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RESOLUTION NO. 8665
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS
ESTABLISHING A STATEMENT OF INVESTMENT POLICY AND
RESCINDING RESOLUTION NO. 8446
WHEREAS, pursuant to Government Code sections 41001 through 41007, the City
Treasurer shall comply with all laws governing the deposit and securing of public funds; and
WHEREAS, investment guidelines and procedures are required to administer the daily
investing of the City's surplus cash; and
WHEREAS, an investment policy serves as the foundation of a local agency's investment
goals and priorities; and
WHEREAS, AB 2853 (2004) amended Government Code section 53646, making the annual
review and approval of investment policies of local agencies optional, which was previously
compulsory; and
WHEREAS, from time to time the policies related to investing need to be revised to reflect
investment instrument changes, economic conditions, and financial market considerations;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
REDLANDS AS FOLLOWS:
Section 1. The City Council herby adopts the Statement of Investment Policy ("Policy")
attached hereto as Exhibit "A".
Section 2. This Resolution and the Policy established by this Resolution, shall become
effective, March 4, 2025.
Section 3. That Resolution No. 8446 is hereby rescinded.
ADOPTED, SIGNED AND APPROVED this 4th day of March, 2025,—,A— &
Mario Saucedo, Mayor
ATTEST:
M
IAResolutionsWes 8600-869918665_Annual_Investment_Policy_Resolution 2025.doc jm
1, Jeanne Donaldson, City Clerk of the City of Redlands, hereby certify that the foregoing resolution
was duly adopted by the City Council at a regular meeting thereof held on the 4th day of March,
2025, by the following vote:
AYES: Councilmembers Barich, Tejeda, Davis; Mayor Saucedo
NOES:
ABSENT: Councilmember Shaw
ABSTAIN:
Jaffe Donaldson, City Clerk
L\Resolutions\Res 8600-869918665_Annual_Investment_ Policy_Resolution_2025.doc-jm
Exhibit "A"
City of Redlands
Investment Policy
Contents
1.0
INTRODUCTION..............................................................................................................
3
2.0
SCOPE................................................................................................................................
3
3.0
PRUDENCE.......................................................................................................................
3
4.0
OBJECTIVES.....................................................................................................................4
5.0
DELEGATION OF AUTHORITY.....................................................................................
4
6.0
ETHICS AND CONFLICTS OF INTEREST....................................................................
5
7.0
AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
................................... 5
8.0
AUTHORIZED AND SUITABLE INVESTMENTS........................................................
5
9.0
COLLATERAL..................................................................................................................
9
10.0
SAFEKEEPING AND CUSTODY....................................................................................
9
11.0
DIVERSIFICATION..........................................................................................................9
12.0
MAXIMUM MATURITIES...............................................................................................
9
13.0
INTERNAL CONTROLS..................................................................................................
9
14.0
PERFORMANCE STANDARDS....................................................................................
10
15.0
REPORTING....................................................................................................................10
16.0
REVIEW OF INVESTMENT PORTFOLIO...................................................................
11
17.0
INVESTMENT POLICY ADOPTION............................................................................
11
2
STATEMENT OF INVESTMENT POLICY
FOR THE CITY OF REDLANDS, CALIFORNIA
1.0 INTRODUCTION
This Investment Policy ("Policy") provides formalized framework for the prudent investment of
unexpended cash of the City of Redlands ("the City") and its related authorities and agencies.
The City's policy is to invest public funds in a manner which seeks to provide high investment
return consistent with the public trust and the prioritized objectives of safety, liquidity and return
on investment, while meeting the City's daily cash flow requirements and conforming to all state
and local statutes governing the investment of public funds.
2.0 SCOPE
This Policy applies to all monies under the direct oversight of the City Treasurer. The funds
covered by this policy are accounted for and incorporated in the City Annual Comprehensive
Financial Report (ACFR) and include those of the City, the Redlands Public Improvement
Corporation and the Redlands Financing Authority.
3.0 PRUDENCE
The standard of prudence to be used by the designated representative shall be the "prudent
investor" standard and shall be applied in the context of managing the overall portfolio. Persons
authorized to make investment decisions on behalf of local agencies investing public funds are
trustees and therefore fiduciaries subject to the prudent investor standard which states, "When
investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing,
including, but not limited to, the general economic conditions and the anticipated needs of the
agency, that a prudent person acting in a like capacity and familiarity with those matters would
use in the conduct of funds of a like character and with like aims, to safeguard the principal and
maintain the liquidity needs of the agency".
For local agency funds invested in the county treasury, the county treasurer serves as a fiduciary
and is subject to the prudent investor standard.
4.0 OBJECTIVES
The City's cash management system is designed to accurately monitor and forecast revenues and
expenditures thus enabling the City Treasurer to invest funds to the fullest extent possible. The
City Treasurer maintains a diversified portfolio to accomplish the primary objectives of safety,
liquidity, and return on investment (in that order of priority).
4.1 Safety: Safety of principal is the foremost objective of the investment program.
Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. To attain this objective, the City will diversify its investments by
investing fiords among a variety of securities with independent returns.
4.2 Liquidity: The portfolio will be structured with sufficient liquidity to allow the
City to meet anticipated cash requirements. This will be accomplished through diversity of
instruments to include those with active secondary markets, those which can match maturities to
expected cash needs, the State Local Agency Investment Fund (LAIF), the California Asset
Management Program (CAMP), and the California Cooperative Liquid Assets Securities System
(CLASS) with immediate withdrawal provision.
4.3 Return on Investment: The City's investment portfolio shall have the objective of
attaining a comparative performance measurement or an acceptable rate of return throughout
budgetary and economic cycles. These measurements should be commensurate with the City's
investment risk constraints identified in the Investment Policy and the City's cash flow
requirements.
5.0 DELEGATION OF AUTHORITY
California Government Code Section 53607 provides the authority for the City Council to invest
the funds of the City or to delegate the fall responsibility to the treasurer of the City.
5.1 City Council: By resolution, the City Council delegates authority to the City
Treasurer for investing City funds in accordance with the California Government Code, Sections
41006 and 53600, et. seq. City Treasurer as referenced herein includes the Deputy City
Treasurer.
5.2 City Treasurer: The execution of investment transactions will be the responsibility
of the City Treasurer. The City Treasurer may designate in writing a Deputy City Treasurer who,
in the absence of the City Treasurer, will assume the City Treasurers' duties and responsibilities.
In the event of a prolonged absence or vacancy in the Treasurers position, the City Council may
assign a designee or direct staff to engage the services of one or more external investment
managers to assist in the management of the City's investment portfolio in a manner consistent
with the City's objectives. Such external investment managers and/or advisors may be granted
discretion to purchase and sell investment securities in accordance with this Investment Policy.
Such managers must be registered under the Investment Advisers Act of 1940. The City
Treasurer has established a system of controls and a segregation of responsibilities of investment
functions to assure maintenance of internal control over the investment functions. At the
direction of the City Treasurer, the Revenue Manager or Designee will keep a complete record of
all investment transactions.
5.3 The City Treasurer has the authority to recommend changes in this Policy at any
time in order to carry out the duties as chief investment officer for the City. All such
recommended amendments to this Policy shall be approved by the City Council to be effective.
5.4 Government Code Section 36501 states that there must be an office of City
Treasurer. The City Treasurer of the City of Redlands is an elected position.
6.0 ETHICS AND CONFLICTS OF INTEREST
The City Treasurer and employees of the City involved in the investment process shall refrain
from personal business activity that could conflict with proper execution of the investment
program, or which could impair the ability to make impartial investment decisions. The City
Treasurer is governed by The Political Reform Act of 1974 regarding disclosure of material
financial interests.
7.0 AUTHORIZED FINANCIAL DEALERS AND
INSTITUTIONS
The City Treasurer, in accordance with Government Code Section 53601.5, shall transact
business only with banks, savings and loans, and securities dealers.
7.1 Authorization: The Treasurer will maintain a list of approved financial
institutions authorized to provide investment services to the public agency in the State of
California. These may include "primary" dealers or regional dealers that qualify under Securities
& Exchange Commission Rule 15C3-1 (uniform net capital rule). Broker/Dealers must: 1) have
offices located in the State of California, 2) be adequately capitalized, 3) make markets in
securities appropriate to the City's needs, and 4) agree to abide by the conditions set forth in this
Policy. The City Treasurer shall investigate all institutions that wish to do business with the City
and will annually review the financial conditions and registrations of qualified institutions.
8.0 AUTHORIZED AND SUITABLE INVESTMENTS
California Government Code Section 53601 defines eligible securities for the investment of
surplus funds by local agencies. Surplus funds of the City are invested in compliance with this
statute and as further limited in this Policy.
The City's investments are permitted as listed below and defined in the subsections following.
Summuy
of Authorized Investments
#
Type of Investment
CA Gov. Code
,.-
Redlands
% of Funds
Permitted
Funds Authorized
Maturity
Maturity
8.1
United States Treasury notes, bonds,
100%
100%
5 Years
5 Years
bills or certificates of indebtedness
8.2
Federal Agencyor U.S. government
100%
100%
5 years
5 years
sponsored enterprise (GSE)
obligations
8.3
Bankers' Acceptances
40%; 30% of a
40%; 30% of a single
180 days
180 days
single issuer
issuer
8.4
Commercial Paper (CP) of "Prime"
25%;10% of
15%;10% combined
270 days
270 days
quality
single issuer
CP & MTNs of a
single issuer
8.5
Negotiable Certificates of Deposits
30%
30%
5 years
5 years
8.6
Time Certificates of Deposit (TCD)
100%
30%;15% of a single
5 years
5 Years
institution
8.7
Repurchase Agreements
100%
100%
1 year
1 year
8.8
Medium Term Corporate Notes
30%;10% of a
20%;10% combined
5 years
5 years
(MTN)
single issuer
CP & MTNs of
single issuer
8.9
Other State of California Local Agency
100%
100%
5 years
5 years
bonds, notes, warrants or other
evidence of indebtedness
8.10
Shares of beneficial interest, Mutual
20%;10% of
10%
NIA
N/A
Funds
single fund
8.11
Investment Funds: LAIF,CAMP,
$75million per account ibr$75
million per accountfor
NIA
N/A
CLASS, CalTrust
(IAIF)100%,
(tAIF)100%.
CAMP, CLASS,
CAMP, CLASS,
CalTRUSTMax
CalTRUSTMax permitted
permifted by fund
by fund
8.12
City of Redlands Specific Program
NIA
With Council
NIA
NIA
Short-term Loans
Approval
CP: Commercial Paper
MTN: Medium Term Notes
8.1 U.S. Government: United States Treasury Bills, Notes, and Bonds are backed by
the full faith and credit of the United States Government. There shall be no limitation as to the
percentage of the portfolio invested in this category. Maturities are limited to a maximum of five
years.
8.2 U.S. Agencies: The purchase of instruments of, or issued by, a federal agency or
a United States government -sponsored enterprise will be limited to a maximum maturity of five
years. Such agencies include, but are not limited to, the Federal Farm Credit Bank, Federal
Home Loan Bank, Federal Home Loan Mortgage Corporation, Student Loan Marketing
Association, Tennessee Valley Authority, and the Federal National Mortgage Association.
8.3 Bankers' Acceptances: Bills of exchange or time drafts drawn on and accepted by
commercial banks which are eligible for purchase by the Federal Reserve System are known as
bankers' acceptances. Purchases of these instruments shall not exceed 180 days to maturity or
40 percent of an agency's surplus funds. A maximum of 30 percent may be invested in the
bankers' acceptances of any one commercial bank.
8.4 Commercial Paper: This short-term unsecured promissory note is issued to
finance short-term credit needs. Eligible paper is that which is ranked "P1" by Moody's Investor
Services or "Al" by Standard & Poor's, issued by a domestic corporation having assets in excess
of $500,000,000, and having an "A" or better rating on issuer's debt. Purchases of commercial
paper may not exceed 270 days or represent more than 10 percent of the outstanding paper of an
issuing corporation. Commercial paper purchases will be limited to 15 percent of the City's
portfolio. The City may purchase no more than 10 percent of the outstanding commercial paper
and medium- term notes of any single issuer.
8.5 Negotiable Certificates of Deposit (NCDs): Allowable NCDs are issued by a
nationally or state -chartered bank or a state or federal association or by a federally licensed or
state -licensed branch of a foreign bank. Purchases of these investments shall not exceed 30
percent of siuplus funds in NCDs, and purchases above the federally insured limit of $250,000
must be limited to institutions rated "AA-" or better by Standard & Poor's CD Rating Services.
NCDs are considered liquid, trading actively in the secondary market.
8.6 Certificates of Deposit (CDs): Certificates of deposit or "time deposits" of up to
$250,000 are federally insured. Beyond that amount, these CDs must be collateralized with the
collateral held separately from the issuing institution. The value of the investment must have a
collateral of at least 110 percent if government securities, or collateral of at least 150 percent if
mortgage -backed securities. CDs shall be limited to a maximum of 30 percent of the portfolio
and to a maximum of 15 percent deposited in any one institution. In addition, time deposits shall
be placed in institutions meeting all capital requirements and which maintain a rating of superior,
excellent, or sound according to at least two bank rating services.
8.7 Repurchase Agreements: The city may invest in repurchase agreements with
banks and dealers of primary dealer status recognized by the Federal Reserve with which the city
has entered into a signed Master Repurchase Contract which specifies terms and conditions of
repurchase agreements. The maturity of repurchase agreements shall not exceed one year. The
market value of securities used as collateral for repurchase agreements shall be monitored by the
City Treasurer's office and will not be allowed to fall below 102 percent of the value of the
7
repurchase agreement. In order to conform with provisions of the Federal Bankruptcy Code,
which provide for the liquidation of securities held as collateral for repurchase agreements, the
only securities acceptable as collateral shall be eligible negotiable certificates of deposit, bankers'
acceptances, commercial paper, or securities that are direct obligations of or that are fully
guaranteed by the United States or any agency of the United States. These eligible securities are
further defined by California Government Code Section 53651.
8.8 Medium Term Notes: These promissory notes are issued by corporations, for a
term not to exceed five years, to finance their medium -term credit needs. Eligible notes are those
which are rated "A" or better by a nationally recognized rating service. These notes are limited
to 20% of the City's portfolio. The City may purchase no more than 10 percent of the
outstanding commercial paper and medium- term notes of any single issuer.
8.9 Local Agencies within California: The City may invest in bonds, notes, warrants,
or other indebtedness of other local agencies within California.
8.10 Mutual Funds: Shares of beneficial interest (mutual funds) issued by diversified
management companies investing in securities/obligations authorized by California Government
Code Section 53600, et. seq., and complying with Section 53630, et. seq., are permitted
investments. Section 53601(1) further defines requirements. A maximum of 10 percent of the
portfolio may be so invested.
8.11 Investment Funds: LAIF has been established by the State Treasurer for the
benefit of local agencies. The California Asset Management Program (CAMP) is a California
Joint Powers Authority established to provide California Public Agencies with professional
investment services similar to LAIF. The California Cooperative Liquid Assets Securities
System (CLASS) and Ca1TRUST are other Joint Powers Authority investment pools that provide
public agencies with the opportunity to invest funds. The city may invest in LAIF, CAMP,
Ca1TRUST and California CLASS up to the maximum permitted by the funds.
8.12 With the approval of the City Council and concurrence of the City Treasurer,
funds may be invested in short-term loans to provide specific funding to City programs.
Ineligible Investments: Government Code Section 53601.6 prohibits the City from investing in
inverse floaters, range notes, or mortgage -derived, interest -only strips. It further prohibits
investing in securities that would result in zero interest accrual if held to maturity. Investments
not described herein, including but not limited to common stocks, financial futures contracts and
options, and reverse repurchase agreements are prohibited in this fund.
Downgrade Evaluation: In the event that a security's rating is downgraded below allowable
levels, the City Treasurer will evaluate if continuing to hold the security or selling the security is
in the best interest of the City.
9.0 COLLATERAL
The issue of collateral requirements is addressed in California Government Code Section 53652.
All active and inactive deposits must be secured at all times with eligible securities in securities
pools pursuant to Government Code Sections 53656 and 53657. Eligible securities held as
collateral shall have a market value in excess of the total amount of all deposits of a depository
as follows:
--Government securities, at least 10 percent in excess
--Mortgage backed securities, at least 50 percent in excess
--Letters of credit, at least 5 percent in excess
--Repurchase Agreements, at least 2 percent in excess
10.0 SAFEKEEPING AND CUSTODY
Security transactions entered into by the City shall be conducted on a delivery -versus -payment
(DVP) basis. Securities shall be held by a third -party custodian designated by the City
Treasurer. Evidence of account for each time deposit will be held in the City Treasurer's office.
11.0 DIVERSIFICATION
In an effort to reduce portfolio risk while attaining market average rates, the City's portfolio will
be suitably diversified by type, institution and maturity.
11.1 Security Type and Institution: With the exception of U.S. Treasury securities and
authorized pools, investments are further limited by specific language relating to each investment
type as stated in Section 8 of this Policy.
12.0 MAXIMUM MATURITIES
To the extent possible, the City Treasurer will attempt to match investments with anticipated
cash flow requirements. The City's portfolio will not be directly invested in securities which
mature more than five years from the date of settlement. Forward settlement on new issues may
be no longer than 45 days.
13.0 INTERNAL CONTROLS
A system of internal controls will be maintained to assure compliance with Federal and State
regulations, City Council direction, and prudent cash management procedures.
13.1 Investment Portfolio Guidelines: Guidelines (Appendix No. 2) have been
established for procedures within the City Treasurer's Office to assure internal investment
controls and a segregation of responsibilities of investment functions.
13.2 Annual Audit: The City's portfolio is included in the annual review of the City's
financial management performed by an outside audit firm.
14.0 PERFORMANCE STANDARDS
The investment portfolio will be designed to obtain a market -average rate of return during
budgetary and economic cycles, taking into account the city's investment risk constraints and
cash flow needs.
15.0 REPORTING
15.1 Monthly Transaction Report: In compliance with Government Code Section
53607, the City Treasurer or designee will provide monthly reports with a listing of investment
transactions that includes purchase/deposit and sale/withdrawal activity.
15.2 Quarterly Report: In compliance with Government Code Section 53646 (b), the
City Treasurer will provide quarterly detailed reports of pooled investments and invested bond
proceeds held by our Trustees to the City Council and City Manager, within 45 days after the end
of the quarter. This report shall include the following information:
Investment type, issuer, date of maturity, par value, and dollar amount invested in all
securities, and investments and monies held by the City;
A description of the funds, investments and programs (including lending programs)
managed by contracted parties;
Current market value as of the date of the report of all funds held by the local agency and
under the management of any outside party that is not also a local agency or LAIF and the
source of valuation;
A statement of compliance with the investment policy or an explanation for non-
compliance;
A statement of the ability to meet its pool expenditure requirements for the next six months,
as well as an explanation of why sufficient money will not be available if that is the case.
10
16.0 REVIEW OF INVESTMENT PORTFOLIO
The securities held by the City must be in compliance with Section 8.0 Authorized and Suitable
Investments at the time of purchase. Because some securities may not comply with Section 8.0
Authorized and Suitable Investments subsequent to the date of purchase, the Treasurer should at
least annually review the portfolio to identify those securities that do not comply. The Treasurer
should establish procedures to report to the city council, should one exist, major and critical
incidences of noncompliance identified through the review of the portfolio.
17.0 INVESTMENT POLICY ADOPTION
The City of Redlands's investment policy shall be adopted by resolution of the city council. The
policy shall be reviewed annually by city council and any modifications made thereto must be
approved by Council. 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, master repurchase agreements, 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 City.
11
APPENDIX NO. 1
GLOSSARY
AGENCIES: Federal agency securities.
BANKERS' ACCEPTANCE (BA): A draft or bill of exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the issuer.
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. In the money market, brokers are active in
markets in which banks buy and sell money and in interdealer markets.
CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP): A California Joint Powers
Authority ("JPA") established in 1989 to provide California public agencies with professional
investment services. The CAMP Pool is a permitted investment for all local agencies.
CALIFORNIA COOPERATIVE LIQUID ASSETS SECURITIES SYSTEM (CLASS):
California CLASS is a Joint Powers Authority investment pool that provides public agencies the
opportunity to invest funds on a cooperative basis in rated pools managed in accordance with
state law with the primary objectives of offering participants maximum safety, daily and next -
day liquidity, and optimized returns.
CALTRUST: CalTRUST is a Joint Powers Authority created by public agencies in 2003 to
provide a convenient method for public agencies to pool their assets for investment purposes.
CalTRUST is governed by a Board of Trustees made up of experienced local agency treasurers
and investment officers. The Board sets overall policies for the program and selects and
supervises the activities of the investment manager and other agents.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a
certificate. Large -denomination CDs are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and
selling for his own account.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to
various classes of institutions and individuals, e.g., S&Ls, small business firms, students,
farmers, farm cooperatives, and exporters.
12
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures
bank deposits, currently up to $250,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings
and loan associations. The Federal Home Loan Banks play a role analogous to that played by the
Federal Reserve Banks vis-a-vis member commercial banks.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal
corporation working under the auspices of the Department of Housing & Urban Development,
H.U.D. It is the largest single provider of residential mortgage funds in the United States.
Fannie Mae, as the corporation is called, is a private stockholder -owned corporation. The
corporation's purchases include a variety of adjustable mortgages and second loans in addition to
fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA
assumes and guarantees that all security holders will receive timely payment of principal and
interest.
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, security is said to be liquid if the spread between
bid and asked prices is narrow and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND (LAIF): Funds from local governmental units may be
remitted to the California State Treasurer for deposit in this special fund for the purpose of
investment.
MARKET VALUE: The price at which a security is trading and could presumably be purchased
or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase -reverse repurchase agreements that establishes each party's
rights in the transactions. A master agreement will often specify, among other things, the right
of the buyer -lender to liquidate the underlying securities in the event of default by the seller -
borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due
and payable.
MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper,
bankers' acceptances, etc.) are issued and traded.
PORTFOLIO: Collection of securities held by an investor.
13
PRIMARY DEALER: A group of government securities dealers that submit daily reports of
market activity and positions and monthly financial statements to the Federal Reserve Bank of
New York and are subject to its informal oversight. Primary dealers include Securities and
Exchange Commission (SEC), registered securities broker -dealers, banks, and a few unregulated
firms.
RATE OF RETURN: The return on investment obtainable on a security based on its purchase
price or its current market price. This may be the amortized return on investment to maturity on
a bond or the current income return.
RETURN ON INVESTMENT: The rate of annual income return on an investment, expressed as
a percentage. An INCOME RETURN ON INVESTMENT is obtained by dividing the current
dollar income by the current market price for the security.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the banks' vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors
in securities transactions by administering securities legislation.
TREASURY BILLS: A non -interest -bearing security issued by the U.S. Treasury to finance the
national debt. Most bills are issued to mature in three months, six months, or one year.
TREASURY BONDS: Long-term U.S. Treasury securities having initial maturities of more than
ten years.
TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury securities having initial
maturities of from one to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker -dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
14
APPENDIX NO.2
INVESTMENT PORTFOLIO GUIDELINES
A. INTRODUCTION. These guidelines are established to direct and control investment
activities in such a manner to assure that the goals established in this Policy are attained.
B. GENERAL FACTORS. Several factors must be considered in preparation for effective
portfolio management.
1. Cash Forecast. The cash flow of the City shall be updated daily with an analysis of cash
receipts and expenditures. A close working relationship with city programs having a significant
impact on cash flow is maintained to maximize the efficiency of the city's cash management
system.
2. Pooled Cash. Whenever practical, the City's cash should be consolidated into one bank
account and invested on a pooled concept basis. Interest earnings are allocated according to
specific fund ledger balances. No city bank account may be opened without the knowledge and
consent of the City Treasurer.
3. Authorized Institutions. A list of institutions which meet the criteria of the Investment
Policy and have been authorized by the City Treasurer to do business with the City, will be
maintained and regularly updated. Investment transactions will be executed only with approved
broker/dealers, banks, and savings and loans.
4. Preservation of Portfolio Value. Return on investment standards are in place in an effort
to maintain earnings consistent with the market average rate of return.
C. STRATEGY: Strategy refers to the plan of action for managing financial resources in the
most advantageous manner. The City Treasurer uses the following elements in developing
strategy.
1. Economic Forecasts. Economic forecast information developed by economists and
financial experts, obtained through bankers and brokers, is used to assist the City Treasurer with
the formulation of an investment strategy for the city.
2. Investment Implementation. Investment transactions will be executed in conformance
with anticipated cash flow requirements, economic conditions, and interest rate trends and must
be consistent with the established Investment Policy.
3. Return on investment Enhancement. Investment techniques will be utilized which
increase return on investment and maintain a fully invested position (i.e., investment in
repurchase agreements for overnight and weekend surplus funds).
15
D. INVESTMENT PROCEDURES. The City Treasurer has developed internal investment
procedures to provide for effective cash management. Segregation of responsibilities is
maintained to assure an adequate system of internal control over the investment function.
1. Diversification. The fund should consist of a mix of various types of securities, issuers,
and maturities.
2. Investment Transactions. All investment transactions will be executed by the City
Treasure. Daily administrative record keeping functions are delegated to the Revenue
Supervisor or Designee. In the event of a prolonged absence or vacancy in the
Treasurers' position, the City Council may direct staff to engage the services of one or
more external investment managers.
3. Wire Transfers. Whenever possible, the city will use repetitive wire transfers to restrict
the transfer of funds to preauthorized accounts only. All wire transfers require an
initiator plus approval by an authorized employee as well as verification by two bank
employees.
4. Safekeeping. Securities purchased from broker/dealers (on which maturity is greater than
30 days) shall be held in third party safekeeping with the Trust Department of Bank of
New York acting as third -party trustee. All purchases will be on a delivery -versus -
payment basis. Evidence of accounts for certificates of deposit will be issued in the city's
name and held in City Treasurer's vault.
E. INVESTMENT CRITERIA. All investments will be made in compliance with the Federal,
State, and Local laws governing the investment of city funds, and in accordance with this
Policy.
1. Maturity of Investment. Investments longer than one year may be made if consistent
with the city's cash flow needs and related intent of holding until maturity. Securities
may be sold prior to maturity for cash flow purposes or to otherwise enhance the
portfolio. If the rating of any depository declines to an unacceptable level prior to the
maturity of an investment of city funds, the investment will be sold at the earliest possible
convenience. If the rating drops below the allowable level of any one of the rating
services, the investment will be sold if no significant loss of principal is involved. Such
sales will be determined by the City Treasurer.
2. Certificate of Deposit Evaluation.
(a) Time Certificates of Deposit shall be evaluated in terms of FDIC coverage. For
deposits in excess of the insured maximum of $250,000, approved collateral shall
be required at the percentage above market value as specified by California
Government Code Section 53652 and/or 53651.
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(b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit
worthiness of the issuer as these deposits are uninsured and uncollateralized
promissory notes.
F. PRIMARY GOALS. As set forth in the Investment Policy, the primary goals for the safety,
liquidity, and return on investment, in that priority order.
1. Safety. The safety/risk associated with an investment refers to the potential loss of
principal, accrued interest, or a combination of these. The City employs investment
instruments which are considered safe. The primary duty of the City Treasurer is to
protect the cash and investments placed in his trust on behalf of the residents of the
community.
2. Liquidity. Liquidity refers to the ability to convert investment holdings to cash
immediately with a minimal loss of principal or accrued interest. This quality of an
investment is important should an unexpected need for funds occur.
3. Return on Investment. Return on investment is the dollar earnings the investment
provides. Return on investment becomes important only after the fundamental
requirements of safety and liquidity have been met.
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APPENDIX NO. 3
CITY OF REDLANDS
OFFICE OF THE CITY TREASURER
BANIUSAVINGS & LOAN QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm
2. Address
3. Telephone No.
(Local) (National Headquarters)
4. Primary Representative: Manager:
Name:
Title
Telephone No.
Title
Telephone No.
5. What is the total of assets of the Bank/Savings & Loan?
6. What are the current ratios?
Net Worth
Tangible Capital
Core -based Capital
Risk -based Capital
Prior Year?
7. Has there been a year during the past three years in which the Bank/Savings & Loan did not
make a profit?
8. What is the education level of the Primary Contaet(s)?
9. How many years of related experience does the Primary Contact(s) have?
10. Where is the collateral for Time Deposits of the Bank/Savings & Loan held?
11. Has there been a period during the past five years when Time Deposits of the Bank/Savings
& Loan have not been fully collateralized? If Yes, explain.
HK
12. Describe the precautions taken by your Bank/Savings & Loan to protect the interest of the
public when dealing with government agencies as depositors or investors.
13. What other banking services would you be interested in providing the City of Redlands?
14. What transaction documents and reports would we receive?
15. What information would you provide to our Investment Officer?
16. Please provide your entity's most recent certified financial statement.
17. Please provide your Contract of Deposit of Moneys pre -signed and sealed by your
institution as well as any signature cards that you may require.
18. Please provide your wiring instructions.
-- CERTIFICATION --
I hereby certify that I have personally read the City of Redlands' Investment Policy and the
California Government Codes pertaining to the investments of the City of Redlands, and have
implemented reasonable procedures and a system of controls designed to preclude imprudent
investment activities arising out of transactions conducted between our firm and the City of
Redlands. All sales personnel will be routinely informed of City of Redlands' investment
objectives, strategies and risk constraints whenever we are so advised. We pledge to exercise
due diligence in informing the City Treasurer of all foreseeable risks associated with financial
transactions conducted with our firm. I attest to the accuracy of our responses to your
questionnaire.
NOTE: Completion of Questionnaire is only part of the City of Redlands' Certification process
and DOES NOT guarantee that the applicant will be approved to do business with the
City.
SIGNED
DATE
(countersigned by company president or person in charge of government security operations)
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APPENDIX NO.4
CITY OF REDLANDS
OFFICE OF THE CITY TREASURER
BROKE, R/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm
2. Address
3. Telephone No.
(Local) (National Headquarters)
4. Primary Representative: Manager:
Name Name
Title Title
Telephone No. Telephone No.
5. Are you a recognized primary dealer in Government Securities?
[ ] YES [ ] NO
6. If yes, how many years has your firm been a primary dealer?
7. What was your firm's total volume in U.S. Government and agency securities trading last
year?
Firm -wide $
Your office $
Number of transactions from your office
8. Which of the following instruments are offered regularly by your trading desk?
[ ] T-Bills [ ] BA's (Domestic)
[ ] T-Notes/Bonds [ ] BA's (Foreign)
[ ] Agencies (specify) [ ] Commercial Paper
[ ] C D's
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] Repurchase Agreements [
] Medium Term Notes
] Mutual Funds (eligible for public
investment)
9. Identify all personnel who will be trading with or quoting securities to the City Treasurer.
Name Title # of Years in # of Years Telephone
Institutional Sales with Firm
10. Please identify your most directly comparable City Local Agency clients in our
geographical area.
Entity Contact Person Telephone Client since
It. Is there anything in your background in the government security business that makes you
stand out above the rest? Why should the City of Redlands deal with you?
12. Have any of your public sector clients ever sustained a loss on a securities transaction
arising from a misunderstanding or misrepresentation of the risk characteristics of a
particular instrument? If so, please explain.
13. Has any public -sector client ever claimed in writing that your firm was responsible for
investment losses? Explain.
14. Has your firm consistently complied with the Federal Reserve Bank's capital adequacy
guidelines? Include certified documentation of your current capital adequacy as measured
by Federal Reserve Standards.
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15. Please provide certified financial statements and other statements regarding your firm's
capitalization.
16. Please provide samples of research reports that your firm regularly supplies to public sector
clients.
17. Are you a Broker instead of a Dealer (i.e., you DO NOT own positions of securities)?
[ ] Yes [ ] No
18. What reports, transactions, confirmations and paper trail would the city receive?
19. What training information would you provide to our employees and investment officers?
20. How many and what percentage of your transactions failed last month?
Last year?
21. What portfolio information do you require from clients?
-- CERTIFICATION --
I 'hereby certify that I have personally read the City of Redlands' Investment Policy and the
California Government Codes pertaining to the investments of the City of Redlands, and have
implemented reasonable procedures and a system of controls designed to preclude imprudent
investment activities arising out of transactions conducted between our firm and the City of
Redlands. All sales personnel will be routinely informed of City of Redlands' investment
objectives, strategies and risk constraints whenever we are so advised. We pledge to exercise
due diligence in informing the City Treasurer of all foreseeable risks associated with financial
transactions conducted with our firm. I attest to the accuracy of our responses to your
questionnaire.
NOTE: Completion of Questionnaire is only part of the City of Redlands' Certification
process and DOES NOT guarantee that the applicant will be approved to do
business with the City.
SIGNED
DATE
(countersigned by company president or person in charge of government security operations)
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