City of Austin

Police Retirement System

Minutes of the Regular Meeting
Wednesday August 22, 2012 at 11:30 a.m.
Kendall Thomas, Chesley Wood, Bldg.
Austin Police Pension Office

Trustees Present Trustees Absent Staff/Guests

Peter Morin, Chair Kathie Tovo Sampson Jordan, CEO
Fred Fletcher, V-Chair Elaine Hart Stephanie Willie, DD
Art Alfaro Catherine Haggerty Vernon Webb, FM
Mike Jung Michelle Ruland, BSM
Chris Perkins Joe Meals, CSG
Chesley Wood Bob Klausner, Atty.
Tim Atkinson Brad Heinrichs, EA
Kendall Thomas

Peter Morin, Chair, called the Board to order at 12:30 p.m.

Minutes of the Regular Board Meeting July 18, 2012

Peter Morin, chair reported the July 18, 2012 Regular Board Meeting
minutes as written in trustee packets was up for discussion and approval.
Not hearing any discussion Peter asked for a motion to approve the minutes.
Tim Atkinson made a motion to approve the corrected minutes of July 18, 2012
as written and presented by Sampson Jordan, CEO. Chesley Wood seconded the
motion.

New Retired Members July 2012

Peter Morin, chair, reported the two (2) New Retired Members for July
2012 as written in trustee packets were up for discussion and approval. Not
hearing any discussion, Peter asked for a motion of approval. Chris Perkins
made a motion to approve the two (2) New Retired Members for July 2012 as
written in the trustee packets. Tim Atkinson seconded the motion.

PROP Disbursements for July 2012

Peter Morin, chair, reported the five (5) PROP Disbursements for July
2012 as written in trustee packets, were up for discussion and approval. Not
hearing any discussion, Peter asked for a motion of approval. Chris Perkins
made a motion to approve the five (5) PROP Disbursements for July 012 as
written in the trustee packets. Tim Atkinson seconded the motion.

PROP Monthly Annuity Deferral and Changes for August 2012

Peter Morin, chair, reported the one (1) PROP Monthly Annuity Deferrals
for August 2012, as written in trustee packets, was up for discussion and
approval. Not hearing any discussion, Peter asked for a motion of approval.
Chris Perkins made motion to approve the one (1) PROP Monthly Annuity
Deferrals for August 2012 as written in the trustee packets. Tim Atkinson
seconded the motion.

Pension Office: 2520 S. IH-35, Ste. 100, Austin, TX 78704 512/416-7672 FAX 512/416-7138
Mailing Address: P.O. Box 41089, Austin, TX 78704
www.ausprs.org
Service Credit Purchases for July 2012
Peter Morin, chair reported the seven (7) Service Credit Purchases for
July 2012 as written in trustee packet, were up for discussion and approval.
Not hearing any discussion, Peter asked for a motion of approval. Chris
Perkins made a motion to approve the seven (7) Service Credit Purchases for
July 2012 as written in the trustee packet. Tim Atkinson seconded the
motion.

Sections on Retirements, DROP disbursements, PROP disbursements, PROP Monthly Annuity Deferrals and Changes,
Member Service Credit Purchases, Death Benefits, Survivor Benefits and Member Contribution Refunds contain
Confidential Information under Texas Government Code 552.0038 and will not be publicly released.

Investment Committee Meeting, August 22, 2012

Kendall Thomas, investment committee chair recognized Joe Meals, APRS
investment consultant of Consulting Services Group, Inc. who reported at the
Investment Committee meeting August 22, 2012 on Manager Monthly & YTD
Performance Report, accruals and unrealized gains as of July 31, 2012. In
addition he reported in the Capitol Timber Investment-Partial Sale, Medley
Capital, LLC private debt equity fund presentation, Orlando Towers consent
to sale, investment rebalancing and reallocation, pending Investments-1)
Small Cap Growth, 2) Small Cap Value, and 3) Small Cap International
allocations. Sampson Jordan, CEO reported on approving of the Post
Retirement Option Plan (PROP)-Rate of Return for September 1, 2012-August
31, 2013.

A. Manager Monthly & YTD Performance Report

Joe Meals, APRS investment consultant reported that at July 31, 2012
the Austin Police Retirement System total Market Value was $503,697,703
(unaudited). The Market Value and Returns Summary showed the APRS
total composite returns were 1.0% current month, 3.2% year to date, -
2.8% trailing 1 year, 4.6% trailing 3 Years, -1.4% trailing 5 Years and
positive 8.6% manager since inception. The equity manager performances
were up 2.4%, while the broader S&P 500 index was up 1.4%; fixed income
manager performances were up 1.4%, while the JPM EMBI Global Diversified
index was up 3.7%, Barclays Capital Aggregate was up 1.4%, and Merrill
Lynch High Yield was up 1.9%; real estate and timber manager
performances were up -0.6%, and total alternatives in private equity and
hedge funds were up 0.7% at month-end. The Liquidity Groups by
acceptable ranges and actual were the following: 1) Public Trade
Liquidity (30-100%) was at 47.0%; 2) Public Trade Partially Liquidity
(0-50%) was at 6.7%; 3) Private Placed Partially Liquid (0-50%) was at
7.1%; and Privately Placed Illiquid at (0-50%) was at 39.3%. The June
30, 2012 to July 31, 2012 market value was up $5,293,377 and year to
date change in market value December 31, 2011 to July 31, 2012 was up
$17,740,946. The total investment fund commitment uncalled was reported
at $7,260,318. The portfolio asset allocation was 56% Market Dependent
(Equity-US, International & Emerging Markets of 35% and Fixed Income-
Cash, Core US Bonds, Mezzanine Loans & Private Loans of 21%) and 44%
Alternative Investments (Hedge Funds-7%, Private Real Estate-18%,
Timber-10%, Private Equity 7% and Natural Resources 3%.
In addition Joe reported the WR Huff energy fund had $95.5 mm
judgment awarded against it by district judge in Gonzalez County to
another co-partner in the fund, however the judgment would be appealed
by the general partner fund manager. No action taken or required by the
Board.
B. Capitol Timber Investment-(Partial Sale)
Joe Meals, investment consultant reported the Committee met at 9:30
a.m. Wednesday, August 22, 2012 regarding Capitol Timberland Investment
Resources consent letter that recommended approving the partial sale
of 75+/- acres at Arbor Tract 1194 in the amount of $185,250, as is
required by management agreement. The sell price was at $2,470 per acre
on cost basis per acre at $691.72. Joe reported the Committee
recommended unanimously to sale the partial tract, as presented by
Capitol Timberland Investment Resources. Kendall Thomas made motion to
approve the partial sale tract in the amount of $185,250, as recommended
by the Committee and presented by Capitol Timberland Investment
Resources. Tim Atkinson seconded the motion.

C. Medley Capital, LLC

Joe reported the Committee met at 10:00 a.m. Wednesday, August 22,
2012 with Seth Taube, Managing Partner, Scott von Stein, Principal, and
Luba Romankevich, VP Investor Relations of Medley Opportunity Fund II,
LP regarding investment opportunity in private senior debt. The fund
objective is to; 1) seek equity like return with risk profile of secured
debt, 2) using the strategy to originate $10-50 mm senior secured loans,
and 3) targeting net returns of 13-15% to investors. The investment
guideline requires investor, 1) 2 year lockup on 7 year fund life cycle,
2) $10 minimum investment, 3) 1.5% management fee on committed capital,
and 4) 20% carried interest that provides investor 8% preferred return.
Joe reported the Committee did not make any recommendation on
Medley Capital, LLCs private debt fund at this time. No action required
by the Board.

D. Orlando Towers Consent to Sale'

Joe reported the Committee met at 10:45 a. m. Wednesday, August
22, 2012 with Nate Paul, president World Class Capital Group regarding
Orland Towers, LP consent to sale letter that recommended approving
the sale in the amount of $6,000,000, as is required by the management
agreement. The sell price would produce $2,589,888 cash flow or 52% rate
of return on original cost $3,500,000. Joe reported the Committee
recommended unanimously to sale the Orlando Towers, LP, as presented by
Nate Paul, president WCCG. Kendall Thomas made motion to approve the
Orlando Towers LP consent to sale in the amount of $6,000,000.00, as
recommended by the Committee and presented by Nate Paul, president
World Class Capital Group. Art Alfaro seconded the motion.

E. Post Retirement Option Plan (PROP)-Rate of Return

Kendall Thomas, investment committee chair, reported the Committee
met at 11:00 a.m., August 22, 2012 to discuss the interest earnings for
the Post Retirement Option Plan (PROP), which requires the setting of a
interest earning credit as presented in letter from Sampson Jordan, CEO.
The interest earnings credited to the PROP would be for the next 12-
month period beginning on September 1, 2012 to August 31, 2013. The
historical five year running average return made by APRS is -.53% and
the ten year running average return is 7.11, as of July 31, 2012. The
current rate paid on PROP funds in members account is 2.5% and there is
approximately $18.6 million on 131 member accounts. It was reported in
an exhibit that banks and credit unions are paying 0.10%-0.50% on like
type funds for one year and City of Austin deferred compensation plan is
paying 2.93%.
Kendall reported the Committee recommended crediting 2.5% interest
earning for the next 12 months beginning September 1, 2012-August 31,
 2013, in order to remain competitive with other like funds during these
volatile investment times. Kendall Thomas made a motion to approve the
crediting of 2.5% interest earnings on the PROP account balances from
September 1, 2012 to August 31, 2013 as recommended by the Investment
Committee. Art Alfaro seconded the motion.

F. Investment Rebalancing and Reallocation,

Joe Meals, investment consultant reported he met at 11:15 a.m. with
the Committee Wednesday, August 22, 2012 and neither recommended to
rebalance or reallocate within the fund portfolio at this time. Joe did
report Consulting Services Group, Inc. would conduct and present to the
Committee a large cap growth or value search in the next 3-4 months.
No action required by the Board.

G. Pending Investments
1) Small Cap Growth
Joe Meals, investment consultant reported the Committee met at
11:15 a.m., Wednesday, August 22, 2012 regarding due diligence on
Delaware Investments and allocation recommendation increase to $25
mm from $15 mm on small/mid cap growth investment style and
strategy, in order to open separate managed account. The managed fee
would be performance based and site visit was still pending by Mike
Jung, trustee. Kendall Thomas made motion to increase the investment
allocation on Delaware Investments small/mid cap growth style and
strategy to $25 mm from $15 mm as recommended by the Committee. Tim
Atkinson seconded the motion.

2) Small Cap Value

Joe Meals, investment consultant reported the Committee met at
11:15 a.m., Wednesday, August 22, 2012 regarding due diligence on
Walthausen Company, LLC small cap value separate managed account.
He reported the investment terms were never agreed to by John
Walthausen, thereby Committee recommended rescinded the $15 mm
allocation to small cap value investments. Kendall Thomas made
motion to rescind the $15 mm allocation to small cap value separated
managed account as recommended by the Committee. Tim Atkinson
seconded the motion.

3) Small Cap International

Joe Meals, investment consultant reported the Committee met at
11:15 a.m., Wednesday, August 22, 2012 and were told by Sampson
Jordan, CEO the $10 mm funding allocation to Driehaus International
Small Cap mutual fund had been made, upon completion of the due
diligence by consultant, agreement review by legal counsel and site
visit completed by Fred Fletcher, APRS vice-chair. No action
required by the Board.

Disability Committee Meeting, August 22, 2012

1. Continuing Disability Benefit Ref:2886
Fred Fletcher, disability committee chair reported the
Committee met in closed session on Wednesday, August 22, 2012
at 11:30 a.m. to discuss continuing disability benefit on applicant
#2886 as required by statute 6243n-1. He stated, after review of
the members ability to perform any occupation for which reasonably
suited by education, training, or experience the Committee
unanimously recommended continuing the disability benefit until
 January 2013, at which time another review will take place. Fred
Fletcher made motion to approve continuing disability benefit on
applicant #2886 as recommended by the Disability Committee. Kendall
Thomas seconded the motion.

2. Continuing Disability Benefit Ref:2335

Fred Fletcher, disability committee chair reported the
Committee met in closed session on Wednesday, August 22, 2012
at 11:30 a.m. to discuss continuing disability benefit on applicant
#2335 as required by statute 6243n-1. He stated, after review of
the members application the Committee unanimously recommended
continuing the disability benefit until next review period. Fred
Fletcher made motion to approve continuing disability benefit on
applicant #2335 as recommended by the Disability Committee. Kendall
Thomas seconded the motion.

3. Continuing Disability Benefit Ref:1118

Fred Fletcher, disability committee chair reported the
Committee met in closed session on Wednesday, August 22, 2012
at 11:30 a.m. to discuss continuing disability benefit on applicant
#1118 as required by statute 6243n-1. He stated, after review of
the members application the Committee unanimously recommended
continuing the disability benefit until next review period. Fred
Fletcher made motion to approve continuing disability benefit on
applicant #1118 as recommended by the Disability Committee. Kendall
Thomas seconded the motion.

Pension Office Report

A. Treasury Report
Vernon Webb, finance manager presented the July 31, 2012 monthly
Treasury Report showing total APRS asset value is $500,907,663.87
(unaudited). This asset value was up $12,347,626.09 from June 30, 2012
asset valuation $488,560,037.78 million (unaudited). The total
investment unfunded commitments are $18,786,948.69 million, which
consisted of $488,501.25 in mezzanine loans, $2,329,297.00 in value
added real estate, $519,075.62 in international real estate,
$1,731,638.82 in private equity, $1,718,436.00 in special situations
awaiting capital calls and $3,000,000.00 working capital (retiree
payroll, DROP/PROP disbursements & refunds). The report showed
$25,739,607.56 in cash, which is more than $12,522,691.60 IPS 2.5% of
total asset reserve requirement. The IPS required 30% Minimum Public
Traded liquidity is in compliance at 39.94% and 50%-60% Maximum
Public/Private Liquid Target is in compliance at 46.15%. No action
required by the Board.

Vernon went on to report the general administrative expenses paid

year to date July 31, 2012 projected at $758,470.94 was below
$876,530.00 approved at the December 20, 2011 budget meeting. Training &
Education line item expense was at $29,337.39 and on track to exceed its
$45,000 budget amount. The police building tenant lease revenues and
expenses paid year to date July 31, 2012 produced net income of
$31,900.98 (unaudited) or 9.24% return on investment. The investment
expenses paid year to date July 31, 2012 projected at $2,036,666.28
(unaudited) was below $2,169,000.00 approved at the December 20, 2011
budget meeting. Investment legal fees line item expense in the amount
$101,122.49 exceeded its $54,000 budget amount, due to unwinding the
 Landbaron real estate general and limited partnership. No action
required by the Board.

Sampson Jordan, CEO reported the Police building income will increase
if current agreement negotiated to lease suite 205 to Ketterman Rowland
and Westlund attorneys at $14 per square foot by KW Commercial broker
hired by APRS is approved by the Board on 1692 square foot tenant lease
space. Tim Atkinson made motion to approve the $14 per square foot lease
price on 1692 square foot space as presented and negotiated by KW
Commercial broker. Kendall Thomas seconded the motion.

B. 2nd Quarter 2012, Security Monitoring Report

Sampson Jordan, CEO presented the Security Monitoring Report-2nd
Quarter 2012 as prepared by Berman, DeValerio, PC; Spector, Roseman,
Kodroff, & Willis, PC and Bernstein Liebhard, LLC securities litigation
firms hired to monitor the APRS trading records and determine if any
losses were the result of fraud. All law firms reported there were not
any security losses that occurred during the 2nd Quarter, whereby APRS
should apply for lead plaintiff role. No action required by the Board.

C. Pension Review Newsletter Report

Sampson Jordan, CEO presented the following topics as proposal for
the Pension Review Newsletter Summer/Fall edition, (see below).

2011 Annual Financial Statement audit and mid-year 2012 report

2011 Actuarial Valuation Report
Notice to Keep Pension Office Updated on Address Changes
Report on Updating Designated Beneficiary Forms at City and Pension Office
New Actuary Hired to present proposals on APRS Plan Changes to provide
Financial Sustainability
New Trustee Elaine Hart, COA CFO replacing Jeff Knodel
PROP Interest Rate
Financial Planning Seminar Announcement for October 18, 2012

Sampson reported the newsletter will be posted on the APRS website

under publications; however retiree and death member names will be
excluded, due to TGC 552.0038 forbidding publishing these member names.
He did report this newsletter will be mailed out to all active, retire
and surviving members to educate them about the APRS financial stability
and sustainability review process.
In addition Peter Morin, APRS chair requested Texans for Secured
Retirement (TSR) organization and mission statement be added to educate
everyone on defined benefit merits over defined contribution plans. The
Board agreed by acclamation to approve these topics for publishing in
the Summer/Fall Edition of the Pension Review newsletter as presented by
Sampson Jordan, CEO.

D. Peter Morin, WCCG Employment Agreement

Sampson Jordan, CEO reported Peter Morin, APRS chair informed the APRS
attorney and himself that he began business relationship as employee
with World Class Capital Group, Inc. an investment firm retained by
Austin Police Retirement to manage real estate. Petes employment
agreement begins September 1, 2012 and has been reviewed by APRS
attorney Bob Klausner who informed Pete he would be required to file all
applicable documents, affidavits and conflict interest statements, step
down as member of the Investment Committee and refrain from votes and/or
discussion at all Regular Board meetings on agreements between Austin
Police Retirement System and World Class Capital Group, Inc.
 Peter Morin, APRS chair announced Art Alfaro, trustee will replace him
on the Investment Committee. He also announced he would be resigning
within 30 days from his employment with the security litigation firm
Spector Roseman Kodroff & Willis, PC retained by APRS to monitor trading
records and determine if losses were incurred by security fraud. No
action taken or required by the Board.

Old/New Business

Peter Morin, APRS chair announced the Houston mayor was requesting Houston
Firefighter Pension Plan to restructure their Board makeup and eliminate
future cost of living wage increases to beneficiaries in there plan. No
action required by the Board.

Peter Morin, APRS chair announced the City of Fort Worth plans to reduce
their employee retirement benefits (including police) on all non-vested
accruals for active members beginning October 1, 2012. No action required by
the Board.

Adjournment

Peter Morin, Chair