At the end of 1999, PCSO had a general reserve fund of about $680,000. The audit for 2000 was not yet complete as of this writing, but our Executive Director estimates that the level will be similar.

During the year, the general reserve balance can vary by as much as $100,000 depending on expenses and income, especially related to the Annual Session.

Some of these funds are tied up in less liquid time-related funds. Other investments are in cash or can be cashed quickly. This liquid reserve is less than the general reserve. The Board has developed a policy regarding the liquid reserves, both how to manage the fund, and why we have it.

Fund management criteria are as follows:

• The minimum liquid reserve level shall not be less than 46% of the annual budget. (Our current reserve exceeds that amount.) The Board may only use these funds for emergencies and extraordinary situations (not to fund a budget deficit). The Board may use funds over the 46% level for PCSO business.

• The primary investment objective in managing this fund is the absolute protection of the principle, while meeting or exceeding inflation.

• Reserve Fund Investment Committee members (president-elect, secretary-treasurer, a representative from the budget and finance committee, and our executive director as advisor) serve two terms of three years each. The committee closely monitors the funds, adjusts investments, and may use advisors.

• Basic investment choices for PCSO reserves up to $400,000 are limited to US Treasury notes and bonds, US insured CDs, to be held in US insured bank and brokerage accounts. Investments must be in US Dollars. For funds above $400,000, the committee may also invest in AAA or insured corporate bonds.

• The committee is prohibited from investing in letter stock, private placements, options, short sales, margin transactions, financial futures, commodities, and other specialized investment instruments.

Why do we have a liquid reserve? The Board has specified this as well. The purpose is to make sure that the PCSO has the financial means to continue supporting the activities of the members.

Some specific objectives are:

• To keep basic operations and core member services going during a short-term economic downturn and , to sustain essential member services during a long-term economic downturn.

• To provide for purchase of capital assets, but in coordination with a plan to restore the reserves as the capital assets are depreciated.

• To cover extraordinary expenditures that may occur in response to unanticipated challenges or opportunities.

• To provide a source of capital for development of new services that might significantly benefit the members.

This carefully planned program received the full support of your Board during the October 2000 Board meeting in Reno, Nevada.

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