• Policy DFA - Investment and Cash Management

It is the policy of School District No. 1 in the City and County of Denver and State of Colorado (the School District) to invest its funds in a manner which will provide for the highest investment return consistent with the preservation of principal and provision of the liquidity necessary for daily cash flow demands. In addition, it is the policy of the School District to implement internal controls to ensure the safeguard of its financial assets and cash.

Purpose and Scope
This policy shall apply to the management and investment of all financial assets and cash of the School District over which it exercises financial control, as presented and accounted for in the School District’s Comprehensive Annual Financial Report. In order to effectively make use of the School District’s cash resources, the moneys of the following funds may be pooled into one or more investments and accounted for separately. Upon maturity, the interest income earned shall be prorated and credited to the respective funds.

1. General Fund (to include the Emergency Reserve)
   
2. Capital Reserve Fund (to include the Emergency Reserve)
   
3. Self-Insurance Internal Service Fund
   
4. Other Internal Service Funds
   
5. Government Designated Purpose Grants Fund (excluding federal funds which are required to be held in non-interest bearing accounts)
   
6. Special Revenue Funds (as appropriate)
   
7. Pupil Activity Fund
   
8. Food Services Fund
   
9. Trust Funds – Expendable and Non-Expendable
   
10. Building Fund
    
11. Bond Redemption Fund
    
12. Any new fund created by the School District, unless specifically exempted

Not covered by this policy is that of the management and investment of cash by individual schools and accounted for in the Student Activities Fund in the School District’s Comprehensive Annual Financial Report. Investment activities of the Denver Public Schools Employees’ Pension and Benefit Association are also not governed by this Policy.

Objectives
Cash allocated to a specific fund but temporarily not needed shall be invested in accordance with state law and in a manner designed to accomplish the following objectives. These objectives, which are stated in order of priority, are:

1. SAFETY - to ensure the safety of the funds invested. The School District will not invest in securities that expose itself to an undue credit risk of an issuer or a broker/dealer. Investments shall be undertaken in a manner to ensure the preservation of principal in the portfolio.
   
2. LIQUIDITY - to ensure that adequate funds are available at all times to promptly pay all of the School District’s financial obligations. Transactions will be entered into taking into account the liquidity needs of each School District fund and minimizing exposure to interest rate risks.
   
3. YIELD -to earn the maximum return possible on the funds available for investment while complying with state statutes, consistent with the safety of principal and the cash flow needs of the School District.

Ethics and Conflict of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that could create an appearance of impropriety or could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. These officers and employees shall disclose to the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and the Chief Financial Officer any material financial interests in financial institutions that conduct business with the School District, and they shall further disclose any large personal/investment positions that could be related to the performance of the School District’s portfolio. These officers and employees shall subordinate their personal investment transactions to those of the School District, particularly with regard to the time of purchases and sales.

Delegation of Authority
The Board of Education designates the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and the Chief Financial Officer as the cash management and investment officers of the School District who shall be responsible for all investment decisions and cash management activities consistent with the terms of this Policy. The Chief Financial Officer shall delegate to certain employees in the Financial Services Department responsibilities for investment activities and cash management activities and shall establish a system of internal controls to regulate these activities.

Prudence
The Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and the Chief Financial Officer shall be guided by state statutes (C.R.S. 24-75-601.1), this Policy and the “prudent investor” rule (C.R.S. 15-1.1-102), which states that:

“Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital (principal) as well as the probable income to be derived.”

The Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, the Chief Financial Officer and those individuals they authorize to invest on their behalf, who act within the guidelines of this Policy and exercise due diligence, shall not be held personally responsible for assuring sufficient liquidity of investments to meet daily operational needs nor for losses due to financial entity failures where respective funds and securities are held nor for an individual security’s credit risk or market price changes. It is expected that deviations from expectations be reported in a timely fashion to the Superintendent and appropriate action taken to control adverse developments.

Authorized Financial Dealers and Institutions
The Division of Financial Services will maintain a list of financial institutions authorized to provide investment services. No School District funds shall be deposited in any financial institution except as authorized by the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, or the Chief Financial Officer.

Any broker/dealer and bank dealer providing investment services under this policy must:

1. Be one of the following: (1) designated as a primary government securities dealer by the Federal Reserve Bank of New York; (2) a direct issuer of eligible investments (i.e., bankers acceptances, commercial paper, certificates of deposit); (3) or a pre-qualified dealer with offices within the Denver metropolitan area and a minimum net capital of $5,000,000;
   
2. Have been in operation for at least two years. Must provide the School District with audited financial statements at least annually, as well as interim financial statements which may be either audited or unaudited. The firm must not have a qualification of the auditor’s opinion or a contingent liability that could materially affect the capital of the broker/dealer or bank dealer;
   
3. Except for bank dealers, provide the School District with Focus reports as filed with the National Association of Securities Dealers;
   
4. Assign specific personnel to the School District’s account and provide a resume of qualifications of both the broker/dealer or bank dealer and the assigned personnel; and
   
5. Provide written certification of having read and understood the School District’s investment and cash management policy, and intending to comply with items 1-4 above.

Any bank or savings and loan association providing investment services under this policy must be an eligible public depository as defined by the appropriate state agency (i.e., State Banking Division or State Financial Services Division), and must maintain an office within the Denver metropolitan area.

At least annually, the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, the Chief Financial Officer, or designee, will review the financial condition of its authorized financial institutions.

The intent of the School District is to support the financial institutions located within the Denver metropolitan area. However, investments will be made through institutions located outside of this area when it is determined that the local financial institutions are not quoting competitive rates, and for any other substantial reason which is in the best interest of the School District.

Authorized and Suitable Investments
The School District will limit its investments to those allowed by state law (CRS 24-75-601, 24-75-701). Within the choice of investments allowed by state law, the School District will only invest in the following:

1. BONDS OR OTHER INTEREST-BEARING OBLIGATIONS OF THE UNITED STATES GOVERNMENT, to include treasury bills, treasury notes, treasury bonds and treasury strips. Both principal and interest are unconditionally guaranteed by the United States Government. These securities, which have various maturities, are readily available in the secondary market, and possess yields that are generally lower than that of other market instruments. As for market risk, there is a degree of price volatility that results from an active secondary market.
   
2. BONDS OR OTHER INTEREST-BEARING OBLIGATIONS OF THE UNITED STATES GOVERNMENT AGENCIES AND UNITED STATES GOVERNMENT SPONSORED CORPORATIONS. These securities, which have various maturities, are also available in the secondary market, but this market is not as active as the market for direct government obligations. Market risk is considered normal when sold by the School District prior to maturity. These securities include obligations of the Federal Farm Credit System, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation (Freddie Mac), the Student Loan Marketing Association (Sallie Mae), the Federal National Mortgage Association (FNMA or Fannie Mae), the Export-Import System (e.g., Export-Import Bank of the United States, Private Export Funding Corporation), the Government National Mortgage Association (GNMA or Ginnie Mae), and the Tennessee Valley Authority. These obligations are not guaranteed by the United States Government, and, as such, must be rated at time of purchase in its highest rating category by one or more nationally recognized organizations which regularly rate such obligations.
   
3. MONEY MARKET FUNDS THAT ARE REGISTERED UNDER THE FEDERAL INVESTMENT ACT OF 1940. The investment policies of the funds must include an attempt to maintain a constant share price of one dollar. No sales/load fee can be added to the purchase or deducted from the redemption price. The funds must invest in securities which: (1) have a maximum maturity of one year, (2) are legal investments for Colorado local governments, (3) are perfected reverse repurchase agreements which mature within twenty days and (4) have an average maturity of 180 days or less.
   
4. PRIME BANKERS ACCEPTANCES that are in essence time drafts sold at a discount by a state or national bank which: (1) has a combined capital and surplus of $250,000,000, (2) is insured by the FDIC and (3) has an A or better rating for its long-term debt or the long-term debt of its holding company; not to exceed a maturity of 6 months. The bankers’ acceptance must carry a minimum rating at the time of initial purchase of P-1 by Moody’s Investor Service, and A-1 by Standard and Poor’s Corporation. This instrument represents an irrevocable primary obligation of the accepting bank, is readily marketable through a secondary market, has a yield that is generally competitive with certificates of deposit of similar maturities, and contain normal market risk.
   
5. COMMERCIAL PAPER that is rated in its highest rating category (minimum of P-1, Moody’s Investor Service; A-1, Standard and Poor’s Corporation), not to exceed a maturity of 270 days. Commercial paper is a short-term, unsecured promissory note issued for a maturity specified by the purchaser and sold primarily on a discount basis. Issuance is usually by major corporations and bank holding companies, are marketed either through dealers or directly by the issuer. Their yields are competitive with other money market instruments and, given the liquidity conditions, contain normal market risk.
   
6. BONDS WHICH ARE ISSUED BY THE WORLD BANK and at the time of purchase is rated in one of the two highest rating categories by one or more nationally recognized rating agencies.
   
7. GENERAL OBLIGATIONS OF any state of the United States, the District of Columbia, or any territorial possession of the United States or of any political subdivision, institution, department, agency, instrumentality, or authority of any of such governmental entities, and at the time of purchase is rated in one of the two highest rating categories by one or more nationally recognized rating agencies.
   
8. REVENUE OBLIGATIONS OF any state of the United States, the District of Columbia, or any territorial possession of the United States or of any political subdivision, institution, department, agency, instrumentality, or authority of any of such governmental entities, and at the time of purchase is rated in one of the two highest rating categories by one or more nationally recognized rating agencies.
   
9. Any interest in a LOCAL GOVERNMENT INVESTMENT POOL organized pursuant to CRS 24-75-701.
   
10. REPURCHASE AGREEMENTS, provided that: (1) the School District’s security interest is in governmental obligations (see #1 and #2 above), (2) the agreement is collateralized as required by law, at a minimum of 102% of the purchase price plus accrued interest (on at least a weekly basis, this should be marked to market and evaluated, with collateral deficiencies cured by the counter-party on the date of discovery, but not later than the following business day), and the collateral is delivered to and held in a third party safekeeping account, and (3) a master repurchase agreement with the financial institution has been executed. Repurchase agreements represent purchases of any approved security at a specified rate of return with an agreement by the seller to subsequently repurchase the security at its original cost plus interest. Repurchase agreements may be for various maturities, are not negotiable but a seller may be willing to break an agreement, contain yields that are generally higher than may be obtained by direct purchase of securities of similar maturities, and contain minimal market risk.
    
11. TIME DEPOSIT ACCOUNTS AND CERTIFICATES AT BANKS AND SAVINGS AND LOAN INSTITUTIONS, that are state-approved depositories of public funds. These institutions must have a minimum equity of $3,500,000; commercial banks must maintain a minimum capital to assets ratio of 5%, savings and loans must maintain a net worth to assets ratio of 5%. Certificates of deposit which exceed the FDIC/FSLIC insured amount shall be collateralized in accordance with the State Public Deposit Protection Act. The collateral will have a market value equal to or exceeding 100% of principal and interest at all times less the FDIC/FSLIC insured amount taking into consideration the School District’s total deposits for all funds within the financial institution (up to $100,000).

Safekeeping and Custody
All security transactions that are not overnight shall be conducted on a delivery-versus-payment basis. Overnight securities, excluding collateral for repurchase agreements, will be held by the dealer in the name of the Denver Public Schools. All repurchase agreement transactions, to include overnight, however, must be conducted on a delivery-versus-payment basis. Securities transactions conducted on a delivery-versus-payment basis will be held by a third party custodian recommended by the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and Chief Financial Officer and approved by the Board of Education, under a written agreement and evidenced by safekeeping receipts.

All securities purchased and sold shall be authorized or confirmed in writing with the issuer.

Diversification
It is the policy of the School District to diversify investments and to ensure the safety and liquidity of the investments. This can be accomplished by observing the following sound investment practices (the numbers in parentheses refer to the authorized and suitable investment types listed on pages 3 through 5 of this Policy):

1. At least 20% of the investment portfolio shall be invested in government securities (see above, #1, and #2).
   
2. Not more than 20% of the portfolio shall be invested in money market funds at the time of purchase, and not more than 5% of the portfolio may be invested in the funds of any one issuer (see above #3) .
   
3. Not more than 15% of the portfolio will be invested in bankers acceptances at the time of purchase, and not more than 5% of the portfolio may be invested in the bankers acceptance of any one issuer (see above, #4).
   
4. Not more than 20% of the portfolio will be invested in commercial paper at the time of purchase, and not more than 5% of the portfolio may be invested in the commercial paper of any one issuer (see above, #5).
   
5. Not more than 20% of the portfolio shall be invested in World Bank securities, General Obligations of any state of the U.S. and Revenue Obligations of any state of the U.S. (see above, #6, #7 and #8).
   
6. Not more than 20% of the portfolio will be invested in local government investment pools (see above, #9).
   
7. Investments in term repurchase agreements (other than repurchase agreements for the investment of general obligation bond proceeds and certificates of participation proceeds) shall not exceed 20% of the investment portfolio at the time of purchase (see above, #10).
   
8. Not more that 15% of the portfolio will be invested in certificates of deposit at the time of purchase, and not more than 5% of the portfolio may be invested in the certificates of deposit of any one issuer (see above, #11).

Maximum Maturities
The maturity of securities will not exceed the cash needs of the School District as it relates to time. Maturities for School District investments may not exceed two years without written authorization from the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and the Chief Financial Officer. The maximum maturity date for all securities listed above must be no more than five years from the date of purchase unless otherwise authorized by the Board of Education (CRS 24-75-601.1).

Competitive Participation
Whenever practical, the School District shall obtain a minimum of three competitive quotes or request for proposals for all investments with consideration to specific settlement dates. Price of execution will be the primary determinant of selection. In the case where the School District is given equal prices, preference will be given to the financial institutions located within the Denver metropolitan area, with selection determined by random process.

Internal Controls
Internal controls will include, but not be limited to, the following to ensure the integrity of the cash management and investment process:

1. All investments require the approval of the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, or Chief Financial Officer.
   
2. All wires from the School District’s bank require an on-line or telephone confirmation to those employees authorized in the Terms and Conditions Governing Wire Transfers by UMB Bank Colorado.
   
3. A resolution of proposed eligible public depositories is submitted for Board of Education approval, at a minimum, annually.
   
4. All purchases and sales of investments are confirmed in writing with the issuer.
   
5. All wires for the payment of principal and interest on outstanding general obligation bonds and certificates of participation are pursuant to debt schedules and invoices with wiring instructions from the paying agent.
   
6. For repurchase agreements approved by the Board of Education for the investment of proceeds from the issuance of general obligation bonds and certificates of participation, wire requests for the draw down of balances are confirmed in writing.
   
7. All manual and system-generated checks require two signatures in accordance with the resolution approved by the Board of Education.
   
8. System-generated accounts payable checks are not printed, facsimile-signed and released by the Disbursing Office until the Chief Financial Officer or designee has reviewed and approved the Accounts Payable Department’s printout of the checks.
   
9. System-generated payroll checks and payroll direct deposits are approved by the Payroll Department prior to the Disbursing Office’s printing and release of the checks with the facsimile signatures and generation of the direct deposit electronic transfer or tape.
   
10. Prior to the scheduled release of accounts payable checks, the Assistant to the Treasurer or designee is to review a sample of the payments on the accounts payable check register for authorization of payment prior to the Disbursing Office’s processing and release of the checks.
    
11. Prior to the scheduled release of payroll checks, the Assistant to the Treasurer or designee is to review a sample for propriety of amount and payee PAYROLL FILES FOR REASONABLENESS. AFTER THE CHECKS ARE RELEASED, THE ASSISTANT TO THE TREASURER WILL REVIEW A SAMPLE OF DEPARTMENT AND SCHOOL PAYROLL CHECKS FOR PROPRIETY OF AMOUNT AND PAYEE.
    
12. The amount of property tax and motor vehicle tax receipts is confirmed in writing by the City and County of Denver to the School District prior to the wiring of such funds to a pre-designated School District bank account.
    
13. The amount of monthly state equalization and periodic state categorical funding is confirmed in writing by the Colorado Department of Education to the School District prior to the wiring of such funds to a pre-designated School District bank account.
    
14. Prior to the scheduled deposit of cash and checks into the bank, tThe Assistant to the Treasurer or designee is to review a sample of the deposits submitted by the Disbursing Office and compare them with the general ledger receipt batches generated by General Accounting.
    
15. The Board of Education, by resolution, annually authorizes the Chief Financial Officer to participate in the State Interest-Free Loan Program and to borrow available funds in the Capital Reserve Fund and Self-Insurance Internal Service Fund for the General Fund.
    
16. Both the Superintendent and the Chief Financial Officer or designee sign the Cash Flow Work Sheet submitted to the State Treasurer for purposes of requesting funds for the General Fund through the State Interest-Free Loan Program. The requested amount of funds is based on cash flow projections approved by the Chief Financial Officer or Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE.
    
17. Annually, the external auditors, as part of the annual independent School District financial audit, review the internal controls, test the interest earnings and confirm the outstanding investments. General Accounting reconciles the bank account balances to the general ledger balances, such reconciliations to be reviewed by the external auditors. The audited balance sheet amount of General Fund cash is reconciled to that reported on the Cash Flow Work Sheet to the state and submitted to the State Treasurer.

Reporting
The Board of Education FINANCE AND AUDIT COMMITTEE shall receive, monthly QUARTERLY reports identifying SUMMARIZING cash receipts and disbursements for each fund, investment purchases, earnings on matured investments and a schedule of outstanding investments.

Glossary of Terms

AGENCIES: These are federal agency securities.

BANKERS’ ACCEPTANCE: A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.

BROKER: A broker brings buyers and sellers together for commission paid by the initiator of the transaction or by both sides; the broker does not position (i.e., the broker does not own the securities he is buying or selling). In the money market, brokers are active in markets in which banks buy and sell money and interdealer markets.

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: A short-term, unsecured promissory note issued by corporations for a maturity specified by the purchaser, usually from 1 to 270 days and sold primarily on a discount basis.

CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large-denomination CDs are typically negotiable.

COUPON: The annual rate of interest that bond’s issuer promises to pay bondholders on the bond’s face value.

DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.

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 a simultaneous exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities.

DISCOUNT: The difference between the cost price of a security and its value at maturity when the price quoted is lower than the face or maturity 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 at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury bills.

DIVERSIFICATION: Dividing investments among a variety of securities offering independent returns.

ELIGIBLE DEALERS: See investment and cash management policy.

ELIGIBLE PUBLIC DEPOSITORY: An association that has been designated an eligible public depository by the State of Colorado pursuant to statute and is, therefore, qualified to hold savings deposits of the School District.

EMPLOYEE: As used in this document, the term employee means a person delegated or designated by the Chief Financial Officer and Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, to carry out certain investment and cash management responsibilities.

EXPORT-IMPORT BANK OF THE UNITED STATES: The Eximbank was founded in 1934. The bank operates under authority granting broad powers to finance and facilitate exports of American products by extending loans, guarantees and export credit insurance. Eximbank is governed by a five-member board of directors appointed by the President of the United States. The bank also guarantees credit and short-term discount notes issued by the sponsored corporation, the Private Export Funding Corporation. Purchasers may select the maturity for any period from three to 360 days.

FEDERAL FARM CREDIT SYSTEM: The farm credit banks collectively issue consolidated system-wide discount notes. These are the joint and severable obligations of the banks, with maturities ranging from five to 270 days. Discount notes are used to meet routine cash management requirements, and to provide for interim financing between bond sales. These banks also issue consolidated bonds with six-month and nine-month maturities offered monthly.

FEDERAL HOME LOAN BANK (FHLB): The institutions that regulate and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-à-vis member commercial banks. The banks issue consolidated bonds and discount notes as joint and severable obligations of the Home Loan Banking System. Although they operate under federal charter with government supervision, these securities are not secured or guaranteed by the U.S. government. However, the banks are required to maintain secured advances, guaranteed mortgages, U.S. government securities or cash in an amount at least equal to the amount of consolidated bonds and discount notes outstanding.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): A government organization established in 1970 to create a secondary market in conventional mortgages. The FHLMC (also known as Freddie Mac) sells its own government-insured bonds and uses the proceeds to buy either insured or conventional mortgages from federally insured financial institutions and then resells them in the form of mortgage-backed, pass-through certificates. FHMLC assumes and guarantees that all security holders will receive timely payment of principal and interest.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. FNMA is a private stockholder-owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans in addition to fixed-rate mortgages. FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest.

FEDERAL 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.

FUND: Independent fiscal and accounting entity with a self-balancing set of accounts in which cash and other financial resources are recorded, together with all related liabilities and residual balances. Each fund has a specific purpose or carries on specific activities.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA): Commonly referred to as Ginnie Mae, this is a real estate-oriented security, whose holders are guaranteed against loss by the U.S. government, representing portions of a pool of government-guaranteed FHA and VA mortgages. Unlike bonds, Ginnie Maes do not pay back the principal at maturity. Instead, they pay principal payments each month along with interest.

INTEREST: Money paid for the use of another’s money.

LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value.

MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.

MATURITY: The date on which the principal or stated value of an investment becomes due and payable to the investment holder.

MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded.

PAR VALUE: The face value, or principal amount, of a security.

POOL: A collection of investments for separate or multiple funds and/or funded projects.

PORTFOLIO: All securities held in the various investment pools of the School District which are under the control of the Chief Operating Officer ASSISTANT SUPERINTENDENT, BUDGET AND FINANCE, and Chief Financial Officer and governed by this Investment and Cash Management Policy.

PRIMARY DEALER: A group of government securities dealers that submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight.

PRIME: Prime banker’s acceptances and prime commercial paper shall be those securities having a minimum short-term rating of A-1 and P-1.

PRUDENT PERSON RULE: An investment standard requiring trustees and portfolio managers to make financial decisions in the manner of a prudent person, e.g., with intelligence and discretion. The prudent person rule requires care in the selection of investments but does not limit investment alternatives.

REPURCHASE AGREEMENT: A financial contract through which a holder of securities sells securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The repurchase agreement “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 loan.

SECONDARY MARKET: Where existing issues are bought and sold by subsequent owners and purchasers. It may be either over-the-counter or through an exchange.

STUDENT LOAN MARKETING ASSOCIATION (SLMA): SLMA, a government-chartered, privately owned corporation providing a secondary market in government-guaranteed student loans. SLMA sells government-guaranteed bonds to investors to raise funds for purchasing student loans from financial institutions.

TENNESSEE VALLEY AUTHORITY (TVA): TVA is an agency of the U.S. government established in 1933 to promote economic growth in the Tennessee Valley region. While not secured or guaranteed by the U.S. government, TVA discount notes are an obligation of the TVA, a wholly-owned corporate agency and instrumentality of the United States of America which is required by federal law to charge rates sufficient to cover its operating, capital and debt service costs. An active secondary market exists for TVA’s debt securities.

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 U.S. Treasury securities having initial maturities of more than ten years.

TREASURY NOTES: Intermediate U.S. Treasury securities having initial maturities of less than ten years.

YIELD: The rate of annual income return on an investment, expressed as a percentage. Income Yield is obtained by dividing the current dollar income by the current market price for the security. The Net Yield or Yield to Maturity is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.