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AGENDA July 25, 2016
2:00 P.M. Board of Commissioners of Public Lands
101 E. Wilson Street, 2nd Floor Madison, Wisconsin
Routine Business: 1) Call to Order
2) Approve Minutes – July 5, 2016 (Attachment)
3) Approve Loans (Attachment)
Old Business:
None
New Business:
None
Routine Business: 4) Future Agenda Items
5) Executive Secretary’s Report
• Investment Report – 2nd Quarter 2016
6) Adjourn
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Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 1 of 12
State of Wisconsin Board of Commissioners of Public Lands
BOARD MEETING JULY 25, 2016
AGENDA ITEM 2
APPROVE MINUTES
Attached for approval are the minutes from the July 5, 2016, board meeting.
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 2 of 12
State of Wisconsin Board of Commissioners of Public Lands
Board Meeting Minutes July 5, 2016
Present were: Doug La Follette, Commissioner Secretary of State Matt Adamczyk, Commissioner State Treasurer Brad Schimel, Board Chair Attorney General Jonathan Barry, Executive Secretary Board of Commissioners of Public Lands Tom German, Deputy Secretary Board of Commissioners of Public Lands Richard Sneider, Loan Analyst and Board of Commissioners of Public Lands Chief Investment Officer Vicki Halverson, Office Manager Board of Commissioners of Public Lands Brian Hellmer UW – Madison School of Business Mark Ready UW – Madison School of Business
ITEM 1. CALL TO ORDER Board Chair Schimel called the meeting to order at 2:02 p.m. ITEM 2. APPROVE MINUTES – JUNE 20, 2016 MOTION: Board Chair Schimel moved to approve the minutes; Commissioner La Follette seconded the motion. DISCUSSION: None. VOTE: The motion passed 3-0. ITEM 3. APPROVE LOANS Executive Secretary Barry reported that the loans had been reviewed for proper public purpose. Municipality Municipal Type Loan Type Loan Amount 1. Bayfield City General Obligation $101,706.79 Bayfield County Rate: 3.50% Application #: 02016207 Term: 20 years Purpose: Finance water main and street projects 2. Bayfield City General Obligation $140,000.00 Bayfield County Rate: 3.50% Application #: 02016208 Term: 20 years Purpose: Finance water main project 3. Bayfield City General Obligation $90,138.36 Bayfield County Rate: 3.50% Application #: 02016209 Term: 13 years Purpose: Refinance BCPL loan #2016020
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 3 of 12
Minutes July 5, 2016 Page 2 of 5 Board of Commissioners of Public Lands
4. Bayfield City General Obligation $94,693.72 Bayfield County Rate: 3.50% Application #: 02016210 Term: 18 years Purpose: Refinance BCPL loan #2016023 5. Bayfield City General Obligation $712,599.10 Bayfield County Rate: 3.50% Application #: 02016211 Term: 19 years Purpose: Refinance BCPL loan #2016017 6. Green Lake City General Obligation $175,000.00 Green Lake County Rate: 2.50% Application #: 02016214 Term: 5 years Purpose: Purchase industrial park land 7. Harrison Village General Obligation $250,000.00 Calumet and Outagamie Counties Rate: 2.50% Application #: 02016213 Term: 5 years Purpose: Purchase snow plow truck 8. Ontario Village General Obligation $25,000.00 Vernon County Rate: 2.50% Application #: 02016206 Term: 5 years Purpose: Finance street project 9. Pleasant Springs Town General Obligation $75,000.00 Dane County Rate: 2.50% Application #: 02016217 Term: 1 years Purpose: Finance road projects 10. Waupaca City General Obligation $545,000.00 Waupaca County Rate: 3.00% Application #: 02016212 Term: 6 years Purpose: Finance 2016 capital projects 11. West Allis - West Milwaukee, Et. Al. School General Obligation $3,000,000.00 Milwaukee and Waukesha Counties Rate: 3.00% Application #: 02016215 Term: 10 years Purpose: Finance capital improvement projects TOTAL $5,209,137.97 MOTION: Board Chair Schimel moved to approve the loans; Commissioner La Follette seconded the motion. DISCUSSION: Commissioner Adamczyk expressed concern that loan customers are allowed to refinance existing State Trust Fund Loans (STFL) with a new loan in order to capture lower interest rates. Commissioner La Follette asked if this has to be allowed and if a STFL can be refinanced more than once. Executive Secretary Barry replied that it does not have to be allowed and loans can be refinanced more than once. He added that customers are required to borrow additional funds in order to refinance an existing loan. While the
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 4 of 12
Minutes July 5, 2016 Board of Commissioners of Public Lands Page 3 of 5 policy could be reviewed and evaluated, not allowing STFLs to be refinanced in-house could result in a loss of income to the portfolio if customers refinance with another lending institution. VOTE: The motion passed 2-1. Commissioner La Follette and Board Chair Schimel voted aye; Commissioner Adamczyk voted no. ITEM 4. DISCUSS DRAFT INVESTMENT POLICY AND ASSET ALLOCATION MODEL Board Chair Schimel introduced Brian Hellmer and Mark Ready from the UW-Madison School of Business and thanked them for their input and assistance in helping the Board’s staff develop an investment policy and asset allocation model. Executive Secretary Barry said that BCPL was granted prudent investment authority by the legislature in 2015. In order to utilize this authority in a careful and prudent manner, the Board must adopt an investment policy. He added that staff was not asking for the Board’s approval at the meeting but rather allow time for them to review the draft policy and submit questions and suggestions. Perhaps within a month the Board would be ready to approve a final policy. Richard Sneider explained that an investment policy would:
• guide future investment decision-making because the Prudent Investment Standard allows for more investment options;
• provide a guide for all future investments and ensure long-term prudence by current and future Commissioners and agency staff;
• create the opportunity for the Board to earn capital gains while reducing risk by establishing a “smoothing fund;” and
• put more Trust Fund principal to work, thereby increasing earnings for the beneficiaries. The draft investment policy presented to the Board was developed with the following in mind:
• beneficiaries rely on a stable, sustainable income distribution to support K-12 public school libraries; • distributions to beneficiaries can only be made from income earnings as the State Constitution requires
School Trust Fund principal be retained in the trust; and • the rate of growth of the Common School Fund’s principal from unclaimed property and fees, fines and
forfeitures has declined, which impacts the amount of monies available for investing. Executive Secretary Barry said that minimum annual earnings distributions of 3.5% of trust fund principal balances had been established as a target to meet beneficiaries’ expectations. He asked Mr. Sneider to explain the smoothing fund. Mr. Sneider said that a segregated fund (i.e., smoothing fund) would be established using income earnings above the targeted 3.5%. These funds could then be used to supplement distributions during years when income does not meet the targeted annual distribution. Commissioner La Follette inquired about the timing of the earnings distribution and whether retaining the earnings in the smoothing fund was permitted. Deputy Secretary German replied that the while the state constitution requires that fund earnings be distributed annually, the distribution occurs mid-year so any earnings received after that time would be retained for future distribution. Mr. Sneider added that once the smoothing fund becomes fully developed, the distributable earnings might very well exceed the 3.5% target and would be based on distributions over the last five years. The Commissioners, staff and professionals from the UW-Madison School of Business discussed the risk/return characteristics surrounding the expanded investment authority and how to mitigate the risks while generating returns.
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 5 of 12
Minutes July 5, 2016 Page 4 of 5 Board of Commissioners of Public Lands Commissioner Adamczyk expressed his desire that SWIB (State of Wisconsin Investment Board) invest a portion of School Trust Funds for the Board and cited information indicating that their average return on investments over the past 20 years was 7.4%. His preference would be to limit investments in State Trust Fund Loans (STFL) and allow SWIB to invest those funds. Executive Secretary Barry said that the Board was providing a service to local governments and school districts with competitive rate loans while earning a good rate of return with very low risk. He added that the investment policy was necessary whether the School Trust Funds are invested by staff or SWIB. Commissioner La Follette noted that there were two aspects to the July 5 meeting and those included whether the Board agreed with the draft investment policy and, if adopted, establishing an asset allocation model for investments. He asked staff what action the Board needed to take, if any. Board Chair Schimel replied that no action would be taken on the matter at this time and the Commissioners should review the policy further. The Board could take action at a future meeting, perhaps in a month. Commissioner La Follette asked Brian Hellmer and Mark Ready for their comments. Mr. Hellmer said the draft policy takes advantage of the new investment opportunities allowed by the legislation while establishing a fund with limited earnings volatility from year-to-year. In regards to State Trust Fund Loans, the relationship between the earnings and risk in this investment is very favorable and having a portion of the portfolio’s assets in this investment is desirable. While deposits to the Common School Fund from fees, fines and forfeitures, and unclaimed property have not kept pace with inflation, investing in instruments that result in capital gains would help to increase the principal of the Trust Funds. The Commissioners discussed how best to diversify the fund investments and whether that would be managed by staff or an outside entity. Mr. Sneider said that cost is an important factor when retaining an investment firm to manage the Board’s assets but a passively-managed index fund could be a cost effective alternative. Board Chair Schimel noted that staff had record investment earnings over the last couple years in spite of the low interest rate environment. He asked what type of activity, other than low interest rates, would trigger the use of the smoothing account. Mr. Sneider replied that investing a significant portion of Trust Funds in non-incoming producing assets. Deputy Secretary German noted that 10-year Treasury bond interest rates are at an all-time low and the expanded investment authority provides additional options for investing in instruments that earn higher rates of return. Commissioner Adamczyk said statutes allow for the sale of State Trust Fund Loans and asked about the logistics involved should the Board choose to sell them. Mr. Sneider said the loans could be packaged into a security and sold to an investor. Commissioner Adamczyk said he had talked to officials in the Governor’s office and Legislature about the possibility of BCPL investing in real estate; specifically, constructing or purchasing buildings that would house state agencies and then leasing the building to state agencies. Board Chair Schimel noted that any lease revenues would be offset by building maintenance costs. Asked if legislation had been drafted, Commissioner Adamczyk said no but he had discussions with a Legislator who would be willing to assist with that. The Commissioners and staff discussed the pros and cons of such a venture. ITEM 5. FUTURE AGENDA ITEMS None. ITEM 6. EXECUTIVE SECRETARY’S REPORT Nothing to report.
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 6 of 12
Minutes July 5, 2016 Board of Commissioners of Public Lands Page 5 of 5 ITEM 7. ADJOURN MOTION: Commissioner Adamczyk moved to adjourn the meeting; Commissioner La Follette seconded the motion. The meeting adjourned at approximately 3:35 p.m. Jonathan B. Barry, Executive Secretary These minutes have been prepared from a recording of the meeting. The summaries have not been transcribed verbatim. Link to audio recording: ftp://doaftp1380.wi.gov/doadocs/BCPL/2016-07-05_BCPL-BoardMtgRecording.mp3
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 7 of 12
State of Wisconsin Board of Commissioners of Public Lands BOARD MEETING JULY 25, 2016 AGENDA ITEM 3 APPROVE LOANS Municipality Municipal Type Loan Type Loan Amount
1. Brandon Village General Obligation $50,000.00 Fond Du Lac County Rate: 3.00% Application #: 02017008 Term: 10 years Purpose: Purchase sewer jetter 2. Grant Town General Obligation $218,200.00 Clark County Rate: 3.00% Application #: 02016218 Term: 10 years Purpose: Purchase road grader 3. Liberty Town General Obligation $234,000.00 Manitowoc County Rate: 2.50% Application #: 02017001 Term: 3 years Purpose: Finance road construction and repair 4. Marion City General Obligation $250,000.00 Shawano and Waupaca Rate: 3.00% Counties Application #: 02017009 Term: 10 years Purpose: Purchase property and reconstruct alley/parking lot 5. Menasha School General Obligation $3,000,000.00 Calumet, Outagamie and Rate: 3.00% Winnebago Counties Application #: 02017003 Term: 10 years Purpose: Finance property acquisition and facility improvements 6. Mishicot Village General Obligation $25,500.00 Manitowoc County Rate: 2.50% Application #: 02017007 Term: 5 years Purpose: Finance road maintenance 7. Richfield Village General Obligation $1,000,000.00 Washington County Rate: 3.50% Application #: 02017002 Term: 20 years Purpose: Construct municipal building 8. Shiocton Village General Obligation $45,000.00 Outagamie County Rate: 3.00% Application #: 02017005 Term: 7 years Purpose: Finance fire hall updates
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 8 of 12
Board of Commissioners of Public Lands Board Meeting – July 25, 2016 Agenda Item 3 – Approve Loans Page 2 Municipality Municipal Type Loan Type Loan Amount 9. Summit Village General Obligation $325,000.00 Waukesha County Rate: 2.50% Application #: 02017004 Term: 5 years Purpose: Finance 2016 capital improvements 10. Whiting Village General Obligation $70,000.00 Portage County Rate: 2.50% Application #: 02017006 Term: 2 years Purpose: Finance street improvements TOTAL $5,217,700.00
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 9 of 12
State of Wisconsin Board of Commissioners of Public Lands
BOARD MEETING JULY 25, 2016
AGENDA ITEM 5 EXECUTIVE SECRETARY’S REPORT
BCPL Trust Fund Investment Management Investment Report - Second Quarter 2016
Q2 Investment Highlights and Outlook Interest rates continued to plummet during the second quarter, with the yield on the benchmark 10 year Treasury declining from 1.77% to 1.47%. Immediately following the end of the quarter, rates plunged to a record low of 1.323% (nearly 1% lower than seen at the end of 2015), and have since recovered to around 1.58%. Treasury securities continue to provide a safe haven for institutional investors worldwide, while growing concerns about a slowdown in global economic activity continues to provide downward pressure on market interest rates. Brexit and further acts of terrorism have contributed to interest rate volatility. Loan demand remains strong and relative yields on the loan portfolio continue to impress. The average interest rate on loans is 3.85% with an average maturity of slightly less than 6.5 years. A comparable Treasury security yielded only 1.17% at the end of the second quarter. With interest rates remaining near historic lows (causing bond prices to be relatively high), staff finds it difficult to uncover good values in the current municipal and farm credit bond markets. Approval of a new investment policy may provide additional opportunities for investment of cash reserves and increasing expected investment returns. Summary and Benchmark Comparison The overall expected yield of funds managed by BCPL was 3.39% at the end of second quarter, a slight increase against the backdrop of plummeting worldwide interest rates. This result was primarily due to our investment in Wisconsin Center District bonds and an increase in the total BCPL State Trust Fund Loan portfolio, which have excellent yields relative to cash held within the State Investment Fund. The best measure for comparing investment performance against our benchmark is the SEC yield, which provides a standard methodology that is available for the mutual funds and bond market indexes that comprise our benchmark. Adjustments to account for our better average credit rating and longer maturity increase the BCPL yield to 1.22 % greater than benchmark returns. Attachment – BCPL Investment Summary 2nd Quarter 2016
Executive Summary
BCPL investment performance continues to exceed benchmark returns. After adjusting returns for differences in both credit quality and average maturity, BCPL-managed portfolios had a yield 1.22% more than our benchmark. This difference in yield means that beneficiaries earned $3.27 million more than would have been generated by an investment in the benchmark portfolio during the second quarter. This investment performance equates to an annualized $13.1 million in interest earnings above benchmark returns that is attributable to the BCPL asset management team. Not included in the above income calculations is a 19.6% increase in total unrealized gains within the bond portfolio during the second quarter. Total unrealized gains now total over $23 million, an increase of 4.6% above the initial cost of these investments.
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 10 of 12
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age
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ghte
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lio S
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Prep
ared
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ard
Snei
der
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 11 of 12
1 Exp
ecte
d Yi
eld
is th
e w
eigh
ted
aver
age
yiel
d to
the
rede
mpt
ion
date
for e
ach
bond
, and
ass
umes
that
issu
ers w
ill re
deem
bon
ds a
t the
ear
liest
pos
sible
dat
e, w
hen
it is
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est i
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arke
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led
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is nu
mbe
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qual
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he 'y
ield
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all'
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urity
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nd W
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ting
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e un
ique
set o
f BCP
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thor
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inve
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ents
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sistin
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BCP
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ate
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an P
rogr
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nd b
onds
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y th
e St
ate
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nd W
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unic
ipal
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d sc
hool
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re a
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hat p
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mat
ch th
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arac
teris
itics
of t
he B
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port
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wev
er, t
he c
hose
n be
nchm
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rovi
de th
e be
st o
ppor
tuni
ty to
com
pare
BCP
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vest
men
ts to
fund
s man
aged
by
oth
er p
rofe
ssio
nals.
The
just
ifica
tions
of i
nclu
ding
indi
vidu
al b
ench
mar
k co
mpo
nent
s are
pro
vide
d be
low
. Co
mpo
nent
wei
ghtin
g be
gins
with
an
estim
ate
of a
vera
ge li
quid
ity le
vels
requ
ired
thro
ugho
ut th
e ye
ar, w
ith a
dditi
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incl
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est
imat
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prop
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d ta
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d ta
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bon
d yi
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evel
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tere
st ra
tes.
3 Ave
rage
Cre
dit Q
ualit
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xcep
t for
the
BCPL
loan
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tfol
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ll av
erag
e cr
edit
qual
ity ra
tings
show
n eq
ual t
he w
eigh
ted
aver
age
cred
it ra
ting
of in
divi
dual
secu
ritie
s hel
d w
ithin
eac
h po
rtfo
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ting
for t
he lo
an p
ortf
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rovi
ded
to
impr
ove
the
abili
ty to
com
pare
BCP
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nds t
o ot
her f
unds
. Th
e Aa
1 ra
ting
pres
umed
for t
he lo
an p
ortf
olio
is c
onsid
ered
reas
onab
le, a
s the
re h
as n
ot b
een
a sin
gle
defa
ult i
n th
e St
ate
Trus
t Fun
d lo
an p
rogr
am si
nce
ince
ptio
n in
18
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nd B
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has t
he st
atut
ory
right
and
requ
irem
ent t
o cu
re a
ny fu
ture
def
ault
by in
terc
eptin
g st
ate
aid
othe
rwise
due
the
borr
ower
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utua
l Fun
d cr
edit
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ity is
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vide
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ning
star
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bal l
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ale
of M
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vest
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dged
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ing
in o
rder
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hig
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to lo
wes
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lity
then
incl
udes
: Aa
, A, B
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with
in e
ach
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ic c
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ory.
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estm
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ies h
ave
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hig
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ng In
term
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te T
erm
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able
Mun
icip
al B
ond
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x - T
his t
axab
le m
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ipal
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d in
dex
is in
clud
ed a
s a b
ench
mar
k co
mpo
nent
bec
ause
it p
rope
rly re
flect
s the
inve
stm
ent s
trat
egie
s of B
CPL
man
aged
Tru
st F
unds
, inc
ludi
ng b
oth
the
dire
ct in
vest
men
t in
taxa
ble
mun
icip
al b
onds
and
the
influ
ence
of t
axab
le b
ond
yiel
ds o
n th
e de
velo
pmen
t of l
oan
prog
ram
inte
rest
rate
s. T
he S
&P
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Inte
rmed
iate
Ter
m T
axab
le M
unic
ipal
Bon
d In
dex
mat
ches
the
wei
ghte
d av
erag
e m
atur
ity a
nd d
urat
ion
of to
tal B
CPL
man
aged
fund
s fai
rly w
ell,
alth
ough
BCP
L m
aint
ains
bet
ter a
vera
ge c
redi
t qua
lity.
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s ind
ex is
com
prise
d of
all
taxa
ble
bond
s iss
ued
by a
ny st
ate
(incl
udin
g th
e Co
mm
onw
ealth
of P
urto
Ric
o an
d U
.S.
terr
ioto
ries s
uch
as th
e U
.S. V
irgin
Isla
nds a
nd G
uam
) with
an
inve
stm
ent g
rade
ratin
g (m
inim
um S
&P
BBB-
or M
oody
s Baa
3), a
min
imum
par
am
ount
of $
1 m
illio
n, a
nd re
mai
ning
mat
urity
bet
wee
n 5
and
15 y
ears
. Av
erag
e cr
edit
qual
ity
leve
l is n
ot p
ublis
hed
by S
&P,
but
was
cal
cula
ted
at th
e w
eigh
ted
aver
age
ratin
g of
am
ount
s hel
d w
ithin
the
sepe
rate
S&
P AA
A, A
A, A
, and
BBB
Rat
ed T
axab
le M
unci
pal B
ond
Indi
ces u
sing
a fo
rmul
a de
velo
ped
by S
chw
ab P
ortf
olio
Cen
ter,
the
port
folio
ana
lysis
soft
war
e us
ed b
y BC
PL.
Ove
rall,
a w
eigh
ting
of 6
0% is
app
ropr
iate
giv
en th
e av
erag
e le
vels
of c
ash
and
tax-
exem
pt in
vest
men
ts h
eld
by th
e Tr
ust F
unds
thro
ugho
ut th
e ye
ar.
8 Wis
cons
in T
ax-E
xem
pt B
ond
Fund
s - T
ax-e
xem
pt b
ond
fund
s are
incl
uded
as a
ben
chm
ark
com
pone
nt fo
r thr
ee re
ason
s: B
CPL
inve
sts d
irect
ly in
tax-
exem
pt b
onds
whe
n av
aila
ble
at a
ccep
tabl
e te
rms;
a si
gnifi
cant
por
tion
of lo
ans m
ade
thro
ugh
the
BCPL
Sta
te T
rust
Fun
d Lo
an P
rogr
am fu
nd p
roje
cts t
hat w
ould
qua
lify
as ta
x-ex
empt
; and
cur
rent
tax-
exem
pt b
ond
yiel
ds a
re a
n im
port
ant f
acto
r in
the
cons
truc
tion
of lo
an p
rogr
am in
tere
st ra
tes.
The
re a
re th
ree
bond
m
utua
l fun
ds th
at in
vest
prim
arily
in W
iscon
sin S
tate
and
Mun
icip
al B
onds
, inv
estm
ents
that
are
sim
ilar t
o th
e se
curit
ies a
ppro
ved
for B
CPL
inve
stm
ent.
Thes
e fu
nds a
re sp
onso
red
by W
ells
Farg
o, N
uvee
n an
d N
atio
nwid
e Zi
egle
r, an
d th
ere
are
signi
fican
t diff
eren
ces b
etw
een
the
man
agem
ent o
f the
se m
utua
l fun
ds a
nd B
CPL
trus
t fun
ds.
All t
hree
mut
ual f
unds
are
lim
ited
to ta
x-ex
empt
inve
stm
ents
, a u
nive
rse
of se
curit
ies t
hat g
ener
ally
pro
vide
low
er y
ield
s tha
n th
e ta
xabl
e in
stru
men
ts fa
vore
d by
BCP
L. O
n th
e ot
her h
and,
all
thre
e of
thes
e fu
nds i
nves
t sub
stan
tial a
mou
nts i
n bo
nds t
hat h
ave
cons
ider
able
def
ault
risk
incl
udin
g bo
nds i
ssue
d by
the
Com
mon
wea
lth o
f Pue
rto
Rico
, com
mun
ity d
evel
opm
ent
reve
nue
bond
s, ho
spita
l rev
enue
bon
ds, a
nd o
ther
bon
ds ty
pes n
ot a
vaila
ble
with
in th
e ris
k pa
ram
eter
s of t
he B
CPL
inve
stm
ent a
utho
rity.
Ove
rall,
a w
eigh
ting
of 3
0% fo
r thi
s ben
chm
ark
com
pone
nt is
app
ropr
iate
giv
en th
e le
vel o
f Tru
st
Fund
inve
stm
ent i
n ta
x-ex
empt
inst
rum
ents
and
the
influ
ence
of t
ax-e
xem
pt b
ond
rate
s on
the
inte
rest
rate
s cha
rged
with
in th
e lo
an p
rogr
am.
5 Cas
h - C
ash
and
cash
equ
ival
ents
incl
udes
all
inve
stm
ents
in th
e St
ate
Inve
stm
ent F
und
and
Farm
Cre
dit a
djus
tabl
e ra
te n
otes
, and
all
fund
s man
aged
by
ADM
in F
DIC-
insu
red
depo
sit a
ccou
nts.
7 S&
P U
.S. T
reas
ury
Bill
Inde
x - T
he U
.S. T
reas
ury
Bill
Inde
x re
pres
ents
the
aver
age
cash
pos
ition
hel
d by
the
Trus
t Fun
ds th
roug
hout
the
year
, and
is in
clud
ed b
ecau
se B
CPL
mai
ntai
ns si
gnifi
cant
leve
ls of
liqu
idity
nee
ded
to fu
nd e
xpec
ted
trus
t fun
d lo
an d
eman
d ov
er th
e ne
xt 3
-6 m
onth
s. T
he a
mou
nt o
f por
tfol
io li
quid
ity (c
ash)
var
ies s
igni
fican
tly th
orou
ghou
t the
yea
r, an
d is
impa
cted
by
fact
ors i
nclu
ding
the
inte
rest
rate
env
ironm
ent,
the
abse
nce
of p
repa
ymen
t pen
altie
s w
ithin
the
loan
pro
gram
, and
the
stat
utor
y pa
ymen
t str
uctu
re re
quiri
ng a
nnua
l loa
n pa
ymen
ts o
n M
arch
15
each
yea
r. Th
e S&
P U
.S T
reas
ury
Bill
inde
x is
a m
arke
t wei
ghte
d in
dex
that
incl
udes
all
U.S
. Tre
asur
y Bi
lls w
ith m
atur
ities
rang
ing
from
0-1
2 m
onth
s. B
ecau
se a
n in
dex
is no
t a m
anag
ed p
ortf
olio
, but
onl
y a
colle
ctio
n of
secu
ritie
s with
in a
spec
ific
set o
f crit
eria
, man
agem
ent e
xpen
ses a
re n
ot in
clud
ed.
Ove
rall,
a w
eigh
ting
of 1
0% fo
r thi
s ben
chm
ark
com
pone
nt is
ap
prop
riate
giv
en th
e av
erag
e le
vels
of c
ash
held
by
the
Trus
t Fun
ds th
roug
hout
the
year
.
9 Tot
al R
etur
n An
alys
is -
A to
tal r
etur
n an
alys
is in
clud
ing
the
perio
dic
chan
ge in
ass
et v
alue
s in
addi
tion
to e
arni
ngs w
ould
pro
vide
a m
ore
com
preh
ensiv
e an
d ac
cura
te c
ompa
rison
bet
wee
n th
e re
turn
s gen
erat
ed b
y BC
PL m
anag
ed fu
nds
and
our b
ench
mar
k. H
owev
er, t
otal
retu
rn a
naly
sis re
quire
s acc
urat
e as
set v
alua
tion
in o
rder
to p
rovi
de a
reas
onab
le b
asis
for m
easu
ring
man
agem
ent p
erfo
rman
ce.
A sig
nific
ant p
ortio
n of
BCP
L m
anag
ed a
sset
s are
inve
sted
in lo
ans t
o m
unci
palit
ies a
nd sc
hool
dist
ricts
thro
ugh
the
BCPL
Sta
te T
rust
Fun
d Lo
an P
rogr
am.
BCPL
has
nev
er so
ld a
trus
t fun
d lo
an a
nd h
as a
lway
s hel
d th
ese
inve
stm
ents
to m
atur
ity.
Ther
e is
curr
ently
no
form
ula
or m
odel
ava
ilabl
e to
det
erm
ine
an a
ccur
ate
mar
ket v
alue
of t
he lo
an p
ortf
olio
. Sh
ould
BCP
L se
ll lo
ans i
n th
e fu
ture
and
est
ablis
h a
seco
ndar
y m
arke
t in
BCPL
Sta
te T
rust
Fun
d Lo
ans,
tota
l ret
urn
anal
ysis
may
pro
vide
an
impr
ovem
ent o
ver t
he c
urre
nt m
etho
d of
yie
ld
com
paris
on a
s the
mod
el fo
r mea
surin
g B
CPL
inve
stm
ent p
erfo
rman
ce a
gain
st th
e ap
prop
riate
ben
chm
arks
.
2 SE
C Yi
eld
- The
SEC
yie
ld sh
ould
not
be
conf
used
with
the
expe
cted
yie
ld o
n in
vest
ed fu
nds.
The
SEC
yie
ld w
ill v
ary
subs
tant
ially
with
mar
ket c
ondi
tions
bec
ause
it is
cal
cula
ted
usin
g th
e cu
rren
t mar
ket v
alue
of a
sset
s, an
d th
e va
lue
of
fixed
inco
me
asse
ts fl
uctu
ates
with
mar
ket i
nter
est r
ates
. Fo
r exa
mpl
e, a
lthou
gh in
tere
st p
aym
ents
pro
duce
d by
an
indi
vidu
al b
ond
rem
ain
cons
tant
follo
win
g th
e iss
uanc
e of
the
bond
, the
SEC
yie
ld o
n th
is bo
nd w
ill in
crea
se w
ith m
arke
t in
tere
st ra
tes s
olel
y be
caus
e th
e va
lue
of th
e bo
nd d
ecre
ases
(yie
ld =
inco
me/
valu
e).
If al
l bon
ds a
re h
eld
to m
atur
ity, t
he a
ctua
l ret
urn
to th
e in
vest
or w
ould
equ
al th
e "y
ield
to m
atur
ity a
t cos
t ".
This
calc
ulat
ion
is no
t pro
vide
d fo
r be
nchm
ark
com
pone
nts a
nd is
ther
efor
e no
t inc
lude
d in
this
com
paris
on.
Man
y in
vest
ors p
refe
r to
use
"yie
ld to
wor
st",
whi
ch c
alcu
late
s the
retu
rn u
sing
the
low
er o
f the
"yie
ld to
cal
l" an
d "y
ield
to m
atur
ity".
The
mos
t app
ropr
iate
m
etho
d to
com
pare
bon
d po
rtfo
lios i
s to
look
at T
otal
Ret
urn ,
whi
ch c
ombi
nes b
oth
inco
me
and
chan
ges i
n th
e m
arke
t val
ue o
f the
und
erly
ing
asse
ts (s
ee n
ote
8 be
low
). B
CPL
does
not
hav
e th
e ab
ility
to u
se T
otal
Ret
urn
as a
met
hod
of
com
paris
on b
ecau
se th
e Tr
ust F
und
Loan
Por
tfol
io h
as n
ever
bee
n va
lued
. Ra
ther
, the
SEC
Yie
ld is
use
d fo
r com
paris
on b
ecau
se it
is a
stan
dard
ized
met
hodo
logy
for c
alcu
latin
g yi
eld
as re
quire
d by
the
Secu
ritie
s and
Exc
hang
e Co
mm
issio
n fo
r all
mut
ual f
unds
and
pro
vide
s a m
eans
to c
ompa
re B
CPL
man
aged
fund
s to
a sim
ple
benc
hmar
k. T
he S
EC y
ield
is a
clo
se a
ppro
xim
atio
n to
the
net y
ield
to m
atur
ity o
f the
fund
usin
g th
e cu
rren
t mar
ket v
alue
of t
he fu
nd, a
nd is
ca
lcul
ated
as t
he y
ield
to th
e in
vest
or (a
fter
fund
exp
ense
s and
fees
) dur
ing
the
prev
ious
30
days
ass
umin
g al
l bon
ds a
re h
eld
to m
atur
ity.
The
SEC
Yie
ld fo
r the
Sta
te In
vest
men
t Fun
d is
for t
he m
ost r
ecen
t mon
th a
vaila
ble.
Not
es to
BCP
L Be
nchm
ark
Com
paris
on:
Board of Commissioners of Public Lands Board Meeting - July 25, 2016 Page 12 of 12