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2008 05 14 IABVI VII Vill I t ! P.O. Box 1504 LA QoiNFA, CALIFORNIA 92247-1504 78-495 CALLE TAMPIC6 (760) 7 7 7 - 7 0 0 0 LA QutNTA, CALIFORNIA 92253 FAX (760) 777-7101 AGENDA INVESTMENT ADVISORY BOARD Study Session Conference Room 78-495 Calls Tampico- La Quints, CA 92253 May 14, 2008 - 4:30 P.M. CALL TO ORDER a. Pledge of Allegiance b. Roll Call PUBLIC COMMENT - (This is the time set aside for public comment on any matter not scheduled on the agenda.) CONFIRMATION OF AGENDA CONSENT CALENDAR A. Approval of Minutes of Meeting on April 9, 2008 for the Investment Advisory Board. BUSINESS SESSION A. Transmittal of Treasury Report for March 2008 B. Continued Consideration of Fiscal Year 2008/09 Investment Policies CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report and other selected Financial Data - April 2008 B. Pooled Money Investment Board Reports on Hand for Review - February 2008 C. Update on California Municipal Treasurers Association Conference (CMTA) BOARD MEMBER ITEMS ADJOURNMENT M,imi INVESTMENT ADVISORY BOARD Business Session: A Meeting Date: May 14, 2008 ITEM TITLE: Transmittal of Treasury Report for March 2008 BACKGROUND: Attached please find the Treasury Report March 2008 RECOMMENDATION: Review, Receive and File the Treasury Report for March 2008 I +' l John M. Falconer, Finance Director T4ht 4 4a Qu&Av MEMORANDUM TO: La Quinta City Council FROM: John M. Falconer, Finance Director/rreasurer SUBJECT: Treasurers Report for March 31, 2008 DATE: April 30, 2008 Attached is the Treasurer's Report for the month ending March 31, 2008. The report is submitted to the City Council each month after a reconciliation of accounts Is accomplished by the Finance Department. The following table summarizes the changes In investment types for the month: Investment Beginning Purchased I Notes Sold/Matured Other Ending Change Cash (3) $ 5,566.462 (1) $ (5,516,604) $ 69,858 $ (5,516,604) LAW 39,249.396 7,500,000 (3,750.000) (1) 42,999,395 3,749,999 US Treasures (2) 49,536,761 (6,000,000) 140,123 43,676,884 (5,859,877) US Gov't Sponsored Enterprises (2) 54,795,282 14,500.000 (14,500.000) (105,575) 54,689,707 (105,575) Commercial Paper (2) 24,950.792 10,000.000 (15,000,000) (722) 19,950,070 (5,000,722) Corporate Notes 7,952.160 4,879 7.957,039 4,879 Mutual Funds 9 015 779 6,014,997 1 15,030,776 6,014,997 Total $ 191,086,.32 $ 38 014 997 $ 44,766 604 $ 38,704 $ 184,373,729 $ 6,712,903 I oertify that this report accurately reflects all pooled Investments and is in compliance with the California Govemment Code; and is in conformity with the City Investment Policy. As Treasurer of the City of La Quints, 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 Quints 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 and. XA-M-K P� 30 0 ? John M. Falconer Date Finance DirectonTreasurer Footnote (1) The amount reported represents the net increase (decrease) of deposits and withdrawals from the previous month. (2) The amount reported in the other column represents the amortization of premiunVdiscount 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. k4 Treasurer's Commentary For the Month of March Cash Balances — The portfolio size decreased by $6.7 million to $184.3 million. The major reason for the decrease was construction payments for the Civic Center expansion, Vista Dunes Lousing Project and the Ave 481" and Adams Housing Projects. Investment Activity — The average maturity of the portfolio decreased by 12 days to 74 days at the end of March. The six month US Treasury benchmark decreased by 57 basis points and ended the month at 1,50%. The Treasurer follows a buy and hold investment policy and has not sold investments before maturity to take advantage of market conditions. The Treasurer decreased by $5 million holdings in Commercial Paper to meet the 15% policy limitation and a decrease of $5 million in US Treasuries to meet payment obligations. LAIF increased by $3.8 million to take advantage of their higher rates in a declining rate environment. At month end the mutual fund balance was $15 million. Staff did a $12.3 million drawdown in April from these mutual funds for low income project costs. The sweep account earned $2,068 in interest income for the month of March and the bank fees for the month were $ 1,951 which resulted in a net increase of $ 117 in real savings. Portfolio Performance — The overall portfolio performance decreased by eighteen basis points from the prior month and ended at 3.67% for the month, with the pooled cash investments yielding 4.07%. The overall portfolio yield (including bond proceeds) was two hundred seventeen (217) basis points over the benchmark, which has decreased by fifty seven (57) basis point from the one hundred seventy eight (178) basis point difference in February. With the average maturity of 74 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. 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 5.15% and the benchmark was at 4.88% 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 48" 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. 3 C 4 a Z 0 Z c Z 2 m Z om Z 0 Z 0 Z Fe UU -6EU U LL w E m DC qry N $ B QQQa, S C C C C Q aaa me m E C N @4q C aEp N 8$ oEEEEE X $O S?o Qy � S{Q$oi O O g O O O O N O m ^N j g$ v v W9E O E ^ d Rss � CO i 8 a a C C N R RR O' {.9 N uG C O o � ��ee 8 N' � 3 �E �? $Q og�2i� 88RSZRoo � Fm Fa m a� r EX yX X S m p 88o� O O q.p�p;0SS8§8§8 `d`0000�OOSO S8SS�Sgo N p p IL a O OO O R (qO N pS p NCR y�N� CIN Y)NNR pOR ri O R N O O S M S qq EE qq gg Q pp pp QQ pp re O S 0 0 0 N ' O O S O O N O O O '! 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C c U n . l E y'c miq Eii�� %n m ££ 99n X K m z o z 0 d H N C W N O U O F- U Ac c z° z2 10 E 6LLa alla r 61La e LLLLa aR'� 6LLaK„p LLLLa¢� c `oS Sm SSSm S' _O °'6m ^5', 8onm 55'sm Semm S' o`om5m. �awZa % '�m EEE^g EEE' EEE EEE' EEEm' wdR3w� wAiywF3m u4u'9w "� wu'iui�' wwyw wpw"upi tiiuiw� t I m m o m m m To o m 3 m o K F m m o m Tu m o gmm <<' 0 N 'mJ i L LL C 9 N LL 9 E LL 'J 9 N LL J E N LL J> E L LL LL T c c u c m c c c c c c c m_ m— u=Eara`a`wa5 co 0 L U m oc 00 a a a- LL N a E 0 0 _A d O U Lol O O O O O O O O O O c O O O O O O y O O L6 V M N 2 O W IL Q O L m 0 0 a 0 12 INVESTMENT ADVISORY BOARD Business Session No. B Meeting Date: May 14, 2008 TITLE: Continued Consideration of Fiscal Year 2008/09 Investment Policies BACKGROUND: Pursuant to State Legislation the City investment policies must be approved on an annual basis by the City Council. This approval is done in June of each year. Attached please find a correspondence from Board Members Ross and Moulin regarding the City Investment Policy. Staff is recommending an increase in the LAIF percentage from 25% to 35%. At the previous meeting the Board discussed increasing the GSE's maximum from $20 million. Staff is requesting direction on the amount if any, that the GSE limitation should increase. Staff is also recommending leaving the maximum amount of U.S. Treasuries that can be invested between 3 and 5 years at $8,000,000. RECOMMENDATION: Continued review of the Investment Policy for approval by City Council in June 2008 John M. Falconer, Finance Director CITY OF LA QUINTA Investment Policy Fiscal Year 2008-09 Table of Contents Secti n Topic Executive Summary I General Purpose II Investment Policy III Scope IV Objectives I'--► Safety of Principal Provide Liquidity a p Yield A Risk -Based Market Rate Of Return V Maximum Maturities VI Prudence VII Selegatien-ef-Authority VIII Conflict of Interest IX Authorized Financial Dealers and Institutions -0�-m__Broker/Dealers Financial Institutions X Permissibl2Authwiaed Deposits and Investments XI Investment Pools XII Payment and Custody XIII Interest Earning Distribution Policy XIV Internal Controls and Independent Auditors V\/ OnnnL.-1, _. _....___. XV1 Reporting Standards XVI+ Financial Assets and Investment Activity Not Subject to this Policy XVIII Investment of Bond Proceeds XIIIX Investment Advisory Board - City of La Quinta XIXI Investment Policy Adoption IN Page t T(E I)Oi0 S I rS • a • Page A Summary of PermissibleAuIhW;=ed Deposits and Investments and Limitatie ;a A Municipal Code Ordinance 2.70 - Investment Advisory Board A Municipal Code Ordinance 3.08 - Investment of Moneys and Funds OD Segregation of Major Investment Responsibilities A Listing of Approved Financial Institutions OF Broker/Dealer Questionnaire and Certification A Investment Pool Questionnaire A AI Request for Proposal for Portfolio Manager w` Permissible Investment Chart1'�li�� J California Uniform Prudent Investor Act K Glossary 1 CITY OF LA QUINTA Investment Policy Fiscal Year 2008-09 Executive Summary The general purpose of this Investment Policy is to provide the rules and standards users must follow in administering4pd, 'gym the City of La Quinta's deposits and investments. The City's Investment Policy ir+-conformsity to all state and local statutes. T. T—„is P0liGT and applies to all depositseash and investments of the City of La Quinta, City of La Quinta Redevelopment Agency, and the City of La Quinta Financing Authority, heFeafteF Fefe ed in this desument as (the "City"). It is the City's policy of the City of La QUiRta to deposit and invest ail -public funds in a manner which will provide; i Safety of principal; Liquidity tow4 e meet all of the City's obligations and requirements that may be reasonably anticipated; i A risk -based market rate of return. The Citv's Investment Policv does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio As bases for comparison only, the Treasurer's monthly report will display the rates of return on the three-month six-month and one-year U.S. Treasury Bill comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF)• 2 It is the City's policy to hold securities and other investments until maturity. This buy -and -hold policy shall not prevent the sale of a security to minimize loss of principal when an issuer or backer suffers declining credit worthiness or when the liquidity needs of the portfolio require that a security be sold. Authority to manage the City--ef--La--Gu44a'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 accomplish the following objectives: -t► Safeguard assets; 3t► 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. to maintain the safety of the ..F4010n in addition, the intefflal E;OntFOI ,..tee will also iRSUFe the timely he annual audit of the Git., of La n nta's fiRaRedal statements the independent The System of Internal Controls developed by the City Treasurer shall be reviewed annually by the independent auditor in connection with the annual audit of the City of La inter s Financial Statements. 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. Therefore the City Manager Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest. The City Treasureref La Quinta Inyestment Peliey 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 the per missibleG y-approved deposits and investments described in Section X and Appendix A up to the specified maximum allowable percentages and/or dollar limitations and, where applicable, through the bid process requirements. Permissible depositsAather+zed and investments include, in general: At least two bids will be FeqUiFed of investments the awthWized investmeRt vehi6les. v FDIC -Insured Checking, Savings, and Sweep Accounts; v Certificates of Deposit; i U.S. Government Agency Securities and Federal Government Securities; i Prime Commercial Paper; ➢ Local Agency Investment Fund (LAIF); 3 Money Market Mutual Funds; Corporate Notes; ➢ Professionally Managed Accounts. woll always be held by an indepeRdeRt thmFd PaFty fF9FA the q nstitutien that sells the GeFtifleates of Depasit to the Gity. EvideRee of GempliasGe with State GellateFalizatief; PGIiGies must be supplied to the City and Fetained by the City T-FeaSUFeF. The City's ^' ' = Quinta Investment•• shall require that ^a^h individual deposits an investments are generally limited to h^•'^ ^ Ma r'ty of three years' maximum mat auRGil, exeep However, the projected annual dollaFamount of funds not expected to be disbursed within five years^^ [jetRilpil in SA ^^ may be invested in U.S. Treasury bills, notes and bonds maturing between three3 and five§ years. IR additien, the C i ' +.......t :.. the State I. _ _al A 4 _. 1^ +... ..t Fund (LAIC) Os 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 only an overview ^^ OVeFall r^ w of the City's of Ea—a�a Investment Policyies. Reading this summary does not constitute a complete review, which can only be accomplished by reviewing all of the pages herein. E! City of La Quinta Statement of Investment Policy July 1, 2008. through June 30-24, 20098 Adopted by the City Council on June-_4-9, 2008-7 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's deposits and cash investments. II INVESTMENT POLICY It is the policy of the City of La Quinta to deposit and invest public funds in a manner which will provide_ Y Safety of principal as the r.. .._ objective Liquidity to while meetiRg daily cash flow demands all of the City's obligations and requirements that may be reasonably anticipated; v A risk -based market rate of return. 4+ - The Investment Policy w4-conforms to all State and local statutes governing the investment of public funds and sets forth the permissible deposits and investments of the City's funds and the limitations thereon. III SCOPE Except as further detailed in Section XVII, Tthis Investment Policy applies to all depositseash and investments, of the City of La Quinta, City of La Quinta Redevelopment Agency and the City of La Quinta Financing Authority, (hereafter referred to in this document as the "City"). These funds are reported in the City's-eflza-Qo4ta Comprehensive Annual #Financial Report (CAFR) and include all funds within the following fund types: Al, F Rd,-; ..,ithi . the fell....: ng fund +.,. es, *+�,► General ice► Special Revenue —�v► Capital Projects -+'Y► Debt Service ? ► Enterprise ► Internal Service ► Trust and Agency ► Any new fund types and fund(s) that may be created. IV OBJECTIVES The priMaFy-objectives, OR , of the City o Ira s investment activity, in order of priority and importance, are—Aiai;-be: Safety of Principal Safety of principal is the foremost objective of the City's investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of investment principaleapital in the overall portfolio in accordance with the permissibletted deposits and investments. The City shall endeavor to preserve its investment principal by making only permissible deposits and investments undertaken 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 States Government shall be diversified by allocating assets between different types of permissible investments, maturities, and issuers as a means The abjeetiye will o mitigate credit risk and interest rate risk. A. Credit Risk is the risk of loss from the failure of the security issuer or backer. Credit risk may be mitigated by: GFedit Risk is the Fisk of less due to the famlwe of the security issueF OF baekeF. GFedit Fisk MaY be mitigated by; *ir• +4 m Limiting investments to investment gradethe safest types at securities; i_�__m Diversifying the issuers of the securities in the investment portfolio so that potential losses due to issuer failure or individual securities downgrades may be minimized.Pre qualifyinghe f:....ne"a' ...ct'.t_tiaand h._L_./deal. - .,hieh the City of La Quinta will do business with� and seeWities will be m ed B. Interest Rate Risk is the risk that market values of securities in the portfolio will decline due to changes in general interest rates. Interest rate risk may be mitigated inteFeSt Rate risk is the Fisk that the MaFket value ef seeurit'es in the Ponfelme will fall Elue to changes on general inteFest Fates. ln�eFeGt Fate Fisk may be mitigated bw �®®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 �>801nvesting operating funds primarily in shorter -term securities. 2. Provide Liquidity The investment portfolio shall remain sufficiently liquid to meet all of the City's operating fequirenaents cash needs 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 cipmands needs cannot be anticipated the portfolio should be diversified and consist of securities with active secondary or resale markets. The City's policy is to hold securities and other investments to maturity. Accordingly. Ssecurities shall not be sold prior to maturity with the following exceptions: +aO® A declining GFedit quality security with declining credit quality can oeuid-be sold early to minimize loss of principal; i> Liquidity needs of the portfolio require that one or more the-securitiesy be sold. 3. Yield A Risk -Based Market Rate Of Return The City's investment portfolio shall be structureddesigaed with the objective of ieldin atiaiaiag a risk -based market rate of return throughout budgetary and economic cycles, . Return on C investment is lessef-least importantee thanserepafed-te the safety and liquidity objectives described above. The V-.GFPI; Of aFe limited to relatively law FiSk seewities The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. The portfolio's rates of return will be influenced by several factors, including actions by the Federal Reserve Board, the marketplace and overall economic perceptions and conditions. These factors will not affect yield during the securities' holding period because the City's buy -and -hold policy fixes the securities' yield at the time of purchase. As bases for comparison only, the Treasurer's monthly report will display the rates of return on the three-month, six-month, and one-year U.S. Treasury Bill, comparable -period rates for commercial paper, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Treasurer may use these or any other published rates of return that the Treasurer deems appropriate for comparison to the return on the City's investment portfolio. 4.DiVeFGified Portfolio Within the eenstFaints of safety, liquidity and yield, the City will endeaVeF to MaiRlaiR a V MAXIMUM MATURITIES It is the City's policy of the Gity of La Quint to hold securities and other investments of cash until maturity, thus avoiding the risk the of market value ea ^^ s-fluctuationes with overall market interest rates. Thise buy -and -hold aatil reatwity policy shall not prevent the sale of a security to minimize loss of principal when ant -he issuer or backer suffers declining credit worthiness or when the liquidity needs of the portfolio require that a security be sold. The buy -and -hold aRW Matur+ty-policy requires that the City o -1 s investment portfolio bets structured so that sufficient liquid funds are available from maturing investments and other sources to meet all reasonably -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 2008-7/099, the amount of such funds is projected to bewras $8 million. Funds up to that amount may be invested in U.S. Treasury bills, notes and bonds maturing between 3 and 5 years. For all other funds, investments are limited to three years maximum maturity, with no more than 25% of surplus funds invested in maturities exceeding two years and less than three years. 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 J). 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 W affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived". VII AUTHORITY Authority to manage the City of La ^QuiRia s investment portfolio is derived from sections 35607 and 35608 of t4ie-City Ordinance 3.08.010. Management responsibility for the investment program is delegated to the City Treasurer for a period of one year pursuant to the City Council's annual adoption of the Investment Policy, 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 acknowledgeappreve in writing all purchases and sales of investments prior to their execution by the City Treasurer. VIII CONFLICT OF INTEREST Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance of improper influence. Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: Wl-0. 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. t � R- All persons authorized to place or approve investments shall report to the City Clerk on Form 700, Statement of Economic Interests, any kinship relations with principal employees of firms with which the City places investments. IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City Treasurer 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 ef� '� to with the following: +1► Current audited financial statements; +1® Proof of National Association of Security Dealers Certification; E ±rk Trading resolution; +1► Proof of California registration; 4► Resume of Financial broker; and ► Completion of the City of La Quinta Broker/Dealer questionnaire which contains a certification of having read the City's of La eta 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: ► Financial Industry Regulatory Authority (FINRA)AlatmO al Aceee:atiGR of SeSLIFity Dea;era Public Disclosure Report File (1-800-289-9999). «at► State of California Department of Corporations 0-916-445-3062). 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. 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 the City's ofLa Ra deposits or investments not insured by the FDIC —shall be 110% collateralized by securities' or 150% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Disclosure - Each financial institution maintaining invested funds in excess of the FDIC insured amount shall furnish the City a copy of the most recent Annual Call Report. The City shall not invest in excess of the FDIC insured amount in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. X PERMISSIBLEA"T'�'..v�..GRtZE-D DEPOSITS AND INVESTMENTS —AND I -IMITATIONS Permissible deposits The Gity TFeaSUFeF will be .,,.mite. to iRVeSt in the and investments are summarized below. A more comprehensive list is included in the -Appendix A. 101 Permissible Investments and Limitations Maximum Allocation Maximum Maturity Restrictions (See Appendix A for Additional Information) Checking & Savings Accounts FDIC Insured & Sweep Accounts 85% Portfolio Current / On Demand Sweep Account: U.S. Treasuries and/or GSE's Certificates of Deposit 60% Portfolio 3 years <=$99,000 per institution U S. Treasury Bills. Notes and Bonds. and Government National Mortgage 100% Portfolio 3 years <=$&0000,000 maturing 3-5 Yrs Association (GNMA) securities U.S. Government Agency Securities and Federal Government Securities (except collateralized mortgage obligations (CMOs) or structured notes which contain embedded rate options): - Federal National Mortgage Association (FNMA) - Federal Home Loan Bank Notes & Bonds (FHLB) - Federal Farm Credit Bank (FFCB) - Federal Home Loan Mortgage Corporation (FHLMC) $25.000,000 $25,000,000 $25,000,000 $25,000.000 3 years 3 years 3 years 3 years _ _ Prime Commercial Paper 15% Portfolio 90 days $5,000.000 per issuer maximum. Local Agency Investment Fund (LAIF) 30% Portfolio Current / On Demand Money market mutual funds regulated by the SEC that consist only of US 20% Portfolio Current / On Demand Maintain $1 per Treasury Securities or GSE's and maintain a oar value of $1 per share share par value Corporate Notes 10% 3 years $5 000 000 max per issuer, AA rated or better. Professionally Managed Account 10°/u 3 Year Requires Approved RFP ------------ NOW 1. Checking, Savings, and Sweep Accounts — The City will only maintain checking, savings, and sweep accounts with FDIC insured financial institutions. 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. 2. Certificates of Deposit - As authorized in Government Code Section 53649, Certificates of Deposit are fixed term investments which are required to be collateralized from 1 10% to 150% depending on the specific security pledged as collateral in accordance with Government Code Section 53652. There are no portfolio limits on the amount or maturity for this investment vehicle. 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: A. Certificates of Deposits Insured by the FDIC: The City Treasurer may waive collateralization of a deposit that is federally insured. B. Certificates of Deposit in excess of FDIC Limits: The amount not federally insured shall be 110% collateralized securities or 150% mortgages market value of that amount of invested funds plus unpaid interest earnings. The City's Investment Policy limits the percentage of Certificates of Deposit to 60% of the portfolio. Y The City does not allow investments in CDARs or negotiable (secondary market) certificates of deposit. 3. U.S. Treasury Bills, Notes, and Bonds and Government National Mortgage Associations (GNMA) securities — The City may invest in U.S. Treasury bills, notes, and bonds, and GNMA securities directly issued and backed by the full faith and credit of the U.S. Government. The City's Investment Policy limits investments in U.S. Treasury issues and GNMA to 100% of the portfolio. ➢ The City's Investment Policy does not allow investments in local and state indebtedness. 4. U.S. Government Aaencv Securities and Federal Government Securities — The City ma invest in securities issued by U.S. Government instrumentalities and agencies (commonly referred to as government sponsored enterprises or GSEs). These securities are not backed 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's Investment Policy allows investment only in securities of FNMA, FHLMC, FHLB 11 and FFCB. In addition, no more than 10% of surplus funds may be invested per GSE and no more than 30% of the portfolio surplus may be invested in all LSE's combined with a maximum $10 million face amount per purchase. For Fiscal Year 2008/09, the maximum face amount is $25 million per issuer. 5. Prime Commercial Paper - As authorized in Government Code Section 53601(q), a portion of the City's 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. 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's Investment Policy permits investments in commercial paper with the following limitations: A. Maximum 15% of the portfolio. B. Maximum maturity of 90 days. C. Maximum of $5 million per issuer. These limitations are more restrictive than the State code allowed amounts of 25% of the total portfolio with maturities up to 270 days with no per -issuer limitations. 6. State Treasurer's Local Agency Investment Fund (LAIF) - As authorized in Government Code Section 16429.1 and by LAIF procedures, local government agencies are each authorized to invest a maximum of $40 million per account in this investment program administered by the California State Treasurer. The City's investment in the State Local A,.,...,,.•investment Fund (LAIFJ 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 QuiR to —has two accounts with LAIF. The Gity of La n. '^" I.,VBSt.. eRt Paliey has and limitsation of investment to 30%261% of the portfolio. 7. Monev Market Mutual Funds - 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's 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. 8 Corporate Notes - As authorized in Government Code Section 53601 (i), local agencies may invest in corporate notes. The notes must be issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any other state and operating in the United States. The City's Investment Policy allows 12 investment in corporate notes authorized by the Government Code with the following limitations: ► Maturities shall not exceed three years from date of purchase. ► Eligible notes shall be regularly quoted and traded in the marketplace. ► Eligible notes shall be rated "AA" or better. ► Total investment shall not exceedl0% of the portfolio, and ► The maximum aggregate investment shall not exceed $5 million face amount for each issuer. This is more restrictive than the State code allowed amounts of 30% of the total portfolio with maturities up to five years with no per -issuer limitations. 9. Professionally Managed Account(s) - The City Treasurer may place up to 10% of the portfolio with a professional portfolio management firm ("PPMF"). The PPMF will be approved by the City Council based upon the City Treasurer's recommendation pursuant to completion of a request for proposal (RFP) as outlined in Appendix H. The PPMF shall have: (a) an established professional reputation for asset or investment manaqement; (b) knowledge and working familiarity with State and Federal laws governing and restricting the investment of public funds; (c) substantial experience providing investment management services to local public agencies whose investment policies and portfolio size are similar to those of the City; (4) professional liability (errors and omissions) insurance and fidelity bonding in such amounts as are required by the City; (e) registration with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Before engagement by the City and except as may be specifically waived or revised, the PPMF shall commit to adhere to the provisions of the City's Investment Policy with the following exceptions: (f) the PPMF may be granted the discretion to purchase and sell investment securities in accordance with Appendix I of this Investment Policy; (g) the PPMF is not required to adhere to the buy -and -hold strategy of this Investment Policy, and; (h) the PPMF does not need City Manager or City Treasurer approval to make permissible investments as detailed in column 8 of Appendix I of this Investment Policy. Please refer to Appendix A for other investments and deposits that are State Code authorized but that are not permitted by the City's Policy. 13 �• V . . . .......... M I M.1 .. • ♦ • • ♦ • • f .• •�••��1�L„ . XI INVESTMENT POOLS There are three (3) types of investment pools: 1) state -run pools, 2) pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee i.e. County Pool; and 3) pools that are operated for profit by third parties. W The City's otea Quiata Investment Policy has authorized investment with the State of California's Treasurer's Office Local Agency Investment Fund GOMMONY FefeFFed 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 investmentable limit of $40 million. In addition, LAIF will provide quarterly market value information to the City of La Quieta. 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. Pooled Investments - It is the general policy of the City to pool all available operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta Financing Authority and allocate interest earnings, in the following order, as follows: A. Payment to the General Fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. B. Payment to the General Fund of a management fee equal to 5% of the annual pooled cash fund investment earnings. C. Payment to each fund of an amount based on the average computerized daily cash balance included in the common portfolio for the earning period. 2. Specific Investments - Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR The City Treasurer shall establish a system of internal controls to accomplish the following objectives: _�i® Safeguard assets; 3+® The orderly and efficient conduct of its business, including adherence to management policies; 351 Prevention or detection of errors and fraud; 241. The accuracy and completeness of accounting records; and 17 �nr® 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: 1. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. 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. 3. 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. 4. 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. 5. 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. 86. Written confirmation or telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions shall be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. Fax correspondence must be supported by evidence of verbal or written follow-up. 7. 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�^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 iE. activities. The City ef La QUiRta 'RveStMeRt Polmay will use the six Fnenth U.S. TFeaGUFy Bill as a beRGhMaFk XV1 REPORTING STANDARDS Gemmo6sion withiR sixty days of the end of the quaFtef%7 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 Treasurer's Report shall summarize cash and investment activity and changes in balances and include the following: at► A certification by the City Treasurer. _r► A listing of Purchases and sales/maturities of investments. ► Cash and Investments categorized by authorized investments, except for LAIF which will be provided quarterly and show yield and maturity. �+► Comparison of month end actual holdings to Investment Policy limitations. ► Current year and prior year monthly history of cash and investments for trend analysis. 3t► Balance Sheet. 3 ► Distribution of cash and investment balances by fund. ® A comparison of actual and surplus funds. At► A year to date historical cash flow analysis and projection for the next six months. 3f► 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; P. 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. 19 XVII! 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. These 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. AILLIALILLOLEM XIIIX 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 annualiv the Citv's Investment Policv and recommend appropriate changes; 2. Review monthly Treasury Reports 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, 20 internal controls, use or change of financial institutions, custodians, brokers and dealers. SeeThe aAppendixees B: el• dde City of l a Quanta OFdinanee 2.70 entitled "Investment Advisory Board Provisions". XIx1 INVESTMENT POLICY ADOPTION On an annual The City's Investment pEolicyies will be initially reviewed annually by the City's Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment yPolicyies= 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 pPolicyies and any comments, prior to submission to the City Council for their consideration. The Investment Policyies shall be adopted by resolution of the Gity of La QUORta City Council en an-annualy basis. The Investment Policies ., Al I...adapted before the end of June of each year. 21 Appendix A (PERMISSIBLE DEPOSITS AND INVESTMENTS SPREADSHEET WILL BE EDITED AND INSERTED AS MS -WORD TABLE) 22 Appendix A TE CODE PERMITTED DEPOSITS AND INVESTMENTS NOT AUTHORIZED BY THE CITY'S INVESTMENT POLICY As provided in Sections 16429.1, 53601, 53601.1, and 53649 of the Government Code, the State of California limits the investment vehicles available to local agencies as summarized in the following paragraphs. Section 53601, as now amended, provides that unless Section 53601 specifies a limitation on an investment's maturity, no investments with maturities exceeding five years shall be made. The City's 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. The City's permissible deposits and investments are more restricted than those authorized by the State of California. 1. 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's Investment Policy does not allow investment in Bankers' Acceptances. 2. 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's Investment Policy does not allow investment in Negotiable Certificates of Deposit. 3. 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 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's Investment Policy does not allow investment in Repurchase Agreements or Reverse Repurchase Agreements. 4. 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 23 to exceed 20% of the agency's portfolio. Securities eligible for investment shall have an "A" or higher rating. Y The City's Investment Policy does not allow investment in Mortgage -Backed Securities. 5. 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's Investment Policy does not allow investments in financial futures and financial option contracts. 6. 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. v_ The City's Investment Policy does not allow investments in Certificate of Deposits — Private Placements. 7. Derivatives - The City's Investment Policy does not allow investment in derivatives. 24 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. 25 Appendix C Chapter 3.08 INVESTMENT OF MONEYS AND FUNDS Sections: 3.08.010 Investment of city moneys and deposit of securities. 3.08.020 Authorized investments. 3.08.030 Sales of securities. 3.08.040 City bonds. 3.08.050 Reports. 3.08.060 Deposits of securities. 3.08.070 Trust fund administration. 3.08.010 Investment of city moneys and deposit of securities. Pursuant to, and in accordance with, and to the extent allowed by, Sections 53607 and 53608 of the Government Code, the authority to invest and reinvest moneys of the city, to sell or exchange securities, and to deposit them and provide for their safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982) 3.08.020 Authorized investments. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to purchase, at their original sale or after they have been issued, securities which are permissible investments under any provision of state law relating to the investing of general city funds, including but not limited to Sections 53601 and 53635 of the Government Code, as said sections now read or may hereafter be amended, from moneys in his custody which are not required for the immediate necessities of the city and as he may deem wise and expedient, and to sell or exchange for other eligible securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part), 1982) 3.08.030 Sales of Securities. From time to time the city treasurer shall sell the securities in which city moneys have been invested pursuant to this chapter, so that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. (Ord.2 § I (part), 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be canceled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be resold. (Ord. 2 § 1 (part), 1982) 3.08.050 Reports. The city treasurer shall make a monthly report to the city council of all investments made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982) 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 there from 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) VAFA SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Appendix D Function Responsibilities Develop formal Investment Policy City Treasurer Recommend modifications to Investment Policy Investment Advisory Board Review formal Investment Policy and recommend City Manager and City Council action City Attorney Adopt formal Investment Policy City Council Review Financial Institutions & Select Investments City Treasurer Approve investments City Manager or 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 Manager or Financial accounting records 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 U-1 Appendix E LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services Wells Fargo Bank, Government Services, Los Angeles, CA 2. Custodian Services Bank of New York, Los Angeles, CA 3. Deferred Compensation International City/County Management Association Retirement Corporation 4. Broker/Dealer Services Merrill Lynch, San Francisco, 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 29 Appendix F BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1. Name of Firm: 2. Address: 3. Telephone: (_) 4. Broker's Representative to the City (attach resume): Name: Title: - I elephone: I—) 5. Manager/Partner-in-charge (attach resume): Name: Telephone: 6. List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Title: Telephone:l_) ( ) 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): 30 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. Has your firm or your local office ever been subject to a regulatory or state/ federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees been so investigated? If so, explain. 12. Has a client ever claimed in writing that You were responsible for an investment loss? Yes No If yes, please provide action taken Has a client ever claimed in writing that your firm was responsible for an investment loss? Yes No If yes, please provide action taken 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 31 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? 18. What reports and transaction confirmations or any other research publications will the City receive? 19. Does your firm offer investment training to your clients? Yes No 20. Does your firm have professional liability insurance? Yes No If yes, please provide the insurance carrier, limits and expiration date. 21. Please list your NASD Registration Number 22. Do you have any relatives who work at the City of La Quinta? Yes No If yes, Name and Department 23. Do you maintain an office in California? Yes No 32 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. 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? 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? 9J 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)? 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? 01 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? 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? M 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 Quints, 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 Calls Tampico La Quinta, CA 92253 (760)777-7150 I. CRITERIA FOR EVALUATION AND SELECTION ■ Experience of the firm in providing services to public sector entities of similar size and with similar investment objectives ■ Professional experience and qualifications of the individuals assigned to the account ■ Portfolio management resources, investment philosophy and approach ■ Responsiveness to the RFP, communicating an understanding of the overall program and services required ■ Reporting capabilities ■ Fees H. SELECTION TIMETABLE A. [Month Day, Year] Proposals due by [Time] PST. B. [Month Day, Year] Proposals evaluated: to be determined C. [Month Day, Year] [City of La Quinta, CA] [Board/Council] approves selection and awards contract. m 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. 39 C. Assets Under Management 1. Summarize your institutional investment management asset totals by category for your latest reporting period in the following table: Number Operating Funds Number of Other Restrictive of Clients Clients Funds Governmental S $ Governmental Pension $ to v -- �pp��Cafalel - Non Governmental S A tht Pension Corporate $tA icab4 High Net Worth Client $ _ k Ni3t_ _ ably �a Endowmental/Foun- $ - _� - N licable dation A,2. Provide the number of separate accounts whose portfolios consist of operating funds. 6-.3. List in the following table the percentage by market value of aggregate assets under all governmental accounts under management for your latest reporting period: Type of Asset Percent by Market Value U.S. Treasury securities Federal Agency obligations Corporate securities rated AAA -AA Corporate securities rated A Corporate securities rated BBB or lower Other (specify ) m C 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? 9.5. Describe procedures used to ensure that portfolios comply with client investment objectives, policies, and bond resolutions. S-.F. Fees Charged 91. Please include a copy of your firm's fee schedule applicable to this RFP. 92. Identify any expenses that would not be covered through this fee structure and would be required in order to implement the firm's program. 93. Is there a minimum annual fee? G. Performance Reporting 1. Please report on all accounts under $100 million. a.2. Please provide performance history for governmental accounts for the last five years. I}.-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? a.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. b:l. 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. c—.J. Submittal of proposals 91. 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 92. Proposal must be received no later than [Time] PST on [Month, Day, and Year]. 93. 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 I (PERMISSIBLE INVESTMENT CHART SPREADSHEET TO BE EDITED AND INSERTED AS MS -WORD TABLE) m Uniform Prudent Investor Act CALIFORNIA CODES FROBATE 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 Uniform Prudent Investor Act. 16046. (a) Except_ as provided in subdivision (b), a trustee who invests and manages trust assets owes a duty to_tne beneficiaries of the trust to comply with the prudent investor rule. (b) The settler may expand or restrict the prudent investor rule e:Spress provisions in the trust instrument. -A trustee is not liable to a beneficiary_£or the trustee's good ditYi-reliance on these express provisions. 16C4? (a A trustee shall invest and *v-ina ce trust assets as prudent investor would by considering the purposes, ',.arms, distribution requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, (b) A trustee's investment and management decisions respectina_ 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 t. the trust. (c) Among circums-a_n_ces_th_at are appropriate to consider in investing and managing trust assets are the fallo-wing, 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 decisions or strategies. (4) TTh:- 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 6) Other resources of the beneficiaries known to the trustee as determined from information_ provided by the beneficiaries. (?) Needs for liquidity, regularityo£ in -come, and preservation or _appreciation of capitol_-- ---� --- (8) An assets_special relationship or special value, if any, to the urnoses of the trust or to one or more of the beneficiaries. (d) A trustee sha_1 make a reasonable effort tc_ascerta_in facts relevant to the investment and management of trust assets. (e) A trustee may invest in any kind of property_ or type of investment cr engage in any course cf action or investment strategy consistent with the standards of this chatter. 16048. In mak_ina and implc_monting investment decisions, the_trusre_c has a duty to diversify -the investments of the trust unless, under the circumstances it is prudentnot to do so. Col 16049 Within a reaso:�blc time after accepting a trusteeship or receiving trust assets a Trustee shall review the trust assets and make and implemen• decisions concerning the retention and disposition of assets in order to bring the Crust portfolio into compliance with the purposes terms diszributinn requiromonts and other circumstances of the trust and with the reguir.oments of t�,is 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 investh•)ent strateTy, purposes, and other circumstances of the trust. 16051 Compliance with the prudent investor rule is determined in light of the facts ana circumstances existing at the rime 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 fo.liowing: (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 agen='s overall perforriance and compliance with the terms of the delegation. (b) In performing a delegated Danclion., an agent has a duty to exercise reasonable care to comply with the terms of the delegation. 'c) Except as ott-orr:isc provided in Suction 16401, a Trustee who complies with chc requirements of subdivision (a) is not liable to the beneficiaries or Co the t.us: for the decisions or actions of the agent to whom the function was delegated. (d' By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this stale, an agen� submits ,o the jurisdiction of the warts of tt: sLate 16053 The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any inves�.ment or strate(ly oernil:cd under th; s chanter: "investments permissible by law for investmomc of trust funds," "legal investments "authorized investments "using the 'adgment and care under the circumstances then prevailing that persons of prudence, discretion and ir'ellicence exercise in the 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 safe�:y of their capital," "prudent man rule," "prudent trustee rule," "prudent person rule," and "prudent investor rule." 16054 This article applies to �Yr�sts existi_no on and created after its effective date As applied -o 1,rusts exisl'ng or. its effective date this article covens only decisions or actions occurring after that date. Appendix Kd 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 47 includes supporting schedules necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. CONDUIT FINANCING: A form of Financing in which a government or a government agency lends its name to a bond issue, although it is acting only as a conduit between a specific project and bond holders. The bond holders can look only to the revenues from the project being financed for repayment and not to the government or agency whose name appears on the bond. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. 3. FLB's (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. DISCOUNT SECURITIES: Non -interest bearing 4 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 5. 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. 1. FNMA's (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. FHLB's (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. M Fibs (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. FICB's (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. FHLMC's (Federal Home Loan Mortgage Corporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Mortgages 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 (SBA's), Government National Mortgage Association notes (GNMA's), Tennessee Valley Authority notes (TVA's), and Student Loan Association notes (SALLIE-MAE's). 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 FHLB's 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 by the FHA, VA or FMHM mortgages. The term "pass -through" is often used to describe Ginnie Mae's. 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 establish 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, banker' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of all cash and securities under the direction of the City Treasurer, including Bond Proceeds. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and depositions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker -dealers, banks and a few unregulated firms. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repo. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. REVERSE REPURCHASE AGREEMENTS (RRP or RevRepo) - A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RRP extensively to finance their positions. Exception: When the Fed is said to be doing RRP, it is lending money that is increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA's, 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. 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. 51 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. May 5, 2008 To: John Falconer From: Don Moulin Investment Policy Review — Ethics and Conflicts of Interest For inclusion on the agenda for May 14, 2008 meeting of the IAB At the April 9 meeting, the members continued earlier discussion of Randy's suggestion to add the members of the IAB to the Col section. My 3/13/08 email discussed at the April meeting, agreed with Randy that the members of the IAB must not have conflicts of interest. However, the conflicts section of the IP is drafted to cover officers and employees that buy, sell and manage investments. Randy was not convinced that the members of the IAB should not be covered in this section and the City Attorney's comment that it was a good idea favored his interpretation of this section. Cristina asked Randy and I to discuss the matter to see if we could agree on the wording of this section before the May meeting. A critical reading the existing words in Section VIII raised a number of questions. learned the following as I researched this matter: A. Ethics and Conflicts of Interest requirements are multi -faceted. The applicable requirements are derived from Gov Code 1090, the Political Reform Act of 1974, under which the FPPC and Form 700 are created, the common law, AB 1234 and local conflict of interest code. The common law may be the strictest as it governs the appearance as well as actual conflicts of interest. B. The City's conflict of interest code is in Ordinance 2.60.010. Rather than developing local rules, the City incorporates by reference the state law, regulations and FPPC rulings as its code. C. IP Section VIII has not been changed for at least 10 years. Off -hand, John does not know of its origin. It restricts certain officers from doing personal business with financial institutions doing business with the City. This limitation is not clearly written and needs to change. The IAB and John should agree on a policy for doing personal business at institutions dong business with the City. D. My initial intention was to streamline the section by adopting the applicable section in the Model IP. This is not possible if the section establishes Col policy. (A copy of that is attached.) What are my conclusions and suggestions? 1. Add "ETHICS" to the title of this section. 2. Rewrite this section to set forth any activities that are conflicts with the investment process. (A draft of a new section VIII is attached.) 3. I have extracted from the ethics -training workbook certain information that shows the multifaceted aspect of ethics and conflicts of interest. I suggest including this information in the appendix of the IP. (A copy of this information is attached.) 4. I found no examples or support for the naming of the members of the IAB in this section. The members' obligations are clearly established in the suggested appendix. The FPPC issues a Reference Pamphlet. It includes a Terms & Definitions section that defines conflict of interest, conflict -of -interest codes and public officials who manage public investments. The latter is the only literature in the laws and regulations dealing with managing investments that I found in my limited search. I suggest that these three descriptions be included in the IP, either as a footnote in the forepart, or in the appendix as a separate item or inclusion in the glossary. (A copy of these definitions is attached.) K ,�PPErVo/K R�sK Except as provided for in Section 27000.3, Government Code Section 53600.3 declares each person, treasurer, or governing body authorized to make investment decisions on behalf of local agencies to be a trustee and therefore a fiduciary subject to the prudent investor standard. These persons shall act with care, skill, prudence, and diligence under the circumstances then prevailing acquiring, ex ellin& and managing funds. when investing, reinvesting, purchasing, acq g, changing, s Section 53600.5 further stipulates that the primary objective of any person investing public funds is to safeguard principal; secondly, to meet liquidity needs of the depositor, and lastly, to achieve a return or yield on invested funds (Government Code Section 27000.5 specifies the same objectives for county treasurers and board of supervisors). Risk is inherent throughout the investment process. There is risk assigned to any investment activity as well as opportunity risk related to inactivity. Market risk is derived from exposure to overall changes in the general Ilwel of interest rates while credit risk is the risk of loss due to the failure of the issuer of a security. The market value of a security varies inversely with the level of interest rates. If an investor is required to sell an investment with a five percent yield in o comparable seven percent rate environment, that security will be sold at a loss. The magnitude of that loss will depend on the amount of time until maturity. Purchasing certain allowable securities with a maturity of greater than five years requires approval of the governing board (see Government Code Section 53601). Part of that approval process involves assessing and disclosing the risk and possible volatility of longer -term investments. Another element of risk is liquidity risk. Instruments with unique call features or special structures, or those issued by little known companies, are examples of "story bonds" and often are thinly traded. Their uniqueness often makes finding prospective buyers in a secondary market more difficult and, consequently, the securities' marketability and price are discounted. However, under certain market conditioris, gains are also possible with these types of securities. Default risk represents the possibility that the borrower may be unable to repay the obligation as scheduled. Generally, securities issued by the federal government and its agencies are considered the most secure, while securities issued by private corporations or negotiable certificates of deposit issued by commercial banks have a greater degree of risk Securities with additional credit enhancements, such as bankers acceptances, collateralized repurchase agreements and collatemlizod bank deposits, are somewhere between the two on the risk specurim. The vast majority of portfolios are managed with a buy and hold policy. Investments are purchased with the intent and capacity to hold them until maturity. At times, market forces or operations may dictate swapping one security for another or selling a security before maturity. Continuous analysis and fine truing of the investment portfolio are considered part of prudent investment management. This strategy is not to be confused with heavy trading activity where securities are purchased with the intent to sell them before maturity at a profit or the use of leverage to enhance yield. Such strategies require predicting the future direction of interest rates. The Government Code contains specific provisions regarding the types of investments and practices permitted after considering the broad requirement of preserving principal and before seeking yield. These provisions are intended to promote the use of maintaining'liquidity reliable, diverse, and safe investment instruments to better ensure a prudently managed portfolio worthy of public trust. 3 New Section VIII of IP for Review MU 14, 2008 ETHICS AND CONFLICTS OF INTEREST As stated in Section , the authority for investment activity is delegated to the City Treasurer. The City Manager or one of the two Assistant City Managers is required to acknowledge an investment transaction prior to its execution. These City officers must conduct this activity without conflicts of interest and compromise of ethical standards. If any personal or family relationships or activities exist that could influence or impair these officers' ability to make impartial investment decisions, they shall refrain from investment activities and notify the City Clerk of the matter immediately. The primary purpose of Form 700 is to disclose economic interests that may cause a conflict of interest. Officers and employees of the City may have checking, savings, investment or other accounts at a financial institution that conducts business with the City provided the terms of the activity are offered on a non-negotiable basis to the general public. The common law transcends state and local by prohibiting the appearance of impropriety and extends to non -economic conflicts. Therefore, the City Treasurer, the City Manager and the Assistant City Managers that make decisions and are involved with the banking and investment process, to avoid any unexpected conflicts of interest as well as the appearance of a conflict, should conduct their personal and family banking and investing at financial institutions that are not authorized to do business with the City. This limitation would not prevent these officers from direct investments in United States Treasury bills, notes and bonds. The ethics and conflicts of interest requirements are multi -faceted. See Appendix of this Statement of Investment Policy for pertinent ethics and conflicts of interest information. xxxxxxxxxxxxXXXXXXXXXXXXXXxxxxxxxxxxxXRXXX The City's policy needs to be clarified. The existing policy starts with "shall not", describes an exception, if offered on a non-negotiable basis to the general public. Who determines the exception? Then disclosure of the accounts is required. This policy is too vague to be to be acceptable. On these matters, ethicists would prohibit these officers from doing any personal business with the City's financial institutions to eliminate all perceptions of conflicts, whether real or only an appearance.. The paragraph should be re -written to clearly state the City's policy, whether restrictive or unrestrictive. 4 ASSOCIATION OF PU►mL►C,rREASUREa OF THF. UNITED STATES AND CANADA (Model Investment Policy 6.0 Ethics and Conflicts of Interest: (nurvomon paints: d) Rationale *Some t!overmnenis have adopled conflict -of interest Icgi.cht/ion that rcgulaM.+ the ucuri[iee u/ certain officer:+ and enrplovees. In the inre7me•nt area. genera/ code provi.ctons.-SO .cepcatne policies may he redundant. nuv gnrern eel laol conflicts. Some jurisdiction.%, harerrer. man, seek to adapt policies regarding ethical behavior and c•nnJlic•tc o/ interest SAMPLE LANGUAGE: Officers and employees involved in the inveshnent process shall refrain from personal business activity that could conflict with proper execution of the invesunent program, or which could unpair their ability to make impartial int esunent ticcisions- Emplovccs and investment officials shall disclose to the (Chic/ l:iecrttirc O%firer) anv material financial interests m financial institutions that conduct business within their jurisdiction. and thev shall further disclose anv large personal financial/mvestment positions that could be related to the perl'onnance of the (entity). 5 �KeAdkx The City's conflict of interest code is contained in Chapter 2.60.010. This ordinance incorporates by reference the terms of 2 California Code of Regulations Section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission, the "FPPC". The FPPC drafts the Form 700 Statement of Economic Interests for completion by the persons designated by the City. The FPPC also issues a Reference Pamphlet that includes Terms & Definitions. One such item is "Public Officials Who Manage Public Investments". Options: 1. Insert here 2. Include as a footnote 3. Include in Appendix Public Officials Who Manage Public Investments: Individuals who invest public funds in revenue -producing programs must file Form 700. This includes individuals who direct or approve investment transactions, formulate or approve investment policies, and establish guidelines for asset allocations. FPPC regulation 18701 defines "public officials who manage public investments' to include the following: • Members of boards and commissions, including pension and retirement boards or commissions, and committees thereof, who exercise responsibility for the management of public investments; • High-level officers and employees of public agencies who exercise primary responsibility for the management of public investments (for example, chief or principal investment officers or chief financial managers); and • Individuals who, pursuant to a contract with a state or local government agency, perform the same or substantially all the same functions described above. 0 q �r�; 4 V 1, !&'/- Appendix ETHICS AND CONFLICTS OF INTEREST The Government Code and common law impose ce 4'ethicg� standards on public officials regarding conduct and behavior. The also covers certain conflicts of interest and imposes requirements to disclose economic data in an annual filing of Form 700. Furthermore, AB 1234 requires members of boards and commissions, officers and employees of the City to complete, periodically, a training course covering ethics in public service. The following information was extracted, without change, from the course workbook, "Ethics in Public Service", prepared and instructed bty Liebert Cassidy Whitmore PLC in Cathedral City on October 12, 2006. BASIC ETHICAL STANDARDS Public employees and officials are expected to act in the best interests of the community. They are charged with the protection and management of public assets and resources, and must [at all times] conduct themselves and their business dealings in accordance with ethical standards, regulatory requirements and the public trust. Government agencies, and their employees and officers, are subject to state and local ethics laws that have been implemented to regulate conduct and behavior. These codes include restrictions relating to the acceptance of gifts, free trips and travel expenses, the acceptance of honorarium, conduct while searching for a new job, conduct after leaving public employment and many other matters. As a general matter, public officials are advised to 1) avoid prohibited activities, 2) comply with disclosure, disqualification and other affirmative ethics law requirements, and 3) consult with qualified legal counsel and/or regulatory authorities regarding the specifics of any situation that may involve prohibited or required conduct. ' The City requested and receioved permission from Hebert Cassidy Whitrrrore to extract inbmation in the cease workbook. The words, phrases, sentences and paragraphs have been reproduced without change. However, the location and order of the verbiage was not retained. 7 CONFLICTS OF INTEREST UNDER GOVERNMENT CODE & 1090 �- 3 The California Legislature has passed laws that set minimum standards for ethical behavior. To start, public officers and employees cannot be financially interested in contracts they enter on behalf of a public agency. Government Code Section 1090 provides: Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are member.. . --- Section 1090 provides that an officer or employee may not make a contract in which he or she is financially interested. Any participation by an officer or an employee in the process by which such a contract is developed, negotiated and executed is a violation of section 1090. If no contract is involved, or if a contract in which an officer or employee has a financial interest is not ultimately executed, no violation exists. A board member is conclusively presumed to have made any contract executed by the board or an agency under its jurisdiction, even if the board member has disqualified himself or herself from any and all participation in the making of the contract. CONFLIC16 INTERESTS"UNDER THE POLITICAL REFORM ACT The Political Reform Act (the "PRA"), Government Code section 87100 et. seq., was passed by voters in 1974 to promote integrity in state and local government. The statute is intended to ensure that public officials "perform their duties in an impartial manner, free from bias caul 3 by their own financial interests or the financial interests of persons who have supported them.' The PRA is far broader than Government Code Section 1090. It encompasses not just making contracts but all governmental decisions. The PRA provides that "No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest." Like Section 1090, PRA violations result in administrative sanctions, including substantial fine ~ "Public official" under the PRA includes "every member, officer, employee, or consultant of a state or local agency." Making a decision includes voting on a matter, appointing a person to a position, obligating one's agency to a course of action on an issue, or entering into a contract for the agency' gency 4i "Participation" in the making of a decision is defined to include (1) negotiations and (2) advice by way of research, investigations, or preparation of reports or analyses for the decision -maker, if these functions are performed without significant intervening substantive review. A. public official has a conflict of interest if the decision will have a reasonably foreseeable material financial effect on one or more of his/her economic interests, unless that effect is indistinguishable from the effect on the public generally. A conflict of interest is disqualifying if the public official's participation is not legally required. U,- 3 er- 3 ECONOMIC INTEREST DISCLOSURE To help public officials identify actual conflicts of interest, as well as potential conflicts of interest, public officials are required by the PRA to complete a Statement of Economic Interest, also known more commonly as "Form 700." Form 700 discloses investments and interests in real property and businesses, income, gifts and loans. 49 Form 700 alerts public officials to personal interests that might be affected while he or she is performing his or her official duties, i.e., making governmental decisions. By being cognizant of such conflicts and potential conflicts, public officials can abstain from taking any action that may subject them to liability and possible public embarrassment. Furthermore, where a potential conflict is identified prior to any government decision, the public official will have the opportunity to vet the conflict where possible. THE COMMON LAW Even though most of the conflict of interest laws in California are based on legislative enactment, there also is the common law doctrine against conflicts of interest. This court -made doctrine provides that a public officer is impliedly bound to exercise his or her powers with disinterested skill, zeal, and diligence and primarily for the benefit of the public. A personal interest, whether financial or non -financial, that interferes with an official's ability to act in such a manner could potentially violate the doctrine. There is a strong interest in the law to prohibit even an appearance of impropriety. This common law doctrine extends to non -economic conflicts, which means that a conflict (or the mere appearance of one) that is not related to a financial interest may still be prohibited even though no money is at stake .10' For example, under the common law, an administrator's involvement in the hiring of a relative violates the common law principles of avoiding the appearance of impropriety and nepotism. CONFLICTS OF INTEREST CODES Government Code section 87300 requires every state and local government agency to adopt a Conflict of Interest Code. Conflict of Interest Codes will vary by agency. Some agencies place greater restrictions on its employees than other agencies_ For example, one city may require all employees to complete a Form 700 whereas another city requires only those employees listed in the PRA. _ E 2007/2008 Form 700 Statement of Economic Interests Reference Pamphlet California Fair Political Practices Commission Toll -free advice line: 1 (866) ASK-FPPC Web site: www.fppc.ca.gov Dec. 2007 iF Terms & Definitions -(continued) Conflict of Interest: A public official or employee has a conflict of interest under the Act when all of the following occur: • The official makes, participates in making, or uses his or her official position to influence a governmental decision; • It is reasonably foreseeable that the decision will affect the official's economic interest; The effect of the decision on the official's economic interest will be material; and The effect of the decision on the official's economic interest will be different than its effect on the public generally. Check the FPPC Web site (www.fppc.ca.gov) for a fact sheet entitled, "Can I Vote? Conflict of Interest Overview." Conflict -of -Interest Code: The Act requires every state and local government agency to adopt a conflict -of -interest code. The code may be contained in a Regulation, policy statement, or a city or county ordinance, resolution, or other document. An agency's conflict -of -interest code must designate all officials and employees of, and consultants to, the agency who make or participate in making governmental decisions that could cause conflicts of interest. These individuals are required by the code to file statements of economic interests and to disqualify themselves when conflicts of interest occur. The disclosure required under a conflict -of -interest code for a particular designated official or employee should include only the kinds of personal economic interests he or she could significantly affect through the exercise of his or her official duties. For example, an employee whose duties are limited to reviewing contracts for supplies, equipment, materials, or services provided to the agency should be required to report only those interests he or she holds that are likely to be affected by the agency's contracts for supplies, equipment, materials, or services. Consultant: An individual who contracts with or whose employer contracts with state or local government agencies and who makes, participates in making, or acts in a staff capacity for making governmental decisions. Consultants may be required to file Form 700. The obligation to file Form 700 is always imposed on the individual who is providing services to the agency, not on the business or firm that employs the individual. FPPC Regulation 18701 defines "consultants" as including the following individuals who make a governmental decision whether to: • Approve a rate, rule, or Regulation • Adopt or enforce a law • Issue, deny, suspend, or revoke any permit, license, application, certificate, approval, order, or similar authorization or entitlement • Authorize the agency to enter into, modify, or renew a contract provided it is the type of contract that requires agency approval • Grant agency approval to a contract that requires agency approval and to which the agency is a party, or to the specifications for such a contract • Grant agency approval to a plan, design, report, study, or similar item • Adopt, or grant agency approval of, policies, standards, or guidelines for the agency or for any of its subdivisions A consultant also is an individual who serves in a staff capacity with the agency and: • participates in making a governmental decision; or • performs the same or substantially all the same duties for the agency that would otherwise be performed by an individual holding a position specified in the agency's conflict -of -interest code. Designated Employee: An official or employee of a state or local government agency whose position has been designated in the agency's conflict -of -interest code to file statements of economic interests. Individuals who contract with government agencies (consultants) may also be designated in a conflict -of -interest code. A federal officer or employee serving in an official federal capacity on a state or local government agency is not a designated employee. FPPC Form 700 Reference Pamphlet (200712008) FPPC Toll -Free Helpflne: 8661ASK FPPC www./ppc.ca.gov Ref. Pamphlet - 8 11 INVESTMENT ADVISORY BOARD Correspondence & Written Material Item A Meeting Date: May 14, 2008 TITLE: Month End Cash Report, April 2008 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. ,4, l John M. Falconer, Finance Director W m w m m p y y OO O O 0 0 N O O O p N N O m O O m b p f N O O m O O O dj O O O N O p W N W m W W m O N W O N p O O « O O O O m Q p p O O N N O m m b b m m d E O O O O O O W O O .Co. O O O O Z ! yy V p OO O O O O O O N O P 16 c O VP m m V 'It j P W mn d m N N N O O O N m IQ m N LLm e� m N m CJ � � om ❑ Q N N I� O N N N m m m b gj o mo � mo $oy m Z. LL N m m N n Cd M OW C N N e �1aO� N W qwm W O W LL N dGM W W m m O o O m > b b m m � w o N m N b - N O Cal n O � p D! N W b O m b m m pj N m N c m E A v G 12 Q r O N76 O n S U d n r d C C A c y d i d 2.9 m ?i w E E` aqq d E 2 d j •_d• O N n N c a n T b a75 $ u D o W m$ d 'a d ❑mm❑r335LLw d A@ d ¢3 ¢ w -, avioz❑-,w�¢��n ¢ -a C d a 7 mLL � l C 1 d fa 12 d ai Yoya C ` LL d d F qU� N N N n � d d W U > d C 3 a w Y m $ pppN C L N F q a UT O 9 O1 r v N n j a m d c Y d $ « d O N r Y � O d d $ 6 W d �9 ~ d T N � Y O n� n =3 a N d U L « T Cu 4 p 3 d d O Yn $L o c E 5 o d 2 L 0) d C q C d N U $E �=d pr TIL 12 d W JY E¢ d eO 81 a 2 C � $N ¢d m n- WF d O d GL Y8� d ` M n d > LL H 6 F- C _ $ L Bill Lockyer, State Treasurer Inside the State Treasurer's Office Local Agency Investment Fund (LAIF) PMIA Performance Report 4/15/2008 VW 3.44 Fiats Yield 3.52 fladaysi 207 4/16/2008 3.43 3.52 208 4/17/2008 3.40 3.51 204 4118/ 0008 3.34 3.50 210 4/19/2008 3.34 3.49 210 4/20/2008 3.34 3.48 210 4/21/2008 3.32 3.47 207 4/22/2008 3.30 3.47 208 4/23/2008 3.28 3.46 209 4/24/2008 3.27 3.45 206 4/25/2008 3.26 3.44 203 4/26/2008 3.261 3.431 203 4/27/2008 3.26 3.431 203 4/28/2008 3.221 3.421 203 Corporate Bonds 0.44% Commercial Paper 6.47% LAW Performance Report Quarter ending 3/31/2008 Apportionment Rate: 4.18% Earnings Ratio: 0.00011414123654588 Fair Value Factor: 1.001776145 PMIA Average Monthly Effective Yields March 2008 3.777% February 2008 4.161% January 2008 4.620% Pooled Money Investment Account Portfolio Composition $65.0 Billion 03/31 /08 Time Depos 14.54% Treasuries 4.85% Mortgages Loans 4 7001 CDs/BNs 21.01 % Agencies 32.16% 3 FRB: H.15--Selected interest xates, wen-umy vary upuaw--r+pn, JV, avUo .vir".. , Federal Reserve Statistical Release H.15 Selected Interest Rates (Daily) Lim Skip to Content Release Date: April 30, 2008 Weekly release dates I Historical data I Data Download Program (DDP) About I Announcements Daily update Other formats: Screen reader I ASCII Data 00VA land Program The weekly release is posted on Monday. Daily updates of the weekly release are p through Friday on this site. If 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 April 30, 2008 4111THENFIGIN Instruments Apr Apr 28 29 Federal funds (effective) 1 2 3 2.29 2.21 Commercial Paper 3 4 5 Nonfinancial 1-month 2.10 2.07 2-month 2.07 2.08 3-month 1.91 n.a. Financial 1-month 2.56 2.50 2-month 2.61 2.78 3-month 2.79 2.83 CDs (secondary market) 3 6 1-month 2.83 2.78 3-month 2.90 2.84 6-month 3.03 2.98 Eurodollar deposits (London) 3 7 1-month 3.00 2.90 3-month 3.15 3.15 6-month 3.25 3.25 Bank prime loan 2 3 8 5.25 5.25 Discount window primary credit 2 9 2.50 2.50 U.S. government securities Treasury bills (secondary market) 3 4 4-week 0.86 1.26 3-month 1.42 1.44 6-month 1.70 1.70 Treasury constant maturities Nominal 10 1-month 0.94 1.28 3-month 1.43 1.46 6-month 1.74 1.74 1-year 1.95 1.94 2-year 2.36 2.35 4 http://www.federalreserve.gov/Releases/H15/update/ 5/1/2008 FRB: ti.1�--Nelectea interest rates, weo-vuiy Lally vpuac--�piu ✓v, �V. 3-year 2.58 2.55 5-year 3.14 3.11 7-year 3.44 3.42 10-year 3.86 3.85 20-year 4.57 4.56 30-year 4.57 4.55 Inflation indexed 11 5-year 0.84 0.82 7-year 1.19 1.18 10-year 1.56 1.56 20-year 2.06 2.04 Inflation -indexed long-term average 12 2.05 2.04 Interest rate swaps 13 1-Year 2.99 2.93 2-year 3.24 3.16 3-year 3.51 3.43 4-year 3.74 3.65 5-year 3.92 3.83 7-year 4.21 4.12 10-year 4.49 4.39 30-year 4.95 4.84 Corporate bonds Moody's seasoned Aaa 14 5.62 5.61 Baa 6.97 6.96 State & local bonds 15 Conventional mortgages 16 n.a. Not available. Footnotes 1. The daily effective federal funds rate is a weighted average of rates on broke 2. Weekly figures are averages of 7 calendar days ending on Wednesday of the curr figures include each calendar day in the month. 3. Annualized using a 360-day year or bank interest. 4. on a discount basis. 5. Interest rates interpolated from data on certain commercial paper trades settl Depository Trust Company. The trades represent sales of commercial paper by deale issuers to investors (that is, the offer side). The 1-, 2-, and 3-month rates are 30-, 60-, and 90-day dates reported on the Board's Commercial Paper Web page (www.federalreserve.gov/releases/cp/). 6. An average of dealer bid rates on nationally traded certificates of deposit. 7. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. 8. Rate posted by a majority of top 25 (by assets in domestic offices) insured U. commercial banks. Prime is one of several base rates used by banks to price short loans. 9. The rate charged for discounts made and advances extended under the Federal Re credit discount window program, which became effective January 9, 2003. This rate adjustment credit, which was discontinued after January 8, 2003. For further info www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm. The rate for the Federal Reserve Bank of New York. Historical series for the rate on adjus http://www.federalreserve.gov/Releases/H 15/update/ 5/1/2008 5 FRB: H.15--Selected Interest Kates, web -my liatiy upaaie--Hpni _iu, zvuo rago J VL well as the rate on primary credit are available at www.federalreserve.gov/releas 10. Yields on actively traded non -inflation -indexed issues adjusted to constant m 30-year Treasury constant maturity series was discontinued on February 18, 2002, on February 9, 2006. From February 18, 2002, to February 9, 2006, the U.S. Treasu factor for adjusting the daily nominal 20-year constant maturity in order to esti nominal rate. The historical adjustment factor can be found at www.treas.gov/offices/domestic-finance/debt-management/interest-rate/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 Aaa rates through December 6, 2001, are averages of Aaa utility and A rates. As of December 7, 2001, these rates are averages of Aaa industrial bonds 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 subscriptio Publications Services at the Federal Reserve Board (phone 202-452-3244, fax 202-7 electronic access to current and historical data, call STAT-USA at 1-800-782-8872 Description of the Treasury Nominal and Inflation -Indexed Constant Maturi Yields on Treasury nominal securities at "constant maturity" are interpolated by from the daily yield curve for non -inflation -indexed Treasury securities. This cu the yield on a security to its time to maturity, is based on the closing market b actively traded Treasury securities in the over-the-counter market. These market calculated from composites of quotations obtained by the Federal Reserve Bank of constant maturity yield values are read from the yield curve at fixed maturities, and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yiel maturity, for example, even if no outstanding security has exactly 10 years remai Similarly, yields on inflation -indexed securities at "constant maturity" are inte daily yield curve for Treasury inflation protected securities in the over-the-cou inflation -indexed constant maturity yields are read from this yield curve at fixe currently 5, 7, 10, and 20 years. Weeklv release dates 1 Historical_ data I Data Download Program (DDP) I About I Announcements 6 http://www.federaireserve.gov/Releases/H 15/update/ 5/1/2008 FF-B: H.1-1�--Neleetea interest Kates, weo-vniy Lacy upumv riytu cvvv • -5- Daily update Other formats: Screen reader I ASCII Statistical releases Home I Economic research and data Accessibility I Contact Us Last update: April 30, 2008 http://www.federalreserve.gov/Releases/Hl5/update/ 5/1/2008 7 Recent Bill Auction Results Home > Institutional > Announcements, Data & Results � Latest Auction Data , Recent Bill Auction Results Recent Bill Auction Results Security Issue Maturity Discount Investment Price CUSIP Term Date Date Rate W. Rate W. Per $100 4-WEEK 05-01-2008 05-29-2008 1.250 1.269 99.902778 91279SE64 13-WEEK 05-01-2008 07-31-2008 1.420 1.445 99.641056 912795F71 26-WEEK 05-01-2008 10-30-2008 1.700 1,739 99.140556 912795H46 4-WEEK 04-24-2008 05-22-2008 0.700 0,710 99.945556 912795E56 13-WEEK 04-24-2008 07-24-2008 1.320 1.343 99,666333 912795F63 26-WEEK 04-24-2008 10-23-2008 1.680 1.718 99A50667 91279SH38 4-WEEK 04-17-2008 05-15-2008 0.850 0.862 99.933889 912795E49 13-WEEK 04-17-2008 07-17-2008 1.060 1.078 99.732056 912795F55 26-WEEK 04-17-2008 10-16-2008 1.380 1.409 99.302333 912795H20 5-DAY 04-16-2008 04-22-2008 2.000 2.028 99.966667 9127951173 5-DAY 04-10-2008 04-15-2008 2.290 2.323 99,968194 912795UD1 4-WEEK 04-10-2008 05-08-2008 1,260 1.279 99.902000 912795E31 13-WEEK 04-10-2008 07-10-2008 1,450 1.476 99.633472 912795F48 26-WEEK 04-10-2008 10-09-2008 1.600 1.635 99.191111 912795G96 4-WEEK 04-03-2008 05-01-200B 1.520 1.543 99.881778 91279SE23 13-WEEK 04-03-2008 07-03-2008 1.440 1.465 99.636000 912795F30 26-WEEK 04-03-2008 10-02-2008 1.500 1.532 99.241667 912795G88 15-DAY 04-01-2008 04-16-2008 1.800 1.826 99.925000 912795UG4 25-DAY 03-27-2008 04-21-2008 1.340 1.360 99.906944 912795UF6 4-WEEK 03-27-2008 04-24-2008 1.500 1.523 99.883333 912795D99 13-WEEK 03-27-2008 06-26-2008 1.200 1.220 99.696667 912795F22 26-WEEK 03-27-2008 09-25-2008 1.550 1.584 99.216389 912795G70 4-WEEK 03-20-2008 04-17-200S 0,520 0.527 99.959556 912795DSI 13-WEEK 03-20-2008 06-19-2008 1.100 1.118 99,721944 912795E98 26-WEEK 03-20-2008 09-18-2008 1.310 1.337 99,337722 912795G62 4-WEEK 03-13-2008 04-10-2008 1.800 1.828 99.660000 912795D73 13-WEEK 03-13-2008 06-12-2008 1.420 1.445 99.641056 912795EBO 26-WEEK 03-13-2008 09-11-2008 1.450 1.481 99.266944 912795G54 4-WEEK 03-06-2008 04-03-2008 1.980 2.011 99.846000 91279SD65 13-WEEK 03-06-2008 06-05-2008 1.790 1.823 99.547528 91279SE72 26-WEEK 03-06-2008 09-04-2008 1.810 1.852 99.084944 912795G47 14-DAY 03-03-2008 03-17-2008 2.550 2.588 99.900833 912795UE9 4-WEEK 02-28-2008 03-27-2008 2.320 2.363 99.819556 912795D57 13-WEEK 02-28-2008 05-29-2008 2.160 2.208 99.454000 912795E64 26-WEEK 02-28-2008 08-28-2008 2.070 2.127 98.953500 912795G39 19-DAY 02-27-2008 03-17-2008 2.400 2.443 99.873333 912795UE9 4-WEEK 02-21-2008 03-20-2008 2.360 2.404 99.816444 912795D40 13-WEEK 02-21-2008 05-22-2008 2.200 2.249 99.443889 912795ES6 26-WEEK 02-21-2008 08-21-2008 2.040 2.096 98.968667 912795G21 60-DAY 02-15-2008 04-15-2008 2.510 2.563 99.581667 912795UD1 Effective with the 11/2/98 auction, all bills are auctioned using the single -priced method. Freedom of Information Act I Law & Guidance I Privacy & Legal Notices I Website Terms & Condition U.S. Department of the Treasury, Bureau of the Public Debt http://www.treasulydirect.gov/RI/OFBills 5/l/2008 8 14KB: UOMMerClal raper Kates anu vutatauuuigb Commercial Pa Release I About I Announcements I Outstanding I Volume statistics I Year-end I Maturitv Distribution Data Download Program (DDP) Announcement: The average maturity of total, asset -backed, not asset -backed Tier-1, and not asset - backed Tier-2 outstanding commercial paper is now available in the Maturity Distribution section of the commercial paper release. Data as of April 30, 2008 Commercial Paper Rates and Outstanding Derived from data supplied by The Depository Trust & Clearing Corporation Posted May 1, 2008 Discount rates Fenonfinancial nonfinancial fmanctal asset -backed 1-day 2.22 2.94 2.21 2.76 7-day 2.05 2.95 2.12 3.00 15-day 2.32 2.93 2.17 2.98 30-day 2.07 3.13 2.63 2.96 3.01 60-day 1.98 3.06 2.76 90-day n.a. n.a. 2.67 2.99 T.da Bata insrdficient to sunoort calculation of the 90-dav AA nonfinancial and 90-day A2/1`2 nom Yield curve financial rates for April 30, 2008. http://www.federalreserve.gov/Releases/CP/ 5/1/2008 9 FRB: Commercial Paper Rates and Uutstanclings . ..5.. — — Monev market basis — — — AA nonfinancial ...... AUn nonfinancial AA financial ............. .............................. ------------ 1 7 15 30 60 vu Days to Maturity 2001 2002 2003 2004 2005 2UM All)/ Discount rate history 33 3.5 3.3 3.1 2.9 2.7 2.5 23 2.1 1.9 160 140 120 too 80 60 40 20 0 2008 http://www.federalreserve.gov/Releases/CP/ 5/1/2008 10 FRB: Commercial Faper xates ana uutstanomgs n��ewr 1 Qr,V J Vl T conunctulill Pavel SUwly) ' "-1 --- AA nonfinancial ...... A2m2 nonfinaocial --- AA financial 2001 2002 2003 2004 2005 2006 Outstandings Weekly (Wednesday), seasonally adjusted Billions of dollars 790 690 59D 490 1 Nonfinancial (-right scale) 't � --•.— fimanetal Oert scide) i 6t 'r5 Y � NA . .r)) r KEM 7 6 5 4 3 2 1 _I 0 2008 Billions of dollars - — ---� 250 kL41� 1'1 1110 0 0 FOOM 170 . 30 1 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_Progratn_(DDPI. 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 1 Statistical releases Accessibility I Contact Us http://www.federalreserve.gov/Releases/CP/ 5/l/2008 11 FRB: Commercial Faper Kates ana uutstanamgs Last update: May 1, 2008 http://www.federalreserve.gov/Releases/CP/ 5/l/2008 12 £ � / k / � k/ \ ! ! ! _ w !! Ui ) 0; 7 /(/\N « ! 10 {k k§ @° !! ;# «7 ( # )\ ) ` _)_ ! ! ##«k` °!§§ ©R _ | - ;Way \2 K m §2!§; w ] ) ! �2;l2 G~e§ ¥# C}Ot (( }k\\ !# # Ey`\rk¥2r°2 G 6 \/ ) /! m�/§( \)y § z( 2\\- WE)!|ƒ - ■_ ;;l!°:§§ 2®;,\E§nZ`�Meq/ ( ;:\\0 w\$a! § (§�M2& )!!aM) y\!aw 13 INVESTMENT ADVISORY BOARD Meeting Date TITLE: May 14, 2008 Pooled Money Investment Board Report for February 2008 BACKGROUND: Correspondence & Written Material Item B A partial portion of the Pooled Money Investment Board Report for February 2008 is included in the agenda packet. This report is available on-line at www.treasurer.ca.gov. RECOMMENDATION: Receive & File 4f� �iNi(n/ John M. Falconer, Finance Director POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF FEBRUARY 2008 WITH FEBRUARY 2007 (DOLLARS IN THOUSANDS) FE13RUARY 200$ FEBRUARY 2047 CHANGE Average Daily Portfolio $ 65,652,081 Accrued Earnings $ 216,475 $ Effective Yield 4.161 Average Life -Month End (In Days) 215 Total Security Transactions Amount $ Number Total Time Deposit Transactions Amount $ Number Average Workday Investment Activity $ Prescribed Demand Account Balances For Services $ For Uncollected Funds $ 69,468,500 $ +6,183,581 236,368 $-19,893 5.181 -1.02 184 +31 I 29,183,439 $ 30,393,586 $ -1,210,147 608 637 -29 4,588,000 $ 4,076,000 $ +512,000 233 186 +47 1,777,444 $ 1,914,977 $ -137,533 367,606 $ 241,027 $ +116,679 197,696 $ 198,878 $ -1,182 1 BILL LOCKYER TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) FEBRUARY 29, 2008 DIFFERENCE IN PERCENT OF TYPE OF SECURITY PERCENT OF PORTFOLIO FROM AMOUNT PORTFOLIO PRIOR MONTH Government Bills $ 1,340,974 2.08 +1.18 Bonds 0 0.00 0 Notes 1,812,293 2.82 -0.55 Strips 0 0.00 0 Total Government $ 3,153,267 4.90 +0.63 Federal Agency Debentures $ 10,716,423 16.67 +2.51 Certificates of Deposit 11,186,064 17.40 -2.65 Bank Notes 925,000 1.44 -1.49 Bankers'Acceptances 0 0.00 0 Repurchases 0 0.00 0 Federal Agency Discount Notes 12,651,673 19.52 +0.44 Time Deposits 9,296,295 14.46 +0.54 GNMAs 176 0.00 0 Commercial Paper 3,872,999 6.02 -3.70 FHLMC/Remics 1,180,673 1.84 +0.03 Corporate Bonds 345,270 0.54 +0.01 AB 55 Loans 8,517,063 13.25 -0.28 GF Loans 2,648,900 3.96 +3.96 Reversed Repurchases 0 0.00 0 Total (All Types) $ 64,291,693 100.00 INVESTMENT ACTIVITY FEBRUARY2008 JANUARY2008 NUMBER AMOUNT NUMBER AMOUNT Pooled Money 608 $ 29,183,439 637 $ 30,885,643 Other 7 18,452 1 120 Time Deposits 233 4,588,000 261 6,391,300 Totals 848 $ 33,789,891 889 $ 37,277,063 PMIA Monthly Average Effective Yield 4.161 4.620 Year to Date Yield Last Day of Month 4.921 5.032 2 Pooled Money Investment Account Portfolio Composition $64.3 Billion 02/29/08 Corporate Bonds 0.54% Commercial Paper 6.02% Time Deposits 14.46% Treasuries 4.90% Mortgages Loans 1.84% 17.21 % CDs/BNs 18.84% 3 Agencies 36.19% INVESTMENT ADVISORY BOARD Meeting Date: TITLE: May 14, 2008 Correspondence & Written Material Item C Update on California Municipal Treasurers Association Conference (CMTA) BACKGROUND: Board Member Rassi and Park along with the Treasurer attended the annual CMTA Conference. Attached please find the entire program of events. In addition to the sessions, the attendees also met with vendors at the conference who specialize in meeting the investment needs of government agencies. RECOMMENDATION: Information only. M. Falconer, Finance Director Tuesday, April 22 Pre -Conference Workshop 8.30 a.m. — 5. 00p.m. EOC Disaster & Cost Recovery Training for Treasury /Finance Professionals Mike Martinet, Executive Director, Office of Disaster Management, Area G (Area G is an independent local government authority located in Los Angeles) Continental Breakfast & Lunch Included The response following a disaster may last only a few days or weeks, but the post disaster cost recovery process typically goes on for years. In some cases the cost recovery process will last for a decade or more. Ironically, training for getting through this long drawn out recovery period is seldom available. Jurisdictions can, and often do, lose millions of dollars because they are not prepared to deal with the disaster cost recovery documentation process. The EOC Disaster & Cost Recovery Training for Treasury/Finance Professionals program provides a broad overview of disaster cost recovery processes, including requirements for obtaining and retaining federal disaster assistance grants. The training includes detailed information on disaster response cost documentation and disaster assistance eligibility guidelines. The training includes actual FEMA case studies, group exercises and illustrative examples taken from actual disasters. Each student receives a CD-ROM with spreadsheets and forms to help track and organize disaster related costs. Wednesday, April 23 Conference Opening Session 9.15 a.m. THE DIAMOND TOUCH, Dr. Nate Booth We're all familiar with The Golden Rule, "Treat others in the way you would like to be treated." The Golden Rule is a powerful principle, but it has one shortcoming. Everyone wants to be treated differently. If you're a service provider, your customers/clients want to be served differently. If you're a salesperson, your customers/clients want to be influenced differently. If you're a leader, your people want to be led differently. This variety of desires is what makes all relationships interesting and challenging. It's also the reason you can't take a cookie -cutter approach to service, influence and leadership in today's diverse world. The good news is this variety of desires creates tremendous opportunities for the companies and people who understand and practice The Diamond Touch. Here are a few of the dynamic and impactful strategies you will learn: • Why a "one -size -fits -all" relationship philosophy is doomed to fail in our highly individualized world. • How to quickly "get on the same wavelength" with almost anyone you meet. • The two questions you need to ask to quickly and precisely discover what people want and how they want it. • How to use the Five Lifestyle Groups as a guide to apply The Diamond Touch. • How to use Value Links to connect your service or idea to people's unique desires. • Four Costly Mistakes most people make when dealing with customers/clients. • Three 60-second strategies for dealing with difficult people. • How to consistently get what you want in life by giving others what they uniquely desire. 10.45 a.m. LIFE BALANCE - How to Create a Life that's not just Busy, But Well Lived Dr. Nate Booth The demands on your time and attention are intense — work, family, and personal time are all clamoring for your immediate attention. Congratulations: you're intensely wanted! The challenge lies in allocating the appropriate time and attention to each area of your life. Life Balance will show you how to enjoyably get the right things done. Then, the end of the day, you'll feel the rewards of a life that's not just busy, but well lived! Here are a few of the dynamic and impactful strategies you will learn: • How to crystallize what is truly important in your life. • How to consistently do the things that are important, not just urgent. • How to create balance and synergy among the various roles in your life. • How to effectively jump off the harder/faster/more treadmill. • How to set and achieve balanced goals that produce quality results. • How to create a weekly guide that will assist you in enjoyably accomplishing the important goals in your life. • How to break the vicious cycle of procrastination and crisis. • How to make time for renewal of body, mind, and spirit. • How to turn your days into an upward spiral of living and learning. 12:00 p.m. Luncheon State Treasurer, Bill Lockyer California State Treasurer Bill Lockyer will share the latest news from the Local Agency Investment Fund (LAIF), news from the State Treasurer's Office and what's happening in Sacramento. 2: 00 p.m. California and Regional Economic Outlook Gary Zimmerman, Chief Economist, Federal Reserve Bank San Francisco Gary will provide insight directly from the Federal Reserve Bank on California and the Western States that comprise the Twelfth Federal Reserve District. What does the Federal Reserve Bank view to be on the economic horizon in the Western States and what economic factors they focus on to help shape their economic policy. Concurrent Sessions 3:30 p.m. Investment Performance Toolkit - Finding the right tool for the job Dave Witthohn CFA — Director, MBIA Asset Management Compare and contrast the different types of performance measurements used in reporting investment performance for local governments. Explore how these various measurements can be used to inform the government's different constituents. Doesn't everyone want total return? What about book yield? The GIPS standards, are they really the standard? Time weighted returns vs. dollar weighted returns, how are they different and what do they measure? Many governments use weighted average yield to maturity (WAY) as their performance measure. Is that accurate? How does WAY differ from amortized cost? Do cash flows affect the return calculation? What part does risk play in measuring performance? Finally learn new ideas about how to present investment performance information to the public. 3:30 p.m. GASB 45 — Ouch ... I have my OPEB number now what! John Bartel, President, Bartel and Associates Now that agencies are finally completing their Other Post Employment Benefit (OPEB) calculations what are the numbers telling us and is it really that bad? What are the ranges of impact (as a percent of payroll) and are more agencies in trouble that reported by the media and how are cities implementing the results. What options in the marketplace are available for agencies to deposit their Annual Required Contribution (ARC) and why are so many agencies delaying obtaining their OPEB calculations? Get all your OPEB questions and answers in this informative session. 3:30 p.m. New Technologies for Managing Debt John T. Deleray, Vice President, Wells Fargo Bank Debt management technology cannot only streamline debt issuance and management, but may also save money for your government. With more tools available than ever before, treasurers can use technology -based products and the web to assist in selling bonds, reinvesting bond proceeds, monitoring trustee activities, adhering to disclosure responsibilities and managing the pre- and post -issuance document process. Thursday, April 24 7.45 a.m. Business Session (Plated Breakfast) All conference attendees will enjoy breakfast with their CMTA colleagues during the Annual Business Meeting. Note: please plan on having at least one individual from your agency attend this meeting as voting will take place, thank you. 9:00 a.m. LAIF - Portfolio Decisions from Soup to Nuts Pam Milliron, Administrator, LAIF Christine Solich, Assistant Director of Investments, LAW The LAIF investment team will share how they go about evaluating, selecting, purchasing and monitoring the LAIF portfolio. Obtain insights on how LAIF goes about selecting which investments to purchase, including the research and due diligence before adding or subtracting investments into the LAIF portfolio. 10.30 a.m. Check fraud in a paperless world — (electronic deposits) Greg Lister, President, SafeChecks The risks of remote deposit capture In the rush to adopt the latest and greatest financial technologies, many Treasury Managers may unknowingly set their municipalities or agencies up for a very big financial fall. The current cause celebre is "remote deposit capture," aka eDeposit or the electronic conversion of paper checks into electronic images. The indemnity provision says that if a loss occurs because the paying bank received a substitute check instead of the original check, a claim can be filed against the bank that presented the substitute check to the paying bank and the loss can be charged back. A loss can be charged back up to one year AFTER the injured party discovers the loss. In some cases the risk to the converting municipality or agency is 14 months. Find out how to mitigate the risks of remote deposit capture. 12:00 p.m. State Controller, John Chiang California State Controller John Chiang will provide us with information on programs and assistance his office is able to provide to local agencies. Including updates on the State Mandated reimbursements, disbursements by the State and new efficiencies his office is able to provide. In addition the Controller will share his views on the State Budget and impacts to local government. Concurrent Sessions 2: 00 p.m. Synchronizing portfolio cash flow with planned expenditures and revenues Kevin C. Schultze, Director Portfolio Strategy Group, Stone & Youngberg Management of an investment portfolio for a public entity should use the portfolio's cash flow to complement budgeted expenditures and revenues. Better cash flow management can result in higher returns and less vulnerability to unplanned changes in revenues and expenditures. Through the use of straightforward, easily designed analytics, the portfolio manager can structure a more efficient portfolio, yet still adhere to statutory and policy constraints. 2:00 p.m. Guard your Electronic Transactions — be safe rather than SORRY. Christine Herrera, Vice President, Bank of the West Technology is a great asset to have in managing your treasury operations but too often we hear of systems that have been compromised by hackers who are attempting and sometimes successful in, and making, illegal transactions from the agency's bank account. Learn the latest in cutting edge technology that is now being used to assist treasurers in managing their security systems and learn about the best possible solutions to managing your electronic transactions. 2: 00 p.m. The changing economic environment and suggested investment strategies. Kevin Giddis, Managing Director -Fixed Income Trading, Morgan Keegan & Co Karl Moerbe, Managing Director -Fixed Income Research, Morgan Keegan & Co Investment "times are-a-changin"- Fed funds are at 3% after being lowered by 1.25% within eight days and more adjustments are expected, 3-month T-bills have fallen below 2%, a slowing economy, bond insurance companies being downgraded and a federal stimulus package. What do all these mean for agencies managing the portfolio and how might they affect the investment strategy? 3:1 S p.m. Nuts & Bolts This is an opportunity for Government Associates and Commercial Associates to meet independently to ask questions and have your questions answered by your colleagues. 4:00 p.m. Nuts & Bolts, Combined Wrap-up This is the time for the Government and Commercial Associates to meet as a group and discuss common issues. Friday, April 25 9:00 a.m. The Investment Environment. Smoke in 2007...Fire in 20081! Gary Schlossberg, Senior Economist, Wells Capital Management The housing slump, falling dollar, credit "squeeze" and still -simmering "boom" in energy and other commodity prices have created the most challenging operating environment for businesses, consumers and local government investors in recent memory. Gary will summarize it all up to help us forecast and plan appropriate investment strategies in 2008 and looking ahead to 2009. 10:30 a.m. State Budget Outlook Michael Cohen, Director of Administration, Legislative Analyst's Office Hear the Director of State Administration from the Legislative Analyst's Office provide an update on the State's financial outlook for the coming year, the latest on proposed state take reductions in local government revenues and insight into the Governor's and Legislature's 2008-2009 plan to balance the Budget.