2014/07/16 Council Agenda Packet

5 Local Government Investment Pool-MMF Operating Expenses by Fiscal Year (in Basis Points) 2006 2007 2008 2009 2010 2011 2012 2013 Total Operating Expenses 1.12 0.96 0.84 0.88 0.64 0.81 0.68 0.87 (1 basis point = 0.01%) Because most of the expenses of the LGIP-MMF are fixed costs, the fee (expressed as a percentage of fund assets) will be affected by: (i) the amount of operating expenses; and (ii) the assets of the LGIP-MMF. The table below shows how the fee (expressed as a percentage of fund assets) would change as the fund assets change, assuming an annual fund operating expenses amount of $800,000, Fund Assets $6.0 bn Total Operating Expenses (in Basis Points) 1.33 $8.0 bn $10.0 bn 1.0 .80 Portfolio Turnover: The Fund does not pay a commission or fee when it buys or sells securities (or "turns over" its portfolio). However, debt securities often trade with a bid/ask spread. Consequently, a higher portfolio turnover rate may generate higher transaction costs that could affect the Fund's performance. IL Local Government Investment Pool - Money Market Fund Investment Objective The LGIP-MMF will seek to effectively maximize the yield while maintaining liquidity and a stable share price of $1. Principal Investment Strategies The LGIP-MMF will seek to invest primarily in high -quality, short term money market instruments. Typically, at least 55% of the Fund's assets will be invested in US government securities and repurchase agreements collateralized by those securities. The LGIP-MMF means a sub -pool of the LGIP whose investments will primarily be money market instruments. The LGIP-MMF will only invest in eligible investments permitted by state law. The LGIP-MMF will not be an SEC -registered money market fund and will not be required to follow SEC Rule 2a-7. Investments of the LGIP-MMF will conform to the LGIP Investment Policy, the most recent version of which will be posted on the LGIP website and will be available upon request. Principal Risks of Investing in the LCIP-Money Market Fund Counterparty Credit Risk. A party to a transaction involving the Fund may fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategies. Interest Rate Risk. The LGIP-MMF's income may decline when interest rates fall. Because the Fund's income is based on short-term interest rates, which can fluctuate significantly over short periods, income risk is expected to be high. In addition, interest rate increases can cause the price of a debt security to decrease and even lead to a loss of principal. 4 22