Carl Karl, a portfolio manager for the Alpine Trust Company, has been responsible since

$2020$ for the City of Alpine's Employee Retirement Plan, a municipal pension fund.

Alpine is a growing community, and city services and employee payrolls have expanded

in each of the past $10$ years. Contributions to the plan in fiscal $2025$ exceeded benefit

payments by a three$-$to$-$one ratio.

The plan board of trustees directed Karl five years ago to invest for total return over

the long term. However, as trustees of this highly visible public fund, they cautioned

him that volatile or erratic results could cause them embarrassment. They also noted

a state statute that mandated that not more than $25\%$ of the plan's assets $($at cost$)$ be

invested in common stocks.

At the annual meeting of the trustees in November $2025,$ Karl presented the follow$-$

ing portfolio and performance report to the board:

ALPINE EMPLOYEE RETIREMENT PLAN

INVESTMENT PERFORMANCE

Karl was proud of his performance and was chagrined when a trustee made the following

critical observations:

a$.$ "Our one$-$year results were terrible, and it's what you've done for us lately that counts

most."

b$.$ "Our total fund performance was clearly inferior compared to the large sample of

other pension funds for the last five years. What else could this reflect except poor

management judgment?"

c$.$ "Our common stock performance was especially poor for the five$-$year period."

d$.$ "Why bother to compare your returns to the return from Treasury bills and the actu$-$

arial assumption rate? What your competition could have earned for us or how we

would have fared if invested in a passive index $($which doesn't charge a fee$)$ are the

only relevant measures of performance."

$e.$ "Who cares about time$-$weighted return? If it can't pay pensions, what good is it$?"$