2009/09/15 Chandler Asset Management, Inc. Financial asset review services PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT for Professional Services ("Agreement")is made this 15th day of
September,2009 ("Effective Date")by and between the("City' and Chandler Asset
Management("Consultant") (together sometimes referred to the"Parties").
Section 1. SERVICES. Subject to the terms and conditions set forth in this Agreement,
Consultant shall provide to City the services described in the Scope of Work attached as
Exhibit and incorporated here,and the City of Menifee Annual Statement of Investment
Policy attached as Exhibit C and incorporated herein. Such work shall be provided at the time
and place and in the manner specified in Exhibit A. In'the event of a conflict in or inconsistency
between the terms of this Agreement and Exhibit-A,this Agreement shall prevail.
1.1 Term of Services. The term of this Agreement shall begin on the Effective Date
and shall end on September 14,2012,unless extended by mutual consent of all
parties. Consultant shall complete the work described in Exhibit A prior to that
date,unless the term of the Agreement is otherwise terminated or extended as
provided for in Section 8. The time provided to Consultant to complete the
services required by this Agreement shall not affect the City's right to terminate
the Agreement, as provided for in Section 8.
1.2 Standard of Performance. Consultant shall perform all services required
pursuant to this Agreement in the manner and according to the standards observed
by a competent practitioner of the profession in which Consultant is engaged in
the geographical area in which Consultant practices its profession and to the sole
satisfaction of the Contract Administrator.
1.3 Assignment of PersonneL Consultant shall assign only competent personnel to
perform services pursuant to Agreement. In the event that City,in its sole
discretion,at any time during the term of this Agreement,desires the
reassignment of any such persons,Consultant shall,immediately upon receiving
notice from City of such desire of City,reassign such person or persons.
1.4 Time. Consultant shall devote such time to the performance of services pursuant
to this Agreement as may be reasonably necessary to satisfy Consultant's
obligations hereunder.
1.5 Authorization to Perform Services. The Consultant is not authorized to perform
any services or incur any costs whatsoever under the terms of this Agreement
until receipt of authorization from the Contract Administrator.
1.6 CIient Representative. In its capacity as investment manager, Chandler shall
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receive all instructions, directions and other communications on Client's behalf
respecting Client's account from the Administrative Services Director
(Representative). Chandler is hereby authorized to rely and act upon all such
instructions, directions and communications from such Representative or any
agent of such Representative.
1.7 Authority of Chandler. Chandler is hereby granted full discretion to invest and
reinvest all assets under its management in any type of security it deems
appropriate, subject to the instructions given or guidelines set by Representative.
1.8 Proxy Voting. Chandler will vote proxies on behalf of client unless otherwise
instructed. Chandler has adopted and implemented written policies and
procedures and will provide client with a description of the proxy voting
procedures upon request. Chandler will provide information regarding how
clients' proxies were voted upon request. To request proxy policies or other
information,please contact us by mail at the address provided,by calling 800-
317-4747 or by emailing your request to info@chandlerasset.com.
1.9 Custody of Securities and Funds. Chandler shall not have custody or
possession of the funds or securities that Client has placed under its management.
Client shall appoint a custodian to take and have possession of its assets. Client
recognizes that the fees expressed above do not include fees Client will incur for
custodial services.
1.10 Valuation. Chandler will value securities held in portfolios managed by
Chandler no less than monthly. Securities or investments in the portfolio will be
valued in a manner determined in good faith by Chandler to reflect fair market
value.
1.11 Payment of Commissions. Chandler may place buy and sell orders with or
through such brokers or dealers as it may select. It is the policy and practice of
Chandler to strive for the best price and execution and for commission and
discounts which are competitive in relation to the value of the transaction and
which comply with Section 28(e)of the Securities and Exchange Act.
Nevertheless,it is understood that Chandler may pay a commission on
transactions in excess of the amount another broker or dealer may charge, and that
Chandler makes no warranty or representation regarding commissions paid on
transactions hereunder.
1.12 Other Clients. It is further understood that Chandler may be acting in a similar
capacity for other institutional and individual clients, and that investments and
reinvestments for client's portfolio may differ from those made or recommended
with respect to other accounts and clients even though the investment objectives
may be the same or similar. Accordingly,it is agreed that Chandler will have no
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obligation to purchase or sell for Client's account any securities which it may
purchase or sell for other clients.
1.13 Receipt of Brochure and Privacy Policy. Client has received the disclosure
statement or"brochure"required to be delivered pursuant to Rule 204-3 of the
Investment Advisers Act of 1940(Brochure). Client has received a copy of
Chandler's Privacy Policy. Client understands that it has the right to terminate
this Agreement without penalty within five(5)days after entering into this
Agreement.
Section 2. COMPENSATION. City hereby agrees to pay Consultant fees as specified in
the Fee Schedule attached as Exhibit B and incorporated herein,notwithstanding any contrary
indications that may be contained in Consultant's proposal,for services to be performed and
reimbursable costs incurred under this Agreement. In the event of a conflict between this
Agreement and Exhibit A,regarding the amount of compensation,this Agreement shall prevail.
City shall pay Consultant for services rendered pursuant to this Agreement at the time and in the
manner set forth herein. The payments specified below shall be the only payments from City to
Consultant for services rendered pursuant to this Agreement. Consultant shall submit all
invoices to City in the manner specified herein. Except as specifically authorized in advance by
City, Consultant shall not bill City for duplicate services performed by more than one person.
2.1 Invoices. Consultant shall submit invoices monthly during the term of this
Agreement,based on the cost for services performed and reimbursable costs
incurred prior to the invoice date. Invoices shall contain the following
information:
a Serial identifications of progress bills; i.e., Progress Bill No. 1 for the first
invoice, etc.,
• The beginning and ending dates of the billing period;
• A Task Summary containing the original contract amount,the amount of prior
billings,the total due this period,the balance available under the Agreement,
and the percentage of completion;
a The Consultant's signature.
2.2 Monthly Payment. City shall make monthly payments,based on invoices
received,for services satisfactorily performed,and for authorized reimbursable
costs incurred. City shall have 30 days from the receipt of an invoice that
complies with all of the requirements above to pay Consultant.
2.3 Total Payment. City shall not pay any additional sum for any expense or cost
whatsoever incurred by Consultant in rendering services pursuant to this
Agreement. City shall make no payment for any extra, further, or additional
service pursuant to this Agreement.
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In no event shall Consultant submit any invoice for an amount in excess of the
agreed upon fee schedule in Exhibit B,unless the Agreement is modified in
writing prior to the submission of such an invoice.
2.4 Reimbursable Expenses. Reimbursable expenses are included within the
maximum amount of the contract.
2.5 Payment of Taxes. Consultant is solely responsible for the payment of
employment taxes incurred under this Agreement and any federal or state taxes.
2.6 Pavment upon Termination. In the event that the City or Consultant terminates
this Agreement pursuant to Section 8,the City shall compensate the Consultant
for all outstanding costs and reimbursable expenses incurred for work
satisfactorily completed as of the date of written notice of termination. Consultant
shall maintain adequate logs and timesheets in order to verify costs incurred to
that date.
Section 3. FACILITIES AND EQUIPMENT. Except as otherwise provided,Consultant
shall,at its sole cost and expense,provide all facilities and equipment necessary to perform the
services required by this Agreement. City shall make available to Consultant only physical
facilities such as desks,filing cabinets,and conference space,as may be reasonably necessary for
Consultant's use while consulting with City employees and reviewing records and the
information in possession of the City. The location, quantity,and time of furnishing those
facilities shall be in the sole discretion of City. In no event shall City be required to furnish any
facility that may involve incurring any direct expense, including but not limited to computer,
long-distance telephone or other communication charges,vehicles,and reproduction facilities.
Section 4. INSURANCE REOUIREMENTS. Before beginning any work under this
Agreement,Consultant,at its own cost and expense,shall procure the types and amounts of
insurance checked below and provide Certificates of Insurance,or endorsements as specified,
indicating that Consultant has obtained or currently maintains insurance that meets the
requirements of this section and which is satisfactory,in all respects,to the City. Consultant shall
maintain the insurance policies required by this section throughout the term of this Agreement.
The cost of such insurance shall be included in the Consultant's compensation. Consultant shall
not allow any subcontractor to commence work on any subcontract until Consultant has obtained
all insurance required herein for the subcontractor(s)and provided evidence thereof to City.
Verification of the required insurance shall be submitted and made part of this Agreement prior
to execution.
Lf 4.1 Workers' Compensation. Consultant shall,at its sole cost and expense,maintain
Statutory Workers' Compensation Insurance and Employer's Liability Insurance
for any and all persons employed directly or indirectly by Consultant. The
Statutory Workers'Compensation Insurance and Employer's Liability Insurance
shall be provided with limits of not less than ONE MILLION DOLLARS
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($1,000,000.00)per accident. In the alternative, Consultant may rely on a self-
insurance program to meet those requirements,but only if the program of self-
insurance complies fully with the provisions of the California Labor Code.
Determination of whether a self-insurance program meets the standards of the
Labor Code shall be solely in the discretion of the Contract Administrator. The .
insurer, if insurance is provided, or the Consultant,if a program of self-insurance
is provided, shall waive all rights of subrogation against the City and its officers,
officials,employees, and authorized volunteers for loss arising from work
performed under this Agreement.
53 4.2 Commercial General
Automobile Liability Insurance.
4.2.1 General requirements. Consultant,at its own'cost and expense, shall
maintain commercial general and automobile liability insurance for the
term of this Agreement in an amount not less than ONE MILLION
DOLLARS ($1,000,000.00)per occurrence,combined single limit
coverage,for risks associated with the work contemplated by this
Agreement. If a Commercial General Liability Insurance or an
Automobile Liability 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. Such coverage shall include
but shall not be limited to,protection against claims arising from bodily
and personal injury, including death resulting therefrom,and damage to
property resulting from activities contemplated under this Agreement,
including the use of owned and non-owned automobiles.
4.2.2 Minimum scone of coverage. Commercial general coverage shall be at
least as broad as Insurance Services Office Commercial General Liability
occurrence form CO 0001 or GL 0002(most recent editions)covering
comprehensive General Liability and Insurance Services Office form
number GL 0404 covering Broad Form Comprehensive General Liability.
Automobile coverage shall be at least as broad as Insurance Services
Office Automobile Liability form CA 0001 (ed. 12/90) Code 8 and 9. No
endorsement shall be attached limiting the coverage.
4.2.3 Additional requirements. Each of the following shall be included in the
insurance coverage or added as a certified endorsement to the policy:
a. The insurance shall cover on an occurrence or an accident basis,
and not on a claims-made basis.
4
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b. Any failure of Consultant to comply with reporting provisions of
the policy shall not affect coverage provided to City and its
officers,employees,agents,and volunteers.
4.3 Professional Liability Insurance.
4.3.1 General requirements. Consultant,at its own cost and expense, shall
maintain for the period covered by this Agreement professional liability
insurance for licensed professionals performing work pursuant to this
Agreement in an amount not less than ONE MILLION DOLLARS
($1,000,000)covering the licensed professionals'errors and omissions.
Any deductible or self-insured retention shall not exceed$200,000 per
claim.
4.3.2 Claims-made limitations. The following provisions shall apply if the
professional liability coverage is written on a claims-made form:
a. The retroactive date of the policy must be shown and must be
before the date of the Agreement.
b. Insurance must be maintained and evidence of insurance must be
provided for at least five years after completion of the Agreement
or the work,so long as commercially available at reasonable rates.
C. If coverage is canceled or not renewed and it is not replaced with
another claims-made policy form with a retroactive date that
precedes the date of this Agreement,Consultant must provide
extended reporting coverage for a minimum of five years after
completion of the Agreement or the work.The City shall have the
right to exercise,at the Consultant's sole cost and expense,any
extended reporting provisions of the policy,if the Consultant
cancels or does not renew the coverage.
d. A copy of the claim reporting requirements must be submitted to
the City prior to the commencement of any work under this
Agreement.
4.4 All Policies Requirements.
4.4.1 Acceptability of insurers. All insurance required by this section is to be
placed with insurers with a Bests'rating of no less than A:VH.
4.4.2 Verification of coverage. Prior to beginning any work under this
Agreement,Consultant shall fiunish City with Certificates of Insurance,
and upon request,complete certified copies of all policies,including
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complete certified copies of all endorsements.All copies of policies and
certified endorsements shall show the signature of a person authorized by
that insurer to bind coverage on its behalf.
4.4.3 Notice of Reduction in or Cancellation of Coverage. A certified
endorsement shall be attached to all insurance obtained pursuant to this
Agreement stating that coverage shall not be suspended, voided, canceled
by either party, or reduced in coverage or in limits,except after thirty(30)
days'prior written notice by certified,mail,return receipt requested,has
been given to the City. In the event that any coverage required by this
section is reduced, limited,cancelled, or materially affected in any other
manner, Consultant shall provide written notice to City at Consultant's
earliest possible opportunity and in no case later than ten(10)working
days after Consultant is notified of the change in coverage.
4.4.4 Additional insured;_nrimary insurance. As evidenced by a certified
endorsement, City and its officers, employees,agents,and authorized
volunteers'shall be covered as additional insureds with respect to each of
the following: liability arising out of activities performed by or on behalf
of Consultant, including the insured's general supervision of Consultant;
products and completed operations of Consultant,as applicable;premises
owned,occupied,or used by Consultant; and automobiles owned,leased,
or used by the Consultant in the course of providing services pursuant to
this Agreement. The coverage shall contain no special limitations on the
scope of protection afforded to City or its officers, employees, agents, or
authorized volunteers.
A certified endorsement must be attached to all policies stating that
coverage is primary insurance with respect to the City and its officers,
officials,employees and volunteers, and that no insurance or self-
insurance maintained by the City shall be called upon to contribute to a
loss under the coverage.
4.4.5 Deductibles and Self-insured Retentions. Consultant shall disclose to
and obtain the approval of City for the self-insured retentions and
deductibles before beginning any of the services or work called for by any
term of this Agreement.
During the period covered by this Agreement, only upon the prior express
written authorization of Contract Administrator, Consultant may increase
such deductibles or self-insured retentions with respect to City,its officers,
employees, agents,and volunteers. The Contract Administrator may
condition approval of an increase in deductible or self-insured retention
levels with a requirement that Consultant procure a bond guaranteeing
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payment of losses and related investigations, claim administration, and
defense expenses that is satisfactory in all respects to each of them.
4.4.6 Subcontractors. Consultant shall include all subcontractors as insureds
under its policies or shall furnish separate certificates and certified
endorsements for each subcontractor. All coverages for subcontractors
shall be subject to all of the requirements stated herein.
4.4.7 Variation. Contract Administrator may approve in writing a variation in
the foregoing insurance requirements,upon a determination that the
coverage, scope,limits,and forms of such insurance are either not
commercially available, or that the City's interests are otherwise fully
protected. -
4.5 Remedies. In addition to any other remedies City may have if Consultant fails to
provide or maintain any insurance policies or policy endorsements to the extent
and within the time herein required, City may,at its sole option, exercise any of
the following remedies,which are alternatives to other remedies City may have
and are not the exclusive remedy for Consultant's breach:
• Obtain such insurance and deduct and retain the amount of the premiums for
such insurance from any sums due under the Agreement;
• Order Consultant to stop work under this Agreement or withhold any
payment that becomes due to Consultant hereunder,or both stop work and
withhold any payment,until Consultant demonstrates compliance with the
requirements hereof; and/or
• Terminate this Agreement.
Section 5. INDEMNIFICATION Consultant shall indemnify, defend with counsel selected
by the City and hold harmless the City and its officials,officers,employees. agents and
authorized volunteers from and against any and all losses, liabilities,claims, suits, actions,
damages or causes of action arising out of any personal injury,bodily injury,loss of life or
damage to property,or any violation of any federal,state or municipal law,regulation or
ordinance,to the extent caused, in whole or in part,by the willful misconduct or negligent acts or
omissions of Consultant or its employees, subcontractors or agents,by acts for which they could
be held strictly liable, or by the quality or character of their work.
The foregoing obligation of Consultant shall not apply when(1)the injury,loss of life,damage
to property or violation of law arises wholly from the negligence or willful misconduct of the
City or its officers,employees, agents or authorized volunteers and(2)the actions of Consultant
or its employees, subcontractors or agents have contributed in no part to the injury, loss of life,
damage to property, or violation of law. It is understood that the duty of Consultant to indemnify
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and hold harmless includes the duty to defend as set forth in Section 2778 of the California Civil
Code. Acceptance by City of insurance certificates and endorsements required under this
Agreement does not relieve Consultant from liability under this indemnification and hold
harmless clause. This indemnification and hold harmless clause shall apply to any damages or
claims for damages whether or not such insurance policies shall have been determined to apply.
By execution of this Agreement, Consultant acknowledges and agrees to the provisions of this
Section and that it is a material element of consideration and that it shall survive termination of
this Agreement.
Section 6. STATUS OF CONSULTANT.
6.1 Independent Contractor. At all times during the term of this Agreement,
Consultant shall be an independent contractor and shall not be an employee of
City. City shall have the right to control Consultant only insofar as the results of
Consultant's services rendered pursuant to this Agreement and assignment of
personnel pursuant to Subparagraph 1.3;however, otherwise City shall not have
the right to control the means by which Consultant accomplishes services
rendered pursuant to this Agreement. Notwithstanding any other City,state,or
federal policy,rule,regulation,law,or ordinance to the contrary, Consultant and
any of its employees, agents,and subcontractors providing services under this
Agreement shall not qualify for or become entitled to any compensation,benefit,
or any incident of employment by City,including but not limited to eligibility to
enroll in the California Public Employees Retirement System(PERS)as an
employee of City and entitlement to any contribution to be paid by City for
employer contributions and/or employee contributions for PERS benefits.
Section 7. LEGAL REOUMEMENTS.
7.1 Governinla Law. The laws of the State of California shall govern this
agreement.
7.2 Compliance with Applicable Laws. Consultant and any subcontractor shall
comply with all applicable local,state and federal laws and regulations applicable
to the performance of the work hereunder.
7.3 Licenses and Permits. Consultant represents and warrants to City that
Consultant and its employees, agents, and any subcontractors have all licenses,
permits,qualifications, and approvals of whatsoever nature that are legally
required to practice their respective professions. Consultant represents and
warrants to City that Consultant and its employees, agents,any subcontractors
shall,at their sole cost and expense,keep in effect at all times during the term or
this Agreement any licenses,permits,and approvals that are legally required to
practice their respective professions. In addition to the foregoing, Consultant and
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any subcontractors shall obtain and maintain during the term of this Agreement
valid Business Licenses from City.
Section 8. TERMINATION AND MODIFICATION.
8.1 Termination. City may cancel this Agreement at any time and without cause
upon written notification to Consultant.
Consultant may cancel this Agreement upon 30 days'written notice to City and
shall include in such notice the reasons for cancellation.
In the event of termination, Consultant shall be entitled to compensation for
services performed to the effective date of termination; City,however, may
condition payment of such compensation upon Consultant delivering to City any
or all documents,photographs,computer software,video and audio tapes, and
other materials provided to Consultant or prepared by or for Consultant or the
City in connection with this Agreement.
8.2 Extension. City may,in its sole and exclusive discretion,extend the end date of
this Agreement beyond that provided for in Subsection 1.1. Any such extension
shall require a written amendment to this Agreement, as provided for herein.
Consultant understands and agrees that,if City grants such an extension, City
shall have no obligation to provide Consultant with compensation beyond the
agreed upon fee schedule in Exhibit B. Similarly,unless authorized by the
Contract Administrator, City shall have no obligation to reimburse Consultant for
any otherwise reimbursable expenses incurred during the extension period.
8.3 . Amendments. The parties may amend this Agreement only by a writing signed
by all the parties.
8.4 Assignment and Subcontracting. City and Consultant recognize and agree that
this Agreement contemplates personal performance by Consultant and is based
upon a determination of Consultant's unique personal competence, experience,
and specialized personal knowledge. Moreover,a substantial inducement to City
for entering into this Agreement was and is the professional reputation and
competence of Consultant. Consultant may not assign this Agreement or any
interest therein without the prior written approval of the Contract Administrator.
Consultant shall not subcontract any portion of the performance contemplated and
provided for herein,other than to the subcontractors noted in the proposal,
without prior written approval of the Contract Administrator. In the event that
key personnel leave Consultant's employ, Consultant shall notify City
immediately.
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8.5 Survival. All obligations arising prior to the termination of this Agreement and
all provisions of this Agreement allocating liability between City and Consultant
shall survive the termination of this Agreement.
8.6 OUtiOns upon Breach by Consultant. If Consultant materially breaches any of
the terms of this Agreement, City's remedies shall include,but not be limited to,
any or all of the following:
8.6.1 Immediately terminate the Agreement;
8.6.2 Retain the plans, specifications,drawings,reports,design documents, and
any other work product prepared by Consultant pursuant to this
Agreement;
8.6.3 Retain a different consultant to complete the work described in Exhibit A
not finished by Consultant; or
8.6.4 Charge Consultant the difference between the cost to complete the work
described in Exhibit A that is unfinished at the time of breach and the
amount that City would have paid Consultant pursuant to Section 2 if
Consultant had completed the work.
Section 9. KEEPING AND STATUS OF RECORDS.
9.1 Records Created as Part of Consultant's Performance. All reports,data,
maps,models,charts,studies,surveys,photographs,memoranda,plans, studies,
specifications,records,files,or any other documents or materials, in electronic or
any other form that Consultant prepares or obtains pursuant to this Agreement and
that relate to the matters covered hereunder shall be the property of the City.
Consultant hereby agrees to deliver those documents to the City upon termination
of the Agreement. It is understood and agreed that the documents and other
materials,including but not limited to those described above,prepared pursuant to
this Agreement are prepared specifically for the City and are not necessarily
suitable for any future or other use. City and Consultant agree that,until final
approval by City,all data,plans, specifications,reports and other documents are
confidential and will not be released to third parties without prior written consent
of both parties unless required by law.
9.2 ConsuItant's Books and Records. Consultant shall maintain any and all ledgers,
books of account, invoices,vouchers, canceled checks, and other records or
documents evidencing or relating to charges for services or expenditures and
disbursements charged to the City under this Agreement for a minimum of three
(3)years,or for any longer period required by law,from the date of final payment
to the Consultant to this Agreement.
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9.3 Inspection and Audit of Records. Any records or documents that Section 9.2 of
this Agreement requires Consultant to maintain shall be made available for
inspection, audit,and/or copying at any time during regular business hours,upon
oral or written request of,the City. Under California Government Code Section
8546.7, if the amount of public funds expended under this Agreement exceeds
Ten Thousand Dollars ($10,000.00),the Agreement shall be subject to the
examination and audit of the State Auditor,at the request of City or as part of any
audit of the City,for a period of three (3)years after final payment under the
Agreement.
Section 10. MINCELLANEOUS PROVISIONS.
10.1 Attorneys' Fees. If either party to this Agreement brings any action,including an
action for declaratory relief,to enforce or interpret the provision of this
Agreement,the prevailing party shall be entitled to reasonable attorneys'fees in
addition to any other relief to which that party may be entitled. The court may set
such fees in the same action or in a separate action brought for that purpose.
10.2 Venue. In the event that either party brings any action against the other under this
Agreement,the parties agree that trial of such action shall be vested exclusively in
Riverside County.
10.3 Severability, If a court of competent jurisdiction finds or rules that any provision
of this Agreement is invalid,void, or unenforceable,the provisions of this
Agreement not so adjudged shall remain in full force and effect. The invalidity in
whole or in part of any provision of this Agreement shall not void or affect the
validity of any other provision of this Agreement.
10.4 No Implied Waiver of Breach. The waiver of any breach of a specific provision
of this Agreement does not constitute a waiver of any other breach of that term or
any other term of this Agreement.
10.5 Successors and Assigns. The provisions of this Agreement shall inure to the
benefit of and shall apply to and bind the successors and assigns of the parties.
10.6 Consultant Representative. All matters under this Agreement'shall be handled
for Consultant by
10.7 City Contract Administration. This Agreement shall be administered by the
City's Administrative Services Director("Contract Administrator"). All
correspondence shall be directed to or through the Contract Administrator or his
or her designee.
10.8 Notices. Any written notice to Consultant shall be sent to:
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Chandler Asset Management
6225 Lusk Blvd., Suite B
San Diego,CA 92121
Any written notice to City shall be sent to the Contract Administrator with a copy
to:
City Manager
10.9 Intmation. This Agreement,including the scope of work attached hereto and
incorporated herein as Exhibit A.the fee schedule attached hereto and
incorporated herein as Exhibit B, and the Investment Policy attached hereto and
incorporated herein as Exhibit C,represents the entire and integrated agreement
between City and Consultant and supersedes all prior negotiations,
representations, or agreements,either written or oral.
10.10 Counterparts, This Agreement may be executed in multiple counterparts, each
of which shall be an original and all of which together shall constitute one
agreement.
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The Parties have executed this Agreement as of the Effective Date.
CITY OF MENIFEE CONSULTANT
Wallace W. Edgerton, May r
Attest:
Kathy Bennett,City Clerk
Approved as to Form:
Elizabeth Martyn, City Attorney
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C,11 CHANDLER
ASSET San Diego I Pleasanton Denver
MANAGEMENT
Response to Request for Qualifications
Professional Investment Management Services
City of Menifee
Kay Chandler
President
l August 27, 2009
J
6225 Lusk Blvd.
San Diego,CA 92121
Tou RtEE 800.317.4747
l FAx 858.546,3741
www chandlerassetcom
J
CHANDLER
ASSET
i MANAGEMENT
l .
l
Response to Request for Qualifications
Professional Investment Management Services
City of.1V.fenifee
ti
J
Table of Contents
1 EXECUTNE SUMMARY..........................................................................................................................2
1 CHANDLER ASSET MANAGEMENT QUALIFICATIONS....................................................................4
PRICINGDOCUMENT.............................................................................................................................13
J
J
J
1 �1% I ASSET CHANDLER
MMAGEMENT
J
EXECUTIVE SUMMARY
Managing public funds effectively has become ever more challenging through these last few years of global
1 financial turmoil combined with historically low short-term interest rates. By retaining an investment
J adviser,the City of Menifee has taken an important step in leveraging the limited time and resources of the
City's staff, and benefiting from the resources and expertise of firms that devote all of their skills and
resources to managing public funds.
SCOPE OF SERVICES
Your RFQ offers an investment manager the opportunity to partner with the City of Menifee in managing
approximately $7 million of City funds. The overall Scope of Services is to provide investment
management services for the City's designated idle cash reserves in accordance with the City's Investment
Policy. In addition,the investment manager will be expected to attend meetings with the City as requested
including a semi-annual presentation to the City Council to discuss the investment market,projections of
market conditions,and the City's portfolio. With 21 years of experience managing public funds,67.clients
and nearly $4 billion under management,Chandler has the expertise and resources needed to provide the
investment management services you have requested. We describe our qualifications in detail throughout
our proposal.
In addition to investment management services,you also request various financial advisory services related
to bond issuance. Chandler's clients benefit significantly from our sole focus on the management of
investment grade portfolios. Although we do not provide financial advisory services, we have close
relationships with firms who do. We can assist the City in finding a financial advisor when needed. Our
proposal and fee schedule are for the services relating to investment management only.
PARTNERING WITH THE CITY OF MENIFEE
Chandler Asset Management is well qualified to partner with the City of Menifee in this endeavor. The
professional team at Chandler has the experience and expertise to provide a high level of service and
performance to the City:
a President and Founder Kay Chandler sets the strategic direction of the firm and works directly with
clients.
a Chief Investment Officer Martin Cassell leads the investment team.
a Investment Strategist Brian Perry is dedicated to research and client communication.
a Three senior portfolio managers,all designated as Chartered Financial Analysts,average 15 years
of industry experience.
a Credit Analyst Shelly Henbest analyzes and assesses the credit suitability of debt issuers and assists
Portfolio Managers in the investment management process.
1 a Chief Operating Officer Nicole Dragoo leads a separate investment operations group that settles
J trades and provides client portfolio accounting and reporting.
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J Our team blends current technological resources with them own experience and judgment to provide
J effective portfolio management and personalized service.
1 • Chandler's proprietary systems include a quantitative Horizon Analysis Model for structuring
1 portfolios and a multi-step credit process that identifies quality issuers.
• Resources for research include Bloomberg, electronic trading platforms, Egan Jones Ratings
Company and Stone&McCarthy Research Associates.
• The Charles River Development System provides detailed compliance monitoring and seamless
straight-through processing of transactions,enhancing both efficiency and accuracy of client trades
and reports.
Chandler's professionals have a commitment to client service that is equal to their dedication to
1 client-centered portfolio management.
J • Timely and complete portfolio accounting and reporting.
• A regular schedule of client meetings.
• Frequent communication between our team and yours.
THE CHANDLER ADVANTAGE
In 1988, Kay Chandler founded Chandler Asset Management, a California company that manages high
grade fixed income portfolios for public agencies, foundations, endowments and corporations. Our total
1 independence from broker/dealers,banks,and other financial institutions has served us well throughout our
J years of operation, especially in the current environment where some farms are struggling with their
business models and are merging or downsizing. Chandler has stayed true to its business model and
continues to expand. We manage close to$4 billion in assets for 67 clients.
The team environment in which we manage our clients' investment programs provides efficient and
effective integration of all aspects of the investment program—portfolio management, policy review,
compliance,operations,consulting,accounting and reporting. We hope you have the opportunity to talk
with some of our clients to find out what they think about;
• The level of service we provide.
• The way we manage risk in their portfolio.
• The quality and comprehensiveness of our reports.
• The timely, attention we give to their requests.
• The ability to talk directly to their portfolio manager.
• Our investment performance.
The following proposal presents detailed information about our firm, our experience, our investment
philosophy and process, and our commitment to serving public agency clients. We welcome the
opportunity to meet with you in person to demonstrate how Chandler Asset Management will add value to
your investment program and achieve your stated objectives. We hope you will visit our main office in
San Diego to see the environment in which our team utilizes sophisticated resources to implement our
disciplined investment process.
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CHANDLER ASSET MANAGEMENT QUALIFICATIONS
1 License to practice in California
J Chandler Asset Management is a California corporation in good standing with the Secretary of State and a
1 certified woman-owned business enterprise. Our main office is located in San Diego,California.
Chandler is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940(See
Appendix A for ADV Part H). We have filed proper notice in the state of California Each investment
professional responsible for portfolio management at Chandler is a Chartered Financial.Analyst (CFA)
charter holder and also registered with the state of California as an investment adviser representative of the
firm.
Independence and no conflicts of interest
Chandler is completely independent and 100% employee owned. Chandler has no affiliations with
broker/dealers,banks,or other financial institutions.
Chandler is also independent of the City of Menifee. Neither the firm,nor any of its staff,has any conflicts
of interest with the City.
Firm Qualifications and Experience
The primary focus for Chandler Asset Management since our inception in 1988 has been managing funds
1 for governmental entities like Menifee. Our investment professionals apply time-tested, results-proven
concepts of conservative fixed income management to the challenges of investing public funds, thereby
successfully achieving our clients' specific objectives and constraints of safety, liquidity and reasonable
rates of return.
Of our 67 clients and$3.9 billion under management,we currently advise 51 public agency clients with
assets totaling $3.3 billion. We also provide investment consulting without direct management to two
large public agencies with combined assets of approximately$10 billion. We have substantial experience
managing the assets of other fixed income investors, including not-for-profit healthcare providers,
foundations and endowments.This experience with investors outside the public sector enhances our ability
to bring the best practices of the private sector to our governmental clients.
Chandler has a staff of seventeen. Fifteen of the seventeen team members will be involved in various ways
delivering the services you requested. The key professionals delivering services to Menifee will be.the
investment team headed up by your'lead portfolio manager,Ted Piorkowski. We will provide the City
portfolio management,client support and reporting services from our main office in San Diego,located at:
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6225 Lusk Blvd. Suite B
San.Diego, CA 92121
J Tel: 858.546.3737
Fax: 858.546.3741
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1 Partner,Supervisory and Staff Qualifications and Experiences
1 KEY ADMINIMATION AND MANAGEMENT PERSONNEL.
1 Kay Chandler,President,and Martin Cassell,CEO and Chief Investment Officer,are primarily responsible
J for firm administration and management. Nicole Dragoo,Chief Operating Officer and Chief Compliance
Officer, plays a significant role in managing day-to-day operations at the firm, and also has major
1 responsibility for regulatory compliance.
TEAM QUALIFICATIONS AND EXPERTISE
Our team of highly qualified investment professionals has extensive experience designing and
J implementing investment programs that meet the investment objectives of our clients.The principals,Kay
J Chandler and Martin Cassell set the standard. Both began their careers as investment officers for Iarge
public agencies.Ms.Chandler served as investment officer for San Diego County,and later for.the City of
San Diego for a total of over ten years.Mr.Cassell also served as an investment officer for the City of San
Diego. Ms. Chandler has managed public sector portfolios for over 30 years, while Mr. Cassell's
experience with public portfolios spans over 21 years.
1 The experience the firm's principals gained as investment officers within large public agencies contributes
significantly to their unique qualifications and perspectives in leading a firm that manages public funds.
Ms. Chandler and Mr.Cassell have carefully assembled a team of professionals that have the specialized
1 expertise and diverse skills necessary to implement highly effective investment management programs for
local agencies. Each of our portfolio managers has earned the designation of Chartered Financial Analyst,
a rigorous certification program that is a globally recognized standard for measuring the competence and
integrity of investment professionals.
Following is an introduction to the team of professionals that will be directly involved with the City of
Menifee's account,including their current responsibilities within the firm,as well as the role they will play in
the City's engagement.
CHANDLER TEAM
Kay Chandler,CFA Client service 1975 1988
President Strategic firm oversight
1 Martin Cassell,CFA Development of investment strategy
Leader of investment team 1987 1991
CEO,Chief Investment Officer Oversight of firm's business
j Supervision of investment team
j Ted PiorkowsK CFA Portfolio management/trading 1987 1999
SVP, Lead Portfolio Manager Portfolio strategy implementation
1 Lead PM for the City of Menifee
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Economic analysis
Brian Perry Investment research 1996 2005
VP,Investment Strategist Portfolio strategy
Client communication
Jayson Schmitt,CFA Portfolio management/trading 1994 1995
VP,Portfolio Manager Corporate credit analysis
Marco Nicoll,CFA Portfolio management(trading
VP,Portfolio Manager Quantitative research 1999 2004
Back-up PM for the City
Shelly Henbest Credit analysis 2000 2009
Credit Analyst
? Eric Young Trading 2005 _ 2007
Associate,Portfolio Specialist Analytic support
Leader of 3-person investment
Nicole Dragon,JD
COO,Chief Compliance Officer operations team 2000 2001
For detailed resumes of all team members who will participate in this engagement, please see the Team
Biographies in Appendix B.
Ted Piorkowski will serve as your lead portfolio manager and primary contact and Marco Nicoli will serve
as his back up.All members of the team will be familiar with all aspects of the relationship.Your requests
1 for information can be processed efficiently by any member of the team.
J INVOLVEMENT IN PROFESSIONAL ORGANIZATIONS
Maintaining an authoritative presence in the specialized area of government investment advice is crucial to
the firm and to our clients. Staff members recognize the importance of staying current on developments
that may impact local governments, and lend their own expertise to develop recommendations and best
practices for advisers and their clients. Our involvement occurs on several levels.
Professional staff members are active in Government Finance Officers Association(GFOA), California
Society for Municipal Finance Officers(CSMFO),California Municipal Treasurers Association(CMTA),
California Debt and Investment Advisory Commission(CDIAC)and other regional associations,where we
have been involved as advisers to committees, instructors at education workshops, presenters at
conferences and contributing authors to publications.
Kay Chandler is one of three co-authors of The California Investment Primer, a reference book
commissioned by the California State Treasurer's Office for California public fund managers. We are
involved in advising on revisions and updates to CDIAC's Local Agency Investment Guidelines, a
publication to assist local officials interpret and implement investment laws in the California Government
Code.
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Similar Services with Other Government Entities
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Chandler has been providing the same investment management services to our government entity clients
that the City of Menifee has requested since 1988. Fifty-one of our 67 clients are government entities.
II Following are four client references for Chandler Asset Management. A complete list of our clients is
available upon request.
CHANDLER ASSET MANAGEMENT
PUBLIC AGENCY RXftRENCES
y June 30,2009
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City of Brea Discretionary Mr.William Gallardo
Discretionary
One Civic Center Circle $111.8 million Portfolio 1996 Finance Director
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Brea,CA 92821 Management 714-671 rea.
b'll a ci.l�rea.ca.us
City of Corona Discretionary T Haley
I 400 South Vicentia Avenue $194.2 million Portfolio 2006 TreasurerDic
951-279-3500
Corona,CA 92882 Management
dick.ha]qy(@cLcorona.ca.us
1 City of San Berndino Discretionary N,r.David Kennedy
ar .
300 North D Street,Second Floor $27.4 million Portfolio 2005 909-3 Treasurer
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San Bernardino,CA 92418 Management &
davidkennedv gpa a nl.com
I� City of Westminster Discretionary •Paul Espinoza
1 8200 Westminster Blvd. $144.8 million Portfolio 2003 Finance Director
Westminster,CA 92683 Management 714-898-3311
cimestminster.ca.tas
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J Specific Investment Management Approach
INVESTMENT MANAGEMENT SERVICES
• Portfolio Management—Our portfolio management team employs a highly disciplined approach to
managing portfolios. They use their years of investment experience,acquired through various market
environments, to structure portfolios that achieve our clients' objectives. Our investment discipline
generates competitive results by:
o Focusing on and effectively managing the risk in the portfolios.
o Rebalancing the portfolio as needed to maintain the proper profile.
1 o Performing detailed due diligence on securities considered for purchase to determine
J creditworthiness and liquidity.
o Selecting securities that have the best value at the time a strategy is being implemented.
o Using our proprietary,quantitative Horizon Analysis Model to test portfolio structures to
determine the optimal structure for the current interest-rate and yield-curve environment.
Investment Policy Review—Our partnership with our clients begins with a thorough review of their
1 investment policy so we clearly understand their investment objectives and constraints. We review
their policy at least annually and recommend revisions when necessary.
• Competitive Transaction Executions,Settlement and Documentation—We execute all investments.
on a competitive basis to get the best price for the investment. We also settle trades for our clients.
] We provide full and detailed documentation of all investment activities including trade tickets,broker
confirmations and safekeeping paperwork.
• Portfolio Accounting and Reporting — Our operations department maintains full portfolio
accounting. Chandler clients receive a monthly report that presents management summaries of
portfolio characteristics, policy compliance and performance, as well as full accounting detail. The
monthly report includes an asset listing with cost, book and market values, a transaction ledger, an
J earned interest report,and total return information,compared to the client's selected benchmarks. All
reports are available on the third business day following month-end. Through our Chandler Report
Viewer website the City will have secure online access to daily updates of transactions and holdings and
historic monthly and quarterly reports. Sample Monthly,Quarterly and GASB 40 reports are provided
in Appendix C.
• Compliance Monitoring and Reporting —Your specific policy constraints and objectives will be
input into the Charles River Development Investment Management System which monitors portfolio
compliance with investment policies and objectives for each client. Included in the monthly report is a
compliance report that summarizes the compliance in each relevant category.
1 Client Training and Education- Several of our investment professionals are regular presenters and
Jfaculty members for national and regional associations. We offer our clients training that can be done
with their staff,investment committee and/or other officials.
• Communication-We keep our clients fully informed of investment strategies,market conditions and
any developments that have relevance to their investment program. We meet with them as often as
they request to review their investment program and performance. Usually our clients request
quarterly teleconference updates with their finance staff and semi-annual or annual in-person reviews
1 with their governing board. Our investment professionals are always available by phone to answer
J any questions.
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INVESI`MENT MANAGEMENT PROCESS
Chandler's investment management process consists of three main components: portfolio construction,
security selection,and portfolio rebalancing.
1. Portfolio Construction
A proprietary Horizon Analysis Model is the quantitative foundation for Chandler's portfolio construction
1 process. The Model enables our portfolio management team to integrate its research into the portfolio
management process in a quantitative,disciplined and repeatable way.
Inputs to the Model include(1)current yields on Treasury, agency and(if permitted)corporate securities,
(2)specific client constraints, such as maturity restrictions,cashflow needs,or maximum sector exposure .
and(3)nine different forecasted interest rate scenarios that may occur at the 6-month horizon date.
Through an iterative process,the Model generates the"optimal portfolio structure" (maturity distribution
and sector allocation),which we define as the portfolio that achieves a return greater than the benchmark in
each of the nine scenarios.That is,the Model generates a portfolio structure that we expect will outperform
the portfolio's benchmark over a wide range of possible future interest rate movements.
The optimal portfolio structure is then critically evaluated by the portfolio management team.Based upon
their expertise and judgment,the team makes any necessary changes and begins the construction of the
1 optimal portfolio. This combination of a rigorous quantitative structure and experienced qualitative
oversight is a hallmark of all Chandler's portfolio management activities.
1 2. , Security Selection
J The second step in the Chandler portfolio management program is the selection of individual securities that
will be held in the optimal portfolio. Team members analyze market conditions and review dealer
inventories in order to find securities that are best suited to meet the Model's recommended portfolio
structure, and which have high relative value. The selection process incorporates the rigorous credit
review process described on Page 20 along with quantitative valuation techniques.
Trades are executed on a competitive basis with broker/dealers on our approved list and are settled on a
delivery vs. payment basis into the client's custody account.
J 3. Portfolio Rebalancing
Our philosophy is to manage a client's portfolio to risk profile targets; therefore, the ongoing portfolio
management process includes periodic portfolio rebalancing in order to maintain the proper risk profile.
J We typically run the Horizon Analysis Model at least once a month to determine if changes in market
conditions warrant portfolio rebalancing.
} ADDING VALUE
Jj We believe that over the long run, effective risk management enhances the potential for higher returns
while maintaining public entities' primary objectives of safety and liquidity. We believe we are able to
actualize that philosophy by implementing portfolios that meet each client's investment objectives for
safety and liquidity while seeking to generate additional returns through incremental outperformance of the
client's benchmark in all market environments.
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Our primary strategy for adding value to portfolios is applying a disciplined,repeatable process to manage
risk in our clients'portfolios. Our process includes:
1. Understanding each client's investment objectives and constraints.
J2. Maintaining the proper duration in the portfolio in relation to the duration of the client-selected
benchmark.
3. Maintaining the optimal term structure,or placement of securities along the yield curve.
1 4. Actively managing security selection and sector allocation based on analysis of market and credit
J condition and in compliance with client investment guidelines.
5. Analyzing relative value of securities and continuously reviewing dealer inventories to identify
securities that offer the best value for implementing our strategies.
6. Maintaining an ongoing dialogue with each client through periodic investment meetings, and
telephone contact with City staff.
Chandler develops and implements portfolio strategies that are tailored to meet the exact needs of each
client. Portfolios with similar characteristics are grouped into composites for the purpose of computing
1 and reporting GIPS® -compliant performance results. The GIPS"' standards are a set of standardized,
industry-wide ethical principles that provide investment firms with guidance on how to calculate and report
their investment results to prospective clients. The Standards facilitate comparison among investment
lfirms.
We have provided annualized composite returns in the table on the following page for three investment
styles most often selected by our public agency clients. The returns are measured over a ten year period
ending June 30,2009.The performance of each style is compared to the performance of its benchmark.
The first investment style is the Chandler Ultra Short Bond that has a duration of 0.97 years as of June 30,
J 2009 and has as its benchmark the Merrill Lynch 0-3 Year Treasury Index. Our Ultra Short Bond style
J outperformed its benchmark by 49 basis points over the last ten years.
1 The next investment style is the Chandler Limited Maturity which has a duration of 1.84 years as of June
J 30,2009 and has as its benchmark the Merrill Lynch 1-3 Year Treasury Index. Our Limited Maturity style
outperformed its benchmark by 40 basis points over the last ten years.
The final investment style in the table is the Chandler Short Term Bond that has a duration of 2.44 years as
of June 30,2009 and has as its benchmark the Merrill Lynch 1-5 Year Government Index. Our Short Term
1 Bond style outperformed its benchmark by 33 basis points over the last ten years.
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June 30,2009
InvesIrric-,ot Stylu Portfolio 10 Years Ending 10 Yoars EndingAnnualizod Total Return
ii(Gross of fces)
Chandler Ultra Short Bond 0 97 4.33% 3.84%
ML 0-3 Treasury
Chandler Limited Maturity 1.84 4.99% 4.59%
j ML 1-3 Treasury
1 Chandler Short Term Bond 2.44 5.45% 5.12%
ML 1-5 Year Government
Chandler Asset Management performance is prepared and presented in compliance with GIPS®(Global
Investment Performance Standards),and has been independently verified. Please refer to Appendix D for
J our GIPS®-compliant performance presentation on our returns since inception, and a copy of the GIPS®
J compliance verification statement.
l Although past performance is no guarantee of future results,we believe the professional services we offer,
J and the performance we achieve,will provide value to our clients well in excess of the fees we charge.
IMPLEMENTING MENIFEE'S INVESTMENT PLAN
Chandler's team will collaborate with you to select a market benchmark with a risk profile (modified
duration and credit exposure)that reflects both your investment objectives and your policy constraints.
1 We have implemented a segmented portfolio approach for many of our clients that includes a liquidity
Jcomponent and a reserve component. The liquidity portfolio is structured to provide sufficient funds for
near-term disbursements. The reserve portfolio is designed to enhance earnings and long-term growth.
Once the benchmark selection process is complete, both the City and our team will have a solid
understanding of how to structure your portfolio to maintain a risk profile that achieves yourobjectives and
complies with your constraints. You will have decided on a target duration and asset allocation for your
l short-term liquidity component and for the reserve or longer term, growth-oriented component of the
1 portfolio.
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1 The City's investment policy includes guidelines on permitted investments. Within those parameters,we
1 would make the following recommendations for the portfolio,which are similar to the'recommendations we
have implemented for our existing public agency clients with similar portfolio characteristics. Our goal is
1 to achieve returns that regularly and modestly exceed the return on your benchmark.
J 1. Overnight Liquidity: Our current recommendation for overnight liquidity is investment in LAIF,
1 which remains,in our opinion,the safest alternative for public agencies in California,as well as the
J highest yielding. Settled law makes it clear that the State cannot borrow or take funds invested in
LAIF. Our investment team stays in close contact with the investment staff at LAIF and we are
1 confident in their prudence and professionalism.
J2. Reserve Portfolio Duration: At this time,we recommend that the current duration of the reserve
portfolio be slightly longer (1-2% longer) than the duration of the selected benchmark. With a
steep yield curve(i.e., longer rates much higher,on a historical basis,than shorter rates),a slightly
longer duration will allow the portfolio to benefit from the"roll down"effect.Roll down is a form of
return that arises when the value of a bond converges to par as its term to maturity shortens,and is
beneficial to the portfolio in a steep yield curve environment.
3. Sector Allocation: We recommend a 15%allocation to US Treasury securities at this time,due to
the fact that the economic environment is still uncertain, and the credit problems of 2008 are not
fully resolved. US Treasuries remain the safest investment in the world. The incremental yield on
federal agency securities compared to Treasuries is below its historic average. Although at this
time we do recommend an allocation to federal agency securities of approximately 65%due to their
modestly higher yield,we would normally have an even higher allocation to agencies.Finally, we
recommend investment in US guaranteed Treasury Liquidity Guarantee Program(TLGP)corporate
notes of approximately 20%for their added yield as well as for additional diversification.
Along with risk and volatility, the credit crisis of 2008-09 has brought opportunity to public
investors. One opportunity which we recommend is investing in corporate securities issued under
the TLGP. These securities, issued by certain corporations, are guaranteed by the full faith and
credit of the United States for timely repayment of principal and interest.This guarantee means that
TLGP bonds are legal investments under California Government Code Section 53601. They offer
y diversification and yields that are comparable to the yields on agencies such as FNMA and FHLMC.
J 4. Term Structure (Yield Curve Placement): We currently recommend that the portfolio have a
slightly bulleted structure,meaning that we will weight maturities around the average duration of the
portfolio,rather than as a maturity ladder. Such a bulleted structure tends to perform best in the type
of steep yield curve environment that we currently see.
5. Security Selection: Our security selection process focuses on fording securities to insert into the
portfolio that have high relative value in the Treasury and agency sectors. We also recommend
l staying with the highest quality underlying credit within the TLGP sector to avoid"headline risk".
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PRICING DOCUMENT
Chandler Asset Management will be pleased to provide all of the services described in this proposal to the
City of Menifee in accordance with the fee schedule provided in the separate envelope marked"Investment
Cost,City of Menifee".
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Exhibit B
City shall compensate Chandler Asset Management monthly an amount calculated on the
average market value of City's portfolio,including accrued interest,in accordance with the
following schedule:
Assets Under Management Annual Investment Management Fee
First$20 million 0.12 of 1%(12 basis points)
Next$40 million 0.09 of 1%(9 basis points)
Assets in excess of$60 million 0.06 of 1% (6 basis points)
The fees expressed above do not include any custody fees that may be charged by City's
bank or other third party custodian.
Fees shall be prorated to the effective date of termination on the basis of actual days elapsed,
and any unearned portion of prepaid fees shall be refunded. City is not required to pay any
start-up or closing fees;there are no penalty fees and no annual minimum fees.
Exhibit C
CITY OF MENIFEE
STATEMENT OF INVESTMENT POLICY
FISCAL YEAR 2009/10
I. PURPOSE AND POLICY
This statement is intended to provide guidelines for the prudent investment of the City of
Menifee's (City)temporary idle cash., and to outline the procedures for maximizing the efficiency
of the City's cash management system. It is intended to provide meaningful guidance in the
management of the City's investment portfolio and not be overly restrictive given the changing
economic and investment market conditions.
This policy statement shall be reviewed no less than annually by the Finance Committee and
shall be re-adopted by the City Council every year.
It is the policy of the City of Menifee to invest public funds in a manner which will provide the
highest investment return with the maximum security, while meeting the daily cash flow
demands of the entity, and conforming to all state and local statutes governing the investment
of public funds,
II. SCOPE
This investment policy applies to all financial assets of the City. These funds are accounted for
in the official City accounting records and the City's Comprehensive Annual Financial Report
and include the following funds:
A. General Fund
B. Special Revenue Funds
C. Capital Project Funds
D. Debt Service Funds
E. Trust Accounts
III. PRUDENCE
Investments shall be made with judgment and care—under circumstances then prevailing—
which persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as
well as the probable income to be derived.
The City of Menifee operates it's temporarily pooled cash investments under the "prudent
person" and/or"prudent Investor" standard, Probate Code Section 16040, et. seq., and shall
be applied in the context of managing an overall portfolio. This affords the City a broad
spectrum of investment opportunities as long as the investment is deemed prudent and is
allowable under current legislation of the State of California, Government Code Section 53600,
et. seq.
Investment officers acting in accordance with written procedures-and the investment policy, and
exercising due diligence, shall be relieved of personal responsibility for an individual security's
credit risk or market price changes, provided deviations from expectations are reported timely
and appropriate action is immediately taken to control adverse developments.
Page 1 of 12
Exhibit C
IV. OBJECTIVE
The City's cash management system is designed to accurately monitor and forecast revenues,
expenditures and available balances, thus enabling the City to invest funds for the maximum
term possible.
Preservation and protection of the City's capital is the guiding philosophy of the investment
manager who will manage each portfolio to meet the guidelines stated in the California
Government Code 53600 and 53601. This is a fixed income portfolio comprised of domestic
fixed income instruments and cash equivalents and is intended to be structured in accordance
with the City's objectives. This portfolio will be managed less aggressively than strictly
discretionary fixed income portfolios. In accordance with the investment objectives stated
below, assets in the portfolio will be managed in a conservative manner.
Objectives for selecting investments and the order of priority are:
1. Safe -The safety and risk associated with an investment refers to the potential loss of
principal, interest or a combination of these amounts. The City of Menifee only operates in
those investments that are considered very safe. The City shall not engage in speculation.
2. Liquidity - This refers to the ability to "cash in" at any moment in time with a minimal
chance of losing some portion of principal or interest. liquidity is an important investment
quality, especially when the unexpected need for funds occurs.
3. Yield—This is the potential dollar earnings an investment can provide and sometimes is
described as"rate of return".
The primary Investment objective is:
Safety of Principal
The safety and risk associated with an investment refers to the potential loss of principal,
interest or a combination of these amounts. The City of Menifee only operates in those
investments that are considered very safe.
Preservation of Purchasing Power
Asset growth, exclusive of contributions and withdrawals, should strive to exceed the rate of
inflation in order to preserve the purchasing power of the City's assets. The preservation of
purchasing power is also known as the "Real Rate of Return" (RRR) in the future value of
money concept.
The secondary, but equally important objective is:
Growth of Capital
A. Asset growth, exclusive of contributions and withdrawals, should also be equal to or
exceed the return of the Local Agency Investment Fund (LAIF) plus fees on a consistent basis.
If the investment policies of LAIF should change, this objective will be re-evaluated.
B. Asset growth, exclusive of contributions and withdrawals, should provide a rate of
return competitive with that of an index comprised of the Lehman 10-Year Government /
Corporate Index and 90-Day Treasury Bills, while Incurring similar or less risk than such index.
Page 2 of 12
Exhibit C
Growth of capital shall be expected to be somewhat less than of a more aggressively structured
discretionary fixed income portfolio over time.
C. Cash flow and asset/liability matching information will be made readily available.
Adequate liquid cash should be maintained by the City so that a forced sale of longer-term
securities at a loss is unnecessary to cover short-term cash needs. The overall program shall
be designed and managed with a degree of professionalism worthy of the public trust. Losses
are not acceptable on a sale before maturity and should be taken only if the reinvested
proceeds will result in a total return greater than would have been by the old investment
instrument considering any capital loss of foregone interest on the original investment. While
active management of the account will be utilized to attain the highest returns with the least
amount of risk, only securities that could be held to maturity without loss to the City should be
purchased.
The above objectives are expected to be achieved over a minimum time horizon of 3—5 years.
Given the cyclical nature of the financial markets, the success of the portfolio manager in
achieving these goals should not be judged in any shorter period of time.
V. DELEGATION OF AUTHORITY
Authority to manage the City of Menifee's investment program is derived from City Council
Resolution. Management responsibility for the investment program is hereby delegated to the
City Treasurer who shall be responsible for all transactions undertaken, and shall establish a
system of controls to regulate the activities of subordinate officials and their procedures in
his/her absence.
The City of Menifee's Treasurer is authorized to:
A. Formulate any and all procedures necessary to implement this policy.
B. Determine the allocation of the City's total funds available for investment.
C. Engage investment management consultants to assist in the investment,
management, oversight, evaluation, or other services related to the City's investments.
D. Take other actions, as appropriate and necessary, to implement and carry out this
policy.
VI. INVESTMENT PROCEDURES
The City Treasurer shall establish written investment policy procedures for the operation of the
investment program consistent with this policy. The procedures should include reference to
safekeeping, wire transfer agreements, banking service contracts and collateral/depository
agreements. Such procedures shall include explicit delegation of authority to persons
responsible for investment transactions. No person may engage in an investment transaction
except as provided under the terms of this policy and the procedures established by the City
Manager.
Subject to the limitations stated herein, and when the services of an investment management
consultant are utilized, the designated investment manager is given full discretion consistent
with the investment objective of the investment portfolio. The asset allocation model of the
portfolio between fixed income and cash equivalents will vary according to the investment
manager's outlook for the economy and the financial markets, and in consultation with the City
Page 3of12
Exhibit C
Treasurer. A portion of the portfolio may be allocated to cash equivalents when the investment
manager deems prudent. No investment shall have a maturity greater than five (5)years.
The fixed income portion of the City's investment portfolio will consist entirely of U.S. dollar
denominated, investment grade issues. The portfolio will be well diversified, utilizing U.S.
Treasuries and security issued Federal Agencies. The maturity structure of the portfolio will
vary according to the investment manager's interest rate outlook, tailored within the restrictions
the City of Menifee has specified. The investment manager is an active fixed income manager
and securities will not necessarily be held until maturity.
Short-term investments will consist of U.S. Treasury Bills, floating rate notes or similar
instruments and /or U.S. Government Money Market funds.
VII. ETHICS AND CONFLICTS OF INTEREST
Officers, employees, and agents involved in the investment process for the City of Menifee shall
refrain from personal business... activities that could conflict with the proper execution of the
investment program, or which could impair their ability to make impartial decisions. Officers,
employees, and agents involved in the investment process shall abide by the California
Government Code Section 1090 et. seq., and the California Political Reform Act, California
Government Code Section 81000 et. seq.
Vill. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City Treasurer will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will also be maintained of approved security broker/dealers selected
by credit worthiness who are authorized to provide investment services in the State of
California. These may include "primary" dealers or regional dealers that qualify under
Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit
shall be made except In a qualified public depository as established by state laws.
All financial institutions and broker/dealers who desire to become qualified bidders for
investment transactions must supply the City Treasurer with the following: audited financial
statements, proof of National Association of Security Dealers certification, trading resolution,
proof of state registration, completed broker/dealer questionnaire, and certification of having
read entity's investment policy and depository contracts.
An annual review of the financial condition and registrations of qualified bidders will be
conducted by the City Treasurer. Also, a current audited financial statement is required to be
on file for each financial institution and broker/dealer in which the City invests.
The City Treasurer will require all authorized financial institutions with which City funds are on
deposit to provide a copy of the institution's annual report. The annual report shall include
audited financial statements and any other information deemed pertinent by the City Treasurer.
IX. AUTHORIZED AND SUITABLE INVESTMENTS
The following investments are authorized by the California Government Code, as it may be
amended from time to time.
• Local Agency Investment Fund (Sec. 16429.1)
• County Treasurer demand deposits {Sec. 536841
• Passbook savings demand deposits (Sec. 53635)
Page 4 of 12
Exhibit C
• Certificates of Deposit (5-year maximum) (Sec. 53601 & 53635}
• Bonds issued by the City of Menifee (Sec. 53601 (a))
• Securities of the U.S. Government, or its agencies (Sec. 53601 (b) & (e))
• Registered securities of the State of California (Sec. 53601 (c))
• Securities of other local agencies within the State of California (Sec. 53601 (d)}
• Bankers acceptances (40% maximum) (Sec. 53601 (g)}
• Commercial paper(25% maximum) (Sec. 53601 (h)}
• Negotiable certificates of deposit(30% maximum) (Sec. 53601 ()}
• Repurchase agreements (1-year term maximum) (98% of underlying collateral
maximum) (Sec. 53601 Q)
• Reverse repurchase agreements (92-days maximum, 20% maximum)
(Sec. 53601 (j)}
• Medium term notes of corporations or licensed depository institutions (5-year
maximum) (30% maximum) (Sec. 53601 (k))
• Mutual funds that invest only in State of California authorized investments (20%
maximum combined with 53601(1)(B) below) {Sec. 53601 (k)(A))
• SEC-registered money market mutual funds (20% maximum combined with Sec.
53601 (k)(A) above) (Sec. 53601 (k)(B))
• Asset-backed and mortgage-backed securities (20% maximum) (Sec.53601
(o),(p), Sec. 53651 &Sec. 53652)
However, the City of Menifee limits its investments to the following vehicles:
• Securities of the U.S. Government, or its agencies (US T-Bills, US T-Notes, Federal
Agency Issues such as FICB's, FFCB's, FLB's, FHLB's, FNMA's, SBA's, GNMA's,
TVA's, and SALLIE MAE's).
• Certificates of Deposit (5 year maximum).
• Commercial Paper rated A-1 by Standard & Poor's Corporation or P-1 by Moody's
Commercial Paper Record.
• Banker's Acceptances.
• Local Agency Investment Fund (LAIF).
• Passbook savings demand deposits.
• Mutual funds that invest only in State of California authorized investments.
• SEC-registered money market mutual funds.
• Corporate Bonds rated AA or better.
Any newly developed derivative of an allowable investment that is not specifically mentioned in
this policy must be recommended by the City Treasurer for inclusion in the policy. Any
amendments to the policy must be submitted to the City Council for review and approval.
X. INVESTMENT POOLS AND MUTUAL FUNDS
A thorough investigation of the poollfund is required prior to investing, and on a continual basis.
There shall be a questionnaire developed which will answer the following general questions:
• A description of eligible investment securities, and a written statement of investment
policy and objectives.
• A description of interest calculations and how it is distributed, and how gains and losses
are treated.
• A description of how the securities are safeguarded (including the settlement
processes), and how often the securities are priced and the program audited.
Page 5 of 12
Exhibit C
• A description of who may invest.in the program, how often, what size deposit and
withdrawal are allowed.
• A schedule for receiving statements and portfolio listings.
• A determination of whether reserves, retained earnings, etc. are utilized by the pool.
• A fee schedule, and when and how it is assessed.
• A determination of whether the pool is eligible for bond proceeds and/or will it accept
such proceeds.
XI. PROHIBITED INVESTMENTS
Pursuant to Government Code Section 53601.6, local agencies are prohibited from making
investments in the following vehicles:
• Inverse floaters, range notes, or mortgage-derived interest-only strips
• Zero-interest coupon securities
The City further limits investments by expressly prohibiting investments in the following:
• Stocks
• Futures and options
• Medium term corporate notes
• Asset-backed and mortgage backed securities
• Registered securities of the State of California or other local agencies within
the State of California
• Repurchase agreements
• Reverse repurchase agreements
• Leveraged investments of any kind
• Derivative securities
• Any other investment which in the future may be prohibited by applicable law
XII. SAFEKEEPING AND CUSTODY
Deposits of surplus funds must be made in State or National banks, State or Federal savings
associations or State or Federal credit unions within the State of California. The deposits
cannot exceed the amount of the institution's paid-up capital and surplus.
The institution must collateralize deposits of public funds with eligible securities having a market
value of at least 110% of the total amount of the deposit, except that as eligible collateral, first
trust deeds must have a market value of at least 150% of the total amount of the deposits and
letters of credit drawn on the Federal Home Loan Bank may have a minimum market value of
105%. (Sec. 53652)
The City Treasurer may waive collateral for that portion of a deposit which is insured pursuant
to Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits in
excess of$100,000 are collateralized as previously indicated.
All security transactions entered into by the City of Menifee shall be conducted on a delivery-
versus-payment (DVP) basis. Securities will be held by a third party custodian designated by
the Treasurer and evidenced by safekeeping receipts.
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Exhibit C
XIII. DIVERSIFICATION
The City of Menifee will diversify its investments by security type and institution. Securities
purchases and holdings are maintained within statutory limits imposed by the California
Government Code. The City further limits its investments as follows (as a percentage of the
overall portfolio):
Savings Account No limit
U.S. Treasury Bills - 100% (not more than 30% of the
available funds at the time of investment shall be placed in any one particular agency of
the U.S. Government, i.e. FNMA—Federal National Mortgage Association, GNMA—
Government National Mortgage Association, FFCS—Federal Farm Credit System,
FHLMC—Federal Home Loan Mortgage Corporation and FHLB—Federal Home Loan
Banks. Furthermore, investments in any one financial institution in combination with any
other debt from that institution shall not exceed 20% of the City's surplus funds.)
U.S. Treasury Notes 40% -
Federal Agency Securities 20%
The Local Agency Investment Fund $40,000,000
Certificates of Deposit 10%
Banker's Acceptances 10%
Commercial Paper 10%
Corporate Bonds 25%(only those Corporate Bonds
with a minimum rating of AA or better)
XIV. MAXIMUM MATURITIES
To the extent possible, the City of Menifee will attempt to match its investments with anticipated
cash flow requirements. Unless matched to a specific cash flow, and with prior City Council
approval, the City will not directly invest in securities maturing more than five (5) years from the
date of purchase.
XV. INTERNAL CONTROL
The City Treasurer shall establish an annual process of independent review by an external
auditor. This review will provide internal control by assuring compliance with policies and
procedures.
XVI. PERFORMANCE STANDARDS
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with the investment risk constraints
and the cash flow needs.
The portfolio performance results will be measured on a quarterly basis by the investment
manager. Investment performance will be measured against commonly accepted market
benchmarks which approximately the specific restrictions on the portfolio in accordance with
applicable current legislation by the State of California.
The City's investment strategy is passive. Given this strategy, the basis used by the City
Treasurer to determine whether market yields are being achieved shall be to compare to the
Average Federal Funds Rate.
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Exhibit C
XVII. REPORTING
The City Treasurer shall render a monthly investment report to the City Council and the City
Manager. The report shall include the type of investment, institution, date of maturity, par value
and amount of investment, rate of interest, current market value, source of the market value,
and such other data as may be required by the City Council. The report shall also include a
statement denoting the ability of the City to meet its expenditure requirements for the ensuing
six (6) months or an explanation as to why sufficient funds may not be available and a
statement that the City's investment portfolio is in compliance with the City's Investment Policy
or the manner in which it may not be in,compliance. {Sec. 53646J
XVIII. INVESTMENT POLICY ADOPTION:
This investment policy shall be adopted by resolution of the City Council of the City of Menifee.
The policy shall be reviewed annually by the City Council and any modifications made thereto
must be approved by the City Council.
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GLOSSARY OF TERMINOLOGY
SECTION A—TYPES OF INVESTMENTS
U.S.Treasury Bills -are direct obligations of the United States Government issued weekly with
maturity dates up to one year. They are issued and traded on a discount basis with interest
computed on a 360-day basis. They are issued in amounts of$10,000 and up, in multiples of
$5,000. They are a highly liquid security. The City limits its U.S. Treasury Bill investments to
no more than 60% of its portfolio.
U.S. Treasury Notes - are direct obligations of the United States Government initially issued
with two to ten year maturities. They are actively traded in a large secondary market and are
very liquid. The Treasury may issue notes with a minimum of $1,000; however, the average
minimum is $5,000. The City limits its U.S. Treasury Note investments to no more than 40% of
its portfolio.
Federal Anencv Securities - are guaranteed directly or indirectly by the United States
Government. All agency obligations qualify as legal investments and are acceptable as
collateral for public deposits. They usually provide higher yields than regular Treasury issues
with all of the same advantages. Examples include:
FICB's (Federal Intermediate Credit Bank Debentured - are loans to lending
institutions used to finance the short-term and intermediate needs of farmers,
such as seasonal production. They are usually issued monthly in minimum
denominations of $3,000 with a nine-month maturity. Interest is payable at
maturity and is calculated on a 360-day basis.
FFCB's (Federal Farm Credit Bank1 - are debt instruments used to finance the
short and intermediate tern needs of farmers and the national agricultural
industry. They are issued monthly with three and six month maturities. The
FFCB issues larger vehicles (one to ten years) on a periodic basis. These
issues are highly liquid.
FLB's (Federal Land Bank Bonds - are long-term mortgage credits provided to
farmers by Federal Land Banks. These bonds are issued at irregular times for
various maturities ranging from a few months to ten years. The minimum
denomination is $1,000. They carry semi-annual coupons. Interest is calculated
on a 360-day basis.
FHLB's (Federal Home Loan Bank Notes and Bonds)- are issued by the Federal
Home Loan Bank System to help finance the housing industry. The notes and
bonds provide liquidity and home mortgage credit to savings and loan
associations, mutual savings banks, cooperative banks, insurance companies
and mortgage-lending institutions. They are issued irregularly for various
maturities. The minimum denomination is $5,000. The notes are issued with
maturities of less than one year and interest is paid at maturity. The bonds are
issued with various maturities and carry semi-annual coupons. Interest is
calculated on a 360-day basis.
FNMA'S (Federal National Mortgage Association) - are used to assist the home
mortgage market by purchasing mortgages insured by the Federal Housing
Administration and the Farmers Home Administration, as well as those
guaranteed by the Veterans Administration. They are issued about four times a
Page 9 of 12
GLOSSARY OF TERMINOLOGY, continued
year for maturities ranging from a few months to eight years. They are issued in
minimum denominations of $10,000. They carry semi-annual interest coupons.
Interest is computed on a 360-day basis.
Other federal agency issues are Small Business Administration notes (SBA's),
Government National Mortgage Association notes (GNMA's), Tennessee Valley
Authority notes (TVA's), and Student Loan Association notes (SALLIE-MAE's).
The City limits its Federal Agency securities in total to no more than 20% of its total portfolio.
Certificates of Deposit- are time deposits of a bank or savings and loan. They are purchased
in various denominations with maturities ranging from 30 days to several years. The interest is
calculated on a 360-day annual basis and is payable monthly.
The City limits its investment in Certificates of Deposit to no more than 10% of its portfolio and
each investment must be entirely insured by the Federal Deposit Insurance Corporation (FDIC).
Commercial Paper - are short-term, negotiable, unsecured promissory notes. In order for
cities to purchase commercial paper, State law requires maturities to be less than 180 days, the
commercial paper to be of the highest quality as provided for by Moody's Investment Service or
Standard and Poor's and limited to U.S. corporations. The City limits its investment in
Commercial Paper to no more than 10% of its portfolio and may not exceed 10% of a single
issuer's outstanding paper.
Banker's Acceptances - are negotiable time drafts drawn to finance the export, import,
shipment or storage of goods, and they are termed "accepted"when a bank guarantees to pay
the face value at maturity. It is an irrevocable obligation of the accepting bank and a contingent
obligation of the drawer. In order for cities to purchase banker's acceptances, State law
requires that the banker's acceptance be eligible for purchase by the Federal Reserve System
and maturities to be less than 180 days. The City limits its investment in Banker's Acceptances
to no more than 10% of its portfolio.
Local Agency Investment Fund (LAIF) - is a special fund in the State Treasury which local
agencies may use to deposit funds for investment. There is no minimum investment period and
the minimum transaction is $5,000, in multiples of $1,000 thereafter, with a maximum balance
of$40,000,000 for any agency. The City is restricted to a maximum of ten (10)transactions per
month. LAIF offers high liquidity because deposits can be converted to cash in twenty-four
hours and no interest is lost. All interest is distributed to those agencies participating on a
proportionate share basis determined by the amounts deposited and the length of time they are
deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of
making the investments, not to exceed one-quarter of one percent of the earnings.
SECTION B—INVESTMENT TERMS
AGENCIES: Federal agency securities and/or Government-sponsored enterprises.
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a
bid.) See Offer.
COLLATERAL: Securities, evidence of deposit or other property that a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
Page 10 of 12
GLOSSARY OF TERMENOL0GY, continued
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the
City of Menifee. It includes statements for the City as a whole and for each individual fund
prepared in conformity with GAAP. It also Includes supporting schedules necessary to
demonstrate compliance with finance-related legal and contractual provisions, extensive
introductory material, and a detailed Statistical Section.
COUPON: (a)The annual rate of interest that a bond's issuer promises to pay the bondholder
on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a .
payment date.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery
versus payment and delivery versus receipt. Delivery versus payment is delivery of securities
with an exchange of money for the securities. Delivery versus receipt is delivery of securities
with an exchange of a signed receipt for the securities.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures
bank deposits, currently up to $100,000 per deposit.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress
and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks
and about 5,700 commercial banks that are members of the system.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value.
MATURITY: The date upon which the principal or stated value of an investment becomes due
and payable.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask
for an offer.) See Bid.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily reports of
market activity and positions and monthly financial statements to the Federal.Reserve Bank of
New York and are subject to its informal oversight. Primary dealers include Securities and
Exchange. Commission (SEC)-registered securities broker-dealers, banks, and a few
unregulated firms.
PRUDENT INVESTOR STANDARD: A standard of conduct where a person acts with care,
skill, prudence, and diligence when investing, reinvesting, purchasing, acquiring, exchanging,
selling and managing funds. The test of whether,the standard is being met is if a prudent
person acting in a similar situation would engage in similar conduct to ensure that investments
safeguard principal and maintain liquidity.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its
current market price.
Page 11 of 12
GLOSSARY OF TERMINOLOGY, continued
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES & EXCHANGE COMMISSION (SEC): Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See Uniform Net Capital Rule,
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on investment, expressed as a percentage.
Page 12 of 12