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2003 06 11 IABY P.O. Box 1504 78-495 CALLE TAMPICO LA QUINTA, CALIFORNIA 92253 AGENDA INVESTMENT ADVISORY BOARD Study Session Room 78-495 Calle Tampico- La Quinta, CA 92253 June 11, 2003 - 5:30 P.M. (760) 777-7000 FAX (760) 777-7101 I CALL TO ORDER a. Pledge of Allegiance b. Roll Call II PUBLIC COMMENT - (This is the time set aside for public comment on any matter not scheduled on the agenda.) III CONFIRMATION OF AGENDA IV CONSENT CALENDAR A. Approval of Minutes of Meeting on May 14, 2003 for the Investment Advisory Board. V BUSINESS SESSION A. Transmittal of Treasury Report for April, 2003 B. Continued Consideration of Fiscal Year 2003/04 Investment Policy VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - May, 2003 B. Pooled Money Investment Board Reports - March, 2003 and LAIF Forty - Sixth Annual Report, Fiscal Year 2001-2002 VII BOARD MEMBER ITEMS VIII ADJOURNMENT INVESTMENT ADVISORY BOARD Business Session: A Meeting Date: June 11, 2003 ITEM TITLE: Transmittal of Treasury Report for April 30, 2003 BACKGROUND: Attached please find the Treasury Report for April 30, 2003. RECOMMENDATION: Review, Receive and File the Treasury Report for April 30, 2003. MEMORANDUM TO: La Quinta City Council FROM: John M. Falconer, Finance Director/Treasurer SUBJECT: Treasurer's Report for April 30, 2003 DATE: May 28, 2003 Attached is the Treasurer's Report for the month ending April 30, 2003. The report is submitted to the City Council each month after a reconciliation of accounts is accomplished by the Finance Department. The following table summarizes the changes in investment types for the month: Investment Beginning Purchased Notes Sold/Matured Other Ending Change Cash $142,282 (1) ($212,533) ($70,251) ($212,533) LAIF $19,175,157 591,243 19,766,400 591,243 US Treasuries (2) $61,838,372 99,608 61,937,980 99,608 US Gov't Agencies (2) $19,896,081 19,002 19,915,083 19,002 Commercial Paper (2) $0 0 0 Mutual Funds $284,500 1 193,106 91,394 193,106 Total $101 336,392 $591 243 $405 639 $118 610 $101,640 606 $304 214 I certify that this report accurately reflects all pooled investments and is in compliance with the California Government Code; and is in conformity with the City Investment Policy. As Treasurer of the City of La Quinta, I hereby certify that sufficient investment liquidity and anticipated revenues are available to meet the pools expenditure requirements for the next six months. the City of La Quinta used the Bureau of the Public Debt, U.S. Bank Monthly Statement and the Bank of New York Monthly Custodian Report to determine the fair market value of investments at month end. � oa3 Director/Treasurer Footnote (1) The amount reported represents the net increase (decrease) of deposits and withdrawals from the previous month. 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F. N p� dS A �Qj 0 A Tii N M A ww q jQ( S N N ~ M tiiiDOiiiiO>YO ���a�ba�ia�s�a7 c'S�$iS�FSplijilisisilis 'I CITY OF LA QUINTA CITY FIXED CITY LONG TERM RDA FIXED RDA LONG TERM FINANCING FA LONG TERM GRAND BALANCE SHEET 04/30/03 CITY ASSETS DEBT RDA ASSETS DEBT AUTHORITY DEBT TOTAL ASSETS: (8,023,809.71) 0.00 0.00 25,118,494.49 0.00 0.00 7,847.80 0.00 19,102,532.38 POOLED CASH LORP INVESTMENT IN POOLED CASH 0.00 0.00 0.00 590,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 590,000.00 52,000,000:00 INVESTMENT T-BILLINOTES & OTHER 52,000,000.00 0.00 0.00 0.00 AUTO MALL CASH 0.00 0.00 0.00 0.00 2,616.67 0.00 0.00 0.00 0.00 2,616.67 LORP CASH BONG REDEMPTION CASH 0.00 0.00 0.00 2,251.82 0.00 0.00 0.00 0.00 0.00 57.45 0.00 0.00 0.00 2,309.27 0.00 BOND RESERVE CASH 0.00 0.00 0.00 0.00 0.00 0.00 30,088,884.75 0.00 0.00 0.10 0.00 30,088,884.85 BOND PROJECT CASH BOND ESCROW CASH 0.00 0.60 0.000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,200.00 PETTY CASH CASH & INVESTMENT TOTAL 1,200.00 45,977,390.29 0.00 0.00 0.00 0.00 0.00 55,802,247.73 0.00 0.00 0.00 0.00 7,905.150. 101,787,543.17 INVESTMENT IN LAND HELD FOR RESALE 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ACCOUNTS RECEIVABLE 139,962.20 0.00 0.00 60,900.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 200,862.20 (146,937.54) PREMIUM/DISCOUNT ON INVESTMENT (89,225.54) 0.00 0.00 0.00 0.00 0.00 (57,712.00) 53,672.34 0.00 0.00 0.00 0.00 53,672.34 LORP-ACCOUNTS RECEIVABLE 220,844.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 220,844.75 INTEREST RECEIVABLE LOAN/NOTES RECEIVABLE (59.06) 0.00 0.00 13,215,683.11 0.00 0.00 0.00 0.00 13,215,624.05 1,392,535.02 DUE FROM OTHER AGENCIES 1,164,702.00 0.00 0.00 227,833.02 0.00 0.00 0.00 0.00 ,,0�96.669) DUE FROM OTHER AGENCIES - CVAG 2,299,096.89 (2 29 CVAG ALLOWANCE DUE FROM OTHER GOVERNMENTS (2,299,096.69) 30,600.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 30,600.37 175,002.41 DUE FROM OTHER FUNDS 0.00 0.00 0.00 0.00 175.002.41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 DUE FROM RDA INTEREST ADVANCE -DUE FROM RDA 8,497,550.20 5,149,621.26 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5,149,621.26 11,578,928.54 1,576,921.54 ADVANCES TO OTHER FUNDS 7,100,000.00 0.00 0.00 4,476.926.54 0.00 0.00 0.00 0.00 0.00 3,749.08 NSF CHECKS RECEIVABLE 3,749.06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ACCRUED REVENUE 0.00 308,622,199.00 308,622.199.00 FIXED ASSETS ACCUMULATED DEPRECIATION 1,020,238.52 0.00 0.00 0.00 0.00 0.00 0.00 1,020,238.52 200.00 TRAVEL ADVANCES 200.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EMPLOYEE ADVANCES 16,497.16 0.00 0.00 0.00 0.00 0.00 0.00 0.00 18,497.18 PREPAID EXPENSES RECEIVABLE TOTAL 23,254,680.92 308,622,199.o0 0.00 18,152,305.42 0.00 0.00 0.00 0.00 350,029,185.34 WORKER COMPENSATION DEPOSIT 148,445.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 148,445.00 0.00 RENT DEPOSITS 0.00 75.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 75.00 UTILITY DEPOSITS 998.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 998.21 MISC. DEPOSITS DEPOSITS TOTAL 149,518.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 149,518.21 GENERAL FIXED ASSETS 0.00 0.00 0.00 0.00 52.094,306.00 0.00 0.00 0.00 0.00 52.094,306.00 0.00 ACCUMULATED DEPRECIATION 0•00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 AMOUNT AVAILABLE TO RETIRE L/T DEBT 0.00 0.00 1 694 231.51 0.00 0.00 160,998,172.00 0.00 7,475,000.00 170167 403.51 AMOUNT TO BE PROVIDED FOR L!f DEBT TOTAL OTHER ASSETS 0.00 0.00 1.694,231.51 0.00 52,094,306.00 160,998,172.00 0.00 7,475,000.00 222,261,709.51 381,589.42 308,622,199.00 1 MM.231 51 73,954,553.15 52 094 306.00 160,998,172.00 7,905.15 7,475,000. 00 674,227,956.23 TOTAL ASSETS 69 LIABILITIES: ACCOUNTS PAYABLE 14,144.54 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14,144.54 949,275.04 DUE TO OTHER AGENCIES 949,275.04 175,002.41 0.00 0.00 0.00 0.00 0.00 2.263,637.88 0.00 0.00 0.00 0.00 2,438,640.29 DUE TO OTHER FUNDS INTEREST ADVANCE -DUE TO CITY 4.476,926.54 0.00 0.00 18,483,537.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 22,980,483.54 . 00 ACCRUED EXPENSES 0.00 0.00 0.00 0.00 0.00 0.00 0.00 95,538.44 0.00 33 46'S78'44 INTEREST PAYABLE PAYROLL LIABILITIES 46,178.33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48,178.33 1,974.76 STRONG MOTION INSTRUMENTS 1,974.76 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 104,430.00 FRINGE TOED LIZARD FEES 104,430.00 10,554.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10,554.14 SUSPENSE DUE TO THE CITY OF LA QUINTA 0.00 0.00 0.00 0.00 20,842,113.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 26,821,199.08 PAYABLES TOTAL 5,778,485.76 0.00 0.00 ENGINEERING TRUST DEPOSITS 1,40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,400.00 0•00 S O. COAST AIR QUALITY DEPOSITS SO. 0.00 0.00 0.00 0.00 0.00 0.00 19,309.00 0.00 0.00 0.00 0.00 19,309.00 DEPOSITS DEVELOPER DEPOSITS 1,185,199.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,185,199.75 484,702.32 MISC. DEPOSITS 439,702.32 0.00 0.00 0.00 0.00 25,000.00 0.00 0.00 0.00 0.00 0.00 1,384 596.11 AGENCY FUND DEPOSITS 1,384,596.11 0.00 44,309.00 0.00 0.00 0.00 0.00 3,055,207.18 TOTAL DEPOSITS 3,010.898.18 0.00 DEFERRED REVENUE 1,164.702.00 0.00 0.00 11,079.695.08 0.00 11,079,695.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 12'244,397'08 12,244,397.05 OTHER LIABILITIES TOTAL 1,164,702.00 0.00 COMPENSATED ABSENCES PAYABLE 0.00 0.00 422,197.92 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 422,197.92 743,722.59 DEVELOPER AGREEMENT 0.00 0.00 0.00 0.00 743,722.59 528,311.00 0.00 0.00 0.00 0.00 0.00 528,311.00 DUE TO THE CITY OF LA QUINTA 0.00 0.00 0.00 0.00 0.00 2,250.000 00 0.00 0.00 2 250 000 00 DUE TO COUNTY OF RIVERSIDE 0.00 0.00 0.00 0.00 0.00 8,063,170.00 0.00 0.00 8,083,170.00 DUE TO C.V. UNIFIED SCHOOL DIST. DUE TO DESERT SANDS SCHOOL DIST. 0•00 0•00 0'00 0'00 0.00 0.00 0.00 0 150,685,000.00 0 0.00 0 0 00 7,475,000.00 158,180,000.00 BONDS PAYABLE 0.00 0.00 0.00 0.00 1,694,231.51 0.00 0.00 160,998,172.00 0.00 7,475.000.00 170,167,403.51 TOTAL LONG TERM DEBT 0.00 9,954,085.94 0.00 1,694,231.51 31,966.717.40 0.00 160,998,172.00 0.00 7.475,000.00 212,088,206.85 TOTAL LIABILITIES 59,427,503.49 308,622,199.00 0.00 41,987,835.75 52,094,306.00 0.00 7,905.15 0.00 462.139,749.39 EQUITY -FUND BALANCE 69381, 43 308 622199 00 1 69441 51 73 954 553.15 52,o94 308 00 160 998172.00 7,905.15 7,475,000.00 674,227,958.24 TOTAL LIABILITY &EQUITY (0.01) 0.00 0.00 0.00 0.00 0 00 0 o0 0.00 (u ui ) CASH & INVESTMENT TOTAL 101,787,543.17 PREMIUM/DISCOUNT ON INVESTMENT1146,937.54) TOTAL 101,640,605.63 C �*00p�pOa�a�� 7 CN0V)NNO�f 7qtOCl) N t0 70)1AN•Mt0 > tCA o aRa0 to 1n > ae ae ae a t0 ae Iq1, 241 t*tao�ao 2 . N .= . . N L6 th •, CO) tA c ae e�' ae aR c ae ae aR q- ae 0) LA ae ae �' ae CD O et+r�� O� O t0 to a`� (C NN CD to N• � .- Im �A Lr) M O to I,a0 a0 .- tt) N• a0 N �0 N.-NN to.4MM M 2 toGoa0O �� O� tD�A t0 EN. w tCa0a0N•N-0 NO1�I��; 2 Of N O r tON�C>�t")a0 2 fV tV N 1p a to v 6 t0 aE ae a� apE ae to atpe ap� ae ae ae m ae a�pE aR a�pe o ae mew �. .—qi, m . .gaOtl O^i aMOOtD�� U. .- 0 e- t0 fV .- N t0 to t0 It t0 �a�peMatM aRLL aft O ae M� e a0t0r Oci gc0N0 , q OC4 ct0LAt010 cNC�•- CV cN��� a0 co E���v��p Et�0a3ppep�aDe� EN Q� t0 O aOONr.M N OOefN�tAt7N NC4 M 6 W (G �jN aR a° aR aR ae aE ae a° ae aR aR aR EfDppON E NMOON�M ppNpp��$pp E� ommNM NOh�O�t04) N�NvM� 0 N � N. tV 0 M' N � M 0 co tO t0 t0 Z Z Z Oe: ae ae aR ae aR at appe ae ae ae 098ON0NN aR ape aR cat aE Od1'NM(1 .gLQQ -'t N- N CS1 tM N 6 4 tO 0 co tD �aea�peaet aeaeae� ape� Eaeaaeeaee� -ae teap' �N�t0�t0 MMpp tONCwfMQN NMNN9 ON N.= N OlQCMCOM v OtOcOt0(0 t0 CO) CO) aE ae aEa�t'} ae appE appe aE a° aE a° a°aeap° N a° NOt0�� OfNO�Mtf V.^-9i's CV •- N V- N d CO Ci CM 4 tO tO to t0 0 Oa°app°aeaENa° �OOr- Oa'aRaaap�p'R aae}°� �vtt)v�tD ae a° Osaea,CO Ci . 04 75N�N��N '•tth�th v - �jtOtOtOtO t0 C CC C Ss C C U� UQ�ii VQ�+ N a�C _ m C aiiaw„ j C d diiaw.. a r-wr.._ 0 0 m f0 r-w�►-� y N N (A m 10 r-w w (A N M !0 QM EEE� cc www EEEy www i EEE� Wwui!Zto r- t9i m eo 'a 0 w m t"3 15 0 0�L- m c c c V- �.•Oy+ c c c j U C c c d`dd`cnag vx� d`d`d`v�a5 a��U) �i INVESTMENT ADVISORY BOARD Business Session No. B Meeting Date: June 11, 2003 TITLE: Continued Consideration of Fiscal Year 2003/04 Investment Policies BACKGROUND: Pursuant to State Legislation the City investment policies must be approved on an annual basis by the City Council. This approval is done in June of each year. During the last several months, the Board has met to update the City Investment Policy. A strike out version of the Investment Policy has been attached Pursuant to the Investment Policy, the Board meets with the City Manager and City Attorney to discuss the Investment Policy before they are forwarded to the City Council for their consideration. An Executive Summary of the proposed changes to the Investment Policy for FY 03/04 has been attached. In addition, please find Ordinance No. 383 (unsigned copy) which was recently approved by the City Council at the June 3, 2003 meeting. This ordinance will be incorporated into the Investment Policy when it is finally codified by the Clerk' s office. RECOMMENDATION: Forward the revised Investment Policy to the City Council for their consideration with an appropriate recommendation. n M. Falconeil', Finhnce Director PAGE EXECUTIVE SUMMARY 17 Add Section XVII, Financial Assets and Investments not Subject to this Policy. 7 Decrease the maximum that may be invested in FY 03/04 between 2 and 5 years from $10 million to $5 million. 10 Increase the LAW limitation from 20% to 25%. 11 Increase FNMA, FHLMC, FHLB and FFCB to $7.5 million reduce Sallie Mae to $0, reduce FLB and FICB to zero. 34 Definition of Conduit Financing. 2 ORDINANCE NO. 383 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA QUINTA, CALIFORNIA, AMENDING CHAPTER 2.70, SECTION 2.70.010 OF THE LA QUINTA CHARTER AND MUNICIPAL CODE RELATING TO THE INVESTMENT ADVISORY BOARD THE CITY COUNCIL OF THE CITY OF LA QUINTA, CALIFORNIA, DOES ORDAIN AS FOLLOWS: SECTION 1. That Chapter 2.70, Section 2.70.010 B of the La Quinta Charter and Municipal Code is hereby amended to read as follows: 2.70.010 General rules regarding appointment and terms A. Except as set out below, see Chapter 2.06 for general provisions. B. The Investment Advisory Board (the "Board") is a standing board composed of five members from the public that are appointed by the City Council. SECTION 11. The amendment to Section 2.70.010 relating to the La Quinta residency requirement shall not be applied to the current members of the Board. SECTION Ill. EFFECTIVE DATE: This Ordinance shall be in full force and effect thirty (30) days after its adoption. SECTION IV. POSTING: The City Clerk shall within fifteen (15) days after passage of this Ordinance, cause it to be posted in at least three (3) public places designated by resolution of the City Council; shall certify to the adoption and posting of this Ordinance; and shall cause this Ordinance and its certification, together with proof of posting to be entered into the Book of Ordinances of the City of La Quinta. PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta City Council, held on this 3' day of June, 2003, by the following vote: AYES: Council Members Henderson, Osborne, Perkins, Sniff, Mayor Adolph NOES: None ABSENT: None ABSTAIN: None Ordinance No. 383 Investment Advisory Board Adopted: June 3, 2003 Page 2 DON ADOLPH, Mayor City of La Quinta, California ATTEST: JUNE S. GREEK, CMC, City Clerk City of La Quinta, California (CITY SEAL) APPROVED AS TO FORM: M. KATHERINE JENSON, City Attorney City of La Quinta, California �� 4 Ordinance No. 383 Investment Advisory Board Adopted: June 3, 2003 Page 3 STATE OF CALIFORNIA) COUNTY OF RIVERSIDE) ss. CITY OF LA QUINTA ) I, JUNE S. GREEK, City Clerk of the City of La Quinta, California, do hereby certify the foregoing to be a full, true and correct copy of Ordinance No. 383 which was introduced at a regular meeting held on the 201h day of May, 2003, and was adopted at a regular meeting held on the 3rd day of June, 2003, not being less than 5 days after the date of introduction thereof. I further certify that the foregoing Ordinance was posted in three places within the City of La Quinta as specified in a Resolution of the City Council. JUNE S. GREEK, CMC, City Clerk City of La Quinta, California CITY OF LA QUINTA Investment Policy Table of Contents Section Topic Page Executive Summary 2 I General Purpose 4 II Investment Policy 4 III Scope 4 IV Objectives 4 < Safety < Liquidity < Yield < Diversified Portfolio V Maximum Maturities 6 VI Prudence 6 VII Delegation of Authority 6 Vill Conflict of Interest _ 7 IX Authorized Financial Dealers and Institutions 7 < Broker/Dealers < Financial Institutions X Authorized Investments and Limitations 8 XI Investment Pools 12 XII Safekeeping and Custody 13 XIII Interest Earning Distribution Policy It 13 XIV Internal Controls and Independent Auditors ��%41 13 XV Benchmark 15 XVI Reporting Standards 15 -V44* I +° s F la is , # and `In�sstment Not Subjeot to this Policy 16 S +t Investment of Bond Proceeds 16 —441X Investment Advisory Board - City of La Quinta 17 060k Investment Policy Adoption 17 Appendices: A. Summary of Authorized Investments and Limitations 18 B. Municipal Code Ordinance 2.70 - Investment Advisory Board 19 C. Municipal Code Ordinance 3.08 - Investment of Moneys and Funds 20 D. Segregation of Major Investment Responsibilities 22 E. Listing of Approved Financial Institutions 23 F. Broker/Dealer Questionnaire and Certification 24 G. Investment Pool Questionnaire 29 H. Glossary 33 1 City of La Quinta Investment Policy Executive Summary The general purpose of this Investment Policy is to provide the rules and standards users must follow in investing funds of the City of La Quinta. It is the policy of the City of La Quinta to invest all public funds in a manner which will provide a diversified portfolio with maximum security while meeting daily cash flow demands and the highest investment return in conformity to all state and local statutes. This Policy applies to all cash and investments of the City of La Quinta, La Quinta Redevelopment Agency and the La Quinta Financing Authority, hereafter referred in this document as the "City". The primary objectives, in order of priority, of the City of La Quinta's investment activity shall be: Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designed with the objective of attaining a market rate of return or yield throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity. needs. Within the constraints of safety, liquidity and yield, the City will endeavor to maintain a diversified portfolio by allocating assets between different types of investments within policy limitations. Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derive. Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish and implement written procedures for the operation of the City' s investment program consistent with the Investment PolicyThe Treasurer shall establish and implement a system of internal controls to maintain the safety of the portfolio. In addition, the internal control system will also insure the timely preparation and accurate reporting of the portfolio financial information. As 2 part of the annual audit of the City of La Quinta's financial statements the independent auditor reviews the adequacy of those controls and comments if weaknesses are found. Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance to a reasonable person of questionable or improper influence. The City of La Quinta Investment Policy maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions selected by the Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The Treasurer will be permitted to invest only in City approved investments up to the maximum allowable percentages or dollar limitations and, where applicable, through the bid process requirements. Authorized investment vehicles and related maximum portfolio positions are listed in Appendix A - Summary of Authorized Investments and Limitations. At least two bids will be required of investments in the authorized investment vehicles. Collateral ization will be required for Certificates of Deposits in excess of $100,000. Collateral will always be held by an independent third party from the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateralization policies must be supplied to the City and retained by the City Treasurer. The City of La Quinta Investment Policy shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council, except the projected annual dollar amount as detailed in Section V, may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. In addition, the City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. The City's investment in Money Market Mutual funds is allowable as long as the average maturity does not exceed 60 days. The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. The Investment Policies shall be adopted by resolution of the La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. This Executive Summary is an overall review of the City of La Quinta Investment Policies. Reading this summary does not constitute a complete review, which can only be accomplished by reviewing all the pages. 3 City of La Quinta Statement of Investment Policy July 1, 200-2through June 30, 20034 Adopted by the City Council on June +8 17, 200-23 GENERAL PURPOSE The general purpose of this document is to provide the rules and standards users must follow in administering the City of La Quinta cash investments. II INVESTMENT POLICY It is the policy of the City of La Quinta to invest public funds in a manner which will provide a diversified portfolio with safety of principal as the primary objective while meeting daily cash flow demands with the highest investment return. In addition, the Investment Policy will conform to all State and local statutes governing the investment of public funds. III SCOPE < General < Special Revenue < Capital Projects < Debt Service < Internal Service < Trust and Agency < Any new fund types and fund(s) that may be created. IV OBJECTIVES The primary objective, in order of priority, of the City of La Quinta's investment activity shall be: 4 1. Safety Safety. of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio in accordance with the permitted investments. The objective will be to mitigate credit risk and interest rate risk. A. Credit Risk Credit Risk - is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: < Limiting investments to the safest types of securities; < Pre -qualifying the financial institutions, and broker/dealers, which the City of La Quinta will do business; and < Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest Rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: < Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and < By investing operating funds primarily in shorter -term securities. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that sufficient liquid funds are available to meet anticipated demands. Furthermore since all possible cash demands cannot be anticipated the portfolio should be diversified and consist of securities with active secondary or resale markets. Securities shall not be sold prior to maturity with the following exceptions: < A declining credit quality security could be sold early to minimize loss of principal; < Liquidity needs of the portfolio require that the security be sold. 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on 5 investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed 4. Diversified Portfolio Within the constraints of safety, liquidity and yield, the City will endeavor to maintain a diversified portfolio by allocating assets between different types of investments within policy limitations. V MAXIMUM MATURITIES It is the policy of the City of La Quinta to hold securities and other investments of cash in financial instruments until maturity, thus avoiding the risk that the market value on investments fluctuates with overall market interest rates. The hold until maturity policy shall not prevent the sale of a security to minimize loss of principal when the issuer or backer suffers declining credit worthiness. The hold until maturity policy requires that the City of La Quinta's investment portfolio is structured so that sufficient funds are available from maturing investments and other sources to meet anticipated cash needs. To meet anticipated cash needs, it is essential that the Treasurer have reasonably accurate, diligently prepared cash flow projections. Annually, the Treasurer shall project the amount of funds not expected to be disbursed within five years. For FY 200-23/034, the amount of such funds was Sa-95 million. Funds up to that amount may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. For all other funds, investments are limited to two years maximum maturity. VI PRUDENCE The City shall follow the Uniform Prudent Investor Act as adopted by the State of California in Probate Code Sections 16045 through 16054. Section 16053 sets forth the terms of a prudent person which are as follows: Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion, and intelligence exercise in the professional management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. VII DELEGATION OF AUTHORITY Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include L reference to safekeeping, wire transfer 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 Investment Policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The City Manager or Assistant City Manager shall approve in writing all purchases and sales of investments prior to their execution by the City Treasurer. Vill CONFLICT OF INTEREST Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance of improper influence. Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: < The City Manager, Assistant City Manager, and the City Treasurer shall not personally or through a close relative maintain any accounts, interest, or private dealings with any firm with which the City places investments, with the exception of regular savings, 'checking and money market accounts, or other similar transactions that are offered on a non-negotiable basis to the general public. Such accounts shall be disclosed annually to the City Clerk in conjunction with annual disclosure statements of economic interest. < All persons authorized to place or approve investments shall report to the City Clerk kinship relations with principal employees of firms with which the City places investments. IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City of La Quinta Investment Policy maintains a listing of financial institutions which are approved for investment purposes. In addition a list will also be maintained of approved broker/dealers selected by credit worthiness, who maintain an office in the State of California. 1. Broker/Dealers who desire to become bidders for investment transactions must supply the City of La Quinta with the following: < Current audited financial statements < Proof of National Association of Security Dealers Certification < Trading resolution < Proof of California registration < Resume of Financial broker < Completion of the City of La Quinta Broker/Dealer questionnaire which contains a certification of having read the City of La Quinta Investment Policy 7 The City Treasurer shall evaluate the documentation submitted by the broker/dealer and independently verify existing reports on file for any firm and individual conducting investment related business. The City Treasurer will also contact the following agencies during the verification process: < National Association of Security Dealer's Public Disclosure Report File - 1-800-289-9999 < State of California Department of Corporations 1-916-445-3062 All Broker/Dealers selected by the City Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The City Attorney will perform a legal review of the trading resolution/investment contract submitted by each Broker/Dealer. Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S. Treasury Department regulations. Each mutual fund shall provide a prospectus and statement of additional information. 2. Financial Institutions will be required to meet the following criteria in order to receive City funds for deposit or investment: A. Insurance - Public Funds shall be deposited only in financial institutions having accounts insured by the Federal Deposit Insurance Corporation (FDIC) B. Collateral - The amount of City of La Quinta deposits or investments not insured by the FDIC -shall be 1 10% collateralized by securities' or 150% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Disclosure - Each financial institution maintaining invested funds in excess of the FDIC insured amount shall furnish the City a copy of the most recent Annual Call Report. The City shall not invest in excess of the FDIC insured amount in banking institutions which do not disclose to the city a current listing of securities pledged for collateral ization in public monies. X AUTHORIZED INVESTMENTS AND LIMITATIONS The City Treasurer will be permitted to invest in the investments summarized in the Appendix A. I. STATE OF CALIFORNIA AND CITY OF LA QUINTA LIMITATIONS As provided in Sections 16429.1, 53601, 53601.1, and 53649 of the Government Code, the State of California limits the investment vehicles available to local agencies as summarized in the following paragraphs. Section 53601, as now amended, provides that unless Section 53601 specifies a limitation on an investment's maturity, no investments with maturities exceeding five years shall be made. The City of La Quinta Investment Policy has specified that no investment may exceed two years, except the projected annual dollar amount, as detailed in Section V, may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. State Treasurer's Local Agency Investment Fund (LAIF) - As authorized in Government Code Section 16429.1 and by LAIF procedures, local government agencies are each authorized to invest a maximum of $40 million per account in this investment program administered by the California State Treasurer. The City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity of its investment portfolio does not exceed two years, unless specific. approval is authorized by the City Council. The City of La Quinta has two accounts with LAIF. The City of La Quinta Investment Policy has a limitation of 20b% of the portfolio. U.S. Government and Related Issues - As authorized in Government Code Sections 53601 (a) through (n) as they pertain to surplus funds, this category includes a wide variety of government securities which include the following: • Local government bonds or other indebtedness and State bonds or other indebtedness. The City of La Quinta Investment Policy does not allow o IJ investments in local and state indebtedness N� 61.6. Treasury bills, notes and bonds and Geyefnment National Mortgage the i. U.S. OJ Peliey knits investments in 9ARM10 KrMWN_ _ L _ __ _WHO"-, ___ ____ ___ __ ____ _ .... __ _. _ wIt JkL 0 • U.S. Government instrumentalities and agencies commonly referred to as government sponsored enterprises (GSEs), issuing securities not backed as to principal and interests by the full faith and credit of the U.S. Government. Publicly owned GSEs include Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Student Loan Marketing Association (SLMA). Non -publicly owned GSEs include the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal Land Bank (FLB) and Federal Intermediate Credit Bank (FICB). The City of La Quinta Investment Policy allows investment only in securities of FNMA, FHLMC, FHLB and FFCB and has a limitation of $7.5 million face amount for each issuer. Bankers' Acceptances - As authorized in Government Code Section 53601 (f), 40% of the portfolio may be invested in Bankers' Acceptances, although no more than 30% of the portfolio maybe invested in Bankers' Acceptances with any one commercial bank. Additionally, the maturity period cannot exceed 180 days. The City of La Quinta Investment Policy does not allow investment in Bankers' Acceptances. Commercial Paper - As authorized in Government Code Section 53601(g), 15% of the portfolio may be invested in commercial paper of the highest rating (A-1 or P 1) as rated by Moody' s or Standard and Poor' s, with maturities not to exceed 270 days. This percentage may be increased to 30% if the dollar weighted average maturity does not exceed 31 days. There are a number of other qualifications regarding investments in commercial paper based on the financial strength of the corporation and the size of the investment. The City of La Quinta' s Investment Policy follows The Government Code with the following additional limitations: (1) maximum maturity per issue of 90 days and (2) a maximum of $3 million per issuer. Negotiable Certificates of Deposit -As authorized in Government Code Section 53601(h), 30% of the portfolio may be invested in negotiable certificates of deposit issued by commercial banks and savings and. loan associations. The City of La Quinta Investment Policy does not allow investment in Negotiable Certificates of Deposit. Repurchase and Reverse Repurchase Agreements - As authorized in Government Code Section 53601(i), these investment vehicles are agreements between the local agency and seller for the purchase of government securities to be resold at a specific date and for a specific amount. Repurchase agreements are generally used for short term investments varying from one day to two weeks. There is no legal limitation on the amount of the repurchase agreement. However, the maturity period cannot exceed one year. The market value of securities underlying a repurchase agreement shall be at least 102% of the funds invested and shall be valued at least quarterly. The City of La Quinta Investment Policy does not allow investment in Repurchase Agreements. 10 The term "reverse repurchase agreement" means the sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase such securities on or before a specific date and for a specific amount. As provided in Government Code Section 53635, reverse repurchase agreements require the prior approval of the City Council. The City of La Quinta Investment Policy does not allow investment in Reverse Repurchase Agreements. Corporate Notes - As authorized in Government Code Section 53601 (j), local agencies may invest in corporate notes for a maximum period of five years in an amount not to exceed 30% of the agency's portfolio. The notes must be issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any other state and operating in the United States. The City of La Quinta Investment Policy does not allow investment in corporate notes. Diversified Management Companies - As authorized in Government Code Section 53601(k), local agencies are authorized to invest in shares of beneficial interest issued by diversified management companies (mutual funds) in an amount not to exceed 20% of the agency's portfolio. There are a number of other qualifications and restrictions regarding allowable investments in corporate notes and shares of beneficial interest issued by mutual funds which include (1) attaining the highest ranking or the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services, or (2) having an investment advisor registered with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations and with assets under management in excess of five hundred million dollars ($500,000,000). The City of La Quinta Investment Policy only allows investments in mutual funds that are money market funds maintaining a par value of $1 per share that invests in direct issues of the U.S. Treasury and/or US Agency Securities with an average maturity of their portfolio not exceeding 90 days and the City limits such investments to 20% of the portfolio. Mortgage -packed Securities - As authorized in Government code Section 53601(n), local agencies may invest in mortgage -backed securities such as mortgage pass -through securities and collateralized mortgage obligations for a maximum period of five years in an amount not to exceed 20% of the agency' s portfolio. Securities eligible for investment shall have a "A" or higher rating. The City of La Quinta Investment Policy does not allow investment in Mortgage - Backed Securities. Financial Futures and Financial Option Contracts - As authorized in Government Code Section 53601.1, local agencies may invest in financial futures or option contracts in any of the above investment categories subject to the same overall portfolio limitations. 11 The City of La Quinta Investment Policy does not allow investments in financial futures and financial option contracts. Certificates of Deposit - As authorized in Government Code Section 53649, Certificates of Deposit are fixed term investments which are required to be collateralized from 110% to 190% depending on the specific security pledged as collateral in accordance with Government Code Section 53652. There are no portfolio limits on the amount or maturity for this investment vehicle. Collateral ization will be required for Certificates of Deposits in excess of the FDIC insured amount. The type of collateral is limited to City authorized investments. Collateral will always be held by an independent third party from the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateral ization policies must be supplied to the City and retained by the City Treasurer as follows: 1. Certificates of Deposits Insured by the FDIC. The City Treasurer may waive collateralization of a deposit that is federally insured. 2. Certificates of Deposit in excess of FDIC Limits. The amount not federally insured shall be 110% collateralized securities or 150% mortgages market value of that amount of invested funds plus unpaid interest earnings. The City of La Quinta Investment Policy limits the percentage of Certificates of Deposit to 60% of the portfolio. Sweep Accounts - As authorized by the City Council, a U.S. Treasury and/or U.S. Agency Securities Money Market Sweep Account with a $50,000 target balance may be maintained in conjunction with the checking account. Derivatives - The City of La Quinta Investment Policy does not allow investment in derivatives. XI INVESTMENT POOLS There are three (3) types of investment pools: 1) state -run pools, 2) pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee i.e. County Pool; and 3) pools that are operated for profit by third parties. The City of La Quinta Investment Policy has authorized investment with the State of California's Treasurers Office Local Agency Investment Fund commonly referred to as LAIF. LAW was organized in 1977 through State Legislation Section 16429.1, 2 and 3. Each LAW account is restricted to a maximum investable limit of $40 million. In addition, LAW will provide quarterly market value information to the City of La Quinta. 12 On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to LA I F. Also, prior to opening any new Investment Pool account, which would require City Council approval, the City Treasurer will require the completion of the Investment Pool Questionnaire. The City does not allow investments with any other Investment Pool - County Pools or Third Party Pools. XII SAFEKEEPING AND CUSTODY All security transactions of the City of La Quinta Investment Policy shall be conducted on a delivery - versus - payment (DVP) basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by safekeeping receipts. Deposits and withdrawals of money market mutual funds and LAIF shall be made directly to the entity and not to an investment advisor, broker or dealer. Money market mutual funds and LAIF shall also operate on a DVP basis to be considered for investment. XIII INTEREST EARNING DISTRIBUTION POLICY Interest earnings are generated from pooled investments and specific investments. 1. Pooled Investments - It is the general policy of the City to pool all available operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta Financing Authority and allocate interest earnings, in the following order, as follows: A. Payment to the General Fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. B. Payment to the General Fund of a management fee equal to 5% of the annual, pooled cash fund investment earnings. C. Payment to each fund of an amount based on the average computerized daily cash balance included in the common portfolio for the earning period. 2. Specific Investments- Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR The City Treasurer shall establish a system of internal controls to accomplish the following objectives: 13 < Safeguard assets; < The orderly and efficient conduct of its business, including adherence to management policies; < Prevention or detection of errors and fraud; < The accuracy and completeness of accounting records; and, < Timely preparation of reliable financial information. While no internal control system, however elaborate, can guarantee absolute assurance that the City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable assurance that management of the investment function meets the City's objectives. The internal controls shall address the following: a. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. b. Separation of transaction authority from accounting and record keeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. C. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping. d. Avoidance of physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. e. Clear delegation of authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities as outlined in the Segregation of Major Investment Responsibilities appendices. f. Written confirmation or telephone transactions for investments and wise transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions shall be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. Fax correspondence must be supported by evidence of verbal or written follow-up. 14 g. Development of a wire transfer agreement with the City' s bank and third party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. The System of Internal Controls developed by the City, shall be reviewed annually by the independent auditor in connection with the annual audit of the City of La Quinta' s Financial Statements. The independent auditor' s management letter comments pertaining to cash and investments, if any, shall be directed to the City Manager who will direct the City Treasurer to provide a written response to the independent auditor' s letter. The management letter comments pertaining to cash and investment activities and the City Treasurer' s response shall be provided to the City' s Investment Advisory Board for their consideration. Following the completion of each annual audit, the independent auditor shall meet with the Investment Advisory Board and discuss the auditing procedures performed and the review of internal controls for cash and investment activities. XV BENCHMARK The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the investment risk constraints and the cash flow needs of the City. Return on investment is of least importance compared to safety and liquidity objectives. The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. XVI REPORTING STANDARDS SB564 section 3 requires a quarterly report to the Legislative Body of Investment activities. The City of La Quinta Investment Advisory Board has elected to report the investment activities to the City Council on a monthly basis through the Treasurers Report. AB 943 requires that the December 31't and June 301h Treasurers Reports be sent to the California Debt and Advisory Commission within sixty days of the end of the quarter. The City Treasurer shall submit a monthly Treasurers Report to the City Council and the Investment Advisory Board that includes all cash and investments under the authority of the Treasurer. The Treasurers Report shall summarize cash and investment activity and changes in balances and include the following: < A certification by City Treasurer; < A listing of Purchases and sales/maturities of investments; < Cash and Investments categorized by authorized investments, except for LAW which will be provided quarterly and show yield and maturity; 15 < Comparison of month end actual holdings to Investment Policy limitations; < Current year and prior year monthly history of cash and investments for trend analysis; < Balance Sheet; < Distribution of cash and investment balances by fund; < A comparison of actual and surplus funds; < A year to date historical cash flow analysis and projection for the next six months; < A two-year list of historical interest rates. FINAN , IAL.ASSETS' AND INVESTME110 N%O%T SUBJ rTO XVRWI INVESTMENT OF BOND PROCEEDS The City's Investment Policy shall govern bond proceeds and bond reserve fund investments. California Code Section 5922 (d) governs the investment of bond proceeds and reserve funds in accordance with bond indenture provisions which shall be structured in accordance with the City's Investment Policy. Arbitrage Requirement The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations as required and return excess earnings to the US Treasury from investments of proceeds of bond issues sold after the effective date of this law. This arbitrage calculations may be contracted with an outside source to provide the necessary technical assistance to comply with this regulation. Investable funds subject to the 1986 Tax Reform Act will be kept segregated from other funds and records will be kept in a fashion to facilitate the calculations. The City's investment position relative to the new arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It is the City's position to continue maximization of yield and to rebate excess earnings, if necessary. ip 1tX INVESTMENT ADVISORY BOARD - nIt400-11 "he Investment Advisory Board (IAB) consists of s n members of the community hat have been appointed by and report to the City Council. The IAB usually_meets on i monthly basis, but at least quarterly to (1) review at least annually the City's nvestment Policy and recommend appropriate changes; (2) review monthly Treasury ieport and note compliance with the Investment Policy and adequacy of cash and ivestments for anticipated obligations; (3) receive and consider other reports provided iy the City Treasurer; (4) meet with the independent auditor after completion of the annual audit of the City's financial statements, and receive and consider the auditor' s :omments on auditing procedures, internal controls and findings for cash and 11�vestment activities, and; I serve as a resource for the City Treasurer on matters such as proposed investments, internal controls, use or change of financial institutions, custodians, brokers and dealers. The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory Board Provisions. WXX INVESTMENT POLICY ADOPTION On an annual basis, the Investment policies will be initially reviewed by the Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment policies, with any revisions, to the City Manager and City Attorney for their review and comment. A joint meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City Treasurer to review the Investment policies and comments, prior to submission to the City Council for their consideration. The Investment Policies shall be adopted by resolution of the City of La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. AB 943 requires that the Investment Policies be sent to the California Debt and Investment Advisory Commission within sixty days of a change to the Investment Policy. `A m E U cy z U 0 U O •6 a � aU � �N g U M ; I -s N N T N W oo W v 2 N N N N N N N » � :7 g N > yO y bo� rc vi �� $ $ 25 � E g 8 8 8 a 8 a ?5 a m 18 InnQQQQ a�� W a N LL� m /0 8 a a » cu U » � Ul vi 9� SIX LL O U m o O Z se LL 'a � g LL a »a ~ CL 41 O Jg » > fA > $ d o » U. Z = U < H j c N t'7 v! < c m �- M f4 N c oC I Mo 2 4 Appendix A 18 Appendix B Chapter 2.70 INVESTMENT ADVISORY BOARD PROVISIONS Sections: 2.70.010 General Rules Regarding Appointment. 2.70.020 Board meetings. 2.70.030 Board functions. 2.70.010 General rules regarding appointment A. Except as set out below, see Chapter 2.06 for General Provisions. B. The Investment Advisory Board (the"board") is a standing board composed of seven (7) members from the public that are appointed by city council. La Quinta residency is preferred, but not a requirement for board members. Recruitment for members may be advertised outside of the city. C. Background in the investment field and/or related experience is preferred. Background information will be required and potential candidates must agree to a background check and verification. D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at any time if a change in circumstances warrants, each board member will provide the City Council with a disclosure statement which identifies any matters that have a bearing on the appropriateness of that member's service on the board. Such matters may include, but are not limited to, changes in employment, changes in residence, or changes in clients. 2.70.02013oard meetings. The Board usually will meet monthly, but this schedule may be extended to quarterly meetings upon the concurrence of the Board and the City Council. The specific meeting dates will be determined by the Board Members and meetings may be called for on an as needed basis. 2.70.030Board functions. 1. The principal functions of the Board are: (1) review at least annually the City's Investment Policy and recommend appropriate changes; (2) review monthly Treasury Report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; (3) receive and consider other reports provided by the City Treasurer; (4) meet with the independent auditor after completion of the annual audit of the City's financial statements, and receive and consider the auditor's comments on auditing procedures, internal controls, and findings for cash and investment activities, and; (5) serve as a resource for the City Treasurer on matters such as proposed investments, internal controls, use or change of financial institutions, custodians, brokers and dealers. 2. The Board will report to the City Council after each meeting either in person or through correspondence at a regular City Council meeting. W Appendix C Chapter 3.08 INVESTMENT OF MONEYS AND FUNDS Sections: 3.08.010 Investment of city moneys and deposit of securities. 3.08.020 Authorized investments. 3.08.030 Sales of securities. 3.08.040 City bonds. 3.08.050 Reports. 3.08.060 Deposits of securities. 3.08.070 Trust fund administration. 3.08.010 Investment of city moneys and deposit of securities. Pursuant to, and in accordance with, and to the extent allowed by, Sections 53607 and 53608 of the Government Code, the authority to invest and reinvest moneys of the city, to sell or exchange securities, and to deposit them and provide for their safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982) 3.08.020 Authorized investments. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to purchase, at their original sale or after they have been issued, securities which are permissible investments under any provision of state law relating to the investing of general city funds, including but not limited to Sections 53601 and 53635 of the Government Code, as said sections now read or may hereafter be amended, from moneys in his custody which are not required for the immediate necessities of the city and as he may deem wise and expedient, and to sell or exchange for other eligible securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part), 1982) 3.08.030 Sales of Securities. From time to time the city treasurer shall sell the securities in which city moneys have been invested pursuant to this chapter, so that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. (Ord.2 § I (part), 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be canceled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be 20 resold. (Ord. 2 § 1 (part), 1982) 3.08.050 Reports. The city treasurer shall make a monthly report to the city council of all investments made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982) 3.08.060 Deposits of securities. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to deposit for safekeeping, the securities in which city moneys have been invested pursuant to this chapter, in any institution or depository authorized by the terms of any state law, including but not limited to Section 53608 of the Government Code as it now reads or may hereafter be amended. In accordance with said section, the city treasurer shall take from the institution or depository a receipt for the securities so deposited and shall not be responsible for the securities delivered to and receipted for by the institution or depository until they are withdrawn therefrom by the city treasurer. (Ord. 2 § 1 (part), 1982 3.08.070 Trust fund administration. Any departmental trust fund established by the city council pursuant to Section 36523 of the Government Code shall be administered by the city treasurer in accordance with Section 36523 and 26524. of the Government code and any other applicable provisions of law. (Ord. 2 § 1 (part), 1982) 21 Appendix D SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Develop formal Investment Policy Recommend modifications to Investment Policy Review formal Investment Policy and recommend City Council action Adopt formal Investment Policy Review Financial Institutions & Select Investments Responsibilities City Treasurer Investment Advisory Board City Manager and City Attorney City Council City Treasurer Approve investments City Manager or Assistant City Manager Execute investment transactions City Manager or Treasurer Confirm wires, if applicable Accounting Manager or Financial Services Assistant Record investment transactions in City's accounting records Investment verification - match broker confirmation to City investment records Reconcile investment records - to accounting records and bank statements Reconcile investment records - to Treasurers Report of investments Security of investments at City Security of investments Outside City Review internal control procedures 22 Accounting Manager or Financial Services Assistant City Treasurer and Financial Services Assistant Financial Services Assistant Accounting Manager Vault Third Party Custodian External Auditor Appendix E LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services - Wells Fargo Bank, Government Services, Los Angeles, California 2. Custodian Services - Bank of New York, Los Angeles, California 3. Deferred Compensation - International City/County Management Association Retirement Corporation 4. Broker/Dealer Services - Merrill Lynch, Indian Wells, os AngeJi Morgan Stanley, Los Angeles, California Salomon Smith Barney, Newport Beach, CA 5. Government Pool - State of California Local Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency 6. Bond Trustees - 1991 City Hall Revenue Bonds - US Bank 1991 RDA Project Area 1 - US Bank 1992 RDA Project Area 2 - US Bank 1994 RDA Project Area 1 - US Bank 1995 RDA Project Area 1 &2 - US Bank 1998 RDA Project Area 1 &2 - US Bank 2001 RDA Project Area 1 - US Bank 2002 RDA Project Area 1 - US Bank Assessment Districts - US Bank No Changes to this listing may be made without City Council approval 23 Appendix F BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1. Name of Firm: 2. Address: 3. Telephone: ( ) ( ) 4. Broker's Representative to the City (attach resume) : Name: Title: Telephone: ( ) 5. Manager/Partner-in-charge (attach resume): Name: Title: Telephone: 6. List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Title: Telephone: ( ) ( ) 7. Which of the above personnel have read the City's Investment Policy? 8. Which instruments are offered regularly by your local office? (Must equal 100%) % U.S. Treasuries % Repos % BA's % Reverse Repos % Commercial Paper % CMO's % CD's % Derivatives % Mutual Funds % Stocks/Equities % Agencies (specify): % Other (specify): 24 9. References -- Please identify your most directly comparable public sector clients in our geographical area. Entity Contact Telephone ( ) Client Since Entity Contact Telephone Client Since 10. Have any of your clients ever sustained a loss on a securities transaction arising from a misunderstanding or misrepresentation of the risk characteristics of the instrument? If so, explain. 11. 12. Has your firm or your local office ever been subject to a regulatory or state/ federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees been so investigated? If so, explain. Has a client ever claimed in writing that ygu were responsible for an investment loss? Yes No If yes, please provide action taken Has a client ever claimed in writing that your firm was responsible for an investment loss? Yes No 1f yes, please provide action taken 25 Do you have any current or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken Does your firm have any current, or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken 13. Explain your clearing and safekeeping procedures, custody and delivery process. Who audits these fiduciary responsibilities? Latest Audit Report Date 14. How many and what percentage of your transactions failed. Last month? % $ Last year? % $ 15. Describe the method your firm would use to establish capital trading limits for the City of La Quinta. 16. Is your firm a member in the S.I.P.C. insurance program. Yes No If yes, explain primary and excess coverage and carriers. 17. What portfolio information, if any, do you require from your clients? 18. What reports and transaction confirmations or any other research publications will the City receive? 26 19. Does your firm offer investment training to your clients? Yes No 20. Does your firm have professional liability insurance. Yes No If yes, please provide the insurance carrier, limits and expiration date. 21. Please list your NASD Registration Number 22. Do you have any relatives who work at the City of La Quinta? Yes No If yes, Name and Department 23. Do you maintain an office in California. Yes No 24. Do you maintain an office in La Quinta or Riverside County? Yes No 25. Please enclose the following: X Latest audited financial statements. X Samples of reports, transaction confirmations and any other research/publications the City will receive. X Samples of research reports and/or publications that your firm regularly provides to clients. X Complete schedule of fees and charges for various transactions. 'CERTIFICATION' 'CERTIFICATION I hereby certify that I have personally read the Statement of Investment Policy of the City of La Quinta, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of La Quinta. All sales personnel will be routinely informed of the City's investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so advised by the City. We pledge to exercise due diligence in informing the City of La Quinta of all foreseeable risks associated with financial transactions conducted with our firm. By signing this document the City of La Quinta is authorized to conduct any and all background checks. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge. 27 Broker Date_ Sales Date Representative Title Manager and/or Managing Partner* Title 28 Appendix G INVESTMENT POOL QUESTIONNAIRE Note: This Investment Pool Questionnaire was developed by the Government Finance Officers Association (GFOA). Prior to entering a pool, the following questions and issues should be considered. SECURITIES Government pools may invest in a broader range of securities than your entity invests in. It is important that you are aware of, and are comfortable with, the securities the pool buys. 1. Does the pool provide a written statement of Investment Policy and objectives? 2. Does the statement contain: a. A description of eligible investment instruments? b. The credit standards for investments? c. The allowable maturity range of investments? d. The maximum allowable doll r weighted average portfolio maturity? e. The limits of portfolio conce tration permitted for each type of security? f. The policy on reverse repurc ase agreements, options, short sales and futures? 3. Are changes in the policies communicated to the pool participants? 4. Does the pool contain only th types of securities that are permitted by your Investment Policy? INTEREST Interest is not reported in a stands interest is quoted, calculated and d other investment alternatives. Interest Calculations 1. rd format, so it is important that you know how stributed so that you can make comparisons with Does the pool disclose the following about yield calculations: a. The methodology used to calculate interest? (Simple maturity, yield to. maturity, etc.) b. The frequency of interest payments? c. How interest is paid? (Credit d to principal at the end of the month, each quarter; mailed?) d. How are gains/losses reported? Factored monthly or only when realized? 29 REPORTING 1. Is the yield reported to participants of the pool monthly? (If not, how often?) 2. Are expenses of the pool deducted before quoting the yield? 3. Is the yield generally in line with the market yields for securities in which you usually invest? 4. How often does the pool report, and does that report include the market value of securities? SECURITY The following questions are designed to help you safeguard your funds from loss of principal and loss of market value. 1. Does the pool disclose safekeeping practices? 2. Is the pool subject to audit by an independent auditor? 3. Is a copy of the audit report available to participants? 4. Who makes the portfolio decisions? 5. How does the manager monitor the credit risk of the securities in the pool? 6. Is the pool monitored by someone on the board of a separate neutral party external to the investment function to ensure compliance with written policies? 7. Does the pool have specific policies with regards to the various investment vehicles? a. What are the different investment alternatives? b. What are the policies for each type of investment? 8. Does the pool mark the portfolio to its market value? 9. Does the pool disclose the following about how portfolio securities are valued: a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio (cost, current value, or some other method)? 30 OPERA TONS The answers to these questions will help you determine whether this pool meets your operational requirements: 1. Does the pool limit eligible participants? 2. What entities are permitted to invest in the pool? 3. Does the pool allow multiple accounts and sub -accounts? 4. Is there a minimum or maximum account size? 5. Does the pool limit the number of transactions each month? What is the number of transactions permitted each month? 6. Is there a limit on transaction amounts for withdrawals and deposits? a. What is the minimum and maximum withdrawal amount permitted? b. What is the minimum and maximum deposit amount permitted? 7. How much notice is required for withdrawals/deposits? 8. What is the cutoff time for deposits and withdrawals? 9. Can withdrawals be denied? 10. Are the funds 100% withdrawable at anytime? 11. What are the procedures for making deposits and withdrawals? a. What is the paperwork required, if any? b. What is the wiring process? 12. Can an account remain open with a zero balance? 13. Are confirmations sent following each transaction? STA TEMENTS It is important for you and the agency's trustee (when applicable), to receive statements monthly so the pool's records of your activity and holding are reconciled by you and your trustee. 31 1. Are statements for each account sent to participants? a. What are the fees? b. How often are they passed? c. How are they paid? d. Are there additional fees for wiring funds (what is the fee)? 2. Are expenses deducted before quoting the yield? QUESTIONS TO CONSIDER FOR BOND PROCEEDS It is important to know (1) whether the pool accepts bond proceeds and (2) whether the pool qualifies with the U.S. Department of the Treasury as an acceptable commingled fund for arbitrage purposes. 1. Does the pool accept bond proceeds subject to arbitrage rebate? 2. Does the pool provide accounting and investment records suitable for proceeds of bond issuance subject to arbitrage rebate? 3. Will the yield calculation reported by the pool be acceptable to the IRS or will it have to be recalculated? 4. Will the pool accept transaction instructions from a trustee? 5. Are you allowed to have separate accounts for each bond issue so that you do not commingle the interest earnings of funds subject to rebate with funds not subject to regulations? 32 Appendix H GLOSSARY (Adopted from the Municipal Treasurers Association) The purpose of this glossary is to provide the reader of the City of La Quinta investment policies with a better understanding of financial terms used in municipal investing. AGENCIES: Federal agency securities and/or Government -sponsored enterprises. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large -denomination CD's 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. COMMERCIAL PAPER: Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, Bank America, etc. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of La Quinta. It includes five combined statements 33 for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules 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 evidencing 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: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non -interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. are issued with maturities of less than one year and interest is paid at maturity. 3. FLBs _(Federal Land Bank Bonds) Long-term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,000. They carry semi-annual coupons. Interest is calculated on a 360-day, 30 day month basis. 4. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, 5. e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. 1. FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued in various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. 2. FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage -lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes 34 FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. FICBs (Federal Intermediate Credit bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity and is calculated on a 360-day, 30-day month basis. 6. FHLMCs (Federal Home Loan Mortgage Corporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Morgages are purchased solely from the Federal home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Association notes (SALLIE-MAEs). FEDERAL DEPOSITOR 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 OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent 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 influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, 35 and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The term "passthrough" is often used to describe Ginnie Maes. LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $ 5,000, in multiples of $1,000 above that, with a maximum balance of $30,000,000 for any agency. The City is restricted to a maximum of ten transactions per month. It offers high liquidity because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one -quarter of one percent of the earnings. 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 POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment 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 vent 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 (bills, commercial paper, bander' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask 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 an—d credit in the economy. 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: Collection of all cash and securities under the direction of the City Treasurer, including Bond Proceeds. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and depositions 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. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the 36 commission eligible collateral having a value of not less than its maximum liability and which 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. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repo. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. REVERSE REPURCHASE AGREEMENTS (RRP or RevRepo) - A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect Fends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RRP extensively to finance their positions. Exception: When the Fed is said to be doing RRP, it is lending money that is 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 & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMAS, SLMA, etc.) And Corporations which have imbedded options (e.g., call features, step- up coupons, floating rate coupons, derivative - based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the Shape of the yield curve. SURPLUS FUNDS: Section 53601 of the California Government Code defines surplus funds as any money not required for immediate necessities of the local agency. The City has defined immediate necessities to be payment due within one week. TREASURY BILLS: A non -interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. TREASURY BONDS: Long-term coupon -bearing U.S. Treasury securities 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 issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker -dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. 37 Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. UNIFORM PRUDENT INVESTOR ACT: The State of California has adopted this Act. The Act contains the following sections: duty of care, diversification, review of assets, costs, compliance determinations, delegation of investments, terms of prudent investor rule, and application. 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 of 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. INVESTMENT ADVISORY BOARD Meeting Date:' June 11, 2003 TITLE: Month End Cash Report - May 2003 BACKGROUND: Correspondence & Written Material Item A This cash report is not a complete Treasury Report (exclude petty cash, deferred compensation and fiscal agent balances) but would report in a timely fashion selected cash balances. This report also includes other statistical investment data for the Board to review. RECOMMENDATION: Information item only. r, Finance Director 2 O c g 0) C0 OHO^N^Qj� cp LO et cc MMOM�cO�dj�tipdN.��O�N 0 M�Oco �pOO,N ,�,�'� W OONOCOvOrfOc O NN 0 tD O M CO P N �tQp tVj toa0 N C) O C) CD N N U) (0a? p 00010�OOtDf��OQ1� 00 00 O 00 .N. C� 000 000 000, et �C)dNN00 MMOM cM(0 N E ttOO �U) t*_1-0Od OeeO . NM M 6� C1tND�000. . . . 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IN In... �•' O Lq t„7 N t0 o O N N Ad rn Cs N m 8 m _ CV N 0 - tD O� �OL � 2 ) � M Q 03 to 0 00 ` M c C O_ E.- N m p Q� (� V t S O CL - C GGQ..»1 N L H tp tp tp �j y E N E Z' t�p N O N C �' E i.i � C c m L E .4 p c 4V1 j 2`- 0) > > m m c.m �mown.af>aw aa'i•m mew oa Qa Q =v Ai W �acii0zc�I��Q2�Q m c = v o N OR � (aE_ N N O 0 LO ty C CV 0 N o e- N T d C m �� L 000 FL- t7 ��4 0 00 00 j O C E� O V C > O L OM ti co 0 NN m a c �� tca a m M 000 4c70 too m o0 > 0 � 00 C G N �Co to v W > y rc O O E a m0 N � I,L N L07 __ ��° O� C � t�A 07 O L r- •p O C ~ V C r Fw y O Q C fl.0 CD 7 m 0) L m 0. ~ ) p) L C 000 Goo T- t0 060 ..• 1 O Q O � N ._ 000M a� aH C �c U. ... cam O m 0 o E c (0 N > O N 'o C m06 >+ t0 C N L 07 c7 a 0— U 4)9 a o� 0 oC -S E 0.0 a� Q� (D�'E (D L N (D _ N O 0 � .Lr > �V L N C 0) aQ E0 -e 9 C tts 0 O N E -p Ea tea) HOc0 m C C y O C E w m to = c0 N LL '0 F-• �_ v C N 1 �� N r� ate, m � M � a�v U �= N t 6- .O 0 X O C O b a � 0) = 0)tea N .r 2 N V 0) ` ca. 8 LA.F-0 01 O (D 07 Hr to N O sew FRB: H.15--Selected Interested Rates, Web -Only Daily Update --May 29, 2003 Pagel of 3 Federal Reserve Statlistical Release H.5 Selected Interest Rates (Daily) Skip to Content Release Date: May 29, 2003 Weeklyrelease dates and. announcements I Historical data I About Daily update Other formats: Screen .reader I ASCII The weekly release is posted on Monday. Daily updates of the weekly release are posted Tuesday throug H.15 DAILY UPDATE: WEB RELEASE ONLY For immediate release SELECTED INTEREST RATES May 29, 2003 Yields in percent per annum 2003 2003 2003 2003 May May May May Instruments 26 27 28 29 Federal funds (effective) 1 2 3 1.21 1.32 1.29 Commercial paper 3 4 5 6 Nonfinancial 1-month 1.22 1.24 2-month 1.20 1.20 3-month 1.19 1.18 Financial 1-month 1.24 1.24 2-month 1.21 1.23 3-month 1.19 1.21 CDs (secondary market) 3 7 1-month 1.26 1.26 3-month 1.21 1.22 6-month 1.15 1.18 Eurodollar deposits (London) 3 8 1-month 1.30 1.25 1.26 3-month 1.23 1.19 1.21 6-month 1.20 1.14 1.16 Bank prime loan 2 3 9 4.25 4.25 4.25 Discount window primary credit 2 10 2.25 2.25 2.25 U.S. government securities Treasury bills (secondary market) 3 4 4-week 1.15 1.19 3-month 1.07 1.10 6-month 1.07 1.09 Treasury constant maturities 11 1-month 1.15 1.21 3-month 1.09 1.12 6-month 1.09 1.11 1-year 1.13 1.15 2-year 1.33 1.35 3-year 1.63 1.62 5-year 2.34 2.35 7-year 2.93 2.94 10-year 3.41 3.44 http://www.federalreserve.gov/Releases/H15/update/ 5/30/2003 FRB: H.15--Selected Interested Rates, Web -Only Daily Update --May 29, 2003 Page 2 of 3 20-year 4.39 4.42 Treasury long-term average (25 years and above) 12 13 4.46 4.50 Interest rate swaps 14 1-year 1.23 1.25 2-year 1.53 1.54 3-year 1.92 1.96 4-year 2.32 2.37 5-year 2.66 2.74 7-year 3.20 3.29 10-year 3.73 3.84 30-year 4.62 4.76 Corporate bonds Moody's seasoned Aaa 15 5.04 5.09 Baa 6.24 6.27 State & local bonds 16 Conventional mortgages 17 See overleaf for footnotes * Markets closed FOOTNOTES 1. The daily effective federal funds rate is a weighted average of rates on brokered trades. 2. Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month. 3. Annualized using a 360-day year or bank interest. 4. On a discount basis. 5. Interest rates interpolated from data on certain commercial paper trades settled by The Depository Trust Company. The trades represent sales of commercial paper by dealers or direct issuers to investors (that is, the offer side). See Board's Commercial Paper Web pages (http://www.federalreserve.gov/releases/cp) for more information. 6. The 1-, 2-, and 3-month rates are equivalent to the 30-, 60-, and 90-day dates reported on the Board's Commercial Paper Web page. 7. An average of dealer offering rates on nationally traded certificates of deposit. 8. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. 9. Rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks. Prime is one of several base rates used by banks to price short-term business loans. 10. The rate charged for discounts made and advances extended under the Federal Reserve's primary credit discount window program, which became effective January 9, 2003. This rate replaces that for adjustment credit, which was discontinued after January 8, 2003. For further information, see www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm. The rate reported is that for the'Federal Reserve Bank of New York. Historical series for the rate on adjustment credit is available at www.federalreserve.gov/releases/hl5/data.htm. 11. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Treasury. 12. Based on the unweighted average of the bid yields for all Treasury http://www.federalreserve.gov/Releases/H 15/update/ 5/30/2003 FRB: H. 1 5--Selected Interested Rates, Web -Only Daily Update --May 29, 2003 Page 3 of 3 fixed -coupon securities with remaining terms to maturity of 25 years and over. 13. A factor for adjusting the daily long-term average in order to estimate a 30-year rate can be found at http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/lt 14. International Swaps and Derivatives Association (ISDA) mid -market par swap rates. Rates are for a Fixed Rate Payer in return for receiving three month LIBOR, and are based on rates collected at 11:00 a.m. by Garban Intercapital plc and published on Reuters Page ISDAFIXI. Source: Reuters Limited. 15. Moody's Aaa rates through December 6, 2001 are averages of Aaa utility and Aaa industrial bond rates. As of December 7, 2001, these rates are averages of Aaa industrial bonds only. 16. Bond Buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations. 17. Contract interest rates on commitments for fixed-rate first mortgages. Source: FHLMC. DESCRIPTION OF THE TREASURY CONSTANT MATURITY SERIES Yields on Treasury securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The constant maturity yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10 and 20 years. This method provides a yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. Weekly release dates and announcements I Historical data I About Daily update Other formats: Screen reader I ASCII Statistical releases f-{ome I Economic research and data Accessibility I Contact Us Last update: May 29, 2003 hq://www.federalreserve.gov/Releases/H15/update/ 5/30/2003 LAT Performance Report Page 1 of 2 Phil Angelides, State Treasurer Inside the State Treasurer's Office Local Agency Investment Fund LAW Performance Report Reporting Date: 04/23/03 Effective Date: 04/23/03 Quarter Yield: 1.88% Daily: 1.82% Year: 2.26% Life: 143 Quarter Ending 03/31/03 Apportionment Rate: 1.98% Earnings Ratio: .00005415936814348 Fair Value Factor: 1.003425270 Monthly Average For March: 1.904% Corporate Bonds 3.89% Commercial Paper 180% Pooled Money I nuestment Account Podfolio Composition $648 Billion 03131103 Loans Treasuries 15.54% 11.53% Time Deposits 10.15% CEYsM Ns 15b2% M Adobe PDF version of LAI F Performance. * Tre asuries * holortgages * Agencies * CEISMNS * Time Deposits ® Bankers Acceptances * Fbpo * Commercial Paper * Corporate Bonds [3 Loans N Fbverses hq://www.treasurer.ca.gov/laif/perfonnance.htm 5/30/2003 LAW Performance Report Page 2 of 2 3 Help with Adobe Acrobat PDF. http://www.treasurer.ca.gov/laif/performance.htm 5/30/2003 FRB:Commercial Paper Rates and Outstandings Pagel of 3 Federal Reserve :Release Ail. •a : • ntcn! Release I About Outstandings I Historical discount rates I Historical outstandings Data as of May 29, 2003 Commercial Paper Rates and Outstandings Derived from data supplied by The Depository Trust Company Posted May 30, 2003 Discount rates AA AA � nzmx A2/P2 Term Term financial financial nonfinancial nonfinancial nonfinancial nonfinancial 1-day 1.30 1.28IF 1.36 -]F 7-day 1.26 1.22 135 -]F 15-day 1.24 1.22 1.36 30-day 1.25 1.21 1.39 60.day 1.21 1.19 1.41 90-day 1.19 1.20�]F 1.42 Yield curve Monev market basis Percent -.� — 1 7 15 30 sai 90 C3ora to Maturity Financial — -- Nonfinancial ••••• A2/P1 .0 11 [7 http://www.federalreserve.gov/Releases/CP/ 5/30/2003 FRB:Commercial Paper Rates and Outstandings Page 2 of 3 Discount rate spread Thirty -day A2/P2 less AA nonfinancial commercial paper (daily) Basis points 1.50 140 130 120 110 100 90 80 70 s- 60 a 1 40 20 10 01JUL99 01JAN00 01JUL00 01JAN01 01JUL01 01JAN02 01JUL02 01JAN03 01JUL03 — -- A2/P2 spread, 5—day moving average Discount rate history Thirty -day commercial paper (daily) Percent Ir r � � •ice 7 l Iw ■ 7 �J 4 3 2 1 01 J U L'99 01 JAN00 01 J U L00 01 JAN 01 01 J U L01 01 JM 02 01 J U L02 01 JAN03 01 J U L03 _ Financial — — — Nanfi riancial A2 f P2 Outstandings Weekly (Wednesday), seasonally adjusted Billions of dollars http://www.federalreserve.gov/Releases/CP/ Billions of dollars 9 5/30/2003 FRB:Commercial Paper Rates and Outstandings Page 3 of 3 1300 1200 4 Mutt Wit WAC 900 01 JUL99 016ANCO 01 JU LOO 01 AN01 01 J UL01 01 AN02 01 JUL02 01 AND3 01 JUL03 — Financial — --Nonfinancial The daily commercial paper release will usually be available before 11:00am EST. However, the Federal Reserve makes no guarantee regarding the timing of the daily commercial paper release. When the Federal Reserve is closed on a business day, yields for the previous business day will appear in the historical discount rates table. This policy is subject to change at any time without notice. Commercial paper outstanding Commercialpaper outstanding, miscellaneous categories Volume Statistics 2003:Q1 Release ( About I Outstandings ( Historical discount rates I Historical outstandings Home I Statistical releases AccessibilityI Contact Us Last update: May 30, 2003 10 5/30/2003 hq://www.federalreserve.gov/Releases/CP/ CO) t LD L C X a c = m c ca M m °D yR Cf ty � L C y m C � y IA z > L m d lz I� M m MN �O �fjc+)O �� c~CJO �40 e� Ids a0 00to oQ �C-4 $� c� Lo Cos2 Cos � N M � O O O O O O O O L� N m lfl M 7 4 0f N0 It a,0) t0 N �np 00 ��(ppp 1!� O Go�j M p t�0 rj � � N ,0 + (7 Q SON CN00 U) N f� �p g �� �!ry 01 � 01 N m p� 7 ` m N� ' cov �COOA 09 a) 04 �M � tz `'. N MO �� L 9. N II E (A �~ m mO1 y C c� c ~ O LL E a . y N 0 c +' ~ — m �•2m &M'i o. m �c`� Ul m a c1°og u'�a�� Do lz k A A 00 m Z Lt tf "Nc'p�N����Q��,ppery� C� �A O M a00Q 0 a0 v C4 v v v v Z Z W U z > w g8 a. > N QOYOWCOU cn O— U Y� ors�OZ=m 0. UJnWZDUXWZ WZUiUomzl z -2m=!2CDD0E- WZZ--OO=OD DC9LLUUamQm INVESTMENT ADVISORY BOARD Meeting Date: TITLE: June 11, 2003 Correspondence & Written Material Item B Pooled Money Investment Board Report for March 2003 and LAIF Forty -Six Annual Report, Fiscal Year 2001-2002 BACKGROUND: The Pooled Money Investment Board Report for March, 2003 and the Forty-six Annual Report is included in the agenda packet. RECOMMENDATION: Receive & File l VJo&M. Falconer, F nance Director Philip Angelides March 2003 STATE OF CALIFORNIA STATE TREASURER'S OFFICE POOLED MONEY INVESTMENT BOARD REPORT MARCH 2O03 TABLE OF CONTENTS SUMMARY................................................................. 01 SELECTED INVESTMENT DATA .................................... 02 PORTFOLIO COMPOSITION ........................................ 03 INVESTMENT TRANSACTIONS ..................................... 04 TIME DEPOSITS...................................0.................... 16 BANK DEMAND DEPOSITS .......................................... 29 POOLED MONEY INVESTMENT BOARD DESIGNATION... 30 POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF MARCH 2O03 WITH MARCH 2O02 (DOLLARS IN THOUSANDS) MARCH 200 MARCH 2qQ� ... ..':CHANCE Average Daily Portfolio $ 53,823,585 $ 48,244,973 $ +5,578,612 Accrued Earnings $ 87,028 $ 117,230 -30,202 Effective Yield 1.904 2.861 -0.957 Average Life -Month End (In Days) 161 188 -27 Total Security Transactions Amount $ 18,233,046 $ 24,613,590 -6,380,544 Number 397 531 -134 Total Time Deposit Transactions Amount $ 2,155,000 $ 1,591,000 +564,000 Number 142 137 +5 Average Workday Investment Activity $ 1,019,402 $ 1,247,838 -228,436 Prescribed Demand Account Balances For Services $ 1,008,445 $ 643,788 +364,657 For Uncollected Funds $ 97,385 $ 128,288 -30,903 1 PHILIP ANGELIDES TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) TYPE OF SECURITY Government Bills Bonds Notes Strips Total Government Federal Agency Coupons Certificates of Deposit Bank Notes Bankers' Acceptances Repurchases Federal Agency Discount Notes Time Deposits GNMAs Commercial Paper FHLMC Corporate Bonds Pooled Loans GF Loans Reversed Repurchases Total (All Types) March 31, 2003 DIFFERENCE IN PERCENT OF PERCENT OF PORTFOLIO FROM AMOUNT PORTFOLIO PRIOR MONTH $ 497,500 0 5,736,360 0 $ 6,233,860 $ 3,435,434 8,585,124 400,000 0 0 8,620,195 5,486,095 631 10,240,072 5,473 2,100,566 4,568,481 4,370,700 0 $ 54,046,631 INVESTMENT ACTIVITY MARCH 2O03 NUMBER AMOUNT Pooled Money 397 $ 18,233,046 Other 25 551,892 Time Deposits 142 2,155,000 Totals 564 $ 20,939,938 PMIA Monthly Average Effective Yield 1.904 Year to Date Yield Last Day of Month 2.297 2 0.92 +0.02 0.00 0.00 10.61 -0.46 0.00 0.00 11.53 -0.44 6.36 +0.08 15.88 +0.13 0.74 -0.16 0.00 0.00 0.00 -0.90 15.95 -3.58 10.15 +0.28 0.00 0.00 18.95 -1.95 0.01 0.00 3.89 -0.16 8.45 -1.39 8.09 +8.09 0.00 0.00 100.00 FEBRUARY 2003 NUMBER AMOUNT 415 $ 19,280,370 21 390,317 132 2,771,600 568 $ 22,442,287 1.945 2.350 Pooled Money Investment Account Portfolio Composition $54.0 Billion Treasuries Loans 11.53% 1 C RAN. Corpora Bond: 3.89% Commercia Paper 18.95% T�IIIV VCiPWQIW 10.15% 16.62% as Agencies 22.31 % 3 03/31 /03 8 Treasuries B Mortgages ® Agencies ® CD's/BN's ■ Time Deposits El Bankers Acceptances ■ Repo El Commercial Paper ® Corporate Bonds ❑ Loans El Reverses 03/01/03 REDEMPTIONS MTN B/A 6.850% 03/01 /03 5.800 $ 19,870 730 $ 2,366,770.89 5.840 NO PURCHASES 03/03/03 REDEMPTIONS CD WACHOVIA 1.750% 03/03/03 1.750 50,000 131 318,402.78 1.774 CD WACHOVIA 1.750% 03/03/03 1.750 50,000 131 318,402.78 1.774 CD WACHOVIA 1.750% 03/03/03 1.750 50,000 131 318,402.78 1.774 CD WACHOVIA 1.750% 03/03/03 1.750 50,000 131 318,402.78 1.774 CD RABO 1.710% 03/03/03 1.700 50,000 138 325,845.74 1.723 CD RABO 1.710% 03/03/03 1.700 50,000 138 325,845.74 1.723 CP PFIZER 03/03/03 1.230 30,000 6 6,150.00 1.247 CP TRANSAM 03/03/03 1.250 5,000 11 1,909.72 1.267 CP SAFEWAY. 03/03/03 1.320 25,000 11 10,083.33 1.338 CP JP MORGAN 03/03/03 1.250 25,000 11 9,548.61 1.267 CP SALOMON 03/03/03 1.230 50,000 11 18,791.66 1.247 CP TRANSAM 03/03/03 1.250 50,000 11 19,097.22 1.267 CP JP MORGAN 03/03/03 1.250 50,000 11 19,097.22 1.267 CP JP MORGAN 03/03/03 1.250 50,000 11 19,097.22 1.267 CP JP MORGAN 03/03/03 1.250 50,000 11 19,097.22 1.267 CP FMCC 03/03/03 1.200 50,000 11 18,333.33 1.217 CP FMCC 03/03/03 1.200 50,000 11 18,333.33 1.217 CP GECC 03/03/03 1.330 50,000 67 123,763.89 1.351 CP GECC 03/03/03 1.330 50,000 67 123,763.89 1.351 CP CITICORP 03/03/03 1.340 50,000 82 152,611.11 1.362 CP CITICORP 03/03/03 1.340 50,000 82 152,611.11 1.362 CP GMAC 03/03/03 1.950 25,000 84 113,750.00 1.986 CP GMAC 03/03/03 1.950 50,000 84 227,500.00 1.986 CP FMCC 03/03/03 2.210 20,000 118 144,877.78 2.257 CP GECC 03/03/03 1.610 50,000 124 277,277.78 1.641 CP GECC 03/03/03 1.610 50,000 124 277,277.78 1.641 CP SRAC 03/03/03 2.300 50,000 126 402,500.00 2.350 DISC NOTES FHLMC 03/03/03 1.410 38,153 117 174,836.12 1.436 DISC NOTES FHLMC 03/03/03 1.410 50,000 117 229,125.00 1.436 DISC NOTES FHLMC 03/03/03 1.410 50,000 117 229,125.00 1.436 DISC NOTES FHLMC 03/03/03 1.410 50,000 117 229,125.00 1.436 DISC NOTES FHLMC 03/03/03 1.410 50,000 117 229,125.00 1.436 DISC NOTES FNMA 03/03/03 1.200 20,000 6 4,000.00 1.216 DISC NOTES FNMA 03/03/03 1.200 50,000 6 10,000.00 1.216 DISC NOTES FNMA 03/03/03 1.200 50,000 6 10,000.00 1.216 DISC NOTES FNMA 03/03/03 1.200 50,000 6 10,000.00 1.216 SALES c/ TREAS BILLS 04/17/03 1.230 7,225 5 1,207.79 1.247 TREAS BILLS 04/17/03 1.230 49,940 5 8,352.90 1.247 TREAS BILLS 05/08/03 1.230 50,000 5 8,352.90 1.247 4 03/03/03 SALES c/ (continued) TREAS BILLS TREAS BILLS TREAS BILLS TREAS BILLS TREAS BILLS TREAS NOTES TREAS NOTES TREAS NOTES PURCHASES CFI SRAC CP CITIGROUP CP CITIGROUP CP GECC CP GECC CP GECC CP GECC 03/04/03 REDEMPTIONS CP AMER EXP CP HOUSEHOLD CP HOUSEHOLD CP AMER EXP CP GECC CP GECC CP GMAC CP GMAC CP GMAC CP GMAC CP GMAC CP GMAC CP GMAC CP AMER EXP CP AMER EXP CP AMER EXP CP AMER EXP PURCHASES CP AMER EXP CP AMER EXP CP AMER EXP 03/05/03 REDEMPTIONS CD W/F 05/08/03 1.230 50,000 5 8,352.90 1.247 05/15/03 1.230 50,000 5 8,352.90 1.247 08/07/03 1.230 50,000 5 8,331.54 1.247 08/07/03 1.230 50,000 5 8,331.54 1.247 08/07/03 1.230 50,000 5 8,331.54 1.247 3.250% 05/31 /04 1.230 50,000 5 8,635.62 1.247 2.875% 06/30/04 1.230 50,000 5 8,583.52 1.247 2.875% 06/30/04 1.230 50,000 5 8,583.52 1.247 03/10/03 1.280 25,000 03/10/03 1.280 25,000 03/10/03 1.280 50,000 03/10/03 1.280 50,000 03/10/03 1.280 50,000 03/10/03 1.280 50,000 03/10/03 1.280 50,000 03/04/03 1.250 50,000 6 10,416.67 1.267 03/04/03 1.320 20,000 8 5,866.67 1.338 03/04/03 1.320 50,000 8 14,666.67 1.338 03/04/03 1.240 50,000 12 20,666.67 1.257 03/04/03 1.330 50,000 68 125,611.11 1.351 03/04/03 1.330 50,000 68 125,611.11 1.351 03/04/03 1.950 50,000 90 243,750.00 1.986 03/04/03 1.950 50,000 90 243,750.00 1.986 03/04/03 1.950 50,000 90 243,750.00 1.986 03/04/03 1.940 50,000 92 247,888..89 1.976 03/04/03 1.940 50,000 92 247,888.89 1.976 03/04/03 1.940 50,000 92 247,888.89 1.976 03/04/03 1.940 50,000 92 247,888.89 1.976 03/04/03 1.500 50,000 118 245,833.33 1.528 03/04/03 1.500 50,000 118 245,833.33 1.528 03/04/03 1.500 50,000 118 245,833.33 1.528 03/04/03 1.500 50,000 118 245,833.33 1.528 03/10/03 1.250 50,000 03/10/03 1.250 50,000 03/10/03 1.250 50,000 1.290% 03/05/03 1.290 50,000 62 111,083.33 5 1.307 03/05/03 REDEMPTIONS (continued) CD W/F PURCHASES CID AMER EXP CID HOUSEHOLD CID HOUSEHOLD CID HOUSEHOLD CID HOUSEHOLD CID FMCC CID FMCC CID W/F CID W/F CID W/F CID W/F PURCHASES c/ TREAS NOTES TREAS NOTES TREAS NOTES TREAS NOTES 03/06/03 REDEMPTIONS CID W/F CID W/F CID W/F CID W/F CID GECC MTN FR CHRYSLER SALES c/ TREAS NOTES TREAS NOTES TREAS NOTES TREAS NOTES PURCHASES CID BARTON CID BARTON CID NCAT CID NCAT MTN CITICORP 1.290% 03/05/03 1.290 50,000 62 03/10/03 1.230 50,000 03/10/03 1.280 50,000 03/10/03 1.280 50,000 03/11 /03 1.280 50,000 03/11/03 1.280 50,000 03/12/03 1.200 50,000 03/12/03 1.200 50,000 03/26/03 1.240 50,000 03/26/03 1.240 50,000 03/26/03 1.240 50,000 03/26/03 1.240 50,000 5.375% .06/30/03 1.200 49,280 5.375% 06/30/03 1.200 50,000 5.375% 06/30/03 1.200 50,000 5.375% 06/30/03 1.200 50,000 111,083.33 1.307 03/06/03 1.230 50,000 10 17,083.33 1.247 03/06/03 1.230 50,000 10 17,083.33 1.247 03/06/03 1.230 50,000 10 17,083.33 1.247 03/06/03 1.230 50,000 10 17,083.33 1.247 03/06/03 1.250 50,000 13 22,569.44 1.267 5.826% 03/06/03 5.644 10,000 1757 2,224,443.74 4.611 5.375% 06/30/03 1.200 49,280 1 1,648.67 1.216 5.375% 06/30/03 1.200 50,000 1 1,672.67 1.216 5.375% 06/30/03 . 1.200 50,000 1 1,672.67 1.216 5.375% 06/30/03 1.200 50,000 1 1,672.67 1.216 03/07/03 1.250 2,176 03/07/03 1.250 50,000 03/07/03 1.260 40,000 03/07/03 1.260 50,000 6.750% 08/15/05 2.245 16,459 L 03/06/03 PURCHASE c/ (continued) TREAS NOTES 3.375% 04/30/04 1.240 12,530 TREAS NOTES 3.375% 04/30/04 1.240 50,000 TREAS NOTES 3.375% 04/30/04 1.240 50,000 TREAS NOTES 7.250% 05/15/04 1.240 19,103 TREAS NOTES 7.250% 05/15/04 1.240 50,000 TREAS NOTES 3.250% 05/31 /04 1.240 250 TREAS NOTES 3.250% 05/31 /04 1.240 50,000 TREAS NOTES 3.250% 05/31 /04 1.240 50,000 03/07/03 REDEMPTIONS CP BARTON 03/07/03 1.250 2,176 1 75.56 1.267 CP BARTON 03/07/03 1.250 50,000 1 1,736.11 1.267 CP NCAT 03/07/03 1.260 40,000 1 1,400.00 1.277 CP NCAT 03/07/03 1.260 50,000 1 1,750.00 1.277 DISC NOTES FHLMC 03/07/03 1.420 50,000 121 238,638.89 1.446 DISC NOTES FHLMC 03/07/03 1.420 50,000 121 238,638.89 1.446 DISC NOTES FHLMC 03/07/03 1.420 50,000 121 238,638.89 1.446 SALES c/ TREAS NOTES 3.375% 04/30/04 1.240 12,530 1 438.31 1.257 TREAS NOTES 3.375% 04/30/04 1.240 50,000 1 1,749.61 1.257 TREAS NOTES 3.375% 04/30/04 1.240 50,000 1 1,749.61 1.257 TREAS NOTES 7.250% 05/15/04 1.240 19,103 1 705.42 1.257 TREAS NOTES 7.250% 05/15/04 1.240 50,000 1 1,846.74 1.257 TREAS NOTES 3.250% 05/31 /04 1.240 250 1 8.61 1.257 TREAS NOTES 3.250% 05/31 /04 1.240 50,000 1 1,745.30 1.257 TREAS NOTES 3.250% 05/31 /04 1.240 50,000 1 1,745.30 1.257 PURCHASES CD MONTREAL 1.230% 04/10/03 1.230 50,000 CD MONTREAL 1.230% 04/10/03 1.230 50,000 CD U/13 1.230% 04/11/03 1.230 50,000 CD W/F 1.230% 04/11/03 1.230 50,000 CD W/F 1.230% 04/11/03 1.230 50,000 CD CIBC 1.240% 04/11/03 1.240 50,000 CD CIBC 1.240% 04/11/03 1.240 50,000 CP GECC 03/26/03 1.230 50,000 CP GECC 03/26/03 1.230 50,000 CP GECC 03/26/03 1.230 50,000 CP W/F 04/01 /03 1.230 50,000 CP W/F 04/01 /03 1.230 50,000 03/10/03 REDEMPTIONS CD UBS 1.325% 03/10/03 1.300 35,000 76 96,113.49 1.318 7 03/10/03 REDEMPTIONS (continued) CD UBS 1.325% 03/10/03 1.300 50,000 76 137,304.99 1.318 CID AMER EXP 03/10/03 1.230 50,000 5 8,541.67 1.247 CID HOUSEHOLD 03/10/03 1.280 50,000 5 8,888.89 1.298 CID HOUSEHOLD 03/10/03 1.280 50,000 5 8,888.89 1.298 CID AMER EXP 03/10/03 1.250 50,000 6 10,416.67 1.267 CID AMER EXP 03/10/03 1.250 50,000 6 10,416.67 1.267 CID AMER EXP 03/10/03 1.250 50,000 6 10,416.67 1.267 CID SRAC 03/10/03 1.280 25,000 7 6,222.22 1.298 CID CITIGROUP 03/10/03 1.280 25,000 7 6,222.22 1.298 CID CITIGROUP 03/10/03 1.280 50,000 7 12,444.44 1.298 CID GECC 03/10/03 1.280 50,000 7 12,444.44 1.298 CID GECC 03/10/03 1.280 50,000 7 12,444.44 1.298 CID GECC 03/10/03 1.280 50,000 7 12,444.44 1.298 CID GECC 03/10/03 1.280 50,000 7 12,444.44 1.298 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID GECC 03/10/03 1.250 50,000 18 31,250.00 1.268 CID DEERE 03/10/03 1.370 50,000 35 66,597.22 1.390 CID GE 03/10/03 1.320 50,000 77 141,166.67 1.342 CID GE 03/10/03 1.320 50,000 77 141,166.67 1.342 CID SALOMON 03/10/03 1.330 50,000 88 162,555.56 1.352 CID SALOMON 03/10/03 1.330 50,000 88 162,555.56 1.352 CID GMAC 03/10/03 1.950 50,000 105 284,375.00 1.988 CID GMAC 03/10/03 1.950 50,000 105 284,375.00 1.988 CID WYETH 03/10/03 1.900 50,000 108 285,000.00 1.937 CID WYETH 03/10/03 1.900 50,000 108 285,000.00 1.937 DISC NOTES FNMA 03/10/03 1.210 50,000 18 30,250.00 1.227 DISC NOTES FNMA 03/10/03 1.210 50,000 18 30,250.00 1.227 PURCHASES CID GECC 03/11/03 1.210 50,000 CID GECC 03/11/03 1.210 50,000 03/11/03 REDEMPTIONS CID GECC 03/11/03 1.210 50,000 1 1,680.56 1.226 CID GECC 03/11/03 1.210 50,000 1 1,680.56 1.226 CID HOUSEHOLD 03/11/03 1.280 50,000 6 10,666.67 1.298 CID HOUSEHOLD 03/11/03 1.280 50,000 6 10,666.67 1.298 CID CITICORP 03/11/03 1.250 40,000 13 18,055.56 1.267 CID CITICORP 03/11/03 1.250 50,000 13 22,569.44 1.267 CID DEERE 03/11/03 1.290 30,000 41 44,075.00 1.309 CID GE 03/11/03 1.320 50,000 78 143,000.00 1.342 CID GE 03/11/03 1.320 50,000 78 143,000.00 1.342 03/12/03 NO PURCHASES 03/12/03 REDEMPTIONS CP CP CP CP MTN MTN MTN MTN MTN PURCHASES CP CP CP CP CP CP CP CP CP 03/13/03 REDEMPTIONS CP CP CP CP CP CP CP CP CP CP NO PURCHASE; 03/14/03 REDEMPTIONS CB CP CP CP FMCC 03/12/03 1.200 50,000 7 11,666.67 FMCC 03/12/03 1.200 50,000 7 11,666.67 CITICORP 03/12/03 1.250 50,000 14 24,305.56 CITICORP 03/12/03 1.250 50,000 14 24,305.56 GMAC 5.800% 03/12/03 3.196 26,300 314 736,686.46 GMAC 5.800% 03/12/03 4.150 22,587 446 1,165,263.33 GMAC 5.800% 03/12/03 4.753 36,300 618 2,957,703.89 GMAC 5.800% 03/12/03 5.300 10,000 657 959,700.00 GMAC 5.800% 03/12/03 5.700 8,250 712 917,750.57 W/F 03/13/03 1.200 50,000 W/F 03/13/03 1.200 50,000 W/F 03/13/03 1.200 50,000 W/F 03/13/03 1.200 50,000 GECC 03/13/03 1.200 50,000 GECC 03/13/03 1.200 50,000 GECC 03/13/03 1.200 50,000 GECC 03/13/03 1.200 50,000 GECC 03/13/03 1.200 50,000 1.216 1.216 1.267 1.267 3.186 4.141 4.732 5.287 5.692 W/F 03/13/03 1.200 50,000 1 1,666.67 1.216 W/F 03/13/03 1.200 50,000 1 1,666.67 1.216 W/F 03/13/03 1.200 50,000 1 1,666.67 1.216 W/F 03/13/03 1.200 50,000 1 1,666.67 1.216 GECC 03/13/03 1.200 50,000 1 1,666.67 1.216 GECC 03/13/03 1.200 50,000 1 1,666.67 1.216 GECC 03/13/03 1.200 50,000 1 1,666.67 1.216 GECC 03/13/03 1.200 50,000 1 1,666.67 1.216 GECC 03/13/03 1.200 50,000 1 1,666.67 1.216 W/F 03/13/03 1.240 50,000 21 36,166.67 1.258 GMAC 5.950% 03/14/03 6.095 11,900 787 1,563,820.25 6.113 CRC 03/14/03 1.260 50,000 29 50,750.00 1.278 CRC 03/14/03 1.260 50,000 29 50,750.00 1.278 GMAC 03/14/03 1.580 50,000 50 109,722.22 1.605 0 03/14/03 PURCHASES (continued) CP BARTON 04/01/03 1.230 3,868 CP BARTON 04/01/03 1.230 50,000 CP BARTON 04/01/03 1.230 50,000 CP CRC 04/09/03 1.230 50,000 CP CRC 04/09/03 1.230 50,000 CP FMCC 04/28/03 1.520 25,000 CP GMAC 05/01/03 1.510 50,000 CP GMAC 05/01/03 1.510 50,000 CP GMAC 05/02/03 1.510 50,000 CP GMAC 05/02/03 1.510 50,000 03/17/03 REDEMPTIONS MTN FR FMCC 6.350% 03/17/03 6.820 42,578 1025 4,880,985.75 PURCHASES CP SRAC 05/01/03 1.600 50,000 CP SRAC 05/02/03 1.600 50,000 CP FMCC 06/09/03 1.530 50,000 CP FMCC 06/09/03 1.530 50,000 CP GMAC 06/09/03 1.530 50,000 CP GMAC 06/09/03 1.530 50,000 CP FMCC 06/10/03 1.530 50,000 CP FMCC 06/10/03 1.530 50,000 CP GMAC 06/10/03 1.530 50,000 CP GMAC 06/10/03 1.530 50,000 03/18/03 NO SALES PURCHASES CP BEAR 03/26/03 1.220 20,000 CP BEAR 03/26/03 1.220 50,000 CP BEAR 03/26/03 1.220 50,000 CP GECC 03/26/03 1.220 50,000 CP GECC 03/26/03 1.220 50,000 CP GECC 03/26/03 1.220 50,000 CP GECC 03/26/03 1.220 50,000 MTN DUPONT 6.600% 09/12/05 1.921 26,000 03/19/03 NO SALES PURCHASES CP CRC 04/10/03 1.230 25,000 CP CRC 04/10/03 1.230 50,000 CP BARTON 04/10/03 1.240 47,215 10 4.088 03/19/03 PURCHASES (continued) CP BARTON 04/10/03 1.240 50,000 CP TEXT FIN 04/14/03 1.380 25,000 CP MORG STAN 06/10/03 1.220 50,000 CP MORG STAN 06/10/03 1.220 50,000 03/20/03 REDEMPTIONS DISC NOTES FNMA 03/20/03 1.240 25,000 118 101,611.11 1.262 DISC NOTES FNMA 03/20/03 1.240 50,000 118 203,222.22 1.262 DISC NOTES FNMA 03/20/03 1.240 50,000 118 203,222.22 1.262 NO PURCHASES 03/21/03 REDEMPTIONS CP HEWLETT 03/21/03 1.390 50,000 31 59,847.22 1.410 CP ASCC 03/21/03 1.260 50,000 39 68,250.00 1.279 CP CITICORP 03/21/03 1.330 50,000 99 182,875.00 1.353 CP CITICORP 03/21/03 1.330 50,000 99 182,875.00 1.353 CP CITICORP 03/21/03 1.330 50,000 99 182,875.00 1.353 DISC NOTES FNMA 03/21/03 1.660 50,000 155 357,361.11 1.695 PURCHASES CP MORG STAN 04/01/03 1.250 50,000 CP MORG STAN 04/01/03 1.250 50,000 CP MORG STAN 04/01/03 1.250 50,000 CP MORG STAN 04/01/03 1.250 50,000 CP SALOMON 04/01/03 1.250 50,000 CP SALOMON 04/01/03 1.250 50,000 CP SALOMON 04/01/03 1.250 50,000 CP SALOMON 04/01/03 1.250 50,000 CP GEN MILLS 05/09/03 1.300 25,000 CP GOLDMAN 05/20/03 1.260 50,000 CP GOLDMAN 05/20/03 1.260 50,000 CP CAFCO 06/09/03 1.220 50,000 CP CAFCO 06/09/03 1.220 50,000 CP CAFCO 06/10/03 1.220 50,000 CP CAFCO 06/10/03 1.220 50,000 CP GEN MILLS 06/20/03 1.300 25,000 03/24/03 NO SALES PURCHASES CD W/F 1.220% 05/28/03 1.220 50,000 CD W/F 1.220% 05/28/03 1.220 50,000 CD W/F 1.220% 05/28/03 1.220 50,000 11 03/24/03 PURCHASES (continued) CD W/F 1.220% 05/28/03 1.220 50,000 CD W/F 1.220% 05/30/03 1.220 50,000 CD W/F 1.220% 05/30/03 1.220 50,000 CD W/F 1.220% 05/30/03 1.220 50,000 CD W/F 1.220% 05/30/03 1.220 50,000 CP SALOMON 04/01 /03 1.250 50,000 CP SALOMON 04/01/03 1.250 50,000 CP SALOMON 04/01 /03 1.250 50,000 CP SALOMON 04/01 /03 1.250 50,000 CP BEAR 06/02/03 1.230 50,000 CP BEAR 06/02/03 1.230 50,000 CP BEAR 06/02/03 1.230 50,000 CP BEAR 06/02/03 1.230 50,000 CP CITICORP 06/20/03 1.240 50,000 CP CITICORP 06/20/03 1.240 50,000 CP CITICORP 06/20/03 1.240 50,000 03/25/03 NO SALES NO PURCHASES 03/26/03 SALES TREAS NOTES 4.250% 03/31/03 1.377 50,000 699 4,046,733.94 4.222 TREAS NOTES 4.250% 03/31/03 1.377 50,000 699 4,046,733.94 4.222 TREAS NOTES 4.250% 03/31/03 1.377 50,000 699 4,046,733.94 4.222 TREAS NOTES 4.250% 03/31/03 1.377 50,000 699 4,046,733.94 4.222 TREAS NOTES 4.250% 03/31/03 1.377 50,000 701 4,011,470.96 4.169 TREAS NOTES 4.250% 03/31/03 1.377 50,000 701 4,011,470.96 4.169 REDEMPTIONS BN WORLD 1.280% 03/26/03 1.300 50,000 97 175,129.44 1.318 BN WORLD 1.280% 03/26/03 1.300 50,000 97 175,129.44 1.318 CD BK SCOT 1.330% 03/26/03 1.320 50,000 93 170,504.39 1.338 CD SVENSKA 1.730% 03/26/03 1.720 50,000 161 384,628.18 1.743 CD SVENSKA 1.730% 03/26/03 1.720 50,000 161 384,628.18 1.743 CD SVENSKA 1.730% 03/26/03 1.720 50,000 161 384,628.18 1.743 CD SVENSKA 1.730% 03/26/03 1.720 50,000 161 384,628.18 1.743 CP BEAR 03/26/03 1.220 20,000 8 5,422.22 1.237 CP BEAR 03/26/03 1.220 50,000 8 13,555.56 1.237 CP BEAR 03/26/03 1.220 50,000 8 13,555.56 1.237 CP GECC 03/26/03 1.220 50,000 8 13,555.56 1.237 CP GECC 03/26/03 1.220 50,000 8 13,555.56 1.237 CP GECC 03/26/03 1.220 50,000 8 13,555.56 1.237 CP GECC 03/26/03 1.220 50,000 8 13,555.56 1.237 CP GECC 03/26/03 1.230 50,000 19 32,458.33 1.247 CP GECC 03/26/03 1.230 50,000 19 32,458.33 1.247 12 03/26/03 REDEMPTIONS (continued) 03/27/03 CID GECC 03/26/03 1.230 50,000 19 32,458.33 1.247 CID W/F 03/26/03 1.240 50,000 21 36,166.67 1.258 CID W/F 03/26/03 1.240 50,000 21 36,166.67 1.258 CID W/F 03/26/03 1.240 50,000 21 36,166.67 1.258 CID W/F 03/26/03 1.240 50,000 21 36,166.67 1.258 CID GE 03/26/03 1.260 50,000 62 108,500.00 1.280 CID GE 03/26/03 1.260 50,000 62 108,500.00 1.280 CID GMAC 03/26/03 1.930 50,000 119 318,986.11 1.969 CID GMAC 03/26/03 1.930 50,000 119 318,986.11 1.969 CID NCAT 03/26/03 1.760 25,000 152 185,777.78 1.797 CID BEAR 03/26/03 1.770 25,000 152 186,833.33 1.808 CID NCAT 03/26/03 1.760 50,000 152 371,555.56 1.797 CID NCAT 03/26/03 1.760 50,000 152 371,555.56 1.797 CID BEAR 03/26/03 1.770 50,000 152 373,666.67 1.808 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FHLMC 03/26/03 1.630 50,000 161 364,486.11 1.664 DISC NOTES FNMA 03/26/03 1.270 50,000 92 162,277.78 1.291 DISC NOTES FNMA 03/26/03 1.270 50,000 92 162,277.78 1.291 DISC NOTES FNMA 03/26/03 1.270 50,000 92 162,277.78 1.291 DISC NOTES FNMA 03/26/03 1.270 50,000 92 162,277.78 1.291 DISC NOTES FNMA 03/26/03 1.700 50,000 155 365,972.22 1.736 DISC NOTES FNMA 03/26/03 1.650 28,376 161 209,391.23 1.685 DISC NOTES FNMA 03/26/03 1.650 50,000 161 368,958.33 1.685 DISC NOTES FNMA 03/26/03 1.650 50,000 161 368,958.33 1.685 DISC NOTES FNMA 03/26/03 1.650 50,000 161 368,958.33 1.685 NO PURCHASES REDEMPTIONS DISC NOTES FHLMC 03/27/03 1.275 48,300 93 159,088.12 1.296 PURCHASES CD MONTREAL 1.220% 07/01 /03 1.220 50,000 CID HERTZ 07/01/03 1.570 25,000 CID GECC 03/28/03 1.290 25,000 CID GECC 03/28/03 1.290 50,000 CID GECC 03/28/03 1.290 50,000 CID COUNTRY 04/10/03 1.320 25,000 CID COUNTRY 04/10/03 1.320 50,000 CID SALOMON 04/10/03 1.260 50,000 CID SALOMON 04/10/03 1.260 50,000 CID SALOMON 04/10/03 1.260 50,000 13 03/28/03 REDEMPTIONS CD SVENSKA 1.730% 03/28/03 1.720 50,000 163 389,406.39 1.743 CD SVENSKA 1.730% 03/28/03 1.720 50,000 163 389,406.39 1.743 CD SVENSKA 1.730% 03/28/03 1.720 50,000 163 389,406.39 1.743 CD SVENSKA 1.730% 03/28/03 1.720 50,000 163 389,406.39 1.743 CID GECC 03/28/03 1.290 25,000 1 895.83 1.307 CID GECC 03/28/03 1.290 50,000 1 1,791.67 1.307 CID GECC 03/28/03 1.290 50,000 1 1,791.67 1.307 CP W/F 03/28/03 1.250 50,000 53 92,013.89 1.269 CID W/F 03/28/03 1.250 50,000 53 92,013.89 1.269 CID GE 03/28/03 1.260 50,000 64 112,000.00 1.280 CID GE 03/28/03 1.260 50,000 64 112,000.00 1.280 CID W/F 03/28/03 1.270 10,000 72 25,400.00 1.290 CID W/F 03/28/03 1.270 50,000 72 127,000.00 1.290 CID BEAR 03/28/03 1.340 40,000 134 199,511.11 1.365 CID GMAC 03/28/03 2.220 50,000 147 453,250.00 2.271 CID GMAC 03/28/03 2.220 50,000 147 453,250.00 2.271 CID GMAC 03/28/03 2.220 50,000 147 453,250.00 2.271 CID HOUSEHOLD 03/28/03 2.170 50,000 151 455,097.22 2.220 CID HOUSEHOLD 03/28/03 2.170 50,000 151 455,097.22 2.220 DISC NOTES FHLMC 03/28/03 1.230 50,000 134 228,916.67 1.252 DISC NOTES FHLMC 03/28/03 1.230 50,000 134 228,916.67 1.252 DISC NOTES FHLMC 03/28/03 1.230 50,000 134 228,916.67 1.252 DISC NOTES FHLMC 03/28/03 1.230 50,000 134 228,916.67 1.252 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FHLMC 03/28/03 1.630 50,000 163 369,013.89 1.664 DISC NOTES FNMA 03/28/03 1.260 50,000 122 213,500.00 1.282 DISC NOTES FNMA 03/28/03 1.260 50,000 122 213,500.00 1.282 PURCHASES CID GMAC 07/01/03 1.530 45,000 CID GMAC 07/01/03 1.530 50,000 CID GMAC 07/01/03 1.530 50,000 CID GMAC 07/01/03 1.530 50,000 SBA FR 1.550% 02/25/28 1.550 4,929 14 a/ The abbreviations indicate the type of security purchased or sold; i.e., (U.S.) Bills, Bonds, Notes, Debentures, Discount Notes and Participation Certificates: Federal National Mortgage Association (FNMA), Farmers Home Administration Notes (FHA), Student Loan Marketing Association (SLMA), Small Business Association (SBA), Negotiable Certificates of Deposit (CD), Negotiable Certificates of Deposit Floating Rate (CD FR), Export Import Notes (EXIM), Bankers Acceptances (BA), Commercial Paper (CP), Government National Mortgage Association (GNMA), Federal Home Loan Bank Notes (FHLB), Federal Land Bank Bonds (FLB), Federal Home Loan Mortgage Corporation Obligation (FHLMC PC) & (FHLMC GMC), Federal Farm Credit Bank Bonds (FFCB), Federal Farm Credit Discount Notes (FFC), Corporate Securities (CB), US Ship Financing Bonds (TITLE XI'S), International Bank of Redevelopment (IBRD), Tennessee Valley Authority (TVA), Medium Term Notes (MTN), Real Estate Mortgage Investment Conduit (REMIC). b/ Purchase or sold yield based on 360 day calculation for discount obligations and Repurchase Agreements. c/ Repurchase Agreement. d/ Par amount of securities purchased, sold or redeemed. e/ Securities were purchased and sold as of the same date. f/ Repurchase Agreement against Reverse Repurchase Agreement. g/ Outright purchase against Reverse Repurchase Agreement. h/ Security "SWAP" transactions. u Buy back agreement. RRS Reverse Repurchase Agreement. RRP Termination of Reverse Repurchase Agreement. 15 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE ALHAMBRA Bank of East Asia (USA) 11/13/02 1.310 6,000,000.00 05/13/03 Bank of East Asia (USA) 01/14/03 1.290 3,095,000.00 07/16/03 Bank of East Asia (USA) 02/13/03 1.230 3,000,000.00 08/14/03 Omni Bank 10/21 /02 1.730 2,000,000.00 04/23/03 Omni Bank 11 /20/02 1.310 2,000,000.00 05/21 /03 Omni Bank 02/25/03 1.230 3,000,000.00 08/28/03 Omni Bank 03/07/03 1.220 3,0009000.00 09/05/03 Omni Bank 03/21/03 1.210 2,000,000.00 09/19/03 ARROYO GRANDE Mid -State Bank 10/16/02 1.580 5,000,000.00 04/14/03 Mid -State Bank 11/13/02 1.310 5,000,000.00 05/13/03 Mid -State Bank 12/11/02 1.310 5,000,000.00 06/13/03 Mid -State Bank 01 /16/03 1.290 5,000,000.00 07/17/03 Mid -State Bank 02/13/03 1.230 5,000,000.00 08/14/03 Mid -State Bank 03/12/03 1.100 5,000,000.00 09/12/03 BEVERLY HILLS City National Bank 10/17/02 1.620 25,000,000.00 04/15/03 City National Bank 03/13/03 1.210 10,000,000.00 09/10/03 City National Bank 03/10/03 1.210 10,000,000.00 09/10/03 BREA Jackson Federal Bank 02/11 /03 1.200 10,000,000.00 05/14/03 Pacific Western National Bank 02/05/03 1.240 4,000,000.00 08/08/03 CALABASAS First Bank of Beverly Hills FSB 03/19/03 1.180 10,000,000.00 06/20/03 First Bank of Beverly Hills FSB 02/06/03 1.250 10,000,000.00 08/07/03 First Bank of Beverly Hills FSB 03/03/03 1.250 10,000,000.00 09/04/03 CAMARILLO First California Bank 01/30/03 1.240 4,000,000.00 07/30/03 First California Bank 03/24/03 1.210 3,000,000.00 09/24/03 First California Bank 03/28/03 1.230 3,000,000.00 09/24/03 16 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE CAMERON PARK Western Sierra National Bank 01 /16/03 1.280 7,000,000.00 07/16/03 Western Sierra National Bank 02/14/03 1.220 6,000,000.00 08/15/03 CHICO North State National Bank 01 /24/03 1.210 5,000,000.00 07/25/03 North State National Bank 02/14/03 1.220 1,500,000.00 08/15/03 North State National Bank 03/12/03 1.080 1,000,000.00 09/12/03 Tri Counties Bank 03/18/03 1.180 20,000,000.00 06/19/03 CHULA VISTA North Island Federal Credit Union 03/26/03 1.240 5,000,000.00 09/26/03 CITY OF INDUSTRY EverTrust Bank 12/10/02 1.290 6,000,000.00 06/12/03 EverTrust Bank 01 /27/03 1.210 6,000,000.00 07/31 /03 DUBLIN Operating Engineers FCU 10/10/02 1.580 5,000,000.00 04/08/03 Operating Engineers FCU 12/11 /02 1.290 10,000,000.00 . 06/13/03 Operating Engineers FCU 02/13/03 1.210 5,000,000.00 08/14/03 EL CENTRO Valley Independent Bank 10/28/02 1.710 20,000,000.00 04/28/03 Valley Independent Bank 11/20/02 1.320 32,500,000.00 05/21/03 Valley Independent Bank 12/19/02 1.330 20,000,000.00 07/08/03 EL SEGUNDO First Coastal Bank NA 02/26/03 1.260 1,000,000.00 05/30/03 First Coastal Bank NA 02/26/03 1.260 1,000,000.00 08/29/03 Hawthorne Savings FSB 01/15/03 1.250 35,000,000.00 04/16/03 Hawthorne Savings FSB 11/15/02 1.270 25,000,000.00 05/14/03 Hawthorne Savings FSB 01/09/03 1.300 30,000,000.00 07/09/03 Hawthorne Savings FSB 01 /06/03 1.300 30,000,000.00 07/09/03 Hawthorne Savings FSB 02/05/03 1.240 15,000,000.00 08/07/03 Hawthorne Savings FSB 03/24/03 1.200 50,000,000.00 09/24/03 Xerox Federal Credit Union 11/15/02 1.290 20,000,000.00 05/16/03 17 NAME EL SEGUNDO (continued) Xerox Federal Credit Union FRESNO United Security Bank United Security Bank United Security Bank FULLERTON Fullerton Community Bank Fullerton Community Bank GLENDALE The California Credit Union Verdugo Banking Company Verdugo Banking Company GOLETA Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank Pacific Capital Bank GRANADA HILLS First State Bank of California First State Bank of California IRVINE Commercial Capital Bank Commercial Capital Bank Commercial Capital Bank Commercial Capital Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 03/06/03 1.240 7,000,000.00 09/08/03 10/11 /02 1.580 5,000,000.00 04/09/03 02/05/03 1.210 15,000,000.00 04/15/03 11 /14/02 1.310 20,000,000.00 05/13/03 11 /13/02 1.320 9,000,000.00 05/13/03 01 /23/02 1.260 8,000,000.00 07/25/03 02/27/03 1.270 5,000,000.00 08/29/03 10/01 /02 1.630 5,000,000.00 04/02/03 01 /07/03 1.290 5,000,000.00 07/10/03 10/01 /02 1.610 10,000,000.00 04/02/03 10/11/02 1.560 10,000,000.00 04/02/03 10/29/02 1.660 10,000,000.00 04/29/03 12/05/02 1.330 25,000,000.00 06/09/03 12/11 /02 1.290 30,000,000.00 06/09/03 12/09/02 1.310 30,000,000.00 06/09/03 01/23/03 1.230 45,000,000.00 07/25/03 02/14/03 1.220 16,000,000.00 08/15/03 03/14/03 1.080 25,000,000.00 09/17/03 10/21 /02 1.730 3,000,000.00 04/23/03 03/19/03 1.160 2,000,000.00 09/19/03 12/16/02 1.290 10,000,000.00 06/18/03 01 /08/03 1.290 6,000,000.00 07/10/03 02/24/03 1.220 15,000,000.00 08/20/03 02/21/03 1.220 14,000,000.00 08/28/03 18 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE LA JOLLA Silvergate Bank 01/31/03 1.240 5,000,000.00 08/06/03 Silvergate Bank 03/12/03 1.120 5,000,000.00 09/12/03 LAKEPORT Lake Community Bank 11 /25/02 1.320 1,500,000.00 05/29/03 Lake Community Bank 01/15/03 1.290 2,000,000.00 07/16/03 LODI Farmers & Merchant Bk Cen CA 01/10/03 1.240 10,000,000.00 04/11/03 LOS ANGELES Broadway Federal Bank 01 /09/03 1.310 2,500,000.00 07/11 /03 Broadway Federal Bank 03/11/03 1.170 3,000,000.00 09/11/03 California Center Bank 01/06/03 1.250 10,000,000.00 04/09/03 California Chohung Bank 10/02/02 1.540 3,000,000.00 04/01/03 California Chohung Bank 10/16/02 1.580 800,000.00 04/14/03 California Chohung Bank 10/02/02 1.540 2,500,000.00 04/14/03 California Chohung Bank 01 /16/03 1.270 1,000,000.00 07/17/03 California Chohung Bank 02/19/03 1.210 4,000,000.00 08/21/03 California Chohung Bank 03/07/03 1.200 5,000,000.00 09/05/03 Cathay Bank 10/09/02 1.590 19,000,000.00 04/07/03 Cathay Bank 11/12/02 1.310 15,000,000.00 05/13/03 Cathay Bank 12/10/02 1.290 30,000,000.00 06/12/03 Cathay Bank 03/24/03 1.200 19,000,000.00 09/24/03 Cedars Bank 10/04/02 1.560 5,000,000.00 04/03/03 Cedars Bank 10/24/02 1.750 4,000,000.00 04/22/03 Cedars Bank 12/12/02 1.310 4,500,000.00 06/12/03 Cedars Bank 02/19/03 1.230 2,000,000.00 08/21/03 Center Bank 03/19/03 1.170 20,000,000.00 06/20/03 Eastern International Bank 11/07/02 1.430 900,000.00 05/06/03 Eastern International Bank 12/10/02 1.310 1,000,000.00 06/12/03 Family Savings Bank 12/05/02 1.350 3,000,000.00 06/16/03 Family Savings Bank 01/10/03 1.280 1,000,000.00 07/11 /03 Hanmi Bank 01 /17/03 1.240 25,000,000.00 04/18/03 Hanmi Bank 01 /31 /03 1.210 20,000,000.00 05/08/03 Hanmi Bank 03/05/03 1.250 25,000,000.00 06/05/03 Hanmi Bank 03/18/03 1.170 25,000,000.00 06/19/03 Manufacturers Bank 03/10/03 1.220 50,000,000.00 06/11/03 Mellon First Business Bank 01/10/03 1.250 50,000,000.00 04/10/03 19 NAME LOS ANGELES (continued) TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE Mellon First Business Bank 03/19/03 1.170 50,000,000.00 06/20/03 Nara Bank, NA 10/11 /02 1.560 5,000,000.00 04/23/03 Nara Bank, NA 10/21 /02 1.710 15,000,000.00 04/23/03 Nara Bank, NA 02/07/03 1.230 10,000,000.00 08/08/03 Nara Bank, NA 03/18/03 1.160 5,000,000.00 09/11/03 Nara Bank, NA 03/11 /03 1.160 5,000,000.00 09/11 /03 Pacific Union Bank 01/07/03 1.290 10,000,000.00 07/10/03 Pacific Union Bank 03/06/03 1.240 20,000,000.00 09/04/03 Preferred Bank 02/26/03 1.250 7,000,000.00 04/15/03 Preferred Bank 03/05/03 1.260 9,000,000.00 04/15/03 Preferred Bank 01/16/03 1.250 6,000,000.00 04/17/03 Preferred Bank 03/21 /03 1.240 9,000,000.00 06/20/03 Preferred Bank 02/07/03 1.240 4,000,000.00 08/08/03 Sae Han Bank 02/19/03 1.220 6,000,000.00 05/22/03 Western Federal Credit Union 10/21/02 1.710 30,000,000.00 04/23/03 Wilshire State Bank 10/11 /02 1.590 3,000,000.00 04/09/03 Wilshire State Bank 11/06/02 1.470 4,000,000.00 05/06/03 Wilshire State Bank 05/14/02 2.420 2,000,000.00 05/13/03 Wilshire State Bank 11 /22/02 1.320 5,000,000.00 05/29/03 Wilshire State Bank 12/17/02 1.310 2,000,000.00 06/19/03 Wilshire State Bank 07/12/02 2.060 4,000,000.00 07/10/03 Wilshire State Bank 02/05/03 1.240 4,000,000.00 08/07/03 Wilshire State Bank 02/24/03 1.230 4,000,000.00 08/27/03 Wilshire State Bank 03/19/03 1.160 8,000,000.00 09/19/03 MERCED County Bank 10/16/02 1.600 5,000,000.00 04/14/03 County Bank 12/10/02 1.330 10,000,000.00 06/11/03 County Bank 01/16/03 1.300 5,000,000.00 07/17/03 County Bank 02/24/03 1.240 5,000,000.00 08/27/03 MODESTO Valley First Credit Union 10/04/02 1.560 4,000,000.00 04/10/03 MONTEREY PARK Trust Bank FSB 10101 /02 1.640 3,000,000.00 04/01 /03 Trust Bank FSB 01/02/03 1.270 3,000,000.00 07/09/03 20 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT ($) DATE NORTH HIGHLANDS Safe Credit Union 01/15/03 1.250 5,000,000.00 04/16/03 Safe Credit Union 02/14/03 1.210 20,000,000.00 05/16/03 OAKDALE Oak Valley Community Bank 01 /14/03 1.240 2,500,000.00 04/16/03 Oak Valley Community Bank 03/11 /03 1.160 1,500,000.00 09/18/03 Oak Valley Community Bank 03/20/03 1.160 2,000,000.00 09/18/03 OAKLAN D Metropolitian Bank 10/28/02 1.700 1,000,000.00 04/28/03 Metropolitian Bank 11 /25/02 1.300 1,000,000.00 05/28/03 Metropolitian Bank 03/24/03 1.180 1,000,000.00 09/24/03 NO TARIO Citizens Business Bank 10/04/02 1.550 25,000,000.00 04/03/03 Citizens Business Bank 11/20/02 1.310 30,000,000.00 05/21/03 Citizens Business Bank 12/06/02 1.360 25,000,000.00 06/04/03 Citizens Business Bank 02/06/03 1.240 10,000,000.00 08/08/03 Citizens Business Bank 02/11/03 1.230 20,000,000.00 08/08/03 Citizens Business Bank 03/24/03 1.200 30,000,000.00 09/24/03 PALO ALTO Bank of Petaluma 02/19/03 1.230 3,500,000.00 08/20/03 Bank of Petaluma 03/10/03 1.210 12,000,000.00 09/10/03 Bank of Santa Clara 02/19/03 1.230 20,000,000.00 08/20/03 Bay Area Bank 10/28/02 1.720 5,000,000.00 04/28/03 Bay Area Bank 01/15/03 1.300 5,000,000.00 07/16/03 Bay Bank of Commerce 10/28/02 1.710 5,000,000.00 04/28/03 Coast Commercial Bank 01/15/03 1.290 5,000,000.00 07/16/03 Coast Commercial Bank 02/19/03 1.230 20,000,000.00 08/20/03 Cupertino National Bank 01/28/03 1.210 35,000,000.00 04/30/03 Cupertino National Bank 02/19/03 1.230 20,000,000.00 05/22/03 Cupertino National Bank 01/15/03 1.300 10,000,000.00 07/16/03 Cupertino National Bank 03/10/03 1.220 10,000,000.00 09/10/03 Golden Gate Bank 02/19/03 1.230 9,000,000.00 05/22/03 Mid -Peninsula Bank 10/28/02 1.720 35,000,000.00 04/28/03 Mid -Peninsula Bank 02/19/03 1.230 5,000,000.00 08/20/03 Mid -Peninsula Bank 03/10/03 1.210 10,000,000.00 09/10/03 21 TIME DEPOSITS DEPOSIT PAR MATURITY NAME DATE YIELD AMOUNT DATE PALO ALTO (continued) Mt. Diablo National Bank 03/10/03 1.220 10,000,000.00 09/10/03 Peninsula Bank of Commerce 02/19/03 1.230 15,000,000.00 08/20/03 San Jose National Bank 02/19/03 1.230 20,000,000.00 05/22/03 PALOS VERDES ESTATES Malaga Bank 10/30/02 1.580 4,000,000.00 05/13/03 Malaga Bank 10/24/02 1.720 4,000,000.00 05/13/03 Malaga Bank 12/23/02 1.280 4,000,000.00 06/25/03 Malaga Bank 02/20/03 1.220 2,000,000.00 08/22/03 Malaga Bank 03/13/03 1.080 2,000,000.00 09/12/03 PASADENA Community Bank 10/23/02 1.720 5,000,000.00 04/15/03 Community Bank 10/15/02 1.570 10,000,000.00 04/15/03 Community Bank 11/08/02 1.260 15,000,000.00 05/07/03 Community Bank 12/19/02 1.320 20,000,000.00 06/19/03 Community Bank 01 /10/03 1.280 20,000,000.00 07/11 /03 Wescom Credit Union 11/13/02 1.330 10,000,000.00 05/13/03 PLACERVILLE El Dorado Savings Bank 04/12/02 2.640 10,000,000.00 04/10/03 El Dorado Savings Bank 05/02/02 2.390 5,000,000.00 04/30/03 El Dorado Savings Bank 06/10/02 2.360 20,000,000.00 06/10/03 El Dorado Savings Bank 02/07/03 1.360 5,000,000.00 02/05/04 El Dorado Savings Bank 03/20/03 1.270 5,000,000.00 03/10/04 El Dorado Savings Bank 03/07/03 1.270 5,000,000.00 03/10/04 PLEASANTON Valley Community Bank 03/13/03 1.180 5,000,000.00 09/19/03 Valley Community Bank 03/19/03 1.180 1,000,000.00 09/19/03 POMONA PFF Bank and Trust 12/09/02 1.330 20,000,000.00 06/11/03 PFF Bank and Trust 02/27/03 1.240 8,000,000.00 08/29/03 22 NAME PORTERVILLE Bank of the Sierra RANCHO SANTA FE La Jolla Bank, FSB La Jolla Bank, FSB La Jolla Bank, FSB La Jolla Bank, FSB REDDING North Valley Bank REDWOOD CITY Provident Central Credit Union ROCKLIN Five Star Bank RICHMOND Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank Mechanics Bank RIVERSIDE Provident Savings Bank SACRAMENTO American River Bank American River Bank American River Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 10/21/02 1.730 10,000,000.00 04/23/03 11/19/02 1.310 25,000,000.00 05/21/03 12/05/02 1.350 10,000,000.00 06/04/03 02/05/03 1.230 25,000,000.00 08/08/03 03/06/03 1.230 10,000,000.00 09/04/03 12/11/02 1.310 3,000,000.00 06/13/03 10/29/02 1.710 20,000,000.00 04/29/03 10/01 /02 1.610 2, 000, 000.00 04/01 /03 04/05/02 2.710 10,000,000.00 04/01/03 04/25/02 2.440 10,000,000.00 04/23/03 06/12/02 2.340 10,000,000.00 06/12/03 07/11 /02 2.110 10,000,000.00 07/09/03 08/13/02 1.710 10,000,000.00 08/08/03 09/12/02 1.800 10,000,000.00 09/12/03 10/ 15/02 1.580 10, 000, 000.00 10/ 15/03 11 /07/02 1.510 10,000,000.00 11 /07/03 03/07/03 1.290 10,000,000.00 03/03/04 03/27/03 1.220 25,000,000.00 09/25/03 10/11 /02 12/23/02 01/10/03 23 1.560 1,500,000.00 04/09/03 1.280 1,000,000.00 06/25/03 1.260 1,000,000.00 07/11/03 NAME SACRAMENTO (continued) TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE American River Bank 01/14/03 1.270 1,500,000.00 07/31/03 American River Bank 02/26/03 1.220 2,000,000.00 08/29/03 American River Bank 03/27/03 1.200 2,000,000.00 09/25/03 Bank of Sacramento 11/25/02 1.330 2,000,000.00 05/29/03 Bank of Sacramento 02/11/03 1.240 1,500,000.00 08/13/03 Bank of Sacramento 03/19/03 1.170 2,000,000.00 09/19/03 Merchants National Bank 10/17/02 1.660 2,000,000.00 04/15/03 Merchants National Bank 01/22/03 1.230 2,000,000.00 07/24/03 River City Bank 10/01/02 1.630 4,000,000.00 04/02/03 River City Bank 01/08/03 1.320 2,000,000.00 07/10/03 River City Bank 01 /27/03 1.240 3,000,000.00 07/31 /03 River City Bank 02/25/03 1.230 2,000,000.00 08/28/03 U.S. Bank 01/08/03 1.310 100,000,000.00 07/10/03 U.S. Bank 01/31/03 1.230 25,000,000.00 08/06/03 U.S. Bank 02/06/03 1.230 50,000,000.00 08/13/03 U.S. Bank 02/19/03 1.230 25,000,000.00 08/21/03 U.S. Bank 02/19/03 1.230 25,000,000.00 08/21/03 Union Bank of California 01/17/03 1.240 150,000,000.00 04/18/03 Union Bank of California 02/06/03 1.210 150,000,000.00 05/07/03 Union Bank of California 03/20/03 1.180 150,000,000.00 06/19/03 SALINAS Community Bank of Central Cal 12/30/02 1.230 10,000,000.00 04/03/03 Community Bank of Central Cal 01/14/03 1.240 8,000,000.00 04/16/03 SAN BERNARDINO Business Bank of California 11 /06/02 1.480 10,000,000.00 05/06/03 Business Bank of California 01/14/03 1.300 8,000,000.00 07/16/03 Business Bank of California 03/18/03 1.170 12,000,000.00 09/18/03 SAN DIEGO First Future Credit Union 11/25/02 1.330 5,000,000.00 05/29/03 First Future Credit Union 12/05/02 1.360 10,000,000.00 06/04/03 First Future Credit Union 12/18/02 1.320 3,000,000.00 06/16/03 First Future Credit Union 02/27/03 1.240 5,000,000.00 08/29/03 First United Bank 01/17/03 1.290 2,000,000.00 07/18/03 First United Bank 02/14/03 1.250 1,000,000.00 08/15/03 Neighborhood National Bank 02/21 /03 1.240 2,000,000.00 08/22/03 24 NAME SAN FRANCISCO TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE American California Bank 01 /08/03 1.280 2,000,000.00 04/08/03 American California Bank 01 /08/03 1.330 2,000,000.00 07/08/03 Bank of Canton California 10/10/02 1.580 40,000,000.00 04/08/03 Bank of Canton California 08/30/02 1.920 20,000,000.00 08/28/03 Bank of the West 12/30/02 1.250 134,000,000.00 04/04/03 Bank of the West 03/19/03 1.170 82,000,000.00 06/20/03 Bank of the West 01 /23/03 1.230 25,000,000.00 07/30/03 Bank of the West 01 /16/03 1.290 75,000,000.00 07/30/03 Bank of the West 01 /22/03 1.250 76,500,000.00 07/30/03 Bank of the West 02/20/03 1.240 242,000,000.00 08/22/03 California Federal Bank 10/16/02 1.590 100,000,000.00 04/14/03 Citibank (West) FSB 12/30/02 1.230 50,000,000.00 04/04/03 Citibank (West) FSB 02/19/03 1.220 100,000,000.00 05/22/03 Oceanic Bank 09/12/02 1.800 4,000,000.00 09/12/03 Trans Pacific National Bank 12/23/02 1.300 1,000,000.00 06/25/03 Trans Pacific National Bank 02/05/03 1.240 1,000,000.00 08/07/03 Trans Pacific National Bank 03/25/03 1.230 1,000,000.00 09/25/03 United Commercial Bank 12/03/02 1.320 25,000,000.00 06/04/03 United Commercial Bank 12/30/02 1.310 25,000,000.00 07/01 /03 United Commercial Bank 01 /10/03 1.280 30,000,000.00 07/11 /03 United Commercial Bank 01 /15/03 1.280 20,000,000.00 07/16/03 United Commercial Bank 01/27/03 1.230 40,000,000.00 07/31/03 United Commercial Bank 03/07/03 1.240 20,000,000.00 09/04/03 United Commercial Bank 02/28/03 1.240 30,000,000.00 09/04/03 United Commercial Bank 03/21/03 1.210 65,000,000.00 09/19/03 SAN JOSE Comerica Bank of California 01/13/03 1.270 71,000,000.00 04/16/03 Comerica Bank of California 02/03/03 1.240 183,000,000.00 05/08/03 Comerica Bank of California 03/04/03 1.280 63,000,000.00 06/05/03 Heritage Bank of Commerce 02/14/03 1.240 2,000,000.00 08/15/03 Meriwest Credit Union 10/18/02 1.710 5,000,000.00 04/16/03 Meriwest Credit Union 11/07/02 1.460 5,000,000.00 05/06/03 Meriwest Credit Union 12/17/02 1.330 5,000,000.00 06/19/03 Meriwest Credit Union 02/25/03 1.250 5,000,000.00 08/28/03 San Jose National Bank 01 /28/03 1.210 20,000,000.00 04/30/03 Santa Clara Co. Fed. C.U. 11/05/02 1.470 5,000,000.00 05/07/03 Santa Clara Co. Fed. C.U. 02/05/03 1.240 10,000,000.00 08/08/03 25 NAME SAN LUIS OBISPO First Bank Of San Luis Obispo First Bank Of San Luis Obispo First Bank Of San Luis Obispo Mission Community Bank Mission Community Bank Mission Community Bank San Luis Trust Bank SAN MARINO East West Federal Bank East West Federal Bank East West Federal Bank East West Federal Bank SAN RAFAEL Westamerica Bank Westamerica Bank Westamerica Bank Westamerica Bank SANTA MARIA Hacienda Bank SANTA ROSA North Coast Bank North Coast Bank National Bank of the Redwoods National Bank of the Redwoods SONORA Central California Bank STOCKTON Pacific State Bank Pacific State Bank Union Safe Deposit Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 02/11 /03 1.210 6,000,000.00 05/14/03 03/11 /03 1.170 7,000,000.00 09/11 /03 03/26/03 1.230 5,000,000.00 09/26/03 10/10/02 1.600 2,500,000.00 04/08/03 12/10/02 1.310 1,000,000.00 06/12/03 03/04/03 1.240 1,000,000.00 09/04/03 01 /21 /03 1.260 1,000,000.00 07/23/03 05/15/02 2.370 38,000,000.00 05/15/03 01/09/03 1.300 42,000,000.00 07/11/03 02/07/03 1.230 35,000,000.00 08/08/03 03/11/08 1.160 35,000,000.00 09/12/03 04/09/02 2.570 35,000,000.00 04/10/03 01 /16/03 1.220 25,000,000.00 04/17/03 01 /21 /03 1.200 50,000,000.00 04/24/03 01 /28/03 1.180 10,000,000.00 04/30/03 03/10/03 1.230 1,000,000.00 09/10/03 03/21 /03 1.220 1,250,000.00 06/19/03 03/21 /03 1.220 1,250,000.00 09/19/03 01 /22/03 1.230 10,000,000.00 07/24/03 02/11/03 1.210 5,000,000.00 08/13/03 03/26/03 1.230 5,000,000.00 09/26/03 10/11 /02 1.590 1,000,000.00 04/09/03 01 /07/03 1.300 1,000,000.00 07/10/03 10/10/02 1.610 10,000,000.00 04/15/03 C NAME STOCKTON (continued) Union Safe Deposit Bank Union Safe Deposit Bank Union Safe Deposit Bank Union Safe Deposit Bank Union Safe Deposit Bank Union Safe Deposit Bank Washington Mutual Bank Washington Mutual Bank Washington Mutual Bank TORRANCE China Trust Bank (USA) China Trust Bank (USA) China Trust Bank (USA) TRACY Service 1st Bank TUSTIN Sunwest Bank Sunwest Bank Sunwest Bank VACAVILLE Travis Credit Union WATSONVILLE Monterey Bay Bank Monterey Bay Bank Monterey Bay Bank Monterey Bay Bank Monterey Bay Bank WHITTIER Quaker City Bank Quaker City Bank TIME DEPOSITS DEPOSIT PAR MATURITY DATE YIELD AMOUNT DATE 11/04/02 1.460 5,000,000.00 05/07/03 11 /07/02 1.460 10,000,000.00 05/07/03 12/11 /02 1.320 10,000,000.00 06/13/03 01 /23/03 1.260 15,000,000.00 07/25/03 02/14/03 1.250 15,000,000.00 08/15/03 03/06/03 1.250 15,000,000.00 09/05/03 12/16/02 1.310 45,000,000.00 06/18/03 01/22/03 1.250 75,000,000.00 07/24/03 02/19/03 1.230 60,000,000.00 08/21 /03 01 /22/03 1.230 30,000,000.00 04/24/03 02/13/03 1.220 20,000,000.00 05/15/03 03/14/03 1.150 35,000,000.00 06/13/03 03/20/03 1.210 4,000,000.00 09/18/03 01 /13/03 1.260 6,000,000.00 04/16/03 02/07/03 1.230 7,800,000.00 05/14/03 03/13/03 1.140 1,000,000.00 06/11 /03 02/25/03 1.240 40,000,000.00 05/30/03 10/10/02 1.600 3,000,000.00 04/10/03 12/16/02 1.310 3,000,000.00 06/18/03 01 /14/03 1.290 8,000,000.00 07/16/03 03/04/03 1.240 6,000,000.00 09/04/03 03/25/03 1.230 8,000,000.00 09/25/03 10/04/02 12/03/02 27 1.610 16,000,000.00 04/02/03 1.300 25,000,000.00 06/04/03 TIME DEPOSITS NAME WHITTIER (continued) Quaker City Bank TOTAL TIME DEPOSITS MARCH 2O03 DEPOSIT PAR MATURITY DATE YIELD AMOUNT ($) DATE 01 /14/03 1.270 24,000,000.00 07/16/03 28 5,486,095,000.00 BANK DEMAND DEPOSITS MARCH 2O03 ($ in thousands) DAILY BALANCES DAY OF BALANCES WARRANTS MONTH PER BANKS OUTSTANDING 1 $ 527,621 $ 5,853,625 2 527,621 5,853,625 3 1,033,080 5,409,765 4 1,690,904 5,319,024 5 1,313,447 6,550,610 6 1,214,194 6,709,072 7 1,412,483 6,726,652 8 1,412,483 6,726,652 9 1,412,483 6,726,652 10 1,159,988 5,726,531 11 1,084,205 5,313,618 12 1,078,715 4,938,921 13 1,261,182 5,118,871 14 863,257 5,089,224 15 863,257 5,089,224 16 863,257 5,093,284 17 1,529,968 5,106,201 18 1,394,178 5,304,903 19 1,266,999 5,507,917 20 1,543,620 5,851,336 21 1,334,075 5,706,493 22 1,334,075 5,706,493 23 1,334,075 5,706,493 24 838,578 4,143,064 25 1,130,110 4,278,510 26 1,136,173 4,126,273 27 1,300,673 4,265,597 28 1,351,752 4,637,745 29 1,351,752 4,637,745 30 1,351,752 4,637,745 31 1,877,869 4,642,621 AVERAGE DOLLAR DAYS $ 1,219,156 a/ The prescribed bank balance for March was $1,105,830. This consisted of $1,008,445 in compensating balances for services, balances for uncollected funds of $102,845 and a deduction of $5,460 for March delayed deposit credit. DESIGNATION BY POOLED MONEY INVESTMENT BOARD OF TREASURY POOLED MONEY INVESTMENTS AND DEPOSITS In accordance with sections 16480 through 16480.8 of the Government Code, the Pooled Money Investment Board, at its meeting on March 19, 2003, has determined and designated the amount of money available for deposit and investment under said sections. In accordance with sections 16480.1 and 16480.2 of the Government Code, it is the intent that the money available for deposit or investment be deposited in bank accounts and savings and loan associations or invested in securities in such a manner so as to realize the maximum return consistent with safe and prudent treasury management, and the Board does hereby designate the amount of money available for deposit in bank accounts, savings and loan associ- actions, and for investment in securities and the type of such deposits and investments as follows: 1. In accordance with law, for deposit in demand bank accounts as Compensating Balance for Services No. 1645 $ 1,008,445,000 The active noninterest-bearing bank accounts designation constitutes a calendar month average balance. For purposes of computing the compensating balances, the Treasurer shall exclude from the daily balances any amounts contained therein as a result of nondelivery of securities purchased for "cash" for the Pooled Money Investment Account and shall adjust for any deposits not credited by the bank as of the date of deposit. The balances in such accounts may fall below the above amount provided that the balances computed by dividing the sum of daily balances of that calendar month by the number of days in the calendar month reasonably approximates that amount. The balances may exceed this amount during heavy collection periods or in anticipation of large impending warrant presentations to the Treasury, but the balances are to be maintained in such a manner as to realize the maximum return consistent with safe and prudent treasury management. 2. In accordance with law, for investment in securities authorized by section 16430, Government Code, or in term interest - bearing deposits in banks and savings and loan associations as follows: From To Transactions ( 1) 3/17/03 3/21/03 $ 1,206,200,000 (2) 3/24/03 3/28/03 $ (1,246,700,000) (3) 3/31/03 4/4/03 $ (478,800,000) (4) 417/03 4/11/03 $ (518,600,000) (5) 4/14/03 4/18/03 $ 2,427,100,000 Time Deposits in Various Financial Institutions In Securities (sections 16503a Estimated (section 16430)* and 16602)* Total $ 48,697,605,000 $ 5,478,595,000 $ 54,176,200,000 $ 47,450,905,000 $ 5,478,595,000 $ 52,929,500,000 $ 46,972,105,000 $ 5,478,595,000 $ 52,450,700,000 $ 46,453,505,000 $ 5,478,595,000 $ 51,932,100,000 $ 48,880,605,000 $ 5,478,595,000 $ 54,359,200,000 From any of the amounts specifically designated above, not more than 30 percent in the aggregate may be invested in prime commercial paper under section 16430(e), Government Code. Additional amounts available in treasury trust account and in the Treasury from time to time, in excess of the amounts and for the same types of investments as specifically designated above. Provided, that the availability of the amounts shown under paragraph 2 is subject to reduction in the amount by which the bank accounts under paragraph 1 would otherwise be reduced below the calendar month average balance of $ 1,008,445,000. POOLED MONEY INVESTMENT BOARD: Signature on file at STO & SCO Chairperson Member Dated: March 19, 2003 * Government Code Member POOLED MONEY INVESTMENT FORTY-SIXTH ANNUAL REPORT FISCAL YEAR 2001-2002 PHIL ANGELIDES State Treasurer and Chairman Preface Pooled Money Investment Board The Pooled Money Investment Board, created by the Legislature in 1955, is comprised of Phil Angelides, State Treasurer, as chairman; Steve Westly, State Controller; and Steve Peace, Director of Finance. The purpose of the Board is to design an effective cash management and investment program, using all monies flowing through the Treasurer's bank accounts and keeping all available funds invested consistent with the goals of safety, liquidity and yield. The law restricts the- Treasurer to investments in the following categories: U.S. government securities, securities of federally -sponsored agencies, domestic corporate bonds, interest -bearing time deposits in California banks and savings and loan associations, prime -rated commercial paper, repurchase and reverse repurchase agreements, security loans, banker's acceptances, negotiable certificates of deposit and loans to various bond funds. Subsequent sections of this report deal individually with the demand account and investment programs for which the Board has oversight responsibilities, and which the Treasurer directly administers. During the 2001-02 fiscal year, program earnings totaled $1.717 billion. Approximately $652 million of this amount was credited to units of local government as a result of their deposits in our investment pool. This level of voluntary participation, which averaged $19.122 billion, reflects the confidence they have in our investment management capabilities. The magnitude of these investment earnings provide a significant reduction in the tax burden that otherwise would have been imposed on the citizens of California. This page left blank intentionally. Pooled Money Investment Board Forty-sixth Annual Report Fiscal Year 2001-2002 Table of Contents Page POOLED MONEY INVESTMENT BOARD Preface................................................................................................... i OVERVIEW TheYear in Review............................................................................................................... 1 Investment Activity FY 1993 through 2002.......................................................................... 1 2001-02 Investment Market Conditions & Monthly Yields .................................................. 2 Comparison of the Portfolio and Earnings FY 1992 through 2002....................................... 3 POOLED MONEY INVESTMENT ACCOUNT (PMIA) SummaryStatistics................................................................................................................. 4 DemandAccount Program..................................................................................................... 5 Rate Schedule for Banking Service............................................................... 6 Average Daily Balance in Demand Bank Accounts.......................................................... 7 InvestmentProgram............................................................................................................... 8 Schedule of Security Purchases - by Term........................................................................ 9 Analysisof the Portfolio.................................................................................................... 9 Time Deposits by Month End............................................................................................10 Summary of Investments and Earnings.....................................................................11-12 Financial Community Coverage........................................................................................13 SURPLUS MONEY INVESTMENT FUND (SMIF) ProgramSummary .................................................................................................................14 Earningsfor 2001-02.............................................................................................................14 Participation...........................................................................................................................15 TheYear in Review...............................................................................................................15 Resourcesof the SMIF...........................................................................................................16 LOCAL AGENCY INVESTMENT FUND (LAIF) ProgramSummary .................................................................................................................17 Earningsfor 2001-02.............................................................................................................17 Participation...........................................................................................................................17 TheYear in Review...............................................................................................................17 Resourcesof the LAIF...........................................................................................................18 Appendix A - PMIA Summary of Investments and Earnings, 1957 through 2002...............19 Note To PMIA Summary of Investments and Earnings................................20 Appendix B - Historical PMIA Yields.........................................................................21-29 This page left blank intentionally. Overview This page left blank intentionally. I The Year in Review Average Daily Portfolio .............................. $4%82710761771 Earnings....................................................... $197165,5445929 Effective Yield ............................................. 3.45% Investment Activity for the Fiscal Years Ending June 30 ($ In Billions) Fiscal Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1 Amount $278.5 $210.1 $277.4 $237.4 $209.3 $301.6 $237.3 $260.6 $310.2 $322.3 Transactions 6,898 5,169 6,351 5,721 5,120 7,108 5,804 6,447 7,889 8,025 Investment Activities Fiscal Years Ending June 30 $350.0 ($ In Billions) $300.0 $250.0 $200.0 $150.0 $100.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: State Treasurer's Office, Division of Investments Z 2001-02 Investment Market Conditions To indicate prevailing market conditions during the 2001-02 fiscal year, the following table shows monthly money market rates, as computed from daily closing bid prices. The information was obtained from Federal Reserve Bulletins published by the Board of Governors, Federal Reserve System, and the Bureau of Public Debt. Monthly Yield on Money Market Securities (Yield in Percent Per Annum) WDay FUnuxe 3-Month Company WNy &Month 1-Year 3-Year Federal Treasury Commercial Certificate Treasury Treasury Treasury Month Funds Bills IVer of Deposits Bills Bills Issues July 2001 3.77 3.54 3.62 3.66 3.48 3.62 4.31 August 3.65 3.37 3.44 3.48 3.30 3.47 4.04 September 3.07 2.87 2.84 2.87 2.84 2.82 3.45 October 2.49 2.22 2.29 2.31 2.19 2.33 3.14 November 2.09 1.90 2.00 2.03 1.92 2.18 3.22 December 1.82 1.72 1.81 1.83 1.81 2.22 3.62 January 2002 1.73 1.64 1.72 1.74 1.73 2.16 3.56 February 1.74 1.73 1.80 1.82 1.83 2.23 3.55 March 1.73 1.81 1.87 1.91 2.02 2.57 4.14 April 1.75 1.72 1.83 1.87 1.97 2.48 4.01 May 1.75 1.74 1.80 1.82 1.88 2.35 3.80 June 1.75 1.71 1.78 1.81 1.82 2.20 3.49 2001-2002 Average 2.28 2.16 2.23 2.26 2.23 2.55 3.69 2000-2001 AMge 5.73 5.14 5.54 5.64 5.07 5.16 5.21 Increase -(Decrease) -3.45 -2.98 -3.31 -3.38 -2.84 -2.61 -1.52 Note: 3- 6-month Treasury Issues and 90-day Commercial Paper are quoted on a discount basis, I -year Treasury Issues are quoted on a constant maturity basis. 3 Comparison of Portfolio Balance and Earnings for Fiscal Years Ending June 30, 1993 through 2002 Annual Earnings ($ In Millions) $3,000 2,676 $2,500 $2,000 $1,500 $1,000 $500 $0 1993 1994 1995 1996 1997 1999 1999 2000 2001 2002 Source: State Treasurer's Office, Division of Investment This page left blank intentionally. Pooled Money Investment Account (PMIA) This page left blank intentionally. 4 Summary Statistics Resources........................................................... $ 50,494.4 million per day on the average Demand Accounts ............................................ $ 667.3 million per day on the average Portfolio........................................................... $ 49,827.1 million per day on the average Earnings............................................................. $ 1,563.5 million from security investments 143.9 million from bank time deposits 9.1 million from General Fund loans Earning Rate ................................:...................... 3.45 percent average for all investments Dollar Value of Investment Transactions .......... $ 322.3 billion Number of Investment Transactions .................. . 8,025 transactions TimeDeposits .................................................... Source: State Treasurer's Office, Division of Investment 125 banks, credit unions and savings banks held PMIA money at year-end Resources of the Pooled Money Investment Account averaged $50,494,405,771 per day during the fiscal year although the daily figures fluctuated widely with receipts and disbursements. The high point for the year occurred on June 25, 2002, when the total reached $59,831,868,087. Resources for the account were lowest on September 11, 2001, when balances totaled $46,314,130,860. A breakdown of an average day's resources during the fiscal year shows the following: $667.3 million in non -interest -bearing bank accounts; $44.795 billion in securities and General Fund Loans; and $5.032 billion in interest -bearing time deposits. On the closing day of the fiscal year, the following resources were on hand in the Pooled Money Investment Account: Demand bank account $ 94%635,095 Time bank account 5,177,695,000 Securities 42,541,857,487 Total Resources $489669,1879582 5 Demand Account Program Investments of the PMIA are made from monies flowing through the Treasurer's demand (non -interest -bearing) bank accounts maintained in the seven banks that serve as State depositories. Currently, the seven depository banks are: Bank of America, California Bank & Trust, Union Bank of California, Bank of the West (acquired United California Bank in March 2002), U.S. Bank, Wells Fargo Bank and Westamerica Bank. A small portion of these funds must remain in the accounts as compensating balances which consist of (1) a balance for uncollected funds and (2) a balance for banking services. Uncollected funds represent the total dollar amount of checks deposited by the State for which the banks give immediate credit, but for which they do not receive good funds until these checks are presented to the banks on which they are drawn. The Pooled Money Investment Board allows the banks an average balance for uncollected funds equivalent to 1.3 calendar days on all checks deposited other than cashier's checks and checks under the presort of deposit system. Under the presort of deposit system, the major revenue collecting agencies sort their checks by the seven State depository banks and then deposit them directly in the banks on which they are drawn, thus avoiding the need for providing bank balances for uncollected funds. The remaining checks are deposited under a contract whereby the depository bank receives bank balances equivalent to 1.345 calendar days for the amount of such deposits. The balances allowed for banking services represent compensation for handling 394 thousand deposits, 54.2 ' million checks deposited, 325 thousand dishonored checks, $659.1 million in currency deposited, $10.5 million in coin deposited, 119.1 million warrants and 22.6 thousand checks paid. All amounts in excess of these compensating balances are promptly invested by the Treasurer. Intensive and expert analysis of receipts and disbursement data is used daily to estimate the State's rapidly shifting cash position in order to determine exactly how much money is available for investment. This results in maximum earnings consistent with prudent management. Compensating balances are determined by a formula, which accounts for the estimated volume of each service item as well as its unit cost. The rate schedule for the compensating balance formula is determined through annual negotiations with the State's depository banks and the cost for any particular service may be raised or lowered as conditions warrant. Adjustments for the difference between actual and estimated work- 6 load for any fiscal year are made in the following fiscal year. The PMIB made no changes in the rate schedule for banking services for the 2001-02 fiscal year. hi addition to the rates shown below, the Board agreed to include the costs of account reconciliation and electronic funds transfer services within the compensating balance formula starting in the 1991-92 fiscal year. The costs for these two services are paid (with balances) on a lagged, actual basis when billed by each bank. The Board approved the following rate schedule for the 2001-02 fiscal year: Rate Schedule For Banking Services 2001-02 Fiscal Year Encoded Checks Deposited "On Us" ............................................. $ 0.040 "Other" .............................................. 0.053 Non -Encoded Checks Deposited............ 0.090 WarrantsPaid .......................................... 0.010 ChecksPaid ............................................. 0.120 Dishonored Checks .............................. 0.. 2.750 Deposits................................................... 1.400 Split Bags Deposits ................................. 0.550 Coin Deposited ....................................... 11.00 per thousand Currency Deposited ................................ 1.05 per thousand Account Maintenance ............................. 15.00 per month Daily Statements ..................................... 6.00 per statement Source: State Treasurer's Office, Division of Cash Management 7 Average Daily Balance in Demand Bank Accounts 2001-02 ($ In Thousands) Month Bank Balance Required for Bankina Services Bank Balance Required for Uncollected Funds Less Net Delayed Deposit Credit Bank Balance Prescribed by PMIB Actual Average Daily Bank Balance July 2001 $208,286 $122,287 $0 $330,573 $446,083 August 277,342 145,433 5,880 416,895 351,928 September 327,851 210,563 5,502 532,912 471,359 October 349,065 105,209 4,874 449,400 435,456 November 554,994 151,163 5,152 701,005 716,829 December 702,858 215,195 7,785 910,268 987,733 January 2002 573,084 225,628 8,561 790,151 720,041 February 607,025 76,967 10,568 673,424 542,320 March 643,788 136,097 7,809 772,076 479,612 April 537,851 411,639 19,084 930,406 847,863 May 584,867 82,969 14,228 653,608 999,695 June 714,662 171,935 10,255 876 342 1,009,048 Weighted $505,686 $171,319 $8,271 $668,734 $667,329 Average Average Balance In Demand Bank Accounts 2001-02 ($ In Thousands) $1,100,000 $1,000,000 $900,000 $800,000 _ $700,000 $600,000 $500,000 $400,000 $300,000 CIO c Prescribed by PMIB Average Daiiy Source: State Treasurer's Office, Division of Cash Management 8 Investment Program Although the Pooled Money Investment Board designates how much shall be invested in interest -bearing time accounts in California banks and savings and loan associations, and in securities, it is the responsibility of the State Treasurer to administer the investment program on a day-to-day basis in line with overall Board policy. This entails a daily determination of amounts available for investment, or the need for liquidating securities to meet estimated warrant redemption requirements, while maintaining the approved compensating balance position. This means that the State Treasurer must continually adjust the estimates for receipts and disbursements to reflect current available information. For the 2001-02 fiscal year, investments in time deposits ranged from $4,834,045,000 to $5,229,295,000 and averaged $5,031,746,918. There were 1,538 transactions totaling $22,689,840,000 during the year. Commercial banks, savings banks and credit unions receiving these State deposits must secure them with approved securities having a market value of at least 110 percent of the deposits or with approved promissory notes secured by mortgages or deeds of trust having a market value of at least 150 percent of the deposits. The same collateral requirements also apply to the State's demand accounts. At the end of fiscal year 2001-02, interest -bearing time deposits were held by 94 commercial banks, 15 credit unions and 16 savings banks throughout California. For the fiscal year, PMIA holdings in time deposits had an average yield of 2.86 percent. The amount of money designated by the Board for investment in securities varies dramatically throughout the year. Such designations are made at least monthly, and again, the State Treasurer handles the actual investments, determining the issue and maturity of authorized securities to be bought or sold in accordance with cash needs and both current and projected market conditions. During fiscal year 2001-02, there were 3,181 security purchase transactions and 3,306 security sales or redemption transactions, with a total investment activity of $299.6 billion. Total earnings for the Pooled Money Investment Account in fiscal year 2001-02 were $1,716,544,929. These earnings were credited as follows: General Fund $35651145,673 Fish and Game Preservation Fund $ 1,120,857 Surplus Money Investment Fund $703,6785,577 Local Agency Investment Fund $652,097,666 Public Employee's Retirement Fund $ 1,921,633 State Teacher's Retirement Fund $ 19,6113,523 Earnings consisted of $1,563,522,056 from security investments at an average 3.52 percent yield, $143,920,487 from time deposits at an average 2.86 percent yield and $9,1102,386 from General Fund loans at an average 2.77 percent yield. The overall return on investment was 3.45 percent. The portfolio holdings of the Pooled Money Investment Account for the 2001-02 fiscal year are illustrated in the following tables: 9 Month Under 10 Days Schedule of Security Purchases by Term 2001-02 Fiscal Year (At Cost - $ In Thousands) 90 nays- 1-3 10-29 Pays 30-89 Days 1 Year Years Over 3 Years TOTALS July 2001 $5,980,678 $2,401,491 $3,344,516 $1,991,716 $37,441 $0 $ 139755,842 August 2,842,667 1,118,405 3,763,740 2,758,717 149,670 18,118 10,651,317 September 1,556,949 1,338,416 2,471,393 5,368,395 53,881 0 1097899034 October 1,034,756 324,341 815,635 11,647,876 515,417 539,913 1498779938 November 3,524,112 1,309,160 673,441 3,081,522 227,254 329058 89847,547 December 2,376,537 3,203,556 1,968,026 2,865,897 909,912 23,930 1193479858 January 2002 2,164,601 2,947,330 1,940,724 4,324,202 1,246,435 45,056 12,668,348 February 2,062,332 3,127,847 2,280,066 2,062,332 735,415 70,052 10,3389044 March 3,834,260 1,948,764 1,010,269 29731,719 424,558 99,523 10,04%093 April 6,903,454 1,526,096 2,304,263 5,414,990 608,122 100,512 10571,437 May 1,715,066 2,125,557 651,995 1,680,018 59,423 331,028 6,563,097 ,June7 2.741.03Z 8 814 4 3 1680 10 167 020 Total 419" $23.%5.105 $52,741,837 647.838 -$1.427,210 $143,296,952 Pe t 2 19° . ° .innrce• Qtata Trt.oenro��c. f1F4:.. M _or 1 72° 80° 4 64° 1 ° ' 100.00% - - --- - -- ----------.... - .+.aa -4 101MIA Vl 111YGJU11G111J U.S. Treasury Bills/Strips U.S. Treasury Bonds & Notes Federal Agency C pn Securities Federal Agency Discount Notes Negotiable CDs Time Deposits Bankers Acceptances Commercial Paper Corporate Bonds Repurchase Agreements Reverse Repurchase Agreements AB 55 Loads General Fund Loans Analysis of Portfolio 2001-02 Fiscal Year Effective Average Percent Average Percent Percentage Portfolio We of Daily Of Earnings Yield on 630V02 Portfolio $1,355,272,871 2.72 $48,653,109 3.59 139 4,709,440,928 9.45 224,190,296 4.76 514 4,780,029,269 9.59 220,169,119 4.61 524 10,552,162,814 21.18 3469989,985 3.29 127 860,326 0.00 102,174 11.88 4,381 8,585,735 0.02 827,873 9.64 4,381 8,564,155,942 17.19 245,256,808 2.86 130 5,031,746,918 10.10 143,920,487 2.86 81 8,473,313 0.02 164,732 1.94 173 10,312,154,515 20.70 277,534,065 2.69 54 1,846,073,528 3.70 85,636,838 4.64 526 19,361,644 0.04 360,677 1.86 35 (424,825,385) -0.85 (6,987,384) 1.64 247 2,735,413,668 5.49 120,623,764 4.41 189 328,170,685 0.66 9,102,386 2.77 89 i otm Portfolio $49,827,076,771 100% Source: State Treasurer's Office, Division of Investments 2.91 14.42 10.95 10.55 0.00 0.02 14.78 10.86 0.00 25.50 5.21 0.00 0.00 4.80 0.00 100% Summary of Investments and Earnings Fiscal Years Ending June 30, 1993 through 2002 ($ In Thousands) Fiscal Year Investment in Average Daily Investment Securities FAmmgs Eamings Rate % Investment in Time Deposits Average Daily Fiscal Year Investment Earnings Eamings Rate 1992-93 21,499,605 1,013,606 4.71 1992-93 139,146 4,977 3.58 1993-94 24,322,849 1,068,915 4.39 1993-94 107,647 3,700 3.44 1994-95 26,468,520 1,465,018 5.54 1994-95 217,522 12,218 5.62 1995-96 25,362,783 1,448,002 5.71 1995-96 351,060 19,416 5.53 1996-97 271,674,553 1,550,599 5.60 1996-97 419,648 22,376 5.33 1997-98 28,034,192 1,601,603 5.71 1997-98 1,076,268 57,452 5.34 1998-99 31,40%593 1,688,570 5.38 1998-99 1,928,600 93,095 4.83 1999-00 32,1771,870 1,8451,503 5.74 1999-W 2,820,736 1521,310 5.40 2000-01 391,5221,485 2,424,943 6.14 2000-01 41,3179,936 2515215 5.82 2001-02 44,467,159 1,563,523 3.52 2001-02 5,031,747 143,920 2.86 Average Idly Investments In Securities ($ In Whom) $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 C0 44 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Average Daily investments In 'Ilime Deposits ($ In Milions) `��; Source: State Treasurer's Office, Division of Investments 12 Summary of Investments and Earnings Fiscal Years Ending June 30, 1993 through 2002 ($ In Thousands) Fiscal Year Loans to General Rnd Average Daily Investment Farnin Earnings Rate % Fiscal Year Total Investments Average Daily Investment Eamings Earnings Rate 1992-93 19412,792 66,543 4.71 1992-93 23,051,543 1,085,126 4.71 1993-94 1,002,582 43,045 4.29 1993-94 25,433,078 1,115,660 4.39 1994-95 116,081 5,338 4.60 1994-95 269802,123 1,482,574 5.53 1995-96 909,353 519602 5.67 1995-96 2696239196 195199020 5.71 1996-97 169,868 9,468 5.57 1996-97 28,2649069 1,5829443 5.60 1997-98 234,052 13,327 5.69 1997-98 293,344,512 1,672,382 5.70 1998-99 1121,895 6,099 5.40 1998-99 33,451,088 11787,764 5.34 1999-00 303,428 19670 5.49 1999-00 35,0299,034 11,999,483 5.71 2000-01 - - - 2000-01 43,8401,421 29676,158 6.10 2001-02 32831171 99102 2.77 2001-02 491,8279077 1,716,545 3.45 �1,400 �1,200 >1,0w $800 $600 $400 $200 $0 Loans To the General Fund ($ In Millions) lop Source: State Treasurer's Office, Division of Investments 13 Financial Community Coverage The following firms conducted investment transactions with the State Treasurer's Office During the 2001-02 Fiscal Year. A.G.Edwards and Sons, Inc. First California Bank lk Oak Valley Community Bank America California Bank First Fidelity Investment and Loan Oceanic Bank American Express Credit Corp. First Future Credit Union Omni Bank, NA American River Bank First Liberty Investment Group Operating Engineers Local #3 Federal Credit Union Asiana Bank First National Bank of Central California Pacific Capital Bank, NA Banc of America Securities LLC First State Bank of California Pacific State Bank Banc One Capital Markets, Inc. First United Bank Pacific Union Bank Bank of Canton of California Five Star Bank Pacific Western National Bank Bank of Granada Hills Ford Motor Financial Services, Inc. Peninsula Bank of Commerce Bank of Montreal Fuji /Mizuho Securities, USA Inc. PFF Bank and Trust Bank of Nova Scotia Fullerton Community Bank, FSB Preferred Bank Bank of Petaluma Garban Capital Markets Provident Central Credit Union Bank of Sacramento General Bank Pryor, Counts and Company Bank of Santa Clara General Electric Capital Corporation Quaker City Bank Bank of the Sierra General Motors Acceptance Corp. Redwood Credit Union Bank of the West Golden 1 Credit Union Redwood Securities Group, Inc. Bank of Visalia Golden Gate Bank River City Bank Bay Area Bank Goldman Sachs & Company Robert Van Securities Bay Bank of Commerce Grand National Bank Sae Han Bank Bear Stearns and Company, Inc. Hacienda Bank SAFE Credit Union Broadway Federal Bank, FSB Hanmi Bank Salomon Smith Barney Business Bank of California Hawthorne Savings, FSB San Jose National Bank Cal State 9 Credit Union Helaba Bank San Luis Trust Bank California Center Bank Heller Financial Corp. Sandler O'Neill and Partners, L.P. California Chohung Bank Heritage Bank of Commerce Santa Barbara Bank and Trust California Credit Union Household Finance Corp. Santa Clara County Federal Credit Union California Federal Bank HSBC Securities, Inc. Sears Roebuck Acceptance Corp. California Pacific Bank HypoVereinsBank Service 1 st Bank Camarillo Community Bank Imperial Bank Signature Securities Cantor Fitzgerald and Company J.P.Morgan Securities, Inc. Silvergate Bank Cathay Bank Jackson Federal Bank Societe Generale Cedars Bank Kaplan and Company Securities, Inc. South Bay Bank, NA Central California Bank La Jolla Bank, FSB State Bank of India (California) Chapman Company Lake Community Bank Sunwest Bank China Trust Bank (USA) Lehman Brothers Holdings, Inc. Tehama Bank CIBC/CIBC Oppenheimer Loop Capital Markets, LLC Trans Pacific National Bank CitiGroup Securities Magna Securities Travis Credit Union Citizens Business Bank Malaga Bank, SSB Tri Counties Bank City National Bank Manufacturers Bank Trust Bank Coast Commercial Bank Marathon National Bank U.S. Bank, NA Comerica Bank California Mechanics Bank U.S.Bancorp Piper Jaffray Commercial Capital Bank Mellon 1 st Business Bank UBS Warburg, LLC Community Bank Mercantile National Bank Union Bank of California Community Bank of Central California Merchants National Bank of Sacramento Union Safe Deposit Bank Constitution Capital Corporation Meriwest Credit Union United California Bank County Bank Merrill Lynch Capital Markets United Commercial Bank Credit Agricole Indosuez Mesirow Financial Inc. United Security Bank Credit Suisse First Boston Corp. Metro Commerce Bank Valencia Bank and Trust Cupertino National Bank and Trust Metropolitan Bank Valley Community Bank D.A.Davidson and Company MFR Securities, Inc. Valley Independent Bank Delta National Bank Mid Peninsula Bank Verdugo Banking Company Deutsche Bank Securities, Inc. Mid State Bank Vining Sparks East West Bank Mission Community Bank Washington Mutual Bank, FA Eastern International Bank Mission Federal Credit Union Wells Fargo Institutional Securities LLC EBTEL Federal Credit Union Monterey Bay Bank Wescom Credit Union El Dorado Savings Bank Morgan Stanley and Company WestAmerica Bank EuroBrokers, Inc. Mount Diablo National Bank Western Sierra National Bank EverTrust Bank Nara Bank, NA Western Federal Credit Union Farmers and Merchants Bank of Central California National Bank of the Redwoods Western State Bank FHLMC Neighborhood National Bank Williams Capital Group, L.P. First Bank and Trust North Island Federal Credit Union Wilshire State Bank First Bank of Beverly Hills, FSB North State National Bank Xerox Federal Credit Union First Bank San Luis Obispo North Valley Bank Surplus Money Investment Fund (SMIF) This page left blank intentionally. 14 Program Summary The Surplus Money Investment Fund consists of the available cash of all special funds which do not have investment authority of their own, and all or a portion of the available cash of special funds having investment authority of their own, but which have elected to be included in the program. Cash balances in excess of needs in any of these participating funds are invested by the State Treasurer. The Pooled Money Investment Board is responsible for determining whether any cash balances of the participating funds are in excess of current needs and available for investment, or whether it is necessary toliquidate previous investments to meet current requirements. This determination is performed operationally by the State Controller's Office by means of a continuing review of the cash balances of the participating funds. As a result of these determinations, the State Controller prepares a document for the Pooled Money Investment Board's approval which authorizes the State Controller to increase or decrease the invested balances of the applicable funds. All of the resources of the Surplus Money Investment Fund are invested through the Pooled Money Investment Account. Prior to the 1967-68 fiscal year, the Surplus Money Investment Fund was a separate investment program. In 1967, legislation was enacted (Chapter 505, Statutes 1967) which provided that money in the Surplus Money Investment Fund shall be invested through the Pooled Money Investment Account. This legislation further provided that the Surplus Money Investment Fund would share in the interest earnings of the Pooled Money Investment Account based on the ratio that the dollar -day contributions of the Surplus Money Investment Fund bear to the dollar -day investments of the Pooled Money Investment Account. This legislation increased the potential investment earnings for both programs, since their high and low resource periods tend to complement each other. Consequently, under normal market conditions, more long-term, higher yielding securities may be purchased. Earnings for 2001-02 Gross earnings totaled $703,678,577 for the 2001-02 fiscal year. This represents an earning rate of 3.46 percent for this investment program. SMIF earnings are computed on a dollar -day basis to guarantee equitable distribution among all member funds. An apportionment of the earnings is made by the Controller twice yearly as of December 31 and June 30. 15 Participation There were over one thousand special funds and accounts participating in the Surplus Money Investment Fund as of the last day of the fiscal year, June 30, 2002. Their combined deposits totaled $19,454,273,000. Large contributors as of June 30, 2002 were the: Department of Water Resources Electric Power Fund, $2,115,885,000; Public Buildings Construction Fund, $919,907,000; California Housing Finance Fund, $752,361,000; Unemployment Compensation Disability Fund, $740,045,000; State Highway Account Fund, $687,983,000; Special Deposit Fund, $560,703,000; Public Employees' Retirement Fund, $557,412,000; Vets Farm/Home Building-1943 Fund, $507,454,000; Transportation Revolving Account Fund, $484,823,000. The Year in Review Resources .............................................. $ 20.355 billion per day on average Earnings ................................................ $ 703.7 million Earning Rate ......................................... 3.46 percent Source: State Treasurer's Office, Division of Cash Management 16 Monthly deposit balances are shown in the following table: Resources of 11 The Surplus Money Investment Fund 2001-02 Fiscal Year (Month -End Balances) Month Total July 2001............................................................................ $21524455029000 August................................................................................ 2091155712,000 September........................................................................... 20962599825588 October............................................................................... 2197709149,000 November........................................................................... 2013405,7989000 December........................................................................... 20,1219652,000 January 2002...................................................................... 21J575898,000 February............................................................................. 19,84957899000 March.................................................................................. 18,8049122,000 April................................................................................... 19,69190149000 May.................................................................................... 1834179877,000 June.................................................................................... 19,454,273,000 Resources of the Surplus Money Investment Fund 2001-02 Fiscal Year (Month -End Balances) ($ In Thousands) $22,000,000 $21,000,000 $20,000,000 $19,000,000 $18,000,000 M�Q V �O t1V `C Source: State Controller's Office, Report of Cash Assets of all Funds in the State Treasury This page left blank intentionally. Local Agency Investment Fund (LAIF) This page left blank intentionally. 17 Program Summary The Local Agency Investment Fund was established by Chapter 730, Statutes of 1976. This fund enables local governmental agencies or trustees to remit money not required for immediate needs to the State Treasurer for the purpose of investment. In order to derive the maximum rate of return possible, the State Treasurer has elected to invest these monies with State monies as a part of the Pooled Money Investment Account. Each participating agency determines the length of time its money will be on deposit with the State Treasurer with the exception of bond proceeds, which must remain for a minimum of 30 days. At the end of each calendar quarter, all earnings derived from investments are distributed by the State Controller to the participating government agencies in proportion to each agency's respective amounts deposited in the Fund and the length of time such amounts remained therein. Prior to the distribution, the State's reasonable costs of administering this program are deducted from the earnings. Earnings for 2001-02 Gross earnings for fiscal year 2001/02 totaled $652,097,666. This represented a 3.41 percent yield for this investment program. Participation As of June 30, 2002, there were 3,039 participants in the Local Agency Investment Fund consisting of 54 counties, 470 cities, 1,916 special districts, 340 trustees and 259 bond accounts. Deposits in the fund averaged $19.122 billion for the year. The Year in Review Resources.............................................. $ Earnings................................................ $ EarningRate ......................................... Participation .......................................... Source: State Treasurer's Office, Division of Investments (LAIF) 19.122 million per day on average 652.1 million 3.41 percent 3,039 Agencies or accounts at year-end. 18 The following table shows monthly resources of the Local Agency Investment Fund during the 2001-02 fiscal year. Resources of The Local Agency Investment Fund 2001-02 Fiscal Year (Month -End Balances) Month July2001.............................................. August.................................................. September................................................................... . October......................................................................... November.................................................................... December..................................................................... January2002................................................................ February...................................................................... . March........................................................................... April.................................................................... .. May.............................................................................. June.............................................................................. $21,000,000 $20,000,000 $19,000,000 $18,000,000 $17,000,000 t t t t Total $17995895239877 18,188,260,709 189277,9949576 185,4091,0903,188 189200,894,053 18,970,450,163 209180,0359260 201,06791759358 1955193,8819,179 2094259888,205 201260,475,318 1995829414,267 Resources of the Local Agency Investment Fund 2001-02 Fiscal Year (Month -End Balances) ($ In Thousands) Source: State Treasurer's Office, Division of Investments (LAIF) Appendices This page left blank intentionally. 19 Appendix A Pooled Money Investment Account Summary of Investments and Earnings ($In Thousands) Annual Average Earnings Average Earning Rate Investment Rate (Percent) Fiscal Year Portfolio Earnings Percent 5 Years 10 Years 15 years 1957-58 $ 594,306 $ 16,421 2.76 1958-59 544,868 15,762 2.89 1959-60 614,835 21,045 3.42 1960-61 736,204 28,139 3.82 3.23 1961-62 867,144 26,521 3.06 3.19 1962-63 910,863 30,548 3.35 3.31 1963-64 896,535 32,519 3.63 3.46 1964-65 966,592 38,004 3.93 3.56 1965-66 1,083,347 47,761 4.41 3.68 3.48 1966-67 1,057,800 52,540 4.97 4.06 3.62 1967-68 1,117,717 56,566 5.06 4.40 3.85 1968-69 1,301,302 78,174 6.01 4.88 4.17 1969-70 1,216,414 84,781 6.97 5.48 4.52 1970-71 1,264,894 77,527 6.13 5.83 4.75 4.32 1971-72 1,397,464 68,350 4.89 5.81 4.93 4.35 1972-73 2,254,401 125,116 5.55 5.91 5.15 4.54 1973-74 2,594,629 232,780 8.97 6.50 5.69 4.94 1974-75 2,749,431 238,298 8.67 6.84 6.16 5.29 1975-76 3,209,143 204,303 6.37 6.89 6.36 5.46 1976-77 4,460,487 261,657 5.87 7.08 6.45 5.65 1977-78 6,843,940 458,625 6.70 7.31 6.61 5.87 1978-79 8,123,266 692,417 8.52 7.22 6.86 6.20 1979-80 8,285,941 873,469 10.54 7.60 7.22 6.64 1980-81 7,298,693 786,877 10.78 8.48 7.69 7.07 1981-82 5,234,524 631,968 12.07 9.72 8.40 7.54 1982-83 5,254,589 549,229 10.45 10.47 8.89 7.90 1983-84 7,094,849 738,462 10.41 10.85 9.04 8.19 1984-85 11,903,660 1,275,503 10.72 10.89 9.24 8.44 1985-86 15,438,406 1,401,990 9.08 10.55 9.51 8.64 1986-87 19,167,196 1,425,047 7.43 9.62 9.67 8.81 1987-88 17,628,558 1,388,074 7.87 9.10 9.79 8.96 1988-89 17,496,405 1,516,767 8.67 8.75 9.80 8.94 1989-90 19,558,775 1,692,905 8.66 8.34 9.61 8.94 1990-91 20,754,895 1,663,140 8.01 8.13 9.34 9.05 1991-92 21,456,433 1,329,476 6.20 7.88 8.75 9.07 1992-93 23,051,543 1,085,126 4.71 7.25 8.18 8.94 1993-94 25,433,078 1,115,660 4.39 6.39 7.57 8.67 1994-95 26,802,123 1,482,574 5.53 5.77 7.05 8.33 1995-96 26,623,196 1,519,020 5.71 5.31 6.72 7.99 1996-97 28,264,069 1,582,443 5.60 5.19 6.53 7.56 1997-98 29,344,512 1,672,382 5.70 5.38 6.32 7.25 1998-99 33,451,088 1,787,765 5.34 5.58 5.98 6.91 1999-00 35,029,034 1,999,483 5.71 5.61 5.69 6.57 2000-01 43,840,421 2,676,158 6.10 5.69 5.50 6.37 2001-02 49,827,077 1,716,545 3.45 5.26 5.22 6.11 Source: The average investment portfolio, earnings and annual earnings rate were taken from the published Annual Report or the Pooled Money Investment Board for each fiscal year. Please see the following note. 20 NOTE TO PMIA SUMMARY OF INVESTMENTS AND EARNINGS TABLE The Pooled Money Investment Board was established as an agency of State government by Chapter 1703, Statutes of 1955, and became operational in April 1956. The 1956-57 fiscal year was the first full year for the Pooled Money Investment Account (PMIA). In 1957-58, the Surplus Money Investment Fund (SMIF) and the Condemnation Deposits Fund (CDF) were placed under the administration of the PMIB. Separate investment portfolios were managed for these two funds for a number of years. SMIF operated this way until the 1967-68 fiscal year, when legislation allowed this fund to be invested as a part of the PMIA. The CDF continued as a separate investment portfolio until 1975, when it also was combined with the PMIA. In order to make data for the early years in the table comparable to the later years (1975-76 and after), the average daily investment and the annual earnings for both SMIF and CDF were combined with those for the PMIA. The earning rates for these early years were computed using these combined figures. 21 Appendix B HISTORICAL PMIA YIELDS (Yield In Percent Per Annum) MONTHLY ANNUAL DATE AVERAGE AVERAGE Jan-77 5.77 Feb-77 5.66 Mar-77 5.66 Apr-77 5.65 May-77 5.76 Jun-77 5.85 5.87 Jul-77 5.93 Aug-77 6.05 Sep-77 6.09 Oct-77 6.39 Nov-77 6.61 Dec-77 6.73 Jan-78 6.92 Feb-78 7.05 Mar-78 7.14 Apr-78 7.27 May-78 7.39 Jun-78 7.57 6.70 Jul-78 7.65 Aug-78 7.82 Sep-78 7.87 Oct-78 8.11 Nov-78 8.29 Dec-78 8.77 Jan-79 8.78 Feb-79 8.90 Mar-79 8.82 Apr-79 9.08 May-79 9.05 Jun-79 9.22 8.52 Jul-79 9.20 Aug-79 9.53 Sep-79 9.26 Oct-79 9.81 Nov-79 10.22 Dec-791 10.22 ALLOCATION RATE LAIF SMIF UARTERLY SEMI-ANNUAL 5.78 1 5.79 6.45 1 6.18 AM 7.35 1 7.17 .o 8.32 1 8.09 9.26 10.06 1 9.66 22 HISTORICAL PIVHA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL, DATE AVERAGE AVERAGE Jan-80 10.98 Feb-80 11.25 Mar-80 11.49 Apr-80 11.48 May-80 12.02 Jun-80 11.80 10.54 Jul-80 10.21 Aug-80 9.87 Sep-80 9.95 Oct-80 10.06 Nov-80 10.43 Dec-80 10.96 Jan-81 10.99 Feb-81 11.69 Mar-81 11.13 Apr-81 11.48 May-81 12.18 Jun-81 11.44 10.78 Jul-81 12.35 Aug-81 12.84 Sep-81 12.06 Oct-81 12.40 Nov-81 11.89 Dec-81 11.48 Jan-82 11.68 Feb-82 12.04 Mar-82 11.84 Apr-82 11.77 May-82 12.27 Jun-82 11.99 12.07 Jul-82 12.24 Aug-82 11.91 Sep-82 11.15 Oct-82 11.11 Nov-82 10.70 Dec-82 10.40 ALLOCATION RATE LAW SMIF UARTERLY SEMI-ANNUAL 11.54 I 11.38 10.01 10.47 I 10.21 11.23 11.68 I 11.69 12.40 11.91 I 12.19 11.82 11.99 I 11.93 11.74 10.71 I 11.26 23 HISTORICAL PNHA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE F::::LAIF SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jan-83 10.25 Feb-83 9.89 Mar-83 9.69 9.87 Apr-83 9.87 May-83 9.53 Jun-83 9.60 10.45 9.64 9.98 Jul-83 9.88 Aug-83 10.08 Sep-83 10.20 10.04 Oct 83 10.18 Nov-83 10.16 Dec-83 10.23 10.18 10.15 Jan-84 10.31 Feb-84 10.28 Mar-84 10.38 10.32 Apr-84 10.59 May-84 10.84 Jun-84 11.12 10.41 10.88 10.63 Jul-84 11.36 Aug-84 11.56 Sep-84 11.60 11.53 Oct-84 11.68 Nov-84 11.47 Dec-84 11.02 11.41 11.44 Jan-85 10.58 Feb-85 10.29 Mar-85 10.12 10.32 Apr-85 10.03 May-85 10.18 Jun-85 9.74 10.72 9.98 10.19 Jul-85 9.66 Aug-85 9.42 Sep-85 9.57 9.54 Oct-85 9.48 Nov-85 9.49 Dec-85 9.37 9.43 9.50 HISTORICAL PNIIA YIELDS (C. ontinued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE LAIF SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jan-86 9.25 Feb-86 9.09 Mar-86 8.96 9.09 Apr-86 8.62 May-86 8.37 Jun-86 8.23 9.08 8.39 8.70 Jul-86 8.14 Aug-86 7.84 Sep-86 7.51 7.81 Oct-86 7.59 Nov-86 7.43 Dec-86 7.44 7.48 7.65 Jan-87 7.37 Feb-87 7.16 Mar-87 7.21 7.24 Apr-87 7.04 May-87 7.29 Jun-87 7.29 7.44 7.21 7.23 Jul-87 7.46 Aug-87 7.56 Sep-87 7.71 7.54 Oct-87 7.83 Nov-87 8.12 Dec-87 8.07 7.97 7.80 Jan-88 8.08 Feb-88 8.05 Mar-88 7.95 8.01 Apr-88 7.94 May-88 7.82 Jun-88 7.93 7.87 7.87 7.95 Jul-88 8.09 Aug-88 8.25 Sep-88 8.34 8.20 Oct-88 8.40 Nov-88 8.47 Dec-88 8.56 8.45 8.34 25 HISTORICAL PNIIA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE LAW SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jan-89 8.70 Feb-89 8.77 Mar-89 8.87 8.76 Apr-89 8.99 May-89 9.23 Jun-89 ' 9.20 8.67 9.13 8.97 Jul-89 9.06 Aug-89 8.83 Sep-89 8.80 8.87 Oct-89 8.77 Nov 89 8.69 Dec-89 8.65 8.68 8.78 Jan-90 8.57 Feb-90 8.54 Mar-90 8.51 8.52 Apr-90 8.50 May-90 8.53 Jun-90 8.54 8.66 8.50 8.52 Jul-90 8.52 Aug-90 8.3 8 Sep-90 8.33 8.39 Oct-90 8.32 Nov-90 8.27 Dec-90 8.28 8.27 8.34 Jan-91 8.16 Feb-91 8.00 Mar-91 7.78 7.97 Apr-91 7.67 May-91 7.37 Jun-91 7.17 8.01 7.38 7.67 Jul-91 7.10 Aug-91 7.07 Sep-91 6.86 7.00 Oct-91 6.72 Nov-91 6.59 Dec-911 6.32 6.52 6.74 26 HISTORICAL PNIIA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE LAW SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jan-92 6.12 Feb-92 5.86 Mar-92 5.68 5.87 Apr-92 5.69 May-92 5.38 Jun-92 5.32 6.20 5.45 5.65 Jul-92 5.24 Aug-92 4.96 Sep-92 4.76 4.97 Oct-92 4.73 Nov-92 4.66 Dec-92 4.65 4.67 4.82 Jan-93 4.68 Feb-93 4.65 Mar-93 4.62 4.64 Apr-93 4.61 May-93 4.43 Jun-93 4.55 4.71 4.51 4.61 Jul-93 4.44 Aug-93 4.47 Sep-93 4.43 4.44 Oct-93 4.38 Nov-93 4.37 Dec-93 4.38 4.36 4.39 Jan-94 4.36 Feb-94 4.18 Mar-94 4.25 4.25 Apr-94 4.33 May-94 4.43 Jun-94 4.62 4.39 4.45 4.36 Jul-94 4.82 Aug-94 4.99 Sep-94 5.11 4.96 Oct 94 5.24 Nov-94 5.38 Dec-94 5.53 5.37 5.15 27 HISTORICAL P1VIIA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE LAIF SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jan-95 5.61 Feb-95 5.78 Mar-95 5.93 5.76 Apr-95 5.96 May-95 6.01 Jun-95 6.00 5.53 5.98 5.87 Jul-95 5.97 Aug-95 5.91 Sep-95 5.83 5.89 Oct-95 5.78 Nov-95 5.81 Dec-95 5.75 5.76 5.83 Jan-96 5.70 Feb-96 5.64 Mar-96 5.56 5.62 Apr-96 5.54 May-96 5.50 Jun-96 5.55 5.71 5.52 5.56 Jul-96 5.59 Aug-96 5.57 Sep-% 5.60 5.57 Oct-96 5.60 Nov-96 5.60 Dec-96 5.57 5.58 5.57 Jan-97 5.5 8 Feb-97 5.58 Mar-97 5.58 5.56 Apr-97 5.61 May-97 5.63 Jun-97 5.67 5.59 5.63 5.59 Jul-97 5.68 Aug-97 5.69 Sep-97 5.71 5.68 Oct-97 5.71 Nov-97 5.72 Dec-97 5.74 5.71 5.69 HISTORICAL PMIA YIELDg (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL AUDCAUON RATE LAIF smw DATE AVERAGE AVERAGE UARTERLY SEMI-Ar*MAL Jan-98 5.74 Feb-98 5.72 Mar-98 5.68 5.70 Apr-98 5.67 May-98 5.67 Jun-98 5.67 5.70 5.66 5.67 Jul- 98 5.65 Aug-98 5.65 Sep-98 5.64 5.64 Oct-98 5.56 Nov-98 5.49 Dec 98 5.37 5.46 5.55 Jan-99 5.26 Feb-99 5.21 Mar-99 5.14 5.19 Apr-99 5.12 y-99 5.09 Jun-99 5.09 5.34 5.08 5.13 Jul-99 5.18 Aug-99 5.22 Sep-99 5.27 5.21 Oct-99 5.39 Nov-99 5.48 Dec 99 5.64 5.49 5.34 Jan-00 5.76 Feb-00 5.82 Mar-00 5.85 5.80 Apr-00 6.01 May-00 6.19 Jun-00 6.35 5.71 6.18 5.99 29 HISTORICAL PMIA YIELDS (Continued) (Yield In Percent Per Annum) MONTHLY ANNUAL ALLOCATION RATE LAIF SMIF DATE AVERAGE AVERAGE OUARTERLY SEMI-ANNUAL Jul-00 6.44 Aug-00 6.50 Sep-00 6.50 6.47 Oct-00 6.52 Nov-00 6.54 Dec-00 6.53 6.52 6.49 Jan-01 6.37 Feb-01 6.17 Mar-01 5.98 6.16 Apr-01 5.76 May-01 5.33 Jun-01 4.96 6.10 5.32 5.73 Jul-01 4.63 Aug-01 4.50 Sep-01 4.29 4.47 Oct-01 3.78 Nov-01 3.53 Dec-01 3.26 3.52 3.99 Jan-02 3.07 Feb-02 2.97 Mar-02 2.86 2.96 Apr-02 2.84 May-02 2.74 Jun-02 2.69 3.45 2.75 2.85 The State Treasurer's Office complies with the Americans With Disabilities Act (ADA). If you need additional information or assistance, please contact the State Treasurer's Pooled Money Investment Board at (916) 653-2917. BOARD MEMBER ITEMS LAIF Moneys Protected by Statute Page 1 of 1 P11111 Angellidest State Treasurer Inside the State Treasurees Office Local Agency Investment Fund (LAIF) LAIF MONEYS PROTECTED BY STATUTE The State of California cannot borrow or withhold LAIF moneys. Recent discussions about the State's budget deficit have generated questions from LAW agencies and their oversight boards about the safety and accessibility of moneys invested with LAIF. Can the State borrow LAW dollars to resolve the budget deficit? No. California Government Code 16429.3 states that moneys placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi -governmental agencies shall not be subject to either of the following: (a) Transfer or loan pursuant to Sections 16310, 16312, or 16313. (b) Impoundment or seizure by any state official or state agency. : Can the State withhold LAIF moneys if the State fails to adopt a budget by the June 30th deadline? No. California Government Code 16429.4 which was added to the LAIF's enabling legislation during the 2002 session states that the right of a city, county, city and county, special district, nonprofit corporation, or qualified quasi -governmental agency, to withdraw its deposited money from the LAIF upon demand may not be altered, impaired, or denied in any way by any state official or state agency based upon the States failure to adopt a State Budget by July 1 of each new fiscal year. Questions regarding the LAW program may be directed to LAIF Administrator Eileen Park at (916) 653-3001 or by email at eparkCatreasurer.ca.gov. http://wwwtreasurer.ca.gov/laif/statute.htm 4/28/03 LOCAL AGENCY INVESTMENT FUND (LAIF) INFORMATION QTR Ended TR Ended TR Ended r2/31/2002 TR Ended 6130/2002 r130/2002 M. /2003 Administrative Costs (% of Earnings) 0.35% 0."% 0.47% 0.46% Apportionment Rates 2.75 2.63 2.31 1.98 LAW as % of total PM IA 41.88% 43.43% 40.24% 39.12% Local Agency Investment Fund Participation As of 03/31/03 - 3,039 agencies 340 Trustees 11% 259 Bond Proceeds 9% 1916 Districts-- 54 Counties 63% 2% 470 Cities _ 15% PMIA MARKET VALUATION 103.5 103.0 --.___.. I PMIA ........ .__.__. 102.5 --------- Market -- ----- ----------- . _....__._.. Y102.0 _... ........ .. .. .....____ _.__.... _____.._. _ ____..._. 8 101.5 m101.0 ...__.__.. _._...__.. _. _ .__ ._.._.. O ... 100.0 99.5 _._..._..__ __.. > 99.0 ___....._ BV=100 d98.5 ................... 98.0 _........... _ ... ._....._ 97.5 6/01 9/01 12/01 3/02 6/02 9/02 12/02 3/03 SOURCE OF FUNDS Pooled Money Investment Account Average Quarterly Balance $56.044 Billion as of 03/31/03 Other 0.24% General *SMIF Fund 42.76% 17.88% LAI F 39.12% *SMIF: Surplus Moneylnvestment Fund PMIA Portfolio Composition--03/31/03 $54.0 billion Reverses -0.00% Treas Loans 11.53% 16.54% Mortgs 0.01 % CB's Agencies 3.89% 22.31 % CP 18.95% CD's/BN's 16.62% TD's 10.15% G:ICredit InformationINFACMfA Chart Presentation 3 03.xls CA State Treasurer's Office -Investment Division The Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) AN INFORMATIONAL REPORT FROM FIXED INCOME RESEARCH Report Date: June 10, 2003 Analyst: Patrick W. McCluskey The views expressed in this research report accurately r0eet my personal views about the subject company and its seeuHties. I receive no compensation that is directly or indirectly related to the specific recom- mendations or views contained within this report A.G. Edwards' Credit Amassment: Stable SUITABILITY:t CONSERVATIVE f Suitability is for senior unsecured debt. The credit risk of a specific fixed -income security will be affected by the security's seniority, with secured debt being somewhat less risky and subordinated issues generally riskier. Moody's S&P Implied Ratings Senior Debt Aaa AAA Subordinated Debt Aa2 AA - Preferred Stock Aa3 AA - Credit Trend: Stable Stable Credit Positives • FRE is a Government -Sponsored Enterprise (GSE) that is responsible for maintaining and expanding the primary and secondary markets for mortgages. • FRE helps make U.S. housing more affordable, in support of U.S. housing policy. • As a GSE, FRE's own strong credit quality measures also benefit from the implied support of the U.S. government Credit Risks • The public debt obligations of FRE are not specifically guaranteed by the U.S. government, however, we believe that direct government support would be provided, if necessary, to support FRE. • FRE needs to expand its core capital to help support its significantly larger asset base. • FRE is now under new management, which is charged with the expeditious and precise implemen- tation of necessary accounting policy changes. Management's actions will be highly scrutinized in the increasingly political and regulatory -driven environment The Company The Federal Home Loan Mortgage Corporation (Freddie Mac) is a publicly traded corporation created by Congress in 1970 to develop a continuous flow of funds to mortgage lenders. In support of its directive, Freddie Mac borrows fiends in the major capital markets and uses these funds to purchase mortgages. Its actions directly benefit the various financial institutions (by providing them with a source of liquidity) and individuals, who benefit from lower borrowing costs. Freddie Mac is the nation's second largest purchaser of conventional single-family mortgages and, since its inception, has financed homes for approximately 26 million families. Freddie Mac purchases mortgages from lenders and either keeps them in its own portfolio or packages them into mortgage -backed securities, including collateralized mortgage obligations (CMOs), for sale to investors. A.G. Edwards' Credit Opinion From our perspective, bl-eddie Mac benefits from its size, its high -quality standings in the capital markets and from the important role it serves in helping to carry out U.S. housing policy. While the recent abrupt changes to senior management rattled the market, we believe that Freddie Mac's board of directors acted decisively and in the best interests of both the company and the public when it instituted the changes to senior management In particular, we were impressed by the board's motives, which were to promote an open and honest line of communication between management and the audit committee, which is accountable to the board. In this regard, we also believe that the board is keenly aware of the need to resolve the company's accounting issues, which surfaced last January, and to put these issues behind the company as quickly as possible. New Freddie Mac CFO An Old Hand At Financial Challenges Page 1 of 3 "W ,H41:00f fSearch - Finance Home - Yahoo! - Help Welcome [Sign In Financial News Wednesday June 11, 2:39 pm ET By Maxwell Murphy, Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Marty Baumann knows a thing or two about financial institutions. As an accountant at a major international accounting firm, he oversaw his firm's dealings with many huge and complex clients, like Chemical Bank, Chase Manhattan and Prudential Insurance. Over the course of that 30-year career, appeared before a Congressional subcommittee to testify on how to handle both loan-loss accounting at banks and the international debt crisis in lesser- developed countries. In the late 1990s, he chaired an accounting industry task force to study how consistently banks and financial institutions booked loan-loss reserves on their financial statements. One issue back then was the high reserve levels often found in place at these concerns, and some observers worried that over -reserving could be used to help manage, or smooth, earnings from quarter to quarter. Today, Baumann is the chief financial officer of the Federal Home Loan Mortgage Corp. (NYSE:FRE - News) , the government -sponsored home -mortgage company better known as " Freddie Mac." He's in charge of untangling an accounting mess at Freddie Mac that at least one regulator earlier this week said could involve earnings smoothing. Freddie needs to restate its results for the calendar years 2000 through 2002, which is expected to boost its past net income but contribute to future earnings volatility. Martin F. Baumann, 55-years old, joined Freddie in March as its executive vice president of finance following his three decades of service with PricewaterhouseCoopers (News - Websites), or PwC, which has been Freddie's auditor for over a year and helped Freddie see that its books may not be up to snuff. On Monday, when Freddie announced it was parting ways with its top -three executives and divvying up their posts between four people, Baumann was named the new CFO. Tapped for chief executive officer was Gregory J. Parseghian, Freddie's 42- year -old chief investment officer. He'll be the company's leader and public face as Freddie works through its accounting problems and deals with the investigations and shareholder lawsuits that have already begun to ensue, but he has assigned responsibility for the entire restatement effort to Baumann. Wall Street has lauded Parseghian's appointment, having been fans of his financial acumen since well before he joined Freddie in 1996. A native New Yorker, Baumann stayed close to home for his education, completing i14 10, ' P of ME WALIA »)WINAL To track stocks & more, Regis FRE 50.36 -1.14 NeN View Detailed Quote Delayed 20 mins Quote data provided by Reuters Related News Stories externall Latest Freddie new; a boon to safe -haven Treasurys - at CBS MarketWatch (2:39 pm) • Dow Up 63, Nasdaq Gains 5 - Associated Press (2:25 pm) • [external] Pincers Closing on Freddie Mac -at Thestreet.com (2:24 pm) • [externall SEC opens probe into Freddie Mac: shares pressured - at CBS Marketwatch (2:17 pm) More - By industry: Banking Top Stories . U.S. Attornev, SEC Probe Freddie Mac - Reuters (2:24 pm) • OPEC Holds Output, Meets Again in 7 Weeks - Reuters (10:5: am) • Fed: Economy 'Sluggish' in Most Areas - Reuters (2:06 pm) • Stocks Get Lift as Oil Jumps Techs Slip - Reuters (2:04 pm) More • More Dow Jones Business News • Most-emailed articles • Most -viewed articles http://biz.yahoo.com/djus/030611/1439001158_2.html 6/11/2003 New Freddie Mac CFO An Old Hand At Financial Challenges Page 2 of 3 undergraduate studies in accounting at Queens College, followed up with a Master of Finance Spotlight Business Administration degree from Baruch College and the executive program in business administration at Columbia University. Made a partner at PwC in 1980, at - MarketTracker 32 years of age, he most recently served the accountancy as PwC's global banking Live streaming quotes for leader and the deputy chairman of its World Financial Services Practice. He says he $9.95/mo left PwC because the firm's retirement age is 60, and he wanted to begin an exciting . Research Reports new career that could last another decade or so. He'll be 56 years old in November. Expert insight at great prices It's not hard having to work with his old colleagues now that they're his new auditors, • Credit Reports Find out your credit score he says, and extensive efforts were made to ensure there are no conflicts of interest instantly so all dealings between the two parties stay at arm's length and above board. Baumann says he wasn't involved in auditing Freddie while at PwC, named auditor in March 2002 to replace fallen Arthur Andersen. A golf and music aficionado who has taken up marathon running of late, Baumann says he, like his beloved New York Yankees baseball team, loves winning, and he's thrilled about the challenge of righting Freddie's financial ship. It will be a team effort, he says, and he intends to surround himself with talented people to aid with the task. When asked, Baumann can't point to any one person as an influential mentor, but says former U.S. Presidents John F. Kennedy and Ronald Reagan - who Baumann acknowledges were very disparate personalities during their presidencies - inspire him. Kennedy affected Baumann in his youth and Reagan later in his life, he says, but both continue to be role models. Freddie Mac won't yet allow Baumann to speak to any matters regarding the restatement, corporate governance or the company's financial workings until after the restatement is completed. It hopes to have results early in the calendar third quarter that begins next month, though it allows for the possibility that the complexity of the matter could delay resolution until some time later in the quarter. Freddie announced the need for a restatement of 2002 and 2001 at least, with the possibility that 2000 would also need to be redone, in late January. Since Freddie Mac is currently a PwC client, PwC declined to discuss former employee Baumann, citing policy. In addition to Baumann, Freddie on Monday also drew on another PwC alumnus to bolster its ranks, appointing Shaun F. O'Malley as its non -executive chairman. O'Malley was a senior partner and the chairman of PwC from 1988 to 1995, when the firm was known as Price Waterhouse LLP. By Maxwell Murphy; Dow Jones Newswires; 201-938-5173; maxwell.murphy@dowjones.com Email this story - Set a News Alert ADVERTISEMENT Special Offers • Best CEO? Best Practices? Search eLibrarv. • Think ink & toner are expensive? Think again at 1800inkjetsl • Stop Snoring Now - Sleep Better Tonight • Save 80% on inkeet cartridges at Myinks.com • Wireless Video Surveillance • Get a FREE Mortgage REFINANCE QUOTE - click herel • Rent DVDs-Try FREE today! • Are your house payments too high? Refinance http://biz.yahoo.com/djus/030611/1439001158_2.html 6/11/2003 UPDATE - Fed's Bies-No sign Freddie having economic impact Page 1 of 2 ���rr Search -Finance Home -Yahoo! -Help aHCOO Welcome Si n In Financial News REUTERS1113*D To track stocks & more, Re, iq ster Enter symbol(s) Basic Symbol Lookup ...... .. .. Reuters UPDATE - Fed's Bies-No sign Freddie having economic impact Wednesday June 11, 1:24 pm ET (Adds Bies comment) WASHINGTON, June 11 (Reuters) - U.S. Federal Reserve Governor Susan Bies said on Wednesday she saw no sign of a short-term economic impact from housing financier Freddie Mac's (NYSE:FRE - News) accounting woes. "I'm not too concerned right now, again waiting to see what really plays out. It looks like the mortgage securities are still trading fairly well," she told reporters after a speech to the American Bankers Association (News - Websites) regulatory compliance conference here. Freddie Mac is under investigation by the government and the Securities and Exchange Commission (News - Websites) after ousting top management this week, but Bies said the Fed is not carrying out any probe. "All the regulators talk to each other but we're appropriately letting the right regulators go ahead and talk about this at the appropriate time," Bies said. "We're obviously interested in what they find because a lot of banks in the country hold paper and securities from Freddie, so we do want to understand what has happened and what is going on." Asked whether she was concerned whether the turmoil at Freddie would hurt the mortgage market or economy as a whole, Bies said she had not seen any sign of a short-term impact. "Obviously Freddie stock got hit, but the securities which would affect homebuyers seem to still be very liquid and we know the housing market is still very strong and there are lots of alternatives out there for homeowners to go to. I haven't seen any sign that there will be a short -run impact and we'll just have to wait and see what happens long-term," Bies said. She also said it was too early to say whether Freddie should be regulated differently -- as proposed on Tuesday by Fed Chairman Alan Greenspan. "I'm still waiting to get all the information. We know they were already undergoing some accounting changes at Freddie. Some of those were announced last year, so until I get all the facts its hard to tell exactly what occurred and how the regulator that they have has responded and I'm going to reserve judgment until I get more of the facts," she said. Related Quote FpE 11-Jun 11 2 : 27pm (C)Yahoo! 51.5 51.0 50.5 50.0 loam 12pm 2pm 4pm FRE 50.35 -1.15 News View Detailed Quote Delayed 20 mins Quote data provided by Reuters Related News Stories • New Freddie Mac CFO An Old Hand At Financial Challenges - Dow Jones Business News (2:39 pm) • (external] Latest Freddie news a boon to safe -haven Treasurys - at CBS MarketWatch (2:39 pm) • Dow Up 63 Nasdaq Gains 5 - Associated Press (2:25 pm) . [external] Pincers Closing on Freddie Mac -at Thestreet.com (2:24 pm) More... . By industry: Banking, Bonds, Us market Top Stories • U.S. Attorney, SEC Probe Freddie Mac - Reuters (2:24 pm) • OPEC Holds Output, Meets Again in 7 Weeks -Reuters (10:53 am) • Fed: Economy 'Sluggish' in Most Areas - Reuters (2:06 pm) • Stocks Get Lift as Oil Jumps, Techs Slip - Reuters (2:04 pm) More... • More Reuters • Most-emailed articles - Most -viewed articles http://biz.yahoo.com/rf/030611/financial freddiemac_fed 2.htm1 6/11/2003 UPDATE - Fed's Bies-No sign Freddie having economic impact Page 2 of 2 Greenspan said on Tuesday the securities of Freddie Mac and Fannie Mae, the top two U.S. housing finance companies, should be registered with the Securities and Exchange Commission, like other U.S. companies. Email this story - Set a News Alert ADVERTISEMENT Special Offers • el.ibrarv: Get 15 years of BUSINESS news here! • Wireless Video Surveillance • Save up to $500* in commissions with CyberTrader. • Rent all the DVDs you want - No Late Fees! • Stop Snoring Now - Sleep Better Tonight • Get cash fast! No paperwork home equity loan • Your friends are showing at 18001inkjets, why aren't you? • Get a FREE Mortgage REFINANCE QUOTE - click here! • #1 site for Credit: www.eCred!tCards.com (U.S. Only) • Save 80% on inkjet cartridges at Myinks.com t.. Copyright ® 2003 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service - Copyright Policy Copyright ® 2003 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. http://biz.yahoo.com/rf/030611/financial_freddiemac_fed_2.html 6/11/2003 SEC Starts Formal Probe of Freddie Mac Page 1 of 1 Brokerages/Wall Street SEC Starts Formal Probe of Freddie Mac By rsC staff 06/11/2003 10:18 AM EDT URL: hftp://www.thestreet.com/stocks/brokerages/10092888.html The Securities and Exchange Commission has started a formal investigation into Freddie Mac (FRE:NYSE - news - commentary) , giving the agency the power to issue subpoenas for witnesses and documents, particularly from third parties outside the corporation. Shaun O'Malley, Freddie's new chairman, said in a statement that since January the board has ordered full cooperation with the SEC's informal inquiry, and that the company will "continue to cooperate in all respects as the investigation continues." Freddie's board is closely supervising the issues surrounding the company's earnings restatement, the statement said. "Our Audit Committee counsel's active review, as of this date, does not indicate that any employee of Freddie Mac other than [David] Glenn has engaged in conduct of the kind we disclosed on Monday," the statement continued. "We can also confirm that the conduct we disclosed on Monday related to Mr. Glenn's diaries and not to the company's accounting records." Earlier this week, Freddie Mac fired Glenn, the company's president and chief operating officer, and said Leland Brendsel, the chairman and chief executive, would retire. Chief Financial Officer Vaughn Clarke resigned. The nation's second-largest buyer of home mortgages said Glenn's firing was prompted by "serious questions" about his cooperation with the company's internal audit review of past earnings, which has been going on since the beginning of the year. The company said Glenn maintained his own personal diary of events at Freddie and may have altered some of those entries. Shares of Freddie Mac were halted for trading at $50.75 on the New York Stock Exchange. http://www.thestreet.com/pf/stocks/brokerages/10092888.html 6/11/2003 See the Disclosure Appendix for the Analyst citigroup Certification and Other Disclosures US Interest Rate Product Focus June 10, 2003 US Fixed Income Strategy Michael Schumacher (212) 723-6031 michael schumacherna i ' oup.com Charles Carre (212) 723-6031 charles.carreka crtigroup.com New York Freddie Mac Impact: Differentiate between Debt and Equity Effects One important thing to remember any time there is a problem is to differentiate between an issue's effect on the stock and its effect on bonds. It is possible that Freddie Mac's earnings restatement, management changes, etc, will continue to impact the stock negatively, but we do not think it will have a significant long-lived effect on debt spreads. It is worth pointing out that during Fannie Mae's duration gap episode, its debt cheapened considerably vs. Freddie bonds but then regained most of those losses within a few weeks. Fannie Mae debt did trade about lbp cheap to Freddie Mac for a long time, though, so that precedent suggests that Freddie could stay a bit wide to Fannie for quite a while. Citigroup Global Markets Disclosure Appendix ANALYST CERTIFICATION I, Michael Schumacher, , hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views in this report. Other Disclosures ADDITIONAL INFORMATION AVAILABLE UPON REQUEST For securities recommended in this report, Citigroup Global Markets Inc. ("CGMI") , including its parent, subsidiaries and/or affiliates, may make a market and may sell to or buy from customers as principal. Securities recommended, offered, or sold by CGMI: (1) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources CGMI believes to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. All opinions and estimates included in this report constitute CGMI's judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report does not take into account the investment objectives or financial situation of any particular person. Investors should obtain advice based on their own individual circumstances before making an investment decision Options referred to in this report (other than options on futures) are over the counter ("OTC") options only, and are not traded on an exchange or cleared by a clearing house This report is distributed in the United Kingdom by Citigroup Global Markets Limited , Citigroup Centre, 33 Canada Square, Canary Wharf, London E14 51-13, UK. This material is directed exclusively at market professional and institutional investor customers and is not for distribution to private customers, as defined by the rules of the Financial Services Authority, who should not rely on this material. Moreover, any investment or service to which the material may relate will not be made available to such private customers. 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Freddie Mac in coming weeks is expected `to come under an unusual degree of scrutiny in the nation's capi- tal in the wake of recent questions about the compa- ny's accounting practices. l Like its larger mortgage -in- dustry sibling, Fannie Mae, r Freddie Mac operates under a government charter, and it is constantly under attack from political opponents who would like to rein in the com- Gregory Parseghian pany's rapid growth. But unlike Fannie Mae's CEO, Franklin Raines, who is a former Clinton administration official and a consummate politician, Mr. Parseg- hian, 42 years old, has little experience working with elected officials and is somewhat a mystery to political observers in Washington. That lack of experience could become an issue as the company struggles with the fallout from its accounting problems, which this week led to the ouster of three of its top executives, including longtime CEO Leland Brendsel. Under Mr. Brendsel, Freddie Mac tended to take a low profile in Washington, but Mr. Parseghian won't have that luxury. Already, key U.S. lawmakers are plan - Please Turn to Page C9, Mumn 4 Freddie'Mac's Direct Debt Suffers Much Less Impact Is Seen On Mortgage -Backed Bonds Bearing Company's Name By AGNES T. CRANE And JuraE HAvry Dow Jones Newswires NEW YORK-Reaction to Freddie Mac's management shakeout continued to roil some areas of the bond market, batter- ing the company's direct -debt issues. There was much less impact on the mortgage -backed bonds that carry Freddie Bond Market Data Beck is on page B6 today. Mac's name. But investors were watching events in Washington. Lengthy investiga- tions or moves to more tightly regulate gov- ernment -sponsored entities such as Fred- die Mac and Fannie Mae could adversely affect the mortgage -barked and agency -se- curities sectors, some said. The most dramatic reaction has been in the agency -securities sector, which in- cludes direct debt issues of Freddie Mac and Fannie Mae. Yield margins to Trea- surys, or spreads, widened, suggesting a perception of greater risk. Traders said Freddie Mac debt could remain under pressure as the market tries to gauge the implications of the company's problems. "Freddie will struggle with this development for a while," said Andrew Har- ding, director of taxable fixed income at National City Investment Management Co. He added, however, "my feeling is that this is ultimately an equity -related issue and how they are able to grow their earnings going forward." lbday Freddie Mac will sell $1 billion more of its 2.750/c reference notes due 2008 via Deutsche Bank, R.BS Greenwich Capi- tal and UBS Warburg. Yesterday, the issue was trading at 0.153 percentage point over Treasurys, 0.018 point wider than Monday and 0.075 point -wider than prior to Mon- day's news that Freddie Mac's three top executives had departed amid an inquiry into its accounting practices. "The spread widening actually was an opportunity to buy," said Scott Graham, senior vice-president and co-head of the agency desk at RBS Greenwich Capital. In the mortgage -backed sector, the events at Freddie Mac have had much less immediate effect.. Freddie Mac and Fannie Mae buy and bundle mortgage loans into mortgage - backed securities, selling some and keep- ing others in their portfolios. Principal and interest payments on. mortgage -backed bonds come from loan repayments and aren't directly tied to Freddie Mac's per- formance. Yield Comparisons Based on Merrill Lynch Bond Indexes, priced as of mideftemoon Eastern time. 52-WEEK 6/so 6/9 HIGH L.ow Corp. eat 1Mutar 2.88% 2.95% 4.99% 2.88% Treasury 1.10 yr 1.62 1.69 3.60 1.62 10+ yr 3.95 4.04 5.63 3.95 AI -10yr 111.82 1.88 4.01 1.82 10+ yr 4.33 4.40 6.08 4.31 corporall 1 High Quality 2.54 2.62 4.84 2.54 Medium Quality 3.46 3.55 6.26 3.46 10+ yr High Quality 4.87 4.95 6.76 4.87 Medium Quality 5.47 5.55 7.91 5.47 Tmikee bards (1) 3.29 3.36 5.78 3.29 cwrsrd- oa mortgages (2) GNMA 6.50% (3) 3.79 3.90 6.24 3.70 FNMA 6.50% 4.03 4.15 6.25 4.03 FHLMC 6.50% 4.13 4.24 6.28 4.12 Nlgl *m eorpormes a.84 8.87 13.96 8.84 Tax -Ex~ Bonds 7-12 yr G.O. (AA) 2.93 2.97 4.13 2.93 12-22 yr G.O. (AA) 3.90 3.95 5.08 3.90 22+ yr revenue (A) 4.43 4.48 5.27 4.43 Note: High quality rated AAAAk medium quality A-WS/Baa; high yield, BB/Ba-c. (1) Dollar4enominated. SEC -registered bonds of foreign issuers sold in the U.S. (2) Reflects the 52,Aeek high and low of mortgage•backed securities indexes rather than the individual securities shown. (3) Government guaranteed. .. "As the mortgage guy, you're as far as possible away" from the Freddie Mac corpo- rate turmoil, said James Prusko, portfolio manager at Putnam Investments in Bos- ton. Furthermore, there is an implicit gov- ernment guarantee on mortgage -backed bonds carrying the Freddie Mac stamp. Though Fannie Mae and Freddie Mac don't enjoy the full faith and credit of the U.S. government, the market assumes the gov- ernment would step in if either got into difficulty. House Financial 6ervices Chairman Michael Oxley (R., Ohio) and Rep. Richard Baker (R., La.) said they will investigate Freddie Mac's accounting practices and other related issues through public hear- ings. Mr. Baker, chairman of the subcom- mittee that oversees Freddie Mac, Fannie Mae and their regulator, has been a vocal critic of the companies. "If GSEs as we know them today are going to be changed in some sort of signifi- cant fashion, then potentially, yes, that would impact the entire mortgage market, not just Freddie Mac," said Thomas Gi- rard, managing director of fixed -income at Weiss, Peck & Greer Investments. "I'm not sure [lawmakers] want to tinker with that in a significant way." Without Bush Administration support, legislative action to modify the regulatory structure or change the GSE's charters is "unlikely" this year, said Art Frank, direc- tor of mortgage -backed securities research at Nomura Securities International in New York. Speaking to Congress yesterday, Federal Reserve Chairman Alan Greenspan reaffirmed his view that the government -sponsored entities should register with the Securities and Ex- change Commission. Meanwhile, some investors worry about the impact of investigations, such as those the SEC and the New York Stock Exchange are expected to conduct. If Freddie Mac were to divert much attention to such in- quiries, it might have less time and re- sources to manage its portfolio, said ana- lysts. Treasurys Mounting optimism about Federal Re- serve easing combined with buying by in- vestors in mortgage -backed bonds sent Treasurys soaring again, while driving yields to their lowest levels in about 45 years. The benchmark 10-year note's yield, which moves inversely to its price, ended at 3.1%7v, dorm from 3.276% Monday, a level that hasn't been seen since June 1958, ac- cording to Fed data. The issue's price at 4 p.m. was up 22/32 point, or $6.88 per $1,000 face value, at 103 20/32. The 30-year bond's price jumped 1 15/32 points to 118 to yield 4.2600/6, down from 4.343% Monday. The two-year note yield hit an all-time low of 1.1276, well below the Fed's federal - funds rate target of 1M. Traders said buyers included hedge funds, money managers and mortgage -se- curities investors, among others. Holders of. mortgage -backed bonds often purchase Treasurys to offset the impact of falling yields. Fed governor Donald Kohn indicated at an economic conference yesterday that the recent drop in inflation, to below A at an annual rate in the last six months exclud- ing food and energy, had taken the central bank by surprise. "Inflation has been com- ing down somewhat more rapidly than our models expect given the level of the unem- ployment rate," he said. -Joy C. Shaw and Angela Pruitt contriWed to this article. o WSJAMM Out the Door Freddie Mac Ousts Top Officials As Regulators Prepare Inquiries Moves by Mortgage Giant Reel Worries About Oversight, Impact on Weak Economy `Enormous Scale of Liabilities' Freddie Mac, one of the nation's two huge government -sponsored mortgage -fi- nance companies, shoved aside three of its top executives, questioned the "cooper- ation and candor" of its chief operating officer and reiterated plans to restate three years' worth of financial results. The surprising . , developments prompted investors to sell Freddie Mac debt and purchase U.S. Treasury bonds. It also fanned the embers of a controversy over how. adequately Freddie Mac and its sibling, Fannie ' Mae, are regulated. The market impact was muted, however, in part because Freddie said the restatement would make its profits and capital bigger than previously reported, not smaller. Still, the moves raise questions about Freddie's ability to continue to fuel the rapid growth of the mortgage -finance mar - By Patrick Barta, Greg Ip and John A McKinnon ket, which has been an important force in keeping the housing market strong during an otherwise weak economy. Freddie Mac said yesterday that its board asked its longtime chairman and chief executive, Leland Brendsel, 61 years old, to step aside. The president and chief operating officer, David Glenn, 60, was fired outright, and Chief Financial Officer Vaughn Clarke, 48, was pressured to re- sign. Yesterday's action was a clear sign that the board has lost faith in Mr. Brendsel's ability to manage a company that has become so large and complex that it may need a new, more sophisti- cated generation of managers to steer it into the future. It is the nation's fourth - largest financial company, with assets of $722 billion at the end of 2002. Freddie Mac and Fannie Mae are in the business of funding mortgages for home buyers. The two financial giants purchase home mortgages, thereby freeing lenders to make new home loans. The increasingly complex business compels the companies to use a bewildering array of derivatives and other hedging instruments to manage the immense risk that goes along with building up massive mortgage portfolios. The company's regulator, the Office of Federal Housing Enterprise Oversight, said it has appointed a special investiga- tive team to review Freddie Mac's ac- counting, citing "management misjudg- ments" and "employee misconduct." §ep- arately, the Securities and Exchange Commission is also looking into Freddie Mac's accounting to see whether the com- pany violated any securities laws, accord-' ing to people familiar with the matter. After more than a. decade of torrid growth, Freddie Mac and Fannie Mae between them own or guarantee more than a third of all U.S. residential mort- gages. They are credited with helping make mortgages affordable and avail- able regardless of local financial condi- tions, in contrast to when savings -and - loan institutions dominated. But this means the mortgage market is more vul- nerable to anything that raises Freddie's or Fannie's borrowing costs or impairs their ability to purchase mortgages. If the new disclosures fray investor confidence and eventually impair Fred- die's ability to borrow at a reasonable cost, that could undermine the mortgage Please Turn to Page A14, Column 4 Reddie Mac Board Ousts Top Three Executives t' Wbww loose Ffrat Pnpe and waft markets, which have maw - omed what little growth the Wiliam am enjoys. Federal Retierve a(ticials iac wit Chairman Alm Gteeeapaa have ionguror- rted that investors mayy be Complacent about the tilt M owning Fannie Mae and Freddie Mac securities because they as- sume fhe federal government won't let them fag. A related concern is that some shock might impair their ability to fund their huge operations and that any Prob- ism at one could ricochet through the mar- kets via their extensive trading relation- ships with wall street. Federal Reserve Bank of St. LA" President William Poole warned in a speech t'aiZ this year that the agencies were vulnerable to an unexpected shock, adding that "the enormous scale of MM- ties could create a massive problem to the MO markets" If one of them feu under a cloud. "A corporate -governance issue would rot have been widely pre- ditxed." lit. Lads Fed research director Robert Rasche noted yesterday. Yesterday. Treasury binds rose and their yields fell as investors. rattled by Freddie's dfsdontres, sought safety. The spread between yields on bonds issued by Freddie and those on Treanuys widened by about six hundredths of a percentage Point. The Treasurys -Fannie Mae spread also widened but not as much. However, other than the stock price, there was CO sign of serious selling. Freddie succeas- ftdty homed some short-term paper ( see ar. title on page CI). One taw the SEC is investigating is whether Freddie Mac, which first an. nounced plans to restate some past earn. imp in January, deferred gains to future quarters in a bid to keep its revenue and earnings growth steadypeople familiar with the matter said. Such a maneu- Ter. sometimes .known as "cookie Jar" accounting. hasZz beenusedilyWas that am - encing strong earn- lisp but want to de. . ter gains to a later date,wheaarninp may be weak. The SOChasbeentryfng to crud down on onizolazzles such techniques. a Leland Brendsel settled cases with Microsoft Corp. and Xerox Corp., which were accused of setting up improper re. serves. Freddie Mac officials have said they weren't tryfmg to smooth out earnings and that tbey believed they were following gen- Mft accepted tmtlng atxopractices at In one sign that the board doesn't be - line the accounting problems run It mo►edswiftty taptapto imternalpadideep, esto replace the depnRing executives. The boa[dVhoseGlagoryJ. Parsegldaa,!'1. tor- 111" the company's rhlef Investment of- scer, who was extremely popular an wag S41K all Me Company's now chief execu- tiveofffcerandpaeddent.Forchktoperd. wh001110011r, it who wybe�theCompany's aul T. fin. M• sin. gle-family-housing dhislon. The new chief financial officer is Martin F. Ben. maw. 55. previously an executive vice president for finance. 7andoos within the company began b loft eatuer this year. when it an- mounnedthetftwould berestaWfgitseam. lugs for2NO, 2001 and 20Cafter its now ac. emmtant. PricewatertauseCaaers, raised questions about bow the company sod its previous accountant. ArthurAeder- len. bad handled accounting for some hedg- atrainactions. Although Freddie Mac d- lclals assured investors that the restate - rents would actually boost earnings. the 'esatement, which focused on Complex Is. on related to the way the companyclaaai- led sane bedgea and assets, was a major Public embarrassment for the company. >t Ono serially upset board members, who were angered that the Company would r n into problem at a time of intense scrutiny do stadatda. Matters t" more teme iast Thursday rhea the board gatheed at Freddie Mac's Admit. Va.. headquarters for two days of eplarty scheduled quarterly meetings. losing than medals, a committee set up y the board to itneAipae the earnings re- tm meat reported that Mr. Glenn bad ailed to Ti robe f� wfgf a n4opm b radoverdiaeNlhehadasnphardhemgre- oet nhaafinga Aoaadlmr b P n me w3 am - what tie mbfdng material bduded, but tam nmamcfal records As a resfdt, they safe they don't believe that the missing Oftl ' ' ' I to additional, as -yet uodis- eDM1111 accounting problems. The dffi- Fk dd a Mac Board of Dlrocten . sfatrh O'MMby Nwumcuble di ito pybisd dW"W of N= TAauniotse ■ oaaar L oahvaew• prom" d bsss oeweihspetct Oq. ■ ulsh.b fhugw fYhaew ant I1h d Nkh4 a ■ George D. Gould Vim dnilmm of Kinpnstrn. Fields 6 Co. ■ om<dd L arwl.11r Ma.pg i.aer of awk a Welwl ok ■ Thomas W.Jones. DOOM and CEO of Globil Inumbwa MIRWRInt and PPihaw gsnlow Gino. a drrfeim of c m w ■ Henry Kauhnan Pusift of Nwer Kriftw a Co. ■ Martin L Leibowitz vice dWmm and fzmum- 0 . *ft B. McCoy ROM dwnrn and CED of dwelt One ■ Ronald F. Poe Amide a of Rapid F. Floe a Aromms ■ Yarns L Ppwaew• Raara Collins A Oa ■ Stephen A. Ross MpsadPueela Ipabhhe of TitN<ddpr stofusa ■ Donald J. Schuenke ROW do men of NoMrwemhn Mu W Life bpum" ■ Christina Sea Om min end CEO of Seoc lrbTavnent AMCC; • asombe i slow* Mee arafasitt d fist see" dinars is William J. tumor co-mmger swan Cap" •Apeei W br er US Poo NO: txsr eN ON o.ttia sic sea bend'$ an bwM dears re ow mrf" a n+meNr meneeei'm YxdhPe. powerhouse with more than 11700 billion in assets today. Along the wary. its portfolio of mortgages swelled to S583 billion at the end of last year from $22 billion in 1990. The announcement Monday was all the more surprising given that investors have tong believed Freddie Mac was the more conservatively managed of the two govern- s leash p surprising mortgage es,an the one revela- tions or risk issues. Indeed, investors have historically paid more attention to Fannie Mae, in part because it oper- ates with a higher profile in Washing- ton. The latest prob- lems revolved around two seem- ingly innocuous — and somewhat ar- Da 4d Gknn cane —steps the company toot while working with its previous auditor. Arthur Andersen. In one case, the company treated a certain hedging transaction a if it were a derivative, which is a financial contract derived from an underlying secu- rity, commodity, interest rate orcurrengy: it later determined it shouldn't have done so. In the other case. the company "reclas- sified" some assets as "available forsalp," which it also later found to be incorrect. Because of the way accounting rules are.written, the net effect of both moves was to allow the company to book certain gains in the future rather than all at once, which reduced the company's re- ported earnings in the short run. Fannie Mae said It doesn't have any similar accounting issues. Spokesman Chuck Greener suggested that Fannie doesn't require additional oversight be- cause it recently began filing quarterly statements with the SEC. The SECIs alsoVotift Preddiexacte see whether Messrs. Brendsel and Clarke violated a provision of the Sarbanes-Oxley law that requires executives to certify that their financial statements are true, accord- ing to people familiar with the matter. LA9 August. Messrs. Brendsei and Clarke filed a signed certification with the SEC at- testing to the accuracy of Freddie Mac'ih- nancial statements. Under Sarbanes-Qx- ley, the SEC could bring civil charltes against the ezavdves itthose financial statements weren't accurate. A spokesman for the SEC dectinectto comment In a letter to Freddie Mac, OFf)t0 director Armando Falcon also 4eman¢d an explanation of the board's termima- tlon packages for the three executives, "in light of the circumstances surroudd- 1ng their departure." The regulator as- serts that any termination packages are subject to its approval. Some experts add they doubt that QF- HBO has much real authority to owed= Compensation arrangements. But in: a telephone interview. Mr. Falcon insfsaed that the regulator has clear powers -to NOCIE ever bv reterm termination psyme ls. fo approve." he said. Ting with we hive Byaoe mode. Mr. B snftd was t he most b1111111111Y Csmpe MM of an mortgage e avAh,es In the U.S. In 3101. the IuW yaw avWabile aouordlag to Lnformatbo OMPowBresslad bymad�.3 m � oa - POEMAkM including SLI3 million in bipe salary —also the highest among top wort. pp+>uautives—aswell as a2.1 mI W oritin bmm and $4.7 ndMon in iloe2=W&*.Gk=*ade03 3m s inRw OotmlCompamnefapmflgl,l�ff io grew flow and toot an more risk. Mr. 8tendld was wiety avow an Waif street with be4 fag anglneer ow raw growth. which psopened Freddie Mae from an withlasthanglOUNM arty 1mint is fimaacial cials said they were unsure why Mr. Glenn dfdm't fully cooperate. Freddie Mac didn't make anyofthe departed executives avail- able for continent. Even so, the board's displeasure over Mr. Glenn's failure to Cooperate was so great that it unanimously decided to move forward with previously discussed plans to mate changes in the company's senior management, according to board Chair- man Shaun F. O'Malley. "The board was very upset" by the problems with Mr. Glenn, Mr. O'Malley said. "It felt it had to act decisively to enable the company to move ahead." Whilethe market was nervoustydipst- lag the news, Standard A Poor's Ratings Service reaffirmed Freddie Mac's ratings, casting doubt on critics who hinted at deeper pnhhiems for Freddie Mac. "Based on discussions with Freddie Mac, the reau- dit will still result in material upward revi- sioms of operating earnings and capital," said S&P analyst Victoria Wagner. Indeed, the controversy may pass with no sustained impact on Freddie or the mortgage martet, much as happened when Fannie rolled the market last fall by disclosing a sizable mismatch between its assets and liabilities. Indeed, even after widening Yesterday, the spread between yields on Freddie Mac bonds and Tres- surys is still relatively narrow. Nonetheless, the latest disclosures at Freddie Mac could lead lawmakers to con- sider legislative Changes that previously would have been unthinkable because of Freddie Mac's and Fannie Mae's sizable political clout. One idea would require fuller public dis- clostue of their finances. Unlike other pub- licly traded companies, Freddie and Fan- nie aren't required by law to comply with Ali SEC disclosure rules. Under pressure from critics. they've recently agreed to file annual reports and register their stores. But they continue to resist formal registra- tiea of the mortgage.Wwked securities that are their financial bread and butter. Rep. Edward J. Markey, a Massachu- settsDernoeratwhohasco-spotsaedleafs- latfan to require such disclosure. yester- day demanded an immediate investigation as trek as hearings by a hose subcom- mittee. Another idea that could pica a steam would be to beef up the regula- tion of such govern- ment -sponsored en- r .- terprises, perhaps by moving OFRBO into the Treasury Department from the Department of hosing and Urban Development —an Gregory J. Idea some Treasury Porseghim officials have sym. Whined with in the past, though it isn't official policy. Treasury was told of Fred- die's mown over the weekend and is mon- itoring developments, but has no other comment, an odndal bate aald. strengthenAlthough tales has taken steps to oweestght of Fannie and Freddie in recent years, It has long been the butt of jokes in Wakingtom, where alt. is view the agency as tmderhmded and lacking Use b d@4 docrack dows decad"Iddw d apocyipimt Bbb IN first ragoldory � kaank o Fredi last year, and It didn't know about the 100 is- m sutra Mr. Glenn now it was lmfamed it Worm by the oompaty. An 0!!11111D aollisswoss• s acid Its staff hag Ism 'Aills"Ns b"ro ' Ia Ws cork Ntit Media Profit Soared in Year to March LAW Awn Arew.ape laobrla aoNG—Newspaper and e publisher Next nedlt lid. March amgwd b W.6 ml0lan HaI 111M doaars fUsg1T.1 mililaa) from 10MU ndison a year ew5w. 771e prom embut- able Increase ye ait rcontribudon from APpk Ddy newspaper. Next Noma Me of theaawapapux one Of AKowa momPopular purbilcatieus, at the end Of Next Media said revenue for the year ended in March .IS billion .12 nearly bil. ilea. Operating Profit Jumped to Ml�lM.9 miWnn from fIICWA mll- � � Court bw armed an HKM9 nuilica reduction in its N *a -WNW= account to reduce accumulated !oasm anca ahaet� item used to lecor an sondisillid for stlaea a Company Mines. AA can parry that issues one sloe with a Mom" value of flush and an fsste prim of Mine win put MW into its dare —premium account nt The mMMY aid at the Urne Mg the reduction WOW offset accumu- lated !oases of the same amount aid pre the way for Next Media to pay a dividend. The S ancommpany had net of 1OWnded March 31, 3010. ItIan money in each of the preceding five years. mtaaraon.FranldinRainea,Cha1r _ MA of do million larbtal� Mae Corcompensation,p., got do- imga39IAMbaae WashingtonMo. ON CEO harry to 3&41 million in bow pay cal i—l. ion however. severab of those executiveaire betterconspenzateddudhugMr thanMrBtendsel,im. Because Its recent Pak have been delayed an to the ace g flap. Freddie Mac hasn't disclosed mprc , recent Ccn"=Uam details, includng any special swe"MrMancee YOSW- day effidalt provided few details, a c* to say tau Mr. Glenn would receive bealth and mWemeat benefits, but so severance lade• Mr. Brrendeel woJid receive but also w�ohldMmeeive nprovided osevveranncce�the spokesman added. But he said that "should not be taken negatively- in )sir. Brendsel's case. Freddie Mac wouldn't comment at all on Mr. Clarke's situation. Contnbuted to this of 4e. 0=— �a ykSaJer—ftm• 1� of lhderd Hosift Enkypnue Ouewsot to Freddk MM to tore Onf lie Jbwwdl at wal w/aameeeaRleata �a aq mM haspW 'sqp W 81U *qpwq)o Rum 2N;ZW Ile 813W am pa +wrsmam r4us a4L I?oPaf Aa al mq 'sarMorl rn