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CURRENT INVESTMENT STRATEGY: The effective rate of return on the portfolio has stayed the same at 1.32 percent from last quarter and decreased by 0.42 percent from 1.74 percent reported at the same time last year. Since the beginning of the pandemic, as the Federal Reserve continued lowering interest rate, a majority of City's federal agency callable investments has been called and replaced with lower yield investments. As of September 30, 2021, yields from federal agency callable bonds in City's portfolio ranged from 0.550 to 1.790 percent while the U.S. 5 -year treasury note yields 0.967 percent and the U.S. 10 -year treasury note yields 1.487 percent. However, with recent data showing signs of higher and longer -lasting inflation, yield is getting higher. Staff expects that yield continues increasing until the end of December and Agencies are less likely to call the current bonds in City portfolio. Staff monitors closely to identify cash available for investment and continues to invest in longer-term securities to secure a higher interest rate, while matching maturities with future cash needs. 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 investment is 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 for a total of $16.7 million deposited into the Conservative portfolio.