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09-30-2011 VNPB Investment Performance ReviewInvestment Advisors Steven Alexander, CTP, CGFO, Managing Director Mel Hamilton, Senior Managing Consultant David Jang, CTP, Senior Managing Consultant Gregg Manjerovic, CFA, Portfolio Manager Rebecca Dole, CTP, Consultant Village of North Palm Beach Investment Performance Review Quarter Ended September 30, 2011 RL l 4 North Pala ea Unid. awl t PFM Asset Management LLC 300 S. Orange Avenue, Suite 1170 Orlando, FL 32801 (407) 648 -2208 (407) 648 -1323 fax One Keystone Plaza, Suite 300 North Front & Market Streets Harrisburg, PA 17101 -2044 717 - 232 -2723 717 - 233 -6073 fax Village of North Palm Beach Investment Report - Quarter Ended September 30, 2011 Table of Contents Tab I. Section A Market Review Tab II. Section A Quarterly Summary Report Section B Investment Portfolio & Performance Section C Asset Allocation Chart as of September 30, 2011 Tab III. September 30, 2011 PFM Month -End Statement (statements are available online at www.pfm.com) 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 recommendation. The information contained in this report is not an offer to purchase or sell any securities. Table of Contents Section i Village of North Palm Beach Investment Report — Quarter Ended September 30, 2011 Intermediate -term and long -term interest rates fell sharply for the second consecutive quarter, in many cases to new all -time lows, as market participants digested a myriad of events, including: • Renewed slowdown in U.S. and global economies, • Heightened concern over European sovereign and bank debt, • Budget and debt ceiling wrangling in Washington, • S &P's downgrade of the U.S. government's credit rating, and • Bold new Federal Reserve initiatives. These factors conspired to cause a collapse in consumer and business confidence, a sharp sell -off in equity markets around the globe, and a continued "flight -to- quality" into U.S. Treasuries. U. S. monetary policy initiatives also contributed to declining interest rates, as the Federal Reserve promised to keep short-term rates low for at least the next two years and announced a new program to purchase long -term debt. As a result, longer -term fixed - income portfolios posted their largest quarterly returns in nearly three years, while shorter -term portfolios remained hostage to near zero rate levels. High quality U.S. fixed- income investments continued to be one of the strongest performing asset classes during the third quarter. The Economy: Recap of a Historic Quarter At the beginning of the quarter, European debt concerns continued to serve as a shadowy backdrop to a sputtering U.S. recovery. In the face of stubbornly high unemployment, a battered housing market and plunging consumer confidence, GDP growth in the U.S. averaged only 0.8% in the first half of the year. Throughout the quarter, economists, including those at the Federal Reserve, progressively lowered their GDP projections for the balance of the year. At the same time, Washington grappled with the debt ceiling and a possible default. Capitol Hill was in need of an eleventh hour agreement to give the Treasury the authority to issue additional debt to pay the government's bills. On August 2"d, one day before the Treasury's drop dead date, Congress finally agreed on a stopgap policy, which included upwards of $2.4 trillion in spending cuts over the next decade and an increase in the statutory debt limit by at least $2.1 trillion. Default was averted, but much of the hard work of hammering out the details was pushed off to a bipartisan "Super Committee." The process revealed the worst of the U.S. government's political gridlock and gamesmanship. As it had previously warned, on August 8th Standard and Poor's (S &P) cut the long -term sovereign debt rating of the United States from AAA to AA +. S &P characterized the budget deal as insufficient to stabilize the government's debt over the long term and noted that "the political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable." The rating downgrade also affected U.S. Federal Agencies, FDIC - backed debt, thousands of municipal bonds, and many funds that invest in Treasuries and Agencies. Even after the downgrade, investors continued to flock to the safety of U.S. Treasuries, further driving down yields and pushing prices upward. At the August 9t11 meeting of the Federal Open Market Committee (FOMC), the Fed stated that weak economic conditions were "likely to warrant exceptionally low levels for the federal funds rate at least through mid - 2013." This marked the first time in history that the Fed had placed an explicit timetable on its monetary policy. Increased certainty that short-term rates are likely to remain low for two years drove rates lower still. Then, at an extended two -day September meeting, the Fed announced "Operation Twist," yet another initiative designed to boost economic recovery. The FOMC said it would extend the average maturity of its security holdings to "put downward pressure on longer -term interest rates and help make broader financial conditions more accommodative." The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. The market initially responded by pushing long -term rates down and shorter -term rates up, although the rise in short-term rates was limited by the Fed's near -zero rate policy. PFM Asset Management LLC Section A - 1 Village of North Palm Beach Investment Report — Quarter Ended September 30, 2011 Interest Rates and Returns Treasury yields continued their descent over the quarter, with yields of longer -term maturities falling the most, as shown in the following table. U.S. Treasury Yields — Quarter and Year - over -Year Chan 11 0.02% 0.10% 0.24% 0.95% 1.92% 2.91% 30- Jun -11 0.01% 0.18% 0.46% 1.76% 3.16% 4.37% Change over Quarter 0.01% -0.08% -0.22% -0.81% -1.24% -1.46% 30-Sep-10 0.15% 0.25% 0.42% 1.26% 2.51% 3.69% Change over Year -0.13% - . o -0.18% -0. o -0.59% -0.78% Source data: Bloomberg Because yields on maturities less than one year are in large part dictated by the federal funds target rate, short-term yields continue to be anchored near all- time -low levels. In fact, given very strong demand for high quality short-term investments, it has become commonplace for ultra -short Treasury bills to trade at zero or negative yields. The continued decline in interest rates through the quarter is illustrated in the chart below. 2 -Year, 5 -Year, and 10 -Year U.S. Treasury Note Yields September 30, 2010 through September 30, 2011 4.0% 3.0% 2.0% 1.0% 0.0% Sep 10 Source data: Bloomberg 10 -Year TSY 5 -Year TSY ir 2 -Year TSY Dec 10 Mar 11 Jun 11 Sep 11 The announcement of "Operation Twist" contributed to a significant flattening of the yield curve. As shown in the chart below, the steepness of the yield curve, measured by the spread between 2- and 10 -year U.S. Treasury notes, flattened significantly. Note that the steepness of the yield curve through time is mostly a function of short- term rates, especially during periods of strong Fed accommodation. The most recent move, however, was more unusual, being driven by sharply lower long -term yields. U.S. Treasury Yields and Yield Curve Steepness September 30, 2001 through September 30, 2011 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% Sep 01 Sep 03 Sep 05 Sep 07 Sep 09 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Sep 11 a Spread (Right Axis) 2 -Year TSY 10 -Year TSY Source data: Bloomberg Since intermediate- and long -term interest rates fell more than short- term rates, longer- duration strategies outperformed shorter - duration strategies for the quarter ended September 30, 2011, as seen on the chart on the following page. As was the case last quarter, longer was better by a wide margin. PFM Asset Management LLC Section A - 2 Village of North Palm Beach Investment Report — Quarter Ended September 30, 2011 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Total Returns of Merrill Lynch U.S. Treasury Indices Periods ended September 30, 2011 3mo 1 -3yr 1 -5yr 3 -5yr 1 -10yr ■ Quarter ■ 1 Year Source data: Bank ofAmerica Merrill Lynch; Bloomberg U.S. Treasuries, in particular, had a very strong quarter, outperforming similar maturity federal agency and high- quality corporate securities. The outperformance of Treasuries was due to the significant decrease in Treasury yields across the curve — a result of the continuing flight - to- quality — while weaker economic data and troubles in Europe pressured yield spreads wider on other sectors. As shown on the next chart, the risk aversion trade during the quarter punished riskier asset classes, as the return on Treasuries surpassed that of federal agencies and, in general, low risk fixed - income investments outpaced equities and alternative investment classes, which fell sharply during the quarter. As is usually the case during periods of uncertainty, yield spreads widened, risk premiums rose, and equity multiples fell. In such volatile market conditions, diversification remains an important principle of prudent portfolio management. 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% Total Returns of Various Asset Classes Quarter ended September 30, 2011 1 -5 Year 1 -5 Year 1 -5 Year Barclays S &P Index MSCI Treasury Federal A -AAA Euro- (Domestic EAFE -net Index Agency Corporate Aggregate Equity) (International Index Index Bond Equity) Index Source data: Bank ofAmerica Merrill Lynch; Barclays Capital; Bloomberg For an additional comparison of the disparity in returns along the risk spectrum, 1 -5 year AAA -rated corporate securities outperformed 1 -5 year A -rated corporate securities by 206 basis points (2.06 %), for the quarter, 1.28% versus - 0.78 %. Worldwide concern over bank exposure to European debt also took its toll on corporate sector returns, as 1 -5 year industrials outperformed financials by 192 basis points (1.92 %), 0.34% versus -1.58% for the quarter. Economic and Market Outlook Although the U. S. economy has posted eight straight quarters of positive GDP growth, recent growth has been anemic. With uncertainty regarding future fiscal policy, both here and abroad, economists expect the lackluster GDP trend to remain at sub -3% growth levels for the foreseeable future. PFM Asset Management LLC Section A - 3 Village of North Palm Beach Investment Report — Quarter Ended September 30, 2011 The European sovereign debt and bank crisis was a significant storyline throughout the quarter and a continuing major headwind to the U.S. recovery. The sovereign debt woes of Greece have spread to other EU nations, including Spain, Italy, and Portugal. In June, in an attempt to quiet those fears, a series of new austerity measures was passed by the Greek parliament. In July, euro -zone members agreed to a,6440 billion European Financial Stability Facility (ESFS) to address the growing crisis; however, as of quarter end, that measure was still being held up by Slovakia lawmakers. Getting 17 countries to agree on any proposal will be an ongoing challenge. Until the European debt crisis is resolved, equity markets are expected to remain volatile. Volatility, as measured by the VIX index, rose to a 2' /z year high during the third quarter. Amid the heightened volatility, the S &P 500 Index had shown signs of strength through the first two quarters of 2011, only to have those returns dissipate over the last three months. In light of European debt issues, the dollar experienced a healthy rally relative to the euro — increasing over 8% for the quarter. Similarly, or perhaps in parallel, gold also rose 8 %. However, commodity prices in general fell sharply over the quarter with oil leading the way, down 17 %, as global demand slowed. Although the economy added nearly 100,000 jobs per month in the past two quarters, the unemployment rate remains stuck above 9 %. Current job creation is simply insufficient to have significant positive impact on the unemployment rate. On the housing front, the story remains unchanged. Despite the biggest drop in home prices in over two years and mortgage rates at all -time lows, home sales have been disappointing. Credit remains tight while consumers are focused on relieving their own personal debt concerns. With winter around the corner, prospects remain dim. Personal consumption increased modestly, led by stronger auto sales, but the ISM manufacturing index still experienced a sharp decline. Consumer confidence plunged during the quarter as economic conditions weakened, equity markets fell, and jobs remain scarce. Despite these obstacles, the Fed continues to express resolve and remains prepared to consider "the range of policy tools available to promote a stronger economic recovery in a context of price stability." Investment Strategy The Federal Reserve's commitment to maintain the federal funds target rate at its current range until at least mid -2013 has essentially removed much of the uncertainty regarding potential short- to intermediate -term interest rate spikes in the near future. Because the Fed is on hold, maturity extensions can safely add value to portfolios. The benefits of "roll- down" can be viewed as a valuable contributor to fixed- income portfolio performance. Short- maturity U.S. Treasury and federal agency yields remain at near zero levels. Some analysts have dubbed this relationship as "return - less risk" — the lack of total return opportunities in that portion of the yield curve is insufficient relative to the impact of potential interest rate fluctuations. Alternative short-term sectors, including high- quality certificates of deposit and commercial paper, floating rate securities, and callable agencies do have value, but each must be evaluated carefully. Further out the yield curve, as credit spreads have widened, federal agency and high - quality corporate securities are attractive. Where applicable, we will increase exposure in both, but the corporate sector requires investors to be both thoughtful and nimble. Still, as yields remain very low by historical measures, we will take a cautious approach to duration management. For this reason, we will target duration at or below benchmarks. In these unprecedented economic and market conditions, taking on extreme duration or credit risk is not warranted. PFM Asset Management LLC Section A - 4 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2011 Quarterly Summary Report Total Portfolio Value' '' September 30,20111 June 30, 2011 Market Value $8,257,389.21 $8,227,936.99 Amortized Cost $8,194,212.86 $8,167,241.49 Quarter Total Return Comparison Quarter Ended 09/30/11 i[@I@FA 0.75% E ML 1 -3 Year U.S. Treasury Index 0.50% 410.49% ry Investment Portfolio♦ 0.36% 0.25% 0.00% 1 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) J Total Return Comparison Since Inception as of Quarter Ended 09/30/11 3.50 3.00 2.50% � ML 1 -3 Year U.S. Treasury Index 2.00% Investment Portfolio* 412.00% 1.90% 1.50% 1.00 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) J Quarterly Return Annualized Last Last Since Inception Total Retum1,2,s4,aa1a•a September 30, 2011 Quarter 12 Months 24 Months June 30, 2009 Investment Portfolio 0.36% 1.43% 1.07% 1.74% 1.90% Merrill Lynch 1 -3 Year U.S. Treasury Index 0.49% 1.95% 1.20% 1.87% 2.00% Total Current Quarter Previous Quarter Total Current Quarter Previous Quarter Effective Duration(Years) ° September 30, 2011 June 30, 2011 Yields September 30, 2011 June 30, 2011 Investment Portfolio 1.71 1.61 Yield at Market 0.34% 0.43% Merrill Lynch 1 -3 Year U.S. Treasury Index 1.81 1.80 Yield at Cost 0.89% 0.93% Portfolio Duration % of Benchmark Duration 95% 90% Quarter Total Return Comparison Quarter Ended 09/30/11 i[@I@FA 0.75% E ML 1 -3 Year U.S. Treasury Index 0.50% 410.49% ry Investment Portfolio♦ 0.36% 0.25% 0.00% 1 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) J Total Return Comparison Since Inception as of Quarter Ended 09/30/11 3.50 3.00 2.50% � ML 1 -3 Year U.S. Treasury Index 2.00% Investment Portfolio* 412.00% 1.90% 1.50% 1.00 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) J Notes: 1. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances: Includes 2 trades settling 10/5/10 for total $551,114.77 (pgs 10 &11 of Monthly Statement) 2. End of quarter trade -date market values of portfolio holdings, including accrued interest. 3. The Investment Portfolio's core balance increased due to a $1 million CD maturing on 12/18/09 and invested as part of core balance. 4. Performance on trade date basis, gross (i.e., before fees), is in accordance with The CFA Institute's Global Investment Performance Standards (GIPS). 5. Merrill Lynch Indices provided by Bloomberg Financial Market, 6. Quarterly returns are presented on an unannuali -c! basis. 7. Includes money market fund /cash in performance and duration computations. 8. Returns presented for 12 months or longer are presented on an annual basis. 9. Past performance is not indicative of future results. PFM Asset Management LLC Section A - 1 Current Quarter Previous Quarter Fiscal Year 2011 Fiscal Year 2010 Quarterly Interest Income September 30, 2011 June 30, 2011 Fiscal Year Interest Income Year to Date Year to Date Investment Portfolio $17,351.28 $20,124.86 Investment Portfolio $96,644.68 $108,801.81 TD Bank Money Market Fund 1.17 11.32 TD Bank Money Market Fund 34.78 34.32 Total $17,352.45 $20,136.18 Total $96,679.46 $108,836.13 Current Quarter Previous Quarter Fiscal Year 2011 Fiscal Year 2010 Quarterly Realized Gain /Loss on Cost September 30, 2011 June 30, 2011 Fiscal Year Realized Gain /Loss on Cost Year to Date Year to Date Investment Portfolio 6,023.12 1,905.07 Investment Portfolio $24,540.42 $21,419.26 Notes: 1. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances: Includes 2 trades settling 10/5/10 for total $551,114.77 (pgs 10 &11 of Monthly Statement) 2. End of quarter trade -date market values of portfolio holdings, including accrued interest. 3. The Investment Portfolio's core balance increased due to a $1 million CD maturing on 12/18/09 and invested as part of core balance. 4. Performance on trade date basis, gross (i.e., before fees), is in accordance with The CFA Institute's Global Investment Performance Standards (GIPS). 5. Merrill Lynch Indices provided by Bloomberg Financial Market, 6. Quarterly returns are presented on an unannuali -c! basis. 7. Includes money market fund /cash in performance and duration computations. 8. Returns presented for 12 months or longer are presented on an annual basis. 9. Past performance is not indicative of future results. PFM Asset Management LLC Section A - 1 Village of North Palm Beach Executive Summary PORTFOLIO STRATEGY Investment Report - Quarter Ended September 30, 2011 ➢ The Village's Investment Portfolio is of high credit quality and maintains adequate liquidity. The portfolio is invested entirely in Federal Agency, U.S. Treasury, and U.S. Government supported corporate debt securities. The securities are allocated among high quality issuers rated AA. ➢ Following the financial crisis in 2008, the investment universe bifurcated into safe assets (e.g. U.S. Treasuries and Agencies, gold, and currencies of export -based economies) and risky assets (e.g. almost everything else). The third quarter of 2011 was clearly a "risk off" quarter, as the weakening U.S. economy and lack of a comprehensive solution to the continuing European sovereign debt crisis weighed heavily on investors. As a result, safe assets performed well and riskier assets lost significant ground. In broad market terms, U.S. Treasuries were one of the best asset classes, while equities and lower -grade corporates lagged. ➢ Standard and Poor's lowered the United States of America's sovereign long -term credit rating to AA+ from AAA. Consequently, the ratings of agency securities that are backed by the U.S. Treasury also dropped to AA+ from AAA. The downgrade represents the credit rating agency's opinion that the effectiveness, stability and predictability of policymaking and political institutions have diminished, and therefore limit the government's ability to stabilize the medium term debt dynamics, during times of fiscal and economic challenges. The A -1+ short -term rating was affirmed. Standard and Poor's outlook on the long -term credit rating remained negative, leaving the possibility for a further downgrade to AA, if the fiscal and economic conditions do not improve within the next two years. ➢ Although the quarter began with rates very low, longer -term Treasury yields fell further in response to weakening economic fundamentals and the Fed's aggressively accommodative monetary policy actions. The 2 -year Treasury note, which started the third quarter at a yield of 0.45 %, hit a new all -time low of 0.15% (dating back to 1976) during the quarter before rebounding slightly to end the quarter at 0.25 %. 5 -year Treasuries also hit an all -time low (dating to 1953) of 0.76 %. Treasuries of 10 year maturity and longer fell the most, as the market anticipated "Operation Twist," which was officially announced in late September. ➢ On September 21st, the Federal Reserve announced its new strategy, known as "Operation Twist ", in which it will sell $400 billion of short -term treasury securities and purchase the same amount in long -term maturities. The goal is to stimulate business investment and to allow for consumers to re- finance their mortgages at a lower rate. The Federal Reserve hopes that this action will increase disposable income and consumption, without having to further grow its balance sheet. This strategy is likely to result in a flatter yield curve, lowering yields on the long -end and raising yields on the short -end. The positive "roll down effect" would be reduced as the yield curve loses its steepness. Given that the Federal Reserve will stick to its strategy, this trend is likely to continue and may allow for us to take advantage of the yield increase going forward. ➢ Over the course of the quarter, we executed several trades, in the Investment Portfolio, to take advantage of the steepness of the yield curve. For example, early in August, we sold treasury notes in the 1 -year maturity range and purchased treasury notes securities in the 2 -year range, in order to increase the portfolio's yield. This strategy resulted in a 16 basis points (0.16 %) yield pick -up. Following, the Federal Reserve's commitment to keep interest rates low until mid 2013, we extended the portfolio's duration by selling treasury securities in the 1 -year maturity range and treasury notes in the 3 -year maturity range. The portfolio realized over $8,000 in gains on sales, as a result of active management during the quarter. ➢ At the beginning of the quarter, we targeted the Investment Portfolio's duration at 90% of the benchmark's duration and during the quarter the duration increased to 95% of the benchmark. For the third quarter, the portfolio's performance slightly underperformed the benchmark by 0.13 %. U.S. Treasuries had a very strong quarter, outperforming similar maturity federal agency and high - quality corporate securities. The outperformance of Treasuries was due to the significant decrease in Treasury yields across the curve — a result of the continuing flight -to- quality — while weaker economic data and troubles in Europe pressured yield spreads wider on other sectors. The portfolio's underperformance is a result of the portfolio holding approximately 57% in U.S. Treasuries, 31% in Agencies, and 11% in corporate (FDIC), during the quarter as compared to the benchmark which held 100% in U.S. Treasuries. With the higher percentage in treasuries the benchmark appreciated more than the portfolio. We will continue to monitor the markets and maintain a strategy to preserve principal. With the Federal Reserve determined to keep interest rates low until mid 2013, "Operation Twist" will likely increase short -term rates in the 1 to 5 year segment, in which we operate. Holding the duration of the portfolio slightly short of the benchmark's duration will allow for the extension of duration to capitalize on higher yields in the event they increase. We will closely monitor the markets to make select purchases of securities when rates move towards the upper end of their range. ➢ As always, we strive to maintain the safety of principal while at the same time positioning the Portfolio for growth and searching for tactical opportunities to enhance return. In these changing times, our strategy will remain flexible and may change in response to changes in interest rates, economic data, market outlook or specific opportunities that arise. PFM Asset Management LLC Section B - 1 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2011 Investment Portfolio Composition and Credit Quality Characteristics Security Type September 30, 2011 % of Portfolio June 30, 2011 % of Portfolio U.S. Treasuries $4,741,652.00 57.4% $5,156,878.54 62.7% Federal Agencies 2,569,126.28 31.1% 2,148,060.23 26.1% Commercial Paper 0.00 0.0% 0.00 0.0% Certificates of Deposit 0.00 0.0% 0.00 0.0% Bankers Acceptances 0.00 0.0% 0.00 0.0% Repurchase Agreements 0.00 0.0% 0.00 0.0% Municipal Obligations 0.00 0.0% 0.00 0.0% Corporate Notes /Bonds 0.00 0.0% 0.00 0.0% Corporate Notes /Bonds - FDIC Insured 907,643.30 11.0% 907,184.30 11.0% Mortgage Backed 0.00 0.0% 0.00 0.0% Money Market Fund /Cash 38,967.63 0.5% 15,813.92 0.2% Totals $8,257,389.21 100.0% $8,227,936.99 100.0% U.S. Treasuries 57% Portfolio Composition as of 09/30/11 I,- Federal Agency Obligations 31% Corporate Notes /Bonds - _FDIC Insured 11% Money Market Fund /Cash 0.47% Notes: 1. End of quarter trade -date market values of portfolio holdings, including accrued interest. 2. Credit rating of securities held in portfolio, exclusive of money market fund /LGIP. Standard & Poor's is the source of the credit ratings. Credit Quality Distribution as of 09/30/11 PFM Asset Management LLC Section B - 2 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2011 Investment Portfolio Maturity Distribution Maturity Distribution' September 30, 2011 June 30, 2011 Overnight (Monedy Market Fund) $38,967.63 $15,813.92 Under 6 Months 0.00 0.00 6 - 12 Months 1,440,988.82 2,465,715.56 1 - 2 Years 3,394,318.79 2,642,097.63 2 - 3 Years 3,383,113.97 3,104,309.88 3 - 4 Years 0.00 0.00 4 - 5 Years 0.00 0.00 5 Years and Over 0.00 0.00 Totals $8,257,389.21 $8,227,936.99 Notes: 1. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity. PFM Asset Management LLC Section B - 3 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2011 Investment Portfolio Maturity Distribution versus the Benchmark' 25.0% - 20.0% - -- - - - - -- ----------------------------- 15.0% ------------ - - - - -- ------------------ --------------------------------------------- 10.0% 5.0% .------------------------------------------------------------- 0.0% 1E E, 111 1.1 : o• 0. 0. _1 N17,11 1. 11 N", 1 . 1 • r,,,. 11) . �• �• 11). b, �• �• �• Years to Maturity ■ Investment Portfolio OMenill Lynch' -3 YearU.S. Treasury Note Index Notes: 1. Due to the nature of the security, Mortgage- Backed Securities are represented based on their average life maturity rather than their final maturity. PFM Asset Management LLC Section B - 4 Village of North Palm Beach' Asset Allocation as of September 30, 2011* Security Type September 30, 2011 September 30, 2011 Notes Permitted by Policy Florida Prime (SBA) 786,497.94 5.04% 2 25% United States Treasury Securities 4,708,684.03 30.18% 100% United States Government Agency Securities - 0.00% 100% Federal Instrumentalities 2, 545, 489.46 16.32% 50 Certificates of Deposit - 0.00% 100% Repurchase Agreements - 0.00% 0% Commercial Paper - 0.00% 0% Corporate Notes 901,071.74 5.78% 25% Mortgage - Backed Securities - 0.00% 0% Bankers' Acceptances - 0.00% 0% Money Market Mutual Funds 1,189,799.72 7.63% 50% Intergovernmental Investment Pool - 0.00% 25% Interest Bearing Checking or Savings Account 5,470,330.70 35.06% 2 100% Village Managed $7,407,660.61 47.48% Notes Permitted by Policy PFM Managed $8,194,212.98 52.52% 33% Total $15,601,873.59 100.00 33% Individual Issuer Breakdown September 30, 2011 September 30, 2011 Notes Permitted by Policy Government National Mortgage Association (GNMA) - 0.00% 100% US Export-Import Bank (Ex -Im) - 0.00% 100% Farmers Home Administration (FMHA) - 0.00% 100% Federal Financing Bank - 0.00% 100% Federal Housing Administration (FHA) - 0.00% 100% General Services Administration - 0.00% 100% New Communities Ad Debentures - 0.00% 100% US Public Housing Notes & Bonds - 0.00% 100% US Dept. of Housing and Urban Development - 0.00% 100% Federal Farm Credit Bank(FFCB) 611,343.30 3.92% 10% Federal Home Loan Bank (FHLB) 690,987.67 4.43% 10% Federal National Mortgage Association (FNMA) 539,005.11 3.45% 10% Federal Home Loan Mortgage Corporation (FHLMC) 704,153.38 4.51% 10% Student Loan Marketing Association (SLMA) I - 0.00% 0% 1. All Assets. 2. These Accounts are managed by the Village. *PFM managed securities are shown on Amortized Cost plus Accrued Interest basis. Asset Allocation as of September 30, 2011 Federal Instrumentalities 16.32% Individual Issuer Breakdown September 30, 2011 September 30, 2011 Notes Permitted by Policy CD - BankA - 0.00% 33% CD - BankB - 0.00% 33% Interest Bearing Checking or Savings Account - Wells Fargo 5,470,330.70 35.06% 2 50% Interest Bearing Checking or Savings Account - B - 0.00% 50% Citigroup Corporate Notes - FDIC insured 496,261.68 3.18% 33% Bank of America Corporate Notes - FDIC insured 404,810.06 2.59% 33% Corporate Notes C - 0.00% 33 Corporate Notes D - 0.00% 33% Corporate Notes E - 0.00% 33% Money Market Fund - TD Bank Sweep Account 38,967.75 0.25% 33% Money Market Fund - Wells Fargo Advantage Fund 1,150,831.97 7.38% 2 33% PFM Asset Management LLC Section C - 1 PFM{ Customer Service PO Box 11813 Harrisburg, PA 17108 -1813 ACCOUNT STATEMENT Client Management Team Mel Hamilton Senior Managing Consultant 300 South Orange Avenue, Suite 1170 Orlando, FL 32801 407 - 648 -2208 hamiltonm @pfm.com Steven Alexander, CTP, CGFO Managing Director 300 South Orange Avenue, Suite 1170 Orlando, FL 32801 407 -648 -2208 alexanders @pfm.com Gregg Manjerovic, CFA Senior Portfolio Manager One Keystone Plaza, Suite 300 Harrisburg, PA 17101 717 - 232 -2723 manjerovicg @pfm.com Rebecca Dole, CTP Consultant 300 South Orange Street, Suite 1170 Orlando, FL 32801 407 - 648 -2208 doter @pfm.com Contents Cover /Disclosures Summary Statement Individual Accounts Accounts included in Statement NORTH PALM BEACH INVESTMENT PORTFOLIO VILLAGE OF NORTH PALM BEACH SAMIA JANJUA 501 US HIGHWAY 1 NORTH PALM BEACH, FL 33408 T{ Online Access www.pfm.com Customer Service 1- 717 - 232 -2723 Important Disclosures This statement is for general information purposes only and is not intended to provide specific advice or recommendations. PFM Asset Management LLC ( "PFM ") is an investment advisor registered with the Securities and Exchange Commission, and is required to maintain a written disclosure statement of our background and business experience. If you would like to receive a copy of our current disclosure statement, please contact Service Operations at the address below. Proxy Voting PFM does not normally receive proxies to vote on behalf of its clients. However, it does on occasion receive consent requests. In the event a consent request is received the portfolio manager contacts the client and then proceeds according to their instructions. PFM's Proxy Voting Policy is available upon request by contacting Service Operations at the address below. Questions About an Account PFM's monthly statement is intended to detail our investment advisory activity as well as the activity of any accounts held by clients in pools that are managed by PFM. The custodian bank maintains the control of assets and executes (i.e., settles) all investment transactions. The custodian statement is the official record of security and cash holdings and transactions. PFM recognizes that clients may use these reports to facilitate record keeping; therefore the custodian bank statement and the PFM statement should be reconciled and differences resolved. Many custodians use a settlement date basis which may result in the need to reconcile due to a timing difference. Account Control PFM does not have the authority to withdraw funds from or deposit funds to the custodian. Our clients retain responsibility for their internal accounting policies; implementing and enforcing internal controls and generating ledger entries or otherwise recording transactions. Market Value 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. Explanation of the valuation methods for money market and TERM funds is contained in the appropriate fund information statement. 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 straightline basis. Such discount or premium with respect to longer term securities is amortized using the constant yield basis. Important Disclosures Tax Reporting Cost data and realized gains / losses are provided for informational purposes only. Please review for accuracy and consult your tax advisor to determine the tax consequences of your security transactions. PFM does not report such information to the IRS or other taxing authorities and is not responsible for the accuracy of such information that may be required to be reported to federal, state or other taxing authorities. Financial Situation In order to better serve you, PFM should be promptly notified of any material change in your investment objective or financial situation. Callable Securities Securities subject to redemption prior to maturity may be redeemed in whole or in part before maturity, which could affect the yield represented. Portfolio The securities in this portfolio, including shares of mutual funds, are not guaranteed or otherwise protected by PFM, the FDIC (except for certain non - negotiable certificates of deposit) or any government agency. Investment in securities involves risks, including the possible loss of the amount invested. Rating Information provided for ratings is based upon a good faith inquiry of selected sources, but its accuracy and completeness cannot be guaranteed. Shares of some money market and TERM funds are marketed through representatives of PFM's wholly owned subsidiary, PFM Fund Distributors, Inc. PFM Fund Distributors, Inc. is registered with the SEC as a broker /dealer and is a member of the Financial Industry Regulatory Authority ( "FINRA ") and the Municipal Securities Rulemaking Board ( "MSRB "). You may reach the FINRA by calling the FINRA Regulator Public Disclosure Hotline at 1- 888 - 289 -9999 or at the FINRA Regulation Internet website address www.nasd.com. A brochure describing the FINRA Regulation Public Disclosure Program is also available from the FINRA upon request. Key Terms and Definitions Dividends on money market funds consist of interest earned, plus any discount ratably amortized to the date of maturity, plus all realized gains and losses on the sale of securities prior to maturity, less ratable amortization of any premium and all accrued expenses to the fund. Dividends are accrued daily and may be paid either monthly or quarterly. The monthly earnings on this statement represent the estimated dividend accrued for the month for any program that distributes earnings on a quarterly basis. There is no guarantee that the estimated amount will be paid on the actual distribution date. Current Yield is the net change, exclusive of capital changes and income other than investment income, in the value of a hypothetical fund account with a balance of one share over the seven -day base period including the statement date, expressed as a percentage of the value of one share (normally $1.00 per share) at the beginning of the seven -day period. This resulting net change in account value is then annualized by multiplying it by 365 and dividing the result by 7. The yields quoted should not be considered a representation of the yield of the fund in the future, since the yield is not fixed. Account Statement For the Month Ending September 30, 2011 Average maturity represents the average maturity of all securities and investments of a portfolio, determined by multiplying the par or principal value of each security or investment by its maturity (days or years), summing the products, and dividing the sum by the total principal value of the portfolio. The stated maturity date of mortgage backed or callable securities are used in this statement. However the actual maturity of these securities could vary depending on the level or prepayments on the underlying mortgages or whether a callable security has or is still able to be called. Monthly distribution yield represents the net change in the value of one share (normally $1.00 per share) resulting from all dividends declared during the month by a fund expressed as a percentage of the value of one share at the beginning of the month. This resulting net change is then annualized by multiplying it by 365 and dividing it by the number of calendar days in the month. 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. 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 from purchase date to maturity, stated as a percentage. Managed Account portfolio of investments managed discretely by PFM according to the client's specific investment policy and requirements. The investments are directly owned by the client and held by the client's custodian. Unsettled Trade A trade which has been executed however the final consummation of the security transaction and payment has not yet taken place. Please review the detail pages of this statement carefully. If you think your statement is wrong, missing account information, or if you need more information about a transaction, please contact PFM within 60 days of receipt. If you have other concerns or questions regarding your account you should contact a member of your client management team or PFM Service Operations at the address below. PFM Asset Management LLC Attn: Service Operations One Keystone Plaza, Suite 300 N. Front & Market Sts Harrisburg, PA 17101 1 1 11111=PFM Interest /Coupons Received Less Purchased Interest Related to Interest /Coupons Plus Net Realized Gains /Losses 7,215.78 Closing Cash Balance (244.57) 5,420.00 Total Cash Basis Earnings $12,391.21 Ending Amortized Value of Securities Managed Account Summary Statement For the Month Ending September 30, 2011 NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Transaction Summary - Managed Account Cash 677,381.61 Opening Market Value $8,212,374.97 Transactions Summary - Managed Maturities /Calls Account 0.00 Maturities /Calls 0.00 Sale Proceeds 677,381.61 Principal Dispositions (676,344.11) Coupon /Interest Income 6,178.28 Principal Acquisitions 671'887'89 Principal Payments 0.00 Unsettled Trades 0.00 Security Purchases (672,132.46) Change in Current Value (15,684.84) Net Cash Contribution 0.00 Reconciling Transactions 0.00 Closing Market Value $8,192,233.91 Interest /Coupons Received Less Purchased Interest Related to Interest /Coupons Plus Net Realized Gains /Losses 7,215.78 Closing Cash Balance (244.57) 5,420.00 Total Cash Basis Earnings $12,391.21 Ending Amortized Value of Securities 8,129,057.56 Ending Accrued Interest 26,187.67 Plus Proceeds from Sales 677,381.61 Plus Proceeds of Maturities /Calls /Principal Payments 0.00 Plus Coupons Received 6,178.28 Less Cost of New Purchases (672,132.46) Less Beginning Amortized Value of Securities (8,129,286.02) Less Beginning Accrued Interest (25,484.07) Total Accrual Basis Earnings $11,902.57 $38,967.63 f Account 61350001 Page i PFM Asset Management LLC Portfolio Summary and Statistics NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Description Par Value Market Value Percent U.S. Treasury Bond/ Note 4,690,000.00 4,732,474.71 57.77 U.S. Government Supported Corporate 890,000.00 899,752.50 10.98 Debt Federal Agency Bond / Note 2,520,000.00 2,560,006.70 31.25 Managed Account Sub -Total 8,100,000.00 8,192,233.91 100.00% Accrued Interest 26,187.67 Total Portfolio 8,100,000.00 8,218,421.58 Unsettled Trades 0.00 0.00 Maturity Distribution 41.35% 41.16% I I 17.49% i I ' i I I 0.00% 0.00% 0.00% 0.00% 0 - 6 Months 6 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years Over 5 Years US TSY Bond / 57.77% For the Month Ending September 30, 2011 Fed Agy Bond / Note 31.25% JS Govt Supported Corp Debt 10.98% Characteristics Yield to Maturity at Cost 0.89% Yield to Maturity at Market 0.34% Duration to Worst 1.73 Weighted Average Days to Maturity 640 PFM' Account 61350001 Page 2 PFM Asset Management LLC PFM' Managed Account Issuer Summary NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Issuer Summary Market Value Issuer of Holdings Percent BANK OF AMERICA CORP TLGP 404,338.00 4.94 CITIGROUP INC 495,414.50 6.05 FANNIE MAE 545,432.94 6.66 FEDERAL FARM CREDIT BANKS 607,970.78 7.42 FEDERAL HOME LOAN BANKS 699,720.58 8.54 FREDDIE MAC 706,882.40 8.63 UNITED STATES TREASURY 4,732,474.71 57.76 Total PFM Asset Management LLC: $8,192,233.91 100.000/0 AA+ 100.00% For the Month Ending September 30, 2011 Account 61350001 Page 3 P ,, Managed Account Detail of Securities Held For the Month Ending September 30, 2011 NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Security Type/ Description S &P Moody's Trade Settle Original YTM Accrued Amortized Market Dated Date /Coupon /Maturity U.S. Treasury Bond / Note CUSIP Par Rating Rating Date Date Cost at Cost Interest Cost Value US TREASURY NOTES 470,000.00 AA+ Aaa 09/22/11 09/23/11 468,880.08 0.33 51.65 468,888.31 467,687.60 DTD 09/15/20110.250% 09/15/2014 Security Type Sub -Total 4,690,000.00 4,698,087.90 0.74 9,177.29 4,699,506.74 4,732,474.71 Supported U.S. Government .. Account 61350001 Page 4 PFM Asset Management LLC Managed Account Detail of Securities Held For the Month Ending September 30, 2011 NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Security Type/ Description S &P Moody's Trade Settle Original YTM Accrued Amortized Market Dated Date /Coupon /Maturity CUSIP Par Rating Rating Date Date Cost at Cost Interest Cost Value Government .. . Corporate Debt BANK OF AMERICA CORP (FDIC) GLOBAL 490,000.00 AA+ Aaa 01/06/10 01107110 497,541.10 1.45 4,367.47 491,894.21 495,414.50 DTD 01/30/2009 2.125% 04/30/2012 Security Type Sub -Total Federal Agency :. Note 890,000.00 902,712.30 1.49 7,890.80 893,180.94 899,752.50 MAC GLOBAL NOTES 3134G2WG3 400,000.00 AA+ Aaa 08/30111 08/31/11 402,096.00 0.58 75.00 402,037.88 401,111.60 DTD 08/05/20110.750% 09/22/2014 Security Type Sub -Total 2,520,000.00 2,537,695.34 0.97 9,119.58 2,536,369.88 2,560,006.70 Managed Account Sub -Total 8,100,000.00 8,138,495.54 0.89 26,187.67 8,129,057.56 8,192,233.91 PYN1 Account 61350001 Page 5 WF PFM Asset Management LLC Ai '�. ...r. P Managed Account Detail of Securities Held NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 For the Month Ending September 30, 2011 Securities Sub -Total $8,100,000.00 $8,138,495.54 0.89% $26,187.67 $8,129,057.56 $8,192,233.91 Accrued Interest $26,187.67 Total Investments Pfw PFM Asset Management LLC $8,218,421.58 Account 61350001 Page 6 US TREASURY NOTES DTD 08/15/2009 1.750% 08/15/2012 US TREASURY NOTES DTD 12/15/2009 1.125% 12/15/2012 US TREASURY NOTES DTD 01/31/20110.625% 01/31/2013 US TREASURY NOTES DTD 02/15/2010 1.375% 02/15/2013 US TREASURY NOTES DTD 03/15/2010 1.375% 03/15/2013 US TREASURY NOTES DTD 05/15/2010 1.375% 05/15/2013 US TREASURY NOTES DTD 09/15/2010 0.750% 09/15/2013 US TREASURY NOTES DTD 10/15/2010 0.500% 10/15/2013 US TREASURY NOTES DTD 11/15/2010 0.500% 11/15/2013 US TREASURY NOTES DTD 11/15/2010 0.500% 11/15/2013 US TREASURY NOTES DTD 12/31/2008 1.500% 12/31/2013 US TREASURY NOTES DTD 09/15/20110.250% 09/15/2014 Security Type Sub -Total 912828LH1 200,000.00 BARCLAYS 101.36 202,718.80 (289.01) (78.55) 0.87 0.19 912828MB3 200,000.00 DEUTSCHE 101.10 202,203.20 4,781.32 3,254.96 1.20 0.21 912828PR5 730,000.00 MERRILL 100.55 733,992.37 3,621.67 3,743.53 1.33 0.21 912828MN7 490,000.00 BK AMER 101.55 497,598.92 7,043.84 7,340.64 1.36 0.24 912828MT4 100,000.00 JPMCHASE 101.64 101,641.00 2,465.22 2,048.13 1.45 0.25 912828NCO 300,000.00 BK AMER 101.78 305,331.00 4,311.47 4,768.50 1.60 0.28 912828NY2 340,000.00 MORGANST 100.89 343,041.30 1,487.39 2,006.81 1.94 0.29 912828PBO 500,000.00 JPMCHASE 100.39 501,953.00 1,718.62 1,790.87 2.03 0.31 912828PU8 400,000.00 BARCLAYS 100.38 401,531.20 4,562.45 3,709.21 2.11 0.32 912828PU8 470,000.00 NOMURA 100.38 471,799.16 5,838.22 4,679.96 2.11 0.32 912828JW1 490,000.00 CITIGRP 102.65 502,977.16 38.10 904.62 2.21 0.32 912828RG7 470,000.00 NOMURA 99.51 467,687.60 (1,192.48) (1,200.71) 2.94 0.42 BANK OF AMERICA CORP (FDIC) GLOBAL MTN DTD 01/30/2009 2.100% 04/30/2012 PFM Asset Management LLC 4,690,000.00 4,732,474.71 34,386.81 32,967.97 1.84 0.29 400,000.00 BARCLAYS 101.08 404,338.00 (833.20) 3,051.27 0.58 0.24 Account 61350001 Page 7 Managed Account Fair Market Value & Analytics For the Month Ending September 30, 2011 NORTH PALM BEACH INVESTMENT PORTFOLIO;- 61350001 Security Type/ Description Next Call Market Market Unreal G/L Unreal G/L Duration YTM Dated Date /Coupon /Maturity CUSIP Par Broker Date Price Value On Cost Amort Cost to Worst at Mkt Supported U.S. Government .. D•. CITIGROUP INC (FDIC) GLOBAL NOTE 490,000.00 RBS_SEC 101.11 495,414.50 (2,126.60) 3,520.29 0.58 0.23 DTD 01/30/2009 2.125% 04/30/2012 Security Type Sub -Total 890,000.00 899,752.50 (2,959.80) 6,571.56 0.58 0.23 Federal Agency :. Note FFCB BONDS (FLOATING) 400,000.00 BARCLAYS 100.28 401,111.60 (984.40) (926.28) 2.94 0.66 DTD 08/05/20110.750% 09/22/2014 Security Type Sub -Total 2,520,000.00 2,560,006.70 22,311.36 23,636.82 1.93 0.46 Managed Account Sub -Total 8,100,000.00 8,192,233.91 53,738.37 63,176.35 1.73 0.34 Securities Sub -Total Accrued Interest Total Investments �1. PFM Asset Management LLC $8,100,000.00 $8,192,233.91 $53,738.37 26,187.67 $8,218,421.58 $63,176.35 1.73 0.34% Account 61350001 Page 8 PF W Managed Account Security Transactions & Interest For the Month Ending September 30, 2011 NORTH PALMBEACH INVESTMENT PORTFOLIO - 61350001 A Transaction Type Principal Accrued Realized G/L Realized G/L Sale Trade Settle Security Description CUSIP Par Proceeds Interest Total Cost Amort Cost Method 09/06/11 09/07/11 US TREASURY NOTES DTD 09/15/20110.250% 09/15/2014 Transaction Type Sub -Total 09/01/11 FANNIE MAE GLOBAL NOTES 1,056.25 DTD 08/06/2010 1.000% 09/23/2013 Transaction Type Sub -Total 09/06/11 09/07/11 FNMA GLOBAL NOTES DTD 01/15/2010 1.750% 02/22/2013 09/22/11 09/23/11 US TREASURY NOTES DTD 05/31/2010 0.750% 05/31/2012 09/22/11 09/23/11 US TREASURY NOTES DTD 07/31/2010 0.625% 07/31/2012 200,000.00 (203,007.81) (218.75) (203,226.56) 470,000.00 (468,880.08) (25.82) (468,905.90) 670,000.00 (671,887.89) (244.57) (672,132.46) MONEY0002 0.00 0.00 0.48 0.48 31331JKP7 330,000.00 0.00 67.38 67.38 912828MT4 100,000.00 0.00 687.50 687.50 912828NY2 340,000.00 0.00 1,275.00 1,275.00 3133XX7F8 130,000.00 0.00 1,056.25 1,056.25 3134G2WG3 400,000.00 0.00 391.67 391.67 31398A2S0 540,000.00 0.00 2,700.00 2,700.00 1,840,000.00 0.00 6,178.28 6,178.28 31398AE24 200,000.00 204,232.00 145.83 204,377.83 4,520.00 4,367.62 SPEC LOT 912828NE6 320,000.00 321,450.00 754.10 322,204.10 337.50 858.40 SPEC LOT 912828NO9 150,000.00 150,662.11 137.57 150,799.68 562.50 603.69 SPEC LOT � y1 Account 61350001 Page 9 PPM Asset Management LL,C .mss Managed Account Security Transactions & Interest For the Month Ending September 30, 2011 NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Transaction Type Principal Accrued Realized G/L Realized G/L Sale Trade Settle Security Description CUSIP Par Proceeds Interest Total Cost Amort Cost Method Transaction Type Sub -Total 670,000.00 676,344.11 1,037.50 677,381.61 5,420.00 5,829.71 Managed Account Sub -Total 4,456.22 6,971.21 11,427.43 5,420.00 5,829.71 Total Security Transactions $4,456.22 $6,971.21 $11,427.43 $5,420.00 $5,829.71 }' Account 61350001 Page 10 PFM Asset Management LL,C