HomeMy WebLinkAboutResolutions - No. 2005-243I I Ims REALM lot]
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WHEREAS, pursuant to California Government Code §53601, the City Council is
required to annually review and adopt the City of Lodi Investment Policy; and
WHEREAS, the Policy, attached hereto marked Exhibit A, 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- November 16, 2005
I hereby certify that Resolution No. 2005-243 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held November 16, 2005, by the
following vote.
AYES- COUNCIL MEMBERS — Hansen, Hitchcock, Johnson, Mounce,
and Mayor Beckman
NOES: COUNCIL MEMBERS — None
SUSAN J. BLACKSTON
City Clerk
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»VEST INVESTMENT
AND
INTERNAL CONTROL «�<.# \ \:d y v
TABLE OF CONTENTS
SECTION DESCRIPTION Page
Introduction 1
Scope I
Objectives 1
Delegation of Authority 2
Prudence 2
Ethics and Conflicts of Interest 3
Monitoring and Adjusting the Portfolio 3
Internal Controls 3
Reporting 3
Authorized Investments 4
Banks and Security Dealers 6
Purchase of CD's from Local Institutions 7
Safekeeping and Collateralization 7
Administration 8
11 Internal Controls
General 10
Procedures 11
Treasury Function Responsibilities 12
Sample of Investment Forms
Investment Bid Sheet 13
Broker/Dealer Questionnaire 14
IV Glossary 18
V Resolution 29
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.
Z SCOPE
The investment policy applies to all funds under the direct authority of the Finance
Director/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. This policy is generally applicable to bond proceeds with
consideration given to specific provisions of each issuance.
3. OBJECTIVES
Funds of the City will be invested with the following objectives in priority order-
A2Lety.
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.
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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 Lod I
INVESTMENT POLICY
Return on Inyostments:
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.
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 Revenue
Manager,
5. PRUDENCE
The standard of prudence to be applied by the Treasurer will be the "prudent person"
standard, which states "Investments shall be made with judgment and care, under
circumstances then prevailing, which persons of prudence, discretion and intelligence exercise
in the management of their own affairs, not for speculation, but for investments, considering the
probable safety of their capital as well as the probable income to be derived". The prudent
person standard will be applied in the context of managing the overall portfolio. The Treasurer,
acting in accordance with written procedures and exercising due diligence, will not be held
personally responsible for a specific security's risk or market price changes, provided that these
deviations are reported immediately and that appropriate action is taken to control adverse
developments.
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INVESTMENT POLICY
6. ETHICS AND CONFLICTS OF INTEREST
The City Treasurer is governed by The Political Reform Act of 1974 regarding disclosure of
material financial interests. 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.
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.
8. INTERNAL CONTROLS
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.
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 required
by Government Code Section 53646, will be in addition to the Treasurer's monthly report and
accounting of all receipts, disbursements and fund balances.
K,
_pity of Lodi
in addition, the investment policy will be submitted to the City Council annually in September.
Any changes will be noted and formal adoption in the form of a resolution of the City Council is
required.
10,AUT ORIZED INVESTMENTS
The City will invest surplus funds not required to finance the immediate needs of the City as
provided in California Government Code 53601, In selecting authorized investments,
consideration must be given to credit ratings and collateralization of applicable instruments. A
Iist 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 (i.e. bond sate proceeds) and special assessment prepayments being held for debt
retirement.
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 for the LAW is Section
16429.1,2,3 of the California Government Code.
The LAIF is part of the Pooled Money Investment Account (PIMA). 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 Controler.
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.
El
City of Lodi
INVESTMENT POLICY
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.
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 A schedule for receiving statements and portfolio listing.
0 Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
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 terra 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.
Permitted Investments
U.S. Treasury Obligations (Bills, notes and bands)
U.S. Goverronent Agency Securities and Instrumentalities
Bankers Acceptances
Certificates of Deposit
Negotiable Certificates of Deposit
Conunercial Paper
California State Local Agency Investment Fund
Passbook Deposits
Repurchase ,agreements
Reverse Repurchase agreements
Mutual Funds
Medium Tenn Notes
it
Maximum
Percent of
Maturity
Portfolio
5 Years
100%
5 Years
100%
180days
40%
Years
5 Years
30%
270 days
40%
Indefinite
100%
Indefinite
100%
Not Authorized N/A
Not Authorized N/A
Indefinite 20%
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 $40 million in any one account, effective January 1, 2002.
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:
Under 30 days
10% minimum
Under 90 days
25% minimum
Under 270 days
50% minimum
Under I year
75% minimum
Under 18 months
90% minimum
Under 2 years
95% minimum
Under 5 years
100% minimurn
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.
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.
6
City of Lodi
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 maintains 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 National Association of Security Dealers Certification.
* Trading Resolution
* Proof of State Registration
® Completed broker/dealer questionnaire
* Certification of having read the City of Lodi's investment policy and depository
contracts
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,
12 PURCHASE OF CDs FROM LOCAL INSTITUTIONS
To the extent reasonable and within the limits specified above, the Treasurer may purchase
a $100,000 Certificates of Deposits 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, Certificates of Deposit of above $100,000 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.
13. SAFEKEEPING AND COLLATERTION
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.
7
City of Lodi
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 $100,000 by the Federal
Deposit Insurance Corporation (FDIC).
The amount of securities placed with an agent of depository will at all times be maintained
in accordance with California Government Code 53652.
14. ADMINISTRATION
The following administrative policies will be strictly observed:
a, Payment
All transactions will be executed on a delivery versus payment basis which should be
done by the City's safekeeping agent.
b. Bid
A competitive bid process, 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,
c, Wire Transfers
All wire transfers will be approved by the Treasurer or Revenue Manager. 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.
H;
fifty i��i
INVESTMENT POLICY
d. 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.
e. 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.
91
.�q�ftyof �Lodi
E
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,
1. 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
2, 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
services as part of their service, including marking the portfolio to market value,
performance evaluation and internal reporting.
10
it of Lodi
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 is 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.
Assigned Responsibilities
a, City Council responsibilities:
* Adoption of City's investment policies by Resolution
* Review and evaluation of investment performance
b. Finance Director/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. Revenue Manager duties and responsibilities:
Recommends brokeddlealer 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 annual for compliance
with coflateralization requirements under government code and financial condition and reports
results to City Treasurer.
d. Accounting 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.
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 internaf
controls,
oil
FUNCTION RESPONSIBILITIES
Im"
* Recommends broker/dealer arrangements Revenue Manager
* Recommends investments Revenue Manager
* Formal investment policy prepared by Finance Director/Treasurer
* Formal investment policy approved by City Council
* Investment transactions approved by Finance Director/Treasurer
* Broker/deal arrangements approved by Finance Director/Treasurer
3, Execution of Investment Transactions Revenue ManoaM
* Recording of transactions in
Treasurer's records Revenue Manager
* Recording of transactions in
Accounting records Accounting Manager
5. Safeguarding of assets and records
* Maintenance of Treasurer's records
Revenue Manager
* Reconciliation of Treasurer's records
to accounting records
Accounting Manager
* Review of (a) financial institution's
financial condition, (b) safety, liquidity,
and potential yields of investment instruments,
and (c) reputation and financial condition of
investment brokers
Revenue Manager
* Periodic reviews of collateral
Revenue Manager
* Review and evaluation of performance
City Council
6. Preparation of reports Revenue Manager
7. Periodic review of investment portfolio for
conformance to City's investment policy City's Audit Firm.
CITY OF LODI Cycle ta;
INVESTMENT DID SHEET James R Krueger
Date: Finance Director —
Transac.tion Accounting Manager ._
Recommended Selection
Primary Dealer
Quotes:
Firm
Beater
Telephone #
Security Type
Price
Maturity Date
Ist calf date
Yield to Maturity
Purchase Price
Lusip tk
Isrincipal
Discount
Accrued Interest
Interest Rate
Interest Pori(***
Risk Catagory
Trade Data
Sertkement Date
Calculation
Irivstnint --Fund #
Investment Fund #
issuer Code
Cert.lAcct, #
Term of Days
4 *z
ME(Month end in advance)
FSE (Month end in arrears)
M (Monthly in advance)
AM (Monthly in arrears)
QE (Quarter end)
S (Serpi-annual Actual)
SC (Semi -Annual Equal)
MA (Maturity)
MD(Maturtty Discount)
LAIF BALANCE
Comments;
C onf, 9:
loves(
Withdraw
Invest
Sell
Invest
Sell
Approval:
Finance Director:
Revenue ]Manager:
Approval Date:
Transaction Date:
M
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M-T-1F,F-C1-*-11#T1tXkW6- WF)VE
P. 0, Box 3006
LoO, California 95241
2 Branch Address:
Telephone
4, Primary Account Representative.
Name: --
Title. -----
Telephone
5is your firm a primary dealer in US Government Securities Y
6. Identify the personnel who will be trading with or quoting securities to our agency's
employees:
Name Title
7, Ntl, Headquarters Address.
Corporate Contact.
Phone: ----------
Compliance Officer (Name, Address, Phone),
MMMMT*=
& What was your firm's total volume in US Government and Agency securities trading last
calendar year?
M
9. Which securities are offered by your firm?
US Treasury
US Treasury Notes
US Treasury Bonds
Agencies (specify)
Negotiable CDs
Commercial Paper
BAs Domestic
BAs Foreign
Repurchase Agreements
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, its 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 through your firm? Explain.
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.
ig
17, Please explain your normal delivery process. Who audits these fiduciary systems?
18. Please provide certified financi3i 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
,M
[ hereby certify that ( 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 of transactions 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: Cornpletio n 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 dav 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
Notary's Signature
M
pity 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: a 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 an 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.
W11
City of Lodi
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
E30NO 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 an 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.
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GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
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.
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 obligabans and the suitability of such obligations for underwriting or investment.
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CURRENT MATURITY: amount of time left to the maturity of an obligation.
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 Co 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 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
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GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
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, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy
the housing related assets of its members who must purchase stock in their district Bank.
FEDERAL 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.
FREDDIEMAC: trade name for the Federal Home Loan Mortgage Corporation.
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GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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,
GOVERNMENT NATIONAL MORTGAGE ASSOC)ATiON (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.
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GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
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.
V.11
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
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.
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City of Lodi
PRUDENT MAN RULE: an investment standard established in 1630, It states that a tnistee 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: the yield obtainable on a security based on its purchase price or its current
market price. This may be the amortized yield to maturity on a bond the current income returns,
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, 131313, 1313, 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
ioan,
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_
REPURCHASEAGREEMENT (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 ANTICIPAT)ON 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: service banks offer to customers for a fee, where securities are held in the bank's
vaults for protection.
SECONDARY MARKET. a market made for the purchase and sale of outstanding issues following
the initial distribution.
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City of Lodi
GLOSSARY OF COMMONLY USED FINANCIAL TERMS
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.
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.
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.
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City of Lodi
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,
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: Ser-Urities 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 Gash.
YIELD-. the annual rate of return or, 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.
Nil
WHEREAS, pursuant to California Government Code §53601, the City Council is
required to annually review and adopt the City of Lodi Investment Policy; and
WHEREAS, the Policy attached hereto marked Exhibit A, is in compliance with
State laws governing the investment of local agency funds and provides internal control
guidelines to protect the Bands 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 dates
Dated: November 16, 2005
I hereby certify that Resolution No. 2005-_ was passed and adapted by the
City Council of the City of Lodi in a regular meeting held November 16, 2005, by the
following vote:
NOES., COUNCIL MEMBERS ---