CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER INTERDEPARTMENTAL CORRESPONDENCE

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1 CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER INTERDEPARTMENTAL CORRESPONDENCE Date: July 2, 2010 To:.. Retirement Board Members Fro~ Sangeeta Bhatia, Retirement Plan Manager Subject: Board Agenda Item NO.5: Discussion of Wells Capital Request to Further Extend. Investment Policy Exception Regarding Equity Exposure; and Possible Action (July 14, 2010, Regular Board Meeting) The Board of Administration (Board) of the Water and Power Employees' Retirement Plan (Plan) hired Wells Capital Management in November 2004 to manage a high yield fixed income mandate. The account was initially funded with $103 million and, as of May 31,2010, had a market value of $140.4 million. In August 2009, Wells Capital Management's Sutter High Yield team (Wells Cap HY) received 2,500 equity shares in Tropicana Las Vegas Hotel and Casino, Inc. (Tropicana), as part of a bankruptcy restructuring that converted portions of the company's debt to equity. On January 6, 2010, Wells Cap HY formally requested an extension to hold the 2,500 shares of equity in Tropicana for another six months. At the Regular Board meeting held on January 27,2010, the Board approved Wells Cap HY's request to hold Tropicana shares up to August 10, 2010 (Resolution No ). On June 15, 2010, Wells Cap HY requested another extension to continue holding the 2,500 equity shares of Tropicana for six months beyond August 10, Wells Cap HY was holding the equity shares while waiting to be registered and listed on a public stock exchange where it could use the improved liquidity to sell the equity at a fair price. Recently; however, one shareholder who purchased a significant amount of the stock voted not to list the company's equity on a public stock exchange. Wells Cap HY representatives informed Staff that Tropicana plans to file public financial documents which should improve liquidity, but they believe the current stock price is at a significant discount to the long term value of the company. Wells Cap HY is also concerned that the large shareholder may not provide an adequate price at this time, so they are exploring other options to sell the stock in a private transaction within the next extension period, if approved by the Board. According to the Plan's Statement of Investment Objectives, Goals, and Guidelines, fixed income managers. are allowed to hold equity-oriented positions when received in exchange for, or conversion or cancellation of, debt securities held in the portfolio up to a maximum of 10%. Equity-oriented securities can be held in the high yield portfolio for no longer than six months unless the investment manager provides at least 30 days' advance notice to Plan staff of their request to extend the holding period beyond the original six-month period. Representatives from Pension Consulting Alliance recommend, and Staff concurs, extending the holding period for the 2,500 equity shares of Tropicana in the Wells Cap HY portfolio for an additional six months, beginning August 11, 2010, and ending February 10,

2 The following documents are attached: Resolution No to authorize the extension PCA's memo Wells Cap HY's request for extension Resolution NO (approved ) WAr---- SB:JW:SV:HY 5.2

3 RESOLUTION NO RESOLUTION TO EXTEND THE HOLDING PERIOD OF EQUITY EXPOSURE IN THE WELLS CAPITAL HIGH YIELD PORTFOLIO WHEREAS, Wells Capital Management's Sutter High Yield team (Wells Cap HY) has managed a high yield fixed income mandate for the Water and Power Employees' Retirement Plan (Plan) since November 2004 with an initial funding of $103 million, and a market value of $140.4 million as of May 31,2010; and WHEREAS, Wells Cap HY has held 2,500 shares of common stock in Tropicana Las Vegas Hotel and Casino, Inc. (Tropicana), since August 10, 2009, when the company converted a portion of its debt to equity during its bankruptcy restructuring; and WHEREAS, at the Regular Board meeting held on January 27, 2010, the Retirement Board approved Wells Cap HY's request to hold equity in Tropicana for a six-month period (beginning February 11, 2010, and ending August 10, 2010), until it could be registered and listed on a public stock exchange; and WHEREAS, one shareholder, who had purchased a significant amount of the stock, recently voted not to list the company's equity on a public stock exchange; and WHEREAS, on June 15, 2010, Wells Cap HY requested another extension to continue holding the 2,500 equity shares of Tropicana for six months beyond August 10, 2010, so they could explore available options to sell the stock at a fair price in a private transaction; and WHEREAS, the Plan's Statement of Investment Objectives, Goals and Guidelines requires investment managers to provide 30 days' notice to Plan staff of their request to extend the holding period beyond the original six-month period; and WHEREAS, representatives from Pension Consulting Alliance recommend, and Staff concurs, approving the extension for Wells Cap HY to continue holding the 2,500 shares of Tropicana for up to an additional six months. NOW, THEREFORE, BE IT RESOLVED, the Retirement Plan Manager is hereby authorized to extend the holding period of 2,500 Tropicana shares in the Wells Cap HY portfolio for up to six months beginning August 11, 2010, and ending February 10, 2011, and to inform the investment manager accordingly. I HEREBY CERTIFY, the foregoing is a full, true, and correct copy of a Resolution adopted by the Retirement Board of Administration [created by Section 1102 (b) of the Los Angel.es City Charter] at its regular meeting held on July 14, Sangeeta Bhatia Retirement Plan Manager 5.3

4 Date: July 6,2010 To: Water & Power Employees Retirement Plan (WPERP) From: Pension Consulting Alliance, Inc. (PCA)Ji;,- cc: Neil Rue - PCA Sarah Bernstein - PCA David Sancewich - PCA Kay Ceserani - PCA Eric White - PCA RE: Wells Capital Management - High Yield Holding Period Extension for Tropicana Las Vegas Hotel and Casino Inc. Recommendation In order to maximize potential gains for the Tropicana Las Vegas Hotel and Casino Inc. holding, PCA recommends that WPERP approve Wells Capital Management's (Wells) Sutter High Yield team's request to continue holding 2,500 common stock shares of Tropicana Las Vegas Hotel and Casino Inc., Cusip , within their Retirement separate account. However, given the uncertainty of Wells' ability to exit this position within the next six months, PCA also recommends that Wells' provide the WPERP Board and Staff ongoing analysis of the potential liquidation options including Wells' perceived fair value (target price) and current offer price. Summary WPERP currently employs Wells for two separate mandates, US Core Fixed Income (utilizing Wells' Montgomery business unit) and High Yield Fixed Income (utilizing the Sutter business unit). This memo addresses the High Yield Fixed Income mandate. As of June 30, 2010, WPERP's total exposure to the Wells' High Yield portfolio was approximately $140.5 million in the Retirement Plan. The Tropicana Las Vegas Hotel and Casino Inc. position within the WPERP account represents 0.02% ($35,000) of the portfolio. On June 15, 2010, the Sutter High Yield team of Wells formally requested an extension to continue holding their common stock position of 2,500 shares in Tropicana Las Vegas Hotel and Casino Inc. as required by the WPERP Statement of Investment Objectives, Goals and Guidelines. Currently this position is registered but not listed on an exchange requiring that Wells would have to sell the position in a private transaction if they chose to do so. Trading through private transactions reduces a seller's ability to effectively liquidate a position. Wells objective is to exit this security in the next few months through a private transaction. 5.4

5 As of June 30, 2010, Wells total exposure to equity-oriented securities is below the maximum allowable amount of 10%. Background On January 6, 2009, the Sutter High Yield team of Wells formally requested an extension to continue holding their common stock position of 2,500 shares in Tropicana Las Vegas Hotel and Casino Inc. as required by the WPERP Statement of Investment Objectives, Goals and Guidelines. At this time the position was not registered and was therefore not tradable. Wells anticipated liquidating this position once it became registered. As of December 31, 2009, Wells total exposure to equity-oriented securities was below the maximum allowable amount of 10%. PCA recommended WPERP approve Wells request to continue holding this security within the Retirement account. In April 2009, the Board adopted the following language be added to the Active Fixed Income and Active High Yield Fixed Income manager guidelines to address debt conversions, in whole or in part, into equity securities. There may be instances when debt issues convert into equity-oriented securities (i.e. preferred stock, common stock or warrants to purchase other equity securities). To handle these situations, fixed income managers are allowed to hold equity-oriented positions when received in exchange, for, or conversion or cancellation of debt securities held in the portfolio. The manager(s) is required to inform the Plan 30 days prior to the conversion when they intend to hold the resulting equity-oriented positions. Equityoriented securities can be held in the portfolio no longer than six months. The manager(s) is required to provide 30 days advance notice to extend the holding period beyond the original six month period. No more than 10% of the portfolio shall be invested in equity-oriented securities resulting from fixed-to-equity exchanges. Allowing fixed income managers to hold the equity-oriented positions received in exchange for debt securities held in the portfolio enables the manager to avoid possible transaction costs associated with selling into a distressed market and may also realize potential value in holding through the exchange period. On June 15, 2010, Wells provided an update to WPERP on the Tropicana Las Vegas Hotel and Casino Inc. holding in the Retirement account, which is summarized below. The company has emerged from bankruptcy and is now operating as an independent casino..all of the pre-bankruptcy debt has been eliminated and the WPERP term loan position in the Wells portfolio has been converted into common stock. The company requested additional capital through two subscription rights offering for preferred stock, which Wells subscribed to in 2009 and early

6 Wells also stated Tropicana Las Vegas Hotel and Casino Inc. has completed the stock registration process. Initially Wells' goal was to begin liquidating this position once the security was registered and I.isted on a public stock exchange, as liquidity would be improved. However, over the last few months one shareholder purchased a significant amount of the stock through private transactions and voted to not list the stock on an exchange. The company however, will be filing public financial documents which Wells expects will improve liquidity. Since the stock is not currently listed on a public exchange, Wells is looking into exiting the position through a private transaction over the next few months. The large controlling shareholder would potentially be a natural buyer. However, Wells believes this shareholder may prove to be an impediment, providing an inadequate bid. The following table details Wells' total exposure to equity-oriented securities as of June 30, 2010, for the Retirement Fund. The Health Plan does not hold any equity-oriented securities. Wells total exposure to equity-oriented securities is below the maximum allowable amount of 10%. The Los Angeles Department of Water and Power Wells Capital Management Sutter High Yield Common Stock Exposure as of June 30, 2010 L.A. Department of Water and Power -Retirement Fund Account # Jun-10 Market Pct. Quantity Cusip Security Price Value Assets COMMON STOCK 2, TROPICANA LAS VEGAS HOTEL AND CASINO, INC ,

7 Yu,Hong From: Sent: To: Tuesday, June 15,20104:06 PM Yu, Hong Vargas, Scott; Wolfson, Jeremy; Subject: Tropicana Las Vegas - Equity Holding - Additional Six Month Holding Period Extension Request Hong, Wells Capital Management's Sutter High Yield leam would like to formally request an additional six month extension to continue holding the following common stock position: 2,500 shares Tropicana Las Vegas Hotel and Casino Inc., Cusip Tropicana Las Vegas Hotel and Casino Inc., has emerged from bankruptcy and is now operating as an independent casino. All of the pre bankruptcy debt has been eliminated and our term loan position was converted into common stock. As indicated before, the company has requested additional capital through two subscription rights offering for preferred stock that we subscribed to in 2009 and early As we mentioned in our previous updates, Tropicana has been in the process of registering their stock. This process is complete. Our earlier goal was to wait until the stock was registered and listed on a public stock exchange where we could find improved liquidity. During the last few months one shareholder has purchased a significant amount of the stock through private transactions and voted to riot list the stock on an exchange. The company will however, be filing public financial documents which we expect will improve liquidity. Since the stock is not currently listed on a public exchange, we are looking into our available options to sell the stock in a private transaction. We are concerned that the large controlling shareholder will provide an inadequate bid. We believe that the recent valuation price of the stock is at.a significant discount to what we believe is the long term value of the company. That said, it now appears that it may take several years before we can get a bid that reflects the value we see in the stock. Our current recommendation is to explore private transactions to discover a price where we may sell the stock. We are currently testing the market for possible bidders, but based on initial information regarding illiquidity we would like to request approval for an additional six month holding extension as required LADWP's Statement of Investment Objectives Goals and Guidelines. Please contact me if you have any questions or would like to discuss via a conference call. Regards, Steve Stephen~. Scharre, CFA Senior Relationship Manager Wells Capital Management 333 S. Grand Ave, Suite 2200 Los Angeles, CA Ph steve.p.scharre@wellscap.com 5.1

8 Yu.Hong From: Sent: To: Cc: Steve. Friday, July 02,20109:30 AM Yu, Hong Vargas, Scott; Wolfson, Jeremy Subject: Tropicana Las Vegas - Equity Holding - Additional Six Month Holding Period Extension Request v2 Hong, Wells Capital Management's Sutter High Yield team would like to formally request an additional six month extension to continue holding the following common stock position: 2,500 shares Tropicana Las Vegas Hotel and Casino Inc., Cusip , approximately 0.02% ($35,000) of the portfolio as of June, Tropicana Las Vegas Hotel and Casino Inc., has emerged from bankruptcy and is now operating as an independent casino. All of the pre bankruptcy debt has been eliminated and our term loan position was converted into common stock. As indicated before, the company has requested additional capital through two subscription rights offering for preferred stock that we subscribed to in 2009 and early As we mentioned in our previous updates, Tropicana has been in the process of registering their stock. This process is complete. Our earlier goal was to wait until the stock was registered and listed on a public stock exchange where we could find improved liquidity. During the last few months one shareholder has purchased a significant amount of the stock through private transactions and voted to not list the stock on an exchange. The company will however, be filing public financial documents which we expect will improve liquidity. Since the stock is not currently listed on a public exchange, we are looking into our available options to sell the stock in a private transaction. We are concerned that the large controlling shareholder may provide an inadequate bid. We believe that the recent valuation price of the stock is at a significant discount to the long term value of the company however, it would likely take several years before we can get a bid that fully reflects the potential value we see in the stock. That said, we currently think that the time horizon required is too long and we will be looking to exit the position in the next several months. Our current recommendation is to explore private transactions to discover a price where we may sell the stock. Our goal is to exit this security in the next few months, but believe that an additional six month holding period would give us the time to achieve best execution. We would like to request approval for an additional six month holding extension as required LADWP's Statement of Investment Objectives Goals and Guidelines. Regards, Steve Stephen P. Scharre, CFA Senior Relationship Manager Wells Capital Management 333 S. Grand Ave, Suite 2200 Los Angeles, CA Ph steve.p.scharre@wellscap.com 5.8

9 RESOLUTION NO RESOLUTION TO EXTEND THE HOLDING PERIOD OF DEBT TO EQUITY CONVERSION FOR THE WELLS CAPITAL HIGH YIELD PORTFOLIO WHEREAS, Wells Capital Management's Sutter High Yield team (Wells Cap HY) has. managed a high yield fixed income mandate for the Water and Power Employees' Retirement Plan.(WPERP) since November 2004 with an initial funding of $103 million; and. WHEREAS, Wells Cap HY has held 2,500 shares of common stock in Tropicana Las Vegas Hotel and Casino, Inc. (Tropicana), since August 10, 2009, when the company converted a portion of its debt to equity during its bankruptcy restructuring; and WHEREAS, WPERP's Statement of Investment Objectives, Goals and Guidelines requires a manager to provide 30 days'. notice to the Plan of their request to extend the holding period beyond the original six-month period; and WHEREAS, Wells Capital Management's Sutter High Yield team formally requested an extension forsix months to continue holding their stake in Tropicana until their common stock becomes registered and tradable; and WHEREAS, representatives from Pension Consulting Alliance (PCA) recommend, and Staff concurs, approving the extension for Wells Cap HY to continue holding the 2,500 shares of Tropicana for up to another six months; and NOW, THEREFORE, BE IT RESOLVED, the Retirement Plan Manager is hereby authorized to extend the holding period of 2,500 Tropicana shares in the WCM High Yield portfolio for up to six months beginning February 11, 2010, ending August 10, 2010, and to inform the investment manager accordingly. I HEREBY CERTIFY, the foregoing is a full, true, and correct copy of a Resolution adopted by the Retirement Board of Administration [created by Section 1102 (b) of the Los Angeles City Charter] at its regular meeting held on January 27,2010. l@copy ~~?'1ee.C':G. ~..- ~. Sangeeta Bhatia Retirement Plan Manager 5.9

CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER INTERDEPARTMENTAL CORRESPONDENCE

Date: March 1,2011 CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER INTERDEPARTMENTAL CORRESPONDENCE To: Retirement Board Members From(/O Sangeeta Bhatia, Retirement Plan Manager Subject: Board Agenda