HomeMy WebLinkAboutAgenda Report - January 20, 2016 C-08AGENDA ITEM I
CITY OF LODI
COUNCIL COMMUNICATION
TM
AGENDA TITLE: Adopt Resolution Approving the City of Lodi Investment Policy and Internal
Control Guidelines
MEETING DATE: January 20, 2016
PREPARED BY: Deputy City Manager/Treasurer
RECOMMENDED ACTION: Adopt Resolution approving the City of Lodi Investment Policy and
Internal Control Guidelines.
BACKGROUND INFORMATION: Prudent financial management dictates that financial policies be
reviewed periodically and updated as required. Council last
reviewed the Investment Policy in November 2013.
Staff is recommending changes to the policy as noted below in response to changes in underlying
Government Code sections related to local agency funds. All changes have been reflected in redline
throughout the policy:
On page 7, Supranational Obligations should be added as a permitted investment. This
investment option allows for investments that are issued or unconditionally guaranteed by
institutions that are a part of the World Bank Group or the Inter -American Development Bank.
This investment option helps diversify the City's portfolio while conforming to our primary
objective of preserving safety of principal.
On page 31, as part of the Glossary, the addition of a definition of Supranational Obligations is
recommended.
Grammar and position title changes are also reflected throughout the document.
The policy is in compliance with state laws governing the investment of local agency funds and
provides internal control guidelines to protect City of Lodi funds from misappropriation, speculation and
fraud. The objectives of Lodi's investment policy remain, in priority order: safety, liquidity, and return.
FISCAL IMPACT: None.
FUNDING AVAILABLE: Not applicable.
Jordan Ayers
Treasurer
Attachment
APPROVED:_
Stephen Schwa baubr; City Manager
CITY OF LODI
INVESTMENT POLICY
_►•
INTERNAL CONTROL GUIDELINES
TABLE OF CONTENTS
SECTION 1 - INVESTMENT POLICIES.................................................................................. 1
SECTION 2 - INTERNAL CONTROLS.................................................................................. 11
2.1 GENERAL...........................................................................................................................................12
2.2 PROCEDURES..................................................................................................................................13
2.3 TREASURY FUNCTION RESPONSIBILITIES..................................................................................14
SECTION 3 - SAMPLE INVESTMENT FORMS.................................................................... 15
SECTION4 - GLOSSARY..................................................................................................... 20
INVESTMENT POLICIES
CITY OF LODI
INVESTMENT POLICIES
1.1 INTRODUCTION
The purpose of this policy is to state the City's policies and procedures to be used for the
investment of surplus funds in a prudent and systematic manner conforming to all state and
local statutes governing the investment of public funds. Safety of principal is given the
highest priority. In addition, this statement is intended to formalize investment -related
activities to provide the highest investment return with maximum security while meeting daily
cash flow demands.
1.2 SCOPE
The investment policy applies to all funds under the direct authority of the Deputy City
Manager/City Treasurer of the City of Lodi, including but not limited to the General Fund,
Special Revenue Funds, Capital Project Funds, Enterprise Funds, Internal Service Funds
and Trust and Agency Funds. All funds are accounted for in the City's Comprehensive
Annual Financial Report. Investments of debt proceeds held by bond trustee are governed
by the provisions of the debt agreements and to the extent that they are permissible
investments of funds of the City. Proceeds of bonds will be invested in accordance with the
ordinance, resolution, indenture or other agreement governing the issuance of the bonds.
1.3 OBJECTIVES
Funds of the City will be invested with the following objectives in priority order:
Safety:
Safety of principal is the foremost objective of the investment program. Investments of the
City of Lodi shall be undertaken in a manner that seeks to ensure the preservation of capital
in the overall portfolio. To attain this objective, diversification is required in order that
potential losses on individual securities do not exceed the income generated from the
remainder of the portfolio. The City of Lodi will diversify its investments by security type and
institution. Financial institutions and broker/dealers will be prequalified and monitored as well
as investment instruments they propose.
Liquidity:
The investment portfolio will remain sufficiently liquid to enable the City to meet all operating
requirements which might be reasonably anticipated. This will be accomplished through
maturity diversification in accordance with California Government Code 53635 and the State
Local Agency Investment Fund with immediate withdrawal provision.
CITY OF LODI
INVESTMENT POLICIES
Return on Investments:
The City's investment portfolio shall be invested to achieve a "bench marked average" rate of
return through economic cycles, that will protect these funds from the effects of inflation and
the risks associated with higher returns, as long as it does not diminish the objectives of
Safety and Liquidity, while preserving and protecting capital in the overall portfolio.
The "bench marked average" rate of return targeted to achieve this objective is the annual
rate of return on the one-year U.S. Treasury Bill. Whenever possible and in a manner
consistent with the objectives of safety of principal and liquidity, a yield higher than the
"bench marked average" rate of return shall be sought.
1.4 DELEGATION OF AUTHORITY
The Treasurer is designated by the authority of the legislative body as the investment officer
of the City as provided for in Government Code Section 53607 and is responsible for the
investment decisions and activities of the City. The Treasurer will develop and maintain
written administrative procedures for the operation of the investment program, consistent with
this investment policy.
The Treasurer shall hereafter assume full responsibility for such transactions until such time
as the delegation of authority is revoked, and shall make a monthly report of such
transactions to the legislative body. In order to optimize total return through active portfolio
management, daily activity may be delegated to the Supervising Budget Analyst.
1.5 PRUDENCE
The standard of prudence to be applied by the Treasurer will be the "prudent investor"
standard, in accordance with Government Code Section 53600.3 which states "...all
governing bodies of local agencies or persons authorized to make investment decisions on
behalf of those local agencies investing public funds pursuant to this chapter are trustees and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with
care, skill, prudence, and diligence under the circumstances then prevailing, including, but
not limited to, the general economic conditions and the anticipated needs of the agency, that
a prudent person acting in a like capacity and familiarity with those matters would use in the
conduct of funds of a like character and with like aims, to safeguard the principal and
maintain the liquidity needs of the agency. Within the limitations of this section and
considering individual investments as part of an overall strategy, investments may be
acquired as authorized by law."
CITY OF LODI
INVESTMENT POLICIES
1.6 ETHICS AND CONFLICTS OF INTEREST
The City Treasurer is governed by The Political Reform Act of 1974 regarding disclosure of
material financial interests as well as Government Code Section 87103. The City Treasurer
shall refrain from personal business activity that could conflict with proper execution of the
investment program or which could impair the ability to make impartial investment decisions.
1.7 MONITORING AND ADJUSTING THE PORTFOLIO
The Treasurer will routinely monitor the contents of the portfolio, the available markets and
the relative values of competing instruments, and will adjust the portfolio accordingly.
1.8 INTERNAL CONTROL
The Treasurer will establish a system of written internal controls, which will be reviewed
annually by the City's independent audit firm. The controls will be designed to prevent loss of
public funds due to fraud, error, misrepresentation, unanticipated market changes or
imprudent actions.
1.9 REPORTING
The Treasurer will submit a quarterly investment report to the City Council, in accordance
with Government Code Section 53646, to disclose the following information:
• A listing of individual securities held at the end of the reporting period by authorized
investment category.
• Percentage of the portfolio represented by each investment category.
• Institution.
• Average life and final maturity of all investments listed.
• Coupon, discount or earnings rate.
• Par value or cost of the security
• Current market value of securities with maturity in excess of 12 months and the source of
this valuation.
• Ability of the city to meet its expenditure requirements for the next six months or provide
an explanation of why sufficient funds will not be available as required by Gov. Code
53646 (b)(3).
The quarterly investment report to the Lodi City Council, acting legislative authority, as
endorsed by Government Code Section 53646, will be in addition to the Treasurer's monthly
report and accounting of all receipts, disbursements and fund balances.
In addition, the investment policy will be submitted to the City Council as changes are
needed. Any changes will be noted and formal adoption in the form of a resolution of the City
Council is required.
CITY OF LODI
INVESTMENT POLICIES
1.10 AUTHORIZED INVESTMENTS
The City will invest surplus funds not required to finance the immediate needs of the City as
provided in California Government Code Sections 16429.1, 53601, 53601.6, 53601.8, 53635,
53635.2, 53638 and 53684. In selecting authorized investments consideration must be given
to credit ratings and collateralization of applicable instruments. A list of these instruments is
provided below. These limitations, diversification and maturity scheduling will depend upon
whether the funds being invested are considered short-term or long-term funds. All funds will
be considered short-term except those reserved for capital projects and special assessment
prepayments being held for debt retirement.
Pooled Accounts:
The City of Lodi is authorized by policy, to invest in the Local Agency Investment Fund
(LAIF), a voluntary program created by statute, which began in 1977 as an investment
alternative for California's local governments and special districts and continues today under
the State Treasurer's Administration. The enabling legislation of the LAIF is Section
16429.1,2,3 of the California Government Code.
The LAIF is part of the Pooled Money Investment Account (PMIA). The PMIA began in 1953
and has oversight provided by the Pooled Money Investment Board (PMIB) and an in-house
Investment Committee. The PMIB members are the State Treasurer, Director of Finance,
and State Controller
All securities are purchased under the authority of Government Code Section 16430 and
16480.4. The State Treasurer's Office takes delivery of all securities purchased on a delivery
versus payment basis using a third party custodian. All investments are purchased at market
and market valuation is conducted monthly.
It has been determined that the State of California cannot declare bankruptcy under Federal
regulations, thereby allowing the Government Code Section 16429.3 to stand. This Section
states that "money placed with the state treasurer for deposit in the LAIF shall not be subject
to either: (a) transfer or loan pursuant to Sections 16310, 16312, or 16313, or (b)
impoundment or seizure by any state official or state agency."
The LAIF provides a book entitled "The Local Agency Investment Fund Answer Book" which
resides in the City of Lodi Treasurer's office and provides current answers to the following
questions, which are required prior to investing in any pooled/fund account.
• A description of eligible investment securities and a written statement of investment
policy and objectives.
• A description of interest calculations and how it is distributed, and how gains and losses
are treated.
CITY OF LODI
INVESTMENT POLICIES
• A description of how the securities are safeguarded (including the settlement
processes), and how often the securities are priced and the program audited.
• A description of who may invest in the program, how often, what size deposit and
withdrawal are allowed.
• A schedule for receiving statements and portfolio listing.
• A fee schedule and when and how it is assessed.
• Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
The City of Lodi is authorized by policy to invest in shares issued by the Investment Trust of
California (CaITRUST), a joint powers authority created under the authority of California
Government Code Section 6509.7, as an investment alternative for California's local
governments and special districts. CalTRUST began in 2005 and has oversight provided by
a Board of Trustees, consisting of experienced local treasurers and finance directors.
All securities purchased by CalTRUST are securities which are eligible for direct local agency
investment under the authority of California Government Code Section 53601. All securities
are purchased at market value, and market valuation of all securities in the CalTRUST
portfolios is conducted on a daily basis. The CalTRUST program offers three account
options: the CalTRUST Heritage Money Market option, which provides same-day liquidity
(access to funds); the CalTRUST Short -Term Fund, which offers next -day liquidity; and the
CalTRUST Medium -Term Fund, which provides monthly liquidity.
Short -Term Portfolio Diversification:
The City will diversify use of investment instruments to avoid incurring unreasonable risks
inherent in over investing in specific instruments, individual financial institutions or maturities.
Where this section does not specify a limitation on the term or remaining maturity at the time
of the investment, no investment will be made in any security which at the time of the
investment has a term remaining to maturity in excess of five years, unless the City Council
has granted express authority to make that investment either specifically or as part of an
investment program and approved by the City Council no less than three months prior to the
investment.
CITY OF LODI
INVESTMENT POLICIES
Permitted Investments
Maturity
Portfolio
U.S. Treasury Obligations (Bills, notes and bonds)
5 years
100%
US Government Agency Securities and Instrumentalities
5 years
100%
Bankers Acceptances
180 days
40%
Certificates of Deposit
5 years
100%
Negotiable Certificates of Deposit
5 years
30%
Commercial Paper
270 days
40%
California State Local Agency Investment Fund
Indefinite
100%
Passbook Deposits
Indefinite
100%
Repurchase Agreements
Not Authorized
N/A
Reverse Repurchase Agreements
Not Authorized
N/A
Mutual Funds
Indefinite
20%
Medium Term Notes
5 years
30%
CalTRUST Pooled Accounts
Indefinite
100%
Certificate of Deposit Account Registry Service (CDARS)
Indefinite
30%
Supranational Obligations
5 years
30%
The City Treasurer will not invest in Repurchase Agreements and Reverse Repurchase
agreements. Pooled funds invested for the City by entities such as California State Local
Agency Investment Fund, and NCPA may invest in repurchase and reverse repurchase
agreements. If repurchase agreements are legal and authorized, by policy, a Master
Repurchase Agreement must be signed with the bank or dealer.
Diversification by Financial Institution:
• Bankers' Acceptances (Bas)
• No more than 25% of the total portfolio with any one institution.
• Certificates of Deposit (CDs)
• No more than 33% of the total portfolio with any one institution.
• California State Local Agency Investment Fund
• No more than $50 million in any one account, effective November 16, 2009.
Maturity Scheduling:
Investment maturities for operating funds shall be scheduled to coincide with projected cash
flow needs, taking into account large routine expenditures (payroll, bond payments) as well
as considering sizable blocks of anticipated revenue (taxes, franchise fees). Maturities in this
category will be timed to comply with the following guidelines:
CITY OF LODI
INVESTMENT POLICIES
Under 30 days
10% minimum
Under 90 days
25% minimum
Under 270 days
50% minimum
Under 1 year
75% minimum
Under 18 months
90% minimum
Under 2 years
95% minimum
Under 5 years
100% minimum
Long -Term Portfolio Diversification:
Investments and diversification for the long-term portfolio will be the same as the short-term
portfolio. Maturity scheduling will be timed according to anticipated need. For example,
investment of capital project funds will be timed to meet contractor payments, usually for a
term not to exceed three years. Investment of prepaid assessment funds will be tied to bond
payment dates, after cash flow projections are made using a forecasting model which
considers prepayment rate, delinquency rate, interest on bonds and income on investments.
1.11 BANKS AND SECURITY DEALERS
The Treasurer will consider the credit worthiness of institutions in selecting financial
institutions for the deposit or investment of City funds. These institutions will be monitored to
ensure their continued stability and credit worthiness.
Investment transactions will only be made with pre -approved financial institutions. Banks will
provide their most recent Consolidated Report of Condition ("call report") at the request of the
Treasurer.
The Treasurer will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will be maintained of approved security brokers/dealers selected
for credit worthiness, who maintain an office in the State of California. This includes primary
dealers or regional dealers that qualify under Securities and Exchange Commission Rule
15C3-1.
All financial institutions and broker/dealers who desire to become qualified bidders for
investment transactions must supply the Treasurer with the following:
• Audited financial statements
• Proof of Financial Industry Regulatory Authority registration.
• Trading Resolution
• Proof of State Registration
• Completed broker/dealer questionnaire
• Certification of having read the City of Lodi's investment policy and depository contracts.
CITY OF LODI
INVESTMENT POLICIES
An annual review of the financial condition and registration of qualified bidders will be
conducted by the Treasurer. The City will not normally use more than three qualified
dealer/brokers to obtain bids.
1.12 PURCHASE OF CDs FROM LOCAL INSTITUATIONS
To the extent reasonable and within the limits specified above, the Treasurer may purchase a
Certificate of Deposit, up to the amount fully insured by the Federal Deposit Insurance
Corporation (FDIC), from each bank and savings and loan institution located within the
corporate limits of the City to promote economic development and as a statement of support
for those institutions maintaining an office in Lodi. These investments are limited to those
institutions which offer Certificates of Deposit insured by the Federal Deposit Insurance Act
and have a Community Reinvestment Act Rating of satisfactory or above.
To aid in the diversification of the portfolio, additional Certificates of Deposit in amounts up to
fully insured FDIC limits, may be purchased from local institutions provided the investment
has the safety, liquidity and a rate of return comparable to that offered from LAIF at the time
the original investment is made.
1.13 SAFEKEEPING AND COLLATE RILIZATION
All investment securities purchased by the City will be held in third -party safekeeping by an
institution designated as primary agent. The custodian will hold these securities in a manner
that establishes the City's right of ownership. The primary agent will issue a safekeeping
receipt to the City listing the specific instruments, rate, maturity and other pertinent
information. Deposit type securities (i.e., certificates of deposit) will be collateralized.
Collateral for time deposits in savings and loans will be held by the Federal Home Loan Bank
or an approved Agent of Depository. If collateral is government securities, 110% of market
value to the face amount of the deposit is required. Promissory notes secured by first
mortgages and first trust deeds used as collateral require 150% of market value to the face
amount of the deposit. An irrevocable letter of credit issued by the Federal Home Loan Bank
of San Francisco requires 105% of market value to the face amount of the public deposit.
The collateral for time deposits in banks should be held in the City's name in the bank's Trust
Department, or alternately, in the Federal Reserve Bank. The City may waive collateral
requirements for deposits which are fully insured up to limits prescribed by the FDIC.
The amount of securities placed with an agent of depository will at all times be maintained in
accordance with California Government Code 53652.
CITY OF LODI
INVESTMENT POLICIES
1.14 ADMINISTRATION
The following administrative policies will be strictly observed:
Payment:
All transactions will be executed on a delivery versus payment basis which should be done
by the City's safekeeping agent.
Bid:
A competitive bid process in which three competitive bids are obtained, when practical, will
be used to place all investment purchases. If a specific maturity date is required, either for
cash flow purposes or for conformance to maturity guidelines, bids will be requested for
instruments which meet the maturity requirement. If no specific maturity is required, a
market trend (yield curve) analysis will be conducted to determine which maturities would
be most advantageous.
Wire Transfers:
All wire transfers will be approved by the Treasurer or Supervising Budget Analyst. The
City's bank will verify each transaction with a predetermined City employee other than the
individual sending the wire transfer.
Pre -formatted wire transfers will be used to restrict the transfer of funds with preauthorized
accounts only.
Confirmations:
Receipts for confirmation of a purchase of authorized securities should include the following
information: trade date; par value; maturity; rate; price; yield; settlement date; description
of securities purchased; net amount due; third -party custodial information. Confirmations of
all investment transactions are to be received by the Treasurer within three business days.
Pooled Cash:
The City will consolidate into one bank account and invest on a pooled concept basis.
Interest earnings will be allocated monthly based on current cash balances.
Bond Proceeds:
The City will comply with applicable federal tax law and regulations in connection with the
investment of bond proceeds.
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INTERNAL CONTROLS
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CITY OF LODI
INTERNAL CONTROLS
2.1 GENERAL
Through this system of internal control, the City is adopting procedures and establishing
safeguards to prevent or limit the loss of funds invested or held for investment due to errors,
losses, misjudgments and improper acts. Internal control procedures are not intended to
address every possible situation but are intended to provide a reasonable and prudent level
of protection for the City's funds.
Objectives:
These procedures and policies are established to ensure:
• the orderly and efficient conduct of investment practices, including adherence to
investment policies
• the safeguarding of surplus cash
• the prevention or detection of errors and fraud
• the accuracy and completeness of investment records
• the timely preparation of reliable investment reports
General Control Policies:
The following policies are to be used to safeguard investments:
• Organization
A description of responsibilities and procedures for the investment of City funds, lines of
authority and reporting requirement will be maintained.
• Personnel
Only qualified and assigned personnel will be authorized to approve investment
transactions; make and liquidate investments; maintain investment records; and
maintain custody of negotiable instruments. Personnel assigned responsibility for the
investment of City surplus funds will maintain their professional qualifications by
continued education and membership in professional associations.
• Segregation of functions
No one having general ledger functions will have responsibility for the investment of City
funds.
• Safekeeping
All securities are to be held in the name of the City of Lodi. The City will contract with a
third party, usually a bank, to provide custodial services and securities safekeeping.
Although a cost is involved, the risk of losing physical securities outweighs the fees
involved. Preference should be given to custodial services which include reporting
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CITY OF LODI
INTERNAL CONTROLS
services as part of their service, including marking the portfolio to market value,
performance evaluation and internal reporting
• Reconciliation of records
Regular and timely reconciliation will be made of detailed securities records with the
general ledger control account.
• Performance evaluation
Performance statistics will be maintained and reported monthly as provided in the
Investment Policies. The indices to be used are the rate of return for the one-year U.S.
Treasury Bill and the annual rate of return for the Local Agency Investment Fund (LAIF)
managed by the State Treasurer's Office.
2.2 PROCEDURES
Assigned Responsibilities:
a. City Council responsibilities:
• Adoption of City's investment policies by Resolution
• Review and evaluation of investment performance.
b. Deputy City Manager/Treasurer duties and responsibilities:
• Formulating, recommending and implementing the City's investment policies
• Approves all investment transactions prior to execution of any transaction
• Approves broker/dealer arrangements.
c. Supervising Budget Analyst duties and responsibilities:
• Recommends broker/dealer arrangements
• Recommends investments
• Executes investment transactions
• Maintains records of all investment transactions
• Prepares monthly investment report for City Council review
• Prepare fiscal year end investment reports for City's independent audit firm review
• Review's financial condition of the City's depositories (banks) at least annually for
compliance with collateralization requirements under government code and financial
condition and reports results to City Treasurer.
d. Financial Services Manager duties and responsibilities:
• Maintains general ledger control account and duplicate records of investment
transactions
• Verifies investment records and reconciles detailed securities records with general
ledger control accounts.
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CITY OF LODI
INTERNAL CONTROLS
e. City's independent audit firm:
• Will review the City's investment policies and procedures and make appropriate
recommendations and findings as to compliance and steps to be taken to improve
internal controls.
2.3 TREASURY FUNCTION RESPONSIBILITIES
FUNCTION
RESPONSIBILITIES
1. Recommendations:
Supervising Budget Analyst
• Recommends broker/dealer arrangements
Supervising Budget Analyst
• Recommends investments
Supervising Budget Analyst
2. Authorization of Investment Transactions
Supervising Budget Analyst
• Formal investment policy prepared by
Deputy City Manager/Treasurer
• Formal investment policy approved by
City Council
• Investment transactions approved by
Deputy City Manager/Treasurer
• Broker/deal arrangements approved by
Deputy City Manager/Treasurer
3. Execution of Investment Transactions
Supervising Budget Analyst
4. Recording of Investment Transactions
• Recording of transactions in Treasurer's records
Supervising Budget Analyst
• Recording of transactions in Accounting records
Financial Services Manager
5. Safeguarding of assets and records
• Maintenance of Treasurer's records
• Reconciliation of Treasurer's records to
Supervising Budget Analyst
accounting records
Financial Services Manager
• Review of (a) financial institution's financial
condition, (b) safety, liquidity, and potential yields
Supervising Budget Analyst
of investment instruments, and (c) reputation and
financial condition of investment brokers
• Periodic reviews of collateral
• Review and evaluation of performance
Supervising Budget Analyst
City Council
6. Preparation of reports
Supervising Budget Analyst
7. Periodic review of investment portfolio for
conformance to City's investment policy
City's Audit Firm
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SAMPLE
INVESTMENT FORMS
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CITY OF LODI
SAMPLE INVESTMENT FORMS
Date
Recommended Selection
Primary Dealer
Quotes
Firm
Dealer
Telephone #
Security Type
Price
Maturity Date
1st Call Date
Yield to Maturity
Purchase Price
Cusip #
Principal
Discount
Accrued Interest
Interest Rate
Interest Period
Risk Category
Trade Date
Settlement Date
Calculation
Invstmnt.—Fund #
Investment Fund #
Issuer Code
Cert.Acct. #
Term of Days
ME (Month end in advance)
AE (Month end in arrears)
M (Monthly in advance)
AM (Monthly in arrears)
QE (Quarter end)
S (Semi-annual Actual)
SC (Semi -Annual Equal)
MA (Maturity)
MD (Maturity Discount)
LAIF BALANCE
Comments:
Conf #:
CITY OF LODI
INVESTMENT BID SHEET
Cycle to:
ManagementSupervising Management Analyst
Fin. Services Manager
Transaction #1 Transaction #2 Transaction #3
Invest Withdraw Invest Withdraw Invest Sell
Approval:
",: anagemeMSupervising Management Analyst:
16
Fin. Svcs. Manager:
Approval Date:
Transaction Date:
Formatted: Indent: Hanging: 3"
' Formatted: Tab stops: 2.5", Left + Not at
3.75"
CITY OF LODI
SAMPLE INVESTMENT FORMS
BROKER/DEALER QUESTIONNAIRE
CITY OF LODI TREASURER'S OFFICE
P. O. Box 3006
Lodi, California 95241
1. Name:
2. Branch Address:
3. Telephone No.:
4. Primary Account Representative:
Name:
Title:
Telephone No.:
5. Is your firma primary dealer in US Government Securities? Y/N
6. Identify the personnel who will be trading with or quoting securities to our agencies employees:
Name Title Telephone No.
7. National Headquarters Address:
Corporate Contract:
Telephone No.:
Compliance Officer (Name, Address, Telephone):
8. What was your firm's total volume in US Government and Agency securities trading last calendar year?
9. Which securities are offered by your firm?
( ) US Treasury ( ) Commercial Paper
( ) US Treasury Notes ( ) BAs Domestic
( ) US Treasury Bonds ( ) BAs Foreign
( ) Agencies (specify) ( ) Repurchase Agreements
( ) Negotiable CD's ( ) Reverse Repurchase Agreements
10. List your personnel who have read the City of Lodi Treasurer's Investment Policy.
11. Please identify your public -sector clients in our geographical area who are most comparable to our government
with which you currently do business.
12. Have any of your clients ever sustained a loss on a securities transaction arising from misunderstanding or
misrepresentation of the risk characteristics of the instrument? If so, please explain.
13. Have any of your public -sector clients ever reported to your firm, is officers or employees, orally or in writing, that
they sustained a loss exceeding 10% of the original purchase price in a single year on any individual security
purchased thorough your firm? Explain.
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CITY OF LODI
SAMPLE INVESTMENT FORMS
14. Has your firm ever been subject to a regulatory or state/federal agency investigation for alleged improper,
fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees ever
been so investigated? Explain.
15. Has a public sector client ever claimed in writing that your firm or members of your firm were responsible for
investment losses?
16. Please include samples of research reports that your firm regularly provides to public -sector clients.
17. Please explain your normal delivery process. Who audits these fiduciary systems?
18. Please provide certified financial statements and other indicators regarding your firm's capitalization.
19. Describe the capital line and trading limits that support/limit the office that would conduct business with our
government.
20. What training would you provide to our employees and investment officers?
21. Has your firm consistently complied with the Federal Reserve Bank's capital adequacy guidelines? As of this
date, does your firm comply with the guidelines? Has your capital position every fallen short? By what factor
(1.5x, 2x, etc.). Does your firm presently exceed the capital adequacy guidelines, measure of risk? Include
certified documentation of your capital adequacy as measured by the Federal Reserve standards.
22. Do you participate in the Securities Investor Protection Corporation (SIPC) insurance program? If not, why?
23. What portfolio information do you require from your clients?
24. What reports, confirmations and paper trail will we receive?
25. Enclose a complete schedule of fees and charges for various transactions.
26. How many and what percentage of your transactions failed last month? Last year?
27. Describe the precautions taken by your firm to protect the interest of the public when dealing with governmental
agencies as investors.
28. Is your firm licensed by the State of California as a broker/dealer? Y/N
CERTIFICATION ATTACHED
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CITY OF LODI
SAMPLE INVESTMENT FORMS
CERTIFICATION
I hereby certify that I have personally read the latest adopted resolution of investment policies and objectives of the
City of Lodi Treasurer and the California Government Codes pertaining to the investments of the City of Lodi, and
have implemented reasonable procedures and a system of controls designed to preclude imprudent investment
activities arising out to transaction conducted between our firm and the City of Lodi. All sales personnel will be
routinely informed of the City of Lodi's investment objectives, horizon, outlook, strategies and risk constraints
whenever we are so advised. We pledge to exercise due diligence in informing the City of Lodi of all foreseeable risks
associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your
questionnaire.
SIGNED TITLE DATE
COUNTERSIGNED DATE
(Person in charge of government securities operations)
NOTE: Completion of Questionnaire is only part of the City of Lodi's Certification process and DOES NOT guarantee
that the applicant will be approved to do business with the City of Lodi.
On this day of 20 before me the undersigned Notary Public
personally appeared
( ) personally known to me
( ) proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) subscribed to the
within instrument and acknowledged that executed it.
State of
County of
WITNESS my hand and official seal.
Notary's Signature
19
GLOSSARY
20
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
AGENT: an agent is a firm or individual which executes orders for others or acts on behalf of
others (the principal). The agent is subject to the control of the principal and does not have title to
the principal's property. The agent may charge a fee or commission for this service.
AGENCIES: federal agency securities and/or Government-sponsored enterprises.
AGREEMENT: an agreement is an arrangement or understanding between individual traders to
honor market quotes within predetermined limits on dollar amount and size.
AMORTIZATION: straight-line reduction of debt by means of periodic payments sufficient to meet
current interest charges and to pay off the debt at maturity.
ARBITRAGE: a technique used to take advantage of price differences in separate markets. This
is accomplished by purchasing securities, negotiable instruments or currencies in one market for
immediate sale in another market at a better price.
ASKED: the price at which securities are offered.
AT THE MARKET: a trading term for the buying or selling of securities at the current market price
rather than at a predetermined price.
BANKERS ACCEPTANCE (BA): a bearer time draft for a specified amount payable on a specified
date. An individual or business seeking to finance domestic or international trade draws it on a
bank. Commodity products collateralize the BA. Sale of goods is usually the source of the
borrower's repayment to the bank. The bank finances the borrower's transaction and then often
sells the BA on a discount basis to an investor. At maturity, the bank is repaid and the investor
holding the BA receives par value from the bank.
BASIS PRICE: price expressed in yield -to -maturity or the annual rate of return on the investment.
BEAR MARKET: a period of generally pessimistic attitudes and declining market prices.
(Compare: Bull market)
BELOW THE MARKET: a price below the current market price for a particular security.
BID AND ASKED OR BID AND OFFER: the price at which an owner offers to sell (asked or offer)
and the price at which a prospective buyer offers to buy (bid). It is often referred to as a quotation
or a quote. The difference between the two is called the spread.
BOND: an interest-bearing security issued by a corporation, government, governmental agency or
other body, which can be executed through a bank or trust company. A bond is a form of debt
with an interest rate, maturity, and face value, and is usually secured by specific assets. Most
bonds have a maturity of greater than one year, and generally pay interest semiannually.
BOND ANTICIPATION NOTE (BAN): short-term notes sold by states and municipalities to obtain
interim financing for projects which will eventually be financed by the sale of bonds.
21
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
BOND DISCOUNT: the difference between a bond's face value and a selling price, when the
selling price is lower than the face value.
BOND RATING the classification of a bond's investment quality. (See: Rating).
BOND RESOLUTION: a legal order or contract by a governmental unit to authorize a bond issue.
A bond resolution carefully details the rights of the bondholders and the obligation of the issuer.
BOOK VALUE: the amount at which a security is carried on the books of the holder or issuer. The
book value is often the cost, plus or minus amortization, and may differ significantly from the
market value.
BROKER: a middleman who brings buyers and sellers together and handles their orders,
generally charging a commission for this service. In contrast to a principal or a dealer, the broker
does not own or take a position in securities.
BULL MARKET: a period of generally optimistic attitudes and increasing market prices.
(Compare: Bear Market).
BUYERS MARKET: a market where supply is greater than demand, giving buyers an advantage
in purchase price and terms.
CALL: an option to buy a specific asset at a certain price within a particular period.
CALLABLE: a feature which states a bond or preferred stock may be redeemed by the issuer prior
to maturity under terms designated prior to issuance.
CALL DATE: the date on which a bond may be redeemed before maturity at the option of the
issuer.
CALLED BONDS: bonds redeemed before maturity.
CALL PREMIUM: the excess paid for a bond or security over its face value.
CALL PRICE: the price paid for a security when it is called. The call price is equal to the face
value of the security, plus the call premium.
CALL PROVISION: the call provision describes the details by which a bond may be redeemed by
the issuer, in whole or in part, prior to maturity. A Security with such a provision will usually have
a higher interest rate than comparable, but noncallable securities.
CAPITAL GAIN OR LOSS: the amount that is made or lost, depending upon the difference
between the sale price and the purchase price of any capital asset or security.
CAPITAL MARKET: the market in which buyers and sellers, including institutions, banks,
governments, corporations and individuals, trade debt and equity securities.
22
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
CASH SALE: a transaction calling for the delivery and payment of the securities on the same day
that the transaction takes place.
CERTIFICATE OF DEPOSIT (CD): debt instrument issued by a bank that usually pays interest.
Institutional CD's are issued in denominations of $100,000 or more. Maturities range from a few
weeks to several years. Competitive forces in the marketplace set interest rates.
CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICE (CDARS): deposits made with a
"selected" depository institution, in accordance with California Government Code Section 53601.8,
that uses a private entity to assist in the placement of certificates of deposit. Such deposits shall
at all times be insured by the Federal Deposit Insurance Corporation or the National Credit Union
Administration. The selected depository institution shall serve as custodian for each certificate of
deposit that is issued with placement service for the City of Lodi's account.
COLLATERAL: securities or other property, which a borrower pledges for the repayment of a loan.
Also refers to securities pledged by a bank to secure deposits of public monies.
COLLATERAL NOTE: a promissory note, which specifically mentions the collateral, pledged by
the borrower for the repayment of an obligation.
COMMERCIAL PAPER: short-term obligations with maturities ranging from 2 to 270 days issued
by banks, corporations, and other borrowers to investors with temporarily idle cash. Such
instruments are unsecured and usually discounted, although some are interest-bearing.
COMMISSION: the brokers or agent's fee for purchasing or selling securities for a client.
COUPON: the annual rate of interest that a bond's issuer promises to pay the bondholder on the
bond's face value.
COVENANT: a pledge in the bond resolution or indenture of the issuing government to perform in
a way that may benefit the bondholders, or to refrain from doing something that might be
disadvantageous to them.
COVER: the spread between the winning bid (or offer) and the next highest bid (or the next lowest
offer). It is useful as a basis for evaluation of the bids.
COVERAGE RATIO: the ratio of income available to pay a specific obligation versus the total
amount obligated. This is a measure of financial stability.
CREDIT ANALYSIS: a critical review and appraisal of the economic and financial condition of a
government agency or corporation. The credit analysis evaluates the issuing entity's ability to
meet its debt obligations, and the suitability of such obligations for underwriting or investment.
CURRENT MATURITY: amount of time left to the maturity of an obligation
23
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
DEBENTURE: a bond secured by the general credit of the issuer rather than being backed by a
specific lien on property as in mortgage bonds.
DEBT COVERAGE: this term is normally used in connection with revenue and corporate bonds. It
indicates the margin of safety for payment of debt, reflecting the number of times by which
earnings for a certain period of time exceed debt payable during the same period.
DEBT LIMIT (OR CEILING): the maximum amount of debt that can legally be acquired under the
debt -incurring power of a state or municipality.
DEBT SERVICE: interest and principal obligation on an outstanding debt. This is usually for a
one-year period.
DEFAULT: failure to pay principal or interest promptly when due.
DELIVERY VERSUS PAYMENT: securities industry procedure, common with institutional
accounts, whereby delivery of securities sold is made to the buying customer's bank in exchange
for payment, usually in the form of cash. (Institutions are required by law to require "assets of
equal value" in exchange for delivery.) Also called Cash on Delivery.
DERIVATIVE: contracts written between a City and a counter party such as a bank, insurance
company or brokerage firms. Their value is derived from the value of some underlying assets
such as Treasury Bonds or a market index such as LIBOR. Derivatives are used to create
financial instruments to meet special market needs. Two contrasting reasons for the use of
derivatives are: 1) to limit risk or transfer it to those willing to bear it; and, 2) to speculate about
future interest rates and leverage in hope of increasing returns.
DISCOUNT: the difference between the cost price of a security and its maturity when quoted at
lower than face value. A security selling below original offering price shortly after a sale also is
considered to be at a discount.
DIVERSIFICATION: dividing investment funds among a variety of securities offering independent
returns.
DUE DILIGENCE: exercising of due professional care in the performance of duties.
FACE VALUE: the principal amount owed on a debt instrument. It is the amount on which interest
is computed and represents the amount that the issuer promises to pay at maturity.
FANNIE MAE: trade name for the Federal National Mortgage Association.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): federal agency established in 1933
that guarantees (within limits) funds on deposit in member banks and performs other functions
such as making loans to or buying assets from members banks to facilitate mergers or prevent
failures.
24
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
FEDERAL FUNDS RATE: the rate of interest at which Fed funds are traded. This rate is currently
pegged by the Federal Reserve through open -market operations.
FEDERAL HOME LOAN BANKS (FHLB): government sponsored wholesale banks (currently 12
regional banks) which lend funds and provide correspondent banking services to member
commercial banks, credit unions and insurance companies. The mission of the FHLBs is to
liquefy the housing related assets of its members who must purchase stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA like GNMA was chartered
under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation
working under the auspices of the Department of Housing and Urban Development (HUD). It is
the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the
corporation is called, is a private stockholder -owned corporation. The corporation's purchases
include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages.
FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and
guarantees that all security holders will receive timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): consists of seven members of the Federal
Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the
New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a
rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding
purchases and sales of Government Securities in the open market as a means of influencing the
volume of bank credit and money.
FEDERAL RESERVE SYSTEM: the central bank of the United States created by Congress and
consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and
about 5,700 commercial banks that are members of the system.
FIDUCIARY: an individual or group, such as a bank or trust company, which acts for the benefit of
another party or to which certain property is given to hold in trust, according the trust agreement.
FISCAL YEAR: an accounting or tax period comprising any twelve-month period. The City's fiscal
year starts July 1.
FREDDIE MAC: trade name for the Federal Home Loan Mortgage Corporation.
FULL FAITH AND CREDIT: the unconditional guarantee of the United States government backing
a debt for repayment.
GENERAL OBLIGATION BONDS (GO's): bonds secured by the pledge of the municipal issuer's
full faith and credit, usually including unlimited taxing power.
GINNIE MAE: trade name for the Government National Mortgage Association.
25
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): securities
influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers,
commercial banks, savings and loan associations, and other institutions. Security holder is
protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the
FHA, VA or FmHA mortgages. The term "pass-through" is often used to describe Ginnie Maes.
HOLDER: the person or entity which is in possession of a negotiable instrument.
INDEBTEDNESS: the obligation assumed by a borrower, guarantor, endorser, etc. to repay funds
which have been or will be paid out on the borrower's behalf.
INDENTURE: a written agreement used in connection with a security issue. The document sets
the maturity date, interest rate, security and other terms for both the issue holder, issuer and,
when appropriate, the trustee.
INTEREST RATE: the interest payable each year on borrowed funds expressed as a percentage
of the principal.
INVESTMENT: use of capital to create more money, either through income-producing vehicles or
through more risk -oriented ventures designed to result in capital gains.
INVESTMENT PORTFOLIO: a collection of securities held by a bank, individual, institution, or
government agency for investment purposes.
IRREVOCABLE LETTER OF CREDIT: instrument or document issued by a bank guaranteeing
the payment of a customer's drafts up to a stated amount for a specified period. It substitutes the
bank's credit for the buyer's and eliminates the seller's risk. This arrangement cannot be changed
or terminated by the one who created it without the agreement of the beneficiary.
ISSUE PRICE: the price at which a new issue of securities is put on the market.
ISSUER: any corporation or governmental unit, which borrows money through the sale of
securities.
JOINT AND SEVERAL OBLIGATION: a guarantee to the holder in which the liability for a bond or
note issue may be enforced against all parties jointly or any one of them individually so that one,
several or all may be held responsible for its payment.
LAIF: trade name for California State Local Agency Investment Fund.
LEGAL INVESTMENT: a list of securities in which certain institutions and fiduciaries may invest as
determined by regulatory agencies.
LEGAL OPINION: an opinion concerning the legality of a bond issue, usually written by a
recognized law firm specializing in the approval of public borrowings.
26
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
LIQUIDITY: a liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread between
bid and asked prices is narrow and reasonable size can be done at those quotes.
MARKETABILITY: the measure of ease with which a security can be sold in the secondary
market.
MARKET ORDER: an order to buy or sell securities at the prevailing bid or ask price on the
market.
MARKET VALUE: the price at which a security is trading and could presumably be purchased or
sold.
MARKET VS. QUOTE: quote designates the current bid and ask on a security, as opposed to the
price at which the last security order was sold.
MASTER REPURCHASE AGREEMENT: a written contract covering all future transactions
between the parties to repurchase—reverse repurchase agreements that establishes each party's
rights in the transactions. A master agreement will often specify, among other things, the right of
the buyer -lender to liquidate the underlying securities in the event of default by the seller -
borrower.
MATURITY: the date that the principal or stated value of debt instrument becomes due and
payable. It is also used as the length of time between the issue date and the due date.
MONEY MARKET: the market in which short-term debt instruments (bills, commercial paper,
bankers' acceptances, etc.) are issued and traded.
MORTGAGE BOND: a bond secured by a mortgage on property. The value of the property used
as collateral usually exceeds that of the mortgage bond issued against it.
NEGOTIABLE: a term used to designate a security, the title to which is transferable by delivery.
Also used to refer to the ability to exchange securities for cash or near -cash instruments.
NO PAR VALUE: a security issued with no face or par value.
NON-NEGOTIABLE: a security whose title or ownership is not transferable through a simple
delivery or endorsement. (See: Negotiable.)
OBLIGATION: a responsibility for paying back a debt.
OFFER: the price of a security at which a person is willing to sell.
OFFERING: placing securities for sale to buyers. The offering usually states the price and terms.
27
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
OPEN MARKET OPERATIONS: purchases and sales of government and certain other securities
in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to
influence the volume of money and credit in the economy. Purchases inject reserves into the
bank system and stimulate growth of money and credit; sales have the opposite effect. Open
market operations are the Federal Reserve's most important and most flexible monetary policy
tool.
PAR VALUE: the stated or face value of a security expressed as a specific dollar amount marked
on the face of the security; the amount of money due at maturity. Par value should not be
confused with market value.
PAYING AGENT: the agency, usually a commercial bank, which dispenses the principal and
interest payable on a maturing issue.
PORTFOLIO: the collection of securities held by an individual or institution.
PREMIUM: the amount by which the price paid for a security exceeds the par value. Also, the
amount that must be paid over the par value to call an issue before maturity.
PRIMARY DEALER: a group of government securities dealers who submit daily reports of market
activity and positions and monthly financial statements to the Federal Reserve Bank of New York
and are subject to its informal oversight. Primary dealers include Securities and Exchange
Commission (SEC) -registered securities broker-dealers, banks, and a few unregulated firms.
PRINCIPAL: the face or par value of an instrument. It does not include accrued interest.
PRUDENT INVESTOR RULE: an investment standard adopted by the State of California in 1995.
It states that a trustee shall consider the entire investment portfolio when determining the
prudence of an individual investment; diversification is explicitly required within a portfolio;
suitability of an investment is a primary determinant; and delegation of investment management is
acceptable.
PRUDENT MAN RULE: an investment standard established in 1630. It states that a trustee who
is investing for another should behave in the same way as a prudent individual of discretion and
intelligence who is seeking a reasonable income and preservation of capital.
QUOTATION (QUOTE): the highest bid to buy or the lowest offer to sell a security in any market
at a particular time.
RATE OF RETURN: 1) the yield which attainable on a security based on its purchase price or its
current market price. 2) This may be the amortized yield to maturity on a bond the current income
returns.
28
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
RATING: the designation used by investors' services to rate the quality of a security's
creditworthiness. Moody's ratings range form the highest Aaa, down through Aa, A, Baa, Ba, B,
etc., while Standard and Poor's ratings range from the highest AAA, down through AA, A, BBB,
BB, B, etc.
REFINANCING: rolling over the principal on securities that have reached maturity or replacing
them with the sale of new issues. The object may be to save interest costs or to extend the
maturity of the loan.
REGISTERED BOND: a bond whose principal and/or interest is payable only to that person or
organization which is registered with the issuer. This form is not negotiable and it can be
transferred only when endorsed by the registered owner.
REPURCHASE AGREEMENT (REPO): agreement between a seller and a buyer, usually of U.S.
Government securities, whereby the seller agrees to repurchase the securities at an agreed upon
price and, usually, at a stated time. The attraction of repos is the flexibility of maturities that
makes them an ideal place to "park" funds on a very temporary basis. Dealers also arrange
reverse repurchase agreements, whereby they agree to buy the securities and the investor agrees
to repurchase them at a later date.
REVENUE ANTICIPATION NOTES (RAN): short-term notes sold in anticipation of receiving future
revenues. The notes are to be paid from the proceeds of those revenues.
REVENUE BOND: a state or local bond secured by revenues derived from the operations of
specific public enterprises, such as utilities. Such bonds are not generally backed by the taxation
power of the issuer unless otherwise specified in the bond indenture.
SAFEKEEPING: a service banks offer to customers for a fee, where securities are held in the
bank's vaults for protection.
SECURED DEPOSIT: bank deposits of state or local government funds which, under the laws of
certain jurisdictions, must be secured by the pledge of acceptable securities.
SECONDARY MARKET: a market made for the purchase and sale of outstanding issues following
the initial distribution.
SECURED DEPOSIT: bank deposits of state or local government funds which, under the laws of
certain jurisdictions, must be secured by the pledge of acceptable securities.
SECURITIES: investment instruments such as bonds, stocks and other instruments of
indebtedness or equity.
SECURITIES & EXCHANGE COMMISSION: agency created by Congress to protect investors in
securities transactions by administering securities legislation.
29
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
SERIAL BOND: bonds of the same issue, which have different maturities, coming due over a
number of years rather than all at once. This allows the issuer to retire the issue in small amounts
over a long period of time.
SETTLEMENT DATE: date by which an executed order must be settled, either by buyer paying for
the securities with cash or by a seller delivering the securities and receiving the proceeds of the
sale for them.
SINKING FUND: a reserve fund set aside over a period of time for the purpose of liquidating or
retiring an obligation, such as a bond issue, at maturity.
SPECIAL ASSESSMENT BONDS: bonds that are paid back from taxes on the property that is
benefiting from the improvement being financed. The issuing governmental entity agrees to make
the assessments and earmark the tax proceeds to repay the debt on these bonds.
SPREAD: the difference between two figures or percentages. For example, it may be the
difference between the bid and asked prices of a quote, or between the amount paid when bought
and the amount received when sold.
SUPRANATIONAL OBLIGATIONS: United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International Bank for
Reconstruction and Development; International Finance Corporation, or Inter -American
Development Bank.
TAX ANTICIPATION NOTES (TAN): short-term notes issued by states or municipalities to finance
current operations in anticipation of future tax collections which would be used to repay the debt.
TAX-EXEMPT BONDS: interest paid on municipal bonds issued by state and local governments
or agencies is usually exempt from federal taxes, and in some cases, the state and/or local taxes.
The interest rate paid on these bonds is generally lower than rates on non-exempt securities.
TERMS: the conditions of the sale or purchase of a security.
TREASURY BILL (T -BILL): a non-interest bearing discount security issued by the U.S. Treasury to
finance the national debt. Most bills are issued to mature in three months, six months, or one
year.
TREASURY BONDS AND NOTES: obligations of the U. S. government which bear interest.
Notes have maturities of one to seven years, while bonds have longer maturities.
TREASURY BONDS: long-term coupon bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities of more than 10 years.
TREASURY NOTES: medium-term coupon -bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities from two to 10 years.
30
CITY OF LODI
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
TRUSTEE: a bank designated as the custodian of funds and the official representative for
bondholders.
UNDERWRITER: a dealer bank or other financial institution, which arranges for the sale and
distribution of a large batch of securities and assumes the responsibility for paying the net
purchase price.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member
firms as well as nonmember broker-dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one -reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: the annual rate of return on an investment, expressed as a percentage of the investment.
YIELD CURVE: graph showing the term structure of interest rates by plotting the yields of all
bonds of the same quality with maturities ranging from the shortest to the longest available. The
resulting curve shows if short-term interest rates are higher or lower than long-term rates. For the
most part, the yield curve is positive (short-term rates are lower), since investors who are willing to
tie up their money for a longer period of time usually are compensated for the extra risk they are
taking by receiving a higher yield.
31
RESOLUTION NO. 2016-10
A RESOLUTION OF THE LODI CITY
COUNCIL ADOPTING THE CITY OF LODI
ANNUAL INVESTMENT POLICY AND
INTERNAL CONTROL GUIDELINES
WHEREAS, California Government Code Section 53646 endorses an annual
review of a local agencies' investment policy by the local legislative body; and
WHEREAS, the City of Lodi Investment Policy requires that the Investment
Policy be periodically reviewed and adopted by Resolution; and
WHEREAS, the Policy, on file in the office of the City Clerk, is in compliance with
State laws governing the investment of local agency funds and provides internal control
guidelines to protect the funds of the City from misappropriation, speculation, and fraud.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Lodi
has reviewed and hereby adopts the City of Lodi Annual Investment Policy and Internal
Control Guidelines, which shall be effective this date.
Dated: January 20, 2016
I hereby certify that Resolution No. 2016-10 was passed and adopted by the City
Council of the City of Lodi in a regular meeting held January 20, 2016, by the following
vote:
AYES: COUNCIL MEMBERS — Johnson, Kuehne, Nakanishi, and
Mayor Chandler
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — Mounce
ABSTAIN: COUNCIL MEMBERS — None
NIFER . FERRAIOLO
City Clerk
2016-10