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.

VALIC

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:

Mutual Fund
Action
Reason
Allianz NFJ Dividend Value remove from watch 1-yr performance of new manager
Davis New York Venture retain on watch 3-yr and 5-yr performance
Am Funds Growth Fund of Amer add to watch 1-yr and 3-yr performance
Annuity Fund
Action
Reason
Capital Appreciation retain on watch VALIC recommendation
Global Equity add to watch changing style – see recommendation*
Government Securities retain on watch VALIC recommendation
Growth & Income add to watch VALIC recommendation
Mid Cap Value retain on watch VALIC recommendation
Small Cap Aggressive Growth retain on watch VALIC recommendation
Small Cap Special Values add to watch VALIC recommendation
Small-Mid Growth retain on watch VALIC recommendation
Value Fund retain on watch VALIC recommendation

*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.

TIAA-CREF
 

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:

Fund
Action
Reason
CREF Bond Market retain on watch 3-yr and 5-yr performance
CREF Growth add to watch 3-yr and 5-yr performance
CREF Money Market add to watch future recoupment of waived fees*
TIAA-CREF Mid Cap Value Fund add to watch 1-yr and 3-yr performance
 
*TIAA has waived fees for the CREF Money Market Account to avoid yields below 0%. Its regulator, the New York state insurance commission, is requiring that the waived fees be recouped in the future, which will reduce yields. The committee may wish to consider adding or substituting the TIAA-CREF Money Market mutual fund product.

TIAA-CREF was asked to provide a full fee and expense transparency table, and to further explain the Administrative (0.265%), Distribution (0.075%), and Mortality and Risk Expense (0.005%) fees on CREF accounts.

Fidelity

Blake Earl has left Fidelity InvestmenNo index entries found.ts and Brian Young is our new relationship manager.
Fidelity watch list as of 3/31/2011:

RPA Fund
Action
Reason
Fidelity Inflation-Protected retain 3&5-yr performance
Fidelity Growth & Income retain, frozen 3&5&10-yr performance and manager changes
Fidelity Value Fund retain 3&5-yr performance and manager change
Fidelity Magellan Fund retain 1&3&5-yr performance
Fidelity Overseas Fund retain 3&5-yr performance
Fidelity Diversified International retain 5-yr performance
Fidelity Mid Cap Stock add manager change Feb 2011 & 5-yr perform
Fidelity Independence Fund add 3-yr performance
Fidelity Convertible Securities add 3-yr performance
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