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The City’s portfolio portion that is managed by PFMAM has a market value of <br />$128,511,003, with yield at cost of 1.06%, and an average maturity of 2.02 years. The <br />market benchmark selected, with consultation from the Council Finance-Audit <br />Committee, is the Bank of America Merrill Lynch 1-5 year U.S. Treasury Index. As <br />expected, the City portfolio is behind on the average maturity as we continue to <br />transition the portfolio to the new 1-5 year strategy. Beginning with the quarter ended <br />March 31, 2016, the portfolio’s total return performance will be compared to the <br />benchmark’s total return performance. At PFMAM’s recommendation, the stated date of <br />performance is being delayed so that PFMAM can prudently restructure the portfolio in <br />line with the newly adopted 1-5 year strategy. <br /> <br />PFMAM’s primary strategy this second quarter of FY 2016-17 involved reinvestment of <br />called securities and active trading. Yield spreads between U.S. Treasuries and <br />Agencies continued to tighten during the quarter. The Agencies purchased were new <br />issues that came to market with yield concessions that offered a more reasonable value <br />over Treasuries. The corporate sector again outperformed comparable-maturity <br />Treasuries during the quarter. <br /> <br />Looking ahead to the next quarter, PFMAM will continue to favor Treasuries over <br />Agencies. Rising interest rates ultimately result in higher earnings potential, but will <br />negatively affect the market value of current holdings. PFMAM’s approach will seek to <br />maximize long-term returns, which may result in the realization of short-term losses. <br />The portfolio will continue to be transitioned to the 1-5 year benchmark strategy, <br />eventually targeting a duration and maturity distribution generally in line with the <br />distribution of the benchmark, except where shifting to short-term credit securities offers <br />better value. <br /> <br />PFMAM has provided an in-depth market summary and discussion on their investment <br />strategy and outlook in the attached investment report. <br /> <br />ALTERNATIVES <br />The Council can ask staff to provide the investment report in a different format, or to <br />include different information in a future report. <br /> <br />FISCAL IMPACT <br />The City’s portfolio received $493,978.05 in interest earnings over the last quarter. All <br />interest earnings are allocated monthly through a preset methodology that spreads <br />earnings to the appropriate funds. Fees for PFM’s services during this period are <br />$22,129.41. <br /> <br />ENVIRONMENTAL REVIEW <br />This activity is not a project under CEQA as defined in CEQA Guidelines, section <br />15378, because it has no potential for resulting in either a direct or reasonably <br />foreseeable indirect physical change in the environment. <br /> <br />6.1.A. - Page 2