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CURRENT INVESTMENT STRATEGY: The effective rate of return for the recent month on the portfolio decreased to 1.29 percent due to a mix of investment strategy and bond market offerings. Although the City experienced the negative financial impacts resulting from Fed's aggressive emergency rate cut in March 2020 for COVID-19 outbreaks, the City's effective rate of return remained well above the current 5-year US Treasury rates of 0.36 percent as of December 31, 2020. Staff expects a modest rise in the 5-year US Treasury rates to play catch-up with the current equity market condition. Staff continues to invest in longer-term securities to secure the interest rate and match maturities with future cash needs. While short-term yields are highly sensitive to the Federal monetary policy, longer-term yields are more influenced by growth and inflation expectations. Additionally, staff is balancing the portfolio's credit exposure to pick up incremental yields while complying with the City's investment policy's mandate of safety, liquidity, and yield. Staff will continuously monitor this strategy during the fiscal year. Section 115 Trust Fund In June 2018 the City council approved the investment of$28 Million of various reserves into a Section 115 Trust Fund to help smooth the pension liabilities which are expected to grow considerably due to the reduction in the CALPERS discount rate from 7.5 percent to 7 percent. The initial investment was made into two separate portfolios, the first one for $6.7 Million into a Conservative portfolio which is available to pay the annual unfunded liabilities if necessary. In February 2020, Finance staff were authorized to deposit to and withdraw from the Conservative portfolio an additional amount up to the total annual required CaIPERS payment. In March and June 2020, two additional $5 Million contributions were deposited to the Conservative portfolio. Conservative PARS Plan $20 a Sib ! Total Assets $15 as of 12/31/20 $18,169,112 $11.7 $10 $63 SS Jun 18 Sep 18 Der-18 Mar-19 Jun 19 Sep-19 Dec-l:" Mar 20 Jun-20 Sep 20 Der-20 Contribution Total