HomeMy WebLinkAboutResolution 2004-020 N.C.S. 02/23/2004 Resolution No. 2004-020 N.C.S.
of the City of Petaluma, California
APPROVING THE
INVESTMENT POLICY FOR 2004
WHEREAS, the City Treasurer has annually rendered to the City Council a Statement of
Investment Policy; and,
WHEREAS, the City Treasurer has the responsibility to invest the pooled idle cash from
all of the City's funds; anal,
WHEREAS, the City Treasurer has developed a Statement of Investment Policy and
submitted said Policy to the City Council for review.
NOW, THEREFORE, BE IT RESOLVED that the City Council approves the 2004
Investment Policy, as shown in Exhibit A, attached.
Under the power and authority conferred upon this Council by the Charter of said City.
REFERENCE: I hereby certify the foregoing Resolution was introduced and adopted by the Approved as to
Council of the City of Petaluma at a (Regular) (Adjourned) (Special) meeting ~oC <
rd
on the day of Februarx..............................., 20 04., by the
following vote:
ity Attorney
AYES: Mayor Glass, Harris, Healy, Vice Mayor Moynihan, O'Brien, Torliatt
NOES: None
ABSENT: Ca aro n,~
ATTEST: Wi
City Jerk Mayor
" Council File
Res. No. ......2004.,020....,_..N.C.S.
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CITY OFD l'ETALLTNIA, CAL,IFOI~NI
2004 STATEMENT O~ INVESTMENT` POLICY
William J. Thomas
Finance Director/City Treasurer
EXHIBIT A TO THE RESOLUTION
Resolution No. 2004-020 N:C.S. Page 2
City of Petaluma, California 2004 Statement of Investment Policy.
1
2 CIT`E' ®F PE'I'ALUlVIA, CALIF®RNIA -
3 2.004 S'I'A'I'EIVIENT' OF INVESZ'1VIENT' POLICY
4
5 PO.,LIC1'
6
7 It is :the policy of the City of Petaluma, CA (the "City") to invest public funds in a manner that
8 will pro.vrde the highest investment return with the maximum .security while meeting the daily
9 casfi flew demands of the entity and .conforming to all state and` local statutes governing• the
10 investment of public funds.
11
12 SCOPE
13
14 This investment policy applies to all financial assets of the City. These funds are accounted for
15 in the City Comprehensive Annual Financial Report and include:
16
17 General Fund
18 Special Revenue Funds
19 Debt Service Funds
20 ~ Capital Project Funds
21 Enterprise Funds
22 Internal Service Funds
23 Permanent and'Private Purpose Trust Funds
24
25 This Policy shall also apply to funds of the Petaluma. Community Development Commission -
26 (PCDC), Petaluma Public .Financing Authority, -City of Petaluma Public Financing Corporation
27 and any other fund under the control of the City Treasurer.
28
29 PRUDENCE
30
31 Investments shall be, made with care, skill, prudence, and diligence under the circumstances:,then
32 prevailing, including, but. not limited to, the general. economic conditions and the anticipated
33 needs of the City, that a prudent. person acting in a like capacity and familiarity with those
34 matters would use in the conduct of'funds of a like character and. with like aims, to safeguard the
35 principal and maintain the liquidity needs of the City.
36
37 OBJECTIVE
38
39 The primary objective in priority order, of the City's investment activities shall be:
40 .
41 1. Safety: Safety Hof principal is the foremost objective of the investment program.,
42 In~estmenfs of :the City shall be undertaken in a manner that seeks to ensure the
43 preservation of capital in the overall portfolio.
44 2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the -
45 City to meet, all.. operating requirements which might be reasonably anticipated.
46 3. Return on Investments: The City's investments .shall be designed with the objective of
47 attaining a. rate: of'return throughout budgetary and economic cycles, commensurate with
48 , the City's investment risk constraints and' the cash flow characteristics. ofthe portfolio.
49
50 DELEGATION OF AUTHORITY
57
52 Under the City, Charter .Section 24; the City Treasurer is appointed. by the City.Manager with the
53 approval ofthe City Council. The City Treasurer is also the City's.Finance Director. Pursuant to
54 the Government Code, the City Council delegates the authority to invest or to reinvest funds, or
55 to sell or exchange securities so purchased, to the City Treasurer for cone-year period. The City
56 Treasurer is charged with the responsibility for carrying out the. policies of the City Council and
57 shall assume full responsibility for investment transactions. until the delegation of authority is
58 revolted or expires.
Res"olutionNo. 2004-020 N.C.S. Page 3
City of Petaluma, California- ~ 2004 Statement ofInvestment-Policy
1 The..daily <cash management,.. `investment transactions .and. account reconciliation's are the primary
2 responsibilities of the City Treasurer. These_ activities are also carried out by other ,members of
the Finance Department under. the direction of the Gity Treasurer. The City Treasurer- shall
4 establish procedures for-'the 'operation consistent with this investment policy.
5
6 The City Treasurer and authorized, individuals acting in accordance with written procedures and
7 the investment-policy and exercising due diligence shall be relieved of personal responsibility for
8 an ,individual security's credit: risk or market, price changes, provided deviations from
9 .expectations are reported in a timely .fashion and appropr--fate action is taken to control. adverse
10 developments.
ll
12 ETHICS AND CONFLICT OF INTEREST
13
14 Officers and employees involved in the investment process shall refrain from personal business
15 activities that could conflict with :proper execution of the investment program or which could
16 impair their ability to make iiripartial .decisions. Officers.. and .employees involved in the
17 investment process shall abide by :the `Conflict of Interest Code, (California Government Code
18 Section -1090 et seq.) and the California Political Reform Act (California Government Code
19 Section 81000 et seq.).
20
21 PERMITTED INVESTMENTS
22
23 California Government Code S'ections53601 et. seq. ,governs the. investments permitted .for
24 purchase by the City. Within the 'investments permitted by the Code, the City seeks to further
25 restrict eligible investments to-the investments listed below.
26
27 .Percentage limitations, where indicated, apply at the time of the purchase. Rating requirements
28 were indicated; apply at the time, of purchase. In the event a security held by the City is subject
29 to a rating change that brings it below the minimum specified rating requirement,- the City
30 Treasurer shall notify the City Council of the change. The course of action to be followed will
31 -then be decided "on a case-by-case basis, considering, such .factors as the reason for the rate drop,,
32 :prognosis for recovery or further rate, drops, and the market price of the security. Investment
33 .maturities shall be based on„review of cash flow forecasts. Maturities will be scheduled so as to
34permit theCity to meet all projected obligations.
35
36 No investment shall be made in any security, other than a security underlying a repurchase or
37 reverse repurchase agreement;. that at ahe time of the investment has a term remaining to maturity
38 in excess of five years, unless he City Council has granted express authority to make that
3.9 investment no les than three months prior to the investment.
40
41 ELIGIBLE INVESTMENTS
42
43 A. State. of California Local.Agency Investment Fund' ("LATE"l. The. City may invest in
44 LAIF. A maximum of°$40 million may be invested in this category.
45 .
46 B. Sonoma County Investment Pool. The City may invest in the Sonoma County
47 .Investment Pool. A maximum of $10 million may be invested in this category.
48
49 C. California Asset Management Trust. The City may invest.. in the shares in the
50 California Asset Management Trust, so long as he portfolio is.rated among the top two
51 rating categories by one of the nationally recognized rating agencies. A maximum of $40
52 million may be.:invested in this category.
53
54 D. Certificates of. Deposit. FDIC insured or fully collateralized time certificates of deposit
55 in financial institutions located in California. Eligible investments are restricted to those
56 issuing institutions thaf.have been in business at least;five years. The maximum term for
57 deposits shall be one year. Investments in certificates of deposit are further `limited to
58 20% of surplus funds. All time deposits .must be -collateralized in accordance with
Resolution No. 2004-020 N:C;S. Page 4
City of Petaluma, California ~ 2004 Statement of Investment Policy
i California Government Code section 53561. The City, at its discretion, may waive the
2 collateralzaton requirements for .:any portion of the deposit that is covered by federal
3 insurance.
4
5 E. Negotiable Certificates of Deposit:. Negotiable certificates of deposit issued by a
6 nationally or state.chartered barik'or a state or federal savings and loan association or by a
7 state-licensed branch of a foreign bank;- provided that the senior debt obligations of the
8 issuing institution are. rated "AA" or better by Moody"s or Standard & Poor's.
9 Investments in negotiable certificates of deposit. are limited to 20% of the portfolio.
10
L1 F. Banker's Acceptances. Banker's acceptances issued by domestic or foreign. banks,
12 which are eligible for purchase by the Federal Reserve. System. Purchases of banker's
13 acceptances may not exceed 180 days maturity. Eligible banker's acceptances are
14 restricted to issuing .financial: institutions with, short-term paper rated in the highest
15 category by one or snore nationally .recognized rating- services. Investments in banker's
16 acceptances are further limited to 40% of the portfolio with .no more than 30% of surplus
17 invested in the banker's acceptances of any one commercial bank.
18
19 G. U:S. Government Issues.,. United States Treasury notes, bonds, bills,. or certificates of
20 indebtedness, or those .for which he faith and credit of the United States are pledged -for
21 the payment of principal and interest.
22
23 H. Federal Agency Securities. Federal agency or T7riited States government-sponsored
24 enterprise obligations; participations, or other instruments,. including those issued by or
25 fully guaranteed as to principal and interest by federal agencies or United States
26 ,government-sponsored enterprises.
27
28 I. ..Repurchase Agreements. Repurchase agreements are to be used. solely as short-term
29 :investments not to exceed 30 days. The City may enter into repurchase agreements with
30 .primary government. securities dealers rated "A" or 'better by two .nationally recognized
31 .rating services: Counterparties should. have a short-term credit rating of at least. A-
32 1/P-l; (ii.) minimum assets .and capital size of $25 bullion in assets and $350 million. in .
33 °~:capital; ..(iii.) five years of acceptable audited financial results; and (iv.) a strong
34reputation among market part%ipants.
35
36 The following collateral restrictions will be observed:
37
38 Only U.S. Treasury securities or Federal Agency securities. will be acceptable
39 collateral. All securities underlying repurchase agreements must be delivered to
40 the City's custodian. bank versus payment or be, handled under a properly executed
41 tri-party repurchase agreement. The total market value of all collateral for each
42 repurchase agreement must equal or exceed 102 percent. of, the total. dollar value of
43 the money invested by the City for the term of the investment: For any, repurchase
44 agreement with a term of more than one day, the value of the underlying securities
45 must be reviewed on an on-going basis according. to market conditions. Market
46 value;must~be calculated each time there is a substitution of collateral.
47
48 The City or its. trustee shall have perfected first security interest under the
49 Uniform Commercial Code in all securities subject to repurchase agreement. The
5o City shall have> properly executed a Professional Services Agreement with each
51 counter party with which it enters into repurchase agreements.
52
53 J. Commercial Paper:. Commercial. paper of "prime'.' quality of the highest ranking or of
54 the highest letter and number rating as provide for by a nationally recognized statistical-
55 rating organization (NRSRO). The entity that, issues commercial paper shall meet all of
56 the following conditions in one of the following:
57
Resciluton No. 2004-020 N_C.S. Page 5
City of Petaluma, California 2004 Statement of Investment Policy
1
2 a. The entity meets the following.criteria:
3 i. Is organized aril operating within the United. States as a general
4 corporation. ,
,
5 ii. Have tgtal assets in.excess of $S00 million.
6 iii. Has debt other than commercial paper, if any, that is rated. "A" or higher
7 by a nationally recognized statistical-rating organization (NRSRO).
8
9 (or)
10
11 b. The entity meets the following criteria:
12 i. Is organized within the U_ruted States as a special purpose corporation,
13 trust, ~or. limited .liability .company.
14 ii. Has program`wide credit enhancements including, but not limited to, over
15 collateralization, :letters of credit, or surety bond.
16
17 Investments in commercial paper .are limited to a maximum of 25% of the portfolio.
` 18 Purchases shall not exceed -0 percent. of the outstandngpaper of the issuing corporation.
19 The maximum .investment matur"ty is restricted to 270 days.
20
21 K. Money Market Furids: Shares. ~of'beneficial interest issued. by diversified .management .
22 companies that are money .market funds registered with the Securities and. Exchange
23 Commission (SEC) under the Investment Company Act of 1`940 (15 U.S.C., Sec. 80a-1,
24 et seq.).
25
26 The City may invest in shares .of beneficial interest issued by company shall have met
27 either of the following criteria:
28
29 a. Attained the highest ranking or the highest etter and numerical rating provided by
3o not less than two nationally recognized rating services.
31
32 (or)
33
34 b. Retained. an investment adviser registered or exempt from registration with the
35 SEC with not less than five years experience in managing money market mutual
36 funds with assets under management in excess of five hundred million dollars
37 ($500,0.0,0,000).
38
39 The purchase price of shares of beneficial interest purchased pursuant to this subdivision
4o shall not include any commission+ that the companies may charge. Investments in Money
41 Market Funds are further limited to 20% of the portfolio.
42
43 ELIGIBLEIIVVESTMENTSFORBOIVD'PROCEEDS
44
45 Bond Proceeds shall be invested. in securities permitted: bythe .applicable bond documents. If the
46 bond documents: are. sil„ent as to the permitted investments; bond proceeds will be invested in
47 securities permitted by~this`Policy:
48
49 With respect to :maximum, maturities, the Policy authorizes 'investing bond reserve fund proceeds
5o beyond the five years: if prudent in the opinion of the City Treasurer..
51
52 INELIGIBLE INVESTMENTS
53
54 As provided in California Government Code section 53601.6, the City shall not invest any funds
55 in inverse floaters,. range. notes, mortgage derived interest-.only strips or: in any security that could
56 result in zero interest accrual if held to maturity.
57
Resolution No. 2004-020 N:C:S. Page 6
City of Petaluma, California 2004 Statement of Investment Polite
1 The purchase of zany security not listed above, but permitted by the California Government Code,
2 is prohibited unless the City Council. approves the investment either specifically or' as a part of an
3 investment program approved by'the°Board.
4
5 BROKERS
6 _ ,
7 In selecting securities brokers; the City Treasurer shall conduct- credit and capitalization analysis
8 to determine that firms are adequately financed to conduct public business.
9
10 LOCAL INVESTMENT POOL POLICIES AND REPORTS
11
12 To the extent there are investments in the State, Sonoma County, or CAMP investment pools, the
13 City Treasurer shall review and maintain current copies of the adopted investment policies of the .
14 State, Sonoma County, and- .CAMP.. The policies shall be '.reviewed for concurrence. with "the
15 investment policy of the City.
16 _
17 SAFEKEEPING ANID CUSTODY
18
19 All security transactions entered into by the City of Petaluma; CA shall be conducted on a
20 delivery=versus payment basis. A third party custodian designated by the, City Treasurer and
21 evidenced by safekeeping receipts will hold, securities.
22
23 The only exceptions to the foregoing are Local Agency Investment Pools; Certificates of Deposit,
24 and money market funds since ~ the purchased securities are not deliverable. In all.. cases,
25 purchased .securities shall be held 'in the City's name.
26
27 INTERNAL CONTROL
28
29 The City Treasurer shall establish an annual process of independent review by an external
30 auditor. This review will provide ;internal. control by assuring compliance with policies and
31 procedures.
32
33 PERFORMANCE STANDARDS
34
35 The investment portfolio shall: be designed with the objective of obtaining a rate of return
36 throughout budgetary and economic cycles, commensurate with. the investment risk constraints
37 and the cash flow needs.
38
39 The City will .measure the portfolio's performance against a market benchmark that is
40 commensurate -with the City's investment risk constraints and the cash flow characteristics of the
47 portfolio.
42
43 REPORTING
44
45 The City 'Treasurer shall provide a monthly investment report to the. City Council, which
46 provides a clear ,picture; of the status of the current investment portfolio,, including transactions.
47 This report will be formally submitted to the City Council each quarter at a public meeting:
48 .
49 Schedules in the quarterly Treasurer's Report,will include the following:
50
51 A list of individual securities held at the end of the reporting period by authorized
52 investment° category
53 ¦ Average life and final maturity of all investments
54 ¦ Earnings'rate on an aruualized basis
55 Market value, par value-and amortized Boole. value
56 ¦ .Percentage of the portfolio by investment category -
57
.Resolution No. 2004-020'N.C:S. Page 7
- City of Petaluma;: California 2004 Statement of Investment Policy
1 Tlie quarterly.report shall state compliance of the;portfolio to the investment policy, or manner in
2 which the portfolio is not in compliance. The quarterly report shall also include a statement
3 denoting the ability of "the City to meet-its expenditure requirements for the:. next ix months, or
4 provide an-,explanation as to why sufficient" money shall, or may, not be available.
5
6 POI,ICI' REVIEW
:8 The investment policy shall be adopted by resolution of the City Council on„at mini-mum, an
9 annual. basis. The investment policy shall be reviewed at least annually to ensure: its consistency
1o with the overall objectives of preservation of principal, liquidity and yield, and its relevance to
l L current law and financial:'and economic trends. Any amendments. to the policy shall be
12 forwarded to the City Council for approval.
13
Resolution No. 2004-020 N.C:s. Page 8
-City. of Petaluma, California 2004 Statement of -Investment Policy
1 CI~'Y OF PETAL~i1TVIA
2 ~ 2004 STATEIVIENT OF INVESTMENT POLICY
3
4 :GLOSSARY OF TYPES OF INVESTMENTS
s AVAILABLE TO LOCAL, GOVERNMENTS
6
7
8 : STATE ;INVESTMENT POOL (LAT)H')
9
l0 The Local Agency Investment Fund (LATE), a voluntary program created by statute, began in
11 1977 aS an investment alternative for California's local ,governments and special districts and
12 continues today under the State of California Treasurer's off ce. The enabling legislation for the
13 LAIF is Section 16429..1,2;3 of the California Government Code.
14 This program offers participating agencies'the opportunity to participate in a major portfolio
l s which daily invests hundreds of millions of dollars, using the investment expertise of the
L6 Treasurer's Office Investment staff at :no additional cost to the°taxpayer. This in-house
17 management team is comprised of civil servants who have individually worked for the State
18 Treasurer's Office for over 20 years.
19 The LAIF is part of the Pooled Money Investment Account (PMIA). The PMIA began in 1953
20 and has oversight provided by the Pooled Money .Investment Board (PMIB) and an in-house
21 Investment Committee. The PMIB Board members are the State Treasurer, Director of Finance,
22 and State Controller.
23 The .LAIF has .oversight by the Local Investment Advisory Board (LIAB). The Board consists of
24 five members as .designated by Statute. The Chairman is the State Treasurer, or his 'designated
25 representative. Two members qualified.by training and experience. in the field of investment or
26 .finance, -and the State. Treasurer appoints 'two members who. are Treasurers, finance or fiscal
27 officers or business managers employed by _any County,,.: City 'or-local district or Municipal
28 Corporation of this state. The term of each appointment is' two years or at the pleasure of the
29 appointing authority.
3o All securities are purchased under the authority of the Government Code Section 16430 and
3.1 16480.4. The State Treasurer's Office takes delivery of all securities purchased on a delivery
32 versus payment basis using a third party custodian. All investments are purchased at market, and
33 marl{et valuation is conducted monthly:
34 Additionally, the PMIA has Policies; Goals; and Objectives for the portfolio to make certain that
35 our goals of Safety, Liquidity and Yield are not jeopardized and that prudent management
36 prevails. These policies are:formulated by investment;staff and reviewed by both the PMTB and
37 the LIAB on an annual basis.
38 The Bureau of State Audits on; an annual basis audits the :State Treasurer's Office. 'The resulting
39 opinion is'included in the subsequent PMIB monthly report following-its publication: The Bureau
40 of State Audits also has a continuing audit process throughoutthe year. The State Controller's
41 Office as well as an in-house.. audit process involving three separate divisions audit all investment
42 and LAIF claims on a daily "basis.
43 It has been determined that the State of California cannot declare bankruptcy under Federal
44 .regulations, thereby allowing the Government Code Section 1:6429,:3 to stand. This Sectionatates
Resolution No. 2004-020 N.C.S.. Page 9
City' of Petaluma, California 2004 Statement of Investment Policy
1 ``money placed with the State Treasurer for .deposit in the LAIF shall riot be subject to
2 impoundment or seizure by any State official or State agency." '
3 The, I;AIF has grown from 293 participants and $468- million in 1977 to 3,039 participants and
4 $`1=9.9 billion in 2002.
5
6' The Local Agency Investment Fund (LAIF) was created by statute in 1977 and provides an .
7 ,investment alternative for .local agencies. The prggrarn offers participating agencies to
8 participate in a maj or portfolio,. which invests. hundreds of millions of dollars a day. The deposits
9 and withdrawals are done by electronic transfers of funds (wire transfers) and deposits earn
1 o interest on a daily basis.
11
12 There is a limitation of $40 rnihion ,per legal entity within. an agency. There, is also a maximum
13 of fifteen transactions, deposits or withdrawals per month.
14 •
15 SONOMA COUNTY INVESTMENT POOL
16
17 The Sonoma County Treasurer maintains an investment' pool- in which the County, Schools,
18 Special Districts and Cities sari participate. This investment pool operates in the same manner as
19 the State pool. The County Treasurer is subject to the same State Government Code: regarding
20 investments as the City. As with the State investment -fund, City funds can be withdrawn at any
• 21 time and are protected; by State Law from seizure or impoundment by any County Officer. The
22 City does not participate in this pool but retains -the option to do so.
23
24 CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP)
25
26 CAMP provides California public agencies; together with `any bond trustee acting on behalf of
27 such public agency, assistance with tfie :investment of and- accounting. for bond proceeds and
28 surplus funds. For bond ,proceeds, the objective of CAMP is to invest and account of such
29 proceeds in compliance with arbitrage management and rebate requirements of the Internal
30 Revenue Service.. The program 'includes the California Asset Management Trust, a California. '
31 common law trust organized in .1:989. The 'Trust .currently :offers a professionally managed
32 money market investment portfolio, the,Cash Reserve Portfolio, to provide public agencies with
33 a convenient method of pooling funds for temporary investment pending their expenditure. The
34 Trust also provides record leeepirg, custodial and arbitrage-rebate calculation services for bond
35 proceeds. As part of the program, public agencies may also establish individual, professionally
36 managed investment accounts.
37
38 The Pool. seeks to attain as .high a level of current income as is consistent with the preservation of
39 principal. The Pool. purchases only investments of the type in which public agencies are
' 4o permitted by statute to invest surplus funds and proceeds' of their own bonds.
41
42 CERTIFICATES OF DEPOSITS (.CD)
43'
44 Certificates of Deposits; sometimes .known as ".Tumbo Accounts" or "Fixed CD's" are savings
45 accounts with Banks or'Savings and' Loans. These accounts are; for a specific amount, have a set
' 46 interest rate, and set maturity date. There is a substantial interest penalty if the CD is withdrawn
47 prior to the maturity date.
48
49 The State law requires Public :Fund CD's to be collateralized. by the financial. institution at 110%
50 with US Government notes/bonds or at 150% with quality First Trust Deeds. This collateral can
51 be waived if Federal Insurance (FDIC) is available. These federal' agencies will insure each
52 account up to $ L00,000. '
53
54 The City generally waives ahe collateralization requirements for the FDIC insurance. The waiver
55 of collateral is a wide spread practice and will generally generate .higher interest rates and provide
Resolution No. 2004-020 N.C'S. Page 10
City' of Petaluma,: California 2004 Statement of'Irivestment Policy
] the greatest= security for°the funds :from the .Federal Insurance Agencies. For deposits ri excess of '
2 $100;000,_ the collateralization requirements are not waived.
3 .
4 NEGOTIABLE CERTIFICATE OF DEPOSIT (NCI))
5
6 This~'investment is, similar to they Fixed CD's above. .:However, the NCD can be sold through a
7 broker on a "secondary market" prior to the maturity date. Normally, NCD's are issued in
8$5'00,000` and $1:,000;0.00 amounts. The State. Code: limits. NCD's to not.more than: 30% of`the
`,9 local agency's portfolio and to a fine-year maximum term. The security is the credit worthiness
1'0 ofthe issuer. These deposits are uninsured and uricollateralized promissory notes.
1' 1
12 BANKER'S ACCEPTANCES (BA)
13
14 A Banker's Acceptance is a time draft of invested .funds, which has been drawn on and accepted
15 for repayment by a bank. This financial instrument: is generally used for .short term (30 and 180
16 days)' financing' of export, import, or storage of goods ..By accepting. the; draft (investment of"City
17 funds), the bank is liable for the payment at maturrty;~.•This~ bank liability makes the Bunker's
18 Acceptance a marketable investment. The State'Code limits :BA's to riot more than 180 days to
19 maturity and 40% of the local agency's portfolio. In .addition, riot more: than 30%~ of the local
20 agency's portfolio may be placed in •any one bank. .
21
22 US TREASURY BILLS
23
24 Conunonly referred to as T-Bills, these; are short-term rnarke'table securities: sold as obligations of
25 the US Government. They are. offered.. in three month, ix :month, nine month and one-year
26 maturities. T-Bills do not accrue interest but are sold at a discount; and pay the face value at
27 maturity.
28
29 US TREASURY NOTES
30
31 These are rn.arketable, interest-bearing securities sold as obligations of the US Government with
32 original maturities of one to ten;years. Interest is paid semi-annually.
33
34 US TREASURY BONDS
35
36 These are the same as US Treasury Notes except they have or-gnal_ maturities of ten years or
37 longer.
38
39 FEDERAL AGENCY ISSUES .
40
41 Many Federal Government Agencies-,:are authorized to issue host' term and long term obligations
42 thatare :used to finance various ;programs such as home. loans, business loans, farm loans, etc.
43 These Agencies were created by the Federal Government in the 1,930's and have .since become
44 ~ independent quasi-public agencies. The security for their ssues•is the ,guarantee of the Agency to
45 ' pay. The Federal. Government has only an implied liability to -the extent;. that the Agency has an
46' open credit line to borrow from the U:S: Treasury. It 'is widely accepted that Federal Agency
47 issues. are almost as secure as U,S. Government notes.
48
49 There' is .an ac-five secondary' market available to sell these issues prior to maturity. The issues
50 are. fairly liquid depending on the prevailing market interest -rates at the tune of sale.
5:1 'Some of the .more common. agency notes are issued by the Federal National 1vlortgage
52 Association. (Fannie Mae), Federal Home Loan Banks,, Federal Home Loan Mortgage
53 Corporation (Freddie 'Mac), and the Federal Farm .Credt'Banks.
54
55 REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS (REFOS)
56
57 A Repurchase Agreenienf is a short-term investment. agreement to loan City funds for a fixed
58 period in return for a fixed interest rate and secured collateral, such as U.S. Treasuries. or Agency
Reso]ution No. 2004-020 N.C.S. Page 11
City;ofPetaluma, California 2004 Statement of Investment Policy
1 Notes. This type of investment is usually done for overnight or very short. term (7 days)
2 investment of,. funds, deft •in the ;general operating.: checking, account. Reverse Repurchase
3 agreernents.:is a short-term. investment, which is used to take advantage of -market .'interest rate
4 changes and increase the ze of the portfolio. State law was amended in 1996 'to limit the use of
5 both repurchase and reverse repurchase agreements.
5 _
7 .'COMMERCIAL PAPER (~P), •
8
9 'Commercial Paper is unsecured promissory notes of industrial corporations, utilities and bank
1'0holding companies. The notes are in bearer form in amounts starting at $1.00,000. State law
11 limits the City 'to investments in United States corporations having assets in excess of five
12 hundred million dollars with an "A" or higher rating. .State Law also permits cities to invest in
13 Asset Back Commercial Paper {ABCP) from issuers organized within the United ,States as a
14 special purpose corporation,, trusfi or limited: liability company. ABCP issuers must have program.
15 wide credit enhancements including, "but n_ot limited to, over collateralization, letters of credit, or
16 surety bond. Cities may not: invest more than 25% of the. portfolio in commercial paper nor
17 purchase, more than 10 percerif of the outstanding commercial paper of any single issuer. The
18 maximum maturity of the commercial paper may not exceed a term of 270 days.
19 - "
20 MUTUAL FUNDS
21
22 An investment company that pools money and can invest in a variety of securities, including
23 fixed-income securities and money::marlcet instruments, cities may invest in Mutual Funds • or
24 Money Market funds that .receive the highest ranking or the highest letter -and numerical rating by
25 two of the three largest nationally recognized rating services.: The Mutual Funds must abide by
26 the same investment restrictions and regulations that apply to public agencies in California.
27 Money Market Funds must.. follow regulations specified the ,Security and Exchange Commission
28 under the° Investment. Company :Act of .1:940. Mutual Funds have floating Net Asset Values
29 (NAV), which means the amountreceived at redemption may be more or .less ;than the amount
30 originally .invested. Money Marl{et Funds strive "to maintain a constant NAV.
3' 1 •
32 GUARANTEED INVESTMENT CONTRACT (GIC)
33 •
34 This is an agreement acknowl"ed`ging receipt of funds for deposit,. specifying terms for withdrawal
35 and guaranteeing a rate. of interest to be paid.. The investment follows all state laws for the
36 investment of public funds. GIC's are only permitted for.bond proceeds
' Resolution No. 2004-020 N.C.S. Page 12