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HomeMy WebLinkAbout2003-09-16; City Council; 17312; Annual Report of Investment PortfolioU $4 0 a a, M a, 5 a a, U a a, V V a rl -rl 3 0 u ; .. Z 0 I- V -I V Z 3 0 V a - w 17.312 ATG. 9/16/03 TITLE: ANNUAL REPORT OF INVESTMENT IEPT. TRS I Cash Balance by Fund: General Special Revenue Debt Service Capital Projects PORTFOLIO 58,480,585 28,271,312 2,748,207 191,029,818 1 CITY MGR: %$ Enterprise 121,241,619 Internal Service 14,368,997 RECOMMENDED ACTION: icy Funds Accept and file report. 14,886,776 ITEM EXPLANATION: Age1 r Reconciling Adjustments (436,293) City Policy requires the City Treasurer to render an annual report of the City’s investment portfolio. This report is for the fiscal year ended June 30,2003 (FY 02-03). Assets in the investment portfolio totaled $431 million at the end of the fiscal year. The equity portion of the various funds at the amortized value of the total portfolio is summarized below: Fund Equity in Pooled Investments I Total Treasurer’s Investment Portfolio at Amortized Cost Id Fund equity balances are restricted for various purposes as listed above. This represents an increase of $41 million from the previous fiscal year. Cash and investments comprise an estimated 50% of the total assets reported by the City and its agencies. It is estimated that the investment portfolio will increase to $450 million by the end of FYO3-04. For the last month of the fiscal year, the portfolio had a return of 3.60%. For the entire fiscal year, however, the portfolio averaged 4.24%. Cash interest income totaled $1 8.4 million in FYO2-03 of which approximately $3.4 million went to the General fund. For the next fiscal year (FYO3-04), it is expected that the average return for the portfolio will approximate 3.1 %. EXHIBITS: 1. City Treasurer’s Annual Report of Investment Portfolio for the fiscal year ended June 30,2003. DEPARTMENT CONTACT: Nancy Sullivan (760)602-2473 nsull@ci.carlsbad.ca.us August 2003 City of Carlsbad 1635 Faraday Avenue Carlsbad, CA 92008-7314 I am pleased to present the Annual Report of Investments for the City of Carlsbad for the fiscal year ended June 30,2003 (FY 02-03). The report is intended to provide reliable information as a basis for reviewing portfolio performance and making management decisions. It also provides an archival reference. The City Treasurer is charged with the design of an effective cash management and investment program for the City of Carlsbad and all of its agencies. Among other activities, this includes arranging for banking services; forecasting all cash receipts and expenditures; investing all inactive cash; managing investment risk exposures; and reporting all investment activities. This report summarizes and analyzes the activities of the investment portfolio for FY 02-03. Total portfolio assets, asset allocations, yields achieved , cash incomes, and risk exposures are presented. To give perspectives to these measurements, movements in market interest rates are provided for the fiscal year ended June 30,2003. Comparisons are also made with the preceding fiscal years. Finally, a statement is offered regarding the prospects for the fiscal year commencing July 1,2003. +me James M. Stanton City Treasurer 1 CITY TREASURER ANNUAL REPORT OF INVESTMENT PORTFOLIO FOR THE FISCAL YEAR ENDED JUNE 30,2003 Federal Funds Target Rate Adjustments Made in FY 01-02 and FY02-03 FYO2-03 MARKET REVIEW money market rate thit correlates with rates of other short-term credit I I Federal funds rate is a kev 4.00% - 3.50% - 3.00% - 2.50% - 2.00% - 1.50% - 1.00% - 3.75.h 4 3.50% 3.00% 2.50% 2.00% I 0.50% 4 l.ooKI I I 0.00% I 1 II arrangements. It is the interest rate that banks charge each other for overnight loans. The Federal Reserve sets the federal funds rate. To give a sense of the economic cycle, changes in the federal funds rate are shown for the two fiscal years, FY 01-02 and FY 02- 03. The Federal Reserve decreased the federal funds rate by 200 basis points (2.00%) in FY 01-02 (June 30, 2001 through June 30, 2002). An additional 75 (.75%) basis points were reduced in FY 02-03 (June 30, 2002 through June 30, 2003). Over the last two fiscal years the federal funds rate was decreased a total of 275 basis points (2.75%). The last decrease occurred in June 2003. At the close of FY 02-03 (June 30, 2003) the federal funds rate stood at I .OO%. Changes in short-term market interest rates gre affected by the actions of the Federal Reserve. The downward drift in short-term market interest rates in the past two fiscal years was relatively continuous reflecting the steady decreases in the federal funds rates. Changes in short-term market SHORT-TERM INTEREST RATES U.S. Treasury Instruments Fiscal Year 2002 - 2003 4.50 I 4.00 3.50 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC IAN FEB MAR APR MAY JUN --.-Twoyear 345 300 256 213 321 213 293 266 271 275 229 241 223 198 168 167 206 160 169 IS1 148 148 132 130 I68 160 150 141 126 120 118 118 Ill 114 108 096 -t- Five Year 2 interest rates have a direct effect on portfolio earnings. limited to maturities of 5 years or less. Portfolio investments are 6 5.5 5 4.5 4 3.5 3 2.5 2 YIELD CURVE 4 7/01/02, 12/31/02,6/30/03 1 Market Rates I 3 Mth 2 Yr 5 Yr 10 Yr 3Mth 2Yr 5Yr 1OYr 1.700 2.82% 4.003 4.780 1.190 1.598 2.734 3.814 .846 1.300 2.409 3.513 The yield curve is a graphic presentation of the difference between short- term and longer-term interest rates of U.S. Treasury instruments on a given day. Financial analysts use it to assess the market’s expectation of recession or inflation. The normal shape of the yield curve has a moderately upward slope, with short- term rates lower than longer-term rates. If the upward slope steepens, the financial markets believe inflation may occur. An inverted yield curve is when short-term market rates are greater than longer-term market rates. An inverted curve indicates that the financial markets expect a slower economy, if not a recession. At the beginning of FY 02-03 (July 1, 2002), the yield curve had a moderate upward slope, indicating a slight bias on the side of inflation. At the middle of FY 02-03 (December 31, 2002) the yield curve shifted downward reflecting lower interest rates. The yield curve, however, maintained its upward slope. By the close of FY 02-03, the yield curve again shifted downward with no change in the slope. On June 30, 2003, the yield curve was indicating a slight bias toward future higher long-term interest rates. PORTFOLIO ANALYSIS INV E STM ENT PO RTFO LIO Dollar Amount of Assets (Fiscal Year End) ~i~~ions I ..... $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 I FY95.96 FY96-97 FY97.98 FY98-99 FY99-00 FYOO-01 FYO1.02 FYO2-03 Total assets in the investment portfolio stood at $431 million at the end of the fiscal year, an increase of 1 I %. The $431 million is again a record amount for the portfolio. Commencing with FY 96-97, year-over- year percentage increases have been 32%, 26%, 19%, 8%, 13%, 6%, and 11%. 3 The City publishes a Comprehensive Annual Financial Report (CAFR) at the end of each fiscal year. Among other information, this report presents a balance sheet showing the total assets owned by the City and all its agencies. At the end of FY 02-03, cash and investments managed by the City Treasurer represent 50% of all assets reported by the City and its agencies. CASHhNVESTMENTS RELATIVE TO TOTAL ASSETS OF CITY AND ITS AGENCIES* $900 loo! $800 $700 80% $600 $500 $400 $300 60% 40% $200 20% $100 0 % PY95-96 PY96-97 PY97-10 FYPB-99 PY9P-00 PYOO-01 PYOI-01 PYOZ-03 -Total Assets OCash/lnvestments +K of Total Assets .So- Comprehensive Annual Pinancial Rcporl Now: Total Assctr is an estimated smoulll for FY 02-03. SOURCE OF POOL ASSETS (Dollar Amounts in Millions) 6/3 0 /O 2 6/3 010 3 $ 78.2 191.0 Total Assets - $389.5 Million Total Assets - $430.6 Million 0 General =Special Revenue 0 Capita I P roje cts =Agency Funds mother I E nte rp ris e 0 lnte ma I Service The portfolio is an investment pool that uses the inactive cash from the various funds of all City agencies, including the City, the Water District, and the Redevelopment Agency. Total portfolio assets increased by 1 I % from the previous fiscal year. The top three sources of portfolio assets are the Capital Projects fund ($191.0 million, 44% of the total), followed by the Enterprise fund ($121.6 million, 28% of the total), and the General fund ($58.5 million, 14% of the total). Together, these three funds account for 86% of portfolio assets. The Capital Projects fund and the Enterprise fund increased from the previous fiscal year. The General fund, however, decreased 25% from $78.2 million to $58.5 million. 4 ASSET ALLOCATION (Dollar Amounts in Millions) Total $389,451,477 613 010 2 6130103 Total $430,806,504 LAIF LAIF CASH FED AGE I OLAlF =Cash OCorporate mFederalAgencies I Investments are made in financial instruments authorized by the City’s Investment Policy and the California State Government Code. With the exception of bank deposits and deposits in the California state Local Agency Investment Fund (LAIF), all investments are in fixed-income instruments with known maturity dates. At the end of FY 02-03 (June 30, 2003), 49% of portfolio assets were invested in federal agencies, 25% in LAIF, and 25% in corporate notes. This allocation of assets was relatively unchanged from the previous fiscal year, reflecting the small changes in short-term market interest rates during FY 02-03. Within the asset category of federal agencies, investments in the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association constituted 42%, 34% and 19% of the total, respectively. Federal agencies are creations of the U. S. Congress and include agencies and government-sponsored enterprises. PORFOLIOYELDS * I With 6 Mbnth T-Bill Yields 6 5 4 I :1 =. *_ The average return of the portfolio for FY 02-03 decreased to 4.24% from 5.28% the year before. portfolio yield is heavily influenced by changes in short- term market interest rates since approximately 33% of total investments were required to mature within one year. The average interest rate for six- month U.S. Treasury Bills decreased to 1.28% from 2.16% the year previous. Investments previously made at higher interest rates were reinvested at the current lower interest rates. The . 5 Return on investments is shown in two categories: (1) LAlF deposits and (2) all other investments. LAlF is an acronym for Local Agency Investment Fund. It is an investment pool managed by the California, State Treasurer. The LAlF investment pool is very liquid with average investments usually maturing in only six to seven Return on Investments PORTFOLIO EX-LAIF and LAIF JULY 1998 - JUNE 2003 months. City deposits in LAlF provide a desired measure of liquidity at attractive short-term rates, and typically comprise 15% to 25% of the total portfolio, depending on market interest rates at the time. In many respects, City deposits in LAlF are comparable to having a checking account that earns interest similar to U. S Treasury instruments maturing in one to five years. 6.8 i 6.5 6.2 5.9 5.6 5.3 5.0 4.7 4.4 4.1 3.8 3.5 3.2 2.9 2.6 2.3 2.0 1.7 Jun-98 Dec-98 Jun-99 Dec-99 Junm Dee40 JunOl Decal JunO2 DecO2 JunO -u(-wF Juo99 Dee99 JunIM Dee00 Jnn01 Dee01 Jun02 Dec02 Jun03 5.66 5.80 6.12 6.27 6.16 5.89 5.61 5.17 4.26 5.10 5.50 6.19 6.53 5.34 3.53 2.76 2.33 1.78 Compared to LAlF deposits, all other City investments will typically earn 40 basis points more. However, when market interest rates rise rapidly, earnings on LAlF deposits will briefly exceed the earnings on all other portfolio investments. On the other side, when market rates have either been stable or have decreased rapidly, earnings on other investments can be anywhere from 30 basis points to 270 basis points (2.7%) greater than LAIF. LAlF turns over its investments in one-third the time and responds to changes in market interest rates much quicker than other investments in the portfolio. The effect of decreases in short-term rates is seen in the period December 2000 through June 2003. At the conclusion of FY 02-03 (June 30, 2003), earnings on investments other than LAlF exceeded earnings on LAlF deposits by approximately 250 basis points (2.5%). This spread will narrow as maturing investments are reinvested at lower market interest rates, or as short-term markets rates either stabilize or increase. 6 H istorical Unrealized G ains/L osses as Percent of Amortized Cost July 1996 -June 2003 4.00% 3.50% 3.00% 2.50% 2.00% 1 .SO yo 1.00% 0.50% 0.00% -0.5 0 Yo -1 .OO% -1 SOYO -2.00% -2.50% -. I This graph shows the percent change in value of the portfolio over the last several years. Investments gain and lose value after they are made because of changes in market interest rates. When market interest rates decrease, investments made earlier at higher rates will gain value. The reverse is true when market interest rates increase. Accountants refer to these changes in value as unrealized gains and unrealized losses; newspapers report them as paper gains and paper losses. Changes in value caused by changes in market interest rates are normal and are expected. All investments are exposed to this interest rate risk. Since an objective of the City's Investment Policy is to achieve an average market rate of return over the economic cycle, the portfolio is expected to experience over time unrealized gains and losses that are approximately equal to each other. The graph indicates that the portfolio is achieving this objective. Tracking and measuring unrealized gains and losses could also reveal any presence of high-risk investments in the portfolio. The changes in asset values shown in the graph indicate that portfolio investments are within the acceptable interest rate risk identified in the City's Investment Policy. The continued decreases in market interest rates in the last fiscal year caused average earnings of the City's portfolio to decrease to 4.24% in FY 02-03 from 5.28% in FY 01- 02. These same lower market rates, however, caused investments that had been made earlier at higher rates to gain value. 7 Cash income from portfolio investments represents an annuity stream of revenues from the Treasury. This annuity stream totaled $1 8.4 million, a decrease of $2,000,000 from the previous fiscal year. This decrease in cash interest revenues was caused by lower market interest rates. Of the total cash interest revenues earned by the portfolio in FY 02-03, over $3.4 million was credited to the General fund. Cash income is a function of ANNUITY STREAM FROM TREASURY (Cash Interest Revenue) For Fiscal Years Indicated IMillionsI $21 .oo $1 8.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 I 14.82 $12.16 ~ 20.36 18.37 FY97-98 FY98-99 FY99-00 FY00-01 FYOl-02 FY0243 I assets in the portfolio, the market interest rates at the time of the investments, and the interest payment schedules of the issues. RISK MANAGEMENT AND DISCLOSURE All investments are exposed to risk of some type. The objective of risk management is to establish acceptable levels of risks that are consistent with the City’s investment objectives of safety of principal, adequacy of liquidity, and achievement of an average market rate of return. Risk management includes monitoring and reporting the various risks to which portfolio investments are exposed. Portfolio investments are exposed to the following types of risks: A. Credit risk. a. Custodial credit risk. a) Investments. b) Deposits. b. Default credit risk. c. Concentration credit risk. B. Interest rate risk. As of June 30, 2003, the portfolio had the following investments and cash in its internal investment pool. 8 Investment U. S. agencies Corporate Notes LA1 F Sweep accounts Cash accounts Total Disclosures Custodial Credit Maturities Market Value July 2003 - June 2008 $213,411,340 Oct 2003 - Aug 2007 1 16,663,748 106,106,000 4,425,357 540,803 $441,147.248 Market Value Gain $2,680,322 $ 7,875,905 -- $10,556,227 Risk (Investments). The City uses a third party custody and safekeeping service for its investment securities. The Union Bank of California (UBC) is under contract to provide these custodial services. Custodial credit risk is the risk that the City will not be able to recover the value of its investments in the event of a UBC failure. All City investments held in custody and safekeeping by UBC are held in the name of the City and are segregated from securities owned by the bank. This is the lowest level of custodial credit risk exposure. Custodial Credit Risk (Deposits). The City maintains cash accounts at Wells Fargo Bank (WFB) and UBC. At the conclusion of each business day, balances in these accounts are “swept” into overnight investments. These overnight investments are in either U. S. government securities (guaranteed) or in U. S. agency securities (government sponsored). The California Code and the City’s Investment Policy authorize both of these types of investments. A small amount of cash is not swept from the WFB checking accounts to cover checks that may be presented for payment. Amounts up to $100,000 are FDIC insured. Default Credit Risk. Default credit risk is the risk that the issuer of the security does not pay either the interest or the principal when due. The debts of most U. S. agencies are not backed by the full faith and credit of the federal government; however, because the agencies are U. S. Government-sponsored, they carry AAA credit ratings. The default credit risk of these investments is minimal. California state code limits investments in medium-term corporate notes to the top three credit ratings (AAA, AA, and A). It is the City’s policy, however, to limit investments to the top two credit ratings (AAA and AA). As of June 30, 2003, approximately 49% of the investments in medium-term corporate notes had credit ratings below the AA limit 9 set by the City’s Investment Policy. All of these investments were made when the credit ratings were either AAA or AA. California state code and the City’s Investment Policy allows the City Treasurer to determine the course of action to correct exceptions to the Policy. It is the intent of the City Treasurer to hold these investments in the portfolio until maturity unless events indicate they should be sold. The default credit risk for corporate notes with a credit rating of single A is lower than U. S. federal agencies or LAIF, but is considered by the City Treasurer to be within acceptable limits for purposes of holding to maturity. A credit rating of single A is within State code requirements. The Local Agency Investment Fund (LAIF) is an investment pool managed by the California State Treasurer. Its investments are short-term and follow the investment requirements of the State. As of June 30, 2003, the average maturity of the LAlF investments was 220 days. The State Treasurer does not contract for a credit rating to be assessed. California state code section 16429.3 specifically excludes LAlF deposits from being transferred, loaned, impounded or seized by any state agency or official. The State Treasurer has made a public written statement saying that he would oppose any attempt to change this section of the State code. The default credit risk of LAlF is minimal. Concentration Credit Risk. Concentration credit risk is the heightened risk of potential loss when investments are concentrated in one issuer. The California state code does not identify a specific percentage that indicates when concentration risk is present for any one issuer. The state code does, however, require that total investments in medium-term corporate notes of all issuers not exceed 30% of the portfolio. As if June 30, 2003, approximately 25% of the City’s total portfolio investments were in medium- term corporate notes. For concentration of investments in any one issuer, the City’s Investment Policy requires that no more than 5% of investments in corporate notes be in any one issuer. There is no similar requirement in either the state code or the City’s Investment Policy for U. S. agencies. As of June 30, 2003, 5.63% of the portfolio was invested in Citigroup Corporation. Mergers subsequent to the investments involved resulted in this exception. The credit ratings of Citigroup Corporation debt are AA1 and AA-. At this point, the City Treasurer intends to retain all Citigroup investments. This exception to City’s Investment Policy will self-correct with maturities in March 2004. Merest Rate Risk. Interest rate risk is the risk that investments will lose market value because of increases in market interest rates. A rise in market interest rates will cause the market value of investments made earlier at lower interest rates to lose value. The reverse will cause a gain in market value. As of June 30, 2003, the portfolio had a 3.3% gain in market value. The City’s investment policy has adopted two means of limiting its exposure to market value losses caused by rising market interest rates: (1) Limiting total portfolio investments to a maximum modified duration of 2.2, and (2) requiring maturing investments within one year be equal to an amount that is not less than the current 10 operating budget. As of June 30, 2003, the modified duration of the portfolio was 1.85. Maturities within one year, however, were $203,000 below the required minimum of $140,000,000. The City’s exposure to interest rate risk is within acceptable limits. FY 03-04 PREVIEW National and international economic forces are the primary influences on market interest rates. It is anticipated that the Federal Reserve will most likely retain the current federal funds rate of 1.00% until June 2004. The interest rates for longer maturities will increase as a result of an improving domestic economy. The yield curve will become steeper. Internationally, the domestic economies of our European trading partners are in a recession. The central banks in those countries will probably find it necessary to reduce interest rates. In that event, the Federal Reserve will find it easier to maintain low interest rates in the United States. Approximately $15 million of investments with fixed maturity dates will mature in FY 03- 04. An additional $123 million may be called. Proceeds from these investments will be reinvested at market rates lower than the maturing investments. Yields on our LAlF investments are expected to be unchanged to slightly lower. At the end of FY 02-03 (June 30, 2003), LAlF investments had a yield of 1.78%’ and all other investments had a yield of 4.26%. Yields on investments other than LAlF will drop to around 3.8%. LAIF will be unchanged at 1.60%. Throughout the fiscal year ending June 30, 2003, the total portfolio averaged 4.24%. In the fiscal year July 1, 2003 to June 30, 2004 (FY 03-04), the total portfolio is projected to have an average yield of approximately 3.1 %. Total assets in the investment portfolio stood at approximately $431 million at the end of FY 02-03. This is expected to increase to approximately $450 million by the end of FY 03-04. Assessed property values are forecasted to increase by about 9.3%, while sales tax revenues and transient occupancy tax (TOT) revenues are expected to increase by 5.93% and 4.7%, respectively. Additionally, interest revenue earned from portfolio investments in FY 03-04 should approximate $14 million. Underlying all of these projections is the State’s fiscal problems and how they mighty impact the City’s revenues. Will the state choose to cut spending or will it try to find other sources of revenues for itself? 11 CITY TREASURER’S.ANNUAL REPORT OFINVESTMENTS.Fiscal Year Ended 6/30/03(FY 02-03) CASH MANAGEMENT• City of Carlsbad• Carlsbad Municipal Water District• Carlsbad Redevelopment Agency CASH MANAGEMENT• Receive all cash expeditiously• Arrange effective banking services• Pay all obligations in timely manner• Invest inactive cash INVESTMENT POLICY(Approved by City Council)• Fixed Maturity (no equities)• Buy and Hold• Achieve average market rate of return over the economic cycle • Maturity Ladder-Within one year - no less than approved Operating Budget ($142 million)-No Maturity beyond 5 years MARKET REVIEW Federal Funds Target RateAdjustments Made in FY 01-02 and FY 02-031.00%3.00%2.00%1.75%1.25%2.50%3.50%0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%06/27/200108/21/200109/17/200110/02/200111/06/200112/11/200111/06/200206/25/20033.75% SHORT-TERM INTEREST RATESU.S. Treasury InstrumentsFiscal Years 2001-2002 and 2002 - 20030.000.501.001.502.002.503.003.504.004.505.00JUL 01 JUL 02 JUN 03Five YearTwo Year6 MonthPercentJUL 01 SEP 01 DEC 01 MAR 02 JUN 02 SEPT 02 DEC 02 MAR 03 JUN 034.53 3.77 4.30 4.84 4.00 2.56 2.73 2.71 2.413.79 2.80 3.02 3.72 2.83 1.68 1.60 1.51 1.30 3.46 2.36 1.79 2.10 1.75 1.41 1.20 1.11 0.96 YIELD CURVE7/01/02, 12/31/02, 6/30/03Market Rates00.511.522.533.544.555.563 Mth 2 Yr 5 Yr 10 Yr07/01/200212/31/200206/30/20033 Mth 2 Yr 5 Yr 10 Yr1.700 2.826 4.003 4.780 1.190 1.598 2.734 3.814.846 1.300 2.409 3.513 PORTFOLIO REVIEW INVESTMENT PORTFOLIODollar Amount of Assets (Fiscal Year End)$151.4$199.5$252.1$389.5430.8$366.8$323.3$299.2$0.0$50.0$100.0$150.0$200.0$250.0$300.0$350.0$400.0$450.0FY95-96 FY96-97 FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-03Millions Major Capital Project ExpendituresFY 2002-2003• Rancho Santa Fe Road 6,795,686• Other Street Projects 4,241,927• Parks Alga Norte Land Acquisition 4,348,490Leo Carrillo Park 2,702,185Other 1,187,486• Sewer Collection Systems 3,559,145• Drainage Projects 3,143,069• Pavement Management 2,277,000 • Water Distribution System 1,588,136 CASH/INVESTMENTS RELATIVE TOTOTAL ASSETS OF CITY AND ITS AGENCIES*$527$601$862$789$696$641$467$425$431$389$367$323$299$252$205$17150%49%53%50%50%48%44%40%$0$100$200$300$400$500$600$700$800$900FY95-96 FY96-97 FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-030%10%20%30%40%50%60%70%80%90%100%Total AssetsCash/Investments% of Total AssetsMillions*Source: Comprehensive Annual Financial Report. Note: Total Assets of City and Its Agencies is an estimated amount for FY02-03. SOURCE OF POOL ASSETS(Dollar Amounts in Millions)6/30/02$ 78.2$ 25.8$ 144.0$ 3.2$ 13.6$ 10.8GeneralSpecial RevenueCapital ProjectsEnterpriseAgency FundsInternal ServiceOtherTotal Assets - $389.5 Million6/30/03$ 58.5$ 28.3$ 121.2$ 2.7$ 14.4$ 14.9$191.0Total Assets - $430.6 Million$114.0 Return on InvestmentsPORTFOLIO EX-LAIF and LAIFJULY 1998 - JUNE 20031.72.02.32.62.93.23.53.84.14.44.75.05.35.65.96.26.56.8Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03EX-LAIFLAIFJun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 035.66 5.80 6.12 6.27 6.16 5.89 5.61 5.17 4.265.10 5.50 6.19 6.53 5.34 3.53 2.76 2.33 1.78 Jun-99Historical Unrealized Gains/Losses as Percent of Amortized CostJuly 1996 - June 2003-2.50%-2.00%-1.50%-1.00%-0.50%0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%Jul-96Oct-96Jan-97Apr-97Jul-97Oct-97Jan-98Apr-98Jul-98Oct-98Jan-99Apr-99Jul-99Oct-99Jan-00Apr-00Jul-00Oct-00Jan-01Apr-01Jul-01Oct-01Jan-02Apr-02Jul-02Oct-02Jan-03Apr-03Unreal G/L % ANNUITY STREAM FROM TREASURY(Cash Interest Revenue)For Fiscal Years Indicated $12.1614.8217.0220.3619.8818.37$0.00$3.00$6.00$9.00$12.00$15.00$18.00$21.00FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-03Millions FY 03-04 PREDICTIONS• Short-term interest rates will decrease slightly before end of fiscal year• Yield curve will become steeper • Average yield of portfolio for FY will be in 3.10% range (from 4.24%)• Total assets will rise to $450 million FY 02-03 PREDICTIONS vs. FY 02-03 OUTCOMES• Lower short-term interest ratesActual:5YR Rates: 3.4% to 2.4%2YR Rates: 2.2% to 1.3%6 Month Rates: 1.7% to .96%• Yield curve will remain steepActual: Shifted downward at mid-year and year end• Average yield of portfolio for FY will be in 4.4% range from 5.3%Actual Year Average: 4.24%• Total assets will rise to $410 millionActual Year End: $431 million RISK MANAGEMENT AND DISCLOSURETypes of investments risks:A. Credit riska. Custodial credit riska) Investmentsb) Depositsb. Default credit riskc. Concentration credit riskB. Interest rate risk Investments at 6/30/03Market Market Type Maturity Value Gain•US Agencies 7/03 – 6/08 $213,411,340 $2,680,322•Corporate Notes 10/03 – 8/07 116,663,748 7,875,905•LAIF 106,106,000•Sweep Accounts 4,425,357•Cash Accounts 540,803Total $441,147,248 $10,556,227