portfolios.

Even before the new administration took office for a single day, Larry Summers wrote a piece2 chiding CEOs since “they have embraced and enabled our new President and his policies”, and since they have not openly criticized the President for “stepping away from underwriting an open global system”. I was not convinced. Throughout history, the United States has relied on the Congress, multiple layers of the Judiciary, Governors and other elected officials, millions of voters, trade associations, the press and hundreds of think tanks and advocacy groups to oversee the Executive Branch. Like the white blood cells that consume Donald Pleasance at the end of the film Fantastic Voyage, that’s how the system defends itself, and evolves. From where I sit, CEOs are accountable to:

their outside shareholders, mostly made up of current/future pensioners in defined benefit and defined contribution plans with large allocations to stocks (note: returns on cash savings have been decimated by Fed intervention for 7 years, making pensioners even more reliant on the equity market)

shareholder-employees (~ 1/3 of US private sector workers own stock in the company they work for)

a Board of Directors that was made more independent after passage of Sarbanes Oxley by Congress

their employees and their customers, some of whom voted based on their concerns about the consequences of an “open global system”, and do not share Larry’s unbridled passion for it

Now that the election is over, singling out CEOs for not publicly denouncing the new administration’s policies since they conflict with the orthodoxies of the prior one seems more like partisan re-litigation of the election results than anything else.

Michael Cembalest JP Morgan Asset Management Links to recent pieces:

2017 Eye on the Market Outlook [January 1, 2017]

“Look Before You Leap”, on destination based cash flow taxation [December 20, 2016]

“FCCease”, on prospects for a change in net neutrality at the FCC [November 16, 2016]

1 On China, President Trump appears to believe that US affirmation of the one-China policy is a bargaining chip to use in discussions on export subsidies, enforcement of intellectual property laws, currency manipulation, North Korea and Chinese expansion in the South China Seas. I’m not sure how that’s going to play out. The Trump administration will have to assess the possibility that China responds asymmetrically to tariffs, including actions that affect US firms operating there (let’s define a “trade war” as wide-ranging tariffs of 10%+).

In the meantime, the Philippines is tilting away from the US towards China and Russia; Japan-Korean relations have frayed after construction of a “comfort woman” statue in front of the Japanese embassy in Busan, South Korea; and China has taken delivery of Russian-made Su-35 fighter jets after developing its own stealth fighter last year. Oh, and China had to inject a record amount of liquidity in Q4 2016 given capital outflows and surging funding needs of its non-bank lenders. Forget about Europe for a minute; it’s going to be a complicated year in Asia. 2 “Disillusioned in Davos”, 1/20/2017


2

On regulation, deregulation and rent-seeking

The new administration reportedly supports a reduced pace of government regulation. While a trade war with China would almost certainly take center stage and negatively affect markets, a slowdown in regulation could boost the corporate sector over the medium term.

It’s important to preface discussions on deregulation with a reminder of problems that regulations have to solve in the first place. As shown below, regulations were the catalysts for reduced human exposure to sulfur dioxide, nitrogen oxide, carbon monoxide and lead. When I travel to Des Moines, Iowa to see our insurance company clients, I like being able to drink the water without having to think twice about it. I’m not sure that would still be the case if the EPA were shut down and environmental oversight were delegated back to the states, as Iowa’s junior senator proposed in 20143. Even with Federal oversight, the latest assessments indicate that 40%-80% of US rivers, lakes, estuaries and streams are still polluted4.

I also like being able to eat without having to take a lot of precautions, something often required when traveling internationally5. Since the mid 1990’s, there have been substantial declines in the rate of many food-borne illnesses in the US6. These declines have been attributed by the CDC to more frequent inspections and greater regulation of contaminants. On the financial sector, the quotes below from our Chairman/CEO support the notion that regulation can contribute to greater stability and safety. The purpose of this discussion is to understand where marginal utilities are reached and where they are exceeded, and not to question the need for regulation in the first place.

3 http://www.cnn.com/2014/10/12/politics/iowa-senate-race-braley-ernst/

4 EPA Watershed Assessments by State, EPA Wadeable Streams Assessment

5 Foodborne illness rates in some emerging market countries are 6x-10x US levels. In France, where I contracted a bad case of seafood poisoning at a Parisian brasserie, rates are 2x US levels. Source: World Health Organization.

6 The exception: Vibrio, a pathogen present in oysters and other marine life and which is related to cholera

0102030405060708090

100

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: US Environmental Protection Agency. December 2016.

A history of air pollutants and federal legislationIndex of tons of matter emitted, 1970 = 100

Nitrogen oxide

Sulfur dioxide

Carbon monoxide

Clean Air Act Amendments

Clean Air Interstate Rule

Energy Policy and Conservation Act

Clean Air Act

0.00.20.40.60.81.01.21.41.61.82.0

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

Source: US Environmental Protection Agency. 2015.

A history of national ambient lead levelsLead concentration, micrograms per cubic meter

Lead regulations:1971: Lead-based Poisoning

Prevention Act1976: Consumer Product Safety

Commission ban on lead paint1990: Ban on lead in gasoline

3.8 0.3 0.9 0.3 13.6 0.4

-60%-40%-20%

0%20%40%60%80%

100%120%

Shigella Yersinia E.Coli Listeria Campylobacter VibrioSource: CDC Morbidity and Mortality Weekly Report. June 2011. Six pathogens shown account for more than 50% of foodborne illness.

US foodborne illness rateschange in illness rate, 1996-2010

As per the CDC, reasons for the declines include:* More inspections of beef processing plants* Prohibition of ground beef contaminants* Improvements in FDA Food Model Code* Reduced allowable contamination of broiler chickens at processing plants

incidence per 100k people in 2010

“From my point of view, the American financial system - including banks and investment banks - is far safer because of capital and liquidity requirements. Despite all the turbulence so far this year, I don’t think anyone’s questioning our system. And that, obviously, is a good thing.”

Jamie Dimon Bloomberg interview, March 1, 2016

“Some people speak of regulation like it is a simple, binary tradeoff – a stronger system or slower growth or vice versa. We believe that many times you can come up with regulations that do both – create a stronger system and enhance growth.”

Jamie Dimon JP Morgan Shareholder letter, 2015


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The pace and cost of government regulation

The updated WhiteHouse.gov website states the following: “the President has proposed a moratorium on new federal regulations and is ordering the heads of federal agencies and departments to identify job-killing regulations that should be repealed.” This initiative would be welcomed by small businesses which have expressed rising concerns about regulation since 2009. Similarly, in a 2014 survey by the National Association of Manufacturers, 88% of respondents felt that regulations were affecting their business, by far the #1 concern in the survey. Why might this be the case? While most administrations add to new regulations, the regulatory pace of the last 8 years substantially exceeds its two predecessors.

It’s hard to measure the cost of regulations, in part due to their magnitude and complexity. However, some agencies try: according to the US Office of Management and Budget, the cost of new regulations passed since 1980 are around $250 billion per year. Other estimates are substantially higher: the latest review from the Competitive Enterprise Institute (the most detailed report I have seen on the subject) cites annual regulatory compliance and economic impact costs of $1.8 trillion, which is roughly equal to all personal and corporate income tax collections.

0%

5%

10%

15%

20%

25%

30%

35%

1986 1990 1994 1998 2002 2006 2010 2014

Source: National Federation of Independent Business, Haver. December 2016.

What's the largest problem facing small business?% of respondents, 6-month average

Taxes Poor sales

Quality of labor

Regulation

050

100150200250300350400450500

2009 2010 2011 2012 2013 2014 2015 2016

Fall 2016 Unified AgendaPresident ObamaPresident BushPresident Clinton

Source: George Washington University Regulatory Studies Center. 2016.

Cumulative number of economically significant regulations published during equivalent periods in office

-$50

$0

$50

$100

$150

$200

$250

$300

-$5

$0

$5

$10

$15

$20

$25

'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13Source: US Office of Management and Budget. 2014.

Cost of new federal regulationsUSD billion in 2015 dollars (both axes)

Annual cost of new regs Cumulative annual

cost of new regs

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

Source: Competitive Enterprise Inst., "Ten Thousand Commandments". 2016.

Compliance and economic costs of regulation in contextUS$ trillions

Estimated compliance and economic costs

of regulation, 2016

Individual Income Taxes,

est. 2015

Corporate Income Taxes,

est. 2015

Corporate Pretax Profits,

est. 2014


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One possible consequence of this heightened pace of regulation: the US has become, in relative terms, a harder place to start a new business. The next chart shows World Bank data on starting a business that compares the US to the world, and to countries in the OECD. As another indicator of the complexity that US businesses face, consider the inexorable rise in the length of US tax regulations, and in the number of pages in the Code of Federal Regulations (second chart). The US Office of Management and Budget estimated that it took 9.8 billion man-hours for businesses to complete Federally required paperwork in 2015, up from 7.4 billion man-hours in the year 2000.

By some accounts, regulatory expansion is augmented by the fact that it is driven by agencies that do not answer to voters. There are roughly 25-30 rules issued by agencies for every law passed by Congress (“regulation without representation”). Related compliance costs from rules and regulations fall disproportionately on smaller and medium sized firms, which account for 50% of total employment. It brings to mind the 1992 article written by George McGovern, one of the most progressive politicians of the 20th century, on his experience owning a small business after leaving the Senate and dealing with regulation: “A Politician’s Dream is a Businessman’s Nightmare”7. You would think that there would be a substantial amount of effort by government agencies to try and understand the costs and benefits of regulation, given its impact on the economy…

7 An illustrative quote from McGovern in the piece: “I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.”

40

50

60

70

80

90

100

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: World Bank Doing Business, JPMAM. October 2016. N = 189.

"Ease of starting a new business": in the US, getting less easy, US percentile rank relative to world and OECD

US vs. World

US vs. OECD

Easier

Harder70

90

110

130

150

170

1 mm2 mm3 mm4 mm5 mm6 mm7 mm8 mm9 mm

10 mm

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15Source: Tax Foundation, Government Publishing Offices, GWU. 2015. Using Title 26 of the US Code and Title 26 of the Code of Federal Regulations.

Regulations, measured in words and pages # of words # of pages (thous.)

Tax code and tax regulations

Code of Federal Regulations

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Bills passed by Congress Final rules issued by agencies

Source: Competitive Enterprise Inst., "Ten Thousand Commandments". 2016.

Regulation without representation

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Small firms Medium firms Large firms All firmsSource: National Association of Manufacturers. 2014.

Cost per employee of full-time employees devoted to Federal regulatory compliance for manufacturers


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Unfortunately, regulatory assessments are often lacking. The first chart shows the percentage of rules subject to regulatory impact analysis (RIA) from the years 2008 to 2012. For well more than half of all new regulations passed, there was no evidence of any RIA prepared by the sponsoring agency, and in another 20% of cases, RIAs only covered a minor part of the regulatory proposal. Another concern: the low rate of published cost/benefit analyses from the Office of Information and Regulatory Affairs (OIRA), which is part of the Office of Management and Budget. As shown in the second chart, of all Federal rules finalized from 2003 to 2012, OIRA only reported cost/benefit information on a very small fraction of them. While many un-reviewed rules were small on their own, their aggregate and inter-connected impacts were usually not examined. That’s one reason why proponents of deregulation believe that regulation is one of the factors negatively affecting US productivity.

However, the deregulatory movement is not a one-way street: “no more rent-seeking”. Over the last few weeks, I have spoken with members of the Trump transition team. They were clear about the quid pro quo: they’re generally in favor of deregulation, but are opposed to “rent-seeking” by the private sector. In other words, the private sector has to succeed or fail on its own merits, and cannot rely on the government when things go wrong. When I asked how/where the gov’t could demonstrate a commitment to this approach, the Commonwealth of Puerto Rico came up. Given the perilous state of CPR finances in 2014 when it issued a high coupon bond (see box), and given the subsequent lobbying and rent-seeking8 that followed when the CPR descended further into recession, I’m sympathetic to the principle that bondholders should bear the consequences of their decisions.

8 In Passage to Puerto Rico from last July, we walked through the sorry tale of the CPR general obligation bond, bondholder lobbying efforts, and the creation of an oversight board to manage the restructuring process.

0%

10%

20%

30%

40%

50%

60%

No evidence of any RIA use provided

Agency explained how RIA affected a minor decision

Agency explained howRIA affected at leastone major decision

Source: Mercatus Center at George Mason University. March 2015.

Agency use of Regulatory Impact Analysis (RIA)% of regulations from 2008 - 2012

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Federal rules finalizedfrom 2003 to 2012

Economicallysignificant rules

reviewed by OIRA

Rules reported on byOIRA with benefit and

cost information

Office of Information and Regulatory Affairs (OIRA) only reports cost/benefits on a small fraction of regulations, #

Source: Mercatus Center at George Mason University. April 2013.

1153,203

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1955 1965 1975 1985 1995 2005 2015

Source: BLS, Haver. Q3 2016.

US productivity growth5-year % change, annualized Puerto Rico and rent-seeking: the facts on the ground in

2014 when the CPR issued its 8.0% 2035 bond

The CPR had been in recession for 7 years CPR population in steady decline since 2000; manufacturing employment had fallen in half since 1996. CPR labor force participation rate of 50% 45% of CPR citizens lived below the poverty line 60% of CPR residents relied on Medicare or Medicaid CPR debt grew from $25bn in 2000 to $70bn by 2014 $40 billion in unfunded government pensions, and a pension system that was less than 10% funded


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Regulation by sector. The next chart shows new rules passed since 2009 with an assessed economic impact of $100 million or more, as estimated by the agencies themselves. The regulations are broken down by sector. While SEC oversight of the financial services industry registers the largest number of new rules, regulatory impacts are widespread across other sectors as well.

As for Dodd-Frank9 and other new financial sector regulations, many provisions were needed and made important contributions to systemic stability: the need for higher capital levels, the migration of certain over-the-counter derivative transactions to centralized clearing exchanges, and improved “resolvability” of banks in case of failure (designed to reduce taxpayer exposure). However, the banking sector is still in the midst of understanding and digesting thousands of new rules (some of which have not yet been finalized), and their long run consequences are not known. Since the Federal Reserve and other central banks have been acquiring trillions in financial assets, this may be a poor period for assessing the impact of regulation on liquidity and the cost/availability of credit. We do have some evidence: see the mortgage close-up on the following page.

9 There is a cottage industry of research examining the impact of Dodd-Frank on financial services. Papers from the American Enterprise Institute, the American Action Forum and Brookings highlight increased compliance costs and disproportionate impacts for community banks, which are deemed to be at the core of the slow US recovery; limitations on market-making, hedging and liquidity; and reductions in the scope of financial products offered to customers. The AAF paper from Doug Holtz-Eakin (former director of the Congressional Budget Office) estimated that Dodd-Frank could reduce economic output by almost $1 trillion from 2016 to 2025. The new administration appears to share these concerns: “The number one problem with Dodd-Frank is it’s way too complicated and it cuts back lending, so we want to strip back parts that prevent banks from lending; that will be the number one regulatory priority” Steve Mnuchin, Treasury Secretary nominee, December 2016.

-10 -5 0 5 10 15 20 25 30 35 40

All otherFederal Deposit Insurance Corporation

Department of Homeland SecurityConsumer Financial Protection Bureau

Department of the TreasuryDepartment of Labor

Department of TransportationFederal Reserve Board

Commodity Futures Trading CommissionDepartment of Health and Human Services

Department of EnergyEnvironmental Protection Agency

Securities and Exchange Commission

Source: Government Accountability Office (Federal Rules Database), Heritage Foundation. 2015.

Regulations by sector since 2009Number of rules with an annual economic impact of $100 million or more

Regulatory reductions Regulatory additions

0

5,000

10,000

15,000

20,000

25,000

30,000

2009 2010 2011 2012 2013 2014

Source: Mercatus Center at George Mason University. July 2015.

Dodd-Frank vs. all other laws passed during Obama administration, Cumulative new associated restrictions

All othersDodd-Frank

0

10

20

30

40

50

60

'70 '74 '78 '82 '86 '90 '94 '98 '02 '06 '10 '14

Source: Mercatus Center at George Mason University. December 2014.

Regulatory restrictions on banksThousands of restrictions in CFR Title 12

Dodd-Frank passed


7

Regulatory close-up: Why is US residential mortgage lending still weak? Residential mortgage lending is still weak compared to overall credit growth, and home sales are weaker than traffic patterns suggest they should be.

What are the reasons for this? I: Cyclical economic factors affecting housing demand

Weak nominal and real wage growth

Spike in home ownership rates during housing bubble exceeded 40-year trend, still readjusting

Decline in nominal home prices during housing collapse changed perception of single family homes as a store of value for household savings

Homeowners “trapped” in underwater or under-equitized homes reduce pool of buyers II: A return to more traditional underwriting by banks and government agencies

A decline in non-traditional mortgage products (interest-only loans, low documentation loans, high loan-to-value loans, hybrid adjustable rate loans and loans to lowest quality borrowers as measured by debt service-to-income) in Fannie Mae, Freddie Mac and private label portfolios

Reduced availability of cash-out refinancing loans, particularly at loan-to-values above 80%

Increase in premiums for loans from the Federal Housing Administration (FHA) and guarantee fees from Fannie Mae and Freddie Mac (GSEs)

III: Policy changes and other precedents

Putback risks still hard to quantify. The principle behind securitization is the transfer of credit risk to the government and government-sponsored guarantors by banks in exchange for a fee. While there has been some progress on “rep & warranty” clarification (the process by which guarantors put loans back to banks), there is still a lot of room for substantial discretion by guarantors in interpreting these provisions. As a result, banks still need to price in the possibility that they retain credit risk on securitized loans, increasing the cost of credit and reducing bank origination capacity.

-3%

0%

3%

6%

9%

12%

15%

18%

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012Source: Federal Reserve, Congressional Budget Office, JPMAM. Q3 2016.

What explains the lack of a rebound in mortgages?Net new credit taken by the nonfinancial private sector, % of GDP

Mortgages

Total credit (households and businesses)

-10

0

10

20

30

40

50

60

70

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Source: Census Bureau, NAHB, Haver Analytics. December 2016.

New home sales and traffic of prospective buyers As % of total households Index

New home sales

Traffic of prospective buyers


8

Growing web of complex and costly Federal and state servicing standards. The FHA and the GSEs maintain their own servicing guidelines, which are thousands of pages long. Additionally, each state has adopted its own standards and requirements on foreclosure, loan modifications and refinancing. Managing national operations that adhere to overlapping and often conflicting standards is complex, resource intensive and subject to unintentional risk of non-compliance. Impact: higher cost of credit, and sharply reduced appetite for loans with a higher propensity to ever become delinquent. Furthermore, the increased complexity of servicing has prompted some guarantors to restrict the ability of banks to transfer servicing of defaulted loans to “special servicers”, which in turn increases the cost and availability of credit. Bottom line: servicing is so complex that it has effectively become the binding constraint on origination in many cases.

New regulations leave too many borrowers outside the safe harbor, increasing regulatory and putback risk to banks. The “Ability to Repay” and “Qualified Mortgage” sections of the Truth in Lending Act (Reg Z) are designed to protect borrowers by requiring banks to make sure that borrowers are in a financial position to repay the loan, based on information available when the loan is made. These provisions provide safe harbor to banks for loans below a 43% debt service-to-income level when borrowers can explicitly document income, assets and other financial data. However, borrowers that cannot meet qualified mortgage requirement may have difficulty even when they’re creditworthy, such as the self-employed, and those with non-traditional and/or fluctuating incomes (this is not a small population; there are at least 10-20 million self-employed individuals). Result: banks concentrating their origination activities in safe harbor loans, since they are concerned about regulatory uncertainty and putback risk. This has in turn resulted in a sharp decline in loans to the self-employed, first time homebuyers, lower income families and other borrowers requiring some kind of accommodation10.

Litigation. Legal settlements incurred to-date by some accounts exceed $100 billion. To some bank management teams, while fines and penalties have subsided, there are still lingering uncertainties regarding the predictability of legal risk and proportionality of remedies, the process by which disputes end up subject to treble damages under Federal rules, and the basis for Federal, state, local and private sector litigation in the future. These uncertainties may have contributed to a shift in loan origination appetite, concentrating bank origination in the highest quality loans.

Survey of regulatory impacts on mortgage lending by small banks

10 See “Overly tight credit killed 1.1 mortgages in 2015”, Urban Institute, Laurie Goodman. A related issue: due to concerns about costs and putback risk, many banks have retreated from the FHA market. Banks represented 62% of FHA guarantees in 2010, but just 9% in 2016. The head of Ginnie Mae has expressed concerns that non-bank lenders taking their place may be less well capitalized, and may not be able to sustain uninterrupted lending and servicing activities in a downturn. See “The Mortgage Market’s $1 Trillion Pocket of Worry: Nonbanking firms take on bigger share of FHA-backed mortgages”, WSJ, January 19 2017.

Other

In response to bank examiner requests

In response to demand changes in the secondary market

For business reasons

In anticipation of future regulatory changes

In response to specific regulatory requirements

0% 10% 20% 30% 40% 50% 60%% of small bank respondents

Source: Mercatus Center at George Mason University. Feb. 2014 (n = 172)

What is the reason for altering your mortgage offerings?

Basel III

Changed underwriting requirements by Fannie Mae/Freddie Mac

Pressure from bank examiners

Low-interest-rate environment

Definition of "qualified residential mortgage"

Consumer Financial Protection Bureau

Definition of "qualified mortgage"

0% 10% 20% 30% 40% 50% 60%% of small bank respondents

Source: Mercatus Center at George Mason University. Feb. 2014 (n=172)

What has had a significant negative impact on your mortgage offerings?


9

The last 20 years have shown that the policy pendulum affecting residential mortgage lending is a very sensitive instrument that when swung too far in one direction, can cause undesirable outcomes. The challenge, as the US recovery is underway and as the Fed contemplates raising interest rates, is to make sure that the policy pendulum that affects residential mortgage activity is set at the right level11.

Acronyms CDC Center for Disease Control CPR Commonwealth of Puerto Rico EPA Environmental Protection Agency FHA Federal Housing Administration FCC Federal Communications Commission GSE Government sponsored enterprises OECD Organization for Economic Cooperation and Development SEC Securities and Exchange Commission

11 Members of the Trump transition team appear to share these sentiments:

“I believe that a major cause of the uncertainty handcuffing our economy today is in fact government policy, particularly the sweeping Dodd Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 ostensibly for the sake of market stability and investor confidence. This 2,319 page behemoth, requiring between 243 and 533 new rules, continues to spawn uncertainty and undermine the climate necessary for economic growth. Indeed, the real tragedy or inconvenient truth behind Dodd Frank and the hundreds of other rules flowing from Washington every year is that consumers, investors, and small business are harmed the most. For consumers and investors, increasing regulation means higher prices, diminished returns, or restricted choices. Small businesses, which have fewer monetary and human resources available to handle red tape compared to their larger peers, also are disproportionately impacted by government regulation.”

Paul Atkins, Trump Transition Team advisor on financial regulation, in April 2016

150

200

250

300

350

400

450

500

2002 2004 2006 2008 2010 2012 2014 2016Source: Mortgage Bankers Association, JPMAM. January 2017.

Mortgage activity still at depressed levelsIndex: Mortgage Loan Applications for Purchase (4-wk avg)

2%

3%

4%

5%

6%

7%

1954 1964 1974 1984 1994 2004 2014Source: Bureau of Economic Analysis, JPMAM. Q3 2016.

Residential investment stabilizing at a low levelResidential investment, % of GDP


10

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A Relic of the Recession: Fewer Local Government WorkersBY: Mike Maciag | January 23, 2017

For years, Queen Creek, Ariz., was booming with a steady influx of families moving to the community outsidePhoenix. That all came to a halt in 2006 when town officials started noticing a dramatic drop-off in housing construction.

The eventual nationwide housing market collapse resulted in round after round of mid-year budget reductions, followed by years of cuts to the city's workforce. The town consolidated or eliminated multiple departments. An entire police beat was cut. And the public employees who were left saw their hours or pay reduced as revenues continued to decline.

“For Queen Creek, the recession was six very-long years,” said John Kross, the town manager.

While few local governments across the country felt the recession's effects quite to the level that Queen Creek did, most were forced to make some form of payroll reductions. Going on nearly a decade since the start of the recession, localities in many parts of the country have since restored public payrolls to prior levels. But some still employ far fewer workers than they did before the downturn.

The U.S. Census Bureau recently published updated state-level estimates of public employment and payrolls from its annual survey of local governments. Governing compared each state's pre-2010 peak aggregatetotals to the latest 2015 data, excluding the education sector.

In all, local governments in 26 states had yet to see payroll expenditures return to prior levels when adjusted for inflation. Similarly, local public employment remains below previous highs in most states and is down 3.5 percent nationally from 2008.

Some of the steepest declines of any state were in Arizona, where local governments' payroll expenses were 17 percent below their prior peak. In addition to laying off staff, a number of cities also responded by going to four-day workweeks or privatizing services. Housing and zoning jobs, in particular, plummeted statewide.

In Michigan, another state with among the sharpest declines, revenues started declining years before the recession as the economy gradually weakened. Payroll expenses in 2015 were 18 percent below theirprevious high from 2003.

Local Government

State

Real Change

Pre-2010 Peak Monthly Payroll

Peak Year

2015 Monthly Payroll

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1/23/2017http://www.governing.com/templates/gov_print_article?id=410987965

Alabama 0.4% $348,524,944 2009 $350,021,504

Alaska 4.8% $59,161,174 2009 $62,025,544

Arizona -17.1% $539,277,067 2008 $447,164,468

Arkansas 0.4% $113,317,347 2009 $113,796,316

California -4.1% $4,495,665,256 2009 $4,313,058,041

Colorado 4.5% $471,880,264 2009 $492,954,002

Connecticut -7.4% $206,490,192 2005 $191,266,484

Figures represent aggregate totals for all areas of local government, excluding education, for March of each year. Peak totals adjusted for inflation are shown in March 2015 dollars. Delaware's payrolls temporarily spiked in 2007, so the state's peak is inflated. (See methodology.)

Other states with the largest declines include Massachusetts, Nevada and Rhode Island. Meanwhile, North Dakota, South Dakota and Wyoming recorded the biggest increases in noneducation payrolls.

Where localities opted to make cuts varies, but a few patterns emerge in the Census data.

When national employment estimates are compared with 2008 levels, nonsworn police employees sustained the single largest reduction of any major category of workers. That’s likely a result of police departments trimming civilian staff to maintain the size of police forces out on the streets.

Legislative and government-wide administrative agencies (such as personnel offices) shed about 10 percent of their workforces. Other areas of local government with larger reductions nationwide included highways, courts and health departments.

Faced with tight budgets, local officials often sought to preserve funding for public safety, instead applying cuts elsewhere. Nationally, numbers of police and firefighters were down 2.6 percent from 2008. Meanwhile, all other areas of local government, excluding education and hospitals, experienced a larger 4.5 percent decline.

“Prior to the recession, we used to say the amount of the general fund that went to public safety was around 50 percent,” said Ken Strobeck, executive director of the League of Arizona Cities and Towns. “Now, it’s more in the 60 percent range or even higher.”

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On top of job reductions, local governments trimmed benefits and, in some cases, imposed temporary pay cuts. Consequently, some of the hardest-hit jurisdictions struggled with employee morale and retention.

“There’s not only the pain of having to release people from employment, but those left behind have to deal with it as well,” said Queen Creek’s Kross. “We really paid attention to that.”

Kross said Queen Creek sought to apply cuts in a strategic manner. The town also formed a committee of representatives from each department that devised more than 150 ideas to save money.

How well public payrolls recovered from the recession -- or whether they did at all -- depends largely on localities’ tax structures and the performance of their economies.

Nevada’s municipalities, for example, rely significantly on property taxes. Although home values there have largely recovered, a statewide cap on annual property tax collections has meant that localities’ revenues haven’t rebounded as quickly, said Wes Henderson, executive director of the Nevada League of Cities andMunicipalities. The state's local government payrolls suffered a decline of 14 percent from their prior peak. In recent years, Nevada has sought to diversify its economy by targeting tech and other firms.

Despite the slow recovery across many regions of the country, signs of growth are appearing.

U.S. local government payroll spending recorded a 3 percent nationwide uptick between 2014 and 2015. And in a few states where public employment suffered mightily in the aftermath of the recession, stronger gains have been recently reported, particularly in Florida and Rhode Island.

In Arizona, homebuilding has begun to pick back up. Queen Creek’s property tax revenues are finally forecasted to return near previous highs, and the town’s steady population growth has resumed. In other parts of the state, however, Strobeck said jurisdictions still haven’t rehired laid-off police officers and some face major backlogs in road maintenance.

“We’re in for very slight growth overall but nothing like what we saw pre-recession when growth was really exceptional,” he said.

Loading graph

Use our data tool showing detailed payroll and employment data for localities in each state.

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Methodology

Local governments report total monthly payroll costs for March of each year as part of the Census Bureau’s Annual Survey of Public Employment & Payroll. The Census Bureau publishes aggregate estimated statewide totals for payrolls in each state. Governing adjusted each state’s aggregate monthly local government payroll cost for inflation and subtracted out costs classified as education related. The most recent estimates for March 2015 were then compared with each state’s peak levels prior to 2010 (which was 2009 for the majority of states).

Payroll costs reflect all expenses pertaining to salaries, fees, commissions and overtime pay before withholdings. They do not include retirement, health and other benefits.

This article was printed from: http://www.governing.com/topics/mgmt/gov-local-government-payrolls-employment.html

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Documents

DRAFT AGENDA AS OF 09/09/09 - Tucson · 2017-03-03 · TSRS Quarterly Performance Review for 12/31/2016 – Callan Associates 2. Asset Allocation Update – Note 1Callan Associates