Members Present: John Hammond, Howard Brown, William Brown, Dennis Callahan, Hunter Calloway, Jay Cuccia, Andrea Fulton, Jennifer Gilbert-Duran, Frank Marzucco, Jay Middleton, M. Kathleen Sulick, Douglas Willis Members Absent: LeRoy Wilkison Staff Present: Tina Johnson, Judi Lohn Guests: Robert J. Anslow Jr., Jerre S. Bridges, Rhett Humphreys, Gaurav Malik, James Thorsen Recorder: Laura C. Jackson, Audio Associates The meeting of the Board of Trustees of the Anne Arundel County Retirement and Pension System (Board) was called to order at 12:24 p.m. by John Hammond, Chair. Mr. LeRoy Wilkison was excused from the board meeting. Minutes Mr. Callahan noted that changes needed to be made to the last paragraph of the Investment Committee report in the July 12 minutes, which read, “Mr. Callahan made a motion to approve the rebalancing plan as outlined and to direct Mr. Humphreys to prepare an additional written memo of Mr. Hammond’s recommendations.” Mr. Callahan recalled recommending, after discussion, that the board rely on Rhett Humphreys for recommendations because he was suggesting rebalancing, and he should give those recommendations in writing. Mr. Callahan moved to reconsider the minutes of July 12. The motion was seconded by Mr. Cuccia. After discussion, the board agreed that the minutes should read, “Mr. Callahan made a motion to approve the rebalancing plan as outlined and direct Mr. Humphreys to prepare a written memo of his recommendations.” Mr. Callahan also suggested making a change in those same minutes to clarify that the Deferred Retirement Option Program is only for fire and police employees. The board unanimously approved the corrections to the July 12 minutes. Mr. Callahan then made a motion to approve the July 12 minutes. Mr. Willis seconded the motion. The board unanimously approved the July 12 minutes. Mr. Callahan also made a motion to approve the minutes of the September 13 meeting. The motion was seconded by Ms. Fulton. The board unanimously adopted the September 13 minutes. Investment Committee State Street Global Advisors State Street Global Advisors has been managing assets for Anne Arundel County for a number of years. Until the end of September, the county had an S&P 500 product with SSGA. The firm recently took over a portion of the county’s international investing through its International Alpha Select SL Fund. A provider of financial services to institutional investors, the State Street Corporation has $13 trillion in assets under custody. In the area of asset management, State Street Global Advisors has $1.9 trillion in assets under management worldwide. The asset allocation includes fixed income, equity, real estate and currency. SSGA has a strong interest and presence in Maryland, managing more than $17 billion for public funds in the state. Most of the team members who manage public funds for SSGA have an average of five to ten years of experience. As part of its investment strategy, SSGA relies on systematic research, quantitative processes and consistency. The goal is to identify the best companies in any industry. The fund has outperformed its benchmark every year since inception. Mr. Thorsen mentioned that SSGA is vigorously contesting a lawsuit filed by Prudential. He couldn’t comment on the specifics of the litigation but was open to responding to any questions he could answer. He also noted that the International Alpha Select fund is closed to any new business, although SSGA will fulfill any opportunities already in the pipeline. As of September 30, the county had a market value of $100,909,098. In comparison to the benchmark (MSCI EAFE Index), the fund was down about 30 basis points year to date. Mr. Hammond asked if SSGA typically has anything in emerging markets in this fund. Mr. Malik said there are no emerging markets in this fund. A separate team handles emerging market securities. The fund’s investments in countries such as Switzerland, Sweden and Spain are in line with the benchmark index. The biggest overweight is in Germany because the demand for goods produced in Germany seems to be high. The biggest underweight is the United Kingdom. Mr. Malik said European banks tend to dislike the U.K. In the third quarter, materials stocks performed well because of high demand in such emerging countries as China and India and infrastructure investing. Banking declined, as did software and services and telecommunications services. No major sector had a huge underweight or overweight. The results were similar in the first and second quarters. Mr. Middleton wanted to know when an emerging country becomes developed. Mr. Malik said the U.N., the World Bank and other organizations assess a country’s growth as well as the quality of its health care and other services. Mr. Thorsen added that different indexes have different standards, and index providers make their own determinations. Mr. Thorsen said the International Alpha Select fund has had a decent track record and SSGA will maintain the fund’s quality by not allowing it to expand too broadly. The fund will be capped at $10 to $12 billion in assets. Fund manager’s reinvests in the process by looking for new ways to add value. Manager’s focus on staying consistent, tracking closely with the benchmark and looking for lower-priced stocks that have a potential to grow so that people enjoy consistent performance. SSGA wasn’t happy with the initial lag in performance, Mr. Thorsen said, but that runs counter to managers’ experience over the long term. Globeflex Founded in 1994 By Bob Anslow and Marina Marrelli, Globeflex is an independent, employee-owned firm. The firm wants to maintain its boutique culture and size and focuses only on institutional partners. Globeflex has $7.6 billion in total institutional assets, with an average client size of $100 million. Just under half of the assets are with public pension plans. The board made an initial investment of $40 million with Globeflex in February. During the first quarter, Anne Arundel County had a modest underperformance. The second and third quarters showed a healthy outperformance for the county. With a total investment gain of more than $5 million, the market value for the county as of September 30, 2007, was $45,935,439. Mr. Hammond asked how many investors are in the fund now. Six investors now are in the trust. The fund’s total value is $155 million. To preserve the investment process, the strategy will close at $3.5 billion. Globeflex is a bottom-up fundamental manager that relies on stock selection within each country to drive returns. The company is currently able to evaluate close to 5,500 international, all-cap developed companies. Mr. Anslow said those evaluations give Globeflex a competitive advantage in terms of exploiting inefficiencies in that universe of companies. The company looks to purchase low-cost stocks in growing companies that will sustain that growth. Buy purchasing stocks cheaply, Globeflex won’t be overly penalized if it makes a mistake in assessing the sustainability of a company. The company seeks to build a portfolio of 125-150 best companies. The portfolio will include name-brand companies and some that might be smaller and unfamiliar, which boosts diversification. Globeflex’s largest investment markets include Australia, Japan, Canada, France and the United Kingdom. In the first eight months of investing in Globeflex, the county has had good returns in Canada Japan, and Sweden. The county didn’t do as well in Spain, the Netherlands, France and the UK. Globeflex hasn’t invested in South Korea because the firm isn’t happy with the financial data on most of the companies as of yet. Globeflex will prepare to invest in South Korea over the course of the next six to nine months. Mr. Anslow said the vast majority of Globeflex’s outperformance comes from stock selection rather than sector selection. The best success has been in basic materials. The firm has had some trouble in consumer discretionary, telecommunications and consumer staples. Fifty-five percent of the fund is invested in large-cap companies (firms with more than $15 billion in market capitalization). Mr. Anslow said the county’s return on equity would always be higher than the benchmark, as a reflection of Globeflex’s process and the high-quality firms in the portfolio. New England Pension Consultants For the fund period ending September 30, 2007, the financial composite is 4.1 percent for the month and 10.9 percent year to date. The S&P 500 has year-to-date returns of 9.1 percent, and the bond market had a performance of 3.8 percent. Mr. Humphreys pointed out that the county got its results through global diversification and substantially less risk. Mr. Humphreys also reported that year to date (January to September); the county’s entire active management complement beat their benchmarks. The investment performance report also shows that the county rebalanced funds from value managers to growth managers at just the right time. In emerging markets equity, Marvin & Palmer is ahead of its benchmarks after five years of underperformance. On the fixed income side, fund managers at Penn Capital underperformed their benchmarks because they were overweight in mortgages. Western Asset also has a slight overweighting in high-yield emerging market debt. The county still has $10 million in a soon-to-be terminated portfolio with W.R. Huff. The county already has shifted nearly $60 million out of Huff and into Penn Capital. Action: The Investment Committee will meet November 1. Mr. Hammond reported that an ING relationship manager will be leaving the firm after 26 years, so the county will have a new client representative. Mr. Hammond also discussed the county’s issues with Prudential. The county had annuities for retired police and firefighters through Cigna. Cigna sold the business to Prudential in early 2006. Prudential believes the annuities the county had for police officers and firefighters were annuities just on the lives of the employees and didn’t cover spouses. Prudential has informed the board that it will cease making payments to about 23 surviving spouses on the first of November. The board has been working with the Office of Law to resolve the matter. Mr. Hammond said that a conference call with the company had been in the works but officials from Prudential didn’t want to talk. The board is contemplating a temporary restraining order to preclude Prudential from stopping those payments. The county will make sure beneficiaries don’t suffer. Mr. Hammond said that if Prudential stops making payments, the county will make the payments through the pension fund until the matter is sorted out. Administrative Report Ms. Lohn said the county had 20 retirements in September and 21 in October as of October 11. She also reported that 44 people attended the retirement seminars in September. The classes were completely booked for October. Mr. Marzucco wanted to know when employees must announce their retirement plans to their department managers. Ms. Lohn said employees would notify managers after they sign documents. Employees must sign documents by the 15th of the month to retire by the first of the next month. The board had a discussion on how to access employees’ corporate knowledge before they retire. Ms. Lohn does not yet have a commitment on when the experience study will be completed. The study could possibly take place in December or January. Mr. William Brown said two of Aetna’s processing fees would increase by 2 percent. Also, in response his request last month for a new employee to assist Janet Morgan, Mr. Brown said some responsibilities will be shifted around to determine if the work can be completed. Personnel analyst Tina Johnson reported that the October meeting would be her last board meeting because she is leaving to earn a doctoral degree. The meeting adjourned at 2:05 p.m. | 
