ORDER NO. 30531 INVESTMENT ADVISORS FOR KERR COUNTY Came to be heard this the 24th day of September, 2007, with a motion made by Commissioner Williams, seconded by Commissioner Oehler. The Court unanimously approved by vote of 4-0-0 to: Approve hiring Patterson and Company as investment advisers for Kerr County, and use the percentage fee schedule for payment of compensation. 3 os3l ~ ~~ COMMISSIONERS' COURT AGENDA REQUEST PLEASE FURNISH ONE ORIGINAL AND TEN (10) COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT MADE BY: Jeannie Hargis MEETING DATE: September 24, 2007 OFFICE: County Auditor TIME PREFERRED: SUBJECT: Consider, discuss and take appropriate action to hire Patterson and Company as investment advisors for Kerr County. EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON) NAME OF PERSON ADDRESSING THE COURT: Jeannie Hargis ESTIMATED LENGTH OF PRESENTATION: IF PERSONNEL MATTER -NAME OF EMPLOYEE: Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: Meeting scheduled for Mondays: THIS REQUEST RECEIVED BY: THIS RQUEST RECEIVED ON: 5:00 PM previous Tuesday @ .M. All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal consideration and action at time of Court Meetings. Your cooperation will be appreciated and contribute towards your request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners' Court. INVESTMENT ADVISORY AGREEMENT BETWEEN PATTERSON & ASSOCIATES and COUNTY OF KERR COURT ORDER NO. 30531 ITEM No. 1.7 This Investment Advisory Agreement dated as of the 24th day of SEPTEMBER, 2007 (the "Agreement") is made and entered into by and between Patterson Capital Management, L.P., dba Patterson & Associates ("P&A"), a registered investment advisor and funds management Texas limited partnership and THE County of Kerr (the "Client"). PREAMBLE WHEREAS, the Client has determined to select and appoint P&A to act as its investment advisor for funds and securities to manage, maintain, and invest monies and securities and to perform the advisory and consulting services described herein, NOW THEREFORE, for and in consideration of the mutual promises, covenants, and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree with each other as follows: ARTICLE I. Definitions "Authorized Investments" shall mean those investments authorized and defined in the Client's Investment Policy made a part of this Agreement and attached hereto as Exhibit A. "Authorized Representative(s) of the Client" shall mean the duly authorized officers, members of the governing board or their delegated representatives, empowered to execute instructions and take other necessary actions under this Agreement on behalf of the Client designated in writing, attached hereto as Exhibit D. "Authorized Representative(s) of P&A" shall mean any employee of P&A who is designated in writing by P&A as an authorized representative for purposes of this Agreement, attached hereto as Exhibit D. ARTICLE II. Creation of Portfolio and Account(s) Section 2.01. Creation of a Separate and Distinct Portfolio(s). P&A, on behalf of the Client hereby creates and establishes for management and reporting purposes a separate and distinct portfolio(s) (the "Portfolio") to be managed as a separate and distinct fund, held in the Client's name at Client's safekeeping institution. P&A shall invest and manage all monies deposited by the Client into the Portfolio. Client will determine the number of Portfolios to be established and maintained in accordance with Client needs. All Portfolios shall be segregated and held distinct from all other funds held or invested by P&A. ARTICLE III. Operation of Portfolio(s) Section 3.01. Deoositorv Services. The Portfolio and securities owned by the Portfolio will be maintained in the Client's name and in the designated depository of the Client and the Client may authorize P&A to conduct security transactions in that account for Client. All fees and expenses for depository account maintenance and transactions will be paid by Client. Section 3.02. Delivery versus Payment. All securities managed by P&A will be settled on a delivery versus payment (DVP) basis into the Client designated Depository Account. DVP will assure that no Client funds are released until the security is received and verified by the Depository of the Client. Section 3.03. Separation of Portfolios. The Portfolio(s) shall be segregated and distinctly invested from all other funds managed by P&A. ARTICLE IV. Investment Duties and Services Section 4.01. Prudence. P8cA hereby agrees to manage the Portfolio(s) with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as probable income to be derived. This Prudent Person Law shall be applied to the investment of all Portfolios and Accounts with the same degree of care and assuming the same duty as the Client. Section 4.02. Investment Advisory Services. P&A shall provide full advisory services and management of Client's Portfolio(s) to include market advice, portfolio structure advice, trade execution and settlement on an ongoing basis. All investments shall be in accord with applicable state laws and Client's Investment Policy attached hereto and made a part hereof as Exhibit A. P&A certifies that all funds shall be invested only in Client authorized investments. Client Designation of Funds. Client has full discretion to designate the amount of funds to be placed in Portfolio(s) or in separate investments in accordance with cash flow needs. Client has full discretion to designate the amount of funds to be placed in Portfolio(s) or in a local government investment pool or money fund as authorized by the Client's governing body for liquidity. Client Directives. Monies held in the Portfolio(s) shall be invested and reinvested in Authorized Investments selected by P&A and approved by Client before settlement, in accordance with the Client Investment Policy. Client reserves the right to notify Depository of pending trades and approve settlement of those trades. Client reserves the right to approve any and all trades. P&A will utilize only Client approved broker/dealers. Trade Aggregation. For the purpose of purchase transactional efficiency or market price advantage involving funds of the Portfolio(s) P&A may aggregate these funds with other Client funds for investment. However, Client funds and securities shall never be commingled with other Client funds and Client transactions will be specifically segregated on all brokerage transactions and settled separately into Client depository. Section 4.03. Confirmations. P&A will establish all necessary procedures for Client to receive independent trade confirmations from all broker/dealers for each transaction in the Portfolio. Independent confirmations will be sent directly to the Client, and P&A, for audit trail purposes. Section 4.04. Reportin4. P&A shall provide monthly and quarterly reports detailing and summarizing all investments and Portfolio transactions at a minimum. Client shall define all reporting needs for information needed on a daily, monthly or quarterly basis. P&A shall submit all reports to the Client of its transactions promptly after the end of each month. Such report shall indicate at a minimum the balances remaining in the Portfolio and each account, the interest earned, all deposits and withdrawals, and a detailed inventory of all securities and positions for the period. All reports shall fulfill applicable statutory requirements. Reports will include information for GASB 3, 31, and 40 reporting on an annual basis. Section 4.05. Presentations. An Authorized Representative of P&A will be available to present reports or attend presentations to the Client or the Client's governing body on asemi-annual basis, or as required by the Client. Section 4.06. Earnings and Losses from Investments. The Client and P&A agree that all funds in the Portfolio shall be invested only in Authorized Investments as designated by Client Investment Policy. All earnings and profits from the investment of funds in any Portfolio(s) shall be credited to and deposited in the Portfolio(s) unless designated by Client. All losses resulting from the investment of funds in any Portfolio(s) shall be charged to such Portfolio or Account. Section 4.07. Liabili P&A, or any P&A employee, shall not be held liable for any act or omission to act on behalf of herself, her agents, employees or other persons except for negligence or malfeasance, or violation of applicable law. Common law and the federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Client may have under common law or any federal securities laws. Section 4.08. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled through consultation and negotiation in good faith and a spirit of mutual cooperation. However, if those attempts fail, the parties agree that any misunderstandings or disputes arising from this Agreement shall be decided by arbitration which shall be conducted, upon request by either party, before three (3) arbitrators (unless both parties agree on one (1) arbitrator) designated by the American Arbitration Association (the "AAA"), in accordance with the terms of the Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the United States Arbitration Act (Title 9 of the United States Code), or if such Act is not applicable, any substantially equivalent state law. The parties further agree that the arbitrator(s) will decide which party must bear the expenses of the arbitration proceedings. Notwithstanding anything provided herein to the contrary, this section does not constitute a waiver of any right provided by the federal securities laws, including the right to choose the forum, whether by arbitration or adjudication, in which to seek resolution of the dispute. Section 4.09. Advisory Consultin4 Services. P&A agrees to provide advisory consulting services for the Client in all areas of cash management to include, at a minimum, examination and evaluation of the following treasury areas: - Investment policy review. To analyze the existing investment policy for application to the Client's needs and, if necessary, to formulate revisions for adoption. - Investment strategy review. To continuously evaluate investment strategies (written and operational) for feasibility and appropriateness. - Cash Flow Analysis. To provide cash flow analysis advice to develop a cash flow system for the Client to include ongoing forecasts and projections for investment purposes. - Internal procedures and processes. To evaluate internal treasury procedures for maximum benefit and efficiency to the Client and its Portfolio(s) including broker/dealer transactions, wire transfers, competitive bidding process, repurchase agreements documentation, and transaction audit trails. To review for adequate management oversight and prepare written procedures. - Delivery and Settlement Oversight. To coordinate investment settlements, delivery and availability of funds with County staff to assure safe transfer of funds and securities. - Financial counter-party evaluation. To provide ongoing credit review of Client's baking institutions and financial counter-parties. To obtain and maintain all statutorily required broker certifications. - GASB 3, 31, and 40 Compliance. To provide assistance on custodial procedures for GASB 3 compliance and reporting and accurate and timely annual GASB 31 reporting. - Market Research. To provide technical and fundamental market research on an ongoing basis. - Banking arrangement and structure. To determine the efficiency and effectiveness of the current banking structure and possible recommendations for improvement. To prepare and evaluate the bidding and awarding of banking services. 3 - Coordination with external client agencies. To improve communications with and efficiencies between the Client and any external service agencies (including broker/dealers) for policy compliance, maximum utility of funds and investment alternatives. To maintain all broker/dealers files for certification and compliance with Client and P&A requirements. - Exposure review. To determine if the Client has any audit, operational or policy exposures in the Treasury area. - Investment Reporting. To review all investment reporting for adequacy of information and presentation format for maximum benefit and understanding. To provide monthly and quarterly Portfolio(s) reporting. - Public Funds Investment Act Compliance. For Texas Clients, to evaluate the Client's Treasury operation and reporting for ongoing full compliance to the Texas Government Code 2256. - Public Funds Collateral Act Compliance. For Texas Clients, to evaluate the Treasury operation and reporting for full and ongoing compliance to the Texas Government Code 2257. - State Statutory Compliance. To evaluate, monitor and inform Client of statutory changes in the state which might impact the management of Client Portfolio(s) or reporting. ARTICLE V. Expenses and Reports Section 5.01. Fee and Expenses. The Client agrees to pay to P&A on a quarterly basis, in arrears, an amount sufficient to reimburse P&A for the cost of performing the duties contemplated under this Agreement in accordance with the Fee Schedule, attached hereto and made a part hereof as Exhibit B. P&A shall advise the Client from time to time, in writing of the amount of such costs. This itemized invoice shall set forth the services provided for the Portfolio(s) and the cost incurred. The invoice will be provided to the Client by the fifth (5) business day of the succeeding month. Payment on the charges shall be made within ten (10) business days after receipt of invoice. Section 5.03. Records. P&A shall keep a book of records in which complete and correct entries shall be made of all transactions relating to the holdings, balances and values in the Portfolio(s) in accordance with generally accepted accounting principles. Such records shall be available for inspection at all reasonable hours of the business day and under reasonable conditions by the Client. Section 5.04. Client Confidentiality. All records and information regarding the Client will be held as confidential by P&A. ARTICLE VI. Miscellaneous Section 6.01. Notices. Any notices, Letters of Instruction, requests or demands required or permitted to be given hereunder shall be given in writing and shall be deemed duly given when mailed by registered or certified mail, postage pre-paid, addressed or telefaxed as follows: To the Client: Jeannie Hargis County Auditor Kerr County 700 Main Street Kerrville, TX 78027 Telephone: 830-792-2237 Telefax: 830-792-2238 E-mail: jhargis@co.kerr.tx.us To P&A: Linda T. Patterson Patterson & Associates 301 Congress Avenue Suite 570 Austin, Texas 78701 Telephone: (512) 320-5042 Telefax: (512) 320-5041 E-mail: linda patterson.net Section 6.02. Severability. If any provision of this Agreement shall be held or deemed to be or in fact shall be illegal, inoperative, or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatsoever. Section 6.03. Limitation of Rights. With the exception of the rights herein expressly conferred, nothing in or to be implied from this Agreement is intended or shall be construed to give any person other than the parties hereto any legal or equitable right, remedy or claim under or in respect to this Agreement or any of the covenants, conditions and provisions herein contained; this Agreement and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and herein provided. The Client further agrees that P&A's responsibilities hereunder are limited to the management of the Portfolio(s) as herein described and the providing of reports and information herein required; P8cA shall not be liable for any losses from investments made and transfers made in accordance with the procedures set forth in this Agreement. Section 6.04. Execution of Counterparts. This Agreement may be simultaneously executed in several separate counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 6.05. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and is performable in Kerr County, Texas. Section 6.06. Captions. The captions or headings in this Agreement are for convenience only and in no way define, limit, or describe the scope or intent of any provisions, articles, or sections of this Agreement. Section 6.07. Amendment. The Client and P&A may supplement or amend this Agreement only if evidenced in a writing signed by both parties. Section 6.08. Termination. This Agreement may be terminated by either party hereto, with or without cause, by tendering ninety (90) days prior written notice in the manner set forth in Section 6.01 hereof. In addition, the Client may terminate this Agreement within five (5) business days of the date hereof, with or without cause and without penalty, by notifying P&A in the manner set forth in Section 6.01 hereof of its decision to terminate the Agreement. Section 6.09. Term. Unless terminated in accordance with Section 6.08 hereof, this Agreement shall be automatically renewed on each anniversary date hereof. Section 6.10. Assignment. This Agreement shall not be assignable by either party hereto, by operation of law or otherwise, without the prior written consent of the other party hereto. Any assignment in violation of this Section 6.10 shall result in the automatic termination of this Agreement. Section 6.11. Ownership Chan4e. P&A shall notify the Client in writing of any change in its partnership ownership within a reasonable time after such change. Section 6.12. SEC Document Disclosure. The Client, by execution of this document, acknowledges the receipt of P&A's most current ADV Part II disclosure document as required by the SEC. IN WITNESS WHEREOF the parties hereto have cause this Agreement to be executed in multiple counterparts as of the date first set forth above. ~~~ J~ ~ , 17 ~ Patterson Capital Management, L.P. dba 1. /~ PATTERSON & ASSOCIATES Client Name By: Patterson & Associates Inc. General Partner ,~B~i: ~' Name: ~c; L' da T. Patterson, President Attest: ~ Attest: ~"'"'~~~ Date: ~ -a `lam 0~ Date: g `~ 7- 07 EXHIBIT A CLIENT'S INVESTMENT POLICY Client Investment Policy is made part of this Investment Advisory Agreement in order to assure that all investment decisions conform to the policy and parameters established by the Client and its governing body. As the Policy changes with Council action the Client will provide the amended Policy to P&A and the most recent amended and adopted Policy will control the Client's investments. EXHIBIT B FEE SCHEDULE The investment advisory services described under the terms of this Agreement are being provided in accordance with the following fee schedule. Services are provided on a sliding scale based on book value of portfolio assets. $ 0 - 15 million 18 basis points (0.0018) $ 16 - 25 million 13 basis points (0.0013) $ 26 - 30 million 11 basis points (0.0011) $ 31- 40 million 9 basis points (0.0009) $ 41- 50 million 8 basis points (0.0008) Over $50 million 6 basis points (0.0006) Fees are calculated by P&A on services rendered in the preceding quarter and the invoice provided to the Client by the fifth (5th) business day of the succeeding month. Fees are due and payable within thirty (30) days after receipt of invoice. FORM ADV uniform Aenlication for Investment Adviser Registration art 11 -Page 1 - -- - - - ame of Investment Adviser: 'atterson Capital Management LP ddress: (Number and Street) (City) (State) (Zip Code) Area Code: Telephone Number: S01 Congress Avenue Suite 570, Austin TX 78701 ~~2) 320-5042 This part of Form ADV glues information about the investment adviser and its business for the use of clients. The information has not been approved or verified by any governmental authority. Table of Contents Item Number ~@ Pa>:e 1 Advisory Services and Fees ................................................................................. ........................................... 2 2 .......................................... Types of Clients .......................................................... .......... 2 ................................. 3 Types of Investments ............................................................................................ ........................................... 3 4 Methods of Analysis, Sources of Information and Investment Strategies .......... ........................................... 3 5 Education and Business Standards ....................................................................... ........................................... 4 6 Education and Business Background ................................................................... ........................................... 4 7 Other Business Activities ..................................................................................... ........................................... 4 8 Other Financial Industry Activities or Affiliations .............................................. ........................................... 4 9 Participation or Interest in Client Transactions ................................................... ........................................... 5 10 Conditions for Managing Accounts ..................................................................... ........................................... 5 11 Review of Accounts ............................................................................................. ........................................... 5 12 Investment or Brokerage Discretion ................................................................... ............................................ 6 13 Additional Compensation .................................................................................... ............................................ 6 14 Balance Sheet ...................................................................................................... ............................................ 6 Continuation Sheet .............................................................................................. ............................ Schedule F Balance Sheet, if required ................................................................................... ........................... Schedule G (Schedules A, B, C, D, and E are included with Part I of this Form, for the use of regulatory bodies, and are not distributed to clients.) Potential persons who are to respond to the collection of information contained in this fo~~es are not required to respond unless the form displays a currently valid OMB control number. FORM ADV Applicant: Part II -Page 2 Patterson Capital Management LP SEC File Number: I Date: sot-46437 1. A. Advisory Services and Fees. (check the applicable boxes) For each type of service provided, state the approximate of total advisory billings from that service. (See instruction below.) Applicant: 7~ ® (1) Provides investment supervisory services ................................................................................................................................... ® (2) Manages investment advisory accounts not involving investment supervisory services ......................................................... 20 ® (3) Furnishes investment advice through consultations not included in either service described above ....................................... ~ ~ ^ (4) Issues periodicals about securities by subscription ................................................................................................................... ^ (5) Issues special reports about securities not included in any service described above ................................................................ ^ (6) Issues, not as part of any service described above, any charts, graphs, formulas, or other devices which clients may use to evaluate securities ............................................................................................................................................................. ^ (7) On more than an occasional basis, furnishes advice to clicnts on matters not involving securities ........................................ ^ (8) Provides a timing service ............................................................................................................................................................. ^ (9) Fumishes advice about securities in any manner not described above ..................................................................................... (Percentages should be based on applicant's last fiscal year. If applicant has not completed its first fiscal yeaz, provide estimates of advisory billings for that year and state that the percentages are estimates.) Yes No B. Does applicant call any of the services it checked above financial planning or some similaz term? ................................................... ^ C. Applicant offers investment advisory services for: {check all that apply) ® (1) A percentage of assets under management ^ (4) Subscription fees ® (2) Hourly chazges ~ (5) Commissions ® (3) Fixed fees (not including subscription fees) ~ (6} Other D. For each checked box in A above, describe on Schedule F: • the services provided, including the name of any publication or report issued by the adviser on a subscription basis or for a fee • applicant's basic fee schedule, how fees are charged and whether its fees are negotiable • when compensation is payable, and if compensation is payable before service is provided, how a client may get a refund or may terminate an investment advisory contract before its expiration date 2. Types of clients -Applicant generally provides investment advice to: (check those that apply) ~ A. Individuals ^ E. Trusts, estates, or charitable organizations ^ B. Banks or thrift institutions ® F. Corporations or business entities other than those listed above ^ C. Investment companies ^ G. Other (describe on Schedule F) ^ D. Pension and profit sharing plans Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). FORM ADV Applicant: SEC File Number: Date: P n 11 Pa e 3 Patterson Capital Management LP gol_46437 a 3. Types of Investments. Applicant offers advice on the following: (check those that apply) A. Equity securities ~ H. United States government securities ^ (1) exchange-listed securities I. Options contracts on: ^ (2) securities traded over-the-counter ^ (3) foreign issuers ~jf (1) securities ^ (2) commodities ^ g y~r~an~ 7. Futures contracts on: ^ C. Corporate debt securities (other than commercial paper) ^ (1) tangibles ^ (Z) intangibles ~ D. Commercial paper ® E. Certificates of deposit K. Interests in partnerships investing in: ~ F. Municipal securities ^ (1) real estate ^ (2) oil and gas interests G. Investment company securities: ^ (3) other (explain on Schedule F) ^ (1) vaziable life insurance ^ (2} variable annuities ~ L. Other (explain on Schedule F) ® (3) mutual fund shazes 4. Methods of Analysis, Sources of Information, and Investment Strategies. A. Applicant's security analysis methods include: (check those that apply) (1) ~ Charting (4) ~ Cyclical (2) Qf Fundamental (5) [J Other (explain on Schedule F) (3) (~ Technical B. The main sources of information applicant uses include: (check those that apply) (1) ® Financial newspapers and magazines (5) ^ Timing services (2) ^ Inspections of corporate activities (6) Qf Annual reports, prospectuses, filings with the Securities and Exchange Commission (3) ~ Research materials prepazed by others (7) ~ Company press releases (4) ~ Corporate rating services (8) ^ Other (explain on Schedule F) C. The investment strategies used to implement any investment advice given to clients include: (check those that apply) (1) ® Long term purchases (5) ^ Margin transactions (securities held at least a year) (2) ® Short term purchases (6) ~ Option writing, including covered options, uncovered (securities sold within a year) options, or spreading strategies (3) ® Trading (securities sold within 30 days) (7) ^ Other (explain on Schedule F) (4) ^ Short sales Answer all items. Complete amended pages in full, circle amended items and file with execution page (page I). FORM ADV Applicant: SEC File Number: Date: Part tl -Page 4 Patterson Capital Management LP gol_46437 5. Education and Business Standards. Are there any general standazds of education or business experience that applicant requires of those involved in determining Yes No or giving investment advice to clients? ............................................................................................................................................................. ® ^ (If yes, describe these standazds on Schedule F.) 6. Education and Business Background. For: • each member of the investment committee or group that determines general investment advice to be given to clients, or • if the applicant has no investment committee or group, each individual who determines general investment advice given to clients (if more than five, respond only for their supervisors) • each principal executive officer of applicant or each person with similar status or perforating similar functions. On Schedule F, give the: • name • forma] education after high school • year of birth • business background for the preceding five years 7. Other Business Activities. (check those that apply) ^ A. Applicant is actively engaged in a business other than giving investment advice. ^ B. Applicant sells products or services other thaw investment advice to clients. ^ C. The principal business of applicant or its principal executive officers involves something other than providing investment advice. (For each checked box describe the other activities, including the time spent on them, on Schedule F.) 8. Other Financial Ltdustry Activities or' Affiliations. (check those that apply) ^ A. Applicant is registered (or has an application pending) as a securities broker-dealer. ^ B. Applicant is registered (or has an application pending) as a futures commission merchant, commodity pool operator or commodity trading adviser. C. Applicant has arrangements that are material to its advisory business or its clients with a related person who is a: ^ (1) broker-dealer ^ (7) accounting firm ^ (2) investment company ^ (8} law firm ^ (3) other investment adviser ^ (9} insurance company or agency ^ (4) financial planning firm ^ (10) pension consultant ^ (5) commodity pool operator, commodity trading ^ (11) real estate broker or dealer adviser or futures commission merchant ^ (6) banking or thrift institution ^ (12) entity that creates or packages limited partnerships {For each checked box in C, on Schedule F identify the related person aad describe the relationship and the arrangements.) Yes No D. Is applicant or a related person a general partner in any partnership in which clients are solicited to invest? .................................... ^ (If yes, describe on Schedule F the partaerships and what they invest in.) Answer all items. Complete amended pages in full, circle amended items and file with ezecution page (page 1). FORM ADV Applicant: SEC File Number: Date: Part fl Page 5 Patterson Capital Management LP $0l_46437 9. Participation or Interest in Client Transactions. Applicant or a related person: (check those that apply) ^ A. As principal, buys securities for itself from or sells securities it owns to any client. ^ B. As broker or agent effects securities transactions for compensation for any client. ^ C. As broker or agent for any person other than a client effects transactions in which client securities are sold to or bought from a brokerage customer. ^ D. Recommends to clients that they buy or sell securities or investment products in which the applicant or a related person has some financial interest. ® E. Buys or sells for itself securities that it also recommends to clients. (For each box checked, describe on Schedule F when the applicant or a related person engages in these transactions and what restrictions, internal procedures, or disclosures are used for conflicts of interest in those transactions.) 10. Conditions for Managing Accounts. Does the applicant provide investment supervisory services, manage investment advisory accouns or hold itself out as providing financial planning or some similarly termed services a»d impose a minimum dollar value of Yes No assets or other conditions for starting or maintaining an account? .................................................................................................................. ~ ^ (If yes, describe on Schedule F.) 11. Review of Accounts. If applicant provides investment supervisory services, manages investment advisory accounts, or holds itself out as providing financial planning or some similarly termed services: A. Describe below the reviews and reviewers of the accounts. For reviews ,include their frequency, different levels, and triggering factors. For reviewers, include the number ofreviewers, their titles and functions, instructions they receive from applicant on performing reviews, and number of accounts assigned each. ill managed accounts generally are reviewed weekly by a principal of or registered adviser within :he Registrant. The review includes, among other things, examing compliance with clients' nvestment policies, confirming clients' trades and reconciling trading records to the records of clients' custodians. B. Describe below the nature and frequency of regular reports to clients on their accounts. ,) A holdings report, which includes accrued interest, amortization and accreditation, ains/losses, and unrealized gains/losses. Except for those clients who request receipt of the oldings report on daily basis, clients are sent a holdings report on a monthly basis. Clients also ;ceive monthly transaction reports which detail all trades, transfers, additions or withdrawals. ~) Statement reports will be provided on a monthly and as needed basis. The statement report ummarizes holidings by market sector and includes all holdings and a description of each ecurity, its position and custodial status. :) Performance reports will be provided on a monthly, or as needed, basis. Performance and Market sector detail are provided along with yield, overall weighted maturity and book market alues. Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). FORM ADV Applicant: SEC File Number: Part II -Page 6 Patterson Capital Management LP gol_46437 12. Investment or Brokerage Discretion. A. Does applicant or any related person 6aue authority to determine, without obtaining speciftc client consent, the: (1) securities to be bought or sold? .......................................................................................................................... (2) amount of the securities to be bought or sold? ............... (3) broker or dealer to be used? ............................................. (4) commission rates paid? ........................................................................................................................ Date: Yes No Yes No Yes No Yes No ................... v~ n Yes No B. Does applicant or a related person suggest brokers to clients? ............................................................................................................... ® ^ For each yes answer to A describe on Schedule F any limitations on the authority. For each yes to A(3), A(4) or B, describe on Schedule F the factors considered in selecting brokers and determining the reasonableness of their commissions. If the value of products, reseazch and services given fo the applicant or a related person is a factor, describe: • the products, research and services • whether clients may pay commissions higher than those obtainable from other brokers in return for those products and services • whether research is used to service all of applicant's accounts or just those accounts paying for it; and • any procedures the applicant used during the last fiscal year to direct client transactions to a particular broker in return for products and research services received. 13. Additional Compensation. Does the applicant or a related person have any arrangements, oral or in writing, where it: A. is paid cash by or receives some economic benefit (including commissions, equipment or non-research services) Yes No from anon-client in connection with giving advice to clients? .............................................................................................................. ® ^ Yes No B. directly or indirectly compensates any person for client referrals? ........................................................................................................ ® ^ (For each yes, describe the arrangements on Schedule F.) 14. Balance Sheet. Applicant must provide a balance sheet for the most recent fiscal year on Schedule G if applicant: • has custody of client funds or securities; or • requires prepayment of more than $500 in fees per client and 6 or more months in advance Yes No Has applicant provided a Schedule G balance sheet? ............................................................................................................................. ^ Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). Schedule F of Applicant: SEC File Number: I Date: Form ADV Patterson Capital Mana ement LP Continuation Sheet for Form ADV Part II 9 sol_46437 (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: 742703915 Item of Foan (identify) Answer Item 1 Services and Fees Patterson Capital Management, L.P. ("Patterson" or the "Registrant") provides investment advisory and investment consulting services in short and intermediate range fixed income securities to institutional clients. The Registrant's clients include public funds (including cities, authorities, public cooperatives and school districts), banks and corporations. Patterson provides both discretionary and non-discretionary fund management services. These services are provided in accordance with clients' liquidity, safety needs and investment policies and objectives. Patterson also provides consulting services, which includes, among other things, the provision of advice on investment alternatives, banking and cash management. In addition, Patterson provides advice to clients on the creation of policies and procedures, internal controls reviews and advice related to the use of flex repurchase agreements by clients. A flex repo is a term arrangement between a registered dealer and a municipality or similar authority, in which the customer buys securities from the dealer and may seEl some of them back prior to the final maturity date of such securities. The funds invested in a flex repo often are intended for use in financing construction or similar projects to be completed in phases. When funds are needed for a given phase of a project, the customer sells the required amount of securities back to the dealer. Flex repos are usually collateralized by government issued or backed securities. Patterson generally will provide advice to a client and an intermediary broker/dealer who will execute the flex repo transaction. In this capacity, Patterson will, among other things, provide advice to the client and intermediary broker/dealer on the paperwork related to the flex repo, assist in the determination of acceptable parameters, recommend flex repo providers, provide advice in the preparation of a bid sheet and monitor underlying collateral. For these advisory services, Patterson generally will receive a fee from the client and intermediary broker/dealer that does not exceed 0.05% of the value of the flex repo. Patterson will never have custody of clients' securities or funds in flex repo arrangements. Complete amended pages in fall, circle amended items and file with execution page (page 1). Schedule F of Applicant: SEC File Number: Date: Form ADV p g soI-46437 Continuation Sheet for Form ADV Part II atterson Ca ital Mana event LP (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Item of Form (identify) Answer tem 1 (cont'd) Patterson's basic fee schedule for the provision of investment advisory services (discretionary) is as follows: Up to $5 million - 0.50% $5 -$10 million - 0.30% $10 -$20 million - 0.20% $20 -$30 million - 0.15% $30 -$50 million - 0.12 over $50 million -negotiable. Patterson's fees for serving as an investment sub-adviser to a registered investment company may vary, but generally will not exceed the fees noted in the above schedule. In addition, the basic fee schedule described above may vary due to the particular circumstances of the client or as negotiated with particular clients. Fees for discretionary management services are generally billed in arrears on either a monthly or quarterly basis. In the event a client terminates its contract with Patterson prior to the end of the monthly or quarterly billing period, the fee for that period will be prorated based on the number of days or months during the period in which Patterson performed services. At times, Patterson may also recommend that a client invest assets in a money market fund. If a client invests its assets into such a fund, the client may have to pay a fee to that fund in addition to Patterson's normal advisory fee. Certain clients are charged a fixed fee, or an hourly fee, which varies from client to client and is billed in arrears on a quarterly or monthly basis. All fees paid to Patterson for investment advisory services are separate and distinct from the fees and expenses charged by LGIP pools or mutual funds to their shareholders. These fees and expenses are described in each fund's information statement (pools) or prospectus (funds}. Clients could invest in a fund or pool directly without the services of Patterson. Due to the nature of services provided, Patterson will not vote proxies on behalf of clients. Complete amended pages in full, circle amended items and file with execution page (page 1). Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form ADV Part 11 atterson Capital Management LP sol_46437 (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) I. Full name of applicant exactly as stated in Item 1 A of Part I of Form ADV: IRS Empl. Ident. No.: Item of Form (identify) Answer tem 3L lex repos are but one of a variety of investment products that Patterson may ecommend that clients use for the reinvestment of bond proceeds. These products nclude structured portfolios of U.S. securities, a commingled pool or fund, bank eposit and State and Local Government Series securities. Each of these products ave benefits and negative aspects. Patterson fully discloses the benefits and egative aspects of each of these products to clients, so that clients can choose the nvestment product that most suits its needs and objectives. tem 4 atterson relies primarily, but not exclusively, on multiple unaffiliated, nationally ecognized securities rating organizations (NRSRO) such as Standard & Poor's and oody Investor Services for analysis of credit risk on corporate entities. tem 5 atterson requires all personnel who provide investment advice to have a bachelors egree from an accredited college or required licenses. tem 6 inda Thomson Patterson OB: March 2, 1949 duration: Thiel College European-American Study Center, Basel, Switzerland Florida Atlantic University; BA, MPA RWTH, Aachen {Fulbright Scholar) usiness Background: Patterson Capital Management, L.P., Director and President of Patterson's General Partner, CCO. Texas State Treasury, Deputy State Treasurer City of Fort Worth, City Treasurer and Assistant Finance Director City of Forth Lauderdale, Assistant to City Manager illiam MacArthur OB: February 2, 1944 duration: Bentley College, BS Finance and Accounting usiness Background: Patterson Capital Management, L.P. Wachovia Securities Financial Network oward N. Herring OB: October 10, 1950 duration: U.S. Marine Corps Training usiness Background: Tejas Securities, Austin, TX Wachovia Securities Financial Network Complete amended pages in full, circle amended items and file with execution page (page 1). Schedule F of Applicant: SEC File Number: Date: Form ADV p g sot.46437 Continuation Sheet for Form ADV Part !1 atterson Ca ital Mana ement LP (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full mime of applicant exactly as stated in Item IA of Part I of Form ADV: IRS Empl. Ident. No.: Item of Form (identify) Answer tem 9.E n rare occasions, Patterson or one of its related persons may purchase or sell the ame or a similar security for his/her personal account that is also purchased, or ecommended for purchase, for a client account. Patterson has adopted a Code of onduct that is designed to prevent and detect potential conflicts of interest, ncluding with respect to personal trading. A copy of the Code of Conduct is vailable upon request. tem 10 atterson generally requires a minimum account size of $1 million and will generally my provide services to institutional investors, including governmental entities. tem 12.A atterson provides both discretionary and non-discretionary management services o its clients. Where investment discretion has been granted, Patterson manages he client's portfolio and makes investment decisions without consultation with the lient that would involve determinations regarding which securities are bought and the broker/dealer with whom orders for the purchase or sale of securities are old , laced for execution and the price per share and the commission rates or mark-up n the securities transactions. In some instances, Patterson's discretionary authority n making these determinations may be limited by conditions imposed by clients in heir investmen# guidelines, cash flow needs, or objectives or instructions otherwise rovided to Patterson. n non-discretionary relationships, Patterson customarily makes investment ecommendations to the client relating to which securities should be bought or sold nd the total amount of such purchases and sales. nder Texas law, Patterson may not place a trade for certain Texas government lients with abroker/dealer, unless Patterson has received a certification from the roker/dealer that it has received and agrees to comply with that client's specific nvestment policy. Prior to placing a trade for these client accounts, Patterson btains at least three bids/offers from different broker/dealers who have provided the equisite certification and generally will place the trade with the broker/dealer that as provided the most competitive bid. If a client does not require that Patterson xecute trades through broker/dealers who have certified that they will comply with e client's stated investment policy, Patterson will only seek bids from a roker/dealer that has provided Patterson with the following documents: the roker/dealer's state registration, a completed questionnaire, NASD registration and nnual financial statements. Complete amended pages in full, circle amended items and ftle with execution page (page 1). Schedule F of Applicant: SEC File Number: ~ Date: Form ADV Continuation Sheet for Form ADV Part II atterson Capital Management LP 801.46437 (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Item of Form (identify) Answer tem 12.A (cont'd} t times, Patterson may place agency trades on behalf of its clients. In executing gency trades, it is Patterson's policy, consistent with investment considerations, to eek the most favorable price and execution for such orders. Most favorable xecution is a combination of rates and prompt, reliable execution. When selecting brokerage firm, Patterson considers the firm's execution capabilities, financial lability, ability to maintain confidentiality and ability to obtain best price and xecution. ' ransactions for each client account generally are completed independently. On ccasion, however, Patterson may purchase or sell the same securities for a number f client accounts in a block transaction to facilitate best execution or to reduce osts. Patterson effects block transactions in a manner such that each client articipates at the same price. Securities purchased or sold in a block transaction by atterson are allocated to clients based upon the amount of available funds in each ccount and the long-term liquidity requirements of each account. The broker-dealer hat executes the block transaction will directly deliver to the client the portion of the rade allocated to that client. tem 12.B atterson may recommend broker/dealers to a client. The recommendations are ased on the client's policy requirements and client needs as to market sector. ommissions are not applicable in fixed income and money market transactions. tem 13.A rom time to time, Patterson may receive a minimal fee from unrelated third parties or referrals of individuals or companies that are not clients of the Registrant. tem 13.B atterson may compensate unrelated third parties for client referrals in accordance ith Rule 206(4)-3 under the Investment Advisers Act of 1940. The compensation aid to such parties is generally based on a percentage of assets under anagement of a client that had been found by the party. Complete amended pages in full, circle amended items and file with execution page (page 1). EXHIBIT D AUTHORIZED REPRESENTATIVES Authorized Representatives of the Client Name/Title Phone Fax e-mail Authorized Representatives of P&A Name/Title Phone Linda T. Patterson President Rikki Ramirez Portfolio Assistant William MacArthur Adviser Howard Herring Adviser Fax a-mail 512-320-5042 512-320-5041 IindaCa~patterson.net 512-320-5042 512-320-5041 rikki@patterson.net 512-320-5042 512-320-5041 willCc~,patterson.net 512-320-5042 512-320-5041 howie _patterson.net 11