2011 Reports

RPAC Investment Subcommittee Report
August 15-16, 2011

General issues—all vendors
·         Asked to provide more information and statistics on loan default rates, for future analysis.
·         Asked to provide information on their procedures for locating accountholders or beneficiaries who are no longer in contact.
·         Conversions to new, lower-cost share classes generally have occurred without problems.

The Allianz NFJ Small Cap Value Fund was closed by its manager to all contributions as of 7/31/2011. The Subcommittee held a special meeting in early July to discuss this situation. At the recommendation of VALIC and with the approval of Vice Chancellor Patterson on July 8, 2011, the fund has been replaced with the Heartland Value Plus Fund (Institutional Class). The subcommittee recommended that existing assets be allowed to remain in the Allianz fund, while future contributions will go the Qualified Default Investment (QDI, age-appropriate target date fund) unless the participant directs otherwise.

VALIC watch list as of 3/31/2011:

*The Global Equity (BlackRock) annuity is being changed by VALIC from a global stock fund (~65% international, ~35% domestic) into an emerging markets fund and its name will be changed to Emerging Economies, as of October 1, 2011. The subcommittee objects to this forced complete style change of existing fund assets into a significantly more aggressive sector and most especially to the late notice of this change. We recommend (1) that VALIC be required to contact each individual holder of the Global Equity annuity fund in person (not just mail or e-mail) to explain the situation and to provide the opportunity to change investments, and provide an accounting of outcomes to NSHE by September 15 and (2) that by default both existing assets and future contributions allocated to the Global Equity annuity be transferred to the Global Social Awareness annuity, which is similar in investment style to Global Equity, as of October 1.

VALIC was asked to provide aggregate GPS fees, loan fees, and any other account fees along with fund fee analysis tables.

As of 3/31/2011, only 39% of VALIC assets had been converted from variable annuities to the less-expensive mutual fund platform, after nearly three years since establishment of the mutual fund platform. VALIC outlined its procedures if the committee wishes to freeze annuity assets and direct future contributions to the mutual fund platform. By default, future contributions could be directed to the QDI (age-appropriate target date funds) or mapped into mutual funds of similar style. VALIC would need 5-6 weeks for the conversion process and would like to include on-site meetings as part of its communications.

Standard & Poor’s downgraded TIAA’s financial strength rating from AAA to AA+, following S&P-s similar downgrade of U.S. treasury bonds. TIAA-CREF was asked to clarify its future claims as to having the “highest possible” ratings.

TIAA-CREF watch list as of 3/31/2011: