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2012 02 08 IAB7: nijl (P P.O. Box 1504 LA QUINTA, CALIFORNIA 92247-1504 78-495 CALLE TAMPICO LA QUIN-IA, CALIFORNIA 92253 AGENDA INVESTMENT ADVISORY BOARD Caucus Room 78-495 Calls Tampico- La Quints, CA 92253 February 8, 2012 — 4:00 P.M. CALL TO ORDER A. Pledge of Allegiance B. Roll Call (7 6 0) 7 7 7 - 7 0 0 0 FAX (760) 777-7101 PUBLIC COMMENT - (This is the time set aside for public comment on any matter not scheduled on the agenda.) III CONFIRMATION OF AGENDA IV CONSENT CALENDAR A. Approval of Minutes of Meeting on January 11, 2012 for the Investment - Advisory Board. V BUSINESS SESSION A. Transmittal of Treasury Report for December 2011 B. Consideration of Fiscal Year 2012/2013 Investment Polity and Work Plan Items VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - January 2012 B. Pooled Money Investment Board Reports — December 2011 C. Money Market Funds VII BOARD MEMBER ITEMS Vill ADJOURNMENT PUBLIC NOTICES The La Quints Caucus Room is handicapped accessible. If special equipment is needed for the hearing impaired, please call the FinancaDepartment at 777-7160, twenty-four (24) hours in advance of the meeting and. accommod ations wi . It be made. Any writings or documents provided to a majority of the investment Advisory Board regarding any item on this agenda will be made available for public inspection at the City Clerk counter at City Hall located at 78-496 Calls Tampico, La Quints, CA 92253, during normal business hours. INVESTMENT ADVISORY BOARD Meeting January 11, 2012 I CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 4:00 p.m. by Chairperson SPirtos followed by the Pledge of Allegiance. PRESENT: Board Members Mortenson, Blum, Spirtos, Park and Donais ABSENT: None OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Senior Secretary 11 PUBLIC COMMENT - None III CONFIRMATION OF AGENDA - Confirmed IV CONSENT CALENDAR Approval of Minutes of Meeting on December 14, 2011 for the Investment Advisory Board. MOTION - It was moved by Board Members Blum/Park to approve the Minutes of December 14, 2011. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for November 2011 Mr. Falconer presented and reviewed the staff report for the month of November advising the Board of a decrease in the portfolio of approximately $3.4 million ending the month slightly under $163 million. A large portion of the decrease was due to cash needs. Mr. Falconer further advised that page 3 summarizes the cash decrease as follows: $363,000 was spent on the "Am Street extension Project, $127,000 on Phase 2 Washington Street Drainage Project, $493,000 on the Adams Street Bridge, in addition during the month of the November $1.7 million was paid toward the County of Riverside Sheriff contact which equated to two months of contract service costs. Mr. Falconer also advised that the average maturity for the month of November decreased just slightly less than 100 days, with the portfolio performance increasing by two basis points ending the month at .37% and the pooled cash investments at .52%, as compared to the previous month's investments at .50%. Mr. Falconer informed the Board that in the month of November the LAW balance had increased to the $40 million maximum. In addition, he informed the Board of the maturity of several investments which will be reinvested into commercial paper. Mr. Falconer advised the Board that due to the State Supreme Court ruling the City will not be making the tentative scheduled payment of $18 million that was due mid -January. Mr. Falconer also advised that due to the ruling, the City's RDA will expire as of February 1, 2012. Chairperson Spirtos commented that she had asked that the Supreme Court's ruling abolishing the RDA be further discussed under Board Member items. Mr. Falconer advised that in spite of the ruling the City is scheduled to receive the January tax increment revenues and will make the pass -through payments. Mr. Falconer also advised that staff is diligently making every effort to safeguard the City's assets. Mr. Falconer stated that page 4 reflects the summary of permissible deposits and investments as we 11 as the diversity of those deposits and investments. In response to Board Member Blum, Mr. Falconer advised that on behalf of t he City the Treasurer conducts all investments as well as establishing all CD's. Mr. Falconer summarized for the Board the CD purchase process. I Board Member Blum shared his concern regarding the Treasurer's resignation and the continuity of a[ I investments upon his departure. I General discussion ensued amongst the Board and staff regarding the continual safeguard of the City's investments during the recruitment and replacement of the Finance Director/Treasurer. Mr. Falconer suggested lthat staff give an update as to the status of the Finance Director/Treasurer replacement at the April board meeting. Board concurred. I 01 Board Member Mortenson reiterated the purpose of the Board and . the City's investment policy and the check balances that are in place to protect all City investments. I Mr. Falconer stated that staff currently maintains a "conservative" investment policy; the new Finance Director/Treasurer could change how investments are made. In response to Board Member Mortenson, Mr. Falconer advised that as a result of the elimination of the RDA and the uncertainty of the tax increments payments, the 94 day average maturity gives the City ample flexibility for liquidity for unexpected cash needs. In response to Board Member Mortenson, Mr. Falconer advised that at the December Board meeting staff was recommending a draw -down of monies out of the Rabobank account but due to the current interest environment and same day liquidity option, it was decided by staff to maintain the current balance in the Rabobank account. Mr. Falconer suggested that the Board consider increasing either LAW or Rabobank at the review of the 2012/2013 investment policy. In response to Chairperson Spritos, Mr. Falconer clarified the following: Page 2: column. titled "Other" is an amortization of Discount Notes and is reported as interest income. Page 8: table titled City; "Revenue Fundsff in the amount of $774,127 is a grouping of various funds. Mr. ' Falconer suggested that staff breakdown the funds that compile the .revenue funds" and report back to the Board at the next scheduled meeting. In response to Chairperson Spirtos, Mr. Falconer advised that the Information Technology Fund (also listed within the City table) is a fund which pays for the City's Information Technology Specialist as well as the City's servers, equipment and internet. Mr. Falconer further advised that Council has considered televising City Council meetings but due to the current economy, they do not feel they should impose a fee to the residents of La Quinta to televise the meetings at this time. 91 MOTION — It was moved by Board Members Mortenson/Donais to review, receive, and file the Treasurers Report for November 2011. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report — December 2011 Mr. Falconer presented and reviewed the month end cash report for the month of December advising the Board that page 2 of the report reflects an increase in LAIF in addition to a decline in the Bank of New York investments. LAIF still remains at 38 basis points with thirteen week Treasury rates at .025% and a one-year at 11 basis points. Mr. Falconer further advised that page 5 reflects the note activity, with the two-year note currently at a .24 yield and the three- year at .35 basis points. Mr. Falconer commented to the Board that the short-term commercial paper investment in Ricoh Financial yielded .25 basis points; due to the short-term rate staff will consider commercial paper for any future investments. In response to Board Member Mortenson, Mr. Falconer advised that average money market balances are held in two sweep accounts, one account averaged a balance of approximately $150,000 for any golf course expenses and emergency checks; the second account held bond proceeds from Money Market Mutual funds with a current balance of $16 million and was used for the City's cash needs. Due to the abolishment of the RDA the bond proceeds account at this time will remain suspended. Board Member Mortenson advised that with the current money market regulatory issues, that staff consider other alternatives in lieu of money market funds. Chairperson Spirtos requested that the literature advising of the issues with the money market funds be made available at the next scheduled meeting. Noted and Filed B. Pooled Money Investment Board Reports — October 2011 and November 2011 Noted and Filed 9 V11 BOARD MEMBER ITEMS Chairperson Spirtos requested that the State Supreme Court's decision to abolish all "Redevelopment Agencies" be discussed at this time. General discussion ensued amongst the Board and staff regarding the State Supreme Court's decision to abolish all redevelopment agencies, the impact this decision has on the City and the steps staff is taking to ensure the City is in compliance with the State's ruling. Chairperson Spirtos advised the Board that the City will be honoring Pillars of the Community at 11:00 a.m. on January 12, 2012; this year's honorees will include Tom Genovese and Stan Sniff. Chairperson Spirtos further advised that she will not be in attendance at the February board meeting. VIII ADJOURNMENT MOTION - It was moved by Board Members Park/Blum to adjourn the meeting at 4:59 p.m. Motion carried -unanimously. Vianka Orrantia Senior Secretary 5 INVESTMENT ADVISORY BOARD Business Session: A Meeting Date: February 8, 2012 ITEM TITLE: Transmittal of Treasury Report for December 31, 2011 BACKGROUND: Attached please find the Treasury Report for December 31, 2011. Staff has also included the detail for the Special Revenue Cash as requested at the January meeting. RECOMMENDATION: Review, Receive and File the Treasury Report for December 31, 2011 —John M-.--I-- I Ti4444" MEMORANDUM TO: La Quinta City Council FROM John M. Falconer, Finance Director/Treasurer SUBJECT: Treasurer�s Report for December 30. 2011 DATE: January 31, 2012 Attached is the Treasurer's Report for the month ending December. 2011. The report is submitted to the City Council each month after a reconciliation of accounts is accomplished by the Finance Department. The following table Summ,ri... the changes in investment types for the month I n e men Investment v S' —Pum—hased —Notes --§0-1d /Matured —Other —Ending Chan e "an e LAIF Interest bearing active bank deposit S g active bank deposit $ 26,650.984 39,546,824 $ 14.550,000 17,126 $ (2,050,000) 1 $ 39.150,985 12,500,001 1 2500 00 1 Certificates of Deposit n Deposit 7 724,000 39,563,950 1 7 1 26 17,126 S US Treasuries US Gov't Sponsored Enterprises 'Orld Enterprises 60,962,430 14.996.842 (2) (17,000.000) 5,266 724,000 43,967,696 0 0 (16 994 734 (16,994,734) Commercial Paper Par - 7.000,000 (2) (2) 771 14,997.613 771 7 Corporate Notes 5,002,025 (2) (5,000,000) (573) (2.025 6,999,427 6.999,427 Mutual Funds 1 6, 130.247 1 0 (5 , 00 0 (5,002,025) Subtotal $ 164 21,567.126 1 SZq1V0u1juV 2,322 5,762 1 16A32,569 $ 161,53b,240 $ 2,322 (2,477.112 Gash $ (1,090,198 9,796 $ 2,069,994 I o1al $ 162 923 I. -A 762 $ �407,118f) I certify that this report accurately reflects all Pooled investments and is in compliance with the California Government code; and is in conformity with the City Investment Policy. As Treasurer of the City of La Quinta, I hereby certify that Sufficient investment liquidity and anticipated revenues are available to meet the pools expenditure requirements for the next six months. The City of La Quinta used the Bureau of the Public Debt. U.S. Bank Monthly Statement and the Bank of New York Monthly Custodian Report to determine the fair market value of investments at month end. Z-/ 2- 0 1 J h Falconer n, torfTr YF'� nlMe�Dre, a,., Date 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 premium/discount for the month on US Treasury, Commercial Paper and Agency investments. (3) The cash account may reflect a negative balance. This negative balance will be offset with transfers from other investments before warrants are presented for payment by the payee at the bank. Treasurer's Commentary For the Month of December 2011 Cash Balances - The portfolio size decreased by $407,000 to end the month at $162.5 million. Major capital improvement expenditures were $1.93 million, including $267,000 spent on the "A" Street extension Project, $415,000 spent on the Highway 111 Landscaping Improvements, $393,000 on the Adams Street Bridge Project, $281,000 spent on the Washington St right turn lane at Eisenhower Drive, and $194,000 spent on the Coral Mountain Apartment Project. During December, no billings were received for the County of Riverside Sheriff contract. Investment Activity - The investment activity resulted in an average maturity decrease of eight (8) days from the prior month to end the month of December at 86 days. The Treasurer follows a buy and hold investment policy with the no investments maturing in December. The Treasurer purchased two (2) commercial paper investments totaling $10 million during the month. Also, two investments matured during the month totaling $22 million. The $12 million difference was invested in LAIF. The sweep account earned $18 in interest income for the month of December and the bank fees for the month were $ 1,619 which resulted in a net decrease of $1,601 in real savings. Portfolio Performance - The overall portfolio performance was two (2) basis points lower than the prior month ending at .35% for the month, with the pooled cash investments at .48%. The portfolio yield should continue to stay at these levels for the near future. At this time last year, the portfolio was yielding .52% which reflects the current interest rate environment. Looking Ahead In the short term, the Treasurer will be investing in short term commercial paper or GSE paper. As reported last month, with the recent State Supreme Court ruling the $18 million payment will not be due to the State of California in mid January. 3 E E E Z5 16 > 0 E 0 E C 2 E '0 0 . 0 . 0 c zi 0 z 0 z 0 z 0 z c z z c z x W ED 2 L 0 m 0 > k2 c '0 c 72 E 0 �M— 05 CD 6 v v 16 f; c E E 0 T 0 < �o 16 c 0 0 a 0 0 6 -6 co < 0 0. .00 22 M,z c -di E E 0 0 ow MZM E E E 0 2 Ir D E E 0 0 0 E www 6 E old NSA," Uzi HIM 0 9 a fffy 11 Ell Ele -6 so ------------------- 21 log! is 1 lie 111111.6' too -11111111111111111HE m! ilia 11:021121H1111g,Q0, 1. M. j! 9 a I .. ......... �L�EMH 7 c < E > aN a 0 CD C3 — M 0 > E W E E >Z C�4 !�4 (�4 00 0 00 0000 NN C� Ct C� C� CL Qno� .Z; �00� c N C� cl 'r m cl; IL c E m 0 0 u c CL > CL (L C mo mu M -d -6 "5 2 75 0 0 0 0 0 (L a. a. a. E E CE 2222 0 0 S2 !9 z V T) 0 C) U) U) U) a) IL 0 0 0 E 0 0 LL 2 m I Z4 N m 00 oo� co � 0 � Ci Ct Ct lm� ci Ct m mo 0 0 0 E a. o- cL 0 52 in US 65 (n m 2 v m 0 2 U) B E m E 0 C ILI cu > c m z 0 (9 :E 0 �- a E E > 9. 5 ------- - ------ MURHOM M.-MEN -- - ------ - .-I. H ME gA2 §§2 - - - - - - - - - - - - - - - - - - - - - - - - - - E ------ ------ Hal RE 2B c RM, �E FBZ. �E Ez'F �E lie, C-2 Ez, E 2 M M19 PI N t RM �l Cry of La Quota Comparative Rates of Interest December 210. 2011 r'n" r I I n ... — Aveba, Augl 5 17% 485% 508% 109 459% v I., SoP12007 5 16% 486% 5m% 129 400% 525% Oct M07 511% 485% 502% 116 3,95% 523% Nov 2007 5,03% 4�W% 4N% 99 3U% 5 14% 0.2007 495% 343% 445% 123 339% 4,913% Jan 208 4,515% 3,33% 4,22% 96 231% 4W% Feb 2008 412% 324% 3,85% 86 207% 462% Mar 2008 407% 283% 367% 74 I.W% 416% Ap, 20011 345% 327% 341% 82 1.70% 378% Many 2008 3 14% 327% 317% 63 1,92% 340% Jum, 2008 309% 1,94% 2N% 80 214% 3,07% FY 08109 July2008 299% 193% 277% 62 1 70% 188% 229% 275% 218% 289% 279% A ngt,st 200E 316% 192% 268% 51 169% 1.89% 2,14% 238% 206% 278% Seat 2008 281% 192% 264% 37 142% 179% 1 96% 200% 2 13% 277% 002008 2N% 261% 2,61% 29 0,90% 1�,t()% 112% 150% 207% 2 71% Nov 2008 2M% 236% 2 36% 0 15% 049% 104% 125% 145% 2 57% Den 2008 160% 0 18% 1,42% 116 005% 025% 059% 088% 097% 2,35% Jan 2009 136% 0 18% 123% 82 015% 035% 043% 088% 031% 205% Feb 2009 123% 0 18% 1 11% 75 0 3G% 050% 061% 088% 04t3% 1 87% Ma,2009 126% 0 18% 1,13% 69 020% 042% 070% 088% 037% 1 82% Apr2009 094% 0 18% 085% 54 031% 033% 059% 088% 028% 161% May 2009 092% 0 18% 004% 80 018% OW% 053% ON% 023% 153% Jbra2009 085% 029% 080% ill 020% 035% 055% 1 13% 026% 138% FY Call 0 July 2009 069% 030% 065% ill a 19% 028% 047% 100% 026% 104% August 209 064% 030% 061% 92 0.16% 0.26% 046% 100% 024% 093% Sent 2009 056% 031% 053% 112 012% 0.19% 041% 100% 019% 0 75% 002009 052% 031% OM% 90 008% 019% 038% 100% 0�19% 065% No, 2009 0 56% 031% 053% 152 004% 014% 032% 075% 0 t5% 061% Dec 2009 ON% 0 15% 051% 239 0 11% 020% 0 16% 100% 016% 057% Jan 20 10 046% a 15% 043% 179 0,06% 0 t4% O�% 0,88% 013% 0,56% Frb20lO 051% a 16% 048% 162 0 13% 019% 0,32% 0 ".4 0 15% 058% Mar2010 0,50% OA6% 047% 172 015% 024% 038% 100% 020% 055% Ap,2010 U 52% 016% 048% U62 015% 024% 0.49% 100% 023% 059% May 2010 052% 016% 048% 116 0 17% 022% 037% 075% 028% 056% June 2010 O'ki% 003% 035% 134 0,16% 022% 032% 063% 032% 0,53% FY lflfl I July 2010 050% 0 15% 047% 119 016% 020% 030% 063% 028% 053% August 201C 049% 0.15% 046% 108 015% 019% 0,26% O,M% 025% 051% Se,u20lO 055% 015% 051% 107 0 16% 019% 027% 038% 0,24% 050% Oct 2010 055% 0 15% 051% N 0.13% 0 17% 0,23% Ow% 023% 048% N.y20lO 053% 0,15% 049% 84 018% 021% 028% 050% 023% 045% 0.2010 057% 0 14% 052% 265 0 15% 0.19% 030% 063% 023% 046% Jan 2011 051% 0 14% 043% 206 016% 018% 028% 0,53% 024% 054% Fee 2011 055% 0 17% 046% 210 015% 017% 031% 063% 023% 051% Me, 2011 054% 0 17% 045% 218 005% 013% 026% 075% 023% 050% A,, 2011 059% 0 17% 048% 192 005% 010% 028% 063% 020% 059% May 2011 048% 0 17% 041% 156 006% 0 12% 020% 050% 016% 041% June 2011 a 53% 000% 035% 12C 003% 0,10% 020% 0 38% 0 15% 045% FY 11112 July 2011 0 53% 000% 035% 112 007% 0,12% 0 15% 020% 014% 0 3B% August 2011 060% 000% 038% 102 002% 005% 010% 0,13% a 16% 041% Sala 2011 058% 003% 039% 124 002% 006% 009% 0 13% 0 14% 038% �t 2011 053% 003% 035% 117 001% 006% 0,12% 025% 0 15% 039% Nb� 2011 052% 003% 037% 94 003% 007% 0 10% 025% 0 14% 040% Dnc 2011 048% 003% 035% 86 002% Ool 0 11% 013% . 1.1 . In, 110 I z E V 0 0 Z CL ch C4 < 0 m cc 4) S r CY cc 0 to CM C> Q 0 C> C> C C:, a C) >, rl- co U� It ce) cli I C) ci ci ci CITY OF LA QUINTA SPECIAL REVENUE FUNDS FUND AMOUNT Federal Assistance (6,944.00) SLESF (COPS) Fund 71,426.48 JAG Grant 0.00 Indian Gaming 106,968.26 Development Agreement 200,546.72 CV Violent Gang Task Force 0.00 Prop 1 B 310,567.90 Village Parking Fund 0.00 So Coast Air Quality Fund 77,854.34 Congestion Management Air Quality 0.00 La Quinta Public Safety Officer 27,062.32 787,482.02 12 INVESTMENT ADVISORY BOARD Business Session: B Meeting Date: February 8, 2012 ITEM TITLE: Consideration of the Fiscal Year 2012/2013 Investment Policy and Work Plan BACKGROUND: As part of the work plan, the Investment Advisory Board is asked to review the Investment Policy and make any recommendations for the City Council's consideration in June of each year. Attached please find the draft Fiscal Year 2012/2013 Investment Policy and the Investment Advisory Board Work Plan. RECOMMENDATION: Continued review of the Fiscal Year 2012/2013 Investment Policy and Work Plan for approval by the City Council in June 2012. John M. Falconer, Finance Director CITY OF LA QUINTA Investment Policy Fiscal Year 2011 i20122012/2013 Table of Contents Section i2pig Executive Summary I General Purpose 11 Investment Policy III Scope IV Objectives ll� Safety of Principal 10. Provide Liquidity No, Yield A Risk -Based Market Rate Of Return v Maximum Maturities VI Prudence Vil Authority Vill Ethics and Conflicts of Interest IX Authorized Financial Dealers and Institutions 11� Broker/Dealers 0 Financial Institutions X Permissible Deposits and Investments X1 Investment Pools Xil Payment and Custody XIII Interest Earning Distribution Policy XlV Internal Controls and Independent Auditors XV Reporting Standards XVI Financial Assets and Investment Activity Not Subject to this Policy XVII Investment of Bond Proceeds Xill Investment Advisory Board - City of La Quints XIX Investment Policy Adoption Appendices 12p12 page 2 4 4 4 4 6 6 7 7 7 8 13 13 13 14 15 15 15 16 16 page A Summary of Permissible Deposits and Investments 18 B City of La Quinta Municipal Code Ordinance 2.70 - Investment Advisory Board 20 C City of La Quints Municipal Code Ordinance 3.08 - Investment of Moneys and Funds2l D Segregation of Major Investment Responsibilities 23 E Listing of Approved Financial Institutions 24 F Broker/Dealer Questionnaire and Certification 25 G Request for Proposal for Professional Portfolio Management Firm 29 H Permissible Investment Chart - Professional Portfolio Management Firm 35 1 Investment Management Process and Risk 36 i Glossary 37 1 CITY OF LA QUINTA Investment Policy Fiscal Year 2011120122012/2013 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 and Housing Authorities (the"City"). It is the City's policy to deposit and invest public funds in a manner that shall provide: 0, Safety of principal; 1� Liquidity to meet all of the City's obligations and requirements that may be reasonably anticipated; O� 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: 1� Safeguard assets; 1� The orderly and efficient conduct of its business, including adherence to all City management policies; Do Prevention or detection of errors and fraud; 0- The accuracy and completeness of accounting records; 1� 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, 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 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 VA and/or dollar limitations and, where applicable, through the bid process requirements. Permissible deposits and investments include, in general: No- FDIC -insured Checking, Savings, and Sweep Accounts; 1� Collateralized Bank Deposits; O� Certificates of Deposit; Do, U.S. Government Agency Securities and 1� Prime Commercial Paper; 1� Local Agency Investment Fund (LAIF); 10, Money Market Mutual Funds; 0, Corporate Notes; 10, Professionally Managed Accounts. Federal Government Securities; 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 W�� bills, notes and bonds maturing between. three and five years. Additionally, funds may be invested for up to ten (10) years as further discussed in Section V. The City's Investment Policy does not specify ja. 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 Bill, six-month Bill, and the one and two-year U.S. Treasury Note, 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 Quints 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. City of La Quinta Statement of Investment Policy 4WY4-,—V44JAt1, 2012 through June-3G,-204-2,1une 30, 2012 I Adopted by the City Council on June 21, 2014-2 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. 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 and Housing Authorities (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: 10- General 10, Special Revenue 10- Capital Projects 1� Debt Service 10, Enterprise 10- Internal Service 0, Trust and Agency lo 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: Safety of Principal Safety of principal is the foremost objective of the City's investment program. 9 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 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: 1� Limiting investments to investment grade securities as permitted in Section X; 11� 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: 10- 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 1p- 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 1. 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: 110. A security with declining credit quality can be sold early to minimize loss of principal; 1� 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 fixes the securities' yield at the time of purchase. As a basis for comparison only, the Treasurer's monthly reports will display the rates of return on the three-month Bill, six-month Bill, and one and two-year U.S. Treasury Note, 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. 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 ten years. For FY 2011120122012/2013, the amount of such funds is projected to be $30 million. Funds up to that amount may be invested in U.S. Treasury, notes and bonds Local Agency Obligations, and California Local Agency Obligations maturing between 3 and 10 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. V1 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 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 his/her designee shall acknowledge in writing all purchases and sales of investments prior to their execution by the City Treasurer. Vill ETHICS AND CONFLICTS OF INTEREST The City Manager, 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, 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. Broker/Dealers who desire to become bidders for direct investment transactions must supply the City with the following: Do, Current audited financial statements; ll� Proof of Financial Industry Regulatory Authority (FINRA) Certification; 101 Trading resolution; No, Proof of California registration; Do. Resume of Financial broker; and 1� 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. VA 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 (1- 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. 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 (See Appendix A for Additional I nformation) Maximum Allocation Maximum Maturity Restrictions Current / Sweep Account: Checking & Savings Accounts FDIC Insured & Sweep Accounts 85% Portfolio On Demand U.S. Treasuries and/or GSE's Interest bearing acitive, bank deposits — non FDIC Insured collateralized by 60% Portfolio C ffentl =and $40 million 110% of eligible secutritla On perbank M Permissible Investments and Limitations maximum Maximum (See Appendix A for Additional Inf6rimation) Allocation Maturity Restrictions Certificates of Deposit - FDIC insured $250.000. 60% Portfolio 3 Years including interest per institution U.S. Treasury Bills, Notes and Bonds, and Government National 100% Portfolio 3 Years <=$30.0000,000 maturing 3-10 Mortgage Association (GNMA) Securities Yrs. <=$30,0000,000 maturing 3-10 Local Agency Bonds/Calffomia Local Agency Obligations 100% Portfolio 10 Years Yrs. Long term "A, A2, A" or betber 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 Program ITLGP) 15% Portfolio 90 Days $5,000,000 per issuer ma)dmum. Local Agency Investment Fund (LAIF) 30% Portfolio C nent / $40 million Ongmand per account. Money market mutual funds regulated by the SEC that consist only of US 20% Portfolio Current Maintain $1 per Treasury Securities or GSE's and maintain a par value of $1 per share On Demand share par value Corporate Notes 10% 3 Years $5,000,000 max per issuer AA rated or better Corporate Notes - Temporary Liquidity Guarantee Program.(TLGP) 20% 3 Years $10,000,000 max per issuer, AA rated or better. Professional� Managed Account 10% 3 Years Requires City Council - Long -Term Scale S&P AAA, AA +, AA, AA-, A +, A Moody's Aaa, Aal, Aa2, Aa3, Al, A2 Fitch AAA, AA +, AA, AA-, A+, A 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. In addition, the Treasurer may investment in an interest bearing active deposit account as approved Government Code Section 53632. The deposit account must be co Ilateralized with securities that are in accordance with Government Code Sections 53632.5(c). In addition the market value of the collateralized securities must be maintained in accordance with 53652 (a), and be held by a custodian in accordance with the requirements of Government Code Section 53656. The proposition of the City's share of the deposit account shall be determined in accordance with Government Code Section 53658. E Certificates of Deposi - 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 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. > 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 Mortaaae 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 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 (FHLMQ 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 2010/2011, 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 10 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 LAW procedures, local government agencies are each authorized to invest a maximum of $50 million per account in this investment program administered by the California State Treasurer. The City Treasurer may not invest more than $40 million per account in LAIF. The City's investment in LAW 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 LAW 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 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: 01 Maturities shall not exceed three years from date of purchase. 101 Eligible notes shall be regularly quoted and traded in the marketplace. 101 Eligible notes shall be rated "Wor better. No, Total investment shall not exceed 10% of the portfolio for non- Temporary Liquidity Guarantee Program (TLGP) Corporate Notes and 20% of the portfolio for 11 TLGP Corporate Notes, 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, except that corporate notes issued under the Temporary Liquidity Guarantee Program or otherwise backed by the United States government shall be limited to 20% of the portfolio and the maximum aggregate investment for such notes shall not exceed $10 million face amount for each issuer. 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; (a) 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 policy of the City's Investment Policy, and; 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. 10. Local Agency Bonds and California Local Agency Obligations — The City may invest in California local agency obligations pursuant to 56301 (a) and 53301 (a). 53601 (a) pertains to investing in bonds issued by a local agency, department, board, agency or authority of the local agency. 53601 (a) pertains to investing in bonds and other defined indebtedness of a local agency or department, board, agency or authority of the local agency within the State of California. The City's Investment Policy limits investments in Local Agency Bonds and California Local Agency obligations to 30% of the portfolio with up to a ten year maximum maturity. In addition, the Agency obligations must be invested in the long term rating of A, A2, A or better by S&P, Moody's or Fitch. 12 In the case of an initial public offering, including refinancings, the Treasurer may purchase directly from the Bond Underwriter. If the case of secondary issues, the Treasurer will rely on the approved Broker/Dealers. X1 INVESTMENT POOLS There are three (3) types of investment pools: 1� State -run pools (e.g., LAIF); 1� Pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee (e.g., County Pools); P, 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 forthetransfer of securities. X111 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 Quints, La Quinta Redevelopment Agency and La Quinta Financing and Housing Authorities 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. 13 XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR The City Treasurer shall establish a system of internal controls to accomplish the following objectives: 1� Safeguard assets; 0, The orderly and efficient conduct of its business, including adherence to management policies; 1� Prevention or detection of errors and fraud; 0- The accuracy and completeness of accounting records; and P, 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: 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. 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. Dueto 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 independent auditor in connection with the annual audit of the City's Financial Statements. 14 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: 11� A certification by the City Treasurer. 10. A listing of purchases and sales/maturities of investments. 1� Cash and Investments categorized by authorized investments, except for LAW which will be provided quarterly and show yield and maturity. 11� Comparison of month end actual holdings to Investment Policy limitations. 10. Current year and prior year monthly history of cash and investments for trend analysis. 01 Balance Sheet. 11� Distribution of cash and investment balances by fund. 10, A year to date historical cash flow analysis and projection for the next six months. 110. 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: 11� Cash and Investments raised from Conduit Debt Financing; 10. Funds held in trust in the City's name in pension or other post -retirement benefit programs; 10 Cash and Investments held in lieu of retention by banks or other financial institutions for construction projects; 1101 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. 15 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. 3. Review monthly treasury report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; 4. Receive and consider other reports provided by the City Treasurer; 5. 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; 6. 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 16 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 end of June of each year. 17 x CL 2 CL M s E c 0 a) tM E E x M E c 4 E z E LU E cn )M LU cc E > �,j z < ZO c r o V; 11 CL 4);E Lij 0— LLI 0 cn E D R . 2.4) F- Cr LU a. D LL E 00 T Z < j LL F- a) 0 E D (n Tlom- wo 012 WSW >. Lo 2 �A eA 0 0 wil MW .2p E CL LL, s Z.s w a (a fn W E . f Z� E E is e a e a e e r. 1! — a -E m a Le Q 0 C.) 30 W c 0 a. LL c 0 a LD 89 8 .2 FL Ct a .0 0 c; 0 Ct 8 0 0: 0 v v E E = c o A .2 .2 .2 1 0 EL c 1 CL CL 0 IL 0 0 CL 0. 1E LL E r a 0 0 ;R .2 .2 :2 — ci 4 R .2 .2 0 .2 E 'R 0 IL 0 M 1? cs 0 8 0 0 CL . IL I? M I? IL if aR ag ZR 00 E�� E 'C E E 2 IL 0 § M w 1:3 a- LU M CO) E c a LL c Z — t!� �o OC -V c S �o OPE EL E LUS, 'L3L z 00 0, 1 E. s. 's o gig z -C Fo 8 ff 0 M M 1 a z 0 v 0a) am E a 0 slo c E 7M a 'R 's BE E a E's E E ? 0 -a 0 E 0 U! 0 E IL E z z 12 a LD 2 E is 9 g E C, -r: C6 2 we E Z.2 0 EL 0 &(D E z 0 IL 0 '0 0 0 o 0 M P� �a f 0 0 Sl A A 0, 00 FL Cc a m O=m m w .2 0 1900 a E 920 4 0 E OC s!6 E 00 ONO ow EZ5 m -'s J. 0 0- SfoEwf 0 1 0 c M MLL 16 LD E ,a c zw co 0 E 0 A OR E 02 E E 9 m 89 wi S La 16 16 0 15 0 Ma Cc m m 0 0 0 m E v =0 E coz E c 00 C - > 0 - o U) W.S 2 -00 a 0 0 sm� 0 'o c oc 10 0,13 03 .8 0 g -S c 0, C% =c E o ow E V1 - J2 �.AU T ='a 0;9 3 IS 00 CM iz V-8 v C - 9 0 > 0 .2 Ce Ise ti .0 e 0 > =0 0 iss 5 ES 2 8 V; e a I a E WA� 0 Is -j E- mm A e c EO m M 0 w C 0 co is 0 c 0 c 0.9 63 E 94 so �8.� 'A E c 'a LD E.� -1 c J� .20 Z 80 0 m .-o t.s !a M L 4) .2 31, =0 I I E lo.S'9 5 - 2 j = O's C.Lo 0 c c 1 m E 2 A m 1p cz E c 0- 0 0 0 CE CD CL CL 49 Appendix B City of La Quinta Municipal Code 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. C. Applicants for the board should have a background in finance, preferably with knowledge and/or experience in markets, controls and accounting for securities. Background information will be requested and potential candidates must agree to a background check and verification. D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at any time if a change in circumstances warrants, each board member will provide the City Council with a disclosure statement which identifies any matters that have a bearing on the appropriateness 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. E. To promote continuity, the expiration of the terms of the members of the board shall be staggered. The term of service is three years, with one or two terms expiring each year. 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. A. The principal functions of the Board are: (1) review at least annually the City's Investment Policy and recommend appropriate changes; (2) review monthly Treasury Report and note compliance with the Investment Policy and adequacy of cash and investments for anticipated obligations; (3) receive and consider other reports provided by the City Treasurer; (4) meet with the independent auditor after completion of the annual audit of the City's financial statements, and receive and consider the auditor's comments on auditing procedures, internal controls, and findings for cash and investment activities, and; (5) serve as a resource for the City Treasurer on matters such as proposed investments, internal controls, use or change of financial institutions, custodians, brokers and dealers. B. The Board will report to the City Council after each meeting either in person or through correspondence at a regular City Council meeting. 20 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 cancelled 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) 21 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) 22 SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Develop and Recommend Modifications to City's Formal Investment Policy Review City's Investment Policy and Recommend City Council Action Adopt Formal Investment Policy Implement Formal Investment Policy Review Financial Institutions & Select Investments Acknowledge Investment Selections Execute Investment transactions Confirm Wires (if applicable) Record Investment Transactions in City's Accounting Records Investment Verification (match broker confirmation to City investment records) Reconcile Investment Records to Accounting Records and Bank Statements Reconcile Investment Records to Treasurers Report of Investments Security of Investments at City Security of Investments outside City Review Internal Control Procedures 23 Appendix D Responsible Parties Investment Advisory Board and City Treasurer City Manager and City Attorney City Council City Treasurer City Treasurer City Manager or his/her designee City Treasurer or City Manager Accounting Manager or Financial Services Assistant Accounting Manager or Financial Services Assistant City Treasurer and Financial Services Assistant Financial Services Assistant Accounting Manager Accounting Manager or Senior Secretary Third Party Custodian External Auditor Appendix E LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services Wells Fargo Bank, Government Services, Los Angeles, CA (Banking Services) Rabobank N.A., Government Banking Group, Roseville, CA (Collateralized Bank Deposits) 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/ Merrill Lynch, San Francisco, CA Morgan Stanley, San Rafael, CA CitiGroup, Costa Mesa, CA 5. Government Pool State of California Local Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency Account 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 2011 RDA Project Area 2 — US Bank 2011 Fin Auth Housing 1 &2 — US Bank Assessment Districts — US Bank No Changes to this listing may be made without City Council approval 24 Appendix F BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1 . Name of Firm:- 2. Address: 3. Telephone: I—) E 5. A 7 Broker's Representative to the City (attach resume): Name: Telephone: Manager/Partner-in-charge (attach resume): List all personnel who will be trading with or, quoting securities to City employees (attach resume) Title: Telephone: Which of the above personnel have read the City's Investment Policy? 8. Which instruments are offered regularly by your local office? (Must equal 100%) % U.S. Treasuries % BA's • Commercial Paper • CD's % Mutual Funds —% Agencies (specify): % Repos • Reverse Repos • CMO's • Derivatives • Stocks/Equities • Other (specify): 9. References -- Please identify your most directly comparable public sector clients in our geographical area. Entity Entity 25 Contact Contact Telephone Telephone Client Since 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 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? M 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 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 25. Please enclose the following: b, Latest audited financial statements. ep- Samples of reports, transaction confirmations and any other research/publications the City will receive. 1� Samples of research reports and/or publications that your firm regularly provides to clients. Do- Complete schedule of fees and charges for various transactions. 27 '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 Sales Manager and/or Managing Partner* Date Title a] 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 Quints, 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 Ouinta, 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 1. 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. 11. 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. Ill. FORMAT FOR PROPOSALS Please format your response to this RFP in the following manner: A. Organization 29 1 Describe your organization, date founded, ownership and other business affiliations. Provide number and location of affiliated offices. Specify the number of years your organization has provided investment management service. 2. Describe your firm's revenue sources (e.g., investment management, institutional research, etc.) and comment on your firm's financial condition. 3. Within the past three years, have there been any significant developments in your organization (e.g., changes in ownership, new business ventures)? Do you expect any changes in the near future? 4. Describe any U.S. Securities and Exchange Commission (SEC) censures or litigation involving your organization, any officer, or employee at any time in the last ten years. 5. Describe the firm's fiduciary liability and/or errors and omissions insurance coverage. Include dollar amount of coverage. B. Personnel 1 . Identify the number of professionals employed by your firm by classification. 2. Provide an organization chart showing function, positions, and titles of all the professionals in your organization. 3. Provide biographical information on investment professionals that will be involved in the decision -making process for our portfolio, including number of years at your firm. Identify the person who will be the primary portfolio manager assigned to the account. 4. Describe your firm's compensation policies for investment professionals and address any incentive compensation programs. C. Assets Under Management 1. Summarize your institutional investment management asset totals by category for your latest reporting period in the following table: Number Number of Other Restdctive of Clients Operating Funds Clients Funds Governmental $ $ Governmental Pension Non Governmental Pension 2 Me N/A N/A N/A N/A Corporate High Net Worth Client Endowmental/Foun- dation 2. F N/A N/A N/A N/A N/A N/A Provide the number of separate accounts whose portfolios consist of operating funds. 3. List in the following table the percentage by market value of aggregate assets under all governmental accounts under management for your latest reporting period: Type of Asset U.S. Treasury securities Federal Agency obligations Corporate securities rated AAA -AA Corporate securities rated A Corporate securities rated BBB or lower Other (specify Percent by Market Value 4. Describe the procedures that your firm has in place to address the potential or actual credit downgrade of an issuer and to disclose and advise a client of the situation. 5. Provide data on account/asset growth over the past five years. Indicate the number of government accounts gained and the number of government accounts lost. 6. List your five governmental largest clients. Identify those that are exclusively operating fund relationships and/or those that are other relationships (e.g., bond fund, retirement fund). 7. Provide a copy of the firm's Form ADV, Parts I and 11 (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. 31 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. E. Portfolio Management 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 Quints, 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. 32 3. Is there a minimum annual fee? G. Performance Reporting 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? 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 Quints, 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 Quints, CA) and addressed to: City of La Quinta, CA P.O. Box 1504 La Quints, CA 92247-1504 Attention: John Falconer, Finance Director/Treasurer 2. Proposal must be received no later than [Time] PST on [Month, Day, and Year]. 33 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 34 CL El a) E c 0 0 0 a- 0 0 0- 11 E M 0 CD > c 0 0 o(D a p 9 a iro=z0 0 zzzzzz 0 0 0 0 0 zo 0 0 �s 0 IL 0 z 0 z 0 z 0 z 0 z 0 z z z z z z E 0 0 Q E 0 0 z : 3 z z o z o z o z 0 z 0 z 0 z z 0 z 0 z 0 z 0 CL < le 0 0 z z z .2 .9 0 0 0 0 IL cc cc a ae g 0 cc i's 0 z z 0 z 0 z o z o z a v G m G N S N Z z z z "a m 0 z 0 z 29 E .C:3 6 E E L o o �! 0 >1 0 �o >2 N m Z Z . Z m Z Z >1 z C 0 'o E0 E 0 0 b 0 7r, E 0 J2 0 0 OC a Z E :p S m c < 0 V 'E 00 WE 1 D E E § 0 2 zm = g m z 0 0 2 gs v jo Ir 0 = 0 0 'a c o Em R V S SZ2S Zf E 0 .2 E E 0 -E 0 0 a E 32 0 go :E Ev 02 0 2 00 :E 2: f so U) z 0 v Lf) CV) Appendix I Investment Management Process and Risk Except as provided for in Section 27000.3, Government Code Section 53600.3 declares as a trustee each person, treasurer, or governing body authorized to make investment decisions on behalf of local agencies. As trustees are 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 investment risk associated with any investment activity and 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 or special structures, or those issued by little known companies, are examples of "story bonds" and 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 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 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. 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. Chapter 11. Fund Management Local Agency Investment Guidelines 2010 Issued by Caliiornia Debt and Investment Advisory Commission 36 Appendix J GLOSSARY (Adopted from the Municipal Treasurers Association) The purpose of this glossary is to provide the reader of the City of La Quinta investment policies with a better understanding of financial terms used in municipal investing. AGENCIES: Federal agency securities and/or Government -sponsored enterprises. ASKED: The price at which securities are offered BANKERS' ACCEPTANCE MAI: A draft or bill or exchange accepted by, a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large -denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMMERCIAL PAPER: Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, Bank America, etc. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of La Quinta. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance -related 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 37 lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non -interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. FNMAs (Federal National Mortgage Association) - Like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is 6 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. 2. FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage -lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. 3. FLBs (Federal Land Bank Bonds) - Long-term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is$ 1,000. They carry semi-annual coupons. Interest is calculated on a 360-day, 30 day month basis. 4. FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. 5. FICBs (Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine -month maturity. Interest is payable at maturity and is calculated on a 360- day, 30-day month basis. 6. FHLMCs (Federal Home Loan Mortgage _rporation) - 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 DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit through December 31, 2013. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently M pegged by the Federal Reserve through open - market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The term .pass-throughsff is often used to describe Ginnie Mass. 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 $50,000,000 for any agency. The City is restricted to a maximum of ten transactions per 39 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-half of one percent of the earnings. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase --reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the event 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, bankers' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tooL PORTFOLIO: Collection of all cash and securities under the direction of the City Treasurer, including Bond Proceeds. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) -registered securities broker -dealers, banks and a few unregulated firms. 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 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 RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is increasing bank reserves. 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"sellerff 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 I 5C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, 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 Me obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker -dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. UNIFORM PRUDENT INVESTOR ACT: The State of California has adopted this Act. The Act contains the following sections: duty of care, diversification, review of assets, costs, compliance determinations, delegation of investments, terms of prudent investor rule, and application. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or 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. 41 Ce&4t 4 QJdArC4(j AGENDA CATEGORY: COUNCILIRDA MEETING DATE. July 5, 2011 ITEM TITLE: Consideration of Investment Advisory Board 2011-2012 Work Plan RECOMMENDATION: BUSINESS SESSION: I CONSENT CALENDAR. - STUDY SESSION: PUBLIC HEARING: Approve the Investment Advisory Board 2011/2012 Work Plan. FISCAL IMPLICATIONS:. Fiscal implications consist of Board Members meeting expenses, budgeted at $4,500, and staff support time. CHARTER CITY IMPLICATIONS: None. BACKGROUND AND OVERVIEW: Municipal Code Section 2.70.030 sets forth the work plan items for the Investment Advisory Board for each year as follows: 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 of change of financial institutions, custodians, brokers and dealers. 182 The Investment Advisory Board met on June 8, 2011 and is not recommending that any additional Work Plan Items be added to those outlined in the Municipal Code. FINDINGS AND ALTERNATIVES: The alternatives available to the City Council include: 1 . Approve the Investment, Advisory Board 2011/2012 Work Plan; or 2. Do not approve the Investment Advisory Board 2011/2012 Work Plan; or 3. Provide staff with alternative direction. Respectfully submitted, Nkft-T44w� John M. Falconer, Finance Director Approved for submission by: Phom"asP. Genovese, City Manager ITE INVESTMENT ADVISORY BOARD Correspondence & Written Material Item A Meeting Date: February 8, 2012 TITLE: Month End Cash Report for January 2011 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. —hnM. v 0 -6 f. 2� 6 90 10 40 .0 .0 CP 0 Co 6 0 m CD C6 0 0 CN 0 N 0, cN 0.0 m 0 m a 0 c4 L6 ci N . � . 0 — ci -ov N"rj 3 7a 0 2 02 o 0 rl� 0 zi E B.SEE,- 7E 0 Ee M W, o z 2� 0 c L 0 E 16 tl 0 ?L v Bill Lockyer, State Treasurer Inside the State Treasurer's Office Local Agency Investment Fund (LAIF) PMlA Performance Report 1/10/2012 0.38 0, 0.39 265 1/11/2012 0.36 0.40 zb9 1/12/2012 0.38 040 265 1/13/2012 0.38 0.39 265 1/14/2012 0.381 0.39 2651 1/15/2012 0.39 265 1/16/2012 0.38 U9 265 1/17/2012 0.37 0.39 258 1/18/2012 0.37 0.39 255 1/19/2012 0.37 0.39 254 1/20/2012 0.37 0.39 256 .37 039 256 1/22/2012 0.37 0.39 —038— A256 1/201/21/2012 3/2012 0.37 255 'Daily yield does not reflect capital gains or losses LAIF Performance Report Quarter ending 112/311120111 Apportionment Rate: Earnings Ratio: Fair Value Factor: Daily: QuarterTo Date: Average Life: 0.38% .00001043176196406 1.001651997 0.37% 0.39% 256 PMIA Average Monthly Effective Yields DEC 2011 0.382% NOV 2011 0.401 % OCT 2011 0.385% Pooled Money Investment Account Portfolio Composition $67.9 Billion 12/31/11 Corporate Bon( 0.00% Commercial Paper 2.81% Time Deposits 6.09% CDs/BNs 10,69% Loans Agencies 10.75% Mortgages 0.59% Treasuries 50.24% K, Recent Bill Auction Results rage i oi i TreasuryDirect H�rn� � jl,tlu.lI , All.11,el,,nt, D,il,i & ,l], , L,,, A,,,, 0.1. , Recent Bill Auction Results sAlm", Les.m M.1-ii, EM".en, investment P'iA` CUETP Term Del. Date Rate % get. . P" $10 u 4 WEEK 02 02-2012 03-0t-2012 0.050 0,051 99 996111 912795Z�6 13-W EEK 0 ' -0 2 2012 05-03-2012 0,050 , 051 99 9S7361 9127953N9 26-WEE K 02-02 2012 08 02 2012 0,075 , 076 99 962083 9l27955v3 4-W EEK 01-26 2012 02 23 2012 0 020 a 020 99,998444 912795738 13-WEEK 01 26 2012 " 26 2012 0 040 0 04i 99 9.9889 912795SK3 26 WEEK 0 1 26 2012 07 26 2012 0 , 70 D 07 99,964611 `12795�M 4 WEEK 01 19 2012 02 16-2012 D Ot5 0,015 99,998833 9t2795Z2. l3-.EEK ej 20 04-19 2012 0,025 0 025 99,993681 912795516 Z� -WEE 0 2 2 07 9-2012 a 060 061 99 69G67 127955X5 �-WEEK 01-12-2012 02-05-2012 0.000 0,000 100,000000 912795$C3 O-WEEK 01 12-2012 D4-12 200 0,010 0.010 99.997472 9127ll,5110 26_W EEK 01-12-ZOlZ 07-12-2012 uO50 0,051 99.974722 912795b.' 52-WEEK 01-12-2012 01-10-2013 0�105 0.107 99,893033 9127955`V� 4-WE�K at 05-20l2 02-02-2012 0,000 0,000 100,000000 412795YBB 13 W �EK 01-05 2012 Oe 05 2012 0 015 � 015 lq �96208 9127953H2 26-WEE K 01 0 5 _ 2012 01-05 2 0 2 0 055 0 l56 99 9771�4 9127955UI 4 WEEK 12-79-2011 01 26-2012 0 000 0 00. 100,000000 9127qs'" 13-w EEK 2 9 03 0:� 0 " 5 l US 9�.�9368l 1121955M 26 WEEK �2 2-29 ;9-' , - 8 20 2 0 055 0 056 q9s72N4 9127953W9 4 WEEK 0 22-20�: 01-19 2012 G 000 OMO 10OX00000 917795Ye2 13 WEEK Q-22-20 03 22 2012 OM05 0,005 qg,998736 912795SE7 26-WEEK 12-22-2011 06 21 2012 O.M 0,041 99,l179776 9127�IS�I 4 WEEK DI-11 2112 D.0.0 0 000 10 000000 9117qS'Y6 13 - WEEK 2- 5-20 03 - o 0 010 a 010 99 991472 9127955D9 26 WEE K 1 2- 1 5 2 011 15-2012 06 4 2 2 0,045 0 0�5 99 112SO 9127"SSG 52 WEEK U tS-2oul 12-13 702 0 110 . 112 99 888776 9�2795SQO 4 WEEK 08-20tl 01-05-2012 0,000 OX00 10OX00000 9127954A6 13 -W EEK iz 0: 2011 03-08 2012 0,005 O.ODS 99,9987326 9�27953G4 26 EEK 12 2-0 20 1 06-0 7 20 2 0 050 0 0 51 99 914 72 9 21955.8 4-WEEK 2-0 '_2 ' i , i 2-29_20 1 1 0 020 K.20 9, 998444 912n53Z2 l3 WEEK 12-01-2011 03-0l 2012 0 030 0 031 99 992,117 91219SZ46 26-WEEK 05-31-2012 0 070 0 071 99 964 6 11 912/9�358 4 WEEK �2-01-20 1 2 5 2 0�� 1 2-22-2011 0 020 0 020 99 9 9BSOO 9127953Y5 O-WEEK �1-25 _2 011 0 2-23 2012 a 015 0 015 99 996250 912195138 26 WEEK 11 25-2011 05-24-2012 0 050 0 osl 99974861 912795SP2 �-VVEEK 11-17-2011 12-15-2011 0 005 0 005 99 999611 9t2795217 3-WEEK 2 0246-2012 0 010 0 010 99,997412 912795770 6-WEEK ��177-2001111 05-0-2 , 12 0.040 0,041 99,979110 9127955N) 52 WEEK 11-17- ft� 20 OJOO 0,0? 99.698889 912795SLI 4-WEFX 11 10-2 1 r-15-2012 2-08-2011 ohoo 0 000 100,000000 9127953X7 Effeajve with the 11/2/98 auction, all bills am auctioned using the stogle-priced method, lf 1,flr,,M — All I LI, K G�Idlrll I Pn,ac, & L,g,il N.Ircl, I A',tIft" I All, I A l,o Itsl., I AIllI1,110i, I D,11 Q,,IlLY "S E ........ W" ft"ll e,"" 13",,-10111 pl"I'l Olb, 4 http://www.treasurydirect.gov/RI/OFBills 2/1/2012 1 I-cCUCHL INUIL10, OUHU, W1U I ILE 0 1TklWLtL1VI. - -I- - __ . TreasuryDirect I to c" I ol ItIItcrc I Afro, ` Z11111", N.t' � "'i" , I I L"It AU, I., � M IT, , I- , , N " , , � � , I "I [ � 11c 11 � T,), I1,111 I'll Recent Note, Bond, and TIPS Auction Results Security Ter. TYRA Isma'. M.I."" OU.IA.I IlIeld P'N,� CUSU, D�I. D.I. R.I. YY I P,e' $too 2 AAR NOTE 01-31 2012 01-31 2014 MS. 0 250 100,000000 912628SB7 5 YEAR NOTE 01-31-2012 01 31 2017 0 975 0 899 P9 882914 912828SC5 7 AAR NOTE 01-31-2012 01 31 Mg I.25D 1 359 99.274515 912828SD3 10-YEAR IT M 01-31 20t2 01 15 2022 . 1�5 -BRIE ICI,661834 912029SAD 3 AAR NOTE 01-17 2012 01 15 20IS 0.250 0,370 99.642968 912828RZS -YEAR 10-MONTH NOTE 01-17 2012 1145-2021 zoaa 1,900 100,890462 912828NR3 1 29-YEAR 10-MONTH BE N 0 BY 17 20�2 11-15 2041 3 125 2.985 102 746M9 912810QTS 2 YEAR 'ME 01�03 20 2 2 31 201Y 112, 0 240 99,77163B 912828RW2 5 YEAR NOTE 01-03-2012 12 31 2Us 0,137� 0,880 99,975602 912828RXO 7 YEAR NOTE 01-03-2012 12-31 2016 1 375 1430 99 635210 91282ORYB 4 YEAR TMONTH TIPS 12-30-2011 04 15-2016 0 125 -0 877 107.098315 912828QDS 3 AAR NOTE 12-15-2011 12 11-1014 0 250 03S2 99 695876 912826RW 9 AAR VI -MONTH NOTE 12 15-2011 11 Is 2021 2 000 2 020 99aI9684 U2828RR3 29 AAR 11-MONTH BOND 12-15 2011 11-15 Z041 �A25 2 925 103 966337 912810QTS 2-YEAR NOTE ��- 0-2 j� 13 0 250 0.280 99 90209 91282SRS1 3B 0 SO-20 5 YEAR ROPE -3 20 -10 20�6 0.8�5 0 N37 99.697NI0 q,2828RU6 7-YEAR NOTE 11 -30 2 011 11 -30 20 8 t 1 5 1 15 99 734313 912"BAT9 9 YEAR 8 MONIK UPS 11 30-2011 07 15 2021 0 625 0 099 105,733846 �I?RIBRQV5 3 YEAR NOTE 11-15 2011 11-15-2014 0 375 0 319 99 9N079 91 ?8?SRQS 10-YEAR NOTE 11 15 2M 11-15 2071 2 000 2 030 99 721725 ql?828RR3 30-IFAR FORD 11 15 tell It is 7041 3 125 3 199 98 57951,1 q128NOI. 2-YFAR NOTE 10 31 2011 TO 31 2013 0 �so 0�261 99 939W 912.28R.1 5-YFAN NOTE 10 31 2011 10 31 20�6 1 000 1 055 99 732813 9178ZSRN� I AAR NOTE 10 3t zolf 10 31 20 8 750 1 791 99.73139s 912828RP7 29 YEAR 4 TIONTR IN AS 10 31 2011 02 It, 2041 2.1z' M99 132 9532�)7 912810QP6 3-YEAR NOTE 10-17-2011 10-15 2014 0 Soo 0,544 99,869476 9I2828RI6 9 YEAR 10-MONTH 140TE 10-17 2011 ta-IS 2021 2 12S 2,271 95 717572 91282RElit 29 YEAR 10 NORTH BOND 10 17 2011 08 15 20,11 3,750 3 120 112 160894 912910QSO YEAR 140TE 09 30-2011 09-30-2013 0 125 0,2,49 99 751770 9I1.11EA8 S-YEAN NOTE 09 30 2011 09-30 2016 1 000 1 015 99,927052 N128Z6RJ1 i 7-YFAR NOTE 09 10-2011 09 30-2018 1,375 1496 99,196680 912628101� 9 YEAR 10-IIONTH UPS 09-30-2011 07-15-2021 0,625 0 018 105.582684 912826Q�S 3-YEAFc NOTE 09 15 2011 09 IS 2014 0.25U 0 314 99.749466 912828RG/ 9-YEAR IX -MONTH NOTE 09-15-2011 08-15-2021 2,19 2,000 101,117612 912628NC6 29 YEAR 11 MCNTR BOND 09-15 2011 08-15 2041 3,/90 3,110 108,310327 91281OQ50 2-YEAR `Uf 08-31-20 08 31 2013 0 :�5 0.222 qq 806537 9��:ZIIEDI 0�1 4-YEAR E-MONTH TIES 0:-31-20,1 04-15-2016 0 25 0 $25 106 852530 9 28QD5 S_Yw NOTE 0 31-2 1 08 31 2016 , , 00 1.029 'ei IN9020 912828RF9 7 YEAR NOTE 06 31 2011 08 31 201a 1 500 1,5800 99 471B28 91282BRE2 3-YEAR NOTE 08-:15-20 1 08 15-2 0 14 0 5 00 0 so 100 000000 917629R.8 Denotes TIPS bond; all other TIPS Mthout asterisks are notes Freedoot & 10,1111N'= Act I I," s G-ldanc� I Prrvac,,& Ltctal Notice$ I W'1_5tte TcrNs & Cordltot,cs I ACYY�SIWMI I Dcn� Qumk' I-1, Deparcocent of file Tie-tir,, Bui�au (if th'P.he III, http://www.treasurydirect.gov/RI/OFNtebnd 2/1/2012 5 Printer Version - Board of Governors of ttie I ecieral Keserve ;!)y swn, Selected Interest Rates (Daily) - H. 15 Current Release Release Dates Daily Update Historical Data About Announcements DailyUpdate -.1 � ----- ------- ----------------- ..... ........ ...... . .... ...... 11 ---------- -------- -------- ------ - - ------- Release Date: January 31, 2012 The weekly release is posted on Monday. Daily updates of the weekly release are posted Tuesday through Friday on this site. If Monday is a holiday, the weekly release will be posted on Tuesday after the holiday and the daily update will not be posted on that Tuesday. January 31, 2012 Selected Interest Rates Yields in percent per annum 2012 Instruments Jan 30 1 2 3 Federal funds (effective) 0.09 commercial Paper 3456 Nonfinancial 0.06 1-month 0.13 2-month 0.15 3-month Financial n.a 1-month n.a. 2-month 0.20 3-month CDs (secondary market 3 7 -- 0.19 1-month 0.35 3-month 0.54 6-month Eurodollar deposits (London) 3 8 0.35 1-month 0.50 3-month 0.78 6-month 3.25 Bank prime loan 239 http://www.federalreserve.gov/Releases/fl I 5/update/ 2/1/2012 6 Printer Version - Board of Governors of the Federal Reserve �)Ystenl 1 "6' . �. - Discount window primary credit 2 10 0.75 U.S. government securities Treasury bills (secondary market) 34 0.05 4-week 0.05 3-month 0.08 6-month 0.11 1-year Treasury constant maturities Nomina 0.05 1-month 3-month 0.05 0.08 6-month - 0.12 1-year 0.22 2-year 0.31 3-year 0.73 5-year 1.27 7-year 1.87 10-year 2.64 20-year 2.99 30-year Inflation Indexed 1 2 -1.14 5-year -0.74 7-year -0.24 10-year 0.42 20-year 0.68 30-year Inflation -indexed long-term average 13 0.36 Interest ra e swaps 14 0.52 1-year 0.55 2-year 0.63 3-year 0.80 4-year 1.04 5-year 1.50 7-year 1.97 10-year http://www.federalreserve.gov/Releases/H I 5/uPdate/ 2/1/2012 7 Frinter version - ijoaraoi tiovernors Ln uic rruviai �v��lv� oya-111 � -5- - — 30-year 2.70 Corporate bonds Moody's seasoned Aaa is 3.77 Bea 5.12 State & local bonds Conventional mortgages 17 n.a. Not available. Footnotes 1. The daily effective federal funds rate is a weighted average of rates on brokered trades. 2. Weekly figures am averages of 7 calendar days ending on Wednesday of the current week; monthly 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 settled by The Depository Trust Company. The trades represent sales of commercial paper by dealers or direct issuers to investors (that is, the offer side). The 1, 2-, and 3-month rates me equivalent to the 30, 60, and 90-day dates reported on the Boards Commercial Paper Web page (www.feder-,ilrese�e.gov"releases/cp,'). 6. Financial paper that is insured by the FDIC's Temporary Liquidity Guarantee Program is not excluded from relevant indexes, nor is any financial or nonfinancial commercial paper that may be directly or indirectly affected by one or more of the Federal Reserve's liquidity facilities. Thus the rates published after September 19, 2008, likely reflect the direct or indirect effects of the new temporary programs and, accordingly, likely are not comparable for some purposes to rates published prior to that period. 7. An average of dealer bid rates on nationally traded certificates of deposit. 8. Source: Bloomberg and CTRB ICAP Fixed Income & Money Market Products. 9. Rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.�chartered commercial banks. Prime is one of several base rates used by banks to price short-term business loans. 10. The rate charged for discounts made and advances extended under the Federal Reserve's primary credit discount window program, which became effective January 9, 2003. This rate replaces that for adjustment credit, which was discontinued after January 8, 2003. For further information, see w.ww.federalroqetwe.go,v,boarcl(locs/press,�bctQg,12002,/200210312.,'(Icf�tult.htiTi. The rate reported is that for the Federal Reserve Bank of New York. Historical series for the rate on adjustment credit as well.w the rate on primary credit are available at wivw.federairesene.gov,releases,/tiI 5/diftlum. http://www.federaireserve.gov/Releases/H 15/update/ 2/1/2012 rrimer v ersion - DouTu ui uu v vi au, b u, uo� i �uci at i��avi v , �.y �,v... . -I,- . — 11. Yields on actively traded non -inflation -indexed issues adjusted to constant maturities. The 30-year Treasury constant maturity series was discontinued on February 18, 2002, and reintroduced on February 9, 2006. From February 18, 2002, to February 9, 2006, the U.S. Treasury published a factor for adjusting the daily nominal 20-year constant maturity in order to estimate a 30-year nominal rate. The historical adjustment factor can be found at ww�v.treasul,�.gov./reso�irce-center/data-chart-ceiiter'linterest-rates/. Source: U.S. Treasury. 12. Yields on Treasury inflation protected securities (TIPS) adjusted to constant maturities. Source: U.S. Treasury. Additional information on both nominal and inflation -indexed yields may be found at www.treaSLiry.g(�v,'resotirce-center/d�it�t-cliirt- center/interest-rates/. 13. Based on the unweighted average bid yields for all TIPS with remaining terms to maturity of more than 10 years. 14. International Swaps and Derivatives Association (ISDA(&) mid -market par swap rates. Rates are for a Fixed Rate Payer in return for receiving three month LIBOR, and are based on rates collected at 11:00 a.m. Eastern time by Garban Intercapital pic and published on Reuters Page ISDAFIXOL ISDAFIX is a registered service mark of ISDA. Source: Reuters Limited. 15. Moody's Aaa rates through December 6, 2001, are averages of Aaa utility and Am industrial bond rates. As of December 7, 2001, these rates we averages of Am industrial bonds only. 16. Bond Buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations. 17. Contract interest rates on commitments for fixed-rate first mortgages. Source: Primary Mortgage Market Survey& data provided by Freddie Mac. Note: Weekly and monthly figures on this release, as well as annual figures available on the Board's historical 1115 web site (see below), are averages of business days unless otherwise noted. Current and historical H. 15 data are available on the Federal Reserve Board's web site (ww�.federalrescr ' ve.gov,j). For information about individual copies or subscriptions, contact Publications Services at the Federal Reserve Board (phone 202-452-3244, fax 202-728-5886). Description of the Treasury Nominal and Inflation -Indexed Constant Maturity Series Yields on Treasury nominal securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve for non -inflation -indexed Treasury securities. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The constant maturity yield values are read from the yield curve at fixed maturities, currently 1, 3, and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. Similarly, yields on inflation -indexed securities at "Constant maturity" are interpolated from the daily yield curve for Treasury inflation protected securities in the over-the-counter market. The inflation -indexed constant maturity yields are read from this yield curve at fixed maturities, currently 5, 7, 10, and 20 years. http://www.federalreserve.gov/Releases/Hl 5/update/ 2/1/2012 Printer version - tsoara or uovvruul� u, ,, , � �j --- Commercial Paper Summary Rates Volume Statistics Outstanding Year-end Maturity Distribution About Announcements Commercial Paper Rates and Outstanding Summary Derived from data supplied by The Depository Twat & Clearing Corporation --- --- - --- - ------ ------ ----- Data as of January 31, 2012 Posted February 1, 2012 The commercial paper release will usually be posted daily at 9:45 a.m. However, the Federal Reserve Board makes no guarantee regarding the timing of the daily posting. This policy is subject to change at any time without notice. R vitpiz Period AA nonfinancial A2/P2 nonfinancial 1- day 7- day is- day 30- day 60- day 90- day 1- day 7- day is- day 30- day 60- day 90- day Jan. 25 0.05 0.07 0.08 0.09 0.13 0.12 0.37 0.37 0.43 0.46 0.51 n.a. Jan. 26 0.05 0.04 0.12 0.08 0.11 0.15 0.37 0.40 0.42 0.48 0.40 n.a. Jan. 27 a 0.04 0.11 0.12 0.07 0.10 n a 0.37 0.37 - 0.39 0.43 0.45 0.44 n.a. 0.39 0.41 047 0 - 38 n.a. 0 r3an30 0.04 0.10 0.07 0.06 0.13 0 .1 5 Jan. 31 - 0.041 0.061 0.07 1 0.081 0.11 1 3 OJ 0.39 0.39 0.44 -�,19-a. - Note: n.a. indicates that trade data was insufficient to support calculation of the particular rate. Period AA financial 1- day 0.25 0.24 0.24 0.22 0.24 AA asset -backed 1- day 7- day Is- day 30- day 60- day 90- day 7- day is- day 30- day 60- day 90- day 0.52 0.63 0.23 0.34 0.30 Jan. 25 0.03 n.a. n.a. n.a. n.a. 0.32 0.51 0.38 0.31 0.29 0.30 Jan. 26 0.03 n.a. n.a. 0.12 n. a. n.a. 0.39 0.49 0.25 0.21 0.31 Jan. 27 0.03 n.a. n.a. n.a. n.a. 0.31 035F 0.18] ' 0.47 0.38 0.27 Jan. 30 0.03 n.a. n.a. n.a. a 0.20 0 0.39 ' ___ __F_ 0728 0.48 0.33 0.36 Jan. 31 0.03 n.a. 0.101 n. a. 11 �na n.ao Note: n.a. indicates that trade data was insufficient to support calculation of the particular rate. Outstanding Levels Seasonally adjusted Billions of dollars 10 http://www.federalreserve.gov/Releases/CP/ 2/1/2012 Printer Version - 13oarci or uovernors vi Ln� 1 �u -i -- :,,d_ � I i:i I:al Nonfinancial Financial Asset- backed Other F Total D mestiC Tn. r,. i eign _,n Monthly -end levels 2011-Sept. 1,028.5 167.1 130.7 36.4 513.8 320.4 193.4 347.6 .0 Oct. 1,019.0 186.7 147.0 39.6 490.8 299.1 191.8 341.5 .0 Nov. 993.3 187.6 149.3 38.2 479.3 292.5 186.8 326.3 .0 Dec. 937.5 174.9 139:1 35.8 434.4 269.2 165.3 328.0 .2 2012-Jan. 976.1 189.7 153.7 36.0 446.0 277.3 168.7 340.3 .1 Weekly (Wednesday) levels Dec. 28 959.3 195.3 157.9 37.4 435.9 28W3.1 152.7 328.0 .2 Jan. 4 929.2 169.6 132.9 36.6 1 422.1 280.2 141.9 337.4 .2 Jan. 11 963.0 185.5 148.1 37.4 428.8 280.1 148.6 348.6 .2 Jan. 18 968.0 187.5 150.6 37.0 442.0 290.8 9 151.2 338.2 .1 Jan. 25 971.4 191.0 154.2 36.8 1 446.7, 293.5 153.2 5 333.5 .1 Not seasonally adjusted Billions of dollars P I eriod I I tal Nonfinancial F;inancial set Asset- =backed Other ot7al FT :Fo 1! 111 E tali FTo Domestic Fo reie ign Monthly -end levels 2011-Sept. 1,004.4 158.6 124.7 34.0 495.6 309.0 186.6 350.2 .0 Oct. 1,027.1 193.8 159.4 34.4 480.6 291.3 189.3 352.7 .0 Nov. 1,006.5 187.0 155.6 31.4 471.4 289.1 182.2 348.1 .0 Dec. 969.2 146.3 116.2 30.2 472.4 291.7 180.6 350.4 .2 2012-Jan. 1 1,021.61 181.6 1 148.5 1 33.1 1 498.8 1 302.2 196.6 341.1 .1 Weekly (Wednesday) levels - Dec. 28 982.6 160.2 128.6 31.5 472.6 297.5 175.0 349.8 .2 Jan. 4 987.2 165.3 135.1 30.1 470.3 295.6 174.6 351.5 .2 Jan. 11 1,009.5 178.0 145.4 32.6 479.9 296.1 183.8 351.5 .1 Jan. 18 1,014.2 182.5 149.1 33.4 487.0 302.0 185.0 344.5 .1 Jan. 25 1,024.9 1 187.0 1 154.2 1 32.8 496.5 307.1 189.3 341.3 .1 Return to -top I I http://www.federalreserve.gov/Releases/CP/ 2/1/2012 City of La Quints Cash Fli Budget to Actual December 31. 2011 Cash Basis ET�-dg,t -Act.al --Xccnal I Adjusted Total Varance Account 12/11 12/11 Adjustment 12111 Over(Under) Notes Received Supplanxi Property Taxl Tax Increment Transient Occupancy Tax Sales Tax SilverRock Golf Library 1,489,325 335,896 485,%2 191,630 - 1,604.816 585.665 595,677 W9,572 638 1,604,816 5l 595677 309,572 638 115491 249,769 109,715 117.942 638 Pro,per, Tax TOT tritna, than budgei Higher munds than budgeted Developer Fees $651, underibudget; Washington S' that revenues 620,172 421,568 121 (1943,604) pts $56kun&rbudget Revenues 3,122,9114 3.317,936 .'Il 3N,i Expenditures Salaries & Fnnge Benefits 828,941 656,422 856,422 27,481 Did not pay Police i Public Works $2141, underbudget; �noraf Fund Other expenditures Subtotal 3269.271 1,019,471 1,019,471 (2,249,800 additional $3261, undenetAget 4,098,212 1,875,893 1,875,893 (2.222,319 Did not siffend 31251, for ..., ..I.Priffri Redevelopment Agency Debt Samoa (PrincipallInteresUPass Through) Subtotal 244,947 421,168 93.270 421.167 93,270 421,167 (151,578) (1) 2011 PA 2 Bund Fund 666,115 514.437 514, (151 678) capital Projects 1,853,492 1,851492 Total Expenditures 6.6 (2,373.997) Net RevenueslExpenditures (3,494,83511 Iriblessell 1725,886) 11,979,0451 NOTE 1: Expenditures are budgeted at 8,34% per month Difference between actual and budget (Un hit) DEPARTMENT Overspent Notes GENERAL GOVERNMENT- (6,807) 5 CITY CLERK (i COMMUNITY SERVICES (89,850) 6 FINANCE (22,631) BUILDING & SAFETY (10,i Building Dirl undentudgel PUBLIC SAFETY (1,052,055) Did not pay Police invoice PLANNING (39,852) PUBLIC WORKS. 104 958 street Maintenan. $1431, unde,tudgin SUBTOTAL - GENERAL FUND 1,431 154 Library - Gas Tax Federal Assistance JAG Grant Sli (Cops) Revenue CMAQ Lighting & Landscaping RCTC Development Agreement AB 939 Quirdby Infrastructure Proposition I B South Coast Air Quality (3,354) Transportation Parks & Recreation Cron Center Library Development Community Center Street Facility Pan, Facility Fire Protection Ads In Public Places (9,394) Interest Allocation Equipment Replacement (32.075) information Technology (23,240) Rd* Maintenance Facility (28,272) Sivei Golf (23,690) SiverRock Reserve LQ Public Safety Officer (167) Housing Authonty (114,615) Finance Authority (966) Supplemental Pension Plan Capital Improvement Total 12 INVESTMENT ADVISORY BOARD Meeting Date: TITLE: February 8, 2012 Pooled Money investment Board Report for December201 1 BACKGROUND: Correspondence & Written Material item B The Pooled Money Investment Board Report for December201 1 is included in the agenda packet. RECOMMENDATION: Receive & File NJohn Mf�!— POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF DECEMBER 2011 WITH DECE (DOLLARS IN THOUSANDS) ER 2010 Average Daily Portfolio $ 64,492,821 $ 711,663,106 $ .7,170,285 Accrued Earnings $ 20,892 $ 28,129 $ -7,237 Effective Yield 0.382 % 0.462% -0.08% I Average Life -Month End (in Days) 266 215 +41 Total Security Transactions Amount $ 17,298,374 $ 32,940,668 $ -15,642,294 Number 347 664 -317 Total Time Deposit Transactions Amount $ 2,209,000 $ 2,815,600 $ 406,600 Number 106 143 -37 Average Workday Investment Activity $ 928,923 $ 1,654,616 $ -825,693 Prescribed Demand Account Balances For Services $ 1,736,967 $ 1,249,666 $ +487,401 BILL LOCKYER TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) TYPE OF SECURITY Government Bills Bonds Notes Strips Total Government Federal Agency Debentures Certificates of Deposit Bank Notes Bankers'Acceptances Repurchases Federal Agency Discount Notes Time Deposits GNMAa Commercial Paper FHLMC/Remlcs Corporate Bonds AB 55 Loans GF Loans. NOW Accounts Other Reversed Repurchases Total (All Types) INVESTMENT ACTIVITY Pooled Money Other Time Deposits Totals PMIA Monthly Average Effective Yield December31,2011 2ffM&9hC-9jN PERCENT OF PERCENT OF EQEZEQL1QfR9X PORTFOLI PRIOR MOWrH $ 19,564,416 28.82 -2.27 0 0.00 0 14,535,901 21.42 +2.95 0 0,00 0 $ 34,1 50.24 +0.68 $ 1,807,559 2.66 +0.53 7,250,017 10.69 +1.94 0 0.00 0 0 0.00 0 0 0.00 0 4,791,501 7.06 -0.47 4,134,640 6.09 -0.19 30 0.00 0 1,909,169 2.81 -1.86 397,832 0.59 -0.03 0 0.00 0 307,643 0.45 -0.02 12,477,700 18.38 -1.16 0 0.00 0 699,920 1.03 +0.58 0.00 0 67,876,317 100.00 DECEMBER 2011 NUMBER AMOUN 347 $ 17,298,374 28 820,885 106 � 26201010 === =A=. 481 $ 20,328,259 0.382 NOVEMBER 2011 NUMBER AMOUN 394 $ 19,581,552 19 $ 879,303 110 $ 1,786,980 523 $ 22,247,835 0.401 Year to Date Yield Last Day of Month 0.389 0.391 Pooled Money Investment Account Portfolio Composition $67.9 Billion Corporate Bon 0.00% Commercial Pape 2.81% Time Deposits 6.09% CDs/BNi 10.69% 12/31/11 Loans Agencies 10.75% Mortgages 0.59% 3 Treasuries 50.24% INVESTMENT ADVISORY BOARD Correspondence & Written Material Item C Meeting Date: February 8, 2012 TITLE: Money Market Funds Handout BACKGROUND: The attached article was provided by Board Member Mortenson updating the Board on the current status of Money Market Funds. RECOMMENDATION: Information item only. John M. Falconer, Finance Director _1� . - "u"VIOAM111 Page I of 6 Dow Jones Reprints: This COPY is for your personal, non-commercial use See a sample reprint in PDF format only. To order Presentation -ready copies for distribution to your Colleagues, Order a reprint of this article now clients or customers, use the Order Reprints toof on any article or visit www.djreprints.com BARRON'S COVER I SATURDAY, JANUARY 7, 2012 Broken Forever? By BEVERLY GOODMAN Money-marketfunds are suffering a perfect storm ofeconomic and regulatory issues. But itis investors who should batten down the hatches. What's the difference between a piggy bank and a money-market ftind? Not much. Neither is insured, and the returns are basically the same: nothing. The average money fund these days pays just two basis points, Or 0.02%. A third of them pay nothing at all. Yet in November and December 2011, investors put more cash into money funds -- $91.7 billion -- than they had since December 2008 and January 2009, when $195 b lion po th tri ti into the funds. Retail assets account for about a third of il ured money-market funds. e $2.7 Ilion held in domes c The reason for that is safety. And that's where the trouble begins -- both for the companies that run money-market funds and the individuals who stash their money there. There are three big reasons for this, starting with the Federal Reserve. The Fed has made clear that it Plans to keep overnight rates at their historic lows, which means that the securities money funds buy are also yielding exceedingly low rates. And low rates make it exceptionally hard -- virtually impossible, in fact -- for the funds, and therefore investors, to make any money. L Eniarg Irnag, Randy Lyhus for Barron's It's a lot easier to generate a respectable yield for investors and collect a fee when interest rates are at 9.5%, as they were in 1989, or even at 3.5%, as they were in the beginning Of 2008. But since the financial crisis hit, the Fed has lowered its target overnight fed -funds rate to 0.25%. The London Interbank Offered Rate, or LIBOR, the Furopean benchmark interest rate, http://online.barrons.conVarticlelSB50001424052748704330804577139010061430508.html... 1/7/2012 I'vLovul Darfuns.coul Page 2 of 6 is at the same level. Most money-market fund expense ratios, meanwhile, range from 0.15% to 0.5%, though some can run higher. Many money funds have waived all or part of their fees to keep investors from losing money. The largest funds, including those offered by Fidelity investments, Federated Investors and Vanguard, will likely continue to keep investors "whole," but smaller funds may be less inclined. "A lot of funds are just biting the bullet for now, forgoing fees and not making money," says Joan Ohlbaurn Swirsky, an attorney with Stradley Ronon in Philadelphia who specializes in advising money funds. 'That can be a costly proposition." How costly?Ibree years ago, the money fund industry brought in $13 billion in revenue. In 2011, that number fell to an estimated $5A billion. "But how much does it really cost to run a money fund?" says industry expert Peter Crane of Crane Data. "A couple of million will cover the portfolio managers and Bloomberg terminals." So while revenue has been decimated, money -fund operators are still making money. THE REGULATORY ENVIRONMENT is another challenge, and many money fundsjust finished complying with SEC rules that were passed and implemented in 20jLo. The rules, which caused many funds to rejigger their portfolios, are aimed at reducing risk, ensuring liquidity and increasing transparency. (For a quick take on money-market funds and the rules that govern them, see "A Brief History of Money -Market Funds" at the bottom of the article.) Not surprisingly, most in the industry argue more rules aren't needed or should at least be delayed. "This was a very, very impactful change in terms of how funds are positioned," says Nancy Prior, president of Fidelity's money-market group. "Since these changes, money funds have been through the near -default of the U.S. government in July, the downgrade in August and the continuous deterioration across Europe. And yet the funds have done very well and have been flush with liquidity in this time of incredible duress." However, some powerful forces urge more rules and oversight. Former Fed chief and current regulatory gadfly Paul Volcker has argued strongly for greater regulation. "Free of capital constraints, official reserve requirements and deposit insurance charges, these money-market ftmds are truly hidden in the shadows of banking markets," he said in a September speech. Many of the newer proposed regulations are aimed at preventing the proverbial run on the bank, which is more innocuously known as the "first -mover advantage." When investors either sense or actually spot a problem with a money fund, the first to withdraw generally can get all their money. But as assets shrink, problematic holdings become a larger portion of the fund, making it more likely to break the buck, leaving the less -panicked investors to bear the cost. A few proposed regulations focus on a capital buffer, which would essentially be a stash of money that's put up by either the fund management, the shareholders or a combination of the two. http://�nline.barrons.comlarticlelSB50001424052748704330804577139010061430508.htmi... 1/7/2012 ------- FULUVUI DarrOnS.COM Page 3 of 6 "If the regulation requires fund companies to provide the capital, it could create an oligopoly," says Deborah Cunningham, Federated Investors'chief investment officer for taxable money- market fonds. "The smaller players won't be able to put up the money. You can't get blood from a stone." The most dramatic regulatory proposal is one calling for a floating NAV, or net asset value. That would mean that money funds would no longer be able to round their share price to a dollar. "People see that as a nuclear alternative," Swirsky says. "A floating NAV really changes what money�market funds are." What's more, Swirsky points out, a 2009 study by the Investment Company Institute, the lobbying and policy arm of the mutual -fund industry, showed that short-term bond funds suffered significant outflows in troubled markets. "In other words," Swirsky says, "a floating NAV won't prevent runs." The third major challenge for the industry is the supply of available investments. New banking regulations encourage longer -term financing, which means the supply of shorter -term debt is shrinking. Proposed regulations for the sponsors of asset -backed securities require those debt issuers to keep a certain percentage of the value to back up the securities to keep skin in the game. That could make asset -backed securities more costly to issue, which also would constrain the supply of a security in which many money funds invest. This supply constraint, paired with an increase of demand for shorter -term investments as a result of new regulations, means that already -low yields will remain under pressure. "The main challenge for money-market funds will be to navigate these supply constraints, while maintaining fund credit quality," says Moody's senior analyst Michael Eberhardt in a recent report. WITH THE INDUSTRY UNDER so much pressure, it's likely that investors will see some fallout. The notion of a negative yield -- which amounts to investors'losing money or, more politely phrased, paying for safety -- is dismissed by the biggest funds. "Advisors are already subsidizing portfolios to keep yields positive," says David Glocke, head of Vanguard's money- market group. "There's no reason for that to change. A lot of advisors are in this for the long haul. This isn't an asset class we're walking away from." That's probably true for the biggest players, says Crane. The money-ftind industry is highly concentrated. More than 75% of all money -fund assets are in io firms, as of Nov. 3o, according to Crane Data. Fidelity is by far the largest, with $423.5 billion in money-fand assets, or 17% of http;llonline.barrons.comlarticielSB50001424052748704330804577139010061430508.htmI... 1/7/2012 �Vvl: - Fage 4 ot 6 the industry total (see table). And nearly 96% of A assets are held by just 25 firms. The rest is spread out among more than 5o firms. As the industry remains under pressure, chances are that the concentration among the top firms will become even greater. "We will undoubtedly see more consolidation, but less than people expect," says Crane. "Most of the consolidations or liquidations we've seen are from funds run by AARP and PayPal. They were never really in the business in the first place." The notion of paying for safety, however, isnt far-fetched, Crane says. "Negative interest rates are nothing new. They used to be called checking accounts," he says. "For centuries, people have paid banks to hold money, not the other way around. There's always been a price for safety, and people are always willing to pay." "The o% interest -rate regime has socialized the money-market industry," says James Grant, editor of Grant's Interest Rate Observer and a noted skeptic. "There's no amount of work they can do to make it worthwhile for the investor." That's because all money funds -- aside from those that invest only in U.S. Treasury securities -- contain some risk. The European debt owned by many funds has garnered a lot of attention, but that isn't the only problem, Grant says. He points to the fact that many ftmds hold debt issued by Goldman Sachs (ticker: GS), Credit Suisse (CS), Citigroup (C) and the like. "These are all still highly levered companies that got into trouble the last time. Why not again?" Contrary to the insistence of the money -fund industry, there are safer -- and in some cases, better -yielding -- alternatives. Before sizing them up, you first must look at why your money is in cash in the first place. For example, money-market fimds are necessary for investors to easily enter and exit the market. From an investing standpoint, that is the main purpose of cash. "The virtue of cash is not what it earns you," Grant says. "It's that it affords you an opportunity if an asset class steps in front of a bus. That is the point of cash -- for unexpected investing opportunity." All -Treasury money funds are offered by Fidelity, Federated, Vanguard and all of the major money-market houses. Another altemative: funds that invest Treasuries and government -backed paper from the likes of Fannie Mae and Freddie Mae. IF SAFETY IS YOUR CONCERN, you're better off in an account insured by the Federal Deposit Insurance Corp. Checking, savings and money-market deposit accounts -- unlike money ftmds -- are insured by the FDIC up to $250,000 per account holder per institution. (Money invested in money-market funds prior to Sept. 18, 2008, was briefly protected by the federal govemment in the aftermath of the financial crisis, but that protection expired in September 2009.) And today's low -rate environment is perversely beneficial for some bank accounts -- non -interest -bearing accounts have unlimited protection through 2012, and there's talk of extending that guarantee. That means giving up a basis point or two in return, but that's a small price to pay for insurance. http://online.barrons.comlarticlelSB50001424052748704330804577139010061430508.html... 1/7/2012 �&V�VIA A VL�VVI 4 - �4U1k)Jjb.WM Page 5 of 6 Retail investors seem to have caught on. The $2.7 trillion money -fund industry peaked at $3.9 trillion three years ago. Though many of those Outflows were from institutional funds, individuals withdrew more on a percentage basis. A Very Concentrated Industry More than 75% of all money -fund assets are held by 10 firms, and 95.7% of all money - fund assets are housed in the top 25 firms. Fund Family Fidelity JPMorgan Federated Vanguard Schwab Dreyfus Blackkock Goldman Sachs Wells Fargo Northern As of 11/30/11 Source: Crane Data Assets (bil) $423.5 249.2 243.3 163.9 157.0 154.1 145.1 140.0 130.2 67.9 Market Share 17.0% 10.0 9.7 6.6 6.3 6.2 5.8 5.6 5.2 2.7 If you're looldng to eke out a bit more return, you still can do so in an insured account. And, in some cases, you might not even have to leave your brokerage to do so. Fidelity, Charles Schwab (SCHW), E*Trade (ETFC) and virtually all their rivals offer a checking account with FDIC protection. When these accounts were introduced, they were billed as "high -interest checking," but these days that moniker has been dropped, though you still might do better in them than in some money funds. On average, interest -rate checking accounts yield 0.23%, while regular savings accounts with at least $10,000 in them yield o.ig%, according to data provider iMoneyNet. Certificates of deposit are another alternative. You will get, on average, o.19% for a three - mouth CD, and 0.29% for a six-month. While CDs generally assess a penalty of go or i8o days' worth of interest for early withdrawals, the extra yield you will pick up on a longer -term CD might still make the proposition worthwhile. Ally Bank, for instance, offers a four-year CD that pays 1.6%, with a 6o-day early withdrawal penalty. If you are hoarding a particularly large emergency or short-term cash reserve, you can also consider a two -tiered system, keeping half or two-thirds in an FDIC -insured account and the rest in a short-term bond fund, like the T. Rowe Price Short -Term Bond Fund (PRWBX), which yields 2.3% In sum, money-market funds, which were created in the 1970s to give investors a better shake than non -interest -bearing bank accounts, look badly broken. And they are likely to stay that way as long as the no -yield environment persists. But that won't last forever. Until then, the riskiest funds are those with assets of $i billion or less that are not part of a larger institution. if your cash is in one of them, consider moving it now, while you still can. A Short History ofMoney-Market Funds Money-market funds have a storied past and a daunting future. The first sponsor, the now - infamous Reserve Fund, was established in 1971 via a regulatory loophole that circumvented a rule that limited the interest that banks could pay on demand deposits. Within 25 years, there were 487 funds. By iggg, the number of funds had risen to 1,045 with $1.6 trillion in assets. http://online.barrons.comlarticlelSB50001424052748704330804577139010061430508.html... 1/7/2012 -1 __ �.�V�A 1 �Wlvus.com Page 6 of 6 Assets peaked at $3.9 trillion in 2009, but consolidation had brought the number of funds down to 704. The Reserve Primary fund was one of the largest. The Reserve Primary Fund made headlines in 2oo8 when it "broke the buck" as a result of owning too much debt issued by Lehman Brothers. The Primary Fund, which had assets of $63 billion at the time, held just $785 million in Lehman -issued securities -- about 1.25% of the fund's total assets. But investors got spooked and withdrew their money in droves, leaving the fund unable to meet redemptions. The next day, the fund announced that its net asset value had fallen to 97 cents. The Reserve Primary Fund has since been liquidated and its parent, the Reserve Management Co., was charged with fraud and misleading investors. Breaking the buck, in other words, also breaks the fund and, if poorly handled, also can break the company. Money-market funds don't calculate their net asset values the way mutual funds do, by dividing the funds'total assets by the number of shares. Instead, they're essentially allowed to assume that their NAV is always $ i, so long as their "shadow NAV," which is also calculated weekly, doesn't fall below 99.5 cents. Because of the short-term nature and high quality of the securities that money funds buy, this hasn't been seen as a problem -- until recently. In 2010, the Securities and Exchange Commission, which oversees money-market funds in accordance with the same rules that govern mutual funds, quietly but significantly introduced requirements for their portfolio holdings. Money funds now must hold 10% of their assets in securities that can be liquidated for cash in one day and 30% in seven days. They also had to reduce the maximum weighted average maturity of their holdings to 6o days from go days. The new regulations also allow a fund that has broken the buck (or is about to do so) to suspend redemptions to allow for "the orderly liquidation of fund assets." -- B.G. E-mail: editors@barrons.com Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non -personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com httP:Ilonline.baffons.comlarticielSB50001424052748704330804577139010061430508.htniI... 1/7/2012