September 18, 2014

Portfolio StrategyIn a

Rising Interest RateEnvironment

Federal Reserve Comments

• Short Term Interest Rates are projected to stay low until mid 2015

• Quantitative Easing will end in October 2014

Interest Rate Changes*

10 year Treasury Note

5 year Treasury Note

2 year Treasury Note

1 year Treasury Note

3 month Treasury Note

1.66 %

0.65 %

0.20 %

0.11 %

0.05 %

2.82 %

1.66 %

0.40 %

0.14 %

0.03 %

8/23/135/2/13

*Source – US Treasury website

9/2/14

2.42%

1.68 %

0.52 %

0.09 %

0.03 %

Strategy

• Within 5 year limitations, keep the average life very short. (As of 8/2/14, average life is 2.2 years.)

• Continue to invest and reinvest at rates higher than LAIF.

• Hold bonds to maturity to assure yield and mitigate market price changes.

LAIF vs. WFA Investment AccountAnnualized Quarterly Returns

LAIF returns are from the California State Treasurers website.

WFA Account returns are taken from past quarterly reports.

Year March June September December

         

2009 1.91% 1.51% 0.90% 0.60%

2009 4.00% 4.32% 3.20% 1.36%

2010 0.56% 0.56% 0.51% 0.46%

2010 1.32% 1.96% 1.64% 0.28%

2011 0.51% 0.48% 0.38% 0.38%

2011 0.48% 2.24% 0.00% 1.08%

2012 0.38% 0.36% 0.35% 0.32%

2012 2.76% 0.84% 2.48% 0.24%

2013 0.28% 0.24%  0.26%  0.26%

2013 1.52% -2.60%  2.36%  1.32%

2014 0.23% 0.23%

2014 2.12% 2.04%

Cambrian School District Overview

Investment Policy Statement

Based on State Statutes 53600-53610

Objectives• Safeguard Principal• Meet liquidity needs• Achieve a return on funds

Beat return on LAIF over a 3-5 year period

Cambrian School District Overview

Investment Policy Statement (cont’d)

Allowed Investments• Treasury Securities• Agency Securities

Fannie Mae Freddie Mac Federal Home Loan Bank Others

• Corporate Debt Securities rated A or better at time of purchase:limit 30% of portfolio

• Certificates of Deposit: limit 30% of portfolio• State and local agency securities• Maximum maturity 5 years

Wells Fargo Investment Overview

History of Capital Projects Investment Account

Source of Funds – Sale of School Site(s) 1994 approach to Prudential Securities to diversify

away from LAIF and increase returns Development of Investment Policy Statement Move to A.G. Edwards in 2004 Wachovia purchased Edwards in 2007 Wells purchased Wachovia in 4th quarter of 2008

Asset allocation: Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

Fixed income securities: Investing in fixed income securities involves certain risks, such as market risk if sold prior to maturity and credit risk, especially if investing in high-yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments are subject to availability and change in price and may be worth less than original cost upon redemption or maturity. In addition to market risk, there are certain other risks associated with an investment in fixed income funds, such as default risk, the risk that the company issuing debt securities will be unable to repay principal and interest, and interest rate risk, the risk that the security may decrease in value if interest rates increase. 

International/emerging market securities or funds: Investing in international securities or funds that invest in these securities takes on special risk. These risks include, but are not limited to, currency risk, political risk and risk associated with varying accounting standards. Investing in emerging markets normally accentuates these risks.

Sector funds or portfolios: The investor should note that funds or portfolios that invest exclusively in one sector or industry carry additional risks. The lack of industry diversification subjects the investor to increased industry-specific risks.

Non-diversified funds or portfolios: Non-diversified funds or portfolios that invest more of their assets in a single issuer involve additional risks, including share price fluctuations, because of increased concentration of investments.

Small-cap securities or funds: The prices of small- and mid-cap company stocks are generally more volatile than large-company stocks. They often involve higher risks because small- and mid-cap companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

High-yield bonds or bond funds: Investing in lower-rated debt securities (commonly referred to as junk bonds) or funds that invest in such securities involves additional risk because of the security’s or fund portfolio’s lower credit quality. These securities or funds are subject to a higher level of volatility and increased risk of default, or loss of principal. In addition to market risk, there are certain other risks associated with an investment in a convertible bond, such as default risk, the risk that the company issuing debt securities will be unable to repay principal and interest, and interest rate risk, the risk that the security may decrease in value if interest rates increase.

Real estate investment trusts (REITS): Investing in REITS involves special risks, including the potential for illiquidity of REIT securities if they are not listed on an exchange. REITS have limited historical data, and their historical behavior has varied over time.

Government bonds and Treasury bills: Government bonds and Treasury bills are guaranteed by the U.S. government, and if held to maturity, offer a fixed rate of return and principal.

Stocks: Stocks are not guaranteed, represent ownership in a company and offer long-term growth potential but may fluctuate more and provide less current income than other investments.

Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors(WFA), LLC, and Wells Fargo Advisors Financial Network (WFAFN), LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. Any other referenced entity is a separate entity from WFA/WFAFN.

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Securities and Insurance Products:

Not Insured by FDIC or any Federal Government Agency May Lose ValueNot a Deposit of or Guaranteed by a Bank or Any Bank Affiliate