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HomeMy WebLinkAboutAgenda Report - October 1, 2003 E-041111 Vill 9. EM, I e. f AGENDA TITLE. adopt resolution approving the Annual Investment Polley and Internal Control Guidelines MEETING r Octot r 1, 2003 PREPARED BY - Iia Director RECOMMENDED TI ' o The City Council adopt the City's winual investment policy and internal control guidelines. BACKGROUND INFORMATION: Section 53601 of the California Government Code requires the City Council to annually review and adopt thetygs investment pc�lzey.ecrdirly, the at ached policy is presented for ooutsit review and approval, This policy is in compliance with stage laws governing theinvestm.ent oflocal agency meads and provides internal: control. guidelines to protect the funds of the City from n is ppro ria ion., speculation, and firaud. The City of Lodi policy was <certi ed by the MTA, US&C in 1996, 1997 and 2000, The 2000 award. was received in August 001, Changes in this presentation are from the Government Code, Investment Policy, page 5, sho" .in bold, "'Permitted Investments, Maximum maturity and Percent of Portfolio" and at city Council Direction on page V, shown it'i italics, "Purchase of D's from Local Institutions". This policy is also annuafly reviewed by the City's audit firm and has been fecund to be in compliance with Government Code, FUNDING. done. APPROVED: Figure I Allowable Investment Instruments Per State Government Code (as of January I, 2003)R Applicable to all local a e eiesb I Commercial Paper—Others Agencies' 270 days 40 percent of the agency's money' Repurchase Agreements Reverse Repurchase Agreoments & Mcdiurzr-Term Notes' Mutual Funds Money Market Mutual Funds Collateralized Hank Deposits Mortgage Dass -Through Securities Time Deposits County fooled Investment Funds Local Agency Investment Fund (LAIF) 1 year None 92 days' 20 percent of the base value of the portfolio 5 years N/A N/A 5 years 5 years 5 years N/A N/A 30 percent 20 percent' 20 percent Norte 20 percent None None None *Sea "Table of Notes for Figure la" on page 9b for footnotes related to this figure. None Norse None None None None "A-IIP-IIF-I';H:a if the issuer has issnod long - terra debt it trust be rated "A" without regard to modifiersg "A-IIP-I/F-1'"; if the issuer has issued dng- term debt it must be rated "A" withoutregard to modifiersg` None None None' "A" rating Multiple' Multiple' None "AA" Rating. None None None 9a Local Agency Bonds 5 years None U.S. Treasury Obligations 5 years Non: Mate of California Obligations 5 years None CA Local Agency Obligations 5 years None US, Agencies 5 years None �e I3�n�er�sArne tartces I80 da s a Commercial Paper. ---Select Agencies' 270 days 25 percent of the agency's moneyr I Commercial Paper—Others Agencies' 270 days 40 percent of the agency's money' Repurchase Agreements Reverse Repurchase Agreoments & Mcdiurzr-Term Notes' Mutual Funds Money Market Mutual Funds Collateralized Hank Deposits Mortgage Dass -Through Securities Time Deposits County fooled Investment Funds Local Agency Investment Fund (LAIF) 1 year None 92 days' 20 percent of the base value of the portfolio 5 years N/A N/A 5 years 5 years 5 years N/A N/A 30 percent 20 percent' 20 percent Norte 20 percent None None None *Sea "Table of Notes for Figure la" on page 9b for footnotes related to this figure. None Norse None None None None "A-IIP-IIF-I';H:a if the issuer has issnod long - terra debt it trust be rated "A" without regard to modifiersg "A-IIP-I/F-1'"; if the issuer has issued dng- term debt it must be rated "A" withoutregard to modifiersg` None None None' "A" rating Multiple' Multiple' None "AA" Rating. None None None 9a Assembly Bill No€ 2226 CHAPTER 339 An act to amend Sections 53601, 536€31.2, 53635, and 53635.2 of the Govcrnrr ent Code, relating to local agency iirvestments. [Approved by Govrmor September 6, 2000. Filed with Seuetary of Mate September 8, 2060.1 1 1;(331SLXTIVE COUNSEUS DICIEST AB 2220; LBattin. Local agency investments. Under existing lac . funds that belong to, or are in the custody of, a local agency or local agency moneys that are not required for the irnmediate necessity of the local agency may be invested in any of several specified investments. Existing law permits limited purchases of bankers aCeepLa.nees that do not exceed 270 days maturity. The purchase of prime quality commercial paper for those instruments is alar permitted if the eligible commercial paper does not exceed 18€3 The people of the .Stale of California do enact asfollows: SECTION J. Section 53601 of the Government Code is amended to read: 53601. The legislative body of a local agency having money in a sinking fund of, or s rplus money in, its treasury not required for the immediate needs of the local agency may invest any portion of the money that it d"ms wise: or expedient in those investments set forth below. A local agency: purchasing or obtaining any securities prescribed in this swion, in a. negotiable, bearer, registered, or nonregistered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial advisers, consultants, or managers using the agency's funds, by book cnry, physical delivery, Or by third -party custodial agreement. The transfer of securities. to the counterparty bank's custornor book entry account may be used for book entry delivery. For purposes of this section "Counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only 96 REFER TO THE FIGURE ON THE BACK OF THIS PAGE FOR SPECIFIC REQUIREMENTS FOR THIS AND OTHER INSTRUMENTS DATE: November 13, 2002 TO, Mayor City Council Members 11"N1141 FROM: Dixon Flynn, City Manager At the Council meeting of November 6" Council ado.pted the annual Investment Policy for the City. However, the City Treasurer was directed to add language to the . policy for the following in the soction regarding purchase of CD's from Local Institutions: The additional language has been incorporated and is shown in italics: Pkircha. ...of.QD's from Local Institutions To aid in the diversification of the portfolio, Certificates of Deposit of above $ 100, 000 may be purchased from local institutions provided the investment h as the safety, liquidity and a rate of return comparable to that offered from LAIF at the time the original investmbn�j is made. Z p"j s 81 s 01Al. £ I accas� zI POqS PfeI A SUUO,4 JU41UI94AUI JO aidtueSIII I sojN!q!s o so uopounj Ismail 01 poij 6 � slo,nuoa Flu 4M 8UCIR'9jIsRWv 9 sialluou AlYnooS puvsTmq s10:; TRUJOW1 Is njuljo sjo!uuoD pug s € la 000 013110j JUMISOAU1 alga ' , INVESTMENT City of Lodi INVESTMENT ENT L I Y 1® INFRODUCTION The purpo Se 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 confbrning to all state and local statutes governing the investment of public hinds. Safety ofprincipal is given the highestphionty. ' 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, 24 SCOPE The. investment policy applies to all funds under the direct authority of the Finance Director/a tyDirector/ Treasurer of the City ofLodi, including but not limed to the general Fund, Special'Revenue Funds, Capital Project Fluids, Enterprise Funds, Internal Service Funds and Trust and Agency Funds.. ' All funds are accounted forin the City's Comprehensive Annual Financial Report. This policy is generally applicable: to bond proceeds with consideration given to specific provisions of each issuance. e OBJECTIVES Funds of the City will be invested with the following objectives in priority order: Safety of principal is the foremost objective of the investment program. Investments of the City of Lodi shall be undert.aken in a mumer that seeks to ensure the preservation of capitalin the overall. portfolio, To attain this. ;objective, diversification is required in carder thatpotentiat losses on individual securities do not exceed the income generated from the re aind r:of the portfolio. The City of Lodi will diversify its investments by security type and institution, Financial institutioas and broker/eters will be prequalified and monitored as well as investment instruments they props e. The investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements rhich might be reasonably anticipated: This is will accomplished through matutity diversification in accordance with California Goverment Code 53635 and the State Local Agency Investment Fund with immediate withdrawal provision. City of.Lodi. 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 d the risks associated with higher returns, as long as it does not diminishfhe objectives of Safety and Liquidity, while preserving and protecting capital in the overall portf6lo. The "bench marked average" rate of return targeted to achieve this obOctive is the annual rate > of return on the arae -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 nmarked;averae" rate of return shall be sought. The Treasurer is designated by the authority of the legislative body as the investment o cer of City as provided for in Government Cade Section 53607 and is responsible fo the investment: decisions and activities of the City. The Treasurer will develop and maintain written admimistrative procedures for the operation of the investment program, consistent with this invest ent policy. The Treasurer shall hereafter assume fall 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 Deputy 'Treasurer. 5. 1 T e.stan a d of prudence to be applied by the 'Treasurer will be the "prudent person" standards which states "Investments shall be made with judgment and care,. under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in:the n anagement cif their own affairs, not for >speculation, but for investments, considering the probable safety of°their capital as well as the probable income to e derived". The prudent p rson standard will be applied in the context of managing the overall portfolio, The Treasurer, acting it 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. City of Lodi INVESTMENT POLICY . ETHICS AND CONFLICTS OF INTEREST The City Treasurer. is governed by The Political It:efor x Act of 1974 regarding ding disclosure of material financial interests. The`City Treasurershall refrain. ftom perse.nal.bus.iness.activity that could onflct with:proper e ecuti n of the investment program or which cor ld.irnp ix the ability to male imp .a investment decisions, 7® MONITORING ANDADJUSTING 'f_ .'T LIO The Treasurer will routi nely monitor the contents of the portfolio, the available markets and the relative values of competing instruments, and will adjust the portfolio accordingly.. . INTERNAL CONTROLS The Treasurer will establish,a system of written internal controls, which will be reviewed annually by the City's ndepend nt audit firm. The controls will be designed to prevent loss of public rid due to fraud, error, misrepresentation, unanticipated market changes or i prudent a.ctib s- . REPORTING The Treasurer will submit a quarterly investment report to the City Council, in accordance with € vernme t Code Section 53646, to disclose the following information; listing of individual securities bend at the orad of the reporting period by authorized investment ca.te ory. 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 cast of the security Current M arket value of securities with maturity in excess of 12 months and the source of this valuation, Ability of the city to meet its expenditure regtz r�r ents for the next six months or protide an explanation of why sufficient funds will not be available as r°e uir d by Gov. Cade 536.46 (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 ' Trem rer's montWy report and accounting of all receipts., disbursements acid fund balances. In addition, the investment policy will be submitted to the City Council annually in September. Any changes will be noted and forma adoption in the form of a resolution of the City Council is required, tNVESTMENT POLICY 10. AUTHORIZED INVESTMENTS The City will invest surplus funds not required to finance the immediate needs of the City as p ovid in California Government Code 53601. In selecting authorized investments, consideration mwt be given to credit ratings and collateralization of applicable instruments. A; list of"these instruments is provided below, ` hese limitations, diversification and maturity %%eduling will depend upon Whott the funds being invested are considered short-term or long-term funds. All funds will be considerel s ort Cerin except those reserved for capital projects (i.e, bond sale proceeds) and special arse sin prepayments being held for debt retirement. Fooled Accounts The City of Lodi is authorized, by policy, to invest: in The, Decal. Agency Investment Fund.(LAIF) ,a voluntary pro ram created by statute, which began in 1977 as an inv stment alternative f6r aliform s local governments and special districts and continues today under the Mate Tr?ea.s rer' Administration. The enabling legislation for the LAIF is Section 16429.1;2,3 of the California overranent Code. The LAW i pan of the Pooled Money Investment Account ( ). The PMIA began in 1953 and has oversight provided by the Pooled Money Investment Board (PMIB) and an in-house Investment Committee. The PM.M members are the State Treasurer, rer, Director of Finance, and State Controller. All securities are purchased render the authority of Government Code Section 16434 and 1648 Q.A. The Mate Treasurer's Office tapes 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 knees determined that the Mate of California cannot declare bankruptcy tinder Federal regWations, thereby allowing the Government Code Section 16429.3 to stand. This Section states that "money placed with the state treasurer for deposit in the LAW shall not be subject to either: (a) transfer or loan pursuant to Sections 16310, 16312, or 16313, or () impoundment or seizure by any state official or state agency. Iv The LAIF provide a book entitled "The Local Agency Investment Fund Answet Book" which resides in the City of Lobi Treasurer's office and provides current answers to the following questions, which are required prior to investing in any pooled/fund account, im A description of eligible investment securities, and a written statement of investment policy and objectives. IN A description of interest calculations and how it is distributed, and how gains and losses are treated, INVESTMENT POLICY A description of how the securities are safeguarded (including the settlement processes), and how often t.h.e 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. fee schedule and when and how it is assessed. M Is the poWfund eligible for band proceeds and/or will it accept such proceeds? Short -Term olio Diversification The'City will diversify use ofinvestm instruments to •avoid ineumng unreasonable risks inherent in over investing in specific instruments, individual financial institutions or maturities. Where this section does.not specift' a litnitation 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 his granted express authority to make that investment either specifically or as part of an investment progra and approved by the City Council no less than three months prier to the investment. The City Treasurerwill not invest in Repurchase Agreements and Reverse Repurchase agreements. Pooled funds invested for the City by entities such as California State Localnoy Investm. ent. Fend, and NCPA may invest in repurchase and reverse repurchase agreements. If repurchase::: agreements are legal and authorized, by policy, a. Master Repurchase Agreement ent must be signed with the bank or dealer. Maximum Percent. of Permitted Investments Matunity Portfolio 11_ S .. Treasury Obh atio s (Bilis, notes and beards) 5 Years if . S, Government Agency Securities and Instrumentalities 5 Years 1001110 Bankers Acceptances 180 days 4411/ Certificates of Deposit 5 Years 1:00'1 Negotiable Certificates of Deposit 5 Years % Commercial -'aper 270 days % California Mate Local Agency investment Fond Indefinite 100%... Passbook Deposits Indefinite I00%. Repurchase Agreements Not Authorized 1A Reverse Repurchase agreements Not Authorized NIA. Mutual al Funs Indefinite 20% Medium Tenn Nates 5 Fears 30% The City Treasurerwill not invest in Repurchase Agreements and Reverse Repurchase agreements. Pooled funds invested for the City by entities such as California State Localnoy Investm. ent. Fend, and NCPA may invest in repurchase and reverse repurchase agreements. If repurchase::: agreements are legal and authorized, by policy, a. Master Repurchase Agreement ent must be signed with the bank or dealer. City of Lodi INVESTMENT POLICY Diversification y Financial Institution Bankers' Acceptances f No more than 25% of the total portfolio with any one institution, Cettifficates of Deposit (CDS) No more than 33% oft toil portfolio with. any one, institution. California State Local Agency Investment Fuad No more than 0 million in any rine account, effective January 1, 2001 Maturity Scheduling Investment turiti t for operating funds shall be scheduled to coincide with projected cede flow needs, taking into account large -routine. expenditure.$ (payrogs bond payments) as well as considening sizable blocks f anticipated revenue (taxes, fr' else f e . t .rities 'n this cat ory will b . timed to comply with the following guidelines: Under 30 days 101/4 minimum Under 90 days 25% minimum Under 270 days % minimum Linder f. year 75% minimum Under IS months 9041/0 minimuin Linder 2 years 95 minimum Under 5 years 100% rninimum Long-e`er, ; Portfolio Diversification Investments and diversifioation for the long-term. portfolio will be the. same as the short-term portfolio. Maturity scheduling wall be tuned according to anticipated heed: For example, investment of capital project finds will be timed to meet contractor payments, usually for a term not to exceed three years, Investment of prepaid assessment f4nds will be tied to bond. payment ent dates, after cash flow projections are made using a forecasting model which consider prepayment rate, d lizrclu ncy rate, interest on bonds and income on investments. 11, BANKS AND SECURM DE.ALERS The Treasurer will consider the credit worthiness of institutions in selectingfinancial 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 deport of Condition C'eall report") at the request of the Treasurer. 6 HWESTMENT POLICY The `treasurer will maintain a list of financial institutions authorized to provide investment serviees, In addition, a list will be maintained of approved seo city brokers/dealers selected.for credit worthiness, who maintains an office in the State o a.l fordw This includes primo dealers or regional dealers that qualify under Securities and Exchangeo `s.sion Rule 150-1 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 Certif ication of having read the City of di'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 dealerlbrokes to obtain bids. PURCHASE12 OF CDs < LOCAL ` UTI N To the extent reasonable and within the limits specked above, the Treasurer may purchase 4 100,000 Certificates of Deposits from each bank and savings and Bari institution located within the corporate limits of the City to promote economic development ent 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 ' Reinvest ent Act rating of satisfactory or above. To aid in the div rsi caiion c?f the pogfoh , Certificates ficates of Deposit of above $100, 000 may be purchas e from local a tit tions provided the investment has the safe)y liquidity and a rate of retrirn. comparable to that offeredfrom LAIF at the time the original invesiftionl is made, 11 SAFEKEEPING AND COLLATERIALIZATION All investment securities purchased by the City will be field in third -party safekeeping by an: institution designated as primary agent. The custodian will hold'the securities i a manner that establishes the C ity's ri ht of ownership. The primary went will issue 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 leans 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. City INVESTMENT ENT POLICY 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 Rte, The City may waive co.11ateral requirements for. deposits which are fully insured up to 1-00,000 by the Federal Deposit In ra ce Corporation (FDIC). I). The amount of securities placed with an agent of depository will at all tines be maintained in accordance with:California Government Code 53652, IP ADMINISTRATION The fallowing administrative policies will be strictly observed, a,, lay, fret All transactions will be executed on a. delivery versus payment basis which should be done by the City's safekeeping agent. b. Bid. competitive. bid;process, when practical, will be usedto place all investment purchases. Na specific maturity ty date. is required, either:for cash flow purposes or far conformance. to Maturity guidelines, bids will be requested for instruments which meet the maturity requirement. Ifn specific maturity is required, a market tread (yield curve) aaalysts will be conducted to Bete rine which maturities would be most advantageous. c. Wire Transfers All Wire transfers will be approved by the Treasurer or deputy Treasurer. The City's ban, k will verify each transaction with a: predetermined City employee other the 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: i€rn: trade date; par value.; maturity; rate; prig; yield; settlement date; description of secuntles purchased; net amountdue., 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. M toObjectives `hese 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 0 the .prevention or detectionof errors and fraud the a,ccray and completeness of itvestnt records a the timely .preparation of reliable investment reports a General Control Policies The following policies are to be used to safeguard investments; do description of responsibilities and procedures for the investment sof City funds, lines of authority and reporting requirement will be maiatained. Only qualified and assigned personnel will be authorized to approve investment transactions; rake and liquidate investments; maintain investment recorder and maintain custodvof negotiable instruments. Persomel assigned responsibility for the investment of City surplus . funds will maintain their professional qualifications by continued education and membership in professional associations. ®Segmgation of foo tions No one having general ledger functions will have responsibility for the investment of City fonds. Safekeeping All securities. are to be held in the name of the City of Lodi, The City will contract with third party, usually a bank, to provide custodial services and securities safekeeping. Although a cosi is involved, the risk of losing physical securities outweighs the fees involved_ Preference should be givers to custodial services which include reporting sees as part of their service, including marking the portfolio to market value, performance evaluation and internal reporting. City of Lod INTERNAL CONTROLS Reconciliation of records .egl .r and timely reconciliation. will be made of detailed securities records with the general ledger contr l account. Performance. erfor is ce statistics will be maintained and reported monthly as provided inthe Investment Polic,ies. "Che'indi es to be used is the rate of refurn f6r 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. PROCEDURES I. Assigned Responsibilities a. City Council responsibilities: ilities: * Adoption of City'sinvearnent policies by Resolution * Review and evaluation. ion. of mvestment performance b. Finance DirecAor/Treasurer duties and responsibilities: • Formulating, recommending and implementing entin the CiVs invesW.Wit policies. • Approves all investment trwisactions prior to execution of any transaction. • Approves braked! ter arrangements. c. Revenue ana er/Deputy. Treasurer duties and responsibilities: Recommends larder/dealer arrangements * Recotmuends investments ® Executes invesUnent.transactions Maintains ns r rds Mall investment transactions Prepares ntwy iiia t repoxt for City Council review Prepare fiscal year end investment reports for City's mi pend mt audit firm review Review's financial condition of the City's depositories (banks) atleast.annual fir compliance with collateralization require munder government code and financial ce dition and T ports results to City Treasurer, . Accounting Manager dirties and responsibilities, ® Maintains general ledger control account and duplicate records ofitweet errt transactions. Verifies mi vest ent r ecords and reconciles detailed securities records with general ledger control accounts, e. (pity's independent audit finn. Will review the City's investment policies and procedures and make appropriate recommendations and findings as to compliance and steps to be taken to iniprdve intt mal controls. to 2. Authorization of investment Transactions • Formal investment policy prepared by Finance director/Treasurer • Formal investment policy approved by City Council • investment transactions approved by 'ina ireetor/Tre surer • Broker/deal arrangements approved by Finance ircter/Treasurer s Execution of Investment Transactions Revenue Manager/Deputy Treasurer 4. Recording of Investment Transactions Recording of transactions in Treasurer's records Revenue Manager/Deputy Treasurer * Recording of transactions in accounting records Accounting Manager S. Safeguarding of assets and records Maintenance of Treasurer's records Reconciliationof Treasurer's records to accounting records * Review of (a).financial institution's financial condition, ) safety, liquidity, and potential yields of investment instruments, and:(c) reputation; and financial condition of inve. st ent brokers * Periodic reviews of collateral Review and evaluation of performance . Preparation of reports 7® periodic review of investment portfolio for conformance t pity's i vies t policy Revenue Manager/Deputy Treasurer Accounting Manager Revenue Manager/Deputy Treasurer. Revenue Manager/Deputy Treasurer City CouncH Revenue Manager/Deputy Treasurer City's .Audit Firm Date; 'Lt ansrac_tion Recommended Selection Prim"Ary Dealer t iu€ to a; Fifrn Dealer Telephone # security Type 'rice mal aarity DOW st call date yiold to Maturity Nrchase Price C:.usip # Principal Accrued €nterk-st Lnterest tate Interest I'on'ic `• Risk Caxta ory Trade Date Settlement Date Calculation ''savestnient Fund # CerLlAcct. # `reran sa£ Days ME(M€xzith end in advance) M.(Month end in arrears) M (Monthly in advance) AM (Montbly in a.rream) CSE (C u&rter end) S (Svni-4nnual Actual) SC: ( ini-Amour 1. &pial) MA (Maturity) MD(lataa€arity Dfiscount) LAIF BALANCE C:A�nfe #: CfTY OF L ODI Cycle to; IM VE5T3sriENr BfD SHEET Vicky McAthie Approval: Finance Director; Revenue MarsageT: Approval Daw. Traction DatC 2 Brands address: 3. Telephone No _. �.. 4. Primary Account res tativ - Tiil: T° l phone 5, l :y ur firm a pfiwuy dedef in US Gmemment Securities YIN 6. Identify the personnel who will be trading with or quoting securities to our agency's employees: Name Title Telephone What. was your fir -ds tobd volume m 8:,7SGovernment and Agency securities calendwyea? 9. Much semues are offered by your firm? 10, List your peTsonnel. who have, read the City of Lodi Treasurees Investment Policy I1. Please identify your public -sector clients in our geographical area. who are most comparable to our government with which you currently do business. JZ Have any of your clients ever sustained a loss on a wurities transaction arisins from. nfisunderstanding or misrepresentation of the risk ,char acteristics of the instrument9 If so; please explain. 13. Have any of your pubhc-sector client-, ever reported to your firm, its officers. or employees, orally or in writing, that they sustained a loss exceeding 10% of the ori final purchase price in a single year on any individual security purehased through your firm? Explain, 14, Has your finn ever becii subject to a regulatory or stat /federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale o sec zities? Have airy of your MT10yees ever been so investigated? Explain. 15. Has a public sector client ever clainied in writing that your fim or members of your firth were responsibly for investment los ? 16, lel include wnples ofresearch reports that your fim -regalarlyprovides to public- sector clients. IT Please explain yea r non al delivery prooess, Who audits then fiduciary systems? 18, Please provide certified financial statements and of ° indicators regarding your Ands capitalization, 19, Describe the capital line and trading bits that supporYlimit.the office that would conduct business with our govennnent, Q. What training would you provide to our employees and invesunent officers? 2 t . Has your finn consistently complied with the Federal Deserve Bank's capital adequacy guidelines? As of this date, does your fim comply with the guidelines? Has your capital. position every fallen short? By what factor (I. 5x, 2Y, etc.) Does your firer presently exceed the capital adequacy guidelines, measure of risk? Include certified documentation of your capiW adequacy;as measured by the Federal Reserve standards. 22. Do you parficipate in the SIPinsurance program? If not, why? 23, What portfolio intbrtnation dna you require from your clients? 24, What reports, coifmmtions and paper tmil will we rive? 25. Enclose a complete schedule of fees and charges for various transactions, 26. How amy and what percentage of your transactions. failed last month? Last y r? 2T. Describe the precautions taken by your firm to protect the interest of the public when dealing: Wil governmental agencies as investors, I' hereby certify that I have personally read the latest adopted resolution cif investment policie objectives o the City f Lodi Tr and the California Government Codes ,ti investments of the City of Lodi, and have implemented reasonable l procedures mid a.sy to of of designed t precludeimprudent investment activities arising out €i transactions conducted betwee fire and the City of Lodi. All safes personnel will be routinely informed of the City of 1 investment objectives, h nzo , outlook, strategies and nsk constraints whenever we are so ad, We pledge to exercise due diligence in in or ring the City of Lodi of all foreseeable risks so( with financial transactions conducted with our fiirtn. I attest to the accuracy of our responses to questionnaire. SIGNED__ °T'IT'LE ___ A E N I _ DAT (Person is ge o government securities operations) MM NOTE; Completion of Questionnaire is only part of the City of Lo ?s Gertifimfiowprocess aud PQFS NOMT guarantee the the applicant will be approved to do business r th the City of Lodi, proved to me on the leis of satisfactory evidence. to be the person() whose name(s)—_--subscribed to the within instrument, and acknowledged 'aha executed it. Sate of County of CESS my hand and ocial sem. Notar�s Signature 17 GLOSSARY Cty of Lodi AGENT: ars agent is a firm or individual, which executes carders for others or acts on behalf of Gathers (the principal). The agent is subject to the control of the principal and dews not have title to the principal's property. The agent may charge a fee or commission issi€a car this service. AGENCIE& federal agency securities and/or overm-ne-at.-sponsored enterprises. AGREE :N`r. an agreement is an arrangement or understanding between individual traders to honor market quotei within predetermined limits on dollar amount and size, AMORTIZATION-, N-, 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. A the price at which securities are offered. AT TBE MARKET: a trading ternn. for the buying or selling of securities at,the current m rket rice rather than at a predetermined price. BANKERS S CC PT (A): a bearer time draft for a specified aniount payable on a, specified date. An individual or business seeking to finance domestic or intrnational trade draws it on a b. Commodity products colla erali e the BA. Sale of goods is usually the source of the borrower's repayment to the bank, The bank fiances the borrower's transaction and then often sells the A can 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. I MAR ` .„T: a.period of generally pessimistic attitudes and declining market prices. (Compare: Bull market) LOW TIE, MARKET-, a price below the current market price for a particular security. BID AND ASKED OR BID AND OFFER, the price at which ars owner offers to sell (asked or offer) and the price at which a. prospective buyer offers to buy (bid). It is afters referred to as a quotation or a quote. The difference between the two is called the spread. BOND: an interest®beari security issued by a corporation, government, governmental agency or other beady, which can be executed through a bank or trust company. A bond is a forth of debt with an interestrate, 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. K, lily odi€ Ill Ill Jill 11111 BOND ANTICIPATIONNOT (BAN): short-term notes sold by statics.and municipalities icipalities to obtain interim financing for projects which will eventually be financed by the sale of bonds. BOND DISCO : the difference between a bed's face value and a selling price, when the selling price is lower than the face value. BOND RATfNG., the classification of a bond's investment quality. (See:Rating). 1 3I.,U"t`.ION: a. legal Larder or contract by a governmental unit to authorize a bond issue. A bond resolution carefully details the rights of the bondholders ers and the obligation of the issuer. BOOK VALM the amount at which a security is carried on the books of the holder or issuen The book value is often the asst, plus or minus amortization, and may differ significantly ftom the market vale. BROKER: a middleman ho brings buyers and sellers together and handles their Larders, gener0y charging a commission for this service. In contrast to a principal or a de erg the broker does not: own or take a position in securities. BULL MARKET: perioda of generally optimistic attitudes and inereasin mar . t prices. (Compare: Bear Market). BUYERSMARKET: a market where supply is greater than demand, giving buyers an advantage in. purchase price and terms. CALL -1 an option to buy a specific asset at a certain price within a particular period. CALLABLE: a feature which states. a bond or preferred suck may he redeemed by the issuer prior to maturity under terms designated prier to issuance. CALL IJ TE" the date can which a bond may be redeemed before maturity at the option of the issuer, CALLED BOND& bonds redeemed before maturity. CALL p i l..TM: 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. C ALL . VI ION: the call provision describes the details by which a bond maybe. 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 non all .ble securities. 19 f ped CAPITAL GAIN OR LOSS,- the amount that is trade or least, depending upon the difference between the sale price and the purchase price of any capital asset or security. CAPITAL T; the market in which buyers and seers, 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 tees place. CERTIFICATE OF DEPOSIT (CD)- debt instrument issued by a bank that usually pays interest. Institutional CD's are issued in denominations of 10000 or more. Maturities range from a few. weeks to several years: Competitive forces in the marketplace set interest rates. € . LATE -- securities or either property, which a borrower pledges for the repayment of a loam_ Also refers to securities pledged by a bank to secure deposits of public monies. COLLATE NOTE: a prornii,ssory nate, which specifically mentions the collateral, pledged by the borrower for the repayment of an obligation. COMMERCIAL PAPER: short-term obligations with maturities rities ran in om 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 merit's fee for purchasing or selling securities for a client. OLIO : the annual rate of interest that a bond's issuer premises to pay the bondholder- on the bond's face value. COVENANT. a pledge its 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 tight be disadvantageous to thea. COVER: the spread between the winning bid (or offer) and the next highest bid (ter the next lowest after), 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 €inanciail condition of a € verninent agency or corporation, The credit analysis evaluates the issuing en ty'r ability to meet its debt obligations and the suitability of such obligations for underwriting or investment. ME GLOSSARY OF COMMONLY USED FINANCtAL CURRF,NT MATURITYi amount of time left to the maturity of an obligation. DEBENTtW,. a bonds cured by the general credit of the issuer rather than being,backed by n specific lien on property a in mortgage bands. DEBT COVERAGE., this tern is normally used in connection n with>revenue and corporate bonds. It indicates the margin of safky for payment of debt, reflecting the number of times by which earnings f r a certain period of time exceed debt payable during the same period, DEBT LINUT ( R CEILM). the maximum amount of debt that can legally be acquired under the debt-incurning power of a state or municipality. DEBT SERVICE: interest and principal obligation on an outstanding debt. This is usually for a:One- year period. fAULT. failure to pay principal or interest promptly when due. DELIVFRY"VERSUS PAYMENT: securities industry procedure, common with institutional accounts, whereby delivery of s unties sold is remade to the buying customer's bank in exchange 'f r a nt, usually in the form of cash. (Institutions are required by law to require "assets of equal value" in excharn e fear delivery.)Al so called. Cash on Delivery, DERIVATIVE: contracts written between a. City and a counter ply such as a bank, hisurarnce company or brokerage firms, Their value is derived from the value of some underlying. assets such as Treasury Bends or a markt index such as LIBOR, Derivatives are used to create financial instruments to Meet special market reeds, Two contrasting reasons for the use ofderivatives are, l) to limit risk or transfer it to those willing to bear it, and, ) to speculate about feature interest rates and leverage in hope of increasing returns. I I COUNT° the di 'ere ce between the cast 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. DIVERSIFICATIOM dividing investment funds among n a variety of securities offering independent returns. DCBE DILIGENCE: exercising of due professional care in the performance of duties, FACE VALUE: the principal amount awed 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 MAK, trade name for the Federal National mortgage Association, 91 City of Lodi GLOSSARY COMMONLY USED . ANC TERMS FEDERAL DEPOSIT.INSURANCE CORPORATION (FDIC): federal agency established in 1933 that guarantees (within limits) funds on deposit in member bis 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 deserve through open -market operations, FEDERAL HOME LOAN B (FHLB): government sponsored wholesale franks (currently 12 regional books) which lead funds and provide correspondent banking services to member ber commercial banks, thrift institutions, credit € mons and insurance companies. The mission of the FHLBs is to liqu fy the housing related assets of its members who must purchase stock in their district Bank.. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-. FNMA bike GNMA wa .char°t€red under the F'eder'al National Mortgage Association pct in 1938. FNMA is a federal corporation working under the auspices of the Department ent of Housing and Urban Development ). It is the lamest single provider of residential mortgage ffinds in the United States. Fannie Mae, as the corporatioh is called, is a private stockholder -owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fined -rate mortgages. FNNM'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 (FO C): 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 sure on a rotating basis: The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales sof Government Securities- in the open market as a means of influer�cir�g the volume of bank credit and money, FEDERAL RE SERVE SYSTEM: the central bank of the United States created by Congress and consisting of a seven member Burd of Governors in. Washington., I). ., 12 regional banks aAd 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 W period comprising any twelve-month period. The City's fiscal year starts July 1. FREDDIE MAC: trade name for the Federal Florae Loan Mortgage Corporation. iN iiiiiii""I'lillilli�!iiill 'lj;111l1j�lll!11lll ''q! !I,, Jill 111� "A �110U "'Imi I 111 .111, W B :,,��� WVERNWNT NATIONAL MORTGrAGE AS SOCIATION (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 ffill 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 Males, HOLDEK 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 w1fich have been or will be paid out on the borrower's behalf TWEI Ta 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 capitalgains. INV ES` MENTPORTFOLICS: al,;,-ofleefion of securities held by abank, individual, institution, or govemment agency for investment purposes. IRREVOCABLE LETTER OF CREDIP instrument or document issued by a bank guUanteeing the payment of a: customer's drafts up to a stated amount for a specified period. It substitutes the baiik's. credit for the, buyer's and eliminates the seller's risk. Tlis 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 secunties. 23 City of Lodi. GLOSSARY OF COMMONLY USED FINANCIAL JOINT AND SEVE OBLIGATION: a guarantee to the holder in which the liability for abon or note issue may be enforced against all parties jointly or any one of them individually sea thatone, several or all may be held responsible for its payment. LAEF., trade name for California State Local agency Investment Fund. LEGAL IN -VESTMENT: 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 fZ. 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 pdoes 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. MARKETORDER: an order to buy or sell securities at the prevailing bid or ask price on the market, MARKET : the price at which a security is trading and could. presumably be purchased r scald. MARKET . QUOTE.- quote designates the current bid and ask on a. security, as opposed to the price at which the last security order was sold. MASTERREPURCHASEAGREEMENT. a written contractcovering all future transactions between the parties to repurchase ---reverse repurchase agreements that establishes each.:party°s rights i the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlrin 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 payabli It is also used as the length of time between the issue date and the due date. MONEY T- the Market in which short -terry debt instruments (bilis, commercial paper, bankers' acceptances, etc.) are issued and traded. MORTOAGE 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. W City of Lodi GLOSSARY OF COMMONLY USED FINANCIAL TERMS NEGOTMLE: a term used to desipate 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 V E: a security issued with no face or par vee. NON-NEGOTIABLE, a security whose title or ownership is not transferable thrash a simple d clivery or endorsement. (See: Negotiable.) OBLIGATION- a responsibility for paying back a debt. OFFER., the price of a security at wields a person is willing to sell. OFFERING: placing securities for sale to buyers. The offering usually states the pee and terms. OPEN MARKET OPERATIONS-. purchases and s .les. € f government and.. certain ether securifies i the open market by the New York Federal deserve Bank as directed by the FQMC 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 apposite effoct. Open market operations are the Federal Reserves most important and most flexible monetary policy tram, PAR l : the stated or face value of a smurity expressed as a specific dollar amount marked on the face of the security; the amount of money due at maturity. P value should not be confused Frith market value. PAYING AGENT: the agency, usually a commercial. bank, which dispenses the principal and interest payable can a matunng issue, PORTFOLIO: the collection of securities bold by an individual or institution. 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 Feral Reserve Ba& of N em 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 domas not include aged interest. W pity cif GLOSSARY OF COMMONLYMD FINANCIAL TERMS RUDE NULE,: an investment standard established in 16 3.0. It states that a trustee.who is investing for another should behave in the same way as a prudent individual ofdiscretion and intelligence who is seeking. a reasonable inoome and preservation of capital. QUO'T'ATION (QUOTE)-. the highest bid to buy or the lowest offer to sell a security in any market at a particular time. RXFE OF RETURN: the yield obtainable on a security based on its purchase price ar its current market price. This may be. the amortized yield to maturity on a lied the current income returns. 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 Via, A, Baa., Ba, B, etc., while Standard and or's,ratings range from the highest AAA, down through AA, A, BBB; B% , etc. FINANCING: reeking over the principal on securities that have reached maturity or replaying theme with the sale of new issues. The abject may be to save interest costs or to extend the matun, iy of the loan. REGISTE REDBOND: a; bond whose principal andfor interest is payable only to that person of.. organization. which is registered dila the issuer. This form is reit negotiable and it can be transferred. only when endorsed by the registered owner. X,p CHASE NT(P: PO): agreement between a seller and abuyer, usually of .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 than an ideal place to "park" Brads can a very temporary basis. Dealers also arrange reverse repurchase agyeemvus, whereby they agree to buy the securities and the investor agrees to repurchase themat a later elate. REVENUE ANTICIP 'I N NOTES (RAN): short-term notes sold in anticipation of receiving future revenues. The nates are to be paid from the proceeds of those, revenues, REVENUE BOND: a state or local bond secured by revenges 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 bans offer to customers for a fee, where scarcities erre held in the bark's vaults for protection. SECONDARY T: a market made for the purchase and sate of outstanding issues following the initial distribution. NZ City±f Lodi SECURED DEP SIT: bank deposits of state or local government funds which, under the laws.of certain jurisdictions, must be secured by the pledge or acceptable securities. SECURITIES: invest gent instruments such as bonds, stocks and other instruments of indebtedness or equity, SE `IES & EXCHANGE COMMISSION: agency created.by Congress to protect investors securities trap sactions by administering securities legislation. SERIAL BONS?: bonds of the same issue, which have di erent 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 ling period of time. STT : " r DATE, date by which an executed order must be settled, either by buyer paying . the sec n'ties with cash or by a seller delivering the securities and receiving the` proceeds oft e sale for then. SINKING a. reserve fund set aside over a period oftime for the purpose ofliquidating or yeti ng an obligation, such as a bond issue, at maturity. SPECIAL ASSESSMENT T S: bonds that are paid back frame taxes. on the property that is benefiting from the improvement being financed. The issuing govern mental entity agrees to make..the assessments and eamark 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 ATIO NOTES (TN): short-term notes issued by states or mupi zpalities to finance current operations in anticipation of future tax collections which would be used to repay the debt. TAX-. T S: 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 lova 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 -BIL ) : a nowinter st bearing discount security issued by the U.S.- S., 't ea ry to finance the rational debt. most bills are issued to mature in three months, six months, or one year: 27 Lity of Lode. GLOSSARY OF COMM.ONLY USED FINANCtALTERMS TREASURYNDS- long-term coupon -beating U.S. Treasury seeurities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. . , AOT S: medium-term coupon -bearing UT .'Treasury securities issued as direct obligations of the U.S, Government and having initial maturities from two to 10 years. TRUSTEE-, a. base designated as the custodian of fiends and the official representative for bondholders. UNDERWRITER: a dealer or other financial institution, which arranges for the sale and distribution of a tame batch of securities and assumes the responsibility for paying the net purchase price. UNIFORM NET CAPITAL RULE: securities and Exchange Commission requirement that member fires as well as nonmember.. broker-dealers in securities maintain a maximu ratio of indebtednes.s. to liquid capital. of 15 to 1; also called net capital rule and. net capital ratio. Indebwdness covers all in, one3 € wed to a. fint, including mu in bans and commitments is to purchase securities, on area son � w public issues are spread among members cif underwriting syndicates. Liquid capital includes cash and assets easily converted into casb. YIELD,- the annual rate of return on an investment, expressed as a percentage of the investment; YIELD graph showing the term structure of interest rates by platting the yields of all bands of the same quality With maturities rang from the shortest to the longest available. The resulting curve slaws if short-term interest rates are higher or lower than long-term rues. For the most part, the yield curve is positive (short -terra rates are lower), since investors who are willing to tie app their- money for a longer period oftitne usually are compensated for the extra risk they are taking by receiving a higher yield. 8 CERTIFICATION 2-4 03. 12:06p' September 10, 2001 The City of Lnidi, California's Written Investment Policy Certified by the N tmicipal Treasurers' Association of the United States & Canada 41 Washia-tots, DC —The City of Lodi, Califomia was foinially recognized for having its written investment Policy ct�rtiCied by tll,� Municipat Treasurers' Association of the United Stat, -s mid Canada (MTA US&Q, Farlier this year, thQ City's policy was reviewed and certified as mcetInIg the standards set forth by IV1TA TJS&:C, Thu City was honored. at MTA US&C's 36th Annual Conference in Clevelaczd, Ohio on Aaagust 1, 2001. ThAssociation's .Investment policy Certification Program was instittated in an effort to assist state and local govemmcn(s int, rested in draRixa- or impmviatg upon aan u istim, investm,�nt policy. As pram of thc. Program, lh,-, AssociahQn hus created ,a `°NIQM" iravestMOnt paliCy. Th(- Model includes sampiu language aar,d rationale fir lhow 18 sectsdins that the Association deeaaas as critical elenabnts to be addressed in a vvr;tten policy. I°ol[o�� iia are some of the elwn�ec�ts itacluded in the. Model; liquidity; swlectioca aild review ofsclitabte iiavestmont instr-unicrats; internal controls; reportiiag, portfolio diversification; custody and s.af:',l-eepinu; secluction a rNivwstincatt institution critcrla; ethics; and conflicts of interest, A written investmout policy is only certif Qd when the Associatian�s Investment policy R(vicw Team ackrtowledvs that than policy has .naw( till criteria set forth in the Pfogaama Oftho policies received each ytt ar for rcvie'v, Only t%'vo-thirds of the policies reviewed are accepted un 1111,-ir first 50111i55i0ta. 'Mose not initially apprQvcd arc cncourag,,,d to amend their polick-s and resaib:aait for certification. For information oh th lnvcsta-nent Policy Certification Provi-arn, or to obtain a copy of the. ilodel Investment Policy and Application, please contact headquarters (202) 737-0660. 1029 ` ,-fmont ,Aver ve, NK Suite 710, Wmhingto i, DC 20005 RHONE 202-737-0660 FAX 202.737oM62 VI 1 RESOLUTION NO. 2003-180 NOW THEREFORE, :BE IT :RESOLVED that the City Council of the City of Lodi has reviewed acid hereby appraves the City of Lodi Annual Investment Policy and Internal Control Quidelines, which shall be effective this date. �« �s • :rr� 14. I hereby certify that Resoiution No. 200.3-180 was passed and adapted by the City Council of the City of Lodi it a regular lar ng hold October 1, 2003, by the following vote: AYES: COUNCIL MEMBERS — Beckman, Hansen, Howard, Land, and Mayor Hitchcock NOES' COUNCIL MEMBERS — Non .. 3Ro ABSTAIN- Nonj SUSAN J. IIAKSTON City Clerk