TREASURER S MONTHLY INVESTMENT REPORT As of Quarter Ending, December 31, 2010

Transcription

1 Treasurer s Monthly Investment Report As of Quarter Ending, December 31, 2010 TREASURER S MONTHLY INVESTMENT REPORT As of Quarter Ending, December 31, 2010 The City s Investment Policy Statement, Resolution # , under Reports of Investment Activities and Internal Controls, states, The Treasurer shall file monthly investment activity with the City Manager and the Assistant Chief Financial Officer. The monthly report, following the end of the calendar quarter, shall be submitted to each member of the City Council and the Investment Review Committee within thirty days from the close of the quarter. All other investment reports are available upon request for the Council or other interested parties. Additionally, the current Statement of Investment Policy and the semi-annual investment report are updated on the City s web site at This report presents the City and Trustee s investment portfolio as of December 31, It includes all investments managed by the City as well as all City-related debt financing investments held by various trustees. As of December 31, 2010, with the exception of one medium-term corporate note totaling $5 million that is in default, the remaining investment portfolio is in compliance with all State laws, the City s Statement of Investment Policy and Administrative Policy and Procedures on Investment Guidelines. The security in default is discussed in more detail under Points of Interest on the City s Portfolio. This report contains two sections (1) this cover statement, and (2) the. The addresses structure, liquidity, historical book value vs. market value, portfolio s yield vs. 2-Yr Treasury Index (12-month moving average), two-year historical dollar earnings, City & Trustee portfolio statistics, market yields and compliance statement. Details of each investment are on file in the Treasury Division. The City utilizes Bank of New York as its third party administrator for safekeeping of all City investments with the exception of the Local Agency Investment Fund (LAIF). LAIF, being a money market fund with many governmental agency participants, holds securities through its own third party administrator. The Trustee-held investments are safe kept with the Trustees. Short-term cash is currently invested in the Local Agency Investment Fund administered by the State Treasurer. This is a very high quality investment pool in terms of safety, liquidity and yield. The LAIF accounts provide the City with sufficient liquidity to meet its expenditure obligations over the next six months. The City holds its investments to maturity except when investments can be sold either at a profit above par, or attains a break even on the loss within a reasonable amount of time. This guarantees that the value of the bonds, when sold, will be no less than book value. This approach is in compliance with the City s Annual Statement of Investment Policy. The investments held by the City may have a current market value that is greater or less than the book value. This is due to fluctuations in the marketplace and has no effect on yield as the City intends to hold its securities to maturity, except in situations when the City can profit from its losses. Market values may have an affect on reported interest earnings in the City s Comprehensive Annual Financial Report at yearend due to requirements of generally accepted accounting principles. Page 1 of 5 Cover Statement

2 Treasurer s Monthly Investment Report As of Quarter Ending, December 31, 2010 The City uses a market rate of return evaluation as its index to measure performance. It is the opinion of the Investment Team that the 2-Yr US Treasury s 12-month moving average provides the most suitable performance measure for the portfolio. The underlying basis for this decision is that: 1. A market rate of return adapts well to the fiscal year budget cycle with which public fund managers must contend; 2. Unlike total return, a moving average of coupon yield smoothes out the extreme ups and downs caused by short-term market moves, producing a more realistic snapshot of portfolio performance over the course of the budget cycle; and 3. According to the GFOA sample investment policy template, the investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Summary of Investments (City & Trustee) Par Value Market Value Book Value Investments held by the City $113,390,989 $109,638,889 $113,450,389 Investments held by the Trustees $36,429,062 $36,449,772 $36,449,772 Total $149,820,051 $146,088,660 $149,900,161 The Governmental Accounting Standards Board (GASB) and the California Government Code require the City to report the fair market value on the City s Investment Portfolio. For this reporting period, the fair market value of the City s portfolio is less than the book value by $3,811,500 and represents a net decrease in fair market value of $280,293 from the prior reporting period. -Par Value. The full face value of a security. -Market Value. The price at which a security is currently trading and could presumably be purchased or sold. -Book Value. The price paid for the security at purchase. Summary of Investments by Type (City & Trustee) INVESTMENT TYPES HELD BY THE CITY Par Value Market Value Book Value % of Portfolio YTM Federal Agency Issues $68,875,000 $68,904,150 $68,875, Local Agency Investment Fund 34,315,972 34,315,972 34,315, Rabobank Money Market 5,000,017 5,000,017 5,000, Medium Term Notes in Default 5,000,000 1,218,750 5,059, Other-Municipal Bonds 200, , , Total $113,390,989 $109,638,889 $113,450, INVESTMENT TYPES HELD BY THE TRUSTEE RELATED TO COPs & TAB FINANCINGS % of Par Value Market Value Book Value Portfolio YTM Money Markets $4,451,338 $4,451,338 $4,451, Guaranteed Investment Contract 880, , , Local Agency Investment Fund 8,358,615 8,358,615 8,358, Federal Agency Issues 22,738,121 22,758,831 22,758, Total $36,429,062 $36,449,772 $36,449, The book value is used for the market value for all Trustee held investments. Page 2 of 5 Cover Statement

3 Treasurer s Monthly Investment Report As of Quarter Ending, December 31, 2010 Economic Indicator Forecasts On January 13, 2010, Bloomberg provided a U.S. Economic Forecast that surveyed 74 economists nationwide. The 1st quarter fed funds rate projection remains constant at 25 basis points since our previous quarterly report. As progresses, economists expect the Federal Reserve will continue to keep its overnight fed funds rate low with the intention of stabilizing the economy. No increase is projected in the fed funds rate until the 1 st quarter of As a result, we think it is likely that interest earnings on the City s portfolio for will be extremely modest at best. Median Projections 12/31/10 Quarter End 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Qtr Qtr Fed funds target 0.25% 0.25% 0.25% 0.25% 0.50% 1.00% 1.25% Previous survey 0.25% 0.25% 0.25% 0.25% 0.50% 1.25% 1.75% Two-year note 0.64% 0.75% 0.90% 1.10% 1.40% 1.78% 2.44% Previous survey 0.55% 0.70% 0.84% 1.00% 1.40% 1.72% 2.44% Ten-year note 3.40% 3.46% 3.62% 3.75% 4.00% 4.20% 4.30% Previous survey 3.00% 3.10% 3.29% 3.50% 3.79% 4.00% 4.19% Thirty-year bond 4.45% 4.50% 4.63% 4.75% 4.80% 4.90% 5.00% Previous survey 4.28% 4.34% 4.45% 4.60% 4.80% 5.01% 5.14% 1 QTR 2 QTR 3 QTR 4 QTR Avg Avg. Avg Unemployment Rate 9.5% 9.4% 9.2% 9.0% 9.6% 9.3% 8.5% Previous survey 9.6% 9.4% 9.3% 9.2% 9.7% 9.4% 8.7% 4 QTR QTR 2 QTR 3 QTR Avg Avg. Avg CPI 1.2% 1.4% 1.9% 1.8% 1.6% 1.7% 1.9% Previous survey 1.1% 1.1% 1.6% 1.7% 1.6% 1.5% 2.0% Consumer Spending 3.9% 3.0% 3.1% 3.0% 1.7% 3.0% 2.8% Previous survey 2.7% 2.5% 2.5% 2.8% 1.7% 2.6% 2.8% On January 26,, the Federal Open Market Committee released a statement by reporting information received since the Federal Open Market Committee met in December confirming that the economic recovery is continuing. While recovery is continuing, it is at a rate that is insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls and the housing sector continues to be depressed. Commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. 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 to continue expanding its holdings of securities as Page 3 of 5 Cover Statement

4 Treasurer s Monthly Investment Report As of Quarter Ending, December 31, 2010 announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program 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.25 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 Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. The City s Investment Team monitors the Federal Reserve s actions since changes in the federal funds rate often trigger a chain of events that effect other short-term interest rates, foreign exchange rates, longterm interest rates, the amount of money and credit, and ultimately a range of economic variables; including employment, output and prices of goods and services. Points of Interest on the City s Portfolio Investment activity for December resulted in a dollar volume of approximately $78.3 million in investment activity ($41.5 million reinvested and $36.8 million redeemed), which netted a $4.7 million dollar increase in the City s portfolio from the previous reporting period. This activity included approximately $36.8 million collectively in FFCB, FHLMC and FHLB redemptions with interest rates ranging from to percent. Purchasing activity consisted of approximately $19.5 million in new FFCB and FNMA security acquisitions with interest rates ranging from to percent. The remaining transactions netted to $32 million of deposits into LAIF and Rabobank with current yields of and percent respectively. The December investment activity outlined above resulted in a decrease in the yield to maturity (YTM) by percent from the previous month, bringing the YTM to percent. As of December 31, 2010, the City s Pooled Portfolio monthly and fiscal year effective rates of return were 1.60 percent and 1.74 percent, respectively. The portfolio s index, the 2-Yr US Treasury s 12-month moving average, is percent. The portfolio is currently outperforming its index by percent with an average yield to maturity of percent. As of December 31, 2010, the LAIF account, which funds short-term liquidity, had a balance of approximately $34.3 million and a yield of percent. Under normal cash flow demands, we strive to maintain a LAIF balance ranging from $20 to $25 million to meet daily cash needs and to provide liquidity for unexpected expenditures. In November 2010, the City contracted with Rabobank to establish a new liquidity account, which has a current yield of percent. This investment presents the City an opportunity to increase yields approximately 15 basis points over LAIF while maintaining the safety and liquidity of public funds. At the close of December this account held deposits of $5 million. The Contract for Deposit Page 4 of 5 Cover Statement

5 Treasurer s Monthly Investment Report As of Quarter Ending, December 31, 2010 of Monies with Rabobank currently contains a $10 million cap. This cap is a self-imposed cap and can be modified at the City s discretion with an amendment to the Contract for Deposit of Monies. In the last twelve months, rates of return for 90-day T-bills is up from percent to percent; the one-year treasury is down from percent to percent; the two-year treasury is down from percent to percent; and LAIF s yield has decreased from percent to percent. The 2-Yr US Treasury Index is down from percent to percent. The City s portfolio yield has decreased from percent to percent, which represents a decrease of percent in its average yield from one year ago. The percent decrease equates to a decrease in interest earnings of approximately $483,084 on the current $113.4 million par value. As the Treasurer of the City of San Buenaventura, I have reviewed the attached reports and find the overall portfolio in compliance with the Statement of Investment Policy Resolution # , approved by the City Council on June 21, The Portfolio Structure/Liquidity, on page 1 of 8, demonstrates that the City has sufficient liquidity to meet its expenditure obligations over the next six months. Jay Panzica, Chief Financial Officer/Treasurer If you have any questions concerning this report, or require additional information, please contact Jay Panzica, Chief Financial Officer/Treasurer at (805) ; or Kaye Mirabelli, Assistant Chief Financial Officer at (805) Monthly Investment Report Distribution List CITY OF VENTURA City Council (Quarterly) Bill Fulton, Mayor Mike Tracy, Deputy Mayor Neal Andrews, Councilmember Brian Brennan, Councilmember James L. Monahan, Councilmember Carl E. Morehouse, Councilmember Christy Weir, Councilmember Investment Oversight Committee (Monthly) Rick Cole, City Manager or designee Mary Walsh, Deputy City Manager Rosa Lee Measures, Outside Member of the Community Jay Panzica, Chief Financial Officer/Treasurer Kaye Mirabelli, Assistant Chief Financial Officer Controller (Monthly) Deanna Farnell, Controller City s Website (Semi-annual - December and June) Page 5 of 5 Cover Statement

6 City of Ventura City's Investment Portfolio Review as of December 31, 2010 The City's Investment Portfolio is in compliance with the California Government Code Sections and 53635, and the City's Statement of Investment Policy dated June 21, 2010 The portfolio demonstrates that the City will meet its expenditure obligations for the next six months. Market Book Type Value Value % Fed Agencies $ 68,904,150 $ 68,875, % L.A.I.F. $ 34,315,972 $ 34,315, % Rabobank Money Market $ 5,000,017 $ 5,000, % Municipal Debt $ 200,000 $ 200, % Securities in Default $ 1,218,750 $ 5,059, % 30% 4% 0.18% 4% 62% Fed Agencies L.A.I.F. Rabobank Money Market Municipal Debt Securities in Default Total $ 109,638,889 $ 113,450, % Portfolio Liquidity at December 31, 2010 Market Value Book Value Maturities Liquidity Liquidity % Additional Information on Liquidity 1 to 30 days $ 39,315,989 $ 39,315, % The liquidity of the portfolio has remained sufficient to meet 1 year & under $ - $ % the City's cash flow needs for this reporting period. 2 year & under $ 200,000 $ 200, % 3 year & under $ 6,209,800 $ 10,059, % (Note: Lehman in default) 4 year & under $ 5,021,650 $ 5,000, % 5 year & under $ 58,891,450 $ 58,875, % Total $ 109,638,889 $ 113,450, % Portfolio Market Value Liquidity $60,000,000 Maturing Dollars $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 1 5 year & under 4 year & under 3 year & under 2 year & under Days/Years to Maturity 1 year & under 1 to 30 days Portfolio Structure/Liquidity Page 1 of 8

7 City's Portfolio Book Value vs. Market Value Twenty-four Period History as of December 31, 2010 Period Period Book Market Market Value Number Ending Value Value Over (Under) FY Jan-09 $143,607,138 $134,542,617 ($9,064,520) 8 28-Feb-09 $132,104,638 $122,509,867 ($9,594,770) 9 31-Mar-09 $131,104,638 $120,872,531 ($10,232,107) Apr-09 $139,290,426 $130,031,933 ($9,258,493) May-09 $142,717,237 $133,726,102 ($8,991,136) Jun-09 $142,717,237 $133,553,974 ($9,163,263) FY Jul-09 $140,911,176 $132,202,821 ($8,708,355) 2 31-Aug-09 $134,611,176 $125,905,831 ($8,705,345) 3 30-Sep-09 $129,221,176 $120,272,559 ($8,948,617) 4 31-Oct-09 $130,814,179 $121,920,664 ($8,893,515) 5 30-Nov-09 $130,814,179 $121,885,510 ($8,928,669) 6 31-Dec-09 $138,214,179 $128,725,295 ($9,488,884) 7 31-Jan-10 $138,276,973 $129,576,100 ($8,700,873) 8 28-Feb-10 $132,581,973 $123,975,938 ($8,606,036) 9 31-Mar-10 $131,472,217 $122,411,539 ($9,060,679) Apr-10 $139,183,289 $130,150,322 ($9,032,967) May-10 $139,172,313 $130,413,213 ($8,759,100) Jun-10 $134,843,045 $126,539,945 ($8,303,100) FY Jul-10 $128,733,348 $125,628,996 ($3,104,352) 2 31-Aug-10 $124,233,348 $121,089,756 ($3,143,592) 3 30-Sep-10 $109,893,348 $106,785,126 ($3,108,222) 4 31-Oct-10 $119,193,348 $115,770,490 ($3,422,858) 5 30-Nov-10 $108,735,372 $105,204,165 ($3,531,207) 6 31-Dec-10 $113,450,389 $109,638,889 ($3,811,500) Book Value vs. Market Value for Twenty-Four Reporting Periods $160,000,000 $140,000,000 $120,000,000 $100,000,000 Book Value $80,000,000 Market Value $60,000,000 $40,000,000 $20,000,000 $ FY FY FY Book Value vs Market Value Page 2 of 8

8 City's Yield vs. Treasury Index & Dollar Earnings History of Portfolio Performance Comparisons as of December 31, 2010 Comparisons between the City and Trustee's Portfolios, 2Yr Treasury 12 Mo Moving Average and LAIF Trustee's City's 2 yr Treas Portfolio Net Expenses PER Month Portfolio Portfolio 12 Mo LAIF Book Dollar $ Change Disc/Prem # (Accounting Period Ending) YTM YTM Moving Avg Yield Value Earnings Gains/Loss FY Jan % 1.820% 1.950% $143,607,138 $432,046 $20, Feb % 1.800% 1.869% $132,104,638 $389,913 -$42, Mar % 1.740% 1.810% $131,104,638 $366,972 -$22, Apr % 1.640% 1.607% $139,290,426 $362,231 -$4, May % 1.520% 1.490% $142,717,237 $380,221 $17, Jun % 1.380% 1.377% $142,717,237 $287,434 -$92,787 FY Jul % 2.419% 1.250% 1.035% $140,911,176 $294,723 $7, Aug % 2.411% 1.140% 0.780% $134,611,176 $277,090 -$17, Sep % 2.228% 1.040% 0.750% $129,221,176 $255,718 -$21, Oct % 2.172% 0.980% 0.645% $130,814,179 $234,146 -$21, Nov % 2.162% 0.950% 0.611% $130,814,179 $234,126 -$ Dec % 1.819% 0.960% 0.569% $138,214,179 $207,704 -$26, Jan % 1.897% 0.970% 0.558% $138,276,973 $206,102 -$1, Feb % 1.860% 0.960% 0.530% $132,581,973 $203,736 -$2, Mar % 1.908% 0.950% 0.547% $131,472,217 $208,335 $4, Apr % 1.664% 0.970% 0.588% $139,183,289 $185,823 -$22, May % 1.442% 0.970% 0.560% $139,172,313 $322,523 $136, Jun % 1.896% 0.930% 0.530% $134,843,045 $194,564 -$127,959 FY Jul % 1.743% 0.890% 0.530% $128,733,348 $215,395 $20, Aug % 1.705% 0.840% 0.520% $124,233,348 $181,425 -$33, Sep % 2.086% 0.800% 0.500% $109,893,348 $174,971 -$6, Oct % 1.940% 0.750% 0.450% $119,193,348 $179,230 $4, Nov % 1.910% 0.730% 0.454% $108,735,389 $174,010 -$5, Dec % 1.393% 0.700% 0.462% $113,450,389 $138,578 -$35,432 Previous 24 Period Average 1.937% 2.208% 1.112% 0.863% $131,495,682 $254,459 Most Recent 12 Period Average 1.463% 1.787% 0.872% 0.519% $126,647,415 $198,724 P D = Premiums G = Gains = Discounts L = Loss Portfolio Performance/Dollar Earnings Page 3 of 8

9 City's Portfolio 2-Year US Treasury-12 Month Moving Average Index Comparison & Portfolio Dollar Earnings for Previous Twenty-Four Periods as of December 31, 2010 Yield Performance vs. Index 6.00% 5.50% 5.00% 4.50% 4.00% City 3.50% 3.00% 2.50% 2.00% Treas 12mo moving avg 1.50% 1.00% 0.50% FY FY FY Net Dollar Earnings $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100, FY FY FY Interest Rate Performance/Dollar Earnings Page 4 of 8

10 City's Portfolio Portfolio Year-to-Date Comparisons as of December 31, 2010 This Period Last Period This Year Last Year City Portfolio Statistics: 12/31/ /30/2010 Change 12/31/ /31/2009 Change Portfolio book value $ 113,450,389 $ 108,735,389 $ 4,715,000 $ 113,450,389 $ 138,214,179 $ (24,763,790) Portfolio fair market value $ 109,638,889 $ 105,204,182 $ 4,434,707 $ 109,638,889 $ 128,725,295 $ (19,086,407) Book Value vs. Fair Market Value $ (3,811,500) $ (3,531,207) $ (280,293) $ (3,811,500) $ (9,488,884) $ 5,677,383 Portfolio interest earnings $ 138,578 $ 174,010 $ (35,432) $ 138,578 $ 207,704 $ (69,127) Average life of portfolio (days) (312) Average Yield to Maturity (365 days) 1.393% 1.910% % 1.393% 1.819% % Effective Rate of Return - Monthly 1.600% 1.880% % 1.600% 1.880% % Effective Rate of Return - FY 1.740% 1.770% % 1.740% 2.240% % 2Yr US Treasury Index - 12-Month Moving Average 0.700% 0.730% % 0.700% 0.960% % LAIF (State of California Local Agency Investment Fund) 0.462% 0.454% 0.008% 0.462% 0.569% % This Period Last Period This Year Last Year Market Yields: 12/31/ /30/2010 Change 12/31/ /31/2009 Change Fed Funds Rate 0.250% 0.250% 0.000% 0.250% 0.250% 0.000% U.S. Treasury: 3 month 0.130% 0.170% % 0.130% 0.050% 0.080% 6 month 0.190% 0.200% % 0.190% 0.190% 0.000% 1 year 0.320% 0.290% 0.030% 0.320% 0.510% % 2 year 0.600% 0.460% 0.140% 0.600% 1.140% % 3 year 1.070% 0.790% 0.280% 1.070% 1.650% % 5 year 2.010% 1.470% 0.540% 2.010% 2.680% % 10 year 3.300% 2.800% 0.500% 3.300% 3.840% % 30 year 4.340% 4.110% 0.230% 4.340% 4.640% % Portfolio Statistics Page 5 of 8

11 Trustee's Portfolio - Bond Financing Construction & Reserves Portfolio Year-to-Date Comparisons as of December 31, 2010 Trustee Portfolio Statistics: This Period Last Period This Year Last Year (Bond financing funds) 12/31/ /30/2010 Change 12/31/ /31/2009 Change Trustee portfolio book value $ 36,449,772 $ 35,395,089 $ 1,054,682 $ 36,449,772 $ 22,629,071 $ 13,820,701 Trustee portfolio market value $ 36,449,772 $ 35,395,089 $ 1,054,682 $ 36,449,772 $ 22,629,071 $ 13,820,701 Average days to maturity (27) Average Yield to Maturity (365) 0.552% 0.528% 0.024% 0.552% 2.726% % Effective Rate of Return - Monthly 0.540% 0.550% % 0.540% 2.890% % Effective Rate of Return - FY 0.580% 0.590% % 0.580% 3.340% % This Period Last Period This Year Last Year Market Yields: 12/31/ /30/2010 Change 12/31/ /31/2009 Change Fed Funds Rate 0.250% 0.250% 0.000% 0.250% 0.250% 0.000% U.S. Treasury: 3 month 0.130% 0.170% % 0.130% 0.050% 0.080% 6 month 0.190% 0.200% % 0.190% 0.190% 0.000% 1 year 0.320% 0.290% 0.030% 0.320% 0.510% % 2 year 0.600% 0.460% 0.140% 0.600% 1.140% % 3 year 1.070% 0.790% 0.280% 1.070% 1.650% % 5 year 2.010% 1.470% 0.540% 2.010% 2.680% % 10 year 3.300% 2.800% 0.500% 3.300% 3.840% % 30 year 4.340% 4.110% 0.230% 4.340% 4.640% % Trustee Portfolio Statistics Page 6 of 8

12 Statement of Investment Policy [ < less than, > greater than ] City of Ventura Statement of Investment Policy vs Treasurer's Investment Portfolio as of December 31, Authorized Investments: 8.1 U.S. Governments: (Treasury Bills, Notes, Bonds) -No limitation. Prudent Investor Rule Applies. 8.2 U.S. Agencies: (FFCB, FHLB, FHLMC, SLMA, FNMA, FHA) -No limitation. Prudent Investor Rule Applies. 8.3 Bankers Acceptances: (BA) -Not > 180 days. -Not > 20% of surplus funds. -Not > 5% in any one issuer. 8.4 Commercial Paper: (CP) -Rated P1 by Moody's or A1 by S & P or F1 by Fitch -Issued by domestic corporations. assets >$500 Million. -"A" or better on issuer's debt. -Not > 270 days. -Not > 15% of portfolio. -Not > 5% in any one issuer. 8.5 Negotiable Certificates of Deposit: (NCD) -Issued by nationally or state-chartered bank. -A state or a federal association, or state-licensed. -Branch of a foreign bank. -Not > 20% of surplus funds. -Not > 5% in any one issuer. 8.6 Certificates of Deposit: (CD) -Not > than $100K. -Not < $10 Billion in assets for institutions outside County. -Not < 4% equity of assets ratio. -Rated not < "A" by a qualified rating agency. 8.7 Certificates of Deposit Account Registry Service (CDARS) -Not > than $5M. -Sunsets December 31,. 8.8 Repurchase Agreements: (REPO) -Only with primary dealers of Federal Reserve Bank of New York that the City has entered into a Master Repo Agreement. -Not > 20% of portfolio. -Not > 92 days. -Value of collateral not < 102%. -Value adjusted no less than quarterly. -Acceptable collateral, NCD's, BA's, CP, or direct obligations of the U.S., or any U.S. agency. 8.9 Medium Term Notes: -Not > 20% of the portfolio. (% includes securities in default) -Not > $5M in any one sector, i.e. public utilities, banks & financial, & industrial. -Corporation is organized & operating in the U.S. -Must be rated "A" or better at the time of purchase Money Market Mutual Funds: -Not > 20% of the portfolio. -Not > 5% in any one mutual fund -Invested in funds authorized by California Government Code Local Agency Investment Fund (LAIF): -Not > $40 Million in each account. The City has three accounts. (Deleted) State of California or Municipal Debt -Not permitted as of 7/27/09. The % invested is related to the Portobello Bonds Ineligible Investments: -Investment not described in Section 8.0, including but not limited to, reverse repo's, common stocks, commodities such as gold & silver, financial futures contracts & options. No inverse floaters, range notes or interest-only strips derived from mortgage pools % % No Investments at this time. No Investments at this time. No Investments at this time. No Investments at this time. No Investments at this time. No Investments at this time. Currrently have one $5M security in financial % Effective 7/27/09 *$5M Lehman Brothers in Default No City Investments only Trustee held funds % 0.180% City's Portfolio Status December 31, 2010 Portfolio Compliance Page 7 of 8

13 Statement of Investment Policy City's Portfolio Status [ < less than, > greater than ] December 31, Collateral: -All active & inactive deposits (CD's) secured with eligible securities in pools pursuant to Sections 53656,53657, Market value of collateral in excess of the amount of all deposits as follows: government securities, not < 10% in excess. mortgage-backed securities, not < 50% in excess. letter of credit, not < 5% in excess Safekeeping & Custody: -Securities held by a third party bank trust department. (Held by BNY Western Trust) -Transactions on a delivery-versus-payment (DVP) Diversification -Not > 30% of City's portfolio in a single security or financial institution. Exceptions are, US Treasuries & Agencies, and LAIF Maximum Maturities -Invested securities limited to maturities five years & under from date of purchase. -Bond financing "Reserve Funds" may exceed five years Sales Prior to Maturity 14.0 Rating Agency Downgrades -Alert Investment Review Committee on all credit rating downgrades 15.0 Internal Controls 15.1 Investment Review Committee 15.2 Investment Portfolio Guidelines 15.3 Investment Limits -Each trade limited to not > 10% of the investment portfolio Portfolio Compliance Statement 15.5 Annual Audit 15.6 Funds Transfer Agreement 16.0 Performance Standard Goal -To obtain a market rate of return defined as the 2-Yr US Treasury's 12-Mo Moving Average. Currently out performing by 0.693% City's market rate of return is 1.393% 2-Yr US Treasury's 12-Mo Moving Average is 0.700% 17.0 Reports of Investment Activities -Submitted to Council within thirty days from quarter close. -Submitted to California Debt & Investment Advisory Commission at the end of the 2nd and 4th quarter closing within sixty days following the close of the quarter. No longer required Legislative Findings and Declarations 19.0 Statement of Investment Policy Review Investment of public funds is an issue of statewide concern. -Annually, following close of fiscal year. -Submit annually to California Debt & Investment Advisory No longer required. Commission by December 31 & within 60 days following any amendments. Notes: *On September 14, 2008 Lehman Brothers Holdings Inc. filed chapter 11 to seek relief under the provisions of the United States Bankruptcy Code. The City holds a Lehman $5M Medium Term Corporate Note, classifed as "senior unsecured debt". On September 25, 2008 J.P. Morgan Chase purchased the deposit side of Washington Mutual and left the senior unsecured debt and equity side of the bank in default. As a result of this action, the portfolio's $5M Washington Mututal Medium Term Corporate Note is aslo in default. As of June 30, 2010, a policy decision was made to write off the $5M Washington Mutual MTN and continue to hold the security in the City's third party safekeeping account until such time that the security is either sold or settlement occurs through bankruptcy proceedings or other lawsuits. Portfolio Compliance Page 8 of 8