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FRESNO COUNTY BOARD OF RETIREMENT

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It is PIMCO's expectation to outperform LIBOR by approximately 300 basis points over an entire market cycle. In response to PIMCO's presentation

    BOARD OF RETIREMENT

    FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

    February 4, 2009

Trustees Present:

     Alan Cade, Jr. Michael Cardenas

     Nick Cornacchia Vicki Crow

     Eulalio Gomez James Hackett

     Steve Jolly Phil Larson

     John Souza

Others Present:

     Ronald S. Frye, Alternate Trustee

     Michael Cunningham, FCERA Member

     Roger Greening, FCERA Member

     Jeffrey MacLean, Wurts & Associates

     Kyle Theodore, Pacific Investment Management Company

     Lisa Kim, Pacific Investment Management Company

     Ryan Korinke, Pacific Investment Management Company

     Curtis Arledge, BlackRock, Inc.

     Dan McLaughlin, BlackRock, Inc.

     Matt Eagan, Loomis Sayles & Company, LP

     Laurie Deaton, Loomis Sayles & Company, LP

     Kent Wosepka, Standish Mellon Asset Management Company

     Daniel Richter, Standish Mellon Asset Management Company

     Conor Hinds, Supervising Accountant

     Susan Coberly, Senior Deputy County Counsel

     Roberto L. Peña, Retirement Administrator

     Becky Van Wyk, Assistant Retirement Administrator

     Elizabeth Avalos, Administrative Secretary

1. Call to Order

    Chair Cade called the meeting to order at 8:38 AM.

2. Pledge of Allegiance

    Recited.

3. Public Presentations

    Michael Cunningham, FCERA Member, requested that Administration provide agenda backup

    material [investment items related to the selection of an investment manager] to the public

    either by overhead projection or hardcopy when it is not made available to the public prior to

    the meeting.

02/04/09 Regular Meeting Minutes

    2

    Roberto L. Peña, Retirement Administrator, noted that, when appropriate, agenda backup

    information is available on the FCERA website and in the future Administration will provide

    backup material either by overhead projection or hardcopy to the public as needed.

     Trustees Crow and Jolly joined the Board at 8:41 AM.

Consent Agenda/Opportunity for Public Comment

     Consent Agenda Items 4, 13, 14, 15, and 16 were pulled for discussion.

    A motion was made by Trustee Souza, seconded by Trustee Larson, to Approve

    Consent Agenda Items 5-12 and 17. VOTE: Unanimous

    *4. Approve the January 21, 2009 Retirement Board Regular Meeting Minutes and the

    January 28, 2009 Special Meeting Minutes

     Trustee Hackett requested that the January 21, 2009 Regular Board Meeting minutes reflect

    his opposition to the Board direction regarding Item 17 [Tier III discussion]. Administration

    agreed.

    A motion was made by Trustee Crow, seconded by Trustee Souza, to Approve the

    January 21, 2009 Regular Meeting minutes with the noted correction. VOTE: Unanimous

    RECEIVED AND FILED; APPROVED

*5. Retirements

    RECEIVED AND FILED; APPROVED

    Glenda Allen-Hill Superior Court, Deferred 21.42

    Deborah Anderson District Attorney 18.38

    Dan D. Boria General Services 12.53

    Marc Boswell Community Health, Deferred 6.16

    Geraldine Brown ACTTC 17.41

    Charles Thomas Charnock Probation 32.01

    Elva N. Christensen Superior Court 19.79

    B. Susan Cogdill Behavioral Health 9.37

    Kathryn Cordero Child Support Services 24.13

    Sheila M. Gallardo E&TA 17.59

    Robert M. Guerra E&TA 23.69

    Deborah A. Hansen Children & Family Svs, Deferred 9.76

    Lynn Hedrick Sheriff 12.57

    Joyce Hemphill Administrative Office, Deferred 14.34

    Jeff L. Hollis Sheriff 32.59

    Charles Janiel, Jr. Public Works & Planning 16.57

    Lilly Jimenez Community Health 11.27

    Sandra D. Knudson Community Health 10.01

    Randolph W. La Joie ACTTC, Deferred 26.48

    Jose Leon-Barraza Administrative Office 33.71

    02/04/09 Regular Meeting Minutes

    3

    Susan S. Macdonald Sheriff 31.16

    Delia Martinez Children & Family Svs 28.91

    Carol E. Mayfield E&TA, Deferred 17.46

    James R. Oppliger District Attorney, Deferred 27.08

    Charles K. Palmer E&TA 24.56

    David L. Parker NCFPD, Deferred 7.84

    Sandra Pellanda County Counsel 19.41

    Cathi J. Peters General Services 28.27

    Robert R. Reed, II Sheriff, Deferred 14.28

    Curtis Replogle VMC, Deferred 15.13

    Janice A. Robinson Sheriff 20.72

    B. Elizabeth Rojas Superior Court, Deferred 12.66

    Mary H. Shepherd Sheriff 20.39

    David C. Stone Sheriff, Deferred 14.96

    Pat Strombeck General Services, Deferred 6.73

    Yok Tea E&TA, Deferred 3.83

    Lydia Verdugo Public Defender 22.41

    Bob Waterston Board of Supervisors 7.92

    Linda Jean Wright Sheriff 35.84

     *6. Disability Retirement

     RECEIVED AND FILED; APPROVED

    Maria McClure Behavioral Health 10.86

*7. Request to Rescind Deferred Retirement

     RECEIVED AND FILED; APPROVED

    Raymond Rodriquez Behavioral Health 6.91

*8. Public Records Requests and/or Retirement Related Correspondence from Ken Mandler,

    Public Pay Institute; Mary Frances Johnson, FCERA Member; Sandra Brock, FCERA

    Member; Dennis and Connie Plann, FCERA Members; Donald Nelson, FCERA Member;

    Irina Solomonik, Thomas Reuters; and Gilbert Sacks, FCERA Member

    RECEIVED AND FILED

    *9. Update of Board of Retirement directives to FCERA Administration

    RECEIVED AND FILED

*10. Most recent investment returns, performance summaries and general investment

    information from investment managers

    RECEIVED AND FILED

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    *11. Fresno Station Business Center Financial Update for the period ending December 31,

    2008

    RECEIVED AND FILED

*12. Annual Report of Trustee Due Diligence Activities for calendar year 2008

    RECEIVED AND FILED

*13. Annual Report of Trustee Educational Activities for the calendar year 2008

     Chair Cade noted that his participation in the SACRS 2008 Fall Conference had been omitted

    from the Trustee Educational Activities report and requested that it be updated to reflect his

    participation. Administration agreed.

     A motion was made by Trustee Souza, seconded by Trustee Jolly, to Approve Consent

    Agenda Item 13 with noted corrections. VOTE: Unanimous

    RECEIVED AND FILED

    *14. Initiative Constitutional Amendment regarding Renegotiation of Public Employee

    Pension Contracts

     Trustee Gomez stated that the Renegotiation of Public Employee Pension Contracts initiative

    is an attempt to reform public employee pension contracts and inquired if Administration had

    made the document available to the membership.

     Roberto L. Peña, Retirement Administrator, noted that the document is available on the

    FCERA website in that it is part of the Agenda material.

     Roger Greening, FCERA Member, inquired as to why the item appears on the Agenda and

    requested that any future information on whether the Board will support or oppose the initiative

    be agendized for discussion.

     Mr. Peña noted that the initiative appears on the Agenda for informational purposes only.

     General discussions, questions, and comments ensued. Trustee Crow stated that the initiative

    is on the State Association of County Retirement System’s (SACRS) “radar” and is being

    discussed by the legislative committee and noted that SACRS has not taken a position on the

    issue.

     Trustee Jolly stated that, as a policy, the Board has not gotten involved in “shaping” legislation

    in that the role of the Board is only to administer benefits as outlined in the law.

     A motion was made by Trustee Souza, seconded by Trustee Crow, to Accept Consent

    Agenda Item 14 as presented. VOTE: Unanimous

    RECEIVED AND FILED

    02/04/09 Regular Meeting Minutes

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    *15. Letters of apology to the Board of Retirement and FCERA Retired Members from State

    Street advising that the 1099-R Form contained an error and corrected versions have

    been distributed

     Roberto L. Peña, Retirement Administrator, informed the Board that State Street Retiree

    Services recently mailed incorrect Form 1099-R to FCERA retirees retiring before January 1,

    2003. The forms did not properly indicate that the taxable amount was not determined. Mr.

    Peña briefly explained the cause of the error.

     It was noted that State Street issued letters of apology to the retirees and the Board that

    explained the error. Corrected forms were mailed the week of February 1, 2009.

     In response to a question from Roger Greening, FCERA Member, regarding the impact this

    error will have on member’s returns, Conor Hinds, Supervising Accountant, stated that the tax

    implications on individual members who have filed tax returns is not known. It was noted that

    members are being advised to seek the advice of a tax professional.

     Michael Cunningham, FCERA Member, reminded the Board that the same error occurred in

    the previous year and noted that he had to file an amendment [amended return] with the IRS

    and incurred additional costs associated with the filing the amendment.

     Mr. Peña apologized to the Retirees and the Board for the mishap.

    A motion was made by Trustee Crow, seconded by Trustee Gomez, to Accept Consent

    Agenda Item 15 as presented. VOTE: Unanimous (Absent Larson)

    RECEIVED AND FILED

    *16. State Street client communication and financial/investment related information from

    news sources

     Roberto L. Peña, Retirement Administrator, opened discussions by informing the Board that

    Administration has received client communications from State Street and recent news articles

    regarding State Street’s financial condition. Mr. Peña noted that the information does not

    indicate that State Street is in a dire situation but does reflect a decline in stock prices created

    by the current market crisis.

     Jeffrey MacLean, Wurts & Associates, briefly explained the State Street relationship with

    FCERA and noted that State Street also provides custody services to FCERA in addition to

    managing FCERA’s Index Funds.

     Mr. MacLean stated that State Street appears to be financially sound but is experiencing a

    decline in stock price due to the current market environment. Despite the challenges of the

    current market environment, State Street had a record year in terms of revenue and EPS

    growth and the outlook for 2009 is for a continuation of profitability. General discussions

    ensued regarding the current market condition as it relates to the government bailout.

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     Mr. MacLean noted that the most prudent course of action is to not make any changes in regards to State Street at this time in that the asset quality of investment portfolio remains strong.

     At the request of Trustee Jolly, Mr. MacLean described how the different assets would be impacted in the unlikely event State Street were to file bankruptcy. Mr. MacLean stated that FCERA would be impacted to some extent but the assets held in custody and managed by State Street are not subject to creditors in the event of bankruptcy.

     A motion was made by Trustee Crow, seconded by Trustee Souza, to Accept Consent Agenda Item 16 as presented. VOTE: Unanimous

RECEIVED AND FILED

    *17. Approve the Annual Consumer Price Index (CPI) for the Cost of Living Adjustment (COLA) as of April 1, 2009 (G.C. ?31870.1) rounded to 3.5% by the Segal Company, granting 3% cost of living to all members retired prior to April 2, 2009 with a carry over of .5% of the cost of living adjustment

RECEIVED AND FILED; APPROVED

    18. Discussion and appropriate action on selection of investment management firms for the Opportunistic Fixed Income Search

    Jeffrey MacLean, Wurts & Associates, opened discussions by reminding the Board of its January 7, 2009 decision to interview four managers for the Opportunistic Fixed Income mandate with an objective of hiring two of the four candidates. Mr. MacLean noted that the four candidates have gone through an extensive vetting process and all are qualified for this assignment.

    Mr. MacLean briefly reviewed the current Opportunistic Fixed Income market environment as it relates to risk and noted that it is a strategy used to boost the overall rate of return in the fixed income portfolio.

    In response to a question from Trustee Cornacchia regarding how future interest rate increases might affect the Opportunistic Fixed Income strategy, Mr. MacLean noted that, should interest rates increase, the price of fixed income instruments will decrease. However, the prospect of higher interest rates over the next 12 to 18 months is not likely. General discussions ensued regarding inflation/deflation as it relates to the movement of interest rates.

Pacific Investment Management Company (PIMCO)

Kyle Theodore, PIMCO, began the presentation with an overview of PIMCO’s value added

    proposition which included investment performance, service, and client service innovation. Mr. Theodore briefly reviewed PIMCO’s expertise and secular investment processes and noted that PIMCO’s size provides unique benefits such as greater access to information and

    implementation efficiencies.

    Lisa Kim, PIMCO, reviewed the proposed Unconstrained Bond strategy which is designed to provide higher alpha or risk-adjusted return over the long-term due to the lack of benchmark oriented restrictions and tracking error targets and greater active manager discretion.

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    The Unconstrained Bond strategy is an absolute return-oriented, investment grade quality, fixed-income strategy that is unconstrained by a benchmark or significant sector/instrument limitations which allows for significant discretion to actively adjust duration exposure, allocate across sectors, and otherwise express PIMCO’s views regarding both attractive value and downside risk in the global fixed income markets.

    In response to a question from Trustee Jolly regarding potential high yield exposure, Ms. Kim stated that PIMCO has broad investment guidelines to provide direction as to where a high yield strategy might fit the Plan’s asset allocation. The limits on high yield exposure are

    designed with the goal that the overall quality of the portfolio will always be investment grade, the capital loss potential will be limited, and the strategy is not likely to exhibit a high correlation with the equity market. Discussions ensued regarding the guidelines and processes for gaining exposure to high yield such as cash bonds and synthetic derivative instruments.

    Ms. Kim noted that the Unconstrained Bond strategy is guided by the same process that has enabled PIMCO to consistently perform in the Bond Market for over 30 years. As of December 31, 2008 the PIMCO total return Full Opportunity composite has outperformed the Barclays Capital Aggregate Bond Index in 120 out of 121 rolling three-year periods.

Ryan Korinke, PIMCO, stated that PIMCO’s Global Integrated investment process supports the

    ability to indentify new opportunities and helps to avoid downside risk with an extensive opportunity set that includes both top-down and bottom-up strategies. Top down strategies incorporate the firm’s core “macro” positions on duration, country selection, curve selection,

    curve positioning, currency, and sector spreads while bottom up strategies draw on the expertise of PIMCO’s specialist teams in an effort to take advantage of structural inefficiencies, market mispricing, and cross-country or cross-sector spread movements across all sectors.

    Mr. Korinke reviewed PIMCO’s Unconstrained Bond strategy and noted that the nature of this strategy allows for significant active manager discretion to allocate to the areas of the global fixed income marketplace that are most attractive, reduce or eliminate exposures that pose heightened downside risk, and tactically express a wide variety of relative value positions.

In response to a question from Trustee Crow regarding PIMCO’s fee structure, Mr. Theodore

    offered two fee options: 1) fixed fee of 60 basis points and 2) performance fee with a base fee of 20 basis points plus 15% of outperformance above LIBOR. It is PIMCO’s expectation to

    outperform LIBOR by approximately 300 basis points over an entire market cycle.

    In response to PIMCO’s presentation, Mr. MacLean noted that PIMCO’s outlook is significantly conservative in that in an unconstrained portfolio, PIMCO is allowed to pursue their best ideas, but are just not taking credit risks at this time.

    In response to a question from Roberto L. Peña, Retirement Administrator, regarding the Plan’s return expectations compared with PIMCO’s return expectations, Mr. MacLean noted,

    that overall, each has the same return expectations.

    02/04/09 Regular Meeting Minutes

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BlackRock, Inc.

Dan McLaughlin, BlackRock, began the presentation with an overview of BlackRock’s Fixed

    Income Global Opportunities Fund and noted that it is designed to address the needs of investors seeking absolute returns over a market cycle from their traditional fixed income investments. The strategy was launched on July 1, 2004 and has attracted $1.1 billion from a wide variety of institutional investors and seeks to achieve its objective by actively allocating capital among the best opportunities in the global fixed income markets with no leverage and no net shorting of securities.

    Curtis Arledge, Managing Director, stated that BlackRock uses multiple strategies to add value and its diversified exposures are designed to deliver consistent outperformance using traditional strategies in measured ways and focusing on exploiting relative value strategies. Value is added primarily through sector and sub-sector rotation and security selection. BlackRock’s relative value approach encompasses a broad range of sub-sectors and all

    securities are evaluated within the risk management framework.

    Mr. Arledge reviewed the Fixed Income portfolio management team and noted that research analysts are embedded within the investment team. BlackRock’s global research database allows analysts to share, store, and access information and insights across asset classes and locations. In addition, BlackRock’s risk monitor enables portfolio managers to view issuer

    exposure across portfolios on a real-time basis. Mortgage prepayment modeling provides option-based valuations and scenario analysis across a wide variety of mortgage types.

    Mr. Arledge stated that BlackRock is a leader in risk management and noted that because recent events have increased investor awareness and sensitivity to risk, BlackRock focuses on providing consistent, risk-adjusted returns in all market environments.

    The current market outlook and strategy were reviewed and it was noted that record low consumer confidence levels coupled with rising unemployment data have highlighted concerns over the global economic slowdown. In addition, credit sectors have suffered from strained funding markets and ongoing deleveraging pressures. It was noted that global governments addressed the rapidly deteriorating economic fundamentals with coordinated interest rate cuts and capital injections into banks.

     Discussions ensued regarding the proposed performance based fee structure and it was noted that the base fee is similar to the fee that is paid in the existing Core Plus assignment but also includes a performance component of a 20% performance hurdle of 3-month LIBOR plus 225 basis points. In addition, Mr. McLaughlin noted that BlackRock could provide a “relationship”

    discount of approximately 5% on the existing assignment.

     At the request of Roberto L. Peña, Retirement Administrator, Mr. McLaughlin clarified the differences between the existing Core Plus mandate and the proposed opportunistic fixed income mandate by noting that the existing mandate is tied to a benchmark versus the proposed strategy not being tied to an index and having no restrictions on the maturity of securities that can be bought.

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     In response to BlackRock’s presentation, Mr. MacLean noted that unlike PIMCO, BlackRock’s outlook consists of significantly more risk and double digit returns given the types of risk adjusted yields. Mr. MacLean raised concerns that the incentive part of the fee structure is particularly attractive for BlackRock and not the Plan in that the LIBOR may not be the appropriate benchmark. General discussions ensued regarding BlackRock’s fee structure and

    whether the fees are negotiable. Mr. MacLean noted that because the Plan currently employs BlackRock, the proposed fee structure may be negotiable.

Loomis Sayles & Company (Loomis)

    Laurie Deaton, Loomis, began the presentation with an overview of the firm’s experience and resources and noted that Loomis has established one of the richest investment management traditions in the industry serving institutional investors for 80 years with $106 billion in assets under management. Loomis offers a broad and comprehensive range of domestic and global fixed income and equity products. As of December 31, 2008, Loomis has $95 billion in fixed income assets under management.

    Ms. Deaton reviewed the Fixed Income portfolio management team and noted that research is the cornerstone of their business which supports Loomis’ strength and security selection. It was noted that Loomis has dedicated $50 million to its 2009 research budget.

    Matt Eagan, Loomis, gave a brief overview of the investment product overview noting the objective of maximizing absolute return while managing downside risk. The drivers of return include yield advantage and the compounding of that yield advantage, capital appreciation form bottom-up selection of undervalued securities, and opportunistic allocations to emerging markets, non-US dollars, convertibles, and high yield.

    Mr. Eagan stated that the Multisector Full Discretion investment process is a practical approach to quantitative research and risk management with research complementing the investment process. The types of research include risk management & attribution, relative value, and portfolio construction.

    Mr. Eagen reviewed the Multisector Full Discretion composite characteristics compared to the Barclays Government Credit Index as of December 31, 2008 and noted that the composite reflects the opportunity that is available in this style of investing. Mr. Eagan noted that this style requires extending risk in order to pick up greater absolute return over time.

    In response to a question from Trustee Souza regarding Loomis’ fee structure, Ms. Deaton offered two fee options: 1) fixed fee with a possible “relationship” discount in the Core Plus

    portfolio and 2) performance fee with a base fee (yet to be determined) plus 250 basis points performance above Lehman Government Credit. Mr. MacLean noted that the proposed fee structure may be negotiable.

In response to Loomis’ presentation, Mr. MacLean stated that Mr. Eagan has done the best job,

    thus far, in explaining “illiquidity premiums” as they relate to the Plan’s thesis in terms of this

    long-term investment. It was noted that Loomis’ outlook consists of significant exposure to risk

    with double digit returns.

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    Standish Mellon Asset Management Company (Standish)

    Daniel Richter, Standish, began the presentation with a brief overview of the firm and noted

    that it was founded in 1933 and is dedicated exclusively to fixed income portfolio management

    with $186 billion in assets under management.

    Mr. Richter reviewed Standish’s active fixed income strategies which include single sector,

    multi-sector total return and absolute return. It was noted that, as part of the firm’s philosophy,

    the search for value drives the investment process in that value is realized most often when

    supported by both fundamental and technical factors and identifying best ideas.

    Kent Wosepka, Standish, reviewed the proposed strategy parameters noting that the

    opportunistic total return strategy is focused on rotation between high yield, investment grade

    credit, emerging markets, mortgages, and non-US bond sectors. Other sectors including

    municipal bonds, structured products, and TIPS are utilized to a lesser degree.

    Mr. Wosepka stated that Standish devotes significant resources to all sectors of the global

    bond markets yet remains sufficiently medium-sized that security selection decisions contribute

    positively to returns. In addition, sector allocation is enhanced by proprietary quantitative

    models that are continuously tested, updated, and improved.

     Detailed discussions ensued regarding the proposed fee structure of 50 basis points on a co-

    mingled account or separate fund. It was noted that, in the event Standish is chosen for this

    mandate, the proposed fee structure may be negotiable.

     In response to Standish’s presentation, Mr. MacLean noted the Standish’s outlook is

    somewhat neutral compared to the other presenters but is more in line with Loomis as a true

    Global Opportunistic Fixed Income manager.

     Detailed discussions ensued regarding the prior and current performance and the various

    strategies of each firm. Trustees Jolly and Crow and Chair Cade spoke in favor of the Loomis

    and Standish strategies in that they are more in line with FCERA’s goals.

     A motion was made by Trustee Jolly, seconded by Trustee Crow, to Authorize Wurts &

    Associates to enter into discussions with Loomis and Standish regarding the proposed

    strategies and fee structures and to report the outcome of the discussions to the Board

    at a later meeting.

     Detailed discussions ensued regarding the Barclays index/benchmark versus the LIBOR in

    that Mr. Peña raised concerns that, in the event the Barclays index has a negative return,

    managers could potentially earn performance fees based on a negative return by

    outperforming a negative benchmark.

     The motion was restated as follows:

     A motion was made by Trustee Jolly, seconded by Trustee Crow, to Authorize

    Administration and Wurts & Associates to begin negotiations and enter into

    discussions with Loomis and Standish regarding the proposed strategies and fee

    structures and to report the outcome of the discussions to the Board at a later meeting.

    02/04/09 Regular Meeting Minutes

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