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Home My WebLink About08-14-2014 IOC Agenda PacketCITY OF SAN LUIS OBISPO INVESTMENT OVERSIGHT COMMITTEE REGULAR QUARTERLY AGENDA August 14, 2014 1:30 PM Conference Room #1, 919 Palm Street San Luis Obispo, California MISSION: As set forth in the Investment Management Plan, this committee is responsible for reviewing the City’s portfolio on an ongoing basis to determine compliance with the City’s investment policies and for making recommendations to the City Treasurer (Director of Finance and Information Technology) regarding investment management practices. CALL TO ORDER: Finance & IT Director/Treasurer Padilla ROLL CALL: Mayor Marx; City Manager Lichtig; Assistant City Manager Codron; Finance & IT Director/Treasurer Padilla; Financial Operations Manager Vilma Warner; Steve Barasch, public member. OTHERS PRESENT: Al Eschenbach, Independent Auditor and ex-officio member; Jayson Schmitt, Chandler Investments; PUBLIC COMMENTS: At this time, the public is invited to address the Committee concerning items not on the agenda but are of interest to the public and within the subject matter jurisdiction of the Investment Advisory Committee. Time limit is three minutes. The Committee may not discuss or take action on issues that are not on the agenda other than to briefly respond to statements made or questions raised, or to ask staff to follow up on such issues. 1. Approval of Investment Oversight Committee meeting minutes of May 8, 2014 2. Presentation of the Quarterly Report and Portfolio Performance. a. Review and Confirm Investment Policy Compliance. 3. Continue discussion of possible changes to the investment policy including those to allow additional investments with higher yields. 4. Continue discussion of possible changes to the investment policy related to socially responsible investments and consider major elements of such a policy. Investment Oversight Committee Regular Quarterly Agenda for August 14, 2014 Page 2 5. Discussion regarding the use of local financial institutions for public agency deposits and investments. 6. Topics for future consideration. 7. Adjournment _________________________________________________________________________ The City of San Luis Obispo wishes to make all of its public meetings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the City Clerk’s Office at (805) 781-7100 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7107. Any writings or documents provide to a majority of the Committee regarding any item on this agenda will be made available for public inspection in the Administration Office located at 990 Palm Street, San Luis Obispo, during normal business hours. Item 1 CITY OF SAN LUIS OBISPO INVESTMENT OVERSIGHT COMMITTEE MINUTES Thursday, May 8, 2014 1:30 PM Council Hearing Room 2nd Floor, 990 Palm Street San Luis Obispo, California MISSION: As set forth in the Investment Management Plan, this committee is responsible for reviewing the City’s portfolio on an ongoing basis to determine compliance with the City’s investment policies and for making recommendations to the City Treasurer (Director of Finance and Information Technology) regarding investment management practices. CALL TO ORDER A meeting of the Investment Oversight Committee was called to order on Thursday, May 6, 2014, at 1:35 p.m. in the Council Hearing Room 2nd Floor, located at 990 Palm Street, San Luis Obispo, California, by Chair Padilla. ROLL CALL Committee Members Present: Mayor Jan Marx; City Manager Katie Lichtig; Assistant City Manager Michael Codron, Finance & IT Director/City Treasurer Wayne Padilla; Acting Finance Operations Manager Vilma Warner; Steve Barasch, public member Committee Member Absent: None Others Present: Al Eschenbach, Independent Auditor and ex-officio member; Jayson Schmitt, Chandler Investments (City’s Financial Advisor); Heather Goodwin, Deputy City Clerk PUBLIC COMMENT There were no members of the public desiring to speak. Investment Oversight Committee Minutes – May 8, 2014 Page 2 1. APPROVAL OF MINUTES MOTION BY COMMITTEE MEMBER MARX, SECOND BY COMMITTEE MEMBER CODRON, CARRIED 6-0, to approve the Investment Oversight Committee Minutes of February 20, 2014. 2. PRESENTATION OF THE QUARTERLY REPORT AND PORTFOLIO PERFORMANCE City Financial Advisor Schmitt summarized the quarterly investment report and portfolio’s performance over the quarter and responded to inquiries from the Committee. MOTION BY COMMITTEE MEMBER BARASCH SECOND BY COMMITTEE MEMBER LICHTIG, CARRIED 6-0, to confirm the investment policy is in compliance with the City’s investment policy as demonstrated in the Investment Report for the period ending March 31, 2014. 3. DISCUSSION AND PRESENTATION OF INFORMATION COMPARING THE CITY’S PORTFOLIO CHARACTERISTICS TO THOSE OF OTHER CITIES City Financial Advisor Schmitt reviewed the comparison of the City’s portfolio characteristics and those of other cities; with the exception of Ventura; the other cities have been used in the City’s benchmark reporting; responded to inquiries from the Committee. The Committee received and filed the analysis of the comparison of the City’s portfolio characteristics and those of other cities. 4. DISCUSSION OF POSSIBLE CHANGES TO INVESTMENT POLICY TO ALLOW INVESTMENTS WITH HIGHER YIELDS City Financial Advisor Schmitt discussed the Investment Policy Recommendations; responded to Committee inquiries. Nick Witry, representing J.P. Morgan Securities was teleconferenced to join the Committee meeting. City Treasurer Padilla reviewed the proposed changes to City’s Investment Management Plan; discussed the suggested changes; responded to inquiries form the Committee. Following discussion, it was agreed that the City Financial Advisor Schmitt would provide additional information including a brief history of the pool of corporations that have comprised the single “A” rating group in the past for further discussion at a future meeting. To be included with this information is a history of the earnings performance of this rating group. Investment Oversight Committee Minutes – May 8, 2014 Page 3 Committee Member Barasch discussed and distributed hard copies of Fitch Ratings press release entitled “Fitch Affirms San Luis Obispo, CA’s Lease Rev Bonds at ‘AA’; Outlook Stable;” Coast Hills mailer; and memo from Nick Witry, representative from J.P. Morgan Securities to the Committee; responded to Committee inquires. Nick Witry, representing J.P. Morgan Securities summarized the letter stating increasing the risk on investments by expanding all of the investment parameters would improve the potential to add higher-yielding investments to the City’s portfolio. Following discussion, it was agreed to evaluate and discuss Nick Witry’s recommendations as it relates to the City’s policy at a future meeting. Unnamed Individual from the floor questioned the concern for loss and being conservative in the City’s diverse portfolio. This individual raised the fact that the California Public Employees Retirement System (CalPERS) earns 7.5% on their investments while the City earns far less. City Treasurer Padilla responded stating that the 7.5% value is the rate of return assumption used by the Public Employees Retirement System (PERS) to generate all computations for their work in determining the pension funding formulas. Council Member Ashbaugh from the floor requested the Committee to explain the Governmental Accounting Standards Board (GASB) requirement with respect to the reporting that the City is going to have to initiate regarding pension obligations and when the new reporting requirement to show unfunded liabilities for all cities and counties will become effective. City Treasurer Padilla responded indicating that accounting standards are recognizing that better reporting and transparency needs to occur; the City is obligated to report under the same governmental standards; the unfunded liabilities of the pension program need to be disclosed in the financial statements of public agencies under the new accounting rules; assets available to cover the liabilities are to be stated at fair market value. Following discussion, the Committee received and filed the proposed changes to the Investment Policy contained in the Investment Management Plan. 5. DISCUSSION OF POSSIBLE CHANGES TO THE INVESTMENT POLICY RELATED TO SOCIALLY RESPONSIBLE INVESTMENTS City Financial Advisor Schmitt discussed the possible changes to the current investment policy that would address Socially Responsible Investing; responded to Committee inquires. Scott Sechrist from the floor expressed his company exclusively focuses on socially responsible investments and addressed fossil fuel divestments to the Committee. Investment Oversight Committee Minutes – May 8, 2014 Page 4 Following discussion and by consensus, the Committee agreed to gather additional information then make a decision on policy changes at a future meeting. Investment Oversight Committee Minutes – May 8, 2014 Page 5 6. ITEMS TO BE CONSIDERED FOR THE NEXT MEETING Recommendations Discussion ensued regarding Committee Members bringing forward recommendations for discussion during future meetings. Following discussion, it was agreed that the Committee Members would discuss how local financial institutions might be utilized to make investments that comply with the City’s investment policy. ADJOURNMENT The meeting adjourned at 3:26 p.m. Heather Goodwin Deputy City Clerk Approved: XX/XX/14 CHANDLER ASSET MANAGEMENT 6225 Lusk Blvd | San Diego, CA 92121 | Phone 800.317.4747 | Fax 858.546.3741 | www.chandlerasset.com Investment Report Period Ending June 30, 2014 City of San Luis Obispo Item 2 Table of Contents Economic Update Account Profile Consolidated Information Portfolio Holdings SECTION 1 SECTION 2 SECTION 3 SECTION 4 1 Item 2 SECTION 1 Economic Update 2 Item 2 Duringthepastthreemonths,theyieldcurvehasflattenedeven as theFedhas been taperingits purchases of long-termTreasurybonds.Marketparticipantshavereacted to mixeddomestic economicdata,as well as fears of eurozonedeflation,geopoliticaltensions,andvolatility in emergingmarketsoverthepastseveralmonths.Theseconcernshavefueledaflight to quality, putting downward pressure on longer yields, although some of this pressure has recently dissipated. Economic Update    We believetheeconomy is gainingpositivemomentum,fueled by ongoingimprovement in thelabor market.TheJuneemploymentreportwasstrongerthanexpected,as nonfarmpayrollsgrew by 288,000,versusexpectations of 215,000.Duringthesecondquarter,payrollsgrew byan average of 272,000 per month,whichcomparesfavorably to thefirstquartermonthlyaverage of 190,000.Private payrollsgrew by 262,000 in Juneandgovernmentjobsrose by 26,000.Theunemploymentrate declined to 6.1%in Junefrom6.3%in May,whichwasapositivesurprise.Meanwhile,the manufacturing sector continued to show strength and recent housing data has surprised to the upside. As expected,theFederalOpenMarketCommitteeleftpolicyratesunchanged at itsJune17-18 meeting,andannouncedanother $10 billionreduction in assetpurchases(toalevel of$35 billion per monthfrom $45 billion,comprised of$20 billion in treasuriesand $15 billion in mortgage-backed securities).We expecttheprocess of unwindingquantitativeeasingwillcontinue at asteadypace withtheFedannouncinganother $10 billionreduction in assetpurchases at itsJuly29-30meeting. TheFedreducedtheirGDPgrowthprojectionsfor 2014 to 2.1%-2.3%from2.8%-3.0%,butimproved theiroutlookforunemployment.At ChairYellen’spressconference,shereinforcedthattheFedwill continue to monitortheeconomyand does notprojectraisingshorttermratesforaconsiderable amount of time after the asset purchases end. 3 Item 2 Employment Source: U.S. Department of Labor 0 50 100 150 200 250 300 350 (0 0 0 ' s ) Non-farm Payroll (000's) 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% Unemployment Rate TheJuneemploymentreportwasbetterthanexpected as payrollsrose by 288,000versusthe215,000 consensusestimate.Netrevisionsforjobgrowth in AprilandMarchwere+29,000.Privatepayrollsincreased by 262,000 in Juneandgovernmentjobsincreased by 26,000.Theunemploymentratedeclined to 6.1%from 6.3%, and the participation rate was unchanged at 62.8%. 4 Item 2 Consumer Source: U.S. Department of Commerce Source: Federal Reserve 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Retail Sales Y-O-Y % Change 0 5 10 15 20 25 30 D o l l a r ( $ ) B i l l i o n s Consumer Credit In June,RetailSalesrose4.3%on ayear-over-yearbasisversusagain of 4.6%in May.On amonth-over- monthbasis,RetailSales edged up just0.2%in June,whichwasbelowexpectations,buttheMayfigurewas revised up to 0.5%.Overall,RetailSalesweresomewhatsofterthanexpected in June,butbetterthan previouslybelieved in May.ConsumerCreditrose by $19.6billion in Mayversusagain of $26.1billion in April. Revolvingcreditrose by $1.8billion in May,butmost of thegainscontinue to be fueled by thenon-revolving component which was up $17.8 billion. 5 Item 2 Broad Measures Source: US Department of Commerce Source: The Conference Board 0 100 200 300 400 500 600 700 800 (0 0 0 ' s ) Starts -Single Family Housing -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% Leading Economic Indicators Single-familyhousingstartsfell9.0%in June to 575,000followinga2.6%decline in May.Multifamilystarts alsodeclined9.9%in Juneafterfalling14.7%in May.Theindex of LeadingEconomicIndicators(LEI)rose 0.3%in Junefollowinga0.7%gain in May.Overall,theLEIindexcontinues to point to modesteconomic growth. 6 Item 2 Manufacturing Source: Institute for Supply Management Source: Federal Reserve 45.0 47.5 50.0 52.5 55.0 57.5 60.0 Institute of Supply Management Purchasing Manager Index Expanding Contracting 75.5% 76.0% 76.5% 77.0% 77.5% 78.0% 78.5% 79.0% 79.5% Capacity Utilization DuringJune,theISMManufacturingIndexremainedstrong at 55.3compared to 55.4 in May, signalingongoinggrowth in themanufacturingsector.Areadingabove50.0 is viewed as expansionary in themanufacturingsector,whileareadingbelow50.0suggestscontraction in the manufacturingsector.Neworderswereparticularlyfavorable in June at 58.9,up 2.0pointsfromMay. CapacityUtilization,which is productiondivided by capacity,remainedsteady in June at 79.1%.The Capacity Utilization rate remains below the long-run average of 80.1% (1972-2013). 7 Item 2 Inflation Source: US Department of Labor 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% CPI Y-O-Y % Change 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Core CPI Y-O-Y % Change In June,overallCPIinflationwas2.1%on ayear-over-yearbasisunchangedfromMay.Theyear-over-year CoreCPI(CPIlessfoodandenergy)slightlydecreased to 1.9%in Junefrom2.0%in May.Thecoreinflation rate is now trending near the Fed’s long-term goal of 2.0%. 8 Item 2 GDP Source: U.S. Department of Commerce -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% GDP Qtrly % Change RealannualizedGDPgrowthforthefirstquarter of2014 wasreviseddownagain to -2.9%fromthesecond estimate of -1.0%(alsodownfromtheadvanceestimate of +0.1%).Analystswereexpectingadownward revision to -1.8%.Thebiggerthanexpecteddownwardrevisionwaslargelydriven by achange in consumer spending on healthcare as well as achange in exports.Thedecline in GDPduringthefirstquarterfollows growth of 2.6%in thefourthquarter.Economistsareexpectingarebound in economicgrowth in thesecond quarter to 3.5%. 9 Item 2 Theyield on thetwo-yearTreasurynoteincreased in June.Economicdatahasrecentlyimproved,reflectinga pickup in secondquartereconomicgrowthafterasluggishfirstquarter.Theunwinding of quantitativeeasing by theFederalReservealongwiththeanticipation of apotentialfedfundsratehikenextyearhavealsoput upward pressure on rates. Interest Rates Source: Bloomberg Yield on the Two-Year Note June 2012 through June 2014 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% 0.45% 0.50% 10 Item 2 Duringthepastthreemonths,theyieldcurvehasflattenedeven as theFedhas been taperingitspurchases of long-termTreasurybonds.Marketparticipantshavereacted to mixeddomesticeconomicdata,as well as fears of eurozonedeflation,geopoliticaltensions,andvolatility in emergingmarketsoverthepastseveral months.Theseconcernshavefueledaflight to quality,puttingdownwardpressure on longeryields,although some of this pressure has recently dissipated. Yield Curves Source: Bloomberg March 31, 2014andJune 30, 2014 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 3/31/14 6/30/14 11 Item 2 SECTION 2 Account Profile 12 Item 2 Chandler Asset Management Performance Objectives Strategy Investment Objectives Objectives The investment objectives of the City of San Luis Obispo are first, to provide safety of principal to ensure the preservation of capital in the overall portfolio; second, to provide sufficient liquidity to meet all operating requirements; and third, to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives. The performance objective for the portfolio is to earn a total rate of return over a market cycle that equals or exceeds the market index, the BofA Merrill Lynch Index of 0-5 Treasury securities. In order to achieve this objective, the portfolio invests in high-quality money market instruments, US Tre asury securities, Agency securities, and high-grade corporate securities, with a maximum maturity of five years. 13 Item 2 Compliance Category Standard Comment Treasury Bills and Notes No Limitations Complies Gov't. Sponsored EnterprisesAAA rated GSEs only Complies Commercial Paper ≥ A-1/P1/F1 rated; 25% maximum; 5% per issuer; <270 days maturity Complies Corporate Obligations ≥ Aa3/AA- by one rating organization; 30% maximum; 5% per issuer Complies Banker’s Acceptances 40% maximum; 5% per issuer; <180 days maturity Complies Repurchase Agreements Not used by investment adviser Complies Local Gov't. Investment Pools Not used by investment adviser Complies Neogtiable CDs 30% maximum; 5% per issuer Complies Time Deposits Not used by investment adviser Complies Money Market Funds AAA/Aaa rated; no-load funds only; 20% maximum; 10% per issuer Complies Inverse floaters, range notes Prohibited Complies Interest only strips Prohibited Complies Zero interest accruals Prohibited Complies % maturing less than 90 days 5% minimum Complies Maximum maturity of corporate 5 years Complies Maximum maturity 10 years; 10% maximum of portfolio in Treasury and GSE obligations with maturity > 5 years Complies City of San Luis Obispo June 30, 2014 COMPLIANCE WITH INVESTMENT POLICY Assets managed by Chandler Asset Management are in full compliance with California State law and with the City's investment management plan. 14 Item 2 Account Profile Total Market Value 45,236,180 45,139,965 Modified Duration 2.16 1.86 1.84 Average Quality**AAA AA+/Aaa AA+/Aaa Average Market Yield 0.62 %0.56 %0.56 % Average Purchase Yield n/a 1.21 %1.19 % Benchmark*Portfolio Portfolio Average Maturity (yrs)2.24 1.91 1.88 * 0-5 yr Treasury ** Benchmark is a blended rating of S&P, Moody's, and Fitch. Portfolio is S&P and Moody's respectively. City of San Luis Obispo 06/30/2014 03/31/2014 Portfolio Characteristics 15 15 Item 2 Sector Distribution City of San Luis Obispo June 30, 2014 March 31, 2014 16 16 Item 2 Issuers 17 17 Item 2 Quality Distribution City of San Luis Obispo 3/31/14 5.7 %94.3 %0.0 %0.0 %0.0 % 6/30/14 2.9 %97.1 %0.0 %0.0 %0.0 % Source: S&P Ratings AAA AA A <A NR June 30, 2014 vs. March 31, 2014 3/31/146/30/14 18 18 Item 2 Duration Distribution City of San Luis Obispo Portfolio Compared to the Benchmark as of June 30, 2014 Benchmark*6.9 %5.8 %12.3 %23.4 %22.5 %16.5 %12.6 %0.0 % Portfolio 7.6 %4.8 %10.9 %36.9 %23.5 %14.9 %1.3 %0.0 % 0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5+ * 0-5 yr Treasury 19 19 Item 2 Investment Performance 0-5 yr Treasury 0.44 %0.95 %0.48 %0.91 %1.58 %N/A 2.08 % City of San Luis Obispo 0.34 %1.18 %0.63 %1.04 %1.81 %N/A 2.46 % Annualized 3 months 12 months 2 years 3 years 5 years 10 years Since Inception 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. City of San Luis Obispo Period Ending June 30, 2014 Total Rate of Return Annualized Since Inception May 31, 2008 20 20 Item 2 Account Profile Total Market Value 42,379,360 45,533,579 Modified Duration 0.05 0.06 Average QualityAA+/Aaa AA+/Aaa Average Market Yield 0.21 %0.19 % Average Purchase Yield 0.42 %0.39 % Portfolio Portfolio Average Maturity (yrs)0.06 0.06 City of San Luis Obispo Internal 06/30/2014 03/31/2014 Portfolio Characteristics 21 21 Item 2 Sector Distribution City of San Luis Obispo Internal June 30, 2014 March 31, 2014 22 22 Item 2 Issuers 23 23 Item 2 SECTION 3 Consolidated Information 24 24 Item 2 Compliance Category Standard Comment Treasury Bills and Notes No Limitations Complies Gov't. Sponsored EnterprisesAAA rated GSEs only Complies Commercial Paper ≥ A-1/P1/F1 rated; 25% maximum; 5% per issuer; <270 days maturity Complies Corporate Obligations ≥ Aa3/AA- by one rating organization; 30% maximum; 5% per issuer Complies Banker’s Acceptances 40% maximum; 5% per issuer; <180 days maturity Complies Repurchase Agreements Not used by investment adviser Complies Local Gov't. Investment Pools Not used by investment adviser Complies Negotiable CDs 30% maximum; 5% per issuer Complies Time Deposits Not used by investment adviser Complies Money Market Funds AAA/Aaa rated; no-load funds only; 20% maximum; 10% per issuer Complies Inverse floaters, range notes Prohibited Complies Interest only strips Prohibited Complies Zero interest accruals Prohibited Complies One-Year Liquidity Constraint Minimum of 20% of the portfolio must be invested in securities maturing in one year Complies Operating Budget Constraint Minimum 25% of budgeted operating expenditures ($21.4 Million) in short-term investments (90 days or less) Complies Maximum maturity of corporate 5 years Complies Maximum maturity 10 years; 10% maximum of portfolio in Treasury and GSE obligations with maturity > 5 years Complies Objectives Safety, Liquidity & Yield Complies City of San Luis Obispo Consolidated June 30, 2014 COMPLIANCE WITH INVESTMENT POLICY This portfolio is a consolidation of assets managed by Chandler Asset Management and assets managed internally by Client. Chandler relies on Client to provide accurate information for reporting assets and producing this compliance statement. 25 25 Item 2 Account Profile Total Market Value 87,615,539 90,673,544 Modified Duration 0.99 0.95 Average Quality AA+/Aaa AA+/Aaa Average Market Yield 0.39 %0.37 % Average Purchase Yield 0.83 % 0.79 % Portfolio Portfolio Average Maturity (yrs)1.01 0.97 City of San Luis Obispo Consolidated 06/30/2014 03/31/2014 Portfolio Characteristics 26 26 Item 2 Sector Distribution City of San Luis Obispo Consolidated June 30, 2014 March 31, 2014 27 27 Item 2 Issuers 28 Item 2 SECTION 3 Portfolio Holdings 29 Item 2 Chandler Asset Management - CONFIDENTIAL Execution Time: 7/29/2014 11:39:48 AM 3135G0NV1 FNMA Note 0.5% Due 9/28/2015 650,000.00 06/27/2013 0.50 % 650,026.00 650,026.00 100.33 0.23 % 652,169.05 839.58 0.75 % 2,143.05 Aaa / AA+ AAA 1.25 1.24 31331J2S1 FFCB Note 1.5% Due 11/16/2015 402,000.00 03/25/2011 2.20 % 389,640.91 389,640.91 101.59 0.34 % 408,384.16 753.75 0.47 % 18,743.25 Aaa / AA+ AAA 1.38 1.36 313380L96 FHLB Note 0.5% Due 11/20/2015 700,000.00 06/27/2013 0.53 % 699,447.00 699,447.00 100.23 0.34 % 701,575.00 398.61 0.80 % 2,128.00 Aaa / AA+ AAA 1.39 1.38 313372XB5 FHLB Note 2.125% Due 6/30/2015 900,000.00 05/26/2011 1.49 % 922,752.00 922,752.00 101.78 0.34 % 916,056.00 53.13 1.05 % (6,696.00) Aaa / AA+ AAA 1.00 0.99 3133EADW5 FFCB Note 0.55% Due 8/17/2015 1,000,000.00 04/27/2012 0.60 % 998,511.00 998,511.00 100.33 0.26 % 1,003,296.00 2,047.22 1.15 % 4,785.00 Aaa / AA+ AAA 1.13 1.12 3135G0VA8 FNMA Note 0.5% Due 3/30/2016 950,000.00 03/27/2013 0.45 % 951,434.50 951,434.50 100.17 0.40 % 951,618.80 1,200.69 1.09 % 184.30 Aaa / AA+ AAA 1.75 1.74 313373SZ6 FHLB Note 2.125% Due 6/10/2016 1,000,000.00 06/20/2011 1.84 % 1,013,460.00 1,013,460.00 103.10 0.52 % 1,030,950.00 1,239.58 1.18 % 17,490.00 Aaa / AA+ AAA 1.95 1.91 31331J6C2 FFCB Note 2.35% Due 12/22/2015 580,000.00 03/28/2011 2.27 % 582,099.60 582,099.60 102.93 0.36 % 596,973.12 340.75 0.68 % 14,873.52 Aaa / AA+ AAA 1.48 1.46 3133XXP43 FHLB Note 3.125% Due 3/11/2016 965,000.00 08/10/2011 1.11 % 1,051,449.53 1,051,449.53 104.47 0.48 % 1,008,126.82 9,214.41 1.16 % (43,322.71) Aaa / AA+ AAA 1.70 1.65 3133EAJU3 FFCB Note 1.05% Due 3/28/2016 924,000.00 09/14/2012 0.53 % 940,879.28 940,879.28 101.16 0.38 % 934,717.48 2,506.36 1.07 % (6,161.80) Aaa / AA+ AAA 1.75 1.73 31331GL80 FFCB Note 3% Due 9/22/2014 1,100,000.00 Various 2.57 % 1,121,054.30 1,121,054.30 100.66 0.12 % 1,107,212.70 9,075.00 1.27 % (13,841.60) Aaa / AA+ AAA 0.23 0.23 31398AZV7 FNMA Note 2.625% Due 11/20/2014 950,000.00 11/20/2009 2.43 % 958,573.75 958,573.75 100.97 0.13 % 959,223.55 2,840.10 1.10 % 649.80 Aaa / AA+ AAA 0.39 0.39 3137EACV9 FHLMC Note 1% Due 8/27/2014 1,050,000.00 07/19/2011 0.89 % 1,053,522.75 1,053,522.75 100.14 0.11 % 1,051,484.70 3,616.67 1.20 % (2,038.05) Aaa / AA+ AAA 0.16 0.16 880591DY5 Tennessee Valley Authority Note 4.375% Due 6/15/2015 1,050,000.00 06/14/2011 1.46 % 1,168,386.45 1,168,386.45 104.04 0.15 % 1,092,424.20 2,041.67 1.25 % (75,962.25) Aaa / AA+ AAA 0.96 0.95 3137EACD9 FHLMC Note 3% Due 7/28/2014 1,250,000.00 03/18/2010 2.38 % 1,282,096.25 1,282,096.25 100.22 0.17 % 1,252,751.25 15,937.50 1.45 % (29,345.00) Aaa / AA+ AAA 0.08 0.08 31331KFS4 FFCB Note 1.67% Due 3/24/2015 1,000,000.00 07/21/2011 1.18 % 1,017,410.00 1,017,410.00 101.13 0.13 % 1,011,278.00 4,499.72 1.16 % (6,132.00) Aaa / AA+ AAA 0.73 0.73 31331KLE8 FFCB Note 1.6% Due 5/18/2015 230,000.00 07/20/2011 1.28 % 232,702.50 232,702.50 101.28 0.15 % 232,948.60 439.56 0.27 % 246.10 Aaa / AA+ AAA 0.88 0.88 31331KCR9 FFCB Note 2.05% Due 2/18/2015 400,000.00 07/26/2011 1.23 % 411,440.00 411,440.00 101.18 0.19 % 404,707.60 3,029.44 0.47 % (6,732.40) Aaa / AA+ AAA 0.64 0.63 3133XVNU1 FHLB Note 2.75% Due 12/12/2014 1,200,000.00 03/09/2010 2.57 % 1,209,304.80 1,209,304.80 101.16 0.16 % 1,213,976.40 1,741.67 1.39 % 4,671.60 Aaa / AA+ AAA 0.45 0.45 3137EACH0 FHLMC Note 2.875% Due 2/9/2015 1,225,000.00 03/09/2010 2.63 % 1,238,784.93 1,238,784.93 101.67 0.12 % 1,245,517.52 13,891.84 1.44 % 6,732.59 Aaa / AA+ AAA 0.61 0.60 AGENCY Holdings Report As of 6/30/14 City of San Luis Obispo Consolidated Account #10032 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 30 Item 2 Chandler Asset Management - CONFIDENTIAL Execution Time: 7/29/2014 11:39:48 AM 90CASH$00 Cash Custodial Cash Account 3,987,028.00 Various 0.00 % 3,987,028.00 3,987,028.00 1.00 0.00 % 3,987,028.00 0.00 4.55 % 0.00 NR / NR NR 0.00 0.00 Total Cash 3,987,028.00 N/A 3,987,028.00 3,987,028.00 0.00 % 3,987,028.00 0.00 4.55 % 0.00 NR / NR NR 0.00 0.00 CASH 3137EADL0 FHLMC Note 1% Due 9/29/2017 950,000.00 01/04/2013 0.89 % 954,788.00 954,788.00 99.79 1.06 % 948,041.10 2,427.78 1.08 % (6,746.90) Aaa / AA+ AAA 3.25 3.18 3135G0PQ0 FNMA Note 0.875% Due 10/26/2017 625,000.00 06/20/2014 1.17 % 618,987.50 618,987.50 99.27 1.10 % 620,413.75 987.41 0.71 % 1,426.25 Aaa / AA+ AAA 3.33 3.26 3135G0WJ8 FNMA Note 0.875% Due 5/21/2018 925,000.00 04/24/2014 1.46 % 903,691.70 903,691.70 98.32 1.32 % 909,474.80 899.31 1.04 % 5,783.10 Aaa / AA+ AAA 3.89 3.81 31331KBX7 FFCB Note 2.875% Due 2/10/2017 865,000.00 07/25/2012 0.74 % 947,477.75 947,477.75 105.17 0.87 % 909,701.47 9,740.26 1.05 % (37,776.28) Aaa / AA+ AAA 2.62 2.50 3135G0UY7 FNMA Callable Note 1X 2/27/15 1% Due 2/27/2017 500,000.00 04/24/2013 0.75 % 504,750.00 504,750.00 100.36 0.45 % 501,810.00 1,722.22 0.57 % (2,940.00) Aaa / AA+ AAA 2.67 1.63 3137EADC0 FHLMC Note 1% Due 3/8/2017 1,000,000.00 03/14/2012 1.29 % 986,050.00 986,050.00 100.34 0.87 % 1,003,448.00 3,138.89 1.15 % 17,398.00 Aaa / AA+ AAA 2.69 2.64 3135G0GY3 FNMA Note 1.25% Due 1/30/2017 800,000.00 02/27/2012 1.07 % 807,016.00 807,016.00 101.25 0.76 % 810,007.20 4,194.44 0.93 % 2,991.20 Aaa / AA+ AAA 2.59 2.53 3133834R9 FHLB Note 0.375% Due 6/24/2016 700,000.00 06/27/2013 0.77 % 691,817.00 691,817.00 99.72 0.52 % 698,047.70 51.04 0.80 % 6,230.70 Aaa / AA+ AAA 1.99 1.97 313370TW8 FHLB Note 2% Due 9/9/2016 280,000.00 10/24/2013 0.67 % 290,550.40 290,550.40 103.05 0.60 % 288,535.52 1,742.22 0.33 % (2,014.88) Aaa / AA+ AAA 2.20 2.14 3135G0ES8 FNMA Note 1.375% Due 11/15/2016 985,000.00 03/14/2012 1.21 % 992,545.10 992,545.10 101.44 0.76 % 999,180.06 1,730.59 1.14 % 6,634.96 Aaa / AA+ AAA 2.38 2.33 3137EADF3 FHLMC Note 1.25% Due 5/12/2017 500,000.00 10/17/2012 0.82 % 509,635.00 509,635.00 101.01 0.89 % 505,072.50 850.69 0.58 % (4,562.50) Aaa / AA+ AAA 2.87 2.81 3137EADH9 FHLMC Note 1% Due 6/29/2017 910,000.00 Various 0.83 % 917,260.60 917,260.60 100.22 0.93 % 911,969.24 50.56 1.04 % (5,291.36) Aaa / AA+ AAA 3.00 2.95 3137EADJ5 FHLMC Note 1% Due 7/28/2017 900,000.00 11/26/2012 0.80 % 908,316.00 908,316.00 100.06 0.98 % 900,552.60 3,825.00 1.03 % (7,763.40) Aaa / AA+ AAA 3.08 3.01 3135G0MZ3 FNMA Note 0.875% Due 8/28/2017 625,000.00 06/20/2014 1.10 % 620,687.50 620,687.50 99.45 1.05 % 621,531.88 1,868.49 0.71 % 844.38 Aaa / AA+ AAA 3.16 3.10 313379DD8 FHLB Note 1% Due 6/21/2017 700,000.00 11/26/2012 0.70 % 709,478.00 709,478.00 100.33 0.89 % 702,316.30 194.44 0.80 % (7,161.70) Aaa / AA+ AAA 2.98 2.92 3136FPYB7 FNMA Callable Note 1X 5/23/2011 2.05% Due 5/23/2017 365,000.00 08/07/2012 0.89 % 384,739.20 384,739.20 103.05 0.98 % 376,148.56 789.82 0.43 % (8,590.64) Aaa / AA+ AAA 2.90 2.81 Total Agency 29,156,000.00 1.33 % 29,640,765.30 29,640,765.30 0.51 % 29,481,641.63 109,920.41 33.77 % (159,123.67) Aaa / AA+ Aaa 1.71 1.66 AGENCY Holdings Report As of 6/30/14 City of San Luis Obispo Consolidated Account #10032 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 31 Item 2 Chandler Asset Management - CONFIDENTIAL Execution Time: 7/29/2014 11:39:48 AM 478160AY0 Johnson & Johnson Note 2.15% Due 5/15/2016 675,000.00 01/15/2013 0.58 % 709,870.50 709,870.50 103.00 0.54 % 695,256.75 1,854.38 0.80 % (14,613.75) Aaa / AAA AAA 1.88 1.84 38259PAC6 Google Inc Note 2.125% Due 5/19/2016 523,000.00 04/23/2012 0.91 % 548,360.27 548,360.27 103.02 0.51 % 538,796.17 1,296.60 0.62 % (9,564.10) Aa2 / AA NR 1.89 1.85 037833AH3 Apple Inc Note 0.45% Due 5/3/2016 700,000.00 05/13/2013 0.55 % 698,005.00 698,005.00 99.79 0.57 % 698,511.10 507.50 0.80 % 506.10 Aa1 / AA+ NR 1.84 1.83 369604BE2 General Electric Co Note 0.85% Due 10/9/2015 700,000.00 04/24/2013 0.58 % 704,515.00 704,515.00 100.50 0.46 % 703,472.00 1,355.28 0.80 % (1,043.00) Aa3 / AA+ NR 1.28 1.27 931142DE0 Wal-Mart Stores Note 0.6% Due 4/11/2016 700,000.00 06/27/2013 0.81 % 696,017.00 696,017.00 100.20 0.49 % 701,365.70 933.33 0.80 % 5,348.70 Aa2 / AA AA 1.78 1.77 742718DV8 Procter & Gamble Co Note 1.45% Due 8/15/2016 915,000.00 08/03/2012 0.82 % 937,893.30 937,893.30 101.64 0.67 % 930,004.17 5,012.17 1.07 % (7,889.13) Aa3 / AA- NR 2.13 2.08 166764AA8 Chevron Corp. Callable Note Cont 11/5/17 1.104% Due 12/5/2017 700,000.00 01/10/2013 1.03 % 702,422.00 702,422.00 99.54 1.24 % 696,782.10 558.13 0.80 % (5,639.90) Aa1 / AA NR 3.44 3.35 084664BS9 Berkshire Hathaway Note 1.6% Due 5/15/2017 700,000.00 04/24/2013 1.00 % 716,765.00 716,765.00 101.57 1.04 % 711,009.60 1,431.11 0.81 % (5,755.40) Aa2 / AA A+ 2.88 2.80 US CORPORATE PP1MCB$02 Heritage Oaks Bank Yankee CD 0.27% Due 12/20/2014 1,000,000.00 12/20/2013 0.27 % 1,000,000.00 1,000,000.00 100.00 0.27 % 1,000,000.00 1,447.50 1.14 % 0.00 NR / NR NR 0.47 0.47 Total Negotiable CD 1,000,000.00 0.27 % 1,000,000.00 1,000,000.00 0.27 % 1,000,000.00 1,447.50 1.14 % 0.00 NR / NR NR 0.47 0.47 NEGOTIABLE CD 90CASH$01 Cash Heritage Oaks Bank MMKT Fund 1,005,755.92 Various 0.21 % 1,005,755.92 1,005,755.92 1.00 0.21 % 1,005,755.92 0.00 1.15 % 0.00 NR / NR NR 0.00 0.00 261941108 Dreyfus Treas PR Cash Mgt Inst Money Market Fund 18,612.50 Various 0.00 % 18,612.50 18,612.50 1.00 0.00 % 18,612.50 0.00 0.02 % 0.00 Aaa / AAA NR 0.00 0.00 Total Money Market Fund FI 1,024,368.42 0.21 % 1,024,368.42 1,024,368.42 0.21 % 1,024,368.42 0.00 1.17 % 0.00 Aaa / AAA NR 0.00 0.00 MONEY MARKET FUND FI 90LAIF$00 Local Agency Investment Fund State Pool 35,184,297.10 Various 0.23 % 35,184,297.10 35,184,297.10 1.00 0.23 % 35,184,297.10 21,352.75 40.18 % 0.00 NR / NR NR 0.00 0.00 Total LAIF 35,184,297.10 0.23 % 35,184,297.10 35,184,297.10 0.23 % 35,184,297.10 21,352.75 40.18 % 0.00 NR / NR NR 0.00 0.00 LAIF Holdings Report As of 6/30/14 City of San Luis Obispo Consolidated Account #10032 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 32 Item 2 Chandler Asset Management - CONFIDENTIAL Execution Time: 7/29/2014 11:39:48 AM 912828VL1 US Treasury Note 0.625% Due 7/15/2016 750,000.00 10/07/2013 0.57 % 751,145.09 751,145.09 100.30 0.47 % 752,285.25 2,162.47 0.86 % 1,140.16 Aaa / AA+ AAA 2.04 2.02 912828RU6 US Treasury Note 0.875% Due 11/30/2016 500,000.00 12/15/2011 0.84 % 500,782.93 500,782.93 100.62 0.62 % 503,086.00 370.56 0.57 % 2,303.07 Aaa / AA+ AAA 2.42 2.39 912828QJ2 US Treasury Note 2.125% Due 2/29/2016 1,050,000.00 Various 1.20 % 1,092,548.44 1,092,548.44 103.00 0.32 % 1,081,500.00 7,457.71 1.24 % (11,048.44) Aaa / AA+ AAA 1.67 1.64 912828VC1 US Treasury Note 0.25% Due 5/15/2016 700,000.00 09/26/2013 0.54 % 694,697.66 694,697.66 99.72 0.40 % 698,031.60 223.51 0.80 % 3,333.94 Aaa / AA+ AAA 1.88 1.87 912828SY7 US Treasury Note 0.625% Due 5/31/2017 650,000.00 05/13/2013 0.62 % 650,027.57 650,027.57 99.34 0.86 % 645,683.35 344.09 0.74 % (4,344.22) Aaa / AA+ AAA 2.92 2.88 912828UE8 US Treasury Note 0.75% Due 12/31/2017 625,000.00 08/13/2013 1.28 % 611,061.66 611,061.66 98.73 1.12 % 617,090.00 12.74 0.70 % 6,028.34 Aaa / AA+ AAA 3.51 3.44 912828UR9 US Treasury Note 0.75% Due 2/28/2018 925,000.00 04/24/2014 1.32 % 905,166.18 905,166.18 98.43 1.19 % 910,474.73 2,318.78 1.04 % 5,308.55 Aaa / AA+ AAA 3.67 3.59 912828TB6 US Treasury Note 0.75% Due 6/30/2017 575,000.00 09/17/2013 1.18 % 565,882.79 565,882.79 99.59 0.89 % 572,664.35 11.72 0.65 % 6,781.56 Aaa / AA+ AAA 3.00 2.96 912828TG5 US Treasury Note 0.5% Due 7/31/2017 500,000.00 Various 0.70 % 495,462.61 495,462.61 98.68 0.94 % 493,398.50 1,042.82 0.56 % (2,064.11) Aaa / AA+ AAA 3.09 3.04 912810DV7 US Treasury Bond 9.25% Due 2/15/2016 1,000,000.00 04/30/2008 9.25 % 1,000,000.00 1,000,000.00 114.47 0.32 % 1,144,727.00 34,751.38 1.35 % 144,727.00 Aaa / AA+ AAA 1.63 1.51 912828NP1 US Treasury Note 1.75% Due 7/31/2015 1,050,000.00 04/12/2011 1.91 % 1,042,948.83 1,042,948.83 101.73 0.16 % 1,068,129.30 7,664.71 1.23 % 25,180.47 Aaa / AA+ AAA 1.08 1.07 912828UW8 US Treasury Note 0.25% Due 4/15/2016 900,000.00 04/24/2013 0.34 % 897,647.55 897,647.55 99.77 0.38 % 897,925.50 473.36 1.03 % 277.95 Aaa / AA+ AAA 1.79 1.79 912828PJ3 US Treasury Note 1.375% Due 11/30/2015 1,055,000.00 05/16/2011 1.63 % 1,043,217.21 1,043,217.21 101.62 0.23 % 1,072,061.46 1,228.67 1.22 % 28,844.25 Aaa / AA+ AAA 1.42 1.41 Total US Treasury 10,280,000.00 1.87 % 10,250,588.52 10,250,588.52 0.55 % 10,457,057.04 58,062.52 12.00 % 206,468.52 Aaa / AA+ Aaa 2.16 2.12 US TREASURY 594918AV6 Microsoft Note 1.625% Due 12/6/2018 600,000.00 06/20/2014 1.62 % 600,078.00 600,078.00 100.26 1.56 % 601,540.80 677.08 0.69 % 1,462.80 Aaa / AAA AA+ 4.44 4.26 Total US Corporate 6,213,000.00 0.86 % 6,313,926.07 6,313,926.07 0.78 % 6,276,738.39 13,625.58 7.18 % (37,187.68) Aa2 / AA+ AA 2.37 2.31 US CORPORATE TOTAL PORTFOLIO 86,844,693.52 0.83 % 87,400,973.41 87,400,973.41 0.39 % 87,411,130.58 204,408.76 100.00 % 10,157.17 Aaa / AA+ Aaa 1.01 0.99 TOTAL MARKET VALUE PLUS ACCRUED 87,615,539.34 Holdings Report As of 6/30/14 City of San Luis Obispo Consolidated Account #10032 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 33 Item 2 Item 4 Calvert Socially Responsible Investing Criteria – Sample Elements Nuclear Energy From a sustainability perspective, Calvert evaluates energy options—and the companies involved in energy development—in the dual contexts of addressing both climate change and the world’s escalating energy demands. In weighing energy options, governments, investors, businesses, and the public face tough policy and investment choices in working to secure a sustainable future. Overall, Calvert favors companies in the energy sector that are developing leading sustainable technologies and alternative energy options that reduce carbon emissions—and that meet strict environmental and public safety standards. From a financial perspective, nuclear power plants are expensive and typically take a decade or longer to build. Once operational, these plants lock in a community’s power options for decades by creating a steady power and revenue source for utility companies. Importantly, in Calvert’s view, the potential for catastrophic events is nearly impossible to factor into the analysis of nuclear power, with the risks clearly outweighing the potential benefits. Accordingly, Calvert looks for companies that are diversifying their energy offerings with renewable energy options and other technologies that enhance efficiency. In this regard, some of the world’s largest utilities—including some that currently operate nuclear power plants—have recognized an opportunity to add value and expand into new markets by developing clean energy sources such as wind energy, solar power, and other “green” technologies. Calvert has a longstanding policy of not investing in nuclear power companies and currently does not endorse nuclear power as a viable option for addressing the climate change crisis because of its environmental and public safety risks. This policy still holds true for the majority of our portfolios. However, in view of the urgent need to address climate change, Calvert believes it is essential to invest in companies at the forefront of developing renewables and contributing to energy efficiency—and in some cases—these are utilities with legacy nuclear operations. Accordingly, on a very limited basis, some Calvert portfolios may invest in these types of companies, provided they meet high safety and security standards for their existing assets and are not developing new nuclear power plants. For companies with existing nuclear operations, Calvert first looks at whether its nuclear power role is as a utility, contractor, manufacturer, or construction company. Calvert examines the entire life cycle of nuclear power production—from uranium mining to the disposal of radioactive waste. Each step in the process of developing nuclear power presents significant environmental and safety risks, so we examine the extent of a company’s involvement at every stage. For example, we evaluate include how a company transports and stores its nuclear waste, particularly as these relate to the risks of nuclear weapons proliferation and terrorism. In applying its “no new nuclear” criteria, Calvert applies a range of in-house research and also draws on the standards established by the International Atomic Energy Agency (IAEA). The IAEA provides an international framework for determining the status of a company’s nuclear involvement, evaluating areas such as plant safety and unplanned outages, waste and transport safety, and nonproliferation safeguards. Looking ahead, Calvert will continue to monitor industry developments closely, recognizing that some power companies are aggressively developing new technologies for waste disposal, transport, and safety. Water Issues Since water supports all life, Calvert regards access to clean, affordable water and adequate sanitation as a basic human right—a viewpoint adopted in a United Nations’ July 2010 resolution. Accordingly, we believe every company whose products or services entail water usage has a corporate responsibility to enforce sustainable practices across its supply chain. The statistics around clean water are startling: the UN reports that 1.1 billion people do not have access to clean drinking water and some 2.4 billion lack adequate sanitation—and millions die every year from largely preventable water-borne illnesses. At its most fundamental level, water supply is a local issue, affecting communities, work opportunities, Item 4 agriculture, families, and a region’s social welfare. While water issues cut across all industries, the industries presenting the greatest sustainability risks are those that require a high volume of water, a supply of clean water, or face risk from intensifying water competition. Companies that rely directly on water for their products, such as those in the beverage and agricultural industries, pose the highest risks. In addition, clothing manufacturers, food and drug companies, hotels and resorts, and chemical companies are greatly dependent on water for the production of their goods or services—and are closely scrutinized by Calvert. The oil and gas industries, where water is a critical process ingredient to almost all areas of exploration and production, are also closely monitored. There is growing awareness and expectation that companies in these water-intensive industries will publicly disclose key water risks, especially where the physical effects of climate change are likely to have an impact on their long-term business prospects. In January 2010, the Securities and Exchange Commission issued interpretive guidance about corporate disclosure requirements, stating that a company’s water risks are material and should be included in the discussion of climate risk. When evaluating a company’s water sustainability practices, Calvert examines a company’s complete water “footprint” and its product(s) along the entire supply chain. Where appropriate, and to support advocacy efforts around water management, Calvert evaluates how much water it takes to produce a product, how much pollution is created, and whether the company is operating in a water-constrained area. We examine a company’s supply chain oversight—as well as its manufacturing processes. Where manufacturing was once regarded as a main culprit in water sustainability issues, there is increasing evidence that points to the supply chain as the critical link. Often, for example, more water is used in growing sugar beets or cultivating wheat than is used in manufacturing the end-product of sugar or cereal. Accordingly, investigating the relationship between suppliers, manufacturers, and users is critical in evaluating water sustainability issues. Calvert also considers a range of corporate and industry “leading” practices in evaluating how well a company is monitoring and managing its water sustainability impacts. Topping the list is whether a company discloses its water usage, water sourcing, and conservation practices and if it publishes an annual or biannual sustainability report. In the beverage industry, we look at how rigorously a company evaluates and plans to manage its water impacts before locating a new plant in a water-constrained area. For farms and in industrial areas, efficiently recycling waste water is a key marker. Climate Change From agriculture to manufacturing, companies across all industries are affected by climate change to some degree, so Calvert reviews all companies for their climate-related business risks and opportunities. We concentrate our review, however, on the most carbon-intensive industries—such as oil and gas, mining, utilities, and automotive. In the U.S., for example, automobiles account for nearly 20% of the country’s energy-related greenhouse emissions.1We also consider potential regulatory impacts, especially as they relate to geopolitical issues. From a financial perspective, Calvert evaluates how climate change could impact a company’s business, products, and profitability both near-term and in the future. One of our primary means of evaluating a company is through its sustainability reporting. We favor companies that routinely publish climate change reports that clearly delineate their climate- related business risks, as well as their strategies for managing these risks, including in their supply chains. Another major area we evaluate is GHG emission levels, since Calvert regards carbon emissions as a key driver of global warming. We consider a company’s direct emission levels, as well as its efforts to reduce or eliminate them. Beyond direct emissions, we analyze overall energy use, energy efficiency, and any product-related emissions. For an auto or car rental company, we would examine fleet fuel efficiency, for example. Importantly, we encourage companies to adopt GHG emission targets in line with the IPCC’s goal of reducing global emissions by 80% by 2050. On the side of opportunity, we look at whether a company is investing in clean or alternative energy technology, energy efficiency, or is engaged in research and development in these areas. As climate change is a highly complex, science- driven topic, Calvert regularly consults with outside experts to inform how we evaluate and set our Item 4 climate change priorities. We consult with industry and scientific specialists from both governmental and non-governmental organizations (NGOs), corporations, and academic institutions from around the world. A company is only as strong as the weakest link in its supply chain. The effects of climate change influence all aspects of a company’s business, including its suppliers. The rising cost of one input—or the total loss of a critical material—can throw a kink into the entire chain and threaten corporate profitability. Calvert asks companies to monitor their supply chains in areas such as controlling GHG emissions, using “green” materials and packaging, improving fleet logistics, and embracing industry best-practice initiatives, where possible. The Electronic Industry Citizenship Coalition (EICC), for example, is developing a standardized approach that electronics companies can use to measure GHG emissions in their supply chains. We also keep a sharp eye out for companies whose suppliers or products are particularly susceptible to changes in climatic conditions. We’ve seen coffee crops in South America, for example, compromised by torrential rains and high temperatures. In the U.S., droughts have severely reduced peanut crops, pushing peanut prices sky-high. Clearly, it’s important to ascertain how food and other consumer product companies account for and adapt to these types of environmental risks, balanced with their responsibilities to the farmers, land, and communities in their supply chains. Calvert also looks at other types of supply chain risk, such as whether financial or insurance companies may be highly exposed to carbon-intensive investments.