The URL can be used to link to this page

13-0604_PFM ASSET MANAGEMENT LLC_Personal Services AgreementPERSONAL SERVICES AGREEMENT THIS AGREEMENT is made, entered into, and shall become effective this~ day of-1~, 2013, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and PFM Asset Management LLC (hereinafter referred to as the "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal for investment management services; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by the Consultant shall consist of those tasks as set forth in Exhibit "A", attached and incorporated herein by reference. To the extent that there are any conflicts between the provisions described in Exhibit "A" and those provisions contained within this Agreement, the provisions in this Agreement shall control. Section 2. Term. This Agreement shall commence on the effective date and shall terminate, and all services required hereunder shall be completed, no later than June 30, 2015. Section 3. Compensation. 3.1 Amount. Total compensation for the services hereunder shall begin upon the placement of assets for management, however no sooner than July 1, 2013, calculated as set forth in Exhibit "8", attached and incorporated herein by reference, but in no event shall exceed $30,000 per fiscal year. 3.2 Method of Payment. Subject to Section 3.1, Consultant shall submit monthly invoices based on total services which have been satisfactorily completed for such monthly period. The City will pay monthly progress payments based on approved invoices in accordance with this Section. 1 3.3 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to the City. Invoices shall be addressed as provided for in Section 16 below. Section 4. Independent Contractor. It is agreed that Consultant shall act and be an independent contractor and not an agent (except with respect to the execution of trades for the sale and purchase of portfolio securities) or employee of the City, and shall obtain no rights to any benefits which accrue to Agency's employees. Section 5. Limitations Upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for the City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to the City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work and/or Construction Site. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; (2) if applicable, it has investigated the work site(s), and is aware of all conditions there; and (3) it understands the facilities, difficulties and restrictions of the work to be performed under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform the City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. 2 Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and local government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. All reports submitted to the City shall be in reproducible format, or in the format otherwise approved by the City in writing. Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be made available to any individual or organization without prior written consent of the City, unless such disclosure is required by judicial or regulatory order or process. All such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemnity. To the fullest extent permitted by law, Consultant agrees to protect, defend, and hold harmless the City and its elective and appointive boards, officers, agents, and employees from any and all claims, liabilities, expenses, or damages of any nature, including attorneys' fees, for injury or death of any person, or damages of any nature, including interference with use of property, arising out of, or in any way connected with the negligence, recklessness and/or intentional wrongful conduct of Consultant, Consultant's agents, officers, employees, subcontractors, or independent contractors hired by Consultant in the performance of the Agreement. The only exception to Consultant's responsibility to protect, defend, and hold harmless the City, is due to the negligence, recklessness and/or wrongful conduct of the City, or any of its elective or appointive boards, officers, agents, or employees. 3 This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by Consultant. Section 14. Insurance. On or before beginning any of the services or work called for by any term of this Agreement, Consultant, at its own cost and expense, shall carry, maintain for the duration of the agreement, and provide proof thereof that is acceptable to the City, the insurance specified below with insurers and under forms of insurance satisfactory in all respects to the City. Consultant shall not allow any subcontractor to commence work on any subcontract until all insurance required of the Consultant has also been obtained for the subcontractor. Insurance required herein shall be provided by Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A-Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in an amount not less than two million dollars per occurrence ($2,000,000.00), combined single limit coverage for risks associated with the work contemplated by this agreement. If a Commercial General Liability Insurance form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this agreement or the general aggregate limit shall be at least twice the required occurrence limit. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including hired and non-owned vehicles in an amount not less than one million dollars per occurrence ($1,000,000.00). 14.3 Workers' Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Workers' Compensation Employer's Liability Insurance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self-retention amount, and an additional insured endorsement naming City, its officers, employees, agents, and volunteers as additional insured as respects each of the following: Liability arising out of 4 activities performed by or on behalf of Consultant, including the insured's general supervision of Consultant; products and completed operations of Consultant; premises owned, occupied or used by Consultant; or automobiles leased, hired, or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded City, its officers, employees, agents, or volunteers. 14.5 Errors and Omissions Coverage and Fidelity Bond Coverage Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than Fifteen Million Dollars ($15,000,000) and Fidelity Bond Coverage in an amount of not less than Ten Million Dollars ($10,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the City Attorney for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, except that ten (1 0) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to Consultant. In addition, this Agreement may be terminated by any party for cause by providing ten (1 0) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (1 0) day cure period. Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or 5 to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: To Consultant: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Cindy Russell, Chief Financial Officer/City Treasurer PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 Attn: Nancy Jones, Managing Director With a copy to: Two Logan Square, Suite 1600 18th & Arch Streets Philadelphia, PA 19103-2770 Attn: Controller Section 17. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, each party agrees to submit to binding arbitration. Such arbitration will be conducted by a single arbitrator identified and selected by the parties, and shall be conducted in accordance with the rules and procedures of the Judicial Arbitration and Mediation Service ("JAMS"). Section 19. Investment Advisor Provisions 19.1 Performance of Certain Duties. Consultant shall place all orders for the purchase, sale, loan or exchange of portfolio securities for City's account with brokers or dealers recommended by Consultant and/or City, and to that end Consultant is authorized as agent of City to give instructions to the custodian designated by City (the "Custodian') as to deliveries of securities and payments of cash for the account of City. In connection with the selection of such brokers and dealers and the placing of such orders, Consultant is directed to seek for City the most favorable execution and price, the determination of which may take into account, subject to 6 any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Consultant by such brokers and dealers. The Custodian shall have custody of cash, assets and securities of City. Consultant shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility in connection therewith. Consultant shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of the assets under management (the "Managed Funds"). Consultant will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the Managed Funds and in the absence of such instructions will engage broker/dealers which Consultant reasonably believes to be reputable, qualified and financially sound. 19.2 Pool Compensation. Assets invested by Consultant under the terms of this contract may from time to time be invested in a money market mutual fund or local government investment pool managed by Consultant (either, a "Pool") or in individual securities. Average daily net assets subject to the fees described in this contract shall not take into account any funds invested in the Pool. Expenses of the Pool, including compensation for Consultant and the Pool custodian, are described in the relevant prospectus or information statement and are paid from the ·Pool. 19.3 Registered Advisor; Duty of Care. Consultant hereby represents it is a registered investment advisor under the Investment Advisers Act of 1940. Consultant shall immediately notify City if at any time during the term of this Agreement it is not so registered or if its registration is suspended. Consultant agrees to perform its duties and responsibilities under this Agreement with reasonable care. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith. Nothing herein shall in any way constitute a waiver or limitation of any rights which City may have under any federal securities laws. City hereby authorizes Consultant to sign I.R.S. Form W-9 on behalf of City and to deliver such form to broker-dealers or others from time to time as required in connection with securities transactions pursuant to this contract. 19.4 Expenses. Consultant shall furnish at its own expense all necessary administrative services, office space, equipment, clerical personnel, telephone and other communication facilities, investment advisory facilities, and executive and supervisory personnel for managing the Managed Funds. Except as expressly provided otherwise herein, City shall pay all of its own expenses including, without limitation, taxes, commissions, fees and expenses of City's independent auditors and legal counsel, if any, brokerage and other expenses connected with the execution of portfolio security transactions, insurance premiums, and fees and expenses of the Custodian. 7 19.5 Advisor's Other Clients. City understands that Consultant performs investment advisory services for various other clients which may include investment companies, commingled trust funds and/or individual portfolios. City agrees that Consultant, in the exercise of its professional judgment, may give advice or take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Managed Funds. Consultant shall not have any obligation to purchase, sell or exchange any security for the Managed Funds solely by reason of the fact that Consultant, its principals, affiliates, or employees may purchase, sell or exchange such security for the account of any other client or for itself or its own accounts. 19.6 Force Majeure. Consultant shall have no liability for any losses arising out of the delays in performing or inability to perform the services which it renders under this Agreement which result from events beyond its control, including interruption of the business activities of Consultant or other financial institutions due to acts of God, acts of governmental authority, acts of war, terrorism, civil insurrection, riots, labor difficulties, or any action or inaction of any carrier or utility, or mechanical or other malfunction. 19.7 Disciplinary Actions. Consultant shall promptly give notice to City if Consultant shall have been found to have violated any state or federal securities law or regulation in any judgment in any criminal action or civil suit in any state or federal court or in any disciplinary proceeding before the Securities and Exchange Commission or any other agency or department of the United States, any registered securities exchange, the Financial Industry Regulatory Authority, or any regulatory authority of any State based upon the performance of services as an investment advisor. 19.8 Brochure and Brochure Supplement. Consultant warrants that it has delivered to City prior to the execution of this contract Consultant's current Securities and Exchange Commission Form ADV, Part 2A (brochure) and Part 28 (brochure supplement). City acknowledges receipt of such brochure and brochure supplement prior to the execution of this Agreement. Section 20. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. [SIGNATURE PAGE FOLLOWS] 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. PFM ASSET MANAGEMENT LLC By: u Nancy Jones, Ma 9 EXHIBIT A-SCOPE OF WORK Specific responsibilities of the Consultant will include: A. Manage on a daily basis the City of San Juan Capistrano's separate investment portfolios pursuant to the specific, stated investment objectives. Place all orders for the purchase and sale of securities, communicate settlement information to the City of San Juan Capistrano's staff and coordinate security settlement. B. Serve as a general resource to the City of San Juan Capistrano's staff for information, advice and training regarding fixed-income securities and investments. C. Work with the City of San Juan Capistrano staff to understand cash flow projections to ensure that the investment strategy is consistent with the City of San Juan Capistrano's liquidity requirements. D. Provide monthly statements with all the information required by the California Government Code and Governmental Accounting Standards Board (GASB). These reports must include: 1. Summary of Portfolio Holdings. A listing of all securities held at the end of the month categorized by type of security, maturity and institution, including those securities managed directly by the City. 2. Investment Performance Report. At a minimum the performance report should show total returns for the period compared to the established benchmark. 3. Maturity /Duration Indicators. The monthly report should include portfolio duration and average maturity statistics to help monitor interest-rate risk. 4. Transaction Summary. A summary of completed transactions for the month. 5. Mark-to-Market Report. The monthly report should show the cost and market value for each security in the portfolio. The Consultant must maintain accurate reports of investments including the diversity of investments and compliance with applicable investment policies of the City of San Juan Capistrano and State of California statutes. These reports are required to be completed no later than the 2Qth of the month for the immediately preceding month for presentation to the City Council at their next available meeting. E. Provide quarterly investment reports including a description of market conditions, investment strategies employed performance and suggested changes to investment strategy. The performance numbers shall be presented in conformity with the CF A Institute's Global Investment Performance Standards (GIPS). F. Attendance at Investment Advisory Committee meetings and City Council meeting as requested. EXHIBIT B-COMPENSATION For serv1ces provided by the Consultant pursuant to this Agreement, the City shall pay the Consultant an annual fee, in monthly installments, based on the daily net assets under management per the following schedule: • 10 basis points (0.10%) per year on the flrst $25 million of assets under management. • 8 basis points (0.08%) per year on assets between $25 million and $50 million under management. • 7 basis points (0.07%) per year on assets over $50 million under management. The Consultant retains the right to negotiate a fee adjustment, in line with CPI, after three years. 6/4/2013 H1a TO: FROM: Cindy Russell, Chief Fin ncial Officer/City Treasurer&~ DATE: June 4, 2013 SUBJECT: Consideration of a Personal Services Agreement for Investment Management Services (PFM Asset Management, LLC) RECOMMENDATION: By motion, approve the Personal Services Agreement with PFM Asset Management, LLC for Investment Management Services, until June 30, 2016, not to exceed $30,000 annually. EXECUTIVE SUMMARY: Implementation of the City's investment policy with the assistance of a professional investment manager will provide good, stable, long-term improvement in the City's investment portfolio performance. Effective implementation of the investment strategy requires active management of the portfolio and monitoring of the market on a daily basis. By actively managing the portfolio, the City can maximize its earnings while maintaining the fundamental safety and degree of liquidity that the City requires. Staff has identified that out-sourcing these activities to a professional investment management firm with specialized public sector expertise and proven results is best suited to achieve the City's goals of improved performance and diversification within the parameters of the City's Investment Policy while minimizing risk. Additionally, the City would benefit from the firm's specialized professional expertise, risk management, credit evaluation and investment management tools, and investment reporting. Therefore, staff has pursued the option to retain an investment management firm to assist City staff. Based on the results of the Request for Proposal (RFP) process, staff is recommending PFM Asset Management, LLC to provide these services until June 30, 2016, (Attachrn~nt 1 ). City Council Agenda Report June 4, 2013 Page 2 of 5 DISCUSSION/ANALYSIS: The City currently invests a large portion of its idle cash in the California Local Agency Investment Fund (LAIF) for liquidity and manages the remainder of its investment portfolio in-house using a passive approach (i.e. buying and holding investments until the investments mature or are called) which requires minimal staffing resources. The City would benefit from the services of a professional investment manager with specific public sector experience to provide active investment management services on day-to-day basis. The improvement in the City's portfolio performance or "yield" is not from riskier investments, but rather from these active investment management services. Some of these day-to-day activities include regular monitoring of yields in the market; the re-balancing of the portfolio's duration (average maturity) to take advantage of interest rate trends; credit monitoring and analysis; investment selection; and competitive shopping of investments to obtain the best rates. The use of an investment management firm on a contract basis (out-sourcing) would provide the specific expertise required and be more cost effective than adding additional staff resources to provide these daily activities. The portfolio management process works as follows: • The investment management firm makes an investment recommendation to the City, which is approved or declined by the City Treasurer. • The investment management firm shops for the most competitive price (best yield), and coordinates the transaction with the City's custodian bank (currently Union Bank). • Union Bank completes the transaction based on instructions approved by the City Treasurer (which is the process in currently in place). • The City's cash is only accessible by Union Bank, based on the instructions provided by the City Treasurer. • The investment management firm and/or brokers have no access to the City's cash. Request for Proposals Process On November 20, 2012, the City issued a Request for Proposals (RFP) for professional investment management services (Attachment 2). The RFP was sent to 16 firms. The City received three responses to its RFP. A summary of the proposals is provided in Attachment 3 to this report and the proposed fees are summarized as follows: Projected Annual Fee Based on a Portfolio Balance of $25-$35 million Firm Name Chandler Asset Management PFM Asset Management, LLC (PFMAM) United American Capital Corporation (UACC) Location La Jolla, CA San Francisco, CA Washington, OH $25 Million $25,000 $25,000 $25,000 $30 Million $30,000 $29,000 $27,500 $35 Million $35,000 $33,000 $30,000 City Council Agenda Report June 4, 2013 Page 3 of 5 The proposals were reviewed by City staff. One firm (PFMAM) met all the minimum qualifications set forth in the RFP (Attachment 3). However, based on the qualifications reviewed and professional reputation of the firms, City staff chose to interview PFMAM and Chandler Asset Management. Based on the results of the interviews, references and price, staff concurred that PFMAM offers the best overall value to the City for the following reasons: • Exceptional qualifications with more than 32 years of experience specializing in providing investment management services to the public sector including similar size cities. • Demonstrated knowledge of the City's current operations, including the City's monthly investment reports and Investment Policy. • Experienced and professional staff members that will be assigned to the City. • $4 7 billion in public agency funds for 300 public agencies clients nationwide as of December 31, 2013, including $9.7 billion in assets managed for 103 California public agencies. • Competitive pricing for public agency investment management services. PFM Asset Management would provide the following services to the City: • Actively manage up to $31.25 million (based on fees not-to-exceed $30,000) of the City's investment portfolio on a day-to-day basis pursuant to the specific stated investment objectives. • Develop and implement an active investment strategy to produce improved, stable, long-term performance. • Provide advice, information and training for City staff regarding fixed-income securities and investments. • Work with the City staff to develop and understand cash flow projections to ensure the investment strategy is consistent with the City's requirements. • Provide monthly and quarterly investment reporting with all information required by the California Government Code and Governmental Accounting Standards Board (GASB). • Attendance at public meetings as requested, and at least quarterly. FISCAL IMPACT: Fees for investment management are based on the amount of the portfolio placed under management. The PFMAM proposal is ten (1 0) basis points or 0.10% (a basis point equals 1/100 of one percent) for the first $25 million. The next $25 million are at eight (8) basis points or 0.08% and the amount over $50 million is at six (6) basis points or 0.06%. The current portfolio to be invested is expected to be $25 million increasing to City Council Agenda Report June 4, 2013 Page 4 of 5 $30 million over the next three years. Based on the fees outlined above the annual cost is expected to be $25,000-$30,000. For comparison purposes, by actively managing the portfolio with a professional investment advisor, it is expected that the City can achieve a return on its portfolio that will consistently beat the LAIF performance as well as the City's previous performance. For the past three years, PFMAM's composite average return as compared to LAIF and the City's performance are as follows: PFMAM Investment Management Services Performance Comparison 2010 2011 2012 PFMAM Composite Return 2.3100~ 1.580% 0.990% LAIF Average Return 0.520% 0.440% 0.350% City of San Juan Capistrano Average Return 0.779% 0.527% 0.549% PFMAM Return exceeding LAIF 1.790% 1.140% 0.640% PFMAM Return exceeding the City 1.531% 1.053% 0.441% The following chart provides a summary of the City's average portfolio balances and its annual earnings, as compared to the annual earnings computed based on PFMAM's gross and net (after deducting fees) composite return over the past three years: . , PFMAM N~tf Year .'::i"'""~~i.mt.::;;~ . Net.Benefft3 2010 $28,016,090 $21~,318 $647,172 $619;844: $401,466 2011 $23,933,202 $126,124 $378,145 $354,354 $228,230 2012 $25;427,626 $139,606 $251,733 $226,409·· $86,803 Total $484,108 $1,277,050 $1,200,607 $716,499 1. Excludes 15% of City's portfolio balances and earnings for liquidity. City's historical balances and amortized cost earnings provided by the City. 2. Performance on gross (i.e., before fees) in accordance with the CFA Institute's Global Investment Performance Standards (GIPS). Based on total returns of PFMAM's 1-3 Year Fixed-Income Composite. 3. Past performance does not necessarily reflect and is not a guarantee of future results. 4. PFMAM composite information available upon request. For calendar year 2012, the City's average portfolio balance was $29.9 million. It is anticipated that 15% of the portfolio would remain with the City for day-to-day operations cash flow, leaving 85% or $25.4 million of the portfolio under management. Based on the PFMAM's performance for calendar year 2012, and after deducting fees of $25,324 the additional earnings would be $86,803. Additionally, the City incurs $3,540 annually for an investment tracking, accounting and reporting software provider. This service would be discontinued effective July 1, 2013, resulting in a total calculated benefit to the City of $90,343 based on 2012 performance. ENVIRONMENTAL IMPACT: Not applicable. City Council Agenda Report June 4, 2013 Page 5 of 5 PRIOR CITY COUNCIL REVIEW: On May 7, 2013, the City Council received a presentation on the option of retaining an investment management firm to assist City staff and moved to continue its consideration of this option for further discussion. COMMISSION/COMMITIEE/BOARD REVIEW AND RECOMMENDATIONS: Not applicable. NOTIFICATION: PFM Asset Management, LLC ATIACHMENTS: Attachment 1 -Personal Services Agreement Attachment 2 -Request for Proposal Attachment 3 -Summary of Request for Proposals Enclosure-PFM Asset Management, LLC Proposal is on file in the City Clerk's Office PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made, entered into, and shall become effective this_ day of , 2013, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and PFM Asset Management LLC (hereinafter referred to as the "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal for investment management services; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by the Consultant shall consist of those tasks as set forth in Exhibit "A," attached and incorporated herein by reference. To the extent that there are any conflicts between the provisions described in Exhibit "A" and those provisions contained within this Agreement, the provisions in this Agreement shall control. Section 2. Term. This Agreement shall commence on the effective date and shall terminate, and all services required hereunder shall be completed, no later than June 30, 2016. Section 3. Compensation. 3.1 Amount. Total compensation for the services he_reunder shall begin upon the placement of assets for management, however no sooner than July 1, 2013, calculated as set forth in Exhibit "B," attached and incorporated herein by reference, but in no event shall exceed $30,000 per fiscal year. 3.2 Method of Payment. Subject to Section 3.1, Consultant shall submit monthly invoices based on total services which have been satisfactorily completed for such monthly period. The City will pay monthly progress payments based on approved invoices in accordance with this Section. 1 ATTACHMENT 1-Page 1 of9 3.3 · Records of Expenses. . Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to the City. Invoices shall be addressed as provided for in Section 16 below. Section 4. Independent Contractor. . It is agreed that Consultant shall act and be an independent contractor and not an agent (except with respect to the exect,Jtion of trades for the sale and purchase of portfolio securities) or employee of the City, and shall obtain no rights to any benefits which accrue to Agency's employ~es. · Section 5. Limitations Upon Subcontra.cting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for the City to enter into this Agree.ment. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to the City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work. For extra work not part of this Agreement, a written authorization from City is r-equired prior to Consultant undertaking any extra work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement s~tting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work and/or Construction Site. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; (2) if applicable, it has investigated the work slte(s), and is aware of all conditions there; and (3) it understands the facilities, difficulties and restrictions of the work to be performed under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform the City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. 2 ATTACHMENT 1 -Page 2 of 9 Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Comnllance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and ·local.government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any mant:~er or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. All reports submitted to the City shalf be in reproducible format, or in the format otherwise approved by the City in writing. Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be niade available to any individual or organization without prior written consent of the City, unless such disclosure is required by judicial or regulatory order or process. All ·such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemnity. To the fullest extent permitted by law, Consultant agrees to protect, defend, and hold harmless the City and its elective and appointive boards, officers, agents, and employees from any and all clarms, liabilities, expenses, or damages of any nature, including attorneys' fees, for injury or death of any person, or damages of any nature, including interference with use of property, arising out of, or in any way connected with the negligence, recklessness and/or intentional wrongful conduct of Consultant, Consultant's agents, officers, employees, subcontractors, or independent contractors hired by Consultant in the· performance of the Agreement. The only exception to Consultant's responsibility to protect, defend, and hold harmless the City, is due to the negligence, recklessness and/or wrongful conduct of the City, or any of its elective or appointive boards, officers, agents, or employees. 3 ATTACHMENT 1-Page 3 of 9 This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by Consultant Section 14. Insurance. On or before beginning any of the services or work called for by any term of this Agreement, Consultant, at its own cost and expense, shall carry, maintain for the duration of the agreement, and provide proof thereof that is acceptable to the City, the insurance specified below with insurers and under forms of insurance satisfactory in all respects to the City. Consultant shall not allow any subcontractor to commence work on any subcontract until all insurance required of the Consultant has also been obtained for the subcontractor. Insurance required herein shall be provided by Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A-Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in an amount not less than two million dollars per occurrence ($2,000,000.00), combined single limit coverage for risks associated with the work contemplated by this agreement. If a Commercial General Liability Insurance form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this agreement or the general aggregate limit shall be at least twice the required occurrence limit. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including hired and non-owned vehicles in an amount not less than one million dollars per occurrence ($1 ,000,000.00). 14.3 Workers' Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Workers' Compensation Employer's Liability lnsmance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self-retention amount, and an additional insured endorsement naming City, its officers, employees, agents, and volunteers as additional insured as respects each of the following: Liability arising out of 4 ATTACHMENT 1 -Page 4 of 9 activities performed by or on behalf of Consultant, including the insured's general supervision of Consultant; products and completed operations of Consultant; premises owned, occupied or used by Consultant; or automobiles leased, hired, or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded City, its officers, employees, agents, or volunteers. 14.5 Errors and Omissions Coverage and Fidelity Bond Coverage Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than Fifteen Million Dollars ($15,000,000) and Fidelity Bond Coverage in an amount of not less than Ten Million Dollars ($10,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the City Attorney for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terms of Compensation. Consultant shall not receive any comp~nsation until all insurance provisions have been satisfied. 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to Consultant. In addition, this Agreement may be terminated by any party for cause by providing ten (1 0) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or 5 ATTACHMENT 1 -Page 5 of 9 to such other addresses as may .be designated by written notice: These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano · 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Cindy Russell, Chief Financial Officer/City Treasurer To Consultant: PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 Attn: Nancy Jones, Managing Director With a copy to: Two Logan Square, Suite 1600 1 8th & Arch Streets · Philadelphia, PA 19103-2770 Attn: Controller Section 17. Attorneys' Fees. If any acti.Ot:' at law or in equity is necessary to enforce or inte.rpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a ~ispute arising between the parties regarding performance or interpretation of this Agreement, each party agrees to submit to binding arbitration. Such arbitratron will be conducted by a single arbitrator identified and selected by the parties, and shall be conducted in accordance with the rules and procedures of th~ Judicial Arbitration and Mediation Service ("JAMS"). Section 19. Investment Advisor Provisions 19.1 Performance of Certain Duties. Consultant shall place all orders for the purchase, sale, loan or exchange of portfolio securities for City's account with brokers or dealers recommended by Consultant and/or City, and to that end Consultant is authorized as agent of City to give instructions to the custodian designated by· City (the "Custodian') as to deliveries of securities and payments of cash for the account of City. In connection with the selection of such brokers and dealers and the placing of such orders, Consultaht is directed to seek for City the most favorable execution and price, the determination ofwhic~·maytake into account, subjectto 6 ATTACHMENT 1 ~Page 6 of 9 any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Consultant by such brokers and dealers. The Custodian shall have custody of cash, assets and securities of City. Consultant shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility In connection therewith. Consultant shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of the assets under management (the "Managed Funds"). Consultant will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the Managed Funds and in the absence of such instructions will engage broker/dealers which Consultant reasonably believes to be reputable, qualified and financially sound. 19.2 Pool Compensation. Assets invested by Consultant under the terms of this contract may from time to time be invested in a money market mutual fund or local government investment pool managed by Consultant (either, a "Pool") or in individual securities. Average daily net assets subject to the fees described in this contract shall not take into account any funds invested in the Pool. Expenses of the Pool, including compensation for Consultant and the Pool custodian, are described in the relevant prospectus or information statement and are paid from the ·Pool. 19.3 Registered Advisor; Duty of Care. Consultant hereby represents it is a registered investment advisor under the Investment Advisers Act of 1940. Consultant shall immediately notify City if at any time during the term of this Agreement it is not so registered or if its registration is suspended. Consultant 'agrees to perform its duties and responsibilities under this Agreement with reasonable care. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith. Nothing herein shall in any way constitute a waiver or limitation of any rights which City may have under any federal securities laws. City hereby authorizes Consultant to sign I.R.S. Form W-9 on behalf of City and to deliver such form to broker-dealers or others from time to time as required In connection with securities transactions pursuant to this contract. 19.4 Expenses. Consultant shall furnish at its own expense all necessary administrative services, office spaoe, equipment, clerical personnel, telephone and other communication facilities, investment advisory facilities, and executive and supervisory personnel for managing the Managed Funds. Except as expressly provided otherwise herein, City shall pay all of its own expenses including, without limitation, taxes, commissions, fees and expenses of City's independent auditors and legal counsel, if any, brokerage and other expenses connected with the execution of portfolio security transactions, insurance premiums, and fees and expenses of the Custodian. 7 ATTACHMENT 1-Page 7 of 9 19.5 Advisor's Other Clients. City understands that Consultant performs investment advisory services for various other clients which may include investment companies, commingled trust funds and/or individual portfolios. City agrees that Consultant, in the exercise of its professional judgment, may give advice or take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Managed Funds. Consultant shall not have any obligation to purchase, sell or exchange any security for the Managed Funds solely by reason of the fact that Consultant, its principals, affiliates, or employees may purchase, sell or exchange such security for the account of any other client or for itself or its own accounts. 19.6 Force Majeure. Consultant shall have no liability for any losses arising out of the delays in performing or inability to perform'the services which it renders under this Agreement which result from events beyond its control, including interruption of the business activities of Consultant or other financial institutions due to acts of God, acts of governmental authority, acts of war, terrorism, civil insurrection, riots, labor difficulties, or any ac.tion or inaction of any carrier or utility, or mechanical or other malfunction. 19.7 Disciplinary Actions. Consultant shall promptly give notice to City if Consultant st1all have been found to have violated any state or federal securities law or regulation in any judgment in any criminal action or civil suit in any state or federal court or in any disciplinary proceeding beforE? the S~curities and Exchange Commission or any other agency or department of the United States, any registered securities exchange, the Financial Industry Regulatory Authority, or any regulatory authority of any State based upon the performance of services as an investment advisor. 19.8 Brochure and Brochure Supplement. Consultant warrants that it has delivered to City prior to the execution of this contract Consultant's current Securities and Exchange Commission Form ADV, Part 2A (brochure) and Part 28 (brochure supplement). City acknowledges receipt of such brochure and brochure supplement prior to tl)e execution of this Agreement. Section 20. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. [SIGNATURE PAGE FOLLOWS] 8 ATTACHMENT 1-Page 8 of9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATTEST: Maria Morris, City Clerk CITY OF SAN JUAN CAPISTRANO By:---------· John Taylor, Mayor PFM ASSET MANAGEMENT LLC 9 ATTACHMENT 1-Page 9 of 9 EXHIBIT A-SCOPE OF WORK Specific responsibilities of the Consultant will include: A. Manage on a daily basis the City of San Juan Capistrano's separate investment portfolios pursuant to the specific, stated investment objectives. Place all orders for the purchase· and sale of securities, communicate settlement information to the City of San Juan Capistrano's staff and coordinate security settlement. B. Serve as a gt;neral resource to the City of San Juan Capistrano's staff for information, advice and training regarding fixed-income securities and investments. C. Work with the City of San Juan Capistrano staff to understand cash flow projections to ensure that the investment strategy is consistent with the City of San Juan Capistrano's liquidity requirements. D. Provide monthly statements with all the infonnation required by the California Govenrment Code and Govenunental Accounting Standards Board (GASB). These reports must include: 1. Summary of Portfolio Holdings .. A lisr.ing of all securities held a.t the end of the month categorized by type of security, maturity and institution, including those securities managed directly by the City. 2. Investment Performance Report. At a minimum the perfonnance report should show total returns for the period compared to the established benchmark. 3. Maturity /Duration Indicators. The monthly report should include portfolio duration and average maturity statistics to help monitor interest-rate risk. 4. Transaction Summary. A summary of completed transactions for the month. 5. Mark-to-Market Report. The monthly report should show the cost and market value for each security in the portfolio. 'I be Consultant must maintain accurate reports of investments including the diversity of investments and compliance with applicable investment policies of the City of San Juan Capistrano and State of California statutes. These reports arc required to be completed no later than the 20th of the month for the immediately preceding month for presentation to the City Council at their next available! meeting. E. Provide quarterly investment reports including a description of market conditions, investment strategies employed performance and suggested changes to investment strategy. The performance numbers shall be presented as required by the CF A Institute's Global Investment Perfonnance Standards (GIPS). F. Attendance at Investment Advisory Committee meetings and City Council meet:in!~ as requested, and at least quarterly. EXHIBIT "A"-Page 1 of 1 EX.HIBI'T B-COMPENSA'TION For services provided by the Consultant pursuant to this Agreement, the City shall pay the Consultant an annual fee, .in monthly installments, based on the daily net assets under management per the following schedule: • 10 basis po.ints (0.10%) per year on the first $25 million of assets under management. • 8 basis points (0.08%) per year on assets between $25 million and $50 million under management. • 7 basis points (0.07%) pet year on assets over $50 million under management. The Consultant retains the right to negotiate a fee adjustment, .in line with CPI, after three years. EXHIBIT "B" -Page 1 of 1 REQUEST FOR PROPOSALS FOR INVESTMENT MANAGEMENT SERVICES I. GENERAL INFORMATION The City of San Juan Capistrano is currently seeking proposals from qualified firms interested in providing investment management setvices for the City of SanJuan Capistrano's investment portfolio. The City of San Juan Capistrano desires to contract for services from a firm registered with the Securities and Exchange Commission (SEq under the Investment Adviser's Act of 1940 who wili act in a fiduciary capacity and presents performance munbers in accordance with tl1e Charted Pinandal. Analysts (CPA) Institute's Global Investment Performance Standards (GIPS). The Investment advisor will be requited to manage the funds in accordance with the litws of the State of California, the City of San Juan Capistrano's Investment Policy, and other investment policies and procedures established by the City of San Juan Capistrano. The size of the City of San Juan Capistrano's .investment portfolio is approximately $30 million. A copy of the current investment policy is provided as Exhibit A to this Request for Proposal (RFP). The City of San Juan Capistrano encourages all prospective investment advisors to examine this RFP carefully. Qualified advi$ors, as defined below, are requested to submit proposals to provide the services described in this RFP. The City of San Juan Capistrano expects its investment advisor to be highly experienced, a leader and innovator in the management of investments, and is able to provide comprehensive investment advisory and portfolio accounting services. The firm selected as the investment advisor and its affiliates will be restricted from selling to the City of San Juan Capistrano, or buying from the City of San Juan Capistrano, any sccmities to or from that firm's own inventory or account. The investment advisor shall act solely i11 a fiduciary capacity and shaU not receive any fee or compensation based upon the purchase or sale of securities but, rather, the investment advisor will be compensated pursuant to the provision of its contract with the Cily of San Juan Capistrano. II. PROPOSAL PROCEDURES A. SCHEDULE OF PROPOSAL Issue RFP Questions Due by 5:00pm Proposals Due by 5:00pm Intctv.iews, if necessary Selection for Recommendation City Council Contract Consideration B. ADDITIONAL INFORMATION November 20, 2012 December 4, 2012 December 18, 2012 January 3, 2012 January 4, 2012 January 15, 2012 or February 7, 2012 Inquiries regarding this RFP shall be in written form only. All inquiries must include contact person, address and email address. Responses to questions will be provided to all prospective offers. Questions should be submitted to: Cindy Russell, Chief Financial Officer/ City Treasurer City of SanJuan Capistrano qusscllfipsanjuancapistrano.o.rg or ATTACHMENT 2 -Page 1 of 7 (949) 443-6301 C. PREPARATION OF PROPOSAL Proposals should be prepared simply and econotn.icilly, providing description of capabilities to satisfy the requirements of the RFP. completeness and clarity of content. a straightforward, concise Emphasis should be on D. NUMBER OF PROPOSAL COPIES Five (5) copies of the proposal should be submitted. E. SUBMISSION OF PROPOSALS Proposal shall be submitted in a sealed envelope bearing the caption: Request for Proposal for lnvcsrn1cnt Management Services and addressed to: Cindy Russell, Chief Financial/ City Treasurer City of SanJuan Capistrano 32400 Pasco Adelanto SanJuan Capistrano, CA 9267 5 All proposals must be delivered to the above office on or before at 5:00 p.m. on December 18, 2012 (Proposals received after the above date and time will not be considered.) The City of San Juan Capistrano is under no obligation to return proposals. All cost associated with a proposal will be borne by each proposer. F. TIME AND LOCATION OF PROPOSER'S PRESENTATION Selected proposers may be invited to interview. Those proposers will be notified to arrange specific times. The City of San Juan Capistrano will not be responsible for any cost of the proposer's presentation. G. EFJ:<"ECTIVE PERIOD OPPR01~0SALS All rroposals mu:;t state the period for which the propmal shall remain in effer:t. Such period shall not be less than 120 days from the proposal due date. B. RIGHT OF REJECTION BY THE CITY OF SAN JUAN CAPISTRANO Notwithstanding any other provisions of this RFP, the City of San Juan Capistrano reserves the right to award this contract to the investment advisor th~tt best meets the requirements of lhe RFP, aud not necessarily, to the lowest bidder. Further, the City of San Juan Capistrano rcse.rves the right to reject any or all proposals prior to execution of the contract, with no penalty to the City of San Juan Capistrano. I. AWARD OF CONTRACT A proposer to whom a contract is awarded shall be required to enter into a written contract with the City of SanJuan Capistrano in a form approved by legal counsel for the City of San Juan Capistrano and substantially the form p.rovidcd as Exhibit B to this RFP. This R.FP and the proposal, or any part thereof, may be incorporated into and made a part of the final contract. The City of San Juan Capistrano reserves the right to negotiate the terms and conditions of the contract with the selected proposer. 2 ATTACHMENT 2-Page 2 of 7 J. CONTRACTTERM It is the intent to award a contract for an initial three (3) year period with the option to renew it for two, one-year periods for a possible total of five yeats. The decision to renew the contract will be at the sole discretion of the City of San Juan Capistrano. III. MINIMUM QUALIFICATIONS To be considered by the City of San Juan Capistrano, proposing investment advisors must: • Currently manage at least $10 billion of domestic fixed income assets for public entities. Assets for which periodic (daily, monthly or quarterly) advice is provided should be excluded from the calculation of funds under management. • Manage a minimum of 20 portfolios comprising California local agency assets. • Assign a portfolio manager and a relationship manager who each have a minimutn of ten years experience providing investment advice to California public entities. • De familiar with all appli.;:able California statutes with regard to qualified investments for public entities. • Be registered with the Securities and Exchange Commission under the Investment Advisor's Act of 1940. • Be financially solvent and appropriately capitalized to be able to provide service for the duration of the contract. • I Iave Errors & Omissions insurance coverage of at least $10 million. • Adhere to the Code of Professional and Ethical Standards as described by the. CFA Institute. IV. SCOPE OF SERVICES Specific responsibilities of rl1e selected investment manager will include, but not be limited to the following: A Manage on a daily basis the City of San Juru1 Capistrano's separate investment portfolios pursuant to the specific, stated investment objectives. Place all orders for the purchase and sale of securities, communicate settlement information to cl1e City of San Juan Capistrano's staff and coordinate security settlement. B. Serve as a general resource to the City of San Juan Capistrano's staff for information, advice and training regarding fixed income securities, investments. C. Work with the City of San Juan Capistrano staff to understand cash flow projections to ensure that the investment strategy is consistent with the City of San Juan Capistrano's liquidity r·equi:rements. 3 ATTACHMENT 2-Page 3 of? D. Provide monthly statements ·with all tbc information required by the California Government Code and Governmental Accounting Standards Board (GASB). These reports must include: 1. Summary of Portfolio Holdings. A listing of all securities held at the end of the month categorized by t-ype of security, maturity and institution, indu'cling those securities managed directly by the City. 2. InveAtment Performance Report. At~ minimum d1e performance repod should show total returns for the period compared to the established benchmark. 3. Maturity /Duration Indicators. The monthly report should include portfolio duration and average maturity statistics to help monitor interest-rate, risk. 4. Transaction Summary. A summary of completed transactions for the month. 5. Mark-to-Market Report. The monthly report should show the cost and market value for each security in the portfolio. The selected investment manager must maintain accurate reports of investments including. the diversity of investments and compliance with applicable investment policies of the City of San Juan Capistrano and State of California statutes. These reports are required to be completed no later than the 2Q•h of the month for the immediately preceding month for presentation to the City Council at their next available meeting .. E. Provide quarterly investment reports including a description of market conditions, investment strategies employed performance and suggested changes to investment strategy. The performance numbers shall be presented as required by the CPA Institute's Global Investment Performance Standards (GIPS). F. The investment advisors WILL NOT provide custodial services or secmity safekeeping. G. The City Council has recently identified the desire to form an Investment Advisory Committee, and intends for tllis committee to tneet at least quarterly. The Investment Advisor will be required to attend all Investment Advisory Comnlittee meetings and City Couucil meeting as rcyuestcd. V. EVALUATION CRITERIA The purpose of this RFP is to identify a firm to serve as the investment advisor to the City of San Juan Capistrano. The firm that best meets the needs and requirements of the City of San Juan Capistrano will be selected. The evaluation criteria that will be used to determine the successful proposer are listed below. A. Relevant experience managing public agency funds. B. The experience, resources and qualifications of the investment advisor and individuals assigned to this account. C. Proposed fees and compensation D. Investment philosophy and strategy and demonstrated investment performance. E. Ability to provide necessary portfolio accountUJg services according to the CFA Institute's "GIPS." F. Understanding of the scope of services required by the City of San Juan Capistrar.o and ability to provide these services. 4 ATTACHMENT 2-Page 4 of 7 VI. REQUIRED INFORMATION A. Firm Background 1. Describe the organi:r.ation, date founded and ownership of your firm. Specify the number of years your organization has been providing investment management services. 2. Describe any other business affiliations (e.g., subsidiaries, joint ventures, "soft dollar" arrangements with brokers). 3. Describe yom firm's revenue sources (e.g., investment management, institutional research, etc.) and comment on your firm's financial condition. 4. Provide a copy of your firm's most recent audited financial statement. 5. Is your firm a registered investment advisor under the Investment Advisor's Act of 1940? Please attach Part Il of your most recent Form .tiDV. 6. Describe any SEC, FINRA or any other regulatory censure or litigation involving your firm during the past ten years. 7. State the amount of fidelity bond coverage, errors and otrusslOns, employee fiduciary liability insurance, or other fiducia1y coverage your firm carnes. Certificate of Insurance. dishonesty, Provide a 8. Docs your firm adhere to the Code of Profes~ional and Ethical Standards as described by the CflA Institute? B. Personnel 1. Identify the nurnher of professionals employed by your finn, by classification. 2. Please de;cribe your proposed project team, including role they will play, title and years at firm. Identify the primary portfolio manager and client contacts assigned to the City of San Juan Capistrano's portfolio. 3. l~rovide biographical information on investment professionals, includin:g number of years at your fum that will be involved in the decision-making process for our portfolio. 4. Please describe your firm's compensation policies for investment professionals. C. Assets Under Management 1. Identify the types of accounts managed by your finn. Provide the total dollar amount and percentage managed (exclude accounts for which your services is providing periodic oversight or advice) for each of the following categories: public agency (excluding retirement funds), corporations, and other. 2. Provide the number of portfolios whose funds consist of public agency assets. 5 ATTACHMENT 2-Page 5 of 7 3. For portfolios whose durations exceed one year, provide the percentage of assets under management for your latest reporting period using the table below. U.S. Treasury secmities Federal Agency obligations Corporate securities rated AAA-AA Corporate securities rated A Corporate securities rated BBB or lower Other D. l'hilosophy /Approach 1. Describe your firm's investment philosophy for public clients. % % % % % % 2. Please describe the mattuity concentration, quality and sectors of current accounts similar to the City of San Juan Capistrano's. 3. What arc the primary strategies for adding value to pottfolios (e.g., market timing, credit research, trading)? 4. Describe the pmccss you would rcconuncnd for establishing the investment objectives and constraints fo.r this account. 5. Describe yout firm's in-house technical and research capabilities. Arc outside sources used by the fum on a regular basis? 6. Describe yonr credit review process. Does your fum assign credit research to specialists? 7. How will you handle fluctuating cash ilows and the cash forecasting process? 8. Do you have or would you recommend there be policy restrictir;ns with respect to ma~rity, sector, quality at1d coupon? 9. Provide your list of approved brokers/dealers. How are brokers/dealers selected? What process do you have in place to monitor brokers/ dealers after they have been approved? 10. Describe your fum's experience i.n investing municipal bond proceeds and familiarity wi.th U.S. Treasury arbitrage restrictions as they relate to the investment of proceeds of municipal bonds. E. Portfolio_Management 1. Arc portfolios managed by teams or one individual? 2. Primary client contact is delegated to which of your fim1.'s professionals? 3. How frequently are you willing to meet with us? 4. Describe procedures used to ensure that portfolios comply with client investment objectives, policies and bond resolutions. 6 ATTACHMENT 2-Page 6 of 7 F. References Please provide five local agency client references, including length of time managing their assets, client name, address and phone number. G. Reporting 1. Describe the frequency and format of reports you would provide to the City of San Juan Capistrano staff. Attach a sample. 2. Please describe how you typically report performance. 3. Ple.ase provide a performance composite showing performance for the past five years. The composite should consist of a minimum of five current accounts comprising securities that are permitted under the California Government Code. NO SAMPLE PORTFOLIOS. The duration of the composite should be comparable to the Merrill Lynch 1-3 Year U.S. Treasury Index. Provide information about the composition and duration of the data used, including the number of portfolios making up the composite, for your presentation of performance history. 1.bc composite should be prepared and presented in compliance with the CF A Institute's Global Investment Performance Stnndards (GIPS®). 4. Are you willing to develop reporting pwccdures in line with our needs and objectives (i.e., monthly, so as to conform to State reporting requirements to management and governing bodies)? 5. Are confirmations of investment transactions sent directly by the broker/ dealer to the client? H. Fees All information regarding fees must be submitted in a separate sealed envelope. No mention of fees is to be made in the body of the proposaL 1. Please include a copy of your firm's fee schedule. State your fee in basis points for assets under management. a. Please indicate whether they include custodial fees. b. Is there a minimum annual fcc? c. Are fees charged when there is no activity in the account:? 2. Please provide a statement of fees for such additional serviccs as arbitrage rebate related services. 7 ATTACHMENT 2-Page 7 of7 SUMMARY OF REQUEST FOR PROPOSALS PFMAsset Minimum Management Qualifications Requested (PFMAM) Public entity assets managed (as of September 30, 2012) $10billion $44.8 billion Number of California public ·agency portfolios managed 20 103 #of Years of public sector experience 32 Portfolio Manager /Relationship Manager experience 10 years each 30/27 Familiarity with California statutes regarding qualified investments for public entities Required Yes Registered with the Securities and Exchange Commission under the Investment Advisors' Act of 1940 Required Yes Errors & Omissions Insurance coverage $10 million $15 million Adhere to the Professional Code of Ethics of the Chartered Financial Analysts {CFA) Institute) Required Yes Note 1-Unable to determine. The proposal listed one california public agency as a reference. Assets Managed $0-$40 million $40-$80 million $SO+ million Annual Cost Average Fee % Assets Managed $0-$25 million $25-$50 million $50+ million Annual Cost Average Fee % Assets Managed $0-$25 million $25-$50 million $50+ million Annual Cost Average Fee% PROJECTED ANNUAL CQST CHANDLER ASSET MANAGEMENT $25 Million Annual Fee* Portfolio 0.10% $ 25,000 0.08% 0.06% $ 25,000 0.1000% PFM ASSET MANAGEMENT (PFMAM) $25 Million Annual Fee Portfolio 0.10% $ 25,000 0.08% 0.06% $ 25,000 0.1000% UNITED PORTFOLIO MANAGEMENT (UACC) $25Million Annual Fee Portfolio 0.10% $ 25,000 0.05% 0.06% $ 25,000 0.1000% United Chandler American Asset Capital Management Corporation $6.5 billion $2.97 billion 89 Notel 24 21 19/39 25/35 Yes Yes Yes Yes $10million $5 million Yes Yes $30Milllon $35 Million Portfolio Portfolio $ 30,000 $ 35,000 $ 30,000 $ 35,000 0 .. 1000% 0.1000% $30Million $35Million Portfolio Portfolio $ 25,000 $ 25,000 $ 4,000 $ 8,000 $ 29,000 $ 33,000 0.0967% 0.0943% $30Million $35Million Portfolio Portfolio $ 25,000 $ 25,000 $ 2,500 $ 5,000 $ 27,500 $ 30,000 0.0917% 0.0857% ATTACHMENT 3 C i t y o f S a n J u a n C a p i s t r a n o t l i i i [ t ' ! ' " PFM A s s e t M a n a g e t n e n t L L C ' s I n v e s t t n e n t © PFM Asset Management LLC M a n a g e t n e n t S e r v i c e s N a n c y J o n e s , M a n a g i n g D i r e c t o r P F M A s s e t M a n a g e m e n t L L C J u n e 4 , 2 0 1 3 • Provide an o v e r v i e w o f P F M A s s e t s M a n a g e m e n t L L C , i t s philosophy a n d i t s i n v e s t m e n t m a n a g e m e n t s e r v i c e s • Provide an o v e r v i e w o f t h e I n v e s t m e n t M a n a g e m e n t Process -How d o e s a n i n v e s t m e n t m a n a g e m e n t f i r m i m p r o v e perfor m a n c e ? -How d o e s t h e i n v e s t m e n t t r a n s a c t i o n p r o c e s s w o r k ? ' ©PPM Asset Management LLC. 1 Philosophy Safety: Pr e s e r v e c a p i t a l w i t h h i g h - q u a l i t y i n v e s t m e n t s Liquidity: Pla n f o r a n d p r o v i d e l i q u i d i t y a s n e e d e d Return: Saf e l y i n c r e a s e e a r n i n g s t h r o u g h d i s c i p l i n e d p o r t f o l i o s t r a t e g y Approach Portfolios are de s i g n e d t o m a t c h o u r c l i e n t s ' s p e c i f i c i n v e s t m e n t n e e d s . We achieve stro n g r e s u l t s b y : 1. Understan d i n g o u r c l i e n t s ' i n v e s t m e n t o b j e c t i v e s 2. Carefully m a t c h i n g m a t u r i t i e s t o t h e c l i e n t ' s c a s h f l o w n e e d s 3. Limiting inv e s t m e n t s t o t h o s e o f h i g h q u a l i t y 4. Selecting i n v e s t m e n t s b a s e d o n r e l a t i v e v a l u e 5. Utilizing lo w - r i s k p o r t f o l i o m a n a g e m e n t t e c h n i q u e s t o a d d v a l u e © PFM Asset Management LLC 2 • The City would h a v e e a r n e d $ 8 6 , 8 0 3 m o r e d u r i n g 2 0 1 2 u t i l i z i n g P F M A M ' s 1 - t o 3 - y e a r investment stra t e g y . • The City would h a v e e a r n e d $ 7 1 6 , 4 9 9 m o r e d u r i n g t h e t h r e e y e a r p e r i o d f r o m J a n u a r y 1, 2010 to Dec e m b e r 3 1 , 2 0 1 2 . 2010 2011 2012 Total City's A v e r a g e Portfoli o B a l a n c e 1 $28, 0 1 6 , 0 9 0 $23, 9 3 3 , 2 0 2 $25, 4 2 7 , 6 2 6 C i t y ' s E a r n i n g s 1 $ 2 1 8 , 3 7 8 $ 1 2 6 , 1 2 4 $ 1 3 9 , 6 0 6 $ 4 8 4 , 1 0 8 P F M A M G r o s s E a r n i n g s 2 $ 6 4 7 , 1 7 2 $ 3 7 8 , 1 4 5 $ 2 5 1 , 7 3 3 $ 1 , 2 7 7 , 0 5 0 P F M A M ' s N e t E a r n i n g s $ 6 1 9 , 8 4 4 $ 3 5 4 , 3 5 4 $ 2 2 6 , 4 0 9 N e t B e n e f i t 3 $ 4 0 1 , 4 6 6 $ 2 2 8 , 2 3 0 $ 8 6 , 8 0 3 $ 1 , 2 0 0 , 6 0 7 + $ 7 1 6 , 4 9 9 1. Excludes 15% of City's p o r t f o l i o b a l a n c e s a n d e a r n i n g s f o r l i q u i d i t y . C i t y ' s h i s t o r i c a l b a l a n c e s a n d a m o r t i z e d c o s t e a r n i n g s p r o v i d e d b y t h e C i t y . 2. Performance on gross (i.e . , b e f o r e f e e s ) i n a c c o r d a n c e w i t h t h e C F A I n s t i t u t e ' s G l o b a l I n v e s t m e n t P e r f o r m a n c e S t a n d a r d s ( G I P S ) . B a s e d o n t o t a l returns of PFMAM's 1-3 Y e a r F i x e d - I n c o m e C o m p o s i t e . 3. Past performance does n o t n e c e s s a r i l y r e f l e c t a n d i s n o t a g u a r a n t e e o f f u t u r e r e s u l t s . 4. PFMAM composite inform a t i o n a v a i l a b l e u p o n r e q u e s t . © PFM Asset Management LLC 4 1. PFMAM formul a t e s i n v e s t m e n t r e c o m m e n d a t i o n . 2. PFMAM tests r e c o m m e n d a t i o n i n c o m p l i a n c e s o f t w a r e . 3. If recommendati o n g e t s " P r e - O K , " P F M A M c o m m u n i c a t e s r e c o m m e n d a t i o n t o C i t y s t a f f . 4. City staff appro v e s o r d e c l i n e s t h e r e c o m m e n d a t i o n , o r a s k s f o r m o r e i n f o r m a t i o n r e g a r d i n g the transaction. 5. If approved, PF M A M s h o p s c o m p e t i t i v e l y f o r b e s t p r i c e . 6. PFMAM execut e s t h e t r a n s a c t i o n a n d c o o r d i n a t e s s e t t l e m e n t w i t h d e a l e r a n d c u s t o d i a n . 7. PFMAM sends t i c k e t w i t h c o m p e t i t i v e b i d / o f f e r i n f o r m a t i o n t o C i t y s t a f f . · © PFM Asset Management LLC 7 T r a d e R e c o m m e n d a t i o n s / I n v e s t m e n t A d v i c e · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ~ • • • • • • • • • • • J ~ • • • • • • • • • • . . ) ' ; • • r _ • • ~ 0 : : • • 6 1 1 - • • • ' ? ~ t • : r v , • • C ' t · • . " o • • . ~ ~ C a s h T r a n s a c t i o n s I • • • . . C a s h o n l y m o v e s b e t w e e n • . • • C i t y a n d U n i o n B a n k • • • • • • · · . . ~ , • • • • • • · · ~ • • • • • • • • • PFM-approve d C u s t o d i a n Broker / T r a d e S e t t l e m e n t . . . . . B a n k Dealer s V i a F e d e r a l R e s e r v e " D e l i v e r y - - , ( ~ e r s u s P a y m e n t " s y s t e m - C a s h / S e c u r i t i e s I n f o r m a t i o n • • • • • • • • • ~==~~~------------..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . © 2013 PFM Asset Management LLC 8 • Staff receives e m a i l w i t h r a t i o n a l e f o r r e c o m m e n d a t i o n a n d s e c u r i t y i n f o r m a t i o n a s s h o w below. From: Joseph Cre a s o n , P o r t f o l i o M a n a g e r To: Cindy Russell CC: Sarah Meach a m , N a n c y J o n e s Subject: Investm e n t R e c o m m e n d a t i o n S e n t : T u e , J a n 3 We recommend s e l l i n g $ 1 m i l l i o n U . S . T r e a s u r y n o t e s m a t u r i n g o n O c t o b e r 3 1 , 2 0 1 5 . W e recommend usin g t h e s a l e p r o c e e d s t o p u r c h a s e c a l l a b l e F r e d d i e M a c n o t e s w i t h a y i e l d o f 0.50% maturing o n J a n u a r y 2 8 , 2 0 1 6 . T h i s t r a n s a c t i o n w i l l r e s u l t i n r e a l i z e d g a i n s o n t h e s o l d Treasury and add i t i o n a l e a r n i n g s t h e T r e a s u r i e s m a t u r i t y d a t e . U . S . T r e a s F r e d d i e M a c { C a l l a b l e ) 0 . 5 0 % Acknowle d g e m e n t R e q u i r e d : A n a f f i r m a t i v e c o n f i r m a t i o n b y r e p l y e m a i l i s r e q u i r e d t o p r o c e e d w i t h t h e t r a d e s recomme n d e d . P F M A M w i l l o n l y p r o c e e d u p o n r e c e i p t o f c l i e n t a p p r o v a l . A n y c h a n g e s m u s t b e c o n f i r m e d w i t h P o r t f o l i o t h ! r e s p ~ n s i b _ ! E ! T r a d e r . - - - - - - - - - - - - - - A p p r o v a l S i g n a t u r e © 2013 PFM Asset Management LLC 1 0 • 1 9 " P r i m a r y D e a l e r s " • R e g i o n a l a n d s p e c i a l i s t d e a l e r s • D i r e c t i s s u e r s • M i n o r i t y - a n d w o m e n - o w n e d f i r m s • B l o o m b e r g f i x e d - i n c o m e t r a d i n g ( " F I T " ) • B l o o m b e r g B O O M • T r a d e w e b • M a r k e t A x e s s • $ 4 0 b i l l i o n i n a s s e t s w i t h m a t u r i t i e s i n l e s s t h a n 5 y e a r s • T r a d e s a v e r a g e o v e r $ 1 b i l l i o n p e r d a y • C o m p e t i t i v e s h o p p i n g o f a l l s e c u r i t i e s · © 2013 PFM Asset Management LLC 1 1 • Staff reco m m e n d s t h e C i t y C o u n c i l a p p r o v e a n A g r e e m e n t with PFM A s s e t M a n a g e m e n t , L L C t o p r o v i d e I n v e s t m e n t Managem e n t S e r v i c e s , u n t i l J u n e 3 0 , 2 0 1 6 , n o t t o e x c e e d -$30,000 a n n u a l l y . · © PFM Asset Management LLC 1 7 I This material is based o n i n f o r m a t i o n o b t a i n e d f r o m s o u r c e s g e n e r a l l y b e l i e v e d t o b e r e l i a b l e a n d a v a i l a b l e t o t h e public, however PFM A s s e t M a n a g e m e n t L L C c a n n o t g u a r a n t e e i t s a c c u r a c y , c o m p l e t e n e s s o r s u i t a b i l i t y . T h i s material is for gener a l i n f o r m a t i o n p u r p o s e s o n l y a n d i s n o t i n t e n d e d t o p r o v i d e s p e c i f i c a d v i c e o r a s p e c i f i c recommendation. All s t a t e m e n t s a s t o w h a t w i l l o r m a y h a p p e n u n d e r c e r t a i n c i r c u m s t a n c e s a r e b a s e d o n assumptions, some b u t n o t a l l o f w h i c h a r e n o t e d i n t h e p r e s e n t a t i o n . A s s u m p t i o n s m a y o r m a y n o t b e p r o v e n correct as actual eve n t s o c c u r , a n d r e s u l t s m a y d e p e n d o n e v e n t s o u t s i d e o f y o u r o r o u r c o n t r o l . C h a n g e s i n assumptions may hav e a m a t e r i a l e f f e c t o n r e s u l t s . P a s t p e r f o r m a n c e d o e s n o t n e c e s s a r i l y r e f l e c t a n d i s n o t a guaranty of future res u l t s . T h e i n f o r m a t i o n c o n t a i n e d i n t h i s p r e s e n t a t i o n i s n o t a n o f f e r t o p u r c h a s e o r s e l l a n y securities. -© PFM Asset Management LLC 5/7/2013 H1a TO: FROM: al Officer/City Treasurer~ DATE: May 7, 2013 SUBJECT: Consideration of a Personal Services Agreement for Investment Management Services (PFM Asset Management, LLC) RECOMMENDATION: By motion, approve the Personal Services Agreement with PFM Asset Management, LLC for Investment Management Services, until June 30, 2016, not to exceed $30,000 annually. EXECUTIVE SUMMARY: Implementation of the City's solid investment policy is necessary to provide good, stable, long-term improvement in the City's investment portfolio performance. Effective implementation of the investment strategy requires active management of the portfolio and monitoring of the market on a daily basis. By actively managing the portfolio, the City can maximize its earning while maintaining the fundamental safety and degree of liquidity that the City's Investment Policy requires. Staff has identified that out-sourcing these activities to a professional investment management firm with specialized public sector expertise and proven results is best suited to achieve the City's goals of improved performance within the parameters of the City's Investment policy while minimizing risk. Additionally, the City would benefit from the firm's specialized professional expertise, risk management, credit evaluation and investment management tools, and investment reporting. Therefore, staff pursued the option to retain an investment management firm to assist City staff. Based on the results of the Request for Proposal (RFP) process, staff is recommending PFM Asset Management, LLC to provide these services until June 30, 2016, (Attachment 1). City Council Agenda Report May 7, 2013 Page 2 of 4 DISCUSSION/ANALYSIS: The City currently invests a large portion of its idle cash in the California Local Agency Investment Fund (LAIF) for liquidity and manages the remainder of its investment portfolio in-house using a passive approach (i.e. buying and holding investments until the investments mature or are called) which requires minimal resources. For an investment strategy to be as effective as possible, the City would benefit from the services of a professional investment manager with specific public sector experience to provide active investment management services on day-to-day basis. Some of these day-to-day activities include regular monitoring of yields in the market; the re-balancing of the portfolio's duration (average maturity) to take advantage of interest rate trends; credit monitoring and analysis; investment selection; and competitive shopping of investments to obtain the best rates. The use of an investment management firm on a contract basis (out-sourcing) would provide the specific expertise required and be more cost effective than adding additional staff resources to provide these daily activities. On November 20, 2012, the City issued a Request for Proposals (RFP) for professional investment management services (Attachment 2). The RFP was sent to 16 firms. The City received three responses to its RFP. A summary of the proposals is provided in Attachment 3 to this report and the proposed fees are summarized as follows: Projected Annual Fee Based on a Portfolio Balance of $25-$35 million Firm Name Chandler Asset Management PFM Asset Management, LLC (PFMAM) United American Capital Corporation (UACC) Location La Jolla, CA San Francisco, CA Washington, OH $25 Million $25,000 $25,000 $25,000 $30 Million $30,000 $29,000 $27,500 $35 Million $35,000 $33,000 $30,000 The proposals were reviewed by City staff. One firm (PFMAM) met all the minimum qualifications set forth in the RFP (Attachment 3). However, based on the qualifications reviewed and professional reputation of the firms, City staff chose to interview PFMAM and Chandler Asset Management. Based on the results of the interviews, references and price, staff concurred that PFMAM offers the best overall value to the City for the following reasons: • Exceptional qualifications with more than 32 years of experience specializing in providing investment management services to the public sector including similar size cities. • Demonstrated knowledge of the City's current operations, including the City's monthly investment reports and Investment Policy. • Experienced and professional staff members that will be assigned to the City. • $4 7 billion in public agency funds for 300 public agencies clients nationwide as of December 31, 2013, including $9.7 billion in assets managed for 103 California public agencies. • Competitive pricing for public agency investment management services. City Council Agenda Report May 7, 2013 Page 3 of 4 PFM Asset Management would provide the following services to the City: • Actively manage up to· $31.25 million (based on fees not-to-exceed $30,000) of the City's investment portfolio on a day-to-day basis pursuant to the specific stated investment objectives. • Develop and implement an active investment strategy to produce improved, stable, long-term performance. • Provide advice, information and training for City staff regarding fixed-income securities and investments. • Work with the City staff to develop and understand cash flow projections to ensure the investment strategy is consistent with the City's requirements. • Provide monthly and quarterly investment reporting with all information required by the California Government Code and Governmental Accounting Standards Board (GASB). • Attendance at public meetings as requested, and at least quarterly. FISCAL IMPACT: Fees for investment management are based on the amount of the portfolio placed under management. The PFMAM proposal is ten (1 0) basis points or 0.10% (a basis point equals 1/100 of one percent) for the first $25 million. The next $25 million are at eight (8) basis points or 0.08% and the amount over $50 million is at six (6) basis points or 0.06%. The current portfolio to be invested is expected to be $25 million increasing to $30 million over the next three years. Based on the fees outlined above the annual cost is expected to be $25,000-$29,000. For comparison purposes, by actively managing the portfolio with a professional investment advisor, it is expected that the City can achieve a return on its portfolio that will consistently beat the LAIF performance as well as the City's previous performance. For the past three years, PFMAM's composite average return as compared to LAIF and the City's performance are as follows: PFMAM Investment Management Services Performance Comparison 2010 2011 2012 PFMAM Composite Return 2.310% 1.580% 0.990% LAIF Average Return 0.520% 0.440% 0.350% City of San Juan Capistrano Average Return 0.779% 0.527% 0.549% PFMAM Return exceeding LAIF 1.790% 1.140% 0.640% PFMAM Return exceeding the City 1.531% 1.053% 0.441% The following chart provides a summary of the City's average portfolio balances and its annual earnings, as compared to the annual earnings computed based on PFMAM's gross and net (after deducting fees) composite return over the past three years: City Council Agenda Report May 7, 2013 Page 4 of4 Year· 2010 2011 2012 Total ~f.e'o; p 0 .~t;:;i~, ea,nee·o· .. $28,016,090 $218,S78 $23,933,202 $126,124 $25,427,6~6 $139,606 $484,108 ;,J).~~~wf;-,i~··;······· &:rning;S · $647,172 $378,145 $251,733 $1,277,050 $1,200,607 $716,499 1. Excludes 15% of City's portfolio balances and earnings for liquidity. City's historical balances and amortized cost earnings provided by the City. 2. Performance on gross (i.e., before fees) in accordance with the CFA Institute's Global Investment Performance Standards (GIPS}. Based on total returns of PFMAM's 1-3 Year Fixed-Income Composite. 3. Past performance does not necessarily reflect and is not a guarantee of future results. 4. PFMAM composite information available upon request. For calendar year 2012, the City's average portfolio balance was $29.9 million. It is anticipated that 15% of the portfolio would remain with the City for day-to-day operations cash flow, leaving 85% or $25.4 million of the portfolio under management. Based on the PFMAM's performance for calendar year 2012, and after deducting fees of $25,324 the additional earnings would be $86,803. Additionally, the City incurs $3,540 annually for an investment tracking, accounting and reporting software provider. This service would be discontinued effective July 1, 2013, resulting in a total calculated benefit to the City of $90,343 based on 2012 performance. ENVIRONMENTAL IMPACT: Not applicable. PRIOR CITY COUNCIL REVIEW: Not applicable. COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS: Not applicable. NOTIFICATION: PFM Asset Management, LLC ATTACHMENTS: Attachment 1 -Personal Services Agreement Attachment 2 -Request for Proposal Attachment 3 -Summary of Request fo.r Proposals Enclosure-PFM Asset Management, LLC Proposal is on file in the City Clerk's Office PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made, entered into, and shall become effective this_ day of , 2013, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and PFM Asset Management LLC (hereinafter referred to as the "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal for investment management services; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by the Consultant shall consist of those tasks as set forth in Exhibit "A," attached and incorporated herein by reference. To the extent that there are any conflicts between the provisions described in Exhibit "A" and those provisions contained within this Agreement, the provisions in this Agreement shall control. Section 2. Term. This Agreement shall commence on the effective date and shall terminate, and all services required hereunder shall be completed, no later than June 30, 2016. Section 3. Compensation. 3.1 Amount. Total compensation for the services hereunder shall begin upon the placement of assets for management, however no sooner than July 1, 2013, calculated as set forth in Exhibit "B," attached and incorporated herein by reference, but in no event shall exceed $30,000 per fiscal year. 3.2 Method of Payment. Subject to Section 3.1, Consultant shall submit monthly invoices based on total services which have been satisfactorily completed for such monthly period. The City will pay monthly progress payments based on approved invoices in accordance with this Section. 1 ATTACHMENT 1-Page 1 of 9 3.3 Records of Expenses. . Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to the City. Invoices shall be addressed as provided for in Section 16 below. Section 4. Independent Contractor. It is agreed that Consultant shall act and be an independent contractor and not an agent (except with respect to the exect,Jtion of trades for the sale and purchase of portfolio securities) or employee of the City, and shall obtain no rights to any benefits which accrue to Agency's employ~es. Section 5. Limitations Upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for the City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to the City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addend urn to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work and/or Construction Site. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; (2) if applicable, it has investigated the work site(s), and is aware of all conditions there; and (3) it understands the facilities, difficulties and restrictions of the work to be performed under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately infonm the City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. 2 ATTACHMENT 1-Page 2 of 9 Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and local.government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. All reports submitted to the City shall be in reproducible format, or in the format otherwise approved by the City in writing. Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be niade available to any individual or organization without prior written consent of the City, unless such disclosure is required by judicial or regulatory order or process. All such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemnity. To the fullest extent permitted by law, Consultant agrees to protect, defend, and hold harmless the City and its elective and appointive boards, officers, agents, and employees from any and all claims, liabilities, expenses, or damages of any nature, including attorneys' fees, for injury or death of any person, or damages of any nature, including interference with use of property, arising out of, or in any way connected with the negligence, recklessness and/or intentional wrongful conduct of Consultant, Consultant's agents, officers, employees, subcontractors, or independent contractors hired by Consultant in the· performance of the Agreement. The only exception to Consultant's responsibility to protect, defend, and hold harmless the City, is due to the negligence, recklessness and/or wrongful conduct of the City, or any of its elective or appointive boards, officers, agents, or employees. 3 ATTACHMENT 1 -Page 3 of 9 This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by Consultant. Section 14. Insurance. On or before beginning any of the services or work called for by any term of this Agreement, Consultant, at its own cost and expense, shall carry, maintain for the duration of the agreement, and provide proof thereof that is acceptable to the City, the insurance specified below with insurers and under forms of insurance satisfactory in all respects to the City. Consultant shall not allow any subcontractor to commence work on any subcontract until all insurance required of the Consultant has also been obtained for the subcontractor. Insurance required herein shall be provided by Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A-Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in an amount not less than two million dollars per occurrence ($2,000,000.00), combined single limit coverage for risks associated with the work contemplated by this agreement. If a Commercial General Liability Insurance form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this agreement or the general aggregate limit shall be at least twice the required occurrence limit. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including hired and non-owned vehicles in an amount not less than one million dollars per occurrence ($1,000,000.00). 14.3 Workers' Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Workers' Compensation Employer's Liability Insurance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self-retention amount, and an additional insured endorsement naming City, its officers, employees, agents, and volunteers as additional insured as respects each of the following: Liability arising out of 4 ATTACHMENT 1 -Page 4 of 9 activities performed by or on behalf of Consultant, including the insured's general supervision of Consultant; products and completed operations of Consultant; premises owned, occupied or used by Consultant; or automobiles leased, hired, or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded City, its officers, employees, agents, or volunteers. 14.5 Errors and Omissions Coverage and Fidelity Bond Coverage Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than Fifteen Million Dollars ($15,000,000) and Fidelity Bond Coverage in an amount of not less than Ten Million Dollars ($10,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the City Attorney for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, exceptthat ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to Consultant. In addition, this Agreement may be terminated by any party for cause by providing ten (1 0) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (1 0) day cure period. Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or 5 ATTACHMENT 1 -Page 5 of 9 to such other addresses as may.be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano · 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Cindy Russell, Chief Financial Officer/City Treasurer To Consultant: PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 Attn: Nancy Jones, Managing Director With a copy to: Two Logan Square, Suite 1600 18th & Arch Streets · Philadelphia, PA 19103-2770 Attn: Controller Section 17. Attorneys' Fees. If any acti.on at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, each party agrees to submit to binding arbitration. Such arbitratron will be conducted by a single arbitrator identified and selected by the parties, and shall be conducted in accordance with the rules and procedures of the Judicial Arbitration and Mediation Service ("JAMS"). Section 19. Investment Advisor Provisions 19.1 Performance of Certain Duties. Consultant shall place all orders for the purchase, sale, loan or exchange of portfolio securities for City's account with brokers or dealers recommended by Consultant and/or City, and tci that end Consultant is authorized as agent of City to give instructions to the custodian designated by· City (the "Custodian') as to deliveries of securities and payments of cash for the account of City. In connection with the selection of such brokers and dealers and the placing of such orders, Consultant is directed to seek for City the most favorable execution and price, the determination of which ·may take into account, subject to 6 ATTACHMENT 1-Page 6 of 9 any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Consultant by such brokers and dealers. The Custodian shall have custody of cash, assets and securities of City. Consultant shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility in connection therewith. Consultant shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of the assets under management (the "Managed Funds"). Consultant will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the Managed Funds and in the absence of such instructions will engage broker/dealers which Consultant reasonably believes to be reputable, qualified and financially sound. 19.2 Pool Compensation. Assets invested by Consultant under the terms of this contract may from time to time be invested in a money market mutual fund or local government investment pool managed by Consultant (either, a "Pool") or in individual securities. Average daily net assets subject to the fees described in this contract shall not take into account any funds invested in the Pool. Expenses of the Pool, including compensation for Consultant and the Pool custodian, are described in the relevant prospectus or information statement and are paid from the .Pool. 19.3 Registered Advisor; Duty of Care. Consultant hereby represents it is a registered investment advisor under the Investment Advisers Act of 1940. Consultant shall immediately notify City if at any time during the term of this Agreement it is not so registered or if its registration is suspended. Consultant ·agrees to perform its duties and responsibilities under this Agreement with reasonable care. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith. Nothing herein shall in any way constitute a waiver or limitation of any rights which City may have under any federal securities laws. City hereby authorizes Consultant to sign I.R.S. Form W-9 on behalf of City and to deliver such form to broker-dealers or others from time to time as required in connection with securities transactions pursuant to this contract. 19.4 Expenses. Consultant shall furnish at its own expense all necessary administrative services, office space, equipment, clerical personnel, telephone and other communication facilities, investment advisory facilities, and executive and supervisory personnel for managing the Managed Funds. Except as expressly provided otherwise herein, City shall pay all of its own expenses including, without limitation, taxes, commissions, fees and expenses of City's independent auditors and legal counsel, if any, brokerage and other expenses connected with the execution of portfolio security transactions, insurance premiums, and fees and expenses of the Custodian. 7 ATTACHMENT 1-Page 7 of9 19.5 Advisor's Other Clients. City understands that Consultant performs investment advisory services for various other clients which may include investment companies, commingled trust funds and/or individual portfolios. City agrees that Consultant, in the exercise of its professional judgment, may give advice or take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Managed Funds. Consultant shall not have any obligation to purchase, sell or exchange any security for the Managed Funds solely by reason of the fact that Consultant, its principals, affiliates, or employees may purchase, sell or exchange such security for the account of any other client or for itself or its own accounts. 19.6 Force Majeure. Consultant shall have no liability for any losses arising out of the delays in performing or inability to perform'the services which it renders under this Agreement which result from events beyond its control, including interruption of the business activities of Consultant or other financial institutions due to acts of God, acts of governmental authority, acts of war, terrorism, civil insurrection, riots, labor difficulties, or any ac~ion or inaction of any carrier or utility, or mechanical or other malfunction. 19.7 Disciplinary Actions. Consultant shall promptly give notice to City if Consultant shall have been found to have violated any state or federal securities law or regulation in any judgment in any criminal action or civil suit in any state or federal court or in any disciplinary proceeding befor~ the Securities and Exchange Commission or any other agency or department of the United States, any registered securities exchange, the Financial Industry Regulatory Authority, or any regulatory authority of any State based upon the performance of services as an investment advisor. 19.8 Brochure and Brochure Supplement. Consultant warrants that it has delivered to City prior to the execution of this contract Consultant's current Securities and Exchange Commission Form ADV, Part 2A (brochure) and Part 28 (brochure supplement). City acknowledges receipt of such brochure and brochure supplement prior to the execution of this Agreement. Section 20. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. [SIGNATURE PAGE FOLLOWSJ 8 ATTACHMENT 1-Page 8 of9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CITY OF SAN JUAN CAPISTRANO By: ---------------------- John Taylor, Mayor PFM ASSET MANAGEMENT LLC ATTEST: Maria Morris, City Clerk 9 ATTACHMENT 1-Page 9 of 9 EXHIBIT A-SCOPE OF WORK Specific responsibilities of the Consultant will include: A. Manage on a daily basis the City of San Juan Capistrano's separate investment portfolios pursuant to the specific, stated investment objectives. Place all orders for the purchase and sale of securities, communicate settlement information to the City of San Juan Capistrano's staff and coordinate security settlement. B. Serve as a general resource to the City of San Juan Capistrano's staff for information, advice and training regarding fixed-income securities and investments. C. Work with the City of San Juan Capistrano staff to understand cash flow projections to ensure that the investment strategy is consistent with the City of San Juan Capistrano's liquidity requirements. D. Provide monthly statements with all the information required by the California Government Code and Governmental Accounting Standards Board (GASB). These reports must include: 1. Summary of Portfolio Holdings. A listing of all securities held at the end of the month categorized by type of security, maturity and institution, including those securities managed directly by the City. 2. Investment Performance Report. At a minimum the performance report should show total returns for the period compared to the established benchmark. 3. Maturity /Duration Indicators. The monthly report should include portfolio duration and average maturity statistics to help monitor interest-rate risk. 4. Transaction Summary. A summary of completed transactions for the month. 5. Mark-to-Market Report. The monthly report should show the cost and market value for each security in the portfolio. The Consultant must maintain accurate reports of investments including the diversity of investments and compliance with applicable investment policies of the City of San Juan Capistrano and State of California statutes. These reports are required to be completed no later than the 20th of the month for the immediately preceding month for presentation to the City Council at their next available meeting. E. Provide quarterly investment reports including a description of market conditions, investment strategies employed performance and suggested changes to investment strategy. The performance numbers shall be presented as required by the CF A Institute's Global Investment Performance Standards (GIPS). F. Attendance at Investment Advisory Committee meetings and City Council meeting as requested, and at least quarterly. EXHIBIT "A" -Page 1 of 1 EXHIBIT B-COMPENSATION For Rervices provided by the Consultant pursuant to this Agreement, the City shall pay the Consultant an annual fee, in monthly installments, based on the daily net assets under management per the following schedule: • 10 basis points (0.10%) per year on the first $25 million of assets under management. • 8 basis points (0.08%) per year on assets between $25 million and $50 m.iEion under management. • 7 basis points (0.07%) per year on assets over $50 million under managen:.em. The Consultant retains the right to negotiate a fee adjustment, in line with CPI, after tluee years. EXHIBIT "8"-Page 1 of 1 REQUEST FOR PROPOSALS FOR INVESTMENT MANAGEMENT SERVICES I. GENERAL INFORMATION The City of San Juan Capistrano is currently seeking proposals from qualified firms interested in providing investment management services for the City of SanJuan Capistrano's investment portfolio. The City of San Juan Capistrano desires to contract for services from a f1tm registered with tl1e Securities and Exchange Commission (SEC) under the Investment Adviser's Act of 1940 who will act in a fiduciary capacity and presents performance numbers in accordance with the Charted Pinancial Analysts (CPA) Institute's Global Investment Performance Standards (GIPS). The Investment advisor will be required to manage the funds in accordance with the laws of the State of California, the City of San Juan Capistrano's Investment Policy, and other investment policies and procedures established by the City of SanJuan Capistrano. The size of tlle City of SanJuan Capistrano's investment portfolio is approximately $30 million. A copy of the current investment policy is provided as Exhibit A to this Request for Proposal (RH)). The City of San Juan Capistrano encourages all prospective investment advisors to exanline tllls RFP carefully. Qualified advisors, as deftned below, are requested to submit proposals to provide the services described in this RPP. The City of San Juan Capistrano expects its investment advisor to be highly experienced, a leader and innovator in the management of investments, and is able to provide comprehensive investment advisory and portfolio accounting services. The f1tm selected as tlle investment advisor and its affiliates will be restricted from selling to the City of San Juan Capistrano, or buying from tlle City of San Juan Capistrano, any securities to or from that firm's own inventory or account. The investment advisor shall act solely in a fiduciary capacity and shall not receive any fee or compensation based upon the purchase or sale of securities but, rather, the investment advisor will be compensated pursuant to the provision of its contract with the City of SanJuan Capistrano. II. PROPOSAL PROCEDURES A. SCHEDULE OF PROPOSAL Issue RFP Questions Due by 5:00pm Proposals Due by 5:00pm Interviews, if necessary Selection for Recommendation City Council Contract Consideration R. ADDITIONAL INFORMATION November 20, 2012 December 4, 2012 December 18,2012 January 3, 2012 January 4, 2012 January 15, 2012 or Pebruary 7, 2012 Inquiries regarding this RH) shall be in written form only. All inquiries must include contact person, address and email address. Responses to questions will be provided to all prospective offers. Questions should be submitted to: Cindy Russell, Chief Financial Officer/City Treasurer City of SanJuan Capistrano qusscll@sanjunncapistTano.org or ATTACHMENT 2-Page 1 of 7 (949) 443-6301 C. PREPARATION OF PROPOSAL Proposals should be prepared simply and economically, providing a straightforward, concise description of capabilities to satisfy the requirements of the RFP. Emphasis should be on completeness and clarity of content. D. NUMBER OF PROPOSAL COPIES Five (5) copies of the proposal should be submitted. E. SUBMISSION OF PROPOSALS Proposal shall be submitted in a sealed envelope bearing the caption: Request for Proposal for Investment Management Services and addressed to: Cindy Russell, Chief Financial/City Treasurer City of SanJuan Capistrano 32400 Pasco Adelanto SanJuan Capistrano, CA 9267 5 All proposals must be delivered to the above office on or before at 5:00p.m. on December 18, 2012 (Proposals received after the above date and time will not be considered.) The City of San Juan Capistrano is under no obligation to return proposals. All cost associated with a proposal will be borne by each proposer. F. TIME AND LOCATIO:t\' OF PROPOSER'S PRESENTATION Selected proposers may be invited to interview. Those proposers will be notified to arrange specific times. The City of San Juan Capistrano will not be responsible for any cost of the proposer's presentation. G. EFFECTIVE PERIOD OF PROPOSALS All proposals must state the period for which the proposal shall remain in effect. Such period shall not be less than 120 days from the proposal due date. H. RIGHT OF REJECTION BY THE CITY OP SAN JUAN CAPISTRANO Notwithstanding any other provisions of this RFP, the City of San Juan Capistrano reserves the right to award this contract to the investment advisor that best meets the requirements of the Rfi'P, and not necessarily, to the lowest bidder. Further, the City of San Juan Capistrano reserves the right to reject any or all proposals prior to execution of the contract, with no penalty to the City of San Juan Capistrano. L A WARD OF CONTRACT A proposer t.o whom a contract is awarded shall be required to enter into a written contract with the Gty of San Juan Capistrano in a form approved by legal counsel for the City of San Juan Capistrano and substantially the form provided as Exhibit B to this R.FP. Tlus RF'P and the proposal, or any part thereof, may be incorporated into and made a part of the final contract The City of San Juan Capistrano reserves the right to negotiate the terms and conditions of the contract with the selected proposer. 2 ATTACHMENT 2-Page 2 of 7 J. CONTRACT TERM It is the intent to award a contract for an initial three (3) year period with the option to renew it for two, one-year periods for a possible total of five years. The decision to renew the contract will be at the sole discretion of the City of San Juan Capistrano. III. MINIMUM QUAUFICATIONS To be considered by the City of SanJuan Capistrano, proposing investment advisors must: • Currently manage at least $10 billion of domestic flxed income assets for public entities. Assets for which periodic (daily, monthly or quarterly) advice is provided should be excluded from the calculation of funds under management. • Manage a minimum of 20 portfolios comprising California local agency assets. • Assign a portfolio manager and a relationship manager who each have a minimum of ten years experience providing investment advice to California public entities. • Be familiar with all applicable California statutes with regard to qualified investments for public entities. • Be registered with the Securities and Exchange Conunission under the Investment AdVlsor's Act of 1940. • Be financially solvent and appropriately capitalized to be able to provide service for the duration of the contract. • Have Errors & Omissions insurance coverage of at least $10 million. • Adhere to the Code of Professional and Ethical Standards as described by the CFA Institute. IV. SCOPE OF SERVICES Specific responsibilities of the selected investment manager will include, but not be limited to the following: A. Manage on a daily basis the City of San Juan Capistrano's separate investment portfolios pursuant to the specific, stated investment objectives. Place all orders for the purchase and sale of securities, communicate settlement information to the City of San Juan Capistrano's staff and coordinate security settlement. B. Serve as a general resource to the City of San Juan Capistrano's staff for information, advice and training regarding fixed income securities, investments. C. Work with the City of San Juan Capistrano staff to understand cash flow projections to ensure that the investment strategy is consistent with the City of San Juan Capistrano's liquidity requirements. 3 ATTACHMENT 2 -Page 3 of 7 D. Provide monthly statements with all the information required by the California Government Code and Governmental Accounting Standards Board (GASB). These reports must include: 1. Summary of Portfolio Holdings. A listing of all securities held at the end of the month categorized by type of security, maturity and institution, including those securities managed directly by the City. 2. Investment Performance Report. At a minimum the performance report should show total returns for the period compared to the established benchmark. 3. Maturity /Duration Indicators. The monthly report should include portfolio duration and average maturity statistics to help monitor interest-rate risk. 4. Transaction Summary. A summary of completed transactions for the month. 5. Mark-to-Market Report. The monthly report should show the cost and market value for each security in the portfolio. The selected investment manager must maintain accurate reports of investments including the diversity of investments and compliance with applicable investment policies of the City of San Juan Capistrano and State of California statutes. These reports arc required to be completed no later than the 20th of the month for the immediately preceding month for presentation to the City Council at their next available meeting .. E. Provide quarterly investment reports including a description of market conditions, investment strategies employed performance and suggested changes to investment strategy. The performance numbers shall be presented as required by the CflA Institute's Global Investment Performance Standards (GIPS) F. The investment advisors WILL NOT provide custodial services or security safekeeping. G. The City Council has recently identified the desire to form an Investment Advisory Committee, and intends for this committee to meet at least quarterly. The Investment Advisor will be required to attend all Investment Advisory Committee meetings and City Council meeting as requested. V. EVALUATION CRITERIA The purpose of this RflP is to identify a firm to serve as the investment advisor to the City of San Juan Capistrano. The firm that best meets the needs and requirements of the City of San Juan Capistrano will be selected. The evaluation criteria that will be used to determine the successful proposer are listed below. A. Relevant experience managing public agency funds. B. The experience, resources and qualifications of the inves1ment advisor and individuals ass1gncd to this account C. Proposed fees and compensation D. Investment philosophy and strategy and demonstrated investment performance. E. Ability to provide necessary portfolio accounting services according to the CflA Institute's "GIPS" F. Understanding of the scope of services required by the City of San Juan Capistrano and ability to provide these services. 4 ATTACHMENT 2 -Page 4 of 7 VI. REQUIRED INFORMATION A. Firm Background 1. Describe the organization, date founded and ownership of your fum. Specify the number of years your organization has been providing investment management services. 2. Describe any other business affiliations (e.g., subsidiaries, joint ventures, "soft dollar" arrangements with brokers). 3. Describe your fum's revenue sources (e.g., investment management, institutional research, etc.) and comment on your fum's fmancial condition. 4. Provide a copy of your firm's most recent audited financial statement. 5. Is your firm a registered investment advisor under the Investment Advisor's Act of 1940? Please attach Part II of your most recent Form .ADV. 6. Describe any SEC, FINRA or any other regulatory censure or litigation ir..volving your fum during the past ten years. 7. State the amount of fidelity bond coverage, errors and onusslons, employee dishonesty, fiduciary liability insurance, or other fiduciary coverage your firm carries. Provide a Certificate of Insurance. 8. Docs your fum adhere to the Code of Professional and Ethical Standards as described by the CPA Institute? B. Personnel 1. Identify the munber of professionals employed by your fum, by classification. 2. Please describe your proposed project team, including role they will play, title and years at firm. Identify the primary portfolio manager and client contacts assigned to the City of San Juan Capistrano's portfolio. 3. Provide biographical information on investment professionals, including number of years at your fum that will be involved in the decision-making process for our portfolio. 4. Please describe your fum's compensation policies for investment professionals. C. Assets Under Management 1, Identify the types of accounts managed by your firm. Provide the total dollar amount and percentage managed (exclude accounts for which your services is providing periodic oversight or advice) for each of the following categories: public agency (exc~uding retirement funds), corporations, and other. 2. Provide the number of portfolios whose funds consist of public agency assets. 5 ATTACHMENT 2 -Page 5 of 7 3. For portfolios whose durations exceed one year, provide the percentage of assets under management for your latest reporting period using the table below. U.S. Treasury securities Federal Agency obligations Corporate securities rated AAA-AA Corporate securities rated A Corporate securities rated BBB or lower Other D. Philosophy/ Approach 1. Describe your firm's investment philosophy for public clients. % 0/o % % % % 2. Please describe the maturity concentration, quality and sectors of current accounts similar to the City of San Juan Capistrano's. 3. What arc the primary strategies for adding value to portfolios (e.g., market timing, credit research, trading)? 4. Describe the process you would recornrncml for establishing the .investment objectives and constraints for this account. 5. Describe your firm's in-house technical and research capabilities. Arc outside sources used by the firm on a regular basis? 6. Describe your credit review process. Does your firm assign credit research to specialists? 7. How will you handle fluctuating cash flows and the cash forecasting process? 8. Do you have or would you recommend there be policy restrictions with respect to maturity, sector, quality and coupon;l 9. Provide your list of approved brokers/dealers. How are brokers/dealer;~ selected? What process do you have i11 place to monitor brokers/ dealers after they have been approved? 10. Describe your firm's experience in investing municipal bond proceeds and familiarity with U.S. Treasury arbitrage restrictions as they relate to the investment of proceeds of municipal bonds. E. Portfolio_Management 1. Arc portfolios managed by teams or one individual? 2. Primary client contact is delegated to which of your finn's professionals? 3. I I ow frequently are you willing to meet with us? 4. Describe procedures used to ensure that portfolios comply with client investment objectives, policies and bond resolutions. 6 ATTACHMENT 2-Page 6 of 7 F. References Please provide five local agency client references, including length of time managing their assets, client name, address and phone number. G. Reporting Describe the frequency and format of reports you would provide to the City of San Juan Capistrano staff. Attach a sample. 2. Please describe how you typically report performance. 3. Please provide a performance composite showing performance for the past five years. The composite should consist of a minimum of five current accounts comprising securities that are permitted under the California Government Code. NO SAMPLE PORTliOLIOS The duration of the composite should be comparable to the Merrill Lynch 1-3 Year U.S. Treasury Index. Provide information about the composition and duration of the data used, including the number of portfolios making up the composite, for your presentation of performance history. The composite should be prepared and presented in compliance with the CFA Institute's Global Investment Performance Standards (GIPS®). 4. Are you willing to develop reporting procedures in line with our needs and objectives (i.e., monthly, so as to conform to State reporting requirements to management and governing bodies)? 5. Are conftrmations of investment transactions sent directly by the broker/dealer to the client? H. Fees All information regarding fees must be submitted in a separate sealed envelope. No mention of fees is to be made in the body of tl1e proposal. 1. Please include a copy of your firm's fee schedule. State your fee in basis points for assets under management. a. Please indicate whether they include custodial fees. b. Is there a minimum annual fcc? c. Are fees charged when there is no activity in the account? 2. Please provide a statement of fees for such additional services as arbitrage rebate related SCIVlCeS. 7 ATTACHMENT 2-Page 7 of 7 SUMMARY OF REQUEST FOR PROPOSALS PFMAsset Minimum Management Qualifications Requested (PFMAM) Public entity assets managed (as of September 30, 2012) $10 billion $44.8 billion Number of California public agency portfolios managed 20 103 #of Years of public sector experience 32 Portfolio Manager /Relationship Manager experience 10 years each 30/27 Familiarity with California statutes regarding qualified investments for public entities Required Yes Registered with the Securities and Exchange Commission under the Investment Advisors' Act of 1940 Required Yes Errors & Omissions Insurance coverage $10 million $15 million Adhere to the Professional Code of Ethics of the Chartered Financial Analysts (CFA) Institute) Required Yes Note 1-Unable to determine. The proposal listed one California public agency as a reference. Assets Managed $0-$40 million $40-$80 million $80+ million Annual Cost Average Fee % Assets Managed $0-$25 million $25-$50 million $50+ million Annual Cost Average Fee % Assets Managed $0-$25 million $25-$50 million $50+ million Annual Cost Average Fee % PROJECTED ANNUAL COST CHANDLER ASSET MANAGEMENT $25 Million Annual Fee* Portfolio 0.10% $ 25,000 0.08% 0.06% $ 25,000 0.1000% PFM ASSET MANAGEMENT (PFMAM) $25 Million Annual Fee Portfolio 0.10% $ 25,000 0.08% 0.06% $ 25,000 0.1000% UNITED PORTFOLIO MANAGEMENT (UACC) $2S Million Annual Fee Portfolio 0.10% $ 25,000 0.05% 0.06% $ 25,000 0.1000% United Chandler American Asset Capital Management Corporation $6.5 billion $2.97 billion 89 Note 1 24 21 19/39 25/35 Yes Yes Yes Yes $10 million $5 million Yes Yes $30 Million $3S Million Portfolio Portfolio $ 30,000 $ 35,000 $ 30,000 $ 35,000 0.1000% 0.1000% $30Million $35Million Portfolio Portfolio $ 25,000 $ 25,000 $ 4,000 $ 8,000 $ 29,000 $ 33,000 0.0967% 0.0943% $30 Million $35 Million Portfolio Portfolio $ 25,000 $ 25,000 $ 2,500 $ 5,000 $ 27,500 $ 30,000 0.0917% 0.0857% ATTACHMENT 3 32400 PASEO ADELANTO SAN JUAN CAPISTRANO. CA 92675 (949) 493-1171 MEMBERS OF THE CITY COUNCIL SAM AllEVA TO (949) 493-1053 FAX "'"''"·.san;uancapistrano.org NOTIFICATION OF MEETING OF POTENTIAL INTEREST OF THE SAN JUAN CAPISTRANO CITY COUNCIL ROY l BYRNES. M.D LARRY KRAMER DEREK REEVE JOHN TAYLOR The City Council of San Juan Capistrano will meet at 6:00 p.m. on Tuesday, May 7, 2013, in the City Council Chamber in City Hall, to consider: "Consideration of Personal Services Agreement for Investment Management Services (PFM Asset Management, LLC) (600.30)" -Item No. H1a. If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the City Council through correspondence addressed to the Council and/or by attending the meeting and speaking to the Council during the public meeting. Correspondence related to this item must be received at the City Clerk's office by 5:00p.m. on Monday, May 6, 2013, to allow time for the Council to consider its content. If you would like to speak at the meeting, please complete a yellow "Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Mayor when the item is considered. You have received this notice at the request of the City staff member Cindy Russell, Chief Financial Officer. You may contact that staff member at (949) 443-6301 with any questions. The agenda, including agenda reports, is available to you on our web site: www.sanjuancapistrano.org. If you would like to subscribe to receive a notice when agendas are posted to the web site, please make that request by sending an e-mail to: cityclerk@sanjuancapistrano.org. Maria Morris, CMC City Clerk cc: PFM Asset Management, LLC .'.an .!thm Copisfr(//w: Preso·vmg Jlw Po\'t to Fnhanc(' the f'"uture & f J j . b O o s / 0 7 / 2 0 1 3 C i t y o f S a n J u a n C a p i s t r a n o ~ \ · Inv e s t t n e n t M a n a g e t n e n t S e r v i c e s a n d Introdu c t i o n t o P F M A s s e t M a n a g e t n e n t L L C © PFM Asset Management LLC S a r a h M e a c h a m , S e n i o r M a n a g i n g C o n s u l t a n t P F M A s s e t M a n a g e m e n t L L C M a y 7 , 2 0 1 3 • A professional an d i n d e p e n d e n t i n v e s t m e n t a d v i s o r w i l l a c t a s a f i d u c i a r y t o t h e C i t y . • As the City's inve s t m e n t a d v i s o r a n d m a n a g e r , P F M A M w i l l p r o v i d e : -Profession a l i n v e s t m e n t m a n a g e m e n t e x p e r t i s e i n c l u d i n g , a c u s t o m i z e d i n v e s t m e n t strategy th a t m e e t s t h e C i t y ' s i n v e s t m e n t o b j e c t i v e s -Active portf o l i o m a n a g e m e n t i n c l u d i n g m o n i t o r i n g t h e m a r k e t f o r o p p o r t u n i t i e s -Risk mana g e m e n t , c r e d i t a n a l y s i s a n d m o n i t o r i n g -Competitiv e s h o p p i n g o f e v e r y b u y a n d s e l l -Trade exec u t i o n a n d s e t t l e m e n t c o o r d i n a t i o n w i t h t h e C i t y s t a f f , c u s t o d i a n , a n d broker/deal e r s -Monthly an d q u a r t e r l y i n v e s t m e n t r e p o r t i n g a n d a c c o u n t i n g -Presentatio n o f i n v e s t m e n t r e s u l t s t o t h e C i t y C o u n c i l , I n v e s t m e n t A d v i s o r y Committee s , a n d s t a f f a s r e q u e s t e d , a n d a t l e a s t q u a r t e r l y -An annual r e v i e w o f C i t y ' s I n v e s t m e n t P o l i c y -Economic a n d m a r k ~ t u p d a t e s a n d b e a g e n e r a l r e s o u r c e o n t h e C i t y ' s i n v e s t m e n t s · © PFM Asset Management LLC 1 • The City would h a v e e a r n e d $ 8 6 , 8 0 3 m o r e d u r i n g 2 0 1 2 u t i l i z i n g P F M A M ' s 1 - t o 3 - y e a r investment strat e g y . • The City would h a v e e a r n e d $ 7 1 6 , 4 9 9 m o r e d u r i n g t h e t h r e e y e a r p e r i o d f r o m J a n u a r y 1, 2010 to Dece m b e r 3 1 , 2 0 1 2 . 2010 2011 2012 Total City's A v e r a g e Portfoli o B a l a n c e 1 $28, 0 1 6 , 0 9 0 . . $23, 9 3 3 , 2 0 2 $25, 4 2 7 , 6 2 6 C i t y ' s E a r n i n g s 1 $ 2 1 8 , 3 7 8 $ 1 2 6 , 1 2 4 $ 1 3 9 , 6 0 6 $ 4 8 4 , 1 0 8 P F M A M G r o s s E a r n i n g s 2 $ 6 4 7 , 1 7 2 $ 3 7 8 , 1 4 5 $ 2 5 1 , 7 3 3 $ 1 , 2 7 7 , 0 5 0 P F M A M ' s N e t E a r n i n g s $ 6 1 9 , 8 4 4 $ 3 5 4 , 3 5 4 $ 2 2 6 , 4 0 9 N e t B e n e f i t 3 $ 4 0 1 , 4 6 6 $ 2 2 8 , 2 3 0 $ 8 6 , 8 0 3 $ 1 , 2 0 0 , 6 0 7 + $ 7 1 6 , 4 9 9 1. Excludes 15% of City's por t f o l i o b a l a n c e s a n d e a r n i n g s f o r l i q u i d i t y . C i t y ' s h i s t o r i c a l b a l a n c e s a n d a m o r t i z e d c o s t e a r n i n g s p r o v i d e d b y t h e C i t y . 2. Performance on gross (i.e., b e f o r e f e e s ) i n a c c o r d a n c e w i t h t h e C F A I n s t i t u t e ' s G l o b a l I n v e s t m e n t P e r f o r m a n c e S t a n d a r d s ( G I P S ) . B a s e d o n t o t a l returns of PFMAM's 1-3 Y e a r F i x e d - I n c o m e C o m p o s i t e . 3. Past performance does no t n e c e s s a r i l y r e f l e c t a n d i s n o t a g u a r a n t e e o f f u t u r e r e s u l t s . 4. PFMAM composite informa t i o n a v a i l a b l e u p o n r e q u e s t . © PFM Asset Management LLC 2 PFMA M - A n I n d e e n d e n t In v e s t m e n t A d v i s o r • Fiduci a r y R e s p o n s i b i l i t y • Fees a r e f u l l y d i s c l o s e d • Owns n o p o r t f o l i o o r i n v e n t o r y of sec u r i t i e s • Comp e t i t i v e l y b i d s e v e r y b u y and se l l • Fees b a s e d o n a s s e t s u n d e r mana g e m e n t ( n o c o m m i s s i o n on tra d e s ) • © PFM Asset Management LLC • S u i t a b i l i t y R e s p o n s i b i l i t y • F e e s m i g h t n o t b e d i s c l o s e d • M a y s e l l f r o m o w n i n v e n t o r y o f s e c u r i t i e s • S e t s o w n p r i c e f o r s e c u r i t i e s • F e e s b a s e d o n t r a n s a c t i o n s p l u s d i f f e r e n c e b e t w e e n b i d a n d a s k p r i c e 3 Experience • Public sector foc u s • 30+ years of ass e t m a n a g e m e n t e x p e r i e n c e • $4 7.4 billion of a s s e t s u n d e r m a n a g e m e n t • $9.7 billion of ass e t s f o r C a l i f o r n i a p u b l i c agenc1es Success • Manager of the # 1 r a t e d g o v e r n m e n t m o n e y market fund for t h e p a s t t h r e e y e a r s b y iMoneyNet • Long record of p e r f o r m a n c e i n e x c e s s o f benchmarks • Successfully navi g a t e d t h e c r e d i t c r i s i s -Completely av o i d e d d e f a u l t e d c r e d i t s , S I V s , subprime mort g a g e s , C O O s , a u c t i o n - r a t e securities © PFM Asset Management LLC S p e c i a l t i e s • H i g h - q u a l i t y , f i x e d - i n c o m e p o r t f o l i o s w i t h a 5 - y e a r m a t u r i t y l i m i t • I n v e s t m e n t s s u b j e c t t o C a l i f o r n i a G o v e r n m e n t C o d e P F M A M G r o w t h i n A s s e t s U n d e r $ 5 0 r - ~ - - - $ 4 0 e n $ 3 0 c ~ m ~ $ 2 0 $ 1 0 $ 0 $ 3 2 . 2 N I « ! ' : 1 _ ~ 9 ~ E ' l ~ f ! t . $ 4 7 . 4 i $ 4 0 . 4 $ 4 2 . 1 $ 3 4 . 3 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 4 Philosophy Safety: Pre s e r v e c a p i t a l w i t h h i g h - q u a l i t y i n v e s t m e n t s Liquidity: Pla n f o r a n d p r o v i d e l i q u i d i t y a s n e e d e d Return: Saf e l y i n c r e a s e e a r n i n g s t h r o u g h d i s c i p l i n e d p o r t f o l i o s t r a t e g y Approach Portfolios are de s i g n e d t o m a t c h o u r c l i e n t s ' s p e c i f i c i n v e s t m e n t n e e d s . We achieve stron g r e s u l t s b y : 1. Understandi n g o u r c l i e n t s ' i n v e s t m e n t o b j e c t i v e s 2. Carefully m a t c h i n g m a t u r i t i e s t o t h e c l i e n t ' s c a s h f l o w n e e d s 3. Limiting inv e s t m e n t s t o t h o s e o f h i g h q u a l i t y 4. Selecting in v e s t m e n t s b a s e d o n r e l a t i v e v a l u e 5. Utilizing low - r i s k p o r t f o l i o m a n a g e m e n t t e c h n i q u e s t o a d d v a l u e © PFM Asset Management LLC 6 Portfolio Strategies/ Management ( 19*) *Denotes number of personnel ~ © PFM Asset Management LLC A n a l y t i e s , T e c h n i c a l C l i e n t S e r i l c e ( 7 , 8 ) R e s e a r c h ( 3 4 ) A c c o u n t i n g , C o m p U a n c e , R e p o r t i n g ( 3 5 ) A r b i t r a g e R e b a t e C o m p l i a n c e ( 1 1 ) 7 l • 1 8 p r i m a r y g o v e r n m e n t s e c u r i t i e s d e a l e r s • R e g i o n a l a n d s p e c i a l i s t b r o k e r s • D i r e c t i s s u e r s • M i n o r i t y a n d w o m e n - o w n e d f i r m s • B l o o m b e r g F I T ( f i x e d - i n c o m e t r a d i n g ) • B l o o m b e r g B O O M • T r a d e w e b • M a r k e t A x e s s • C h a r l e s R i v e r S y s t e m • A v e r a g e o v e r $ 1 b i l l i o n i n - t r a d e s p e r d a y • S t r o n g f o c u s o n g o v e r n m e n t s e c u r i t i e s " © PFM Asset Management LLC 9 All data is as of Decem b e r 3 1 , 2 0 1 2 u n l e s s o t h e r w i s e n o t e d . This material is based o n i n f o r m a t i o n o b t a i n e d f r o m s o u r c e s g e n e r a l l y b e l i e v e d t o b e r e l i a b l e a n d a v a i l a b l e t o t h e public, however PFM A s s e t M a n a g e m e n t L L C c a n n o t g u a r a n t e e i t s a c c u r a c y , c o m p l e t e n e s s o r s u i t a b i l i t y . T h i s material is for general i n f o r m a t i o n p u r p o s e s o n l y a n d i s n o t i n t e n d e d t o p r o v i d e s p e c i f i c a d v i c e o r a s p e c i f i c recommendation. All s t a t e m e n t s a s t o w h a t w i l l o r m a y h a p p e n u n d e r c e r t a i n c i r c u m s t a n c e s a r e b a s e d o n assumptions, some bu t n o t a l l o f w h i c h a r e n o t e d i n t h e p r e s e n t a t i o n . A s s u m p t i o n s m a y o r m a y n o t b e p r o v e n correct as actual even t s o c c u r , a n d r e s u l t s m a y d e p e n d o n e v e n t s o u t s i d e o f y o u r o r o u r c o n t r o l . C h a n g e s i n assumptions may hav e a m a t e r i a l e f f e c t o n r e s u l t s . P a s t p e r f o r m a n c e d o e s n o t n e c e s s a r i l y r e f l e c t a n d i s n o t a guaranty of future resu l t s . T h e i n f o r m a t i o n c o n t a i n e d i n t h i s p r e s e n t a t i o n i s n o t a n o f f e r t o p u r c h a s e o r s e l l a n y securities. " © PFM Asset Management LLC 1 1 CITY OF SAN JUAN CAPISTRANO BID RECAP REPORT Date: April 15, 2013 From: Cindy Russell, Finance Department Service or Product Requested: Dlnformal Quotes II' I Informal Bid 0Formal Bid D Sole Source Bids/proposals were solicited from available, qualified firms for the above referenced project. The following firm(s) were/was considered: 1 . The PFM Group 2. Chandler Asset Management 3. United American Capital Corp. After evaluating the bids/proposals submitted, it is our recommendation that the contract be awarded to PFM in an amount, not to exceed $ $30,000 per FY This vendor was selected because: If bids were not received, document what steps were taken to obtain quotes, any vendors contacted that declined to bid, and if applicable why it is not practical to receive three quotes. If Sole Source purchase or contract, provide detailed justification for this selection: If applicable, date approved by City Council: 5-J ..-L3 City of San Juan Capistrano Proposal for Investment Management Services December 18, 2012 PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, C\ 94111 415-982-5544 sfrj;;J.o}3 t-t,Q_ f ~ c..losu -re_ Investment Advisors to the Public Sector Table of Contents Cover Letter Proposal Questionnaire A. Firm Background B. Personnel c. Assets Under Management D. Philosophy/ Approach E. Portfolio Management F. References G. Reporting H. Fees Appendix Audited Financial Statements Form AD V Parts 2A and 2B Certificates of Insurance Resumes List of Approved Broker/Dealers Sample Monthly and Quarterly Reports PFMAM 1-3 Year Fixed-Income Composite I II III City of San Juan Capistrano -Proposal for Investment i\lanagement Services """iii 50 California Street Suite 2300 San Francisco, CA 9~ 111 415 982-5544 office www.pfm.com ..:::: PFM =------===-The PPM Group ~ Publ1c F1nanc1ai Management. Inc PF~,J A~set f\1anagernent LLC Cindy Russell Chief Financial Officer/City Treasurer City of San Juan Capistrano 32400 Pasco Adelanto San Juan Capistrano, CA 92675 Dear Cindy: December 18, 2012 On behalf of PFM Asset Management U.C ("PFMAM"), we are pleased to submit this proposal for investment management services to the City of San Juan Capistrano (the "City"). PFMAM is nationally recognized as one of the leading investment advisory firms, specializing in assisting public agencies with their investment needs. We recently had the privilege of assisting the City with a review of its investment policy. We hope that our assistance exceeded your expectations, and we would welcome the opportunity to build on this relationship. We believe that in today's complex market environment with continued low interest rates and changes to the investment markets, the City needs a strategic partner to help navigate the uncertainties of the economy and the financial market. We believe that the following factors, addressed in greater detail in our proposal, summarize why PFMAM is the firm best suited to work with the City. • Public Sector Experience. PFMAM's focus is on providing independent investment advice to public agencies. PFMAM currently manages $44.8 billion of short-and intermediate-term investment-grade fixed income assets for public clients nationwide. PFMAM has helped clients like the City develop forward-looking, long-term investment strategies that can weather market cycles, as well as shorter-term tactical strategies that can take advantage of certain market cycles or anomalies. • Understanding of the City's Overall Investment Program. We currently manage over $9.5 billion for California public agencies, including $2.2 billion for California municipalities. The City will benefit from our in-depth knowledge of California investment statutes and our expertise in California local agency investment practices. \Y./e are aware that this is the first time the City has used an investment advisor. We have helped many other public agencies with this transition, and we can help the City implement an investment program that produces competitive returns while carefully controlling risk. • Ability to Relieve Your Workload. Our goal is to function as an extension of the City's staff, assuming responsibility for many time-consuming, day-to-day activities. We would work to relieve your burden related to investing, portfolio accounting, and reporting so that more time is available fm you to focus on the City's other financial responsibilities. Resources and Expertise. The engagement team proposed to work with the City includes senior professionals with extensive experience working with California cities. The engagement team can also draw upon PFMAM's 189 professionals dedicated to supporting our clients in all aspects of investing public funds, including portfolio management for operating funds and bond proceeds, multi-asset class investments, specialized technical analysis, and accounting and December 18,2012 Page 2 • compliance. This commitment of resources and expertise to the public sector is unmatched by any other investment advisor. We hope that your review of our investment advisory experience, your experience working with us on the City's Investment Policy, the professional and experienced staff we have committed to this engagement, and our approach to the investment of public funds demonstrate to you why we would be an excellent partner to the City. Thank you for your consideration of our proposal. We would welcome the opportunity to meet with the City to discuss our proposal in greater detail. This proposal will remain in effect for 120 days from the proposal due date. Sincerely, PFM Asset Management LLC Lc:u.-c lt) ~~'Vc-<"S Nancy Jones '"' S wlt£Ji \J! a c( lL'L v--_ Sarah Meacham Managing Director Senior Managing Consultant Investment Advisors to the Public Sector A. Firm Background 1. Describe the organization, date founded, and ownership of your firm. Specify the number of years your organization has been providing investment management services. PFM Asset l\lanagement LLC ("PFJ\L\M") specializes in providing fixed-income inYestment ad\'isory services to public agencies. PFJ\L\M is part of the PFM Group (the "Group"), which includes the affiliated company Public Financial Management, Inc ("PFM, Inc."). PFM, Inc. was founded in 1975 to provide independent financial advisory services to the public sector. PFM, Inc. began providing investment advisory services to public entities in 1980, giving the firm 32 years of experience in the field. In 2001, PFMAM was created as the entity through which investment advisory services are provided. PFMAM is an indirect wholly-owned subsidiary of PFM I, LLC, a holding company, which is owned by the PFM Group's managing directors and a small group of external im'estors. 2. Describe any other business affiliations (e.g., subsidiaries, joint ventures, "soft dollar" arrangements with brokers). The subsidiaries of PFMAM are: • • BondResource Partners, LLC and BondResource Partners, LP, both comparues conduct arbitrage rebate monitoring and compliance work with government clients. PFM Fund Distributors, Inc. ("PFMFD"), a wholly-owned subsidiary, is a limited-purpose broker/ dealer registered with the Financial Industry Regulatory Authority ("FINRA") and subject to the rules of the Municipal Securities Rulemaking Board ("MSRB"). PFMFD's primary activity is to serve as the distributor or marketing agent for shares of PFJ\L\M's government investment pools such as the California Asset Management Program ("CAMP") and PF11 Funds (a registered investment company), which are advised by PFJ\L\M. We do not trade for individual client accounts through this broker-dealer or recei\'e any commissions through this subsidiary, and PFMFD would have no role in the engagement with the District. PFMAM does not use "soft dollar" or any other compensation arrangements with brokers. 3. Describe the firm's sources of revenue (e.g., investment management, institutional research, etc.) and comment on your firm's financial condition. PFMAM's principal line of business is providing investment advice to the public sector. This principal line of business has represented more than 85% of the firm's annual revenues in each of the past three years. The remaining portion of revenue is from our specialized services, such as arbitrage rebate compliance, swap advisor services, consulting on structured investment products, and procurement cards. Evident by the $12 billion growth in our assets under management oYer the past five years, PFMAM has continued to deliver strong financial results. The PFM Group as a whole has been consistently profitable during its 30-year history, and we expect all components to be profitable this year. 4. Provide a copy of your firm's most rttent audited financial statement. Please find our most recent audited financial statements in the Appendix. City of San Juan Capistrano -Proposal for Investment Management Services I Investment Advisors to the Public Sector 5. Is your firm a registered investment advisor under the Investment Advisor's Act of 1940? Please attach Part II of your most recent Form ADV. Yes. A copy of Form ADV, Parts 2A and 2B may be found in the Appendix. 6. Describe any SEC, FINRA or regulatory censure or litigation involving your firm during the past ten years. None. 7. State the amount of fidelity bond coverage, errors and omissions, employee dishonesty, fiduciary liability insurance, or other fiduciary coverage your firm. carries. Provide a Certificate of Insurance. PFM Asset Management LLC has a complete insurance program, including property, casualty, comprehensive general liability, automobile liability and workers compensation. PFM maintains professional liability and fidelity bond coverages which total $15 million and $1 0 million, respectively. Our Professional Liability policy is a "claims made" policy and our General Liability policy claims would be made by occurrence. PFMAM has not had a client flle a claim against its policies. Current Certificates of Insurance may be found in the Appendix. 8. Does your firm adhere to the Code of Professional and Ethical Standards as described by the CFA Institute? The CFA Institute is a global, not-for-profit association of investment professionals that awards the CFA and CIPM designations. Thus, because the CFA Institute is an organization for individuals, not companies, PFl\1AM is not a member of the CFA Institute. PFMAM, however, is a federally- registered investment advisor with the Securities and Exchange Commission (SEC), under the Investment Advisers Act of 1940 (Act). As such, PFl\L\M has established, maintains and complies with the code of ethics provisions required under the Act and Rules promulgated by the SEC under the Act. Our firm employs a number of CF A charter holders, each of whom is required to adhere to the Code of Professional and Ethical Standards as described by the CF A Institute. 9. Identify the types of accounts primarily sought by your firm. PFl\1AM's primary focus is the management of public sector funds. Our core client base includes public entities similar in size and scope to the City. The types of accounts primarily managed for these clients include operating funds, bond proceeds, and reserves. City of San Juan Capistrano ~ Proposal for Investment l\fanagement Services I 2 Investment Advisors to the Public Sector D. Philosophy/ Approach 1. Describe your firm's investment philosophy for public clients. PFi\fAM's investment philosophy is rooted in the needs and objectives of public sector investors. Our investment objectives are consistent with the conservative and prudent nature of our clients and are, in order of priority: (i) Maintain safety of principal, (ii) Provide adequate liquidity, and (iii) Maximize earnings while maintaining safety of principal and liquidity. We always put safety and liquidity ahead of chasing higher returns. At PFMAM, we understand the importance of protecting our clients' investments not only from an actual loss, but also from a loss of public trust. The objectives listed above are achieved by putting into practice PFMAM's core investment philosophy. That philosophy, which has been in place since we began managing funds over 30 years ago, is based on the following key principles. First, we strive to gain a deep understanding of our clients' needs. Our goal is to develop and implement a successful long-term investment program that stands the test of time. Since every client is unique, we customize the investment strategy to support their entity's mission and meet their specific investment needs within their Investment Policy constraints. The investment program we will develop with the City will have at its core an investment discipline our senior investment professionals have mastered over the past three decades, but it is also flexible enough to adapt, adjust, and grow as the City's needs or market conditions change. Second, we strive to construct portfolios that are safe, diversified, and have lower volatility than comparable market benchmarks. To accomplish this, our investment approach is fundamentally based on relative value-the thorough analysis of the relative merits and risks of various investment sectors, maturities and issuers. This drives both our portfolio construction process and our selection of individual investments, and it is a combination of both top-down and bottom-up analysis. We use top-down analysis to assess macro-economic conditions, interest rates, the shape of the yield curve, Federal Resen·e monetary policy, and current and historical yield spreads between sectors. Top-down analysis is a key element of our sector allocation decision-making process. Identifying macro-level trends in these areas is important for adding value, controlling risk, and lowering volatility. We use a careful bottom-up approach to security selection that seeks to identify those industries and issuers with fundamental characteristics and f111ancial strength that enhances their potential to perform well. We seek to combine fundamentally sound investments into a portfolio that safely maximizes return potential. Lastly, we incorporate low-risk active management techniques designed to complement and enhance our relative value approach. We believe active management can capture market inefficiencies that create opportunities for return enhancement. While we expect that every security we buy will be suitable to hold to maturity, we frequently identify opportunities to swap one mvestment for another to increase earnings, adjust portfolio duration, improve liquidity, or restructure the portfolio to better meet future needs. City of San Juan Capistrano ~ Proposal for Investment Management Services I 6 Investment Advisors to the Public Sector 3. What are the primary strategies for adding value to portfolios (e.g., market timing, credit research, trading)? PFMAJ\l's approach to managing client portfolios is customized to the type of funds being invested, the client's objecti,Tes, and investment policy guidelines. It could be summarized as a conservatiYe but active management approach based on relative value. Careful Development of the Investment Strategy. Developing and implementing an investment strategy is the first, and critical, step toward achieving investment goals. PFMAM will work closely with the City to assess its investment objectives, liquidity needs, and tolerance for risk. l' sing this information, we will develop a strategy designed to produce stable, good long- term performance. Once a strategy is implemented, there are a number of active management strategies for adding value over time. The key ways we add value include: Duration Management. For every portfolio, we establish a target portfolio duration (similar to average maturity) based on cash flow expectations, risk tolerance, and investment policy limitations. Consistent with the portfolio's target duration, we will position the portfolio's actual duration with a shorter bias when rates are rising and a longer bias when rates are falling. We add value by re-balancing the portfolio duration to take advantage of interest rate trends. Disciplined duration management helps to enhance a portfolio's long-term performance and reduce the portfolio's volatility. Sector Weighting. We regularly monitor the yield relationships between all permitted investment sectors (e.g., l'.S. Treasury, Federal Agency, corporate notes, municipals, and commercial paper) and select investments we believe offer the best relative value. This does not mean we always buy the highest yielding investment, but rather the inyestment whose yield best compensates for the inherent risks of the investment. As every market and time period has unique characteristics, PFJ\L\1\1-managed portfolios emphasize different investment choices at different times, capitalizing on the opportunities that exist at that time. We also select individual investments so that the overall portfolio has the most desirable characteristics for each market env1ronment. Yield Curve Placement. Through a series of analytical models, we identify those maturities that offer the greatest value-that is the most amount of yield or return potential for a given amount of risk. This assessment takes into account the steepness of the yield curve, as well as any fundamental, technical, or macroeconomic factors that may influence future yield trends. Recently, we are weighting more heavily the significant impact of fiscal and monetary policies being deployed by the government that affect various parts of the yield cutTe differently. This is a low-risk approach to enhance earnings and structure a portfolio to perform well over time. Issue Selection and Credit Analysis. Yields can vary significantly among issuers or, within the same issuer, among securities with similar maturities. Sometimes this is due to perceived quality differences which need to be carefully analyzed. Other times, it is due to supply differences, pricing inefficiencies, or other market anomalies. PFJ\L\1\1 seeks to select securities that are both City of San Juan Capistrano ~ Proposal for lnyestment l\1anagement Services I 8 Investment Advisors to the Public Sector safe and offer high return potential. Our internal trading tools allow us to quickly identify and capitalize on pricing inefficiencies, resulting in higher portfolio yields for the City. For credit instruments, we employ a rigorous analysis, approval, and ongoing monitoring process to ensure the safety of client portfolios entrusted to us. Market Analysis. We monitor the markets on an ongoing basis, looking for opportunities tore- balance the portfolio among sectors and/ or maturities that could safely add value and enhance investment performance. PFJ\L\M's portfolio managers and traders are assigned to specific market sectors in order to monitor products and opportunities; these responsibilities run across all portfolios. PFJ\L\M has developed analytic resources and software to structure portfolios, identify tnding opportunities, and respond to changes in market sentiment. This enables us to trade among sectors or maturity ranges to capture incremental value in the market without exposing the portfolio to unnecessary risks. Competitive Shopping. PFMAM is not a broker/dealer or bank. We do not have an inventory of securities, and, therefore, we shop aggressively to obtain the best price and execution on each transaction. For every security we buy and sell, we solicit bids from a minimum of 3-5 broker/ dealers. We do this because no one broker/ dealer can offer the best price all the time. Even small savings per trade can add up to significant additional earnings over time. To protect our clients, PFMAM only transacts business with firms whose financial conditions have been vetted by our professionals and who are on our list of approved firms. Additionally, there are a number of other areas where PFMAM's services provide benefits to our clients. In a discretionary management role, PFJ\L\.M takes responsibility for many of the time- consuming, day-to-day activities related to managing a portfolio, including competitiYely shopping transactions, coordinating trade settlement with the broker and custodian, reconciling investment activity, monitoring credit quality, and preparing investment reports. With PFMAM managing these tasks, City staff will have more time to spend on their many other responsibilities. 4. Describe the process you would recommend for establishing the investment objectives and constraints for this account. Through our prior experience working with the City on its Investment Policy, we established an understanding of the City's investment objectives and needs. Our process began in June of this year with a reYiew of the City's Investment Policy. Investment policy statements are fundamental to the investment management process as they establish both the constraints and controls of the im'estment program. We review policies for compliance with the California Government Code and consistency with our clients risk tolerance le\'els. We ultimately provided the City with two sets of recommendations: the first set described our basic recommendations for the City's Policy; the second set was comprehensive and supported the City's desire to implement the Policy revisions in stages. The next step in the Investment Policy review process is to help the City continue the implementation of the Policy revisions. Another step in our process is a comprehensive cash flow analysis. Cash flow analyses help to confirm liquidity constraints. We will determine the City's liquidity needs through an analysis which City of San Juan Capistrano -Proposal for lnyestment Management Services I 9 Investment Advisors to the Public Sector will identify the portion of the portfolio that is available to be invested in longer-term investments. This analysis is described further in our response to question 7 on pages 11 and 12. Our final step will be a review of current market opportunities and the C1ty's tolerance for risk, which will dictate the sectors and maturities in which the portfolio will be inn:sted. These three factors-policy constraints, liquidity needs, and risk tolerance will determine the appropriate investment objectives and constraints for the City. PFJ\L\M is in a unique position to assist the City with a quick and smooth transition because of our prior experience working with the City. 5. Describe your firm's in-house technical and research capabilities. Are outside sources used by the firm on a regular basis? PFMAM specializes in managing short-and intermediate-term fL'{ed-income assets of public agencies, so we have tailored our research capabilities to this narrow area of the market. Accordingly, our research and technical capabilities are focused only on those investments suitable for the public sector-government securities, high-grade corporate and municipal securities (with ratings of "A" or better), Agency mortgage-backed securities, and money market securities, all with maturities that are generally under five years. Internal Technical and Research Capabilities Our internal technical and research capabilities include: • A dedicated Portfolio Strategies Group that analyzes macro-level trends in the economy and the fixed-income markets. • Internally developed models that assess which market sectors have the best relative value based on current market conditions. • Weekly in-depth internal research reports focused on six key asset classes: Treasuries, agencies, callable agencies, mortgage-backed securities, corporates, and municipal securities. • Yield curve diagnostics that evaluate and quantify which maturities offer the best risk/ return characteristics. • Portfolio optimization methods that seek to construct portfolios that outperform benchmarks with lower volatility. • Computer models linked to real-time market pncmg data that allow PFMAM portfolio managers to assess and take advantage of minute-to-minute changes in pricing and price relationships between sectors, maturities, and specific issues-models unique to PFMAM that enable us to capture trading ideas that others may not see. External Sources of Research While our primary investment research and analysis is done internally, we also have access to a wide range of external sources of economic, market, and credit ratings information. These external sources of information provide alternative perspectives to enhance our portfolio management process. For example, we have access to the corporate economists of many major Wall Street investment banks. In this way, we can blend multiple views on the economy with our own analysis City of San Juan Capistrano ~ Proposal for Investment Management Services I 10 Investment Advisors to the Public Sector to synthesize an optimal strategy. In addition to an extensive amount of external research, our trading room has direct access to Bloomberg, Reuters Station, electronic real--time trading platforms including Bloomberg Fixed-Income Trading (FIT), TradeWeb and l\IarketAxess, credit research from Standard and Poor's and Moody's, and a number of specialized research platforms. These resources supplement and enhance PFMAM's in-house research and quantitative analysis capabilities. 6. Describe your credit review process. Does your firm assign credit research to specialists? PFMAM employs an extensive credit review process built upon our own independent, in-depth analysis of non-governmental issuers. We do not rely on rating agencies, but rather employ a rigorous, market driven approach that evaluates both the quantitative and qualitative aspects of corporate issuers from the perspective of a public agency investor. PFMAM's Credit Committee is the cornerstone of our credit review process. The Committee is responsible for approving new issuers, monitoring existing holdings, and maintaining PFMAM's approved issuer list. The Credit Committee comprises PFMAM's Chief Investment Officer, Marty Margolis, four senior portfolio managers, three of which hold the Chartered Financial Analyst designation, and senior traders. All portfolio managers and traders are restricted to purchasing only those issuers on PFMAM's approved credit list. Issuers are added to our apprm,ed lists only if they (1) meet out stringent credit requirements, (2) have stable or improving credit fundamentals, (3) are frequent issuers, and (4) offer yields which represent value in their respecti,,e sector and industry. Issuers are monitored on an ongoing basis and are removed if conditions warrant. PFl\IAM assigns credit research responsibilities to portfolio managers and traders involved directly with our investment process. We do not assign credit work to specialized credit analysts. Our conservative approach to credit and the direct involvement of all of our portfolio management team has resulted in exceptional outcomes during times of stress. Many firms that have relied on a "hands-off' approach utilize credit specialists, who are removed from the investment process and have missed important signals and changes in market conditions impacting the credit markets. An overreliance on quantitative analysis and other traditional methods of credit research have proven to be insufficient to assess credit risk. Portfolio managers and traders, who are in the markets every day, are the most aware of changes in equity and credit default swap prices, as well as fixed-income market pricing that can signal changes in sentiment and are fundamental to managing credit risk. Therefore, we believe the portfolio management team's participation and contribution to our credit review process is vital to our successful management of credit risk. 7. How will you handle fluctuating cash flows and the cash forecasting process? PFM has developed a proprietary model that evaluates liquidity needs based on historical cash flow patterns. It would incorporate macro-level data on the City's aggregate portfolio balance over time, as well as monthly or seasonal variations in balances caused by unique aspects of the City's revenue and expenditure history. This model helps us determine what portion of the portfolio should be kept short and liquid (the "liquidity portion") and what portion could be lm'ested in somewhat longer maturities (the "core portion") to capture higher returns. We recommend updating the model City of San Juan Capistrano ~ Proposal for Investment Management Services I 11 Investment Advisors to the Public Sector product availability, trade execution, timeliness of information, quality of sernce, and special circumstances. 18 of the 37 current approved broker/dealers are primary gm,ernment securities dealers and 7 are minority or woman owned business enterprises. PFMAl\f's list of approved broker/ dealers as of September 30, 2012, may be found in the Appendix. The list is current as of the effective date only and is subject to change. The list is for information purposes only and may not be relied upon for any other purpose. Please note that this information is confidential and we request that it not be distributed without prior written consent of PFM Asset l\fanagement LLC. 10. Describe your firm's experience in investing municipal bond proceeds and familiarity with U.S. Treasury arbitrage restrictions as they relate to the investment ofproceeds of municipal bonds. PFMAM has extensive experience in the investment of bond proceeds and, as of September 30, 2012, has $5.1 billion of bond proceeds under management. Attention to arbitrage and rebate compliance is an integral part of our focused public sector management of bond proceeds-even in the current negative arbitrage environment. The integration of the investment function and arbitrage and rebate compliance ensures that attention is giYen to the requirements of federal law throughout the investment period and not "after the fact." PFMAM has an in-house Arbitrage Group that has been providing arbitrage rebate compliance services since 1989. Over the past 20 years, we have assisted hundreds of issuers and borrowers, including authorities, cities, counties, health care and higher education systems, school districts, states, and 501 (c)(3) organizations, in complying with the complicated and onerous post-issuance compliance requirements commonly referred to as the "Arbitrage Rebate Regulations." PFMAM's Arbitrage Group efficiently completes a significant volume of calculations each year. PFMAM arbitrage rebate specialists annually prepare in excess of 2,000 calculations, including arbitrage rebate, yield restriction compliance, and spending exception compliance calculations for the 350+ clients that have engaged our services through a separate contractual arrangement and for the hundreds of participants with bond proceeds invested in the fourteen local government investment pool programs that we support. City of San Juan Capistrano ~ Proposal for Investment Management Services I 13 Investment Advisors to the Public Sector E. Portfolio Management 1. Are portfolios managed by teams or one individual? PFMAI\I's fixed-income portfolios are managed by teams. Each team consists of: • A Portfolio Strategist who analyzes client requirements, evaluates macro-level investment options and selects an overall investment approach; • A Portfolio Manager who implements the investment strategy and makes sector and issue selections within the context of each client's Investment Policy; and • Trader(s) who assemble market offerings, run comparative security analysis, execute trades on a competitive basis, and ensure efficient settlement. The PFMAM team approach ensures that multiple portfolio managers are knowledgeable about the City's portfolio, actively participate in discussions about investment strategies, and have access to portfolio positions at all times. The portfolio strategy and management team for the City's portfolio will include Ken Schiebel as portfolio strategist, Joseph Creason as primary portfolio manager, and Meredith LaBuda as the lead trader and backup portfolio manager. The team approach ensures continuity when the primary manager is away. 2. Primary client contact is delegated to which of your firm's professionals? Nancy Jones, Managing Director, will be the engagement manager and will oversee all aspects of the relationship with the City. Sarah Meacham, Senior Managing Consultant, will be the project manager and serve as the City's primary contact. 3. How frequently are you willing to meet with us? We prefer to meet more often at the beginning of an engagement as we begin to implement the investment program and learn about the City's preferences. Once the investment program is well under way, it has been our practice to meet with clients on a quarterly basis, and to be a\'ailable to City staff as needed. In addition to the regularly scheduled formal meetings, such as with the City's newly formed Investment Committee, the City will also have daily access to our portfolio managers, as well as our analytical and accounting staff, by telephone to answer any questions. We believe frequent communication has been a key factor in the successful relationships we have had with our clients, and we will encourage a close dialogue between PFMAM's engagement team and City staff. 4. Describe procedures used to ensure that portfolios comply with client investment objectives, policies and bond resolutions. PFMAM has made substantial investments in our compliance practice, staffing, and technology over the years to facilitate portfolio management that is not only efficient, but disciplined in adhering to clients' investment policies and state regulations. City of San Juan Capistrano~ Proposal for Investment Management Services J 14 Investment Advisors to the Public Sector We begin each new engagement by inputting the City's Investment Policy and any other written guidelines into Charles River, an automated policy compliance and trade execution system. In addition to the initial setup in Charles River, the other components of PFl\1Ai\l's multi-layered compliance oversight and daily practices are described below. Culture of Compliance. As a register investment advisor, PFJ\L\l\f's trading act1v1ty 1s governed by principles set forth in applicable Federal statutes. In addition, PFMAM maintains a comprehensive internal Compliance Manual that details many additional aspects of permitted and not-permitted activities. Two key areas covered by the Compliance Manual are the exercise of fiduciary responsibilities to clients and the avoidance of conflicts of interest. The PFMAM trading desk also follows a detailed protocol on the execution, confirmation, and settlement of client transactions (discussed further below). These procedures include numerous checks and balances, and are designed to minimize and catch any trade errors or failed trades, whether caused by PFMAM, the broker counterparty, or the custody bank. There is also separation of duties between trading and accounting/reporting/reconciliation. Automated Compliance Monitoring of Trade Activity. All of PFJ\L\M's trades are entered through Charles River, an automated policy compliance and trade execution system. The Charles River system helps ensure compliance between a client's investment policy and a pending trade in a real-time environment. Facilitating independent Compliance team m·ersight, reporting, and exception resolution, Charles River allows our portfolio managers and traders to more easily and automatically monitor appropriate allocation among individual sectors and issuers within the guidelines set forth by investment policies, greatly reducing the chance of human error in adhering to investment policies. Post-Trade Review. At the end of each day, after trades are entered into PFJ\L\M's portfolio accounting database (which is separately maintained in our portfolio accounting system), Charles River is used to check this reporting database for compliance. Any excc:ptions are reported to the Compliance Department. In addition, post-trade compliance is also confirmed by the following procedures: • Portfolio managers and traders review daily holdings reports for each portfolio. • All trading activity is regularly reviewed by the Chief Investment Officer. • Monthly and quarterly client reports can be used to affirm compliance with client guidelines. Transparency. Lastly, PFMAM maintains a culture of transparency in our reporting and communication with clients. In addition to a variety of periodic comprehensive performance reports-which address portfolio compliance-clients also have access to their portfolios on a daily basis through a secure online system so that they can re,•iew their current holdings and transactions at all times. City of San Juan Capistrano~ Proposal for Investment Management Sen·ices I 15 Investment Advisors to the Public Sector 4. Are you willing to develop reporting procedures in line with our needs and objectives (i.e., monthly, so as to conform to State reporting requirement to management and governing bodies)? Our standard reports contain all information required by State reporting requirements. In addition, PFJ\L\l\1 is willing to prepare reports the City may request to meet its special needs and objectiYes. A sample monthly portfolio holdings report and a sample quarterly performance report are included in the Appendix. We are also able to include L\IF balances on the monthly statements, if desired, to provide an 0\'erall view of the City's investments. 5. Are confirmations of investment transactions sent directly by the broker/ dealer to the client? Yes, confirmations of investment transactions will be sent directly by the broker/ dealer to the City. City of San Juan Capistrano ~ Proposal for Investment 1\Ianagement Services I 19 Investment Advisors to the Public Sector H. Fees As indicated in the RFP, all fee information is being submitted separately. City of San Juan Capistrano ~ Proposal for Investment Management Services I 20 :\1 Investment Advisors to the Public Sector Appendix "1 Investment Advisors to the Public Sector Audited Financial Statements PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES December 31, 2011 and 2010 CONTENTS INDEPENDENT AUDITORS' REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets Consolidated Statements of Income and Member's Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 1 2 3 4 5-17 ~ei~cher -Miller PEOPI.~ I !Ol'.AS ' SOLUTIONS Independent Auditors' Report The Member PFM Asset Management LLC and Subsidiaries Harrisburg, Pennsylvania l 00 Witmer Road, Suite 3$0, Horsham, PA 19044·2369 215·44 I 4600 • fax: 2 I :5·6 72·8224 • www.kmco.com We have audited the accompanying consolidated balance sheets of PFM Asset Management LLC and Subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of income and member's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PFM Asset Management LLC and Subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As described in Notes 1 and 2 to the consolidated financial statements, the Company is affiliated with PFM I, LLC, PFM Investment, LLC, Public Financial Management, Inc., and PFM Financial Services LLC through either common or direct ownership. PFM Asset Management LLC is a co- borrower with Public Financial Management, Inc. and Subsidiary, PFM Financial Services LLC, and PFM Investment, LLC on a line of credit and certain long-term debt agreements. Certain expenses have been allocated between PFM Asset Management LLC and Public Financial Management, Inc. and Public Financial Management, Inc. charges PFM Asset Management LLC a management fee. The operating results of the Company may have been different had it been autonomous. The accompanying consolidated financial statements do not include the financial position, results of operations, changes in stockholder's/members' equity, and cash flows of PFM I, LLC, PFM Investment, LLC, Public Financial Management, Inc., and PFM Financial Services LLC. Consolidated financial statements of PFM I, LLC and Subsidiaries as of and for the years ended December 31, 2011 and 2010 are also available. Horsham, Pennsylvania May 14,2012 Audtt & , \\.'l."Outniug PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2011 and 2010 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Work-in-process, net Prepaid expenses and other current assets Total current assets Equipment and improvements, net Intangible assets, net Other assets Advances to PFM I, LLC Goodwill LIABILITIES AND MEMBER'S EQUITY Current liabilities: Current portion of long-term debt Accounts payable Current portion of accrued expenses Total current liabilities Long-term debt, net of current portion Accrued expenses, net of current portion Advances from Public Financial Management, lnc. Advances from PFM Financial Services LLC Deferred rent Member's equity See accompanying notes to consolidated financial statements. -2- $ $ $ $ 2011 2010 277,753 $ 1,871,087 6,908,982 7,248,527 3,703,275 2,973,031 682,837 1,025,761 11,572,847 13,118,406 2,081,160 2,032,664 214,803 375,907 93,752 86,104 20,123 10,898,674 10,898,674 24,861,236 $ 26,531,878 1,077,639 $ 862,112 46,812 58,858 2,441,755 2,245,635 3,566,206 3,166,605 1,293,167 2,370,807 28,16] 112,730 961,612 6,819,387 6,823 6,823 105,37'7 143,268 5,961,346 12,619,620 18,899,890 13,912,258 24,861,236 $ 26,531,878 PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Consolidated Statements of Income and Member's Equity Years Ended December 31, 2011 and 2010 Revenues: Professional fees Other income Expenses: Salaries, incentive compensation and employee benefits General and administrative Management fee Interest expense Net income Member's equity, beginning of year Member's equity, end of year See accompanying notes to consolidated financial statements. -3- $ $ 2011 2010 56,562,925 $ 58,005,981 78,357 84,676 56,641,282 58,090,657 32,261,227 33,795,079 15,166,242 13,247,678 4,000,000 4,000,000 226,181 271,569 51,653,650 51,314,326 4,987,632 6,776,331 13,912,258 7,135,927 18,899,890 $ 13,912,258 PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31,2011 and 2010 2011 2010 Cash flows from operating activities: Net income $ 4,987,632 $ 6,776,331 Adjustments to reconcile net income to net cash provided by operating activities: Change in fair value of contingent consideration 15,431 22,599 Depreciation and amortization 1,096,119 869,825 Change in accounts receivable reserve (35,21.0) (85,095) Change in work-in-process reserve (91,4?5) 105,005 (Increase) decrease in: Accounts receivable 374,T)5 (409,148) Work-in-process (638,769) (1 ,034,618) Prepaid expenses and other current assets 342,924 (131,867) Other assets (7,648) 10,213 Increase (decrease) in: Accounts payable (12,046) 20,871 Accrued expenses 1%,120 203,935 Deferred rent (37,891) 666 Net cash provided by operating activities 6,189,942 6,348,717 Cash flows from investing activities: Purchases of equipment and improvements (983,511) (1,029,009) Payment of contingent consideration (100,QOO) (68,946) Net repayments from PFM I, LLC 20,123 106,817 Net cash used in investing activities (1,063,388) (991,138) Cash flows from financing activities: Repayment of long-term debt (862.113) (646,584) Net repayments to PfM Investment, LLC (1,681,523) Net repayments to Public Financial Management, Inc. (5,857,775) (5,746,240) Net cash used in financing activities (6,719,888) (8,074,347) Net decrease in cash and cash equivalent<; (1 ,593,334) (2,716,768) Cash and cash equivalents, beginning of year 1,871,087 4,587,855 Cash and cash equivalents, end of year $ 27?,753 $ 1,871,087 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 230,025 $ 274,128 See accompanying notes to consolidated financial statements. -4- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (1) Nature of Business PFM Asset Management LLC (PFMAM) is an investment advisory firm that specializes in providing money-management and investment advisory services primarily to state and local governments, nonprofit institutions and retirement plans throughout the United States. PFM Fund Distributors, Inc. (Fund Distributors) is a wholly-owned subsidiary of PFMNv1. fund Distributors is a broker-dealer whose purpose is to serve as the distributor or marketing agent for local government investment pools and registered investment companies managed by PFMAM. Shares in these local government investment pools and registered investment companies are offered and sold to institutional investors, the majority of which are state and local government entities. Fund Distributors has no plans to buy, sell, or trade securities. BondResource Partners, LP and BondResource Partners, LLC (collectively, BondResources) are wholly-owned subsidiaries of PFMAM. Bondi~esources is a professional services firm that specializes in providing bond management services and calculations primarily to the tax-exempt industry. PFMAM and its wholly-owned subsidiaries, Fund Distributors, and BondResources (collectively, the Company) is a wholly-owned subsidiary of PFM Investment, LLC (PFM Investment). PFM Investment is a wholly-owned subsidiary of PFM I, LLC (PFM 1). (2) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of PFM Asset Management LLC and its wholly-owned subsidiaries, PFM Fund Distributors, Inc., BondResource Partners, LP and BondResource Partners, LLC. All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. As described in the notes to the consolidated financial statements, PFMAM is a co- borrower with PFM Investment, and PFM Investment's other wholly-owned subsidiaries, Public Financial Management, Inc. and Subsidiary and PFM Financial Services LLC (FiServ), on a line of credit and certain long-term debt agreements. Certain expenses have been allocated between PFMAM and Public Financial Management, Inc. (PFM) and PFMAM is charged a management fee by PFM. The operating results of the Company may have been different had the Company been autonomous. The accompanying consolidated financial statements do not include the financial position, results of operations, changes in stockholder's! members' equity, and cash flows of PFM l, PFM Investment, PFM or FiServ. Consolidated financial statements of PFM I, LLC and Subsidiaries and PFM Investment, LLC and Subsidiaries as of and for the years ended December 31, 2011 and 2010 are also available. Continued ... -5- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (2} Summary of Significant Accounting Policies, Continued Principles of Consolidation, Continued PFM and its subsidiary, PF\1 S/B Acquisition, Inc. are professional service firms that specialize in providing financial advisory services primarily to state and local governments and nonprofit institutions throughout the United States. Financial advisory services relate principally to the structuring, pricing and rating of debt, and consulting on finance related matters. FiServ provides a national program for procurement cards, issued through an unrelated financial institution. Aggregate professional fees of PFM and FiServ for the years ended December 31, 2011 and 2010 were approximately $57 million and $58 million, respectively. Cash Equivalents Short-term investments and other highly liquid instruments having original maturities of three months or less are considered to be cash equivalents. The Company has cash equivalents in a publicly traded money market treasury fund. The balance of these cash equivalents were $207,125 and $1,793,944 at December 31, 2011 and 2010, respectively. Equipment and Improvements Equipment and improvements arc stated at cost. The straight-line method of depreciation is used for financial reporting purposes over estimated useful lives generally ranging from three to five years for computer software, three to five years for equipment and seven to ten years for furniture and fixtures. Leasehold improvements are amortized on a straight- line basis over the shorter of the lease term or the estimated useful lives of the assets, which generally range from two to ten years. Maintenance and repairs are charged to expense as incurred. Betterments and renewals, which extend the useful lives or capacities of the equipment and improvements, are capitalized. Gains or losses resulting from the sale or disposal of equipment and improvements are included in the consolidated statements of income and member's equity. Intangible Assets Intangible assets consist of a trade name and a customer list. The straight-line method of amortization is used for financial reporting purposes over an estimated useful life of four years. Goodwill In accordance with Financial Accounting Standards Board (F ASB) Accounting Standards Codification (ASC) 350, Intangibles -Goodwill and Other, the Company assesses goodwill for impairment on an annual basis. No impairment of goodwill has been recognized during the years ended December 31, 2011 and 2010. Continued ... -6- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (2) Summary of Significant Accounting Policies, Continued Revenue Recognition The Company generally bills in arrears for services performed. Professional fees are recognized when the related services are performed. A majority of the Company's fees are calculated as a percentage of compensable assets under management or based on either a fixed price or hourly basis. At December 31, 2011 and 2010, PFMAM managed compensable assets with market values of approximately $44 billion and $43 billion, respectively. Compensable assets are subject to market fluctuations. Revenue for hourly contracts is recognized as the work is performed. Revenue for fixed price contracts is primarily recognized on the percentage of completion method. Advertising The Company expenses advertising costs when incurred. Total advertising expenses for the years ended December 31, 2011 and 2010 were $359,006 and $376,356. respectively. Income Taxes PFMAM, BondResources, PFM Investment, and PFM I file consolidated federal and state tax returns. PFMAM, Bond Resources, PFM Investment, and PFM l's activities are reported under the partnership provisions of the Internal Revenue Code and various state statutes for income tax reporting. Accordingly, the members of PFM I are individually liable for the taxes on their respective shares of PFM l's income or Joss. Fund Distributors is a C corporation. Income taxes are computed in accordance with FASB ASC 740, Income Taxes. This standard requires an asset and liability melhod of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the book and tax bases of assets and liabilities, as well as the estimated future tax consequences attributable to net operating loss and tax credit carryforwards. A valuation allowance is established if, based upon all available information, it is deemed more likely than not that a portion or all of a deferred tax asset will not be realized. f ASB ASC 740 is the authoritative pronouncement on accounting for and reporting income tax liabilities and expense. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, F ASB ASC 740 provides guidance on derecognition, classification and disclosure. Cant1nued ... -7- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (2) Summary of Significant Accounting Policies, Continued Income Taxes, Continued The Company files income tax returns in tht' U.S. federal jurisdiction, and various state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2008. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its uncertain tax positions over the next 12 months. Concentrations of Credit Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and work-in-process. The Company principally utilizes a national bank to maintain its operating cash accounts and temporary cash investments. At certain times, such balances may be in excess of the FDIC insurance limits and the publicly traded money market treasury fund is not HJlC insured. The Company's principal customers are state and local governments, nonprofit institutions and retirement plans. Services to these customers are normally provided under contractual arrangements. The Company assesses the financial strength of its customers on an ongoing basis. The Company records accounts receivable and work-in- process reserves at levels considered by management to be adequate to absorb estimated probable future losses (uncollectible amounts) existing at the balance sheet date. These reserves are based on estimates, and ultimate losses may differ from those estimates. In the normal course of its operations, the Company enters into contracts and agreements that contain indemnifications and warranties. The Company's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. -8- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31,2011 and 2010 (3} Transactions with Related Parties Transactions with PFM I, LLC During the years ended December 31, 2011 and 2010, the Company made periodic advances on behalf of PFM I to members of PFM 1 for various state taxes. While not required to do so, the Company expects to continue to fund these advances on behalf of PFM I. There were no advances to PFM 1 outstanding as of December 31, 2011. Total advances outstanding to PFM I as of December 31, 2010 was $20,123. The advances are noninterest bearing and there arc no scheduled repayment terms. Transactions with Public Financial Management, Inc PFMAM receives advances from PFM for working capital purposes. These advances are noninterest bearing and there are no scheduled repayment terms. Total advances from PFM as of December 31,2011 and 2010 were $961,612 and $6,819,387, respectively. PFMAM periodically provides services to, and receives services from, PFM. PFM provided PFMAM approximately $14,259,000 and $16,749,000 of salaries, incentive compensation and employee benefits and approximately $3,972,000 and $3,118,000 of general and adminislntive services for the years ended December 31, 2011 and 2010, respectively. PFM also charged PFMAM a management fee of $4,000,000 for the years ended December 31, 2011 and 2010. (4) Fair Value Measurements FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America and expands disclosures about fair value measurements. Various inputs may be used to determine the fair value of the Company's financial assets and liabilities. These inputs are summarized in the three broad levels listed below. The input levels or methodologies used for valuing financial assets and liabilities are not necessarily an indication of the risk associated with those financial assets and liabilities. Levell: Quoted prices in active markets for identical financial ass<!ts and liabilities. Level 2: Observable inputs other than levell quoted prices. Level3: Unobservable inputs. -9- Con tinuert .. PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 {4) Fair Value Measurements, Continued Observable inputs are inputs that other market participants may use in pricing a financial asset or liability. These may include quoted prices for similar assel<; and liabilities, interest rates, prepayment speeds, credit risk, and others. The determination of what constitutes observable inputs requires judgment by the management of the Company. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an asset or liability at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors market participants would use in pricing an asset or liability, and would be based upon available information. For the years ended December 31, 2011 and 2010, the application of valuation techniques applied to similar assets and liabilities has been consistent. The following is a description of the valuation methodologies used for instruments measured at fair value: Contingent Consideration The 2009 acquisition of BondResources included a contingent consideration arrangement that requires additional consideration to be paid by PFMAM based on the future revenues of BondResources over a four-year period. Amounts are payable on a yearly basis as each year's target revenues are met. The range of the undiscounted amounts PFMAM could pay under the contingent consideration agr•~ement is between $0 and $400,000. As of December 31, 2011 and 2010, there was no change in the range of outcomes for the contingent consideration. In accordance with FASB ASC 805, Business Combinations, the contingent consideration recognized at the acquisition date was remeasured to a fair value of $221,184 and $305,753 as of December 31, 2011 and 2010, respectively, and is included in accrued expenses in the accompanying consolidated balance sheets. The fair value of the contingent consideration recognized in connection with the acquisition of BondResources was estimated by applying the income approach. That measure is based on significant inputs not observable in the market, which F ASB ASC 820 refers to as level 3 inputs. Key assumptions include (i) a discount rate of 7.5% and (ii) probability of payout of each year's amount of 100%. In determining the appropriate levels, management of the Company performs a detailed analysis of the assets and liabilities that are being measured and reported at fair value. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as level 3. Con t!nued ... -10- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (4) Fair Value Measurements, Continued The tables below present the balance of the liability measured at fair value on a recurring basis. December 31,2011 Total Levell Level2 Leve13 Contingent consideration $ 221,184 $ $ $ 221,184 December 31, 2010 Total Levell Level2 Level3 Contingent consideration $ 305,753 $ $ $ 305,753 The changes in the balance of the liability measured at fair value based on level 3 inputs are summarized as follows: Contingent Consideration Balance at December 31, 2009 $ 352,100 Contingent consideration paid (68,946) Change in fair value 22,599 Balance at December 31, 2010 305,753 Contingent consideration paid (100,000) Change in fair value 15,431 Balance at December 31, 2011 $ 221,184 (5) Accounts Receivable and Work-In-Process 1he components of accounts receivable are as follows at December 31: Accounts receivable Accounts receivable reserve Accounts receivable, net 11- 2011 $ 7,169,730 (260,748) $ 6,908,982 2010 $ 7,544,485 (295,958) $ 7,248,527 Continued ... PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (5) Accounts Receivable and Work-In-Process, Continued The components of work-in-process are as follows at December 31: Work-in-process Work-in-process reserve Work-in-process, net (6) Equipment and Improvements 2011 $ 3,785,617 (82,342) 2010 $ 3,146,848 (173,817) $ 2,973,031 Equipment and improvements consist of the following at December 31: 2011 2010 Computer software $ 4,626,731 $ 3,855,150 Equipment 1,663,665 1,5'11,510 Furniture and fixtures 1,127,980 1,086,951 Leasehold improvements 1,396,874 1,378,128 ~.~15,250 7,831,739 Accumulated depreciation and amortization (6,734,090) (5,799,075) $ 2,081,160 $ 2,032,664 Depreciation and amortization expense was $935,015 and $708,721 for the years ended December 31, 2011 and 2010, respL>ctively. (7) Intangible Assets Intangible assets consist of the following at December 31: Trade name Customer list Accumulated amortization 2011 2010 $ 32,200 $ 32,200 612,214 612,214 644,414 644,414 _(.:.._4_29_;_,6_1_,1 ) ___ (:.....26_8,507) s 214,803 $ 375,907 Amortization for the years ended December 31, 2011 and 2010 was $161.104. -12- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (8) Line of Credit As of December 31, 2011, PFMAM, PF\1 Investment, PFM and Subsidiary and FiScrv (collectively, the Borrowers) have available a joint line of credit that expires on April 30, 2015. The maximum available borrowings on the joint line of credit are $12,000,000, subject to certain conditions, as defined. The Borrowers are jointly and severally liable to the lenders for the full payment and performance under the line of credit. The unpaid cash advances bear interest at either the base rate, as defined, which includes a floor of 3%, or the LIBOR rate, as defined, which includes a floor of 2%. The applicable rate at December 31, 2011 was 7.5%. The line of credit is collateralized by certain assets of the Borrowers and is guaranteed by PFM I. There were no outstanding borrowings on the line of credit at December 31, 2011 and 2010. (9) Long-Term Debt Long-term debt consists of the following at December 31: Subordinated promissory note, guaranteed by PFM, payable in connection with the 2004 acquisition of certain assets and liabilities of Cadre Financial Services, Inc. and Ambac Securities, Inc. The note bears interest at 7%, payable quarterly in arrears, with annual principal payments bep;inning on December 31, 2009 at 10% of the original principal 2011 2010 balance and increasing 5% per year through 2013. $ 2,370,H06 $ 3,232,919 Current portion (1,077,639) (862,112) --~~~--~-----~~--~ $ 1,293,167 $ 2,370,807 The aggregate future annual principal payments of long-term debt consist of the following: Year Ending December 31, 2012 2013 -B- Amount $ 1,077,639 1,293,167 PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (10) Retirement Plans PFMAM and PFM sponsor a qualified 401(k) and profit sharing plan. PFMAM and PFM match 50% of employee contributions to the 401 (k) plan, up to lhe first 6% of an employee's salary. Profit sharing contributions are made at the discretion of the Board of Directors of PFM I. There is a one-year service requirement and employees are fully vested in the matching contributions immediately upon their entry date and after six years of service for the profit sharing contributions. PFMAM's employer contributions for the years ended December 31, 2011 and 2010 totaled $1,243,360 and $1,050 .. 000, respectively, for the profit sharing contribution and $446,341 and $414,327, respectively, for the matching 401(k) contribution. PFM and Subsdiairy's employer contributions for the years ended December 31, 2011 and 2010 totaled $1,397,640 and $1,240,000, respectively, for the profit sharing contribution and $655,842 and $645,396, respectively, for the matching 401(k) contribution. (11) Commitments Leases PFMAM leases a portion of its office space under operating leases that expire at various dates through 2018. PFMAM's annual minimum lease payments required under these leases as of December 31, 2011 are: Year Ending December 31, Amount 2012 $ 515,212 2013 $ 287,886 2014 $ 229,845 2015 $ 142,138 2016 $ 146,015 Thereafter $ 277,493 Several of the leases rail for graduated payments over the lif0 of the leases. The lease expense, which includes allocations from PFM and is recognized on c1 straight-line basis over the lease term and included in general and administrative expenses, was $2,520,387 and $2,362,082 for the years ended December 31, 2011 and 2010, respectively. The difference behveen actual payments and the straight-line basis expE·nsc is included in deferred rent in the accompanying consolidated balance sheets. ln connection with a lease that PFM has for one of its offices, the Borrowers maintain a letter of credit in favor of the lessor in the amount of $300,000. The letter of credit expires May 31, 2015. Continued ... -14- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (11) Commitments, Continued Employment Agreements PFMAM has entered into employment agreements with certain key employees. The contracts are automatically renewed on a year-to-year basis thereafter and are cancelable by either party with 90 days' prior notice. However, contracted employees are entitled to not less than six months' severance pay if their employment is terminated. In connection with such agreements, contracted employees have agreed not to compete in any respect with the business of PFMAM for the longer of either 12 months after the termination date, or the remaining term of the emploympnt agreement. In connection with these agreements, PFMAM has guaranteed aggregate bonuses of $345,000 payable during the year ended December 31, 2011. Health Self-Insurance PFM maintains a self-insurance program for medical covC'rage. PFMAM employees are eligible to participate in the plan. PFMAM and PFM are liable for claims up to $60,000 per covered person annually, and aggregate claims up to $2,616,430 annually. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. PFM and Subsidiary maintains additional coverage for amounts in excess of self-insurance hrruts. PFMAM reimburses PFM for certain employ<:'e bcm'fit costs. Insurance Deductible PFM has a $500,000 deductible on its errors & omissions insurance and PFMAM is a named insured party. Deductible amounts are accrued when, in the opinion of management, an incident has occurred that will require PFMAM to pay under the deductible. At December 31, 2011 and 2010, there were no insurance deductibles accrued. Related Party Transactions On May 11, 2009, the Borrowers entered into a $24,000,000 term loan agreement (Bank Term Loan) with two financial institutions. The Bank Term Loan bore interest al the greater of the one-month LIBOR rate plus 5.25%, or 7.75%. The Bank Term Loan was collateralized by certain assets of the Borrowers and was guaranteed by PFM I. The Borrowers were jointly and severally liable to the financial institutions for the full payment and performance under the Bdnk Term Loan. This obligation was recorded by PFM Investment, and was restructured in April 2010. Continued ... -15- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (11) Commitments, Continued Related Party Transactions, Continued On May 11, 2009, the Borrowers entered into a $19,000,000 term loan agreement with ICV /PFM Co-Investor, LLC. The term loan with ICY /PFM Co-Investor, LLC was subordinated to the line of credit and Bank Term Loan. The term loan bore interest at 12%, payable quarterly in cash, and 3%, compounded annually, payable in-kind. The term loan was collateralized by certain assets of the Borrowers and was guaranteed by PFM I. The Borrowers were jointly and severally liable to ICY /PFM Co-Investor, LLC for the full payment and performance under the term loan agreement. This obligation was recorded by PFM Investment, and was repaid in 2010 as part of the April2010 restructuring. In April 2010, the Borrowers restructured the Bank Term Loan and the $19,000,000 term loan agreement with ICY/ PPM Co-Investor, LLC. Under the terms of the restructuring, the Borrowers entered into a $42,000,000 term loan agreement (New Bank Term Loan) with four lenders. The New Bank Term Loan is payable in quarterly installments ranging from $750,000 to $1,000,000, through March 2015, with the remaining unpaid principal and interest due April2015. The New Bank Term Loan bears interest at either the base rate, as defined, which includes a floor of 3%, or the LlBOR Rate, as defined, which includes a floor of 2%. The applicable rate at December 31, 2011 was 7.5%. The New Bank Term Loan is collateralized by certain assets of the Borrowers and is guaranteed by PFM I. The Borrowers are jointly and severally liable to the financial institutions for the full payment and performance under the New Bank Term Loan. During 2011, the Borrowers were advanced an additional $3,000,000 under the New Bank Term Loan. The balance outstanding on the New Bank Term Loan at December 31, 2011 and 2010 was $39,750,000. This obligation is recorded by PFM Investment. In connection with the New Bank Term Loan, the Borrowers entered into an interest rate swap agreement (Swap) with a total notional amount of $21,000,000. Under the terms of the Swap, the Borrowers make interest payments at a fixed amount and receive interest at a flo&ting rate of LIBOR with a cap of 5% on the notional amount. The Swap commenced July 2010 and expires August 2013. The Swap converts a portion of the variable interest payments of the New Bank Term Loan to fixed payments. The Borrowers did not elect to designate the Swap as a hedging instrument. Therefore, in accordance with FASB ASC 815, Oerivati11es and Hedging, the gain or loss resulting from the change in fair value of the Swap is recognized in earnings. The fair value of the Swap at December 31, 2011 and 2010, of $1,908 and $39,472, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet of PFM Investment. The change in fair value of $(37,564) and $39,472 for the year ended December 31, 2011 and the period from July 2010 through December 31, 2010, respectively, was recognized in net income by PFM Investment. Contmued ... -16- PFM ASSET MANAGEMENT LLC AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 (11) Commitments, Continued Related Party Transactions, Continued In connection with PFM's 2007 acquisition of software from Future Perfect Partners, PFMAM guaranteed a subordinated promissory note. The subordinated promissory note, which was refinanced in April2010, is noninterest bearing with annual payments ranging from $350,000 to $375,000 with a final installment of unpaid principal and interest due January 2013. The refinanced note is discounted based on an imputed interest rate of 3.2%. In the event of default by PFM, PFMAM is liable for the remaining cash payments due on the note, which at December 31, 2011 and 2010, was $2,105,397 and $2,394,906, respectively. PFM I, PFM Investment, PFM, PFMAM and FiServ have entered into a management agreement in 2009 with ICY Capital Partners, LLC, the general partner of ICY /PFM Co- Investor, LLC and ICY /PFM Investor, Inc. In accordance with the management agreement, ICY Capital Partners, LLC will perform management and consulting services, including, but not limited to, management, finance, marketing and strategic planning, in exchange for a monitoring fee. The monitoring fee, payable quarterly in arrears, is equal to the greater of 3.5% of earnings before interest, taxes, depreciation and amortization (EBITDA), as further defined in the agreement, or $530,000, prorated for the number of days since inception of the management agreement. The monitoring fee recorded by PFM I, for the years ended December 31, 2011 and 2010 was $714,681 and $670,308, respectively. Litigation From time to time, the Borrowers and PFM I are involved in legal proceedings in the ordinary course of its businesses. Management believes that the resolution of these legal proceedings will not have a material adverse effect on the financial condition or results of operations the Company. (12) Subsequent Events The Company has performed an evaluation of subsequent events through May 14, 2012, which is the date the financial statements were available to be issued. -17- :\1 Investment Advisors to the Public Sector Form ADV Parts 2A and 2B PFM Asset Management LLC One Keystone Plaza, Suite 300 N. Front & Market Streets Harrisburg, PA 17101-2044 717-231-6200 phone 717-233-6073 www.pfm.com 3/30/2012 FORM ADV PART 2 BROCHURE This brochure provides information about the qualifications and business practices of PFM Asset Management LLC. If you have any questions about the contents of this brochure, please contact us at pfmamrequest@pfm.com. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Additional information about PFM Asset Management LLC is also available on the SEC's website at www.adviserinfo.sec.gov. The searchable IARD/CRD number for PFM Asset Management LLC is 122141. PFM Asset Management LLC is a Registered Investment Adviser. Registration with the United States Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training. ©2010 Nat1onal Compliance Serv1ces 800-800-3204 PFM Asset Management LLC Form ADV Part 2A Brochure Table of Contents IARD/CRD No 122141 SEC File No.· 801-60449 3/30/2012 Advisory Business ............................................................................................................... 1 Fees and Compensation .................................................................................................... 5 Performance-Based Fees and Side-By-Side Management .......................................... 9 Types of Clients ................................................................................................................. 10 Methods of Analysis, Investment Strategies and Risk of Loss ................................. 11 Disciplinary Information ................................................................................................... 18 Other Financial Industry Activities and Affiliations .................................................... 20 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading ................................................................................................................................ 22 Brokerage Practices ......................................................................................................... 24 Review of Accounts .......................................................................................................... 28 Client Referrals and Other Compensation .................................................................... 30 Custody ............................................................................................................................... 31 Investment Discretion ...................................................................................................... 32 Voting Client Securities .................................................................................................... 33 Financial Information ........................................................................................................ 35 ©2010 Na(lonal Compliance Servrces 800-800-3204 Adviso Business Form ADV Part 2A, Item 4 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Describe your advisory firm, including how long you have been in business Identify your principal owner(s). PFM Asset Management (PFMAM) is a Delaware limited liability company. We provide investment advice and portfolio management services for governmental and not-for-profit organizations, corporations, pension funds and other institutions. Through our predecessor, Public Financial Management, Inc., we have been providing these services since 1980. We are organized under a holding company structure in which PFM I, LLC is our ultimate parent company. The following persons own 25% or more of PFMAM: ICV/PFM Co-Investors, LLC ICV Partners II L.P. B. Describe the types of advisory services you offer. If you hold yourself out as specializing in a particular type of advisory service, such as financial planning, quantitative analysis, or market timing, explain the nature of that service in greater detail. If you provide investment advice only with respect to limited types of investments, explain the type of investment advice you offer, and disclose that your advice is limited to those types of investments. ADVISORY SERVICES 1. Discretionary Advice We offer discretionary advisory services for government, nonprofit and other institutional investors who invest in fixed income and multi-asset class strategies. When a client gives us investment discretion, we then have the authority to determine, without obtaining their specific approval, (1) the specific securities to be bought and sold, (2) the amount of securities to be bought and sold and (3) the broker or dealer through which the securities are bought or sold. These decisions are subject to limitations of state law and any other restrictions in the contract with our client, or in our client's written investment policies. Under these types of engagements, we assume day-to-day management responsibility for the assets covered under the investment advisory agreement, including investment strategy development and arranging the purchase and sale of fixed-income securities. Examples of these securities include U.S. Treasury securities, Federal Agency securities, high grade corporate obligations and money market instruments. We buy and sell these securities to meet the investment objectives and cash flow requirements of each client. We manage some fixed-income portfolios, often on a total return basis, and others using a liability-driven strategy that seeks to match liabilities such as insurance liabilities or bond-funded construction draws, to the cash flows from a portfolio of fixed-income securities. For some of our clients, including trusts, pension plans, endowments, foundations, other post employment benefits (OPEB) plans or other similar asset pools, we may serve as a discretionary manager to invest a client's assets in multiple types of investments. Generally these accounts include a variety of asset classes, which may include domestic equity, international equity, fixed-income, and other alternative asset classes. 1 ©201 0 National Compliance Serv1ces 800-800-3204 We provide multi-asset class investment services in two forms. One form is a wrap fee program known as the Managed Accounts Program (MAP), where we charge a single fee to include investment advisory, third-party custodial and administrative services. We are no longer marketing MAP to new clients. The other is a general discretionary form where we unbundle some of the service fees, which allows the client to separately negotiate these fees. This form of management is sometimes referred to as manager of managers, outsourced CIO, implemented consulting and a variety of other generic terms of art. In each of these two general forms of management, we work with the client to determine a target asset allocation based on a variety of risk and return characteristics. We then implement the asset allocation either by buying shares of mutual funds and/or pooled funds or other investment vehicles or by selecting separate account managers who will manage specific asset classes and/or strategies. We will communicate the method of asset allocation execution to the client through a written investment strategy. These clients give us authority to re-allocate assets and to change, eliminate or add managers or investments within the scope of the investment strategy. For certain clients, we may serve as a "manager of managers." As a manager of managers, we will assist our clients in selecting and monitoring minority, women-owned and emerging managers as sub-advisers to manage the client's portfolio. Generally, we provide each investment sub-adviser with a particular investment mandate for managing a portion of the client's investment portfolio. As the manager of managers, we have discretion to make the initial selection of the investment sub-advisers. We also provide ongoing periodic monitoring services by evaluating the investment sub-adviser's portfolio management philosophy, policies, processes, controls, personnel, and investment performance. These clients generally give us authority to change, drop or add investment sub-advisers. Usually, the client also allows us to allocate and re-allocate portions of the investment portfolios to different investment sub-advisers. The client generally gives the investment sub-advisers both investment and brokerage discretion in managing its portion of the portfolio. We give these clients periodic reports on the investment performance of the various investment sub-advisers and the portfolio as a whole. We do not take custody of the assets of clients for whom we provide discretionary advice, but the client generally allows us to give instructions to the client's custodian in connection with transactions executed in the client's portfolio. 2. Services to Registered Investment Companies and Local Government Investment Pools Among the clients who use our discretionary advice are a registered investment company and a number of local government investment pools. We also provide administration and transfer agent services for these clients. 3. Nondiscretionary Advice We also provide advice on a nondiscretionary basis where we offer clients investment recommendations, subject to their specific approval and further execution instructions. This situation arises where our client makes trades directly or specifically approves our purchase or sale of specific securities, including certificates of deposit and other fixed rate investments. 4. Consulting Services We also provide nondiscretionary investment consulting services to: ~~~~·~~p~u~b~li~c,~T~a~ft~-~H~a~rt~le~y~a~n~d~c~o~r~po~r~a~te~pe~n~s~io~n~fu~n~d~s~;~~~~~~~~~~~~~~~~~~~~~· • hospital endowments and foundations; • trusts; 2 ©201 0 National Compliance Serv1ces 800-800-3204 • OPEB plans; and • other similar institutional investors. For these clients we may: • develop investment policies; • analyze investment portfolio risk; • review investment sector allocation; and • analyze investment performance. We also provide services consisting of overseeing a client's portfolio where we have not been given authority to buy or sell securities in the portfolio. We typically begin these services by assessing the client's investment objectives, time horizon and risk tolerance. Using this information, we then will propose asset allocation models within the investment guidelines which the client gives us. We may also assist in writing an investment policy which provides details about the objectives, diversification, quality, and performance measurement of the portfolio. We also make recommendations on the selection of money managers, pooled trusts or mutual funds to carry out the client's investment strategy. Once our client puts the investment policy into place, we report quarterly to the client on the investment performance. We also report on whether an investment manager chosen follows its particular style, and whether our client's portfolio complies with its investment policy. We also provide consulting services to OPEB plans. These services involve financial reporting, analyzing cash flow implications of different funding strategies, and other matters relating to the OPEB benefits and funding arrangements. Often we perform these services by cooperating with our client's other professional advisors, such as the client's accountant or actuary. 5. Structured Products We also provide analytical services in designing portfolios in connection with advance refundings of municipal bonds and the investment of bond proceeds. Under these engagements we arrange for purchases of specific securities that are generally government obligations or guaranteed investment contracts. On our client's behalf, we arrange these purchases by obtaining bids on a competitive basis or by negotiating on behalf of our client. We also provide advice on the structuring of interest rate swaps and commodity swaps which may be associated with municipal debt transactions. C. Explain whether (and, if so, how) you tailor your advisory services to the individual needs of clients. Explain whether clients may impose restrictions on investing in certain securities or types of securities. We tailor our advisory services taking into account following factors: • the services that the client has requested; • the client's investment objective; • the client's time horizon; and • risk tolerance. We perform our duties as the client's investment manager pursuant to an investment advisory agreement with the client. In this agreement, a client may impose additional restrictions on the types of securities in which we can invest, or on the maturity of securities. We adhere to any investment restrictions provided by the client. D. If you participate in wrap fee programs by providing portfolio management services, (1} describe the differences, if any, between how you manage wrap fee accounts and how you manage other accounts, and (2) explain that you receive a portion of the wrap fee for your services. Not applicable. 3 ©201 0 Nattonal Compltance Servtces 800-800-3204 E. If you manage client assets, disclose the amount of client assets you manage on a discretionary basis and the amount of client assets you manage on a non-discretionary basis. Disclose the date "as of' which you calculated the amounts. As of December 31, 2011, the amount of client assets we managed on a discretionary basis was $42,131,522,983 and the amount we managed on a nondiscretionary basis was $1,801,615,561. In addition, as of December 31, 2011, we provided investment consulting services with respect to assets in the amount of $24,192,216,009. 4 ©201 0 National Compl1an·::e Serv1ces 800-800-3204 Fees and Com ensation Form ADV Part 2A. Item 5 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Describe how you are compensated for your advisory services. Provide your fee schedule. Disclose whether the fees are negotiable. GENERAL The fees we charge to our advisory clients may differ depending upon a number of factors including the types of investments permitted. the personnel providing the advisory services, the particular strategy, the size of portfolio being managed, the relationship with the client, and service requirements associated with the account. Fees may also differ based on account type (e.g., a commingled. pooled account or a separate individual portfolio account). Fees are negotiable so one client with similar investment objectives or goals may be paying a higher fee than another client. We do not require any client to pay fees prior to our performance of our services. 1. Discretionary Advice We generally receive compensation for fixed income portfolio management based on a percentage of assets we manage. We receive this compensation after a service is provided, and we bill in arrears on a monthly basis. As a general guideline, we receive the following fees for investment advisory services for fixed income accounts: Assets Under Management • First $25,000,000 • Assets in excess of $25,000,000 Annual Rate 0.25% 0.15% Some clients may receive lower fees than this. based on the nature of the mandate or the size of the accounts. We use the following fee structure a general guideline for MAP. which is no longer open to new clients: Assets Under Management Annual Rate • First $5,000,000 1.00% • Next $5,000,000 0.85% • Next $10,000,000 0.75% • Assets in excess of $20,000,000 0.60% These MAP fees include the following services: asset management, investment advisory and custodial. However. the MAP fee does not include front or back-end fees for the mutual or pooled funds we select. any taxes or fees of attorneys, accountants, auditors or other professionals advising the client. As a general guideline for the multi-asset class management discretionary form. we receive the following fees for investment advisory services: Assets Under Management • First $10,000,000 • Next $10,000,000 • Next $30,000,000 Annual Rate 0.45% 0.35% 0.25% 5 ©2010 National Compliance Serv1ces 800-800-3204 • Next $50,000,000 • Assets in excess of $100,000,000 0.20% 0.15% For certain accounts, we may charge a minimum fee. However, when a fee for an account, as calculated above, exceeds the minimum fee, the calculated fee calculated above applies, rather than the minimum fee. From time to time, we create marketing names for the general discretionary form of program. An example is the Commonwealth of Virginia OPES Management Program ("COMP"). Under these marketing programs, we may offer fee discounts based on the total assets under our management. For manager of manager agreements, we may charge a fee based on a percentage of assets under management, or a fixed fee. If we base our fee on a percentage of assets under management, the following is a general guideline for these services: Assets Under Management • First $50,000,000 • Next $50,000,000 • Assets in excess of $100,000,000 Annual Rate 0.70% 0.65% 0.60% A portion of the fee for multi-asset class management may be used to compensate the sub-advisers. 2. Registered Investment Companies and Pools The compensation we receive for the investment services we provide to the registered investment company and local government investment pools varies by program. Typically the fee schedule includes various breakpoints depending on asset levels, and may include fee caps or waivers which can be triggered by the overall expense ratio of the pool. We also receive compensation for providing administrative and transfer agent services to the registered investment company shareholders and to investors in all but two of the local government investment pools. We also provide cash management related advisory and administrative services to investors in some of these funds. We generally provide these administrative, transfer agent and cash management consulting services as an integral part of our investment advisory services, and the fees we receive for these services usually are included as a component of the fees we receive for investment advisory services. 3. Nondiscretionary Advice We generally charge fixed fees for these services, depending upon the services that the client requests, and the complexity of the services. We offer nondiscretionary advice on certificate of deposit and fixed rate investment programs, which are designed to provide clients a fixed rate to a targeted maturity. Fees typically may range up to 0.25% per annum of the cost of the investment purchased by our clients. Under the certificate of deposit and fixed rate programs, we provide clients with the option to set aside moneys in client accounts to be paid to us after we have performed the service. 4. Consulting Services We also provide services consisting of overseeing a client's portfolio, where we have not been given authority to buy or sell securities in the portfolio. We generally charge fixed fees for these services. We base the amount of the fee the scope and complexity of the services we offer. For full-service investment consulting services, we generally charge clients either a fixed fee or a fee that is based on a percentage of assets. We negotiate fixed fees based on the size of the portfolio, complexity, and scope of services which our client wants us toperform. As a general guideline, we charge asset based fees in ~~ 6 ©201 0 National Compl1ance Serv1ces 800-800-3204 a range from 0.05% to 0.30% annually, based on the three characteristics listed above. From time to time, we charge hourly fees for these types of services. For OPEB plan consulting services and reports we provide to OPEB plans, we will negotiate a fixed fee generally in the range of $10,000 to $150,000, depending on the specifics of the services we agree to provide. 5. Structured Products In these types of transactions, we usually negotiate and charge a fixed fee. The client may pay the fee, or it may instruct the investment contract counterparty in writing to pay our fee on the client's behalf. We and our clients agree upon a fee for each one of these engagements and the fee is a function of the size and complexity of the engagement. As a general guideline, the typical fee for investment of municipal bond proceeds in a structured investment, or for swaps and escrow restructuring supervisory services, is less than .05% of the notional amount of a swap or the yield of escrow securities or the guaranteed investment contract which we arrange to obtain on behalf of the client. We also provide periodic valuations of interest rate swaps for clients. The fee for this service is a fixed annual fee that depends on the complexity of the swap to be valued and the frequency of valuation. 6. Other Fees Because we tailor our services to the individual needs of a client, we may offer clients more than one of the services mentioned above. In addition, we may also provide investment advice through services not mentioned above, such as assisting our clients with a one-time purchase or sale of securities or treasury consulting services. The fees we charge are negotiable and vary depending upon the particular services we perform and the complexity and extent of the work we provide. B. Describe whether you deduct fees from clients' assets or bill clients for fees incurred. If clients may select either method, disclose this fact. Explain how often you bill clients or deduct your fees. All fees are payable to us only after we perform the services. Under the majority of our investment advisory engagements, clients authorize us to deduct fees from their assets under management after notice to them. Under some engagements, we bill the client for our fees. The method of payment of our fees is subject to negotiation, and clients may have the ability to choose the method of payment, depending on the type of service. For most of our accounts, we deduct fees or bill clients monthly in arrears. Under some client contracts, we deduct our fees or bill the client quarterly. For some services, we bill the client on a one-time basis only when we complete the service. C. Describe any other types of fees or expenses clients may pay in connection with your advisory services, such as custodian fees or mutual fund expenses. Disclose that clients will incur brokerage and other transaction costs, and direct clients to the section(s) of your brochure that discuss brokerage. For services we provide, other than those under our Managed Accounts Program (MAP), clients are responsible for their own custody and legal fees and taxes, if any. For the services we provide under our MAP, we charge clients a wrap fee. The wrap fee covers payment of fees payable to the portfolio managers of the funds we choose for our MAP and the fee we pay to the custodian for MAP for custodial and administrative services. The portion of the wrap fee paid to portfolio managers of mutual funds generally is in the form of the expense ratios and is deducted automatically from the assets invested in the funds. We receive the remainder of the wrap fee, and apply a portion of the fee to pay the custodian pursuant to agreements between the custodian and us. D. If your clients either may or must pay your fees in advance, disclose this fact. Explain how a client may obtain a refund of a pre-paid fee if the advisory contract is terminated before the end of the billing period. Explain how you will determine the amount of the refund. 7 ©2010 Nattonal Compltance Services 800-800-3204 We do not require our clients to pay our fees in advance. Because we deduct or bill our fees only after we perform our service, we do not receive pre-paid fees. Accordingly, there are no pre-paid fees which would be subject to a refund to our client. When an account terminates with us, our final fee installment is based on the number of days in the final billing period, and the fee is pro-rated, if applicable. E. If you or any of your supervised persons accepts compensation for the sale of securities or other investment products, including asset-based sales charges or service fees from the sale of mutual funds, disclose this fact and respond to Items 5.E.1, 5.E.2, 5.E.3 and 5.E.4. We have a wholly-owned subsidiary, PFM Fund Distributors, Inc., which is a broker-dealer under the Securities Exchange Act of 1934. PFM Fund Distributors, Inc. typically serves as exclusive distributor of shares of a registered investment company and local government investment pools (Pooled Funds) for which we serve as investment adviser and/or administrator and we receive fees from this arrangement. 1. Explain that this practice presents a conflict of interest and gives you or your superv1sed persons an incentive to recommend investment products based on the compensation received. rather than on a client's needs. Describe generally how you address conflicts that arise, including your procedures for disclosing the conflicts to clients. If you primarily recommend mutual funds, disclose whether you will recommend "no- load" funds. If our client invests in a Pooled Fund, we disclose this relationship to the client, through this Form ADV, Part 2A and the offering statement for the Pooled Fund. In addition, if we have an investment advisory arrangement with a client to manage a separate account, our investment advisory agreement with the client provides that if we invest client assets in a Pooled Fund, we will not take these assets into account for purposes of calculating our fees under the client's investment advisory agreement. 2. Explain that clients have the option to purchase investment products that you recommend through other brokers or agents that are not affiliated with you. For securities we recommend other than Pooled Funds, PFM Fund Distributors, Inc. does not act as distributor, so the client has the option of using another broker or dealer. 3. If more than 50% of your revenue from advisory clients results from commissions and other compensation for the sale of investment products you recommend to your clients, including asset-based distribution fees from the sale of mutual funds, disclose that commissions provide your primary or, if applicable, your exclusive compensation. Not applicable. 4. If you charge advisory fees in addition to commissions or markups, disclose whether you reduce your advisory fees to offset the commissions or markups. Not applicable, as described in Item 5.E.1. above. 8 ©201 0 National Compliance Services 800-800-3204 Performance-Based Fees and Side-8 -Side Mana ement Form ADV Part 2A, Item 6 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. If you or any of your supervised persons accepts performance-based fees-that is, fees based on a share of capital gains on or capital appreciation of the assets of a client (such as a client that is a hedge fund or other pooled investment vehicle)-disclose this fact If you or any of your supervised persons manage both accounts that are charged a performance-based fee and accounts that are charged another type of fee, such as an hourly or flat fee or an asset-based fee, disclose this fact Explain the conflicts of interest that you or your supervised persons face by managing these accounts at the same time, including that you or your supervised persons have an incentive to favor accounts for which you or your supervised persons receive a performance- based fee, and describe generally how you address these conflicts. In very rare instances, we enter into advisory agreements under which the client pays us a fee, part of which is performance based. For example, we have entered into agreements where the client pays us a bonus to the extent that the performance of the portfolio we manage exceeds a predetermined benchmark, measured over a designated period of time. We manage both accounts that are charged a performance-based fee as described above and accounts which are charged other fees, typically a percentage of the value of assets managed. To address any concern that we may have an incentive to favor certain investment opportunities for a performance-based account, we follow written procedures designed to allocate trades on an equitable basis considering the investment objectives of the account and without regard to whether an account has a performance-based fee. Accounts with the common objectives and permitted investments should receive a fair allocation of trades over time. 9 ©201 0 National Compliance Serv1ces 800-800-3204 T es of Clients Form ADV Part 2A, Item 7 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. Describe the types of clients to whom you generally provide investment advice, such as individuals, trusts, investment companies, or pension plans. If you have any requirements for opening or maintaining an account, such as a minimum account size, disclose the requirements. PFMAM provides investment advisory services to state and local governments and their agencies, local government investment pools, non-profit organizations, pension and OPES funds, corporations and other institutional clients. We may charge a minimum fee for small accounts. However, when a fee, as calculated according to the applicable schedule in Item 5.A.1. above, exceeds the minimum fee, the fee calculated according to the schedule applies, rather than the minimum fee. Certain of the portfolios of the local government investment pools and short term certificate of deposit purchase programs for which we serve as administrator and/or investment advisor have minimum investment requirements of between approximately $50,000 and $1,000,000. Other than these minimum fee requirements, there are no other requirements for opening or maintaining the account. 10 ©2010 National Compliance Serv1ces 800-800-3204 Methods of Anal sis Investment Strate ies and Risk of Loss Form ADV Part 2A, Item 8 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Describe the methods of analysis and investment strategies you use in formulating investment advice or managing assets. Explain that investing in securities involves risk of loss that clients should be prepared to bear. 1. Fixed-Income Portfolios We use a variety of analyses as well as internal and external data sources and market research. External sources include various news and information sources, books, governmental bulletins, data bases, research prepared by others and publications from rating agencies, unaffiliated broker-dealers and third-party information providers. We also collect information from clients to determine their liquidity requirements, risk tolerances and any other policies or procedures that guide the investment of the client's assets. Within the investment objectives and other requirements of the particular client, for clients whose objectives are measured by total return or income, our investment approach emphasizes the use of active management strategies that seek to add value while limiting market and credit risk. For liability-driven investment portfolios, such as those funded with bond proceeds and used to pay project costs, we identify securities whose cash flows are expected to meet a draw schedule and we modify the portfolio as the draw schedule changes or as investment opportunities present themselves, although in the latter case the draw schedule is considered when making modifications. We practice a top-down and bottom-up analysis in our investment process. A client's investment policy determines characteristics of the portfolio such as what type of investments are permitted, the maximum allocation of each security type within the portfolio, the maximum maturity of each security and the duration of the overall portfolio, as well as the benchmark against which the performance of the portfolio will be measured. Once these characteristics have been established, we utilize the top-down approach as a guide in determining the appropriate duration and sector allocation for the portfolio in relation to the benchmark and market expectations. We start with a macro view of the economy which seeks to identify major trends in growth and inflation and major risks to our outlook. We then identify overall objectives for portfolio duration and allocation among investment types. The following describes our Investment Strategy: • Disciplined decision making process; • Duration positioning to manage risk: generally slightly short of relevant benchmarks, policy of no more than +/-25%, which protects the market value of the portfolio; • Seeks out relative value through spread analysis, yield curve positioning, sector weightings and duration management; • Adds over 80% of value from the above factors; and • Does not employ market timing or make significant duration bets. We also employ a bottom-up approach, where we look at the value of an individual security and the credit quality to determine if it is safe and appropriate for our clients' portfolios. We specialize in managing short and intermediate-term fixed-income assets of governmental entities, so we have tailored our research capabilities and resources to this area of the market. Our portfolio managers and analytical team have access to four major on-line market trading systems, Bloomberg, MarketAxess, Reuters, 11 ©201 0 Nat1onal Compliance Serv1ces 800-800-3204 and TradeWeb. These systems provide active market quotes, including real-time Bloomberg and TradeWeb securities pricing services. We also have access to news from Dow Jones, the Associated Press, Bloomberg News, and several specialized wire services. In addition, we speak daily to approximately 30 major government securities dealers and receive market information from them that assists us in identifying specific market opportunities. We supplement these external systems and data sources with proprietary trading tools, which we have developed. After factoring in a conservative posture which ensures that cash flow requirements are met, we will position a portfolio's duration to take advantage of expected interest rate movements: positioning with a shorter bias when we expect rates to rise and longer when we expect rates to fall. We establish a duration (or average maturity) target for the portfolio based on our macro view of the economy and the financial markets, the type of funds, cash-flow analysis and benchmark chosen by our clients. We add value by re-balancing the portfolio to take advantage of market opportunities and in anticipation of interest rate movements. Duration limits are established by our investment committee and provided to and re-evaluated with our clients' staff on a regular basis as a management and oversight tool. Further, within the duration target for the portfolio, we add value to a portfolio through asset allocation strategies which involve curve placement (maturity), sector selection (security type), spread analysis and issue selection (individual issuer). Our overall view of the economy provides the context for selecting maturities which represent the best relative value along the yield curve and the highest potential for enhanced return by "rolling down the curve" and for selecting specific securities within a sector. We think there is a significant opportunity to enhance earnings with a strategy that focuses on the selection of securities based on relative value. Sectors are selected which represent the best relative value based on our sector outlook and historical sector spreads. Investments other than Treasuries are purchased when spreads are wide and avoided or swapped out when spreads are narrow. Our portfolio managers and traders are assigned to specific market sectors in order to monitor products and opportunities and these responsibilities run across all portfolios. Individual issues are selected based on our assessment of issuer quality and rating, credit trends, issue structure and liquidity. Portfolios are generally diversified by security type and maturity to avoid a significant investment in a single issuer and to accommodate varying cash flow needs to provide periodic liquidity. We perform extensive proprietary analysis on the yield curve to identify "cheap" areas of the curve, and to evaluate a variety of portfolio structures. Using the results of this analysis, our portfolios are frequently over-weighted in certain maturities, and are structured in either a "bullet", "barbell" or "laddered" construct to provide optimal performance. Our fixed-income strategies, like all investment strategies, involve certain risks. For portfolios whose investments are limited to obligations of the U.S government we believe the risk of default is minimal; for those invested in obligations of Federal agencies, we believe the risk is nearly as low as it is for direct obligations of the U.S. government. Portfolios whose investments include corporate and municipal obligations are subject to the risk that an issuer will fail to pay principal or interest on a timely basis. We attempt to minimize these risks by purchasing high grade bonds and by diversifying portfolio holdings. Portfolios are also subject to interest rate risk. This is because the market value of securities changes as interest rates change, with a rise in rates reducing market values and a decline in rates increasing market values. Changes in interest rates affect longer- maturity securities more than they affect shorter maturity securities. We manage this risk by varying the duration of portfolios whose objectives are measured by total return or income in accordance with our outlook for interest rates and by establishing duration bands for these portfolios. Nonetheless, investors should expect to experience interest rate volatility in short-term fixed income portfolios and total turn volatility which can include unrealized losses in excess of periodic income in intermediate and longer-term portfolios. Although the investment strategies we employ do not involve significant or unusual risk beyond that of the general domestic fixed-income markets, investors need to recognize that investing in securities involves a risk of loss that you, as an investor, should be prepared to bear. Past performance is not a guarantee of future returns. 12 ©2010 National Compliance Serv1ces 800-B00-3204 2. Multi-Asset Class Asset Management (Discretionary and Nondiscretionary Accounts) We use a consistent approach to multi-asset class accounts as it pertains to portfolio planning, risk assessment, asset allocation determination, manager selection, and performance reporting. The primary difference between discretionary and nondiscretionary types of accounts relates to who provides direction relating to the allocation of assets to separate account managers and the execution of mutual fund buy and sell transactions. For discretionary accounts, we are authorized to instruct the custodian to rebalance the portfolio, move assets between separate account managers and/or to buy or sell mutual fund holdings. We believe that the asset allocation decision is the most important factor in determining the expected investment return between two different portfolios. Therefore, rigorous adherence to a disciplined process is critical in determining the amounts that will ultimately be allocated to equities, fixed income and other investments. The process we utilize concentrates on: Engaging in a Portfolio Planning Survey. We review a detailed portfolio planning survey with the client. We design the survey to facilitate a discussion on all of the asset classes to determine which should be permitted in the final overall allocation. This survey highlights a client's goals, objectives, cash flow projections, risk tolerance, ability to withstand losses, view of the economy and the markets. The survey also documents the level of expectations so that everyone understands the goals that have been set for the investment of the assets. Compiling Capital Market Assumptions. Compiling these assumptions involves a comprehensive and ongoing process where our assumptions are developed for long term returns (five to ten years) in a wide range of asset classes. The assumptions have three main inputs: historical asset class returns, Wall Street I Investment Industry projections and our Investment Committee projections. We firmly believe that any assumptions for future asset class returns must first look at how those asset classes performed in the past. We look at many different asset classes across differing time periods from 1972 to the present. Using software developed by Ibbotson Associates, we assess returns from several full market cycles but have the capability to go further back in time based on the inception of the proper index. We also want to see what the investment professionals at major investment firms think about how various asset classes will do in the future. Finally, our own team of investment professionals makes projections using their experience and expertise. This produces preliminary projections for the various asset classes. At this stage our Investment Committee reviews and discusses these projections and determines the final assumptions that are used in our asset allocation modeling. Structuring Asset Allocation Models. We then process the information from the portfolio planning survey and the capital market assumptions to design a series of asset allocation models. We use a state of the art modeling program developed by Ibbotson Associates to assist in our asset allocation process. Each model uses the latest historical data on asset class investment returns, volatility and correlation with other asset classes along with capital market assumptions made by us to determine a set of "optimal" portfolio options. Selecting an Appropriate Asset Mix. We run series of tests on each model to determine the probability of achieving the desired investment objective under different market scenarios. However, a client's existing funding requirements may override the more subjective "tolerance for loss". The client then has a better understanding of the band of possibilities associated with each asset allocation model and is better equipped to select the one particular model that best meets the client's expectations set forth in the portfolio planning survey. Managing Client Expectations. We provide our clients with the set of allocation models based on several different risk/reward scenarios. As factors change, a re-optimization of the portfolio may be required. By establishing formal policies and objectives and reviewing the asset allocation process, we and our client may exp_ect fewer unpleasant surprises and hiaher levels of investment performance than would otherwise be 13 ©20 1 o Nat1onal Compliance Serv1ces 800-800-3204 achieved in a passive investment strategy. Rebalancing. We evaluate a client's portfolio regularly to determine the need for rebalancing. We establish target levels for each asset class in the planning stages along with a minimum/ maximum range. These parameters are stated in the client's investment policy statement and are illustrated in the quarterly reports. We have invested heavily in software that allows our staff to monitor compliance of a client's portfolios. Ongoing Monitoring. We will monitor a client's asset allocation, as well as the portfolio's money managers/mutual funds through detailed analysis and our proprietary manager ranking system, on an ongoing basis. We continually evaluate the economy, financial markets, and correlation of asset classes to make sure a client's asset allocations are appropriate, as well as rebalance the portfolio if necessary. We regularly interview managers and visit their operations to ensure that they remain the most appropriate vehicle for our client's investments. Strategic allocation decisions, rebalancing, and re-evaluating managers are all part of the ongoing monitoring process. Performance Reporting. We provide performance reporting on a quarterly basis. Each client will receive a report containing its own performance measures allowing the client to review its plan and its investment managers' performance versus the established benchmark, while monitoring cash flows and other financial indicators. We include review of the economy, financial markets, and our investment strategy in this report to give our client insight into the economy, financial markets, and how investments are being managed. We will also host quarterly conference calls I meetings to give a client a better understanding by hearing from the people who are making the asset allocation and investment manager decisions. Investment Manager Selection. We select managers by starting with a large universe of managers to identify well-qualified firms for our searches. We accomplish this through analyzing various quantitative and qualitative metrics. Under no circumstances does a financial arrangement exist between us and the managers we utilize in client portfolios. Our goal is to have primary and secondary managers in place for each of the classes we track. This eliminates the time consuming task of doing manager searches when a manager change in the portfolio becomes necessary. In analyzing managers, we start with a total universe of 24,000 investment products, which includes: • 2,500 managers; • 7,500 separate accounts; • 1,500 exchange-traded funds; and • 15,000 mutual funds. We then determine manager investment style through statistical analysis. For our quantitative analysis, we examine risk/return characteristics including: • Alpha; • Beta; • Information ratio; • Number of negative quarters; • Sharpe ratio; • Standard deviation; • Trailing calendar year performance; • Trailing 1, 3 and 5 year performance; • Worst 4 quarters; and • Worst quarter. 14 ©201 0 Nattonal Compltance Servtces 800-800-3204 I 'I I We then identify managers who outperform their peer group on a consistent basis, and examine the volatility of a manager's performance. For managers meeting quantitative screens, we then engage in a qualitative review including: • Interviews with managers to learn more about the firm, personnel and process; • Performance of written reviews on managers; • Assignment of manager scores based on sub-categories; • Firm background and structure; • Investment team/management experience; • Investment process; • Performance (multiple measures); • Risk/volatility; and • Determination if manager can repeat performance. Ongoing Monitoring. Once we validate or implement an investment strategy, we rigorously monitor manager activity for changes in strategy, performance, personnel, or ownership structure. As part of our ongoing client service, we constantly update our clients with memoranda regarding changes within the managers and details of our actions or recommendations. If we feel the need to make changes to the current managers, and if the client gives us the discretion to do so, our staff will be responsible for implementing the needed changes. If we do not have discretion, we will make a recommendation to the client to direct the manager change. Our dedicated research group uses "best-of-breed" software in conducting manager research and asset allocation. We have made significant investments in both purchasing and building the necessary infrastructure to provide the research group the best possible tools available. Software used by the research group includes: eVestment Alliance, Encorr developed by Ibbotson Associates, PARIS from Investment Metrics, as well as an internally built database which the research group uses to track formal manager reviews as well as ongoing communications with the managers. In addition, as part of our performance and attribution reporting system (PARIS), we are able to tap into a database consisting of over $1.8 trillion in institutional assets to compare and contrast our client's portfolios and managers. These databases provide us a starting point for the manager search process. If we do not have discretion, we will make a recommendation to the client to direct the manager change. We utilize an extensive summary of money managers by asset class currently maintained in the eVestment Alliance database, which provides our manager research team with a starting point in the manager search process. In addition to the investment products in eVestment Alliance, we also have access to investment products through various other databases, such as Morningstar and a database maintained by Investment Metrics, providing us with a total universe of roughly 24,000 investment products. The eVestment Alliance, Morningstar, and Investment Metrics databases are purchased externally, however we also maintain an in house manager research database to help refine our search process and house information regarding our own research and investment manager due diligence. It is important to note that, unlike many other investment consulting firms, we do not accept and fees or remunerations from investment managers that wish to be maintained in our database. Our ranking system is the following: 1 -Superior; 2-Satisfactory; 3-Watch List; 4-Probation; and 5- Termination. We place a manager or fund on the watch list a result of lagging performance, poor risk metrics and/or qualitative issues, among other things. Removal from the watch list is typically based on several quarters of improved performance against peers and an appropriate benchmark or remediation of other issues. If problems endure, probation is a subsequent step in the process of reviewing managers. Ultimately, if the problem persists, our Investment Committee approves a termination recommendation. 15 ©201 0 National Compliance Serv1ces 800-800-3204 We closely review our investment managers to ensure we receive the best possible performance for our clients. We aim to identify organizational problems before they negatively impact client returns. Although the investment strategies we employ do not involve significant or unusual risk beyond that of the general markets for equities, fixed income and other investments we recommend, investors need to recognize that investing in securities involves a risk of loss that you, as an investor, should be prepared to bear. Past performance is not a guarantee of future returns. B. For each significant investment strategy or method of analysis you use, explain the material risks involved. If the method of analysis or strategy involves significant or unusual risks, discuss these risks in detail. If your primary strategy involves frequent trading of securities, explain how frequent trading can affect investment performance, particularly through increased brokerage and other transaction costs and taxes. 1. Fixed-Income Portfolios The risk of our top-down strategy is that our macro view of the economy and financial markets is wrong and we position a portfolio's duration or sector allocation in a manner that is not optimal. We seek to manage this risk by limiting variations from agreed duration or maturity targets for total return and income-based portfolios and by diversifying holdings among security types. For liability-driven investment portfolios, we seek to minimize market risk by matching approximately portfolio cash flows with expected draws. The risk of our bottom-up strategy is that securities that we include in a portfolio because they are perceived to have relative value may later lose value when compared with other securities. We seek to manage this risk by careful and systematic analysis of relative values and by performing credit analysis on issuers of securities we recommend. Frequent trading of securities can create higher overall transaction costs and these will reduce portfolio income. We do manage portfolios actively and we seek to minimize trading costs by recommending liquid issues that are actively traded in the markets and by utilizing competitive bidding wherever feasible. 2. Multi-Asset Class Asset Management (Discretionary and Nondiscretionary Accounts) Investing in cash, fixed income, and equity funds through separate account managers, mutual funds or ETFs involves a certain degree of risk. Each asset class has its own idiosyncratic risk and return characteristics. In modeling portfolios for our clients, we assess the individual characteristics of asset classes, from a historic and forward looking point of view, to optimize the best blend given the client's investment objectives and tolerance for risk. The range of probabilities examines extreme conditions (worst loss, maximum drawdown) over rolling one, five and ten year periods from a historic standpoint (losses for portfolios with heavy allocations of equities can be large in extreme market conditions as evidenced by the global financial crisis of 2008. Portfolios with heavy concentration of equities experienced losses of up to 30% or more during the worst period of peak to trough returns). The analysis also provides a 90% probability analysis of future geometric returns and minimum and maximum investment returns for one, five and ten year periods. Because our clients' investment time horizons typically exceed five years, this form of analysis gives them a context for the range of possibilities of investment returns at the total fund level and the individual asset class level. A higher overall equity allocation approved by the client will result in the assumption of a greater degree of risk. The annual standard deviation for equities falls in 17-22% range, and for fixed income 6% so clients learn to expect wide potential volatility of returns from each individual asset class in any one given year. C. If you recommend primarily a particular type of security, explain the material risks involved. If the type of security involves significant or unusual risks, discuss these risks in detail. 1. Fixed-Income Portfolios 16 ©201 0 National Compliance Se-rv1ces 800-800-3204 We generally limit our investment recommendations to high quality fixed-income investments. We believe that investments in U.S. government obligations present minimal risk of default; those in Federal agencies present risks that are nearly as low, and those in corporate and municipal obligations present some added credit risk. Mortgage-backed securities present risks of uncertain timing of cash flow. In order to manage risks we seek to diversify portfolio holdings and we limit our investments in corporate and municipal obligations to those that are high grade. 2. Multi-Asset Class Asset Management (Discretionary and Nondiscretionary Accounts) The securities used to execute the investment strategies we employ in this segment are typically mutual funds along with some separate account managers who buy and sell individual securities. The securities and strategies we utilize do not typically involve significant or unusual risks beyond those of the international and domestic equity and fixed income markets, publicly traded real estate, other pooled inflation hedging strategies, and cash-like investments, investors need to recognize that investing in securities involves a risk of loss that you, as an investor, should be prepared to bear. In order to manage the risks inherent in these markets, we employ a diversified approach, blending equity, fixed income, and cash oriented securities, in a manner that meets the client's risk tolerance; the risk of long term losses is reduced. Past performance is not a guarantee of future returns. 17 ©2010 National Compliance Serv1ces 800-800-3204 Information Form ADV Part 2A, Item 9 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. If there are legal or disciplinary events that are material to a client's or prospective client's evaluation of your advisory business or the integrity of your management, disclose all material facts regarding those events. Items 9A, 9.8, and 9.C list specific legal and disciplinary events presumed to be material for this Item. If your advisory firm or a management person has been involved in one of these events, you must disclose it under this Item for ten years following the date of the event, unless (1) the event was resolved in your or the management person's favor, or was reversed, suspended or vacated, or (2) you have rebutted the presumption of materiality to determine that the event is not material (see Note below). For purposes of calculating this ten-year period, the "date" of an event is the date that the final order, judgment, or decree was entered, or the date that any rights of appeal from preliminary orders, judgments or decrees lapsed. Items 9A, 9.8, and 9.C do not contain an exclusive list of material disciplinary events. If your advisory firm or a management person has been involved in a legal or disciplinary event that is not listed in Items 9.A, 9.8, or 9 C, but nonetheless is material to a client's or prospective client's evaluation of your advisory business or the integrity of its management, you must disclose the event. Similarly, even if more than ten years have passed since the date of the event, you must disclose the event if it is so serious that it remains material to a client's or prospective client's evaluation. A. A criminal or civil action in a domestic, foreign or military court of competent jurisdiction in which your firm or a management person 1. was convicted of, or pled guilty or nolo contendere ("no contest") to (a) any felony; (b) a misdemeanor that involved investments or an investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, or extortion; or (c) a conspiracy to commit any of these offenses; Not applicable. 2. is the named subject of a pending criminal proceeding that involves an investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forger{, counterfeiting, extortion, or a conspiracy to commit any of these offenses; Not applicable. 3. was found to have been involved in a violation of an investment-related statute or regulation; or Not applicable. 4. was the subject of any order, judgment, or decree permanently or temporarily enjoining, or otherwise limiting, your firm or a management person from engaging in any investment-related activity, or from violating any investment-related statute, rule, or order Not applicable. B. An administrative proceeding before the SEC, any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority in which your firm or a management person 18 ©201 0 Nat1onal Compliance Services 800-800-3204 1. was found to have caused an investment-related business to lose its authorization to do business; or Not applicable. 2. was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency or authority (a) denying, suspending, or revoking the authorization of your firm or a management person to act in an investment-related business; Not applicable. (b) barring or suspending your firm's or a management person's association with an investment-related business; Not applicable. (c) otherwise significantly limiting your firm's or a management person's investment-related activities; or Not applicable. (d) imposing a civil money penalty of more than $2,500 on your firm or a management person. Not applicable. C A self-regulatory organization (SRO) proceeding in which your firm or a management person Not applicable. 1. was found to have caused an investment-related business to lose its authorization to do business; or Not applicable. 2. was found to have been involved in a violation of the SRO's rules and was: (i) barred or suspended from membership or from association with other members, or was expelled from membership; (ii) otherwise significantly limited from investment-related activities; or (iii) fined more than $2,500. Not applicable. 19 ©2010 Nat1onal Compliance Services 800-800-3204 Other Financiallndust Activities and Affiliations Form ADV Part 2A, Item 10 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A If you or any of your management persons are registered, or have an application pend in~~ to register, as a broker-dealer or a registered representative of a broker-dealer, disclose this fact Our wholly-owned subsidiary, PFM Fund Distributors, Inc. (PFMFD), is registered as a broker-dealer under the Securities Exchange Act of 1934. Its sole activities are to serve as distributor to the registered investment company and local government investment pools for which we serve as investment adviser and/or administrator. One of the managers of our company, Martin Margolis, is a registered principal of PFMFD. B If you or any of your management persons are registered, or have an application pending to register, as a futures commission merchant, commodity pool operator, a commodity trading advisor, or an associated person of the foregoing entities, disclose this fact Not applicable. C. Describe an~ relationshil2 or arrangement that is material to ~our adviso[Y business or to ~our clients that ~ou or an~ of ~our management 12ersons have with an~ related 12erson listed below. Identify the related 12erson and if the relationshil2 or arrangement creates a material conflict of interest with clients, describe the nature of the conflict and how ~ou address it. 1. broker-dealer, munici12a1 securities dealer, or government securities dealer or broker 2. investment com12an~ or other 120oled investment vehicle (including a mutual fund, closed-end investment com12an~, unit investment trust, 12rivate investment com12an~ or "hedge fund," and offshore fund} 3. other investment adviser or financial12lanner 4. futures commission merchant, commodit~ 12001 012erator. or commodit~ trading advisor 5. banking or thrift institution 6. accountant or accounting firm 7. law~er or law firm 8. insurance com12an~ or agenc~ 9. 12ension consultant 10. real estate broker or dealer 11. s12onsor or s~ndicator of limited 12artnershi12s. 1. Our wholly-owned subsidiary, PFM Fund Distributors, Inc. (PFMFD), serves as exclusive distributor to a registered investment company and certain local government investment pools (Pooled Funds) for which we serve as investment adviser and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to the client, through the Form ADV Part 2A and the offering statement for the Pooled Fund. In addition, our investment advisory agreement with the client provides that if we invest client assets in a Pooled Fund, we will not take these assets into account for purposes of calculating our fees under the client's investment advisory agreement. 2. We serve as administrator and investment adviser to PFM Funds, a diversified, open-end management registered investment company offering money market funds to governmental entities and other institutional investors. Our wholly-owned subsidiary, PFM Fund Distributors, Inc., serves as distributor for PFM Funds. We also serve as administrator and/or investment adviser to the following local government investment pools: 20 ©2010 National Compliance Servtces 800-800-3204 • California Asset Management Trust (CAMP); • Florida Education Investment Trust Fund (FEITF) (adviser and distributor only); • Illinois Institutional Investors Trust (lilT); • Illinois Park District Liquid Asset Fund Plus (IPDLAF+); • Massachusetts Finance Development Agency Short-Term Asset Reserve Fund (MassSTAR); • Michigan Liquid Asset Fund Plus (MILAF+); • Minnesota Association of Governments Investing for Counties (MAGIC); • Minnesota School District Liquid Asset Fund Plus (MSDLAF+); • Missouri Securities Investment Program (MOSIP); • Nebraska Liquid Asset Fund (NLAF); • New Jersey Asset & Rebate Management Program (NJ/ARM); • Pennsylvania Local Government Investment Trust (PLGIT); • Pennsylvania OPEB Trust (adviser and distributor only); • TexasTERM Local Government Investment Pool (TexasTERM); and • Wyoming Government Investment Fund (WGIF). PFMFD serves as distributor to all of these pools except for WGIF. For a further description of this relationship, please refer to Item 1 0.1.C. above. Items 3 through 11 are not applicable. D. If you recommend or select other investment advisers for your clients and you receive compensation directly or indirectly from those advisers that creates a material conflict of interest, or if you have other business relationships with those advisers that create a material conflict of interest, describe these practices and discuss the material conflicts of interest these practices create and how you address them. We have no arrangements with other investment advisers who compensate us directly or indirectly. As a matter of policy and practice, we do not accept any fees, commissions or other forms of compensation from any underlying money managers or other professionals affiliated with our client's account. 21 ©2010 Nat1onal Compliance Serv1ces 800-800-3204 e of Ethics Partici ation or Interest in Client Transactions and Per Form ADV Part 2A, Item 11 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. If you are an SEC-registered adviser, briefly describe your code of ethics adopted pursuant to SEC rule 204A-1 or similar state rules. Explain that you will provide a copy of your code of ethics to any client or prospective client upon request Under Rule 204A-1 of the Investment Advisers Act of 1940, our employees are subject to our Code of Ethics (Code). Compliance with the Code is a condition of employment for all of our employees. This Code sets out general ethical standards applicable to our employees. Employees are expected to maintain the highest ethical standards, embody a business culture that supports actions based on what is right rather than expediency, deal fairly with clients and one another, protect confidential information and seek guidance about ethical questions. More specifically with respect to advisory activities, the Code requires that whenever our personnel act in a fiduciary capacity, we will endeavor to consistently put the client's interest ahead of the firm's. We will disclose actual and potential meaningful conflicts of interest. We will manage actual conflicts in accordance with applicable regulatory and legal standards. If applicable regulatory and legal standards do not permit management of a conflict, we will seek to avoid the conflict We will not engage in fraudulent, deceptive or manipulative conduct with respect to clients. We will act with appropriate care, skill and diligence. Advisory personnel are required to know when we are acting as a fiduciary with respect to the work they are doing. If we are acting as a fiduciary, they are expected to comply with all fiduciary standards which apply to us in performing their duties. In addition, they must also put the client's interest ahead of their own personal interest An employee's fiduciary duty is a personal obligation. While advisory personnel may rely upon subordinates to perform many tasks that are part of their responsibilities, they are personally responsible for fiduciary obligations even if carried out through subordinates. In general, the Code expresses our recognition of our responsibilities to the public, clients and professional associates. Our Code also contains various reporting, disclosure and approval requirements regarding employees' personal securities transactions. The Code requires that our employees whom we deem to be "Access Persons" must report all personal securities transactions, including transactions in mutual funds advised by us, to our Chief Compliance Officer, or to the person he designates. We prohibit our Access Persons from participating in initial public offerings unless our Chief Compliance Officer gives his approval. We also prohibit our employees from purchasing any municipal securities within 60 days of their issue date, if our affiliate, Public Financial Management, Inc., served as financial advisor for the bond issue. You can receive a copy of our Code by contacting us at One Keystone Plaza, Suite 300, North Front & Market Streets, Harrisburg, PA 17101, by calling 717-231-6200 or by emailing pfmamrequest@pfm.com. B. If you or a related person recommends to clients, or buys or sells for client accounts. securities in which you or a related person has a material financial interest, describe your practice and discuss the conflicts of interest it presents. Describe generally how you address conflicts that arise. Examples (1) You or a related person, as principal, buys securities from (or sells securities to) your clients; (2) you or a related person acts as general partner in a partnership in which you solicit client investments; or (3) you or a related person acts as an investment adviser to an investment company that you recommend to clients. 22 ©2010 Nat1onal Compliance Services 800-800-3204 Our wholly-owned subsidiary, PFM Fund Distributors, Inc., serves as distributor to a registered investment company and local government investment pools (Pooled Fund) for which we serve as investment adviser and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to the client, through this Form ADV Part 2A and the Pooled Fund's offering document. In addition, our investment advisory agreement with the client provides that if we invest the client's assets in a Pooled Fund, we will not take these assets into account for purposes of calculating our fees under the agreement. C. If you or a related person invests in the same securities (or related securities, e.g .. warrants, options or futures) that you or a related person recommends to clients, describe your practice and discuss the conflicts of interest this presents and generally how you address the conflicts that arise in connection with personal trading. On infrequent occasions, our employees may invest in securities that coincidentally we also recommend for purchase or sale in our client accounts. The fixed-income and multi-asset class management securities we recommend for purchase and sale are of the type which the Securities and Exchange Commission has expressly recognized as presenting little opportunity for the type of improper trading which compliance with the Code of Ethics reporting requirements is designed to uncover. Further, our employees are subject to our Code of Ethics described in Item 11 A above, and because our personnel are acting in a fiduciary capacity, we endeavor to put the client's interests ahead of the firm's with respect to the purchase and sale of securities. D. If you or a related person recommends securities to clients, or buys or sells securities for client accounts, at or about the same time that you or a related person buys or sells the same securities for your own (or the related person's own) account, describe your practice and discuss the conflicts of interest it presents. Describe generally how you address conflicts that arise. On infrequent occasions, our personnel may buy or sell a security for their own accounts, which coincidentally is being purchased or sold for the accounts of our clients. The fixed-income and multi-asset class management securities we recommend for purchase and sale are of the type which the Securities and Exchange Commission has expressly recognized as presenting little opportunity for the type of improper trading which compliance with the Code of Ethics reporting requirements is designed to uncover. As noted above, whenever our personnel act in a fiduciary capacity, we will endeavor to consistently put the client's interest ahead of the firm's. 23 ©2010 National Compliance Services 800-800-3204 Brokera e Practices Form ADV Part 2A, Item 12 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A Describe the factors that you consider in selecting or recommending broker-dealers for client transactions and determining the reasonableness of their compensation (e.g , commissions). 1. Research and Other Soft Dollar Benefits. If you receive research or other products or se1-vices other than execution from a broker-dealer or a third party in connection with client securities transactions ("soft dollar benefits"), disclose your practices and discuss the conflicts of interest they create. We generally exercise brokerage discretion as follows: if a client provides us with an approved list of brokers and dealers, we place all orders for the purchase or sale of securities for the client's account with brokers or dealers which the client selects from the list. Under these circumstances, the client and the broker or dealer determines the commission rates. Typically, our clients allow us to choose the broker or dealer to execute the trades. In these situations, we deal with brokers and dealers whom we determine to be major market makers for the types of securities purchased or sold. The factors that we may consider in selecting or recommending a particular broker or dealer include: Our knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the portfolio transaction; the size of the transaction; the desired timing of the trade; the activity existing and expected in the market for the particular transaction; confidentiality; the execution, clearance and settlement capabilities of the firms; the availability of research and research related services provided through such firms (as discussed below); our knowledge of the financial stability of the firms; and our knowledge of actual or apparent operational problems of firms. Given these factors, our clients may pay transaction costs in excess of that which another firm might have charged for effecting the same transaction. Reviews are conducted periodically of the allocation among firms to review the transaction costs that clients are charged. We receive competitive bids or offers for securities sales and purchases whenever feasible and use electronic trading platforms for a majority of trades to facilitate market access and in an effort to minimize transaction costs. When we select or recommend a firm that executes orders or is a party to portfolio transactions, relevant factors taken into consideration may also include whether that firm has furnished research and research related products and/or services. We receive a broad range of research services, including information on the economy, industries, groups of securities and individual companies, statistical information, market data, accounting and tax law interpretations, political developments, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis and other information which may affect the economy and/or security prices. Research services may be received in the form of written reports, periodicals, investment seminars, software, and electronic access to, and telephone contacts and personal meeting with, security analysts, economists, government representatives, and corporate and industry spokespersons. They also may consist of computer databases. In some cases, research services may be generated by third parties in exchange for directing brokerage business to the firm. Currently, as a matter of policy, we do not enter into any third party or proprietary soft dollar arrangements where a broker-dealer provides research services in exchange for an expectation of receiving a certain dollar amount of commissions. From time to time some of these brokers offer us market commentary and data and statistical research reports as to factors which may influence market price movements. We believe that this information improves the quality of our investment and trading decisions for the benefit of all of our clients. We obtain express authorization from our client to consider direct brokera e factors efficienc of execution and commission) in 1/ 24 ©201 0 National Compliance Serv1ces 800-800-3204 selecting a broker or dealer, and to consider the furnishing of statistical research and other information services by the broker or dealer. It is possible that the use of any these particular brokerage firms may result from time to time in a less favorable price for a particular transaction than if we canvassed a broader range of brokers. However, we believe that the practice of taking into account the furnishing of market information is reasonable in light of our position as a regular, and generally exclusive, investment adviser for our institutional clients. We have no agreement, understanding or other arrangement, either internal or with brokers and/or dealers, which would influence the allocation of securities transactions among brokers and/or dealers. a. Explain that when you use client brokerage commissions (or markups or markdowns) to obtain research or other products or services, you receive a benefit because you do not have to produce or pay for the research. products or services. As explained in Item 12.A.1. above, we do not use client brokerage commissions (or markups or markdowns) to obtain research or other products or services. b. Disclose that you may have an incentive to select or recommend a broker-dealer based on your interest in receiving the research or other products or services, rather than on your clients' interest in receiving most favorable execution We obtain express authorization from our client to consider direct brokerage factors (efficiency of execution and commission) in selecting a broker or dealer, and to consider the furnishing of statistical research and other information services by the broker or dealer. It is possible that the use of any these particular brokerage firms may result from time to time in a less favorable price for a particular transaction than if we canvassed a broader range of brokers. However, we believe that the practice of taking into account the furnishing of market information is reasonable in light of our position as a regular, and generally exclusive, investment adviser for our institutional clients. For fixed-income securities, we seek to minimize the effect, if any, of research on the transaction costs by using competitive bids and offers and involving major market makers wherever feasible. For multi-asset class management strategies, we do not exercise discretion in the selection of brokers or dealers to effect transactions. We typically rely on the client's direction on the selection of the broker or dealer. c. If you may cause clients to pay commissions (or markups or markdowns) higher than those charged by other broker-dealers in return for soft dollar benefits (known as paying-up), disclose this fact Our clients provide us with express authorization to consider direct brokerage factors (efficiency of execution and commission) in selecting a broker or dealer, and to consider the furnishing of statistical research and other information services by the broker or dealer. It is possible that the use of any of these particular brokerage firms may result from time to time in a less favorable price for a particular transaction than if we canvassed a different broker. Currently, as a matter of policy, we do not enter into any soft dollar arrangements where a broker-dealer provides us with soft dollar benefits in exchange for charging commissions (or markups or markdowns) higher than those charged by other broker-dealers. d. Disclose whether you use soft dollar benefits to service all of your clients' accounts or only those that paid for the benefits. Disclose whether you seek to allocate soft dollar benefits to client accounts proportionately to the soft dollar credits the accounts generate. We believe the market commentary and data and statistical research reports we receive improves the quality of our investment and trading decisions for the benefit of all of our clients. e. Describe the types of products and services you or any of your related persons acquired with client brokerage commissions (or markups or markdowns) within your last fiscal year. 25 ©201 0 National Compliance Serv1ces 800-800-3204 Not applicable. f. Explain the procedures you used during your last fiscal year to direct client transactions to a particular broker-dealer in return for soft dollar benefits you received. Not applicable. 2. Brokerage for Client Referrals. If you consider, in selecting or recommending broker-dealers, whether you or a related person receives client referrals from a broker-dealer or third party, disclose this practice and discuss the conflicts of interest it creates. a. Disclose that you may have an incentive to select or recommend a broker-dealer based on your interest in receiving client referrals, rather than on your clients' interest in receiving most favorable execution. Not applicable. b. Explain the procedures you used during your last fiscal year to direct client transactions to a particular broker-dealer in return for client referrals. Not applicable. 3. Directed Brokerage. a. If you routinely recommend, request or require that a client direct you to execute transactions through a specified broker-dealer, describe your practice or policy. Explain that not all advisers require their clients to direct brokerage. If you and the broker-dealer are affiliates or have another economic relationship that creates a material conflict of interest. describe the relationship and discuss the conflicts of interest it presents. Explain that by directing brokerage you may be unable to achieve most favorable execution of client transactions, and that this practice may cost clients more money. As a matter of policy, we do not recommend, request or require a client to direct us to execute transactions through a specified broker-dealer. b. If you permit a client to direct brokerage, describe your practice. If applicable, explain that you may be unable to achieve most favorable execution of client transactions. Explain that directing brokerage may cost clients more money. For example. in a directed brokerage account. the client may pay higher brokerage commissions because you may not be able to aggregate orders to reduce transaction costs. or the client may receive less favorable prices. If a client provides us with an approved list of brokers and dealers, we place all orders for the purchase or sale of securities for the client's account with brokers or dealers which the client selects from the list. Under these circumstances, the client and the broker or dealer determines the commission rates. Because the client and the broker or dealer determines the commission rate, there is no ability on our part to achieve the most favorable execution of the transaction. B. Discuss whether and under what conditions you aggregate the purchase or sale of securities for various client accounts. If you do not aggregate orders when you have the opportunity to do so, explain your practice and describe the costs to clients of not aggregating. We may cause securities transactions to be executed for a client's account concurrently with authorizations to purchase or sell the same securities for other accounts we manage. It is our policy to aggregate the purchase or sale of securities for various client accounts. Each client participating in an aggregate transaction will participate at the same price. We normally allocate pro rata the securities to the participating client accounts in proportion to the size of the orders placed for each account, to the extent that we can. We may increase or decrease the amount of securities allocated to a client if necessary to avoid odd-lots in a particular securitv. 26 ©2010 Nattonal Compliance Serv1ces 800-800-3204 27 ©2010 Nat1onal Compliance Serv1ces 800-800-3204 Review of Accounts Form ADV Part 2A, Item 13 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Indicate whether you periodically review client accounts or financial plans. If you do, describe the frequency and nature of the review, and the titles of the supervised persons who conduct the review. We review our short-term fixed-income accounts daily. We generally review securities portfolios with a longer time horizon weekly; however, as described below in Section B, reviews may be accelerated when market events suggest this. Investment committees consisting of senior portfolio managers, senior research staff and our chief investment officer meet approximately monthly to assess economic and market conditions and set overall direction for portfolio managers. We monitor the performance of investment consulting accounts for pension and similar plans and investment sub-advisers in a manager of managers account on at least a monthly basis to determine whether the assets or investment sub-advisers are performing in line with expectations and are meeting the individual needs of the clients. On a quarterly basis, we value the assets in these accounts and compare the asset allocation of the portfolio to the target allocation. At that time, we will recommend to the client any material asset allocation adjustments or changes in investment sub-advisers. For these accounts, at least annually we consult with our client and conduct a review of the client's objectives and risk tolerance, and make any necessary changes to the asset allocation mix within the portfolio. We monitor the performance of multi-asset class accounts, including our Managed Accounts Program (MAP), on at least a quarterly basis to determine whether the underlying investments selected are performing in line with expectations and are meeting the needs of the individual client. We provide our multi-asset class clients a quarterly analysis of the performance of the underlying funds in which the client's assets are invested and of any reallocation of assets among these underlying funds. At least annually, we will consult with the client to determine whether there are reasons to revise the client's target investment strategy. The custodian of our multi-asset class portfolio clients, including our MAP clients, provides each client with a monthly statement of account detailing the client's month-end balances and any transactions which occurred during the month. We review such statements monthly to determine whether transactions executed by the custodian are in agreement with any instructions which we or the client provided. B If you review client accounts on other than a periodic basis, describe the factors that trigger a review. Sudden changes in financial market conditions, general economic conditions, and/or the movement of a particular portfolio security through a price support or resistance level may trigger a review. Accounts are reviewed by a principal or a portfolio manager in consultation with one of our principals. Normally, we sequence account reviews in a manner that provides for first review of the accounts that have the greatest potential exposure to the effects of the event which triggers the review. C. Describe the content and indicate the frequency of regular reports you provide to clients regarding their accounts. State whether these reports are written We furnish monthly account summaries to each fixed-income portfolio client with assets under continuous management. The summaries include details of all transactions and holdings at the end of the period. We also provide account summaries on a daily basis on the Internet. We may also provide an investment advice memorandum upon advising and/or completing any transaction. Pursuant to our investment advisory agreements, we may also provide quarterly performance and economic reviews for some clients. For multi- asset class portfolio clients, including clients in our Managed Accounts Program, the Program's custodian 28 ©2010 Natoonal Compliance Servoces 800-800-3204 I{F=thly statements of accounts and we provide quarterly performance reports. 29 ©201 0 National Compliance Serv1ces 800-800-3204 Client Referrals and Other Com ensation Form ADV Part 2A, Item 14 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. If someone who is not a client provides an economic benefit to you for providing investment advice or other advisory services to your clients, generally describe the arrangement, explain the conflicts of interest, and describe how you address the conflicts of interest For purposes of this Item, economic benefits include any sales awards or other prizes. Not applicable. B. If you or a related person directly or indirectly compensates any person who is not your supervised person for client referrals, describe the arrangement and the compensation. Not applicable. 30 ©201 0 National Compliance Serv1ces 800-800-3204 Custod Form ADV Part 2A. Item 15 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. If you have custody of client funds or securities and a qualified custodian sends quarterly, or more frequent, account statements directly to your clients, explain that clients will receive account statements from the broker- dealer, bank or other qualified custodian and that clients should carefully review those statements. If your clients also receive account statements from you, your explanation must include a statement urging clients to compare the account statements they receive from the qualified custodian with those they receive from you. We do not have custody of client funds or securities. 31 ©2010 Nat1onal Compliance Serv1ces 800-800-3204 Investment Discretion Form ADV Part 2A, Item 16 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. If you accept discretionary authority to manage securities accounts on behalf of clients, disclose this fact and describe any limitations clients may (or customarily do) place on this authority. Describe the procedures you follow before you assume this authority (e.g., execution of a power of attorney). We offer discretionary advisory services with respect to a client's investable assets. When a client gives us investment discretion, we then have the authority to determine, without obtaining their specific approval, (1) the specific securities to be bought and sold, (2) the amount of securities to be bought and sold and (3) the broker or dealer through which the securities are bought or sold. These decisions are subject to limitations of state law and any other restrictions in the contract with our client, or in our client's investment policies. Our clients typically grant us discretionary authority in the investment advisory agreement which we enter into with the clients. Many of our clients have developed their own investment policies, which contain restrictions on the types and credit quality of investments. We agree contractually to follow those guidelines. In addition, many of our clients are subject to state investment statutes, which we comply with. 32 ©201 0 Nat1onal Compliance Serv1ces 800-800-3204 Votin Client Securities Form ADV Part 2A, Item 17 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. If you have, or will accept, authority to vote client securities, briefly describe your voting policies and procedures, including those adopted pursuant to SEC rule 206(4)-6. Describe whether (and, if so, how) your clients can direct your vote in a particular solicitation. Describe how you address conflicts of interest between you and your clients with respect to voting their securities. Describe how clients may obtain information from you about how you voted their securities. Explain to clients that they may obtain a copy of your proxy voting policies and procedures upon request We provide to certain of our clients discretionary investment advice on securities which are mutual funds. These mutual funds send us proxies which we vote on behalf of these discretionary clients, 1f they have given us the authorization to vote them. We also occasionally receive consent requests. Generally, we arrange for our portfolio manager overseeing the client's investments to be responsible for making all proxy voting decisions. We seek to vote proxy proposals, consents or resolutions in a manner that serves the best interests of our clients. When reviewing whether a proposed action would be in our client's best interests, we take into account the following factors: • The impact on the valuation of securities; • The anticipated costs and benefits associated with the proposal; • An increase or decrease in costs, particularly management fees, of investment in the securities; • The effect on liquidity; and • Customary industry and business practices. In reviewing proxy issues of the type described below, we will apply the following general principles: • With respect to an election of directors, we will typically vote in favor of the management-proposed slate of directors, unless there is a proxy contest for seats on the board of a portfolio fund or other important reasons for withholding votes for directors. We may abstain if there is insufficient information about the nominees disclosed in the proxy statement • Similarly, we will also generally support management's recommendation for the appointment of auditors, unless there are reasons for us to question the independence or performance of the nominees. • We will vote in accordance with management's recommendations on issues that are technical and administrative in nature, such as changes to increase the number of directors or to adopt term limits. However, we review and vote on a case-by-case basis any non-routine proposals which are likely to affect the structure and operation of the portfolio company. Examples of these types of proposals include any limitations on shareholder rights, or those which have a material economic effect on the company. • We will generally vote in favor of proposals that give shareholders a greater vote in the affairs of the company and oppose any measure that seeks to limit those rights. • We also support proposals promoting transparency and accountability within a company to ensure that the directors fulfill their obligations to shareholders. 33 ©201 0 Nat1onal Compliance Serv1ces 800-800-3204 • We review proposals that result in an increase of compensation to investment advisors and other service providers of portfolio mutual funds on a case-by-case basis, with particular emphasis on the relative performance of the fund. • We also review proposals relating to executive compensation plans to ensure that the long-term interests of management and shareholders are properly aligned. • We generally oppose proposals to give shareholders the right to vote on executive compensation. These policies are not exhaustive due to the variety of proxy voting issues that we may be required to consider. With the exception of a client's shareholdings in a registered investment company and certain local government investment pools for which we provide services, a conflict of interest between us, and a client whose investments are managed by us, is unlikely. We are the investment advisor to a federally registered money market investment company and to several local government investment pools (Pooled Funds). We receive no investment advisory fee from a client respecting client assets which we invest in Pooled Funds. In regard to the voting of securities in Pooled Funds for which we are the investment advisor (or where it would appear that we have an interest), we apply the following principles: • If the proposal relates to the matters in which the outcome does not directly affect us, we will follow our general voting policies. • If the proxy proposal relates to a transaction which directly affects us, or otherwise requires a case-by- case determination by us under our voting policies, we will seek the advice either of the managers of the client or of a qualified, independent third party, and we will submit the proxy statement to them. We will then follow the decision of our client's management or the recommendation of the third party in voting the proxy. We maintain records relating to all proxy voting for 5 years. We will provide to any client information as to how we voted proxies for securities in the client's account. Our Proxy Voting Policy is available upon request by contacting us at One Keystone Plaza, Suite 300, North Front & Market Streets, Harrisburg, PA 17101, by calling 717-231-6200 or by emailing .. • B. If you do not have authority to vote client securities, disclose this fact. Explain whether clients will receive their proxies or other solicitations directly from their custodian or a transfer agent or from you, and discuss whether (and, if so, how) clients can contact you with questions about a particular solicitation. Under certain of our engagements, we do not assume the responsibility for voting proxies on client securities. The clients make arrangements to receive proxies from their custodian. In the event that we receive a proxy and we do not have authority to vote it, we forward it to our client. Clients may contact the portfolio manager for their account if they have questions about a particular solicitation. 34 ©201 0 National Compliance Serv1ces 800-800-3204 Financial Information Form ADV Part 2A. Item 18 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. If you require or solicit prepayment of more than $1.200 in fees per client. six months or more in advance. include a balance sheet for your most recent fiscal year. 1. The balance sheet must be prepared in accordance with generally accepted accounting principles, audited by an independent public accountant, and accompanied by a note stating the principles used to prepare it, the basis of securities included, and any other explanations required for clarity. Not applicable. 2 Show parenthetically the market or fair value of securities included at cost. Not applicable. 3. Qualifications of the independent public accountant and any accompanying independent public accountant's report must conform to Article 2 of SEC Regulation S-X. Not applicable. B. If you have discretionary authority or custody of client funds or securities, or you require or solicit prepayment of more than $1.200 in fees per client. six months or more in advance. disclose any financial condition that is reasonably likely to impair your ability to meet contractual commitments to clients. Not applicable. C. If you have been the subject of a bankruptcy petition at any time during the past ten years, disclose this fact, the date the petition was first brought, and the current status. If you are registering or are registered with one or more state securities authorities, you must respond to the following additional Item. Not applicable. 35 ©201 0 National Compliance Serv1ces 800-800-3204 PFM Asset Management LLC One Keystone Plaza, Suite 300 N. Front & Market Streets Harrisburg, PA 17101-2044 717-231-6200 phone 717-233-6073 fax www.pfm.com 3/30/2012 FORM ADV PART 2 APPENDIX 1 WRAP FEE PROGRAM BROCHURE This wrap fee program brochure provides information about the qualifications and business practices of PFM Asset Management LLC. If you have any questions about the contents of this brochure, please contact us at pfmamrequest@pfm.com. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Additional information about PFM Asset Management LLC is also available on the SEC's website at www.adviserinfo.sec.gov. The searchable IARD/CRD number for PFM Asset Management LLC is 122141. PFM Asset Management LLC is a Registered Investment Adviser. Registration with the United States Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training. ©2010 Nat1onal Compliance Serv1ces 800-800-3204 PFM Asset Management LLC Form ADV Part 2A Appendix 1 Wrap Fee Program Brochure Table of Contents IARD/CRD No: 122141 SEC File No. 801-60449 3/30/2012 Services, Fees and Compensation ................................................................................... 1 Account Requirements and Types of Clients ................................................................. 6 Portfolio Manager Selection and Evaluation .................................................................. 7 Client Information Provided to Portfolio Managers ..................................................... 10 Client Contact with Portfolio Managers ........................................................................ 11 Additional Information ...................................................................................................... 12 ©2010 National Compliance Serv1ces 800-800-3204 Services Fees and Com ensation Form ADV Part 2A, Appendix 1, Item 4 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Describe the services, including the types of portfolio management services, provided under each program. Indicate the wrap fee charged for each program or, if fees vary according to a schedule, provide your fee schedule. Indicate whether fees are negotiable and identify the portion of the total fee, or the range of fees, paid to portfolio managers INTRODUCTION PFM Asset Management LLC (PFMAM), a Delaware limited liability company, sponsors a wrap fee program called the Managed Accounts Program (the Program) under which investment advice, custody services, and other administrative services are provided to you for an all-inclusive wrap fee (Wrap Fee). The Program will offer you access to a variety of investment managers through mutual funds or other investment vehicles (Portfolio Managers) suitable for implementing an investment strategy. We will assist you in developing or updating an investment policy, developing an asset allocation, and implementing the investment strategy. We will manage your account (Account) on a discretionary basis and select the Portfolio Managers with which your Account will be invested and in what amounts. We will use a questionnaire to be completed by you (the Portfolio Planning Survey) to determine your eligibility for the Program and to determine the investment strategy in which your Account should be invested. If your Account relates to an other post employment benefit (OPEB) plan or trust, we will also assist you with pre-funding structuring advice for a consulting fee as described below. U.S. Bank National Association (the Custodian) will provide custody of securities and cash balances, and certain record keeping, reporting and administrative services to and/or on behalf of you, which may include execution, clearance and settlement of securities transactions, and benefit payment services for retirement plans. PROGRAM SERVICES The following describes the Program and the services offered to you if you participate in the Program. Each participant in the Program is responsible only for the performance of its Program-related duties and not for those of any other participant. 1. For OPEB: Pre-Funding Consulting If you plan to use the Program for OPEB assets, we will work with you to develop a comprehensive report detailing a variety of funding scenarios (Scenarios) that include potential budget and cash flow implications of the Scenarios and compares them to one another. The Scenarios may include sample debt funding, cash flow funding and lump sum funding alternatives and Scenarios that include combinations of these funding alternatives. We will also help you identify the appropriate means to hold and invest your OPEB assets. These alternatives may include pay as you go funding, dedicated fund balances, and a variety of trust alternatives. Finally, the report will provide examples of asset allocations for the account. The investment alternatives will include probabilities for meeting different investment rates of return based on historical performance. In addition to the comprehensive report, we may upon request provide you with introductions to other professional service providers (e.g., actuaries, attorneys). We will not be compensated for these introductions, nor will you be required to utilize services of these providers. 2. Selecting a Portfolio Manager We have selected certain Portfolio ManaQers for inclusion in the ProQram. Before includinQ them in the ©2010 National Compliance Serv1ces 800-800-3204 Program, we screen the Portfolio Managers based on a variety of criteria, utilizing third-party resources, information provided by the Portfolio Managers and our own information and analysis. Once we select Portfolio Managers for the Program, we monitor them using the same criteria. We may terminate a Portfolio Manager from the Program in our discretion if the Portfolio Manager's investment performance fails to meet our expectations or if we identify a material change in the Portfolio Manager's investment style or capabilities. We may add additional Portfolio Managers, which may include Portfolio Managers with different fees and/or different strategies (including multi-discipline strategies), to the Program at any time. We will work with you to prepare an investment policy statement (the Investment Policy Statement) and an asset allocation study which we will use in managing your Account. Your completed Portfolio Planning Survey gives us important information about your Account's circumstances, investment objectives and risk/return characteristics (collectively, Fund Information). We will evaluate your Portfolio Planning Survey, Investment Policy Statement and asset allocation study results for suitability with the Program. We then will determine whether to accept your Account based on your Fund Information and any other factors we deem appropriate. Once we have approved your Portfolio Planning Survey, we will manage the assets in your Account on a discretionary basis. You will have a separate Account and Account number for each plan or fund. We will assist you in completing the Portfolio Planning Survey. We also will furnish you with the other materials relating to the Program, including Part 2 of our Form ADV. The Form ADV describes the investment advisory services we offer and other related information. You will be notified if it is determined that you are not eligible to participate in the Program or that your Fund Information is inconsistent with the Program and its corresponding investment strategies. 3. Your Portfolio Manager and the Management of Your Account We will assist you in opening your Account, will review your Investment Policy Statement and the results of your Portfolio Planning Survey, and will buy and sell and trade for your risk the assets in your Account in accordance with the terms stated in your Investment Advisory Agreement with us. We will have the discretion to manage your Account (i.e., to act on your behalf without prior consultation with you). You may, however, impose reasonable restrictions on our management of your Account. For example, you may specify certain asset classes or sub-asset classes that you do not want us to acquire for your Account. We will determine whether any restriction you request is reasonable. You will not be permitted to engage directly in transactions for your Account under the Program. The Custodian will execute and clear trades and act as the custodian for your Account. You will have access to your Account and receive information about your Account as set forth below. If you wish to transfer any of your assets out of the Program, you should contact us or the Custodian and we or the Custodian will advise you about how to transfer assets. Under the Program, except as otherwise specifically waived or agreed to by you, you retain the following rights to the same extent as if you held the assets in an account outside of the Program: (a) the right to withdraw securities or cash from your Account; (b) the right to vote, or delegate the authority to vote, the securities in your Account; (c) the right to be provided in a timely manner with written trade confirmations for all securities transactions in your Account, and all other documents required by law to be given to security holders; and (d) the right to proceed directly against an issuer of any security in your Account and not be obligated to join any other person or client of the Program as a condition of bringing a proceeding. You should promptly notify us in writing if you want to revise your answers in the Portfolio Planning Survey, if you want to impose any reasonable restrictions, or modify any existing restrictions, on the management of your Account, or if there have otherwise been any material changes in your Fund Information. At least annually, we will contact you to chanQe or confirm existinQ investment objectives. We will have personnel who are 2 ©2010 NatiOnal Compliance Serv1ces 800-800-3204 knowledgeable about your Account reasonably available to you on an ongoing basis for consultation. 4. Account Information and Reporting The Custodian will furnish you (or someone you designate) with a monthly Account statement showing holdings and all securities transactions in your Account and a quarterly Account review. In the Custody Agreement, you will authorize the Custodian to send us duplicate copies of trade confirmations, Account statements and reviews and any other applicable Account information. At a web site operated by the Custodian, you will be able to see trading history, positions and executions of trades online as of the prior business day. We calculate the rate of return performance for your Account using data provided by the Custodian, and we report such performance to you quarterly. We calculate your Account's rate of return performance in a manner consistent with the Global Investment Performance Standards (GIPS) of the CFA Institute, unless otherwise indicated. In reviewing, compiling and analyzing Portfolio Manager performance as it relates to the Program, we, among other things, compare the data collected on the Portfolio Manager to indices and benchmarks. We will periodically review the performance of the mutual funds or other investment vehicles in which your assets are invested. We will prepare and distribute Program level performance reports which address the performance of these funds. PROGRAM FEE For the services provided by the Portfolio Managers, the Custodian and us, you will be charged a Wrap Fee in accordance with the schedule below. The fee is negotiable. First $5,000,000 of assets Next $5,000,000 Next $10,000,000 Assets in excess of $20,000,000 Annual Rate 1.00% 0.85% 0.75% 0.60% This schedule applies only to Accounts having assets of $1 ,000,000 or more; if and for so long as such assets are less than $1,000,000, the Wrap Fees will be at an annual rate of 1.25%, unless a minimum flat advisory fee is negotiated, instead of a wrap fee at this increased annual rate. The Wrap Fee will be charged on the net market value of assets in your Account as determined by the Custodian on the last day of the month. The Wrap Fee will compensate us and cover the costs of Portfolio Managers, custody and certain other Program costs. The underlying investment options of the Program will generally be mutual funds. The mutual fund Portfolio Managers will be compensated by the respective mutual funds at fees that are included in the mutual funds' expense ratio. Where offered and available to the Program, we will select institutionally priced share classes of funds. Clients will not be separately billed for these services. It is anticipated that the weighted average expense ratio for all mutual funds in the Program will be in the range of 0.35% to 0.50%. The portion of the total fees retained by us will generally range from 0.65% to 0.15%. We are compensated for investment consulting, selection and monitoring of investment options, Program administration and marketing, client services, and other related duties. From our portion of the Wrap Fee we will pay the fee of the Custodian for custody and benefit payment services. These services are provided by U.S. Bank National Association. Fees for these services will range between 0.05% and 0.25%. The Wrap Fee will be charged on a calendar month basis, in arrears. The portion of the Wrap Fee paid to I Portfolio Managers of mutual funds will be in the form of the expense ratios and is deducted automatically from 1! the assets invested in the funds. We receive the remainder of the Wrap Fee from which we pay the Custodian i pursuant to our agreements with the Custodian. I 3 ©201 0 Nat1onal Compliance Services 800-800-3204 The Investment Advisory Agreement between you and us will authorize us to deduct, unless otherwise instructed by you, the monthly Wrap Fee (and all other charges payable under the Program) from the assets in your Account, retain a portion as our fee and distribute the fees that are due to the Portfolio Managers (for vehicles other than mutual funds) and the Custodian. You authorize us, if necessary, to liquidate assets in your Account in order to make cash available for such payments. We will select the assets to be liquidated. The monthly Wrap Fee payments will be charged on the Account's net market value as determined by the Custodian on the last business day of the month. For each addition to, or withdrawal from, your Account, the Wrap Fee payment will be adjusted in the next month. We may modify the Wrap Fee Schedule upon 30 days' prior written notice to you. Fee Adjustments for OPEB Accounts With respect to OPEB funds, we may provide Pre-Funding Consulting for a flat fee ranging from $10,000 to $20,000. If you engage us to provide the ongoing Account management services and you fund the Account with at least $5,000,000 in initial funding, we may reimburse the Account for the initial flat fee in equal installments over the first year of the Account's existence. However, if the Account falls below $5,000,000 in funding during the first year, the reimbursement will be discontinued. B. Explain that the program may cost the client more or less than purchasing such services separately and describe the factors that bear upon the relative cost of the program, such as the cost of the services if provided separately and the trading activity in the client's account Your Portfolio Managers will receive compensation as a result of your participation in the Program. This compensation comes in the form of the mutual fund's expense ratio and is not billed separately by the Program. The amount of your Portfolio Managers' compensation may be more or less than the amount your Portfolio Managers would receive if you paid separately for investment advice, brokerage and other services similar to the services provided to you under the Program. The Wrap Fee charged to you in the Program may be more or less than the cost of separately purchasing services similar to the Program's services, as in an arrangement involving a separate fee for investment advice and a separate fee for custody services. Generally, the factors that bear upon the relative costs of an investment program include the assets managed, the costs of the specific services provided and the amount of trading activity in an account. C Describe any fees that the client may pay in addition to the wrap fee, and describe the circumstances under which clients may pay these fees, including, if applicable, mutual fund expenses and mark--ups, markdowns, or spreads paid to market makers. The Wrap Fee includes all fees and charges by the Portfolio Managers, the Custodian and us for services in connection with the Program (including investment management fees payable to Portfolio Managers, brokerage commissions, quarterly and annual report charges, and custodial charges, if applicable) except for charges, if any, related to redemption of mutual fund shares that are paid to the fund and not incorporated into its expense ratio, certain fees, such as front-end or back-end sales charges, or certain charges associated with securities transactions imposed by regulatory authorities. The Wrap Fee does not include fees related to actuarial, accounting, trustee, auditing or legal services required by your Account or any other charges imposed by law. D. If the person recommending the wrap fee program to the client receives compensation as a result of the client's participation in the program, disclose this fact Explain, if applicable, that the amount of this compensation may be more than what the person would receive if the client participated in your other programs or paid separately for investment advice, brokerage, and other services. Explain that the person, therefore, may have a financial incentive to recommend the wrap fee program over other programs or services. Describe the 1 types of advisory services you offer. If you hold yourself out as specializing in a particular type of advisory service, such as financial planning, quantitative analysis, or market timing, explain the nature of that service in greater detail. If you provide investment advice only with respect to limited types of investments, explain the 4 ©2010 Nat1onal Compliance Serv1ces 800-800-3204 type of investment advice you offer, and disclose that your advice is limited to those types of investments. Not applicable, as we are no longer marketing the Program. 5 ©201 0 National Compliance Serv1ces 800-800-3204 Account Re uirements and T es of Clients Form ADV Part 2A, Appendix 1, Item 5 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. If a wrap fee program imposes any requirements to open or maintain an account, such as a minimum account size, disclose these requirements. If there is a minimum amount for assets placed with each portfolio manager as well as a minimum account size for participation in the wrap fee program, disclose and explain these requirements. To the extent applicable to your wrap fee program clients, describe the types of clients to whom you generally provide investment advice, such as individuals. trusts, investment companies, or pension plans. We will use your Portfolio Planning Survey to determine whether you are eligible for the Program and which Program asset allocation would be suitable for your Account. The Program is open to all of our clients (assuming they satisfy the minimum account size eligibility criteria described below) and is intended for pension, endowment, foundation, trust, OPES and other long-term accounts. To participate in the Program, you must complete a Portfolio Planning Survey and sign an Investment Advisory Agreement and a Custody Agreement. The terms of your Investment Advisory Agreement and Custody Agreement will govern your participation in the Program. You should read carefully all of the Program materials and information before deciding to join the Program. You must fund your Program Account with at least $100,000. You may add assets to or withdraw assets from your Account. However, if a withdrawal at any time causes your Account to have a value of less than $100,000, we may close your Account at our discretion. 6 ©2010 National Compllaoce Serv1ces 800-800-3204 Portfolio Mana er Selection and Evaluation Form ADV Part 2A, appendix 1, Item 6 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A. Describe how you select and review portfolio managers, your basis for recommending or selecting portfolio managers for particular clients, and your criteria for replacing or recommending the replacement of portfolio managers for the program and for particular clients. We have selected certain Portfolio Managers for inclusion in the Program. Before including them in the Program, we screen the Portfolio Managers based on a variety of criteria, utilizing third-party resources, information provided by the Portfolio Managers and our own information and analysis. Once we have selected Portfolio Managers for the Program, we monitor them using the same criteria. We may terminate a Portfolio Manager from the Program in our discretion if the Portfolio Manager's investment performance fails to meet our expectations or if we identify a material change in the Portfolio Manager's investment style or capabilities. We may add additional Portfolio Managers, which may include Portfolio Managers with different fees and/or different strategies (including multi-discipline strategies), to the Program at any time. 1. Describe any standards you use to calculate portfolio manager performance, such as industry standards or standards used solely by you We calculate the rate of return performance for your Account using data provided by the Custodian, and we report the performance to you quarterly. We will periodically review the performance of the mutual funds or other investment vehicles in which your assets are invested. We will prepare and distribute Program level performance reports which address the performance of these funds. We calculate your Account's rate of return performance in a manner consistent with the Global Investment Performance Standards (GIPS) of the CFA Institute, unless otherwise indicated. 2. Indicate whether you review, or whether any third-party reviews, performance information to determine or verify its accuracy or its compliance with presentation standards. If so, briefly describe the nature of the review and the name of any third party conducting the review. In reviewing, compiling and analyzing Portfolio Manager performance as it relates to the Program, we, among other things, compare the data collected on the Portfolio Manager to indices and benchmarks. 3. If applicable, explain that neither you nor a third-party reviews portfolio manager performance information, and/or that performance information may not be calculated on a uniform and consistent basis. Not applicable. B Disclose whether any of your related persons act as a portfolio manager for a wrap fee program described in the wrap fee program brochure. Explain the conflicts of interest that you face because of this arrangement and describe how you address these conflicts of interest. Disclose whether related person portfolio managers are subject to the same selection and review as the other portfolio managers that participate in the wrap fee program. If they are not, describe how you select and review related person portfolio managers. We do not act as a Portfolio Manager for the Program. C If you, or any of your supervised persons covered under your investment adviser registration. act as a I portfolio manager for a wrap fee program described in the wrap fee program brochure, respond to Items 4.8, ; , 4.C, 4.0 (Advisory Business), 6 (Performance-Based Fees and Side-By-Side Management), 8.A (Methods of Analysis, Investment Strategies and Risk of Loss) and 17 (Voting Client Securities) of Part 2A of Form ADV.you , or any of your supervised persons accepts performance-based fees-that is, fees based on a share of capital I 7 ©201 0 National Compliance Serv1ces 800-800-3204 gains on or capital appreciation of the assets of a client (such as a client that is a hedge fund or other pooled investment vehicle)-disclose this fact If you or any of your supervised persons manage both accounts that are charged a performance-based fee and accounts that are charged another type of fee, such as an hourly or flat fee or an asset-based fee, disclose this fact. Explain the conflicts of interest that you or your supervised persons face by managing these accounts at the same time, including that you or your supervised persons have an incentive to favor accounts for which you or your supervised persons receive a performance-based fee, and describe generally how you address these conflicts. Advisory Business Part2A Items 4.8.: Describe the types of advisory services you offer. If you hold yourself out as specializing in a particular type of advisory service, such as financial planning, quantitative analysis, or market timing, explain the nature of that service in greater detail. If you provide investment advice only with respect to limited types of investments, explain the type of investment advice you offer, and disclose that your advice is limited to those types of investments. Not applicable. Part2A Items 4.C.: Explain whether (and, if so, how) you tailor your advisory services to the individual needs of clients. Explain whether clients may impose restrictions on investing in certain securities or types of securit1es. Not applicable. Part2A Items 4.0.: If you participate in wrap fee programs by providing portfolio management services, (1) describe the differences, if any, between how you manage wrap fee accounts and how you manage other accounts, and (2) explain that you receive a portion of the wrap fee for your services. Not applicable. Performance-Based Fees and Side-By-Side Management Part2A Item 6: If you or any of your supervised persons accepts performance-based fees-that is, fees based on a share of capital gains on or capital appreciation of the assets of a client (such as a client that is a hedge fund or other pooled investment vehicle)-disclose this fact If you or any of your supervised persons manage both accounts that are charged a performance-based fee and accounts that are charged another type of fee, such as an hourly or flat fee or an asset-based fee, disclose this fact. Explain the conflicts of interest that you or your supervised persons face by managing these accounts at the same time, including that you or your supervised persons have an incentive to favor accounts for which you or your supervised persons receive a performance- based fee, and describe generally how you address these conflicts Not applicable. Methods of Analysis, Investment Strategies and Risk of Loss Part2A Item 8A: Describe the methods of analysis and investment strategies you use in formulating investment advice or managing assets. Explain that investing in securities involves risk of loss that clients should be prepared to bear. Not applicable. Voting Client Securities Part2A ltem17: If you have, or will accept, authority to vote client securities, briefly describe your voting policies and procedures, including those adopted pursuant to SEC rule 206{4)-6. Describe whether (and, if so, how) your 8 ©201 0 NatiOnal Compliance Services 800-800-3204 clients can direct your vote in a particular solicitation. Describe how you address conflicts of interest between you and your clients with respect to voting their securities. Describe how clients may obtain information from you about how you voted their securities. Explain to clients that they may obtain a copy of your proxy voting policies and procedures upon request. Not applicable. If you do not have authority to vote client securities, disclose this fact. Explain whether clients will receive their proxies or other solicitations directly from their custodian or a transfer agent or from you, and discuss whether (and, if so, how) clients can contact you with questions about a particular solicitation. Not applicable. 9 ©2010 Nat1onal Compl1aoce Serv1ces 800-800-3204 Client Information Provided to Portfolio Mana ers Form ADV Part 2A, Appendix 1, Item 7 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. Describe the information about clients that you communicate to the clients' portfolio managers, and how often or under what circumstances you provide updated information. We do not communicate information about you to the managers of the mutual funds utilized by the Program. Unless you request otherwise, the Custodian will provide the mutual fund managers with your name and address. 10 ©201 0 National Compl1arce Serv1ces 800-800-3204 Client Contact with Portfolio Mana ers Form ADV Part 2A, Appendix 1, Item 8 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. Explain any restrictions placed on clients' ability to contact and consult with their portfolio managers. For investments in the Program made in mutual funds, the investment policies of the respective fund are as described in its prospectus and other documents that govern the fund's activities. There is no restriction on your ability to contact Portfolio Managers; however, the Portfolio Managers of mutual funds are not able to change their fundamental investment strategies and must manage the mutual fund portfolio according to its own policies. 11 ©201 0 Nat1onal Compliance Serv1ces 800-800-3204 Additional Information Form ADV Part 2A, Appendix 1, Item 9 THIS SECTION IS REQUIRED. YOU MAY NOT OMIT THIS HEADING. You must answer each item. If an item is not applicable, you must state that it is not applicable. A Respond to Item 9 (Disciplinary Information) and Item 10 (Other Financial Industry Activities and Affiliations) of Part 2A of Form ADV. Disciplinary Information Part 2A Item 9: If there are legal or disciplinary events that are material to a client's or prospective client's evaluation of your advisory business or the integrity of your management, disclose all material facts regarding those events. Items 9.A, 9.8, and 9.C list specific legal and disciplinary events presumed to be material for this Item. If your advisory firm or a management person has been involved in one of these events, you must disclose it under this Item for ten years following the date of the event, unless (1) the event was resolved in your or the management person's favor, or was reversed, suspended or vacated, or (2) you have rebutted the presumption of materiality to determine that the event is not material (see Note below). For purposes of calculating this ten-year period, the "date" of an event is the date that the final order, judgment, or decree was entered, or the date that any rights of appeal from preliminary orders, judgments or decrees lapsed. Items 9.A, 9.8, and 9.C do not contain an exclusive list of material disciplinary events. If your advisory firm or a management person has been involved in a legal or disciplinary event that is not listed in Items 9 A, 9 B, or 9 C, but nonetheless is material to a client's or prospective client's evaluation of your advisory business or the integrity of its management, you must disclose the event Similarly, even if more than ten years have passed since the date of the event, you must disclose the event if it is so serious that it remains material to a client's or prospective client's evaluation. A. A criminal or civil action in a domestic, foreign or military court of competent jurisdiction in which your firm or a management person 1. was convicted of, or pled guilty or nolo contendere ("no contest") to (a) any felony; (b) a misdemeanor that involved investments or an investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, or extortion; or (c) a conspiracy to commit any of these offenses; Not applicable. 2. is the named subject of a pending criminal proceeding that involves an investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses; Not applicable. 3. was found to have been involved in a violation of an investment-related statute or regulation; or Not applicable. 4. was the subject of any order, judgment, or decree permanently or temporarily enjoining, or otherwise limiting, your firm or a management person from engaging in any investment-related activity, or from violating any investment-related statute, rule, or order. Not applicable. 12 ©201 0 National Compliance Serv1ces 800-800-3204 B An administrative proceeding before the SEC, any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority in which your firm or a management person 1. was found to have caused an investment-related business to lose its authorization to do business; or Not applicable. 2. was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency or authority (a) denying, suspending, or revoking the authorization of your firm or a management person to act in an investment-related business; Not applicable. (b) barring or suspending your firm's or a management person's association with an investment-related business; Not applicable. (c) otherwise significantly limiting your firm's or a management person's investment-related activities; or Not applicable. (d) imposing a civil money penalty of more than $2,500 on your firm or a management person. Not applicable. C. A self-regulatory organization (SRO) proceeding in which your firm or a management person 1. was found to have caused an investment-related business to lose its authorization to do business; or Not applicable. 2 was found to have been involved in a violation of the SRO's rules and was: (i) barred or suspended from membership or from association with other members, or was expelled from membership; (ii) otherwise significantly limited from investment-related activities; or (iii) fined more than $2,500. Not applicable. Note: You may, under certain circumstances, rebut the presumption that a disciplinary event is material. If an event is immaterial, you are not required to disclose it. When you review a legal or disciplinary event involving your firm or a management person to determine whether it is appropriate to rebut the presumption of materiality, you should consider all of the following factors: (1) the proximity of the person involved in the disciplinary event to the advisory function; (2) the nature of the infraction that led to the disciplinary event; (3) the severity of the disciplinary sanction; and (4) the time elapsed since the date of the disciplinary event. If you conclude that the materiality presumption has been overcome, you must prepare and maintain a file memorandum of your determination in your records. See SEC rule 204-2(a)(14)(iii). Other Financial Industry Activities and Affiliations Part 2A Item 10: A. If you or any of your management persons are registered, or have an application pending to register, as a · broker-dealer or a registered representative of a broker-dealer, disclose this fact. Our wholl -owned subsidia PFM Fund Distributors Inc. is re istered as a broker-dealer under the 13 ©2010 Nat1onal Compl1ance Serv1ces 800-800-3204 Securities Exchange Act of 1934. Its sole activities are to serve as distributor to the registered investment company and certain local government investment pools for which we serve as investment adviser and/or administrator. B. If you or any of your management persons are registered, or have an application pending to register, as a futures commission merchant, commodity pool operator, a commodity trading advisor, or an associated person of the foregoing entities, disclose this fact Not applicable. C. Describe any: relationshil2 or arrangement that is material to y:our adviso[Y business or to y:our clients that y:ou or any: of y:our management 12ersons have with any: related 12erson listed below. Identify the related 12erson and if the relationshil2 or arrangement creates a material conflict of interest with clients, describe the nature of the conflict and how y:ou address it 1. broker-dealer, munici(2al securities dealer, or government securities dealer or broker 2. investment com12any: or other 1200led investment vehicle (including a mutual fund, closed-end investment com12any:, unit investment trust, 12rivate investment com12any: or "hedge fund," and offshore fund) 3. other investment adviser or financial12lanner 4. futures commission merchant, commodity: 12001 012erator, or commodity: trading advisor 5. banking or thrift institution 6. accountant or accounting firm 7. lawy:er or law firm 8. insurance com12any or agency 9. 12ension consultant 10. real estate broker or dealer 11. s12onsor or syndicator of limited 12artnershi12s. 1. Our wholly-owned subsidiary, PFM Fund Distributors, Inc. (PFMFD}, serves as exclusive distributor to a registered investment company and certain local government investment pools (Pooled Funds) for which we serve as investment adviser and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to the client, through the Form ADV Part 2A and the offering statement for the Pooled Fund. In addition, our investment advisory agreement with the client provides that if we invest client assets in a Pooled Fund, we will not take these assets into account for purposes of calculating our fees under the client's investment advisory agreement Therefore, we do not receive any additional compensation if we invest client assets in a Pooled Fund. 2. We serve as administrator and investment adviser to PFM Funds, a diversified, open-end management registered investment company offering money market funds to governmental entities and other institutional investors. Our wholly-owned subsidiary, PFM Fund Distributors, Inc., serves as distributor for PFM Funds. We also serve as administrator and/or investment adviser to the following local government investment pools: • California Asset Management Trust (CAMP); • Florida Education Investment Trust Fund (FEITF) (adviser and distributor only) • Illinois Institutional Investors Trust (lilT); • Illinois Park District Liquid Asset Fund Plus (IPDLAF+); • Massachusetts Finance Development Agency Short-Term Asset Reserve Fund (MassSTAR); I • Michigan Liquid Asset Fund Plus (MILAF+); • Minnesota Association of Governments Investing for Counties (MAGIC}; • Minnesota School District Liquid Asset Fund Plus (MSDLAF+); I I • Missouri Securities Investment Program (MOSIP); • Nebraska Liquid Asset Fund (NLAF); I I • New Jersey Asset & Rebate Management Program (NJ/ARM}; 14 ©201 0 National Compliance Serv1ces 800-800-3204 • Pennsylvania Local Government Investment Trust (PLGIT); • Pennsylvania OPEB Trust (adviser and distributor only); • TexasTERM Local Government Investment Pool (TexasTERM); and • Wyoming Government Investment Fund (WGIF). PFMFD serves as distributor to all of these pools except for WGIF. Items 3 through 11 are not applicable. D. If you recommend or select other investment advisers for your clients and you receive compensation directly or indirectly from those advisers that creates a material conflict of interest, or if you have other business relationships with those advisers that create a material conflict of interest, describe these practices and discuss the material conflicts of interest these practices create and how you address them. We have no arrangements with other investment advisers who compensate us directly or indirectly. As a matter of policy and practice, we do not accept any fees, commissions or other forms of compensation from any underlying money managers or other professionals affiliated with our client's account. B. Respond to Items 11 (Code of Ethics, Participation or Interest in Client Transactions and Personal Trading), 13 (Review of Accounts), 14 (Client Referrals and Other Compensation), and 18 (Financial Information) of Part 2A of Form ADV, as applicable to your wrap fee clients. Code of Ethics, Participation or Interest in Client Transactions and Personal Trading Form ADV Part 1, Item 11: A. If you are an SEC-registered adviser, briefly describe your code of ethics adopted pursuant to SEC rule 204A-1 or similar state rules. Explain that you will provide a copy of your code of ethics to any client or prospective client upon request. Under Rule 204A-1 of the Investment Advisers Act of 1940, our employees are subject to our Code of Ethics (Code). Compliance with the Code is a condition of employment for all of our employees. This Code sets out general ethical standards applicable to our employees. Employees are expected to maintain the highest ethical standards, embody a business culture that supports actions based on what is right rather than expediency, deal fairly with clients and one another, protect confidential information and seek guidance about ethical questions. More specifically with respect to advisory activities, the Code requires that whenever our personnel act in a fiduciary capacity, we will endeavor to consistently put the client's interest ahead of the firm's. We will disclose actual and potential meaningful conflicts of interest. We will manage actual conflicts in accordance with applicable regulatory and legal standards. If applicable regulatory and legal standards do not permit management of a conflict, we will seek to avoid the conflict. We will not engage in fraudulent, deceptive or manipulative conduct with respect to clients. We will act with appropriate care, skill and diligence. Advisory personnel are required to know when we are acting as a fiduciary with respect to the work they are doing. If we are acting as a fiduciary, they are expected to comply with all fiduciary standards which apply to us in performing their duties. In addition, they must also put the client's interest ahead of their own personal interest. An employee's fiduciary duty is a personal obligation. While advisory personnel may rely upon subordinates to perform many tasks that are part of their responsibilities, they are personally responsible for fiduciary obligations even if carried out through subordinates. In general, the Code expresses our recognition of our responsibilities to the public, clients and professional associates. Our Code also contains various reporting, disclosure and approval requirements regarding employees' personal securities transactions. The Code requires that our employees whom we deem are "Access Persons" must report all personal securities transactions, including transactions in mutual funds advised by us, to our Chief Compliance Officer, or to the person he designates. We prohibit our Access Persons from participating in initial public offerings unless our Chief Compliance Officer gives his approval. We also prohibit our employees from purchasing any municipal securities within 60 days of their issue date if our 15 ©201 0 National Compliance Serv1ces 800-800-3204 affiliate, Public Financial Management, Inc., served as financial advisor for the bond issue. You can receive a copy of our Code by contacting us at One Keystone Plaza, Suite 300, North Front & Market Streets, Harrisburg, PA 17101, by calling 717-231-6200 or by emailing pfmamrequest@pfrn.com. B If you or a related person recommends to clients, or buys or sells for client accounts, securities in which you or a related person has a material financial interest, describe your practice and discuss the conflicts of interest it presents. Describe generally how you address conflicts that arise. Our wholly-owned subsidiary, PFM Fund Distributors, Inc., serves as distributor to a registered investment company and certain local government investment pools (Pooled Fund) for which we serve as investment adviser and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to the client, through the Form ADV Part 2A and the Pooled Fund's offering document. In addition, our investment advisory agreement with the client provides that if we invest the client's assets in a Pooled Fund, we will not take these assets into account for purposes of calculating our fees under the agreement. C. If you or a related person invests in the same securities (or related securities, e.g., warrants, options or futures) that you or a related person recommends to clients, describe your practice and discuss the conflicts of interest this presents and generally how you address the conflicts that arise in connection with personal trading. On infrequent occasions, our employees may invest in securities that coincidentally we also recommend for purchase or sale in our client accounts. The fixed-income and multi-asset class management securities we recommend for purchase and sale are of the type which the Securities and Exchange Commission has expressly recognized as presenting little opportunity for the type of improper trading which compliance with the Code of Ethics reporting requirements is designed to uncover. Further, our employees are subject to our Code of Ethics described in Item 11.A. above, and because our personnel are acting in a fiduciary capacity, we endeavor to put the client's interests ahead of the firm's with respect to the purchase and sale of securities. D. If you or a related person recommends securities to clients, or buys or sells securities for client accounts, at or about the same time that you or a related person buys or sells the same securities for your own (or the related person's own) account, describe your practice and discuss the conflicts of interest it presents. Describe generally how you address conflicts that arise. On infrequent occasions, our personnel may buy or sell a security for their own accounts, which coincidentally is being purchased or sold by other of our personnel for client accounts. The fixed-income and multi-asset class management securities we recommend for purchase and sale are of the type which the Securities and Exchange Commission has expressly recognized as presenting little opportunity for the type of improper trading which compliance with the Code of Ethics reporting requirements is designed to uncover. As noted above, whenever our personnel act in a fiduciary capacity, we will endeavor to consistently put the client's interest ahead of the firm's. Advisory personnel are required to know when we are acting as a fiduciary with respect to the work they are doing. If they are acting as a fiduciary, they are expected to comply with all fiduciary standards applicable to the firm in performing their duties. Review of Accounts Form ADV Part 1, Item 13 A. Indicate whether you periodically review client accounts or financial plans. If you do, describe the frequency and nature of the review, and the titles of the supervised persons who conduct the review. Investment committees consisting of senior portfolio managers, senior research staff and our chief investment officer meet approximately monthly to assess economic and market conditions and set overall direction for portfolio managers. We monitor the erformance of multi-asset class accounts on at least a 16 ©2010 Naltonal Compliance Services 800-800-3204 quarterly basis to determine whether the underlying investments selected are performing in line with expectations and are meeting the needs of the individual client. We provide our multi-asset class clients a quarterly analysis of the performance of the underlying funds in which the client's assets are invested and of any reallocation of assets among these underlying funds. At least annually, we will consult with the client to determine whether there are reasons to revise the client's target investment strategy. The custodian of our multi-asset class portfolio clients, including our Program clients, provides each client with a monthly statement of account detailing the client's month-end balances and any transactions which occurred during the month. We review such statements monthly to determine whether transactions executed by the custodian are in agreement with any instructions which we or the client provided. B. If you review client accounts on other than a periodic basis, describe the factors that trigger a review. Sudden changes in financial market conditions, general economic conditions, and/or the movement of a particular portfolio security through a price support or resistance level may trigger a review. Accounts are reviewed by a principal or a portfolio manager in consultation with one of our principals. Normally, we sequence account reviews in a manner that provides for first review of the accounts that have the greatest potential exposure to the effects of the event which triggers the review. C. Describe the content and indicate the frequency of regular reports you provide to clients regarding their accounts. State whether these reports are written. For Program clients, the Custodian provides monthly written statements of accounts and we provide quarterly written performance reports. Client Referrals and Other Compensation Form ADV Part 1, Item 14: A. If someone who is not a client provides an economic benefit to you for providing investment advice or other advisory services to your clients, generally describe the arrangement, explain the conflicts of interest, and describe how you address the conflicts of interest. For purposes of this Item, economic benefits include any sales awards or other prizes. Not applicable. B. If you or a related person directly or indirectly compensates any person who is not your supervised person for client referrals, describe the arrangement and the compensation. Not applicable. Financial Information Form ADV Part 1, Item 18: A. If you require or solicit prepayment of more than $1,200 in fees per client. six months or more in advance, include a balance sheet for your most recent fiscal year. 1. The balance sheet must be prepared in accordance with generally accepted accounting principles, audited by an independent public accountant, and accompanied by a note stating the principles used to prepare it, the basis of securities included, and any other explanations required for clarity. Not applicable. 2. Show parenthetically the market or fair value of securities included at cost. Not applicable. 3. Qualifications of the independent public accountant and any accompanying independent public accountant's report must conform to Article 2 of SEC Regulation S-X. 17 ©2010 National Compliance Servtces 800·800·3204 Not applicable. B. If vou have discretionary authority or custody of client funds or securities, or you require or solicit prepayment of more than $1.200 in fees per client. six months or more in advance. disclose any financial condition that is reasonably likely to impair your ability to meet contractual commitments to clients. Not applicable. C If you have been the subject of a bankruptcy petition at any time during the past ten years, disclose this fact, the date the petition was first brought, and the current status. Not applicable. 18 ©2010 National Compliance Services 800-800-3204 Table of Contents Educational Background and Business Experience Disciplinary I nft)rm<H ion Other Business Activities Additional Compensation Supervision 6 8 9 10 Educational Background and Business Experience Item 2 Item 2 of Form ADV, Part 2B asks us to disclose background in education and business for our supervised persons who formulate the various types of investment advice we offer. Most types of our investment advice are provided to you by a team of more than jive individuals. We have prepared background information for the team members who have the most responsibility for the advice the team prepares. We have provided the person's name, year of birth, formal education after high school, and business background (including an identification of the specific positions held) for the preceding jive years of our supervised persons. Also listed are certain professional designations held by the supervised person. An explanation of the minimum qualifications required for each designation is included so you may better understand the value of the designation. FIXED INCOME PORTFOUOS Robert H. Cheddar, CFA 'lh~r of Birth: 19M • Fornldl Educnion <lfln High School • su~qud1.Ulll;l l 'nivt·nity. Sdimgmvt\ PA. B;ll'hdm of Scknn·. Bu~iiW\~, (. ;r;lJU.llt'tl l <)88 • 1\·nn~ylvania St:llt' Unh'\·nhy. Malwrn, PA. MBA. Cr.1dmucd 200.~ • Bmint·\~ l~:~ekgmund ti:n tlw l"rt·viou~ Fh'\' Yean • PFM Asst•t M.tnagcnwnt LIC, H;uri~hurg. PA. St~ninr Ponf(llin Man.l~'r, 01!1004-nJ/2011; ~vtanaging llinx:tor. 0 112.0 I l -Pn'M'nt • Catitlcuions • ( 'h,lf!t'l\'tl Fin.uKial Analyse An t•;xplan.nion of tlw minimum qualifl~-.1tions n't!uin-xl ltlf thh tk~.igMtiun is pnwitktl <H tlw nmdusion nfthi~ h.:m. Joseph W. Creason \hu of Birth: l <):() • Formo~l Ftluc.1tiou ,1fla High St·hool • Shipp•:nshurg l ~niwnity. Ship~)('mlmrg. PA. &\dwlor ofSdctKt\ FimuKx.', and l~chdor ofSt':it'tK<.'. h:onomk~. ( ;r,,du;~tcd .2000 • Bu~n<"S.' KKkp:munJ h1r dw l'rcviou~ Fh'\.' )~·a~ • PFM As~ct Mano~At·nwm UC! Puhli~· Fino~ndal Mana~nwnt hl.:-.. Ho~rri$hurg. JlA. Port!t)lio Tr<~tkr. 07/lOOO- ()';!2009: Pnrtt\1lio ~tma~·r, 0~.1.2009-lln"S.:nt Gregg A. Manjerovic, CFA \hu of Birth: 19~ 1 • FornlJI b.luGllion ,tfl<'f Hip:h ~:hool • l 'niv<~ity of Illinois .u ( 1\icA~\, Chit~\, II , l~adl<.'lor of S..·i<·n~X\ Fin,m<.x·fM-lna~·mcm, ( ;f'J<.iual<'ti I ')9.~ • lllinni~ fn~ti!\U<:' of'J<-x::hnology. Chi...-.~~~0. n' MS. Fin;~ncio~l Muh't~ ;)lltl '1<-x-lmol'~' (;r.l(hMI<"'-1 19'N • Ru~n(~~ ~~~round IUr th..· Pfi'\>ltm$ l-'ivo:· \(·..-~ • I'FM AsSt'l M.1n~"-"1Ut'1ll U ( ~ fluhlk Fin.tndal X.bn,~"t'!ll('fll, ln.:-.. H..-rrishurg, PA. 1-'ixt'XI ln.:.-.mw 1\mtUli.:> M.an;~~·r. 0':" f !OtH -I~"'S<Cnt • ( Ot·nifi<.'.ltinn~ • ( nancn"tl FitlJIKi<ll Arul~'\1. An <.':q·ll.ulJtion ohh.:-minimum qualitl..'.ltion' rcquitx..J k)f t:hi:-; ~~n.ui.:m ~~ l'"">itlncl .a1 tf~t· O>tKiu~m of thi;; lt<.'m. 1 Martin P. Margolis Yt·ar of Binh: 1944 • hmn;tl EdiiC•ttion ;tftn High Sdlonl • t 'niwrsity of Pcnmyk.mia, Philaddphi<t, I'A. l1;Khdm of Am. History. ( ;radu;lt('d 1966 • t :niwrsity of Pnmsyk.mia, Philaddphia, PA, ( ;ntdu;lh' School. History I 967-1972 • Hmim•ss Background for the Prn:iom Fiv( \hm • Puhlir Fin.ml'ial tvbn;tgt'lllt'nt, Inc, llarrbhurg. PA. MJtMging I )ircnor. 0 Ill 987-0 I !200_i: PFM Asst'l M<m<l{tl'llh'tll II. C. Harrisburg. PA. M<lll<tging Din•ctor, Pn·sidl·m, 0 1/200.~ -Prt·~t'IH Jeffrey H. Rowe Yt\H of Birth: I 982 • Fnrmal hlucninn aftn High School • Pl.'nn,ylvani;t Statt' l 1niwrsity, Uniwrsity Park, PA. Badtdm of Sdt·nct\ fin ann•, and a Minor in Supply Ch;~in ,md lnll:mt~;nion Sysh'lllS ·lt-chnnln~v; ( ;,-,uluatt•d 200) • Husim•ss Background ltlf tlw Pn·viom Fiv~:• \hm • PFM Asst't M:magt'lllt'IH U.C lbrrishurg, PA, Pont\,lio 'lhll:kr, 01/20()'i.-O"iflOHl; hmft,lio ~hm<~gt·r, O"i/2010- Pn·>l'nt Kenneth R. Schiebel, CFA Yc\lf of Birth: I 919 • hmnal hlm-:.ltion ;tftn High St~hool • t· niwrsity of Mkhigan. Ann Arbor, MI. I\,Khdur of Am, Math<'tuJiic~ & CompUil'T Sci.:'tKt\ ( ;raduatt>tl I 'il-l I • 1\usim•s_-; 1'\ad:gmund li:1r dw Pn·vimt~ fiw Yt\tfS • PFM AS-\1.'1 M;~nago:.·nwm UC f Puhlk Fin<liKial Manag(·nwm, Inc. Harrisburg. PA. Matuging Dinxtor, 01!199'1 -Pn·s•·nt • ( :O:·rt i 11<.-.u inn~ • ( ':hartt'rt>tl Htundal Anal~'l't, An l.'ll<pl.tnatiou of thl.' minimum qualitlo:.-:atiom n-quin>tllt)f thi$ ·l~ign,uinn is pmvitlt>tl .u tlw nmdmiun nf1his lt,·m, Michael R. Varano Yt\n of Hirth: l9"il • hmnal hluo:.-:.uion -lltt·r High So:.·hool • Bloum:-.hurg t:niwrsity. Bloomsburg, PA, 1\at~hdor of.S..·i('IKt.\ Husillt'S..' ~btt.t~'nKm & Act'l)lctnling. c.-.,.hlalt>tl 19~-i • Bu!\lnt-ss fud.:grountl ti:lr till.' l~viom FiYt' Yt·ars • t•f~t AsSl't Man<t.~mt·m UC 1\thlic fin,mdal Mana~·nwm, hK.-Harrisburg. PA, !vbnaging Din·nm. 01!191-1"' ·-1~-:..·m Mum-AssET CLAss MANAGEMENT Martin P. Margolis \'l-.u of Birth: I ?41 • h•m•al hluc;utml aft\'r H~>h S..:hool • l ~niw:rsity of 1\·m•:-yh:anit, Philid..4phit, PA. Ra .. ·hdor ,,fAns, Histo~'· (;r~lu.u(Xt l <)6(, • l'niv•.·n.ityofl~nnsylvanit. Phila..klt~ia. t•A, (;r<t<Ju.Ah.' S.:·hool. Hisro~· 1%'"-I'Fl • Rusit~ Ra..~n}\Ut<:l fUr tho:-Plx"'\'io:}\1.' Fiw \'l-:ars • l'uhlk fina~l ~b~"1n<."tlt, ln..--:., tiamshuflt-PA, ~b~t~ lliiX'<.~-.r, 01 iN~'"-OJ ?200.\; l)f~l A.--.'K1 ~an4._~mcm l.l C H.urn.huflt. fl;\, ~bt~in~ lliiX'<.'tot. Pn.~·1u, Ot /200.\-~~ Girard C. Miller, CFA \htr of Birth: I 'lSI • Formal EduGHion aftt'f High Sdmnl • l 'uin-rsiry ofW~shington, S,·,mk, WA, B<Khdor of Am. Pnlitk<tl Econnmk'!\, ( ;r,ldtl<ltt'd I ')'?l • Syntt'UM' Uniwrsity, SyrantSt', NY, t-.-tPA. Cr;lduatt'tl 19'.1 • \X\t~·tw Statt' Uniwrsiry. lktrnit. ML MA, Enmomic,, Cr:tduatetl I<J"<) • Bmint·ss B.t~:kgrouud 1\H tlw Pn·vious Five Yc•m • PFM Asst't M•magt·nwnt IIC. San handscu, CA. St·nim Smm1\i>L tr''!200H ~ Pn·snn • t;uwrnuwut Armunting Standards Boanl. Norwalk. CL Bn;ml t\kmht·t<, IF!.WO'""-07/200H • ( :atilkatinm • ( ~hancn'tl Finand;~l An.tlyst. An t·xpl;tniltion of tlw minimum qua!Hkations fl't)Uin'tl for thi,. tk>ign.uinn is pmvidnl ;H tlw nmdusiou nf thh Itt' IlL Kenneth R. Schiebel, CFA Yt-;u of Hirth: l'>'i<J • Formal EdtK<Hion •tftt•r High School • l 'nivcrsity of Mkhigan, Ann Arhor, MI. Badwlnr of Arts, t\btht•m;\ttt'\ & ( :mnplltt'f Scknn~. t ;ntduatt'tl I ')R I • Busincs> Hackgmund f(n tlw Pn·vious Fivt' Yeat'\ • PF~I Asst't tvi.ttmgt'mt'nt l.LC I Puhlit" finundall\'bna~~·nwnt, Inc, Harrhhuret, PA, l\hn.t~in~ Difl'Ctor, 01119')4 ~~. l'n·~t'nt • ( :ntitlcatinns • Ch,utt'fl'tl FinatKi,tl Analy~t. An c'xphm;uinn nf th~.· minimum qualifkatiom n-quin'tl ti:w this ~.bignation i~ prtwidt'tl <lt dw cnndusion of this ltc·m, John S. Spagnola Yc·;~r of Hirth: 19'i' • fonn.1l E.:hat"tion aftn Hi~h Sdaool • Yak l 'nivt'l'\ity. f'.:t·w Ha\'t'tl, CT l~ .. ~hdor of Arts. Politk"l S .. :icntx', Cr<~duattxl I ')80 • Husitws.~ B.tt.'kground for tht' Pn·vious Fh>t· Yt\lfS • PfM As.\c't ~hna~'mt"m LLC Philatldphia, PA, ManJging Dim·tm, 01#100,~-1~-s('m lJpdalltd as ol10t11Y11 ·~ ~ STRUCTURED PRODUCTS Michael W. Harris y,\lf of Birth: 1')6'3 • FnrnMI EdtK<Hlon .lfln Hi~-th Sdwol • t 1niv~·r>ity nf Pnwsylvanla, Philaddphi,l, PA, Radwlor of Am, h·om1mks & Political Scit·tK<'< ( ;raduatnl l')HH • Busim·ss Bat'k~round t\1r the Pn·viou~ Fiw Ynm • PFM Ass<:t ManJp,t<nwnt II<' I Public Fimmdal Mana!-!~·nwm, Inc. H.mbhurg, PA, Managing Dil'l:x·mr, IOII9!N ·· Prt'St'lll Martin P. Margolis Yt'<H of Hirth: I 944 • Formal Educmion .tftt•r High SdHml • Univnsity of Pnmsylvania, Phihlddphia, PA Badwlor of Am, History. ( ;raduatt-d I ')66 • l1niwrsity uf Pt·nmylv:mi<~. Philaddphia, PA, ( ;mduatt' Schon!. Hi\tmy 196 7' -19"2 • l~usitwss Background f\)r tlw Pl\·vious fiw 'ihtr> • Jluhlk Hnand,1l M;ma~-tt•nwnt, Inc, H;mishuf'R, PA, Mana~-ting Dil'l:-cmr, 01!1987'-01120().~; PfM :h~t·t l\ttnagcnwut IJ C Harrhhuf!-t. PA. M.-tMging Din'Ctor, Pn;sidnn, OJ!lOOj-Prt--st·nt Andrew G. McKendrick y,.,u nfHirth: 1%? • Formal Educ.uinn .thn Hi~-th St·hool • 1\:al.tm.voo Colk<gt', 1\:ahunatoo, Ml, BadwJor of An\, h"onomit\\, (;mtlu•U~'I.I JI)SH • Uu~in,,~~ 1\,Kk~munJ fi1r tlw Pn·vinus Five Yt\ll> • PFM A~sct Managt'nwm U {' I Puhlk financial M.1na~·nwm. Inc, Philaddphia, PA, St·nior ~tanaginlt Cunsult;mt. 0:\!200,1-0112008: Man.-tging ()inx"tnf, OlllOOS l~·st'nt Jeffrey M. Pearsall \'c.u nf 1\iNh: 1961 • hmu;~l hhK.-ttion .-ftn High School • :--:mrhwt~ltTt\ l 'niwrsity, Evanswn, IL &~Jwlor of Art~, fx:xmomie., <.;r-adu.Ut'\1 I 98,~ • l~niwr>itv uf< ~hi<'.t~•u, Chit-ag(), IL MBA, Finan~:.'<.', (;r;~duat<.XI 11)8? • Hus.int-<s' H.K~mund filr tht• Pn·viom fiw· \br> • PFM As.,t't M.-tn•w·mcm 11C /l'uhlic fin.tnci;tl Managt'nwm, Inc, l~iladdphia, PA, Managing ()inYtor, 0811999 -l'n'St'lll Kenneth R. Schiebel, CFA \~·u nf Hirth: I ')')9 • hmnal EdtKatio:m at1cr High Sl"hool • t 'ni\'\'r>ity of ~fi-.iligan, Ann Arhor, ML ~ildor of Art\, M.uhcm<ltK~ & Coml'ltlln St'ict~tx', Cr.«htat<.XI 19S I • l\u).IUt'\.' 1\.t~;:k~rmmJ "\f tflt' llrt-viotts Fivc \ ~ar> • I'FM :h"'-1 Man~'('nwm U (: 1\rhlio:: hnat'lti<~l Ma~~n\On, In<-' ... H.uri~u-g. PA, }.bn~in~ ninxmr. 0 I u 19?1 ·-~'Ill • ( :.C.rtifi..-ation~ • Chan<:n-..1 Fin.lt'ltial AtUJ~'l>t, An c\pi<An.uinn of tilt-minimum qwlifl<."--ti<-m:<. requinxl kM' thi$ ~~~n..ttiotl ~ pt'<wld<xt ..tl dw ,-ondusiou of thi~ h~'fn. PF\1 ""'""" :\.l~>ent I.U:: CERTIFICATES OF DEPOSIT/ FIXED RATE INVESTMENTS Francis X. Sullivan Yt-.u· of Birth: 1 ')4H • Form,1l Education ;\ftt•r High Sd1ool • St, John's l'niwr~ity, NY, Am·ntkd 09/1%"1 ~ 0611966 • Busitws\ B.Kkground ltH tlw Prt·vious Hw Yt•af\ • PFM Asst'l M;lllJ!,(Ullt'l\f II C Long hland, 1\:Y, Managing Dirn.'!Uf, 02!2004 -Prnt'nt SUMMARY OF PROFESSIONAL DESIGNATIONS This Summary should assist you with t'\\lluating th~:· pmft<ssiom1l dt"Signations and dw minimum rt"'juin·nwms tiMt •m individu,ll llHI\1 mn't in ordt•r 10 hold thh tksignatinn, CFA -Chartered Financial Analyst rhis tksigtHHion is issUt'd hy tlw CFA lnstitutt' (W\Vw,d:,imtinno:·,org), A C'.llldidat~· must llll't'l lllll' qf tlw following prno:'tJUisitt·s in nnkr tn partidp;m· in tht' CFA program: ll Haw uhtaitwd an umkrgraduatt' tkgn·e and hJvt' 4 )'\\If\ of pmf(.ssion,,lt'Xpt·rk'tKt' involving inwstnKut dt't:isinn-making; or 2) Ha\'1:' 4 )'t'ilf\ nft\1ll-rinw qualiftt'tl work t'Xpait'lll.'<\ whkh dm·s not h.1w tn llt'Ct'sS;Irily ht< im't'stmt'nt n·lat~:'tL Tht< t'tlw.~.uionJl rt'\juin·mt'nts that must ht' nunpkrt:J involw 2'\0 hours \lf ~tudv l(lr t'<Kh of tlw j lt'\'l:'ls, ;md th~.·n· ;~n· .~ l.'tnlf\t' t'Xams. Tlwrt" ;~n' no cominuin~ t'<lut<niun n·quin·nwms, s Disciplinary Information Item 3 ![there are legal or disciplinary events material to your evaluation of the supervised person, Item 3 requires us to disclose all material focts regarding those events. A. A criminal or civil action in a domestic, foreign or military court of competent jurisdiction in which the supervised person 1. was convicted of or pled guilty or nolo contendere ("no contest'') to (a) any filony; (b) a misdemeanor that involved investments or an investment-related business, fraud, folse statements or omissions, wrongfid taking of property, bribery, perjury, forgery, counterfoiting, or extortion; or (c) a conspiracy to commit any of these offinses; 2. is the named subject of a pending criminal proceeding that involves an investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfo.iting, extortion, or a conspiracy to commit any of these offinses; 3. was found to h,we been involved in a violation of an investment-related statute or regulation; or 4. was the subject of any order, judgment, or decree permanently or temporarily enjoining, or otherwise limiting, the supervised person from engaging in any investment-related activity, or from violating any investment-related statute, rule, or order. Not applkable. None of the personnel listed in Item 2 abm't' has ever lx't.·n subject to any such criminal or civil action. B. An administrative proceeding before the SEC, any other federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority in which the supervised person 1. was found to have caused an investment-related business to lose its authorization to do business; or 2. was found to have been involved in a violation of an investment-related statute or regul,uion and was the subject of an order by the agency or authority (a) denying, suspending, or revoking the authorization of the supervised person to act in an investment-related business; (b) barring or suspending the supervised persons association with an investment-related business; (c) otherwise significantly limiting the supervised persons investment-related activities; or (d) imposing a civil money penalty of more than $2,500 on the supervised person. Not appll~:.:;tble. Nont' of the personnel listed in hem l above has ever been suhje<.~t to any sm:h administratiw prtx'Ceding. C. A self-regulatory organization (SRO) proceeding in wbich the supervised person 1. was found to hm1e caused an investment-related business to lose its authorization to do business; or 2. U.'as found to hat'e bem im•olved in a violation of the SRO's rules and was: (i} barred or suspended from membership or fiwn association with other members, or u•tzs expelled from membership; (ii) otheru•ise significant~y limited.from itwestment-related actit,ities; or (iii) fined more than $2.500. Not "JlPii\:.·ahle. None of the personnel listed In Item l above has e"~.r been suhj.xt to any su(.:h ~ding by an SRO. L= ~ PF:\1 ,'\.-<Set :O.I~ment UL D. Any other proceeding in which a professional attainment, designation, or license of the supervised person was revoked or suspended because of a violation of rules relating to professional conduct. If the supervised person resigned (or otherwise relinquished his attainment, designation, or license) in anticipation of such a proceeding (and the adviser knows, or should have known, of such resignation or relinquishment), disclose the event. Not applicable. None of the pt~rsonnd listed in ltt·m 2 above has ever het•n subjen to any such suspension or rt·voc:nion . • PE\1 .-\s.wt \1~\el\l U.C Other Business Activities Item 4 A. If the supervised person is actively engaged in any investment-related business or occupation, including if the supervised person is registered, or has an application pending to register, as a broker-dealer, registered representative of a broker-dealer, futures commission merchant ("FCM''), commodity pool operator ("CPO''), commodity trading advisor t'CTA''), or an associated person of an FCM, CPO, or CTA, we are required to disclose this fact and describe the business relationship, if any, between the advisory business and the other business. We havt• a wholly owned subsidiary, PFM Fund Distributors, lm.'. ("PFMFD"), which is a broker-dealer under the Securities Exchange A~.-r of 19.~4 and a member of the I;inancial Industry Regulatory Authority ("FINRA"). PHvlH) servt~s as exclusive distributor of shares of a registt•red investment company and local government invt·stment pools (Poolc.·d Funds) for which we serve as investment adviser and/or administrator and we recdve fees from this arnmgc.~ment. Messrs. Harris, Margolis, SchiebeL Sullivan and Varano are registered representatives of PFMH). • If a relationship between the advisory business and the supervised person's other financial industry activities creates a material conflict of interest with clients, describe the nature of the conflict and generally how you address it. If our dit•nt invests in a Pooled Fund. Wt' disclose this relationship to the client, through our tlrm brochure (the Form ADV: Part 2A) and the offning statement for the Pooled Fund. In addition, if we have an investment advisory arrangemc.·nt with a client to manage a separate account. our invesrmt'nt advisory agreenwnt with the dient provides that if Wt' invest client >lSSc.~rs in a Pooled Fund, we will not take these assets into acnnmt ftu purposes of calculating our ft>es for managing the sep<tr.lte account. • If the superllised person receives commissions, bonuses or other compensation based on tht· sale ofsecurities or other inl!estment products, including as a broker-dealer or registered representative, and including distribution or service ("trail") ftes from the sale of mutual fonds, disclose this fact. If this compensation is not cllSh, explain what type of compensation the supervised person receives. Explain that this practice gives the supervised person an incentive to recommend inl!estment products based on the compensation receizJed, rather than on the client's needs. Our PFMFD registered represent.nives listed in this Brochure Supplement do not ret.-eive commissions, bonuses or other compensation dirt"(.~tly based on the sale of shares in the Pooled Funds. B. If the supervised person is actively engaged in any business or occupation for compensation not discussed in response to Item 4.A, above, and the other business activity or activities proviJe a substantial source of the supervised person's income or involve a substantial amount of the supervised person's time, disclose this foct and describe the nature of thta business. If the other business activities represent less than 10 percent of the supervised person's time and income, you may presume that they are not substantiaL Nont' of our supervi~ persons descri~X'd in this Broc.hure Supplement engages in any otht'r business or otYupation which provid~ •l subst.tmial sourt't' of lJl(.'UIDt' or invoh't"S a suh.~t.:uuial amount of time, • PE\l .-\..-;s.et :\t~..,.., LJ.C Additional Compensation Item 5 If someone who is not a client provides an economic benefit to the supervised person for providing advisory services, generally describe the arrangement. For purposes of this Item, economic benefits include sales awards and other prizes, but do not include the supervised person's regular salary. Any bonus that is based, at least in part, on the number or amount of sales, client referrals, or new accounts should be considered an economic benefit, but other regular bonuses should not. We do not h:wc any armngements in which someone other than a dient provides any et-·onomic benefit to our supervised persons for providing advisory savices. I£:= ~ PF~I .-\s,;.et ~lana~nent Ll.C Supervision Item 6 Explain how you supervise the supervised person, including how you monitor the advice the St1pervised person provides to clients. Provide the name, title and telephone number of the person responsible for supervising the supervised person's advisory activities on behalf of your firm. M:my Margolis as Chief Investment Offkn and President of PFM Asset Management LLC oversees or partidpates in meetings of the commiw .. ·es which develop investment strategies for tht' various types of inwstment advice we offt•r to our dit•nts. The strategies ;md advke developed by these committe-es are the-n marketed to our diems and prospc.·cts by the managing dirt•ctors of our firm and our additional personneL As the Chief Investment Offin·r of the Hrm, Mr. Margolis does not fall under the supervision of any individuaL although he met'ts regularly with the otlu.·r managing dirt'l:.·tors, the Firm's Chie-f Compliance Officer, and the Board of Directors and ofllcers of the Firm ~s parent holding company. Mr. Margolis lll<lY be reached at 71 ? .. B 1.6200. '1 Investment Advisors to the Public Sector Certificates of Insurance • CERTIFICATE OF LIABILITY INSURANCE I DATE (MMIODIYYYY) 1._C~RD 1212/2011 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder In lieu of such endorsement(s). PRODUCER ~~~e~"' Phvllis ~necni1e Frank Crystal & Co., Inc. f..'k0N9., E><t\·212-504-5909 IF~~ Nol:212-742-2091 Financial Square E-MAIL • ~&. .=m 32 Old Slip ADDRESS: New York NY 10005 INSURER(S} AFFORDING COVERAGE NAICII INSURER A :Federal Insurance~ ~0281 INSURED PUBLFI INSURERS: PFM Asset Management LLC INSURERC: Two Logan Square, Suite 1600 INSURERD: 18th and Arch Streets Philadelphia PA 19103 INSURERE: INSURERF: COVERAGES CERTIFICATE NUMBER: 253649408 REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTVI/ITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT \MTH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR TYPE OF INSURANCE INSR ~~il~ ,:3~%"~, LIMITS LTR YND POUCY NUMBER GENERAL LIABILITY EACH OCCURRENCE $ r--~~~~~~~0E~~~~ncel r--5MMERCIAL GENERAL LIABILITY $ r--CLAIMS-MADE D OCCUR MED EXP (Any one pen;on) $ r--PERSONAL & MJV INJURY $ r--GENERAL AGGREGATE $ GEN'L AGGREGATE LIMIT APPLIES PER: PRODUCrS-COMPIOP AGG $ ~ POLICYl=-r~~ n LOC $ AUTOMOBILE LIABILITY i'E~'::~\d~~tfiN\>Lt LIMII $ - ANY AUTO BODILY INJURY (Per person) $ -ALLOWNEO -SCHEDULED AUTOS AUTOS BODILY INJURY (Per accident) $ --NON-OWNED t~.?.::~d"Z.t?AMAGE HIRED AUTOS AUTOS $ -- $ UMBRELLA LIAB HOCCUR EACH OCCURRENCE $ -EXCESSLIAB CLAIMS-MADE AGGREGATE $ OED I I RETENTION$ $ WORKERS COMPENSATION I T~~If'JI¥s I I OJ~-AND EMPLOYERS' LIABILITY Y/N ANY PROPRIETOR/PARTNER/EXECUTIVE D NIA E.L. EACH ACCIDENT $ OFFICER/MEMBER EXCLUDED? (Mandatory In NH) E.L. DISEASE-EA EMPLOYEE $ ~~'1;~~3~ ~~~PERA TIONS below E.L. DISEASE-POLICY LIMIT $ A Financial lnstitulion Bond 81470605 11/30/2011 1130/2012 $10,000,000 DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (Attach ACORD 101, Additional Remarks Schedule, If more space is required) Evidence of Coverage Only CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN To Whom It May Concern ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE '\-~~a&iQc.,~ .. I ® 1988-2010 ACORD CORPORATION. All nghts reserved. ACORD 25 (2010/05) The ACORD name and logo are registered marks of ACORD CERTIFICATE OF LIABILITY INSURANCE I DATE (MM/DDIYYYY) 11/23/2011 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER ~~~~~<.; ~Jo~::-212-344-2444 --------__ 1 ifiK,NoJ:212-S09-1292 Frank Crystal & Co , Inc. Financial Square 32 Old Slip New York NY 10005 INSURED PFM Asset Management LLC Two Logan Square, Suite 1600 18th and Arch Streets Philadelphia PA 19103 COVERAGES PUBLFI CERTIFICATE NUMBER· 570414208 E-MAIL -------- ~I;:SS: ___ ____ ___ _ __ _ 1-----___ lNSURER(Sl AFFORDING COVERAGE INSURER A :GrA~t NnrthArn Ins. r.n. ~ER B :Federal Insurance Compam'---- ~RERC: __ ~~ e-"'1-~IJRER E: _ INSURER F: REVISION NUMBER NAIC# ~0303 f0281 I _ ___ l_- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS. EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. 1~M i -TYPE OF I;SURANCE ~~~~ ~~ POLICY NUMBER ~~~~)5g~, . l~g~g~,-r-------~~~ITS --- A 1 G_EONERALLIABILITY 1 /35363950 111/30/2011 r113012012 , EACH OCCURRENCE _ --~1.0;Q_O.O_QQ_ ____ _ f;;X ! 1. DAMAGE TO RENTED ' COMMERCIAL GENERAL LIABILITY PREMISES (Ea occurrencej $1,000,000 ______ _ B B --, -~ """'~"' !'-ooc"' I I ""'"0""oo"'""' , -S_1_(l,_Q____-OO _ _ PERSONAL & ADV INJURY . $1,000,000 -~ __ ---__ --_ -----~--_-_--_ GENERAL AGG~G~~-E =:p;~o~.~OO =---_ GEN'L AGGREGATE LIMIT APPLIES PER PRODUCTS-COMP/OPAGG I $Included Xl POLICY ll j[BT :1 LOC I r---------~ $ AuToMoBILE LIABILITY 1 1 73248555 :1113012o11 1113012o12 ~~·demriNG~E LIMI _---fs1.ooo.ooo ANY AUTO J I Y INJURY (Per person) $ --ALL OWNED ~ SCHEDULED I n=-r-AUTOS AUTOS I I BODILY INJURY (Per aCCident) $ NON-OWNED I PROPERTY DAMAGE $---HIRED AUTOS ____ AUTOS (Per acc1den!) __ _ __ _ __ _ i I $ :79774080 11/30/2011 EACH OCCURRENCE ' $10,000,000 -- ___ r 1/30/2012 I i ~ UMBRELLA LIAB 2<---1 OCCUR EXCESS LIAB _ ____j__JCLAJ~§~M~ 1 I OED I I RETENTION$ ' ~-GG-RE_G_A_T~E~=---------1 $_10,000 OOD_ ---- $ A I WORKERS COMPENSATION 71739979 1/1/2012 r/1/2013 X I T\~~Ii'Jihl OJ~----AND EMPLOYERS" LIABILITY Y/N ANY PROPRIETOR/PARTNER/EXECUTIVE D OFFICER/MEMBER EXCLUDED? i (Mandatory In NH) 1 If yes, describe under DESCRIPTION OF OPERATIONS below N/A I ~ACH ACCIDENT ____ S1,000,00Q:-~ =--_ i I ~SE~jO-EA EMPLOYE~ $1,000,000 _____ _ i E.L. DISEASE-POLICY LIMIT I $1,000,000 I i DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) Evidence of coverage only CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN PFM Asset Management LLC ACCORDANCE WITH THE POLICY PROVISIONS. Two Logan Square, Suite 1600 18th and Arch Streets AUTHORIZED REPRESENTATIVE Philadelphia PA 19103 '\.~~.s\1 to.,~. I © 1988-2010 ACORD CORPORATION. All nghts reserved. ACORD 25 (2010/05) The ACORD name and logo are registered marks of ACORD ~ I DATE (MMIDDIYYYYJ ACORD8 CERTIFICATE OF LIABILITY INSURANCE \. --~ 11/22/2011 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CQI•<&TRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER CON"fAC' Frank Crystal & Co., Inc. ~--------. -· --------·---. PHONE . ~N<>l2_12_-509-12__92 _ Financial Square ~Exti:212-344-24<H_ --. ----E-MAIL 32 Old Slip ~ESS: __ -· ----------- --· --· - New York NY 10005 f-------INSURER(SJ AFFORDING COVERAGE ---·-NAIC# -----------------------------------INSURER A :Indian Harbor Insurance Co. 36940 INSURED ~URERB:__ -----· ---------------1 PFM Asset Management LLC I INSURERC: ---------·--------t - Two Logan Square, Suite 1600 18th and Arch Streets ~SURERQ_:__ ----··--------·---------· --- Philadelphia PA 19103 INSURER E: -----------------·--- INSURER F: COVERAGES CERTIFICATE NUMBER· 1089720703 REVISION NUMBER- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. ~ ··----------------...,.."""....., .... --------1~M TYPE OF INSURANCE ~~~i~~~: GENERAL LIABILITY r -~_COMMERCIAL GENERAL LIABILITY !__ I CLAIMS-MADE II OCCUR I ~ ------------I GEN L A~GREGA :;;L;MIT APPL~ES PER -1 r I POLICY ·~ jr8-r -~l-LOC ~U~OMOBILE LIABILITY i ANY AUTO -ALL OWNED SCHEDULED . NON-OWNED . =1 AUTOS __ AUTOS _ 1 HIRED AUTOS ! -~AUTOS ~ UMBRELLA LIAB ~ _ _j OCCUR I EXCESS LIAB -~· ~ CLAIMS:M~ : OED I RETENTION$ WORKERS COMPENSATION I 1 AND EMPLOYERS' LIABILITY YIN I : ANY PROPRIETOR/PARTNER/EXECUTIVE D ' N I A OFFICER/MEMBER EXCLUDED? I (Mandatory in NHI 1 If yes. describe under DESCRIPTION OF OPERATIONS below A II Professional Liability I i I I POLICY NUMBER I I IELU12366311 . ------------------- ! 1&~M8~1 ~~~~)clg~l LIMITS I i 11/30/2011 I ! I 1 1/30/2012 i ! EACH OCCURRENCE $ rGGR~~TE _____ =---t: -~-------_ VVC STAT\!:. / ! OTH-· TORY LIMli.::il___ EB___ __ __ E~CH ACCIDENT $ ----------------------- ~-DISEASE-~A EMPLO~ __ / E L DISEASE-POLICY LIMIT j $ 1 Limit of Liability $15,000,000 I i DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) Evidence of Coverage only. The Professional Liability Policy is non-cancelable by the Insurer except for non-payment of premium CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN PFM Asset Management LLC ACCORDANCE WITH THE POLICY PROVISIONS. Two Logan Square, Suite 1600 18th and Arch Streets AUTHORIZED REPRESENTATIVE Philadelphia PA 19103 ~~~.s\1 ~.,~. © 1988-2010 ACORD CORPORATION. All nghts reserved. ACORD 25 (2010/05) The ACORD name and logo are registered marks of ACORD M Investment Advisors to the Public Sector Resumes Investment Advisors to the Public Sector PORTFOLIO STRATEGY AND MANAGEMENT Kenneth M. Schiebel, CF A, Managing Director, Head of Portfolio Strategy Group Mr. Schiebel is a Managing Director of PFM Asset Ivlanagement LLC and heads PFM's Portfolio Strategy Group. fIe is also a member of PFM's Investment Committee and Credit Committee as well as the company's Technology Committee. 1\lr. Schiebel leads a team of quantitative and research analysts that support the ftrm's portfolio management and trading activities. He pre\'iously managed PFM's separate account business-$20 billion of assets in indi,,idually managed portfolios for cities, counties, insurance and self-insurance organizations, school districts, state and local government agencies, airports, public ftnance authorities, universities, foundations and trusts. These assets include operating funds, surplus funds, bond proceeds, self-insurance reserves and retiree beneftt funds. Mr. Schiebel remains closely involved in all portfolio management activities of the fum by developing strategies, evaluating investment alternatives, conducting and disseminating internal and external research, and making asset allocation decisions. He is also responsible for developing and executing trading strategies for PFM's Structured Products Group, particularly those for complex refunding escrows. Mr. Schiebel has 30 years experience in portfolio management, investment analysis, asset/liability matching and developing innovative investment strategies for clients. Mr. Schiebel is an expert in risk management techniques, IRS arbitrage regulations and all facets of the ftxed-income marketplace. Using his background in insurance and actuarial analysis, Mr. Schiebel developed PFM's specialty in managing insurance assets, establishing PFM as a leading manager of self-insurance funds in the United States with over $2 billion under management. Prior to joining PFM in 1994, Mr. Schiebel spent 13 years at Aetna Life & Casualty, the large multi-line insurance and ftnancial services company. As Senior Portfolio Manager, he managed $5 billion of corporate operating funds, insurance reserves and pension fund assets for Aetna and its investment advisory clients. He was also responsible for managing Aetna's short-term debt issuance. Prior positions included Manager of Fixed-Income Investment Research, Senior Investment Analyst and Head of Aetna's Cash Planning Cnit. Mr. Schiebel has a degree in mathematics and computer science from the University of Michigan. He has done post-graduate work in behavioral ftnance at the Harvard Cniversity Kennedy School of Government. He holds the Chartered Financial Analyst designation, is a member of the CFA Institute and is a General Securities Registered Representative holding NASD Series 7 and 63 registrations. Mr. Schiebel has been a guest lecturer in the University of Connecticut's MBA program, provided expert testimony to the GASB Deposit and Investment Risk Disclosure Task Force and has been a key speaker at numerous industry conferences, workshops and seminars. FINRA Exams: Series 6 & 63 Joseph Creason, Portfolio Manager Joseph Creason is a Portfolio Manager for PFM Asset Management, LLC. Mr. Creason joined the ftrm in 2000 in the ftrm's Harrisburg offtce. Mr. Creason supports the ftrm's trading desk in the management of over $40 Billion of assets. Mr. Creason's responsibilities involve the management of over $8 Billion in assets, developing customized strategies for client operating funds and bond proceeds accounts. Mr. Creason focuses on the ftrms total return clients and is an expert in the government investment codes in various states. Mr. Creason is the firm's lead analyst for callable Federal Agency securities and also participates on the credit committee for PFMAM. Mr. Creason is also actively involved in the development and implementation of portfolio strategies across the firms actively managed separate accounts. In addition to his work managing separate Investment Advisors to the Public Sector accounts, Mr. Creason is actively involved in the development and execution of the escrow transactions of PFM's Structured Products Group. Joseph earned Bachelor of Arts in Business Administration degrees in Economics and Finance from Shippensburg University in May of :WOO. rv1r. Creason is currently a Level II Candidate in the CFA Program. Meredith LaBuda, Portfolio Trader J\1eredith LaBuda joined PFM Asset Management, LLC, as a Portfolio Trader in 2011. Ms. LaBuda manages client accounts across the country specializing in high quality fLxed-income assets. Her responsibilities include the management of approximately $9 billion in client assets, and assisting Portfolio Managers in developing and executing customized strategies for separate portfolios. In addition to her work supporting the firm's trading desk, she also is involved in the execution of escrow transactions of PFM's Structured Products Group, and recently assumed responsibility as lead analyst for Federal Agency securities. Meredith graduated from Temple University with a B.S in Finance and a minor in Business Law. She currently is a CFA LeYel I candidate. CLIENT SERVICE Nancy Jones, Managing Director, Head California Investment Management Group Nancy Jones joined PFM in January 1989. A Managing Director in our San Francisco offlce, she is responsible for investment advisory services for selected accounts in the Mid-\X'est and \X'estem Regions. In August of 2001, Ms. Jones became an employee of PFM Asset Management LLC, an investment advisory firm owned by the shareholders of Public Financial Management, Inc. Ms. Jones is the client liaison for all municipal investment portfolios in the \X'estern Region. She works with each client to develop a customized investment policy that meets the particular needs of that public agency. She has conducted numerous workshops and seminars for clients' staff and board members on such subjects as permitted investments, developing investment policies and internal controls, and oversight to ensure safety of principal invested. She is invited frequently to make presentations to annual conferences for public agencies' financial officials. Ms. Jones has oyer 25 years experience working with public agency clients throughout the mid-western and western states. Before joining PFM, Ms. Jones worked as Vice-President in the Trading and Investment Group of W'ells Fargo Bank selling fixed income securities to public agencies and other institutional customers in the western states. For 10 years before joining \X'ells Fargo, Ms. Jones worked for Crocker National Bank, most recently as Vice-President in the Capital Markets Division, responsible for business development and account relationship management in the California public sector. Before that she managed the commercial banking unit responsible for the development of new liability products and services for institutional customers. Ms. Jones is a Phi Beta Kappa graduate of the University of California, Berkeley, and attended business school at San Francisco State University. She is a member of the California Association of County Treasurers and Tax Collectors, the California Municipal Treasurers Association, the California Society of Municipal Finance Officers and the California Association of Joint Powers Authorities. FINRA Exams: Series 7 Investment Advisors to the Public Sector Sarah Meacham, Senior Managing Consultant Sarah Meacham joined PFl\1 Asset Management LLC in ::2005 and is currently a Senior Managing Consultant in the western region asset management practice. In her current capacity, I\1s. Meacham manages client relationships for public agency clients located throughout California. Ms. Meacham helps cities, counties, special districts and self insurance authorities with theu investment needs. Her responsibilities also include providing a range of investment advisory and consulting services, developing investment policies, and monitoring guidelines and strategy implementation. Ms. Meacham also provides clients with training, technical, and analytical support with respect to their investment portfolios. Sarah is a graduate of Smith College, where she earned a Bachelor of Arts degree in Economics and Mathematics. FINRA Exams: Series 6 and 63 ACCOUNTING AND REPORTING DehraJ. Goodnight, CPA, Managing Director Debra Goodnight, CPA, has overall responsibility for accounting and administration for PFM, including portfolio accounting, pool accounting, and client billing. She monitors the integrity of the portfolio accounting systems, verifying the mathematical accuracy of interest accruals and analytic information. She is responsible for verification of accounting compliance with the Government Accounting Standards Board's regulations and guidelines. She monitors the pool reporting requirements to ensure that they adhere to SEC guidelines. She regularly confers with independent accounting fums on behalf of clients. Prior to joining the PFM Group in 1990, Debra spent 9 years with American General Corporation. As Second Vice President and Assistant Controller, she was responsible for investment accounting operations for portfolios totaling approximately $19 billion. During her tenure, American General's investment accounting operations were able to reduce the failed trade rate to one-fourth the industry standard, dramatically reduce income \'ariances, thereby eliminating lost income opportunities, and develop and install a mortgage-backed processing system on a local area network. Prior to joining American General, Debra was also employed with the Controller's Department of H.J. Heinz and the accounting firm of Coopers and Lybrand. Debra holds a B.S. Degree in accounting from Robert Morris College, and a M.B.A. with an emphasis on fmance from St. Thomas Cniversity. She is a Certified Public Accountant licensed in both Pennsylvania and Texas and has taught management courses at the collegiate level. Debra has served on the Advisory Board for Information Systems of America, Inc., providing investment industry direction of their software development. Debra was on the Technical Advisory Committee for GASB ..:J.O. FINRA Exams: Series 6, 26, 28, 52, 53 & 63 . \1 Investment Advisors to the Public Sector List of Approved Broker/Dealers * Barclays Capital, Inc. * BNP Paribas Securities Corp. t Cabrera Capital Markets, LLC * Cantor Fitzgerald & Co. t CastleOak Securities * Citigroup Global Markets, Inc. t C.L. King & Associates, Inc. * Credit Suisse Securities (USA) LLC * Deutsche Bank Securities, Inc. Fifth Third Securities, Inc. FTN Financial G.X. Clarke & Co. * Goldman, Sachs & Co. * HSBC Securities (USA) Inc. * Jefferies & Company, Inc. * J.P. Morgan Securities LLC Keybanc Capital Markets t Loop Capital Markets LLC PFM Asset Management LLC Approved Broker/Dealer List Third Quarter 2012 Mesirow Financial, Inc. * Mizuho Securities USA, Inc. Morgan Keegan & Co. * Morgan Stanley & Co., Inc. t Muriel Siebert & Co., Inc. * Nomura Securities USA, Inc. t Siebert Branford Shank & Co., LLC * SG Americas Securities, LLC Southwest Securities Inc. * RBC Capital Markets, LLC. * RBS Securities, Inc. Stifel, Nicolaus & Company, Incorporated Susquehanna Financial Group, LP TO Securities (USA) LLC t The Williams Capital Group, LP * UBS Securities, LLC USB Bancorp Investments, Inc. Wells Fargo Securities, LLC * Merrill Lynch, Pierce, Fenner & Smith Inc. * Primary Government Securities Dealer t A4inority or woman owned business enterprise ,'1/ote: Direct issuers o.fCP and CDs are considered to be approved counterparties if approved as an issuer. Important Di5cloyures This list is current as of the effective date only and is subject to change without notice. This hst isfor informational purposes only, and may not be relied upon for any other purpose. The list does not imply counterparty approvalfor deriviatives of any type. This il'?formation is confidential and may not be distributed without prior written consent of PFA1 Asset Management LLC. PFM Asset Management LLC \l Investment Advisors to the Public Sector Sample Monthly and Quarterly Reports T~·e11doa.tres This statement is for general infonmation purpose s o n l y a n d i s n o t intended to provide specific advice or recommend a t i o n s . P F M A s s e t Management LLC ("PFM") is an investment advis o r r e g i s t e r e d w i t h t h e Securities and Exchange Commission. and is req u i r e d t o m a i n t a i n a written disclosure statement of our background an d b u s i n e s s e x p e r i e n c e . If you would like to receive a copy of our current d i s c l o s u r e s t a t e m e n t . please contact Service Operations at the address b e l o w . Proxy Voting PFM does not normally receive prox i e s t o v o t e o n b e h a l f o f its clients. However. it does on occasion receive c o n s e n t r e q u e s t s . I n t h e event a consent request is received the portfolio m a n a g e r c o n t a c t s t h e client and then proceeds according to their instruc t i o n s . P F M ' s P r o x y Voting Policy is available upon request by contacti n g S e r v i c e O p e r a t i o n s at the address below. Questions About an Account PFM's monthly stat e m e n t i s i n t e n d e d t o detail our investment advisory activity as well as t h e a c t i v i t y o f a n y accounts held by clients in pools that are manage d b y P F M . T h e c u s t o d i a n bank maintains the control of assets and execute s ( i . e . , s e t t l e s ) a l l investment transactions. The custodian statement i s t h e o f f i c i a l r e c o r d o f security and cash holdings and transactions. PFM r e c o g n i z e s t h a t c l i e n t s may use these reports to facilitate record keeping; t h e r e f o r e t h e c u s t o d i a n bank statement and the PFM statement should be r e c o n c i l e d a n d differences resolved. Many custodians use a settl e m e n t d a t e b a s i s w h i c h may resu~ in the need to reconcile due to a timing d i f f e r e n c e . Account Control PFM does not have the authorit y t o w i t h d r a w f u n d s f r o m or deposit funds to the custodian. Our clients retai n r e s p o n s i b i l i t y f o r t h e i r internal accounting policies; implementing and enf o r c i n g i n t e r n a l c o n t r o l s and generating ledger entries or otherwise recordi n g t r a n s a c t i o n s . Market Value Generally, PFM's market prices are d e r i v e d f r o m c l o s i n g b i d prices as of the last business day of the month as s u p p l i e d b y I n t e r a c t i v e Data, Bloomberg or Telerate. Where prices are no t a v a i l a b l e f r o m generally recognized sources the securrties are pr i c e d u s i n g a y i e l d - b a s e d matrix system to arrive at an estimated market val u e . P r i c e s t h a t f a l l between data points are interpolated. Non-negoti a b l e F D I C - i n s u r e d b a n k certificates of deposit are priced at par. Mhough P F M b e l i e v e s t h e p r i c e s to be reliable, the values of the securities do not a l w a y s r e p r e s e n t t h e prices at which the securities could have been bo u g h t o r s o l d . E x p l a n a t i o n of the valuation methods for money market and T E R M f u n d s i s c o n t a i n e d in the appropriate fund information statement. Amortized Cost The original cost of the principal o f t h e s e c u r i t y i s adjusted for the amount of the periodic reduction o f a n y d i s c o u n t o r premium from the purchase date until the date of t h e r e p o r t . D i s c o u n t o r premium with respect to short tenm securities (tho s e w i t h l e s s t h a n o n e year to maturrty at time of issuance) is amortized o n a s t r a i g h t l i n e b a s i s Such discount or premium wrth respect to longer t e n m s e c u r i t i e s i s amortized using the constant yield basis. I m p o r t a n t D i s c l o s u r e s T a x R e p o r t i n g C o s t d a t a a n d r e a l i z e d g a i n s / l o s s e s a r e p r o v i d e d f o r i n f o n m a t i o n a l p u r p o s e s o n l y . P l e a s e r e v i e w f o r a c c u r a c y a n d c o n s u ~ y o u r t a x a d v i s o r t o d e t e r m i n e t h e t a x c o n s e q u e n c e s o f y o u r s e c u r i t y t r a n s a c t i o n s P F M d o e s n o t r e p o r t s u c h i n f o n m a t i o n t o t h e I R S o r o t h e r t a x i n g a u t h o r r t i e s a n d i s n o t r e s p o n s i b l e f o r t h e a c c u r a c y o f s u c h i n f o r m a t i o n t h a t m a y b e r e q u i r e d t o b e r e p o r t e d t o f e d e r a l , s t a t e o r o t h e r t a x i n g a u t h o r i t i e s . F i n a n c i a l S i t u a t i o n I n o r d e r t o b e t t e r s e r v e y o u , P F M s h o u l d b e p r o m p t l y n o t i f i e d o f a n y m a t e r i a l c h a n g e i n y o u r i n v e s t m e n t o b j e c t i v e o r f i n a n c i a l s i t u a t i o n . C a l l a b l e S e c u r i t i e s S e c u r r t i e s s u b j e c t t o r e d e m p t i o n p r i o r t o m a t u r i t y m a y b e r e d e e m e d i n w h o l e o r i n p a r t b e f o r e m a t u r i t y , w h i c h c o u l d a f f e c t t h e y i e l d r e p r e s e n t e d . P o r t f o l i o T h e s e c u r i t i e s i n t h i s p o r t f o l i o , i n c l u d i n g s h a r e s o f m u t u a l f u n d s . a r e n o t g u a r a n t e e d o r o t h e r w i s e p r o t e c t e d b y P F M , t h e F D I C ( e x c e p t f o r c e r t a i n n o n - n e g o t i a b l e c e r t i f i c a t e s o f d e p o s i t ) o r a n y g o v e r n m e n t a g e n c y . I n v e s t m e n t i n s e c u r i t i e s i n v o l v e s r i s k s , i n c l u d i n g t h e p o s s i b l e l o s s o f t h e a m o u n t i n v e s t e d . R a t i n g I n f o r m a t i o n p r o v i d e d f o r r a t i n g s i s b a s e d u p o n a g o o d f a r t h i n q u i r y o f s e l e c t e d s o u r c e s , b u t r t s a c c u r a c y a n d c o m p l e t e n e s s c a n n o t b e g u a r a n t e e d . S h a r e s o f s o m e m o n e y m a r k e t a n d T E R M f u n d s a r e m a r k e t e d t h r o u g h r e p r e s e n t a t i v e s o f P F M ' s w h o l l y o w n e d s u b s i d i a r y , P F M F u n d D i s t r i b u t o r s . I n c . P F M F u n d D i s t r i b u t o r s , I n c . i s r e g i s t e r e d w i t h t h e S E C a s a b r o k e r / d e a l e r a n d i s a m e m b e r o f t h e F i n a n c i a l I n d u s t r y R e g u l a t o r y A u t h o r i t y ( " F I N R A " ) a n d t h e M u n i c i p a l S e c u r i t i e s R u l e m a k i n g B o a r d ( " M S R B " ) . Y o u m a y r e a c h t h e F I N R A b y c a l l i n g t h e F I N R A R e g u l a t o r P u b l i c D i s c l o s u r e H o t l i n e a t 1 - B B B - 2 8 9 - 9 9 9 9 o r a t t h e F I N R A R e g u l a t i o n I n t e r n e t w e b s i t e a d d r e s s w w w . n a s d . c o m . A b r o c h u r e d e s c r i b i n g t h e F I N R A R e g u l a t i o n P u b l i c D i s c l o s u r e P r o g r a m i s a l s o a v a i l a b l e f r o m t h e F I N R A u p o n r e q u e s t . K e y T e r m s a n d D e f i n i t i o n s D i v i d e n d s o n m o n e y m a r k e t f u n d s c o n s i s t o f i n t e r e s t e a r n e d , p l u s a n y d i s c o u n t r a t a b l y a m o r t i z e d t o t h e d a t e o f m a t u r i t y , p l u s a l l r e a l i z e d g a i n s a n d l o s s e s o n t h e s a l e o f s e c u r i t i e s p r i o r t o m a t u r i t y , l e s s r a t a b l e a m o r t i z a t i o n o f a n y p r e m i u m a n d a l l a c c r u e d e x p e n s e s t o t h e f u n d . D i v i d e n d s a r e a c c r u e d d a i l y a n d m a y b e p a i d e i t h e r m o n t h l y o r q u a r t e r l y . T h e m o n t h l y e a r n i n g s o n t h i s s t a t e m e n t r e p r e s e n t t h e e s t i m a t e d d i v i d e n d a c c r u e d f o r t h e m o n t h f o r a n y p r o g r a m t h a t d i s t r i b u t e s e a r n i n g s o n a q u a r t e r l y b a s i s . T h e r e i s n o g u a r a n t e e t h a t t h e e s t i m a t e d a m o u n t w i l l b e p a i d o n t h e a c t u a l d i s t r i b u t i o n d a t e . C u r r e n t Y i e l d i s t h e n e t c h a n g e , e x c l u s i v e o f c a p i t a l c h a n g e s a n d i n c o m e o t h e r t h a n i n v e s t m e n t i n c o m e , i n t h e v a l u e o f a h y p o t h e t i c a l f u n d a c c o u n t w i t h a b a l a n c e o f o n e s h a r e o v e r t h e s e v e n - d a y b a s e p e r i o d i n c l u d i n g t h e s t a t e m e n t d a t e , e x p r e s s e d a s a p e r c e n t a g e o f t h e v a l u e o f o n e s h a r e ( n o n m a l l y $ 1 . 0 0 p e r s h a r e ) a t t h e b e g i n n i n g o f t h e s e v e n - d a y p e r i o d . T h i s r e s u ~ i n g n e t c h a n g e i n a c c o u n t v a l u e i s t h e n a n n u a l i z e d b y m u ~ i p l y i n g i t b y 3 6 5 a n d d i v i d i n g t h e r e s u l t b y 7 . T h e y i e l d s q u o t e d s h o u l d n o t b e c o n s i d e r e d a r e p r e s e n t a t i o n o f t h e y i e l d o f t h e f u n d i n t h e f u t u r e , s i n c e t h e y i e l d i s n o t f i x e d . A c c o u n t S t a t e m e n t F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A v e r a g e m a t u r i t y r e p r e s e n t s t h e a v e r a g e m a t u r i t y o f a l l s e c u r i t i e s a n d i n v e s t m e n t s o f a p o r t f o l i o , d e t e n m i n e d b y m u l t i p l y i n g t h e p a r o r p r i n c i p a l v a l u e o f e a c h s e c u r i t y o r i n v e s t m e n t b y r t s m a t u r r t y ( d a y s o r y e a r s ) . s u m m i n g t h e p r o d u c t s . a n d d i v i d i n g t h e s u m b y t h e t o t a l p r i n c i p a l v a l u e o f t h e p o r t f o l i o . T h e s t a t e d m a t u r i t y d a t e o f m o r t g a g e b a c k e d o r c a l l a b l e s e c u r i t i e s a r e u s e d i n t h i s s t a t e m e n t . H o w e v e r t h e a c t u a l m a t u r i t y o f t h e s e s e c u r i t i e s c o u l d v a r y d e p e n d i n g o n t h e l e v e l o r p r e p a y m e n t s o n t h e u n d e r l y i n g m o r t g a g e s o r w h e t h e r a c a l l a b l e s e c u r i t y h a s o r i s s t i l l a b l e t o b e c a l l e d . M o n t h l y d i s t r i b u t i o n y i e l d r e p r e s e n t s t h e n e t c h a n g e i n t h e v a l u e o f o n e s h a r e ( n o r m a l l y $ 1 . 0 0 p e r s h a r e ) r e s u l t i n g f r o m a l l d i v i d e n d s d e c l a r e d d u r i n g t h e m o n t h b y a f u n d e x p r e s s e d a s a p e r c e n t a g e o f t h e v a l u e o f o n e s h a r e a t t h e b e g i n n i n g o f t h e m o n t h . T h i s r e s u ~ i n g n e t c h a n g e i s t h e n a n n u a l i z e d b y m u l t i p l y i n g r t b y 3 6 5 a n d d i v i d i n g i t b y t h e n u m b e r o f c a l e n d a r d a y s i n t h e m o n t h . Y T M a t C o s t T h e y i e l d t o m a t u r i t y a t c o s t i s t h e e x p e c t e d r a t e o f r e t u r n , b a s e d o n t h e o r i g i n a l c o s t , t h e a n n u a l i n t e r e s t r e c e i p t s . m a t u r i t y v a l u e a n d t h e t i m e p e r i o d f r o m p u r c h a s e d a t e t o m a t u r i t y , s t a t e d a s a p e r c e n t a g e , o n a n a n n u a l i z e d b a s i s . Y T M a t M a r k e t T h e y i e l d t o m a t u r i t y a t m a r k e t i s t h e r a t e o f r e t u r n , b a s e d o n t h e c u r r e n t m a r k e t v a l u e , t h e a n n u a l i n t e r e s t r e c e i p t s , m a t u r i t y v a l u e a n d t h e t i m e p e r i o d r e m a i n i n g u n t i l m a t u r i t y , s t a t e d a s a p e r c e n t a g e , o n a n a n n u a l i z e d b a s i s . M a n a g e d A c c o u n t A p o r t f o l i o o f i n v e s t m e n t s m a n a g e d d i s c r e t e l y b y P F M a c c o r d i n g t o t h e c l i e n t ' s s p e c i f i c i n v e s t m e n t p o l i c y a n d r e q u i r e m e n t s . T h e i n v e s t m e n t s a r e d i r e c t l y o w n e d b y t h e c l i e n t a n d h e l d b y t h e c l i e n t ' s c u s t o d i a n . U n s e t t l e d T r a d e A t r a d e w h i c h h a s b e e n e x e c u t e d h o w e v e r t h e f i n a l c o n s u m m a t i o n o f t h e s e c u r i t y t r a n s a c t i o n a n d p a y m e n t h a s n o t y e t t a k e n p l a c e . P l e a s e r e v i e w t h e d e t a i l p a g e s o f t h i s s t a t e m e n t c a r e f u l l y . I f y o u t h i n k y o u r s t a t e m e n t i s w r o n g , m i s s i n g a c c o u n t i n f o n m a t i o n . o r i t y o u n e e d m o r e i n f o r m a t i o n a b o u t a t r a n s a c t i o n , p l e a s e c o n t a c t P F M w i t h i n 6 0 d a y s o f r e c e i p t . I f y o u h a v e o t h e r c o n c e r n s o r q u e s t i o n s r e g a r d i n g y o u r a c c o u n t y o u s h o u l d c o n t a c t a m e m b e r o f y o u r c l i e n t m a n a g e m e n t t e a m o r P F M S e r v i c e O p e r a t i o n s a t t h e a d d r e s s b e l o w . P F M A s s e t M a n a g e m e n t L L C A t t n : S e r v i c e O p e r a t i o n s O n e K e y s t o n e P l a z a . S u r t e 3 0 0 N . F r o n t & M a r k e t S t s H a r r i s b u r g , P A 1 7 1 0 1 C o n s o l i d a t e d S u m m a r y S t a t e m e n t Account O p e n i n g M a r k e t P u r c h a s e s 1 R e d e m p t i o n s I S a l e s / Number Account Name V a l u e D e p o s i t s M a t u r i t i e s 15390107 MUNIQPAL POOLING AUT H O R I T Y 3 0 . 0 1 4 . 9 2 1 . 2 7 3 . 6 8 4 . 6 3 9 . 4 5 ( 3 . 6 8 1 . 5 9 5 . 0 0 ) 15390108 MUNICIPAL POOLING AUT H O R I T Y 7 . 9 6 2 . 5 1 3 . 7 9 1 . 2 5 5 . 6 9 9 . 2 0 ( 1 . 2 8 6 . 6 5 8 . 8 0 ) LONG TERM Total $ 3 7 , 9 7 7 , 4 3 5 . 0 6 $ 4 , 9 4 0 , 3 3 8 . 6 5 { $ 4 , 9 6 8 , 2 5 3 . 8 0 ) Ef_:_l ~ PFM Asset Mana g e m e n t L L C U n s e t t l e d T r a d e s 0 . 0 0 0 . 0 0 $ 0 . 0 0 A c c o u n t S t a t e m e n t F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 C h a n g e i n C l o s i n g M a r k e t C a s h D i v i d e n d s V a l u e V a l u e a n d I n c o m e ( 3 0 . 1 8 3 . 8 6 ) 2 9 . 9 8 7 . 7 8 1 . 8 6 ( 1 1 . 0 1 9 . 9 4 ) ( 9 . 1 0 8 . 0 3 ) 7 . 9 2 2 . 4 4 6 . 1 6 2 0 . 0 7 9 . 0 1 { $ 3 9 , 2 9 1 . 8 9 ) $ 3 7 , 9 1 0 , 2 2 8 . 0 2 $ 9 , 0 5 9 . 0 7 S u m m a r y P a g e 2 M a n a g e d A c c o u n t S u m m a r y S t a t e m e n t F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 Transaction Summary -Managed A c c o u n t C a s h T r a n s a c t i o n s S u m m a r y - M a n a g e d A c c o u n t Opening Market Value $ 3 0 , 0 1 4 , 9 2 1 . 2 7 M a t u r i t i e s / C a l l s 0 . 0 0 Maturities/Calls 0 . 0 0 S a l e P r o c e e d s 3 , 6 9 3 , 1 9 5 . 3 8 Principal Dispositions ( 3 , 6 8 1 , 5 9 5 . 0 0 ) C o u p o n / I n t e r e s t / D i v i d e n d I n c o m e 5 , 5 8 7 . 5 0 Principal Acquisitions 3 , 6 8 4 , 6 3 9 . 4 5 P r i n c i p a l P a y m e n t s 0 . 0 0 Unsettled Trades 0 . 0 0 S e c u r i t y P u r c h a s e s ( 3 , 6 8 9 , 1 8 1 . 6 5 ) Change in Current Value ( 3 0 , 1 8 3 . 8 6 ) N e t C a s h C o n t r i b u t i o n ( 9 , 6 0 1 . 2 3 ) R e c o n c i l i n g T r a n s a c t i o n s 0 . 0 0 Closing Market Value $ 2 9 , 9 8 7 , 7 8 1 . 8 6 Earnings Reconciliation (Cash Ba s i s ) - M a n a g e d A c c o u n t C a s h B a l a n c e Interest/Dividends/Coupons Received 1 7 , 1 8 7 . 8 8 C l o s i n g C a s h B a l a n c e $ 0 . 0 0 Less Purchased Interest Related to Inter e s t / C o u p o n s Plus Net Realized Gains/Losses Total Cash Basis Earninas ( 4 , 5 4 2 . 2 0 ) ( 2 3 , 6 6 5 . 6 2 ) ( $ 1 1 , 0 1 9 . 9 4 ) Earnings Reconciliation (Accrual B a s i s ) T o t a l Ending Amortized Value of Securities Ending Accrued Interest Plus Proceeds from Sales Plus Proceeds of Maturities/Calls/Princip a l P a y m e n t s Plus Coupons/Dividends Received Less Cost of New Purchases Less Beginning Amortized Value of Secu r i t i e s Less Beginning Accrued Interest Total Accrual Basis Earnings ~1 ~ PFM Asset Mana g e m e n t L L C 2 9 , 8 4 1 , 7 4 2 . 3 9 1 3 6 , 3 7 8 . 6 4 3 , 6 9 3 , 1 9 5 . 3 8 0 . 0 0 5 , 5 8 7 . 5 0 ( 3 , 6 8 9 , 1 8 1 . 6 5 ) ( 2 9 , 8 5 2 , 9 3 7 . 6 6 ) ( 1 0 6 , 0 7 3 . 2 6 ) $ 2 8 , 7 1 1 . 3 4 P a g e 1 Security Type/Description Dated Date/Coupon/Maturity C U S I P U.S. Treasury Bond I Note US TREASURY NOTES 9 1 2 8 2 8 L C 2 om 07/31/2009 2.625% 07/31/2014 US TREASURY NOTES 9 1 2 8 2 8 L C 2 om 07/31/2009 2.625%07/31/2014 US TREASURY NOTES 9 1 2 8 2 8 L S 7 om 11/02/2009 2.375% 10/31/2014 US TREASURY NOTES 9 1 2 8 2 8 0 C l om 11/15/2004 4.250% 11/15/2014 US TREASURY NOTES 9 1 2 8 2 8 0 C l om 11/15/2004 4.250% 11/15/2014 US TREASURY NOTES 9 1 2 8 2 8 M H O om 02/01/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 M H O om 02/01/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 M H O om 02/0l/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 0 V 9 om 05/16/2005 4.125%05/15/2015 US TREASURY NOTES 9 1 2 8 2 8 N L O om 06/30/2010 1.875% 06/30/2015 US TREASURY NOTES 9 1 2 8 2 8 N P 1 om 08/02/2010 1.750% 07/31/2015 US TREASURY NOTES 9 1 2 8 2 8 N P 1 om 08/02/2010 1.750% 07/31/2015 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 5 0 0 , 0 0 0 . 0 0 A A + A a a 1 0 / 2 7 / 1 1 9 3 5 . 0 0 0 . 0 0 A A + A a a 1 0 / 2 7 / 1 1 1 . 0 0 0 . 0 0 0 . 0 0 A A + A a a 0 2 / 2 2 / 1 2 9 0 5 . 0 0 0 . 0 0 A A + A a a 0 5 / 2 1 / 1 2 1 . 3 3 9 . 0 0 0 . 0 0 A A + A a a 0 4 / 2 3 / 1 2 5 2 5 . 0 0 0 . 0 0 A A + A a a 0 1 / 2 6 / 1 2 6 5 5 , 0 0 0 . 0 0 A A + A a a 0 1 / 2 3 / 1 2 9 4 5 . 0 0 0 . 0 0 A A + A a a 0 6 / 2 8 / 1 2 1 . 0 7 0 , 0 0 0 . 0 0 A A + A a a 0 7 / 3 0 / 1 2 1 . 1 7 0 . 0 0 0 . 0 0 A A + A a a 0 6 / 2 8 / 1 2 3 5 0 . 0 0 0 . 0 0 A A + A a a 0 8 / 2 1 / 1 2 2 . 2 2 5 . 0 0 0 . 0 0 A A + A a a 0 9 / 0 6 / 1 2 S e t t l e D a t e 1 0 / 3 1 / 1 1 1 0 / 3 1 / 1 1 0 2 / 2 3 / 1 2 0 5 / 2 2 / 1 2 0 4 / 2 4 / 1 2 0 1 / 2 7 / 1 2 0 1 / 2 6 / 1 2 0 6 / 2 9 / 1 2 0 7 / 3 1 / 1 2 0 6 / 2 9 / 1 2 0 8 / 2 3 / 1 2 0 9 / 1 0 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 5 2 9 . 0 4 2 . 9 7 0 . 5 0 9 9 0 . 2 2 3 . 4 4 0 . 4 6 1 . 0 5 2 , 1 4 8 . 4 4 0 . 4 2 9 9 1 . 4 3 4 . 5 7 0 . 3 8 1 . 4 7 1 . 8 5 3 . 9 1 0 . 3 5 5 5 5 . 4 9 5 . 1 2 0 . 3 1 6 9 1 . 2 5 5 . 2 7 0 . 4 0 9 9 0 . 5 1 5 . 0 4 0 . 3 8 1 . 1 8 2 , 7 6 7 . 9 7 0 . 3 3 1 . 2 2 0 . 2 2 7 . 7 3 0 . 4 3 3 6 3 . 6 8 5 . 5 5 0 . 4 1 2 . 3 1 5 , 8 2 5 . 2 0 0 . 3 3 Security Type Sub-Total 1 1 , 6 1 9 , 0 0 0 . 0 0 1 2 , 3 5 4 , 4 7 5 . 2 1 0 . 3 8 Municipal Bond I Note CA ST REV BONDS 1 3 0 6 3 B B 6 8 3 9 0 . 0 0 0 . 0 0 S P - 1 M I G 1 0 8 / 1 7 / 1 2 0 8 / 2 3 / 1 2 3 9 6 . 6 3 3 . 9 0 0 . 4 3 om 08/23/2012 2.500% 06/20/2013 lEi:_! ~ PFM Asset Man a g e m e n t L L C F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 2 . 2 1 1 . 2 8 4 . 1 3 5 . 0 9 9 . 9 3 8 . 8 6 1 4 . 5 2 7 . 9 6 2 1 . 4 9 4 . 9 5 1 . 9 9 0 . 1 5 2 . 4 8 2 . 9 5 3 . 5 8 2 . 2 7 1 6 . 6 7 1 . 5 0 5 . 5 4 3 . 9 9 1 . 0 3 1 . 9 3 6 . 5 6 0 . 1 2 9 0 , 1 7 1 . 0 5 1 . 0 4 1 . 7 8 A m o r t i z e d C o s t 5 1 9 . 3 8 6 . 6 8 9 7 1 . 8 5 6 . 7 5 1 , 0 4 0 . 4 9 3 . 4 8 9 7 8 . 9 8 5 . 6 3 1 . 4 4 9 . 3 1 9 . 2 2 5 4 8 , 6 3 8 . 5 0 6 8 3 , 0 8 6 . 6 4 9 8 6 , 0 2 5 . 0 5 1 . 1 7 5 , 9 9 0 . 3 1 1 . 2 1 5 . 9 7 7 . 7 4 3 6 3 . 1 9 4 . 4 0 2 , 3 1 4 , 0 3 8 . 6 3 1 2 , 2 4 6 , 9 9 3 . 0 3 3 9 5 . 7 7 4 . 3 6 P a g e 4 M a r k e t V a l u e 5 2 1 , 7 5 8 . 0 0 9 7 5 . 6 8 7 . 4 6 1 . 0 4 3 , 8 2 8 . 0 0 9 8 1 . 2 1 8 . 2 0 1 . 4 5 1 . 7 6 9 . 2 4 5 4 9 . 1 1 7 . 4 5 6 8 5 . 0 8 9 . 3 9 9 8 8 . 4 1 1 . 4 1 1 . 1 7 6 . 7 4 9 . 6 2 1 . 2 2 0 . 4 5 6 . 2 5 3 6 4 . 2 1 8 . 7 5 2 . 3 1 5 , 3 9 0 . 6 3 1 2 , 2 7 3 , 6 9 4 . 4 0 3 9 6 . 2 0 1 . 0 0 Security Type/Description Dated Date/Coupon/Maturity Municipal Bond I Note SAN FRANCISCO CITY & CNTY, CA GO BONDS DTD 11/30/2011 5.000% 06/15/2015 Security Type Sub-Total Federal Agency Bond 1 Note FHLB GLOBAL BONDS DTD 05/27/2004 5.250% 06/18/2014 FHLMC NOTES DTD 07/05/20111.000% 08/27/2014 FNMA NOTES DTD 07/18/2011 0.875%08/28/2014 FREDDIE MAC GLOBAL NOTES DTD 08/05/2011 0.750% 09/22/2014 FREDDIE MAC GLOBAL NOTES DTD 08/05/2011 0.750% 09/22/2014 FANNIE MAE GLOBAL NOTES DTD 09/27/2011 0.625% 10/30/2014 FANNIE MAE GLOBAL NOTES DTD 04/19/2012 0.500% 05/27/2015 FNMA NOTES (CALLABLE) DTD 08/07/2012 0.500% 08/07/2015 FREDDIE MAC GLOBAL NOTES DTD 07/11/2012 0.500% 08/28/2015 C U S I P 7 9 7 6 4 6 P V 2 3 1 3 3 X 7 F K 5 3 1 3 7 E A C V 9 3 1 3 5 G O B Y 8 3 1 3 4 G 2 W G 3 3 1 3 4 G 2 W G 3 3 1 3 5 G O D W O 3 1 3 5 G O K M 4 3 1 3 5 G O N G 4 3 1 3 4 G 3 Z A 1 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & . P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 4 3 5 , 0 0 0 . 0 0 A A A a 2 1 1 / 1 0 / 1 1 8 2 5 , 0 0 0 . 0 0 6 5 5 . 0 0 0 . 0 0 A A + A a a 0 8 / 3 0 / 1 1 3 2 0 , 0 0 0 . 0 0 A A + A a a 0 7 / 0 1 / 1 1 3 6 5 . 0 0 0 . 0 0 A A + A a a 0 9 / 2 1 / 1 2 7 4 0 . 0 0 0 . 0 0 A A + A a a 0 9 / 2 8 / 1 1 7 5 0 . 0 0 0 . 0 0 A A + A a a 0 8 / 3 0 / 1 1 1 . 8 9 0 , 0 0 0 . 0 0 A A + A a a 0 5 / 2 4 / 1 2 7 6 0 . 0 0 0 . 0 0 A A + A a a 0 4 / 1 7 / 1 2 1 . 2 0 0 . 0 0 0 . 0 0 A A + A a a 0 8 / 0 2 / 1 2 1 . 2 1 5 . 0 0 0 . 0 0 A A + A a a 0 7 / 3 0 / 1 2 S e t t l e D a t e 1 1 / 3 0 / 1 1 0 8 / 3 1 / 1 1 0 7 / 0 5 / 1 1 0 9 / 2 1 / 1 2 0 9 / 3 0 / 1 1 0 8 / 3 1 / 1 1 0 5 / 2 9 / 1 2 0 4 / 1 9 / 1 2 0 8 / 0 7 / 1 2 0 7 / 3 1 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 4 9 4 . 9 0 3 . 8 5 1 . 0 3 8 9 1 , 5 3 7 . 7 5 0 . 7 6 7 4 1 . 8 7 9 . 2 0 0 . 4 7 3 1 9 . 3 7 9 . 2 0 1 . 0 6 3 6 8 . 8 1 4 . 2 5 0 . 3 3 7 4 1 . 4 8 0 . 0 0 0 . 6 8 7 5 3 . 9 3 0 . 0 0 0 . 5 8 1 . 8 9 6 . 3 2 9 . 6 1 0 . 4 9 7 5 7 . 8 0 3 . 6 0 0 . 5 9 1 . 1 9 9 . 8 8 0 . 0 0 0 . 5 0 1 . 2 1 6 . 4 0 9 . 4 0 0 . 4 6 Security Type Sub-Total 7 , 8 9 5 , 0 0 0 . 0 0 7 , 9 9 5 , 9 0 5 . 2 6 0 . 5 4 Corporate Note IBM CORP GLOBAL NOTES 4 5 9 2 0 0 G W 5 1 . 5 0 0 . 0 0 0 . 0 0 A A - A a 3 0 5 / 0 9 / 1 1 0 5 / 1 2 / 1 1 1 . 4 9 8 . 5 9 0 . 0 0 1 . 2 8 DTD 05/12/20111.250% 05/12/2014 /Ei:_l ~PPM Asset Mana g e m e n t L L C F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 6 . 4 0 4 . 1 7 7 , 4 4 5 . 9 5 9 . 8 3 8 . 6 5 3 0 2 . 2 2 2 9 2 . 7 6 1 3 8 . 7 5 1 4 0 . 6 3 4 . 9 5 4 . 6 9 1 . 3 0 8 . 8 9 9 0 0 . 0 0 5 5 6 . 8 8 1 8 , 4 3 3 . 4 7 7 . 2 3 9 . 5 8 A m o r t i z e d C o s t 4 8 0 . 9 5 1 . 0 0 8 7 6 , 7 2 5 . 3 6 7 0 8 . 3 6 5 . 9 5 3 1 9 . 6 2 0 . 8 3 3 6 8 . 7 5 9 . 6 7 7 4 0 . 9 8 5 . 0 7 7 5 2 . 5 4 5 . 5 9 1 . 8 9 5 . 4 4 7 . 9 6 7 5 8 . 1 1 9 . 0 7 1 . 1 9 9 . 8 8 5 . 9 6 1 . 2 1 6 . 3 3 3 . 1 7 7 , 9 6 0 , 0 6 3 . 2 7 1 . 4 9 9 . 2 3 4 . 9 0 P a g e 5 M a r k e t V a l u e 4 8 8 . 0 5 2 . 6 0 8 8 4 , 2 5 3 . 6 0 7 1 1 . 2 8 9 . 3 9 3 2 4 . 5 0 2 . 4 0 3 6 9 . 0 4 8 . 5 8 7 4 6 . 2 9 0 . 7 4 7 5 6 . 3 7 5 . 7 5 1 . 9 0 2 . 2 5 4 . 7 6 7 6 2 . 3 5 2 . 9 6 1 . 1 9 9 . 2 4 7 . 6 0 1 . 2 1 8 , 5 2 9 . 5 8 7 , 9 8 9 , 8 9 1 . 7 6 1 . 5 2 0 . 6 6 1 . 0 0 Security Type/Description Dated Date/Coupon/Maturity C U S I P Corporate Note PROCTER & GAMBLE CO CORP NOTES 7 4 2 7 1 8 D U O DID 08/15/2011 0.700% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A 5 NOTES DID 08/15/20111.135% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A S NOTES DID 08/15/2011 1.135% 08/15/2014 GENERAL ELEC CAP CORP GLOBAL NOTES 3 6 9 6 2 G 5 M 2 DID 01/09/2012 2.150% 01/09/2015 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 2 5 0 . 0 0 0 . 0 0 A A - A a 3 0 8 / 1 0 / 1 1 7 5 0 . 0 0 0 . 0 0 A A + A a 2 0 8 / 1 0 / 1 1 1 , 0 0 0 . 0 0 0 . 0 0 A A + A a 2 0 7 / 3 0 / 1 2 1 . 1 5 0 . 0 0 0 . 0 0 A A + A 1 0 1 / 0 4 / 1 2 S e t t l e D a t e 0 8 / 1 5 / 1 1 0 8 / 1 5 / 1 1 0 7 / 3 1 / 1 2 0 1 / 0 9 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 2 4 8 . 9 7 2 . 5 0 0 . 8 4 7 5 0 . 0 0 0 . 0 0 0 . 9 8 1 . 0 1 2 . 4 4 0 . 0 0 0 . 5 5 1 . 1 4 8 . 8 0 4 . 0 0 2 . 1 9 Security Type Sub-Total 4 , 6 5 0 , 0 0 0 . 0 0 4 , 6 5 8 , 8 0 6 . 5 0 1 . 2 8 Commercial Paper TOYOTA MOTOR CREDIT CORP COMM PAPER 0.000% 05/17/2013 Security Type Sub-Total Certificate of Deposit STANDARD CHARTERED BANK NY CERT DEPOS DID 09/21/2012 0.650% 03/18/2013 NATIONAL AUSTRALIA BANK NY CERT DEPOS DID 06/19/2012 0.600% 06/19/2013 BANK OF NOVA SCOTIA HOUS (FLOATING) DID 02/10/2012 0.917% 02/10/2014 WESTPAC BANKING CORP NY (FLOAT) CD DID 02/16/2012 1.387% 02/14/2014 8 9 2 3 3 G S H O 8 5 3 2 5 B O V 9 6 3 2 5 3 T P X O 0 6 4 1 7 E Y U 1 9 6 1 2 1 T L T 3 8' PFM Asset Mana g e m e n t L L C 3 0 0 . 0 0 0 . 0 0 A - 1 + 3 0 0 , 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 A - 1 + 1 . 0 0 0 . 0 0 0 . 0 0 A - 1 + 1 . 0 0 0 . 0 0 0 . 0 0 A A - 8 0 0 . 0 0 0 . 0 0 A A - P - 1 0 8 / 2 2 / 1 2 0 8 / 2 3 / 1 2 2 9 8 . 9 5 4 . 2 5 0 . 4 7 2 9 8 , 9 5 4 . 2 5 0 . 4 7 P - 1 0 9 / 1 9 / 1 2 0 9 / 2 1 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 6 5 P - 1 0 6 / 1 5 / 1 2 0 6 / 1 9 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 6 0 A a 1 0 2 / 0 7 / 1 2 0 2 / 1 0 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 9 9 A a 2 0 2 / 1 4 / 1 2 0 2 / 1 6 / 1 2 8 0 0 . 0 0 0 . 0 0 1 . 4 7 F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 2 2 3 . 6 1 1 . 1 1 0 . 8 6 1 . 4 8 1 . 1 5 5 . 6 3 1 . 8 1 1 5 , 6 8 7 . 0 1 0 . 0 0 o . o o 1 8 0 . 5 6 1 . 7 3 3 . 3 3 1 . 2 4 7 . 8 0 1 . 4 7 9 . 4 7 A m o r t i z e d C o s t 2 4 9 . 3 5 5 . 8 1 7 5 0 . 0 0 0 . 0 0 1 . 0 1 1 . 1 7 5 . 7 4 1 . 1 4 9 . 0 8 7 . 2 8 4 , 6 5 8 , 8 5 3 . 7 3 2 9 9 . 1 0 7 . 0 0 2 9 9 , 1 0 7 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 8 0 0 . 0 0 0 . 0 0 P a g e 6 M a r k e t V a l u e 2 5 1 . 5 7 9 . 7 5 7 5 9 . 1 4 5 . 5 0 1 . 0 1 2 . 1 9 4 . 0 0 1 . 1 8 3 . 5 3 7 . 4 5 4 , 7 2 7 , 1 1 7 . 7 0 2 9 9 . 5 3 8 . 0 0 2 9 9 , 5 3 8 . 0 0 1 . 0 0 0 . 0 5 8 . 3 0 1 . 0 0 1 . 7 7 5 . 1 0 1 . 0 0 3 . 2 5 3 . 0 0 8 0 8 . 2 0 0 . 0 0 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 Security Type/Description S l k P M o o d y ' s T r a d e S e t t l e O r i g i n a l Y T M A c c r u e d A m o r t i z e d M a r k e t Dated Date/Coupon/Maturity C U S I P P a r R a t i n g R a t i n g D a t e D a t e C o s t a t C o s t I n t e r e s t C o s t V a l u e Security Type Sub-Total 3 , 8 0 0 , 0 0 0 . 0 0 3 , 8 0 0 , 0 0 0 . 0 0 0 . 9 0 4 , 6 4 1 . 1 6 3 , 8 0 0 , 0 0 0 . 0 0 3 , 8 1 3 , 2 8 6 . 4 0 Managed Account Sub-Total 2 9 , 0 8 9 , 0 0 0 . 0 0 2 9 , 9 9 9 , 6 7 8 . 9 7 0 . 6 4 1 3 6 , 3 7 8 . 6 4 2 9 , 8 4 1 , 7 4 2 . 3 9 2 9 , 9 8 7 , 7 8 1 . 8 6 Securities Sub-Total $ 2 9 , 0 8 9 , 0 0 0 . 0 0 $ 2 9 , 9 9 9 , 6 7 8 . 9 7 0 . 6 4 % $ 1 3 6 , 3 7 8 . 6 4 $ 2 9 , 8 4 1 , 7 4 2 . 3 9 $ 2 9 , 9 8 7 , 7 8 1 . 8 6 Accrued Interest $ 1 3 6 , 3 7 8 . 6 4 Total Investments $ 3 0 , 1 2 4 , 1 6 0 . 5 0 ~~ ~ PFM Asset Mana g e m e n t L L C P a g e 7 Security Type/Description Dated Date/Coupon/Maturity C U S I P U.S. Treasury Bond I Note US "TREASURY NOTES 9 1 2 8 2 8 L C 2 DTD 07/31/2009 2.625% 07/31/2014 US "TREASURY NOTES 9 1 2 8 2 8 L C 2 DTD 07/31/2009 2.625% 07/31/2014 US "TREASURY NOTES 9 1 2 8 2 8 L S 7 DTD 11/02/2009 2.375% 10/31/2014 US "TREASURY NOTES 9 1 2 8 2 8 D C 1 DTD 11/15/2004 4.250% 11/15/2014 US "TREASURY NOTES 9 1 2 8 2 8 D C 1 DTD 11/15/2004 4.250% 11/15/2014 US "TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US "TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US "TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US "TREASURY NOTES 9 1 2 8 2 8 D V 9 DTD 05/16/2005 4.125%05/15/2015 US "TREASURY NOTES 9 1 2 8 2 8 N L O DTD 06/30/2010 1.875% 06/30/2015 US "TREASURY NOTES 9 1 2 8 2 8 N P 1 DTD 08/02/2010 1.7SO% 07/31/2015 US "TREASURY NOTES 9 1 2 8 2 8 N P 1 DTD 08/02/2010 1.750% 07/31/2015 Security Type Sub-Total Municipal Bond I Note CA ST REV BONDS 1 3 0 6 3 B B 6 8 DTD 08/23/2012 2.500% 06/20/2013 SAN FRANCISCO CITY & CNTY, CA GO 7 9 7 6 4 6 P V 2 BONDS DTD 11/30/2011 5.000% 06/15/2015 Security Type Sub-Total M a n a g e d A c c o u n t F a i r M a r k e t V a l u e & A n a l y t i c s P a r B r o k e r 5 0 0 . 0 0 0 . 0 0 a T I G R P 9 3 5 . 0 0 0 . 0 0 C f f i G R P 1 . 0 0 0 . 0 0 0 . 0 0 D E U T S C H E 9 0 5 . 0 0 0 . 0 0 M O R G A N S T 1 . 3 3 9 . 0 0 0 . 0 0 B N P P A R I 5 2 5 . 0 0 0 . 0 0 B N P P A R I 6 5 5 . 0 0 0 . 0 0 R B S _ S E C 9 4 5 . 0 0 0 . 0 0 D E U T S C H E 1 . 0 7 0 , 0 0 0 . 0 0 B N P P A R I 1 . 1 7 0 , 0 0 0 . 0 0 M O R G A N S T 3 5 0 . 0 0 0 . 0 0 M O R G A N S T 2 . 2 2 5 . 0 0 0 . 0 0 M O R G A N S T 1 1 , 6 1 9 , 0 0 0 . 0 0 3 9 0 . 0 0 0 . 0 0 J P M C H A S E 4 3 5 . 0 0 0 . 0 0 M E R R I L L 8 2 5 , 0 0 0 . 0 0 N e x t C a l l M a r k e t D a t e P r i c e 1 0 4 . 3 5 1 0 4 . 3 5 1 0 4 . 3 8 1 0 8 . 4 2 1 0 8 . 4 2 1 0 4 . 5 9 1 0 4 . 5 9 1 0 4 . 5 9 1 0 9 . 9 8 1 0 4 . 3 1 1 0 4 . 0 6 1 0 4 . 0 6 1 0 1 . 5 9 1 1 2 . 2 0 M a r k e t V a l u e 5 2 1 . 7 5 8 . 0 0 9 7 5 . 6 8 7 . 4 6 1 . 0 4 3 . 8 2 8 . 0 0 9 8 1 . 2 1 8 . 2 0 1 . 4 5 1 . 7 6 9 . 2 4 5 4 9 . 1 1 7 . 4 5 6 8 5 . 0 8 9 . 3 9 9 8 8 . 4 1 1 . 4 1 1 . 1 7 6 . 7 4 9 . 6 2 1 . 2 2 0 . 4 5 6 . 2 5 3 6 4 . 2 1 8 . 7 5 2 . 3 1 5 . 3 9 0 . 6 3 1 2 , 2 7 3 , 6 9 4 . 4 0 3 9 6 . 2 0 1 . 0 0 4 8 8 . 0 5 2 . 6 0 8 8 4 , 2 5 3 . 6 0 6' PFM Asset Man a g e m e n t L L C U n r e a l G / L O n C o s t ( 7 . 2 8 4 . 9 7 ) ( 1 4 . 5 3 5 . 9 8 ) ( 8 . 3 2 0 . 4 4 ) ( 1 0 . 2 1 6 . 3 7 ) ( 2 0 . 0 8 4 . 6 7 ) ( 6 . 3 7 7 . 6 7 ) ( 6 . 1 6 5 . 8 8 ) ( 2 . 1 0 3 . 6 3 ) ( 6 . 0 1 8 . 3 5 ) 2 2 8 . 5 2 5 3 3 . 2 0 ( 4 3 4 . 5 7 ) { 8 0 , 7 8 0 . 8 1 ) ( 4 3 2 . 9 0 ) ( 6 . 8 5 1 . 2 5 ) { 7 , 2 8 4 . 1 5 ) F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 U n r e a l G / l E f f e c t i v e D u r a t i o n Y T M A m o r t C o s t D u r a t i o n t o W o r s t a t M k t 2 . 3 7 1 . 3 2 1 . 7 9 1 . 7 9 0 . 2 5 3 . 8 3 0 . 7 1 1 . 7 9 1 . 7 9 0 . 2 5 3 . 3 3 4 . 5 2 2 . 0 3 2 . 0 3 0 . 2 6 2 . 2 3 2 . 5 7 2 . 0 3 2 . 0 3 0 . 2 7 2 . 4 5 0 . 0 2 2 . 0 3 2 . 0 3 0 . 2 7 4 7 8 . 9 5 2 . 2 8 2 . 2 8 0 . 2 7 2 . 0 0 2 . 7 5 2 . 2 8 2 . 2 8 0 . 2 7 2 . 3 8 6 . 3 6 2 . 2 8 2 . 2 8 0 . 2 7 7 5 9 . 3 1 2 . 4 8 2 . 4 8 0 . 3 1 4 . 4 7 8 . 5 1 2 . 6 8 2 . 6 8 0 . 3 0 1 . 0 2 4 . 3 5 2 . 7 7 2 . 7 7 0 . 3 1 1 . 3 5 2 . 0 0 2 . 7 7 2 . 7 7 0 . 3 1 2 6 , 7 0 1 . 3 7 2 . 3 1 2 . 3 1 0 . 2 8 4 2 6 . 6 4 0 . 7 2 0 . 7 2 0 . 8 9 7 . 1 0 1 . 6 0 2 . 5 4 2 . 5 4 0 . 4 6 7 , 5 2 8 . 2 4 1 . 7 2 1 . 7 2 0 . 6 5 P a g e 8 M a n a g e d A c c o u n t F a i r M a r k e t V a l u e & A n a l y t i c s Security Type/Description Dated Date/ Coupon/ Maturity C U S I P Federal Agency Bond I Note FHLB GLOBAL BONDS 3 1 3 3 X 7 F K 5 DTD 05/27/2004 5.250% 06/18/2014 FHLMC NOTES 3 1 3 7 E A C V 9 DTD 07/05/20111.000% 08/27/2014 FNMA NOTES 3 1 3 5 G O B Y 8 DTD 07/18/2011 0.875% 08/28/2014 FREDDIE MAC GLOBAL NOTES 3 1 3 4 G 2 W G 3 DTD 08/05/2011 0.750% 09/22/2014 FREDDIE MAC GLOBAL NOTES 3 1 3 4 G 2 W G 3 DTD 08/05/2011 0.750% 09/22/2014 FANNIE MAE GLOBAL NOTES 3 1 3 5 G O D W O DTD 09/27/2011 0.625% 10/30/2014 FANNIE MAE GLOBAL NOTES 3 1 3 5 G O K M 4 DTD 04/19/2012 0.500% 05/27/2015 FNMA NOTES (CALLABLE) 3 1 3 5 G O N G 4 DTD 08/07/2012 0.500% 08/07/2015 FREDDIE MAC GLOBAL NOTES 3 1 3 4 G 3 Z A 1 DTD 07/11/2012 0.500% 08/28/2015 Security Type Sub-Total Corporate Note IBM CORP GLOBAL NOTES 4 5 9 2 0 0 G W 5 DTD 05/12/20111.250% 05/12/2014 PROCTER & GAMBLE CO CORP NOTES 7 4 2 7 1 8 D U O DTD 08/15/2011 0.700% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A 5 NOTES DTD 08/15/20111.135% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A 5 NOTES DTD 08/15/20111.135% 08/15/2014 /Ei:_l ~ PFM Asset Man a g e m e n t I L C P a r B r o k e r 6 5 5 . 0 0 0 . 0 0 U B S A G 3 2 0 . 0 0 0 . 0 0 B A R C L A Y S 3 6 5 . 0 0 0 . 0 0 N O M U R A 7 4 0 . 0 0 0 . 0 0 B A R C L A Y S 7 5 0 . 0 0 0 . 0 0 B A R C L A Y S 1 . 8 9 0 . 0 0 0 . 0 0 N O M U R A 7 6 0 . 0 0 0 . 0 0 C I T I G R P 1 . 2 0 0 . 0 0 0 . 0 0 T O S E C U 1 . 2 1 5 . 0 0 0 . 0 0 B A R C L A Y S 7 , 8 9 5 , 0 0 0 . 0 0 1 . 5 0 0 . 0 0 0 . 0 0 D E U T S C H E 2 5 0 . 0 0 0 . 0 0 D E U T S C H E 7 5 0 . 0 0 0 . 0 0 G O L D M A N 1 . 0 0 0 . 0 0 0 . 0 0 G O L D M A N N e x t c a l l M a r k e t D a t e P r i c e 1 0 8 . 5 9 1 0 1 . 4 1 1 0 1 . 1 1 1 0 0 . 8 5 1 0 0 . 8 5 1 0 0 . 6 5 1 0 0 . 3 1 0 8 / 0 7 / 1 3 9 9 . 9 4 1 0 0 . 2 9 1 0 1 . 3 8 1 0 0 . 6 3 1 0 1 . 2 2 1 0 1 . 2 2 M a r k e t V a l u e 7 1 1 . 2 8 9 . 3 9 3 2 4 . 5 0 2 . 4 0 3 6 9 . 0 4 8 . 5 8 7 4 6 . 2 9 0 . 7 4 7 5 6 . 3 7 5 . 7 5 1 . 9 0 2 . 2 5 4 . 7 6 7 6 2 . 3 5 2 . 9 6 1 . 1 9 9 . 2 4 7 . 6 0 1 . 2 1 8 . 5 2 9 . 5 8 7 , 9 8 9 , 8 9 1 . 7 6 1 . 5 2 0 . 6 6 1 . 0 0 2 5 1 . 5 7 9 . 7 5 7 5 9 . 1 4 5 . 5 0 1 . 0 1 2 . 1 9 4 . 0 0 U n r e a l G / L O n C o s t ( 3 0 . 5 8 9 . 8 1 ) 5 . 1 2 3 . 2 0 2 3 4 . 3 3 4 . 8 1 0 . 7 4 2 . 4 4 5 . 7 5 5 . 9 2 5 . 1 5 4 . 5 4 9 . 3 6 ( 6 3 2 . 4 0 ) 2 . 1 2 0 . 1 8 ( 6 , 0 1 3 . 5 0 ) 2 2 . 0 7 1 . 0 0 2 . 6 0 7 . 2 5 9 . 1 4 5 . 5 0 ( 2 4 6 . 0 0 ) F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 U n r e a l G / L E f f e c t i v e D u r a t i o n Y T M A m o r t C o s t D u r a t i o n t o W o r s t a t M k t 2 . 9 2 3 . 4 4 1 . 6 4 1 . 6 4 0 . 2 3 4 . 8 8 1 . 5 7 1 . 8 9 1 . 8 9 0 . 2 6 2 8 8 . 9 1 1 . 9 0 1 . 9 0 0 . 2 9 5 . 3 0 5 . 6 7 1 . 9 6 1 . 9 6 0 . 3 2 3 . 8 3 0 . 1 6 1 . 9 6 1 . 9 6 0 . 3 2 6 . 8 0 6 . 8 0 2 . 0 6 2 . 0 6 0 . 3 1 4 . 2 3 3 . 8 9 2 . 6 3 2 . 6 3 0 . 3 8 ( 6 3 8 . 3 6 ) 1 . 6 5 2 . 8 3 0 . 5 2 2 . 1 9 6 . 4 1 2 . 8 9 2 . 8 9 0 . 4 0 2 9 , 8 2 8 . 4 9 2 . 1 1 2 . 2 9 0 . 3 5 2 1 . 4 2 6 . 1 0 1 . 6 0 1 . 6 0 0 . 3 9 2 . 2 2 3 . 9 4 1 . 8 6 1 . 8 6 0 . 3 6 9 . 1 4 5 . 5 0 0 . 2 5 1 . 8 6 0 . 4 8 1 . 0 1 8 . 2 6 0 . 2 5 1 . 8 6 0 . 4 8 P a g e 9 Security Type/Description Dated Date I Coupon I Maturity Corporate Note GENERAL ELEC CAP CORP GLOBAL NOTES DTD 01/09/2012 2.150% 01/09/2015 Security Type Sub-Total Commercial Paper TOYOTA MOTOR CREDIT CORP COMM PAPER 0.000% 05/17/2013 Security Type Sub-Total Certificate of Deposit STANDARD CHARTERED BANK NY CERT DEPOS DTD 09/21/2012 0.650% 03/18/2013 NATIONAL AUSTRALIA BANK NY CERT DEPOS DTD 06/19/2012 0.600% 06/19/2013 BANK OF NOVA SCOTIA HOUS (FLOATING) DTD 02/10/2012 0.917% 02/10/2014 WESTPAC BANKING CORP NY (FLOAT) CD DTD 02/16/2012 1.387% 02/14/2014 Security Type Sub-Total Managed Account Sub-Total Securities Sub-Total Accrued Interest Total Investments /Ei:_l C U S I P 3 6 9 6 2 G 5 M 2 8 9 2 3 3 G S H O 8 5 3 2 5 B O V 9 6 3 2 5 3 T P X O 0 6 4 1 7 E Y U 1 9 6 1 2 1 T L T 3 M a n a g e d A c c o u n t F a i r M a r k e t V a l u e & A n a l y t i c s P a r B r o k e r 1 . 1 5 0 . 0 0 0 . 0 0 C I T I G R P 4 , 6 5 0 , 0 0 0 . 0 0 3 0 0 . 0 0 0 . 0 0 T O Y O T A 3 0 0 , 0 0 0 . 0 0 1 . 0 0 0 , 0 0 0 . 0 0 S T A N D C H A 1 . 0 0 0 . 0 0 0 . 0 0 G O L D M A N 1 . 0 0 0 . 0 0 0 . 0 0 B A R C L A Y S 8 0 0 . 0 0 0 . 0 0 G O L D M A N 3 , 8 0 0 , 0 0 0 . 0 0 2 9 , 0 8 9 , 0 0 0 . 0 0 $ 2 9 , 0 8 9 , 0 0 0 . 0 0 N e x t C a l l M a r k e t D a t e P r i c e M a r k e t V a l u e 1 0 2 . 9 2 1 . 1 8 3 . 5 3 7 . 4 5 4 , 7 2 7 , 1 1 7 . 7 0 9 9 . 8 5 2 9 9 . 5 3 8 . 0 0 2 9 9 , 5 3 8 . 0 0 1 0 0 . 0 1 1 . 0 0 0 . 0 5 8 . 3 0 1 0 0 . 1 8 1 . 0 0 1 . 7 7 5 . 1 0 1 0 0 . 3 3 1 . 0 0 3 . 2 5 3 . 0 0 1 0 1 . 0 3 8 0 8 . 2 0 0 . 0 0 3 , 8 1 3 , 2 8 6 . 4 0 2 9 , 9 8 7 , 7 8 1 . 8 6 $ 2 9 , 9 8 7 , 7 8 1 . 8 6 $ 1 3 6 , 3 7 8 . 6 4 $ 3 0 , 1 2 4 , 1 6 0 . 5 0 ~ PFM Asset Man a g e m e n t L L C U n r e a l G / L O n C o s t 3 4 . 7 3 3 . 4 5 6 8 , 3 1 1 . 2 0 5 8 3 . 7 5 5 8 3 . 7 5 5 8 . 3 0 1 . 7 7 5 . 1 0 3 . 2 5 3 . 0 0 8 . 2 0 0 . 0 0 1 3 , 2 8 6 . 4 0 ( 1 1 , 8 9 7 . 1 1 ) ( $ 1 1 , 8 9 7 . 1 1 ) F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 U n r e a l G / L E f f e c t i v e D u r a t i o n Y T M A m o r t C o s t D u r a t i o n t o W o r s t a t M k t 3 4 . 4 5 0 . 1 7 2 . 2 1 2 . 2 1 0 . 8 5 6 8 , 2 6 3 . 9 7 1 . 2 6 1 . 8 6 0 . 5 4 4 3 1 . 0 0 0 . 6 3 0 . 6 3 0 . 2 4 4 3 1 . 0 0 0 . 6 3 0 . 6 3 0 . 2 4 5 8 . 3 0 0 . 4 6 0 . 4 6 0 . 6 4 1 . 7 7 5 . 1 0 0 . 7 2 0 . 7 2 0 . 3 5 3 . 2 5 3 . 0 0 0 . 2 5 1 . 3 6 0 . 6 8 8 . 2 0 0 . 0 0 0 . 2 5 1 . 3 6 0 . 6 4 1 3 , 2 8 6 . 4 0 0 . 4 3 0 . 9 6 0 . 5 7 1 4 6 , 0 3 9 . 4 7 1 . 8 2 2 . 0 3 0 . 3 9 $ 1 4 6 , 0 3 9 . 4 7 1 . 8 2 2 . 0 3 0 . 3 9 % P a g e 1 0 M a n a g e d A c c o u n t S e c u r i t y T r a n s a c t i o n s & I n t e r e s t F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 Transaction Type P r i n c i p a l R e a l i z e d G / L R e a l i z e d G / L 09/06/12 09/10/12 US TREASURY NOT E S 9 1 2 8 2 8 N P 1 2 . 2 2 5 . 0 0 0 . 0 0 ( 2 . 3 1 5 . 8 2 5 . 2 0 ) ( 4 . 3 3 8 . 1 5 ) ( 2 . 3 2 0 . 1 6 3 . 3 5 ) DTD 08/02/2010 1. 7 5 0 % 0 7 / 3 1 / 2 0 1 5 09/19/12 09/21/12 STANDARD CHART E R E D B A N K N Y C E R T 8 5 3 2 5 B O V 9 1 . 0 0 0 . 0 0 0 . 0 0 ( 1 . 0 0 0 . 0 0 0 . 0 0 ) 0 . 0 0 ( 1 . 0 0 0 . 0 0 0 . 0 0 ) DEPOS DTD 09/21/2012 0. 6 5 0 % 0 3 / 1 8 / 2 0 1 3 09/21/12 09/21/12 FNMA NOTES 3 1 3 5 G O B Y 8 3 6 5 . 0 0 0 . 0 0 ( 3 6 8 . 8 1 4 . 2 5 ) ( 2 0 4 . 0 5 ) ( 3 6 9 . 0 1 8 . 3 0 ) DTD 07/18/2011 0. 8 7 5 % 0 8 / 2 8 / 2 0 1 4 Transaction Type Sub-Total 3 , 5 9 0 , 0 0 0 . 0 0 ( 3 , 6 8 4 , 6 3 9 . 4 5 ) ( 4 , 5 4 2 . 2 0 ) ( 3 , 6 8 9 , 1 8 1 . 6 5 ) INTEREST 09/22/12 09/22/12 FREDDIE MAC GLO B A L N O T E S 3 1 3 4 G 2 W G 3 7 5 0 , 0 0 0 . 0 0 0 . 0 0 2 . 8 1 2 . 5 0 2 . 8 1 2 . 5 0 DTD 08/05/2011 0. 7 5 0 % 0 9 / 2 2 / 2 0 1 4 09/22/12 09/22/12 FREDDIE MAC GLO B A L N O T E S 3 1 3 4 G 2 W G 3 7 4 0 . 0 0 0 . 0 0 0 . 0 0 2 . 7 7 5 . 0 0 2 . 7 7 5 . 0 0 DTD 08/05/2011 0. 7 5 0 % 0 9 / 2 2 / 2 0 1 4 Transaction Type Sub-Total 1 , 4 9 0 , 0 0 0 . 0 0 o . o o 5 , 5 8 7 . 5 0 5 , 5 8 7 . 5 0 SELL 09/06/12 09/10/12 FHLMC NOTES 3 1 3 4 G 3 B F 6 9 9 5 . 0 0 0 . 0 0 9 9 9 . 6 9 6 . 4 0 1 . 3 3 0 . 1 2 1 . 0 0 1 . 0 2 6 . 5 2 1 . 8 1 9 . 8 5 2 . 8 4 8 . 7 9 S P E C L O T DTD 11/18/2011 0. 6 2 5 % 1 2 / 2 3 / 2 0 1 3 09/06/12 09/10/12 FHLB TAP BONDS 3 1 3 3 X S P 9 3 1 . 2 6 5 . 0 0 0 . 0 0 1 . 3 1 0 . 3 6 2 . 9 0 9 . 5 5 3 . 3 8 1 . 3 1 9 . 9 1 6 . 2 8 ( 2 7 . 3 4 9 . 3 0 ) 7 . 9 3 8 . 7 5 S P E C L O T DTD 12/04/2008 3. 1 2 5 % 1 2 / 1 3 / 2 0 1 3 09/20/12 09/21/12 BANK OF TOKYO M I T S U B I S H I C O M M 0 6 5 3 8 B M H 3 1 . 0 0 0 . 0 0 0 . 0 0 9 9 9 . 2 7 5 . 0 0 0 . 0 0 9 9 9 . 2 7 5 . 0 0 6 9 8 . 3 3 2 9 0 . 0 0 S P E C L O T PAPER 0.000% 1 2 / 1 7 / 2 0 1 2 09/21/12 09/21/12 FNMANOTES 3 1 3 9 8 A 5 W 8 3 7 0 . 0 0 0 . 0 0 3 7 2 . 2 6 0 . 7 0 7 1 6 . 8 8 3 7 2 . 9 7 7 . 5 8 1 . 1 6 5 . 5 0 1 . 6 8 5 . 9 8 S P E C L O T DTD 11/01/2010 0. 7 5 0 % 1 2 / 1 8 / 2 0 1 3 Transaction Type Sub-Total 3 , 6 3 0 , 0 0 0 . 0 0 3 , 6 8 1 , 5 9 5 . 0 0 1 1 , 6 0 0 . 3 8 3 , 6 9 3 , 1 9 5 . 3 8 ( 2 3 , 6 6 5 . 6 2 ) 1 2 , 7 6 3 . 5 2 Managed Account Sub-Total ( 3 , 0 4 4 . 4 5 ) 1 2 , 6 4 5 . 6 8 9 , 6 0 1 . 2 3 ( 2 3 , 6 6 5 . 6 2 ) 1 2 , 7 6 3 . 5 2 Total Security Transactions { $ 3 , 0 4 4 . 4 5 ) $ 1 2 , 6 4 5 . 6 8 $ 9 , 6 0 1 . 2 3 ( $ 2 3 , 6 6 5 . 6 2 ) $ 1 2 , 7 6 3 . 5 2 Ef_:_, ~ PFM Asset Mana g e m e n t L L C P a g e 1 1 Client Name Summary • During the third quarter , f u r t h e r e a s i n g m e a s u r e s b y c e n t r a l b a n k s around the world spurre d i n v e s t o r s ' d e m a n d f o r r i s k i e r a s s e t s , resulting in strong perfo r m a n c e f o r c o r p o r a t e b o n d s , m o r t g a g e - backed securities, and e q u i t i e s . • While the U.S. housing r e c o v e r y s e e m e d t o b e b u i l d i n g momentum, manufactu r i n g a c t i v i t y a n d j o b g r o w t h h a v e c o n t i n u e d to show persistent weak n e s s . • The domestic economy w i l l l i k e l y c o n t i n u e i t s s l u g g i s h r e c o v e r y , despite uncertainties ab o u t t h e U . S . e l e c t i o n a n d t h e l o o m i n g f i s c a l cliff. Economic Snapshot • The unemployment rate f e l l t o 7 . 8 % i n S e p t e m b e r . T h e e c o n o m y added 437,000 jobs in t h e t h i r d q u a r t e r , u p f r o m 2 0 0 , 0 0 0 i n t h e prior period. • The S&P Case-Shiller Ind e x o f h o m e p r i c e s f o r J u l y m a r k e d a y e a r - over-year increase that w a s m o r e t h a n c o n s e n s u s p r e d i c t e d , reflecting a continued h o u s i n g r e c o v e r y . • The Institute for Supply M a n a g e m e n t ' s m a n u f a c t u r i n g s u r v e y f e l l slightly below SO for Jun e , J u l y , a n d A u g u s t , i n d i c a t i n g a w e a k e n i n g of the important manuf a c t u r i n g b a s e , b u t r o s e t o S l . S i n September, suggesting s l o w g r o w t h ( A m e a s u r e a b o v e S O i s t h e dividing point between g r o w t h a n d e x p a n s i o n . ) • The Consumer Price Ind e x i n c r e a s e d b y 0 . 6 % i n A u g u s t o n a seasonally adjusted basi s , i t s l a r g e s t g a i n s i n c e J u n e 2 0 0 9 ; t h i s w a s primarily due to increas e s i n f o o d a n d e n e r g y p r i c e s . • Most economists expect U . S . g r o s s d o m e s t i c p r o d u c t ( G O P ) t o grow by only 1.8% to 2% f o r t h e y e a r . I n v e s t m e n t R e p o r t - Q u a r t e r E n d e d S e p t e m b e r 3 0 , 2 0 1 2 I n t e r e s t R a t e s • I n t e r e s t r a t e s e n d e d t h e q u a r t e r m o d e s t l y l o w e r , w h i l e y i e l d s p r e a d s o n F e d e r a l A g e n c i e s , c o r p o r a t e s , a n d m o r t g a g e - b a c k e d s e c u r i t i e s ( M B S ) t i g h t e n e d s i g n i f i c a n t l y . • L o n g - t e r m T r e a s u r y y i e l d s e x p e r i e n c e d s i g n i f i c a n t i n t r a - q u a r t e r v o l a t i l i t y , w h i l e t w o - y e a r T r e a s u r y y i e l d s r e m a i n e d i n a t i g h t r a n g e o f 0 . 2 0 % t o 0 . 3 0 % f o r t h e q u a r t e r . • T h e F e d e r a l R e s e r v e a n n o u n c e d t h a t i t w i l l k e e p s h o r t - t e r m r a t e s a t e x t r e m e l y l o w l e v e l s t h r o u g h m i d - 2 0 1 S . I t a l s o i n i t i a t e d a t h i r d r o u n d o f Q u a n t i t a t i v e E a s i n g ( Q E 3 ) , a n e w p r o g r a m t o p u r c h a s e $ 4 0 b i l l i o n i n a g e n c y M B S e a c h m o n t h u n t i l e c o n o m i c c o n d i t i o n s i m p r o v e . S e c t o r P e r f o r m a n c e • A c c o m m o d a t i v e m e a s u r e s b y g l o b a l c e n t r a l b a n k s g a v e i n v e s t o r s c o n f i d e n c e i n t h e p r o s p e c t s f o r e c o n o m i c g r o w t h . T h e r e s u l t i n g s h i f t f r o m T r e a s u r i e s a n d A g e n c i e s t o h i g h - q u a l i t y c o r p o r a t e b o n d s h e l p e d c o r p o r a t e b o n d s t o o u t p e r f o r m . B o n d s i s s u e d b y f i n a n c i a l f i r m s d i d p a r t i c u l a r l y w e l l , o u t p a c i n g t h o s e i n t h e i n d u s t r i a l a n d u t i l i t y s e c t o r s . • S u p p o r t e d b y t h e n e w Q E 3 p u r c h a s e p r o g r a m , A g e n c y M B S p e r f o r m e d w e l l , b u t r e t u r n s w e r e t e m p e r e d a s a r e s u l t o f i n c r e a s e d p r e - p a y m e n t s , w h i c h s h o r t e n e d t h e i r a v e r a g e l i v e s . • W h i l e t h e M u n i c i p a l s e c t o r l a g g e d t h e c o r p o r a t e s e c t o r , i t g e n e r a t e d r e t u r n s i n e x c e s s o f T r e a s u r i e s a n d A g e n c i e s , a n d o f f e r e d t h e a d d i t i o n a l v a l u e o f d i v e r s i f i c a t i o n . • S u p p l y r e d u c t i o n s s h o u l d k e e p A g e n c y s p r e a d s n a r r o w , a s F a n n i e M a e a n d F r e d d i e M a c r e d u c e t h e i r r e t a i n e d p o r t f o l i o s b y 1 S % p e r y e a r , a s m a n d a t e d b y t h e T r e a s u r y D e p a r t m e n t . The views expressed within th i s m a t e r i a l c o n s t i t u t e t h e p e r s p e c t i v e a n d j u d g m e n t o f P F M A s s e t M a n a g e m e n t L L C ( P F M A M ) a t t h e t i m e o f d i s t r i b u t i o n a n d a r e subject to change. Informatio n i s o b t a i n e d f r o m s o u r c e s g e n e r a l l y b e l i e v e d t o b e r e l i a b l e a n d a v a i l a b l e t o t h e p u b l i c ; h o w e v e r , P F M A M c a n n o t g u a r a n t e e i t s accuracy, completeness, or su i t a b i l i t y . T h i s m a t e r i a l i s f o r g e n e r a l i n f o r m a t i o n p u r p o s e s o n l y a n d i s n o t i n t e n d e d t o p r o v i d e s p e c i f i c a d v i c e o r recommendation. The inform a t i o n c o n t a i n e d i n t h i s r e p o r t i s n o t a n o f f e r t o p u r c h a s e o r s e l l a n y s e c u r i t i e s . PFM Asset Management LL C S e c t i o n A - 1 Client Name Portfolio Summary Market Value Amortized Cost PORTFOLIO RECAP S e p t e m b e r 3 0 , 2 0 1 2 $ 4 0 , 6 0 4 , 1 1 8 . 9 6 $ 4 0 , 4 5 8 , 0 7 9 . 4 9 J u n e 3 0 . 2 0 1 2 $ 4 0 , 9 6 0 , 8 0 0 . 2 9 $ 4 0 , 8 3 7 , 6 6 0 . 2 3 I n v e s t m e n t R e p o r t - Q u a r t e r E n d e d S e p t e m b e r 3 0 , 2 0 1 2 ,. The portfolio compli e s w i t h t h e C a l i f o r n i a G o v e r n m e n t C o d e a n d C l i e n t ' s i n v e s t m e n t p o l i c y . T h e p o r t f o l i o s a r e w e l l d i v e r s i f i e d a m o n g U.S. Treasury, Fede r a l A g e n c y , h i g h - q u a l i t y c o r p o r a t e a n d m u n i c i p a l s e c u r i t i e s , a n d m o n e y m a r k e t s e c u r i t i e s . ,. Bond yields remain e d h i g h l y c o r r e l a t e d w i t h h e a d l i n e s o u t o f E u r o p e . W e a k e n i n g e c o n o m i c c o n d i t i o n s i n t h e E u r o z o n e t r i g g e r e d a flight to quality that d r o v e i n t e r m e d i a t e - t e r m T r e a s u r y y i e l d s t o n e w a l l - t i m e r e c o r d l o w s i n J u l y . T h e d e v e l o p m e n t o f a n E C B s o v e r e i g n debt purchase prog r a m r e v e r s e d t h e t r e n d , c a u s i n g y i e l d s t o r e b o u n d s h a r p l y . D e s p i t e s e v e r a l p e r i o d s o f s h a r p t e m p o r a r y y i e l d movements, Treasu r y y i e l d s e n d e d t h e q u a r t e r o n l y m o d e s t l y l o w e r i n m o s t m a t u r i t i e s . lr While long-term yiel d s w e r e q u i t e v o l a t i l e d u r i n g t h e q u a r t e r , y i e l d s o f 1 - t o 5 - y e a r T r e a s u r i e s w e r e m o s t l y r a n g e - b o u n d w i t h i n n a r r o w bands. For example, t h e 2 - y e a r T r e a s u r y n o t e t r a d e d b e t w e e n 0 . 2 0 % a n d 0 . 3 0 % d u r i n g t h e q u a r t e r . ,. In the range-bound m a r k e t , w e k e p t t h e p o r t f o l i o s ' d u r a t i o n s c l o s e t o t h e i r r e s p e c t i v e b e n c h m a r k s , b u t a d d e d m o d e s t l y t o d u r a t i o n when rates moved t o w a r d t h e u p p e r e n d o f t h e t r a d i n g r a n g e . W e a l s o f o c u s e d o u r a t t e n t i o n o n m a x i m i z i n g i n t e r e s t i n c o m e , i n s o m e cases blending long e r - t e r m T r e a s u r i e s a n d F e d e r a l a g e n c i e s w i t h s h o r t e r - t e r m c o m m e r c i a l p a p e r o r C O s . ,. European news als o d r o v e c r e d i t s p r e a d s . A s i n v e s t o r s g a i n e d r e n e w e d c o m f o r t w i t h c r e d i t r i s k , c o r p o r a t e y i e l d s p r e a d s s t e a d i l y moved tighter as th e t h i r d q u a r t e r p r o g r e s s e d . T h i s r e s u l t e d i n v e r y s t r o n g p e r f o r m a n c e f o r t h e c o r p o r a t e s e c t o r a c r o s s a l l m a t u r i t i e s , with bonds of finan c i a l c o m p a n i e s p e r f o r m i n g e x c e p t i o n a l l y w e l l . W h i l e w e h a v e b e e n g e n e r a l l y a d d i n g t o c o r p o r a t e a l l o c a t i o n s a l l year, when the spr e a d b e t w e e n c o r p o r a t e n o t e s a n d T r e a s u r i e s f e l l d u r i n g t h e t h i r d q u a r t e r , w e s h i f t e d t o a m o r e n e u t r a l " h o l d " strategy. 1r Municipal bonds als o h a d a s t r o n g q u a r t e r , d e s p i t e o n g o i n g c o n c e r n t h a t f u t u r e t a x p o l i c i e s m a y r e d u c e t h e b e n e f i t o f t a x - e x e m p t i o n . We continued to ad d m u n i s w i t h i n t e r m e d i a t e m a t u r i t i e s t o o u r a l l o c a t i o n s w h e r e w e f o u n d h i g h - q u a l i t y t a x a b l e o r t a x - e x e m p t i s s u e s - mostly new deals-t h a t o f f e r e d s t r o n g c r e d i t f u n d a m e n t a l s , f a v o r a b l e y i e l d s p r e a d s , a n d r e a s o n a b l e i s s u e s i z e . D e a l v o l u m e i s u p sharply from 2011 le v e l s , s o t h e r e h a s b e e n m o r e t o c h o o s e f r o m . ,. Agency notes also r e c e i v e d a b o o s t d u r i n g t h e q u a r t e r w h e n t h e T r e a s u r y D e p a r t m e n t a c c e l e r a t e d t h e w i n d - d o w n o f F a n n i e M a e ' s and Freddie Mac's i n v e s t m e n t p o r t f o l i o h o l d i n g s , a n a c t i o n w h i c h w i l l s h r i n k A g e n c y b o n d a n d d i s c o u n t n o t e s u p p l y b y $ 1 t r i l l i o n o v e r the next few years. A s s p r e a d s t i g h t e n e d , w e r e d u c e d A g e n c y a l l o c a t i o n s i n f a v o r o f m o r e U . S . T r e a s u r i e s . A s h o r t - l i v e d s p i k e i n volatility mid-quarter p r o v i d e d a b r i e f o p p o r t u n i t y t o a d d a t t r a c t i v e l y v a l u e d c a l l a b l e A g e n c y b o n d s . PFM Asset Manageme n t L L C S e c t i o n B - 1 Client Name I n v e s t m e n t R e p o r t - Q u a r t e r E n d e d S e p t e m b e r 3 0 , 2 0 1 2 Portfolio Summary -co n t i n u e d PORTFOLIO STRATEG Y ,... With the ECB's sov e r e i g n d e b t s u p p o r t p r o g r a m i n p l a c e , w e a r e t u r n i n g o u r a t t e n t i o n a w a y f r o m E u r o p e a n d f o c u s i n g o n d o m e s t i c issues, such as U.S. e c o n o m i c c o n d i t i o n s , t h e u p c o m i n g e l e c t i o n a n d t h e l o o m i n g f i s c a l c l i f f . a n d o t h e r g l o b a l i s s u e s , l i k e t h e t r o u b l i n g slowdown in China a n d t u r m o i l i n t h e M i d d l e E a s t . T h e s e c o n d i t i o n s c r e a t e u n c e r t a i n t i e s t h a t a r e h a r d t o h a n d i c a p , a n d v i r t u a l l y impossible to predic t w i t h a n y d e g r e e o f c e r t a i n t y . ,... Since all of these fa c t o r s h a v e m o r e d o w n s i d e r i s k t o e c o n o m i c g r o w t h t h a n u p s i d e p o t e n t i a l , a n d t h u s a g r e a t e r c h a n c e o f k e e p i n g yields low in the four t h q u a r t e r , w e p l a n t o k e e p t h e p o r t f o l i o s d u r a t i o n s g e n e r a l l y i n l i n e w i t h t h e i r b e n c h m a r k s . -,... With central banks a r o u n d t h e g l o b e p u m p i n g a n u n p r e c e d e n t e d a m o u n t o f l i q u i d i t y i n t o t h e m a r k e t a n d e m b a r k i n g o n n e w l a r g e - s c a l e bond purchase prog r a m s , w e a r e f a c e d w i t h a s c e n a r i o o f m o r e d o l l a r s c h a s i n g f e w e r a s s e t s . A s a r e s u l t , o u r o u t l o o k f o r m o s t " s p r e a d sectors" remains po s i t i v e . W e a n t i c i p a t e r e l a t i v e l y l o w v o l a t i l i t y i n y i e l d s a n d e x p e c t i n c o m e t o b e a m a j o r c o m p o n e n t o f t o t a l r e t u r n s i n the upcoming quarte r . ,... In this environment, o u r a p p r o a c h t o s e c u r i t y s e l e c t i o n w i l l e m p l o y m o r e o f a b o t t o m - u p a n a l y s i s o f i n d i v i d u a l i s s u e s , r a t h e r t h a n a t o p - down approach of s h i f t i n g s e c t o r a l l o c a t i o n s b a s e d o n a m a c r o e c o n o m i c v i e w . W e w i l l u s e t h i s b o t t o m - u p a p p r o a c h i n t h e s e l e c t i o n o f individual corporate a n d m u n i c i p a l b o n d s , a s w e l l a s n e g o t i a b l e C O ' s a n d c o m m e r c i a l p a p e r i n t h e m o n e y m a r k e t s p a c e . -,... The Fed's plan, an n o u n c e d S e p t e m b e r 1 3 , t o b u y $ 4 0 b i l l i o n o f M B S a m o n t h f o r a n i n d e f i n i t e p e r i o d h a s d r i v e n s p r e a d s i n a n d reduced relative val u e i n t h i s s e c t o r . W e h a v e s l o w e d o u r p u r c h a s e s o f M B S , a l t h o u g h w e n o t e t h a t s p e c i f i c i s s u e s s t i l l m a y h a v e value depending on t h e i r s t r u c t u r e a n d r e p a y m e n t c h a r a c t e r i s t i c s . -,... Over the previous 1 2 m o n t h s , w e h a v e m a d e a s i z a b l e s h i f t a w a y f r o m t h e F e d e r a l a g e n c y s e c t o r a n d i n t o t h e T r e a s u r y a n d o t h e r sectors. We continu e t o a c t i v e l y t r a d e w i t h i n t h e T r e a s u r y a n d F e d e r a l A g e n c y s e c t o r s , s e e k i n g t o i d e n t i f y t h o s e i s s u e s t h a t o f f e r t h e best combination of y i e l d , y i e l d s p r e a d , a n d r o l l - d o w n p o t e n t i a l . W e a r e c o m f o r t a b l e w i t h o u r c u r r e n t s e c t o r w e i g h t i n g s , b u t w e w i l l adjust our view as n e w d e v e l o p m e n t s i n f i s c a l a n d m o n e t a r y p o l i c y e v o l v e . ,. Although we have g e n e r a l l y a v o i d e d c a l l a b l e F e d e r a l a g e n c i e s o v e r t h e p a s t s e v e r a l y e a r s , t h e s e i s s u e s m a y n o w b e a r e a s o n a b l e alternative to both b u l l e t a g e n c i e s a n d M B S . -,... As always, we strive t o m a i n t a i n s a f e t y o f p r i n c i p a l , a n d a p p r o p r i a t e l i q u i d i t y , w h i l e s e e k i n g o p p o r t u n i t i e s t o a d d v a l u e t h r o u g h a c t i v e management. Our s t r a t e g y w i l l r e m a i n f l e x i b l e a n d m a y c h a n g e i n r e s p o n s e t o c h a n g e s i n i n t e r e s t r a t e s , e c o n o m i c d a t a , m a r k e t outlook, or specific o p p o r t u n i t i e s t h a t a r i s e . PFM Asset Manageme n t L L C S e c t i o n B - 2 CLIINTNAMf Security Type/Description Dated Date/Coupon/Maturity C U S I P U.S. Treasury Bond I Note US TREASURY NOTES 9 1 2 8 2 8 L C 2 DTD 07/31/2009 2.625% 07/31/2014 US TREASURY NOTES 9 1 2 8 2 8 L C 2 DTD 07/31/2009 2.625%07/31/2014 US TREASURY NOTES 9 1 2 8 2 8 L S 7 DTD 11/02/2009 2.375% 10/31/2014 US TREASURY NOTES 9 1 2 8 2 8 D C 1 DTD 11/15/2004 4.250% 11/15/2014 US TREASURY NOTES 9 1 2 8 2 8 D C 1 DTD 11/15/2004 4.250% 11/15/2014 US TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 M H O DTD 02/01/2010 2.250% 01/31/2015 US TREASURY NOTES 9 1 2 8 2 8 D V 9 DTD 05/16/2005 4.125% 05/15/2015 US TREASURY NOTES 9 1 2 8 2 8 N L O DTD 06/30/2010 1.875% 06/30/2015 US TREASURY NOTES 9 1 2 8 2 8 N P 1 DTD 08/02/2010 1.750% 07/31/2015 US TREASURY NOTES 9 1 2 8 2 8 N P 1 DTD 08/02/2010 1.750% 07/31/2015 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 5 0 0 . 0 0 0 . 0 0 A A + A a a 1 0 / 2 7 / 1 1 9 3 5 . 0 0 0 . 0 0 A A + A a a 1 0 / 2 7 / 1 1 1 . 0 0 0 . 0 0 0 . 0 0 A A + A a a 0 2 / 2 2 / 1 2 9 0 5 . 0 0 0 . 0 0 A A + A a a 0 5 / 2 1 / 1 2 1 . 3 3 9 . 0 0 0 . 0 0 A A + A a a 0 4 / 2 3 / 1 2 5 2 5 . 0 0 0 . 0 0 A A + A a a 0 1 / 2 6 / 1 2 6 5 5 . 0 0 0 . 0 0 A A + A a a 0 1 1 2 3 / 1 2 9 4 5 . 0 0 0 . 0 0 A A + A a a 0 6 / 2 8 / 1 2 1 . 0 7 0 . 0 0 0 . 0 0 A A + A a a 0 7 / 3 0 / 1 2 1 . 1 7 0 . 0 0 0 . 0 0 A A + A a a 0 6 / 2 8 / 1 2 3 5 0 . 0 0 0 . 0 0 A A + A a a 0 8 / 2 1 / 1 2 2 . 2 2 5 . 0 0 0 . 0 0 A A + A a a 0 9 / 0 6 / 1 2 S e t t l e D a t e 1 0 / 3 1 / 1 1 1 0 / 3 1 / 1 1 0 2 / 2 3 / 1 2 0 5 / 2 2 / 1 2 0 4 / 2 4 / 1 2 0 1 / 2 7 / 1 2 0 1 / 2 6 / 1 2 0 6 / 2 9 / 1 2 0 7 / 3 1 / 1 2 0 6 / 2 9 / 1 2 0 8 / 2 3 / 1 2 0 9 / 1 0 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 5 2 9 . 0 4 2 . 9 7 0 . 5 0 9 9 0 . 2 2 3 . 4 4 0 . 4 6 1 . 0 5 2 . 1 4 8 . 4 4 0 . 4 2 9 9 1 . 4 3 4 . 5 7 0 . 3 8 1 . 4 7 1 . 8 5 3 . 9 1 0 . 3 5 5 5 5 . 4 9 5 . 1 2 0 . 3 1 6 9 1 . 2 5 5 . 2 7 0 . 4 0 9 9 0 . 5 1 5 . 0 4 0 . 3 8 1 . 1 8 2 . 7 6 7 . 9 7 0 . 3 3 1 . 2 2 0 . 2 2 7 . 7 3 0 . 4 3 3 6 3 . 6 8 5 . 5 5 0 . 4 1 2 . 3 1 5 . 8 2 5 . 2 0 0 . 3 3 Security Type Sub-Total 1 1 , 6 1 9 , 0 0 0 . 0 0 1 2 , 3 5 4 , 4 7 5 . 2 1 0 . 3 8 Municipal Bond I Note CA ST REV BONDS 1 3 0 6 3 B B 6 8 3 9 0 . 0 0 0 . 0 0 S P - 1 M I G ! 0 8 / 1 7 / 1 2 0 8 / 2 3 / 1 2 3 9 6 . 6 3 3 . 9 0 0 . 4 3 DTD 08/23/2012 2.500% 06/20/2013 ~~ ~ PFM Asset Mana g e m e n t L L C F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 2 . 2 1 1 . 2 8 4 . 1 3 5 . 0 9 9 . 9 3 8 . 8 6 1 4 . 5 2 7 . 9 6 2 1 . 4 9 4 . 9 5 1 . 9 9 0 . 1 5 2 . 4 8 2 . 9 5 3 . 5 8 2 . 2 7 1 6 . 6 7 1 . 5 0 5 . 5 4 3 . 9 9 1 . 0 3 1 . 9 3 6 . 5 6 0 . 1 2 9 0 , 1 7 1 . 0 5 1 . 0 4 1 . 7 8 A m o r t i z e d C o s t 5 1 9 . 3 8 6 . 6 8 9 7 1 . 8 5 6 . 7 5 1 . 0 4 0 . 4 9 3 . 4 8 9 7 8 . 9 8 5 . 6 3 1 . 4 4 9 . 3 1 9 . 2 2 5 4 8 . 6 3 8 . 5 0 6 8 3 . 0 8 6 . 6 4 9 8 6 . 0 2 5 . 0 5 1 . 1 7 5 . 9 9 0 . 3 1 1 . 2 1 5 . 9 7 7 . 7 4 3 6 3 . 1 9 4 . 4 0 2 . 3 1 4 . 0 3 8 . 6 3 1 2 , 2 4 6 , 9 9 3 . 0 3 3 9 5 . 7 7 4 . 3 6 M a r k e t V a l u e 5 2 1 . 7 5 8 . 0 0 9 7 5 . 6 8 7 . 4 6 1 . 0 4 3 . 8 2 8 . 0 0 9 8 1 . 2 1 8 . 2 0 1 . 4 5 1 . 7 6 9 . 2 4 5 4 9 . 1 1 7 . 4 5 6 8 5 . 0 8 9 . 3 9 9 8 8 . 4 1 1 . 4 1 1 . 1 7 6 . 7 4 9 . 6 2 1 . 2 2 0 . 4 5 6 . 2 5 3 6 4 . 2 1 8 . 7 5 2 . 3 1 5 . 3 9 0 . 6 3 1 2 , 2 7 3 , 6 9 4 . 4 0 3 9 6 . 2 0 1 . 0 0 CUENTNAME Security Type/Description Dated Date/Coupon/Maturity Municipal Bond I Note SAN FRANCISCO Cffi & CNTY, CA GO BONDS DTD 11/30/2011 5.000% 06/15/2015 Security Type Sub-Total Federal Agency Bond 1 Note FHLB GLOBAL BONDS DTD 05/27/2004 5.250% 06/18/2014 FHLMC NOTES DTD 07/05/2011 1.000%08/27/2014 FNMA NOTES DTD 07/18/2011 0.875% 08/28/2014 FREDDIE MAC GLOBAL NOTES DTD 08/05/2011 0.750% 09/22/2014 FREDDIE MAC GLOBAL NOTES DTD 08/05/2011 0.750% 09/22/2014 FANNIE MAE GLOBAL NOTES DTD 09/27/2011 0.625% 10/30/2014 FANNIE MAE GLOBAL NOTES DTD 04/19/2012 0.500% 05/27/2015 FNMA NOTES (CALLABLE) DTD 08/07/2012 0.500% 08/07/2015 FREDDIE MAC GLOBAL NOTES DTD 07/11/2012 0.500% 08/28/2015 C U S I P 7 9 7 6 4 6 P V 2 3 1 3 3 X 7 F K 5 3 1 3 7 E A C V 9 3 1 3 5 G O B Y 8 3 1 3 4 G 2 W G 3 3 1 3 4 G 2 W G 3 3 1 3 5 G O D W O 3 1 3 5 G O K M 4 3 1 3 5 G O N G 4 3 1 3 4 G 3 Z A 1 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 4 3 5 , 0 0 0 . 0 0 A A A a 2 1 1 / 1 0 / 1 1 8 2 5 , 0 0 0 . 0 0 6 5 5 , 0 0 0 . 0 0 A A + A a a 0 8 / 3 0 / 1 1 3 2 0 . 0 0 0 . 0 0 A A + A a a 0 7 / 0 1 / 1 1 3 6 5 , 0 0 0 . 0 0 A A + A a a 0 9 / 2 1 / 1 2 7 4 0 . 0 0 0 . 0 0 A A + A a a 0 9 / 2 8 / 1 1 7 5 0 , 0 0 0 . 0 0 A A + A a a 0 8 / 3 0 / 1 1 1 . 8 9 0 , 0 0 0 . 0 0 A A + A a a 0 5 / 2 4 / 1 2 7 6 0 . 0 0 0 . 0 0 A A + A a a 0 4 / 1 7 / 1 2 1 . 2 0 0 , 0 0 0 . 0 0 A A + A a a 0 8 / 0 2 / 1 2 1 . 2 1 5 , 0 0 0 . 0 0 A A + A a a 0 7 / 3 0 / 1 2 S e t t l e D a t e 1 1 / 3 0 / 1 1 0 8 / 3 1 / 1 1 0 7 / 0 5 / 1 1 0 9 / 2 1 / 1 2 0 9 / 3 0 / 1 1 0 8 / 3 1 1 1 1 0 5 / 2 9 / 1 2 0 4 / 1 9 / 1 2 0 8 / 0 7 / 1 2 0 7 / 3 1 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 4 9 4 , 9 0 3 . 8 5 1 . 0 3 8 9 1 , 5 3 7 . 7 5 0 . 7 6 7 4 1 . 8 7 9 . 2 0 0 . 4 7 3 1 9 . 3 7 9 . 2 0 1 . 0 6 3 6 8 . 8 1 4 . 2 5 0 . 3 3 7 4 1 . 4 8 0 . 0 0 0 . 6 8 7 5 3 , 9 3 0 . 0 0 0 . 5 8 1 . 8 9 6 . 3 2 9 . 6 1 0 . 4 9 7 5 7 , 8 0 3 . 6 0 0 . 5 9 1 . 1 9 9 , 8 8 0 . 0 0 0 . 5 0 1 . 2 1 6 . 4 0 9 . 4 0 0 . 4 6 Security Type Sub-Total 7 , 8 9 5 , 0 0 0 . 0 0 7 , 9 9 5 , 9 0 5 . 2 6 0 . 5 4 Corporate Note IBM CORP GLOBAL NOTES 4 5 9 2 0 0 G W 5 1 . 5 0 0 , 0 0 0 . 0 0 A A - A a 3 0 5 / 0 9 / 1 1 0 5 / 1 2 / 1 1 1 . 4 9 8 . 5 9 0 . 0 0 1 . 2 8 DTD 05/12/2011 1.250% 05/12/2014 EJ.:_, ~ PFM Asset Mana g e m e n t L L C F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 6 . 4 0 4 . 1 7 7 , 4 4 5 . 9 5 9 , 8 3 8 . 6 5 3 0 2 . 2 2 2 9 2 . 7 6 1 3 8 . 7 5 1 4 0 . 6 3 4 , 9 5 4 . 6 9 1 . 3 0 8 . 8 9 9 0 0 . 0 0 5 5 6 . 8 8 1 8 , 4 3 3 . 4 7 7 . 2 3 9 . 5 8 A m o r t i z e d C o s t 4 8 0 , 9 5 1 . 0 0 8 7 6 , 7 2 5 . 3 6 7 0 8 . 3 6 5 . 9 5 3 1 9 . 6 2 0 . 8 3 3 6 8 . 7 5 9 . 6 7 7 4 0 . 9 8 5 . 0 7 7 5 2 , 5 4 5 . 5 9 1 . 8 9 5 . 4 4 7 . 9 6 7 5 8 . 1 1 9 . 0 7 1 . 1 9 9 , 8 8 5 . 9 6 1 . 2 1 6 . 3 3 3 . 1 7 7 , 9 6 0 , 0 6 3 . 2 7 1 . 4 9 9 . 2 3 4 . 9 0 M a r k e t V a l u e 4 8 8 . 0 5 2 . 6 0 8 8 4 , 2 5 3 . 6 0 7 1 1 . 2 8 9 . 3 9 3 2 4 . 5 0 2 . 4 0 3 6 9 . 0 4 8 . 5 8 7 4 6 , 2 9 0 . 7 4 7 5 6 , 3 7 5 . 7 5 1 . 9 0 2 , 2 5 4 . 7 6 7 6 2 , 3 5 2 . 9 6 1 . 1 9 9 . 2 4 7 . 6 0 1 . 2 1 8 . 5 2 9 . 5 8 7 , 9 8 9 , 8 9 1 . 7 6 1 . 5 2 0 . 6 6 1 . 0 0 CUENTNAMe Security Type/Description Dated Date/Coupon/Maturity C U S I P Corporate Note PROCTER & GAMBLE CO CORP NOTES 7 4 2 7 1 8 D U O DTD 08/15/2011 0.700% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A 5 NOTES DTD 08/15/20111.135% 08/15/2014 BERKSHIRE HATHAWAY INC (FLOATING) 0 8 4 6 7 0 B A 5 NOTES DTD 08/15/2011 1.135% 08/15/2014 GENERAL ELEC CAP CORP GLOBAL NOTES 3 6 9 6 2 G 5 M 2 DTD 01/09/2012 2.150% 01/09/2015 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d S & P M o o d y ' s T r a d e P a r R a t i n g R a t i n g D a t e 2 5 0 . 0 0 0 . 0 0 A A - A a 3 0 8 / 1 0 / 1 1 7 5 0 . 0 0 0 . 0 0 A A + A a 2 0 8 / 1 0 / 1 1 1 . 0 0 0 . 0 0 0 . 0 0 A A + A a 2 0 7 / 3 0 / 1 2 1 . 1 5 0 . 0 0 0 . 0 0 A A + A 1 0 1 / 0 4 / 1 2 S e t t l e D a t e 0 8 / 1 5 / 1 1 0 8 / 1 5 / 1 1 0 7 / 3 1 / 1 2 0 1 / 0 9 / 1 2 O r i g i n a l Y T M C o s t a t C o s t 2 4 8 . 9 7 2 . 5 0 0 . 8 4 7 5 0 . 0 0 0 . 0 0 0 . 9 8 1 . 0 1 2 . 4 4 0 . 0 0 0 . 5 5 1 . 1 4 8 . 8 0 4 . 0 0 2 . 1 9 Security Type Sub-Total 4 , 6 5 0 , 0 0 0 . 0 0 4 , 6 5 8 , 8 0 6 . 5 0 1 . 2 8 Commercial Paper TOYOTA MOTOR CREDIT CORP COMM PAPER 0.000% 05/17/2013 Security Type Sub-Total Certificate of Deposit STANDARD CHARTERED BANK NY CERT DEPOS DTD 09/21/2012 0.650% 03/18/2013 NATIONAL AUSTRALIA BANK NY CERT DEPOS DTD 06/19/2012 0.600% 06/19/2013 BANK OF NOVA SCOTIA HOUS (FLOATING) DTD 02/10/2012 0.917% 02/10/2014 WESTPAC BANKING CORP NY (FLOAD CD DTD 02/16/2012 1.387% 02/14/2014 8 9 2 3 3 G S H O 8 5 3 2 5 B O V 9 6 3 2 5 3 T P X O 0 6 4 1 7 E Y U 1 9 6 1 2 1 T L T 3 e· PFM Asset Mana g e m e n t L L C 3 0 0 . 0 0 0 . 0 0 A - 1 + 3 0 0 , 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 A - 1 + 1 . 0 0 0 . 0 0 0 . 0 0 A - 1 + 1 . 0 0 0 . 0 0 0 . 0 0 A A - 8 0 0 . 0 0 0 . 0 0 A A - P - 1 0 8 / 2 2 / 1 2 0 8 / 2 3 / 1 2 2 9 8 . 9 5 4 . 2 5 0 . 4 7 2 9 8 , 9 5 4 . 2 5 0 . 4 7 P - 1 0 9 / 1 9 / 1 2 0 9 / 2 1 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 6 5 P - 1 0 6 / 1 5 / 1 2 0 6 / 1 9 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 6 0 A a 1 0 2 / 0 7 / 1 2 0 2 / 1 0 / 1 2 1 . 0 0 0 . 0 0 0 . 0 0 0 . 9 9 A a 2 0 2 / 1 4 / 1 2 0 2 / 1 6 / 1 2 8 0 0 . 0 0 0 . 0 0 1 . 4 7 F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 A c c r u e d I n t e r e s t 2 2 3 . 6 1 1 . 1 1 0 . 8 6 1 . 4 8 1 . 1 5 5 . 6 3 1 . 8 1 1 5 , 6 8 7 . 0 1 0 . 0 0 0 . 0 0 1 8 0 . 5 6 1 . 7 3 3 . 3 3 1 . 2 4 7 . 8 0 1 . 4 7 9 . 4 7 A m o r t i z e d C o s t 2 4 9 . 3 5 5 . 8 1 7 5 0 . 0 0 0 . 0 0 1 . 0 1 1 . 1 7 5 . 7 4 1 . 1 4 9 . 0 8 7 . 2 8 4 , 6 5 8 , 8 5 3 . 7 3 2 9 9 . 1 0 7 . 0 0 2 9 9 , 1 0 7 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 1 . 0 0 0 . 0 0 0 . 0 0 8 0 0 . 0 0 0 . 0 0 M a r k e t V a l u e 2 5 1 . 5 7 9 . 7 5 7 5 9 . 1 4 5 . 5 0 1 . 0 1 2 . 1 9 4 . 0 0 1 . 1 8 3 . 5 3 7 . 4 5 4 , 7 2 7 , 1 1 7 . 7 0 2 9 9 . 5 3 8 . 0 0 2 9 9 , 5 3 8 . 0 0 1 . 0 0 0 . 0 5 8 . 3 0 1 . 0 0 1 . 7 7 5 . 1 0 1 . 0 0 3 . 2 5 3 . 0 0 8 0 8 . 2 0 0 . 0 0 M a n a g e d A c c o u n t D e t a i l o f S e c u r i t i e s H e l d F o r t h e M o n t h E n d i n g S e p t e m b e r 3 0 , 2 0 1 2 CLIENT NAME Security Type/Description S & P M o o d y ' s T r a d e S e t t l e O r i g i n a l Y T M A c c r u e d A m o r t i z e d M a r k e t Dated Date/Coupon/Maturity C U S I P P a r R a t i n g R a t i n g D a t e D a t e C o s t a t C o s t I n t e r e s t C o s t V a l u e Security Type Sub-Total 3 , 8 0 0 , 0 0 0 . 0 0 3 , 8 0 0 , 0 0 0 . 0 0 0 . 9 0 4 , 6 4 1 . 1 6 3 , 8 0 0 , 0 0 0 . 0 0 3 , 8 1 3 , 2 8 6 . 4 0 Managed Account Sub-Total 2 9 , 0 8 9 , 0 0 0 . 0 0 2 9 , 9 9 9 , 6 7 8 . 9 7 0 . 6 4 1 3 6 , 3 7 8 . 6 4 2 9 , 8 4 1 , 7 4 2 . 3 9 2 9 , 9 8 7 , 7 8 1 . 8 6 Securities Sub-Total $ 2 9 , 0 8 9 , 0 0 0 . 0 0 $ 2 9 , 9 9 9 , 6 7 8 . 9 7 0 . 6 4 % $ 1 3 6 , 3 7 8 . 6 4 $ 2 9 , 8 4 1 , 7 4 2 . 3 9 $ 2 9 , 9 8 7 , 7 8 1 . 8 6 Accrued Interest $ 1 3 6 , 3 7 8 . 6 4 Total Invesbnents $ 3 0 , 1 2 4 , 1 6 0 . 5 0 Ei:_l ~ PFM Asset Mana g e m e n t U C I n v e s t m e n t A d v i s o r s t o t h e P u b l i c S e c t o r P F M A M 1 - 3 Y e a r F i x e d - I n c o m e C o m p o s i t e Important Disclosures PFM Asset Management LLC clai m s c o m p l i a n c e w i t h t h e G l o b a l I n v e s t m e n t P e r f o r m a n c e S t a n d a r d s ( G I P S ® ) a n d h a s p r e p a r e d a n d p r e s e n t e d t h i s r e p o r t i n c o m p l i a n c e w i t h t h e GIPS standards. PFM Asset Man a g e m e n t L L C h a s n o t b e e n i n d e p e n d e n t l y v e r i f i e d . Public Financial Management, Inc . w a s f o u n d e d i n 1 9 7 5 a n d h a s b e e n p r o v i d i n g i n v e s t m e n t m a n a g e m e n t s e r v i c e s s i n c e 1 9 8 0 . I n 2 0 0 1 , P F M A s s e t M a n a g e m e n t L L C w a s c r e a t e d as the entity under which investm e n t a d v i s o r y s e r v i c e s a r e p r o v i d e d a n d i s a r e g i s t e r e d i n v e s t m e n t a d v i s o r u n d e r t h e I n v e s t m e n t A d v i s e r s A c t o f 1 9 4 0 . W e a r e o r g a n i z e d u n d e r a holding company structure in whic h P F M I , L L C i s o u r u l t i m a t e p a r e n t c o m p a n y . The objective of the PFM 1 - 3 Y e a r F i x e d I n c o m e C o m p o s i t e i s t o o u t p e r f o r m t h e B a n k o f A m e r i c a M e r r i l l L y n c h 1 - 3 Y e a r T r e a s u r y N o t e I n d e x . A c c o u n t s i n v e s t i n h i g h q u a l i t y government securities and corpor a t e d e b t i n s t r u m e n t s , g e n e r a l l y l i m i t e d t o A o r b e t t e r , a n d m a i n t a i n a d u r a t i o n p l u s o r m i n u s 2 5 % o f t h e B a n k o f A m e r i c a M e r r i l l L y n c h 1 - 3 Y e a r Treasury Note Index. The bench m a r k f o r t h e 1 - 3 Y e a r F i x e d I n c o m e C o m p o s i t e i s t h e B a n k o f A m e r i c a M e r r i l l L y n c h 1 - 3 Y e a r T r e a s u r y N o t e I n d e x . T h e b e n c h m a r k r e t u r n s i s provided to represent the investm e n t e n v i r o n m e n t e x i s t i n g d u r i n g t h e t i m e p e r i o d s s h o w n . T h e B a n k o f A m e r i c a M e r r i l l L y n c h 1 - 3 Y e a r T r e a s u r y N o t e I n d e x i s c o m p r i s e d o f a b a s k e t of U.S. Treasury securities with m a t u r i t i e s r a n g i n g b e t w e e n 1 a n d 3 y e a r s . T h e b e n c h m a r k i s r e b a l a n c e d m o n t h l y . Only actual portfolios are included i n t h e c o m p o s i t e s - n o m o d e l p o r t f o l i o s . T h e P F M 1 - 3 Y e a r F i x e d I n c o m e C o m p o s i t e w a s c r e a t e d i n S e p t e m b e r 2 0 0 3 a n d i n c l u d e s a l l f e e paying, fully discretionary account s o v e r $ 1 0 m i l l i o n t h a t a r e m a n a g e d a c c o r d i n g t o t h i s m a n d a t e . T h e i n c e p t i o n d a t e o f t h e c o m p o s i t e i s J a n u a r y 1 9 9 8 . Performance calculations are time - w e i g h t e d r a t e s o f r e t u r n s . A l l r e t u r n s a n d a s s e t v a l u e s a r e e x p r e s s e d i n U . S . d o l l a r s . G r o s s - o f - f e e s r e t u r n s a r e p r e s e n t e d , i . e . , b e f o r e management fees, custodial fees a n d t a x e s , b u t a f t e r b r o k e r a g e a n d o t h e r t r a n s a c t i o n f e e s . A d d i t i o n a l i n f o r m a t i o n r e g a r d i n g p o l i c i e s f o r v a l u i n g p o r t f o l i o s , c a l c u l a t i n g p e r f o r m a n c e , and reporting returns is available u p o n r e q u e s t b y c o n t a c t i n g K e n S c h i e b e l , C F A , M a n a g i n g D i r e c t o r , a t s c h i e b e l k @ p f m . c o m . A client return will be reduced by t h e a d v i s o r y f e e s a n d o t h e r e x p e n s e s t h e p o r t f o l i o m a y i n c u r . N o n - f e e p a y i n g p o r t f o l i o s a r e e x c l u d e d f r o m c o m p o s i t e s , e x c e p t w h e r e n o t e d . P F M ' s investment advisory fees are desc r i b e d i n P a r t 2 o f P F M ' s F o r m A D V . T h e s t a n d a r d f e e s c h e d u l e i s a s f o l l o w s : 0 . 2 5 % p e r a n n u m o n f i r s t $ 2 5 m i l l i o n ; 0 1 5 % p e r a n n u m o n a s s e t s over $25 million. Dispersion is calculated using the e q u a l - w e i g h t e d s t a n d a r d d e v i a t i o n o f a l l a c c o u n t s i n c l u d e d i n t h e c o m p o s i t e f o r t h e e n t i r e y e a r . F o r y e a r s w h e r e t h e r e a r e f e w e r t h a n 5 a c c o u n t s in the composite for the entire yea r , d i s p e r s i o n i s n o t p r e s e n t e d a s i t i s n o t a m e a n i n g f u l s t a t i s t i c a l c a l c u l a t i o n Actual performance results may d i f f e r f r o m c o m p o s i t e r e t u r n s , d e p e n d i n g o n t h e s i z e o f t h e a c c o u n t , i n v e s t m e n t g u i d e l i n e s , a n d / o r r e s t r i c t i o n s , i n c e p t i o n d a t e a n d o t h e r f a c t o r s . P a s t performance is not indicative of fu t u r e r e s u l t s . A s w i t h a n y i n v e s t m e n t v e h i c l e , t h e r e i s a l w a y s t h e p o t e n t i a l f o r g a i n s a s w e l l a s t h e p o s s i b i l i t y o f l o s s e s . A c o m p l e t e l i s t a n d description of PFM's composites i s a v a i l a b l e u p o n r e q u e s t U p d a t e d J u n e 3 0 , 2 0 1 2