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HomeMy WebLinkAbout05 SECTION 115 TRUST INVESTMENT GUIDELINES POLICYAgenda Item 5 Reviewed: . AGENDA REPORT City Manager Finance Director MEETING DATE: JUNE 5, 2018 TO: JEFFREY C. PARKER, CITY MANAGER FROM: JOHN A. BUCHANAN, FINANCE DIRECTOR JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES SUBJECT: SECTION 115 TRUST INVESTMENT GUIDELINES POLICY SUMMARY: In April 2017, the City Council approved the establishment of a Section 115 Trust with the Public Agency Retirement Service (PARS) in order to pre -fund the City's pension and Other Post - Employment Benefits (OPEB). Over the last several months, staff worked with the City's actuaries, the City Manager, and the PARS Investment Advisor and have selected the investment of funds in the Section 115 Trust in the Moderate Index Plus asset allocation strategy as described in the attached Investment Guidelines Policy document. The investment choices were reviewed with the Audit Commission and the Investment Sub -Committee who were in agreement with the investment with PARS in the Moderate Index Plus asset allocation. RECOMMENDATION: Receive and file the Section 115 Trust Investment Guidelines Policy. FISCAL IMPACT: At the mid -year budget review in March 2018, City Council appropriated an initial deposit of $6,578,023 to be used towards the pre -payment of unfunded pension liabilities or to pre -fund a Section 115 Trust for pension or OPEB liabilities. CORRELATION WITH THE CITY'S STRATEGIC PLAN: Goal C, Financial Strength, Item 3 - "Develop and communicate a comprehensive set of financial policies and their purpose to strengthen financial practices." DISCUSSION: Section 115 Trust provides the following benefits: Acts as a reserve fund to offset potential volatility in CalPERS annual contribution or rate requirements; SECTION 115 TRUST INVESTMENT GUIDELINES POLICY Page 2 of 2 2. Allows more control and flexibility in investment allocations; 3. Expands the choice of investment instruments which are restricted to fixed income instruments as mandated by State regulations; 4. Diversifies investments in both the pension and retiree medical trusts; 5. Acts as a set-aside account to be used in reducing the City's pension obligations; and, 6. Solidifies the City's AA credit rating by demonstrating proactive action in meeting pension obligations. The Moderate Index Plus portfolio shows 10 year annualized total returns of 5.51 % as compared to the City's investment portfolio which is currently earning only 1.73%. The Trust will enable the City to designate funds and associated earnings towards unfunded liability payments to CalPERS and OPEB. The Moderate Index Plus portfolio is being recommended because the asset allocation is balanced with the investment categories and ranges as follows: 1) 40-60% in equities, 2) 40-60% in fixed income, and 3) 0-20% in cash investments, providing fair returns with acceptable risk. The Index Plus passive management fund was chosen rather than the HighMark Plus active management fund because the performance earnings did not warrant the additional fees charged. The asset allocation options were reviewed with the Audit Commission and the Investment Sub - Committee at the meeting on May 10, 2018. The Commission was in agreement with the Moderate Index Plus asset allocation, with the understanding that the volatility of earnings in this type of asset allocation results in higher liquidity risk (especially in the short term), which correlates with the higher expected earnings over the long term. The City has budgeted sufficient funds for minimum, as well as discretionary payments to CalPERS and for OPEB, and the size of the City's investment portfolio is sufficient enough, so the liquidity risk should not be an issue in the next few years. Staff will continue to monitor the monetary climate and recommend changes to asset allocations with PARS as needed. c��-- J n LeiszJohn . Buchanan Deputy Director - Financial Services nce Director Attachments: Investment Policy Guidelines Document, City of Tustin, Post -Employment Benefits Trust Quarter 4 2017 Portfolio Performance Report for the Moderate Index Plus Fund HIGHMARKO CAPITAL MANAGEMENT Investment Guidelines Document City of Tustin Post -Employment Benefits Trust March 2018 Investment Guidelines Document Scope and Purpose The purpose of this Investment Guidelines Document is to: • Facilitate the process of ongoing communication between the Plan Sponsor and its plan fiduciaries; • Confirm the Plan's investment goals and objectives and management policies applicable to the investment portfolio identified below and obtained from the Plan Sponsor; • Provide a framework to construct a well -diversified asset mix that can potentially be expected to meet the account's short- and long-term needs that is consistent with the account's investment objectives, liquidity considerations, and risk tolerance; • Identify any unique considerations that may restrict or limit the investment discretion of its designated investment managers; • Help maintain a long-term perspective when market volatility is caused by short-term market movements. Key Plan Sponsor Account Information as of March 2018 Plan Sponsor: City of Tustin Governance: City Council, City of Tustin Plan Name ("Plan'): City of Tustin Post -Employment Benefits Trust Trustee: US Bank Contact: Sue Hughes, 949-224-7209 Susan. hug hesausbank.com Type of Account: 115 Trust for Pension Plan and OPEB Plan Investment Manager: US Bank, as discretionary trustee, has delegated investment management responsibilities to HighMark Capital Management, Inc. ("Investment Manager"), a SEC -registered investment adviser Contact: Keith Stribling, CFA, 415-705-7605 keith.stribling@highmarkcapital.com 2 Investment Authority: Except as otherwise noted, the Trustee, US Bank, has delegated investment authority to HighMark Capital Management, a SEC -registered investment adviser. Investment Manager has full investment discretion over the managed assets in the account. Investment Manager is authorized to purchase, sell, exchange, invest, reinvest and manage the designated assets held in the account, all in accordance with account's investment objectives, without prior approval or subsequent approval of any other party(ies). Investment Obiectives and Constraints The goal of the Plan's investment program is to generate adequate long-term returns that, when combined with contributions, will result in sufficient assets to pay the present and future obligations of the Plan. The following objectives are intended to assist in achieving this goal: • The Plan should seek to earn a return in excess of its policy benchmark over the life of the Plan. • The Plan's assets will be managed on a total return basis which takes into consideration both investment income and capital appreciation. While the Plan Sponsor recognizes the importance of preservation of capital, it also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns. To achieve these objectives, the Plan Sponsor allocates its assets (asset allocation) with a strategic perspective of the capital markets. • Compliance with all laws including the laws relating to municipal investments. Investment Time Horizon: Long-term Anticipated Cash Flows: Pension Plan: Assets in the Pension Plan will seek to mitigate the impact of future rate increases from CalPERS. Typically increases in rates come with a one-year advance warning, however this Plan may transfer assets to CalPERS at any time. OPEB Plan: Assets in the OPEB Plan can be used to reimburse the City for eligible retiree health care expenditures. Reimbursement of these expenditures can be transferred back to the City at its discretion. Investment Objective: The primary objective is to generate a reasonable level of growth. The investment objective the Plan Sponsor has selected is the Moderate Objective. The assets in this Plan will eventually be used to fund net Pension Plan unfunded obligations for assets managed in the CalPERS Trust or OPEB Obligations. The assets in this Trust are also available to mitigate the potential negative impact of future rate hikes from CalPERS. Risk Tolerance: Moderate The account's risk tolerance has been rated moderate, which demonstrates that the account can accept moderate price volatility to pursue its investment objectives. 3 Strategic Asset Allocation: The asset allocation ranges for this objective are listed below: Strategic Asset Allocation Ranges 40%-60% Cash Fixed Income Equity 0-20% 40%-60% 40%-60% Policy: 5% Policy: 45% Policy: 50% Market conditions may cause the account's asset allocation to vary from the stated range from time to time. The Investment Manager will rebalance the portfolio no less than quarterly and/or when the actual weighting differs substantially from the strategic range, if appropriate and consistent with your objectives. Security Guidelines: Equities With the exception of limitations and constraints described above, Investment Manager may allocate assets of the equity portion of the account among various market capitalizations (large, mid, small) and investment styles (value, growth). Further, Investment Manager may allocate assets among domestic, international developed, and emerging market equity securities. Total Equities 40%-60% Equity Style Range Domestic Large Cap Equity 15%-45% Domestic Mid Cap Equity 0%-10% Domestic Small Cap Equity 0%-15% International Equity (incl. Emerging Markets) 0%-15% Real Estate Investment Trust (REIT) 0%-15% Fixed Income In the fixed income portion of the account, Investment Manager may allocate assets among various sectors and industries, as well as varying maturities and credit quality that are consistent with the overall goals and objectives of the portfolio. Total Fixed Income 40%-60% Fixed Income Style Range Long -Term bonds (maturities >7 years) 0%-25% Intermediate -Term bonds (maturities 3-7 years) 25%-60% Short -Term bonds (maturities <3 years) 0%-25% High Yield bonds 0%-10% Performance Benchmarks: The performance of the total Plan shall be measured over three and five-year periods. These periods are considered sufficient to accommodate the market cycles experienced with investments. The performance shall be compared to the return of the total portfolio blended benchmark shown below. Total Portfolio Blended Benchmark 26.50% S&P500Index 5.00% Russell Mid Cap Index 7.50% Russell 2000 Index 3.25% MSCI Emerging Market Index 6.00% MSCI EAFE Index 1.75% Wilshire REIT 33.50% Barclays Capital US Aggregate Index 10.00% ML 1-3 Year US Corp/Gov't 1.50% US High Yield Master II 5.00% Citi 1 Mth T -Bill Asset Class/Style Benchmarks Over a market cycle, the long-term objective for each investment strategy is to add value to a market benchmark. The following are the benchmarks used to monitor each investment strategy: Large Cap Equity S&P 500 Index Growth S&P 500 Growth Value S&P 500 Value Mid Cap Equity Growth Value Small Cap Equity Growth Value REITs International Equity Investment Grade Bonds High Yield Russell Mid Cap Index Russell Mid Cap Growth Russell Mid Cap Value Russell 2000 Index Russell 2000 Growth Russell 2000 Value Wilshire REIT Index MSCI EAFE Index Barclays Capital US Aggregate Index US High Yield Master II Index Security Selection Investment Manager may utilize a full range of investment vehicles when constructing the investment portfolio, including but not limited to individual securities, mutual funds, and exchange -traded funds. 5 Investment Limitations: The following investment transactions are prohibited: • Direct investments in precious metals (precious metals mutual funds and exchange -traded funds are permissible). • 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* The Investment Manager is prohibited from investing in mutual funds in which the Manager serves as an advisor or sub -advisor. *Permissible in diversified mutual funds and exchange -traded funds Duties and Responsibilities Responsibilities of Plan Sponsor The Plan Administrator from the City of Tustin is responsible for: ■ Confirming the accuracy of this Investment Guidelines Document, in writing. ■ Advising Trustee and Investment Manager of any change in the plan/account's financial situation, funding status, or cash flows, which could possibly necessitate a change to the account's overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to the overall investment objective and goals for the account. ■ Avoiding prohibited transactions and conflicts of interest including compliance with the Political Reform Act, Government Code Section 81000 et seq. and Government Code Section 1090 to the extent applicable. Responsibilities of Trustee The plan Trustee is responsible for: ■ Valuing the holdings. ■ Collecting all income and dividends owed to the Plan. ■ Settling all transactions (buy -sell orders). ■ Monitoring and supervising all service vendors and investment options, including investment managers. ■ Avoiding prohibited transactions and conflicts of interest including compliance with the Political Reform Act, Government Code Section 81000 et seq. and Government Code Section 1090 to the extent applicable. ■ Ensure compliance with all laws, including those limiting any applicable municipal investment options. 2 Responsibilities of Investment Manager The Investment Manager is responsible for: ■ Assisting the Plan Administrator with the development and maintenance of this Investment Policy Guideline document annually. ■ Meeting with the Plan Administrator/Finance committee annually to review portfolio structure, holdings, and performance. ■ Designing, recommending, and implementing an appropriate asset allocation consistent with the investment objectives, time horizon, risk profile, guidelines, and constraints outlined in this statement. ■ Researching and monitoring investment advisers and investment vehicles. ■ Purchasing, selling, and reinvesting in securities held in the account. ■ Monitoring the performance of all selected assets. ■ Voting proxies, if applicable. ■ Recommending changes to any of the above. ■ 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. ■ Preparing and presenting appropriate reports. ■ Informing the committee if changes occur in personnel that are responsible for portfolio management or research. ■ Monitoring and supervising all service vendors and investment options, including investment managers. ■ Avoiding prohibited transactions and conflicts of interest including compliance with the Political Reform Act, Government Code Section 81000 et seq. and Government Code Section 1090 to the extent applicable. ■ Ensure compliance with all laws, including those limiting any applicable municipal investment options. Acknowledgement and Acceptance I/We being the Plan Sponsor with responsibility for the account(s) held on behalf of the Plan Sponsor specified below, designate Investment Manager as having the investment discretion and management responsibility indicated in relation to all assets of the Plan or specified Account. If such designation is set forth in the Plan/Trust, I/We hereby confirm such designation as Investment Manager. I have read the Investment Guidelines Document, and confirm the accuracy of it, including the terms and conditions under which the assets in this account are to be held, managed, and disposed of by Investment Manager. This Investment Guidelines Document supersedes all previous versions of an Investment Guidelines Document or investment objective instructions that may have been executed for this account. Plan Sponsor: City of Tustin, CA Date: Date: Investment Manager: Keith Stribling, CFA, Senior Portfolio Manager, (949) 553-2591 sl�f Investment Strategy Selection and Disclosure Form r ' PARS Pension / OPEB Trust Program ■ This document is entered into by client and U.S. Bank National Association ("U.S. Bank"), as trustee. ■ Employer: City of Tustin ■ Plan/Trust Name: Public Agencies Post -Employment Benefits Trust ■ To: HighMark Capital Management, Inc. and U.S. Bank: U.S. Bank has been or is hereby appointed Investment Manager of the above -referenced Plan/Trust. Please invest the assets of the above -referenced Plan/Trust for which you have been appointed Investment Manager in the (select one of the strategies listed below for each Plan funded by the Trust): U) 0 J 0 LL0 IL 0 W LL Y) 0Y Ulf 0 IS OPEB Account n I -• • Provide current income with liquidity ❑ Liquidity Management (US Treasury) ❑ Liquidity Management (US Treasury) and stability of principal through 7Moneyarket Fund investments in short-term U.S. Treasury obligations. ❑ Liquidity Management (Prime Obligation) ❑ Liquidity Management (Prime Obligation) Generate current income with liquidity. Money Market Fund ❑ Conservative HighMark PLUS ❑ Conservative HighMark PLUS Provide a consistent level of inflation- Equity: 5-20% F] ConservativeIndex PLUS EJ Index PLUS protected income over the long-term. Fixed Income: 60-95% Cash: 0-20% ❑ Moderately Conservative HighMark PLUS ❑ Moderately Conservative HighMark PLUS Provide current income with capital Equity: 20-40% ❑ Moderately Conservative Index PLUSElModerately Conservative Index PLUS appreciation as a secondary objective. Fixed Income: 50-80% Cash: 0-20% ❑ Moderate HighMark PLUS ❑ Moderate HighMark PLUS Provide current income and moderate Equity: 40-60% Moderate Index PLUS Moderate Index PLUS capital appreciation. p pp Fixed Income: 40-60% Cash: 0-20% Balanced HighMark PLUS ❑ Balanced HighMark PLUS Equity: 50-70% ❑ Balanced Index PLUS ❑ Balanced Index PLUS Provide growth of principal and income. Fixed Income: 30-50% Cash: 0-20% ❑ Capital Appreciation HighMark PLUS ❑ Capital Appreciation HighMark PLUS Equity: 65-85% El Capital Appreciation Index PLUS ❑ Capital Appreciation Index PLUS Primary goal is growth of principal. Fixed Income: 10-30% Cash: 0-20% ro Custom ❑ Custom Specify: 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. Signature of Authorized Signer Jeffrey C. Parker Print Name of Authorized Signer City Manager Title PENSION OPER HM MANAGED [Mbank- ISSDF 203 00.22.2016 HIGHMARK`R' CAPITAL MANAGEMENT WHY THE PARS DIVERSIFIED INVESTMENT OBJECTIVE Efficient Frontier CONSERVATIVE PORTFOLIO? To provide a consistent level of inflation -protected income over m �1.pit.liation Comprehensive Investment Solution the long-term. The major portion o ; Balanced HighMark® Capital Management, Inc.'s (HighMark) of the assets will be fixed= ° Moderate diversified investment portfolios are designed to income related. Equity securities Moderately Conservative balance return expectations with risk tolerance. are utilized to provide inflation 3 Key features include: sophisticated asset allocation protection. ir j conservative and optimization techniques, four layers of diversification (asset class, style, manager, and Risk (Standard Deviation) security), access to rigorously screened, top tier ASSET ALLOCATION - CONSERVATIVE PORTFOLIO money managers, flexible investment options, and Strategic Range Policy Tactical experienced investment management. Equity 5-20% 15% 15% Fixed Income 60-95% 80% 79% Rigorous Manager Due Diligence Cash 0-20% 5% 6% Our manager review committee utilizes a rigorous screening process that searches for investment ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees, but managers and styles that have not only produced Net of Embedded Fund Fees) above-average returns within acceptable risk HighMark Plus (Active) Index Plus (Passive) parameters, but have the resources and commitment Current Quarter` 1.17% Current Quarter* 1.08% to continue to deliver these results. We have set high Blended Benchmark** 1.00% Blended Benchmark- 1.00% standards for our investment managers and funds. Year To Date 6.73% Year To Date 5.52% This is a highly specialized, time consuming approach dedicated to one goal: competitive and Blended Benchmark 5.24% Blended Benchmark 5.24% consistent performance. 1 Year 6.73% 1 Year 5.52% Blended Benchmark 5.24% Blended Benchmark 5.24% Flexible Investment Options 3 Year 3.70% 3 Year 3.09% In order to meet the unique needs of our clients, Blended Benchmark 3.13% Blended Benchmark 3.13% we offer access to flexible implementation strategies: 5 Year 3.73% 5 Year 3.39% HighMark Plus utilizes actively managed mutual Blended Benchmark 3.46% Blended Benchmark 3.46% funds while Index Plus utilizes index -based 10 Year 4.28% 10 Year 3.75% securities, including exchange -traded funds. Both Blended Benchmark 3.74% Blended Benchmark 3.74% investment options leverage HighMark's active asset allocation approach. Returns less than l-yearare 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 October2012, 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 Risk Management benchmarks were 15% S&P 500, 40% ML 1-3Yr Corp/Gov, 40% BC Agg, and 5% Citi i Mth T -Bill. The portfolio is constructed to control risk through ANNUAL RETURNS four layers of diversification - asset classes (cash, HighMark Plus (Active) Index Plus (Passive) fixed income, equity), investment styles (large cap, 2008 -9.04% 2008 -6.70% small cap, international, value, growth), managers 2009 15.59% 2009 10.49% and securities. Disciplined mutual fund selection and 2010 8.68% 2010 7,67% monitoring process helps to drive return potential while reducing portfolio risk. 2011 2,19% 2011 3.70% 2012 8.45% 2012 6.22% 2013 3.69% 2013 3.40% 2014 3.88% 2014 4.32% 2015 0.29% 2015 0.06% 2016 4,18% 2016 3.75%' 20,17 6.73% 2017 5.52% PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Inception Data 07/2004 Inception Data 07/2004 No of Funds in Portfolio 19 No of Funds in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation T. Rowe Price Growth Stock iShares Russell Mid -Cap ETF Vanguard REIT ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth I Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Prudential Total Return Nationwide Loomis Bond Eaton Vance Floating Rate & High Income First American Government Obligations Z STYLE Intl Stocks 3.5% Mid Cap 1.1% Large Cap Growth 1.2% Large Cap Core 3.9 % Short -Term Bond J - 12.4% Floating Rate Note J 2.0% Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500Nalue iShares S&P 500/Growth iShares Russell Mid -Cap ETF Vanguard REIT ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate PowerShares Senior Loan First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Large Cap Value Real Estate Cash 20, ,— 5.9 % j 0.7 Small Cap ' 2.5 IntemrTerm Bond 64.7% The performance records shown represent size -weighted composites of tax exempt accounts that meet the following criteria: Composites are managed by HlghMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Conservative active and passive 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 HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. As of December 31, 2017, the blended rate is 0.58%. US Bank pays HighMark 60% of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio returns. Assuming an investment for five years, a 5% annual total return, and an annual sub -advisory fee rate of 0.36% deducted from the assets 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 (Gross -of -Fees). Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Q1 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill, HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank. N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub -adviser for mutual funds, common trust funds, and collective investment funds. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT Insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, Including possible loss of principal. HIGHMARK° CAPITAL MANAGEMENT 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 Efficient Frontier To provide current income and moderate capital appreciation. The major portion of the assets Capital Balanced Appreciation IS committed to Income- o ate �derately producing securities. Market ervative fluctuations should be expected. 3 � Conservative Risk (Standard Deviation) ASSET ALLOCATION - MODERATELY CONSERVATIVE PORTFOLIO Strategic Range Policy Tactical Equity 20-40% 30% 30% Fixed Income 50-80% 65% 67% Cash 0-20% 5% 3% (Gross of Investment Management Fees, but ANNUALIZED TOTAL RETURNS Net of Embedded Fund Fees) HighMark Plus (Active) Index Plus (Passive) Current Quarter` 1.94% Current Quarter` 1.83% Blended Benchmark`" 1.87% Blended Benchmark" 1.87% Year To Date 9.56% Year To Date 8.08% Blended Benchmark 8.11% Blended Benchmark 8.11% 1 Year 9.56% 1 Year 8.08% Blended Benchmark 8.11% Blended Benchmark 8.11% 3 Year 4.87% 3 Year4.38% Blended Benchmark 4.51% Blended Benchmark /o 5 Year 5.26% 5 Year 5.06% Blended Benchmark 5.31% Blended Benchmark 5-31% 10 Year 4.93% 10 Year 4.40% Blended Benchmark 4.63% Blended Benchmark 4.63% ' Returns less than 1 -year are not annualized. "Breakdown for Blended Benchmark: 15.5% S&P500, 31 Russell Mid Cap, 4.5% Russell 2000,2% MSCI EM FREE, 4% MSCI EAFE, 49.25% BC US Agg, 14% ML 1-3 Yr US Corp/Gov't, 1.75% US High Yield Master II. 1% Wilshire REIT, and 5%Citi 1 Mth T -Bill. Prior to October2012, the blended benchmarks were 25% S&P 500: 1.5% Russell 2000,3.5% MSCI EAFE, 25% ML 1-3 Year Corp./Govt, 40% BC Agg, 5% Citi 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were 30% S&P 500,25% ML 1-3Yr 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 8.24% 2013 7.30% 2013 6.78% 2014 4-41% 2014 5.40% 2015 0.32% 2015 -0.18% 2016 4.93% 2016 5.42% 2017 9.56% 2017 8.08% PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Inception Data 08/2004 Inception Data 05/2005 No of Funds in Portfolio 19 No of Funds in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation T. Rowe Price Growth Stock iShares Russell Mid -Cap ETF Vanguard REIT ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth I Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Prudential Total Return Nationwide Loomis Bond Eaton Vance Floating Rate & High Income First American Government Obligations Z STYLE Large Cap Value Ree 4.0% Cash 3.5% Intl Stocks 7.2 % Mid Cap 2.2% Large Cap Growth 2.5% Large Cap Core 8.2% Short -Term Bond—/ 10,2% Floating Rate Note 1.81 Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500/Value iShares S&P 500/Growth iShares Russell Mid -Cap ETF Vanguard REIT ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate PowerShares Senior Loan First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Interm-Term Bond 54.6% The performance records shown represent size -weighted composites of lax exempt accounts that meet the following criteria: Composites are managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderately Conservative active and passive 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 HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. As of December 31, 2017, the blended rate is 0.58%. US Bank pays HighMark 601 of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio returns. Assuming an investment for five years, a 5% annual total return, and an annual sub -advisory fee rate of 0.36% deducted from the assets 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 (Gross -of -Fees). Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Cl 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -dale accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index Is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub -adviser for mutual funds, common trust funds, and collective investment funds. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. HIGHMARK° CAPITAL MANAGEMENT WHY THE PARS DIVERSIFIED INVESTMENT OBJECTIVE Efficient Frontier MODERATE PORTFOLIO? To provide growth of principal Comprehensive Investment Solution and income. it is expected that Capital Appreciation HighMark® Capital Management, Inc.'s (HighMark) dividend and interest income will $ Balanced diversified investment portfolios are designed to comprise a significant portion of 2 Moderate balance return expectations with risk tolerance. total return, although growth a Moderately Conservative Key features include: sophisticated asset allocation through capital appreciation is and optimization techniques, four layers of equally important. Conservative diversification (asset class, style, manager, and Risk (Standard Deviation) security), access to rigorously screened, top tier ASSET ALLOCATION - MODERATE PORTFOLIO money managers, flexible investment options, and Strategic Range Policy Tactical experienced investment management. Equity 40-60% 50% 50% Fixed Income 40-60% 45% 47% Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous Cash 0-20% 5% 3% screening process that searches for investment ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees, but managers and styles that have not only produced Net of Embedded Fund Fees) above-average returns within acceptable risk HighMark Plus (Active) Index Plus (Passive) parameters. but have the resources and commitment Current Quarter* 2.97% Current Quarter* 2.86% to continue to deliver these results. We have set high Blended Benchmark" 2.95% Blended Benchmark- 2.95% standards for our investment managers and funds. Year To Date 13.19% Year To Date 11.59% This is a highly specialized, time consuming Blended Benchmark 11.65% Blended Benchmark 11.65% approach dedicated to one goal: competitive and consistent performance. 1 Year 13.19% 1 Year 11.59% Blended Benchmark 11.65% Blended Benchmark Oo/ Flexible Investment Options 3 Year 6.46% 3 Year 5.98% In order to meet the unique needs of our clients, Blended Benchmark 6.20% Blended Benchmark 6.20% we offer access to flexible implementation strategies: 5 Year 7.42% 5 Year 7,26% HighMark Plus utilizes actively managed mutual Blended Benchmark 7.69% Blended Benchmark 7.69% funds while Index Plus utilizes index -based 10 Year 5.45% 10 Year 5.51% securities, including exchange -traded funds. Both Blended Benchmark 5.56% Blended Benchmark 5.56% investment options leverage HighMark's active asset Returns less than l -year are not annualized. **Breakdown for Blended Benchmark: 26.5% S&P500, 5% Russell Mid Cap,7.5% allocation approach. Russell 2000, 3.25% MSCI EM FREE, 6% MSCI EAFE, 33.50%BC US Agg, 10%ML 1-3 Yr US Corp/Gov't, 1.50%US High Yield PP 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 Corp./Govt, 30% BC Agg, 5% Citi 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were 50% S&P 500.15% ML 1-3Yr Corp/Gov. 30% BC Agg, and 5% Citi 1 Mth T -Bill. Risk Management The portfolio is constructed to control risk through ANNUAL RETURNS four layers of diversification - asset classes (cash, HighMark Plus (Active) Index Plus (Passive) fixed income, equity), investment styles (large cap, 2008 -22.88% 2008 -18.14% small cap, international, value, growth), managers 2009 21.47% 2009 16.05% and securities. Disciplined mutual fund selection and 2010 12.42% 2010 11.77% monitoring process helps to drive return potential 2011 0.55% 2011 2.29% while reducing portfolio risk. 2012 12.25% 2012 10.91% 2013 13.06% 2013 12.79% 2014 4.84% 2014 5.72% 2015 0.14% 2015 -0.52% 2016 6.44% 2016 7.23% 2017 13.19% 2017 11.59% PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Inception Data 10/2004 Inception Data 05/2006 No of Funds in Portfolio 19 No of Funds in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation T. Rowe Price Growth Stock iShares Russell Mid -Cap ETF Vanguard REIT ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth I Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Prudential Total Return Nationwide Loomis Bond Eaton Vance Floating Rate & High Income First American Government Obligations Z STYLE Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500/Value iShares S&P 500/Growth iShares Russell Mid -Cap ETF Vanguard REIT ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate PowerShares Senior Loan First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Real Estate Large Cap Value 1.5 6_8% Small Cap Cash :ry 7.5% 3.1 Intl Stocks 12.5 Mid Cap 3.6% Intens -Term Bond 39.1 Large Cap Growth 4.3% Large Cap Core a^ 13.9% \_ \.-. Floating Rale Note Short -Term Bond J 1.5 6.3% The performance records shown represent size -weighted composites of tax exempt accounts that meet the following criteria Composites are managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderate. active and passive 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 HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annul management fee based on a sliding scale. As of December 31, 2017, the blended rate is 0.58%. US Bank pays HighMark 60% of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio returns. Assuming an investment for five years, a 5 annual total return, and an annual sub -advisory fee rate of 0.36% deducted from the assets 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 (Gross -of -Fees). Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Q1 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub -adviser for mutual funds, common trust funds, and collective investment funds. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, Including possible loss of principal. HIGHMARK CAPITAL MANAGEMENT INVESTMENT OBJECTIVE WHY THE PARS DIVERSIFIED Efficient Frontier BALANCED PORTFOLIO? To provide growth of principal and income. While dividend and Comprehensive Investment Solution p interest income are an important CapitalAppreciation Balanced HighMark@ Capital Management, Inc.'s (HighMark) component of the objective's � Moderate diversified investment portfolios are designed to total return, it is expected that a Moderately Conservative balance return expectations with risk tolerance. capital appreciation will 3 Key features include: sophisticated asset allocation comprise a larger portion of the conaervat ve and optimization techniques, four layers of total return. - - --- --- - - - - diversification (asset class, style, manager, and Risk (Standard Deviation) security), access to rigorously screened, top tier ASSET ALLOCATION - BALANCED PORTFOLIO money managers, flexible investment options, and Strategic Range Policy Tactical experienced investment management. Equity 50-70% 60% 60% Fixed Income 30-50% 35% 37% Rigorous Manager Due Diligence Cash 0-20% 5% 3% Our manager review committee utilizes a rigorous screening process that searches for investment (Gross of Investment Management Fees, ANNUALIZED TOTAL RETURNS Net of Embedded Fund Fees) but managers and styles that have not only produced above-average returns within acceptable risk HighMark Plus (Active) Index Plus (Passive) parameters, but have the resources and commitment Current Quarter` 3.49% Current Quarter' 3.37% to continue to deliver these results. We have set high Blended Benchmark- 3.51% Blended Benchmark- 3.51% standards for our investment managers and funds. Year To Date 15.46% Year To Date 13.39% This is a highly specialized, time consuming Blended Benchmark 13.54% Blended Benchmark 13.54% approach dedicated to one goal: competitive and 1 Year 15.46% 1 Year 13.39% consistent performance. Blended Benchmark 13.54% Blended Benchmark 13.54% Flexible Investment Options 3 Year 7.25% 3 Year 6.78% In order to meet the unique needs of our clients, Blended Benchmark 7.06% Blended Benchmark 7.06% we offer access to flexible implementation strategies: 5 Year 8.54% 5 Year 8.35% HighMark Plus utilizes actively managed mutual Blended Benchmark 8.89% Blended Benchmark 8.89% funds while Index Plus utilizes index -based 10 Year 5.74% 10 Year 5.63% securities, including exchange -traded funds. Both Blended Benchmark 6.06% Blended Benchmark 6.06% investment options leverage HighMark's active asset allocation approach. Returns less than 1-yearare notannualized."Breakdown for Blended Benchmark: 32% S&P500,6% Russell Mid Cap, 9% Russell 2000,4% MSCI EM FREE, 7% MSCI EAFE, 27% BC US Agg, 6-76% ML 1-3 Yr US Corp/Gov't, 1.25% US High Yield Master II. 2% Wilshire REIT, and 5% Cit] 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 Carp./Govt, 30% BC Agg, 5% Citi 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were Risk Management 60% S&P 500, 5% ML 1-3Yr Corp/Gov, 30% BC Agg, and 5% Citi 1 Mth T -Bill. The portfolio is constructed to control risk through ANNUAL RETURNS four layers of diversification - asset classes (cash, HighMark Plus (Active) Index Plus (Passive) fixed income, equity), investment styles (large cap, 2008 -25.72% 2008 -23.22% small cap, international, value, growth), managers 2009 21.36% 2009 17.62% and securities. Disciplined mutual fund selection and 2010 14.11% 2010 12.76% monitoring process helps to drive return potential 2011 -0.46% 2011 1.60% while reducing portfolio risk. 2012 13.25% 2012 11.93% 2013 16.61% 2013 15.63% 2014 4.70% 2014 6.08% 2015 0.04% 2015 -0.81% 2016 6.82% 2016 8.26% 2017 15.46% 2017 13.39% PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Inception Data 10/2006 Inception Data 10/2007 No of Funds in Portfolio 19 No of Funds in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation T. Rowe Price Growth Stock iShares Russell Mid -Cap ETF Vanguard REIT ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth I Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Prudential Total Return Nationwide Loomis Bond Eaton Vance Floating Rate & High Income First American Government Obligations Z STYLE Large Cap Value 8.0% Real Estate 1.6% Cash 2.7% Intl Stocks 15.5% Mid Cap 4.5% Large Cap Growth 5.0% Large Cap Core 16.4/ Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500/Value iShares S&P 500/Growth iShares Russell Mid -Cap ETF Vanguard REIT ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate PowerShares Senior Loan First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Small Cap 9.0% Interm-Term Bond 31.6% Floating Rate Note Short -Term Bond 4.5% The performance records shown represent size -weighted composites of tax exempt accounts that meet the following criteria Composites are managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Balanced active and passive objectives and do not have equity concentration of 25% or more in one common stock security. The composite name has been changed from PARS Balanced/Moderately Aggressive to PARS Balanced on 5/1/2013. The adviser to the PARS portfolios is US Bank, and HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. As of December 31, 2017, the blended rate is 0.58%. US Bank pays HighMark 60% of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio returns. Assuming an investment for five years, a 5% annual total return, and an annual sub -advisory fee rate of 0.36% deducted from the assets at market at the and 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 (Gross -of -Fees). Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Q1 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies In the U.S. stock market. The MSCI EAFE Index is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S, domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S, taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub -adviser for mutual funds, common trust funds, and collective investment funds. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. HIGHMARK@ CAPITAL MANAGEMENT WHY THE PARS DIVERSIFIED CAPITAL APPRECIATION 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 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 Capital Appreciation `o Balanced w Moderate m Moderately Conservative 3 a: Conservative Risk (Standard Deviation) ASSET ALLOCATION — CAPITAL APPRECIATION PORTFOLIO Strategic Range Policy Tactical Equity 65-85% 75% 75% Fixed Income 10-30% 20% 23% Cash 0-20% 5% 2% (Gross of Investment Management Fees, but ANNUALIZED TOTAL RETURNS Net of Embedded Fund Fees) Current Quarter" 4.16% Blended Benchmark" 4.34% Year To Date 16.72% Blended Benchmark 16.55% 1 Year 16.72% Blended Benchmark 16.55% 3 Year 8.20% Blended Benchmark 8.27% 5 Year 10.08% Blended Benchmark 10.56% Inception to Date (108 -Mos.) 10.90% Blended Benchmark 11.64% Returns less than 1 -year are not annualized. `Breakdown for Blended Benchmark: 39.5% S&P500, 7.5 % Russell Mid Cap, 10.5% Russell 2000.5.25% MSCI EM FREE, 10.25% MSCI EAFE, 16% BC US Agg, 3% ML 1-3 Yr US CorplGov't, 1 % US High Yield Master II, 2% Wilshire REIT, and 5% Cili 1 Mth T -Bill. ANNUAL RETURNS 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 PORTFOLIO FACTS HighMark Plus (Active) Inception Data 01/2009 No of Funds in Portfolio 19 N/A% 23.77% 12.95% -1.35% 13.87% 20.33% 6.05% -0.27% 8.81% 16.72% Index Plus (Passive) Inception Data N/A No of Funds in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core Z Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation T. Rowe Price Growth Stock iShares Russell Mid -Cap ETF Vanguard REIT ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth I Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Prudential Total Return Nationwide Loomis Bond Eaton Vance Floating Rate & High Income First American Government Obligations Z STYLE Intl Stocks 20.2% A Lar 6.2% Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500/Value iShares S&P 500/Growth iShares Russell Mid -Cap ETF Vanguard REIT ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate PowerShares Senior Loan First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Real Estate 1.8/ Small Cap 10.5 Interm-Term Bond 17.8% Floating Rate Note 1.0% Short -Term Bond 4.0% Large Cap Core 20.9% The performance records shown represent size -weighted composites of tax exempt accounts that meet the following criteria: Composites are managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Capital Appreciation active and passive 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 HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. As of December 31, 2017. the blended rate is 0.58%. US Bank pays HighMark 60% of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio. will reduce the portfolio returns. Assuming an investment for five years, a 5% annual total return, and an annual sub -advisory tee rate of 0.36% deducted from the assets 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 (Gross -of -Fees). Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Q1 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI SAFE Index is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization Index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged Citigroup 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is wholly owned subsidiary of MUFG Union Bank, N.A. (MUS). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub -adviser for mutual funds, common trust funds, and collective investment funds. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal.