Appendix C. Trust/Paying Agent/Investment Custodian Services. Reno-Tahoe Airport Authority Reno NV

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1 Appendix C Trust/Paying Agent/Investment Custodian Services Reno-Tahoe Airport Authority Reno NV

2 APPENDIX C TRUST/ PAYING AGENT/ INVESTMENT CUSTODIAL SERVICES RFP SUBMISSION FORM General Information The focus of this Appendix is to obtain the highest level of service, enhance operational efficiencies, and lowest costs associated with trust, paying agent and investment custodial services. The Authority is interested in utilizing the best current and forward looking technology. Trust/ Paying Agent The Reno-Tahoe Airport Authority (RTAA) is responsible for funding the capital improvement needs of the airports within its system. This funding is sometimes accomplished through the regular sale of medium-term and long-term debt instruments such as notes and bonds. As of July 2012, the only Senior Lien Bonds outstanding are the Series 2005 Airport Revenue Refunding bonds (Series 2005 Bonds) in the amount of $26,270,000. The annual debt service associated with the Series 2005 Bonds, outlined below, will remain stable through fiscal year On June 1, 2011, the RTAA obtained funding for its Airport Gateway Program and other capital projects from Banc of America Public Capital Corporation (BAPCC) with the issuance of Subordinate Lien Airport Revenue Notes with a maximum principal amount of $30 million for a term of six (6) years. As of June 30, 2012, the Authority has received proceeds from the Series A- Fixed rate portion of the Subordinate Lien Notes in the amount of $15 million. No draw on the 2011 B Subordinate Lien Notes is anticipated until The table below outlines the status of current outstanding obligations as of June 30 th of the fiscal year: $ - $ 4,165,000 $ 12,100, ,270,000 27,455,000 28,600, A 15,000,000 15,000, B Total Debt $ 41,270,000 $ 46,620,000 $ 40,700,000 The 2005 bonds are not subject to redemption prior to maturity. Maturities of revenue bonds will require the following principal and interest payments (based on amounts outstanding at June 30, 2012): 1

3 Series 2005 Amount Bond year ended July 1, Principal Interest 2012 $ 1,245,000 $ 1,276, ,310,000 1,213, ,355,000 1,161, ,420,000 1,101, ,475,000 1,044, ,550,000 4,050, ,915,000 1,690,750 $ 26,270,000 $ 11,538,100 The bonds are issued in book-entry form and registered in the name of Cede & Co. as the representative of DTC. The Proposer will pay to the DTC sufficient funds to pay principal of and interest on the outstanding bonds when due. The 2011 Subordinate Lien Revenue Notes, Series A Fixed Rate have an aggregate principal of $15,000,000. Maturities of these revenue notes will require the following principal and interest payments (based on amounts outstanding at June 30, 2012): Series 2011 A Amount Note year ended July 1, Principal Interest 2012 $ 2,335,000 $ 446, ,400, , ,465, , ,530, , ,600, , ,670,000 73,425 $ 15,000,000 $ 1,510,300 To complete on-going airport projects, the Authority anticipates drawing down on the $15 million available under the 2011 Subordinate Lien Revenue Notes, Series 2011B Notes. The rate for the 2011B Note is established at 1.581% over sixty-five percent (65%) of the six (6) month London Interbank Offering Rate (LIBOR) rate. The 65% factor is to adjust for the tax-exempt status of these notes versus the taxable LIBOR rate. Based on the June 30, 2012 six (6) month LIBOR rate of 0.74%, the borrowing rate as of June 30, 2012 would be 2.06%. The following is the current estimated debt service on $7.893 million of borrowing anticipated under the 2011 B Note included in the current Authority s five (5) year financial forecast: 2

4 Series 2011 B Amount Note year ended July 1, Principal Interest 2012 $ -- $ , ,910, , ,950, , ,955,000 90, ,038,000 45,855 $ 7,893,000 $ 537,605 Both the Series 2011A and Series 2011B are funded by Banc of America Public Capital Corporation and they are the sole holders of the notes. Staff does not anticipate the issuance of any additional senior lien bonds while the Notes are outstanding. However, the Note Resolution does reserve the right to issue additional debt at any time, subject to requirements and financial tests outlined in the Note Resolution. Investment Custodial Services The RTAA is responsible for the investment of cash balances. As of June 30, 2012, the Authority has short-term investments and money market funds of $59.7 million as follows: Investment Portfolio (6/30/2012) Amount Maturity Date Federal National Mortgage Discount Note $ 999,990 July 16, 2012 Fidelity Money Market Mutual Funds 53 days (avg. weighted maturity) Governmental Fund 57 11,906,391 August 22, 2012 US Bank N.A. Commercial Paper 3,000,000 September 10, 2012 Federal Home Loan Banks Discount Note 2,002,640 September 21, 2012 State of Nevada Local Government Investment Pool 8,019,426 October 22, days (avg. weighted maturity) First Independent Bank (CD) 209,938 December 5, 2012 First Independent Bank (CD) 500,000 December 5, 2012 General Electric Commercial Paper 1,996,625 December 21, 2012 Heritage Bank (CDARS) 3,050,183 December 27, 2012 US Bank N.A. Commercial Paper 995,100 January 28, 2013 General Electric Commercial Paper 1,993,540 January 29, 2013 Federal Home Loan Banks 1,499,670 September 12, 2013 Federal Home Loan Banks 1,498,965 November 22, 2013 Federal Home Loan Mortgage Corporation 2,003,220 January 9, 2014 Federal Farm Credit Banks 1,999,060 April 23,

5 Investment Portfolio (6/30/2012) Amount Maturity Date Federal Home Loan Banks 1,999,040 May 15, 2014 Federal Home Loan Banks 999,080 May 30, 2014 Federal Home Loan Mortgage Corporation 2,503,225 Sept 22, 2014 Federal National Mortgage Association 2,500,326 October 17, 2014 Federal National Mortgage Association 2,504,700 March 27, 2015 Federal National Mortgage Association 1,498,995 August 24, 2015 Federal National Mortgage Association 999,720 November 23, 2015 Federal Farm Credit Banks 1,000,450 February 1, 2016 Federal Farm Credit Banks 1,001,060 May 9, 2016 Federal National Mortgage Association 999,730 May 24, 2016 Federal Home Loan Mortgage Corporation 2,009,780 August 24, 2016 Total $ 59,690,854 Investments are made according to State law and the RTAA s Investment Policy. (See Policy as the last section of this Appendix). The below table provides an analysis of the type and concentration of investments held by the Authority as of June 30, 2012: Type of Investment Percent Money Market Mutual Funds 17.0% Commercial Paper 11.4% Agency Securities 40.1% Local Government Investment Pool (LGIP) 11.5% Collateralized Time & Savings Accounts 14.5% Certificates of Deposit 5.5% Scope of Services The Authority is soliciting proposals for a primary trust and custodial relationship with a financial institution which operates at least one (1) branch within the city limits. The Authority will be contracting for services for an approximate five (5) year period beginning May 1, 2013 and ending June 30, At the Authority s option, two (2) two-year extensions will be considered with the same terms and conditions of the original contract or as amended. The Trustee will provide services required to carry out all administrative functions required of it under the bond resolutions and other loan documents. The Trustee selected shall have extensive experience administering bonds and debt instruments. The responsibilities of the Trustee are expected to include the roles of bond trustee, registrar, tender agent, and paying agent and include, but are not necessarily limited to, the following: 4

6 Trustee / Paying Agent In order to secure the payment of the principal of and interest on all Bonds and Subordinate Lien Notes and to insure performance of terms, conditions, stipulations, covenants and agreements under the Bond and Subordinate Note Resolution, the Authority is seeking trust and paying agent services to perform the following: a. Perform all the services normally associated with a bond registrar including, but not limited to, maintaining a register of bondholders, transferring bonds, replacing lost or stolen bonds, and destroying bonds; b. Establish required accounts and apply bond proceeds according to the requirements of the Master Bond Indenture; c. Manage all funds and accounts according to the provisions of the Indenture and in compliance with federal tax law; d. Provide any 1099 reporting; e. Process incoming wires and/or ACH transactions and immediately deposit the funds in the proper account; f. Hold all sums for the payment of the principal of or interest on Authority debt in trust for the benefit of the holders until such sums shall be paid or otherwise disposed of as provided in the Bond and Note Resolutions; g. Hold all proceeds of the sale of the Bonds and Subordinate Notes for payment of the construction expenditures associated with capital improvements, costs of issuance, capitalized interest, and associated purposes as requested by the Authority; h. Keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection during reasonable business hours; i. Monitor reserve funds to ensure that amounts required by the Bond Indentures are maintained; j. Calculate interest on outstanding Bonds and Notes for periodic payment of accrued interest; k. Provide detailed monthly reporting of all transactions in all funds or accounts identified in the Bond Indenture by account, to be received by the 5th day of the following month, and prepare such other reports as the Authority may request; 5

7 l. Make valuations of all assets in the Trust as required by the Bond Resolution; m. Invest funds, in accordance with provisions of the Bond Resolution and Authority investment policy, as directed by the Authority until used or applied as provided in the Bond Resolution; n. Provide an automatic money market sweep vehicle for investing monies not held under an investment agreement; o. Verify interest rate and interest paid by Proposer, notify Authority of any discrepancies and work with provider and Authority to have errors corrected; p. Coordinate and execute Bond Redemptions; q. Participate in Bond Issuance including participation in any and all meetings and conference calls related to the issuance of Bonds; r. Review and execute key documents related to the Trustee s performance of its duties in connection with this or any future bond issue; s. Attend the closing of the Bonds; t. Provide Disclosure Services including notice to bondholders and other financing participants as required by the financing documents and the report of certain material events to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs). Investment Custodial Services Securities purchased by the RTAA shall be delivered against payment (delivery vs. payment) and must be held in a custodial safekeeping account with a trust department of a third party bank insured by the Federal Deposit Insurance Corporation in accordance with NRS A custody agreement between the bank and the RTAA is required before execution of any transactions. The scope of services request by the Authority includes: a. Custodial Duties. The Proposer shall act on any investment instruction received from an authorized officer of the Authority. The Proposer shall collect all purchases, proceeds of sales, maturities, income and other dispositions of securities and shall hold such proceeds for investment or for other disposition as instructed by the Authority. Payment of securities shall not be made until the securities are received by the Proposer. Purchased securities shall not be sold or presented for redemption or payment except upon the instructions of Authority. The Proposer shall provide the appropriate 6

8 notification to the Authority of any transactions related to the securities of safekeeping. b. Interest Bearing Cash Account(s). Funds not invested from the sale, call or maturity of securities shall be held in an interest bearing cash account or an automatic money market sweep vehicle in compliance with the Authority s investment policy. Amounts that exceed the FDIC insurable limit must be collateralized in accordance with the Nevada Collateral Pool Program pursuant to NRS or provide an acceptable alternative. As part of the Nevada Collateral Pool, the bank shall provide collateral of acceptable securities having a fair market value of at least 102 percent of the amount of uninsured ledger balances on a daily basis as required by NRS through c. On-going reporting capabilities. Monthly statements shall be provided by the Proposer by the 5th business day following month-end. These statements shall be available on-line and hard-copy and identify all transactions, various instruments involved in the transaction and month-end balances for each instrument on both a cash and accrual basis. In addition, a rate of return (net of fees) of the portfolio shall be provided on a cost and market basis along with benchmarks and a thorough explanation of any major deviations. Ending balances shall be reported on both cost and market bases by maturity dates as well as including the average maturity for the portfolio and consistent with industry standards, such as option adjusted duration The reports should be structured in such a fashion to facilitate a determination that the portfolio is consistent with the Authority's investment policy (attached). In addition, reporting should provide a web enabled or internet-based system with the capability to provide customized reports as required and Ad hoc query and reporting. d. Provide on-going support services to the Authority including (i) being available (usually by telephone or ) to answer any questions by Authority staff responsible for investments or its investment advisors and ( ii) be available for meetings with the Authority s Finance Committee and/or Board of Trustees as needed. (The rest of this page is intentionally left blank) 7

9 General Requirements PAYING AGENT/ INVESTMENT CUSTODIAL SERVICES RFP SUBMISSION FORM The Proposer must either certify to and/or demonstrate its ability to meets the following minimum qualifications and requirements: a. Minimum Qualifications as provided in Appendix A. b. Per NRS , a bank or trust is qualified to hold securities for a local government if the bank or trust is rated by a nationally recognized rating service as AA- or its equivalent, or better. Firm Stability and Background The Authority requires a firm which is fiscally sound and able to provide the required services throughout the contract period. The Authority represents public funds and as such requires full transparency and disclosure on financial matters. Five (5) page maximum a. Provide a brief history and background of the firm, including parent and/or subsidiary companies relating to the trustee/paying agent and custodial services. b. Describe your firm s organizational structure especially as it applies to trust, paying agent, and investment custodial services. c. How long have you offered trustee and custodial services? What is the firm s future strategy as it relates to trustee and custodial services? d. Do you use a third party for any segment of customer services or trustee and custodial services? If yes, explain fully. e. Discuss the financial stability of your firm. Does your firm have in excess of $500 million in assets? Please comment on the firm s credit quality and overall financial strength. f. Please list your S&P and/or Moody s rating of your commercial paper (if applicable), and ratings on long term debt. Please list all rating changes for the past five (5) years. 8

10 Relationship Representation This section is to allow the Proposer to clearly state who will staff the project as project manager and demonstrate your firm s ability to carry out the requirements of this contract. Five (5) page maximum a. Please designate the specific individual who will act both as project manager and the primary point of contact with the Authority. Please provide telephone and fax numbers, address and mailing address and brief biography for the project manager. b. Describe the relationship management team that will service the account, as well as their functional responsibilities and their position in the overall firm. Will there be local representation for the Authority? a. How many employees does the firm have in the trustee and custodial functional area involved in providing this service? What is the expected turnaround time on issue resolution? Is there any guarantee on the timing and escalation of issues? Technical Capabilities, Security, and Reporting This section requests information on the ability of your firm to meet the Authority s technical requirements and establish any issues or concerns. In addition, this section seeks to understand the process being proposed to meet the service requirements in the following areas: Fifteen (15) page maximum Technical Capabilities - Trustee / Paying Agent Please provide the firm s capabilities and expertise in meeting the following requirements: a. Making payment of the principal of and interest to bond holders and performance of terms, conditions, stipulations, covenants and agreements under the Authority s Bond and Subordinate Note Resolution. b. Performing all the services normally associated with a bond registrar including, but not limited to, maintaining a register of bondholders, transferring bonds, replacing lost or stolen bonds, and destroying bonds. c. Managing all funds and accounts according to the provisions of the Bond Resolutions and in compliance with federal tax law including the following: 9

11 i. Providing any 1099 reporting. ii. Processing incoming wires and/or ACH transactions and immediately deposit the funds in the proper account iii. Holding all sums for the payment of the principal of or interest on Authority debt in trust for the benefit of the holders until such sums shall be paid or otherwise disposed of as provided in the Bond and Note Resolutions iv. Holding all proceeds of the sale of the Bonds and Subordinate Notes for payment of the construction expenditures associated with capital improvements, costs of issuance, capitalized interest, and associated purposes d. Maintaining such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection during reasonable business hours. e. Make valuations of all assets in the Trust as required by the Bond Resolution or Investment Policy. f. Invest funds in accordance with provisions of the Bond Resolution and Authority investment policy as directed by the Authority until used or applied. g. Provide an automatic money market sweep vehicle for investing monies not held under an investment agreement. h. Coordinate and execute Bond Redemptions. i. Participate in Bond Issuance including participation in any and all meetings and conference calls related to the issuance of Bonds. j. Review and execute key documents related to the Trustee s performance of its duties in connection with this or any future bond issue. Technical Capabilities Investment Custodian Services Please provide information in response to the following questions: a. Describe your firm s investment custodial approach to the collection of all purchases, proceeds of sales, maturities, income and other dispositions of securities. What type of internal control and documentation are available to ensure that all investment activities are at Authority direction. 10

12 b. Describe your U.S. depository memberships (i.e., DTC, PTC, Federal Book Entry) and the services you use at these depositories. Describe your system for the registration and custody of assets. c. Briefly describe your securities settlement process including: (i) your procedures and capabilities for settling and accounting for same day cash trades; (ii) your procedures for tracking failed trades and reporting failed trades to clients; and (iii) your procedure for ensuring that all interest and dividends are paid. d. How does the Proposer provide appropriate notification to the Authority of any transactions related to the securities of safekeeping? e. What approach does the Proposer recommend for the investment of cash held pending reinvestment in securities, disbursement for debt service, or transfers back to the Authority for operating cash flow needs. Outline whether an interest bearing cash account or an automatic money market sweep vehicle will be provide. How will this daily cash sweep approach will be in compliance with the Authority s investment policy? Amounts that exceed the FDIC insurable limit must be collateralized in accordance with the Nevada Collateral Pool Program pursuant to NRS or a money market sweep account must meet acceptable credit rating standards. f. Outline the ongoing, daily support services available to the Authority to execute trades, settle transactions, executed fund transfers, and answer any questions present by Authority staff (usually by telephone or ). Security and Fraud Prevention Please provide information in response to the following questions concerning security and fraud prevention: a. Please provide an outline of the firm s information security policy as related to the services requested in this RFP. b. Describe the measures utilized by the firm to protect its clients from identity theft. c. Describe any additional security measures used to protect Internet transactions. Disaster Recovery Please provide information in response to the following questions regarding disaster recovery: 11

13 a. Please provide a brief summary of the firm s Disaster Recovery Plan as it pertains to the Authority s accounts. b. What is the timeline for communicating with the Authority if the Disaster Recovery Plan must be implemented? c. What disaster recovery services can the financial institution provide if the Authority cannot operate from its own accounting offices? Information Reporting Complete and timely online reporting is a critical factor for the Authority. The Authority requires full online reporting and download capabilities including the ability to define and sort information at various levels. Reporting should be comprehensive and allow for customization. Five (5) page maximum Please provide information that fully describes and illustrates the Proposer s reporting and exporting capabilities in their response. a. Are investment custody data available via the Internet? If so, what standard reports are available? How current is on-line information? Are pending transactions reported? b. Describe any unique features of your standard reporting package. c. What steps are taken to ensure accuracy of the reports? d. Provide a copy of your standard month end reporting package. This sample report will not be counted against the page limit for this section. e. Are investment custody data available via the Internet? If so, what standard reports are available? How current is on-line information? Are pending transactions reported? f. What information is updated for download on a daily basis? (Holdings in cash collateral, investment account, securities on loan, loans outstanding, days out of loan, term or open trades, borrowers for each block of securities lent, collateral portfolio details, collateralization levels, earnings and other weekly and monthly reporting requirements, etc.) g. Are customized reports available online? If so, describe custom reporting flexibility and limitations. Can standard and custom reports be exported? If yes, what spreadsheets or other tools can the client use to import these reports? 12

14 h. Is historical information maintained in a database for access by the Authority? If the Authority needs historical reports (from a previous reporting period) or a specific time frame how are they made available? How far back are reports available? i. Describe the training and re-training available to staff regarding access to system reporting? Customer Service This section of Appendix C Proposal Submission Form requests information on the ability of your firm s approach to provide customer service, problem resolution, and customer contact. Five (5) page maximum a. Are there any charges for technical or customer support services? What are the hours of operation for the customer service unit in the Pacific Time Zone? b. Describe the firm s customer service organizational structure. Is the customer service function performed in-house, or is it outsourced? Where would the System s support team be located? c. Will a specific customer service representative be assigned to handle this business? Describe the responsibilities of the customer service personnel, including the chain of command for problem resolution. d. Does the firm have scheduled periodic meetings with customers or client advisory groups to review the service? Does the firm organization host or sponsor focus groups, on-site training, user groups, etc.? If so, describe the frequency and topics of discussion. e. Do you offer technical support for the software you provide? If so, provide the hours of support operations. Firm Competitive Position / Future Commitment to Providing Services Please provide information in response to the following questions regarding firm s competitive position and long-term commitment to services: Five (5) page maximum a. What differentiates your firm and the service offered from that of other competitors? 13

15 b. Explain why the firm believes it was able to win your last two customers from your competitors. c. What new services or features have you implemented in the past two years? Do you have any new services/technologies in implementation currently? d. Does the firm anticipate major changes in hardware or software in the next three (3) years? If so, what changes should the Authority anticipate and how should it plan for those changes on hardware issues? e. How do you monitor legislative and/or regulatory changes affecting master custody administration? How are these changes communicated to clients? f. What is the institutional custody department s plan for product development? Implementation The full implementation target date for these services is July 1, The following questions are to address how the company proposes to ensure a smooth transition if your firm is selected: Five (5) page maximum a. Describe the trustee, paying agent, and custodial services implementation process and the expected time frame for implementation. b. Describe the training process with regard to (a) new client training or retraining from a prior processor and (b) on-going training (e.g., courses offered, frequency, location, and cost). c. Discuss training of client personnel in the use of the online system. Is a help line available for the online system? d. Specify the persons, by name and function, which will have primary responsibility for implementation and training. References and Current Client Base This section is requesting the Proposer provide information on its experience providing these services including number of customer and transaction volume and references Five (5) page maximum 14

16 a. Specify the category and number of customers for which you are currently providing trustee and custodial services. What is the total of all assets held in custody? b. The Proposer shall list at least three (3) relevant references. References shall include the following information: Fee Proposal i. The name, address and telephone number of each client listed above; ii. A description of the work performed under each contract; iii. A description of the nature of the relationship between proposer and the customer; iv. The name and telephone number of the person the Authority may contact as a reference; v. The amount of the contract; vi. The volume of the work performed; vii. The dates of performance. Compensation will be based on the per-period and per-unit charges contained in the Fee Proposal spreadsheet. As part of this effort, please list any additions to the given spreadsheet form, including any one-time or set up charges, research fees and include all other fees or charges that will or could be charged. The Authority will not be obligated to pay for any fees not specified in the proposal. Completed Fee Proposal Spreadsheet It is the Authority s expectation that the Proposer will maintain the quoted prices for a two (2) year period upon agreement execution. Thereafter, any proposed changes in the fee structure would be subject to a most favored nations clause that allows the Authority to obtain the same pricing as other comparable bank clients. In addition, please provide the information requested below: a. Describe your firm s overall pricing structure. b. Provide a copy of the anticipated applications and contract terms you consider to be appropriate to do business with the Authority. The Authority is planning to execute one (1) contract with the scope of services and pricing awarded under this RFP. Additional Submission Requirements Please provide information in response to the following questions: 15

17 a. Have there been any losses through negligence, errors or omissions in connection with your trust operations during the past five (5) years (including those losses covered by Errors and Omissions Insurance)? If yes, provide by attachment, annual losses and complete details on individual losses exceeding $10,000. b. During the last five (5) years, have there been or are there now pending any litigation involving the trust department which have been made against the applicant or any of its directors, officers of employees? If yes, please provide the following details by attachment: date of action, damages claimed or settlement paid and current status if pending. c. Proposer s Certification must be completed by the proposer. This form is attached as Exhibit A to the master Request for Proposal document. d. Sample contract the terms and conditions in the sample contract are attached to the RFP master document as Exhibit B. Proposers do not need to sign the contract at the time of proposal submission; however, if the Proposer has any exceptions to the proposed terms and conditions, please indicate in the RFP submission. 16

18 Exhibit 1 INVESTMENT POLICY PURPOSE The purpose of these investment guidelines is to formalize the framework for the Reno-Tahoe Airport Authority s (RTAA) daily investment activities. It is the policy of the RTAA to invest funds in a manner which will provide market rate of return with the maximum security while meeting the daily cash flow demands of the RTAA and conforming to all Nevada Revised Statutes (NRS) and ordinances governing the investment of public funds. REFERENCES Reno-Tahoe Airport Authority Act, Chapter 474, Statutes of Nevada. Local Government Budget and Finance Act, NRS 354. Public Investments NRS 355. Bond Resolution Official Statement c-14. POLICY I. Scope This investment policy applies to all financial assets of the RTAA. Should bond covenants be more restrictive than this policy, bond proceeds will be invested in full compliance with those restrictions. Additionally, all funds are accounted for in the RTAA s Comprehensive Annual Financial Report. Unless prohibited by law or contract, the RTAA may pool cash from several different funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. II. General Objectives The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield: Safety Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. Credit Risk: The RTAA will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by: 17

19 Liquidity Limiting investments to the safest types of securities Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the RTAA will do business Diversifying the investment portfolio so that potential losses on individual securities will be minimized. Interest Rate Risk: The RTAA will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer sameday liquidity for short-term funds. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions: A security with declining credit may be sold early to minimize loss of principal. A security swap would improve the quality, yield, or target duration in the portfolio. Liquidity needs of the portfolio require that the security be sold. 18

20 III. Standards of Care Prudence The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. The "prudent person" standard 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 as well as the probable income to be derived." Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the RTAA. Delegation of Authority Under authority delegated by the Board of Trustees of the RTAA, in accordance with chapter 474, Statutes of Nevada, NRS and , and Bond Resolution 459, the investment of RTAA funds is the responsibility of the President/Chief Executive Officer (CEO). All cash, including bond proceeds, received by the RTAA will be invested by the Chief Financial Officer (CFO). The President/CEO s responsibilities include the authority to open accounts with financial institutions and broker/dealers, to arrange for the custody of securities, and to execute such documents as may be necessary to carry out these responsibilities. The CFO is responsible for furnishing authentic, timely instructions to the safekeeping bank(s) concerning settlement of investment transactions, and verifying accuracy of completed transactions. IV. Authorized Financial Institutions, Depositories, and Broker/Dealers The CFO will maintain a list of approved broker/dealers and financial institutions which are authorized to provide investment services to the RTAA. Authorized broker/dealers will be limited to "primary" dealers or other dealers that qualify under SEC Rule 15C3-1, the Uniform Net Capital Rule. A. The CFO shall conduct periodic reviews to identify those firms which offer diverse approaches, access to markets, analysis, and interpretations needed to effectively manage the portfolio. All approved firms are expected to be familiar with 19

21 the precautions appropriate to public sector investments while also being expected to familiarize themselves with the RTAA's investment objectives, policies, and constraints. B. The CFO will require that a current financial statement be on file for each broker/dealer and financial institution through which the RTAA invests. V. Safekeeping and Custody Securities purchased by the RTAA shall be delivered against payment (delivery vs. payment) and held in a custodial safekeeping account with the trust department of a third party bank insured by the Federal Deposit Insurance Corporation designated by the CFO for this purpose in accordance with NRS A custody agreement between the bank and the RTAA is required before execution of any transactions. The CFO shall establish a system of internal controls, which shall be documented in writing. The internal controls shall be reviewed by the President/CEO, the Internal Auditor and with the independent auditor. The controls shall be designed to prevent the loss of funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the RTAA. VI. Suitable and Authorized Investments The CFO, in accordance with the provisions of Nevada Revised Statutes , , the current bond resolutions, and this investment policy, is authorized to invest in: A. United States Treasury Bills, Notes, Bonds, and Debentures of the United States 1. Maturity dates of which do not extend more than ten (10) years after the date of purchase; B. United States Government Agency Securities; Maturities must not exceed ten (10) years from the date of purchase. 1. Federal National Mortgage Association (FNMA - Fannie Mae) 2. Federal Home Loan Bank 3. Federal Farm Credit Bank 4. Federal Home Loan Mortgage Corporation (FHLMC - Freddie Mac) 5. Student Loan Marketing Association (SLMA - Sallie Mae) 6. Federal Agricultural Mortgage Association 7. Government National Mortgage Association C. Demand Deposits, Time and Savings Deposits including Negotiable Order of Withdrawal (NOW) accounts 1. Issued by insured commercial banks, insured credit union or insured saving and loan associations, either within the limits of insurance provided 20

22 by an instrumentality of the United Sates and/or collateralized as required under the Nevada pooled collateral program (NRS 356). D. Negotiable & Nonnegotiable Certificates of Deposit; 1. Issued by insured commercial banks, insured credit unions or insured savings and loan associations, except certificates that are not within the limits of insurance provided by an instrumentality of the United States. E. Bankers' Acceptances; 1. Maximum maturity of 180 days 2. Aggregate book value may not exceed 20% of the total book value of the portfolio F. Commercial Paper; 1. Is purchased from a registered broker-dealer; 2. Maximum maturity of 270 days 3. Rating must be A-1, P-1, or its equivalent or better 4. Aggregate book value may not exceed 20% of the total book value of the portfolio G. Money Market Mutual Funds; 1. Are registered with the Securities and Exchange Commission. 2. Rating must be AA or equivalent by nationally recognized rating service. 3. Invests only in securities issued by the Federal Government or its agencies or in repurchase agreements fully collateralized by such securities. H. Obligations of state and local governments; 1. The interest on the obligation is exempt from gross income for federal income tax purposes. 2. The obligation has been rated A or higher by one or more nationally recognized bond credit rating agencies. I. The Local Government Investment Pool ( LGIP ) as established by the Nevada State Treasurer for the benefit of local agencies and identified under NRS Aggregate book value may not exceed 20% of the total book value of the portfolio J. Securities which have been expressly authorized as investments for local governments by any provision of Nevada Revised Statutes or by any special law. VII. Investment Parameters Diversification 21

23 Assets held in the investment portfolio shall be diversified to eliminate the risk of loss resulting from over-concentration of assets in a specific class of securities. Maximum Maturities To the extent possible, the RTAA shall attempt to match its investments with anticipated cash flow requirements. VIII. Reporting A quarterly investment report will be submitted to the Finance Committee. The report will summarize investment transactions that occurred during the reporting period, and discuss the current portfolio in terms of maturity, rates of return and may include other features. IX. Internal Controls The investment portfolio is subject to periodic audits by the RTAA s Internal Auditor, including unscheduled cash and securities counts. The investment portfolio will be audited annually by the RTAA s independent auditor. X. Review of Investment Policy The investment policy shall be reviewed every year by the President/CEO and changes will be presented Finance Committee. SIGNATURE AUTHORIZATION LINE Krys T. Bart, A.A.E., President/CEO Date 22