HomeMy Public PortalAboutA2010-02-16LPFAThis Agenda contains a brief general description of each item to be considered. Copies of the Staff
reports or other written documentation relating to each item of business referred to on the Agenda are on
file in the Office of the City Clerk and are available for public inspection. A person who has a question
concerning any of the agenda items may call the City Manager at (310) 603-0220, ext. 200.
Procedures for Addressing the Council
IN ORDER TO EXPEDITE CITY COUNCIL BUSINESS, WE ASK THAT ALL PERSONS WISHING TO
ADDRESS THE COUNCIL FILL OUT A FORM PROVIDED AT THE DOOR, AND TO TURN IT IN TO
THE CITY CLERK PRIOR TO THE START OF THE MEETING. FAILURE TO FILL OUT SUCH A FORM
WILL PROHIBIT YOU FROM ADDRESSING THE COUNCIL IN THE ABSENCE OF THE UNANIMOUS
CONSENT OF THE COUNCIL.
AGENDA ITEMS ON FILE FOR CONSIDERATION
AT THE REGULAR MEETING OF
THE LYNWOOD PUBLIC FINANCING AUTHORITY
TO BE HELD ON FEBRUARY 16, 2010
5:00 P.M.
GATEMAN HALL, ROOM 2
11331 ERNESTINE AVENUE, LYNWOOD, CA 90262
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RE~EIVED
FEB 1 1 2010
CITY OF LYNWOOD
CITY CLERKS OFFICE
MARIA TERESA SANTILLAN ~ ~ , f ; A ~~ ~ ~Q,~~ Z
PRESIDENT e,. ~y ~ IYr ~< ~~ G 6 ,
AIDE CASTRO ALFREDO FLORES
VICE PRESIDENT MEMBER
JIM MORTON RAMON RODRIGUEZ
MEMBER MEMBER
CHIEF ADMINISTRATIVE OFFICER ASSISTANT CITY MANAGER-
ROGER L. HALEY ADMINISTRATIVE & COMMUNITY SERVICES
ROBERT S. TORREZ
SECRETARY
MARIA QUINONEZ
AUTHORITY COUNSEL
FRED GALANTE
OPENING CEREMONIES
CALL TO ORDER
2. ROLL CALL OF MEMBERS
Aide Castro
Alfredo Flores
Jim Morton
Ramon Rodriguez
Maria T. Santillan
CITY TREASURER
SALVADOR ALATORRE
3. CERTIFICATION OF AGENDA POSTING BY SECRETARY
PUBLIC ORAL COMMUNICATIONS
(Regarding Agenda Items Only)
PUBLIC ORAL COMMUNICATIONS
IF AN ITEM IS NOT ON THE AGENDA, THERE SHOULD BE NO SUBSTANTIAL DISCUSSION
OF THE ISSUE BY THE LYNWOOD PUBLIC FINANCING AUTHORITY, BUT LYNWOOD
PUBLIC FINANCING AUTHORITY MEMBERS MAY REFER THE MATTER TO THE STAFF OR
SCHEDULE SUBSTANTIVE DISCUSSION FOR A FUTURE MEETING.
(The Ralph M. Brown Act, Government Code Section 54954.2 (a).)
CONSENT CALENDAR
All matters listed under the Consent Calendar will be acted upon by one motion affirming the action
recommended on the agenda. There will be no separate discussion on these items prior to voting
unless members of the Authority or staff request speafic items be removed from the Consent
Calendar for separate action.
4. MINUTES OF PREVIOUS MEETINGS:
Regular Meeting -November 3, 2009
5. TREASURER'S STATEMENT OF INVESTMENT POLICY
Comments:
The investment policies and practices of the City of Lynwood are based on state laws and principles
of prudent money management. This statement is intended to provide guidelines for the prudent
investment of idle and surplus cash, while meeting the short and long-term cash flow demands and it
is submitted annually for City review.
Recommendation:
It is recommended that the President and Members of the Lynwood Public Finance Authority adopt
the attached resolution entitled: "A RESOLUTION OF THE LYNWOOD PUBLIC FINANCE
AUTHORITY OF THE CITY OF LYNWOOD APPROVING THE TREASURER'S STATEMENT OF
INVESTMENT POLICY".
ADJOURNMENT
THE LYNWOOD PUBLIC FINANCING AUTHORITY MEETINGS WILL BE POSTED AS NEEDED. THE
NEXT MEETING WILL BE HELD IN THE COUNCIL CHAMBERS OF CITY HALL, 11330 BULLIS ROAD,
CITY OF LYNWOOD, CALIFORNIA.
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{ ~~ -`~' ~~~`~~~~~ AGENDA STAFF REPORT
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DATE: February 16, 2010
TO: Lynwood Public Finance Authority President & Members
APPROVED BY: Roger L. Haley, Chief Administrative Offic~~'•%~
PREPARED BY: Maria Quinonez, Secretary
Kristina Santana, Deputy City Clerk ~s
SUBJECT: Lynwood Public Finance Authority Minutes
Recommendation:
Staff recommends the Lynwood Public Finance Authority approve the following
minutes:
• Regular Meeting -November 3, 2009
Background: N/A
Discussion & Analysis: N/A
Fiscal Impact: N/A
Coordinated With: N/A
9"f~M
LYNWOOD PUBLIC FINANCE AUTHORITY
REGULAR MEETING
November 3, 2009
The Lynwood Public Finance Authority of the City of Lynwood met in a regular meeting
at 11330 Bullis Road on the above date at 5:12 p.m.
President Santillan presiding.
Members Flores, Morton, Rodriguez, Castro and Santillan were present.
Also present were Chief Administrative Officer Haley, Authority Counsel Galante,
Secretary Quinonez and City Treasurer Alatorre.
Secretary Quinonez announced that the Agenda had been duly posted in accordance
with the Brown Act.
PUBLIC ORAL COMMUNICATIONS
(Regarding Agenda Items Only)
NONE
PUBLIC ORAL COMMUNICATIONS
NONE
CONSENT CALENDAR
It was moved by Member Morton, seconded by Member Flores, to approve the consent
calendar and receive and file staff reports.
AYES: MEMBERS FLORES, MORTON, RODRIGUEZ, CASTRO AND
SANTILLAN
NOES: NONE
ABSTAIN: NONE
ABSENT: NONE
Item #4. MINUTES OF PREVIOUS MEETINGS
Regular Meeting -August 18, 2009
Item #5. TREASURER'S QUARTERLY INVESTMENT REPORT
1
ADJOURNMENT
Having no further discussion, it was moved by Vice-President Castro, seconded by
President Santillan, and carried to adjourn the regular Lynwood Public Finance
Authority meeting at 5:14 p.m.
Maria T. Santillan, President Maria Quinonez, Secretary
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~,'~~~~ ~~~r ~~ AGENDA STAFF REPORT
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DATE: February 16, 2010
TO: Honorable President and Members of the Public Finance Authority
APPROVED BY: Roger L. Haley, City Manag
PREPARED BY: Salvador Alatorre, City Treasurer
Sheila Harding, Deputy City Treasurer
SUBJECT: TREASURER'S STATEMENT OF INVESTMENT POLICY
RECOMMENDATION
It is recommended that the President and the Members of the Lynwood Public Finance
Authority adopt the attached resolution entitled: "A RESOLUTION OF THE LYNWOOD
PUBLIC FINANCE AUTHORITY OF THE CITY OF LYNWOOD APPROVING THE
TREASURER'S STATEMENT OF INVESTMENT POLICY".
BACKGROUND
The investment policies and practices of the City of Lynwood are based on state laws
and principles of prudent money management. This statement is intended to provide
guidelines for the prudent investment of idle and surplus cash, while meeting the short
and long-term cash flow demands and it is submitted annually for City review. The
primary goals of these policies are:
To assure compliance with all federal, state, and local laws governing the
investment of monies under the control of the Treasurer.
2. To protect the principal and asset holdings of the City's portfolio.
3. To ensure that adequate liquidity is provided for the prompt and efficient handling
of City disbursements.
4. To generate the maximum amount of investment income within the parameters
these investment policies and guidelines for suitable investments.
AGENDA
ITEM
PURPOSE
The purpose of this item is to establish guidelines for the prudent investment of the City
of Lynwood's idle cash.
POLICY:
Annually, in accordance with California Government Code (CGC) Section 53646, the
Treasurer will render to the City Council a Statement of Investment Policy for
consideration and approval at a public meeting. Any investments currently held at that
time that do not meet the guidelines of this policy, as changed from time to time by the
City Council, shall be exempt from the requirements of this policy. However, at the
investment maturity or liquidation, such funds shall be reinvested only as provided by
this policy, which offer guidance to brokers and any external investment advisors on the
investment of City funds. This investment policy applies to all investment activities of
the City, except for the Employees Retirement and Deferred compensation funds are
excluded because it is separately managed by a third party administrator. This policy
applies to all City funds, except for bond proceeds that are managed by trustees.
Trustees must comply with the provision of bond's indenture agreements.
SCOPE:
Policy statements outlined in this document apply to the City's pooled funds, as well as
other financial assets under the City Treasurer's control unless exempted by resolution
or by statute. These funds are accounted for in the City of Lynwood Comprehensive
Annual Financial Report and include:
3.1 Fund:
3.1.1 General Fund
3.1.2 Special Revenue Funds
3.1.3 Capital Project funds
3.1.4 Enterprise Funds
3.1.5 Trust and Agency Funds
3.1.6 Retirement Pension Funds
3.1.7 Internal Service Funds
PRUDENCE:
The standard of prudence to be used by investment officials shall be the "prudent
investor" standard (CGC Section 53600.3) and shall be applied in the context of
managing an overall portfolio which states that:
"a trustee shall act with care, skill, prudence, and diligence under the circumstances
then prevailing, including, but not limited to, the general economic conditions and the
anticipated needs of the agency, that a prudent person acting in a like capacity and
familiarity wifh those matters would use in the conduct of funds of a like character and
with like aims to safeguard the principal and maintain the liquidity needs of the City".
At the time of purchase, it is the City's intent to hold all investments until maturity to
ensure the return of all invested principal. However, it is recognized that market prices
of securities will vary depending on economic and interest rate condition at any point in
time.
The City Treasurer, and other individuals who may be designated to manage the City's
investment portfolio, when acting within the intent and scope of this investment policy
and other authorized written procedures, and when exercising due diligence, are
relieved of personal liability for the individual security's credit risk or market price
change of a security or other investment, provided that deviations from expectations are
reported to the City of Lynwood in a timely manner and that appropriate action is taken
to mitigate unforeseen adverse conditions.
GOALS AND OBJECTIVES:
Within the overriding requirement of compliance with all Federal, State and local laws
governing the investment of moneys under the control of the Treasurer, and as
specified in CGC Section 53600.5, when investing, reinvesting, purchasing, acquiring,
exchanging, selling or managing public funds, the primary objective of a trustee shall be
to safeguard the principal of the funds under its control. The secondary objective shall
be to meet the liquidity needs of the depositor. The third objective shall be to achieve a
return on the funds under its control.
Taking into account the City's daily and periodic cash flow needs, the City desires to
invest all temporarily idle funds as close to 100% as is reasonably possible. The major
portion of the City's investment portfolio will consist of investment securities having
maturities of one year or less. Longer term maturities are authorized, but may not
generally exceed 25% of the investment portfolio.
The basic goal of the City's investment policy is to ensure safety and availability of
temporarily idle funds when they are needed. The primary objectives, in priority order,
of the investment activities shall be:
a. Safety: Safety of principal is the foremost objective of the investment program.
Each investment transaction must seek to ensure that capital losses are
avoided, whether from securities default, broker-dealer default, or erosion of
market value. The City will endeavor to preserve principal by mitigating both
credit risk and market risk, as specified below.
Credit risk, which is defined as the risk of loss due to insolvency or other failure
of the issuer of a security, must be mitigated by purchasing investment grade
securities and by diversifying the investment portfolio so that the failure of any
one issuer does not unduly harm the City's capital base and cash flow.
Market risk, which is defined as market value fluctuations, must be mitigated by
limiting the average maturity of the City's investment portfolio to one year,
limiting the maximum maturity of any one security to five years, structuring the
portfolio to take into account historic and current cash flow analysis, eliminating
the need to sell securities for the sole purpose of short term speculation.
b. Liquidity: Because the City operates its own water utility and bills monthly for
utility services, cash flow is generated on a daily basis. Historical cash flow
trends must be compared to current cash flow requirements on an ongoing
basis to ensure that the City's investment portfolio will remain sufficiently liquid
to enable the City to meet all reasonable anticipated operating requirements.
c. Return on the Investment: The investment portfolio shall be designed and
managed with the objective of attaining a return throughout budgetary and
economic cycles, taking into account the investment objectives, authorized
investments and the cash flow needs of the City.
DELEGATION OF AUTHORITY:
In accordance with Section 53607 of the Government Code, the City of Lynwood
management responsibility for the investment program is hereby delegated to the
Treasurer, who shall be responsible for all transactions undertaken and shall establish a
system of control to regulate the activities of subordinate officials, and their procedures
in the absence of the Treasurer. Under the provision of CGC Section 53600.3, the
Treasurer is a trustee and a fiduciary subject to the prudent investor standard. The City
may delegate to the City Treasurer the authority to invest or reinvest City funds for a
one-year period.
The Treasurer may delegate all, or a portion of his/her investment authority to a Deputy
City Treasurer. Prior to the delegation of the investment authority to a Deputy City
Treasurer, the Treasurer shall notify the City council and request confirmation of the
delegation. Delegation of investment authority will not remove or abridge the
Treasurer's investment responsibility.
INVESTMENT PROCEDURES:
The Treasurer shall establish written investment policy procedures for the operation of
the investment program consistent with this policy. The procedures should include
reference to: safekeeping, wire transfer agreements, banking service contracts and
collateral/depository agreements. Such procedures shall include explicit delegation of
authority to persons responsible for investment transactions. No person may engage in
an investment transaction except as provided under the terms of this policy and the
procedures established by the Treasurer.
ETHICS:
Elected officials, City officers, employees and any other individual involved in the
investment operations are prohibited from personal business activity that could conflict
with proper execution of the investment program, or which could impair their ability to
make impartial investment decisions, or which could give the appearance thereof.
Furthermore, these same individuals shall disclose any material financial interest in
financial institutions that conduct business within their jurisdiction, and they shall further
disclose any large personal financial/investment positions that could be related to the
performance of the City.
QUALIFIED DEALERS AND INSTITUTIONS:
The City may transact business only with banks, savings and loans associations, and
registered investment dealers. Any investments other than those purchased directly
from a issuer must be purchased from (i) an individual or entity licensed by the State as
abroker-dealer, as defined in Section 25004 of the Corporations Code, and which is a
member of the Financial Industry Regulatory Authority, (FINRA) or (ii) from a member of
afederally-regulated securities exchange, or (iii) a national or state charted bank; or (iv)
a federal or state association (as defined by Section 5102 of the Financial Code); or (v)
a brokerage firm designated as a primary government dealer by the Federal Reserve
Bank.
The City Treasurer must investigate and evaluate all financial institutions that desire to
do business with the City in order to determine whether they are adequately capitalized,
whether they make markets in securities that are appropriate to the City's needs, and
whether they will agree to abide by the conditions and limitations set forth in the City's
investment policy. This may be accomplished by the following: a financial institution to
complete and return an appropriate questionnaire, audited financial statements, proof of
National Association of Security Dealers certification.
AUTHORIZED AND SUITABLE INVESTMENTS:
General, investments must be made in accordance with the "prudent investor rule" that
is cited under the heading "Prudence."
The City is subject to California Government Code, Sections 53600 et seq. within the
context of these limitations, the following investments are authorized, subject to the
restrictions noted below:
a. United States treasury bills, notes, and bonds or similar instruments for which the
full faith and credit of the United States is pledged for payment of principal and
interest. There is no limitation on the percentage of the City's surplus funds that
can be invested in these instruments. The maximum maturity period may not
exceed 5 years.
b. Obligation issued by banks for cooperatives, federal land banks, federal
intermediate credit banks, the Federal Home Loan Board (FHLB), Federal Home
Loan Mortgage Corporation (FHLMC), Federal Farm Credit Bank (FFCB), and
the Federal National Mortgage Association (FNMA). Although there is no
percentage limitation on investments in these obligations, the "prudent investor
rule" applies to obligations issued by any of these agencies, because U.S.
Government backing is implied rather than guaranteed.
c. Commercial paper rated "PI" by Moody's Investor Services and "A1+" by
Standard & Poor's, and issued by a domestic corporation having assets in
excess of $500,000,000 and having an "AA" or better rating on its long-term debt
as determined by Moody's or by Standard & Poor's. The purchase of eligible
commercial paper may not exceed 270 days maturity nor represent more than
5% of the outstanding paper of an issuing corporation. The Purchase of
commercial paper not to exceed 25% of the City's surplus funds.
d. Negotiable certificates of deposit issued by a national or state-charted bank or a
state or federal saving and loan association. Negotiable certificates of deposit
may not exceed 30% of the City's total portfolio. Certificates purchased from a
bank may not exceed 30% of the City's total portfolio. Certificates purchased
from a bank may not exceed the shareholder's equity in the bank. Certificates
over $500,000 purchased from savings and loan associations may not exceed
the net worth of the association. A maturity limitation of 5 years is applicable.
e. State of California Local Agency Investment Fund (LAIF) is permitted, with the
knowledge that the fund may invest in income vehicles allowed by statute but not
otherwise authorized by the City Council in this SIP. The Treasurer shall obtain
from the State Treasurer no less than quarterly reports providing sufficient detail
to adequately judge the risk inherent in the LAIF portfolio, and shall inform the
City Council immediately of any risk noted that may warrant reconsideration of
this investment vehicle. (Limits: Maximum concentration $40 million combined
limit for all accounts.)
f. Investment in new government sponsored pools will be subject to due diligence.
A thorough investigation, and approval of the new pool by City Council is
required prior to investing, and on a continual basis.
g. Funds held under the terms of a Trust Indenture or other contract or debt
issuance agreement may be invested according to the provisions of those
indentures' agreements.
h. The City may invest in non-negotiable time deposits that are collateralized as
required by the California Government Code, and that are maintained in banks
and savings and loans associations that meet the requirement for accepting
deposits of public funds. Because time deposits are not liquid, no more than
25% of the City's temporarily idle funds may be invested in this category.
Medium term corporate notes with a maximum maturity of 5 years may be
purchased. Securities eligible for investment must be rated A or better by
Moody's Standard & Poor's rating services. Medium term notes may not exceed
30% of the market value of the City's portfolio, and not more than 5% of the
market value of the portfolio may be invested in notes issued by any one
corporation. Commercial paper holding must be included when calculating this
5% limitation.
PROHIBITED INVESTMENTS:
The City Treasurer is prohibited from the following:
1. Corporate share of stock and reverse repurchase agreements.
2. Borrowing for investment purposes ("Leverage") is prohibited.
3. Buying or selling securities "on Margin" is prohibited.
4. Investing in any instrument, which is commonly known as a "derivative"
instrument (options, futures, swaps, caps, floors, collars, US Treasury strips,
interest only bonds, interest only strips derived from mortgage pools), or any
investment that may result in a zero interest accrual, even if held to maturity, is
prohibited.
5. Under the provision of CGC Sections 53601.6 and 53631.5, the City shall not
invest any funds covered by this SIP in instruments known as Structured Notes
(e.g. Inverse floaters, leverage floaters, structured CD's range notes, equity
linked securities). Any such investments are prohibited.
6. Trading securities for the sole purpose of speculating on the future direction of
interest rates is prohibited.
COLLATERAL REQUIREMENTS:
Collateral is required for investments in certificates of deposit and repurchase
agreements. In order to reduce market risk and provide a level of security for all funds,
the collateralization level will be 110% market value of principal and accrued interest.
In conformity with the provisions of the Federal Bankruptcy Code that provide for the
liquidation of securities held as collateral, the only securities acceptable as collateral are
certificates of deposit, commercial paper, eligible bankers acceptances, and medium
term notes or securities that are the direct obligation of, or are fully guaranteed as to
principal and interest by the United States or any City of the United States.
An independent third party with whom the City has a current custodial agreement will
always hold collateral.
The right of collateral substitution is granted with prior approval of the City Treasurer.
DIVERSIFICATION:
The Treasurer shall maintain a diversified portfolio to minimize the risk of loss resulting
from over concentration of assets in a specific maturity, issuer, or security type. With
the exception of U.S. Treasury securities and authorized pools, no more than 50% of
the City's total investment portfolio will be invested in a single security type or with a
single financial institution.
MAXIMUM MATURITIES:
To the extent possible the portfolio will attempt to match its investments with anticipated
cash flow requirements. Matching maturities with cash flow dates will reduce the need
to sell securities prior to maturity, thus reducing the market risk. The portfolio will not
directly invest in securities maturing more than five (5) years from the date of purchase
pursuant to Government Code Section 53601. (Excluding LAIF).
Reserve funds may be invested in securities exceeding one year if the maturity of such
investments is made to coincide as nearly as practicable with the expected use of the
funds. No portion of the portfolio may exceed five years.
INTERNAL CONTROL:
Internal policies and procedures, subject to approval by the City Council, shall be
developed to assure that appropriate controls are in place to document and confirm all
transactions. The Treasurer shall recommend establishing an annual process of
independent review by an external auditor. This review will provide internal control by
assuring compliance with policies and procedures.
PERFORMANCE STANDARDS:
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with investment risk
constraints and cash flow needs:
a. Investment Strategy: The portfolio's basic investment strategy is to buy and hold
investments until maturity. However the Treasurer may sell a security due to
adverse changes in credit risk or due to adverse changes in credit risk or due to
unexpected cash flow needs.
b. Market Yield (Benchmark): Market average will be determined by year-end
average rates of return from a combination of indices: Local Agency Investment
Fund (LAIF), 3-month and 6-month treasury bills.
REPORTING:
In compliance with Government code Section 53607 and 53646, the Treasurer shall
provide the City Council quarterly investment reports, which provide a clear picture of
the status of the current investment portfolio. The management report should provide a
condensed summary of the most important information in the report, plus a detailed
report covering the following elements:
1. A listing of individual securities held at the end of the reporting period by
authorized investment category.
2. Average life and final maturity of all investments listed.
3. Coupon, discount or earnings rate.
4. Par value, amortized book value and market value
5. Percentage of the portfolio represented by each investment category.
INVESTMENT POLICY ADOPTION:
The Treasurer shall annually render to the City Council a Statement of Investment
policy as required in Section 53646(a) of the Government Code. The City's investment
policy shall be adopted by resolution of the City Council and shall be reviewed annually;
any modification made thereto must be approved by the legislative body.
GLOSSARY
Active Deposits. Funds which are immediately required for disbursement.
Active Investment Management. An investment strategy that involves the
active trading of securities in an attempt to earn above-average returns on a
portfolio. Active investment management requires frequent monitoring of
financial markets.
Agency. A debt security issued by a federal or federally sponsored agency.
Federal agencies are backed by the full faith and credit of the U.S. Government.
Federally Sponsored Agencies (FBAs) are backed by each particular agency with
a market perception that there is an implicit government guarantee. An example
of federal agency is the Government National Mortgage Association (GNMA). An
example of an FSA is the Federal National Mortgage Association (FNMA).
Arbitrage. Generally, transactions by which securities are bought and sold in
different markets at the same time for the sake of the profit arising from a
difference in prices in the two markets. Bankers' Acceptances (BA's). Time
drafts or bills of exchange that are accepted payment by banks engaged in the
financing of international trade. BA's finance the importation, exportation,
shipment or storage of foreign and domestic goods. BA's are usually backed by
documentation such as invoices, bills of lading, or warehouse receipts. Upon
acceptance by a bank, a BA becomes an irrevocable and unconditional
obligation of the accepting bank, while it is also an obligation of the drawer as
well as any endorser thereof.
Basis point. By common agreement, 0.01 % of yield on a fixed income security
(1/100 of 1%).
Bond Equivalent Yield (BEY). An annual yield, expressed as a percentage,
describing the rectum provided to bond holders. A bond equivalent yield is
double simple interest, semi-annual yield. Since Treasury and agency notes and
bonds pay interest semi-annually, the bond equivalent yield is a way to compare
yields from discount securities, such as Treasury bills and bankers' acceptances
with yields available from coupon securities. From that usage, this yield measure
is also known as the coupon yield equivalent. For securities that pay daily,
monthly or quarterly interest, the bond equivalent yield understates the benefits
obtained from the compounding of those investments.
Book-entry clearance. A system for the transfer of ownership of securities
through entries on the records of a centralized agency. The centralized agency
holds securities on behalf of their owners; when the securities are sold,
ownership is transferred by bookkeeping entry from the seller to the purchaser.
In the case of U.S. Government, securities, securities certificates are not issued,
and ownership of the securities is evidenced in computer records maintained by
the Federal Reserve System. For other types of securities, book entry clearance
is made available through linked or interfaced systems maintained by four
securities depositories, which hold securities and act on behalf of their
participants.
Book-entry security. A security which is not available to purchasers in physical
form. Such a security may be held either as a computer entry on the records of a
central holder (as is the case with U.S. certain government securities) or in the
form of a single, global certificate.
Book value. The value at which a security is carried on the inventory lists or
other financial records of an investor. This value may be the original cost of
acquisition of the security, or original cost adjusted by the amortization of a
premium or accretion of a discount. The book value may differ significantly from
the security's current value in the market.
Broker. A broker brings buyers and sellers together for a commission paid by
the initiator of the transaction or by both sides; he does not position or take
ownership of the security.
Certificate of Deposit (CD). A deposit of funds, in a bank or savings and loan
association for a specified term that earns interest at a specified rate or rate
formula.
Collateralization. Process by which a borrower pledges securities, property or
other deposits for the purpose of securing the repayment of a loan and/or
security.
Commercial Paper. Unsecured short-term promissory notes issued by
corporations, with maturities ranging from 2 to 270 days. May be sold on a
discount basis or may bear interest. Firms with lower rating or without well-
known names usually back their commercial paper with guarantees or bank
letters of credit.
Coupon rate. Interest rate, expressed as a percentage of par or face value, that
issuer promises to pay over lifetime of debt security.
Credit Risk. The risk to an investor that an issuer will default in the payment of
interest and/or principal on a security.
Current Yield (Current Return). A measure of the simple interest annual yield
for interest-bearing investments with maturities of one year or more. To calculate
the current yield, the annual coupon interest income is divided by the amount
paid to acquire the investment. It is important to note that the current yield is only
accurate for investments purchased at par. The current yield calculation includes
just one income cash flow, the annual interest income. It ignores the profit or
loss resulting from discounts and premiums.
Custody. The service of an organization, usually a financial institution, of
holding (and reporting) a customer's securities for safekeeping. The financial
institution is known as the custodian.
Dealer. An individual or firm who, as a matter of regular business, purchases or
sells securities for his account and risk.
Delivery versus payment (DVP). Settlement procedures where payments for
securities purchase are made simultaneously with the transfer of the purchased
securities. The same procedure applies for securities sales; the securities are
transferred as payment is made.
Derivative instrument. A security that derives its value from an underlying
asset, group of assets, reference rate, or an index value. Some derivative
instruments can be highly volatile and result in a loss of principal in changing
interest rate environments.
Discount. The amount by which a bond sells under its par (face) vale.
Discount securities. Securities that do not pay periodic interest. Investors earn
the difference between the discount issue price and the full face value paid at
maturity. Treasury bills, bankers' acceptances and most commercial paper are
issued at a discount.
Diversification. Dividing investment funds among a variety of securities,
offering independent returns, to reduce risk inherent in particular securities.
Effective Annual Yield. A seldom-used expression to refer to the yield on an
investment expressed on a compound interest basis.
Fed Wire. Computerized network linking the Fed with its district banks, member
banks and primary dealers in government securities.
Federal Agency Securities. A variety of securities issued by several Federally
sponsored agencies. Some are issued on a discount basis and some are issued
with coupons. Several have the full faith and credit guarantee of the U.S.
Government, although others do not.
Federal Deposit Insurance Corporation (FDIC). A federal agency that insures
bank deposits. Currently up to $100,000 per deposit.
Federal funds (Fed Funds). Funds placed in Federal Reserve banks by
depository institutions in excess of current reserve requirements. The depository
institutions may lend fed funds to each other overnight or on a longer basis.
They may also transfer funds among each other on a same-day basis through
the Federal Reserve banking system. Fed funds are considered to be
immediately available funds.
Fed Funds Rate. Interest rate charged by one institution lending federal funds
to another.
Floater. A floating rate security with an interest rate that resets at specified
intervals according to an underlying index, such as LIBOR (the London Interbank
Offered Rate), and is based on a predetermined formula. The value of a floater
will fluctuate as interest rates change and therefore can be very volatile.
Inactive deposits. Funds not immediately needed to disbursement.
Interest rate risk. The risk associate with declines or rises in interest rates,
which cause an investment in affixed-income security to decrease in value.
Inverse floater. A security that reacts inversely to the direction of interest rates.
These securities can be very volatile and can lose value in a rising interest-rate
environment.
Leverage. An attempt to increase the rate of return on an investment by buying
securities on margin or using borrowed funds for investment purposes. This
practice can be risky if interest rates rise or if investment yields are lower than
expected.
Liquidity. The quality of an asset that permits it to be converted quickly into
cash without a significant loss of value.
Local Agency Investment Fund (LAIF). A special fund in the State Treasury
which local agencies may use to deposit funds for investment and for
reinvestment. There is no minimum investment period and the minimum
transaction is $5,000, in multiples of $1,000 above that, with a maximum of $40
million for any agency. It offers high liquidity because deposits can be converted
to cash in 24 hours and no interest is lost. All interest is distributed to those
agencies participating on a proportionate share determined by the amounts
deposited and the length of time they are deposited. Interest is paid quarterly via
a check, warrant, or direct deposit to the agency's State Pooled Fund account.
The State keeps an amount for reasonable costs of making the investments, not
to exceed '/4 percent of the earnings.
Marketability. The measure of ease with which a security can be sold in the
secondary market.
Mark-to-Market. The practice of valuing a security of portfolio according to its
market value, rather than its cost or book value.
Market Rate of Return. The average yield of the 3-month U.S. Treasury Bill or
other index that closely, matches the average maturity of the portfolio.
Market Value. The price at which the security is trading and could presumable
be purchased or sold.
Maturity Date. The specified day on which the issuer of a debt security is
obligated to repay the principal amount, or face value of a security.
Money Market Mutual Fund. Mutual funds that invest solely in money market
instruments (short-term debt instruments, such as Treasury bills, commercial
paper, bankers' acceptances, repos and federal funds).
Mutual Fund. An investment company that pools money and can invest in a
variety of securities, including fixed-income securities and money market
instruments. Mutual funds are regulated by the Investment Company Act of 1940
and must abide by the following Securities and Exchange Commission (SEC)
disclosure guidelines.
Negotiable. Salable.
Par. Face value or principal value of a bond, typically $1,000 per bond.
Passive investment management. An investment strategy where securities are
bought with the intention of holding them to maturing or investments in
benchmark products designed to yield a market rate of return.
Principal. The face amount or par value of a debt instrument.
Primary Dealer. A small group of large banks and brokers that have pledged to
make a market for any Treasury securities at any time. They are required to
report their inventory positions and volume of activities to the Federal Reserve.
Because of this, they are given the right to deal directly with the Federal Reserve
in their daily operations.
Prudent Investor Standard. A standard of conduct where a person acts with
care, skill, prudence and diligence when investing, reinvesting, purchasing,
acquiring exchanging, selling and managing funds. The test of whether the
standard is being met is if a prudent person acting in a similar situation would
engage in similar conduct to ensure that investments safeguard principal and
maintain liquidity.
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Rate of return. The amount of income received from an investment, expressed
as a percentage. A market rate of return is the yield that an investor can expect
to receive in the current interest-rate environment utilizing abuy-and-hold to
maturity investment strategy.
Public Securities Association. The bond market trade association, which
publishes a Master Repurchase Agreement that is widely accepted as the
industry standard.
Rating. Judgment of creditworthiness of an issuer made by an accepted rating
service.
Repurchase agreement (Repo). A form of secured, short-term borrowing in
which a security is sold with a simultaneous agreement to buy it back from the
purchaser at a future date. A master repurchase agreement is a written contract
governing all future transactions between the parties and seeks to establish each
parties rights in the transaction.
Reverse Repurchase Agreement. A form of secured, short-term investment in
which a security is purchased with a simultaneous agreement to sell it back to
the seller at a future date.
Safekeeing. A procedure where a third party acting as custodian for a fee holds
securities.
Secondary Market. Markets for the purchase and sale of any previously issued
financial instrument. The first sale of a financial instrument by the original issuer
is said to be done at primary market. All subsequent trades are said to be
secondary market.
Securities Investors Protection Corporation (SIPC). A private corporation
providing insurance to brokerage firms to cover customer accounts up to
$500,000 in securities (including 100,000 in cash).
Swap. The trading of one asset, or cash flows, for another. Sometimes used in
active portfolio management to increase investment returns by "swapping" one
type of security for another. Also used to manage risk; for example, swapping
fixed interest rate payments for floating rate payments.
Total return. Interest income paid on the invested principal, plus interest income
earned from the successive reinvestment of that interest income, plus projected
capital gains (or minus losses) on the investment, Differs from yield to maturity
because (1) it can include gains or losses from sales prior to maturity, and (2) it
permits the assumption of a reinvestment rate different from the yield earned on
the underlying principal.
Treasury Bills. Short-term U.S. Government non-interest bearing debt
securities with maturities of no longer than one year and issued in minimum
denominations of $10,000. Auctions of three and six month bills are weekly,
while auctions of one-year bills are monthly. The yields on these bills are
monitored closely in the money markets for signs of interest rate trends.
Treasury Notes. Intermediate U.S. Government debt securities with maturities
of one to 10 years and issued in denominations ranging from $1,000 to $41
million or more.
Treasury Bonds. Long-term U.S. Government debt securities with maturities of
ten years or longer and issued in minimum denominations of $1,000. Currently
the longest outstanding maturity for such securities is 30 years.
Uniform Net Capital Rule. Securities and Exchange Commission 15C3-1
outlining capital requirements for brokers.
Weighted Average Maturity (WAM). The average maturity of all the securities
that comprise a portfolio.
Yield. Loosely refers to the annual return on an investment expressed as a
percentage on an annual basis. For interest-bearing securities, the yield is a
function of the rate, the purchase price, the income that can be earned from the
reinvestment of income received prior to maturity, call or sale and the time from
purchase to maturity, call or sale. Different formulas or methods are used to
calculate yield. See Yield to Maturity and Total Return analysis.
Yield-to-maturity. The rate of return yielded by a debt security held to maturity
when both the interest payments and the investor's potential capital gain or loss
are included in the calculation of the return.
RESOLUTION NO.
A RESOLUTION OF THE LYNWOOD PUBLIC FINANCE AUTHORITY OF THE CITY
OF LYNWOOD APPROVING THE TREASURER'S STATEMENT OF INVESTMENT
POLICY
WHEREAS, the Treasurer is responsible for the Lynwood Public Finance
Authority's cash flow whereby funds are transferred from various accounts to meet
operating obligations; and
WHEREAS, the Treasurer is also responsible for the investment of idle cash; and
WHEREAS, the Treasurer has prepared guidelines for a prudent investment
policy; and
WHEREAS, the policy contains certain investment criteria; and
WHEREAS, the basic premise of the policy is to ensure the safety of funds and
assure that the Lynwood Public Finance Authority's cash needs are met.
NOW, THEREFORE, the Lynwood Public Finance Authority does hereby find,
proclaim, order and resolve as follows:
Section 7. That the Treasurer's Statement of Investment Policy attached hereto
as Exhibit "A" is hereby approved.
Section 2. This resolution shall go into effect immediately upon its adoption
PASSED, APPROVED and ADOPTED this day of
Maria T. Santillan, President
ATTEST: APPROVED AS TO CONTENT:
Maria Quinonez, City Clerk Roger L. Haley,
Chief Administrative Officer
APPROVED AS TO FORM:
Fred Galante, City Attorney