Partnership HealthPlan of California Finance Committee ...€¦ · Speakers will be limited to three (3) minutes. Public -- II. New Business 1. CEO’s Health Plan Update – Information

Partnership HealthPlan of California Finance Committee Meeting Agenda

September 18, 2019 | 8:00 a.m. to 9:30 a.m.

Held at PHC’s Southeast Regional Office at 4665 Business Center Drive, Fairfield, CA 94534 (Board Room – 3rd Floor)

Video Conference Location PHC’s Southwest Regional Office at 495 Tesconi Circle, Santa Rosa, CA 95401,

PHC’s Northwest Regional Office at 1036 5th Street, Eureka, CA 95501, PHC’s Northeast Regional Office at 2525 Airpark, Redding, CA 96001,

Yolo County Health and Human Services Agency at 137 N. Cottonwood Street, Suite 2500, Woodland, CA 95695

Finance Committee Members: Dave Jones, Chair, Dick Fogg, Letty Garza, Randall Hempling, Karen Larsen, Viola Lujan, Kathryn Powell, and Nancy Starck

I. Agenda Items Lead Page # Time 1. Agenda Dave Jones, Chair 1 8:00 2. Finance Committee Minutes – August 21, 2019 - Decision Dave Jones, Chair 2 3. Commissioner Comments

At this time, committee members may provide comments and announcements. Commissioners --

4. Public Comments At this time, members of the public may address the committee on any non-agenda item of interest to the public that is within the subject matter jurisdiction of the committee. There will also be an opportunity to address the committee on a scheduled agenda item during the committee's consideration of that item. Speakers will be limited to three (3) minutes.

Public --

II. New Business 1. CEO’s Health Plan Update – Information Liz Gibboney 7 2. Wellness & Recovery Update – Information Margaret Kisliuk -- 3. Annual Investment Policy, FIN-700-501 – Decision Patti McFarland/

Dell Coats 8

4. Approve July 2019 Metrics and Financials – Decision Patti McFarland 77 III. Adjournment 9:30

Government Code §54957.5 requires that public records related to items on the open session agenda for a regular finance meeting be made available for public inspection. Records distributed less than 72 hours prior to the meeting are available for public inspection at the same time they are distributed to all members, or a majority of the members of the committee. The Finance Committee has designated the Administrative Assistant to the CFO as the contact for Partnership HealthPlan of California located at 4665 Business Center Drive, Fairfield, CA 94534, for the purpose of making those public records available for inspection. The Finance Committee Meeting Agenda and supporting documentation is available for review from 8:00 AM to 5:00 PM, Monday through Friday at all PHC regional offices (see locations above). It can also be found online at www.partnershiphp.org.

PHC meeting rooms are accessible to people with disabilities. Individuals who need special assistance or a disability-related modification or accommodation (including auxiliary aids or services) to participate in this meeting, or who have a disability and wish to request an alternative format for the agenda, meeting notice, agenda packet or other writings that may be distributed at the meeting, should contact the Administrative Assistant to the CFO at least two (2) working days before the meeting at (707) 863-4207 or by email at [email protected]. Notification in advance of the meeting will enable the Administrative Assistant to make reasonable arrangements to ensure accessibility to this meeting and to materials related to it.

This agenda contains a brief description of each item to be considered. Except as provided by law, no action shall be taken on any item not appearing on the agenda.

Finance Committee Packet, 091819: Page 1 of 93

http://www.partnershiphp.org/

mailto:[email protected]

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PARTNERSHIP HEALTHPLAN OF CALIFORNIA MEETING MINUTES

Committee: Finance Committee Date/Time: August 21, 2019 / 8:00 – 9:30 AM Members Present: Dave Jones –Chairperson, Randall Hempling, Richard Fogg, Viola Lujan, Karen Larsen*, Nancy Starck* Members Absent: Kathryn Powell Staff Present: Liz Gibboney, Patti McFarland, Amy Turnipseed, Sonja Bjork, Margaret Kisliuk, Mary Kerlin, Wendell Coats, Jeff Ingram, Jesse Kalkat, Olevia O’Donovan,

Wendi West*, Staff Absent: Marissa Dominguez, Diane Walton, Michelle Rollins Guests: Joseph D’Angina (Woodland Hospital)

* Attendance via Video Conference

DECISION AGENDA ITEMS DISCUSSION / CONCLUSIONS RECOMMENDATIONS / ACTION TARGET DATE DATE RESOLVED

Approval of June 19, 2019, Meeting Minutes

Mr. Dave Jones – Chairperson, called the meeting to order at 8:02 am, and confirmed a quorum, stated there are no changes to the agenda.

June 19, 2019, meeting minutes presented for approval.

Action: Mr. Randall Hempling moved to approve minutes, and seconded by Mr. Dick Fogg.

All voted to approve the minutes.

8/21/2019 8/21/2019

AGENDA CHANGES AND DELETIONS

None COMMISSIONER COMMENTS

None

PUBLIC COMMENTS

Mr. Joseph D’Angina of Woodland Hospital, commented on how beautiful and serene the landscaping around PHC, as one drives into the property.

Mr. Hempling commented that the Shasta County Board of Supervisors were very appreciative of the presentations from PHC.

NEW BUSINESS

CEO’s Health Plan Update

Presenter: Liz Gibboney, CEO

Ms. Gibboney started her updates with DHCS and Legislative Issues:

Governor’s Executive Order on Pharmacy: As previously reported, the pharmacy carve out is still not clear to the health plans, with differing statements from DHCS and the State, especially of what are the prescriptions that will be paid by the PBM (pharmacy benefit manager). Despite the requirement from the budget trailer bill to have public discussions, there was only a 2-hour meeting in

Action: Information only Mr. Jones asked if there was any comment or questions. No comment or question.

8/21/2019 8/21/2019


Sacramento, where no phone-in participations were allowed. This meeting occurred two days after the State issuedan RFP for the pharmacy proposal. It was noted that the timeline for the final RFP will be released in the next two weeks, with the final selection of the PBM by November 2019, followed by 13 months of implementation.

The health plans’ focus is on health and continuity of care. In the meantime, the meeting with legislative leaders emphasized projections of the State’s savings. DHCS and the State are not aligned with their messages, and it feels like fighting an uphill battle.

In response to Ms. Starck, Ms. Gibboney said that PHC has made initial estimates of what drugs could be carved-out, and will restructure the forecast accordingly, as things are more defined.

Ms. Patti McFarland added that PHC is modeling different scenarios, yet very concerned with the care coordination side. The fiscal impact is also a big concern as the removal of the pharmacy component would have a material impact to the Plan. PHC will continue to make adjustments to the model as more information is released.

Prop 56 Funding Opportunities: The yearly funding is negotiated with four to five areas promised to health plans, including student loan repayment plans for providers. PHC is spreading the word to the physicians, especially in the rural areas, as well as the VBP being aligned to the quality metrics. DHCS added $100M for childhood screenings based on CPT codes. There is about $500M in family planning incentives, which is a significant increase for PPS. However, entities must have contract with PHC.

Public Charge Regulations: CMS has added Medicaid regulations, affecting undocumented community members. The health plans’ associations have filed a lawsuit against the Federal government to stop the implementation. This could have a big impact on PHC members.

Per Ms. Gibboney, there are several lawsuits going on at this time.

ACA Constitutionality/Texas v. US and the 5th Circuit Court: PHC continues to monitor the Texas versus US regarding the constitutionality of the Affordable Care Act,

Ms. Nancy Starck asked how the pharmacy carve out will be impacting the finances or bottom line, as she struggles to understand it.

Ms. Viola Lujan stated that La Clinica is also part of a group that has filed a lawsuit to stop the Public Charge implementation. She added that as La Clinica is serving undocumented individuals, the Public Charge would have a detrimental impact.


and at this time there has been no update on the timeline on the decision. However, PHC will have a contingency plan, if it comes to pass.

NCQA Accreditation & HEDIS Score Initiatives: PHC received an interim approval from NCQA, with perfect scores.

Ms. Gibboney replied to Mr. Fogg that Ms. Margaret Kisliuk will cover that on her update with the Wellness & Recovery Update.

FY 19-20 Team Goals: Many of the goals from last year are returning for NCQA, incentives, telehealth, supporting the workforce, and the pharmacy carve out. This time around there are about 18 Team Goals.

Mr. Dick Fogg asked about the opioid grants.

Progress Report – New Building Expenditures

Presenter: Patti McFarland

Ms. McFarland stated that there has been no change from the last report in June, showing a budget surplus and awaiting the 3rd floor build-out. The Staff is currently marketing to lease the 3rd floor, as the potential client withdrew their offer. The surplus will stay in the budget for the 3rd floor build-out.

In response, Ms. McFarland confirmed that the building is fully functional and everyone that needed to be in the new building had moved-in. The building has more new technologies and issues found were resolved.

Action: Information only

Mr. Jones asked if the building is fully functional and everyone moved-in.

There were no additional question or comment.

8/21/19 8/21/19

Wellness & Recovery Program Update

Presenter: Margaret Kisliuk

Ms. Kisliuk stated that PHC is still working on the fiscal model, with the Go-Live date for 2/1/2020. PHC continues to meet with State officials. Part of the discussions was to include the Indian Health, and documents are moving as quickly as possible. Currently, some hospitals are able to bill on opioids, which are modeled after Los Angeles County. There will be a grant of $450K for youth addiction. Unfortunately, some are not aligned with the Federal rules.

With regards to Prop 56, many measures apply to behavioral health, and restructuring to teens and young adults. More to come.

Action: Information only

Mr. Jones asked if there are any questions or comments.

No question or comment.

8/21/19 8/21/19

Finance Department Update/Budgeting and Value Based Purchasing Priorities

Ms. Gibboney stated that the Finance Department has been reorganized for better transparency and better efficiency.

Action: Discussion 8/21/19 8/21/19


Presenter: Liz Gibboney/ Patti McFarland/ Jeff Ingram

Ms. McFarland added that part of the reorganization are staffing changes, including adding Mr. Dell Coats’ position as the Sr. Manager of Treasury and Internal Audit.

The reorganizing process moved quickly and Staff are growing into their roles. Part of the reason for the reorganization was identifying the issues that needed to be fixed. For example, many staff were working in silos without adequate collaboration.

Prior to the reorganization, analytics roles were positioned to mostly gather data. The Finance Department is moving to automate manual processes and use Staff more productively. It has also been identified that Leadership needs to work on better distributing work across the Department to ensure the top performers retain a healthy work life balance.

It was a worthy time that went into the process of restructuring. The written update provided in the packet is part of it and there will be more to come. For example, the dashboards and data will be more easily available to the Organization. Mr. Jeff Ingram added that Finance Department is working with IT for the adoption of the data warehouse and continuation of structural enhancements.

In response to Ms. Lujan, Ms. McFarland said that trainings have been expanded and the budget process was lengthened to ensure the Organization maximizes the information available to forecast our financial plan.

The restructuring process also helped the team identified opportunities from other departments, with questions as to where they fit in the organization. Through this process, PHC found that county offices were not able to transition members aid categories classifications to long term care codes. Member Services stepped in and worked with the various Counties to submit the updates. The coordinated efforts resulted in millions of increased revenue for PHC. It was a job well done, which enabled PHC to hit budget. Such efforts were communicated to other departments, which encourages Staff to actively find new ways to contribute.

In response, Ms. McFarland stated that the Staff will continue to provide the reports to the Board, including dashboards, as well as reports brought to the Staff’s attention. An example will be that FP&A is reporting the budget differently than before, showing flex budget

Ms. Lujan asked that in enhancing the communication, if additional training are being given for better understanding the budget process.

Mr. Fogg asked if the Board periodically request or demand for any reports, that made the jobs more difficult.


Minutes Prepared and Submitted by: Olevia E. O’Donovan and Jesse Kalkat Minutes Reviewed and Submitted by: Jeff Ingram

Chairman Signature of Approval_______________________ Date__________________

variances for revenue in addition to the other line items. Staff will continue to evaluate the elements of the presentation and propose changes as they see fit to improve the presentation and understanding of the information.

Ms. McFarland, in response, stated that it was a very helpful question and that Staff is open to change.

Mr. Fogg commented that he did not mean the question to be adversarial.

No additional questions or comments given.

Approve June 2019 Metrics and Financials

Presenter: Patti McFarland, CFO

Financial Performance: Ms. McFarland stated that PHC made the budget, which was largely due to renewed hospital contracts, offset by the negative impact of MedImpact.

Administrative Costs: Total administrative costs are under budget by $18.1 million for the year, due to the administrative savings PHC recognized for managing the CCS roll-out better than expected.

Membership: Membership had slightly less decline than anticipated in the 2018 budget.

In response, Ms. McFarland stated that PHC could see growth in the coming years due to the anticipated recession. However, the Staff are being conservative, budgeting a continued loss in the upcoming year.

Mr. Ingram added that the projection is 1.5% decline in membership and that the budget is based on both aid categories and region.

Decision:

Ms. Lujan motioned for approval; Mr. Hempling seconded.

All voted to approve.

Ms. Lujan asked that with continued concerns about members, what would be the estimate impact of the public charge.

Ms. Lujan also commented that projections are based on the aid category, which will likely to decline.

8/21/19 8/21/19

CLOSED SESSION:

Closed Session: Action Pursuant to Government Code § 54957(b) – Personnel

There are no actions to report from the closed session.

Adjournment Meeting adjourned at approximately 9:28 am.


Finance Committee

Report from the Chief Executive Officer

September, 2019

DHCS & Legislative Issues

DHCS Leadership

Governor’s Executive Order on Pharmacy

CalAIM Proposal

General

Federal Budget

Public Charge Regulations

ACA Constitutionality/Texas v. US and the 5th Circuit Court

NCQA Accreditation & HEDIS Score Initiatives


CONSENT AGENDA REQUEST

for

PARTNERSHIP HEALTHPLAN OF CALIFORNIA

Board / Finance Committee (when applicable) Agenda Item Number: Meeting Date: September 18, 2019 2.1

Board Meeting Date: October 23, 2019

Resolution Sponsor:

Liz Gibboney, Partnership HealthPlan of CA

Approved by:

PHC Staff

Topic Description:

PHC’s Annual Investment Policy, FIN-700-501, establishes the investment guidelines used

for all operating funds and Board designated reserve funds for the Health Plan.

Reason for Resolution:

To obtain approval for the recommended changes to PHC’s Annual Investment Policy.

Financial Impact:

There is no impact to PHC.

Requested Action of the Board:

Based on the recommendation of PHC Staff, the Board is asked to approve PHC’s Annual

Investment Policy.


CONSENT AGENDA REQUEST

for


Board / Finance Committee (when applicable) Agenda Item Number: Meeting Date: September 18, 2019 2.1

Board Meeting Date: October 23, 2019

Resolution Number:

19-

IN THE MATTER OF: APPROVING PHC’S ANNUAL INVESTMENT POLICY,

FIN-700-501

Recital: Whereas,

A. The Board has fiduciary responsibility for the operation of the organization.

B. The Board has responsibility to review and approve the HealthPlan policies and benefits.

C. It is important to establish investment guidelines to ensure PHC’s funds are prudently

invested according to the Board of Commissioners’ objectives.

Now, Therefore, It Is Hereby Resolved As Follows:

1. To approve PHC’s Annual Investment policy, FIN-700-501.

PASSED, APPROVED, AND ADOPTED by the Partnership HealthPlan of California this 23rd

day of October 2019 by motion of Commissioner, seconded by Commissioner, and by the following

votes:

AYES: Commissioners:

NOES:

ABSTAINED: Commissioners:

ABSENT: Commissioners:

EXCUSED: Commissioners:

Randall Hempling, Chair

Date

ATTEST:

BY:

Cynthia McCamey, Clerk


PARTNERSHIP HEALTHPLAN OF CALIFORNIA (PHC) POLICY/PROCEDURE

Page 1 of 1

Policy/Procedure Number: FIN-700-501 Lead Department: Finance

Policy/Procedure Title: Annual Investment Policy ☒External Policy

☒ Internal Policy

Original Date: 03/29/2011 Next Review Date: 07/31/2020

Last Review Date: 07/18/2019

Applies to: ☒Medi-Cal ☐ Healthy Kids ☐ Employees

Reviewing

Entities:

☐ IQI ☐ P & T ☐ QUAC

☐ OPERATIONS ☒ EXECUTIVE ☒ COMPLIANCE ☒ DEPARTMENT

Approving

Entities:

☒ BOARD ☒ COMPLIANCE ☒ FINANCE ☐ PAC

☒ CEO ☐ COO ☐ CREDENTIALING ☐ DEPT. DIRECTOR/OFFICER

Approval Signature: Approval Date:

I. RELATED POLICIES:

A. CMP-21 - Conflict of Interest Code

B. CMP-21 - Conflict of Interest Code – Attachment A

C. FIN-503 - Leasing and Rental Revenue Requirements

II. IMPACTED DEPTS:

A. FINANCE

III. DEFINITIONS:

A. See Attached glossary

IV. ATTACHMENTS:

Partnership Healthplan of California (PHC) Annual Investment Policy May 1, 2011, (Reviewed 02-08-2015)

V. PURPOSE:

Investment Policy sets forth the investment guidelines for all Operating Funds as required by California

Government Code §53646.

VI. POLICY / PROCEDURE:

See Attached Policy

A. REFERENCES:

B. Government Code of Regulations (CCR), §§53600-53609 and 53646

VII. DISTRIBUTION:

A. SharePoint

B. Executive Team

VIII. POSITION RESPONSIBLE FOR IMPLEMENTING PROCEDURE: CFO

IX. REVISION DATES:

02/08/2015

PREVIOUSLY APPLIED TO:

N/A


TABLE OF CONTENTS

1.0 Overview: ..................................................................................................................... 1

2.0 Policy: ........................................................................................................................... 1

2.3 Authority to Invest: ....................................................................................................... 2

2.4 Prudence ....................................................................................................................... 2

2.5 Ethics and Conflict Of Interest ..................................................................................... 3

2.6 Investment Manager ..................................................................................................... 3

3.1 Reporting (Government Code § 53646) ....................................................................... 4

4.1 Performance Standards ................................................................................................. 4

5.0 Monitoring .................................................................................................................... 4

7.0 Authorized Investments ................................................................................................ 6

8.0 Eligible Investments ..................................................................................................... 6

9.0 Underlying Nature of Investments .............................................................................. 16

10.0 Rating Downgrades .................................................................................................... 16

11.0 Rating Guidelines……………………………………………………………………17

Appendices

Table 1 Allowable Investment Interments per State Government Code………….18

Table 2 Comparison and Interpretation of Credit Ratings ………………….……20

Attachment A Glossary………………………………..………………………....21


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PARTNERSHIP HEALTHPLAN OF CALIFORNIA (PHC) Annual Investment Policy

May 1, 2010 (Reviewed July 18, 2019)

1.0 Overview:

1.1 To establish the investment guidelines for all operating funds and Board designated reserve funds of Partnership HealthPlan of California (PHC)) invested on and after May 1, 2010. The objective is to ensure PHC’s funds are prudently invested according to the Board of Commissioners’ objectives to preserve capital, provide necessary liquidity, and to achieve a market average rate of return through economic cycles.

2.0 Policy:

2.1 This Annual Investment Policy sets forth the investment guidelines for all Operating Funds, which conforms to California Government Code §53600 of Title 5. Local Agencies of the California Government Code (the Code), as well as tocustomary standards of prudent investment management. Any investmentinstruments not specifically approved in this policy will not be entered into withoutthe prior consent of the Investment/Finance Committee and the Board ofCommissioners of PHC. Irrespective of these policy provisions, should theprovisions of the Code become more restrictive than those contained herein, suchprovisions will be considered immediately, adhered to, and incorporated into theAnnual Investment Policy.

2.2 Investment Objectives In accordance with the regulations cited herein, PHC’s primary annual investment objectives are in order of priority, as follows:

2.2.1 Safety and Preservation of Capital Each investment transaction shall seek to ensure that the capital losses are avoided due to market erosion of security value and institutional default or broker-dealer default. PHC shall seek to preserve capital by mitigating the two types of risk, Credit Risk and Market Risk, as follows:

2.2.1.1.1 Credit Risk will be mitigated through diversification of the investment portfolio.

2.2.1.1.2 Market Risk will be mitigated by matching Maturity dates to coincide, as much as possible, with PHC’s cash flow requirements. It is explicitly recognized herein; however, that in a diversified portfolio, occasional capital losses are inevitable and must be considered within the context of the overall investment return.

2.2.2 Liquidity and Flexibility The portfolio investments need to be comprised of investments for which there is a secondary market and which offer the flexibility to


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be sold at any time at prevailing market values with minimal risk of loss of principal and interest.

2.2.3 Total Return PHC portfolio will be designed to achieve a market average rate of return similar to other authorized instruments and securities which have similar security, maturities and levels of risk.

2.3 Authority to Invest:

2.3.1 In accordance with authority granted by the Board of Commissioners, the Chief Financial Officer (CFO) of PHC is authorized to invest and manage the investment portfolio in accordance with the this investment policy. All will be pooled in an actively managed portfolio. The Investment Pool or "Portfolio" will be referred to as the "Fund" throughout the remainder of this document.

2.3.2 The CFO may designate an Investment Manager(s) and/or subordinate, to manage all or such portions of PHC’s funds as the CFO shall determine from time to time. Such Investment Manager(s) shall be subject to this policy and any directions provided by the CFO. The CFO will be responsible for all actions undertaken and shall establish a system on internal controls to regulate the activities of subordinate officials, including the Investment Manager(s). Additional information regarding Investment Manager(s) can be found in Paragraph 2.5.

2.3.3 No person may engage in an investments transaction except as provided herein and in the procedures established by the CFO and/or Board of Commissioners.

2.4 Prudence

2.4.1 PHC’s Board of Commissioners, CFO, and persons authorized to make investment decisions on behalf of PHC are trustees and fiduciaries subject to the Prudent Investment Standards, as defined in Government Code §53600.3:

2.4.1.1 The “prudent person” standard specifies when investing, reinvesting, purchasing, acquiring, exchanging, and selling the CFO shall act with care, skill, prudence, and diligence under prevailing circumstances, including but not limited to, the general economic conditions and the anticipated needs of PHC, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims to safeguard the principal and maintain the liquidity needs of PHC. The Prudent Investment Standard shall be applied in the context of managing an overall portfolio.

2.4.1.2 The CFO acting in accordance with written procedures, and the Annual Investment Policy, and exercising due diligence, shall be relieved of personal responsibility for an individual security credit


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risk or market changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control developments. Additionally, the CFO shall act in accordance with written procedures, investment policy, and exercise due diligence to control adverse developments.

2.5 Ethics and Conflict Of Interest

2.5.1 PHC’s officers and employees involved in the investment process or having authority or influence over such activities, shall refrain from personal business activity that could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions.

2.5.2 PHC’s officers and employees involved in the investment process or having authority or influence over such activities, are not permitted to have any material financial interests in financial institutions that conduct business with PHC, and they are not permitted to have any personal financial or investment holding that could be materially related to the performance of PHC’s investments.

2.5.3 PHC officers and employees involved in the investment process or having authority or influence over such activities, will follow applicable compliance policies related to disclosure of potential conflicts to the extent the personal business activity or material financial interest is one capable of being known.

2.6 Investment Manager

2.6.1 The CFO, when cost beneficial, may designate an Investment Manager(s) to manage any portion of the investment portfolio. Any designated Investment Manager(s) shall be a fiduciary subject to the Prudent Investor Standard in Section 2.4.1.1 with respect to the funds under management.

2.6.2 The CFO will:

2.6.2.1 Evaluate candidates for the role of Investment Manager(s). The selected candidates will be reviewed and approved by the Chief Executive Officer (CEO), and Finance and Budget Committee and the Board of Governors.

2.6.2.2 Obtain certification from outside Investment Managers that they will purchase securities from broker-dealers (other than themselves) or financial institutions in compliance with Government Code Section 53601.5 and the Annual Investment Policy.

2.6.2.3 Provide all Investment Manager(s) with copy of Annual Investment Policy which will be included in the Investment Manager’s contract.

2.6.2.4 Establish and review the targeted average maturities periodically with the Investment Manager(s).


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2.6.2.5 Review the investment diversification and portfolio performance monthly to ensure that the Investment Manger’s compliance with this policy, risk levels and returns are reasonable, and that investments are diversified in accordance with this policy.

2.6.2.6 Investigate any investment made by the Investment Manager(s) which is not authorized by this policy for possible cause for termination of contract.

2.6.2.7 Ensures that the investment advisor prepares monthly reports on its portfolio that include all required information for PHC to compile with its reporting requirement, and applicable State and Local laws and regulations.

3.0 Reporting (Government Code § 53646)

3.1 Quarterly Review

3.2 At a minimum, the CFO will or cause to, present a quarterly report with investments transaction information in adequate detail to allow the Finance Committee to review the investment activity of PHC.

3.3 The quarter report will be summarized and presented as a report from the Finance Committee to the full Board of Commissioners in accordance with Government Code §53646(b).

4.0 Performance Standards

4.1 The investment portfolio shall be managed in accordance with the parameters specified in this policy. Consequently, the investment portfolio shall be designed to achieve a market average rate of return through economic cycles similar to authorized investment instruments, which have similar security maturities and levels of risk.

4.2 The performance benchmarks for the investment portfolio will be based upon the market indices for short term investments of comparable risk and duration. These performance benchmarks will be agreed to by the CFO, and the Investment Manager(s), and the relative performance of the investment portfolio will be reviewed with the Finance and Budget Committee, quarterly.

4.3 For planning purposes, we expect the Fund to return a money market rate of return. For comparison purposes, the one to three year treasury index and the state pool (LAIF) will be used.

5.0 Monitoring

5.1 Chief Financial Officer (CFO)

The CFO and their staff are responsible for the day-to-day management of PHC’s portfolio and the making of specific investments that comply


Page 5 of 27

with this policy.

5.2 Board of Commissioners

5.2.1 The CFO is responsible for providing the Board of Commissioners with an Annual Investment Policy, and the Board of Commissioners is responsible for adopting the Annual Investment Policy and ensuring investments are made in compliance with the FIN-700-501, Annual Investment Policy. This Annual Investment Policy shall be reviewed and approved annually by the Board of Governors at a public meeting pursuant to Section 53646(a)(2) of the California Government Code.

5.2.2 The CFO is responsible for directing PHC’s investment program and for compliance with this policy pursuant to the delegation of authority to invest funds or to sell or exchange securities. The CFO shall provide a quarterly report to the Board of Governors. The CFO shall also provide the Board of Governors with a quartery report of investment transactions.

5.3 Finance Committee

5.3.1 The duties and responsibilities of the Finance Committee shall consist of the following:

5.3.2 Review of the Annual Investment Policy annually before its consideration by the Board of Commissioners and recommend revisions.

5.3.3 Review PHC’s investment portfolio quarterly to confirm compliance with the Annual Investment Policy, including its diversification and maturity guidelines.

5.3.4 Provide comments to the CFO regarding potential investments and potential investment strategies.

5.3.5 Periodically review investment security diversification and investment strategies with Investment Manager(s).

5.3.6 Perform such additional duties and responsibilities as may be required from time to time by specific action and direction of the Board of Governors.

5.4 Audit Investment transactions of PHC may be reviewed during the annual audit performed by the public accounting firm selected by the Finance and Budget Committee, and approved by the Board of Commissioners. The results of the audit of the investment transactions shall be presented in a report prepared by the auditors to the Finance Committee and the Board of Commissioners for their review, acceptance, and action as the Board


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of Commissioners deems necessary. A full audit of the investment of PHC may be requested by the Finance Committee or Board of Commissioners at any time.

6.0 Safekeeping of Securities Investments purchased shall be held by a custodian bank acting as agent for PHC, and such custody agreement shall be in compliance with Government Code §53608.

7.0 Authorized Investments PHC has a fiduciary responsibility to maximize the productive use of assets entrusted to its care and to invest and manage those funds wisely and prudently. PHC operates its pooled idle cash to afford a broad spectrum of investment opportunities that are deemed prudent, and are legally allowable under the Code and other regulations. Additionally, PHC recognizes that it has an equal obligation to be aware of the social and political impacts of its investments, and subsequently, to act responsibly in making its financial decisions. PHC shall not knowingly, make any investments in any institution, company, corporation, subsidiary or affiliate that practices or supports directly or indirectly through its actions discrimination on the basis of race, religion, color, creed, national or ethnic origin, age, sex, sexual preference, or physical disability. As stated above, PHC is governed by the Code §53600-53609. Within the context of these limitations, the following investments are authorized, as further limited herein. Table 1 summarize the allowable Investment instruments per California State Code. Table 2 illustrates comparison and interpretation of credit ratings. Attachment A is a Glossary of common investment terms.

7.1 Maturity and Terms

All investments are subject to a maximum five (5) year Maturity or Term.

8.0 Eligible Investments PHC’s policy is to invest in the high quality instruments as permitted by the Government Code, subject to the limitations of the Annual Investment Policy.


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8.1 United States Treasuries (Government Code §53601(b)) These investments are direct obligations of the US and securities which are fully and unconditionally guaranteed as to the timely payment of principal and interest by the full faith of the US.

Types of US Treasuries Description

Treasury Bills 3 months, 6 months, and one year securities and traded at a discount.

Treasury Notes and Bonds Interest bearing instruments issued with maturities’ of 2 to 5 years

Treasury STRIPS US Treasury securities that have been separated into their component parts of principal and interest payments and recorded as such in the Federal Reserve book-entry record keeping system.

Treasury coupon and principalSTRIPS

These are not to be considered to be derivatives for the purpose of the Annual Investment Policy and are permitted investments.

8.1.1 Maximum Term/Restrictions: Code specifies five (5) years and there is no limitation as to the percentage of the fund which can be invested.

8.2 Federal Agencies and U.S. Sponsored Enterprises (Government Code § 53601(f))These are U.S. Government related organizations, the largest of which are intermediaries assisting credit markets, are often simply referred to as “agencies”. Any Federal Agency and U.S. Government Sponsored Enterprise security not specifically listed below, is not a permitted investment interment:


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“Agencies” are limited to: Federal Agriculture Mortgage Association FRMDN Federal Home Loan Banks FHLB Federal Home Loan Mortgage Corporation FHLMC Federal National Mortgage Association FNMA Federal Farm Credit Banks SLMA Student Loan Marketing Association GNMA Government National Mortgage Association SBA Small Business Administration MARAD Export-Import Bank of the United States Ex-Im Bank U.S. Maritime Administration MARAD U.S. Department of Housing and Urban Housing HUD

8.2.1 Maximum Term: 5 years and

8.2.2 Restrictions: Despite the implied government guarantee, Agencies that are not direct obligations of the U.S. Government will be limited to 50 percent of the portfolio in aggregate and no more than 25 percent of the portfolio may be in any one Agency.

8.3 State of California and Local Agency Obligations (Government Code § 53601(a) (c) (e))

8.3.1 Such obligations must be rated A-1, P-1, or equivalent or better short term; or Aa3/AA-, or equivalent or better long term, by an Approved NRSRO. Public agency bonds issued for private purposes (industrial development bonds) are specifically excluded as permitted investments.

8.3.2 Maximum Term: Five (5) Years

8.4 Other States’ Obligations (Government Code § 53601(d))

8.4.1 Other State’s obligations are permitted provided that:

8.4.1.1 Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. However, ownership of out of state local agency bonds is not allowed.

8.4.1.2 Such obligations must be rated A-1, P-1, or equivalent or better short term; or AA/Aa2, or equivalent or better long term, by an approved NRSRO.

8.5 Banker Acceptances (BA) (Government Code § 53601(g))


Page 9 of 27

8.5.1 These short-term notes are sold at a discount, and are obligations of the drawer (the bank’s trade finance client), as well as the bank. Once accepted, the bank is irrevocably obligated to pay the BA upon maturity if the drawer does not.

8.5.2 Eligible Bankers’ Acceptance are Bankers’ Acceptances that are eligible for purchase by the Federal Reserve, and;

8.5.3 Drawn on and accepted by a bank rated F1 or better by Fitch, or are rated A-1 for short-term deposits by Standard and Poor’s or P-1 for short-term deposits by Moody’s (a rating matrix is found at attachment B).

8.5.4 Maximum Term: 180 days.

8.5.5 Restrictions: No more than 5 percent of PHC’s Portfolio be invested in banker's acceptances issued by any one bank.

8.5.6 No more than 40 percent of the portfolio may be in banker’s acceptances.

8.6 Commercial Paper (CP): Non-Pooled Funds (Government Code § 53601(h) (2) (c))

8.6.1 CP is unsecured promissory notes issued by companies and government entities at a discount. CP is negotiable, although it is typically held to maturity.

8.6.2 CP must be:

8.6.2.1 Rated A-1 or better by an Approved NRSRO.

8.6.2.2 Issued by corporations rated A-3 or better, or equivalent, or higher by an Approved NRSRO on longer term debt, if any, and;

8.6.2.3 Issued by U.S. corporations organized or non-U.S. Corporation organized and operating within the U.S. and having assets in excess of $500 million.

8.6.2.4 Asset backed Commercial Paper issued by special purpose vehicles (structure investments vehicles) are prohibited.

8.6.2.5 PHC’s investment funds may not be used to purchase more than 10 percent of the outstanding paper issued by any single issuing corporation.

8.6.2.6 Maximum Term: 270 days


Page 10 of 27

8.6.2.7 Restrictions: Total investments in commercial paper may not exceed 25 percent of the portfolio (AB 609 7/13/01).

8.7 Negotiable Certificates of Deposits (CD) (Government Code § 53601(i))

8.7.1 A negotiable (marketable or transferable) receipt for a time deposit at a bank or financial institution for a fixed time and interest rate. Negotiable Certificates of Deposits must be issued by a nationally or state chartered bank or state or federal association or by a state licensed branch of a foreign bank, which have been rated as F1 or better by Fitch, or rated as A-1 for short term-deposits by Standard & Poor’s, or P-1 for short-term deposits Moody’s or are comparably rated by a nationally recognized agency.

8.7.2 Maximum Term: five (5) years

8.7.3 Restrictions: Eligible banks must also have no long term ratings below A or equivalent. No more than 5 percent of the fund may be invested in CDs of one issuer and no more than 30 percent of the portfolio may be invested in CDs.

8.7.4 Except, PHC may not invest in a CD of a state or federal credit union, where any person with investment decision making authority at PHC also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit.

8.8 Non-Negotiable Certificates of Deposit (CD) (Government Code § 53601.8 & 53635.8)

8.8.1 Investment funds managed by an external investment Manager may not invest in Non-Negotiable Certificates of Deposits.

8.8.2 PHC must choose a nationally or state charter commercial bank, savings & loan association, or credit union in this state to invest funds, which shall be known as the “Selected” depository institution.

8.8.3 The selected depository institution may submit the funds to a private sector entity that assists in the placement of certificates of deposit with one or more commercial banks, savings banks, savings and loan associations, or credit unions that are located in the United States, for the local agency's account.

8.8.4 The full amount of the principal and the interest that may be accrued during the maximum term of each certificate of deposit shall at all times be insured by the Federal Deposit Insurance Corporation or National Credit Union Administration.


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8.8.5 Maximum Term: Five (5) years

8.9 Repurchase Agreements (Government Code § 53601(j))

8.9.1 Repurchase Agreements cover a purchase of securities under a simultaneously agreement to sell these securities back at a fixed price in the future, are permitted provided that:

8.9.1.1 PHC may enter into Repurchase Agreements with banks and dealers that:

8.9.1.2 A broker dealer master Repurchase Agreement must be signed by the Investment Manager (acting as “Agent”) and approved by the Investment Professional prior to entering into any repurchase transactions.

8.9.1.3 The securities used to make the reverse repurchase have been held for a minimum of thirty (30) days prior to the transaction

8.9.1.4 The securities are held free and clear of any lien by PHC’s Custodian or Agent for the Custodian, and such third party is a:

8.9.1.4.1 Federal Reserve Bank, or

8.9.1.4.2 A bank which is a member of the Federal Deposit Insurance Corporation (FDIC) and which has a combined capital surplus and undivided profits of not less than $50 million.

8.9.2 A perfected first security interest under the uniform code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq., or C.F.R 350.0 et seq. in such securities is created for the benefit of PHC’s Custodian.

8.9.3 The repurchase positions must be collateralized at 102 percent for Treasuries, Agencies, and eligible money market instruments; and Corporates and other eligible collateral will be collateralized at 105 percent. Securities held as collateral for Repurchase Agreements can only be those marketable securities, eligible for investment by PHC are permitted.

8.9.4 Repurchase Agreements will be conducted with only primary dealers.

8.9.5 Maximum Term: Repurchase Agreements shall not exceed 90 days; however, the code authorizes one year when all requirements are met.


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8.9.6 Restrictions: Reverse Repurchase Agreements are not allowed.

8.10 Medium-Term Maturity Corporate Securities (Government code § 53601(k))

8.10.1 Medium-Term Maturity Corporate Securities, are corporate and depository institution debt securities with a maximum remaining maturity of five years (5) or less. Medium Term Maturity Corporate Securities must:

8.10.1.1 Be issued by corporations organized and operating within the U.S. or any state or by depository institutions licensed by the U.S. or any state operating within the U.S. that have total assets in excess of $500 million.

8.10.1.2 Have a rating of A or better by an approved NRSROs with a maturity of five (5) years or less.

8.10.2 Represent no more than 5 percent of the issue amount in the case of a specific public offering. This limitation does not apply to debt that is “continuously offered” in a mode similar to Commercial Paper. (i.e., Medium- Term Notes (MTN’s)), and;

8.10.3 Represent no more than 5 percent of the portfolio for either MTNs or any corporate security of any one corporate issuer.

8.10.4 Maximum Term: Maturity a maximum of five (5) years.

8.10.5 No more than 30 percent of the fund may be invested in Medium-Term Notes or other Corporates.

8.11 Money Market and Mutual Funds (Government Code § 53601(1) and 53601(n))

8.11.1 Investments in shares of beneficial interest issued by diversified management companies (Money Market Funds or Mutual Funds) must be with a company that:

8.11.1.1 Attain the highest ranking or the highest letter and numerical rating provided, by not less than two of the three largest nationally recognized rating services, or have an investment adviser registered with the Securities and Exchange Commission (SEC) with not less than five years experience investing in the securities and obligations as authorized above, and with assets under management in excess of $500 million.

8.11.2 If unrated, all funds must be invested 100 percent in government securities or securities backed by government collateral.


Page 13 of 27

8.11.3 The price of shares of beneficial interest (mutual funds) shall not include any commission that these companies may charge at the time of purchase or redemption.

8.11.4 Restrictions: No more than 20 percent of the portfolio may be invested in mutual funds.

8.11.4.1 No more than 10 percent invested in any one mutual fund. However, Money Market Funds are not subject to a maximum investment limitation per fund.

8.12 Mortgage or Asset-Backed Securities (ABS) (Government Code § 53601(o))

8.12.1 These securities may contain a third-party guarantee, they are a package of assets being sold by a trust, not a debt obligation of the sponsor. Other types of “backed” debt instruments have assets (such as leases or consumer receivables) pledged to support the debt service. However, Mortgage Backed Securities primarily backed by sub-prime collateral are not allowed.

8.12.2 Investments in any Mortgage Pass-through securities, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-back certificate, consumer-receivable pass-through certificate, or consumer-receivable-backed bond must be:

8.12.2.1 Rated AA, or its equivalent or better by an Approved NRSRO, and

8.12.2.2 Issued by an issuer rated A- or equivalent or better, by an approved NRSRO for its long term debt.

8.12.3 Maximum Term/Restrictions: Five (5) year maturity.

8.12.3.1 PHC will continue to buy only AAA-rated ABS. Total investment in this category may not exceed 20 percent of the fund.

8.13 Pooled Funds (Government Code § 53601(p), 16429.1, 16340)

8.13.1 Investments are permitted in Government Pooled Funds including, but not limited to, County Pooled Investment Funds, Joint Powers Authority Pools, the Local Agency Investment Fund, and the Voluntary Investment Program Fund.

8.13.2 A Joint Powers Authority Pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years experience investing in


Page 14 of 27

instruments authorized by Government Code Sections 53601(a) to (o).

8.13.3 Any investments in the Voluntary Investment Program Fund must be between $200 million and $10 billion and must be approved by the Board of Commissioners.

8.13.4 For any investments in the Local Agency Investment Fund or County Pooled Investment Fund, the CFO may provide to the Board of Commissioners, and the auditor, the most recent statement or statements received from those institutions, in lieu of the information otherwise required to be provided in the quarterly reports pursuant to Paragraph 5.2.2.


8.14 Insured passbook savings account demand deposits in commercial banks and savings and loan companies.

8.14.1 Maximum Term/Restrictions: The deposit shall not exceed the total net worth of any depository savings association or federal association, except that deposits not exceeding a total of $500,000 may be made to a savings association or federal association without regard to the net worth of that depository, such deposits are insured or secured by law.

8.15 Supranational Obligations (Government Code § 53601(q))

8.15.1 Certain supranational obligations are permitted, provided that the obligations are:

8.15.1.1 U.S. Dollars denominated,

8.15.1.2 Senior Obligations,

8.15.1.3 Issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank,

8.15.1.4 Eligible for purchase and sale within the United States, and

8.15.1.5 Rated AA or equivalent or better by an Approved NRSRO.

8.15.2 Maximum Term: Five (5) years or less


Page 15 of 27

8.16 Securities Lending

8.16.1 Securities lending is allowed but are subject to the conditions and restrictions in the California Government Code Sections 53601(j) and 53601(l).

8.17 Derivatives

8.17.1 Investments in derivative securities are not allowed, except as permitted by this Annual Investment Policy, including but not limited to, US Treasury STRIPS as discussed in Section 8.1.

8.18 Investments Restrictions and Prohibited Transactions.

8.18.1 Any investment not authorized by the Codes §53601 and §53635 are prohibited, including but not limited to, common stocks, derivatives such as inverse floaters, mismatched floaters, yield curve notes and other securities that magnify interest rate risk, are expressly prohibited. Additionally, Corporates including Medium-Termed Notes (MTN) rated A, may not be purchased if they are currently on the downgrade list at either Moody’s or S&P or Commercial Paper of issuers with long term ratings of single A, may not be purchased if the issuer is currently on the downgrade list of either S&P or Moody’s. Also, private placements are not acceptable investments.

8.19 Diversification Guidelines

8.19.1 Investment Security Diversification at the time of purchase:

Type of Security Maximum Portfolio %

Treasuries, including STRIPS 100% Federal Agencies, and US Government Enterprises 100% State Obligations (CA and others) and CA Local 25% Obligations Bankers Acceptances 40% Commercial Paper 25% Negotiable Certificates of Deposit 30% Non-Negotiable Certificates of Deposit 100% Placement Service Deposits 30% Repurchase Agreements 100% Medium Term Maturity Corporate Securities 30% Money Market Funds and Mutual Funds Combined 20% Mortgage and Asset Backed Securities 20% Variable and Floating Rate Securities 0%* Government Pooled Funds 100% Certain Supranational Obligations 30%


Page 16 of 27

* Maximum holding percentage is based on underlying security type limits listed.

8.19.2 Issuer / Counterparty Diversification Guidelines:

8.19.3 For all other securities described under Authorized Investments that are permitted investments, no more than 2 percent of PHC’s funds may be invested with any one company, corporation, bank, local agency, or other investment vehicle, unless otherwise stated.

8.20 Leverage

8.20.1 The investment portfolio, or investment portfolios managed by an Investment Manager cannot be used as collateral to obtain additional investment funds.

9.0 Underlying Nature of Investments

9.1 PHC and its Investment Manager(s) shall not make investments in organizations which have a line business that is visibly in conflict with public health or the mission of PHC.

9.2 PHC and its Investment Manager(s) shall not make investments in Negotiable Certificates of Deposit of a state or federal credit union, if a member of its Board or Executive Officers also serves on the Board of Governors of that credit union.

9.4 PHC will provide the Investment Manager(s) with a list of corporations that do not comply with the Annual Investment Policy and shall notify its Investment Manager(s) of any changes.

9.5 Investment Manager(s) will not enter into any investments with any institutions with which the Investment Manager is affiliated.

10.0 Rating Downgrades

10.1 PHC may from time to time be invested in a security whose rating is downgraded below the quality permitted in this Annual Investment Policy.

10.2 Any security held as an investment whose rating falls below the investment guidelines or whose rating is put on notice for possible downgrade, shall be immediately reviewed for action. The decision to

Issuer / Counterparty Maximum Portfolio %

Any one Federal Agency or Government Sponsored Enterprise 100% Any one Repurchase Agreement counterparty name: If Maturity / Term is less than or equal to 7 days 50% If Maturity / Term is greater than 7 days 25%


Page 17 of 27

retain the security until maturity, sell or put the security, or other action shall be approved by the CFO.

11.0 Rating Guidelines

11.1 A security must be rated by one or more of the following Approved NRSROs: 1) Standard and Poor’s 2) Moody’s, or 3) Fitch Ratings. Unless specifically stated otherwise for a specific asset class, if a security is rated at different rating levels by two or more Approved NRSRO’s, the highest rating will apply.

11.2 All investments must adhere to rating requirements out lined under the sections authorizing their purchase under section 2.3.

11.3 Notwithstanding Section 8.13, PHC may invest in Government Pooled funds that invest only in high grade securities or obligations.


TABLE 1

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ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE (AS OF JANUARY 1, 2019)A APPLICABLE TO ALL LOCAL AGENCIESB

See “Table of Notes for Figure 1” on the next page for footnotes related to this figure.

INVESTMENT TYPE

MAXIMUM REMAINING MATURITYC

MAXIMUM SPECIFIED

% OF PORTFOLIOD

MINIMUM QUALITY

REQUIREMENTS

GOVERNMENT CODE

SECTIONS

Local Agency Bonds 5 years None None 53601(a)

U.S. Treasury Obligations 5 years None None 53601(b)

State Obligations: CA and Others 5 years None None 53601(d)

CA Local Agency Obligations 5 years None None 53601(e)

U.S. Agency Obligations 5 years None None 53601(f)

Bankers’ Acceptances 180 days 40%E None 53601(g)

Commercial Paper: Non-pooled FundsF 270 days or less 25% of the agency’s moneyG

Highest letter and number

rating by an NRSROH

53601(h)(2)(C)

Commercial Paper: Pooled FundsI 270 days or less 40% of the

agency’s moneyG


rating by an NRSROH

53635(a)(1)

Negotiable Certificates of Deposit 5 years 30%J None 53601(i)

Non-negotiable Certificates of Deposit 5 years None None 53630 et seq.

Placement Service Deposits 5 years 30% K None 53601.8 and 53635.8

Placement Service Certificates of Deposit 5 years 30% K None 53601.8 and 53635.8

Repurchase Agreements 1 year None None 53601(j)

Reverse Repurchase Agreements and Securities Lending Agreements 92 daysL

20% of the base value of the portfolio NoneM 53601(j)

Medium-term NotesN 5 years or less 30% “A” rating category or

its equivalent or better

53601(k)

Mutual Funds and Money Market Mutual Funds N/A 20%O MultipleP,Q 53601(l) and

53601.6(b)

Collateralized Bank Deposits R 5 years None None 53630 et seq. and 53601(n)

Mortgage Pass–through and Asset Backed Securities 5 years or less 20%

“AA” rating category or its equivalent or

better 53601(o)

County Pooled Investment Funds N/A None None 27133

Joint Powers Authority Pool N/A None Multiple S 53601(p)

Local Agency Investment Fund (LAIF) N/A None None 16429.1

Voluntary Investment Program Fund T N/A None None 16340

Supranational Obligations U 5 years or less 30% “AA” rating category or its equivalent or

better 53601(q)


TABLE 1

Page 19 of 27

TABLE OF NOTES FOR FIGURE 1

A

B

C

D

E

F

G

H

I

J

K

L

Sources: Sections 16340, 16429.1, 27133, 53601, 53601.6, 53601.8, 53630 et seq., 53635, and 53635.8. Municipal Utilities Districts have the authority under the Public Utilities Code Section 12871 to invest in certain securities not addressed here. Section 53601 provides that the maximum term of any investment authorized under this section, unless otherwise stated, is five years. However, the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five year remaining maturity limit. Such approval must be issued no less than three months prior to the purchase of any security exceeding the five-year maturity limit. Percentages apply to all portfolio investments regardless of source of funds. For instance, cash from a reverse repurchase agreement would be subject to the restrictions. No more than 30 percent of the agency’s money may be in bankers’ acceptances of any one commercial bank. Includes agencies defined as a city, a district, or other local agency that do not pool money in deposits or investment with other local agencies, other than local agencies that have the same governing body. Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. Issuing corporation must be organized and operating within the U.S., have assets in excess of $500 million, and debt other than commercial paper must be in a rating category of "A" or its equivalent or higher by a nationally recognized statistical rating organization, or the issuing corporation must be organized within the U.S. as a special purpose corporation, trust, or LLC, have program wide credit enhancements, and have commercial paper that is rated “A-1” or higher, or the equivalent, by a nationally recognized statistical rating agency. Includes agencies defined as a county, a city and county, or other local agency that pools money in deposits or investments with other local agencies, including local agencies that have the same governing body. Local agencies that pool exclusively with other local agencies that have the same governing body must adhere to the limits set forth in Section 53601(h) (2) (C). No more than 30 percent of the agency’s money may be in negotiable certificates of deposit that are authorized under Section 53601(i). No more than 30 percent of the agency’s money may be invested in deposits, including certificates of deposit, through a placement service (excludes negotiable certificates of deposit authorized under Section 53601(i)). Reverse repurchase agreements or securities lending agreements may exceed the 92-day term if the agreement includes a written codicil guaranteeing a minimum earning or

M

N

O

P

Q

R

S

T

U

spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity dates of the same security. Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency. The local agency must have held the securities used for the agreements for at least 30 days. “Medium-term notes” are defined in Section 53601 as “all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.” No more than 10 percent invested in any one mutual fund. This limitation does not apply to money market mutual funds. A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Sec- tions 53601 and 53635. A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than five years' experience investing in money market instruments with assets under management in excess of $500 million. Investments in notes, bonds, or other obligations under Section 53601(n) require that collateral be placed into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, among other specific collateral requirements. A joint powers authority pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Section 53601, subdivisions (a) to (o). Local entities can deposit between $200 million and $10 billion into the Voluntary Investment Program Fund, upon approval by their governing bodies. Deposits in the fund will be invested in the Pooled Money Investment Account. Only those obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter-American Development Bank (IADB), with a maximum remaining maturity of five years or less.


TABLE 2

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Comparison and Interpretation of Credit Ratings1

Long Term Debt Ratings

Rating Interpretation Moody’s Standard &

Poor’s Fitch IBCA Best-quality grade Aaa AAA AAA High-quality grade Aa1

Aa2 Aa3

AA+ AA AA-

AA+ AA AA-

Upper medium grade A1 A2 A3

A+ A A-

A+ A A-

Medium Grade Baa1 Baa2 Baa3

BBB+ BBB BBB-

BBB+ BBB BBB-

Speculative Grade Ba1 Ba2 Ba3

BB+ BB BB-

BB+ BB BB-

Low Grade B1 B2 B3

B+ B B-

B+ B B-

Poor Grade to Default Caa CCC+ CCC In Poor Standing - CCC -

Highly Speculative Default Ca C

CC -

CC -

Default - - -

- - D

DDD DD D

Short Term/Commercial Paper Investment Grade Ratings

Rating Interpretation Moody’s Standard & Poor’s Fitch IBCA Superior Capacity P-1 A-1+/A-1 F1+F1 Strong Capacity P-2 A-2 F2

Acceptable Capacity P-3 A-3 F3

1 These are general credit rating guidelines and are for information only.


Attachment A

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Agent - An independent third party acting for the Custodian. The Investment Manager may act as Agent.

Approved NRSRO - Approved NRSROs consists of the following NRSROs: 1) Standard and Poor’s, 2) Moody’s, and 3) Fitch Ratings.

Arbitrage- Transactions by which securities are bought and sold in different markets at the same time for the sake of the profit arising from a yield difference in the two markets. The 1986 Tax Reform Act made this practice by municipalities illegal solely as a borrowing tactic, except under certain safe-harbor conditions.

Asset Allocation-The division of an investment portfolio among different asset categories, such as stocks, bonds, and cash.

Asset-Back Securities-Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset-backed securities are structured as trusts in order to perfect a security interest in the underlying assets.

Bankers' Acceptance- A draft or bill or exchange accepted by a bank or trust company. The accepting institution, as well as the issuer, guarantees payment of the bill.

Bond Proceeds-The money paid to the issuer by the purchaser or underwriter of a new issue of municipal securities. These moneys are used to finance the project or purpose for which the securities were issued and to pay certain costs of issuance as may be provided in the bond contract.

Bonds-A debt obligation of a firm or public entity. A bond represents the agreement to repay the debt in principal and, typically, in interest on the principal.

Broker-Someone who brings buyers and sellers together and is compensated for his/her service.

Certificate of Deposit- A short-term, secured deposit in a financial institution that usually returns principal and interest to the lender at the end of the loan period. Certificates of Deposit (CDs) differ in terms of collateralization and marketability. Those appropriate to public agency investing include:

Negotiable Certificates of Deposit-Generally- short-term debt instrument that usually pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. The majority of negotiable CDs mature within six months while the average maturity is two weeks. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). Negotiable CDs are insured by FDIC up to $250,000, but they are not collateralized beyond that amount.

Non-Negotiable Certificates of Deposit - CDs that carry a penalty if redeemed prior to maturity. A secondary market does exist for non-negotiable CDs, but redemption includes a transaction cost that reduces returns to the investor. Non-negotiable CDs issued by banks and savings and loans are insured by the Federal Deposit Insurance Corporation up to the amount of $250,000, including principal and interest. Amounts deposited above this amount may be secured with

GLOSSARY


Attachment A

Page 22 of 27

other forms of collateral through an agreement between the investor and the issuer. Collateral may include other securities including Treasuries or agency securities such as those issued by the Federal National

Collateralization -Process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan and/or security.

Commercial Paper-An unsecured short-term promissory note issued by corporations, with maturities ranging from 2 to 270 days.

County Pooled Investment Funds-The aggregate of all funds from public agencies placed in the custody of the County Treasurer or Chief Finance Officer for investment and reinvestment.

Coupon-The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value; a certificate attached to a bond evidencing interest due on a payment date.

Credit Risk-The risk of principal loss due to the failure of the issuer of the security

Custodian -A bank or other financial institution that keeps custody of stock certificates and other assets.

Dealer-Someone who acts as a principal in all transactions, including buying and selling from his/her own account.

Defeased Bond Issues -Issues that have sufficient money to retire outstanding debt when due so that the agency is released from the contracts and covenants in the bond document.

Derivative-Securities that are based on, or derived from, some underlying asset, reference date or index.

Diversification-The reduction of risk by investing in a variety of assets which ensures that a portfolio is not concentrated in securities of any one type, industry, or entity.

Duration-A measure of the timing of the cash flows to be received from a security that provides the foundation for a measure of the interest rate sensitivity of a bond. Duration is a volatility measure and represents the approximate percentage change in price divided by the percentage change in interest rates. A high duration measure indicates that for a given level of movement in interest rates, prices of securities will vary considerably.

Federal Agencies and U.S. Government Sponsored Enterprises-Investments which are obligations, participations, and other instruments of, or issued by, a federal agency or a United States government sponsored enterprise, including instruments issued by, or fully guaranteed as to principal and interest by the issuers.

Fiduciary-An individual who holds something in trust for another and bears liability for its safekeeping.

Floating Rate Securities-Securities that provide for the automatic adjustments of its interest rate whenever a specified interest rate changes.

Government Accounting Standards Board (GASB)-A standard-setting body, associated with the Financial Accounting Foundation, which prescribes standard accounting practices for governmental units.


Attachment A

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Government Pooled Funds-Funds of various governmental agencies that are pooled together for investment purposes.

Government Sponsored Enterprises (GSE)-Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Securities issued by GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries.

Guaranteed Investment Contracts (GICs)-An agreement acknowledging receipt of funds for deposit, specifying terms for withdrawal, and guaranteeing a rate of interest to be paid.

Investment Manager-An individual designated by the Chief Financial Officer (CFO) to manage all or any part of the investment portfolio.

Joint Powers Authority (JPA) California Government Code Section 6500, ET. Seq. provides that two or more public agencies may, by agreement, exercise any power common to the contracting parties.

Liquidity -An asset that can easily and rapidly be converted into cash without significant loss of value.

Local Agency Investment Fund-A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer's office.

Local Government Investment Pool (LGIP)-Investment pools that range from the State Treasurers Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds.

London Interbank Offered Rate (LIBOR)-The average interest rate that leading banks in London charge when lending to other banks and used as a benchmark for Finance.

Market Risk-The risk of market value fluctuations due to economic change in the interest rate markets.

Market Value-The price at which a security is trading and presumably could be purchased or sold at a particular point in time.

Maturity- The date on which the principal or stated value of an investment becomes due and payable.

Medium-Term Note--Corporate or depository institution debt securities meeting certain minimum quality standards (as specified in the California Government Code) with a remaining maturity of five years or less.

Money Markets-A component of financial markets for assets involved in short- term borrowing and lending with original maturities of one year or shorter time frames.

Mortgage or Asset Backed Securities-Securities whereby cash flow from the mortgages, receivables and other assets underlying the security are passed-through as principal and interest payments to the investor.


Attachment A

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Mutual Funds-An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments.

Nationally Recognized Statistical Rating Organization (NRSRO)-A credit rating agency that issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. The SEC's Office of Credit Ratings administers the SEC's rules relating to NRSROs, in addition to performing various other functions with respect to NRSROs.

Negotiable Certificates of Deposit/Time Deposits-A negotiable receipt for a time deposit at a bank or other financial institution for a fixed time and interest rate.

Note -A written promise to pay a specified amount to a certain entity on demand or on a specified date.

Par Value -The amount of principal that must be paid at maturity; also referred to as the face amount of a bond, normally quoted in $ 1,000 increments per bond.

Principal-The face value or par value of a debt instrument or the amount of capital invested in a given security.

Prospectus-A legal document that must be provided to any prospective purchaser of a new securities offering registered with the SEC that typically includes information on the issuer, the issuer's business, the proposed use of proceeds, the experience of the issuer's management, and certain certified financial statements (also known as an "official statement ').

Portfolio-Combined holding of more than one stock, bond, commodity, real estate investment, cash equivalent or other asset. The purpose of a portfolio is to reduce risk by diversification.

Prudent Investor Standard -A standard of conduct where a person acts with care, skill, prudence, and diligence when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds. The test of whether the standard is being met is if a prudent person acting in such a situation would engage in similar conduct to ensure that investments safeguard principal and maintain liquidity.

Repurchase Agreements -An agreement of one party (for example, a financial institution) to sell securities to a second party (such as a local agency) and simultaneous agreement by the first party to repurchase the securities at a specified price from the second party on demand or at a specified date.

Reverse Repurchase Agreements-An agreement of one party (for example, a financial institution) to purchase securities at a specified price from a second party (such as a public agency) and a simultaneous agreement by the first party to resell the securities at a specified price to the second party on demand or at a specified date.

Rule G-37 of the Securities Rulemaking Board-Federal regulations to sever any connection between the making of political contributions and the awarding of municipal securities business.

Safekeeping Service -Offers storage and protection of assets provided by an institution serving as an agent.


Attachment A

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State of California and Local Agency Obligations-Registered state warrants, treasury notes or bonds of the State of California and bonds, notes and warrants or other evidence of indebtedness of any local agency of the state including bonds payable solely out of the revenue from a revenue producing property owned, controlled, or operated by the State or local agency or by a department, board, agency, or authority of the State or local agency.

Securities and Exchange Commission (SEC)-The federal agency responsible for supervising and regulating the securities industry.

Securities Lending Agreement -An agreement of one party (for example, a local agency) to borrow securities at a specified price from a second party (for example, another local agency) with a simultaneous agreement by the first party to return the security at a specified price to the second party on demand or at a specified date. These agreements generally are collateralized and involve a third-party custodian to hold the securities and collateral. Economically similar to reverse-repurchase agreement.

Tax and Revenue Anticipation Notes (TRANs)-Notes issued in anticipation of receiving tax proceeds or other revenues at a future date.

Trustee or trust company or trust department of a bank-A financial institution with powers to act in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the bond contract.

Term-The remaining time to Maturity when the asset is purchased.

Underwriter -A dealer which purchases a new issue of municipal securities for resale.

US Treasury Obligations -Debt obligations of the United States Government sold by the Treasury Department in the forms of Bills, Notes, and Bonds. Bills are short-term obligations that mature in 1 year or less and are sold on the basis of a rate of discount. Notes are obligations that mature between I year and 10 years. Bonds are long-term obligations that generally mature in 10years or more.

Variable Rate Securities-Securities that provide for the automatic establishment of a new interest rate on set dates.

Weighted Average Maturity (WAM) -The average maturity of all the securities that comprise a portfolio that is typically expressed in days or years.

Yield-The current rate of return on an investment security generally expressed as a percentage of the securities current price.

Yield Curve-A graphic representation that shows the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity.


TABLE OF CONTENTS

Summary of Changes for PHC’s Investment Policy

Significant Changes are as follows: No changes to our policy occurred, we are still only using County Investment Pools and LAIF as

investment options

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TABLE OF CONTENTS

1.0 Overview: ..................................................................................................................... 11

2.0 Policy: ........................................................................................................................... 11

2.3 Authority to Invest: ........................................................................................................ 2

2.4 Prudence ......................................................................................................................... 5

2.5 Ethics and Conflict Of Interest..................................................................................... 53

2.6 Investment Manager ..................................................................................................... 63

3.1 Reporting (Government Code § 53646) ...................................................................... 74

4.1 Performance Standards ................................................................................................. 74

5.0 Monitoring .................................................................................................................... 75

7.0 Authorized Investments ............................................................................................... 96

8.0 Eligible Investments ..................................................................................................... 96

9.0 Underlying Nature of Investments ........................................................................... 2717

10.0 Rating Downgrades .................................................................................................. 2717

11.0 Rating Guidelines……………………………………………………………………17

Appendices

Table 1 Allowable Investment Interments per State Government Code………….18

Table 2 Comparison and Interpretation of Credit Ratings ………………….……20

Attachment A Glossary………………………………..………………………....21


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PARTNERSHIP HEALTHPLAN OF CALIFORNIA (PHC) Annual Investment Policy

May 1, 2010 (Reviewed 02-08-2015July 18, 2019)

Introduction

1.0 Overview:

1.1 To establish the investment guidelines for all operating funds and Board designated reserve funds of Partnership HealthPlan of California (PHC)) invested on and after May 1, 2010. The objective is to ensure PHC’s funds are prudently invested according to the Board of Commissioners’ objectives to preserve capital, provide necessary liquidity, and to achieve a market average rate of return through economic cycles.

2.0 Policy:

2.1 This Annual Investment Policy sets forth the investment guidelines for all Operating Funds as required by, which conforms to California Government Code §5364653600 of Title 5. Local Agencies of the California Government Code (theCode), as well as to customary standards of prudent investment management. Any investment instruments not specifically approved in this policy will not be enteredinto without the prior consent of the Investment/Finance Committee and the Boardof Commissioners of PHC. PHC’s Annual Investment Policy conforms toCalifornia Government Code (the Code) as well as customary standards ofprudent investment management. Irrespective of these policy provisions, should the provisions of the Code become more restrictive than those contained herein, such provisions will be considered immediately, adhered to, and incorporated into the Annual Investment Policy.

I. Policy Statement

It is the policy of PHC to invest in public funds in a manner that provides maximum security of principal and liquidity to insure that PHC meets its cash flow requirements. Secondarily, the Chief Financial Officer (CFO) will achieve the highest yield, while conforming to all applicable state statutes governing the investment of public funds. Therefore the primary goals of this policy (pursuant to the Code, § 53600.5) are:

1. To assure compliance with all federal, state and local laws governing the investmentof monies under the control of PHC.

2. To protect the principal monies invested.

3. To insure that money is always available when needed.

4. To generate the maximum amount of investment income within the parameters ofthis Annual Investment Policy and the guidelines for suitable investments.

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II Scope

2.2 Investment Objectives In accordance with the regulations cited herein, PHC’s primary annual investment objectives are in order of priority, as follows:

2.2.1 Safety and Preservation of Capital Each investment transaction shall seek to ensure that the capital losses are avoided due to market erosion of security value and institutional default or broker-dealer default. PHC shall seek to preserve capital by mitigating the two types of risk, Credit Risk and Market Risk, as follows:

2.2.1.1.1 Credit Risk will be mitigated through diversification of the investment portfolio.

2.2.1.1.2 Market Risk will be mitigated by matching Maturity dates to coincide, as much as possible, with PHC’s cash flow requirements. It is explicitly recognized herein; however, that in a diversified portfolio, occasional capital losses are inevitable and must be considered within the context of the overall investment return.

2.2.2 Liquidity and Flexibility The portfolio investments need to be comprised of investments for which there is a secondary market and which offer the flexibility to be sold at any time at prevailing market values with minimal risk of loss of principal and interest.

2.2.3 Total Return PHC portfolio will be designed to achieve a market average rate of return similar to other authorized instruments and securities which have similar security, maturities and levels of risk.

2.3 Authority to Invest:

2.3.1 In accordance with authority granted by the Board of DirectorsCommissioners, the Chief Financial Officer (CFO) of PHC is authorized to invest the companies fundsand manage the investment portfolio in accordance with the Code §53600-53609. Thisthis investment policy applies to all financial assets and investment activities of PHC. . All will be pooled in an actively managed portfolio. The Investment Pool or "Portfolio" will be referred to as the "Fund" throughout the remainder of this document.

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PHC’s Fund, when cost beneficial, will be managed by an investment manager. The investment of the Fund will be overseen by PHC’s CFO. The investment advisor, when utilized will be bound by the following:

1. Will observe, review and react to changing conditions that affect the fund.

2. The investment manager will keep the CFO apprised of the changinginvestment environment and any potential restructuring of the portfolio which could result from the changes. Additionally, ensures that we are in compliance with the Code at least on a monthly basis.

3. Securities that are downgraded by one or more rating Agency to below theratings required by this policy, do not have to be sold. However, the investment advisor will immediately notify PHC of the downgrade. The advisor will prepare a credit report on the downgraded security and forward it to PHC.

4. The investment advisor will prepare minimally monthly reports for PHC onits investment portfolio. The reports will include all information required by PHC and applicable State and Local laws and regulations. The investment advisor may be requested by PHC to prepare periodically such special reports as may reasonably be required of the investment advisor.

5. It is expected that the investment advisor will make at least a quarterly visitto PHC to discuss the investment performance of PHC’s portfolio. PHC expects the investment advisor to make additional trips as necessary to develop investment strategy, discuss investment performance or to review investment policy. These additional trips will be scheduled at the convenience of PHC and the investment advisor.

6. At least annually, the investment advisor will review PHC’s investmentpolicy and make recommendations to PHC on changes in the policy necessary to bring it into compliance with State and Local laws and regulations and to generally update the policy for the changing investment environment. All changes are subject to PHC’s approval.

III. Objectives (The Code §53600.5)

The objectives of PHC in managing the investment portfolio are listed in the following order:

1. Safety Of Principal


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Safety of principal is the foremost objective of PHC. Each investment transaction shall seek to ensure that capital losses are avoided, whether from institution default, broker-dealer default, or erosion of market value of securities. PHC shall seek to preserve principal by mitigating the two types of risk, credit risk and market risk that is inherent in all portfolios.

a. Credit Risk. Credit risk, defined as the risk of loss due to failure of an issuer of a security,shall be mitigated by investing in only very safe institutions and by diversifying the fund so that the failure of any one issuer would not unduly harm the PHC's cash flow.

b. Market Risk. The risk of market value fluctuations due to overall changes in the generallevel of interest rates shall be mitigated by limiting the weighted average maturity of the PHC's fund to no more than five years.

c. Total Return. PHC’s portfolio shall be designed to attain a market average risk of returnthrough economic cycles given an acceptable level of risk.

2. Liquidity

Liquidity, refers to the ability to sell at any given moment, with a minimal chance of losing a potion of principal or interest, is the second most important objective of PHC. In order to maintain liquidity a periodic cash flow analysis of the PHC’s sources and uses of funds will be conducted. The investment portfolio will be structured so that it complements PHC’s cash flow requirements. A prudent reserve of highly liquid, short-term assets maturing in six months or less will be established to ensure that unforeseen cash requirements of the PHC can be met.

3. Return On Investment (Yield)

After the fund assures the twin goals of preservation of principal and liquidity, the fund will be managed to maximize the return on investment, the least important objective when compared to safety and liquidity.

IV, Prudence

The standard of prudence to be used by PHC shall be the “prudent investor” standard and shall be applied in the context of managing the overall portfolio.

2.3.2 The CFO may designate an Investment Manager(s) and/or subordinate, to manage all or such portions of PHC’s funds as the CFO shall determine from time to time. Such Investment Manager(s) shall be subject to this policy and any directions provided by the CFO. The CFO will be responsible for all actions undertaken and shall establish a system on internal controls to regulate the activities of subordinate officials, including the Investment Manager(s). Additional information regarding Investment Manager(s) can be found in Paragraph 2.6.


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2.3.3 No person may engage in an investments transaction except as provided herein and in the procedures established by the CFO and/or Board of Commissioners.

2.4 Prudence

2.4.1 PHC’s Board of Commissioners, CFO, and persons authorized to make investment decisions on behalf of PHC are trustees and fiduciaries subject to the Prudent Investment Standards, as defined in Government Code §53600.3:

2.4.1.1 The “prudent person” standard specifies when investing, reinvesting, purchasing, acquiring, exchanging, and selling the CFO shall act with care, skill, prudence, and diligence under prevailing circumstances, including but not limited to, the general economic conditions and the anticipated needs of PHC, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims to safeguard the principal and maintain the liquidity needs of PHC. The Prudent Investment Standard shall be applied in the context of managing an overall portfolio.

2.4.1.2 The CFO acting in accordance with written procedures, and the Annual Investment Policy, and exercising due diligence, shall be relieved of personal responsibility for an individual security credit risk or market changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control developments. Additionally, the CFO shall act in accordance with written procedures, investment policy, and exercise due diligence to control adverse developments.

V.2.5 Ethics Andand Conflict Of Interest

2.5.1 PHC’s officers and employees involved in the investment process or having authority or influence over such activities, shall refrain from personal business activity that could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions.

2.5.2 PHC’s officers and employees involved in the investment process or having authority or influence over such activities, are not permitted to have any material financial interests in financial institutions that conduct business with PHC, and they are not permitted to have any personal financial or investment holding that could be materially related to the performance of PHC’s investments.

VI. Reporting (§53646)

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On an annual basis the CFO shall render a new Annual Investment Policy to the Board, which shall be considered at an open public meeting. Any policy changes will also be made at the public meeting. Other requirements are as follows: the CFO shall render a quarterly report to the CEO and the Board. The report will be submitted no later than (NLT) 30 days following the end of the quarter. The report must contain: (1) type of investment (2) issuer (3) date of maturity par and dollar amounts on all securities (4) state compliance of theFund to the Annual Investment Policy (5) include a statement denoting the ability of PHC to meet its expenditure requirements (6) the Board may specify that they want to review this monthly (PHC currently provides this information to the Board on a monthly basis).

VII.2.5.3 PHC officers and employees involved in the investment process or having authority or influence over such activities, will follow applicable compliance policies related to disclosure of potential conflicts to the extent the personal business activity or material financial interest is one capable of being known.

2.6 Investment Manager

2.6.1 The CFO, when cost beneficial, may designate an Investment Manager(s) to manage any portion of the investment portfolio. Any designated Investment Manager(s) shall be a fiduciary subject to the Prudent Investor Standard in Section 2.4.1.1 with respect to the funds under management.

2.6.2 The CFO will:

2.6.2.1 Evaluate candidates for the role of Investment Manager(s). The selected candidates will be reviewed and approved by the Chief Executive Officer (CEO), and Finance and Budget Committee and the Board of Commissioners.

2.6.2.2 Obtain certification from outside Investment Managers that they will purchase securities from broker-dealers (other than themselves) or financial institutions in compliance with Government Code Section 53601.5 and the Annual Investment Policy.

2.6.2.3 Provide all Investment Manager(s) with copy of Annual Investment Policy which will be included in the Investment Manager’s contract.

2.6.2.4 Establish and review the targeted average maturities periodically with the Investment Manager(s).

2.6.2.5 Review the investment diversification and portfolio performance monthly to ensure that the Investment Manger’s compliance with this policy, risk levels and returns are reasonable, and that investments are diversified in accordance with this policy.

2.6.2.6 Investigate any investment made by the Investment Manager(s) which is not authorized by this policy for possible cause for termination of contract.

2.6.2.7 Ensures that the investment advisor prepares monthly reports on its portfolio that include all required information for PHC to


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compy with its reporting requirement, and applicable State and Local laws and regulations.

3.0 Reporting (Government Code § 53646)

3.1 Quarterly Review

3.2 At a minimum, the CFO will or cause to, present a quarterly report with investments transaction information in adequate detail to allow the Finance Committee to review the investment activity of PHC.

3.3 The quarter report will be summarized and presented as a report from the Finance Committee to the full Board of Commissioners in accordance with Government Code §53646(b).

4.0 Performance Standards

4.1 The Fund willinvestment portfolio shall be managed in accordance with the parameters specified in this policy. Consequently, the investment portfolio shall be designed to achieve a market average rate of return will be a function of market conditions. through economic cycles similar to authorized investment instruments, which have similar security maturities and levels of risk.

4.2 The performance benchmarks for the investment portfolio will be based upon the market indices for short term investments of comparable risk and duration. These performance benchmarks will be agreed to by the CFO, and the Investment Manager(s), and the relative performance of the investment portfolio will be reviewed with the Finance and Budget Committee, quarterly.

4.3 For planning purposes, we expect the Fund to return a money market rate of return. For comparison purposes, the one to three year treasury index and the state pool (LAIF) will be used.

VIII. Responsibilities of the Investment Committee

5.0 Monitoring

5.1 Chief Financial Officer (CFO)

The CFO and histheir staff are responsible for the day -to -day management of the PHC’s Fundportfolio and the making of specific investments. The that comply with this policy.

5.2 Board of Commissioners

5.2.1 The CFO is responsible for PHC’s providing the Board of Commissioners with an Annual Investment Policy. The Investment Committee, and the Board of Commissioners is responsible for adopting the Annual Investment Policy and


















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ensuring investments are made in compliance with the FIN-700-501, Annual Investment Policy. This Annual Investment Policy shall not make or direct PHC’s staff to make any particular be reviewed and approved annually by the Board of Commissioners at a public meeting pursuant to Section 53646(a)(2) of the California Government Code.

5.2.2 The CFO is responsible for directing PHC’s investment, purchase any particular program and for compliance with this policy pursuant to the delegation of authority to invest funds or to sell or exchange securities. The CFO shall provide a quarterly report to the Board of Commissioners. The CFO shall also provide the Board of Commissioners with a quartery report of investment product, or do business with any particular investment company or brokers. It is not the purpose of the Investment Committee to advise on particular investment decisions of PHC. The transactions.

5.3 Finance Committee

5.3.1 The duties and responsibilities of the Finance Committee shall consist of the following:

1. Annually reviews PHC’s5.3.2 Review of the AnnualInvestment Policy annually before its consideration by theBoard of Commissioners and recommend revisions, as necessary to the Finance Committee.

At least Semi-annually review 2. 5.3.3 Review PHC’s Fund for conformanceinvestment

portfolio quarterly to confirm compliance with PHC’stheAnnual Investment Policy, including its diversification andmaturity guidelines, and makes recommendations to the Finance Committee.

3. 5.3.4 Provide Commentscomments to PHC’s staffthe CFOregarding potential investments and potential investmentstrategies.

4.5.3.5 Periodically review investment security diversification and investment strategies with Investment Manager(s).

5.3.6 Perform such additional duties and responsibilities as may be requiresrequired from time to time by specific action byand direction of the Board of Commissioners.

IX. 5.4 Audit Investment transactions of PHC may be reviewed during the annual audit performed by the public accounting firm selected by the Finance and Budget Committee, and approved by the Board of Commissioners. The results of the audit of the investment transactions shall be presented in

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a report prepared by the auditors to the Finance Committee and the Board of Commissioners for their review, acceptance, and action as the Board of Commissioners deems necessary. A full audit of the investment of PHC may be requested by the Finance Committee or Board of Commissioners at any time.

6.0 Safekeeping of Securities Investments purchased shall be held by a custodian bank acting as agent for PHC, and such custody agreement shall be in compliance with Government Code §53608.

7.0 Authorized Investments

PHC has a fiduciary responsibility to maximize the productive use of assets entrusted to its care and to invest and manage those funds wisely and prudently. PHC operates its pooled idle cash to afford a broad spectrum of investment opportunities that are deemed prudent, and are legally allowable under the Code and other regulations. Additionally,,, PHC recognizes that it has an equal obligation to be aware of the social and political impacts of its investments, and subsequently, to act responsibly in making its financial decisions. PHC shall not knowingly, make any investments in any institution, company, corporation, subsidiary or affiliate that practices or supports directly or indirectly through its actions discrimination on the basis of race, religion, color, creed, national or ethnic origin, age, sex, sexual preference, or physical disability.

As stated above, PHC is governed by the Code, §53600-53609. Within the context of these limitations, the following investments are authorized, as further limited herein. TablesTable 1 and 2 summarize the allowable Investment instruments per California State Code. Table 32 illustrates comparison and interpretation of credit ratings. Attachment A is a Glossary of common investment terms.

7.1. Maturity and Terms

All investments are subject to a maximum five (5) year Maturity or Term.

8.0 Eligible Investments PHC’s policy is to invest in the high quality instruments as permitted by the Government Code, subject to the limitations of the Annual Investment Policy.




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8.1 United States Treasuries (Government Code §53601(b)) These investments are direct obligations of the US and

securities which are fully and unconditionally guaranteed as to the timely payment of principal and interest by the full faith of the US.

a. Treasury bills: 3, 6 month andTypes of US Treasuries Description

Treasury Bills 3 months, 6 months, and one year securities and traded at a discount.

Treasury Notes and Bonds Interest bearing instruments issued with maturities’ of 2 to 5 years

Treasury STRIPS US Treasury securities that have been separated into their component parts of principal and interest payments and recorded as such in the Federal Reserve book-entry record keeping system.

Treasury coupon and principalSTRIPS

These are not to be considered to be derivatives for the purpose of the Annual Investment Policy and are permitted investments.

8.1 year securities and traded at a discount b. Treasury notes and bonds

.1 Maximum Term/Restrictions: Code specifies five (5) years and there is no limitation as to the percentage of the fund which can be invested.

8.2. Federal Agencies and U.S. Sponsored Enterprises These instruments represent obligations, participations, or other instruments of or issued by, a Federal Agency or a U.S. (Government sponsored enterprise, including those issued by, or fully guaranteed as to principal and interest by, the issuers. Code § 53601(f))

These are U.S. Government related organizations and, the largest of which are intermediaries assisting credit markets, are often simply referred to as “agencies”, they include:

”. Any Federal Farm Credit Bank System (FFCB) Federal Home Loan Bank Board (FHLB),

Federal National Mortgage Association (FNMA), Federal Housing Association (FHA),

OtherAgency and U.S. Government Agency obligations with remaining maturities of five years or less. Sponsored Enterprise


Formatted: Underline







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security not specifically listed below, is not a permitted investment interment: Formatted: Font: 11 pt


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“Agencies” are limited to: Federal Agriculture Mortgage Association FRMDN Federal Home Loan Banks FHLB Federal Home Loan Mortgage Corporation FHLMC Federal National Mortgage Association FNMA Federal Farm Credit Banks FFCB Student Loan Marketing Association SLMA Government National Mortgage Association GNMA Small Business Administration SBA Export-Import Bank of the United States Ex-Im Bank U.S. Maritime Administration MARAD U.S. Department of Housing and Urban Housing HUD

8.2.1 Maximum Term/: 5 years and

8.2.2 Restrictions: The Code specifies 5 years and despiteDespite the implied government guarantee, Agencies that are not direct obligations of the U.S. Government will be limited to 50% percent of the portfolio in aggregate and no more than 25% percent of the portfolio may be in any one Agency.

8.3. State of California and Local Agency Obligations (Government Code § 53601(a) (c) (e))

8.3.1 Such obligations must be rated A-1, P-1, or equivalent or better short term; or Aa3/AA-, or equivalent or better long term, by an Approved NRSRO. Public agency bonds issued for private purposes (industrial development bonds) are specifically excluded as permitted investments.

8.3.2 Maximum Term: Five (5) Years

8.4 Other States’ Obligations (Government Code § 53601(d))

8.4.1 Other State’s obligations are permitted provided that:

8.4.1.1 Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. However, ownership of out of state local agency bonds is not allowed.

8.4.1.2 Such obligations must be rated A-1, P-1, or equivalent or better short term; or AA/Aa2, or equivalent or better long term, by an approved NRSRO.



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8.5 Banker Acceptances (BA) (Government Code § 53601(g))

Are bills of exchange or time drafts drawn on and accepted by a commercial bank. 8.5.1 These short-term notes are sold at a discount, and are obligations of the drawer (the bank’s trade finance client)), as well as the bank. Once accepted, the bank is irrevocably obligated to pay the BA upon maturity if the drawer does not.

8.5.2 Eligible Bankers’ Acceptance are Bankers’ Acceptances that are eligible for purchase by the Federal Reserve, and;

8.5.3 Drawn on and accepted by a bank rated F1 or better by Fitch, or are rated A-1 for short-term deposits by Standard and Poor’s or P-1 for short-term deposits by Moody’s (a rating matrix is found at attachment B).

8.5.4 Maximum Term/: 180 days.

8.5.5 Restrictions: a maximum maturity of 180 days. No more than 5% of the market value of the fund may percent of PHC’s Portfolio be invested in banker's acceptances issued by any one bank.

8.5.6 No more than 40% percent of the portfolio may be in banker’s acceptances. Issuing banks must be rated “P1” by Moody’s Investor Services and “A1” by Standard and Poor’s (a rating matrix is found at attachment B).

4.8.6 Commercial Paper (CP) ): Non-Pooled Funds (Government Code § 53601(h) (2) (c))

8.6.1 CP is unsecured promissory notes issued by companies and government entities at a discount. CP is negotiable, although it is typically held to maturity. CP must be:

a. 8.6.2 CP must be:

8.6.2.1 Rated P-1 by Moody’s and A-1 or better by Standard & Poor’san Approved NRSRO. b.

8.6.2.2 Issued by corporations rated A-3 or better, or equivalent, or higher by an Approved NRSRO on longer term debt, if any, and;

c. 8.6.2.3 Issued by U.S. corporations organized or non-U.S.

Corporation organized and operating within the U.S. and having assets in excess of $500,000,000 million.

d. May

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Formatted: Level 4, Indent: Left: 2", First line: 0.5", Tabstops: Not at -1" + -0.5" + 0" + 0.5" + 0.94" + 1.5" + 1.75" + 2" + 2.5" + 3" + 3.5" + 4" + 4.5" + 5" + 5.5" + 6" + 6.5" + 7" + 7.5" + 8" + 8.5" + 9" + 9.5" + 10" + 10.5" + 11" + 11.5" + 12" + 12.5" + 13"

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8.6.2.4 Asset backed Commercial Paper issued by special purpose vehicles (structure investments vehicles) are prohibited.

8.6.2.5 PHC’s investment funds may not representbe used to purchase more than 10% percent of the outstanding paper of theissued by any single issuing corporation.

8.6.2.6 Maximum Term/: 270 days

8.6.2.7 Restrictions: A maximum maturity of 270 days; no more than 10% of the market value of the fund may be invested in commercial paper issued by any one corporation. Total investments in commercial paper may not exceed 25% percent of the portfolio (AB 609 7/13/01).

5.8.7 Negotiable Certificates of Deposits (CD) (Government Code § 53601(i))

8.7.1 A negotiable (marketable or transferable) receipt for a time deposit at a bank or financial institution for a fixed time and interest rate. Negotiable Certificates of Deposits must be issued by a nationally or state chartered bank or state or federal association or by a state licensed branch of a foreign bank, which have been rated as A1 and P1orF1 or better by Fitch, or rated as A-1 for short term-deposits by Standard & Poor’s, or P-1 for short-term deposits Moody’s or are comparably rated by a nationally recognized agency.

8.7.2 Maximum Term/: five (5) years

8.7.3 Restrictions: A-1/P-1 rated commercial banks with maturities of five years or less. Eligible banks must also have no long term ratings below A or equivalent. No more than 5% percent of the fund may be invested in CD’sCDs of one issuer and no more than 30% percent of the portfolio may be invested in CD’sCDs.

8.7.4 Except, PHC may not invest in a CD of a state or federal credit union, where any person with investment decision making authority at PHC also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit.


Formatted: Level 4, Indent: Left: 3", Tab stops: Not at -1"+ -0.5" + 0" + 0.5" + 0.94" + 1.5" + 2" + 3" + 3.5" + 4" + 4.5" + 5" + 5.5" + 6" + 6.5" + 7" + 7.5" + 8" + 8.5" + 9" + 9.5" + 10" + 10.5" + 11" + 11.5" + 12" + 12.5" + 13"




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6.8.8 Non-Negotiable Certificates of Deposit (CD) (Government Code § 53601.8 & 53635.8)

8.8.1 Investment funds managed by an external investment Manager may not invest in Non-Negotiable Certificates of Deposits.

8.8.2 PHC must choose a nationally or state charter commercial bank, savings & loan association, or credit union in this state to invest funds, which shall be known as the “Selected” depository institution.

8.8.3 The selected depository institution may submit the funds to a private sector entity that assists in the placement of certificates of deposit with one or more commercial banks, savings banks, savings and loan associations, or credit unions that are located in the United States, for the local agency's account.

8.8.4 The full amount of the principal and the interest that may be accrued during the maximum term of each certificate of deposit shall at all times be insured by the Federal Deposit Insurance Corporation or National Credit Union Administration.


8.9 Repurchase Agreements. (Government Code § 53601(j))

Cover8.9.1 Repurchase Agreements cover a purchase of securities under a simultaneously agreement to sell these securities back at a fixed price in the future. , are permitted provided that:

8.9.1.1 PHC may enter into repurchase agreementsRepurchase Agreements with banks and dealers with which the PHC has entered into a master repurchase contractthat:

8.9.1.2 A broker dealer master Repurchase Agreement must be signed by the Investment Manager (acting as “Agent”) and approved by the Investment Professional prior to entering into any repurchase transactions.

8.9.1.3 The securities used to make the reverse repurchase have been held for a minimum of thirty (30) days prior to the transaction

8.9.1.4 The securities are held free and clear of any lien by PHC’s Custodian or Agent for the Custodian, and such third party is a:

8.9.1.4.1 Federal Reserve Bank, or





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8.9.1.4.2 A bank which specifies terms and conditions of is a member of the Federal Deposit Insurance Corporation (FDIC) and which has a combined capital surplus and undivided profits of not less than $50 million.

8.9.2 A perfected first security interest under the uniform code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq., or C.F.R 350.0 et seq. in such securities is created for the benefit of PHC’s Custodian.

8.9.3 The repurchase agreements, and are fullypositions must be collateralized by delivery to an independent third party custodianat 102 percent for PHC’s account or to the PHC’s custodian. In order to conform to provisions of the Federal Bankruptcy Code which provides for the liquidation of securitiesTreasuries, Agencies, and eligible money market instruments; and Corporates and other eligible collateral will be collateralized at 105 percent. Securities held as collateral for repurchase agreements,Repurchase Agreements can only be those marketable securities, eligible for investment by PHC are permitted as collateral. Treasuries, Agencies and eligible money market instruments will be collateralized at 102%. Corporates and other eligible collateral will be collateralized at 105%. .

8.9.4 Repurchase Agreements will be conducted with only primary dealers.

8.9.5 Maximum Term/Restrictions: Repurchase agreementsAgreements shall not exceed 90 days; however, the code authorizes one year when all requirements are met.

7. 8.9.6 Restrictions: Reverse Repurchase Agreements. are notallowed.

PHC may enter into reverse repurchase agreements only with those primary dealers with which the PHC has entered into a master repurchase contract outlining terms and conditions of reverse repurchase agreements PHC may enter into reverse repurchase agreements for the following purpose: when an unanticipated cash outflow can, in the judgment of PHC’s Investment and Finance Committees, be met more advantageously by entering into a reverse repurchase agreement than by selling securities outright.

Maximum Term/Restrictions: Shall not exceed 30 days, and matched to a known cash inflow of sufficient size to repay the principal and interest of the reverse repurchase agreement. Reverse repurchase agreements will be limited to 20% of the un-leveraged portfolio. Only securities that have been owned and paid for by PHC for 30 days are eligible to be used for collateral. Collateralization must be maintained at

Formatted: Level 3 Char






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102%. No reverse repurchase agreements will be entered into by the investment advisor without the prior written permission of PHC

8. 8.10 Medium-Term Maturity Corporate Securities (Government code §

53601(k))

8.10.1 Medium-Term Maturity Corporate Securities, are corporate and depository institution debt securities with a maximum remaining maturity of five years (5) or less. Medium Term Maturity Corporate Securities must:

8.10.1.1 Be issued by corporations organized and operating within the U.S. or any state or by depository institutions licensed by the U.S. or any state operating within the U.S. that have total assets in excess of $500 million.

8.10.1.2 Have a rating of A or better by an approved NRSROs with a maturity of five (5) years or less.

8.10.2 Represent no more than 5 percent of the issue amount in the case of a specific public offering. This limitation does not apply to debt that is “continuously offered” in a mode similar to Commercial Paper. (i.e., Medium- Term Notes (MTN’s)), and;

8.10.3 Represent no more than 5 percent of the portfolio for either MTNs or any corporate security of any one corporate issuer.

8.10.4 Maximum Term: Maturity a maximum of five (5) years.

8.10.5 No more than 30 percent of the fund may be invested in Medium-Term Notes or other Corporates.

8.11 Money Market and Mutual Funds (Government Code § 53601(1) and 53601(n))

8.11.1 Investments in shares of beneficial interest issued by diversified management companies (Money Market Funds or Mutual Funds) must be with a company that:

8.11.1.1 Attain the highest ranking or the highest letter and numerical rating provided, by not less than two of the three largest nationally recognized rating services, or have an investment adviser registered with the Securities and Exchange Commission (SEC) with not less than five years experience investing in the securities and obligations as authorized above, and with assets under management in excess of $500 million.


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8.11.2 If unrated, all funds must be invested 100 percent in government securities or securities backed by government collateral.

8.11.3 The price of shares of beneficial interest (mutual funds) shall not include any commission that these companies may charge at the time of purchase or redemption.

8.11.4 Restrictions: No more than 20 percent of the portfolio may be invested in mutual funds.

8.11.4.1 No more than 10 percent invested in any one mutual fund. However, Money Market Funds are not subject to a maximum investment limitation per fund.

8.12 Mortgage or Asset-Backed Securities (ABS) (Government Code § 53601(o))

8.12.1 These securities may contain a third-party guarantee, they are a package of assets being sold by a trust, not a debt obligation of the sponsor. Other types of “backed” debt instruments have assets (such as leases or consumer receivables) pledged to support the debt service. However, Mortgage Backed Securities primarily backed by sub-prime collateral are not allowed.

8.12.2 Investments in any Mortgage Pass-through securities, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-back certificate, consumer-receivable pass-through certificate, or consumer-receivable-backed bond must be:

8.12.2.1 Rated AA, or its equivalent or better by an Approved NRSRO, and

8.12.2.2 Issued by an issuer rated A- or equivalent or better, by an approved NRSRO for its long term debt.

8.12.3 Maximum Term/Restrictions: Five (5) year maturity.

8.12.3.1 PHC will continue to buy only AAA-rated ABS. Total investment in this category may not exceed 20 percent of the fund.

8.13 Pooled Funds (Government Code § 53601(p), 16429.1, 16340)

8.13.1 Investments are permitted in Government Pooled Funds including, but not limited to, County Pooled Investment Funds, Joint Powers Authority Pools, the Local Agency Investment Fund, and the Voluntary Investment Program Fund.


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8.13.2 A Joint Powers Authority Pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years experience investing in instruments authorized by Government Code Sections 53601(a) to (o).

8.13.3 Any investments in the Voluntary Investment Program Fund must be between $200 million and $10 billion and must be approved by the Board of Commissioners.

8.13.4 For any investments in the Local Agency Investment Fund or County Pooled Investment Fund, the CFO may provide to the Board of Commissioners, and the auditor, the most recent statement or statements received from those institutions, in lieu of the information otherwise required to be provided in the quarterly reports pursuant to Paragraph 5.2.2.

8.13.5 Maximum Term: None

8.14 Insured passbook savings account demand deposits in commercial banks and savings and loan companies.

8.14.1 Maximum Term/Restrictions: The deposit shall not exceed the total net worth of any depository savings association or federal association, except that deposits not exceeding a total of $500,000 may be made to a savings association or federal association without regard to the net worth of that depository, such deposits are insured or secured by law.

9. Medium-Term Maturity Corporate Securities

Notes issued by corporations organized and operating within the U.S. or any state orby depository institutions licensed by the U.S. or any state operating within the U.S. Corporate securities that are rated A or better by nationally recognized rating service.

Maximum Term/Restrictions: Maturity a maximum of five years. No more than 30% percent of the fund may be invested in medium-term notes or other Corporates. (No more than 5% of the portfolio may be invested in the obligations of one issuer.

10. Shares Of Beneficial Interest Issued By Diversified Management Companies,

Otherwise known as mutual funds and as defined in §23701(m) of the Revenue andTaxation Code. Mutual funds must consist of securities and obligations of the U.S. government authorized by Section 53601 of the Code as amended. To qualify the funds must:




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a. Attain the highest ranking or the highest letter and numerical ratingprovided by not less than two of the three largest nationally recognized rating services, or

b. Have an investment adviser registered with the Securities and ExchangeCommission with not less than five years' experience investing in the securities and obligations as authorized above, and with assets under management in excess of $500,000,000. The price of shares of beneficial interest (mutual funds) shall not include any commission that these companies may charge at the time of purchase or redemption

Maximum Term/Restrictions: No more than 20% of the fund may be invested in mutual funds. The limit for one mutual fund is 10% of the fund.

11. Mortgage or Asset-Backed Securities

Pass-through securities (collateralized mortgage obligation, mortgage-backed orother pay-through bond, equipment lease-back certificate, consumer-receivable pass-through certificate, or consumer-receivable-backed bond) are instruments by which the cash flow from mortgages, receivables or other assets underlying the security are passed-through as principal and interest payments to the investor,

Maximum Term/Restrictions: The new regulations require a single-A issuer and a 5-year maturity. PHC will continue to buy only AAA-rated ABS, even though the change permits AA purchases.

Total investment in this category may not exceed 20% of the fund.

12. Compliance Monitoring

In determining the amount of investment for compliance purposes the book value of the security will be used. For instance, if PHC purchases $1 million of a medium term note at a price of 103% (1.03); the investment for compliance purposes will be $1,030,000 since it is PHC’s actual exposure to the issuer.

13. 8.15 Supranational Obligations (Government Code § 53601(q))

8.15.1 Certain supranational obligations are permitted, provided that the obligations are:

8.15.1.1 U.S. Dollars denominated,

8.15.1.2 Senior Obligations,

8.15.1.3 Issued or unconditionally guaranteed by the International Bank for Reconstruction and


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Development, International Finance Corporation, or Inter-American Development Bank,

8.15.1.4 Eligible for purchase and sale within the United States, and

8.15.1.5 Rated AA or equivalent or better by an Approved NRSRO.

8.15.2 Maximum Term: Five (5) years or less

8.16 Securities Lending

8.16.1 Securities lending is allowed but are subject to the conditions and restrictions in the California Government Code Sections 53601(j) and 53601(l).

8.17 Derivatives

8.17.1 Investments in derivative securities are not allowed, except as permitted by this Annual Investment Policy, including but not limited to, US Treasury STRIPS as discussed in Section 8.1.

8.18 Investments Restrictions and Prohibited Transactions.

8.18.1 Any investment not authorized by the CodeCodes §53601 and §53635 are prohibited, including but not limited to, common stocks, derivatives such as inverse floaters, mismatched floaters, yield curve notes and other securities that magnify interest rate risk, are expressly prohibited. Additionally, Corporates including medium termed notesMedium-Termed Notes (MTN) rated A, may not be purchased if they are currently on the downgrade list at either Moody’s or S&P or Commercial Paper of issuers with long term ratings of single A, may not be purchased if the issuer is currently on the downgrade list of either S&P or Moody’s. Also, private placements are not acceptable investments. However, commercial paper of 6 months or less maturity issued under the 4(2) exemption is acceptable as long as it is an acceptable investment for Money Market Mutual Funds.

X. Safekeeping Of Securities

To protect against potential losses caused by collapse of individual securities dealers, allsecurities owned by PHC, except securities used as collateral for repurchase and reverse repurchase agreements and shares in mutual funds, shall be kept in safekeeping with "perfected interest" by a third party bank trust department acting as agent for PHC under the terms of a custody agreement executed by the bank and by PHC. All securities will be received and delivered using standard delivery-vs.-payment procedures.

Table 1





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Notes for Table 1 a. Sources: Government Code Sections 16429.1, 53601, 53635, and 53638. b. Municipal Utilities Districts have the authority under the Public Utilities Code Section 12871 to invest in certain

securities not addressed here. c. Government Code Section 53601 provides that the maximum term of any investment authorized under this section,

unless otherwise stated, is five years. However, the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five year maturity limit. Such approval must be issued no less than three months prior to the purchase of any security exceeding the five-year maturity limit.

d. No more than 30 percent of the agency's money may be in Bankers' Acceptances of any one commercial bank. e. "Select Agencies" are defined as a "city, a district, or other local agency that do[es] not pool money in deposits or

investment with other local agencies, other than local agencies that have the same governing body." f. 10 percent of the outstanding commercial paper of any single corporate issuer. g. Issuing corporation must be organized and operating with the U.S. and have assets in excess of $500,000,000. h. "Other Agencies" are counties, a city and county, or other local agency "that pools money in deposits or investments with other local agencies, including local agencies that have the same governing body." Local agencies that pool exclusively with other local agencies that have the same governing body must adhere to the limits set for "Select Agencies," above. i. No more than 10 percent of the agency's money may be invested in the Commercial Paper of any one corporate

issuer; no more than 10 percent of the outstanding Commercial Paper of any one corporate issuer may be purchased by the local agency.

j. Reverse repurchase agreements or securities lending agreements may exceed the 92-day term if the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale

of a security using a reverse repurchase agreement or securities lending agreement and the final maturity dates of the same security. k. Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency. The issuer must have held the securities used for the agreements for at least 30 days. l. "Medium-term notes" are defined in Government Code Section 53601 as "all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized

and operating with the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S."

m. No more than 10 percent invested in any one mutual fund. n. A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the

fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least 5 years experience investing in instruments authorized by Government Code Sections 53601 and 53635.

o. A money market mutual fund must receive the highest ranking by not less than two nationally recognized statisticalrating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than 5 years experience investing in money market instruments with assets under management in excess of $500 million.

p. Issuer must have an "A" rating or better for the issuer's debt as provided by a nationally recognized rating agency. q. A joint powers authority pool must retain an investment advisor who is registered with the SEC (or exempt from

registration), has assets under management in excess of $500 million, and has at least 5 years experience investing in instruments authorized by Government Code Section 53601, subdivisions (a) to (n).


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Table 2


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Notes for Table 2 a. Source: Government Code Sections 53601.7b. A county or city and county may not invest in any security under Section 53601.7 that would cause the dollar-weighted average maturity of the funds in the investment pool to exceed 90 days. c. Unless otherwise specified, all corporate and depository institution investments must meet or exceed the following criteria at the time of purchase: 1) Short-term debt must be rated at least A-1, P-1, F-1; 2) If the issuer of short-term debt has issued long-term debt, the long-term debt must be rated "A" or better without respect to modifiers. Because Section 53601.7 does not define these investments, local agencies should consult with their legal counsel to determine if any investments purchased fall within this category. d. Eligible commercial paper investments may not represent more than 10 percent of the outstanding paper of an issuing corporation. e. Issuing corporation must be organized and operating within the U.S. and have assets in excess of $500,000,000. f . Subject to the limits placed on depository funds specified in Government Code Section 53638. g. Eligible certificates must be issued by a nationally or state-chartered bank or a federal association, or by a state-licensed branch of a foreign bank. Investments in certificates of deposit are subject to certain restrictions on conflicts of interest as specified in Section 53601.7(e)(7). h. Repurchase agreements reverse repurchase agreements, or securities lending agreements must meetthe delivery requirements specified in Government Code Section 53601. i. A security underlying a repurchase agreement or a reverse repurchase agreement may exceed the 397- day term limit placed on all investments allowed under Government Code Section 53601.7. j. Applies to reverse repurchase agreements unless the agreement includes a guarantee return for the entire period of the agreement. k. Value of portfolio based upon investments owned and does not include securities subject to other agreements, such as securities lending agreements. l. Investments in reverse repurchase agreements or similar investments can be made only with the approval of the governing body of the local agency and only with primary dealers of the Federal Reserve Bank of New York or with a nationally or state-chartered bank that has or has had a "significant banking relationship" with the local agency. The issuer must have held the securities used in the agreement for at least 30 days. m. Includes securities specified as "medium-term notes" issued by corporations organized and operating within the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S. n. The investments in securities and obligations made by the mutual fund must conform to GovernmentCode Section 53601.7 except that the counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default. o. Must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC or exempt from registration, has assets under management in excess of $500 million, and has at least 5 years experience investing in money market instruments. p . These include guaranteed investment contracts. q. Category includes mortgage pass-through security, collateralized mortgage obligation, mortgagebacked and other pay-through bond, equipment lease-backed certificate, consumer receivable pass through certificate, or consumer receivable-backed bonds. r. Issuer must have an "A" rating or better for the issuer's debt as provided by a nationally recognized rating agency.


Page 26 of 27

Table 3

8.19 Diversification Guidelines

8.19.1 Investment Security Diversification at the time of purchase:

Type of Security Maximum Portfolio %

Treasuries, including STRIPS 100% Federal Agencies, and US Government Enterprises 100% State Obligations (CA and others) and CA Local 25% Obligations Bankers Acceptances 40%

Commercial Paper 25% Negotiable Certificates of Deposit 30% Non-Negotiable Certificates of Deposit 100% Placement Service Deposits 30% Repurchase Agreements 100% Medium Term Maturity Corporate Securities 30% Money Market Funds and Mutual Funds Combined 20% Mortgage and Asset Backed Securities 20% Variable and Floating Rate Securities 0%* Government Pooled Funds 100% Certain Supranational Obligations 30%

* Maximum holding percentage is based on underlying security type limits listed.

8.19.2 Issuer / Counterparty Diversification Guidelines:

Issuer / Counterparty Maximum Portfolio %

Any one Federal Agency or Government Sponsored Enterprise 100% Any one Repurchase Agreement counterparty name: If Maturity / Term is less than or equal to 7 days 50% If Maturity / Term is greater than 7 days 25%


Page 27 of 27

8.19.3 For all other securities described under Authorized Investments that are permitted investments, no more than 2 percent of PHC’s funds may be invested with any one company, corporation, bank, local agency, or other investment vehicle, unless otherwise stated.

8.20 Leverage

8.20.1 The investment portfolio, or investment portfolios managed by an Investment Manager cannot be used as collateral to obtain additional investment funds.

9.0 Underlying Nature of Investments

9.1 PHC and its Investment Manager(s) shall not make investments in organizations which have a line business that is visibly in conflict with public health or the mission of PHC.

9.2 PHC and its Investment Manager(s) shall not make investments in Negotiable Certificates of Deposit of a state or federal credit union, if a member of its Board or Executive Officers also serves on the Board of Commissioners of that credit union.

9.4 PHC will provide the Investment Manager(s) with a list of corporations that do not comply with the Annual Investment Policy and shall notify its Investment Manager(s) of any changes.

9.5 Investment Manager(s) will not enter into any investments with any institutions with which the Investment Manager is affiliated.

10.0 Rating Downgrades

10.1 PHC may from time to time be invested in a security whose rating is downgraded below the quality permitted in this Annual Investment Policy.

10.2 Any security held as an investment whose rating falls below the investment guidelines or whose rating is put on notice for possible downgrade, shall be immediately reviewed for action. The decision to retain the security until maturity, sell or put the security, or other action shall be approved by the CFO.

11.0 Rating Guidelines

11.1 A security must be rated by one or more of the following Approved NRSROs: 1) Standard and Poor’s 2) Moody’s, or 3) Fitch Ratings. Unless specifically stated otherwise for a specific asset class, if a security is rated at different rating levels by two or more Approved NRSRO’s, the highest rating will apply.


Page 28 of 27

11.2 All investments must adhere to rating requirements out lined under the sections authorizing their purchase under section 2.3.

11.3 Notwithstanding Section 8.13, PHC may invest in Government Pooled funds that invest only in high grade securities or obligations.


TABLE 1

Page 29 of 27

ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE (AS OF JANUARY 1, 2019)A APPLICABLE TO ALL LOCAL AGENCIESB

See “Table of Notes for Figure 1” on the next page for footnotes related to this figure.

INVESTMENT TYPE

MAXIMUM REMAINING MATURITYC

MAXIMUM SPECIFIED

% OF PORTFOLIOD

MINIMUM QUALITY

REQUIREMENTS

GOVERNMENT CODE

SECTIONS

Local Agency Bonds 5 years None None 53601(a)

U.S. Treasury Obligations 5 years None None 53601(b)

State Obligations: CA and Others 5 years None None 53601(d)

CA Local Agency Obligations 5 years None None 53601(e)

U.S. Agency Obligations 5 years None None 53601(f)

Bankers’ Acceptances 180 days 40%E None 53601(g)

Commercial Paper: Non-pooled FundsF 270 days or less 25% of the agency’s moneyG


rating by an NRSROH53601(h)(2)(C)

Commercial Paper: Pooled FundsI

270 days or less 40% of the agency’s moneyG


rating by an NRSROH53635(a)(1)

Negotiable Certificates of Deposit 5 years 30%J None 53601(i)

Non-negotiable Certificates of Deposit 5 years None None 53630 et seq.

Placement Service Deposits 5 years 30% K None 53601.8 and 53635.8

Placement Service Certificates of Deposit 5 years 30% K None 53601.8 and 53635.8

Repurchase Agreements 1 year None None 53601(j)

Reverse Repurchase Agreements and Securities Lending Agreements 92 daysL 20% of the base

value of the portfolio NoneM 53601(j)

Medium-term NotesN 5 years or less 30% “A” rating category or

its equivalent or better

53601(k)

Mutual Funds and Money Market Mutual Funds N/A 20%O MultipleP,Q 53601(l) and

53601.6(b)

Collateralized Bank Deposits R 5 years None None 53630 et seq. and 53601(n)

Mortgage Pass–through and Asset Backed Securities 5 years or less 20%

“AA” rating category or its equivalent or

better 53601(o)

County Pooled Investment Funds N/A None None 27133

Joint Powers Authority Pool N/A None Multiple S 53601(p)

Local Agency Investment Fund (LAIF) N/A None None 16429.1

Voluntary Investment Program Fund T N/A None None 16340

Supranational Obligations U 5 years or less 30% “AA” rating category or its equivalent or

better 53601(q)


TABLE 1

Page 30 of 27

TABLE OF NOTES FOR FIGURE 1

A

B

C

D

E

F

G

H

I

J

K

L

Sources: Sections 16340, 16429.1, 27133, 53601, 53601.6, 53601.8, 53630 et seq., 53635, and 53635.8. Municipal Utilities Districts have the authority under the Public Utilities Code Section 12871 to invest in certain securities not addressed here. Section 53601 provides that the maximum term of any investment authorized under this section, unless otherwise stated, is five years. However, the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five year remaining maturity limit. Such approval must be issued no less than three months prior to the purchase of any security exceeding the five-year maturity limit. Percentages apply to all portfolio investments regardless of source of funds. For instance, cash from a reverse repurchase agreement would be subject to the restrictions. No more than 30 percent of the agency’s money may be in bankers’ acceptances of any one commercial bank. Includes agencies defined as a city, a district, or other local agency that do not pool money in deposits or investment with other local agencies, other than local agencies that have the same governing body. Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. Issuing corporation must be organized and operating within the U.S., have assets in excess of $500 million, and debt other than commercial paper must be in a rating category of "A" or its equivalent or higher by a nationally recognized statistical rating organization, or the issuing corporation must be organized within the U.S. as a special purpose corporation, trust, or LLC, have program wide credit enhancements, and have commercial paper that is rated “A-1” or higher, or the equivalent, by a nationally recognized statistical rating agency. Includes agencies defined as a county, a city and county, or other local agency that pools money in deposits or investments with other local agencies, including local agencies that have the same governing body. Local agencies that pool exclusively with other local agencies that have the same governing body must adhere to the limits set forth in Section 53601(h) (2) (C). No more than 30 percent of the agency’s money may be in negotiable certificates of deposit that are authorized under Section 53601(i). No more than 30 percent of the agency’s money may be invested in deposits, including certificates of deposit, through a placement service (excludes negotiable certificates of deposit authorized under Section 53601(i)). Reverse repurchase agreements or securities lending agreements may exceed the 92-day term if the agreement includes a written codicil guaranteeing a minimum earning or

M

N

O

P

Q

R

S

T

U

spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity dates of the same security. Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency. The local agency must have held the securities used for the agreements for at least 30 days. “Medium-term notes” are defined in Section 53601 as “all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.” No more than 10 percent invested in any one mutual fund. This limitation does not apply to money market mutual funds. A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Sec- tions 53601 and 53635. A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than five years' experience investing in money market instruments with assets under management in excess of $500 million. Investments in notes, bonds, or other obligations under Section 53601(n) require that collateral be placed into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, among other specific collateral requirements. A joint powers authority pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Section 53601, subdivisions (a) to (o). Local entities can deposit between $200 million and $10 billion into the Voluntary Investment Program Fund, upon approval by their governing bodies. Deposits in the fund will be invested in the Pooled Money Investment Account. Only those obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter-American Development Bank (IADB), with a maximum remaining maturity of five years or less.


TABLE 2

Page 31 of 27

Comparison and Interpretation of Credit Ratings1

Long Term Debt Ratings Standard &

Rating Interpretation Moody’s Poor’s Fitch IBCA Thomson Bank Watch

Rating Interpretation Moody’s Standard &

Poor’s Fitch IBCA Best-quality grade Aaa AAA AAA A High-quality grade Aa1

Aa2 Aa3

AA+ AA AA-

AA+ AA AA-

A A/B

B Upper medium grade A1

A2 A3

A+ A A-

A+ A A-

B B/C

B/C

Medium Grade Baa1 Baa2 Baa3

BBB+ BBB BBB-

BBB+ BBB BBB-

C C/D

D Speculative Grade Ba1

Ba2 Ba3

BB+ BB BB-

BB+ BB BB-

D D

D Low Grade B1

B2 B3

B+ B B-

B+ B B-

D/E D/E

D/E Poor Grade to Default Caa CCC+ CCC D/E

In Poor Standing - CCC - D/E Highly Speculative Default Ca

C CC

- CC

- D/E

E Default -

- -

- - D

DDD DD D

E E

E

Short Term/Commercial Paper Investment Grade Ratings

Rati

Moody’s Standard & Poor’s Fitch IBCA

Tho

Superior Capacity P-1 A-1+/A-1 F1+F1 TBW-1 Strong Capacity P-2 A-2 F2 TBW-2

Acceptable Capacity P-3 A-3 F3 TBW-3

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TABLE 2

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1

1 These are general credit rating guidelines and are for information only.


TABLE 2

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Attachment A 1 These are general credit rating guidelines and are for information only.


Attachment A

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Agent - An independent third party acting for the Custodian. The Investment Manager may act as Agent.

Approved NRSRO - Approved NRSROs consists of the following NRSROs: 1) Standard and Poor’s, 2) Moody’s, and 3) Fitch Ratings.

Arbitrage- Transactions by which securities are bought and sold in different markets at the same time for the sake of the profit arising from a yield difference in the two markets. The 1986 Tax Reform Act made this practice by municipalities illegal solely as a borrowing tactic, except under certain safe-harbor conditions.

Asset Allocation-The division of an investment portfolio among different asset categories, such as stocks, bonds, and cash.

Asset-Back Securities-Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset-backed securities are structured as trusts in order to perfect a security interest in the underlying assets.

Bankers' Acceptance- A draft or bill or exchange accepted by a bank or trust company. The accepting institution, as well as the issuer, guarantees payment of the bill.

Bond Proceeds-The money paid to the issuer by the purchaser or underwriter of a new issue of municipal securities. These moneys are used to finance the project or purpose for which the securities were issued and to pay certain costs of issuance as may be provided in the bond contract.

Bonds-A debt obligation of a firm or public entity. A bond represents the agreement to repay the debt in principal and, typically, in interest on the principal.

Broker-Someone who brings buyers and sellers together and is compensated for his/her service.

Certificate of Deposit- A short-term, secured deposit in a financial institution that usually returns principal and interest to the lender at the end of the loan period. Certificates of Deposit (CDs) differ in terms of collateralization and marketability. Those appropriate to public agency investing include:

Negotiable Certificates of Deposit-Generally- short-term debt instrument that usually pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. The majority of negotiable CDs mature within six months while the average maturity is two weeks. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). Negotiable CDs are insured by FDIC up to $250,000, but they are not collateralized beyond that amount.

Non-Negotiable Certificates of Deposit - CDs that carry a penalty if redeemed prior to maturity. A secondary market does exist for non-negotiable CDs, but redemption includes a transaction cost that reduces returns to the investor. Non-negotiable CDs issued by banks and savings and loans are insured by the Federal Deposit Insurance Corporation up to the amount of $250,000, including principal and interest. Amounts deposited above this amount may be secured with

GLOSSARY

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Formatted: Font: Boldother forms of collateral through an agreement between the investor and the issuer. Collateral may include other securities including Treasuries or agency securities such as those issued by the Federal National

Collateralization -Process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan and/or security.

Commercial Paper-An unsecured short-term promissory note issued by corporations, with maturities ranging from 2 to 270 days.

County Pooled Investment Funds-The aggregate of all funds from public agencies placed in the custody of the County Treasurer or Chief Finance Officer for investment and reinvestment.

Coupon-The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value; a certificate attached to a bond evidencing interest due on a payment date.

Credit Risk-The risk of principal loss due to the failure of the issuer of the security

Custodian -A bank or other financial institution that keeps custody of stock certificates and other assets.

Dealer-Someone who acts as a principal in all transactions, including buying and selling from his/her own account.

Defeased Bond Issues -Issues that have sufficient money to retire outstanding debt when due so that the agency is released from the contracts and covenants in the bond document.

Derivative-Securities that are based on, or derived from, some underlying asset, reference date or index.

Diversification-The reduction of risk by investing in a variety of assets which ensures that a portfolio is not concentrated in securities of any one type, industry, or entity.

Duration-A measure of the timing of the cash flows to be received from a security that provides the foundation for a measure of the interest rate sensitivity of a bond. Duration is a volatility measure and represents the approximate percentage change in price divided by the percentage change in interest rates. A high duration measure indicates that for a given level of movement in interest rates, prices of securities will vary considerably.

Federal Agencies and U.S. Government Sponsored Enterprises-Investments which are obligations, participations, and other instruments of, or issued by, a federal agency or a United States government sponsored enterprise, including instruments issued by, or fully guaranteed as to principal and interest by the issuers.

Fiduciary-An individual who holds something in trust for another and bears liability for its safekeeping.

Floating Rate Securities-Securities that provide for the automatic adjustments of its interest rate whenever a specified interest rate changes.

Government Accounting Standards Board (GASB)-A standard-setting body, associated with the Financial Accounting Foundation, which prescribes standard accounting practices for governmental units.








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Government Pooled Funds-Funds of various governmental agencies that are pooled together for investment purposes.

Government Sponsored Enterprises (GSE)-Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Securities issued by GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries.

Guaranteed Investment Contracts (GICs)-An agreement acknowledging receipt of funds for deposit, specifying terms for withdrawal, and guaranteeing a rate of interest to be paid.

Investment Manager-An individual designated by the Chief Financial Officer (CFO) to manage all or any part of the investment portfolio.

Joint Powers Authority (JPA) California Government Code Section 6500, et. seqET. Seq. provides that two or more public agencies may, by agreement, exercise any power common to the contracting parties.

Liquidity -An asset that can easily and rapidly be converted into cash without significant loss of value.

Local Agency Investment Fund-A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer's office.

Local Government Investment Pool (LGIP)-Investment pools that range from the State Treasurers Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds.

London Interbank Offered Rate (LIBOR)-The average interest rate that leading banks in London charge when lending to other banks and used as a benchmark for Finance.

Market Risk-The risk of market value fluctuations due to economic change in the interest rate markets.

Market Value-The price at which a security is trading and presumably could be purchased or sold at a particular point in time.

Maturity- The date on which the principal or stated value of an investment becomes due and payable.

Medium-Term Note--Corporate or depository institution debt securities meeting certain minimum quality standards (as specified in the California Government Code) with a remaining maturity of five years or less.

Money Markets-A component of financial markets for assets involved in short- term borrowing and lending with original maturities of one year or shorter time frames.







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Formatted: Font: BoldMortgage or Asset Backed Securities-Securities whereby cash flow from the mortgages, receivables

and other assets underlying the security are passed-through as principal and interest payments to the investor.

Mutual Funds-An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments.

Nationally Recognized Statistical Rating Organization (NRSRO)-A credit rating agency that issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. The SEC's Office of Credit Ratings administers the SEC's rules relating to NRSROs, in addition to performing various other functions with respect to NRSROs.

Negotiable Certificates of Deposit/Time Deposits-A negotiable receipt for a time deposit at a bank or other financial institution for a fixed time and interest rate.

Note -A written promise to pay a specified amount to a certain entity on demand or on a specified date.

Par Value -The amount of principal that must be paid at maturity; also referred to as the face amount of a bond, normally quoted in $ 1,000 increments per bond.

Principal-The face value or par value of a debt instrument or the amount of capital invested in a given security.

Prospectus-A legal document that must be provided to any prospective purchaser of a new securities offering registered with the SEC that typically includes information on the issuer, the issuer's business, the proposed use of proceeds, the experience of the issuer's management, and certain certified financial statements (also known as an "official statement ').

Portfolio-Combined holding of more than one stock, bond, commodity, real estate investment, cash equivalent or other asset. The purpose of a portfolio is to reduce risk by diversification.

Prudent Investor Standard -A standard of conduct where a person acts with care, skill, prudence, and diligence when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds. The test of whether the standard is being met is if a prudent person acting in such a situation would engage in similar conduct to ensure that investments safeguard principal and maintain liquidity.

Repurchase Agreements -An agreement of one party (for example, a financial institution) to sell securities to a second party (such as a local agency) and simultaneous agreement by the first party to repurchase the securities at a specified price from the second party on demand or at a specified date.

Reverse Repurchase Agreements-An agreement of one party (for example, a financial institution) to purchase securities at a specified price from a second party (such as a public agency) and a simultaneous agreement by the first party to resell the securities at a specified price to the second party on demand or at a specified date.

Rule G-37 of the Securities Rulemaking Board-Federal regulations to sever any connection between the making of political contributions and the awarding of municipal securities business.






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Safekeeping Service -Offers storage and protection of assets provided by an institution serving as an agent.

State of California and Local Agency Obligations-Registered state warrants, treasury notes or bonds of the State of California and bonds, notes and warrants or other evidence of indebtedness of any local agency of the state including bonds payable solely out of the revenue from a revenue producing property owned, controlled, or operated by the State or local agency or by a department, board, agency, or authority of the State or local agency.

Securities and Exchange Commission (SEC)-The federal agency responsible for supervising and regulating the securities industry.

Securities Lending Agreement -An agreement of one party (for example, a local agency) to borrow securities at a specified price from a second party (for example, another local agency) with a simultaneous agreement by the first party to return the security at a specified price to the second party on demand or at a specified date. These agreements generally are collateralized and involve a third-party custodian to hold the securities and collateral. Economically similar to reverse-repurchase agreement.

Tax and Revenue Anticipation Notes (TRANs)-Notes issued in anticipation of receiving tax proceeds or other revenues at a future date.

Trustee or trust company or trust department of a bank-A financial institution with powers to act in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the bond contract.

Term-The remaining time to Maturity when the asset is purchased.

Underwriter -A dealer which purchases a new issue of municipal securities for resale.

US Treasury Obligations -Debt obligations of the United States Government sold by the Treasury Department in the forms of Bills, Notes, and Bonds. Bills are short-ten-nterm obligations that mature in I1 year or less and are sold on the basis of a rate of discount. Notes are obligations that mature between I year and 10 years. Bonds are long-term obligations that generally mature in 10years or more.

Variable Rate Securities-Securities that provide for the automatic establishment of a new interest rate on set dates.

Weighted Average Maturity (WAM) -The average maturity of all the securities that comprise a portfolio that is typically expressed in days or years.

Yield-The current rate of return on an investment security generally expressed as a percentage of the securities current price.

Yield Curve-A graphic representation that shows the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity.













FINANCIAL HIGHLIGHTS Of The Partnership HealthPlan Of California For the Period Ending July 31, 2019

Financial Analysis for the Current Period

Total (Deficit) Surplus

For the first month of the fiscal year – the month ending July 31, 2019 – PHC reported a surplus of $961,199

Significant variances are explained below.

Revenue

July’s State Capitation Revenue of $231.6 million was favorable to budget by $4.9 million. The favorable

variance was mainly driven by retro adjustments tied to the prior fiscal year’s supplemental payments and

retro eligibility. Additionally, there was a small favorable variance related to a rate update provided by

DHCS for the non-medical transportation (NMT) benefit.

Healthcare Costs

Total Healthcare Costs are higher than budget by $6.5 million for the month of July. Total Inpatient Hospital

has an unfavorable variance of roughly $5.7 million. Incurred expenses are higher than anticipated partially

due to high dollar whole child model (WCM) claims as well as timing of assumed impacts for hospital

contract changes that took place in the prior year. PHC is closely monitoring the WCM inpatient claims on

a weekly basis and analyzing the development against revenue and budget expectations.

Administrative Costs

Total administrative costs are under budget by $1.4 million for this first month of the year. This is

primarily due to the method in which the budget is recorded. Most categories of the administrative budget

are prorated over 12 months; as the year progresses, the variance between actual and budget is expected to

decrease. This is particularly evident in employee expenses, where the variance is primarily due to open

positions expected to be filled throughout the year. This is also noticeable in computer and data, which

will be based on the timing of IT projects.

Balance Sheet

Total Cash & Cash Equivalents decreased by $43.6 million for the month. The decrease is primarily related

to the quarterly MCO tax payment, which is the final payment for fiscal year 2018/19.

The Strategic Use of Reserve balance decreased by $889,302 for the month bringing the balance to $59.8

million. The decrease is primarily from the activity in the Housing and Sober Living initiative. In order to

not understate the balance for uncompleted SURs, the SUR amounts that have exceeded their original budget

have been excluded in calculating the ending balance. See reconciliation of the unspent SUR to date on the

Strategic Use of Reserves Update schedule.


FINANCIAL HIGHLIGHTS Of The Partnership HealthPlan Of California For the Period Ending July 31, 2019

General Statistics

Membership

Membership had a net decrease of 1,694 members for the month. Medi-Cal Rate Regions 1 and 2 had net

membership decreases of 383 and 1,311, respectively.

Utilization Metrics and High Dollar Case

For the fiscal year 2019/20 through July 31, 2019, 6 members reached the $250,000 threshold with an average

cost of $391,135. For fiscal year 2018/19, the number of members reached 389, and the average cost per case

was $437,537. For fiscal year 2017/18, 459 members reached the $250,000 threshold with an average claims cost of $421,165.

Current Ratio/Required Reserves (Excluding Capital Assets)

Current Ratio Including Required Reserves 2.10

Current Ratio Excluding Required Reserves: 1.29

Required Reserves: $470,053,874

Total Fund Balance: $605,187,017

Days of Cash on Hand

Including Required Reserves: 75.42

Excluding Required Reserves: 36.43


Partnership HealthPlan of CaliforniaStrategic Use of Reserves UpdateAs of July 31, 2019

Focus Area InitiativeAllocatedAmount

$ Spent To-Date

Balance at06/30/19

SURAdditions/

Adjustments

SURDeletions

(P&L)

SURDeletions

(B/S)

Re-AllocUnusedFunds

Balance at 07/30/19

Access 1% Reduction 7,800,000 7,800,000 - - - - Billing Limit 8,400,000 8,400,000 - - - - Hospital Outpatient Rate Increase (to 165%) 54,000,000 57,119,279 (3,119,279) - - (3,119,279) Long Term Care Provider Rate Increase (2%) 25,800,000 20,506,171 5,293,829 - - 5,293,829 Medicare Copays and Deductibles 12,000,000 26,936,535 (14,936,535) - - (14,936,535) Provider Recruitment Program 8,562,270 4,550,008 4,068,240 - (55,979) 4,012,262 Others 25,255,060 23,026,614 2,349,689 - (121,244) 2,228,446

Access Total 141,817,330 148,338,608 (6,344,056) - (177,222) (6,521,278) Care Coordination Analytics Support 750,000 750,000 - - - -

CarePlus (Home Visit Program) 2,700,000 2,700,000 - - - - Case Management System 2,500,000 3,092,416 (592,416) - - (592,416) IOPCM Grants (Marin CC, Shasta CHC) 900,000 900,000 - - - - IOPCM Grants (Mendo, PHC, QVMC, La Clinica) 1,500,000 1,500,000 - - - - Others 1,663,140 3,045,225 (1,382,085) - - (1,382,085)

Care Coordination Total 10,013,140 11,987,640 (1,974,500) - - (1,974,500) Community Partnership Discharge Grant 500,000 552,688 94,906 - (147,594) (52,688)

Local Innovation Fund: SDOH (Round 2) 2,650,000 2,525,403 25,244 99,353 - 124,597 LOCAL INNOVATION FUNDS- Provider Access 1,600,000 1,424,213 175,787 - - 175,787 SUR Funding Project for Housing & Sober Living 25,000,000 5,716,718 19,941,521 - (658,239) 19,283,282 Others 775,310 713,815 61,495 - - 61,495

Community Partnership Total 30,525,310 10,932,836 20,298,954 99,353 (805,833) 19,592,474 New Benefits Cardiac Rehab Benefit (RM) 300,000 300,000 - - - -

Coverage Of Chiropractors & Acupuncturists For Patients On A Narrow Basis (Rm) 300,000 300,000 - - - - Palliative Care Benefit 1,800,000 1,800,000 - - - - Optional Medi-Cal Benefits-Vision&Podiatry 18,000,000 6,864,078 11,135,922 - - 11,135,922 Others 413,000 447,430 (34,430) - - (34,430)

New Benefits Total 20,813,000 9,711,508 11,101,492 - - 11,101,492 Plan Infrastructure Analytics Department 1,500,000 1,500,000 - - - -

Enterprise Data Warehouse 2,700,000 2,700,000 - - - - New Building in Fairfield - 4605 Bus. Ctr. Dr. 53,006,400 39,179,185 13,827,215 - 13,827,215 NR Buildings (Redding and Eureka) 3,112,511 3,112,511 - - - - Technical Infrastructure For Hie And Clinical Data 2,000,000 2,146,528 (142,695) - (3,833) (146,528) Others 3,545,930 4,376,517 (826,107) - (4,480) (830,587)

Plan Infrastructure Total 65,864,841 53,014,740 12,858,414 - (8,313) - 12,850,101 Quality Clinic Consortia Quality Improvement 1,275,000 1,275,000 - - - -

Expand Hospital P4P Programs 7,500,000 4,750,000 2,750,000 - - 2,750,000 Improve Prenatal Care With Pay For Performance Program 1,000,000 201,675 798,325 - - 798,325 PCP QI Planning 330,000 330,000 - - - - Pharmacy QIP 3,200,000 3,200,000 - - - - Others 410,000 291,672 123,928 - (5,600) 118,328

Quality Total 13,715,000 10,048,347 3,672,253 - (5,600) 3,666,653

Grand Total 282,748,621 244,033,680 39,612,556 99,353 (996,968) - 38,714,941

Over Expenditures To-Date 21,033,547 21,041,859

Total Unspent SUR To-Date 60,646,102 59,756,800


Member Months by County:

County Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

Solano 108,784 108,372 108,231 108,310 108,312 107,608 107,460 107,350 107,493 107,333 107,442 106,084 106,461

Napa 28,342 28,310 27,772 27,823 27,678 27,349 27,457 27,444 27,410 27,460 27,750 27,597 27,681

Yolo 52,864 52,757 52,765 53,264 53,208 52,718 52,511 52,261 51,830 51,672 51,798 50,905 50,909

Sonoma 108,043 107,602 107,411 107,154 106,835 106,065 106,034 106,421 106,071 104,764 105,420 104,766 104,559

Marin 38,063 37,747 37,514 37,518 37,568 37,027 37,139 37,185 37,087 37,177 37,403 37,251 37,294

Mendocino 38,822 38,611 38,666 38,670 38,672 38,377 38,354 38,155 38,123 38,232 38,007 37,228 36,820

Lake 30,782 30,499 30,578 30,541 30,689 30,185 30,253 30,265 30,124 29,917 30,082 29,772 30,040

Del Norte 11,493 11,391 11,316 11,260 11,258 11,268 11,268 11,222 11,168 11,133 11,130 11,124 11,120

Humboldt 52,234 51,864 51,780 51,772 52,052 51,790 51,949 51,958 51,939 52,460 52,762 51,856 52,179

Lassen 7,286 7,300 7,315 7,314 7,384 7,174 7,151 6,955 6,973 6,989 7,095 7,011 7,062

Modoc 3,135 3,101 3,151 3,146 3,166 3,180 3,194 3,198 3,210 3,163 3,193 3,177 3,158

Shasta 59,752 59,466 59,270 59,500 59,812 59,774 59,449 59,097 59,177 59,075 59,057 58,622 58,572

Siskiyou 17,365 17,452 17,450 17,520 17,528 17,480 17,480 17,481 17,367 17,280 17,254 16,978 17,065

Trinity 4,354 4,299 4,283 4,271 4,321 4,258 4,285 4,285 4,275 4,218 4,200 4,234 4,128

All Counties Total 561,319 558,771 557,502 558,063 558,483 554,253 553,984 553,277 552,247 550,873 552,593 546,605 547,048

Medi-Cal Region 1: Solano, Napa, Yolo & Marin; Medi-Cal Region 2: Sonoma, Mendocino & Rural 8 Counties

563,289

560,805

558,342

555,899

553,476

551,073

548,691

546,328

543,984

541,661 539,357

537,071

549,804

561,319

558,771 557,502

558,063 558,483

554,253 553,984 553,277 552,247

550,873 552,593

546,605

547,048

530,000

535,000

540,000

545,000

550,000

555,000

560,000

565,000

570,000

575,000

580,000

JU L ‐ 1 8 AUG ‐ 1 8 S E P ‐ 1 8 OC T ‐ 1 8 NOV ‐ 1 8 D EC ‐ 1 8 J AN ‐ 1 9 F E B ‐ 1 9 MAR ‐ 1 9 A P R ‐ 1 9 MAY ‐ 1 9 J UN ‐ 1 9 J U L ‐ 1 9

PARTNERSHIP HEALTHPLAN OF CALIFORNIAACTUAL V. PROJECTED MEDI‐CAL ENROLLMENT

JUL 2018 ‐ JUL 2019

Projected (Budgeted) Actual


43,708 As ofFINANCIAL INDICATORS Jul-19 YTD Jul-19

Total Enrollment 543,170 543,170 543,170

Total Revenue 232,220,019 232,220,019 232,220,019 Total Health Care Costs 221,560,592 221,560,592 221,560,592 Total Administrative Costs 9,698,228 9,698,228 9,698,228 Medi-Cal Hospital & Managed Care Taxes - - - Total Current Year Surplus (Deficit) 961,199 961,199 961,199

Total Claims Payable 309,950,812 309,950,812 309,950,812

Total Fund Balance 605,187,017 605,187,017 605,187,017 Reserve Fund - Required Reserves 364,887,643 364,887,643 364,887,643 Reserve Fund - Capital Assets 105,166,231 105,166,231 105,166,231 Reserve Fund - Strategic Use of Reserves 59,756,800 59,756,800 59,756,800 Unrestricted Fund Balance 75,376,343 75,376,343 75,376,343Fund Balance as % of Reserved Funds 114.23% 114.23% 114.23%

Current Ratio 1.29:1 1.29:1 1.29:1Medical Loss Ratio w/o Tax 95.41% 95.41% 95.41%Admin Ratio w/o Tax 4.18% 4.18% 4.18%Profit Margin Ratio w/o Tax 0.41% 0.41% 0.41%

Avg / MonthAs of

FINANCIAL INDICATORS Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 YTD Jun-19

Total Enrollment 558,229 555,694 554,259 553,722 554,344 551,393 550,184 549,293 548,517 547,283 547,276 544,864 6,615,058 551,255

Total Revenue 223,622,396 224,627,038 223,011,248 221,839,053 238,320,688 225,145,110 229,293,826 234,635,800 237,354,464 240,583,405 248,302,311 235,490,761 2,782,226,099 231,852,175 Total Health Care Costs 215,098,111 213,849,684 210,084,055 209,799,985 223,764,851 211,650,497 216,013,007 226,612,352 225,474,410 219,531,756 218,022,242 205,309,098 2,595,210,049 216,267,504 Total Administrative Costs 7,937,564 8,576,255 7,892,305 8,992,573 8,487,438 9,080,268 9,079,667 8,720,456 9,568,053 8,989,395 10,037,320 9,906,862 107,268,157 8,939,013 Medi-Cal Hospital & Managed Care Taxes 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 11,196,958 134,363,496 11,196,958 Total Current Year Surplus (Deficit) (10,610,237) (8,995,859) (6,162,070) (8,150,463) (5,128,559) (6,782,613) (6,995,806) (11,893,966) (8,884,957) 865,296 9,045,791 9,077,843 (54,615,603) (4,551,300)

Total Claims Payable 238,728,946 242,503,297 266,069,388 251,011,405 298,803,635 294,871,571 309,072,419 331,116,229 334,992,569 318,215,062 330,437,589 342,352,414 342,352,414 296,514,544

Total Fund Balance 648,231,184 639,235,325 633,073,254 624,922,791 619,794,231 613,011,618 606,015,812 594,121,845 585,236,888 586,102,184 595,147,976 604,225,819 604,225,819 612,426,578 Reserve Fund - Required Reserves 468,852,166 470,106,280 470,618,797 375,187,068 374,339,552 371,639,122 373,138,099 376,969,141 381,309,416 383,837,629 376,627,068 376,097,730 376,097,730 399,893,506 Reserve Fund - Capital Assets 84,135,058 85,929,106 88,073,284 89,834,151 93,533,892 97,192,597 97,351,505 96,896,491 95,866,835 95,577,773 104,951,344 105,532,414 105,532,414 94,572,871 Reserve Fund - Strategic Use of Reserves 66,188,548 63,204,100 73,804,101 72,586,265 71,540,381 68,267,962 66,495,382 66,082,314 65,094,988 63,538,939 61,259,598 60,646,102 60,646,102 66,559,057 Unrestricted Fund Balance 29,055,412 19,995,839 577,072 87,315,307 80,380,406 75,911,937 69,030,826 54,173,899 42,965,649 43,147,843 52,309,966 61,949,573 61,949,573 51,401,144 Fund Balance as % of Reserved Funds 104.69% 103.23% 100.09% 116.24% 114.90% 114.13% 112.86% 110.03% 107.92% 107.95% 109.64% 111.42% 111.42% 109.16%

Current Ratio 1.13:1 1.11:1 1.09:1 1.38:1 1.31:1 1.30:1 1.29:1 1.24:1 1.13:1 1.12:1 1.23:1 1.24:1 1.24:1 1.19:1Medical Loss Ratio w/o Tax 101.26% 100.20% 99.18% 99.60% 98.52% 98.93% 99.04% 101.42% 99.70% 95.70% 91.95% 91.54% 98.01% 98.01%Admin Ratio w/o Tax 3.74% 4.02% 3.73% 4.27% 3.74% 4.24% 4.16% 3.90% 4.23% 3.92% 4.23% 4.42% 4.05% 4.05%Profit Margin Ratio w/o Tax -4.99% -4.21% -2.91% -3.87% -2.26% -3.17% -3.21% -5.32% -3.93% 0.38% 3.82% 4.05% -2.06% -2.06%

Partnership HealthPlan of CaliforniaComparative Financial Indicators Monthly ReportFiscal Year 2019 - 2020 & Fiscal Year 2018 - 2019

Avg / Month


$85.9 $88.1 $89.8 $93.5 $97.2 $97.4 $96.9 $95.9 $95.6 $105.0 $105.5 $105.2

$470.1 $470.6

$375.2 $374.3 $371.6 $373.1 $377.0 $381.3 $383.8 $376.6 $376.1 $364.9

$63.2 $73.8

$72.6 $71.5 $68.3 $66.5 $66.1 $65.1 $63.5 $61.3 $60.6

$59.8

$20.0$0.6

$87.3$80.4 $75.9 $69.0

$54.2$43.0 $43.1 $52.3 $61.9 $75.4

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$700.0

Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019

Partnership HealthPlan of CaliforniaFund Balance Comparison

(in Millions of Dollars)

Reserves - Capital Assets Required Reserves Strategic Use of Reserves Unrestricted Funds

For the Past 12 Months Ending July 31, 2019


CURRENT MONTH

PRIORMONTH INC / DEC MEMBERSHIP SUMMARY

CURRENT YTD AVG

PRIOR YTD AVG VARIANCE

220,591 220,974 (383) Medi-Cal Region 1 220,591 226,713 (6,122) 322,579 323,890 (1,311) Medi-Cal Region 2 322,579 331,516 (8,937) 543,170 544,864 (1,694) TOTAL 543,170 558,229 (15,059)

ACTUALMONTH

BUDGETMONTH

$ VARIANCE MONTH FINANCIAL SUMMARY

ACTUAL YTD

BUDGET YTD

$ VARIANCE YTD

232,220,019 227,336,125 4,883,894 Total Revenue 232,220,019 227,336,125 4,883,894 221,560,592 215,051,273 (6,509,319) Total Healthcare Costs 221,560,592 215,051,273 (6,509,319)

9,698,228 11,117,737 1,419,509 Total Administrative Costs 9,698,228 11,117,737 1,419,509 961,199 1,167,115 (205,916) Total Current Year Surplus (Deficit) 961,199 1,167,115 (205,916)

95.41% 94.60%Medical Loss Ratio (HC Costs as a % of

Rev) 95.41% 94.60%

4.18% 4.89%Admin Ratio (Admin Costs as a % of

Rev) 4.18% 4.89%

PARTNERSHIP HEALTHPLAN OF CALIFORNIAMembership and Financial SummaryFor The Period Ending July 31, 2019


July 2019 June 2019

A S S E T SCurrent Assets

Cash &Cash Equivalents 340,928,511 384,528,617

ReceivablesAccrued Interest 261,500 462,900State DHS - Cap Rec 235,005,759 237,998,689Funds Receivable - Prov Risk 4,531,891 4,531,891Miscellaneous Receivable 223,855 254,476

Total Receivables 240,023,005 243,247,956

Other Current AssetsPayroll Clearing 2,098 10,185Prepaid Expenses 5,437,120 4,959,649

Total Other Current Assets 5,439,218 4,969,834

Total Current Assets 586,390,734 632,746,407

Non-Current AssetsFixed Assets

Motor Vehicles 139,824 139,824Furniture & Fixtures 7,518,859 7,518,859Computer Equipment - HP 541,886 541,886Computer Equipment 13,366,583 13,324,632Computer Software 16,682,062 16,400,186Leasehold Improvements 962,374 962,374Land 6,767,292 6,767,292Building 55,932,088 55,932,088Building Improvements 27,399,429 27,324,340Accum Depr - Motor Vehicles (124,844) (124,163)Accum Depr - Furniture (5,780,395) (5,735,523)Accum Depr - Comp Equip - HP (541,886) (541,886)Accum Depr - Comp Equipment (7,472,993) (7,243,813)Accum Depr - Computer Sftware (12,816,869) (12,599,095)Accum Depr - Lsehld Improve (931,526) (929,455)Accum Depr - Building (4,991,157) (4,871,644)Accum Depr - Bldg Improvements (3,975,952) (3,824,945)Construction Work-In-Progress 12,491,456 12,491,456

Total Fixed Assets 105,166,231 105,532,413

Other Non-Current AssetsDeposits 22,233 68,270Board-Designated Reserves 364,587,643 375,797,730Knox-Keene Reserves 300,000 300,000Net Pension Asset 1,018,026 1,018,026Deferred Outflows Of Resources 1,077,039 1,077,039

Total Other Non-Current Assets 367,004,941 378,261,065

Total Non-Current Assets 472,171,172 483,793,478

Total Assets 1,058,561,906 1,116,539,885

PARTNERSHIP HEALTHPLAN OF CALIFORNIABalance Sheet

As Of July 31, 2019


July 2019 June 2019

PARTNERSHIP HEALTHPLAN OF CALIFORNIABalance Sheet

As Of July 31, 2019

L I A B I L I T I E S & F U N D B A L A N C E Liabilities

Current LiabilitiesAccounts Payable 69,118,179 101,316,847Unearned Income 195,306 165,355Suspense Account 165,031 669,517Capitation Payable 6,716,558 5,955,152State DHS - Cap Payable 6,562,106 6,562,106Claims Payable 33,524,066 60,575,481Incurred But Not Reported-IBNR 276,426,747 281,776,933Quality Improvement Programs 60,208,136 54,833,915

Total Current Liabilities 452,916,129 511,855,306

Non-Current LiabilitiesDeferred Inflows Of Resources 458,760 458,760

Total Non-Current Liabilities 458,760 458,760

Total Liabilities 453,374,889 512,314,066

Fund BalanceUnrestricted Fund Balance 75,376,343 61,949,573

Reserved FundsReserve Fund-Board Designated 349,587,643 360,797,730Reserve Fund-Board Designated-Infrastructure 15,000,000 15,000,000Reserve Fund-Board Designated-Capital Assets 105,166,231 105,532,414Reserve Fund-Strategic Use Of Reserve 59,756,800 60,646,102Reserve For Restricted Fund-Knox-Keene 300,000 300,000

Total Reserved Funds 529,810,674 542,276,246

Total Fund Balance 605,187,017 604,225,819

Total Liabilites And Fund Balance 1,058,561,906 1,116,539,885


Current Month Activity Year-To-Date Activity

CASH FLOWS FROM OPERATING ACTIVITIES:Cash Received From:Capitation from California Department of Health Care Service 234,557,448 234,557,448Other Revenues 4,567 4,567Cash Payments to Providers for Medi-Cal Members

Capitation Payments (34,290,336) (34,290,336) Medical Claims Payments (210,263,941) (210,263,941)

Cash Payments to Vendors (37,275,652) (37,275,652) Cash Payments to Employees (7,861,201) (7,861,201) Net Cash (Used) Provided by Operating Activities (55,129,115) (55,129,115)

CASH FLOWS FROM CAPITAL FINANCING & RELATED ACTIVITIES:Purchases of Capital Assets (422,383) (422,383) Net Cash Used by Capital Financial & Related Activities (422,383) (422,383)

CASH FLOWS FROM INVESTING ACTIVITIES:Board-Designated Reserve Transfers 11,210,086 11,210,086Interest and Dividends on Investments 741,306 741,306Net Cash (Used) Provided by Investing Activities 11,951,392 11,951,392

NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (43,600,106) (43,600,106)

CASH & CASH EQUIVALENTS, BEGINNING 384,528,617 384,528,617

CASH & CASH EQUIVALENTS, ENDING 340,928,511 340,928,511

RECONCILIATION OF OPERATING (LOSS) INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:

TOTAL OPERATING (LOSS) INCOME 421,294 421,294DEPRECIATION 765,099 765,099CHANGES IN ASSETS AND LIABILITIES:Other Receivables 30,621 30,621California Department of Health Services Receivable 2,992,930 2,992,930Other Assets (399,882) (399,882) Accounts Payable and Accrued Expenses (31,911,797) (31,911,797) Accrued Claims Payable (32,401,601) (32,401,601) Quality Improvement Programs 5,374,221 5,374,221Net Cash Provided (Used) by Operating Activities (55,129,115) (55,129,115)

PARTNERSHIP HEALTHPLAN OF CALIFORNIAStatement of Cash Flow

For The Period Ending July 31, 2019


-

ACTUALMONTH

BUDGETMONTH

$ VARIANCE MONTH

ACTUAL MONTH PMPM

BUDGET MONTH PMPM

ACTUAL YTD

BUDGET YTD

$ VARIANCE

YTD

ACTUAL YTD

PMPM

BUDGET YTD

PMPM

543,170 543,170 - TOTAL MEMBERSHIP 543,170 543,170 -

REVENUE231,564,518 226,638,435 4,926,083 426.32 417.25 State Capitation Revenue 231,564,518 226,638,435 4,926,083 426.32 417.25

539,906 513,350 26,556 0.99 0.95 Interest Income 539,906 513,350 26,556 0.99 0.95 115,595 184,340 (68,745) 0.21 0.34 Other Revenue 115,595 184,340 (68,745) 0.21 0.34

232,220,019 227,336,125 4,883,894 427.52 418.54 TOTAL REVENUE 232,220,019 227,336,125 4,883,894 427.52 418.54

HEALTHCARE COSTS14,760,703 14,685,869 (74,834) 27.18 27.04 Global Subcapitation 14,760,703 14,685,869 (74,834) 27.18 27.04

2,099,718 2,116,185 16,467 3.87 3.90 Capitated Medical Groups 2,099,718 2,116,185 16,467 3.87 3.90

Physician Services5,275,359 5,238,129 (37,230) 9.71 9.64 PCP Capitation 5,275,359 5,238,129 (37,230) 9.71 9.64

379,956 378,528 (1,428) 0.70 0.70 Specialty Capitation 379,956 378,528 (1,428) 0.70 0.70 26,908,397 26,555,326 (353,071) 49.54 48.89 Non-Capitated Physician Services 26,908,397 26,555,326 (353,071) 49.54 48.89

32,563,712 32,171,983 (391,729) 59.95 59.23 Total Physician Services 32,563,712 32,171,983 (391,729) 59.95 59.23

Inpatient Hospital16,016,814 16,038,873 22,059 29.49 29.53 Hospital Capitation 16,016,814 16,038,873 22,059 29.49 29.53 51,728,561 46,071,209 (5,657,352) 95.23 84.82 Inpatient Hospital - FFS 51,728,561 46,071,209 (5,657,352) 95.23 84.82 1,725,033 1,725,033 - 3.18 3.18 Hospital Stoploss 1,725,033 1,725,033 - 3.18 3.18

69,470,408 63,835,115 (5,635,293) 127.90 117.53 Total Inpatient Hospital 69,470,408 63,835,115 (5,635,293) 127.90 117.53

28,066,750 27,985,421 (81,329) 51.67 51.52 Long Term Care 28,066,750 27,985,421 (81,329) 51.67 51.52

25,298,531 26,114,994 816,463 46.58 48.08 Pharmacy 25,298,531 26,114,994 816,463 46.58 48.08

Ancillary Services961,289 969,601 8,312 1.77 1.79 Ancillary Services - Capitated 961,289 969,601 8,312 1.77 1.79

36,175,028 34,908,618 (1,266,410) 66.60 64.27 Ancillary Services - Non-Capitated 36,175,028 34,908,618 (1,266,410) 66.60 64.27 37,136,317 35,878,219 (1,258,098) 68.37 66.06 Total Ancillary Services 37,136,317 35,878,219 (1,258,098) 68.37 66.06

Other Medical1,708,223 2,264,013 555,790 3.14 4.17 Quality Assurance 1,708,223 2,264,013 555,790 3.14 4.17

671,624 459,870 (211,754) 1.24 0.85 Healthcare Investment Funds 671,624 459,870 (211,754) 1.24 0.85 77,368 96,350 18,982 0.14 0.18 Advice Nurse 77,368 96,350 18,982 0.14 0.18 5,320 18,170 12,850 0.01 0.03 HIPP Payments 5,320 18,170 12,850 0.01 0.03

3,376,927 3,100,095 (276,832) 6.22 5.71 Transportation 3,376,927 3,100,095 (276,832) 6.22 5.71 5,839,462 5,938,498 99,036 10.75 10.94 Total Other Medical 5,839,462 5,938,498 99,036 10.75 10.94

6,324,991 6,324,989 (2) 11.64 11.64 Quality Improvement Programs 6,324,991 6,324,989 (2) 11.64 11.64

221,560,592 215,051,273 (6,509,319) 407.91 395.94 TOTAL HEALTHCARE COSTS 221,560,592 215,051,273 (6,509,319) 407.91 395.94

ADMINISTRATIVE COSTS6,216,496 6,951,894 735,398 11.44 12.80 Employee 6,216,496 6,951,894 735,398 11.44 12.80

63,314 89,654 26,340 0.12 0.17 Travel And Meals 63,314 89,654 26,340 0.12 0.17 1,001,251 1,192,916 191,665 1.84 2.20 Occupancy 1,001,251 1,192,916 191,665 1.84 2.20

292,332 465,739 173,407 0.54 0.86 Operational 292,332 465,739 173,407 0.54 0.86 1,547,707 1,396,044 (151,663) 2.85 2.57 Professional Services 1,547,707 1,396,044 (151,663) 2.85 2.57

577,128 1,021,490 444,362 1.06 1.88 Computer And Data 577,128 1,021,490 444,362 1.06 1.88 9,698,228 11,117,737 1,419,509 17.85 20.48 TOTAL ADMINISTRATIVE COSTS 9,698,228 11,117,737 1,419,509 17.85 20.48

961,199 1,167,115 (205,916) 1.76 2.12 TOTAL CURRENT YEAR SURPLUS

(DEFICIT) 961,199 1,167,115 (205,916) 1.76 2.12


For The Period Ending July 31, 2019Statement of Revenues and Expenses

**The Notes to the Financial Statement are an Integral Part of this Statement


PARTNERSHIP HEALTHPLAN OF CALIFORNIA NOTES TO FINANCIAL STATEMENTS

July 31, 2019

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1. ORGANIZATION

The Partnership HealthPlan of California (PHC) was formed as a health insurance organization,and is legally a subdivision of the State of California, but is not part of any city, county or stategovernment system. PHC has quasi-independent political jurisdiction to contract with the Statefor managing Medi-Cal beneficiaries who reside in various Northern California Counties. PHC isa combined public and private effort engaged principally in providing a more cost-effectivemethod of health care. PHC began serving Medi-Cal eligible persons in Solano in May 1994. Thatwas followed by Napa in March of 1998, Yolo in March of 2001, Sonoma in October 2009, Marinand Mendocino in July 2011, and eight Northern Counties in September 2013. Beginning July2018 and in accordance with direction from the Department of Health Care Services (DHCS), PHChas consolidated its reporting from these fourteen counties into two regions; these are in alignmentwith the two DHCS rating regions.

As a public agency, the HealthPlan is exempt from state and federal income tax.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING POLICIES:The accounting and reporting policies of PHC conform to generally-accepted accountingprinciples and general practices within the healthcare industry.

PROPERTY AND EQUIPMENT:Effective July 2015, property and equipment totaling $10,000 or more are recorded at cost; thisincludes assets acquired through capital leases and improvements that significantly add to theproductive capacity or extend the useful life of the asset. Costs of maintenance and repairs areexpensed as incurred. Depreciation for financial reporting purposes is provided on a straight-linemethod over the estimated useful life of the asset. The costs of major remodeling andimprovements are capitalized as building or leasehold improvements. Leasehold improvementsare amortized using the straight-line method over the shorter of the remaining term of theapplicable lease or their estimated useful life. Building improvements are depreciated over theirestimated useful life. Buildings purchased are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives.

INVESTMENTS:PHC investments can consist of U.S. Treasury Securities, Agency Notes, Repurchase Agreements,Shares of Beneficial Interest and Commercial Paper and are carried at fair value.

BOARD-DESIGNATED & KNOX KEENE RESERVES:In April 2004, PHC’s Board established a policy to set aside in a reserve account a designated



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amount that represents the Knox-Keene Tangible Net Equity (TNE) requirement. This policy was subsequently revised in May 2012 and beginning July 2012, the new methodology has been reflected on the balance sheet. Based on this policy and as of As of July 2019, PHC has Board-Designated and Knox-Keene Reserves of $469.8 million and $0.3 million respectively. To account for the Board approved Strategic Use Of Reserves (SUR) initiatives, $59.8 million has been set aside as a “Reserve Fund-Strategic Use of Reserve.” The amount represents the net amount remaining of all of the SUR projects that have been approved to date; this balance is periodically adjusted as projects are completed.

3. STATE CAPITATION REVENUE

Medi-Cal capitation revenue is based on the monthly capitation rates, as provided for in the Statecontract, and the actual number of Medi-Cal eligible members. Capitation revenues are paid bythe State on a monthly basis in arrears based on estimated membership. Prior to January 2010,enrollment was subject to retrospective adjustments by the State upon completion of the 6th and12th months following the month of service. Effective January 2010, the retrospective adjustmentshave been replaced with monthly reconciliations with the State. As such, capitation revenueincludes an estimate for amounts receivable from or refundable to State for these retrospectiveadjustments. These estimates are continually monitored and adjusted, as necessary, as experiencedevelops or new information becomes known.

Effective with the enrollment of the Adult Expansion Population per ACA in January 2014 theHealthPlan was subject to State requirements to meet a minimum 85% medical loss ratio (MLR)for this population. Specifically, the HealthPlan was required to expend at least 85% of the Medi-Cal capitation revenue received for this population on allowable medical expenses as defined bythe State. In the event the HealthPlan expended less than the 85% requirement, the Health Planwould be required to return to the State the difference between the minimum threshold and theactual allowed medical expenses. This difference was recorded as a reduction to Medi-Calcapitation revenue and the related liability was recorded in State DHS – Cap Payable. As of July2019, the remaining amount due to the State is $6.6 million.

Effective with California SB 78 and beginning July 2012, the health plans were required to pay agross premium tax on Medi-Cal Revenue. The rate in effect from July 2012 to June 2013 wouldremain at 2.35% and beginning July 2013, the tax rate increased to 3.94% and expired in June2016. Effective July 2016, SB X2-2 revised the MCO Tax, which is implemented by DHCS. Thetax is calculated by DHCS and is based on projected membership. No tax is projected for fiscalyear 2019/20.

4. HEALTH CARE COST

PHC continues to develop completion factors to calculate estimated liability for claims incurred



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but not reported. These factors are reviewed and adjusted as more historical data become available. Budgeted capitation revenues and health care costs are adjusted each month to reflect changes in enrollee counts.

5. QUALITY IMPROVEMENT PROGRAM

PHC maintains quality incentive contracts with acute care hospitals and primary care physicians.As of July 2019, PHC has accrued a Quality Incentive Program payout for of $60.2 million.

6. ESTIMATES

Due to the nature of the operations of the Partnership HealthPlan, it is necessary to estimateamounts for financial statement presentation. Substantial overstatement or understatement of theseestimates would have a significant impact on the statements. The items estimated through variousmethodologies are:- Value of Claims Incurred But Not Received- Quality Incentive Payouts- Earned Capitation Revenues- Total Number of Members- Retro Capitation Expense for Certain Providers

7. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the HealthPlan is party to claims and legal actions by enrollees,providers, and others. After consulting with legal counsel, HealthPlan management is of theopinion any liability that may ultimately be incurred as a result of claims or legal actions will nothave a material effect on the financial position or results of the operations of the HealthPlan.

8. UNUSUAL OR INFREQUENT ITEMS REPORTED IN CURRENT MONTH’SFINANCIAL STATEMENTS

None noted.


Partnership HealthPlan of CaliforniaInvestment ScheduleJuly 31, 2019

Name of Investment Investment Type Yield to Maturity

Trade Date Maturity Date

Call Date Face Value Market Value Credit Rating Agency

Credit Rating

FUNDS HELD FOR INVESTMENT:

Highmark Money Market Cash & Cash Equiv NA Various NA NA NA 1,516,487$ NA NRCertificate of Deposit for Knox Keene Cash & Cash Equiv 0.00015 9/12/2015 12/30/2018 NA NA 300,000$ NA NR

FUNDS HELD FOR OPERATIONS:

Merrill Lynch Insitutional Cash for Operations NA NA NA NA NA 68,064,235$ Merrill Lynch MMA - Checking Cash for Operations NA NA NA NA NA 225,945$ UBOC - General/MMA and Checking Cash for Operations NA NA NA NA NA 525,341,968$ Government Investment Pools (LAIF) Cash for Operations NA NA NA NA NA 65,000,000$ Government Investment Pools (County) Cash for Operations NA NA NA NA NA 39,364,051$ West America Payroll Cash for Operations NA NA NA NA NA 6,000,168$ Petty Cash Cash for Operations NA NA NA NA NA 3,300$

GRAND TOTAL: 705,816,154$

Required Reserves (Liquid)Board Designated Assets 364,587,643$ Knox Keene Reserves 300,000$ Total Required Reserves (Liquid) 364,887,643$

Cash on Hand / Cash Days Available:Including Requried Reserves 705,816,154$ Excluding Required Reserves 340,928,511$

Cash Days Available incl. Required Reserves 75.42Cash Days Available excl. Required Reserves 36.43


Partnership HealthPlan of CaliforniaInvestment Yield Trends

11 10 9 8 7 6 5 4 3 2 1 1

FISCAL YEAR 19/20 JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN YTD

Interest Income 539,906 539,906Cash & Investments at Historical Cost (1) 340,928,511 340,928,511

Computed Yield (2) 1.79%Total Rate of Return (3) 1.90%CA Pooled Money Investment Account (PMIA) (4) 2.38%

FISCAL YEAR 18/19 JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN YTD

Interest Income 372,994 530,984 384,540 500,869 404,948 415,805 646,883 454,679 538,970 921,112 535,643 598,435 6,305,862Cash & Investments at Historical Cost (1) 360,595,665 563,240,721 578,907,713 291,918,698 318,206,676 280,512,593 234,334,438 229,386,771 682,241,507 750,226,571 355,195,367 384,528,617

Computed Yield (2) 0.52% 0.29% 0.28% 0.51% 0.32% 0.33% 0.77% 0.49% 0.52% 0.88% 0.59% 0.68%Total Rate of Return (3) 1.24% 1.17% 1.03% 1.20% 1.25% 1.31% 1.49% 1.56% 1.44% 1.45% 1.47% 1.50%CA Pooled Money Investment Account (PMIA) (4) 1.05% 1.08% 1.11% 1.14% 1.17% 1.24% 1.35% 1.41% 1.52% 1.66% 1.76% 1.85%

NOTES:

(1) Investment balances include Restricted Cash and Board Designated ReservesYTD for Cash & Investments is average year-to-date

(2) Computed yield is calculated by annualizing the current month's interest divided by the current month's average balance.

(3) Total Rate of Return is computed based on year-to-date interest income annualized divided by an average of the fiscal year's portfolio's market value at month-end.

(4) LAIF limits the amount a single government entity can deposit into LAIF; currently that amount is set at $65 million.


0.010%0.110%0.210%0.310%0.410%0.510%0.610%0.710%0.810%0.910%1.010%1.110%1.210%1.310%1.410%1.510%1.610%1.710%1.810%1.910%2.010%2.110%2.210%2.310%2.410%2.510%

JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN

Perc

enta

ge Y

ield

Periods

Partnership HealthPlan of California Investment Yield Trends

FISCAL YEAR 19/20

PMIA 19/20

FISCAL YEAR 18/19

PMIA 18/19


Documents

Partnership HealthPlan of California Finance Committee ...€¦ · Speakers will be limited to three (3) minutes. Public -- II. New Business 1. CEO’s Health Plan Update – Information