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AC 04-25-2022 Searchable Packet
CITY OF CUPERTINO AUDIT COMMITTEE AGENDA 10300 Torre Avenue, City Hall Conference Room A Monday, April 25, 2022 4:00 PM Members of the public wishing to comment on an item on the agenda may do so in the following ways: 1) E-mail comments by 2 p.m. on Monday, April 25 to the Committee at AuditCommittee@cupertino.org. These e-mail comments will be received by the commission members before the meeting and posted to the City’s website after the meeting. ROLL CALL ORDERS OF THE DAY APPROVAL OF MINUTES 1.Subject: Approve Minutes of Regular Meeting on February 24, 2022 Recommended Action: Approve Minutes of Regular Meeting on February 24, 2022 A - Draft Minutes 2.Subject: Approve Minutes of Regular Meeting on March 28, 2022 Recommended Action: Approve Minutes of Regular Meeting on March 28, 2022 A - Draft Minutes POSTPONEMENTS ORAL COMMUNICATIONS This portion of the meeting is reserved for persons wishing to address the Committee on any matter within the jurisdiction of the Committee and not on the agenda. Speakers are limited to three (3) minutes. In most cases, State law will prohibit the Commission from making any decisions with respect to a matter not on the agenda. PUBLIC HEARINGS OLD BUSINESS Page 1 1 Audit Committee Agenda April 25, 2022 NEW BUSINESS 3.Subject: Consider receiving OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 Recommended Action: Receive OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 A - OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 4.Subject: Consider reviewing Treasurer's Investment Report for Quarter Ending March 31, 2022 and moving forward accept monthly investment reports to comply with the City's municipal code Recommended Action: Review and consider accepting Treasurer's Investment Report for Quarter Ending March 31, 2022 and moving forward accept monthly investment reports to comply with the City's municipal code Staff Report A - Treasurer's Investment Report for Quarter Ending March 31, 2022 5.Subject: Review and consider accepting City Investment Policy Recommended Action: Review and consider accepting City Investment Policy Staff Report A - Investment Policy (redline) B - Chandler Investment Policy Statement Review Memo 6.Subject: Consider receiving report on Interim Audit and AUP Engagements Recommended Action: Receive report on Interim Audit and AUP Engagements and provide direction 7.Subject: Consider receiving follow-up on Previous Fiscal Year Management Letter Items and Management Responses Recommended Action: Receive follow-up on Previous Fiscal Year Management Letter Items and Management Responses A - Cupertino Management Letter 2021 Draft B - Cupertino Single Audit 2021 Draft 8.Subject: Consider reviewing Monthly Treasurer's Report for March 2022 Recommended Action: Review Monthly Treasurer's Report for March 2022 and recommend filing with City Council Staff Report A - Report of City-wide Receipts, Disbursements, and Cash Balances March 2022 B - Report of City-wide Fund Balances March 2022 9.Subject: Consider receiving Audit Committee 2022 Schedule and Work Plan Page 2 2 Audit Committee Agenda April 25, 2022 Recommended Action: Receive Audit Committee 2022 Schedule and Work Plan and provide direction A - Proposed Audit Committee 2022 Schedule and Work Plan - 4.25.2022 STAFF AND COMMITTEE REPORTS FUTURE AGENDA SETTING ADJOURNMENT In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend this meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, at least 48 hours in advance of the meeting to arrange for assistance. In addition, upon request, in advance, by a person with a disability, meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Any writings or documents provided to a majority of the members after publication of the agenda will be made available for public inspection. Please contact the City Clerk’s Office in City Hall located at 10300 Torre Avenue, Cupertino, California 95014, during normal business hours. IMPORTANT NOTICE: Please be advised that pursuant to Cupertino Municipal Code section 2.08.100 written communications sent to the Cupertino City Council, Commissioners or City staff concerning a matter on the agenda are included as supplemental material to the agendized item. These written communications are accessible to the public through the City’s website and kept in packet archives. Do not include any personal or private information in written communications to the City that you do not wish to make public, as written communications are considered public records and will be made publicly available on the City website. Members of the public are entitled to address the members concerning any item that is described in the notice or agenda for this meeting, before or during consideration of that item. If you wish to address the members on any other item not on the agenda, you may do so during the public comment . Page 3 3 CITY OF CUPERTINO Agenda Item 22-10814 Agenda Date: 4/25/2022 Agenda #: 1. Subject: Approve Minutes of Regular Meeting on February 24, 2022 Approve Minutes of Regular Meeting on February 24, 2022 CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™4 Page 1 City of Cupertino Audit Committee Special Meeting Minutes March 28, 2022 CALL TO ORDER At 4:00 p.m., Chair Moore called the special meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Moore, Vice Chair Angela Chen, Mayor Darcy Paul City Staff Present: Jim Throop, Chris Jensen, Kristina Alfaro, Thomas Leung, Beth Viajar Absent: Committeemember Song, Committeemember Liang Guests: 1. APPROVAL OF MINUTES Vice Chair Chen noted minor corrections on pages 3 and 4. Mayor Paul noted corrections to his statement. Mayor Paul moved the changes suggested by Vice Chair Chen and himself. Vice Chair Chen seconded the motion. The motion carried unanimously by all members present. ORAL COMMUNICATIONS None. NEW BUSINESS 2. Appoint Budget Format Review Sub-Committee Members Leung provided an overview of the Budget Format Review Sub-committee and recommended that the Audit Committee appoint members to the sub-committee. No public comment. Chair Moore volunteered herself to the sub-committee. Mayor Paul nominated Vice Chair Chen. Vice Chair Chen nominated Committeemember Song and agreed that Chair Moore should serve on the sub-committee. Chair Moore concurred with Mayor Paul that Vice Chair Chen would do well to serve on the sub-committee and help her out. Mayor Paul made a motion to move the Chair and Vice Chair as sub-committee members, Vice Chair Chen seconded the motion. The motion carried unanimously by all members present. Committeemember Song and Committeemember Liang were absent. 3. Review Monthly Treasurer’s Report for January and February 2022 and recommend filing with City Council Leung provided an overview of the Receipts, Disbursements, and Fund Balances reports and noted that staff planned to submit monthly treasurer's reports, including an accounting of all receipts, disbursements, and fund balances. The staff's recommendation was for the Audit Committee to review the reports and recommend filing them with City Council. No public comment. 5 Page 2 Mayor Paul asked for clarification on the total ending fund balance and whether it was the number represented in the bottom right-hand corner of the report. Leung confirmed. Mayor Paul inquired where committee members or residents could view the revenues versus expenditures of each of the funds. Leung recommended OpenGov, the City's financial transparency portal, for viewing that information. Mayor Paul requested that staff pick a fund in the next update and walk through how to navigate OpenGov and find that information. Leung noted that staff would do so at the next committee meeting. Chair Moore mentioned that she had researched other cities' treasurer's reports, noting that some disregarded the requirement and some provided a monthly update of their investments. Chair Moore thought we would include the Accounts Payable reports in this section so that the Audit Committee could ask questions. She then asked for other committee members' thoughts on including the accounts payable and investment balances in the Audit Committee's reports. She noted that Chandler would not have to show up, but their statements could be pasted into the report. Mayor Paul asked the City Attorney to speak to the requirements. Mayor Paul noted the utility of having Accounts Payable reports at the Audit Committee. He was unsure of the value of having the fund balance reports since the Audit Committee already received them quarterly. He asked for the staff's perspective on the cost-benefit ratio. City Manager Throop acknowledged that there were cities that ignored the report and cities that combined it into other types of reports. He was concerned that the AP part might muddy the reporting structure of what the treasurer's report was supposed. He noted that there was low staffing in the Administrative Services Department. City Attorney Jensen stated that the language in the Statute was to provide an accounting of receipts, disbursements, and fund balances. There was a range of practices different jurisdictions used; it reflected a considerable amount of discretion and leeway on how to interpret those reporting requirements to meet the needs of the City. Mayor Paul made a motion that the Audit Committee refer to staff on the feasibility of adding accounts payable to the monthly treasurer's report and report back to the Audit Committee. Chair Moore asked whether Mayor Paul recommended filing the January and February 2022 reports with City Council. Mayor Paul added that to his motion. Chair Moore seconded. The motion carried unanimously by all members present. Committeemember Song and Committeemember Liang were absent. 4. Review External/Internal Audit Process and Timing Viajar provided background on the external audit and timing. Leung provided background on the internal audit and timing. No public comment. Vice Chair Chen inquired about the sub-committee to be established by August 2022 for the audit RFP and the selection process. Alfaro noted that the Audit Committee would appoint members to sit on the committee. The previous committee also included City staff, Kristina, Zach, and the City Manager at the time. Chair Moore noted that this should go on the work plan and would like to see the work plan as a final item on the Audit Committee agenda. Mayor Paul said that if there was a sub-committee of the Audit Committee, it should comprise Audit Committee members. 6 Page 3 Mayor Paul inquired when they could start seeing the Audit Committee reports and the timetable of these reports going to the committee and City Council. Leung noted the dates on the slides. Mayor Paul expected we would obtain more audit reports. Leung said that after the next year's audit plan was developed, the Audit Committee would receive those reports. Mayor Paul wanted to know how many years of auditing we would need to go through. Alfaro noted that there was no timetable. If the Committeemembers reached a certain place where they felt it performed what it was brought on for or felt they did not need it based on a risk assessment, then a recommendation could be made to Council. Funds are in the Finance Department’s base budget. Funds could be pulled out of the budget should the recommendation come forward. Mayor Paul wanted to get an overarching report of how long this would take, such as defining a set of work with expectations as to how long it would take. Leung noted that staff could provide that information as to where we stand in the long-term cycle of this internal audit. Vice Chair Chen asked about the procurement review, whether there was an implementation plan and whether the recommendations were tracked. Leung noted that the implementation of the recommendations would be discussed in the budget document. Alfaro said that we could update it on the City's website where the Audit plans were located. Vice Chair Chen inquired about reallocating resources and visualized a matrix with the steps to complete the process. Vice Chair Chen noted that there was follow-up regarding the implementation during the last meeting and wanted to know the schedule and how it would be tracked. Chair Moore asked Leung to bring up that website. Leung brought up the website. Chair Moore noted a request for a procurement officer and requested the City Manager to speak to it as the Audit Committee and Council did not have authority to implement the recommendations from Moss Adams. City Manager Throop replied that staff would bring it to Council to get their input and then create a schedule with a starting point to look for a procurement officer. Vice Chair Chen requested that staff look at citywide resources and reallocate resources before adding a procurement officer position. She then asked if Audit Committee's recommendation would be added to the procurement recommendation for City Council's consideration. Chair Moore noted that the committee should have made that recommendation when they reviewed procurement policy recommendations and asked the staff if it would be appropriate to bring the comments to Council. Leung confirmed that staff could. Mayor Paul noted that it would be good to have dedicated procurement staff and recommended that, if there would be a subcommittee, they go over the entirety of the procurement operational review document. Chair Moore asked for clarification on whether the Audit Committee should be creating a subcommittee. Mayor Paul noted that there were going to be individuals from the Audit Committee reviewing the procurement policy and recommendations. It would be good for them to review the analysis. Chair Moore noted that she had a question regarding amending contracts and conflict of interest and if the creation of the subcommittee should be a future agenda item or how to proceed. Alfaro noted that it would be a future agenda item and asked Jensen for direction. Jensen confirmed that it was not on the agenda for today and could be brought back as 7 Page 4 a future agenda item. Chair Moore did not recall the procurement review being submitted to Council and asked if it was going in April. Leung confirmed. Throop noted that there was already a Council subcommittee with Councilmember Moore and Councilmember Willey for procurement. Chair Moore stated that it was for contracts, and they completed what they were reviewing. Chair Moore wondered if a subcommittee could be set up before the meeting in April to go through the procurement policy. Alfaro mentioned that she wasn’t sure if any of the questions or issues they had were brought up when the internal auditors were present. Chair Moore mentioned these were questions that came up after the consultants had presented. Mayor Paul noted that he had a meeting with the auditor about procurement after the last audit committee meeting and other members could do so as well. Mayor Paul continued to say that if a procurement subcommittee were ad hoc, it would be Chair Moore and Mayor Paul seeing the item on April 19th and suggested not making it a formally recorded motion. Leung clarified that staff wanted to bring the procurement report to the April 19th City Council meeting. Mayor Paul suggested that Committeemembers do their due diligence and reach out to staff on follow-up items. OLD BUSINESS None. STAFF AND COMMITTEE REPORTS 5. Staff report out on City Council Workshop on Commissions and Committees Workshop Alfaro noted that, at the 2/15 Council meeting, staff recommended City Council reorganize the Fiscal Strategic Committee, making it a Finance Committee and reorganizing some of the Audit Committee's duties to that committee, such as budget format, the quarterly investment report, and the monthly treasurer's report. Staff recommended making the Audit Committee's responsibility the Internal and External Audit functions to address workload issues. Council reviewed the recommendations but did not move them forward and wanted to report back to Audit Committee. Chair Moore asked about the Economic Development Committee. Alfaro noted that the Economic Development Manager and Deputy City Manager were working on that. Chair Moore said she would like to know the status of that committee and how far along they were in codifying it. No public comment. Mayor Paul stated that the Council's direction related to economic development and fiscal strategic was to fold them into a newly formed Economic Development Committee. He also said that it would be a good time to start identifying roles useful in the upcoming fiscal year. Chair Moore noted that in the Moss Adams report, three committees or commissions need to be codified. Chair Moore asked the staff when they were working with Moss Adams to let them know we had that issue. FUTURE AGENDA SETTING Chair Moore said she wanted to see the Audit Committee work plan and Orders of the Day added to the agenda. Vice Chair Chen proposed a review of the unrestricted fund balance policy. Alfaro noted that it was part of the budget document. Staff would provide the updated policy to committee members and the budget sub-committee could review it. Chair Moore would like to bring this back as an informational item. Mayor Paul agreed with that notion. 8 Page 5 ADJOURNMENT The meeting adjourned at 5:25 p.m. Recording Secretary: Janet Liang, Administrative Assistant 9 CITY OF CUPERTINO Agenda Item 22-10815 Agenda Date: 4/25/2022 Agenda #: 2. Subject: Approve Minutes of Regular Meeting on March 28, 2022 Approve Minutes of Regular Meeting on March 28, 2022 CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™10 Page 1 City of Cupertino Audit Committee Special Meeting Minutes March 28, 2022 CALL TO ORDER At 4:00 p.m., Chair Moore called the special meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Moore, Vice Chair Angela Chen, Mayor Darcy Paul City Staff Present: Jim Throop, Chris Jensen, Kristina Alfaro, Thomas Leung, Beth Viajar Absent: Committeemember Song, Committeemember Liang Guests: 1. APPROVAL OF MINUTES Vice Chair Chen noted minor corrections on pages 3 and 4. Mayor Paul noted corrections to his statement. Mayor Paul moved the changes suggested by Vice Chair Chen and himself. Vice Chair Chen seconded the motion. The motion carried unanimously by all members present. ORAL COMMUNICATIONS None. NEW BUSINESS 2. Appoint Budget Format Review Sub-Committee Members Leung provided an overview of the Budget Format Review Sub-committee and recommended that the Audit Committee appoint members to the sub-committee. No public comment. Chair Moore volunteered herself to the sub-committee. Mayor Paul nominated Vice Chair Chen. Vice Chair Chen nominated Committeemember Song and agreed that Chair Moore should serve on the sub-committee. Chair Moore concurred with Mayor Paul that Vice Chair Chen would do well to serve on the sub-committee and help her out. Mayor Paul made a motion to move the Chair and Vice Chair as sub-committee members, Vice Chair Chen seconded the motion. The motion carried unanimously by all members present. Committeemember Song and Committeemember Liang were absent. 3. Review Monthly Treasurer’s Report for January and February 2022 and recommend filing with City Council Leung provided an overview of the Receipts, Disbursements, and Fund Balances reports and noted that staff planned to submit monthly treasurer's reports, including an accounting of all receipts, disbursements, and fund balances. The staff's recommendation was for the Audit Committee to review the reports and recommend filing them with City Council. No public comment. 11 Page 2 Mayor Paul asked for clarification on the total ending fund balance and whether it was the number represented in the bottom right-hand corner of the report. Leung confirmed. Mayor Paul inquired where committee members or residents could view the revenues versus expenditures of each of the funds. Leung recommended OpenGov, the City's financial transparency portal, for viewing that information. Mayor Paul requested that staff pick a fund in the next update and walk through how to navigate OpenGov and find that information. Leung noted that staff would do so at the next committee meeting. Chair Moore mentioned that she had researched other cities' treasurer's reports, noting that some disregarded the requirement and some provided a monthly update of their investments. Chair Moore thought we would include the Accounts Payable reports in this section so that the Audit Committee could ask questions. She then asked for other committee members' thoughts on including the accounts payable and investment balances in the Audit Committee's reports. She noted that Chandler would not have to show up, but their statements could be pasted into the report. Mayor Paul asked the City Attorney to speak to the requirements. Mayor Paul note d the utility of having Accounts Payable reports at the Audit Committee. He was unsure of the value of having the fund balance reports since the Audit Committee already received them quarterly. He asked for the staff's perspective on the cost-benefit ratio. City Manager Throop acknowledged that there were cities that ignored the report and cities that combined it into other types of reports. He was concerned that the AP part might muddy the reporting structure of what the treasurer's report was supposed. He noted that there was low staffing in the Administrative Services Department. City Attorney Jensen stated that the language in the Statute was to provide an accounting of receipts, disbursements, and fund balances. There was a range of practices different jurisdictions used; it reflected a considerable amount of discretion and leeway on how to interpret those reporting requirements to meet the needs of the City. Mayor Paul made a motion that the Audit Committee refer to staff on the feasibility of adding accounts payable to the monthly treasurer's report and report back to the Audit Committee. Chair Moore asked whether Mayor Paul recommended filing the January and February 2022 reports with City Council. Mayor Paul added that to his motion. Chair Moore seconded. The motion carried unanimously by all members present. Committeemember Song and Committeemember Liang were absent. 4. Review External/Internal Audit Process and Timing Viajar provided background on the external audit and timing. Leung provide d background on the internal audit and timing. No public comment. Vice Chair Chen inquired about the sub-committee to be established by August 2022 for the audit RFP and the selection process. Alfaro noted that the Audit Committee would appoint members to sit on the committee. The previous committee also included City staff, Kristina, Zach, and the City Manager at the time. Chair Moore note d that this should go on the work plan and would like to see the work plan as a final item on the Audit Committee agenda. Mayor Paul said that if there was a sub-committee of the Audit Committee, it should comprise Audit Committee members. 12 Page 3 Mayor Paul inquired when they could start seeing the Audit Committee reports and the timetable of these reports going to the committee and City Council. Leung noted the dates on the slides. Mayor Paul expected we would obtain more audit reports. Leung said that after the next year's audit plan was developed, the Audit Committee would receive those reports. Mayor Paul wanted to know how many years of auditing we would need to go through. Alfaro noted that there was no timetable. If the Committeemembers reached a certain place where they felt it performed what it was brought on for or felt they did not need it based on a risk assessment, then a recommendation could be made to Council. Funds are in the Finance Department’s base budget. Funds could be pulled out of the budget should the recommendation come forward. Mayor Paul wanted to get an overarching report of how long this would take, such as defining a set of work with expectations as to how long it would take. Leung noted that staff could provide that information as to where we stand in the long-term cycle of this internal audit. Vice Chair Chen asked about the procurement review, whether there was an implementation plan and whether the recommendations were tracked. Leung noted that the implementation of the recommendations would be discussed in the budget document. Alfaro said that we could update it on the City's website where the Audit plans were located. Vice Chair Chen inquired about reallocating resources and visualized a matrix with the steps to complete the process. Vice Chair Chen noted that there was follow-up regarding the implementation during the last meeting and wanted to know the schedule and how it would be tracked. Chair Moore asked Leung to bring up that website. Leung brought up the website. Chair Moore noted a request for a procurement officer and requested the City Manager to speak to it as the Audit Committee and Council did not have authority to implement the recommendations from Moss Adams. City Manager Throop replied that staff would bring it to Council to get their input and then create a schedule with a starting point to look for a procurement officer. Vice Chair Chen requested that staff look at citywide resources and reallocate resources before adding a procurement officer position. She then asked if Audit Committee's recommendation would be added to the procurement recommendation for City Council's consideration. Chair Moore noted that the committee should have made that recommendation when they reviewed procurement policy recommendations and asked the staff if it would be appropriate to bring the comments to Council. Leung confirmed that staff could. Mayor Paul noted that it would be good to have dedicated procurement staff and recommended that, if there would be a subcommittee, they go over the entirety of the procurement operational review document. Chair Moore asked for clarification on whether the Audit Committee should be creating a subcommittee. Mayor Paul noted that there were going to be individuals from the Audit Committee reviewing the procurement policy and recommendations. It would be good for them to review the analysis. Chair Moore noted that she had a question regarding amending contracts and conflict of interest and if the creation of the subcommittee should be a future agenda item or how to proceed. Alfaro noted that it would be a future agenda item and asked Jensen for direction. Jensen confirmed that it was not on the agenda for today and could be brought back as 13 Page 4 a future agenda item. Chair Moore did not recall the procurement review being submitted to Council and asked if it was going in April. Leung confirmed. Throop noted that there was already a Council subcommittee with Councilmember Moore and Councilmember Willey for procurement. Chair Moore stated that it was for contracts, and they completed what they were reviewing. Chair Moore wondered if a subcommittee could be set up before the meeting in April to go through the procurement policy. Alfaro mentioned that she wasn’t sure if any of the questions or issues they had were brought up when the internal auditors were present. Chair Moore mentioned these were questions that came up after the consultants had presented. Mayor Paul noted that he had a meeting with the auditor about procurement after the last audit committee meeting and other members could do so as well. Mayor Paul continued to say that if a procurement subcommittee were ad hoc, it would be Chair Moore and Mayor Paul seeing the item on April 19th and suggested not making it a formally recorded motion. Leung clarified that staff wanted to bring the procurement report to the April 19th City Council meeting. Mayor Paul suggested that Committeemembers do their due diligence and reach out to staff on f ollow-up items. OLD BUSINESS None. STAFF AND COMMITTEE REPORTS 5. Staff report out on City Council Workshop on Commissions and Committees Workshop Alfaro noted that, at the 2/15 Council meeting, staff recommended City Council reorganize the Fiscal Strategic Committee, making it a Finance Committee and reorganizing some of the Audit Committee's duties to that committee, such as budget format, the quarterly investment report, and the monthly treasurer's report. Staff recommended making the Audit Committee's responsibility the Internal and External Audit functions to address workload issues. Council reviewed the recommendations but did not move them forward and wanted to report back to Audit Committee. Chair Moore asked about the Economic Development Committee. Alfaro noted that the Economic Development Manager and Deputy City Manager were working on that. Chair Moore said she would like to know the status of that committee and how far along they were in codifying it. No public comment. Mayor Paul stated that the Council's direction related to economic development and fiscal strategic was to fold them into a newly formed Economic Development Committee. He also said that it would be a good time to start identifying roles useful in the upcoming fiscal year. Chair Moore noted that in the Moss Adams report, three committees or commissions need to be codified. Chair Moore asked the staff when they were working with Moss Adams to let them know we had that issue. FUTURE AGENDA SETTING Chair Moore said she wanted to see the Audit Committee work plan and Orders of the Day added to the agenda. Vice Chair Chen proposed a review of the unrestricted fund balance policy. Alfaro noted that it was part of the budget document. Staff would provide the updated policy to committee members and the budget sub-committee could review it. Chair Moore would like to bring this back as an informational item. Mayor Paul agreed with that notion. 14 Page 5 ADJOURNMENT The meeting adjourned at 5:25 p.m. Recording Secretary: Janet Liang, Administrative Assistant 15 CITY OF CUPERTINO Agenda Item 22-10816 Agenda Date: 4/25/2022 Agenda #: 3. Subject:Consider receiving OPEB &Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 Receive OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™16 City of Cupertino PARS 115 Trust –OPEB Prefunding Program and Pension Rate Stabilization Program Client Review April 25, 2022 17 Contacts Mitch Barker Executive Vice President (800) 540 -6369 x116 Office (949) 310 -4876 Cell mbarker@pars.org Jennifer Meza Manager, Consulting (800) 540-6369 x141 jmeza@pars.org Ryan Maxey Vice President, Relationship Manager (503) 464-3789 ryan.maxey@usbank.com Rick Rosenthal Vice President, Senior Portfolio Manager (213) 359-7954 richard.rosenthal@usbank.com 2 18 City of Cupertino ▎3 Pars Trust Team Trust Administrator & Consultant •Serves as record-keeper, consultant, and central point of contact •Sub-trust account valuations •Hands-on, dedicated support teams •Processes contributions/disbursements •Coordinates all agency services •Ongoing plan compliance (IRS/GASB/Government Code) Corporate Experience Dollars under Administration 38 years (1984-2022) Over $6.3 billion Investment Manager & Trustee •Custodian of assets •Investment fiduciary/oversight of plan assets •Manage program portfolios •Investment policy assistance •Open architecture with active and index platform Corporate Experience Dollars under Administration 159 years (1863–2022) Over $9.0 trillion 19 City of Cupertino ▎4 Subaccounts OPEB and pension assets are individually sub-accounted, and can be divided by dept., bargaining group, or cost center. Assets in the PARS Section 115 Combination Trust can be used to address unfunded liabilities. Financial Stability Allows separate investment strategies for OPEB and pension subaccounts. Flexible Investing OPEB and pension assets aggregate and reach lower fees on tiered schedule sooner – saving money! Economies-of-ScaleAnytime Access Trust funds are available anytime; OPEB for OPEB and pension for pension. No set-up costs, no minimum annual contribution amounts, and no fees until assets are added. No Set Up Cost or Minimums Retiree Medical Benefits Prefund OPEB GASB 75 OPEB $36 M Reimburse agency; or Pay benefits provider Pension Rate Stabilization Program Prefund Pension (PRSP)GASB 68 Pension $17.5 M Reimburse agency; or Pay retirement system Assets can be used to:Assets can be used to: prefund either or both General Fund PARS IRS -Approved Section 115 Trust 20 PARS/CITY OF CUPERTINO 115P OPEB & PENSION ACCOUNTS March 31, 2022 U.S. Bank Institutional Asset Management 5 21 U.S. BANK | 6 Table of Contents Section 1 – PORTFOLIO REVIEW PARS/CITY OF CUPERTINO 115P - OPEB (X9600) • History of Asset Growth • Account Performance • Asset Allocation • Holdings PARS/CITY OF CUPERTINO 115P – PENSION (X9601) • History of Asset Growth • Account Performance • Asset Allocation • Holdings Section 2 – ECONOMIC OUTLOOK Section 3 – DISCLOSURES, DEFINITIONS, DESCRIPTIONS 22 6 U.S. BANK | 7 PORTFOLIO REVIEW 23 PARS/CITY OF CUPERTINO OPEB AGG AGG460596 Period Ending: 03/31/2022 History of Asset Growth Graphs Ending Market Values Over Time Annual Portfolio Values Allocation Over Time Jan 2017- Jan 2018- Jan 2019- Jan 2020- Jan 2021- Jan 2022- Consolidated Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Mar 2022 Beginning Portfolio Value 23,808,269 23,808,269 27,914,893 25,771,054 31,154,264 35,029,500 38,702,738 Contributions 28,325,739 2 15 28,325,715 2 1 3 Withdrawals -28,924,545 -106,702 -113,476 -28,432,997 -110,991 -128,524 -31,856 Income Earned 2,907,490 452,364 548,841 695,433 482,644 640,255 87,953 Gain/Loss 9,953,063 3,760,960 -2,579,219 4,795,058 3,503,582 3,161,506 -2,688,823 Ending Portfolio Value 36,070,015 27,914,893 25,771,054 31,154,264 35,029,500 38,702,738 36,070,015 Total Return 8.57 17.73 -7.30 20.89 12.85 10.86 -6.72 Principal 6.60 15.74 -9.15 18.08 11.09 9.00 -6.95 Income 1.85 1.74 1.99 2.42 1.59 1.72 .24 2017 2018 2019 2020 2021 2022 0 20 40 60 80 100 Total Equity Total Fixed Income Total Real Assets Total Cash Eqv % 2017 2018 2019 2020 2021 2022 24M 26M 28M 30M 32M 34M 36M 38M 40M 42M $ U.S. BANK | 824 4 U.S. BANK | 9 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO 25 PARS/CITY OF CUPERTINO OPEB AGG AGG460596 Period Ending: 03/31/2022 Selected Period Performance Inception to Date Market Value 3 Months 1 Year 3 Years 5 Years 95 Months 07/01/2010 Total Portfolio Gross of Fees 36,070,015 -6.72 1.11 8.73 8.01 6.52 7.16 Total Portfolio Net of Fees 36,070,015 -6.76 .94 8.53 7.80 6.30 City of Cupertino -4.66 5.01 10.12 9.00 6.52 8.07 Total Equity 23,708,486 -7.66 1.15 14.15 12.19 10.20 12.39 MSCI ACWI (Net)-5.36 7.28 13.75 11.64 9.10 10.81 U.S. Equity 17,232,304 -6.33 6.70 15.15 13.20 11.95 S&P 500 Index (Total Return)-4.60 15.65 18.92 15.99 13.90 15.71 S&P MidCap 400 Index -4.88 4.59 14.14 11.10 10.78 13.72 S&P SmallCap 600 Index -5.62 1.23 13.58 10.89 10.86 14.09 Developed Markets Equity 4,328,097 -9.70 -9.71 15.56 12.12 7.37 MSCI EAFE Index (Net)-5.91 1.16 7.78 6.72 4.20 7.03 Emerging Markets Equity 2,148,085 -14.11 -19.19 2.83 3.84 1.73 MSCI Emerging Markets Index (Net)-6.97 -11.37 4.94 5.98 4.15 4.30 Total Fixed Income 10,169,607 -5.29 -2.80 -.53 .58 .80 1.91 BBARC Global Aggregate Index -6.16 -6.40 .69 1.70 .77 1.92 BBARC US Aggregate Bond Index -5.93 -4.15 1.69 2.14 2.26 2.69 Total Real Assets 1,823,324 -3.98 23.40 10.73 8.41 Real Estate 1,823,324 -3.98 23.40 10.66 9.01 8.97 S&P Global REIT Index (Gross)-3.61 19.97 8.50 8.24 7.67 10.50 S&P GSCI Index 33.13 64.55 13.40 9.98 -3.77 -.73 Total Cash Equivalents 368,598 .01 .03 .62 .92 .64 .44 ICE BofAML US 3-Month Treasury Bill Index .04 .06 .81 1.13 .78 .55 Pending Cash 0 .00 .00 .00 .00 .00 .00 U.S. BANK | 1026 PARS/CITY OF CUPERTINO OPEB AGG AGG460596 Period Ending: 03/31/2022 Asset Allocation Analysis Graph Market Value by Asset Class Market Value by Asset Class Pie Chart % of Market Value Mkt Val Total Equity $ 23,708,486 65.7% Total Fixed Income $ 10,169,607 28.2% Total Real Assets $ 1,823,324 5.1% Total Cash Eqv $ 368,598 1.0% $36.1M U.S. BANK | 1127 PARS/CITY OF CUPERTINO 115P - OPEB Portfolio Holdings Account: XXXXXX9600 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Port.Price Shares/ Units Portfolio Value Cost Basis Unrealized Gain/Loss Current Yield Projected Annual Income Total 100.0 36,103,112 27,772,563 8,330,549 1.70 611,743 Cash 1.02 368,556 368,556 .00 0.15 556 Cash Equivalents 1.02 368,556 368,556 .00 0.15 556 FIRST AM GOVT OB FD CL Z 31846V567 1.02 1.00 368,556 368,556 368,556 .00 0.15 556 Fixed Income 28.26 10,202,747 7,572,078 2,630,669 2.95 298,800 Investment Grade 24.24 8,752,229 6,053,585 2,698,643 2.51 217,517 Mutual Funds & ETFs 24.24 8,752,229 6,053,585 2,698,643 2.51 217,517 DoubleLine Total Return Bond Fund Class I DBLTX 6.00 9.82 220,588 2,166,177 1,518,832 647,345 3.33 72,132 Fidelity U.S. Bond Index Fund FXNAX 6.04 11.22 194,380 2,180,946 802,586 1,378,360 1.93 41,986 PGIM Total Return Bond Fund Class R6 PTRQX 6.22 13.82 162,485 2,245,541 1,572,603 672,938 3.20 69,896 TIAA-CREF Short-Term Bond Fd Institution…TISIX 5.98 10.12 213,396 2,159,564 2,159,564 .00 1.55 33,503 High Yield 4.02 1,450,518 1,518,493 -67,975 5.60 81,283 Mutual Funds & ETFs 4.02 1,450,518 1,518,493 -67,975 5.60 81,283 Artisan High Income Fund - Institutional Sh…APHFX 4.02 9.69 149,692 1,450,518 1,518,493 -67,975 5.60 81,283 Equity 65.67 23,708,486 17,971,519 5,736,967 1.14 271,154 Large Cap U.S. Equity 29.82 10,764,354 9,997,333 767,021 0.46 49,940 Mutual Funds & ETFs 29.82 10,764,354 9,997,333 767,021 0.46 49,940 Harbor Capital Appreciation Fund - Retirem…HNACX 15.13 87.19 62,647 5,462,174 4,483,874 978,299 0.00 0 John Hancock Fds III Disciplined Value Fu…JVLIX 14.69 23.57 224,955 5,302,180 5,513,458 -211,278 0.94 49,940 Mid Cap U.S. Equity 12.95 4,673,941 1,446,771 3,227,170 1.17 54,532 Mutual Funds & ETFs 12.95 4,673,941 1,446,771 3,227,170 1.17 54,532 Fidelity Mid Cap Index Fund FSMDX 12.95 30.17 154,920 4,673,941 1,446,771 3,227,170 1.17 54,532 Small Cap U.S. Equity 4.97 1,794,009 464,328 1,329,680 1.36 24,483 Mutual Funds & ETFs 4.97 1,794,009 464,328 1,329,680 1.36 24,483 Fidelity Small Cap Index Fund FSSNX 4.97 25.50 70,353 1,794,009 464,328 1,329,680 1.36 24,483 Developed Markets Equity 11.99 4,328,097 4,478,073 -149,976 3.29 142,199 Mutual Funds & ETFs 11.99 4,328,097 4,478,073 -149,976 3.29 142,199 Fidelity International Index Fund FSPSX 11.99 45.99 94,110 4,328,097 4,478,073 -149,976 3.29 142,199 Emerging Markets Equity 5.95 2,148,085 1,585,014 563,071 0.00 0 Mutual Funds & ETFs 5.95 2,148,085 1,585,014 563,071 0.00 0 U.S. BANK | 1228 PARS/CITY OF CUPERTINO 115P - OPEB Portfolio Holdings Account: XXXXXX9600 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Port.Price Shares/ Units Portfolio Value Cost Basis Unrealized Gain/Loss Current Yield Projected Annual Income Baron Emerging Markets Fd Inst Shs BEXIX 5.95 15.10 142,257 2,148,085 1,585,014 563,071 0.00 0 Real Assets 5.05 1,823,324 1,860,411 -37,087 2.26 41,233 U.S. Listed Real Estate 5.05 1,823,324 1,860,411 -37,087 2.26 41,233 iShares Core U.S. REIT ETF USRT 5.05 64.65 28,203 1,823,324 1,860,411 -37,087 2.26 41,233 U.S. BANK | 1329 PARS/CITY OF CUPERTINO 115P - OPEB Fixed Income Holdings Account: XXXXXX9600 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Fixed Income Portfolio Value Projected Annual Income Current Yield Yield to Maturity Effective Duration Effective Maturity Avg. Quality Total 100.00 10,202,747 298,800 2.95 2.02 4.62 2.86 BBB- Investment Grade 85.80 8,752,229 217,517 2.51 1.30 4.95 2.86 BBB Mutual Funds & ETFs 85.80 8,752,229 217,517 2.51 1.30 4.95 2.86 BBB DoubleLine Total Return Bond Fund Class I DBLTX 21.20 2,166,177 72,132 3.33 2.44 4.54 6.55 BB Fidelity U.S. Bond Index Fund FXNAX 21.40 2,180,946 41,986 1.93 NA 6.47 NA AA PGIM Total Return Bond Fund Class R6 PTRQX 22.00 2,245,541 69,896 3.20 0.00 6.96 0.00 BBB TIAA-CREF Short-Term Bond Fd Institutional Cl...TISIX 21.20 2,159,564 33,503 1.55 1.51 1.74 2.13 BBB High Yield 14.20 1,450,518 81,283 5.60 5.26 2.63 NA B Mutual Funds & ETFs 14.20 1,450,518 81,283 5.60 5.26 2.63 NA B Artisan High Income Fund - Institutional Shar...APHFX 14.20 1,450,518 81,283 5.60 5.26 2.63 NA B U.S. BANK | 1430 PARS/CITY OF CUPERTINO 115P- PENSION ACCOUNT: XXXXX9601 Period Ending: 03/31/2022 History of Asset Growth Graphs Ending Market Values Over Time Annual Portfolio Values Allocation Over Time May 2019- Jan 2020- Jan 2021- Jan 2022- Consolidated Dec 2019 Dec 2020 Dec 2021 Mar 2022 Beginning Portfolio Value 8,073,518 8,073,518 8,657,991 15,177,347 18,820,778 Contributions 6,000,006 1 4,000,002 2,000,000 2 Withdrawals -138,637 -20,472 -43,099 -59,572 -15,493 Income Earned 693,723 155,938 193,205 301,788 42,792 Gain/Loss 2,911,466 449,006 2,369,247 1,401,215 -1,308,002 Ending Portfolio Value 17,540,077 8,657,991 15,177,347 18,820,778 17,540,077 Total Return 9.35 7.51 17.09 10.54 -6.72 Principal 7.37 5.52 15.31 8.69 -6.95 Income 1.85 1.91 1.55 1.70 .24 2019 2020 2021 2022 0 20 40 60 80 100 Total Equity Total Fixed Income Total Real Assets Total Cash Eqv % 2019 2020 2021 2022 8M 10M 12M 14M 16M 18M 20M $ U.S. BANK | 1531 5 U.S. BANK | 16 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO 32 PARS/CITY OF CUPERTINO 115P- PENSION ACCOUNT: XXXXX9601 Period Ending: 03/31/2022 Selected Period Performance Inception to Date Market Value 3 Months 1 Year 05/01/2019 Total Portfolio Gross of Fees 17,540,077 -6.72 .81 9.35 Total Portfolio Net of Fees 17,540,077 -6.76 .64 9.16 City of Cupertino -4.66 5.01 9.65 Total Equity 11,528,911 -7.66 1.16 13.25 MSCI ACWI (Net)-5.36 7.28 12.88 U.S. Equity 8,379,690 -6.33 6.69 14.21 S&P 500 Index (Total Return)-4.60 15.65 17.90 S&P MidCap 400 Index -4.88 4.59 13.03 S&P SmallCap 600 Index -5.62 1.23 12.52 Developed Markets Equity 2,104,656 -9.70 -9.71 14.37 MSCI EAFE Index (Net)-5.91 1.16 6.99 Emerging Markets Equity 1,044,565 -14.11 -19.19 2.52 MSCI Emerging Markets Index (Net)-6.97 -11.37 4.33 Total Fixed Income 4,945,252 -5.29 -2.82 -.74 BBARC Global Aggregate Index -6.16 -6.40 .81 BBARC US Aggregate Bond Index -5.93 -4.15 1.73 Total Real Assets 886,610 -3.98 23.51 11.12 Real Estate 886,610 -3.98 23.51 11.12 S&P Global REIT Index (Gross)-3.61 19.97 8.88 S&P GSCI Index 33.13 64.55 12.71 Total Cash Equivalents 179,303 .01 .02 .57 ICE BofAML US 3-Month Treasury Bill Index .04 .06 .76 Pending Cash 0 .00 .00 .00 U.S. BANK | 1733 PARS/CITY OF CUPERTINO 115P- PENSION ACCOUNT: XXXXX9601 Period Ending: 03/31/2022 Asset Allocation Analysis Graph Market Value by Asset Class Market Value by Asset Class Pie Chart % of Market Value Mkt Val Total Equity $ 11,528,911 65.7% Total Fixed Income $ 4,945,252 28.2% Total Real Assets $ 886,610 5.1% Total Cash Eqv $ 179,303 1.0% $17.5M U.S. BANK | 1834 PARS/CITY OF CUPERTINO 115P- PENSION Portfolio Holdings Account: XXXXXX9601 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Port.Price Shares/ Units Portfolio Value Cost Basis Unrealized Gain/Loss Current Yield Projected Annual Income Total 100.0 17,556,170 15,179,811 2,376,360 1.70 297,476 Cash 1.02 179,282 179,282 .00 0.15 271 Cash Equivalents 1.02 179,282 179,282 .00 0.15 271 FIRST AM GOVT OB FD CL Z 31846V567 1.02 1.00 179,282 179,282 179,282 .00 0.15 271 Fixed Income 28.26 4,961,367 4,595,560 365,807 2.95 145,300 Investment Grade 24.24 4,256,012 3,857,148 398,864 2.51 105,774 Mutual Funds & ETFs 24.24 4,256,012 3,857,148 398,864 2.51 105,774 DoubleLine Total Return Bond Fund Class I DBLTX 6.00 9.82 107,267 1,053,363 844,859 208,505 3.33 35,076 Fidelity U.S. Bond Index Fund FXNAX 6.04 11.22 94,523 1,060,545 1,101,420 -40,875 1.93 20,417 PGIM Total Return Bond Fund Class R6 PTRQX 6.22 13.82 79,013 1,091,957 860,722 231,235 3.20 33,989 TIAA-CREF Short-Term Bond Fd Institution…TISIX 5.98 10.12 103,770 1,050,148 1,050,148 .00 1.55 16,292 High Yield 4.02 705,354 738,411 -33,057 5.60 39,526 Mutual Funds & ETFs 4.02 705,354 738,411 -33,057 5.60 39,526 Artisan High Income Fund - Institutional Sh…APHFX 4.02 9.69 72,792 705,354 738,411 -33,057 5.60 39,526 Equity 65.67 11,528,911 9,500,325 2,028,586 1.14 131,856 Large Cap U.S. Equity 29.82 5,234,471 5,017,096 217,375 0.46 24,285 Mutual Funds & ETFs 29.82 5,234,471 5,017,096 217,375 0.46 24,285 Harbor Capital Appreciation Fund - Retirem…HNACX 15.13 87.19 30,464 2,656,140 2,336,081 320,060 0.00 0 John Hancock Fds III Disciplined Value Fu…JVLIX 14.69 23.57 109,390 2,578,331 2,681,015 -102,684 0.94 24,285 Mid Cap U.S. Equity 12.95 2,272,832 1,056,170 1,216,663 1.17 26,518 Mutual Funds & ETFs 12.95 2,272,832 1,056,170 1,216,663 1.17 26,518 Fidelity Mid Cap Index Fund FSMDX 12.95 30.17 75,334 2,272,832 1,056,170 1,216,663 1.17 26,518 Small Cap U.S. Equity 4.97 872,386 318,403 553,983 1.36 11,906 Mutual Funds & ETFs 4.97 872,386 318,403 553,983 1.36 11,906 Fidelity Small Cap Index Fund FSSNX 4.97 25.50 34,211 872,386 318,403 553,983 1.36 11,906 Developed Markets Equity 11.99 2,104,656 2,177,588 -72,932 3.29 69,148 Mutual Funds & ETFs 11.99 2,104,656 2,177,588 -72,932 3.29 69,148 Fidelity International Index Fund FSPSX 11.99 45.99 45,763 2,104,656 2,177,588 -72,932 3.29 69,148 Emerging Markets Equity 5.95 1,044,565 931,068 113,497 0.00 0 Mutual Funds & ETFs 5.95 1,044,565 931,068 113,497 0.00 0 U.S. BANK | 1935 PARS/CITY OF CUPERTINO 115P- PENSION Portfolio Holdings Account: XXXXXX9601 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Port.Price Shares/ Units Portfolio Value Cost Basis Unrealized Gain/Loss Current Yield Projected Annual Income Baron Emerging Markets Fd Inst Shs BEXIX 5.95 15.10 69,177 1,044,565 931,068 113,497 0.00 0 Real Assets 5.05 886,610 904,644 -18,034 2.26 20,050 U.S. Listed Real Estate 5.05 886,610 904,644 -18,034 2.26 20,050 iShares Core U.S. REIT ETF USRT 5.05 64.65 13,714 886,610 904,644 -18,034 2.26 20,050 U.S. BANK | 2036 PARS/CITY OF CUPERTINO 115P- PENSION Fixed Income Holdings Account: XXXXXX9601 Holdings Method: Direct Report Date: 03/31/2022 © 2019 FactSet Research Systems Inc. All rights reserved. Past Performance is no guarantee of future results. Not A Deposit | Not FDIC Insured | May Lose Value | Not Bank Guaranteed | Not Insured By Any Federal Government Agency Material is based on data from sources deemed to be reliable, accuracy/completeness is not guaranteed. Holdings Date: 3/31/2022 Symbol % of Fixed Income Portfolio Value Projected Annual Income Current Yield Yield to Maturity Effective Duration Effective Maturity Avg. Quality Total 100.00 4,961,367 145,300 2.95 2.02 4.62 2.86 BBB- Investment Grade 85.80 4,256,012 105,774 2.51 1.30 4.95 2.86 BBB Mutual Funds & ETFs 85.80 4,256,012 105,774 2.51 1.30 4.95 2.86 BBB DoubleLine Total Return Bond Fund Class I DBLTX 21.20 1,053,363 35,076 3.33 2.44 4.54 6.55 BB Fidelity U.S. Bond Index Fund FXNAX 21.40 1,060,545 20,417 1.93 NA 6.47 NA AA PGIM Total Return Bond Fund Class R6 PTRQX 22.00 1,091,957 33,989 3.20 0.00 6.96 0.00 BBB TIAA-CREF Short-Term Bond Fd Institutional Cl...TISIX 21.20 1,050,148 16,292 1.55 1.51 1.74 2.13 BBB High Yield 14.20 705,354 39,526 5.60 5.26 2.63 NA B Mutual Funds & ETFs 14.20 705,354 39,526 5.60 5.26 2.63 NA B Artisan High Income Fund - Institutional Shar...APHFX 14.20 705,354 39,526 5.60 5.26 2.63 NA B U.S. BANK | 2137 7 U.S. BANK | 22 ECONOMIC OUTLOOK 38 Market analysis April 11, 2022 This informational material is provided by U.S. Bank Asset Management Group who provides analysis and research to U.S. Bank and its affiliate U.S. Bancorp Investments. Contact your wealth professional for more details. At a glance Inflation remains challenging, but oil prices are falling. Rising inflation expectations are hurting equity market valuations and returns for bond investors. NUMBER OF THE WEEK 43.3% The year-to-date performance of Energy stocks, the best-performing S&P 500 sector so far this year. TERM OF THE WEEK Price/earnings ratio – The ratio for valuing a company that measures its share price relative to its per-share earnings. It is also sometimes known as the price multiple or the earnings multiple. P/E ratios are used to determine the relative value of a company's shares “Historically, when the Consumer Price Index is at 4% and the 10-year Treasury yield is 2% to 4%, the average price-earnings multiple for the S&P 500 on trailing 12-month earnings is 18 to 19. This implies potentially another 10% to 15% drawdown. By this metric, moderating inflation is needed before equities can be expected to trend meaningfully higher.” -Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank usbank.com Investment products and services are: NOT A DEPOSIT • NOT FDIC INSURED • MAY LOSE VALUE • NOT BANK GUARANTEED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY [1] Importantdisclosures provided onpage 4. U.S. BANK | 2339 Global economy Quick take: Inflation is pressuring economies globally through higher interest rates, though the strong labor market is moderating concerns in the United States. Food price inflation is a particular challenge outside the U.S. Our view: Our proprietary economic Health Check indicates continuing growth in the United States and developed foreign markets, though we are past the peak in acceleration. Our score for emerging market economies is below long-term median levels, but economic growth is still positive. Global coronavirus growth is slowing, but markets now face geopolitical risks. A lighter week for U.S. economic data indicated consumers remain in strong shape. Jobless claims of 166,000 last week were the lowest since 1968, reflecting a tight labor market. Consumer credit grew again in February as consumers returned to using their credit cards. However, investors remain concerned about consumer spending due to the rise in interest rates. Weak March light vehicles sales likely reflect supply challenges instead of rising credit costs. Of concern is a 6.3% weekly decline in mortgage applications, with the 30-year mortgage rate nearing 5%. Inflation remains persistent globally. Brazil, the Eurozone and South Korea all reported accelerating consumer price inflation. The United Nations’ FAO Food Price Index rose more than 12% in March, reflecting the challenges to global food production resulting from the Russia/Ukraine conflict. Purchasing manager surveys for services were generally stronger for Europe as companies recovered from COVID- 19 restrictions, but China moved back into contraction, locking down half of Shanghai. Investor sentiment is worsening in Europe, with data beginning to reflect the Russia/Ukraine conflict. [2] Importantdisclosures provided onpage 4. Equity markets Quick take: U.S. equities continue to trade mixed, with a downward bias, with cyclical and defensive sectors in favor. Ramping inflation and rising interest rates are causing valuations to be reset lower, most notably among the growth-oriented Information Technology sector. The first quarter corporate results and guidance will impact performance into midyear and beyond. Our view: The Russia/Ukraine crisis, ramping inflation and timing and magnitude of Federal Reserve interest rate hikes are headwinds. For the year, we still expect returns to be favorable, albeit subdued from robust 2020 and 2021 levels. Performance remains subdued, with growth-oriented sectors lagging. The growth-oriented Information Technology (-12.4%), Communication Services (-13.7%) and Consumer Discretionary (-12.0%) sectors, representing nearly 50% of the market capitalization of the S&P 500, are all lagging year-to- date, as of Friday’s close. It is difficult to envision the S&P 500 trending meaningfully higher without improved performance among these growth-oriented sectors. The first quarter reporting period unofficially begins this week. Approximately 3% of S&P 500 companies are scheduled to release results this week with another 13% reporting next week. For the quarter, consensus is for revenue to increase 10.7% over year-ago levels and earnings to rise 4.7%, according to FactSet Research Systems. Consensus earnings estimates continue to inch higher, providing some valuation support. Earnings for the S&P 500 are forecasted to be nearly $227 per share for 2022, up from roughly $221 at the start of the year, according to Bloomberg, FactSet and S&P Global. Rising earnings typically equate to rising stock prices. Ramping inflation and rising interest rates are compressing valuations. The S&P 500 currently trades just under 20 times consensus 2022 earnings estimates and 22 times 2021 results, levels we deem to be at the high side of fair. Inflation is kryptonite to valuation, implying potentially more downside. Historically, when the Consumer Price Index is at 4% and the 10-year Treasury yield is 2% to 4%, the average price-earnings multiple for the S&P 500 on trailing 12-month earnings is 18 to 19.This implies potentially another 10% to 15% drawdown. By this metric, moderating inflation is needed before equities can be expected to trend meaningfully higher.U.S. BANK | 2440 Bond markets Quick take: Treasury yields rose last week, weighing on returns across the bond market. The Federal Reserve (Fed) released minutes from the March meeting with more details on its plan for shrinking their bond holdings. We expect the Fed to raise interest rates by 0.5% and formally announce its quantitative tightening plan at the May 4 meeting. Our view: High-quality bond yields have risen to more favorable levels. Risks remain in the form of the Fed hiking short-term rates more than anticipated and reducing bond holdings. High-quality bonds deliver important portfolio diversification characteristics at a time when economic and corporate growth rates appear to be slowing and as monetary and fiscal policy tightens. Minutes from the Fed’s March meeting supported raising rates by 0.5% and beginning to reduce its bond holdings in May. Meeting minutes noted broad consensus among the committee favoring “expeditiously” tightening monetary policy, which may warrant one or more 0.5% increases in rates. In recent hiking cycles, the Fed raised rates in 0.25% increments. We see high odds the Fed will raise rates by 0.5% at its May meeting. The minutes also mentioned the committee generally agreed on planning to reduce its bond holdings by a maximum $95 billion per month, faster than the last time the Fed reduced its bond holdings, which was a maximum $50 billion per month. Long-term Treasury yields rose after the minutes were released as investors focused on the potential impact from Fed bond portfolio reductions. Fair yields on high-quality bonds favors primarily investment-grade bond exposure. The combination of higher Treasury yields and increasing yield spreads (the extra yield paid in compensation for credit risk) drastically improved the income investors can earn holding investment-grade corporate and municipal bonds. We see opportunities in focusing bond portfolios primarily on high-quality bonds, which typically provide the added benefit of hedging risk in portfolios. [3] Importantdisclosures provided onpage 4. Real assets Quick take: Real assets as a whole traded better than the S&P 500 last week, with the market favoring defensive sectors. Oil prices have softened but markets remain short on supply. Our view: We continue to see value in defensive sectors. Utilities and Real Estate continue to outperform despite rising interest rates, which is typically a headwind to these sectors. Investors appear to be favoring tangible assets with stable cash flows as we move past peak earnings growth. Real Estate and Infrastructure stocks both outperformed the S&P 500 last week. More defensive industries within these sectors were leaders, including utilities and communications infrastructure. Valuations are rich for the Real Estate sector but could be supported if interest rates reverse their recent rise. Infrastructure stocks are likely to benefit from economic reopening and the recovery in their cash flows. Crude oil prices declined 1% last week. Domestic inventories of crude and refined products increased, and domestic production also saw an uptick. However, the market remains undersupplied, with domestic inventories well below the range of the past five years and oil rigs, representing investment in new production, just now recovering to 80% of pre-pandemic levels. U.S. BANK | 2541 This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses. Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The FAO Food Price Index (FFPI) is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). [ 4 ] ©2022 U.S. Bank. U.S. BANK | 2642 Important disclosures, definitions of terms and index descriptions If you have questions regarding this information or wish to receive definitions of any additional terms or indexes used in this report, please contact your Portfolio Manager. U.S. BANK | 2743 Important disclosures (page 1 of 4) The information provided here is not intended to replace your account statement. Your account statement is the official record of your account. Equal Housing Lender. Credit products are offered by U.S. Bank National Association and subject to normal credit approval. Deposit products offered by U.S. Bank National Association. Member FDIC. For use in one-on-one meetings/presentations. This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment, nor are they subject to fees and expenses. Performance reports included may show performance results gross of fees and expenses. If fees and expenses were included, the performance would be lower. If you have any questions, please speak with your relationship manager for additional information. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses. U.S. BANK | 2844 Important disclosures (page 2 of 4) Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. Stocks of small-capitalization companies involve substantial risk. These stocks historically have experienced greater price volatility than stocks of larger companies and may be expected to do so in the future. Stocks of mid-capitalization companies can be expected to be slightly less volatile than those of small-capitalization companies, but still involve substantial risk and may be subjectto more abrupt or erratic movements than large-capitalization companies. The value of large-capitalization stocks will rise and fall in response to the activities of the company that issued them, general market conditions and/or economic conditions. Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short term or have grown consistently over the long term. Such investments may provide minimal dividends, which could otherwise cushion stock prices in a market decline. Stock value may rise and fall significantly based, in part, on investors' perceptions of the company, rather than on fundamental analysis of the stocks. Investors should carefully consider the additional risks involved in growth investments. Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value. Such investments are subject to risks that their intrinsic values may never be realized by the market, or such stocks may turn out not to have been undervalued. Investors should carefully consider the additional risks involved in value investments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. U.S. BANK | 2945 Important disclosures (page 3 of 4) The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. Treasury Inflation-Protected Securities (TIPS)offer a lower return compared to other similar investments and the principal value may increase or decrease with the rate of inflation. Gains in principal are taxable in that year, even though not paid out until maturity. Non-financial specialty assets, such as real estate, farm, ranch and timber properties, oil, gas and mineral interests or closely-held business interests are complex and involve unique risks specific to each asset type, including the total loss of value. Special risk considerations may include natural events or disasters, complex tax considerations and lack of liquidity. Specialty assets may not be suitable for all investors. Alternative investments very often use speculative investment and trading strategies. There is no guarantee that the investment program will be successful. Alternative investments are designed only for investors who are able to tolerate the full loss of an investment. These products are not suitable for every investor even if the investor does meet the financial requirements. It is important to consult with your investment professional to determine how these investments might fit your asset allocation, risk profile and tax situation. Hedge funds are speculative and involve a high degree of risk. An investment in a hedge fund involves a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. Restrictions exist on the ability to redeem or transfer interests in a fund. Exchange-traded funds (ETFs)are baskets of securities that are traded on an exchange like individual stocks at negotiated prices and are not individually redeemable. ETFs are designed to generally track a market index and shares may trade at a premium or a discount to the net asset value of the underlying securities. Private equity investments provide investors and funds the potential to invest directly into private companies or participate in buyouts of public companies that result in a delisting of the public equity. Investors considering an investment in private equity must be fully aware that these investments are illiquid by nature, typically represent a long-term binding commitment and are not readily marketable. The valuation procedures for these holdings are often subjective in nature. Private debt investments may be either direct or indirect and are subject to significant risks, including the possibility of default, limited liquidity and the infrequent availability of independent credit ratings for private companies. Structured products are subject to market risk and/or principal loss if sold prior to maturity or if the issuer defaults on the security. Investors should request and review copies of Structured Products Pricing Supplements and Prospectuses prior to approving or directing an investment in these securities. U.S. BANK | 3046 Important disclosures (page 4 of 4) Mutual fund investing involves risk and principal loss is possible. Investing in certain funds involves special risks, such as those related to investments in small- and mid-capitalization stocks, foreign, debt and high-yield securities and funds that focus their investments in a particular industry. Please refer to the fund prospectus for additional details pertaining to these risks. An investment in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although these funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in these funds. Holdings of First American Funds: U.S. Bancorp Asset Management, Inc. is a registered investment advisor and subsidiary of U.S. Bank National Association. U.S. Bank National Association is a separate entity and wholly owned subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, performance or services of U.S. Bancorp Asset Management. U.S. Bancorp Asset Management, Inc. serves as an investment advisor to First American Funds. Holdings of Nuveen mutual funds: Firstar Capital Corporation (Firstar Capital), an affiliate of U.S. Bancorp, holds a less-than-10 percent ownership interest in Windy City Investments Holdings, LLC which was formerly the parent of Windy City Investment Inc. and the indirect parent of Nuveen Fund Advisors, LLC which is the investment advisor to the Nuveen Mutual Funds. On October 1, 2014, Windy City Investments, Inc. was sold to Teachers Insurance and Annuity Association of America. As a result of the sale, U.S. Bancorp no longer has an indirect ownership interest in Nuveen Fund Advisors, LLC. Depending on the outcome of certain factors, Firstar Capital might in the future receive an earn-out payment in respect of its interest in Windy City Investment Holdings, LLC, under the terms of the sale. Non-proprietary mutual funds: U.S. Bank may enter into agreements with other non-proprietary mutual funds or their service providers whereby U.S. Bank provides shareholder services and/or sub-transfer agency, custodial and other administrative support services and receives compensation for these services. Compensation received by U.S. Bank directly or indirectly from mutual funds does not increase fund fees and expenses beyond what is disclosed in the fund prospectuses. For more information, review the fund prospectus. U.S. BANK | 3147 Definitions of report and statement terms (page 1 of 5) Accredited Investor: Private placement securities generally require that investors be accredited due to the additional risks and speculative nature of the securities. For natural persons, the criteria is met by a net worth of more than $1 million (excluding primary residence) or an income of more than $200,000 individually ($300,000 jointly) for the two most recent years and a reasonable expectation for the same in the current year. For other entities, such as corporations, partnerships, trusts and employee benefit plans, the criteria is met with at least $5 million in assets. See full definition in Rule 501 of Regulation D under the Securities Act of 1933. Alpha: A measure of risk-adjusted performance. A statistic measuring that portion of a stock, fund or composite's total return attributable to specific or non-market risk. Alpha measures non-market return and indicates how much value has been added or lost. A positive Alpha indicates the fund or composite has performed better than its Beta would predict (i.e., the manager has added value above the benchmark). A negative Alpha indicates a fund or composite has underperformed given the composite's Beta. Alternative Investments: As used by U.S. Bank, an investment considered to be outside of the traditional asset classes of long-only stocks, bonds and cash. Examples of alternative investments include hedge funds, private equity, options and financial derivatives. Annualized Excess Return: Shows the difference between the annualized linked returns of a portfolio and the model benchmark. Performance reports provided annualize only periods greater than one year. Annualized or Annual Rate of Return: Represents the average annual change in the value of an investment over the periods indicated. Batting Average: Shows how consistently the portfolio return met or beat the market. Beta: A measure of your portfolio's risk relative to a benchmark. A portfolio with a beta of 1.5, for example, would be expected to return roughly 1.5 times the benchmark's return. A high Beta indicates a riskier portfolio. Bond Credit Rating: A grade given to bonds by a private independent rating service that indicates their credit quality. Ratings are the opinion of Standard & Poor's or other agencies as noted and not the opinion of U.S. Bank. Consumer Price Index (CPI): A measure of the average change in prices over time in a market basket of goods and services and is one of the most frequently used statistics for identifying periods of inflation and deflation. Convexity to Stated Maturity: A measure of the curvature in the relationship between bond prices and bond yields that demonstrates how the duration of a bond changes as the interest rate changes. Convexity is used as a risk-management tool and helps to measure and manage the amount of market risk to which a portfolio of bonds is exposed. This version of convexity measures the rate change in duration of a bond as the yield to (stated) maturity changes. U.S. BANK | 3248 Definitions of report and statement terms (page 2 of 5) Cost basis/book value: The original value of an asset at the time it was acquired. This is normally the purchase price or appraised value at the time of acquisition. This data is for information purposes only. Cumulative Excess Return: Shows the difference between the annualized linked returns of a portfolio and the model benchmark. Performance reports provided use unannualized returns in periods up to one year, but annualized returns for periods exceeding one year. Downside Capture: The downside capture ratio reflects how a portfolio compares to a benchmark during periods when the benchmark is down. A downside capture ratio of 0.80 (or 80 percent) means the portfolio has historically declined only 80 percent as much as the benchmark during down markets. Downside Deviation: The deviation of returns that fall below a minimum acceptable return (MAR). Although the numerator includes only returns below the MAR, the denominator includes all returns in the performance period. This risk statistic is similar to the downside standard deviation except the sum is restricted to returns less than the MAR instead of the mean. Downside Standard Deviation: The deviation of returns that fall below the mean return. Although the numerator includes only returns below the mean, the denominator includes all returns in the performance period. This risk statistic is similar to the downside deviation except the sum is restricted to returns less than the mean instead of the minimum acceptable return (MAR). Effective Maturity: The date of a bond’s most likely redemption, given current market conditions, taking into consideration the optional and mandatory calls, the optional, mandatory and recurring puts, and the stated maturity. Estimated annual income: The amount of income a particular asset is anticipated to earn over the period indicted. The shares multiplied by the annual income rate. Gain/loss calculation: If an asset was sold, the difference between the proceeds received from the sale compared to the cost of acquiring the asset. If the value of the proceeds is the higher of the two numbers, then a gain was realized. If the value of the proceeds is the lower of the two numbers, a loss was incurred. This data is for information purposes only. Information Ratio: The information ratio compares the average excess return of the portfolio over its associated benchmark divided by the tracking error. M-Squared: The hypothetical return of the portfolio after its risk has been adjusted to match a benchmark. U.S. BANK | 3349 Definitions of report and statement terms (page 3 of 5) Market Value: Publicly traded assets are valued using market quotations or valuation methods from financial industry services believed by us to be reliable. Assets, that are not publicly traded, may be reflected at values from other external sources or special valuations prepared by us. Assets for which a current value is not available may be reflected as not valued, at par value, or at a nominal value. Values shown do not necessarily reflect prices at which assets could have been bought or sold. Values are updated based on internal policy and may be updated less frequently than statement generation. Market Value Over Time: Many factors can impact the portfolio value over time, such as contributions to the account, distributions from the account, the investment of dividends and interest, the deduction of fees and expenses, and market performance. Modified Duration to Effective Maturity: A formula that expresses the measurable change in the value of a security in response to a change in interest rates. This version of Modified Duration takes into consideration a “horizon date/price” that is, given current conditions, the most likely redemption date/price using the set of calls/puts, as well as stated maturity. Modified Duration to Stated Maturity: A formula that expresses the measurable change in the value of a security in response to a change in interest rates. This version of Modified Duration uses stated maturity as the “horizon date/price” and ignores any potential call/put/pre- refunding, even if they are mandatory. Price/Earnings Ratio (P/E): The P/E ratio of a company is calculated by dividing the price of the company’s stock by its trailing 12-month earnings per share. A high P/E usually indicates that the market is paying a premium for current earnings because it believes in the firm’s ability to grow its earnings. A low P/E indicates the market has less confidence that the company’s earnings will increase. Within a portfolio, P/E is the weighted average of the price/earnings ratios of the stocks in the portfolio. Qualified Purchaser: Some private placement securities require that investors be Qualified Purchasers in addition to being Accredited Investors. For natural persons, the criteria is generally met when the client (individually or jointly) owns at least $5 million in investments. For other entities, such as corporations, partnerships, trusts and employee benefit plans, the criteria is met with at least $25 million in investments though there are other eligibility tests that may apply. See full definition in Section 2(a)(51) of the Investment Company Act of 1940. R-Squared: Measures the portion of the risk in your portfolio that can be attributed to the risk in the benchmark. Realized and Unrealized Gains/Losses: Are calculated for individual tax lots based on the records we have available. Some data may be incomplete or differ from what you are required to report on your tax return. Some data used in these calculations may have been obtained from outside sources and cannot be verified by U.S. Bank. The data is intended for informational purposes only and should not be used for tax reporting purposes. Please consult with your tax or legal advisor for questions concerning your personal tax or financial situation. U.S. BANK | 3450 Definitions of report and statement terms (page 4 of 5) Residual Risk: The amount of risk specific to the assets in a portfolio distinct from the market, represented by a benchmark. Return: An indication of the past performance of your portfolio. Sharpe Ratio: Measures of risk-adjusted return that calculates the return per unit of risk, where risk is the Standard Deviation of your portfolio. A high Sharpe ratio indicates that the portfolio is benefiting from taking risk. Sortino Ratio: Intended to differentiate between good and bad volatility. Similar to the Sharpe ratio, except it uses downside deviation for the denominator instead of standard deviation, the use of which doesn't discriminate between up and down volatility. Spread: The difference between the yields of two bonds with differing credit ratings (most often, a corporate bond with a certain amount of risk is compared to a standard traditionally lower risk Treasury bond). The bond spread will show the additional yield that could be earned from a bond which has a higher risk. Standard Deviation: A measure of the volatility and risk of your portfolio. A low standard deviation indicates a portfolio with less volatile returns and therefore less inherent risk. Time-weighted Return: The method used to calculate performance. Time-weighted return calculates period by period returns that negates the effect of external cash flows. Returns for periods of greater than one year are reported as an annualized (annual) rate of return. Returns of less than one year are reported on a cumulative return basis. Cumulative return is the aggregate amount an investment has gained or lost over time, independent of the period involved. Tracking Error: A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. This is often in the context of a hedge or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead. Traditional Investments: As used by U.S. Bank, an investment made in equity, fixed income or cash securities, mutual funds or exchange-traded funds (ETFs) where the investor buys at a price with the goal that the investment will go up in value. Top 10 Holdings: The 10 assets with the highest market values in the account. Total Portfolio Gross of Fees: Represents all assets included in the calculation of the portfolio, before the deduction of trust and asset management fees, and is inclusive of all applicable third-party security fees and expenses. Details of those fees and expenses are provided in the security’s prospectus or offering documents. U.S. BANK | 3551 Definitions of report and statement terms (page 5 of 5) Total Return: The rate of return that includes the realized and unrealized gains and losses plus income for the measurement period. Treynor Ratio: Measures the performance of a sector relative to risk by dividing the return of the sector in excess of the risk-free return by the sector's Beta. The higher the Treynor ratio, the better the return relative to risk. Turnover Percent: Indicates how frequently asset are bought and sold within a portfolio. Turnover Ratio: The percentage of a mutual fund’s or other investment vehicle's holdings that have been "turned over" or replaced with other holdings in a given year. Unrealized gain (loss)— The difference between the current market value (at the end of the statement period) and the cost to acquire the asset. If the current market value is higher than the cost, a gain is reflected. If the current market value is lower than the cost paid, a loss is reflected. This data is for information purposes only. Upside Capture: The upside capture ratio reflects how a portfolio compares to the selected model benchmark during periods when the benchmark is up. An upside capture ratio of 1.15 (or 115 percent) means the portfolio has historically beat the benchmark by 15 percent during up markets. Yield: The annual rate of return on an investment, expressed as a percentage. For bonds, it is the coupon rate divided by the market price. For stocks, it is the annual dividend divided by the market price. U.S. BANK | 3652 Frequently used indexes (page 1 of 5) Bloomberg Barclays 1-3 year U.S. Treasury Index: Measures the performance of the U.S. government bond market and includes public obligations of the U.S. Treasury with a maturity between one year and up to (but not including) three years. Bloomberg Barclays 1-5 year U.S. Treasury Index: Includes all publicly issued, U.S. Treasury securities that have a remaining maturity of greater than or equal to one year and less than five years, are rated investment grade and have $250 million or moreof outstanding face value. The Bloomberg Barclays 1-5 year Municipal Index: Measures the performance of municipal bonds with time to maturity of more than one year and less than five years. Bloomberg Barclays 7-year Municipal Index: Includes municipal bonds with a minimum credit rating of Baa that have been issued as part of a transaction of at least $50 million, have a maturity value of at least $5 million and a maturity range of four to six years. Bloomberg Barclays Global Aggregate Index ex-U.S. Index: Measure of global investment grade debt from 24 local currency markets. This multi-currency benchmark includes Treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Bloomberg Barclays Global Treasury ex-U.S. Index: Includes government bonds issued by investment-grade counties outside the United States, in local currencies, that have a remaining maturity of one year or more and are rated investment grade. Bloomberg Barclays High Yield Municipal Bond Index: An unmanaged index made up of bonds that are non-investment grade, unrated or below Ba1 bonds. Bloomberg Barclays Intermediate Aggregate Index: Consists of one- to 10-year governments, one- to 10-year corporate bonds, all mortgages and all asset-backed securities within the Aggregate Index. Bloomberg Barclays Mortgage-Backed Securities Index: Covers agency mortgage-backed pass-through securities (both fixed- rate and hybrid adjustable-rate mortgages) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Bloomberg Barclays U.S. Aggregate Bond Index: Measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Bloomberg Barclays U.S. Corporate Bond Index: Measures the investment grade, fixed-rate, taxable corporate bond market and includes U.S. dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers. U.S. BANK | 3753 Frequently used indexes (page 2 of 5) Bloomberg Barclays U.S. Corporate High Yield Bond Index: Measures the U.S. dollar denominated, high yield, fixed-rate corporate bond market. Bloomberg Barclays U.S. Municipal Bond Index: Measures the investment grade, U.S. dollar-denominated, fixed tax-exempt bond market. The index includes state and local general obligation, revenue, insured and pre-refunded bonds. Bloomberg Barclays U.S. Treasury Index: Measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index: An unmanaged index includes all publicly issued, U.S. TIPS that have at least one year remaining to maturity, are rated investment grade, and have $250 million or more of outstanding face value. Cambridge U.S. Private Equity Index: This index is based on returns data compiled for U.S. private equity funds (including buyout, growth equity and mezzanine funds) that represent the majority of institutional capital raised by private equity partnerships formed since 1986. Returns may be delayed by up to six months. Quarterly performance is prorated based on the cube root for the months of the quarter. Citigroup 3-Month Treasury Bills: An unmanaged index and represents monthly return equivalents of yield averages of the last three-month Treasury Bill issues. Citigroup 6-Month Treasury Bills: An unmanaged index and represents monthly return equivalents of yield averages of the last six- month Treasury Bill issues. Credit Suisse Leverage Loan Index: Represents tradable, senior-secured, U.S. dollar-denominated non-investment grade loans. Dow Jones Industrial Average (DJIA): The price-weighted average of 30 significant U.S. stocks traded on the New York Stock Exchange and NASDAQ. The DJIA is the oldest and single most watched index in the world. Dow Jones Select REIT Index: Measures the performance of publicly traded REITs and REIT-like securities in the U.S. and is a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. HFRI Indices: The Hedge Fund Research, Inc. (HFRI) indexes are a series of benchmarks designed to reflect hedge fund industry performance by constructing composites of constituent funds, as reported by the hedge fund managers listed within the HFR Database. U.S. BANK | 3854 Frequently used indexes (page 3 of 5) HFRI Equity Hedge Total Index: Uses the HFR (Hedge Fund Research) database and consists only of equity hedge funds with a minimum of $50 million assets under management or a 12-month track record and that reported assets in U.S. dollars. HFRI Relative Value Fixed Income Corporate Index: Uses the HFR (Hedge Fund Research) database and consists of only relative value fixed income corporate funds with a minimum of $50 million assets under management or a 12-month track record and that reported assets in U.S. dollars. ICE BofAML 1-3 Year Corporate Index: Tracks U.S. dollar-denominated investment grade public debt issued in the U.S. bond market with maturities of one to three years. ICE BofAML 1-5 Year Corporate and Government Index: Tracks the performance of short-term U.S. investment grade government and corporate securities with maturities between one and five years. ICE BofAML U.S. 7-10 Year Index: Tracks the performance of U.S. dollar denominated investment grade rated corporate debt publicly issued in the U.S. domestic market and includes all securities with a remaining term to maturity of greater than or equal to seven years and less than 10 years. ICE BofAML Global Broad Market Index: Tracks the performance of investment grade public debt issued in the major domestic and Eurobond markets, including global bonds. ICE BofAML U.S. High Yield Master II Index: Commonly used benchmark index for high yield corporate bonds and measures the broad high yield market. J.P. Morgan Emerging Markets Bond Index Global (EMBI Global): Tracks total returns for traded external debt instruments in the emerging markets. London Interbank Offered Rate (LIBOR)3-months: The interest rate offered by a specific group of London banks for U.S. dollar deposits with a three-month maturity. London Interbank Offered Rate (LIBOR) 9-months:The interest rate offered by a specific group of London banks for U.S. dollar deposits with a nine-month maturity. MSCI All Country World Index (ACWI): Designed to measure the equity market performance of developed and emerging markets. U.S. BANK | 3955 Frequently used indexes (page 4 of 5) Russell 2000 Value Index: Measures companies in the Russell 2000 Index having lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Index includes the 2,000 firms from the Russell 3000 Index with the smallest market capitalizations. Russell 3000 Index: Measures the performance of the 3,000 largest U.S. securities based on total market capitalization. Russell Midcap Index: Measures the 800 smallest companies in the Russell 3000 Index. Russell Midcap Growth Index: Measures companies in the Russell Midcap Index having higher price-to-book ratios and higher forecasted growth values. Russell Midcap Value Index: Measures companies in the Russell Midcap Index having lower price-to-book ratios and lower forecasted growth values. MSCI All County World ex-U.S. Index (ACWI, excluding United States): Tracks the performance of stocks representing developed and emerging markets around the world that collectively comprise most foreign stock markets. U.S. stocks are excluded from the index. MSCI EAFE Index: Includes approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East. MSCI Emerging Markets (EM) Index: Designed to measure equity market performance in global emerging markets. MSCI World Index: Tracks equity market performance of developed markets through individual country indices. NAREIT Index: Includes REITs (Real Estate Investment Trusts) listed on the New York Stock Exchange, NASDAQ and American Stock Exchange. NASDAQ Composite Index: A market capitalization-weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. NCREIF Property Index (NPI): Measures the investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. Russell 1000 Index: Measures the performance of the 1,000 largest companies in the Russell 3000 Index and is representative of the U.S. large capitalization securities market. U.S. BANK | 4056 Frequently used indexes (page 5 of 5) Russell 1000 Growth Index: Measures companies in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. It includes the largest 1,000 firms in the Russell 3000 Index. Russell 1000 Value Index: Measures companies in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. It includes the largest 1,000 firms in the Russell 3000 Index. Russell 2000 Index: Measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. Russell 2000 Growth Index: Measures companies in the Russell 2000 Index having higher price-to-book ratios and higher forecasted growth values. and is representative of U.S. securities exhibiting growth characteristics. The Russell 2000 Index includes the 2,000 firms from the Russell 3000 Index with the smallest market capitalizations. S&P 500 Index: Consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market. S&P Global ex-U.S. Property Index: Measures the investable universe of publicly traded property companies domiciled in developed and emerging markets excluding the United States. The companies included are engaged in real estate related activities such as property ownership, management, development, rental and investment. S&P GSCI: A composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. S&P/Case-Shiller Home Price Indexes: A group of indexes that track changes in home prices throughout the United States. Case- Shiller produces indexes representing certain metropolitan statistical areas (MSA) as well as a national index. Swiss Re Global Cat Bond Total Return Index: Tracks the aggregate performance of all U.S. dollar-denominated euros and Japanese yen-denominated catastrophe bonds, capturing all ratings, perils and triggers. U.S. Dollar Index: Indicates the general international value of the U.S. dollar by averaging the exchange rates between the U.S. dollar and six major world currencies. Wilshire 5000 Index: Composed of more than 6,700 publicly-traded U.S. companies and is designed to track the overall performance of the American stock markets. U.S. BANK | 4157 CITY OF CUPERTINO Agenda Item 22-10821 Agenda Date: 4/25/2022 Agenda #: 4. Subject:Consider reviewing Treasurer's Investment Report for Quarter Ending March 31,2022 and moving forward accept monthly investment reports to comply with the City's municipal code Review and consider accepting Treasurer's Investment Report for Quarter Ending March 31,2022 and moving forward accept monthly investment reports to comply with the City's municipal code CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™58 AUDIT COMMITTEE STAFF REPORT Meeting: April 25, 2022 Subject Treasurer's Investment Report for Quarter Ending March 31, 2022 Recommended Action Review and consider accepting Treasurer's Investment Report for Quarter Ending March 31, 2022 and moving forward accept monthly investment reports to comply with the City's Municipal Code Discussion Background California Government Code Section 53646 states: (b)(1) The treasurer or chief fiscal officer may render a quarterly report to the chief executive officer, the internal auditor, and the legislative body of the local agency. The quarterly report shall be so submitted within 30 days following the end of the quarter covered by the report. Except as provided in subdivisions (e) and (f), this report shall include the type of investment, issuer, date of maturity, par and dollar amount invested on all securities, investments and moneys held by the local agency, and shall additionally include a description of any of the local agency’s funds, investments, or programs, that are under the management of contracted parties, including lending programs. With respect to all securities held by the local agency, and under management of any outside party that is not also a local agency or the State of California Local Agency Investment Fund, the report shall also include a current market value as of the date of the report, and shall include the source of this same valuation. (2) The quarterly report shall state compliance of the portfolio to the statement of investment policy, or manner in which the portfolio is not in compliance. (3) The quarterly report shall include a statement denoting the ability of the local agency to meet its pool’s expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available. 59 The City's Municipal Code Section 2.24.050 Investment Authority states: Pursuant to authority granted by state statutes, there is hereby delegated to the Treasurer the authority to invest or to reinvest funds of the City, or to sell or exchange securities so purchased, and who shall thereafter assume full responsibility for such transactions until such time as the delegation of authority is revoked. The Treasurer shall make a monthly report of all such transactions to the members of the City Council, the City Manager and also make it available for review by such other persons who may so request. Lastly, the City's Municipal Code Section 2.88.100 Duties-Powers-Responsibilities lists one of the powers and functions of the Audit Committee is "to review the monthly Treasurer's report." Chapter 889, Statutes of 2004 (AB 2853, Laird) amended the California Government Code to make the quarterly investment report optional. While California Government Code no longer requires a quarterly report, the City’s Municipal Code requires a monthly report. The attached Treasurer’s Investment Report is for the quarter ending March 31, 2022. Moving forward, the Treasurer’s Investment Report shall be submitted to the Audit Committee and City Council every month to comply with the City’s Municipal Code. Treasurer’s Investment Report Under the City's Treasurer's direction, Chandler Asset Management manages the City's investment portfolio in accordance with the City's investment policy. Per California Government Code 53646 (b)(2), the assets managed by Chandler Asset Management are in full compliance with the City's investment policy. In compliance with California Government Code 53646 (b)(3), the City maintains the ability to meet its expenditure requirements for the next six months. Sustainability Impact No sustainability impact. Fiscal Impact No fiscal impact. _____________________________________ Prepared by: Thomas Leung, Senior Management Analyst Reviewed by: Kristina Alfaro, Director of Administrative Services and City Treasurer Approved for Submission by: Jim Throop, City Manager Attachments: A – Treasurer's Investment Report for Quarter Ending March 31, 2022 60 CHANDLER ASSET MANAGEMENT, INC. | 800.317.4747 | www.chandlerasset.com INVESTMENT REPORT Period Ending March 31, 2022 City of Cupertino 61 SECTION 1 Economic Update SECTION 2 Account Profile SECTION 3 Portfolio Holdings SECTION 4 Transactions Table of Contents As of March 31, 2022 1 62 SECTION |Section 1 |Economic Update 2 63 Economic Update ▪ ▪ ▪ The Russian invasion into Ukraine and resulting Western sanctions on Russiahave fueled volatility in financial markets. The latest escalation has exacerbated inflationary pressures, particularly in energy and commodities, and has caused tightening conditions in financial markets. While consumer spending and economic growth remain strong,we believe an extended conflict in Eastern Europe along with elevated energy prices increases the risk of an economic slowdown later this year. While we expect the Fed to tighten monetary policy, the FOMC has very little margin for error as it attempts to combat inflation without pushing the economy into a recession. Over the near-term, we expect financial market volatility to remain elevated and conditions to remain tighter with heightened geopolitical risk, supply chain bottlenecks and persistent inflation, and the Fed's pivot to less accommodative monetary policy. The Federal Open MarketCommittee (FOMC) raised the federal funds rate by 0.25%at their March 16th meeting to atarget range of 0.25%to 0.50%. The Federal Reserve also ended their bond-buying program as expected in March, which included the purchase of treasury and agency mortgage-backed securities. Fed Chair Powell suggested that balance sheet runoff could begin as early as their next meeting in May, soonerthan previously anticipated, and that the pace of the unwind will likely be fasterthan in the previous quantitative tightening cycle. The dot plot favors six additional rate hikes in 2022,which implies a 25 basis point rate hike at each remaining meeting this year,but the Fed hasn’t ruled out incorporating one or more 50 basis point hikes to address inflation. The FOMC’s Summary of Economic Projections forecasts higher Personal Consumption Expenditure (PCE) inflation this year at 4.3% and a lower growth rate of 2.8% real GDP.We are anticipating additional rates hikes by the Fed this year,but we do notbelieve thatmonetary policy is on apre-set course and expect the Fed's policy adjustments will depend on developments in the economy. In March, yields increased dramatically and the curve continued to flatten. The 2-year Treasury yield increased 90 basis points to 2.34%, the 5-year Treasury yield increased 74 basis points to 2.46%, and the 10-year Treasury yield increased 51 basis points to 2.34%. The spread between the 2-year and 10-year Treasury yield declined to zero at March month-end versus 40 basis points at February month-end and 158 basis points one year ago. While the flat yield curve bears watching over the longer run, the spread between 3-month and 10-year treasuries is still steep at about 185 basis points, which indicates likely economic growth in the coming year. 3 64 Source: US Department of Labor Source: US Department of Labor Employment The U.S. economy added 431,000 jobs in March, with upward revisions from the prior months totaling 95,000. Trends in employment remain strong, with the three-month moving average payrolls at 561,000and the six-month moving average at 600,000. Job gains were broad based in March, led by leisure and hospitality and professional and business services. The unemployment rate fell to 3.6% from 3.8%, the lowest level since February 2020.The laborparticipation rate increased marginally to 62.4%in March from 62.3%in February but remains lowerthan the pre- pandemiclevel of 63.4%. The U-6underemployment rate, which includes those who are marginally attached to the laborforce and employed part time for economic reasons, fell to 6.9%in March from 7.2%in February, declining below its pre-pandemic level of 7.0%in February 2020. Wage growth accelerated in March, with average hourly earnings rising 5.6% from 5.2% year-over-year.As more participants enter the labor force, wage inflation dynamics should start to moderate, helping to lower the current elevated inflation readings. -22,000 -18,000 -14,000 -10,000 -6,000 -2,000 2,000 6,000 M O M C h a n g e I n ( 0 0 0 ' s ) Nonfarm Payroll (000's) Non-farm Payroll (000's) 3 month average (000's) 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0% Unemployment Rate Underemployment Rate (U6) Unemployment Rate (U3) Ra t e ( % ) 4 65 Source: US Department of Labor Source: US Department of Commerce Inflation Although U.S. consumer prices were in line with expectations in February, inflation hit a40-year high. The ConsumerPrice Index (CPI) was up 7.9% year-over-year in February, versus a 7.5% year-over-year gain in January. Core CPI (CPI less food and energy) was up 6.4% year-over-year in February, versus up 6.0%in January. Rising food and rent prices were primary contributors to the big increase,as well as the month-end surge in gas prices, which is likely to be even more pronounced in the March report. The Personal Consumption Expenditures (PCE) index was up 6.4% year-over-year in February,up from 6.0%in January. Core PCE was up 5.4% year-over-year in February, versus up 5.2%in January. Current inflation readings continue to run well above the Fed’s longer-run target of around 2.0%.We believe pricing pressures are likely to increase in the coming months considering the recent surge in commodity prices, and will likely remain elevated longer than anticipated as a result of the conflict in Europe. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Personal Consumption Expenditures (PCE) PCE Price Deflator YOY % Change PCE Core Deflator YOY % Change YO Y ( % ) C h a n g e 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Consumer Price Index (CPI) CPI YOY % Change Core CPI YOY % Change Y O Y ( % ) C h a n g e 5 66 Retail sales edged higher in February,but there are signs that higher gas prices are impacting discretionary spending.On a year-over-year basis, retail sales were up 17.6%in February versus up 14%in January.On a month-over-month basis, retail sales moderated, rising 0.3%in February versus an upwardly revised increase of 4.9%in January. Excluding vehicles and gas, retail sales were down 0.4% month-over-month. Although inflation threatens to put a dent in expected growth,we believe high levels of consumer savings along with improvement in the health situation and continued improvement in the labor market should provide a healthy tailwind for consumer spending. The Consumer Confidence index rebounded to 107.2 in March following declines in January and February, primarily driven by positive assessments of employment. However, while consumers’ evaluations of the present situation was strong, future expectations have been deteriorating. Source: US Department of Commerce Source: The Conference Board -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Retail Sales YOY % Change Y O Y ( % ) C h a n g e 80 90 100 110 120 130 140 In d e x L e v e l Consumer Confidence Consumer 6 67 Source: The Conference Board Source: Federal Reserve Bank of Chicago Economic Activity The Conference Board’s Leading Economic Index (LEI) increased 0.3% month-over-month in February, following a 0.5% downwardly revised decline in January.On a year-over-yearbasis, the LEI was up 7.6%in February versus up 7.3%in January. The Conference Board acknowledged that the data do not fully reflect the impact of the Russian invasion of Ukraine on global supply chain issues, shortages, and the resulting soaring prices, which could result in slower than expected growth in the first half of the year. Meanwhile, the Chicago Fed National Activity Index (CFNAI) fell to 0.51 in February from a downwardly revised 0.59 in January.On a 3-month moving average basis, the CFNAI declined to 0.35 in February, while January was revised downward to 0.37. -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 Chicago Fed National Activity Index (CFNAI) 3 M o n t h A v e r a g e -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% Leading Economic Indicators (LEI) M O M ( % ) C h a n g e 7 68 Source: US Department of Commerce Source: S&P Housing 0 200 400 600 800 1000 1200 1400 1600 1800 2000 M O M C h a n g e ( I n T h o u s a n d s o f U n i t s ) Housing Starts Multi Family Housing Starts Single Family Housing Starts 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 18.0% 21.0% 24.0% S&P/Case-Shiller 20 City Composite Home Price Index YO Y ( % ) C h a n g e Total housing starts rebounded 6.8%to an annual rate of 1,769,000 in February. Single-family starts increased 5.7%, and multi-family starts increased 9.3%, month-over-month.On a year-over-year basis, total housing starts were up 22.3%in February driven by multi-family starts. According to the Case-Shiller 20-City home price index, home prices were up 19.1% year-over-year in January versus up 18.6% year-over-year in December, suggesting tight supply may be continuing to support prices. Rising mortgage rates and affordability could be headwinds to further price growth. 8 69 Source: Institute for Supply Management Source: Federal Reserve Manufacturing The Institute forSupply Management (ISM) manufacturing index fell to an 18-month low of 57.1 in March from 58.6 in February due to surging energy and commodities prices triggered by Russia's invasion of Ukraine. Readings above 50.0 are indicative of expansion in the manufacturing sector.On a month-over-month basis, the Industrial Production index rose 0.5%in February, following a 1.4% increase in January. Capacity utilization rose to 77.6%in February,up from 77.3%in January. Although capacity utilization remains below its longer-run average of 79.6%,it is running above the pre-pandemic level of 76.3%. 40 42 44 46 48 50 52 54 56 58 60 62 64 66 Institute of Supply Management Purchasing Manager Index EXPANDING CONTRACTING -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% Industrial Production YO Y ( % ) C h a n g e 9 70 Source: US Department of Commerce Source: US Department of Commerce 3/21 6/21 9/21 12/21 7.4% 7.9% 1.4% 1.8% -0.4% -0.7% 2.1% 5.8% -1.6% -0.2% -1.3% -0.2% 0.8% -0.4% -0.4% -0.3% 0.0% 0.0% 0.5% -0.2% 6.3% 6.7% 2.3% 6.9% Gross Private Domestic Investment Personal Consumption Expenditures Components of GDP Federal Government Expenditures State and Local (Consumption and Gross Investment) Net Exports and Imports Total -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Gross Domestic Product (GDP) GDP QOQ % Change GDP YOY % Change Gross Domestic Product (GDP) According to the third estimate, fourth quarterGDP grew at an annualized rate of 6.9%, revised slightly downward from the second estimate of 7.0%. Economic growth reaccelerated in the fourth quarter after slowing to a pace of 2.3% growth in the third quarter, bringing overall GDP growth for 2021 to 5.7%. The most significant contributor to fourth quarter growth was inventory build, potentially reflecting some easing in supply chain disruptions. The fourth-quarter's build will make foratough comparison in the first quarter. The consensus estimate calls for1.1% GDP growth in the first quarter, 3.0% growth in the current quarter, and 3.3% growth for 2022. 10 71 Federal Reserve Source: Federal Reserve Source: Bloomberg As expected the Federal Open Market Committee (FOMC) raised the federal funds rate by 0.25%at their March meeting to a target range of 0.25%to 0.50%., This was the first increase since 2018,after two years of holding the federal funds rates near zero to insulate the economy from the impacts of the pandemic. The Federal Reserve (Fed) also ended their bond-buying program as expected in March, which grew the balance sheet to about $8.9 trillion. Fed Chair Powell suggested that balance sheet runoff could begin as early as their next meeting in May, soonerthan previously anticipated, and thatthe pace of the unwind will likely be faster than in the previous quantitative tightening cycle. The dot plot favors six additional rate hikes in 2022,which implies a 25 basis point rate hike at each remaining meeting this year,but the Fed hasn’t ruled out incorporating one or more 50 basis point hikes to address inflation. The FOMC’s Summary of Economic Projections forecasts higher Personal Consumption Expenditure (PCE) inflation this year at 4.3% and a lower growth rate of 2.8% real GDP. 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% Effective Federal Funds Rate Yi e l d ( % ) 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Federal Reserve Balance Sheet Assets In $ m i l l i o n s 11 72 Source: Bloomberg Source: Bloomberg 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% US Treasury Note Yields 2-Year 5-Year 10-Year Y i e l d ( % ) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% US Treasury Yield Curve Mar-22 Dec-21 Mar-21 Yi e l d ( % ) Bond Yields At the end of March, the 2-year Treasury yield was 217 basis points higher, and the 10-Year Treasury yield was about 60 basis points higher, year- over-year. The spread between the 2-year Treasury yield and 10-year Treasury yield declined to zero at March month-end compared to the average historical spread (since 2003)of about 130 basis points. While the flat yield curve bears watching over the longer run, the spread between 3-month and 10-year treasuries is still steep at about 185 basis points, which indicates likely economic growth in the coming year. 12 73 Section 2|SECTION |Section 2 |Account Profile 13 74 Objectives Chandler Asset Management Performance Objective The performance objective for the portfolio is to earn a total rate of return through a market cycle that is equal to or above the return on the benchmark index. Investment Objectives The City of Cupertino’s investment objectives,in order of priority,are to provide safety to ensure the preservation of capital in the overall portfolio,provide sufficient liquidity for cash needs and a market rate of return consistent with the investment program. Strategy In order to achieve these objectives,the portfolio invests in high quality fixed incomes securities consistent with the investment policy and California Government Code. As of March 31, 2022 14 75 Compliance As of March 31, 2022 Category Standard Comment Treasury Issues No Limitation Complies Agency Issues 25% per Agency/GSE issuer; 20% max agency callable securities; Issued by Federal Agencies or U.S. Government Sponsored Enterprise obligations.Complies Supranational "AA" rating category or better by a NRSRO; 30% maximum; 10% max per issuer; USD denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by IBRD, IFC, or IADB.Complies Municipal Securities "A" rating category or better by a NRSRO; 30% maximum; 5% max per issuer; Obligations of the City, State of California, and any local agency within the State of California; Obligations of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states in addition to California. Complies Corporate Medium Term Notes "A" rating category or better by a NRSRO; 30% maximum; 5% max per issuer; Issued by corporations organized and operating within the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S.Complies Asset Backed/ Mortgage Backed/ Collateralized Mortgage Obligation "AA" rating category or better by a NRSRO; 20% maximum; 5% max per issuer on Asset-Backed or Commercial Mortgage security; There is no issuer limitation on any Mortgage security where the issuer is the U.S. Treasury or a Federal Agency/GSE .Complies Negotiable Certificates of Deposit (NCDs) No rating required if amount of the NCD is insured up to the FDIC limit; If above FDIC insured limit, requires "A-1" short-term rated or "A" long- term rating category or better by a NRSRO; 30% maximum; 5% max per issuer; Issued by nationally or state chartered banks, state or federal savings associations, or state or federal credit unions, or by a federally licensed or state-licensed branch of a foreign bank. Complies Certificates of Deposit (CDs)/Time Deposit (TDs) 30% maximum; 5% max per issuer; Certificates of Deposit, Time Deposit, non-negotiable, and collateralized in accordance with California Government Code.Complies Banker’s Acceptances "A-1" short-term rated or better by a NRSRO; or "A" long-term rating category or better by a NRSRO; 40% maximum; 5% max per issuer; 180 days max maturity Complies Commercial Paper "A-1" short term rated or better a NRSRO; "A" long-term issuer rating category or better by a NRSRO; 25% maximum; 5% max per issuer; 270 days max maturity; Issued by corporations organized and operating in the U.S. with assets > $500 million; 10% max outstanding paper of the issuing corporation. Complies Money Market Funds 20% maximum; Daily money market funds administered for or by trustees, paying agents and custodian banks contracted by a City of Cupertino as allowed under California Government Code; Only funds holding U.S. Treasury obligations, Government agency obligations or repurchase agreements collateralized by U.S. Treasury or Government agency obligations can be utilized. Complies Local Agency Investment Fund (LAIF)Maximum amount permitted by LAIF; Not used by investment adviser Complies Repurchase Agreements 1 year max maturity; 102% collateralized; A PSA Master Repurchase Agreement is required between City of Cupertino and the broke/dealer or financial institution for all repurchase agreements; Not used by investment adviser Complies Prohibited Securities Reverse Repurchase Agreement; Common stocks; Long-term (> 5 years maturity) notes and bonds; Special circumstances arise that necessitate purchase of securities beyond the 5-year limitation. On such occasions, request must be approved by City Council prior to purchase; Futures/Options; Inverse floaters; Ranges notes, Mortgage-derived, Interest-only strips; Zero interest accrual securities; Purchasing/selling securities on margin; Foreign currency denominated securities. Complies Minimum Budgeted Operating Expenditures in Short Term Investments Minimum 6 months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements Complies Max Per Issuer 5% per issuer, unless otherwise specified in the policy Complies Maximum maturity 5 years Complies City of Cupertino Assets managed by Chandler Asset Management are in full compliance with state law and with the City's investment policy. 15 76 Portfolio Characteristics City of Cupertino 03/31/22 12/31/21 Benchmark*Portfolio Portfolio Average Maturity (yrs)2.62 2.81 2.83 Average Modified Duration 2.53 2.49 2.59 Average Purchase Yield n/a 1.31%1.21% Average Market Yield 2.30%2.43%0.96% Average Quality**AAA AA+/Aa1 AA/Aa1 Total Market Value 150,202,612 139,803,983 *ICE BofA 1-5 Yr US Treasury & Agency Index **Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively. As of March 31, 2022 16 77 City of Cupertino Sector Distribution ABS 12.7% Agency 22.4% CMO 5.3%Corporate 26.1% Money Market Fund 1.8% Municipal Bonds 0.5% Negotiable CD 0.2% Supranational 8.2% US Treasury 22.7% March 31, 2022 December 31, 2021 ABS 8.5% Agency 25.3% CMO 5.2% Corporate 27.1% Money Market Fund 0.5% Municipal Bonds 0.6% Negotiable CD 0.3% Supranational 9.2% US Treasury 23.5% As of March 31, 2022 17 78 Duration Allocation As of March 31, 2022 City of Cupertino 0 -0.25 0.25 -0.50 0.50 -1 1 -2 2 -3 3 -4 4 -5 5+ 03/31/22 2.1%1.3%3.1%28.8%28.8%28.7%7.2%0.0% 0% 5% 10% 15% 20% 25% 30% 35% 0 - 0.25 Years 0.25 - 0.5 Years 0.5 - 1 Years 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 5+ Years ABS Agency CMO Corporate Money Market Fund Municipal Bonds Negotiable CD Supranational US Treasury 18 79 Portfolio Allocation & Duration Changes City of Cupertino As of March 31, 2022 Benchmark: ICE BofA 1-5 Yr US Treasury & Agency Index 98.6%100.8% 99.3% 96.2% 98.4% 97.5% 100.0%101.0% 80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 110.0% 03/31/2212/31/2109/30/2106/30/2103/31/2112/31/2009/30/2006/30/20 Duration as a % of the Benchmark 0.3% 0.6% 0.5% 5.2% 9.2% 8.5% 25.3% 23.5% 27.1% 0.2% 0.5% 1.8% 5.3% 8.2% 12.7% 22.4% 22.7% 26.1% Negotiable CD Municipal Bonds Money Market Fund CMO Supranational ABS Agency US Treasury Corporate Portfolio Allocation 03/31/22 12/31/21 19 80 Issue Name Investment Type % Portfolio Government of United States US Treasury 22.73% Federal National Mortgage Association Agency 9.99% Federal Home Loan Mortgage Corp Agency 6.25% Federal Home Loan Bank Agency 6.16% Federal Home Loan Mortgage Corp CMO 5.34% International Finance Corp Supranational 3.37% Inter-American Dev Bank Supranational 3.34% Hyundai Auto Receivables ABS 1.85% Wells Fargo 100% Treasury MMKT Fund Money Market Fund 1.79% Honda ABS ABS 1.67% Toyota Motor Corp Corporate 1.64% Bank of America Corp Corporate 1.63% JP Morgan Chase & Co Corporate 1.55% Intl Bank Recon and Development Supranational 1.49% Toronto Dominion Holdings Corporate 1.45% Deere & Company Corporate 1.34% Toyota ABS ABS 1.29% GM Financial Automobile Leasing Trust ABS 1.25% Toyota Lease Owner Trust ABS 1.21% Bank of Montreal Chicago Corporate 1.18% John Deere ABS ABS 1.18% Amazon.com Inc Corporate 1.18% Metlife Inc Corporate 1.18% Air Products & Chemicals Corporate 1.14% Salesforce.com Inc Corporate 1.12% New York Life Global Funding Corporate 1.08% Berkshire Hathaway Corporate 1.06% American Express ABS ABS 1.01% Royal Bank of Canada Corporate 1.00% Paccar Financial Corporate 0.97% Wal-Mart Stores Corporate 0.90% Honda Motor Corporation Corporate 0.89% Hyundai Auto Lease Securitization ABS 0.87% Guardian Life Global Funding Corporate 0.86% US Bancorp Corporate 0.83% Caterpillar Inc Corporate 0.73% Verizon Owner Trust ABS 0.71% Bank of New York Corporate 0.68% Issuers City of Cupertino –Account #10659 As of March 31, 2022 20 81 Issue Name Investment Type % Portfolio Apple Inc Corporate 0.68% United Health Group Inc Corporate 0.64% Charles Schwab Corp/The Corporate 0.62% Mass Mutual Insurance Corporate 0.62% BMW Vehicle Lease Trust ABS 0.57% Prudential Financial Inc Corporate 0.57% Northwestern Mutual Glbl Corporate 0.52% State of California Municipal Bonds 0.51% Nissan ABS ABS 0.45% GM Financial Securitized Term Auto Trust ABS 0.42% Mercedes-Benz Auto Lease Trust ABS 0.26% Toronto Dominion Holdings Negotiable CD 0.23% TOTAL 100.00% Issuers City of Cupertino –Account #10659 As of March 31, 2022 21 82 AAA AA A <A NR 03/31/22 18.8%54.5%17.4%0.0%9.3% 12/31/21 15.6%56.1%20.6%0.0%7.7% Source: S&P Ratings March 31, 2022 vs. December 31, 2021 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% AAA AA A <A NR 03/31/22 12/31/21 Quality Distribution City of Cupertino As of March 31, 2022 22 83 Total Rate of Return Annualized Since Inception January 31, 2019 Total rate of return:A measure of a portfolio’s performance over time.It is the internal rate of return,which equates the beginning value of the portfolio with the ending value;it includes interest earnings,realized and unrealized gains and losses in the portfolio. Investment Performance City of Cupertino -4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 12 months 2 years 3 years 5 years 10 years Since Inception City of Cupertino Gross of Fees ICE BofA 1-5 Yr US Treasury & Agency Index City of Cupertino Net of Fees Annualized TOTAL RATE OF RETURN 3 months 12 months 2 years 3 years 5 years 10 years Since Inception City of Cupertino Gross of Fees -3.18%-3.60%-0.94%1.10%N/A N/A 1.22% ICE BofA 1-5 Yr US Treasury & Agency Index -3.16%-3.71%-1.91%0.91%N/A N/A 1.15% City of Cupertino Net of Fees -3.18%-3.65%-1.01 1.03%N/A N/A 1.15% As of March 31, 2022 23 84 Purchase Yield as of 03/31/22 = 1.31% 0.00 0.50 1.00 1.50 2.00 2.50 Pe r c e n t ( % ) Historical Average Purchase Yield City of Cupertino As of March 31, 2022 24 85 SECTION |Section 3 |Portfolio Holdings 25 86 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration ABS 58770FAC6 Mercedes Benz Auto Lease Trust 2020-A A3 1.840% Due 12/15/2022 45,840.79 01/21/2020 1.85% 45,834.75 45,839.31 100.03 0.91% 45,856.15 37.49 0.03% 16.84 Aaa / AAA NR 0.71 0.04 47789JAD8 John Deere Owner Trust 2019-A A3 2.910% Due 07/17/2023 104,239.61 Various 1.94% 106,286.60 104,500.12 100.16 1.13% 104,404.00 134.82 0.07% (96.12) Aaa / NR AAA 1.30 0.09 43815NAC8 Honda Auto Receivables Trust 2019-3 A3 1.780% Due 08/15/2023 352,726.20 Various 1.93% 352,133.25 352,632.44 100.08 1.48% 353,018.61 279.04 0.24% 386.17 Aaa / AAA NR 1.38 0.29 58769EAC2 Mercedes-Benz Auto Lease Trust 2020-B A3 0.400% Due 11/15/2023 345,000.00 09/15/2020 0.40% 344,982.51 344,994.01 99.39 1.72% 342,894.12 61.33 0.23% (2,099.89) NR / AAA AAA 1.63 0.46 477870AC3 John Deere Owner Trust 2019-B A3 2.210% Due 12/15/2023 258,036.46 08/27/2019 1.79% 260,425.31 258,985.00 100.27 1.25% 258,724.39 253.45 0.17% (260.61) Aaa / NR AAA 1.71 0.28 92348AAA3 Verizon Owner Trust 2019-C A1A 1.940% Due 04/22/2024 278,229.78 10/01/2019 1.95% 278,208.33 278,220.05 100.13 1.59% 278,588.14 164.93 0.19% 368.09 NR / AAA AAA 2.06 0.38 89238EAC0 Toyota Lease Owner Trust 2021-A A3 0.390% Due 04/22/2024 700,000.00 03/23/2022 2.16% 686,000.00 686,180.15 98.15 2.19% 687,068.20 83.42 0.46% 888.05 Aaa / AAA NR 2.06 1.03 44891VAC5 Hyundai Auto Lease Trust 2021-B A3 0.330% Due 06/17/2024 790,000.00 06/08/2021 0.34% 789,881.50 789,923.21 97.86 2.28% 773,090.84 115.87 0.51% (16,832.37) Aaa / AAA NR 2.22 1.11 65479JAD5 Nissan Auto Receivables Owner 2019-C A3 1.930% Due 07/15/2024 673,855.83 Various 1.70% 677,198.70 675,665.85 100.19 1.42% 675,161.09 578.02 0.45% (504.76) Aaa / AAA NR 2.29 0.38 43813DAC2 Honda Auto Receivables 2020-2 A3 0.820% Due 07/15/2024 133,629.84 05/18/2020 0.83% 133,619.33 133,624.02 99.32 1.99% 132,717.28 48.70 0.09% (906.74) Aaa / AAA NR 2.29 0.58 47789KAC7 John Deere Owner Trust 2020-A A3 1.100% Due 08/15/2024 192,771.59 03/04/2020 1.11% 192,759.80 192,765.27 99.68 1.69% 192,160.70 94.24 0.13% (604.57) Aaa / NR AAA 2.38 0.53 43813KAC6 Honda Auto Receivables Trust 2020-3 A3 0.370% Due 10/18/2024 575,000.00 09/22/2020 0.38% 574,915.53 574,956.03 98.74 2.13% 567,771.68 76.83 0.38% (7,184.35) NR / AAA AAA 2.55 0.71 36262XAC8 GM Financial Auto Lease Trust 2021-3 A2 0.390% Due 10/21/2024 965,000.00 08/10/2021 0.39% 964,986.88 964,990.23 97.13 2.54% 937,284.24 115.00 0.62% (27,705.99) NR / AAA AAA 2.56 1.35 47787NAC3 John Deere Owner Trust 2020-B A3 0.510% Due 11/15/2024 215,720.33 07/14/2020 0.52% 215,687.46 215,703.43 98.89 2.22% 213,319.36 48.90 0.14% (2,384.07) Aaa / NR AAA 2.63 0.65 09690AAC7 BMW Vehicle Lease Trust 2021-2 A3 0.330% Due 12/26/2024 425,000.00 09/08/2021 0.34% 424,956.14 424,966.59 97.49 2.43% 414,321.45 23.38 0.28% (10,645.14) Aaa / NR AAA 2.74 1.20 89236XAC0 Toyota Auto Receivables 2020-D A3 0.350% Due 01/15/2025 455,000.00 10/06/2020 0.36% 454,915.23 454,944.40 98.85 2.14% 449,762.04 70.78 0.30% (5,182.36) NR / AAA AAA 2.80 0.64 44891WAC3 Hyundai Auto Lease Trust 2022-A A3 1.160% Due 01/15/2025 540,000.00 01/11/2022 1.16% 539,988.07 539,989.12 97.64 2.61% 527,254.38 278.40 0.35% (12,734.74) Aaa / AAA NR 2.80 1.64 As of March 31, 2022 26 87 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 92290BAA9 Verizon Owner Trust 2020-B A 0.470% Due 02/20/2025 800,000.00 08/04/2020 0.48% 799,832.00 799,892.68 98.62 2.09% 788,939.20 114.89 0.53% (10,953.48) Aaa / NR AAA 2.90 0.86 89238LAC4 Toyota Lease Owner Trust 2022-A A3 1.960% Due 02/20/2025 1,150,000.00 02/23/2022 1.98% 1,149,818.99 1,149,825.86 98.31 2.87% 1,130,602.95 688.72 0.75% (19,222.91) NR / AAA AAA 2.90 1.88 36265MAC9 GM Financial Auto Lease Trust 2022-1 A3 1.900% Due 03/20/2025 945,000.00 02/15/2022 1.91% 944,991.87 944,992.25 98.80 2.58% 933,631.65 548.63 0.62% (11,360.60) Aaa / NR AAA 2.97 1.78 05601XAC3 BMW Vehicle Lease Trust 2022-1 A3 1.100% Due 03/25/2025 450,000.00 01/11/2022 1.11% 449,932.73 449,938.81 97.51 2.72% 438,808.05 82.50 0.29% (11,130.76) NR / AAA AAA 2.99 1.55 43813GAC5 Honda Auto Receivables Trust 2021-1 A3 0.270% Due 04/21/2025 295,000.00 02/17/2021 0.27% 294,994.60 294,996.53 97.92 2.54% 288,853.68 22.13 0.19% (6,142.85) Aaa / NR AAA 3.06 0.92 89240BAC2 Toyota Auto Receivables Owners 2021-A A3 0.260% Due 05/15/2025 1,090,000.00 02/02/2021 0.27% 1,089,797.70 1,089,872.29 98.10 2.26% 1,069,321.61 125.96 0.71% (20,550.68) Aaa / NR AAA 3.13 0.95 44933LAC7 Hyundai Auto Receivables Trust 2021-A A3 0.380% Due 09/15/2025 515,000.00 04/20/2021 0.38% 514,945.82 514,962.27 97.50 2.34% 502,124.49 86.98 0.33% (12,837.78) NR / AAA AAA 3.46 1.29 43815GAC3 Honda Auto Receivables Trust 2021-4 A3 0.880% Due 01/21/2026 460,000.00 11/16/2021 0.89% 459,903.03 459,913.50 96.82 2.58% 445,385.80 112.44 0.30% (14,527.70) Aaa / NR AAA 3.81 1.89 47789QAC4 John Deere Owner Trust 2021-B A3 0.520% Due 03/16/2026 580,000.00 07/13/2021 0.52% 579,948.26 579,958.12 95.82 2.82% 555,754.84 134.04 0.37% (24,203.28) Aaa / NR AAA 3.96 1.85 89238JAC9 Toyota Auto Receivables Trust 2021-D A3 0.710% Due 04/15/2026 430,000.00 11/09/2021 0.71% 429,990.84 429,991.90 96.22 2.82% 413,763.20 135.69 0.28% (16,228.70) NR / AAA AAA 4.04 1.81 43815BAC4 Honda Auto Receivables Trust 2022-1 A3 1.880% Due 05/15/2026 740,000.00 02/15/2022 1.89% 739,888.70 739,892.20 98.21 2.68% 726,750.31 618.31 0.48% (13,141.89) Aaa / AAA NR 4.13 2.26 44935FAD6 Hyundai Auto Receivables Trust 2021-C A3 0.740% Due 05/15/2026 1,330,000.00 Various 2.02% 1,296,371.65 1,296,706.03 96.10 2.82% 1,278,127.34 437.42 0.85% (18,578.69) NR / AAA AAA 4.13 1.90 362554AC1 GM Financial Securitized Term 2021-4 A3 0.680% Due 09/16/2026 350,000.00 10/13/2021 0.68% 349,991.08 349,992.24 96.60 2.67% 338,089.85 99.17 0.23% (11,902.39) Aaa / AAA NR 4.47 1.73 47787JAC2 John Deere Owner Trust 2022-A A3 2.320% Due 09/16/2026 450,000.00 03/10/2022 2.34% 449,900.46 449,901.71 98.70 2.91% 444,164.40 435.00 0.30% (5,737.31) Aaa / NR AAA 4.47 2.22 448977AD0 Hyundai Auto Receivables Trust 2022-A A3 2.220% Due 10/15/2026 1,010,000.00 03/09/2022 2.23% 1,009,961.12 1,009,961.64 98.75 2.79% 997,405.30 934.25 0.66% (12,556.34) NR / AAA AAA 4.55 2.21 380146AC4 GM Financial Auto Receivables 2022-1 A3 1.260% Due 11/16/2026 295,000.00 01/11/2022 1.27% 294,974.36 294,975.88 96.81 3.09% 285,592.74 154.88 0.19% (9,383.14) NR / AAA AAA 4.63 1.76 As of March 31, 2022 27 88 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 02589BAA8 American Express Credit Accoun 22-1 A 2.210% Due 03/15/2027 1,545,000.00 03/21/2022 2.69% 1,524,359.77 1,524,530.51 98.17 2.87% 1,516,780.58 1,233.00 1.01% (7,749.93) Aaa / NR AAA 4.96 2.82 TOTAL ABS 19,485,050.43 1.32% 19,422,382.37 19,419,183.65 2.45% 19,107,492.66 8,428.61 12.73% (311,690.99) Aaa / AAA Aaa 3.26 1.48 Agency 3137EAER6 FHLMC Note 0.375% Due 05/05/2023 1,350,000.00 05/05/2020 0.39% 1,349,433.00 1,349,793.02 98.41 1.85% 1,328,541.75 2,053.13 0.89% (21,251.27) Aaa / AA+ AAA 1.10 1.08 3137EAEN5 FHLMC Note 2.750% Due 06/19/2023 550,000.00 06/21/2019 1.83% 569,470.00 555,937.28 100.96 1.95% 555,262.40 4,285.42 0.37% (674.88) Aaa / AA+ AAA 1.22 1.19 3130A3DL5 FHLB Note 2.375% Due 09/08/2023 2,000,000.00 09/06/2019 1.52% 2,066,320.00 2,023,847.95 100.41 2.08% 2,008,190.00 3,034.72 1.34% (15,657.95) Aaa / AA+ NR 1.44 1.40 3135G0U43 FNMA Note 2.875% Due 09/12/2023 1,500,000.00 06/21/2019 1.89% 1,559,805.00 1,520,530.07 101.07 2.12% 1,515,991.50 2,276.04 1.01% (4,538.57) Aaa / AA+ AAA 1.45 1.41 3137EAFA2 FHLMC Note 0.250% Due 12/04/2023 1,755,000.00 12/02/2020 0.28% 1,753,262.55 1,754,028.93 96.85 2.17% 1,699,745.58 1,425.94 1.13% (54,283.35) Aaa / AA+ AAA 1.68 1.65 3130A0F70 FHLB Note 3.375% Due 12/08/2023 2,100,000.00 Various 1.75% 2,222,418.00 2,155,534.22 101.82 2.27% 2,138,182.20 22,246.88 1.44% (17,352.02) Aaa / AA+ AAA 1.69 1.62 3130A0XE5 FHLB Note 3.250% Due 03/08/2024 1,500,000.00 03/28/2019 2.27% 1,568,115.00 1,526,665.17 101.79 2.30% 1,526,895.00 3,114.58 1.02% 229.83 Aaa / AA+ NR 1.94 1.87 3130A1XJ2 FHLB Note 2.875% Due 06/14/2024 1,500,000.00 06/18/2019 1.96% 1,564,890.20 1,528,669.92 101.01 2.40% 1,515,177.00 12,817.70 1.02% (13,492.92) Aaa / AA+ NR 2.21 2.11 3135G0V75 FNMA Note 1.750% Due 07/02/2024 1,500,000.00 07/16/2019 1.96% 1,484,895.00 1,493,139.40 98.70 2.34% 1,480,530.00 6,489.58 0.99% (12,609.40) Aaa / AA+ AAA 2.26 2.18 3130A2UW4 FHLB Note 2.875% Due 09/13/2024 2,000,000.00 09/13/2019 1.79% 2,103,380.00 2,050,783.16 101.05 2.43% 2,021,062.00 2,875.00 1.35% (29,721.16) Aaa / AA+ AAA 2.46 2.35 3135G0W66 FNMA Note 1.625% Due 10/15/2024 1,975,000.00 Various 1.73% 1,965,802.75 1,970,193.84 98.07 2.41% 1,936,884.48 14,798.79 1.30% (33,309.36) Aaa / AA+ AAA 2.55 2.45 3135G0X24 FNMA Note 1.625% Due 01/07/2025 1,295,000.00 Various 1.38% 1,309,953.95 1,303,604.18 97.73 2.48% 1,265,616.45 4,910.21 0.85% (37,987.73) Aaa / AA+ AAA 2.78 2.67 3137EAEP0 FHLMC Note 1.500% Due 02/12/2025 2,365,000.00 02/13/2020 1.52% 2,363,178.95 2,363,954.27 97.29 2.49% 2,300,899.04 4,828.54 1.54% (63,055.23) Aaa / AA+ AAA 2.87 2.77 3135G03U5 FNMA Note 0.625% Due 04/22/2025 1,860,000.00 04/22/2020 0.67% 1,856,168.40 1,857,653.57 94.55 2.49% 1,758,568.62 5,134.38 1.17% (99,084.95) Aaa / AA+ AAA 3.06 2.99 3135G04Z3 FNMA Note 0.500% Due 06/17/2025 2,500,000.00 Various 0.50% 2,499,227.30 2,499,638.86 93.84 2.51% 2,345,910.00 3,611.11 1.56% (153,728.86) Aaa / AA+ AAA 3.22 3.14 As of March 31, 2022 28 89 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 3137EAEU9 FHLMC Note 0.375% Due 07/21/2025 1,250,000.00 07/21/2020 0.48% 1,243,775.00 1,245,880.72 93.36 2.48% 1,166,971.25 911.46 0.78% (78,909.47) Aaa / AA+ AAA 3.31 3.24 3135G05X7 FNMA Note 0.375% Due 08/25/2025 2,500,000.00 Various 0.48% 2,487,983.75 2,491,582.07 93.18 2.48% 2,329,610.00 937.51 1.55% (161,972.07) Aaa / AA+ AAA 3.41 3.34 3137EAEX3 FHLMC Note 0.375% Due 09/23/2025 2,500,000.00 Various 0.46% 2,489,362.80 2,492,432.70 92.94 2.51% 2,323,402.50 208.33 1.55% (169,030.20) Aaa / AA+ AAA 3.48 3.41 3135G06G3 FNMA Note 0.500% Due 11/07/2025 2,500,000.00 Various 0.56% 2,492,700.00 2,494,722.91 93.23 2.48% 2,330,670.00 5,000.00 1.56% (164,052.91) Aaa / AA+ AAA 3.61 3.52 TOTAL Agency 34,500,000.00 1.17% 34,950,141.65 34,678,592.24 2.36% 33,548,109.77 100,959.32 22.40% (1,130,482.47) Aaa / AA+ Aaa 2.52 2.45 CMO 3137B4WB8 FHLMC K033 A2 3.060% Due 07/25/2023 1,000,000.00 08/13/2019 2.02% 1,037,656.25 1,012,560.81 100.97 2.06% 1,009,744.00 510.00 0.67% (2,816.81) Aaa / NR NR 1.32 1.16 3137B5JM6 FHLMC K034 A2 3.531% Due 07/25/2023 1,000,000.00 09/26/2019 2.00% 1,053,867.19 1,018,561.56 101.40 2.18% 1,014,011.00 2,942.50 0.68% (4,550.56) NR / NR AAA 1.32 1.19 3137B7MZ9 FHLMC K036 A2 3.527% Due 10/25/2023 1,000,000.00 08/19/2019 1.92% 1,061,914.06 1,023,222.85 101.35 2.41% 1,013,544.00 587.83 0.68% (9,678.85) Aaa / NR AAA 1.57 1.39 3137BFE98 FHLMC K041 A2 3.171% Due 10/25/2024 1,300,000.00 07/01/2021 0.72% 1,398,414.06 1,376,100.21 101.14 2.62% 1,314,848.60 3,435.25 0.88% (61,251.61) Aaa / AAA AAA 2.57 2.36 3137BLMZ8 FHLMC K049 A2 3.010% Due 07/25/2025 1,000,000.00 07/01/2021 0.87% 1,079,687.50 1,065,009.66 100.78 2.70% 1,007,847.33 2,508.33 0.67% (57,162.33) NR / NR AAA 3.32 3.02 3137BLW95 FHLMC K050 A2 3.334% Due 08/25/2025 950,000.00 11/16/2021 1.17% 1,018,132.81 1,011,425.43 101.80 2.70% 967,095.25 2,639.42 0.65% (44,330.18) NR / NR AAA 3.41 3.06 3137BM7C4 FHLMC K051 A2 3.308% Due 09/25/2025 440,000.00 03/15/2022 2.21% 453,079.69 452,934.71 101.76 2.70% 447,725.08 1,212.93 0.30% (5,209.63) NR / NR AAA 3.49 3.14 3137BN6G4 FHLMC KO53 2.995% Due 12/25/2025 570,000.00 03/15/2022 2.29% 582,001.17 581,879.24 100.84 2.70% 574,789.14 1,422.63 0.38% (7,090.10) NR / NR AAA 3.74 3.35 3137BSP72 FHLMC K058 A2 2.653% Due 08/25/2026 650,000.00 11/12/2021 1.35% 687,451.17 684,508.27 99.66 2.71% 647,790.00 1,437.04 0.43% (36,718.27) NR / NR AAA 4.41 4.07 TOTAL CMO 7,910,000.00 1.51% 8,372,203.90 8,226,202.74 2.50% 7,997,394.40 16,695.93 5.34% (228,808.34) Aaa / AAA Aaa 2.61 2.36 As of March 31, 2022 29 90 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration Corporate 24422ETG4 John Deere Capital Corp Note 2.800% Due 03/06/2023 1,000,000.00 03/28/2019 2.60% 1,007,580.00 1,001,786.94 100.88 1.85% 1,008,763.00 1,944.44 0.67% 6,976.06 A2 / A A 0.93 0.92 06406RAG2 Bank of NY Mellon Corp Note 3.500% Due 04/28/2023 1,000,000.00 03/05/2019 3.15% 1,013,650.00 1,003,536.55 101.39 2.18% 1,013,917.00 14,875.00 0.68% 10,380.45 A1 / A AA- 1.08 1.04 037833AK6 Apple Inc Note 2.400% Due 05/03/2023 1,000,000.00 03/11/2019 2.79% 984,840.00 996,019.50 100.57 1.87% 1,005,718.00 9,866.67 0.68% 9,698.50 Aaa / AA+ NR 1.09 1.06 931142EK5 Wal-Mart Stores Callable Note Cont 5/26/2023 3.400% Due 06/26/2023 1,000,000.00 03/13/2019 2.80% 1,023,630.00 1,006,473.97 101.75 1.86% 1,017,476.00 8,972.22 0.68% 11,002.03 Aa2 / AA AA 1.24 1.12 69371RP59 Paccar Financial Corp Note 3.400% Due 08/09/2023 435,000.00 06/18/2019 2.56% 449,315.85 439,689.84 101.17 2.51% 440,092.55 2,136.33 0.29% 402.71 A1 / A+ NR 1.36 1.31 02665WCQ2 American Honda Finance Note 3.625% Due 10/10/2023 1,300,000.00 Various 2.77% 1,345,306.00 1,315,946.02 101.40 2.68% 1,318,220.80 22,384.38 0.89% 2,274.78 A3 / A- A 1.53 1.45 24422EVN6 John Deere Capital Corp Note 0.450% Due 01/17/2024 1,030,000.00 03/01/2021 0.47% 1,029,268.70 1,029,542.68 96.74 2.32% 996,408.61 952.75 0.66% (33,134.07) A2 / A A 1.80 1.77 06051GHF9 Bank of America Corp Callable Note 1X 3/5/2023 3.550% Due 03/05/2024 1,200,000.00 Various 2.51% 1,226,303.25 1,210,854.06 100.70 2.33% 1,208,391.61 3,076.68 0.81% (2,462.45) A2 / A- AA- 1.93 1.86 89114QCA4 Toronto Dominion Bank Note 2.650% Due 06/12/2024 1,500,000.00 09/11/2019 2.24% 1,527,255.00 1,512,621.55 99.95 2.67% 1,499,248.50 12,035.42 1.01% (13,373.05) A1 / A AA- 2.20 2.10 06367TQW3 Bank of Montreal Note 0.625% Due 07/09/2024 600,000.00 02/09/2022 1.89% 582,216.00 583,207.37 95.11 2.86% 570,643.80 854.17 0.38% (12,563.57) A2 / A- AA- 2.28 2.22 79466LAG9 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due 07/15/2024 1,760,000.00 Various 0.87% 1,748,937.40 1,750,341.10 95.83 2.51% 1,686,544.64 2,322.23 1.12% (63,796.46) A2 / A+ NR 2.29 2.24 78013XZU5 Royal Bank of Canada Note 2.550% Due 07/16/2024 1,500,000.00 Various 1.98% 1,533,359.18 1,518,581.40 99.63 2.72% 1,494,462.00 7,968.76 1.00% (24,119.40) A1 / A AA- 2.30 2.20 91159HHX1 US Bancorp Callable Note Cont 6/28/2024 2.400% Due 07/30/2024 1,250,000.00 10/10/2019 2.07% 1,268,262.50 1,258,706.05 99.43 2.65% 1,242,836.25 5,083.33 0.83% (15,869.80) A2 / A+ A+ 2.33 2.24 009158AV8 Air Products & Chemicals Callable Note Cont 4/30/2024 3.350% Due 07/31/2024 1,675,000.00 08/07/2019 2.07% 1,771,212.00 1,717,364.50 101.31 2.70% 1,696,867.13 9,507.95 1.14% (20,497.37) A2 / A NR 2.34 1.99 69371RR40 Paccar Financial Corp Note 0.500% Due 08/09/2024 680,000.00 08/03/2021 0.52% 679,632.80 679,711.53 95.54 2.46% 649,697.16 491.11 0.43% (30,014.37) A1 / A+ NR 2.36 2.31 69371RQ25 Paccar Financial Corp Note 2.150% Due 08/15/2024 370,000.00 08/08/2019 2.20% 369,182.30 369,611.96 98.94 2.62% 366,059.87 1,016.47 0.24% (3,552.09) A1 / A+ NR 2.38 2.29 14913Q3B3 Caterpillar Finl Service Note 2.150% Due 11/08/2024 1,100,000.00 01/28/2020 1.92% 1,111,517.00 1,106,286.80 99.19 2.47% 1,091,074.60 9,394.31 0.73% (15,212.20) A2 / A A 2.61 2.49 As of March 31, 2022 30 91 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 74153WCQ0 Pricoa Global Funding Note 1.150% Due 12/06/2024 885,000.00 12/01/2021 1.19% 884,088.45 884,183.44 95.67 2.84% 846,714.90 3,194.60 0.57% (37,468.54) Aa3 / AA- AA- 2.69 2.60 89114TZL9 Toronto-Dominion Bank Note 1.450% Due 01/10/2025 700,000.00 03/15/2022 2.79% 674,737.00 675,104.91 95.88 3.01% 671,165.60 2,227.36 0.45% (3,939.31) A1 / A NR 2.78 2.68 89236TJT3 Toyota Motor Credit Corp Note 1.450% Due 01/13/2025 1,215,000.00 01/10/2022 1.50% 1,213,371.90 1,213,487.77 96.45 2.78% 1,171,883.30 3,817.13 0.78% (41,604.47) A1 / A+ A+ 2.79 2.69 64952WEK5 New York Life Global Note 1.450% Due 01/14/2025 1,680,000.00 01/11/2022 1.49% 1,678,185.60 1,678,313.07 96.20 2.88% 1,616,215.44 5,210.33 1.08% (62,097.63) Aaa / AA+ AAA 2.79 2.69 06367WB85 Bank of Montreal Note 1.850% Due 05/01/2025 1,240,000.00 07/23/2021 0.85% 1,285,656.80 1,277,415.98 96.21 3.15% 1,193,026.32 9,558.33 0.80% (84,389.66) A2 / A- AA- 3.09 2.94 46647PCH7 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due 06/01/2025 1,370,000.00 05/24/2021 0.78% 1,371,773.90 1,371,281.86 95.43 2.33% 1,307,444.43 3,762.93 0.87% (63,837.43) A2 / A- AA- 3.17 3.09 46647PCK0 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due 06/23/2025 655,000.00 Various 0.93% 655,406.85 655,328.55 95.56 2.37% 625,885.91 1,727.78 0.42% (29,442.64) A2 / A- AA- 3.23 3.14 40139LBC6 Guardian Life Glob Fun Note 0.875% Due 12/10/2025 1,400,000.00 Various 1.12% 1,385,860.00 1,387,510.48 92.29 3.10% 1,292,127.20 3,777.08 0.86% (95,383.28) Aa2 / AA+ NR 3.70 3.57 66815L2A6 Northwestern Mutual Glbl Note 0.800% Due 01/14/2026 850,000.00 12/06/2021 1.47% 827,449.50 829,165.63 92.15 3.01% 783,260.55 1,454.44 0.52% (45,905.08) Aaa / AA+ AAA 3.79 3.67 06051GHY8 Bank of America Corp Callable Note Cont 2/13/2025 2.015% Due 02/13/2026 600,000.00 05/24/2021 1.05% 620,988.00 616,200.45 96.36 2.92% 578,155.20 1,612.00 0.39% (38,045.25) A2 / A- AA- 3.88 3.67 46647PBK1 JP Morgan Chase & Co Callable Note Cont 4/22/2025 2.083% Due 04/22/2026 401,000.00 05/20/2021 1.11% 415,969.33 412,701.01 96.61 2.99% 387,409.71 3,689.17 0.26% (25,291.30) A2 / A- AA- 4.06 3.82 023135BX3 Amazon.com Inc Callable Note Cont 4/12/2026 1.000% Due 05/12/2026 1,875,000.00 05/10/2021 1.09% 1,866,900.00 1,868,337.24 93.86 2.58% 1,759,822.50 7,239.58 1.18% (108,514.74) A1 / AA AA- 4.12 3.97 91324PEC2 United Health Group Inc Callable Note Cont 4/15/2026 1.150% Due 05/15/2026 1,035,000.00 Various 1.37% 1,025,051.35 1,025,694.98 93.05 2.95% 963,016.79 4,496.50 0.64% (62,678.19) A3 / A+ A 4.13 3.96 89236TJK2 Toyota Motor Credit Corp Note 1.125% Due 06/18/2026 1,385,000.00 06/15/2021 1.13% 1,384,390.60 1,384,486.38 92.90 2.93% 1,286,714.86 4,457.97 0.86% (97,771.52) A1 / A+ A+ 4.22 4.05 06051GJD2 Bank of America Corp Callable Note Cont 6/19/2025 1.319% Due 06/19/2026 700,000.00 07/16/2021 1.27% 701,274.00 701,046.82 93.83 2.91% 656,814.90 2,616.02 0.44% (44,231.92) A2 / A- AA- 4.22 4.04 As of March 31, 2022 31 92 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 57629WDE7 Mass Mutual Global funding Note 1.200% Due 07/16/2026 1,000,000.00 08/19/2021 1.15% 1,002,230.00 1,001,954.37 92.44 3.09% 924,419.00 2,500.00 0.62% (77,535.37) Aa3 / AA+ AA+ 4.30 4.12 58989V2D5 Met Tower Global Funding Note 1.250% Due 09/14/2026 770,000.00 09/07/2021 1.27% 769,291.60 769,368.80 92.42 3.08% 711,661.72 454.51 0.47% (57,707.08) Aa3 / AA- AA- 4.46 4.27 931142ER0 Wal-Mart Stores Callable Note Cont 08/17/2026 1.050% Due 09/17/2026 350,000.00 09/08/2021 1.09% 349,338.50 349,409.50 93.10 2.70% 325,844.05 142.92 0.22% (23,565.45) Aa2 / AA AA 4.47 4.31 59217GER6 Metlife Note 1.875% Due 01/11/2027 1,115,000.00 01/03/2022 1.90% 1,113,728.90 1,113,784.59 94.08 3.22% 1,049,016.53 4,645.83 0.70% (64,768.06) Aa3 / AA- AA- 4.79 4.49 808513BY0 Charles Schwab Corp Callable Note Cont 2/3/2027 2.450% Due 03/03/2027 960,000.00 03/01/2022 2.46% 959,729.90 959,734.11 97.21 3.06% 933,244.80 1,829.34 0.62% (26,489.31) A2 / A A 4.93 4.58 084664CZ2 Berkshire Hathaway Callable Note Cont 2/15/2027 2.300% Due 03/15/2027 1,615,000.00 03/07/2022 2.30% 1,614,693.15 1,614,696.01 98.28 2.67% 1,587,247.84 1,650.89 1.06% (27,448.17) Aa2 / AA A+ 4.96 4.64 TOTAL Corporate 40,201,000.00 1.70% 40,471,583.31 40,289,487.77 2.67% 38,977,513.07 182,946.93 26.07% (1,311,974.70) A1 / A+ AA- 2.92 2.79 Money Market Fund 94975H270 Wells Fargo 100% Treasury Money Mkt Fund 2,692,903.95 Various 0.01% 2,692,903.95 2,692,903.95 1.00 0.01% 2,692,903.95 0.00 1.79% 0.00 Aaa / AAA NR 0.00 0.00 TOTAL Money Market Fund 2,692,903.95 0.01% 2,692,903.95 2,692,903.95 0.01% 2,692,903.95 0.00 1.79% 0.00 Aaa / AAA NR 0.00 0.00 Municipal Bonds 13063DRK6 California State Taxable GO 2.400% Due 10/01/2024 755,000.00 10/16/2019 1.91% 772,342.35 763,786.53 99.41 2.64% 750,568.15 9,060.00 0.51% (13,218.38) Aa2 / AA- AA 2.51 2.38 TOTAL Municipal Bonds 755,000.00 1.91% 772,342.35 763,786.53 2.64% 750,568.15 9,060.00 0.51% (13,218.38) Aa2 / AA- AA 2.51 2.38 Negotiable CD 89114W7M1 Toronto Dominion Yankee CD 0.240% Due 04/28/2022 350,000.00 04/29/2021 0.24% 349,999.99 350,000.00 99.99 0.33% 349,975.50 788.67 0.23% (24.50) P-1 / A-1 F-1+ 0.08 0.08 TOTAL Negotiable CD 350,000.00 0.24% 349,999.99 350,000.00 0.33% 349,975.50 788.67 0.23% (24.50) Aaa / AA Aaa 0.08 0.08 As of March 31, 2022 32 93 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration Supranational 45950KCP3 International Finance Corp Note 2.875% Due 07/31/2023 2,700,000.00 07/01/2021 0.31% 2,842,425.00 2,791,680.20 100.96 2.14% 2,725,903.80 13,153.13 1.82% (65,776.40) Aaa / AAA NR 1.33 1.30 4581X0DP0 Inter-American Dev Bank Note 0.250% Due 11/15/2023 2,800,000.00 07/01/2021 0.37% 2,792,300.00 2,794,702.90 96.88 2.22% 2,712,668.00 2,644.44 1.81% (82,034.90) Aaa / AAA NR 1.63 1.60 45950KCT5 International Finance Corp Note 0.375% Due 07/16/2025 2,500,000.00 05/27/2021 0.66% 2,471,150.00 2,476,973.64 93.10 2.57% 2,327,570.00 1,953.13 1.55% (149,403.64) Aaa / AAA NR 3.30 3.23 459058JL8 Intl. Bank Recon & Development Note 0.500% Due 10/28/2025 2,400,000.00 Various 0.60% 2,388,859.25 2,391,525.17 92.91 2.59% 2,229,847.21 5,100.01 1.49% (161,677.96) Aaa / AAA AAA 3.58 3.49 4581X0DV7 Inter-American Dev Bank Note 0.875% Due 04/20/2026 2,460,000.00 04/13/2021 0.97% 2,448,733.20 2,450,868.09 93.40 2.60% 2,297,701.50 9,626.46 1.54% (153,166.59) Aaa / AAA AAA 4.06 3.92 TOTAL Supranational 12,860,000.00 0.57% 12,943,467.45 12,905,750.00 2.41% 12,293,690.51 32,477.17 8.21% (612,059.49) Aaa / AAA Aaa 2.69 2.62 US Treasury 912828T91 US Treasury Note 1.625% Due 10/31/2023 650,000.00 Various 1.94% 641,405.27 646,929.42 99.21 2.13% 644,870.85 4,435.08 0.43% (2,058.57) Aaa / AA+ AAA 1.59 1.54 912828V23 US Treasury Note 2.250% Due 12/31/2023 1,500,000.00 06/21/2019 1.80% 1,529,472.66 1,511,407.04 100.04 2.23% 1,500,586.50 8,484.12 1.00% (10,820.54) Aaa / AA+ AAA 1.75 1.70 912828B66 US Treasury Note 2.750% Due 02/15/2024 2,000,000.00 Various 2.14% 2,053,613.28 2,021,832.75 100.83 2.29% 2,016,640.00 6,837.01 1.35% (5,192.75) Aaa / AA+ AAA 1.88 1.82 91282CBR1 US Treasury Note 0.250% Due 03/15/2024 1,450,000.00 03/30/2021 0.33% 1,446,488.28 1,447,678.36 96.13 2.29% 1,393,812.50 167.46 0.93% (53,865.86) Aaa / AA+ AAA 1.96 1.93 912828X70 US Treasury Note 2.000% Due 04/30/2024 1,700,000.00 06/10/2019 1.92% 1,705,976.56 1,702,544.64 99.31 2.34% 1,688,246.20 14,276.24 1.13% (14,298.44) Aaa / AA+ AAA 2.08 2.01 912828XX3 US Treasury Note 2.000% Due 06/30/2024 2,000,000.00 Various 1.80% 2,018,574.22 2,008,637.69 99.16 2.39% 1,983,124.00 10,055.25 1.33% (25,513.69) Aaa / AA+ AAA 2.25 2.18 912828D56 US Treasury Note 2.375% Due 08/15/2024 1,700,000.00 09/18/2019 1.71% 1,753,191.41 1,725,734.91 99.86 2.44% 1,697,543.50 5,018.99 1.13% (28,191.41) Aaa / AA+ AAA 2.38 2.29 912828YY0 US Treasury Note 1.750% Due 12/31/2024 2,100,000.00 03/15/2022 1.97% 2,087,203.13 2,087,403.67 98.09 2.47% 2,059,803.90 9,238.26 1.38% (27,599.77) Aaa / AA+ AAA 2.76 2.65 912828ZC7 US Treasury Note 1.125% Due 02/28/2025 1,500,000.00 03/18/2020 0.81% 1,523,144.53 1,513,627.99 96.22 2.48% 1,443,282.00 1,467.39 0.96% (70,345.99) Aaa / AA+ AAA 2.92 2.84 91282CED9 US Treasury Note 1.750% Due 03/15/2025 2,100,000.00 03/14/2022 2.01% 2,084,414.07 2,084,655.82 97.99 2.46% 2,057,836.20 1,697.69 1.37% (26,819.62) Aaa / AA+ AAA 2.96 2.86 As of March 31, 2022 33 94 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 912828ZL7 US Treasury Note 0.375% Due 04/30/2025 2,500,000.00 03/21/2022 2.24% 2,360,839.85 2,362,065.93 93.73 2.50% 2,343,262.50 3,936.46 1.56% (18,803.43) Aaa / AA+ AAA 3.08 3.02 91282CAB7 US Treasury Note 0.250% Due 07/31/2025 1,500,000.00 03/12/2021 0.72% 1,469,765.63 1,476,988.60 92.81 2.51% 1,392,187.50 621.55 0.93% (84,801.10) Aaa / AA+ AAA 3.34 3.28 91282CAM3 US Treasury Note 0.250% Due 09/30/2025 2,400,000.00 Various 0.56% 2,366,140.63 2,374,101.83 92.48 2.51% 2,219,532.00 16.39 1.48% (154,569.83) Aaa / AA+ AAA 3.50 3.44 91282CAT8 US Treasury Note 0.250% Due 10/31/2025 2,450,000.00 Various 0.49% 2,422,492.19 2,429,360.28 92.30 2.51% 2,261,369.60 2,571.82 1.51% (167,990.68) Aaa / AA+ AAA 3.59 3.52 91282CAZ4 US Treasury Note 0.375% Due 11/30/2025 2,250,000.00 03/26/2021 0.77% 2,209,658.20 2,218,355.20 92.55 2.51% 2,082,480.75 2,827.95 1.39% (135,874.45) Aaa / AA+ AAA 3.67 3.59 91282CBH3 US Treasury Note 0.375% Due 01/31/2026 2,500,000.00 05/27/2021 0.75% 2,456,445.31 2,464,294.84 92.26 2.50% 2,306,542.50 1,553.87 1.54% (157,752.34) Aaa / AA+ AAA 3.84 3.76 91282CBW0 US Treasury Note 0.750% Due 04/30/2026 2,500,000.00 05/27/2021 0.80% 2,493,652.34 2,494,739.70 93.25 2.50% 2,331,347.50 7,872.93 1.56% (163,392.20) Aaa / AA+ AAA 4.08 3.96 91282CCZ2 US Treasury Note 0.875% Due 09/30/2026 1,400,000.00 10/18/2021 1.19% 1,379,054.68 1,380,955.64 93.20 2.48% 1,304,843.40 33.47 0.87% (76,112.24) Aaa / AA+ AAA 4.50 4.36 91282CDG3 US Treasury Note 1.125% Due 10/31/2026 1,400,000.00 11/15/2021 1.25% 1,391,468.75 1,392,105.41 94.18 2.48% 1,318,570.40 6,613.26 0.88% (73,535.01) Aaa / AA+ AAA 4.59 4.40 TOTAL US Treasury 35,600,000.00 1.30% 35,393,000.99 35,343,419.72 2.44% 34,045,881.80 87,725.19 22.73% (1,297,537.92) Aaa / AA+ Aaa 3.05 2.97 TOTAL PORTFOLIO 154,353,954.38 1.31% 155,368,025.96 154,669,326.60 2.43% 149,763,529.81 439,081.82 100.00% (4,905,796.79) Aa1 / AA+ Aaa 2.81 2.49 TOTAL MARKET VALUE PLUS ACCRUALS 150,202,611.63 As of March 31, 2022 34 95 SECTION |Section 4 |Transactions 35 96 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss ACQUISITIONS Purchase 01/11/2022 59217GER6 1,115,000.00 Metlife Note 1.875% Due: 01/11/2027 99.886 1.90%1,113,728.90 0.00 1,113,728.90 0.00 Purchase 01/13/2022 89236TJT3 1,215,000.00 Toyota Motor Credit Corp Note 1.45% Due: 01/13/2025 99.866 1.50%1,213,371.90 0.00 1,213,371.90 0.00 Purchase 01/14/2022 64952WEK5 1,680,000.00 New York Life Global Note 1.45% Due: 01/14/2025 99.892 1.49%1,678,185.60 0.00 1,678,185.60 0.00 Purchase 01/19/2022 05601XAC3 450,000.00 BMW Vehicle Lease Trust 2022-1 A3 1.1% Due: 03/25/2025 99.985 1.11%449,932.73 0.00 449,932.73 0.00 Purchase 01/19/2022 380146AC4 295,000.00 GM Financial Auto Receivables 2022-1 A3 1.26% Due: 11/16/2026 99.991 1.27%294,974.36 0.00 294,974.36 0.00 Purchase 01/19/2022 44891WAC3 540,000.00 Hyundai Auto Lease Trust 2022-A A3 1.16% Due: 01/15/2025 99.998 1.16%539,988.07 0.00 539,988.07 0.00 Purchase 02/11/2022 06367TQW3 600,000.00 Bank of Montreal Note 0.625% Due: 07/09/2024 97.036 1.89%582,216.00 333.33 582,549.33 0.00 Purchase 02/23/2022 36265MAC9 945,000.00 GM Financial Auto Lease Trust 2022-1 A3 1.9% Due: 03/20/2025 99.999 1.91%944,991.87 0.00 944,991.87 0.00 Purchase 02/23/2022 43815BAC4 740,000.00 Honda Auto Receivables Trust 2022-1 A3 1.88% Due: 05/15/2026 99.985 1.89%739,888.70 0.00 739,888.70 0.00 Purchase 02/28/2022 89238LAC4 1,150,000.00 Toyota Lease Owner Trust 2022-A A3 1.96% Due: 02/20/2025 99.984 1.98%1,149,818.99 0.00 1,149,818.99 0.00 Purchase 03/03/2022 808513BY0 550,000.00 Charles Schwab Corp Callable Note Cont 2/3/2027 2.45% Due: 03/03/2027 99.892 2.47%549,406.00 0.00 549,406.00 0.00 Purchase 03/03/2022 808513BY0 410,000.00 Charles Schwab Corp Callable Note Cont 2/3/2027 2.45% Due: 03/03/2027 100.079 2.43%410,323.90 0.00 410,323.90 0.00 Purchase 03/15/2022 084664CZ2 1,615,000.00 Berkshire Hathaway Callable Note Cont 2/15/2027 2.3% Due: 03/15/2027 99.981 2.30%1,614,693.15 0.00 1,614,693.15 0.00 Purchase 03/15/2022 91282CED9 2,100,000.00 US Treasury Note 1.75% Due: 03/15/2025 99.258 2.01%2,084,414.07 0.00 2,084,414.07 0.00 December 31, 2021 through March 31, 2022 As of March 31, 2022 36 97 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss Purchase 03/16/2022 448977AD0 1,010,000.00 Hyundai Auto Receivables Trust 2022-A A3 2.22% Due: 10/15/2026 99.996 2.23%1,009,961.12 0.00 1,009,961.12 0.00 Purchase 03/16/2022 47787JAC2 450,000.00 John Deere Owner Trust 2022-A A3 2.32% Due: 09/16/2026 99.978 2.34%449,900.46 0.00 449,900.46 0.00 Purchase 03/16/2022 912828YY0 2,100,000.00 US Treasury Note 1.75% Due: 12/31/2024 99.391 1.97%2,087,203.13 7,613.95 2,094,817.08 0.00 Purchase 03/17/2022 89114TZL9 700,000.00 Toronto-Dominion Bank Note 1.45% Due: 01/10/2025 96.391 2.79%674,737.00 1,832.64 676,569.64 0.00 Purchase 03/18/2022 3137BM7C4 440,000.00 FHLMC K051 A2 3.308% Due: 09/25/2025 102.973 2.21%453,079.69 687.33 453,767.02 0.00 Purchase 03/18/2022 3137BN6G4 570,000.00 FHLMC KO53 2.995% Due: 12/25/2025 102.105 2.29%582,001.17 806.15 582,807.32 0.00 Purchase 03/22/2022 44935FAD6 1,000,000.00 Hyundai Auto Receivables Trust 2021-C A3 0.74% Due: 05/15/2026 96.645 2.46%966,445.31 143.89 966,589.20 0.00 Purchase 03/22/2022 912828ZL7 2,500,000.00 US Treasury Note 0.375% Due: 04/30/2025 94.434 2.24%2,360,839.85 3,677.49 2,364,517.34 0.00 Purchase 03/23/2022 02589BAA8 1,545,000.00 American Express Credit Accoun 22-1 A 2.21% Due: 03/15/2027 98.664 2.69%1,524,359.77 474.23 1,524,834.00 0.00 Purchase 03/25/2022 89238EAC0 700,000.00 Toyota Lease Owner Trust 2021-A A3 0.39% Due: 04/22/2024 98.000 2.16%686,000.00 37.92 686,037.92 0.00 Subtotal 24,420,000.00 24,160,461.74 15,606.93 24,176,068.67 0.00 TOTAL ACQUISITIONS 24,420,000.00 24,160,461.74 15,606.93 24,176,068.67 0.00 DISPOSITIONS Sale 01/07/2022 912828L57 550,000.00 US Treasury Note 1.75% Due: 09/30/2022 101.043 1.62%555,736.33 2,617.79 558,354.12 5,218.20 Sale 01/13/2022 05531FBG7 800,000.00 Truist Financial Corporation Callable Note Cont 5/20/2022 3.05% Due: 06/20/2022 100.942 0.21%807,536.00 1,558.89 809,094.89 -358.77 December 31, 2021 through March 31, 2022 As of March 31, 2022 37 98 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss Sale 01/13/2022 89236TJD8 355,000.00 Toyota Motor Credit Corp Note 0.4% Due: 04/06/2023 99.524 0.44%353,310.20 382.61 353,692.81 -1,512.60 Sale 01/13/2022 912828N30 500,000.00 US Treasury Note 2.125% Due: 12/31/2022 101.566 1.69%507,832.03 381.56 508,213.59 5,741.08 Sale 01/14/2022 05531FBG7 1,200,000.00 Truist Financial Corporation Callable Note Cont 5/20/2022 3.05% Due: 06/20/2022 100.933 0.21%1,211,196.00 2,440.00 1,213,636.00 -552.91 Sale 01/14/2022 69353RFE3 1,200,000.00 PNC Bank Callable Note Cont 6/28/2022 2.45% Due: 07/28/2022 100.938 2.16%1,211,256.00 13,556.67 1,224,812.67 9,720.60 Sale 02/17/2022 912828N30 50,000.00 US Treasury Note 2.125% Due: 12/31/2022 100.910 1.69%50,455.08 140.88 50,595.96 266.78 Sale 02/18/2022 808513AT2 1,500,000.00 Charles Schwab Corp Callable Note Cont 12/25/2022 2.65% Due: 01/25/2023 101.135 2.40%1,517,025.00 2,539.58 1,519,564.58 15,694.60 Sale 02/25/2022 912828N30 700,000.00 US Treasury Note 2.125% Due: 12/31/2022 100.953 1.69%706,671.88 2,301.10 708,972.98 4,102.15 Sale 03/03/2022 3137EAER6 150,000.00 FHLMC Note 0.375% Due: 05/05/2023 99.057 0.39%148,585.80 184.38 148,770.18 -1,389.53 Sale 03/03/2022 912828N30 750,000.00 US Treasury Note 2.125% Due: 12/31/2022 100.953 1.69%757,148.44 2,729.63 759,878.07 4,448.62 Sale 03/08/2022 3137EAEN5 250,000.00 FHLMC Note 2.75% Due: 06/19/2023 101.717 1.83%254,292.50 1,508.68 255,801.18 1,447.86 Sale 03/08/2022 912828T91 1,350,000.00 US Treasury Note 1.625% Due: 10/31/2023 100.156 1.82%1,352,109.38 7,756.91 1,359,866.29 8,751.54 Subtotal 9,355,000.00 9,433,154.64 38,098.68 9,471,253.32 51,577.62 TOTAL DISPOSITIONS 9,355,000.00 9,433,154.64 38,098.68 9,471,253.32 51,577.62 December 31, 2021 through March 31, 2022 As of March 31, 2022 38 99 Important Disclosures 2022 Chandler Asset Management,Inc,An Independent Registered Investment Adviser. Information contained herein is confidential.Prices are provided by IDC,an independent pricing source.In the event IDC does not provide a price or if the price provided is not reflective of fair market value,Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures.Our valuation procedures are also disclosed in Item 5 of our Form ADV Part 2A. Performance results are presented gross-of-advisory fees and represent the client’s Total Return.The deduction of advisory fees lowers performance results.These results include the reinvestment of dividends and other earnings.Past performance may not be indicative of future results.Therefore,clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.All investment strategies have the potential for profit or loss.Economic factors,market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Index returns assume reinvestment of all distributions.Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee,the incurrence of which would have the effect of decreasing historical performance results.It is not possible to invest directly in an index. Source ice Data Indices,LLC ("ICE"),used with permission.ICE permits use of the ICE indices and related data on an "as is"basis;ICE,its affiliates and their respective third party suppliers disclaim any and all warranties and representations,express and/or implied,including any warranties of merchantability or fitness for a particular purpose or use,including the indices,index data and any data included in,related to,or derived therefrom.Neither ICE data,its affiliates or their respective third party providers guarantee the quality,adequacy,accuracy,timeliness or completeness of the indices or the index data or any component thereof,and the indices and index data and all components thereof are provided on an "as is"basis and licensee's use it at licensee's own risk.ICE data,its affiliates and their respective third party do not sponsor,endorse,or recommend chandler asset management,or any of its products or services. This report is provided for informational purposes only and should not be construed as a specific investment or legal advice.The information contained herein was obtained from sources believed to be reliable as of the date of publication,but may become outdated or superseded at any time without notice.Any opinions or views expressed are based on current market conditions and are subject to change.This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results.Past performance is not indicative of future results.This report is not intended to constitute an offer,solicitation,recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest,credit and market risk.Interest rate risk:the value of fixed income investments will decline as interest rates rise.Credit risk:the possibility that the borrower may not be able to repay interest and principal.Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk:the bond market in general could decline due to economic conditions,especially during periods of rising interest rates. Ratings information have been provided by Moody’s,S&P and Fitch through data feeds we believe to be reliable as of the date of this statement,however we cannot guarantee its accuracy. Security level ratings for U.S.Agency issued mortgage-backed securities (“MBS”)reflect the issuer rating because the securities themselves are not rated.The issuing U.S.Agency guarantees the full and timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P,Moody’s and Fitch respectively. As of March 31, 2022 39 100 Benchmark Disclosures ICE BofA 1-5 Yr US Treasury & Agency Index The ICE BofA 1-5 Year US Treasury &Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market.Qualifying securities must have an investment grade rating (based on an average of Moody’s,S&P and Fitch).Qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to maturity at time of issuance,a fixed coupon schedule,and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies. As of March 31, 2022 40 101 CITY OF CUPERTINO Agenda Item 22-10817 Agenda Date: 4/25/2022 Agenda #: 5. Subject: Review and consider accepting City Investment Policy Review and consider accepting City Investment Policy CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™102 AUDIT COMMITTEE STAFF REPORT Meeting: April 25, 2022 Subject Review and consider accepting the City's Investment Policy. Recommended Action Review and accept the City's Investment Policy. Discussion On an annual basis, the Audit Committee reviews the City's investment policy before it is presented to City Council. The investment policy is the foundation of the City's investment goals and priorities. It can help protect the City's assets if it is carefully researched, effectively drafted, and regularly reviewed to assure that it continues to meet the City's investment objectives. The existence of an approved investment policy demonstrates that the City is performing its fiduciary responsibilities, thereby inspiring trust and confidence among the public that it serves. The investment policy provides guidelines for the prudent investment of the City's temporary idle cash. It outlines the policies for maximizing the efficiency of the City's cash management system. California Government Code (Code) 53646 (a)(2) states: the treasurer or chief fiscal officer of the local agency may annually render to the legislative body of that local agency and any oversight committee of that local agency a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a public meeting. Chapter 889, Statutes of 2004 (AB 2853, Laird) amended the California Government Code to make the requirement to annually render an investment policy optional. While no longer required by Code, the City annually presents the investment policy to the Audit 103 Committee before presenting it to City Council for approval. A public vote signifies that the City Council shares fiduciary responsibility with the treasurer, increases the authority and legitimacy of the investment policy, and provides transparency and disclosure to residents and stakeholders. In FY 2018-19, the City selected Chandler Asset Management for investment management services through a Request for Proposal (RFP). Under the City's Treasurer's direction, Chandler Asset Management manages the City's investment portfolio in accordance with the City's investment objectives. The City's investment objectives, in order of priority, are to provide: Safety to ensure the preservation of capital in the overall portfolio. Sufficient liquidity for cash needs. A market rate of return consistent with the investment program. The performance objective is to earn a total rate of return through a market cycle equal to or above the return on the benchmark index. To achieve the objective, Chandler Asset Management invests in high-quality fixed-income securities consistent with the City's investment policy and Code. Chandler Asset Management reviewed the City's investment policy. The review of the policy focused on compliance with the statutes of Code that govern the investment of public funds and the inclusion of current best practices. There were no changes to Code for 2022. The City's policy continues to be effective as written. Sustainability Impact No sustainability impact. Fiscal Impact No fiscal impact. _____________________________________ Prepared by: Thomas Leung, Senior Management Analyst Reviewed by: Kristina Alfaro, Director of Administrative Services and City Treasurer Approved for Submission by: Jim Throop, City Manager Attachments: A – Investment Policy B – Chandler Investment Policy Statement Review Memo 104 1 | P a g e City Investment Policy Citywide Policy Manual Attachments: N/A Effective Date: May 17, 2022 Responsible Department: Administrative Services Related Policies & Notes: Pension Investment Policy, OPEB Investment Policy POLICY Under authority granted by the City Council, the City Treasurer and Deputy Treasurer are responsible for investing the surplus funds of the City. The investment of the funds of the City of Cupertino is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set forth in the California Government Code, Sections 53600 et seq. The primary objective of the investment policy of the City of Cupertino is SAFETY OF PRINCIPAL. Investments shall be placed in those securities as outlined by type and maturity sector in this document. Effective cash flow management and resulting cash investment practices are recognized as essential to good fiscal management and control. The City’s portfolio shall be designed and managed in a manner responsive to the public trust and consistent with state and local law. Portfolio management requires continual analysis and as a result the balance between the various investments and maturities may change in order to give the Ci ty of Cupertino the optimum combination of necessary liquidity and optimal yield based on cash flow projections. SCOPE The investment policy applies to all financial assets of the City of Cupertino as accounted for in the Comprehensive Annual Financial Report (CAFR). Policy statements outlined in this document focus on the City of Cupertino’s pooled, surplus funds, but will also apply to all other funds under the City Treasurer’s span of control unless specifically exempted by statute or ordinance. This policy is applicable, but not limited to all funds listed below: General Fund Special Revenue Funds Capital Project Funds Enterprise Funds Internal Service Funds Trust and Agency Funds 105 2 | P a g e Any new fund unless specifically exempted Investments of bond proceeds shall be governed by the provisions of the related bond indentures and/or cash flow requirements and therefore may extend beyond the maturity limitations as outlined in this document. Other post-employment benefit (OPEB) and Pension trust investments are governed by California Government Code Sections 53620 through 53622 and trust documents. The trusts are governed by separate investment policies entitled Investment Policy Statement City of Cupertino Investment Trust that were reviewed by the City of Cupertino Audit Committee on September 27, 2021 and October 25, 2021 and City Council on December 7, 2021. PRUDENCE Pursuant to California Government Code, Section 53600.3, all persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the Prudent Investor Standard: “…all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law.” It is the City’s intent, at the time of purchase, to hold all investments until maturity to ensure the return of all invested principal dollars. However, it is realized that market prices of securitie s will vary depending on economic and interest rate conditions at any point in time. It is further recognized that in a well-diversified investment portfolio, occasional measured losses are inevitable due to economic, bond market, or individual security valuation fluctuations. These occasional losses must be considered within the context of the overall investment program objectives and the resultant long-term rate of return. The City Treasurer and Deputy Treasurer, acting within the intent and scope of the investment policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility and liability for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. OBJECTIVES The primary objectives, in order of priority, of the City of Cupertino’s investment activities shall be: 106 3 | P a g e A. Safety of Principal Safety of principal is the foremost objective of the City of Cupertino. Investments will be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City will diversify its investments by investing funds among a variety of securities with independent returns. B. Liquidity The City’s investment portfolio will remain sufficiently liquid to meet all operating requirements which might be reasonably anticipated and provide the City with adequate cash flows to pay its obligations over the next six months. Additionally, the portfolio should consist largely of securities with active secondary resale markets. C. Return The City’s investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with Cupertino’s investment risk constraints and cash flow characteristics of the portfolio. MAXIMUM MATURITIES Maturities of investments will be selected based on liquidity requirements to minimize interest rate risk and maximize earnings. Investment of surplus funds shall comply with the maturity limits as set forth in the California Government Code 53600, et seq. Where this section does not specify a limitation on the term or remaining maturity at the time of the inve stment, no investment shall be made in any security that at the time of the investment has a term remaining to maturity in excess of five years, unless the Council has granted express authority to make that investment either specifically or as a part of an investment program approved by the Council no less than three months prior to the investment. Reserve funds may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. PERFORMANCE EVALUATION Investment performance is continually monitored and evaluated by the City Treasurer. Investment performance statistics and activity reports are generated on a quarterly basis for presentation to the oversight (audit) committee, City Manager and City Council. Yield on the City’s investment portfolio is of secondary importance compared to the safety and liquidity objectives described above. The City’s investment portfolio shall be designed to attain a market average rate of return through economic cycles. The Treasurer shall monitor and evaluate the portfolio’s performance relative to the chosen market benchmark(s), which will be included in the Treasurer’s quarterly report. The Treasurer shall select an appropriate, readily available index to use as a market benchmark. Whenever possible, and consistent with risk limitations as defined herein and prudent investment principles, the Treasurer shall seek to augment return above the market average rate of return. The City may select alternative benchmarks for identified pools of City funds that have different objectives. 107 4 | P a g e DELEGATION OF AUTHORITY Authority to manage the City’s investment program is derived from California Government Code, Sections 41006 and 53600 et seq. The Treasurer is responsible for investment management decisions and activities per City Council Resolution. The Treasurer shall designate a staff person as a liaison/deputy in the event circumstances require timely action and the Treasurer is not present. No officer or designee may engage in an investment transaction except as provided under terms of this policy and the procedures by the Treasurer and approved by the City Manager/Council. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. If an investment adviser is retained by the City, the investment adviser, registered under the Investment Advisers Act of 1940, must have at least five years' experience investing in the securities and obligations authorized by California Government Code 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy. The City’s overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that in a diversified portfolio, occasional measured losses may be inevitable and must be considered within the context of the overall portfolio’s return and the cash flow requirements of the City. OVERSIGHT COMMITTEE An audit committee consisting of appropriate internal and external members, appointed by the City Council, shall be established to provide general oversight and direction concerning the policies related to management of the City’s investment pool, OPEB trust, and Pension Rate Stabilization Program trust. The City Treasurer shall serve in a staff and advisory capacity. The committee shall meet at least quarterly to review policy changes, new legislation and portfolio status. ETHICS AND CONFLICTS OF INTEREST Officers and employees involved in the investment process shall refrain from personal business activity that conflicts with proper execution of the investment program, or impairs their ability to make impartial investment decisions. Additionally the City Treasurer and the Deputy Treasurer are required to annually file applicable financial disclosures as required by the Fair Political Practices Commission (FPPC). 108 5 | P a g e SAFEKEEPING OF SECURITIES To protect against fraud or embezzlement or losses caused by collapse of an individual securities dealer, all securities owned by the City shall be held in safekeeping by a third party custodian acting as agent for the City under the terms of a custody agreement. All trades executed by a dealer will settle delivery versus payment (DVP) through the City’s safekeeping agent. In order to verify investment holdings, an external auditor, on an annual basis, shall independently verify securities held in custody for the City. Additionally, the City Treasurer shall include a listing of holdings provided by the City’s custodian to the quarterly investment report as verification between annual reviews by the external auditor. The only exceptions to the foregoing shall be depository accounts and securities purchases made with: (i) local government investment pools; (ii) time certificates of deposit, and, (iii) money mutual funds, since the purchased securities are not deliverable. All other exceptions to this safekeeping policy must be approved by the City Treasurer in written form and included in the quarterly report to City Council. INTERNAL CONTROL Separation of duties between the Treasurer’s function and Finance is designed to provide proper internal controls to prevent the potential for converting assets or concealing transactions. Dual transaction controls, separate and independent notifications, and reports pr ovided by financial institutions shall be used to help implement these controls. Wire transfers shall be approved prior to being submitted to the financial institution. Wire transfers initiated by Treasury staff must be reconfirmed by the appropriate financial institution to Finance staff. Proper documentation is required for each investment transaction and must include a broker trade confirmation and a cash disbursement wire transfer confirmation. Timely bank reconciliation is conducted to ensure proper h andling of all transactions. The investment portfolio and all related transactions are reviewed and balanced to appropriate general ledger accounts by Finance staff on a monthly basis. An annual agreed-upon procedures engagement in accordance with the attestation standards established by the American Institute of Certified Public Accountants shall be conducted by an auditor solely to assist management in determining the City’s compliance with this investment policy. At the conclusion of such engagement, the agreed-upon procedures report detailing all procedures performed and findings noted (if applicable) shall be provided to the Audit Committee of the City. REPORTING Monthly transaction reports will be submitted by the Treasurer to the City Council within 30 days of the end of the reporting period in accordance with California Government Code Section 53607. 109 6 | P a g e The City Treasurer shall also prepare a quarterly investment report, including a succinct management summary that provides a clear picture of the status of the current investment portfolio. The report will be prepared in a manner that will report all information required under this policy and as recommended by California Government Code. The Treasurer will submit the report to Council no later than the second regular council meeting, or approximately 45 days following the end of the quarter covered by the report. AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND QUALIFIED BROKER/DEALERS To the extent practicable, the Treasurer shall endeavor to complete investment transactions using a competitive bid process whenever possible. The City’s Treasurer will determine which financial institutions are authorized to provide investment services to the City. It shall be the City’s policy to purchase securities only from authorized institutions and firms. The Treasurer shall maintain procedures for establishing a list of authorized broker/dealers and financial institutions which are approved for investment purposes that are selected through a process of due diligence as determined by the City. Due inquiry shall determine whether such authorized broker/dealers, and the individuals covering the City are reputable and trustworthy, knowledgeable and experienced in Public Agency investing and able to meet all of their financial obligations. These institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (uniform net capital rule). In accordance with Section 53601.5, institutions eligible to transact investment business with the City include: Primary government dealers as designated by the Federal Reserve Bank and non-primary government dealers. Nationally or state-chartered banks. The Federal Reserve Bank. Direct issuers of securities eligible for purchase. Selection of financial institutions and broker/dealers authorized to engage in transactions will be at the sole discretion of the City, except where the City utilizes an external investment adviser in which case the City may rely on the adviser for selection. All financial institutions which desire to become qualified bidders for investment transactions (and which are not dealing only with the investment adviser) must supply the Treasurer with audited financials and a statement certifying that the institution has reviewed the California Government Code, Section 53600 et seq. and the City’s investment policy. The Treasurer will conduct an annual review of the financial condition and registrations of such qualified bidders. Public deposits will be made only in qualified public depositories as established by State law. Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, will be collateralized in accordance with State law. 110 7 | P a g e Selection of broker/dealers used by an external investment adviser retained by the City will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall be recorded. If there is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. When purchasing original issue instrumentality securities, no competitive offerings will be required as all dealers in the selling group offer those securities at the same original issue price. COLLATERAL REQUIREMENTS CERTIFICATES OF DEPOSIT (CDS). The City shall require any commercial bank or savings and loan association to deposit eligible securities with an agency of a depository approved by the State Banking Department to secure any uninsured portion of a Non-Negotiable Certificate of Deposit. The value of eligible securities as defined pursuant to California Government Code, Section 53651, pledged against a Certificate of Deposit shall be equal to 150% of the face value of the CD if the securities are classified as mortgages and 11 0% of the face value of the CD for all other classes of security. COLLATERALIZATION OF BANK DEPOSITS. This is the process by which a bank or financial institution pledges securities, or other deposits for the purpose of securing repayment of deposited funds. The City shall require any bank or financial institution to comply with the collateralization criteria defined in California Government Code, Section 53651. REPURCHASE AGREEMENTS. The City requires that Repurchase Agreements be collateralized only by securities authorized in accordance with California Government Code: The securities which collateralize the repurchase agreement shall be priced at Market Value, including any Accrued Interest plus a margin. The Market Value of the securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities. Financial institutions shall mark the value of the collateral to market at least monthly and increase or decrease the collateral to satisfy the ratio requirement described above. The City shall receive monthly statements of collateral. AUTHORIZED INVESTMENTS Investment of City funds is governed by the California Government Code Sections 53600 et seq. Within the context of the limitations, the following investments are authorized, subject to the restrictions below. In the event a discrepancy is found between this policy and the Code, the more restrictive parameters will take precedence. Percentage holding limits listed in this section apply at the time the security is purchased. Any investment currently held at the time the policy is adopted which does not meet the new policy guidelines can be held until maturity and shall be exempt from the current policy. At the time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in the current policy. 111 8 | P a g e An appropriate risk level shall be maintained by primarily purchasing securities that are of high quality, liquid, and marketable. The portfolio shall be diversified by security type and institution to avoid incurring unreasonable and avoidable risks regarding specific security types or individual issuers. 1. United States Treasury Bills, Bonds, and Notes or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no percentage limitation of the portfolio that can be invested in this category, although a five- year maturity limitation is applicable. 2. Obligations issued by Federal agencies or United States Government-Sponsored Enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. There are no limits on the dollar amount or percentage that the City may invest in Federal Agency or Government-Sponsored Enterprises (GSEs), provided that: No more than 25% of the portfolio may be invested in any single Agency/GSE issuer. The maximum maturity does not exceed five (5) years. The maximum percent of agency callable securities in the portfolio will be 20%. 3. Banker’s Acceptances (bills of exchange or time drafts drawn on and accepted by commercial banks) may not exceed 180 days to maturity or 40% of the portfolio. They are issued by institutions which have short-term debt obligations rated “A-1” or its equivalent or better by at least one NRSRO; or long-term debt obligations which are rated in a rating category of “A” or its equivalent or better by at least one NRSRO. No more than 5% of the portfolio may be invested in any single issuer. 4. Local Agency Investment Fund (LAIF), which is a State of California managed investment pool, may be used up to the maximum permitted by California state law. LAIF’s investments in instruments prohibited by or not specified in the City’s policy do not exclude the investment in LAIF itself from the City’s list of allowable investments, provided LAIF’s reports allow the Treasurer to adequately judge the risk inherent in LAIF’s portfolio.. 5. Commercial paper issued by corporations organized and operating in the United States having assets in excess of $500,000,000, ranked “A-1” or its equivalent or better by at least one Nationally Ranked Statistical Rating Organization (NRSRO), issued by corporations which have long-term obligations rated in a rating category of “A” or its equivalent or better by one NRSRO. Purchases of eligible commercial paper may not exceed 270 days to maturity nor 112 9 | P a g e represent more than 10% of the outstanding paper of the issuing corporation. Purchases of commercial paper may not exceed 25% of the portfolio. Under a provision sunsetting on January 1, 2026, no more than 40% of the City’s portfolio may be invested in Commercial Paper if the City’s investment assets under management are greater than $100,000,000. No more than 10% of the total investments may be invested the in commercial paper and medium term notes of any single issuer. 6. Negotiable Certificates of Deposits issued by nationally or state-chartered banks, state or federal savings associations, or state or federal credit unions, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of Negotiable Certificates of Deposit may not exceed 30% of the portfolio. No more than 5% of the portfolio may be invested in any single issuer. A maturity limitation of five years is applicable. The amount of the NCD insured up to the FDIC limit does not require any credit ratings. Any amount above the FDIC insured limit must be issued by institutions which have short-term debt obligations rated “A-1” or its equivalent or better by at least one NRSRO; or long-term obligations rated in a rating category of “A” or its equivalent or better by at least one NRSRO. 7. Repurchase agreements that specify terms and conditions may be transacted with banks and broker dealers. The maturity of the repurchase agreements shall not exceed one year. The market value of the securities used as collateral for the repurchase agreements s hall be monitored by the investment staff and shall not be allowed to fall below 102% of the value of the repurchase agreement. A PSA Master Repurchase Agreement is required between the City of Cupertino and the broker/dealer or financial institution for all repurchase agreements transacted. 8. Reverse repurchase agreements are not authorized. 9. Certificates of Deposit (time deposits), non-negotiable and collateralized in accordance with the California Government Code, may be purchased through banks, savings and loan associations, or credit unions. Within a limit of 30% of the portfolio, these institutions may use a private sector entity to assist in the placement of the time deposits under the conditions specified by the Government Code. 10. Medium Term Corporate Notes issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any state and operating within the United States, with a maximum maturity of five years may be purchased. Securities eligible for investment shall be rated in the rating category of “A” or better by at least one NRSRO. Purchase of medium term note s may not exceed 30% of the portfolio. No more than 10% of the total investments may be invested in the commercial paper and medium term notes of any single issuer. 11. Municipal securities, including obligations of the City, the State of California, and any 113 10 | P a g e local agency within the State of California, provided that: The securities are rated in a rating category of “A” or its equivalent or better by at least one NRSRO. No more than 5% of the portfolio may be invested in any single issuer. No more than 30% of the portfolio may be in Municipal Securities. The maximum maturity does not exceed five (5) years. 12. Municipal securities (Registered Treasury Notes or Bonds) of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. The securities are rated in a rating category of “A” or its equivalent or better by at least one nationally recognized statistical rating organization (“NRSRO”). No more than 5% of the portfolio may be invested in any single issuer. No more than 30% of the portfolio may be in Municipal Securities. The maximum maturity does not exceed five (5) years. 13. Asset-backed, mortgage-backed, mortgage pass-through securities, and collateralized mortgage obligations, provided that: The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO. No more than 20% of the total portfolio may be invested in these securities. No more than 5% of the portfolio may be invested in any single Asset-Backed or Commercial Mortgage security issuer. There is no issuer limitation on any Mortgage security where the issuer is the US Treasury or a Federal Agency/GSE. The maximum legal final maturity does not exceed five (5) years. 14. Supranationals, provided that: Issues are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO. No more than 30% of the total portfolio may be invested in these securities. No more than 10% of the portfolio may be invested in any single issuer. The maximum maturity does not exceed five (5) years. 114 11 | P a g e 15. Various daily money market funds administered for or by trustees, paying agents and custodian banks contracted by the City of Cupertino may be purchased as allowed under State of California Government Code. Only funds holding U.S. Treasury obligations, Government agency obligations, or repurchase agreements collateralized by U.S. Treasury or Government agency obligations can be utilized and may not exceed 20% of the cost value of the portfolio. 16. Ineligible investments are those that are not described herein, including but not limited to, common stocks and long-term (over five years in maturity) notes and bonds are prohibited from use in this portfolio. It is noted that special circumstances arise that necessitate the purchase of securities beyond the five-year limitation. On such occasions, requests must be approved by City Council prior to purchase. Additionally: State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options. In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest-only strips is prohibited. Investment in any security that could result in a zero-interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government that could result zero- or negative-interest accrual if held to maturity are permitted. Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited. Purchasing or selling securities on margin is prohibited. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited. The purchase of foreign currency denominated securities is prohibited. RISK MANAGEMENT AND DIVERSIFICATION Mitigating Credit Risk in the Portfolio Credit risk is the risk that a security or a portfolio will lose some or all its value due to a real or perceived change in the ability of the issuer to repay its debt. The City will mitigate credit risk by adopting the following strategies: The diversification requirements included in the “Authorized Investments” section of this policy are designed to mitigate credit risk in the portfolio. No more than 5% of the total portfolio may be deposited with or invested in securities issued by any single issuer unless otherwise specified in this policy. The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to manage the quality, liquidity or yield of the portfolio in 115 12 | P a g e response to market conditions or City’s risk preferences. If the credit ratings of any security owned by the City are downgraded to a level below the quality required by this investment policy, it will be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a security is downgraded, the Treasurer will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors. If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported monthly to the City Council. Mitigating Market Risk in the Portfolio Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates. The City recognizes that, over time, longer-term portfolios have the potential to achieve higher returns. On the other hand, longer -term portfolios have higher volatility of return. The City will mitigate market risk by providing adequa te liquidity for short-term cash needs, and by making longer-term investments only with funds that are not needed for current cash flow purposes. The City further recognizes that certain types of securities, including variable rate securities, securities with principal paydowns prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The City, therefore, adopts the following strategies to control and mitigate its exposure to market risk: The City will maintain a minimum of six months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements. The maximum stated final maturity of individual securities in the portfolio will be five (5) years, except as otherwise stated in this policy. The duration of the portfolio will generally be approximately equal to the duration (typically, plus or minus 20%) of a Market Benchmark, an index selected by the City based on the City’s investment objectives, constraints and risk tolerances. DEPOSITS To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured industrial loan company shall have received an overall rating of not less than “satisfactory” in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California’s communities. 116 13 | P a g e INTEREST EARNINGS All moneys earned and collected from investments authorized in this policy shall be allocated monthly to various fund accounts based on the cash balance in each fund as a percentage of the entire pooled portfolio. REVIEW OF INVESTMENT PORTFOLIO The Treasurer shall periodically, but no less than quarterly, review the portfolio to identify investments that do not comply with this investment policy and establish protocols for reporting major and critical incidences of noncompliance to the City Council. POLICY REVIEW The City of Cupertino’s investment policy shall be adopted by resolution of the City Council on an annual basis. This investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity, and yield, and its relevance to current law and financial and economic trends. 117 14 | P a g e GLOSSARY OF INVESTMENT TERMS AGENCIES. Shorthand market terminology for any obligation issued by a government- sponsored entity (GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the full faith and credit of the US government. Examples are: FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB issues discount notes and bonds. FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues discount notes and bonds. FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the housing market. FHLMC, also called “FreddieMac” issues discount notes, bonds and mortgage pass-through securities. FNMA. Like FHLB and Freddie Mac, the Federal National Mortgage Association was established to provide credit and liquidity in the housing market. FNMA, also known as “Fannie Mae,” issues discount notes, bonds and mortgage pass-through securities. GNMA. The Government National Mortgage Association, known as “Ginnie Mae,” issues mortgage pass-through securities, which are guaranteed by the full faith and credit of the US Government. PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed by the full faith and credit of the US government. TVA. The Tennessee Valley Authority provides flood control and power and promotes development in portions of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues discount notes and bonds. ASKED. The price at which a seller offers to sell a security. ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of revolving lines of credit. AVERAGE LIFE. In mortgage-related investments, including CMOs, the average time to expected receipt of principal payments, weighted by the amount of principal expected. BANKER’S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It is highly liquid and safe because the risk of the trade transaction is transferred to the bank which “accepts” the obligation to pay the investor. BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects the mix of securities allowed under a specific investment policy. BID. The price at which a buyer offers to buy a security. 118 15 | P a g e BROKER. A broker brings buyers and sellers together for a tr ansaction for which the broker receives a commission. A broker does not sell securities from his own position. CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity. The main cause of a call is a decline in interest rates. If interest rates decline since an issuer issues securities, it will likely call its current securities and reissue them at a lower rate of interest. Callable securities have reinvestment risk as the investor may receive its principal back when interest rates are lower than when the investment was initially made. CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. Large denomination CDs may be marketable. CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that allows local agencies to purchase more than $250,000 in CDs from a single financial institution (must be a participating institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is currently the only entity providing this service. CDARS facilitates the trading of deposits between the California institution and other participating institutions in amounts that are less than $250,000 each, so that FDIC coverage is maintained. COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also, securities pledged by a financial institution to secure deposits of public monies. COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of mortgage securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to the underlying mortgage securities. COMMERCIAL PAPER. The short-term unsecured debt of corporations. COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not give effect to premiums and discounts which may have been included in the purchase cost, it is an incomplete measure of return. COUPON. The rate of return at which interest is paid on a bond. CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer. CURRENT YIELD. The annual income from an investment divided by the current market value. Since the mathematical calculation relies on the current market value rather than the investor’s cost, current yield is unrelated to the actual return the investor will earn if the security is held to maturity. DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position. DEBENTURE. A bond secured only by the general credit of the issuer. 119 16 | P a g e DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security must be made at the time the security is delivered to the purchaser’s agent. DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of another security which has been separated from other components (“Stripped” coupons and principal). A derivative is also defined as a financial instrument the value of which is totally or partially derived from the value of another instrument, interest rate, or index. DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some short-term securities, such as T-bills and banker’s acceptances, are known as discount securities. They sell at a discount from par, and return the par value to the investor at maturity without additional interest. Other securities, which have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for securities of that maturity and/or quality. DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to any one source of risk. DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration). FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other banks. The Federal Reserve Bank through open-market operations establishes it. FEDERAL OPEN MARKET COMMITTEE. A committee of the Federal Reserve Board that establishes monetary policy and executes it through temporary and permanent changes to the supply of bank reserves. LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate higher than the cost of borrowing. LIQUIDITY. The speed and ease with which an asset can be converted to cash. LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office. LOCAL GOVERNMENT INVESTMENT POOL. Investment pools that range from the State Treasurer’s Office Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds. MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early. Unlike a call option, with a make whole call provision, the issuer makes a 120 17 | P a g e lump sum payment that equals the net present value (NPV) of future coupon payments that will not be paid because of the call. With this type of call, an investor is compensated, or "made whole." MARGIN. The difference between the market value of a security and the loan a broker makes using that security as collateral. MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest rates. MARKET VALUE. The price at which a security can be traded. MARKING TO MARKET. The process of posting current market values for securities in a portfolio. MATURITY. The final date upon which the principal of a security becomes due and payable. MEDIUM TERM NOTES. Unsecured, investment-grade senior debt securities of major corporations which are sold in relatively small amounts on either a continuous or an intermittent basis. MTNs are highly flexible debt instruments that can be structured to respond to market opportunities or to investor preferences. MODIFIED DURATION. The percent change in price for a 100 basis point change in yields. Modified duration is the best single measure of a portfolio’s or security’s exposure to market risk. MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes, commercial paper, and banker’s acceptances) are issued and traded. MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and principal cash flows from a specified pool of mortgages. Principal and interest payments made on the mortgages are passed through to the holder of the security. MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating expenses. MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities which is specifically defined in the fund’s prospectus. Mutual funds can be invested in various types of domestic and/or international stocks, bonds, and money market instruments, as set forth in the individual fund’s prospectus. For most large, institutional investors, the costs associated with investing in mutual funds are higher than the investor can obtain through an individually managed portfolio. NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO). A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent NRSROs are Fitch, S&P, and Moody's. 121 18 | P a g e NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost is above par. PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities. PREPAYMENT WINDOW. The time period over which principal repayments will be received on mortgage securities at a specified prepayment speed. PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of market operations to carry out U.S. monetary policy, and (2) that participates for statistical reporting purposes in compiling data on activity in the U.S. Government securities market. PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to fiduciaries. In California, the rule is stated as “Investments shall be managed with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of like character and with like aims to accomplish similar purposes.” REALIZED YIELD. The change in value of the portfolio due to interest received and interest earned and realized gains and losses. It does not give effect to changes in market value on securities, which have not been sold from the portfolio. REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit of its customers without maintaining substantial inventories of securities and th at is not a primary dealer. REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back at a higher price. From the seller’s point of view, the same transaction is a reverse repurchase agreement. SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer’s name. STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula tied to other interest rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase when other interest rates are f alling, and which fall when other interest rates are rising, and "dual index floaters," which pay interest based on the relationship between two other interest rates - for example, the yield on the ten-year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap agreements. 122 19 | P a g e SUPRANATIONAL. A Supranational is a multi-national organization whereby member states transcend national boundaries or interests to share in the decision making to promote economic development in the member countries. TOTAL RATE OF RETURN. A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and unrealized gains, and losses in the portfolio. U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk, and are the benchmark for interest rates on all other securities in the US and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds. TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments, and are called Treasury bills. The Treasury currently issues three- and six-month T-bills at regular weekly auctions. It also issues “cash management” bills as needed to smooth out cash flows. TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes, and pay interest semi-annually. TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like Treasury notes, they pay interest semi-annually. VOLATILITY. The rate at which security prices change with changes in general economic conditions or the general level of interest rates. YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected cash flows from the investment to its cost. Revisions: City Manager’s signature: _______________________________ Date: _______________________________ 123 20 | P a g e Revisions: City Manager’s signature: _______________________________ Date: _______________________________ 124 6225 Lusk Boulevard | San Diego, CA 92121 | Phone 800.317.4747 | chandlerasset.com April 18th, 2002 Ms. Kristina Alfaro Director of Administrative Services City of Cupertino Dear Kristina, The Chandler Team has completed our review of City of Cupertino’s investment policy. Our review of the policy focused on compliance with the statutes of California Government Code (Code) that govern the investment of public funds, as well as on inclusion of current best practices. There were no changes to Code for 2022. The City’s policy continues to be effective as written. Please do not hesitate to contact us with any questions you may have, or if further review is needed. Sincerely, Carlos Oblites Senior Vice President/Portfolio Strategist Chandler Asset Management & Christopher McCarry Senior Vice President/Portfolio Strategist Chandler Asset Management 125 CITY OF CUPERTINO Agenda Item 22-10818 Agenda Date: 4/25/2022 Agenda #: 6. Subject: Consider receiving report on Interim Audit and AUP Engagements Receive report on Interim Audit and AUP Engagements and provide direction CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™126 CITY OF CUPERTINO Agenda Item 22-10819 Agenda Date: 4/25/2022 Agenda #: 7. Subject:Consider receiving follow-up on Previous Fiscal Year Management Letter Items and Management Responses Receive follow-up on Previous Fiscal Year Management Letter Items and Management Responses CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™127 Pre l i m i n a r y D r a f t 1. To the Honorable Mayor and City Council City of Cupertino, California In planning and performing our audit of the financial statements of the City of Cupertino, California (“City”) as of and for the year ended June 30, 2021, in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, we considered the City’s internal control over financial reporting (“internal control”) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain matters that we wish to communicate to you. Matters communicated in this letter are classified as follows: Deficiency – A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. Immaterial Noncompliance over Procurement – Highway Planning and Construction Cluster Deficiency Control Deficiency: Per the Part III of the Annual Compliance Supplement, the City's procurement policies and procedures are required to conform to 2 CFR 200.318 of the Uniform Guidance, which detail the federal procurements requirements. The City's documented procurement policies provide specific references to state and local procurement requirements. However, there are no references to federal requirements under the Uniform Guidance. Context: Although the City’s documented procurement policies and procedures do not specifically reference the federal requirements, the results of our compliance testing did not note any specific noncompliance with the applicable federal regulations. Potential Effect: As the City's procurement policies and procedures do not reference the Uniform Guidance, the City may be susceptible to non- compliance with federal requirements. Recommendation: We understand that the City has been updating its policies and procedures related to procurement as part of a pre-existing City-wide project. We recommend that the City continue its efforts to update its policies and procedures and ensure that applicable federal requirements are reflected in the updated documentation. The purpose of this letter is solely to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. This letter is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Accordingly, this letter is not suitable for any other purpose. 128 Pre l i m i n a r y Dr a f t 2. Crowe LLP Costa Mesa, California March xx, 2022 129 Pre l i m i n a r y Dr a f t CITY OF CUPERTINO, CALIFORNIA SINGLE AUDIT Year ended June 30, 2021 130 Pre l i m i n a r y Dr a f t CITY OF CUPERTINO Cupertino, California SINGLE AUDIT Year ended June 30, 2021 CONTENTS INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS............................................................................................ 1 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE ........................................................................................ 3 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ................................................................... 5 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ............................................... 6 SCHEDULE OF FINDINGS AND QUESTIONED COSTS ....................................................................... 7 SCHEDULE OF PRIOR YEAR FINDINGS ............................................................................................... 8 131 Pre l i m i n a r y Dr a f t Crowe LLP Independent Member Crowe Global (Continued) 1 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council City of Cupertino, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Cupertino, California (the City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 16, 2021. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weakness. However, material weaknesses may exist that have not been identified. 132 Pre l i m i n a r y Dr a f t 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Crowe LLP Costa Mesa, California April 8, 2022 133 Pre l i m i n a r y Dr a f t Crowe LLP Independent Member Crowe Global (Continued) 3 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE To the Honorable Mayor and City Council City of Cupertino, California Report on Compliance for Each Major Federal Program We have audited the City of Cupertino, California (the City’s) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of City’s major federal programs for the year ended June 30, 2021. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City of Cupertino complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2021. 134 Pre l i m i n a r y Dr a f t 4 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated November 16, 2021, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Crowe LLP Costa Mesa, California November 16, 2021 135 Pre l i m i n a r y Dr a f t CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2021 See accompanying notes to schedule of expenditures of federal awards. 5 Federal Agreement Number Assistance / Pass-Through Amount Federal Grantor/Listing Identifying Federal Provided to Pass-Through Grantor/Program or Cluster Title Number Number Expenditures Subrecipients U.S. Department of Housing and Urban Development CDBG – Entitlement Grants Cluster Community Development Block Grants/Entitlement Grants 14.218 B20MC060057 360,438$ 288,981$ COVID-19 - CDBG 14.218 N/A 229,017 185,000 Total U.S. Department of Housing and Urban Development 589,455 473,981 U.S Department of Treasury Passed through the State of California Controller's Office COVID-19 - Coronavirus Relief Fund 21.019 Budget Act of 2020, Control Section 11.90 735,259 - Total U.S. Department of Treasury 735,259 - U.S. Department of Transportation Passed through the State of California Department of Transportation Highway Planning and Construction Cluster Highway Planning and Construction 20.205 BPMP-5318(029)13,656 - Highway Safety Improvement Program (HSIP)20.205 HSIPL-5318 (030)18,866 - 750 OBAG 20.205 STPL 5318(031)701,250 - Total U.S. Department of Transportation 733,772 - Total Expenditures of Federal Awards 2,058,486$ 473,981$ 136 Pre l i m i n a r y D r a f t CITY OF CUPERTINO, CALIFORNIA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2021 6 NOTE 1 - BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the City of Cupertino, California (the City) for the year ended June 30, 2021. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the City’s operations, it does not present the financial position, changes in net position, or cash flows of the City. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the principles contained in the Uniform Guidance wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. The City has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. NOTE 3 – MAJOR PROGRAMS In accordance with the Uniform Guidance, major programs for the City are individual programs or a cluster of programs determined by using a risk-based analysis. The threshold for distinguishing Type A and Type B programs was $750,000 and $187,500, respectively. Awards from the CDBG-Entitlement Grants Cluster and Highway Planning and Construction Cluster are designated as clusters of programs. NOTE 4 - NON-CASH ASSISTANCE The City had no non-cash assistance during the year. NOTE 5 - FEDERAL INSURANCE The City had no Federal Insurance in force during the year. 137 Pre l i m i n a r y Dr a f t CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2021 7 SECTION I - SUMMARY OF AUDITOR’S RESULTS Financial Statements Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major federal programs: Material weakness(es) identified? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X None reported Type of auditor’s report issued on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Yes X No Identification of major federal programs: Federal Assistance Listing Number Name of Federal Program or Cluster 20.205 Highway Planning and Construction Cluster 21.019 COVID-19 - Coronavirus Relief Funding Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes x No SECTION II – FINANCIAL STATEMENT FINDINGS None. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None. 138 Pre l i m i n a r y Dr a f t CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF PRIOR YEAR FINDINGS Year ended June 30, 2021 8 None. 139 CITY OF CUPERTINO Agenda Item 22-10820 Agenda Date: 4/25/2022 Agenda #: 8. Subject: Consider reviewing Monthly Treasurer's Report for March 2022 Review Monthly Treasurer's Report for March 2022 and recommend filing with City Council CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™140 AUDIT COMMITTEE STAFF REPORT Meeting: April 25, 2022 Subject Monthly Treasurer's Report for March 2022 Recommended Action Review Monthly Treasurer's Report for March 2022 and recommend filing with City Council Discussion Background California Government Code Section 41004 states: Regularly, at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements, and fund balances. The city treasurer shall file a copy with the legislative body. The City's Municipal Code Section 2.24.030 Monthly Reports states: The Treasurer shall make monthly reports which conform to the requirements of Government Code Section 41004. Said reports shall be delivered to the City Council, the City Manager and made available for review by such other persons who may so request. Lastly, the City's Municipal Code Section 2.88.100 Duties-Powers-Responsibilities lists one of the powers and functions of the Audit Committee is "to review the monthly Treasurer's report." Per the referenced code provisions, a Treasurer's Report (report and accounting of all receipts, disbursements, and fund balances) shall be submitted to the Audit Committee for review and filed with the City Clerk every month. Cash vs. Accrual Basis Accounting Cash and accrual basis accounting differ in the timing when revenues and expenses are recognized and recorded. Cash basis accounting recognizes revenues when payment is 141 received and expenses when payment is paid. Accrual basis accounting recognizes revenues when they are earned (but not necessarily received) and expenses when they are incurred (but not necessarily paid). Receipts, disbursements, and cash balance are measured on a cash basis. The cash balance shows the total cash and investments in the City's accounts. The ending balance is the beginning balance plus receipts minus disbursements. Adjustments to the ending balance account for transactions recorded in other systems and imported into New World. Revenues, expenditures, and fund balance are measured on an accrual basis. As a result, the amount in fund balance does not mean the City has that much cash on hand. Instead, fund balance is the difference between assets and liabilities. The ending balance is the beginning balance plus revenues minus expenditures. Treasurer's Report The report provides cash and fund balances for the City of Cupertino for March 2022. March 2022 The City's General Fund ending cash and investment balance was $108.9 million, a decrease of $7.3 million from the prior month. Receipts were $7.9 million, disbursements were ($4.6) million, and journal adjustments were ($10.6) million for the month. The City's General Fund ending fund balance was $97.8 million, decreasing $11.8 million from the prior month due to revenues of $6.1 million and expenditures of $17.9 million. Sustainability Impact No sustainability impact. Fiscal Impact No fiscal impact. _____________________________________ Prepared by: Thomas Leung, Senior Management Analyst Reviewed by: Kristina Alfaro, Director of Administrative Services and City Treasurer Approved for Submission by: Jim Throop, City Manager Attachments: A – Report of City-wide Receipts, Disbursements, and Cash Balances March 2022 B – Report of City-wide Fund Balances/Net Position March 2022 142 March 2022 Report of City‐wide Receipts, Disbursements, and Cash Balances Cash and Investments Beginning Balance Ending Balance Fund Type Fund Number/Name as of February 28, 2022 Receipts Disbursements Journal Adjustments as of March 31, 2022 General Fund 100 General Fund 116,236,763$ 7,904,640$ (4,625,187)$ (10,591,073)$ 108,925,143$ General Fund 130 Investment Fund (1,200)$ ‐$ ‐$ ‐$ (1,200)$ Special Revenue Funds 210 Storm Drain Improvement 2,378,451$ ‐$ (29,695)$ ‐$ 2,348,756$ Special Revenue Funds 215 Storm Drain AB1600 1,831,198$ 4,992$ ‐$ ‐$ 1,836,190$ Special Revenue Funds 230 Env Mgmt Cln Crk Strm Drain 1,376,381$ 16,102$ (94,716)$ (103,792)$ 1,193,974$ Special Revenue Funds 260 CDBG 556,275$ 662$ (16,821)$ ‐$ 540,116$ Special Revenue Funds 261 HCD Loan Rehab 232,280$ ‐$ ‐$ ‐$ 232,280$ Special Revenue Funds 265 BMR Housing 6,223,358$ 3,600$ (65,539)$ (25,652)$ 6,135,767$ Special Revenue Funds 270 Transportation Fund 14,113,661$ 197,816$ (316,424)$ (208,653)$ 13,786,400$ Special Revenue Funds 271 Traffic Impact 748,717$ ‐$ ‐$ ‐$ 748,717$ Special Revenue Funds 280 Park Dedication 22,245,709$ ‐$ (24,170)$ ‐$ 22,221,539$ Special Revenue Funds 281 Tree Fund 137,364$ 600$ ‐$ ‐$ 137,964$ Debt Service Funds 365 Public Facilities Corp 2,284,850$ ‐$ ‐$ ‐$ 2,284,850$ Capital Project Funds 420 Capital Improvement Fund 31,254,282$ ‐$ (1,398,650)$ ‐$ 29,855,633$ Capital Project Funds 427 Stevens Creek Corridor Park 176,498$ ‐$ ‐$ ‐$ 176,498$ Capital Project Funds 429 Capital Reserve (453,432)$ ‐$ ‐$ 10,000,000$ 9,546,568$ Enterprise Funds 520 Resource Recovery 6,275,660$ 119,834$ (155,527)$ (84,641)$ 6,155,326$ Enterprise Funds 560 Blackberry Farm 1,236,243$ ‐$ (46,327)$ 36,655$ 1,226,571$ Enterprise Funds 570 Sports Center 2,457,523$ ‐$ (338,889)$ 144,464$ 2,263,097$ Enterprise Funds 580 Recreation Program 3,183,186$ ‐$ (47,160)$ 173,442$ 3,309,468$ Internal Service Funds 610 Innovation & Technology 1,924,770$ 50$ (236,757)$ 736,187$ 2,424,249$ Internal Service Funds 620 Workersʹ Compensation 3,952,872$ ‐$ (3,134)$ 63,100$ 4,012,839$ Internal Service Funds 630 Vehicle/Equip Replacement 659,856$ ‐$ (65,266)$ 426,124$ 1,020,714$ Internal Service Funds 641 Compensated Absence/LTD 698,079$ ‐$ 612$ (2,238)$ 696,453$ Internal Service Funds 642 Retiree Medical 343,308$ ‐$ (115,670)$ (3,720)$ 223,918$ Total 220,072,653$ 8,248,296$ (7,579,322)$ 560,202$ 221,301,829$ * For reporting purposes, this fund rolls up/combines with Fund 420 Printed April 21, 2022 14 3 March 2022 Report of City‐wide Fund Balances/Net Position Beginning Fund Balance Ending Fund Balance Fund Type Fund Number/Name as of February 28, 2022 Revenues Expenditures as of March 31, 2022 General Fund 100 General Fund 109,585,673$ 6,133,203$ 17,889,456$ 97,829,419$ General Fund 130 Investment Fund (1,200)$ ‐$ ‐$ (1,200)$ Special Revenue Funds 210 Storm Drain Improvement 2,378,451$ ‐$ 29,695$ 2,348,756$ Special Revenue Funds 215 Storm Drain AB1600 1,831,198$ 4,992$ ‐$ 1,836,190$ Special Revenue Funds 230 Env Mgmt Cln Crk Strm Drain 1,423,133$ (124)$ 200,364$ 1,222,646$ Special Revenue Funds 260 CDBG 1,087,635$ 178$ 16,821$ 1,070,993$ Special Revenue Funds 261 HCD Loan Rehab 232,280$ ‐$ ‐$ 232,280$ Special Revenue Funds 265 BMR Housing 6,223,358$ 3,600$ 112,971$ 6,113,986$ Special Revenue Funds 270 Transportation Fund 14,109,163$ 197,816$ 969,768$ 13,337,211$ Special Revenue Funds 271 Traffic Impact 748,717$ ‐$ ‐$ 748,717$ Special Revenue Funds 280 Park Dedication 22,245,700$ ‐$ 77,485$ 22,168,215$ Special Revenue Funds 281 Tree Fund 137,964$ ‐$ ‐$ 137,964$ Debt Service Funds 365 Public Facilities Corp 2,284,850$ ‐$ ‐$ 2,284,850$ Capital Project Funds 420 Capital Improvement Fund 28,692,574$ 1,402,454$ 1,397,034$ 28,697,994$ Capital Project Funds 427 Stevens Creek Corridor Park 176,498$ ‐$ ‐$ 176,498$ Capital Project Funds 429 Capital Reserve* (453,432)$ 10,000,000$ ‐$ 9,546,568$ Enterprise Funds 520 Resource Recovery 5,413,082$ 119,834$ 240,169$ 5,292,747$ Enterprise Funds 560 Blackberry Farm 939,375$ 47,055$ 62,106$ 924,324$ Enterprise Funds 570 Sports Center 2,761,054$ 181,553$ 470,446$ 2,472,161$ Enterprise Funds 580 Recreation Program 2,686,369$ 80,965$ 147,442$ 2,619,892$ Internal Service Funds 610 Innovation & Technology 703,267$ 739,901$ 353,559$ 1,089,609$ Internal Service Funds 620 Workersʹ Compensation 2,516,459$ 89,208$ 29,241$ 2,576,425$ Internal Service Funds 630 Vehicle/Equip Replacement 1,899,112$ 429,650$ 53,102$ 2,275,659$ Internal Service Funds 641 Compensated Absence/LTD 690,424$ 8,568$ 10,194$ 688,798$ Internal Service Funds 642 Retiree Medical 343,308$ ‐$ 119,391$ 223,918$ Total 208,655,013$ 19,438,853$ 22,179,244$ 205,914,621$ * For reporting purposes, this fund rolls up/combines with Fund 420 Printed April 21, 2022 14 4 CITY OF CUPERTINO Agenda Item 22-10822 Agenda Date: 4/25/2022 Agenda #: 9. Subject: Consider receiving Audit Committee 2022 Schedule and Work Plan Receive Audit Committee 2022 Schedule and Work Plan and provide direction CITY OF CUPERTINO Printed on 4/21/2022Page 1 of 1 powered by Legistar™145 January 24, 2022 February 24, 2022 March 28, 2022 April 25, 2022 May 23, 2022 June 27, 2022 July 25, 2022 August 22, 2022 September 26, 2022 October 24, 2022 November 28, 2022 December 12, 2022 Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Treasurerʹs Report for Quarter Ending December 31, 2021 Internal Audit Update Monthly Treasurerʹs Report for January and February 2022 Monthly Treasurerʹs Report for March 2022 Internal Audit Update Monthly Treasurerʹs Report for May 2022 Monthly Treasurerʹs Report for June 2022 Internal Audit Update Monthly Treasurerʹs Report for August 2022 Monthly Treasurerʹs Report for September 2022 Internal Audit Update Monthly Treasurerʹs Report for November 2022 OPEB & Pension Section 115 Trust Performance Report for Quarter Ending December 31, 2021 Budget Format Review OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 Budget Format Review Monthly Treasurerʹs Investment Report for May 2022 OPEB & Pension Section 115 Trust Performance Report for Quarter Ending June 30, 2022 External Audit Subcommittee and RFP Kickoff Monthly Treasurerʹs Investment Report for August 2022 OPEB & Pension Section 115 Trust Performance Report for Quarter Ending September 30, 2022 ACFR and AUP Draft Review/Update Monthly Treasurerʹs Investment Report for November 2022 Review of FY 2020‐ 21 ACFR and Supplemental Reports Annual Review of City Investment Policy Monthly Treasurerʹs Report for April 2022 Monthly Treasurerʹs Investment Report for June 2022 Monthly Treasurerʹs Report for July 2022 Annual Review of Pension and OPEB Trust Investment Policy Monthly Treasurerʹs Report for October 2022 Committee Input to Independent Auditor on Interim Audit and AUP Engagements Monthly Treasurerʹs Investment Report for April 2022 Proposed FY 2022‐23 Internal Audit Work Plan Monthly Treasurerʹs Investment Report for July 2022 Monthly Treasurerʹs Investment Report for September 2022 Monthly Treasurerʹs Investment Report for October 2022 Follow‐up on Previous Fiscal Year Management Letter Items and Management Responses Budget Format Review of Committed, Unassigned Fund Balance, and Use of One‐Time Funds Policy Source: Cupertino, CA Municipal Code, Chapter 2.88.100: Audit Committee The powers and functions of the Audit Committee shall be as follows: A: To review the annual audit report and management letter; B: To recommend appointment of auditors; C. To review the monthly Treasurer’s report; D. To recommend a budget format; E. To review City investment policies and internal controls of such policies. F. To recommend appointment of internal auditors; G. To review internal audit reports. (Ord. 20-2208, § 1, 2020; Ord. 1679, § 1 (part), 1995 CITY OF CUPERTINO ‐ AUDIT COMMITTEE 2022 SCHEDULE AND WORK PLAN Summary of Duties – Powers – Responsibilities of Cupertino Audit Committee 14 6