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IOC 11.15.2018 Packet
City of San Luis Obispo, Agenda, Planning Commission Agenda INVESTMENT OVERSIGHT COMMITTEE Thursday, November 15, 2018 1:30 p.m. REGULAR MEETING Council Hearing Room 990 Palm Street San Luis Obispo, CA CALL TO ORDER Chair Brigitte Elke ROLL CALL : Committee Members Alex Ferreira, Heidi Harmon, Derek Johnson, Rico Pardo, Shay Stewart (Public Member), and Chair Brigitte Elke OTHERS PRESENT: Al Eschenbach, Independent Auditor and ex-officio member; and Izac Chyou, Senior Managing Consultant for PFM Asset Management LLC PUBLIC COMMENT: At this time, people may address the Committee about items not on the agenda. Persons wishing to speak should come forward and state their name and address. Comments are limited to three minutes per person. Items raised at this time are generally referred to staff and, if action by the Committee is necessary, may be scheduled for a future meeting. CONSIDERATION OF MINUTES 1.Minutes of the Investment Oversight Committee of August 16, 2018 BUSINESS ITEMS 2.Presentation of the Quarterly Investment Report on Portfolio Performance (Chyou) Recommendation: Review and confirm investment policy compliance 3.Changes to Investment Policies Recommendation: Review and approve proposed changes Investment Oversight Committee Agenda for 11/15/2018 Page 2 COMMENT AND DISCUSSION 4. Staff Updates and agenda forecast ADJOURNMENT The next Regular Meeting of the Investment Oversight Commi ttee is scheduled for Thursday, February 14 , 2019 , at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. The City of San Luis Obispo wishes to make all of its public meet ings 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 Finance Department at (805) 781-7144 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781 -7107. Meeting audio recordings can be found at the following web address: http://opengov.slocity.org/WebLink/1/fol/61037/Row1.aspx Minutes - Draft Investment Oversight Committee Thursday, August 16, 2018 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 16, 2018, at 1:30 p.m. in the Council Hearing Room at 990 Palm Street, San Luis Obispo, California, by Chair Brigitte Elke. ROLL CALL Present: Committee Members Alex Ferreira, Heidi Harmon, Derek Johnson, Rico Pardo, Shay Stewart (Public Member), and Chair Brigitte Elke Absent: None Others Present: Ex-officio member; Izac Chyou, Senior Managing Consultant for PFM Asset Management LLC and Teresa Purrington, City Clerk PUBLIC COMMENT ITEMS NOT ON THE AGENDA None --End of Public Comment-- APPROVAL OF MINUTES 1.Review of Minutes of the Investment Oversight Committee Meeting of May 10, 2018: ACTION: UPON MOTION BY COMMITTEE MEMBER FERREIRA, SECONDED BY COMMITTEE MEMBER PARDO, CARRIED 6-0-0, to approve the May 10, 2018 minutes, as presented. PUBLIC COMMENT None. --End of Public Comment-- BUSINESS ITEMS 2.Presentation of the Quarterly Investment Report on Portfolio Performance a. Review and confirm investment policy compliance City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of Thursday, August 16, 2018 Page 2 Izac Chyou, Senior Managing Consultant for PFM Asset Management LLC provided a PowerPoint presentation and responded to Committee inquiries. Public Comment None --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER FERREIRA SECONDED BY COMMITTEE MEMBER HARMON, CARRIED 6-0-0, to approve the portfolio as amended. 3. Items to be addressed at a future meeting. By consensus the Board requested that once a year they get a report on the socially responsible portion of the portfolio. 4. Review Investment Oversight Committee calendar. ADJOURNMENT The meeting was adjourned at 1:20 pm. The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday, November 15, 2018, at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX Quarterly Investment Report As of September 30, 2018 November 15, 2018 This report presents the City’s investment portfolio for the quarter ending September 30, 2018. 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. Item 2 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, 2018 compared with the prior quarter: June 30, 2018 September 30, 2018 Percent of Total Cash and investments held by the City 40,617,557 32,594,827 29.67% Cash and investments managed by PFM 76,028,964 76,334,784 69.47% Cash and investments held by trustees 1,971,103 944,950 0.86% TOTAL 118,617,624 109,874,561 100% 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, 2018, the market value of the portfolio was $1,289,554 less than the cost basis. The difference is an unrealized loss due to the inverse relationship between interest rates and market values as it relates to the fixed income portion of the City’s investment portfolio. The portfolio’s yield on a market basis as of September 30, 2018 was 2.88%, and the yield on a cost basis was 1.99%. (These amounts do not reflect the returns on the assets held by the bond trustee.) As of September 30, 2018, 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 at least the next three 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, 2018; 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 Brigitte Elke, Director of Finance at (805) 781-7125. Item 2 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, City Manager Brigitte Elke, Interim Director of Finance Rico Pardo, Accounting Manager/Controller Alex Ferreira, Budget Manager Shay Stewart, Public Member Independent Auditor Allen E. Eschenbach, Glenn Burdette Attest Corporation PFM Asset Management Monique Skype, Portfolio Manager Izac Chyou, Senior Managing Consultant Item 2 CITY OF SAN LUIS OBISPO SUMMARY OF INVESTMENTS As of September 30, 2018 Percent of Current Market Portfolio Yield Value Local Agency Investment Funds 70% 2.06% 22,781,552.07 Certificate of Deposit 3% 1.09% 1,000,000.00 Money Market Account 3% 0.25% 1,018,355.15 Checking Account 24% 0.37% 7,794,920.55 Treasury Issues 0% 0.00%0.00 Total Investments Held by the City 100% 1.56% $32,594,827.77 Percent of Current Portfolio Yield Value Federal Agency Issues 29% 1.53% 21,963,764.12 Commercial Paper 6% 2.32% 4,687,237.10 Money Market Fund 0% 0.00% 102,665.78 US Corporate Notes 17% 2.00% 12,899,376.58 Negotiable CD 15% 2.43% 11,446,130.89 Treasury Issues 33% 2.14% 25,235,609.20 Total Investments Managed by Public Financial Management 100% 1.99% $76,334,783.67 Percent of Current Market Trustee Portfolio Yield Value First American Treasury Funds 0.00% 0.00%0.00 Other Money Market Accounts 49.56% 0.30% 468,362.79 Certificate of Deposit 0.00% 0.00%0.00 Guaranteed Investment Contracts 0.00% see below 0.00 Federal Agency Issues 0.00% 0.00%0.00 Treasury Issues 50.44% Varies 476,587.00 Total Investments Held by Trustees 100%$944,949.79 Total of all Investments--Market Value $109,874,561.23 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 Item 2 CITY OF SAN LUIS OBISPO SUMMARY OF INVESTMENT PORTFOLIO LIQUIDITY As of September 30, 2018 Managed Managed Percent of Market by City by PFM Portfolio Value On Demand 31,594,827.77 102,665.78 29% 31,697,493.55 Within Six Months 1,000,000.00 7,264,920.83 8% 8,264,920.83 Six Months to One Year 12,273,370.98 11% 12,273,370.98 Within One to Five Years 56,693,826.07 52% 56,693,826.07 Over Five Years 0% 0.00 TOTAL 32,594,827.77 $76,334,783.67 100% $108,929,611.44 Percent of Market Portfolio Value On Demand 0.495648335 468,362.79 Within Six Months 0% 0.00 Six Months to One Year 0% 0.00 Within One to Five Years 0% 0.00 Over Five Years 50% 476,587.00 TOTAL 100% $944,949.79 Total of all Investments--Market Value $109,874,561.23 CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2018 Agency Investment Coupon Current Purchase Maturity Market (Broker)Description Rate Yield Date Date Value Local Agency Money Market Fund On Investment Fund City NA 2.06% Varies Demand 22,712,656.46 Local Agency Money Market Fund On Investment Fund CIB NA 2.06% Varies Demand 68,895.61 On JP Morgan Chase Checking Account NA 0.37% Varies Demand 7,794,920.55 Collateralized Pacific Premiere Bank Certificate of Deposit NA 1.09% 12/20/2005 12/20/2018 1,000,000.00 On Pacific Permiere Bank Money Market Account NA 0.25% 1/24/2012 Demand 1,018,355.15 TOTAL $32,594,827.77 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 Item 2 CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2018 Agency Investment Coupon Current Purchase Maturity Market (Broker)Description Rate Yield Date Date Value 2006 Water Revenue Bonds U. S. Bank First American Bond Refinanced Corporate Trust Services Treasury Fund N/A N/A N/A N/A - Guaranteed FSA Capital Investment Contract Bond Refinanced Management Services LLC Treasury Fund N/A N/A N/A N/A - 2012 Water Revenue Refunding Bonds (Refunded 2002 Water Revenue Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $10,104.94 U. S. Bank United States Corporate Trust Services Treasury Note 7.13% 6.09% Varies 2/15/23 $219,033.00 U. S. Bank United States Corporate Trust Services Treasury Note 2.00% 2.05% Varies 11/15/21 $257,554.00 2012 Revenue Refunding Bonds (Refunded 2001 Revenue Refunding Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $458.92 U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $405,600.00 2018 Water Revenue Refunding Bonds (Refunded 2006 Water Revenue Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $79.40 U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $34,447.07 2018 Lease Revenue Refunding Bonds (Refunded 2005 Ref Lease Rev, 2006 Lease Rev, & 2009 Lease Rev Bonds) U. S. Bank U.S Bank Money Corporate Trust Services Market Account N/A 0.30% Varies on demand $4,411.83 U. S. Bank U.S. Bank Money Corporate Trust Services Market Account N/A 0.30% Varis on demand $13,260.63 TOTAL $944,949.79 INVESTMENTS HELD BY TRUSTEES FOR BOND DEBT SERVICE OBLIGATIONS Item 2 CITY OF SAN LUIS OBISPO INVESTMENT DETAIL As of September 30, 2018 The City of San Luis Obispo maintains certain performance objectives for the investments that are managed by Public Financial Management. The overall performance objective for the portfolio is to earn a total rate of return over the market cycle that equals or exceeds the market index. In order to achieve this objective the portfolio invests in high-quality money market instruments, US Treasury securities, Agency securities, and high-grade corporate securities, with a maximum maturity of five years. To monitor the achievement of this objective, the City uses a “Benchmark” to compare to. The benchmark which is used is based on the BofA Merrill Lynch Index of 0-5 year Treasury securities. Below is a summary of the monthly results as compared to the benchmark. While the City strives to achieve this performance objective every month, the goal is assumed to be met on an annual basis. The City of San Luis Obispo is currently just under the benchmark goals in most categories. We feel that through market trends and current investing adjustments, our performance will meet or exceed the benchmarks by the end of the fiscal year. Benchmark Comparison for the Quarter Ended 9/30/2018 Benchmark 9/30/2018 Portfolio 6/30/2018 Average Maturity (yrs)2.26 2.08 2.08 Modified Duration 2.16 2 1.99 Average Purchase Yield N/A 1.99%1.85% Average Market Yield 2.49%2.88%2.60% Average Quality AAA AA/Aa1 AA/Aa1 Total Market Value -$ 76,334,784$ 76,342,859$ 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 Item 2 © PFM 1 City of San Luis Obispo Investment Report For the Quarter Ended September 30, 2018 PFM Asset Management LLC www.pfm.com 50 California Street Suite 2300 San Francisco, CA 94111 415-982-5544 Izac Chyou, Senior Managing Consultant chyoui@pfm.com Item 2 © PFM Table of Contents I.Market Update II.Portfolio Review III.Appendix A.Consolidated Portfolio Information B.Investment Policy Snapshot C.Portfolio Holdings D.Quarterly Transactions Item 2 © PFM I. Market Update Item 2 © PFM Source: Bloomberg, data available as of 9/30/2018. SAAR is seasonally adjusted annualized rate. 2.9% -2% 0% 2% 4% 6%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q22013 2014 2015 2016 2017 2018 U.S. Real GDP (QoQ, SAAR) Rolling 4-Quarter Average 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Aug '13 Aug '14 Aug '15 Aug '16 Aug '17 Aug '18 Inflation Measures (YoY) Core CPI Core PCE Fed's Long-Term Inflation Target4.2%40 60 80 100 120 140 160 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Consumer Confidence Highest since 2000 7.2% 5.9% 5.…5.0% 4.2%3.7% 3% 4% 5% 6% 7% 8% 9% Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Unemployment Rate Economic Summary 1 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM Source: Federal Reserve Bank of St. Louis., Bloomberg, most recent data as of September 2018. SAAR is the seasonally adjusted annualized rate. 3,000 4,000 5,000 6,000 Aug '08 Aug '10 Aug '12 Aug '14 Aug '16 Aug '18 Existing Home Sales (000s, SAAR) 200 400 600 800 Aug '08 Aug '10 Aug '12 Aug '14 Aug '16 Aug '18 New Home Sales (000s, SAAR) Highest Since 2007 Highest Since 2007 Highest Since 2007 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18 30-Year Fixed-Rate Mortgage 7 Year High 80 90 100 110 120 130 140 150 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18Cumulative Growth IndexUS Housing Price Index Housing Market Momentum Slowed Recently 2 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM Where Are We in the Economic Cycle? Different Indicators Give Differing Views Source (left): Deutsche Bank (as of July 2018). Source (right): Conference Board. The Conference Board Leading Economic Index Continues to Rise Supports the continuing solid growth in the economy Suggests no recession in the near-term 70 75 80 85 90 95 100 105 110 115 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 The Conference Board Leading Economic Index (LEI) for the U.S. The Conference Board Coincident Economic Index (CEI) for the U.S. 3 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18Yield2-Year U.S. Treasury Source: Bloomberg, as of 9/30/2018. The third quarter marked the tenth straight quarterly rise in the 2-year yield as the U.S. economy remained strong and the Federal Reserve continued quantitative tightening, raising the federal funds’ target rate by 25 basis points for the third time this year at its September meeting. The 2-year Treasury increased by 29 basis points to 2.82% in the third quarter. 2.82 % 1.89% 2.53% 2.27% Treasury Yields Continue to Rise 4 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM Source: Bloomberg, as of 9/28/2018. U.S. Yield Curve Tenor Current 9/28/18 Year-End 12/31/2017 Year-End 12/31/16 3 month 2.20%1.38%0.45% 6 month 2.36%1.53%0.61% 1 year 2.56%1.73%0.82% 2 year 2.82%1.88%1.21% 3 year 2.88%1.97%1.47% 5 year 2.95%2.21%1.95% 10 year 3.06%2.41%2.48%0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 3 M 1 Y 2 Y 3 Y 4 Y 5 Y 10 YYield Maturity September 28, 2018 December 30, 2017 December 29, 2016 U.S. Treasury Yield Curve 5 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM FOMC’s September “Dot Plot” Projects One More Rate Hike in 2018 Source: Federal Reserve and Bloomberg. Individual dots represent each Fed members’ judgment of the midpoint of the appropriate target range for the federal funds' rate at each year-end. Fed funds futures as of 9/26/2018. 0% 1% 2% 3% 4% 5% Fed Participants’ Assessments of ‘Appropriate’ Monetary Policy Sept-18 FOMC Projections Sept-18 Median Fed Funds Futures 2018 2019 2020 Longer Term Fed expects 1 more rate hike in 2018 & maintained future projections History of Recent Fed Rate Hikes Sep ‘18 2.00 –2.25% Jun ’18 1.75 –2.00% Mar ‘18 1.50 -1.75% Dec ‘17 1.25 -1.50% Jun ’17 1.00 -1.25% Mar ’17 0.75 -1.00% Dec ’16 0.50 -0.75% Dec ’15 0.25 -0.50% 2021 6 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM Fixed Income Sector Returns (1-5 Year Indices) Source: ICE BofAML Indices. MBS and ABS indices are 0-5 year, based on weighted average life. As of 9/30/2018. 2018 Q3 2018 YTD 0.05% 0.26% 0.66% 0.11% 0.55% -0.20% 0.28%0.16% -0.71% 0.86% -1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25%U.S. TreasuryAgencyCorp (A-AAA)MBSABS (AAA)U.S. TreasuryAgencyCorp (A-AAA)MBSABS (AAA)7 For the Quarter Ended September 30, 2018 Market UpdateItem 2 © PFM II. Portfolio Review Item 2 © PFM Portfolio Characteristics -Internal For the Quarter Ended September 30, 2018 Portfolio Review 9/30/2018 6/30/2018 Average Maturity (yrs)0.01 0.01 Effective Duration1 0.01 0.01 Average Market Yield 1.57%1.21% Total Market Value 32,594,828 40,617,557 8 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% 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). Portfolio Item 2 © PFM Sector Distribution-Internal For the Quarter Ended September 30, 2018 Portfolio Review LAIF Money Market Rate Account Negotiable CDs*Cash 9/30/2018 69.9%3.1%3.1%23.9% 6/30/2018 55.8%2.5%2.5%39.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 9 *Issuer is Pacific Premier Bank. Percentages based on market values excluding accrued interest. Item 2 © PFM Aggregate Sector Allocation and Compliance Security Type Market Value % of Portfolio % Change vs. 6/30/18 Permitted by Policy In Compliance U.S. Treasury $25,235,609 23.5%+5.6%100% Federal Agency $21,963,764 20.5%-0.9%100% Negotiable CDs $11,446,131 10.7%-0.9%30% Corporate Notes $12,899,377 12.0%+0.8%30% Commercial Paper $4,687,237 4.4%+0.8%25% Securities Sub- Total $76,232,118 69.8% Money Market Fund $102,666 0.1%+0.1% Accrued Interest $332,992 Securities Total $76,667,776 LAIF $22,781,552 20.9%+1.5%$65 million JP Morgan $7,794,921 7.1%-6.5% Heritage Oaks CD $7,794,921 1.8%+0.1%25% Total Investments $109,262,604 100.0% For the Quarter Ended September 30, 2018 Portfolio Compliance 10 Item 2 © PFM Socially Responsible Investment Policy The City’s Investment Policy restricts issuers from the portfolio who generate revenue from tobacco, electronic cigarette, or tobacco-related products, or who support the direct production or drilling of fossil fuels. The City’s portfolio is in compliance with the SRI restrictions. Below are the Bloomberg Industry Classifications (“BICS”) for all of the portfolio’s holdings. Source: Bloomberg. BICs is an industry classification system developed and utilized by Bloomberg that classifies securities based on business, economic function and other characteristics. Issuer Industry (BICS) American Honda Finance Automobiles Manufacturing Toyota Motor Credit Corp Automobiles Manufacturing Bank of Montreal Chicago Banks Bank of Nova Scotia Banks Canadian Imperial Bank Banks Nordea Bank AB NY Banks Skandinav Enskilda Banken NY Banks Swedbank NY Banks Westpac Banking Banks Bank of Tokyo Mitsubishi Banks Credit Agricole Banks MUFG Bank Banks Wells Fargo & Company Banks Apple Inc Communications Equipment Proctor & Gamble Consumer Products Unilever Consumer Products Issuer Industry (BICS) General Electric Electrical Equipment Manufacturing Walt Disney Company Entertainment Content UBS AG Stamford CT Financial Services JP Morgan Financial Services BNY Mellon Financial Services Hershey Company Food & Beverage FHLB Government Agencies FNMA Government Agencies FHLMC Government Agencies John Deere Machinery Manufacturing Wal-Mart Stores Mass Merchants Berkshire Hathaway Property & Casualty Insurance Burlington North Railroad Home Depot Retail -Consumer Discretionary IBM Software & Services Microsoft Corp Software & Services U.S. Treasury Sovereigns For the Quarter Ended September 30, 2018 Investment Policy 11 Item 2 © 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 September 30, 2018 Portfolio Review 12 Item 2 © PFM Third Quarter 2018 Recap We positioned the portfolio with a defensive duration posture, holding maturities shorter than the benchmark for the majority of the past two quarters in light of the Fed’s impact on short-term rates. This strategy benefited portfolio returns as yields across the yield curve approached new highs for the cycle. Because the curve is so flat,holding longer maturities resulted in very little incremental yield.On balance,the tradeoff between slightly lower yields (a position short of the benchmark)and less exposure to the negative market value impact of the rise in rates during the quarter (from a shorter duration) resulted in outperformance vs. benchmarks. •As has been the case for some time, federal agency yield spreads remained extremely narrow throughout the quarter. We generally underweighted agencies in favor of U.S. Treasuries or other sectors. •In the corporate sector, strong economic tailwinds created a favorable investment landscape. Corporate returns dominated their government counterparts, adding significant value to the portfolio in the third quarter. •Our view of the ABS sector was that it remained a high-quality diversifier to corporate allocations, providing incremental income with a high degree of downside protection given the sector’s strong structural protections and AAA ratings. •After providing several consecutive quarters of incremental income relative to short-term government alternatives, yield spreads on commercial paper and negotiable bank certificates of deposit narrowed to 1-year lows. Our strategy in the third quarter was to be more selective with regard to issuer/maturity and wait for the next Fed rate hike (which occurred on September 26) before reassessing value in short credit instruments. For the Quarter Ended September 30, 2018 Portfolio Review 13 Item 2 © PFM Representative Trades As part of our active management of the portfolio, we continually evaluate opportunities to add value to the portfolio, including executing swaps. The objective is to maintain diversification and manage portfolio duration while enhancing the portfolio’s long-term performance. The following are some representative trades. Settle Date Trade Type Issuer Par (000s)Maturity Yield at Cost Yield at Market Loss on Sale Earnings to 2/26/19 Total Cash Flow 7/5/18 Sale Fannie Mae $2,000 2/26/19 0.96%2.28%($16,800)($12,310)($29,110) 7/5/18 Buy Freddie Mac $1,000 2/16/2021 2.70%2.70%$16,593 $16,593 7/5/18 Buy U.S.Treasury $1,090 2/28/2023 2.74%2.74%$18,487 $18,487 Additional Net Benefit +$5,970 Settle Date Trade Type Issuer Par (000s)Maturity Yield at Cost Yield at Market Loss on Sale Earnings to 1/10/19 Total Cash Flow 9/6/18 Sale Svenska $1,850 1/10/19 1.91%2.00%($3,000)($12,390)($15,390) 9/6/18 Buy U.S.Treasury $2,085 3/31/2022 2.75%2.75%$17,555 $17,555 Additional Net Benefit +$2,164 For the Quarter Ended September 30, 2018 Portfolio Review 14 Item 2 © PFM 3 Months 1 Year 3 Years Since Inception City of San Luis Obispo 0.34%0.21%0.71%0.91% 0-5 Yr. Treasury Index 0.15%-0.13%0.42%0.69% -0.20% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% •Performance is for the City of San Luis Obispo’s Operating Funds. •Performance on a 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 September 30, 2018 Portfolio Review +0.19% +0.34%+0.29%+0.22%Difference: 15 Item 2 © PFM Earnings for the City of San Luis Obispo’s Operating Funds. Portfolio Earnings For the Quarter Ended September 30, 2018 Portfolio Review Market Value Basis Accrual (Amortized Cost) Basis Beginning Value (6/30/2018)$75,966,342 $77,122,669 Net Purchases/Sales $358,560 $358,560 Change in Value ($92,784)($13,351) Ending Value (9/30/2018)$76,232,118 $77,467,879 Interest Earned $355,079 $355,079 Portfolio Earnings $262,295 $341,728 16 Item 2 © PFM 1.The City of San Luis Obispo’s current benchmark is the ICE 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 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). 3.Total Market Value includes cash and accrued interest. Portfolio Characteristics —PFM Managed For the Quarter Ended September 30, 2018 Portfolio Review 9/30/2018 Portfolio Benchmark1 Average Maturity (yrs)2.08 2.26 Effective Duration2 2.00 2.16 Average Purchase Yield 1.99%N/A Average Market Yield 2.88%2.49% Average Quality AA/Aa1 AAA Total Market Value3 76,334,784 17 Item 2 © PFM Sector distribution based on market value and excludes accrued interest. Sector Distribution —PFM Managed For the Quarter Ended September 30, 2018 Portfolio Review U.S. Treasury Federal Agency Negotiable CDs Commerci al Paper Corporate Notes Money Market Fund 9/30/2018 33.1%28.8%15.0%6.1%16.9%0.1% 6/30/2018 27.1%32.4%17.4%6.1%16.9%0.1% 0% 5% 10% 15% 20% 25% 30% 35% 18 Item 2 © PFM Credit Industry Exposure —PFM Managed For the Quarter Ended September 30, 2018 Portfolio Review Issuer’s industry as defined by Bloomberg. Detail may not add to total due to rounding. Automobiles Manufacturing 5% Banks 40% Communications Equipment 2% Consumer Products 19% Electrical Equipment Manufacturing 5% Financial Services 14% Machinery Manufacturing 0% Media & Entertainment 5% Railroad 2% Software & Services 8% Industry ExposureIssuerIndustry% American Honda Finance Automobiles Manufacturing 1.3% Toyota Motor Credit Corp.Automobiles Manufacturing 3.6% Bank of Montreal Banks 6.4% Bank of Nova Scotia Banks 5.2% Canadian Imperial Bank NY Banks 1.5% Credit Agricole CIB NY Banks 6.2% Mitsubishi UFJ Bank NY Banks 1.8% Nordea Bank AB NY Banks 5.2% Skandinaviska Enskilda Banken NY Banks 5.2% Swedbank NY Banks 4.6% Wells Fargo Banks 1.1% Westpac Banking Corp.Banks 2.6% Apple Inc Communications Equipment 2.5% Hershey Company Consumer Products 0.6% Home Depot Consumer Products 3.4% Proctor & Gamble Co.Consumer Products 3.4% Unilever Capital Consumer Products 7.6% Wal-Mart Inc.Consumer Products 3.9% General Electric Electrical Equipment Manufacturing 5.1% Berkshire Hathaway Financial Services 5.1% BNY Mellon Financial Services 1.1% JP Morgan Securities LLC Financial Services 3.7% UBS Financial Services 4.0% John Deere Capital Machinery Manufacturing 0.4% Walt Disney Company Media & Entertainment 5.1% Burlington North Corp.Railroad 1.7% IBM Software & Services 3.3% Microsoft Corp Software & Services 4.6% Total 100.0% 19 Item 2 © PFM Ratings by Standard & Poor’s. Credit Quality —PFM Managed For the Quarter Ended September 30, 2018 Portfolio Review AAA AA A A-1 9/30/2018 1.4%72.7%15.0%10.9% 6/30/2018 1.4%70.3%15.2%13.1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20 Item 2 © PFM Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. * Benchmark is composed of the ICE BAML 0-5 Year U.S. Treasury Index. Data from Bloomberg. Maturity Distribution —PFM Managed Portfolio vs. Benchmark For the Quarter Ended September 30, 2018 Portfolio Review 0-1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years Portfolio 25.7%26.0%17.3%23.5%7.5% Benchmark*22.5%25.3%20.6%15.5%16.1% 0% 5% 10% 15% 20% 25% 30% 21 Item 2 © PFM Issuer Distribution —PFM Managed For the Quarter Ended September 30, 2018 Portfolio Review Ratings by Standard & Poor’s and Moody’s. * Financial securities rated “A” by S&P are rated “AA” by Fitch and /or Egan-Jones Rating Company. ** General Electric corporate notes were downgraded to BBB+ by S&P on 10/2/2018. Issuer Name Investment Type % of Portfolio S&P Moody's U.S. Treasury U.S. Treasury 33.2%AA+Aaa FNMA Federal Agency 15.8%AA+Aaa FHLMC Federal Agency 9.7%AA+Aaa FHLB Federal Agency 3.3%AA+Aaa Bank of Montreal Chicago Negotiable CD 2.4%A+Aa2 BNY Mellon Corporate Note 2.4%A A1 Bank of Nova Scotia Negotiable CD 2.0%A+Aa2 Credit Agricole Commercial Paper 2.0%A-1 P-1 Canadian Imperial Bank Negotiable CD 2.0%A-1 P-1 Swedbank NY Negotiable CD 2.0%AA-Aa2 Skandinav Enskilda Banken NY Negotiable CD 1.9%A-1 P-1 Wal-Mart Stores Corporate Note 1.9%AA Aa2 General Electric Corporate Note 1.8%A**A2 Westpac Banking Negotiable CD 1.7%AA-Aa3 Bank of Tokyo Mitsubishi Commercial Paper 1.6%A-1 P-1 UBS AG Stamford CT Negotiable CD 1.5%A+Aa2 Nordea Bank AB NY Negotiable CD 1.5%AA-Aa3 Toyota Motor Credit Corp Corporate Note 1.4%AA-Aa3 Apple Inc Corporate Note 1.4%AA+Aa1 MUFG Bank Commercial Paper 1.3%A-1 P-1 JP Morgan Commercial Paper 1.3%A-1 P-1 Microsoft Corp Corporate Note 1.3%AAA Aaa Wells Fargo & Company Corporate Note 1.3%A-A2 Home Depot Corporate Note 1.0%A A2 IBM Corporate Note 1.0%A+A1 Burlington North Corporate Note 0.7%A+A3 Walt Disney Company Corporate Note 0.7%A+A2 Berkshire Hathaway Corporate Note 0.6%AA Aa2 American Honda Finance Corporate Note 0.5%A+A2 Proctor & Gamble Corporate Note 0.4%AA-Aa3 Hershey Company Corporate Note 0.4%A A1 John Deere Corporate Note 0.2%A A2 Unilever Corporate Note 0.1%A+A1 Total/Average 100.0%AA Aaa 22 Item 2 © PFM Current Outlook and Strategy For the Quarter Ended September 30, 2018 Portfolio Review While the Fed’s policy actions will depend on future economic data, we believe the current strength of the U.S. Economy, coupled with a strong labor market and rising inflation, will cause the Fed to continue raising rates at a pace of about one quarter-percent hike per quarter well into 2019. Therefore, we plan to maintain a defensive duration posture to mitigate a portion of interest rate risk relative to the benchmark. Over the past several quarters, we have maintained a positive view on corporates and other spread products (non-government investments); however, we are cognizant of potential headwinds that could surface towards year-end. While diversification away from U.S. Treasury securities has added significant value over the last several quarters, very narrow spreads across most investment-grade sectors give us reason to turn a bit more cautious. Federal agency securities remain expensive as most maturities offer less than five basis points of incremental yield relative to U.S. Treasuries. We will continue to reduce agency exposure where spreads are tight, seeking better relative value in other sectors. As an alternative, we may selectively add callable agency issues because, in our view, they provide better value in today’s market in addition to favorable diversification and income benefits. In conjunction with tight spreads, we plan to be more selective and defensive with corporate positioning. Our preference continues to favor financials and select industrial issuers with stronger balance sheets and fair valuations, which we think can better withstand the current phase of the credit cycle Broad diversification across all investment-grade sectors remains a key component of our portfolio strategy; we will also continue to maintain a high credit quality for the PFM-managed portfolio. 23 Item 2 © PFM 5 52 27 35 0 20 40 60 80 100 120 140 Agency Corporate (A-AAA) MBS ABS (AAA)Basis Points SpreadSource: ICE BofAML Indices. MBS and ABS indices are 0-5 year, based on weighted average life. As of September 30, 2018. 90th Percentile 10th Percentile 3 year range Fixed Income Sector Spread (1-5 Year Indices) For the Quarter Ended September 30, 2018 Portfolio Review 24 Item 2 © PFM Yield Environment as of September 30, 2018 Maturity Treasury Federal Agency Supranational Commercial Paper A Corporate 3-Month 2.20%2.18%2.21%2.33%- 6-Month 2.36%2.30%2.27%2.54%- 1-Year 2.56%2.57%2.61%-2.95% 2-Year 2.82%2.82%2.88%-3.28% 3-Year 2.88%2.89%2.99%-3.43% 5-Year 2.95%3.05%3.07%-3.65% Source: Bloomberg, PFM Trading Desk. TradeWeb for Federal Agency and Supranational yields. Yields are for indicative purposes only; actual yields may vary by issue. For the Quarter Ended September 30, 2018 Portfolio Review 25 Item 2 © PFM 30 III. Appendix Item 2 © PFM A. Consolidated Portfolio Information Item 2 © PFM Portfolio Characteristics -Consolidated For the Quarter Ended September 30, 2018 Portfolio Review 1.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). 9/30/2018 6/30/2018 Average Maturity (yrs)1.47 1.36 Effective Duration1 1.41 1.30 Average Purchase Yield 1.87%1.63% Average Market Yield 2.49%2.12% Average Quality AA/Aa1 AA/Aa1 Total Market Value 108,929,611 116,958,884 26 Item 2 © PFM Sector Distribution -Consolidated For the Quarter Ended September 30, 2018 Portfolio Review Sector distribution based on market value and excludes accrued interest. U.S. Treasury Federal Agency Comm. Paper Corporate Notes Negotiable CDs Money Market Fund Money Market Rate Account LAIF Cash 9/30/2018 23.2%20.2%4.3%11.8%11.4%0.1%0.9%20.9%7.1% 6/30/2018 17.7%21.2%4.0%11.0%12.2%0.1%0.9%19.4%13.6% 0% 5% 10% 15% 20% 25% 27 Item 2 © PFM Maturity Distribution -Consolidated For the Quarter Ended September 30, 2018 Portfolio Review Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. Overnight - 3 Months 3 - 6 Months 6 Months - 1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 9/30/2018 34.8%1.9%11.3%18.2%12.1%16.5%5.2% 6/30/2018 35.7%4.4%10.5%19.0%10.3%13.6%6.4% 0% 10% 20% 30% 40% 28 Item 2 © PFM Issuer Distribution -Consolidated For the Quarter Ended September 30, 2018 Portfolio Review Ratings by Standard & Poor’s and Moody’s. * Financial securities rated “A” by S&P are rated “AA” by Fitch and /or Egan-Jones Rating Company. **General Electric corporate notes were downgraded to BBB+ by S&P on 10/2/18. Issuer Name Investment Type % of Portfolio S&P Moody's U.S. Treasury U.S. Treasury 25.0%AA+Aaa LAIF LAIF 22.5%NR NR FNMA Federal Agency 11.9%AA+Aaa FHLMC Federal Agency 7.3%AA+Aaa FHLB Federal Agency 2.5%AA+Aaa Bank of Montreal Chicago Negotiable CD 1.8%A+Aa2 BNY Mellon Corporate Note 1.8%A A1 Bank of Nova Scotia Negotiable CD 1.5%A+Aa2 Credit Agricole Commercial Paper 1.5%A-1 P-1 Canadian Imperial Bank Negotiable CD 1.5%A-1 P-1 Swedbank NY Negotiable CD 1.5%AA-Aa2 Skandinav Enskilda Banken NY Negotiable CD 1.5%A-1 P-1 Wal-Mart Stores Corporate Note 1.5%AA Aa2 General Electric Corporate Note 1.3%A**A2 Westpac Banking Negotiable CD 1.3%AA-Aa3 Bank of Tokyo Mitsubishi Commercial Paper 1.2%A-1 P-1 UBS AG Stamford CT Negotiable CD 1.1%A+Aa2 Nordea Bank AB NY Negotiable CD 1.1%AA-Aa3 Toyota Motor Credit Corp Corporate Note 1.1%AA-Aa3 Apple Inc Corporate Note 1.0%AA+Aa1 Pacific Premier Bank Money Market RA 1.0%NR NR Pacific Premier Bank Negotiable CD 1.0%NR NR MUFG Bank Commercial Paper 1.0%A-1 P-1 JP Morgan Commercial Paper 1.0%A-1 P-1 Microsoft Corp Corporate Note 1.0%AAA Aaa Wells Fargo & Company Corporate Note 0.9%A-A2 Home Depot Corporate Note 0.7%A A2 IBM Corporate Note 0.7%A+A1 Burlington North Corporate Note 0.5%A+A3 Walt Disney Company Corporate Note 0.5%A+A2 Berkshire Hathaway Corporate Note 0.4%AA Aa2 American Honda Finance Corporate Note 0.4%A+A2 Proctor & Gamble Corporate Note 0.3%AA-Aa3 Hershey Company Corporate Note 0.3%A A1 John Deere Corporate Note 0.2%A A2 Unilever Corporate Note 0.1%A+A1 Dreyfus Prime Cash Management Fund Money Market Fund 0.1%AAAm Aaa Total 100.0%A+Aa3 29 Item 2 © PFM B. Investment Policy Snapshot Item 2 © 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 an “A” rating, its equivalent or better by one or more NSROs 30% maximum, 5% per issuer Yes Asset-Backed Security 5-year maximum maturity At least a “AAA” or better 15% Maximum, 2.5% 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 an “A” rating, its equivalent or better by one or more NSROs 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, 2018. Investment Policy Snapshot The portfolio complies with the 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 September 30, 2018 Portfolio Review 30 Item 2 © PFM C. Portfolio Holdings Item 2 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2018Security DescriptionSettle DateYTM at Cost Par Cost Value Amortized CostYTM at Market Market Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to Maturity DurationLAIFLOCAL AGENCY INVESTMENT FUND Various 2.06% 22,781,552.07 22,781,552.07 22,781,552.07 2.06% 22,781,552.07 -20.91%-NRNR0.00 0.00Total LAIF2.06% 22,781,552.07 22,781,552.07 22,781,552.07 2.06% 22,781,552.07 -20.91%-NRNR0.00 0.00Money Market FundDREYFUS PRIME CASH MANAGEMNT MONEY MARKET FUNDVarious 0.00% 102,665.78 102,665.78 102,665.78 0.00%102,665.78-0.09%-AAAAaa0.00 0.00Total Money Market Fund0.00% 102,665.78 102,665.78 102,665.78 0.00%102,665.78-0.09%-AAAAaa0.00 0.00CashCASH ACCOUNT Various 0.37% 7,794,920.55 7,794,920.55 7,794,920.55 0.37% 7,794,920.55-7.16%-NRNR0.00 0.00CASH Pacific Premier Bank MONEY MARKET RATE ACCOUNTVarious 0.25% 1,018,355.15 1,018,355.15 1,018,355.15 0.25%1,018,355.15-0.93%-NRNR0.00 0.00Total Cash0.36% 8,813,275.70 8,813,275.70 8,813,275.70 0.36%8,813,275.70-8.09%-NRNR0.00 0.00U.S. Treasury Bond/NoteUS TREASURY NOTES9128282P4 1.88% Due 7/31/202211/3/2017 2.01% 795,000.00 790,093.36 791,007.71 2.93%764,907.662,511.38 0.70% (26,100.05) AA+Aaa3.84 3.65US TREASURY N/B NOTES9128283C2 2.00% Due 10/31/20225/4/2018 2.80% 1,835,000.00 1,773,785.55 1,779,042.19 2.94%1,769,341.8715,358.15 1.62% (9,700.32) AA+Aaa4.09 3.85US TREASURY NOTES912828B90 2.00% Due 2/28/202110/5/2016 1.15% 725,000.00 751,394.53 739,637.71 2.86%710,471.731,241.71 0.65% (29,165.98) AA+Aaa2.42 2.33US TREASURY NOTES912828D72 2.00% Due 8/31/202112/5/2016 1.92% 1,575,000.00 1,580,537.11 1,578,478.67 2.88%1,536,486.532,697.51 1.41% (41,992.14) AA+Aaa2.92 2.80US TREASURY NOTES912828F96 2.00% Due 10/31/20211/5/2017 1.95% 1,000,000.00 1,002,226.56 1,001,455.23 2.89%973,867.008,369.57 0.89% (27,588.23) AA+Aaa3.09 2.94US TREASURY NOTES912828F96 2.00% Due 10/31/20214/5/2017 1.86% 1,145,000.00 1,152,111.52 1,149,865.69 2.89%1,115,077.729,583.15 1.02% (34,787.97) AA+Aaa3.09 2.94US TREASURY NOTES912828F96 2.00% Due 10/31/20213/5/20182.48% 1,400,000.00 1,376,867.19 1,380,377.26 2.89%1,363,413.8011,717.39 1.25% (16,963.46) AA+Aaa3.09 2.94US TREASURY NOTES912828J43 1.75% Due 2/28/20223/17/2017 2.14% 365,000.00 358,270.31 360,287.50 2.91%351,340.97547.00 0.32% (8,946.53) AA+Aaa3.42 3.28US TREASURY NOTES912828K58 1.38% Due 4/30/20202/3/2016 1.25% 1,125,000.00 1,130,932.62 1,127,251.99 2.78%1,100,610.006,473.34 1.01% (26,641.99) AA+Aaa1.58 1.54US TREASURY NOTES912828L57 1.75% Due 9/30/202210/6/2017 1.93% 500,000.00 495,742.19 496,553.35 2.93%477,793.0024.040.44% (18,760.35) AA+Aaa4.00 3.82US TREASURY NOTES912828L57 1.75% Due 9/30/20226/6/2018 2.76% 1,240,000.00 1,189,382.81 1,192,945.63 2.93%1,184,926.6459.62 1.09% (8,018.99) AA+Aaa4.00 3.82US TREASURY NOTES912828P79 1.50% Due 2/28/20237/5/2018 2.74% 1,090,000.00 1,031,242.19 1,034,116.43 2.95%1,025,196.231,400.14 0.94% (8,920.20) AA+Aaa4.42 4.22US TREASURY NOTES912828R77 1.38% Due 5/31/20217/7/2017 1.81% 380,000.00 373,869.53 375,767.14 2.88%365,453.221,755.94 0.34% (10,313.92) AA+Aaa2.67 2.58US TREASURY NOTES912828U65 1.75% Due 11/30/202111/3/2017 1.92% 750,000.00 745,107.42 746,171.09 2.90%724,043.254,410.86 0.66% (22,127.84) AA+Aaa3.17 3.03US TREASURY NOTES912828V72 1.88% Due 1/31/20227/11/2017 1.90% 1,545,000.00 1,543,370.51 1,543,799.74 2.91%1,494,486.234,880.601.37%(49,313.51) AA+Aaa3.34 3.19US TREASURY NOTES912828VF4 1.38% Due 5/31/202012/4/2015 1.56% 600,000.00 595,195.31 598,180.45 2.80%586,195.202,772.54 0.54% (11,985.25) AA+Aaa1.67 1.62US TREASURY NOTES912828W89 1.88% Due 3/31/202212/5/2017 2.10% 1,200,000.00 1,188,796.88 1,190,861.70 2.91%1,158,843.6061.81 1.06% (32,018.10) AA+Aaa3.50 3.35US TREASURY NOTES912828W89 1.88% Due 3/31/20221/4/2018 2.18% 1,300,000.00 1,284,105.47 1,286,788.01 2.91%1,255,413.9066.96 1.15% (31,374.11) AA+Aaa3.50 3.35US TREASURY NOTES912828W89 1.88% Due 3/31/20228/3/2018 2.82% 1,860,000.00 1,798,968.75 1,801,554.04 2.91%1,796,207.5895.81 1.65% (5,346.46) AA+Aaa3.50 3.35US TREASURY NOTES912828W89 1.88% Due 3/31/20229/6/2018 2.75% 2,085,000.00 2,023,508.79 2,024,646.92 2.91%2,013,490.76107.40 1.85% (11,156.16) AA+Aaa3.50 3.35US TREASURY NOTES912828WL0 1.50% Due 5/31/201911/14/2016 1.06%95,000.0096,039.0695,273.83 2.50%94,372.81478.89 0.09%(901.02)AA+Aaa0.67 0.65US TREASURY N/B912828WY2 2.25% Due 7/31/202111/23/2016 1.78% 685,000.00 699,556.25 693,939.98 2.89%673,226.222,596.67 0.62% (20,713.76) AA+Aaa2.84 2.71US TREASURY NOTES912828XM7 1.63% Due 7/31/20203/30/2016 1.27% 685,000.00 695,275.00 689,407.89 2.82%670,497.181,875.37 0.62% (18,910.71) AA+Aaa1.84 1.78US TREASURY NOTES912828XQ8 2.00% Due 7/31/20229/1/20171.74% 2,100,000.00 2,126,003.91 2,120,475.38 2.93%2,029,946.107,076.09 1.86% (90,529.28) AA+Aaa3.84 3.6431Item 2 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2018Security DescriptionSettle DateYTM at Cost Par Cost Value Amortized CostYTM at Market Market Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to Maturity DurationTotal U.S. Treasury Bond/Note2.14% 26,080,000.00 25,802,382.82 25,797,885.53 2.90% 25,235,609.20 86,161.94 23.17% (562,276.33) AA+Aaa3.30 3.15Federal Agency Bond/NoteFHLB NOTES3130AA3R7 1.38% Due 11/15/201911/17/2016 1.38% 1,395,000.00 1,394,679.15 1,394,878.10 2.68% 1,374,984.54 7,246.25 1.26% (19,893.56) AA+Aaa1.13 1.10FEDERAL HOME LOAN BANK AGENCY NOTES3130ABF92 1.38% Due 5/28/20195/12/2017 1.47% 455,000.00 454,140.05 454,720.14 2.50% 451,646.65 2,137.55 0.41% (3,073.49) AA+Aaa0.66 0.65FEDERAL HOME LOAN BANK AGENCY NOTES3130ABF92 1.38% Due 5/28/20195/16/2017 1.40% 735,000.00 734,661.90 734,889.21 2.50% 729,583.05 3,452.97 0.67% (5,306.16) AA+Aaa0.66 0.65FNMA NOTES3135G0A78 1.63% Due 1/21/20204/30/2015 1.54% 580,000.00 582,233.00 580,634.32 2.74% 571,746.02 1,832.64 0.52% (8,888.30) AA+Aaa1.31 1.28FNMA NOTES3135G0J20 1.38% Due 2/26/20215/19/2016 1.42% 520,000.00 518,850.80 519,413.02 2.87% 502,010.08 695.14 0.46% (17,402.94) AA+Aaa2.41 2.34FNMA BENCHMARK NOTE3135G0N33 0.88% Due 8/2/20198/2/2016 0.93% 2,350,000.00 2,346,052.00 2,348,888.92 2.58% 2,317,022.45 3,369.97 2.13% (31,866.47) AA+Aaa0.84 0.83FNMA NOTES3135G0N82 1.25% Due 8/17/20218/19/2016 1.33% 1,045,000.00 1,040,767.75 1,042,527.26 2.88% 998,220.58 1,596.53 0.92% (44,306.68) AA+Aaa2.88 2.79FNMA NOTES3135G0N82 1.25% Due 8/17/20218/19/2016 1.32% 325,000.00 323,888.18 324,350.49 2.88% 310,451.38 496.53 0.29% (13,899.11) AA+Aaa2.88 2.79FNMA NOTES3135G0N82 1.25% Due 8/17/20219/2/2016 1.38% 1,000,000.00 993,880.00 996,398.45 2.88%955,235.00 1,527.78 0.88% (41,163.45) AA+Aaa2.88 2.79FANNIE MAE NOTES3135G0S38 2.00% Due 1/5/20226/29/2017 1.85%2,235,000.00 2,249,281.65 2,245,430.70 2.93%2,170,480.02 10,678.33 1.99% (74,950.68) AA+Aaa3.27 3.11FNMA NOTES3135G0T29 1.50% Due 2/28/20202/28/2017 1.52% 885,000.00 884,433.60 884,730.95 2.74%869,864.73 1,216.88 0.80% (14,866.22) AA+Aaa1.41 1.38FNMA NOTES3135G0T60 1.50% Due 7/30/20208/1/2017 1.60% 1,465,000.00 1,460,561.05 1,462,264.20 2.78%1,431,656.60 3,723.54 1.31% (30,607.60) AA+Aaa1.83 1.79FANNIE MAE NOTES3135G0U27 2.50% Due 4/13/20214/13/2018 2.55% 750,000.00 748,882.50 749,050.87 2.92%742,372.50 8,750.00 0.68% (6,678.37) AA+Aaa2.54 2.41FNMA NOTES3135G0ZE6 1.75% Due 6/20/20198/5/2014 1.74% 350,000.00 350,227.50 350,035.14 2.52%348,082.35 1,718.40 0.32% (1,952.79) AA+Aaa0.72 0.71FNMA NOTES3135G0ZE6 1.75% Due 6/20/201910/2/2014 1.77% 500,000.00 499,630.00 499,942.35 2.52%497,260.50 2,454.86 0.46% (2,681.85) AA+Aaa0.72 0.71FNMA NOTES3135G0ZE6 1.75% Due 6/20/201911/21/2014 1.71% 100,000.00 100,157.00 100,025.54 2.52%99,452.10 490.97 0.09%(573.44) AA+Aaa0.72 0.71FNMA NOTES3135G0ZG1 1.75% Due 9/12/20192/9/2015 1.36% 260,000.00 264,505.80 260,952.68 2.63%257,858.64 240.14 0.24% (3,094.04) AA+Aaa0.950.93FREDDIE MAC NOTES3137EADG1 1.75% Due 5/30/20193/3/2017 1.46% 1,000,000.00 1,006,440.00 1,001,930.36 2.51%995,005.00 5,881.94 0.91%(6,925.36) AA+Aaa0.660.65FREDDIE MAC GLOBAL NOTES3137EADK2 1.25% Due 8/1/20199/15/2014 1.88% 1,050,000.00 1,019,077.50 1,044,519.14 2.58%1,038,527.70 2,187.50 0.95% (5,991.44) AA+Aaa0.84 0.82FREDDIE MAC GLOBAL NOTES3137EADM8 1.25% Due 10/2/201912/30/2015 1.65% 700,000.00 689,857.00 697,231.44 2.65%690,354.70 4,350.69 0.63% (6,876.74) AA+Aaa1.01 0.98FREDDIE MAC NOTES3137EADZ9 1.13% Due 4/15/20193/21/2016 1.14% 810,000.00 809,732.00 809,951.98 2.45%804,273.30 4,201.88 0.74% (5,678.68) AA+Aaa0.54 0.53FREDDIE MAC NOTES3137EADZ9 1.13% Due 4/15/20193/29/2016 1.12%70,000.00 70,004.90 70,000.87 2.45%69,505.10 363.13 0.06%(495.77) AA+Aaa0.54 0.53FHLMC REFERENCE NOTE3137EAEB1 0.88% Due 7/19/20197/20/2016 0.96% 1,275,000.00 1,271,914.50 1,274,168.06 2.54%1,258,226.10 2,231.25 1.16% (15,941.96) AA+Aaa0.80 0.79FHLMC AGENCY NOTES3137EAEF2 1.38% Due 4/20/20204/20/2017 1.49% 1,165,000.00 1,161,015.70 1,162,915.82 2.79%1,140,150.55 7,163.94 1.05% (22,765.27) AA+Aaa1.56 1.51FREDDIE MAC NOTES3137EAEH8 1.38% Due 8/15/20197/19/2017 1.45% 355,000.00 354,478.15 354,778.07 2.59%351,299.48 623.72 0.32% (3,478.59) AA+Aaa0.87 0.86FREDDIE MAC NOTES3137EAEL9 2.38% Due 2/16/20217/5/20182.70% 1,000,000.00 991,780.00 992,522.24 2.88%988,495.00 2,968.75 0.91% (4,027.24) AA+Aaa2.382.29Total Federal Agency Bond/Note 1.53% 22,375,000.00 22,321,131.68 22,357,150.32 2.70% 21,963,764.12 81,601.28 20.16% (393,386.20) AA+Aaa1.58 1.53Negotiable CDBANK OF MONTREAL CHICAGO CERT DEPOS06370REU9 3.19% Due 8/3/20208/3/2018 3.23% 1,350,000.00 1,350,000.00 1,350,000.00 3.28% 1,348,267.95 7,057.88 1.24% (1,732.05) A+Aa21.84 1.78BANK OF NOVA SCOTIA HOUSTON CD06417GU22 3.08% Due 6/5/20206/7/2018 3.10% 1,330,000.00 1,329,494.60 1,329,572.18 2.78% 1,336,422.57 12,971.93 1.23% 6,850.39 A+Aa21.68 1.61BANK OF NOVA SCOTIA HOUSTON LT CD06417GUE6 1.91% Due 4/5/20194/6/2017 1.91% 165,000.00 165,000.00 165,000.00 2.53% 164,417.88 1,567.00 0.15% (582.12) A-1P-10.51 0.51BANK OF MONTREAL CHICAGO CERT DEPOS06427KRC3 1.88% Due 2/7/20192/9/2017 1.90% 500,000.00 500,000.00 500,000.00 1.90% 499,513.50 1,410.00 0.46% (486.50) A-1P-10.36 0.3532Item 2 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2018Security DescriptionSettle DateYTM at Cost Par Cost Value Amortized CostYTM at Market Market Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to Maturity DurationCANADIAN IMPERIAL BANK NY CD13606A5Z7 1.76% Due 11/30/201812/5/2016 1.78% 1,500,000.00 1,498,830.00 1,499,903.18 2.27% 1,498,537.508,873.33 1.38% (1,365.68) A-1P-10.17 0.16NORDEA BANK AB NY CD65590ASN7 2.72% Due 2/20/20202/22/2018 2.72% 1,145,000.00 1,145,000.00 1,145,000.00 3.02%1,140,270.013,546.96 1.05% (4,729.99) AA-Aa31.39 1.35SKANDINAV ENSKILDA BANKEN NY CD83050FXT3 1.84% Due 8/2/20198/4/2017 1.85% 1,500,000.00 1,499,415.00 1,499,754.92 2.56%1,490,280.004,600.00 1.37% (9,474.92) A-1P-10.84 0.82SWEDBANK (NEW YORK) CERT DEPOS87019U6D6 2.27% Due 11/16/202011/17/2017 2.30% 1,525,000.00 1,525,000.00 1,525,000.00 3.27%1,494,986.4813,270.04 1.37% (30,013.52) AA-Aa22.13 2.04UBS AG STAMFORD CT LT CD90275DHG8 2.90% Due 3/2/20203/6/2018 2.93% 1,145,000.00 1,145,000.00 1,145,000.00 2.75%1,147,741.132,490.38 1.05% 2,741.13 A+Aa21.42 1.39Pacific Premier Bank Yankee CD 0.25% Due 12/20/201812/20/2018 1.09% 1,000,000.00 1,000,000.00 1,000,000.00 1.09%1,000,000.00166.670.92%-NRNR0.22 0.00WESTPAC BANKING CORP NY CD96121T4A3 2.05% Due 8/3/20208/7/2017 2.05% 1,345,000.00 1,345,000.00 1,345,000.00 2.75%1,325,693.874,135.88 1.22% (19,306.13) AA-Aa31.84 1.82Total Negotiable CD2.32% 12,505,000.00 12,502,739.60 12,504,230.28 2.65% 12,446,130.89 60,090.07 11.43% (58,099.39) AA-Aa31.25 1.19Commercial PaperMUFG BANK LTD/NY COMM PAPER06538CK18 0.00% Due 10/1/20181/5/2018 1.98% 1,200,000.00 1,182,515.00 1,200,000.00 6.55% 1,199,781.60-1.10%(218.40)A-1P-10.00 0.00CREDIT AGRICOLE CIB NY COMM PAPER22533UK93 0.00% Due 10/9/20184/10/2018 2.42% 1,500,000.00 1,481,875.83 1,499,203.34 2.61%1,499,023.50-1.38%(179.84)A-1P-10.02 0.02JP MORGAN SECURITIES LLC COMM PAPER46640QNH0 0.00% Due 1/17/20197/20/2018 2.48% 1,000,000.00 987,681.94 992,650.00 2.46%992,612.00-0.91%(38.00)A-1P-10.30 0.30MUFG BANK LTD/NY COMM PAPER62479MM34 0.00% Due 12/3/20186/4/2018 2.44% 1,000,000.00 987,816.11 995,782.50 2.36%995,820.00-0.91%37.50 A-1P-10.18 0.17Total Commercial Paper2.32% 4,700,000.00 4,639,888.88 4,687,635.84 3.53%4,687,237.10-4.30%(398.74)A-1P-10.11 0.11Corporate NoteAMERICAN HONDA FINANCE CORP NOTES02665WBA8 1.70% Due 2/22/20192/23/2016 1.71% 390,000.00 389,922.00 389,989.58 2.66%388,526.97718.25 0.36% (1,462.61) A+A20.40 0.39APPLE INC BONDS037833CK4 1.90% Due 2/7/20202/9/2017 1.92% 1,050,000.00 1,049,485.50 1,049,764.25 2.79%1,037,621.552,992.50 0.95% (12,142.70) AA+Aa11.36 1.32BNY MELLON CORP NOTE (CALLABLE)06406HDD8 2.60% Due 8/17/20206/8/2016 1.81% 960,000.00 990,316.80 973,523.71 3.03%952,425.603,050.67 0.87% (21,098.11) AA11.88 1.81BONY MELLON CORP NOTE (CALLABLE)06406HDF3 2.45% Due 11/27/20208/18/2016 1.70% 865,000.00 891,564.15 878,372.13 3.16%852,203.197,299.64 0.78% (26,168.94) AA12.16 2.06BERKSHIRE HATHAWAY INC NOTES084664CG4 1.70% Due 3/15/20193/15/2016 1.73% 195,000.00 194,851.80 194,977.01 2.46%194,328.81147.33 0.18%(648.20)AAAa20.45 0.45BERKSHIRE HATHAWAY INC CORPORATE NOTES084664CK5 1.30% Due 8/15/20198/15/2016 1.33% 240,000.00 239,767.20 239,931.38 2.70%237,105.84398.67 0.22% (2,825.54) AAAa20.87 0.86BURLINGTON NRTH CORP12189TBC7 4.70% Due 10/1/20196/8/2016 1.48% 500,000.00 551,950.00 515,946.98 2.87%508,961.0011,750.00 0.47% (6,985.98) A+A31.00 0.96JOHN DEERE CAPITAL CORP NOTES24422ETS8 1.95% Due 6/22/20206/22/2017 1.97% 180,000.00 179,890.20 179,936.10 3.01%176,805.18965.25 0.16% (3,130.92) AA21.73 1.67WALT DISNEY COMPANY/THE CORP NOTES25468PCW4 2.35% Due 12/1/20224/5/2018 3.07% 525,000.00 508,599.00 510,225.79 3.36%504,450.454,112.50 0.46% (5,775.34) A+A24.173.90GENERAL ELECTRIC CO CORPORATE NOTE36962G2T0 5.55% Due 5/4/20209/27/20171.83% 1,300,000.00 1,422,486.00 1,375,591.13 3.21%1,346,790.9029,461.25 1.24% (28,800.23) AA21.59 1.49HERSHEY COMPANY CORP NOTES427866BA5 3.10% Due 5/15/20215/10/2018 3.12% 310,000.00 309,786.10 309,813.50 3.11%309,881.893,763.92 0.28%68.39 AA12.62 2.47HOME DEPOT INC CORP NOTES437076AZ5 2.70% Due 4/1/20234/5/2018 3.11% 775,000.00 760,275.00 761,621.34 3.26%756,995.9810,462.50 0.69% (4,625.36) AA24.50 4.14IBM CORP BONDS459200JQ5 2.50% Due 1/27/20222/3/2017 2.45% 750,000.00 751,575.00 751,072.16 3.28%731,700.753,333.33 0.67% (19,371.41) A+A13.33 3.14MICROSOFT CORP (CALLABLE) NOTE594918AY0 1.85% Due 2/12/20204/13/2015 1.58% 1,000,000.00 1,012,570.00 1,003,488.25 2.81%987,244.002,518.06 0.91% (16,244.25) AAAAaa1.37 1.33THE PROCTER & GAMBLE CO CORP NOTES742718FA2 1.90% Due 10/23/202010/25/2017 1.95% 320,000.00 319,510.40 319,659.89 2.98%313,132.162,668.44 0.29% (6,527.73) AA-Aa32.07 1.99TOYOTA MOTOR CREDIT CORP NOTES89236TBP9 2.13% Due 7/18/20192/15/2017 1.80% 1,075,000.00 1,083,299.00 1,077,768.46 2.66%1,070,497.904,632.20 0.98% (7,270.56) AA-Aa30.80 0.78UNILEVER CAPITAL CORP BONDS904764AV9 1.80% Due 5/5/20205/5/2017 1.91% 105,000.00 104,665.05 104,819.64 3.04%102,979.38766.500.09% (1,840.26) A+A11.60 1.55WAL-MART STORES INC CORP NOTE931142EA7 1.90% Due 12/15/202010/20/20171.95%1,500,000.00 1,497,825.00 1,498,454.64 2.90%1,468,072.508,391.67 1.35% (30,382.14) AAAa22.21 2.13WELLS FARGO & COMPANY NOTES94974BGR5 2.55% Due 12/7/20206/8/2016 2.02% 975,000.00 997,191.00 986,021.03 3.30%959,652.537,873.13 0.88% (26,368.50) A-A22.19 2.0933Item 2 City of San Luis Obispo Holdings ReportFor the Quarter Ending September 30, 2018Security DescriptionSettle DateYTM at Cost Par Cost Value Amortized CostYTM at Market Market Value* Accrued Interest% of PortfolioUnreal G/LAmort CostS&P/Moody'sYears to Maturity DurationTotal Corporate Note2.00% 13,015,000.00 13,255,529.20 13,120,976.97 3.01% 12,899,376.58 105,305.8111.84% (221,600.39) A+Aa31.82 1.73Total Portfolio 1.87% 110,372,493.55 110,219,165.73 110,165,372.49 2.49% 108,929,611.44 333,159.10100.00% (1,235,761.05) AAAa11.45 1.38Total Market Value Plus Accrued109,262,770.54 *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.34Item 2 © PFM D. Quarterly Transactions Item 2 CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended September 30, 2018 Portfolio Activity Quarterly Portfolio Transactions Trade Date Settle Date Maturity DatePar($)CUSIP Security Description 7/2/18 7/5/18 1,090,000 912828P79 US TREASURY NOTES 1.50%2/28/23 1,036,884.72 2.74% 7/2/18 7/5/18 1,000,000 3137EAEL9 FREDDIE MAC NOTES 2.37%2/16/21 1,000,950.14 2.70% 7/20/18 7/20/18 1,000,000 46640QNH0 JP MORGAN SECURITIES LLC COMM PAPER 0.00%1/17/19 987,681.94 2.48% 8/1/18 8/3/18 1,860,000 912828W89 US TREASURY NOTES 1.87%3/31/22 1,810,879.61 2.82% 8/1/18 8/3/18 1,350,000 06370REU9 BANK OF MONTREAL CHICAGO CERT DEPOS 3.19%8/3/20 1,350,000.00 3.23% 9/4/18 9/6/18 2,085,000 912828W89 US TREASURY NOTES 1.87%3/31/22 2,040,492.14 2.75% Total BUY 8,385,000 8,226,888.55 Transact Amt ($) Yield at Market INTEREST 7/3/18 7/3/18 0 MONEY0002 MONEY MARKET FUND 101.85 7/5/18 7/5/18 2,235,000 3135G0S38 FANNIE MAE NOTES 2.00%1/5/22 22,350.00 7/10/18 7/10/18 1,850,000 86958JHB8 SVENSKA HANDELSBANKEN NY CD 1.89%1/10/19 17,579.63 7/18/18 7/18/18 1,075,000 89236TBP9 TOYOTA MOTOR CREDIT CORP NOTES 2.12%7/18/19 11,421.88 7/19/18 7/19/18 1,275,000 3137EAEB1 FHLMC REFERENCE NOTE 0.87%7/19/19 5,578.13 7/21/18 7/21/18 580,000 3135G0A78 FNMA NOTES 1.62%1/21/20 4,712.50 7/27/18 7/27/18 750,000 459200JQ5 IBM CORP BONDS 2.50%1/27/22 9,375.00 7/30/18 7/30/18 1,465,000 3135G0T60 FNMA NOTES 1.50%7/30/20 10,987.50 7/31/18 7/31/18 685,000 912828XM7 US TREASURY NOTES 1.62%7/31/20 5,565.63 7/31/18 7/31/18 1,545,000 912828V72 US TREASURY NOTES 1.87%1/31/22 14,484.38 7/31/18 7/31/18 795,000 9128282P4 US TREASURY NOTES 1.87%7/31/22 7,453.13 7/31/18 7/31/18 685,000 912828WY2 US TREASURY N/B 2.25%7/31/21 7,706.25 7/31/18 7/31/18 2,100,000 912828XQ8 US TREASURY NOTES 2.00%7/31/22 21,000.00 8/1/18 8/1/18 1,050,000 3137EADK2 FREDDIE MAC GLOBAL NOTES 1.25%8/1/19 6,562.50 8/2/18 8/2/18 0 MONEY0002 MONEY MARKET FUND 105.49 Realized G/L (BV) Coupon BUY PFM Asset Management LLC 35 Item 2 PFM Asset Management LLC CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended September 30, 2018 Portfolio Activity Trade Date Settle Date Par ($)CUSIP Security Description Coupon Maturity Date Transact Amt ($) Yield at Market Realized G/L (BV) 8/2/18 8/2/18 1,500,000 83050FXT3 SKANDINAV ENSKILDA BANKEN NY CD 1.84%8/2/19 13,876.66 8/2/18 8/2/18 2,350,000 3135G0N33 FNMA BENCHMARK NOTE 0.87%8/2/19 10,281.25 8/7/18 8/7/18 1,050,000 037833CK4 APPLE INC BONDS 1.90%2/7/20 9,975.00 8/7/18 8/7/18 1,345,000 96121T4A3 WESTPAC BANKING CORP NY CD 2.05%8/3/20 13,786.25 8/7/18 8/7/18 500,000 06427KRC3 BANK OF MONTREAL CHICAGO CERT DEPOS 1.88%2/7/19 4,700.00 8/12/18 8/12/18 1,000,000 594918AY0 MICROSOFT CORP (CALLABLE)NOTE 1.85%2/12/20 9,250.00 8/15/18 8/15/18 240,000 084664CK5 BERKSHIRE HATHAWAY INC CORPORATE NOTES 1.30%8/15/19 1,560.00 8/15/18 8/15/18 355,000 3137EAEH8 FREDDIE MAC NOTES 1.37%8/15/19 2,440.63 8/16/18 8/16/18 1,000,000 3137EAEL9 FREDDIE MAC NOTES 2.37%2/16/21 11,875.00 8/17/18 8/17/18 960,000 06406HDD8 BNY MELLON CORP NOTE (CALLABLE)2.60%8/17/20 12,480.00 8/17/18 8/17/18 1,045,000 3135G0N82 FNMA NOTES 1.25%8/17/21 6,531.25 8/17/18 8/17/18 1,000,000 3135G0N82 FNMA NOTES 1.25%8/17/21 6,250.00 8/17/18 8/17/18 325,000 3135G0N82 FNMA NOTES 1.25%8/17/21 2,031.25 8/20/18 8/20/18 1,145,000 65590ASN7 NORDEA BANK AB NY CD 2.72%2/20/20 15,398.98 8/22/18 8/22/18 390,000 02665WBA8 AMERICAN HONDA FINANCE CORP NOTES 1.70%2/22/19 3,315.00 8/26/18 8/26/18 520,000 3135G0J20 FNMA NOTES 1.37%2/26/21 3,575.00 8/28/18 8/28/18 885,000 3135G0T29 FNMA NOTES 1.50%2/28/20 6,637.50 8/31/18 8/31/18 365,000 912828J43 US TREASURY NOTES 1.75%2/28/22 3,193.75 8/31/18 8/31/18 725,000 912828B90 US TREASURY NOTES 2.00%2/28/21 7,250.00 8/31/18 8/31/18 1,575,000 912828D72 US TREASURY NOTES 2.00%8/31/21 15,750.00 8/31/18 8/31/18 1,090,000 912828P79 US TREASURY NOTES 1.50%2/28/23 8,175.00 9/4/18 9/4/18 1,145,000 90275DHG8 UBS AG STAMFORD CT LT CD 2.90%3/2/20 16,786.97 9/5/18 9/5/18 0 MONEY0002 MONEY MARKET FUND 180.52 9/12/18 9/12/18 260,000 3135G0ZG1 FNMA NOTES 1.75%9/12/19 2,275.00 9/15/18 9/15/18 195,000 084664CG4 BERKSHIRE HATHAWAY INC NOTES 1.70%3/15/19 1,657.50 9/30/18 9/30/18 1,240,000 912828L57 US TREASURY NOTES 1.75%9/30/22 10,850.00 9/30/18 9/30/18 500,000 912828L57 US TREASURY NOTES 1.75%9/30/22 4,375.00 9/30/18 9/30/18 1,860,000 912828W89 US TREASURY NOTES 1.87%3/31/22 17,437.50 9/30/18 9/30/18 2,085,000 912828W89 US TREASURY NOTES 1.87%3/31/22 19,546.88 9/30/18 9/30/18 1,200,000 912828W89 US TREASURY NOTES 1.87%3/31/22 11,250.00 36 Item 2 CITY OF SAN LUIS OBISPO OPERATING FUNDS For the Quarter Ended September 30, 2018 Portfolio Activity 9/30/18 9/30/18 Total INTEREST 1,300,000 912828W89 US TREASURY NOTES 3/31/22 12,187.501.87% 45,240,000 409,863.26 0.00 1,000,000 1,000,000.00 0.00TotalMATURITY SELL Trade Settle Maturity Transact Yield Realized Date Date Par ($)CUSIP Security Description Coupon Date Amt ($)at Market G/L (BV) MATURITY 7/20/18 7/20/18 1,000,000 46640QGL9 JP MORGAN SECURITIES LLC COMM PAPER 0.00%7/20/18 1,000,000.00 7/2/18 7/5/18 2,000,000 3135G0J53 FNMA BENCHMARK NOTE 1.00%2/26/19 1,990,886.67 2.28%(16,800.20) 8/1/18 8/3/18 1,350,000 06427KRC3 BANK OF MONTREAL CHICAGO CERT DEPOS 1.88%2/7/19 1,358,161.98 2.43%(4,246.02) 8/1/18 8/3/18 1,660,000 3135G0J53 FNMA BENCHMARK NOTE 1.00%2/26/19 1,655,387.04 2.28%(12,232.03) 9/5/18 9/6/18 1,850,000 86958JHB8 SVENSKA HANDELSBANKEN NY CD 1.89%1/10/19 1,852,633.09 2.00%(3,000.16) Total SELL 6,860,000 6,857,068.78 -36,278.41 PFM Asset Management LLC 37 Item 2 © 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. 38 Item 2 © 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 premium 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 time 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 contribution 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 to 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 measurement 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. 39 Item 2 © 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 occurs 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 place. •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 remaining 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, maturity 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, maturity value and the time period remaining until maturity, stated as a percentage, on an annualized basis. 40 Item 2 © PFM 46 Thank You Item 2 INVESTMENT MANAGEMENT PLAN December 2018 Item 3 INVESTMENT MANAGEMENT PLAN Derek Johnson, City Manager Prepared by the Department of Finance & Information Technology Brigitte Elke, Finance Director/City Treasurer Item 3 INVESTMENT MANAGEMENT PLAN Introduction Table of Contents Purpose ........................................................................................................................................................... 1 Primary Investment Objective ....................................................................................................................... 1 Scope of Investment Management Plan ....................................................................................................... 3 Use of State Guidelines ................................................................................................................................. 3 Preparation and Administration of the Plan.................................................................................................. 4 Investment Authority and Responsibilities Authorized Investment Officers .................................................................................................................... 5 Internal Controls ............................................................................................................................................. 5 Investment Management Resources ............................................................................................................. 5 Evaluation of Investment Officer Actions .................................................................................................... 6 Responsibilities of an Investment Advisor .............................................................................................. 7 Capital Preservation and Risk Overview ........................................................................................................................................................ 9 Portfolio Diversification Practices ................................................................................................................ 9 Eligible Financial Institutions Portfolio Diversification and Credit-Worthiness Standards. ..................................................................... 10 Certification and Reporting Requirements ................................................................................................. 10 Individual Placement of Investments .................................................................................................... 10 Individual Placement of Deposits ............................................................................................................... 11 Investment Vehicles State of California Limitations .................................................................................................................... 12 Suitable and Authorized Investments .......................................................................................................... 12 City Policies .......................................................................................................................................... 16 Authorized Investment Summary ............................................................................................................... 17 Investment Maturity ................................................................................................................................................ 17 Socially Responsible Investing ............................................................................................................................... 19 Cash Management Practices .................................................................................................................................. 19 Evaluation of Investment Performance ................................................................................................................ 20 Investment Reporting ...................................................................................................................................... 21 Investment Management Plan Review ................................................................................................................. 23 Appendix Investment Policy ......................................................................................................................................... 25 Glossary ........................................................................................................................................................ 27 Resolution No. 8477 Appointing the Director of Finance as City Treasurer............................................ Resolution No. 8523 Approving the Investment Management Plan ......................................................... Item 3 1 I. INTRODUCTION PURPOSE The purpose of the investment management plan is to establish strategies, practices and procedures to be used in administering the City's portfolio in accordance with the City's Statement of Investment Policy. Included in the Appendix is a copy of the City's most recently adopted Investment Policy. PRIMARY INVESTMENT OBJECTIVE The City's primary investment objective is to achieve a reasonable rate of return on public funds while minimizing the potential for capital losses arising from market changes or issuer default. Although the generation of revenues through interest earnings on investments is an appropriate City goal, the primary consideration in the investment of City funds is capital preservation in the overall portfolio. As such, the City's yield objective is to achieve a reasonable rate of return on City investments rather than the maximum generation of income, which could expose the City to unacceptable levels of risk. In determining individual investment placements, the following factors shall be considered in priority order: 1. Safety 2. Liquidity 3. Yield. Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City will diversify its investments so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. The objective is to mitigate credit risk and interest rate risk summarized as follows: Credit Risk. Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. The City shall mitigate credit risk by adopting the following strategies: 1. Limiting investments to the safest types of securities. 2. Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business. If the City has an investment advisor, the investment advisor may use its own list of authorized broker/dealers to conduct transactions on behalf of the City. 3. It is the intent of the City to diversify the investments within the portfolio to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities. The asset allocation in the portfolio should, however, be flexible depending upon the outlook for the economy, the securities market, and the City’s anticipated cash flow needs. Item 3 2 4. No more than 5% of the total portfolio may be invested in securities of any single issuer, other than the US Government, its agencies and instrumentalities approved local agency investment pools, LAIF, money market funds, and the City’s main financial institution. 5. The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to improve the quality, liquidity or yield of the portfolio in response to market conditions or the City’s risk preferences. 6. If securities owned by the City are downgraded by either Moody’s or S&P to a level below the quality required by this Investment Management Plan, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. a. If a security is downgraded below the level required by this policy, the City Treasurer determine whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors. b. If a decision is made to retain a downgraded security in the portfolio, it will be monitored and reported monthly to the City Council. Interest Rate Risk. Interest rate risk is the risk that the portfolio will decline in value (or will not optimize its value) due to changes in the general level of interest rates. The City recognizes that, over time, longer-term portfolios achieve higher returns. On the other hand, longer-term portfolios have higher volatility of return. The City will mitigate interest rate risk by providing adequate liquidity for short-term cash needs, and by making some longer-term investments only with funds that are not needed for current cash flow purposes. The City further recognizes that certain types of securities, including variable rate securities, securities with principal pay downs prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The City, therefore, adopts the following strategies to control and mitigate its exposure to interest rate risk: 1. The maximum stated final maturity of individual securities in the portfolio shall be five years, except that up to 10% of the portfolio can be invested in Treasury and GSE securities maturing over 5 years. . 2. The City shall maintain a minimum of three months of budgeted operating expenditures in short term investments. The level of operating expenses shall be measured once per year and shall be based on the most recently adopted budget. 3. The duration of that part of the portfolio that is not needed for liquidity purposes shall typically be approximately equal to the duration of an index of US Treasury and Federal Agency Securities with maturities which meet the Authority’s needs for cash flow and level of risk tolerance (the Benchmark Index) plus or minus 10%. Item 3 3 Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Alternatively, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). Yield: Return on Investments. The City’s investment portfolio shall be designed with the objective of attaining a market benchmark rate of return throughout budgetary and economic cycles, commensurate with the City’s investment risk constraints and the cash flow characteristics of the portfolio. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a reasonable return relative to the risk being assumed. SCOPE OF INVESTMENT MANAGEMENT PLAN Included in the scope of the City's investment management plan are the following major guidelines and practices to be used in achieving the City's primary investment objective: 1. Investment authority and responsibilities 2. Capital preservation and risk 3. Eligible financial institutions 4. Allowable investment vehicles 5. Investment maturity 6. Cash management 7. Evaluation of investment performance 8. Investment reporting 9. Investment management plan review 10. Socially responsible investment guidelines These guidelines apply to all cash-related assets included within the scope of the City's audited financial statements and held either directly by the City or held and invested by trustees or fiscal agents. The only exception is funds invested in the City's deferred compensation plan, which are controlled by federal law, specific provisions of the City's adopted plan and individual employee decisions. USE OF STATE GUIDELINES The California Government Code (including sections 16429.1, 16481.2, 53600-53609, 53630- 53634, 53635, 53635.2, 53635.3, 53635.8, 53637-53638 and 53684) regulates public agency investment and investment reporting practices. It is the policy of the City of San Luis Obispo to use the State's provisions for local government investments in developing and implementing the City's investment policies and practices. Item 3 4 PREPARATION AND ADMINISTRATION OF THE PLAN As set forth in the Statement of Investment Policy, the City Treasurer is responsible for developing and monitoring the Investment Management Plan. As recommended by Government Code Section and 53646, the Council will review the Investment Policy annually. The Council will review the Investment Management Plan at a public meeting when changes in strategies, practices or procedures are proposed. In the interim, the City Treasurer is responsible for keeping the Investment Management Plan up-to-date to reflect changes in legislation, organizational structure, and other policies and administrative procedures approved by the Council. Item 3 5 II. INVESTMENT AUTHORITY AND RESPONSIBILITIES AUTHORIZED INVESTMENT OFFICERS Authority to manage the investment portfolio is granted to the Director of Finance & Information Technology (Director/City Treasurer) pursuant to Resolution No. 8477. Responsibility for the day- to-day operation of the investment program may be delegated to the Finance Operations Manager, who is responsible for carrying-out established written procedures and internal controls for the operation of the investment program consistent with this plan. These procedures should include references to: safekeeping, delivery vs payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements and banking services contracts. Transactions Directed by City Staff. No person may engage in an investment transaction except as provided under the terms of this plan and the procedures established by the Director/City Treasurer. Although the Director/City Treasurer may delegate these duties to another official in the Department of Finance & Information Technology, every investment transaction must be reviewed and approved by the Director/City Treasurer. Additionally, the Director/City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Transaction Directed by an Investment Advisor. The City may engage the services of an external investment adviser to assist in the management of the City’s investment portfolio in a manner consistent with the City’s objectives. The external investment adviser may be granted discretion to purchase and sell investment securities in accordance with the City’s Investment Policy and this Investment Management Plan. The investment adviser must be registered under the Investment Advisers Act of 1940. (The investment advisor shall be required to provide a certification that it has read and understands the applicable sections of the California Government Code relating to municipal investments, this Investment Management Plan and the City’s Investment Policy). INTERNAL CONTROLS The Director/City Treasurer is responsible for ensuring compliance with the City's Investment Policy as well as for establishing systems of internal control designed to prevent losses due to fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by City officers and employees. Additionally, the Director/City Treasurer is responsible for the physical security of City investments and shall use custodial safekeeping for negotiable and bearer instruments whenever possible. INVESTMENT MANAGEMENT RESOURCES The concept of reasonable assurance recognizes that the: 1. Cost of a control procedure should not exceed the benefits likely to be derived. 2. Valuation of costs and benefits requires estimates and judgments by management. Accordingly, the Director/City Treasurer shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures. Item 3 6 Internal controls shall address the following points: 1. Separating transaction authority from accounting and record keeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. 2. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping as evidenced by safekeeping receipts in the City of San Luis Obispo’s name. 3. Avoiding physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. 4. Delivery versus payment. All trades where applicable will be executed by delivery vs payment (DVP). This ensures that securities are deposited in the eligible financial institution before the release of funds. Securities will be held by a third party custodian as evidenced by safekeeping receipts. 5. Clearly delegating authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. 6. Confirming telephone transactions for investments and wire transfers in writing. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead or e-mail and the safekeeping institution has a list of authorized signatures. 7. Developing wire transfer agreements with the lead bank or third party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. EVALUATION OF INVESTMENT OFFICER ACTIONS The standard of prudence to be applied by the Director of Finance/City Treasurer shall be the "prudent investor" standard, as defined under Government Code Section 53600.3 which states: When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. Item 3 7 Investment officers acting in accordance with written procedures and this Investment Management Plan, and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this plan. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City. In accordance with Government Code Section 53607, the Treasurer shall prepare a report of monthly investment transactions for the City Council’s review. In addition, the City Council shall determine each year whether the delegation of investment authority to the Treasurer shall be renewed. RESPONSIBILITIES OF AN INVESTMENT ADVISOR When the services of an investment advisor are contracted for by the City, the responsibilities and obligations of the investment advisor shall be identified within the terms of the contract and shall, at a minimum, include the following: 1. Investment Advisor will provide investment research and supervision of the managed assets and conduct a continuous program of investment, evaluation and, when appropriate, sale and reinvestment of the managed assets. 2. Investment Advisor shall continuously monitor investment opportunities and evaluate investments of the managed assets. Investment Advisor shall furnish City with statistical information and reports with respect to investments of the managed assets. 3. Investment Advisor shall place all orders for the purchase, sale, or exchange of portfolio securities for City's account with brokers or dealers recommended by Investment Advisor and/or City, and to that end Investment Advisor is authorized as agent of City to give instructions to the custodian designated by City (the “Custodian’) as to deliveries of securities and payments of cash for the account of City. 4. In connection with the selection of such brokers and dealers and the placing of such orders, Investment Advisor is directed to seek for City the most favorable execution and price, the determination of which may take into account, subject to any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Investment Advisor by such brokers and dealers. 5. Investment Advisor shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility in connection therewith. Item 3 8 6. Authorized investments shall include only those investments which are currently authorized by the state investment statutes, and City’s investment policy, and as supplemented by such other written instructions as may from time to time be provided by City to Investment Advisor. 7. Investment Advisor shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of managed assets. 8. Investment Advisor will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the managed assets and in the absence of such instructions will engage broker/dealers who Investment Advisor reasonably believes to be reputable, qualified and financially sound. Item 3 9 OVERVIEW Some level of risk is inherent in any investment transaction. Losses may be incurred due to issuer default, market price changes or technical cash flow complications such as investments in non- marketable certificates of deposit. Diversification of the City's portfolio by institution, investment vehicle and maturity term is the primary tool available to the City in minimizing investment risk and capital losses by safeguarding the overall portfolio from any individual loss. PORTFOLIO DIVERSIFICATION PRACTICES The following sections summarize the City's major portfolio diversification practices and guidelines in determining: 1. Eligible financial institutions 2. Investment vehicles 3. Investment maturity Portfolio limitations included in these guidelines are to be based on the portfolio composition and Investment Management Plan policies in effect at the time of placement; the actual composition of the City's investments may vary over time from plan limitations due to overall portfolio changes from when the individual placement was made as well as changes in the City's Investment Management Plan. Credit criteria listed in these guidelines refer to the credit rating at the time the security is purchased. If an investment’s credit rating falls below the minimum rating required at the time of purchase, the Finance Director/City Treasurer will consult with the Investment Advisor and perform a timely review to decide whether to sell or hold the investment. III. CAPITAL PRESERVATION AND RISK Item 3 10 IV. ELIGIBLE FINANCIAL INSTITUTIONS PORTFOLIO DIVERSIFICATION AND CREDIT-WORTHINESS STANDARDS The following general criteria relating to portfolio diversification and credit-worthiness will be used in selecting depositories and broker/dealers (financial institutions) in the placement of City investments: 1. The financial capacity and credit-worthiness of the financial institution shall be considered before the placement of City investments. 2. Current financial statements shall be maintained for each institution in which or through which cash is invested. 3. No more than 5% of the City's portfolio (exclusive of the US Government, its agencies and instrumentalities approved local agency investment pools and money market funds government agency issues, or LAIF and money market funds, and the City’s main financial institution) shall be placed with any financial institution. 4. No more than 25% of the City's portfolio shall be invested in collateralized certificates of deposit issued by savings and loan institutions. 5. Certificates of deposit placed by the City shall not constitute more than 15% of the total assets of the institution; and the institution must have total assets in excess of $200 million. CERTIFICATION AND REPORTING REQUIREMENTS Unless the City has engaged an investment advisor, the City shall establish a list of qualified securities dealers based on a certification submitted by all financial institutions with which the City has an investment relationship. The certification shall state that the institution has reviewed the City's Investment Management Plan and that it will: 1. Exercise due diligence in monitoring the activities of its officers and employees engaged in transactions with the City. 2. Ensure that all of its officers and employees offering investments to the City are trained in the precautions appropriate to public sector investments. 3. Submit audited financial statements prepared by an independent certified public accountant to the City on an annual basis within 180 days after the end of the institution's fiscal year. INDIVIDUAL PLACEMENT OF INVESTMENTS A list will be maintained of financial institutions and depositories authorized to provide investment services. In addition, a list will be maintained of approved security broker/dealers selected by creditworthiness (e.g., a minimum capital requirement of $10,000,000 and at least five years of operation). These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule). All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate: Item 3 11 1. Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines 2. Proof of National Association of Securities Dealers (NASD) certification (not applicable to Certificate of Deposit counterparties) 3. Proof of state registration 4. Certification of having read and understood and agreeing to comply with the applicable sections of the California Government Code and the City’s Investment Policy and that all securities recommended shall be suitable for the City of San Luis Obispo. The investment advisor (or City staff if applicable) will strive to obtain competitive bids from at least three brokers or financial institutions on all purchases and sales of investment instruments whenever possible. INDIVIDUAL PLACEMENT OF DEPOSITS Individual placement of collateralized certificates of deposit with eligible financial institutions shall be based on the following practices and procedures: 1. Deposits shall only be placed with financial institutions maintaining offices within the City of San Luis Obispo. 2. Unless collateralized by eligible securities as provided in Sections 53651 and 53652 of the Government Code, the maximum amount of Certificates of Deposit to be placed with any single institution is the amount up to the Federal Deposit Insurance Corporation (FDIC) limit. 3. Reasonable efforts will be made to place deposits of less than the FDIC limit with each eligible institution. Any deposits in excess of this amount shall be awarded based on competitive bids. Documentation relating to rate quotes shall be maintained by Finance for six months. 4. Within the context of the City's policies regarding competitive bidding and portfolio limitations, deposits shall be distributed as evenly as possible between financial institutions. Item 3 V. INVESTMENT VEHICLES 12 STATE OF CALIFORNIA LIMITATIONS As provided in the applicable sections of the Government Code, the State of California limits the investment vehicles available to local agencies. SUITABLE AND AUTHORIZED INVESTMENTS City funds may be invested in the following subject to the following restrictions: 1. No more than 5% of the total portfolio may be invested in securities of any single issuer, other than the US Government, its agencies and instrumentalities, approved local agency investment pools, LAIF, money market funds, and the City’s main financial institution. 2. The maximum stated final maturity of individual securities in the portfolio shall be five years, except that up to 10% of the portfolio can be invested in Treasury, municipal, and GSE securities maturing over 5 years. 3. The City shall maintain a minimum of three months of budgeted operating expenditures in short term investments. The level of operating expenses shall be measured once per year and shall be based on the most recently adopted budget. 4. The duration of that part of the portfolio that is not needed for liquidity purposes shall typically be approximately equal to the duration of an index of US Treasury and Federal Agency Securities with maturities which meet the Authority’s needs for cash flow and level of risk tolerance (the Benchmark Index) plus or minus 10%. 5. Treasury Obligations: Treasury bills, Treasury notes, Treasury bonds and Treasury STRIPS with maturities not exceeding five years from the date of purchase. 6. Federal Agency or Government Sponsored Enterprise (GSE) Securities: Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises with maturities not exceeding five years from the date of purchase. 7. Municipal Securities: include obligations of the City, the State of California, any of the other 49 states, and any local agency within the State of California, provided that the securities are rated in a rating category of “A” or its equivalent or higher by at least one nationally recognized statistical rating organization (NRSRO). No more than 30% of the portfolio may be invested in these securities and no more than 5% of the portfolio may be invested in any issuer. 8. Commercial Paper: With “prime” quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper must meet all of the following conditions in either paragraph a or paragraph b: a) The entity meets the following criteria: (i) is organized and operating in the United States as a general corporation, (ii) has total assets in excess of five hundred million dollars ($500,000,000), and (iii) has debt other than commercial paper, if any, that is rated in a rating category of “A” or its equivalent or higher by a NRSRO. Item 3 V. INVESTMENT VEHICLES 13 b) The entity meets the following criteria: (i) is organized within the United States as a special purpose corporation, trust, or limited liability company, (ii) has program-wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond, and (iii) has commercial paper that is rated in a rating category of “A- 1” or higher, or the equivalent, by a NRSRO. Eligible commercial paper will have a maximum maturity of 270 days or less. No more than 40% of the City’s portfolio may be invested in commercial paper. The City may purchase no more than 10% of the outstanding commercial paper of any single issuer. 9. Medium Term Notes: Issued by corporations organized and operating in the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S., except financial institutions shall not be considered. At the time of purchase, the notes must mature within five years and must be rated in a rating category of “A” or its equivalent or better by one or more NRSROs. At the time of purchase, no more than 30% of the City’s portfolio may be invested in medium term notes and no more than 5% of the City’s portfolio may be invested in any one issuer. 10. Bankers’ Acceptances: Not exceeding 180 days to maturity. At the time of purchase, no more than 40% of the City’s surplus funds may be invested in bankers’ acceptances and no more than 5% of the City’s surplus funds may be invested in bankers’ acceptances from any one bank. 11. Repurchase Agreements: With a term of the agreement not exceeding one year, collateralized by U.S. Treasury and agency securities listed in items 1 and 2 above. The value of the collateral underlying the agreement shall be 102%. The market value of the collateral shall be marked-to-the-market at least weekly based on the bid price and adjustments made when the value falls below 102%. Collateral shall be held in the City’s custodial bank as safekeeping agent. Repurchase Agreements shall be entered into only with dealers who have executed a Master Repurchase Agreement with the City and who are recognized as Primary Dealers with the Market Reports Division of the Federal Reserve Bank of New York. There are no limitations on the amount that can be invested in repurchase agreements. No more than 25% of the portfolio can be invested with any one financial institution. 12. Asset-Backed Securities (ABS). A mortgage passthrough security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable passthrough certificate, or consumer receivable-backed bond. At the time of purchase, asset-backed securities must be issued by an issuer rated in a rating category of “AA” or its equivalent or better for the issuer’s debt as provided by an NRSRO and rated in a rating category of “AAA” or its equivalent or better by an NRSRO. At the time of purchase, no more than 15% of the City’s portfolio may be invested in asset-backed securities and no more than 2.5% of the City’s portfolio may be invested in any one issuer. 13. Local Agency Investment Fund (LAIF): A local government investment pool established by the State Treasurer of California for the benefit of California local agencies. City funds can be invested in LAIF up to the maximum permitted by State Law. 14. Negotiable Certificates of Deposit: Issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a Item 3 V. INVESTMENT VEHICLES 14 state or federal credit union, or by a federally or state-licensed branch of a foreign bank. At the time of purchase, the maturity of the certificate may not exceed five years, must be rated in a rating category of “A” or “A-1” or its equivalent or better by one or more NRSROs, no more than 30% of the City’s surplus funds may be invested in certificates of deposit and no more than 5% of the City’s surplus funds may be invested in certificates from any one bank. 15. Collateralized Bank Deposits: Shall be evaluated in term of Federal Deposit Insurance Corporation (FDIC) coverage. For deposits in excess of the FDIC insured limit, approved collateral at the percentage above market value as specified by California Government Code, Sections 53651 et seq. and Sections 53652 et seq. shall be required. No more than 25% of the portfolio can be placed with any one financial institution. This limit may be exceeded if necessary to allow the City to meet its short term operational needs. 16. Money Market Mutual Funds: Shall be registered under the Investment Company Act of 1940. To be eligible for investment pursuant to this subdivision, these companies will either: (i) attain the highest ranking letter or numerical rating provided by at least two NRSROs or (ii) have retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years of experience managing money market mutual funds and with assets under management in excess of $500,000,000. At the time of purchase, no more than 20% of the City’s surplus funds may be invested in money market mutual funds and no more than 10% of the City’s surplus funds may be invested in any one fund. 17. Local Government Investment Pools: Shares of beneficial interest issued by a joint powers authority (Local Government Investment Pools) organized pursuant to Government Code Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o) of California Government Code Section 53601, inclusive. Each share will represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. The Pool will be rated in a rating category “AAA” or its equivalent by a NRSRO. To be eligible under this section, the shares will maintain a stable net asset value (NAV) and the joint powers authority issuing the shares will have retained an investment adviser that meets all of the following criteria: a) The adviser is registered or exempt from registration with the Securities and Exchange Commission. b) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (o) Government Code Section 53601, inclusive. c) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 18. Suprantionals: United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Commented [IOC1]: This language in the policy allows for investment in JPA’s which includes CAMP. Item 3 V. INVESTMENT VEHICLES 15 Investments under this subdivision shall be rated in a rating category of “AAA” or its equivalent or better by an NRSRO and shall not exceed 30 percent of the City’s moneys that may be invested pursuant to this section. Item 3 V. INVESTMENT VEHICLES 16 18.19. Investments in Community Banks Provided that the requirements of these guidelines and California Code sections 53630-53653 are adhered to, funds may be invested in community banks within the San Luis Obispo County service area under the following criteria: a) The bank must be based and have its headquarters in San Luis Obispo County, with at least one branch within the City of San Luis Obispo. As indicated by Government Code Section 53635.2 the bank must receive an overall rating of not less than “satisfactory” from the appropriate federal supervisory agency for meeting the criteria specified in Section 2906 of Title 12 of the U.S. Code (Community Reinvestment Act of 1977). b) The bank must provide certification and supporting information that indicates at least 25% in loans is invested within the City of San Luis Obispo. c) To ensure the City obtains a competitive rate for investments in the program, any potential investment or proposal must enjoy a rate of return equal to or greater than the Local Agency Investment Fund (LAIF) average quarterly rate existing at the time of the investment; d) Participating banks shall make a presentation to the City of San Luis Obispo Investment Oversight Committee about their community involvement at least once per year. e) Upon the Investment Oversight Committee’s review of community involvement, the existing investment will be evaluated for renewal by City finance staff. CITY POLICIES Debt Funds. Reserve funds from the proceeds of debt issues shall be invested by the Director/City Treasurer in accordance with bond covenants. Deferred Compensation. These policies do not apply to deferred compensation plans. Individual investment policies are adopted by each deferred compensation plan and approved independently by Council. Further, individual investments are directed solely by the employee. Prohibited Investment Vehicles and Practices 1. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to, mutual funds (other than money market funds as described above in No. 10), unregulated and/or unrated investment pools or trusts, collateralized mortgage obligations and futures and options. 2. In accordance with Government Code Section 53601.6, investment in inverse floaters, range notes or mortgage derived interest-only strips is prohibited. 3. Investment in any security that could result in a zero interest accrual if held to maturity is prohibited. 4. Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited. 5. Purchasing or selling securities on margin is prohibited. 6. The use of reverse repurchase agreements, securities lending or any other form of borrowing Item 3 V. INVESTMENT VEHICLES 17 or leverage is prohibited without Council approval. Item 3 V. INVESTMENT VEHICLES 18 AUTHORIZED INVESTMENTS SUMMARY Investment Type Government Code Maximum Maturity Maximum % of Portfolio Quality Requirements San Luis Obispo Maximum Maturity Maximum % of Portfolio Quality Requirements 1. Treasury Obligations 5 Years None None 5 Yearsa None None 2. GSE Securities 5 Years None None 5 Yearsa None None 3. Municipal Securitiesb 5 Years None None 5 yearsa 30% per type; 5% per issuer “A” or better 4. Commercial Paper 270 Days 25% per type; none per issuer A-1/P-1/F-1; Long-term “A” 270 Days 25% per type; 10% per issuer A-1/P-1/F-1; Long-term “A” 5. Medium Term Notes 5 Years 30% per type; none per issuer “A” 5 Years 30% per type; 5% per issuer “A” 6. Bankers’ Acceptances 180 Days 40% per type; 30% per issuer None 180 Days 40% per type; 5% per issuer None 7. Repurchase Agreement 1 Year None None 1 Year None per type; 5% per counterparty Primary Dealers/ Collateralization requirements 8. Asset-Backed Securities 5 Years 20% per type; none per issuer “A” for issuer’s debt; “AA” for issue 5 Years (WAL)c 15% per type; 2.5% per issuer “A” for issuer’s debt; “AAA” for issue 9. LAIF N/A None None N/A Limit per Gov’t Code None 10. Negotiable CDs 5 Years 30% per type; none per issuer None 5 Years 30% per type; 5% per issuer “A” or “A-1” 11. Collateralized Bank Deposits 5 Years None None 5 Years Non per type; 25% per institution None 12. Supranationals 5 years 30% per type; none per issuer “AA” 5 years 30% per type: none per issuer “AAA” 12.13. Money Market Mutual Funds N/A 20% per type; 10% per issuer Highest rating of at least two NRSRO N/A 20% per type; 10% per issuer Highest rating of at least two NRSRO Item 3 V. INVESTMENT VEHICLES 19 13.14. Local Government Investment Pools (LGIPs) N/A N/A Advisor requirements N/A N/A Advisor requirements/“AAA” a. Up to 10% of the portfolio can be invested in Treasury and GSE securities maturing over 5 years. This includes municipal obligations. b. Includes State Obligations, City of San Luis Obispo obligations and California Local Agency obligations b.c. Weighted Average Life (WAL) is the maturity measurement for securitized investments such as Asset Backed Securities. Item 3 17 In addition to the risks associated with the credit-worthiness of the financial institution and the security of the investment vehicle, the maturity period of investments is also a significant consideration in the management of the City's portfolio. In order to minimize the impact of market risk, it is intended that all investments will be held until maturity. In implementing this policy, the following guidelines will be used: 1. Projected cash flow requirements are the primary factor to be used in determining investment maturity terms. 2. After cash flow needs have been met, investments may be structured in longer-term securities within a disciplined investment program and process that is based on long-term expectations and is not speculative. 3. Investments may be sold before maturity for cash flow purposes or to rebalance the risk profile of the portfolio. 4. Council approval to make investments with terms in excess of 5 years is required at least three months prior to the initial investment. VI. INVESTMENT MATURITY Item 3 18 City funds should be guided by the following provisions when investing in securities of non- governmental entities: 1. Priority shall be given to investments in entities that support community well-being through safe and environmentally sound practices and fair labor practices. 2. Priority shall be given to investments in entities that promote equality of rights regardless of race, religion, color, ancestry, age, national origin, gender, marital status, sexual orientation, disability or place of birth. 3. Priority shall be given to investments in entities that promote community economic development. In addition, the direct investment of City funds is restricted as follows: 1. No investments are to be made in tobacco, electronic cigarette, or tobacco-related products. 2. No investments are to be made to support the direct production or drilling of fossil fuels. The City Treasurer shall periodically verify compliance with the guidelines either through direct contact with the company or with its Investors Responsibility Center. VII. SOCIALLY RESPONSIBLE INVESTING Item 3 19 To achieve a reasonable return on public funds, the following cash management practices will be followed: 1. Maintain maximum investment of all City funds not required to meet immediate cash flow needs while maintaining adequate compensating balances as required under the City’s banking services agreement. 2. Pool resources available for investment from all City-administered funds, with interest earnings allocated to each of the funds in accordance with generally accepted accounting principles. 3. Maximize the City’s cash flow through the immediate deposit of all cash receipts, use of direct deposits and wire transfers when available, and appropriate timing of payments to vendors. 4. Maximize the cash flow information available by using only one operating bank account. VIII. CASH MANAGEMENT PRACTICES Item 3 20 As indicated in the Introduction section of this document, it is the City’s primary investment objective to achieve a reasonable rate of return on public funds while minimizing risks and preserving capital. In evaluating the performance of the City’s overall portfolio in achieving this objective, it is expected that yields on City investments will regularly meet or exceed the average return on three month U. S. Treasury Bills. It is also expected that the portfolio managed by the investment advisor will meet or exceed the BofA Merrill Lynch 0-to-5 year U.S. Treasury Bond Index. IX. EVALUATION OF INVESTMENT PERFORMANCE Item 3 21 X. INVESTMENT REPORTING Consistent with the guidance provided by California Government Code Section 53646 and the City’s practice of reviewing the Financial Policies each year, the Finance Director/City Treasurer may submit the Investment Policy to the Council for consideration at a public meeting. This statement will generally be reviewed by the Council in conjunction with the Financial Plan review and approval process. In accordance with this Statement of Investment Policy, the City Treasurer is responsible for developing and maintaining this Investment Management Plan. Though optional, pursuant to California Government Code Section 53646 (b)(1), the Finance Director/City Treasurer will provide the Council and Investment Oversight Committee with a quarterly investment report providing the following information for each investment or security: 1. Issuer (financial institution) 2. Type of investment 3. Amount paid for the investment 4. The par amount of the investment, if applicable 5. Certificate or other reference number if applicable 6. Percentage yield on an annualized basis 7. Purchase date 8. Maturity date for each investment and the weighted average maturity of all the investments within the portfolio 9. Current book value 10. Current market value 11. Total cost and market value, including source of this valuation, of the City's portfolio 12. A description of the compliance with the Statement of Investment Policy 13. Information demonstrating that the City's expenditure requirements can be met in the following six months 14. Other information regarding the City's portfolio as appropriate The Investment Report shall include all investments as of the end of the quarter from all funds held in the City's portfolio, including funds held and invested by trustees exclusive of deferred compensation plan funds; and shall be issued within 30 days after the end of the quarterly reporting period. Item 3 22 X. INVESTMENT REPORTING 1. Within 60 days from the start of each fiscal year, the City Treasurer shall provide the Investment Oversight Committee (IOC) with the value that represents the City’s minimum liquidity requirement which is equal to 3 months of operating costs based on the most recently adopted annual budget. Any adjustments to this amount which the Treasurer feels are required to meet cash demands from time to time shall be identified by the Treasurer at each meeting of the IOC as these amounts become known. 2. At the regularly scheduled IOC meeting which next follows the end of a fiscal year, the Treasurer shall file a report which identifies how the invested balances were adjusted to accommodate the City’s liquidity requirement and the extent to which investment maturity limits were adjusted to follow the City’s benchmark duration value. Item 3 23 The Director/City Treasurer shall review the City's Statement of Investment Policy and Investment Management Plan on an ongoing basis to ensure its continued value in administering the City's portfolio. Additionally, the City shall maintain an Investment Oversight Committee whose membership shall consist of the City Administrative Officer, Assistant City Administrative Officer, Director/City Treasurer, Finance Operations Manager, the City's Independent Certified Public Accountant and a member of the public at large. The Investment Oversight Committee is responsible for: 1. Reviewing the City's portfolio at least quarterly to determine compliance with the Investment Management Plan; and 2. Reviewing and making recommendations as appropriate regarding the City's investment policies and practices at least annually. It is important to note the distinction between the committee's oversight responsibility in ensuring compliance with the policies and overall framework established in this plan, and the responsibility of the Director/City Treasurer in managing the City's investment portfolio in accordance with this plan. This distinction between management and oversight is especially important to make as it applies to the role of the City's independent auditors on this committee. The committee's oversight function is consistent with the scope of the auditor's engagement duties, which includes reviewing for compliance with City financial policies and procedures, and for making recommendations for improvements in the City's fiscal operations. However, in this oversight context, the auditors retain their independence from responsibility for managing any aspects of the City's operations; this responsibility lies solely with the City's elected leadership and staff. XI. INVESTMENT MANAGEMENT PLAN REVIEW Item 3 APPENDIX Item 3 APPENDIX 25 INVESTMENT POLICY A. Responsibility. Investments and cash management is the responsibility of the City Treasurer or designee. It is the City’s policy to appoint the Director of Finance & Information Technology as the City’s Treasurer. B. Investment Objective. The City's primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Accordingly, the following factors will be considered in priority order in determining individual investment placements: 1. Safety 2. Liquidity 3. Yield C. Tax and Revenue Anticipation Notes: Not for Investment Purposes. There is an appropriate role for tax and revenue anticipation notes (TRANS) in meeting legitimate short-term cash needs within the fiscal year. However, many agencies issue TRANS as a routine business practice, not solely for cash flow purposes, but to capitalize on the favorable difference between the interest cost of issuing TRANS as a tax-preferred security and the interest yields on them if re-invested at full market rates. As part of its cash flow management and investment strategy, the City will only issue TRANS or other forms of short-term debt if necessary to meet demonstrated cash flow needs; TRANS or any other form of short- term debt financing will not be issued for investment purposes. As long as the City maintains its current policy of maintaining fund/working capital balances that are 25% of operating expenditures as reflected in the most recently adopted budget, it is unlikely that the City would need to issue TRANS for cash flow purposes except in very unusual circumstances. D. Selecting Maturity Dates. The City will strive to keep all idle cash balances fully invested through daily projections of cash flow requirements. To avoid forced liquidations and losses of investment earnings, cash flow and future requirements will be the primary consideration when selecting maturities. E. Diversification. As the market and the City's investment portfolio change, care will be taken to maintain a healthy balance of investment types and maturities. F. Authorized Investments. The City will invest only in those instruments authorized by the California Government Code. The City will not invest in stock, will not speculate and will not deal in futures or options. The investment market is highly volatile and continually offers new and creative opportunities for enhancing interest earnings. Accordingly, the City will thoroughly investigate any new investment vehicles before committing City funds to them. G. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is invested. Investments will be limited to 20% of the total net worth of any institution and may be reduced further or refused altogether if an institution's financial situation becomes unhealthy. Item 3 APPENDIX 26 H. Consolidated Portfolio. In order to maximize yields from its overall portfolio, the City will consolidate cash balances from all funds for investment purposes, and will allocate investment earnings to each fund in accordance with generally accepted accounting principles. I. Safekeeping. Ownership of the City's investment securities will be protected through third-party custodial safekeeping. J. Investment Management Plan. The City Treasurer will develop and maintain an Investment Management Plan that addresses the City's administration of its portfolio, including investment strategies, practices and procedures. K. Investment Oversight Committee. 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 regarding investment management practices. Members include the City Administrative Officer, Assistant CAO, Director of Finance/City Treasurer, Revenue Manager and the City’s independent auditor. L. Reporting. The City Treasurer will develop and maintain a comprehensive, well- documented investment reporting system, which will comply with Government Code Section 53646. This reporting system will provide the Council and the Investment Oversight Committee with appropriate investment performance information. M. If the City has an investment advisor, the investment advisor may use its own list of authorized broker/dealers to conduct transactions on behalf of the City. N. Socially Responsible Investing. The City should prioritize investments that support community well-being and equal rights. The City will not invest in entities involved to the tobacco industry, nor in direct producers and drillers of fossil fuels. Item 3 APPENDIX 27 Glossary Bankers’ Acceptances are short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at maturity. An acceptance is a high-grade negotiable instrument. Benchmark is a market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance and duration of the actual portfolio's investments. Bond is a financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash flows, including periodic interest payments and a principal repayment. Broker-Dealer is a person or a firm who can act as a broker or a dealer depending on the transaction. A broker brings buyers and sellers together for a commission. They do not take a position. A dealer acts as a principal in all transactions, buying and selling for his own account. Certificates of Deposit 1. Negotiable Certificates of Deposit are large-denomination CDs. They are issued at face value and typically pay interest at maturity, if maturing in less than 12 months. CDs that mature beyond this range pay interest semi-annually. Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of foreign banks (Yankee CDs), and thrifts. There is an active secondary market for negotiable domestic and Yankee CDs. However, the negotiable thrift CD secondary market is limited. Yields on CDs exceed those on U.S. treasuries and agencies of similar maturities. This higher yield compensates the investor for accepting the risk of reduced liquidity and the risk that the issuing bank might fail. State law does not require the collateralization of negotiable CDs. 2. Non-negotiable Certificates of Deposit are time deposits with financial institutions that earn interest at a specified rate for a specified term. Liquidation of the CD prior to maturity incurs a penalty. There is no secondary market for those instruments, therefore, they are not liquid. They are classified as public deposits and financial institutions are required to collateralize them. Collateral may be waived for the portion of the deposits that are covered by FDIC insurance. Collateral refers to securities, evidence of deposits, or other property that a borrower pledges to secure repayment of a loan. It also refers to securities pledged by a bank to secure deposits. In California, repurchase agreements, reverse repurchase agreements, and public deposits must be collateralized. Commercial Paper is a short-term, unsecured, promissory note issued by a corporation to raise working capital. Item 3 APPENDIX 28 Corporate Note is a debt instrument issued by a corporation with a maturity of greater than one year and less than ten years. Delivery Versus Payment (“DVP”) is a settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and Depository Trust Company (“DTC”), are done DVP as a protection for both the buyer and seller of securities. Depository Trust Company (“DTC”) is a firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs, and BAs clear through DTC. Federal Agency Obligations are issued by U.S. Government Agencies or Government Sponsored Enterprises (“GSE”). Although they were created or sponsored by the U.S. Government, most Agencies and GSEs are not guaranteed by the United States Government. Examples of these securities are notes, bonds, bills and discount notes issued by Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”), the Federal Home Loan Bank system (“FHLB”), and Federal Farm Credit Bank (“FFCB”). The Agency market is a very large and liquid market, with billions traded every day. Investment Advisor is a company that provides professional advice managing portfolios, investment recommendations and/or research in exchange for a management fee. Issuer means any corporation, governmental unit, or financial institution that borrows money through the sale of securities. Liquidity refers to the ease and speed with which an asset can be converted into cash without loss of value. In the money market, a security is said to be liquid if the difference between the bid and asked prices is narrow and reasonably sized trades can be done at those quotes. Local Agency Investment Fund (“LAIF”) is a special fund in the State Treasury that local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum of $50 million for any California public Agency. It offers high liquidity because deposits can be converted to cash in twenty-four hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly via direct deposit to the Agency’s LAIF account. The State keeps an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the earnings. Market Value is the price at which a security is trading and could presumably be purchased or sold. Maturity is the date upon which the principal or stated value of an investment becomes due and payable. Item 3 APPENDIX 29 Medium-Term Notes are debt obligations issued by corporations and banks, usually in the form of unsecured promissory notes. These are negotiable instruments that can be bought and sold in a large and active secondary market. For the purposes of California Government Code, the phrase “Medium-Term” refers to a maximum remaining maturity of five years or less. They can be issued with fixed or floating-rate coupons, and with or without early call features, although the vast majority are fixed-rate and non-callable. Corporate notes have greater risk than Treasuries or Agencies because they rely on the ability of the issuer to make payment of principal and interest. Money Market Fund is a type of safe investment comprising a variety of short-term securities with high quality and high liquidity. The fund provides interest to shareholders and must strive to maintain a stable net asset value (“NAV”) of $1 per share. NRSRO is a “Nationally Recognized Statistical Rating Organization.” A designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody’s, S&P, Fitch, and Duff & Phelps among others. Principal describes the original cost of a security. It represents the amount of capital or money that the investor pays for the investment. Repurchase Agreements are short-term investment transactions. Banks buy temporarily idle funds from a customer by selling him U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date at an agreed upon interest rate. Repurchase Agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal Funds and the maturity of the Repo. Repurchase Agreements must be collateralized. Supranational entities are formed by two or more central governments with the purpose of promoting economic development for the member countries. Supranational institutions finance their activities by issuing debt, such as supranational bonds. Examples of supranational institutions include the European Investment Bank and the World Bank. Similarly to the government bonds, the bonds issued by these institutions are considered direct obligations of the issuing nations and have a high credit rating. U.S. Treasury Issues are direct obligations of the United States Government. They are highly liquid and are considered the safest investment security. U.S. Treasury issues include: 1. Treasury Bills which are non-interest-bearing discount securities issued by the U.S. Treasury to finance the national debt. Bills are currently issued in one, three, six, and twelve month maturities. 2. Treasury Notes that have original maturities of one to ten years. 3. Treasury Bonds that have original maturities of greater than 10 years. Yield to Maturity is the rate of income return on an investment, minus any premium above par or plus any discount with the adjustment spread over the period from the date of the purchase to the date of maturity of the bond Item 3 © PFM City of San Luis Obispo Investment Policy –Supranational bonds November 15, 2018 PFM Asset Management LLC pfm.com Izac Chyou Senior Managing Consultant 50 California Street, ste 2300 San Francisco, CA 94111 © PFM Strategic Investment Policy Recommendation Source: Government Code Section 53601 and the City's Investment Policy Current allocations based on the City’s February 2018 portfolio. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%US TreasuryAgencyMunicipal BondsSupranationalsCorporatesNegotiable CDsCommercial PaperABS/MBSCAMPPolicy Limit Code Limit Current Allocation 3 Add access to additional “AAA” rated U.S. government instrumentalities •Recommend investment in supranational debt with a maximum allowable allocation of 30%, a rating requirement of “AAA” or better, and a maximum remaining maturity of five years. © PFM 3 Who are Supranationals? Multilateral organization of governments for which the United States is a participant, shareholder, and/or voting member International financial institutions generally established by agreements among nations with member nations contributing capital and participating in management Tend to have excellent credit quality due to multi-national ownership and commitment, long and successful operating histories, and significant capital from a diverse capital base. Included in CA. Code 53601 (q) in 2015 as an allowable investment for Local Government Investors Source: World Bank. Credit ratings are S&P. Bloomberg. © PFM 4 Why Supranationals? -0.04% -0.02% 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Maturity (years) Agency G Spread 07/02/18 G Spreads 10/01/18 G Spreads 12 Mos Max Supranationals available to California investors are “AAA” rated by S&P. Declining investment opportunity in Federal Agency Offer diversified government like exposure Substantial liquidity and demand Attractive relative yield spreads Source: Bloomberg, MarketAxess and PFM. G-Spread is the difference in yield compared to a Treasury note of comparable maturity. © PFM 5 Supranational Issuance is Seasonal Monthly USD Supranational Fixed Rate Supply Source: BMO Research source for monthly supply of fixed rate Supranationals There was a sharp decline in supranational new issuance this quarter, causing yield spreads to narrow The sector generated strong performance but few new opportunities We will likely wait until Q1 of 2019, when seasonal issuance typically surges as these multinational corporations begin preparing for new fiscal year funding initiatives, to increase allocations at what we expect will be much wider spreads © PFM 6 0.00% 0.10% 0.20% 0.30% 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Years to Maturity Supra Avg. 10/01/18 Supra 12 Mos Max Potential Yield Benefit from Supranationals Carry more yield spread and offer an attractive alternative in the high-quality government agency space Seasonal issuers –tend to issue heavily in Q1, which may create trading opportunities Source: Bloomberg, MarketAxess, BofA Merrill Lynch 1-3 Year Indices, PFMAM Trading Desk. As of September 30, 2018 unless otherwise noted. G Spread is the difference in yield compared to a Treasury note of comparable maturity. Please refer to the accompanying Important Disclosures. SUPRA G SPREAD Period Ended 09/30/2018 September 30, 2018 Effective Duration Yield YTD 1 Year 3 Years 5 Years U.S. Treasury 1.80 2.80% 0.29% 0.04%0.39% 0.56% Agency 1.68 2.80% 0.53% 0.34% 0.59% 0.74% Supranationals 1.87 2.90% 0.45% 0.25% 0.61% 0.76% © PFM Any investment advice in this document is provided solely by PFM Asset Management LLC. PFM Asset Management LLC (“PFM”) is an investment advisor registered under the Investment Advisers Act of 1940. PFM Advisors is a division of PFM Asset Management LLC. Public Financial Management Inc. is not providing and is not responsible for any investment advice herein. 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 guarantee of future results. The information contained in this presentation is not an offer to purchase or sell any securities. Disclosures © PFM Thank you! 50 California Street, Suite 2300 San Francisco, CA 94111 Tel: (800) 729-7665 Fax: (415) 982-4513 www.camponline.com J O I N T P O W E R S A U T H O R I T Y C A L I F O R N I A A S S E T MANAGEMENT PROGRAM Information about the Trust is available in the Trust’s current Program Guide, which should be read carefully before investing. 1 Introduction to the California Asset Management Program The California Asset Management Program (“CAMP”) is a California Joint Powers Authority established in 1989 to provide California public agencies with professional investment services Current investment and service options offered through CAMP include: −S&P “AAAm” rated Cash Reserve Portfolio (Pool)1 −Customized Individual Portfolios −Specialized services for bond proceeds −Investment and safekeeping services 1. Standard & Poor’s fund ratings are based on analysis of credit quality, market price exposure, and management. According to Standard &Poor’s rating criteria, the AAAm rating signifies excellent safety of investment principal and a superior capacity to maintain a $1.00 per share net asset value. However, it should be understood that the rating is not a “market” rating nor a recommendation to buy, hold, or sell the securities. For a full description on rating methodology, visit Standard & Poor’s website (http://www.standardandpoors.com/en_US/web/guest/home). 2 A Pioneer and National Leader in Pooled Asset Management PFM Asset Management pioneered the development of local government investment pools (LGIPs), introducing the first statewide “grass roots” LGIP in Pennsylvania in 1981. Worked with Standard & Poor’s to provide first rating of a local government investment pool in 1989. PFM provides investment advisory and/or administrative services to 17 LGIPs, and a SEC- registered money market fund) with total assets of more than $29 billion1. States where PFM manages/administers LGIPs States where PFM has provided advisory services to LGIPs and State Treasurer pools 1. As of September 30, 2018 3 Introduction to the California Asset Management Program Customized Individual Portfolio offers: Professionally managed by CAMP’s Investment Adviser, PFM Asset Management LLC Tailored for your agency’s investment needs Active portfolio management Competitive security shopping Third-party safekeeping of assets Resources supporting broad diversification to high-quality credit Maturities and coupon payments automatically sweep into a linked Cash Reserve Portfolio 4 Introduction to the California Asset Management Program The Cash Reserve Portfolio offers: Same-day liquidity (11:00 a.m. PST cut-off for wires) Competitive yield Interest paid monthly Zero out of pocket expenses Unlimited transactions via wire, ACH, or check No minimum investment Online account management Option to open multiple sub-accounts 5 Introduction to the California Asset Management Program The Cash Reserve Portfolio is ideal for: Operating funds Capital reserves Funds requiring separate accounting Proceeds of debt issues 6 Negotiable Certificates of Deposit 30% Repurchase Agreements 24% U.S. Treasuries 12% U.S. Agencies/Instrumentalities 7% Commercial Paper 24% Corporate Notes 7% Supra‐National Debt… Portfolio Sector Composition AAA 4%AA+ 1%AA 0%AA- 2% A+ 1% A 2% A-1+ 27% A-1 63% Portfolio Credit Quality Distribution3 Cash Reserve Portfolio Characteristics as of September 30, 2018 1.Total fund net assets, portfolio holdings valued at amortized cost, trade date based. 2.As of the last day of the month, Average annualized 30-day yields are based on net investment income and distributed gains or losses for the period shown. The average annual returns are an SEC standardized calculation that represents the annual change in value of an investment over specified periods and assumes sales charges and reinvestment of dividends and capital gains. Past performance is no guarantee of future results. Yields will fluctuate as market conditions change. The current fund performance may be higher or lower than that cited. Updated monthly. 3. Ratings by Standard & Poor’s Total Fund Net Assets1 $3,594,299,355 Weighted Average Maturity 31 Days 30-Day Net Yield2 2.19%Net Asset Value per Share $1.00 .Percentages may not total to 100% due to rounding. 7 Pooled Investment Comparison Features of each pool vary depending on the type of investment selected, and should be carefully reviewed before investing CAMP1 Net Asset Value (NAV)Stable S&P Rating AAAm Weighted Average Maturity 31 days Interest Payment Frequency Monthly 1.Source: CAMP website. As of September 30, 2018. Please see important disclosures at the end of this presentation. 2.Source: LAIF website. Weighted average maturity is as of September 30, 2018 LAIF2 Net Asset Value (NAV)Stable S&P Rating Not Rated Weighted Average Maturity 193 days Interest Payment Frequency Quarterly 8 Shareholders by Type 1. As of March 31, 2018. Percentages are based on number of Shareholders. City 35% County 21% Other Special District (Parks & Rec, Healthcare, Fire) 3% Transportation 7% Utilities 19% School/Community College Districts 4% Self Insurance JPA 11% CAMP Shareholders 9 How to Join CAMP There is no minimum initial investment or account balance to invest in the Cash Reserve Portfolio Public agencies are welcome to invest as either a Participant or as an Investor CAMP’s membership comprises 65% Participants and 35% Investors1 Participants Investors Join CAMP!Complete resolution & account application Complete account application Earn competitive yield Same-day transactions Vote in annual proxy2 – Eligible for board membership – 1.As of July 31, 2018. 2.Proxy voters decide on CAMP investment policy and approve board members. 10 CAMPonline.com Available Online Program updates, forms and documents Daily rate Program enrollment information Available Online for Participants and Investors Detailed account information, updated daily Ability to execute on-line transactions Detailed Statements Detailed Reporting The CAMP website is available to provide shareholders with online account management capabilities as well as detailed information on CAMP-specific updates 11 A Program Governed By Those It Serves The Board of Trustees comprises local government finance directors, treasurers, and executive directors President Steve Dial Deputy Executive Director/CFO San Joaquin Council of Governments Duane Wolterstorff,CPA Manager of Fiscal Support Services Modesto City Schools Christina Valencia Executive Manager of Finance & Administration/Assistant General Manager Inland Empire Utilities Agency Lauren Warrem, CPA Director of Finance/City Treasurer City of Vista Vice President Wayne Hammar Treasurer-Tax Collector Siskiyou County Treasurer Karen Adams, CPA Treasurer-Tax Collector Merced County André Douzdjian Director of Finance San Diego Association of Governments 12 Professional Service Providers The Board of Trustees has contracted for all services with leading national firms Services Service Provider Investment Advisor PFM Asset Management LLC Custodian U.S. Bank National Association Auditor Ernst & Young, LLP Legal Counsel Nossaman LLP 13 Dedicated Service Team and Customer Service Phone Line Rachael Miller Jeremy King Key Account Manager Client Consultant Christopher PresleySarah Meacham Program Administrator Relationship Manager 213-415-1631 meachams@pfm.com 415-393-7262 presleyc@pfm.com CAMP (800) 729-7665 Shelly Ilgenfritz Client Service Representative 14 Disclaimer This information is for institutional investor use only,not for further distribution to retail investors,and does not represent an offer to sell or a solicitation of an offer to buy or sell any fund or other security.Investors should consider the Trust’s investment objectives, risks, charges and expenses before investing in the Trust. This and other information about the Trust is available in the Trust’s current Program Guide,which should be read carefully before investing. A copy of the Trust’s Program Guide may be obtained by calling 1-800-729-7665 or is available on the Trust’s website at www.camponline.com.While the Trust seeks to maintain a stable net asset value of $1.00 per share,it is possible to lose money investing in the Trust.An investment in the Trust is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.Shares of the Trust are distributed by PFM Fund Distributors,Inc., member Financial Industry Regulatory Authority (FINRA)(www.finra.org)and Securities Investor Protection Corporation (SIPC) (www.sipc.org).PFM Fund Distributors,Inc.is a wholly owned subsidiary of PFM Asset Management LLC. PFM Asset Management LLC (“PFM”)serves as CAMP’s Program Administrator,Investment Adviser and Rebate Calculation Agent.PFM specializes in meeting the investment needs of public agencies.PFM is registered as an investment adviser with the Securities and Exchange Commission (“SEC”)under the Investment Advisers Act of 1940.