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09-28-2010 CC Rpt A14 COUNCIL AGENDA STAFF REPORT IR EI&YbL:-EIDE ONLY A OFFIC\\ Meeting Date: Seotember28. 2010 ZUID SEP 20 P1112: 49 (14;5,, OF CITY CLERK �� Qz Public Hearing: ❑ / CHINO HILLS Discussion Item: ia' :n nth.r.matvConsent Item: ❑ SEPTEMBER 14, 2010 TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: CITY MANAGER SUBJECT: AWARD A PROFESSIONAL SERVICES AGREEMENT TO CHANDLER ASSET MANAGEMENT RECOMMENDATION: 1. Approve a change in investment strategy. 2. Adopt a Resolution entitled: "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, AMENDING THE STATEMENT OF INVESTMENT POLICY AND DELEGATING INVESTMENT AUTHORITY FOR THE CITY'S INVESTMENT PORTFOLIO FOR THE 2010-11 FISCAL YEAR." 3. Award a Professional Services Agreement to Chandler Asset Management to manage a portion of the City of Chino Hills' investment portfolio. BACKGROUND/ANALYSIS: Since the City's incorporation, due to the City's limited staff and resources, it has been determined that it is prudent to restrict the City's investment to investment pools such as the Local Agency Investment Fund (State of California), Los Angeles County Pool, and the San Bernardino County Pool. While these vehicles provide safety and liquidity for the City's funds, their yield is relatively low, given the short maturity of the pools. During the past several years, the economy has steadily declined and the financial world has experienced extreme volatility and financial setbacks. These factors have contributed to a steep decline in interest rates which has had a negative impact on the City's interest earnings; normally a significant source of revenue. Staff has worked diligently to find new or enhanced sources of revenue. One of the options staff explored was to ascertain the benefits of using a professional investment adviser to manage a part of the City's portfolio. Other cities have successfully implemented this strategy and have been able to safely increase interest revenue while maintaining adequate liquidity. AGENDA DATE: SEPTEMBER 28, 2010 PAGE TWO SUBJECT: AWARD A PROFESSIONAL SERVICES AGREEMENT TO CHANDLER ASSET MANAGEMENT A registered investment adviser acts in a fiduciary role with regard to investing its clients' portfolios. These firms must register with, and are regulated by the Securities and Exchange Commission. Advantages of using investment advisers include: 1. The potential for higher earnings (net of investment management fees)on the portion of the portfolio that is not needed for immediate liquidity. 2. The ability to own securities directly;that is to know the specific securities that the City is invested in. 3. The opportunity for enhanced reporting. 4. Expanded fiduciary oversight for the portfolio. Staff recommends an amendment to the City's Investment Policy to reflect the provision to authorize the delectation of investment authority to an outside investment adviser that is registered with the Securities and Exchange Commission under the Investment Advisers Mt of 1940. This amendment will be added under Section III, Delegation of Authority, of the Investment Policy. Over the past few months, staff has met with several investment advisers who specialize in the investment of public funds. After thorough review and consideration, and with the concurrence of the Revenue ad hoc Committee, staff is recommending Chandler Asset Management as the City's investment adviser. Chandler Asset Management, a San Diego based firm, currently manages over $5.5 billion in assets—over 80% of which are California public agency portfolios ($2.5 billion for 34 California cities). Founded in 1988 by Kay Chandler, the firm is well-respected by California finance officials and is known for its contribution to education and training of finance professionals. Staff has checked client references of the firm which have been universally positive about the firm, its performance, reporting, and client service. Chandler Asset Management will work with staff to prepare a cash flow model to determine the liquidity needs of the City and the amount of funds that can be invested for a longer period of time. In addition, they will work with staff developing and implementing investment strategies to enable the City to earn higher interest earnings while keeping the investments safe. Chandler Asset Management's fee structure of assets under management is as follows: 0.12 of 1% on the first $20 million 0.09 of 1% on the next $40 million 0.06 of 1% on additional assets Appropriation for the fees is not requested at this time. The fees will be determined after the completion of the cash flow model and investment strategy. However, for illustration purposes, for a portfolio of$100 million, the estimated average annual fee would be$84,000,which we anticipate will be more than offset by the additional portfolio earnings. AGENDA DATE: SEPTEMBER 28, 2010 PAGE THREE SUBJECT: AWARD A PROFESSIONAL SERVICES AGREEMENT TO CHANDLER ASSET MANAGEMENT While past performance is not predictive of future returns, for the fiscal year ended June 30, 2010, $100 million invested with Chandler Asset Management would have grown to a total of $104,630,000, compared to the City's investment in pools,which grew to$101,180,000. The$3.45 million in incremental earnings (net of fees)translates into $715,200 for the City's General Fund or approximately 20%. REVIEW BY OTHERS: The agenda item has been reviewed by the Contract Compliance Officer and the City Attorney. FISCAL IMPACT: The fiscal impact is unknown at this time. Historically, Chandler Asset Management has provided returns that significantly exceed the returns on the vehicles the City currently invests in. Respectfully submitted, Recommended by: j_627 Z Michael S. Fleager,iO y'IVlanager Ju'�tyy:2. frncaster, Finance Director MSF:JRL:dk / vV Attachment: Statement of Investment Policy -Amended RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, AMENDING THE STATEMENT OF INVESTMENT POLICY AND DELEGATING INVESTMENT AUTHORITY FOR THE CITY'S INVESTMENT PORTFOLIO FOR THE 2010-11 FISCAL YEAR. WHEREAS, the City of Chino Hills ("City") has invested City funds, including but not limited to the General Fund, Special Revenue Funds, Capital Projects, Proprietary Funds, and Fiduciary Funds; and WHEREAS, the City wishes to amend the Statement of Investment Policy for the 2010-11 fiscal year and procedures to guide the City Manager, City Treasurer, and City staff regarding City investments; and WHEREAS, the Statement of Investment Policy provides that the City-Council shall annually review the Investment Policy; and WHEREAS, the City wishes to delegate investment authority to the Finance Director/City Treasurer for the 2010-11 fiscal year. The City Council may authorize the delegation of investment authority to an outside investment adviser that is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1. Investments of City funds for the 2010-11 fiscal year shall be made in accordance with the City's Statement of Investment Policy referenced hereto and attached as Exhibit "A" to the staff report which presented this Resolution for adoption. SECTION 2. The policies adopted by this Resolution are in addition to and supplements any other legal requirements including the restrictions of any bond resolutions adopted by the City. SECTION 3. The investment policy adopted by this Resolution supersedes all investment policies previously adopted by the City Council. SECTION 4. Investment authority for the 2010-11 fiscal year shall be delegated to the City of Chino Hills' Finance Director/City Treasurer. By adoption of this Resolution, the City Council may authorize the delegation of investment authority to an outside investment adviser that is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. 1 of 3 SECTION 5. The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, and ADOPTED this 28th day of September 2010. W.C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY 2 of 3 EXHIBIT A CITY OF CHINO HILLS Statement of Investment Policy - AMENDED Fiscal Year 2010-11 I. POLICY It is the policy of the City of Chino Hills ("City") to meet the short and long-term cash flow demands of the City in a manner, which will provide for the safety of principal and sufficient liquidity, while providing an investment return. The purpose of this Statement of Investment Policy (hereinafter, this "Investment Policy") is to outline a process of the investment of City funds in a prudent manner in order to meet City objectives. II. SCOPE This-investment policy-applies-to all investment activities-and financial-assets-of--the- --- - City, held by the City and its agents and trustees, except for funds held by investment providers of deposits made pursuant to provisions of the City's Deferred Compensation Plan (hereinafter, the "Funds"). Bond proceeds shall be invested in accordance with the requirements and restrictions outlined in the bond documents. Bond proceeds are not considered part of the Funds nor subject to this Investment Policy. The following funds are covered by this Investment Policy and are accounted for in the City's Comprehensive Annual Financial Report: a) General Fund b) Special Revenue Fund c) Debt Service Funds d) Capital Project Funds e) Enterprise Funds f) Internal Services Funds g) Fiduciary Funds (Trust and Agency Funds) h) Any new funds created by the City Council III. DELEGATION OF AUTHORITY Pursuant to City of Chino Hills Municipal Code Sections 3.12.010 et seq, the City Treasurer is authorized to invest the City's Funds in accordance with California Government Code Sections 53600, 16429.1 and 53684 et seq. ' In accordance with 1-/All subsequent references to code sections refer to the California Government Code unless otherwise indicated. -1- section 53607, the City Council may annually in July of a fiscal year, delegate to the City Treasurer the responsibility to invest the City's funds for the fiscal year. In the absence of the City Treasurer (hereinafter, the "Treasurer"), the investment of the Funds will be delegated to the Assistant Finance Director. Investments made by the Assistant Finance Director will be restricted to the State Pool ("LAIF"), the County of Los Angeles Investment Pool, or to securities maturing within six months. Prior to investing in securities, the Assistant Finance Director will consider the cash flow requirements of the City and may invest in securities maturing over six months if directed by the Treasurer in writing or verbally, if confirmed in writing within 30 days. The Treasurer may delegate to subordinates the execution of daily investment transactions. These investment transactions shall be approved by the Treasurer. The City Council may authorize the delegation of investment authority to an outside investment adviser that is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. IV. PRUDENCE All investments purchased shall have daily liquidity ora final state maturity date, upon which the full principal value of the security will be received. Although the investment will mature at full principal value, it is recognized that the market will vary throughout the life of the security. In a diversified portfolio it must be further recognized that occasional measured losses are inevitable in a diversified portfolio due to economic, bond market, or individual security credit analysis. These occasional losses must be evaluated and considered within the context of the overall investment return. The "Prudent Investor" standard shall be applied in the context of managing the Funds. The Treasurer and other investment employees, acting within the intent and scope of the investment policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. V. OBJECTIVES The objective of the investment portfolio is to meet the short and long-term cash flow demands of the City. To achieve this objective, the portfolio will be structured to provide Safety of Principal and Liquidity, while then providing a Return on Investments. The following criteria, in priority order, shall govern all investment decisions. A. Safety of Principal Investments of the City shall be undertaken in a manner that seeks to ensure that capital losses are minimized, whether from institution default, broker-dealer default, or erosion of the market value of securities. The City shall seek to preserve principal by mitigating the two types of risk in order of importance: credit risk and market risk. -2- 1. Credit Risk. Credit risk, defined as the risk of loss due to failure of an issuer of a security, shall be mitigated by purchasing Treasuries or high- grade securities. All investments beyond Treasury securities will be diversified so that the failure of any one issuer would not unduly harm the City's cash flow. Credit risk shall also be mitigated by pre-qualifying financial institutions, broker/dealers, intermediaries and advisors with which the City does business. 2. Market or Interest Rate Risk. Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by structuring the Funds so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and by investing operating funds primarily in shorter-term securities. The cash flow is updated on a daily basis and will be considered prior to the investment of securities, which will reduce the necessity_to sell investments for liquidity purposes. Long-term securities shall not be purchased for the sole purpose of short-term speculation: Securities shall not be sold prior to maturity with the following exceptions: 1) a declining credit security would be sold early to minimize loss of principal, 2) a security swap would improve the quality, yield, or target duration in the portfolio, or 3) liquidity needs of the portfolio require that the security be sold. Purchases of investments will be restricted to securities with a final stated maturity not to exceed three years. B. Liquidity The Funds shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the Funds will maintain a liquidity buffer and invest primarily in securities with active secondary or resale markets (dynamic liquidity). C. Return on Investments The Funds shall be designed to attain a return on investments through budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. -3- VI. ETHICS AND CONFLICTS OF INTEREST The Treasurer and other employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. The Treasurer and investment employees shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. The Treasurer and investment employees are required to file annual disclosure statements as required by the Fair Political Practices Commission (FPPC). During the course of the year, if there is an event subject to disclosure that could impair the ability of the Treasurer or investment employees to make impartial decisions, the City Council will be notified in writing within 10 days of the event. VII. SAFEKEEPING OF SECURITIES To protect against fraud, embezzlement, or losses caused by collapse of individual securities dealers, all securities owned by the City shall be held in safekeeping by the City's custodial bank, a third party bank trust department, acting as agent for the City under the terms of a custody agreement. Such custodial bank must be a federal or state association (as defined by Section 5102 of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this state, or with any Federal Reserve bank or with any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System. Collateral for repurchase agreements will be held by a third party custodian under the terms of a Public Securities Association ("PSA") master repurchase agreement. All securities will be received and delivered using standard delivery versus payment ("DVP") procedures which ensures that securities are deposited with the third party custodian prior to the release of funds. Securities will be held by a third party custodian as evidenced by safekeeping receipts. Investments in the State Pool or money market mutual funds are undeliverable and are not subject to delivery or third party safekeeping. The Treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the Treasurer. On a daily basis, investment trades shall be verified against the bank transactions and broker confirmation tickets to ensure accuracy. On a monthly basis, the custodial asset statement shall be reconciled with the month end portfolio holdings. On an annual basis, the external auditor confirms investment holdings. -4- VIII. REPORTING In accordance with amended Section 53646 of the Government Code, effective January 1, 1996, the Treasurer will annually render to the City Council in July of each fiscal year, a statement of investment policy. The policy shall be reviewed on an annual basis by the Treasurer. Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, such moneys shall be reinvested only as provided by this policy. Pursuant to Section 53607 and Section 53646 of the Government Code, the Treasurer shall render a report to the City Council and City Manager, containing detailed information on all securities, investments, and moneys of the City. The report will be submitted on a monthly basis and be provided to the Council within 30 days following the end of the month. The report will contain the following information on the funds that are subject to this investment policy: 1) the type of investment, name of the insurer, date of maturity, par and cost in each investment, 2)any investments; including loans and security lending programs, that are under the management of contracted parties, 3) the market value and source of the valuation, 4) a description of the compliance with the statement of investment policy, and 5) a statement denoting the City's ability to meet its pool's expenditure requirements for the next six months. To the extent the City has funds invested with county investment pools, the Treasurer shall request copies of all the investment reports generated by the counties pursuant to Government Code Section 27133 and the annual audit required by Government Code Section 27134. The investment report shall reflect a summary of these reports and audits. IX. INTERNAL CONTROLS The Treasurer shall develop a system of internal investment controls and a segregation of responsibilities of investment functions in order to assure an adequate system of internal control over the investment function. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. -5- X. EXTERNAL AUDIT On at least an annual basis the City shall have an external auditor review the City's investments and provide an opinion to the City respecting the City's compliance with this Investment Policy. Xl. QUALIFIED DEALERS AND INSTITUTIONS The City shall transact business only with banks, savings and loans, and registered investment securities dealers. The purchase of any investment, other than those purchased directly from the issuer, shall be purchased either from an institution licensed by the State as a broker-dealer, as defined in Section 25004 of the Corporation Code, who is a member of the National Association of Securities Dealers, or a member of a Federally regulated securities exchange, a National or State- Chartered Bank, a Federal or State Association (as defined by Section 5102 of the Financial Code), or a brokerage firm designed as a Primary Government Dealer by the Federal-Reserve Bank. The-Treasurer-'s-staff shall_review_all_institutions_which_wish_to----.------ do business with the City, in order to determine if they are adequately capitalized, make markets in securities appropriate to the City's needs, and agree to abide by the conditions set forth in this Investment Policy. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must provide a current audited financial statement and complete the appropriate City questionnaire (See Attachment "A" and Attachment "B"). XII. COLLATERAL REQUIREMENTS California Government Code, Sections 53652 through 53667 requires depositories to post certain types and levels of collateral for public funds above the Federal Deposit Insurance Corporation ("FDIC") insurance amounts. The collateral requirements apply to bank deposits, both active (checking and savings accounts) and inactive (non- negotiable time certificates of deposit). The bank or savings and loan must secure the active and inactive deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is letter of credit drawn on the Federal Home Loan Bank (FHLB). • The City's Treasurer has the authority to waive security for that portion of a deposit which is insured pursuant to federal law. Currently, the first $250,000.00 of a deposit is federally insured. It is the City's policy to waive this collateral requirement for the first because a higher interest rate can be obtained on this increment. This increase expires on December 31, 2013 at which time the insured deposit amount will revert back to the $100,000 limit. -6- From time to time certain institutions ask to reduce the existing certificate of deposit to below the federally insured limit. This is requested in order that the accrued interest on the deposit will also be insured. It is to the City's advantage to reduce the principal deposit to the lower level for full insurance coverage of principal and accrued interest if the financial institution requests the reduction and if there is no penalty assessed for the reduction. If funds are to be collateralized, the collateral we accept is 110% of the deposit in government securities. Collateral is also required for repurchase agreements. The collateral level shall be valued daily and must be maintained at a level of 102% for the life of the repurchase agreement. XIII. AUTHORIZED INVESTMENTS The investments set forth in this section are authorized investments pursuant to Section 53601 of the Government Code and are authorized investments for the City subject, however, to the prohibitions set forth in Section XIV of this Investment Policy. (a) Bonds issued by the City, including bonds payable so e y out of the revenues from a revenue-producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. The maximum maturity for these investments is five (5) years. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. The maximum maturity for these investments is five (5) years. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. The maximum maturity for these investments is five (5) years. (d) Registered treasury notes or bonds of any of the other 49 United States in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 United States, in addition to California. The maximum maturity for these investments is five (5) years. (e) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. The maximum maturity for these investments is five (5) years. -7- (f) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprises (see Section XIV for prohibited investments in Small Business Administration Notes). The maximum maturity for these investments is five (5) years. (g) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers' acceptances may not exceed 180 days maturity or 40 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 30 percent of the agency's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section (see Section XIV for prohibited investments in bankers acceptances). (h) Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO), such as Moody's Investors Service, Inc. (Moody's), Standard and Poor's Corporation (S&P) or Fitch Financial Services, Inc. (Fitch). Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by nationally recognized statistical-rating organization (NRSRO). Purchases of eligible commercial paper may not exceed 270 days maturity. Investments in commercial paper are subject to the following concentration limits: (1) No more than 40 percent of the City's surplus money may be invested in eligible commercial paper, (2) No more than 10 percent of the City's surplus money may be invested in any one issuer's commercial paper. (See Section XIV for prohibited investments in commercial paper). (i) Certificates of deposit at a selected depository institution that is a nationally or state chartered commercial bank, savings bank, or savings and loan association. The selected depository institution may use a private sector entity to assist in the placement of certificates of deposit with one or more depository institutions, provided that the purchases of certificates of deposit are pursuant to Section 53635.8, and subdivision (i) of Section 53601 and the following conditions shall apply: 1) Not to exceed 30 percent of the City's total surplus funds, 2) Certificates of deposit are fully insured by the Federal Deposit Insurance Corporation, 3) The selected depository institution shall serve as a custodian for each certificate of deposit that is issued with the placement service with other -8- depository institutions for the City's account, 4) An amount of deposit that is greater or equal to the full principal of the City's initial investment for each certificate of deposit with the selected depository institution, shall be put forth by the other depository institutions if placement service of the certificates of deposit is used, and 5) The City may not invest its surplus funds with a selected depository institution for placement as certificates of deposit after January 1, 2012. The maximum maturity for these investments is five (5) years, subject to limitation as stated in 5) above. (See Section XIV for prohibited investments in certificates of deposit). (j) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102 of the Financial Code) or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. The maximum maturity for these investments is five (5) years. (k) (1) Investments in repurchase agreements or reverse repurchase agreements or security lending agreements of any securities authorized by this section, so long as the agreements are subject to this subdivision, including, the delivery requirements specified in this section (see Section XIV for prohibited investments in reverse repurchase agreements). (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements or security lending agreements may be utilized only when all of the following conditions are met: A. The security to be sold on reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the City for a minimum of 30 days prior to sale. B. The total of all reverse repurchase agreements and securities lending agreements on investments owned by the City does not exceed 20 percent of the base value of the portfolio. -9- C. The agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. D. Funds obtained or funds with the pool of an equivalent amount to that obtained from selling a security to a counter party by way of a reverse repurchase agreement or securities lending agreement shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement or securities lending agreement, unless the reverse repurchase agreement or securities lending agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. ----(4)------Investments in reverse -repurchase- agreements, securities_--lending agreements, or similar investments in which the City sells securities prior to purchase with a simultaneous agreement to repurchase the security may only be made upon prior approval of the City Council and shall only be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or State-chartered bank that has or has had a significant banking relationship with the City. (See Section XIV for prohibited investments in reverse repurchase agreements). (5) (A) "Repurchase agreement" means a purchase of securities by the City pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the City by book entry, physical delivery, or by third-party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. (B) "Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. (D) "Securities lending agreement" means an agreement under which the City agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the City. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the City in return for the collateral. -10- (E) For purposes of this section, the base value of the City's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or security lending agreements or other similar borrowing methods. (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. (I) Medium-term notes, defined as all corporate and depository institution debt securities with a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated "A" or better by a nationally recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the City's surplus money which may be invested pursuant to this section (see Section XIV for prohibited investments in medium term corporate notes). The maximum maturity fat-these investments is five (5) years. (m) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o) inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). To be eligible for investment pursuant to this subdivision, these companies shall either: (A)Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B)Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations as authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o) inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). (2) Shares of benefit interest issued by diversified management companies that are money market fund registered with Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. sec. 80a-1 et seq). To be eligible for investment pursuant to this subdivision, these companies shall either: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. -11- (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (3) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that these companies may charge and shall not exceed 20 percent of the City's surplus money that may be invested pursuant to this section. However, no more than 10 percent of the City's funds may be invested in shares of beneficial interest of any one mutual fund. (n) Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installmentsate, or otheragreement, or-to-the extent-no - - inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the City providing for the issuance. (o) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing City deposits having a market value at least equal to that required by Section 53652 for the purpose of securing City deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. The maximum maturity for these investments is five (5) years. (p) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the City's surplus money that may be invested pursuant to this section (see Section XIV for prohibited investments in mortgage backed securities). -12- (q) Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (o), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). (r) State and County investment pools are defined as the State of California Local Agency Investment Fund, San Bernardino County Pooled Funds of Investments, and the Los-Angeles CountyPooled Funds--of-Investments-in-this-Investment -- - - -- Policy. XIV. PROHIBITED INVESTMENTS AND TRANSACTIONS (a) The City shall not invest any funds in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages. (b) The City shall not invest any funds in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to City investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subdivision (m) of Section XIII, above. (c) No credit union may act as a selected depository institution under section 53601.8 or Section 53635.8 for certificates of deposit. (d) The City shall not purchase or sell securities on margin. (e) The following types of investments shall not be directly used by the City: (i) Federal Agency Issues: Guaranteed Small Business Administration (SBA) Notes. (ii) Bankers Acceptances (iii) Commercial Paper -13- (iv) Medium Term Corporate Notes (v) Reverse Repurchase Agreements (vi) Mortgage-Backed Securities However, it is acknowledged that investment pools in which the City invests may invest funds in the securities set forth in this subdivision (d). XV. DEFERRED COMPENSATION PLAN The City offers a deferred compensation plan (Plan) to its employees and has contracted with certain providers to offer investment options in which the employees may invest their contributions to the Plan. The Plan is established in accordance with Section 457 of the Internal Revenue Code (I.R.C). Currently, the assets of the deferred compensation plan are held in the deferred compensation plan trust for the exclusive benefit of the plan's participants and their beneficiaries, and the assets shall not be diverted to any other purpose. The City of Chino Hills serves as the trustee. The trustee's beneficial ownership of plan assets held in the deferred compensation plan trust-shall-be--held for the further exclusive--benefit-of--the-plan-participants-and their beneficiaries. However, in accordance with the Plan, the employees have the exclusive responsibility to choose in which investments their contributions will be deposited. The City does not have any responsibility in selecting any investment options offered by the providers. The restrictions on investments contained within this Statement of Investment Policy do not apply to the deposits and investments made in accordance with the Plan. The Plan deposits and investments are governed by I.R.C. Section 457 and the provisions of the Plan, the contracts with the Plan providers, and the prospectus of the issuers of the various investment products offered by the Plan providers. Additionally, the plan deposits are governed by Section 17 of ArticleXVl of the California Constitution and Section 53609 of the Government Code. XVI. MONEY PURCHASE PLAN The City offers a Money Purchase Plan (MPP) to its employees and has contracted with certain providers to offer investment options in which the employees may invest their contributions to the MPP. The MPP is established in accordance with Section 401(a) of the Internal Revenue Code, Currently, Section 401(a) provides that the assets contributed to the MPP by the City's employees are immediately 100% vested to the contributor. Pursuant to the MPP, the employees have the exclusive responsibility to choose in which investments their contributions will be deposited. The City does not have any responsibility in selecting any investment options offered by the providers. The restrictions on investments contained within this Statement of Investment Policy do not apply to the deposits and investments made in accordance with the MPP. The MPP deposits and investments are governed by I.R.C. Section 401(a) and the provisions of the MPP, the contracts with the MPP providers, and the prospectus of the issuers of the various investment products offered by the MPP providers. -14- XVII. POLICY REVIEW This Investment Policy shall be reviewed at least annually by the Treasurer and City Council to ensure its consistency with the overall objectives of preservation of principal, liquidity, and return, and its relevance to current law, financial and economic trends, and to meet the needs of the City. DATED: July 13, 2010 SUBMITTED BY: AMENDED: September 28, 2010 y//�'�/ ®®( (/$�/j 7/r1 MEASURER -15- CITY OF CHINO HILLS CITY TREASURER INVESTMENT PORTFOLIO GUIDELINES These guidelines are established to direct and control investment activities in such a manner to assure that the goals established in the Investment Policy are attained. 1. Cash Forecast. The cash flow of the City shall be updated daily with an analysis of cash receipts and expenditures and a review of the scheduled investment maturities to ensure that adequate cash will be available to meet the disbursement requirements. 2. Pooled Cash. Whenever practical, the City's cash should be consolidated into one bank account and invested on a pooled concept basis. Interest earnings may be allocated according to fund cash and investment balances. 3. Diversification. Diversification will be used as a tool to control risk. 4. Competitive Bids.--Purchase-and-sale-of-securities-shall-be-made-on-the-basis--of...- competitive bids and offers with a minimum of three quotes being obtained, when practical. 5. Authorized Institutions. Investment transactions will only be executed with previously approved brokers-dealers, banks, and savings and loans. A list of these institutions shall be authorized and maintained by the Treasurer. 6. Certificate of Deposit Evaluation. (a) Time Certificates of Deposit (TCD) shall be evaluated in terms of financial strength. For deposits in excess of the FDIC insured maximum of $250,000 approved collateral shall be required, as specified by California Government Code Section 53652, 53651, and 53661. (b) Negotiable Certificate of Deposit (NCD) shall be evaluated in terms of the credit worthiness of the issuer, as these deposits are uninsured and uncollateralized promissory notes. 7. Investment Transaction. Every investment transaction must be reviewed and authorized by the Treasurer. In the absence of the Treasurer, the authority to review and authorize investment transactions is delegated to the Assistant Finance Director, within the scope outlined in the Investment Policy. The daily investment transactions may be delegated to the Assistant Finance Director, Accounting Supervisor, or one of the Department's three Senior Accountants/Accountants. All investment transactions will be reviewed and approved by the Finance Department's Accountant who is not responsible for the -1- daily investment activity. Following the Accountant's review and approval, the Finance Director will review and approve the investment transactions. 8. Safekeeping. Securities purchased from broker-dealers shall be held at the City's custodial bank. Repurchase agreement collateral will be held at a tri-party custodial bank and valued daily. 9. Strategy. Strategy refers to the plan of action for managing financial resources in the most advantageous manner. The Treasurer uses the following elements in developing strategy. (a) Economic Forecast. Economic forecast information developed by economists and financial experts and obtained through bankers, brokers, financial databases, periodicals and universities are used to assist the Treasurer with the formulation of an investment strategy for the City. (b) Investment Implementation. Execute only investment transactions which conform with anticipated cash flow requirements, economic condition and interest-rate-trends-and-are-consistentwith the established Investment_ Policy Statement. (c) Rapport. A close working relationship with City Departments such as Finance, Utilities, Capital Projects Team, and all other Departments having a significant impact on cash flow, is maintained in order to maximize the efficiency of the City's cash management system and establish cash flow requirements. -2- CITY OF CHINO HILLS OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm: 2 Address: 3 Telephone No. ( ) ( ) (Local) (Nat. Headquarters) 4 Primary Representative: Manager: Name: Name: Title: Title: Tel. No. ( ) Tel. No. ( ) 5 What are the Total Assets of the Bank/Savings and Loan? 6 What is the current Net Worth Ratio of your institution? 7 What was the Net Worth Ratio for the Previous Year? 8 What is your required Capital Ratios? A. Tangible Capital Ratio B. Core Capital Ratio C. Risk-Based Capital Ratio 9 What are your Ratings (i.e., S&P, Moody's, Thompson, Fitch)? -3- (ATTACHMENT "A") 10 What is the date of your Fiscal Year-End? A. Has there been a year during the past three years in which the Bank/Savings and Loan did not make a profit? 11 Have you read the California Government Code Section 53630 through 53684 pertaining to the State's requirements governing the deposit of monies by Local Agencies which includes Cities? [ ] YES [ ] NO 12 Amounts above the FDIC insurance coverage must be collateralized as specified in the Government Code. Where is the collateral for Deposits held? Has there ever been a failure to fully collateralize? If Yes, please attach explanation. 13 What is the education level of the Primary Contact(s)? 14 How many years of related experience does the Primary Contact(s) have? 15 What transaction documents and reports would we receive? 16 What information would you provide to our City Treasurer? 17 Describe the precautions taken by your Bank/Savings and Loan to protect the interest of the public when dealing with government agencies as depositors or investors. 18 Please provide your Contract of Deposit of Moneys pre-signed and sealed by your institution, as well as, any signature cards that you may require. 19 Please provide your Wiring Instructions: -4- (ATTACHMENT "A") 20 Please provide your Bank/Savings and Loan most recent certified financial statement. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. - CERTIFICATION - I hereby certify that I have personally read City of Chino Hills Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Chino Hills, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Chino Hills. I understand however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Chino Hills' investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Chino Hills Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of City of Chino Hills Certification process and DOES NOT guarantee that the applicant will be approved to do business with the City of Chino Hills. SIGNED: DATE: COUNTERSIGNED: DATE: -5- (ATTACHMENT "A") CITY OF CHINO HILLS OFFICE OF THE CITY TREASURER BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm 2 Address (Local) (Nat. Headquarters) 3 Tel. No. ( ) Tel. No. ( ) (Local) (Nat. Headquarters) 4 Primary Representative: Manager/Partner-in-Charge: Name: Name: Title: Title: Tel: No.-( ) Tel No (- -)- -- -- No. of Years in Institutional No. of Years in Institutional Sales: Sales: No. of Years with Firm: No. of Years with Firm: 5 Are you a Primary Dealer in U.S. Government Securities? [ ] YES [ ] NO 6 Are you a Regional Dealer U.S. Government Securities? [ ] YES [ ] NO 7 Are you a Broker instead of a Dealer, i.e., You DO NOT own positions of securities? [ ] YES [ ] NO 8 Are you NASD certified and licensed to sell in California municipalities? [ ] YES [ ] NO 9 What is the net capitalization of your firm? 10 What is the date of your Firm's fiscal year-end? 11 Is your Firm owned by a Holding Company? If so, what is its name and net capitalization? -1- (ATTACHMENT "B") 12 Please provide your Wiring and Delivery Instructions: 13 Which of the following instruments are offered regularly by your local desk? [ ] T-Bills [ ] Treasury Notes/Bonds [ ] Discount Notes [ ] NCD'S [ ] Agencies (specify) [ ] BAs (Domestic) [ ]BAs (Foreign) [ ] Mid-Term Notes [ ] Commercial Paper [ ] Repurchase Agreements [ ] Reverse Agreements 14 Which of the above does your Firm specialize in Marketing? 15 Please identify your most directly comparable City Local Agency clients in our geographical area. - Entity Contact Person Telephone.No. Client_Since-- _._._._______. _____- 16 What reports, transactions, confirmations and paper trail would we receive? 17 Please include samples of research reports or market information that your Firm regularly provides to local agency clients. 18 What precautions are taken by your Firm to protect the interest of the public when dealing with government agencies as investors. 19 Have you or your Firm been censored or punished by a Regulatory State or Federal Agency for improper or fraudulent activities, related to the sale of securities? [ ] YES [ ] NO 20 If yes, please explain. 21 Attach certified documentation of your capital adequacy and financial solvency. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. -2- (ATTACHMENT "B") - CERTIFICATION - I hereby certify that I have personally read City of Chino Hills Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Chino Hills, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Chino Hills. I understand however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Chino Hills' investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Chino Hills Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of City of Chino Hills Certification process and DOES NOT guarantee that the applicant will be approved to do business-with-the City of Chino-Hills. ----- ------ - — SIGNED: DATE: COUNTERSIGNED: DATE: (Person in charge of government securities operations.) -3- (ATTACHMENT "B") :...... . _ ........._ ..... .._ m wam.rt ____ ...........�..m.r.�-m.�..m....� e."�i a City of Chino HI CUV OFC RC,411114t4a and ess Chandler Asset Management I P Kay Chandler, CFA 1Martin Cassell, CFA President CEO and Chief investment Officer a '4,7.'2?ib ".j� ` :.Z� v „ 4 n, 4-e a A. $ Si ges 6Q..,� a. ' $'o &`&" .'� s. a `, - t's. `3'E"A".,;.a .t._est r. . gyef•ts of Chandler focused attention to the portfolio Consistent, t increase earnings safely Opportunity to transparency of holdings hi of bonds—complete Direct ownership a and performance reporting Complete portfolio accounting Opportunity it for staff education a Better utilization of internal resources a Ongoing communication �A Sr.*3?Y AA F-^^'.R ' R w fir° .. c'r Nra �5 first - ve t�ment pro C� '1'� S Safety Co � ... ed3 conservative� a disciplined,lication Consistent app cess roach loouses on Our approach i principal sa�etY oe�es of liquidity a ct 8 mar`agement o appropriate levels e and return al results through, e yield is to achieve opt�m o Our goal market risk m credit risk Fa operational risk '.Y i�rt^ GM}-0' cat\ Our Disciplined Approach provides Opportunity ._ ,r. Chandler intermediates between the client and the market City of Chino Hills Market • Opportunities• Objectives . Acceptable Risks • Constraints . Risks to Rvoid • Return Requirements • Outlook • Risk Tolerance Asset, ge 5 a � fitrccciiKriowledge 4 Optimal Program ii _gig Why This Strategy Provides Greater Return The higher the portfolio duration, the greater the expected growth over time $1.70 ---� —3 mo T-Bill Benchmark —^^0-3Year(l1Treasury Benchmark —1.5Year Government Benchmark $1.60 - - ` - --. _ _- .. - - - +y $1.30 - � __ - .._ - ' ..�' --, I 0 $1.00 00 00 O^ O1 p0' 00' 0 O'� O' OQ O5 O5 IOF' Co Sk COI (02) 00 OO 00 10 S` Oe Oeu )NC‘ Oec ��c Oeu y0o Oec c o2,0 .0c Oec ��c Oec sic' Oyc ��c Oeo Seo Oec �Je Source:Index return information provided by Bank of America Merrill Lynch - .. s .. ... A . -n—x .oeA+kb7i/' :Q • :'s< W:6 ur' g;;:tu' tc7,-4, - , 24e. -- �te + w < r �vic vG. W •a te2r# kbuk:yCycae- q, spn to to , SSp - � �`ditY vehicles* ° m styles corriplernept z -� er C�a��leC i°ng Peri°ri'!a��e.: s o Juni 3�� 2fl�� • SYte Year a tnv �tmQr� 0 66°�4 � � �' `at �"FB,t ..m r xis o,',t �`�� , ; '�!y,��.�..�fir`` .� �.a � po �� �' . . 1 ''`' 3 {+o�n > � v&a ,3 , Bernardino C ,::;t r,' - ee '.;` f �'z x6'� � "t t San ante presentatwn W see GIPS®-compliant PedO� r _.. ;- "`", `.. x0. :t". pee pools rantee pf futuro#tiu as m ce 1s nota a mana9eme�t . ... Past performance in the ..M: � requested. ds{fetent i'---)'1,4,.---•'''..2..'���:,� e period restrats95eswith {or th of fees dx{#erent e " T- toss employ ....�_� �.,,,,,"s =� ted9 May , .: . calculated pools+r �,�F; �,:�.azr.;�-"^_"m Chandler fes are County ;g.�_.,. , r sty the A�� w�.� 'x:���^ on mfg and ...;.. `�c: u'{x,' ;:,,,N Returns t dtsctosares. %, ,T 'F^ :tU+ ' additfona z&pF t, . ��,fah.L: A Track Record of Significant Value-Added Chandler Investment Styles 10-Year Returns June 2000 — June 2010 Annualized Total Return - -(• Tx, • , , Y Growth •Chandler Asset vaiue Investment Portfolio 10 Years Ending . . xxx, of $100 Million - Net of Fees Style Duration 6130110 Net of Fees • x ;vv,er.!Air Net of Fees (0.084 of 1%) p,.•„:22..., ,,‘ $136.5 million f4r:: LAIF 0.5-0.8 3.16% /A- Chandler 2.44 5.36% $158.6 Short Term Bond Sample fees calculated for a$100 million portfolio. Past performance is not a guarantee of future results. Please see attached GIPS@ Compliant Performance Presentation -21 ?.-404:- 'firriiAtc.,;w0titcfrSicht <Ca:. ItelViel:i::07#444S-4--c‘efet." JArt". Istati-rtiege%''..3:47; h.; -am?: CAt Complete Reporting Assets managed by Chandler Asset Management are in full compliance with State law and with the District's investment policy. Category Standard Comment- Treasury/Agency Issues No limitations Complies Banker's Acceptances Al/P1 ; 40% max.; 180 days Complies Commercial Paper Al/P1; 25% max.; 270 days Complies Negotiable CDs Al/P1; 20% max.; <=5 yrs Complies Medium Term Notes "A"-rated; 30% maximum Complies Money Market Mutual Funds "AAA" rated & $500MM minimum Complies Mortgage Backed Securities, including CMOs U.S. Govt backed only; 20% maximum Complies Repurchase Agreements Prohibited Complies Reverse Repurchase Agreements Prohibited Complies LAIF Not used by outside adviser Complies Inverse floaters, range notes Prohibited Complies Interest only strips Prohibited Complies Zero interest accruals Prohibited Complies Maximum maturity 5 years Complies ?y"r, e1rL"tta 4 lW+`r ,-, ?: - aSU . is ri a a i [ Distinctions of Chandler Asset Management • Disciplined and repeatable investment process. • Experienced professional team dedicated to meeting our clients' objectives. • Proven track record, conservative approach. ky;,r r t ca y SauteraM ,_ S � a�„* ire �s til' p t t"y'. 3'. > y fi , r. .N,.-. r.�� " ''k.L oak:4 w t 'ae�du x wa 'r n y4n4.-Pt. 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