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08-17-2017 Agenda Packet
CITY OF SAN LUIS OBISPO INVESTMENT OVERSIGHT COMMITTEE REGULAR QUARTERLY AGENDA August 17, 2017 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: Finance Director/Treasurer/ Bradford ROLL CALL: Mayor Harmon; City Manager Lichtig; Finance Director/Treasurer Xenia Bradford; Assistant City Manager Johnson; Accounting Manager Controller Rico Pardo; Steve Barasch, public member. OTHERS PRESENT: Al Eschenbach, Independent Auditor and ex-officio member; Monique Spyke, Managing Director for PFM Asset Management LLC; Izac Chyou, Senior Managing Consultant for 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 May 31, 2017. a. Recommend approval of the minutes 2. Presentation of the Quarterly Investment Report on Portfolio Performance a. Review and confirm investment policy compliance 3. Review investment policies and practices, follow-up item from May 31, 2017. 4. Review Investment Oversight Committee role and duties per the Financial Management Manual. Investment Oversight Committee Regular Quarterly Agenda for August 17, 2017 5. Items to be addressed at a future meeting. 6. Review Investment Oversight Committee calendar. 7. Adjourn to the next meeting to be held on November 9, 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 Wednesday, May 31, 2017 Regular Meeting of the Investment Oversight Committee CALL TO ORDER A Regular meeting of the Investment Oversight Committee was called to order on Wednesday, May 31, 2017, at 1:30 p.m. in the Council Hearing Room at 990 Palm Street, San Luis Obispo, California, by Chair Bradford. ROLL CALL Present: Committee Members Katie, Lichtig, Derek Johnson, Rico Pardo, Steve Barasch, Chair Xenia Bradford Absent: Committee Member Heidi Harmon Others Present: Al Eschenbach, Independent Auditor and ex-officio member; Izac Chyou, PFM Asset Management LLC (City’s Investment Advisor); and Barbara Ehrbar, Recording Secretary PUBLIC COMMENT ON ITEMS NOT ON THE AGENDA None. 1. REVIEW OF INVESTMENT OVERSIGHT COMMITTEE MEETING MINUTES OF FEBRUARY 16, 2017 ACTION: MOTION BY COMMITTEE MEMBER JOHNSON, SECOND BY COMMITTEE MEMBER PARDO, CARRIED 5-0 (HARMON ABSENT), to approve the Investment Oversight Committee Meeting minutes of February 16, 2017. Committee Member Barasch asked if any action had been taken on Item 4 (Discussion of Committee’s Purpose, Membership and Terms) since the last meeting. Chair Bradford indicated that there has been no action or further discussion on this item. Committee Member Barasch indicated he would like to put this item on the agenda since no action has been taken since it was discussed at that meeting. Chair Bradford suggested that this be discussed today during Item 4. Committee Member Lichtig indicated that while she did not attend the last meeting, she had reviewed the minutes and felt comfortable approving them. City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of May 31, 2017 Page 2 2. PRESENTATION OF THE QUARTERLY INVESTMENT REPORT ON PORTFOLIO PERFORMANCE Chair Bradford distributed the Quarterly Investment Report. City Investment Advisor Izac Chyou presented an overview of the market and an update on the City’s portfolio. Committee member Barasch noted that the City does not have any local investments in its portfolio now since Heritage Oaks Bank was recently acquired by Pacific Premier Bank, which is based out of Irvine. He indicated that he would like to see some reinvestment locally. Committee Member Johnson recommended that the report be updated to reflect the new ownership of Heritage Oaks Bank. Advisor Chyou updated the committee on what Sustainable, Responsible and Impact Investing is (SRI) and how it’s managed. Public Comment None ---End of Public Comment--- ACTION: MOTION BY COMMITTEE MEMBER LICHTIG, SECOND BY COMMITTEE MEMBER BARASCH, CARRIED 5-0 (HARMON ABSENT), to confirm that the Quarterly Investment Report for the period ending March 31, 2017 is in compliance with the City’s Investment Policy. 3. REVIEW INVESTMENT POLICIES AND PRACTICES INCLUDING SOCIALLY RESPONSIBLE INVESTING AND DISCUSS INVESTMENTS IN FOSSIL FUEL Advisor Chyou distributed a memo reviewing the City’s Investment Policy. He indicated that consistent with City policy, there are no fossil fuel companies in the City’s portfolio. He recommended four changes to the City’s policy as noted below: Update credit rating language used in the policy to reflect a recent revision to California Code; Loosen the credit quality requirement of negotiable certificates of deposit; All purchases of corporate notes rated “A” or better by one national recognized rating agency; and Add asset-backed securities to the City’s list of Authorized Investments. In response to a question from Committee member Lichtig about what other benchmark cities are doing, Advisor Chyou indicated that it is a common guideline for most cities do allow the California Code to rely on only one nationally recognized statistical rating organization, thereby allowing for split-rated securities that are “A” by one issuer and not necessarily relying on two rating agencies. City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of May 31, 2017 Page 3 Committee member Lichtig indicated she would be more comfortable with the proposed changes if she knew what other agencies have these practices in place. She would like to have that information on record before forwarding these changes on to the City Council for approval. Advisor Chyou noted he could provide that information. ACTION: MOTION BY COMMITTEE MEMBER JOHNSON, SECOND BY COMMITTEE MEMBER LICHTIG, CARRIED 5-0 (HARMON ABSENT), to continue this item to the next regular meeting so that PFM can return with analysis of other agencies that have adopted these recommended changes in their investment policy and what their experience has been. Committee member Lichtig clarified that the annual review by the Council will happen in a timely fashion. Any proposed changes can move forward to the Council mid-cycle. 4. ITEMS TO BE ADDRESSED AT A FUTURE MEETING Committee member Barasch requested that the item mentioned in the February 16, 2017, meeting regarding the Committee’s purpose be addressed at the next meeting. He noted that the investment arena is getting more complex, and it would be helpful to broaden the base operations of the committee, if possible. 5. DISCUSSION OF INVESTMENT OVERSIGHT COMMITTEE CALENDAR The next meeting is scheduled for August 10, 2017, at 1:30 p.m. Committee member Lichtig indicated that at least two members of the committee would be unable to attend that meeting. The Committee decided to move the August 10th meeting to August 17, 2017, at 1:30 p.m. The following meeting is scheduled for November 9, 2017. ADJOURNMENT The meeting was adjourned at 2:51 p.m. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/2017 Quarterly Investment Report As of June 30, 2017 August 17, 2017 This report presents the City’s investment portfolio for the quarter ending March 31, 2017. 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, approximately $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 June 30, 2017 compared with the prior quarter: March 31, 2017 June 30, 2017 Percent of TotalCash and investments held by the City 42,168,030 43,051,653 34.86%Cash and investments managed by PFM 75,668,334 75,938,659 61.48%Cash and investments held by trustees 4,521,790 4,521,790 3.66%TOTAL 122,358,154 123,512,102 100% 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 June 30, 2017, the market value of the portfolio was $248,441 less than the cost basis. The portfolio’s yield on a market basis as of June 30, 2017 was 1.20%, and the yield on a cost basis was 1.46%. (These amounts do not reflect the returns on the assets held by the bond trustee.) As of June 30, 2017, 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 June 30, 2017: 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, Director of Finance at (805) 781-7125. DISTRIBUTION LIST City Council Heidi Harmon, Mayor Dan Rivoire, Vice Mayor Aaron Gomez, Council Member Andy Pease, Council Member Carlyn Christianson, Council Member Investment Oversight Committee Heidi Harmon, Mayor Derek Johnson, Assistant City Manager Xenia Bradford, Interim Finance Director/Treasurer Katie Lichtig, City Manager Rico Pardo, Accounting Manager/Controller Steven Barasch, Public Member Independent Auditor Allen E. Eschenbach, Glenn Burdette Attest Corporation PFM Asset Management Monique Skype, Portfolio Manager Izac Chyou, Senior Managing Consultant CITY OF SAN LUIS OBISPOSUMMARY OF INVESTMENTSAs of June 30, 2017 Percent of Current MarketPortfolio Yield Value Local Agency Investment Funds 64% 0.98% 27,462,090.57 Certificate of Deposit 2% 0.27% 1,000,000.00 Money Market Account 2% 0.25% 1,014,537.22 Checking Account 32% 0.25% 13,575,024.10 Treasury Issues 0% 0.00% 0.00 Total Investments Held by the City 100% 0.71% $43,051,651.89 Percent of CurrentPortfolio Yield Value Federal Agency Issues 45% 1.25% 34,357,569.77 Commercial Paper 10% 1.31% 7,780,606.50 Money Market Fund 0% 0.00% 47,564.02 US Corporate Notes 12% 1.82% 8,859,122.49 Negotiable CD 12% 1.84% 9,048,921.06 Treasury Issues 21% 1.55% 15,844,875.56 Total Investments Managed by Public Financial Management 100% 1.45% $75,938,659.40 Percent of Current MarketTrustee Portfolio Yield Value First American Treasury Funds 1.94% 0.00% 87,574.54 Other Money Market Accounts 0.05% 0.02% 2,291.43 Certificate of Deposit 0.00% 0.00% Guaranteed Investment Contracts 45.03% see below 2,036,092.50 Federal Agency Issues 18.49% 2.53% 836,236.55 Treasury Issues 34.49% Varies 1,559,595.37 Total Investments Held by Trustees 100% $4,521,790.39 Total of all Investments--Market Value $123,512,101.68 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 OBISPOSUMMARY OF INVESTMENT PORTFOLIO LIQUIDITYAs of June 30, 2017 Managed Managed Percent of Marketby City by PFM Portfolio Value On Demand 42,051,651.89 47,564.02 35% 42,099,215.91 Within Six Months 1,000,000.00 7,786,426.39 7% 8,786,426.39 Six Months to One Year 6,761,896.60 6% 6,761,896.60 Within One to Five Years 0.00 61,342,772.40 52% 61,342,772.40 Over Five Years 0% 0.00 TOTAL 43,051,651.89 $75,938,659.40 100% $118,990,311.29 Percent of MarketPortfolio Value On Demand 2% 89,865.97 Within Six Months 0% 0.00 Six Months to One Year 0% 0.00 Within One to Five Years 25% 1,126,571.15 Over Five Years 73% 3,305,353.27 TOTAL 100% $4,521,790.39 Total of all Investments--Market Value $123,512,101.68 CITY OF SAN LUIS OBISPOINVESTMENT DETAILAs of June 30, 2017 Agency Investment Coupon Current Purchase Maturity Market(Broker)Description Rate Yield Date Date Value Local Agency Money Market Fund OnInvestment Fund City NA 0.98% Varies Demand 27,394,118.74 Local Agency Money Market Fund OnInvestment Fund CIB NA 0.98% Varies Demand 67,971.83 OnBank of America Checking Account NA 0.25% Varies Demand 13,575,024.10 CollateralizedHeritage Oaks Certificate of Deposit NA 0.27% 12/20/2013 12/20/2017 1,000,000.00 On Heritage Oaks Money Market Account NA 0.25%1/24/2012 Demand 1,014,537.22 TOTAL $43,051,651.89 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 OBISPOINVESTMENT DETAILAs of June 30, 2017 Agency Investment Coupon Current Purchase Maturity Market(Broker) Description Rate Yield Date Date Value2005 Refunding Lease Revenue Bonds U. S. Bank First AmericanCorporate Trust Services Treasury Fund N/A 0.00% Varies on demand - U. S. Bank United StatesCorporate Trust Services Treasury Bonds 6.00% 4.26% 6/26/96 2/15/26 760,336.92 2006 Lease Revenue Bonds U. S. Bank First AmericanCorporate Trust Services Treasury Fund N/A 0.00% Varies on demand 28,054.11 GuaranteedFSA Capital Investment ContractManagement Services LLC Treasury Fund 5.545% 5.545% 5/11/06 5/26/36 1,000,745.00 2006 Water Revenue Bonds U. S. Bank First AmericanCorporate Trust Services Treasury Fund N/A 0.00% Varies on demand 28,029.62 GuaranteedFSA Capital Investment ContractManagement 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 AmericanCorporate Trust Services Treasury Fund N/A 0.00% Varies on demand $31,490.81 U. S. BankCorporate Trust Services Federal Home Loan Bank 1.00% 0.99% 11/25/2014 6/21/2017 $35,052.50 U. S. Bank Fed Home Loan Mort. CorpCorporate Trust Services Medium term Note 0.75% 0.75% 11/25/2014 1/12/2018 $79,836.80 U. S. BankCorporate Trust Services U.S. Treasury Note 0.88% 0.88% 11/25/2014 1/31/2018 $69,948.20 U. S. Bank Federal Nat'l Mtge. Assoc.Corporate Trust Services Debenture 0.88% 0.88% 11/25/2014 2/8/2018 $79,945.60U. S. BankCorporate Trust Services Federal Home Loan Bank 1.38% 1.36% 11/25/2014 3/9/18 $70,250.60 U. S. BankCorporate Trust Services U.S. Treasury Note 1.38% 1.36% 11/25/2014 6/30/2018 $70,328.30 U. S. Bank Federal Nat'l Mtge. Assoc.Corporate Trust Services Debenture 1.88% 1.83% 11/25/2014 9/18/2018 $35,405.65 U. S. BankCorporate Trust Services U.S. Treasury Note 1.50% 1.49% 11/25/2014 2/28/2019 $70,382.90 U. S. BankCorporate Trust Services U.S. Treasury Note 1.13% 1.13% 11/25/2014 5/31/2019 $79,675.20 U. S. Bank Fed Home Loan Mort. CorpCorporate Trust Services Debenture 1.25% 1.26% 11/25/2014 8/1/2019 $79,670.40 U. S. BankCorporate Trust Services Federal Nat'l Mtge. Assoc. 1.75% 1.74% 11/25/2014 9/12/2019 $50,475.00 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 MoneyCorporate Trust Services Market Account N/A 0.02% Varies on demand $2,251.25 U. S. Bank United StatesCorporate Trust Services Treasury Bond 2.00% 2.00% Varies 11/15/21 $225,623.25 U. S. Bank United StatesCorporate Trust Services Treasury Note 7.125% 5.150% Varies 2/15/23 $283,300.602012 Revenue Refunding Bonds (Refunded 2001 Revenue Refunding Bonds) U. S. Bank U.S Bank MoneyCorporate Trust Services Market Account NA 0.00% Varies on demand $40.18 U. S. BankCorporate Trust Services Federal Home Loan Bank 5.50%5.21%Varies 8/15/16 $405,600.00 TOTAL $4,521,790.39 CITY OF SAN LUIS OBISPOINVESTMENT DETAILAs of June 30, 2017 The City of San Luis Obispo maintains certain performance objectives for the investments that are managed by Public Financial Management. The overall performance objective for the portfolio is to earn a total rate of return over the market cycle that equals or exceeds the market index. In order to achieve this objective the portfolio invests in high-quality money market instruments, US Treasury securities, Agency securities, and high-grade corporate securities, with a maximum maturity of five years. To monitor the achievement of this objective, the City uses a “Benchmark” to compare to. The benchmark which is used is based on the BofA Merrill Lynch Index of 0-5 year Treasury securities. Below is a summary of the monthlyresults as compared to the benchmark. While the City strives to achieve this performance objective every month, the goal is assumed to be met on an annual basis. The City of San Luis Obispo is currently just under the benchmark goals inmost categories. We feel that through market trends and current investing adjustments, our performance will meet or exceed the benchmarks by the end of the fiscal year. Benchmark Comparison for the Quarter Ended 6/30/2017 Benchmark 6/30/2017 Portfolio 3/31/2017 PortfolioAverage Maturity (yrs)2.32 2.21 2.22Modified Duration 2.23 2.13 2.14Average Purchase Yield N/A 1.46%1.39%Average Market Yield 1.47%1.20%1.47%Average Quality AA+AA/Aa1 AA+/Aa1Total Market Value -$ 76,623,297$ 76,388,675$ The following pages provide a summary of the portfolio under management by Public Financial Management (PFM) as well asa detailed holding report for the month. MANAGED BY PUBLIC FINANCIAL MANAGEMENT © PFM City of San Luis Obispo Investment Report For the Quarter Ended June 30, 2017 PFM Asset Management LLC 50 California Street Suite 2300 San Francisco, CA 94111 Monique Spyke, Managing Director Izac Chyou, Sr. Managing Consultant (415) 393 -7259 (415) 393 -7251 spykem@pfm.com chyoui@pfm.com © PFM Table of Contents I.Market Update II.Portfolio Review III.Appendix A.Consolidated Portfolio Information B.Portfolio Holdings C.Quarterly Transactions © PFM I. Market Update © PFM 4 Interest Rate Update Source: Bloomberg, as of 6/30/17. Two-year treasury yields moved modestly higher, possibly due to lower expectations of future rate hikes for the remainder of 2017. 2-Year Treasury Yields June 30, 2016 –June 30, 2017 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Fed Rate Hike Fed Rate Hike Fed Rate Hike Presidential Election 1 © PFM 5 Short-Term Yields Higher but Curve Flatter in Second Quarter Source: Bloomberg, as of 6/30/17. Maturity 03/31/17 06/30/17 Change 3-Mo.0.75 1.01 0.26 6-Mo.0.90 1.13 0.23 1-Yr.1.02 1.23 0.21 2-Yr.1.26 1.38 0.12 3-Yr.1.49 1.55 0.06 5-Yr.1.92 1.89 -0.03 10-Yr.2.39 2.31 -0.08 20-Yr.2.76 2.61 -0.15 30-Yr.3.02 2.84 -0.18 Yield Curve History Treasury yields are substantially higher compared to a year ago, with short-term yields rising in response to the Fed raising rates to normalize policy, while longer-term yields have come down in response to lower inflation expectations. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3 m 6 m 1 y 2 y 3 y 5 y U.S. Treasury Yield Curve June 30, 2017 March 31, 2017 June 30, 2016 2 © PFM 6 A Tale of Two Markets Source: The WSJ Daily Shot, Bloomberg, as of 6/30/17. 1.50% 2.00% 2.50% 3.00% 3.50% 2,050 2,150 2,250 2,350 2,450 Sep '16 Oct '16 Nov '16 Dec '16 Jan '17 Feb '17 Mar '17 Apr '17 May '17 Jun '17 HundredsS&P 500 10-Year U.S. Treasury U.S. Election Conflicting signals from the bond and equity markets: •Falling bond yields are reflecting a weakening outlook for inflation and possibly economic growth in the U.S. •Equities are hitting new record highs supported by strong corporate profits, but valuations are stretched. 3 © PFM 7 2.6% -2% -1% 0% 1% 2% 3% 4% 5% 6%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q42013 2014 2015 2016 2017 U.S. Real GDP QoQ, SAAR Bloomberg Survey of Economists 2.7%2.7% US Economic Growth Gross domestic product increased at an annualized rate of 2.6% in the second quarter of 2017. All four major components contributed positively to economic growth, with personal consumption bouncing back and adding 1.9% to the top line. Gross private investments, net exports, and government consumption were more modest, contributing 0.7% in total to second quarter GDP. 2.0%1.9% Source: Bloomberg, as of 7/28/17. SAAR is seasonally adjusted annualized rate. Orange dashes denotes four-quarter averages. 4 © PFM 8 Labor Market Strength Continues The U.S. labor market continued to improve, adding 581,000 jobs in the second quarter and an average of 187,000 jobs per month over the past year. The headline unemployment rate and the labor force participation rate ticked up to 4.4% and 62.8%, respectively. The U-6 rate, which includes underemployed and discouraged workers, ended the quarter at 8.6 %—the lowest since 2007. Average hourly earnings—an important gauge of wage growth—grew 2.5% over the past 12 months. Source: Bloomberg, as of 6/30/17. 0k 100k 200k 300k 400k Jun '12 Jun '13 Jun '14 Jun '15 Jun '16 Jun '17 Monthly Change in Nonfarm Payrolls Nonfarm Payrolls 12-Month Moving Average 8.2% 7.5% 6.1%5.3% 4.9% 4.4% 4% 5% 6% 7% 8% 9% Jun '12 Jun '13 Jun '14 Jun '15 Jun '16 Jun '17 Unemployment Rate 5 © PFM 9 Inflation Trend Reverses Source: Bloomberg, as of 6/30/17. Post-election period is 11/08/16-1/20/17, post-inauguration period is 1/20/17-6/30/17. 1.50% 1.70% 1.90% 2.10% 2.30% 2.50% 2.70% Sep '16 Dec '16 Mar '17 Jun '17 10-Year Treasury Yield 94 96 98 100 102 104 Sep '16 Dec '16 Mar '17 Jun '17 Dollar Index 1.40% 1.60% 1.80% 2.00% 2.20% Sep '16 Dec '16 Mar '17 Jun '17 Market Expectation for Inflation Over Next 5 Years Election Election Election 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% May '12 May '13 May '14 May '15 May '16 May '17 Inflation Measures (YoY) Core CPI Core PCE Fed's Long Term Inflation Target 6 © PFM 10 Fed Rate Hikes Expected in 2017 Source: Bloomberg, based on Fed Funds Futures (Effective rate) by Bloomberg. Probability of Fed Rate Hike 0% 10% 20% 30% 40% 50% 60% 1 2 3 4 5 Number of Total Rate Hikes Expected in 2017Meeting 6/30/2017 7/26/2017 0% 9/20/2017 16% 11/1/2017 17% 12/13/2017 52% 1/31/2018 53% On June 14, the Federal Open Market Committee (FOMC) raised rates for the fourth time since the recession by 25bps, lifting its target rate to 1.00% -1.25%. Market implied probabilities indicate that there is a 52% chance of the Fed raising rates at their December meeting. Additionally, the market has priced in a 45% chance of one more hike this year. 7 © PFM 11 Fed’s Balance Sheet Normalization Plan Source: Bloomberg, The Federal Reserve, FRB of St. Louis, as of 6/15/17. Projection is based on maturity schedule of Fed’s Treasury holdings and caps on reinvestments as described in FOMC’s June 2017 addendum to the Policy Normalization Principles and Plans, assuming normalization begins in Jan uary 2018. At the June FOMC meeting, the Federal Reserve laid out its plan to reduce the size of its balance sheet, which stands at $4.5 trillion after multiple rounds of quantitative easing following the 2007 financial crisis. Fed officials expect to begin implementing the program this year, provided the economy evolves broadly as anticipated. The Fed plans to gradually reduce its holdings by decreasing reinvestments of principal payments on its U.S. Treasury and agency mortgage-backed securities. The pace of this decline will be limited by a cap that starts at $10 billion per month, increasing every three months until it reaches $50 billion per month. $0 $1 $2 $3 $4 $5 20032004200520062007200820092010201120122013201420152016201720182019(in trillion)Fed’s Total Balance Sheet Assets Treasury Mortgage-Backed Federal Agency Other Projection (in billion)Treasury Holdings Agency MBS Holdings Total Fed Assets Dec 2017 $2,465 $1,770 $4,470 Dec 2019 (Projected)$2,035 $1,410*$3,680 Difference:$430 $360*$790 QE3 QE2 *MBS projection assumes that principal payments will always exceed the cap over the horizon period (i.e. the monthly run off amount is equal to the cap). 8 © PFM II. Portfolio Review © PFM Securities and funds in the internal portfolio are not rated. 1.Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price for each 1% cha nge 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 callab le 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 l ikely to be called prior to its final maturity, the effective duration will decrease). Portfolio Characteristics —Internal For the Quarter Ended June 30, 2017 Portfolio Review 6/30/2017 3/31/2017 Average Maturity (yrs)0.01 0.02 Effective Duration1 0.01 0.01 Average Market Yield 0.72%0.55% Total Market Value 43,051,652 42,736,999 9 © PFM *Issuer is Pacific Premier Bank. Percentages based on market values excluding accrued interest. Sector Distribution —Internal For the Quarter Ended June 30, 2017 Portfolio Review LAIF Money Market Rate Account Negotiable CDs*Cash 6/30/2017 63.8%2.4%2.3%31.5% 3/31/2017 64.1%2.4%2.3%31.2% 0% 10% 20% 30% 40% 50% 60% 70% 10 © PFM Objectives 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. For the Quarter Ended June 30, 2017 Portfolio Review 11 © PFM Second Quarter 2017 Recap Our duration strategy is to remain relatively in line with the benchmark’s duration unless we have a strong conviction that rates are not appropriately reflecting market risks and expectations. At quarter end, we aligned the portfolio duration with the benchmark duration since market conditions were consistent with moderate growth and the Fed is on track to gradually raise rates. Federal agency yield spreads narrowed further amid minimal new issuance, ending the quarter at historically tight levels. We maintained corporate allocations as the sector’s additional income remained advantageous, and the sector benefited from further spread tightening. In the money market space, short-term Treasury yields rose, repricing to reflect the Fed’s ¼ percent June rate hike. The yield spread offered by commercial paper (CP) and certificates of deposit (CDs) tightened as the effects of money market reform and conviction about further Fed rate hikes faded. For the Quarter Ended June 30, 2017 Portfolio Review 12 © PFM •Performance is for the City of San Luis Obispo’s Operating Funds. •Performance on trade-date basis, gross (i.e., before fees), in accordance with the CFA Institute’s Global Investment Performance Standards (GIPS). •Performance 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. Total Rate of Return For the Quarter Ended June 30, 2017 Portfolio Review +0.09%+0.19%+0.45%+0.17%Difference: 3 Months 6 Months 1 Year Since Inception City of San Luis Obispo 0.43%0.85%0.15%1.14% 0-5 Yr. Treasury Index 0.34%0.66%-0.29%0.97% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 13 © PFM Earnings for the City of San Luis Obispo’s Operating Funds. Portfolio Earnings For the Quarter Ended June 30, 2017 Portfolio Review Market Value Basis Accrual (Amortized Cost) Basis Beginning Value (3/30/2017)$75,468,538 $75,759,417 Net Purchases/Sales $357,313 $357,313 Change in Value $65,245 $872 Ending Value (6/30/2017)$75,891,095 $76,117,602 Interest Earned $262,444 $262,444 Portfolio Earnings $327,689 $263,317 14 © PFM Category Standard In Compliance Treasury Obligations 5 year maximum maturity Yes Government Sponsored Enterprise (GSE) Securities 5 year maximum maturity Yes Corporate Notes 5 year maximum maturity At least two “A” rating; at least one “AA” for financials 30% maximum,5% per issuer Yes Local Government Investment Pool (LAIF)Up to maximum permitted by State Law Yes Negotiable Certificates of Deposit 5 year maximum maturity At least a “AA” or “A-1” 30% maximum,5% per issuer Yes Commercial Paper 270 day maximum maturity At least one “A-1” rating 40% maximum,10% per issuer Yes Collateralized Bank Deposits 25% maximum, 5% per issuer Yes Money Market Mutual Funds Highest rating category by 2 NRSROs 20% maximum,10% per issuer Yes Maximum maturity 10 years; 10% maximum of portfolio in Treasury and GSE obligations with maturity >5 years Yes Duration limit Duration of portfolio equal duration of benchmark plus or minus 10%Yes Social responsibility No investments in companies involved in tobacco, electronic cigarettes, or the direct production or drilling of fossil fuels Yes Applies to aggregate portfolio. Source: City of San Luis Obispo Investment Management Plan, June 2015. Portfolio Compliance 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. For the Quarter Ended June 30, 2017 Portfolio Review 15 © PFM 1.The City of San Luis Obispo’s current benchmark is the Bank of America Merrill Lynch (BAML) 0-5 Year U.S. Treasury Index. 2.Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price for e ach 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 callab le 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 l ikely to be called prior to its final maturity, the effective duration will decrease). Portfolio Characteristics —PFM Managed For the Quarter Ended June 30, 2017 Portfolio Review Portfolio Benchmark 2 Average Maturity (yrs)2.21 2.32 Effective Duration1 2.13 2.23 Average Purchase Yield 1.46%N/A Average Market Yield 1.52%1.47% Average Quality AA/Aa1 AA+ Total Market Value 76,623,297 6/30/2017 16 © PFM Sector distribution based on market value and excludes accrued interest. Sector Distribution —PFM Managed For the Quarter Ended June 30, 2017 Portfolio Review U.S. Treasury Federal Agency Negotiable CDs Commercial Paper Corporate Notes Money Market Fund 6/30/2017 21.1%45.4%11.8%10.2%11.6%0.1% 3/31/2017 23.7%43.9%9.9%10.2%12.1%0.3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 17 © PFM Credit Industry Exposure —PFM Managed For the Quarter Ended June 30, 2017 Portfolio Review Automotive 7.6% Technology 10.9% Banking 76.5% Insurance 1.7% Transportation 2.1% Capital Goods 0.7%Consumer Goods 0.4% Industry Exposure Issuer Industry* % Toyota Motor Credit Corp Automotive 6.1% American Honda Finance Automotive 1.5% Bank of Tokyo Mitsubishi Banking 9.7% BNP Paribas NY Banking 9.3% Bank of Montreal Chicago Banking 7.2% BNY Mellon Banking 7.2% Svenska Handelsbanken NY Banking 7.2% Canadian Imperial Bank Banking 5.9% Nordea Bank Banking 5.9% Bank of Nova Scotia Banking 5.8% JP Morgan Banking 3.9% Rabobank Banking 3.9% Wells Fargo & Company Banking 3.8% Credit Agricole Banking 3.5% Royal Bank of Canada NY Banking 3.2% John Deere Capital Goods 0.7% Unilever Consumer Goods 0.4% Berkshire Hathaway Insurance 1.7% Apple Inc Technology 4.1% Microsoft Corp Technology 3.9% IBM Technology 2.9% Burlington North Transportation 2.1% Total 100.0% *Issuer’s industry as defined by Bloomberg. 18 © PFM Ratings by Standard & Poor’s. Credit Quality —PFM Managed For the Quarter Ended June 30, 2017 Portfolio Review AAA AA A BBB A-1 NR 6/30/2017 1.4%75.9%12.6%0.0%10.2%0.0% 3/31/2017 1.6%78.9%9.3%0.0%10.2%0.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 19 © PFM Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although t hey may be called prior to maturity. *Benchmark is composed of the Merrill Lynch 0-5 Year U.S. Treasury Index. Data from Bloomberg. Maturity Distribution —PFM Managed Portfolio vs. Benchmark For the Quarter Ended June 30, 2017 Portfolio Review 0-1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years Portfolio 19.5%30.0%22.6%14.7%13.2% Benchmark*22.7%24.9%22.6%17.4%12.4% 0% 5% 10% 15% 20% 25% 30% 35% 20 © PFM Issuer Distribution —PFM Managed For the Quarter Ended June 30, 2017 Portfolio Review Issuer Name Investment Type % of Portfolio S&P Moody's FNMA Federal Agency 23.63%AA+Aaa U.S. Treasury U.S. Treasury 21.06%AA+Aaa FHLB Federal Agency 11.42%AA+Aaa FHLMC Federal Agency 10.31%AA+Aaa Bank of Tokyo Mitsubishi Commercial Paper 3.25%A-1 P-1 BNP Paribas NY Commercial Paper 3.13%A-1 P-1 Bank of Montreal Chicago Negotiable CD 2.43%A+Aa3 BNY Mellon Corporate Note 2.41%A A1 Svenska Handelsbanken NY Corporate Note 2.41%AA-Aa2 Toyota Motor Credit Corp Corporate Note 2.05%AA-Aa3 Nordea Bank Negotiable CD 1.97%AA-Aa3 Canadian Imperial Bank Negotiable CD 1.97%A+Aa3 Bank of Nova Scotia Corporate Note 1.96%A+A1 Apple Inc Corporate Note 1.37%AA+Aa1 Microsoft Corp Corporate Note 1.31%AAA Aaa JP Morgan Commercial Paper 1.30%A-1 P-1 Rabobank Commercial Paper 1.30%A-1 P-1 Wells Fargo & Company Corporate Note 1.29%A A2 Credit Agricole Commercial Paper 1.17%A-1 P-1 Royal Bank of Canada NY Negotiable CD 1.09%AA-Aa3 IBM Corporate Note 0.99%A+A1 Burlington North Corporate Note 0.69%A A3 Berkshire Hathaway Corporate Note 0.57%AA Aa2 American Honda Finance Corporate Note 0.51%A+A1 John Deere Corporate Note 0.24%A A2 Unilever Corporate Note 0.14%A+A1 Dreyfus Prime Cash Management Fund Money Market Fund 0.06%AAAm Aaa 100.00%AA Aa1Total / Average Ratings by Standard & Poor’s and Moody’s. 21 © PFM Current Outlook and Strategy For the Quarter Ended June 30, 2017 Portfolio Review Our outlook for the third quarter is for continued modest growth in the U.S. economy, but the future path of Fed tightening is less certain as recent economic data has been disappointing, fiscal policy initiatives have stalled, and inflation remains below the Fed’s 2% target. With rates priced for the current level of uncertainty, we are once again positioning the portfolio’s duration to match the benchmark duration. We will continue to assess the duration position during the quarter as we gain more clarity surrounding Fed policy and the trajectory of the U.S. and global economy. Agency yield spreads remain at or near historically tight levels as demand remains strong while supply is minimal. Corporate yield spreads are near the tightest levels since the post-recession of 2014. In the money market space, yield spreads on CP and CDs have narrowed significantly from the wide levels driven by money market reform in late 2016. Given low short-term Treasury and agency yields, CP and CD spreads still offer modest incremental yield, but supply is somewhat constrained. We will continue to monitor incoming economic data, Fed policy, and sector relationships to identify market opportunities. This will include assessing the impact of any additional policies put forth by the Trump administration. 22 © PFM III. Appendix © PFM A. Consolidated Portfolio Information © PFM 1.Effective duration used in place of modified duration. Effective duration is the approximate percentage change in price for e ach 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 callab le 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 l ikely to be called prior to its final maturity, the effective duration will decrease). Portfolio Characteristics —Consolidated For the Quarter Ended June 30, 2017 Portfolio Review 6/30/2017 3/31/2017 Average Maturity (yrs)1.42 1.43 Effective Duration1 1.37 1.38 Average Purchase Yield 1.19%1.09% Average Market Yield 1.23%1.14% Average Quality AA/Aa1 AA+/Aa1 Total Market Value 119,674,949 119,125,674 23 © PFM Sector distribution based on market value and excludes accrued interest. Sector Distribution —Consolidated For the Quarter Ended June 30, 2017 Portfolio Review U.S. Treasury Federal Agency Comm. Paper Corporate Notes Negotiable CDs Money Market Fund Money Market Rate Account LAIF Cash 6/30/2017 13.5%29.0%6.5%7.4%8.4%0.0%0.8%22.9%11.3% 3/31/2017 15.2%28.1%6.5%7.8%7.2%0.2%0.9%23.0%11.2% 0% 5% 10% 15% 20% 25% 30% 35% 24 © PFM Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although t hey may be called prior to maturity. Maturity Distribution —Consolidated For the Quarter Ended June 30, 2017 Portfolio Review Overnight - 3 Months 3 - 6 Months 6 Months - 1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 6/30/2017 38.9%3.7%6.0%19.2%14.5%9.4%8.5% 3/31/2017 37.8%6.0%5.7%17.2%15.4%11.0%6.8% 0% 10% 20% 30% 40% 50% 25 © PFM Issuer Distribution —Consolidated For the Quarter Ended June 30, 2017 Portfolio Review Issuer Name Investment Type % of Portfolio LAIF LAIF 23.31% FNMA Federal Agency 15.37% U.S. Treasury U.S. Treasury 13.69% Cash Cash 11.52% FHLB Federal Agency 7.43% FHLMC Federal Agency 6.70% Bank of Tokyo Mitsubishi Commercial Paper 2.12% BNP Paribas NY Commercial Paper 2.04% BNY Mellon Corporate Note 1.57% Svenska Handelsbanken NY Corporate Note 1.57% Toyota Motor Credit Corp Corporate Note 1.34% Nordea Bank Negotiable CD 1.28% Canadian Imperial Bank Negotiable CD 1.28% Bank of Nova Scotia Corporate Note 1.27% Apple Inc Corporate Note 0.89% Pacific Premier Bank Money Market Rate Account 0.86% Microsoft Corp Corporate Note 0.85% Pacific Premier Bank Negotiable CD 0.85% JP Morgan Commercial Paper 0.85% Rabobank Commercial Paper 0.85% Wells Fargo & Company Corporate Note 0.84% Credit Agricole Commercial Paper 0.76% Royal Bank of Canada NY Negotiable CD 0.71% IBM Corporate Note 0.64% Burlington North Corporate Note 0.45% Berkshire Hathaway Corporate Note 0.37% American Honda Finance Corporate Note 0.33% John Deere Corporate Note 0.15% Unilever Corporate Note 0.09% Dreyfus Prime Cash Management Fund Money Market Fund 0.04% Toyota Motor Credit Corp Commercial Paper 0.00% Total 100.00% 26 © PFM B. Portfolio Holdings City of San Luis Obispo Holdings Report For the Quarter Ending June 30, 2017 Security Description Settle Date YTM at Cost Par Cost Value Amortized Cost YTM at Market Market Value*Accrued Interest % of Portfolio Unreal G/L Amort Cost S&P/ Moody's Years to Maturity Duration LAIF LOCAL AGENCY INVESTMENT FUND Various 0.98%27,462,090.57 27,462,090.57 27,462,090.57 0.98%27,462,090.57 - 22.95%- NR NR 0.00 0.00 Total LAIF 0.98%27,462,090.57 27,462,090.57 27,462,090.57 0.98%27,462,090.57 - 22.95%- NR NR 0.00 0.00 Money Market Fund DREYFUS PRIME CASH MANAGEMNT MONEY MARKET FUND Various 0.00%47,564.02 47,564.02 47,564.02 0.00%47,564.02 - 0.04%- AAA Aaa 0.00 0.00 Total Money Market Fund 0.00%47,564.02 47,564.02 47,564.02 0.00%47,564.02 - 0.04%- AAA Aaa 0.00 0.00 Cash CASH ACCOUNT Various 0.25%13,575,024.10 13,575,024.10 13,575,024.10 0.25%13,575,024.10 - 11.34%- NR NR 0.00 0.00 CASH Pacific Premier Bank MONEY MARKET RATE ACCOUNT Various 0.25%1,014,537.22 1,014,537.22 1,014,537.22 0.25%1,014,537.22 - 0.85%- NR NR 0.00 0.00 Total Cash 0.25%14,589,561.32 14,589,561.32 14,589,561.32 0.25%14,589,561.32 - 12.19%- NR NR 0.00 0.00 U.S. Treasury Bond/Note US TREASURY NOTES 912828B90 2.00% Due 2/28/2021 10/5/2016 1.15%1,700,000.00 1,761,890.63 1,751,742.53 1.68%1,718,992.40 11,364.13 1.44%(32,750.13) AA+ Aaa 3.67 3.50 US TREASURY NOTES 912828D72 2.00% Due 8/31/2021 12/5/2016 1.92%1,575,000.00 1,580,537.11 1,579,913.84 1.78%1,588,842.68 10,528.53 1.33%8,928.84 AA+ Aaa 4.17 3.96 US TREASURY NOTES 912828F96 2.00% Due 10/31/2021 1/5/2017 1.95%1,000,000.00 1,002,226.56 1,002,021.12 1.81%1,008,008.00 3,369.57 0.84%5,986.88 AA+ Aaa 4.34 4.12 US TREASURY NOTES 912828F96 2.00% Due 10/31/2021 4/5/2017 1.86%1,145,000.00 1,152,111.52 1,151,761.64 1.81%1,154,169.16 3,858.15 0.96%2,407.52 AA+ Aaa 4.34 4.12 US TREASURY N/B NOTES 912828J43 1.75% Due 2/28/2022 3/17/2017 2.14%365,000.00 358,270.31 358,643.94 1.85%363,445.83 2,134.95 0.30%4,801.89 AA+ Aaa 4.67 4.44 US TREASURY NOTES 912828K58 1.38% Due 4/30/2020 2/3/2016 1.25%1,125,000.00 1,130,932.62 1,129,000.92 1.54%1,119,946.50 2,606.15 0.94%(9,054.42) AA+ Aaa 2.84 2.76 US TREASURY NOTES 912828N89 1.38% Due 1/31/2021 6/7/2016 1.25%1,235,000.00 1,241,995.12 1,240,431.27 1.68%1,222,070.79 7,083.34 1.02%(18,360.48) AA+ Aaa 3.59 3.46 US TREASURY NOTES 912828ND8 3.50% Due 5/15/2020 5/29/2015 1.50%1,300,000.00 1,423,550.78 1,372,631.46 1.54%1,371,449.30 5,811.14 1.15%(1,182.16) AA+ Aaa 2.88 2.73 US TREASURY NOTES 912828UR9 0.75% Due 2/28/2018 4/24/2014 1.32%680,000.00 665,419.46 677,427.51 1.21%677,928.04 1,704.62 0.57%500.53 AA+ Aaa 0.67 0.66 US TREASURY NOTES 912828UR9 0.75% Due 2/28/2018 12/9/2015 1.06%80,000.00 79,456.25 79,836.11 1.21%79,756.24 200.54 0.07%(79.87) AA+ Aaa 0.67 0.66 US TREASURY NOTES 912828C24 1.50% Due 2/28/2019 11/25/2014 1.43%70,000.00 70,188.91 70,075.37 1.37%70,144.90 350.95 0.06%69.53 AA+ Aaa 1.67 1.64 US TREASURY NOTES 912828SX9 1.13% Due 5/31/2019 11/25/2014 1.50%80,000.00 78,684.64 79,431.07 1.37%79,628.16 76.23 0.07%197.09 AA+ Aaa 1.92 1.89 US TREASURY NOTES 912828UJ7 0.88% Due 1/31/2018 11/25/2014 1.06%70,000.00 69,603.75 69,926.48 1.18%69,877.43 255.49 0.06%(49.05) AA+ Aaa 0.59 0.58 US TREASURY NOTES 912828VF4 1.38% Due 5/31/2020 12/4/2015 1.56%900,000.00 892,792.97 895,263.33 1.54%895,675.50 1,048.16 0.75%412.17 AA+ Aaa 2.92 2.85 US TREASURY NOTES 912828VK3 1.38% Due 6/30/2018 11/25/2014 1.21%70,000.00 70,407.66 70,114.84 1.29%70,060.13 2.62 0.06%(54.71) AA+ Aaa 1.00 0.99 US TREASURY NOTES 912828WL0 1.50% Due 5/31/2019 11/14/2016 1.06%450,000.00 454,921.88 453,718.44 1.38%451,002.15 571.72 0.38%(2,716.29) AA+ Aaa 1.92 1.88 US TREASURY N/B 912828WY2 2.25% Due 7/31/2021 11/23/2016 1.78%685,000.00 699,556.25 697,751.80 1.77%698,030.76 6,428.97 0.58%278.96 AA+ Aaa 4.09 3.86 US TREASURY NOTES 912828XH8 1.63% Due 6/30/2020 7/15/2015 1.70%2,505,000.00 2,496,193.36 2,499,593.31 1.56%2,509,403.79 110.61 2.10%9,810.48 AA+ Aaa 3.00 2.92 US TREASURY NOTES 912828XM7 1.63% Due 7/31/2020 3/30/2016 1.27%985,000.00 999,775.00 995,586.54 1.59%986,154.42 6,676.64 0.82%(9,432.12) AA+ Aaa 3.09 2.98 Total U.S. Treasury Bond/Note 1.54%16,020,000.00 16,228,514.78 16,174,871.52 1.62%16,134,586.18 64,182.51 13.48%(40,285.34) AA+ Aaa 3.31 3.17 Federal Agency Bond/Note FEDERAL HOME LOAN BANKS AGCY 3130A8BD4 0.88% Due 6/29/2018 6/6/2016 0.87%3,495,000.00 3,495,174.75 3,495,083.01 1.30%3,480,390.90 169.90 2.91%(14,692.11) AA+ Aaa 1.00 0.99 FHLB GLOBAL NOTE 3130A9AE1 0.88% Due 10/1/2018 8/26/2016 0.91%1,100,000.00 1,099,252.00 1,099,551.54 1.36%1,093,352.70 2,406.25 0.91%(6,198.84) AA+ Aaa 1.25 1.24 FHLB NOTES 3130AA3R7 1.38% Due 11/15/2019 11/17/2016 1.38%1,395,000.00 1,394,679.15 1,394,744.48 1.51%1,390,711.77 2,450.94 1.16%(4,032.71) AA+ Aaa 2.38 2.32 FHLB NOTES 3130AAE46 1.25% Due 1/16/2019 12/8/2016 1.25%1,530,000.00 1,529,938.80 1,529,951.39 1.38%1,526,887.98 8,765.63 1.28%(3,063.41) AA+ Aaa 1.55 1.52 FEDERAL HOME LOAN BANK AGENCY NOTES 3130ABF92 1.38% Due 5/28/2019 5/12/2017 1.47%455,000.00 454,140.05 454,195.76 1.43%454,513.15 851.55 0.38%317.39 AA+ Aaa 1.91 1.88 27 City of San Luis Obispo Holdings Report For the Quarter Ending June 30, 2017 Security Description Settle Date YTM at Cost Par Cost Value Amortized Cost YTM at Market Market Value*Accrued Interest % of Portfolio Unreal G/L Amort Cost S&P/ Moody's Years to Maturity Duration FEDERAL HOME LOAN BANK AGENCY NOTES 3130ABF92 1.38% Due 5/28/2019 5/16/2017 1.40%735,000.00 734,661.90 734,681.47 1.43%734,213.55 1,375.57 0.61%(467.92) AA+ Aaa 1.91 1.88 FNMA NOTES 3135G0A78 1.63% Due 1/21/2020 4/30/2015 1.54%580,000.00 582,233.00 581,230.19 1.52%581,536.42 4,188.89 0.49%306.23 AA+ Aaa 2.56 2.48 FNMA BENCHMARK NOTE 3135G0H63 1.38% Due 1/28/2019 1/8/2016 1.40%1,440,000.00 1,439,107.20 1,439,533.37 1.38%1,439,802.72 8,415.00 1.20%269.35 AA+ Aaa 1.58 1.55 FNMA BENCHMARK NOTE 3135G0H63 1.38% Due 1/28/2019 2/16/2016 0.96%335,000.00 339,043.45 337,173.04 1.38%334,954.11 1,957.66 0.28%(2,218.93) AA+ Aaa 1.58 1.55 FNMA NOTES 3135G0J20 1.38% Due 2/26/2021 5/19/2016 1.42%520,000.00 518,850.80 519,115.45 1.72%513,618.04 2,482.64 0.43%(5,497.41) AA+ Aaa 3.66 3.53 FNMA BENCHMARK NOTE 3135G0J53 1.00% Due 2/26/2019 5/16/2016 0.96%375,000.00 375,420.00 375,251.87 1.41%372,496.88 1,302.08 0.31%(2,754.99) AA+ Aaa 1.66 1.63 FNMA BENCHMARK NOTE 3135G0J53 1.00% Due 2/26/2019 6/2/2016 1.11%305,000.00 304,112.45 304,460.85 1.41%302,964.13 1,059.03 0.25%(1,496.72) AA+ Aaa 1.66 1.63 FNMA BENCHMARK NOTE 3135G0J53 1.00% Due 2/26/2019 6/6/2016 0.96%3,980,000.00 3,984,338.20 3,982,654.14 1.41%3,953,433.50 13,819.44 3.30%(29,220.64) AA+ Aaa 1.66 1.63 FNMA BENCHMARK NOTE 3135G0K69 1.25% Due 5/6/2021 8/2/2016 1.16%1,485,000.00 1,491,311.25 1,490,130.33 1.73%1,458,791.24 2,835.94 1.22%(31,339.09) AA+ Aaa 3.85 3.73 FNMA BENCHMARK NOTE 3135G0N33 0.88% Due 8/2/2019 8/2/2016 0.93%2,350,000.00 2,346,052.00 2,347,243.26 1.46%2,321,748.30 8,510.59 1.94%(25,494.96) AA+ Aaa 2.09 2.05 FNMA NOTES 3135G0N82 1.25% Due 8/17/2021 8/19/2016 1.33%1,045,000.00 1,040,767.75 1,041,482.22 1.82%1,021,532.44 4,862.15 0.85%(19,949.78) AA+ Aaa 4.13 3.98 FNMA NOTES 3135G0N82 1.25% Due 8/17/2021 8/19/2016 1.32%325,000.00 323,888.18 324,075.91 1.82%317,701.48 1,512.15 0.27%(6,374.43) AA+ Aaa 4.13 3.98 FNMA NOTES 3135G0N82 1.25% Due 8/17/2021 9/2/2016 1.38%1,000,000.00 993,880.00 994,877.71 1.82%977,543.00 4,652.78 0.82%(17,334.71) AA+ Aaa 4.13 3.98 FANNIE MAE AGENCY NOTES 3135G0S38 2.00% Due 1/5/2022 6/29/2017 1.85%2,235,000.00 2,249,281.65 2,249,265.85 1.92%2,242,431.38 21,356.67 1.87%(6,834.47) AA+ Aaa 4.52 4.26 FNMA NOTES 3135G0T29 1.50% Due 2/28/2020 2/28/2017 1.52%885,000.00 884,433.60 884,496.89 1.60%882,680.42 4,535.63 0.74%(1,816.47) AA+ Aaa 2.67 2.59 FNMA NOTES 3135G0ZE6 1.75% Due 6/20/2019 10/2/2014 1.77%500,000.00 499,630.00 499,843.80 1.41%503,283.00 267.36 0.42%3,439.20 AA+ Aaa 1.97 1.93 FNMA NOTES 3135G0ZE6 1.75% Due 6/20/2019 8/5/2014 1.74%350,000.00 350,227.50 350,095.24 1.41%352,298.10 187.15 0.29%2,202.86 AA+ Aaa 1.97 1.93 FNMA NOTES 3135G0ZE6 1.75% Due 6/20/2019 11/21/2014 1.71%100,000.00 100,157.00 100,069.23 1.41%100,656.60 53.47 0.08%587.37 AA+ Aaa 1.97 1.93 FNMA NOTES 3135G0ZG1 1.75% Due 9/12/2019 2/9/2015 1.36%260,000.00 264,505.80 262,191.28 1.47%261,554.54 1,377.64 0.22%(636.74) AA+ Aaa 2.20 2.14 FREDDIE MAC NOTES 3137EADG1 1.75% Due 5/30/2019 3/3/2017 1.46%1,000,000.00 1,006,440.00 1,005,517.42 1.39%1,006,740.00 1,506.94 0.84%1,222.58 AA+ Aaa 1.92 1.88 FREDDIE MAC GLOBAL NOTES 3137EADK2 1.25% Due 8/1/2019 9/15/2014 1.88%1,050,000.00 1,019,077.50 1,036,450.47 1.44%1,045,808.40 5,468.75 0.87%9,357.93 AA+ Aaa 2.09 2.04 FREDDIE MAC GLOBAL NOTES 3137EADM8 1.25% Due 10/2/2019 12/30/2015 1.65%700,000.00 689,857.00 693,844.87 1.50%696,149.30 2,163.19 0.58%2,304.43 AA+ Aaa 2.26 2.21 FHLMC NOTES 3137EADN6 0.75% Due 1/12/2018 10/1/2014 1.26%800,000.00 787,008.00 797,863.22 1.19%798,144.80 2,816.67 0.67%281.58 AA+ Aaa 0.54 0.53 FREDDIE MAC GLOBAL NOTES 3137EADP1 0.88% Due 3/7/2018 11/20/2014 1.20%900,000.00 890,469.00 897,995.27 1.25%897,669.90 2,493.75 0.75%(325.37) AA+ Aaa 0.68 0.68 FREDDIE MAC NOTES 3137EADZ9 1.13% Due 4/15/2019 3/21/2016 1.14%810,000.00 809,732.00 809,841.69 1.38%806,360.67 1,923.75 0.67%(3,481.02) AA+ Aaa 1.79 1.76 FREDDIE MAC NOTES 3137EADZ9 1.13% Due 4/15/2019 3/29/2016 1.12%70,000.00 70,004.90 70,002.85 1.38%69,685.49 166.25 0.06%(317.36) AA+ Aaa 1.79 1.76 FHLMC REFERENCE NOTE 3137EAEB1 0.88% Due 7/19/2019 7/20/2016 0.96%1,275,000.00 1,271,914.50 1,272,880.16 1.47%1,259,805.83 5,020.31 1.05%(13,074.33) AA+ Aaa 2.05 2.02 FHLMC AGENCY NOTES 3137EAEF2 1.38% Due 4/20/2020 4/20/2017 1.49%1,165,000.00 1,161,015.70 1,161,272.79 1.59%1,158,109.03 3,159.25 0.97%(3,163.76) AA+ Aaa 2.81 2.73 FHLB NOTES 313378A43 1.38% Due 3/9/2018 11/25/2014 1.20%70,000.00 70,393.40 70,083.72 1.23%70,070.07 299.44 0.06%(13.65) AA+ Aaa 0.69 0.68 FANNIE MAE GLOBAL NOTES 3135G0TG8 0.88% Due 2/8/2018 11/25/2014 1.14%80,000.00 79,335.84 79,873.24 1.20%79,843.92 278.06 0.07%(29.32) AA+ Aaa 0.61 0.60 FANNIE MAE GLOBAL NOTES 3135G0YM9 1.88% Due 9/18/2018 11/25/2014 1.39%35,000.00 35,626.29 35,202.96 1.36%35,218.54 187.76 0.03%15.58 AA+ Aaa 1.22 1.19 FNMA NOTES 3135G0ZG1 1.75% Due 9/12/2019 11/25/2014 1.73%50,000.00 50,034.65 50,016.43 1.47%50,298.95 264.93 0.04%282.52 AA+ Aaa 2.20 2.14 28 City of San Luis Obispo Holdings Report For the Quarter Ending June 30, 2017 Security Description Settle Date YTM at Cost Par Cost Value Amortized Cost YTM at Market Market Value*Accrued Interest % of Portfolio Unreal G/L Amort Cost S&P/ Moody's Years to Maturity Duration FREDDIE MAC GLOBAL NOTES 3137EADK2 1.25% Due 8/1/2019 11/25/2014 1.70%80,000.00 78,388.80 79,267.81 1.44%79,680.64 416.67 0.07%412.83 AA+ Aaa 2.09 2.04 FHLMC NOTES 3137EADN6 0.75% Due 1/12/2018 11/25/2014 1.11%80,000.00 79,123.36 79,849.34 1.19%79,814.48 281.67 0.07%(34.86) AA+ Aaa 0.54 0.53 Total Federal Agency Bond/Note 1.26%34,945,000.00 34,893,507.42 34,931,360.52 1.49%34,752,496.37 125,843.50 29.04%(178,864.15) AA+ Aaa 2.19 2.13 Negotiable CD Pacific Premier Bank YANKEE CD 0.25% Due 12/20/2016 12/20/2015 0.27%1,000,000.00 1,000,000.00 1,000,000.00 0.27%1,000,000.00 16.67 0.84%- NR NR 0.47 0.47 BANK OF NOVA SCOTIA HOUSTON LT CD 06417GUE6 1.91% Due 4/5/2019 4/6/2017 1.91%1,500,000.00 1,500,000.00 1,500,000.00 1.68%1,499,116.50 6,844.17 1.25%(883.50) A+ A1 1.76 1.75 BANK OF MONTREAL CHICAGO CERT DEPOS 06427KRC3 1.88% Due 2/7/2019 2/9/2017 1.90%1,850,000.00 1,850,000.00 1,850,000.00 1.05%1,860,754.05 13,718.78 1.55%10,754.05 A+ Aa3 1.61 1.60 CANADIAN IMPERIAL BANK NY CD 13606A5Z7 1.76% Due 11/30/2018 12/5/2016 1.78%1,500,000.00 1,498,830.00 1,499,165.67 1.44%1,506,283.50 2,273.33 1.26%7,117.83 A+ Aa3 1.42 1.40 NORDEA BANK FINLAND NY CD 65558LWA6 1.76% Due 11/30/2018 12/5/2016 1.74%1,500,000.00 1,500,000.00 1,500,000.00 0.84%1,506,283.50 2,346.67 1.26%6,283.50 AA- Aa3 1.42 1.41 ROYAL BANK OF CANADA NY CD 78009NZZ2 1.70% Due 3/9/2018 3/15/2016 1.69%830,000.00 830,000.00 830,000.00 1.40%831,508.11 4,389.78 0.69%1,508.11 AA- Aa3 0.69 0.69 SVENSKA HANDELSBANKEN NY LT CD 86958JHB8 1.89% Due 1/10/2019 1/12/2017 1.91%1,850,000.00 1,850,000.00 1,850,000.00 1.48%1,844,975.40 16,511.25 1.54%(5,024.60) AA- Aa2 1.53 1.52 Total Negotiable CD 1.68%10,030,000.00 10,028,830.00 10,029,165.67 1.20%10,048,921.06 46,100.65 8.40%19,755.39 A- A3 1.37 1.36 Commercial Paper BANK TOKYO-MIT UFJ NY COMM PAPER 06538BU35 0.00% Due 7/3/2017 1/5/2017 1.30%1,000,000.00 993,585.83 999,928.33 1.18%999,902.00 - 0.84%(26.33) A-1 P-1 0.01 0.01 BANK OF TOKYO MITSUBISHI UFJ COMM PAPER 06538BX32 0.00% Due 10/3/2017 4/3/2017 1.41%500,000.00 496,441.67 498,172.22 1.27%498,327.00 - 0.42%154.78 A-1 P-1 0.26 0.26 BANK OF TOKYO MITSUBISHI COMM PAPER 06538BZ48 0.00% Due 12/4/2017 6/5/2017 1.38%1,000,000.00 993,073.89 994,063.33 1.37%994,073.00 - 0.83%9.67 A-1 P-1 0.43 0.43 BNP PARIBAS NY BRANCH COMM PAPER 09659BU32 0.00% Due 7/3/2017 1/5/2017 1.29%1,400,000.00 1,391,089.78 1,399,900.45 1.18%1,399,862.80 - 1.17%(37.65) A-1 P-1 0.01 0.01 BNP PARIBAS NY BRANCH COMM PAPER 09659BW14 0.00% Due 9/1/2017 3/3/2017 1.24%1,000,000.00 993,781.67 997,881.66 1.22%997,862.00 - 0.83%(19.66) A-1 P-1 0.17 0.17 COOPERATIEVE RABOBANK U.A. COMM PAPER 21687AXP3 0.00% Due 10/23/2017 2/17/2017 1.29%1,000,000.00 991,182.22 995,946.67 1.27%995,949.00 - 0.83%2.33 A-1 P-1 0.32 0.31 CREDIT AGRICOLE CIB NY COMM PAPER 22533TXA9 0.00% Due 10/10/2017 4/10/2017 1.32%900,000.00 894,006.75 896,692.25 1.28%896,735.70 - 0.75%43.45 A-1 P-1 0.28 0.28 JP MORGAN SECURITIES LLC COMM PAPER 46640PW17 0.00% Due 9/1/2017 3/3/2017 1.29%1,000,000.00 993,528.89 997,795.55 1.21%997,895.00 - 0.83%99.45 A-1 P-1 0.17 0.17 Total Commercial Paper 1.31%7,800,000.00 7,746,690.70 7,780,380.46 1.24%7,780,606.50 - 6.50%226.04 AA+ Aa1 0.19 0.19 Corporate Note AMERICAN HONDA FINANCE CORP NOTES 02665WBA8 1.70% Due 2/22/2019 2/23/2016 1.71%390,000.00 389,922.00 389,956.75 1.63%390,437.97 2,375.75 0.33%481.22 A+ A1 1.65 1.61 APPLE INC BONDS 037833CK4 1.90% Due 2/7/2020 2/9/2017 1.92%1,050,000.00 1,049,485.50 1,049,551.32 1.80%1,052,637.60 7,869.17 0.88%3,086.28 AA+ Aa1 2.61 2.51 BNY MELLON CORP NOTE (CALLABLE) 06406HDD8 2.60% Due 8/17/2020 6/8/2016 1.81%960,000.00 990,316.80 982,687.50 2.11%974,183.04 9,290.67 0.81%(8,504.46) A A1 3.13 2.94 BONY MELLON CORP NOTE (CALLABLE) 06406HDF3 2.45% Due 11/27/2020 8/18/2016 1.70%865,000.00 891,564.15 886,214.97 2.15%873,438.94 2,001.51 0.73%(12,776.03) A A1 3.41 3.23 BERKSHIRE HATHAWAY INC NOTES 084664CG4 1.70% Due 3/15/2019 3/15/2016 1.73%195,000.00 194,851.80 194,914.84 1.56%195,463.52 976.08 0.16%548.68 AA Aa2 1.71 1.67 BERKSHIRE HATHAWAY INC CORPORATE NOTES 084664CK5 1.30% Due 8/15/2019 8/15/2016 1.33%240,000.00 239,767.20 239,834.38 1.65%238,257.60 1,178.67 0.20%(1,576.78) AA Aa2 2.13 2.08 BURLINGTON NRTH CORP 12189TBC7 4.70% Due 10/1/2019 6/8/2016 1.48%500,000.00 551,950.00 535,546.74 1.83%531,566.50 5,875.00 0.44%(3,980.24) A A3 2.25 2.13 JOHN DEERE CAPITAL CORP NOTES 24422ETS8 1.95% Due 6/22/2020 6/22/2017 1.97%180,000.00 179,890.20 179,891.09 1.86%180,469.08 87.75 0.15%577.99 A A2 2.98 2.88 IBM CORP BONDS 459200JQ5 2.50% Due 1/27/2022 2/3/2017 2.45%750,000.00 751,575.00 751,453.50 2.30%756,610.50 8,020.83 0.63%5,157.00 A+ A1 4.58 4.26 MICROSOFT CORP NOTE 594918AY0 1.85% Due 2/12/2020 4/13/2015 1.58%1,000,000.00 1,012,570.00 1,006,923.81 1.78%1,001,755.00 7,143.06 0.84%(5,168.81) AAA Aaa 2.62 2.53 TOYOTA MOTOR CREDIT CORP NOTES 89236TBP9 2.13% Due 7/18/2019 2/15/2017 1.80%1,075,000.00 1,083,299.00 1,082,033.96 1.78%1,082,460.50 10,343.14 0.90%426.54 AA- Aa3 2.05 1.98 TOYOTA MOTOR CREDIT CORP 89236TCP8 1.55% Due 7/13/2018 7/13/2015 1.58%490,000.00 489,583.50 489,854.33 1.38%490,854.56 3,544.33 0.41%1,000.23 AA- Aa3 1.04 1.02 UNILEVER CAPITAL CORP BONDS 904764AV9 1.80% Due 5/5/2020 5/5/2017 1.91%105,000.00 104,665.05 104,682.01 1.87%104,806.38 294.00 0.09%124.37 A+ A1 2.85 2.76 29 City of San Luis Obispo Holdings Report For the Quarter Ending June 30, 2017 Security Description Settle Date YTM at Cost Par Cost Value Amortized Cost YTM at Market Market Value*Accrued Interest % of Portfolio Unreal G/L Amort Cost S&P/ Moody's Years to Maturity Duration WELLS FARGO & COMPANY NOTES 94974BGR5 2.55% Due 12/7/2020 6/8/2016 2.02%975,000.00 997,191.00 992,119.73 2.20%986,181.30 1,657.50 0.82%(5,938.43) A A2 3.44 3.27 Total Corporate Note 1.82%8,775,000.00 8,926,631.20 8,885,664.93 1.91%8,859,122.49 60,657.46 7.40%(26,542.44) AA- Aa3 2.77 2.63 Total Portfolio 1.19%119,669,215.91 119,923,390.01 119,900,659.01 1.23%119,674,948.51 296,784.12 100.00%(225,710.50) AA Aa1 1.42 1.37 Total Market Value Plus Accrued 119,971,732.63 *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. 30 © PFM C. Quarterly Transactions CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended June 30, 2017 Portfolio Activity Quarterly Portfolio Transactions Trade Date Settle Date Maturity DatePar ($) CUSIP Security Description Transact Amt ($) Yield at Market Realized G/L (BV)Coupon BUY 4/3/17 4/3/17 500,000 06538BX32 BANK OF TOKYO MITSUBISHI UFJ COMM PAPER 10/3/17 496,441.67 1.41%0.00% 4/3/17 4/5/17 1,145,000 912828F96 US TREASURY NOTES 10/31/21 1,161,980.03 1.86%2.00% 4/5/17 4/6/17 1,500,000 06417GUE6 BANK OF NOVA SCOTIA HOUSTON LT CD 4/5/19 1,500,000.00 1.91%1.91% 4/10/17 4/10/17 900,000 22533TXA9 CREDIT AGRICOLE CIB NY COMM PAPER 10/10/17 894,006.75 1.32%0.00% 4/19/17 4/20/17 1,165,000 3137EAEF2 FHLMC AGENCY NOTES 4/20/20 1,161,015.70 1.49%1.37% 5/2/17 5/5/17 105,000 904764AV9 UNILEVER CAPITAL CORP BONDS 5/5/20 104,665.05 1.91%1.80% 5/11/17 5/12/17 455,000 3130ABF92 FEDERAL HOME LOAN BANK AGENCY NOTES 5/28/19 454,140.05 1.47%1.37% 5/15/17 5/16/17 735,000 3130ABF92 FEDERAL HOME LOAN BANK AGENCY NOTES 5/28/19 734,774.19 1.40%1.37% 6/5/17 6/5/17 1,000,000 06538BZ48 BANK OF TOKYO MITSUBISHI COMM PAPER 12/4/17 993,073.89 1.38%0.00% 6/19/17 6/22/17 180,000 24422ETS8 JOHN DEERE CAPITAL CORP NOTES 6/22/20 179,890.20 1.97%1.95% 6/27/17 6/29/17 2,235,000 3135G0S38 FANNIE MAE AGENCY NOTES 1/5/22 2,270,389.98 1.85%2.00% 9,920,000 9,950,377.51Total BUY INTEREST 4/1/17 4/1/17 500,000 12189TBC7 BURLINGTON NRTH CORP 10/1/19 11,750.00 4.70% 4/1/17 4/1/17 1,100,000 3130A9AE1 FHLB GLOBAL NOTE 10/1/18 4,812.50 0.87% 4/2/17 4/2/17 700,000 3137EADM8 FREDDIE MAC GLOBAL NOTES 10/2/19 4,375.00 1.25% 4/4/17 4/4/17 0 MONEY0002 MONEY MARKET FUND 71.21 4/15/17 4/15/17 810,000 3137EADZ9 FREDDIE MAC NOTES 4/15/19 4,556.25 1.12% 4/15/17 4/15/17 70,000 3137EADZ9 FREDDIE MAC NOTES 4/15/19 393.75 1.12% 4/26/17 4/26/17 625,000 3135G0PQ0 FANNIE MAE GLOBAL NOTES 10/26/17 2,734.38 0.87% 4/30/17 4/30/17 1,000,000 912828F96 US TREASURY NOTES 10/31/21 10,000.00 2.00% 4/30/17 4/30/17 1,145,000 912828F96 US TREASURY NOTES 10/31/21 11,450.00 2.00% 4/30/17 4/30/17 1,125,000 912828K58 US TREASURY NOTES 4/30/20 7,734.38 1.37% PFM Asset Management LLC 31 CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended June 30, 2017 Portfolio Activity Trade Date Settle Date Maturity DatePar ($) CUSIP Security Description Transact Amt ($) Yield at Market Realized G/L (BV)Coupon 5/2/17 5/2/17 0 MONEY0002 MONEY MARKET FUND 102.00 5/6/17 5/6/17 1,485,000 3135G0K69 FNMA BENCHMARK NOTE 5/6/21 9,281.25 1.25% 5/15/17 5/15/17 700,000 084664BS9 BERKSHIRE HATHAWAY FIN GLOBAL NOTES 5/15/17 5,600.00 1.60% 5/15/17 5/15/17 1,300,000 912828ND8 US TREASURY NOTES 5/15/20 22,750.00 3.50% 5/15/17 5/15/17 1,395,000 3130AA3R7 FHLB NOTES 11/15/19 9,484.06 1.37% 5/27/17 5/27/17 865,000 06406HDF3 BONY MELLON CORP NOTE (CALLABLE)11/27/20 10,596.25 2.45% 5/30/17 5/30/17 1,000,000 3137EADG1 FREDDIE MAC NOTES 5/30/19 8,750.00 1.75% 5/30/17 5/30/17 1,500,000 13606A5Z7 CANADIAN IMPERIAL BANK NY CD 11/30/18 12,833.33 1.76% 5/30/17 5/30/17 1,500,000 65558LWA6 NORDEA BANK FINLAND NY CD 11/30/18 12,906.67 1.76% 5/31/17 5/31/17 900,000 912828VF4 US TREASURY NOTES 5/31/20 6,187.50 1.37% 5/31/17 5/31/17 450,000 912828WL0 US TREASURY NOTES 5/31/19 3,375.00 1.50% 6/2/17 6/2/17 0 MONEY0002 MONEY MARKET FUND 110.88 6/7/17 6/7/17 975,000 94974BGR5 WELLS FARGO & COMPANY NOTES 12/7/20 12,431.25 2.55% 6/20/17 6/20/17 350,000 3135G0ZE6 FNMA NOTES 6/20/19 3,062.50 1.75% 6/20/17 6/20/17 500,000 3135G0ZE6 FNMA NOTES 6/20/19 4,375.00 1.75% 6/20/17 6/20/17 100,000 3135G0ZE6 FNMA NOTES 6/20/19 875.00 1.75% 6/29/17 6/29/17 3,495,000 3130A8BD4 FEDERAL HOME LOAN BANKS AGCY 6/29/18 15,290.63 0.87% 6/30/17 6/30/17 2,505,000 912828XH8 US TREASURY NOTES 6/30/20 20,353.13 1.62% 26,095,000 216,241.92Total INTEREST MATURITY 4/3/17 4/3/17 500,000 06538BR39 BANK OF TOKYO MITSUBISHI COMM PAPER 4/3/17 500,000.00 0.00 0.00% 4/10/17 4/10/17 900,000 22533TRA6 CREDIT AGRICOLE CIB NY COMM PAPER 4/10/17 900,000.00 0.00 0.00% 5/15/17 5/15/17 700,000 084664BS9 BERKSHIRE HATHAWAY FIN GLOBAL NOTES 5/15/17 700,000.00 0.00 1.60% 6/5/17 6/5/17 1,000,000 06538BT52 BANK TOKYO-MIT UFJ NY COMM PAPER 6/5/17 1,000,000.00 0.00 0.00% 3,100,000 3,100,000.00 0.00Total MATURITY PFM Asset Management LLC 32 CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended June 30, 2017 Portfolio Activity Trade Date Settle Date Maturity DatePar ($) CUSIP Security Description Transact Amt ($) Yield at Market Realized G/L (BV)Coupon SELL 4/3/17 4/5/17 650,000 3130A62S5 FHLB NOTES 8/28/17 650,078.54 0.92% (378.80)0.75% 4/3/17 4/5/17 495,000 3137EADJ5 FREDDIE MAC GLOBAL NOTES 7/28/17 496,134.10 0.86% (160.23)1.00% 4/5/17 4/6/17 625,000 912828UE8 US TREASURY NOTES 12/31/17 625,095.63 1.00% 1,243.65 0.75% 4/5/17 4/6/17 870,000 912828D23 US TREASURY NOTES 4/30/19 882,214.66 1.28% (3,923.41)1.62% 4/19/17 4/20/17 890,000 912828H52 US TREASURY NOTES 1/31/20 890,098.53 1.35% (2,679.81)1.25% 4/19/17 4/20/17 275,000 912828UQ1 US TREASURY NOTES 2/29/20 274,563.30 1.37% 1,589.55 1.25% 5/11/17 5/12/17 455,000 912828WL0 US TREASURY NOTES 5/31/19 459,353.71 1.36% (2,728.27)1.50% 6/27/17 6/29/17 950,000 3137EADL0 FREDDIE MAC GLOBAL NOTES 9/29/17 952,194.50 1.07% (438.17)1.00% 6/27/17 6/29/17 625,000 3135G0MZ3 FANNIE MAE GLOBAL NOTES 8/28/17 626,669.36 1.07% 45.67 0.87% 6/27/17 6/29/17 625,000 3135G0PQ0 FANNIE MAE GLOBAL NOTES 10/26/17 625,500.78 1.10% 136.62 0.87% 6,460,000 6,481,903.11 -7,293.20Total SELL PFM Asset Management LLC 33 © PFM Important Disclosures 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. Market values which include accrued interest, 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. In accordance with generally accepted accounting principles, information is presented on a trade date basis; forward settling purchases are included in the monthly balances and forward settling sales are excluded. Performance is presented in accordance with the CFA Institute’s Global Investment Performance Standards (GIPS). Unless otherwise noted, performance is shown gross of fees. Quarterly returns are presented on an unannualized basis. Returns for periods greater than one year are presented on an annualized basis. Past performance is not indicative of future returns. Bank of America/Merrill Lynch Indices provided by Bloomberg Financial Markets. Money market fund/cash balances are included in performance and duration computations. Standard & Poor’s is the source of the credit ratings. Distribution of credit rating is exclusive of money market fund/LGIP holdings. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. MBS maturities are represented by expected average life. 34 © PFM Glossary ACCRUED INTEREST: Interest that is due on a bond or other fixed income security since the last interest payment was made. AGENCIES: Federal agency securities and/or Government-sponsored enterprises. AMORTIZED COST: The original cost of the principal of the security is adjusted for the amount of the periodic reduction of any discount or pr emium from the purchase date until the date of the report. Discount or premium with respect to short term securities (those with less than one year to maturity at t ime of issuance) is amortized on a straight line basis. Such discount or premium with respect to longer term securities is amortized using the constant yield basis. BANKERS’ ACCEPTANCE: A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the insurer. COMMERCIAL PAPER: An unsecured obligation issued by a corporation or bank to finance its short -term credit needs, such as accounts receivable and inventory. CONTRIBUTION TO DURATION: Represents each sector or maturity range’s relative contribution to the overall duration of the portfolio measured as a percentage weighting. Since duration is a key measure of interest rate sensitivity, the contribution to duration measures the relative amount or contribu tion of that sector or maturity range to the total rate sensitivity of the portfolio. DURATION TO WORST: A measure of the sensitivity of a security’s price to a change in interest rates, stated in years, computed from cash flows t o the maturity date or to the put date, whichever results in the highest yield to the investor. EFFECTIVE DURATION: A measure of the sensitivity of a security’s price to a change in interest rates, stated in years. EFFECTIVE YIELD: The total yield an investor receives in relation to the nominal yield or coupon of a bond. Effective yield takes into account the power of compounding on investment returns, while nominal yield does not. FDIC: Federal Deposit Insurance Corporation. A federal agency that insures bank deposits to a specified amount . INTEREST RATE: Interest per year divided by principal amount, expressed as a percentage. MARKET VALUE: The value that would be received or paid for an investment in an orderly transaction between market participants at the measu rement date. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. NEGOTIABLE CERTIFICATES OF DEPOSIT: A CD with a very large denomination, usually $1 million or more that can be traded in secondary markets. PAR VALUE: The nominal dollar face amount of a security. 35 © PFM Glossary PASS THROUGH SECURITY: A security representing pooled debt obligations that passes income from debtors to its shareholders. The most common type is the mortgage-backed security. REPURCHASE AGREEMENTS: A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. SETTLE DATE: The date on which the transaction is settled and monies/securities are exchanged. If the settle date of the transaction occur s on a non- business day (i.e. coupon payments and maturity proceeds), the funds are exchanged on the next business day. TRADE DATE: The date on which the transaction occurred however the final consummation of the security transaction and payment has not yet taken place. UNSETTLED TRADE: A trade which has been executed however the final consummation of the security transaction and payment has not yet taken plac e. U.S. TREASURY: The department of the U.S. government that issues Treasury securities. YIELD: The rate of return based on the current market value, the annual interest receipts, maturity value and the time period remain ing until maturity, stated as a percentage, on an annualized basis. YTM AT COST: The yield to maturity at cost is the expected rate of return, based on the original cost, the annual interest receipts, matur ity value and the time period from purchase date to maturity, stated as a percentage, on an annualized basis. YTM AT MARKET: The yield to maturity at market is the rate of return, based on the current market value, the annual interest receipts, matur ity value and the time period remaining until maturity, stated as a percentage, on an annualized basis. 36 © PFM Thank You © PFM City of San Luis Obispo Investment Policy Recommendations PFM Asset Management LLC 50 California Street Suite 2300 San Francisco, CA 94111 Monique Spyke, Managing Director Izac Chyou, Sr. Managing Consultant (415) 393 -7259 (415) 393 -7251 spykem@pfm.com chyoui@pfm.com © PFM Investment Policy Recommendations We recommend the following changes to the City’s Investment Policy (the Policy) Revise all sections of the Policy that specifies credit modifiers (“+”, “-“, or 1, 2, 3) −Reflects a recent revision to the Code —Senate Bill 974, which took effect on January 1, 2017 −Modified Code Sections 53601 et seq. −This revision does not change the minimum ratings required by the Code for the different investment types Require corporate notes to be rated “A” or better by one NRSRO —down from two NRSROs Change the credit rating requirement of negotiable CDs from “AA” to “A” Allow a 15% allocation to asset-backed securities (ABS) © PFM Important Disclosures 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. Market values which include accrued interest, 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. In accordance with generally accepted accounting principles, information is presented on a trade date basis; forward settling purchases are included in the monthly balances and forward settling sales are excluded. Performance is presented in accordance with the CFA Institute’s Global Investment Performance Standards (GIPS). Unless otherwise noted, performance is shown gross of fees. Quarterly returns are presented on an unannualized basis. Returns for periods greater than one year are presented on an annualized basis. Past performance is not indicative of future returns. Bank of America/Merrill Lynch Indices provided by Bloomberg Financial Markets. Money market fund/cash balances are included in performance and duration computations. Standard & Poor’s is the source of the credit ratings. Distribution of credit rating is exclusive of money market fund/LGIP holdings. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. MBS maturities are represented by expected average life. © PFM Thank You