INVESTING IN OUR CHICAGO:

QUARTERLY EARNINGS CALL

Presented by
City Treasurer Kurt Summers
A u g u s t 11 , 2 0 1 5 | 1 : 0 0 P M
 BEFORE WE GET STARTED…

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 WELCOME & PURPOSE OF CALL
Status Quo
In the past, the Treasurer’s Office
has produced one annual and
publicly available financial report
which contained a simple overview
of the city’s investments over the
previous year.
Best Practices
As the primary investment
manager for the City of
Chicago, the Treasurer seeks to
be held as accountable as any
other investment management
firm is to their investors. This
call is shaped after some
reporting done by the nation’s
largest investment managers
and public companies.
Transparency &
Accountability
During the Treasurer’s 77 visits to
Chicago’s 77 neighborhoods, the
greatest recommendation by residents
across the City was that their financial
steward provide more transparency
and accountability.
Action
This second-ever Quarterly
Earnings Call for the City of
Chicago is only one step in
financial reporting and
performance tracking of the City’s
investment portfolio. The call will
provide overviews of the global
and national economies as well as
Chicago's current fiscal landscape,
balance sheet, and income
statement. A quarterly scorecard
on the Treasurer’s progress will
also be published online at
chicagocitytreasurer.com
3
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

4
 GLOBAL ECONOMY

Real GDP (Annual Growth Rate) CPI

Country/Region Q1-15 Q2-15 Country/Region Q1-15 Q2-15

United States 0.6 2.3 United States -0.23 0.86

China 7.0 7.0 China -0.09 0.00

Japan -0.9 NA Japan 0.00 0.68

Spain 2.7 3.1 Spain -0.77 1.71

Germany 1.1 NA Germany 0.28 0.00

Brazil -1.6 NA Brazil 3.83 2.26

Mexico 2.5 NA Mexico 0.51 -0.58

• GDP ( Gross Domestic Product) is a measure of economic growth

• CPI (Consumer Price Index) is a measure of price inflation

Chart Source: tradingeconomics.com

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 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

6
 NATIONAL ECONOMY

• The acceleration in real GDP growth in the second quarter reflects an

upturn in exports and consumer spending

• Inflation rose over Q2 after slowing over 2014 with the plunge in energy
prices

• Job growth steadily increased in the second quarter

• Unemployment (seasonally adjusted) decreased from 5.5% to 5.3% over

Q2

Source: BEA, BLS

7
 NATIONAL ECONOMY: OTHER INDICATORS

US US
2014 2015 YTD
Employment Growth (% 2.1 0.7
change)
Average Unemployment Rate 6.2 5.5

Median Household Income 53.1 55.1

(Ths. $)
Houses Prices (% Change) 4.9% 5.7 (YOY)

Single Family Permits (% 2.1 6.1 (YOY)

Change)
Multifamily Permits (% 16.7 70.3 (YOY)
change)
Housing Starts (avg. 1,000.5M 1,061.2M
annualized)

Table sources: Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis; Sentier Research; Federal
Housing Finance Agency; U.S. Census Bureau
8
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

9
 FIXED INCOME MARKET: OVERVIEW

• Why is this important, as individuals, investors, and issuers?

• Highly rated, short term municipal bonds continued to underperform their benchmark

• The Fed rate hike, as addressed by Janet Yellen and Dennis Lockhart, is expected to be a
measured and gradual increase with a possible initial tightening in September:
• “My own preference would be to be able to proceed to tighten in a prudent and gradual
manner.” – Janet Yellen, Chairwoman of the Federal Reserve
• “I remain very disposed to September being a possible date for a liftoff decision.” – Dennis
Lockhart, Atlanta Fed President

• Rising interest rates can cause unrealized losses in fixed income portfolios

• Holdings with longer durations will see larger losses; a gradual increase in rates will allow
portfolio managers to adjust to a rising rate environment

Source: Chicago City Treasurer’s Office, The Wall Street Journal,

CNBC 10
FIXED INCOME MARKET
Treasury Curve

Chart Source: Bloomberg Finance L.P. 11

 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Balance Sheet

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:41 - 1:45
Debrief and Closing

12
 Chicago Bond Ratings (7/15/15)
Moody’s S&P Fitch Kroll City GO CPS GO CPD GO
CREDIT RATINGS Aaa AAA AAA AAA
Bonds Bonds Bonds

TODAY Aa1 AA+ AA+ AA+ S&P

Aa2 AA AA AA Kroll

Investment Grade
Aa3 AA- AA- AA- Fitch
• Moody’s downgraded its A1 A+ A+ A+
ratings of Chicago and sister A2 A A A
agencies’ bonds due to A3 A- A- A- Kroll

concerns about unfunded Baa1 BBB+ BBB+ BBB+ Fitch/S&P Kroll

pension liabilities Baa2 BBB BBB BBB S&P

Baa3 BBB- BBB- BBB-

• Through prudent Ba1 BB+ BB+ BB+ Moody’s Fitch Moody’s

Ba2 BB BB BB
management of City Ba3 BB- BB- BB- Moody’s
investments and day-to-day B1 B+ B+ B+
finances, CTO can help B2 B B B
support the City’s financial B3 B- B- B-
Junk

health Caa1 CCC+ CCC+ CCC+

Caa2 CCC CCC CCC
Caa3 CCC- CCC- CCC-
Ca CC CC+ CC
- C CC C
- - CC- -
D D DDD D 13
 CHICAGO ECONOMY: OVERVIEW

• Chicago’s strong, diversified economy continues to grow across sectors,

demonstrating that the City remains a global economic powerhouse

• Among Chicago’s recent successes:

- Job growth and creation
- Strong real estate market
- Increased tourism
- Major business expansions

Source: World Business Chicago

14
 CHICAGO’S GLOBAL AND DIVERSE ECONOMY

Only 22 countries have a larger GDP than Chicago has the U.S.’s most diverse
Chicago economy. No single sector employs more
than 14% of the workforce

Source: World Business Chicago, City of Chicago 2014 CAFR

15
 CHICAGO ECONOMY: UNEMPLOYMENT

The number of employed residents in

the City increased by an estimated National vs. Chicago Unemployment
2.1% over Q2 2015. Rate
14.0

12.0
Unemployment

Unemployment Rate
Rate
June 2014 June 2015 Year/Year 10.0

8.0
National 6.3% 5.5% -0.8
Chicago 7.9% 6.9% -1.0 6.0
National
4.0 City of Chicago

2.0

0.0

May-09

May-11

May-13

May-15
Jan-08

Jan-10

Jan-12

Jan-14
Sep-08

Sep-10

Sep-12

Sep-14
*Not Seasonally Adjusted

Chart Sources: Bureau of Labor Statistics, World Business Chicago 16

CHICAGO ECONOMY: SELECTED INDICATORS

Indicator Date Most Recent Year Earlier Yr-On-Yr Chg

Employed Residents (1,000) - City May-15 1,275.0 1,259.1 1.3%

Air cargo tonnage (ORD & MDW) May-15 143,977 131,765 9.3%

Major business expansions - MSA Jun-15 YTD 202 - -

Home sales -City May-15 2,700 2,453 10.1%

Median home sales price ($) - City May-15 287,500 269,250 6.8%

Office vacancy rate - downtown Q1 2015 12.7 13.7 -1.0%

Annual visitors (millions) - City May-15 50.17 48.48 3.5%

Air passengers (millions) - ORD & MDW May-15 8.83 8.18 7.9%

Source: World Business Chicago

17
 CHICAGO ECONOMY:
PRIVATE SECTOR EMPLOYMENT

• Private Sector Employment increased by ~16,700 jobs in Q2, which

includes:

–Professional and Business Services (+7,000)

–Leisure and Hospitality (+6,300)
–Financial Activities (+4,400)

Source: World Business Chicago

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 CHICAGO ECONOMY:
INNOVATION, INVESTMENT & EXPANSION

• There are nearly 300 venture capital and seed stage investment firms in
Chicago; between 2010 and 2014, Chicago startups received more than $3
billion in VC funding, with over $1.6 billion in 2014 alone

• In 2014, more than 600 major business expansions were announced,

representing $6.8+ billion in economic development and over 20,000 new
jobs

• Between 2010 and 2013, tech jobs in Chicago grew by 25.8%, edging out
Silicon Valley and all but two peer cities

• In 2015, over a dozen tech companies will add 1,000 jobs in Chicago

Sources: City of Chicago press release, City of Chicago 2014

CAFR 19
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

20
CITY OF CHICAGO: CORPORATE FUND REVENUES
Corporate Fund - Revenue 2014 2014 2015 Projected 2015 Year-End 2016
$ MILLIONS Year-End Est.* Actual** * Estimate*** Projected***
Tax Revenue
Utility Taxes and Fees $464.5 $447.3 $449.4 $441.0
Transaction Taxes $297.4 $309.2 $345.4 $338.9
Transportation Taxes $182.6 $185.0 $191.1 $191.8
Recreation Taxes $184.3 $187.6 $214.5 $217.0
Business Taxes $100.0 $100.0 $111.8 $113.9
Sales and Use Taxes $609.4 $630.9 $651.3 $676.4
Income Tax, PPRT & Other Intergovernmental $294.0 $304.0 $447.0 $441.9
Total Tax Revenue $2,132.2 $2,164.0 $2,410.5 $2,420.9

Non-Tax Revenue
Licenses and Permits $125.0 $126.0 $129.3 $137.1
Fines, Forefeitures and Penalties $360.7 $354.5 $338.7 $330.1
Charges for Services $121.7 $123.6 $122.3 $112.6
Municipal Parking $6.4 $6.4 $7.0 $6.6
Leases, Rentals and Sales $20.3 $20.8 $25.0 $31.2
Reimbursement, Interest & Other $378.3 $397.0 $460.3 $390.7
Total Non-Tax Revenue $1,012.4 $1,021.6 $1,082.6 $1,008.3
Proceeds and Transfers In $57.3 $32.8 $41.6 $33.3
Total Revenue to the Corporate Fund $3,201.9 $3,218.4 $3,534.7 $3,462.5
Appropriated Prior Year Fund Balance $53.4 - $0.0 $0.0
Total Corporate Fund Resources $3,255.3 $3,261.3 $3,218.4 $3,534.7 $3,462.5

*Per City of Chicago 2014 Annual Financial Analysis

**Per City of Chicago 2014 CAFR
***Per City of Chicago 2015 Annual Financial Analysis

Chart Sources: Chicago Office of Budget Management 21

 CITY OF CHICAGO: CORPORATE FUND
EXPENDITURES

Corporate Fund - Expenditures 2014 2014 2015 Proposed 2015 Year-End 2016
$ MILLIONS Year-End Est.* Actual** Budget* Estimate*** Projected***
Salaries and Wages $2,320.1 $2,443.1 $2,436.5 $2,517.4
Healthcare Benefits $377.8 $404.2 $379.0 $413.7
Worker's Compensation $63.1 $66.6 $66.8 $66.1
Contractual Services $358.1 $365.0 $360.1 $382.6
Commodities and Materials $23.9 $24.4 $27.2 $30.0
Utilities $16.1 $16.6 $17.2 $16.7
Motor Fuel $27.1 $29.0 $26.9 $24.8
Claims, Refunds, Judgments, and Legal Fees $32.1 $57.2 $43.8 $63.0
Miscellaneous $26.9 $31.7 $26.0 $30.6
Transfers Out $10.1 $10.0 $10.8 $10.1
Pension Contribution - $67.9 $140.2 $140.2
Total Expenditures $3,255.3 $3,261.3 $3,515.7 $3,534.5 $3,695.2
*Per City of Chicago 2014 Annual Financial Analysis
**Per City of Chicago 2014 CAFR
***Per City of Chicago 2015 Annual Financial Analysis

Chart Sources: Chicago Office of Budget Management 22

 CITY OF CHICAGO
2014 Comprehensive Annual Financial Report

In Thousands of USD FY 2014

Assets
Current Assets 5,514.4
Restricted Assets 4,474.3
Noncurrent Assets 602.4
Total Capital Assets 22,103.7
Total Assets 32,694.8
Liabilities
Current Liabilities 3,512.7
Long Term Liabilities 32,496.9
Total Liabilities 36,009.6
Net Assets
Total Net Assets -3,314.8
Total Liabilities & Net Assets 32,694.8

Chart Source: City of Chicago CAFR 2014 23

CHICAGO’S PENSION FUNDING

• The combined actuarial value funded

ratio of Chicago-area pension funds
has fallen from 69.7%in FY2004 to
47.3% in FY2013.

• Combined unfunded liabilities for the

same eleven funds grew from $14.4 B
in FY2004 to $39 B in FY2013.

Chart Sources: Civic Federation 24

 FEE SAVINGS INITIATIVE

• Chicago’s 11 local pension funds have over $35B in assets and pay $144M in fees
annually. Each plan has its own process of contracting with investment managers,
resulting in plans using the same managers with different fee schedules.

• CTO seeks to lower pension funds’ costs by creating a clearinghouse to allow funds
to share investment and management fee information.

• Currently, 5 of the 11 local funds have adopted a resolution to participate in the

clearinghouse.

• Funds can use shared information to renegotiate fee pricing, potentially saving
more than $1 billion in fees over the plans’ lifetimes.

25
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

26
 CTO INVESTMENTS: PORTFOLIO ALLOCATION
AS OF 6/30/15
Certificate of Commercial Investment Amount Q2 2015 Q2 2014
Deposit Paper Certificate of
Cash 0.09% 6.02% Deposit $ 5,209,528 0.09% 0.24%
8.91% Corporate Commercial
Bonds Paper $ 345,661,128 6.02% 4.02%
7.16% Corporate
Bonds $ 411,380,396 7.16% 5.36%
Money Market
8.78% Money Market $ 504,225,254 8.78% 6.59%
Municipal
Bonds $ 494,822,221 8.61% 8.37%
Municipal
Bonds Treasuries $ 93,452,746 1.63% 0.00%
8.61% U.S. Agency
Bonds $ 3,377,758,973 58.80% 66.07%
Treasuries
Cash $ 511,745,221 8.91% 9.35%
1.63%
U.S. Agency
58.80% Total $ 5,744,255,467 100% 100%

2015 Q1 Q2
CTO Investment
Purchases $ 1,302,340,622.50 $ 2,189,004,884.58

Chart Source: Chicago City Treasurer’s Office 27

 CTO INVESTMENTS:
PORTFOLIO STATISTICS

MATURITY SCHEDULE IN MILLIONS

Portfolio Statistics
10+ years
Average Coupon 0.90% 5 - 10 years
3 - 5 years
Yield to Maturity 0.90%
2 - 3 years
Yield to Call 0.91% 1 - 2 years

WAM 1.90 9 - 12 months

6 - 9 months
Effective Duration 1.54
3 - 6 months
Average Rating AA+ 0 - 3 months
Money Market
Q2 CTO Effective Yield 0.90%
BAML 1-5 Year US Agency Index Cash
Effective Yield 0.87%
$0 $500 $1,000 $1,500 $2,000

Chart Source: Chicago City Treasurer’s Office 28

 CTO INVESTMENTS:
Q2-15 YIELD & DURATION

Q2-15 YIELD Q2-15 DURATION

1.00% 2.50
0.90%
0.80% 2.00
0.70%

Effective Duration
Percent Yield

0.60% 1.50
0.50%
0.40% 1.00
0.30%
0.20% 0.50
0.10%
0.00% 0.00
Treasurer's BAML 1-5 Year US 90 Day BAML 1-5 Year US US 90 Day
Treasurer's Office
Office US Agency Index Treasury Bill Agency Index Treasury Bill
Effective Yield 0.90% 0.87% 0.01% Effective Duration 1.54 2.06 0.25

Chart Source: Chicago City Treasurer’s Office 29

 CTO Advantage

• To manage money for our Sister Agencies utilizing our expertise for investment access, economy of scale,
reduction of internal Agency costs and increased return on investment.

• To afford our Sister Agencies the freedom to utilize their management and core assets directly on
fulfilling their stated missions.

• CTO can manage the day-to-day operations of a Sister Agency’s management portfolio while allowing the
Sister Agency to maintain ultimate decision-making power over their investments.

• In the case of the Chicago Park District, this achieved a greater net return on investments when
compared to prior in-house management and third party managers.

• On July 29, 2015, Chicago City Council approved the IGA between the Public Building Commission (PBC)
and the Office of the City Treasurer (CTO). Implementation is now in process to on-board the portfolio
and effect change to investments and earnings for PBC.

30
 CTO Advantage: Park District Case Study

• CTO-recommended investments to the Chicago Park District (CPD) have met cash
flow requirements and earned CPD over $411,000.00 since implementation of CTO
portfolio management.

31
 Municipal Depository Ordinance

• Introduced on June 17 by Mayor Emanuel and sponsored by Aldermen Tunney and Sawyer; likely to be
voted on by the Finance Committee and City Council early this fall.

• Municipal depositories will reapply for their status on a triennial basis.

• Recent ratings downgrades have shrunk the capacity of banks to provide credit support to the city; it is
more critical than ever that we maintain and expand relationships with banks.

• This streamlined process paves the way to attract more banks as municipal depositories as well as to
protect future credit availability. The ordinance also temporarily authorizes successor entities that have
undergone consolidation.

• The ordinance will require all municipal depository banks to provide reports on their local commercial,
mortgage, and other lending as required by the HMDA and CRA.

32
 Investment Policy Update

On July 29, Mayor Emanuel introduced proposed changes to the City of Chicago’s current Investment Policy that
would improve the security, credit and investment quality of the City’s investment portfolio while also ensuring
greater accountability to Chicago’s taxpayers.

Changes to the policy are broken down into three categories and were introduced to Chicago’s City Council in July:

• Protecting Taxpayers
 Limiting holdings in securities that have exhibited increased volatility or whose limited sector coverage impedes the
transparent flow of information, enhances the risk profile of the portfolio and secures the preservation of principal.

• Increasing Transparency and Accountability

 Mandating the Treasurer’s Office to report to City Council and the public on a regular basis in order to collect important
feedback regarding the City’s investment strategy, ensure timely review of policies given current market conditions and keep
better track of the performance of the City’s portfolio over time.

• Improving Investment Quality

 New improvements to provide the Treasurer’s Office with opportunities to pursue further diversification and enhanced
earnings while securing the credit quality of the City’s investment portfolio.

33
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

34
Q&A

35
 01 1:00 - 1:05
Agenda Introduction, Purpose of Call,
Agenda
05 1:14 - 1:19
Chicago Economy

02 1:05 - 1:08
Global Economy 06 1:19 - 1:24
City of Chicago Finances

03 1:08 - 1:11
National Economy 07 1:24 - 1:29
CTO Investments Update

04 1:11 - 1:14
Fixed Income Market 08 1:29 - 1:40
Q&A

09 1:40 - 1:45
Debrief and Closing

36
 DEBRIEF & CLOSING

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37
Thank You For Joining

38
 DISCLAIMER

PLEASE NOTE:

This presentation has not been prepared to give information for making
decisions on buying or selling securities and should not be relied upon by
investors in making investment decisions.

With respect to any bonds, notes, or other debt issued by the City of
Chicago, please refer for information only to the City’s disclosure documents
and continuing disclosure filings for such bonds, notes, or other debt
obligations.

39