CC Resolution 1997-043^O& RESOLUTION NO.97-43
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
LA QUINTA APPROVING AND ADOPTING THE AMENDED
INVESTMENT POLICY FOR FISCAL YEAR 1997/98
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 designed with the objective of attaining a
market rate of return or yield throughout budgetary and economic cycles, taking
into account the investment risk constraints and liquidity needs.
WHEREAS, authority to manage the City of La Quinta's investment portfolio is
derived from the City Ordinance. Management responsibility for the investment
program is delegated to the City Treasurer, who shall establish and implement written
procedures for the operation of the City's investment program consistent with the
Investment Policy; 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 City Council of the City of La
Quinta to adopt the amended 1997/98 Fiscal Year Investment Policy Exhibit A).
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^O& PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta City
Council, held on this 1 7th day of June, 1 997 by the following vote, to wit:
AYES: Council Members Adolph, Henderson, Perkins, Sniff, Mayor Holt
NOES: None
ABSTAIN: None
ABSENT: None
GLENDA L. HOLT, Mayor
City of La Ouinta, California
ATT ST:
AUNDRA L. JU OLA, City Clerk
City of La Quinta, California
APPROVED AS TO FORM:
DAWN C. HONEYWELL, City Attorney
City of La Quinta, California
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^O& CITY OF LA QUINTA
Investment Policy
Table of Contents
Section To*ic Page
Executive Summary 2
I General Purpose 4
II Investment Policy 4
III Scope 4
IV Objectives 5
Safety
Liquidity
Yield
V Prudence 6
VI Delegation of Authority 6
VII Conflict of Interest 7
VIII Authorized Financial Dealers and Institutions 7
Broker/Dealers
Financial Institutions
IX Authorized Investments and Diversification 8
X Investment Pools 11
Xl Collateralization 12
XII Safekeeping and Custody 12
XIII Interest Earning Distribution Policy 12
XIV Maximum Maturities 13
XV Internal Controls 13
XVI Benchmark 15
XVII Reporting Standards 15
XVIII Investment of Bond Proceeds 15
XIX Investment Advisory Board City of La Quinta 1 6
XX Investment Policy Adoption 16
Appendices Authorized Investments and Diversification 17
Municipal Code Ordinance 2.70- Investment Advisory Board 1 B
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 of Major Investment Responsibilities 30
Glossary 31
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^O&* City of La Quinta
Investment Policy
Executive Summary
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 City 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 speculation, but for investment,
considering the probable safety of their capital as well as the probable income to be
derived.
Authority to manage the City of La Quinta's investment portfolio is derived from
the City Ordinance. Management responsibility for the investment program is
delegated to theCity Treasurer, who shall establish and implement written
procedures for the operation of the City's investment program consistent with the
Investment Policy. The Treasurer shall establish and implement a system of internal
controls to maintain the safety of the portfolio. In addition, the internal control
system will also insure the timely preparation and accurate reporting of the portfolio
financial information. The adequacy of these controls will be reviewed and reported
on annually by an independent auditor.
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^O&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 the bid process
requirements. Authorized investment vehicles and related maximum nortfolio
nositions are listed in Annendix Authorized Investments and Diversification. At
least two bids will be required of investments in government securities.
Collateralization will be required for Certificates of Deposit in excess of $100,000.
Collateral will always be held by an independent third party with whom the City of
La auinta has a current custodial agreement. Evidence of ownership must be
supplied to the City and retained by the City Treasurer.
The City of La Quinta shall require that each individual investment have a maximum
maturity of two years unless specific approval is authorized by the City Council. In
addition, the City's investment in the State Local Agency Investment Fund LAIF) is
allowable as long as the average maturity does not exceed two years, unless
specific approval is authorized by the City Council. The City's investment in Money
Market Mutual funds is allowable as long as the average maturity does not exceed
60 days.
The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark
when measuring the performance of the investment portfolio.
The Investment Policies shall be adopted by resolution of the La Quinta City Council
on an annual basis, The Investment Policies will be adopted before the end of June
of each year.
This Executive Summary is an overall review of the City of La Quinta Investment
Policies. Reading this summary does not constitute a complete review which can
only be accomplished by reviewing all the pages.
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^O& Ifi**$&I7%;%z* *o?4*%'i&
* * * 78*95 CALLE TAMPICO LA QUINTA, CALIFORNIA 92253 619) 777-7000
FAX 619) 777-7101
City of La Quinta
Statement of Investment Policy
July 1, 1 997 through June 30, 1 998
Adopted by the City Council on June 24, 1997.
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 Comprehensive 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.
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MAILING ADDRESS P.O. BOX 1504 LA QUINTA, CALIFORNIA 92253
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^O& 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 with the permitted investments. The objective wilt 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 mav 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 operating funds primarily in shorter-term securities.
2. Uquidlty
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 securities mature concurrent with cash needs
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.
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^O& 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. Secunties shall not be sold orior to maturitv with the
following excentions:
A declining credit security could be sold early to minimize 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 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 ex cerise 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.
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 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 contracts1 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 Citv Manager or Assistant City Manager shall anorove in
writing all purchases and sales of investments prior to their execution bv the Citv
Treasurer.
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^O& VII CONFLICT OF INTEREST
Investment responsibilities carry added duties Cf 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 dealings with any firm with which the City places investments, with
the exception of regular savings, checking and money market accounts, or
other similar transactions that are offered on a non-negotiable basis to the
general public. Such accounts shall be disclosed annually to the City Clerk in
conjunction with annual disclosure statements of economic interest.
All persons authorized to place or approve investments shall report to the
City Clerk kinship relations with principal employees of firms with which the
City places investments.
VIII AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City of La aunt 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
1 BrnI:erlDealerp 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.
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^O& The City Treasurer will also contact the following agencies during the
verification process:
National Association of Security Dealer's Public Disclosure Report File
1-800-289-9999
State of California Department of Corporations 1-916-445-3082
All Broker/Dealers selected by the City Treasurer to provide investment
services will be approved by the City Manager subject to City Council
approval. The City Attorney will perform a legal review of the trading
resolution/investment contract submitted by each Broker/Dealer.
Each securities dealer shall provide monthly and quarterly reports filed pursuant to
U.S. Treasury Department regulations. Each mutual fund shall provide a prospectus
and statement of additional information.
2. Financial Institutions will be required to meet the following criteria in order to
receive City funds for 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 110% 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 financiaq institution maintaining invested funds
in excess of $100,000 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.
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^O& 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, provides that unless Section 53601
specifies a limitation on an investment's maturity, no investments with
maturities exceeding five years shall be made. The City of La Quinta
Investment Policy has specified that no investment may exceed two years.
State Treasurer's Local Agencv Investment Fund LAIF) As authorized in
Government Code Section 1 6429.1 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 agency securities 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 securities to 75% with no one federal
agency of one specific entity can exceed 25% of the portfolio.
Bankers' Acceptances As authorized in Government Code Section 53601
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 180 days. The City of La Quinta investment policy does not allow
investment in Bankers' Acceptances.
Commercial Paper The City of La Quinta Investment Policy only allows
investments in commercial paper to 30%, the dollar weighted average
maturity does not exceed 31 days. As authorized in Government Code
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^O&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 180 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.
Ne9otiabIe 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.
Reourchase and Reverse Renurchase A*reements As authorized in
Government Code Section 53601(i), these investment vehicles are
agreements between the local agency and seller for the purchase of
government securities to be resold at a specific date and for a specific
amount. Repurchase agreements a?e 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 reverse repurchase agreement" means the sale of securities by the
local agency pursuant to an agreement by which the local agency will
repurchase such securities on or before a specific date and for a specific
amount. As provided in Government Code Section 53835, 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.
Cornorate Notes and Diversified Management Comnanies 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
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^O
& mutual funds. The City of La Quinta investment policy does not allow
corporate notes and limits the percentage of mutual funds to 20%.
Mort9aQe-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 0*ion Contracts As authorized in
Government Code Section 53601.1, local agencies may invest in financial
futures or option contracts in any of the above investment categories subject
to the same overall portfolio limitations. The City of La Quinta Investment
Policy does not allow investments in financial futures and financial option
contracts.
Certificates of Deposit As authorized in Government Code Section 53649,
Certificates of Deposit are fixed term investments which are required to be
collateralized from 105% to 150% depending on the specific security
pledged as collateral in accordance with Government Code Section 53652.
The collateral pool is administered by the State, and is composed of a wide
variety of government securities, as well as promissory notes secured by
first mortgages on improved residential property located in the State and
letters of credit issued by the Federal Home Loan Bank of San Francisco.
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%.
Sweep Accounts As authorized by the City Council, a U.S. Treasury Money
Market Sweep Account with a $50,000 target balance may be maintained in
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 p6litical subdivision where allowed by law and the political
subdivision is the trustee i.e. County Pool; and 3) pools that are operated for profit
by third parties.
The City of La Quinta has an investment with the State of California's Treasurers
Office Local Agency Investment Fund commonly referred to as LAIF. LAIF was
organized in 1 977 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
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^O&will provide quarterly market value information to the City of La Quinta.
On an annual basis the City Treasurer will submit the Investment Pool
Questionnaire to LAIF.
Also, prior to opening any new Investment Pool account, which would require City
Council approval, the City Treasurer will require the completion of the Investment
Pool Questionnaire.
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 $1 OO*OOO.
The City Treasurer may waive collateralization of a deposit that is federally
insured.
2. CertIficates of Denosit over $1 OO*OOO.
The amount not federally insured shall be 110% collateralized by securities
or 1 50% mortgages market value of that amount of invested funds plus
unpaid interest earnings.
Collateral will always be held by an independent third party with whom the City of
La Quinta has a current custodial agreement. Evidence of ownership must be
supplied to the City of La Quinta and retained by the City Treasurer.
Xli 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 EARNING 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
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^O& and La Quinta Financing Authority and allocate interest earnings, in the
following order, as follows:
A. Payment to the General Fund of an amount equal to the total annual
bank service charges as incurred by the general fund for all operating
funds as included in the annual operating budget.
B. Payment to the General Fund of a management fee equal to 5% of the
annual pooled cash fund investment earnings.
C. Payment to each fund of an amount based on the average
computerized daily cash balance included in the common portfolio for
the earning period.
2. Specific* Investments Specific investments purchased by a fund shall incur
all earnings and expenses to that particular fund.
XIV 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 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.
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:
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^O& a. Control of collusion. Collusion is a situation where two or more employees
are working in conjunction to defraud their employer.
b. SeDaration Of transaction authority from accounting and record keepir*. By
separating the person who authorizes or performs the transaction from the
people who record or otherwise account for the transaction, a separation of
duties is achieved.
C. Custodial safekeeping. Securities purchased from any bank or dealer
including appropriate collateral as defined by State Law) shall be placed with
an independent third party for custodial safekeeping.
d. Avoidance of physical delivery securities. Book entry securities are much
easier to transfer and account for since actual delivery of a document never
takes place. Delivered securities must be properly safeguarded against loss
or destruction. The potential for fraud and loss increases with physically
delivered securities.
e. Clear delegation of authoritv 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 teleohone 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.
9. Develonment of a wire transfer aareement 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.
In addition to the System of Internal Controls developed by the City, the Internal
Controls shall be reviewed annually by the independent auditor.
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^O&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 of 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.
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 Investment Advisory Board that includes all investments under the authority of
the Treasurer.
The Treasurers Report shall consist of a narrative of significant changes in cash
balances and the following:
Changes in investments from the previous month;
A certification statement from the 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 four 24* months history of cash and investments for trend analysis;
Balance 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
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^O&proceeds and reserve funds in accordance with bond indenture provisions which
shall be structured in accordance with the City's investment policy.
Arbitrage Reauirement
The US Tax Reform Act bf 1 986 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.
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.
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^O& Chapter 2.70
INVESTMENT ADVISORY BOARD PROVISIONS
Sections:
2.70.010 General Rules Regarding Appointment and Terms.
2.70.020 Board meetings and compensation.
2.70.030 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 outside
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 meeting8 and compensation.
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 Board members 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.
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^O& 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), 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 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 1 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 i 1 part), 1 982)
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^O&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), 1 982)
3.08.060 Depo8its 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 89 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), 1 982
3.08.070 Trust fund admini8tration.
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)
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^O& LISTING OF APPROVED FINANCIAL INSTITUTIONS
1. Banking Services Wells Fargo Bank
2. Custodian Services Wells Fargo Bank Institutional Trust
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 Local Agency Investment
Fund
City of La auinta Account
La Quinta Redevelopment Agency
6. Bond Trustees 1991 City Hall Revenue Bonds First Trust
1 991 RDA Project Area 1 First Trust
1992 RDA Project Area 2 First Trust
1 994 RDA Project Area 1 First Trust
1995 RDA Project Area 1 & 2 First Trust
Assessment Districts First Trust
No Changes to this listing may be made without City Council appwval.
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^O& BROKER/DEALER 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 % StockslEquities
% Agencies specify): % Other specify):
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^O&9. References Please identify your most directly comparable public sector
clients in Qur geographical area.
Entity__________________________ Entity___________________________
Contact________________________ Contact________________________
Telephone Telephone
Client Since_____________________ Client Since_____________________
1 0. 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 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_________
Has a client * claimed in writing that your firm was responsible for an
investment loss? Yes_________ No_________ If yes, please provide
action taken________
Do vou have any current, or pending complaints that are unreported to the
NASD?
Yes_________ No_________ If yes, please provide action taken__________
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^O& Does your 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 Quinta.______________________________________________
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.________________
1 7. What portfolio information, if any, do you require from your clients?______
1 8. What rep6rts and transaction confirmations or any other research
publications will the City receive?____________________________________
19. Does your firm offer investment training to your clients? Yes_____ No_____
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^O&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 maintain an office in La Quinta or Riverside County? Yes No_____
25. Please enclose the following:
* Latest audited financial statements.
* Samples of reports, transaction confirmations and any other
research/publications the City will receive.
* Samples of research reports and/or publications that your firm regularly
provides to clients.
* Complete schedule of fees and charges for various transactions.
* * 4CERTIFICATION* * *
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.
Ey signing this document the City of La Quinta is authorized to conduct any and all
background checks.
Under penalties of perjury, the responses to this questionnaire are true and accurate
to the best of my knowledge.
Broker Representative_______________________________________________________
Date________________________ Title____________________________________________
Sales Manager and/or Managing Partner *
Date_______________________ Title__________________________________________
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^O& INVESTMENT POOL QUESTIONNAIRE
Note: This Investment Pool Questionnaire was developed by the Government Finance
Officers Association GFOA).
Prior to entering a pool, the following questions and issues should be considered.
SECURITIES
Government pools may invest in a broader range of securities than your entity invests
in* It is important that you are aware of, and are comfortable with, the securities the
pool buys.
1. Does the pool provide a written statement of investment policy and objectives?
2. Does the statement contain:
a. A description of eligible investment instruments?
b. The credit standards for investments?
c. The allowable maturity range of investments?
d. The maximum allowable dollar weighted average portfolio maturity?
e. The limits of portfolio concentration permitted for each type of security?
f. The policy on reverse repurchase agreements, options, short sales and futures?
3. Are changes in the policies communicated to the pool participants?
4. Does the pool contain only the types of securities that are permitted by your
investment policy?
INTEREST
Interest is not reported in a standard format, so it is important that vou 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?
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^O&REPORTING
1. Is the yield reported to participants of the pool monthly? If not, how often?)
2. Are expenses of the pool deducted before quoting the yield?
3. Is the yield generally in line with the market yields for securities in which you
usually invest?
4. How often does the pool report, and does that report include the market value of
securities?
SECURITY
The following questions are designed to help you safeguard your funds from loss of
principal and loss of market value.
1. Does the pool disclose safekeeping practices?
2. Is the pool subject to audit by an independent auditor?
3. Is a copy of the audit report available to participants?
4. Who makes the portfolio decisions?
5. How does the manager monitor the credit risk of the securities in the pool?
6. Is the pool monitored by someone on the board of a separate neutral party external
to the investment function to ensure compliance with written policies?
7. Does the pool have specific policies with regards to the various investment
vehicles?
a. What are the different*investment alternatives?
b. What are the policies for each type of investment?
8. Does the pool mark the portfolio to its market value?
9. Does the pool disclose the following about how portfolio securities are valued:
a. The frequency with which the portfolio securities are valued?
b. The method used to value the portfolio cost, current value, or some other *
method)?
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^O& 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 limit the number of transactions each month? What is the number
of transactions permitted each month?
6. Is there a limit on transaction amounts for withdrawals and deposits?
a. What is the minimum and maximum withdrawal amount permitted?
b. What is the minimum and maximum deposit amount permitted?
7. How much notice is required for withdrawalsldeposits?
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.
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^O&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?
OUESTIONS To CONSIDER FOR BOND PROCEEDS
It is important to know 1) whether the pool accepts bond proceeds and 2) whether
the pool qualifies with the U.S. Department of the Treasury as an acceptable
commingled fund for arbitrage purposes.
1. Does the pool accept bond proceeds subject to arbitrage rebate?
2. Does the pool provide accounting and investment records suitable for proceeds of
bond issuance subject to arbitrage rebate?
3. Will the yield calculation reported by the pool be acceptable to the IRS or will it
have to be recalculated?
4. Will the pool accept transaction instructions from a trustee?
5. Are you allowed to have separate accounts for each bond issue so that you do not
commingle the interest earnings of funds subject to rebate with funds not subject
to regulations?
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^O &SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES
Function Responsibilities
Develop formal Investment Policy City Treasurer
Recommend modifications to Investment Policy Investment Advisory Board
Review formal Investment Policy and recommend City Manager and
City Council action City Attorney
Adopt formal Investment Policy City Council
Review Financial Institutions & Select Investments City Treasurer
Approve investments City Manager or
Assistant City Manager
Execute investment transactions City Treasurer
Confirm wires, if applicable City Manager or Accounting
Supervisor
Record investment transactions in City's
accounting records Accounting Supervisor
Investment verification match broker confirmation
to City investment records Account Technician
Reconcile investment records
to accounting records and bank statements
to Treasurers Report
of investments Account Technician
Security of investments at City Vault
Security of investments Outside City Third PartyCustodian
Review internal control procedures External Auditor
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^O!& GLOSSARY
The purpose of this glQssary 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 loan. 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: S h 0 r t t e r m
obtain funds to finance commercial 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 more 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 brings 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 pavment 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.
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^O"&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 and
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 Notes
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 bonds
provide liquidity and home mortgage
DERIVATIVES: 1) Financial 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). maturity. The bonds are issued with
various maturities and carry semi-annual
DISCOUNT: The difference between the cost coupons. Interest is caiculated on a 380-
price of a security and its maturity when day, 30-day month basis.
quoted at lower than face value. A security
selling below original offering price shortly 3. FLBs Federal Land Bank Bonds) Long-
after sale also is considered to be at a term mortgage credit provided to farmers
discount by Federal Land Banks. These bonds are
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 Mortgage 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
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^O#& 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 of the
entity established in 1 970 to provide a Federal Reserve Board and five of 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 various 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., 1 2
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,
$100,000 per deposit. savings and loan associations, and other
institutions. Security holder is protected by
full faith and credit of the U.S. Government.
FEDERAL FUNDS RATE: The rate of interest Ginnie Mae securities are backed by the FHA,
at which Fed funds are traded. This rate is VA or FMHM mortgages. The term
currently pegged by the Federal Reserve passthroughs" is often used to describe
through open-market operations. Ginnie Maes.
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^O$&LAIF Local Agency Inve8tment 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 investment
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-term debt instruments bills,
distributed to those agencies participating on commercial paper, benders' acceptances,
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 and
narrow and reasonable size can be done at stimulate growth of money and credit; sales
those quotes. have the opposite effect. Open market
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. securities 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.
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^O%& 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 15C3-1: 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 repurchase 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.
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^O&&TREASURY NOTES: Medium-term coupon-
bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government
and having initial maturities from two to 10
years.
UNIFORM NET CAPITAL RULE: Securities
and Exchange Commission requirement that
member firms as well as nonmember broker-
dealers in securities maintain a maximum
ratio of indebtedness to liquid capital of 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 percentage.
a) INCOME YIELD is obtained by dividing the
current dollar income by the current market
price for the security. b) NET YIELD or
YIELD TO MATURITY is the current income
yield minus any premium above par of plus
any discount from par in purchase price, with
the adjustment spread over the period from
the date of purchase to the date of maturity
of the bond.
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