City of Rowlett, Texas Investment Performance Review

Transcription

1 City of Rowlett, Texas Investment Performance Review Quarter Ended March 31, 2011 Investment Advisors Steven Alexander, CTP, CGFO, Managing Director Mel Hamilton, Senior Managing Consultant PFM Asset Management LLC David Jang, CTP, Senior Managing Consultant Gregg Manjerovic, CFA, Portfolio Manager 300 S. Orange Avenue, Suite 1170 Orlando, FL (407) (407) fax One Keystone Plaza, Suite 300 North Front & Market Streets Harrisburg, PA Rebecca Dole, CTP, Consultant fax

2 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Table of Contents Tab I. A. Market Review Tab II. B. Portfolio Summary of All Accounts C. Pooled Funds D. Long Term Pooled Fund E. Asset Allocation Chart as of March 31, 2011 F. Investment Officer's Certification Tab III. Tab IV. January 31, 2011 PFM Month-End Statement February 28, 2011 PFM Month-End Statement March 31, 2011 PFM Month-End Statement (statements are available online at January 31, 2011 TexPool Month End Statements February 28, 2011 TexPool Month End Statements March 31, 2011 TexPool Month End Statements This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or recommendation. The information contained in this report is not an offer to purchase or sell any securities. Table of Contents Section i

3 April 18, 2011 Weekly Market Update PFM Asset Management LLC 300 S. Orange Avenue, Ste Orlando, FL (407) Yes-2-PFM David Jang, CTP Jonathan Spero Melissa Lindman Author Analyst Editor

4 I Think We Need A Budget GPS Source: gocomics.com 1

5 S&P Downgrades U.S Debt Outlook To Negative Early Monday morning, Standard & Poor s, one of the top global ratings agencies, downgraded the outlook on U.S. debt to negative from its previous outlook of stable. The U.S. still maintains a AAA rating, however a negative outlook means that a downgrade in the next six months to two years is possible. Most experts maintain that a downgrade of U.S debt is extremely unlikely, although the S&P outlook downgrade technically means that there is a 1 in 3 chance of a downgrade. A downgrade of the debt would push Treasury yields significantly higher. The main reasons that S&P gave for the downgrade are the growing United States deficit as well as turmoil in Washington concerning a new budget plan. Equities markets took a large hit on Monday and ended the trading day down over 1%. Treasuries originally went down as well, however they rebounded late in the day as investors hoped the S&P downgrade could serve as a wakeup call to politicians that an agreement must be reached soon. European markets fell also and gold surged above $1,500/ounce as investors rushed to a safe haven investment. Throughout the day, foreign governments expressed their remaining confidence in United States debt as the benchmark debt instrument in the global economy. A White House spokesman reassured investors that a political agreement will be reached and the markets should remain calm after the news. Source: WSJ 2

6 Trade Deficit Narrows Slightly, Does Not Reflect Recent Events The U.S. Trade Deficit narrowed in February to $45.8 billion from $47.0 billion in January. This number missed estimates of a $44.0 billion trade deficit. Since this release contains data from February, the deficit is somewhat outdated as oil is now significantly more expensive than it was two months ago. This could widen the trade deficit significantly in the next few releases. A number that could potentially offset the rise in oil is a lack of imports from Japan due to decreased production by the Japanese after the earthquakes. $80 U.S. Trade Deficit February 1997 February 2011 $70 $60 Billio ons $50 $40 $30 $20 $10 $0 Feb '97 Feb '99 Feb '01 Feb '03 Feb '05 Feb '07 Feb '09 Feb '11 The U.S. Trade Deficit is equal to U.S. imports of goods and services less U.S. exports of goods and services. It is a component of GDP. Source: Bloomberg 3

7 Retail Sales Stay Strong Retail sales rose 0.4% in March, slightly missing analyst estimates for a 0.5% increase. The main contributor to the healthy rise was gasoline station sales, however auto sales were very poor, causing the headline number to come in higher than the report excluding gas and autos. Other notable sectors that were higher in February were building materials and electronic stores. This report shows continued strength on the consumer side despite the headline number missing forecasts. 4% Retail Sales (Month over Month) March 2007 March % 2% 1% 0% -1% -2% -3% -4% Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Advance Retail Sales Retail Sales Ex Auto and Gas Retail Sales represent the month over month change in total receipts at retail stores. It is an early indicator of consumer spending, which is a large component of GDP. As auto and gas sales can be volatile, retail sales are often viewed without these components. Source: Bloomberg 4

8 The President Pledges To Cut Deficit: $4 Trillion Over 10 Years President Obama outlined his vision for how to cut the deficit: About 88% of the budget goes to Medicare, Medicaid, Social Security, national security, unemployment insurance, student loans, veterans' benefits, and tax credits for working families. Most budget cuts are focused on the remaining 12%. The President s proposed spending cuts focus on trimming wasteful military spending and working on ways to make healthcare more efficient and affordable, which will lead to lower health care costs without cutting services. At the same time, the President promised to allow the Bush tax-cuts for the rich to lapse and called for Congress to reform and simplify the tax code, including limiting certain itemized deductions for wealthy Americans. Source: Obama s April 13 th Speech Transcription on 5

9 A New Natural Rate of Unemployment? Before the recession, the natural rate of unemployment the lowest sustainable rate of unemployment was estimated to be around 5 percent in the United States. The economic turmoil of the past few years has led some experts to believe that the natural rate has increased to between 8 and 9 percent. Some view the employment losses in the construction and financial sectors as permanent. However, historically, declines in specific sectors do not add to natural unemployment as displaced workers move to new sectors over time. Some attribute the alleged increase to underwater mortgages that prevent individuals from selling their homes, thus decreasing worker mobility. However, recent studies show that t employment is low in all areas of the country, making worker mobility irrelevant to the problem. Evidence suggests that the spike in unemployment is consistent with lower current demand rather than a permanent increase in the natural rate. The most recent Survey of Professional Forecasters (conducted in the third quarter of 2010) suggests that the natural rate of unemployment is 5.76%. The current 8.8% unemployment rate, suggests a cyclical unemployment of approximately 3%. This 3% is not a permanent increase in the natural rate, but rather the result of a lack of labor demand, even in industries that seem to be recovering quickly. Consumers remain cautious about spending because debt and unemployment remain high. Businesses are unwilling to invest in new workers, because consumers are not demanding enough goods and credit remains tight. Source: Christina Romer The New York Times 6

10 Potential Effects Of A Weaker Dollar The U.S. dollar has depreciated during the past couple months against most international currencies. Factors for the depreciation range from the Japanese earthquake to U.S. government intervention in the economy. A lower dollar will lead to increased U.S. exports since goods to be shipped abroad will be cheaper. At the same time, other currencies have appreciated against the dollar, causing imports to become more expensive. Foreign goods in the United States may become more costly and this could have an immediate impact on consumer spending domestically. On a global scale, capital infusion will go toward countries with higher interest rates such as Australia, therefore appreciating the Australian dollar and the currency of other Asian economies with higher interest rates. U.S. Dollar Index January 1, 2011 April 15, USD/AUS Dollars January 1, 2011 April 15, The USD Index measures the performance of the US Dollar against a basket of currencies: EUR, JPY, GBP, CAD, CHF and SEK. Source: Bloomberg 7

11 Employment Decreases, Despite Lower Unemployment Rate The ratio of employed individuals to the total population has continued to decrease since the end of the recession in June As of March 31, 2011, the ratio stands at 58.1%, down 5.2 percentage points since its pre-recession high of 63.3% in the first quarter of These decreases are occurring despite recent declines in unemployment, indicating that the headline unemployment rate may not give an accurate picture of the employment situation. Declining employment translates into lower consumer demand and lower tax revenues, which, in turn, adversely affects economic output and discourages companies from hiring. Continued unemployment will also deter the Fed from raising rates, which will keep short-term rates and pool yields low. 65% Employed Population as a Percentage of Total Civilian Non-institutionalized Population* March 2002 March % 59% 56% 53% 50% Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 * Includes individuals who are over the age of 16, are not institutionalized, and are not on active duty in the Armed Forces. Source: Bureau of Labor Statistics 8

12 PPI Continues To Indicate Building Inflation The Producer Price Index rose by 0.7% in March after surging 1.6% in February. The March number missed analyst expectations of 1.0%. The increase was due mostly to spikes in energy and gasoline, which rose 2.6% and 5.7%, respectively. Food fell by 0.2% after a 3.9% surge in February. Core PPI matched analyst expectations, increasing by 0.2%. This rise was led by motor vehicle prices, particularly passenger cars and light trucks. PPI is still showing signs of moderate inflation moving forward, which could put upward pressure on intermediate- and long-term interest rates. 3% Producer Price Index (Month over Month) March 2009 March % 1% 0% -1% -2% -3% -4% Mar '09 Jul '09 Nov '09 Mar '10 Jul '10 Nov '10 Mar '11 PPI (MoM) PPI ex Food & Energy (MoM) The Producer Price Index (PPI) represents the change in the average price level for a fixed basket of capital and consumer goods received by producers. The PPI is a good early indicator of inflation, as rising producer costs often push prices higher. Source: Bloomberg 9

13 Headline CPI High, While Core Remains Subdued Energy s 3.5% increase and food s 0.8% rise lead headline CPI to increase 0.5% in March, matching February s 0.5% jump. Gasoline prices continue to rise and are up 10.6% over the last two months. While food and energy prices are heating up, core CPI remains cool with price decreases in apparel and home furnishings bringing down the overall number. The Fed s focus on core inflation will likely inform their decision to continue to keep rates low; however, consumers will feel the cost pressures of rising food and energy prices if the Fed does not take steps to cool inflation. 1.0% Consumer Price Index (Month Over Month) March 2009 March % 00% 0.0% -0.5% -1.0% Mar '09 Jul '09 Nov '09 Mar '10 Jul '10 Nov '10 Mar '11 Consumer Price Index (MoM) CPI Ex Food& Energy (MoM) The Consumer Price Index (CPI) represents the month over month change in prices of goods and services purchased by urban households. Urban households represent about 80% of total U.S. population. CPI is one of the most widely followed indicators of inflation. Source: Bloomberg 10

14 Consumer Sentiment Rebounds Off Lows Consumer sentiment beat analyst expectations of 69.0, coming in at for the first half of April. Although this is an improvement from March s 67.5, sentiment remains near six-month lows. The gain was led by the expectations component and the current component, both of which performed better than anticipated. Overall, the report was positive, indicating a rebound off sentiment lows. 110 University of Michigan Consumer Sentiment April 2001 April Apr '01 Apr '03 Apr '05 Apr '07 Apr '09 Apr '11 Current Level 10 Yr. Average The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Source: Bloomberg 11

15 Inflows To U.S. Securities Continue To Decline TIC flows were lower in February than in January, with a net inflow of $26.9 billion. The drop-off came from fewer foreign purchases of Treasuries and equities, in addition to net outflows from government agency bonds and corporate bonds. The largest impact on TIC flows going forward will likely be from decreased Treasury holdings by Japan as they repatriate funds to rebuild from the earthquakes. $150 Foreign Demand For Long-Term U.S. Securities (TIC Flows) February 2006 February 2011 $100 ons Billi $50 $0 -$50 -$100 Feb '06 Feb '07 Feb '08 Feb '09 Feb '10 Feb '11 Monthly Treasury International Capital (TIC) Flows represent demand for US Treasury securities by foreign nations. The net number is the difference between assets purchased and sold. Source: Bloomberg 12

16 2-Year U.S. Treasury Yields Fall Sharply 2-year U.S. Treasury yields tumbled 0.13% this week to close at 0.68% on Friday. Yields declined early this week due to mounting fears over the Fukushima reactor, which had its crisis-severity level upgraded to match Chernobyl. Yields continued their decline during the rest of the week, precipitated by President Obama s pledge to cut the budget deficit by $4 trillion and renewed uncertainty regarding the European debt crisis. The 0.13% drop is the largest weekly decline since the end of February. 1.2% 2-Year U.S. Treasury Yields April 1, 2010 April 15, % 1.1% 1.0% 0.9% 08% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Source: Bloomberg 13

17 Upcoming Economic Releases

18 Jobless Claims Continue To Fall Slowly Initial jobless claims fell by 10, two weeks ago to 382,000. Analysts estimated that jobless claims would fall by 7,000. The four-week average stands at 389,500, which is down 5,000 from a month ago. This is the fifth consecutive week that the average has been below 400,000, however this positive jobless claims report was offset by another earthquake in Japan and equities markets moved lower Thursday. Continuing claims moved higher by 10,000 to million. Continuing Jobless Claims April 2001 April 2011 Initial Jobless Claims March 2001 March , , Thousan nds 5,000 4,000 3,000 Thousan nds , ,000 Apr '01 Apr '03 Apr '05 Apr '07 Apr '09 Apr ' Mar '01 Mar '03 Mar '05 Mar '07 Mar '09 Mar '11 New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. Source: Bloomberg 15

19 Housing Starts And Building Permits Should Rebound Housing starts fell 22.5% in February to an annualized pace of 479,000 after a strong January. This report severely missed estimates of 560,000. Most analysts say that the January number was inflated for the winter months, and severe weather caught up to housing starts in February. Building permits fell 8.2% in February to an annualized pace of 517,000 after improving 10.2% in January. The housing market is still weak, but probably not quite as poor as this report suggests. Analysts project housing starts at 520,000 and building permits at 540,000. 2,400 Housing Starts and Building Permits February 2001 February ,900 ands Thous 1, Feb '01 Feb '03 Feb '05 Feb '07 Feb '09 Feb '11 Housing Starts Building Permits Housing Starts represents the number of residential buildings which have begun construction in each month. The start of construction is defined as the beginning of excavation of the foundation for a building. Source: Bloomberg 16

20 Existing Home Sales Projected To Rise Slightly February existing home sales fell 9.6% to an annual rate of 4.88 million. This is the second consecutive very poor report from the housing market after pending home sales had a terrible January report last week. Average months supply rose from 7.5 months in January to 8.6 months in February. The median home price slipped in February, down slightly to $156,000, and supply continued to rise. The housing market has been the weakest part of the economic recovery by far, especially given the drop in unemployment. The market will remain poor as long as home buyers remain cautious. Analysts expect existing home sales to rise to 5.0 million this release. 8 Existing Home Sales February 2001 February Millions Feb '01 Feb '03 Feb '05 Feb '07 Feb '09 Feb '11 Existing home sales represents the number of sales in each month of previously constructed homes, condominiums, and co-ops. Existing homes are often a better indicator of trends in the housing market, as they account for a larger share of the market than new homes. Source: Bloomberg 17

21 Economic Calendar Market-moving economic releases Date Event Survey Actual Prior Revised 4/18/2011 NAHB Housing Market Index /19/2011 Building Permits MOM% 1.10% % -5.20% 4/19/2011 Housing Starts MOM% 8.60% % - - 4/19/2011 Building Permits 540K K 534K 4/19/2011 Housing Starts 520K K - - 4/20/2011 MBA Mortgage Applications % - - 4/20/2011 Existing Home Sales MoM 2.50% % - - 4/20/2011 Existing Home Sales 5.00M M - - 4/21/2011 Initial Jobless Claims /21/2011 Continuing Claims /21/2011 Bloomberg Economic Expectations /21/2011 Bloomberg Consumer Comfort /21/2011 House Price Index MoM % - - 4/21/2011 Leading Indicators 0.30% % - - 4/21/2011 Philadelphia Fed /21/2011 RPX Composite 28dy YoY % - - 4/21/2011 RPX Composite 28dy Index Source: Bloomberg 18

22 World Equity Indices 6,300 FTSE (UK) 7,700 DAX (Germany) 11,600 NIKKEI (Japan) 5,700 6,800 10,400 5,100 5,900 9,200 4,500 5,000 8,000 Apr '10 Aug '10 Dec '10 Apr '11 Apr '10 Aug '10 Dec '10 Apr '11 Apr '10 Aug '10 Dec '10 Apr '11 YoY FTSE Return: 3.2% YoY DAX Return: 14.1% YoY NIKKEI Return: -13.6% Shanghai (China) ASX (Australia) Dow Jones (USA) 3,500 5,200 13,100 3,000 4,800 11,900 2,500 4,400 10,700 2,000 Apr '10 Aug '10 Dec '10 Apr '11 4,000 9,500 Apr '10 Aug '10 Dec '10 Apr '11 Apr '10 Aug '10 Dec '10 Apr '11 YoY Shanghai Return: -2.5% YoY ASX Return: -1.8% YoY Dow Jones Return: 10.3% Current Price 200-Day Moving Avg. 50-Day Moving Avg. The moving average shown is a simple moving average, which is the unweighted mean of the 50 / 200 previous days prices. Moving averages smooth price data and are frequently used as technical indicators. Prices as of April 13, 2011 Source: Bloomberg 19

23 U.S. Treasury Yield Curve 5% US U.S. Treasury Yield ldcurve 4/13/10 4/6/11 4/13/11 Change Over Week Change Over Year 4% 3 month 0.15% 0.05% 0.05% 0.00% % 6 month 0.23% 0.13% 0.10% % % Yield 3% 2% 1 year 0.43% 0.28% 0.22% % % 2 year 1.05% 0.84% 0.73% -0.11% -0.32% 3 year 1.65% 1.33% 1.23% % % 1% April 13, 2010 April 6, 2011 April 13, year 2.57% 2.32% 2.17% % % 10 year 3.82% 3.55% 3.46% % % 0% 361 my 2 y 3 y 5 y 10 y 30 y 30 year 4.68% 4.59% 4.54% % % Maturity Source: Bloomberg 20

24 Indicative Investment Rates Money Markets Current Yield Change over Week Change over Month Change over Year U.S. Treasury 1 month 0.02% -0.01% -0.01% -0.13% 3 months 0.05% -0.01% -0.02% -0.10% 6 months 0.11% -0.03% -0.02% -0.13% 12 months 0.23% -0.05% 0.00% -0.20% Agency Discount Notes 7-day 0.01% -0.02% -0.05% -0.13% 1 month 0.03% -0.02% -0.04% -0.12% 3 months 0.07% -0.02% -0.04% -0.10% 6 months 0.13% -0.02% -0.02% -0.13% 9 months 0.18% -0.01% 0.01% -0.20% 12 months 0.26% -0.04% -0.05% -0.29% Certificates of Deposit 1 month 0.18% -0.02% -0.07% -0.05% 3 months 0.21% -0.08% -0.08% -0.06% 6 months 0.32% -0.19% -0.02% -0.05% 9 months 0.56% -0.09% 0.06% 0.08% 12 months 0.60% -0.03% 0.08% -0.18% Commercial Paper 7-day 0.15% 0.00% -0.04% -0.05% 1 month 0.22% -0.02% -0.05% 0.00% 3 months 0.31% -0.02% -0.05% 0.01% 6 months 0.48% -0.04% 04% -0.01% 01% 0.07% 07% 9 months 0.56% -0.01% -0.14% 0.00% Rates as of April 13, 2011 Source: Bloomberg 21

25 Indicative Investment Rates Intermediate Term Current Yield Change over Week Change over Month Change over Year U.S. Treasury 2 year 0.73% -0.10% 0.09% -0.32% 3 year 1.24% -0.09% 0.10% -0.42% 5 year 2.17% -0.14% 0.11% -0.41% Agency Bullets 2 year 0.92% -0.08% 0.12% -0.30% 3 year 1.41% -0.11% 0.07% -0.44% 5 year 2.52% -0.12% 0.13% -0.25% Rates as of April 13, 2011 Source: Bloomberg 22

26 Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. 23

27 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Executive Summary PORTFOLIO STRATEGY The City s Pooled Fund and Long Term portfolios are of high credit quality and maintain adequate liquidity. The portfolios are invested entirely in Federal Agency, and U.S. Treasury securities. The securities are allocated among high quality issuers rated AAA. The U.S. economy continued to show signs of modest improvement in the first quarter of Fourth quarter 2010 GDP was released at $13.38 trillion, surpassing the previous peak of $13.36 trillion in the second quarter of Over the quarter, interest rates were volatile across the yield curve due to positive economic releases, such as the manufacturing and employment reports, and significant developments abroad, such as the political turmoil in the Middle East and the earthquake in Japan. Despite the volatility, intermediate-term yields finished the quarter 20 basis points higher than the previous quarter on signs of better growth prospects and higher inflation expectation in the U.S. The City s Long Term Portfolio performed well for the first quarter, especially in an environment of low yields and increased volatility. Strategically adjusting the portfolio s duration over the quarter between the range of 90% and 100% of the benchmark s duration contributed positively to returns. Further, the portfolio s allocation to the federal agency sector added additional value as credit spreads narrowed. The portfolio s return of 0.09%, outperformed the benchmark s return of 0.03% by 6 basis points (0.06%). In an interest rate environment where yields remain at or near record lows, we will continue to position the portfolio s duration short of the benchmark s duration to reduce interest rate risk and the market value erosion that will occur if rates rise. The Pooled Funds Portfolio continues to provide the City with favorable yield relative to the benchmark. At quarter end the portfolio had a Yield to Maturity at Cost of 0.65%, exceeding the Yield of TexPool by 50 basis points (0.50%). In addition, at quarter end, the Pooled Fund and Long Term Portfolios combined Yield to Maturity at Cost of 1.16% exceeded the Yield of TexPool by 101 basis points (1.01%). PFM will continue to follow the prudent investment strategies that have safely provided the City with favorable long-term performance during this period of historic low interest rates. Although interest rates have rebounded from all time lows, we believe the Federal Reserve is highly unlikely to change its policy in the short term. Economists expect the second round of quantitative easing will run its course, through June. However, an internal debate over monetary policy among the Fed Governors has been at the forefront of the conversation in Washington throughout the first quarter. Such heated debate may be a sign that monetary policy change is on the horizon, although not in the near term. As long as the economy continues to stay the course, we expect the first interest rate tightening to occur sometime after the first quarter of While near-time events (Japan earthquake, continued Middle East uncertainty) could slow the pace of economic growth, the economy appears to be on track for continued modest growth over the next several quarters. Many positive economic forces, such as strength in manufacturing, improving job market, strong corporate earnings supporting continued rising stock prices, and solid retail sales indicate the economy is in the growth phase. PFM Asset Management LLC Section B - 1

28 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio Statistics Amortized Cost and Market Value Amortized Cost 1,2,3 Amortized Cost 1,2,3 Market Value 1,2,3 Market Value 1,2,3 Duration (Years) Account Name March 31, 2011 December 31, 2010 March 31, 2011 December 31, 2010 March 31, 2011 Pooled Funds $2,449, $6,303, $2,451, $6,313, Long Term Pooled Funds 18,878, ,900, ,987, ,041, TexPool 47,389, ,045, ,389, ,045, Total $68,717, $66,249, $68,828, $66,400, Yield to Maturity Yield to Maturity Yield to Maturity Yield to Maturity Yields on Cost 4 on Cost 4 at Market at Market Duration (Years) Account Name March 31, 2011 December 31, 2010 March 31, 2011 December 31, 2010 December 31, 2010 Pooled Funds 0.65% 0.91% 0.16% 0.27% Long Term Pooled Funds 1.23% 1.31% 0.71% 0.65% TexPool % 0.17% 0.15% 0.17% Weighted Average YTM 0.46% 0.50% 0.30% 0.29% PFM Managed Portfolios Weighted Average YTM 1.16% Notes: Monthly Interest earnings YTD 6, 7 October 2010 $45, April 2011 $0.00 November 2010 ($23,962.14) May 2011 $0.00 December 2010 ($5,635.78) June 2011 $0.00 January 2011 $27, July 2011 $0.00 February 2011 ($1,698.20) August 2011 $0.00 March 2011 $6, September 2011 $ On a trade-date basis, including accrued interest. 2. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances. 3. Excludes any money market fund/cash balances held in custodian account. 4. Past performance is not indicative of future results. 5. TexPool yield is obtained from 6. Earnings are calculated on a cash basis and are subject to the receipt of coupon payments, maturities within the portfolio, and money market fund balances. 7. Earnings are net of fees. PFM Asset Management LLC Section B - 2

29 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio Amortized Cost and Market Value Analysis 12/31/ /31/ /31/2010 3/31/2011 3/31/2011 3/31/2011 CHANGE IN MONEY MARKET FUNDS MATURITY ACCRUED AMORTIZED MARKET ACCRUED AMORTIZED MARKET MARKET CUSIP DESCRIPTION PAR COUPON DATE INTEREST COST VALUE INTEREST COST VALUE VALUE TEXPOOL TEXPOOL ,045, ,045, ,389, ,389, % $0.00 $45,045, $45,045, $0.00 $47,389, $47,389, % TOTAL $0.00 $45,045, $45,045, $0.00 $47,389, $47,389, % POOLED FUNDS FED AGY BOND/NOTE 3134A4DY7 FHLMC GLOBAL REFERENCE NOTES $1,810, /15/11 $29, $1,829, $1,829, $0.00 $0.00 $ % 31398AWQ1 FNMA GLOBAL NOTES 1,435, /28/11 3, ,437, ,440, , ,435, ,436, % 31398AVQ2 FNMA NOTE 1,990, /23/11 9, ,990, ,996, % $5,235,000 $42, $5,257, $5,266, $8, $1,435, $1,436, % US TSY BOND/NOTE MJ6 US TREASURY NOTES $1,000, /31/12 $0.00 $0.00 $0.00 $1, $1,004, $1,004, % KE9 US TREASURY NOTES 1,000, /28/11 2, ,000, ,001, % $2,000,000 $2, $1,000, $1,001, $1, $1,004, $1,004, % TOTAL $8,243,000 $45, $6,257, $6,267, $9, $2,439, $2,441, % LONG TERM POOLED FUND FED AGY BOND/NOTE 3137EABZ1 FHLMC GLOBAL NOTES $1,200, /26/11 $0.00 $0.00 $0.00 $0.00 $0.00 $ % 3133XTAW6 FHLB GLOBAL BONDS 985, /13/12 4, , ,007, , , ,003, % 31398AYM8 FNMA NOTES 1,570, /10/12 10, ,564, ,599, , ,565, ,595, % 31398AJ94 FNMA GLOBAL NOTES 1,005, /07/13 2, ,002, ,026, , ,002, ,021, % 3137EACF4 FHLMC NOTES 498, /15/ , , , , , % 3133XGVF8 FHLB GLOBAL BONDS 905, /14/13 17, ,000, ,002, , , , % 3137EACL1 FHLMC NOTES 810, /28/13 2, , , , , , % 31398AZ88 FNMA GLOBAL NOTES (CALLABLE) 1,000, /04/14 6, ,000, ,000, % 31398AB43 FNMA NOTES 2,260, /12/12 9, ,254, ,269, , ,255, ,269, % $4,760,000 $54, $9,122, $9,213, $37, $8,114, $8,183, % US TSY BOND/NOTE QL7 US TREASURY NOTES $2,500, /31/2013 $0.00 $0.00 $0.00 $ $2,497, $2,498, % PZ7 US TREASURY NOTES 2,500, /15/2014 $0.00 $0.00 $0.00 1, ,498, ,499, % KP4 US TREASURY NOTES 2,000, /15/2012 3, ,997, ,026, , ,997, ,022, % LB4 US TREASURY NOTES 1,500, /15/ , ,499, ,524, , ,499, ,520, % PD6 US TREASURY NOTES 1,620, /31/2012 1, ,619, ,615, , ,619, ,614, % PU8 US TREASURY NOTES 600, /15/ , , , , , % $1,500,000 $15, $5,708, $5,758, $20, $10,706, $10,745, % TOTAL $6,260,000 $69, $14,831, $14,971, $58, $18,820, $18,929, % TOTAL PORTFOLIO $16,519,000 $115, $66,134, $66,284, $68, $68,649, $68,759, % PFM Asset Management LLC Section B - 3

30 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio Composition and Credit Quality Characteristics Security Type 1 March 31, 2011 % of Portfolio December 31, 2010 % of Portfolio U.S. Treasuries $11,772, % $6,778, % Federal Agencies 9,666, % 14,576, % Commercial Paper % % Certificates of Deposit % % Bankers Acceptances % % Repurchase Agreements % % Municipal Obligations % % Corporate Notes/Bonds % % TexSTAR % % TexPool 47,389, % 45,045, % Totals $68,828, % $66,400, % Federal Agency Obligations 14% Portfolio Composition as of 03/31/11 TexPool 69% Credit Quality Distribution² ³ as of 03/31/11 TSY 17% AAA 83% U.S. Treasuries 17% Notes: 1. End of quarter trade-date market values of portfolio holdings, including accrued interest. 2. Credit rating of securities held in portfolio, exclusive of money market fund/lgip. Standard & Poor's is the source of the credit ratings. 3. A rating of "TSY" indicates the security is an obligation of, or explicitly guaranteed by the U. S. Government. PFM Asset Management LLC Section B - 4

31 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio Maturity Distribution Maturity Distribution 1 March 31, 2011 December 31, 2010 Overnight (Money Market Fund) $47,389, $45,045, Under 6 Months 1,444, ,313, Months 3,782, , Years 7,788, ,082, Years 8,423, ,449, Years ,007, Years Years and Over Totals $68,828, $66,400, Percentage of Total Portfolio o 80% 70% 60% 50% 40% 30% 20% 10% 0% 69% 68% 10% 5% 2% 1% Portfolio Maturity Distribution¹ March 31, 2011 December 31, % 11% 12% 5% 0% 2% 0% 0% 0% 0% Overnight Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over Notes: 1. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. PFM Asset Management LLC Section B - 5

32 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio General Ledger Entries 1 Earnings Calculation 1/31/2011 Market Value Basis Source Document January Market Value 72,502, Account Summary Page January Accrued Interest 126, Account Summary Page Less (Purchases & Deposits) (7,228,824.80) 3 Security Transactions & Interest Less Purchased Interest (3,733.02) 4 Security Transactions & Interest Add (Sales, Maturities, Paydowns, Withdrawals) 1,000, Security Transactions & Interest Add Interest Receipts 32, Security Transactions & Interest Less December Market Value (66,284,929.30) 7 Account Summary Page Less December Accrued Interest (115,366.75) 8 Account Summary Page Earnings 28, Change in Investment Market Value 6,217, (1-7) Change in Accrued Interest 11, (2-8) Change in Cash (6,200,430.29) (sum 3 thru 6) Investment Entries To Record Investment Activity Debit Credit Source Document Cash 6,228, Security Transactions & Interest Investments 6,217, Amortization/Accretion Investment Income 10, Earnings To record investment income/changes Cash 28, Security Transactions & Interest Accrued Interest 11, Accrued Interest Difference Investment Income 39, Earnings To record interest income/changes Notes: 1. Earnings are calculated using Market Value. This includes unrealized gains and losses, and income. PFM Asset Management LLC Section B - 6

33 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio General Ledger Entries 1 Earnings Calculation 2/28/2011 Market Value Basis Source Document February Market Value 67,847, Account Summary Page February Accrued Interest 108, Account Summary Page Less (Purchases & Deposits) (5,062,343.82) 3 Security Transactions & Interest Less Purchased Interest - 4 Security Transactions & Interest Add (Sales, Maturities, Paydowns, Withdrawals) 9,687, Security Transactions & Interest Add Interest Receipts 54, Security Transactions & Interest Less January Market Value (72,509,526.79) 7 Account Summary Page Less January Accrued Interest (126,500.79) 8 Account Summary Page Earnings (393.34) Change in Investment Market Value -4,662, (1-7) Change in Accrued Interest (17,576.02) (2-8) Change in Cash 4,679, (sum 3 thru 6) Investment Entries To Record Investment Activity Debit Credit Source Document Cash 4,624, Security Transactions & Interest Investments 4,662, Amortization/Accretion Investment Income 37, Earnings To record investment income/changes Cash 54, Security Transactions & Interest Accrued Interest 17, Accrued Interest Difference Investment Income 36, Earnings To record interest income/changes Notes: 1. Earnings are calculated using Market Value. This includes unrealized gains and losses, and income. PFM Asset Management LLC Section B - 7

34 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Summary Portfolio General Ledger Entries 1 Earnings Calculation 3/31/2011 Market Value Basis Source Document March Market Value 63,756, Account Summary Page March Accrued Interest 66, Account Summary Page Less (Purchases & Deposits) (4,999,360.30) 3 Security Transactions & Interest Less Purchased Interest - 4 Security Transactions & Interest Add (Sales, Maturities, Paydowns, Withdrawals) 9,071, Security Transactions & Interest Add Interest Receipts 74, Security Transactions & Interest Less February Market Value (67,852,975.57) 7 Account Summary Page Less February Accrued Interest (108,924.77) 8 Account Summary Page Earnings 7, Change in Investment Market Value (4,096,053.29) (1-7) Change in Accrued Interest (42,606.10) (2-8) Change in Cash 4,146, (sum 3 thru 6) Investment Entries To Record Investment Activity Debit Credit Source Document Cash 4,072, Security Transactions & Interest Investments 4,096, Amortization/Accretion Investment Income 23, Earnings To record investment income/changes Cash 74, Security Transactions & Interest Accrued Interest 42, Accrued Interest Difference Investment Income 31, Earnings To record interest income/changes Notes: 1. Earnings are calculated using Market Value. This includes unrealized gains and losses, and income. PFM Asset Management LLC Section B - 8

35 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Pooled Funds Portfolio Statistics Amortized Cost 1,2,3 Amortized Cost 1,2,3 Market Value 1,2,3 Market Value 1,2,3 Duration (Years) Account Name March 31, 2011 December 31, 2010 March 31, 2011 December 31, 2010 March 31, 2011 Pooled Funds $2,449, $6,303, $2,451, $6,313, Yield to Maturity Yield to Maturity Yield to Maturity Yield to Maturity on Cost 4 on Cost 4 at Market at Market Duration (Years) Account Name March 31, 2011 December 31, 2010 March 31, 2011 December 31, 2010 December 31, 2010 Pooled Funds 0.65% 0.91% 0.16% 0.27% Benchmarks 5 March 31, 2011 December 31, 2010 TexPool % 0.17% Notes: 1. On a trade-date basis, including accrued interest. 2. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances. 3. Excludes any money market fund/cash balances held in custodian account. 4. Past performance is not indicative of future results. 5. Returns presented on an annualized basis as of March 31, TexPool yield is obtained from PFM Asset Management LLC Section C - 1

36 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Pooled Funds Portfolio Composition and Credit Quality Characteristics Security Type 1 March 31, 2011 % of Portfolio December 31, 2010 % of Portfolio U.S. Treasuries $1,006, % $1,004, % Federal Agencies 1,444, % 5,309, % Commercial Paper % % Certificates of Deposit % % Bankers Acceptances % % Repurchase Agreements % % Municipal Obligations % % Corporate Notes/Bonds % % Mortgage Backed % % Money Market Fund/Cash % % Totals $2,451, % $6,313, % Federal Agency Obligations 59% Portfolio Composition as of 03/31/11 Credit Quality Distribution² ³ as of 03/31/11 AAA 59% U.S. Treasuries 41% TSY 41% Notes: 1. End of quarter trade-date market values of portfolio holdings, including accrued interest. 2. Credit rating of securities held in portfolio, exclusive of money market fund/lgip. Standard & Poor's is the source of the credit ratings. 3. A rating of "TSY" indicates the security is an obligation of, or explicitly guaranteed by the U. S. Government. PFM Asset Management LLC Section C - 2

37 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Pooled Funds Portfolio Maturity Distribution Maturity Distribution 1 March 31, 2011 December 31, 2010 Overnight (Money Market Fund) $0.00 $0.00 Under 6 Months 1,444, ,313, Months 1,006, Years Years Years Years Years and Over Totals $2,451, $6,313, % 100% Portfolio Maturity Distribution¹ 80% March 31, 2011 December 31, 2010 Percentage of Total Portfolio 60% 40% 20% 0% 59% 41% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Overnight Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over Notes: 1. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. PFM Asset Management LLC Section C - 3

38 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Long Term Pooled Fund Portfolio Performance Total Portfolio Value 1,2 March 31, 2011 December 31, 2010 Market Value $18,987, $15,041, Amortized Cost $18,878, $14,900, Quarterly Return Year to Last Last Since Inception Total Return 1,2,3,4,5,7,8 March 31, 2011 Date 12 Months 24 Months 6/30/2006 Long Term Pooled Fund 0.09% 0.09% 1.62% 1.77% 4.14% Merrill Lynch 1-3 Year U.S. Treasury Note Index 0.03% 0.03% 1.67% 1.54% 4.18% Effective Duration(Years) March 31, 2011 December 31, 2010 Yields March 31, 2011 December 31, 2010 Long Term Pooled Fund Yield at Market 0.71% 0.65% ML 1-3 Year U.S. Treasury Note Index Yield at Cost 1.23% 1.31% Portfolio Duration % of Benchmark Duration 95% 93% 0.75% Quarter Total Return Comparison Quarter Ended March 31, % Since Inception Total Return Comparison Quarter Ended March 31, 2011 Return 0.50% 0.25% 0.00% Long Term Pooled 0.09% 0.03% ML 1-3 Year U.S. Treasury Note Index Return 4.50% 4.00% Long Term Pooled 4.14% ML 1-3 Year U.S. Treasury Note Index 4.18% -0.25% -0.50% 3.50% -0.75% Effective Duration (Years) 3.00% Effective Duration (Years) Notes: 1. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances. 2. End of quarter trade-date market values of portfolio holdings, including accrued interest. 3. Performance on trade date basis, gross (i.e., before fees), is in accordance with The CFA Institute s Global Investment Performance Standards (GIPS). 4. Merrill Lynch Indices provided by Bloomberg Financial Markets. 5. Quarterly returns are presented on both an unannualized and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return will be the result of chaining the most recent four quarterly returns. 6. Excludes money market fund/cash in performance and duration computations. 7. Returns presented for 12 months or longer are presented on an annual basis. 8. Past performance is not indicative of future results. PFM Asset Management LLC Section D - 1

39 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Long Term Pooled Fund Portfolio Composition and Credit Quality Characteristics Security Type 1 March 31, 2011 % of Portfolio December 31, 2010 % of Portfolio U.S. Treasuries $10,766, % $5,774, % Federal Agencies 8,221, % 9,267, % Commercial Paper % % Certificates of Deposit % % Bankers Acceptances % % Repurchase Agreements % % Municipal Obligations % % Corporate Notes/Bonds % % Mortgage Backed % % Money Market Fund/Cash % % Totals $18,987, % $15,041, % Portfolio Composition as of 03/31/11 Federal Agency Obligations 43% Credit Quality Distribution² ³ as of 03/31/11 AAA 43% U.S. Treasuries 57% TSY 57% Notes: 1. End of quarter trade-date market values of portfolio holdings, including accrued interest. 2. Credit rating of securities held in portfolio, exclusive of money market fund/lgip. Standard & Poor's is the source of the credit ratings. 3. A rating of "TSY" indicates the security is an obligation of, or explicitly guaranteed by the U. S. Government. PFM Asset Management LLC Section D - 2

40 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Long Term Pooled Fund Portfolio Maturity Distribution Maturity Distribution 1 March 31, 2011 December 31, 2010 Overnight (Money Market Fund) $0.00 $0.00 Under 6 Months Months 2,775, , Years 7,788, ,082, Years 8,423, ,449, Years ,007, Years Years and Over Totals $18,987, $15,041, % Portfolio Maturity Distribution¹ Percentage of Total Portfolio 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% March 31, 2011 December 31, % 44% 41% 23% 15% 7% 3% 0% 0% 0% 0% 0% 0% 0% 0% 0% Overnight Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over Notes: 1. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. PFM Asset Management LLC Section D - 3

41 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Long Term Pooled Fund Portfolio Maturity Distribution versus the Benchmark % 20.0% Market Value 15.0% 10.0% 0% 5.0% 0.0% Years to Maturity Long Term Pooled Fund Merrill Lynch 1-3 Year U.S. Treasury Note Index Notes: 1. Due to the nature of the security, Mortgage-Backed Securities are represented based on their average life maturity rather than their final maturity. PFM Asset Management LLC Section D - 4

42 City of Rowlett, Texas Asset Allocation as of March 31, 2011 Security Type 2 March 31, 2011 Notes Permitted by Policy TexStar 0.00% 100% TexPool 68.96% 100% United States Treasury Securities 17.07% 100% United States Government Agency Securities 0.00% 100% Federal Instrumentalities 13.96% 1 100% Certificates of Deposit 0.00% 20% Repurchase Agreements 0.00% 20% Commercial Paper 0.00% 25% Corporate Notes TLGP - FDIC insured 0.00% 50% Mortgage-Backed Securities 0.00% 1 40% Bankers' Acceptances 0.00% 25% State and/or Local Government Debt 0.00% 25% Fixed Income Money Market Mutual Funds 0.00% 50% Intergovernmental Investment Pool 0.00% 100% Asset Allocation as of March 31, 2011 TexPool 68.96% United States Treasury Securities 17.07% Federal Instrumentalities 13.96% Individual Issuer Breakdown March 31, 2011 Notes Permitted by Policy Individual Issuer Breakdown March 31, 2011 Notes Permitted by Policy Government National Mortgage Association (GNMA) 0.00% 40% CD - Bank A 0.00% 10% US Export-Import Bank (Ex-Im) 0.00% 40% CD - Bank B 0.00% 10% Farmers Home Administration (FMHA) 0.00% 40% Fully collateralized Repo - A 0.00% 10% Federal Financing Bank 0.00% 40% Fully collateralized Repo - B 0.00% 10% Federal Housing Administration (FHA) 0.00% 40% CP A 0.00% 5% General Services Administration 0.00% 40% CP B 0.00% 5% New Communities Act Debentures 0.00% 40% CP C 0.00% 5% US Public Housing Notes & Bonds 0.00% 40% Corporate Notes TLGP - FDIC insured A 0.00% 25% US Dept. of Housing and Urban Development 0.00% 40% Corporate Notes TLGP - FDIC insured B 0.00% 25% Federal Farm Credit Bank (FFCB) 0.00% 40% BA Bank A 0.00% 5% Federal Home Loan Bank (FHLB) 2.91% 40% BA Bank B 0.00% 5% Federal National Mortgage Association (FNMA) 9.14% 40% State and/or Local Government Debt 0.00% 25% Federal Home Loan Mortgage Corporation (FHLMC) 1.91% 40% Money Market Fund A 0.00% 25% Student Loan Marketing Association (SLMA) 0.00% N/A Money Market Fund B 0.00% 25% Notes: 1. The combined total of Federal Instrumentalities and Mortgage Backed Securities can not be more than 100%. The combined total as of March 31, 2011 is 13.96%. 2. End of month trade-date amortized cost of portfolio holdings, including accrued interest. PFM Asset Management LLC Section E - 1

43 City of Rowlett, Texas Investment Report - Quarter Ended March 31, 2011 Investment Officer's Certification This report is prepared for City of Rowlett (the City ) in accordance with Chapter 2256 of the Public Funds Investment Act ( PFIA ). Section (a) of the PFIA states that Not less than quarterly, the investment officer shall prepare and submit to the governing body of the entity a written report of the investment transactions for all funds covered by this chapter for the preceding reporting period. This report which covers the month ended March 31, 2011, is signed by the City s investment officers and includes the disclosures required in the PFIA. The investment portfolio complied with the PFIA and the City s approved Investment Policy and Strategy throughout the month. All investment transactions made in the City s portfolio during this month were made on behalf of the City and were made in full compliance with the PFIA and the City s approved Investment Policy. Brian Funderburk, Assistant City Manager Ann M. Honza, Director of Financial Services PFM Asset Management LLC Section F - 1