INVESTMENT PERFORMANCE REPORT

Transcription

1 Prince William County, Virginia INVESTMENT PERFORMANCE REPORT THIRD QUARTER -- FISCAL YEAR 2011 Quarter ended March 31, 2011 May 31, 2011 This Investment Performance Report was reviewed and accepted by the County s Investment Oversight Committee on May 31, 2011

2

3 TABLE OF CONTENTS Section Description Page I. INTRODUCTION 2 II. TOTAL INVESTMENT PORTFOLIO STRUCTURE 3 III. EXCEPTIONS TO INVESTMENT POLICY 3 IV. INVESTMENT PERFORMANCE 3 A. General Portfolio Composition 3 B. Average Invested Cash Balances 5 C. Investment Income 5 D. Comparative Investment Yields 6 E. Average Maturity of the Portfolio 8 F. Comparison of Market to Book Value 8 V. ECONOMIC AND INTEREST RATE OUTLOOK 10 VI. INVESTMENT STRATEGY 11 ATTACHMENTS: A. Portfolio Composition March 31, B. Investment Statistics 14 C. Investment Portfolio 15 1

4 I. INTRODUCTION This is the FY 2011 third quarter report of the County's investment management program. Prince William County's Principles of Sound Financial Management and the Investment Policy adopted by the Board of County Supervisors requires the County's investment program meet four criteria, shown here in order of their importance: Legality Safety Liquidity Yield "Investment instruments shall, at a minimum, be limited to security, issuers and maturities in compliance with the Code of Virginia (1950) as amended." "The next objective is the preservation of capital and the protection of investment principal. The County will employ mechanisms to control risks and diversify its investments regarding specific security types or individual financial institutions." "The investment portfolio will remain sufficiently liquid to enable the County to meet operating requirements which might be reasonably anticipated." "The County will maximize yield on the portfolio but will avoid unreasonable investment risk to preserve the purchasing power of the portfolio." In keeping with these principles, the Finance Department continued to invest the County's funds only in allowable, safe securities and to structure the maturity of the investment portfolio to assure liquidity. Short-term needs (six months or less) may be met by investments in overnight repurchase agreements, commercial paper, certificates of deposit and money market funds. Funds not required for specific short-term needs are invested primarily in Treasury Notes, U. S. Agency Securities, and Corporate Bonds. These purchases are made so investments will mature in the future to provide for expected cash flow needs. Throughout this report, investment income dollar amounts and percentages are presented on a total return basis, which includes the impact of adjusting investments to market value. Total return is made up of two primary components. The first is the earnings/yield income component that is the result of coupon interest rates, principal value invested and the time period of the investments being measured. That component of the total return is fairly stable and moves slowly as new investments are added to the portfolio or investments are removed from the portfolio as securities mature. The second component of total return is determined by the change in market value of the securities over the period being measured. This portion of the total return can be volatile given changes in the economic environment, Federal Reserve Board (FRB) rate policies, and significant geo-political events, but does not affect the cash flow of investments. The combination of both earnings yield and market value changes create the total return that is used in preparing this report. The accounting for investments at Fair Value on a total return basis is required by generally accepted accounting principles. The total return yields on investments for the third quarter of FY 2011, were as follows: FY 2011 FY 2010 General Portfolio % 4.26% Restricted Portfolio % 1.68% Total Investment Portfolio % 4.00% 2

5 The third quarter FY 2011 total return of 0.76% on the general portfolio investments reflects the continued decline in market prices during the third quarter. The market adjustments offset a large part of the portfolio s 2.541% earnings yield. The third quarter total return on the restricted portfolio was down 112 basis points from 1.68% in FY 2010 to 0.56% in FY The short-term nature of the restricted portfolio results in rapid adjustments to short-term rate movements and very little in the way of mark-to-market adjustments. The third quarter total return on the total portfolio fell 326 basis points from 4.00% to 0.74%. The changes in the total returns of all three components of the portfolio are driven by market adjustments due to higher interest rates in all but the short end of the yield curve. Given the state of the economy short term rates should remain relatively low over the next year. During the third quarter of FY 2011, the County s General Portfolio purchased $182.9 million in Treasury, Agency, Municipal, Corporate Bonds and CDs with an average yield to maturity of 2.17% and has maintained an average combined balance of $272.9 million in money market funds, repurchase agreements, cash and CDs. During the same period, the County had called or sold $108.2 million in agency, municipal and corporate securities with an average return to call/sale of 2.89%. Securities sold totaled $59.5 million. Gains on sales for the quarter totaled $1,733,117. II. TOTAL INVESTMENT PORTFOLIO STRUCTURE The County's total investment portfolio is divided into two components: (a) the general portfolio and (b) the restricted portfolio. The "general portfolio" is all funds with the exception of restricted capital project funds that contain bond proceeds, escrows and certain self-insurance funds. All general fund interest income is earned from securities in this general portfolio. The "restricted portfolio" is all other funds; mostly capital project funds that contain not-yet-spent bond proceeds, bond reserve and escrow funds, and the funds of the County's self-insurance pools. The term "total investment portfolio" refers to the sum of these two components. III. EXCEPTIONS TO INVESTMENT POLICY In accordance with Section of the Investment Policy, specific exceptions to the policy investment guidelines are to be included as part of this report. There were no exceptions to the Investment Policy during the reporting period. IV. INVESTMENT PERFORMANCE A. Summary of General Portfolio Composition during the Third Quarter of FY Investments held by the County are diversified to control the risk of loss resulting from over-concentration of assets in a specific security or class of securities. The portfolio composition chart shows the percentage of the general portfolio assets at market value by investment type. The next table reflects the investment guidelines for each type of security. Securities held in the restricted portfolio are subject to trust agreements and 3

6 other investment limitations that control the risk of loss and, therefore, are not included within this chart. 3rd Quarter Average Portfolio Composition 9.3% 6.8% 4.8% 59.3% 14.9% 4.9% U.S. Gvt. & Agency CDs Money Mark et Repo/NOW/Cash Corporate Bonds Va. Municipal Securities Balance at 03/31/11 Investment Guidelines Actual Investment Category Lower Upper U.S. Govt; Agency & Cash 33.00% 100.0% 75.10% Va. Municipal Securities % 4.40% Corporate Bonds 0.0% 20.0% 7.30% Bankers Acceptance 0.0% 40.0% 0.00% Certificates of Deposit 0.0% 40.0% 3.37% Commercial Paper 0.0% 35.0% 0.00% Money Market Funds 0.0% 60.0% 9.83% Total % 4

7 B. Average Invested Cash Balances The average invested cash balance of the general portfolio, during the third quarter of FY 2011, increased by approximately $57.4 million to $940.1 million in comparison to the average balance over the same period one year ago. AVERAGE INVESTED CASH BALANCES Unamortized Book Value in Millions of Dollars General Portfolio FY2011/Q3 FY2010/Q3 Change FY2011/YTD FY2010/YTD Change Low $907.3 $845.5 $61.8 $812.9 $780.4 $32.5 High Average Total Portfolio FY2011/Q3 FY2010/Q3 Change FY2011/YTD FY2010/YTD Change Low $1,006.1 $942.6 $63.5 $949.6 $925.5 $24.1 High 1, , , , Average 1, , The average balance of the total portfolio increased approximately $63.8 million to $1,046.6 million in the third quarter of FY 2011 compared to the average balance over the same period one year ago. C. Investment Income The total return investment income on the total portfolio decreased to $2.45 million year-to-date for the third quarter of FY 2011 compared to $21.36 million for the same period last year. This represents an 88.5% decrease in total return investment income. The decrease is attributable to negative mark-to-market adjustments of $8.9 million in the general portfolio. The general portfolio itself saw similar declines down 89.4% to $2.16 million while the restricted portfolio s income was off by 68.1% due primarily to mark-to-market adjustments in the two insurance pools. INVESTMENT INCOME /TOTAL RETURN Millions of Dollars FY2011/YTD FY2010/YTD Change General Portfolio $ 2.16 $ % Restricted Portfolio % Total Portfolio $ 2.45 $ % 5

8 D. Comparative Total Return For the first three quarters of FY 2011, Prince William County's total return on investment for the general portfolio was 0.327%. This represents a 286 basis point decrease over the same period in FY The average rate of return on the Institutional Money Market Fund Average and the 90-day T-Bill for the second quarter were.05% and.14% respectively. These two indices are often used as a basis of COMPARATIVE INVESTMENT YIELDS General Portfolio FYTD FY2011/YTD FY2010/YTD BP Change Prince William County Total Return Earnings 0.327% 3.186% -286 Earnings Yield 2.541% 2.769% -23 Institutional MM Fund Avg % 0.060% -1 Bloomberg 1-3 Yr. Govt. Index 0.682% 2.717% -204 Virginia LGIP 0.230% 0.320% Day T-Bills 0.140% 0.110% 3 1 Year T-Bills 0.267% 0.391% Year T-Notes 0.572% 0.947% -38 comparison for short-term investment performance. The general portfolio performance was adversely affected by continued low short-term interest rates and adverse market adjustments compared to June 30, The chart below shows the last sixteen quarters of the County s short-term security performance in the general portfolio compared with the Institutional Money Fund Average. The County Money Market funds PWC MM Accounts vs MM Benchmark 6.000% continue to outperform the Spread +44bp 5.000% Institutional Money Fund 4.000% Average largely on the County s ability to overweight investments into the best performing funds and to utilize Bank CDs that often carry superior yields % 2.000% 1.000% 0.000% Jun-07 FY TOTAL Sep-07 Dec-07 Mar-08 PWC MM Earnings Yield Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Institutional Money Fund Avg. 6

9 The County s Non-MM investments, on an earnings yield basis, are currently outperforming the Bloomberg 1-3 Year Treasury Index 1. For the quarter ended March 31, 2011 the favorable spread was 159 basis points. A steep yield curve and continued low short term rates served to advantage the County vs. the index and gains on sales in excess of $1.7 million during the quarter also contributed to the spread % 6.500% 5.500% 4.500% 3.500% 2.500% 1.500% Jun- 07 Sep- 07 PWC Non MM vs Bloomberg Benchmark Earnings Yield (3.385% vs 1.795%) Dec- 07 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Mar- 09 Jun- 09 Spread + 159bp Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep- 10 Dec- 10 Mar- 11 PWC NonMM Earnings Yield Bloomberg 1-3 Yr. Earnings Yield The County s Non-MM total return for the third quarter was 0.924% as a result of a bond market sell-off that resulted in mark-to-market losses for the quarter. The County s longer maturity structure contributed to the performance disparity as measured against the benchmark. Total Return PWC Non MM (.924%) vs Bloomberg Benchmark % % 9.000% 6.500% 4.000% 1.500% % % % Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Spread 71.6bp Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 PWC NonMM Total Return Bloomberg 1-3 Yr. Total Return 1 Beginning in quarter ended December 31, 2010, Treasury Management has substituted the Bloomberg 1-3 year U.S. Government Bond Index for the Lehman 1-3 year index which is now a proprietary product of Barclays Capital. Benchmark data points prior to 12/31/2010 are from the Lehman index. 7

10 6.000% PWC General Portfolio Earnings Yield vs Benchmarks' Earnings Yields 5.000% 4.000% 3.000% 2.000% 1.000% 0.000% Jun- 07 Sep- 07 Dec- 07 Mar- 08 Jun- 08 Sep- 08 Dec- 08 PWC - Earnings Yield Institutional Money Fund Avg. Mar- 09 Jun- 09 Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep % 1.79% 0.05% Dec- 10 Mar- 11 Bloomberg 1-3 Yr. Earnings Yield Earnings yield for the quarter of 2.51% exceeded the Money Fund benchmark by 246 basis points and was 72 basis points ahead of the Bloomberg benchmark. E. Average Maturity of the Portfolio - The average days to maturity of the total portfolio were 1,000 days and 1,364 days as of March 31, 2011, and March 31, 2010 respectively. The average number of days to maturity of the general portfolio was 1,090 days as of March 31, 2011 and 1,484 days as of March 31, The days to maturity for the general portfolio and total portfolio decreased during the quarter as a result of the selling or call of bonds with longer maturities. The general portfolio has average days to maturity of 261 days on a callable life basis and the total portfolio has average days to maturity of 238 days on a callable life basis. F. Comparison of Market Value to Amortized Cost of the Total Investment Portfolio The market value of the total investment portfolio on March 31, 2011, was $972,866,718. The amortized cost of $983,345,321 is less than the market value by $10,478,603 or 1.07%. The difference represents a mark-to-market loss, all of which is in the government agency and municipal bond segment of the portfolio. Mark-to-market gains on corporate bonds totaled approximately $379 thousand. The chart of the recent movement in the 10-year Treasury Note shows the whipsaw price action during the quarter with prices ending the quarter lower. Price movement since that time has been in a steady uptrend. The relative change in the market value of the portfolio, in directional terms, closely tracks the movement of the 10-year Treasury. The next chart illustrates the draw down of portfolio s liquidity as we approach the June payment of real estate taxes. The necessity to hold large amounts of liquidity declines as the tax payment date nears when liquidity can be restored to peak levels. 8

11 Liquidity Draw Down Millions Jan Feb Mar Apr May CDs Cash Money Funds LGIP 9

12 V. ECONOMIC AND INTEREST RATE OUTLOOK The Federal Reserve Board (Fed) continues to hold interest rates low and took no action in its latest meeting held April 26, The Fed press release of that date states in part: Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The bold text in the above statement refers to the Fed s Quantitative Easing intervention. The Fed first embarked on this strategy (commonly referred to as QE-1) in the beginning in the spring of 2009 and ending in April of We are currently in the second round of quantitative easing (QE-2) scheduled to end by June 30, These interventions, as noted in the prior report, appear to have profound impacts on both the equity and bond markets. We are expecting interest rates to trend flat to lower over the short term upon the end of QE-2. That trend may start sooner since the market has the hindsight benefit of QE-1. The economy, however, has clearly not yet demonstrated the level of strength necessary to justify higher interest rates, and recent spikes in commodity prices, though now ameliorating somewhat, does nothing to aid the speed of the recovery. First quarter GDP came in up 1.8%, down from the 3.1% increase in the fourth quarter. With GDP numbers of 3.7%, 1.7%, and 2.6% in the first, second and third quarters, respectively, there are few signs of economic strength sufficient to rapidly correct the high level of unemployment currently at 9.0%. That being said, the GDP numbers, while 10

13 not robust, are still indicative of a recovery in process, but one that will feature an ailing labor market for several years. Nationally, housing prices continue to decline. In the last Case/Shiller report, Washington, D.C. was the only metropolitan area reporting year-over-year housing price increases (2.7%). The housing market will likely continue to be a problem over the near term. To be clear, the local housing market dynamics, supported by a relatively healthy job market, look much better than the nation s, but in the context of the global investment environment it is the national market that matters. The national political drama over the deficit, the debt ceiling, and the budget continues with neither party willing to take the firm stand required to resolve the problems. As we begin the preliminaries of the next election cycle, rising rhetoric and declining legislative accomplishments should, once again, define that landscape. Globally, European sovereign debt problems and Middle East turmoil will drive day to day market reactions over the near term. Greek 2-year paper is trading north of 13%, and there are increasing concerns over whether buyers can be found for that country s debt, particularly if the EU block is unwilling to buy it themselves. With Ireland, Portugal, and perhaps Spain waiting in the wings of the stage of this Greek tragedy, it is unlikely that a happy ending will result. This may have short-term positive effects on the U.S. Dollar, in spite of the problems domestically. The Middle East, of course, can erupt, without notice, into a major crisis at any time, with the potential to disrupt world oil supplies and distort energy pricing. VI. INVESTMENT STRATEGY The County's current investment strategy properly addresses the requirements of legality, safety and liquidity by investing in a diversified portfolio with respect to specific security types, financial institutions and sufficient liquidity to meet reasonably anticipated operating requirements. The County seeks to match its cash flow needs to the maturity structure of the portfolio in order to maximize yield. The current investment strategy attempts to: (1) avoid the premature sale of investments to meet day-to-day operating requirements; (2) avoid holding large sums of cash that earn lower-than-average money market rates in favor of investing in longer-term securities when interest rates are higher; and (3) maintain higher balances in money market funds and short-term investments when longer-term interest rates are not favorable. We are within two weeks of the beginning of the inflow of June real estate tax receipts. Those receipts will be largely placed in shorter term securities as well as being used to rebuild the liquidity we have spent down in anticipation of the tax revenue. We expect 11

14 the market to continue to be unsettled and volatile given the international unrest and the coming end to QE-2. The County s portfolio currently contains no direct investments in commercial paper, asset-backed commercial paper, or mortgage backed securities. Attachment A Portfolio Composition 12

15 13

16 Investment Statistics FY 2008 through FY 2011 Fiscal Year 2008 Fiscal Year 2009 Fiscal Year 2010 Fiscal Year 2011 Pro-Rated Q1 Q2 Q3 Q4 YTD Change Statistics Amount Change Amount Change Amount Change Amount Amount Amount Amount Amount Amount Earnings (millions) - Total Portfolio $51.1 $2.7 $35.9 ($15.2) $29.8 ($6.1) $7.3 ($6.8) $1.9 $2.4 ($19.9) Earnings (millions) - General Portfolio $41.5 $5.8 $32.7 ($8.8) $28.8 ($3.9) $7.2 ($6.8) $1.8 $2.2 ($19.4) Earnings (millions) - General Fund $24.2 $3.1 $18.6 ($5.6) $11.5 ($7.1) $4.1 ($3.8) $1.0 $1.2 ($7.4) General Fund Participation as a Percent of Total Portfolio Earnings 47.3% 3.7% 51.8% 4.5% 38.7% -13.1% 55.5% 56.4% 52.6% 56.0% 17.2% General Fund Participation as a Percent of General Portfolio Earnings 57.7% -1.4% 56.6% -1.1% 55.9% -0.7% 56.7% 56.4% 56.4% 56.6% 0.7% Average Portfolio Composition (millions) Government Securities $439.1 $86.1 $484.4 $45.3 $468.5 ($15.9) $440.9 $443.8 $578.0 $487.6 $19.1 Corporate Bonds $0.0 $0.0 $36.5 $36.5 $52.3 $15.8 $59.8 $60.2 $63.7 $61.2 $8.9 Commercial Paper $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Certificates of Deposit $15.0 $15.0 $68.4 $53.4 $87.2 $18.8 $42.9 $52.0 $46.0 $47.0 ($40.2) Money Market $454.7 ($35.0) $313.6 ($141.1) $273.6 ($40.0) $353.9 $324.8 $222.0 $300.2 $26.6 Repurchase Agreements $64.1 ($6.6) $42.1 ($22.0) $63.0 $20.9 $87.1 $107.1 $91.1 $95.1 $32.1 Municipal Obligations $0.0 $0.0 $11.1 $11.1 $13.3 $2.2 $20.2 $37.2 $45.2 $34.2 $20.9 Average Cash Invested - Total Portfolio $972.9 $59.5 $956.1 ($16.8) $957.9 $1.8 $1,004.8 $1,025.1 $1,046.0 $1,025.3 $67.4 Portfolio Range (millions) High $1,087.4 $265.7 $1,066.6 ($20.8) $1,085.2 $18.6 $1,021.9 $1,119.1 $1,088.3 $1,119.1 $33.9 Low $870.8 $95.8 $858.1 ($12.7) $924.9 $66.8 $986.0 $949.6 $1,006.1 $949.6 $24.7 Comparative Investment Yields PWC Total Return (General Portfolio) 5.4% 0.1% 4.0% -1.4% 3.4% -0.6% 3.32% -3.02% 0.94% 0.41% -3.00% PWC Earnings Yield (General Portfolio) 5.0% -0.2% 4.1% -0.9% 2.7% -1.4% 2.13% 2.95% 2.51% 2.53% -0.16% Institutionsl Money Funds 3.6% -1.3% 0.9% -2.7% 0.1% -0.8% 0.07% 0.06% 0.05% 0.06% 0.00% Bloomberg 1-3yr Gvt Index 7.1% 2.0% 4.8% -2.3% 3.1% -1.7% 2.52% -0.68% 0.21% 0.68% -2.43% U.S. Tresury Bills (90-Day) 2.9% -2.1% 0.6% -2.3% 0.1% -0.5% 0.15% 0.15% 0.14% 0.15% 0.03% U.S. Treasury Notes (2 Year) 3.1% -1.7% 1.4% -1.7% 0.9% -0.5% 0.54% 0.50% 0.57% 0.54% -0.39% 14

17 General Investment Portfolio Prince William County Effective Interest - Callable Life Receipts in Period 01/01/11-03/31/11 Run Date: 05/30/11 Run Time: 11:37:43 Page 1 of 5 Security Invest Purchase Maturity Call Ending Original Yield Yield Description Number Date Date Date Par Val/Shares Unit Cost Call Matur Agency Note FFCB /15/ /06/10 04/15/13 04/05/11 1,800, FHLB /25/ /02/11 04/25/13 03/08/11 5,000, FHLB /17/ /06/09 06/17/13 06/17/11 2,000, FHLMC /28/ /29/10 06/28/13 06/28/11 5,000, FHLMC /25/ /17/11 07/25/13 07/25/11 10,000, FHLMC /22/ /22/11 08/22/13 08/22/11 5,000, FHLMC /23/ /23/10 08/23/13 02/23/11 8,000, FNMA /17/ /17/10 09/17/13 03/17/11 4,000, FNMA /30/ /22/10 09/30/13 03/30/11 5,000, FHLMC /30/ /04/11 09/30/13 03/30/11 5,000, FHLMC /25/ /19/10 10/25/13 01/25/11 3,000, FNMA /28/ /09/10 10/28/13 04/28/11 10,000, FNMA /08/ /30/10 11/08/13 11/08/11 5,000, FHLMC /15/ /15/10 11/15/13 02/15/11 5,000, FNMA /15/ /18/10 11/15/13 11/15/11 3,000, FHLB /22/ /22/10 11/22/13 02/22/11 3,200, FHLB /22/ /22/11 11/22/13 02/22/11 3,800, FHLMC /16/ /16/10 12/16/13 03/16/11 4,000, FHLB /17/ /17/10 12/17/13 03/17/11 5,000, FNMA /23/ /23/10 12/23/13 06/23/11 5,000, FNMA /23/ /23/10 12/23/13 06/23/11 5,000, FNMA /30/ /30/10 12/30/13 06/30/11 8,000, FNMA /30/ /30/10 12/30/13 06/30/11 5,000, FNMA /13/ /21/11 01/13/14 01/13/12 3,000, FHLMC /15/ /14/11 01/15/14 04/15/11 10,000, FNMA /24/ /24/11 01/24/14 01/24/12 3,000, FHLMC /28/ /28/11 01/28/14 04/28/11 7,215, FHLMC /28/ /28/11 01/28/14 04/28/11 3,000, FHLMC /28/ /28/11 01/28/14 04/28/11 3,000, FHLMC /03/ /03/11 02/03/14 08/03/11 9,000, FNMA /10/ /10/11 02/10/14 08/10/11 15,000, FFCB /11/ /11/11 02/11/14 05/11/11 3,000, FFCB /11/ /11/11 02/11/14 05/11/11 4,000, FNMA /24/ /24/11 02/24/14 02/24/12 8,000, FHLB /24/ /07/11 02/24/14 03/11/11 10,000, FNMA /25/ /25/11 02/25/14 08/25/11 4,000, FNMA /25/ /25/11 02/25/14 08/25/11 4,000, FHLB /25/ /25/11 02/25/14 05/25/11 4,000, FHLB /03/ /29/11 03/03/14 04/04/11 3,000, FHLMC /07/ /07/11 03/07/14 09/07/11 4,000, FHLMC /07/ /07/11 03/07/14 09/07/11 4,000, FHLMC /21/ /21/11 03/21/14 09/21/11 3,000, FHLMC /28/ /28/11 03/28/14 06/28/11 3,000, FHLMC /28/ /28/11 03/28/14 06/28/11 3,000, FNMA /13/ /13/10 05/13/15 05/13/11 2,000, FHLMC /15/ /10/10 06/15/15 06/15/11 2,000,

18 General Investment Portfolio Prince William County Effective Interest - Callable Life Receipts in Period 01/01/11-03/31/11 Run Date: 05/30/11 Run Time: 11:37:43 Page 2 of 5 Security Invest Purchase Maturity Call Ending Original Yield Yield Description Number Date Date Date Par Val/Shares Unit Cost Call Matur FNMA /04/ /04/10 08/04/15 02/04/11 3,000, FHLMC /12/ /16/10 08/12/15 08/12/11 3,000, FNMA /24/ /13/11 08/24/15 08/24/11 2,000, FNMA /12/ /29/10 11/12/15 05/12/11 3,000, FFCB /24/ /30/10 11/24/15 11/24/10 3,500, FNMA /16/ /16/10 12/16/15 06/16/11 2,000, FHLB /09/ /09/11 02/09/16 05/09/11 15,000, FNMA /10/ /10/10 03/10/16 03/10/11 2,000, FNMA /27/ /27/10 07/27/16 01/27/11 5,000, FNMA /27/ /27/10 07/27/16 07/27/11 3,000, FFCB /13/ /27/10 10/13/16 10/13/11 5,000, FNMA /28/ /23/10 10/28/16 07/28/11 3,500, FNMA /28/ /28/10 10/28/16 07/28/11 3,000, FNMA /28/ /28/10 10/28/16 07/28/11 3,000, FNMA /10/ /29/10 11/10/16 05/10/11 4,000, FNMA /25/ /25/10 11/25/16 02/25/11 3,500, FHLB /15/ /23/08 12/15/16 12/15/11 1,000, FFCB /18/ /09/10 05/18/17 05/18/11 5,000, FHLB /09/ /15/10 06/09/17 06/09/11 3,985, FHLMC /16/ /16/10 08/16/17 08/16/11 3,000, FFCB /27/ /07/10 09/27/17 12/27/10 10,000, FFCB /20/ /20/10 10/20/17 10/20/11 7,000, FHLMC /25/ /27/10 10/25/17 04/25/11 3,100, FFCB /15/ /15/10 11/15/17 11/15/11 5,000, FFCB /01/ /02/10 12/01/17 03/01/11 4,000, FFCB /01/ /09/10 12/01/17 12/01/11 4,000, FHLMC /14/ /14/10 12/14/17 06/14/11 4,000, FHLB /26/ /26/11 01/26/18 04/26/11 3,000, FFCB /07/ /07/10 06/07/18 12/07/10 3,000, FNMA /20/ /20/10 07/20/18 01/20/11 3,000, FHLB /25/ /13/09 07/25/18 07/25/11 1,750, FHLB /26/ /26/10 07/26/18 07/26/11 3,000, FHLMC /27/ /27/10 07/27/18 07/27/11 10,000, FHLB /27/ /27/10 07/27/18 07/27/11 3,000, FNMA /27/ /27/10 07/27/18 01/27/11 3,000, FNMA /24/ /24/10 08/24/18 08/24/11 3,000, FHLB /26/ /26/10 10/26/18 07/26/11 4,000, FHLB /23/ /23/10 11/23/18 02/23/11 4,000, FHLB /26/ /26/10 11/26/18 08/26/11 3,000, FFCB /29/ /29/10 11/29/18 11/29/11 4,000, FHLB /21/ /21/10 12/21/18 12/21/10 3,000, FNMA /28/ /28/10 12/28/18 12/28/10 3,000, FHLMC /21/ /21/10 03/21/19 09/21/11 6,000, FNMA /25/ /25/10 11/25/19 02/25/11 3,000, FNMA /28/ /28/10 04/28/20 10/28/11 2,000, FFCB /29/ /26/10 04/29/20 04/29/11 4,645, FHLB /26/ /08/10 05/26/20 05/26/11 4,435,

19 General Investment Portfolio Prince William County Effective Interest - Callable Life Receipts in Period 01/01/11-03/31/11 Run Date: 05/30/11 Run Time: 11:37:43 Page 3 of 5 Security Invest Purchase Maturity Call Ending Original Yield Yield Description Number Date Date Date Par Val/Shares Unit Cost Call Matur FNMA /23/ /23/10 06/23/20 12/23/10 4,000, FNMA /29/ /29/10 06/29/20 12/29/10 3,000, FHLMC /30/ /10/10 06/30/20 06/30/11 2,000, FHLMC /30/ /30/10 06/30/20 06/30/11 5,000, FHLMC /30/ /30/10 06/30/20 06/30/11 3,000, FHLMC /14/ /14/10 07/14/20 07/14/11 8,000, FNMA /20/ /09/10 07/20/20 07/20/12 3,000, FFCB /21/ /08/10 07/21/20 01/21/11 2,000, FNMA /27/ /29/10 07/27/20 07/27/12 5,000, FHLB /29/ /29/10 07/29/20 07/29/11 2,750, FNMA /03/ /03/10 08/03/20 08/03/11 2,000, FHLMC /18/ /23/10 08/18/20 02/18/11 4,000, FHLB /26/ /26/10 08/26/20 08/26/11 3,000, FHLB /26/ /26/10 08/26/20 08/26/11 3,000, FNMA /09/ /08/10 09/09/20 06/09/11 1,605, FHLMC /14/ /14/10 09/14/20 09/14/11 2,000, FHLMC /14/ /14/10 09/14/20 09/14/11 8,000, FHLB Float /23/ /23/10 09/23/20 12/23/10 5,000, FHLB /23/ /23/10 09/23/20 09/23/11 10,000, FNMA /28/ /28/10 09/28/20 09/28/12 7,000, FNMA /29/ /29/10 09/29/20 03/29/11 7,000, FHLB /08/ /29/10 10/08/20 10/08/15 710, FHLB /13/ /19/10 10/13/20 10/13/11 5,000, FHLB /28/ /28/10 10/28/20 04/28/11 3,000, FNMA /28/ /28/10 10/28/20 04/28/11 4,000, FNMA /28/ /28/10 10/28/20 04/28/11 7,000, FHLB /28/ /16/10 10/28/20 04/28/11 2,000, FHLB /29/ /29/10 10/29/20 04/29/11 4,000, FHLB /29/ /01/10 10/29/20 04/29/11 2,460, FHLB /09/ /12/11 11/09/20 05/19/13 2,000, FNMA /12/ /12/10 11/12/20 05/12/11 4,000, FHLB /24/ /24/10 11/24/20 05/24/11 5,000, FHLB /24/ /24/10 11/24/20 05/24/11 5,000, FHLMC /29/ /08/10 11/29/20 05/29/11 5,000, FHLMC /29/ /29/10 11/29/20 05/29/11 5,000, FHLB /30/ /30/10 11/30/20 11/30/11 4,000, FFCB /03/ /03/10 12/03/20 12/03/12 4,000, FNMA /09/ /09/10 12/09/20 06/09/11 5,000, FNMA /15/ /15/10 12/15/20 06/15/11 10,000, FHLMC /30/ /30/10 12/30/20 06/30/11 7,000, FHLMC /30/ /30/10 12/30/20 06/30/11 3,000, FNMA /07/ /07/11 01/07/21 07/07/11 5,000, FNMA /28/ /28/11 01/28/21 07/28/11 3,000, Agency Note Total 602,955, Cash Cash AR /01/97 Open Open 5,986, Cash AR /21/07 Open Open 20,398,

20 General Investment Portfolio Prince William County Effective Interest - Callable Life Receipts in Period 01/01/11-03/31/11 Run Date: 05/30/11 Run Time: 11:37:43 Page 4 of 5 Security Invest Purchase Maturity Call Ending Original Yield Yield Description Number Date Date Date Par Val/Shares Unit Cost Call Matur Cash AR /01/08 Open Open Cash AR /08/09 Open Open 39,714, Cash Total 66,100, Certificate of Deposit Access Nat'l Bank CDARS /14/ /15/10 04/14/11 Open 5,000, SunTrust CD /03/ /04/10 06/03/11 Open 10,000, Access Nat'l Bank CDAR /20/ /21/10 10/20/11 Open 15,000, Certificate of Deposit Total 30,000, Corporate Bond GE Cap Corp /22/ /30/09 08/22/11 01/22/10 1,000, Arden Realty (GE Cap) /01/ /09/09 09/01/11 Open 2,046, USAA Cap Corp /17/ /30/09 10/17/11 Open 2,500, GE Cap Corp /15/ /19/09 11/15/11 05/15/10 3,000, BNP Paribas Float /08/ /31/11 04/08/13 Open 3,000, New York Life /09/ /02/10 05/09/13 Open 3,732, Royal Bank of Canada /29/ /19/10 07/29/13 Open 3,000, CME Group /01/ /03/10 08/01/13 Open 2,000, HSBC Bank PLC /12/ /26/10 08/12/13 Open 2,000, GE Cap Corp Float /23/ /23/10 09/23/13 Open 2,000, GE Cap Corp Float /20/ /13/10 12/20/13 Open 4,850, GE Cap Corp /07/ /10/11 01/07/14 Open 2,000, GE Cap Corp /07/ /18/11 01/07/14 Open 2,000, Shell International Finance /21/ /23/09 03/21/14 Open 850, GE Cap Corp Float /20/ /05/10 06/20/14 Open 2,000, GE Cap Corp Float /15/ /13/10 09/15/14 Open 5,000, BNP Paribas /11/ /09/10 03/11/15 Open 1,000, HSBC Bank PLC /28/ /07/10 06/28/15 Open 3,000, GE Cap Corp Float /09/ /09/10 07/09/15 Open 2,000, GE Cap Corp /15/ /02/11 09/15/15 Open 2,000, GE Cap Corp Float /30/ /08/10 09/30/15 Open 4,000, GE Cap Corp Float /06/ /12/10 10/06/15 Open 5,000, GE Cap Corp /09/ /17/10 11/09/15 Open 2,000, Bank of NY Mellon /15/ /18/11 01/15/16 Open 4,825, Corporate Bond Total 64,803, Municipal Bond VA HSG AUTH /01/ /17/10 05/01/11 Open 2,300, VA HSG AUTH /01/ /17/10 05/01/11 Open 2,090, VA HSG AUTH /01/ /26/09 03/01/12 Open 200, VA HSG AUTH /01/ /26/09 03/01/14 Open 340, Chesterfield County EDA /01/ /14/10 01/01/15 Open 420, VA HSG AUTH /01/ /26/09 03/01/15 Open 275, Chesterfield County EDA /01/ /14/10 01/01/16 Open 420, VA College Bld BABS /01/ /27/10 02/01/16 Open 465, VA HSG AUTH /01/ /16/08 01/01/17 Open 1,925, Chesterfield County EDA /01/ /14/10 01/01/17 Open 420, VA College Bld BABS /01/ /15/10 02/01/17 Open 975, Chesterfield County EDA /01/ /14/10 01/01/18 Open 220,

21 General Investment Portfolio Prince William County Effective Interest - Callable Life Receipts in Period 01/01/11-03/31/11 Run Date: 05/30/11 Run Time: 11:37:43 Page 5 of 5 Security Invest Purchase Maturity Call Ending Original Yield Yield Description Number Date Date Date Par Val/Shares Unit Cost Call Matur VA College Bld BABS /01/ /26/10 02/01/18 Open 5,260, Stafford CO IDA VML/VACO /15/ /08/10 02/15/18 Open 110, VA Beach VA BABS /01/ /19/10 10/01/18 Open 440, Loudoun County BABS /01/ /29/10 12/01/18 Open 1,000, Chesterfield County EDA /01/ /14/10 01/01/19 Open 420, VA College Bld BABS /01/ /26/10 02/01/19 Open 3,775, Leesburg VA BABS A /01/ /28/09 02/01/19 Open 410, VA HSG AUTH /01/ /26/09 03/01/19 Open 330, VA St Public Bldg Auth BABS /01/ /29/10 08/01/19 Open 5,000, Chesapeake VA BABS A /01/ /24/10 12/01/19 Open 1,970, Chesapeake VA BABS B /01/ /24/10 12/01/19 Open 325, Chesapeake VA BABS C /01/ /24/10 12/01/19 Open 300, Chesterfield County EDA /01/ /14/10 01/01/20 Open 415, Norfolk VA BABS Ser B /01/ /13/10 03/01/20 Open 750, VA St Public Bldg Auth BABS /01/ /23/10 08/01/20 Open 3,000, Arlington County BABS /15/ /15/10 08/15/20 Open 500, VA College Bld BABS /01/ /18/10 09/01/20 Open 5,000, Municipal Bond Total 39,055, Mutual Fund - Money Market Mutual Fund - Money Market AR /30/97 Open Open 3, Mutual Fund - Money Market AR /09/93 Open Open Mutual Fund - Money Market AR /03/98 Open Open 17,327, Mutual Fund - Money Market AR /17/00 Open Open 12, Mutual Fund - Money Market AR /01/02 Open Open 1,576, Mutual Fund - Money Market AR /27/10 Open Open 9,508, Mutual Fund - Money Market Total 28,428, State Pool State Pool AR /25/93 Open Open 59,143, State Pool Total 59,143, Investment Total 890,485,

22 GLOSSARY OF TERMS Accreted Value Accrued Interest Agency Bonds Alternative Minimum Tax (AMT) A Zero Coupon Bonds are issued at a discount and mature at Par ($1,000). The value of the bond increases mathematically by a slight amount every day during the life of the bond. The mathematical value of the bond on a given day is its accreted value (or accumulated value to date). Note that the accreted value may be higher or lower than the market value of the bond. Accrued interest is the amount of interest that has been earned since the last interest date. When a bond trades, the buyer pays the seller the accrued interest - a pro rata portion of the next interest payment, which will be paid to the buyer of the bond. Agency bonds are issued by United States agencies, and are generally thought to be very safe investments in terms of default risk. Examples of well known agencies that issue bonds are Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"), Federal National Mortgage Association (FNMA or "Fannie Mae"), the Federal Home Loan Bank and the Federal Farm Credit Administration. In addition to calculating regular income tax, taxpayers are also required to calculate tax liability using the AMT method. The taxpayer then pays the higher of the tax calculated by the two methods. Some municipal bonds are subject to AMT, meaning that if you pay AMT, the interest earned on these bonds is taxable under the AMT calculation. Other municipal bonds are not subject to AMT, meaning that even if you pay taxes using the AMT method, interest from non-amt municipals will not be taxable. Please consult your tax advisor for complete details, and how you might be affected by buying municipal bonds that are subject to AMT. B Bank Qualified See Investment Grade Basis Point A basis point is simply 1/100th of one percent. One basis point on a $1,000,000 bond is equal to $100. Bearer Bonds Bearer bonds are unregistered bonds which are payable to the bearer. Bonds are no longer issued in bearer form, but there are some older bearer bonds that are still in circulation. Bond A bond is a debt instrument in which the issuer promises to pay to the bondholder principal and interest according to the terms and conditions of the bond. Bond Ladder (Laddered Portfolio) A bond ladder is a portfolio of bonds that have staggered maturities. For example, rather than invest $100,000 in a 5 year bond, an investor might choose to invest in 4 blocks of $25,000 maturing in 2, 4, 6, and 8 years. This enables the investor to diversify in terms of default risk and reinvestment risk. Book Entry Most bonds are issued in book entry form, which means that there is no physical bond certificate. Bond ownership is evidenced by a trade confirmation issued by the broker/dealer, and by the monthly statements that the brokerage firm provides. Bullet A bond that is not able to be redeemed prior to maturity is said to be non-callable. A slang term for a non-callable bond is a bullet. A bullet is usually more expensive than a callable bond (in that the interest rate is lower), since the investor is protected against the possibility of the bond being called when market interest rates fall. C

23 Call Date Call Protection Call Risk Call Schedule Callable Certificates of Participation Corporate Bond Coupon Credit Ratings Current Yield CUSIP Dated Date Default Delivery When a bond is issued, the issuer may have the option to call (redeem) the bond on specified dates and prices prior to maturity. The list of dates on which a specified bond can be called is shown in a call schedule. The call price on callable Agency securities is nearly always 100. Call protection refers to the amount of time from the current date until a bond can be called. For example, if the first call on a bond is in 3 years from now, a buyer will have 3 years of call protection, and they are assured that they can own the bond for at least 3 years. Call risk refers to the risk that a bond may be called when the investor does not want it to be called. Bonds are often called when interest rates decline, so investors in the bond get their cash back and have to reinvest it at the lower rates. Call risk can be eliminated by buying non-callable bonds, however non-callable bonds will likely carry lower yields than callables. A call schedule is a list of the dates that a bond can be called, together with the corresponding price for each call date. If a bond can be called (redeemed) prior to maturity, the bond is said to be callable. If a bond can not be called prior to maturity, it is said to be non-callable. A slang term for a non-callable bond is a bullet. Certificates of Participation (COPs) are a type of municipal bond that are often used to finance capital improvement projects or equipment. The COPs represent participation in lease payments made by the municipality for the project or equipment. Corporate bonds represent debt of corporations. The bonds are fully taxable, and they are issued in maturities ranging from less than one year to about 30 years (although there are a few corporate bonds that mature in more than 30 years). They typically pay interest twice a year. Corporate bonds can be quite safe when they are issued by strong companies, or they can have significant risk of default when issued by weak companies. Two rating agencies, Moody's and Standard & Poors rate bonds as to the risk of default. A coupon is the stated interest rate for a bond. Most bonds have a fixed coupon that does not change during the life of the bond. Most bonds have two coupon payments per year. For example, a bond with a 5.0% coupon will pay $25 twice per year, for total interest of $50 which is 5.0% of the face value of the bond (almost all bonds have a face value of $1,000). In order to help us assess the credit worthiness of a bond issuer, there are agencies that study the financial strength of bond issuers, and assign credit ratings. The three major rating agencies are Moody s Investors Service, Standard & Poors and Fitch Ratings. These agencies assign ratings to bond issues so that investors can determine the credit worthiness of an issue without having to do the financial analysis on their own. Current yield is the rate of return an investor will get, without taking into account the value of the premium or discount of the purchase price. It is calculated by dividing the coupon by the price. The current yield is not a good indication of your return on investment. Yield to maturity and yield to call take into account the value of the discount or premium paid for the bond, and as such they offer a much better indication of the value of the bond. A CUSIP number identifies a company or issuer and the type of security. CUSIP stands for Committee on Uniform Securities Identification Procedures. D The dated date is the date the bond is issued and starts to accrue interest. A term that denotes the failure to pay the principal or interest on a financial obligation (such as a bond). Clearly, purchasing a bond in default is an extremely risky investment. Bonds are issued in several different delivery forms. The most popular forms of delivery are Book Entry and Registered. Some older bonds in circulation were issued in bearer form (see bearer bonds).