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RDA Resolution 1998-003d_% RESOLUTION NO. RA 98-03 A RESOLUTION OF THE LA QUINTA REDEVELOPMENT AGENCY OF THE CITY OF LA QUINTA, CALIFORNIA APPROVING AND ADOPTING THE AMENDED INVESTMENT POLICY FOR FISCAL YEAR 1998199. WHEREAS, the general purpose of the Investment Policy is to provide the rules and standards users must follow in investing funds of the City of La Quinta; and WHEREAS, the primary objectives, in order of priority, of the City of La Quinta's investment activity shall be: Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio in accordance with the permitted investments. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designated with the objective of attaining a market rate of return or yield throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. WHEREAS, authority to manage the City of La Quinta's investment portfolio is derived from the City ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish and implement written procedures for the operation of the City's investment program consistent with the Investment Policy; and WHEREAS, the Investment Policy will be adopted before the end of June of each year and amended as considered necessary; and NOW, THEREFORE, BE IT RESOLVED by the Redevelopment Agency of the City of La Quinta to adopt the amended 1998/99 Fiscal Year Investment Policy Exhibit A). PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta Redevelopment Agency, held on this 1 6th day of June, 1 998 by the following vote: BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%Resolution No. RA 98-03 Adopted: 6116198 Page 2 AYES: Members Adolph, Henderson, Pena, Sniff, Chairman Perkins NOES: None ABSENT: None ABSTAIN: None RON PERKINS, Chairman La Quinta Redevelopment Agency ATTEST: AUNDRA L. J HOLA, Secretary La Quinta Redevelopment Agency APPROVED AS TO FORM: DAWN C. HONEYW?L, Agency Attorney La Quinta Redevelopment Agency BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% CI?ry OF LA QUINTA Investment Policy it iLents Page Section TODIc 2 Executive Summ?ry I General Purpose 4 II Investment Policy 4 4 III Scope 5 Iv Objectives Safety Liquidity Yield V Prudence 6 VI Delegation of Authority 6 VII Conflict of Interest 7 VIII Authorized inanciaI Dealers and Institutions 7 Broker/Dealers Financial Institutions IX Authorized Investments and Diversification 8 Investment Pools 11 XI Collateralization 12 XII Safekeeping and Custody 12 XIII Interest Earning Distribution Policy 12 13 XIV Maximum Maturities XV Internal Controls 13 XVI Benchmark 14 XVII Reporting Standards 15 XVIII Investment of Bond Proceeds 15 XIX Investment Advisory Board City of La Quinia 16 XX Investment Policy Adoption 16 Appendices Authorized Investments and Diversification 17 Municipal Code Ordinance 2.70- Investment Advisory Board 18 Municipal Code Ordinance 3.08- Investment of Moneys and Funds 19 Listing of Approved Financial Institutions 21 Broker/Dealer Questionnaire and Certification 22 Investment Pool Questionnaire 26 Segregation bf Major Investment Responsibilities 30 Glossary 31 1 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% City of La Quinta Investment Policy Executive SUI4?p?? The general purpose of this Investment Policy is to provide the rules and standards users must follow in investing funds of the City of La Quinta. It is the policy of the City of La Quinta to invest all?public funds in a manner which will provide a diversified portfolio with maximum security while meeting daily cash flow demands and the highest investment return in conformity to all state and local statutes. This Policy applies to all cash and investments of the ity of La Quinta, La Quinta Redevelopment Agency and the La Quinta Financing Authority, hereafter referred in this document as the City". The primary objectives, in order of priority, of the City of La Quinta's investment activity shall be: Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designed with the objective of attaining a market rate of return or yield throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Investments shall be made with judgment and care under circumstances then prevailing which persons of prudence discretion, and intelligence exercise in the management of their own affairs; not for speculati6n, but for investment, considenng the probable safety of their capital as well as the probable income to be derived. Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish and implementwntten pr6cedures for the operation of the City's investment program consistent with the Investment Policy. The Treasurer shall establish and implement a system of internal controls to maintain the safety of the portfolio. In addition, the internal control system will also insure the timely preparation and accurate reporting of the portfolio financial information. The adequacy of these controls will be reviewed and reported on annually by an independent auditor. 2 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance to a reasonable person of questionable or improper influence. The City of La Quinta maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions selected by the Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The Treasurer will be permitted to invest only in City approved investments up to the maximum allowable percentages and, where applicable, through tbe bid process requirements. A?horized investment vehicles and related maximum Dortfolio Dositions are listed in AnDendix Authorized Investments and Diversification. At least two bids will be required of investments in the authorized investment vehicles. Collateralization will be required for Certificates of Deposits in excess of $100,000. Collateral will always be held by an independent third party froi?i the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateralization policies must be supplied to the City and retained by the City Treasurer. The City of La Quinta shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council. In addition, the City's investment in the State Local Agency Investment Fund LAIF) is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. The City's investment in Money Market Mutual funds is allowable as long as the average maturity does not exceed 60 days. The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. The Investment Policies shall be adopted by resolution of the La Quinta City Council on an annual basis, The Investment Policies will be adopted before the end of June of each year. This Executive Summary?is an overall review of the City of La Quinta Investment Policies. Reading this summary does not constitute a complete review which can only be accomplished by reviewing all the pages. 3 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% City of La Quinta Statement of Investment Policy July 1, 1998 through June 30, 1999 Adopted by the City Council on June 16, 1998 I GENERALPURPOSE The general purpose of this document is to?provide the rules and standards users must follow in administering the City of La Quinta cash investments.. II INVESTMENT POLICY It is the policy of the City of La Quinta to invest public funds in a manner which will provide a diversified portfolio with safety of principal while meeting daily cash flow demands with the highest investment return In addition, the Investment Policy will conform to all State and local statutes governing the investment of public funds. Ill SCOPE This Investment Policy applies to all cash and investments of the City of La Quinta, City of La Quinta Redevelopment Agency and the City of La Quinta Financing Authority, hereafter referred in this document as the City". These funds are reported in the City of La Quinta Comprehensiv? Annual financial Report CAFR) and include: All funds within the following fund types: General Special Revenue Capital Project Debt Service Internal Service Trust and Agency Any new fund types and fund(s) that may be created. 4 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% Iv OBJECTIVES The primary objective, in order of priority, of the City of La Quinta's investment activity shall be: 1. Safety Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio in accordance wi?h the permitted investments. The objective will be to mitigate credit risk and interest rate risk. A. CreditRisk Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: Limiting investments to the safest types of securities; Pre-qualifying the financial institutions, and broker/dealers, which the City of La Quinta will do business; and Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest Rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to * maturity; and By investing operafing funds primarily in shorter-term securities. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that sufficient liquid funds are available to meet anticipated demands. Furthermore since all possible cash demands cannot be anticipated the portfolio should consist of securities with active secondary or resale markets. 5 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturitv with the folIowin? exceptions: A declining credit secunty could be sold ea?ly to mir?imize loss of principal; Liquidity needs of the portfolio require that the security be sold. V 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 1 6053 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 excerise in the professional management of their own affairs, not for speculation, but for investment, considering the probablesafety of their capital as well as the probable income to be derived. VI DELEGATION OF AUTHORITY Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish wntten procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include reference to safekeeping, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this Investment Policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials The City Manager or Assistant City Manager shall ap?rove in writing all nurchases and sales of investments prior to their execution bv the City Treasurer 6 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% VII CONFLICT OF INTEREST Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance of improper influence. Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: The City Manager, Assistant City Manager, and the City Treasurer shall not personally or through a close relative maintain any accounts, interest, or private dealing? with any firm with which the City places inv?estments, with the exception of regular savings, checking and money market accounts, or other similar transactidns that are offered on a non-negotiable basis to the general public. Such accounts shall be disclosed annually to the City Clerk in conjunction with annual disclosure statements of economic interest. All persons authorized to place or approve investments shall report to the City Clerk kinship relations with principal employees of firms with which the City places investments. VIII AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City of La Quinta maintains a listing of financial institutions which are approved for 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 investment transactions must supply the City of La Quinta with the following: Current audited financial statements Proof of National Association of Security Dealers Certification Trading resolution Proof of California registration Resume of Financial broker Completion of the City of La Quinta Broker/Dealer questionnaire which contains a certification of having read the City of La Quinta Investment Policy The City Treasurer shall evaluate the documentation submitted by the broker/dealer and independently verify existing reports on file for any firm and individual conducting investment related business. 7 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% The City Treasurer will also contact the following agencies during the verification process: National Association of Security Dealer's Public Disclosure Report File 1-800-289-9999 State of California Department of Corporations 1-91 6-445-3062 All Broker/Dealers selected by the City Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The City Attorney will perform a legal review of the trading resolution/investment contract submitted by each Broker/Dealer. Each securities dealer shall provide rnonthly and quarterly reports?fiIed 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 investment: A. Insurance Public Funds. shall be deposited only in financial institutions insured by the Federal Deposit Insurance Corporation B. Collateral The amount of City of La Quinta deposits or investments not insured by agency of the federal government shall be 11 0% collateralized by securities' or 1 50% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Size The amount of City of La Quinta deposits or investments must be collateralized or insured by an agency of the federal government. D. Disclosure Each financial institution maintaining invested funds in excess of $1 00,000 shall furnish corporate authorities a copy of all statements of resources and liabilities which it is required to furnish to the State banking or savings and loan commissioners as required by the California Financial Code. The City shall not invest in excess of $100,000 in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. IX AUTHORIZED INVESTMENTS AND DIVERSIFICATION The City Treasurer will be permitted to invest in the investments listed in the Appendix entitled Authorized Investments and Diversification. 8 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% A. STATE OF CALIFORNIA AND CITY OF LA QUINTA LIMITATIONS As provided in Sections 16429.1, 53601, 53601.1, and 53649 of the Government Code, the State of California limits the investment vehicles available to local agencies as summarized in the following paragraphs. Section 53601, as now amended, prbvides that unless Section 53601 specifies a limitation on an investment's maturity, no investments with maturities exceeding five years shall be made. The City of La Quinta Investment Policy has specified that no investment may exceed two years. State Treasurer's Local Agehcv Investment Fund LAlF? Asauthorized.in Government Code Section 16429.1 and by LAIF procedures, local government agencies are each authorized to invest a maximum of $20?million per account in this investment program administered by the California State Treasurer. The City of La Quinta has two accounts with LAIF. The City of La Quinta has a limitation of 35% of the portfolio. Government Agencv Issues As authorized in Government Code Sections 53601 a) through n) as they pertain to surplus funds, this category includes a wide variety of government securities which include the following: * Local government bonds or other indebtedness and State bonds or other indebtedness. The City of La Quinta Investment Policy does not allow investments in local and state indebtedness U.S. Treasury notes or other indebtedness secured by the full faith and credit of the federal government. The City of La Quinta Investment Policy limits investments in U.S. Treasury issues to 75% * Other federal agencysecurities including but not limited to issued by the Government National Mortgage Association, Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation. The City of La Quinta investment policy limits investments in federal agency secunties to 75% with no one federal agency of one specific entity can exceed 25% of the portfolio. Bankers' AcceDtances As authorized in Government Code Section 53501 f), 40% may be invested in Bankers' Acceptances, although no more than 30% of the portfolio may be invested in Bankers' Acceptances with any one commercial bank. Additionally, the maturity period cannot exceed 270 days; however, Bankers' Acceptances are seldom marketed with maturities in excess of 1 80 days. The City of La Quinta investment policy does not allow investment in Bankers' Acceptances. Commercial Paoer The City of La Quinta Investment Policy only allows investments in commercial paper to 30%, the dollar weighted average maturity do?s not exceed 31 days. As authorized in Government Code 9 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%Section 53601(g), 1 5% of the portfolio may be invested in commercial paper of the highest rating A-i or P-i) as rated by Moody's or Standard and Poor's, with maturities not to exceed 1 80 days. This percentage may be increased to 30% if the dollar weighted average maturity does not exceed 31 days. These are a number of other qualifications regarding investments in commercial paper based on the financial strength of the corporation and the size of the investment. The City of La Quinta has also required that no more than $1 million dollars may be invested in any one entity at any time. Negotiable Certificates of Deoosit As authorized in Government Code Section 53601(h), 30% maybe invested in negotiable certificates of deposit issued by commercial banks and savings and loan associations. The City of La Quinta investment policy does not allow investment in Negotiable Certificates of Deposit. ReDurchase and Reverse Renurchase Agreements As authorized in Government Code Section 53601(i), these investment vehicles are agreements between the local agency and seller for the purchase of government securities to be resold at a specific date and for a specific ambunt. Repurchase agreements are generally used for short term investments varying from one day to two weeks. There is no legal limitation on the amount of the repurchase agreement. However, the maturity period cannot exceed one year. The market value of securities underlying a repurchase agreement shall e at least 102% of the funds invested and shall be valued at least quarterly. The City of La Quinta Investment Policy does not allow investment in Repurchase Agreements. The term ureverse repurchase agreement" means the sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase such securities on or before a specific date and for a specific amount. As provided in Government Code Section 53635, reverse repurchase agreements require the prior approval of the City Council. The City of La Quinta Investment Policy does not allow investment in Reverse Repurchase Agreements. CorDorate Notes and Diversified Management Companies As authorized in Government Code Section 53601 j) and k), local agencies may invest in corporate notes for a maximum period of five years in an amount not to exceed 30% of the agency's portfolio. The notes must be issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any other state and operating in the United States. Local agencies are also authorized in 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. The City of La Quinta investment policy does not allow corporate notes and limits the percentage of mutual funds to 20%. 10 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_ % Mortp? ape-Backed Securities As authorized in Government code Section 53601 n), local agencies may invest in mortgage-backed securities such as mortgage pass-through securities and collateralized mortgage obligations for a maximum period of five years in an amount not to exceed 20% of the agency's portfolio. Securities eligible for investment shall have a A" or higher rating. The City of La Quinta investment policy does not allow investment in Mortgage-Backed Securities. Financial Futures and Financial Ontion Contracts As authorized in Government Code Section 53601.1, local agencies may invest in financial futures or option contracts in any of the above investment categories subject to the same overall portfolio limitations. The City of Quinta Investment Policy does not allow investments in financiaf futures and financial option contratts. Certificates of De?osit As authorized in Government Code Section 53649, Certificates of Deposit are fixed term investments which are required to be collateralized from 105% to 1 50% depending on the specific security pledged as collateral in accordance with Government Code Section 53652. There are no portfolio limits on the amount of maturity for this investment vehicle. The City of La Quinta investment policy limits the percentage of Certificates of Deposit to 60%. Market Sweep Account with a $50,000 target balance may be maintained in Sweep Accounts- As authorized by the City Council, a U.S. Treasury Money conjunction with.the checking account. x INVESTMENT POOLS There are three 3) types of investment pools: 1) state-run pools, 2) pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee i.e. Cqunty Pool; and 3) pools that are operated for profit by third parties. The City of La Quinta has an investment with the State of California's Treasurers Office Local Agency Investment Fund commonly eferred to as LAIF. LAIF was organized in 1977 through State Legislation Section 16429.1, 2 and 3. Each LAIF account is restricted to a maximum investable limit of $20 million. In addition, LAIF will provide quarterly market valbe information to the City of La Quinta. On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to LAIF. Also, prior to opening any new Investment Pool account, which would require City Council approval, the City Treasurer will require the completion of the Investment Pool Questionnaire. 11 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%The City does not have an investment with any other Investment Pool County Pools or Third Party Pools. XI COLLATERALIZATION Collateralization will be required for Certificates of Deposits. The type of collateral is limited to City authorized investments. 1. Certificates of Deposits under $1OO.OOO. The City Treasurer may waive collateralization of a deposit that is federally insured. 2. Certificates of Deoosit over *100.000. The amount not federally insured shall be 1 1?0% collateralized by securities or 1 50% mortgages market value of that amount of invested funds plus unpaid interest earnings. Collateralization will be required for Certificates of Deposits in excess of $100,000. Collateral will always be held by an independent third party from the institution that sells the Certificates of Deposit to the City. Evidence of compliance with State Collateralization policies must be supplied to the City and retained by the City Treasurer. XII SAFEKEEPING AND CUSTODY All security transactions of the City of La Quinta shall be conducted on a delivery versus payment DVP) basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by safekeeping receipts. Deposits and withdrawals of money market mutual funds and LAIF shall be made directly to the entity and not to an investment advisor. Money market mutual funds and LAIF shall also operate on a DVP basis to be considered for investment. XIII INTEREST EARNl?G DISTRIBUTION POLICY Interest earnings is generated from pooled investments and specific investments. 1. Pooled Investments It is the general policy of the City to pool all available operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta Financing Authority and allocate interest earnings, in the following order, as follows: A. Payment to the General Fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. B. Payment to the General Fund of a management fee equal to 5% of the annuat pooled cash fund investment earnings. 12 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% C. Payment to each fund of an am?unt based on the average computerized daily cash balance included in the common portfolio for the earning period. 2. Snecific Investments Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. xlv MAXIMUM MATURITIES The City of La Quinta shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council. In addition, the City?s investment in the State Local Agency Investment Fund LAIF) is allowable as long as the average matunty d6es not exceed two years, unless specific approval is authorized by the City Council. The City's investment in biloney Market Mutual funds is allowable as long as the average maturity does n6t exceed 60 days. Xv INTERNAL CONTROLS The City Treasurer shall establish a system of internal controls to accomplish the following objectives: Safeguard assets; The orderly and efficient conduct of its business, including adherence to management policies; Prevention or detection of errors and fraud; The accuracy and completeness of accounting records; and, Timely preparation of reliable financial information. While no internal control system, however elaborate, can guarantee absolute assurance that the City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable assurance that management of the investment function meets the City's objectives. The internal controls shall address the following: a. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. b. Se?arption of transaction authority from accounting and record keeoinQ. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. c. Custodial safekeening. 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. 13 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% d. Avoidance of DhvsicaI delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. e. Clear dele?ation 6f authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities as outlined in the Segregation of Major Investment Responsibilities appendices. f Written confirmation or teleDhone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions shall be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. Fax correspondence must be supported by evidence of verbal or written follow-up. g. DeveloDment of a wire transfer agreement with the Citv's bank and third Darty custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. In addition to the System of Internal Controls developed by the City, the Internal Controls shall be reviewed annually by the independent auditor. The independent auditors management letter comments pertaining to cash and investments, if any, shall be directed to the City Manager who will direct the City Treasurer to provide a written response to the independent auditors letter. This response will also be directed to the City's Investment Advisory Board for their action XVI BENCHMARK The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the investment risk constraints and the cash flow needs bf the City. Return on investment is of least importance compared to safety and liquidity objectives. The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. 14 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%XVII REPORTING STANDARDS SB564 section 3 requires a quarterly report to the Legislative Body of Investment activities. The City of La Quinta has elected to report the investment activities to the City Council on a monthly basis through the Treasurers Report. The City Treasurer shall submit a monthly Treasurers Report to the City Council and the ln\,estment Advisory Board that includes all investments under the authority 9f the Treasurer. The Treasurers Report shall consist of a narrative of significant changes in cash balances and the following: Changes in??investments frorn the previous month; A certification statement fromthe City Treasurer; Purchases and sales of investments; Cost to market value comparisons of all investments by authorized investment category, except for LAIF which will be provided quarterly; Comparison of actual holdings to Investment Policy maximums; Twenty f?ur 24) months history of cash and investments for trend analysis; alance Sheet. XVIII INVESTMENT OF BOND PROCEEDS The City's investment policy shall govern bond proceeds and bond reserve fund investments. California Code Section 5922 d) governs the investment of bond proceeds and reserve funds in accdrdance with bond indenture provisions which shall be structured in accordance with the City's investment policy. Arbitrage Requirement The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations as required and return excess earnings to the US Treasury from investments of proceeds of bond issues sold after the effective date of this law. This arbitrage calculations may be contracted with an outside source to provide the necessary technical assistance to comply with this regulation. Investable funds subject to the 1 986 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. 15 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%XIX INVESTMENT ADVISORY BOARD CITY OF LA QUINTA The Investment Advisory Board lAB) consists of seven members of the community that have been appointed by and report to the City Council. The lAB meets on a monthly basis to 1) review account statements and verifications to ensure accurate reporting as they relate to an investment activity, 2) monitor compliance with existing Investment Policy and Procedures, and 3) review and make recommendations concerning investment policy and procedures investment contracts and investment consultants. The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory Board Provisions. XX INVESTMENT POLICY ADOPTION On an annual basis, the Investment policies will be initially reviewed by the Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment policies, with any revisions, to the City Manager and. City Attorney for their review and comment. A joint meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City Treasurer to review the Investment policies and comments, prior to submission to the City Council for their consideration. The Investment Policies shall be adopted by resolution of the City of La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. 16 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% Chapter 2.70 INVESTMENT ADVISORY BOARD PROVISIONS Sections: 2.70.010 General Rules Regarding Appointment and Terms. 2.70.020 Board meetings and compensation. 2.70.03Q Board functions. 2.70.010 General rules regarding appointment and terms. Except as set out below, see Chapter 2.06 for General Provisions. The Investment Advisory.Board the board") is a standing board composed of seven 7) members from the public that are appointed by city council. La Quinta residency is preferred, but not a requirement for board members. Recruitment for members may be advertised oi?itside of the city". Background in the investment field and/or related experience is preferred. Background information will be required and potential candidates must agree to a background check and verification. 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 on the board. Such matters may include, but are not limited to, changes in employment, changes in residence, or changes in clients. The Board members will serve for two year staggered terms beginning on July 1 of every other year, commencing July 1, 1.993. Initially, two members will be appointed for two year terms and three members will be appointed for one year terms. These initial appointments will start their yearly calculations from?July 1, 1 993. 2.70.020 Board meetings and compensaton. Board members will be reimbursed for meeting and related expenses at an amount of fifty dollars $50) per meeting. Initially, the Board should meet once a month, 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; Boardmembers and meetings may be called for on an as needed basis. 2.70.030 Board functions. The Board will annually elect a Chairperson and Vice-chairperson at the first meeting held after each June 30. The following are functions of the Board that are to be addressed at each meeting: I) review account statements and verifications to ensure accurate reporting as they relate to an investment activity; ii) monitor compliance with existing Investment policy and procedures; and iii) review and make recommendations concerning investment policy and procedures, investment contracts, and investment consultants. The Board will report to City council after each meeting either in person or through correspondence at a regular City Council meeting. 18 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% 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 secunties. 3.08.070 Trust fund administration. 3.08.OiO 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, 1 982) 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 treas;urer?shall sell the secunties in which city moneys have been invested pu?suant to this chapter, 50 that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. Ord. 2 I part), 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be canceled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be resold. Ord. 2 1 part), 1982) 19 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%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) 3.08.080 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 deppsitory a receipt for the securities so deposited and shall not be responsible forthe securities delivered to and receipted for by the institution or depository until they are withdrawn' therefrom by the?. city treasurer. Ord. 2 1 part), 1 982 3.08.070 Trust fund administraton. 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) 20 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services Wells Fargo Bank 2; Custodian Services Bank of New York 3. Deferred Compensation International City/County Management Association Retirement Corporation 4 Broker/Dealer,Services Merrill Lynch; Indian Wells, CA Dean Witter, Newport Beach, CA Smith Barney, Newport Beach, CA 5. Government Pool State of California Lo6aI Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency 6. Bond Trustees 1991 City Hall Revenue Bonds US Bank 1991 RDA Project Area 1 US Bank 1 992 RDA Project Area 2 US Bank 1994 RDA Project Area 1 US Bank 1995 RDA Project Area 1 & 2 US Bank Assessment Districts US Bank No Changes to this listing may be made without City Council approval. 21 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% BROKERIDEALER QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm:_____________________________________________________ 2. Address:_________________________________________________________ 3. Telephone: 4. Broker?s Representative to the City attach resume): Name:____________________________________________________________ Title: Telephone: 5. Manager/Partner-in-charge attach resume): Name:_____________________________________________________________ Title: Telephone:_______________________________________________________ 6. List all personnel who will be trading with or quoting securities to City employees attach resume) Name:___________________________________________________________ Title: Telephone: 7. Which of the above personnel have read the City?s investment policy? 8. Which instruments are offered regularly by your local office? Must equal 100%) % U.S. Treasuries % Repos % BA's % Reverse Repos % Commercial Paper % CMO's % CD's % Derivatives % Mutual Funds % Stocks/Equities % Agencies specify): % Other specify): 22 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%9. References-- Please identify your most directly comparable public sector clients in our geographical area. Entity___________________________ Entity_____________________________ Contact_________________________ Contact_________________________ Telephone Telephone Client Since_____________________ Client Since_____________________ 10. Have any of your clients ever sustained a lossona 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 statel 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.____________________________________________________ 1 2. Has a client ever claimed in writing that you were responsible for an investment loss? Yes_________ No_________ If yes, please provide action taken_________ Ha sa client ever claimed in writing that vour firm was responsible for an investment loss? Yes_________ No_________ If yes, please provide action taken________ Do you have any current, or pending complaints that are unreported to the NASD? Yes_________ No_________ If yes, please provide action taken__________ 23 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% Does vour firm have any current, or pending complaints that are unreported to the NASD? Yes_________ No_________ If yes, please provide action taken_______ 1 3. Explain your clearing and safekeeping procedures, custody and delivery process. Who audits these fiduciary responsibilities?._______________________________ Latest Audit Report Date____________________________________________ 14. How many and what percentage of your transactions failed. Last month? % $__________ Last year? 1 5. Describe the method your firm would use to establish capital trading limits for the City of La auinta.____________________________________________ 1 6. Is your firm a member in the S.l.P.C. insurance program. Yes_____ No_____ If yes, explain primary and excess coverage and carriers.________________ 17. What portfolio?infp rmation; if a nv, do you require from your clients?_____ 1 8. What reports and transaction confirmations or any other research publications will the City receive?_____________________________________ 1 9. Does your firm offer investment training to your clients? Yes_____ No_____ 24 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%20. Does your firm have professional liability insurance. Yes______ No________ If yes, please provide the insurance carrier, limits and expiration date._______ 21. Please list your NASD Registration Number_____________________________ 22. Do you have any relatives who work at the City of La Quinta? Yes______ No_______ If yes, Name and Department______________________ 23. Do you maintain an?office in California. Yes______ No______ 24. Do you marntain an office in La Quiflt? or Riversidetounty?Yes No 25. Please enclose the following: * Latest audited financial statements. * Samples of reports, transaction confirmations and any other research/publications the City will receive. * Samples of research reports and/or publications that your firm regularly provides to clients. * Complete schedule of fees and charges for various transactions. * * *CERTIFICATION * * * I hereby certify that I have personally read the Statement of Investment Policy of the City?of La Quinta, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of La Quinta. All sales personnel will be routinely informed of the City's investment objectives, honzons1 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 docilment the City of La Quinta is authorized to conduct any and all background checks. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge. Broker Representative__________________________________________________________ Date________________________ Title____________________________________________ Sales Manager and/or Managing Partner*______________________________________ Date________________________ Title____________________________________________ 25 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% INVESTMENT POOL QUESTIONNAIRE Note: This Investment Pool Questionnaire was developed bv the Government Finance Officers Association GFOA). Prior to entering a pool, the following questions and issues should be considered. SECURITIES Government pools may invest in a broader range of securities than your entity invests in. It is important that you are aware of, and are comfortable with, the securities the pool buys. 1. Does the pool provide a written statement of investment policy and objectives?' 2. Does the statement contain: a. A description of eligible investment instruments? b. The credit standards for investments? C. The allowable maturity range of investments? d. The maximum allowable dollar weighted average portfolio maturity? e The limits 6f portfolio concentration permitted for each type of security? f. The policy on reverse repurchase agreements, options, short sales and futures? 3. Are changes in the policies communicated to the pool participants? 4. Does' the pool contain only the types of securities that are permitted by your investment policy? INTEREST Interest is not reported in a standard format, so it is important that you know how interest is quoted, calculated and distributed so that you can make comparisons with other investment alternatives. Interest Calculations 1. Does the pool disclose the following about yield calculations: a. The methodology used to calculate interest? Simple maturity, yield to maturity, etc.) b. The frequency of interest payments? C. How interest is paid? Credited to principal at the end of the month, each quarter; mailed?) d. How are gains/losses reported? Factored monthly or only when realized? 26 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% REPORTING 1 Is the yield reported to participants of the pool monthly? If not, how often?) 2. Are expenses of the pool deducted before quoting the yield? 3. Is the yield generally in line with the market yields for securities in which you usually invest? 4. How often does the pool report, and does that report.include the market value of securities? SECURITY The following questions are designed to help you safeguard your funds from loss of principal and loss of market value. 1. Does the pool disclose safekeeping practices? 2. Is the pool subject to audit by an independent auditor? 3. Is a copy of the audit report available to participants? 4. Who makes the portfolio decisions? 5. How does the manager monitor the credit risk of the securities in the pool? 6. Is the pool monitored by someone on the board of a separate neutral party external to the investment function to ensure compliance with written policies? 7. Does the pool have specific policies with regards to the various investment vehicles? a. What are t;he different investment alternatives? b. What are the policies for each type of investment? 8. Does the pool mark the portfolio to its market value? 9. Does the pool disclose the following about how portfolio securities are valued: * a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio cost, current value1 or some other method)? 27 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% OPERA TIONS The answers to these questions will help you determine whether this pool meets your operational requirements: 1 Does the pool limit eligible participants? 2. What entities are permitted to invest in the pool? 3. Does the pool allow multiple accounts and sub?accounts? 4. Is there a minimum or maximum account size? 5. Does the pool lirnit the number of transactions each month? What is the number of transactions permitted each month? 6. Is there a limit on transaction amounts for withdrawals and deposits? a. What is the minimum and maximum withdrawal amount permitted? b. What is the minimum and maximum deposit amount permitted? 7. How much notice is required for withdrawals/deposits? 8. What is the cutoff time for deposits and withdrawals? 9. Can withdrawals be denied? 10. Are the funds 100% withdrawable at anytime? 11. What are the procedures for making deposits and withdrawals? a. What is the paperwork required,.if any? b; What is the wiring process? 1 2. Can an account remain open with a zero balance? 1 3. Are confirmations sent following each transaction? STATEMENTS It is important for you and the agency's trustee when applicable), to receive statements monthly so the pool's records of your activity and holding are reconciled by you and your trustee. 28 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_% 1. Are statements for each account sent to participants? a. What are the fees? b. How often are they passed? C. How are they paid? d. Are there additional fees for wiring funds what is the fee)? 2. Are expenses deducted before quoting the yield? QUESTIONS TO CONSIDER FOR BOND PROCEEDS It is important to know 1) whether the pool accepts'bond proceeds and 2) whether the pool qualifies with the U.S. Department of the Treasury as an acceptable commingled fund for arbitrage purposes. 1. Does the pool accept bond proceeds subject to arbitrage rebate? 2. Does the pool provide accounting and investment records suitable for proceeds of bond issuance subject to arbitrage rebate? 3. Will the Vield calculation reported by the pool be acceptable to the IRS or will it have to be recalculated? 4. Will the pool accept transaction instructions from a trustee? 5 Are you allowed to have separate accounts for each bond issue so that you do not commingle the interest earnings of funds subject to rebate with funds not subject to regulations? 29 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function ResDonsIbIlItIes Develop formal Investment Policy City Treasurer RecQmmend modificBtions to Investment Policy Investment Advisory Board Review formal Investment Policy and recommend City Manager and City Council action City Attorney Adopt formal Investment Policy City Council Review Financial Institutions & Select Investments City Treasurer Approve investments City Manager or Assistant City Manager Execute investment transactions City Treasurer Confirm wires, if applicable City Manager or Accounting Manager Record investment transac?ions in City's accounting records Accounting Manager Investment verification match broker confirmation to City investment records Account Technician Reconcile investment records to accounting fecords and bank Statements to Treasurers Report of investments Account Technician Security of investments at City Vault Security of investments Outside City Third Party Custodian Review internal control procedures External Auditor 30 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_ % GLOSSARY 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 COLLATERAL: Securities, evidence of deposit or other property which a borrower ASKED: The price at which securities are pledges to secure repayment of a Iban. Also offered. refers to securities pledged by a bank to secure deposits of public monies. BANKERS' ACCEPTANCE BA): Short-term credit arrangements to enable businesses to COMMERCIAL PAPER: Sh 0 r t te?r m obtain funds to finance cpmmercial unsecured promissory notes issued by a transactions. They are time drafts drawn on corporation to raise working capital. These a bank by an exporter or importer to obtain negotiable instruments are purchased at a funds to pay for specific merchandise. By its discount to par value or at par value with acceptance, the bank becomes primarily interest bearing. Commercial paper is issued liable for the payment of the drafts at its by corporations such as General Motors maturity. An acceptance is a high-grade Acceptance Corporation, IBM, Bank America, negotiable instrument. Acceptances are etc. purchased in various denominations for 30, 60 or?90 days, but no longer than 270 days. COMPREHENSIVE ANNUAL FINANCIAL The interest is calculated on a 360-day REPORT CAFR): The official annual report discount basis similar to treasury bills. Local for the City of La Quinta. It includes five agencies may not invest m9re than 40% of combined statements for each individual fund their surplus money in bankers acceptances. and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate BID: The price offered by a buyer of compliance with finance-related legal and securities. When you are selling securities, contractual provisions, extensive introductory you ask for a bid.) See Offer. material, and a detailed Statistical Section. BROKER: A broker bnngs buyers and sellers COUPON: a) The annual rate of interest that together for a commission. a bond's issuer promises to pay the bondholder on the bond's face value. b) A certificate attached to a bond evidencing CERTIFICATE OF DEPOSIT CD): Time interest due on a payment date. deposits of a bank or savings and loan. They are purchased in various denominations with maturities ranging from 30 to 360 days. The DEALER: A dealer, as opposed to a broker, interest is calculated on a 360-day, actual- acts as a principal in all transactions, buying day month basis and is payable monthly. and selling for his own account. 31 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_!% DEBENTURE: A bond secured only by the Administration and the Farmers Home general credit of the issuer. Administration, as well as those guaranteed by the Veterans Administration. They are DELIVERY VERSUS PAYMENT: There are issued in various maturities and in minimum two methods of delivery of securities: denominations of $10,000. Principal an? delivery versus payment and delivery versus Interest is paid monthly. receipt. Delivery versus payment is delivery of securities with an exchange of money for 2. FHLBs Federal Home Loan Bank Note the securities. Delivery versus receipt is and Bonds) Issued by the Federal Home delivery of securities with an exchange of a Loan Bank System to help finance the signed receipt for the securities. housing industry. The notes and bqnds provide liquidity and home mortgage DERIVATIVES: 1) Fihancial instruments credit to savings and loan associations, whose return profile is linked to, or derived mutual savings banks, cooperative banks, from, the movement of one or more insurance companies, and mortgage- underlying index or security, and may include lending institutions. They are issued a leveraging factor, or 2) financial contracts irregularly for various maturities. The based upon notional amounts whose value is minimum denomination is $5,000. The derived from an underlying index or security notes are issued with maturities of less interest rates, foreign exchange rates, than one year and interest is paid at equities or commodities). matunty. The bonds are issued with various maturities and carry semi-annual DISCOUNT: The difference between the cost coupons. Interest is calculated on a 360- price of a security and its maturity when day, 30-day month basis. quoted at lower than face value. A security selling below onginal offering price shortly 3. FLBs FederaI Land Bank Bonds) Lon after sale also is considered to be at a term mortgage credit provided to farme discount by Federal Land Banks. These bonds issued at irregular times for various DIVERSIFICATION: Dividing investment maturities ranging from a few months to funds among a variety of securities offering ten years. The minimum denomination is independent returns. $1,000. They carry semi-annual coupons. Interest is calculated on a 360- FEDERAL CREDIT AGENCIES: Agencies of day, 30 day month basis. the Federal government set up to supply credit to various classes of institutions and 4. FFCBs Federal Farm Credit Bank) Debt individuals, e.g., S&L's, small business firms, instruments used to finance the short and students, farmers, farm cooperatives, and intermediate term needs of farmers and exporters The following is a listing: the national agricultural industry. They are issued monthly with three- and six- 1 FNMAs Federal National Mort?age month maturities. The FFCB issues larger Association) Used to assist the home issues one to ten year) on a periodic mortgage market by purchasing basis. These issues are highly liquid. mortgages insured by the Federal Housing 32 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_"%5. FICBs Federal Intermediate Credit bank FEDERAL HOME LOAN BANKS FHLB): Debentures)- Loans to lending institutions Government sponsored wholesale banks used to finance the short-term and currently 1 2 regional banks) which lend intermediate needs of farmers, such as funds and provide correspondent banking seasonal production. They are usually services to member commercial banks, thrift issued monthly In minimum institutions, credit unions and insurance denominations of $3,000 with a nine- companies. The mission of the FHLBs is to month maturity. Interest is payable at liquefy the housing related assets of its maturity and is calculated on a 360-day, members who must purchase stock in their 30-day month basis. district Bank. 6. FHLMCs Federal Home Loan Mortgage FEDERAL OPEN MARKET COMMITTEE. Corporation) a government sponsored FOMC): Consists of. seven members 9fthe entity established in 1970 to provide a Federal Reserve Board and five ot the twelve secondary market for conventional home Federal Reserve Bank Presidents. The mortgages. Mortgages are purchased President of the New York Federal Reserve solely from the Federal Home Loan Bank Bank is a permanent member, while the other System member lending institutions Presidents serve on a rotating basis. The whose deposits are insured by agencies Committee periodically meets to set Federal of the United States Government. They Reserve guidelines regarding purchases and are issued for variQus maturities and in sales of Government Securities in the open minimum denominations of $10,000. market as a means of influencing the volume Principal and Interest is paid monthly. of bank credit and money. Other federal agency issues are Small FEDERAL RESERVE SYSTEM: the central Business Administration notes SBAs), bank of the United States created by Government National Mortgage Congress and consisting of a seven member Association notes GNMAs), Tennessee Board of Governors in Washington, D.C., 12 Valley Authority notes TVAs), and regional banks and about 5,700 commercial Student Loan Association notes SALLIE- banks that are members of the system. MAEs). GOVERNMENT NATIONAL MORTGAGE ASSOCIATION GNMA or Ginnie Mae): FEDERAL DEPOSIT INSURANCE Securities influencing the volume of bank CORPORATION FDIC): A federal agency that credit guaranteed by GNMA and issued by insures bank deposits, currently up to mortgage bankers, commercial banks, $100,000 per deposit. savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. FEDERAL FUNDS RATE: The rate of interest Ginnie Mae securities are backed by the FHA, at which Fed funds are traded. This rate is VA or FMHM mortgages. The term currently pegged by the Federal Reserve passthroughs" is often used to describe through open-market operations. Ginnie Maes. 33 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_#%LAIF Local Agency lnvestmern Fund) A transactions. A master agreement will often special fund in the State Treasury which local specify, among other things, the right of the agencies may use to deposit funds for buyer-lender to liquidate the underlying investment. There is no minimum securities in the vent of default by the seller- investment period and the minimum borrower. transaction is $5,000, in multiples of $1,000 above that, with a maximum balance of MATURITY: The date upon which thE $20,000,000 for any agency. The City is principal or stated value of an investmen? restricted to a maximum of ten transactions becomes due and payable per month. It offers high liquidity because deposits can be converted to cash in 24 MONEY MARKET: The market in which hours and no interest is lost. All interest is short-t?rm debt instruments bills, distributed to those agencies participating on commercial paper, banders' accepta?nces, a proportionate share basis determined by etc.) are issued and traded. the amounts?deposited and the length of time they are deposited. Interest is paid quarterly. OFFER: The price asked by a seller of The State retains an amount for reasonable securities. When you are buying securities, costs of making the investments, not to you ask for an offer.) See Asked and Bid. exceed one-quarter of one percent of the earnings. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other LIQUIDITY: A liquid asset is one that can be securities in the open market by the New converted easily and rapidly into cash York Federal Reserve Bank as directed by the without a substantial loss of value. In the FOMC in order to influence the volume of money market, a security is said to be liquid money and credit in the economy. Purchases if the spread between bid and asked prices is inject reserves into the bank system an? narrow and reasonable size can be done at stimulate growth of money and credit; sale those quotes. have the opposite effect. Open marke? operations are the Federal Reserve's most LOCAL GOVERNMENT INVESTMENT POOL important and most flexible monetary policy LGIP): The aggregate of all funds from tool. political subdivisions that are placed in the custody of the State Treasurer for PORTFOLIO: Collection of all cash and investment and reinvestment. secunties under the direction of the City Treasurer, including Bond Proceeds. MARKET VALUE: The price at which a security is trading and could presumably be PRIMARY DEALER: A group of government purchased or sold. securities dealers who submit daily reports of market activity an depositions and monthly MASTER REPURCHASE AGREEMENT: A financial statements to the Federal Reserve written contract covering all future Bank of New York and are subject to its transactions between the parties to informal oversight. Primary dealers include repurchase reverse repurchase agreements Securities and Exchange Commission SEC)- that establishes each party's rights in the registered securities broker-dealers, banks and a few unregulated firms. 34 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_$% RATE OF RETURN: The yield obtainable on a SECURITIES & EXCHANGE COMMISSION: security based on its purchase price or its Agency created by Congress to protect current market price. This may be the investors in securities transactions by amortized yield to maturity on a bond the administering securities legislation. current income return. SEC RULE 1 5C3-1: See Uniform Net Capital Rule. REPURCHASE AGREEMENT RP OR REPO): A repurchase agreement is a short-term investment transaction. Banks buy STRUCTURED NOTES: Notes issued by temporarily idle funds from a customer by Government Sponsored Enterprises FHLB, selling U.S. Government or other securities FNMAS, SLMA, etc.) And Corporations with a contractual agreement to repu?hase which' have imbedded options. e.g., call the same securities on a future date. features, step-up coupons, floating' rate Repurchase agreements are typically for one coupons, derivative-based returns) into their to ten days in maturity. The customer debt structure, Their market performance is receives interest from the bank. The interest impacted by the fluctuation of interest rates, rate reflects both the prevailing demand for the volatility of the imbedded options and Federal funds and the maturity of the repo. shifts in the Shape of the yield curve. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum SURPLUS FUNDS: Section 53601 of the of $1,000,000. California Government Code defines surplus funds as any money not required for immediate necessities of the local agency. REVERSE REPURCHASE AGREEMENTS A The City has defined immediate neccesities reverse repurchase agreement is the opposite to be payment due within one week. of a repurchase agreement. The City loans a security to a bank in exchange for cash. The TREASURY BILLS: Issued weekly with City agrees to pay off the loan with interest maturity dates up to one year. They are on a future date. issued and traded on a discount basis with interest figured on a 360-day basis, actual number of?days. They are issued in amounts SAFEKEEPING: A service to customers of $10,000 and up, in multiples of $5,000. rendered by banks for a fee whereby They are a highly liquid security. securities and valuables of all types and descriptions are held in the bank's vaults for protection. TREASURY BONDS: Long-term coupon- bearing U.S. Treasury securities issued as direct obligations of the U.S. Government SECONDARY MARKET: A market made for and having initial maturities of more than 10 the purchase and sale of outstanding issues years. following the initial distribution. 35 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02 d_%%TREASURY NOTES: Medium-term. coupon- bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 1 0 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 1 5 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 perceritage. a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par of plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 36 BIB] 03-15-1999-U01 10:22:12AM-U01 ADMIN-U01 RDARES-U02 98-U02 03-U02