FA Resolution 2007-001RESOLUTION NO. FA 2007-001
A RESOLUTION OF THE LA QUINTA FINANCING
AUTHORITY OF THE CITY OF LA QUINTA APPROVING
AND ADOPTING THE AMENDED INVESTMENT POLICY
FOR FISCAL YEAR 2007/2008
WHEREAS, the general purpose of the Investment Policy is to provide the
rules and standards users must follow in investing funds of the City of La Quinta;
and
WHEREAS, 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 li uid 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.
WHEREAS, 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; and
WHEREAS, the Investment Policy will be adopted before the end of June of
each year and amended as considered necessary; and
NOW, THEREFORE, BE IT RESOLVED by the Financing Authority of the City
of La Quinta to adopt the 2007/2008 Fiscal Year Investment Policy (Exhibit A).
Resolution No. FA 2007-001
Investment Policy FY 2007-2008
Adopted: June 19, 2007
Page 2
PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta
Financing Authority, held on this 191h day of June, 2007 by the following vote, to
wit:
AYES: Members Henderson, Kirk, Osborne, Sniff, Chairman Adolph
NOES: None
ABSTAIN: None
ABSENT: None
DON ADO H, C irman
La Quinta Financing Authority
ATTEST:
Authority
(SEAL)
APPROVED AS TO FORM:
M. KATHERINE JENSgW, Authority Counsel
La Quinta Financing Authority
CITY OF LA QUINTA
Investment Policy
Table of Contents
:tion Topic
Page
Executive Summary
2
General Purpose
4
Investment Policy
4
Scope
4
Objectives
4
to. Safety
► Liquidity
► Yield
► Diversified Portfolio
Maximum Maturities
6
Prudence
6
Delegation of Authority
6
Conflict of Interest
7
Authorized Financial Dealers and Institutions
7
► Broker/Dealers
No. Financial Institutions
Authorized Investments and Limitations
8
Investment Pools
13
Payment and Custody
13
Interest Earning Distribution Policy
13
Internal Controls and Independent Auditors
14
Benchmark
15
1 Reporting Standards
15
II Financial Assets and Investment Activity Not Subject to this Policy
16
III Investment of Bond Proceeds
16
Contracting A Professional Portfolio Management Firm
17
Investment Advisory Board - City of La Quinta
17
1 Investment Policy Adoption
17
pendices: 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
34
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, with the approval of the City Council, may use a professional
portfolio management firm 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
Collateral ization 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 three 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 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, 2007 through June 21, 2008
Adopted by the City Council on June 19, 2007
1 GENERAL PURPOSE
The general purpose of this document is to provide the rules and standards users must follow it
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 tc
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
► 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
0
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:
No. 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
No. 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:
No. 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
cores 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 tc
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 2007/08, 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 3 and 5 years. For all other funds, investments are limited
to three years maximum maturity, with no more than 25% of surplus funds invested
in maturities exceeding two years and less than three years.
191
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.
VII 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
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
U.
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.
VIII 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:
No. 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
broker/dealer and independently verify existing reports on file for any firm and
individual conducting investment related business.
7
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 collateral ization 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
K:
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 three years, except the projected annual dollar amount, as
detailed in Section V, may be invested in U.S. Treasury bills, notes and bonds,
with maturities between 2 and 5 years, with no more than 25% of surplus funds
invested in maturities exceeding two years and less than three years.
State Treasurer's Local Agency Investment Fund (LAIF) - As authorized in
Government Code Section 16429.1 and by LAW 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 LAIR 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
• U.S. Treasury bills, notes and bonds and Government National Mortgage
Association (GNMA) 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 FFCB. In addition, no more than
10% of surplus funds may be invested per GSE issuer and no more than
30% of the portfolio surplus may be invested in all GSE's with a maximum
$10 million face amount per purchase. For FY 07/08, the maximum face
amount has been determined $20 million per issuer.
0
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), 25% 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 27C
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 Cluinta's Investment Policy follows The
Government Code with the following additional limitations: (1) up to 15% of the
portfolio may be invested in commercial paper of the highest rating (2) maximum
maturity per issue of 90 days and (3) a maximum of $5 million per issuer.
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 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
10
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:
► 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 exceedl0% of the portfolio, and
► The maximum aggregate investment shall not exceed $5 million face
amount for each issuer.
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
5:3601(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.
The City of La Quinta Investment Policy does not allow investments in financial
futures and financial option contracts.
11
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 w
collateral in accordance with Government Code Section 53652. There are nc
portfolio limits on the amount or maturity for this investment vehicle.
Collateralization will be required for Certificates of Deposits in excess of the FDIC
insured amount. The type of collateral is limited to City authorized investments,
Collateral will always be held by an independent third party from the institutior
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 collateral ization of a deposit that is federally
insured.
2. Certificates of Deposit in excess of FDIC Limits.
The amount not federally insured shall be 110% collateralized securities or
150% mortgages market value of that amount of invested funds plus
unpaid interest earnings.
The City of La Quinta Investment Policy limits the percentage of Certificates of
Deposit to 60% of the portfolio.
Certificates of Deposits — Private Placement
Section 53601.8 allows a local agency, to invest a portion of its surplus funds in
certificates of deposit at a commercial bank, savings bank, savings and loan
association, or credit union that uses a private sector entity that assists in the
placement of certificates of deposit, provided that the purchases of certificates of
deposit pursuant to this section, Section 53635.8, and subdivision(h) of Section
53601 do not, in total, exceed 30 percent of the agency's funds that may be
invested for this purpose.
The City of La Quinta Investment Policy does not allow investments in Certificate
of Deposits — Private placements.
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.
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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, LAW account is restricted to a maximum investable limit of $40 million. In
addition, LAW 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
LAIF.
Also, priior 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.
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2. Specific Investments - Specific investments purchased by a fund shall incur al.
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;
No. Prevention or detection of errors and fraud;
► The accuracy and completeness of accounting records; and
► 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
14
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.
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" and June 300' 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.
15
The Treasurers Report shall summarize cash and investment activity and changes it
balances and include the following:
► A certification by City Treasurer.
► A listing of Purchases and sales/maturities of investments.
► Cash and Investments categorized by authorized investments, except foi
LAW which will be provided quarterly and show yield and maturity.
► Comparison of month end actual holdings to Investment Policy limitations,
► Current year and prior year monthly history of cash and investments,foi
trend analysis.
► Balance Sheet.
► Distribution of cash and investment balances by fund.
No. 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
16
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 CONTRACTING A PROFESSIONAL PORTFOLIO MANAGEMENT
With the: Approval of the City Council, the City may engage a professional portfolio
management firm(s) to assist the City Treasurer administer the delegated authority to
manage and invest the City's Funds. The professional portfolio management firm will be
approved by City Council based upon a request for proposal process as outlined in
Appendix H. Before engagement by the City, except as may be specifically waived or
revised, the professional portfolio management firm 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,
17
City Manager, City Attorney, and City Treasurer to review the Investment policies anc
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 anc
Investment Advisory Commission within sixty days of a change to the Investment Policy,
it]
Appendix E
Chapter 2.70
INVESTMENT ADVISORY BOARD PROVISIONS
actions:
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)
embers from the public that are appointed by city council. La Quinta residency is required
r 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
Formation will be required and potential candidates must agree to a background check and
:rification.
D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or
iy time if a change in circumstances warrants, each board member will provide the City Col
ith a disclosure statement which identifies any matters that have a bearing on the
ipropriateness of that member's service on the board. Such matters may include, but are r
cited 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
aetings upon the concurrence of the Board and the City Council. The specific meeting date
determined by the Board Members and meetings may be called for on an as needed basis.
2.70.030 Board functions.
The principal functions of the Board are: (1) review at least annually the City's Investmen+
Policy and recommend appropriate changes; (2) review monthly Treasury Report and note
compliance with the Investment Policy and adequacy of cash and investments for anticipe
obligations; (3) receive and consider other reports provided by the City Treasurer; (4) mee
the independent auditor after completion of the annual audit of the City's financial statem
and receive and consider the auditor's comments on auditing procedures, internal controls
findings for cash and investment activities, and; (5) serve as a resource for the City Trees
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.
20
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;
providedl, 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
21
made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982)
3.08.060 Deposits of securities.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer i;
authorized to deposit for safekeeping, the securities in which city moneys have beer
invested pursuant to this chapter, in any institution or depository authorized by the term,,
of any state law, including but not limited to Section 53608 of the Government Code a,,
it now reads or may hereafter be amended. In accordance with said section, the cit}
treasurer shall take from the institution or depository a receipt for the securities sc
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 Sectior
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
Appendix D
SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES
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
Assistant City Manager
Execute investment transactions 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 linternal control procedures External Auditor
`1
Appendix E
LISTING OF APPROVED FINANCIAL INSTITUTIONS
1. Banking Services - Wells Fargo Bank, Government Services,
Los Angeles, CA
2. Custodian Services Bank of New York, Los Angeles, CA
3. Deferred Compensation - International City/County Management
Association Retirement Corporation
4. Broker/Dealer Services - Merrill Lynch, San Franciscio, CA
Morgan Stanley, San Rafael, CA
CitiGroup, San Francisco Newport
Beach, 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.
3.
9
Telephone: (_)
Broker's Representative to the City (attach resume):
Name:
Title:
Telephone: ( )
5. Manager/Partner-in-charge (attach resume):
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):
• Repos
• Reverse Repos
% CMO's
% Derivatives
• Stocks/Equities
• Other (specify):
25
9. References -- Please identify your most directly comparable public secto
clients in our geographical area.
Entity
Contact
Telephone
Client Since
Entity
Contact
Telephone
Client Since
10. Have any of your clients ever sustained a loss on a securities transaction arisinc
from a misunderstanding or misrepresentation of the risk characteristics of the
instrument? If so, explain.
11. Has your firm or your local office ever been subject to a regulatory or state/
federal agency investigation for alleged improper, fraudulent, disreputable or
unfair activities related to the sale of securities? Have any of your employees
been so investigated? If so,
explain.
12. Has a client ever claimed in writing that you were responsible for an
investment loss? Yes No If yes, please provide
action taken
Has a client ever claimed in writing that your firm was responsible for an
investment loss? Yes No If yes, please provide
action taken
26
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 No
If yes, explain primary and excess coverage and carriers.
17. What portfolio information, if any, do you require from your clients?
27
18. What reports and transaction confirmations or any other research publications wil
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"*
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 Representative
Date_ Title
Sales Manager and/or Managing Partner*
Date Title
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
REPORT,WG
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 you
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?
33
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 firmE
for the provision of a discretionary investment management services for City of La
Quinta, CA. The portfolio to be managed of the invested assets is will be approximately
10% of the City's investment portfolio net of bond proceeds and will be investec
between 0 — 5 years.
The investment of City of La Quinta, CA's funds is guided by the applicable Statc
statutes and the City of La Quinta, CA's investment policy. A copy of the investment
policy is attached for your information.
Questions regarding this RFP should be directed to:
Name:
Title:
City of:
Address:
City, State Zip Code
Phone Number:
John M. Falconer
Finance Director/Treasurer
La Quinta, CA
78-495 Calle Tampico
La Quinta, CA 92253
(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
H. 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.
Kn
Ill. 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 anytime 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.
A
vemmental
Assets Under Management
1. Summarize your institutional investment management asset totals by category
for your latest reporting period in the following table:
vernmental Pension
n Governmental
ision
rporate
Ih Net Worth Client
iowmental/Foun-
:ion
Number Operating Funds
of Clients
E
Number of Other Restfictiv,
Clients Funds
p
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
Percent by Market
Value
U.S. Treasury securities
Federal Agency obligations
Corporate securities rated AAA -AA
Corporate securities rated A
Corporate securities rated BBB or lower
Other
(specify )
36
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.
37
8. Describe your research capabilities as they would pertain to governmenta
accounts. What types of analysis do you use?
9. Describe the firm's approach to managing relationships with the broker
dealer community.
E. Portfolio Management
1. Are portfolios managed by teams or by one individual?
2. What is the average number of accounts handled per manager?
3. Which professional staff member will be the primary client contact for Cit}
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?
W
6. How will you notify us of investment transactions?
7. Are confirmation of investment transactions sent directly by the
broker/dealer to the client?
13. 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.
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
99
Appendix J
GLOSSARY
(Adopted from the Municipal Treasurers Association)
ie purpose of this glossary is to provide the reader of the City of La Quinta investment
Acies with a better understanding of financial terms used in municipal investing.
'ENCIES: Federal agency securities and/or
wernment-sponsored enterprises.
WED: The price at which securities are offered.
1NKERS' ACCEPTANCE (BA): A draft or bill of
change accepted by a bank or trust company.
ie accepting institution guarantees payment of
e bill, as well as the issuer.
D: The price offered by a buyer of securities.
then you are selling securities, you ask for a
f.) See Offer.
IOKER: A broker brings buyers and sellers
gether for a commission.
:RTIFICATE OF DEPOSIT (CD): A time deposit
ith a specific maturity evidenced by a
rtificate. Large -denomination CD's are typically
:gotiable.
XLATERAL: Securities, evidence of deposit or
her property which a borrower pledges to
:cure repayment of a loan. Also refers to
curities pledged by a bank to secure deposits of
(blic monies.
DMMERCIAL PAPER: Short-term unsecured
omissory notes issued by a corporation to raise
orking capital. These negotiable instruments
e purchased at a discount to par value or at par
due with interest bearing. Commercial paper is
sued by corporations such as General Motors
cceptance Corporation, IBM, Bank America, etc.
DMPREHENSIVE ANNUAL FINANCIAL REPORT
:AFR): The official annual report for the City of
i Quinta. It includes five combined statements
it each individual fund and account group
-epared in conformity with GAAP. It also
cludes supporting schedules necessary to
:monstrate compliance with finance -related
41
legal and contractual provisions, extensh
introductory material, and a detailed Statistic
Section.
CONDUIT FINANCING: A form of Financing
which a government or a government agen(
lends its name to a bond issue, although it
acting only as a conduit between a specific proje
and bond holders. The bond holders can look on
to the revenues from the project being financ(
for repayment and not to the government
agency whose name appears on the bond.
COUPON: (a) The annual rate of interest that
bond's issuer promises to pay the bondholder (
the bond's face value. (b) A certificate attach(
to a bond evidencing interest due on a payme
date.
DEALER: A dealer, as opposed to a broker, acts
a principal in all transactions, buying and sellh
for his own account.
DEBENTURE: A bond secured only by the genes
credit of the issuer.
DELIVERY VERSUS PAYMENT: There are tv
methods of delivery of securities: delivery vers
payment and delivery versus receipt. Delive
versus payment is delivery of securities with
exchange of money for the securities. Delive
versus receipt is delivery of securities with
exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments who
return profile is linked to, or derived from, t
movement of one or more underlying index
security, and may include a leveraging factor,
(2) financial contracts based upon notio(
amounts whose value is derived from
underlying index or security (interest rates, forei
exchange rates, equities or commodities).
)ISCOUNT: The difference between the cost 3.
)rice of a security and its maturity when quoted
it lower than face value. A security selling
)elow original offering price shortly after sale also
s considered to be at a discount.
)ISCOUNT SECURITIES: Non -interest bearing
noney market instruments that are issued a
iiscount and redeemed at maturity for full face
ralue, e.g., U.S. Treasury Bills. 4.
NVERSIFICATION: Dividing investment funds
among a variety of securities offering
ndependent returns.
:EDERAL CREDIT AGENCIES: Agencies of the
:ederal government set up to supply credit to
,arious classes of institutions and individuals,
:.g., S&L's, small business firms, students, 5.
armers, farm cooperatives, and exporters.
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
he Veterans Administration. They are issued in
'arious maturities and in minimum denominations
f $10,000. Principal and Interest is paid
nonthly.
:. 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
FLBs (Federal Land Bank Bonds) - Long-t
mortgage credit provided to farmers by Fed
Land Banks. These bonds are issued
irregular times for various maturities ran<
from a few months to ten years.
minimum denomination is $1,000. They c,
semi-annual coupons. Interest is calculates
a 360-day, 30 day month basis.
FFCBs (Federal Farm Credit Bank) - E
instruments used to finance the short
intermediate term needs of farmers and
national agricultural industry. They are iss
monthly with three- and six-month maturit
The FFCB issues larger issues (one to
year) on a periodic basis. These issues
highly liquid.
FICBs (Federal Intermediate Credit b
Debentures) - Loans to lending instituti
used to finance the short-term
intermediate needs of farmers, such
seasonal production. They are usually issi
monthly in minimum denominations of $3,(
with a nine -month maturity. Interest
payable at maturity and is calculated on a 3
day, 30-day month basis.
6. FHLMCs (Federal Home Loan Mortg;
Corporation) - a government sponsored an
established in 1970 to provide a second
market for conventional home mortgag
Morgages are purchased solely from
Federal home Loan Bank System mem
lending institutions whose deposits are insu
by agencies of the United States Governme
They are issued for various maturities anc
minimum denominations of $10,000. Princi
and Interest is paid monthly. Other feds
agency issues are Small Busini
Administration notes (SBAs), Governm
National Mortgage Association no
(GNMAs), Tennessee Valley Authority note
(TVAs), and Student Loan Association no
(SALLIE-MAEs).
!DERAL DEPOSITOR INSURANCE
)RPORATION (FDIC): A federal agency that
cures bank deposits, currently up to $100,000
r deposit.
:DERAL FUNDS RATE: The rate of interest at
rich Fed funds are traded. This rate is currently
gged by the Federal Reserve through open-
3rket operations.
DERAL HOME LOAN BANKS (FHLB):
wernment sponsored wholesale banks
irrently 12 regional banks) which lend funds
d provide correspondent banking services to
ember commercial banks, thrift institutions,
edit unions and insurance companies. The
ssion of the FHLBs is to liquefy the housing
lated assets of its members who must purchase
Ock in their district Bank.
:DERAL OPEN MARKET COMMITTEE (FOMC):
)nsists of seven members of the Federal
:serve Board and five of the twelve Federal
:serve Bank Presidents. The President of the
;w York Federal Reserve Bank is a permanent
ember, while the other Presidents serve on a
tating basis. The Committee periodically meets
set Federal Reserve guidelines regarding
irchases and sales of Government Securities in
e open market as a means of influencing the
rlume of bank credit and money.
:DERAL RESERVE SYSTEM: The central bank of
e United States created by Congress and
insisting of a seven member Board of Governors
Washington, D.C., 12 regional banks and about
700 commercial banks that are members of the
Pstem.
OVERNMENT NATIONAL MORTGAGE
SSOCIATION (GNMA or Ginnie Mae): Securities
fluencing the volume of bank credit guaranteed
GNMA and issued by mortgage bankers,
)mmercial banks, savings and loan associations,
id other institutions. Security holder is
-otected by full faith and credit of the U.S.
overnment. Ginnie Mae securities are backed
43
by the FHA, VA or FMHM mortgages. The ter
"passthrough" is often used to describe Ginn
Maes.
LAIF (Local Agency Investment Fund) - A speci
fund in the State Treasury which local agencir
may use to deposit funds for investment. There
no minimum investment period and the minimu
transaction is $5,000, in multiples of $1,OC
above that, with a maximum balance
$30,000,000 for any agency. The City
restricted to a maximum of ten transactions p
month. It offers high liquidity because deposi
can be converted to cash in 24 hours and r
interest is lost. All interest is distributed to tho;
agencies participating on a proportionate she
basis determined by the amounts deposited ar
the length of time they are deposited. Interest
paid quarterly. The State retains an amount f
reasonable costs of making the investments, n
to exceed one -quarter of one percent of tl
earnings.
LIQUIDITY: A liquid asset is one that can I
converted easily and rapidly into cash without
substantial loss of value. In the money market,
security is said to be liquid if the spread betwei
bid and asked prices is narrow and reasonable si
can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGII
The aggregate of all funds from politic
subdivisions that are placed in the custody of tl
State Treasurer for investment and reinvestmei
MARKET VALUE: The price at which a security
trading and could presumably be purchased
sold.
MASTER REPURCHASE AGREEMENT: A writt
contract covering all future transactions betwe
the parties to repurchase --reverse repurcha
agreements that establishes each party's rights
the transactions. A master agreement will
often specify, among other things, the right of t
buyer -lender to liquidate the underlying securiti
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
)ayable
HONEY MARKET: The market in which short -
arm debt instruments (bills, commercial paper,
)ander' acceptances, etc.) are issued and traded.
)FFER: The price asked by a seller of securities.
When you are buying securities, you ask for an
(ffer.) See Asked and Bid.
)PEN MARKET OPERATIONS: Purchases and
;ales of government and certain other securities
n the open market by the New York Federal
teserve Bank as directed by the FOMC in order
o influence the volume of money and credit in
he economy. Purchases inject reserves into the
lank system and stimulate growth of money and
redit; sales have the opposite effect. Open
narket operations are the Federal Reserve's most
nportant and most flexible monetary policy tool.
'ORTFOLIO: Collection of all cash and securities
ender the direction of the City Treasurer,
icluding Bond Proceeds.
'RIMARY DEALER: A group of government
ecurities dealers who submit daily reports of
narket activity and depositions and monthly
inancial statements to the Federal Reserve Bank
f New York and are subject to its informal
versight. Primary dealers include Securities and
.xchange Commission (SEC) -registered securities
roker-dealers, banks and a few unregulated
irms.
WALIFIED PUBLIC DEPOSITORIES: A financial
istitution which does not claim exemption from
he payment of any sales or compensating use or
d valorem taxes under the laws of this state,
✓hich has segregated for the benefit of the
ommission eligible collateral having a value of
of less than its maximum liability and which has
een approved by the Public Deposit Protection
:ommission to hold public deposits.
RATE OF RETURN: The yield obtainable of
security based on its purchase price or its can
market price. This may be the amortized yiel(
maturity on a bond the current income return,
REPURCHASE AGREEMENT (RP OR REPO):
repurchase agreement is a short-term investor
transaction. Banks buy temporarily idle fu
from a customer by selling U.S. Governmem
other securities with a contractual agreement
repurchase the same securities on a future d;
Repurchase agreements are typically for one
ten days in maturity. The customer recei
interest from the bank. The interest rate refle
both the prevailing demand for Federal funds
the maturity of the repo. Some banks will exec
repurchase agreements for a minimum
$100,000 to $500,000, but most banks hav
minimum of $1,000,000.
REVERSE REPURCHASE AGREEMENTS (RRP
RevRepo) - A holder of securities sells th
securities to an investor with an agreement
repurchase them at a fixed price on a fixed d<
The security "buyer" in effect lends the "sell
money for the period of the agreement, and
terms of the agreement are structured
compensate him for this. Dealers use F
extensively to finance their positions. Excepti
When the Fed is said to be doing RRP, it is lend
money that is increasing bank reserves.
SAFEKEEPING: A service to customers rende
by banks for a fee whereby securities (
valuables of all types and descriptions are helc
the bank's vaults for protection.
SECONDARY MARKET: A market made for
purchase and sale of outstanding issues follow
the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agei
created by Congress to protect investors
securities transactions by administering securit
legislation.
C RULE 15C3-1: See Uniform Net Capital Rule.
'RUCTURED NOTES: Notes issued by
wernment Sponsored Enterprises (FHLB,
IMAS, SLMA, etc.) And Corporations which
ve imbedded options (e.g., call features, step -
coupons, floating rate coupons, derivative-
sed returns) into their debt structure. Their
-rket performance is impacted by the
ctuation of interest rates, the volatility of the
bedded options and shifts in the Shape of the
.Id curve.
IRPLUS FUNDS: Section 53601 of the
difornia Government Code defines surplus funds
any money not required for immediate
cessities of the local agency. The City has
fined immediate necessities to be payment due
thin one week.
MASURY BILLS: A non -interest bearing
-count security issued by the U.S. Treasury to
lance the national debt. Most bills are issued to
ature in three months, six months or one year.
IEASURY BONDS: Long-term coupon -bearing
S. Treasury securities issued as direct
;ligations of the U.S. Government and having
tial maturities of more than 10 years.
1EASURY NOTES: Medium -term coupon -bearing
S. Treasury securities issued as direct
digations of the U.S. Government and having
itial maturities from two to 10 years.
VIFORM NET CAPITAL RULE: Securities and
cchange Commission requirement that member
ms as well as nonmember broker -dealers in
!curities maintain a maximum ratio of
debtedness to liquid capital of 15 to 1; also
Bled net capital rule and net capital ratio.
debtedness covers all money owed to a firm,
eluding margin loans and commitments to
uchase securities, one reason new public issues
e spread among members of underwriting
indicates. Liquid capital includes cash and
;sets easily converted into cash.
45
UNIFORM PRUDENT INVESTOR ACT: The State ;
California has adopted this Act. The Act contair
the following sections: duty of car,
diversification, review of assets, cost
compliance determinations, delegation i
investments, terms of prudent investor rule, ar
application.
YIELD: The rate of annual income return on
investment, expressed as a percentage.
INCOME YIELD is obtained by dividing the currei
dollar income by the current market price for 0
security. (b) NET YIELD or YIELD TO MATURITY
the current income yield minus any premiu
above par of plus any discount from par
purchase price, with the adjustment spread ov
the period from the date of purchase to the da
of maturity of the bond.