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11-10-2016 IOC Agenda Packet
CITY OF SAN LUIS OBISPO INVESTMENT OVERSIGHT COMMITTEE REGULAR QUARTERLY AGENDA November 10, 2016 1:30 PM Council Hearing Room 990 Palm Street San Luis Obispo, California MISSION: As set forth in the Investment Management Plan, this committee is responsible for reviewing the City’s portfolio on an ongoing basis to determine compliance with the City’s investment policies and for making recommendations to the City Treasurer (Director of Finance) regarding investment management practices. CALL TO ORDER: Interim Finance Director/Treasurer/ Bradford ROLL CALL: Mayor Marx; City Manager Lichtig; Interim Finance Director/Treasurer Xenia Bradford; Assistant City Manager Johnson; Financial Operations Manager Vilma Warner; Steve Barasch, public member. OTHERS PRESENT: Al Eschenbach, Independent Auditor and ex-officio member; Director Sarah Meacham and Director Monique Spyke of PFM Asset Management LLC. PUBLIC COMMENTS: At this time, the public is invited to address the Committee concerning items not on the agenda but are of interest to the public and within the subject matter jurisdiction of the Investment Advisory Committee. Time limit is three minutes. The Committee may not discuss or take action on issues that are not on the agenda other than to briefly respond to statements made or questions raised, or to ask staff to follow up on such issues. 1. Review of Investment Oversight Committee meeting minutes of August 18, 2016. a. Recommend approval of the minutes 2. Presentation of the Quarterly Investment Report on Portfolio Performance a. Review and confirm investment policy compliance 3. Discuss cash flow and City investments. 4. Discuss Investment Oversight Committee Meeting Calendar Investment Oversight Committee Regular Quarterly Agenda for November 10, 2016 5. Items to be addressed at a future meeting 6. Adjourn to the next meeting to be held on February 16, 2017 at 1:30 pm. _________________________________________________________________________ The City of San Luis Obispo wishes to make all of its public meetings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the City Clerk’s Office at (805) 781-7100 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7107. Any writings or documents provide to a majority of the Committee regarding any item on this agenda will be made available for public inspection in the City Clerk’s Office located at 990 Palm Street, San Luis Obispo, during normal business hours. Minutes Investment Oversight Committee Thursday, August 18, 2016 Regular Meeting of the Investment Oversight Committee CALL TO ORDER A Regular meeting of the Investment Oversight Committee was called to order on Thursday, August 18, 2016, at 1:32 p.m. in the Council Hearing Room at 990 Palm Street, San Luis Obispo, California, by Chair Johnson. ROLL CALL Present: Committee Members Steve Barasch, Xenia Bradford; Katie Lichtig, Jan Marx; Vilma Warner, and Chair Derek Johnson Absent: None Others Present: Al Eschenbach, Independent Auditor and ex-officio member, and Monique Spyke, PFM Asset Management LLC (City’s Investment Advisor); Heather Goodwin, Deputy City Clerk PUBLIC COMMENT ON ITEMS NOT ON THE AGENDA None. 1. REVIEW OF INVESTMENT OVERSIGHT COMMITTEE MEETING MINUTES OF MAY 12, 2016 ACTION: MOTION BY COMMITTEE MEMBER MARX, SECOND BY COMMITTEE MEMBER WARNER, CARRIED (COMMITTEE MEMBERS BARASCH AND LICHTIG ABSTAINING) 4-0-2, to approve the Investment Oversight Committee Meeting minutes of May 12, 2016. 2. PRESENTATION OF THE QUARTERLY INVESTMENT REPORT ON PORTFOLIO PERFORMANCE Chair Johnson distributed the Quarterly Investment Report. City Investment Advisors Monique Spyke reviewed the contents of the report and summarized the portfolio’s performance. Committee questions followed. Public Comment: None. City of San Luis Obispo, Title, Subtitle DRAFT Minutes - Investment Oversight Committee Minutes of August 18, 2016 Page 2 ---End of Public Comment--- ACTION: MOTION BY COMMITTEE MEMBER LICHTIG, SECOND BY COMMITTEE MEMBER MARX, CARRIED 6-0, to confirm the Quarterly Investment Report for the period ending June 30, 2016 is in compliance with the City’s Investment Policy. 3. DISCUSSION OF CASH FLOW AND CITY INVESTMENTS Chair Johnson provided an update to the City’s Cash Flow Analysis; reported that the City transferred 18 million dollars to PFM; noted that the committee will continue to review the overall cash on hand; stated that Committee Members Bradford and Warner will provide updates to the City’s Cash Flow and Investments at future committee meetings. Committee Member Barasch distributed hard copies of various newspaper articles, an email from FIN Facts entitled “Weekly Financing News from George Smith Partners,” Capitol One flyer, various financial charts, and an email from Nancy Campbell entitled “City of San Luis Safety Plan Side Fund Amount and/or CalPERS link.” Committee questions followed. Public Comment: None. ---End of Public Comment--- Following discussion, the Committee received and filed the Cash Flow Analysis Report. 4. DISCUSSION OF INVESTMENT OVERSIGHT COMMITTEE CALENDAR The Committee discussed the upcoming Investment Oversight Committee meeting dates.; stated that staff sent out the schedule of committee meetings for 2017, noting that the next committee meeting is scheduled for November 10, 2016. Chair Johnson made several announcements related to the committee’s membership; stated that Committee Member Warner is retiring with the City of San Luis Obispo on December 29, 2016; noted that his term as Interim Finance Director is ending. Stated that Committee Member Bradford will be appointed as Interim Finance Director by the next Committee meeting, highlighting that she serve as Chair at future Committee meetings. 5. ITEMS TO BE ADDRESSED AT A FUTURE MEETING No discussion. City of San Luis Obispo, Title, Subtitle DRAFT Minutes - Investment Oversight Committee Minutes of August 18, 2016 Page 3 ADJOURNMENT The meeting was adjourned at 2:26 pm. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: 11/03/2016 Quarterly Investment Report As of September 30, 2016 November 10, 2016 This report presents the City’s investment portfolio for the quarter ending September 30, 2016. It has been prepared to comply with regulations contained in California Government Code Section 53646. The report includes all investments managed by the City on its own behalf as well as for other third party agencies on a fiduciary basis such as the Whale Rock Commission. It also includes all City-related investments held by trustees for bond debt service obligations. As required, the report provides information on the investment type, issuer, maturity date, cost, and current market value for each security. The investment objectives of the City of San Luis Obispo are first, to provide safety of principal to ensure the preservation of capital in the overall portfolio; second, to provide sufficient liquidity to meet all operating requirements; and third, to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives. The City follows the practice of pooling cash and investments for all funds under its direct control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to the related accounts. It is common for governments to pool the cash and investments of various funds to improve investment performance. By pooling funds, the city is able to benefit from economies of scale, diversification, liquidity, and ease of administration. The City uses the services of an investment advisor, PFM Asset Management, to manage a portion of the City’s portfolio. The City’s strategy is to retain approximately 25% of the portfolio to manage its day-to-day cash flow needs, while PFM’s focus is on longer-term investment management. In addition, the City has retained direct control of several investments that had been acquired before the City began to use investment advisors. All investments are held by the City in a safe keeping account with Bank of New York Mellon, except for investments held by trustees related to bond financings, which are held by either US Bank or Bank of New York Mellon. Investment Portfolio Benefits all Funds The City’s cash and investment portfolio represents money from all City funds, including the General Fund, enterprise funds, capital projects funds, and other funds which are restricted to specific purposes. In general, monies held by the city are either allocated by the City Council for spending or are purposefully retained in reserve. For example, the money in the Capital Outlay Fund has been identified to provide particular capital projects for the community and there is a plan for spending down the cash balance as the projects progress. In the General Fund, about $10 million is purposely held in reserve to meet the City’s reserve policy of 20% of operating expenditures. Quarterly Investment Report Current Cash and Investment Summary The following is a summary of the City’s cash and investments based on market value as of September 30, 2016 compared with the prior quarter: June 30, 2016 September 30, 2016 Percent of Total Cash and investments held by the City 29,088,628 34,095,175 29.74% Cash and investments managed by PFM 75,903,231 75,899,820 66.21% Cash and investments held by trustees 4,623,364 4,637,213 4.05% TOTAL 109,615,223 114,632,208 100% There are a number of factors which result in changes in cash and investment balances from month to month and quarter to quarter. Often they are the result of the receipt of revenues or a large disbursement. Some major City revenues are received on a periodic rather than a monthly basis. Property Tax, for example, is received in December, January, April and May of each year. Other revenues, such as Transient Occupancy Tax, are received monthly but vary considerably because they are seasonal. On the disbursement side, payments for bonded indebtedness or large capital projects can reduce the portfolio substantially in the quarter that they occur. Significant fluctuations of this type will be discussed in the following section of this report. Securities in the City’s portfolio are priced by IDC, an independent pricing service at the end of every month. In some cases, the City may have investments with a current market value that is greater or less than the recorded value. These changes in market value are due to fluctuations in the marketplace having no effect on yield, as the City does not intend to sell securities prior to maturity. Nevertheless, these market changes will impact the total value of the portfolio as reported. At September 30, 2016 the market value of the portfolio was $315,691 more than the cost basis. The portfolio’s yield on a market basis as of September 30, 2016 was 0.93%, and the yield on a cost basis was 1.19%. (These amounts do not reflect the returns on the assets held by the bond trustee.) As of September 30, 2016, the investment portfolio was in compliance with all State laws, the City's Statement of Investment Policy and the City’s Investment Management Plan. Summary of Activity for the Quarter and Future Liquidity Cash receipts and disbursements are generally consistent with past trends for the quarter. The cash management program contains enough liquidity to meet the next six months of expected expenditures by the City as well as by related parties, such as the Whale Rock Commission. Report Contents and Distribution. This report includes the following four schedules on the City’s portfolio as of September 30, 2016: summary of investments held or managed by the City, trustees or PFM; summary of investment portfolio liquidity; investment details; and detail of holdings for each investment. These schedules have not yet been reviewed by the City’s independent auditor. If you have any questions concerning this report, or require additional information, contact Xenia Bradford, Interim Director of Finance at (805) 781-7125. DISTRIBUTION LIST City Council Jan Howell Marx, Mayor John Ashbaugh, Vice Mayor Dan Carpenter, Council Member Carlyn Christianson, Council Member Dan Rivoire, Council Member Investment Oversight Committee Jan Howell Marx, Mayor Derek Johnson, Assistant City Manager Xenia Bradford, Interim Finance Director/Treasurer Katie Lichtig, City Manager Vilma Warner, Finance Operations Manager Steven Barasch, Public Member Independent Auditor Allen E. Eschenbach, Glenn Burdette Attest Corporation PFM Asset Management Sarah Meacham, Managing Director Monique Skype, Portfolio Manager CITY OF SAN LUIS OBISPO SUMMARY OF INVESTMENTS As of September 30, 2016 Percent of Current Market Portfolio Yield Value Local Agency Investment Funds 66% 0.46% 22,375,579.02 Certificate of Deposit 3% 0.27% 1,000,000.00 Money Market Account 3% 0.21% 1,012,265.41 Checking Account 28% 0.25% 9,707,330.36 Treasury Issues 0% 0.00% 0.00 Total Investments Held by the City 100% 0.38% $34,095,174.79 Percent of Current Portfolio Yield Value Federal Agency Issues 56% 1.28% 42,834,814.93 Commercial Paper 11% 0.97% 8,657,551.30 Money Market Fund 1% 0.00% 556,967.89 US Corporate Notes 10% 1.48% 7,216,247.94 Negotiable CD 1% 0.91% 833,921.75 Treasury Issues 30% 0.79% 15,800,316.39 Total Investments Managed by Public Financial Management 109% 1.15% $75,899,820.20 Percent of Current Market Trustee Portfolio Yield Value First American Treasury Funds 2.33% 0.00% 107,974.79 Other Money Market Accounts 0.45% 0.02% 20,847.13 Certificate of Deposit 0.00% 0.00% Guaranteed Investment Contracts 43.92% see below 2,036,623.61 Federal Agency Issues 17.95% 2.50% 832,385.23 Treasury Issues 35.35% Varies 1,639,382.20 Total Investments Held by Trustees 100% $4,637,212.96 Total of all Investments--Market Value $114,632,207.95 INVESTMENTS HELD AND MANAGED BY THE CITY INVESTMENTS OF THE CITY MANAGED BY PUBLIC FINANCIAL MANAGEMENT INVESTMENTS OF THE CITY HELD BY TRUSTEES FOR BOND DEBT SERVICE OBLIGATIONS TOTAL CASH AND INVESTMENTS CITY OF SAN LUIS OBISPO SUMMARY OF INVESTMENT PORTFOLIO LIQUIDITY As of September 30, 2016 Managed Managed Percent of Market by City by PFM Portfolio Value On Demand 33,095,174.79 556,967.89 31% 33,652,142.68 Within Six Months 1,000,000.00 12,582,256.34 12% 13,582,256.34 Six Months to One Year 10,969,919.30 10% 10,969,919.30 Within One to Five Years 0.00 51,790,676.68 47% 51,790,676.68 Over Five Years 0% 0.00 TOTAL 34,095,174.79 $75,899,820.20 100% $109,994,994.99 Percent of Market Portfolio Value On Demand 3% 128,821.92 Within Six Months 0% 0.00 Six Months to One Year 0% 0.00 Within One to Five Years 24% 1,124,953.53 Over Five Years 73% 3,383,437.51 TOTAL 100% $4,637,212.96 Total of all Investments--Market Value $114,632,207.95 CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2016 Agency Investment Coupon Current Purchase Maturity Market (Broker) Description Rate Yield Date Date Value Local Agency Money Market Fund On Investment Fund City NA 0.46% Varies Demand 22,307,840.13 Local Agency Money Market Fund On Investment Fund CIB NA 0.46% Varies Demand 67,738.89 On Bank of America Checking Account NA 0.25% Varies Demand 9,707,330.36 Collateralized Heritage Oaks Certificate of Deposit NA 0.27% 12/20/2013 12/20/2016 1,000,000.00 On Heritage Oaks Money Market Account NA 0.21% 1/24/2012 Demand 1,012,265.41 TOTAL $34,095,174.79 INVESTMENTS HELD BY THE CITY AND THOSE MANAGED BY PUBLIC FINANCIAL MANAGEMENT (PFM) INVESTMENTS HELD BY TRUSTEES FOR BOND DEBT SERVICE OBLIGATIONS TOTAL CASH AND INVESTMENTS INVESTMENTS HELD AND MANAGED BY THE CITY CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2016 Agency Investment Coupon Current Purchase Maturity Market (Broker) Description Rate Yield Date Date Value 2005 Refunding Lease Revenue Bonds U. S. Bank First American Corporate Trust Services Treasury Fund N/A 0.00% Varies on demand 17,460.00 U. S. Bank United States Corporate Trust Services Treasury Bonds 6.00% 4.26% 6/26/96 2/15/26 815,115.00 2006 Lease Revenue Bonds U. S. Bank First American Corporate Trust Services Treasury Fund N/A 0.00% Varies on demand 27,439.35 Guaranteed FSA Capital Investment Contract Management Services LLC Treasury Fund 5.545% 5.545% 5/11/06 5/26/36 1,001,276.11 2006 Water Revenue Bonds U. S. Bank First American Corporate Trust Services Treasury Fund N/A 0.00% Varies on demand 27,875.44 Guaranteed FSA Capital Investment Contract Management Services LLC Treasury Fund 5.355% 5.355% 8/17/06 5/28/36 1,035,347.50 2009 Lease Revenue Bonds U. S. Bank First American Corporate Trust Services Treasury Fund N/A 0.00% Varies on demand $35,200.00 U. S. Bank Corporate Trust Services Federal Home Loan Bank 1.00% 0.99% 11/25/2014 6/21/2017 $35,100.45 U. S. Bank Fed Home Loan Mort. Corp Corporate Trust Services Medium term Note 0.75% 0.75% 11/25/2014 1/12/2018 $79,976.58 U. S. Bank Corporate Trust Services U.S. Treasury Note 0.88% 0.88% 11/25/2014 1/31/2018 $70,147.70 U. S. Bank Federal Nat'l Mtge. Assoc. Corporate Trust Services Debenture 0.88% 0.88% 11/25/2014 2/8/2018 $80,107.20 U. S. Bank Corporate Trust Services Federal Home Loan Bank 1.38% 1.36% 11/25/2014 3/9/18 $70,570.50 U. S. Bank Corporate Trust Services U.S. Treasury Note 1.38% 1.36% 11/25/2014 6/30/2018 $70,732.90 U. S. Bank Federal Nat'l Mtge. Assoc. Corporate Trust Services Debenture 1.88% 1.83% 11/25/2014 9/18/2018 $35,714.00 U. S. Bank Corporate Trust Services U.S. Treasury Note 1.50% 1.49% 11/25/2014 2/28/2019 $71,094.10 U. S. Bank Corporate Trust Services U.S. Treasury Note 1.13% 1.13% 11/25/2014 5/31/2019 $80,593.60 U. S. Bank Fed Home Loan Mort. Corp Corporate Trust Services Debenture 1.25% 1.26% 11/25/2014 8/1/2019 $80,580.80 U. S. Bank Corporate Trust Services Federal Nat'l Mtge. Assoc. 1.75% 1.74% 11/25/2014 9/12/2019 $51,081.00 INVESTMENTS HELD BY TRUSTEES FOR BOND DEBT SERVICE OBLIGATIONS 2012 Water Revenue Refunding Bonds (Refunded 2002 Water Revenue Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.02% Varies on demand $10,098.12 U. S. Bank United States Corporate Trust Services Treasury Bond 2.00% 2.00% Varies 11/15/21 $233,770.50 U. S. Bank United States Corporate Trust Services Treasury Note 7.125% 5.150% Varies 2/15/23 $297,928.40 2012 Revenue Refunding Bonds (Refunded 2001 Revenue Refunding Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account NA 0.00% Varies on demand $10,749.01 U. S. Bank Corporate Trust Services Federal Home Loan Bank 5.50% 5.21% Varies 8/15/16 $399,254.70 TOTAL $4,637,212.96 CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2016 The City of San Luis Obispo maintains certain performance objectives for the investments that are managed by Public Financial Management. The overall performance objective for the portfolio is to earn a total rate of return over the market cycle that equals or exceeds the market index. In order to achieve this objective the portfolio invests in high-quality money market instruments, US Treasury securities, Agency securities, and high-grade corporate securities, with a maximum maturity of five years. To monitor the achievement of this objective, the City uses a “Benchmark” to compare to. The benchmark which is used is based on the BofA Merrill Lynch Index of 0-5 year Treasury securities. Below is a summary of the monthly results as compared to the benchmark. While the City strives to achieve this performance objective every month, the goal is assumed to be met on an annual basis. The City of San Luis Obispo is currently just under the benchmark goals in most categories. We feel that through market trends and current investing adjustments, our performance will meet or exceed the benchmarks by the end of the fiscal year. Benchmark Comparison for the Quarter Ended 9/30/2016 Benchmark 09/30/2016 Portfolio 06/30/2016 Portfoli Average Maturity (yrs)2.31 2.19 2.22 Modified Duration 2.23 2.13 2.16 Average Purchase Yield N/A 1.19% 1.18% Average Market Yield 0.81% 0.93% 0.80% Average Quality AA+ AA+/Aaa AA+/Aaa Total Market Value -$ 76,625,518$ 76,631,857$ The following pages provide a summary of the portfolio under management by Public Financial Management (PFM) as well as a detailed holding report for the month. MANAGED BY PUBLIC FINANCIAL MANAGEMENT City of San Luis ObispoInvestment ReportPeriod Ended September 30, 2016PFM Asset Management LLC50 California Street, Suite 2300San Francisco, CA 94111(415) 982-5544 I. Economic UpdateII. Account ProfileIII. Consolidated InformationIV. Portfolio HoldingsV. Quarterly TransactionsTable of Contents© PFM Asset Management LLC I. Economic Update 0.25%0.50%0.75%1.00%1.25%Sep '15 Oct '15 Nov '15 Dec '15 Jan '16 Feb '16 Mar '16 Apr '16 May '16 Jun '16 Jul '16 Aug '16Sep '162-Year Treasury YieldsJanet Yellen’s speech hints at rate hikeSource: Bloomberg. As of 09/30/16.•Following the sharp decline in yields instigated by the Brexit vote at the end of the second quarter, yields rebounded during the third quarter, resulting in a quarter-over-quarter increaseof 16 basis points for the 2-year Treasury.•Speeches by various Fed officials during the quarter hinted at an additional rate hike before year-end, causing a further bump in yields.Brexit vote© PFM Asset Management LLC2-Year Treasury Yields Increase1 •As economic conditions continue to strengthen domestically, corporates continue to deliver strong performance over both shorter-term and longer-term periods.0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%U.S. TreasuryAgencyCorp A-AAAMBSU.S. TreasuryAgencyCorp A-AAAMBS5-Year Average Annual Returns (09/2011 –09/2016)1-3 Year1-5 Year1-3 Year 1-5 Year+ 77 bps over Treasury+ 97 bps over Treasury+ 136 bps over Treasury+ 176 bps over TreasurySource: Bloomberg.0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%U.S. TreasuryAgencyCorp A-AAAMBSU.S. TreasuryAgencyCorp A-AAAMBS2016 YTD(12/2015 –09/2016)© PFM Asset Management LLCCorporates Continue to Add Value2 0.00%0.05%0.10%0.15%0.20%0.25%Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-162-Year Agency/2-Year Treasury Yield Spread•Agency yield spreads moved modestly tighter during the quarter, retracing the temporary widening that took place post-Brexit. Value remained in 2, 3, and 5-year Federal Agency new-issue securities.Source: Bloomberg.© PFM Asset Management LLCAgency Spreads Tighten3 •At the Federal Reserve’s September meeting, they voted to keep the fed funds target range at 0.25% to 0.50%.‒However, three dissenters cast their votes in favor of a rate hike.•Highlights from the September 21 Press Release:–“. . . the labor market has continued to strengthen, and growth of economic activity has picked up . . .”–“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” –“ . . . the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” Probability of Fed Rate HikeMeeting9/30/16 8/31/16 7/31/16 6/30/1611/02/1617%42% 20%0%12/14/1660%60% 36%9%02/01/1761%62% 36%9%03/15/1766%68% 41%13%05/03/1768%70% 42%14%6/14/1772%74% 46%23%Sources: Federal Reserve and Bloomberg. WIRP.© PFM Asset Management LLCFed Holds off in September but Hints at Imminent Rate Hike4 0%1%2%3%4%Sep-16 MinutesJun-16 MinutesSep-16 MedianJun-16 MedianFed Fund FuturesSource: FOMC; Fed Funds Futures as of 09/20/2016. Individual dots represent each of the 17 FOMC members’ judgment of the midpoint of the appropriate target range for the federal funds rate.201620172018Longer TermFed members lowered expectations in September2019© PFM Asset Management LLCFOMC “Dot Plot”5 IndicatorActual 20152016 2017 2018 2019 Longer runJune Sept. June Sept. June Sept. June Sept. June Sept.Real GDP (YoY)2.0% 2.0%1.8%2.0% 2.0% 2.0% 2.0% N/A 1.8% 2.0%1.8%Unemployment Rate5.0% 4.7%4.8%4.6% 4.6% 4.6%4.5%N/A 4.6% 4.8% 4.8%PCE Inflation (YoY)0.7% 1.4%1.3%1.9% 1.9% 2.0% 2.0% N/A 2.0% 2.0% 2.0%Core PCE(YoY)1.4% 1.7% 1.7% 1.9%1.8%2.0% 2.0% N/A 2.0% - -Federal FundsRate (Median)0.4% 0.9%0.6%1.6%1.1%2.4%1.9%N/A 2.6% 3.0%2.9%“We’re struggling with a difficult set of issues about what is the new normal in this economy, and the global economy more generally, which explains why we keep revising down the rate path.”•In the post-meeting press conference, Janet Yellen shared insight on the Fed’s outlook and decision-making process.•When questioned about the consistent downward revisions, Yellen emphasized that the economic outlook is inherently uncertain and that there is no preset, fixed plan for future policy.Sources: Federal Reserve and Reuters.© PFM Asset Management LLCFed Projections Revised Downward6 •U.S. GDP growth increased at an annual rate of 1.4% in the second quarter of 2016, according to the Bureau of Economic Analysis. This was revised up from 1.1%, but still paints the same picture of moderate growth in the U.S.•Second quarter GDP reflected positive contributions from personal consumption, which contributed the most to GDP since the 4th quarter of 2014. Business investment detracted from GDP for the 3rd quarter in a row, the most since the 2nd quarter of 2009, amid a significant decline in inventories.Sources: Bureau of Economic Analysis; Bloomberg survey results as of 10/03/16. Orange is average over last 12 months.1.4%-2%-1%0%1%2%3%4%5%6%Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q22012 2013 2014 2015 2016 2017QoQ % Change; Seasonally Adjusted Annualized RateU.S. Real GDPBloomberg Survey of Economists1.3%3.0%2.5%© PFM Asset Management LLCU.S. Economy on Disappointing Growth Track7 •The U.S. economy added 156,000 net new jobs in September, continuing the trend of favorable job growth but undershooting economists’ expectations of 172,000 net new jobs.•The unemployment rate ticked up slightly to 5.0% while the labor force participation rate increased to 62.9%, suggesting that more individuals are re-entering the workforce as the labor market approaches full employment.Source: Bureau of Labor Statistics.63.3%62.8%62.4%62.9%62%62%63%63%64%64%65%Sep '11 Sep '12 Sep '13 Sep '14 Sep '15Sep '16Labor Force Participation Rate2.1%2.0%2.4%2.6%1.0%1.5%2.0%2.5%3.0%Sep '11 Sep '12 Sep '13 Sep '14 Sep '15 Sep '16Average Hourly Earnings (YoY)Sept: +156k0K100K200K300K400KSep '11 Sep '12 Sep '13 Sep '14 Sep '15 Sep '16Monthly Job GainsNonfarm Payrolls12-Month Moving Average7.3%6.0%5.1%5.0%4%5%6%7%8%9%10%Sep '11 Sep '12 Sep '13 Sep '14 Sep '15Sep '16U.S. Unemployment Rate© PFM Asset Management LLCU.S. Labor Market Remains Strong8 •The core personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of core inflation, continues to undershoot the 2% target but has shown modest improvement in recent months, increasing 1.7% year-over-year in August.•Wage growth continues to show modest improvement, while higher prices from housing and health care remain strong drivers of inflation.Source: Bloomberg.0.0%0.5%1.0%1.5%2.0%2.5%3.0%Aug '06 Aug '07 Aug '08 Aug '09 Aug '10 Aug '11 Aug '12 Aug '13 Aug '14 Aug '15Aug '16YoY % ChangeInflation Measures Consumer Price Index vs Personal Consumption ExpendituresCore CPICore PCEFed's Long Term Inflation Target© PFM Asset Management LLCInflation Inches Upward but Continues to Undershoot the Fed’s Target9 Source: Bloomberg.9/30/16 6/30/16 12/31/153-month0.29%0.26% 0.16%6-month0.45%0.36% 0.49%1-year0.59%0.45% 0.65%2-year0.77%0.58% 1.06%3-year0.88%0.71% 1.31%5-year1.14%1.01% 1.76%U.S. Treasury Curve•Yields on short- and intermediate-term U.S. Treasuries increased during the quarter as the markets priced in a likely rate hike by year-end.-0.20%0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%3m6m1y2y3y5ySeptember 30, 2016June 30, 2016September 30, 2015© PFM Asset Management LLCYields Increase Across the Board10 II. Account Profile Investment Objectives–The investment objectives of the City of San Luis Obispo are first, to provide safety of principal to ensure the preservation of capital in the overall portfolio; second, to provide sufficient liquidity to meet all operating requirements; and third, to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives.Performance Objectives–The performance objective for the portfolio is to earn a total rate of return over a market cycle that equals or exceeds the market index, the Bank of America Merrill Lynch Index of 0-5 Year Treasury securities.Strategy–In order to achieve this objective, the portfolio invests in high-quality money market instruments, U.S. Treasury securities, Federal Agency securities, and high-grade corporate securities, with a maximum maturity of five years.Objectives© PFM Asset Management LLC11 •PFMAM maintained the portfolio’s duration near neutral to the benchmark’s to reduce potential performance mismatches in the uncertain market.•Yields drifted modestly higher during the third quarter as early-quarter Brexit fears faded and U.S. economic data rebounded, bringing the Fed closer to an eventual rate hike, perhaps in December. •We increased allocation to the agency sector as spreads between Treasuries and Agencies remained attractive in maturities greater than two years.•We purchased high quality corporate notes for the portfolio. The sector’s strong performance during the quarter added to its outperformance for the year.Third Quarter 2016 Recap© PFM Asset Management LLC$0$1$2$3$4$5$6Under 1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 -5 YearsMillionsSummary of Third Quarter 2016 Purchases by Maturity and SectorCorporate NotesFederal Agencies12 Category Standard CommentTreasury Obligations 5 year maximum maturity CompliesGovernment Sponsored Enterprise (GSE) Securities 5 year maximum maturity CompliesCorporate Notes5 year maximum maturityAt least two “A” rating; atleast one “AA” for financials30% maximum, 5% per issuerCompliesLocal Government Investment Pool (LAIF) Up to maximum permitted by State Law CompliesNegotiable Certificates of Deposit5 year maximum maturityAt least a “AA” or “A-1”30% maximum, 5% per issuerCompliesCommercial Paper270 day maximum maturityAt least one “A-1” rating40% maximum, 10% per issuerCompliesCollateralized Bank Deposits 25% maximum, 5% per issuer CompliesMoney Market Mutual FundsHighest rating category by 2 NRSROs20% maximum, 10% per issuerCompliesMaximum maturity10 years; 10% maximum of portfolio in Treasury and GSE obligations with maturity >5 yearsCompliesDuration limitDuration of portfolio equal duration of benchmark plus or minus 10%CompliesSocial responsibility No investments in companies involved in tobacco, electronic cigarettes, or the direct production or drilling of fossil fuelsCompliesCompliance•The portfolio complies with California Government Code and the City of San Luis Obispo’s Investment Policy in regards to credit quality, maturity, sector, and issuer limits. Additionally, none of the City’s funds are invested in any securities prohibited by the Code. City of San Luis ObispoPortfolio Compliance* –PFM Managed*Applies to aggregate portfolio. Source: City of San Luis Obispo Investment Management Plan, June 2015.© PFM Asset Management LLC13 City of San Luis Obispo –PFM ManagedPortfolio Characteristics9/30/16 6/30/16Benchmark Portfolio PortfolioAverage Maturity (years)2.31 2.19 2.22Effective Duration*2.23 2.13 2.16Average Purchase YieldN/A 1.19% 1.18%Average Market Yield0.81% 0.93% 0.80%Average QualityAA+ AA+/Aaa AA+/AaaTotal Market Value-76,625,518 76,631,857Account Profile•The City of San Luis Obispo’s current benchmark is the Bank of America Merrill Lynch (BAML) 0-5Year U.S. Treasury Index.*Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price for each 1% change in interest rates. Modified duration is a similar risk measure but it ignores how changes in rates will impact cash flows on bonds with embedded options such as callable notes, MBS, or ABS. Effective duration takes into account the impact that changing interest rates has on cash flows (i.e., if interest rates fall and a callable bond is more likely to be called prior to its final maturity, the effective duration will decrease). © PFM Asset Management LLC14 Sector DistributionCity of San Luis ObispoSector Distribution –PFM ManagedSector distribution includes market value and excludes accrued interest.© PFM Asset Management LLCU.S. TreasuryFederalAgencyNegotiable CDCommercialPaperCorporateNotesMoney MarketFund9/30/201621.0% 56.5% 1.1%11.3% 9.4% 0.7%6/30/201630.1% 46.7% 1.1%12.6% 9.2% 0.3%0%10%20%30%40%50%60%15 IssuersAs of September 30, 2016.City of San Luis Obispo Issuer Distribution –PFM Managed© PFM Asset Management LLCIssuer NameInvestment Type % PortfolioFNMA Federal Agency 26.44%U.S. Treasury U.S. Treasury 21.00%FHLMC Federal Agency 17.73%FHLB Federal Agency 11.15%BNP Paribas NY Commercial Paper 2.93%Toyota Motor Credit Corp Commercial Paper 2.60%JP Morgan Commercial Paper 2.47%BNY Mellon Corporate Note 2.45%Bank of Tokyo Mitsubishi Commercial Paper 1.96%Berkshire Hathaway Corporate Note 1.49%Bank of Montreal Chicago Commercial Paper 1.34%Microsoft Corp Corporate Note 1.33%Wells Fargo & Company Corporate Note 1.30%FFCB Federal Agency 1.14%Royal Bank of Canada NY Negotiable CD 1.09%IBM Corporate Note 0.98%Dreyfus Prime Cash Management Fund Money Market Fund 0.73%Burlington North Corporate Note 0.72%Toyota Motor Credit Corp Corporate Note 0.64%American Honda Finance Corporate Note 0.51%Total100.00%16 Quality DistributionCity of San Luis Obispo Credit Quality –PFM ManagedSeptember 30, 2016 vs. June 30, 2016Ratings by Standard & Poor’s.© PFM Asset Management LLCAAA AA A <A A-1 NR9/30/20162.1% 81.7% 5.0% 0.0% 11.3% 0.0%6/30/20161.7% 81.9% 3.8% 0.0% 12.6% 0.0%0%10%20%30%40%50%60%70%80%90%100%17 Maturity DistributionCity of San Luis ObispoPortfolio Maturity Distribution vs. Benchmark –PFM Managed•Benchmark is the Bank of America Merrill Lynch (BAML) 0-5 Year U.S. Treasury Index.•Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity.•As of September 30, 2016.© PFM Asset Management LLCOvernight -3 Months3 - 6Months6 Months -1 Year1 - 2 Years 2 - 3 Years 3 - 4 Years4 - 5 YearsPortfolio5.5% 11.7% 14.4% 14.3% 23.3% 20.1% 10.7%Benchmark5.8% 5.8% 11.9% 23.5% 22.1% 17.8% 13.2%0%5%10%15%20%25%18 Investment PerformanceCity of San Luis Obispo Total ReturnPeriod Ended September 30, 2016Total Rate of Return•Performance on trade-date basis, gross (i.e., before fees), in accordance with the CFA Institute’s Global Investment Performance Standards (GIPS). •Performance numbers for periods one year and greater are presented on an annualized basis.•Bank of America Merrill Lynch Indices provided by Bloomberg Financial Markets.•Inception date is December 31, 2014.© PFM Asset Management LLC3 Months 6 Months 1 YearSinceInceptionCity of San Luis Obispo-0.02% 0.53% 1.38% 1.35%0-5 Yr. Treasury Index-0.12% 0.55% 1.28% 1.25%-0.25%0.00%0.25%0.50%0.75%1.00%1.25%1.50%19 Current Outlook and Strategy•Our strategy continues to favor broad allocation to various credit sectors.•We believe the best opportunities in the corporate sector are currently with issuers in the financial industry. At today’s narrower yield spreads, new purchases will be more selective.•Yields on commercial paper and negotiable CDs continue to offer significant yield pickup relative to short-term government securities as October money market reform has kept spread levels elevated. •Agency yield spreads moved modestly tighter during the third quarter but still offer value in certain maturities.•We plan to keep the duration and maturity distribution of the portfolio in line with the distribution of thebenchmark, except where shifting to short-term credit securities offers better value.•We will continue to monitor incoming economic data to assess and confirm the prospect for a Fed rate hike by year-end.© PFM Asset Management LLC20 City of San Luis Obispo - InternalPortfolio Characteristics9/30/16 6/30/16Portfolio PortfolioAverage Maturity (years)0.01 0.02Effective Duration*0.01 0.02Average Purchase Yield0.38% 0.41%Average Market Yield0.38% 0.41%Average QualityAA+/Aaa AA+/AaaTotal Market Value34,095,175 29,088,628Account Profile*Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price for each 1% change in interest rates. Modified duration is a similar risk measure but it ignores how changes in rates will impact cash flows on bonds with embedded options such as callable notes, MBS, or ABS. Effective duration takes into account the impact that changing interest rates has on cash flows (i.e. if interest rates fall and a callable bond is more likely to be called prior to its final maturity, the effective duration will decrease). © PFM Asset Management LLC21 Sector DistributionCity of San Luis Obispo Sector Distribution –InternalSector distribution includes market value and excludes accrued interest.© PFM Asset Management LLCLAIFMoney MarketRate AccountNegotiable CD Cash9/30/201665.6% 3.0% 2.9% 28.5%6/30/201676.8% 3.5% 3.4% 16.3%0%10%20%30%40%50%60%70%80%90%22 IssuersAs of September 30, 2016.City of San Luis Obispo Issuer Distribution –InternalIssuer NameInvestment Type % PortfolioLAIF LAIF65.63%Cash Cash28.47%Heritage Oaks Bank Money Market Rate Account2.97%Heritage Oaks Bank Negotiable CD2.93%Total100.00%© PFM Asset Management LLC23 III. Consolidated Information Category Standard CommentTreasury Obligations 5 year maximum maturity CompliesGovernment Sponsored Enterprise (GSE) Securities 5 year maximum maturity CompliesCorporate Notes5 year maximum maturityAt least two “A” rating; at least one “AA” for financials30% maximum, 5% per issuerCompliesLocal Government Investment Pool (LAIF) Up to maximum permitted by State Law CompliesNegotiable Certificates of Deposit5 year maximum maturityAt least a “AA” or “A-1”30% maximum, 5% per issuerCompliesCommercial Paper270 day maximum maturityAt least one “A-1” rating40% maximum, 10% per issuerCompliesCollateralized Bank Deposits 25% maximum, 5% per issuer CompliesMoney Market Mutual FundsHighest rating category by 2 NRSROs20% maximum, 10% per issuerCompliesMaximum maturity10 years; 10% maximum of portfolio in Treasury and GSE obligations with maturity >5 yearsCompliesDuration limitDuration of portfolio equal duration of benchmark plus or minus 10%CompliesSocial responsibility No investments in companies involved in tobacco, electronic cigarettes, or the direct production or drilling of fossil fuelsCompliesComplianceCity of San Luis ObispoPortfolio Compliance –Consolidated•The portfolio complies with California Government Code and the City of San Luis Obispo’s Investment Policy in regards to credit quality, maturity, sector, and issuer limits. Additionally, none of the City’s funds are invested in any securities prohibited by the Code.© PFM Asset Management LLCApplies to aggregate portfolio. Source: City of San Luis Obispo Investment Management Plan, June 2015.24 City of San Luis Obispo - ConsolidatedPortfolio Characteristics9/30/2016 6/30/16Portfolio PortfolioAverage Maturity (years)1.52 1.62Effective Duration*1.47 1.57Average Purchase Yield0.94% 0.97%Average Market Yield0.76% 0.69%Average QualityAA+/Aaa AA+/AaaTotal Market Value110,720,693 105,720,486Account Profile*Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price, for each 1% change in interest rates. Modified duration is a similar risk measure, but it ignores how changes in rates will impact cash flows on bonds with embedded options such as callable notes, MBS, or ABS. Effective duration takes into account the impact that changing interest rates has on cash flows (i.e. if interest rates fall and a callable bond is more likely to be called prior to its final maturity, the effective duration will decrease). © PFM Asset Management LLC25 Sector DistributionCity of San Luis Obispo Sector Distribution –ConsolidatedSector distribution includes market value and excludes accrued interest.© PFM Asset Management LLCU.S.TreasuryFederalAgencyComm.PaperCorporateNotesNegotiableCDMoneyMarketFundMoneyMarketRateAccountLAIF Cash9/30/201614.5% 39.1% 7.8% 6.5% 1.7% 0.5% 0.9% 20.2% 8.8%6/30/201621.8% 33.9% 9.1% 6.7% 1.7% 0.2% 1.0% 21.1% 4.5%0%5%10%15%20%25%30%35%40%45%26 Maturity DistributionCity of San Luis ObispoPortfolio Maturity Distribution –ConsolidatedCallable 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 LLCOvernight -3 Months3 - 6Months6 Months -1 Year1 - 2 Years 2 - 3 Years 3 - 4 Years4 - 5 Years9/30/201634.6% 8.1% 9.9% 9.9% 16.1% 13.9% 7.4%6/30/201628.1% 6.3% 14.3% 13.3% 15.1% 14.0% 9.0%0%5%10%15%20%25%30%35%40%27 IssuersIssuer NameInvestment Type % PortfolioLAIF LAIF 20.21%FNMA Federal Agency 18.30%U.S. Treasury U.S. Treasury 14.53%FHLMC Federal Agency 12.27%Cash Cash 8.77%FHLB Federal Agency 7.72%BNP Paribas NY Commercial Paper 2.03%Toyota Motor Credit Corp Commercial Paper 1.80%JP Morgan Commercial Paper 1.71%BNY Mellon Corporate Note 1.70%Bank of Tokyo Mitsubishi Commercial Paper 1.35%Berkshire Hathaway Corporate Note 1.03%Bank of Montreal Chicago Commercial Paper 0.93%Microsoft Corp Corporate Note 0.92%Heritage Oaks Bank Money Market Rate Account 0.91%Heritage Oaks Bank Negotiable CD 0.90%Wells Fargo & Company Corporate Note 0.90%FFCB Federal Agency 0.79%Royal Bank of Canada NY Negotiable CD 0.75%IBM Corporate Note 0.68%Dreyfus Prime Cash Management Fund Money Market Fund 0.50%Burlington North Corporate Note 0.50%Toyota Motor Credit Corp Corporate Note 0.44%American Honda Finance Corporate Note 0.36%Total100.00%As of September 30, 2016.City of San Luis Obispo Issuer Distribution –Consolidated© PFM Asset Management LLC28 IV. Portfolio Holdings City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2016Security DescriptionSettle DateYTM at CostParCost Value Amortized CostYTM at MarketMarket Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to MaturityDurationLAIFLOCAL AGENCY INVESTMENT FUNDVarious 0.46% 22,375,579.02 22,375,579.02 22,375,579.02 0.46% 22,375,579.02 - 20.21% - NRNR0.000.00Total LAIF0.46% 22,375,579.02 22,375,579.02 22,375,579.02 0.46% 22,375,579.02 - 20.21% - NRNR0.000.00Money Market FundDREYFUS PRIME CASH MANAGEMNT MONEY MARKET FUNDVarious 0.00% 556,967.89 556,967.89 556,967.89 0.00% 556,967.89 - 0.50% - AAAAaa0.000.00Total Money Market Fund0.00% 556,967.89 556,967.89 556,967.89 0.00% 556,967.89 - 0.50% - AAAAaa0.000.00CashCASH ACCOUNTVarious 0.21% 9,707,330.36 9,707,330.36 9,707,330.36 0.21% 9,707,330.36 - 8.77% - NRNR0.000.00CASH HERITAGE OAKS BANK MONEY MARKET RATE ACCOUNTVarious 0.25% 1,012,265.41 1,012,265.41 1,012,265.41 0.25% 1,012,265.41 - 0.91% - NRNR0.000.00Total Cash0.21% 10,719,595.77 10,719,595.77 10,719,595.77 0.21% 10,719,595.77 - 9.68% - NRNR0.000.00U.S. Treasury Bond/NoteUS TREASURY NOTES912828C24 1.50% Due 2/28/201911/25/2014 1.43%70,000.00 70,188.91 70,108.67 0.85%71,093.75 89.92 0.06%985.08 AA+Aaa2.412.37US TREASURY NOTES912828H52 1.25% Due 1/31/20203/4/2016 1.24% 1,000,000.00 1,000,546.88 1,000,470.09 0.97% 1,009,219.00 2,105.98 0.91% 8,748.91 AA+Aaa3.343.25US TREASURY NOTES912828K58 1.38% Due 4/30/20202/3/2016 1.25% 1,125,000.00 1,130,932.62 1,130,037.59 1.00% 1,139,634.00 6,473.34 1.03% 9,596.41 AA+Aaa3.583.47US TREASURY NOTES912828N89 1.38% Due 1/31/20216/7/2016 1.25% 1,235,000.00 1,241,995.12 1,241,535.73 1.12% 1,248,508.43 2,860.97 1.13% 6,972.70 AA+Aaa4.344.19US TREASURY NOTES912828ND8 3.50% Due 5/15/20205/29/2015 1.50% 1,300,000.00 1,423,550.78 1,391,089.93 1.03% 1,414,003.50 17,186.14 1.28% 22,913.57 AA+Aaa3.623.39US TREASURY NOTES912828RY8 1.38% Due 12/31/20184/13/2015 1.10% 600,000.00 606,070.31 603,702.15 0.83% 607,312.80 2,084.92 0.55% 3,610.65 AA+Aaa2.252.21US TREASURY NOTES912828SX9 1.13% Due 5/31/201911/25/2014 1.50%80,000.00 78,684.64 79,213.10 0.84%80,593.76 302.46 0.07% 1,380.66 AA+Aaa2.672.61US TREASURY NOTES912828SY7 0.63% Due 5/31/20175/13/2013 0.62% 135,000.00 135,005.73 135,000.96 0.60% 135,026.33 283.56 0.12% 25.37 AA+Aaa0.670.66US TREASURY NOTES912828TB6 0.75% Due 6/30/20179/17/2013 1.18% 575,000.00 565,882.79 573,169.03 0.60% 575,627.90 1,089.84 0.52% 2,458.87 AA+Aaa0.750.75US TREASURY NOTES912828TB6 0.75% Due 6/30/20176/7/2016 0.68% 1,690,000.00 1,691,254.30 1,690,883.14 0.60% 1,691,845.48 3,203.19 1.53% 962.34 AA+Aaa0.750.75US TREASURY NOTES912828UE8 0.75% Due 12/31/20178/13/2013 1.28% 625,000.00 611,061.66 620,953.54 0.72% 625,268.75 1,184.61 0.56% 4,315.21 AA+Aaa1.251.24US TREASURY NOTES912828UF5 1.13% Due 12/31/20191/8/2015 1.48% 775,000.00 761,891.60 766,341.92 0.95% 779,359.38 2,203.38 0.70% 13,017.46 AA+Aaa3.253.18US TREASURY NOTES912828UJ7 0.88% Due 1/31/201811/25/2014 1.06%70,000.00 69,603.75 69,832.69 0.72%70,147.63 103.19 0.06%314.94 AA+Aaa1.341.32US TREASURY NOTES912828UQ1 1.25% Due 2/29/202011/9/2015 1.58% 1,325,000.00 1,307,040.04 1,310,672.67 0.98% 1,336,955.48 1,418.34 1.21% 26,282.81 AA+Aaa3.423.34US TREASURY NOTES912828UR9 0.75% Due 2/28/20184/24/2014 1.32% 680,000.00 665,419.46 674,559.68 0.73% 680,212.16 436.74 0.61% 5,652.48 AA+Aaa1.411.41US TREASURY NOTES912828UR9 0.75% Due 2/28/201812/9/2015 1.06%80,000.00 79,456.25 79,653.09 0.73%80,024.96 51.38 0.07%371.87 AA+Aaa1.411.41US TREASURY NOTES912828VF4 1.38% Due 5/31/202012/4/2015 1.56% 900,000.00 892,792.97 894,081.35 1.03% 911,285.10 4,158.81 0.82% 17,203.75 AA+Aaa3.673.56US TREASURY NOTES912828VK3 1.38% Due 6/30/201811/25/2014 1.21%70,000.00 70,407.66 70,200.26 0.77%70,732.83 243.24 0.06%532.57 AA+Aaa1.751.72US TREASURY NOTE912828XH8 1.63% Due 6/30/20207/15/2015 1.70% 2,505,000.00 2,496,193.36 2,498,283.67 1.03% 2,559,601.49 10,287.18 2.31% 61,317.82 AA+Aaa3.753.62US TREASURY NOTES912828XM7 1.63% Due 7/31/20203/30/2016 1.27% 985,000.00 999,775.00 998,095.45 1.04% 1,006,431.63 2,696.71 0.91% 8,336.18 AA+Aaa3.843.71Total U.S. Treasury Bond/Note1.33% 15,825,000.00 15,897,753.83 15,897,884.71 0.92% 16,092,884.36 58,463.90 14.53% 194,999.65 AA+Aaa2.952.86Federal Agency Bond/NoteFHLB NOTES3130A0C65 0.63% Due 12/28/20167/15/2015 0.54% 1,245,000.00 1,246,444.20 1,245,240.93 0.35% 1,245,844.11 2,010.16 1.13% 603.18 AA+Aaa0.240.24FHLB GLOBAL NOTES3130A5EP0 0.63% Due 5/30/20175/15/2015 0.67% 515,000.00 514,572.55 514,860.34 0.60% 515,088.07 1,081.86 0.47% 227.73 AA+Aaa0.660.66FHLB NOTES3130A62S5 0.75% Due 8/28/20178/3/2015 0.78% 650,000.00 649,662.00 649,855.90 0.66% 650,527.80 446.88 0.59% 671.90 AA+Aaa0.910.9129 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2016Security DescriptionSettle DateYTM at CostParCost Value Amortized CostYTM at MarketMarket Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to MaturityDurationFEDERAL HOME LOAN BANKS AGCY3130A8BD4 0.88% Due 6/29/20186/6/2016 0.87% 3,495,000.00 3,495,174.75 3,495,145.11 0.65% 3,508,434.78 7,815.21 3.17% 13,289.67 AA+Aaa1.751.73FHLB GLOBAL NOTE3130A8QS5 1.13% Due 7/14/20217/15/2016 1.25% 725,000.00 720,591.28 720,772.37 1.28% 719,674.15 1,744.53 0.65% (1,098.22) AA+Aaa4.794.63FHLB GLOBAL NOTE3130A9AE1 0.88% Due 10/1/20188/26/2016 0.91% 1,100,000.00 1,099,252.00 1,099,284.74 0.90% 1,099,514.90 935.76 0.99% - AA+Aaa2.001.98FFCB NOTES31331KBX7 2.88% Due 2/10/20177/25/2012 0.74% 865,000.00 947,477.75 871,604.63 0.48% 872,452.84 3,523.07 0.79% 848.21 AA+Aaa0.360.36FHLB NOTES313378A43 1.38% Due 3/9/201811/25/2014 1.20%70,000.00 70,393.40 70,174.16 0.80%70,570.71 58.82 0.06%396.55 AA+Aaa1.441.43FEDERAL HOME LOAN BANK GLOBAL NOTES313379DD8 1.00% Due 6/21/201711/26/2012 0.70% 700,000.00 709,478.00 701,517.87 0.60% 702,005.50 1,944.44 0.63% 487.63 AA+Aaa0.720.72FEDERAL HOME LOAN BANK GLOBAL NOTES313379DD8 1.00% Due 6/21/201711/25/2014 0.84%35,000.00 35,144.20 35,040.80 0.60%35,100.28 97.22 0.03%59.48 AA+Aaa0.720.72FNMA NOTES3135G0A78 1.63% Due 1/21/20204/30/2015 1.54% 1,270,000.00 1,274,889.50 1,273,464.17 1.07% 1,292,848.57 4,012.85 1.17% 19,384.40 AA+Aaa3.313.21FNMA NOTES3135G0A78 1.63% Due 1/21/20206/29/2015 1.71% 700,000.00 697,298.00 698,023.14 1.07% 712,593.70 2,211.81 0.64% 14,570.56 AA+Aaa3.313.21FNMA NOTES3135G0E33 1.13% Due 7/20/20187/15/2015 1.17% 1,250,000.00 1,248,325.00 1,248,991.01 0.84% 1,256,267.50 2,773.44 1.13% 7,276.49 AA+Aaa1.801.78FANNIE MAE GLOBAL NOTES3135G0GY3 1.25% Due 1/30/20172/27/2012 1.07% 800,000.00 807,016.00 800,482.18 0.47% 802,076.80 1,694.44 0.72% 1,594.62 AA+Aaa0.330.33FNMA BENCHMARK NOTE3135G0H63 1.38% Due 1/28/20191/8/2016 1.40% 1,440,000.00 1,439,107.20 1,439,314.75 0.89% 1,455,907.68 3,465.00 1.31% 16,592.93 AA+Aaa2.332.28FNMA BENCHMARK NOTE3135G0H63 1.38% Due 1/28/20192/16/2016 0.96% 335,000.00 339,043.45 338,196.31 0.89% 338,700.75 806.09 0.31% 504.44 AA+Aaa2.332.28FNMA NOTES3135G0J20 1.38% Due 2/26/20215/19/2016 1.42% 520,000.00 518,850.80 518,939.40 1.22% 523,429.40 695.14 0.47% 4,490.00 AA+Aaa4.414.26FNMA BENCHMARK NOTE3135G0J53 1.00% Due 2/26/20195/16/2016 0.96% 375,000.00 375,420.00 375,364.88 0.94% 375,532.13 364.58 0.34% 167.25 AA+Aaa2.412.37FNMA BENCHMARK NOTE3135G0J53 1.00% Due 2/26/20196/2/2016 1.11% 305,000.00 304,112.45 304,219.36 0.94% 305,432.80 296.53 0.28% 1,213.44 AA+Aaa2.412.37FNMA BENCHMARK NOTE3135G0J53 1.00% Due 2/26/20196/6/2016 0.96% 3,980,000.00 3,984,338.20 3,983,845.04 0.94% 3,985,647.62 3,869.44 3.60% 1,802.58 AA+Aaa2.412.37FNMA BENCHMARK NOTE3135G0K69 1.25% Due 5/6/20218/2/2016 1.16% 1,485,000.00 1,491,311.25 1,491,102.65 1.27% 1,483,797.15 6,960.94 1.34% (7,305.50) AA+Aaa4.604.44FANNIE MAE GLOBAL NOTES3135G0MZ3 0.88% Due 8/28/20176/20/2014 1.10% 625,000.00 620,687.50 623,766.12 0.67% 626,189.38 501.30 0.57% 2,423.26 AA+Aaa0.910.91FNMA BENCHMARK NOTE3135G0N33 0.88% Due 8/2/20198/2/2016 0.93% 2,350,000.00 2,346,052.00 2,346,265.17 1.01% 2,340,863.20 3,369.97 2.11% (5,401.97) AA+Aaa2.842.79FNMA NOTES3135G0N82 1.25% Due 8/17/20218/19/2016 1.33% 1,045,000.00 1,040,767.75 1,040,863.63 1.31% 1,042,170.14 1,523.96 0.94% 1,306.51 AA+Aaa4.884.71FNMA NOTES3135G0N82 1.25% Due 8/17/20218/19/2016 1.32% 325,000.00 323,888.18 323,913.37 1.31% 324,119.90 473.96 0.29% 206.53 AA+Aaa4.884.71FNMA NOTES3135G0N82 1.25% Due 8/17/20219/2/2016 1.38% 1,000,000.00 993,880.00 993,976.58 1.31% 997,292.00 1,458.33 0.90% 3,315.42 AA+Aaa4.884.71FANNIE MAE GLOBAL NOTES3135G0PQ0 0.88% Due 10/26/20176/20/2014 1.17% 625,000.00 618,987.50 623,055.88 0.72% 626,024.38 2,354.60 0.57% 2,968.50 AA+Aaa1.071.06FANNIE MAE GLOBAL NOTES3135G0TG8 0.88% Due 2/8/201811/25/2014 1.14%80,000.00 79,335.84 79,716.69 0.78%80,107.04 103.06 0.07%390.35 AA+Aaa1.361.34FANNIE MAE GLOBAL NOTES3135G0YM9 1.88% Due 9/18/201811/25/2014 1.39%35,000.00 35,626.29 35,326.75 0.83%35,714.14 23.70 0.03%387.39 AA+Aaa1.971.93FNMA NOTES3135G0ZE6 1.75% Due 6/20/20198/5/2014 1.74% 350,000.00 350,227.50 350,130.65 0.95% 357,458.85 1,718.40 0.32% 7,328.20 AA+Aaa2.722.65FNMA NOTES3135G0ZE6 1.75% Due 6/20/201910/2/2014 1.77% 500,000.00 499,630.00 499,785.75 0.95% 510,655.50 2,454.86 0.46% 10,869.75 AA+Aaa2.722.65FNMA NOTES3135G0ZE6 1.75% Due 6/20/201911/21/2014 1.71% 100,000.00 100,157.00 100,094.97 0.95% 102,131.10 490.97 0.09% 2,036.13 AA+Aaa2.722.65FNMA NOTES3135G0ZG1 1.75% Due 9/12/20192/9/2015 1.36% 260,000.00 264,505.80 262,924.82 1.00% 265,619.90 240.14 0.24% 2,695.08 AA+Aaa2.952.87FNMA NOTES3135G0ZG1 1.75% Due 9/12/201911/25/2014 1.73%50,000.00 50,034.65 50,021.91 1.00%51,080.75 46.18 0.05% 1,058.84 AA+Aaa2.952.87FNMA NOTES (EX-CALLABLE)3136FPYB7 2.05% Due 5/23/20178/7/2012 0.90% 365,000.00 384,739.20 367,701.98 0.66% 368,272.59 2,660.44 0.33% 570.61 AA+Aaa0.640.64FREDDIE MAC GLOBAL NOTES3137EADC0 1.00% Due 3/8/20173/14/2012 1.29% 1,000,000.00 986,050.00 998,743.74 0.48% 1,002,296.00 638.89 0.91% 3,552.26 AA+Aaa0.440.44FHLMC NOTES3137EADF3 1.25% Due 5/12/201710/17/2012 0.82% 500,000.00 509,635.00 501,315.18 0.58% 502,068.00 2,413.19 0.45% 752.82 AA+Aaa0.610.6130 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2016Security DescriptionSettle DateYTM at CostParCost Value Amortized CostYTM at MarketMarket Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to MaturityDurationFREDDIE MAC NOTES3137EADG1 1.75% Due 5/30/20198/4/2014 1.67% 900,000.00 903,420.00 901,926.96 0.95% 918,792.90 5,293.75 0.83% 16,865.94 AA+Aaa2.662.59FREDDIE MAC GLOBAL NOTES3137EADH9 1.00% Due 6/29/20177/30/2012 0.85% 775,000.00 780,673.00 775,874.55 0.62% 777,183.18 1,980.56 0.70% 1,308.63 AA+Aaa0.750.74FREDDIE MAC GLOBAL NOTES3137EADH9 1.00% Due 6/29/201712/14/2012 0.74% 135,000.00 136,587.60 135,263.81 0.62% 135,380.30 345.00 0.12% 116.49 AA+Aaa0.750.74FREDDIE MAC GLOBAL NOTES3137EADJ5 1.00% Due 7/28/201711/26/2012 0.80% 900,000.00 908,316.00 901,490.95 0.62% 902,793.60 1,575.00 0.82% 1,302.65 AA+Aaa0.820.82FREDDIE MAC GLOBAL NOTES3137EADJ5 1.00% Due 7/28/20173/23/2015 0.82% 495,000.00 497,019.60 495,714.47 0.62% 496,536.48 866.25 0.45% 822.01 AA+Aaa0.820.82FREDDIE MAC GLOBAL NOTES3137EADJ5 1.00% Due 7/28/20177/15/2015 0.76% 1,235,000.00 1,241,002.10 1,237,442.81 0.62% 1,238,833.44 2,161.25 1.12% 1,390.63 AA+Aaa0.820.82FREDDIE MAC GLOBAL NOTES3137EADK2 1.25% Due 8/1/20199/15/2014 1.88% 1,050,000.00 1,019,077.50 1,031,701.31 0.99% 1,057,620.90 2,187.50 0.96% 25,919.59 AA+Aaa2.842.78FREDDIE MAC GLOBAL NOTES3137EADK2 1.25% Due 8/1/201911/25/2014 1.70%80,000.00 78,388.80 79,010.50 0.99%80,580.64 166.67 0.07% 1,570.14 AA+Aaa2.842.78FREDDIE MAC GLOBAL NOTES3137EADL0 1.00% Due 9/29/20171/4/2013 0.89% 950,000.00 954,788.00 951,022.68 0.69% 952,960.20 52.78 0.86% 1,937.52 AA+Aaa1.000.99FREDDIE MAC GLOBAL NOTES3137EADM8 1.25% Due 10/2/201912/30/2015 1.65% 700,000.00 689,857.00 691,843.92 1.01% 704,942.00 4,350.69 0.64% 13,098.08 AA+Aaa3.012.93FHLMC NOTES3137EADN6 0.75% Due 1/12/201810/1/2014 1.26% 800,000.00 787,008.00 794,867.43 0.77% 799,764.00 1,316.67 0.72% 4,896.57 AA+Aaa1.281.27FHLMC NOTES3137EADN6 0.75% Due 1/12/201811/25/2014 1.11%80,000.00 79,123.36 79,637.91 0.77%79,976.40 131.67 0.07%338.49 AA+Aaa1.281.27FREDDIE MAC GLOBAL NOTES3137EADP1 0.88% Due 3/7/201811/20/2014 1.20% 900,000.00 890,469.00 895,812.17 0.82% 900,705.60 525.00 0.81% 4,893.43 AA+Aaa1.431.42FREDDIE MAC NOTES3137EADZ9 1.13% Due 4/15/20193/21/2016 1.14% 810,000.00 809,732.00 809,778.95 0.95% 813,597.21 4,809.38 0.73% 3,818.26 AA+Aaa2.542.49FREDDIE MAC NOTES3137EADZ9 1.13% Due 4/15/20193/29/2016 1.12% 950,000.00 950,066.50 950,057.82 0.95% 954,218.95 5,640.63 0.86% 4,161.13 AA+Aaa2.542.49FHLMC REFERENCE NOTE3137EAEB1 0.88% Due 7/19/20197/20/2016 0.96% 1,275,000.00 1,271,914.50 1,272,115.10 1.00% 1,270,548.98 2,200.26 1.15% (1,566.12) AA+Aaa2.802.76Total Federal Agency Bond/Note 1.10% 43,105,000.00 43,169,549.15 43,076,604.27 0.86% 43,267,944.89 100,883.22 39.08% 191,110.46 AA+Aaa2.172.12Negotiable CDHERITAGE OAKS BANK YANKEE CD0.25% Due 12/20/201612/20/2015 0.27% 1,000,000.00 1,000,000.00 1,000,000.00 0.27% 1,000,000.00 69.44 0.90% - NRNR0.220.22ROYAL BANK OF CANADA NY CD78009NZZ2 1.70% Due 3/9/20183/15/2016 1.69% 830,000.00 830,000.00 830,000.00 1.34% 833,921.75 862.28 0.75% 3,921.75 AA-Aa31.441.43Total Negotiable CD0.91% 1,830,000.00 1,830,000.00 1,830,000.00 0.76% 1,833,921.75 931.72 1.66% 3,921.75 AA-Aa30.780.77Commercial PaperBANK OF MONTREAL CHICAGO COMM PAPER06366GQ36 0.00% Due 3/3/20176/10/2016 1.03% 1,030,000.00 1,022,220.34 1,025,525.24 1.00% 1,025,607.05 - 0.93% 81.81 A-1P-10.420.42BANK OF TOKYO MITSUBISHI LTD COMM PAPER06538BK44 0.00% Due 10/4/20164/4/2016 0.89% 500,000.00 497,737.91 499,962.92 0.41% 499,977.50 - 0.45% 14.58 A-1P-10.010.01BANK OF TOKYO MITSUBISHI UFJ COMM PAPER06538BM67 0.00% Due 12/6/20166/6/2016 1.00% 1,000,000.00 994,967.50 998,185.00 0.72% 998,671.00 - 0.90% 486.00 A-1P-10.180.18BNP PARIBAS NY BRANCH COMM PAPER09659BN30 0.00% Due 1/3/20174/8/2016 1.04% 1,250,000.00 1,240,343.75 1,246,638.20 0.88% 1,247,091.25 - 1.13% 453.05 A-1P-10.260.26BNP PARIBAS NY BRANCH COMM PAPER09659BQ37 0.00% Due 3/3/20176/7/2016 1.06% 1,000,000.00 992,154.17 995,537.50 1.10% 995,299.00 - 0.90% (238.50) A-1P-10.420.42JP MORGAN SECURITIES LLC COMM PAPER46640PKB8 0.00% Due 10/11/20164/13/2016 0.87% 900,000.00 896,063.25 899,782.50 0.41% 899,887.50 - 0.81% 105.00 A-1P-10.030.03JP MORGAN SECURITIES LLC COMM PAPER46640PQ30 0.00% Due 3/3/20176/7/2016 1.07% 1,000,000.00 992,079.44 995,495.00 0.83% 996,441.00 - 0.90% 946.00 A-1P-10.420.42TOYOTA MOTOR CREDIT CORP COMM PAPER89233GN36 0.00% Due 1/3/20176/7/2016 0.87% 1,000,000.00 994,925.00 997,728.33 0.76% 997,987.00 - 0.90% 258.67 A-1+P-10.260.26TOYOTA MOTOR CREDIT CORP COMM PAPER89233GPA8 0.00% Due 2/10/20175/16/2016 1.01% 1,000,000.00 992,500.00 996,333.33 0.93% 996,590.00 - 0.90% 256.67 A-1+P-10.360.36Total Commercial Paper0.99% 8,680,000.00 8,622,991.36 8,655,188.02 0.81% 8,657,551.30 - 7.82% 2,363.28 AA+Aa10.280.28Corporate NoteAMERICAN HONDA FINANCE CORP NOTES02665WBA8 1.70% Due 2/22/20192/23/2016 1.71% 390,000.00 389,922.00 389,937.39 1.34% 393,317.73 718.25 0.36% 3,380.34 A+A12.402.34BNY MELLON CORP NOTE (CALLABLE)06406HDD8 2.60% Due 8/17/20206/8/2016 1.81% 960,000.00 990,316.80 988,088.24 1.69% 992,833.92 3,050.67 0.90% 4,745.68 AA13.883.5731 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2016Security DescriptionSettle DateYTM at CostParCost Value Amortized CostYTM at MarketMarket Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to MaturityDurationBONY MELLON CORP NOTE (CALLABLE)06406HDF3 2.45% Due 11/27/20208/18/2016 1.70% 865,000.00 891,564.15 890,836.50 1.79% 887,767.67 7,299.64 0.80% (3,068.83) AA14.163.81BERKSHIRE HATHAWAY FIN GLOBAL NOTES084664BS9 1.60% Due 5/15/20174/24/2013 1.00% 700,000.00 716,765.00 702,613.76 1.05% 702,387.70 4,231.11 0.63% (226.06) AAAa20.620.62BERKSHIRE HATHAWAY INC NOTES084664CG4 1.70% Due 3/15/20193/15/2016 1.73% 195,000.00 194,851.80 194,878.14 1.32% 196,789.52 147.33 0.18% 1,911.38 AAAa22.452.40BERKSHIRE HATHAWAY INC CORPORATE NOTES084664CK5 1.30% Due 8/15/20198/15/2016 1.33% 240,000.00 239,767.20 239,776.95 1.24% 240,405.36 398.67 0.22% 628.41 AAAa22.872.81BURLINGTON NRTH CORP12189TBC7 4.70% Due 10/1/20196/8/2016 1.48% 500,000.00 551,950.00 547,146.27 1.33% 549,498.50 11,750.00 0.50% 2,352.23 AA33.002.77IBM CORP NOTES459200HZ7 1.13% Due 2/6/20182/9/2015 1.16% 750,000.00 749,317.50 749,689.90 1.13% 749,901.75 1,289.06 0.68% 211.85 AA-Aa31.351.33MICROSOFT CORP NOTE594918AY0 1.85% Due 2/12/20204/13/2015 1.58% 1,000,000.00 1,012,570.00 1,008,858.62 1.35% 1,016,561.00 2,518.06 0.92% 7,702.38 AAAAaa3.373.25TOYOTA MOTOR CREDIT CORP89236TCP8 1.55% Due 7/13/20187/13/2015 1.58% 490,000.00 489,583.50 489,750.11 1.24% 492,651.39 1,645.58 0.44% 2,901.28 AA-Aa31.781.75WELLS FARGO & COMPANY NOTES94974BGR5 2.55% Due 12/7/20206/8/2016 2.02% 975,000.00 997,191.00 995,703.81 2.06% 994,133.40 7,873.13 0.90% (1,570.41) AA24.193.93Total Corporate Note1.58% 7,065,000.00 7,223,798.95 7,197,279.69 1.48% 7,216,247.94 40,921.50 6.52% 18,968.25 AA-Aa32.942.77Total Portfolio0.93% 110,157,142.68 110,396,235.97 110,309,099.37 0.75% 110,720,692.92 201,200.34 100.00% 411,363.39 AA+1.50 1.46Total Market Value Plus Accrued110,921,893.26 *Generally, PFM’s market prices are derived from closing bid prices as of the last business day of the month as supplied by Interactive Data, Bloomberg or Telerate. Where prices are not available from generally recognized sources the securities are priced using a yield-based matrix system to arrive at an estimated market value. Prices that fall between data points are interpolated. Non-negotiable FDIC-insured bank certificates of deposit are priced at par. Although PFM believes the prices to be reliable, the values of the securities do not always represent the prices at which the securities could have been bought or sold.32 V. Quarterly Transactions ! 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