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2012-10-24 Item 03 City Treasurers Annual Investment ReportCITY OF ENCINITAS CITY COUNCIL AGENDA REPORT Meeting Date: October 24, 2012 TO: City Council VIA: Gus Vina, City Manager t° Paul Bussey, Finance Depement Consultant FROM: Jay Lembach, City Treasurer/Investment Of er��- SUBJECT: City Treasurer's Investment Report for the fiscal year ended June 30, 2012 BACKGROUND: It is the practice of the City Treasurer to report on the status of City investments to the City Council on a periodic basis. This Annual Report covers the period from July 1, 2011 through June 30, 2012, .and covers all aspects of the City's Investment Program, except for debt proceeds on deposit with fiscal agents, which represent restricted funds that have extremely limited activity. ANALYSIS: The Annual Investment Report is actually a series of reports produced by the City's in-house investment tracking software, SYMPRO. The reports that are included are: (1) Portfolio Summary Report (2) Portfolio Details — Investments and Cash (3) Investments by Issuer (4) Activity Report (5) Interest Earnings (6) Realized Gains and Losses (7) Unrealized Gains and Losses The Portfolio Summary Report summarizes much of the information included in the detail reports that follow.. The Portfolio Details Reports show each investment owned as of June 30, 2012, reporting the par value, the market value, and the book value, as well stated rates and yield -to - maturity (YTM). The Investments by Issuer report is included to allow for easier analysis of investments owned by type and by Agency. The Activity Report allows the reader to see all investments held during the year, including purchase, early redemption (calls) and maturities. The Last printed 10/4/2012 4:09:00 PM 10/24/2012 ITEM #03 Interest Earnings Report details the amount earned and the effective rate of return on each investment. The Realized Gains and Losses Report shows the additional amounts earned on selected investments; generally investments that were redeemed prior to maturity (also referred to as called investments.) The Unrealized Gains and Losses report shows the difference between book (carrying) value and market value, as of June 30, 2012. Depending on the type of report, the information presented is either as of June 30th, 2012 or for the period July 1, 2011 through June 30th, 2012. That distinction is indicated in the header of each report. THE NUMBERS The City's portfolio earned $438,065 for the fiscal year, an effective return of 0.45%. That number is reported in Report (1), and is comprised of the totals from Reports (5) and (6). This is slightly below the budget estimate of 0.50%, but is well above the City's Performance Benchmark, the one- year US Treasury bill, of 0.10%. The primary reason that the performance is so much higher than the benchmark is because the benchmark has been pushed to historic levels by US monetary policy. A fairer comparison for this period would be the return on the California LAIF fund, which was 0.36%. Investments held at June 3e totaled $94.2 million, with an average investable balance of $97.9 million. No one group of investments made up more than 30% of total holdings, and all investment groups were within the guidelines set out in the City's Investment Policy. Management of investments continues to focus on maintaining credit quality, limiting the weighted average life (WAM) of holdings, and promoting diversification of assets. The City had about $9 million in cash at June 30th to cover several large payments that were due in early July 2012. There was an unrealized gain of $64,039 at June 30th, which means that securities held had an estimated market value greater than the book value, as of that date. This difference is insignificant in a portfolio of $100 million, and those "gains" are not likely to be realized in the next accounting period since the City does not generally sell securities before their maturity date. FISCAL AND STAFF IMPACTS: The Investment Program makes a positive contribution to the City's overall financial condition, with interest revenues well above the costs for administering the Program. The financial benefits have declined over the last five years, due to the significant decline in market interest rates and the corresponding lower rates of return to the City. The overriding concern and focus of the Program is to keep the taxpayers' monies safe and well protected from possible losses. 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