Gwinnett County, Georgia Investment Committee of the RPMC

October 12, 2012

9:30 a.m. Second Floor, Financial Services - Dogwood Conference Room

Agenda

Call to order

1. Approval of Agenda*

2. Approval of Investment Committee Minutes* ML

3. Review of Investment Policy for 401(a)/ 457 Great-West

4. Overview of Stable Value Fund Great-West

5. Investment Policy Issues with Sands Large Cap ML/ Ed Emerson

6. 2013 Goal Setting I.C., UBS, G-W, B.C.

7. Securities Litigation ML 8. Comments on Vendor Renewals BNY & Bryan Cave ML 9. Topics for November Meeting

Securities Lending BNY Mellon Quarterly Reports UBS/Great-West 2013 Great-West Educational/Marketing Plan Great-West

Adjournment*

*Action Items

Gwinnett County, Georgia Investment Committee of the RPMC

Regular Meeting Minutes September 14, 2012 8:30 a.m.

Dogwood Conference Room GJAC Members Present: Mike Ludwiczak, Bill Rodenbeck, Phil Hoskins, Paul Turner, Karen Karasinski Staff Present: Aaron Bovos, Debbi Davidson, Megan Ward, Rick Reagan Others Present: UBS Members – Ray Vuicich, Earle Dodd, Allen Wright

Chairman Mike Ludwiczak called the meeting to order at 8:33 a.m.

1. Approval of Agenda Action: Motion to Approve: Phil Hoskins; Second: Paul Turner. Vote (5-0); Ludwiczak – Yes; Rodenbeck – Yes; Hoskins – Yes; Karasinski – Yes; Turner – Yes. 2. Approval of Investment Committee Minutes Regular Meeting: 8:30 A.M. July 13, 2012 Action: Motion to Approve: Karen Karasinski; Second: Phil Hoskins. Vote (5-0); Ludwiczak – Yes; Rodenbeck – Yes; Turner – Yes; Hoskins– Yes; Karasinski – Yes.

3. OPEB/DB Funding Policy Aaron mentioned our current funding policy and what steps could be taken to decide how to proceed in the future. After discussion, it was decided that further discussion would continue at a later date.

4. Due Diligence Review Managers each gave a brief overview of where the County’s portfolio stands, what their strategy is and why they have chosen the particular strategy.

Templeton Global Bond: Michael B. Reed, VP & Inst. Portfolio Manager

Dreyfus International: Rebecca Braeu, PhD, Macroeconomic Analyst and

Portfolio Manager, Eric Pflaum, CFA, Product Manager

ING: Bob Kase, Portfolio Manager

Ryan Labs: Sean McShea, Portfolio Manager

1607 Capital: Kirk Tattersall, Jim Mallory, Portfolio Manager

INVESCO: Laler DeCosta, Portfolio Manager

5. Manager Roundtable Each manager was asked questions by UBS and committee members regarding the economy and how different events and possible outcomes will or will not affect the County’s Pension Plan.

Adjournment Action: Motion to Adjourn: Phil Hoskins; Second: Mike Ludwiczak Vote (5-0); Ludwiczak – Yes; Rodenbeck – Yes; Hoskins – Yes; Karasinski – Yes; Turner – Yes.

Meeting was adjourned at 11:11 a.m.

Next meeting is Friday October 12, 2012 at 9:30 a.m. in the DoFS Dogwood Conference Room on the 2nd floor of GJAC at 75 Langley Drive Lawrenceville, GA 30046.

1

Gwinnett County Stable Value Fund Review

Oct 2012

Presentation Overview • Stable Value Fund Review

• Great-West Fund Management of SVF’s

• Key Fund Policies

• Current Investment Strategy/Portfolio Structure

• Historical Results

• Summary

2

Stable Value Fund Review • Great-West separate account held for the

exclusive benefit of Gwinnett County and its participants

• Fund receives ALL investment performance of the fund less fees of 0.60% (.20% of which is credited back to the plan)

• Fund is audited annually by Deloitte & Touché • Participant accounts valued at “book value” • At contract termination County receives

– Investments in portfolio “in kind transfer” OR – Cash value of assets (securities)

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Stable Value Fund Review • Overall Objectives

– Preserve principal & interest income – Adequate liquidity for participant benefits/transfers – To provide interest rates that move in direction of

prevailing rates

• Operated in Partnership with County regarding Fund: – Investment policy – Allocation of earnings – Fund transfer policies

4

Great-West Stable Value Fund Management • $10.0 billion of custom Stable Value Funds under

management

• $6.7 billion of public employer custom SVF Fund assets

• Custom Stable Value management since 1993

• 39 custom Stable Value Funds

5

Great-West Stable Value Fund Management • Partial client list:

– States: Louisiana, South Carolina, Oklahoma, North Carolina, Colorado, New Hampshire, Alabama

– Cities: Torrance, Los Angeles, Houston, San Francisco, Memphis

– Counties: Gwinnett, Milwaukee, Kern, Orange, Monterey

– Special Districts: Metropolitan Water District of So. Ca., Port of Oakland, Chicago Park District

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Stable Value Fund Management • Investments (asset management)

– Cathe Tocher, CFA - Lead Portfolio Manager – Thone Gdovin- CFA- Portfolio Manger – Total of 23 professionals – 11 MBS/ABS analysts, 8

Credit analysts, 4 Commercial Real Estate analysts – Ms. Tocher and team have managed all custom Stable

Value Funds since 1993 • Investment Products (product design, liability

management, client communications) – Al Cunningham – 30+ years fixed-income experience – Manages all public employer Stable Value Fund

relationships since product inception

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Key Fund Policies • Investment Quality

– Securities issued by U.S. Government, agencies, and GSE’s

– Commercial Bank Securities with FDIC guarantees • Average duration will not exceed 5 years • Amortization of difference between book value of

assets and liabilities: over average expected duration of portfolio

• 100% participant liquidity

8

Current Portfolio Strategy • Key SVF positioning is where to be on yield curve • Fund is positioned for market interest rates to stay

relatively stable – Expect economy to continue to grow at very modest pace – QE3

• Continue to purchase FNMA/FHLMC securities – Implicit/explicit guarantee of Government – Spreads over treasuries attractive (1.5%) – Prefer “seasoned” securities over newly issued – Avoid deep discount/high premium securities

• Strategy should enable fund to: – Maintain high quality – Participant interest rates should move in general direction of

prevailing interest rates

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Current Portfolio As Of 8/31/12 • 188 long term investments (mostly agency

Mortgage Backed Securities)

• Coupon yields range from 2.22% to 7.00% plus adjustable rate

• All securities rated AA+/AAA

• Average expected duration of investments: 2.6 years

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Current Portfolio Yield As Of 8/31/12

Current yield 3.17% Amortization -0.13% Net investment return 3.04% Less investment management fees -.40% Less revenue returned to Plan -.20% Net investment return 2.44% Participant 3rd quarter rate 2.65% Participant 4th quarter rate 2.35% MV to BV=104.5%

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Historical Returns As Of 9/30/12 1year 3 year 5 year • Gwinnett SVF* 2.90% 3.34% 3.76%

• Money Market (6/30) 0.02% 0.03% 0.90%

• 3 Year Treasuries 0.39% 0.88% 1.39%

*Net of fees

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Potential IPS Changes? • Current Investment Policy has served Fund well • With QE3 is it time to expand Investment Policy to

allow Corporate Securities? • Advantage of adding Corporate securities (“A”

rated and above) – Better diversification – Provides manager with opportunity to add value – Corporate securities would reduce convexity

(prepayment) risk • Disadvantage of adding Corporate securities

– Introduces default risk – How Fund is “marketed” to participants

13

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Summary

• Fund is being managed within policy

• Market Value exceeds Book Value

• Historical returns above market rates

• Change IPS?

Sample Government/Corporate Securities Investment Guidelines

Investment Guidelines for the ___________________ Stable Asset Fund (Separate Account)

Attachment A

Investment Objectives Within the parameters as stated below, the objectives of the fund are to: 1. Preservation of principal 2. Provide sufficient liquidity to pay plan benefits 3. Provide stable and predictable returns. 4. Earn a high level of return relative to other objectives of the fund Benchmark Index The interest rates provided to participants after investment management fees will be compared to the yield of three-year treasury notes, on a constant maturity basis. Types of Investments Subject to the Quality and Diversification Guidelines, Great-West may invest the assets of the Stable Asset Fund in any or all of the following: A. United States Treasury Securities including Treasury Bills, Notes, Bonds, and Strips. B. United States Agency or Government Sponsored Enterprises (GSE‟s) securities including debt

guaranteed under the FDIC‟s Debt Guarantee program or a similar debt guarantee program backed by the United States Government and any other agency or GSE debt unless otherwise restricted.

C. Mortgage-Backed securities issued by GNMA, FNMA, FHLMC, FHLB, VA Vendee, or other United States Agency or GSE‟s.

D. Collateralized Mortgage Obligations (CMO‟s) secured by GNMA, FNMA, FHLMC, FHLB, VA Vendee, or other United States Agency or GSE‟s.

E. Instruments of Commercial Banks 100% covered by the FDIC, U.S. money market mutual funds, or repurchase agreements fully collateralized by United States Government, Agency, or GSE securities.

F. Commercial Paper rated A1, or P1, as rated by S&P or Moody‟s. G. Corporate and Foreign Government Bonds rated “A-/A3” or better as rated by S&P, or Moody‟s

at time of purchase. All securities must be U.S. dollar denominated. H. Asset Backed Securities, non-agency mortgage-backed securities, and commercial mortgage-

backed securities rated “A-/A3” or better as rated by S&P or Moody‟s at time of purchase. Short-Term Investments All money received by Great-West for deposit to the Stable Asset Fund will be invested the same day it is received. Whenever possible these monies will be invested in the type of investments

indicated above. However, if the monies are received at a time of the day which makes this impractical, then the monies will be invested in an interest bearing account at a commercial bank. The money will be invested according to the above guidelines on a timely basis, and in the best interest of the participants. Quality & Diversification Guidelines A. A maximum of 35% of the account assets may be invested in Corporate Bonds and Foreign

Government Bonds. B. A maximum of 15% of the account assets may be invested in Asset-Backed Securities, Non-

Agency Mortgage-Backed Securities, Commercial Mortgage-Backed Securities as described in “G” and “H” of Types of Investments.

C. Weighted average quality of AA-/A3 or better. D. No more than 15% of the account may be invested in “A” (includes securities rated A+ and A)

rated securities or lower. E. No more than 5% of the portfolio may be invested in any one corporate issuer (including Asset-

Backed Securities). For purposes of diversification, each Asset-Backed or non-Agency Mortgage-Backed trust will be treated as a separate issuer.

Duration of Investments The portfolio‟s average duration will not exceed five years. Reporting A. On a quarterly basis, the manager will provide a statement to the Plan showing the market

value of each security, the sector diversification within the portfolio, and the duration, quality and yield of the portfolio.

B. On a quarterly basis, the manager will provide to the Plan a book value statement showing the book value of the total portfolio and showing the methodology and assumptions used to reset the crediting rate of the Stable Asset Fund.

C. On an annual basis, a senior representative of Great-West will be made available to the Plan to present to the Plan a verbal and written review of the investment decisions, and the rationale associated with these decisions for the previous 12-month‟s activity.

Trading Authority Within the Investment Guidelines as stated in this Exhibit, Great-West has the authority to buy and sell any securities in this separate account that it judges to be in the best long-term interest of the separate account and the participants that utilize the account; provided, however, that it is understood that Investment Manager may raise cash by selling assets to provide liquidity to pay benefits and withdrawals. Loan from the General Account If the amount of any Distribution, Rollover, or Permitted Transfer exceeds the cash balance in the Stable Asset Fund (whether because the liquid assets are insufficient to fund the Distribution, Rollover of Permitted Transfer or any other reason), the General Account of Great-West Life & Annuity Insurance Company may, but is not obligated to, loan such deficiency to the Stable Asset Fund. Any such loans will be repaid first from ongoing participant deposits and transfers, then from

interest on investments, and lastly from the maturity of investments in the fund. Interest will be charged monthly by Great-West Life & Annuity Insurance Company‟s General Account at an annual effective rate, reset daily equal to the Prime rate, as disclosed in the Wall Street Journal, at the close of the Business Day of the loan to the Stable Asset Fund, plus a spread to be declared annually as of January 1. A comparable rate will be used should the Prime rate as disclosed in the Wall Street Journal be unavailable for any reason. Changes to Investment Guidelines The Group Contract holder may modify the guidelines (including duration) for investment of assets of the fund at any time providing that these modifications will not affect the funds ability to provide benefits at book value. Proposed modifications will be subject to review by the Investment Manager before being implemented. No Competing Funds In order to protect the integrity of the fund, no competing funds to the Stable Asset Fund are allowed. Competing funds include other Stable Value Funds, funds with a known or periodically declared stated rate of interest, money market funds, Bond funds with less than 3 year duration, and any other fund offered by the plan that Great-West in good faith deems to be a competing fund. In the unlikely event that an existing Plan investment becomes a competing fund, an equity wash for a period of up to 180 days may apply to all participant transfers until the competing fund is removed, unless otherwise agreed to between Great-West Life & Annuity Insurance Company and the Plan. Amortization of Trading Gains/Losses The general policy of the fund will be a „buy and hold” strategy. However, to the extent that realized gains or losses occur, these gains/losses will be amortized over the expected average duration of the portfolio.

Effective Date: ____________________________ Great-West Capital Management

Signature: Date:

Name:

Title

Signature: Date:

Name:

Title