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Home My WebLink AboutBUDGET AND FINANCE ACTION SUMMARY 09-16-13Central Contra Costa Sanitary District (th and the environment • Imhoff , .. SPECIAL MEETING OF THE CENTRAL CONTRA COSTA B04RDOFDIRECTORS: JAA -IESA. NEJEDLP SANITARY DISTRICT President BUDGET AND FINANCE COMMITTEE DAT7DR. uILLIAnIS President Pro Tem P.-1 UL H. CA i SEF ACTION SUMMARY 1IICHDELR.- 1fCGILL TAD J. PILECKI Chair McGill PHONE: (925) 228 -9500 F4-I: (925) 676 -7211 Member Pilecki (Alternate) ivivivxentralsan.org Monday, September 16, 2013 3:00 p.m. Middle Conference Room 1470 Executive Drive, Second Floor Concord, California PRESENT: Chair Mike McGill, Member Tad Pilecki (Alternate), General Manager Roger Bailey, Director of Operations Curt Swanson, Purchasing and Materials Manager Stephanie King (Item 5.), Finance Manager Thea Vassallo Senior Portfolio Manager, Andrew Brown, from Highmark Capital Management, PARS Executive Vice President Mitch Barker (Items 3. and 4.) 1. Call Meeting to Order Chair McGill called the meeting to order at 3 p.m. 2. Public Comments None. *3. Receive Six -Month Summary of the Governmental Accounting Standards Board (GASB) 45 /Other Post - Employment Benefits (OPEB) Public Agency Retirement Services (PARS) Trust presentation from Andrew Brown of Highmark Capital Management Andrew Brown reported on the last six months of activity and gave a high -level investment review of the GASB 45 OPEB Trust account (attached). Chair McGill suggested minor Investment Guideline Document changes that will be incorporated in the Investment Policy Position Paper that is expected to go to the full Board in October. See Investment Review III Section of handout. *4 6 R Budget and Finance Committee Action Summary September 16, 2013 Page 2 COMMITTEE ACTION: Received the presentation. Receive annual review of PARS GASB 45 1OPEB Trust account by PARS Executive Vice President Mitch Barker Mitch Barker provided an annual program overview and plan review of the PARS GASB 451OPEB Trust. As of July 31, 2013 the trust balance was $30.4 million. Agenda items 3. and 4. were covered in the same handout "PARS Post - Retirement Healthcare Plan Trust Funding Client Review" (attached). COMMITTEE ACTION: Received the presentation. Old Business a. Review staff's response to the Committee's request for information regarding the following expenditures at the previous meeting: Check Date Amount Vendor 196395 8115113 $7,344.83 D & L Supply b. Review staff's response to the Committee's request regarding expenditures to Russo Auto Body, reviewed at previous meetings, for more information from Purchasing for sending all auto body work to one vendor within the service area COMMITTEE ACTION: Reviewed staff's responses. Directed staff to continue with current business practices regarding vendor selections. Risk Management a. Review Loss Control Report and discuss outstanding claims COMMITTEE ACTION: Reviewed the report. 7. Expenditures a. Review Expenditures (Item 4.b. in Board Binder) COMMITTEE ACTION: Reviewed and recommended Board approval. Budget and Finance Committee Action Summary September 16, 2013 Page 3 8. Review the District's current Cash Reserve Practices Ms. Vassallo discussed the Districts' current cash reserve practices and informed the Committee that the District does not have an adopted Board Policy for Cash Reserves. Chair McGill suggested that staff compare the District's current practices with the California Special Districts Association Reserve Guideline suggestions. Member Pilecki suggested that staff chart the District's reserves using the current practice. COMMITTEE ACTION: Reviewed the information. *9. Announcements Ms. Vassallo gave a year -end audit update and announced that the Draft Audit will be presented to the Committee on September 30 and to the full Board on October 17, 2013. Ms. Vassallo announced that the remaining funds due from the City of Concord for Operations and Maintenance and Capital billing at year end is anticipated to be received by the first week of October. Ms. Vassallo provided December 2012 Consumer Price Index (CPI) categories and information that were compared to the District's expenses during the Sewer Service Charge (SSC) rate increase process. See attachment. 10. Suggestions for future agenda items Ms. Vassallo reminded the Committee that review of the District's Overhead calculation will be presented at the next meeting. 11. Adjournment — at 4:25 p.m. * Attachment September 16, 2013 :i Central Contra Costa Sanitary District PARS Post Retirement Healthcare Plan Trust Funding Client Review i, ` \111 \11l / \11�� \11 i. �i: PARS EMENT ` AGENCY TRETIREMENT SERVICES s , CAPITAL MANAGEMENT Making retirement work for you. t13 S K`c � AGENCY RETIREMENT SERVICES PARS Making reUremenl wnrk /or you. Mitch Barker, Executive Vice President mitch.barkerCa@pars.org 800.540.6369 ext. 116 Thom Johnson, Analyst tiohnson@pars.org 800.540.6369 ext. 163 HighMark Capital Management Andrew Brown, CFA, Vice President, Senior Portfolio Manager and rew. brown @highmarkcapitaLcom 415- 705 -7605 `a Areas to Cover Program Overview and Responsible Parties Plan Review Investment Review Administrative Review Enclosures Monthly and Annual Statement Investment Guidelines Document Quarterly Performance Sheets Section I Section II Section III Section IV Section V K*"c � AGENCY REnREMENT SERVICES PARS Making ietiferwt work for yxw E APB PARS RETIREMENT SERVICES Making re6remenl work for you. Program Overview & Responsible Parties GENCY SERVICES SPARS Making retirernent work for you. OPEB Trust Team Corporate Experience OPEB Experience Number of plans under administration Dollars under administration rt�tn.tE AGENCY SERYf,CGErs PA'S (w1bank. HIGHMARK ° Aldkinc�r vnWwork;brMu CAPITAL MANAGEMENT Trust Trustee Investment Manager Administrator and • Safeguard plan assets • An investment sub - advisor Consultant • Oversight protection to U.S. Bank • Plan Fiduciary • Open architecture • Recordkeepin . Custodian of assets • Investment policy trust accounting Sub- ng assistance • Actuarial Coordination -Monitor Contributions/ Process Disbursements • Legal /Compliance • Ongoing Client Liaison 30 years 150 years 94 yea rs (1983 - 2013) (1863 - 2013) (1919 - 2013) 17 years 8 years 17 years 1,113 plans for 600 public agencies More than More than More than 1.3 billion $21.5 billion $ $4 trillion under mans ement 9 5 Trust Overview RE' TIREMENT PARS SERVICES Making retirement wnrk liar you. PARS received an IRS Private Letter Ruling on the Section 115 Trust in May 2007. Established as an irrevocable exclusive benefit trust: • Assets can revert back to employer only when no beneficiaries of the plan remain • Assets are legally protected from creditors of the employer and beneficiaries Multiple - employer trust program that allows economies of scale for administration and pooling of assets for investment purposes; however, there is no sharing of liabilities or risk. More than 115 PARS OPEB Client Agencies Cities Allen Atherton Bakersfield Camarillo Conroe Crescent City Cupertino Duarte Euless Fountain Valley Ft Worth Galt Garland Half Moon Bay Haltom City Hercules Hermosa Beach Hurst La Verne Lake Forest Lakewood Livermore Mammoth Lakes Mansfield North Richland Hills Novato Redding Updated August 2, 2013 Rialto Richmond Rosemead San Leandro Santa Clara Santa Clarita Southlake Temple City Tyler Union City Woodland Yountville Counties Amador Contra Costa Inyo Kern Merced Mono Plumas Shasta Solano Sonoma Trinity Yolo Educational and Special Districts Bass Lake Jt Union Elementary School District Bellflower Unified School District Calaveras County Water District California Joint Powers Insurance Authority Calistoga Joint Unified School District Central Contra Costa Sanitary District Central Contra Costa Transit Authority Coastside Fire Protection District Contra Costa Mosquito & Vector Control District Corning Union Elementary School District Crestline Village Water District Delta Diablo Sanitation District Desert Recreation District Eastern Sierra Community Services District Fowler Unified School District Fresno Irrigation District Fresno Metropolitan Flood Control District Glenn - Colusa Irrigation District Great Basin Unified Air Pollution Control District Hayward Area Recreation & Park District Housing Authority of the County of San Bernardino INTELECOM John Swett Unified School District Lemon Grove School District Menlo Park Fire Protection District Metropolitan Transportation Commission Mid - Peninsula Water District Mojave Desert Air Quality Management District Montecito Fire Protection District Moreno Valley Unified School District GENCY RETIREMENT SERVICES SPARS Making retirement %ixk for you. Municipal Water District of Orange County Ontario - Montclair School District Orange County Vector Control District Orange County Water District Rancho Murrieta Community Services District Red Bluff Jt Union High School District River Delta Unified School District Riverdale Joint Union School District Rowland Water District San Bernardino County Housing Authority San Bruno Park School District San Marino Unified School District Santa Barbara County Law Library South Orange County Wastewater Authority South Placer Fire Protection District Southern Marin Fire Protection District State Center Community College District Superior Court of CA, County of Butte Superior Court of CA, County of Marin Superior Court of CA, County of San Mateo Superior Court of CA, County of Shasta Superior Court of CA, County of Sonoma Trona Joint Unified School District Twin Rivers Unified School District Vallejo Sanitation & Flood Control District Ventura Regional Sanitation District Visalia Unified School District Walnut Valley Water District West County Wastewater District Western Riverside Council of Governments Yosemite Community College District 8 Plan Review I T PARS SERVICES Making retirement work for you. Plan Overview PARS ncEncy REI1REMif1r SERVICES Mak ng reliremenl work for you. Type of Plan: IRC Section 115 Irrevocable Exclusive Benefit Trust Trustee Approach: Discretionary Plan Effective Date: June 10, 2009 Plan Administrator: Thea Vassallo - Finance Manager Current Investment Strategy: Moderate HighMark PLUS (Active) - Selected 11/18/2008 As of 07/31/2013: Initial Contribution: March 2009 - $560,000.00 Additional Contributions: $23,474,900.00 Total Contributions: $241034,900.00 Reimbursements: $0.00 Total Investment Earnings: $6,654,380.35 Account Balance: $30,407,393.25 10 R e Summary of the Plan Activity Central Contra Costa Sanitary District Total Assets, Contributions & Distributions $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $ 5,000,000 $w JCyO JCy� Jcy� Plan Year Ending *Plan Year Ending June 2009 is based on 4 months of activity. ** Plan Year Ending June 2014 is base on 1 month of activity A "' COICY PATMEMEW SERWES SPARS Making ieUrement work for you. Plan Year End Contributions Reimbursements Total Assets Jun -09* $2,240,000 $0 $2,341,251 Jun -10 $6,720,000 $9,305,799 Jun -11 $6,565,000 $18,077,303 Jun -12 $4,131,600 $u $22,718,524 Jun -13 $4,142,600 $0 $29,352,832 Jun -14 ** $235,700 $30,407.393 11 Actuarial Results RETIREMENT V PARS SERVICES Making retirement work for you. We have received the actuarial reports prepared by Bartel & Associates on May 31, 2013 with a valuation date of July 1, 2012. In the tables below, we have summarized the results. Demographic Study Active Participants July 1, 2010 July Chan e 252 242 -3.97% Retirees 216 241 t 6.95% Total Plan Members 468 483 ,' 3.21% Active Average Age 47.0 46.2 -1.71% Retiree Average Age 67.5 67.3 -0.30% 12 A ` � GEKY PXnPLYJw SERWES PARS Making retlrement work for you. Actuarial Results (continued) 13 Percent Change 9 6.5% Discount Rate 6.25% Discount Rate $90,337,000 $100,498,000 Actuarial Accrued Liability It 11.25% Actuarial Value of Assets $9,404,000 $17,047,000 t 81.28% Unfunded Actuarial Liability $80,933,000 $78,017,000 ,, - 3.61% Normal Cost $2,213,000 $2,134,000 .`. - 3.57% Annual Required Contribution (ARC) $8,300,000 $8,103,000 - 2.38% Pay -As- You -Go $3,632,000 $4,813,000 t 32.52% 13 Central Contra Costa Sanitary District Second Quarter 2013 Presented by Andrew Brown, CFA HIGHMARK® CAPITAL MANAGEMENT 15 CCCSD Asset Allocation Total Assets: $29,333,998 Period Ending 6 -30 -13 2Q13 Return: -0.37% 1 Year Return: 10.56% Inception -to -Date Return: 12.95% Inception Date: 4 -1 -2009 -AHIGHMARK® f CAPITAL MANAGEMENT Fixed Income $14,152,069 48.2% June 30, 2013 Cash $1,074,866 3.7% PARS: Central Contra Costa Sanitary District Equity $14,107,064 48.1% 0. ASSET ALLOCATION As of June 30, 2013 Current Asset Allocation Investment Vehicle Equity 48.09% Range: 40%-60% 14,107, 064 Large Cap Core 4.53% SMGIX Columbia Contrarian Core Cl Z 1,327,407 4.54% SICWX Sentinel Common Stock 1 1,331,822 Large Cap Value 5.38% PRFDX T. Rowe Price Equity Income Fund 1,579,465 5.40% LSGIX Loomis Sayles Value Fund 1,583,264 Large Cap Growth 4.27% HACAX Harbor Capital Appreciation Instl 1,253,954 4.30% PRGFX T. Rowe Price Growth Stock Fund 1,260,961 Mid Cap Value 2.80% TIMVX TIAA -CREF Mid -Cap Value Instl 819,945 Mid Cap Growth 2.27% PNMFX HighMark Geneva Mid Cap Growth Fund 666,959 Small Cap Value 3.25% NSVAX Columbia Small Cap Value Fund 11 953,891 Small Cap Growth 2.53% PRNHX T. Rowe Price New Horizons Fund 742,897 International Core 1.53% HIOFX HighMark International Opportunity Fund 447,457 International Value 1.27% DODFX Dodge & Cox International Stock Fund 373,607 International Growth 1.26% MQGIX MFS International Growth Fund 368,634 Emerging Markets 2.97% SEMNX Schroder Emerging Market Equity 870,721 Real Estate 1.79% FARCX Nuveen Real Estate Secs 1 526,079 Fixed Income 48.24% Range: 40 % -60% 14,152,069 Short-Term 12.57% VFSUX Vanguard Short -Term Corp Adm Fund 3,687,081 Intermediate -Term 16.79% HMBDX HighMark Bond Fund 4,924,580 16.90% PTTRX PIMCO Total Return Instl Fund 4,957,558 High Yield 1.99% PHIYX PIMCO High Yield Instl Fund 582,849 Cash 3.66% Range: 0 % -20% 1,074,866 3.66% HMDXX HighMark Diversified MM Fund 1,074,866 TOTAL 100.00% $29,333,998 JHIGHMARK® June 30, 2013 CAPITAL MANAGEMENT i PARS: Central Contra Costa Sanitary District 18 PARS /CENTRAL CONTRA COSTA SANITARY DISTRICT For Period Ending June 30, 2013 19 3 -Month YTD 1 -Year 3 -Year 5 -Year Fund Name Inception Return Rank Return Rank Return Rank Return Rank Return Rank Columbia Contrarian Core Cl Z (6/11) 3.27 28 15.09 20 24.72 16 19.81 6 8.72 6 T. Rowe Price Equity Income (8/10) 2.63 70 14.12 68 23.66 46 17.49 39 7.37 25 Harbor Capital Appreciation Insti (7/10) 2.35 37 9.43 71 14.16 77 16.74 46 6.85 30 Loomis Sayles Value Fund (8/11) 3.31 52 16.02 28 27.69 14 18.36 21 6.35 47 Sentinel Common Stock Fd Cl 1 (6/12) 3.19 30 14.27 31 22.61 27 18.07 24 7.01 23 T. Rowe Price Growth Stock 3.17 18 11.14 47 16.66 54 18.49 17 7.06 27 ldx: Russell 1000 2.65 -- 13.91 -- 21.24 -- 18.63 -- 7.12 -- • CAP EQUITY TIAA -CREF Md -Cap Value Instl (2/10) 2.11 64 14.95 67 24.22 75 18.76 32 7.37 55 ldx: Russell Mid Cap Value 1.65 -- 16.10 -- 27.65 -- 19.53 -- 8.87 -- HighMark Geneva Nid Cap Growth Fiduciary (2/10) -0.04 95 10.54 85 13.28 93 17.96 34 8.35 21 ldx: Russell Mid Cap Growth 2.87 -- 14.70 -- 22.88 -- 19.53 -- 7.61 EQUITY FUNDS Columbia Small Cap Value II Z 2.73 53 17.06 26 25.78 46 19.55 11 8.23 67 ldx: Russell 2000 Value 2.47 -- 14.39 -- 24.76 -- 17.33 -- 8.59 -- T. Rowe Price New Horizons 5.79 14 19.99 13 24.71 29 26.15 1 14.60 1 ldx: Russell 2000 Growth 3.74 -- 17.44 -- 23.67 -- 19.97 -- 8.89 -- INTERNATIONAL • Dodge & Cox International Stock 1.70 4 5.40 9 23.47 4 10.99 21 1.61 11 HighMark International Opportunity Fid -2.61 81 1.87 65 16.39 49 9.63 47 -1.51 66 MFS International Growth 1 -3.55 82 0.62 65 13.18 51 10.90 42 2.51 17 ldx: MSCI EAFE -0.98 -- 4.10 -- 18.62 -- 10.04 -- -0.63 -- Schroder Emerging Market Equity (11/12) -8.07 53 -10.54 70 2.26 60 4.23 46 -0.15 36 ldx: MSCI Emerging Markets -9.14 -- -10.89 -- 0.32 -- 0.80 -- -2.86 -- REIT EQUITY FUNDS Nuveen Real Estate Secs Y -1.62 50 5.06 44 8.03 29 18.11 15 8.86 9 ldx: Wilshire REIT -1.38 -- 5.95 -- 8.42 -- 18.50 -- 7.21 -- BOND FUN S HighMark Bond Fid -2.43 30 -2.19 35 1.09 39 4.41 41 5.91 41 Pimco Total Return Inst'I -3.60 94 -3.02 81 1.20 37 4.67 34 7.26 13 Vanguard Short-Term Investment -Grade Adm -0.96 64 -0.48 54 1.78 32 2.75 23 3.80 27 BarCap US Aggregate Bond -2.32 -- -2.44 -- -0.69 -- 3.51 -- 5.19 -- Pimco High Yield Inst'I (6) (2/12) -1.55 58 0.65 71 8.12 65 9.39 62 8.91 44 Credit Suisse High Yield Index -1.38 -- 1.52 -- 9.18 -- 10.31 -- 10.11 -- Data Source: Morningstar, SD Investments Returns less than one year are not annualized. Past performance is not indicative of future returns. The information presented has been obtained from sources believed accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value. JHIGHMARK@ June 30, 2013 PARS: Central Contra Costa Sanitary District CAPITAL MANAGEMENT 19 Administrative Review fm"'KIPARS Making retirement work for you. 20 no' � AGENCY POWLYINT SERVICES PARS Making re8mmenl work for you Administrative Issues ✓ Update on Program ✓ Administrator's Handbook ✓ Discussion of any administrative questions or concerns ✓ Future Anticipated Contributions ✓ Future Anticipated Disbursement Requests ✓ Agency's future actuarial valuation for GASB 45 compliance ✓ Investment Guidelines Document - Update ✓ Client Feedback 21 PUBLIC AGENCY RETIREMENT SERVICES PARS CENTRAL CONTRA COSTA SANITARY DISTRICT PARS GASB 45 Program Colette Curtis -Brown Finance Administrator Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553 Monthly Account Report for the Period 7/1/2013 to 7/31/2013 Account Summary Beginning Ending Balance as of Balance as of Source 7/1/2013 Contributions Earnings Expenses Distributions Transfers 7/31/2013 Employer Contribution $29,352,832.61 $235,700.00 $827,807.26 $8,946.62 $0.00 $0.00 $30,407,393.25 Totals $29,352,832.61 $235,700.00 $827,807.26 $8,946.62 $0.00 $0.00 $30,407,393.25 Investment Selection Central Contra Costa Sanitary District 115 Trust Investment Objective Individual account based on Moderate HighMark PLUS. The dual goals of the Moderate Strategy are growth of principal and income. It is expected that dividend and interest income will comprise a significant portion of total return, although growth through capital appreciation is equally important. The portfolio will be allocated between equity and fixed income investments. ' Investment Return Annualized Return 1 -Month 3- Months 1 -Year 3 -Years I 5 -Years 10 -Years Inception Date 2.81% 1.27% 12.61% 9.73% N/A N/A 3/19/2009 Information as provided by US Bank, Trustee for PARS; Not FDIC Insured; No Bank Guarantee; May Lose Value Past Performance does not guarantee future results. Performance returns may not reflect the deduction of applicable fees, which could reduce returns. Information is deemed reliable but may be subject to change. Investment Return: Annualized rate of return is the return on an investment over a period other than one year multiplied or divided to give a comparable one -year return. Inception Date: Plans inception date 4350 Von Karman Ave., Suite 100, Newport Beach, CA 92660 800.540.6369 Fax 949.250.1250 www.pars.org PIIBUC PA RS AGENCY RETIREMENT SERVICES CENTRAL CONTRA COSTA SANITARY DISTRICT Annual Account Report for the Period PARS GASB 45 Program 7/1/2012 to 6/30/2013 Colette Curtis -Brown Finance Administrator Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553 Account Summary Beginning Ending Balance as of Balance as of Source 7/1/2012 Contributions Earnings Expenses Distributions Transfers 6/30/2013 Employer Contribution $22,718,524.27 $4,142,600.00 $2,591,122.45 $99,414.11 $0.00 $0.00 $29,352,832.61 Totals $22,718,524.27 $4,142,600.00 $2,591,122.45 $99,414.11 $0.00 $0.00 $29,352,832.61 Investment Selection Central Contra Costa Sanitary District 115 Trust Investment Objective Individual account based on Moderate HighMark PLUS. The dual goals of the Moderate Strategy are growth of principal and income. It is expected that dividend and interest income will comprise a significant portion of total return, although growth through capital appreciation is equally important. The portfolio will be allocated between equity and fixed income investments. Investment Return Annualized Return 1 -Month I 3- Months 1 -Year 3 -Years 5 -Years 10 -Years Inception Date -1.68% -0.33% 10.66% 10.38% N/A N/A 3/19/2009 Information as provided by US Bank, Trustee for PARS; Not FDIC Insured; No Bank Guarantee; May Lose Value Past Performance does not guarantee future results. Performance returns may not reflect the deduction of applicable fees, which could reduce returns. Information is deemed reliable but maybe subject to change. Investment Return: Annualized rate of return is the return on an investment over a period other than one year multiplied or divided to give a comparable one -year return. Inception Date: Plans inception date 4350 Von Karman Ave., Suite 100, Newport Beach, CA 92660 800.540.6369 Fax 949.250.1250 www.pars.org 11 INVESTMENT GUIDELINES DOCUMENT Central Contra Costa Sanitary District l I Central Contra Costa Sanitary District Investment Guidelines August 2011 Central Contra Costa Sanitary District Investment Guidelines Document In response to the Government Accounting Standards Board (GASB) Statement Number 45 disclosure requirements for Other Post - Employment Benefit (OPEB) Plans, the Central Contra Costa Sanitary District has adopted a Section 115 Trust and Plan that seeks to satisfy these liabilities for certain eligible employees Executive Summary Client Name: Central Contra Costa Sanitary District Investment Authority: Full Investment Authority Account Number: Risk Tolerance: Time Horizon: 6746030600 Moderate Objective Long -Term Investment Objective: The primary objective is to maximize total Plan return, subject to the risk and quality constraints set forth below. The Plan's targeted rate of return is 6.0 %. The Investment objective the District has selected is the Moderate Objective. The asset allocation ranges for this objective are listed below: Strategic Ranges: 0 - 20% Cash 40 - 60% Fixed Income 40 - 60% Equity Communication Schedule: Semi - annual committee meetings. Monthly statements provided. HCM Portfolio Manager: Andrew Brown, CFA 415- 705 -7605 Andrew. Brown A-Unionbank.com HCM Back up - Portfolio Manager: Anne Wimmer, CFA 310 - 550 -6457 Anne.WimmeraUnionbank.com UB Administrative Officer: Fran Schoenfeld, 949 - 553 -7961 Fran.Schoenfeld(cDUnionbank.com The managing director for HighMark Capita/ Management is Kevin Rogers, he can be reached at 949 - 553 -2580 Central Contra Costa Sanitary District Investment Guidelines August 2011 2 Client Signature: �w� / Date: I/////— HCM Portfolio Manager: Date: UB Administrative Officer• Date: Y-• / S ^ // Central Contra Costa Sanitary District Investment Guidelines August 2011 Detailed Information for Investment Guidelines Document Overview The purpose of this Investment Guidelines document (IGD) is to assist you and your Portfolio Manager in effectively supervising, monitoring and evaluating the investment of your portfolio. Your investment program is defined in the various sections of the IGD by: 1. Stating in a written document your attitudes, expectations, objectives and guidelines for the investment of all assets. 2. Setting forth an investment structure for managing your portfolio. This structure includes various asset classes, investment management styles, asset allocation and acceptable ranges that, in total, are expected to produce an appropriate level of overall diversification and total investment return over the investment time horizon. 3. Encouraging effective communications between you and your Portfolio Manager. 4. Complying with all applicable fiduciary, prudence and due diligence requirements experienced investment professionals would utilize, and with all applicable laws, rules and regulations from various local, state, and federal entities that may impact your assets Diversification Your Portfolio Manager is responsible for maintaining the balance between fixed income and equity securities based on the asset allocation. The following parameters shall be adhered to in managing the portfolio: Fixed Income • The long -term fixed income investments (greater than seven -years in maturity) shall constitute no more than 25 %, and as little as 0% of the total Plan assets. • The intermediate -term fixed income investments (between three -seven years in maturity) shall constitute no more than 60 %, nor less than 25% of the total Plan assets. —• • The high -yield portion of the Plan shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The convertible bond exposure shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The short-term fixed income investments (between one -three years in maturity) shall constitute no more than 25 %, and as little as 0% of the total Plan assets. Equity • The domestic large cap equity investments of the Plan shall constitute no more than 45% nor less than 15% of the total Plan assets. • The domestic mid - capitalization equity investments of the Plan shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The domestic small capitalization equity investments of the Plan shall constitute no more than 15% and as little as 0% of the total Plan assets. Central Contra Costa Sanitary District Investment Guidelines August 2011 4 • The international equity investments of the Plan shall constitute no more than 15% and as little as 0% of the total Plan assets. • The real estate investments of the Plan shall constitute no more than 10% and as little as 0% of the total Plan assets. Permitted Asset Classes and Security Types The following asset classes and security types have been approved by HighMark for use in client portfolios: Asset Classes • Fixed Income • Domestic Bonds • Non -U.S. Bonds • Equities • Domestic • Non -U.S. • Emerging Markets • Real Estate Investment Trust (REITs) • Cash and Cash Equivalents Security Types • Equity Securities • Domestic listed and unlisted securities • Equity and equity- related securities of non -US corporations, in the form of American Depository Receipts ( "ADRs ") • Equity Mutual Funds • Large Cap Core, Growth and Value • Mid Cap Core, Growth and Value • Small Cap Core, Growth and Value • International and Emerging Markets • REITs • Exchange Traded Funds (ETFs) • Fixed Income Securities o Government/Agencies o Mortgage Backed Bonds o Corporate Bonds and Notes • Fixed Income Mutual Funds • Corporate • Government • High Yield o International and Emerging Market • Convertible • Preferred • Closed end funds • Cash and Cash Equivalents • Money Market Mutual Fund • Commercial Paper • CDs and Bankers Acceptance Central Contra Costa Sanitary District Investment Guidelines August 2011 Prohibited assets • Precious metals • Venture Capital • Short sales • Purchases of Letter Stock, Private Placements, or direct payments • Leveraged Transactions • Commodities Transactions Puts, calls, straddles, or other option strategies, • Purchases of real estate, with the exception of REITs • Derivatives, with exception of ETFs Rebalancina Procedures From time to time, market conditions may cause your asset allocation to vary from the established target. To remain consistent with the asset allocation guidelines established by this Investment Guidelines document, your Portfolio Manager will rebalance the portfolio on a quarterly basis. Duties of Responsibilities of Portfolio Manaaer Your portfolio manager, is expected to manage your portfolio in a manner consistent with this Investment Guidelines document and in accordance with State and Federal law and the Uniform Prudent Investor Act. HighMark Capital Management is a registered investment advisor and shall act as such until you decide otherwise. Your portfolio manager shall be responsible for. 1. Designing, recommending and implementing an appropriate asset allocation consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement. 2. Advising the committee about the selection of and the allocation of asset categories. 3. Identifying specific assets and investment managers within each asset category. 4. Monitoring the performance of all selected assets. 5. Recommending changes to any of the above. 6. Periodically reviewing the suitability of the investments, being available to meet with the committee at least once each year, and being available at such other times within reason at your request. 7. Preparing and presenting appropriate reports. 8. Informing the committee if changes occur in personnel that are responsible for portfolio management or research. You shall be responsible for. 1. The oversight of the investment portfolio. 2. Providing your portfolio manager with all relevant information on the Plan, and shall notify him or her promptly of any changes to this information. 3. Advising your portfolio manager of any change in the Plan's circumstances, such as a change in the actuarial assumptions, which could possibly necessitate a change to your overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to your overall investment objective and goals for the portfolio. 4. Monitoring performance by means of regular reviews to assure that objectives are being met and that the policy and guidelines are being followed. Central Contra Costa Sanitary District Investment Guidelines August 2011 6 Communication As a matter of course, your portfolio manager shall keep you apprised of any material changes in HighMark Capital's outlook, recommended investment policy and tactics. In addition, your portfolio manager shall meet with you no less than annually to review and explain the portfolio's investment results and any related issues. Your portfolio manager shall also be available on a reasonable basis for telephone communication when needed. Any material event that affects the ownership of HighMark Capital Management or the management of the portfolio must be reported immediately to you. Disclosures Union Bank N.A. and HighMark Capital Management, Inc. are wholly owned subsidiaries of UnionBanCal Corporation. Investments are not deposits or bank obligations, are not guaranteed by any government agency, and involve risk, including loss of principal Central Contra Costa Sanitary District Investment Guidelines August 2011 7 Investment Strategy Selection and Disclosure Form PARS OPEB (GASB 45) Agency or District: Central Contra Costa Sanitary District Plan Name: PARS 115 Post - Retirement Health Care Plan Account # 6746030600 To: HighMark Capital Management, Inc. and Union Bank of California, N.A. Union Bank of California, N.A. has been or is hereby appointed Investment Manager of the above - referenced Plan. Please invest the assets of the above - referenced Plan and Trust for which you have been appointed Investment Manager in the (select one): HighMark U.S. Treasury Provide current income with liquidity and stability of ❑ Money Market Fund principal through investments in short-term U.S. Money Market Fund Treasury obligations. 0 El N ❑ O t4 ❑ n ❑ N L I HighMark Diversified Money Market Fund Conservative HighMark PLUS Conservative Index PLUS (Passive) Moderately Conservative HighMark PLUS Moderately Conservative Index PLUS (Passive) Provides current income with liquidity and stability of principal through investments in high - quality, short- term debt securities Provide a consistent level of inflation - protected income over the long -term. Provide current income with capital appreciation as a secondary objective. Money Market Fund Equity: 5 -20% Fixed Income: 60 -95% Cash: 0 -20% Equity: 20-40% Fixed Income: 50 -80% Cash: 0 -20% Moderate o HighMark PLUS Provide current income and moderate capital Equity: 40 -60/0 Moderate appreciation. Fixed Income: 40-60% ❑ Cash: 0-20% Index PLUS (Passive) Note: HighMark PLUS portfolios are diversified portfolios of actively managed mutual funds. Index PLUS portfolios are diversified portfolios of index -based mutual funds or exchange - traded funds. (Authorized Signer) Date: //— /� -4� Controller (Title) Balanced /Moderately ❑ Aggressive HighMark PLUS o Equity: 50 -70/0 Balanced /Moderately Provide growth of principal and income. Fixed Income: 30 -50% ❑ Aggressive Cash: 0 -20 /o Index PLUS (Passive) Specify: Equity: El Custom Fixed Income: Cash: Note: HighMark PLUS portfolios are diversified portfolios of actively managed mutual funds. Index PLUS portfolios are diversified portfolios of index -based mutual funds or exchange - traded funds. (Authorized Signer) Date: //— /� -4� Controller (Title) HIGHMARK0 CAPITAL MANAGEMENT Vision. Discipline. Results ' WHY THE PARS DIVERSIFIED CONSERVATIVE PORTFOLIO? Comprehensive Investment Solution HighMark® Capital Management, Ines (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above - average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal: competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our clients, we offer access to flexible implementation strategies: HighMark Plus utilizes actively managed mutual funds while Index Plus utilizes index -based securities, including exchange - traded funds. Both investment options leverage., HighMark's active asset allocation approach. 1, Risk Management The portfolio is constructed to control risk through four layers of diversification -- asset classes (cash, fixed income, equity), investment styles (large cap, small cap, international, value, growth), managers and securities. Disciplined mutual fund selection and monitoring process helps to drive return potential while reducing portfolio risk. INVESTMENT OBJECTIVE To provide a consistent level of inflation - protected income over the long -term. The major portion of the assets will be fixed income related. Equity securities are utilized to provide inflation protection. c a s 0 a 3 d Conservative Efficient Frontier Capital Appreciation Balanced Moderate Moderately Conservative Risk (Standard Deviation) ASSET ALLOCATION — CONSERVATIVE PORTFOLIO Strategic Range Policy Tactical Equity 5 -20% 15% 14% Fixed Income 60-95% 80% 81% Cash 0-20% 5% 5% ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees) • HighMark Plus (Active) Index Plus (Passive) Current Quarter * .......................... - 1.51% Current Quarter *.......................... -1.34% Blended Benchmark* ...................................... .1.06% Blended Bench mark*'...... ............................... -1.06% Year To Date* .... ............................... 0.18% Year To Date* .... ............................... 0.18% Blended Benchmark * .............. ..........................0.37% Blended Benchmark * ....................................... 0.37% 1 Year ................. ............................... 4.13% 1 Year................. ............................... 3.10% Blended Benchmark ............... ..........................2.69% Blended Benchmark ......................................... 2.69% 3 Year ................. ............................... 5.68% 3 Year................. ............................... 5.13% Blended Benchmark .......... ............................... 4.47% Blended Benchmark.......... ............................... 4.47% 5 Year ................. ............................... 5.07% 5 Year................. ............................... 4.37% Blended Benchmark ............... ..........................4.17% Blended Benchmark ......................................... 4.17% Inception To Date (108- Mos.)........ 5.10% Inception To Date (108- Mos.)........ 4.57% Blended Benchmark .......... ............................... 4.32% Blended Benchmark.......... ............................... 4.32% *Returns less than 1 -year are not annualized. 'Breakdown for Blended Benchmark- 7.5 %S&P500, 1.5% Russell Mid Cap, 2.5% Russell 2000, 1% MSCI EM FREE, 2% MSCI EAFE, 52.25% BC US Agg, 25.75% ML 1 -3 Yr US Corp(Gov t, 2% US High Yield Master II, 0.5% Wilshire REIT, and 5 %Citi 1 Mth T -Bill. Prior to October 2012, the blended benchmarks were 12% S&P 500; 1% Russell 2000,2% MSCI EAFE, 40% ML 1 -3 Year Corp ✓Govt, 40% BC Agg, 5 %Citi 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were 15% S&P 500,40% ML 1 -3Yr Corp✓Gov, 40% BC Agg, and 5% Citi 1 Mth T -Bill. ANNUAL RETURNS • HighMark Plus (Active) Index Plus (Passive) 2008 ................ ............................... -9.04% 2008................ ............................... -6.70% 2009 ..................... .........................15.59% 2009..................... .........................10.49% 2010 ....................... ..........................8.68% 2010....................... ..........................7.67% 2011 ....................... ..........................2.19% 2011....................... ..........................3.70% 2012 ....................... ..........................8.45% 2012........................ .........................6.22% PORTFOLIO FACTS • HighMark Plus (Active) Index Plus (Passive) Inception Date ............................ 07/2004 Inception Date ............................ 07/2004 No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites map include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds, or a combination thereon. Account exclusions based on equity security concentrations are applied quarterly. Employing a construction methodology different from the above could 0HIGHMARK8 CAPITAL MANAGEMENT PW Vision. Discipline. Results ?' ABOUT THE ADVISER HighMark Capital Management, Inc., the adviser to HighMark Fundsl, has over 90 years (including predecessor organizations) of institutional money management experience with more than $21.5 billion in assets under management. HighMark has a longterm disciplined approach to money management and currently manages assets for a wide array of clients. ABOUT THE PORTFOLIO MANAGEMENT TEAM Andrew Brown, CFA's Senior Portfolio Manager Investment Experience: since 1994 HighMark Tenure: since 1997 Education: MBA, University of Southern California; BA, University of Southern California Christiane Boyd, Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2010 Education: BA, International Christian University, Tokyo Senior Portfolio Manager Investment Experience. since 1999 HighMark Tenure: since 2006 Education: MBA, University of California, BA, University of California, San Diego h1latthew Webber. CFA' Senior Portfolio Manager Investment Experience: since 1995 HighMark Tenure: since 2011 Education: BA, University of California, Santa Barbara Senior Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2007 Education: BA, University of California, Santa Barbara Asset Allocation Committee Number of Members: 13 Average Years of Experience: 25 Average Tenure (Years): 15 Manager Review Committee Number of Members: 10 Average Years of Experience: 19 Average Tenure (Years): 9 SAMPLE HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z T. Rowe Price Growth Stock Columbia Small Cap Value II Z T. Rowe Price New Horizons HighMark International Opportunities HighMark Bond Vanguard Short Term Invest -Grade Adm Loomis Sayles Value Y PIMCO Total Return Dodge & Cox International Stock MFS International Growth I Sentinel Common Stock I Nuveen Real Estate Securities I TIAA -CREF Mid Cap Value HighMark Geneva Mid Cap Growth Harbor Capital Appreciation Schroder Emerging Market Equity T. Rowe Price Equity Income PIMCO High Yield Index Plus (Passive) iShares S&P 500 iShares S &P 500/Value iShares S &P 500 /Growth iShares S&P Small Cap 600 Value iShares S&P Small Cap 600 Growth iShares MSCI EAFE Vanguard Short Term Invest -Grade Adm. iShares Barclays Aggregate Bond iShares Cohen & Steers Realty Majors iShares Russell Midcap Value iShares Russell Midcap Growth SPDR Barclays Capital High Yield Bond Vanguard MSCI Emerging Markets ETF Holdings are subject to change at the discretion of the investment manager. STYLE Real Estate 0.75% High Yield 3% I araar'an Value WY I i__Small Cap lJS% Large Cap Large G Shin Interm -Term Bond 45.5% The performance records shown re ppresent size - weighted composites of tax exempt accounts that meet the following criteria: Corn si managed by HigghMark's HighMark C apital Advisors (HCA) with full investment authority according to the PARS Conservative active and objectives and do not have equity concentration of 25% or more in one common stock security. The adviserto the PARS portFohos is US Bank and Hig"rk serves as sub-adviser to US Bank to ma nage these portfolios. US Bank charges clients a . annual managgeemment fee, and pays HighMark 60%o the annual management fee for assets sub-advised by HighMark under its subadvisory agreein with US Bank The 36 basis points paid to HighMark as wellas other expenses that maybe incurred in the management ofthe portfolio, will reduce t portfolio returns. Assurningan investment forfiveyyea�rs, a 5% annual total return, and an annual sub-advisory fee rate of 0.36%deducted from th at market at the end ofeach year ,a 10 million initial value would grow to$ 12. 54 million afterfees ( Netof- Fees) and $12.76 million before fees (G Fees). Additional information rrec�nding the firm's policies and procedures for calculating and reporting performance results is available upon req Q12010, the PARS Com� itedefiniionwaschangedfrom$ 750, OOOminimumtonominimum. Performance results aremlculated and prese U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or tames but do reflect the deduction of trading expenses. Return are calculated based on trade ate accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benc' returns do not reflect the deduction of advisory fees or other nses of investing but assumes the reinvestment of dividends and other ea An investor cannot invest directly in an index. The unmanaged78 11nrclex is representative ofthe performance of large companies in tl stock market. The MSCI EAFE Index is a free float-adjusted market capitalization indexdesiggnnedto measure developed market equity perfon excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float$ rusted market capitalization index that is designed measure equity market performance in the global emerging markets. The Russell Midcap In �ex measures the performance of the mid - ap segmt of the U.S. equity universe. The Russell 2000 Index measures the performance of the smallcap segment of the U.S. equity universe. The US Hi Yield Master II Index tracks the performance of below investment grade U.S. dollar�lenominated corporate bonds publicly issued in t) domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trysts. The unmanag�eedd Barclays Capital (B( Aggre gate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1 -3 Year U.S Corrppsc Goverment lndextracks the bond peuformance of The ML U.S. Corporate &Government Index, with a remaining term to final maturity lea 3 years. The unmanaged Cr 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. Individual account management and construction will vary depending on each client's investment needs and objectives including liquid' ttyy e tax situation, risk tolerance, and security restrictions. There can be no guarantee that this or any investment strategy will achieve its obj ne Past performance does not guarantee future results. Securities investments involve risk, includingthe possible loss ofthe principal amount in Investments are not deposits ofthe adviser's parent or any ofthe adviser's affiliates, and are not FDIC insured. HighMark is a wholly owned subsidiary of Union Bank, and manages institutional separate account portfolios for a wide variety of entities. uc a serves as investment adviser or sub - adviser for mutual funds and other types of funds, and sub - advises certain Union Bank collective funds. Uni Bank, a subsidiary of UnionBanCal Corporation, provides certain services to HighMark and is compensated for these services. 1. Bi n eans of two separate sales transactions, HighMark is exiting tb e mutual fund sponsorship business and will no longer be spun Higark Funds. The first transaction involving HighMark Money le the equity and tomgterm funds to Nationwide Mutual Funds and qr f 2 13. Hi�hlrvlark will become a sub$dviser to he new Natiowide HighMark Funds under a subadvisory agreement with Natio,.w, . HIGHM�,RK® CAPITAL MANAGEMENT Vision. Discipline. Results:"' WHY THE PARS DIVERSIFIED MODERATELY CONSERVATIVE PORTFOLIO? Comprehensive Investment Solution HighMark" Capital Management, Inc: s (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above - average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal: competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our clients, we offer access to flexible implementation strategies: HighMark Plus utilizes actively managed mutual funds while Index Plus utilizes index -based securities, including exchange - traded funds. Both investment options leverage HighMark's active asset allocation approach. Risk Management The portfolio is constructed to control risk through four layers of diversification -- asset classes (cash, fixed income, equity), investment styles (large cap, small cap, international, value, growth), managers and securities. Disciplined mutual fund selection and monitoring process helps to drive return potential while reducing portfolio risk. INVESTMENT OBJECTIVE To provide current income and moderate capital appreciation. The major portion of the assets is committed to income - producing securities. Market fluctuations should be expected. S a ac 0 v 3 Conservative Efficient Frontier Capital Appreciation Balanced Moderate Moderately Conservative Risk (Standard Deviation) ASSET ALLOCATION — MODERATELY CONSERVATIVE PORTFOLIO Strategic Range Policy Tactical Equity 20-40% 30% 28% Fixed Income 50-800/6 65% 68% Cash 0-20% 5% 4% ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees) HighMark Plus (Active) Current Quarter * .......................... -1.34% Blended Benchmark*' ...... ............................... -0.74% Year To Date* .... ............................... 1.54% Blended Benchmark * ........ ............................... 2.04% 1 Year ................. ............................... 6.70% Blended Benchmark .......... ............................... 5.50% 3 Year ...................... .......................... 7.91% Blended Benchmark ............... .......................... 6.93% 5 Year ................. ............................... 5.48% Blended Benchmark .......... ............................... 4.90% Inception To Date (107- Mos.)........ 5.77% Blended Benchmark .......... ............................... 4.91% Index Plus (Passive) Current Quarter * .......................... -1.11% Blended Benchmark*' ...... ............................... -0.74% Year To Date* .... ............................... 1.58% Blended Benchmark* ........ ............................... 2.04% 1 Year ................. ............................... 5.54% Blended Benchmark .......... ............................... 5.50% 3 Year ................. ............................... 7.30% Blended Benchmark .......... ............................... 6.93% 5 Year ................. ............................... 4.77% Blended Benchmark .......... ............................... 4.90% Inception To Date (98- Mos.) .......... 5.01% Blended Benchmark .......... ............................... 4.88% * Returns less than 1 -year are not annualized. 'Breakdown for Blended Benchmark: 15.5 %S &P500, 3% Russell Mid Cap, 4.5% Russell 2000, 2 %MSCI EM FREE, 4% MSCI SAFE, 49 25% BC US Agg, 14% ML 1 -3 Yr US Corp/Gov't, 1.75 %US High Yield Master Il, 1% Wilshire REIT, and 5 %Citi 1 Mth T -Bill. Prior to October 2012, the blended benchmarks were 25% S&P 500; 1.5% Russell 2000, 3.5% MSCI EAFE, 25% ML 1 -3 Year CorplGovt, 40% BC Agg, 5% Citi 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were 30% S&P 500, 25% ML 1 -Wr Corp/Gov, 40% BC Agg, and 5 %Citi 1 Mth T -Bill. ANNUAL RETURNS • HighMark Plus (Active) Index Plus (Passive) 2008 .............. ............................... - 15.37% 2008..................... ........................ - 12.40% 2009 ............... ............................... 18.71% 2009 ............... ............................... 11.92°/ 2010 ..................... .........................10.46% 2010....................... ..........................9.72% 2011 ........................ .........................1.75°% 2011....................... ..........................3.24% 2012 ............... ............................... 10.88°% 2012 ................................................. 8.24W PORTFOLIO FACTS • HighMark Plus (Active) Index Plus (Passive) Inception Date .............................. 8/2004 Inception Date ............................ 05/2005 No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites may include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds, or a combination thereof. Account exclusions based on equity security concentrations are applied quarterly. Employing a construction methodology different from the above could H IGHMARM CAPITAL MANAGEMENT Vision. Discipline. Results" ABOUT THE ADVISER HighMark Capital Management, Inc., the advised to HighMark Fundsl, has over 90 years (including predecessor organizations) of institutional money management experience with more than $21.5 billion in assets under management. HighMark has a longterm disciplined approach to money management and currently manages assets for wide array of clients. ABOUT THE PORTFOLIO MANAGEMENT TEAM Andrew Brown, CFA'?, Senior Portfolio Manager Investment Experience: since 1994 HighMark Tenure: since 1997 Education: MBA, University of Southern California; BA, University of Southern California Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2010 Education: BA, International Christian University, Tokyo Ahmed Khatib, CFP1 Senior Portfolio Manager Investment Experience: since 1999 HighMark Tenure: since 2006 Education: MBA, University of California, Irvine; BA, University of California, San Diego Matthew Webber, CFA' _ Senior Portfolio Manager Investment Experience: since 1995 HighMark Tenure: since 2011 Education: BA, University of California, Santa Barbara Senior Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2007 Education: BA, University of California, Santa Barbara Asset Allocation Committee Number of Members: 13 Average Years of Experience: 25 Average Tenure (Years): 15 Manager Review Committee Number of Members: 10 Average Years of Experience: 19 Average Tenure (Years): 9 SAMPLE HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z T. Rowe Price Growth Stock Columbia Small Cap Value II Z T. Rowe Price New Horizons HighMark International Opportunities HighMark Bond Vanguard Short Term Invest -Grade Adm. Loomis Sayles Value Y PIMCO Total Return Dodge & Cox International Stock MFS International Growth I Sentinel Common Stock I Nuveen Real Estate Securities I TIAA -CREF Mid Cap Value HighMark Geneva Mid Cap Growth Harbor Capital Appreciation Schroder Emerging Market Equity T. Rowe Price Equity Income PIMCO High Yield STYLE Mid Cap Large Cap Growth Large Cap Core Index Plus (Passive) iShares S&P 500 iShares S&P 500Nalue iShares S &P 500 /Growth iShares S &P Small Cap 600 Value iShares S &P Small Cap 600 Growth iShares MSCI EAFE Vanguard Short Term Invest -Grade Adm iShares Barclays Aggregate Bond iShares Cohen & Steers Realty Majors iShares Russell Midcap Value iShares Russell Midcap Growth SPDR Barclays Capital High Yield Bond Vanguard MSCI Emerging Markets ETF Holdings are subject to change at the discretion of the investment manager. High Yield 2.5% Small Cap 3.25% Interm -Term Bond 500% Short-Term Bond/ 15.25% The performance records shown represent sizrweighted composites of tax exempt accounts that meet the following criteria: The performan records shown represent size- 'I composites of tax exempt accounts that meet the following criteria: Composites are managed by High? HighMark Capital Advisors 0%with full investment authority according to the PARS Moderately Conservative active and passive objectiv do not have equity concentration of 25% or more in one common stock security. The adviserto the PARS portfolios is US Bank and HighMarkserves as sub-adviser to US Bank to manage these portFolios. US Bank charges clients a . annual management fee, and pays HLghNLrk 6096 of the annual management fee for assets sub-advised by HighMark under its subsdvisoryry agreeme with US Bank The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management ofthe portfolio, 2 reducet portfolio returns. Assuming an investment for five years, a 5%annual total return, and an annual sub-advisory fee rate 40.36% deducted from the at market at the end of each year, a 10 million initial value would grow to $12.54 million after fees [Net-of-Fees) and $12.76 million before fees (Gr Fees). Additional information regporting the firm's policies and procedures for calculating and reporting performance results is available upon requ Q 1 2010, the PARS Composite definition was changed from $ SQA minimum to no minimum. Pe romance results arecalcvlated and preset US. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Retur are calculated based on trade date accounting. Blended benchmarks represent Hig"rk's strategic allocations between equity, foxed income, and rash and are rebalanced monthly. Bend returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other ear An investor cannot invest directly in an index. The unmaTged§&P 500 Index is representative of the performance of large companies in tb excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a freefloat -adjusted market capitalization index that is designed to meant. equity market performance in the global emerging markets. The Russell Midcap Index measures the performance ofthe mid-cap segment ofthe U equity universe. The Russell 2000 Index measures the performance of the smalkzp segment ofthe US. equity universe. The US High Yield Man 11 Index tracks the performance of below investment grade U.S. dollar -denominated corporate bonds publicly issued in the US. domestic n Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unrnana�edd Barclays Capital (BC) US. Aggregate Bond is generally representative ofthe U.S. taxable bond market as a whole. The Merrill Lynch (ML)1-3 Year S. Corporate & Government Index the bond performance of The ML U.S. Corporate& Government Index, with a remaining term to final maturity less than 3 years. The unma..ab Citigroup 1 -Month Treasury Bill Index tracks the yield ofthe 1 -month US. Treasury Bill. Individual account management and construction will vary depending on each client's investment needs and objectives including liqquidity nee, tax situation, risk tolerance, and security restrictions. There can be no guarantee that this or any investment strateeggyy will achieve its objectiv performance does not guarantee future results. Securities investments involve risk, including the possible loss ot'the principal amount im nves[ments are notdeposits ofthe advisers parent oranyofthe adviser's affiliates, and are not FDIC insured HighMark is a wholly owned subsidiary of Union Bank, and manages institutional separate account portfolios for a wide variety of entities. it a. serves as investment adviser or sub adviser for mutual funds and other types of funds, and sub-advises certain Union Bank collective funds. Uni. Bank, a subsidiary of UnionBanCal Corporation, provides certain services to HighMark and is compensated for these services. 1. By means of two separate sales transactions, Ht "g is exiting the mutual fund sponsorship business and will no longer be spore HighMark Funds. The first transaction involving itI ghMMark Money Market Funds dosed on July 2Z, 2013. The second transaction involy sale of the equity and long term funds to Nationwide Mutual Funds and Nationwide Fund Advisers, and this sale R expected to dose later in tl quarter of 2013 HighMark will become a subadviser to the new Nationwide HighMark Funds under a subadvisory agreement with Nationwr HIGHMARK@ CAPITAL MANAGEMENT Vision. Discipline. Results:' WHY THE PARS DIVERSIFIED INVESTMENT OBJECTIVE MODERATE PORTFOLIO? AM To provide growth of principal and income. It is expected that dividend and interest income will comprise a significant portion of total return, although Comprehensive Investment Solution growth through capital appreciation is equally important. HighMark® Capital Management, Ines (HighMark) diversified investment portfolios are Efficient Frontier designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, s /. Capital Appreciation Balanced four layers of diversification (asset class, style, o v Moderate manager, and security), access to rigorously screened, top tier money managers, flexible Moderately Conservative investment options, and experienced investment management. Conservative Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above - average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards Risk (Standard Deviation) ASSET ALLOCATION — MODERATE PORTFOLIO Strategic Range Policy Tactical Equity 40-60% 50% 48% Fixed Income 40-60% 45% 48% Cash 0 -20% 5% 4% ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees) for our investment managers and funds. This is HighMark Plus (Active) Index Plus (Passive) a highly specialized, time consuming approach Current Quarter * .......................... -0.46% Current Quarter *.......................... -0.22% dedicated to one goal: competitive and Blended Benchmark*' ..................................... .0.04% Blended Benchmark* ' ..................................... .0.04% Year To Date * Year To Date* ................................... 4.39% consistent performance. ......... ..........................4.20% Blended Benchmark * ............. ..........................4.68% Blended Benchmark* ....................................... 4.68% 1 Year ................. ............................... 9.83% 1 Year................. ............................... 9.63% Flexible Investment Options Blended Benchmark ............... .......................... 9.61% Blended Benchmark............... .......................... 9.61% In order to meet the unique needs of our clients, 3 Year .............. ............................... 10.38% 3 Year.............. ............................... 10.33% we offer access to flexible implementation Blended Benchmark ........ ............................... 10.04% Blended Benchmark........ ............................... 10.04% strategies: HighMark Plus utilizes actively 5 Year ................. ............................... 5.45% 5 Year................. ............................... 5.61% managed mutual funds while Index Plus utilizes Blended Benchmark .......... ............................... 5.53% Blended Benchmark.......... ............................... 5.53% index -based securities, including exchange- Inception To Date (105- Mos.)........ 5.65°x6 Inception To Date (8 6-Mos.) .......... 4.87% traded funds. Both investment options leverage Blended Benchmark ............... ..........................5.33% Blended Benchmark ......................................... 4.92% *Returns less thanl -year are not annualized. 'Breakdown for Blended Benchmark. 26.5% S&P500, 5% Russell Mid Cap, 7.5% HighMark's active asset allocation approach. Russell 2000, 325 %MSCIEM FREE, 6% MSCIEAFE, 33. 50% BCUSAgg, 10% ML1- 3YrUSCorp/Gov't,1.50%USHigh Yield Master II, 1.75% Wilshire REIT, and 5 %Citi 1 Mth T -Bill. Prior to October 2012, the blended benchmarks were 43% S&P 500; 2% Russell 2000, 5 %MSCI EAFE, 15 %ML 1 -3 Year CorplGovt, 30%BC Agg, 5 %Citi 1 Mth T -Bill. Prior to April Risk Management 2007, the blended benchmarks were 5096S&P 500, 15 %ML 1 -Wr Corp/Gov, 30 %BC Agg, and 5 %Citi 1Mth T -Bill. The portfolio is constructed to control risk ANNUAL RETURNS HighMark Plus (Active) Index Plus (Passive) through four layers of diversification -- asset 2008 .............. ............................... - 22.88% 2008.............. ............................... - 18.14% classes (cash, fixed income, equity), investment 2009 ............... ............................... 21.47% 2009............... ............................... 16.05% styles (large cap, small cap, international, value, 2010 ............... ............................... 12.42% 2010............... ............................... 11.77% growth), managers and securities. Disciplined 2011 .................. ............................... 0.55% 2011 .................. ............................... 2.29% mutual fund selection and monitoring process 2012 ............... ............................... 12.25% 2012............... ............................... 10.91% helps to drive return potential while reducing PORTFOLIO FACTS portfolio risk. HighMark Plus (Active) index Plus (Passive) Inception Date ............................ 10/2004 Inception Date ............................ 05/2006 No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites may include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds or a combination thereof. Account exclusions based on equity security concentrations are applied quarterly. Employing a construction HIGHMARK° CAPITAL MANAGEMENT Vision. Discipline. Results ' ABOUT THE ADVISER HighMark Capital Management, Inc., the adviser to HighMark Fundsl, has over 90 years (including predecessor organizations) of institutional money management experience with more than $21.5 billion in assets under management. HighMark has a longterm disciplined approach to money management and currently manages assets for a wide array of clients. ABOUT THE PORTFOLIO MANAGEMENT TEAM Redrew Brown, CFA 'l Senior Portfolio Manager Investment Experience: since 1994 HighMark Tenure: since 1997 Education: MBA, University of Southern California; BA, University of Southern California Chnstiane Boyd Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2010 Education: BA, International Christian University, Tokyo Senior Portfolio Manager Investment Experience: since 1999 HighMark Tenure: since 2006 Education: MBA, University of California, Irvine, BA, University of California, San Diego Matthew Webber, CFA' Senior Portfolio Manager Investment Experience: since 1995 HighMark Tenure: since 2011 Education: BA, University of California, Santa Barbara Senior Portfolio Manager Investment Experience: since 198 7 HighMark Tenure: since 2007 Education: BA, University of California, Santa Barbara Asset Allocation Committee Number of Members: 13 Average Years of Experience: 25 Average Tenure (Years): 15 Manager Review Committee Number of Members: 10 Average Years of Experience: 19 Average Tenure (Years): 9 SAMPLE HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z T. Rowe Price Growth Stock Columbia Small Cap Value II Z T. Rowe Price New Horizons HighMark International Opportunities HighMark Bond Vanguard Short Term Invest -Grade Adm Loomis Sayles Value Y PIMCO Total Return Dodge & Cox International Stock MFS International Growth I Sentinel Common Stock I Nuveen Real Estate Securities I TIAA -CREF Mid Cap Value HighMark Geneva Mid Cap Growth Harbor Capital Appreciation Schroder Emerging Market Equity T. Rowe Price Equity Income PIMCO High Yield STYLE Large Cap Value 10.7% Cash 3.75% Intl Stocks 7% Mid Cap 5% Large Cap Growth 8.51%1 Index Plus (Passive) iShares S&P 500 iShares S&P 500/Value iShares S &P 500 /Growth iShares S &P Small Cap 600 Value iShares S&P Small Cap 600 Growth iShares MSCI EAFE Vanguard Short Term Invest -Grade Adm iShares Barclays Aggregate Bond iShares Cohen & Steers Realty Majors iShares Russell Midcap Value iShares Russell Midcap Growth SPDR Barclays Capital High Yield Bond Vanguard MSCI Emerging Markets ETF Holdings are subject to change at the discretion of the investment manager. High Yield 2% - Small Cap 5.7% Interm -Term Bond 34% u,bc wy.nnc.�ieJ ` Short Term Bond 12.6% The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria: Composi managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderate active and objectives and do not have equity concentration of 25% or more in one common stock security. The adviser to the PARS portfolios is US Bank, and[ ig hMarkservesassubadvisertoUSBanktomanagetheseportfolios .USBankcharges clientsa . annual management fee, and pays HighMark 60% of the annual management fee for assets subadvised by HighMark under its sub advisory agreeme with US Bank The 36 basis points paid to HighMark, as well as otherexpenses that may be incurred in the management of the portfolio, will reduce t portfolio returns. Assuming an investment for fiveyyeeaars, a 5% annual total return, and an annual sub-advisory fee rate of 0.36%deducted from th at market at the end ofeach year ,a 10 million initialvalue would grow to $12.54 million afterfees (Netof- Fees ) and $12.76nadlion before fees (G Fees). Additional information Tre�rdingthe firm's policies and prooedures for calculating and reporting ppeerformance results is available upon regi QI2010, thePARSComppoossitedefinition was chang V.$ 750,000 minimum to no minimum. Pertommanceresults are calculated and prese US. dollarsand do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Retur are calculated based on trade-date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benc' returns do not reflect the deduction of advisory fees or other a nags of investing but assumes the reinvestment of dividends and other ea An investor cannot invest directly in an index The unmanaged 500 Index is representative of the performance of large companies in tl stock market The MSCI EAFE Index is a free float -adiusted market capitalization index designed to measure developed market equity oerfon equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the midoap segment of the U ty universe. The Russell 2000Index measures the performance of the smallcap segment of the jUjS. equity universe. The US High veld Masr I ex tracks the performance of below investment grade U.S. dollardenominated corporate bonds ppuublicly issued in the U.S. domestic r Wilshire REIT index measures US. publiclytraded Real Estate Investment Trusts. The unmanaged Barcla Capital (BC) US. Aggregate Bonc is generally reppresentative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) I -3 Year US. Corporate &Government Inde>t the bond perforance of The ML U.S. Co rate &Government Index with a remaining term to final maturity less than 3 years. The unrno. W6 Citigroup 1 -Month Treasury Bill Indextracks the yield of the 1 -month U.S. Treasury Bill. Individual account management and construction will vary depending on each client's investment needs and objectives including liqquidity neer tax situation, risk tolerance, and security restrictions. There can be no guarantee that this or any investment strategy will achieve its objecth performance does not guarantee future results. Securities investments involve risk including the possible loss of the principal amount in Investmentsare notdepositsoftheadviser' sparentoranyoftheadviser'saffiliates ,andare notFDIC insured. HighMark is a wholly owned subsidiary of Union Bank, and manages institutional separate account portfolios for a wide variety of entities. At ai serves as investment adviser or sub-adviser for mutual funds and other types of funds, and sub-advises certain Union Bank collective funds. Uni• Bank, a subsidiary of UnionBanCal Corporation, provides certain services to HighMark and is compensated for these services. 1. By means of two separate sales transactions, HighMark is exiting the mutual fund sponsorship business and will no longer be spor HighMark Funds. The first transaction involving HighMark Money Market Funds closed on July 22, 2013. The second transaction invol, sale of the equity and long term funds to Nationwide Mutual Funds and Nationwide Fund Advisers, and this sale is expected to close later in t quarter of 2013. HighMark will become a subadviser to the new Nationwide HighMark Funds under a sub-advisory agreement with Natio..w. HIGHMARK° CAPITAL MANAGEMENT Vision. Discipline. ResultsP WHY THE PARS DIVERSIFIED BALANCED PORTFOLIO? Comprehensive Investment Solution HighMark® Capital Management, Incas (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above - average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal: competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our clients, INVESTMENT OBJECTIVE To provide growth of principal and income. While dividend and interest income are an important component of the objective's total return, it is expected that capital appreciation will comprise a larger portion of the total return. Efficient Frontier s � i •°, i Moderate CT -o moderately Conservative 3 Conservative f Capital Appreciation Balanced Risk (Standard Deviation) ASSET ALLOCATION - BALANCED PORTFOLIO Strategic Range Policy Tactical Equity 50-70% 60% 57% Fixed Income 30-50% 35% 39% Cash 0-20% 5% 4% ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees) • HighMark Plus (Active) Current Quarter* ............................ 0.08% Blended Benchmark*' ....... ............................... 0.28% Year To Date* .... ............................... 5.75% Blended Benchmark * ........ ............................... 5.96% 1 Year .............. ............................... 12.19% • index Plus (Passive) Current Quarter* ............................ 0.04% Blended Benchmark *' ....... ............................... 0.28% Year To Date* .... ............................... 5.54% Blended Benchmark* ........ ............................... 5.96% 1 Year .............. ............................... 11.40% we offer access to flexible implementation Blended Benchmark ........ ............................... 11.69% Blended Benchmark........ ............................... 11.69% strategies: HighMark Plus utilizes actively "' 3 Year .............. ............................... 11.68% 3 Year.............. ............................... 11.53% managed mutual funds while Index Plus util es Blended Benchmark ....................................... 11.73% Blended Benchmark....................................... 11.73% index -based securities, including exchange- 5 Year ................. ............................... 5.47% 5 Year................. ............................... 5.58% traded funds. Both investment options leverage Blended Benchmark .......... ............................... 5.94% Blended Benchmark.......... ............................... 5.94% HighMark's active asset allocation approach. Inception To Date (81- Mos.).......... 4.32% Inception To Date (69- Mos.) .......... 3.26% Blended Benchmark ............... ..........................4.90% Blended Benchmark ......................................... 3.76% * Returns less than 1-year are not annualized. 'Breakdown for Blended Benchmark: 32%S&P500, 6% Russell Mid Cap, 9% Russell 2000,4% Risk Management MSCI EM FREE, 7%MSCI EAFE, 27% BC US Agg, 6.75%ML 1 -3 Yr US Corp/Gov't, 115% US High Yield Master II, 2% Wilshire REM and 5%Citi 1 Mth T -Bill. Prior to October 2012, the blended benchmarks were 51 %S&P 500,3% Russell 2000, 6% MSCI EAFE, 5%ML 1 -3 Year The portfolio is constructed to control risk CorpJ Gcvt, 30% BCAgg, 5% CitiIMthT -- Bill. Priorto April 2007, the blended benchmarks were 60 % S&P 500,5%ML1- 3YrCorp/Gw,3096 through four layers of diversification -- asset BCAM,and5%Citi IMthT- -8111. classes (cash, fixed income, equity), investment ANNUAL RETURNS styles (large cap, small cap, international, value, • HighMark Plus (Active) Index Plus (Passive) 2008 .............. ............................... - 25.72% 2008.............. ............................... - 23.22% growth), managers and securities. Disciplined 2009 21.36% 2009 ............... ............................... 17.62% mutual fund selection and monitoring process 2010 ............... ............................... 14.11% 2010............... ............................... 12.76% helps to drive return potential while reducing 2011 ................ ............................... -0.46% 2011.................. ............................... 1.60% portfolio risk. 2012 ............... ............................... 13.25% 2012............... ............................... 11.93% PORTFOLIO FACTS • HighMark Plus (Active) Index Plus (Passive) Inception Date ............................ 10/2006 Inception Date ............................ 10/2007 No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite a at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites may include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds, or a combination thereof. Account exclusions based on equity security concentrations are applied quarterly. Emvloving a construction HIGHMARM CAPITAL MANAGEMENT Vision. Discipline. Results:"" ABOUT THE ADVISER HighMark Capital Management, Inc., the advised to HighMark Funds over 90 years (including predecessor organizations) of institutional money management experience with more than $21.5 billion in assets under management. HighMark has a longterm disciplined approach to money management and currently manages assets for a wide array of clients. ABOUT THE PORTFOLIO MANAGEMENT TEAM Andrew Brown, CFA's Senior Portfolio Manager Investment Experience: since 1994 HighMark Tenure: since 1997 Education: MBA, University of Southern California; BA, University of Southern California Christiane Soyc Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2010 Education: BA, International Christian University, Tokyo Ahmed Khatib, C= _ Senior Portfolio Manager Investment Experience: since 1999 HighMark Tenure: since 2006 Education: MBA, University of California, Irvine; BA, University of California, San Diego Matthew Webber, CFA's Senior Portfolio Manager Investment Experience: since 1995 HighMark Tenure: since 2011 Education: BA, University of California, Santa Barbara Senior Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2007 Education: BA, University of California, ; Santa Barbara ..ocation Committee Number of Members: 13 Average Years of Experience: 25 Average Tenure (Years): 15 Manager Review Number of Members: 10 Average Years of Experience: 19 Average Tenure (Years): 9 SAMPLE HOLDINGS • HighMark Plus (Active) Index Plus (Passive) Columbia Contrarian Core Z iShares S &P 500 T. Rowe Price Growth Stock iShares S&P 500/Value Columbia Small Cap Value II Z iShares S &P 500 /Growth T. Rowe Price New Horizons iShares S &P Small Cap 600 Value HighMark International Opportunities iShares S&P Small Cap 600 Growth HighMark Bond iShares MSCI EAFE Vanguard Short Term Invest -Grade Adm Vanguard Short Term Invest -Grade Adm Loomis Sayles Value Y iShares Barclays Aggregate Bond PIMCO Total Return iShares Cohen & Steers Realty Majors Dodge & Cox International Stock iShares Russell Midcap Value MFS International Growth I iShares Russell Midcap Growth Sentinel Common Stock I SPDR Barclays Capital HighYield Bond Nuveen Real Estate Securities I Vanguard MSCI Emerging Markets ETF TIAA -CREF Mid Cap Value HighMark Geneva Mid Cap Growth Harbor Capital Appreciation Schroder Emerging Market Equity Holdings are subject to change at the discretion T. Rowe Price Equity Income of the investment manager. PIMCO High Yield STYLE Large C Cas Intl Stocks Mid a- Large a- rm Bond 26% 11.556 Large Cap Core 11% The performance records shown represent size-weighted composites of taxexempt accounts that meet the following criteria: Composites are managed HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Balanced active and passive objectives and have equity concentration of 25% or more in one common stock security. The composite name has been changed from PARS Balance"oderately Aggressive to PARS Balanced on 5/1/2013. The adviser to the PARSpord US Bank and HighMark serves as subadviserto US Bank to manage these portfolios. US Bank charges clients a 0.6096 annual management tee, ar hMarc 60%0 the annual management fee for assets subadvised lry HighMark under its subadvisory agreement with US Bank The 36 basis you paid to HighMark as well as other expenses that ma be incurred in the management of the portfolio, will reduce the portfolio returns Assuming investment forfive years, a 596annval total return, and anannual subsdvisory fee rateof 0.3696 deducted from theassets at marketatthe endof eacti a 10 million init al value would grow to $12.54 m llion afrer fees (Netof Fees) and $12.76 million before fees (Grossof- Fees). Additional infon rere��rdingthe firm's policiesand procedunsforcalculatingand reportmg perfom�ance results is available upon request In Q12010, thePARS Con definition was changed from $750,000 minimum to no minimum. Performance resuhs are calailated and presented in U.S. dollarsanddo not refl deduction of investment advisory fees, custody firs, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trnuru accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly.. Benchmark re~,, do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An u cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the US, stork r The MSCI EAFE Index is a free float adjusted market capitalization index designed to measure developed marls t equity performance, exdud US. and Canada. The MSCI Emerging Markets Free Index is a free float - adjusted market capitalization index that is designed to measure equity r..., performance in the global emerging markets. The Russell Midcap Index measures the performance of the mdcap ant of the US. equity univer e Russe12 000Index measures the Oer��rmance of the smalkap segment of the US. equity universe. The US HigYield Master II Index tracks t performance of below investment de US. dollardenominated corporate bonds publicly issued in the U.S. domestic market. Wilshim REl7 measures US. publidytraded Real Estate Investment Trusts . The unmanaged Barclays Capital (BC) US. Aggregate Bond Index is generally represe of the US. taxable bond market as a whole. The Merrill Lynch (ML)1 -3 Year US. Corporate g Government Index trades the bond performance ML US. CorpoPete a Government Index with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Tress , Indextredcsthe yield of the 1 -month US. Treasury Bill. Individual account management and construction will varryy depending on each chenYs investment needs and objectives including liqquuidity needs, t situation, risk tolerance, and securi ty restrictions. There can be noguarantee thatthisorany investment stmtegywillachieve its objective. Yast perfor does not guarantee future results. Securities investments involve risky including the possible loss ofthe principal amount invested. Investments : deposits ofthe adviwi 's parent orany ofthe adviser'saH'iliates, and are not FDIC insured. HighMark is a wholly owned subsidiary of Union Bank, and manages institutional separate account portfolios for a wide variety of entities. It also as investment adviser or sub-adviser for mutual funds and other types of funds, and sub-advises certain Union Bank collective funds. Union Banl subsidiary of UnionBanCal Corporation, provides certain servicesto HighMarkand is compensated forthese services. 1. By means of two separate sales transactions, HighMark is exiting the mutual fund sponsorshi business and will no longer be spur HighMark Funds. The first transaction involving I I'rghMark Money Market Funds closed on July 2g, 2013. The second transaction invol sale of the equityand longterm funds to Nationwide Mutual Fundsand Nationwide Fund Advisers, and this sale is expected to close later in t quarter of 2013 High will became a subadviser to the new Nationwide I BghMark Funds under a subedvisory agreement with Natic HIGHMARK8 CAPITAL MANAGEMENT Vision. Discipline. Results ' WHY THE PARS DIVERSIFIED CAPITAL APPRECIATION PORTFOLIO? Comprehensive Investment Solution HighMark® Capital Management, Incas (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. lift Rigorous Manager Due Diligence Our manager review committee utilizes a rigorou! screening process that searches for investment managers and styles that have not only produced above - average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these result We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our client we offer access to flexible implementation strategies: HighMark Plus utilizes actively managed mutual funds while Index Plus utilizes index -based securities, including exchange - traded funds. Both investment options leverage HighMark's active asset allocation approach. Risk Management The portfolio is constructed to control risk through four layers of diversification -- asset classes (cash, fixed income, equity), investment styles (large cap, small cap, international, value, growth), managers and securities. Disciplined mutual fund selection and monitoring process helps to drive return potential while reducing portfolio risk. INVESTMENT OBJECTIVE The primary goal of the Capital Appreciation objective is growth of principal. The major portion of the assets are invested in equity securities and market fluctuations are expected. Efficient Frontier v 0 v Moderate Moderately Conservative 3 Conservative f Capital Appreciation Balanced Risk (Standard Deviation) ASSET ALLOCATION –CAPITAL APPRECIATION PORTFOLIO Strategic Range Policy Tactical Equity 65 -85% 75% 72% Fixed Income 10-30% 20% 26% Cash 0 -20% 5 % 2% ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees) HighMark Plus (Active) • Index Plus (Passive) Current Quarter` .. ..........................0.54% Current Quarter *............................ N /A% Blended Benchmark * ............. .......................... 0.71% Blended Benchmark*'........ ............................... NIA % Year To Date* .... ............................... 6.33% Year To Date* .... ............................... N /A% Blended Benchmark * ............. ..........................7.75% 2009 ............... ............................... Blended Benchmark* ........................................ NIA % 1 Year .............. ............................... 13.07% 1 Year................. ............................... N /A% Blended Benchmark .............. .........................14.56% N /A% Blended Benchmark .......................................... NIA % 3 Year .............. ............................... 12.25% 3 Year................. ............................... N /A% Blended Benchmark ........ ............................... 13.14% Blended Benchmark........... ............................... NIA % 5 Year ................. ............................... N /A% 5 Year................. ............................... N /A% Blended Benchmark ........... ............................... NIA % Blended Benchmark........... ............................... MA% Inception To Date (54-Mos.) ........ 12.07% Inception To Date (0 -Mos.) .............N /A% Blended Benchmark ........ ............................... 13.35% Blended Benchmark........... ............................... NIA % ` Returns less than 1- yearare not annualized. 'Breakdown for Blended Benchmark: 39.5%S&P500,7.5% Russell Mid Cap, 10.5% Russell 2000, 5.25%MSCI EM FREE, 10.2596 MSCI EAFE, 16% BC US Agg, 3% ML 1 -3 Yr US Corp/Gov t, 1% US High Yield Master II, 2% Wilshire REIT, and 5%Citi 1 MthT -Bill. ANNUAL RETURNS PORTFOLIO FACTS • HighMark Plus (Active) Index Plus (Passive) Inception Date ............................ 01/2009 Inception Date..... ............................... N/A No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites may include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds, or a combination th—F Arrrnrnt evrincinna lhacerl nn vnnity crrnrity mn— tratinnc arr annliM rn—t -1v Fmnlnvino a rnnctnirtinn • HighMark Plus (Active) Index Plus (Passive) 2008 .................. ............................... N /A% 2008.................. ............................... N /A% 2009 ............... ............................... 23.77% 2009.................. ............................... N /A% 2010 ............... ............................... 12.95% 2010.................. ............................... N /A% 2011 ................ ............................... -1.35% 2011.................. ............................... N /A% 2012 ............... ............................... 13.87% 2012.................. ............................... N /A% PORTFOLIO FACTS • HighMark Plus (Active) Index Plus (Passive) Inception Date ............................ 01/2009 Inception Date..... ............................... N/A No. of Funds Held in Portfolio ............. 20 No. of Funds Held in Portfolio............. 14 A newly funded account enters a composite after three full months of management and is removed from a composite at the end of the last full month that the account is consistent with the criteria of the composite. Terminated accounts are included in the historical results of a composite through the last full month prior to closing. Composites may include accounts invested in domestic (U.S.) or international (non -U.S.) individual securities, funds, or a combination th—F Arrrnrnt evrincinna lhacerl nn vnnity crrnrity mn— tratinnc arr annliM rn—t -1v Fmnlnvino a rnnctnirtinn HIGHMARK® CAPITAL MANAGEMENT Vision. Discipline. Results:" ABOUT THE ADVISER HighMark Capital Management, Inc., the advise to HighMark Funds over 90 years (including predecessor organizations) of institutional money management experience with more than $21.5 billion in assets under management. HighMark has a longterm disciplined approach to money management and currently manages assets for a wide array of clients. ABOUT THE PORTFOLIO MANAGEMENT TEAM Andrew Brown, CFA& Senior Portfolio Manager Investment Experience: since 1994 HighMark Tenure: since 1997 Education: MBA, University of Southern California; BA, University of Southern California Clristiane Boyd Portfolio Manager Investment Experience: since 1987 HighMark Tenure: since 2010 Education: BA, International Christian University, Tokyo Senior Portfolio Manager Investment Experience: since 1999 HighMark Tenure: since 2006 Education: MBA, University of California, Irvine;, BA, University of California, San Diego SAMPLE HOLDINGS • HighMark Plus (Active) Index Plus (Passive) Columbia Contrarian Core Z iShares S&P 500 T, Rowe Price Growth Stock iShares S&P 500Nalue Columbia Small Cap Value II Z iShares S&P 500 /Growth T, Rowe Price New Horizons iShares S&P Small Cap 600 Value HighMark International Opportunities iShares S&P Small Cap 600 Growth HighMark Bond iShares MSCI EAFE Vanguard Short Term Invest -Grade Adm Vanguard Short Term Invest -Grade Adm Loomis Sayles Value Y iShares Barclays Aggregate Bond PIMCO Total Return iShares Cohen & Steers Realty Majors Dodge & Cox International Stock iShares Russell Midcap Value MFS International Growth I iShares Russell Midcap Growth Sentinel Common Stock I SPDR Barclays Capital HighYield Bond Nuveen Real Estate Securities I Vanguard MSCI Emerging Markets ETF TIAA -CREF Mid Cap Value subsidiary of UnionBanCal Corporation, provides certain servicesto Hig"rkand is compensated for these services. HighMark Geneva Mid Cap Growth 1. By means of two separate sales transactions, HighMark E exiting the mutual fund sponsorship business and will no longer be spon HighMark Funds. The fist transaction involving HighMark Money Market Funds closed on July 22, 2013. The second transaction invoh Harbor Capital Appreciation saleoftheeeqquuityandlongtermfundstoNationwideMutualFundsandNationwideFundAdvisers, andthissa leisexpectedtodoselaterint quarter of 201 Hi�hMarkwihbecomeasubadvisertothenewNationwideHighlvfarkFundsunderasubadvisoryagreementvvithNatio ..... Schroder Emerging Market Equity Holdings are subject to change at the discretion T. Rowe Price Equity Income of the investment manager. PIMCO High Yield STYLE Lai Intl � Bond 17% Bond 7.75% ft— Matthew Webber, CFAs' Large Cap Growth 13% The performance records shown represent size - weighted composites oftaxexempt accounts that meet the followingcriteria : Composites ammana• " Senior Portfolio Manager I IighMark's HighMark Capital Advisors�HCA) with full investmentauthority according to the PARS Capital Appreciation active and passive obj and do not have equity concentration of_546ormon in one common storksecvrity Investment Experience: since 1995 HighMark Tenure since 2011 - TheadvisertothePARS portfolios isUS Bank and High. MarkservesassubadvisertoUSBanktomanagetheseportfolics .USBankchargesclientsa_,__ annual man agementfee, andpaysHighMark60% oftheannualmanagementfeeforassetssubadvisedbyHighMarkunderitssubad ozagreeme with US Baril The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the ppoortfolio, will reduce t] Education BA, University of California, portfolio returns. Assuminganinvestmentforfive rs, a5' 6annualtotalretum, andanannualsubadvisoryfeerateof0 .3696deductedfromthr at at the end of each year, a 10 million initial value would growto $12.54 million afterfees (Netof- -Fees) and $12.76 million before fees (Gr Santa Barbara Feditionalinfonnationregardurgthefirmspoliciesandpromclur�formlcvlatingandreportingppeerformamm��ultsisavailableuponregr Q,tARS a efinitiowashangedfrom $Urs and do not reflect the deduction of invment advisoaated Ma based on tradedatc accounting. Senior Portfolio Manager Investment Experience: 1987 Blended benchmarks represent HighMark's strategic allocationsbetweenequity, fixed income, and cash and are rebalanced monthly. Benchmark r -` do not reflect the deduction of advisory fees or other ex of investing but assumes the reinvestment of dividends and other eamings. An u pe since HighMark Tenure: since 2007 cannot invest directly in an index The unmanaged S&P 500 Index is representative of the performance of large companies in the US. stock r The MSCI EAFE Index is a free float - adjusted market mpitalization index del �'gned to measure developed market equity performance, exdud US. and Canada. The MSCI Emerging Markets Free Index is a free floatadjusted market capitalintion index that is designed to measure equity mark Education: BA, University of California, Santa Barbara mince in the global emerging markets. The Russell Midcap Index measures the perfommance of the redcap ent of the US. equity univer. e Russell 2000 Index measures the oerfommance of the smallrap segment of the US. equity universe. The US High Master B Index tracks t1 below US. dollar denominated Asset A 110 ea ti o n Committee performance of investment grade - corporate bonds publicly issued in the US. domestic market. Wilshire RErr measures US. publicly traded Real EstateInvestmentTmsts . The unmanaged Barclays Capital ( BC) U. S. Aggregate Bond Index isgenerallyreprese of the US. taxable bond market as a whole. The Merrill Lynch (MI-)1 -3 YYear US. Corporate & Govemment Index tracks the bond perlormance Number of Members: 13 ML US. Corporate & Covemment Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup I -Month Treasi -, _ Indextracks the yield ofthe 1 -month US. Treasury Bill. Average Years of Experience Z 5 Individual account management and construction will vary depending on each client's investment needs and objectives including h�idity needs, t situation, risktolemnce, andsecurity restrictions. There con be noguaranteethat thisoranyinvestmentstrategywillachieveits objective. Asst perbr future Average Tenure (Years) 15 does not guarantee results Securities investments involve risk, including the possible loss ofthe principal amount invested. Investments: deposits ofd eadviser's parent or any ofthe advisers affiliates, and are not FDIC insured. Manager Review Committee HighMark is a wholly owned subsidiary of Union Bank, and manages institutional separate account portfohos for a wide variety ofentities .It also s v as investment adviser or sub-adviser for mutual funds and other types of funds, and sub advises certain Union Bank collective funds. Union Bank Number of Members: 10 subsidiary of UnionBanCal Corporation, provides certain servicesto Hig"rkand is compensated for these services. Average Years of Ex rience: 19 a I� 1. By means of two separate sales transactions, HighMark E exiting the mutual fund sponsorship business and will no longer be spon HighMark Funds. The fist transaction involving HighMark Money Market Funds closed on July 22, 2013. The second transaction invoh Avera Tenure(Years):9 i'� saleoftheeeqquuityandlongtermfundstoNationwideMutualFundsandNationwideFundAdvisers, andthissa leisexpectedtodoselaterint quarter of 201 Hi�hMarkwihbecomeasubadvisertothenewNationwideHighlvfarkFundsunderasubadvisoryagreementvvithNatio ..... 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