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6.A. - Page 3 of 49 PFM's strategy this report period was carried forward from the third quarter: maintain allocations in most sectors, match benchmark's duration, and carefully manage risk considering various headwinds caused by the uneven and decelerating recovery. The portfolio's duration (a way to measure the sensitivity of a security's price if the market were to change) was targeted to match the benchmark duration — a strategy consistent with the high levels of market uncertainty and the expectation that rates will remain low for a prolonged period. As yield spreads returned to near pre -pandemic levels in most sectors, new supply waned. This limited new investment opportunities in the fourth quarter. Limited new issuance of federal agency securities towards the end of the year slowed new purchases in this sector. The taxable municipal sector remained abuzz as issuers continued to benefit from record -low borrowing rates. Although yield spreads narrowed significantly since March 2020, new debt issued during the fourth quarter remained an attractive alternative to other government alternatives and even some high-quality corporate issuers. As a result, PFM continued to methodically increase the City's municipal allocations through participation in a number of new deals. Investment grade corporate securities outpaced the performance of most other sectors during the fourth quarter. Corporate securities proved to be a valuable asset class for both the quarter and for all of 2020, despite significant market disruptions early in the year. Investors' strong demand for yield pushed spreads even tighter during the fourth quarter, which ended the year near 20 -year lows. PFM's investment strategy outlook for 2021 includes the expectations that significant central bank intervention will continue and interest rates will remain low for the foreseeable future. The speed of vaccine rollouts will ultimately drive the pace of the anticipated "return to normalcy'. Considering the economic uncertainties that remain, PFM is planning to maintain the portfolio's neutral duration position relative to the benchmark. PFM's outlook for major investment-grade sectors includes the following: • Agencies: reduce holdings of shorter maturities where spreads may be narrower, with continued participation in attractive longer new issues • Agency Mortgage -Backed Securities: attractive investment opportunities may be limited, therefore, the portfolio's allocation in this sector will be maintained • Supranationals: remain on the lookout for opportunities to add income relative to Treasuries and agencies • Taxable Municipals: continue participation in new high-quality issues and increase the portfolio's allocation while the sector remains attractive • Corporates: these will remain a core, long-term holding that could be added to should spreads widen • Asset -Backed Securities: will likely seek opportunities to purchase new, attractively -yielding AAA - rated issues PFM will continue to be selective when evaluating new issues in all sectors. Interest rates are likely to stay ultra-low through the crisis, affecting the portfolio as investments mature and are reinvested in a lower interest rate environment. Even though the current maturity distribution Page 3 of 5 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 11