Strength. Stability. Security. THE RSA: 20 Years on Water Street, NY The Boards of Control and the Retirement Sys- prior to “Sandy.” There is no debt on the building tems of Alabama (RSA) staff are pleased to present and it is currently 93.3% leased. 55 Water Street is the 37th Annual Report for the fiscal year ended the second largest privately-owned office building September 30, 2013. in America. The RSA currently manages 23 funds with aggre- Renovation continues on the historic Van Ant- gate assets of approximately $35.1 billion. For fiscal werp Building in Mobile, which the RSA purchased year 2013, the Teachers’ Retirement System (TRS) as- early in the fiscal year. This building is ten stories sets totaled $20.7 billion, the Employees’ Retirement high and over 58,000 square feet. BBVA Compass System (ERS) assets totaled $10.0 billion, and the Ju- will relocate its Mobile headquarters to the 105-year- dicial Retirement Fund (JRF) assets totaled $255 mil- old building in mid-2014, occupying three floors. The lion. The annualized return was 14.93% for the TRS, Van Antwerp Building is one of Mobile’s oldest struc- 14.60% for the ERS and 14.05% for the JRF. tures and joins RSA’s stable of Port City hold- Market performance during fiscal ings that include the RSA Battle House year 2013 was fairly stable, with Tower, the RSA Trustmark Building, equity markets performing well the Renaissance Mobile River- over the course of the year; do- view Plaza Hotel and The Battle mestic and international equi- House Renaissance Mobile ties returned over 21% during Hotel & Spa. this time period. Fixed in- Lastly, several of the come markets did not experi- RSA’s properties were hon- ence the significant gains of ored again this year by earn- the past three years as inter- ing national recognition for est rates were somewhat vola- guest satisfaction. Marriott tile. Returns within this sector International, Travel + Leisure were essentially flat for the fiscal magazine and U.S News & World year. Markets have continued to be Report all ranked several of the RSA somewhat reactionary around mac- hotels and resorts at or near the top of roeconomic events as they have been the the list in their respective annual surveys. last few years, but we continue to see fundamentals The staff will continue to purchase and develop influencing performance as well as the improvement investments that will facilitate the mission of the of company earnings and balance sheets. RSA. Our aim is to serve the interests of our mem- Last fiscal year, the Robert Trent Jones Golf bers by preserving the excellent benefits and sound- Trail celebrated its 20th anniversary. Now, this ness of the Systems while providing these at the least year, 55 Water Street, New York City’s largest office expense to the state of Alabama and all Alabama tax- tower, will celebrate its 20th anniversary with the payers. With the continued cooperative efforts of the RSA. This anniversary is particularly meaningful as Boards of Control, the RSA staff, and the Legislature, the effects of Hurricane Sandy and the flooding that this goal will be achieved. ensued are still being felt throughout the area. The New York City staff worked tirelessly in the weeks after “Sandy” to get the building reopened. Since 1993, 55 Water Street has been one of the RSA’s strongest performing assets. This investment David G. Bronner is currently valued at $1.4 billion and generated CHIEF EXECUTIVE OFFICER roughly $70 million in net profit during 2012 alone, David G. Bronner and the Montgomery Performing Arts Centre © Fouts Commercial Photography Commercial © Fouts Arts Centre G.and the Montgomery Performing Bronner David THE RETIREMENT SYSTEMS OF ALABAMA | 20 Years on Water Street, New York, NY 2013 Annual Report | THE RETIREMENT SYSTEMS OF ALABAMA 1 Teachers’ and Employees’ Retirement System Boards of Control 4 RSA Staff 6 Legal | Legislation 7 2013 RSA Financial Highlights 8 2013 Year in Review | TRS | ERS | JRF | PEIRAF 10 THE RSA: 20 Years on Water Street, NY 2013 Annual Report RSA Investment Staff 14 The RSA: 20 Years on Water Street, NY 15 RSA Investments 32 2013 Financial Statements 38 RSA General Information 43 Table of Contents Table 55 Water Street, NEW YORK, NY 2 THE RETIREMENT SYSTEMS OF ALABAMA | 2013 Annual Report 2013 Annual Report | THE RETIREMENT SYSTEMS OF ALABAMA 3 2013 Year In Review The Retirement Systems of Alabama Boards of Control 2013 2013 Teachers’ Retirement System Board of Control Employees’ Retirement System Board of Control Left to right: Mr. Russell J. Twilley, SUPPORT PERSONNEL position / Mr. Luther P. Hallmark, SUPERINTENDENT position / VICE CHAIR: Dr. Susan Williams Brown, postsecondary position / Ms. Charlene McCoy, teacher position / Left to right: Hon. Young Boozer, state treasURER, EX OFFICIO / Mr. Stephen C. Walkley, active state employee position / Mr. Ben Powell, active local employee position / Mrs. Teresa Harbison Swindall, teacher position / Mrs. Susan Lockridge, SUpport personnel position / CHAIR: Mrs. Sarah S. Swindle, retired position / Mrs. Sallie B.Cook, retired position / Mr. John R. Whaley, teacher position / VICE CHAIR: Mrs. Jackie B. Graham, state personnel director, EX OFFICIO / Mr. Steven W. Williams, active local employee position / Mr. James H. Rowell, retired state employee position / Mr. Bill Newton, acting state FINANCE director, EX OFFICIO / Dr. Thomas R. Bice, state SUPERINTENDENT OF EDUcation, EX OFFICIO / Mr. C. Ray Hayes, HIGHER EDUCATION position / Dr. Victor Wilson, principal position* SERVE ON Ms. Wendy S. Hester, governor appointee / Mr. James Fibbe, retired local employee position / Mr. David Bollie, ACTIVE STATE EMPLOYEE POSITION / Mr. Christopher Blankenship, governor appointee / BOTH THE TRS & ERS Mr. Curtis E. Stewart, governor appointee / CHAIR: Hon. Robert Bentley, governor, EX OFFICIO *Mr. Robbie Owen assumed this position on July 23, 2013 BOARDS OF CONTROL RSA Boards of Control / MPAC © Fouts Commercial Photography 4 THE RETIREMENT SYSTEMS OF ALABAMA | 2013 Annual Report 2013 Annual Report | THE RETIREMENT SYSTEMS OF ALABAMA 5 2013 Year In Review The Retirement Systems of Alabama Staff, Advisors and Medical Board Legal and Legislation 55 Water Street, NEW YORK, NY LEGAL In fiscal year 2013, the RSA Legal Division addressed cost-cutting measures implemented in PEEHIP have resulted in issues involving pension law, fiduciary and trust law, tax law, litigation as vendors compete for health care dollars. health insurance law, litigation, securities law, contract law, The RSA legal staff also assisted the RSA’s real estate holdings construction law, commercial real estate law and employment and other investments. This assistance included providing law, among others. legal advice on general operational issues and on construction ADVISORS Litigation has been and continues to constitute a significant projects, including pursuing litigation when necessary. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS part of legal staff’s duties. The RSA legal staff worked with To provide the RSA with assistance in the foregoing areas, the Carr, Riggs and Ingram, llc and continues to work with the Attorney General’s Office RSA legal staff dedicated its time, effort, and resources to legal research, litigating in the Alabama courts, and contract review, INVESTMENT CONSULTANT and other state agencies’ legal counsel to defend the RSA’s Regions Bank N.A., interests in several cases involving challenges to legislative negotiations and drafting. The RSA legal staff stands ready to Mr. Brian Sullivan changes to the pension benefit plans. In addition, the RSA assist the RSA in meeting any new challenges that may arise for INVESTMENT CUSTODIAN legal staff successfully defended a variety of benefits and other public pensions and health insurance programs and to maintain state street bank and miscellaneous cases, some of which raised novel theories of and enhance the RSA’s service to its members. CHIEF EXECUTIVE OFFICER trust company recovery. On the affirmative side, the legal staff has pursued David G. Bronner, ph.d., j.d. TEACHERS’ RETIREMENT EXECUTIVE recoveries to the funds experienced as a result of the BP oil LEGISLATION The 2013 Regular Legislative Session began on Christopher P. Townes, m.b.a. CONSULTING ACTUARY Cavanaugh Macdonald spill. As in years past, the RSA also participated in securities February 5, 2013, and ended on May 20, 2013. The Legislature DEPUTY DIRECTOR EMPLOYEES’ & JUDICIAL RETIREMENT EXECUTIVE Consulting, llc, fraud litigation, which can result in considerable recoveries. passed the General Fund Budget (Act 2013-263) and the Donald L. Yancey, m.p.a., j.d. William F. Kelley, Jr., j.d. Mr. Edward A. Macdonald Another important area of practice for the RSA legal staff was Education Trust Fund Budget (Act 2013-264). ERS, TRS, and DIRECTOR OF PUBLIC EDUCATION EMPLOYEES’ ATTORNEY GENERAL addressing issues central to the administration of the Public PEEHIP were funded at the requested rates. HEALTH INSURANCE PLAN Hon. Luther Strange Education Employees’ Health Insurance Program (PEEHIP). Act 2013-239 (SB303) altered the membership of the TRS Donna M. Joyner, b.s., cpa ADMINISTRATIVE STAFF CHIEF EXAMINER The legal staff assisted in reviewing and implementing the Board of Control. The Act added two members to be filled INFORMATION TECHNOLOGY SERVICES Mr. Ronald L. Jones CHIEF INVESTMENT OFFICER Affordable Care Act and the administrative regulations issued from public four-year institutions of higher education and Michael T. Baker, b.s. R. Marc Green, m.b.a., cfa pursuant to that law. Legal staff was frequently called upon to substituted one of those positions for the ex officio position of MEMBER SERVICES CHIEF ACCOUNTANT AND FISCAL OFFICER MEDICAL BOARD interpret and advise on the implementation of Health Insurance Executive Secretary of the Alabama Education Association. In Penny K. Wilson, b.s. Diane E. Scott, b.s., cpa, cgma CHAIR Portability and Accountability Act (HIPAA) and Health addition, the Act amended the election procedures to provide COMMUNICATIONS GENERAL COUNSEL Glenn Yates, m.d.