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ATTENDEES: Ms. Lauren CosentinoMs. Michelle del GuidiceMr. Michael FeltnerMr. Paul LasiterMr. Jack McManusMr. Grant NelsonMr. Jeff PippinMs. Edna PowellGUESTS:Mr. Gary Hanson – Executive Vice President, Pepperdine UniversityMr. Chris Rowey – Benefit Funding Services GroupMs. Tina Schackman – Benefit Funding Services GroupOpening: The regularly scheduled meeting of the Pepperdine University Retirement Plan Committee commenced on March 23, 2011 at 8:30 am in Malibu, California. All Committee members were in attendance; therefore, it was noted a quorum was present.Approval of prior meeting minutes: The Committee reviewed the minutes from the meeting held on December 10, 2010 and unanimously approved them as written. FIDUCIARY AGENDA4th Quarter 2010 Investment Review: Mr. Rowey opened a discussion involving the Guaranteed Pooled Fund explaining the crediting rate for 2011 has been decreased from 3.5% to 1.8%. The primary factor for this rate decline is the defensive positioning of the investment manager, Galliard, to a shorter duration and emphasis on higher quality fixed income securities, such as Treasuries. The Committee agreed not to take any action at this time since many other pooled funds have also had to lower their crediting rates due to the low yields on the short end of the yield curve, but would like to review more details about the underlying investments and credit structure at the next meeting. BFSG will provide a fact sheet for the Committee’s review at the next meeting. Mr. Rowey provided a brief overview of the macroeconomic factors affecting the performance of the investment options in the Plans by outlining economic growth as measured by GDP, employment, inflation, interest rates and market sector returns during the fourth quarter. The Committee reviewed the relative performance of the investment options offered in the Diversified plan as of December 31, 2010, as well as updated performance through March 21, 2011 over the quarter, 1, 3, 5 and 10 year annualized periods. Mr. Rowey provided further qualitative details on the following funds:PIMCO Total Return – The fund’s mandate will be changing in 2Q11 to allow up to 10% of the portfolio to be invested in equity-linked securities, such as convertible bonds and preferred stock. It was also mentioned that the fund sold all of its U.S. government bond positions from the portfolio as of 2/28/2011 due to the portfolio manager’s (Bill Gross) belief that Treasuries are not rewarding investors for the risk of higher interest rates when the Fed discontinues their purchase program in June. MainStay High Yield Corporate Bond – This fund buys higher quality corporates than the average high yield bond fund but the Committee reiterated their stance that they would rather sacrifice yield for a lower risk profile in this category; however, it was agreed to keep the fund on the Watch List due to its below average performance on a 3 and 5 year annualized basis. Eaton Vance Large Cap Value – This fund was placed on the Watch List in the third quarter of 2010 due to below average performance on a 3 year annualized basis. BFSG prepared a fund search analysis to compare this fund against other large cap value funds which will be reviewed later in the meeting.Davis NY Venture – The fund’s 3 and 5 year annualized returns are still lagging the large cap blend peer group primarily due to its overweight to financials and nearly 20% in foreign securities. The fund has a buy and hold approach with low turnover so it may take a while longer for this fund to return to more normalized returns. Munder Mid Cap Core Growth – This fund was placed on the Watch List in the first quarter of 2010 due to below average performance on a 3 and 5 year annualized basis. BFSG prepared a fund search analysis to compare this fund against other mid cap growth funds which will be reviewed later in the meeting.Royce Value Plus – The fund has below average performance on a 3 and 5 year basis, but the fund will have a 10-year return at the end of the June which is tracking to be in the top quartile. The Committee had previously requested to look at alternative funds in this category which will be reviewed later in the meeting. Global/Foreign funds – The Committee discussed the Japanese exposure of each global and foreign equity fund and it was noted all funds have allocations to Japan that are below their respective benchmarks. Van Eck Global Hard Assets – This fund was placed on the Watch List in third quarter of 2010 because of a manager transition due to the death of the lead manager in September 2010. The fund continues to outperform its benchmarks but the Committee agreed to keep the fund on watch for at least another quarter.Performance of the Portfolio Xpress and T. Rowe Price target date funds were compared against each other and their respective peer group. It was noted the Portfolio Xpress models continue to outperform the target date funds on a 3 and 5 year annualized basis.Evaluation methodology scores were reviewed for the investment options offered in the Diversified plan. Out of the 26 options that earn a score, 23 received an “Outperform” score and 3 received a “Perform” score. The Plan-weighted score ranked in the top 13th percentile compared to the 10th percentile last quarter. The participants in the Diversified plan have allocated their accounts in a 65% equity/35% fixed income and cash allocation which is indicative of a moderate growth profile. The Plan-weighted expense ratio of 60 bps remains below the category average of 93 bps. The Diversified plan assets grew from $117 million to over $148 million over the past 12 months. Mr. Lasiter requested to show the net transfer between investment options to gain a better idea of how participants are moving their monies among the various investment options. The Committee also requested to include the total number of participant balances in each plan so they can track it quarterly. BFSG will include this additional data in future reports. The Committee reviewed the investment options in the TIAA-CREF plan noting almost 52% of the assets are invested in the traditional annuity and another 25% in the Stock Fund with small allocations to the other options. Mr. Rowey informed the Committee that TIAA-CREF is currently undergoing a re-pricing of many of their plans because the low cost fund line-up in many of their plans does not generate sufficient revenue to administer those plans where they are providing additional compliance services. Mr. Rowey further stated that since Pepperdine has frozen this plan and does require additional services from TIAA-CREF it is not likely they will re-price the plan. Assets in the TIAA-CREF plan have fallen slightly to $144 million. The Plan-weighted score using BFSG’s evaluation methodology ranks in the 20th percentile due to the options low expenses and style consistency. The Prudential plan, which has the smallest participation with only $3 million in assets, has a similar allocation to the TIAA-CREF plan. The participants have allocated the bulk of their assets (60%) to the Guaranteed Interest Account and 24% in the large cap growth options with the remaining allocation spread among the other options. The Plan-weighted score using BFSG’s evaluation methodology ranks in the 43rd percentile. Fund Search Analysis: BFSG prepared a fund search for two additional asset classes (Multisector Bond and Global Bond) and alternate options for the Large Cap Value, Mid Cap Growth and Small Cap Growth categories. In the Multisector Bond category, the Committee analyzed Fidelity Strategic Income, Loomis Sayles Bond and Pioneer Strategic Bond. Relative performance, risk characteristics, expenses, portfolio composition, investment strategy and management structure were reviewed for each option. The Committee expressed concerns about the riskier nature of the asset class compared to existing options in the Plan and whether participants would understand those risks. The Plan already has a total return and a high yield bond fund; therefore, the Committee agreed not to add an option from this category at this time, but would like to review the options again next quarter. The Committee analyzed the following options in the Global Bond category: Oppenheimer International Bond, Templeton Global Bond and T. Rowe Price International Bond. The same portfolio characteristics were reviewed as listed above and it was determined this was a less risky category which isn’t represented in the current fund line-up. The Templeton Global Bond fund was preferred to the other options because of its preferable risk/reward profile and its history of generating consistent above average returns over 1, 3, 5 and 10 year annualized periods. After careful consideration of all three options, Mr. Feltner motioned to add the Templeton Global Bond fund to the Plan as a new offering. Mr. McManus seconded the motion and the motion was unanimously passed. BFSG will notify Diversified of the Committee’s decision to add the Templeton Global Bond Adv fund and request a draft of the participant notice. Alternate options were reviewed in the Large Cap Value category due to the underperformance of the Eaton Vance Large Cap Value fund. The Committee analyzed the aforementioned portfolio characteristics of the following options: American Century Equity Income, MFS Value and T. Rowe Price Equity Income, in addition the Plan’s existing option in this category, BlackRock Equity Dividend. Several options were discussed in replacing the Eaton Vance fund which included mapping it into a similar fund, mapping it into the BlackRock fund or freezing it to new contributions. Several Committee members were interested in adding the American Century Equity Income due to its low risk profile and unique strategy of employing convertibles to generate yield in the portfolio. Mr. Rowey commented that the strategy of the American Century fund was very similar to BlackRock and may not be a good complementary fund. The Committee discussed the performance characteristics of the Eaton Vance fund and agreed that it needs to be removed from the Plan. Mr. Nelson motioned to map the Eaton Vance Large Cap Value fund to the BlackRock Equity Income fund and not add another large cap value fund at this time. Mr. McManus seconded the motion and the motion was unanimously passed. BFSG will provide instructions to Diversified to include this fund change in the participant notice and include language that addresses the change to the Portfolio Xpress models. Additionally, BFSG will ask Diversified to inform Pepperdine if there will be an impact to the Plan’s pricing since the revenue sharing is lower on the BlackRock fund. The Mid Cap Growth and Small Cap Growth categories will be reviewed at the next meeting in the interest of time. Adjournment: With no other items to discuss, the meeting was adjourned at 10:45 am. ................
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