MEMORANDUM. Honorable Mayor and City Council Members.

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1 MEMORANDUM TO: FROM: CC: Honorable Mayor and City Council Members. tv 1 N Nevrus Nazarko, Finance Director/Treasurer Clay J. Pearson, City Manager Maryanne Cornelius, City Clerk - pi{ 1 ~r SUBJECT: Quarterly Investment Report- ry "Jo1~/rJ az.. DATE: January 16, 2013 ~~~z;.,'.jf~~ ==============================================================~ Attached to this memo is the investment report for the City of Novi as of 12/31/2012. Also, this memo outlines the investment factors and trends that are playing a role in our investment decisions, for the second quarter of the current fiscal year. Nationally Information received from the Federal Open Market Committee (FOMC) meeting in October 2012, suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable. These factors and others mentioned in the FOMC release indicate the there is still a downward pressure on long-term interest rates and consequently an active mortgage market*. Locally The Southeast Michigan Purchasing Managers Index (PMI) for December is at 51.8, down from the November PMI of The index for Southeast Michigan has been above 50 for 33 of the past 34 months indicating a steady strengthening of the Michigan economy. The City is continuing to invest pursuant to the Investment Policy and the Retiree Health Care Investment Policy. The City's general funds are invested in a variety of instruments including money market accounts, certificates of deposit, agencies and pooled accounts. The primary focus and order of priority is on security, risk and then yield. A group of holdings in particular, the Oakland County LGIP has performed well outpacing for the quarter the CDAR investments and corporate holdings. Primary contributing factors to the above returns are, decrease in overall yields continued fiscal strength of Michigan's balance sheet( currently rated Aa2/AA-), limited supply of State of Michigan bonds and continued demand for high quality taxable investments.

2 Michigan's balance sheet( currently rated Aa2/AA-), limited supply of State of Michigan bonds and continued demand for high quality taxable investments. Risk As required by the latest Governmental Accounting Standard Board, GASB 40 identifies a number of reporting and disclosure requirements for public funds that are designed to manage and limit risk in deposits and investments. These disclosures are only required as part of the year-end financial statements, the applicable risks are as follows: Interest Rate Risk: Disclosure of interest rate risk addresses the exposures of investments to change in market value as interest rates increase or decrease from current levels. In accordance with the City investment policy, the City limits its exposure to possible decline in fair market value by controlling duration or maturities. The City prohibits investment of operating funds in securities maturing more than two years from the date of purchase. Reserve and Capital improvements may be invested in securities exceeding two years but less than five years. The following schedule shows actual investments at the end of this reporting quarter, institutions, type, rate amount, and duration of investment. Please note that all investments are in accordance with the City's Investment Policy and State statutes and meet the City's investment objectives including: Safety of Capital, Liquidity, and lastly Return on Investment. Credit Risk: There is credit risk associated with the financial institutions, brokers and investment instruments that the City does business with. Also the investment officer must be held to the highest standards. The City's investment policy utilizes the prudent person rule: "Investments are made with judgment and care- under circumstances then prevailing- which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." Any commercial paper or agencies purchased are those rated A2/P2 or better and AAA respectively. Because the State of Michigan does not require collateralization of public funds, the City's policy restricts Certificates of Deposit investments with financial institutions that have a nationally recognized rating in the upper quartile. Concentration of Risk: Governments must disclose any single issuer that comprises more than 5% of the investment value in the portfolio. This disclosure is to insure that there is proper diversification and not a concentration of public funds with any one issuer. While CD's and commercial paper are being used only occasionally for diversification, the City's funds are primarily invested in guaranteed accounts and treasuries. To reduce concentration risk, the City's investments are diversified amongst a number of financial institutions with the highest ratings. Investment Report Attached is a comprehensive listing of investments the City held at. The listing includes the market value, type of investment, maturity date, interest rate and amount of investment. The report includes all investment accounts by issuer, pooled fund accounts, as well as the Retiree Health Care Accounts (not subject to Public Act 20 Investment limitations). 2

3 CITY OF NOVI Quarterly Investment Report Local Government Investment Pools I Money Market Weighted Average Yield to Maturity Beginning Ending 09/30/ /31/2012 net change 63,150,263 68,569,806 5,419, % 0.26% -0.06% Fixed Income Assets Book Value Change in Unrealized Gain I Loss WAM I Callable (1) in Days Yield to Maturity@ Annualized, Total Rate of Return- BENCHMARK 1 Year Treasury 6 Month Treasury 70,696,650 63,710,549-6,986,101 71,221,959 64,094,005-7,127, ,836-95,747 2,218 1, % 1.96% 0.02% 1.98% 0.66% -1.32% 0.18% 0.16% -0.02% 0.14% 0.12% -0.02% Total Portfolio Value Book Value Change in Unrealized Gain I Loss WAM I Callable (1) in Days Yield to Annualized, Total Rate of Return - 133,846, ,280,354-1,566, ,372, ,663,811-1,708, ,836-95,747 1, % 1.08% -0.10% 1.11% 0.48% -0.63% BENCHMARK 1 Year Treasury 6 Month Treasury 0.18% 0.16% -0.02% 0.14% 0.12% -0.02% ~at<jel~ Nevrus Nazarko, Finance Director Date d /(,. ~ /l City of Novi- Quarterly Investment Report 09/30/ /31/2012

4 CITY OF NOVI y 'tc Investment Portfolio- Diversification, by Sector ~R~,} I ~ MICHIGAN Portfolio Holdincs Distribution by Security Sector Money Market " Municipal " cash 0.00 " Government Investment Pool " YTM@ 12/31/2012 Investment Income- %of Portfolio Cash 0.00 Certificate of Deposit 0.50 Corporate Bonds 0.36 LGIP 0.32 Money Market 0.23 Municpal Bonds 2.90 US Agency ,250,000 2,742,000 18,877,331 49,692,473 5,500,000 49,225, , , , , , , % 4.24% 1.86% 12.81% 34.03% 3.73% 33.39% Total/ Average ,286, , % City of Novi - Quarterly Investment Report 09/30/ /31/2012

5 CITY OF NOVI Investment Portfolio- Diversification, by Maturity Range Portfolio Holdincs Distribution by Maturity Rance 9-12Months 1.70 " 6-9Months 2.83 ". ~ !1-!0 Years ' 2~.34 " " Days to Maturity %of Portfolio * 0-1 Month 3-6 Months 6-9 Months 9-12 Months 3-4 Years 4-5 Years 5-10 Years Total/ Average ,569, ,000, ,731, ,252, ,565, ,048, ,495, ,663, % % % % % % % % Includes Cash, Maney Market & Local Government Investment Pools City of Novi - Quarterly Investment Report 09/30/ /31/2012

6 CITY OF NOVI Quarterly Investment Report - Investment listing, by Security Type YTM@ Amount Value Book Value Days To %of Maturity Portfolio Fixed Income Assets FFCB ,000,000 FHLB ,200,000 FHLMC ,000,000 FNMA ,025,000 FAMC ,000,000 Lotus Bank ,000 CDARS - Lotus Bank ,000,000 CDARS - Flagstar ,000,000 Michigan Go Bonds Ser 2010 B ,000 Michigan State GO Bond ,000,000 UBS Financial ,742,000 Weighted Average Yield ,000,000 2,000,000 2,002,560 14,200,000 14,200,000 14,209,652 5,000,000 5,000,000 5,019,450 25,025,000 25,025,000 25,069,086 3,000,000 3,000,000 2,995, , , ,000 1,000,000 1,000,000 1,000,000 5,000,000 5,000,000 5,000, , , ,970 4,983,900 5,000,000 5,279,700 2,734,882 2,735,549 2,731, Local Government Investment Pools I Money Market Bank of America Chase Bank Citizens Bank Come rica - Lockbox Come rica- Suspense Federated Government Obligation Fifth Third Flagstar Bank Lotus Bank CDARS- CD3386 MBIA Class Morgan Stanley Smith Barney Oakland County UBS Financial , ,268, , ,758, ,192, , ,503, , , , ,975, , , ,884 4,268,450 4,268,450 4,268,450 25,900 25,900 25,900 3,758,253 3,758,253 3,758,253 1,192,618 1,192,618 1,192, , , ,589 39,503,950 39,503,950 39,503, , , ,777 31,053 31,053 31, , , , ,975,819 17,975,819 17,975, Weighted Average Yield 0.26 Total I Average ,286, ,267, ,280, ,663, City of Novi - Quarterly Investment Report 9/ /31/2012

7 CITY OF NOVI Quarterly Investment Repo Local Government Investment Pools I Money Market Weighted Average Yield to Maturity Beginning Ending net change -157, , , % 0.25% 0.25% Mutual Funds Book Value Change in Unrealized Gain I Loss- Annualized, Total Rate of Return - BENCHMARK 1 Year Treasury 6 Month Treasury 14,658,803 14,658, ,899,046 17,749, , , ,832 nla nla 22.27% 22.18% -0.09% 0.18% 0.16% -0.02% 0.14% 0.12% -0.02% Total Portfolio Value Book Value Change in Unrealized Gain I Loss- Annualized, Total Rate of Return- BENCHMARK 1 Year Treasury ~~ceasucy 14,501,158 15,052, ,955 16,741,401 18,143,188 1,401, , ,832 n/a n/a 22.39% 21.56% -0.83% 0.18% 0.16% -0.02% 0.14% 0.12% -0.02% Nevrus Nazarko, Finance Director Date ' i '"' L t3 City of Novi- 710 Post Retirement Health Care, Quarterly Investment Report 09/30/ /31/2012

8 CITY OF NOVI - Post Retirement Health Care Quarterly Investment Report - Investment Listing, by Security Type YTM@ Face Amount/Shares Days To %of Maturity Portfolio Mutual Funds MERS of Michigan Morgan Stanley- Smith Barney UBS Financial n/a n/a n/a 0 3,734, ,282, ,733, % % % Local Government Investment Pools I Money Market Federated Fifth Third ,278 1, , , % % Weighted Average Yield Total/ Average ,310 18,143,188 1 City of Novi- 710 Post Retirement Health Care, Quarterly Investment Report 9/30/ /31/2012

9 CITY OF NOVI - Post Retirement Health Care Investment Portfolio - Diversification, by Sector MICHIGAN Portfolio Holdinr:s Distribution by S~teurity S~tctor YTM@ 12/31/2012 Investment Income - %of Portfolio Money Market ,310 Mutual Funds 17,749, , % 97.39% Total I Average ,143, , % City of Novi Post Retirement Health Care, Quarterly Investment Report 09/30/ /31/2012

10 CITY OF NOVI - Post Retirement Health Care Investment Portfolio- Diversification, by Maturity Range Portfolio Holdincs Distribution by Maturity Ranc " ()- l'lont h 2.61" YTM@ Days to Maturity %of Portfolio 0-1 Month ,310 no maturity date 17,749,878 Total I Average ,143, % n/a 97.39% % City of Novi- 701 Post Retirement Health Care, Quarterly Investment Report 09/30/ /31/2012