2007 03 14 IABEm
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9
AGENDA
INVESTMENT ADVISORY BOARD
Finance Conference Room
78-495 Calle Tampico- La Quinta, CA 92253
March 14, 2007 - 5:30 P.M.
1 CALL TO ORDER
a. Pledge of Allegiance
b. Roll Call
II PUBLIC COMMENT - (This is the time set aside for public comment on any matter
not scheduled on the agenda.)
III CONFIRMATION OF AGENDA
IV CONSENT CALENDAR
A. Approval of Minutes of Meeting on February 14, 2007 for the Investment
Advisory Board.
V BUSINESS SESSION
A. Transmittal of Treasury Report for January 2007
B. Continued Consideration of Fiscal Year 2007/08 Investment Policies & Work
Plan Items
C. Investment Advisory Board Meeting Time
VI CORRESPONDENCE AND WRITTEN MATERIAL
A. Month End Cash Report and other selected Financial Data -
February 2006
B. Pooled Money Investment Board Reports — December 2006
VII BOARD MEMBER ITEMS
Vill ADJOURNMENT
P.O. Box 1504 • LA QUINTA, CALIFORNIA 92247-1504
78-495 CALLF. TAMPICO • LA QUINT.v, CALIFORNIA 92253
(760) 777-7000 -FAX (760) 777-7101
INVESTMENT ADVISORY BOARD Business Session: A
Meeting Date: March 14, 2007
ITEM TITLE:
Transmittal of Treasury Report
for January 31, 2007
BACKGROUND:
Attached please find the Treasury Report January 31, 2007
RECOMMENDATION:
Review, Receive and File the Treasury Report for January 31, 2007
John M. Falconer, Finance Director
MEMORANDUM
TO: La Quints City Council
FROM: John M. Falconer, Finance Director/Treasurer
SUBJECT: Treasurer's Report for January 31, 2007
DATE: February 28. 2007
Attached is the Treasurers Report for the month ending January 31, 2007. The report is submitted to
the City Council each month after a reconciliation of accounts is accomplished by the Finance Department.
The following table summarizes the changes in investment types for the month:
Investment
Beginning
Purchased
Notes
Sold/Matured
Other
Ending
Change
Cash (3)
$ (2,154,406)
$ 7,116,447
0)
$ 4,962,041
$ 7,116,447
LAW
38,630,025
11,106,000
(2,100,000)
0
47,636,025
9,006,000
US Treasures (2)
103,461,058
31,000,000
(19,000,000)
(353,577)
115,107,481
11,646,423
US Gov't Sponsored Enterprises (2)
28,985,010
13,000,000
(7,500.000)
(183,644)
34,301,366
5.316,366
Commercial Paper (2)
20,895,343
7.000,000
(9,000,000)
42,184
18,937,527
(1,957,816)
Corporate Notes
2,921,547
3,719
- 2.925,266
3,719
Mutual Funds
8,072,033
1
3 887,263
4 184,770
3,887,263
Total
$ 200,810,610
$ 69,222,447
s 41 487,263
$ 491,318
$ 228,054,476
$ 27,243,866
I certify that this report accurately reflects all pooled investments and is in compliance with the California
Government Code; and is in conformity with the City Investment Policy. I
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.
l� V
John M. Falconer
2—o0 7
Date
Finance Director/Treasurer
Footnote
(1) The amount reported represents the net increase (decrease) of deposits and withdrawals from
the previous month.
(2) The amountreported 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.
2
Treasurer's Commentary
For the Month of January
Cash Balances — The portfolio size increased by $27.2 million. The major reason for the
increase was the receipt of $24.7 million on January 241h from 1' installment of property and
other taxes from the County. In addition, the City received an additional $2.67 million from
the County on January 31 s` for sales and vehicle in -lieu taxes.
Investment Activity — The Treasurer has been increasing the LAIF holdings in January to take
advantage of an 18 basis point advantage over US Treasuries. At month end, the sweep and
cash account had $4,937,027 balance which was created by the aforementioned $2.67
million County receipt and the receipt of a $2.15 million bond draw. These balances were
reduced by transferring $2.6 million to LAIF and investing $2 million in Commercial Paper in
early February. The sweep account earned $ 5,024 in cash for the month. The bank fees for
the month were $ 2,033 which resulted in a net increase of $ 2,991 in real savings.
Portfolio Performance — The overall portfolio performance increased by eight (8) basis points
and ended at 5.14% for the month. At the end of January, the portfolio yield was sixteen
(16) basis points over the benchmark which was the same as December. With the short
average maturity of 86 days, the portfolio yield should remain at these levels. The Treasurer
will continue to invest in short term investments based upon the yield curve. At this time last
year, the portfolio was yielding 4.06% and the benchmark was at 4.44% for a 38 point
difference so we have made progress in meeting our benchmark. The Treasurer has been
investing more in LAIF and has not been investing in longer than six months Treasury
securities or in will be investing in longer than six months GSE's based upon the yield curve
to take advantage of yield spreads.
Future Thoughts
The Treasurer will continue to invest in short term maturities to take advantage of the
inverted yield curve — Commercial Paper with 30 to 60 day maturities and Bond proceeds will
continue to be reinvested in six month Treasury bills as they mature. GSE's will be rolled
over for no longer than six month maturities.
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�.
INVESTMENT ADVISORY BOARD Business Session: B
Meeting Date: March 14, 2007
TITLE:
Continued Consideration of Fiscal Year 2007/08
Investment Policies & Work Plan Items
BACKGROUND:
The Investment Advisory Board has been reviewing the Investment Policies for final
recommendation to the City Council in June 2007. The Investment Policy is
attached for the Board's review, along with the CDAR's flow chart which was
requested at the least Investment Advisory Board meeting.
RECOMMENDATION:
Continued review of the Investment policies for approval by City Council in June
200
&John"M. Falconer, Finance Director
Security Without
Collateral ization
By Mark Jacobsen
How a banking innovation is simplifying
the process of safeguarding public deposits.
For more information about CDARS, visit www.cdars.com or
contact your local banker to find out if CDARS is available at that bank.
PONPromontory
Interfinancial Network, LLc
Government finance officers tasked with managing
millions of dollars in cash reserves must constantly bal-
ance the necessity of preserving principal with the
desirability of attaining the best possible investment returns.
One common investment instrument for state and local govem-
mems is bank certificates of deposit, which generally pay inter-
est above that of U.S. Treasury securities. In practice, however,
investing in CDs generally requires collateralization—a costly,
difficult, and time-consuming process. More than $55 billion
in CDs is now held and collateralized by banks for public
funds depositors.
Almost all states have enacted statutes requiring that public
deposits in excess of the Federal Deposit Insurance Corporation's
$100,000 limit be secured by pledged collateral securities from
depository institutions. Pledging requirements can make new
deposits from municipal customers unappealing for banks —to
the point that they do not bid on available public funds deposits.
When a bank must quickly purchase assets to collateralize a large
public deposit, it must buy Treasury bills or bonds at current rates
whether or not those rates are attractive. This can result in lower
rates of return for public depositors. Furthermore, governments
and their depositories must mark to market the pledged assets
(mark4omarket is a periodic adjustment of the book value of a
security to reflect its market value).
The FDIC provides an easy, effective way to protect public
deposits that is permissible by even the most conservative of
investment policies. In most states, FDIC -insured deposits do not
require collateralization. The drawback of FDIC insurance is that it
Exhibit I: How CDARS Works
CustomerA BankA
is limited to $100,000 per depositor, per institution. (Since
Congress raised the FDIC coverage level to $100,000 from $40,000
in 1980, the purchasing power of $100,000 has eroded by more
than half.) Many governments prefer to spread their deposits
among dozens of banks rather than deal with the inconveniences
of monitoring and managing collateral.
Governments now have a means of protecting deposits in
excess of the $100,000 FDIC limit without collateralizing those
deposits or using a portfolio of depositories. Through a relatively
new service called the Certificate of Deposit Account Registry
Service, or CDARS, banks can offer their customers up to $5 mil-
lion in federal deposit insurance coverage on deposits placed
through one bank. For the customer, CDARS offers the safety of
FDIC insurance with the convenience of one rate, one regular
statement, and one banking relationship. This article examines
why the CDARS service was created, how it works, and how it has
fared to date.
THE CDARS MODEL
The idea for CDARS came from the experiences of three bank reg-
ulators who observed large public deposits being channeled out of
local community banks and into the money markets during the
1990s. The explosion of bank mergers and acquisitions made for an
even more competitive landscape. The trio concluded that commu-
nity banks needed a competitive edge —a way to offer the benefits of
a big bank with the service of asmallerinstitution. They found away
to allow smaller banks to continue to compete for deposits while
providing customers the added protection of FDIC insurance.
CDARS"
1
Placement
Instructions
1
Service
Bureau
Bank B Customer B
tP 6m40
36 Gmva Rarca Rwi—l0=ber 2004
Offered through Promontory Interfinancial Network, CDARS is a
unique solution for governments. Members of the CDARS network
of banks can provide up to $5 million (this threshold is expected to
increase in the near future) in federal deposit insurance coverage to
any single customer. By allocating a customers deposit (in the form
of CDs) among several network banks, all funds are eligible to be
insured by the full faith and backing of the federal government. This
is passible because deposits placed through CDARS meet the pass -
through insurance coverage guidelines established by the FDIC.
Customers do not pay to use the CDARS service; the rate for CDs
placed through CDARS is negotiated like any other CD.
Because statutory requirements for the investment of public
funds vary from state to state, governments must make sure that
CDARS qualifies as an appropriate investment tool. Some govem-
ments may need to update their own investment policies to permit
the use of this new service.
Banks interested in offering CDARS to their customers must
become members of Promontory Interfinancial Network. Upon
joining, a one-time implementation fee is required to cover the
cost of training and materials. Banks also pay a transaction fee of
a few cents per $100 placed through CDARS.
Joining the CDARS network is a simple process. After reviewing
and signing the necessary legal agreements, banks participate in a
test transaction to make sure everything runs smoothly. Assuming
this is the case, they can then begin placing orders through
CDARS. Promontory provides CDARS operations, sales, and mar-
keting training to new members.
To understand how CDARS works, imagine that a city govem-
ment needs to invest $1 million. The city uses a competitive bid-
ding process to obtain rates from several local banks. Because the
winning bidder is a member of the CDARS network, the city is able
to deposit the entire amount with full FDIC insurance coverage
through that bank The bank does not have to pledge assets to
secure the deposit; instead, the money is divided into amounts
less than $100,000 and placed in CDs issued by other network
members through the CDARS system. The city receives regular
consolidated interest payments and statements from the bank
showing the account activity for each CD held in its name.
The bank receives funds from other network members' cus-
tomers totaling the amount deposited by the city. The 550plus
banks that comprise the CDARS network exchange deposits on a
dollar -for -dollar basis. In other words, the amount of money a
bank places using the CDARS service returns to that bank in the
form of customer money from other network member banks.
These reciprocal deposits among banks usually qualify funds
placed using CDARS as "local; a requirement of many govern-
ment investment policies. At the end of the day, the bank has $1
million on its books that can be used for community lending pur-
poses. Exhibit 1 is a graphical illustration of how CDARS works.
CONVENIENCE ANDYIELD
Because CD deposits placed using CDARS are eligible for full
FDIC insurance coverage, government entities investing through
CDARS are not required to track collateralized assets. They do not
have to constantly mark to market the prices of Treasury bills and
other pledged assets, which makes investing easier and less time-
consuming. For government cash managers, this means not having
to deal with multiple banks, multiple rate renegotiations, and col-
lateral monitoring. Monitoring a CDARS account is easy. Customers
receive asingle statement listing all the banks in which their money
has been placed through CDARS, as well as the interest earnings
and maturity dates of each CD. Exhibit 2 is an example of a CDARS
account statement.
Exhibit 2: CDARS Account Statement
ACCOUNT OVERVIEW
AccountlD:
1000099999
Product Name
52-Week Personal CD
Interest Rate.
1,35%
Account Balance:
$106,290.94
Effective Date:
01>22/04.
Maturity Date:
01 /20/05
YTD interest Paid:
$040
YTD Interest Accrued:
$267.21
TheAnnual FercentageYield Earned is 2.3,77%
A summary of your account activity is provided below.If any
of the following information is incorrect, or if you have any
questions; please contact us at 8884IW8888, or send an email
to banksroabcbankcom.
CD Issued by BankA
YTD Interest Paid:
$00o
YTD Interest Accrued:
$238.83
01/31/04 OPENING BALANCE
$95,000,00
02/27/04 ENDING BALANCE
$95,000.00
CD Issued by Bank B
YTD Interest Paid:
$0.00
YTD Interest Accrued:
$28.38
01/31/04 OPENING BALANCE
$11,290.94
02/27/04 ENDING BALANCE
$11,290.94
Thmk yet for tanhrg w.th ABC Bmk
OmberMfl C�Ftmnm Ratew 37
To eliminate the riskof placing more than $100,000 in any single
bank, leaving any deposits in excess of that amount uninsured,
customers must indicate any network member banks with which
they have accounts when they open a CDARS account.
Because CDARS network banks do not have to pledge assets for
public deposits covered by FDIC insurance, their rates are often
higher than non-CDARS banks. Each individual bank offering the
CDARS service sets its own rates of return. This allows the banks to
remain competitive in their local markets, and it makes the
process easier on customers.
All CDs placed through CDARS for a given customer carry the
rate set by the bank in which the funds are deposited. The rate is
negotiated when the account is first opened and again upon matu-
rity if the customer chooses to reinvest. Network member banks
make and receive payments to and from each otherto account for
the differences in rates offered to individual customers. Known as
rate bridge payments, these payments do not change the terms
agreed upon by customers for their CDs.
To illustrate how rate bridge payments are made, consider a
hypothetical example. Assume that Bank A and Bank B each has
a customer that places $180,000 in 52 week CDs using CDARS. The
$180,000 deposit from each customer is broken into two chunks of
$90,000 to be swapped using the CDARS system. Each bank keeps
$90,000 in a CD for its customer and issues a $90,000 CD to the
other bank's customer.
Bank A offered its customer a rate of 2 percent, while Bank B
offered its customer a rate of 1.5 percent. The rate difference
between the two banks is .5 percent or 50 basis points. Bank B
must pay 2 percent to Bank Ks customer. Bank A makes a rate
bridge payment to Bank B to compensate for the .5 percent differ-
ence between the two rates at present value. The two customers,
meanwhile, receive interest payments based on the rates prom-
ised by their respective banks.
CDARSANDTHE PUBLIC SECTOR
Network member banks immediately saw their govemment cus-
tomers as a good fit for CDARS. Local banks, like local govem-
ments, work for the good of titre communities they serve. These
banks have a strong sense of loyalty and often enjoy a longstand-
ing, mutually beneficial relationship with their local government.
As such, it made sense for these banks to search for a way to
reduce the collateral management burdens of their government
customers while preserving their ability to compete for large pub-
lic deposits that could be put to work locally.
When CDARS was first offered, it was expected that individu-
als, mainly retirees, would be the primary customer base for the
service. However, it quickly became clear that governments and
nonprofit organizations had as much to gain from CDARS. These
organizations operate under similar policies for investing idle
funds —policies that emphasize safety over yield.
CDARS was first offered a year and a half ago. More than 550
banks now offer CDARS to their customers. About five to 10
new banks begin offering CDARS every week, some of which
are pressed to join in order to satisfy a customer requesting
the service. The ranks of organizations now benefiting from
CDARS include many government entities, two of which are
profiled here.
Grafton County, New Hampshire. FDIC insurance was
the main selling point for Grafton County's treasurer when she
first heard about CDARS. CDARS offered her the opportunity to
fully insure county funds using FDIC insurance —without the
burden of monitoring pledged collateral. Even for Grafton
County, a small county with property tax revenues of just $12
million, time-consuming activities such as the regular tracking
and marking to market of collateral need to be minimized.
Through a local bank, CDARS was able to meet the county's
need to place $1 million in CDs. Because the bankdfd not have
to collateralize the deposit, it was able to offer the highest rate
and win the bidding process. The county deposited the entire
amount with the winning bank, which then divided the deposit
into smaller amounts that were placed with other network
banks. Upon maturity of the CDs, the county reinvested the
funds by completing a simple form.
Ponca City School District, Oklahoma. Before CDARS,
Ponca City School District collateralized all of its deposits at a
local bank with traditionally pledged assets such as Treasuries
and bonds. Not long after a representative of the bank contacted
the district about CDARS, the School Board approved the use of
the service and the funds were moved into a CDARS account. The
district invested mainly in four-, 13, and 26-week maturities to
keep its funds relatively liquid. Since then, the funds have been
reinvested multiple times.
CONCLUSION
The safety of public deposits has always been a major concern
of government finance officers. When hundreds of depository
institutions failed in the late 1980s and early 1990s, finance offi-
cers became even more attuned to the need for deposit protec-
38 Gwmmn Fk=eRwi.I Ocmber2004
Lion above and beyond the $100,000 FDIC limit. While collateral-
ization of deposits has proven to be a generally effective protec-
tion against bank failures, it also imposes a significant adminis-
trative burden on public depositors. By expanding access to one
of the most trusted ways of keeping money safe — federal deposit
insurance—CDARS offers publiic depositors a viable and more
convenient alternative to collateralization. 1
MARK JACOBSEN is president and chief operating officer of
Promontory Interlinancial Network which he co-founded with
Eugene Ludwig and Alan Blinder. Prior to this role, he served as
chief of staff for both the Federal Deposit Insurance
Corporation and the Office of the Comptroller of the Currency.
He was also an executive at Bankers Trust Co. in New York City.
Mr. Jacobsen completed his undergraduate studies at Wheaton
College in Illinois and earned a law degree from Harvard
University. For additional information about CDARS, visit
wwwcdars.com or call 866-776-6426.
O=ber2009I Gwmn Flm aeAm 39
CITY OF LA QUINTA
Investment Policy
Table of Contents
Section Topic
Page
Executive Summary
2
I
General Purpose
4
II
Investment Policy
4
III
Scope
4
IV
Objectives
4
► Safety
No. Liquidity
► Yield
► Diversified Portfolio
V
Maximum Maturities
6
VI
Prudence
6
VII
Delegation of Authority
6
VIII
Conflict of Interest
7
IX
Authorized Financial Dealers and Institutions
7
No. Broker/Dealers
► Financial Institutions
X
Authorized Investments and Limitations
8
XI
Investment Pools
13
XII
Payment and Custody
14
XIII
Interest Earning Distribution Policy
14
XIV
Internal Controls and Independent Auditors
14
XV
Benchmark
16
XVI
Reporting Standards
16
XVII
Financial Assets and Investment Activity Not Subject to this Policy
17
XVIII
Investment of Bond Proceeds
17
XIX
Pre#essiena4 dontrawting ProfessiGnW Portfolio Manage
17
XX
Investment Advisory Board - City of La Quinta
18
XXI
Investment Policy Adoption
18
Appendices: A. Summary of Authorized Investments and Limitations
19
B. Municipal Code Ordinance 2.70 - Investment Advisory Board
20
C. Municipal Code Ordinance 3.08 - Investment of Moneys and Funds
21
D. Segregation of Major Investment Responsibilities
23
E. Listing of Approved Financial Institutions
24
F. Broker/Dealer Questionnaire and Certification
25
G. Investment Pool Questionnaire
30
H. Request for Proposal for Portfolio Manager
44
I. Permissible Investment Chart
40
J. Glossary
41
1
City of La Quinta
Investment Policy
Executive Summary
The general purpose of this Investment Policy is to provide the rules and standards
users must follow in investing funds of the City of La Quinta.
It is the policy of the City of La Quinta to invest all public funds in a manner which
will provide a diversified portfolio with maximum security while meeting daily cash
flow demands and the highest investment return in conformity to all state and local
statutes. This Policy applies to all cash and investments of the City of La Quinta, La
Quinta Redevelopment Agency and the La Quinta Financing Authority, hereafter
referred in this document as the "City".
The primary objectives, in order of priority, of the City of La Quinta's investment
activity shall be:
Safety of principal is the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated.
The investment portfolio shall be designed with the objective of attaining a
market rate of return or yield throughout budgetary and economic cycles,
taking into account the investment risk constraints and liquidity needs.
Within the constraints of safety, liquidity and yield, the City will endeavor to
maintain a diversified portfolio by allocating assets between different types of
investments within policy limitations.
Investments shall be made with judgment and care - under circumstances then
prevailing - which persons of prudence, discretion, and intelligence exercise in the
management of their own affairs, not for speculation, but for investment, considering
the probable safety of their capital as well as the probable income to be derived.
Authority to manage the City of La Quinta's investment portfolio is derived from the
City Ordinance. Management responsibility for the investment program is delegated
to the City Treasurer, who shall establish and implement written procedures for the
operation of the City's investment program consistent with the Investment Policy.
The Treasurer shall establish and implement a system of internal controls to maintain
the safety of the portfolio. In addition, the internal control system will also insure the
timely preparation and accurate reporting of the portfolio financial information. As
part of the annual audit of the City of La Quinta's financial statements the
independent auditor reviews the adequacy of those controls and comments if
weaknesses are found.
2
The City Treasurer, the al of the Cky Couned, may use a professional
I portfolio management firm manageF eiggaged by the Gity to assist the City
Treasurer in managing the investment program.
Investment responsibilities carry added duties of insuring that investments are made
without improper influence or the appearance to a reasonable person of questionable or
improper influence.
The City of La Quinta Investment Policy maintains a listing of financial institutions
which are approved for investment purposes. All Broker/Dealers and financial
institutions selected by the Treasurer to provide investment services will be approved
by the City Manager subject to City Council approval.
The Treasurer will be permitted to invest only in City approved investments up to the
maximum allowable percentages or dollar limitations and, where applicable, through
the bid process requirements. Authorized investment vehicles and related maximum
portfolio positions are listed in Appendix A - Summary of Authorized Investments and
Limitations. At least two bids will be required of investments in the authorized
investment vehicles.
Collateral ization will be required for Certificates of Deposits in excess of $100,000.
Collateral will always be held by an independent third party from the institution that
sells the Certificates of Deposit to the City. Evidence of compliance with State
Collateralization policies must be supplied to the City and retained by the City
Treasurer.
The City of La Quinta Investment Policy shall require that each individual investment
have a maximum maturity of twe tbree years unless specific approval is authorized by
the City Council, except the projected annual dollar amount as detailed in Section V,
may be invested in U.S. Treasury bills, notes and bonds maturing between -2 3 and 5
years. In addition, the City's investment in the State Local Agency Investment Fund
(LAIF) is allowable as long as the average maturity does not exceed two years, unless
specific approval is authorized by the City Council. The City's investment in Money
Market Mutual funds is allowable as long as the average maturity does not exceed 60
days.
The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a
benchmark when measuring the performance of the investment portfolio.
The Investment Policies shall be adopted by resolution of the La Quinta City Council on
an annual basis. The Investment Policies will be adopted before the end of June of
each year.
This Executive Summary is an overall review of the City of La Quinta Investment
Policies. Reading this summary does not constitute a complete review, which can only
be accomplished by reviewing all the pages.
3
City of La Quinta
Statement of Investment Policy
July 1, 20067 through June 21, 200-78
Adopted by the City Council on June 20, 20067
GENERAL PURPOSE
The general purpose of this document is to provide the rules and standards users.must follow
in administering the City of La Quinta cash investments.
II INVESTMENT POLICY
It is the policy of the City of La Quinta to invest public funds in a manner which will provide a
diversified portfolio with safety of principal as the primary objective while meeting daily cash
flow demands with the highest investment return. In addition, the Investment Policy will
conform to all State and local statutes governing the investment of public funds.
III SCOPE
This Investment Policy applies to all cash and investments, except as further detailed in
Section XVII of the City of La Quinta, City of La Quinta Redevelopment Agency and the City of
La Quinta Financing Authority, hereafter referred in this document as the "City". These funds
are reported in the City of La Quinta Comprehensive Annual financial Report (CAFR) and
include:
All funds within the following fund types:
► General
► Special Revenue
► Capital Projects
► Debt Service
P. Enterprise
► Internal Service
► Trust and Agency
► Any new fund types and fund(s) that may be created.
IV OBJECTIVES
The primary objective, in order of priority, of the City of La Quinta's investment activity shall
be:
1. Safety
Safety of principal is the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a manner that seeks
V
to ensure the preservation of capital in the overall portfolio in accordance with
the permitted investments. The objective will be to mitigate credit risk and
interest rate risk.
A. Credit Risk
Credit Risk - is the risk of loss due to the failure of the security issuer or
backer. Credit risk may be mitigated by:
► Limiting investments to the safest types of securities;
► Pre -qualifying the financial institutions, and broker/dealers, which
the City of La Quinta will do business with; and
► Diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
B. Interest Rate Risk
Interest Rate risk is the risk that the market value of securities in the
portfolio will fall due to changes in general interest rates. Interest rate
risk may be mitigated by:
► Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby avoiding
the need to sell securities on the open market prior to maturity;
and
► By investing operating funds primarily in shorter -term securities.
2. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
structuring the portfolio so that sufficient liquid funds are available to meet
anticipated demands. Furthermore since all possible cash demands cannot be
anticipated the portfolio should be diversified and consist of securities with
active secondary or resale markets. Securities shall not be sold prior to maturity
with the following exceptions:
► A declining credit quality security could be sold early to minimize loss of
principal;
► Liquidity needs of the portfolio require that the security be sold.
3. Yield
The investment portfolio shall be designed with the objective of attaining a
market rate of return throughout budgetary and economic cycles, taking into
account the investment risk constraints and liquidity needs. Return on
investment is of least importance compared to the safety and liquidity objectives
described above. The core of investments are limited to relatively low risk
securities in anticipation of earning a fair return relative to the risk being
assumed
5
4. Diversified Portfolio
Within the constraints of safety, liquidity and yield, the City will endeavor to
maintain a diversified portfolio by allocating assets between different types of
investments within policy limitations.
V MAXIMUM MATURITIES
It is the policy of the City of La Quinta to hold securities and other investments of
cash in financial instruments until maturity, thus avoiding the risk that the market
value on investments fluctuates with overall market interest rates. The hold until
maturity policy shall not prevent the sale of a security to minimize loss of principal
when the issuer or backer suffers declining credit worthiness. The hold until
maturity policy requires that the City of La Quinta's investment portfolio is
structured so that sufficient funds are available from maturing investments and
other sources to meet anticipated cash needs. To meet anticipated cash needs, it
is essential that the Treasurer have reasonably accurate, diligently prepared cash
flow projections.
Annually, the Treasurer shall project the amount of funds not expected to be
disbursed within five years. For FY 2005/06, the amount of such funds was $8
million. Funds up to that amount may be invested in U.S. Treasury bills, notes and
bonds maturing between -2 � and 5 years. For all other funds, investments are
limited to #we Owas years maximum maturity, than us
ftindtr invested Weftweeeen two and OmM yeM at i i lisk 6910z In matte
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.
V11 DELEGATION OF AUTHORITY
Authority to manage the City of La Quinta's investment portfolio is derived from the
City Ordinance. Management responsibility for the investment program is delegated to
the City Treasurer, who shall establish written procedures for the operation of the
investment program consistent with the Investment Policy. Procedures should include
reference to safekeeping, wire transfer agreements, banking service contracts, and
0
collateral/depository agreements. Such procedures shall include explicit delegation of
authority to persons responsible for investment transactions. No person may engage
in an investment transaction except as provided under the terms of this Investment
Policy and the procedures established by the City Treasurer. The City Treasurer shall
be responsible for all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate officials. The City Manager or Assistant City
Manager shall approve in writing all purchases and sales of investments prior to their
execution by the City Treasurer.
Vlll CONFLICT OF INTEREST
Investment responsibilities carry added duties of insuring that investments are made
without improper influence or the appearance of improper influence.
Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall
adhere to the State of California Code of Economic Interest and to the following:
► The City Manager, Assistant City Manager, and the City Treasurer shall not
personally or through a close relative maintain any accounts, interest, or private
dealings with any firm with which the City places investments, with the
exception of regular savings, checking and money market accounts, or other
similar transactions that are offered on a non-negotiable basis to the general
public. Such accounts shall be disclosed annually to the City Clerk in
conjunction with annual disclosure statements of economic interest.
► All persons authorized to place or approve investments shall report to the City
Clerk kinship relations with principal employees of firms with which the City
places investments.
IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City of La Quinta Investment Policy maintains a listing of financial institutions
which are approved for 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.
1. Broker/Dealers who desire to become bidders for direct investment transactions
must supply the City of La Quinta with the following:
► Current audited financial statements;
► Proof of National Association of Security Dealers Certification;
► Trading resolution;
► Proof of California registration;
► Resume of Financial broker; and
► Completion of the City of La Quinta Broker/Dealer questionnaire which
contains a certification of having read the City of La Quinta Investment
Policy.
The City Treasurer shall evaluate the documentation submitted by the
I.l
broker/dealer and independently verify existing reports on file for any firm and
individual conducting investment related business.
The City Treasurer will also contact the following agencies during the
verification process:
► National Association of Security Dealer's Public Disclosure Report File - 1-
800-289-9999
► State of California Department of Corporations 1-916-445-3062
All Broker/Dealers selected by the City Treasurer to provide investment services
will be approved by the City Manager subject to City Council approval. The City
Attorney will perform a legal review of the trading resolution/investment
contract submitted by each Broker/Dealer.
Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S.
Treasury Department regulations. Each mutual fund shall provide a prospectus and
statement of additional information.
2. Financial Institutions will be required to meet the following criteria in order to
receive City funds for deposit or investment:
A. Insurance - Public Funds shall be deposited only in financial
institutions having accounts insured by the Federal Deposit
Insurance Corporation (FDIC)
B. Collateral - The amount of City of La Quinta deposits or
investments not insured by the FDIC -shall be 1 10% collateralized
by securities' or 150% mortgages' market values of that amount
of invested funds plus unpaid interest earnings.
C. Disclosure - Each financial institution maintaining invested funds in
excess of the FDIC insured amount shall furnish the City a copy of
the most recent Annual Call Report.
The City shall not invest in excess of the FDIC insured amount in
banking institutions which do not disclose to the city a current
listing of securities pledged for collateralization in public monies.
X AUTHORIZED INVESTMENTS AND LIMITATIONS
The City Treasurer will be permitted to invest in the investments summarized in the
Appendix A.
K. STATE OF CALIFORNIA AND CITY OF LA QUINTA LIMITATIONS
As provided in Sections 16429.1, 53601, 53601.1, and 53649 of the
Government Code, the State of California limits the investment vehicles
available to local agencies as summarized in the following paragraphs. Section
53601, as now amended, provides that unless Section 53601 specifies a
limitation on an investment's maturity, no investments with maturities
exceeding five years shall be made. The City of La Quinta Investment Policy
has specified that no investment may exceed two _ years, except the
projected annual dollar amount, as detailed in Section V, may be invested in
U.S. Treasury bills, notes and _bonds
MaUming between 2 and 5 yews, wft no matte than % of surplus funds
invested in matte . cling tvm yews and less then three years. no
t-2-6
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 $40 million per account in
this investment program administered by the California State Treasurer.. The
City's investment in the State Local Agency Investment Fund (LAIF) is allowable
as long as the average maturity of its investment portfolio does not exceed two
years, unless specific approval is authorized by the City Council. The City of La
Quinta has two accounts with LAIF. The City of La Quinta Investment Policy
has a limitation of 25% of the portfolio.
U.S. Government and Related Issues - As authorized in Government Code
Sections 53601 (a) through (n) as they pertain to surplus funds, this category
includes a wide variety of government securities which include the following:
• Local government bonds or other indebtedness and State bonds or other
indebtedness. The City of La Quinta Investment Policy does not allow
investments in local and state indebtedness
o U.S. Treasury bills, notes and bonds and Government National Mortgage
Association GGNMA) securities directly issued and backed by the full faith
and credit of the U.S. Government. The City of La Quinta Investment
Policy limits investments in U.S. Treasury issues and GNMA to 100% of
the portfolio.
► 'U.S. Government instrumentalities and agencies commonly referred to as
government sponsored enterprises (GSEs), issuing securities not backed
as to principal and interests by the full faith and credit of the U.S.
Government. Publicly owned GSEs include Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC)
and Student Loan Marketing Association (SLMA). Non -publicly owned
GSEs include the Federal Home Loan Bank (FHLB), Federal Farm Credit
Bank (FFCB), Federal Land Bank (FLB) and Federal Intermediate Credit
Bank (FICB). The City of La Quinta Investment Policy allows investment
only in securities of FNMA, FHLMC, FHLB and FFC .
,so, eaeh LssueF- to addition. no moro than
10% of surplus funds rnaV be bwested pwWE WOW ad no maro than
30% of "'o stnous be Invested In all GSE's WKh a
P
Maximum $10 milillillon face antour A per putchow for FY 07108. OW
maximum face amount has been teter ' d $20 mAllon per issuer:
Bankers' Acceptances - As authorized in Government Code Section 53601 (f),
40% of the portfolio may be invested in Bankers' Acceptances, although no
more than 30% of the portfolio may be invested in Bankers' Acceptances with
any one commercial bank. Additionally, the maturity period cannot exceed 180
days. The City of La Quinta Investment Policy does not allow investment in
Bankers' Acceptances.
Commercial Paper - As authorized in Government Code Section 53601(g), 15%
of the portfolio may be invested in commercial paper of the highest rating (A-1
or P-1) as rated by Moody's or Standard and Poor's, with maturities not to
exceed 270 days. This percentage may be increased to 30 20% if the dollar
weighted average maturity does not exceed 31 days. There are a number of
other qualifications regarding investments in commercial paper based on the
financial strength of the corporation and the size of the investment. The City of
La Quinta's Investment Policy follows The Government Code with the following
additional limitations: (1) maximum maturity per issue of 90 days and (2) a
maximumof $6 3 million per issuer The e. the of up to
mi ' _ itt Commercial PaW and up to a milikin ht Corporatees from the
same f
Negotiable Certificates of Deposit - As authorized in Government Code Section
53601(h), 30% of the portfolio may be invested in negotiable certificates of
deposit issued by commercial banks and savings and loan associations. The
City of La Quinta Investment Policy does not allow investment in Negotiable
Certificates of Deposit.
Repurchase and Reverse Repurchase Agreements - As authorized in Government
Code Section 53601(i), these investment vehicles are agreements between the
local agency and seller for the purchase of government securities to be resold at
a specific date and for a specific amount. Repurchase agreements are generally
used for short term investments varying from one day to two weeks. There is
no legal limitation on the amount of the repurchase agreement. However, the
maturity period cannot exceed one year. The market value of securities
underlying a repurchase agreement shall be at least 102% of the
funds invested and shall be valued at least quarterly.
The City of La Quinta Investment Policy does not allow investment in
Repurchase Agreements.
The term "reverse repurchase agreement" means the sale of securities by the
local agency pursuant to an agreement by which the local agency will
repurchase such securities on or before a specific date and for a specific
amount. As provided in Government Code Section 53635, reverse repurchase
agreements require the prior approval of the City Council. The City of La Quinta
Investment Policy does not allow investment in Reverse Repurchase
10
Agreements.
Corporate Notes - As authorized in Government Code Section 53601 (j), local
agencies may invest in corporate notes for a maximum period of five years in an
amount not to exceed 30% of the agency's portfolio. The notes must be issued
by corporations organized and operating in the United States or by depository
institutions licensed by the United States or any other state and operating in the
United States. The City of La Quinta Investment Policy allows investment in
corporate notes authorized by the Government Code with the following
limitations:
No. Maturities shall conform with Section V.
► Eligible notes shall be regularly quoted and traded in the marketplace.
► Eligible notes shall be rated "AA" or "AAA" on the date of acquisition.
► Total investment shall not exceed a-§ 10% of the portfolio, and
► The maximum aggregate investment shall not exceed $tI 3 million face
amount for each isstrref ios *
Diversified Management Companies - As authorized in Government Code
Section 53601(k), local agencies are authorized to invest in shares of beneficial
interest issued by diversified management companies (mutual funds) in an
amount not to exceed 20% of the agency's portfolio. There are a number of
other qualifications and restrictions regarding allowable investments in corporate
notes and shares of beneficial interest issued by mutual funds which include (1)
attaining the highest ranking or the highest letter and numerical rating provided
by not less than two of the three largest nationally recognized rating services, or
(2) having an investment advisor registered with the Securities and Exchange
Commission with not less than five years' experience investing in the securities
and obligations and with assets under management in excess of five hundred
million dollars ($500,000,000). The City of La Quinta Investment Policy only
allows investments in mutual funds that are money market funds maintaining a
par value of $1 per share that invests in direct issues of the U.S. Treasury
and/or US Agency Securities with an average maturity of their portfolio not
exceeding 90 days and the City limits such investments to 20% of the portfolio.
Mortgage -Backed Securities - As authorized in Government code Section
53601(n), local agencies may invest in mortgage -backed securities such as
mortgage pass -through securities and collateralized mortgage obligations for a
maximum period of five years in an amount not to exceed 20% of the agency's
portfolio. Securities eligible for investment shall have a "A" or higher rating.
The City of La Quinta Investment Policy does not allow investment in Mortgage -
Backed Securities.
Financial Futures and Financial Option Contracts - As authorized in Government
Code Section 53601.1, local agencies may invest in financial futures or option
contracts in any of the above investment categories subject to the same overall
portfolio limitations.
11
The City of La Quinta Investment Policy does not allow investments in financial
futures and financial option contracts.
Certificates of Deposit - As authorized in Government Code Section 53649,
Certificates of Deposit are fixed term investments which are required to be
collateralized from 1 10% 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 requited for Certificates of Deposits in excess of the
FDIC insured amount. The type of collateral is limited to City authorized
investments. Collateral will always be held by an independent third party from
the institution that sells the Certificates of Deposit to the City. Evidence of
compliance with State Collateral ization policies must be supplied to the City and
retained by the City Treasurer as follows:
1. Certificates of Deposits Insured by the FDIC
The City Treasurer may waive collateralization of a deposit that is
federally insured.
2. Certificates of Deposit in excess of FDIC Limits
The amount not federally insured shall be 1 10% collateralized securities
or 150% mortgages market value of that amount of invested funds plus
unpaid interest earnings.
The City of La Quinta Investment Policy limits the percentage of Certificates of
Deposit to 60% of the portfolio.
Car
-tificates of iie PdvaW PIOCMWM
n 5Q Is aii toca
OUGAVY, tO hwea o porthm of iita our
cert s of 400084 at a co row bank, saWVS took, saOVs and loan
OSSOcliation, or credit union dwat Usm a Privaft seew a sasists in the
PlOcerawlt of 000ficatas of deposk Pro~ that the Purchases of oartfficates
# _ osit gutrsuant to this one �BCtipFt .$, iv �i of
tr percent � _ agencryr's funds _
be_ . 3�ed #or this. pur _.
The City of La Quinta InveaMent Policy dogs not atiow kwasomots in
Oanwoote of Deposits - Private e .
- WWW- - b9nift OMW-
40..aWOr
49 and Wan easoollafierts,
OF
12
a
$MOW thaw, the fill amm"It
s
Sweep Accounts - As authorized by the City Council, a U.S. Treasury and/or
U.S. Agency Securities Money Market Sweep Account with a $50,000 target
balance may be maintained in conjunction with the checking account.
Derivatives - The City of La Quinta Investment Policy does not allow investment
in derivatives.
XI INVESTMENT POOLS
There are three (3) types of investment pools: 1) state -run pools, 2) pools that are
operated by a political subdivision where allowed by law and the political subdivision is
the trustee i.e. County Pool; and 3) pools that are operated for profit by third parties.
The City of La Quinta Investment Policy has authorized investment with the State of
California's Treasurers Office Local Agency Investment Fund commonly referred to as
LAIF. LAIF was organized in 1977 through State Legislation Section 16429.1, 2 and
3. Each LAIF account is restricted to a maximum investable limit of $40 million. In
addition, LAIF will provide quarterly market value information to the City of La Quinta.
On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to
13
LAIF.
Also, prior to opening any new Investment Pool account, which would require City
Council approval, the City Treasurer will require the completion of the Investment Pool
Questionnaire.
XII 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 the City 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.
1. Pooled Investments - It is the general policy of the City to pool all available
operating cash of the City of La Quinta, La Quinta Redevelopment Agency and
La Quinta Financing Authority and allocate interest earnings, in the following
order, as follows:
A. Payment to the General Fund of an amount equal to the total annual bank
service charges as incurred by the general fund for all operating funds as
included in the annual operating budget.
B. Payment to the General Fund of a management fee equal to 5% of the
annual pooled cash fund investment earnings.
C. Payment to each fund of an amount based on the average computerized
daily cash balance included in the common portfolio for the earning
period.
2. Specific Investments - Specific investments purchased by a fund shall incur all
earnings and expenses to that particular fund.
XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR
The City Treasurer shall establish a system of internal controls to accomplish the
following objectives:
► Safeguard assets;
► The orderly and efficient conduct of its business, including adherence to
management policies;
► Prevention or detection of errors and fraud;
14
► The accuracy and completeness of accounting records; and
No. Timely preparation of reliable financial information.
While no internal control system, however elaborate, can guarantee absolute assurance
that the City's assets are safeguarded, it is the intent of the City's internal control to
provide a reasonable assurance that management of the investment function meets the
City's objectives.
The internal controls shall address the following:
a. Control of collusion. Collusion is a situation where two or more employees are
working in conjunction to defraud their employer.
b. Separation of transaction authority from accounting and record keeping. By
separating the person who authorizes or performs the transaction from the
people who record or otherwise account for the transaction, a separation of
duties is achieved.
C. Custodial safekeeping. Securities purchased from any bank or dealer including
appropriate collateral (as defined by State Law) shall be placed with an
independent third party for custodial safekeeping.
d. Avoidance of physical delivery securities. Book entry securities are much easier
to transfer and account for since actual delivery of a document never takes
place. Delivered securities must be properly safeguarded against loss or
destruction. The potential for fraud and loss increases with physically delivered
securities.
e. Clear delegation of authority to subordinate staff members. Subordinate staff
members must have a clear understanding of their authority and responsibilities
to avoid improper actions. Clear delegation of authority also preserves the
internal control structure that is contingent on the various staff positions and
their respective responsibilities as outlined in the Segregation of Major
Investment Responsibilities appendices.
f. Written confirmation or telephone transactions for investments and wire
transfers. Due to the potential for error and improprieties arising from telephone
transactions, all telephone transactions shall be supported by written
communications and approved by the appropriate person. Written
communications may be via fax if on letterhead and the safekeeping institution
has a list of authorized signatures. Fax correspondence must be supported by
evidence of verbal or written follow-up.
g. Development of a wire transfer agreement with the City's bank and third party
custodian. This agreement should outline the various controls, security
provisions, and delineate responsibilities of each party making and receiving wire
transfers.
15
The System of Internal Controls developed by the City, shall be reviewed annually by
the independent auditor in connection with the annual audit of the City of La Quinta's
Financial Statements.
The independent auditor's management letter comments pertaining to cash and
investments, if any, shall be directed to the City Manager who will direct the City
Treasurer to provide a written response to the independent auditor's letter. The
management letter comments pertaining to cash and investment activities and the City
Treasurer's response shall be provided to the City's Investment Advisory Board for
their consideration. Following the completion of each annual audit, the independent
auditor shall meet with the Investment Advisory Board and discuss the auditing
procedures performed and the review of internal controls for cash and investment
activities.
XV BENCHMARK
The investment portfolio shall be designed with the objective of obtaining a rate of
return throughout budgetary and economic cycles commensurate with the investment
risk constraints and the cash flow needs of the City. Return on investment is of least
importance compared to safety and liquidity objectives.
The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a
benchmark when measuring the performance of the investment portfolio.
XVI REPORTING STANDARDS
SB564 section 3 requires a quarterly report to the Legislative Body of Investment
activities. The City of La Quinta Investment Advisory Board has elected to report the
investment activities to the City Council on a monthly basis through the Treasurers
Report. AB 943 requires that the December 31 s` and June 30" Treasurers Reports be
sent to the California Debt and Advisory Commission within sixty days of the end of
the quarter.
The City Treasurer shall submit a monthly Treasurers Report to the City Council and
the Investment Advisory Board that includes all cash and investments under the
authority of the Treasurer.
The Treasurers Report shall summarize cash and investment activity and changes in
balances and include the following:
► A certification by City Treasurer.
No. A listing of Purchases and sales/maturities of investments.
No. 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.
P. Current year and prior year monthly history of cash and investments for
trend analysis.
ON
► Balance Sheet.
► Distribution of cash and investment balances by fund.
► A comparison of actual and surplus funds.
► A year to date historical cash flow analysis and projection for the next six
months.
► A two-year list of historical interest rates.
XVII FINANCIAL ASSETS AND INVESTMENT ACTIVITY NOT SUBJECT TO THIS
POLICY
The City's Investment Policy does not apply to the following:
• Cash and Investments raised from Conduit Debt Financing;
• Funds held in trust in the City's name in pension or other post -retirement
benefit programs;
• Cash and Investments held in lieu of retention by banks or other financial
institutions for construction projects;
• 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.
XVIII INVESTMENT OF BOND PROCEEDS
The City's Investment Policy shall govern bond proceeds and bond reserve fund
investments. California Code Section 5922 (d) governs the investment of bond
proceeds and reserve funds in accordance with bond indenture provisions which shall
be structured in accordance with the City's Investment Policy.
Arbitrage Requirement
The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations as
required and return excess earnings to the US Treasury from investments of proceeds
of bond issues sold after the effective date of this law. This arbitrage calculations may
be contracted with an outside source to provide the necessary technical assistance to
comply with this regulation. Investable funds subject to the 1986 Tax Reform Act will
be kept segregated from other funds and records will be kept in a fashion to facilitate
the calculations. The City's investment position relative to the new arbitrage
restrictions is to continue pursuing the maximum yield on applicable investments while
ensuring the safety of capital and liquidity. It is the City's position to continue
maximization of yield and to rebate excess earnings, if necessary.
XIX _ P1��SS L PORTFOLIO MANAGEMENT
With the Approval of the City Council, the City may engage a professional investment
portfolio aaageF(s MONKsMeM fF�m(s)to assist the City Treasurer administer the
delegated authority to manage and invest_ the City's Funds. The �t
professional portfolio rraemanage, _ firm will be approved by City Council
based upon a request for proposal process as outlined in Appendix H. Before
17
engagement by the City, except as may be specifically waived or revised, the
professional portfolio managefrppM fi m or advisef-shall commit to adhere to the
provisions of the City of La Quinta Investment Policy. Such managers may be granted
the discretion to purchase and sell investment securities in accordance with this
Investment Policy as outlined in Appendix I. Such managers shall have: (1) an
established professional reputation for asset or investment management; (2)
knowledge and working familiarity with State and Federal laws governing and
restricting the investment of public funds; (3) substantial experience providing
investment management services to local public agencies whose investment policies
and portfolio size are similar to those of the City; and (4) professional liability (errors
and omissions) insurance and fidelity bonding in such amounts as are required by the
City. Such managers shall be registered under the Investment Advisers Act of 1940.
XX INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA
The Investment Advisory Board (IAB) consists of five members of the community that
have been appointed by and report to the City Council. The IAB usually meets on a
monthly basis, but at least quarterly to (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.
The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory
Board Provisions.
XXI INVESTMENT POLICY ADOPTION
On an annual basis, the Investment policies will be initially reviewed by the Investment
Advisory Board and the City Treasurer. The Investment Advisory Board will forward
the Investment policies, with any revisions, to the City Manager and City Attorney for
their review and comment. A joint meeting will be held with the Investment Advisory
Board, City Manager, City Attorney, and City Treasurer to review the Investment
policies and comments, prior to submission to the City Council for their consideration.
The Investment Policies shall be adopted by resolution of the City of La Quinta City
Council on an annual basis. The Investment Policies will be adopted before the end of
June of each year.
AB 943 requires that the Investment Policies be sent to the California Debt and
Investment Advisory Commission within sixty days of a change to the Investment
Policy.
iF3
Appendix A
WILL BE UPDATED ACCORDINGLY
19
Chapter 2.70 Appendix B
INVESTMENT ADVISORY BOARD PROVISIONS
Sections:
2.70.010 General Rules Regarding Appointment.
2.70.020 Board meetings.
2.70.030 Board functions.
2.70.010 General rules regarding appointment
A. Except as set out below, see Chapter 2.06 for General Provisions.
B. The Investment Advisory Board (the"board") is a standing board composed of five (5)
members from the public that are appointed by city council. La Quinta residency is required
except for Board Members currently serving on the Board as of June 30, 2003.
C. Background in the investment field and/or related experience is preferred. Background
information will be required and potential candidates must agree to a background check and
verification.
D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at
any time if a change in circumstances warrants, each board member will provide the City
Council with a disclosure statement which identifies any matters that have a bearing on the
appropriateness of that member's service on the board. Such matters may include, but are not
limited to, changes in employment, changes in residence, or changes in clients.
2.70.020 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.
1
2.
2.70.030 Board functions.
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.
The Board will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting.
Appendix C
Chapter 3.08
INVESTMENT OF MONEYS AND FUNDS
Sections:
3.08.010 Investment of city moneys and deposit of securities.
3.08.020 Authorized investments.
3.08.030 Sales of securities.
3.08.040 City bonds.
3.08.050 Reports.
3.08.060 Deposits of securities.
3.08.070 Trust fund administration.
3.08.010 Investment of city moneys and deposit of securities.
Pursuant to, and in accordance with, and to the extent allowed by, Sections
53607 and 53608 of the Government Code, the authority to invest and reinvest
moneys of the city, to sell or exchange securities, and to deposit them and provide
for their safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982)
3.08.020 Authorized investments.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is
authorized to purchase, at their original sale or after they have been issued, securities
which are permissible investments under any provision of state law relating to the
investing of general city funds, including but not limited to Sections 53601 and 53635
of the Government Code, as said sections now read or may hereafter be amended,
from moneys in his custody which are not required for the immediate necessities of the
city and as he may deem wise and expedient, and to sell or exchange for other eligible
securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part),
1982)
3.08.030 Sales of Securities.
From time to time the city treasurer shall sell the securities in which city moneys
have been invested pursuant to this chapter, so that the proceeds may, as appropriate,
be applied to the purchase for which the original purchase money may have been
designated or placed in the city treasury. (Ord.2 § I (part),
3.08.040 City bonds.
Bonds issued by the city and purchased pursuant to this chapter may be canceled
either in satisfaction of sinking fund obligations or otherwise if proper and appropriate;
provided, however, that the bonds may be held uncancelled and while so held may be
resold. (Ord. 2 § 1 (part), 1982)
3.08.050 Reports.
The city treasurer shall make a monthly report to the city council of all investments
made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982)
21
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)
22
SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES
Appendix D
Function
Responsibilities
Develop formal Investment Policy
City Treasurer
Recommend modifications to Investment Policy
Investment Advisory Board
Review formal Investment Policy and recommend
City Manager and
City Council action
City Attorney
Adopt formal Investment Policy
City Council
Review Financial Institutions & Select Investments
City Treasurer
Approve investments
City Manager or
Execute investment transactions
Assistant City Manager
City Manager or Treasurer
Confirm wires, if applicable
Accounting Manager or
Financial Services Assistant
Record investment transactions in City's
Accounting Manager or
accounting records
Financial Services Assistant
Investment verification - match broker confirmation
City Treasurer and Financial
to City investment records
Services Assistant
Reconcile investment records
- to accounting records and bank statements
Financial Services Assistant
Reconcile investment records
- to Treasurers Report
of investments Accounting Manager
Security of investments at City Vault
Security of investments Outside City Third Party Custodian
Review internal control procedures External Auditor
23
Appendix E
LISTING OF APPROVED FINANCIAL INSTITUTIONS
1. Banking Services Wells Fargo Bank, Government Services,
Los Angeles, California
2. Custodian Services Bank of New York, Los Angeles,
California
3. Deferred Compensation International City/County Management
Association Retirement Corporation
4. Broker/Dealer Services Merrill Lynch, Les Antes San
Franciscio, CA
Morgan Stanley, Les A gees San Rafael,
CA
CitiGroup, San Francisco, CA
5. Government Pool State of California Local Agency
Investment Fund
City of La Quinta Account
La Quinta Redevelopment Agency
6. Bond Trustees 1991 City Hall Revenue Bonds - US Bank
1991 RDA Project Area 1 - US Bank
1992 RDA Project Area 2 - US Bank
1994 RDA Project Area 1 -US Bank
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
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—)
4. Broker's Representative to the City (attach resume):
Name:_
Title:
Telephone: ( )
5. Manager/Partner-in-charge (attach resume):
Name:_
Title:
Telephone:
6. List all personnel who will be trading with or quoting securities to City employees
(attach resume)
Name:
Title:
Telephone:
7. Which of the above personnel have read the City's Investment Policy?
8. Which instruments are offered regularly by your local office? (Must equal
100%)
% U.S. Treasuries
% BA's
% Commercial Paper
% CD's
% Mutual Funds
% Agencies (specify):
25
% 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
Contact
Telephone
Client Sinc
Entity
Contact
Telephone
Client Since
10. Have any of your clients ever sustained a loss on a securities transaction arising
from a misunderstanding or misrepresentation of the risk characteristics of the
instrument? If so, explain.
11
12
Has your firm or your local office ever been subject to a regulatory or state/
federal agency investigation for alleged improper, fraudulent, disreputable or
unfair activities related to the sale of securities? Have any of your employees
been so investigated? If so,
explain.
Has a client ever claimed in writing that 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
M
Do you have any current or pending complaints that are unreported to the
NASD?
Yes No If yes, please provide action taken
Does your firm have any current, or pending complaints that are unreported
to the NASD? Yes No If yes, please provide action
taken
13. Explain your clearing and safekeeping procedures, custody and delivery process.
Who audits these fiduciary responsibilities?
Latest Audit Report Date
14. How many and what percentage of your transactions failed.
Last month? % $
Last year? % $
15. Describe the method your firm would use to establish capital trading limits for the
City of La Quinta.
16
Is your firm a member in the S.I.P.C. insurance program. Yes
If yes, explain primary and excess coverage and carriers.
17. What portfolio information, if any, do you require from your clients?
27
No
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 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:
❑ Latest audited financial statements.
❑ Samples of reports, transaction confirmations and any other
research/publications the City will receive.
❑ Samples of research reports and/or publications that your firm regularly
provides to clients.
❑ Complete schedule of fees and charges for various transactions.
'CERTIFICATION'
*CERTIFICATION*
I hereby certify that I have personally read the Statement of Investment Policy of the City
of La Quinta, and have implemented reasonable procedures and a system of controls
designed to preclude imprudent investment activities arising out of transactions
conducted between our firm and the City of La Quinta. All sales personnel will be
routinely informed of the City's investment objectives, horizons, outlooks, strategies and
risk constraints whenever we are so advised by the City. We pledge to exercise due
diligence in informing the City of La Quinta of all foreseeable risks associated with
financial transactions conducted with our firm.
By signing this document the City of La Quinta is authorized to conduct any and all
background checks.
m
Under penalties of perjury, the responses to this questionnaire are true and accurate to
the best of my knowledge.
Broker
Date_
Sales
Date
Representative.
Manager and/or
Title
Managing
Title
Partner*
29
Appendix G
INVESTMENT POOL QUESTIONNAIRE
Note: This Investment Pool Questionnaire was developed by the Government Finance
Officers Association (GFOA).
Prior to entering a pool, the following questions and issues should be considered.
SECURITIES
Government pools may invest in a broader range of securities than your entity invests in.
It is important that you are aware of, and are comfortable with, the securities the pool
buys.
1. Does the pool provide a written statement of Investment Policy and objectives?
2. Does the statement contain:
a. A description of eligible investment instruments?
b. The credit standards for investments?
c. The allowable maturity range of investments?
d. The maximum allowable dollar weighted average portfolio maturity?
e. The limits of portfolio concentration permitted for each type of security?
f. The policy on reverse repurchase agreements, options, short sales and futures?
3. Are changes in the policies communicated to the pool participants?
4. Does the pool contain only the types of securities that are permitted by your
Investment Policy?
INTEREST
Interest is not reported in a standard format, so it is important that you know how
interest is quoted, calculated and distributed so that you can make comparisons with
other investment alternatives.
Interest Calculations
1. Does the pool disclose the following about yield calculations:
a. The methodology used to calculate interest? (Simple maturity, yield to maturity,
etc.)
b. The frequency of interest payments?
c. How interest is paid? (Credited to principal at the end of the month, each quarter;
mailed?)
d. How are gains/losses reported? Factored monthly or only when realized?
30
REPORTING
1. Is the yield reported to participants of the pool monthly? (If not, how often?)
2. Are expenses of the pool deducted before quoting the yield?
3. Is the yield generally in line with the market yields for securities in which you usually
invest?
4. How often does the pool report, and does that report include the market value of
securities?
SECURITY
The following questions are designed to help you safeguard your funds from loss of
principal and loss of market value.
1. Does the pool disclose safekeeping practices?
2. Is the pool subject to audit by an independent auditor?
3. Is a copy of the audit report available to participants?
4. Who makes the portfolio decisions?
5. How does the manager monitor the credit risk of the securities in the pool?
6. Is the pool monitored by someone on the board of a separate neutral party external to
the investment function to ensure compliance with written policies?
7. Does the pool have specific policies with regards to the various investment vehicles?
a. What are the different investment alternatives?
b. What are the policies for each type of investment?
8. Does the pool mark the portfolio to its market value?
9. Does the pool disclose the following about how portfolio securities are valued:
a. The frequency with which the portfolio securities are valued?
b. The method used to value the portfolio (cost, current value, or some other
method)?
31
OPERATIONS
The answers to these questions will help you determine whether this pool meets your
operational requirements:
1. Does the pool limit eligible participants?
2. What entities are permitted to invest in the pool?
3. Does the pool allow multiple accounts and sub -accounts?
4. Is there a minimum or maximum account size?
5. Does the pool limit the number of transactions each month? What is the number
of transactions permitted each month?
6. Is there a limit on transaction amounts for withdrawals and deposits?
a. What is the minimum and maximum withdrawal amount permitted?
b. What is the minimum and maximum deposit amount permitted?
7. How much notice is required for withdrawals/deposits?
8. What is the cutoff time for deposits and withdrawals?
9. Can withdrawals be denied?
10. Are the funds 100% withdrawable at anytime?
11. What are the procedures for making deposits and withdrawals?
a. What is the paperwork required, if any?
b. What is the wiring process?
12. Can an account remain open with a zero balance?
13. Are confirmations sent following each transaction?
STATEMENTS
It is important for you and the agency's trustee (when applicable), to receive statements
monthly so the pool's records of your activity and holding are reconciled by you and your
trustee.
32
1. Are statements for each account sent to participants?
a. What are the fees?
b. How often are they passed?
c. How are they paid?
d. Are there additional fees for wiring funds (what is the fee)?
2. Are expenses deducted before quoting the yield?
QUESTIONS TO CONSIDER FOR BOND PROCEEDS
It is important to know (1) whether the pool accepts bond proceeds and (2) whether the
pool qualifies with the U.S. Department of the Treasury as an acceptable commingled
fund for arbitrage purposes.
1. Does the pool accept bond proceeds subject to arbitrage rebate?
2. Does the pool provide accounting and investment records suitable for proceeds of
bond issuance subject to arbitrage rebate?
3. Will the yield calculation reported by the pool be acceptable to the IRS or will it have
to be recalculated?
4. Will the pool accept transaction instructions from a trustee?
5. Are you allowed to have separate accounts for each bond issue so that you do not
commingle the interest earnings of funds subject to rebate with funds not subject to
regulations?
M
Appendix H
Request for Proposals
Investment Advisory Services
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 estimated to be $10
million and will be invested between 0 — 5 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:
John M. Falconer
Title:
Finance Director/Treasurer
City of:
La Quinta, CA
Address:
78-495 Calle Tampico
City, State
Zip Code: La Quinta, CA 92253
Phone Number:
(760)777-7150
I. 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
II. SELECTION TIMETABLE
A. [Month Day, Year] Proposals due by [Time] PST.
B. [Month Day, Year] Proposals evaluated: to be determined
C. [Month Day, Year] [City of La Quinta, CA] [Board/Council] approves
selection and awards contract.
III. FORMAT FOR PROPOSALS
Please format your response to this RFP in the following manner:
A. Organization
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
1. 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
35
for your latest reporting period in the following table:
Number Operating Funds Number of Other Restrictive
of Clients Clients Funds
Governmental $ $
Governmental $ $
Pension
Non Governmental
Pension
Corporate
High Net Worth Client
Endowmental/Founda
tion
2. 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 II (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.
D. Philosophy/Approach
1. 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-
37
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?
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.
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.
5. 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 confirmation of investment transactions sent directly by the
KM
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.
I. 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
1. 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
78-495 Calle Tampico
La Quinta, CA 92253
Attention: John M. Falconer, Finance Director/Treasurer
2. Proposal must be received no later than [Time] PST on [Month, Day,
Year].
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
39
Appendix I
WILL BE UPDATED ACCORDINGLY
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 of
exchange accepted by a bank or trust company.
The accepting institution guarantees payment of
the bill, as well as the issuer.
BID: The price offered by a buyer of securities.
(When you are selling securities, you ask for a
bid.) See Offer.
BROKER: A broker brings buyers and sellers
together for a commission.
CERTIFICATE OF DEPOSIT (CD): A time deposit
with a specific maturity evidenced by a
certificate. Large -denomination CD's are typically
negotiable.
COLLATERAL: Securities, evidence of deposit or
other property which a borrower pledges to
secure repayment of a loan. Also refers to
securities pledged by a bank to secure deposits of
public monies.
COMMERCIAL PAPER: Short-term unsecured
promissory notes issued by a corporation to raise
working capital. These negotiable instruments
are purchased at a discount to par value or at par
value with interest bearing. Commercial paper is
issued by corporations such as General Motors
Acceptance Corporation, IBM, Bank America, etc.
COMPREHENSIVE ANNUAL FINANCIAL REPORT
(CAFR): The official annual report for the City of
La Quinta. It includes five combined statements
for each individual fund and account group
lAS
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 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.
3. FLBs (Federal Land Bank Bonds) - Long-term
mortgage credit provided to farmers by Federal
Land Banks. These bonds are issued at
irregular times for various maturities ranging
from a few months to ten years. The
minimum denomination is $1,000. They carry
semi-annual coupons. Interest is calculated on
a 360-day, 30 day month basis.
El
FEDERAL CREDIT AGENCIES: Agencies of the
Federal government set up to supply credit to
various classes of institutions and individuals, 5.
e.g., S&L's, small business firms, students,
farmers, farm cooperatives, and exporters.
1. FNMAs (Federal National Mortgage
Association) - Used to assist the home
mortgage market by purchasing mortgages
insured by the Federal Housing
Administration and the Farmers Home
Administration, as well as those guaranteed by
the Veterans Administration. They are issued in
various maturities and in minimum denominations
of $10,000. Principal and Interest is paid
monthly.
2. FHLBs (Federal Home Loan Bank Notes and
Bonds) - Issued by the Federal Home Loan
Bank System to help finance the housing
industry. The notes and bonds provide
liquidity and home mortgage credit to savings
and loan associations, mutual savings banks,
cooperative banks, insurance companies, and
mortgage -lending institutions. They are
issued irregularly for various maturities. The
minimum denomination is $5,000. The notes
are issued with maturities of less than one
year and interest is paid at maturity.
42
FFCBs (Federal Farm Credit Bank) - Debt
instruments used to finance the short and
intermediate term needs of farmers and the
national agricultural industry. They are issued
monthly with three- and six-month maturities.
The FFCB issues larger issues (one to ten
year) on a periodic basis. These issues are
highly liquid.
FICBs (Federal Intermediate Credit bank
Debentures) - Loans to lending institutions
used to finance the short-term and
intermediate needs of farmers, such as
seasonal production. They are usually issued
monthly in minimum denominations of $3,000
with a nine -month maturity. Interest is
payable at maturity and is calculated on a 360-
day, 30-day month basis.
6. FHLMCs (Federal Home Loan Mortgage
Corporation) - a government sponsored entity
established in 1970 to provide a secondary
market for conventional home mortgages.
Morgages are purchased solely from the
Federal home Loan Bank System member
lending institutions whose deposits are insured
by agencies of the United States Government.
They are issued for various maturities and in
minimum denominations of $10,000. Principal
and Interest is paid monthly. Other federal
agency issues are Small Business
Administration notes (SBAs), Government
National Mortgage Association notes
(GNMAs), Tennessee Valley Authority notes
(TVAs), and Student Loan Association notes
(SALLIE-MAEs).
FEDERAL DEPOSITOR INSURANCE
CORPORATION (FDIC): A federal agency that
insures bank deposits, currently up to $100,000
per deposit.
FEDERAL FUNDS RATE: The rate of interest at
which Fed funds are traded. This rate is currently
pegged by the Federal Reserve through open -
market operations.
FEDERAL HOME LOAN BANKS (FHLB):
Government sponsored wholesale banks
(currently 12 regional banks) which lend funds
and provide correspondent banking services to
member commercial banks, thrift institutions,
credit unions and insurance companies. The
mission of the FHLBs is to liquefy the housing
related assets of its members who must purchase
stock in their district Bank.
FEDERAL OPEN MARKET COMMITTEE (FOMC):
Consists of seven members of the Federal
Reserve Board and five of the twelve Federal
Reserve Bank Presidents. The President of the
New York Federal Reserve Bank is a permanent
member, while the other Presidents serve on a
rotating basis. The Committee periodically meets
to set Federal Reserve guidelines regarding
purchases and sales of Government Securities in
the open market as a means of influencing the
volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of
the United States created by Congress and
consisting of a seven member Board of Governors
in Washington, D.C., 12 regional banks and about
5,700 commercial banks that are members of the
system.
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA or Ginnie Mae): Securities
influencing the volume of bank credit guaranteed
by GNMA and issued by mortgage bankers,
commercial banks, savings and loan associations,
and other institutions. Security holder is
protected by full faith and credit of the U.S.
43
Government. Ginnie Mae securities are backed by
the FHA, VA or FMHM mortgages. The term
"passthrough" is often used to describe Ginnie
Maes.
LAIF (Local Agency Investment Fund) - A special
fund in the State Treasury which local agencies
may use to deposit funds for investment. There is
no minimum investment period and the minimum
transaction is $5,000, in multiples of $1,000
above that, with a maximum balance of
$30,000,000 for any agency. The City is
restricted to a maximum of ten transactions per
month. It offers high liquidity because deposits
can be converted to cash in 24 hours and no
interest is lost. All interest is distributed to those
agencies participating on a proportionate share
basis determined by the amounts deposited and
the length of time they are deposited. Interest is
paid quarterly. The State retains an amount for
reasonable costs of making the investments, not
to exceed one -quarter of one percent of the
earnings.
LIQUIDITY: A liquid asset is one that can be
converted easily and rapidly into cash without a
substantial loss of value. In the money market, a
security is said to be liquid if the spread between
bid and asked prices is narrow and reasonable size
can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP):
The aggregate of all funds from political
subdivisions that are placed in the custody of the
State Treasurer for investment and reinvestment
MARKET VALUE: The price at which a security is
trading and could presumably be purchased or
sold.
MASTER REPURCHASE AGREEMENT: A written
contract covering all future transactions between
the parties to repurchase --reverse repurchase
agreements that establishes each party's rights in
the transactions. A master agreement will
often specify, among other things, the right of the
buyer -lender to liquidate the underlying securities
in the vent of default by the seller -borrower
MATURITY: The date upon which the principal or
stated value of an investment becomes due and
payable
MONEY MARKET: The market in which short-
term debt instruments (bills, commercial paper,
bander' acceptances, etc.) are issued and traded.
OFFER: The price asked by a seller of securities.
(When you are buying securities, you ask for an
offer.) See Asked and Bid.
OPEN MARKET OPERATIONS: Purchases and
sales of government and certain other securities
in the open market by the New York Federal
Reserve Bank as directed by the FOMC in order
to influence the volume of money and credit in
the economy. Purchases inject reserves into the
bank system and stimulate growth of money and
credit; sales have the opposite effect. Open
market operations are the Federal Reserve's most
important and most flexible monetary policy tool.
PORTFOLIO: Collection of all cash and securities
under the direction of the City Treasurer,
including Bond Proceeds.
PRIMARY DEALER: A group of government
securities dealers who submit daily reports of
market activity and depositions and monthly
financial statements to the Federal Reserve Bank
of New York and are subject to its informal
oversight. Primary dealers include Securities and
Exchange Commission (SEC) -registered securities
broker -dealers, banks and a few unregulated
firms.
QUALIFIED PUBLIC DEPOSITORIES: A financial
institution which does not claim exemption from
the payment of any sales or compensating use or
ad valorem taxes under the laws of this state,
which has segregated for the benefit of the
commission eligible collateral having a value of
not less than its maximum liability and which has
been approved by the Public Deposit Protection
Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a
security based on its purchase price or its current
market price. This may be the amortized yield to
maturity on a bond the current income return.
REPURCHASE AGREEMENT (RP OR REPO): A
repurchase agreement is a short-term investment
transaction. Banks buy temporarily idle funds
from a customer by selling U.S. Government or
other securities with a contractual agreement to
repurchase the same securities on a future date.
Repurchase agreements are typically for one to
ten days in maturity. The customer receives
interest from the bank. The interest rate reflects
both the prevailing demand for Federal funds and
the maturity of the repo. Some banks will execute
repurchase agreements for a minimum of
$100,000 to $500,000, but most banks have a
minimum of $1,000,000.
REVERSE REPURCHASE AGREEMENTS (RRP or
RevRepo) - A holder of securities sells these
securities to an investor with an agreement to
repurchase them at a fixed price on a fixed date.
The security "buyer" in effect 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,
FNMAS, SLMA, etc.) And Corporations which
have imbedded options (e.g., call features, step-
up coupons, floating rate coupons, derivative -
based returns) into their debt structure. Their
market performance is impacted by the
fluctuation of interest rates, the volatility of the
imbedded options and shifts in the Shape of the
yield curve.
SURPLUS FUNDS: Section 53601 of the
California Government Code defines surplus funds
as any money not required for immediate
necessities of the local agency. The City has
defined immediate necessities to be payment due
within one week.
TREASURY BILLS: A non -interest bearing
discount security issued by the U.S. Treasury to
finance the national debt. Most bills are issued to
mature in three months, six months or one year.
TREASURY BONDS: Long-term coupon -bearing
U.S. Treasury securities issued as direct
obligations of the U.S. Government and having
initial maturities of more than 10 years.
TREASURY NOTES: Medium -term coupon -bearing
U.S. Treasury securities issued as direct
obligations of the U.S. Government and having
initial maturities from two to 10 years.
UNIFORM NET CAPITAL RULE: Securities and
Exchange Commission requirement that member
firms as well as nonmember broker -dealers in
securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also
called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm,
including margin loans and commitments to
purchase securities, one reason new public issues
are spread among members of underwriting
45
syndicates. Liquid capital includes cash and
assets easily converted into cash.
UNIFORM PRUDENT INVESTOR ACT: The State of
California has adopted this Act. The Act contains
the following sections: duty of care,
diversification, review of assets, costs,
compliance determinations, delegation of
investments, terms of prudent investor rule, and
application.
YIELD: The rate of annual income return on an
investment, expressed as a percentage. (a)
INCOME YIELD is obtained by dividing the current
dollar income by the current market price for the
security. (b) NET YIELD or YIELD TO MATURITY is
the current income yield minus any premium
above par of plus any discount from par in
purchase price, with the adjustment spread over
the period from the date of purchase to the date
of maturity of the bond.
2.70.010
Chapter 2.70
INVESTMENT ADVISORY BOARD
Sections:
2.70.010 General rules regarding appointment and terms.
2.70.020 Board meetings.
2.70.030 Board functions.
2.70.010 General rules regarding appointment and terms.
A. Except as set out below, see Chapter 2.06 for general provisions.
B. The investment advisory board (the "board") is a standing board composed of five members from the
public that are appointed by city council.
C. Background in the investment field and/or related experience is preferred. 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 ofthat 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.
(Ord. 383 § 1, 2003: Ord. 287 § 1 (part),1996; Ord. 268 § 1, 1995; Ord. 222 (part), 1993)
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. (Ord. 336 § 1(part), 2000: Ord. 287 § 1 (part), 19%; Ord.
222 (part), 1993)
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 forthe city treasureron matters
such as proposed investments, internal controls, use of 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. (Ord. 336 § 1(part), 2000: Ord. 287 § I (part),1996; Ord. 269 § 1,1995: Ord. 222
(part), 1993)
(La Quima Supp No, 2, 9-03) 42-2
INVESTMENT ADVISORY BOARD Business Session: C
Meeting Date: March 14, 2007
TITLE:
Investment Board Meeting Time
BACKGROUND:
At last months meeting, Staff was asked to bring back a survey of when other City
Investment Board meetings are held and at what time.
Attached, please find the results of the survey. Based upon the City Ordinance, no
action from City Council is necessary.
RECOMMENDATION:
Provide Staff direction.
M. Falconer, Finance Director
S �4
w
�FMOF r1�9
CITY OF LA COMMISSIONSBOARDS
Architectural Landscape Review Committee
10:00 a.m.
Historic Preservation Commission
3:00 p.m.
Community Services Commission
5:30 p.m.
Investment Advisory Board
5:30 p.m.
Planning Commission
7:00 p.m.
OTHER VALLEY CITIES
City of Palm Desert — Audit Investment & Finance Committee 10:00 a.m. — 4`h Tuesday of
each month
No other valley cities have an investment committee.
INVESTMENT ADVISORY BOARD Correspondence & Written
Material Item A
Meeting Date: March 14, 2007
TITLE:
Month End Cash Report February 2007
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.
M. Falconer, Finance Director
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FRB: Commercial Paper Kates ana vutstanamgs
5_ . .
Federal Reserve Release
Commercial Paper �>>
Release I About I Announcements I Clutstandings I Volume statistics Year-end Data Download
ProeLqm-(DDP)
Data as of February 28, 2007
Commercial Paper Rates and Outstanding
Derived from data supplied by The Depository Trust Company
Posted March 1, 2007
[Term
AA
nonfinancial
A2/P2/F2
nonfinancial
AA
financial
AA
asset -backed
1-day
5.31
T36
5.26
5.33
7-day
5.23
5.27
5.29
5.31
5.24
5.23
5.27
5.29
15-day
30-day
5.21
5.34
5.23
5.29
60-day
5.20
5.31
5.22
5.25
90-day
n.a.
5.31
of the 90-dav
5.21
AT nommancial
5.24
rate for February 28, 2(
Tana nnrn incuferiPnt
in cunnort calculation
Yield curve
Money market basis
---- AA noufinanuel
-------- A21P2/172 non6n:mcral
----- AA i4,+wriA
07
Percent
5.5
5.3
5.1
1 7 15 30 60 xf
Days tD Maturity
3
http://www.federalreserve.gov/Releases/CP/ 3/l/2007
NKH: Commercial raper Kates anu UulslauuulFs
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2001 2002 2003 2004 2M5 ztxr)
Discount rate history
2001 2002 2003 3004 zvu5 �tx�a
Outstandings
Weekly (Wednesday), seasonally adjusted
120
IM
80
60
40
20
0
Percent
b
5
4
3
I
0
4
http://www.federalreserve.gov/Releases/CP/ 3/1/2007
FRB: Commercial raper Kates ana vutstanu tigs
wtl
1090
1040
990
940
890
840
790
740
690
640
590
540
490
Billions of dollars
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� --- TonGarineitil (right gcntct
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2001 2002 2003 2004 2005 twa
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170
130
90
The daily commercial paper release will usually be available before 11:00am EST. However, the Federal
Reserve Board makes no guarantee regarding the timing of the daily commercial paper release. When
the Federal Reserve Board is closed on a business day, rates for the previous business day will be
available through the Federal Reserve Board's Data Download application. This policy is subject to
change at any time without notice.
Release I About I Announcements I Outstandings I Volume statistics I Year-end I Data Download
Program (DDP)
Home I Statistical releases
Accessibility I Contact Us
Last update: March 1, 2007
5
http://www.federaireserve.gov/Releases/CP/ 3/l/2007
Recent Bill Auction Results
Page 1 of 1
.rMad,
Recent Bill Auction Results
Security
Issue
Maturity
Discount
Investment
Price
CUSIP
Term
DatC
Date
Rate to
Rate %
PC, $100
28-DAY
03-01-2007
03-29-2007
5 160
5.267
99,598667
912795YZ8
91-DAY
03-01-2007
05-31-2007
5.035
5.185
98,727264
912795Z33
182 DAY
03 01-2007
08- 10 2007
4 950
5 162
97
497500
9127957X2
28-DAY
02-22-2007
03-22-2007
5.175
5.268
99
597500
912795YYI
91-DAY
02-22-200/
05-24-2002
5.035
5.1/1
98.727264
912/95ZH7
182 DAY
02-22-2007
08-23-2007
4.950
5.148
97,497500
912795ZW4
6-DAY
02-16-2007
02-22-2007
5 140
5.216
99.914333
912795YU9
28-DAY
02-15-2001
03-15-2007
5 135
5.227
90
600611
912/95YX3
91-DAY
02-15-2007
05-17-2007
5 025
5.1GD
98,729792
912795ZG9
182-DAY
02-15-2007
08-E6-2007
4965
5.164
97,489917
912795ZV6
28-DAY
02 08 2007
03 08 2007
5.045
5.135
99,607611
912795YWS
91-DAY
02-08-2007
05-10-2007
5.010
5.145 -
98,733583
912795ZP1
182-DAY
02-08-2001
08-09-2007
4.955
5 153
97.494972
912795ZU8
28-DAY
02-01-2007
03-01-2007
4.885
4.972
99,620056
912795YV7
91-DAY
02-01-2007
05-03-2007
5 010
5.145
98.733583
912795ZE4
182-DAY
02 01-2007
08 02 2007
4 980
5.180
97
482333
912795ZTI
28-DAY
01-25-2007
02-22-2007
4.900
4 987
99,618889
912795YU9
91-DAY
01-25-2007
04-26-2007
4.995
5.129
98
7373/5
912795ZD6
182-DAY
01-25-2007
07-26-2007
4 966
S 164
97,489917
912795ZS3
28-DAY
01-18-2007
02-15-2007
4.895
4.982
99.619278
912795Yi2
91-DAY
01 18 2007
04 19 2007
4 975
5.108
98,742431
9127957C8
182-DAY
01-18-2007
07-19-2007
4,950
5.148
97
497500
912795ZR5
28-DAY
01-11-200/
02-08-2007
0'800
4.885
99
62666/
912795Y54
91 DAY
01-11-2007
04-12-2007
4 940
S 072
98.751278
9127957BO
182-DAY
01-11-2007
07-12-2007
4.920
5.116
97,512667
912795ZQ7
28-DAY
01-04-2007
02-D1-2001
4.760
4.814
99
629778
912/95YR6
91-DAY
01-04-2D07
04-05-2007
4 930
5062
98,753806
912795ZA2
182-DAY
01-04-2007
07-05-2007
4 900
5.094
97.522778
912795ZP9
28-DAY
12-28-2006
01-25-2007
4.660
4.742
99.637556
912795YQ8
91-DAY
12-28-2006
03-29-2007
4.875
5 004
98,767708
912795YZ8
182-DAY
12-28-2005
06-29-200/
4.900
9 094
9/.522718
912795ZN4
28-DAY
12-21-2006
01-18-2007
4 740
4.824
99
631333
912795YPO
91-DAY
12-21-2006
03-22-2007
4 825
4952
98
780347
912795YY1
182 DAY
12-21-2006
06-21-2007
4.885
5.078
97.530361
9127957M6
28-DAY
12-14-2006
01-11-2007
4 760
4.844
99
629778
912795YN5
91-DAY
12-14-2006
03-15-2007
4,800
4.926
98,786667
912/95YX3
182-DAY
12-14-2006
06-14-2007
4.865
5 057
97,540472
912795ZL8
28-DAY
12-07-2006
01-04-2007
4 760
4.844
99.629778
912795YM7
91-DAY
12-07-2006
03-08-2007
4.870
4,999
98.7b8972
91279SYWS
182-DAY
12-07-2006
06-07-2007
4.840
5 030
97.553111
912795ZKO
Effective with the 11/2/98 auction, all bills are auctioned using the single -priced method.
6
http://www.treasurydirect.gov/RI/OFBills 3/l/2007
r'Kli: H.1J--Selected Interest Kates, web-Unly Uatly Upaate--rebruary La, LUV1
rage i or 4
Federal Reserve Statistical Release
H.15
Selected Interest Rates (Daily)
Release Date: February 28, 2007
Weekly release dates I I listorical data I Data Download Program (DDP) I About I Announcements
Daily update Other formats: Screen reader I ASCII
tP3alarogram Download
The weekly release is posted on Monday. Daily updates of the weekly release are F
through Friday on this site. If Monday is a holiday, the weekly release will be F
after the holiday and the daily update will not be posted on that Tuesday.
FEDERAL RESERVE STATISTICAL RELEASE
H.15 DAILY UPDATE: WEB RELEASE ONLY
SELECTED INTEREST RATES
For use at 4:15 p.m. Eastern Time
Yields in percent per annum February.28, 2007
2007 2007
Instruments
Feb
Feb
26
27
Federal funds (effective) 1 2 3
5.30
5.27
Commercial Paper 3 4 5
Nonfinancial
1-month
5.23
5.20
2-month
5.22
5.20
3-month
n.a.
5.19
Financial
1-month
5.24
5.28
2-month
5.25
5.23
3-month
5.23
5.21
CDs (secondary market) 3 6
1-month
5.28
5.29
3-month
5.31
5.31
6-month
5.33
5.32
Eurodollar deposits (London) 3 7
1-month
5.32
5.32
3-month
5.35
5.34
6-month
5.37
5.30
Bank prime loan 2 3 8
8.25
8.25
Discount window primary credit 2 9
6.25
6.25
U.S. government securities
Treasury bills (secondary market) 3 4
4-week
5.15
5.13
3-month
5.05
4.99
6-month
4.97
4.89
Treasury constant maturities
Nominal 10
1-month
5.23
5.22
3-month
5.19
5.14
6-month
5.18
5.10
1-year
5.05
4.93
2-Year
4.77
4.59
7
http://www.federalreserve.gov/Releases/H15/update/ 3/1/2007
PKB: H.1_')--�)e)ectea interest Kates, wen-uniy uauy
update--reoruary Za, ZUUi rage Ul w
3-year
4.67
4.50
5-year
4.62
4.46
7-year
4.62
4.46
10-year
4.63
4.50
20-year
4.84
4.73
30-year
4.73
4.62
Inflation indexed 11
5-year
2.21
2.07
7-year
2.26
2.13
10-year
2.26
2.14
20-year
2.29
2.19
Inflation -indexed long-term average 12
2.27
2.17
Interest rate swaps 13
1-year
5.35
5.31
2-year
5.15
5.09
3-year
5.08
5.01
4-year
5.06
5.00
5-year
5.07
5.01
7-year
5.11
5.05
10-year
5.17
5.11
30-year
5.31
5.25
Corporate bonds
Moody's seasoned
Aaa 14
5.30
5.20
Baa
6.17
6.09
State & local bonds 15
Conventional mortgages 16
n.a. Not available.
Footnotes
1. The daily effective federal funds rate is a weighted average of rates on broke
2. Weekly figures are averages of 7 calendar days ending on Wednesday of the curr
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 settl
Depository Trust Company. The trades represent sales of commercial paper by deale
issuers to investors (that is, the offer side). The 1-, 2-, and 3-month rates are
30-, 60-, and 90-day dates reported on the Board's Commercial Paper Web page
(www.federalreserve.gov/releases/cp/).
6. An average of dealer bid rates on nationally traded certificates of deposit.
7. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time.
8. Rate posted by a majority of top 25 (by assets in domestic offices) insured U.
commercial banks. Prime is one of several base rates used by banks to price short
loans.
9. The rate charged for discounts made and advances extended under the Federal Re
credit discount window program, which became effective January 9, 2003. This rate
adjustment credit, which was discontinued after January 8, 2003. For further info
www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm. The rate
for the Federal Reserve Bank of New York. Historical series for the rate on adjus
http://www.federalreserve.govlReleases/H 15/update/
3/1/2007 8
NK1i: H.1J--Selected interest Kates, web-Vmy Natty update--rebruary /a, /vvi rage J vi ti
well as the rate on primary credit are available at www.federalreserve.gov/releas
10. Yields on actively traded non -inflation -indexed issues adjusted to constant m
30-year Treasury constant maturity series was discontinued on February 18, 2002,
on February 9, 2006. From February 18, 2002, to February 9, 2006, the U.S. Treasu
factor for adjusting the daily nominal 20-year constant maturity in order to esti
nominal rate. The historical adjustment factor can be found at
www.treas.gov/offices/domestic-finance/debt-management/interest-rate/ltcompcsitei
Source: U.S. Treasury.
11. Yields on Treasury inflation protected securities (TIPS) adjusted to constant
Source: U.S. Treasury. Additional information on both nominal and inflation -index
found at www.treas.gov/offices/domestic-finance/debt-management/interest-rate/ind
12. Based on the unweighted average bid yields for all TIPS with remaining terms
more than 10 years.
13. International Swaps and Derivatives Association (ISDA(R)) mid -market par swap
for a Fixed Rate Payer in return for receiving three month LIBOR, and are based o
at 11:00 a.m. Eastern time by Garban Intercapital plc and published on Reuters Pa
ISDAFIX is a registered service mark of ISDA. Source: Reuters Limited.
14. Moody's Aaa rates through December 6, 2001, are averages of Aaa utility and A
rates. As of December 7, 2001, these rates are averages of Aaa industrial bonds c
15. Bond Buyer Index, general obligation, 20 years to maturity, mixed quality; Th
16. Contract interest rates on commitments for fixed-rate first mortgages. Source
---------------------------------------------------------------------------------
Note: Weekly and monthly figures on this release, as well as annual figures avail
Board's historical H.15 web site (see below), are averages of business days unles
---------------------------------------------------------------------------------
Current and historical H.15 data are available on the Federal Reserve Board's web
(www.federalreserve.gov/). For information about individual copies or subscriptio
Publications Services at the Federal Reserve Board (phone 202-452-3244, fax 202-7
electronic access to current and historical data, call STAT-USA at 1-800-782-8872
Description of the Treasury Nominal and Inflation -Indexed Constant Maturi
Yields on Treasury nominal securities at "constant maturity" are interpolated by
from the daily yield curve for non -inflation -indexed Treasury securities. This cu
the yield on a security to its time to maturity, is based on the closing market b
actively traded Treasury securities in the over-the-counter market. These market
calculated from composites of quotations obtained by the Federal Reserve Bank of,
constant maturity yield values are read from the yield curve at fixed maturities,
and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yiel
maturity, for example, even if no outstanding security has exactly 10 years remai
Similarly, yields on inflation -indexed securities at "constant maturity" are inte
daily yield curve for Treasury inflation protected securities in the over-the-cou
inflation -indexed constant maturity yields are read from this yield curve at £ixe
currently 5, 7, 10, and 20 years.
Weekly release dates I Historical data I Data Download Program (DDP) I About I Announcements
9
http://www.federalreserve.gov/Releases/H 15/update/ 3/t /2007
r'KI3: H.IS--Selected Interest Kates, Web -Only Ltatly Upaate--reoruary 2rs, luul rage,+ or +
Daily update Other formats: Screen reader I ASCII
Statistical releases
Home I Economic roscarch and data
Acccssibihtq I Comact Un
Last update: February 28, 2007
http://www.federalreserve.gov,Releases/H15/update/
3/l /2007 10
Bill Lockyer, State Treasurer
Inside the State Treasurer's Office
Local Agency Investment Fund (LAIF)
PMIA Performance Report
Date
Daily
Yield
Quarter to
Date Yield
Average
Maturity
tin days)
2/8/2007
5.17
5.16
180
2/9/2007
5.17
5.16
182
2/10/2007
5.17
5.16
182
2/11/2007
5.17
516
182
2/12/2007
1 5.17
5.16
182
2/13/2007
5.17
5.16
179
2/14/2007
5.17
5.16
181
2/15/2007
5.19
5.16
181
2/16/2007
519
5.16
181
2/17/2007
5.19
5.16
181
2/18/2007
5.19
5.16
181
2/19/2007
5.19
5.16
181
2/20/2007
519
5.16
179
2/21/2007
5.191
b.1bl
182
LAW Performance Report
Quarter ending 12/31/06
Apportionment Rate: 5.11 %
Earnings Ratio: .00013991107557790
Fair Value Factor: .999444427
PMIA Average Monthly Effective Yields
January 2007 5.156%
December 2006 5.129%
November 2006 5.125%
Pooled Money Investment Account
Portfolio Composition
$59.7 Billion
01 /31107
Corpor
Bond
1.03°
Commercial
Paper
15.63%
Time Dep
14.419
Treasuries
Loans 7 73%
14 01 %
Mortgages
ren3
CDs/BNs
19.92%
Agencies
25 69%
11
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12
INVESTMENT ADVISORY BOARD
Meeting Date
TITLE:
March 14, 2007
Correspondence
& Written Material Item B
Pooled Money Investment Board Report for December 2006
BACKGROUND:
The Pooled Money Investment Board Report for December 2006 is included in the
agenda packet. This report is available on-line at www.treasurer.ca.gov.
RECOMMENDATION:
Receive & File
John M. Falconer, Finance Director
POOLED MONEY INVESTMENT ACCOUNT
SUMMARY OF INVESTMENT DATA
A COMPARISON OF DECEMBER 2006 WITH DECEMBER 2005
(DOLLARS IN THOUSANDS)
DECEMBER 200611 DECEMBER 2005 CHANGE
Average Daily Portfolio
$ 64,439,522 $
54,545,590 $
-106,068
Accrued Earnings
$ 237,173 $
176,406 $
+60,767
Effective Yield
5.129
3.808
+1.321
Average Life -Month End (In Days)
Total Security Transactions
183
Amount
$ 30,236,268 $
Number
634
Total Time Deposit Transactions
Amount
$ 3,380,500 $
Number
173
Average Workday Investment Activity
$ 1,680,838 $
Prescribed Demand Account Balances
For Services
$ 251,189 $
For Uncollected Funds
$ 165,426 $
1
192 -9 1
21,953,937 $ +8,282,331
451
+183
3,148,500
$
+232,000
146
+27
1,195,354
$
+485,484
323,120
$
-71,931
145,807
$
+19,619
PHIL ANGELIDES
TREASURER
STATE OF CALIFORNIA
INVESTMENT DIVISION SELECTED INVESTMENT DATA
ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO
(000 OMITTED)
DECEMBER 31, 2006
DIFFERENCE IN
PERCENT OF
PERCENT OF PORTFOLIO FROM
TYPE OF SECURITY
AMOUNT
PORTFOLIO
PRIOR MONTH
Government
Bills
$ 3,634,185
6.36
+1.58
Bonds
0
0.00
0
Notes
0
0
Strips
0
0.00
0
Total Government
$ 3,634,185
6.36
+1.58
Federal Agency Coupons
$ 9,542,202
16.70
-0.75
Certificates of Deposit
11,668,292
20.43
+1.16
Bank Notes
1,115,028
1.95
+0.60
Bankers' Acceptances
0
0.00
0
Repurchases
0
0.00
0
Federal Agency Discount Notes
5,579,469
9.77
+4.53
Time Deposits
8,525,995
14.93
-0.19
GNMAs
225
0.00
0
Commercial Paper
7,738,589
13.55
-2.52
FHLMC/Remics
967,880
1.69
-0.08
Corporate Bonds
554,148
0.97
-0.07
AB 55 Loans
7,604,132
13.31
-0.76
GF Loans
190,600
0.34
-3.50
Reversed Repurchases
0
0.00
0
Total (All Types)
$ 57,120,735
100.00
INVESTMENT ACTIVITY
Pooled Money
Other
Time Deposits
Totals
PMIA Monthly Average Effective Yield
Year to Date Yield Last Day of Month
DECEMBER 2006
NUMBER
AMOUNT
634
$ 30,236,268
55
1,254,835
173
3,380,600
862 $ 34,871,603
5.129
5,025
NOVEMBER 2006
NUMBER
AMOUNT
631
$ 25,026,221
30
643,621
193
4,364,800
754 $ 29,933,642
5.125
5.004
Pooled Money Investment Account
Portfolio Composition
$57.1 Billion
Corporate 8
0.97%
Commercial Paper
13.55%
Time Dep
14.93�
12/31 /06
Treasuries
Loans 6.36% Mortgages
CDs/l3Ns
22.38%
Agencies
26.47%
BOARD MEMBER ITEMS
t a trthlmy private codtpany, withhold•' .-,, fr�aad and a newly invigorate d regulator unx
A-hWes
ore than$40-million ln'b`d=,.'detOfh@oUirec#d�'damestockhg&ti�begiri=,
tied ` o' irauduletit ,eariiiiigs 'itingeib. ot riiwilkethl brdinary crifNlSaSij `
i"}bl#ldbe'a;itq-,bri tier: 4 "Fatiriie Mae i§ antl less`)~ii<t #ki locaititi yinVva`shi ,' tbn, `
�aj b�°��"�.�a`1'�Qctly,�i4i= on the�gther handy"izat�rue°s ;�'1dt�'
y4be yb4yits shams a�g m p%i�ate hapcs;. -`Mori
godriswOs'apnoung}nRntthtcurlegt; ;;ov�rofCgass 11ieStlshA s radon;,
i?ex*Mtdd,ih ' t.C10, $yilllpP hutit�aii[ias.tg-b gd%tHgwt po+eia s
$4 k�riiili#on, �vliil Ilairie ; th- �#ie$�i�reg'i�Y'itoru-h4vblin' y I that.
former C&0 ousted over the $6 bRillion ac- could pass'a Demociatiq Congress.
co Uiigscozidal,tvill`�vetoforgo$lT4 `' Aftid2>€idly,'tlbbdd'YliiVolvedinthefraud'
o sca esq t 0(,* iewsust' ',h8 fdce�'et�h{tti�l'chiiies, a fact that
y$a�'fha 0�1` o,> afn e;i lae!sfec ralr' 'Would h�Yo t��-,�# is,� hd the corporate
1ai��ugu�il seek to clslv,bsckalwut $1(10,.scoldsir4ongresiafms,ifa$6biIllon
Qningerfpr{nancennµses:tthadal':, .fraud liad,ilgen_pgpetxted at any'com-
izat�,bep-paid�put-Thaicase,ispending. parry, ���11�i�FanYukca;Fredrsti�,�not.,.
�,,�1Ae�optimisticviewo'fyestegday'snews- payingreaibonusq tiedtofakeearningsis
istliatFannie chastenedbgtheaccounting, <betterthanmotlankg .
•,�: . , -- . „ . ,
s;-
Bernanke Hits Fannie
0 ne duty of the Federal Reserve
Chairman is steward of the U.S. fi-
system, so it's good news
that Ben Bernanke stepped up yesterday
and put himself on record as favoring limits
on Fannie Mae andFreddle Mae. Maybe his
intervention will help
prod Congress tostop pro-
tecting the two mortgage.
giants from regulatory dis-
cipline.
Readers of these col-
umns know the incredible tale of Fan and
Fred, the "`government -sponsored enter-
prises" that have grown like Topsy thanks
to an implicit government subsidy and now
pose a systemic risk to the entire financial
system, Mr. Bernanke put it this way: "The
perception of government backing allows
Fannie and Freddie to borrow in open capi-
talmarkets at an interest rate only slightly
above thatpaidbythe U.S.'treasury andbe-
low that paid by other private participants
in mortgage markets"
The companies use this subsidized pric-
ing advantage to buy huge -amounts of mort-
gage -based securities, or MBSs, and thus
can enjoy profits of an effectively unlim-
ited scale." Socialism can be a great busi-
ness for the lucky few who game the politi-
cal system.
Congress lets the duo play this game be-
cause the companies. claim that their vast
MBS portfolios help promote "affordable
housing," and who doesn't like that? But
Mr. Bernanke also blew away that smoke-
screen by noting Fed research showing that
these portfolios "appear to have no mate-
iF-
Limiting Fan and Red
to affordable housing.
rial effect on the cost or availability of resi-
dential mortgages." in order to buy those
MBSs, the companies issue roughly equal
amounts of debt, so the net result is awash
in supplying capital for mortgage finance.
However, the companies keep piling up
debt to buy those MBSs,
hem tenfold
from 1990owing tthrough 003.
Today, the two have a com-
bined total of $5.2 trillion
in debt and MBS obliga-
tions, which exceeds the entire $4.9 trillion
in publicly held U.S. government debt. We
can hear our readers wondering why they
can't get in on a similar "business model."
Mr. Bernanke's sensible recommenda-
tion is that Congress give Fan and Fred's
regulator the power to limit those MBS
portfolios. He has other useful ideas, but
his key point is that these MBS portfolios
should be limited to a role that actually
does promote affordable housing —that is,
providing liquidity for "mortgages ex-
tended to households with below -median -
income." This would mean less profit for
Fannie and Fredbut alsoless danger to tax-
payers in case the duo guess wrong in the
market and get into financial trouble.
This is all so eminently sensible that it
probably won't happen. Democrats in Con-
gress claim to want to help poor homeown-
ers, but they seem only too happy to let Fan-
nie and Freddie grow rich by investing in
the higher -income mortgage market that is
already liquid enough. They could better
serve taxpayers and the poor if they took
Mr. Bernanke's counsel.