HomeMy WebLinkAboutAgenda Report - October 1, 2003 E-041111 Vill
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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�
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' ,
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