2008 02 13 IAB1
P.O. Box 1504
LA QUINTA, CALIFORNIA 92247-1504
78-495 CALLE TAMPICO
LA QUINIA, CALIFORNIA 92253
AGENDA
INVESTMENT ADVISORY BOARD
Study Session Room
78-495 Calle Tampico- La Quinta, CA 92253
February 13, 2008 - 4:30 P.M.
CALL TO ORDER
A. Pledge of Allegiance
B. Roll Call
(760) 7 7 7 - 7 0 0 0
FAX (760) 777-7101
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 January 9, 2008 for the Investment Advisory
Board.
V BUSINESS SESSION
A. Transmittal of Treasury Report for December, 2007
B. Continued Consideration of Fiscal Year 2008/09 Investment Policies & Work
Plan Items
VI CORRESPONDENCE AND WRITTEN MATERIAL
A. Month End Cash Report - January 2008
B. Pooled Money Investment Board Reports - November, 2007
VII BOARD MEMBER ITEMS
Vlll ADJOURNMENT
a
INVESTMENT ADVISORY BOARD Business Session: A
Meeting Date: February 13, 2008
ITEM TITLE:
Transmittal of Treasury Report
for December 31, 2007
BACKGROUND:
Attached please find the Treasury Report December 31, 2007
RECOMMENDATION:
Review, Receive and File the Treasury Report for December 31, 2007
John M. .Falconer, Finance Director
MEMORANDUM
TO:
La Quinta City Council
FROM:
John M. Falconer, Finance Directorrrreasurer
SUBJECT:
Treasurer's Report for December 31, 2007
DATE:
January 30, 2008
Attached is the Treasurer's Report for the month ending December 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:
M (3)
$ (458,059)
F
Treasuries (2)
41.633,616
6,000,000
Gov't Sponsored Enterprises (2)
53,786,353
44,697,700
44,000,000
nmercial Paper (2)
24,882,755
5,000,000
porate_Notes
7,937.841
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.
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.
Other
Ending
Chan e
$ (1,712,144)
$ (1,254,085)
0
44,433,616
2.800.000
(525,813)
49,260,540
(4,525,813)
50,532
44.748,232
50,532
43,074
19.925,829
(4,956,926)
4.878
7,942,719
4,878
8,979 214
4,741,248
427,329
$ 173,578,006
$ 3,140,166
. Falconer
Z/l %20 CO
MJOhn40
Finance Directodrmasurer Date
Footnote
(1) The amount reported represents the net increase (decrease) of deposits and withdrawals from
the previous month.
(2) The amountrgported 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.
FA
Treasurer's Commentary
For the Month of December
Cash Balances — The portfolio size decreased by $3.1 million to $173.6 million. The major
reasons for the decrease continue to be construction payments for the City Hall expansion
and the Ave 481h Apartment project.
Investment Activity — The average maturity of the portfolio increased by 24 days to 123 days
at the end of December. The six month US Treasury benchmark increased by 5 basis points
and ended the month at 3.39%. The Treasurer follows a buy and hold investment policy and
has not sold investments before maturity to take advantage of market conditions. The
Portfolio does contain Commercial Holdings in Merrill Lynch and AIG which have been in the
financial news regarding their write-offs of sub -prime mortgages and intends to hold the
investments which mature in January 2008 to maturity. In addition, Freddie Mac has been in
the news in regards to sub -prime exposure. The Treasurer intends to hold these securities to
maturity as well. The sweep account earned $2,785 in interest income for the month of
December and the bank fees for the month were $ 1,865 which resulted in a net increase of
$ 920 in real savings.
Portfolio Performance — The overall portfolio performance decreased by fifty one basis points
from the prior month and ended at 4.45% for the month, with the pooled cash investments
yielding 4.95%. The overall portfolio yield (including bond proceeds) was one hundred six
(106) basis points over the benchmark, which has decreased by fifty six (56) basis point
from the (162) basis point difference in November. The reason for the decrease is the
reinvestment of bond proceeds in six month Treasury Bills at the end of December. With the
average maturity of 123 days, the portfolio yield should remain at these levels for the next
three months with a small downward trend based upon reinvestments at lower rates and the
15L installment of property taxes at the end on January requiring investing. The Treasurer has
more of a barbell maturity schedule with the longer term investments helping to keep yields
higher as interest rates will gradually be falling. At this time last year, the portfolio was
yielding 5.08% and the benchmark was at 4.90% so we have made significant progress in
meeting our benchmark. In the short term, the Treasurer has been investing more in LAIF
because its rate declines slower in a declining rate environment and in Commercial Paper.
The Treasurer has not been investing in Treasury securities because of their low yield, except
for bond proceeds to ensure that the funds are available for capital projects, e.g. SilverRock
and Vista Dunes Courtyard Homes and the CVHC project at 481h and Adams.
Future Thoughts
The Treasurer will continue to invest in short term maturities to take advantage of the yield
curve — Commercial Paper with 30 to 90 day maturities and Bond proceeds will be laddered in
three- and six-month Treasury bills as they mature. Maturing GSE's will be rolled over to the
highest yield on curve taking into consideration cash flow needs or in medium term notes.
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CM of La Will.
Reconalialwn of Actual and Sul Funds
Cny, RedevelopmeM Agency aM Fkanmre AuOroNy
December 31, 2007
BaMreedAdualFNks 1]B5T8 ON
Less Petty coatiFuss (1.000)
Less Nam Surylus Fuels (2,66A836)
Balance Of Sur,u3 Funds S 1]0.9W,168
BanF AcmuMs
Name-AvyldOil
Sur lux
i
Book
Suus
Vryles
Ad
,Yes
Yes
Welh Falgo-Demand
No
CMGIIq
f (505.11d)
$ -
$ -
WelkFaryo-Sweep
No
Sweep
1SM
,,10{
-
-
P¢IryCaeM1-Damsel
W
WA
1,fiN
WelsF PMO -Demand
YGS
CM
E 39.506
5 30586
E 30500
Toia'Bank Acwun6
E t,T12,tb
S 30.58fi
$ -
f 38505
U S Treazuy
CUSbdW-AvalMdl
Su luu
Isscerrt
AmoNzaO
Value
Swpta
Yas
Act
Swplus
Yes
TOUT-U s Treazu
U S GovmnmeM SponmrW En4gnses
Amul9eed
SWlus
Custoria AvaAadl
Su lus
aRaVrT
Vale¢
Ad
Yes
Bank M New York -DGmaM
Yes
Fredde Mac
2,958.111IA
2,950.6]4
BanF OI Nex YOM-Demarq
yes
Freddie Mx
9,&d.105105
9,96a,1elBaMaINew
VOM-Demvp
Yes
FHLB
1,UA,32323
1,909323
Bad: of New YOM1-Cemael
Yes
FFC9
4,951,9]2]2
L
Bank of New Yark-Damns
Yes
Fredde Mac
415151],51T
4.01547
Bak d N¢w York-Demael
Tes
FHLB
),9M.064,854
T,938.951
BankdkMw Ymk-4m&tl
Ye]
FHLB
8,992,]81]81
9,9B2,Tfi1Banked
New YOA-Damns
Yes
Freddre Mac
2.451,1861W
2451.186
TdL-US GOvemmenl Seaalbes
dd,)48,2J2,232
b,748232
nn Wk
BpaF
Burylus
SWpWa
vsMBll
Su a
Issuer?
Vadc
Tea
Ad
Yes
IX-Oemas
YesS
Gere:al Ekdnc Capllal
2.983,518
2.96J.518
2,9W,510
BanksOA-Cend
ldm:j
Yez
USBaIICory
3,806.9T1
],W8.9TJ
3,OW.9T]
ork-C¢maw
Yes_
GereralEkclnc Ca dal
19I2224
19T2 d
19T1224
ie�m Pa :
T,912,119
T,W2,T19
I,912,]19
Prelle CommercMlPaper
GuslMlan-AvaiM
Su
IsscerR
Back
Valas
Swplus
Yea
M
Suryus
Y<3
BanFdNew YOA-Damns
Yesa
Amercan Express Cab
1,869,3o1
1,p68,JOt
4,9fi0,301
Band dNew YOrk-Dennitl
Yea
Meml LYnctl
4,909,TBB
4,9BB.TBO
4,888,]BS
BaMdNew York -damsel
Yes
JOM Deere
1,9>B,Tb
d,W9,]b
4.9]9,]b
Banked Nee York -Demand
Yea
AIG Ford! Ind
18B0 B89
l.9H,9�
498E 900
Tatem-POme ComrercUlP
-
19.925,029
19.925.029
19,925829
Laval Agency lnwsurom FuM
Swplus
Bureau,
Name-Ava9 OA
Su M1rs
T
Bwk
Tes
A..
Yea
LAIF-CM'OemaM
Yes
BIdM Pool
]6,18)A13
36,I6T.bJ
(4,121,568)
JLWS,&5
IAIF RDA-CGmand
Yea
SIYa Pas
fi,B65203
5,9662f13
fiEC6 OJ
_
TVV Sa,PwII
b 33616
4,421560
IosII,01a
Swplus
No
Ad
Swplus
No
AY Fulls
Actual%
Sur01u5
Ves
$ 43,256,916)
$ 5026.752
$ 2,669.838
1,So5,184
311,5W,i B11
1W
oDO
f 1,7SO,T30
$ M2t$6B
$ 26TO.BJ9
-09864X
OW26•h
Ad
No
ArAcol %
you
SUIPus
No
Ad
Sorel
No
AIIiuMs
Actual %
SurpWs
Tes
35 T]99%
I
261628%
Surylus
No
Ad
Su al
No
PII FYMs
Aclml°/.
Surplus
Yes
d A59%
d 60d%
Sure Surylus AIIFuuMus Ms S
No Ad No Adwl°F Ves
9REFl AREFI MREFI 11 d]95% 116509°k
Suryus
ryp
Ad
Surplus
No
AYFunds
ALYudI°F
Surplus
I Yes
25 5966°h
23 4116%
Trial CRY lnwad»Ms 10,080.]N1 117050.39111.421" 113626.628 9REF1 tREFI 9REFI 8Lt]]9% 659006X
Total City Can LlmmYeaemaMa 115.]]9,2521 11)081102 4,u1,5616112,{5)AUF OREFI 9REFI RREFI 66 b]6% 6593R%
FusualAakinllmGabreMs
PoNdw-PrylnveMieras
Cuskdlan-AvMusel
Surplus
IssuerR
Value
AlusM-49.M.M0
Yes
13 T6),)01
3002 RDAUS Bank{IP
Yery
USTreasury Bill
1J T6))Ot
2001 Finance Au6wMy CIP
Yes
US Treasury Bill
5,W3,634
5,913.634
2Nd Finanrn PNMmy LIP
Ye'.:
U5 Treasury Bill
9.630,841
9.830,841
2W1 Feuave AWM GIP
Ye;
USTRaw Ou4
19.6993%
to ases ]61
TWLUS Trial492W,640
49.26o,5W
PaMOW-MWW Fuss
Morey Mnhet
Book
Soupius
SNpk,
irvslee-AviAadll
Su his
MNuaI FUM
Value
Yea
Ad
Yes
CMC LeMerUSBank-P1015ct
YES
1M Ameres
161
481
d61
Cnx CemerU ,Bank -Dell Svc
YES
WA "con
1994 RDA U S 9VADed Svt
YES
1V Amedan
1995 RDA U S Bank -CIP
YES
151 AH.
tees RDA U S Bank -$1.1 Fund
TES
151 Amenwn
2c04 Fin AM. INS US Bank -Esuow
TES
1M Amentan
1998 RDA U S Bank -CIP
YES
dal AmerRan
1998 RDA U$Ble - DR Svc
YES
dill Amelrtan
INS RDA U S Bank- SpeoaI FUM
TES
131Amencx
tease RDA U.S Back -CIP
TES
1d Vd.
2001 RDA US Bank - DR Svc
YES
1MA..n
2001 RDA US Bank -CIP
YES
IVA.".
2902 RDA US Bea -DM Svc
TES
ill Announced
-
2,665,W7
2.ER5A5)
2s02RDA USBakers -CIP
YES
IVAmeracan
2,665.067
2D33 Taxable RDA U.S Ba D.$,
YE $
namencM
_
2003 Taxable RDA U SBaAG01
YES
IMAmencan
'
2003TVAMRDAU 5 Beni
YES
151 Amencan
6,31],696
fi313,696
2WI Fn Ads US Bank -CIP
TES
dal Am4ncan
8,31].656
2W4Fm AUNU58ank C01
YES
1UAme.,
$udOWMIMal Fund
B.W0.21A
B.9T9214
0.97921I
Surplus
Nc
Ad
Surface
NO
MFUMs
Actual%
Surplus
Y¢S
20 JT95%
2802JM.
Burial
No
Ad
Surplus
No
All Fuss
Actual%.
Surplus
Yes
II
I
51]JO°b
525]9%
Total Fiscal Agent Wastebaskets 582]9.T54 512]9 ]51 582]9,T51 ]]6525% ]0.0]68Y.
Grand Trial 11],5}0.009 ti5,328,]35 4,Ii1,588 1I0,9W,169 1]W,]]0 dA]1365 3.6T0,9]] IW.0000• t000000X
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INVESTMENT ADVISORY BOARD Business Session: B
Meeting Date: February 13, 2008
ITEM TITLF-
Continued Consideration of the Fiscal Year 2008/09 Investment Policy
BACKGROUND:
As part of the work plan, the Investment Advisory Board is asked to review the
Investment Policy and may any recommendations for the City Council's
consideration in June of each year.
Staff and Board Members Moulin and Ross met to discuss the Fiscal Year 2008109
Investment Policy. An electronic copy of the policy will be forwarded which Staff
requests be printed out and brought to the meeting. In addition, a revised glossary
section is attached.
Based upon last months direction, the City Treasurer contacted the City Attorney
regarding whether an Ordinance change would be regarded for the proposed
changes to the Investment Policy as they relate to a Professional Portfolio Manager.
The City Attorney stated that no ordinance change would be required.
Attached please find documentation from CDARS and Caltrust which the Board
may want to consider as an investment alternative.
DATION:
Recommend changes if any to the Fiscal Year 2008/09 Investment Policy to the
City Council.
John M. Falconer, Finance Director
PALM DESERT NATIONAL BANK INTEREST RATES
CDARSACCOUNTS
EFFECTIVE FEBRUARY 1, 2008
APY IS CALCULATED ON THE MINIMUM INITIAL DEPOSIT
Bank Rate
Source of On Non -
Account Maximum Bank Rate CDARS CDARS Annualized CDARS
Terms Per Customer Per Rate Skeet Accounts Fee Fee Rate
4 WEEKS
1,280,000
28 Days
1.75
0.023
0.293
1.458%
13 WEEKS
1,280,000
91 Days
2.05
0.060
0.240
1.810%
26 WEEKS
1,280,000
182 Days
3.25
0.095
0.190
3.060%
52 WEEKS
1,280,000
1 Year
3.25
0.125
0.125
3.125%
TWO YEARS
470,000
2 years
3.25
0:180
0.090
3.160%
THREE YEARS"
450,000
(2 year rate +.40)
3.65
0.240
0.080
3.570%
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.
FEDERAL CREDIT AGENCIES: Agencies of the
Federal government set up to supply credit to
various classes of institutions and individuals,
e.g., S&L's, small business firms, students,
farmers, farm cooperatives, and exporters.
KJFNMAs (Federal National Mortgage
Association) - Used to assist the hoMe
Friertgage FnaFcet by PUFGhaSiAg
42
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.
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.
4. 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.
5. 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
M
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. 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 positions 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.
An
am-
e-so-C u ►tst. fn other _. s
may in urify if : ' ' wh
k R ._be txfdiscret
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
tiarrsaGtiO. BaRIES buy tempeFaFily idle funds
ten days OR FAMWFity. The euste w reeeives
interest from the hank. ThemRterest Fate Fef;eets
repUFe;ase agreements for a Fninknum of
seantup to am, in
to re" #hem at
of
:positionsi
doing RP A
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.
45
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
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.
John Falconer
From: Chad Dickson [cdickson@PDNB.com]
Sent: Monday, February 04, 2008 4:55 PM
To: John Falconer
Subject: CDARS Rates with Palm Desert National Bank
Attachments: CDARS Rates-08 As
Dear John,
Attached are the interest rates for the CDARS Program. If you should have any questions please feel free to
email or call me at 760-674-1000 or Jerry at 760-674-1006. Thank you for your interest with Palm Desert
National Bank.
Sincerely,
Chad W. Dickson
Banking Service Rep.
Palm Desert National Bank
47-000 Washington St.
La Quinta, CA 92253
2/5/2008
Call'RUS I: Investment Yoncy
' I Investment Trust of California
• Home ♦ A6oart the Pro{irarn ® How to Join 0 Resources s Portfolio & IrFatmulce * Your Acoorart
�* # Investment Philosophy:
Board ofTnstees The CaITRUST Short -Term, Medium -Term, and Long -Term Accounts havf
created to facilitate the centralization of the investment management functio
of California local agencies. The Ca1TRUST Board of Trustees selected Me
West Securities, LLC to serve as Investment Adviser to the Trust. Effective
Pordblio&Performance 2007, Metropolitan West Securities, LLC, became Wachovia Portfolio Sery
Fmquer*As1wdQuasfioris Following the investment policy direction established by the Board of Trust
primary objective of the investment manager shall be to safeguard the princi
secondary objective shall be to meet the liquidity needs of the participants a
objective shall be to maximize the yield in a manner consistent with the first
objectives. The objective of the investment policy is to obtain the best possi
commensurate with the degree of risk that participants are willing to assume
obtaining such return.
Wachovia Portfolio Services, a wholly -owned subsidiary of Wachovia Banl<
investment advisory, asset management, and broker/dealer firm specializing
term fixed income asset management and securities lending. Wachovia Port
Services (formerly Metropolitan West Securities, LLC) was established in 1
a national client base consisting of major institutional funds and corporate p
As of December 2006, Metropolitan West Securities, since renamed Wacho
Portfolio Services, had over $60.3 billion in assets under management. Wac
Portfolio Services is responsible for the decision to buy and sell the securiti
Trust and arrange for the execution of security transactions on behalf of the
Wachovia Portfolio Services' senior executives bring decades of public ager
management experience and demonstrated success in the management of Q
public sector funds to the Trust.
The information on this website is intended only for public agencies within the meaning of the Joint Exercise Of Powers Act and dog
represent an offer to sell or a solicitation of an offer to buy shares of the Trust or any other security. Shares in the Trust are sold c
based on the information contained in the current Information Statement. The Information Statement contains important informal
be read carefully before investing.
Home I About the Program I How to Join I Resources I Portfolio & Performance I Your Account I Contact Us
http://www.caltrust.org/investment_policy.html 2/6/2008
t;aittcu3i: rHYs ..6
OWN iiiiiijill
.. • ... What is CaITRUST and how is it structured?
Board ofTnotees Ca1TRUST is a Joint Powers Agency Authority created by local public
IrrvestrrroerttPo�iCy provide a convenient method for local public agencies to pool their
investment purposes. Ca1TRUST is governed by a Board of Trustees i
PorftW&Pertatnance experienced local agency treasurers and investment officers. The Board
policies for the program and selects and supervises the activities of the
EAskadmanager and other agents.
What entities are permitted to participate in CaITRUS
As a practical matter, any public agency that is authorized to join a JI
Agency Authority can participate in CaITRUST. The specific sections of th
Government Code that govern participation in Ca1TRUST (Sections 6500
provide that the following types of agencies may participate:
"the federal government or any federal department or agency, this s1
state or any state department or agency, a county, county board o
county superintendent of schools, city, public corporation, public
regional transportation commission of the State of California or anot
any joint powers authority formed pursuant to this article [Article 1
Exercise of Powers Act] by any of these agencies," (Section 65
nonprofit corporation whose membership is confined to public agenci
officials" (Section 6509.7).
If you have any questions about participation, please contact Ca1TRUST at:
by phone: 888-422-8778
by e-mail: caltrust(awachoviaps.com
on the web: www.caltrust.org
How does an agency initiate participation in CaITRUST,
Recent legislation (AB 969 - Chapter 470, Statutes of 2004) has made par
Ca1TRUST much simpler. AB 969 authorizes local agencies to directly inv,
issued by JPA pooled investment programs. As a result, agencies interested
through the Ca1TRUST Program no longer need to adopt a resolution
become a member of the Ca1TRUST Joint Powers Authority.
http://www.caltrust.org/fags.htmi 2/6/2008
uatiKubi: rAYS
. ems., � ...,
Opening an account in the CalTRUST program is quite simple; just carefi
Information Statement and Joint Powers Agreement and Ca1TRUST Invest
and complete the Account Registration Form and Participation, Agreement.
What account options does CaITRUST offer?
CalTRUST offers three account options -- Short -Term and Medium -Teri
and a soon -to -be -opened Long -Term Account. Agencies can select an acc
that matches their investment time horizon and cash flow needs; and easil
among accounts as circumstances warrant.
All CalTRUST accounts comply with the limits and restrictions placed on 1
investments by the California Government Code; no leverage is permitted i
CalTRUST accounts.
What is the minimum amount that an agency can invest
CalTRUST program?
The CalTRUST Board of Trustees has established $250,000 as tha
investment in one or more of the CalTRUST accounts. The Board also ha
the CalTRUST Program Administrator to waive this minimum investment
in its discretion.
What is the maximum amount that an agency can inves
CalTRUST program?
There is no maximum investment amount for any of the CalTRUST account
Is there a limit on the number of accounts that an age
maintain?
There is no limit on the number of accounts that an agency can maintain. T
additional flexibility to public agencies, allowing them to tailor the number
accounts to best suit their local needs and priorities. For example, an agenc
or need to segregate its enterprise -type assets from its general operatij
CalTRUST provides the flexibility to comply with this local preference.
What are the principal risks of investing in CalTRUST?
http://www.caltrust.org/fags.html 2/6/2008
tuaitxu�r: rAys
. asp.., .,...
Investments in CalTRUST, like investments in other types of bond funds.
primarily to interest rate risk and credit risk.
Interest rate risk is the potential for a decline in bond prices -- and hence
value of bonds in the portfolio -- due to rising market interest rates. In gE
prices vary inversely with interest rates. The change in a bond's price
several factors, including its maturity date. In general, bonds with longer m
more sensitive to changes in interest rates than bonds with shorter maturitie
bond funds with longer average portfolio maturities, such as the Ca1TRU"
Term and Long -Term Accounts, will be more sensitive to interest rate c
those with shorter average portfolio maturities, such as the CalTRUST
account.
Credit risk is the possibility that a deterioration in the underlying creditworl
issuer will adversely affect the value of its outstanding bonds or that a bon,
fail to make timely payments of interest or principal on its outstanding bon
A decline in a bond issuer's credit rating, or creditworthiness, may cause I
outstanding bonds to decline.
Similar to shares in a bond mutual fund, the value of CalTRUST shares
with market conditions, as will the value of a Participant's investment i
agency could lose money on an investment in a CalTRUST account or an it
a CalTRUST account could underperform other investments.
What is the cost of transferring funds between the SI
Term Account and the Medium -Term Account or vice-N
There is no cost to transfer funds from any CalTRUST account to another
account. In addition, there is no cost for wiring funds into or out of
CalTRUST accounts (although an agency's bank may charge a nominal 1
transfers).
How does an agency monitor its investments in CaITRU:
In addition to the fact that the CalTRUST program is governed by a Board
made up of local agency treasurers and investment officers, all participati
have 24-hour, password -protected online access to their individual account
at www.caltrust.org. The CalTRUST website shows the current value of
shares, as well as all additional relevant information regarding the underly
securities in the CalTRUST accounts. Month -end statements can be
directly from the CalTRUST website, or an agency can opt to receive prin
statements.
What are the costs of participating in CaITRUST?
http://www.caltrust.org/fags.html 2/6/2008
uatlKUJt: t'AQS
.u6',
There are no out-of-pocket costs for an agency to invest funds in Ca1TRU
other programs, such as the Local Agency Investment Fund, managed I
Treasurer's Office, all expenses associated with participation in Cal"
deducted from the yield.
The current total annual operating expense of the Ca1TRUST Short -Term A
basis points (0.14%) of the average daily net assets of the Account. The
drop as the total size of the Account increases; to 13 basis points for ass
$500 million and $1 billion and to 12 basis points for assets over $1 billion.
Current total annual operating expenses for the Medium -Term and
Accounts are 24 basis points (0.24%). Again, as the size of the Accounts in
expenses drop; to 22 basis points for assets between $500 million and $1 bi
20 basis points for assets over $1 billion.
The Board of Trustees of Ca1TRUST may, in its discretion, impose an addi
fund unanticipated expenses, such as litigation costs. To date, the Bo
exercised this authority.
Expenses for each of the Ca1TRUST Funds are deducted from the net a
Funds on a monthly basis.
How does recently enacted legislation affect the CaITF
Program?
Legislation signed by Governor Schwarzenegger in September 2004 clarifre
of local agencies to participate in Joint Powers Authority investment pools,
easier to participate in CalTRUST.
Chapter 470, Statutes of 2004 (Assembly Bill 969 - Correa) revised the p
California Government Code Section 53601 to provide an explicit grant of t
local agencies to invest in shares of beneficial interest issued by a J(
Authority, provided the JPA:
1. Invests only in securities and obligations eligible for local agency inv
directly; and
2. Retains an investment adviser that
a. Is registered with the SEC Securities and Exchange Commissio
exempt from registration;
b. Has not less than five years experience investing in securities a]
obligations eligible for local agency investment; and
c. Has at least $500 million in assets under management.
http://www.caltrust.org/faqs.html 2/6/2008
1.a111CUJ 1: rlAyS
rar,c � vi �
The information on this website is intended only for public agencies within the meaning of the Joint Exercise Of Powers Act and do.
represent an offer to sell or a solicitation of an offer to buy shares of the Trust or any other security. Shares in the Trust are sold c
based on the information contained in the current Information Statement. The Information Statement contains important Informat
be read carefully before investing.
Home I About the Program I How to Join I Resources I Portfolio & Performance I Your Account I Contact Us
http://www.caltrust.org/faqs.html 2/6/2008
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INVESTMENT ADVISORY BOARD Correspondence & Written
Material Item A
Meeting Date: February 13, 2008
TITLE:
Month End Cash Report for January 2007 and
Other selected Financial Data
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.
01 y- t l
hn M. Falconer, Finance Director
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FRB: Commercial Paper Rates and Outstandings
Page 1 of 3
Federal Reserve Release
a �I
Release I About I Announcements I Outstandings I Volume statistics I Year-end I Maturity Distribution
Data Download Pro ram (DDP)
Data as of February 1, 2008
Commercial Paper Rates and Outstanding
Derived from data supplied by The Depository Trust & Clearing Corporation
Posted February 4, 2008
nisrnunt rates
FTenu]
nonfinancial
nonfinancial
financial
asset -backed
1-day
3.06
3.46
3.07
3.48
7-day
3.00
3.37
3.03
3.22
15-day
2.99
3.40
3.04
3.32
30-day
2.91
3.37
2.99
3.29
60-day
n.a.
3.37
2.97
3.15
90-day
2.75
n.a.
2.97
3.10
Trade data insufficient to support calculation of the 60-day AA nonfinancial and 90-day A2/P2 nonfinancial rates for February 1, 2008.
Yield curve
Money market basis
Percent
--- AA nonfinancod
---- A2/112 nonfinancial
- --- AA lmanvial
+e.
- m.._._.__.^....___..._.._-.._....-..._....._._..w._.._...._._.
1 7 15 30 60 90
Days to Maturity
4. _
4.0
3.8
3.6
3.4
3,2
3.0
2.8
2.6
http://www.federalreserve.gov/Releases/CP/ 2/4/2008 4
rats: uommerciai raper crates ana vutsianamgs
rage / 01 .3
Discount rate spread
Basis points 160
140
120
100
80
60
40
20
1)
2001 2002 2003 2004 2005 2006 2007
Discount rate history
Thirty -day commercial paper (daily)
----- AAoanlinamemf
2001 2002 2003 2004 2005 2006
Outstandings
Weekly (Wednesday), seasonally adjusted
KtIGM
Percent
7
6
5
4
:3
http://www.federaireserve.gov/Releases/CP/
2/4/2008 5
r": k-ommerctai raper Kates ana vutstanamgs
Billions of do] lars
Page 3 of :i
1190
1090
990
890
790
690
590
490
Billions of dollars
a
P — — — Non(inaneinl triLtu scale
I;uxuecial (Icle 4calr)
If Ilk i
t � ,1
a R
tyta !^ A1� (t�ytPti
y'a
Ir
! T
At
I a 4P r t+r
jAP J'.w.r 'i
2001 2(i02 2003 2004 2005 2006 2(M)7
250
210
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 Program (DDP). 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 Maturity Distribution
Data Download Program (DDP)
Home I Statistical releases
Accessibility IContactUs
Last update: February 4, 2008
hftp://www.federalreserve.gov/Releases/CP/ 2/4/2008 6
xecent 1:5111 [suction xesuits
Page I of I
Recent
Bill Auction Results
Security
Issue
Maturity
Discount
Investment
Price
Term
Date
Date
Rate %
Rate 1%
Per
$100
C1151P
91-DAY
02-07-2008
05-08-2008
2,230
2,280
99,436306
912795E31
182-DAY
02-07-2008
08-07-2008
2,160
2, 220
98.908000
912795F89
28-DAY
01-31-2008
02 28 2008
1A50
2,087
99,840556
912795C90
91-DAY
01-31-2008
05-01-2008
2 335
2.388
99.409764
912795E23
182-DAY
01-31-2008
07-31-2008
2.310
2,976
98,832167
912795F71
28 DAY
01-24-2008
02-21-2008
1,750
1,782
99.863889
912795C82
91-DAY
01-24-2008
04-24-2008
2 370
2,424
99,400917
912795D99
182-DAY
01-24-2008
07-24-2008
2,400
2,470
98.786667
912795F63
28-DAY
01-17-2008
02-14-2008
3.080
3 139
99.760444
912795C74
91-DAY
01-17-2008
04-17-2008
3 080
1156
99
221444
912795D81
182-DAY
01-17-2008
07 17 2008
2.950
3,045
9B
508611
912795F55
28-DAY
01-10-2008
02-07-2008
3 240
3,302
99,748000
912795C66
91-DAY
01-30-2008
04-10-2008
3,180
3,259
99,196167
912795D73
182-DAY
01-30-2008
07-10-2008
3.170
3.275
98
397389
912795F48
28-DAY
01-03-2008
01-31-2008
3 000
3 057
99,766667
912795C58
91-DAY
01-03 2008
04 03 2008
3310
3.394
99,163306
912795D65
182-DAY
01-03-20U8
07-03-2008
3,390
3.507
98.286167
912795F30
28-DAY
12-21-2007
01-24-2008
3,040
3,098
99,763556
912795C41
91-DAY
12-27-2007
03 27 2008
3.280
3 363
99
170889
912795D57
182-DAY
12-27-2007
06-26-20D8
3.490
3.612
98.235611
912795F22
28 DAY
12-20-2007
01-17-2008
2,750
2.802
99,786111
912795C33
91-DAY
12-20-2007
03-20-2008
1000
3.073
99
241667
912795D40
182-DAY
12-20-2007
06-19-2008
3,280
3.391
98.341778
912795E98
28-DAY
12213 2007
01 10 2008
7 890
2,945
99.775222
912795C25
91-DAY
12-13-2007
03-13-2008
3.000
3.073
99.241667
912795D32
182-DAY
12-13-2007
06-12-2008
3,190
3,296
98387278
912795ESO
5-DAY
12-12-2007
12-17-2007
4,000
4.069
99.944444
912795UC3
28-DAY
12-06-2007
01-03-2008
3.100
3.159
99J58889
912795B91
91-DAY
12-06-2007
03-06-2008
3.030
3,104
99.234083
912795D24
182-DAY
12-06-2007
06-05-2008
3.190
3,296
98.387278
912795E72
14-DAY
12-03-2007
12-17-2007
3.860
3.930
99,849889
912795UC3
28-DAY
11-29-2007
12-27-2007
1640
3.711
99,716889
912795883
91-DAY
11-29-2007
02-28-2008
3.175
3.254
99.197431
912795C90
182-DAY
11-29-2007
05-29-2008
3.340
3 4S4
98.311444
912795E64
27-DAY
11-23-2007
12-20-2007
3,G80
3.752
99.724000
912795675
90-DAY
11-23-2007
02-21-2008
3.390
3 476
99,152500
912795C82
181-DAY
11-23-2007
05-22-2008
3 460
3.580
98.260389
912795E56
8-DAY
11-15-2007
11-23-2007
4.100
4.172
99,908889
912795B34
28-DAY
11-15-2007
12-13-2007
3,870
3,946
99,699000
912795B67
91-DAY
11-15-2007
02-14-2008
3.430
3.518
99.132972
912795C74
Effective with the 11/2/98 auction, all bills are auctioned using the single -priced method.
http://www.treasurydirect.gov/RI/OFBills 2/4/2008 7
rKts: tt.i:)--;!�eiecteo interest Kates, web-unly wally Upoate--1 ebruary 1, 20U8 Page 4 of
Statistical releases
I tome I Economic research and data
Accessibility I ('ontaci t Is
Last update: February 1, 2008
http://www.federalreserve.gov/Releases/HI5/update/ 2/4/2008 8
Bill Lockyer, State Treasurer 1%
Inside the State Treasurer's Office
Local Agency Investment Fund (LAIF)
PMIA Performance Report
Date
Daily
Yield
Quarterto
Date Yield
Average
Maturity
hidays)
1/16/2008
4.65
4.69
201
1/17/2008
4.63
4.69
201
1/18/2008
4.61
4.68
202
1/19/2008
4.61
4.68
202
1/20/2008
1 4.61
4.68
202
1/21/2008
4.61
4.67
202
1 /22/2008
4.59
4.67
197
1 /23/2008
4.58
4.66
197
1 /24/2008
4.55
4.66
193
1/25/2008
4.53
4.65
194
1/26/2008
4.53
4.65
194
1/27I2008
4.53
4.64
194
1/28/2008
4.52
4.641
193
1/29/2008
1 4.481
4.631
200
LAIF Performance Report
Quarter ending 12/31/2007
Apportionment Rate: 4.96%
Earnings Ratio: 0.00013544408962064
Fair Value Factor: 1.000679115
PMIA Average Monthly Effective Yields
December2007 4.801%
November 2007 4.962%
October 2007 5.137%
Pooled Money Investment Account
Portfolio Composition
$62.9 Billion
12/31/07
Corporate Boi
0.59%
Commercial Paper
12.63%
Time Depc
14 44%
Loans Treasuries Mortgages
4A neoi 4.76 /0 1 Oho%
CDs/BNs
20.97%
Agencies
29.73%
{]
a aw. aa..rvcacc Lcu uu.cwSL AALCS, wen-vniy uaiiy upaate--reDruary 1, 2U08
Page 1 of 4
Federal Reserve Statistical Release
H.15
Selected interest Rates (Daily)
'Alp io Contniu
Release Date: February 1, 2008
Weekly release dates I Historical data I Data Dov aload Program (DDP) I About I Announcements
Daily update Other formats: Screen reader I ASCII
Data Download
Program
The weekly release is posted on Monday. Daily updates of the weekly release are p
through Friday on this site. I£ Monday is a holiday, the weekly release will be p
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 1,
2008
2008
2008
2008
2008
Instruments
Jan
Jan
Jan
Jan
28
29
30
31
Federal funds (effective) 1 2 3
3.50
3.47
3.26
3.22
Commercial Paper 3 4 5
Nonfinancial
1-month
3.03
3.08
3.00
2.94
2-month
2.96
2.98
2.94
2.91
3-month
2.83
2.93
2.90
2.75
Financial
1-month
3.08
3.08
3.00
2.95
2-month
3.09
3.08
3.04
2.96
3-month
3.05
3.02
3.02
2.98
CDs (secondary market) 3 6
1-month
3.24
3.26
3.27
3.07
3-month
3.20
3.22
3.22
3.01
6-month
3.13
3.17
3.13
2.93
Eurodollar deposits (London) 3 7
1-month
3.30
3.30
3.25
3.15
3-month
3.30
3.30
3.30
3.15
6-month
3.20
3.20
3.20
3.05
Bank prime loan 2 3 8
6.50
6.50
6.00
6.00
Discount window primary credit 2 9
4.00
4.00
3.50
3.50
U.S. government securities
Treasury bills (secondary market) 3 4
4-week
2.05
2.09
1.89
1.60
3-month
2.29
2.23
2.16
1.92
6-month
2.29
2.29
2.23
2.02
Treasury constant maturities
Nominal 10
1-month
2.12
2.13
1.93
1.64
3-month
2.34
2.28
2.21
1.96
6-month
2.36
2.36
2.29
2.07
1-year
2.30
2.33
2.30
2.11
2-year
2.20
2.29
2.30
2.17
10
http://www.federalreserve.gov/Releases/H 15/update/ 2/4/2008
r K15: ri.l J--Belectea interest Kates, web -Only Ually Update--rebruary 1, 2008 Page 2 of 4
3-year
5-year
7-year
10-year
20-year
30-year
Inflation indexed 11
5-year
7-year
10-year
20-year
Inflation -indexed long-term average
Interest rate swaps 13
1-year
2-year
3-year
4-year
5-year
7-year
10-year
30-year
Corporate bonds
Moody's seasoned
Aaa 14
Baa
State & local bonds 15
Conventional mortgages 16
Footnotes
2.27
2.33
2.44
2.27
2.80
2.87
2.96
2.82
3.15
3.23
3.32
3.19
3.61
3.69
3.78
3.67
4.30
4.35
4.45
4.35
4.29
4.34
4.44
4.35
0.75
0.77
0.84
0.67
1.09
1.11
1.19
1.04
1.33
1.37
1.45
1.33
1.71
1.76
1.82
1.71
12 1.71
1.75
1.80
1.69
2.86
2.89
2.92
2.72
2.89
2.95
2.99
2.82
3.09
3.16
3.19
3.06
3.30
3.37
3.41
3.30
3.51
3.58
3.62
3.51
3.B5
3.92
3.97
3.87
4.19
4.26
4.31
4.23
4.71
4.77
4.82
4.79
5.32
5.37
5.47
5.38
6.58
6.63
6.72
6.63
4.39
----------------------------------------
5.68
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.
S. 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 6, 2003. For further info
www.federaireserve.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
well as the rate on primary credit are available at www.federalreserve.gov/releas
http://www.federalreserve.gov/Releases/H 15/update/ 2/4/2008 11
, ..D. , .IJ-oe,ccicu nueresi scares, weD-umy uaily upaate--i enruary i, 2vu6 Page 3 of 4
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/of£ices/domestic-finance/debt-management/interest-rate/ltcompositei
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 Asa 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 o
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 subscriptic
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 fixe
currently 5, 7, 10, and 20 years.
---------------------------------------------------------------------------------
Weekly release dates I Historical data I Data Dovmload Program (DDP) I About I Announcements
Daily update Other formats: Screen reader I ASCII
72
http://www.federaireserve.gov/Releases/HI5/update/ 2/4/2008
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INVESTMENT ADVISORY BOARD
Meeting Date: February 13, 2008
TITLE:
Pooled Money Investment Board Report
for December 2007
BACKGROUND:
Correspondence
& Written Material Item B
The Pooled Money Investment Board Report for December 2007 is included in the
agenda packet.
RECOMMENDATION:
Receive & File
ohn M. Falconer, Finance Director
POOLED MONEY INVESTMENT ACCOUNT
SUMMARY OF INVESTMENT DATA
A COMPARISON OF NOVEMBER 2007 WITH NOVEMBER 2006
(DOLLARS IN THOUSANDS)
NOVEM13ER 2007 NOVEMBER 2006 CHANGE
Average Daily Portfolio
$
61,662,908
64,224,796
$
+7,338,112
Accrued Earnings
$
250,380
$
228,423
$
+21,957
Effective Yield
4.962
5.125
-0.163
Average Life -Month End (In Days)
208
185
+23
Total Security Transactions
Amount
$
31,190,986
$
26,025,221
$
+6,165,765
Number
646
531
+114
Total Time Deposit Transactions
Amount
$
4,586,500
$
4,364,800
$
+221,700
Number
206
193
+12
Average Workday Investment Activity
$
1,883,026
$
1,646,843
$
+336,183
Prescribed Demand Account Balances
For Services
$
297,352
$
241,889
$
+56,463
For Uncollected Funds
$
111,231
$
146,092
$
-34,861
1
BILL LOCKYER
TREASURER
STATE OF CALIFORNIA
INVESTMENT DIVISION SELECTED INVESTMENT DATA
ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO
(000 OMITTED)
NOVEMBER 30, 2007
DIFFERENCE IN
PERCENT OF
TYPE OF SECURITY
AMOUNT
PERCENT OF PORTFOLIO FROM
PORTFOLIO PRIOR MONTH
Government
Bills
$
2,544,672
4.16
+0.06
Bonds
0
0.00
0
Notes
819,307
1.34
+1.34
Strips
0
0.00
0
Total Government
$
3,363,979
6.50
+1.40
Federal Agency Coupons
$
8,239,235
13.46
+1.45
Certificates of Deposit
11,449,048
18.71
+5.52
Bank Notes
1,300,000
2.12
+0.03
Bankers' Acceptances
0
0.00
0
Repurchases
0
0.00
0
Federal Agency Discount Notes
4,705,119
7.69
-1.48
Time Deposits
8,931,495
14.59
+0.08
GNMAs
191
0.00
0
Commercial Paper
11,850,102
19.36
+5.68
FHLMC/Remics
1,215,857
1.99
+0.01
Corporate Bonds
374,616
0.61
+0.01
AB 55 Loans
8,426,900
13.77
-2.96
GF Loans
1,741,500
2.85
-9.89
Reversed Repurchases
-396,104
-0.65
-0.15
Total (All Types)
$
61,201,938
100.00
INVESTMENT ACTIVITY
NOVEMBER2007
OCTOBER2007
NUMBER
AMOUNT
NUMBER
AMOUNT
Pooled Money
645 $
31,190,986
682 $
32,620,714
Other
64
1,325,526
15
294,375
Time Deposits
205
4,586,500
230
6,336,490
Totals
904 $
37,103,012
927 $
39,251,579
PMIA Monthly Average Effective Yield
4.962
5.137
Year to Date Yield Last Day of Month
5.167
5.219
E
Pooled Money Investment Account
Portfolio Composition
$61.2 Billion
Corporate Bonds
0.61 %
Commercial Paper
19.36%
Loans
16.62%
11 /30/07
Reverses Treasuries
-0.65% 5.50%
Time Deposits
14.59%
Mortgages
1.99%
Agencies
21.15%
CDs/BNs
20.83%
BOARD MEMBER ITEMS
Don's Possible Changes to Statement of Investment Policy for 2008-09
The following possible changes are suggested to conform more explicitly to
government code, streamline the policy and modify terms with the objective of
using simpler and generally more descriptive and understood words.
I INVESTMENT POLICY
The City of La Quinta's policy is to deposit and invest public funds that:
➢ Safeguard principal.
➢ Provide liquidity.
➢ Earn a market rate of return.
The Statement of Investment Policy sets -forth the permissible deposits and
investments of the City's funds and the limitations thereon.
II ' AUTHORITY
Pursuant to Sections 35607 and 35608 of the Government Code and Ordinance
3.08.010 of the City, the authority of the City Council to invest and reinvest
funds of the City or to sell or exchange securities so purchased, and to deposit
securities and receipts for safekeeping is delegated to the City Treasurer. The
Government Code limits the period of delegation to one year. The City Council
renews this delegation of authority to the Treasurer for one year in conjunction
with the yearly adoption of the Investment Policy
This delegation of authority to the City Treasurer includes responsibility for
managing the investment program. The City Treasurer 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 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.
III OBJECTIVES
The three objectives of the City of La Quinta's investment activity are mandated
by Section 53600.5 of the Government Code and are prioritized in the order
listed.
1. Safeguard Principal
Protection of principal is the foremost objective of the investment activity.
The City of La Quinta shall endeavor to preserve its capital funds by depositing
and investing only in permissible transactions, conducted in a controlled
manner to minimize the possibility of loss or misappropriation through
malfeasance or otherwise. Investment risk shall be mitigated by diversifying
the portfolio over different issuers and investment instruments as allowed by the
investment policy. Diversification is not required for investments with
principal and interest backed by the full faith and credit of the United States
Government
(Prepare a new section on investment risks.)
2. Provide Liquidity
Providing liquidity is the second investment objective. The investment portfolio
shall maintain cash and currently maturing investments to satisfy all obligations
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 accurately
anticipated and estimated, the portfolio should be diversified and consist of
securities with active secondary or resale markets. However, the City's policy
is to hold securities and other investments to maturity. Accordingly,
investments shall not be sold prior to maturity except in the following
circumstances.
► 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. Earn a Market Rate of Return
The third and least important objective is to earn a risk -based market rate of
return. Risk -based means that the rate of return considers the risk associated
with the investment by the market in measuring equivalent or commensurate
yield.
The portfolio shall be structured to earn a risk -based market rate of return
throughout economic and business cycles, taking into account the investment
risk constraints and liquidity needs. The investment policy limits investments to
relatively low risk securities in expectation of earning a market rate of return
relative to the risk being assumed.
Comparative Rates of Return
The City of La Quinta does not specify a single benchmark as a ,goal or target
for a rate of return on its investment portfolio. Rates of return are influenced by
several factors including actions by the Federal Reserve Board, the marketplace
and overall economic perceptions and conditions. These factors do not affect
the yield during holding period of the City's investments because the City's buy
and hold policy fixes the yield at the time ofpurchase. As bases for comparison
only, the Treasurer's monthly report shows the rate of return on the U.S. six-
month Treasury Bill and the State Treasurer's Local Agency Investment Fund
(LAIF). The Treasurer may use these or other published rates of return that the
Treasurer deems appropriate for comparison to the return on the City's
investment portfolio.
Government Code Sections - Consider adding as footnote or Appendix
53607. The authority of the legislative body to invest or to reinvest funds of a local agency, or to
sell or exchange securities so purchased, may be delegated for a one-ycrr� period by the
legislative body to the trcasurer of the local agency, who shall thereafter assume full
responsibility for those transactions until the delegation of authority is revoked or expires, and
shall make a monthly report of those transactions to the legislative body. Subject to review, the
legislative body may renew the delegation of authority pursuant to this section each year.
53605. The legislative body of a local agency may deposit for safekeeping with a federal or state
association (as defined by Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve Bank of San Francisco or any
branch thereof within this state, or with any Federal Reserve bank or with any state or national
bank located in any city designated as a reserve city by the Board of Governors of the Federal
Reserve System, the bonds, notes, hills, debentures, obligations, certificates of indebtedness,
warrants, or other evidences of indebtedness in which the money of the local agency is invested
pursuant to this article or pursuant to other legislative authority. The local agency shall take from
such 'financial institution a receipt for securities so deposited The authority of the legislative
body to deposit for safekeeping may be delegated by the legislative body to the treasurer of the
local agency; the treasurer shall not be responsible for securities delivered to and receipted for by
a financial institution until they are withdrawn from the fmancial institution by the treasurer.
CITY OF LA QUINTA
Investment Policy
Table of Contents
Section Topic
Page
Executive Summary
2
1
General Purpose
4
II
Investment Policy
4
III
Scope
4
IV
Objectives
4
► Safety
► 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
► Broker/Dealers
► Financial Institutions
X
Authorized Investments and Limitations
8
XI
Investment Pools
13
XII
Payment and Custody
13
XIII
Interest Earning Distribution Policy
13
XIV
Internal Controls and Independent Auditors
14
XV
Benchmark
15
XVI
Reporting Standards
15
XVII
Financial Assets and Investment Activity Not Subject to this Policy
1
6
XVIII
Investment of Bond Proceeds
16
XIX
Contracting A Professional Portfolio Management Firm
17
XX
Investment Advisory Board - City of La Quinta
1
7
XXI
Investment Policy Adoption
17
Appendices: A. Summary of Authorized Investments and Limitations
1
9
B. Municipal Code Ordinance 2.70 - Investment Advisory Board
20
C. Municipal Code Ordinance 3.08 - Investment of Moneys and Funds
1
I
li
1
D. Segregation of Major Investment Responsibilities 23
E. Listing of Approved Financial Institutions
2
4
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
K. California Uniform Prudent Investor Act
City of La Quinta
Investment Policy
Executive Summary
The general primary 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 ago investments of the City of La Quinta, La Quinta
Redevelopment Agency and the Lp 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 investmeht 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.
2
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.
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 Quints 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.
Collateralization 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 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
3
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.
City of La Quinta
Statement of Investment Policy
July 1, 2007 through June 21, 2008
Adopted by the City Council on June 19, 2007
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.
Don's suggested alternative to I and II above.
I, INVESTMENT POLICY
The City of La Quinta's policy is to deposit and invest public funds that:
➢ Preserve and protect the funds.
➢ Provide liquidity sufficient to meet all obligations that may be reasonably
anticipated.
9
➢ Earn a risk -based market rate of return.
The Statement of Investment Policy sets -forth the permissible deposits and investments
of the City's funds and the limitations thereon,
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.
Th IV OBJECTIVES
The primary objective, in order of priority, of the City of La Quinta's investment activity shall be:
The objectives in order of priority, of the City of La Quinta's investment activity are:
1. Safety Protection / Preservation of Funds / Principal / Capital / Assets
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 in accordance with the
permitted investments
The City of La Quinta shall endeavor to preserve its capital funds by depositing
and investing only in permissible transactions conducted in a controlled manner to
minimize the possibility of loss or misappropriation through malfeasance or
otherwise. Investments not backed by the full faith and credit of the United
Government
types of investments and issuers.
5
"Objectives, #4 "Diversified Portfolio)
and interest rate risk.
A. Credit Risk
e within policy I# tafions {moved from IV
The objective will be to mitigate 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
2
cores of investments are limited to relatively low risk securities in anticipation of
earning a fair return relative to the risk being assumed.
(Moved from Section XV: "Benchmark") The investment portfolio shall be
desit,Lned 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 C,iMt t of La Ou me Investment Policy will use
(Per Don Moulin email Board Member Item dated August 15, 2007) The City of La
Quinta does not specify a sinctle benchmark as a 3toa/ or target fora rate of return
on its investment portfolio. Rates of return are influenced by several factors
4. Diversified Portfolio
(Delete "Diversified Portfolio" as an objective and move the following highlighted
language) 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 (moved to IV "Qbiectives, #1
"Safety).
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
VA
to three years maximum maturity, with no more than 25% of surplus funds invested
in maturities exceeding 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. (See Appendix K for the Act
and consideration of additional language).
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.
Don's suggests re -do of Authority and relocate as section II. See separate suggestion.
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
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.
{Moved from Section IX: "Contracting A Professional Portfolio Management Firm")
With the Anoroval of the City Council, the Citv mwv onoape a professional portfo/io
manage and invest the City's Funds The professional portfollo management firm will be
�nnin„ail At, rift, rn,innil hacl rl nnnn a rpnimct fnr nrnnnsal nracess as outlined in
t or
the
profession/reputation for asset or investmentmanagement, (2) knowledge and working
J
familiarity w1tth State and Federal laws governing andrestricting the investment of public
such amounts as are required by the City. Such managers shall be registered under the
Investment Advisers Act of 1840.
Don shows applicable GC Sections _ __ _ _
53607. The authority of the legislative body to invest or to reinvest funds of a local agency, or to
sell or exchange securities so purchased, may be delegated for a one-year period by the
legislative body to the treasurer of the local agency, who shall thereafter assume full
responsibility for those transactions until the delegation of authority is revoked or expires, and
shall make a monthly report of those transactions to the legislative body. Subject to review, the
legislative body may renew the delegation of authority pursuant to this section each year.
53608. The legislative body of a local agency may deposit for safekeeping with a federal or state
association (as defmod by Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve Bank of San Francisco or any
branch thereof within this state, or with any Federal Reserve bank or with any state or national
bank located in any city designated as a reserve city by the Board of Governors of the Federal
Reserve System, the bonds, notes, bills, debentures, obligations, certificates of indebtedness,
warrants, or other evidences of indebtedness in which the money of the local agency is invested
pursuant to this article or pursuant to other legislative authority. The local agency shall take from
such financial institution a receipt for securities so deposited. The authority of the legislative
body to deposit for safekeeping may be delegated by the legislative body to the treasurer of the
local agency; the treasurer shall not be responsible for securities delivered to and receipted for by
a financial institution until they are withdrawn from the financial institution by the treasurer.
Vill 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:
No. 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
0
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.
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;
No. Proof of National Association of Security Dealers Certification;
► Trading resolution;
► Proof of California registration;
No. 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.
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
10
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 below and
in the Appendix A.
11
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TATE 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
12
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 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
• 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.
13
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 270
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) 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
by corporations organized and operating in the United States or by depository
14
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:
IN. 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 exceed10% of the portfolio, and
IN. 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
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.
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,
15
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.
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 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 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 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.
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.
XI INVESTMENT POOLS
16
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
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.
17
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;
► 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
EE
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
(Moved to Section IV. • `OBJECTIVES' #3 "Yield')
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 301h 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:
No. A certification by City Treasurer.
► A listing of Purchases and sales/maturities of investments.
► Cash and Investments categorized by authorized investments, except for
M
LAIF 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 for
trend analysis.
► 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 CONTRACTING A PROFESSIONAL PORTFOLIO MANAGEMENT FIRM
20
(Moved to Section vfl: "Delegation of Authority")
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.
(Remove the following language due to Unfunded Mandate) AB 943 requires that the
Investment Policies be seat to the California Debt and Investment Advisory Commission
within sixty days of a change to the Investment Policy.
21
Appendix B
Chapter 2.70
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.
2.70.030 Board functions.
1. 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.
2. The Board will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting.
24
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
25
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 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)
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 internal control procedures External Auditor
27
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
m
Appendix F
1.
2.
3.
4.
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
Name of Firm:
Telephone: (__)
Broker's Representative to the City (attach resume):
Name:
Telephone:
Manager/Partner-in-charge (attach resume):
Name:
Title:
6. List all personnel who will be trading with or quoting securities to City employees
(attach resume)
Name:
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):
9. References -- Please identify your most directly comparable public sector
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 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
30
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?
31
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
22.
Please list your NASD Registration Number.
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.
32
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
33
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?
34
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)?
35
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.
1. Are statements for each account sent to participants?
RE
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?
37
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 will be approximately
10% of the City's investment portfolio net of bond proceeds 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:
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
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.
91
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.
Governmental
Assets Under Management
1. Summarize your institutional investment management asset totals by category
for your latest reporting period in the following table:
Governmental Pension
Non Governmental
Pension
Corporate
High Net Worth Client
Endowmental/Foun-
dation
Number Operating Funds Number of Other Restrictive
of Clients Clients Funds
$ $
$ m j�cof licalsl
abl at lic -
MzLjjj� .. i` __..
$ Not
$ o 4
r . .
$ - —
_ ab Not APPAIcabW
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.
41
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 -
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?
42
6. How will you notify us of investment transactions?
7. Are confirmation of investment transactions sent directly by the
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
43
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
prepared in conformity with GAAP. It also
includes supporting schedules necessary to
demonstrate compliance with finance -related
45
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 3.
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. 4.
DIVERSIFICATION: Dividing investment funds
among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the
Federal government set up to supply credit to
various classes of institutions and individuals,
e.g., S&L's, small business firms, students, 5.
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.
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.
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.
Government. Ginnie Mae securities are backed
47
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.
W-1
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
syndicates. Liquid capital includes cash and
assets easily converted into cash.
EK
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.
Appendix K
CALIFORNIA UNIFORM PRUDENT INVESTOR ACT
CALIFORNIA CODES
PROBATE CODE
SECTION 16045-16054
16045. This article, together with subdivision (a) of Section 16002
and Section 16003, constitutes the prudent investor rule and may be
cited as the Uniirorm Prudent Investor Act.
16046. (a) Except as provided in subdivision (b), a trustee who
invests and manages trust assets owes a duty to the beneficiaries of
the trust to comply with the prudent investor rule.
(b) The settlor may expand or restrict the prudent investor rule
by express provisions in the trust instrument. A trustee is not
liable to a beneficiary for the trustee's good faith reliance on
these express provisions.
16047. (a) A trustee shall invest and manage trust assets as a
prudent investor would, by considering the purposes, terms,
distribution requirements, and other circumstances of the trust. In
satisfying this standard, the trustee shall exercise reasonable care,
skill, and caution.
(b) A trustee's investment and management decisions respecting
individual assets and courses of action must be evaluated not in
isolation, but in the context of the trust portfolio as a whole and
as a part of an overall investment strategy having risk and return
objectives reasonably suited to the trust..
(c) Among circumstances that are appropriate to consider in
investing and managing trust assets are the following, to the extent
relevant to the trust or its beneficiaries:
(1) General economic. conditions.
(2) The possible effect of inflation or deflation.
(3) The expected tax consequences of investment decisionslor
strategies.
(4) The role that each investment or course of action plays within
the overall trust portfolio.
(5) The expected total return from income and the appreciation of
capital.'
(6) Other resources of the beneficiaries known to the trustee as
determined from information provided by the beneficiaries.
(7) Needs for liquidity, regularity of income, and preservation or
appreciation of capital.
(8) An asset's special relationship or special value, if any, to
the purposes of the trust or to one or more of the beneficiaries.
(d) A trustee shall make a reasonable effort to ascertain facts
relevant to the investment and management of trust assets.
(e) A trustee may invest in any kind of property..or type of
A
investment or engage in any course of action or investment strategy
consistent with the standards of this chapter.
16046. In making and implementing investment decisions, the trustee
has a duty to diversify the investments of the trust unless, under
the circumstances, it is prudent not to do so,
16049. Within a reasonable time after accepting a trusteeship or
receiving trust assets, a trustee shall review the trust assets and
make and implement decisions concerning the retention and disposition
of assets, in order to bring the trust portfolio into compliance
with the purposes, terms, distribution requirements, and other
circumstances of the trust, and with the requirements of this
chapter.
16050. In investing and managing trust assets, a trustee may only
incur costs that are appropriate and reasonable in relation to the
assets, overall investment strategy, purposes, and other,
circumstances of the trust.
16051. Compliance with the prudent investor rule is determined in
light of the facts and circumstances existing at the time of a
trustee's decision or action and not by hindsight.
16052. (a) A trustee may delegate investment and management
functions as prudent under the circumstances. The trustee.shall
exercise prudence in the following;
(1) Selecting an agent.
(2) Establishing the scope and terms of the delegation, consistent
With the purposes and terms of the trust.
(3) Periodically reviewing the agent's overall performance_and
compliance with the terms of the delegation.
(b) In performing a delegated function, an agent has a duty to
exercise reasonable care to comply with the terms of the delegation.
(c) Except as otherwise provided in Section 16401, a trustee who
complies with the requirements of subdivision (a) is not liable to
the beneficiaries or to the trust for the decisions or actions of the
agent to whom the function was delegated.
(d) By accepting the delegation of a trust function fromthe
trustee of a trust that is subject to the law of this state, an agent
submits to the jurisdiction of the courts of this state.
16053. The following terms or comparable language in the provisions
of a trust, unless otherwise limited or modified, authorizes any
investment or strategy permitted under this chapter: "investments
permissible by law for investment of trust funds," "legal
investments," "authorized investments," "using the judgment and care
51
under the circumstances then prevailing that persons of prudence,
discretion, and intelligence exercise in the management of their own
affairs, not in regard to speculation but in regard to the permanent
disposition of their funds, considering the probable income as well
as the probable safety of their capital," "prudent man rule,"
"prudent trustee rule," "prudent person rule," and "prudent investor
rule.
16054. This article applies to trusts existing on and created after
its effective date. As applied to trusts existing on its effective
date, this article governs only decisions or actions occurring after
that date.