RDA Resolution 1999-03ing -> 10) RESOLUTION NO. RA 99-03
A RESOLUTION OF THE LA QUINTA REDEVELOPMENT AGENCY BOARD
OF THE CITY OF LA QUINTA, CALIFORNIA APPROVING AND
ADOPTING THE AMENDED INVESTMENT POLICY FOR FISCAL YEAR
1999/2000
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 Policy shall be:
Safety of principal is the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio.
The investment portfolio shall remain sufficiently liquid to meet all
operating requirements that may be reasonably anticipated.
The investment portfolio shall be designed with the objective of attaining
a market rate of return or yield throughout budgetary and economic
cycles, taking into account the investment risk constraints and liquidity
needs.
WHEREAS, authority to manage the City of La Quinta's investment portfolio is
derived from the City Ordinance. Management responsibility for the investment
program is delegated to the City Treasurer, who shall establish and implement written
procedures for the operation of the City's investment program consistent with the
Investment Policy; 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 1999/2000 Fiscal Year Investment Policy Exhibit A).
PASSED, APPROVED and ADOPTED at a special meeting of the La Quinta
Redevelopment Agency, held on the 29th day of June, 1 999, by the following vote:
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Investment Policy
Adopted: 6/29/99
Page 2
AYES: Members Adolph, Henderson, Pena, Sniff, Chairman Perkins
NOES: None
ABSENT: None
ABSTAIN: None
RON PERKINS, Chairman
La Quinta Redevelopment Agency
ATTEST:
SAUNDRA L. JUHOL<;Secretary
La Quinta Redevelopment Agency
APPROVED AS TO FORM:
DAWN C. HONEYWELL, Agency Attorney
La Quinta Redevelopment Agency
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Investment Policy
Table of Contents
Section Topic Page
Executive Summary 2
General Purpose 5
II Investment Policy 5
Ill Scope 5
lv Objectives 6
Safety
Liquidity
Yield
Diversified Portfolio
V Prudence 7
VI Delegation of Authority 7
VII Conflict of Interest 8
VIII Authorized Financial Dealers and Institutions 8
Broker/Dealers
Financial Institutions
IX Authorized Investments and Limitations 10
Investment Pools 14
XI Safekeeping and Custody 14
XII Interest Earning Distribution Policy 15
XIII Internal Controls and Independent Auditors 15
XIV Benchmark 17
XV Reporting Standards 17
XVI Investment of Bond Proceeds 18
XVII Investment Advisory Board City of La Quinta 18
XVIII Investment Policy Adoption 19
Appendices: A. Summary of Authorized Investments and Limitations 20
B. Municipal Code Ordinance 2.70- Investment Advisory Board 21
C. Municipal Code Ordinance 3.08- Investment of Moneys and Funds 22
D. Segregation of Major Investment Responsibilities 24
E. Listing 0 Approved Financial Institutions 25
F. Broker/Dealer Questionnaire and Certification 26
G. Investment Pool Questionnaire 27
H. Glossary 35
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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 ar?icipated.
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.
Within the constraints of safety, liquidity and yield, the City will endeavor to
maintain a diversified portfolio by allocating assets between different types of
investments within policy limitations.
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 affair?, not for speculation, but for investment, considering
t' e probable safety of their c?pital 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 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
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ing -> 10)safety of the portfolio. In addition, the internal control system will also insure the
timely preparation and accurate reporting of the portfolio financial information. As part
of the annual audit of the City of La Quinta's financial statements the independent
auditor reviews the adequacy of those controls and comments if weaknesses are
found.
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 Investment Policy 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 portfolio positions
are listed in Appendix A Summary of Authorized Investments and Limitations. At
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.
The City of La Quinta Investment Policy 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 Investment Policy will use th six month U.S. Treasury Bill as
a benchmark when measuring the performance of the invest? nt portfolio.
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ing -> 10)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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&
P.O. Box 1504
78-495 CALLE TAMPICO 760) 777-7000
LA QUINTA, CALIFORNIA 92253 TDD) 760) 777-1227
City of La Quinta
Statement of Investment Policy
July 1, 1999 through June 30, 2000
Adopted by the City Council on June 29, 1 999
GENERAL PURPOSE
The general purpose of this document is to provide the rules and standards users must
follow in administering the City of La Quinta 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 as the primary objective 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 Projects
Debt Service
Internal Service
Trust and Agency
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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 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 operating funds primarily in shorter-term securities.
2. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operat:.ig
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 be diversified and consist of securities with
active secondary or resale markets.
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ing -> 10) 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 maturity with the following
exceptions:
A declining credit security could be sold early to minimize loss of
principal;
Liquidity needs of the portfolio require that the security be sold.
4. Diversified Portfolio
Within the constraints of safety, liquidity and yield, the City will endeavor to
maintain a diversified portfolio by allocating assets between different types of
investments within policy limitations.
V PRUDENCE
The City shall follow the Uniform Prudent Investor Act as adopted by the State of
California in Probate Code Sections 1 6045 through 1 6054..
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 probable safety of their capital as well as the probable income to be
derived.
VI DELEGATION OF AUTHO?IIY
Authority to manage the City of La QuinLd'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 contracts, and
collateral/depository agreements. Such procedures shall include explicit delegation of
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ing -> 10)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 ManaQer or Assistant City
Manager shall approve in writing all purchases and sales of investments prior to their
execution by the City Treasurer.
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
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 Quinta Investment Policy 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. BrokenDealers ho desire to become bidder.c tor 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
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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.
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 monthly and quarterly reports filed pursuant to U.S.
Treasury Department regulations. Each mutual fund shall provide a prospectus and
statement of additional information.
2. Financial Institutions will be required to meet the following criteria in order to
receive City funds for deposit or investment:
A. Insurance Public Funds shall be deposited only in financial
institutions having accounts insured by the Federal Deposit
Insurance Corporation FDIC)
B. Collateral The amount of City of La Quinta deposits or
investments not insured by the FDI C-shall be 11 0% collateralized
by securities' or 1 50% mortgages' market values of that amount
of invested funds plus unpaid interest earnings.
C. Disclosure Each financial institution maintaining invested fur.Js
in excess of the FDIC insured amount shall furnish the City a copy
of the most recent Annual Call Report.
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banking institutions which do not disclose to the city a current
listing of securities pledged for collateralization in public monies.
IX AUTHORIZED INVESTMENTS AND LIMITATIONS
The City Treasurer will be permitted to invest in the investments summarized in the
Appendix 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 Agency Investment Fund LAlF) As authorized in
Government Code Section 16429.1 and by LAIF procedures, local government
agencies are each authorized to invest a maximum of $30 million per account
in this investment program administered by the California State Treasurer. The
City?s investment in the State Local Agency Investment Fund LAIF) is allowable
as long as the average maturity of its investment portfolio does not exceed two
years, unless specific approval is authorized by the City Council. The City of La
Quinta has two accounts with LAIF. The City of La Quinta Investment Policy
has a limitation of 35% of the portfolio.
U.S. Government and Related 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 bills, notes and bonds directly i55L' d and backed by the
full faith and credit of the U.S. Government. fhe City of La Quinta
Investment Policy limits investments in U.S. Treasury issues to 75% of
the portfolio.
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) * U*S. Government agencies issuing securities backed as to principal and
interest by the full faith and credit of the U.S Government. Government
National Mortgage Association IGNMA) is such an agency. The City of
La Quinta Investment Policy has a limitation of 75% of the portfolio with
a single issuer limit of 25% of the portfolio.
* U.S. Government instrumentalities and agencies issuing securities not
backed as to principal and interest by the full faith and credit of the U.S.
Government. The Federal Home Loan Bank FHLB), Federal Farm Credit
Bank FFCB), Federal Land Bank FLB) and Federal Intermediate Credit
Bank FICB) are such issuers. The City of La Quinta Investment Policy
has a limitation of 75c?/o of the portfolio with a single issuer limit of 25%
of the portfolio.
* Federal government sponsored enterprises GSEs) issuing securities not
backed as to principal and interest by the full faith and credit of the U.S.
Government. These GSEs include Federal National Mortgage Association
FNMA), Federal Home Loan Mortgage Corporation FHMC) and Student
Loan Marketing Association SLMA) which are publicly owned. The City
of La Quinta Investment Policy has a limitation of 75% of the portfolio
with a single issuer limit of 25% of the portfolio.
Bankers' Acceptances As authorized in Government Code Section 53601 f),
40% of the portfolio may be invested in Bankers' Acceptances, although no
more than 30% of the portfolio may be invested in Bankers' Acceptances with
any one commercial bank. Additionally, the maturity period cannot exceed 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 As authorized in Government Code Section 53601(g), 15%
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
weigh,ted average maturity does not exceed 31 days. The City of La Quinta
Inv'?ment Pol;Ly only allows investments in commercial paper to 30% of the
portfolio with a ma?imum maturity of 30 days per issue. There are a number
of other qualifications regarding investments in commercial paper based on the
financial strength of the corporation and the size of the investment. The City
of La Quinta Investment Policy also limits Commercial Paper to no more than $1
million dollars in any one entity at any time for no more than 30 days.
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ing -> 10)Negotiable CertificBtes of Deposit As authorized in Government Code Section
53601(h), 30% of the portfolio may be invested in negotiable certificates of
deposit issued by commercial banks and savings and loan associations. The
CitV of La Quinta Investment Policy does not allow investment in Negotiable
Certificates of Deposit.
Repurchase and Reverse Repurchase Agreements As authorized in Government
Code Section 53601(i), these investment vehicles are agreements between the
local agency and seller for the purchase of government securities to be resold
at a specific date and for a specific amount. Repurchase agreements are
generally used for short term investments varying from one day to two weeks.
There is no legal limitation on the amount of the repurchase agreement.
However, the maturity period cannot exceed one year. The market value of
securities underlying a repurchase agreement shall 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 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.
Corporate Notes As authorized in Government Code Section 53601 j), 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. The City of La Quinta Investment Policy does
not allow investment in corporate notes.
Diversified Management Companies As authorized in Government Code
Section 53601 k), loc?? agencies are authorized to invest in shares of
beneficial interest issued diversified management companies mutual funds)
in an amount not to exceed 20% of the agency's portfolio. There are a number
of other qualifications and restrictions regarding allowable investments in
corporate notes and shares of beneficial interest issued by mutual funds which
include 1) attaining the highest ranking or the highest letter and numerical
rating provided by not less than two of the three largest nationally recognized
rating services, or 2) having an investment advisor registered with the
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ing -> 10)Securities and Exchange Commission with not less than five years' experience
investing in the securities and obligations and with assets under management
in excess of five hundred million dollars $500,000,000). The City of La
Quinta Investment Policy only allows investments in mutual funds that are
money market funds maintaining a par value of $1 per share that invests in
direct issues of the U. S. Treasury with an average maturity of their portfolio
not exceeding 60 days and the City limits such investments to 20% of the
portfolio.
Mortgage?Backed Securities As authorized in Government code Section
53601(n), local agencies may invest in mortgage?backed securities such as
mortgage pass-through securities and collateralized mortgage obligations for a
maximum period of five years in an amount not 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 Option Contracts As authorized in Government
Code Section 53601.1' local agencies may invest in financial futures or option
contracts in any of the above investment categories subject to the same overall
portfolio limitations. The City 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 11 0% 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 or maturity for this investment vehicle.
Collateralization will be required for Certificates of Deposits in excess of the
FDIC insured amount. The type of collateral is limited to City authorized
investments. Collateral will always be held by an independent third party from
the institution that sells the Certificates of Deposit to the City. Evidence of
compliance with State Collateralization policies must be supplied to the City and
retained by the City Treasurer as follows:
1. Certificates of Deposits Insured by the FDIC.
The City Treasurer may waive collateralization of a deposit that is
federally insured.
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ing -> 10) 2. Certificates of Deposit in excess of FDIC Limits.
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.
The City of La Quinta Investment Policy limits the percentage of Certificates of
Deposit to 60% of the portfolio.
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.
Derivatives The City of La Quinta Investment Policy does not allow
investment in derivatives.
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. County Pool; and 3) pools that are operated for profit by third parties.
The City of La Quinta Investment Policy has authorized investment with the State of
California's Treasurers Office Local Agency Investment Fund commonly referred 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 $30 million. In
addition, LAIF 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 allow investments with any other Investment Pool County Pools
or Third Party Pools.
Xl SAFEKEEPING AND CUSTODY
All security transactions of the City of La Quinta Investment Policy 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
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ing -> 10) directly to the entity and not to an investment advisor, broker or dealer? Money
market mutual funds and LAIF shall also operate on a DVP basis to be considered for
investment.
XII 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 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.
XIII INTERNAL CONTROLS AND INDEPENDENT AUDITOR
The City Treasurer shall establish a system of internal controls to accomplish the
following objectives:
Safeguard assets;
The orderly and efficient conduct of its business, including adherence to
management policies;
Prevention or detection of errors and fraud;
The accuracy and completeness of accounting records; and,
Timely preparation of reliable financial information.
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ing -> 10) 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. Separation of transaction authority from accounting and record keeping. By
separating the person who authorizes or performs the transaction from the
people who record or otherwise account for the transaction, a separation of
duties is achieved.
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 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 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 telephone transactions for investments and wire
transfers. Due to the potential for error and improprieties arising from telephone
tran.??ctions, all telephone transactions shall be supported by written
co':imunications and approved by the appropriate person. Writte?i
communications may be via fax if on letterhead and the safekeeping institut.?n
has a list of authorized signatures. Fax correspondence must be supported by
evidence of verbal or written follow-up.
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ing -> 10)g. Development Of B wire transfer agreement with the City's bank and third party
custodian. This agreement should outline the various controls, security
provisions, and delineate responsibilities of each party making and receiving wire
transfers.
The System of Internal Controls developed by the City, shall be reviewed annually by
the independent auditor in connection with the annual audit of the City of La Quinta's
Financial Statements.
The independent auditor's management letter comments pertaining to cash and
investments, if any, shall be directed to the City Manager who will direct the City
Treasurer to provide a written response to the independent auditor's letter. The
management letter comments pertaining to cash and investment activities and the City
Treasurer's response shall be provided to the City's Investment Advisory Board for
their consideration. Following the completion of each annual audit, the independent
auditor shall meet with the Investment Advisory Board and discuss the auditing
procedures performed and the review of internal controls for cash and investment
activities
XIV 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 Investment Policy will use the six month U.S. Treasury Bill as
a benchmark when measuring the performance of the investment portfolio.
XV REPORTING STANDARDS
SB564 section 3 requires a quarterly report to the Legislative Body of Investment
activities. The City of La Quinta Investment Advisory Board 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 monthi? Treasurers Report to the City Council and
the Investment Advisory Board that includes all cash and investments under the
authority of the Treasurer.
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ing -> 10)The Treasurers Report shall summarize cash and investment activity and changes in
balances and include the following:
A certification by City Treasurer;
A listing of Purchases and sales/maturities of investments;
Cash and Investments categorized by authorized investments, except for
LAIF which will be provided quarterly and show yield and maturity;
Comparison of month end actual holdings to Investment Policy
limitations;
Current year and prior year monthly history of cash and investments for
trend analysis;
Balance Sheet;
Distribution of cash and investment balances by fund;
A comparison of actual and surplus funds;
A year to date historical cash flow analysis and projection for the next six
months.
XVI INVESTMENT OF BOND PROCEEDS
The City's Investment Policy shall govern bond proceeds and bond reserve fund
investments. California Code Section 5922 d) governs the investment of bond
proceeds and reserve funds in accordance with bond indenture provisions which shall
be structured in accordance with the City's Investment Policy.
Arbitrage Requirement
The US Tax Reform Act of 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 t?e City's position to continue
maximization of yield nd to rebate excess earningF if necessary.
XVII 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 usually meets on
a monthly basis, but at least quarterly 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
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ing -> 10) 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.
XVIII 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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ing -> 10) Appendix A
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ing -> 10) Appendix B
Chapter 2.70
INVESTMENT ADVISORY BOARD PROVISIONS
Sections:
2.70.010 General Rules Regarding Appointment.
2.70.020 Board meetings.
2.70.030 Board functions.
2.70.010 General rules regarding appointment
A. Except as set out below, see Chapter 2.06 for General Provisions.
B. The Investment Advisory Board the board") is a standing board composed of 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".
C. Background in the investment field and/or related experience is preferred. Background
information will be required and potential candidates must agree to a background check and
verification.
D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at
any time if a change in circumstances warrants, each board member will provide the City
Council with a disclosure statement which identifies any matters that have a bearing on the
appropriateness of that member's service on the board. Such matters may include, but are not
limited to, changes in employment, changes in residence, or changes in clients.
2.70.020 Board meetings.
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.
A. 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; 2) monitor compliance with existing Investment Policy and procedures; and
3) review and mike recommendations concerning Investment Policy and procedures,
investment con?racts, and vestment consultants.
B. 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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ing -> 10) Appendix C
Chapter 3.08
INVESTMENT OF MONEYS AND FUNDS
Sections:
3.08.010 Investment of citV 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), 1 982)
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,
s 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)
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ing -> 10)3.08.050 Reports.
The city treasurer shall make a monthly report to the city council of all investments
made pursuant to the authority delegated in this chapter. Ord. 2 1 part), 1982)
3.08.060 Deposits of securities.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is
authorized to deposit for safekeeping, the securities in which city moneys have been
invested pursuant to this chapter, in any institution or depository authorized by the
terms of any state law, including but not limited to Section 53608 of the Government
Code as it now reads or may hereafter be amended. In accordance with said section,
the city treasurer shall take from the institution or depository a receipt for the
securities so deposited and shall not be responsible for the securities delivered to and
receipted for by the institution or depository until they are withdrawn therefrom by the
city treasurer. Ord. 2 1 part), 1 982
3.08.070 Trust fund administration.
Any departmental trust fund established by the city council pursuant to Section
36523 of the Government Code shall be administered by the city treasurer in
accordance with Section 36523 and 26524 of the Government code and any other
applicable provisions of law. Ord. 2 1 part), 1982)
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ing -> 10) Appendix D
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
Manager
Record investment transactions in City's
accounting records Accounting Manager
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 Party Custodian
Review internal control procedures External Auditor
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ing -> 10) Appendix E
LISTING OF APPROVED FINANCIAL INSTITUTIONS
1. Banking Services Wells Fargo Bank, Government Services,
Ontario, California
2. Custodian Services Bank of New York, Los Angeles, California
3. Deferred Compensation International City/County Management
Association
Retirement Corporation
4. Broker/Dealer Services Merrill Lynch, Indian Wells, CA
Morgan Stanley Dean Witter, San Francisco,
California
Salomon Smith Barney, Newport Beach, CA
5. Government Pool State of California Local Agency Investment
Fund
City of La Quinta Account
La Quinta Redevelopment Agency
6. Bond Trustees 1991 City Hall Revenue Bonds US Bank
1991 RDA Project Area 1 US Bank
1 992 RDA Project Area 2 US Bank
1 994 RDA Project Area 1 US Bank
1 995 RDA Project Area 1 & 2 US Bank
Assessment Districts US Bank
No Changes to this listing may be made without City Council approval.
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ing -> 10) Appendix F
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm:_________________________________________________________
2. Address:______________________________________________________________
3. Telephone:
4. Broker?s Representative to the City attach resume):
Name:
Title:
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):
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ing -> 10)9. References Please identify vour 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 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 ever claimed *n writing that your firm was responsible for an
investment loss? Yes_________ No_________ If yes, please provide
action taken________
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ing -> 10) Do you have any current, or pending complaints that are unreported to the
NASD?
Yes_________ No_________ If yes, please provide action taken__________
Does your firm have any current, or pending complaints that are unreported
to the NASD? Yes_______ No_________ If yes, please provide action
taken_______
1 3. Explain your clearing and safekeeping procedures, custody and delivery process.
Who audits these fiduciary responsibilities?__________________________________
Latest Audit Report Date________________________________________________
1 4. How many and what percentage of your transactions failed.
Last month? % $__________
Last year? % $___________
15. Describe the method your firm would use to establish capital trading limits for
the City of La Quinta.___________________________________________________
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 information, if any, do you require from your clients?___________
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ing -> 10)1 8. VVhat 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_______
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 auinta?
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.
* * *CERTIFICATION* * *
I hereby certify that I have personally read the Statement of Investment Policy of the
City of La Quinta, and have implemented reasonable procedures and a system of
controls designed to preclude imprudent investment activities arising out of
transactions conducted between our firm and the City of La Quinta. All sales personnel
will be routinely informed of the City's investment objectives, horizons, outlooks,
strategies and risk constraints whenever we are so advised by the City. W-. pledge to
exercise due diligence in informing the City of La Quinta of all fore??eable risk
associated with financial transactions conducted with our firm.
By signing this document the City of La Quinta is authorized to conduct any and all
background checks.
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ing -> 10 )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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ing -> 10!) Appendix G
INVESTMENT POOL QUESTIONNAIRE
Nate: 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.
SECURI TIES
Government pools may invest in a broader range of securities than your entity invests
in. It is important that you are aware of, and are comfortable with, the securities the
pool buys.
1. Does the pool provide a written statement of Investment Policy and objectives?
2. Does the statement contain:
a. A description of eligible investment instruments?
b. The credit standards for investments?
C. The allowable maturity range of investments?
d. The maximum allowable dollar weighted average portfolio maturity?
e. The limits of portfolio concentration permitted for each type of security?
f. The policy on reverse repurchase agreements, options, short sales and futures?
3. Are changes in the policies communicated to the pool participants?
4. Does the pool contain only the types of securities that are permitted by your
Investment Policy?
INTEREST
Interest is not reported in a standard format, so it is important that you know how
interest is quoted, calculated and distributed so that you can make comparisons with
other investment alternatives.
Interest C?lculations
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?
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ing -> 10") C. How interest is paid? Credited to principal at the end of the month, each
quarter; mailed?)
d. How are gains/losses reported? Factored monthly or only when realized?
REPORTING
1. Is the yield reported to participants of the pool monthly? If not, how often?)
2. Are expenses of the pool deducted before quoting the yield?
3. Is the yield generally in line with the market yields for securities in which you
usually invest?
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 specifi? 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?
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ing -> 10#) 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)?
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 withdrawals/deposits?
8. What is the cutoff time for deposits and withdrawals?
9. Can withdrawals be denied?
1 0. Are the funds 1 00% withdrawable at anytime?
11. What are the procedures for making deposits and with?1awals?
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?
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ing -> 10$)13. Are confirmations sent following each transaction?
STATEMENTS
It is important for you and the agency's trustee when applicable), to receive
statements monthly so the pool's records of your activity and holding are reconciled
by you and your trustee.
1. Are statements for each account sent to participants?
a. What are the fees?
b. How often are they passed?
c. How are they paid?
d. Are there additional fees for wiring funds what is the fee)?
2. Are expenses deducted before quoting the yield?
QUESTIONS TO CONSIDER FOR BOND PROCEEDS
It is important to know 1) whether the pool accepts bond proceeds and 2) whether
the pool qualifies with the U.S. Department of the Treasury as an acceptable
commingled fund for arbitrage purposes.
1. Does the pool accept bond proceeds subject to arbitrage rebate?
2. Does the pool provide accounting and investment records suitable for proceeds of
bond issuance subject to arbitrage rebate?
3. Will the yield calculation reported by the pool be acceptable to the IRS or will it
have to be recalculated?
4. Will the pool accept transaction instructions from a trustee?
5. Are you allowed to have separate accounts for each bond issue so that you do not
commingle the interest earnings of fundc subject to rebate with fund'. not subject
to regulations?
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ing -> 10%) Appendix H
GLOSSARY
Adopted from the Municipal Treasurers Association)
The purpose of this glossary is to provide the reader of the City of La Quinta investment
policies with a better understanding of financial terms used in municipal investing.
AGENCIES: Federal agency securities andlor COMPREHENSIVE ANNUAL FINANCIAL REPORT
Government-sponsored enterprises. CAFR): The official annual report for the City of
La Quinta. It includes five combined statements
ASKED: The price at which securities are offered. for each individual fund and account group
prepared in conformity with GAAP. It also
BANKERS' ACCEPTANCE BA): A draft or bill of includes supporting schedules necessary to
exchange accepted by a bank or trust company. demonstrate compliance with finance-related
The accepting institution guarantees payment of legal and contractual provisions, extensive
the bill, as well as the issuer. introductory material, and a detailed Statistical
Section.
BID: The price offered by a buyer of securities.
When you are selling securities, you ask for a COUPON: a) The annual rate of interest that a
bid.) See Offer. bond's issuer promises to pay the bondholder on
the bond's face value. b) A certificate attached
BROKER: A broker brings buyers and sellers to a bond evidencing interest due on a payment
together for a commission. date.
CERTIFICATE OF DEPOSIT CD): A time deposit DEALER: A dealer, as opposed to a broker, acts
with a specific maturity evidenced by a as a principal in all transactions, buying and
certificate. Large-denomination CD's are typically selling for his own account.
negotiable.
DEBENTURE: A bond secured only by the general
COLLATERAL: Securities, evidence of deposit or credit of the issuer.
other property which a borrower pledges to
secure repayment of a loan. Also refers to DELIVERY VERSUS PAYMENT: There are
securities pledged by a bank to secure deposits two methods of delivery of securities: delivery
of public monies. versus payment and delivery versus receipt.
Delivery versus payment is delivery of securities
COMMERCIAL PAPER: Short-term unsecured with an exchange of money for the securities.
promissory notes issued by a corporation to raise eIivery versus receipt is delivery of securities
workinp capital. These negotiable instruments with an exchange of a signed receipt for the
are pu hased at a discount topa?r yalue or at par securities.
value with interest bearing. Commercial paper is
issued by corporations such as General Motors DERIVATIVES: 1) Financial instruments whose
Acceptance Corporation, IBM, Bank America, etc. return profile is linked to, or derived from, the
movement of one or more underlying index or
security, and may include a leveraging factor, or
21 financial contracts based upon notional
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ing -> 10&)amounts whose value is derived from an are issued with maturities of less than one
underlying index or security interest rates, year and interest is paid at maturity. The
foreign exchange rates, equities or commodities). bonds are issued with various maturities and
carry semi-annual coupons. Interest is
DISCOUNT: The difference between the cost calculated on a 360-day, 30-day month basis.
price of a security and its maturity when quoted
at lower than face value. A security selling 3. FLBs CFeder?l Land Bank Bonds) Long-term
below original offering price shortly after sale mortgage credit provided to farmers by Federal
also is considered to be at a discount. Land Banks. These bonds are issued at
irregular times for various maturities ranging
DISCOUNT SECURITIES: Non-interest bearing from a few months to ten years. The
money market instruments that are issued a minimum denomination is $1,000. They carry
discount and redeemed at maturity for full face semi-annual coupons. Interest is calculated on
value, e.g., U.S. Treasury Bills. a 360-day, 30 day month basis.
DIVERSIFICATION: Dividing investment funds 4. FFCBs Federal Farm Credit Rank) Debt
among a variety of securities offering instruments used to finance the short and
independent returns. intermediate term needs of farmers and the
national agricultural industry. They are issued
FEDERAL CREDIT AGENCIES: Agencies of the monthly with three- and six-month maturities.
Federal government set up to supply credit to The FFCB issues larger issues one to ten year)
various classes of institutions and individuals on a periodic basis. These issues are highly
e.g., S&L's, small business firms, students liquid.
farmers, farm cooperatives, and exporters.
5 FICRs Federal Intermediate Credit bank
1. FNMAs Federal National Mortgage Debentures)- Loans to lending institutions
Association) Used to assist the home used to finance the short-term and
mortgage market by purchasing mortgages intermediate needs of farmers, such as
insured by the Federal Housing seasonal production. They are usually issued
monthly in minimum denominations of $3,000
Administration and the Farmers Home with a nine-month maturity. Interest is
Administration, as well as those guaranteed by payable at maturity and is calculated on a
the Veterans Administration. They are issued in 360-day, 30-day month basis.
various maturities and in minimum denominations
of $10,000. Principal and Interest is paid 6 FHLMCs Federal Home Loan Mortgage
monthly. Corporation) a government sponsored entity
established in 1970 to provide a secondary
2. FHLBs Federal Home Loan Rank Notes and market for conventional home mortgages.
Bonds) Issud by the Federal Home Loan Mortgages are purchased solely fromthe
Bank System to help finance the housing Federal Home Loan Bank System r ember
industry. The notes and bonds provide lending institutions whose deposits are insured
liquidity and home mortgage credit to savings by agencies of the United States Government.
and loan associations, mutual savings banks, They are issued for various maturities and in
cooperative banks, insurance companies, and minimum denominations of $10,000.
mortgage-lending institutions. They are Principal and Interest is paid monthly.
issued irregularly for various maturities. The
minimum denomination is $5,000. The notes
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ing -> 10') Other federal agency issues are Small GOVERNMENT NATIONAL MORTGAGE
Business Administration notes SBAs), ASSOCIATION GNMA or Ginnie Mae): Securities
Government National Mortgage Association influencing the volume of bank credit guaranteed
notes GNMAs), Tennessee Valley Authority by GNMA and issued by mortgage bankers,
notes TVAs), and Student Loan Association commercial banks, savings and loan associations,
notes SALLIE-MAEs). and other institutions. Security holder is protected
by full faith and credit of the U.S. Government.
FEDERAL DEPOSITOR INSURANCE Ginnie Mae securities are backed by the FHA, VA
CORPORATION FDIC): A federal agency that or FMHM mortgages. The term passthroughs" is
insures bank deposits, currently up to $100,000 often used to describe Ginnie Maes.
per deposit.
LAIF Local Agency Investment Fund) A special
FEDERAL FUNDS RATE: The rate of interest at fund in the State Treasury which local agencies
which Fed funds are traded. This rate is may use to deposit funds for investment. There
currently pegged by the Federal Reserve through is no minimum investment period and the
open-market operations. minimum transaction is $5,000, in multiples of
$1 000 above that, with a maximum balance of
FEDERAL HOME LOAN BANKS FHLB): $30,000,000 for any agency. The City is
Government sponsored wholesale banks restricted to a maximum of ten transactions per
currently 1 2 regional banks) which lend funds month. It offers high liquidity because deposits
and provide correspondent banking services to can be converted to cash in 24 hours and no
member commercial banks, thrift institutions, interest is lost. All interest is distributed to those
credit unions and insurance companies. The agencies participating on a proportionate share
mission of the FHLBs is to liquefy the housing basis determined by the amounts deposited and
related assets of its members who must purchase the length of time they are deposited. Interest is
stock in their district Bank. paid quarterly. The State retains an amount for
reasonable costs of making the investments, not
FEDERAL OPEN MARKET COMMITTEE FOMC): to exceed one-quarter of one percent of the
Consists of seven members of the Federal earnings.
Reserve Board and five of the twelve Federal
Reserve Bank Presidents. The President of the LIQUIDITY. A liquid asset is one that can be
New York Federal Reserve Bank is a permanent converted easily and rapidly into cash without a
member, while the other Presidents serve on a substantial loss of value. In the money market, a
rotating basis. The Committee periodically meets security is said to be liquid if the spread between
to set Federal Reserve guidelines regarding bid and asked prices is narrow and reasonable size
purchases and sales of Government Securities in can be done at those quotes.
the open market as a means of influencing the
volume of bank credit and money. LOCAL GOVERNMENT INVESTMENT POOL
LGIP'. The aggregate of all funds from political
FEDERAL RESERVE SYSTEM: the central bank of sub?visions that are placed in the custody of the
the United States created by Congress and State Treasurer for investment and reinvestment.
consisting of a seven member Board of
Governors in Washington, D.C., 12 regional MARKET VALUE: The price at which a security is
banks and about 5,700 commercial banks that trading and could presumably be purchased or
are members of the system. sold.
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ing -> 10()MASTER REPURCHASE AGREEMENT: A written QUALIFIED PUBLIC DEPOSITORIES: A financial
contract covering all future transactions between institution which does not claim exemption from
the parties to repurchase reverse repurchase the payment of any sales or compensating use or
agreements that establishes each party's rights in ad valorem taxes under the laws of this state,
the transactions. A master agreement will often which has segregated for the benefit of the
specify, among other things, the right of the commission eligible collateral having a value of not
buyer-lender to liquidate the underlying securities less than its maximum liability and which has been
in the vent of default by the seller-borrower. approved by the Public Deposit Protection
Commission to hold public deposits.
MATURITY: The date upon which the principal or
stated value of an investment becomes due and RATE OF RETURN: The yield obtainable on a
payable security based on its purchase price or its current
market price. This may be the amortized yield to
MONEY MARKET.. The market in which short- maturity on a bond the current income return.
term debt instruments bills, commercial paper,
banders' acceptances, etc.) are issued and REPURCHASE AGREEMENT RF OR REPO): A
traded. repurchase agreement is a short-term investment
transaction. Banks buy temporarily idle funds
OFFER: The price asked by a seller of securities. from a customer by selling U.S. Government or
When you are buying securities, you ask for an other securities with a contractual agreement to
offer.) See Asked and Bid. repurchase the same securities on a future date.
Repurchase agreements are typically for one to
ten days in maturity. The customer receives
OPEN MARKET OPERATIONS: Purchases and interest from the bank. The interest rate reflects
sales of government and certain other securities both the prevailing demand for Federal funds and
in the open market by the New York Federal the maturity of the repo. Some banks will
Reserve Bank as directed by the F0MC in order execute repurchase agreements for a minimum of
to influence the volume of money and credit in $100,000 to $500,000, but most banks have a
the economy. Purchases inject reserves into the minimum of $1,000,000.
bank system and stimulate growth of money and
credit; sales have the opposite effect. Open REVERSE REPURCHASE AGREEMENTS RRP or
market operations are the Federal Reserve's most RevRepo) A holder of securities sells these
important and most flexible monetary policy tool. securities to an investor with an agreement to
repurchase them at a fixed price on a fixed date.
PORTFOLIO: Collection of all cash and securities The security buyer" in effect lends the seller"
under the direction of the City Treasurer, money for the period of the agreement, and the
including Bond Proceeds. terms of the agreement are structured to
compensate him for this. Dealers use RRP
PRIMARY DEALER: A group of government extensi' ly to finance their positions. Exception:
securities dealers who submit daily reports of When the Fed is said to be doing RRP, it is lendin'
market activity an depositions and monthly money, that is, increasing bank reserves.
financial statements to the Federal Reserve Bank
of New York and are subject to its informal SAFEKEEPING: A service to customers rendered
oversight. Primary dealers include Securities and by banks for a fee whereby securities and
Exchange Commission SEC)-registered securities valuables of all types and descriptions are held in
broker-dealers, banks and a few unreguLated the bank's vaults for protection.
firms.
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ing -> 10)) SECONDARY MARKET: A market made for the UNIFORM NET CAPITAL RULE: Securities and
purchase and sale of outstanding issues following Exchange Commission requirement that member
the initial distribution. firms as well as nonmember broker-dealers in
securities maintain a maximum ratio of
SECURITIES & EXCHANGE COMMISSION: indebtedness to liquid capital of 15 to 1: also
Agency created by Congress to protect investors called net capital rule and net capital ratio.
in securities transactions by administering Indebtedness covers all money owed to a firm,
securities legislation. including margin loans and commitments to
purchase securities, one reason new public issues
SEC RULE 15C3-1: See Uniform Net Capital Rule. are spread among members of underwriting
syndicates. Liquid capital includes cash and
STRUCTURED NOTES: Notes issued by assets easily converted into cash.
Government Sponsored Enterprises FHLB,
FNMAS, SLMA, etc.) And Corporations which UNIFORM PRUDENT INVESTOR ACT: The State
have imbedded options e.g., call features, step- of California has adopted this Act. The Act
up coupons, floating rate coupons, derivative- contains the following sections: duty of care,
based returns) into their debt structure, Their diversification, review of assets, costs,
market performance is impacted by the compliance determinations, delegation of
fluctuation of interest rates, the volatility of the investments, terms of prudent investor rule, and
imbedded options and shifts in the Shape of the application.
yield curve.
SURPLUS FUNDS: Section 53601 of the YIELD: The rate of annual income return on an
California Government Code defines surplus investment, expressed as a percentage. a)
funds as any money not required for immediate INCOME YIELD is obtained by dividing the current
necessities of the local agency. dollar income by the current market price for the
The City has defined immediate necessities to be security. b) NET YIELD or YIELD TO MATURITY
payment due within one week. is the current income yield minus any premium
above par of plus any discount from par in
TREASURY BILLS: A non-interest bearing purchase price, with the adjustment spread over
discount security issued by the U.S. Treasury to the period from the date of purchase to the date
finance the national debt. Most bills are issued of maturity of the bond.
to mature in three months, six months, or one
year.
TREASURY BONDS: Long-term coupon-bearing
U.S. Treasury securities issued as direct
obligations of the U.S. Government and having
initial maturities of more than 10 years.
TREASURY N? rES: 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.
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