GWINNETT RETIREMENT

SYSTEM

GWINNETT COUNTY BOARD OF EDUCATION Suwanee, Georgia

TWENTY-SEVENTH ANNUAL REPORT Fiscal Year Ended December 31, 2009

TABLE OF CONTENTS

Introductory Section Letter from the Chairman…………………………………… 1 Five Year History…………………………………………… 2 2009 GRS Administrative Staff and Advisors……………… 3

Administrative Section Overview……………………………………………………. 4 GRS Department……………………………………………. 5

Financial Section Audit Opinion……………………………………………….. 6-7 Statement of Plan Net Assets……………………………….. 8 Statement of Changes in Plan Net Assets…………………… 9 Financial Highlights………………………………………… 10-11

Investment Section Investment Policy…………………………………………… 12-13 Investment Highlights………………………………………. 14-15 Investment Managers……………………………………….. 16 Detailed Investment Listing………………………………… 17

Introductory Section

Gwinnett Retirement System

GWINNETT COUNTY BOARD OF EDUCATION GWINNETT RETIREMENT SYSTEM

437 Old Peachtree Road, NW, Suwanee, GA 30024-2978

RICK COST, Chm. BOARD OF EDUCATION FRANCES DAVIS, V. Chm. STEPHEN FAIRCHILD DANIEL D. SECKINGER, Chm. STEVE FLYNT DR. ROBERT MCCLURE, V. Chm. RON GAY LOUISE RADLOFF KEN JOHNSON CAROLE BOYCE DON MOORE DR. MARY KAY MURPHY SCOTT PRYOR SANDI ROBERSON J. ALVIN WILBANKS Superintendent December 16, 2010 Dear Fellow Employees: On behalf of the administrative committee, I am pleased to present the Twenty Seventh Annual Report of the Gwinnett Retirement System (GRS). This report is intended to enhance your understanding of a valuable employee benefit plan and to serve as a report card on the operating results of GRS during 2009. The GRS was established as an alternative to Social Security upon the request of the Gwinnett County Public School employees, on January 1, 1983. The Plan is funded through a combination of employer and employee contributions, and investment income. In accordance with Georgia law, periodic contributions to the retirement fund are made based on an independent actuary’s calculation of the amount necessary to fund all benefits when due. The Plan provides benefits comparable to Social Security at a much reduced contribution rate for employees. The Plan has continued to grow in terms of participants. At the end of 2009, there were 20,551 participants in the Plan, up from 20,478 at the end of 2008. R etirements from the Plan are increasing and are expected to grow significantly over the next several years, as a greater percentage of school system employees reach retirement age. During 2009, the number of retirees and beneficiaries of the system increased from 3,706 to 4,043. In 2009 the assets of the Plan began to recover from the worst economic and investment market downturn in generations. By the end of the year, the market value of assets held in the overall GRS investment portfolio had increased by 19.3 percent from 2008. Since the inception of the Plan, assets have achieved an average annual growth rate of over 9 percent per year. These average annual returns compare quite favorably with those of other public pension plans. Detailed investment performance information is provided in the Investment Section of this report. All members of the Committee welcome your input and questions at any time. Please feel free to contact any of us at your convenience. In closing, I would like to express my appreciation to all of our advisors and staff whose diligent work continues to provide all GRS participants with a secure plan that can be counted on to provide all the benefits they expect and deserve. The quality of our plan is a tribute to their wisdom and efforts. Sincerely,

Rick A. Cost Chairman, Gwinnett Retirement System Administrative Committee

1

Plan Investments ($’s, in Millions)

Active Plan Participants (In Thousands)

400 500 600 700 800 900

1,000 1,100 1,200 1,300

2005 2006 2007 2008 2009

15

16

17

18

19

20

21

2005 2006 2007 2008 2009

Gwinnett Retirement System Five Year History

2

Gwinnett County Public Schools Board of Education

Dr. Mary Kay Murphy, Chairman

Daniel D. Seckinger, Vice Chairman Dr. Robert McClure

Louise Radloff Carole Boyce

GRS Plan Administrative Committee

J. Alvin Wilbanks, Superintendent (Ex Officio) Rick Cost, Chief Financial Officer, Chairman

Dr. Frances Davis, Chief Human Resources Officer, Vice Chairman Dr. Stephen Fairchild, Teacher, Duluth High School

Don Moore, Assistant Director, Transportation Ronald Gay, Teacher, Hull Middle School Dr. Steve Flynt, Chief Academic Officer

Ken Johnson, Teacher, Central Gwinnett High School Sandi Roberson, Director of Payroll and Document Services

Scott Pryor, Retired Principal

Administrative Staff

GRS Retirement Services Department Tom Daymude, Director Alex McDugald, Assistant Director Betty Williams, Retirement Manager Cheri Trainor, Assistant Director Gwenna Dotson, Lead Retirement Specialist Jan Taylor, Lead Financial Systems Specialist Lynn Skinner, Retirement Specialist Sherry Boring, GRS Payroll Assistant Michelle Watson, Retirement Specialist Connie Fay Crane, Assistant Sondra Shipley, Assistant Susie Shafer, Assistant Martha Parker, Assistant

Office of the Chief Financial Officer Paula Gill, Recording Exec. Secretary

Investment Managers

Domestic Equity Fixed Income International Atlanta Capital Management Standish Mellon Asset Management Acadian Asset Management Sound Shore Management Taplin, Canida & Habacht Dimensional Fund Advisors State Street Global Advisors Vanguard Group Systematic Financial Management Parametric Real Estate REMS Group

Gwinnett Retirement System 2009 Staff and Advisors

3

Administrative Section

Gwinnett Retirement System

Objective The objective of the Gwinnett Retirement System is to hold in trust and soundly invest all funds contributed to the Plan in order to provide defined retirement and long-term disability benefits for all covered employees. Eligibility Covered employees may retire and elect to receive monthly retirement benefits upon attainment of age 65 or upon attaining eligibility for early retirement under the appropriate State Plan (Teachers Retirement System of Georgia or Public School Employees Retirement System). Early retirement benefits are reduced by factors which have been established for each year of age under 65. Monthly disability benefits are payable after six months in which the employee remains on approved leave of absence as determined by Board policy, or upon determination of disability if later. Coverage All regular full-time employees are automatically covered by the GRS Plan. Full-time employees are those who are regularly scheduled to work at least twenty hours per week and are not student, seasonal or intermittent employees. Administration The GRS Plan Administrative Committee consists of nine voting members and one non-voting member. The Superintendent (non-voting), Chief Financial Officer, and the Chief Human Resources Officer are permanent members. The seven other rotating members consist of three school teachers, one local school administrator, one classified employee, one retiree drawing GRS benefits and one person in any position the Board chooses. As each rotating member’s term expires, replacement members are recommended by the GRS Plan Administrative Committee to the Superintendent and Board of Education for approval. The rotating members serve a seven year term and must remain off the Committee at least twelve months before being considered for another term. A complete listing of the 2009 GRS Committee is included on page 3. Asset Management The GRS Plan Administrative Committee employs the firm of Wilmington Trust to provide independent investment counsel. Wilmington assists in the development of investment policies and the selection and employment of investment managers. On an ongoing basis, Wilmington assists in revising these policies and in monitoring the investment manager results. A complete listing of all Plan assets is listed on pages 16-29. Actuarial The GRS Plan Administrative Committee employs the firm of Cavanuagh Macdonald Consulting, LLC to perform annual actuarial evaluations. A copy of the most recent actuarial evaluation may be obtained by contacting the GRS Office at 678-301-6267. Audit The accounting firm of Mauldin & Jenkins, LLP conducts annual audits of the Plan. The audit opinion and the two basic financial statements are presented in the Financial Section of this report. A full copy of the financial report may be obtained by contacting the GRS Office at 678-301-6267.

Gwinnett Retirement System Plan Overview

4

Gwinnett Retirement Services Department Mission The mission of the Retirement Services Department is to provide Gwinnett County Public Schools employees and retirees with the information, guidance, support, and service they need to plan and achieve a comfortable, secure, and independent retirement; and to manage the assets of the Plan to ensure the promise of life-long benefits. Key Tasks and Responsibilities

Retirement Services Financial Operations Provide Member Counseling Manage Contributions Manage Enrollment Provide Accounting Services Manage Benefits Provide Financial Statements Manage Participant Data Manage Disbursements Provide Member Statements Manage Banking Operations

GRS Website The GRS website was created to provide easy access to Plan information and answers to frequently asked questions. The goal of the website is to maintain continuous communication links between GRS and its customers. The current web address is www.gwinnett.k12.ga.us/GRS. Benefit Recipients The GRS Department is responsible for the retirement process of every employee who retires from the Plan. Since its inception in 1983, the GRS Plan has continued to experience rapid growth in the annual and overall numbers of retirees. The total number of people receiving monthly GRS benefits is now over 4,000. Over the next several years the number of employees eligible for retirement is expected to continue to grow rapidly.

Benefit Recipients

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2006 2007 2008 2009

Gwinnett Retirement System Retirement Services Department

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Financial Section

Gwinnett Retirement System

INDEPENDENT AUDITOR’S REPORT To the Administrative Committee and Members

Gwinnett County Board of Education Retirement System

Suwanee, Georgia We have audited the accompanying statement of plan net assets of the Gwinnett County Board of Education Retirement System (the “System”) as of December 31, 2009, and the related statement of changes in plan net assets for the year ended December 31, 2009. These financial statements are the responsibility of the System's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the System as of December 31, 2008, were audited by other auditors whose report dated October 30, 2009, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2009 financial statements referred to above present fairly, in all material respects, the plan net assets of the Gwinnett County Board of Education Retirement System as of December 31, 2009, and the changes in plan net assets for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

6

2

In accordance with Government Auditing Standards, we have also issued our report

dated March 9, 2011 on our consideration of the System’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management’s Discussion and Analysis, Schedule of Funding Progress and Schedule of Employer Contributions (on pages 3 through 6, page 20, and page 21, respectively) are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Atlanta, Georgia March 9, 2011

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GWINNETT COUNTY BOARD OF EDUCATION RETIREMENT SYSTEM

STATEMENTS OF PLAN NET ASSETS

See accompanying notes to financial statements.

December 31, 2009 2008 Assets Receivables: Accrued interest and dividends $ 2,633,425 $ 2,944,193 Pending trades receivable 1,742,679 8,146,687 Total receivables 4,376,104 11,090,880 Investments, at fair value: Common stocks 212,927,424 137,753,423 Preferred stocks 2,039,490 2,201,777 U.S. government securities 22,656,518 19,958,507 Mutual and commingled funds 673,382,543 574,941,188 Corporate bonds 51,180,447 46,147,493 Money market funds 42,618,784 52,856,892 Municipal bonds 2,044,271 2,227,079 Mortgage-backed securities 53,803,879 66,645,531 Asset-backed securities 4,417,081 7,769,320 Other bonds 99,466,507 86,509,489 Securities lending short-term collateral investment pool 172,064,581 223,796,004 Total investments 1,336,601,525 1,220,806,703 Total assets 1,340,977,629 1,231,897,583 Liabilities Accounts payable and accrued expenses 548,295 409,038 Pending trades payable 4,309,082 58,544,946 Loan payable for securities lending 172,562,386 224,380,401 Total liabilities 177,419,763 283,334,385 Net assets held in trust for pension benefits $ 1,163,557,866 $ 948,563,198

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GWINNETT COUNTY BOARD OF EDUCATION RETIREMENT SYSTEM

STATEMENTS OF CHANGES IN PLAN NET ASSETS

See accompanying notes to financial statements.

Years Ended December 31, 2009 2008 Additions Contributions Employer $ 55,196,800 $ 53,695,671 Members 9,083,688 8,855,708 Total contributions 64,280,488 62,551,379 Investment income From investing activities Net appreciation (depreciation) in fair value of investments

159,474,865 (273,929,043)

Interest and dividends 28,489,271 35,272,055 Other investment income 42,328 18,586,169 188,006,464 (220,070,819) Less investment activity expenses (2,167,124) (2,485,733) Net income (loss) from investing activities 185,839,340 (222,556,552) From security lending activities Security lending income 750,357 1,065,683 Security lending expenses (35,336) (31,985) Net appreciation (depreciation) in fair value short-term collateral investment pool

(110,153)

(883,295)

Net income from security lending activities 604,868 150,403 Net investment income (loss) 186,444,208 (222,406,149) Total Additions 250,724,696 (159,854,770) Deductions Benefits paid to participants Retirement 29,055,719 25,099,219 Disability 1,974,636 2,303,610 31,030,355 27,402,829Administrative expenses 4,699,673 2,417,407 Total Deductions 35,730,028 29,820,236 Net Increase (Decrease) 214,994,668 (189,675,006) Net assets held in trust for pension benefits Beginning of the year 948,563,198 1,138,238,204 End of the year $ 1,163,557,866 $ 948,563,198

9

Additions Plan assets increased by a net $215 million during the year. The growth was due to a combination of investment return and contributions to the plan. Investment return contributed $186 million to Plan asset value. The remaining $29 million was accounted for by contributions net of expenses to the Plan. Further detail on Plan investment performance is provided in the Investment Section of this report.

Components of Annual Growth ($’s, in Millions)

Contributions Employer and employee contributions have risen steadily over the life of the Plan. Contributions totaled $64.3 million for the year 2009. The Board contributed $55.2 million for the benefit of 20,551 active employees. The remaining $9.1 million was contributed by employees through payroll deduction.

Annual Contributions ($’s, in Millions)

(250)(200)(150)(100)(50)

-50

100 150 200 250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Contributions Net of ExpensesInvestment Income

- 5 10 15 20 25 30 35 40 45 50 55 60

2000200120022003200420052006200720082009

Board Contributions Employee Contributions

Gwinnett Retirement System Financial Highlights

For the Year Ended December 31, 2009

10

Benefit Payments Benefit payments of $31,030,355 were disbursed from the Plan during 2009. This represents an increase of $3.6 million over benefits disbursed in 2008. The level of benefit payments is expected to increase substantially over the next several years as the number of employees eligible for retirement increases.

Projected Benefit Payments ($’s, in Millions)

Plan Expenses Investment and administrative expenses for the year totaled $2,131,788 and $4,699,673 respectively, for a total of $6,831,461. Investment expenses decreased on an absolute basis and as a percent of the value of Plan assets from the prior year. Increases in administrative expenses were due to temporary costs of upgrading technology systems.

Expenses as a % of Total Assets

-

10

20

30

40

50

60

70

2009 2010 2011 2012 2013 2014

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gwinnett Retirement System Financial Highlights

For the Year Ended December 31, 2009

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Investment Section

Gwinnett Retirement System

Investment Objectives The primary investment objective of GRS is better than average returns on investment over the long term. Investment objectives reflect the long-term nature of the Plan, the expected strong cash flow, and the relatively young age of participants. As a public body, the Board of Education’s funding ability is influenced by the local economic conditions and by political considerations. Therefore, it is important that the Plan meet its investment goals if benefit levels are to be assured. Operating Procedures

The Gwinnett County Board of Education shall be responsible for the overall management of the assets of the retirement system.

The Board has established an Administrative Committee to carry out the terms of the Plan, including

responsibility for the investment of funds.

The Administrative Committee is responsible for establishing investment policy, hiring and firing of advisers, providing professional services to the Plan, and, in general, directing the Plan’s investments in a manner most appropriate to meeting Plan goals.

Investment Guidelines The policy of GRS is to seek out the best investment management available to provide participants with adequate and cost-effective disability coverage and retirees with an adequate and fully competitive retirement income at a reasonable cost. The Plan Administrative Committee may employ one or more investment managers to carry out investment policies. As a local retirement system maintained by a political subdivision of the State of Georgia, investments made by the Plan are subject to the Official Code of Georgia Annotated. Every two years, the Plan is required to certify to the State Auditor that it h as complied with the investment practices outlined in the Public Retirement Systems Investment Authority Law (O.C.G.A. 47-20-80 et seq) at all times. It is the Administrative Committee’s decision to voluntarily abide by the provisions of the Employee’s Retirement Income Security Act (ERISA) of 1974 where applicable and feasible. It is also understood that the fund’s managers will abide by ERISA. The Plan includes two benefit plans that are managed as one portfolio – the Retirement Fund and the Disability Fund. The Administrative Committee believes a broadly diversified portfolio of well-selected investments will be most successful in meeting the Fund’s goals at the lowest level of risk. The Administrative Committee has adopted the following target asset mix for the fund. All asset classes are measured at cost. Equities 30 - 65% Fixed Income 30 - 70% Real Property 0 - 10%

Gwinnett Retirement System Investment Policy

12

Investment Restrictions Investments in corporations are permitted only if the corporation has a market capitalization equivalent to $100 million. Investments in obligations of corporations are permitted only if the obligations are listed as investment grade by a nationally recognized rating agency. Investments in securities of companies on the Scrutinized Companies with Activities in Iran Petroleum Energy Sector List (as defined by O.C.G.A. 47-20-83.1) are prohibited. The following may not be used in making equity investments:

• leverage techniques • option techniques • futures • commodities • private placements • direct participation plans

The Plan may enter into contracts, agreements, and other instruments designed to manage risk exposure. Expected Returns and Risk Levels The Administrative Committee establishes the following investment goals based on current capital market conditions and the funding status of the Plan:

• Expected return: Over a five-year period, the total return should be at least 3% above the rate of inflation (as measured by the CPI) and rank in the top half of a peer group of large public pension plans. The Plan is also expected to outperform the target benchmark which is defined as the target asset mix multiplied by the appropriate benchmark for each asset class.

• Expected risk: Over a five-year period, the standard deviation of the returns for the total fund should be

less than 13% and less than that for a peer group of large public pension plans.

Gwinnett Retirement System Investment Policy

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Asset Mix The Plan investment portfolio was diversified at year end in accordance with the GRS investment policy.

Assets as of December 31, 2009

Investment Returns After a slow start, 2009 was a year of strong recovery for global financial markets. The Plan’s equity holdings in domestic large cap, domestic small cap and international equities all outperformed their benchmarks, returning 29.4%, 29.8%, and 33.3%, respectively. The Plan’s fixed income holdings also exceed benchmark returns, at 6.4% for the year. The total Plan investment return for 2009 was 19.3%.

Annual Portfolio Investment Return

Domestic Equity41%

International Equity12%

Real Assets10%

Fixed Income34%

Cash & Equivalents3%

-25.0%

-15.0%

-5.0%

5.0%

15.0%

25.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gwinnett Retirement System Investment Highlights

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Long Term Investment Return The GRS Plan has a long term investment outlook due to the nature of the Plan and the characteristics of the participant base. The Plan has an assumed actuarial investment return rate of 7.5% in order to appropriately fund both current and future benefits. The one, three, five, ten and 20 year returns are presented below.

Annualized Portfolio Investment Return

19.3%

-1.2%

2.9% 4.0%

8.1%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1 Year 3 Year 5 Year 10 Year 20 Year

Gwinnett Retirement System Investment Highlights

15

Investment Managers GRS diversifies investments over a wide range of asset classes and investment styles in order to meet stated investment objectives. In order to achieve diversification the GRS Administrative Committee employs a variety of investment managers. The performance of each manager is monitored by the Committee on a regular basis. One, three and five year returns are presented below for each asset class.

29.4%

-5.4% 1.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1 Year 3 Year 5 Year

Equity - Large Cap Returns

33.3%

-6.3%3.6%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1 Year 3 Year 5 Year

Equity - International Returns

14.6%

2.8%

8.7%

0.0%

5.0%

10.0%

15.0%

20.0%

1 Year 3 Year 5 Year

Real Assets Returns

29.8%

-6.8% -0.4%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1 Year 3 Year 5 Year

Equity - Small Cap Returns

6.4%

1.1%

2.1%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

1 Year 3 Year 5 Year

Fixed Income Return

Gwinnett Retirement System Investment Highlights

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Ten Largest Equity Holdings

Company Market Value Bank of America Corp $ 3,549,642 Citigroup Inc 3,458,563 Microsoft Corp 3,156,753 Abbott Laboratories 2,393,647 Qualcomm Inc 2,386,183 Wal-Mart Stores Inc 2,060,391 Pfizer Inc 2,039,681 Exxon Mobil Corp 2,020,879 Procter & Gamble Co 1,918,151 Baker Hughes Inc 1,811,156

Total of 10 Largest Equity Holdings $ 24,795,045 Ten Largest Fixed Income Holdings

Description Maturity Date

Interest Rate Market Value

U.S. Treasury Inflation Indexed 4/15/2011 2.37% $ 9,194,257 U.S. Treasury Inflation Indexed 4/15/2028 3.62% 8,155,814 U.S. Treasury Inflation Indexed 7/15/2012 3.00% 7,852,808 U.S. Treasury Inflation Indexed 7/15/2016 2.50% 7,650,206 U.S. Treasury Inflation Indexed 1/15/2026 2.00% 7,424,873 U.S. Treasury Inflation Indexed 1/15/2016 2.00% 7,314,977 U.S. Treasury Inflation Indexed 7/15/2014 2.00% 7,053,753 U.S. Treasury Note 3/31/2013 2.50% 6,540,358 U.S. Treasury Inflation Indexed 4/15/2029 3.87% 6,067,837 U.S. Treasury Inflation Indexed 1/15/2015 1.62% 5,671,509

Total of 10 Largest Fixed Income Holdings $ 72,926,393

A complete list of portfolio holdings is available upon request.

Gwinnett Retirement System Investment Highlights

17