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Home My WebLink About2006-11-21; City Council; 18806; Annual Report on investment portfolioCITY OF CARLSBAD - AGENDA BILL 11 AB# 18,806 MTG. 11/14/06 DEPT. Treasury ANNUAL REPORT OF INVESTMENT PORTFOLIO c/ID VPAD PMDPn II IMF Qfl Onnfirun YtMn ciMUcLJ JUNc oU, ^UUO DEPT. HEAD ^/^M CITY ATTY. V<^£ CITY MGR. "^£> RECOMMENDED ACTION: Accept and file report. ITEM EXPLANATION: 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, 2006 (FY 05-06). Assets in the investment portfolio totaled $517 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 Cash Balance by Fund: General Special Revenue Debt Service Capital Projects Enterprise Internal Service Agency Funds Reconciling Adjustments Total Treasurer's Investment Portfolio at Amortized Cost 64,843,179 34,639,735 3,443,650 229,623,351 131,474,120 21,721,780 26,946,264 3,174,537 515,866,616 Fund equity balances are restricted for various purposes as listed above. This represents an increase of $5 million from the previous fiscal year. Cash and investments comprise an estimated 43% of the total assets reported by the City and its agencies. It is estimated that the investment portfolio will decrease to $510 million by the end of FY06-07. For the last month of the fiscal year, the portfolio had a return of 4.19%. For the entire fiscal year, however, the portfolio averaged 3.98%. Cash interest income totaled $17.8 million in FY05-06 of which approximately $2.28 million went to the General fund. For the next fiscal year (FY06-07), it is expected that the average return for the portfolio will approximate 4.35%. EXHIBITS: 1. City Treasurer's Annual Report of Investment Portfolio for the fiscal year ended June 30, 2006. DEPARTMENT CONTACT: Nancy Sullivan 760-602-2473 nsull@ci.carlsbad.ca.us FOR CITY CLERKS USE ONLY. COUNCIL ACTION: APPROVED DENIED CONTINUED WITHDRAWN AMENDED * D D D CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER - SEE MINUTES n //-.J/-d£n n D y-v CITY TREAlMlfrS. i. . Fiscal Ye City of Carlsbad Office of the Treasurer October 2006 Honorable Mayor, City Council, And Citizens of the City of Carlsbad City of Carlsbad 1635 Faraday Avenue Carlsbad, CA 92008-7314 City Treasurer Letter of Transmittal 2005-2006 Annual Report of Investments I am pleased to present the Annual Report of Investments for the City of Carlsbad for the fiscal year ended June 30, 2006 (FY 05-06). 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 05-06. Total portfolio assets, asset allocations, yields achieved, cash incomes, risk exposures and cash flows are presented. To give perspectives to these measurements, movements in market interest rates are provided for the fiscal year ended June 30, 2006. Comparisons are also made with the preceding fiscal years. Finally, a statement is offered regarding the prospects for the fiscal year 2006-2007 (FY 06-07) commencing July 1, 2006. Harold (Mac) McShe/ City Treasurer 1 1635 Faraday Avenue • Carlsbad, CA 92008-7314 • (760) 6O2-2473 • FAX (760) 602-8556 www.ci. carlsbad. ca. us City Treasurer's Annual Report of Investments For Fiscal Year Ended June 30, 2006 TABLE OF CONTENTS Page Letter of Transmittal 1 Market Review FY05-06 2 Portfolio Analysis 3 Preview FY06-07 8 Appendices: A: Risk Management and Disclosure 10 B: Portfolio Activities for Year Ended June 30, 2006 12 1635 Faraday Avenue, Carlsbad, CA 92008 Website: www. ci. carlsbad. ca. us Prepared by the Treasury Department CITY TREASURER ANNUAL REPORT OF INVESTMENT PORTFOLIO FOR THE FISCAL YEAR ENDED JUNE 30, 2006 FYOS-06 MARKET REVIEW Federal Funds Target Rate FY 05-06 5.50% - 5.00% 4.50% 4.00% - 3.50% 3.00% 5.25% 5.00% 4.75% 4.50% 4.25% 3.75% 4.00% 3.25%*| ft Federal funds rate is a key money market rate that correlates with rates of other short term credit arrangements. It is the interest rate that banks charge each other for overnight loans. In fiscal year 05-06 the Federal Reserve increased the federal funds rate eight more times, each by 25 basis points for a total of 200 basis points. As a result, the federal funds rate increased from 3.25% June 30, 2005 to 5.25% June 30, 2006. Changes in short- term market interest rates are usually affected by the actions of the Federal Reserve. Six-month, two year, and five year market rates increased over the course of the fiscal year. Longer-term market rates rose slightly, but were otherwise relatively unaffected by the actions of the Federal Reserve. The new Fed Chairman, Ben Bernanke continued the rate increases that Greenspan initiated. SHORT-TERM INTEREST RATES U.S. Treasury Instruments Fiscal Year 2005 - 2006 I Pjarr>£»nt1 5.50 5.00- 4.50- 4.00 3.50 3.00 JUL AUG SEP OCX NOV DEC JAN FEB MAR APR MAY JUN —•— Five Year —• - Two Year-*-6 Month JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN 4.12 3.86 4.19 4.44 4.41 4.30 4.45 4.60 4.81 4.91 5.03 5.09 4.02 3.81 4.17 4.37 4.41 4.33 4.52 4.68 4.82 4.86 5.03 5.51 3.67 3.71 3.92 4.21 4.26 4.35 4.57 4.73 4.80 4.90 5.06 5.23 YIELD CURVE 7/01/05, 12/31/05, 6/30/06 [Market Rates I 65.55 4.54 3.5 3 2.5 2 1.5 3 M th 3Mth 2 Yr 2 Yr 5 Yr 10 Yr 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 05-06 (July 1, 2005), the yield curve was relatively flat. The flat yield curve was indicating that the markets believed the economy was close to equilibrium, with no discernible bias toward either inflation or recession. The Fed, however, believed that inflation was still a problem and continued to raise the discount rate. At the middle of FY 05-06 (December 31, 2005) the slope of the yield curve began to invert. This meant that short term interest rates were higher than long term interest rates. The markets believed the economy was slowing. As FY 05-06 ended, the yield curve was still slightly inverted. PORTFOLIO ANALYSIS INVESTMENT PORTFOLIO Dollar Amount of Assets (Fiscal Year End) $550 [Millions I FY97-98 FY98-99 FY99-00 FYOO-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 Total assets in the investment portfolio stood at $517 million at the end of the fiscal year, an increase of 1%. The $517 million is again a record amount for the portfolio. Commencing with FY 97-98, year- over-year percentage increases have been 26%, 19%, 8%, 13%, 6%, 11%, 10%, 8%, and 1%. PORTFOLIO ASSETS RELATIVE TO TOTAL ASSETS OF CITY AND ITS AGENCIES* FY98-99 FY99-00 FY01-02 FY02.«3 FY04-05 FY05-06 JTotal Assets sPortfolio Assets -% of Total Assets 'Source: Comprehensive Annual Financial Repon. Note: Tola! Assets of City and Its Agencies is an amount for FYQ5-Q6. The City publishes a Comprehensive Annual Financial Report (CAFR) at the end of each fiscal year. Among other information, CAFR presents a balance sheet showing the total assets owned by the City and all its agencies. At the end of FY 05-06, cash and investments managed by the City Treasurer represent 43% of all assets reported by the City and its agencies. SOURCE OF POOL ASSETS (Dollar Amounts in Millions) 6/3O/O5 $85.8 $35.1 $ 67.8 6/3O/O6 $ 34.6 217.0 $123.5 Total Assets - S51O.8 Million $229.6 $ 131.5 Total Assets - $515.9 Million D GeneralD Capital Projects• Agency FundsO Other Special RevenueEnterpriseInternal Service The portfolio is an internal 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 % from the previous fiscal year. The top three sources of portfolio assets are the Capital Projects fund ($229.6 million, 45% of the total), followed by the Enterprise fund ($131.5 million, 25% of the total), and the General fund ($67.8 million, 13% of the total). Together, these three funds account for 83% of total portfolio assets. 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. ASSET ALLOCATION (Dollar Amounts in Millions) 6/30/05 6/30/06 LAIF $63 CORP PARE $9.80 FEDERAL? AGENCY $359. ORPORATE 68.2 CORPORATE $52.5 FEDERAL GENCY $438.2 At the end of FY 05-06 (June 30, 2006), 85% of portfolio assets were invested in federal agencies, 10% in corporate notes, 3% in LAIF, and 2% in cash. The allocation of assets to federal agencies increased, while the allocation to corporate notes and LAIF both decreased from the previous fiscal year. This reflected the continued decrease in interest rate spreads for corporate notes relative to U. S. Treasuries and the increase in short term interest rates relative to LAIF. Within the asset category of federal agencies, investments in the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Farm Credit Bank, constituted 40%, 35.4%, 23.4% and 1.2% of the total, respectively. Federal agencies are creations of the U. S. Congress and include agencies and government-sponsored enterprises. Total $512,009,997 Total $516,852,810 DLAIF D Corporate I Cash • Federal Agencies PORTFOLIO YIELDS With 6 Month T-Bill Yields FY96- FY97- FY98- FY99- FYOO- FY01- FY02- FY03- FY04- FY05- 97 98 99 00 01 02 03 04 05 06 Portfolio T-Bill FY96-97 FY97-98 FY98-y 5.77 5.89 5.7I 5.38 5.30 4.68 FY99-OQ FY(X)-(H FYOl-02 FY02.Q3 FY03-04 FY04-05 FY05-Q6 5.81 6.18 5.28 4.24 3.43 J.55 3.98 5.69 5.17 2.16 1.28 1.11 2.59 4.45 The average return of the portfolio for FY 05-06 increased to 3.98% from 3.55% the year before. The portfolio yield is heavily influenced by changes in short- term market interest rates since approximately 22% of total investments were required to mature within one year. The average interest rate for six- month U.S. Treasury Bills increased to 4.45% from 2.59% the previous year. Return on investments is shown in two categories: (1) LAIF deposits and (2) all other investments. LAIF is an acronym for Local Agency Investment Fund. It is an investment pool managed by the California State Treasurer. The LAIF investment pool is very liquid with average investments usually maturing in six to seven months. City deposits in LAIF provide a desired measure of liquidity at attractive short-term rates, and typically comprise 5% to 10% of the total portfolio, depending on market interest rates at the time. In many respects, City deposits in LAIF are comparable to having a checking account that earns interest similar to U. S Treasury instruments maturing in one to five years. c 7 j ft A . e*l e'o A ft . 43A n - O ft . s*2 I n . 1 6 • I n - Ju 9 Return on Investments PORTFOLIO EX-LAIF and LAIF JULY 1998 - JUNE 2006 -"^MK-V'7»*i"**i -**•»• our \ "****•"[•"••••••••wT™ \ ^v. ^"-_jrj"" \ *"V«•**" \ \. V, \. \ % \ niKUWUK "^L_ «-<S^_ JT "«-y A V. r*"Si jf ~^Sr-i wilT*•»•* n- Dec Jun- Dec Jun- Dec Jun- Dec Jun- Dec Jun- Dec Jun- Dec Jun- 8 99 00 01 02 03 04 OS -- EX-LAIF Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 •-LAIF 5.61 5.17 4.26 4.17 4.11 3.97 3.90 3.98 1.78 2.33 1.78 1.57 1.44 2.00 2.85 3.63 Jf*•*£*jjf Dec Jun- 05 Jun 06 4.18 4.53 Compared to LAIF deposits, all other City investments will typically earn 40 basis points more. However, when market interest rates rise rapidly, as they have over the past two years, earnings on LAIF 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 will typically earn 40 to 100 basis points (1%) greater than LAIF. LAIF 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. Reacting to short-term interest rates in FY05-06, returns on LAIF investments increased significantly while returns on other portfolio investments increased slightly. Beginning in May of FY05-06 the return on LAIF deposits exceeded the return on all other portfolio investments. As interest rates decrease during FY06-07, we will see returns on investment correct to a normal pattern. 6 This graph shows the percent change in value of the portfolio over the last several years. Investments gain and lose value subsequent to purchase 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. The gain/loss is not recognized until the investment is sold. Changes in value caused by changes in market interest rates are normal and are expected. Historical Unrealized Gains/Losses as Percent of Amortized Cost July 1996 -June 2006 4. 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00% -2.50% -3.00% With a buy and hold policy, an objective of the City's Investment Policy is to achieve an average market rate of return over the economic cycle. The success in achieving this objective can be approximated with having unrealized gains and losses that are relatively equal over time. 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 total portfolio had an unrealized loss in FY 05-06. This unrealized loss occurred as investments with high interest rates matured and were reinvested in lower market rates. It is likely that this trend will reverse in FY06-07 as investments with lower interest rates mature. Cash income from portfolio investments represents an annuity stream of revenues from the Treasury. This annuity stream totaled $17.8 million, an increase of approximately $2.1 million dollars from the previous fiscal year. Of the total cash interest revenues earned by the portfolio in FY 05-06, over $2.28 million was credited to the General fund. Cash income is a function of assets in the portfolio, the market interest rates at the time of the investments, and the interest payment schedules of the issues. ANNUITY STREAM FROM TREASURY (Cash Interest Revenue) For Fiscal Years Indicated $21 $0.00 FV97- FV98- FW9- FVDO- FV01- FV92- FVB3- FV04- FV05- 98 99 00 01 02 03 04 05 06 FY 06-07 PREVIEW National and international economic forces are the primary influences on market interest rates. It is anticipated that domestic economic growth will decline slightly. This will prevent the Federal Reserve from raising the federal funds rate. It is widely anticipated that the Federal Reserve will decrease the fed funds rate 50 to 75 basis points during the first quarter of 2007. Short-term market rates will decrease faster than long term rates resulting in a lower, closer to normal, yield curve. On June 30, 2006 the federal funds rate increased from 5.00% to 5.25%. Approximately $124 million of investments with fixed maturity dates will mature in FY 06-07. An additional $205 million may be called, however, only a small percentage will actually be called. Available proceeds from these investments will be reinvested at market rates slightly higher than the maturing investments and slightly lower than the called investments. Yields on our LAIF investments are expected to decrease as interest rates decline. At the end of FY 05-06 (June 30, 2006), LAIF investments had a yield of 4.53%, and all other investments had a yield of 4.0%. A 4.0% yield approximates the historic average. LAIF investment yield will likely increase to 4.7% through December 2006 and then decrease to 4.1% by the end of the FY06-07 (June 30, 2007). Yields by fiscal year end 8 on investments other than LAIF will likely remain steady due to the maturing of lower yielding investments. Throughout the fiscal year ending June 30, 2006 the yield of the total portfolio averaged 3.98%. During fiscal year ending June 30, 2007, the total portfolio is projected to have an average yield of approximately 4.35%. Total assets in the investment portfolio stood at approximately $517 million at the end of FY 05-06. This is expected to decrease (due to appropriated but as yet unspent construction-in-process expenditures) to approximately $510 million by the end of FY 06-07. Interest revenue earned from portfolio investments in FY 06-07 should approximate $19 million. Property tax revenues are projected to increase by 14%. Sales tax and transient occupancy tax (TOT) revenues are expected to increase by 9% and 6% respectively. APPENDICES TO ANNUAL REPORT OF INVESTMENT PORTFOLIO APPENDIX A: RISK MANAGEMENT AND DISCLOSURE All investments are exposed to risk of some type. The objective of risk management is to identify the risks involved and establish acceptable levels of risks that are consistent with the City's investment objectives. Risk management includes managing, measuring, 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. C. Event Risk. As of June 30, 2006, the portfolio had the following investments and cash in its internal investment pool. Investment U. S. agencies Maturities July 2006 - June 2011 Corporate Notes July 2006 - April 2011 Certif. of Deposit July 2006 - March 2007 LAIF Sweep accounts Cash accounts Total Disclosures Market Value $430,699,680 50,495,284 488,000 16,476,055 8,598,075 566.534 $507.323.628 Market Value Gain (Loss) $(7,913,077) 599,966 (29,945) $ (7.343.056) Custodial Credit 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 10 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 pooled and collateralized with either U. S. government securities or U. S. agency securities. The California Code authorizes this type of investment. 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, 2006, approximately 21% of the investments in medium-term corporate notes had credit ratings below the AA limit 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 allow 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, 2006, the average maturity of the LAIF investments was 142 days. The State Treasurer does not contract for a credit rating to be assessed for LAIF. California state code section 16429.3 specifically excludes LAIF 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 LAIF 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 11 portfolio. As of June 30, 2006, approximately 9% 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, 2006, no investments in any one corporate issuer exceeded 5% of total portfolio investments. Interest 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, 2006, the portfolio had a 1.2% loss 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 2/3 of the current operating budget ($158,000,000). As of June 30, 2006, the modified duration of the portfolio was 2.022, within the required maximum of 2.2. Investments maturing within one year were $124,227,000, exceeding the required minimum of $106,000,000. The City's exposure to interest rate risk is within acceptable limits. Event Risk. Event risk is the chance that something unexpected will impede the ability of an issuer of a security to meet its obligations. These types of risks are usually short in duration, but can impair the city's ability to communicate with or use banking services. Such an event could cause a delay in collecting securities which have matured. The city is currently taking action to minimize event risk. APPENDIX B: PORTFOLIO ACTIVITIES FOR FISCAL YEAR ENDED JUNE 30, 2006 The City's portfolio balance increased 1% from $512.0 million to $516.9 million in fiscal year 2005-06. The increase of $4.9 million does little to show the volume of cash that flows in and out of the portfolio in the course of one fiscal year. The following table illustrates that the City Treasurer managed during fiscal year 2005-06 over two billion dollars of cash inflows and cash outflows prompting investment decisions. Cash Flows: Bond Maturities $ 95,105,000 Bond Calls 8,000,000 Bond Sales LAI F Withdrawals 178,768,000 Sweep Withdrawals 714,887,000 Interest Income 17,845,000 Bond Purchases 158,099,000 12 LAIF Investments 131,870,000 Sweep Investments 712,354,000 Cash Investments (net) (340.000) Total $2.016.588.000 13 CITY TREASURERCITY TREASURERCITY TREASURER’’’SSSANNUAL REPORT OFANNUAL REPORT OFANNUAL REPORT OFINVESTMENTSINVESTMENTSINVESTMENTSFiscal Year Ended 6/30/06Fiscal Year Ended 6/30/06Fiscal Year Ended 6/30/06(FY 05(FY 05(FY 05---06)06)06) U.S.MARKET REVIEWFiscal Year Ended 6/30/06 Federal Funds Target RateFY 05-065.25%5.00%3.25%3.75%4.25%4.50%4.75%4.00%3.50%3.00%3.50%4.00%4.50%5.00%5.50%06/30/0508/09/0509/20/0511/01/0512/13/0501/31/0603/28/0605/10/0606/29/06 SHORT-TERM INTEREST RATESU.S. Treasury InstrumentsFiscal Year 2005 - 20063.003.504.004.505.005.50JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUNFive YearTwo Year6 MonthPercentJUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN4.12 3.86 4.19 4.44 4.41 4.30 4.45 4.60 4.81 4.91 5.03 5.094.02 3.81 4.17 4.37 4.41 4.33 4.52 4.68 4.82 4.86 5.03 5.513.67 3.71 3.92 4.21 4.26 4.35 4.57 4.73 4.80 4.90 5.06 5.23 YIELD CURVE7/01/05, 12/31/05, 6/30/06Market Rates11.522.533.544.555.563 Mth2 Yr5 Yr10 Yr07/01/200512/31/200506/30/20063 Mth 2 Yr 5 Yr 10 Yr3.393 4.015 4.121 4.276 4.114 4.325 4.300 4.3644.976 5.150 5.093 5.136 PORTFOLIO REVIEW INVESTMENT PORTFOLIODollar Amount of Assets (Fiscal Year End)$199.5$252.1$299.2$430.8$516.9$510.0$472.6$389.5$366.8$323.3$100.0$150.0$200.0$250.0$300.0$350.0$400.0$450.0$500.0$550.0FY96-97 FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06Millions PORTFOLIO ASSETS RELATIVE TOTOTAL ASSETS OF CITY AND ITS AGENCIES*$314$329$382 $390$428$468$511$517$510$0$100$200$300$400$500$600$700$800$900$1,000$1,100$1,200$1,300$1,400FY98-99FY99-00FY00-01FY01-02FY02-03FY03-04FY04-05FY05-06FY06-07Cash/InvestmentsTotal Assets$601$601$641$641$716$716$789$789$899$899$992$992$1,122$1,122$1,200$1,200$1,380$1,380Estimate Estimate*Source: Comprehensive Annual Financial Report. Note: Total Assets of City and Its Agencies is an estimated amount for FYS 05 - 07$ Millions Major Capital Project ExpendituresFY 2005-2006•Recycled Water Projects10,004,000•StreetsCollege/Cannon Assess District 9,116,000 Rancho Santa Fe Road 6,590,000Poinsettia Road 6,426,000Pavement Management 5,490,000 Traffic Signals and Other 3,390,000 •Parks Golf Course26,427,000Pine Avenue 4,797,000Aviara 2,455,000Other3,876,000•Storm, Sewer & Water Distrib10,344,000 SOURCE OF POOL ASSETS(Dollar Amounts in Millions)6/30/05$85.8$35.1$25.0$20.5$3.9$ 217.0GeneralSpecial RevenueCapital ProjectsEnterpriseAgency FundsInternal ServiceOtherTotal Investments - $510.8 Million6/30/06$ 67.8$ 34.6$ 131.5$ 3.8$ 21.7$ 26.9$229.6Total Investments - $515.9 Million$123.5 Return on InvestmentsPORTFOLIO EX-LAIF and LAIFJULY 1998 - JUNE 20061.01.31.61.92.22.52.83.13.43.74.04.34.64.95.25.55.86.16.46.7Jun-98Dec Jun-99Dec Jun-00Dec Jun-01Dec Jun-02Dec Jun-03Dec Jun-04Dec Jun-05Dec Jun-05EX-LAIFLAIFJun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 Jun 065.61 5.17 4.26 4.17 4.11 3.97 3.90 3.98 4.181.78 2.33 1.78 1.57 1.44 2.00 2.85 3.63 4.53 ANNUITY STREAM FROM TREASURY(Cash Interest Revenue)For Fiscal Years Indicated $12.16$14.82$17.02$20.36$15.23$15.68$17.80$18.37$19.88$0.00$3.00$6.00$9.00$12.00$15.00$18.00$21.00FY97-98FY98-99FY99-00FY00-01FY01-02FY02-03FY03-04FY04-05FY05-06Millions FY 06-07 PREDICTIONS• Short-term interest rates will decrease slightly• Yield curve will remain relatively flat • Average yield of portfolio for FY will be in 4.35% range (from 3.98%)• Investment portfolio will decrease to $510 million To Access Monthly and Annual Investment Reports• Go to: www.ci.carlsbad.ca.us• Click on: City Hall• Click On: City Treasurer QuestionsMac McSherryCity Treasurer