INVESTMENT & CASH MANAGEMENT. program

Transcription

1 C I T Y O F M O R E N O V A L L E Y INVESTMENT & CASH MANAGEMENT program

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3 WHY & HOW THE CITY INVESTS ITS MONEY Mission Statement: To prudently manage cash resources and to utilize funds not immediately required to fund services in a manner that preserves principal, fosters public trust and earns a reasonable rate of return. 3

4 Why Does The City HAVE INVESTMENTS? In general the city uses revenues received during the current year to fund the operations of the city during that year. The City records these revenues into funds; such as, the general fund, capital project funds, or reserve funds. Certain funds are used to hold and accumulate resources that will be spent in the future to complete a capital project or purchase equipment or other long-term type asset. These funds are waiting to be disbursed at a future date and can be described as Idle. Instead of letting these funds sit idle, the City invests into a diversified portfolio in a manner that preserves capital and generates additional revenues that can be utilized to support City services. CITY PORTFOLIO OBJECTIVES The City manages its portfolio with the focus on three objectives: Safety Preserve capital in the overall portfolio Liquidity Provide adequate liquidity to meet cash flow needs Yield Achieve a reasonable rate of return Safety Safety is always the primary objective followed closely by Liquidity. All investments carry some degree of risk; and in general, more risk is required the higher the desired return on investment. The California Government Code and the City s Investment Policy deal specifically with the Safety concept in their sections that limit the types of allowable investments, which will be discussed in the next section. Liquidity Liquidity measures the ease of which a particular asset can be converted into cash. A certain amount of liquidity is important in an investment portfolio as it allows the City to quickly meet changing financial obligations. The City maintains a Liquidity or Core Portfolio that has been specifically designed to meet our day-to-day obligations. 4

5 The politics of ensuring principal safety and liquidity ahead of income shifts the focus from return to a focus on risk above all. In a nutshell it all comes down to this: Wall Street manages returns, Main Street manages risk. Ben Finkelstein, The Politics of Public Funds Investing Yield Finally, after the aspects of Safety and Liquidity have been addressed, the portfolio can focus on maximizing the overall yield of the portfolio, within the constraints of the investment policy. It is the City s policy to earn a reasonable rate of return on the investments within the primary objectives of preserving the capital in the overall portfolio (low risk) and providing adequate liquidity to meet City s cash flow needs. Main Street versus Wall Street The investment goals are different between the municipal investor, Main Street, and the private money managers, Wall Street. Municipal investors are guided primarily by the principals of Safety and Liquidity with Yield, which in this context is defined as a reasonable rate of return, a lesser priority. The Wall Street model of investing focuses on the primary goal of maximizing the return on investment with earnings performance driving investment decisions and the risk of loss is a secondary consideration. 5

6 WHO DECIDES WHAT THE CITY CAN INVEST IN? Controls have been established by the State of California and reaffirmed by the City Council over the types of securities that can be purchased and how the portfolio will be managed. 6

7 State of California GOVERNMENT CODE The State of California Government Code (Section 53601) provides an explicit list of the types of securities a local agency can invest in. This code section also sets both minimum and maximum limits related to different security characteristics. Some of those limits include:! Term Limits on the term of a security (generally no more than 5 years). Type Limits on the amounts of each security type that can be held. Concentration Limits on the amounts of securities that can be held from any single issuer. Quality Sets a floor on the minimum credit rating level that a security must hold at the time of purchase. CITY INVESTMENT POLICY The City of Moreno Valley has adopted an investment policy that is specific to the City s investment goals. This policy is reviewed by the City Council annually and includes the list of allowable securities while also addressing other key functions related to portfolio management. By law the list of allowable securities can be more restrictive that the Government Code but it cannot be broadened. The Investment Policy has also been reviewed by both the Association of Public Treasurers of the United States and Canada (APTUS&C) and the California Municipal Treasurers Association (CMTA) and has received certification from both organizations. To learn more about the City s investment practices, please visit the Investor Relations page on our website at 7

8 ARE OUR YIELDS LOW? The yield is the income return on an investment, such as the interest or dividends received from holding a particular security. The yield is usually expressed as an annual percentage rate based on the investment s cost, current market value or face value. 8

9 The City s Investment Policy AND GOVERNMENT CODE The investment types allowed by both Government Code and the City s Investment Policy are very conservative and focus on preserving principal. These governing documents allow the portfolio to hold only fixed income securities (bonds) and exclude riskier types of investments such as equities (stocks) and other more exotic types of securities. The combination of the conservative securities mix along with the fact that markets have been at all-time historic lows since 2008 have resulted in the yields that are currently being experienced by the portfolio. The City monitors the performance of the portfolio against market benchmarks that have a security mix similar to that held in the City s portfolio. The City s portfolio characteristics can be described as holding a mix of Treasury s, Government Agencies and Medium Term Corporate Notes and when the portfolio is compared to the benchmarks the portfolio s performance is generally in line with those benchmarks. HISTORIC YIELD COMPARISON 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1 Yr Treas 2 Yr Treas 5 Yr Treas LAIF Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 May-11 Jun-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Oct-17 Jun-18 9

10 HOW IS THE PORTFOLIO MANAGED? A portfolio refers to any combination of financial assets such as stocks, bonds and cash. Portfolios may be held by individual investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. 10

11 Pooled CASH Cash balances are tracked and maintained individually for each fund in the City s general ledger but the City s pooled cash balances are utilized to purchase securities. Likewise each fund gets a pro rata share of the investment earnings. This pool methodology makes the investment process more efficient. Captial Project Funds Asset Replacement Funds Pooled Cash & Investments Internal Service Funds Reserves ONE PORTFOLIO, TWO FOCUSES The City maintains one portfolio but manages it with two focuses: Liquidity Focus The Liquidity or Core portion of the portfolio focuses on the City s ability to meet day-today cash flow requirements. Since the primary inflows of the City s revenues are received in January and May there are many months where the outflow or expenditure of funds exceeds the inflow or receipt of funds. Because of this the City must maintain an adequate liquidity portfolio to accommodate daily cash flow needs. In recognition of this, the City Council adopted the Fund Balance and Financial Reserves Policy; which includes the establishment of a Cash Flow Reserve, to account for the disparity in timing between expenditures and cash receipts. To accomplish this goal of daily liquidity the City participates in the Local Agency Investment Fund (LAIF), which is managed by the State of California Treasurer s Office. Balances in this account are generally between $25 million and $40 million and these funds are utilized to account for the liquidity needs so that securities that comprise the longer portion of the portfolio do not need to be sold prematurely. Safety parameters, Maturity Term: 1 to 5 years Long-Term Portion, Primary Objective: Improving Yields within Maturity Term: Overnight Portfolio Core, Primary Objective: Liquidity 11

12 Pooled CASH Long-term Focus Utilizing funds that are not immediately needed for operations or projects, this component of the portfolio works to enhance the yield on the overall portfolio while still operating under the City s investment policy objectives. This portion of the portfolio is used to purchase debt securities, in compliance with the approved investment list, generally with a maturity window between seven months and five years. Because the City s liquidity concerns have already been addressed this portion of the portfolio can place more emphasis on achieving slightly higher yields. This part of the portfolio is currently managed by third-party investment advisors whereby the portfolio is actively managed. Active management is a dynamic management approach by which securities are actively traded (bought and sold) in an attempt to take advantage of movement in the financial markets in order to achieve gains or profits on investments when it is to the advantage of the portfolio. Balances in this part of the portfolio are generally around $140 million. 12

13 INVESTMENT PROCESS The investment process begins with the daily review of the bank statement. Each morning the incoming cash activity is identified, coded and prepared for entry into the general ledger. The projected available cash balance is compared to the scheduled disbursements, such as Accounts Payable or Payroll disbursements to determine if there is a sufficient level of cash on hand to meet those requirements. If the cash balance is not sufficient to cover the disbursements, funds are withdrawn from the LAIF account. If there is cash in excess of the known disbursements that excess amount is deposited into LAIF. Periodically the balances in the LAIF account will be compared to the Cash Flow Forecast to determine if additional funds can be moved into the Long-term portfolio and invested into securities with higher yields than LAIF or other short term money funds. Daily Cash Management (bank) Short-Term Investments (LAIF) Long-Term Investments (Fund Managers) 13

14 OTHER FACTORS IN MAKING AN INVESTMENT DECISION Along with the cash flow and investment policy considerations, there are a number of other considerations that are taken into account as securities are being considered for inclusion into the portfolio. 14

15 Considerations Include BUT ARE NOT LIMITED TO Liquidity Is there a market to resell the asset? Cash is considered the most liquid asset, while items such as real estate or fine art are considered relatively illiquid as it may take more time to convert those items into a tradeable commodity such as cash to meet financial obligations. Strategy Does the security fit into the overall portfolio strategy? (Safety, Liquidity, Yield) Diversification Is the investment portfolio diversified? A diversified portfolio contains a mix of asset classes across multiple market sectors (government, banking, technology, etc.). This asset mix better protects the portfolio from negative swings that may effect one sector of the market but not necessarily another. Maturity Mix Does the mix of bond maturities fit the portfolio strategy? Credit Risk How stable and safe are securities that are available for purchase? This refers to the amount of risk the lender (The City) is willing to take on that it may not receive the owed principle and interest due from the debtor. Volatility How much fluctuation is in market. The Yield Curve The Yield Curve is a graphic representation that depicts the relationship, at a given point in time, between yields and maturities for bonds that are identical. Yield Curve Analysis generally utilizes Treasury Bills due to their identical characteristics. 15

16 HOW DOES THE CITY REPORT PORTFOLIO ACTIVITY? Routine reporting provides the City Council with the opportunity to exercise their role in the oversight of the portfolio and also provides transparency with regards to investment practices. 16

17 Investment REPORTS The Investment Policy requires that an Investment Report be submitted to and available for review bythe City Council in a public meeting each quarter. This report includes sections that present the following types of data (See examples of the report over the next few pages). To view quarterly investment reports, visit this link: Summary Summary of investment balances Trends Multi-year trends of portfolio performance (in a table and graph) Listings Detailed listings of the securities held in the portfolio Transactions Detailed list of the transactions for the period. Balances Summary of balances maintained by the Trustee for bond funds (bonds sold by the City) 1. SUMMARY Sample trend excerpt from the Treasurer s Cash and Investments Report, June General Portfolio Cost Value Market Value Par Value Avg Maturity Avg Yield Avg Duration (in years) to Maturity (in years) 1,863,647 1,863,647 1,863,647 61,758,005 61,642,324 61,758, % 87,922,132 86,430,904 88,337, % ,091,955 55,458,800 56,077, % ,635, ,395, ,037,146 SAMPLE Market Value Deferred Compensation Market Value as of Funds June 30, ,355 Nationwide 14,618,121 1,988,637 ICMA 5,938,960 2,115,234 Total Deferred Compensation Funds 20,557, ,144 Bank Accounts State of California LAIF Pool Investments-Chandler Investments-Insight Total General Portfolio Bond Proceeds with Fiscal Agents Construction Funds Principal & Interest Accounts Debt Service Reserve Funds Custody Accounts Arbitrage Rebate Accounts Other Accounts Total Bond Proceeds 4,482 12,632 5,138,484 Total Investment Portfolio 231,091,240 Important Notes The market values for the specific investments in the General Portfolio are provided by the City's investment advisors, Chandler Asset Management and Insight Asset Management. The market value for LAIF is provided by the State Treasurer. The market values for investments held by fiscal agents and the deferred compensation plans are provided by each respective trustee or fiscal agent. The City has the ability to meet its budgeted expenditures for the next six months pending any future action by City Council or any unforeseen catastrophic event. 17

18 Investment REPORTS Total General Portfolio (1) Period Asset Balance (par) Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun ,937, ,052, ,437, ,196, ,098, ,285, ,824, ,430, ,065, ,665, ,737, ,533, ,464, ,506, ,898, ,480, ,062, ,351, ,020, ,127, ,720, ,886, ,129, ,761, ,724, ,293, ,597, ,411, ,469, ,112, ,795, ,940, ,416, ,668, ,976, ,635,739 2a. TRENDS Sample trend excerpt from the Treasurer s Cash and Investments Repo LAIF Cha Local Agency Investment Fund Balance Yield 24,936,318 18,526,318 17,626,318 17,843,566 17,593,566 16,633,566 30,850,627 37,750,627 34,310,627 32,296,705 40,246,705 39,271,705 35,222,341 31,792,341 37,892,341 33,193,311 29,923,311 30,054,201 37,628,655 46,028,655 40,778,655 36,353,121 43,453,119 49,953,121 44,548,019 39,248,019 37,148,019 37,462,434 34,062,434 36,962,434 49,974,332 55,774,331 52,074,331 48,358,005 65,058,005 61,758, % 0.330% 0.337% 0.357% 0.374% 0.400% 0.446% 0.467% 0.506% 0.525% 0.552% 0.576% 0.588% 0.614% 0.634% 0.654% 0.678% 0.719% 0.751% 0.777% 0.821% 0.884% 0.925% 0.978% 1.051% 1.084% 1.111% 1.143% 1.172% 1.239% 1.350% 1.412% 1.524% 1.661% 1.755% 1.854% Asset Balance (par) Weighted Avg YTM (2) 81,941,821 82,043,091 82,154,547 82,223,743 82,355,838 82,433,426 82,510,170 82,617,177 82,721,056 82,769,869 82,923,233 82,995,248 83,081,551 83,224,209 83,379,424 83,523,267 83,701,960 83,828,755 83,921,074 84,036,078 84,203,833 84,254,557 84,366,558 84,433,672 84,553,984 84,648,884 84,681,990 84,785,780 84,916,378 85,008,412 85,144,970 85,263,827 85,446,356 85,541,787 85,714,498 88,337, % 1.39% 1.41% 1.41% 1.42% 1.43% 1.43% 1.44% 1.46% 1.47% 1.49% 1.49% 1.48% 1.50% 1.49% 1.49% 1.47% 1.52% 1.56% 1.56% 1.59% 1.58% 1.61% 1.63% 1.64% 1.65% 1.68% 1.68% 1.69% 1.73% 1.78% 1.82% 1.86% 1.91% 1.97% SAM Important Notes (1) Total General Portfolio includes all assets that comprise the City's Investment Portfolio which is LAIF as well as assets managed by Chandler and Insight. (2) Yield to Maturity (YTM): The rate of return on an investment or security if it were to be held until maturity. This yield does not reflect changes in the market value of a security (3) Rate of Return represents the gain or loss on an investment or portfolio of investments over a specified period, expressed as a percentage of increase over the initial investment cost. Gains on investments are considered to be any income received from the security or portfolio plus any realized capital gain. This measure of return recognizes the changes in market values of a security or portfolio of securities. (4) The Rate of Return for the investment portfolio reflects the performance of the portfolio durint the past twelve months. 18

19 ort: Portfolio Performance - 36 Month Trend. andler g Insight Rate of Return (3) Rate of Return (3) Investment Portfolio (4) Benchmark 1-5 Gov (5) Asset Balance (par) Weighted Avg YTM (2) 1.11% 1.12% 1.64% 1.56% 1.30% 1.19% 1.13% 1.17% 1.61% 1.62% 1.50% 2.58% 2.44% 2.21% 1.74% 1.19% 1.35% 0.59% 0.57% 0.27% 0.57% 0.95% 0.08% 0.33% 0.86% 0.52% 0.62% 1.16% 1.14% 0.47% 0.08% 0.22% -0.33% -0.16% -0.05% 1.14% 1.11% 1.65% 1.47% 1.22% 1.05% 1.01% 1.23% 1.69% 1.61% 1.48% 2.39% 2.42% 2.09% 1.70% 1.69% 1.03% 1.24% 0.41% 0.38% 0.10% 0.38% 0.75% -0.30% % 0.61% 0.15% 0.26% 0.88% 0.86% 0.12% -0.23% % -0.62% -0.39% -0.28% 54,083,574 54,065,279 54,180,338 54,198,446 54,238,929 54,312,737 54,319,684 54,372,589 54,499,863 54,517,986 54,535,685 54,552,897 54,560,166 54,644,115 54,722,092 54,763,602 54,796,940 54,953,105 54,865,800 54,956,116 55,036,202 55,069,278 55,139,856 55,188,911 55,200,136 55,293,843 55,327,685 55,413,748 55,471,666 55,541,162 55,563,293 55,682,887 55,785,899 55,920,551 55,998,203 56,077, % 1.09% 1.08% (6) (6) (6) (6) (6) 1.08% 1.08% 1.10% 1.09% 1.08% 1.10% 1.10% 1.10% 1.14% 1.14% 1.14% 1.16% 1.17% 1.18% 1.21% 1.24% 1.24% 1.27% 1.38% 1.35% 1.38% 1.44% 1.48% 1.55% 1.57% 1.63% 1.67% 1.70% MPLE Investment Portfolio (4) 1.16% 1.14% 1.13% (6) (6) (6) 0.51% 0.59% 0.84% 0.88% 0.82% 1.26% 1.20% 1.15% 1.24% 1.24% 1.01% 1.06% 0.13% 0.26% 0.28% 0.38% 0.52% 0.54% 0.74% 0.79% 0.90% 1.01% 1.12% 0.82% -0.13% -0.19% -0.01% % 0.65% 0.36% Benchmark 1-3 Treas (5) 1.00% 0.80% 1.15% 0.78% 0.39% 0.68% 0.65% 0.98% 0.92% 0.73% 1.31% 1.26% 1.07% 0.88% 0.76% 0.89% 0.40% 0.39% 0.25% 0.35% 0.57% 0.83% 0.89% 0.95% 1.00% 1.06% 1.13% 0.42% 0.93% -0.13% 0.03% % 1.65% 0.08% (5) The portfolio benchmarks are: Chandler-Bank of America-Merrill Lynch 1 to 5 year Government Index and Insight- Bank of America-Merrill Lynch 1 to 3 year Treasury Index (6) As the result of a transition to a new reporting platform Weighted Avg Yield to Maturity and Total Return Yield data is not available from Insight. 19

20 Investment REPORTS 2b. TRENDS Sample trend excerpt from thetreasurer s Cash and Investments Report: Portfolio Performance - 36 Month Trend. MILLIONS $250 $240 $230 $220 $210 $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Portfolio Balances Trend Total Portfolio LAIF Chandler Insight Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Average Yield to Maturity Trend LAIF Chandler Insight Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug % SAMPLE 0.2% Chandler Rate of Return Insight Rate of Return Chandler Portfolio BAML Gov 1-5 Yr Bench Insight 2.0% Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun % 2.2% 2.0% 1.7% 1.5% 1.2% 1.0% 0.7% 1.5% 1.0% 0.5% 0.0% -0.5% Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 BAML Gov 1-3 Yr Bench Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Portfolio Characteristics The portfolio invested in LAIF represents the City s immediate cash liquidity needs and is managed by City staff in a manner to fund the day to day operations of the City. The portfolio managed by Insight is comprised of idle cash balances related to funds that generally expect to expend cash within the next 36 months. (Example: Gen Fund, Zone A, Measure A, NSP etc.) The portfolio managed by Chandler is comprise of idle cash balances related to funds that generally expect to expend cash with the next 24 to 60 months. (Example: Reserve Funds, Facility & Equip Replacement, Endowments etc.) 20

21 3. SECURITY LISTINGS Sample Investment Report excerpt from June CUSIP Security Description Per Value/ Units Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration ABS 43814RAB LAB TAB XAB AB MAC UAD QAC BAB RAB BAB BAC BAD CAC AAJ3 Total ABS Honda Auto Receivables A2 1.04% Due 4/18/2019 Toyota Auto Receivables Owner 2016-D 1.06% Due 5/15/2019 Honda Auto Receivables A2 1.42% Due 7/22/2019 John Deere Owner Trust 2017-A A2 1.5% Due 10/15/ , , , , ,100,00 170,00 275,00 700,00 5,733, , , , , , , , , % % % % Nissan Auto Receivables 2017-A A2A 166, /21/ , , % Aaa / NR 1.47% Due 1/15/ % 166, % (447.37) AAA John Deere Owner Trust 2016-A A3 313, /23/ , , % Aaa / NR 1.36% SAMPLE Due 4/15/ % 313, % (1,391.66) AAA Toyota Auto Receivables 2016-B 489, /02/ , , % Aaa / AAA 1.3% Due 4/15/ % 489, % (2,566.43) NR Honda Auto Receivables A3 260, /24/ , , % Aaa / NR 1.39% Due 4/15/ % 260, % (1,383.38) AAA John Deere Owner Trust 2017-B A2A 153, /11/ , , % Aaa / NR 1.59% Due 4/15/ % 153, % (575.51) AAA Toyota Auto Receivable 2017-C A2A 731, /25/ , , % Aaa / AAA 1.58% Due 7/15/ % 731, % (3,480.74) NR 1,055,00 Toyota Auto Receivables Owner 2018-A A2A 2.1% Due 10/15/2020 Honda Auto Receivables A3 1.68% Due 8/16/2021 John Deere Owner Trust 2017-B A3 1.82% Due 10/15/2021 John Deere Owner Trust 2016-B A4 2.66% Due 4/18/2022 American Express Credit % Due 9/15/ /18/ % 10/04/ % 03/21/ % 02/22/ % 01/23/ % 04/27/ % 07/11/ % 02/21/ % 06/21/ % 2.14% 1,054, ,054, ,082, ,083, , , , , , , ,705, ,706, % % % % % 2.83% 54, , , , ,051, ,083, , , , ,689, , % (39.96) 0.02 % (12.66) 0.12 % (142.05) 0.16 % (238.49) 1.21 % (3,855.45) 1.25 % % (2,460.11) 0.32 % (1,395.62) 0.79 % % (17,492.79) NR / AAA AAA Aaa / AAA NR Aaa / NR AAA Aaa / NR AAA Aaa / AAA NR Aaa / AAA NR Aaa / NR AAA Aaa / NR AAA Aaa / NR AAA Aaa / AAA AAA AGENCY 3135G0ZG1 3137EADR7 3135G0D75 FNMA Note 1.75% Due 9/12/2019 FHLMC Note 1.375% Due 5/1/2020 FNMA Note 1.5% Due 6/22/ ,00 1,650,00 1,655,00 10/29/ % 08/26/ % 09/29/ % 851, , ,636, ,644, ,655, ,655, % % % 843, , ,616, , ,621, % (7,356.07) 1.86 % (28,675.02) 1.87 % (33,917.17) Aaa / AA+ AAA Aaa / AA+ AAA Aaa / AA+ AAA

22 Investment REPORTS 4. TRANSACTIONS Sample Transaction Ledger. May 31, 2018 to June 30, Transaction Type ACQUISITIONS Settlement Date CUSIP Quantity Security Description Price Acq/Disp Amount Interest Total Gain/Loss Yield Pur/Sold Amount 06/01/ /11/ /13/ /13/ /14/ /15/ ETG4 280,00 John Deere Capital Corp Note % 272, , , % Due 3/6/ /15/ N104 4, Federated Investors Government % 4, , SAMPLE 06/15/ N104 63, Federated Investors Government % 63, , /15/ N104 52, Federated Investors Government % 52, , /15/ N104 45, Federated Investors Government % 45, , /15/ N104 26, Federated Investors Government % 26, , /15/ N104 31, Federated Investors Government % 31, , /15/ /15/ /15/ /15/ /15/ /15/ /15/ /18/ N N N N TDP N N N N N N N N104 1, , ,680,00 5, ,000, , , , ,54 1, , Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government Toyota Motor Credit Corp Note 2.6% Due 1/11/2022 Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government Federated Investors Government % 1.60 % 1.60 % 1.60 % 3.25 % 1.60 % 1.60 % 1.60 % 1.60 % 1.60 % 1.60 % 1.60 % 1.60 % 1, , ,680,00 5, , , , , ,54 1, , ,05 1, , ,680,00 5, , , , , ,54 1, , BALANCES Sample Funds with Fiscal Agents. Account Name Account Number Investment Issuer Value Date Market Value Stated Rate Yield Price % of Portfolio WELLS FARGO CFD #5 Series B Revenue Series B Revenue Series A Principal Series A Reserve Series B Reserve Series B Admin Fund Series B Interest Cash WELLS FARGO Community Facilities Disctrict 87-1 (IA-1) 22 Cash Wf Government Fund Wf Government Fund Wf Government Fund Wf Government Fund Wf Government Fund Wf Govt Fund , , , ,706 % % 0% 1% 0.050% 0% % 0% 4.515%

23 Account Name Account Number Investment WELLS FARGO CFD Community #5 Facilities Disctrict 87-1 (IA-1) Issuer Value Date Market Value 781,706 Stated Rate Yield Price % of Portfolio Special Tax Funds Interest Acct Reserve Fund Reserve Fund Admin Exp Acct Debt Service Acct Debt Service Acct Special Tax Funds Interest Acct Principal Fund Reserve Fund Admin Exp Acct Surplus Acct WELLS FARGO 2013 Total Road Improvement COPs Money Market Fund Money Market Fund Money Market Fund Money Market Fund Money Market Fund Money Market Fund Us Treasuty Note Money Market Fund Money Market Fund Money Market Fund Money Market Fund Money Market Fund Money Market Fund US Treasury 1,140,530 6, ,030,067 10,485 24, , ,466 1, ,717 2,143 4,482 3,406, % 1.00% % 0.120% 4% % 0.204% 0.484% 9.881% 6.061% 0.036% 1% 7.137% 0.042% 0.087% Revenue Fund Interest Fund Principal Fund Reserve Fund Admin Fund ,755 Surplus Fund SAMPLE 3,498 WELLS FARGO 2013 Partial Refunding of the 2005 Lease Revenue Bonds Revenue Fund Interest Fund Principal Fund WELLS FARGO 2013 Community Facilities District 7 Improvement Area 1 Special Tax Fund ,075 Bond Fund ,791 Reserve Fund ,156 Admin Exp Acct ,025 WELLS FARGO 2016 Taxable Refunding Lease Revenue Bonds (Electric Utility) 0% 7% 7% 0% 0.054% 0% 0% 1% 4% 6.385% 5.114% 3.331% 0% Revenue Fund Interest Fund Principal Fund Reserve Fund Capitalized Interest Fund , ,821 4% 0% 0% 0% 3.535% WELLS FARGO 2014 Partial Refunding of the 2005 Lease Revenue Bonds Revenue Fund Interest Fund Principal Fund WELLS FARGO 2014 Partial Refunding of the 2005 Lease Revenue Bonds % 3% 0% Revenue Fund Interest Fund Principal Fund Reserve Fund Construction Fund Construction Fund Government Pool Local Agency Investment Fund Totals 2, ,290 5,138, % 0.01% 0.045% 0% 0% 0% 0% 0% 100% Type Issuer Market Value SUMMARY OF BOND PROCEEDS WITH FISCAL AGENTS Construction Funds Principal & Interest Accounts Debt Service Reserve Funds Custody Accounts Arbitrage Rebate Accounts Other Accounts Total Fiscal Agent Funds 689,355 1,988,637 2,115, ,144 4,482 12,632 5,138,484 23

24 WHERE TO LEARN MORE ABOUT PUBLIC INVESTING? There are a number of online and print resources available for those that want to know more about public investing. 24

25 California State TREASURER S OFFICE The California Debt and Investment Advisory Commission (CDIAC) has an extensive listing of resources available on their website ( CDIAC operates out of the California State Treasurer s Office and provides guidance on public investment and municipal debt programs within the State. LOCAL AGENCY INVESTMENT FUND (LAIF) The Local Agency Investment Fund (LAIF) is a voluntary program created by statute that began operation in The fund offers local agencies the opportunity to participate in a major portfolio, which invests hundreds of millions of dollars, using the investment expertise of the State Treasurer s Office investment staff at no additional cost to the taxpayer. The program provides participants with same day access to their funds while providing rates similar to the 1 year Treasury. The LAIF has grown from 293 participants and $468 million in 1977 to 2,401 participants and $20.2 billion at the end of September Historical earnings rates and other program related data can be found at the State Treasurer s website ( 25

26 Government Financial OFFICERS ASSOCIATION The Government Financial Officers Association (GFOA) is an association of more than 19,000 federal, state and local finance officials that provides best-practice guidance, research and training and educational materials related to public finance. Their website ( provides additional information on public investing and public finance in general. 26

27 GLOSSARY AGENCY A debt security issued by a federal or federally sponsored agency. See Government Sponsored Enterprises (GSE). AMORTIZATION The systematic reduction of the amount owed on a debt issue through periodic payments of principal. AVERAGE LIFE The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding. BASIS POINT A unit of measure used in the valuation of fixedincome securities equal to 1/100 of 1 percent of yield, e.g., ¼ of 1 percent is equal to 25 basis points. BENCHMARK A comparative base for measuring the performance or risk tolerance of the investment portfolio. BOND LADDER A strategy for managing fixed-income investments with which the investor builds a ladder by dividing his or her investment dollars evenly among bonds that mature at regular intervals. The advantages of bond ladders are consistent returns, low risk and ongoing liquidity. BOND RATING A specification of the possibility of default by a bond issuer based on an analysis of the issuer s financial condition. BROKER A broker brings together buyers and sellers for a commission. CREDIT QUALITY The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer s ability to make timely interest payments and repay the loan principal upon maturity. Generally the higher the credit rating the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. CREDIT RISK The risk to an investor that an issuer will default in the payment of interest and/or principal on a security. FEDERAL FUNDS RATE Interest rate charged by one institution lending federal funds to the other. FEDERAL OPEN MARKET COMMITTEE (FOMC)- A committee of the Federal Reserve Board that reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. GOVERNMENT SECURITIES An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U. S. securities market. See Treasury Bills, Notes, and Bonds. GOVERNMENT SPONSORED ENTERPRISES (GSE) Entities chartered by Congress to achieve specific goals and objectives which include, FHLB, FNMA, FHLMC, FFCB, FACO, FICO, GNMA, REFCORP, SBA and TVA. Debt issued by GSE s is not the obligation of the federal government and typically falls just below Treasuries in creditworthiness. INTEREST RATE RISK The risk associated with declines or rises in interest rates which cause an investment in a fixed-income security to increase or decrease in value. INVESTMENT POLICY A concise and clear statement of the objectives and parameters formulated by an investor of investment manager for a portfolio of investment securities. INVESTMENT STRATEGY An investor s plan of attack to guide their investment decisions based on individual goals, risk tolerance and future needs for capital. The components covered in most investment strategies include asset allocation, buy and sell guidelines, and risk guidelines. LIQUIDITY The ability of an asset to be easily and quickly converted into cash. LOCAL AGENCY INVESTMENT FUND (LAIF) A fund maintained and operated by the State of California which pools investment funds for local agencies who voluntarily participate. MATURITY The date on which payment of a financial obligation is due. MEDIUM TERM NOTES (MTN) A medium term note is a note that usually matures in five to 10 years or a corporate note continuously offered by a company to investors through a dealer. PRINCIPAL The face value or par value of a debt instrument. Also may refer to the amount of capital invested in a given security. REINVESTMENT RISK The risk that a fixed-income investor will be unable to reinvest income proceeds from a security holding at the same rate of return currently generated by that holding. SAFEKEEPING Holding of assets (e.g., securities) by a financial institution. SECONDARY MARKET The market on which previously offered or sold securities are traded. SPREAD The difference between the bid and ask prices of a security or asset. The difference between yields. SUPRANATIONALS Supranational is an international organization or union in which member states transcend national boundaries or interests to share in the decision making and vote on issues pertaining to the wider grouping. TREASURY BILLS Short-term U.S. government non-interest bearing debt securities with maturities of no longer than one year and issued in minimum denominations of $10,000. The yields on these bills are monitored closely in the money markets for signs of interest rate trends. TREASURY NOTES Intermediate U.S. government debt securities with maturities of one to ten years and issued in denominations ranging from $1,000 to $ 1 million or more. TREASURY BONDS Long-term U.S. government debt securities with maturities of ten years or longer and issued in minimum denominations of $1,000. VOLATILITY A degree of fluctuation in the price and valuation of securities. YIELD The current rate of return on an investment security generally expressed as a percentage of the security s current price. YIELD CURVE A graphic representation that depicts the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may alternatively be referred to as a positive yield curve.

28 City of Moreno Valley Financial & Management Services Frederick Street Moreno Valley, CA Tel