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09-30-2010 VNPB Investment Performance ReviewT14796 c aCT q 2 2410 'Tec®�V L:3cr Village of North Palm Beach, Florida Investment 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 Investment Performance Review Quarter Ended September 30, 2010 PFM Asset Management LLC 300 S. Orange Avenue, Suite 1170 One Keystone Plaza, Suite 300 Orlando, FL 32801 North Front & Market Streets (407) 648 -2208 Harrisburg, PA 17101 -2044 (407) 648 -1323 fax 717- 232 -2723 717 - 233 -6073 fax Village of North Palm Beach Investment Report - Quarter Ended September 30, 2010 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, 2010 Tab III. September 30, 2010 PFM Month -End Statement 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, Florida Investment Report — Quarter Ended September 30, 2010 Fixed - income portfolios generated strong total returns in the third quarter, as interest rates across the yield curve declined to new record lows. All but the shortest duration benchmarks significantly outperformed money market instruments, which continued to offer near -zero yields. Longer duration benchmarks generally performed the best due to larger interest rate declines for longer maturities. For the quarter our approach to duration was cautious, conservatively positioning portfolio durations short of benchmark durations to guard against the negative effect rising interest rates would have on portfolio market values. Although the short bias of this strategy sacrificed some return in the quarter, value -added management techniques including strategic yield curve placement and active sector management, worked to produce returns roughly even with benchmarks. The Federal Reserve has acknowledged a slowing recovery in recent statements, pledging to "provide additional accommodation if needed to support economic recovery and to return inflation, over time, to levels consistent with its mandate." This "additional accommodation" would almost certainly come in the form of further quantitative easing — a process by which the central bank purchases large amounts of government securities in the open market over a period of months in an effort to push interest rates down and support economic expansion. With a slower pace of economic growth and the Fed's renewed focus on easing, it is likely that rates will remain at recent levels for months, opening a window for us to extend durations closer to those of benchmarks. Thus our strategy for the fourth quarter is built around somewhat longer durations to take advantage of the steep yield curve. Despite the sharp decline in long term rates during the third quarter, by historic standards, the spread between 2 -year and 10 -year Treasuries remains wide. With the prospect of low growth and low inflation over the next several quarters, extensions to the range of 90% to 95% of benchmark durations are designed to earn somewhat higher income and benefit from (somewhat diminished) yield curve roll -down, as the Fed signals readiness to push down rates across the yield curve. Interest Rates and Returns Interest rates continued to decline steadily throughout the third quarter, as shown in the chart below, in response to weaker - than - expected economic data. On July 1, a 2 -year U.S. Treasury note offered a yield of 0.63 %, but by September 30 it was yielding only 0.42% — an all - time low. 2 -Year U.S. Treasury Note Yield October 1, 2009 through September 30, 2010 1.20% 1.00% 0.80% 0.60% 0.40% Oct 09 Jan 10 Apr 10 Jul 10 Source data: Bloomberg Markets While short-term rates declined considerably in the quarter, the decline in rates was most dramatic in longer -term securities, where diminishing inflation expectations and the prospect of Fed intervention had a stronger effect. 5- and 10 -year Treasury yields fell 40 to 50 basis points between June and September. The table on the next page shows quarter -end yields for various U.S. Treasury securities, changes in the quarter, and changes for the past 12 months. PFM Asset Management LLC Section A - 1 Village of North Palm Beach, Florida Investment Report - Quarter Ended September 30, 2010 Summary of U.S. Treasury Security Yields Date 3M 6M ly 2Y 3Y 5Y Wy September 30, 2010 0.15% 0.19% 0.25% 0.42% 0.63% 1.26% 2.51% 3une 30, 2010 0.17% 0.22% 0.31% 0.60% 0.97% 1.77% 2.93% Change over Quarter -0.02% -0.03% -0.06% -0.18% -0.34% -0.51% -0.42% September 30, 2009 0.11% 0.17% 0.38% 0.95% 1.42% 2.31% 3.31% Change over Year 0.04% 0.02% -0.13% -0.53% -0.79% -1.05% -0.80% Source data: Bloomberg With the decline in interest rates, the market values of fixed- income portfolios increased considerably, both quarter- over - quarter and year - over -year. As the chart below illustrates, portfolios with longer durations outperformed those with shorter durations. The 1- to 3 -year U.S. Treasury benchmark returned 0.62% (2.50% annualized), while the 3- to 5 -year U.S. Treasury benchmark returned 2.46% (10.21% annualized). The duration of the 3- to 5 -year U.S. Treasury benchmark was 3.85 years, versus 1.89 years for the 1- to 3- year U.S. Treasury benchmark. Total Returns of Merrill Lynch U.S. Treasury Indices Quarterly and 12 -Month Total Return as of September 30, 2010 8% 7.06% f 7% __.-_________.._..--------------- ..------ ..__._.------- ..__._.. _. 6%------------- ----------------------------------- ...__._.__._......_..__ __________....- _-- _- _._._.____. 5% _.._...____._.___. __.___ ....... ......... ...__..._..__._.._____.-- ._._.- 4:23% -------- ..------ 4% _______.._..___.___..______ __.._________.__.___.._.........._.._- 3% ---------------- ..__________.__ ___ _ -_ 2.53%____- _______..__ ____- 2..460 2% _._- _________.._- __________.______ 1:32% 1% __..0:- 13 %._.._._. 0.62% 1 0.04% 4 no/ 3 3mo 1 -3yr Quarter 1 -5yr 3 -5yr ■ 1 Year Source data: Bank of America Merrill Lynch; Bloomberg Markets The yield curve flattened sharply, reducing the benefit of roll -down. Short-term rates remain near zero, intermediate rates have fallen to record lows, and longer rates have fallen 100 to 150 basis points from their April highs. During the quarter, the difference between 2- and 10- year U.S. Treasury yields was as high as 2.45 %, but by quarter end, the difference had fallen to 2.09 %. The spread between U.S. Treasury and Federal Agency rates fluctuated within a narrow range during the quarter, though it remained tight by historic standards, reflecting a perception of reduced risk and increased liquidity for agency debt. For example, the spread on 2 -year maturities ranged between 16 and 23 basis points, and the spread on 5 -year maturities ranged between 20 and 28 basis points, all well below historical averages. Duration Adjusted Returns of Merrill Lynch 1 -3 Year Indices Quarterly and 12 -Month Total Return as of September 30, 2010 6% 5% 4% 3% 2% 1% 0% U.S. Treasury Federal Agency AA /AAA Corporate M Current Quarter ■ Past 12 Months Source data: Bank ofAmerica Merrill Lynch: Bloomberg Markets Duration - adjusted return incorporates an adjustment to the market value return (but not the income return) of each benchmark to account for their varied durations, making it easier for investors to assess the relative risk and return of benchmarks of dijferent lengths. Spreads between Treasuries and corporate securities narrowed in response to improving corporate balance sheets and greater investor appetite for risk, contributing to the strong performance of the corporate sector. As the chart above illustrates, on a duration - adjusted PFM Asset Management LLC Section A - 2 Village of North Palm Beach, Florida Investment Report – Quarter Ended September 30, 2010 basis, Treasury and Agency benchmarks performed roughly in line with one another, while corporate benchmarks significantly outperformed. As corporate spreads continued to narrow in the quarter, we generally increased corporate holdings, selectively purchasing the securities of highly -rated issuers on our approved list. In many portfolios we incorporated commercial paper, which offered some additional value over short-dated Treasury bills, Agency discount notes, and money market instruments. Economic Outlook Economic data was generally weak in the third quarter, pointing toward a slowing recovery and uncertain prospects for future growth. The final measurement of second quarter GDP was an anemic 1.7% and economist estimates call for third quarter growth of under 2.0 %. Economic conditions remain subject to considerable uncertainty, with the most likely scenario being modest growth and little -to -no inflation for the foreseeable future. The current pace of expansion is insufficient to make a real dent in unemployment, with nearly 8 million jobs lost since 2008. Unemployment remains persistently high, near 10 %, with most businesses still hesitant to add new employees. The housing sector remains weak, with housing starts, building permits, and sales relatively unchanged in recent months, and housing prices showing no signs of recovery. The pace of manufacturing activity has accelerated, but is hardly booming, as evidenced by only small upticks in factory orders, stable manufacturing employment, and continued low rates of capacity utilization. Retail sales, though positive year- over -year, are not strong enough to provide significant fuel to recovery. Global economies, particularly in Asia and emerging markets, are out- pacing the U.S. The dollar weakened significantly in the quarter (from $1.19 to $1.35 versus the Euro at quarter -end), as fears of a European meltdown diminished and growth picked up in Western Europe. Oil and commodity prices have risen based on the prospect for stronger global demand. These developments should ultimately aid U.S. export sectors and large, global businesses based in the U.S., but do little to aid small, domestic firms. The Federal Reserve has become increasingly focused on inflation — or, more properly, the lack thereof. As the following chart shows, though underlying price data show modest inflation, the majority of Fed governors have signaled support for a new round of quantitative easing that would involve the central bank purchasing $1 trillion of government securities in an effort to push long -term interest rates even lower, ultimately encouraging modest price increases that would help debtors and, perhaps, stimulate spending. 6% 5% 4% 3% 2% 1% 0% -1% -2 % -3% Core and Non -Core Consumer Price Index August 2005 through August 2010 a - - -- Consumer Price Index Core CPI 1% Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Source data: U.S. Department of Labor, Bureau of Labor Statistics Investment Strategy Given the increased likelihood that low interest rates will persist over the next several quarters, we plan to manage portfolios slightly closer to those of their respective benchmarks. This cautious duration extension should offer an opportunity to add value, while providing enough flexibility to respond to changing interest rate scenarios. We remain concerned that when interest rates rise from their record lows, PFM Asset Management LLC Section A - 3 Village of North Palm Beach, Florida Investment Report — Quarter Ended September 30, 2010 as they surely will, longer duration investments will experience market value declines that will lead to strongly negative returns for an extended period. We believe the best defense is to keep portfolios somewhat shorter; even though such a strategy may give up some return in the short run, it will mitigate the effects of a rise in rates. With rates at record lows, even a slight increase has the potential to more than offset interest income, resulting in a negative total return. We also plan to maintain or increase holdings of assets other than Treasuries because, although credit spreads are generally narrow, strong government and central bank action to promote economic growth and keep interest rates low should aid these types of investments. PFM Asset Management LLC Section A - 4 Village of North Palm Beach Current Quarter Previous Quarter Current Quarter Investment Report - Quarter Ended September 30, 2010 Effective Duration(Years)' September 30, 2010 June 30, 2010 Yields September 30, 2010 June 30, 2010 Quarterly Summary Report 1.52 1.61 Yield at Market 0.45% 0.65% Total Portfolio Value' September 30, 2010 June 30, 2010 Yield at Cost 1.23% 1.17% Market Value $7,619,296.04 $8,126,012.05 94.97 Total Amortized Cost $7,525,218.03 $8,050,764.79 S108.83613 $8,950.88 Current Quarter Previous Quarter Quarterly Return Annualized Last Last Since Inception Total Returnl•'a -VV`s September 30, 2010 Quarter 12 Months 24 Months June 30, 2009 Investment Portfolio 0.55% 2.19% 2.42% N/A 2.57% Merrill Lynch 1 -3 Year U.S. Treasury Index 0.62% 2.47% 2.53% N/A 2.65% Notes. I. In order to comply with GASB accrual accounting reporting requirements: fomard selling Vedas are ncluded inthe monthly balaM95. 2. End of quarter lmde -dale market values of podfoio holdings, Including accrued interest, 3. The IMmsmsdI Pordoln's core balance ncreased due to a S1 milon CD malumg on 12MM9 and sn-Isd as pad of core balance. 4. Performance on trade dale basis. gross (i.e., before fees), is n accordance mint The CFA Institute's Global 1- fraenl Pefoormance Standards (GIPS). 5. M-1 Lynch lad- p-ded by Bloomberg FnanOut Market. 6. Quarterly returns are presented on both an unannuatmd and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return wil be the result of chainng the most recenl four quarterly returns. 1. InMdes moneymarkel f nadfcash in performance and duration comprdaliUns. 6. Returns presented for 12 months or longer we presented on an annual bass. 9. Past performance fs not ndicalrre of future results. PFM Asset Management Id.0 Section A - 1 Current Quarter Previous Quarter Current Quarter Previous Quarter Effective Duration(Years)' September 30, 2010 June 30, 2010 Yields September 30, 2010 June 30, 2010 Investment Portfolio 1.52 1.61 Yield at Market 0.45% 0.65% Merrill Lynch 1 -3 Year U.S. Treasury Index Z 1.81 1.82 Yield at Cost 1.23% 1.17% Portfolio Duration % of Benchmark Duration 84% 89% 94.97 Total Notes. I. In order to comply with GASB accrual accounting reporting requirements: fomard selling Vedas are ncluded inthe monthly balaM95. 2. End of quarter lmde -dale market values of podfoio holdings, Including accrued interest, 3. The IMmsmsdI Pordoln's core balance ncreased due to a S1 milon CD malumg on 12MM9 and sn-Isd as pad of core balance. 4. Performance on trade dale basis. gross (i.e., before fees), is n accordance mint The CFA Institute's Global 1- fraenl Pefoormance Standards (GIPS). 5. M-1 Lynch lad- p-ded by Bloomberg FnanOut Market. 6. Quarterly returns are presented on both an unannuatmd and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return wil be the result of chainng the most recenl four quarterly returns. 1. InMdes moneymarkel f nadfcash in performance and duration comprdaliUns. 6. Returns presented for 12 months or longer we presented on an annual bass. 9. Past performance fs not ndicalrre of future results. PFM Asset Management Id.0 Section A - 1 Quarter Total Return Comparison Previous Quarter Quarter Ended 09/30/10 1.25% Fiscal Year 2009 1.00% September 30, 2010 E 0.75% ML 1 -3 Year U.S. Treasury Index tY 0.50% Investment Portfolio 0.62% 0.55 0.25% $17,130.44 1.50 Investment Portfolio 0.00% 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) Notes. I. In order to comply with GASB accrual accounting reporting requirements: fomard selling Vedas are ncluded inthe monthly balaM95. 2. End of quarter lmde -dale market values of podfoio holdings, Including accrued interest, 3. The IMmsmsdI Pordoln's core balance ncreased due to a S1 milon CD malumg on 12MM9 and sn-Isd as pad of core balance. 4. Performance on trade dale basis. gross (i.e., before fees), is n accordance mint The CFA Institute's Global 1- fraenl Pefoormance Standards (GIPS). 5. M-1 Lynch lad- p-ded by Bloomberg FnanOut Market. 6. Quarterly returns are presented on both an unannuatmd and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return wil be the result of chainng the most recenl four quarterly returns. 1. InMdes moneymarkel f nadfcash in performance and duration comprdaliUns. 6. Returns presented for 12 months or longer we presented on an annual bass. 9. Past performance fs not ndicalrre of future results. PFM Asset Management Id.0 Section A - 1 Total Return Comparison Since Inception as of Previous Quarter Quarter Ended 09/30/10 3.50% Fiscal Year 2009 3.00 September 30, 2010 June 30, 2010 Investment Portfolio ML 1 -3 Year U.S. Treasury Index c 2.50% - 2.57% 2.65% W 2.00 $17,130.44 1.50 Investment Portfolio $108,801.81 $8,855.91 1.00% 0.50 1.00 1.50 2.00 2.50 3.00 Effective Duration (Years) Notes. I. In order to comply with GASB accrual accounting reporting requirements: fomard selling Vedas are ncluded inthe monthly balaM95. 2. End of quarter lmde -dale market values of podfoio holdings, Including accrued interest, 3. The IMmsmsdI Pordoln's core balance ncreased due to a S1 milon CD malumg on 12MM9 and sn-Isd as pad of core balance. 4. Performance on trade dale basis. gross (i.e., before fees), is n accordance mint The CFA Institute's Global 1- fraenl Pefoormance Standards (GIPS). 5. M-1 Lynch lad- p-ded by Bloomberg FnanOut Market. 6. Quarterly returns are presented on both an unannuatmd and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return wil be the result of chainng the most recenl four quarterly returns. 1. InMdes moneymarkel f nadfcash in performance and duration comprdaliUns. 6. Returns presented for 12 months or longer we presented on an annual bass. 9. Past performance fs not ndicalrre of future results. PFM Asset Management Id.0 Section A - 1 Current Quarter Previous Quarter Fiscal Year 2010 Fiscal Year 2009 Quarterly Interest Income September 30, 2010 June 30, 2010 Fiscal Year Interest Income Year to Date Year to Date Investment Portfolio $17,130.44 $36,433.03 Investment Portfolio $108,801.81 $8,855.91 TD Bank Money Market Fund 5.71 4.67 TD Bank Money Market Fund 34.32 94.97 Total $17.136.15 $36,437.70 Total S108.83613 $8,950.88 Current Quarter Previous Quarter Fiscal Year 2010 Fiscal Year 2009 Quarterly Realized Gain/Loss on Cost September 30, 2010 June 30. 2010 Fiscal Year Realized Gain /Loss on Cost Year to Date Year to Date Investment Portfolio $241.83 $14,885.05 Investment Portfolio $21,419.26 $7,165.26 Notes. I. In order to comply with GASB accrual accounting reporting requirements: fomard selling Vedas are ncluded inthe monthly balaM95. 2. End of quarter lmde -dale market values of podfoio holdings, Including accrued interest, 3. The IMmsmsdI Pordoln's core balance ncreased due to a S1 milon CD malumg on 12MM9 and sn-Isd as pad of core balance. 4. Performance on trade dale basis. gross (i.e., before fees), is n accordance mint The CFA Institute's Global 1- fraenl Pefoormance Standards (GIPS). 5. M-1 Lynch lad- p-ded by Bloomberg FnanOut Market. 6. Quarterly returns are presented on both an unannuatmd and annualized basis. The annualized return assumes the quarterly return is compounded at the same rate for four quarters and is presented for reference only. The actual annual return wil be the result of chainng the most recenl four quarterly returns. 1. InMdes moneymarkel f nadfcash in performance and duration comprdaliUns. 6. Returns presented for 12 months or longer we presented on an annual bass. 9. Past performance fs not ndicalrre of future results. PFM Asset Management Id.0 Section A - 1 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2010 Executive Summary ➢ 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 FDIC guaranteed corporate securities. The securities are allocated among high quality issuers rated AAA. ➢ By the end of the third quarter, the markets' fears over the European sovereign debt crisis were still not fully alleviated. Market participants, as well as members of the Federal Open Market Committee, have painted a dreary picture of slow economic growth for the foreseeable future. Second quarter growth in the U.S. was 1.7 %, down from an initial reading of 2.4 %. This figure was disappointing, both in terms of its overall low level and compared to growth of 3.7% and 5.0% in the previous two quarters. y Minutes from recent Federal Open Market Committee meetings show that the fed may maintain the fed funds target rate at 0% to 0.25% for the foreseeable future. The majority of fed governors have signaled new quantitative easing strategies, with the potential for purchasing $1 trillion of longer - term government debt. The fed would need to create cash in order to purchase these securities. The securities would most likely be purchased from banks, thus increasing banks' excess reserves. In doing so, the hope is that these increases in bank reserves will allow the banks to increase their lending, and ultimately stimulate economic growth. y We have already seen the effects of the feds proposed quantitative easing, as intermediate -term rates have recently fallen to new lows. If the fed moves forward with and is successful in implementing quantitative easing, intermediate -term interest rates may fall even more. The high level of uncertainty regarding future economic growth may cause continued volatility in market rates. Over the quarter, yields on most high quality intermediate -term securities fell, which pushed prices (and total returns) higher. Portfolios with longer durations generally outperformed those with shorter durations, all else equal. Overall, yields ended the quarter lower due to economic releases showing disappointing growth, lackluster housing and job markets, and low inflation. We continued to emphasize safety and liquidity in our management of the portfolio. At the beginning of the quarter, we targeted a duration of 89% of the benchmark duration in order to benefit from the yield and roll down offered by the steep yield curve. We were slightly short of the benchmark to provide some market value protection if rates rose quickly. Over the quarter, as rates decreased, we allowed the duration of the portfolio to drift shorter to 84% of the benchmark duration in anticipation of rising rates. As a result of being shorter than the benchmark, the portfolio's return of 0.55 %, slightly underperformed the benchmark's return of 0.62% by 7 basis points (0.07 %). We will continue to position the portfolio short of the benchmark in this period of historic low interest rates to limit interest rate risk and the market value erosion that will occur if rates rise. PFM will continue to follow the prudent investment strategies that have safely provided the Village with favorable long -term performance during this period of historic low interest rates. r In the current market, we are focusing on the duration structure of the portfolio rather than the maturity structure. We are targeting durations at 95% of portfolio benchmarks. Our portfolio strategy involves a barbell structure, where funds are split between short -term federal agency floating rate securities and intermediate -term securities in the 18 -36 month range. We would look to invest a portion of intermediate -term securities in 2 and 3 year federal agency securities while maintaining the portfolio's duration structure within the target range. PFM Asset Management LLC Section B -1 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2010 Investment Portfolio Composition and Credit Quality Characteristics Security Type' September 30, 2010 % of Portfolio June 30 2010 % of Portfolio U.S. Treasuries $3,130,133.90 41.1% $3,681,048.46 45.3% Federal Agencies 2,865,411.52 37.6% 2,852,699.78 35.1% 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 1,533,388.13 20.1% 1,525,155.95 18.8% Mortgage Backed 0.00 0.0% 0.00 0.0% Money Market Fund /Cash 90,362.49 1.2% 67,107.86 0.8% Totals $7,619,296.04 100.0% $8,126,012.05 100.0% Portfolio Composition as of 09/30/10 Money Market Corporate Fund/ Cash Cor p 1.19/0 Notes /Bonds - _ FDIC Insured 20% -% U.S. Treasuries 41% s, l =. Federal Agency Obligations 38% 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. 3. A rating of'TSY" indicates the security is an obligation of, or explicitly guaranteed by the U. S. Government. Credit Quality Distribution 3 as of 09/30/10 58% PFM Asset Management LLC Section B - 2 Village of North Palm Beach Investment Report - Quarter Ended September 30, 2010 Investment Portfolio Maturity Distribution Maturity Distribution' September 30, 2010 June 30, 2010 Overnight (Monedy Market Fund) $90,362.49 $67,107.86 Under 6 Months 0.00' 0.00 6 - 12 Months 1,199,121.86 877,261.26 1 - 2 Years 4,346,541.40 4,890,664.66 2 - 3 Years 1,983,270.29 2,290,978.27 3 - 4 Years 0.00 0.00 4 - 5 Years 0.00 0.00 5 Years and Over 0.00' 0.00 70% 60% 50% 0 a0 40% m 1° 30% 0 0 rn 20% m c v 10% m 11 0% 1% 1% Overnight Totals $7,619,296.04 $8,126,012.05 16% 711% 0% 0% Portfolio Maturity Distribution' 57% 28% ❑September 30, 2010 ❑June 30, 2010 0% 0% 0% 0% 0% 0% Under 6 Months 6 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 5 Years and Over 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' Asset Allocation as of September 30,2010* Security Type September 30, 2010 September 30, 2010 Notes Permitted by Policy Florida Prime (SBA) 320,002.38 2.48% 2 25% United States Treasury Securities 3,092.675.57 24.00% 3,887,660.65 too % United States Government Agency Securities - 0.00% Funds 100% Federal Instrumentalities 2,829,071.97 21.96% 33% 50% Certificates of Deposit - 0.00% or Savings Account 100% Repurchase Agreements - 0.00% Securities 0% Commercial Paper - 0.00% Florida Prime (SBA) 2.48% 0% Corporate Notes 1.513,108.00 11.74% 33% 25% Mortgage - Backed Securities - 0.00% 0% Bankers' Acceptances - 0.00% 0% Money Market Mutual Funds 1,241,061.03 9.63% 50% Intergovernmental Investment Pool - 0.00% 25% Interest Bearing Checking or Savings Account „ 3,887.660.65 30.18% 2 100% Village Managed $5,358,361.57 41.59% PFM Managed $7,525,218.03 58.41% Total 12,883,579.60 100.00% Individual Issuer Breakdown September 30, 2010 September 30, 2010 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 Act Debentures - 0,00% 100% US Public Housing Notes & Bonds - 0.00% 1100% US Dept. of Housing and Urban Development - 0.00% 100% Federal Farm Credit Bank (FFCB) 659,917.63 5.12% 10% Federal Home Loan Bank (FHLB) 669,892.87 5.20% 10% Federal National Mortgage Association (FNMA) 705,112.63 5.47% 10% Federal Home Loan Mortgage Corporation (FHLMC) 794,148.84 6.16% 10% Student Loan Marketing Association (SLMA) - 0.00% 0% Notes: 1. All Assets. 2. These Accounts are managed by the Village. 'PFM managed securities are shown on Amortized Cost plus Accrued Interest basis. Individual Issuer Breakdown September 30, 2010 Asset AI location Notes Permitted by Policy CD - BankA as or September 30, 2010 0.00% 33% Corpomte Notes - - 0.00% 11.74% Interest Bearing Checking or Savings Account - Wachovia 3,887,660.65 30.18% Money Market Mutual Federal Instrumentalities _ - I _ Funds 21.96 1% '.yii 9.63% 4.76% 33% General Electric Corporate Notes - FDIC insured Interest Bearing Checking 3.63% 33% or Savings Account United States Treasury 3.16% 33% 30.18% Securities 0.00% 33% Corporate Notes E 24.00% Florida Prime (SBA) 2.48% 33% Individual Issuer Breakdown September 30, 2010 September 30, 2010 Notes Permitted by Policy CD - BankA - 0.00% 33% CD - BankB - - 0.00% 33% Interest Bearing Checking or Savings Account - Wachovia 3,887,660.65 30.18% 2 50% Interest Bearing Checking or Savings Account - B - 0.00% 50% Citigroup Corporate Notes - FDIC insured 612,895.81 4.76% 33% General Electric Corporate Notes - FDIC insured 493,186.77 3.63% 33% Bank of America Corporate Notes - FDIC insured 407,025.42 3.16% 33% Corporate Notes D - 0.00% 33% Corporate Notes E - 0.00% 33% Money Market Fund - TD Bank Sweep Account 90,362.49 0.70% 33% Money Market Fund - Wells Fargo Advantage Fund `.. 1,150,698.54 8.93% 2 33% PFM Asset Management LLC Section C -1 �]� 7t x - 1 FM 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 doler @pfm.com Contents Cover /Disclosures Summary Statement Individual Accounts Accounts included in Statement NORTH PALM BEACH INVESTMENT PORTFOLIO Online Access www.pfm.com VILLAGE OF NORTH PALM BEACH SAMIA JANJUA 501 US HIGHWAY 1 NORTH PALM BEACH, FL 33408 Customer Service 1- 717 - 232 -2723 ivPFM` Important Disclosures 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. 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 ( "FIN RA ") 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, 2010 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 A 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 �M„ Managed Account Summary Statement For the Month Ending September 30, 2010 NORTH PALM BEACH INVESTMENT PORTFOLIO 61350001 Transaction summary - Managed Account Cash Transactions summary - Managed Account Opening Market Value $8,051,818.58 Maturities /Calls 0.00 Maturities /Calls 0.00 Sale Proceeds 556,600.34 Principal Dispositions (555,898.64) Coupon /Interest Income 4,851.13 Principal Acquisitions 549,779.52 Principal Payments 0.00 Unsettled Trades (550,507.53) Security Purchases (549,991.23) Change in Current Value 5,030.37 Net Cash Contribution 0.00 Reconciling Transactions 0.00 Closing Market Value $7,500,222.30 Earnings Reconciliation (Cash Basis) - Managed Account Cash Balance Interest /Coupons Received 5,552.83 Closing Cash Balance $90,362.49 Less Purchased Interest Related to Interest/Coupons (211.71) Plus Net Realized Gains /Losses 241.83 Total Cash Basis Earnings $5,582.95 Earnings Reconciliation (Accrual Basis) Total Ending Amortized Value of Securities 7,406,144.29 Ending Accrued Interest 28,711.25 Plus Proceeds from Sales 1,107,715.11 Plus Proceeds of Maturities /Calls /Principal Payments 0.00 Plus Coupons Received 4,851.13 Less Cost of New Purchases (549,991.23) Less Beginning Amortized Value of Securities (7,961,616.49) Less Beginning Accrued Interest (25,962.96) Total Accrual Basis Earnings $9,851.10 Account 61350001 Page 1 PFM Asset Management LLC .® i Portfolio Summary and Statistics NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Description Par Value Market Value Percent U.S. Treasury Bond / Note 3,090,000.00 3,124,790.61 41.66 U.S. Government Supported Corporate 1,480,000.00 1,520,033.44 20.27 Debt Federal Agency Bond / Note 2,820,000.00 2,855,398.25 38.07 Managed Account Sub -Total 7,390,000.00 7,500,222.30 100.00% Accrued Interest 28,711.25 Total Portfolio 7,390,000.00 7,528,933.55 Unsettled Trades 0.00 0.00 US TSY Bond / 41. For the Month Ending September 30, 2010 Fed Agy Bond / Note 38.07% US Govt Supported Corp Debt 20.27% Yield to Maturity at Cost 1.23% Yield to Maturity at Market 0.45% Duration to Worst 1.65 Weighted Average Days to Maturity 610 =PF`i' Account 61350001 Page 2 PFM Asset Management LLC PFM" Managed Account Issuer Summary NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Total $7,500,222.30 100.000/0 TSY 41.66% For the Month Ending September 30, 2010 58.34% -21= :1• Account 61350001 Page 3 aUPFM Asset Management LLC Market Value Issuer of Holdings Percent BANK OF AMERICA CORP TLGP 409,855.20 5.46 CITIGROUP INC 615,599.20 8.21 FANNIE. MAE 716,006.60 9.55 FEDERAL FARM CREDIT BANKS 659,927.73 8.80 FEDERAL HOME LOAN BANKS 676,398.45 9.02 FREDDIE MAC 803,065.47 10.71 GENERAL ELECTRIC CO 494,579.04 6.59 UNITED STATES TREASURY 3,124,790.61 41.66 Total $7,500,222.30 100.000/0 TSY 41.66% For the Month Ending September 30, 2010 58.34% -21= :1• Account 61350001 Page 3 aUPFM Asset Management LLC Awiiiiil= __ WFManaged Account Detail of Securities Held NORTH PALM BEACH INVESTMENT PORTFOLIO- 61350001 Security Type/ Description S &P Moody's Trade Settle Original YTM Dated Date /Coupon /Maturity CUSIP Par Rating Rating Date Date Cost at Cost US TREASURY NOTES DTD 05/31/2009 0.875% 05/31/2011 US TREASURY NOTES DTD 07/31/2009 1.000% 07/31/2011 US TREASURY NOTES DTD 07/31/2009 1.000% 07/31/2011 US TREASURY NOTES DTD 07/31/2009 1.000% 07/31/2011 US TREASURY NOTES DTD 08/31/2009 1.000% 08/31/2011 US TREASURY NOTES DTD 03/31/2010 1.000% 03/31/2012 US TREASURY NOTES DTD 03/31/2010 1.000% 03/31/2012 US TREASURY NOTES DTD 12/15/2009 1.125% 12/15/2012 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 08/15/2010 0.750% 08/15/2013 For the Month Ending September 30, 2010 Accrued Amortized Market Interest Cost Value 220,000.00 TSY TSY 09/01/10 09/07/10 219,974.22 0.75 210.73 219,974.80 220,825.00 Security Type Sub -Total 3,090,000.00 3,085,402.76 1.16 5,343.29 3,087,332.28 3,124,790.61 U.S. Government Supported Corporate Debt CITIGROUP INC (FDIC) GLOBAL NOTE 110,000.00 AAA Aaa 12/16/09 12/17/09 113,974.30 1.02 983.89 112,388.98 113,179.66 DTD 12/09/2008 2.875% 12/09/2011 �Al. Account 61350001 Page 4 PFM Asset Management .LLC Managed Account Detail of Securities Held For the Month Ending September 30, 2010 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 INC (FDIC) GLOBAL NOTE DTD 01/30/2009 2.125% 04/30/2012 36967HAD9 06050BAG6 17313UAE9 480,000.00 400,000.00 490,000.00 AAA AAA AAA Aaa Aaa Aaa 08/28/09 12/29/09 01/06/10 08/31/09 12/30/09 01/07/10 496,651.20 405,171.20 497,541.10 1.44 1.53 1.45 4,480.00 3,523.33 4,367.47 488,706.77 403,502.09 495,155.47 494,579.04 409,855.20 502,419.54 Security Type Sub -Total 1,480,000.00 1,513,337.80 1.44 13,354.69 1,499,753.31 1,520,033.44 Federal Agency :. Note 03/04/2010 1.625% 04/15/2013 FNI* Account 61350001 Page 5 PFM Asset Management LLC Amlrwr-- Managed Account Detail of Securities Held For the Month Ending September 30, 2010 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 Security Type Sub -Total 2,820,000.00 2,819,305.39 1.19 10,013.27 2,819,058.70 2,855,398.25 Managed Account Sub -Total 7,390,000.00 7,418,045.95 1.23 28,711.25 7,406,144.29 7,500,222.30 Securities Sub -Total $7,390,000.00 $7,418,045.95 1.23% $28,711.25 $7,406,144.29 $7,500,222.30 Accrued Interest $28,711.25 Total Investments PFM Asset Management LLC $7,528,933.55 Account 61350001 Page 6 Add-_ � PFM' Managed Account Fair Market Value & Analytics For the Month Ending September 30, 2010 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 TREASURY NOTES 912828NUO 220,000.00 BK AMER 100.38 220,825.00 850.78 850.20 2.84 0.62 DTD 08/15/2010 0.750% 08/15/2013 Security Type Sub -Total 3,090,000.00 3,124,790.61 39,387.85 37,458.33 1.65 0.40 CITIGROUP INC (FDIC) GLOBAL NOTE 110,000.00 BK AMER 102.89 113,179.66 (794.64) 790.68 1.17 0.44 DTD 12/09/2008 2.875% 12/09/2011 � N-1• Account 61350001 Page 7 PFM Asset Management LLC PFNT' Managed Account Fair Market Value & Analytics For the Month Ending September 30, 2010 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 GENERAL ELEC CAP CORP (FDIC) GLOBAL 490,000.00 RBS_SEC 102.53 502,419.54 4,878.44 7,264.07 1.55 0.52 DTD 01/30/2009 2.125% 04/30/2012 Security Type Sub -Total 1,480,000.00 1,520,033.44 6,695.64 20,280.13 1.40 0.49 Agency Federal :. Note FHLMC GLOBAL NOTES 300,000.00 JPMCHASE 102.27 306,801.00 7,221.00 7,143.13 2.47 0.72 DTD 03/04/2010 1.625% 04/15/2013 �`i' Account 61350001 Page 8 PFM Asset Management LLC Managed Account Fair Market Value & Analytics For the Month Ending September 30, 2010 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 Security Type Sub -Total 2,820,000.00 2,855,398.25 36,092.86 36,339.55 1.78 0.49 Managed Account Sub -Total 7,390,000.00 7,500,222.30 82,176.35 94,078.01 1.65 0.45 Securities Sub -Total $7,390,000.00 $7,500,222.30 $82,176.35 $94,078.01 1.65 0.45% Accrued Interest $28,711.25 Total Investments $7,528,933.55 `t. Account 61350001 Page 9 PFM Asset Management LLC M w PF Managed Account Security Transactions & Interest NORTH; PALM BEACH INVESTMENT PORTFOLIO - 61350001 Transaction Type Principal Accrued Trade Settle Security Description CUSIP Par Proceeds Interest 09/01/10 09/07/10 US TREASURY NOTES 350,000.00 349,640.34 0.00 349,640.34 729.23 299.89 FIFO -- 0.000% 05/05/2011 ��4' Account 61350001 Page 10 PFM Asset Management .LLC Managed Account Security Transactions & Interest NORTH PALM BEACH INVESTMENT PORTFOLIO - 61350001 Transaction Type Principal Accrued Trade Settle Securitv Description CUSIP Par Proceeds Interest For the Month Ending September 30, 2010 Realized G/L Realized G/L Sale Total Cost Amort Cost Method 09/30/10 05/31/2009 0.875% 05/31/2011 Transaction Type Sub -Total 1,105,000.00 1,106,406.17 1,308.94 1,107,715.11 2,916.38 2,034.53 Managed Account Sub -Total 3,135,000.00 556,626.65 5,948.36 562,575.01 2,916.38 2,034.53 Total Security Transactions $3,135,000.00 $556,626.65 $5,948.36 $562,575.01 $2,916.38 $2,034.53 Bolded items are forward settling trades � `t Account 61350001 Page 11 qu PFM Asset Management LLC