agenda contra costa community college district retirement board of authority meeting february 3,...

Keenan & Associates Tel: 800-654-8102/Fax: 310-533-1329 License No. 0451271

AGENDA

CONTRA COSTA COMMUNITY COLLEGE DISTRICT RETIREMENT BOARD OF AUTHORITY MEETING

February 3, 2011 9:00 AM – 11:00 AM

DISTRICT BOARDROOM

500 COURT STREET MARTINEZ, CA. 94553

(925) 229-1000

I. CALL TO ORDER II. ROLL CALL

MEMBERS Interim College President Richard Livingston Vice Chancellor, District Wide Administrative Services, ex officio Kindred Murillo Associate Vice Chancellor/Chief Human Resources Officer, ex officio Eugene Huff College Business Director Bruce Cutler United Faculty Representative Michael Anker Local 1 Representative Krista Ducharme Management Council Representative Nick Dimitri

PROGRAM COORDINATOR Senior Vice President Gail Beal Account Manager Roslyn Washington

Senior Service Representative Stacy McFadden CONSULTANTS Morgan Stanley Smith Barney Cary Allison Benefit Trust Company Scott Rankin RPM Consultant Group Chuck Thompson

GUESTS Associate Vice Chancellor of Finance/CFO Serena Muindi OTHER None

Contra Costa Community College District Retirement Board of Authority Meeting February 3, 2011


III. APPROVAL OF AGENDA Action

2010/2011-028 The Retirement Board of Authority retains the right to change the order in which agenda items are discussed. Subject to review by the Retirement Board, the agenda is to be approved as presented. Items may be deleted or added for discussion only according to G.C. Section 54954.2.

PUBLIC COMMENTS: BOARD CONSIDERATION: IV. APPROVAL OF MINUTES Action

2010/2011-029 The Retirement Board will review the minutes from the previous meeting, November 1, 2010, for any adjustments and adoption. PUBLIC COMMENTS:

BOARD CONSIDERATION: V. CORRESPONDENCE Information 2010/2011-030 Correspondence will be presented and reviewed by the Retirement Board. No action may be taken in response; only referred for action on a subsequent agenda. PUBLIC COMMENTS: BOARD CONSIDERATION: VI. INVESTMENTS

PORTFOLIO REVIEW Action 2010/2011-031 Morgan Stanley Smith Barney will review the overall performance of the portfolio. PUBLIC COMMENTS: BOARD CONSIDERATION: MARKET OVERVIEW Information 2010/2011-032 The consultants will give an overview of the actions of the market since the last Retirement Board of Authority meeting. PUBLIC COMMENTS:

BOARD CONSIDERATION:



VII. EDUCATION Information 2010/2011-033 For OPEB plan governance, the Retirement Board of Authority is mandated to use the “prudent person” standard as codified by the California’s Constitution and Governmental Code. This standard requires that plan fiduciaries be (1)“familiar with such matters” as managing investments in a plan that pays OPEB benefits and that they take into account (2) “the circumstances then prevailing” relative to keeping abreast of changes in the economy, the marketplace for investment products and services to OPEB plans. The Education Agenda is for the furtherance of these OPEB requirements.

PUBLIC COMMENTS: BOARD CONSIDERATION: VIII. ADMINISTRATION

REVIEW OF THE COMPREHENSIVE COMPLIANCE PLAN, Information INCLUDING THE SUBSTANTIVE PLAN 2010/2011-034

Volume I, II & III of the Comprehensive Compliance Plan, including the Substantive Plan, are to be

reviewed. PUBLIC COMMENTS: BOARD CONSIDERATION: COMPREHENSIVE COMPLIANCE PLAN, INCLUDING THE Action SUBSTANTIVE PLAN POLICIES AND PROCEDURES FOR THE 2010/2011-035 MAINTENANCE OF THE PLAN UPDATE The Retirement Board of Authority will discuss a report by the Sub-committee on the status of the Comprehensive Compliance Plan Including the Substantive Plan Policies and Procedures for Maintenance of the Plan to approve for use. PUBLIC COMMENTS: BOARD CONSIDERATION:

STATUS OF ACTUARIAL STUDY Information

2010/2011-036 The Retirement Board members will discuss the status of the Actuarial Study. PUBLIC COMMENTS: BOARD CONSIDERATION:

TRUST BYLAWS Action

2010/2011-037 The current Trust document provides provisions to operate the Trust. There will be a discussion and update



from the Sub-committee to review the updated bylaws from last meeting for the Contra Costa Community College District Retirement Trust to approve for use. Bylaws provide additional direction for issues not discussed in the Trust Document. PUBLIC COMMENTS: BOARD CONSIDERATION: FUTURE TRANSFER OF ASSETS INTO THE TRUST Information 2010/2011-038 The District’s transfer of assets to the Investment Trust requires a new funding procedure. To meet the new funding method, the Retirement Board of Authority (RBOA) will provide defined timing and asset transfer schedules related to the District’s Annual Required Contribution (ARC) and Pay-As-You-Go funding strategies PUBLIC COMMENTS: BOARD CONSIDERATION: THE DISTRICT’S OPEB PLAN INDEPENDENT AUDITOR’S REPORT Information 2010/2011-039 The Independent Auditors Report provides the District’s OPEB Plan with an independent third party certification of GASB accounting standards and financial reporting for OPEB expenses, OPEB liabilities, note disclosures and required supplementary information (RSI) PUBLIC COMMENTS: BOARD CONSIDERATION: PRIVATE LETTER RULING Information 2010/2011-040 The Retirement Board of Authority will discuss the timeline to obtain a Private Letter Ruling from the Internal Revenue Service regarding the Section 115 Trust arrangement.

PUBLIC COMMENTS: BOARD CONSIDERATION:

RETIREMENT BOARD OF AUTHORITY (RBOA) FIDUCIARY AND CONFLICT OF

INTEREST PROTECTION FOR OPEB PLANS Information 2010/2011-041

California's Constitution positions the Retirement Board of Authority (RBOA) with "sole and exclusive" authority over the assets of the OPEB Plan. The RBOA can be relieved of the responsibility to manage the OPEB Trust's portfolio; the selection of investment providers & investment platforms by shifting these responsibilities to a full-service discretionary Trustee.

The RBOA ensures "conflict of interest" protection by administering the OPEB Plan per the "exclusive

purpose" standard of providing benefits promptly to participants and monitoring all OPEB Trust activity per the "prudent person" standard of care.

Chuck Thompson, of RPM Consultants will report on the status of the Policies, Procedures and Training program being developed for presentation to the RBOA. PUBLIC COMMENTS: BOARD CONSIDERATION:



IX. INFORMATION REPORTS

RETIREMENT BOARD OF AUTHORITY COMMENTS Information

2010/2011-042 Each member may report about various matters involving the Retirement Board of Authority. There will be no Retirement Board discussion except to ask questions or refer matters to staff, and no action will be taken unless listed on a subsequent agenda.

PROGRAM COORDINATOR/CONSULTANT COMMENT Information

2010/2011-043 The Program Coordinator and Consultants will report to the Authority about various matters involving the Authority. There will be no Authority discussion except to ask questions, and no action will be taken unless listed on a subsequent agenda.

VISITORS COMMENTS Information 2010/2011-044 The public may address the Retirement Board of Authority on any matter pertaining to the Retirement Board that is not on the agenda. The Chairperson reserves the right to limit the time of presentations by individual or topic.

X. DATE, TIME AND AGENDA ITEMS FOR NEXT MEETING Information 2010/2011-045

The Agenda Items for the next meeting will be the same as for this meeting. Members and visitors may suggest additional items for consideration at the next Futuris Retirement Board of Authority meeting. PUBLIC COMMENTS: BOARD CONSIDERATION:

XI. ADJOURNMENT __________________________________________________________________________________________ Americans with Disabilities Act The Contra Costa Community College District Retirement Board of Authority conforms to the protections and prohibitions contained in Section 202 of the Americans with Disabilities Act of 1990 and the federal rules and regulations adopted in implementation thereof. A request for disability-related modification or accommodation, in order to participate in a public meeting of the Contra Costa Community College District Retirement Board of Authority meeting, shall be made to: Eugene Huff, Associate Vice Chancellor/Chief Human Resources Officer, Contra Costa Community College District, 500 Court Street, Martinez, CA. 94553.


PRESENTED TO:

DATE:

02/03/2011

Retirement Board of Authority SUBJECT:

ITEM #:

2010/2011-028

Approval of Agenda

Enclosure:

Yes

Prepared by:

Keenan Financial Services

Requested by:

Retirement Board of Authority

BACKGROUND: Under California Government Code Section §54950 (The Ralph M. Brown Act) the “Legislative Body” is required to post an agenda detailing each item of business to be discussed. The Authority posts the agenda in compliance with California Government Code Section §54954.2. STATUS: Unless items are added to the agenda according to G.C. §54954.2 (b) (1) (2) (3) the agenda is to be approved as posted. RECOMMENDATION: Subject to changes or corrections, the agenda is to be approved.

Page 1 of 92


PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-029

Approval of Minutes

Enclosure:

Yes Prepared by:


Requested by:


BACKGROUND: As a matter of record and in accordance with the Brown Act, minutes of each meeting are kept and recorded. STATUS: The Board will review the minutes from the previous meeting. RECOMMENDATION: Subject to changes or corrections, the minutes are to be approved.

Page 2 of 92

Contra Costa Community College District Minutes – Retirement Board of Authority November 1, 2010

Keenan Financial Services 2355 Crenshaw Boulevard, Ste. 200, Torrance, CA. 90501

Tel: 800-654-8102 Fax: 310-599-1329 www.keenan.com

1

MEETING MINUTES


November 1, 2010 2:00 PM – 4:35 PM

DISTRICT BOARDROOM

500 COURT STREET MARTINEZ, CA 94553

(925) 229-1000

I. CALL TO ORDER

The meeting was called to order by Associate Vice Chancellor Eugene Huff at 2:05 p.m.

II. ROLL CALL

Those in attendance were: MEMBERS: Associate Vice Chancellor/Chief Human Resources Officer, ex officio Eugene Huff

United Faculty Representative Michael Anker Management Council Representative Nick Dimitri Local 1 Representative Krista Ducharme

PROGRAM COORDINATORS: Senior Vice President Gail Beal Account Manager Roslyn Washington Senior Service Representative Stacy McFadden

CONSULTANTS: Morgan Stanley Smith Barney Cary Allison Benefit Trust Company Scott Rankin RPM Consultant Group Chuck Thompson

GUESTS

None OTHER: None

Those absent were: Interim College President Richard Livingston Vice Chancellor, District Wide Administrative Services, ex officio Kindred Murillo

College Business Director Bruce Cutler

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III. APPROVAL OF AGENDA

A motion to approve the Agenda as presented was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board.

IV. APPROVAL OF MINUTES

A motion to approve the minutes of the RBOA meeting of May 18, 2010 and Sub-committee meeting of October 15, 2010 was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board.

V. CORRESPONDENCE

There was no correspondence presented.

VI. INVESTMENTS PORTFOLIO REVIEW Cary Allison of Morgan Stanley Smith Barney provided an overview of the District’s Investment Trust Change in Portfolio, Asset Allocation, and Time Weighted Return (Gross and Net of Fees) for period ending September 30, 2010. As of September 30, 2010, the District’s Investment Trust portfolio had an allocation of 57.1% in fixed income funds and 42.9% in equity funds (equity funds comprised of 24.2% in domestic equity and 16.7% in international equity). The value of the portfolio on December 31, 2009 was $9,800,132.35 and as of September 30, 2010 the value is $10,591,251.62. The September 30, 2010 portfolio value represents an inception to date net rate of return of 13.72% compared to the S&P/Barclays Blend of 11.61%. The investment results for the last 12 months show a net increase of 11.09% compared to the S&P/Barclays Blend of 9.99%. A motion to accept the District’s Investment Trust portfolio report as presented was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board. MARKET OVERVIEW Cary Allison of Morgan Stanley Smith Barney provided asset allocation and portfolio updates for the Futuris Public Entity Investment Trust model portfolios. Cary also provided materials from Morgan Stanley Smith Barney (MSSB) tracking global economic expansion. The ten (10) global tracking signposts used by MSSB have turned slightly positive. The MSSB documentation noted that while the global stock market index has been volatile, it is now in the black for the year to date as concerns about a double-dip recession have begun to recede.

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REVIEW OF INVESTMENT POLICY STATEMENT Scott Rankin of Benefit Trust Company (BTC) reviewed the Investment Policy Statement (IPS) for the Board members. He explained that Benefit Trust Company (BTC) is recommending changes to language contained in Appendix A as regards both Equity and Fixed Income Investments that reads “nor shall the trust assets be invested in any mutual fund that holds more than 5% of its portfolio in any single issue or issuer”. Benefit Trust Company recommends this language be deleted and replaced with “not more than 5% of the Trust assets shall be invested in any single equity issue or issuer”. Scott explained that by deleting this language, it will prevent a mutual fund manager from being fired for being temporarily over the 5% restriction. The IPS would maintain a requirement that the trust as a whole can not have 5% invested in any one security, looking at the underlying securities of each mutual fund. Technology allows this calculation to be done automatically and Morgan Stanley periodically runs these reports to monitor diversification.

Under Appendix A: Fixed Income Investments, Benefit Trust Company recommends that the following verbiage be deleted ““Yankee Bonds” i.e. foreign government bonds or corporate bonds of foreign companies, issued in U.S. dollar denominations, and offered through registration and filing with the SEC and carry a minimum BBB rating” and that it be replaced with new verbiage as follows: “Investment grade foreign government or corporate bonds, whether or not denominated in U.S. currency, and whether or not hedged for foreign currency risk.” This recommendation is made as a concession to the evolution of the management of international fixed income funds as few of the top managers continue to invest in Yankee Bonds, preferring instead to buy bonds directly off of the foreign exchanges. A motion to accept the recommended changes to the Investment Policy Statement (IPS) was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board.

VII. EDUCATION

Cary Allison provided a Morgan Stanley Smith Barney presentation entitled “Market Volatility and the Long-Term Investor.” Highlights of the presentation included the following market fundamentals:

• Volatility is a fact of life in the stock market. • Over the long run, stocks have offered significantly higher returns than bonds or T-bills. • Market timing can be an expensive undertaking. • Historically, the odds have favored the bulls.

To quote the former British Prime Minister Benjamin Disraeli “patience is a necessary ingredient of

genius” when it comes to long-term investing

VIII. ADMINISTRATION

COMPREHENSIVE COMPLIANCE PLAN FOR POLICIES AND PROCEDURES UPDATE PERTAING TO THE MAINTENANCE OF THE DISTRICT’S “SUBSTANTIVE PLAN”.

Page 5 of 92




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This agenda item will be placed on the next meeting agenda due to the absence of Board member Kindred Murillo. A motion to remove this agenda item from the agenda was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board.

ANNUAL REPORTING ON THE STATUS OF THE TRUST Gail Beal of Keenan Financial Services advised the Board members that the enclosed Annual Report of the funds held in the Trust is completed at the end of each fiscal year. The Annual Report was sent to the district in late July 2010. The District provided confirmation that the Annual Trust Report was posted to the District’s website. A motion to confirm receipt of the Annual Reporting on the Status of the Trust was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board.

STATUS OF ACTUARIAL STUDY Board member Eugene Huff provided an update on the status of their current Actuarial Valuation Study to the Board members. The Actuarial Consulting firm, Total Compensation Systems (TCS) is currently preparing the District’s current Actuarial Valuation Study and there will be a meeting with TCS in the near future to discuss their findings. TRUST BYLAWS Board member Eugene Huff provided an update on the status of the District’s Trust Bylaws. The sub-committee designated to review the District’s Trust Bylaws met on October 15, 2010. The sub-committee had specific discussions relative to the District’s Trust Bylaws sub-sections and provisions are as follows: Section 2: Retirement Board of Authority – Member Appointments: • Section 2.10 – remove the paragraph labeled “Language from the Resolution”. • Section 2.15 – no changes are required. Section 10: Registered Investment Advisor (RIA): • Section 10.1(c) – change the paragraph provisions to read as follows: “It shall provide investment

recommendations required by the Investment Policy Statement (IPS) approved by the Board. Section 4: Retirement Board of Authority – Actuarial, Contribution & Withdrawal Parameters

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• Section 4.2 – The following verbiage should be added to the second sentence “and require four

signatures; one from each constituent. It was suggested to place the District’s Trust Bylaws document on the next meeting agenda with changes anticipated in Sections 2.9, 2.10, 2.15 10.1 (c) and modifications to Section 4.2. A motion to table this agenda item until the next meeting was made by Michael Anker, seconded by Nick Dimitri and unanimously carried by the Board. FUTURE TRANSFER OF ASSEST INTO THE TRUST Eugene Huff indicated that the June 2010 transfer to the Trust was delayed. There was email communication by the District stating that the monies should be transferred into the trust either this week (November 1, 2010) or next week (November 8, 2010). THE DISTRICT’S OPEB PLAN INDEPENDENT AUDITOR’S REPORT This agenda item will be placed on the next meeting agenda due to the absence of Board member Kindred Murillo. PRIVATE LETTER RULING Gail Beal provided an update on the Private Letter Ruling (PLR). She received an update on Friday, October 29, 2010 in which the attorney indicated that they are in final negotiations with the IRS. The attorney has a meeting with the IRS the first week of December. GASB COMPLIANCE AUDIT REVIEW COMMENTS Chuck Thompson of RPM Consulting Group advised the Board members that there was nothing to report. RETIREMENT BOARD OF AUTHORITY (RBOA) FIDUCIARY AND CONFLICT OF INTEREST PROTECTION FOR OPEB PLANS

Chuck Thompson of RPM Consulting Group advised the Board members that there was nothing substantial to report at this time Chuck is working with Tom Casey, San Mateo CCCD Attorney and David Casnocha of Stradling, Yocca, Carlson & Rauth to come up with a proposal in the near future to provide District’s with an option to obtain a quote for a proposal to receive the development of Conflict of Interest and Fiduciary Liability policies, procedures and training Chuck expects that he will have details of the services and fees for services by midyear 2011

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IX. INFORMATION REPORTS

RETIREMENT BOARD OF AUTHORITY COMMENTS There were no Retirement Board of Authority member comments. PROGRAM COORDINATOR/CONSULTANT COMMENTS There were no Program Coordinator or Consultant comments VISITOR COMMENTS There were no Public comments.

X. DATE, TIME, AND AGENDA ITEMS FOR NEXT MEETING

The next RBOA meeting is scheduled as follows: • February 3, 2011 from 9:00 a.m. to 11:00 a.m.

Agenda items for the next RBOA Meeting will include:

• Update on Status of Actuarial Study • Performance Market Overview • Portfolio Review • Trust Bylaws • Report on District’s Audit Report • Comprehensive Compliance Plan Policies and Procedures for Maintenance of the District’s

“Substantive Plan” Update

XI. ADJOURNMENT

A motion to adjourn the meeting at 4:35 PM was made by Eugene Huff, seconded by Nick Dimitri and unanimously carried by the Board.

Page 8 of 92


PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-030

Correspondence

Enclosure:

No

Category

Correspondence

Prepared by:

Morgan Stanley Smith Barney

Requested by:


BACKGROUND: Communications received by, or sent on behalf of, the Retirement Board of Authority are presented to the governing body. These communications are normally informational in content and no action is required except to acknowledge receipt. STATUS: The Retirement Board of Authority will review any correspondence received. RECOMMENDATION: If the Retirement Board of Authority decides further discussions or actions are required on any specific communication, they will direct it be placed on a future agenda and/or have staff research the issue further.

Page 9 of 92


PRESENTED TO:

DATE:

02/03/2011


ITEM #: 2010/2011-031

Portfolio Review

Enclosure:

Yes

Prepared by:


Requested by:


BACKGROUND: As Board members of the Retirement Board of Authority you have a fiduciary responsibility as described in Government Code section 53215, et seq. As part of fulfilling your fiduciary responsibility, it is important to periodically review the Portfolio. STATUS: Morgan Stanley Smith Barney will provide a review of the Portfolio Performance Report. RECOMMENDATION: The Retirement Board of Authority should review and accept the report and file as appropriate.

Page 10 of 92

CO�TRA COSTA COMMU�ITY COLLEGE DISTRICT FUTURIS PUB E�TITY I�V TR

December 31, 2010

Time Weighted Return - Net of Fees

Annualized Annualized

Month Quarter Year Latest 1 Latest 3 Inception

To Date To Date To Date Year Year To Date

Account 2.95 4.16 12.56 12.56 - 14.43

S&P/Barclays Blend 2.80 4.65 11.49 11.49 2.23 13.11

Barclays Aggregate -1.08 -1.29 6.56 6.56 5.93 5.86

S&P 500 Adj for Divs 6.68 10.76 15.06 15.06 -2.86 19.31

NASDAQ 6.19 12.00 16.91 16.91 0.01 23.16

MSCI EAFE 8.10 6.61 7.75 7.75 -7.02 10.55

Time Weighted Return - Gross of Fees

Annualized Annualized

Month Quarter Year Latest 1 Latest 3 Inception

To Date To Date To Date Year Year To Date

Account 2.97 4.23 12.95 12.95 - 14.82

S&P/Barclays Blend 2.80 4.65 11.49 11.49 2.23 13.11

Barclays Aggregate -1.08 -1.29 6.56 6.56 5.93 5.86

S&P 500 Adj for Divs 6.68 10.76 15.06 15.06 -2.86 19.31

NASDAQ 6.19 12.00 16.91 16.91 0.01 23.16

MSCI EAFE 8.10 6.61 7.75 7.75 -7.02 10.55

Asset Allocation

PORTFOLIO SUMMARY

December 31, 2010

18.9%

25.3%

55.8%

0.0%

CASH AND RECEIVABLES 0.38

FIXED INCOME FUNDS 12,613,586.86

DOMESTIC EQUITY FUNDS 5,726,927.65

INTERNATIONAL EQUITY FUNDS

4,272,057.45

Change In Portfolio

Portfolio Value on 12-31-09 9,800,132.35

Contributions 11,375,000.00

Withdrawals 0.00

Change in Market Value 782,183.32

Income Received 694,010.65

Management Fees -38,753.98

Portfolio Value on 12-31-10 22,612,572.33

22,612,572.33

Page 11 of 92

PORTFOLIO APPRAISAL December 31, 2010

Security Unit Total Market Pct. Cur.

Quantity Security Symbol Cost Cost Price Value Assets Yield

CASH A&D RECEIVABLES

NORTHERN INSTL

FUNDS

GOVERNMENT

SELECT

bgsx.x 0.38 0.38 0.0 0.0

FIXED I&C MUTUAL FU&DS

Taxable Funds

231,089.279 DELAWARE

DIVERSIFIED

INCOME INSTL

dpff.x 9.34 2,158,730.05 9.22 2,130,643.15 9.4 5.4

205,177.475 METROPOLITAN

WEST TOTAL

RETURN BOND I

mwti.x 10.53 2,159,615.25 10.37 2,127,690.42 9.4 5.0

311,553.955 OPPENHEIMER

INTERNATIONAL

BOND Y

oiby.x 6.50 2,025,442.80 6.56 2,043,793.94 9.0 4.3

195,340.980 PIMCO TOTAL

RETURN INSTL

pttr.x 11.12 2,172,209.42 10.85 2,119,449.63 9.4 3.3

152,274.842 TEMPLETON

GLOBAL BOND ADV

tgba.x 12.95 1,972,114.25 13.56 2,064,846.86 9.1 4.4

197,324.940 WESTERN ASSET

CORE PLUS BOND

INSTL

wacp.x 10.35 2,043,253.55 10.78 2,127,162.85 9.4 5.8

12,531,365.32 12,613,586.86 55.8 4.7

12,531,365.32 12,613,586.86 55.8 4.7

DOMESTIC EQUITY FU&DS

Large Cap Funds

54,052.448 BLACKROCK

EQUITY DIVIDEND I

madv.x 15.56 840,867.89 17.55 948,620.46 4.2 2.0

32,085.774 HARTFORD CAPITAL

APPRECIATION Y

hcay.x 32.67 1,048,328.92 37.58 1,205,783.39 5.3 0.0

56,966.118 JHANCOCK CLASSIC

VALUE I

jcvi.x 14.62 832,868.45 16.68 950,194.85 4.2 1.0

2,722,065.26 3,104,598.70 13.7 0.9

Mid Cap Funds

19,139.400 COHEN & STEERS

REALTY SHARES

INSTL

csri.x 31.18 596,860.05 37.99 727,105.81 3.2 2.3

20,306.797 HARTFORD MIDCAP

Y

hmdy.x 19.76 401,307.42 24.09 489,190.74 2.2 0.0

20,623.651 NUVEEN

TRADEWINDS

VALUE

OPPORTUNITIES I

nvor.x 30.67 632,542.39 35.17 725,333.81 3.2 0.0

20,982.900 PERKINS MID CAP

VALUE I

jmva.x 20.36 427,276.32 22.57 473,584.05 2.1 0.8

2,057,986.18 2,415,214.40 10.7 0.8

4,780,051.44 5,519,813.10 24.4 0.9

I&TER&ATIO&AL FU&DS

International

75,117.500 ARTIO

INTERNATIONAL

EQUITY II I

jeti.x 11.87 891,603.19 12.46 935,964.05 4.1 4.6

1

Page 12 of 92

PORTFOLIO APPRAISAL December 31, 2010

Security Unit Total Market Pct. Cur.

Quantity Security Symbol Cost Cost Price Value Assets Yield

12,752.914 BLACKROCK

GLOBAL

ALLOCATION I

malo.x 17.99 229,383.42 19.50 248,681.82 1.1 1.7

59,654.176 BRANDES INSTL

INTERNATIONAL

EQUITY

biie.x 14.79 882,038.65 15.22 907,936.56 4.0 1.7

5,840.426 COHEN & STEERS

GLOBAL REALTY I

cssp.x 38.47 224,705.47 40.97 239,282.25 1.1 5.2

20,485.057 DODGE & COX

INTERNATIONAL

STOCK

dodf.x 31.74 650,292.76 35.71 731,521.39 3.2 1.2

16,520.706 NUVEEN

TRADEWINDS

GLOBAL ALL-CAP I

nwgr.x 24.67 407,493.26 29.21 482,569.82 2.1 0.4

25,352.708 THORNBURG

INTERNATIONAL

VALUE I

tgvi.x 25.44 644,896.49 28.64 726,101.56 3.2 0.9

3,930,413.23 4,272,057.45 18.9 2.2

3,930,413.23 4,272,057.45 18.9 2.2

BALA&CED EQUITY FU&DS

Balanced Funds

10,815.381 THORNBURG

INVESTMENT

INCOME BUILDER I

tibi.x 17.80 192,485.84 19.15 207,114.55 0.9 6.1

192,485.84 207,114.55 0.9 6.1

TOTAL PORTFOLIO 21,434,316.21 22,612,572.33 100.0 3.3

2

Page 13 of 92


PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-032

Market Overview

Enclosure:

Yes

Prepared by:


Requested by:


BACKGROUND: As Board members of the Retirement Board of Authority you have a fiduciary responsibility as described in Government Code section 53215, et seq. In fulfilling your fiduciary responsibility, it is important to understand the impact of market conditions on the assets in the trust. STATUS: Morgan Stanley Smith Barney will provide an overview of current market conditions. RECOMMENDATION: The Retirement Board of Authority should receive the information.

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Q1 2010

Please refer to important information, disclosures and qualifications at the end of this material. 1

Capital Markets Overview Q4 2010

Introduction In the fourth quarter, markets continued to benefit from intervention by governments and central banks, marking a second year of recovery from the financial

crisis.

Moving forward, there is every indication that the recovery could become an expansion. The primary engine for this expansion is the emerging market (“EM”) economies. Growth in excess of 6% is expected in 2011 for EM economies, whereas developed-market (“DM”) economies are expected to grow only 2%.

Prices of raw materials climbed in the fourth quarter. Many analysts maintain that if China and other countries that require raw materials keep growing quickly, commodity prices are likely to continue rising.

China was also the leader in global IPOs, with a total of 471 offerings that raised $104.4 billion.

In the U.S., recently enacted federal tax-cut extensions seem likely to provide a platform for stronger growth.

U.S. corporate profits gained 30% in 2010, while cash reserves were the highest in half a century. The volume of mergers and acquisitions grew in 2010 by 25%. Corporations continued to be able to borrow at exceedingly low rates.

Once the U.S. Federal Reserve indicated that it would implement a second round of quantitative easing, equity prices climbed impressively in the third and fourth quarters. The Dow Jones Industrial Average, Standard & Poor’s 500 and NASDAQ Composite all ended the year on a high note.

The Dow Jones Industrials were up 8.1% for the fourth quarter and 14.1% for the 12 months ending 31 December 2010.

The S&P 500 advanced 10.8% for the quarter and 15.1% for the 12-month period.

The NASDAQ Composite gained 12.0% for the quarter and 16.9% for the 12-month period.

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The U.S. Economy In its December 22 update, the Department of Commerce estimated that Gross Domestic Product grew at an annual rate of 2.6% in the third quarter of 2010,

in comparison with 1.7% in the second quarter of 2010. Morgan Stanley & Co. Incorporated (“Morgan Stanley”) economists forecast that U.S. GDP will increase 4.0% in 2011.

The seasonally adjusted unemployment rate remained between 9.4% and 9.8% for the quarter. Although the unemployment rate fell slightly in December, the number of private sector jobs grew only modestly during the quarter. Most commentators agree that unemployment will subside to pre-crisis levels only after a period of sustained economic growth.

According to the most recent estimate from the Commerce Department, corporate profits rose 2.6% between the second and third quarters of 2010, and 26.4% between the third quarter of 2009 and the third quarter of 2010.

Inflation remained low in the U.S. According to the Bureau of Labor Statistics, the seasonally adjusted Consumer Price Index rose 0.2% in October and 0.1% in November. Morgan Stanley economists expect an inflation rate of 2.0% for the coming year.

During the fourth quarter, the Census Bureau reported that privately owned housing starts fell a seasonally adjusted 5.8% between November 2009 and November 2010 as the expiration of federal tax breaks for homebuyers, the large supply of existing houses, expectations of continuing declines in house prices, and slow growth in employment continued to weigh down demand for new homes. However, in a sign that the housing market may be recovering, housing starts increased 3.9% between October and November 2010.

The Census Bureau also reported that seasonally adjusted retail and food services sales increased 3.3% between the third and fourth quarters of 2010 and 7.9% between December 2009 and December 2010.

In December, the Institute for Supply Management’s manufacturing-sector index (“PMI”) was 57.0, up 0.4 from November, and above 50 for the seventeenth consecutive month. PMI was above 42 for the twentieth consecutive month. The ISM Nonmanufacturing Index (“NMI”) rose 2.1 points to 57.1 between November and December. The index has now been above 50 for twelve consecutive months. Generally speaking, a PMI or NMI over 50 indicates that the sector is expanding, and a PMI over 42 indicates that the overall economy is expanding.

Page 16 of 92


The U.S. Equity Markets The fourth quarter saw an ongoing upturn in all major stock indices. For the quarter, the Dow Jones Industrial Average was up 8.1%, and the Standard &

Poor’s 500 index was up 10.8%.

Equity investors generally remained confident during the fourth quarter, according to the so-called “fear index,” the CBOE VIX volatility index. The VIX averaged a moderate 19.5 for the fourth quarter, reaching a quarterly high of 24.3 on October 4. In contrast, the VIX reached a high of 48.2 in the second quarter of 2010, on the way to a quarterly average of 26.4.

During the fourth quarter, all sectors of the S&P 500 index recorded gains. The largest advances were for Energy (21.5%) and Materials (19.0%). Consumer Discretionary (12.6%), Industrials (11.8%), Financials (11.6%), and Information Technology (10.2%) also rose significantly. Returns were good for Telecommunications (7.3%) and Consumer Staples (6.1%). Health Care and Utilities were the laggards, up 3.6% and 1.1%, respectively.

Although the stocks of small-, mid- and large-cap companies all appreciated significantly during the fourth quarter, small- and mid-cap stocks fared best. The Russell 1000 index, a large-cap index, rose 11.2% for the quarter and 16.1% for the 12-month period ending December 31. In comparison, the Russell Midcap index rose 13.1% for the quarter and 25.5% for the 12-month period, and the Russell 2000 index, a small-cap index, rose 16.3% for the quarter and 26.9% for the 12-month period.

Growth stocks outperformed value stocks among large, medium and small companies. Returns for the large-cap Russell 1000 Value index were 10.5% for the quarter and 15.5% in the 12-month period ending December 31, while the Russell 1000 Growth index rose 11.8% for the quarter and 16.7% for the 12-month period. Similarly, the Russell Midcap Value index rose 12.2% for the quarter and 24.8% for the 12-month period, while the Russell Midcap Growth index was up even more—14.0% for the quarter and 26.4% for the 12-month period. In small caps, the Russell 2000 Value index rose 15.4% for the quarter and 24.5% for the 12-month period, while the Russell 2000 Growth index rose 17.1% for the quarter and 29.1% for the 12-month period.

Key U.S. Stock-Market Index Returns (%) Fourth

Quarter12 Months

Ending 12/31Past Five Years

(Annualized)Past Seven Years

(Annualized)S&P 500 index 10.8 15.1 2.3 3.9Dow Jones 8.1 14.1 4.3 4.1Russell 2000 16.3 26.9 4.5 6.4Russell Midcap 13.1 25.5 4.7 7.9Russell 1000 11.2 16.1 2.6 4.3Source: Vestek Past performance is not a guarantee of future results. Investors cannot invest directly in an index. The performance of unmanaged indices reflects no deductions for fees, expenses or taxes that would affect the performance of actively managed assets.

Page 17 of 92


Global Equity Markets Equity markets rose in both developed and emerging economies during the fourth quarter, with many markets ending the year at all-time highs. For the fourth

quarter, the Morgan Stanley Capital International Europe Australasia Far East index (“MSCI EAFE”), a benchmark for developed markets, rose 6.7% for U.S. dollar-based investors and 5.7% for local-currency investors, as the dollar fell in relation to many other currencies. For the 12-month period ending December 31, the MSCI EAFE was up 8.2% in terms of the U.S. dollar and 5.3% in terms of local currencies.

The MSCI Far East index was also up for the quarter—10.9% in terms of the U.S. dollar and 8.0% in terms of local currencies—as Asian currencies continued to appreciate against the U.S. dollar. For the 12-month period ending December 31, the MSCI Far East index was up 16.6% for U.S.-currency investors and 3.2% for local-currency investors.

The MSCI Europe index of developed markets rose 4.6% for U.S.-currency investors and 5.0% for local-currency investors during the quarter, and 4.5% in terms of the dollar and 7.5% in terms of local currencies for the 12-month period.

For the quarter, the MSCI Emerging Markets index (“EM”) rose 7.4% for U.S.-dollar investors and 5.8% in terms of local currencies. For the 12-month period ending December 31, the EM rose 19.2% in terms of the U.S. dollar and 14.4% in terms of local currencies.

More-specific indices also reflected the ongoing strength in emerging economies. The MSCI BRIC (Brazil, Russia, India and China) index rose 3.8% for the quarter and 9.8% for the 12-month period in terms of the U.S. dollar. The MSCI BRIC rose 3.0% for the quarter and 7.5% for the 12-month period in local terms. For the quarter, the MSCI EM Asia index rose 7.0% in U.S.-dollar terms, and 5.5% in local terms. For the year, the MSCI EM Asia rose 19.4% in U.S.-dollar terms and 15.0% in local terms.

Key Global Equity-Market Indices Based on the U.S. Dollar (%) Fourth

Quarter12 Months


(Annualized)Past Seven Years

(Annualized)MSCI EAFE 6.7 8.2 2.9 6.9MSCI EAFE Growth 7.9 12.6 3.8 6.9MSCI EAFE Value 5.4 3.8 2.0 6.7MSCI Europe 4.6 4.5 3.5 6.8MSCI Japan 12.1 15.6 (2.3) 3.8MSCI Emerging Markets 7.4 19.2 13.1 17.7Source: Vestek Past performance is not a guarantee of future results. Investors cannot invest directly in an index. The performance of unmanaged indices reflects no deductions for fees, expenses or taxes that would affect the performance of actively managed assets.

Page 18 of 92


The U.S. Bond Market In the fourth quarter, the Fed’s policy of quantitative easing (“QE2”), in which it purchased U.S. government debt, along with signs of economic recovery,

moved investors from low-risk bonds into higher-yielding securities.

As prices for Treasuries rose, partly in response to demand from the Fed, Treasuries of all maturities, on average, had a negative total return of nearly 3%. Over the past 12 months in credit markets, low coupon rates also drove investors out of investment-grade bonds and into high-yield and emerging-market debt. The average spread of investment-grade bonds over Treasuries narrowed to under 2% for the year.

The Barclays Capital U.S. Aggregate Bond index, a general measure of the fixed-income market, fell 1.3% for the fourth quarter, but rose 6.5% for the 12 months ending December 31. A measure of lower-rated corporate bonds, the Barclays Capital High Yield index, rose 3.2% for the quarter and 15.1% for the same 12-month period. Though investors remained wary of mortgage-backed securities, the Barclays Capital Mortgage Backed index was up 0.2% for the quarter and 5.4% for the 12-month period.

In the municipal-bond market during the fourth quarter, QE2, uncertainty about the future of federally subsidized Build America Bonds, and nervous selling drove prices down and yields to two-year highs. The Barclays Capital Muni index was down 4.2% for the quarter. Nevertheless, the index rose 2.8% for the 12-month period ending December 31.

U.S. Bond-Market Index Returns (%) Fourth

Quarter12 Months


(Annualized) Past Seven Years

(Annualized)Barclays Capital Govt/Credit (2.2) 6.1 5.4 4.7Barclays Capital Intermediate Govt/Credit (1.5) 5.5 5.4 4.5Barclays Capital Long Govt/Credit (5.6) 10.2 5.9 6.2Barclays Capital Government (2.3) 5.5 5.5 4.8Barclays Capital Mortgage Backed Securities 0.2 5.4 6.3 5.6Source: Vestek Past performance is not a guarantee of future results. Investors cannot invest directly in an index. The performance of unmanaged indices reflects no deductions for fees, expenses or taxes that would affect the performance of actively managed assets.

Page 19 of 92

THE BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX: A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. BARCLAYS CAPITAL GOVERNMENT INDEX: Barclays Capital Treasury bond and agency bond indices (all publicly issued debt of agencies of the U.S. government, quasi-federal corporations and corporate debt guaranteed by the U.S. government, but no mortgage-backed securities) are combined to form the government bond index. BARCLAYS CAPITAL U.S. INTERMEDIATE GOVERNMENT/CREDIT BOND INDEX: The Barclays Capital U.S. Intermediate Government/Credit Bond Index is a total return index consisting of investment-grade corporate debt issues as well as debt issues of U.S. government agencies and the U.S. Treasury. The debt issues all maintain maturities within a range of one to 10 years. An investment cannot be made directly in a market index. BARCLAYS CAPITAL HIGH YIELD INDEX: The Barclays Capital U.S. High Yield Index covers the universe of fixed rate, non-investment-grade debt. Pay-in-kind (PIK) bonds, Eurobonds and debt issues from countries designated as emerging markets (e.g., Argentina, Mexico, Venezuela, etc.) are excluded, but Yankee and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes and step-up coupon structures are also included. Liquidity Rules: All bonds included in the High Yield Index must be dollar-denominated and nonconvertible and have at least one year remaining to maturity and an outstanding par value of at least $150 million. Quality Rating Rules: Securities in the index must be rated Ba1 or lower. If both Moody’s and S&P provide a rating for a security, the lower of the two ratings is used. A small number of unrated bonds are included in the index; to be eligible they must have previously held a high yield rating or have been associated with a high yield issuer, and must trade accordingly. Components: The index has several subcomponents. Intermediate indices include bonds with remaining maturities of less than 10 years; long indices include bonds with remaining maturities of 10 years or more. The index also has subdivisions by credit quality, and subindices are available that exclude securities in default. BARCLAYS CAPITAL MUNI INDEX: The composite measure of the total return performance of the muni-bond market. The muni market contains over 2 million bond issues. The market is divided into seven major sectors: state G.O. debt (31%), prerefunded bonds (7.7%); electric-utility revenue bonds (7.79%); hospital revenue bonds (3.4%); state-housing revenue bonds (3.4%); industrial-development and /pollution-control revenue bonds (1.8%); and transportation revenue bonds (7.1%). These weightings are reviewed annually. BARCLAYS CAPITAL GOVT/CREDIT INDEX: The U.S. Government/Credit Index is the nonsecuritized component of the U.S. Aggregate Index and was the first macro index launched by Barclays Capital. The U.S. Government/Credit Index includes Treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year), government-related issues (i.e., agency, sovereign, supranational and local-authority debt) and U.S. dollar corporates. In order to qualify for inclusion in the U.S. Government/Credit Index, a bond or security must have at least one year to maturity; at least $250 million par amount outstanding; must be rated Baa3 by Moody's, BBB- by Standard & Poor's, and BBB- by Fitch Investor Service; must be fixed rate, although it can carry a coupon that steps up; and it must be U.S.-dollar denominated. BARCLAYS CAPITAL LONG GOVERNMENT/CREDIT INDEX: Composed of all bonds covered by BARCLAYS CAPITAL GCB index with maturities of 10 years or greater. Total return comprises price appreciation/depreciation and income as a percent of the original investment. Indices are rebalanced monthly by market capitalization. BARCLAYS CAPITAL MORTGAGE BACKED SECURITIES INDEX: Includes all fixed securities issued and backed by mortgage pools of Ginnie Mae (GNMA), Fannie Mae (FNMA), Freddie Mac (FHLMC) and half-coupon securities. The index excludes buydowns, graduated equity mortgages (GEM), project loans, Nonagency (whole loans), jumbos, collateralized mortgage obligations (CMOs), graduated payment mortgages (GPMs), adjustable rate mortgages (ARMs), manufactured home mortgages, prepayment-penalty collateral.


INDEX DESCRIPTIONS: DOW JONES INDUSTRIAL AVERAGE: The most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue-chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back to the beginning of the century. Charles Dow officially started the Dow in 1896, at which time it consisted of only 11 stocks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. Simply put, the editors at WSJ add up the prices of all the stocks and then divide by the number of stocks in the index. (In actuality, the divisor is much higher today in order to account for stock splits that have occurred in the past.) NASDAQ COMPOSITE INDEX: Covers 4,500 stocks traded over the counter. It represents many small company stocks but is heavily influenced by about 100 of the largest NASDAQ stocks. It is a value-weighted index calculated on price change only and does not include income. S&P 500 INDEX: Covers 400 industrial, 40 utility, 20 transportation and 40 financial companies in the U.S. markets (mostly NYSE issues). The index represents about 75% of NYSE market cap and 30% of NYSE issues. It is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. RUSSELL 1000 INDEX: Measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 89% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $9.9 billion; the median market capitalization was approximately $3.7 billion. The smallest company in the index had an approximate market capitalization of $1,404.7 million. RUSSELL 1000 GROWTH INDEX: Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. RUSSELL 1000 VALUE INDEX: Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. RUSSELL 2000 INDEX: Measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 11% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $592.0 million; the median market capitalization was approximately $500.0 million. The largest company in the index had an approximate market capitalization of $1,402.7 million. RUSSELL 2000 GROWTH INDEX: Measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. RUSSELL 2000 VALUE INDEX: Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. RUSSELL 3000 INDEX: Measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market. RUSSELL MIDCAP INDEX: Measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 35% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $3.7 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $10.3 billion. RUSSELL MIDCAP GROWTH INDEX: Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. An investment cannot be made directly in a market index. RUSSELL MIDCAP VALUE INDEX: Measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. An investment cannot be made directly in a market index. VIX INDEX: (Chicago Board Options Exchange Volatility Index) Estimates volatility in the S&P 500 Index for the next 30 days using a weighted blend of prices for various options on the S&P 500 Index.

Page 20 of 92

Please refer to important information, disclosures and qualifications at the end of this material.

7

Formed by grouping the universes of over 1 million individual fixed rate MBS pools in to approximately 5,500 generic aggregates. Pool aggregates must be U.S.-dollar denominated, have at least $250 million current outstanding and average weighted life of at least one year. MSCI EUROPE, AUSTRALASIA AND THE FAR EAST (EAFE) INDEX: A free-float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of May 27, 2010, the index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. MSCI EUROPE INDEX: A free-float-adjusted market capitalization weighted index that is designed to measure developed market equity performance in Europe. As of June 2007, the index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits. MSCI JAPAN INDEX: A free-float-adjusted market capitalization index that is designed to measure equity market performance in Japan. MSCI EAFE GROWTH INDEX: A free-float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of May 27, 2010, the index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Global Value and Growth Indices cover the full range of developed, emerging and All Country MSCI International Equity Indices across all size segmentations. MSCI Barra uses a two dimensional framework for style segmentation in which value and growth securities are categorized using a multifactor approach, which uses three variables to define the value investment-style characteristics and five variables to define the growth investment-style characteristics, including forward-looking variables. The objective of the index design is to divide constituents of an underlying MSCI Equity Index into respective value and growth indices, each targeting 50% of the free float-adjusted market capitalization of the underlying market index. MSCI EAFE VALUE INDEX: A free-float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of May 27, 2010, the index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Value and Growth Indices cover the full range of developed, emerging and All Country MSCI Equity Indices. The MSCI Value and Growth Indices cover the full range of developed, emerging and All Country MSCI Equity Indices. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes: three for value and five for growth including forward-looking variables. The objective of the index design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float-adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional value/growth indices. Prior to May 30, 2003, the indices used price/book value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index. MSCI FAR EAST INDEX: A free-float-adjusted market capitalization weighted index that is designed to measure developed market equity performance in the Far East. As of March 2010, the index consists of the following three developed country indices: Japan, Hong Kong, and Singapore. MSCI EMERGING MARKETS INDEX: A free-float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 27, 2010, the index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. MSCI BRIC INDEX: A free-float-adjusted market capitalization index that measures equity market performance in larger emerging markets. The index consists of the following emerging-market country indices: Brazil, Russia, India and China. MSCI EM ASIA INDEX: A free-float-adjusted market capitalization index that measures equity market performance in emerging markets in Asia. The index consists of the following emerging-market country indices: China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand.

Page 21 of 92

DISCLOSURES Although the statements of fact and data in this report have been obtained from, and are based upon, sources the firm believes reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. This report may contain forward-looking statements, and there can be no guarantee that they will come to pass. To the extent the investments depicted herein represent international securities, you should be aware that there may be additional risks associated with international investing, including foreign economic, political, monetary and/or legal factors, changing currency exchange rates, foreign taxes and differences in financial and accounting standards. These risks may be magnified in emerging markets. International investing may not be for everyone. Value investing involves the risk that the market may not recognize that securities are undervalued and they may not appreciate as anticipated. Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. Small- and mid-capitalization companies may lack the financial resources, product diversification and competitive strengths of larger companies. In addition, the securities of small-capitalization companies may not trade as readily as, and be subject to higher volatility than, those of larger, more established companies. Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which allows the issuer to retain the right to redeem the debt, fully or partially, before the scheduled maturity date. Proceeds from sales prior to maturity may be more or less than originally invested due to changes in market conditions or changes in the credit quality of the issuer. With respect to fixed income securities, please note that, in general, as prevailing interest rates rise, fixed income securities prices will fall. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. © 2011 Morgan Stanley Smith Barney LLC. Member SIPC. Consulting Group is a business of Morgan Stanley Smith Barney LLC.

2011-PS-119 1/2011

8

Page 22 of 92


Global Investment Committee Outlook

This presentation was createdby the Global Investment Committee

and is provided to you courtesy ofCary M. Allison, CIMA

Senior Investment Management Consultant

January 2011

Page 23 of 92

2

2011 Outlook

Global GDP recovery has now become business cycle expansion

Global economy growth of 4% with emerging economies expanding by6% and developed ones by a much slower 2%

Low 1%-2% inflation in developed countries but 5% in developing ones

Developing economy central banks tighten; developed economy central banks are on hold until 2012

US and European policy risk is asymmetric to the upside; EM policy risk is asymmetric to downside

Modest US trade-weighted dollar strength; broad developed country currencies weakness to developing country currencies, especially Asia

Longer-term prospects good for a multiyear global business cycle expansion

This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.


Page 24 of 92

Global Investment Committee Tactical Weights

3

Global Asset Class Tactical Weight• Cash Underweight

• Bonds Underweight Short Duration Underweight

Developed Sovereign Underweight

Investment Grade Overweight

High Yield Overweight

Emerging Markets Market weight

• Equities Overweight Developed markets large and midcaps Underweight

Developed markets small caps Market weight

Emerging Markets Overweight

• Alternative/Absolute Return Overweight Commodities Overweight

Global REITS Overweight

Managed Futures Market weight

Inflation-linked Securities Overweight

Private Equity

Hedge Funds

Real Estate

Market weight only;No tactical weights{



Page 25 of 92

4

Global GDP and CPI Forecasts

Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.


Source: Morgan Stanley & Co. Inc., Citi Investment Research & Analysis (CIRA), Morgan Stanley Smith Barney. Data as of December 2010.

Morgan Stanley & Co. Inc.

(Year-over-Year % Change)

2010F 2011F 2012F 2011F 2010F 2011F 2012F 2011F

Global GDP 4.9 4.2 4.5 Global GDP 3.9 3.4 3.8

Developed Economies 2.6 2.2 2.6 28 Developed Economies 2.4 2.0 2.3 41U.S. 2.9 3.6 3.5 17 U.S. 2.7 2.5 3.3 19Euro Area 1.7 1.5 1.7 5 Euro Area 1.6 1.4 1.2 9U.K. 1.7 1.6 2.0 1 U.K. 1.7 2.5 2.3 3Japan 3.7 1.0 1.7 1 Japan 3.6 1.4 1.9 4

Developing Economies 7.4 6.4 6.6 72 Developing Economies 7.0 6.1 6.3 59Brazil 7.6 4.0 5.0 3 Brazil 7.6 4.5 4.5 4Russia 3.8 4.5 4.0 3 Russia 4.1 4.0 4.0 3India 8.6 8.7 9.0 11 India 8.4 8.6 8.9 6China 10.2 9.0 9.0 28 China 10.0 9.2 9.0 27

Global Inflation 3.3 3.4 3.1 Global Inflation 2.7 3.0 2.9Developed Economies 1.4 1.7 1.8 Developed Economies 1.4 1.5 1.5Developing Economies 5.4 5.3 4.5 Developing Economies 5.3 5.7 5.3U.S. Core 1.0 1.4 2.1 U.S. Core 1.0 1.0 1.0U.S. CPI 1.6 2.0 2.2 U.S. CPI 1.7 1.4 1.4

Global Consumer Prices Global Consumer Prices

(Year-over-Year % Change)% Contribution to

2011 GrowthCitigroup Investment Research & Analysis % Contribution to

2011 Growth

Page 26 of 92

Emerging Market Consumers Are Driving the Global Economy

5

Source: CIRA, World Bank. Data as of July 2010.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.


Global “Middle Class” by Emerging Region

Other, 8% Other, 8%

C hina, 17%

C hina, 29%

So uth A sia, 1%

So uth A sia, 10%E. Euro pe , 11%

E. Euro pe , 14%

Latin A merica, 16%

Latin A merica, 20%

East A sia ex. C hina, 16%

0%

25%

50%

75%

100%

2000 2030E

Other So uth A sia E. Euro pe Lat in A merica East A sia ex. C hina C hina

East A sia ex. C hina, 0%

56%

93%

Page 27 of 92

MSCI AC World: Weight of GEMs

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '100%

2%

4%

6%

8%

10%

12%

14%

16%

Emerging Markets: 13.9%BRIC: 6.6%

Source: MSCI, FactSet, Morgan Stanley Smith Barney LLC. Data as of December 2010.

Emerging Market Share of Global Equities

6

Page 28 of 92

Emerging Market Equities Are Leading Global Equities

7

Note: Returns are in local currency. Emerging Market equities trough: October 2008.

Source: MSCI, FactSet, Morgan Stanley Smith Barney LLC. Data as of December 2010.



Emerging Market Equities Outperformed Developed Market EquitiesIn the Decade Before March 2009 Trough and Since

-3 -2

0

-1

9

37 38 37

25

62

-10

0

10

20

30

40

50

60

70

USA United Kingdom Europe ex UK Japan Emerging Markets

Percent (%)

3/ 99 - 3 / 09 3/ 09 - C urrent

Page 29 of 92

Global Earnings Per Share

8

Source: Morgan Stanley & Co. Inc., CIRA, Morgan Stanley Smith Barney, Thomson Financial, Standard & Poor’s.Data as of January 2011.



Operating EPS ($)

YOY Change

(%)Operating

EPS ($)

YOY Change

(%)Operating

EPS ($)

YOY Change

(%)Operating

EPS ($)

YOY Change

(%)Operating

EPS ($)

YOY Change

(%)

84.00 47 85.40 38 84.57 43 22.98 38 84.67 32

93.00 11 94.50 11 96.09 14 26.39 15 98.25 16

98.00 5 102.00 8 109.71 14 29.90 13 112.45 14

52 Week Forward 96.46 26.74 99.73

S&P 500

Citigroup Investment Research& Analysis Consensus

MSCI AC World MSCI EMS&P 500

Morgan Stanley & Co. Inc.

2010E

2012E

2011E

Page 30 of 92

9

Interest Rate Forecasts

Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.


Note: Current rates as of January 2011. *Morgan Stanley’s current and forecast policy rate for China uses the 1-year lending rate.**CIRA’s current and forecast policy rate for China uses the 1-year deposit rate.

Source: Morgan Stanley & Co. Inc., CIRA, Bloomberg, Morgan Stanley Smith Barney LLC. Data as of January 2011.

Current Rate 1Q11F 1Q12F 1Q11F 1Q12F

0.00 – 0.25 0.13 0.50 US 0.00 - 0.25 0.25 0.251.00 1.00 1.25 Eurozone 1.00 1.00 1.250.10 0.05 0.05 Japan 0.10 0.10 0.100.50 0.50 1.25 UK 0.50 0.50 1.005.81* 6.06* 6.31* China 2.75** 3.00** 4.00**

US 3.40 2.25 4.25 US 3.40 2.95 3.85Eurozone 3.00 2.75 3.25 Eurozone 3.00 2.70 3.15Japan 1.08 0.80 1.10 Japan 1.08 1.10 1.50UK 3.57 3.35 4.20 UK 3.57 3.40 4.00

10-Year Government Bond Yields (%) 10-Year Government Bond Yields (%)

JapanUKChina

Morgan Stanley & Co. Inc. Citigroup Investment Research & AnalysisCurrent Rate

Policy Rates (%) Policy Rates (%)USEurozone

Page 31 of 92

Stocks vs. Bonds and Cash Valuation

10

Note: Standard deviation is a statistical measurement that sheds light on historical volatility.

Source: CIRA, Morgan Stanley & Co. Inc., Morgan Stanley Smith Barney LLC, Thomson Financial. Data as of January 2011.



Despite Rally, Equities are Still Cheap Relative to Bonds and Cash

'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

Equities Relatively Cheap

Equities Relatively Expensive

Standard Deviations From Average

Cash Rate/Dividend YieldBond Yield/Dividend Yield

Page 32 of 92

US Secular Stock Bear and Bull Marketsand Inflation Since 1946

11

Note: Core Inflation is a 5-year moving average; headline inflation prior to 1963. Past performance is not a guarantee of future results. For illustrative purposes only and does not reflect any specific product. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of large company stocks. Index returns assume reinvestment of dividends and do not reflect any fees or expenses.

Source: Morgan Stanley Smith Barney LLC, Bloomberg, Ibbotson Associates and FactSet. Data as of December 2010.

The following disclosure pertains to Ibbotson Associates’ data on slides 11 and 12:

(c) 2011 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Source: Calculated by Morgan Stanley Smith Barney LLC using data provided by Morningstar. (c) 2011 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.



Cyclical Bull Market in Equities Has Begun

'46 '48 '50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

20

30405060

100

200

300400500600

1,000

2,000

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Dec. 1968

Aug.1982

Mar 2000

Mar. 2009

Bull 1946 - 1968Av erage Annual

Total ReturnNominal = 14%

Real = 11%

Bear 1968 - 1982Av erage Annual


Real = (2)%

Bull 1982 - 2000Av erage Annual


Real = 15%

Bear 3/2000 -3/2009Av erage Annual

Total ReturnNominal = (5)%

Real = (7)%

S&P 500 (log scale) Core CPI (% )

Core CPIS&P 500 Price

Page 33 of 92

US Secular Bond Bear and Bull Marketsand Inflation Since 1946

12

Note: Core Inflation is a 5-year moving average; headline inflation prior to 1963.

Source: Morgan Stanley Smith Barney LLC, Ibbotson Associates and FactSet. Data as of November 2010.



Secular Bear Market in Bonds is Underway

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 100

2

4

6

8

10

12

14

16

Sept 1981

Average AnnualTotal Return

Nominal = 2%Real = (2)%

Average Annual Total ReturnNominal = 12%

Real = 9%

Bull 1981 - 2008Bear 1946 - 1981

Dec. 31, 2008

LT Bond Yield (YoY%)Core CPI (YoY%)

Long Bond YieldCore CPI

Page 34 of 92

13

Global Investment CommitteeEquity Strategy



Equities expected to outperform with lower volatility

EPS growth is the primary driver of the bull cycle

Overweight Emerging Markets, Australia & Canada

Market weight U.S in an all-equity portfolio

Underweight Europe and Japan

Within U.S., market weight Small and Mid Caps and overweight growth, underweight value

Page 35 of 92

14

Global Investment CommitteeFixed Income Strategy



Bonds expected to underperform stocks

Developed country Sovereign Debt yield curves expected to rise

Overweight Global Investment Grade Corporates and High Yield (Munis for U.S. clients)

Market weight Emerging Market Debt

Underweight Short Duration and Developed Market Sovereign Debt

Page 36 of 92

15

Global Investment CommitteeAlternative/Absolute Return Strategy

Overweight global REITs, Commodities, and Inflation-Protected Securities

Market weight Managed Futures



Page 37 of 92

16

Glossary of Indices

CPI

In economics, a Consumer Price Index (CPI, also retail price index) is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas. It is a price index that tracks the prices of a specified set of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and a sort of cost-of-living index. The CPI can be used to track changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, life insurance, and homes) are not included. Core CPI excludes volatile food and energy prices.

MSCI EAFE

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada.

MSCI World Index

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of May 2005 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. An investment cannot be made directly in a market index.

S&P 500

Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it is also an ideal proxy for the total market.


Page 38 of 92

17

Important DisclosuresThis material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Research Departments of Morgan Stanley & Co. Incorporated or Citigroup Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at Morgan Stanley Smith Barney LLC or any of its affiliate companies. Past performance is not necessarily a guide to future performance.

The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Smith Barney is involved in many businesses that may relate to companies, securities or instruments mentioned in this material.

This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Smith Barney has no obligation to provide updated information on the securities/instruments mentioned herein.

The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Smith Barney recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actualevents may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Smith Barney does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein.

This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material.

Morgan Stanley Smith Barney and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation.

International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies.

Alternative investments which may be referenced in this report, including private equity funds, real estate funds, hedge funds, managed futures funds, funds of hedge funds, private equity, andmanaged futures funds, are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and risks associated with the operations, personnel and processes of the advisor.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention.

Page 39 of 92

18

Important DisclosuresBonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one's state of residence and, if applicable, local tax-exemption applies if securities are issued within one's city of residence.

Treasury Inflation Protection Securities’ (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation.

Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.

Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.

Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.

REITs investing risks are similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.

Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.

Certain securities referred to in this material may not have been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom. Recipients are required to comply with any legal or contractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instrumentstransaction.

This material is disseminated in Australia to “retail clients” within the meaning of the Australian Corporations Act by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813);

Page 40 of 92

19

Important DisclosuresMorgan Stanley Private Wealth Management Ltd, which is authorized and regulated by the Financial Services Authority, approves for the purpose of section 21 of the Financial Services and Markets Act 2000, content for distribution in the United Kingdom;

This material is disseminated in the United States of America by Morgan Stanley Smith Barney LLC.

Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data.

Morgan Stanley Smith Barney material, or any portion thereof, may not be reprinted, sold or redistributed without the written consent of Morgan Stanley Smith Barney.

© 2011 Morgan Stanley Smith Barney LLC. Member SIPC.

Page 41 of 92


PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-033

Education

Enclosure:

Yes

Prepared by:


Requested by:


BACKGROUND: The investment of public funds carries with it certain fiduciary duties and therefore also potential liability for fiduciaries. The Futuris program has been designed to help the Retirement Board of Authority to mitigate its potential fiduciary liability. STATUS: There will be training relative to the benefits of International Bonds in a portfolio structure RECOMMENDATION: Hear and receive the presentation prepared by Morgan Stanley Smith Barney.

Page 42 of 92

Oppenheimer

International Bond Fund

Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

For Institutional Use Only. This material has been prepared by OppenheimerFunds Distributor, Inc. for institutional investors only. It has not been filed with FINRA, may not be reproduced and may not be shown to, quoted to or used with members of the public.

Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008©2010 OppenheimerFunds Distributor, Inc. All rights reserved.

For Institutional Use Only/Not for Use with the Public

Page 43 of 92

For Institutional Use Only2

Contents

Why International Bonds

Team Structure

Investment Philosophy

Investment Process

Current Positioning

What drives performance?

Performance

Appendix & Disclosures

Page 44 of 92


Why International Bonds

Potential benefits of overall portfolio diversification*

May provide attractive long-term returns

Yields may be greater than domestic opportunities

Foreign currency exposure as an inflation hedge

Bear in mind, additional expenses and potential higher risks with international investing


*Diversification does not assure a profit or protect against loss.

Page 45 of 92


Low Correlation to Other Financial AssetsCorrelation of Citigroup non-U.S. World Government Bond Index to Various U.S. Stock and Bond Indices


Correlation expresses the strength of relationship between distribution of returns between two data series. Correlation is always between +1 and –1, with a correlation of +1 expressing a perfect correlation, meaning that the two series being compared behave exactly the same, a correlation of –1 meaning the two series behave exactly opposite and a correlation of zero meaning movements between the two series are random.

Source of chart data: Bloomberg, 9/30/10. The chart shows the correlation over the stated period of the annual returns of the Citigroup Non-U.S.$ World Government Bond Index, an index of fixed rate government bonds with a maturity of one year or longer and amounts outstanding of at least U.S.$25 million; the S&P 500 Total Return Index, a widely recognized measure of domestic stock market performance consisting of 500 widely held common stocks; the Nasdaq Total Return Index, a market-weighted index of all common stocks traded over the counter that are included in the Nasdaq quotation system; and the Barclays Capital Aggregate Bond Index (previously known as the Lehman Brothers Aggregate Bond Index), comprised of government and corporate bonds, mortgage-backed securities and asset-backed securities. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and is not intended to depict or predict the performance of Oppenheimer International Bond Fund. Past performance does not guarantee future results.

-0.02 -0.05

0.25

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

S&P 500 Total Return Index Nasdaq Total Return Index Barclays Capital AggregateBond Index

(25-Years as of September 30, 2010)

Page 46 of 92


Risk/Return Profile of International Bonds5-Year Average Annual Total Returns and Volatility as of September 30, 2010


The performance data quoted represents past performance, which does not guarantee future results.

Source of chart data: FactSet Research, 9/30/10. Chart compares the average annual total return over the 5-year period ended 9/30/10 and annualized standard deviation over the same period for a blended fixed income portfolio comprised of 70% Barclay’s Capital Aggregate Bond Index /15% Barclay’s High Yield Corporate Bond Index /15% Citigroup WGBI non U.S. versus the individual indices themselves. Indices are unmanaged and one cannot invest directly in an index. Index performance is shown for illustrative purposes only and is not intended to depict or predict the performance of Oppenheimer International Bond Fund. The Fund’s average annual total returns, including the 4.75% maximum sales charge, for the 1-, 5-, and 10-year periods ended 9/30/10 are shown on page 17 of this presentation.

Aver

age

Annu

al T

otal

Ret

urn

(%)

Average Annual Volatility (%)

3.00

5.00

7.00

9.00

3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

International Bonds(Citigroup non-U.S. WGBI)

U.S. Investment Grade Bonds(Barclays Aggregate Bond Index)

Blended Fixed Income Portfolio

U.S. High Yield Corporate Bonds(Barclays High Yield Corp Bond Index)

Adding a 15% allocation of international bonds to a fixed income portfolio can potentially enhance its overall performance and reduce volatility over time.

Page 47 of 92


Risk/Return Profile of International Bonds10-Year Average Annual Total Returns and Volatility as of September 30, 2010



Source of chart data: FactSet Research, 9/30/10. Chart compares the average annual total return over the 10-year period ended 9/30/10 and annualized standard deviation over the same period for a blended fixed income portfolio comprised of 70% Barclay’s Capital Aggregate Bond Index /15% Barclay’s High Yield Corporate Bond Index /15% Citigroup WGBI non U.S. versus the individual indices themselves. Indices are unmanaged and one cannot invest directly in an index. Index performance is shown for illustrative purposes only and is not intended to depict or predict the performance of Oppenheimer International Bond Fund. The Fund’s average annual total returns, including the 4.75% maximum sales charge, for the 1-, 5-, and 10-year periods ended 9/30/10 are shown on page 17 of this presentation.

Aver

age

Annu

al T

otal

Ret

urn

(%)

Average Annual Volatility (%)

3.00

5.00

7.00

9.00

3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

International Bonds(Citigroup non-U.S. WGBI)

U.S. Investment Grade Bonds(Barclays Aggregate Bond Index)

Blended Fixed Income Portfolio

U.S. High Yield Corporate Bonds(Barclays High Yield Corp Bond Index)

Adding a 15% allocation of international bonds to a fixed income portfolio can potentially enhance its overall performance and reduce volatility over time.

Page 48 of 92


Yields Abroad may be Greater than Domestic 5-Year Sovereign Bond Yields as of 9/30/10


11.94

8.64

5.564.87

4.31

1.61 2.031.48 1.27

0.270.00

2.00

4.00

6.00

8.00

10.00

12.00

Brazil

Turke

y

Mexico

Austra

iliaNew

Zeala

nd U.K.

Canad

aGer

many

U.S.

Japan

Yiel

d To

Mat

urity

(%)

Source: Bloomberg 9/30/10. Yields listed are that of each country’s “on-the-run” (most recently issued) 5 year government bond except for Brazil’s, which was interpolated using the 4- and 7-year “on the run” bonds. Credit worthiness and volatility may vary.

Page 49 of 92


90

100

110

120

130

140

150

Dec ’99 Dec ’00 Dec ’01 Dec ’02 Dec ’03 Dec ’04 Dec ’05 Dec ’06 Dec ’07 Dec ’08 Dec ’093.80

4.20

4.60

5.00

5.40

5.80

6.20

6.60

7.00

U.S. Import Price Index (LHS) International Bond Fund NAV (RHS)

International Bonds: An Inflation HedgeMay Protect Client Income from USD Weakness as of 9/30/10



Source of chart data: Bloomberg, 9/30/10. The Fund’s average annual total returns, including the 4.75% maximum sales charge, for the 1-, 5-, and 10-year periods ended 9/30/10 are shown on page 17 of this presentation.

Page 50 of 92


Management – How the Team Is StructuredGlobal Debt Team

Team Manages $19.5 Billion in Strategy Assets* (As of September 30, 2010)

* Strategy includes a variety of account types including but not limited to registered investment companies advised and sub-advised by OppenheimerFunds, Inc.

Sara Zervos - Portfolio ManagerGlobal Debt Team Leader

TradingDeveloped MarketsEmerging Markets

Alessio de LongisPortfolio ManagerForeign Exchange

Bill LindenSenior Trader

Jason HarubinSenior Trader

Stephanie LintonAssistant Trader

Laurence LauAnalyst

Quantitative

Caleb WongPortfolio Manager

Claudia CastroSenior Analyst

Cem KaracadagSenior Analyst

Carla BuffulinAnalyst

Arthur Steinmetz - Portfolio ManagerChief Investment Officer

Page 51 of 92


Investment Philosophy

Provide diversified product offering exposure to international fixed income*

Typically invest in over 40 emerging and developed countries and 400+ securities

Invest in primarily sovereign exposure – corporate bonds historically ~10%

No material U.S. exposure

Long-term commitment to both developed and emerging markets

Multi-faceted approach that includes quantitative and fundamental analysis

Value-oriented, active management – rates, currency, and credit

Know the risks we want in the portfolio and seek to control for the secondary risks


* Diversification does not assure a profit or protect against loss.

Page 52 of 92


Spread(Credit)RatesFX

Risk Overlays

Investment ProcessInternational Bond Fund

Developed Markets Sleeve Portfolio Construction

Emerging Markets Sleeve Portfolio Construction

Global Macro Economic Outlookand Asset Allocation

Page 53 of 92


Developed Markets Decision making is primarily quantitative Use proprietary “rules-based” models to actively manage developed market currencies

Model inputs - Drivers of currency movement identified through fundamental analysis Examples: trends in commodity prices, interest rates, economic indicators, etc.

Model outputs – Baskets of currencies that should perform well in current market environment Rates and credit investment strategies are driven by fundamental country analysis

Emerging Markets Decision making process is primarily qualitative Information advantage achieved via access to policymakers and economic agents

Extensive Team Experience and Background in Emerging Markets Broad Rolodex of Contacts Our Asset Size

Developed & Emerging Market ManagementInternational Bond Fund

Page 54 of 92


The graph for current strategy positioning is based on the net assets of each particular sleeve of the Fund and is not a geographical breakdown.

Neutral & Current Strategy Positioning As of September 30, 2010


0

10

20

30

40

50

60

70

80

90

100

Neutral Current

70%

20%

10%

40%

30%

18%

DevelopedMarkets

EmergingMarkets

30% EmergingMarkets

48%

U.S. DollarDenominated

Local Currency

%

DevelopedMarkets

Cash/Other 2%

10% Tactical

Page 55 of 92


Currency Positioning & CharacteristicsAs of September 30, 2010


516Number of Securities

7.23 yearsAverage Effective Duration1

Portfolio Characteristics

29% 30%

14%

7% 7% 7%

0%

10%

20%

30%

40%

Eurozone Asia Latin Amer Dollar bloc E. Europe Middle East/Africa

Foreign Currency Positioning by Region

1. Average Effective Duration is the average option-adjusted duration of the securities weighted by market value.

The graph for currency positioning is grouped by regions and is based on the net foreign exchange exposure of each currency after converting all currencies to a common currency, in this case the U.S. Dollar.

Page 56 of 92


What May Drive Performance?

Beta: What may move the NAV on any given day EURO 10-Year Treasuries Brazilian Real

Alpha: Potential drivers of outperformance Overweight to Emerging Markets Countries with High Real Interest Rates


Page 57 of 92


International Bond Fund vs Lipper International Income Funds Category1

Lipper Percentile Rankings, 3-Year Rolling Returns (10 Years as of September 30, 2010)

The Fund has often been a top-quartile performer within Lipper’s International Income Funds category, based on total return


1. Source of data: Lipper Inc., 9/30/10. Lipper ranking is for Class A shares and ranking may include more than one share class of funds in the category, including other share classes of this Fund. Ranking is based on total return as of 9/30/10, without considering sales charges. Different share classes may have different expenses and performance characteristics. The Fund’s Lipper percentile rank and ranking for the 1-, 3-, 5-, and 10- year periods ending 9/30/10 are shown on page 17. Past performance does not guarantee future results.

Universe

0

25

50

75

1002003 2004 2005 2006 2007 2008 2009 2010

Oppenheimer International Bond A

Page 58 of 92


Performance – Average Annual Total Returns Class A Shares (as of September 30, 2010)


The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, visit us at www.oppenheimerfunds.com or call us at 1.800.525.7048. Fund returns for Class A shares include changes in share price, reinvested distributions and the 4.75% maximum sales charge, except where “at NAV” is indicated.

1. Source of data: Lipper Inc., 09/30/2010. Lipper ranking is for Class A shares and ranking may include more than one share class of funds in the category, including other share classes of this Fund. Ranking is based on total return as of 09/30/2010, without considering sales charges. Different share classes may have different expenses and performance characteristics. Past performance does not guarantee future results.2. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-and ten-year (if applicable) Morningstar Rating metrics. Oppenheimer International Bond Fund was rated against the following numbers of U.S.-domiciled World Bond funds over the following time periods ended 09/30/2010: 185 funds in the last three years, 153 funds in the last five years and 105 funds in the last ten years. With respect to these World Bond funds, Oppenheimer International Bond Fund received a Morningstar Rating of three stars for the three-year period, four stars for the five-year and five stars for the ten-year periods. Morningstar Rating is for the Class A shares and rating may include more than one share class of funds in the category, including other share classes of this Fund. Different share classes may have different expenses and performance characteristics. Past performance is no guarantee of future results.

—

Morningstar Rating2

World Bond Funds Category (based on risk-adjusted return)

1/32

3/48

22/66

33/98

Lipper Ranking1

International Income Funds Category

(based on total return)

4th

7th

33rd

34th

Lipper Percentile Rank1

International Income Funds Category

(based on total return)

10.8011.3410-Yr

7.60 8.665-Yr

6.66

3.86%

Avg. Annual Total Return

At MOP(with sales charge)

8.40

9.04%

Avg. Annual Total Return

At NAV(without sales charge)

3-Yr

1-Yr

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Appendix - Global Debt Team

As of September 30, 2010

Global Debt Team

2427Portfolio ManagerArt Steinmetz

Stephanie Linton

Jason Harubin

Bill Linden

Lawrence Lau

Carla Buffulin

Cem Karacadag

Claudia Castro

Alessio de Longis

Caleb Wong

Sara Zervos

Team Member

12Research Analyst

219Portfolio Manager

66Portfolio Manager

117Research Analyst

315Analyst Average:

1219Portfolio Manager Average:

66Assistant Trader

1013Trader Average:

1523Senior Trader

1423Portfolio Manager

1010Senior Trader

218Research Analyst

610Research Analyst

Years Experience Years with FirmRole

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Appendix - BiographiesGlobal Debt Team

Arthur P. Steinmetz | Executive Vice President, Chief Investment Officer, and Portfolio ManagerArt Steinmetz is an Executive Vice President and the Chief Investment Officer at OppenheimerFunds. He oversees the implementation of all investment strategies at the firm and is integral in the strategic planning process and personnel decisions. Additionally, Mr. Steinmetz is a Portfolio Manager of Oppenheimer International Bond Fund and Oppenheimer Global Strategic Income Fund, which he has managed since its inception in 1989. He also serves as a Co-manager for Oppenheimer Global Allocation Fund and Oppenheimer Portfolio Series Fixed Income Active Allocation Fund.

Previously, Mr. Steinmetz was head of OppenheimerFunds’ High Yield team and co-manager of Oppenheimer High Yield Fund and Oppenheimer Champion Income Fund. In addition, Mr. Steinmetz managed Oppenheimer Strategic Bond Fund/VA and co-managed Oppenheimer High Income Fund/VA. Additionally, from 1987 to 1994, he served as Portfolio Manager for two of OppenheimerFunds' U.S. government securities funds.

Prior to joining OppenheimerFunds in 1986, Mr. Steinmetz was an Analyst with PaineWebber where his responsibilities dealt with derivative securities.

Mr. Steinmetz was instrumental in pioneering the strategic investing concept, an investment approach that combines the three key sectors of the bond market (high yield corporate bonds, U.S. Government and agency bonds and foreign fixed income securities) in a diversified portfolio. Following OppenheimerFunds' lead, several mutual fund companies now offer similar strategic income funds. Mr. Steinmetz received an M.B.A. in Finance from Columbia University and a B.A. in Russian Language and Slavic Studies from Denison University. He also served in the U.S. Air Force.

Sara Zervos | Vice President, Portfolio Manager, and Director of International ResearchSara J. Zervos is a Vice President and the Head of the Global Debt Team at OppenheimerFunds. She is a Portfolio Manager on the Oppenheimer International Bond Fund, Oppenheimer Emerging Markets Debt Fund and Oppenheimer Global Strategic Income Fund. In addition, she is the Global Debt Team’s Director of International Research. Prior to joining OppenheimerFunds in 2008, Ms. Zervos was a Portfolio Manager with Sailfish Capital Management where she co-managed an emerging market strategy. Before Sailfish, she was a Portfolio Manager for emerging market local debt strategies at Dillon Read Capital Management and OTA Asset Management. Ms. Zervos was a Senior Financial Economist at the World Bank for two years, working on development issues in emerging capital markets. She spent one year as a finance professor at Brunel University in England, and has published her work in academic and development journals. Ms. Zervos received a Ph.D. and M.A. in Economics from the University of Rochester, specializing in International Economics and Finance, and a B.A. in Economics from Arizona State University.Caleb Wong | Vice President, Portfolio ManagerCaleb Wong is a Portfolio Manager for Oppenheimer Active Allocation Fund, an asset allocation fund that is part of the Oppenheimer Portfolio Series, the Absolute Return Fund, a quantitative, multi-strategy market-neutral fund, Oppenheimer Global Strategic Income Fund, and Oppenheimer Master Event-Linked Bond Fund. Also, Mr. Wong is the Chief Quantitative Investment Strategist for OppenheimerFunds' Fixed Income department, responsible for the assets managed quantitatively across a number of Oppenheimer fixed income products, including the Global Strategic Income Fund and International Bond Fund. Mr. Wong joined OppenheimerFunds in 1996 as a Senior Quantitative Analyst. He was Director of Quantitative Research between 1997 and 1999 and was primarily responsible for risk management and performance measurement for the investment departments. He previously held a financial analyst position at Merrill Lynch Capital Markets Group. Mr. Wong was a doctoral candidate in Economics at the University of Chicago. He holds a M.A. in Economics from the University of Chicago and a B.S. in Computer Science, as well as a B.S. in Management from the Massachusetts Institute of Technology.

Alessio de Longis | Vice President, Portfolio ManagerAlessio de Longis joined OppenheimerFunds in February 2004; he is currently the Portfolio Manager of the Oppenheimer Currency Opportunities Fund as well as the Senior G10 Analyst and Quantitative FX Strategist for the Global Debt Team. He is primarily responsible for fundamental quantitative research and the development of systematic macro trading strategies in fixed income and foreign exchange markets. His strategies are implemented across all global fixed income portfolios. He has developed a large set of proprietary econometric models for valuation and forecasting of currencies and global interest rate markets. He is a published author in “Foreign Exchange: A Practitioner’s Approach to the Markets,” RiskBooks Incisive Media, contributing with a chapter on systematic macro currency investing. Alessio received an M.Sc. in Financial Economics and Econometrics from the University of Essex, UK, and a B.A. and M.A. summa cum laude in Economics from the University of Rome “Tor Vergata,” Italy. He has also earned the Chartered Financial Analyst designation.

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Appendix - BiographiesClaudia Castro | Vice President, Senior AnalystMaria Claudia R. Castro joined OppenheimerFunds in December 2004 as an Assistant Vice President and Senior Analyst on the company's Global Debt Team and is responsible for Latin America in the overall portfolio strategy. Prior to joining OppenheimerFunds, Claudia was employed at Morgan Stanley, working as an economist in the Latin America Economics group. In addition, she lectured in economics at the University of Louvain, Belgium, and was a Research Fellow at the Central Bank of Spain, Madrid. Claudia was also a research intern at the IMF in the Southern Africa Division and she worked on economic policy issues with Nicaragua and Panama while serving at the World Bank in Washington, D.C. Claudia holds a Ph.D. in Economics from Columbia University, an M.A. in Political Science from Indiana University of Pennsylvania, and a B.A. in Economics from Universidade do Estado do Rio de Janeiro, Brazil.

Cem Karacadag | Vice President, Senior AnalystCem Karacadag joined OppenheimerFunds, Inc. in 2010 as Vice President and Emerging Markets analyst on the Global Debt Team. Prior to joining OppenheimerFunds, he was head of Southeast Asia and India economics at Credit Suisse Securities based in Singapore. Previously, he worked at the International Monetary Fund for seven years, primarily on China and Indonesia, while teaching international monetary economics at the School of Advanced International Studies at Johns Hopkins University. Mr. Karacadag was also a senior sovereign rating analyst at Standard & Poor's and a junior banking analyst at the Federal Reserve Bank of New York. He holds a B.A. in Economics from Tufts University and M.A. in European Studies and International Economics from Johns Hopkins University.

Carla Buffulin | AnalystCarla Buffulin joined OppenheimerFunds, Inc. in February 2008 as an Analyst in the Global Emerging Markets group on the Global Debt Team. Prior to joining OppenheimerFunds she worked at Morgan Stanley as a Senior Associate in the Risk Management Latin America Group. Carla received her Bachelor of Business Administration degree from FaculdadesMetropolitanas Unidas in Brazil. She also holds an Extension in Corporate Finance from the Haas School of Business at the University of California – Berkeley.

Bill Linden | Vice President, Senior TraderBill Linden is a Senior Trader in the Global Debt Team. He executes primarily developed market trades and is responsible for managing all currency hedges. Prior to joining OppenheimerFunds in 1996 he was a trader in the International Group of Offitbank and has over 16 years of trading experience. Bill holds a B.B.A. from Hofstra University.

Jason Harubin | Senior TraderJason Harubin is a Senior Trader and has been with the Global Debt Team since January 2005. He joined OppenheimerFunds, Inc., in 2000 as an Analyst in Fund Accounting and in 2003 became an Analyst in the Risk Management group. Jason graduated from the University of Colorado with a B.S. in Finance and Information Systems. He is a Chartered Financial Analyst.

Stephanie Linton | Assistant TraderStephanie Linton has been a Trader with the Global Debt Team since May 2009. She joined OppenheimerFunds, Inc., in 2005 and held various positions in the Transfer Agency and Fund Accounting departments. Stephanie graduated from Pepperdine University B.S. in International Business and Computer Science.

Global Debt Team

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Disclosure StatementsInternational Bond Fund

Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and the Fund’s share prices can fall. The Fund may invest in below-investment-grade rated (“junk”) bonds, which are more at risk of default, and are subject to liquidity risk. Foreign investments may be more volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic factors. Emerging and developing market investments are especially volatile. The Fund also invests in derivative instruments, investments whose values depend on the performance of an underlying security, asset, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional stock or bond investments.

Before investing in any of the Oppenheimer funds, investors should carefully consider a fund’s investment objectives, risks, charges and expenses. Fund prospectuses and, if available, summary prospectuses, contain this and other information about the funds, and may be obtained by visiting our website at www.oppenheimerfunds.com. or by calling us at 1.800.255.2755. Investors should read prospectuses and, if available, summary prospectuses, carefully before investing.

For Institutional Use Only. This material has been prepared by OppenheimerFunds Distributor, Inc. for institutional investors only. It has not been filed with FINRA, may not be reproduced and may not be shown to, quoted to or used with members of the public.

Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc.Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008©2010 OppenheimerFunds Distributor, Inc. All rights reserved.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-034

Review of the Comprehensive Compliance Plan including the Substantive Plan

Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: GASB 43 & 45 state that the actuarial report will be based on the substantive plan, which is comprised of the terms of an OPEB plan as understood by the employer and plan members. Under the Futuris program, Keenan Financial Services prepares a written summary of the Substantive Plan, as part of an overall Comprehensive Compliance Plan, which acts as both a road map and a record of the Retirement Board of Authority’s compliance with its fiduciary duties. STATUS: Volumes I, II & III of the Comprehensive Compliance Plan, which includes the Substantive Plan, have been delivered.

RECOMMENDATION: The Retirement Board should receive the information.

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PRESENTED TO:

DATE:

02/03/2011

0 Retirement Board of Authority SUBJECT:

ITEM #:

2010/2011-035

Comprehensive Compliance Plan, and “Substantive Plan” Policies, Procedures and On-going Maintenance

Enclosure:

Yes

Prepared by:

Keenan Financial Services & RPM Consultant Group

Requested by:


BACKGROUND: Under the Futuris program, Keenan Financial Services prepares a written summary of the Substantive Plan, as part of an overall Comprehensive Compliance Plan, which acts as both a road map and a record of the Retirement Board of Authority’s compliance with its fiduciary duties. STATUS: Volumes I, II, and III of the Comprehensive Compliance Plan, which includes the Substantive Plan, have been delivered. The Retirement Board will discuss the Comprehensive Compliance Plan and “Substantive Plan” Policies, Procedures and On-going Maintenance.

RECOMMENDATION: The Retirement Board of Authority will take appropriate action as deemed necessary.

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Contra Costa Community College District

RPM Consultant Group Page 1 License # 0537636

GASB 43 & 45 “Substantive Plan” Policies, Procedures and On-going Maintenance (Initial DRAFT 8/27/10)

Introduction As stated in the Public Entity’s Retirement Board of Authority’s (RBOA) By-law objectives the Public Entity establishes a Trust for the pre-funding of its OPEB liabilities and to comply with the requirements of GASB Statements No. 43 & No. 45 and to create a retirement system that complies with the California Constitution and Government Code provisions related to such systems with a Governing Board (referred to as the “Retirement Board of Authority” (RBOA) ) consisting of officials of the public entity. In order to capture the full essence of the “Process” the Public Entity has decided to implement, in order to be in full compliance with the GASB guidelines, the development of a “Substantive Plan” which is the step that is to be taken in order to accumulate the documentation of the understanding between the employer and the plans eligible members which consist of retirees and possibly their dependents of the Public Entity.

What is the “Substantive Plan”? What is the “Substantive Plan?” GASB 43, Paragraphs 4, 16-40 defines the “Substantive Plan” as a plan through which assets are accumulated and benefits are paid as they come due in accordance with an agreement or understanding between the employer and eligible plan members and potentially their eligible beneficiaries. Pursuant to the Implementation Guide for GASB 43 & 45 Q. 213, a Written Comprehensive Plan Document “may provide the best evidence of what the “Substantive Plan” is … as it fully and accurately reflects the understandings of the parties.” (Parties being the employer and eligible plan members) The GASB Implementation Guide Page 18 Q. 56 states, “Usually, the written plan is the best evidence of the terms of the exchange.” (I.e. employee service requirements for plan benefits) What is included in the “Substantive Plan”? A comprehensive written plan document should integrate all "understandings of the parties" including Financial, Benefit Design, Regulatory & Fiduciary specifications A. GASB positions Financial Reporting & Accounting in context of the “Substantive Plan.” GASB Statement 43, Paragraph 4 & 16-33 references defined accounting and financial reporting schedules in the framework of the “Substantive Plan.” Financial reporting and accounting schedules would best be understood as written provisions of a comprehensive plan document, as stated in the GASB Implementation Guide Q 213.

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B. GASB positions Benefits to be provided in the context of the “Substantive Plan.” GASB Statement 43, Paragraphs 33-40 and the applicable Appendix 3 #13 states that “the actuarial present value of total projected benefits should include all benefits to be provided to plan members or beneficiaries in accordance with the current “Substantive Plan” at the time of each valuation, including any changes to the plan terms that have been made and communicated to employees.” C. GASB positions Core Funding Standards in relation to the Annual Required Contribution (ARC) in the context of the “Substantive Plan.” GASB 43, Paragraph 4 presents the core funding requirements for meeting the standards in relation to the Annual Required Contribution (ARC). These standards are set forth in the framework of the “Substantive Plan” and the best evidence of this is a Comprehensive Plan Document.

D. Integration of GASB 43 & 45 with required California Government Code Provisions. A written Comprehensive Plan Document is the only means of integrating the required provisions of California Government Code regulatory standards for the payment of retiree healthcare benefits with GASB Statement guidelines (California Government Code Sections 53620-53622) A written Comprehensive Plan Document is the only means of integrating defined Fiduciary Standards for plan asset stewardship & investment management per the California Government Code with GASB 43 & 45 Statement Guidelines (California Government Code Sections 53601, 53608, 53620, 53622, and 53635) Based on the above cited authority, the totality of the GASB 43 & 45 Statements & Implementation Guide, the following is understood directly and by reference that the following items are to be located in the Public Entities multiple “Substantive Plan” Volume binders.

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Volume I Locate all original Requests for Proposal (RFP) Process documentation in Volume I binders including: Divider 1 Request for Proposal (RFP) for Vendor Selection of Services Process

RFP Consideration and Preparation > Discuss RFP Process Objective > Identification of Issues > Establish Long Term and Short Term Goals > Liability Cost Reduction Strategy Review > Evaluation of Status Quo > Accesses to Potential Funding Methods > Status Presentations to Board/Council/Administration/Union Communication Meetings > Approve Template > Approve Potential Vendor List RFP Process > Conduct RFP Process > Deliver Template to Vendors > Receive Responses > Spreadsheet Response Results > Prepare Analysis of Vendor Responses > Interview Vendors > Negotiating Changes to Fees and Documents > Final Recommendations Divider 2 Pre-installation Services > Conduct Meetings with Vendor Finalist > Finalize Contracts and Agreements > Discuss Investment Policy Development

Divider 3 Assist with the Formation/Selection of a “Retirement Board of Authority” > Outline Duties of Board > Discuss “Substantive Plan” Development > Review Installation &“Brown Act” Meeting Procedures

Divider 4 Coordinate GASB Plan Interface with Current Service Providers > Actuarial Services > Legal Services > Financial > Accounting

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Volumes II and III

Locate all original plan Agreements, Contracts and Other Compliance Process documentation in Volume II, III and IV binders including: Divider 1 Plan Structure Divider 2 Plan Name with Outline Divider 3 Plan Agreements, Resolutions and Statements > Board Resolution > Sponsor Program Services Agreement > Trust Company Administrative Services Agreement > Trust Agreement > Adoption Agreement > Investment Policy Statement > Securities Consulting Services Agreement

Divider 4 Regulatory Issues / Plan Comfort Letter > California Government Code > Education Code > GASB Statements 43 & 45 > Internal Revenue Code Section 115 Trust

Divider 5 Fiduciary Protocols and Processes Divider 6 Trust Structure Overview > Plan Sponsor Employer / Governing Board > Retirement Board of Authority > Trustee > Registered Investment Advisor

Divider 7 Private Letter Ruling

Divider 8 Plan Goals > Investment Policy Statement > Risk Tolerance Questionnaire > Long Term & Annual Funding Goals Divider 9 Investment Management > Investment Platform > Portfolio Options

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Divider 10 Financials > Most Recent Actuary Report >Most Recent Independent Auditors’ Report > Most Recent Financial Statements > Most Recent Statement of Plan Assets > Statement of Changes in Plan Assets > Notes to Financial Statements > Required Supplementary Information Divider 11 Investment Section > Investment Consultant’s Report > Annualized Investment Returns-Actual versus Indices > Actual Asset Allocation versus Target Asset Allocation > Plan Funding Status and Progress > Summary of Actuarial Assumptions and Methods > Historical Membership Data –Active and Retired > Summary of Principal Plan Provisions as Interpreted for Valuation Purposes > Changes in Plan Design

Divider 12 Statistical Section > Schedule of Revenues and Expenses –Combined Plans > Schedule of Benefit Payments by Type – Combined Plans > Schedule of Retired Members by Type of Benefit > Schedules of Average Benefit Payment Amounts > Contributions to the Plan > Notes to Trend Data > Supporting Schedules Divider 13 Plan Document Divider 14 Bargaining Agreements and Employment Contracts > Copies of Bargaining Agreements Pertaining To Any of The Plans Included > Copies of Board Meeting Notes > Copies of Employment Contracts Divider 15 Plan Components and Coverage > Retiree Health Benefits > Retiree Dental Benefits Divider 16 Program Participants

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Divider 17 Summary of Plans Provided -- For Each Plan or Program within the Substantive Plan: > Plan Design > Eligibility > Plan Membership > Employer Census Data for employees in active service (eligible to receive benefits at retirement) > All terminated employees who have accumulated benefits but are not yet receiving benefits

> Retired employees and beneficiaries currently receiving benefits

> Beginning Date(s) for Benefits

> Ending Date(s) for Benefits > Benefit Funding Methods Divider 18 Liability Reduction Methods --Strategic Plan for Liability Reduction > Early Retirement Plan > Medical Opt Out Plan > Life Insurance > Pension Obligation Bond > HRAs > Plan Modifications Divider 19 Retirement Board of Authority Meeting Minutes Divider 20 Financial Reports > Most Recent Actuary Report > Schedule of Employer Contributions > Annual Required Contribution (ARC) Divider 20 Quarterly Performance Report > Market Drivers > Portfolio

-Policy vs. Actual -Policy vs. Asset Allocation -Performance -Holdings -Fiduciary Score Sheets -Due Diligence Sheets

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Divider 21 Trustee Reports


What is the Process for Maintaining Volume’s I, II and III of the Public Entities “Substantive Plan”? Development of the Public Entities “Substantive Plan” does not cease once Volume’s I, II, and III are created and finalized as illustrated above. The “Substantive Plan” process of “On-going Maintenance” of the Public Entities “Substantive Plan” is the responsibility of the RBOA members. The following process is to be implemented, in order, to ensure the diligent updating of the “Substantive Plan” takes place: > All Retirement Board of Authority (RBOA) members will read and review each binder of documentation maintained in the District’s three ring binders > All GASB compliance pertinent memos, letters and other internal communications are to be directed to and saved in a “To Be Reviewed “Substantive Plan” folder”. > All GASB compliance pertinent memos, letters and other external communications are to be directed to and saved in a “To Be Reviewed “Substantive Plan” folder”. > The “To Be Reviewed “Substantive Plan” folder is to be maintained at the office of TBD. > Copies of GASB compliance pertinent memos, letters and other internal and external communications are to be distributed to the RBOA members prior to the next scheduled RBOA meeting for review and recommendation by the RBOA members as to which communication pieces are to be placed in one of the Public Entities binders.

> A check list for the “Substantive Plan” revisions/updates will be maintained by office TBD

> Service Vendor Account Manager will visit the Public Entity approximately twice a year about four weeks after each RBOA meeting to update the “Substantive Plan” binders. > The “Substantive Plan” Process will be included as part of the Independent Audit Review of all vendors that will be conducted by an Independent Audit and Consulting firms for verification of completed vendor services.

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Conclusions > There should be a “Substantive Plan”.

> The “Substantive Plan” must reflect the understandings of the parties.

> A comprehensive written plan document should be established that fully and accurately reflects the understandings of the parties as the "…best evidence of what the Substantive Plan is." > A comprehensive written plan document must reflect a financial structure and also a benefit design structure per GASB 43 & 45 mandates. > A comprehensive written plan document should integrate all "understandings of the parties" including Financial, Benefit Design, and Regulatory & Fiduciary specifications. > Specifics of the “Substantive Plan” are to be communicated to all.

> The “Substantive Plan” is to be updated as necessary.

> A copy of the “Substantive Plan” is to be made available upon request.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-036

Status of the Actuarial Study

Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: Paragraph 12, of GASB Statement 45, states that an Actuarial Study should be performed at least biannually. The Retirement Board of Authority should discuss the need for obtaining an updated study. STATUS: Unless there is a current Actuarial Study, one should be obtained. RECOMMENDATION: The Retirement Board of Authority should take appropriate action as necessary.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-037

Trust Bylaws

Enclosure:

Yes

Prepared by:


Requested by:


BACKGROUND: The current Trust document provides provisions to operate the Trust. Bylaws can provide additional direction for issues not discussed in the Trust document. STATUS: The Retirement Board of Authority will review and discuss the changes to the Trust Bylaws that were recommended at the last Retirement Board of Authority meeting. RECOMMENDATION: The Retirement Board of Authority will take appropriate action as deemed necessary.

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1

CONTRA COSTA COUNTY COMMUNITY COLLEGE DISTRICT FUTURIS TRUST RETIRMENT BOARD OF AUTHORITY

BYLAWS

PREAMBLE

The objectives of the Contra Costa County Community College District (Public Entity) in establishing a Trust for the pre-funding of its OPEB liabilities is to comply with the requirements of GASB Statements No. 43 & No. 45 and to create a retirement system that complies with the California Constitution and Government Code provisions related to such systems with a Governing Board (referred to as the “Retirement Board of Authority”) consisting of officials of the public entity. The Trust is to be managed in accordance with the following principles:

Trust assets are managed in accordance with all applicable laws, trust documents, and a written Investment Policy Statement (IPS) for the exclusive benefit of eligible employees, former employees, their dependents and beneficiaries.

Trust assets are diversified to a specific risk/return profile as determined by the RBOA and approved by the Public Entity.

A written Investment Policy Statement (IPS) contains the detail to define, implement, and monitor the trust’s investment strategy.

Appropriate fiduciary standards are applied in the management of trust assets and the supervision of persons hired to assist in the management of the trust.

Due diligence is documented. Control procedures are in place to monitor and account for trust investment and

administrative expenses. There are safeguards to avoid conflicts of interest, such as the use of funding

instruments that are non-proprietary funds of any service provider to the Trust.

1: A Retirement Board of Authority

1.1: The Public Entity’s governing body has established by resolution a Retirement Board of Authority (the “Board”) to supervise the trust. 1.2: The Board has been established to manage, direct and control the Fiduciary, Trust Settlor and Administrative functions, such as Consultants, Actuaries, Auditors and Accountants, Legal Counsel, Financial Advisors of the Trust. 1.3: The Board have and shall sign such documents as are necessary to adopt and maintain an irrevocable trust which complies with the California Constitution, California Government Code, GASB No. 43 & No. 45 and Section 115 of the Internal Revenue Code. 1.4: As mandated by the California Government Code, the Board shall perform all its duties with the care, skill, and diligence that a prudent person would utilize. 1.5: The Board have and shall also act solely in the interest of plan participants and beneficiaries with the sole purpose of providing benefits to them and paying only necessary and reasonable expenses for administrating the Trust.

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2

1.6: The Board shall oversee that the Trust’s assets are diversified in order to minimize the risk of large investment losses. 1.7: The Board shall adhere to the terms of the written documents governing the Trust and ensure that the members comply with all applicable laws, rules and regulations that may affect the Trust. 1.8: The Board shall facilitate and oversee the preparation and centralized maintenance of the Public Entity’s Comprehensive Compliance Plan. To aid the Public Entity in meeting its fiduciary requirements, the Substantive Plan, as described in GASB 43 and 45, will be set forth as an essential element in the development of a Comprehensive Compliance Plan. 1.9: The Board will have the exclusive authority to establish, execute and interpret the Trust’s written Investment Policy Statement (IPS) which profiles the long-term investment objectives of the Trust. 1.10: The Board shall facilitate any efforts and processes necessary to ensure the Public Entity executes applicable written agreements providing any required consent to compliance with the terms of the Trust. 1.11: The Board will require that compensation paid to the Trust’s service providers is identifiable, transparent, and reasonable and adheres to the terms of the written documents governing the Trust.

2: Retirement Board of Authority – Member Appointments

2.1: The members of the Board are appointed by resolution of the governing body of the Public Entity. 2.2: Board members shall be appointed to the Board based solely on their titles and/or classification. If the Title of an existing Board member changes and that new title is not one of the designated titles included in the resolution of the governing body of the Public Entity, the Board member will no longer be a Board member unless there is a new resolution from the governing body of the Public Entity. 2.3: The number of Board members will consist of such number of individuals that are deemed necessary by the governing body of the Public Entity. The Board shall serve at the pleasure of the governing body. 2.4: The Board will designate one of its members by majority vote to serve as Chairperson and a second member as Vice Chairperson 2.5 The Chairperson and Vice Chairperson will serve in this capacity for two years at which time the Board will act again to select a Chairperson and Vice Chairperson. The Chairperson and Vice Chairperson can serve multiple terms. 2.6: The Chairperson will act as the presiding officer for Board meetings. 2.7: Based on the minimum number of signatures required therein and/or specific people required by the Board, authorizations for withdrawals, distributions, benefit payments and

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3

reasonable fees are restricted to individuals with specimen signatures listed on the Trust’s Signature Authorization Form. 2.8: Board meetings shall be conducted by the Chairperson. When the Chairperson is not present, the Vice Chairperson will conduct the meeting. 2.9: A majority of the Board members must be present or attend by teleconference, per the provisions of the Ralph M. Brown Act, in order to conduct a Board meeting and is considered a quorum. A vote, under the protocols of the Ralph M. Brown Act, of the majority of the Board member shall be required to transact business. 2.10: Each Board member shall have one vote in accordance with the protocols of the Ralph M. Brown Act. No proxy votes shall be permitted unless approved by a majority of the Board members. If a member is attending by teleconference, all votes must be by roll-call. Decisions of the Board shall require an affirmative vote of at least a majority of the members of the Board and their decisions will be in accordance with the Ralph M Brown Act. 2.11: In recognition of the importance of the work of the Board, regular attendance at Board meetings is expected from all members. 2.12: No Board member shall have the authority to bind the Board to any contract or endeavor without the approval of the Board. 2.13: No member serving on the Board will receive a salary or compensation from the Board. 2.14: The Board may approve reimbursement for reasonable expenses incurred by Board members. All expenditures of funds shall be subject to Board approval. 2.15: The Board shall designate a specific location at which it will receive notices, correspondence, and other communications and shall designate one of its members as an officer for the purpose of receiving service on behalf of the Retirement Board of Authority. 2.16: The Board shall provide information and copies of investment statements and other similar reports regarding the Trust and its applicable investment performance to the governing body on a not-less-than quarterly basis.

3: Retirement Board of Authority – Meeting Agendas

3.1: As Board meetings and agendas are subject to the terms and provisions of The Ralph M. Brown Act. All Board meeting agendas shall be prepared and posted in a public location, as approved by the Board, at least 72 hours prior to the date and time of the scheduled meeting.

3.2: Per the provisions of the Ralph M. Brown Act, the Board shall hold their meetings at a minimum of once a year, giving advanced notice of 24 hours for special meetings to the media and certain others who request it. 3.3: The Board shall engage, at least annually, in analysis of any applicable modifications to the Investment Policy Statement (IPS) through meetings and consulting with the trustee and Registered Investment Advisor (RIA), as applicable. 3.4: In compliance with the Ralph M. Brown Act, an agenda shall be prepared for each regular and special meeting of the Board. The Agenda shall set forth those items which the

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Board anticipates taking action or discussing. Each Agenda item shall have attached backup material necessary for discussion or action by the Board. 3.5: Minutes recording deliberations and decisions from each meeting of the Board shall be maintained. Such records and documents shall be available to the public in accordance with the provisions of the Ralph M. Brown Act.

4: Retirement Board of Authority – Actuarial, Contribution & Withdrawal Parameters

4.1: The Board will, at the direction of the Public Entity deliver contributions and allocation instructions to the Trustee. Such contributions and allocation instructions shall be delivered in accordance with the Trust’s written provisions and agreements. 4.2: The Board will ratify the amount of any withdrawal by the Public Entity. Any withdrawal shall be in accordance with the Trust’s written provisions and agreements. Expenditures paid for by the Trust shall require a signature from each of the four (4) constituencies. 4.3: In accordance with GASB Statement No. 45 schedules, the Board will work with the Public Entity’s governing body in obtaining the necessary calculations to identify the “Actuarial Present Value of Total Projected Benefits” (APVTPB), the “Unfunded Actuarial Accrued Liability” (UAAL) and the “Annual Required Contribution”(ARC). 4.4: The Board will provide any necessary plan participant information to the Trustee on a timely basis. The Board shall provide response to all information requested by the Discretionary Trustee in a timely fashion in order to perform services outlined in the Trust Agreement.

5: Retirement Board of Authority -- Disclosure & Conflict of Interest

5.1: No Board member shall vote or participate in a determination of any matter in which the Board member shall receive a special compensation or gain. 5.2: Board members have a duty of loyalty precluding them from being influenced by motives other than the accomplishment of the Trust’s objectives. 5.3: Board members, in the performance of their duties, must act pursuant to the documents & instruments establishing and governing the Trust.

6: Retirement Board of Authority -- Rules of Order/Bylaws

6.1: Amendment of these Bylaws may be proposed by any member of the Board. 6.2: All amendments to the Bylaws must be approved by a majority vote of the Board members present, before the amendment shall become effective. 6.3: Such amendments shall be binding upon all members of the Board.

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6.4: The effective date of any amendment shall be on the first day of the month following adoption, unless otherwise stated.

7: Retirement Board of Authority -- Appearance before the Board

7.1: All persons who wish to make appearances before the Board shall be scheduled in compliance with the provisions of the Ralph M. Brown Act. 7.2: Appearances before the Board may be in person or through a representative. 7.3: Communications with the Board may be in any form that complies with the provisions of the Ralph M. Brown Act.

8: Retirement Board of Authority – Fiduciary & Governance Parameters

8.1: The Trust will be structured so that the Board shall reduce its legal liability for investment risk by appropriately delegating investment decision-making. 8.2: The Board shall delegate investment decision-making to a Trustee with a discretionary mandate and thereafter monitor the performance of the Discretionary Trustee. For the management of the Trust’s assets, an appropriate Registered Investment Advisor (RIA) shall be selected and monitored by the Discretionary Trustee.

8.3: The Board will monitor the performance and acts of the Discretionary Trustee in accordance with the limits and constraints of applicable laws, trust documents and the written Investment Policy Statement (IPS) as well as the Trust’s investment goals, objectives, fees and expenses. 8.4: The Board shall monitor the Discretionary Trustee to determine that Trust assets are diversified as directed by the Investment Policy Statement (IPS) and applicable laws. 8.5: The Board through periodic reports will compare investment performance against appropriate indices, peer groups and Investment Policy Statement (IPS) objectives. 8.6: The Board will require that all service agreements and contracts are in writing, and do not contain provisions that conflict with fiduciary standards. Fees paid to each service provider shall be consistent with agreements, contracts and with all applicable laws. 8.7: Directors and Officers insurance shall be provided by the Public Entity for each Board member for indemnification and protection.

9: Discretionary Trustee & Investment Management 9.1: The agreement appointing the Discretionary Trustee shall require the Discretionary Trustee to invest Trust assets in compliance with applicable laws, trust documents, and the written Investment Policy Statement (IPS). 9.2: The agreement appointing the Discretionary Trustee shall require the Discretionary Trustee document the specific duties and requirements of the parties involved in the investment process.

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9.3: The Board shall require the Discretionary Trustee to acknowledge, in writing, that it is a fiduciary to the Trust and to the Public Entity.

9.4: The Board shall prohibit the Discretionary Trustee from investing trust assets in its own proprietary investment products or those of its Registered Investment Adviser so as to avoid any potential conflicts of interest. 9.5: The Board shall require the Discretionary Trustee to manage Trust assets with the care, skill and diligence of a prudent person under California law.

10: Registered Investment Advisor (RIA): 10.1: The RIA engaged by the Discretionary Trustee must have the following qualifications and responsibilities:

(a) It shall work with the Discretionary Trustee to establish a long-term, target net rate of return objective for the trust, constructing an investment portfolio which gives due consideration to the Board’s time horizon of investment, as well as its attitudes and capacity for risk.

(b) It shall recommend the appropriate combination of asset classes that optimizes the Trust’s return objectives, while minimizing risk consistent with the Trust’s constraints. (c) It shall provide investment recommendations in accordance with the Investment Policy Statement (IPS) approved by the Board. (d) It shall have access to appropriate databases and external research, and shall be supported with adequate technology and report production tools.

11: Program Coordinator 11.1: The Board has appointed a Program Coordinator with responsibility to assist the Board with the processes, procedures and protocols of the Trust’s fiduciary decision making. 11.2: The Board shall require the Program Coordinator to facilitate all aspects of the Board’s Fiduciary and Administrative mandates and work to assist the Board in ensuring that trust assets are managed in accordance with all applicable laws, trust documents and the written Investment Policy Statement (IPS). 11.3: The Board shall require the Program Coordinator to provide comprehensive assistance in conducting Board meetings and agendas in compliance with the provisions of the Ralph M. Brown Act. 11.4: The Program Coordinator will provide support to the Board in the preparation and centralized maintenance of the Public Entity’s Comprehensive Compliance Plan, including the Substantive Plan.

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12: Program Definitions:

12.1: “Actuarial Present Value of Total Projected Benefits” (APVTPB) shall mean the total projected costs to finance benefits payable in the future based on members’ service through the valuation date and their future service, discounted to reflect the expected effects of the time value of money. It is the amount that would have to be invested on the valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay the total projected benefits when due. 12.2: “Annual Required Contribution” (ARC) is the actuarially-determined level of employer contribution that would be required on a sustained, ongoing basis to systematically fund the normal cost and to amortize the Unfunded Actuarial Accrued Liability (UAAL) attributed to past service over a period not to exceed thirty years. It is the amount needed to pay benefits as they come due plus amortize the UAAL. The ARC has two components: Normal cost and amortization of the UAAL for both active employees and retirees. 12.3: “Comprehensive Compliance Plan” shall mean a broad compliance and fiduciary process incorporating the public entity’s substantive plan obligations; the actuarial cost of those obligations; the plan for meeting those costs; the fiduciary strategies and steps in meeting plan requirements. 12.4: “Discretionary Trustee” shall mean a trust structure whereby the Trustee will accept the delegation of investment duties and work as the sole authority in the selection, monitoring and disposition of Trust’s assets. 12.5: “Investment Policy Statement”(IPS) shall mean a written statement that establishes the Futuris Public Entity Investment Trust’s investment related policies, goals, objectives and criteria for evaluating investment performance that are critical for the successful management of the Trust’s investments. 12.6: “Registered Investment Advisor” (RIA) shall mean the investment entity charged with the responsibility for recommending comprehensive and continuous investment advice for the Futuris Public Entity Investment Trust. 12.7: “Retirement Board of Authority” is established by the governing body of the Public Entity and shall mean the entity charged with the discretion, responsibility and authority to oversee the management of the Public Entity Investment Trust. Specifically, the Retirement Board of Authority shall determine the investment policy and strategy for the Trust and is empowered to inquire and resolve any matter it considers appropriate to carry out its responsibilities. 12.8: “Substantive Plan” shall mean the plan through which assets are accumulated and benefits are paid as they come due in accordance with the commitments or understandings between the employer, eligible employees and their beneficiaries. 12.9: “The Trust” shall mean the Public Entity’s Investment Trust established for the pre-funding of its OPEB liabilities and maintained in compliance with GASB Statement No. 43 & No 45, the California Constitution and the California Government Code with a governing Retirement Board of Authority consisting of officials of the Public Entity.

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12.10: “Unfunded Actuarial Accrued Liability” (UAAL) shall mean the excess of the Actuarial Accrued Liability (AAL) over the Actuarial Value of Assets (AVA). The UAAL can derive from three sources: unfunded past Normal costs, actuarial gains and losses (differences between actuarial assumptions and actual experience), and changes to the level of benefits promised. Updated 11-1-2010

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-038

Future Transfer of Assets into the Trust

Enclosure:

Yes

Prepared by:


Requested by:


BACKGROUND: The Trust was created for the exclusive purpose of prefunding unfunded retiree OPEB liabilities. STATUS: The Retirement Board of Authority will discuss the timing of future prefunding deposits to the Trust. RECOMMENDATION: The Retirement Board of Authority will take appropriate action as deemed necessary.

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Activity For November 1, 2010 - January 19, 2011

Activity Type MISCELLANEOUS CASH RECEIPT By Security

Date Security Description Cash Quantity Cost

11/15/2010 RECEIVED FROM CONTRA COSTA COUNTY $ 11,375,000.00 0.000 $ 0.00

Activity List

CONTRA COSTA CCD43-E022-01-7 November 1, 2010 - January 19, 2011

Page 1 01/19/2011 02:11 PM

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-039

The District’s OPEB Plan Independent Auditor’s Report

Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: The District’s Independent Auditors Report provides the District’s OPEB Plan with an independent third party certification of compliance with GASB accounting standards and financial reporting for OPEB expenses, OPEB liabilities, Note Disclosures and Required Supplementary Information (RSI) STATUS: The Retirement Board of Authority will review the District’s Independent Auditor’s Report relative to GASB compliance.

RECOMMENDATION: The Retirement Board of Authority will accept the information.

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CONTRA COSTA COMMUNITY COLLEGE DISTRICT

RETIREMENT BOARD OF AUTHORITY MEETING PRESENTED TO:

DATE:

02/03/2010


ITEM #:

2010/2011-040

Private Letter Ruling Update

Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: Generally, states and their political subdivisions are not subject to taxation by the federal government. However, separate instrumentalities of states or political subdivisions, may be subject to taxation. These instrumentalities may avoid tax liability by establishing a trust under Internal Revenue Code Section 115. The program is set up to avoid tax liability through the use of such a trust. The Internal Revenue Service will review these trusts, on a case-by-case basis, at the request of each public entity, for compliance with the tax code, and issue what is called a “Private Letter Ruling,” (PLR). The Retirement Board of Authority at a prior meeting decided to proceed with obtaining a PLR and approved the hiring of Brian M. Johnston of Polsinelli Shughart PC. STATUS: Brian Johnston has had discussions with the IRS and has had substantive discussion about obtaining a PLR. The Retirement Board of Authority will be updated on the status. RECOMMENDATION: The Retirement Board of Authority should receive the information.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-041

Retirement Board of Authority (RBOA) Fiduciary Liability and Conflict of Interest for OPEB Plans

Enclosure:

No

Prepared by:

RPM Consultant Group

Requested by:


BACKGROUND: California’s Constitution positions the Retirement Board of Authority (RBOA) with “sole and exclusive” authority over the assets of the OPEB Plan. The RBOA can be relieved of the responsibility to manage the OPEB Trust’s portfolio; the selection of investment providers and investment platforms by shifting these duties to a discretionary trustee. Furthermore the RBOA ensures “Conflict of Interest” protection by administrating the OPEB Plan per the “exclusive purpose” standard of providing benefits promptly to participants and monitoring all OPEB Trust activity per the “prudent person” standard of care. STATUS: The Retirement Board of Authority will discuss fiduciary liability and conflict of interest protocols for the Trust. RECOMMENDATION: The Retirement Board of Authority shall receive information on these items.

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PRESENTED TO:

DATE: 02/03/2011


ITEM #:

2010/2011-042

Retirement Board of Authority Comments Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: Each member may report about various matters involving the Retirement Board of Authority. RECOMMENDATION: There will be no Retirement Board of Authority discussion except to ask questions or refer matters to staff, and no action will be taken unless listed on a subsequent agenda.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-043

Program Coordinator/Consultant Comments

Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: The Program Coordinator may address the Board of Authority on any matter pertaining to the Retirement Board of Authority that is not on the agenda RECOMMENDATION: There will be no Retirement Board of Authority discussion except to ask questions or refer matters to staff, and no action will be taken unless listed on a subsequent agenda.

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PRESENTED TO:

DATE:

02/03/2011


ITEM #:

2010/2011-044

Visitors Comments Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: The public may address the Retirement Board of Authority on any matter pertaining to the Board that is not on the agenda.

RECOMMENDATION: The Chairperson reserves the right to limit the time of presentations by individual or topic.

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PRESENTED TO:

DATE: 02/03/2011


ITEM #:

2010/2011-045

Date, Time and Agenda Items for Next Meeting Enclosure:

No

Prepared by:


Requested by:


BACKGROUND: Members and visitors may suggest items for consideration at the next Retirement Board of Authority meeting.

RECOMMENDATION: The Board will determine Agenda Items for the next meeting.

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