CC Resolution 2009-054RESOLUTION NO. 2009 - 054
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
LA QUINTA APPROVING AND ADOPTING THE AMENDED
INVESTMENT POLICY FOR FISCAL YEAR 2009-2010
WHEREAS, the general purpose of the Investment Policy is to provide the rules
and standards users must follow in investing funds of the City of La Quinta; and
WHEREAS, the primary objectives, in order of priority, of the City of La Quinta's
investment activity shall be:
Safety of principal is the foremost objective of the
investment program. Investments of the City of La Quinta
shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio.
The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably
anticipated.
The investment portfolio shall be designed with the
objective of attaining a market rate of return or yield
throughout budgetary and economic cycles, taking into
account the investment risk constraints and liquidity needs. --
WHEREAS, authority to manage the City of La Quinta's investment portfolio is
derived from the City Ordinance. Management responsibility for the investment
program is delegated to the City Treasurer, who shall establish and implement written
procedures for the operation of the City's investment program consistent with the
Investment Policy for Fiscal Year 2009-2010; and
WHEREAS, the Investment Policy will be adopted before the end of June of
each year and amended as considered necessary.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of La
Quinta to adopt the Fiscal Year Investment Policy (Exhibit A).
Resolution No. 2009-054
Investment Policy FY 2009-2010
Page 2
PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta City
Council, held on this 16" day of June 2009 by the following vote, to wit:
AYES: Council Members Evans, Franklin, Henderson, Sniff, Mayor Adolph
NOES: None
ABSTAIN: None
ABSENT: None
DON AD PH, yor
City of La Quinta, California
ATTEST:
CMC, City Clerk
(SEAL) "
APPROVED AS TO FORM:
AKATHARINEON, City Attorney
City of La Quinta, California
CITY OF LA QUINTA
Investment Policy
Fiscal Year 2009/2010
Table of Contents
on
Topic
page
Executive Summary
2
General Purpose
4
Investment Policy
4
Scope
44
Objectives
► Safety of Principal
► Provide Liquidity
► Yield A Risk -Based Market Rate Of Return
Maximum Maturities
6
1
Prudence
6
II
Authority
7
III
Ethics and Conflicts of Interest
7
Authorized Financial Dealers and Institutions
7
► Broker/Dealers
► Financial Institutions
Permissible Deposits and Investments
8
I
Investment Pools
12
II
Payment and Custody
12
All
Interest Earning Distribution Policy
12
:IV
Internal Controls and Independent Auditors
13
:V
Reporting Standards
14
:VI
Financial Assets and Investment Activity Not Subject to this Policy
14
:VII
Investment of Bond Proceeds
15
:III
Investment Advisory Board - City of La Quinta
15
:IX
Investment Policy Adoption
16
indices
Topic
PPa E
k
Summary of Permissible Deposits and Investments
17
t
City of La Quinta Municipal Code Ordinance 2.70 - Investment Advisory Board
19
City of La Quinta Municipal Code Ordinance 3.08 - Investment of Moneys and Funds20
Segregation of Major Investment Responsibilities
22
Listing of Approved Financial Institutions
23
Broker/Dealer Questionnaire and Certification
24
Request for Proposal for Professional Portfolio Management Firm
28
i
Permissible Investment Chart - Professional Portfolio Management Firm
34
Investment Management Process and Risk
35
I
Glossary
36
1
CITY OF LA QUINTA
Investment Policy
Fiscal Year 2009/2010
Executive Summary
The general purpose of this Investment Policy is to provide the rules and standards that must
be followed in administering the City of La Quinta's deposits and investments.
The City's Investment Policy conforms to all state and local statutes and applies to all
deposits and investments of the City of La Quinta, City of La Quinta Redevelopment Agency,
and the City of La Quinta Financing Authority (the"City" ).
It is the City's policy to deposit and invest public funds in a manner that shall provide:
► Safety of principal;
► Liquidity to meet all of the City's obligations and requirements that may be
reasonably anticipated;
► A risk -based market rate of return.
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'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:
► Safeguard assets;
► The orderly and efficient conduct of its business, including adherence to all City
management policies;
► Prevention or detection of errors and fraud;
► The accuracy and completeness of accounting records;
► Timely preparation of reliable financial information.
The System of Internal Controls developed by the City Treasurer shall be reviewed annually by
the independent auditors in connection with the annual audit of the City's Financial
Statements.
The City Manager, Assistant City Managers, City Treasurer and city employees involved in the
City's banking and investment process shall conduct the City's business in an ethical manner
and refrain from any activity or relationship that may be, or have the appearance of, a conflict
of interest.
The City Treasurer maintains a listing of financial institutions which are approved for
investment purposes. All Broker/Dealers and financial institutions that provide investment
2
services will be subject to City Council approval.
The Treasurer will be permitted to invest only in the permissible 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 deposits and investments include, in general:
► FDIC -Insured Checking, Savings, and Sweep Accounts;
► Certificates of Deposit;
► U.S. Government Agency Securities and Federal Government Securities;
► Prime Commercial Paper;
► Local Agency Investment Fund (LAIF);
► Money Market Mutual Funds;
► Corporate Notes;
► Professionally Managed Accounts.
The City's deposits and investments are generally limited to three years' maximum maturity.
However, the projected amount of funds not expected to be disbursed within five years may be
invested in U.S. Treasury bills, notes and bonds maturing between three and five years.
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. As a basis 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 Investment Policy shall be adopted by resolution of the La Quinta City Council on an
annual basis. The Investment Policy will be adopted before the end of June of each year.
This Executive Summary is only an overview of the City's Investment Policy. Reading this
summary does not constitute a complete review, which can only be accomplished by reviewing
all of the pages herein.
3
City of La Quinta
Statement of Investment Policy
July 1, 2009 through June 30, 2010
Adopted by the City Council, Redevelopment Agency & Financing Authority on June 16, 2009
GENERAL PURPOSE
The general purpose of this document is to provide the rules and standards that must be
followed in administering the City of La Quinta's deposits and investments.
II INVESTMENT POLICY
It is the policy of the City of La Quinta to deposit and invest public funds in a manner that shall
provide:
➢ Safety of principal;
➢ Liquidity to meet all of the City's obligations and requirements that may be
reasonably anticipated;
➢ A risk -based market rate of return.
The Investment Policy 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, this Investment Policy applies to all deposits 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 Comprehensive Annual Financial Report (CAFR) and include all
funds within the following fund types:
► General
► Special Revenue
► Capital Projects
► Debt Service
► Enterprise
► Internal Service
► Trust and Agency
► Any new fund types and fund(s) that may be created.
IV OBJECTIVES
The objectives of the City's investment activity, in order of priority and importance, are:
1. 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
principal of the overall portfolio in accordance with the permissible 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
M
allocating assets between different types of permissible investments, maturities, and
issuers as a means to 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:
► Limiting investments to investment grade securities as permitted in Section
X;
► 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.
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 by:
► Structuring the investment portfolio so that securities mature to meet cash
requirements for ongoing operations, thereby avoiding the need to sell
securities on the open market prior to maturity; and
► Investing operating funds primarily in shorter -term securities.
C. Liquidity Risk is the risk that a security cannot be liquidated because of its
unique features or structure or because it is thinly traded. Liquidity risk is not a
material issue for the City's portfolio because of the permissible deposits and
investments (see Section X) and because the City maintains a buy -and -hold
policy and holds securities and other investments to maturity. A discussion of
the City's investment process and risk is presented in Appendix I.
2. Provide Liquidity
The investment portfolio shall remain sufficiently liquid to meet all of the City's 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 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,
securities shall not be sold prior to maturity with the following exceptions:
► A security with declining credit quality can be sold early to minimize loss of
principal;
► Unanticipated liquidity needs of the portfolio require that one or more securities
be sold.
3. Yield A Risk -Based Market Rate Of Return
The City's investment portfolio shall be structured with the objective of yielding a risk -
based market rate of return throughout budgetary and economic cycles. Return on
investment is less important than the safety and liquidity objectives described above.
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
5
fixes the securities' yield at the time of purchase.
As a basis 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. 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.
V MAXIMUM MATURITIES
It is the City's policy to hold securities and other investments until maturity, thus avoiding the
risk of market value fluctuations with overall market interest rates. 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 City require that a
security be sold.
The buy -and -hold policy requires that the City's investment portfolio be 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 reliable, diligently prepared cash flow projections.
Annually, the Treasurer shall project the amount of funds not expected to be disbursed within
five years. For FY 2009/2010, the amount of such funds is projected to be $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.
Section 16053 sets forth the terms of a prudent person which are as follows: "Investments
shall be made with judgment and care - under circumstances then prevailing - which persons of
prudence, discretion, and intelligence exercise in the professional management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital
as well as the probable income to be derived."
VII AUTHORITY
Authority to manage the City's investment portfolio is derived from sections 35607 and 35608
of 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 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
f
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 an Assistant City Manager shall acknowledge in writing all purchases and sales of
investments prior to their execution by the City Treasurer.
VIII ETHICS AND CONFLICTS OF INTEREST
The City Manager, Assistant City Managers, City Treasurer and city employees involved in the
City's banking and investment process shall conduct the City's business in an ethical manner
and refrain from any activity or relationship that may be, or have the appearance of, a conflict
of interest. Any questionable activity or relationship shall be reported immediately and in
compliance with the procedures set forth in Section 1.40 — Conflicts of Interest and
Acceptance of Gifts and other Gratuities of the City of La Quinta Personnel Manual. Reporting
must be made in accordance with the personnel policies of the City and, until resolved, the
officer or employee shall refrain from participating in the City's business related to the matter.
The City Manager, Assistant City Managers, City Treasurer and city employees may conduct
personal business with banks, brokers, and other financial institutions that are authorized to
conduct business with the City provided that the terms of the activity to the accountholder
with the City are the same as those that are available to the public in general.
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.
1 . Broker/Dealers who desire to become bidders for direct investment transactions must
supply the City with the following:
► Current audited financial statements;
► Proof of Financial Industry Regulatory Authority (FINRA) Certification;
► Trading resolution;
► Proof of California registration;
► Resume of Financial broker; and
► Completion of the City of La Quinta Broker/Dealer questionnaire (see Appendix
F) which contains a certification of having read the City's 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) Public Disclosure Report File 0-
800-289-9999).
► State of California Department of Corporations (1-916-445-3062).
The City Treasurer maintains a listing of financial institutions which are approved for
investment purposes. All Broker/Dealers and financial institutions that provide
investment services will be subject to City Council approval.
7
Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S.
Treasury Department regulations. Each mutual fund shall provide a prospectus and
statement of additional information.
2. Financial Institutions will be required to meet the following criteria in order to receive
City funds for deposit or investment (see Appendix E, "Listing of Approved Financial
Institutions"):
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 deposits or investments not insured by the
FDIC -shall be collateralized by securities with market values of 110%, or by
mortgages with market values 150%, of the 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 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 PERMISSIBLE DEPOSITS AND INVESTMENTS
Permissible deposits and investments are summarized below. A more comprehensive list is
included in Appendix A.
Permissible Investments and Limitations
Maximum
Maximum
(See Appendix A for Additional Information)
Allocation
Maturity
Restrictions
Checking &Savings Accounts FDIC Insured &Sweep Accounts
85°k Portfolio
Current !
Sweep Account:U.S. Treasuries
On Demand
and/or GSE's
Certificates of Deposit
60% Portfolio
3 Years
< = $250,000,
including interest
per institution
U.S. Treasury Bills, Notes and Bonds, and Government National
< = $8,0000,000
Mortgage Association (GNMA) Securities
100% Portfolio
3 Years
maturing 3-5 Yrs
U.S. Government Agency Securities and Federal Government
Securities
(except collateralized mortgage obligations (CMO's) or structured
notes which contain embedded rate options):
- Federal National Mortgage Association (FNMA)
$20,000,000
3 Years
- Federal Home Loan Bank Notes & Bonds (FHLB)
$25,000,000
3 Years
- Federal Farm Credit Bank (FFCB)
$30,000,000
3 Years
- Federal Home Loan Mortgage Corporation (FHLMC)
$20,000,000
3 years
Prime Commercial Paper including Temporary Liquidity Guarantee
°
$5,000,000 per
Program (TLGP)
15 k Portfolio
90 Days
issuer maximum.
9
Permissible Investments and Limitations
Maximum
Maximum
Restrictions
(See Appendix A for Additional Information)
Allocation
Maturity
Current /
$40 million
Local Agency Investment Fund (LAIF)
30% Portfolio
On Demand
per account.
Money market mutual funds regulated by the SEC that consist
Current /
Maintain $1 per
only of US Treasury Securities or GSE's and maintain a par value
20% Portfolio
On Demand
share par value
of $1 per share
$5,000,000 max
Corporate Notes including Temporary Liquidity Guarantee Program
10%
3 Years
per issuer, AA
(TLGP)
rated or better.
-
Requires
Professionally Managed Account
10%
3 Years
City Council -
Approved RFP
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
110% 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 1 10% collateralized securities or 1 50% 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.
➢ The City does not allow investments in CDAR's 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's to 100% of the portfolio.
➢ The City's Investment Policy does not allow investments in local and state
indebtedness.
4. U.S. Government Agency Securities and Federal Government Securities - The City may
invest in securities issued by U.S. Government instrumentalities and agencies
(commonly referred to as government sponsored enterprises or GSE's). These
securities are not backed by the full faith and credit of the U.S. Government. Publicly
owned GSE's include Federal National Mortgage Association (FNMA), Federal Home
Loan Mortgage Corporation (FHLMC) and Student Loan Marketing Association (SLMA).
Non -publicly owned GSE's 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 and FFCB. For Fiscal Year 2009/2010, the maximum face amount per issuer is
$20 million for FNMA and FHLMC, $25 million for FHLB and $30 million for FFCB. In
addition, no more than 30% of the portfolio surplus may be invested in all GSE's
combined with a maximum $10 million face amount per purchase.
5. Prime Commercial Paper - As authorized in Government Code Section 53601(g), 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.
The City is also permitted to invest in commercial paper issued under the FDIC
Temporary Liquidity Guarantee Program subject to the aforementioned commercial
paper 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 LAIF is allowable as long as the average maturity of its
investment portfolio does not exceed two years, unless specific approval is authorized
by the City Council. The City has two accounts with LAIF and limits investment to 30%
of the portfolio.
7. Money 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
10
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 invest 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 (j), 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 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 exceed 10% 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.
The City is also permitted to invest in corporate notes issued under the FDIC Temporary
Liquidity Guarantee Program subject to the aforementioned corporate note 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 G. The PPMF
shall have:
(a) An established professional reputation for asset or investment management;
(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;
(d) 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
11
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 policy of the City's
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 H of this
Investment Policy.
XI INVESTMENT POOLS
There are three (3) types of investment pools:
► State -run pools (e.g., LAIF);
► Pools that are operated by a political subdivision where allowed by law and the political
subdivision is the trustee (e.g., County Pools);
► Pools that are operated for profit by third parties.
The City's Investment Policy permits investment only in pools authorized in Section X.
XII PAYMENT AND CUSTODY
The City shall engage qualified third party custodians to act in a fiduciary capacity to maintain
appropriate evidence of the City's ownership of securities and other eligible investments. Such
custodians shall disburse funds, received from the City for a purchase, to the broker, dealer or
seller only after receiving evidence that the City has legal, record ownership of the securities.
Even though ownership is evidenced in book -entry form rather than by actual certificates, this
procedure is commonly accepted as the delivery versus payment (DVP) method for the transfer
of securities.
XIII INTEREST EARNING DISTRIBUTION POLICY
Interest earnings are generated from pooled investments and specific investments.
1 . Pooled Investments - It is the general policy of the City to pool all available operating
cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta
Financing Authority and allocate interest earnings, in the following order, as follows:
A. Payment to the General Fund of an amount equal to the total annual bank
service charges as incurred by the general fund for all operating funds as
included in the annual operating budget.
B. Payment to the General Fund of a management fee equal to 5% of the annual
pooled cash fund investment earnings.
C. Payment to each fund of an amount based on the average computerized
daily cash balance included in the common portfolio for the earning period.
2. Specific Investments - Specific investments purchased by a fund shall incur all earnings
and expenses to that particular fund.
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XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR
The City Treasurer shall establish a system of internal controls to accomplish the following
objectives:
► Safeguard assets;
► The orderly and efficient conduct of its business, including adherence to management
policies;
► Prevention or detection of errors and fraud;
► The accuracy and completeness of accounting records; and
► Timely preparation of reliable financial information.
While no internal control system, however elaborate, can guarantee absolute assurance that
the City's assets are safeguarded, it is the intent of the City's internal control to provide a
reasonable assurance that management of the investment function meets the City's objectives.
The internal controls shall address the following:
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.
6. 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 or electronic
confirmations 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
13
independent auditor in connection with the annual audit of the City's Financial Statements
The independent auditor's letter on internal control over financial reporting and compliance as it
pertains 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
auditor's letter, as it pertains, to cash and investment activities and the City Treasurer's
response shall be provided to the City's Investment Advisory Board for their consideration.
Following the completion of each annual audit, the independent auditor shall meet with the
Investment Advisory Board and discuss the auditing procedures performed and the review of
internal controls for cash and investment activities.
See Appendix D, "Segregation of Major Investment Responsibilities."
XV REPORTING STANDARDS
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:
► A certification by the City Treasurer.
► 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.
► Balance Sheet.
► Distribution of cash and investment balances by fund.
► A comparison of actual and surplus funds.
► A year to date historical cash flow analysis and projection for the next six
months.
► A two-year list of historical interest rates.
XVI FINANCIAL ASSETS AND INVESTMENT ACTIVITY NOT SUBJECT TO THIS POLICY
The City's Investment Policy does not apply to the following:
► Cash and Investments raised from Conduit Debt Financing;
► Funds held in trust in the City's name in pension or other post -retirement
benefit programs;
► Cash and Investments held in lieu of retention by banks or other financial
institutions for construction projects;
► Short or long term loans made to other entities by the City or Agency; and
Short term (Due to/from) or long term (Advances from/to) obligations made
either between the City and its funds or between the City and Agency.
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.
i[l
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.
XVIII INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA
The Investment Advisory Board (IAB) is a standing board composed of five members from the
public that are appointed by the City Council. Background information will be requested and
potential candidates must agree to a background check and verification. 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. All board members shall report annually to the City Clerk on
Form 700, Statement of Economic Interests, any activities, interests, or relationships that may
be, or have the appearance of, a conflict of interest.
The IAB must meet at least quarterly, but usually meets monthly, to:
1. Review at least annually the City's Investment Policy and recommend appropriate
changes;
2. Review monthly treasury report and note compliance with the Investment Policy and
adequacy of cash and investments for anticipated obligations;
3. Receive and consider other reports provided by the City Treasurer;
4. Meet with the independent auditor after completion of the annual audit of the City's
financial statements, and receive and consider the auditor's comments on auditing
procedures, internal controls and findings for cash and investment activities, and;
5. Serve as a resource for the City Treasurer on matters such as proposed investments,
internal controls, use or change of financial institutions, custodians, brokers and
dealers.
The IAB will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting. See Appendix B: "Investment Advisory
Board Provisions".
XIX INVESTMENT POLICY ADOPTION
The City's Investment Policy will be reviewed annually by the City's Investment Advisory Board
and the City Treasurer. The Investment Advisory Board will forward the Investment Policy
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 Policy and any comments prior to submission to
the City Council for their consideration.
The Investment Policy shall be adopted by resolution of the City Council annually before the
15
end of June of each year.
f[.
Appendix A
CITY OF LA QUINTA
SUMMARY OF PERMISSIBLE DEPOSITS AND INVESTMENTS
The City Treasurer will be permitted to invest in the following types of investments subject to the maximum percentage allocation limits and bid process
requirements. All maturities must be less than or equal to the maximum maturity allowed.
City
State Maximum
City
Bid
Maximum
Allocation
City
Maximum
Credit
Process
Permissible Deposits and Investments
Allocation
Restrictions
Maturity
Quality
(Footnote 1)
Surplus Funds
1
Checking & Savings Accounts (FDIC Insured) & Sweep Accounts
85% Portfolio
100% Portfolio
Sweep Account: U.S. Treasuries and/or GSE's
Current /
On Demand
FDIC Insured
2
Certificates of Deposit
60% Portfolio
100% Portfolio
<=$99,000 $250,000 including interest per institution
3 years
FDIC Insured
U.S. Treasury Bills, Notes and Bonds, and Government National
100% Portfolio
100% Portfolio
<=$8,0000,000 maturing 3-5 Yrs
3 years
3
Mortgage Association (GNMA) securities
U.S. Government Agency Securities and Federal Government
3
Securities (except collateralized mortgage obligations (CMO's) or
100% Portfolio
structured notes which contain embedded rate options):
- Federal National Mortgage Association (FNMA)
$20,000,000
3 years
- Federal Home Loan Bank Notes & Bonds (FHLB)
$25,000,000
3 years
- Federal Farm Credit Bank (FFCB)
$30,000,000
3 years
- Federal Home Loan Mortgage Corporation (FHLMC)
$20,000,000
3 years
Prime Commercial Paper including Temporary Liquidity
15% Portfolio
25% Portfolio
$5,000,000 per issuer maximum
90 days
S&P (A-1)
Moody's (P-1)
3
Guarantee Program (TLGP)
270 Days
4
Local Agency Investment Fund (LAIF)
g
30% Portfolio
100% Portfolio
per account
per account
3 Years
Unrated
Rated AAA by
2 of 3
5
Money market mutual funds regulated by the SEC that consist
only of US Treasury Securities or GSE's and maintain a par value
20% Portfolio
20% Portfolio
Maintain $1 per share par value
Current /
On Demand
agencies;
assets>=$500
of $1 per share
million; SEC
reg'd >5 Yrs
Corporate Notes including Temporary Liquidity Guarantee
10% Portfolio
30% Port
$5,000,000 max per issuer
3 years
S& rated AA
orr better.
6
Program (TLGP)
. .
SEC Reg'd;
Professionally Managed Account
10% Portfolio
100% Portfolio
Requires Approved RFP
3 years
E&O, Fidelity
Insured
7
Appendix A (continued)
Bid Process
Periodically conduct a bid process at least every four (4) years or sooner if considered necessary
1 for banking and/or custodian services. Since banking services and custodian services are so
closely related it is anticipated that the bid process would include the scope of both services.
2 The financial institutions can be either state or federally chartered, must be located in the State of
California, and must be insured by the Federal Deposit Insurance Corporation (FDIC).
3 Atleasttwo bids from broker/dealers that qualify under Securities and Exchange Commission Rule
15C3-1 listed on the "Listing of Approved Financial Institutions" in the appendices.
4 Completion of Investment Pool Questionnaire and City Council Approval.
5 Money Market mutual funds must complywith Government Code Section 53601(k). Thefund must
be registered by the SEC and must include marking the portfolio to market daily.
6 Atleasttwo bids from broker/dealers that qualify under Securities and Exchange Commission Rule
15C3-1 listed on the "Listing of Approved Financial Institutions" in the appendices.
The professional portfolio management firm (PPMF) will be approved by the City Council based
7 upon the CityTreasurer's recommendation pursuantto completion ofa request for proposal(RFP)
as outlined in the appendices. See also Footnote 2.
Unauthorized Investments
The City Treasurer will not be permitted to invest in the following types of
investments (see Footnote 2 and "State Code Permitted Deposits And Investments
Not Authorized By The City's Investment Policy", below).
- Repurchase Agreements
- Bankers Acceptances
-Negotiable Certificates of Deposit
- Mutual Funds other than money market mutual funds
- Preferred and Common Stock
- State and Local Government Indebtedness
-Asset Backed Securities
- Reverse Repurchase Agreements
- Derivatives
The above list of unauthorized deposits and investments is not meant to be all-
inclusive. Only those deposits and investments listed in the "Permissible
Deposits and Investments" section of the Policy are permissible.
Footnote 1 The City has imposed a maximum limitation based upon the total portfolio of investments. Total portfolio investments are all rash and investments, including bond proceeds. In addition, the
State has adopted limits on the investment of surplus funds.
Footnote 2 The City may engage the services of a professional portfolio management firm which may invest in Bankers Acceptances, Negotiable CD's, Mutual Funds, and Asset Backed Securities not
otherwise permissible under the Citys Investment Policy.
Appendix B
City of La Quinta Municipal Code
Chapter 2.70
INVESTMENT ADVISORY BOARD PROVISIONS
ions:
.70.010
General Rules Regarding Appointment.
.70.020
Board meetings.
.70.030
Board functions.
.70.010 General rules regarding appointment
Except as set out below, see Chapter 2.06 for General Provisions.
The Investment Advisory Board (the "board") is a standing board composed of five (5)
fibers from the public that are appointed by city council.
;. Applicants for the board should have a background in finance, preferably with knowledg(
or experience in markets, controls and accounting for securities. Background information
be requested and potential candidates must agree to a background check and verification.
). On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or a
time if a change in circumstances warrants, each board member will provide the City
ncil with a disclosure statement which identifies any matters that have a bearing on the
opriateness of that member's service on the board. Such matters may include, but are no
ed to, changes in employment, changes in residence, or changes in clients.
:. To promote continuity, the expiration of the terms of the members of the board shall be
gered. The term of service is three years, with one or two terms expiring each year.
!.70.020 Board meetings.
The Board usually will meet monthly, but this schedule may be extended to quarterly
tings upon the concurrence of the Board and the City Council. The specific meeting dates
be determined by the Board Members and meetings may be called for on an as needed bas
>_.70.030 Board functions.
>. The principal functions of the Board are: (1) review at least annually the City's Investme
-y and recommend appropriate changes; (2) review monthly Treasury Report and note
ipliance with the Investment Policy and adequacy of cash and investments for anticipated
]ations; (3) receive and consider other reports provided by the City Treasurer; (4) meet wit
independent auditor after completion of the annual audit of the City's financial statements,
receive and consider the auditor's comments on auditing procedures, internal controls, an(
ings for cash and investment activities, and; (5) serve as a resource for the City Treasurer
ters such as proposed investments, internal controls, use or change of financial institution:
todians, brokers and dealers.
3. The Board will report to the City Council after each meeting either in person or through
espondence at a regular City Council meeting.
19
Appendix C
City of La Quinta Municipal Code
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)
20
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 therefrom by the
city treasurer. (Ord. 2 § 1 (part), 1982
3.08.070 Trust fund administration.
Any departmental trust fund established by the city council pursuant to Section
36523 of the Government Code shall be administered by the city treasurer in
accordance with Section 36523 and 26524 of the Government code and any other
applicable provisions of law. (Ord. 2 § 1 (part), 1982)
21
Appendix D
SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES
Function
Responsible Parties
Develop and Recommend Modifications
Investment Advisory Board
to City's Formal Investment Policy
and City Treasurer
Review City's Investment Policy
City Manager
and Recommend City Council Action
and City Attorney
Adopt Formal Investment Policy
City Council
Implement Formal Investment Policy
City Treasurer
Review Financial Institutions & Select Investments
City Treasurer
Acknowledge Investment Selections
City Manager or an
Assistant City Manager
Execute Investment transactions
City Treasurer or City Manager
Confirm Wires (if applicable)
Accounting Manager or
Financial Services Assistant
Record Investment Transactions in City's
Accounting Manager or
Accounting Records
Financial Services Assistant
Investment Verification (match broker confirmation City Treasurer and Financial
to City investment records) Services Assistant
Reconcile Investment Records
to Accounting Records and Bank Statements Financial Services Assistant
Reconcile Investment Records
to Treasurers Report of Investments Accounting Manager
Security of Investments at City Accounting Manager or
Senior Secretary
Security of Investments outside City Third Party Custodian
Review Internal Control Procedures External Auditor
22
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/Mellon, Los
Angeles, CA
3. Deferred Compensation International City/County Management
Association Retirement Corporation
4. Broker/Dealer Services Banc of America Securities, San
Francisco, CA
Morgan Stanley, San Rafael, CA
CitiGroup, San Francisco, CA
5. Government Pool State of California Local Agency
Investment Fund
City of La Quinta Account
La Quinta Redevelopment Agency
6. Bond Trustees 1991 City Hall Revenue Bonds — US
Bank
1991 RDA Project Area 1 - US Bank
1992 RDA Project Area 2 - US Bank
1994 RDA Project Area 1 - US Bank
1998 RDA Project Area 1 &2 — US
Bank
2001 RDA Project Area 1 — US Bank
2002 RDA Project Area 1 — US Bank
2003 RDA Project Area 1 — US Bank
Assessment Districts — US Bank
No Changes to this listing may be made without City Council approval
23
Appendix F
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm:
2. Address:
3. Telephone: (_)
4. Broker's Representative to the City (attach resume):
Title:_
Telephone:
5. Manager/Partner-in-charge (attach resume):
Name:
Title:
Telephone:
6. List all personnel who will be trading with or quoting securities to City employees
(attach resume)
Name:
Telephone:( )
7. Which of the above personnel have read the City's Investment Policy?
8. Which instruments are offered regularly by your local office? (Must equal 100%
% U.S. Treasuries
% Repos
% BA's
% Reverse Repos
% Commercial Paper
% CMO's
% CD's
% Derivatives
% Mutual Funds
% Stocks/Equities
% Agencies (specify):
% Other (specify):
9. References -- Please identify your most directly comparable public sector clients in our
geographical area.
Entity Entity
Contact Contact
Telephone ( ) Telephone ()
Client Since Client Since
`zl!
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 FINRA?
Yes No
If yes, please provide action taken
Does your firm have any current, or pending complaints that are unreported to FINRA?
Yes No
If yes, please provide action taken
13. Explain your clearing and safekeeping procedures, custody and delivery process.
Who audits these fiduciary responsibilities?
Latest Audit Report Date
25
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 FINRA/NASD Registration
Number
22. Do you have any relatives who work at the City of La Quinta?
Yes No
If yes, Name and Department
23. Do you maintain an office in California?
Yes No
24. Do you maintain an office in La Quinta or Riverside County?
Yes No
M
25. Please enclose the following:
► Latest audited financial statements.
► Samples of reports, transaction confirmations and any other
research/publications the City will receive.
► Samples of research reports and/or publications that your firm regularly provides to
clients.
► Complete schedule of fees and charges for various transactions.
'CERTIFICATION'
*CERTIFICATION*
I hereby certify that I have personally read the Statement of Investment Policy of the City of La
Quinta, and have implemented reasonable procedures and a system of controls designed to
preclude imprudent investment activities arising out of transactions conducted between our
firm and the City of La Quinta. All sales personnel will be routinely informed of the City's
investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so
advised by the City. We pledge to exercise due diligence in informing the City of La Quinta of
all foreseeable risks associated with financial transactions conducted with our firm.
By signing this document the City of La Quinta is authorized to conduct any and all background
checks.
Under penalties of perjury, the responses to this questionnaire are true and accurate to the best
of my knowledge.
Broker
Date
Titlo
Sales Manager and/or Managing Partner*
27
Appendix G
Request for Proposals
Professional Portfolio Management Firm
City of La Quinta, CA
The City of La Quinta, CA is soliciting Requests for Proposals (RFP) from interested firms for
the provision of a discretionary investment management services for City of La Quinta, CA.
The portfolio to be managed of the invested assets is will be approximately 10% of the City's
investment portfolio and will be invested between 0 — 3 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
P.O. Box 1504
La Quinta, CA 92247-1504
(760)777-7150
I. CRITERIA FOR EVALUATION AND SELECTION
■ Experience of the firm in providing services to public sector entities of similar
size and with similar investment objectives;
■ Professional experience and qualifications of the individuals assigned to the
account;
■ Portfolio management resources, investment philosophy and approach;
■ Responsiveness to the RFP, communicating an understanding of the overall
program and services required;
■ Reporting capabilities;
■ Fees.
II. SELECTION TIMETABLE
A. [Month, Day and Year] Proposals due by [Time] PST.
B. [Month, Day and Year] Proposals evaluated: to be determined
C. [Month, Day and Year] [City of La Quinta, CA] [Board/Council] approves
selection and awards contract.
NA
III. FORMAT FOR PROPOSALS
Please format your response to this RFP in the following manner:
A. Organization
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
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.
29
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 Restrictiw
of Clients Clients
Funds
fernmental
$
$
rernmental Pension
$ Not
r�4RP(rgat�le�'
i Governmental
$ tit
sion
porate
$
A��catii"
i Net Worth Client $
owmental/Foun-
on
$ ,ot
qr> .n
Gtt'r AMMAOR
Ap tica i
2.
Provide the number of separate accounts whose portfolios consist of
operating funds.
3.
List in the following table the percentage by market value of
aggregate
assets under all governmental accounts under management for
your latest
reporting period:
Type of Asset
Percent by Market
Value
U.S. Treasury securities
Federal Agency obligations
Corporate securities rated AAA -AA
Corporate securities rated A
Corporate securities rated BBB or
lower
Other
(specify
30
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 1 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
Describe your firm's investment philosophy for public clients, including your
firm's philosophy regarding average duration, maturity, investment types, credit
quality, and yield.
2. Describe in detail your investment process, as you would apply it to City of La
Quinta, CA's portfolio.
3. What are the primary strategies for adding value to portfolios?
4. Describe the process you would recommend for establishing the investment
objectives and constraints for this account.
5. Describe in detail your process of credit risk management, including how you
analyze credit quality, monitor credits on an ongoing basis, and report credit to
governmental accounts.
6. Describe your firm's trading methodology.
7. Describe your firm's decision -making process in terms of structure, committees,
membership, meeting frequency, responsibilities, integration of research ideas,
and portfolio management.
8. Describe your research capabilities as they would pertain to governmental
accounts. What types of analysis do you use?
9. Describe the firm's approach to managing relationships with the broker -dealer
community.
31
E. Portfolio Management
1. Are portfolios managed by teams or by one individual?
2. What is the average number of accounts handled per manager?
3. Which professional staff member will be the primary client contact for City of La
Quinta, CA?
4. How frequently are you willing to meet with us?
5. Describe procedures used to ensure that portfolios comply with client
investment objectives, policies, and bond resolutions.
F. Fees Charged
1 . Please include a copy of your firm's fee schedule applicable to this RFP.
2. Identify any expenses that would not be covered through this fee structure
and would be required in order to implement the firm's program.
3. Is there a minimum annual fee?
G. Performance Reporting
1. Please report on all accounts under $100 million.
2. Please provide performance history for governmental accounts for the last
five years.
3. Please provide risk measurements for governmental accounts for the last five
years.
4. Indicate whether your returns are calculated and compiled in accordance with
the Association for Investment Management and Research (AIMR/CFA
Institute) standards.
5. Do your reports conform to the State of California reporting standards? Are you
willing to customize your reports to meet our specifications?
6. How will you notify us of investment transactions?
7. Are confirmations 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?
32
H. References
Provide a list of at least five (5) client references in California. References should be
public agencies with portfolio size and investment objectives similar to City of La
Quinta, CA. Include length of time managing the assets, contact name, and phone
number.
Insurance Requirements
Exhibit A defines the insurance requirements that will need to be met prior to the
[Board/Council]'s approval of any agreement for services.
J. Submittal of proposals
1. Seven (7) copies of the proposal shall be submitted in a sealed envelope
bearing the caption RFP for (City of La Quinta, CA) and addressed to:
City of La Quinta, CA
P.O. Box 1504
La Quinta, CA 92247-1504
Attention: John M. Falconer
Finance Director/Treasurer
2. Proposal must be received no later than [Time] PST on [Month, Day, and
Year].
3. Proposals should be verified before submission. The City of La Quinta, CA
shall not be responsible for errors or omissions on the part of the respondent
in preparation of a proposal. The City of La Quinta, CA reserves the right to
reject any and all proposals, to wave any irregularities, or informalities in the
proposals, and to negotiate modifications to any proposal.
Enclosures: Investment Policy
Treasurers Report
33
Appendix H
City of La Quinta
Permissible Investment Chart — Professional Portfolio Management Firm
(1) (2) (3) (4) (5) (6) (7) (8)
California
Government
Code Section
53601(a)
Investment Category
�
Local Agency Bonds
Maximum
Maturity
5 Years
Authorized Investment
Limits (%of Portfolio)
None
Credit
Rating
Limits
None
Comments
Allowed per
City Policy
No
Allowed per
Professional Portfolio
Management Firm
No
53601(c)
State of California Obligations
5 Years
None
None
No
No
53601(d)
CA Local Agency Obligations
5 Years
None
Multiple
No
No
53601(i)
Repurchase Agreements
1 Year
None
None
No
No
53601(i)
Reverse Repurchase Agreements
92 Days
20% of the base value of the portfolio
None
No
No
53601(i)
Securities Lending Agreements
92 Days
20% of the base value of the portfolio
None
No
No
53684
County Pooled Investments
None
None
None
No
No
53601(f)
Bankers Acceptances
180 Days
40°/
None
"AK or better
No
Yes
53601(h)
Negotiable CD's
5 Years
30%
None
-AA' or better
No
Yes
53601(k)
Mutual Funds
None
20%
Multiple
No
Yes
53601(n)
Asset Backed Securities
5 Years
20%
AA
No
Yes
Cash and Equivalents
None
None
None
Yes
Yes
16429.1
LAIF
None
None
None
Yes
No
53601(b)
US Treasuries
5 Years
None
None
Yes
Yes
53601(e)
US Agencies
5 Years
None
None
Yes
Yes
53601(g), 53635
Commercial Paper
270 Days
25% of portfolio
A-1 / P-1 / F-1
Yes
Yes
53601(k)
Medium Term Notes
5 Years
30%
A
Yes
Yes
-
Money Market Mutual Funds
None
20%
Multiple
Yes
Yes
53601(m)
Time Deposits
5 Years
None
None
.Yes
Yes
Collateralized Bank Deposits
(including non-negotiable CID
5 Years
None
None
Yes
Yes
Source of Columns (1) through (5) - Investment: Investment Portfolio Reporting Practices CA Debt and Investment Advisory Commission.
Note: The Professional Portfolio management Firm (PPMF) is not required to adhere to the City's buy and hold policy and does not need City Manager or City Treasurer approval to make
permissible deposits and investments as detailed in column (8).
Appendix I
Investment Management Process and Risk
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
when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds.
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 level of interest rates while credit risk is the risk of loss due to the failure of
the insurer 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 a 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 market risk is liquidity risk. Instruments with unique call features, special
structures or those issued by little known companies are often 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 conditions, gains
are also possible with these types of securities.
Default risk occurs when the borrower is unable to repay the obligation. 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 collateralized bank deposits are somewhere between the
two on the risk spectrum.
The vast majority of portfolios are managed within a buy and hold policy. Investments are purchased
with the intent and capacity to hold that security 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 tuning of the investment portfolio are considered prudent investment
management. [...I
The Government Code contains specific provisions regarding the types of investments and practices
permitted after considering the broad requirement of preserving principal and maintaining liquidity before
seeking yield. These provisions are intended to promote the use of reliable, diverse, and safe investment
instruments to better ensure a prudently managed portfolio worthy of public trust.
35
Chapter II. Fund Management
Local Agency Investment Guidelines 2007
Issued by California Debt and Investment Advisory Commission
Appendix J
GLOSSARY
(Adopted from the Municipal Treasurers Association)
'he purpose of this glossary is to provide the reader of the City of La Quinta investment
lolicies with a better understanding of financial terms used in municipal investing.
GENCIES: Federal agency securities and/or
overnment-sponsored enterprises.
SKED: The price at which securities are offered
ANKERS' ACCEPTANCE (BA): A draft or bill of
{change accepted by a bank or trust company.
he accepting institution guarantees payment of
le bill, as well as the issuer.
D: The price offered by a buyer of securities.
Vhen you are selling securities, you ask for a
d.) See Offer.
3OKER: A broker brings buyers and sellers
gether for a commission.
ERTIFICATE OF DEPOSIT (CD): A time deposit
ith a specific maturity evidenced by a
Irtificate. Large -denomination CD's are typically
:gotiable.
XLATERAL: Securities, evidence of deposit or
her property which a borrower pledges to
cure repayment of a loan. Also refers to
curities pledged by a bank to secure deposits of
blic monies.
)MMERCIAL PAPER: Short-term unsecured
Dmissory notes issued by a corporation to raise
xking capital. These negotiable instruments
purchased at a discount to par value or at par
lue with interest bearing. Commercial paper is
ued by corporations such as General Motors
:ceptance Corporation, IBM, Bank America, etc.
)MPREHENSIVE ANNUAL FINANCIAL REPORT
AFR►: The official annual report for the City of
Quinta. It includes five combined statements
each individual fund and account group
;pared in conformity with GAAP. It also
36
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
arlying index or security, and may include a
raging factor, or (2) financial contracts based
n notional amounts whose value is derived
i an underlying index or security (interest
s, foreign exchange rates, equities or
imodities).
COUNT: The difference between the cost
e of a security and its maturity when quoted
ower than face value. A security selling
iw original offering price shortly after sale also
:)nsidered to be at a discount.
COUNT SECURITIES: Non -interest bearing
iey market instruments that are issued a
ount and redeemed at maturity for full face
ie, e.g., U.S. Treasury Bills.
ERSIFICATION: Dividing investment funds
mg a variety of securities offering
:pendent returns.
industry. The notes and bonds provide
liquidity and home mortgage credit to
savings and loan associations, mutual
savings banks, cooperative banks,
insurance companies, and mortgage -
lending institutions. They are issued
irregularly for various maturities. The
minimum denomination is $5,000. The
notes are issued with maturities of less
than one year and interest is paid at
maturity.
3. 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.
iERAL CREDIT AGENCIES: Agencies of the 4.
eral government set up to supply credit to
ous classes of institutions and individuals,
S&L's, small business firms, students,
ners, farm cooperatives, and exporters.
FNMA's (Federal National Mortgage
Association) - Like GNMA was chartered
under the Federal National Mortgage
Association Act in 1938. FNMA is a federal
corporation working under the auspices of the
Department of Housing and Urban
Development (HUD). It is the largest single
provider of residential mortgage funds in the
United States. Fannie Mae, as the corporation
is called, is a private stockholder -owned
corporation. The corporation's purchases
include a variety of adjustable mortgages and
second loans, in addition to fixed-rate
mortgages. FNMA's securities are also highly
liquid and are widely accepted. FNMA
assumes and guarantees that all security
holders will receive timely payment of
principal and interest.
FHLB's (Federal Home Loan Bank Notes and
Bonds) - Issued by the Federal Home Loan
Bank System to help finance the housing
FFCB's (Federal Farm Credit Bank) - Debt
instruments used to finance the short
and intermediate term needs of farmers
and the national agricultural industry.
They are issued monthly with three- and
six-month maturities. The FFCB issues
larger issues (one to ten year) on a
periodic basis. These issues are highly
liquid.
5. 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
37
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).
EDERAL DEPOSITOR INSURANCE
ORPORATION (FDIC): A federal agency that
isures bank deposits, currently up to $250,000
er deposit.
EDERAL FUNDS RATE: The rate of interest at
fhich Fed funds are traded. This rate is currently
egged by the Federal Reserve through open-
iarket operations.
EDERAL HOME LOAN BANKS (FHLB):
overnment sponsored wholesale banks
;urrently 12 regional banks) which lend funds
id provide correspondent banking services to
ember commercial banks, thrift institutions,
edit unions and insurance companies. The
ission of the FHLB's is to liquefy the housing
lated assets of its members who must purchase
ock in their district Bank.
:DERAL OPEN MARKET COMMITTEE (FOMC):
onsists of seven members of the Federal
:serve Board and five of the twelve Federal
:serve Bank Presidents. The President of the
ew York Federal Reserve Bank is a permanent
ember, while the other Presidents serve on a
tating basis. The Committee periodically meets
set Federal Reserve guidelines regarding
uchases and sales of Government Securities in
e open market as a means of influencing the
flume of bank credit and money.
:DERAL RESERVE SYSTEM: The central bank of
e United States created by Congress and
insisting of a seven member Board of Governors
Washington, D.C., 12 regional banks and about
700 commercial banks that are members of the
stem.
0
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 Maes.
LAIF (Local Agency Investment Fund) - A
special fund in the State Treasury which
local agencies may use to deposit funds for
investment. There is no minimum
investment period and the minimum
transaction is $5,000, in multiples of
$1,000 above that, with a maximum
balance of $40,000,000 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
irity is trading and could presumably be
:hased or sold.
STER REPURCHASE AGREEMENT: A written
tract covering all future transactions between
parties to repurchase --reverse repurchase
:ements that establishes each party's rights in
transactions. A master agreement will often
cify, among other things, the right of the
er-lender to liquidate the underlying securities
ie vent of default by the seller -borrower.
TURITY: The date upon which the principal or
ed value of an investment becomes due and
able
NEY MARKET: The market in which short-
n debt instruments (bills, commercial paper,
ker' acceptances, etc.) are issued and traded.
'ER: The price asked by a seller of securities.
ien you are buying securities, you ask for an
:r.) See Asked and Bid.
=N MARKET OPERATIONS: Purchases and
es of government and certain other securities
:he open market by the New York Federal
erve Bank as directed by the FOMC in order
nfluence the volume of money and credit in
economy. Purchases inject reserves into the
k system and stimulate growth of money and
lit; sales have the opposite effect. Open
,ket operations are the Federal Reserve's most
,ortant and most flexible monetary policy tool.
RTFOLIO: Collection of all cash and securities
ler the direction of the City Treasurer,
uding Bond Proceeds.
MARY DEALER: A group of government
urities dealers who submit daily reports of
rket activity and depositions .and monthly
racial statements to the Federal Reserve Bank
New York and are subject to its informal
:rsight. Primary dealers include Securities and
:hange Commission (SEC) -registered securities
ker-dealers, banks and a few unregulated
IS.
ALIFIED 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
39
ecurities and valuables of all types and
escriptions are held in the bank's vaults for
rotection.
ECONDARY MARKET: A market made for the
urchase and sale of outstanding issues following
ie initial distribution.
ECURITIES & EXCHANGE COMMISSION:
gency created by Congress to protect investors
i securities transactions by administering
acurities legislation.
EC RULE 15C3-1: See Uniform Net Capital Rule.
TRUCTURED NOTES: Notes issued by
overnment Sponsored Enterprises (FHLB,
NMAS, SLMA, etc.) And ,Corporations which
ave imbedded options (e.g., call features, step-
p coupons, floating rate coupons, derivative-
ased returns) into their debt structure. Their
iarket performance is impacted by the
uctuation of interest rates, the volatility of the
ibedded options and shifts in the Shape of the
eld curve.
URPLUS FUNDS: Section 53601 of the
alifornia Government Code defines surplus funds
> any money not required for immediate
acessities of the local agency. The City has
afined immediate necessities to be payment due
,ithin one week.
REASURY BILLS: A non -interest bearing
scount security issued by the U.S. Treasury to
,iance the national debt. Most bills are issued to
ature in three months, six months or one year.
REASURY BONDS: Long-term coupon -bearing
.S. Treasury securities issued as direct
Agations of the U.S. Government and having
itial maturities of more than 10 years.
REASURY NOTES: Medium -term coupon -bearing
.S. Treasury securities issued as direct
)ligations of the U.S. Government and having
itial maturities from two to 10 years.
VIFORM NET CAPITAL RULE: Securities and
;change Commission requirement that member
firms as well as nonmember broker -dealers
in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1;
also called net capital rule and net capital
ratio. Indebtedness covers all money owed
to a firm, including margin loans and
commitments to purchase securities, one
reason new public issues are spread among
members of underwriting syndicates. Liquid
capital includes cash and assets easily
converted into cash.
UNIFORM PRUDENT INVESTOR ACT: The
State of California has adopted this Act.
The Act contains the following sections:
duty of care, diversification, review of
assets, costs, compliance determinations,
delegation of investments, terms of prudent
investor rule, and application.
YIELD: The rate of annual income return on
an investment, expressed as a percentage.
(a) INCOME YIELD is obtained by dividing
the current dollar income by the current
market price for the security. (b) NET YIELD
or YIELD TO MATURITY is the current
income yield minus any premium above par
of plus any discount from par in purchase
price, with the adjustment spread over the
period from the date of purchase to the date
of maturity of the bond.