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2012 03 14 IABP.O. Box 1504 LA QUINTA, CALIFORNIA 92247-1504 78-465 CALLE TAMPICO (760) 77,7-7000 LA QUINTA, CALIFORNIA 92253 FAX (760) 777-7101,f AGENDA INVESTMENT ADVISORY BOARD Caucus Room 78-495 Calls Tampico- La Quints, CA 92253 March 14, 2012 - 4:00 P.M. CALL TO ORDER a. Pledge of Allegiance b. Roll Call 11 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 February 8, 2012 forthe Investmen I t Ad viisory Board. V BUSINESS SESSION A. Transmittal of Treasury Report for January 2012 B. ..'Continued Consideration of Fiscal Year 2012/2013 Investment Policy and Work Plan Items VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report and other selected Financial Data FebrLiary 2012 B. Pooled Money Investment Board Reports - January 2012 C. Bond Money Maiket Funds VII BOARD MEMBER ITEMS Vill ADJOURNMENT PUBLIC NOTICES The La Quints Caucus Room is handicapped accessible. If special equivnitint is needed for the he I aring i I mpaited, please call the Finance Department at 777-7150, twenty-four (24) hours in advancR of the meeting and accommodations will be made. Any writings or document.3 provided to a majority of the Inveatment Advisory Board r"arding any item un this agenda 'will be made available for, public inspection at the Cky Clark counter at City HAII located at 78-495 Calla Tampico, Le Quints, CA 92253; during normal business hours. INVESTMENT ADVISORY BOARD Business Session: A Meeting Date: March 14, 2012 ITEM TITLE: Transmittal of Treasury Report for January 31, 2012 BACKGROUND: Attached please find the Treasury Report for January 31, 2012 RECOMMENDATION: Review, Receive and File the Treasury Report for January 31, 2012 John M. Falconer, Finance Director Treasurer's Commentary For the Month of January 2012 Cash Balances - The portfolio size increased by $17.78 million to end the month at $180.3 million. The major reason for the increase was the receipt of $20.2 million (versus $21.6 million in Jan 2011) in RDA property taxes. In addition, Major capital improvement expenditures were $269,000, including: $54,000 spent on the Adams Street Bridge Project, $34,000 spent on the Homewood Suites Transient Occupancy Tax Rebate, $66,000 spent on the Washington St dual left turn lane at Avenue 48 Project, and $85,000 spent on the Coral Mountain Apartment Project. During January no billings were received for the County of Riverside Sheriff contract. Investment Activity - The investment activity resulted in an average maturity decrease of twelve (12) days from the prior month to end the month of January at 74 days. The Treasurer follows a buy and hold investment policy with the purchase of four (4) investments in January to offset two (2) investments that matured. The Treasurer purchased three (3) commercial paper investments totaling $15 million during the month and one (1) Federal Home Loan Bank Discount Note totaling $9 million. The two (2) investments that matured were in Commercial Paper totaling $7 million. The sweep account earned $48 in interest income for the month of January and the bank fees for the month were $ 1,594 which resulted in a net decrease of $1,546 in real savings. Portfolio Performance - The overall portfolio performance was one (1) basis point lower than the prior month ending at .34% for the month, with the pooled cash investments at .45%. The portfolio yield should continue to stay at these levels for the near future. At this time last year, the portfolio was yielding .43% which reflects the current interest rate environment. Looking Ahead In the short term, the Treasurer will be investing in short term commercial paper or GSE paper. P14 M EMORAN D U N4 TO La Quinta City Council FROW John M. Falconer. Finance DirectorrFreasurer SUBJECT: Treasurer's Report for January 31, 2012 DATE. February 29, 2012 Attached is the Treasurer$ Report for the month ending January, 2012. 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 LAIF $ 39,150,985 $ 4.024,670 $ (3,200,000) (2) $ 39,975,653 824,668 Interest bearing active bank deposit 39,563,950 17,069 39,581,019 17,069 Certificates of Deposit 724,000 (2) 3,237 724,000 43,970,933 0 3,237 US Treasuries US Gov't Sponsored Enterprises 43.967,696 14,997.613 9,000,000 (2) 307 23.997.920 9,000,307 Commercial Paper 6,999,427 15,000,000 (2) (7,000,000) (2,890) 14,996,537 7,997,110 Corporate Notes Mutual Funds 16 2 11% R (2) 0 148.575)1 0 15,983 9(A 0 (148,575) Subtotal 1 153,;!� 0 $ 28,041,739 $ (10,200,000)1 S (147,923)1 $ 179,23206,06 �$17,693,816 Cash $ 979,796 1 (1) & f3t $ 78,123 1 $ 1,057,919 $ 78,123 1 9 9 Total 7,7N713 I I certify that thiSreport 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. John M 'a' Date " ance Di, Footnote (1) The amount reported represents the net increase (decrease) of deposits and withdrawals from the previous month. (2) The amount reported in the other column represents the amortization of premium/discount for the month on US Treasury, Commercial Paper and Agency investments. (3) The cash account may reflect a negative balance. This negative balance will be offset with transfers from other investments before warrants are presented for payment by the payee at the bank. 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Co 0 1 0��W� E v zi 0 0 0 0 E E www Z EV �E si� Z2 zzzz z z zt P z Em �E 3: E C u owl ag N c c �n , 5 E < < < A A A A — — — — — — — — — — - — — — — — — — — .gzz zzzzzzz z z is g g �2 ap at e e 6e 6R . ................... 1 E E E E E E E� < < < < < < — — — — - — — — — — — — — — — — — — - z z BEG. 10.281— E —0 m2m t, W wi =i 1-1 M 0 -6 E 0 E2 Q Q cl ct 0 0 16 CL 2, 2, 0 c a 0 0 0 c E E 0 I To i6 m .5.5.5 E E E 0 E E E > a > 0 0 0 W WD 0 0 m m E c Mo m m 0 LL 'o a E c 9 n > m c w c w T m z IL D Z 0 �i Ci ID Ct Ci 0 0 a 0 C; ai Ci ID ��t CL CL il. 0- m m .6.5 0 0 0 �565 000 a. a. a. cl E E E r 0 0 0 woo m 0 u 0 V z E U,z 0 o 0 E w > c c m U w E > > Eo 0 �m -ma c = c :2 0 EOCHS mR 0 E = a 0 0 LL LL LL 0 � a 0 E m 0 0 0 > , :5 c m > F -C (L FL ci E 0 Ps ox 12 I Ting j3 RM. 2-2 28�- Z-V V --------- ------- ------ - ---- ------ tR -8 g 2 - -as'-g vp 2 ;HHE 4.-, 9� --- ---- --- --- ------ - 0 -------- - ------ E as 12- -2P§'-n uss �R 2 2�!8;A 9 I;R —833&8,� .7*2a - - - - - - - - - - - - - E 9 9 t 3 a �-E.- E I T EZ'2 E"F :092--.2 z @M --,P- 21 Ms 0,93 72 59 _L Z5 9 �l 9 i E� City of La Quinta Compambve Rates of lotemst January 31,2012 City of La Quinta Counionamal Paper Then, Month Annualized EM, Average HaNate Pooled Cash I Fiscal oyam a Year Monte Wanly (days) Thre.Month &.M.nM OneYear TwoYearl N.-Faiancial LAW Rate 526% FY EMS July 2007 5,21% 4,90% 512% 129 4,840% Augui Sept2007 5A7% 5,16% 4,85% 486% 508% 506% 109 129 459% 400% 525% 523% 0ct2007 511% 4,85% 502% 116 395% 5 14% Day 2007 503% 483% 4,96% N 3,34% 496% Dec 2007 495% 343% 445% 123 339% 480% Jan 2008 4 58% 333% 422% 96 231% 462% Feb 2008 4,12% 324% 385% 86 207% 416% Mar2008 407% 2.03% 367% 74 150% 378% A,2008 345% 327% 341% 82 1 70% 340% Wy 2008 3 14% 327% 3.17% 63 192% 307% Jun. 2008 309% 1 94% 286% 80 214% 209% FY 08,09 Jet, 2008 299% 193% 277% 62 170% 188% 229% 275% 2 18% 279% Augu,12008 316% 192% 288% 51 169% 189% 2 14% 2 M% 208% 278% Supt2008 281% 192% 26,1% 37 142% 1 79% 1,96% 200% 2,13% 277% OC12008 266% 261% 261% 29 090% 140% 172% 1 50% 207% 2 71% No, 2008 2 38% 236% 236% 64 015% 049% 104% 125% 145% 2 57% Dec 2008 1.60% 0 18% 142% 116 005% 025% 059% 088% 097% 2 35% Jan 2009 136% 018% 123% 82 015% 0,35% 043% ON% 031% 205% Feb 2009 123% 0.18% 1 11% 75 030% 050% 061% 088% 048% 187% Mar2OO9 126% 018% 1.13% 69 020% 042% 070% 088% 037% 1,82% Apr2009 0 "% 018% 0,85% 54 031% 033% 059% 088% 028% 1,61% Wy 2009 092% 0 IB% 0,84% so a 10% 030% 053% 0,88% 0,23% 1.53% June 2009 0,85% 029% OOJm Ill 020% 035% 055% 113% 026% 138% FY 09110 July 2009 069% 030% 065% Ill 0,19% 028% 047% 1.0% 028% 104% Augus12009 0,64% 030% 061% 92 OA6% On% 0.46% IN% 024% 093% Seapi 056% 0,31% 053% 112 012% 0,19% 041% let 0 19% 075% Oct 200 0,52% 0,31% 050% BE 008% 019% On% 100% 019% 065% No, 2009 0.56% 0.31% 053% 152 004% 0,14% 032% 0,75% 015% 0,61% Dec 2009 0 56% 015% USI% 239 011% 020% 0.16% 100% 016% 057% Jan 2010 046% 0.15% 043% 179 006% 014% OM% 008% 013% 056% Feb 20 10 051% 0.16% 048% 162 013% 0.19% 032% 068% 0 IS% 056% W2010 OM% 016% 047% 172 015% 024% O,M% 100% 0 2D% 055% Apr20lO 052% OA6% 048% 162 015% 024% 049% 100% 023% 059% W,2010 052% 016% 048% 116 0 17% 022% 037% 075% 028% 056% June 2010 045% 003% 0�% 134 0 h3% 022% 032% 063% 032% 053% FY 10111 July 2010 050% 015% 047% ilf, 0 16% 020% 030% 063% 028% 053% August 20 10 049% 0,15% 0 413% 108 0 15% 019% 026% 038% 025% 051% Sept 2010 055% 015% 051% 107 0 16% OA9% 027% 038% 024% 050% COME 055% 015% 051% 88 0 13% 0 17% 023% 038% 023% 048% No,,2010 053% 015% 049% 84 0 18% 021% 028% 050% 023% 045% DB,c2010 057% 014% 052% 265 0 15% 019% 030% 063% 023% 046% Jan 2011 051% G,14% 043% 206 016% a 18% 028% 063% 024% 054% Feb 2011 055% 0 17% 046% 210 015% 0.17% 0.31% 063% 023% 051% Mar2011 0 5it% 0 17% 0,45% 218 005% 013% 026% 075% 023% 050% A, 2011 059% 0 17% 0,48% 192 005% 0 to% 028% 063% ON% 059% Elie, 2011 048% 0 17% 041% 156 006% 0 12% 020% 050% 016% 041% June 2011 053% 000% 0,35% 126 003% 010% 020% 038% 0 15% 045% FY M12 July 2011 0 53% 000% 035% 112 007% 012% 0 15% 020% 014% 038% August 2011 060% 000% 038% 102 002% 005% 010% 013% 016% 041% Sept 2011 058% 003% 039% 124 002% 006% 009% 013% 014% 038% Oct 2011 053% 003% 035% 117 001% 006% 012% 025% 015% 039% Noy2011 O�52% 003% 037% 94 003% 0,07% 010% 025% 014% 040% D 0,48% 003% 035% BE 002% ON% 011% 013% 014% 039% 10 CL 0 E g w CY cu 0 N ca IQ = CD CD C� 0 C) CD C) C) "� (9 U� 101. cl C'i C) im C� C> C) C, C� C; I I INVESTMENT ADVISORY BOARD Meeting Date: ITEM: March 14, 2012 Business Session: B Continued Consideration of Fiscal Year 2012/2013 Investment Policy and Work Plan Items BACKGROUND: The Investment Advisory Board has been reviewing the Investment Policy for final recommendation to the City Council in June 2012. Last month the Board discussed several areas of the Investment Policy as follows: Attachment 1. FMNA and Freddie Mac Attachment 2. State and Government Indebtedness Attachment 3. Maximum Maturity RECOMMENDATION: Continued review of the Investment Policy and Work Plan Items for approval by City Council in June 2012. kohnM. Falconler, —4-Finance —�D�irector NOTE: Please bring the attachments from last month's meeting for this item. ATTACHMENT 1 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 150% 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 Collateralization policies must be supplied to the City and retained by the City Treasurer as follows: A. Certificates of Deposits Insured by the FDIC: The City Treasurer may waive collateralization of a deposit that is federally insured. B. 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's Investment Policy limits the percentage of Certificates of Deposit to 60% of the portfolio. The City does not allow investments in CDAR's, or negotiable (secondary market) certificates of deposit. U.S. Treasury Bills, Notes, and Bonds and Government National Mortgage Associations (GNMA) securities — The City may invest in U.S. Treasury bills, notes, and bonds, and GNMA securities directly issued and backed by the full faith and credit of the U.S. Government. The City's Investment Policy limits investments in U.S. Treasury issues and GNMA's to 100% of the portfolio. �O The City's Investment Policy does not allow investments in state indebtedness. I 4. U.S. Government Agency Securities and Federal Government Securities — The City may invest in securities issued by U.S. Government instrumentalities and agencies (commoniv eterrea to as government sponsored enterprises or GSE's). These securities are )acked by the full faith and credit of the U.S. Government. PuRicly owned GSE's inc :ederal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corpon FHLMC) and Student Loan Marketing Association (SLMA). (F/U - Staff to check cui LangjLage)] Non -publicly owned GSE's include the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal Land Bank (FLB) and Federal Intermediate Credit Bank (FICB). The City's Investment Policy allows investment only in securities of FNMA, FHLMC, FHLB and FFCB. For Fiscal Year 2010/2011, the maximum face amount per issuer is $20 million for FNMA and FHLMC, $25 million for FHLB and $30 million for FFCB. In addition, no more than 30% of the portfolio surplus may be invested in all GSE's combined with a maximum $10 million face amount per purchase. Prime Commercial Paper - As authorized in Government Code Section 53601 (g), a portion of the City's portfolio may be invested in commercial paper of the highest rating (A-1 or P- 11 as rated by Moody's or Standard and Poor's. There are a number of other qualifications 10 OFFERING CIRCULAR AD, FannieMaj, Universal Debt Facility Debt Securities with maturities of one day or longer . Fannie Mae may offer an unlimited amount of Debt Securities with maturities of one day or longer from time to time under our Universal Debt Facility, including: Benchmark Billss Benchmark Bondso Benchmark Notesw Short -Term Notes Notes Bonds The Debt Securities will have various terms, as described in this Offering Circular and any applicable pricing supplement. You should read this Offering Circular and any applicable pricing supplement carefully before you invest. The Debt Securities, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than Fannie Mae. Neither the SEC nor any state securities commission has approved or disapproved these Debt Securities or determined if this Offering Circular, any Pricing Supplement, any Final Terms doc- ument, or any other supplement or amendment is truthful or complete. Any representation to the contrary is a criminal offense. An investment in the Debt Securities involves certain risks, and the Debt Securities may not be a suitable investment for all investors. See the "Risk Factors" beginning on page 10 of this Offering Circular for a discussion of certain risks that should be considered in connection with an investment in the Debt Securities. We may sell Debt Securities to or through one or more Dealers as principal or otherwise, or directly to institutional investors. We cannot assure you that there will be a secondary market for the Debt Securities or how liquid the market will be if one develops. We have made an application for certain of our Debt Securities issued under this Offering Circular to be listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF market. This Offering Circular replaces and supersedes the Offering Circular dated April 13, 2010 for issues pricing on or after April 18, 2011. The date of this Offering Circular is April 8, 2011. "Benchmark Bills", "Benchmark, Bonds" and "Benchmark Notes" are registered trademarks of Fannie Mae. 3 Offering Circular dated February 25, 2011 INFreddie Global Debt Facility �OMac Offered Securities: Debt Securities, including Medium -Term Notes and Discount Notes, among others. Reference Securitiessm: We will designate some Debt Securities as "Reference Securitiessm," which are scheduled U.S. dollar denominated issues in large principal amounts. Amount: Unlimited. Maturities: One day or longer, but not more than one year in the case of Reference BillsO securities and other Discount Notes. Offering Terms: We will offer the Debt Securities primarily through Dealers within the United States and internationally on the terms described in this Offering Circular and, except as to Reference Bills@ and other Discount Notes, related Pricing Supplements. Currencies: U.S. dollars or other currencies specified in the applicable Pricing Supplement. Priority: The Debt Securities will be unsecured general obligations of Freddie Mac. Tax Status: The Debt Securities are not tax-exempt. Non-U.S. Owners generally will be subject to United States federal income and withholding tax unless they establish an exemption. Form of Securities: U.S. dollar denominated Debt Securities: Book -entry (U.S. Federal Reserve Banks) or registered (global or definitive). Non-U.S. dollar denominated Debt Securities: Registered (global or definitive). We will provide you with a Pricing Supplement describing the specific terms, pricing information and other information for each issue of Debt Securities, except Reference Bills� and other Discount Notes. The Pricing Supplement for a specific issue of Debt Securities will supplement and may amend this Offering Circular with respect to that issue of Debt Securities. The applicable Pricing Supplement will describe whether principal is payable on the related issue of Debt Securities at maturity or periodically, whether the Debt Securities are redeemable prior to maturity, and whether interest is payable at a fixed or variable rate or if no interest is payable. Pursuant to the rules and regulations of the Luxembourg Stock Exchange, this Offering Circular and any related Pricing Supplement, respectively, should be deemed to constitute a base prospectus and final terms for the sole purpose of the application for admission to trading of Debt Securities on the Euro MTF Market. We may apply to have some Debt Securities issued under this Offering Circular admitted for trading on the Euro MTF Market and listed on the Official List of the Luxembourg Stock Exchange. Our application with the Euro MTF Market applies to Debt Securities issued within twelve months of the date of this Offering Circular. We may also issue unlisted Debt Securities and Debt Securities listed on other exchanges under this Facility. Some Debt Securities are complex financial instruments and may not be suitable investments for you. You should consider carefully the risk factors described beginning on page 14 of this Offering Circular and on page 39 of our Annual Report on Form 10-K for the year ended December 31, 2010. You should not purchase Debt Securities unless you understand and are able to bear these and any other applicable risks. You should purchase Debt Securities only if you understand the information contained in this Offering Circular, any Pricing Supplement for the Debt Securities you are considering purchas- ing and the documents that we incorporate by reference in this Offering Circular. Because of applicable U.S. securities law exemptions, we have not registered the Debt Securities with any U.S. federal or state securities commission. No U.S. securities commission has reviewed this Offering Circular. The Debt Securities are obligations of Freddie Mac only. The Debt Securities, including any interest or return of discount on the Debt Securities, are not guaranteed by, and are not debts or obligations of, the United States or any agency or instrumentality of the United States other than Freddie Mac. This Offering Circular may only be used for the purposes for which it has been published. The Index of Defined Terms (Appendix C) shows where definitions of defined terms appear in this Offering Circular. "Reference Securitiessm" is a service mark of Freddie Mac. "Reference BOW" is a registered trademark of Freddie Mac. U Palm Desert National CDAR Rates As of March 5, 2012 Term Percent 4 weeks 0.06 13 weeks 0.09 26 weeks 0.12 52 weeks 0.25 2 Years 0.43 3 Years 0.61 5 Years 1.16 ATTACHMENT 2 0 E 0 > 12 S2 E oi 0 0 Z.o 0 0 > 0 0 W 0 = 0 a > Z E E c c 0� > 0 t al� 0 E a -o m �-n 00 0 E 0 0 E Oc 0 oa- 20 00 a om < OE c '6 > § 2 '8 E 1 ow E M o P w �5 E E -0 tj 0 2 B 0 E M�� oc) �w co 2 0 z 4) 0 co 0 a F- 2 (9 0 . =Oc a 0 a 2 M Lo 16 0 cn �z 0 E < 0 6 'wo fA Sz 00 co a' 0 M .2 Z5 0 0 2L s E > 0 a .2 0 MO 0 E Oo 0 i E 0 0 �j E v 0 0 ow C) 0 0 0 0 o 0 00 > 0 M WOO 0 a X M M a X 0 a 0 O� 0- w 0 0 v > 2 0 M E w 0 tE E 0 E () .:E a 00 c E > 0 0 W M 0 W M 0 a < U) . '.0 M . 2 0 a 0 au Lo.2.2 W M W 0 60 0- = . m� , W M E M ? 0 - c C) rf 0 cc 00 0 SO M 0 0 E 0 Ms W 0 00 U) = o , 0 c 0 M WE zl E W-S o 0 0 -5 :2 0 E 'Z5 a I 0 r, M M o 8 0 - , = M M 0 c M a 2 0 0 r > c 0- C a 0 a 0 0 0 S 0 0 > Z5 - 0 > 0 > . . . W E a- 0 160 0 -0 e �L E.S SZ. 0 T "F, E c 0 .9'0 -6 OW < < W M > So 0 W 0 -6 0 En E E M 8 oi E - a M a M M W Tt x M 0.- 0 00 0 0 0 7FD 0 W.-6 0 M .6 1D E -Fe n -0, 0 E w 2 2:S 20 E O:E 0 0 , . W- 0 0 Z;5 M a E E � M -F, 0 0 a M M 0 0 '2 a 0 E 0 a '6 C M� .60 0 0 0 _� L -? D 02 0.� 0 � M M i� C6 M 2 Lo wu� We E 0 c2P, M E �,R I M 0 0,0 02 0 0 .0 . W - WO E 02 0 n c 00 0-6 Q ,2 0 -0 M 0 0 M am F- M 65 MM Q x 0 0 0 CL V 0 0 CL TV �A� �M�UIIA�IIL i�vuj�vai Page I of 6 1 53601. This section shall apply to a local agency that is a city, a district, or other local agency that does not pool money in deposits 6r investments with other local agencies, other than local agencies that have the same governing body. However, Section 53635 shall apply to all local agencies that pool money in deposits or investments with other local agencies that have separate governing bodies. The legislative body of a local agency having moneys in a sinking fund or moneys in its treasury not required for the immediate needs of the local agency may invest any portion of the moneys that it deems wise or expedient in those investments set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial advisers, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third -party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this section, "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement or securities lending agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment: (a) Bonds issued by the local agencyj including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. (d) Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. (e) Bonds, notes, warrants, or other evidences of indebtedness of a local agency within this state, including bonds payable solely out of the revenues from a revenue -producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. (f) Federal agency or United States gover=ent-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States gove=iment-sponsored enterprises. http://www.leginfo.ca.gov/cgi-binlwaisgate?WAISdoclD=07186026900+1+0+0&WAISaction=... 3/6/2012 7 WA13 IJOCUMCrlt 1WLr1CVd1 ragr / of 0 (g) Bankers' acceptances otherwise known as bills of exchange or time drafts that are drawn on and accepted by a commercial bank. Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40 percent of the agency's moneys that may be invested pursuant to this section. However, no more than 30 percent of the agency's moneys may be invested in the bankers' acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing moneys in its treasury in a manner authorized by the Municipal Utility District Act (Division 6 (commencing with Section 11501) of the Public Utilities Code). (h) Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or (2): (1) The entity meets the following criteria: (A) Is organized and operating in the United States as a general corporation. (B) Has total assets in excess of five hundred million dollars ($500,000,000). (C) Has debt other than commercial paper, if any, that is rated "A" or higher by an NRSRO. (2) The entity meets the following criteria: (A) Is organized within the United States as a special purpose corporation, trust, or limited liability company. (B) Has programwide credit enhancements including, but not limited to, overcollateralization, letters of credit, or a surety bond. (C) Has commercial paper that is rated "A-1" or higher, or the equivalent, by an NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25 percent of their moneys in eligible commercial paper. Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. Counties or a city and county may invest in commercial paper pursuant to the concentration limits in subdivision (a) of Section 53635. (i) Negotiable certificates of deposit issued by a nationally or state -chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state -licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30 percent of the agency's moneys that may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposit do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the moneys are prohibited from investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or a person with investment decisionmaking authority in the administrative office manager's office, budget office, auditor -controller's office, or treasurer's office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. http://www.leginfo.ca.gov/cgi-binlwaisgate?WAISdoclD=07186026900+1+0+0&WAISaction=... 3/6/2012 'S wAn L)ocumem xetrievai rage .3 01 0 (j) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending agreements of securities authorized by this section, as long as the agreements are subject to this subdivision, including the delivery requirements specified in this section. (2) Investments in repurchase agreements may be made, on an investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlie a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements or securities lending agreements may be utilized only when all of the following conditions are met: (A) The security to be sold using a reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale. (B) The total of all reverse repurchase agreements and securities lending agreements on investments owned by the local agency does not exceed 20 percent of the base value of the portfolio. (C) The agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. (D) Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty using a reverse repurchase agreement or securities lending agreement shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement or securities lending agreement, unless the reverse repurchase agreement or securities lending agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. (4) (A) Investments in reverse repurchase agreements, securities lending agreements, or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security may be made only upon prior approval of the governing body of the local agency and shall be made only with primary dealers of the Federal Reserve Bank of New York or with a nationally or state -chartered bank that has or has had a significant banking relationship with a local agency. (B) For purposes of this chapter, "significant banking relationship" means any of the following activities of a bank: (i) Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, warrants, notes, or other evidence of indebtedness. (ii) Financing of a local agency's activities. (iii) Acceptance of a local agency's securities or funds as deposits. (5) (A) "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical http://www.leg info.ca.gov/cgi-bin/waisgate?WAISdoclD=07186026900+1+0+0&WAISaction=... 3/6/2012 9 WAID VOCU111CHL nuLfluval ragr � V1 0 delivery, or by third -party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book -entry account may be used for book -entry delivery. (B) "Securities," for purposes of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. (E) For purposes of this section, the base value of the local agency's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements, securities lending agreements, or other similar borrowing methods. I (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. (k) Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated "A" or better by an NRSRO. Purchases of medium -term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's moneys that may be invested pursuant to this section. (1) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement or securities lending agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement or securities lending agreement may be 100 percent of the sales price if the securities are marked to market daily. (2) Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and http:Hwww.leginfo.ca.govlcgi-binlwaisgate?WAISdoclD=07186026900+1+0+0&WAISaction--... 3/6/2012 10 A ar,� � VL V obligations authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (5) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include commission that the companies may charge and shall not exceed 20 percent of the agency's moneys that may he invested pursuant to this section. However, no more than 10 percent of the agency's funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). (m) Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. (n) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (o) A mortgage passthrough security, collateralized mortgage obligation, mortqage-backed or other pay -through bond, equipment lease -backed certificate, consumer receivable passthrough certificate, or consumer receivable -backed bond of a maximum of five years' maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by an NRSRO and rated in a rating category of "AA" or its equivalent or better by an NRSRO. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus moneys that may be invested pursuant to this section. (p) Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obiigations authorized in subdivisions (a) to (o)f inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment http:llwww.leginfo.ca.govlcgi-binlwaisgate?WAISdoclD=07186026900+1+0+0&WAISactiorr—... 3/6/2012 11 rage f.) ot o adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. 1 (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (o), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 12 http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdoclD=07186026900+1 +O+O&WAI Saction=... 3/6/2012 ATTACHMENT 3 3. Yield A Risk -Based Market Rate Of Return The City's investment portfolio shall be structured with the objective of yielding a risk - based market rate of return throughout budgetary and economic cycles. Return on investment is less important than the safety and liquidity objectives described above. The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. The portfolio's rates of return will be influenced by several factors, including actions by the Federal Reserve Board, the marketplace, and overall economic perceptions and conditions. These factors will not affect yield during the securities' holding period because the City's buy -and -hold policy fixes the securities' yield at the time of purchase. As a basis for comparison only, the Treasurer's monthly reports will display the rates of return on the three-month Bill, six-month Bill, and one and two-year U.S. Treasury Note, comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Treasurer may use these or any other published rates of return that the Treasurer deems appropriate for comparison to the return on the City's investment p , ortfolio. V MAXIMUM MATURITIES It is the City's policy to hold securities and other investments until maturity, thus avoiding the risk of market value fluctuations with overall market interest rates. This buy -and -hold policy shall not prevent the sale of a security to minimize loss of principal when an issuer or backer suffers declining credit worthiness or when the liquidity needs of the City require that a security be sold. The buy -and -hold policy requires that the, City's investment portfolio be structured so that sufficient liquid funds are available from maturing investments and other sources to meet all reasonably -anticipated cash needs. To meet anticipated cash needs, it is essential that the Treasurer have reliable, diligently prepared cash flow projections. An - nually, the Treasurer shall project the amount of funds not expected to be disbursed within ten years. For FY 2011/20122012/2013, the amount of such funds is projected to be $30 million. Funds up to that amount may be invested in U.S. Treasury, notes and bonds Local Agency Obligations, and California Local Agency Obligations maturing between 3 and 0_pe _L ars. For all other funds', investments are limited to three years maximum maturity, with no more than 25% of Tnds invested in maturities exceed i ngtwoyears�and less than three years I . (Staff to f/up 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." 6 13 Permissible Investments and Limitations Maximum Maximum (See Appendix A for Additional Information) Allocation Maturity Restrictions Certificates of Deposit - FDIC insured $250,000, 60% Portfolio 3 Years including interest per institution U.S. Treasury Bills, Notes and Bonds, and Government National 100% Portfolio 3 Years <=$30,0000,000 maturing 3-10 Mortgage Association (GNMA) Securities Yrs. <=$30,0000,000 maturing 3-10 Local Agency Bonds/California Local Agency Obligations 100% Portfolio 10 Years Yrs. Long term "A. A2, A"or better U.S. Government Agency Securities and Federal Government Securities (except collateralized mortgage obligations (CMO's) or structured notes which contain embedded rate options): - Federal National Mortgage Association (FNMA) $20,000,000 3 Years - Federal Home Loan Bank Notes & Bonds (FHLB) $25,000,000 3 Years - Federal Farm Credit Bank (FFCB) $30,000,000 3 Years - Federal Home Loan Mortgage Corporation (FHLMC) $20,000,000 3 years Prime Commercial Paper including Temporary Liquidity Guarantee $5,000,000 per Program (TLGP) 16% Portfolio 90 Days issuer maximum. Local Agency Investment Fund (LAF) 30% Portfolio Current $40 million On Demand per account, Money market mutual funds regulated by the SEC that consist only of US lortfolio Current Maintain $1 per Treasury Securities or GSE's and maintain a par value of $1 per share 20% 1 On Demand share par value Corporate Notes 10% 3 Years $5,000,000 max per issuer AA rated or better Corporate Notes - Temporary Liquidity Guarantee Program (TLGP) 20% 3 Years $10,000,000 max per issuer, AA rated or better. Professionally Managed Account 10% 3 Years Requires City Council - Long -Term Scale S&P AAA, AA +, AA, AA-, A+, A Moody's Aaa, Aal, Aa2, Aa3, A 1, A2 Fitch AAA, AA +, AA, AA-, A+, A 1 Checking, Savings, and Sweep Accounts - The City will only maintain checking, savings, and sweep accounts with FDIC insured financial institutions. 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. In addition, the.Treasurer may investment in an interest bearing active deposit account as approved Government Code Section 53632. The deposit account must be collateralized with securities that are in accordance with Government Code Sections 53632.5(c). In addition the market value of the collateralized securities must be maintained in accordance with 53652 (a), and be held by a custodian in accordance with the requirements of Government Code Section 53656. The proposition of the City's share of the deposit account shall be determined in accordance with Government Code Section 53658. 14 and/or dollar limitations and, where applicable, through the bid process requirements. Permissible deposits and investments include, in general: 0, FDIC -insured Checking, Savings, and Sweep Accounts; ll� Collateralized Bank Deposits; 0- Certificates of Deposit; 1� U.S. Government Agency Securities and Federal Government Securities; 1� Prime Commercial Paper; 1� Local Agency Investment Fund (LAIF); 1� Money Market Mutual Funds; P, Corporate Notes; 1� Professionally Managed Accounts. The City's deposits and investments are generally limited to three years' maximum maturity. However, the projected amount of funds not expected to be disbursed within five years may be invested in U.S. Treasury notes and bonds maturing between three and five years. Additionally, funds may be invested for up to ten (10) years as further discussed in Section V. The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. As a basis for comparison only, the Treasurer's monthly report will display the rates of return on the three-month Bill, six-month Bill, and the one and two-year U.S. Treasury Note, comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Investment Policy shall be adopted by resolution of the La Quinta City Council on an annual basis. The Investment Policy will be adopted before the end of June of each year. This Executive Summary is only an overview of the City's Investment Policy. Reading this summary does not constitute a complete review, which can only be accomplished by reviewing all of the pages herein. 15 CITY OF LA QUINTA DRAFT Investment Policy Fiscal Year 2011/20122012/2013 Table of Contents Section i2piq page Executive Summary 2 General Purpose 4 Investment Policy 4 III Scope 4 IV Objectives 4 1� Safety of Principal 1� Provide Liquidity 1� Yield A Risk -Based Market Rate Of Return V Maximum Maturities 6 VI Prudence 6 VII Authority 7 Vill Ethics and Conflicts of Interest 7 IX Authorized Financial Dealers and Institutions 7 go. Broker/Dealers 1� Financial Institutions X Permissible Deposits and Investments 8 X1 Investment Pools 13 X11 Payment and Custody 13 XIII Interest Earning Distribution Policy 13 XIV Internal Controls and Independent Auditors 14 XV Reporting Standards 15 XVI Financial Assets and Investment Activity Not Subject to this Policy 15 XVII Jnvestment of Bond Proceeds 15 XIII Investment Advisory Board - City of La Quinta 16 XIX Investment Policy Adoption 16 Appendices 12p!q Page A Summary of Permissible Deposits and Investments 18 B City of La Quinta Municipal Code Ordinance 2.70 - Investment Advisory Board 20 C City of La Quinta Municipal Code Ordinance 3.08 - Investment of Moneys and Funds2l D Segregation of Major Investment Responsibilities 23 E Listing of Approved Financial Institutions 24 F Broker/Dealer Questionnaire and Certification 25 G Request for Proposal for Professional Portfolio Management Firm 29 H Permissible Investment Chart - Professional Portfolio Management Firm 35 1 Investment Management Process and Risk 36 J Glossary 37 1 CITY OF LA QUINTA Investment Policy Fiscal Year 2011 �20122012/2013 Executive Summary The general purpose of this Investment Policy is to provide the rules and standards that must be followed in administering the City of La Quinta's deposits and investments. The City's Investment Policy conforms to all state and local statutes and applies to all deposits and investments of the City of La Quinta, City of La Quinta Redevelopment Agency, and the City of La Quinta Financing and Housing Authorities (the"City"). It is the City's policy to deposit and invest public funds in a manner that shall provide: P, Safety of principal; I- Liquidity to meet all of the City's obligations and requirements that may be reasonably anticipated; A risk -based market rate of return. It is the City's policy to hold securities and other investments until maturity. This buy -and -hold policy shall not prevent the sale of a security to minimize loss of principal when an issuer or backer suffers declining credit worthiness or when the liquidity needs of the portfolio require that a security be sold. Authority to manage the City'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 Policy. The Treasurer shall establish and implement a systemof internal controls to accomplish the following objectives: I� Safeguard assets; 10 The orderly and efficient conduct of its business, including adherence to all City management policies; 1� Prevention or detection of errors and fraud; 1� The accuracy and completeness of accounting records; 0- Timely preparation of reliable financial information. The System of Internal Controls developed by the City Treasurer shall be reviewed annually by the independent auditors in connection with the annual audit of the City's Financial Statements. The City Manager, City Treasurer and city employees involved in the City's banking and investment process shall conduct the City's business in an ethical manner and refrain from any activity or relationship that may be, or have the appearance of, a conflict of interest. The City Treasurer maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions that provide investment services will be subject to City Council approval. The Treasurer will be permitted to invest only in the permissible deposits and investments described in Section X and Appendix A up to the specified maximum allowable percentages 2 and/or dollar limitations and, where applicable, through the bid process requirements. Permissible deposits and investments include, in general: ll� FDIC -insured Checking, Savings, and Sweep Accounts; 1� Collateralized Bank Deposits; 0, Certificates of Deposit; 0* U.S. Government Agency Securities and Federal Government Securities; 1� Prime Commercial Paper; 1� Local Agency Investment Fund (LAIF); 0- Money Market Mutual Funds; 1� Corporate Notes; b� Professionally Managed Accounts. The City's deposits and investments are generally limited to three years' maximum maturity. However, the projected amount of funds not expected to be disbursed within five years may be invested in U-.S—Treasury- bills, notes and bonds maturing between three and five years. Additionally, funds may be invested for up to ten (10) years as further discussed in Section V. The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. As a basis for comparison only, the Treasurer's monthly report will display the rates of return on the three-month Bill, six-month Bill, and the one and two-year U.S. Treasury Note, comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Investment Policy shall be adopted by resolution of the La Quinta City Council on an annual basis. The Investment Policy will be adopted before the end of June of each year. This Executive Summary is only an overview of the City's Investment Policy. Reading this summary does not constitute a complete review, which can only be accomplished by reviewing all of the pages herein. [CA City of La Quints Statement'of Investment Policy July 1, 20444qbLL 2012 through JUne-34D,2*14june 30, 2012 I Adopted by the City Council on June 21, 2014-2 GENERAL PURPOSE The general purpose of this document is to provide the rules and standards that must be followed in administering the City of La Quinta's deposits and investments. 11 INVESTMENT POLICY It is the policy of the City of La Quinta to deposit and invest public funds in a manner that shall provide: > Safety of principal; > Liquidity to meet all of the City's obligations and requirements that may be reasonably anticipated; > A risk -based market rate of return. The Investment Policy conforms to all State and local statutes governing the investment of public funds and sets forth the permissible deposits and investments of the City's funds and the limitations thereon. SCOPE Except as further detailed in Section XVII, this Investment Policy applies to all deposits and investments of the, City of La Quinta, City of La Quinta Redevelopment Agency and the City of La Quinta Financing and Housing Authorities (hereafter referred to in this document as the "City"). These funds are reported in the City's Comprehensive Annual Financial Report (CAFR) and include all funds within the following fund types:' General Special Revenue Capital Projects Debt Service Enterprise Internal Service ll� Trust and Agency 1� Any new fund types and fund(s) that may be created. IV OBJECTIVES The objectives of the City's investment activity, in order of priority and importance, are: 1. Safety of Principal Safety of principal is the foremost objective of the City's investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of principal of the overall portfolio in accordance with the permissible deposits and investments. The City shall endeavor to preserve its investment principal by making only permissible deposits and investments, undertaken in a controlled manner to minimize the possibility of loss or misappropriation through malfeasance or otherwise. Investments not backed by the full faith and credit of the United States Government shall be diversified by allocating assets between different types of permissible investments, maturities, and issuers as a means to mitigate credit risk and interest rate risk. A. Credit Risk is the risk of loss from the failure of the security issuer or backer. Credit risk may be mitigated by: lo. Limiting investments to investment grade securities as permitted in Section X; 1� Diversifying the issuers of the securities in the investment portfolio so that potential losses due to issuer failure or individual securities downgrades may be minimized. ' B. Interest Rate Risk is the risk that market values of securities in the portfolio will decline due to changes in general interest rates. Interest rate risk may be mitigated by: 1� 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 0, Investing operating funds primarily in shorter -term securities. C. Liquidity Risk is the risk that a security cannot be liquidated because of its unique features or structure or because it is thinly traded. Liquidity risk is not a material issue for the City's portfolio because of the permissible deposits and investments (see Section X) and because the City maintains a buy -and -hold policy and holds securities and other investments to maturity. A discussion of the City's investment process and risk is presented in Appendix 1. 2. Provide Liquidity The investment portfolio shall remain sufficiently liquid to meet all of the City's cash needs 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 needs cannot be anticipated the portfolio should be diversified and consist of securities with active secondary or resale markets. The City's policy is to hold securities and other investments to maturity. Accordingly, securities shall not be sold prior to maturity with the following exceptions: P. A security with declining credit quality can be sold early to minimize loss of principal; 10. Unanticipated liquidity needs of the portfolio require that one or more securities be sold. 61 3. Yield A Risk -Based Market Rate Of Return The City's investment portfolio shall be structured with the objective of yielding a risk - based market rate of return throughout budgetary and economic cycles. Return on investment is less important than the safety and liquidity objectives described above. The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. The portfolio's rates of return will be influenced by several factors, including actions by the Federal Reserve Board, the marketplace, and overall economic perceptions and conditions. These factors will not affect yield during the securities' holding period because the City's buy -and -hold policy fixes the securities' yield at the time of purchase. As a basis for comparison only, the Treasurer's monthly reports will display the rates of return on the three-month Bill, six-month Bill, and one and two-year U.S. Treasury Note, comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Treasurer may use these or any other published rates of return that the Treasurer deems appropriate for comparison to the return on the City's investment portfolio. V MAXIMUM MATURITIES It is the City's policy to hold securities and other investments until maturity, thus avoiding the risk of market value fluctuations with overall market interest rates. This buy -and -hold policy shall not prevent the sale of a security to minimize loss of principal when an.issuer or backer suffers declining credit worthiness or when the liquidity needs of the City require that a security be sold. The buy -and -hold policy requires that the City's investment portfolio be structured so that sufficient liquid funds are available from maturing investments and other sources to meet all reasonably -anticipated cash needs. To meet anticipated cash needs, it is essential that the Treasurer have reliable, diligently prepared cash flow projections. Annually, the Treasurer shall project the amount of funds not expected to be disbursed within ten years. For FY 201 V20! 22012/2013, the amount of such funds is projected to be $30 million. Funds up to that amount may be invested in U.S. Treasury, notes and bonds Local Agency Obligations, and California Local Agency Obligations maturing between 3 and 10 years. For all other funds, investments are limited to three years maximum maturity, with no more than 25% of surplus funds invested in maturities exceeding two years and less than three years. 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." 2.1 VII AUTHORITY Authority to manage the City's investment portfolio is derived from sections 35607 and 35608 of City Ordinance 3.08.010. Management responsibility for the investment program is delegated to the City Treasurer for a period of one year pursuant to the City Council's annual adoption of the Investment Policy. The City Treasurer shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include 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 his/her designee shall acknowledge in writing all purchases and sales of investments prior to their execution by the City Treasurer. Vill ETHICS AND CONFLICTS OF INTEREST The City Manager, City Treasurer and city employees involved in the City's banking and investment process shall conduct the City's business in an ethical manner and refrain from any activity or relationship that may be, or have the appearance of, a conflict of interest. Any questionable activity or relationship shall be reported immediately and in compliance with the procedures set forth in Section 1.40 - Conflicts of Interest and Acceptance of Gifts and other Gratuities of the City of La Quinta Personnel Manual. Reporting must be made in accordance with the personnel policies of the City and, until resolved, the officer or employee shall refrain from participating in the City's business related to the matter. The City Manager, City Treasurer and city employees may conduct personal business with banks, brokers, and other financial institutions that are authorized to conduct business with the City provided that the terms of the activity to the accountholder with the City are the same as those that are available to the public in general. IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City Treasurer maintains a listing of financial institutions which are approved for direct 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. Broker/Dealers who desire to become bidders for direct investment transactions must supply the City with the following: 1� Current audited financial statements; b� Proof of Financial Industry Regulatory Authority (FINRA) Certification; No. Trading resolution; 10 Proof of California registration; 1� Resume of Financial broker; and 1� Completion of the City of La Quinta Broker/Dealer questionnaire (see Appendix F) which contains a certification of having read the City's Investment Policy. KF 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: Financial Industry Regulatory Authority (FINRA) Public Disclosure Report File (1- 800-289-9999). State of California Department of Corporations 0 -916-445-3062). The City Treasurer maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions that provide investment services will be subject to City Council approval. 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 (see Appendix E, "Listing of Approved Financial Institutions"): 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 the City's deposits or investments not insured by the FDIC —shall be collateralized by securities with market values of I 10%, or by mortgages with market values 150%, of the 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 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 collateralization in public monies. X PERMISSIBLE DEPOSITS AND INVESTMENTS Permissible deposits and investments are summarized below. A more comprehensive list is included in Appendix A. Permissible Investments and Limitations (See Appendix A for Additional Information) Maximum Allocation Maximum Maturity Restrictions Checking & Savings Accounts FDIC Insured & Sweep Accounts 85% Portfolio current / Sweep Account: U.S. Treasuries On Demand and/or GSE's Interest bearing active bank deposits — non FDIC insured collateralized by 60% Portfolio Current 1 $40 million 110% of eligible securities On Demand per bank N Permissible Investments and Limitations Maximum maximum (See Appendix A for Additional Information) Allocation Maturity Restrictions Certificates of Deposit - FDIC Insured $250,000, 60% Portfolio 3 Years including interest per institution U.S. Treasury Bills, Notes and Bonds, and Government National 100% Portrolio 3 Years <430.00D0,000 maturing 3-10 Mortgage Association (GNMA) Securities Yrs. —$30,0000,000 maturing 3-10 Local Agency Bonds/California Local Agency Obligations 100% Portfolio 10 Years Yrs. Long term 'A, A2, A* or better U.S. Government Agency Securities and Federal Government Securities (except collateralized mortgage obligations (CMO's) or structured notes which contain embedded rate options): - Federal National Mortgage Association (FNMA) $20,000,000 3 Years - Federal Home Loan Bank Notes & Bonds (FHLB) $25,000,000 3 Years - Federal Farm Credit Bank FFCB) $30,000,000 3 Years - Federal Home Loan Mortgage Corporation FHLMC) $20,000.000 3 years Prime Commercial Paper including Temporary Liquidity Guarantee $5,000,000 per Program (TLGP) 15% Portfolio 90 Days issuer maximum. Local Agency Investment Fund (LAIF) 30% Portfolio Current $40 million On Demand per account. Money market mutual funds regulated by the SEC that consist only of US 20% Portfolio Current Maintain $1 per Treasury Securities or GSE's and maintain a par value of $1 per share On Demand share par value Corporate Notes 10% 3 Years $5,000,000 max perissuerAA rated or better Corporate Notes - Temporary Liquidity Guarantee Program (TLGP) 20% 3 Years $10,000,ODO max per issuer, AA rated or better. Professionally Managed Account 100/6 3 Years Re res quires Ity qui CiRty"Council- C C ou cil =pved A pro IRFP Long -Term Scale S&P AAA, AA +, AA, AA-, A +, A Moody's Aaa, Aal, Aa2, Aa3, Al, A2 Fitch AAA, AA +, AA, AA-, A+, A 1 Checking, Savings, and Sweep Accounts - The City will only maintain checking, savings, and sweep accounts with FDIC insured financial institutions. 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. In addition, the Treasurer may investment in an interest bearing active deposit account as approved Government Code Section 53632. The deposit account must be collateralized with securities that are in accordance with Government Code Sections 53632.5(c). In addition the market value of the collateralized securities must be maintained in accordance with 53652 (a), and be held by a custodian in accordance with the requirements of Government Code Section 53656. The proposition of the City's share of the deposit account shall be determined in accordance with Government Code Section 53658. '41 2. 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 150% 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. Collateralization 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 Collateralization policies must be supplied to the City and retained by the City Treasurer as follows: A. Certificates of Deposits Insured by the FDIC: The City Treasurer may waive collateralization of a deposit that is federally insured. B. 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's Investment Policy limits the percentage of Certificates of Deposit to 60% of the portfolio. > The City does not allow investments in CDAR's, or negotiable (secondary market) certificates of deposit. 3. U.S. Treasury Bills, Notes, and Bonds and Government National Mortqaqe Associations (GNMA) securities - The City may invest in U.S. Treasury bills, notes, and bonds, and GNMA securities directly issued and backed by the full faith and credit of the U.S. Government. The City's Investment Policy limits investments in U.S. Treasury issues and GNMA's to 100% of the portfolio. > The City's Investment Policy does not allow investments in state indebtedness. 4. U.S. Government Agency Securities and Federal Government Securities - The City may invest in securities issued by U.S. Government instrumentalities and agencies (commonly referred to as government sponsored enterprises or GSE's). These securities are not backed by the full faith and credit of the U.S. Government. Publicly owned GSE's include Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Student Loan Marketing Association (SLMA). Non -publicly owned GSE's include the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank IFFCB), Federal Land Bank (FLB) and Federal Intermediate Credit Bank IFICB). The City's Investment Policy allows investment only in securities of FNMA, FHLMC, FHLB and FFCB. For Fiscal Year 2010/2011, the maximum face amount per issuer is $20 million for FNMA and FHLMC, $25 million for FHLB and $30 million for FFCB. In addition, no more than 30% of the portfolio surplus may be invested in all GSE's combined with a maximum $ 10 million face amount per purchase. 5. Prime Commercial Paper - As authorized in Government Code Section 53601 (g), a portion of the City's 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. There are a number of other qualifications 10 regarding investments in commercial paper based on the financial strength of the corporation and the size of the investment. The City's Investment Policy permits investments in commercial paper with the following limitations: A. Maximum 15% of the portfolio. B. Maximum maturity of 90 days. C. Maximum of $5 million per issuer. These limitations are more restrictive than the State code allowed amounts of 25% of the total portfolio with maturities up to 270 days with no per -issuer limitations. The City is also permitted to invest in commercial paper issued under the FDIC Temporary Liquidity Guarantee Program subject to the aforementioned commercial paper limitations. 6. 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 $50 million per account in this investment program administered by the California State Treasurer. The City Treasurer may not invest more than $40 million per account in LAIR The City's investment in LAW 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 has two accounts with LAW and limits investment to 30% of the portfolio. 7. Money Market Mutual Funds - 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's Investment Policy only allows investments in mutual funds that are money market funds maintaining a par value of $1 per share that invest 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. 8. Corporate Notes - As authorized in Government Code Section 53601 (j), local agencies may invest in corporate notes. 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's Investment Policy allows investment in corporate notes authorized by the Government Code with the following limitations: 101 Maturities shall not exceed three years from date of purchase. ll� Eligible notes shall be regularly quoted and traded in the marketplace. 10. Eligible notes shall be rated "Wor better. ll� Total investment shall not exceed 10% of the portfolio for non- Temporary Liquidity Guarantee Program (TLGP) Corporate Notes and 20% of the portfolio for 11 TLGP Corporate Notes, and The maximum aggregate investment shall not exceed $5 million face amount for each issuer. This is more restrictive than the State code allowed amounts of 30% of the total portfolio with maturities up to five years with no per -issuer limitations. The City is also permitted to invest in corporate notes issued under the FDIC Temporary Liquidity Guarantee Program subject to the aforementioned corporate note limitations, except that corporate notes issued under the Temporary Liquidity Guarantee Program or otherwise backed by the United States government shall be limited to 20% of the portfolio and the maximum aggregate investment for such notes shall not exceed $10 million face amount for each issuer. Professionally Managed Account(s) - The City Treasurer may place up to 10% of the portfolio with a professional portfolio management firm ("PPMV). The PPMF will be approved by the City Council based upon the City Treasurer's recommendation pursuant to completion of a request for proposal (RFP) as outlined in Appendix G. The PPMF shall have: (a) An established professional reputation for asset or investment management; (b) Knowledge and working familiarity with State and Federal laws governing and restricting the investment of public funds; (c) Substantial experience providing investment management services to local public agencies whose investment policies and portfolio size are similar to those of the City; (d) Professional liability (errors and omissions) insurance and fidelity bonding in such amounts as are required by the City; (e) Registration with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Before engagement by the City and except as may be specifically waived or revised, the PPMF shall commit to adhere to the provisions of the City's Investment Policy with the following exceptions: (f) The PPMF may be granted the discretion to purchase and sell investment securities in accordance with Appendix I of this Investment Policy; (g) The PPMF is not required to adhere to the buy -and -hold policy of the City's Investment Policy, and; (h) The PPMF does not need City Manager or City Treasurer approval to make permissible investments as detailed in column 8 of Appendix H of this Investment Policy. 10. Local Agency Bonds and California Local Agency Obligations — The City may invest in California local agency obligations pursuant to 56301 (a) and 53301 (a). 53601 (a) pertains to investing in bonds issued by a local agency, department, board, agency or authority of the local agency. 53601 (a) pertains to investing in bonds and other defined indebtedness of a local agency or department, board, agency or authority of the local agency within the State of California. The City's Investment Policy limits investments in Local Agency Bonds and California Local Agency obligations to 30% of the portfolio with up to a ten year maximum maturity. In addition, the Agency obligations must be invested in the long term rating of A, A2, A or better by S&P, Moody's or Fitch. 12 In the case of an initial public offering, including refinancings, the Treasurer may purchase directly f rom the Bond Underwriter. If the case of secondary issues, the Treasurer will rely on the approved Broker/Dealers. X1 INVESTMENT POOLS There are three (3) types of investment pools: O� State -run pools (e.g., LAIF); 0, Pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee (e.g., County Pools); 0- Pools that are operated for profit by third parties. The City's Investment Policy permits investment o�ly in pools authorized in Section X. X11 PAYMENT AND CUSTODY The City shall engage qualified third party custodians to act in a fiduciary capacity to maintain appropriate evidence of the City's ownership of securities and other eligible investments. Such custodians shall disburse funds, received from the City for a purchase, to the broker, dealer or seller only after receiving evidence that theCity has legal, record ownership of the securities. Even though ownership is evidenced in book -entry form rather than by actual certificates, this procedure is commonly accepted as the delivery versus payment (DVP) method for the transfer of securities. XIII INTEREST EARNING DISTRIBUTION POLICY Interest earnings are generated from pooled investments and specific investments. i 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 and Housing Authorities 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. 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. 13 XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR The City Treasurer shall establish a system of internal controls to accomplish the following objectives: ll� Safeguard assets; ll� The orderly and efficient conduct of its business, including adherence to management policies; li� Prevention or detection of errors and fraud; 1� The accuracy and completeness of accounting records; and I� 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: Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. 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. 3. 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. 4. 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. 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. Written confirmation or teleDhone transactions for investments and wire transfers. Dueto the potential for error and improprieties arising from telephone transactions, all telephone transactions shall be supported by written communications or electronic confirmations 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. 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's Financial Statements. liV The independent auditor's letter on internal control over financial reporting and compliance as it pertains 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 auditor's letter, as it pertains, 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. See Appendix D, "Segregation of Major Investment Responsibilities." XV REPORTING STANDARDS 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 Treasurer's Report shall summarize cash and investment activity and changes in balances and include the following: A certification by the City Treasurer. A listing of purchases and sales/maturities of investments. Cash and Investments categorized by authorized investments, except for LAIF, which will be provided quarterly and show yield and maturity. 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 year to date historical cash flow analysis and projection for the next six months. A two-year list of historical interest rates. XVI FINANCIAL ASSETS AND INVESTMENT ACTIVITY NOT SUBJECT TO THIS POLICY The City's Investment Policy does not apply to the following: P. Cash and Investments raised from Conduit Debt Financing; 01 Funds held in trust in the City's name in pension or other post -retirement benefit programs; P. Cash and Investments held in lieu of retention by banks or other financial institutions for construction projects; 1� Short or long term loans made to other entities by the City or Agency; and Short term (Due to/from) or long term (Advances from/to) obligations made either between the City and its funds or between the City and Agency. XVII 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. 15 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. These 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. XVIII INVESTMENT AUVISORY BOARD - CITY OF LA QUINTA The Investment Advisory Board (IAB) is a standing board composed of five members from the public that are appointed by the City Council. Background information will be requested and potential candidates must agree to a background check and verification. 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. All board members shall report annually to the City Clerk on Form 700, Statement of Economic Interests, any activities, interests, or relationships that may be, or have the appearance of, a conflict of interest. The IAB must meet at least quarterly, but usually meets monthly, to: I Review at least annually the City's Investment Policy and recommend appropriate changes; 2. 3. Review monthly treasury report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; 4. Receive and consider other reports provided by the City Treasurer; 5. 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; 6. 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 IAB will report to the City Council after each meeting either in person or through correspondence at a regular City Council meeting. See Appendix B: "Investment Advisory Board Provisions." XIX INVESTMENT POLICY ADOPTION The City's Investment Policy will be reviewed annually by the City's Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment Policy with any revisions to the City Manager and City Attorney for their review and comment. A joint 16 meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City Treasurer to review the Investment Policy and any comments prior to submission to the City Council for their consideration. 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E E e 0 c -E 0 E M 0' � V 0 E a 8 a; E 0 am- M '83. m a 2 z 0. v ;5 E a 8 — x , C 0 M-. a a = - I .. a 0.8 0 E ow t: US o U M;' .2 w 7B Z � IP R E a:@ 0 c Z 0 'Z a a E r� o j a M E 0 .2 mm ,g:E C CM c E f D �W 7i L 0 me 8 a I - C :2 0 m M 0 c E a 0 0 Zmm 0 MM Cc I 2 0 M a a OM 0 0= a E a m a 0 V U* a 0 Ll 0 = a m a E 0 LD 0 2.9 woo m a a a a �o 3 a 0 a 16 0 § 0 w 0 w Appendix B City of La Quinta Municipal Code 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 (themboard") is a standing board composed of five (5) members from the public that are appointed by city council. C. Applicants for the board should have a background in finance, preferably with knowledge and/or experience in markets, controls and accounting for securities. Background information will be requested 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. E. To promote continuity, the expiration of the terms of the members of the board shall be staggered. The term of service is three years, with one or two terms expiring each year. 2.70.020 Board 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. 2.70.030 Board functions. A. 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. B. The Board will report to the City Council after each meeting either in person or through correspondence at a regular City Council meeting. 20 Appendix C City of La Quinta Municipal Code 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 cancelled 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 resold. (Ord. 2 § 1 (part), 1982) 21 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) "j, SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Develop and Recommend Modifications to City's Formal Investment Policy Review City's Investment Policy and Recommend City Council Action Adopt Formal Investment Policy Implement Formal Investment Policy Review Financial Institutions & Select Investments Acknowledge Investment Selections Execute Investment transactions Confirm Wires (if applicable) 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 10*3 Appendix D Responsible Parties Investment Advisory Board and City Treasurer City Manager and City Attorney City Council City Treasurer City Treasurer City Manager or his/her designee City Treasurer or City Manager Accounting Manager or Financial Services Assistant Accounting Manager or Financial Services Assistant City Treasurer and Financial Services Assistant Financial Services Assistant Accounting Manager Accounting Manager or Senior Secretary Third Party Custodian External Auditor Appendix E LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services Wells Fargo Bank, Government Services, Los Angeles, CA (Banking Services) Rabobank N.A., Government Banking Group, Roseville, CA (Collateralized Bank Deposits) 2. Custodian Services Bank of New York/Mellon, Los Angeles, CA 3. Deferred Compensation International City/County Management Association Retirement Corporation 4. Broker/Dealer Services Banc of America Securities/ Merrill Lynch, San Francisco, CA Morgan Stanley, San Rafael, CA CitiGroup, Costa Mesa, CA 5. Government Pool State of California Local Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency Account 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 1998 RDA Project Area 1 &2 - US Bank 2001 RDA Project Area 1 - US Bank 2002 RDA Project Area 1 - US Bank 2003 RDA Project Area 1 - US Bank 2011 RDA Project Area 2 - US Bank 2011 Fin Auth Housing 1 &2 - US Bank Assessment Districts - US Bank No Changes to this listing may be made without City Council approval 24 Appendix F BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1 . Name of Firm: 2. Address: 3. Telephone: I I 4. Broker's Representative to the City (attach resume): Title: Telephone: 5. Manager/Partner-in-charge (attach resume): Name: 1.1 7 up Telephone: List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Telephone: Which of the above personnel have read the City's Investment Policy? Which instruments are offered regularly by your local office? (Must equal 100%) % U.S. Treasuries % BA's % Commercial Paper % CD's % Mutual Funds —% Agencies (specify): % Repos % Reverse Repos % CMO's % Derivatives • Stocks/Equities • Other (specify): 9. References -- Please identify your most directly comparable public sector clients in our geographical area. Entity Entity 25 Contact Telephone Client Since 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. 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. 12, Has a client ever claimed in writing that you 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 If yes, please provide action taken Do you have any current or pending complaints that are unreported to FINRA? Yes No_ If yes, please provide action taken Does your firm have any current, or pending complaints that are unreported to FINRA? Yes No_ If yes, please provide action taken 13. Explain your clearing and safekeeping procedures, custody and delivery process. Who audits these fiduciary responsibilities?_ 26 Latest Audit Report 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? 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 FINRA/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: No- Latest audited financial statements. 1� Samples of reports, transaction confirmations and any other research/publications the City will receive. 1� Samples of research reports and/or publications that your firm regularly provides to clients. 1� Complete schedule of fees and charges for various transactions. 27 ***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 precl ' ude imprudent investment activities arising out of transactions conducted between our firm and the City of La Quinta. All sales personnel will be routinely info . rmed 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. Broker Representative Date Title Sales Manager and/or Managing Partner* NE Appendix G Request for Proposals Professional Portfolio Management Firm City of La Quinta, CA The City of La Quinta, CA is soliciting Requests for Proposals (RFP) from interested firms for the provision of a discretionary investment management services for City of La Quinta, CA. The portfolio to be managed of the invested assets is will be approximately 10% of the City's investment portfolio and will be invested between 0 — 3 years. The investment of City of La Quinta, CA's funds is guided by the applicable State statutes and the City of La Quinta, CA's investment policy. A copy of the investment policy is attached for your information. Questions regarding this RFP should be directed to: Name: Title: City of: Address: City, State, Zip Code: Phone Number: John M. Falconer Finance Director/Treasurer La Quinta, CA P.O. Box 1504 La Quinta, CA 92247-1504 (760)777-7150 1. CRITERIA FOR EVALUATION AND SELECTION • Experience of the firm in providing services to public sector entities of similar size and with similar investment objectives; • Professional experience and qualifications of the individuals assigned to the account; • Portfolio management resources, investment philosophy and approach; • Responsiveness to the RFP, communicating an understanding of the overall program and services required; • Reporting capabilities; • Fees. 11. SELECTION TIMETABLE A. [Month, Day and Year] Proposals due by [Time] PST. B. (Month, Day and Year] Proposals evaluated: to be determined C. [Month, Day and Year] [City of La Quinta, CA] [Board/Council] approves selection and awards contract. Ill. FORMAT FOR PROPOSALS Please format your response to this RFP in the following manner: A. Organization 29 1 Describe your organization, date founded, ownership and other business affiliations. Provide number and location of affiliated offices. Specify the number of years your organization has provided investment management service. 2. Describe your firm's revenue sources (e.g., investment management, institutional research, etc.) and comment on your firm's financial condition. 3. Within the past three years, have there been any significant developments in your organization (e.g., changes in ownership, new business ventures)? Do you expect any changes in the near future? 4. Describe any U.S. Securities and Exchange Commission (SEC) censures or litigation involving your organization, any officer, or employee at any time in the last ten years. 5. Describe the firm's fiduciary liability and/or errors and omissions insurance coverage. Include dollar amount of coverage. B. Personnel Identify the number of professionals employed by your firm by classification. 2. Provide an organization chart showing function, positions, and titles of all the professionals in your organization. 3. Provide biographical information on investment professionals that will be involved in the decision -making process for our portfolio, including number of years at your firm. Identify the person who will be the primary portfolio manager assigned to the account. 4. Describe your firm's compensation policies for investment professionals and , address any incentive compensation programs. C. Assets Under Management 1. Summarize your institutional investment management asset totals by category for your latest reporting period in the following table: Other Restrictive Number Operating Funds Number of Funds of Clients Clients Governmental $ $ Governmental Pension Non Governmental Pension V V 30 N/A N/A N/A N/A Corporate High Net Worth Client Endowmental/Foun- dation 2. N E N/A N/A N/A N/A N/A N/A Provide the number of separate accounts whose portfolios consist of operating funds. 3. List in the following table the percentage by market value of aggregate assets under all governmental accounts under management for your latest reporting period: Type of Asset U.S. Treasury securities Federal Agency obligations Corporate securities rated AAA -AA Corporate securities rated A Corporate securities rated BBB or lower Other (specify_ Percent by Market Value 4. Describe the procedures that your firm has in place to address the potential or actual credit downgrade of an issuer and to disclose and advise a client of the situation. 5. Provide data on account/asset growth over the past five years. Indicate the number of government accounts gained and the number of government accounts lost. 6. List your five governmental largest clients. Identify those that are exclusively operating fund relationships and/or those that are other relationships (e.g., bond fund, retirement fund). 7. Provide a copy of the firm's Form ADV, Parts I and 11 (including all schedules). 8. Provide proof of State of California Registration, if your firm is not eligible for SEC registration. 9. Provide a sample contract for services. 31 D. Philosophy/Approach Describe your firm's investment philosophy for public clients, including your firm's philosophy regarding average duration, maturity, investment types, credit quality, and yield. 2. Describe in detail your investment process, as you would apply it to City of La Quinta, CA's portfolio. 3. What are the primary strategies for adding value to portfolios? 4. Describe the process you would recommend for establishing the investment objectives and constraints for this account. 5. Describe in detail your process of credit risk management, including how you analyze credit quality, monitor credits on an ongoing basis, and report credit to governmental accounts. 6. Describe your firm's trading methodology. 7. Describe your firm's decision -making process in terms of structure, committees, membership, meeting frequency, responsibilities, integration of research ideas, and portfolio management. 8. Describe your research capabilities as they would pertain to governmental accounts. What types of analysis do you use? 9. Describe the firm's approach to managing relationships with the broker -dealer community. E. Portfolio Management 1. Are portfolios managed by teams or by one individual? 2. What is the average number of accounts handled per manager? 3. Which professional staff member will be the primary client contact for City of La Quinta, CA? 4. How frequently are you willing to meet with us? 1 5. Describe procedures used to ensure that portfolios comply with client investment objectives, policies, and bond resolutions. F. Fees Charged 1 . Please include a copy of your firm's fee schedule applicable to this RFP. 2. Identify any expenses that would not be covered through this fee structure and would be required in order to implement the firm's program. 32 3. Is there a minimum annual fee? G. Performance Reporting 1 . Please report on all accounts under $100 million. 2. Please provide performance history for governmental accounts for the last five years. 3. Please provide risk measurements for governmental accounts for the last five years. 4. Indicate whether your returns are calculated and compiled in accordance with the Association for Investment Management and Research (AIMR/CFA Institute) standards. Do your reports conform to the State of California reporting standards? Are you willing to customize your reports to meet our specifications? 6. How will you notify us of investment transactions? 7. Are confirmations of investment transactions sent directly by the broker/dealer to the client? 8. Do your reports include rating information on investments which is required by GASB 40? H. References Provide a list of at least five (5) client references in California. References should be public agencies with portfolio size and investment objectives similar to City of La Quinta, CA. Include length of time managing the assets, contact name, and phone number. 1. Insurance Requirements Exhibit A defines the insurance requirements that will need to be met prior to the [Board/Council]'s approval of any agreement for services. J. Submittal of proposals I Seven (7) copies of the proposal shall be submitted in a sealed envelope bearing the caption RFP for (City of La Quinta, CA) and addressed to: City of La Quinta, CA P.O. Box 1504 La Quinta, CA 92247-1504 Attention: John Falconer, Finance Director/Treasurer 2. Proposal must be received no later than [Time] PST on [Month, Day, and Year]. 33 3. Proposals should be verified before submission. The City of La Quinta, CA shall not be responsible for errors or omissions on the part of the respondent in preparation of a proposal. The City of La Quinta, CA reserves the right to reject any and all proposals, to wave any irregularities, or informalities in the proposals, and to negotiate modifications to any proposal. Enclosures: Investment Policy Treasurers Report 34 --i P-1 CL CL al U. a) E 0 cc 2 0 0 0 (L .2 U) 0 0- I t: E > j 0.� CILD a a 0 q� R a 0 UZ IL , 'a 0 0 0 0 0 0 0 0 1c 0 zzzzzzz�!>T>l?>T,>T z IL o o o o o o o o o o z z z z z z z z z z z 0 Sm 0 LL < 0 0 0 0 0 0 0 0 0 0 0 0 0 CL 0 0 3 z z z z z z z z z z z z z z z .2 .2 i i 0 a 0 a 0 E 0 E .0 15 16 10 IL Sl 0 0 0 0 0 w 0 0 0 0 g a 'o 0 'o 0 0 0 a 0 0 0 0 G G 0 z z z z z z N z z z z z z E <:3 16 12 L, L N N z o.?O000 z z >- z z >9 >! a >T Zo >T >T o E 0 E 0 a 0 J? 2 RD 00 M v c 0 42 a 0 CO m 0 0 2 < g b o c IL z 2 E c W m t a Eo E -6 oc La M U) CO) D E E A a a z 5 o P ff 5 0 3 O-S a m 0 L 0 0 0-0 m C a — SS2 S S E 29 R A 29 m 91 2 E .2 0 0 46 0 U) E 2 Lp 0 0 0 IL 0. g � iTL E E.2 E 0 00 !� �p we IS (L 0 z LO CV) Appendix I Investment Management Process and Risk Except as provided for in Section 27000.3, Government Code Section 53600.3 declares as a trustee each person, treasurer, or governing body authorized to make investment decisions on behalf of local agencies. As trustees are subject to the prudent investor standard. These persons shall act with care, skill, prudence, and diligence under the circumstances then prevailing when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds. Section 53600.5 further stipulates that the primary objective of any person investing public funds is to safeguard principal; secondly, to meet liquidity needs of the depositor; and lastly, to achieve a return or yield on invested funds (Government Code Section 27000.5 specifies the same objectives for county treasurers and board of supervisors). Risk is inherent throughout the investment process. There is investment risk associated with any investment activity and opportunity risk related to inactivity. Market risk is derived from exposure to overall changes in the general level of interest rates while credit risk is the risk of loss due to the failure of the insurer of a security. The market value of a security varies inversely with the level of interest rates. If an investor is required to sell an investment with a five percent yield in a comparable seven percent rate environment, that security will be sold at a loss. The magnitude of that loss will depend on the amount of time until maturity. Purchasing certain allowable securities with a maturity of greater than five years requires approval of the governing board (see Government Code. Section 53601). Part of that approval process involves assessing and disclosing the risk and possible volatility of longer -term investments Another element of market risk is liquidity risk. Instruments with unique call features or special structures, or those issued by little known companies, are examples of "story bonds" and are often thinly traded. Their uniqueness often makes finding prospective buyers in a secondary market more difficult and, consequently, the securities' marketability and price are discounted. However, under certain market conditions, gains are also possible with these types of securities. Default risk represents the possibility that the borrower may be unable to repay the obligation as scheduled. Generally, securities issued by the federal government and its agencies are considered the most secure, while securities issued by private corporations or negotiable certificates of deposit issued by commercial banks have a greater degree of risk. Securities with additional credit enhancements, such as bankers acceptances, collateralized repurchase agreements and collateralized bank deposits are somewhere between the two on the risk spectrum. The vast majority of portfolios are managed within a buy and hold policy. Investments are purchased with the intent and capacity to hold that security until maturity. At times, market forces or operations may dictate swapping one security for another or selling a security before maturity. Continuous analysis and fine tuning of the investment portfolio are considered prudent investment management. [...] The Government Code contains specific provisions regarding the types of investments and practices permitted after considering the broad requirement of preserving principal and maintaining liquidity before seeking yield. These provisions are intended to promote the use of reliable, diverse, and safe investment instruments to better ensure a prudently managed portfolio worthy of public trust. Chapter [I. Fund management tocal Agency investment Guidelines 2010 Issued by California Debt and Investment Advisory Commission M. Appendix J 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 or 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 JCD): 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 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. CONDUIT FINANCING: A form of Financing in which a government or a government agency lends its name to a bond issue, although it is acting only as a conduit between a specific project and bond holders. The bond holders can look only to the revenues from the project being financed for repayment and not to the government or agency whose name appears on the bond. 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 M 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. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. 1 FNMAs (Federal National Mortgage �isociation) - Like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is 6 federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder -owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. 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 andhome 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 are issued with maturities of less than one year and interest is Paid at maturity. 3. FLBs lFederal Land Bank Bonds) - Long-term 38 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. 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. 5. 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 _rporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Mortgages 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 (SBA's), Government National Mortgage Association notes (GNMA's), Tennessee Valley Authority notes (TVA's), and Student Loan Association notes (SALLIE-MAE's). FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit through December 31, 2013. 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 fFHLB): 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 IGNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, 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 "pass-throughs" 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 $50,000,000 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-half 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 event of default by the seller -borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' 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 and credit in the 39 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 positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker -dealers, banks and a few unregulated firms. 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 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 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 lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is increasing bank reserves. 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 lends the"seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use 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, FNMA, 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 E, to] COUNCILMDA MEETING DATE: July 5, 2011 AGENDACATEGORY: BUSINESS SESSION: CONSENT CALENDAR: ITEM TITLE: Consideration Of Investment Advisory STUDY SESSION: Board 2011-2012 Work Plan PUBLIC HEARING: RECOMMENDATION: Approve the Investment Advisory Board 2011/2012 Work Plan. FISCAL IMPLICATIONS: Fiscal implications consist of Board Members meeting expenses, budgeted at $4,600, and staff support time. CHARTER CITY IMPLICATIONS: None. BACKGROUND AND OVERVIEW: Municipal Code Section 2.70.030 sets forth the work' plan items for the Investment Advisory Board for each year as follows: 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 of change of financial institutions, custodians, brokers and dealers. 182 The Investment Advisory Board Met on June 8, 2011 and is not recommending that any additional Work Plan Items be added to those outlined In the Municipal Code. FINDINGS AND ALTERNATIVES: The alternatives available to the City Council include: 1 - Approve the Investment Advisory Board 2011/2012 Work Plan; or 2. Do not approve the Investment Advisory Board 2011/2012 Work Plan; or 3. Provide staff with alternative direction. Respectfully submitted, Yo—hn—M.—Falconer, �Finance Director Approved for submission by: Ohom�asP. �Genovese, City M=nager� 183 INVESTMENT ADVISORY BOARD Correspondence & Written Material Item A Meeting Date: March 14, 2012 TITLE: Month End Cash Report February 2012 BACKGROUND: 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. RECOMMENDATION: Information item only. - 4-nt� John M. Falconer, Finance Director Ir No o � v -i No 6 6 oN 6,� R q R CIL v . . . . I . :,e. �2 �2 6 ,oq VV.V..V 06 C4 LM 1 -10 w 0 0 0 06 C� IQ =IN V v cl� Ci '66 TL w 00 1 0 M�w <1 w 16 *6 S9 je 0 -E v 0 E 0 A m 0 20 o iq Bill Lockyer, State Treasurer 14 Inside the State Treasurer's Office Local Agency Investment Fund (LAIF) PMIA Performance Report 2/11/2012 0.39 e- 0.39 252 2112/2012 0.39 0.39 252 2/13/2012 0.39 0.39 251 2/14/2012 0.39 0.39 248 2/15/2012 0.39 0.391 246 2/16/2012 0.39 0.39 245 2/17/2012 0.39 0.39 244 2/18/2012 0.39 0.39 244 2/19/2012 0.39 0.39 244 2/20/2012 0.39 0.39 244 2121/2012 0.39 0.39 241 1 2/22/207:::�39 0 39i 240 1 2/23/2012 1 0.381 0!39 238 1 2/24/2012 1 0.381 0.391 245 *Daily yield does not reflect capital gains or losses Corporate Bond 0.00% Commercial Paper 2.81% Time Deposits 6.31% CWB� B. 320/c LAIF Performance Report Quarter ending 12/31/2011 Apportionment Rate: � Earnings Ratio: Fair Value Factor: Daily: Quarter To Date: Average Life: 0.38% .00001043176196406 1.001651997 0.37% 0.39% 256 PMIA Average Monthly Effective Yields JAN 2012 0.385% DEC 2011 0.382% NOV 2011 0.401% Pooled Money Investment Account Portfolio Composition $66.1113illion 01/31/12 Agencies 11.05% Mortgages 0.59% Treasuries 50.04% 3 �111 �UI,LIVII �061jlt� Fage i ot i TreasuryDirect M1111 I I All,, 1,1i �rll, Ds1s & R-Ift, , [ �clk L11, . r,, � Lj Ar,n,, 11,1, Recent Bill Auction Results SR—Ifty Ise" e M.1-11, ell —I'm 1m,iWm_1 1r, Term M. m� R.I. 1. ..1. . Per ".. CUSIP ,i WEEK 03-01 2012 03 29 2012 0 100 0 1.1 99 992222 912195511 49-MY 03 01 2012 C', 19 2012 0 105 0 106 99 9BS708 9177155J6 �3-WEER TT 01 n12 05 31-2012 T 115 0 �17 " 970931 91219S�18 26 WEEK 03 O� 2n2 08 30 20�2 O,s 0 1�7 9K 92569', 9122956CO 4-.EEK 02 23 2012 03-22-2012 0,060 0 061 99 995333 9127955E7 13-WEEK 02 23-2012 05-24-2012 0 085 0,086 99 978514 9127955PZ 26 WEEK 02 23-2012 08 23-2012 0�125 0.�27 99 936806 9�2795Y% 4-WEEK 02-16-2012 03 15 2012 0�110 0 112 99.99T444 912795SD9 13 WEEK 02-16 M2 05 17 2012 Oars 0,097 99 975986 912795SN7 2E-.EEK 02 16 M2 09_16_20�2 0,30 OJ32 99,934278 91Z79b6Bi 64 DAY 02-15-2012 04 19-2012 0.120 0,122 99.978667 912795W6 4-WEEK 02-09-2012 03-08-2012 0.060 0,061 99.995333 9121953G4 13-WEE. 02 09 2012 05-10-2012 01080 O.M 99.979778 912195SM9 26-WEEK O� e 2N2 rs_os_�ull 0,102 52 WEEK 02-09-2012 02 01-2013 U 140 0.142 99.8584� 9127955ZO 4-WEEK 02-02-2012 03-01-2012 0 050 0,051 99.996111 912795Z46 13-WEEK 02-02-2012 05-03-2012 0.050 ORST 99,9873EI 9�27953119 26-WEEK 02-02-2012 08 02-20U 0.075 c 076 99 962083 9127'I55Y3 4 WEEK 01-26-2012 02-23 2012 0 020 0 020 99 99T444 912795238 13 WEEK 01 26-2012 04-26 2012 0.040 0011 m 989869 917795SK3 26 WEEK 01 1. 2017 07-26 2012 0,070 0.071 99,964611 9127954E,4 4 WEEK 01-19-2012 02-16 2012 0015 0 0 is q9R98833 912795720 13 WEEK 01 19 2012 04-19 2012 0025 On25 99A9368T 9U7V,5)6 26-WEEK 01 19-2T12 07 19 2012 a 060 0 061 99 969667 9127955X5 4-.EEK 01 12-2012 02 09-2012 0,000 a 000 100 000000 9127953C3 13-WEER E1-12 2012 04 12 2012 0 010 a 010 99 997472 91279S5HO 26 WEEK 01-12-2012 0742 2012 . .50 0 051 99,974722 9127955W7 52 WEEK 01 12-2DI2 01 10 2013 0,105 0 107 " 893.33 912795519 4 WEEK 01_(6_2012 02 02 2012 0 coo 0 coo 100 000000 912795YSS O-WEEK 01 05 2012 04-05-2012 0 015 . �15 99 996208 91219�11HQ 26 WEEK 01-05-2012 07 05 2M 0 055 0 �56 99 972194 9�219�911 4-WEEK 12 21 2011 02 26 2012 0 000 0 000 Too 00000. 912 MY" 13-WEEK 12 29-2011 03-29-2012 0 025 0 025 99,993681 912195�1`4 26-WEEK 12 29-2011 06-28 2012 0,055 0,056 99.q/2194 `,12 1" 3W9 4-WEEK 12 22 2011 01-19-2012 Orion 0,000 100 OOODOO 91219SY62 13 WEEK 12-22-2011 03 22-2012 OuTS 0 005 99 998736 912?955E� 26-WEEK 12-22-2T11 06-21 2012 Tmo 0 041 99 979718 9127955T4 4 WEEK 12-15-2011 01 12-2012 0 000 0 coo 100 000000 9121952Y6 13 WEEK 12-25 2011 03 15 2012 0 010 0,010 99 �W7472 9127955D9 25-WEEK 12 15 2011 06-14-2.12 0,045 0,046 99,�77250 %27955S6 Effective with 11he 11/2/98 auction, all bills am auctioned using the single -priced nnethod. FreMom Df Ifforriation A� I U�w & 11.�all & Le,.1 Nrl�� I W,h,u, T,rT, & C,�rmu, IJ S, I flh� T, ur, B.. e�,� & I h, Pii fi, 0, b, http://www.treasurydirect.gov/RI/OFBills 3/1/2012 4 . Iw,5, It �. . TreasuryDirect H�all IH�Ift.P�,INI DS & Rr-l" P'N , ""�L H�t" [3 .... 1, Ta � WS S�11— RI—Itl Recent Note, Bond, and TIPS Auction Results Security T�. YP TYR. TNIPH,, M.Wflt' .PH. ..I. 2 YEAR. NOTE "-;, 10:1 P, 1: T, 5 YEAR NOT' 02- 9 2 1 ' 2 2 " 7 YEAR NOTE 0-19 1 0 1 ' P ' ' A 'a IS YEAR TIES a? IN 2012 07 15 �OI? 3 YEAR NOTE 02 15 2012 02 15 2015 10-YIAR NOTE 02-�5-2012 02 2022 od YEAR WIND a 2- 5-20�2 02 �1 'Ni 5 2 YEAR NOTE 0 1 3 � 2012 "! 3 20T4 , YEAR NOTE 0 -3 11 2 0 31 2011 7-YEAR N'T' 1 2 0 10 YEAR Tj 'S 01-31 _21 1 2 0 1-15 2022 3-YLAR NOTE (D T7 _20 1 2 01 15 2015 9-1. N-MONTH Sort 01-17-2012 11-15-2021 29 YeAu T.-...TN ..No Q�-T7-20�2 �1-11-20HTT 2-YEAR NOTE 0 0 3 20 2 2-31 2023 5-YEAR NOTE 01 03-200 12-31-2016 7-YEAR NOTE 01 03-2012 12-31-2018 4 YEAR 4-MONTH TIPS 12 10 2011 04 15 2016 3 YEAR NOTE 17 15 2011 12-t5 ?0Q4 9 YEAR 11 MONTH NOTE 0-15-2011 11-15-2021 29-YEAR II-NONTH PONT) 12 15 2011 11 15-2011 2-YEAR NOTE 11-30-2011 11-30 2013 5 YEAT� NOTE 11-30-2011 11 7 YEAR 140TE 11-30-2011 1�1-30-2018 9-YCAR 8 NONTH TT 11 30 2011 07 15 2021 3 YEAR NOTE 11 15 2011 11-15 2014 10-YEAR 140TE 11 15 201T It 15 202T 30-YEAR 3()NI) 11 15 2011 11 15 2041 2 YEAR NOTE to 31 2011 10-31 20" 5-YEAR NOT L 10 31 2011 10 31 2016 7-YE�R NOTL 10 31 20TIL TO 31 2018 '29 YEAR 4-YONTH TIPS 10-31 201t 02-15-2041 3-YE�u NOT L 10 17 2(ut 10 IS 20TA 9 YEAR 10 MONTH NOIF 10-17 2021 08-15 2021 29-YEAR 10 MONTH BONO 10-17 2011 08-15-2041 2 YEAR NOTE 09 It 2011 09 IP 2PI3 5-YtAR NOTE 09-30-2011 09 30-2016 I YEAR NOTE OR 30 201, 09 30 2018 q YEAR 10 MONTH TIPS 09 30 2011 07 15 2021 3-YEAR NOTE 00-15-2011 09 15 201', IPI�IILYI YIPITI I, P. NP. CuSIT, RATY I I e. $IH. 0 250 0,3 10 99S80,164 912826SGY 0 �' 15 0 900 11 S7..31 1128? 85)0 1 115 1 11 8 99 114a18 912828SH4 0 750 0 770 9� 34731f, 91281flQV3 0 250 0 347 1 ' 1Ir7 S1 91 26' YSET 2 000 2 020 9 ' 319726 , I 2828ST's 3 125 3 2`0 97 803940 912 " 10QLI5 0 250 0 25C 1 00,000000 9128285137 0 875 a 899 T9 882R14 9128265CS 1,250 1 359 99,274515 91282:S.3 0 T25 -0,046 101 6 61834 91282 'As 0.250 0,370 99�642968 9128281`25 2.000 1,900 100 890462 %28281us 3 T25 2,o8b 102,746&VI 912810QTB 0 125 0.2,M) 99 771630 q12828RW2 0 875 0 380 99 915602 912828RXO 1 375 1 430 99 635210 912828RYB 0 125 -0877 107.0983?5 q'2828ODS 0 25D 0 352 99 ISS876 THYD8RV4 I a. 2 D20 99 819684 912828RR3 3 125 2 925 103A66W 912810QT8 0 750 0 280 99 940209 91282.11SI 0,875 0 437 Y9Na7rYa 912828RIJ6 L,175 [ 415 99 734313 9:Y828NT9 0,625 OX99 105.733846 912828QV5 .375 0 379 TONTRIC79 912628RQS 2,000 2 030 99 729725 912828RR3 3 125 3 199 as 579514 912810QT8 1 250 0 2al 99 93821) 912626FUN2 1 too 1.05S 99 13Z811 912828RE4 1 /50 1,791 99 "1'89 912828RP7 2 T2S 0,999 132 453297 912810QP6 0 Sao 0 544 TIN .6"116 �12828RL6 T 125 7,211 Not �11512 912628RC6 3 so 1.1�0 11� I668q4 912810Q50 0.17, 0 2,Vq ".1-12 710 91282TI1.8 Tdoo 1 .11 19,977()5� 11282TH11 1.375 1 4" 99J98680 9128)TIPH� DE25 0 078 105 SI32664 917828QV5 0 210 0 33PI 99 749466 91282NRG? *Denotes TIPS bond; all other TIPS without asterisks are notes Fr�,,,JP,H 0( WYTnzIt,� Art I La� & Gvodan� I Prrv�cy & L�gTIT NSt,cr5 I VvYTs,,,,T,TP, & CcodittPH� I A�CY�� flay I O,ItS %,Mfity U.S T'11�,,,, WHY Publ., D161 5 http://www.treasurydirect.gov/RI/0FNtebnd 3/1/2012 ar'� I U1 � Commercial Paper Summary Rates Volume Statistics Outstanding Year-end Maturity Distribution About Announcements Commercial Paper Rates and Outstanding Summary Derived from data supplied by The Depository Trust & Clearing Corporation ......... Data as of Februar), 29, 2012 Posted March 1, 2012 The commercial paper release will usually be posted daily at 9:45 a.m. However, the Federal Reserve Board makes no guarantee regarding the timing of the daily posting. This policy is subject to change at any time without notice. Rates AA nonfinancial I A2/P2 nonfinancial Period 1- 1- 7- is- 30- 60- 90- 7- is- 30- 60- 90- day day day day day day day day day day day day Feb. 23 0.05 0.06 0.10 0.12 n.a. n. a. 0.36 0.41 0.39 0.46 0.53 0.64 Feb. 24 0.05 0.06 0.10 0.11 0.10 0.12 0.37 0.40 0.40 0.47 0.56 0.62 Feb. 27 0.06 0.10 0.10 0.13 0.16 n.a. 0.37 0.39 0.40 0.44 0.53 0.61 Feb. 28 0.06 0.09 0.10 0.13 0.12 0.20 0.37 0.40 0.41 0.45 0.52 0.62 Feb. 29 0.08 0.10 0.11 0.13 0.19 0.21 0.37 0.41 0.39 0.44 0.52 0.79 Note: n.a. indicates that trade data was insufficient to support calculation of the particular rate. AA financial AA asset -backed Period 1- 1- 7- is- 30- 60- 90- 7- is- 30- 60- 90- day day day day day day day 0.20 0.20 day day day day day Feb. 23 0.01 0.05 0.09 0.11 0.13 0.19 0.34 0.39 0.23 0.42 0.26 Feb. 24 0.07 n. a. n. a. 0.11 0.14 0.18 0.35 0.26 0.24 0.28 0.27 F eb. 27 1 0.02 0.02 1 0.03 1 0.05 0.15 0.19 0.21 0.20 0.40 1 0.22 0.26 0.44 1 Feb. 28 0.01 0.04 0.11 0.08 0.14 0.20 0.20 0.21 0.33 0.45 0.21 0.25 0.30 Feb. 0.09 0.09 0.09 0.11 0.15 0.19 0.33 0.30 0.25 0.42 0.31 29 I 6 http://www.federalreserve.gov/Releases/CP/ 3/1/2012 I - �. �. ..� . ."'. " rary � vi i Note: n.a. indicates that trade data was insufficient to support calculation of the particular rate. Outstanding Levels Seasonally adjusted Billions of dollars Period Total Nonfinancial Financial Other Total Domestic I Foreign Total Domestic Monthly -end levels 2011-Oct. 1,019.0 186.7 147.0 39 6 F49 8 299.1 191.8 341 51 .0 Nov. 993.3 187.6 149.3 38.2 479.3 292.5 186.8 326.3 .0 Dec. 937.5 174.9 139.1 35.8 434.4 269.2 165.3 328.0 .2 2012-Jan. 976.1 189.7 153.7 36.0 446.0 277.3 168.7 340.3 .1 Feb. 963.8 183.4 150.1 33.3 445.4 275.1 170.3 334.9 .1 Weekly (Wednesday) levels Feb. 1 972.2 188.3 152.8 35.5 451.2 291.9 159.2 332.6 .1 Feb. 8 972.9 190.2 155.0 35.1 455.4 287.8 167.6 327.1 Feb. 15 962.1 186.8 152.4 34.4 445.0 282.1 162.9 330.2 .1 Feb. 22 937.6 185.9 152.4 33.5 429.0 273.3 155.7 322.6 .1 Feb. 29 927.2 184.0 150.9 33.1 423.6 270.3 153.3 319.5 .1 Not seasonally adjusted Billions of dollars Period Total Other Monthly -end levels 2011-Oct. 1,027.1 193.8 159.4 34.4 480.6 291.3 189.3 352.7 .0 Nov. 1,006.5 187.0 155.6 31.4 471.4 289.1 182.2 348.1 .0 Dec. 969.2 146.3 116.2 30.2 472.4 291.7 180.6 350.4 .2 2012-Jan. 1,021.6 181.6 148.5 33.1 498.8 302.2 196.6 341.1 .1 Feb. 1,014.0 184.0 150.8 33.2 493.3 297.3 196.0 336.6 .1 Weekly (Wednesday) levels Feb. 1 1,024.4 184.3 151.3 33.0 500.6 302.1 198.5 339.4 .1 Feb. 8 1,027.0 183.4 150.9 32.5 506.2 301.2 204.9 337.4 .1 Feb. 15 1,022.7 184.8 152.5 32.2 502.6 303.9 198.7 335.2 .1 Feb. 22 1,015.2 180.6 149.2 31.5 500.1 306.5 193.6 334.3 .1 Feb. 29 1,014.0 184.0 150.8 33.2 493.3 297.3 196.0 336.6 .1 7 http://www.federalreserve.gov/Releases/CP/ 3/1/2012 - ------- I ....... ---- -- ---- -- -.- - ---. A a6� � ul � Return tolop F http://www.federalreserve.gov/Releases/CP/ 3/l/2012 .... I.. - �V.� �. �� .' � ......... �j i ar,� i vi � Selected Interest Rates (Daily) - H. 15 ,C.u-rre-nt Release Relealse.Dates Daily Update Historical Data About Announcements Daily Update - - ---- ----- ...... .... . .. - ------- Release I)ate: March 1, 2012 The weekly release is posted on Monday. Daily updates of the weekly release are posted Tuesday through Friday on this site. If Monday is a holiday, the weekly release will be posted on Tuesday after the holiday and the daily update will not be posted on that Tuesday. March 1, 2012 Selected Interest Rates Yields in percentper annum Instruments 2012 Feb 27 2012 Feb 28 2012 Feb 29 Federal funds (effective) 1 2 3 0.10 0.10 0.10 Commercial Paper 3456 Nonfinancial 1-month 0.13 0.13 0.13 2-month 0.16 0.12 0.19 3-month n. a. 0.20 0.21 Financial I -month 0.05 0.08 0.11 2-month 0.15 0.14 0.15 3-month 0.19 0.20 0.19 CDs (secondary market) 3 7 1-month 0.18 0.18 0.18 3-month 0.30 0.30 0.30 6-month 0.53 0.53 0.53 Eurodollar deposits (London) 3 8 1-month 0.33 0.33 0.33 3-month 0.45 0.45 0.45 6-month 0.65 0.65 0.65 Bank prime loan 2 3 9 3.25 3.25 3.25 9 http://www.federalreserve.gov/Releases/H15/update/ 3/1/2012 - . I ....... rage / 01 + Discount window primary credit 2 10 0.75 0.75 0.75 U.S. government securities Treasury bills (secondary market) 34 4-week 0.07 0.10 0.08 3-month 0.12 0.10 0.08 6-month 0.14 0.14 0.13 1-year 0,16 0.17 0.17 Treasury constant maturities Nominal 1-month 0.08 0.10 0.08 3-month 0.12 0.10 0.08 6-month 0.14 0.14 0.13 1-year 0.17 0.18 0.18 2-year 0.30 0.30 0.30 3-year 0.40 0.41 0.43 5-year 0.84 0.84 0.87 7-year 1.35 1.36 1.39 10-year 1.92 1.94 1.98 20-year 2.69 2.71 2.73 30-year 3.04 3.07 3.08 Inflation indexed 12 5-year -1.18 -1.15 -1.12 7-year -0.72 -0.70 -0.66 10-year -0.32 -0.31 -0.28 20-year 0.36 0.37 0.39 30-year 0.70 1 0.72 0.73 Inflation -indexed long-term average 3 0.31 0.32 0.38 Interest rate swaps 14 1-year 0.53 0.51 0.49 2-year 0.59 0.57 0.56 3-year 0.71 0.69 0.68 4-year 0.90 0.88 0.89 5-year 1.12 1.10 1.12 7-year 1.57 1.54 1.59 10-year 2.03 2.01 206 10 http://www.federalreserve.gov/Releases/Hl 5/update/ 3/1/2012 I 1.�.. - �� ., . �V Oyam�111 rdgu �3 ol + 30-year 2.76 2.73 2.78 Corporate bonds Moody's seasoned Aaa is 3.78 3.80 3.80 Sala 5.04 5.06 5.08 State & local bonds Conventional mortgages 17 n.a. Not available. 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). 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 (Www.fedei�lreserve.gov/rele�tscs,'Cp,/). 6. Financial paper that is insured by the FDIC's Temporary Liquidity Guarantee Program is not excluded from relevant indexes, nor is any financial or nonfinancial commercial paper that may be directly or indirectly affected by one or more of the Federal Reserve's liquidity facilities. Thus the rates published after September 19, 2008, likely reflect the direct or indirect effects of the new temporary programs and, accordingly, likely are not comparable for some purposes to rates published prior to that period. 7. An average of dealer bid rates on nationally traded certificates of deposit. 8. Source: Bloomberg and CTRB ICAP Fixed Income & Money Market Products. 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 infiannation, see www.federah esciNe.gov.!boartldocs/pressibci,eg,12002�/2002103 12/&fau It.hun. The rate reported is that for the Federal Reserve Bank of New York. Historical series for the rate on adjustment credit as well as the rate on primary credit are available at www.lederalrescrNe g0jr! cleasesh] V ita.htni. !r I i A http://www.federalreserve.gov/Releases/Hl 5/update/ 3/1/2012 11 rage 'f 01 11. Yields on actively traded non -inflation -indexed issues adjusted to constant maturities. The 30-year Treasury constant maturity series was discontinued on February 18, 2002, and reintroduced on February 9, 2006. From February 18, 2002, to February 9, 2006, the U.S. Treasury published a factor for adjusting the daily nominal 20-year constant maturity in order to estimate a 30-year nominal rate. The historical adjustment factor can be found at Source: U.S. Treasury. 12. Yields on Treasury inflation protected securities (TIPS) adjusted to constant maturities. Source: U.S. Treasury. Additional information on both nominal and inflation -indexed yields may be found at �VWW.trC�ISLII�;.-,()v,reSOLircc-ccnt�r.,d�it�t-cli�irt- center/interest-rates/. 13. Based on the unweighted average bid yields for all TIPS with remaining terms to maturity of more than 10 years. 14. International Swaps and Derivatives Association (ISDA(g) 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. Eastern time by Garban Intercapital plc and published on Reuters Page ISDAFIXV. ISDAFIX is a registered service mark of ISDA. 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. i i. t-ontract interest rates on commitments tor tixed-rate tirst mortgages. Source: Primary Mortgage Market Surveye data provided by Freddie Mac. Note: Weekly and monthly figures on this release, as well as annual figures available on the Board's historical H. 15 web site (see below), are averages of business days unless otherwise noted. Current and historical H. 15 data are available on the Federal Reserve Board's web site (www.1cdcralrcscrve.gov/). For information about individual copies or subscriptions, contact Publications Services at the Federal Reserve Board (phone 202-452-3244, fax 202-728-5886). Description of the Treasury Nominal and Inflation -Indexed Constant Maturity Series Yields on Treasury nominal securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve for non -inflation -indexed Treasury securities. 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, 20, and 30 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. Similarly, yields on inflation -indexed securities at "constant maturity" are interpolated from the daily yield curve for Treasury inflation protected securities in the over-the-counter market. The inflation -indexed constant maturity yields are read from this yield curve at fixed maturities, currently 5, 7, 10, and 20 years. ittp://www.federaireserve.gov/Releases/H I 5/update/ 3/1/2012 12 City of La Quinta Cash Flow Budget to Actual January 31,2012 Cash Basis Account Budget 1/11 Actual 1/11 Accrual Adjustment usted Total 1/11 ---7ana-n ce Over(Under) Notes Property Taw Tax Increment Transient Occupancy Tax Sales Tax Sil,e,R.ok Golf Library 33.410,159 354,900 398.724 660.030 - 33,MO,219 380,727 427.500 481.444 - 33,320,219 380,727 427,500 481,444 B9,940) 25,827 28,776 ('78,6BI Property Tax Payment for RDA less tan budgeted Less murcs than ondratial Received $1961, for CV Gar, Task Force rawly undertaken in January Franchise Tax $45k.Ml Grant Sl WW clovernmentaxselame, Other revenues 1, 1 77,2U 1,628,676 1,628.676 451,442 payments S72k,Prop Its Revenue $42, Revenues 36,0011,04118 36,238,566 36.2N,566 237,518 Expenditures Salaries & Fringe Be nefits 828.9sil 773,114 773.114 (55,827) Other expenditures Subtotal 1,902,203 1,194TO67 1,194,087 (708116) Did not pay Polil tomes 2,731,144 1.10b(.207 1,967,201 (763 943 Administrative Feas for Redevelopment Agency Debt Service (laninctipallinterestilaass Through) Subtotal 763,559 17005441 865,839 1 17005441 1 1 B65,B39 17 0� 102280 0)1 Property Tax Increment payment hi tan budgears 17!769!000 17,'871,28 17!B 112B 1 N 102.28 2613,658 2613, 65: 268,658 -1 Capital Projects Totil Expenditures 20,7", (661,663) INet RevenuestlExperaflitura, 15,2a: 16,131,427 7124514 J1 NOTE I Expenditures are budgeted at 8,34% per month Difference between actual and budget (Underspent) DEPARTMENT Or,enspent Notes GENERAL GOVERNMENT (76,246) CITY CLERK (11 038) COMMUNITY SERVICES (51,211) FINANCE (17,943) BUILDING & SAFETY (95,059) Building Division traditional $72kAnimal Control $431, undeflaudget PUBLIC SAFETY (1,062,859) Did hot pay Police, invorce PLANNING (6,913) PUBLIC WORKS (100,434 UnO�6�41k StWdIyhort.mmo, $57k Lighting $jl6k; Development Services $111, (1,423,703) SUBTOTAL - GENERAL FUND Library Gas Tax Federal Assistance JAG Grant Slesf (Cops) Revenue CMAQ Lighting & Landscaping RCTC Development Agreement AB 939 (3,957) Quimby Infrastructure Proposition 18 South Coast Air Quality (3,354) Transportation Parks & Recreation - Civic Center 2,732 Library Development - Community Center Street Facility Park Facility Fire Protection AM In Public Places (8,998) Interest Allocation Equipment Replacement (36,703) Information Te.hnology (23,222) Park Maintenance Facility (26,074) Silvel-Rock Golf (11,867) S,Ive,Rock Reserve - LO Public Safety Officer (167) Housing Authority 8,988 Finance Authority (966) Supplemental Pension Plan Capital limpricrvernment (3.100) Total (1.630,391) 13 INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 14, 2012 Correspondence & Written Material Item B Pooled Money Investment Board Report for January 2012 BACKGROUND: The Pooled Money Investment Board Report for January 2012 is included in the agenda packet. RECOMMENDATION: Receive & File John M. Falconer, Finance Director POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF JANUARY 2012 WITH JANUARY 2011 (DOLLARS IN THOUSANDS) Average Daily Portfolio $ Accrued Earnings $ Effective Yield I Average Life -Month End (In Days) Total Security Transactions Amount $ Number Total Time Deposit Transactions Amount $ Number Average Workday Investment Activity $ Prescribed Demand Account Balances For Services $ 245 180 +66 15,812,434 $ 21,677,155 $ -5,764,721 318 435 -117 3,703,800 $ 3,417,800 $ +286,000 136 141 -5 975,812 $ 1,249,748 $ -273,936 1,828,496 $ 1,713,666 $ +114,841 1 BILL LOCKYER TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) January 31, 2012 DIFFERENCE IN PERCENT OF PERCENT OF PORTFOLIO FROM TYPE OF SECURITY AMOU PORTFOU PRIOR MONTH Government Bills $ 17,967,596 27.16 -1.66 Bonds 0 0.00 0 Notes 15,132,482 22.88 +IA6 Strips 0 0.00 0 Total Government $ 33,100,078 --0.20 Federal Agency Debentures $ 1,817,763 2.75 +0.09 Certilficates of Deposit 5,500,038 8.32 -2.37 Bank Notes 0 0.00 0 Sankers'Acceptances 0 0.00 0 Repurchases 0 0.00 0 Federal Agency Discount Notes 4,791,501 7.24 +0.18 Time Deposits 4,173,640 6.31 +0.22 GNMA9 28 0.00 0 Commercial Paper 1,859,400 2.81 0 FHLMC1RemIc9 388,519 0.69 0 Corporate Bonds 0 0.00 0 AIS 55 Loans 311,964 0.47 +0.02 GF Loans 13,501,000 20.41 +2.03 NOW Accounts 0 0.00 0 Other 699,922 1.06 +0.03 Reversed Repurchases 0 0.00 0 Total (All Types) $ 66,143,853 100.00 INVESTMENT ACTIVITY JANUARY 2012 DECEMBER 2011 NUMBER AMOUNT NUMBER AMOUNT Pooled Money 318 $ 15,812,434 347 $ 17,298,374 Other 3 58,873 28 820,885 Time Deposits 136 0 106 2,209,000 Totals 457 $ 19,575,107 481 $ 20,328,259 PMIA Monthly Average Effective Yield 0.385 0.382 Year to Date Yield Last Day of Month 0.389 0.389 Pooled Money Investment Account Portfolio Composition $66.1 Billion 01/31/12 Corporate Bond! 0.00% Commercial Paper 2.81% Time Deposits 6.31% CDSIR 8.320A Agencies 11.05% Mortgages 0.59% Treasuries 50.04% INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 14, 2012 Bond Money Market Funds BACKGROUND: Correspondence & Written Material Item C At the last Board meeting staff was directed to contact U.S. Bank our bond trustee, to see if additional money market funds were available. Attached please find the information prepared by U.S. Bank (Attachment 1) RECOMMENDATION: Information item only. John M. Falconer, Finance Director ATrACRIMENT 1 John Falconer From: BRADLEY. SCARBROUGH@usbank.com Sent: Tuesday, March 06, 2012 12:19 PM To: John Falconer Subject: Money Market Funds Attachments: Treasury0bligations—Prospectus—ClassD 10-28-1 l.pdf John, per our conversation here are the current Money Market Rates. The highest right now is the First American Government fund which appears to be a Permitted Investment under your Indentures. I have attached a Prospectus below. FIRST AMER GOVT OBLIG FD INV CL 1 0.016024 1 FIRST AMER TREAS OBLIG FD CL D 1 0.000000 1 Bradley E. Scarbrough Vice President U.S. Bank Corporate Trust Services 633 West Fifth Street 24th Floor Los Angeles, Ca. 90071 (213) 615-6047 Phone (213) 615-6097 Fax bradley.scarbrough@usbank.com U.S. BANCORP made the following'armotations Electronic Privacy Notice. This e-mail, and any attachments, contains information that is, or may be, covered by electronic communications privacy laws, and is also confidential and proprietary in nature. If you are not the intended recipient, please be advised that you are legally prohibited from retaining, using, copying. distributing, or otherwise disclosing this information in any manner. Instead, please reply to the sender that you have received this communication in error, and then immediately delete it. Thank you in advance for your cooperation. 2 3/6/2012 K, Table of Contents Fund Summaries Government Obligations Fund Prime Obligations Fund Tax Free Obligations Fund Treasury Obligations Fund 9 U.S. Treasury Money Market Fund 12 Additional Summary Information 14 More about the Funds 15 Investment Objectives 15 Investment Strategies 15 Investment Approach 15 Investment Risks 16 Disclosure of Portfolio Holdings 16 Fund Management 17 Investment Advisor 17 Portfolio Managers 18 Please find First American Funds' Privacy Policy inside the back cover of this Prospectus. Shareholder Information 19 Pricing of Fund Shares 19 Share Classes 19 12b-1 Fees 19 Shareholder Servicing Plan 19 Purchasing and Redeeming Fund Shares 20 Additional Information on Purchasing and Redeeming Fund Shares 20 Dividends and Distributions 21 Taxes 21 Additional Payments to Institutions 21 Staying Informed 21 Financial Highlights 22 This prospectus and the related Statement of Additional Information (SAI) do not constitute an offer to sell or a solicitation of an offer to buy sham In the funds, nor shall any such shares be offered or sold to any person In any jurisdiction In which an offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. The funds may be offered only to persons In the United States. This prospectus should not be considered a solicitation or offering of fund shares outside the United States. Fund Summaries Government Obligations Fund Investment Objective Government Obligations Fund's objective is to seek maximum current income to the extent consistent with the preservation of capital and maintenance of liquidity. Fees and Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of the fund Shareholder Fees (fees paid directly from your investment) Class 0 Maximum Sales Charge (Load) None Maximum Deterred Sales Charge (Load) None Annual Fund Operating Expenses (expenses thatyou pay each yearas a percentage of the value of your investment) Management Fees 0.10% Distribution and/or Service (1 2b-1) Fees 0.15% Other Expenses: Shareholder Servicing Fee 0.25% Miscellaneous 0.14% Total Annual Fund Operating Expenses 0.64% Example: This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Principal Investment Strategies Government Obligations Fund invests exclusively in short-term U.S. government securities, including repurchase agreements secured by U.S. government securities. U.S. government securities are bonds or other debt obligations issued or guaranteed as to principal and interest by the U,S. government or one of its agencies or Instrumentalities. U.S. Treasury securities and some obligations of U.S. government agencies and instrumentalities are supported by the "full faith and credit" of the U.S. government. Other U.S. government securities are backed by the right of the issuer to borrow from the U.S. Treasury. Still others are supported only by the credit of the issuer or instrumentality. The fund's investments in U.S. government securities may include obligations that are issued by private issuers and guaranteed under the Federal Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program ("FDIC -guaranteed obligations"). When selecting securities for the fund, the portfolio managers first consider general economic factors, market conditions, and the short-term interest rate environment in determining what types of short-term instruments to purchase. The portfolio managers then select the specific instruments to be purchased. Generally, the portfolio managers buy and hold securities until their maturities. However, the portfolio managers may sell securities for a variety of reasons, such as to adjust the portfolio's average maturity, credit, liquidity or yield metrics. Principal Risks An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Prospectas — First American Money Market Funds Class D Shares N Fund Summaries Government Obligations Fund cowinued Principal risks of investing in this fund include: Credit Risk— The value of your investment might decline if the issuer of an obligation held by the fund defaults on the obligation or has its credit rating downgraded, FDIC -Guaranteed Obligation Risk— Investments in FDIC -guaranteed obligations subject the fund to the additional risk that payments by the FDIC pursuant to its guarantee will be delayed from the date payments are due underthe terms of the debt. Income Risk— The level of income you receive from the fund will be affected by movements in short-term interest rates. Because the fund invests solely in U.S. government securities and repurchase agreements secured by those securities, the fund may offer less income than money market funds investing in other high -quality money market securities. Interest Rate Risk— The value of your investment might decline because of a sharp rise in interest rates that causes the value of the fund's portfolio holdings to fall. Liquidity Risk— The fund may not be able to sell a security in a timely manner or at a desired price, or may be unable to sell the security at all, because of a lack of demand in the market for the security. Redemption Risk— If there are unexpectedly high redemptions of fund shares, the fund might have to sell portfolio securities prior to their maturity, possibly at a loss. Repurchase Agreement Risk— If the seller of a repurchase agreement defaults on its obligation to repurchase securities from the fund, the fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. Fund Performance The following bar chart and table provide some indication of the potential risks of investing in the fund. The fund's past performance is not necessarily an indication of how the fund will perform in the future. Updated performance information is available online at firstamericanfunds.com or by railing 800 677-3863. The bar chart shows you the variability of the fund's performance from year to year. The table illustrates the fund's average annual tot alreturns over the time periods Indicated. I Total return for the period 1/1/11 through 9/3Q(l 1 was 0.00%. Investment Advisor U.S. Bancorp Asset Management, Inc. Other Information For important information about the purchase and sale of fund shares, tax information, and financial intermediary compensation, please see "Additional Summary Information" on page 14 of the prospectus. NOSP89110 —First American Money Market Funds Class D Shares 7 Fund Summaries Prime Obligations Fund Investment Objective Prime Obligations Fund's objective is to seek maximum current income to the extent consistent with the preservation of capital and maintenance of liquidity. Fees and Epenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of the fund Shareholder Fees (fees paid difm* from your investment) Clan D Maximum Sales Charge (Load) None Maximum Deferred Sales Charge (Load) None Annual Fund Operating Expenses (eWnses ffatyou pay each yvar as a percentage of the Value of your investment) — Management Fees 0.10% Distribution and/or Service (12b-1) Fees 0.15% Other Expenses: Shareholder Servicing Fee 0.25% Miscellaneous 0.14% Total Annual Fund Operating Expenses 0.64% Example: This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Principal Investment Strategies Prime Obligations Fund invests in high -quality short-term debt obligations, including: • commercial paper. • U.S. dollar -denominated obligations of domestic and foreign banks with total assets of at least $500 million (including fixed and variable rate certificates of deposit, time deposits, and bankers' acceptances). • non -convertible corporate debt securities. • securities issued by the U.S. government or one of its agencies or instrumentalities. • obligations that are issued by private issuers and guaranteed under the Federal Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program ("FDIC -guaranteed obligations"). • municipal securities, including variable rate demand notes, commercial paper, and municipal notes and other short-term municipal obligations. • loan participation interests. • repurchase agreements for the securities in which the fund may invest. When selecting securities for the fund, the portfolio managers first consider general economic factors, market conditions, and the short-term interest rate environment in determining what types of short-term instruments to purchase. The portfolio managers then select the specific instruments to be purchased. Generally, the portfolio managers buy and hold securities until their maturities. However, the portfolio managers may sell securities for a.variety of reasons, such as to adjust the portfolio's average maturity, credit, liquidity or yield metrics. Prospectus— First American Money Market Funds Class D Shares L' Fund Summaries Prime Obligations Fund continued Under normal market conditions, portfolio managers will only purchase (and hold) securities in the fund if they are rated in the top short-term rating category, for example, a rating of A-1 or a rating of Prime-1. If the rating of a security is reduced below the top short-term rating category after purchase, portfolio managers will make every attempt to sell the security, unless they have determined that it would not be in the best interest of the fund to dispose of the security at that time and, where necessary, have obtained the approval of the board to continue to hold the security. The fund will limit its collective investments in dollar -denominated obligations of foreign branches of domestic banks (which are not subject to the same regulation as U.S. banks) and in dollar -denominated obligations of foreign banks and foreign corporations to less than 25% of its total assets. Principal Risks An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Principal risks of investing in this fund include: Credit Risk— The value of your investment might decline if the issuer of an obligation held by the fund defaults on the obligation or has its cre dit rating downgraded. FOIC-Guaranfeed Obligation Risk— Investments in FDIC -guaranteed obligations subject the fund to the additional risk that payments by the FDIC pursuant to its guarantee will be'delayed from the date payments are due under the terms of the debt. Foreign Security Risk— Securities of foreign issuers, even when dollar denominated and publicly traded in the United States, may involve risks not associated with the securities of domestic issuers. Income Risk— The level of income you receive from the fund will be affected by movements in short-term interest rates. Interest Rate Risk— The value of your investment might decline because of a sharp rise in interest rates that causes the value of the fund's portfolio holdings to fall. Liquidity Risk— The fund may not be able to sell a security In a timely manner or at a desired price, or may be unable to sell the security at all, because of a lack of demand in the market for the security, or a liquidity provider defaults on its obligation to purchase the security when properly tendered by the fund. Municipal Security Risk— The value of municipal securities owned by the fund may be adversely affected by future changes in federal income tax laws, including rate reductions or the imposition of a flat tax, and adverse changes in the financial conditions of municipal securities issuers. Redemption Risk— If there are unexpectedly high redemptions of fund shares, the fund might have to sell portfolio securities prior to their maturity, possibly at a loss. Repurchase Agreement Risk— If the seller of a repurchase agreement defaults on its obligation to repurchase securities from the fund, the fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. Variable Rate Demand Note (VRON) Risk — Investments in VRDNs involve credit risk with respect to the issuer or financial institution providing the fund with the credit and liquidity support for the unconditional put option. While the fund invests only in VRDNs of high quality issuers, or which are supported by high quality financial institutions, it is still possible that an issuer or financial institution could default on its obligations. Fund Performance The following bar chart and table provide some indication of the potential risks of investing in the fund. The fund's past performance is not necessarily an indication of how the fund will perform in the future. Updated performance information is available online at firstamericartfunds.com or by calling 800 677-3863. PrOspectus —First American Money Market Funds Class D Shares ;7 Fund Summaries Prime Obligations Fund continued The bar chart shows you the variability of the fund's performance from year to year. The table illustrates the fund's average annual total returns over the time periods indicated. 'ToW returnforthe period 1/1/11 through 9/30/11 was 0.00%. Investment Advisor U.S. Bancorp Asset Management, Inc. Other Information For important information about the purchase and sale of fund shares, tax information, and financial intermediary compensation, please see "Additional Summary Information" on page 14 of the prospectus. 5 Prospect= —First American Money Market Funds Class D Shares IF Fund Summaries Tax Free Obligations Fund Investment Objective Tax Free Obligations Fund's objective is to seek maximum current income exempt from federal income taxes consistent with the preservation of capital and maintenance of liquidity. Fees and Expenses The following tables describe the fees and expenses that you may pay it you buy and hold shares of the fund Shareholder Fees (fees paid directly from your in vestment) Class D Maximum Sales Charge (Load) None Maximum Deferred Sales Charge (Load) None Annual Fund Operating Expanses (expenses thatyou pay each yearas a percentage of the value of your investment) Management Fees 0.10% Dishibution and/or Service (12b-1) Fees 0.15% Other Expenses: Shareholder Servicing Fee 0.25% Miscellaneous 0.19% Total Annual Fund Operating Expenses 0.69% 1 Example: This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Principal Investment Strategies Under normal market conditions, Tax Free Obligations Fund invests at least 80% of its total assets in high -quality, short-term municipal securities that pay interest that is exempt from federal income tax, including the federal alternative minimum tax. The municipal securities in which the fund invests include variable rate demand notes, which are floating rate instruments with a one- or seven-day put option that typically have some form of external credit or liquidity support. The fund also may invest in other municipal securities, including commercial paper, municipal notes and other short-term municipal obligations. Municipal securities are issued by state and local governments, and certain U.S. territorial possessions to finance public infrastructure projects such as streets and highways, schools, water and sewer systems, hospitals, and airports. They also may be issued to refinance outstanding obligations as well as to obtain funds for general operating expenses and for loans to other public institutions and facilities. There are two principal classifications of municipal securities: • general obligation bonds, which are backed by the full faith, credit, and taxing power of the issuer. • revenue bonds, which are payable only from the revenues generated by a specific project or from another specific revenue source. Under normal market conditions, up to 20% of the fund's total assets may be invested in taxable money market securities and municipal securities subject to the alternative minimum tax. Under abnormal market conditions, however, the fund may invest more than 20% of its total assets in such taxable securities, as conditions dictate. This may prevent the fund from achieving its goal of providing maximum current income exempt from federal income taxes. When selecting securities for the fund, the portfolio managers first consider general economic factors, market conditions, and the short-term interest rate environment in determining what types of short-term instruments to purchase. The portfolio managers then select the specific Prospectus — First American Money Market Funds Class D Shares 11 Fund Summaries Tax Free Obligations Fund continued instruments to be purchased. Generally, the portfolio managers buy and hold securities until their maturities. However, the portfolio managers may sell securities for a variety of reasons, such as to adjust the portfolio's average maturity, credit, liquidity or yield metrics. Because the fund refers to tax-free investments in its name, it has a fundamental investment policy that it will normally invest in assets so that at least 80% of the income that it distributes will be exempt from federal regular income tax. This policy may not be changed without shareholder approval. Principal Risks An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Principal risks of investing in this fund include: I I Credit Risk— The value of your investment might decline if the issuer of an obligation held by the fund defaults on the obligation or has its credit rating downgraded. Income Risk— The level of income you receive from the fund will be affected by movements in short-term interest rates. Interest Rate Risk— The value of your investment might decline because of a sharp rise in interest rates that causes the value of the fund's portfolio holdings to fall. Liquidity Risk— The fund may not be able to sell a security in a timely manner or at a desired price, or may be unable to sell the security at all, because of a lack of demand in the market for the security, or a liquidity provider defaults on its obligation to purchase the security when properly tendered by the fund. Municipal Security Risk— The value of municipal securities owned by the fund may be adversely affected by future changes in federal income tax laws, including rate reductions or the imposition of a flat tax, and adverse changes in the financial conditions of municipal securities issuers. Redemption Risk— If there are unexpectedly high redemptions of fund shares, the fund might have to sell portfolio securities prior to their maturity, possibly at a loss. . Variable Rate Demand Note (VRDN) Risk — Investments in VRDNs involve credit risk with respect to the issuer or financial institution providing the fund with the credit and liquidity support for the unconditional put option. While the fund invests only in VRDNs of high quality issuers, or which are supported by high quality financial institutions, it is still possible that an issuer or financial institution could default on its obligations. Fund Perlermance The following bar chart and table provide some indication of the potential risks of investing in the fund. The fund's past performance is not necessarily an indication of how the fund will perform in the future. Updated performance information is available online at firstamericanfunds.com or by calling 800 677-3863. The bar chart shows you the variability of the fund's performance from year to year. The table illustrates the fund's average annual total returns over the time periods indicated. I Total return for the period Mill thmugh 9/30/11 was 040%. Prospectus — First American Money Market Funds Class D Shares li N Fund Summaries Tax Free Obligations Fund continued Investment Advisor U.S. Bancorp Asset Management, Inc. Other Information For important information about the purchase and sale of fund shares, tax information, and financial intermediary compensation, please see "Additional Summary Information" on page 14 of the prospectus. a ftspectu$— First American Money Market Funds Class D Shares 13 Fund Summaries Treasury Obligations Fund Investment Objective Treasury Obligations Fund's objective is to seek maximum current income consistent with the preservation of capital and maintenance of liquidity. Fees and Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. Shareholder Fees Class 0 Maximum Sales Charge (Load) None Maximum Deferred Sales Charge (Load) None Annual Fund Operating Expenses (expenses thafyou pay each year as a percentage of the value of your investment) Management Fees 0.10% Distribution and/or Service (1 2b-1) Fees 0.15% Other Expenses: Shareholder Servicing Fee 0.25% Miscellaneous 0.15% Total Annual Fund Operating Expenses 0.65% Example: This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Principal Investment Strategies Under normal market conditions, Treasury Obligations Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in short-term U.S. Treasury obligations, including repurchase agreements secured by U.S. Treasury obligations. The U.S. Treasury obligations in which the fund invests include U.S. Treasury bonds, notes, and bills. These types of Treasury securities are essentially the same except for differences in interest rates, maturities, and dates of issuance. U.S. Treasury obligations are backed by the full faith and credit of the U.S. government. When selecting securities for the fund, the portfolio managers first consider general economic factors, market conditions, and the short-term interest rate environment in determining what types of short-term instruments to purchase. The portfolio managers then select the specific instruments to be purchased. Generally, the portfolio managers buy and hold securities until their maturities. However, the portfolio managers may sell securities for a variety of reasons, such as to adjust the portfolio's average maturity, credit, liquidity or yield metrics. The fund may invest up to 20% of its net assets, plus the amount of any borrowings for investment purposes, in: • obligations that are issued by private issuers and guaranteed under the Federal Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program ("FDIC -guaranteed obligations") and • repurchase agreements secured by FDIC -guaranteed obligations. Prospeellus — First American Money Market Funds Class D Shares 14 Fund Summaries Treasury Obligations Fund continued Principal Risks An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Principal risks of investing in this fund include: Credit Risk— The value of your investment might decline if the issuer of an obligation held by the fund defaults on the obligation or has its credit rating downgraded. FDIC -Guaranteed Obligation Risk— Investments in FDIC -guaranteed obligations subject the fund to the additional risk that payments by the FDIC pursuant to its guarantee will be delayed from the date payments are due under the terms of the debt. Income Risk— The level of income you receive from the fund will be affected by movements in short-term interest rates. Because the fund invests primarily in U.S. Treasury obligations and repurchase agreements secured by those securities, the fund may offer less income than money market funds investing in other high -quality money market securities. Interest Rate Risk— The value of your investment might decline because of a sharp rise in interest rates that causes the value of the fund's portfolio holdings to fall. Liquidity Risk— The fund may not be able to sell a security in a timely manner or at a desired price, or may be unable to sell the security at all, because of a lack of demand in the market for the security. Redemption Risk— If there are unexpectedly high redemptions of fund shares, the fund might have to sell portfolio securities prior to their maturity, possibly at a loss. Repurchase Agreement Risk— If the seller of a repurchase agreement defaults on its obligation to repurchase securities from the fund, the fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. Fund Parlormance The following bar chart and table provide some indication of the potential risks of investing in the fund. The fund's past performance is not necessarily an indication of how the fund will perform in the future. Updated performance information is available online at firstamericanfunds.com or by calling 800 677-3863. The bar chart shows you the variability of the fund's performance from year to year. The table illustrates the fund's average annual total returns over the time periods indicated. 'Total return for the period Will through 9130/11 was 0.00%. 10 Prospectus — First American Money Market Funds Class D Shares 15 Fund Summaries Treasury Obligations Fund continued Investment Advisor U.S. Bancorp Asset Management, Inc. Other Information I For important information about the purchase and sale of fund shares, tax information, and financial intermediary compensation, please see "Additional Summary Information" on page 14 of the prospectus. I 11 Prospectus —First American Money Market Funds Class D Shares 16 Fund Summaries U.S. Treasury Money Market Fund Investment Objective U.S. Treasury Money Market Fund's objective is to seek maximum current income consistent with the preservation of capital and maintenance of liquidity. Fees and Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. Shareholder Fees (fees paid direcity fromyour investment) Class D Maximum Sales Charge (Load) None Maximum Deterred Sales Charge (Load) None Annual Fund Operating Expenses (expenses thatyou pay eachyearas a pementage of Me value ofyour investment) Management Fees 0.10% Distribution and/or Service (1 2b-1) Fees 0.15% Other Expenses: Shareholder Servicing Fee 0.25% Miscellaneous 0.20% Total Annual Fund Operating Expenses 0.70% Example: This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Principal Investment Strategies U.S. Treasury Money Market Fund invests exclusively in direct obligations of the U.S. Treasury and other money market funds that invest exclusively in such obligations. The U.S. Treasury obligations in which the fund invests include U.S. Treasury bonds, notes, and bills. These types of Treasury securities are essentially the same except for differences in interest rates, maturities, and dates of issuance. U.S. Treasury obligations are backed by the full faith and credit of the U.S. government. When selecting securities for the fund, the portfolio managers first consider general economic factors, market conditions, and the short-term interest rate environment in determining what types of short-term instruments to purchase. The portfolio managers then select the specific instruments to be purchased. Generally, the portfolio managers buy and hold securities until their maturities. However, the portfolio managers may sell securities for a variety of reasons, such as to adjust the portfolio's average maturity, credit, liquidity or yield metrics. Principal Risks An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Principal risks of investing in this fund include: Additional Expenses — If the fund invests in money market funds advised by another investment advisor, you will bear both your proportionate share of the expenses in the fund (including management and advisory fees) and, indirectly, the expenses of such other money market fund. 12 Prospectus — First American Money Market Funds Class 0 Shares 17 Fund Summaries U.S. Treasury Money Market Fund continued Credit Risk —The value of your investment might decline if the issuer of an obligation held by the fund defaults on the obligation or has its credit rating downgraded. Income Risk— The level of income you receive from the fund will be affected by movements in short-term interest rates. Because the fund invests solely in U.S. Treasury obligations and other money market funds that invest exclusively in those obligations, the fund may offer less income than money market funds investing in other high -quality money market securities. Interest Rate Risk— The value of your investment might decline because of a sharp rise in interest rates that causes the value of the fund's portfolio holdings to fall. Liquidity Risk— The fund may not be able to sell a security in a timely manner or at a desired price, or may be unable to sell the security at all, because of a lack of demand in the market for the security. Redemption Risk— If there are unexpectedly high redemptions of fund shares, the fund might have to sell portfolio securities prior to their maturity, possibly at a loss. Fund Performance The following bar chart and table provide some indication of the potential risks of investing in the fund. The fund's past performance is not necessarily an indication of how the fund will perform in the future. Updated performance information is available online at firstamericanfunds.com or by calling 800 677-3863. The bar chart shows you the variability of the fund's performance from year to year. The table illustrates the fund's average annual total returns over the time periods indicated. 'Total return forthe period 1/1/11 through SWII was 0.00%. Investment Advisor U.S. Bancorp Asset Management, Inc. Other Information For important information about the purchase and sale of fund shares, tax information, and financial intermediary compensation, please see "Additional Summary Information" on page 14 of the prospectus. 13 Prospectus — First American Money Market Funds Class D Shares rr Additional Summary Information Purchase and Sale of Fund Shares You may purchase or redeem shares of the funds on any business day by calling your financial institution. You can become a shareholder in any of the funds by making a minimum initial investment of $2,500. The minimum additional investment is $100. The funds reserve the right to waive or lower purchase minimums under certain circumstances and to reject any purchase order or to stop offering shares for sale at any time. You can redeem shares through your financial institution. Each fund reserves the right to suspend the right of shareholder redemption, or postpone the date of payment: • if emergency conditions should exist ' as specified in the Investment Company Act of 1940 (the "Investment Company Act"), or as determined by the Securities and Exchange Commission (SEC), as a result of which disposal of portfolio securities or determination of the net asset value (NAV) of the fund is not reasonably. practicable; • for any period during which trading on the New York Stock Exchange (NYSE) is restricted as determined by the SEC or the NYSE is closed (other than customary weekend and holiday closings); or • for such other periods as the SEC may by order permit for the protection of shareholders of the fund. In addition, in the unlikely event that the funds' board of directors were to determine pursuant to SEC regulations that the extent of the devia tion between a fund's amortized cost per share and its market -based NAV per share may result in material dilution or other unfair results to shareholders, the board will cause the fund to take such action as it deems appropriate to eliminate or reduce to the extent practicable such dilution or unfair results, including suspending redemption of shares and liquidating the fund under Rule 22e-3 of the Investment Company Act. Tax Information For Government Obligations Fund, Prime Obligations Fund, Treasury Obligations Fund, and U.S. Treasury Morley Market Fund, dividends you receive from the funds are generally taxable as ordinary income. Dividends attributable to income from U.S. government securities may be exempt from state personal income taxes. Tax Free Obligations Fund intends to pay interest that is exempt from federal income tax, including the federal alternative minimum tax, although a portion of the fund's distributions may not be tax-exempt. Payments to Broker-Oealars and Other Financial Intermediaries If you purchase a fund through a broker -dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker -dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediary's welosite for more information. 14 Prospectus — First American Money Market Funds Class D Shares 19 More about the Funds Investment Objectives The funds' objectives are described in the "Fund Summaries" section. Please remember, there is no guarantee that any fund will achieve its objective. Investment Strategies The funds' principal investment strategies are discussed in the "Fund Summaries" section. These are the strategies that the funds' investment advisor believes are most likely to be important in trying to achieve the funds' objectives. You should be aware that each fund may also use strategies and invest in securities that are not described in this prospectus, but that are described in the SAL For a copy of the SAI, call Investor Services at 800 677-3863. U.S. Government Agency Securities U.S. government securities issued by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB) are neither issued nor guaranteed by the U.S. Treasury and are not backed by the full faith and credit of the United States. These entities, however, were chartered or supported by Acts of Congress and are supported by federal subsidies, loans or other benefits. The Government National Mortgage Association (Ginnie Mae) is a wholly -owned U.S. corporation that is authorized to guarantee timely payment and interest of its securities. U.S. government securities issued by Ginnie Mae are guaranteed by the full faith and credit of the United States. Other U.S. government securities do not have an explicit guarantee but support is implied due to the government sponsorship of their mandated activities, including securities issued by the Tennessee Valley Authority and Federal Farm Credit Banks. Other Money Market Funds In addition to the securities specified in the "Fund Summaries" section, each fund may invest in other money market funds that invest in the same types of securities as the respective fund, including each of the other money market funds advised by the funds' investment advisor. To avoid duplicative investment advisory fees, when a fund invests in another money market fund advised by the fund's investment advisor, the investment advisor reimburses the fund an amount equal to the fund's proportionate share of the investment advisory fee paid by the other money market fund to the investment advisor. If the fund invests in money market funds advised by another investment advisor, you will bear both your proportionate share of the expenses in the fund (including management and advisory fees) and, indirectly, the expenses of such other money market fund. Securities Lending To generate additional income, each fund other than Tax Free Obligations Fund and U.S. Treasury Money Market Fund may lend securities representing up to one-third of the value of its total assets to broker -dealers, banks, and other institutions deemed by the fund's advisor to present minimal credit risk. When a fund loans its portfolio securities, it will receive, at the inception of each loan, cash collateral equal to at least 102% of the value of the loaned securities, which is invested consistent with the fund's investment strategies. If the borrower falls to return the loaned securities, the fund could suffer a loss if the value of the invested collateral is insufficient to purchase replacement securities. Temporary Oefensive Position For liquidity and to respond to unusual market conditions, the funds may hold all or a significant portion of their total assets in cash for temporary defensive purposes. This may result in a lower yield and prevent the funds from meeting their investment objectives. Investment Approach Each fund complies with SEC regulations that apply to money market funds. These regulations require that each fund's investments mature within 397 days from the date of purchase and that each fund maintain a weighted average maturity of 60 days or less and a weighted average life of 120 days or less. The funds may invest in securities with variable or floating interest rates and securities with demand features. The maturities of these securities are determined according to regulations which allow the funds to consider some of these securities as having maturities shorter than their stated maturity dates. All of the funds' investments must be in U.S. dollar -denominated high quality securities which have been determined by the funds' advisor to present minimal credit risk and are rated in one of the two highest rating categories by one or more nationally recognized statistical rating organizations (NRSROs) or are deemed by the advisor to be of comparable quality to securities having such ratings. In addition, no more than 3% of each fund's total assets may be invested in securities rated in the second highest rating category by an NRSRO or deemed to be of comparable quality by the fund's advisor at the time of purchase ("second -tier securities"). With limited exceptions, a fund may not invest more than 5% of its total assets in securities issued by the same issuer. Each fund is further limited to investing no more than 1/2 of 1 % in second -tier securities of any issuer. Each fund must comply with weekly liquidity standards that require a fund to hold at least 30% of its total assets in cash, direct obligations of the U.S. Government, agency discount notes with remaining maturities of 60 days or less, or securities 15 Prospeelffs — First American Money Market Funds Class D Shares �Ll More about the Funds Investment Approach continued convertible into cash within five business days. Each fund, other than Tax Free Obligations Fund, must also comply with daily liquidity standards that require a fund to hold at least 10% of its total assets in rash, direct obligations of the U.S. Government, or securities convertible into cash within one business day. Each fund is limited to investing no more than 5% of its total assets in illiquid securities. Investment Risks The principal risks of investing in each fund are identified in the "Fund Summaries" section. Certain risks are further described below Foreign Security Risk. The foreign securities in which Prime Obligations Fund may invest, although dollar -denominated, may present some additional risk. Political or social instability or diplomatic developments could adversely affect the securities. There is also the risk of possible withholding taxes, seizure of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on securities owned by the fund. In addition, there may be less public information available about foreign corporations and foreign banks and their branches. Disclosure of Portfolio Holdings A description of the funds' policies and procedures with respect to the disclosure of the funds' portfolio securities is available in the funds' SAL is PrOpeelas —First American Money Market Funds Class D Shares 21 Fund Management Investment Advisor U.S. Bancorp Asset Management, Inc. 800 Nicollet Mail Minneapolis, MN 55402 U.S. Bancorp Asset Management provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of September 30, 2011, U.S. Bancorp Asset Management had more than $51 billion in assets under management, including investment company assets of more than $46 billion. As investment advisor, U.S. Bancorp Asset Management manages the funds' business and investment activities, subject to the authority of the funds' board of directors. Each fund pays the investment advisor a monthly management fee for providing investment advisory services. The table below reflects management fees paid to the investment advisor, after taking into account any fee waivers, for the funds' most recently completed fiscal year. Management fee as a % of average dailv net assets Government Obligations Fund 0.10% Prime Obligations Fund 0.10% Tax Free Obligations Fund 0.09% Treasury Obligations Fund 0.09% U.S. Treasury Money Market Fund 0.03%_ U.S. Bancorp Asset Management may voluntarily waive or reimburse certain fees and expenses in order to maintain a zero or positive yield for each share class of each fund. These waivers and reimbursements may be terminated at any time by U.S. Bancorp Asset Management. A discussion regarding the basis for the board's approval of the funds' investment advisory agreement appears in the funds' annual report to shareholders for the fiscal year ended August 31, 2011. Additional Compensation U.S. Bancorp Asset Management, U.S. Bank National Association (U.S. Bank) and other affiliates of U.S. Bancorp may act as fiduciary with respect to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and other trust and agency accounts that invest in the First American funds. As described above, U.S. Bancorp Asset Management receives compensation for acting as the funds' investment advisor. U.S. Bancorp Asset Management, U.S. Bank and their affiliates also receive compensation from the funds as set forth below. Administration Services. U.S. Bancorp Asset Management and its affiliate, U.S. Bancorp Fund Services, LLC (Fund Services), act as the funds' administrator and sub -administrator, respectively, providing administration services that include general administrative and accounting services, blue sky services and shareholder services. For such services, each fund pays U.S. Bancorp Asset Management the fund's pro rate portion of up to 0.15%, on an annual basis, of the aggregate average daily net assets attributable to Class D shares of all open-end funds in the First American family of funds. U.S. Bancorp Asset Management pays Fund Services a portion of its fee, as agreed to from time to time. In addition to these fees, the funds may reimburse U.S. Bancorp Asset Management for any out-of-pocket expenses incurred in providing administration services. Custody Services. U.S. Bank provides custody services to each fund. U.S. Bank is paid monthly fees equal, on an annual basis, to 0.0050/6 , of each fund's average daily net assets. Distribution Services. Quasar Distributors, LLC, an affiliate of U.S. Bancorp Asset Management, receives distribution and shareholder servicing fees for acting as the funds' distributor. Securities Lending Services. In connection with lending their portfolio securities, the funds pay fees to U.S. Bank of 20% of each fund's net income from securities lending transactions and U.S. Bank pays half of such fees to U.S. Bancorp Asset Management for certain securities lending services provided by U.S. Bancorp Asset Management. Shareholder Servicing Fees. Each fund pays U.S. Bancorp Asset Management a shareholder servicing fee at an annual rate of 0.25% of its average daily net assets attributable to Class D shares for providing or arranging for the provision of shareholder services to the holders of its Class D shares. Transfer Agency Services. Fund Services provides transfer agency and dividend disbursing services, as well as certain shareholder services, to the funds. Fund Services receives fees for transfer agency and dividend disbursing services on a per shareholder account basis, subject to a minimum fee per share class. In addition, the funds may reimburse Fund Services for any out-of-pocket expenses incurred in providing transfer agency services. 17 Prospectus — First American Money Market Funds Class D Shares 22 Fund Management Investment Advisor continued Other Compensation. To the extent that fund shares are held through U.S. Bank or its broker -dealer affiliate, U.S. Bancorp Investments, Inc., those entities may receive distribution and/or shareholder servicing fees from the funds' distributor as well as other payments from the funds' distributor and/or advisor as described below under "Shareholder Information — Additional Payments to Institutions." Portfolio Managers The funds are managed by a team of persons associated with U.S. Bancorp Asset Management. is Prospeetilis — First American Money Market Funds Class D Shares 23 Shareholder Information Pricing of Fund Shares You may purchase or redeem shares of the funds on any business day that the Federal Reserve Bank of New York (Federal Reserve) is open, except as noted below. In addition to weekends, the Federal Reserve is closed on the following Federal holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. A fund may close when the Federal Reserve is open and the NYSE is closed, such as Good Friday. On any business day when the Securities Industry Financial Markets Association recommends that the bond markets close trading early, a fund may also close trading early. Your purchase or redemption price will be based on that day's NAV per share if your order is received by the funds in proper form prior to the time the fund calculates its NAV. See "Purchasing and Redeeming Fund Shares — Calculating Net Asset Value" below. Contact your investment professional or financial institution to determine the time by which it must receive your order to be assured same day processing. To make sure your order is in proper form, you must follow the instructions set forth below under "Purchasing and Redeeming Fund Shares." Share Classes The funds issue their shares in multiple classes. This prospectus offers Class D shares. Class D shares are only available to certain accounts for which U.S. Bank National Association (U.S. Bank) acts in a fiduciary, agency, or custodial capacity. Class D shares are offered at net asset value, with no front-end or contingent deferred sales charge, but with an annual distribution (12b-1) fee of 0.15% and an annual shareholder servicing fee of 0.25%. 12b-1 Fees Each fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act that allows the fund to pay its distributor an annual fee for the distribution and sale of its shares and for services provided to shareholders. Each fund pays a Rule 12b-11 distribution fee equal to 0.15% of its Class D share average daily net assets. Because these fees are paid out of a fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. The funds' distributor uses the distribution fee to compensate U.S. Bank for providing distribution -related services to the funds. U.S. Bank receives annual fees equal to 0.15% of each fund's Class D average daily net assets attributable to shares sold through them. U.S. Bank will continue to receive Rule 12b-1 distribution fees relating to your Class D shares for as long as you hold those shares. The Board of Directors has approved the suspension or reduction of 12b-1 fee payments by each fund as needed in order to maintain a yield for the Class D shares of at least 0%. Any such suspension or reduction will result in a corresponding suspension or reduction of amounts paid by the fund's distributor to U.S. Bank. Shareholder Servicing Plan Each fund also has adopted a non -Rule 12b-1 shareholder servicing plan and agreement with respect to its Class D shares. Under this plan and agreement, each fund pays U.S. Bancorp Asset Management a shareholder servicing fee at an annual rate of 0.25% of average daily Class D share net assets for providing or arranging for the provision of shareholder services to the holders of Class D shares. No distribution -related services are provided under this plan and agreement. 19 ProspeetuS — First American Money Market Funds Class D Shares 24 Shareholder Information Purchasing and Redeeming Fund Shares. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account As a result, when you open an account, we will ask for your name, permanent street address, date of birth, and social security or taxpayer identification number. Addresses containing a P.O. Box only will not be accepted. We may also ask for other identifying documents or information. You may purchase or redeem shares by calling your financial institution. When purchasing shares, payment must be made by wire transfer, which can be arranged by your financial institution. You cannot purchase shares by wire on days when federally chartered banks are closed. It a fund receives a redemption request by the time the fund calculates its NAV, as specified below, payment will be made the same day by transfer of federal funds if the Fedwire transfer system is available for use that day. Otherwise, payment will be made on the next business day. Purchases I n-Kind. Generally, all purchases will be in cash. However, the funds reserve the right to permit you to purchase shares through the exchange of other securities that you own if consistent with a fund's investment objective, policies, and operations. The market value of any securities exchanged, plus any cash, must be at least $25 million. Please contact your financial institution. Redemptions In -Kind. Generally, all redemptions will be for cash. However, the funds reserve the right to pay all or part of your redemption proceeds in readily marketable securities instead of cash. If payment by a fund is made in securities, the fund will value the securities selected in the same manner in which it computes its NAV. This process minimizes the effect of large redemptions on the fund and its remaining shareholders. If you receive redemption proceeds in -kind, you should expect to incur transaction costs upon disposition of those securities. Additional Information on Purchasing and Redeeming Fund Shares Calculating Not Asset Value The funds generally calculate their NAV per share as of the time specified in the table below on each business day that the funds are open, except that the NAV for Government Obligations Fund, Prime Obligations Fund and Treasury Obligations Funds is generally calculated at 1:00 p.m. Central time on days on which the bond markets close early (typically on the business day preceding a Federal holiday) (an "Early Close"). Purchase and redemption orders received after closing time, including an Early Close, will be processed the next business day. Deadline for orders to be received in order to receive the current day's NAV Government Obligations Fund 3:30 p.m. Central time Prime Obligations Fund 3:30 p.m. Central time Tax Free Obligations Fund 11:30 a.m. Central time Treasury Obligations Fund 3:30 p.m. Central time U.S. Treasury Money Market Fund 12:00 p.m. Central time A fund's NAV is equal to the market value of its investments and other assets, less any liabilities, divided by the number of fund shares. The securities held by the funds are valued on the basis of amortized cost. This involves valuing an instrument at its cost and thereafter assuming a constant amortization of any discount or premium until the instrument's maturity, rather than looking at actual changes in the market value of the instrument. Each fund's net asset value is normally expected to be $1 per share. Frequent Trading of Fund Shares The funds are designed to offer investors a liquid cash option and it is anticipated that shareholders will purchase and redeem fund shares on a frequent basis. Frequent trading by shareholders may disrupt the management of the funds and increase fund expenses. However, given the short-term nature of the funds' investments and their use of the amortized cost method for calculating the NAV of fund shares, the funds do not anticipate that in the normal case frequent or short-term trading into and out of the funds will have significant adverse consequences for the funds and their shareholders. Accordingly, the funds' board of directors has not adopted policies or procedures to monitor or discourage frequent or short-term trading of the funds' shares. 20 PIVSpechis — First American Money Market Funds Class D Shares 25 Shareholder Information Dividends and Distributions Dividends from a fund's net investment income are declared daily and paid monthly. If a fund receives your wire transfer payment for fund shares by the time the fund determines its NAV, you will begin to accrue dividends on that day. If you redeem shares, you will not receive a dividend on the day Of Your redemption request if your request is received by the time the fund determines its NAV. Dividends will be reinvested in additional shares of the same fund, unless you request that distributions be reinvested in another First American fund or paid in cash. This request may be made on your new account form, by contacting your financial institution, or by calling Investor Services at 800 677-3863. If you request that your distributions be paid in cash but those distributions cannot be delivered because of an incorrect mailing address, or if a distribution check remains uncashed for six months, the undelivered or uncashed distributions and all future distributions will be reinvested in fund shares at the current NAV. Taxes Some of the tax consequences of investing in the funds are discussed below. More information about taxes is in the SAL However, because everyone's tax situation is unique, always consult your tax professional about federal, state, and local tax consequences. For Government Obligations Fund, Prime Obligations Fund, Treasury Obligations Fund, and U.S. Treasury Money Market Fund, dividends you receive from the funds are generally taxable as ordinary income, whether you reinvest them or take them in cash. Dividends attributable to income from U.S. government securities may be exempt from state personal income taxes. Dividends from the funds will not be eligible for the maximum 15% tax rate that applies to "qualified dividend income." Tax Free Obligations Fund intends to meet certain federal tax requirements so that distributions of tax-exempt interest income may be treated as "exempt -interest dividends." These dividends are not subject to regular federal tax. However, although it has no current intention of doing so, the fund may invest up to 20% of its net assets in municipal securities the interest on which is subject to the federal alternative minimum tax. Any portion of exempt -interest dividends attributable to interest on these securities may increase some shareholders' alternative minimum tax. Additional Payments to Institutions The advisor and/or the distributor may pay additional compensation to investment professionals, participating institutions and "one -stop" mutual fund networks (collectively, "institutions") out of their own resources in connection with the sale or retention of fund shares and/or in exchange for sales and/or administrative services performed on behalf of the institution's customers. The amounts of these payments may be significant, and may create an incentive for the institution or its employees or associated persons to recommend or sell shares of the funds to you. These payments are not reflected in the fees and expenses listed in the "Fund Summaries" section of the prospectus because they are not paid by the funds. These payments are negotiated and may be based on such factors as the number or value of First American fund shares that the institution sells or may sell; the value of the assets invested in the First American funds by the institution's customers; reimbursement of ticket or operational charges (fees that an institution charges its representatives for effecting transactions in fund shares); lump sum payment for services provided; the type and nature of services or support furnished by the institution; and/or other measures as determined from time to time by the advisor and/ or distributor. The advisor and/or distributor may make other payments or allow other promotional incentives to U.S. Bank to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations. You can ask U.S. Bank for information about any payments it receives from the advisor and/or the distributor and from the funds, and any services U.S. Bank provides, as well as about fees and/or commissions U.S. Bank charges. You can also find more details about payments made by the advisor and/or the,distributor in the funds' SAL Staying Informed Shareholder Reports Shareholder reports are mailed twice a year, in October and April. They include financial statements and performance information, and, on an annual basis, the report of independent registered public accounting firm. In an attempt to reduce shareholder costs and help eliminate duplication, the funds will try to limit their mailings to one report for each address that lists one or more shareholders with the same last name. If you would like additional copies, please call Investor Services at 800 677-3863. Statements and Confirmations Statements summarizing activity in your account are mailed quarterly. Confirmations generally are mailed following each purchase or sale of fund shares. Generally, the funds do not send statements to individuals who have their shares held in an omnibus account. 21 Prospectus — First American Money Market Funds Class 0 Shares 26 Financial Highlights The tables that follow present performance information about the Class D shares of each fund. This information is intended to help you understand each fund's financial performance for the past five years. Some of this information reflects financial results for a single fund share held throughout the period. Total returns in the tables represent the rate that you would have earned or lost on an investment in the fund, assuming you reinvested all of your dividends and distributions. The information below has been derived from the financial statements audited by Ernst & Young LLP, an independent registered public accounting firm, whose report, along with the funds' financial statements, is included in the funds' annual report, which is available upon request. Government Obligations Fund. 2011 Fiscal year ended August 31, 2010 2009 20D8 2007 Per Share Date Not Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Net Investment Income - - 0.004 0.029 0.047 Distributions (from net investment income) (0.004 (0.029 (0.04 Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ I.Do $ 1.00 Total Return' 0.00% 0.00% 0.44% 2.95% 4.82% RallosAupplemental Date Net Assets, End of Period (000) $2,176,148 $2,525,955 $2,973.885 $2,628,910 $1,320,996 Ratio of Expenses to Average Not Assets 0.20% 0.27% 0.59% 0.60% 0.60% Ratio of Not Investment Income to Average Net Assets O.OD% 0.00% 0.40% 2.59% 4.71% Ratio of Expenses to Average Not Assets (excluding waivers) 0.64% 0.63% 0.65% 0.63% 0.63% Ratio of Net Investment Income (Loss) to Average Not Assets, (excluding waivers) (0.44)% (0.36)% 0.34% 2.56% 4.68% 'Total return would have been lower had certain expenses not been waived Prime Obligations Fund Per Share Data Nei Asset Value, Beginning of Period Net Investment Income Distributions (from net investment income) Net Asset Value, End of Period Total Return' Ratlos/Supplementell Data 2011 Fiscal year ended August 31, 2010 2009 2008 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - 0.0001 0.008 0.033 (0.000, (0.008 (0.033 $ 1.00 $ 1.00 $ 1.00 $ 1.00 0.00% 0.00% 0.79%' 3.32% 2007 $ 1.00 0.048 (0.048 $ 1.00 4.86% Net Assets, End of Period (000) $1,085,626 $1,513,140 $2,473,134 $1,936,019 $1,102,093 Ratio of Expenses to Average Not Assets 0.30% 0.34% 0.64% 0.63% 0.63% Ratio of Net Investment Income to Average Net Assets 0.00% 0.00% 0.71% 3.07% 4.76% Ratio of Expenses to Average Net Assets (excluding waivers) 0.64% 0.64% 0.66% 0.63% 0.63% Ratio of Net Investment Income (Loss) to Average Not Assets (excluding waivers) (0.34)% (0.30)% 0.69% 3.07% 4.76% I Rounds to zero. 2 Total return would have been lower had certain expenses not been waived 22 Prospeetus - First American Money Market Funds Class D Shares 27 Financial Highlights Tax Free Obligations Fund 2011 Fiscal year ended August 31, 2010 2009 2008 2007 Per Share Data Not Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Net Investment Income - 000 0.005 0.020 0.031 DistribLitions; (from not investment Income) (0.0001 (0.005 (0.020 (0.031 Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return2 0.00% 0.000/6 0.52% 2.01% 3.09% Raflosisupplemental Data Not Assets, End of Period (000) $33,470 $28,380 $48,884 $159,924 $51,119 Ratio of Expenses to Average Net Assets 0.24% 0.26% 0.57% 0.60% 0.60% Ratio of Net Investment Income to Average Not Assets 0.00% 0.00% 0.64% 1.75% 3.05% Ratio of Expenses to Average Not Assets (excluding waivers) 0.69% 0.66% 0.68% 0.64% 0.65% Ratio of Not Investment Income (Loss) to Average Not Assets (excluding waivers) (0.45)% (0.40)% 0.53% 1.71%, 3.00% I Rounds to zero. 'Total return would have been lower had certain expenses not been waived Treasury Obligations Fund Per Share Data Not Asset Value, Beginning of Period Net Investment Income Distributions (from net Investment income) Net Asset Value, End of Period Total Return2 Rallos/Supplementud Data Fiscal year ended August 31, 2011 2010 2009 2008 2007 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - 5001 0.001 0.024 0.046 (0.000, (0.001 (0.024 (0. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 0.00% 0.00% 0.11% 2.45% 4.71% Not Assets, End of Period (000) $2,434,904 $2,708,770 $3,411,407 $6,868,518 $7,232,055 Ratio of Expenses to Average Not Assets 0.17% 0,200/a 0.50% 0.60% 0.60% Ratio of Not Investment Income to Average Net Assets 0.00% 0.00% 0.15% 2.45% 4.61% Ratio of Expenses to Average Net Assets (excluding waivers) 0.65% 0.63% 0.64% 0.63% 0.63% Ratio of Net Investment Income (Loss) to Average Net Assets (excluding waivers) (0.48)% (0.43)% 0.01% 2.42% 4.58% Rounds to zero. Total return would have been lower had certain expenses not been waived U.S. Treasury Money Market Fund Per Share Data Net Asset Value, Beginning of Period Net Investment Income Distributions (from net Investment income) Net Asset Value, End of Period Total Return' Rallow3upplemental Data Fiscal year ended August 31, 2011 2010 20D9 2008 2007 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - - 0.00, 0.021 (0.001 (0.021 (0.044 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 0.00% 0.00% 0.12% 2.15% 4.47% Not Assets, End of Period (000) $91,763 $115,634 $133,882 $321,431 $230,031 Ratio of Expenses to Average Net Assets 0.11% 0.13% 0.42% 0.60% 0.60% Ratio of Net Investment Income to Average Not Assets 0.00% 0.00% 0.16% 2.09% 4.37% Ratio of Expenses to Average Net Assets (excluding waivers) 0.70% 0.68% 0.64% 0.65% 0.67% Ratio of Net Investment Income (Loss) to Average Net Assets (excluding waivers) (0.59)% (0.55)% (0.06)% 2.04% 4.30% 1 Total return would have been lower had certain expenses not been waived or reimbursed 23 Prospectus - First American Money Markel Funds Class D Shares 28 First American Funds' Privacy Policy We want you to understand what information we collect and how it's used. "Nonpublic personal information" is nonpublic information that we obtain while providing financial products or services to you. Why we collect your information We gather nonpublic personal information about you and your accounts so that we can: • Know who you are and prevent unauthorized access to your information. • Comply with the laws and regulations that govern us. The types of information we collect We may collect the following nonpublic personal information about you: • Information about your identity, such as your name, address, and social security number. • Information about your transactions with us. • Information you provide on applications, such as your beneficiaries and banking information, if provided to us. Confidentiality and security We require out service providers to restrict access to nonpublic personal information about you to those employees who need that information in order to provide products or services to you. We also require them to maintain physical, electronic, and procedural safeguards that comply with applicable federal standards and regulations to guard your information. What information we disclose We may share all of the nonpublic personal information that we collect about you with our affiliated providers of financial services, including our family of funds and their advisor, and with companies that perform marketing services on our behalf. We're permitted by law to disclose nonpublic personal information about you to other third parties in certain circumstances. For example, we may disclose nonpublic personal information about you to affiliated and nonaffiliated third parties to assist us in servicing your account (e.g., mailing of fund -related materials) and to government entities (e.g., IRS for tax purposes). We'll continue to adhere to the privacy policies and practices described here even after your account is closed or becomes inactive. Additional rights and protections You may have other privacy protections under applicable state laws. To the extent that these state laws apply, we will comply with them when we share information about you. This privacy policy does not apply to your relationship with other financial service providers, such as broker -dealers. We may amend this privacy notice at any time, and we will inform you of changes as required by law. Our pledge applies to products and services offered by: • First American Funds, Inc. - American Municipal Income Portfolio Inc. • American Strategic Income Portfolio Inc. - Minnesota Municipal Income Portfolio Inc. • American Strategic Income Portfolio Inc. I I - First American Minnesota Municipal Income Fund 11, Inc. • American Strategic Income Portfolio Inc. III - American Income Fund, Inc. • American Select Portfolio Inc. NOT FDIC INSURED NO UNK THIS PAGE IS NOT PART OF THE PROSPECTUS 29 Firsil American Funds P.O. Box 1330 Minneapolis, MN 55440-1330 F iRsTAMERIcANFUNDS. The Statement of Additional Information (SAI) provides more details about the funds and their policies and is incorporated into this prospectus by reference (which means that it is legally part of this prospectus). Additional information about the funds' investments is available in the funds' annual and semi-annual reports to shareholders. You can obtain a free copy of the funds' most recent annual or semi- annual reports or the SAI, request other information about the funds, or make other shareholder inquiries by calling Investor Services at 800 677-3863 or by contacting the funds at the address above. Annual or semi-annual reports and the SAI are also available on the funds' Internet site at www.firstamericanfunds.com. SEC file number. 811-03313 Information about the funds (including the SAI) ran also be reviewed and copied at the Securities and Exchange Commission's (SEC) Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at 1-202-551-8090. Reports and other information about the funds are also available on the EDGAR Database on the SEC's Internet site at www.sec.gov, or you can obtain copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@see.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-1520. PROMMID 10/11 30