Loading...
HomeMy WebLinkAbout2009-10-08 FA Regular Meeting Agenda POSTED AGENDA PALM DESERT HOUSING AUTHORITY MEETING THURSDAY, OCTOBER 08, 2009 CIVIC CENTER COUNCIL CHAMBER I. CALL TO ORDER II. ROLL CALL Reports and documents relating to each of the following items on the agenda are on file in the Office of the City Clerk and are available for public inspection during normal business hours, Monday-Friday, 8:00 a.m. – 5:00 p.m., 73510 Fred Waring Drive, Palm Desert, CA 92260, (760) 346-0611. III. CONSENT CALENDAR ALL MATTERS LISTED ON THE CONSENT CALENDAR ARE CONSIDERED TO BE ROUTINE AND WILL BE ENACTED BY ONE ROLL CALL VOTE. THERE WILL BE NO SEPARATE DISCUSSION OF THESE ITEMS UNLESS MEMBERS OF THE CITY COUNCIL OR AUDIENCE REQUEST SPECIFIC ITEMS BE REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE DISCUSSION AND ACTION UNDER SECTION XI, CONSENT ITEMS HELD OVER, OF THE AGENDA. A. MINUTES of the Financing Authority Meeting of August 27, 2009. Rec: Approve as presented. B. REQUEST FOR APPROVAL of the City of Palm Desert "Statement of Investment Policy" (Joint Consideration with the Palm Desert City Council, Palm Desert Redevelopment Agency, and Palm Desert Housing Authority). Rec: By Minute Motion, approve the City of Palm Desert "Statement of Investment Policy," as presented. Action: IV. CONSENT ITEMS HELD OVER V. RESOLUTIONS POSTED AGENDA PALM DESERT HOUSING AUTHORITY MEETING OCTOBER 8, 2009 None VI. NEW BUSINESS None VII. CONTINUED BUSINESS None VIII. OLD BUSINESS None IX. PUBLIC HEARINGS None X. REPORTS, REMARKS, AND AGENCY BOARD ITEMS REQUIRING ACTION A. CHIEF EXECUTIVE DIRECTOR B. AUTHORITY COUNSEL C. PRESIDNET AND MEMBERS OF THE AUTHORITY XI. ORAL COMMUNICATION – C Any person wishing to discuss any item not scheduled for public hearing may address the City Council, Redevelopment Agency, Housing Authority or Financing Authority Boards at this point by stepping to the lectern and giving his/her name and address for the record. Remarks shall be limited to a maximum of three minutes unless additional time is authorized by the City Council, Redevelopment Agency, Housing Authority, or Financing Authority Boards. Because the Brown Act does not allow the City Council, Redevelopment Agency, Housing Authority or Financing Authority Boards to take action on items not on the Agenda, members will not enter into discussion with speakers but will instead refer the matter to staff for report and recommendation at a future City Council, Redevelopment Agency, Housing Authority, or Financing Authority meeting. 2 POSTED AGENDA PALM DESERT HOUSING AUTHORITY MEETING OCTOBER 8, 2009 XII. ADJOURNMENT I hereby certify, under penalty of perjury under the laws of the State of California, that the foregoing agenda for the Palm Desert City Council was posted on the City Hall bulletin board not less than nd 72 hours prior to the meeting. Dated this 2 day of October, 2009. ________________________________ Rachelle D. Klassen, City Clerk 3 DR AFT PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING THURSDAY, AUGUST 27, 2009 CIVIC CENTER COUNCIL CHAMBER 73510 FRED WARING DRIVE, PALM DESERT, CA 92260 CALL TO ORDER - 3:00 P.M. President Spiegel convened the meeting at 3:00 p.m. II. ROLL CALL Present: Commissioner Jean M. Benson Commissioner Jim Ferguson Vice President Cindy Finerty Commissioner Richard S. Kelly President Robert A. Spiegel Also Present: John M. Wohlmuth, City Manager/RDA Executive Director David J. Erwin, City Attorney Justin McCarthy, ACM for Redevelopment & Housing Stephen Y. Aryan, Assistant to the City Manager Rachelle D. Klassen, City Clerk Bo Chen, City Engineer Russell Grance, Director of Building & Safety Lauri Aylaian, Director of Community Development Paul S. Gibson, Director of Finance/City Treasurer Janet M. Moore, Director of Housing Mark Greenwood, Director of Public Works Frankie Riddle, Director of Special Programs Steve Brooker, Fire Marshal, Palm Desert Fire/Riverside Co. Fire Dept./Cal Fire Bill Hunley, Battalion Chief, Palm Desert Fire/Riverside Co. Fire Dept./Cal Fire Andrew Shouse, Asst. Chief, Palm Desert Police/Riverside Co. Sheriff's Dept. Grace L. Mendoza, Deputy City Clerk With Authority Board concurrence, President Spiegel adjourned the meeting to Closed Session of the City Council and Redevelopment Agency at 3:01 p.m. He reconvened the meeting at 4:00 p.m. , .Y � PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING AUGUST 27, 2009 111. CONSENT CALENDAR A. MINUTES of the Financing Authority Meeting of July 9, 2009. Rec: Approve as presented. Upon a motion by Finerty, second by Kelly, and 4-0 vote of the Authority Board, with Benson ABSENT, the Consent Calendar was approved as presented. IV. CONSENT ITEMS HELD OVER None V. RESOLUTIONS None VI. NEW BUSINESS A. REQUEST FOR AUTHORIZATION TO PROVIDE FOR A SAFEKEEPING SET-ASIDE FUND FOR THE PALM DESERT FINANCING AUTHORITY'S ENERGY INDEPENDENCE PROGRAM VARIABLE RATE DEMAND LEASE REVENUE BONDS, SERIES 2009 (FEDERALLY TAXABLE), IN CONNECTION WITH DEVELOPER CLAIM AGAINST THE CITY, AND APPROVAL OF RELATED DOCUMENTS (JOINT CONSIDERATION WITH THE PALM DESERT CITY COUNCIL). Councilman/Member Ferguson moved to waive further reading and adopt: 1) Financing Authority Resolution No. FA-65, supplementing Resolution No. FA-63 to provide for a Safekeeping Set-aside Fund for its Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009, in connection with developer claim against City; approving related changes to certain documents in connection therewith; and authorizing certain other matters relating thereto; 2) City Council Resolution No. 09-64, supplementing Resolution No. 09-53 to provide for a Safekeeping Set-aside Fund for the Palm Desert Financing Authority's Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009; approving related changes to certain documents in connection therewith, and authorizing certain other matters relating thereto. Motion was seconded by Finerty and carried by a 5-0 vote. Councilman/Member Kelly said he voted yes but didn't see the need, because he didn't believe the City of Palm Desert would go broke. VII. CONTINUED BUSINESS None � �,����- PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING AUGUST 27, 2009 VIII. OLD BUSINESS None IX. PUBLIC HEARINGS None X. REPORTS, REMARKS, AND AGENCY BOARD ITEMS REQUIRING ACTION A. CHIEF ADMINISTRATIVE OFFICER None B. AUTHORITY COUNSEL None C. PRESIDENT AND MEMBERS OF THE AUTHORITY None XI. ORAL COMMUNICATIONS - C None XI1. ADJOURNMENT Upon a motion by Ferguson, second by Finerty, and 4-0 vote of the Authority Board, with Benson ABSENT, President Spiegel adjourned the meeting at 5:45 p.m. ROBERTA. SPIEGEL, PRESIDENT ATTEST: RACHELLE D. KLASSEN, SECRETARY PALM DESERT FINANCING AUTHORITY 3 CITY OF PALM DESERT OFFICE OF THE CITY TREASURER STAFF REPORT REQUEST: Approval of the City of Palm Desert "Statement of Investment Policy", As Presented DATE: October 8, 2009 CONTENTS: Palm Desert Statement of Investment Policy Recommendation: By minute motion: That the City Council approve the City of Palm Desert Statement of Investment Policy, as presented. Background: City policy requires that the Palm Desert Statement of Investment Policy be reviewed annually. This is the 2009 review. Policy deletions are highlighted with striker; policy additions are highlighted with redlining. The following changes are proposed: 1) Require broker applicants to submit their firm's investment policy (Page 5). 2) Add clean-up language on banking services (Page 6). 3) Add a new single issuer concentration limit of 5% for all corporate securities (unsecured commercial paper and medium -term notes). Reduce the portfolio concentration limit for all corporate securities from 55% to 30% (Pages 8 and 10). These changes will make the Palm Desert investment policy more conservative than State law. They are being recommended due to ongoing turbulence in the U.S. economy. Staff Report BY HOUSG AUTH Approval of Palm Desert Investment Policy, As Amended oN in _ -09 October 8, 2009 �I rc Page 2 of 2 VERIFIED BY:.�, Original on file with City Clerk's Office 4) Modify the restrictive language for Time Certificates of Deposit so that it will be flexible and applicable if the FDIC limit changes (Page 9). 5) Eliminate asset -backed commercial paper ("ABCP") as an authorized investment (Page 12). The City has never purchased this product due to concerns about the quality of the underlying collateral pools. During the 2008 stock market crash, ABCP was largely deemed to be worthless for that very reason. 6) Add general language regarding the FDIC insurance limit on bank deposits and certificates of deposit, due to frequent Federal policy changes (Page 14). Previously, the FDIC limit was $100,000; currently, it is $250,000, and may change again. 7) Delete firms that no longer exist from the Authorized List of Financial Institutions (Page 19). Add JPMorgan Chase to the list as a depository bank. 8) Eliminate specific dollar amount with respect to definition of FDIC (Page 21). The Audit, Investment and Finance Committee has reviewed these changes, and has unanimously recommended that the City Council approve them. Submitted By: i Paul S. Gibson, CCMT, City Treasurer �, Thomas W. Jeffreylli _ , y Jy Treasurer t�. t orri as Approved By: • Joh IV 1J1II t!\ u(Nohlmuth, City M.anaaer CITY COUNCIL ACTION APPROVED %/ DENIED RECEIVED .OTHER MEETING DATE H-.) " AYES: 6072 ,USrifierfy,kely/, Sp. icye / NOES: D4e- ABSENT: .&i ABSTAIN: 1\1() F VERIFIED BY- ' p --fro Original on File with City Clerk's Office appccv07 BY RDA ON iD -� VERIFIED BY KKK! Cc-1 Original on file with City Clerk's Office C;0mv cd BY FIN AUTH ON VERIFIED BY: ( Original on file with City Clerk's Office CITY OF PALM DESERT STATEMENT OF INVESTMENT POLICY Certified by the Municipal Treasurers' Association of the United States and Canada on March 10, 2004 PREPARED BY THE CITY TREASURER'S OFFICE Thomas W. Jeffrey, J.D., M.B.A. Deputy City Treasurer REVIEWED AND APPROVED BY Paul S. Gibson, C.C.M.T. City Treasurer Revision No. 14 Adopted by the City Council on November 16, 2006 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 TABLE OF CONTENTS OVERVIEW PAGE 1.0 Policy 1 2.0 Scope 1 3.0 Prudence 2 4.0 Objectives 2 INVESTMENT AUTHORITY 5.0 Delegation of Authority 3 6.0 Investment Procedures 3 7.0 Ethics and Conflicts of Interest 4 INVESTMENTS 8.0 Authorized Financial Dealers and Institutions 4 9.0 Authorized and Suitable Investments 7 10.0 Prohibited Investments 13 11.0 Investment Pools/Mutual Funds 13 PORTFOLIO MANAGEMENT 12.0 Collateralization 14 13.0 Safekeeping and Custody 14 14.0 Diversification 15 15.0 Maximum Maturities 15 16.0 Portfolio Rebalancing 15 17.0 Credit Downgrading 15 18.0 Bond Proceeds 16 19.0 Internal Controls 16 PERFORMANCE MEASUREMENT 20.0 Performance Standards 17 21.0 Market Yield (Benchmark) 17 22.0 Reporting 17 LEGAL REQUIREMENTS 23.0 Investment Policy Adoption 18 APPENDICES A: List of Authorized Financial Institutions 19 B: Glossary 20 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 1.0 Policy It is the policy of the: > City of Palm Desert; > Palm Desert Redevelopment Agency; > Palm Desert Housing Authority; > Palm Desert Financing Authority; and the > Palm Desert Recreational Facilities Corporation (hereafter referred to collectively as the "City") to: (1) comply with applicable law governing the investment of public monies under the City Treasurer's control; (2) protect the principal monies entrusted to the City; and (3) maximize profit within the parameters of prudent risk management. For the purposes of this policy: > "Investment Officers" shall be defined as the City Treasurer and the Deputy City Treasurer. > "Finance Committee" shall be defined as the Audit, Investment, and Finance Committee. ➢ "City Council" shall be defined as the Palm Desert City Council. 2.0 Scope This policy shall apply to all funds that are under the City Treasurer's control including, but not limited to, the general fund; special revenue funds; debt service funds; capital project funds; enterprise funds; and trust and agency funds. These funds are accounted for in the City's Comprehensive Annual Financial Report. The City's Deferred Compensation Plan ("Plan") shall be excluded from the scope of this policy if the following three conditions exist: (1) a third -party administrator manages the Plan; (2) individual plan participants have control over the selection of investments; and (3) the City has no fiduciary responsibility to act as a "trustee" for the Plan. The only exception to the foregoing shall be that if the City retains the fiduciary responsibility to act as a trustee for the Plan, then the Plan shall be deemed to be within the scope of this policy. The City Treasurer shall provide the Finance Committee with a quarterly report on the investment of Plan assets. Page 1 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 3.0 Prudence Pursuant to California Government Code Section 53600.3, Investment Officers, as trustees of public monies, shall adhere to the "prudent investor" standard when managing the City's investment portfolios. They shall invest "...with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." Investment Officers who follow the provisions of this policy and who exercise due diligence shall be relieved of personal responsibility for a security's credit risk or market price risk: provided, that they report substantial deviations from expectations to the City Manager and to the Finance Committee in a timely manner, and that they take appropriate action to control adverse developments. "Substantial deviations" shall be defined as either a decline of 10 percent or more in the market value of a security due to issuer default or a credit risk downgrade; or the sale of a security prior to maturity at 10 percent or more below its acquisition cost. 4.0 Objectives The City's investment objectives, in order of priority, shall be: 4.0.1 Safety. Safety of principal shall be the foremost objective. Investments shall be made with the aim of avoiding capital losses due to issuer default; broker default; or market value erosion. Principal shall be preserved by mitigating: Credit Risk, the risk of loss due to the failure of the issuer of the security, shall be mitigated by investing in only the highest quality securities; by diversifying investments; and by pre -qualifying securities brokers and public depositories; and Market Risk, the risk of loss due to a decline in bond prices because of rising market interest rates, shall be mitigated by structuring the portfolios so that issues mature concurrently with the City's anticipated cash requirements, thereby eliminating the need to sell securities prematurely on the open market. It is recognized, however, that in a diversified portfolio, occasional measured losses are inevitable, and must be considered within the context of overall investment return. Page 2 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 4.0.2 Liquidity. An adequate percentage of the portfolios shall be maintained in liquid, short-term securities that can be converted to cash, if necessary, to meet disbursement requirements. Since all cash requirements cannot be anticipated, the portfolios should consist largely of relatively low -duration securities with active secondary markets. 4.0.3 Yield. Yield shall be considered only after the basic requirements of safety and liquidity have been met. Whenever possible and in a manner consistent with the objectives of safety and liquidity, a yield higher than the market rate of return shall be sought. 5.0 Delegation of Authority California Government Code Sections 53607 and 53608 authorize the legislative body of a local agency to invest, deposit, and provide for the safekeeping of the local agency's funds or to delegate those responsibilities to the treasurer of the local agency. City of Palm Desert Municipal Code Section 3.08.010 delegates the authority to invest, deposit, and provide for the safekeeping of City public monies to the City Treasurer. City of Palm Desert Municipal Code Section 2.16.010 authorizes the City Director of Finance to serve ex officio as City Treasurer. The City Treasurer shall be responsible for all investment transactions that are executed on behalf of the City. The City Treasurer and the Deputy City Treasurer shall have exclusive authority to buy and sell securities on behalf of the City. The Deputy City Treasurer may execute investment transactions on behalf of the City only if the City Treasurer has previously authorized the transactions. If the City Treasurer is unavailable, then the Assistant Finance Director must authorize the investment transactions prior to execution. 6.0 Investment Procedures The City Treasurer shall establish written procedures for the operation of the City's investment program that are consistent with the provisions of this policy. The procedures shall include reference to: safekeeping, PSA repurchase agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and under the procedures that the City Treasurer establishes. Page 3 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 7.0 Ethics and Conflicts of Interest Investment Officers shall refrain from personal business activity that could conflict with the proper execution of the City's investment program or impair their ability to make impartial investment decisions. They shall disclose to the City Council any material financial interest in financial institutions that conduct business within the City's jurisdiction. They shall also disclose any personal investment positions that could be related to the performance of the City's investment portfolios. Investment Officers shall subordinate their personal investment transactions to those of the City, particularly with regard to the timing of securities purchases and sales, and shall avoid transactions that might impair public confidence. Investment Officers and their immediate relatives shall not accept or solicit any gifts, gratuities, honorariums, or favors from persons or entities who provide or who are seeking to provide financial services to the City. 8.0 Authorized Financial Dealers and Institutions The City Treasurer shall maintain an authorized list (see Page 19) of all securities brokers that the Finance Committee and the City Council have authorized to transact securities business with the City. This list shall be provided to all members of the City Council and the Finance Committee. Only primary government securities dealers ("primary dealers") that regularly report to the Federal Reserve Bank of New York shall be eligible for inclusion on the City's authorized list. The only exception to the foregoing requirement shall be that the Finance Committee and the City Council may, at their discretion, accept, review, and approve Requests for Information ("RFI") from secondary brokers that: (1) have been in existence for more than five years; (2) have a net capital position in excess of $100 million; (3) are licensed as brokers by the State of California; and (4) are headquartered or have a branch office in California. The total number of primary dealers and secondary brokers on the authorized list shall not exceed five at any time. The City shall accept and review new broker applications only when there is an immediate need to fill a vacancy on the authorized list. In all cases, the City shall only accept RFIs from and transact business with the institutional securities sales departments of primary dealers and secondary brokers. The City shall not transact business with an authorized securities firm until all of the documentation that both parties require, has been executed and delivered. Page 4 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 All brokers that wish to apply for inclusion on the authorized list must, at a minimum, provide the City Treasurer with a copy of the following documents, unless otherwise noted: 8.0.1 Completed "Primary Dealer Request for Information" (signed original only). 8.0.2 The firm's most recent Annual Report and Securities and Exchange Commission ("SEC") Form 10-K or 20-F. 8.0.2 The firm's National Association of Securities Dealers ("NASD") Form BD — Uniform Application for Broker -Dealer Registration or, in the case of an investment department within a commercial bank, SEC Form MSD. 8.0.3 The firm's current NASD Form BD Status Report. 8.0.4 NASD Form U-4 -- Uniform Application for Securities Industry Registration or Transfer for each employee would who might be trading with the City. 8.0.5 Current NASD Form U-4 Status Report on each employee who might be trading with the City. 8.0.6 A resume from each of the firm's employees who might be trading with the City. 8.0.7 The firm's delivery and wiring instructions. 8.0.8 An executed corporate resolution that identifies employees who are authorized to trade, and who might be trading with the City. 8.0.9 The firm's current investment policy. In addition to the above documents, secondary brokers must also submit: 8.0.10 The firm's most recent SEC Form X-17 A-5 or, in the case of an investment department within a commercial bank, SEC Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices — FFIEC 031. Investment Officers shall investigate all broker applicants in order to determine if they: (1) are adequately capitalized; (2) are subject to pending legal action (either the firm or the trader); (3) make markets in securities that are appropriate for the City's needs; (4) are licensed as a broker by the State of California Department of Corporations; and (5) are a member of the National Association of Page 5 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 Securities Dealers. Broker applicants shall be required to provide state or local government references from within California. Any broker that has made a political contribution within any consecutive four-year period following January 1, 1996 in an amount that exceeds the limits in Municipal Securities Rulemaking Board ("MSRB") Rule G-37, to any member of or candidate for the City Council, the Redevelopment Agency Board, the Housing Authority Commission, or the Finance Committee shall not be eligible to transact business with the City. The Finance Committee and the City Council shall review the submitted documents, along with the Investment Officers's recommendations, and decide if any new brokers should be added to the authorized list. If, in the City's opinion, a broker's RFI is missing, incomplete, late (submitted after the specified deadline), or contains false or misleading information, or if the broker has not submitted all of the documents that the City requires, then the City shall automatically reject that broker's RFI, and the broker shall not be eligible to submit another RFI to the City for three years. The City Treasurer shall provide all authorized brokers annually, in January, with a copy of the City's investment policy for that calendar year. The City Treasurer's Office shall retain, on file, the annual financial statements of each authorized broker for the preceding three years. The City Treasurer shall maintain an authorized list (see Page 19) of all commercial banks, savings associations, and federal associations (as defined by California Financial Code Section 5102), and trust companies that the Finance Committee and the City Council have authorized as public depositories of City monies, in the form of checking, savings, and money market accounts, and certificates of deposit. This list shall be provided to all members of the City Council and the Finance Committee. The City shall only deposit public monies in financial institutions that have: 8.0.11 At least $5 billion in total assets. 8.0.12 A core capital -to -total assets ratio of at least five percent. 8.0.13 Favorable statistical ratings from a nationally recognized rating service, as determined by the City Treasurer. 8.0.14 A federal or a state charter. 8.0.15 A branch office within Riverside County. Page 6 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 8.0.16 A "satisfactory" overall rating in their most recent evaluation by the appropriate federal financial supervisory agency, in terms of meeting the credit needs of California communities, pursuant to federal law. Under no circumstances shall the City's deposits in a financial institution exceed the total shareholders' equity of that institution. 9.0 Authorized and Suitable Investments The City Treasurer shall be authorized to invest in the following financial instruments pursuant to California Government Code Section 53600 et seq. The City's investment policy is more conservative than state law. No. Type of Investment % of Portfolio Authorized Other Restrictions 1. United States Treasury bills, 100% Maximum maturity: 5 Years notes, bonds, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Federal Agency or United States government -sponsored enterprise ("GSE") obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by Federal Agencies or by GSE. 3. Banker's Acceptances("BA") issued by commercial banks. 100% Maximum maturity: 5 years No more than 30% of the portfolio may be invested in any one issuer (excluding the proceeds of tax-exempt bonds). 40% Rated "A-1" or higher by S&P or"P-1" by Moody's. Maximum maturity: 180 days No more than 30% of the portfolio may be invested in any one BA issuer. Page 7 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 No. Type of Investment 4. Commercial Paper ("CP") issued by general corporations organized and operating in the United States with assets exceeding $500 million. 5. Negotiable Certificates of Deposit ("NCD") issued by a nationally- or state -chartered bank, a savings association, a federal association, or by a state - licensed branch of a foreign bank. % of Portfolio Authorized Other Restrictions 25% Maximum maturity: 270 days Rated "A-1" by S&P or"P-1" by Moody's. No more than 10% of the outstanding CP of any one issuer may be purchased. No more than 5% of the portfolio may be invested in the commercial paper and medium -term notes of any one issuer. No more than 30% of the portfolio may be invested in commercial paper and medium -term notes. Asset -backed commercial paper is ineligible for purchase. 30% Maximum maturity: 5 years Long-term debt rated "AA-" higher by S&P or by Moody's. Page 8 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 % of Portfolio No. Type of Investment Authorized Other Restrictions 6. Time Certificates of Deposit 15% Maximum maturity: 1 year ("TCD") issued by qualified public depositories. TCDs exceeding $1007000 the FDIC limit must be collateralized. TCDs must be centralized at one location for each bank or S&L. If TCD is uncollateralized, then no more than $907000 90 percent of the FDIC limit may be invested per TCD. Issuing public depository must meet qualifying criteria on 6 Pages 6 and 7 of this SOIP. Page 9 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 No. Type of Investment 7. Repurchase Agreement ("RP") sold by authorized brokers. 8. Medium -Term Notes issued by Corporations organized and operating in the United States, or by depository institutions operating in the United States and licensed by the United States or by any state. % of Portfolio Authorized Other Restrictions 20% Maximum maturity: 30 days Collateral must be United States Treasury, Federal, Agency, or GSE obligations. Zero coupon and stripped coupon instruments are not acceptable as collateral. Collateral must be valued at 102% of cost and adjusted weekly. City must have first lien and security interest in all collateral. City's custodian must hold collateral. An authorized broker must file a Public Securities Association (PSA) Master Repurchase Agreement with the City treasurer, and the City Attorney must review the agreement, prior to the transaction of RP business with that broker. 30% Maturity maturity: 5 years Rated "A" or higher by S&P or by Moody's. No more than a-5% 5% of the portfolio may be invested in the commercial paper and medium -term notes of any one issuer. No more than 30% of the portfolio may be invested in commercial paper and medium -term notes. Page 10 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 No. Type of Investment 9. Money Market Mutual Funds ("MMF") that are registered with the SEC under the Investment Act of 1940. 10. State of California Local Agency Investment Fund ("LAIF") that is managed by the State Treasurer's Office. 11. Structured Notes in the form of callable securities or "STRIPS" issued by the United States Treasury or by Federal Agencies or government -sponsored enterprises ("GSE"). % of Portfolio Authorized 20% (excluding bond proceeds) See note -) Other Restrictions Either rated "AAA" by S&P, "Aaa" by Moody's, or "AAA-V-1+" by Fitch (2 of 3), or retains an investment advisor registered or exempt from registration with SEC, with at least 5 years of experience managing a MMF with $500 million or more in assets. MMF must have dollar -weighted average maturity of 90 days or less. MMF must buy securities that mature in 13 months or less. No commission may be charged. $40 million limit per account with LAIF, except for bond trustee accounts (no limit). City Council and Redevelopment Agency approved participation in LAIF on 12/12/81 in Resolution No. 81-161. 20% Maximum maturity: 5 years Page 11 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 No. Type of Investment 12. Asset -Basked Commefsial Paper ("ABCP") issued by special purpose corporations ("SPC"), tree, of ------limited Iia epefating in the Unitcd States with acsets exceeding $500 million, that i enhancement facilities (e.g.,over collateralization, letters of credit, surety bonds, etc.). 13. Local Government Investment Pools ("LGIPS") % of Portfolio Authorized 209/0 Other Restrictions Maximum maturity: -278-lays Rated "A 1+" by S&P or "P 1" by Moody's. Restricted-to-pregrams cponsefed-by oempan Canada, Uni , , 30% Must meet above criteria for MMFs (excluding (except for LAIF) bond proceeds) Page 12 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 10.0 Prohibited Investments Investment Officers shall not invest public monies in financial instruments that are not authorized under this policy. Prohibited investments shall include, but shall not be limited to, equity securities, bond mutual funds, reverse repurchase agreements, and derivative contracts (forwards, futures, and options). The purchase of derivative securities shall be prohibited, unless specifically authorized in this policy. Investment Officers shall not engage in securities lending, short selling, or other hedging strategies. LAIF and MMFs shall be exempt from the prohibitions on derivative contracts, derivative securities, reverse repurchase agreements, securities lending, short selling, and other hedging strategies. 11.0 Investment Pools/Mutual Funds A thorough investigation of the pool/fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed which will answer the following general questions: 11.0.1 A description of eligible investment securities, and a written statement of investment policy and objectives. 11.0.2 A description of interest calculations and how it is distributed, and how gains and losses are treated. 11.0.3 A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 11.0.4 A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. 11.0.5 A schedule for receiving statements and portfolio listings. 11.0.6 A verification on whether or not reserves or retain earnings are utilized by the pool/fund. 11.0.7 A fee schedule, and when and how it is assessed. 11.0.8 The eligibility of the pool/fund for bond proceeds, and whether it will accept such proceeds. Page 13 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 12.0 Collateralization Investment Officers shall ensure that all demand deposits and all non-negotiable certificates of deposit that exceed $100,000 the Federal Deposit Insurance Corporation ("FDIC") limit shall be fully collateralized with securities authorized under state law and under this SOIP. Collateral may be waived for the first $100,000 since this will be insured by the Federal Deposit Insurance-Gerperation amount of the FDIC limit. Any amount on deposit over $100,000 that exceeds the FDIC limit plus accrued interest, however, shall be collateralized with United States Treasury or federal agency securities at a constant margin ratio of 110 percent or with mortgage -backed collateral at a constant margin ratio of 150 percent. Collateralized investments and demand deposits may require substitution of collateral. The City Treasurer must approve all requests from financial institutions for substitution of collateral that involve interchanging classes of securities. An independent third party with which the City has a current custodial agreement shall always hold the collateral. The independent third party shall provide the City Treasurer with a safekeeping receipt that he shall retain. 13.0 Safekeeping and Custody Investment Officers shall conduct all security transactions on a delivery -versus - payment ("DVP") or on a receipt -versus -payment ("RVP") basis. A third -party bank trust department ("Custodian") that acts as an agent for the City under the terms of a custody agreement executed between both parties shall hold the securities. The City's Custodian shall be represented on the authorized list (see Page 19). The only exception to the foregoing shall be securities purchases made with: 13.0.1 Local government investment pools. 13.0.2 Money market mutual funds. 13.0.3 Federal Reserve Banks ("Treasury Direct Program") since the purchased securities are not deliverable. No securities broker or investment advisor shall have access to City monies, accounts, or investments. Any transfer of monies to or through a securities broker must have the City Treasurer's prior written approval. If the City Treasurer is unavailable, then the Assistant Finance Director must authorize the transfer, in writing. Page 14 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 The City shall require Broker Trade Confirmations for all trades. Investment Officers shall review these confirmations immediately upon receipt, for conformity with the terms of the City's Trade Sheets. 14.0 Diversification Investment Officers shall diversify the City's investment portfolios by security type and by issuer, except for bond reserve monies; bond escrow monies; and any other monies that the City Council or the Finance Committee designates. 15.0 Maximum Maturities Investment Officers shall not invest in securities with maturities exceeding five years. The Finance Committee and the City Council, however, may approve longer maturities for the investment of bond reserve, bond escrow, and other funds if the maturities of such investments are expected to coincide with the expected use of the funds. 16.0 Portfolio Rebalancing If portfolio percentage constraints are violated due to a temporary imbalance in the portfolio, then Investment Officers shall hold the affected securities to maturity in order to avoid capital losses. If no capital losses would be realized upon sale, however, then Investment Officers shall consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalanced. Portfolio percentage limits are in place in order to ensure diversification of the City investment portfolio; a small, temporary imbalance will not significantly impair that strategy. 17.0 Credit Downgrading This policy sets forth minimum credit risk criteria for each type of security. This credit risk criteria applies to the initial purchase of a security; it does not automatically force the sale of a security if its credit risk ratings fall below policy limits. If a security is downgraded below the minimum credit risk criteria specified in this policy, then Investment Officers shall evaluate the downgrade on a case -by -case basis in order to determine the security should be held or sold. The City Treasurer shall inform the Finance Committee at its next monthly meeting of the credit downgrade and of the Investment Officers's decision to hold or sell the downgraded security. Page 15 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 Investment Officers shall review the credit standing of all securities in the City's investment portfolios annually, at a minimum. 18.0 Bond Proceeds The City Treasurer shall segregate the gross proceeds of tax-exempt bonds from the City general pool and shall keep them in a separate pool. They shall be invested pursuant to the instructions in the respective bond indentures of trust. If the bond indenture authorizes investments that conflict with this policy, then such investments shall be made only with the Finance Committee's prior approval. All securities shall be held in third -party safekeeping with the bond trustee ("Trustee") and all DVP and RVP rules shall apply. The Trustee shall be represented on the authorized list (see Page 19). Investment Officers shall use competitive offerings, whenever practical, for all investment transactions that involve the gross proceeds of tax-exempt bonds. The City shall obtain a minimum of three competitive offers. Any exceptions to this policy shall be documented and shall be reported to the Finance Committee at its next monthly meeting. The City is required under the "U.S. Tax Reform Act of 1986" to perform annual arbitrage calculations and to rebate excess earnings to the United States Treasury from the investment of the gross proceeds of tax-exempt bonds that were sold after the effective date of that law. The City Treasurer may contract with qualified outside financial consultants to provide the necessary technical expertise that is required to comply with this law. 19.0 Internal Controls The City Treasurer shall ensure that all investment transactions comply with the City's policy, and shall establish internal controls that are designed to prevent losses due to fraud, negligence, and third -party misrepresentation. Internal controls deemed most important shall include: avoidance of collusion; separation of duties and administrative controls; separating transaction authority from accounting and record keeping; custodial safekeeping; clear delegation of authority; management approval and review of investment transactions; specific limitations regarding securities losses and remedial action; written confirmation of telephone transactions; documentation of investment transactions and strategies; and monitoring of results. The City Treasurer shall establish a process of independent review by an external audit firm of the City's investment program every three years. The external auditor shall review the program's management in terms of compliance Page 16 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 with the internal controls that are specified in the City's Treasury Policies and Procedures Manual. A Finance Committee consisting of City officials and community representatives shall be responsible for reviewing the City investment reports, transactions, policies and procedures, and strategies, on a monthly basis. The Mayor; the Mayor Pro Tempore; the City Manager; the City Attorney; the Redevelopment Agency Executive Director; the City Treasurer; the Deputy City Treasurer; and various citizens who are appointed by the City Council pursuant to City ordinance, shall sit on this committee. 20.0 Performance Standards The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs. 21.0 Market Yield (Benchmark) The City investment portfolio shall be passively managed with portfolio securities being held to maturity. On selected occasions, however, the City portfolio may be actively managed for purposes of improving portfolio risk structure, liquidity, or yield in response to market conditions or to meet City requirements. Profit-taking may only be done if the capital gains would: 21.0.1 Exceed the return that would be realized by holding the security to maturity; and 21.0.2 More than offset any income reduction due to reinvestment rate risk. The City shall adopt a benchmark that approximates the composition and weighted -average maturity of each City portfolio, in order to measure whether or not the City's portfolio yields are matching or surpassing the market yield. 22.0 Reporting The City Treasurer shall provide the Finance Committee and the City Council with a monthly investment report within 30 days of each month -end or at the next scheduled City Council meeting following a Finance Committee meeting. Pursuant to Governmental Accounting Standards Board ("GASB") Statement Number 40, as amended March 2003, the monthly investment report shall: 22.0.1 Organized individual securities by investment type (e.g., U.S. Treasuries, corporate bonds, commercial paper, etc.). Dissimilar Page 17 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 investments (e.g., U.S. Treasury bills and Treasury strips) should not be aggregated. 22.0.2 List credit risk ratings for each security, mutual fund, or investment pool from at least two nationally recognized statistical rating organizations ("NRSRO"). If the security, mutual fund, or investment pool has not rating, then it shall be shown as "unrated". 22.0.3 Disclose the amount of individual securities and corresponding issuers if they exceed five percent of net plan assets, except for securities guaranteed by the U.S. Government, money market mutual funds, and external investment pools. 22.0.4 Use the specific identification method to reflect interest -rate risk by investment type and amount. This report shall include a complete portfolio inventory with details on issue, par value, book value, coupon/rate, original settlement date of purchase, final maturity date, CUSIP number, average weighted yield, average days to maturity, and market value (including source of market valuation). The report will include a statement on compliance or noncompliance with the City's SOIP and a statement on whether there are or are not sufficient funds to meet the City's anticipated cash requirements for the next six months. 23.0 Investment Policy Adoption The City Treasurer shall submit a Statement of Investment Policy to the Finance Committee; the City Council; the Redevelopment Agency Board; the Housing Authority Commission; the Financing Authority Commission; and the Recreational Facilities Corporation Board of Directors annually for their review and adoption. Page 18 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 Appendix A: List of Authorized Financial Institutions The City Treasurer's Office is authorized to transact investment and depository business with the following financial institutions. Investment and depository transactions with firms other than those appearing on this list are prohibited. UNITED STATES GOVERNMENT 1. Federal Reserve Bank PRIMARY DEALERS 1. Citigroup 2. ifl-Lynch SECONDARY BROKERS 1. First Tennessee Bank 2. Wells Fargo Bank 3. Zions Bank PUBLIC DEPOSITORIES 1. Bank of America 2. California Bank & Trust 3. 4. 5 Northern Trust Bank 6. Union Bank of California 7. JPMorgan Chase & Co. 8. Wells Fargo Bank CUSTODIAN 1. Union Bank of California TRUSTEE 1. Wells Fargo Bank Page 19 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 Appendix B: Glossary AGENCIES. Federal agency and instrumentality securities. ASKED. The price at which securities are offered. BANKERS'S ACCEPTANCE ("BA"). A draft, bill, or exchange accepted by a bank or a trust company. Both the issuer and the accepting institution guarantee payment of the bill. BID. The price offered by a buyer of securities (when one sells securities, one asks for a bid). See "Offer". BROKER. A broker brings buyers and sellers together so that he can earn a commission. CERTIFICATE OF DEPOSIT ("CD"). A time deposit with a specific maturity, as evidenced by a certificate. Large -denomination CDs are typically negotiable. COLLATERAL. Securities, evidence of deposit, or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT ("CAFR"). The official annual report for the City of Palm Desert. It includes five combined statements for each individual fund and account group, that are prepared in conformity with GAAP. It also includes supporting schedules that are necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed statistical section. COUPON. (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond, that evidences interest due on a payment date. DEALER. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE. A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT. There are two methods of delivery of securities: (1) delivery versus payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange of money for the securities. DVR is delivery of securities with an exchange of a signed receipt for the securities. Page 20 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 DERIVATIVES. (1) Financial instruments that are linked to, or derived from, the movement of one or more underlying indexes or securities, and may include a leveraging factor; or (2) financial contracts based upon a notional amount whose value is derived from an underlying index or security (e.g., interest rates, foreign exchange rates, equities, or commodities). DISCOUNT. The difference between the acquisition cost of a security and its value at maturity, when quoted at lower than face value. A security that sells below original offering price shortly after sale, is also is considered to be at a discount. DISCOUNT SECURITIES. Non -interest bearing money market instruments that are issued a discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills). DIVERSIFICATION. Dividing investment funds among a variety of securities that offer independent returns. FEDERAL CREDIT AGENCIES. Agencies of the Federal Government that were established to supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students, farmers, farm cooperatives, and exporters). FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"). A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE. The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS ("FHLB"). Government -sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLBs is to liquefy the housing -related assets of its members, who must purchase stock in their District Bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA"). FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder -owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE ("FOMC"). The FOMC consists of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent Page 21 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market, as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM. The central bank of the United States created by Congress and consisting of a seven -member Board of Governors in Washington, D.C., 12 regional banks, and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA" or "Ginnie Mae"). Securities that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. A security holder is protected by the full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA, or FMHM mortgages. The term "pass-throughs" is often used to describe Ginnie Maes. LIQUIDITY. A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow, and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT FUND ("LAIF"). Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose of investment. MARKET VALUE. The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT. A written contract covering all future transactions between the parties to repurchase -reverse repurchase agreements, that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer (lender) to liquidate the underlying securities in the event of default by the seller (borrower). MATURITY. The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET. The market in which short-term debt instruments (e.g., bills, commercial paper, bankers's acceptances) are issued and traded. OFFER. The price asked by a seller of securities (when one buys securities, one asks for an offer). See "Asked" and "Bid". OPEN MARKET OPERATIONS. Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence the volume of money and credit in the economy. Page 22 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO. A collection of securities that an investor holds. PRIMARY DEALER. A group of government securities dealers that submit daily reports of market activity and positions, and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -- registered securities broker - dealers, banks, and a few unregulated firms. PRUDENT INVESTOR RULE. An investment standard. A fiduciary, such as a trustee, may invest in a security if it is one that would be bought by a prudent investor acting in like capacity, who is seeking reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES. A financial institution that: (1) does not claim exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of this state; (2) has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability; and (3) has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN. The yield obtainable on a security based on its purchase price or its current market price. REPURCHASE AGREEMENT ("RP" OR "REPO"). A holder of securities sells them to an investor with an agreement to repurchase the securities at a fixed price on a fixed date. The security "buyer", in effect, lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: when the Fed is said to be doing RP, it is lending money (increasing bank reserves). SAFEKEEPING. A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET. A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES AND EXCHANGE COMMISSION. An agency created by Congress to administer securities legislation for the purpose of protecting investors in securities transactions. SEC RULE 15c3-1. See "Uniform Net Capital Rule". Page 23 Palm Desert Treasury Policies and Procedures Revision No. 14 No. 2: "Statement of Investment Policy" Adopted: 11/16/06 STRUCTURED NOTES. Notes issued by instrumentalities (e.g., FHLB, FNMA, SLMA) and by corporations, that have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative -based returns) in their debt structure. The market performance of structured notes is affected by fluctuating interest rates; the volatility of imbedded options; and shifts in the yield curve. TREASURY BILLS. A non -interest bearing discount security that is issued by the U.S. Treasury to finance the national debt. Most T-bills are issued to mature in three months, six months, or one year. TREASURY BONDS. Long-term, coupon -bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of more than 10 years. TREASURY NOTES. Medium -term, coupon -bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of two to 10 years. UNIFORM NET CAPITAL RULE. SEC requirement that member firms, as well as non- member broker -dealers in securities, maintain a maximum ratio of indebtedness -to - liquid capital of 15-to-one. Also called net capital rule and net capita ratio. Indebtedness covers all money that is owed to a firm, including margin loans and commitments to purchase securities (one reason that new public issues are spread among members of underwriting syndicates). Liquid capital includes cash and assets easily converted into cash. YIELD. The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. Page 24