investment advisory services proposal by

Investment Advisory Services Proposal

By

November 24, 2009

2428 Carters Mill Road, Huddleston, VA 24104-4003

540.297.3419

November 24, 2009 Johnny Phifer, Finance Director City of Keller 1100 Bear Creek Parkway Keller, TX 76248 Dear Johnny: Thank you for this opportunity to present Valley View’s credentials as a cash and investment advisor for the City of Keller (the “City”). Attached is our response to your request addressing Valley View’s qualifications, experiences, philosophies, and capabilities related to public funds investing. In a nutshell, we believe an investment advisor should function as an extension of the City’s finance staff. Managing the portfolio the way the City would, if staff had the time to dedicate. The City has other pressing issues and additional time constraints to deal with in the overall administration of the City and we can assist to effectively manage and monitor this vital function. Our mission is to dedicate time to monitoring the markets on the City’s behalf, and to developing and executing investment strategies to safely optimize the City’s interest income. Our strategy and selection considerations are fully communicated prior to execution so that the City can be comfortable that appropriate decisions are made and confident that, should the need arise, the City could quickly re-integrate the delegated functions. This proposal discusses our overall strategy in determining optimal allocation of financial assets considering each unique economic environment. Analyzing stable fund balances, and managing cash flow and risk-appropriate yield curve position enhances long-range returns. Over time, this yield curve extension provides substantial increased return. The key is maintaining a targeted yield curve position and patiently allowing the markets to add value. Speculation is prohibited by the Texas Public Funds Investment Act (the “PFIA”) and is not part of this plan. That said, today’s shifting yield curves mandate careful implementation. Extra patience is required in developing a strategic, long-range plan. And financial institution deposits require additional research and documentation. However, that time and effort appears well rewarded. If the City chose to contract with Valley View, the investment services you would receive include:

Strategic portfolio advice, Investment policy and bond covenant review, Cash flow model development for all non-bond funds,


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Bond proceeds cash flow model assistance, Complete analysis of eligible investment options, Thorough deposit and transaction documentation, Effective broker/dealer management, Integrated bond proceeds investment, and Customized communication, reporting, and training.

These services would be performed as non-discretionary functions, working to assist the City through: Personal Commitment – Similar to Valley View, many advisors can boast of years and billions of dollars of experience. Unlike Valley View, those same firms are tied to other functions and prioritized clients that can distract their attention to the City. Valley View’s business objectives create dedicated focus. Education – Full discussion of portfolio decisions, development of beneficial broker/dealer relationships, and continuing education increases the City’s abilities. The City may at some point want to return the investment management function “in-house” and having the necessary tools and understanding of all investment strategy decisions will be paramount. Independence – Valley View is uniquely positioned to independently assist in security/pool/fund analysis and bond proceeds investment. There is no promotional advantage to any investment option, nor hidden agendas or back door marketing efforts to jeopardize recommendations. We will receive no compensation, beyond the direct contract fees charged to the City, as a result of any products or transactions related to the City’s portfolio. We feel that this independence assures our clients that our investment recommendations are made by exclusively considering only the benefits to the client. Fees – Providing value added services for a reasonable and appropriate fee is Valley View’s objective. Usually advisor fees are based on the portfolio’s total assets. With that in mind, and based upon the current portfolio balances, we propose an annualized fee of 8 basis points (0.08%). Attachment – The attached information provides an extensive outline of Valley View’s history and approach to public funds investment. It includes a discussion on cash-flow based yield curve placement of the City’s funds to enhance interest earnings. Even with today’s low yields, we believe integrating that potential strategy could, over time, add significant value to the City. Valley View is admittedly a small firm with relatively few clients that have been carefully selected due to their compatibility with our business plan. This discretion is the cornerstone of our commitment to customer service, to ensure that each client feels as if they are our only client.


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Bill Koch and I have been providing cash and investment services to public funds for a number of years. Now we are even more excited about including Susan Anderson on our team and this proposal. Ms. Anderson brings specific experience related to the City’s investment service objectives. We hope that our reputation and proven successes ease your decision to select Valley View as investment advisor. Please call me at (888) 853-3778 if there are any questions or to discuss moving forward. Sincerely,

Richard G. Long, Jr. Manager, Valley View Consulting, L.L.C.


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Table of Contents

Business Organization ................................................................................. Page 1 Investment Philosophy and Approach ......................................................... Page 6 Personnel .................................................................................................... Page 15 Additional Information .............................................................................. Page 18 Fees ............................................................................................................ Page 21 Comparable Client Portfolios .................................................................... Page 22


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Business Organization

Company Background and General Information

Valley View Consulting, L.L.C. is a Securities Exchange Commission (“SEC”) registered investment advisory firm serving public entities in a variety of cash and investment management and consulting roles. Valley View provides completely independent advice and consultation and is not affiliated with any investment pool, mutual fund, broker/dealer, financial institution, or investment provider. Valley View was founded in the fall of 1998 and registered with the SEC as an investment advisor firm effective January 1999. Richard G. Long, Jr. wholly owns the firm. To more fully address the complete spectrum of client needs, Mr. Long has partnered with William Koch of Avalon Financial Services and Susan K. Anderson of Anderson Financial Management, L.L.C. These affiliations assure that our clients will receive more comprehensive and individually designed services related to the financial programs of government investors. Additionally, Mr. Long serves on a part-time basis as the Chief Investment Officer for Estrada Hinojosa & Company, Inc., a registered investment adviser firm. Mr. Koch and Ms. Anderson also support the investment advisory clients of Estrada Hinojosa & Company, Inc. The combined experience of the individuals involved in this proposal exceeds 75 years. The team is fully capable of assessing the needs of the City, examining the current cash management policies and practices, reviewing bank contracts and developing effective and comprehensive investment strategies that are fully compliant with all federal, state and local requirements. Although Valley View’s registered office is in Virginia, it is fully registered with the State of Texas and has personnel maintaining offices in Dallas, Keller, and Austin, Texas. All services provided to the City will be seamless from any physical address. Mr. Long, Mr. Koch, Ms. Anderson, nor Valley View has ever been subject to any SEC or regulatory censure litigation, enforcement actions or complaints. Since inception, Valley View has built dedicated client relationships by assembling a team of experienced professionals. The team serves each client to the best of our combined talents, expertise and capabilities. The team approach also assures that attention to the client’s needs is never compromised when an individual professional is unavailable. The rest of the team members are involved and familiar with the client’s program and can step in to provide assistance when the client has needs. The rapid and continual growth of the firm is testament to this approach. The current and anticipated client base will be composed of government entities similar to the City. Valley View has used discretion in soliciting new clients to ensure that we


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are able to maintain the level of quality customer service and attention to portfolio detail that each of our clients should expect. We have recently obtained new technology to provide more efficient and effective portfolio reports to our clients that can be distributed in a timely manner. As with any investment service, it is the experience of the individual professionals who directly serve the clients that is the cornerstone of our firm’s value. Valley View has gathered together some of the best and most recognized public fund investment experts to form its investment advisor practice. Mr. Long began with a major Dallas bank in 1981 in a variety of sales, trading, underwriting, and financial advisory roles that prepared him to start First Southwest Company’s public funds investment unit in 1988. At his departure, that unit provided diversified cash and investment services to well over $1 billion of public entity funds. Clients ranged from the very small (e.g. City of Pantego) to the very large (e.g. City of Dallas). Susan Anderson has been investing public funds since 1981 and served as the Investment Officer/Treasurer for the City of Austin ($1.5 billion portfolio), the Chief Investment Officer for the State of Texas ($35 billion portfolio) and then, following her retirement from the public sector, took her skills to the private sector, offering portfolio management services to clients throughout Texas. Mr. Koch has been providing banking, cash, and treasury management related services to Texas public fund entities since 1990. Together, the team brings over 75 years of public fund investment expertise to the City. Because Valley View is a relatively small firm, we strive to ensure that every client’s needs are addressed swiftly and effectively. With this advantage, we can develop more customized reports, research products and analysis formats to be designed for the individual client. Many times, larger firms do not have the time or inclination to offer non-standardized reports and will force their clients to conform their individualized needs to the standard. Valley View believes that customer service begins with adapting our processes and programs to meet the needs of each client. Valley View solely provides investment and consulting services to Texas public entities. Dedicated service to individual clients builds each relationship and ensures that the resulting program is the one that will be most effective for that client. Although we draw from our vast experience with similar clients, the program will be custom designed for the City’s needs. Valley View’s list of satisfied Texas entities continues to grow, including bank RFP and investment policy review services. Since inception, the diverse public entity clients include: the City of Lufkin, the Brazos River Authority, Edwards Aquifer Authority, Glen Rose Independent School City, New Braunfels Utilities, the North Texas Tollway Authority, and Taylor County, to name a few. Additionally, Susan Anderson has managed portfolios for the City of Austin, the State of Texas, the State Bar of Texas, Dripping Springs Independent School City, and Capital Metropolitan Transportation Authority.


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The PFIA is the cornerstone of local government investment management. Throughout their careers in public fund management, the Valley View team has worked extensively with the PFIA. Ms. Anderson served on a blue ribbon committee established by the Chair of the State Legislative Committee to review the PFIA and offered suggested amendments during her tenure as City Treasurer for the City of Austin. As adjunct faculty to the University of North Texas – Center for Public Management, Mr. Long and Ms. Anderson regularly address PFIA compliance and investment issues. During 2009, both served as instructors for approximately twenty, combined training workshops specifically applying to the PFIA. Additional training and presentation venues were provided to the Government Finance Officers’ Association of Texas, the Government Treasurers’ Organization of Texas, the Texas Association of Community College Business Officers, the County Treasurers’ Organization and the Texas Association of School Business Officials.

Assets Under Management Valley View’s business plan offers a variety of advisory and consulting services exclusively to public entities similar to the City. Managing extremely large client portfolios or investment pools are not part of that business plan. Providing client-specific service will not be jeopardized by the whims of the “800 pound gorilla” that demands attention. Valley View’s business plan will provide service to a limited number of entities with portfolios roughly sized from $10,000,000 to $200,000,000. True value-added advice and consultation requires a consistent and dedicated focus. The City is a prime candidate to receive value from such a relationship. Ms. Anderson, Mr. Long, and Mr. Koch, jointly develop, manage, and support assets for Valley View and Estrada Hinojosa & Company, Inc. The business plan for each firm selectively targets public fund clients that gain value from the services offered. The following table provides estimated information on both firms.

No.

Clients Assets Under Management Client Type

Valley View Consulting, L.L.C. 15 $640,000,000 All Public Funds Estrada Hinojosa & Company, Inc. 14 $1,300,000,000 All Public Funds Totals 29 $1,940,000,000 All Public Funds Additionally, Valley View and its professionals provide substantial other consulting that includes cash and investment-related projects, but does not meet the definition of investment advisory service. These have direct application to performing the City’s services


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Relevant Client References

Valley View regularly and extensively assists Texas public entities in a variety of investment management and consulting services, similar to those requested by the City. Many clients worked with Mr. Long prior to the establishment of Valley View and have contracted with Valley View since inception. John Hawes, CFO Brazos River Authority 4600 Cobb Drive Waco, TX 76714 (254) 761-3100 Client since 2008

Anita Thetford, Director of Finance City of Hurst 1505 Precinct Line Rd. Hurst, TX 76054 (817) 788-7011 Advisory Client since 2008 Consulting Client since 2003

Paul Parker, City Manager City of Lufkin P.O. Drawer 190 Lufkin, TX 75902 (936) 633-0211 Client since 1999

Micki Rundell, Director of Finance City of Georgetown P.O. Box 409 Georgetown, TX 78627-0409 (512) 930-3677 Client since 2001

Ken Heerman, Director of Finance City of Highland Village 1000 Highland Village Road Highland Village, TX 75077 (972) 899-5089 Client since 2001

Tom Ross, Dir. of Administrative Services City of Bedford 2000 Forest Ridge Drive Bedford, TX 76021 (817) 952-2174 Client Since: 2004

Laura Clark, CFO City of Beaumont 801 Main Street Beaumont. TX 77701 (409) 880-3115 Client since 2009

Judy Shipman, Director of Finance Glen Rose ISD P.O. Box 2129 Glen Rose, TX 76043 (254) 898-3908 Client since 1999


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In addition to the direct clients of Valley View Consulting, L.L.C., the team provides investment services for the investment advisory clients of Estrada Hinojosa & Company, Inc. The following is a representative list of Estrada Hinojosa’s Texas clients: David Salsberry, CFO JPS Health Network 1500 South Main St. Fort Worth, TX 76104 (817) 927-1611 Client since 2004

Sam Flores, Director of Accounting United ISD 201 Lindenwood Laredo, TX 78045 (956) 473-6368 Client since 2004

Flor Ayala, Director of Financial Mgmt. Laredo ISD 1702 Houston Street Laredo, TX 78040 (956) 795-3250 Client since 2004

Rosario Cabello, Director of Finance City of Laredo 1110 Houston St. Laredo, TX 78042 (956) 791-7427 Client since 2007

Please consider our client references as CONFIDENTIAL.


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Investment Philosophy and Approach

Investment Research and Methodology

Valley View utilizes a number of resources to gauge the mood of the market and how economic indicators are impacting the direction of interest rates. We are on the distribution lists of a number of financial institutions and broker/dealers that send us their updates virtually as soon as information hits the streets. Because of our independence from the street players and because we are not their competitors, this information is shared openly and timely. With the growth of the internet, investment information and research is available from a multitude of sources. Bloomberg Investor Services, the Federal Reserve Bank, various federal agencies, and many other sites provide most of the market information needed to effectively serve our clients. Although market and economic considerations are involved in making the investment decisions, we believe a more important consideration revolves around the client’s cash flow needs. As a PFIA-oriented investment advisor, we believe providing a dependable and safe investment structure is a key objective. Market speculation does not factor into this strategy. Of course, we consider where interest rates might be headed in the short term, but our main focus is on maintaining a discipline to protect and preserve assets over the long term without taking inordinate amounts of risk. This discipline begins with the cash flows of the client. Cash Flow Analysis - No matter the objective or funding source of the portfolio, cash flow predictability creates the baseline for investment strategy development. Keeping current-use funds in expenditure-related maturities or liquid alternatives, while positioning stable and longer range funds further out the yield curve, provides overall portfolio enhancement. The higher yield advantage of extended maturities most safely manifests itself in increased interest earnings and not speculative gains. Historically, Treasury yields, over time and through a variety of market conditions, generate higher yields as maturities lengthen. Even during periods of market volatility and inverted yield curves, placement of assets out along the yield curve will generally result in more favorable returns over the long run. Actively pursuing this yield enhancement, however takes time, energy, and dedicated attention to market conditions and projections. Since the PFIA specifically prohibits extension for speculative purposes, cash flow forecasting must be the cornerstone of the investment program. Valley View will work with the City to develop forecasts that will guide the investment strategy for the funds to ensure the appropriate mix of liquidity and longer-term asset allocation. The resulting cash flow forecast and analysis will help identify the appropriate investment strategy and help control risks. Our assistance to the City could combine the following steps to achieve the City’s portfolio objectives:


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Actively managing the portfolio to maintain appropriate cash levels, Conservatively estimating cash flows and minimum cash balances, Appropriately diversifying maturity and investment mix, Timely and regular market interaction to smooth price fluctuations, Maintaining minimum positions in highly liquid investment types, and Strictly adhering to the prohibition on speculative maturity extension.

Regular review of proper procedures and internal controls complete the process. Portfolio risk is managed by proper strategy selection. Procedures and controls help to mitigate fraud, lost funds or securities, broker/dealer/financial institution failure and many other non-securities related risks. Combining all of these concepts into active portfolio management will enhance portfolio return over the long run. Managing Market Risk by Limiting Investment Maturities – Selecting appropriate yield curve positions for fixed income investments must include an analysis of the potential valuation risk of that particular maturity. Longer-term maturity market values will be much more volatile than shorter-term positions and an assessment must be made prior to purchase as to whether the potential variance is worth the incremental yield of the longer maturity. One strategy to mitigate the impact of changing market environments is to maintain a disciplined approach of regular investment purchases through a variety of market conditions. This discipline generally allows the portfolio to offset unrealized losses with unrealized gains with the strategy objective to reach a net mark-to-market spread that is lower than that of any individual security. Adjusting to Market Movements – Current yields have fallen dramatically as the FOMC tries to orchestrate market equilibrium following the sub-prime mortgage meltdown and the resulting credit and liquidity crisis. Those investors that had practiced a disciplined laddering approach for their fixed income portfolios find that their portfolios are much more likely to weather the worst of this economic storm. But where will interest rates be when new cash flows occur and how can the portfolio be managed as the markets continue to move? If anyone could accurately predict when and by how much yields will change, strategy implementation could be perfectly timed. Unfortunately, accurate predicting is improbable. Gradual targeted implementation of portfolio strategy hedges the portfolio against the uncertainty and allows the portfolio to build towards its optimum long-term yield curve position. At the same time, however, the portfolio’s weighted average maturity can be strategically adjusted to anticipate and accommodate economic market movements. Valley View will work with the City to identify the appropriate maturity allocation during any given market environment. Sector Selection – Valley View generally prefers to keep a broadly diversified mix of investments within portfolios and works with each client to establish the optimal mix for their portfolio. However, most of these clients want us to be nimble and flexible enough to adjust this structure to market opportunities or current market risks. As an example,


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not too long ago, we were focusing our clients on U.S. Agency positions that were offering attractive returns relative to the other issuers in the marketplace. As their risk/return profile and attractiveness changed, we began to research other opportunities on behalf of our clients. Our research uncovered significant opportunities available in bank certificates of deposit and we began to move client monies into CDs that were fully collateralized in accordance with the PFIA. These investments require much greater effort on the part of the investment advisor and have historically not been included in the arsenal of larger investment advisors’ recommendations (probably because of the additional time to identify potential sources and ensure proper document execution). On the other hand, we have found them to be safe (as long as they are executed appropriately), dependable, and attractive. Throughout 2008 and into 2009, these instruments have exceeded the returns of comparable Agency issues by 80 to 100 basis points. In the current economic environment, Valley View continues to see value in bank CDS. We have placed deposits with a number of Texas-based financial institutions, and continue to expand that list. Additionally, we have utilized Certificate of Deposit Account Registry Service (CDARS), which is a PFIA-authorized deposit product. For solicitations, Valley View generally contacts banks state wide to provide rates to various dates. We also send solicitations to local financial institutions to allow them to offer rates to clients in their vicinity. Any CD that is executed on behalf of our clients by Valley View is issued in the name of the client and is not a part of any brokered or mass-marketed program. There are no hidden fees that may be a part of the program, such as in a pooled-CD program, and no insurance or collateral concerns. As market conditions change, Valley View will continuously adjust our selection process without straying too far from our long-term discipline. We all recognize that the economic and market conditions over the past two years have been extremely challenging and unique. The most important strategy to keep in mind is to ensure that all cash flow needs are covered and that a laddered approach to investing is diligently practiced. Sector selection, while important, becomes a secondary consideration as long as the portfolios invest in the types allowed by the PFIA and individual client investment policies. Valley View also prides itself on generating research pertinent to the investment of its clients’ funds. As the markets and securities evolve, understanding the potential risk/return largely determines portfolio decisions. For example, in the early 1990s, inverse floating CMO tranches provided the research challenge. Today, callable securities are the popularly pitched “deals of the day.” Investment Advisors rarely attempt to educate their clients on the pros and cons of structures that are available, but Valley View believes that an informed client is a more satisfied client. Callable securities offer a greater purchase yield than non-callable (bullet) securities. Theoretically, the investor receives this higher yield to compensate for the risk of call. If rates go down, the security’s value increases, and the issuer calls the security. The investor is then left with investable funds when interest rates are lower. Conversely, if


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yields increase, the value decreases, and the issuer will not call the security. The investor remains locked-in at the lower yield. In market/opportunity risk terms – callable securities increase opportunity risk (when yields fall) and increase market risk (when yields rise). The question should be, “Is the investor adequately compensated for the extra risk?” The theory was very obvious, but no research addressed the details. Many public funds investors have been buying callable securities for years. They, unfortunately, have not looked back to determine if their callable portfolio actually earned more than a bullet portfolio. To accurately inform its clients, Valley View developed an analytical comparison of callable verses bullet securities. Our analysis compared the average portfolio yields of a rolling two-year bullet portfolio and a rolling two-year/three month callable portfolio since 1990. Through 2008, the rolling bullet portfolio averaged 5.30% versus 5.00% for the callable portfolio. Buying bullet securities (the lower risk investment) actually gained 30 basis points over callable securities (the higher risk choice)! Conclusion: Over a variety of market conditions the extra purchase yield of a callable security does not offset the increased risk from the call. This callable research is just an example of Valley View’s research capabilities. Other research projects have been and will continue to be done as the needs of Texas entities dictate.

Primary Strategies Public funds require a different investment approach and fiduciary responsibility to adequately judge appropriate risk/return opportunities. The City has many essential functions to effectively service its community. Investing is often considered a secondary activity and does not usually attain the necessary attention or resources. Our service objective ensures the level of attention and commitment to effectively manage the City’s funds. We believe in the principles stressed by the PFIA and the City’s Investment Policy:

Safety Liquidity Public Trust, and Optimized Interest Income

Whether the public fund invests operating or bond funds, these fundamental considerations and principles will be the same. The management of public funds are scrutinized more than any other organizations, therefore Valley View takes great care in assessing and addressing risks on multiple levels to ensure due diligence in minimizing risk exposure.


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Credit Risk – For the City’s funds, the PFIA specifically manages and restricts the exposure to credit risk. Assuming large amounts (some would assume any amount) of credit risk is inconsistent with the Act’s main objectives to “primarily emphasize safety of principal and liquidity.” All securities contain incremental credit risk, although the markets believe certain security issuers have little or no real credit risk. The PFIA does allow specific securities with true credit risk, but generally restricts that risk based on measurements of nationally recognized credit rating agencies. The mission of the public funds investor is to determine what level of credit risk is appropriate for the organization and to develop policies and procedures to ensure that established risk parameters are maintained. Credit risk considerations extend beyond the investment securities that are selected to be included in the organization’s portfolio. Properly collateralized deposits or repurchase agreements, secured in accordance with the PFIA, the Public Funds Collateral Act, the City’s Investment Policy and federal banking regulations essentially eliminate the inherent credit risk of the financial institutions which the City utilize as depository or as providers of certificates of deposit. Focused document preparation, prior to deposit, manages the institution’s risk. Regular review of collateral values (monthly, unless other concerns arise) and financial institution strength (annually, unless other concerns arise) ensures that any exposure remains minimal. Prior to investment, accurate identification of the individual security’s risk profile or the pool/fund’s investment criteria, and analysis of the historical risk/return relationship determines if the City will potentially receive adequate return for any increased risk. Included in this review is an analysis of any money market mutual fund or local government investment pool that is to be included in the portfolio. Although State law provides a minimum credit rating requirement for many liquidity funds at A1/P1, it is important to drill down further into the investment policies and strategies of available funds to ensure that their policies are congruent with those of the City. If pools/funds are selected that allow non-government securities, the portfolio mix must be reviewed monthly to establish overall trends and a complete list of the securities maintained within their portfolios should be reviewed at least annually. When the perceived risk of any fund exceeds potential yield advantage, or if it exceeds the City’s comfort zone, a more suitable pool/fund should be selected. Market/Opportunity Risk – The credit risk restriction focuses portfolio management on controlling market risk and opportunity risk. Working with a disciplined asset allocation, monitoring investment pool/money market fund manager performance statistics, the yield curve, issuer yield spreads, and cash flow requirements manages these two risks. For the City’s funds, appropriate yield curve positioning with limited interest rate cycle timing, provides the most effective and consistent yield enhancement. Our services will include the research and analysis necessary to assist the City in formulating strategy recommendations and we will participate in any presentation (formal or informal) designed to gain approval to implement the desired strategy.


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For the operating portion of the portfolio, our services include:

Reviewing and recommending modifications to the City’s Investment Policy, Assisting in cash flow forecasting, Analyzing available products and institutions, Interpreting market conditions and trends, Determining appropriate asset allocations, Advising on long range strategy selection, Implementing strategy within a competitive pricing environment, Preparing appropriate calculations and reports, Providing independent sources for investment market valuations, Complying with the Investment Policy and state and federal regulations, Monitoring broker/dealer and safekeeping relationships, Attending requested meetings, and Educating City staff on pertinent investment topics.

For the bond proceeds portion of the portfolio, our services include:

Reviewing the available investments as allowed by the bond covenants, Developing and analyzing projected expenditure patterns, Determining any appropriate Investment Policy changes, Analyzing the potential arbitrage liability of various investment strategies, Developing optimum portfolio strategies to complement draw schedule

projections, Monitoring actual expenditures to adjust the portfolio throughout construction

period, Identifying potential arbitrage concerns as the project develops, and Implementing any reserve or debt service fund investment strategies.

Liquidity Risk – No matter the objective or funding source of the portfolio, cash flow predictability creates the baseline for investment strategy development. As stated previously, keeping current-use funds in expenditure-related maturities or liquid alternatives, while positioning stable and longer range funds further out the yield curve, provides overall portfolio enhancement. Cash flow forecasting must be the cornerstone of the investment program. Valley View will work with the City to develop forecasts that will guide the investment strategy for each fund to ensure the appropriate mix of liquidity and longer-term asset allocation. The resulting cash flow forecast and analysis will help identify the appropriate investment strategy and help control risks. Our assistance to the City could combine the following steps to achieve the City’s portfolio objectives:

Actively managing the portfolio to maintain appropriate cash levels,


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Conservatively estimating cash flows and minimum cash balances, Appropriately diversifying maturity and investment mix, Timely and regular market interaction to smooth price fluctuations, Maintaining minimum positions in highly liquid investment types, and Strictly adhering to the prohibition on speculative maturity extension.

Regular review of proper procedures and internal controls complete the process. Portfolio risk is managed by proper strategy selection. Procedures and controls help to mitigate fraud, lost funds or securities, broker/dealer/financial institution failure and many other non-securities related risks. Combining all of these concepts into active portfolio management will enhance portfolio return over the long run. A simple model easily depicts the advantage of active portfolio management and strategic yield curve positioning. Maturity Distribution – To demonstrate the value that can be added by strategic allocation of assets out along the yield curve, Valley View has collected data going back for almost two decades. This data yields compelling evidence of the value that can be added by such allocations. Before maturity extensions can be executed however, the steps described above must be instituted to ensure that adequate liquidity and safety remain at the forefront of the strategy and objectives. The following graph provides the demonstration of value added by maturity diversification:

As depicted in the graph, portfolios that remain passive and keep their funds in overly liquid positions generally under-perform. Since 1990, the rolling two-year Agency position has experienced an average yield of 5.28% compared to the average pool yield of 4.33%. Historically, the Agency portfolio had an annual return advantage of 95 basis points over the pool investment.


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While past market performance does not ensure similar future results, over time through a variety of market conditions, the potential advantage of cash flow-based portfolio extension has provided substantial value. Managing Market Risk – Selecting appropriate yield curve positions for fixed income investments must include an analysis of the potential valuation risk of that particular maturity. Even though the City’s Investment Policy allows a maximum maturity of three years and the City does not invest for speculation (i.e. investments are purchased with the intent to hold until maturity), the Policy recognizes that the market value of investment positions will vary from the date of purchase until maturity. Longer-term maturities will be much more volatile than shorter-term positions and an assessment must be made prior to purchase as to whether the potential variance is worth the incremental yield of the longer maturities. One strategy to mitigate the impact of changing market environments is to maintain a disciplined approach of regular investment purchases through a variety of market conditions. This discipline generally allows the portfolio to offset unrealized losses with unrealized gains with the strategy objective to reach a net mark-to-market spread that is lower than that of any individual investment. Adjusting to Market Movements – Current yields have fallen dramatically over the recent past. Those investors that had practiced a disciplined laddering approach for their fixed income portfolios find that their portfolios are much more likely to weather the worst of this economic storm. But where will interest rates be when new cash flows occur or portfolio positions mature and how can the portfolio be managed as the markets continue to move? Unfortunately, investing too short reduces current portfolio interest earnings as yields remain stable at low levels or even fall further. If too long of maturity is selected and rates rise rapidly, future interest income is restricted and market valuation impaired. Therefore, gradual targeted implementation of portfolio strategy hedges the portfolio against the uncertainty and allows the portfolio to build towards its optimum long-term yield curve position. At the same time, however, the portfolio’s weighted average maturity can be strategically adjusted to anticipate and accommodate economic market movements. Valley View will work with the City to identify the appropriate maturity allocation during any given market environment. Regardless of funds involved and strategy selected, once all of the risk/return considerations are made, Valley View will coordinate with the City to make specific portfolio recommendations and gain their implementation approval.

Portfolio Review, Investment Management and Client Contact

The needs and desires of the City will dictate the optimum schedule for portfolio review and meetings. The following minimum review schedule is consistent with the terms of this RFP:

Quarterly strategy/portfolio review, and


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Annual performance review. Initially, cash flow analysis, strategy development and broker/dealer review will require additional interaction with the City’s staff. Market cycles and the City’s cash flow schedule will largely determine appropriate ongoing interaction. Ongoing communication will focus on:

Current cash requirements, Specific investment opportunities, Market information, Appropriate transaction execution levels, Transaction settlement status, and Investment reporting.

Valley View understands that each client may have individual preferences for the communication of portfolio information and economic updates. Some clients prefer that we interact with them only when they have maturities or cash to invest, when significant economic events occur that could impact their portfolios, or when it is time to present quarterly reports. Others prefer much more frequent interaction to discuss the current economic climate, portfolio strategy and cash flows. Valley View will work with the City to develop the appropriate amount of interaction to effectively achieve its investment objectives. Major market shifts or portfolio modifications may also require special meetings or conference calls to review market trends and appropriately adjust strategies. Valley View is committed to effectively and timely respond to the City’s needs, and if additional meetings are necessary, we will be available.


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Personnel Valley View is pleased to offer a team whose members will each play an integral role in providing their expertise to fulfill the contract objectives of the City. As illustrated in the following organizational chart, Mr. Long will oversee the portfolio activities and investment transactions to ensure contract compliance is maintained. Ms. Anderson and Mr. Koch will be available to provide client support and back-up as well as to provide specialized examinations and consulting services.

Richard G. Long, Jr.

Manager, Valley View Consulting, L.L.C. Chief Investment Officer, Estrada Hinojosa & Company, Inc. Investment representative since 1981 Started First Southwest Company’s public funds investment efforts in 1988 Started Ambac Investment Management, Inc.’s southeast investment efforts in

1996 Founded Valley View Consulting, L.L.C as an SEC registered advisory firm in

1999 Mr. Long’s background includes extensive public entity investment management (he is responsible for in excess of $1 billion of public funds). He has been actively involved in the public funds investment legislation; investment policies and strategies; cash flow-based investment portfolios; eligible investment options; appropriate asset allocations; investment transaction settlement and safekeeping procedures; bank service agreements; and arbitrage rebate regulation. Mr. Long founded Valley View Consulting, L.L.C., in the fall of 1998 and became registered with the SEC as an investment advisor firm effective January 1999. At his previous employers (First Southwest Company and Ambac Investment Management, Inc.) he established and/or managed their investment management efforts. In his previous capacities with MBank Capital Markets and First Republic Bank, Mr. Long originated corporate, asset backed and tax-exempt securities, managed a government trading operation, and distributed both public and private securities.

City of Keller

Susan Anderson Richard Long Chief Investment Officer

William Koch


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Mr. Long also currently serves on a part-time basis as Chief Investment Officer for Estrada Hinojosa & Company, Inc., a registered investment adviser firm. Mr. Long earned a Bachelor of Science, Business Administration degree in Finance from Colorado State University and a Masters of Business Administration degree from the University of Dallas. Mr. Long has served on numerous Municipal Securities Rulemaking Board Arbitration panels and presented information to multiple public funds investment management organizations. Susan K. Anderson

Chief Executive Officer, Anderson Financial Management, L.L.C. Investing Public Funds since 1981 Former City of Austin Treasurer & Investment Officer Served as Chief Investment Officer for the State of Texas Investment Manager, The PFM Group for 9 years Founded Anderson Financial Management, L.L.C. in 2008

Ms. Anderson has extensive public fund experience, beginning in 1971 with her first government position at the City of Austin. Ms. Anderson served the City in the Financial Services Division for over twenty-five years. The last twenty years were specifically dedicated to the management of the investment, debt and cash resources of the City. As Treasurer of the City of Austin, she was responsible for the $1.5 billion investment portfolio, the $3.3 billion debt portfolio and all cash management programs, including collections and bank relations. Additional relevant responsibilities included serving as liaison to all three of the City’s pension programs and as Trustee on the City of Austin Firemen’s Relief and Retirement Fund, and Board Member of the City of Austin Deferred Compensation Fund. Investment strategies developed for City funds, pension funds and deferred compensation funds spanned the entire spectrum of public-eligible investment products, including fixed income, equity and international funds. Following her retirement from the City of Austin, she served as Chief Investment Officer for the State of Texas where she was responsible for the management of $35 billion of combined operating, endowment and trust funds. After her public service, she joined the national financial and investment advisory firm, The PFM Group, where she continued to develop her knowledge of public fund investment. The stint at PFM allowed Ms. Anderson to be exposed to a myriad of government clients with unique needs and requirements and to hone her skills to identify problems and find the appropriate solutions for her clients. Throughout her career, Ms. Anderson has been involved in professional organizations for public sector officials. She has been a member of the Government Finance Officers’ Association (Texas and national), the Government Treasurers’ Organization of Texas (including several officer positions and legislative committee chair), and the Texas Association of School Business Officials.


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Ms. Anderson earned a Bachelor of Science, Business Administration degree in Finance from St. Edward’s University. She is a Certified Cash Manager. Ms. Anderson founded Anderson Financial Management, L.L.C. in 2008 and has partnered with Valley View to bring her expertise to the Valley View team. William J. Koch

President, Avalon Financial Services Investment Adviser Representative Over fifteen years public-sector consulting Over forty years financial management experience Founded Avalon Financial Services in 1996

Mr. Koch is a capable and versatile financial professional with extensive management and operational credentials that include a strong background in accounting, cash management, treasury, and information systems. He has broad industry experience with both publicly traded and privately held firms, including international market activities, and public sector organizations. His career has included management positions with Fortune magazine ranked firms in which he was responsible for accounting and financial reporting, treasury, and information services. For over fifteen years, Mr. Koch has been a management consultant providing specialized financial services primarily to public sector organizations, including municipalities, school districts, colleges, hospital districts, and regional transportation authorities. With proven financial expertise, solidly versed in statutes and legal requirements, and extensive knowledge of banking systems and services, he has a unique blend of capabilities to offer his clients. Mr. Koch is a registered investment adviser representative. Formerly a partner with a regional consulting group, Mr. Koch founded Avalon Financial Services in 1996 and serves as its president. Mr. Koch is a graduate of Texas A&M University.


540.297.3419

Additional Information Investment Policy Development – With a primary focus on managing Texas public funds, Valley View regularly assists in the development, modification and implementation of investment policies, portfolio strategies and other investment-related services. We consider those functions as essential to the effective fulfillment of our contracts and will work with the City in addressing their policy development needs. Ms. Anderson has many years of experience in developing investment policies and the policy that she co-authored for the City of Austin continues to serve as a template for other public fund programs. She has served for many years on the Government Treasurers’ Organization of Texas Policy Review Committee and in that capacity has reviewed and offered suggestions for amendments for a multitude of Texas governments. This experience gives her a unique eye for detecting policy omissions and the appropriateness of outlined program objectives. Both Ms. Anderson and Mr. Long continue to provide public fund training sessions that include investment policy requirements and investment strategy development. Valley View services will include comparative review of the City’s Investment Policy with state and federal requirements. Additional “best practice” components will also be considered. The standard practice is to provide a thorough review of all documents at the inception of the contract, with annual reviews/adjustments thereafter. Valley View will be available to assist in the presentation, adoption and implementation of any policy change. In addition to investment policy development, Valley View has also assisted in the development and implementation of cash and investment management procedure policies and manuals. Managing Broker/Dealer Relationships – A competitive investment environment rewards the City with effective market access. Multiple, competent brokers provide accurate market information and locate specific securities for strategy implementation. Valley View will assist the City in establishing review, solicitation and monitoring procedures to create a competitive environment. Proper broker/dealer selection is crucial to building a competitive environment. Working with the City’s current list or considering new candidates will determine specific follow-up procedures. Recording each broker’s response to solicitations, winning security offerings, and settlement efficiency will allow the City to track broker performance. That history will validate the establishment of a competitive environment or will highlight needed adjustments. Generally, three criteria guide Valley View’s approach to managing broker/dealer relationships. Broker/dealers must:

Understand and accept the unique objectives of investing public funds,


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Provide competitive pricing, and Respond appropriately to the needs of the City.

There are many broker/dealers that meet these basic requirements and a competitive environment is difficult to achieve with too few broker/dealers involved. At the same time, too many brokers make the process too cumbersome, increase the risk of missed opportunities, and restrict the City’s business with any one broker/dealer (unfortunately, broker/dealers tend to lose interest in investors that do not trade enough with them). In order to establish a competitive, yet workable transaction environment, experience suggests that five to ten broker/dealers for a program the City’s size is probably optimal. Generally, a mix of primary and secondary dealers balances the primary’s market making with the secondary’s expanded inventory access. There are many ways to select the broker/dealers authorized by the City. As an active advisor to public entities, Valley View can provide recommendations of broker/dealers currently used by other clients. Or a selection process to independently identify and recommend potentially beneficial broker/dealers could be implemented. Many times an investment advisor transacts only with its own “list” of broker/dealers and the client loses identity to the broker/dealer community and also its ability to suggest inclusion of local providers. Valley View’s approach clearly communicates the City’s role in broker/dealer selection, encourages complete knowledge of each participant and provides direct contact information to both parties. The relationship becomes the City and its broker/dealers, with Valley View assisting and monitoring. Valley View will assist the City in complying with, and/or revising the selection and review criteria as required in the City’s Investment Policy. We will assist in the annual review of the selection process and the resulting list of broker/dealers. Reviewing Custodial and Safekeeping Agreements – Properly established custodial and safekeeping agreements are essential to safely and effectively manage the City’s funds. Valley View’s dedicated focus to public funds investment has involved extensive experience in opening and maintaining acceptable custodian and safekeeping accounts. We will assist the City as necessary in reviewing the current arrangements. Additionally, Valley View will assist the City in soliciting for depository bank services as a part of this contract. If requested, Valley View would assist the City by:

* Analyzing the prior Bank Depository contract. * Reviewing the prior Request for Proposal (RFP). * Reviewing the group level summary and individual account analysis

statements. * Reviewing the bank statements of all accounts. * Considering usefulness of accounts and any potential cost-saving options. * Reviewing the Pledged Collateral report for a current period. * Reviewing the Custodial Agreement.


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* Reviewing the Investment Policy and recommend changes to enhance banking services.

* Reviewing the budget for the most recent period to determine any potential impact of structure and organization on the development of the RFP.

* Reviewing the most recent Comprehensive Annual Financial Report (CAFR), with management letter.

* Developing a calendar of events to guide completion of the bank depository process.

* Defining the acceptable area from which prospective proposers will be considered as a matter of regulation and practical convenience.

* Establishing the criteria by which the proposals received will be evaluated. * Preparing a list of the financial institutions that will be sent a RFP. * Preparing a draft copy of the RFP. * Reviewing the draft RFP with City staff and attorney, incorporating

changes as necessary. * Assisting the City in hosting a pre-proposal conference to answer any

questions and provide additional explanation as required. * Upon receipt of the proposals, analyzing them for conformance to the RFP

requirements and to determine the relative value of each proposal to the City based on the evaluation criteria.

* Meeting with staff to review the results of the proposal analysis. * Assisting staff with presentation to the governing body for selection and

adoption of a bank depository for the new contract period.


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Fees As with all contracts, a mutually agreed upon fee will provide the City with good value for the cost and adequate compensation for our efforts and expertise. We offer services with a variety of fee structures. For the City’s funds, Valley View offers to provide all of the services described in the proposal for an annual fee of 0.08% (8 basis points) of average quarterly fund balance for all combined funds (estimated to average $40,000,000). In the event that a flexible repurchase agreement or other similar investment option is utilized for bond proceeds, Valley View shall receive a normal and customary fee within the guidelines of the Internal Revenue Service, in lieu of the fee prescribed in this proposal. The quoted fee includes all costs of services related to this agreement and all travel and business expenses related to attending periodic meetings. The obligation of Valley View to pay expenses shall not include any costs incident to litigation, mandamus action, test case or other similar legal actions. The City would be billed each quarter for the advisory fee as well as costs and expenses, where applicable, incurred in performance of these duties. The City may incur transactional expenses in the execution of its investment strategy, such as safekeeping or bank wire charges. Valley View will assist the City in minimizing all such transactional expenses or any other normal business expenses that might be incurred by the City in the management of its funds.


540.297.3419

Comparable Client Portfolios

The following actual client portfolios are examples of Valley View’s Investment Philosophy and Approach implemented. They were selected for their relative similarity to the City. With cash flow needs substantially impacting the potential, appropriate strategy, the City’s portfolio could look significantly different. As with all investments, past performance does not necessarily reflect future outcome.

City A

Security Coupon/ Maturity Settlement Purchased Book Market Market Life Description Ratings Discount Date Date Par Value Value Value Price Value (mo) YieldTexPool AAAm 0.28% 10/1/2009 9/30/2009 2,232,555.96 2,232,555.96 2,232,555.96 1.000 2,232,555.96 0.03 0.28%TexSTAR AAAm 0.26% 10/1/2009 9/30/2009 1,986,847.53 1,986,847.53 1,986,847.53 1.000 1,986,847.53 0.03 0.26%Money Market (3) AAAm 0.01% 10/1/2009 9/30/2009 1,331,535.61 1,331,535.61 1,331,535.61 1.000 1,331,535.61 0.03 0.01%

Bank A CD 1.29% 11/4/2009 5/6/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 1.15 1.29%CDARS CD A 3.45% 11/19/2009 11/20/2008 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 1.64 3.45%FHLB AAA 4.00% 12/22/2009 1/30/2008 2,000,000.00 2,042,821.20 2,019,035.26 100.853 2,017,061.22 2.72 2.83%Bank A CD 1.76% 12/29/2009 4/3/2009 3,000,000.00 3,000,000.00 3,000,000.00 100.000 3,000,000.00 2.95 1.76%Bank B CD 1.10% 1/22/2010 7/24/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 3.74 1.10%Bank A CD 1.45% 2/1/2010 5/6/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 4.07 1.45%FHLB AAA 4.88% 3/12/2010 3/20/2008 2,000,000.00 2,096,580.00 2,049,588.90 102.033 2,040,653.30 5.34 2.36%Bank A CD 1.93% 4/5/2010 4/3/2009 3,000,000.00 3,000,000.00 3,000,000.00 100.000 3,000,000.00 6.13 1.93%Bank A CD 1.61% 5/6/2010 5/6/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 7.15 1.61%FHLB AAA 3.00% 6/11/2010 5/30/2008 2,000,000.00 1,984,710.00 1,999,946.62 101.773 2,035,454.74 8.33 3.39%CDARS CD A 1.75% 6/24/2010 6/25/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 8.75 1.75%Bank A CD 1.75% 8/6/2010 5/6/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 10.16 1.75%CDARS CD A 3.68% 9/23/2010 9/25/2008 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 11.74 3.68%Bank B CD 1.30% 9/30/2010 9/30/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 11.97 1.30%CDARS CD B 3.50% 12/9/2010 12/11/2008 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 14.26 3.50%Bank A CD 1.43% 3/31/2011 9/30/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 17.93 1.43%Bank A CD 2.35% 4/4/2011 4/3/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 18.07 2.35%CDARS CD C 2.00% 5/26/2011 5/28/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 19.77 2.00%Bank A CD 2.16% 8/29/2011 8/27/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 22.89 2.16%Bank A CD 1.91% 9/30/2011 9/30/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 23.93 1.91%

$39,550,939.10 $39,675,050.30 $39,619,509.88 $39,644,108.36 8.82 1.95% (1) (2)

September 30, 2009

(1) Weighted average life - For purposes of calculating weighted average life, TexPool, TexSTAR, and Money Market investments are assumed to have a one day maturity.

(2) Weighted average yield to maturity - The weighted average yield to maturity is based on adjusted book value, realized and unrealized gains/losses and investment advisory fees are not considered. The yield for the reporting month is used for TexPool, TexSTAR, and Money Market investments.

(3) The yield of the Federated Government Obligations Fund at First Bank & Trust has been estimated net of sweep fees.

Valley View Consulting, L.L.C.

City B

AdjustedSecurity Coupon/ Maturity Settlement Purchased Book Market Market Life Description Ratings Discount Date Date Par Value Value Value Price Value (mo) YieldJPMC MMA 0.00% 10/1/2009 9/30/2009 (3,628,233.84) (3,628,233.84) (3,628,233.84) 1.000 (3,628,233.84) 0.03 0.00%DDA 10/1/2009 9/30/2009 1,540,739.08 1,540,739.08 1,540,739.08 1.000 1,540,739.08 0.03 0.00%TexPool AAAm 0.28% 10/1/2009 9/30/2009 1,089,889.42 1,089,889.42 1,089,889.42 1.000 1,089,889.42 0.03 0.28%TexSTAR AAAm 0.26% 10/1/2009 9/30/2009 593,087.40 593,087.40 593,087.40 1.000 593,087.40 0.03 0.26%JMPC HYSA 0.45% 10/1/2009 9/30/2009 6,107,551.17 6,107,551.17 6,107,551.17 1.000 6,107,551.17 0.03 0.45%

Bank A CD 3.75% 10/13/2009 10/14/2008 5,500,000.00 5,500,000.00 5,500,000.00 100.000 5,500,000.00 0.43 3.75%CDARS CD A 3.45% 11/19/2009 11/20/2008 4,000,000.00 4,000,000.00 4,000,000.00 100.000 4,000,000.00 1.64 3.45%Bank B CD 2.40% 12/3/2009 2/3/2009 245,000.00 245,000.00 245,000.00 100.000 245,000.00 2.10 2.40%Bank B CD 2.40% 12/3/2009 2/3/2009 245,000.00 245,000.00 245,000.00 100.000 245,000.00 2.10 2.40%Bank B CD 2.40% 12/3/2009 2/3/2009 245,000.00 245,000.00 245,000.00 100.000 245,000.00 2.10 2.40%Bank B CD 2.40% 12/3/2009 2/3/2009 245,000.00 245,000.00 245,000.00 100.000 245,000.00 2.10 2.40%CDARS CD A 3.40% 12/10/2009 12/11/2008 3,000,000.00 3,000,000.00 3,000,000.00 100.000 3,000,000.00 2.33 3.40%FHLB AAA 5.00% 12/11/2009 12/14/2007 3,000,000.00 3,059,179.32 3,005,942.69 101.281 3,038,430.00 2.36 3.96%Bank C CD 0.65% 12/16/2009 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 2.52 0.65%Bank C CD 0.80% 1/16/2010 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 3.54 0.80%Bank B CD 1.34% 1/21/2010 1/21/2009 5,000,000.00 5,000,000.00 5,000,000.00 100.000 5,000,000.00 3.70 1.34%CDARS CD B 1.46% 2/4/2010 2/5/2009 7,000,000.00 7,000,000.00 7,000,000.00 100.000 7,000,000.00 4.16 1.46%Bank C CD 0.85% 2/16/2010 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 4.56 0.85%Bank A CD 1.87% 3/5/2010 3/6/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 5.11 1.87%Bank C CD 0.90% 3/16/2010 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 5.48 0.90%Bank D CD 1.61% 3/16/2010 3/16/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 5.48 1.61%Bank D CD 1.69% 4/9/2010 4/9/2009 10,000,000.00 10,000,000.00 10,000,000.00 100.000 10,000,000.00 6.26 1.69%Bank C CD 1.10% 4/16/2010 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 6.49 1.10%Bank C CD 1.12% 5/16/2010 7/16/2009 1,000,000.00 1,000,000.00 1,000,000.00 100.000 1,000,000.00 7.48 1.12%Bank A CD 1.95% 5/20/2010 2/19/2009 7,000,000.00 7,000,000.00 7,000,000.00 100.000 7,000,000.00 7.61 1.95%Bank C CD 1.50% 5/20/2010 5/20/2009 5,500,000.00 5,500,000.00 5,500,000.00 100.000 5,500,000.00 7.61 1.50%Bank C CD 1.35% 7/16/2010 7/16/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 9.48 1.35%CDARS CD A 1.50% 8/26/2010 8/27/2009 4,000,000.00 4,000,000.00 4,000,000.00 100.000 4,000,000.00 10.82 1.50%Bank C CD 1.05% 9/21/2010 9/21/2009 10,000,000.00 10,000,000.00 10,000,000.00 100.000 10,000,000.00 11.67 1.05%Bank A CD 1.86% 10/12/2010 4/15/2009 5,500,000.00 5,500,000.00 5,500,000.00 100.000 5,500,000.00 12.36 1.86%Bank B CD 1.38% 3/30/2011 3/31/2009 500,000.00 500,000.00 500,000.00 100.000 500,000.00 17.90 1.38%Bank B CD 1.38% 4/2/2011 4/2/2009 3,000,000.00 3,000,000.00 3,000,000.00 100.000 3,000,000.00 18.00 1.38%Bank B CD 1.38% 4/4/2011 4/6/2009 2,000,000.00 2,000,000.00 2,000,000.00 100.000 2,000,000.00 18.07 1.38%Bank B CD 1.38% 4/9/2011 4/9/2009 500,000.00 500,000.00 500,000.00 100.000 500,000.00 18.23 1.38%Bank B CD 1.81% 4/16/2011 4/16/2009 500,000.00 500,000.00 500,000.00 100.000 500,000.00 18.46 1.81%

$95,683,033.23 $95,742,212.55 $95,688,975.92 $95,721,463.23 6.81 1.78% (1) (2)

September 30, 2009

(1) Weighted average life - For purposes of calculating weighted average life, TexPool, TexSTAR, and Money Market investments are assumed to have a one day maturity.

(2) Weighted average yield to maturity - The weighted average yield to maturity is based on adjusted book value, realized and unrealized gains/losses and investment advisory fees are not considered. The yield for the reporting month is used for TexPool, TexSTAR, and Money Market investments.


City C

Security Coupon/ Maturity Settlement Purchased Book Market Market Life Description Ratings Discount Date Date Par Value Value Value Price Value (mo) YieldPooled Cash 1.35% 10/1/2009 9/30/2009 2,422,542.27 2,422,542.27 2,422,542.27 1.000 2,422,542.27 0.03 1.35%NOW 0.50% 10/1/2009 9/30/2009 10,715,301.76 10,715,301.76 10,715,301.76 1.000 10,715,301.76 0.03 0.50%TexPool AAAm 0.28% 10/1/2009 9/30/2009 3,577,351.76 3,577,351.76 3,577,351.76 1.000 3,577,351.76 0.03 0.28%TexSTAR AAAm 0.26% 10/1/2009 9/30/2009 5,966,761.35 5,966,761.35 5,966,761.35 1.000 5,966,761.35 0.03 0.26%

FFCB AAA 5.00% 10/23/2009 11/15/2007 4,000,000.00 4,037,462.82 4,037,462.82 100.281 4,011,240.00 0.75 4.07%FNMA AAA 4.00% 11/16/2009 11/15/2007 2,000,000.00 1,998,007.54 1,998,007.54 101.813 2,036,260.00 1.54 4.09%Bank CD 0.90% 11/17/2009 8/17/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 1.57 0.90%Bank CD 0.95% 12/17/2009 8/17/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 2.56 0.95%FNMA AAA 7.25% 1/15/2010 5/6/2008 2,000,000.00 2,107,493.54 2,107,493.54 102.063 2,041,260.00 3.51 2.95%Bank CD 1.10% 3/17/2010 8/17/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 5.51 1.10%Bank CD 1.15% 5/17/2010 8/17/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 7.51 1.15%FHLB AAA 3.00% 6/11/2010 5/16/2008 2,000,000.00 1,995,856.96 1,995,856.96 100.438 2,008,760.00 8.33 3.13%Bank CD 1.46% 7/30/2010 7/30/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 9.93 1.46%Bank CD 1.51% 11/1/2010 7/30/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 13.02 1.51%Bank CD 1.56% 1/24/2011 7/30/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 15.77 1.56%Bank CD 1.81% 8/1/2011 7/30/2009 2,500,000.00 2,500,000.00 2,500,000.00 100.000 2,500,000.00 21.97 1.81%

$52,681,957.14 $52,820,778.00 $52,820,778.00 $52,779,477.14 4.27 1.41% (1) (2)

September 30, 2009

(1) Weighted average life - For purposes of calculating weighted average life, TexPool, TexSTAR, and bank account investments are assumed to have a one day maturity.

(2) Weighted average yield to maturity - The weighted average yield to maturity is based on adjusted book value, realized and unrealized gains/losses and investment advisory fees are not considered. The yield for the reporting month is used for TexPool, TexSTAR, and bank account investments.


City D

Security Coupon/ Maturity Settlement Purchased Book Market Market Life Description Ratings Discount Date Date Par Value Value Value Price Value (mo) YieldDDA/MMA 3.04% 10/1/2009 9/30/2009 $25,614,776 $25,614,776 $25,614,776 1.000 $25,614,776 0.03 3.04%TexPool AAAm 0.28% 10/1/2009 9/30/2009 3,275,114 3,275,114 3,275,114 1.000 3,275,114 0.03 0.28%

Bank A CD 0.90% 10/15/2009 9/8/2009 165,000 165,000 165,000 100.000 165,000 0.49 0.90%Bank B CD 1.51% 10/16/2009 7/16/2009 2,500,000 2,500,000 2,500,000 100.000 2,500,000 0.52 1.51%Bank A CD 0.95% 11/15/2009 9/8/2009 180,000 180,000 180,000 100.000 180,000 1.51 0.95%Bank A CD 1.00% 12/15/2009 9/8/2009 150,000 150,000 150,000 100.000 150,000 2.49 1.00%Bank A CD 1.10% 1/15/2010 9/8/2009 1,500,000 1,500,000 1,500,000 100.000 1,500,000 3.51 1.10%Bank B CD 1.99% 1/16/2010 7/16/2009 2,500,000 2,500,000 2,500,000 100.000 2,500,000 3.54 1.99%Bank A CD 1.35% 2/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 4.52 1.35%Bank A CD 1.35% 3/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 5.44 1.35%Bank A CD 1.40% 4/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 6.46 1.40%Bank B CD 2.26% 4/16/2010 7/16/2009 2,500,000 2,500,000 2,500,000 100.000 2,500,000 6.49 2.26%Bank A CD 1.40% 5/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 7.44 1.40%Bank A CD 1.60% 6/15/2010 9/8/2009 700,000 700,000 700,000 100.000 700,000 8.46 1.60%Bank A CD 1.60% 7/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 9.44 1.60%Bank B CD 2.50% 7/16/2010 7/16/2009 2,500,000 2,500,000 2,500,000 100.000 2,500,000 9.48 2.50%Bank A CD 1.60% 8/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 10.46 1.60%Bank A CD 1.81% 9/15/2010 9/8/2009 500,000 500,000 500,000 100.000 500,000 11.48 1.81%Bank A CD 1.86% 12/15/2010 9/8/2009 2,000,000 2,000,000 2,000,000 100.000 2,000,000 14.46 1.86%Bank A CD 1.92% 3/15/2011 9/8/2009 3,000,000 3,000,000 3,000,000 100.000 3,000,000 17.41 1.92%

$50,084,889 $50,084,889 $50,084,889 $50,084,889 3.43 2.34% (1) (2)

September 30, 2009

(1) Weighted average life - For purposes of calculating weighted average life, TexPool and bank account investments are assumed to have a one day maturity.

(2) Weighted average yield to maturity - The weighted average yield to maturity is based on adjusted book value, realized and unrealized gains/losses and investment advisory fees are not considered. The yield for the reporting month is used for TexPool and bank account investments.


AGREEMENT BY AND BETWEEN

CITY OF KELLER, TEXAS AND

VALLEY VIEW CONSULTING, L.L.C. It is understood and agreed that the City of Keller (the Investor) will have from time to time money available for investment (Investable Funds) and Valley View Consulting, L.L.C. (Advisor) has been requested to provide professional services to the Investor with respect to the Investable Funds. This agreement (the Agreement) constitutes the understanding of the parties with regard to the subject matter hereof.

1. This Agreement shall apply to any and all Investable Funds of the Investor from time to time during the period in which this Agreement shall be effective.

2. The Advisor agrees to provide its professional services to direct and coordinate all programs

of investing as may be considered and authorized by the Investor. 3. The Advisor agrees to perform the following duties: a. Assist the Investor in developing cash flow projections, b. Suggest appropriate investment strategies to achieve the Investor’s objectives, c. Advise the Investor on market conditions, general information and economic data, d. Analyze risk/return relationships between various investment alternatives, e. Attend periodic meetings as requested by the Investor, f. Assist in the selection, purchase and sale of investment securities. The Advisor shall

not have discretionary investment authority over the Investable Funds and the Investor shall make all decisions regarding purchase and sale of investments. Those investment securities are listed in the Investor’s Investment Policy,

g. Advise on the investment of bond funds as to provide the best possible rate of return

to the Investor in a manner which is consistent with the proceedings of the Investor authorizing the investment of the bond funds or applicable federal rules and regulations,

h. Assist the Investor in creating investment reports in compliance with State legislation

and the Investor’s Investment Policy, and h. Assist the Investor with the bank depository service RFP process.

4. The Investor agrees to: a. Compensate the Advisor for any and all services rendered and expenses incurred as

set forth in Appendix A attached hereto, b. Provide the Advisor with the schedule of estimated cash flow requirements related to

the Investable Funds, and will promptly notify the Advisor as to any changes in such estimated cash flow projections,

c. Allow the Advisor to rely upon all information regarding schedules, investment

policies and strategies, restrictions, or other information regarding the Investable Funds as provided to it by the Investor and that the Advisor shall have no responsibility to verify, through audit or investigation, the accuracy or completeness of such information,

d. Recognize that there is no assurance that recommended investments will be available

or that such will be able to be purchased or sold at the price recommended by the Advisor, and

e. Not require the Advisor to place any order on behalf of the Investor that is

inconsistent with any recommendation given by the Advisor or the policies and regulations pertaining to the Investor.

5. In providing the investment services in this Agreement, it is agreed that the Advisor shall

have no liability or responsibility for any loss or penalty resulting from any investment made or not made in accordance with the provisions of this Agreement, except that the Advisor shall be liable for its own gross negligence or willful misconduct; nor shall the Advisor be responsible for any loss incurred by reason of any act or omission of any broker, selected with reasonable care by the Advisor and approved by the Investor, or of the Investor’s custodian. Furthermore, the Advisor shall not be liable for any investment made which causes the interest on the Investor’s obligations to become included in the gross income of the owners thereof.

6. The fee due to the Advisor in providing services pursuant to this Agreement shall be

calculated in accordance with Appendix A attached hereto, and shall become due and payable as specified. Any and all expenses for which the Advisor is entitled to reimbursement in accordance with Appendix A attached hereto shall become due and payable at the end of each calendar quarter in which such expenses are incurred.

7. This Agreement shall become effective at the date of acceptance by the Investor as set out

herein below and remain in effect for two (2) years with the option of the Investor to extend this Agreement in additional two year periods. Provided, however, the Investor or Advisor may terminate this Agreement upon thirty (30) days written notice to the other party. In the event of such termination, it is understood and agreed that only the amounts due to the Advisor for services provided and expenses incurred to and including the date of termination will be due and payable. No penalty will be assessed for termination of this Agreement. In the event this Agreement is terminated, all investments and/or funds held by the Advisor shall be returned to the Investor as soon as practicable. In addition, the parties hereto agree that upon termination of this Agreement the Advisor shall have no continuing obligation to the Investor regarding the investment of funds or performing any other services contemplated herein.

8. The Advisor reserves the right to offer and perform these and other services for various other clients. The Investor agrees that the Advisor may give advice and take action with respect to any of its other clients, which may differ from advice given to the Investor. The Investor agrees to coordinate with and avoid undue demands upon the Advisor to prevent conflicts with the performance of the Advisor towards its other clients.

9. The Advisor shall not assign this Agreement without the express written consent of the

Investor. 10. By initialing the appropriate line, Investor acknowledges that:

1) __X__ Investor was provided a written copy of Part II of Form ADV not less than 48 hours prior to entering into this written contract, or

2) _____ Investor received a written copy of Part II of Form ADV at the time of

entering into this contract and has the right to terminate this contract without penalty within five business days after entering into this contract.

3) _____ Investor is renewing an expiring contract and has received in the past, and

offered annually, a written copy of Part II of Form ADV. This Agreement is submitted in duplicate originals. When accepted by the Investor, it, together with Appendix A attached hereto, will constitute the entire Agreement between the Investor and Advisor for the purposes and the consideration herein specified. Acceptance will be indicated on both copies and the return of one executed copy to Advisor.

Respectfully submitted,

Richard G. Long, Jr. Manager, Valley View Consulting, L.L.C.

This agreement is hereby agreed to and executed on behalf of the City of Keller, Texas.

By: ___________________________________ City of Keller, Texas Date: ___________________________________

APPENDIX A

FEE SCHEDULE AND EXPENSE ITEMS

In consideration for the services rendered by the Advisor in connection with the investment of the Investable Funds designated by the Investor, it is understood and agreed that the fee will be as follows:

The Advisor shall receive an annual fee not to exceed .08% (8 basis points) of average quarterly fund balance for all funds designated as Investable Funds. In the event a flexible repurchase agreement or other similar investment option is utilized, the Advisor shall receive a normal and customary fee within the guidelines of the Internal Revenue Service, in lieu of Agreement Fee.

Expenses: Said fee includes all costs of services related to this Agreement, and all travel and business expense related to periodic meeting attendance. With pre-trip Investor approval, the Advisor may also request reimbursement for special meeting or event travel and business expense. The obligation of the Advisor to pay expenses shall not include any costs incident to litigation, mandamus action, test case or other similar legal actions. Any other fees retained by the Advisor shall be disclosed to the Investor.

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