HomeMy WebLinkAboutResolution 2008-167 N.C.S. 09/08/2008Resolution No. 2008-167 N.C.S.
of the City of Petaluma, California
APPROVING THE 2008 CITY OF PETALUMA INVESTMENT POLICY
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 City funds; and,
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 2008
City of Petaluma 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
Council of the City of Petaluma at a Regular meeting on the 8`'' day of September,
2008, by the following vote:
APES:
Barrett, F7eitas, Nau, O'Brien, Vice Mayor Rabbitt. Mayor Torliatt
NOES: None
ASSENT: I-larris
ABSTAIN: None
ATTEST: ~~ ~~,.V ~C..~
City Clerk
ity A
Resolution No. 2008-167 N.C.S. Page l
EXHIBIT A TO THE RESOLUTION
CITY ®F PETALUMA, CALIF®IZNIA
2008 STATEMENT ®F INVESTMENT P®LICY
Gene Beatty
Interim Administrative Services Director/City Treasurer
Resolution No. 2008-167 N.C.S. Page 2
1
2 CITY ®F PETAI,UMA, CALIF®I2NIA
3 2008 STATEIVIENT ~F INVESTMENT P®LICY
4
5 POLICY
6
7 It is the policy of the City of Petaluma, CA (the "City") to invest public funds in a manner that will
8 provide the highest investment return with the maximum security while meeting the daily cash flow
9 demands of the entity and conforming to all state and local statutes governing the investment of
to public funds.
11
12 SCOPE
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14 This investment policy applies to all financial assets of the City. These funds are accounted for in
l5 the City Comprehensive Annual Financial Report and include:
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17 General Fund
18 Special Revenue Funds
19 Debt Service Funds
20 Capital Project Funds
2l Enterprise Funds
22 Internal Service Funds
23 Permanent and Private Purpose Trust Funds
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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 and
27 any other fund under the control of the City Treasurer.
2g
29 PRUDENCE
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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 needs
33 of the City, that a prudent person acting in a like capacity and familiarity with those matters would
34 use in the conduct of funds of a like character and with like aims, to safeguard the principal and
35 maintain the liquidity needs of the City.
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37 OBJECTIVE
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39 The primary objective in priority order, of the City's investment activities shall be:
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41 1. Safety: Safety of principal is the foremost objective of the investment program. Investments
42 of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in
43 the overall portfolio.
44 2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City
45 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 the
48 City's investment risk constraints and the cash flow characteristics of the portfolio.
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SO DELEGATION OF AUTHORITY
Sl
52 Under the City Charter Section 24, the City Treasurer is appointed by the City Manager with the
53 approval of the City Council. The City Treasurer is also the City's Finance Director. Pursuant to the
54 Government Code, the City Council delegates the authority to invest or to reinvest funds, or to sell or
SS exchange securities so purchased, to the City Treasurer for aone-year period. The City Treasurer is
56 charged with the responsibility for carrying out the policies of the City Council and shall assume full
57 responsibility for investment transactions until the delegation of authority is revoked or expires.
58 The daily cash management, investment transactions and account reconciliation's are the primary
S9 responsibilities of the City Treasurer. These activities are also carried out by other members. of the
6o Finance Department under the direction of the City Treasurer. The City Treasurer shall establish
61 procedures for the operation consistent with this investment policy.
Resolution No. 2008-167 N.C.S. Page 3
branch of a foreign bank; provided that the senior debt obligations of the issuing institution
are rated "AA" or better by a nationally recognized statistical ratings organization (NRSRO).
Investments in negotiable certificates of deposit are limited to 20% of the portfolio. The
amount invested in negotiable certificates of deposit in combination with certificates of
deposit shall not exceed 30 percent of surplus funds.
7 F. Banker's Acceptances. Banker's acceptances issued by domestic or foreign banks, which
8 are eligible for purchase by the Federal Reserve System. Purchases of banker's acceptances
9 may not exceed 180 days maturity. Eligible banker's acceptances are restricted to issuing
10 financial institutions with short-term paper rated in the highest category by one or more,
11 nationally recognized rating services. Investments in banker's acceptances are further limited
12 to 40% of the portfolio with no more than 30% of surplus invested in the banker's
13 acceptances of any one commercial bank.
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]5 G. U.S. Government Issues. United States Treasury notes, bonds, bills, or certificates of
16 indebtedness, or those for which the faith and credit of the United States are pledged for the
17 payment of principal and interest.
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19 H. Federal A~eney Securities. Federal agency or United States government-sponsored
20 enterprise obligations, participations, or other instruments, including those issued by or fully
21 guaranteed as to principal and interest by federal agencies or United States government-
22 sponsored enterprises.
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24 I. Repurchase Agreements. Repurchase agreements are to be used solely as short-term
25 investments not to exceed 30 days. The City may enter into repurchase agreements with
26 primary government securities dealers rated "A" or better by two nationally recognized rating
27 services. Counterparties should have (i.) a short-term credit rating of at least A-1/P-1; (ii.)
28 minimum assets and capital size of $25 billion in assets and $350 million in capital; (iii.) five
29 years of acceptable audited financial results; and (iv.) a strong reputation among market
30 participants.
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32 The following collateral restrictions will be observed:
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34 Only U.S. Treasury securities or Federal Agency securities will be acceptable
35 collateral. All securities underlying repurchase agreements must be delivered to the
36 City's custodian bank versus payment or be handled under a properly executed tri-
37 party repurchase agreement. The total market value of all collateral for each.
38 repurchase agreement must equal or exceed 102 percent of the total dollar value of the
39 money invested by the City for the term of the investment. For any repurchase
40 agreement with a term of more than one day, the value of the underlying securities
41 must be reviewed on an on-going basis according to market conditions. Market value
42 must be calculated each time there is a substitution of collateral.
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44 The City or its trustee shall have perfected first security interest under the Uniform
45 Commercial Code in all securities subject. to repurchase agreement. The City shall
46 have properly executed a Professional Services Agreement with each counter party
47 with which it enters into repurchase agreements.
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49 J. Commercial Paper. Commercial paper of "prime" quality of the highest ranking or of the
50 highest letter and number rating as provide for by a nationally recognized statistical-rating
51 organization (NRSRO). The entity that, issues commercial paper shall meet all of the
52 following conditions in one of the following:
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54 a. The entity meets the following criteria:
55 i. Is organized and operating within the United States as a general corporation.
56 ii. Have total assets in excess of $500 million.
57 iii. Has debt other than commercial paper, if any, that is rated "A" or higher by a
58 nationally recognized statistical-rating organization (NRSRO).
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60 (or)
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Resolution No. 2008-167 N.C.S. Page 4
1 b. The entity meets the following criteria:
2 i. Is organized within the United States as a special purpose corporation, trust, or
3 limited liability company.
4 ii. Has program wide credit enhancements including, but not limited to, over
5 collateralization, letters of credit, or surety bond.
6 iii. C) Has commercial paper that is rated "A-1" or higher, or the equivalent, by a
7 nationally recognized statistical-rating organization (NRSRO).
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9 Investments in commercial paper are limited to a maximum of 25% of the portfolio.
10 Purchases shall not exceed 10 percent of the outstanding paper of the issuing corporation.
11 The maximum investment maturity is restricted to 270 days.
I2
13 K. Money Market Funds. Shares of beneficial interest issued by diversified management
14 companies that are money market funds registered with the Securities and Exchange
15 Commission (SEC) under the Investment Company Act of 1940 (15 U.S.C., Sec. 80a-1, et
16 seq.).
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18 The City may invest in shares of beneficial interest issued by company shall have met either
19 of the following criteria:
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21 a. Attained the highest ranking or the highest letter and numerical rating provided by not
22 less than two nationally recognized rating services.
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24 (or)
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26 b. Retained an investment adviser registered or exempt from registration with the SEC
27 with not less than five years experience in managing money market mutual funds with
28 assets under management in excess of five hundred million dollars ($500,000,000}.
29
30 The purchase price of shares of beneficial interest purchased pursuant to this subdivision
31 shall not include any commission that the companies may charge. Investments in Money
32 Market Funds are further limited to 20% of the portfolio.
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34 Medium-Term Notes. Medium-teem notes are defined as all corporate and depository
35 institution debt securities with a maturity of not more than 397 days, including securities
36 specified as "medium-term notes," as well as other debt instruments originally issued with
37 maturities .longer than 397 days, but which, at time of purchase, have a final maturity of 397 days
38 or less. Eligible medium-term notes shall be issued by corporations organized and operating
39 within the United States or by depository institutions licensed by the United States or any state,
40 and operating within the United States
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42 L. ELIGIBLE INVESTMENTS FOR BOND PROCEEDS
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44 Bond Proceeds shall be invested in securities permitted by the applicable bond documents. If the
4S bond documents are silent as to the permitted investments, bond proceeds will be invested in
46 securities permitted by this Policy.
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48 With respect to maximum maturities, the Policy authorizes investing bond reserve fund proceeds
49 beyond the five years if prudent in the opinion of the City Treasurer.
50
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52 INELIGIBLE INVESTMENTS
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54 As provided in California Govennment Code section 53601.6, the City shall not invest any funds in
55 inverse floaters, range notes, mortgage derived interest-only strips or in any security that could result
56 in zero interest accrual if held to maturity.
57
58 The purchase of any security not listed above, but permitted by the California Government Code, is
59 prohibited unless the City Council approves the investment either specifically or as a part of an
60 investment program approved by the Board.
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Resolution No. 2008-167 N.C.S. Page 5
1 BROKERS
2 To provide 'for the optimum yield in the City's portfolio, the City's procedures shall be designed to
3 encourage competitive bidding on transactions .from an approved list of broker/dealers.
4
5 The City Treasurer, or the City's investment advisor, shall maintain a list of authorized
6 broker/dealers and financial institutions that are approved for investment purposes. This list will be
7 developed after a comprehensive credit and capitalization analysis indicates the firm is adequately
8 financed to conduct business with public entities. It shall be the policy of the City to purchase
9 securities only from those authorized institutions or firms.
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11 LOCAL INVESTMENT POOL POLICIES AND REPORTS
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13 To the extent there are investments in the State, Sonoma County, or CAMP investment pools, the
14 City Treasurer shall review and maintain current copies of the adopted investment policies of the
15 State, Sonoma County, and CAMP. The policies shall be reviewed for concurrence with the
l6 investment policy of the City.
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18 SAFEKEEPING AND CUSTODY
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20 All security transactions entered into by the City of Petaluma, CA shall be conducted on a delivery-
21 versus payment basis. A third party custodian designated by the City Treasurer and evidenced by
22 safekeeping receipts will hold securities.
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24 The only exceptions to the foregoing are Local Agency Investment Pools, Certificates of Deposit,
25 and money market funds since the purchased securities are not deliverable. In all cases, purchased
26r~ securities shall be held in the City's name.
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28 INTERNAL CONTROL
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30 The City Treasurer shall establish an annual process of independent review by an external auditor.
31 This review will provide internal control by assuring compliance with policies and procedures.
32
33 PERFORMANCE STANDARDS
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35 The investment portfolio shall be designed with the objective of obtaining a rate of return throughout
36 budgetary and economic cycles, commensurate with the investment risk constraints and the cash
37 flow needs.
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39 The City will measure the portfolio's performance against a market benchmark that is commensurate
40 with the City's investment risk constraints and the cash flow characteristics of the portfolio.
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42 REPORTING
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44 The City Treasurer shall provide a monthly investment report to the City Council, which provides a
45 clear picture of the status of the current investment portfolio, including transactions. This report will
46 be formally submitted to the City Council each quarter at a public meeting.
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48 Schedules in the quarterly Treasurer's Report will include the following:
49
50 A list of individual securities held at the end of the reporting period by authorized investment
51 category
52 Average life and final maturity of all investments
53 Earnings rate on an annualized basis
54 Market value, par value and amortized book value
55 ^ Percentage of the portfolio by investment category
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57 The quarterly report shall state compliance of the portfolio to the investment policy, or manner in
58 which the portfolio is not in compliance. The quarterly report shall also include a statement denoting
59 the ability of the City to meet its expenditure requirements for the next six months, or provide an
6o explanation as to why sufficient money shall, or may, not be available.
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Resolution No. 2008-167 N.C.S. Page 6
1 POLICY REVIEW
2
3 The investment policy shall be adopted by resolution of the City Council on, at minimum, an annual
4 basis. The investment policy shall be reviewed at least annually to ensure its consistency with the
5 overall objectives of preservation of principal, liquidity and yield, and its relevance to current law
6 and financial and economic trends. Any amendments to the policy shall be forwarded to the City
7 Council for approval.
Resolution No. 2008-167 N.C.S. Page 7
C1TY OF PETALUMA
2006 STATEMENT OF INVESTMENT POLICY
4 GLOSSARY OF TYPES OF INVESTMENTS
s AVAILABLE TO LOCAL GOVERNMENTS
7
8 STATE INVESTMENT POOL (LAIF)
9
10 The Local Agency Investment Fund (LAIF), a voluntary program created by statute, began in 1977 as
11 an investment alternative for California's local governments and special districts and continues today
12 under the State of California Treasurer's office. The enabling legislation for the LAIF is Section
13 16429.1,2,3 of the California Government Code.
14 This program offers participating agencies the opportunity to participate in a major portfolio which
~ 5 daily invests hundreds of millions of dollars, using the investment expertise of the Treasurer's Office
l6 Investment staff at no additional cost to the taxpayer. This in-house management team is comprised
17 of civil servants who have individually worked for the State Treasurer's Office for over 20 years.
18 The LAIF is part of the Pooled Money Investment Account (PMIA). The PMIA began in 1953 and
l9 has oversight provided by the Pooled Money Investment Board (PMIB) and an in-house Investment
20 Committee. The PMIB Board members are the State Treasurer, Director of Finance, and State
21 Controller.
22 The LAIF has oversight by the Local Investment Advisory Board (LIAB). The Board consists of five
23 members as designated by Statute. The Chairman is the State Treasurer, or his designated
24 representative. Two members qualified by training and experience in the field of investment or
25 finance, and the State Treasurer appoints two members who are Treasurers, finance or fiscal officers
26 or business managers employed by any County, City or local district or Municipal Corporation of
27 this state. The term of each appointment is two years or at the pleasure of the appointing authority.
28 All securities are purchased under the authority of the Government Code Section 164.30 and 16480.4.
29 The State Treasurer's Office takes delivery of all securities purchased on a delivery versus payment
30 basis using a third party custodian. All investments are purchased at market, and market valuation is
31 conducted monthly.
32 Additionally, the PMIA has Policies, Goals, and Objectives for the portfolio to make certain that our
33 goals of Safety, Liquidity and Yield are not jeopardized and that prudent management prevails.
34 These policies are formulated by investment staff and reviewed by both the PMIB and the LIAB on
35 an annual basis.
36 The Bureau of State Audits on an annual basis audits the State Treasurer's Office. The resulting
37 opinion is included in the subsequent PMIB monthly report following its publication. The Bureau of
38 State Audits also has a continuing audit process throughout the year. The State Controller's Office as
39 well as an in-house audit process involving three separate divisions audit all investment and LAIF
40 claims on a daily basis.
41 It has been deternlined that the State of California cannot declare bankruptcy under Federal
42 regulations, thereby allowing the Government Code Section 16429.3 to .stand. This Section states
43 "money placed with the State Treasurer for deposit in the LAIF shall not be subject to impoundment
44 or seizure by any State official or State agency."
45 The LAIF has grown from 293 participants and $468 million in 1977 to 3,039 participants and $19.9
46 billion in 2002.
47
Resolution No. 2008-167 N.C.S. Page 8
1 The Local Agency Investment Fund (LAIF) was created by statute in 1977 and provides an
2 investment alternative for local agencies. The program offers participating agencies to participate in
3 a major portfolio, which invests hundreds of millions of dollars a day. The deposits and withdrawals
4 are done by electronic transfers of funds (wire transfers) and deposits earn interest on a daily basis.
5
6 There is a limitation of $40 million per legal entity within an agency. There is also a maximum of
7 fifteen transactions, deposits or withdrawals per month.
8
9 SONOMA COUNTY INVESTMENT POOL
10
11 The Sonoma County Treasurer maintains an investment pool in which the County, Schools, Special
l2 Districts and Cities can participate. This investment pool operates in the same manner as the State
13 pool. The County Treasurer is subject to the same State Government Code regarding investments as
14 the City. As with the State investment fund, City funds can be withdrawn at any time and are
t5 protected by State Law from seizure or impoundment by any County Officer. 'The City does not
16 participate in this pool but retains the option to do so.
17
18 CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP
19
20 CAMP provides California public agencies, together with any bond trustee acting on behalf of such
21 public agency, assistance with the investment of and accounting for bond proceeds and surplus
22 funds. For bond proceeds, the objective of CAMP is to invest and account of such proceeds in
23 compliance with arbitrage management and rebate requirements of the Internal Revenue Service.
24 The program includes the California Asset Management Trust, a California common law trust.
25 organized in 1989. The Trust currently offers a professionally managed money market investment
26 portfolio, the Cash Reserve Portfolio, to provide public agencies with a convenient method of
27 pooling funds for temporary investment pending their expenditure. The Trust also provides record
28 keeping, custodial and arbitrage rebate calculation services for bond proceeds. As part of the
29 program, public agencies may also establish individual, professionally managed investment accounts.
30
3l The Pool seeks to attain as high a level of current income as is consistent with the preservation of
32 principal. The Pool purchases only investments of the type in which public agencies are permitted
33 by statute to invest surplus funds and proceeds of their own bonds.
34
35 CERTIFICATES OF DEPOSITS (CD)
36
37 Certificates of Deposits, sometimes known as "Jumbo Accounts" or "Fixed CD's" are savings
38 accounts with Banks or Savings and Loans. These accounts are for a specific amount, have a set
39 interest rate, and set maturity date. There is a substantial interest penalty if the CD is withdrawn
4o prior to the maturity date.
4l
42 The State law requires Public Fund CD's to be collateralized by the financial institution at 110% with
43 US Government notes bonds or at 150% with quality First Trust Deeds. This collateral can be
44 waived if Federal Insurance (FDIC) is available. These federal agencies will insure each account up
45 to $100,000.
46
47 The City generally waives the collateralization requirements for the FDIC insurance. The waiver of
48 collateral is a wide spread practice and will generally generate higher interest rates and provide the
49 greatest security for the funds from the Federal Insurance Agencies. For deposits in excess of
50 $100,000, the collateralization requirements are nat waived.
51
52 NEGOTIABLE CERTIFICATE OF DEPOSIT (NCD)
53
54 This investment is similar to the Fixed CD's above. .However, the NCD can be sold through a broker
55 on a "secondary market" prior to the maturity date. Normally, NCD's are issued in $500,000 and
56 $1,000,000 amounts. The State Code. limits NCD's to not more than 30% of the local agency's
57 portfolio and to a five-year maximum term. The security is the credit worthiness of the issuer.
58 These deposits are uninsured and uncollateralized promissory notes.
59
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Resolution No. 2008-167 N.C.S. Page 9
1 BANKER'S ACCEPTANCES (BA)
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A Banker's Acceptance is a time draft of invested funds, which has been drawn on and accepted for
repayment by a bank. This financial instrument is generally used for short term (30 and 180 days)
financing of export, import, or storage of goods. By accepting the draft (investment of City funds),
the bank is liable for the payment at maturity. This bank liability makes the Banker's Acceptance a
marketable investment. The State Code limits BA's to not more than 180 days to maturity and 40%
of the local agency's portfolio. In addition, not more than 30% of the local agency's .portfolio may be
placed in any one bank.
US TREASURY BILLS
Commonly referred to as T-Bills, these are short-term marketable securities sold as obligations of the
US Government. They are offered in three month, six month, nine month and one-year maturities.
T-Bills do not accrue interest but are sold at a discount, and pay the face value at maturity.
US TREASURY NOTES
These are marketable, interest-bearing securities sold as obligations of the US Government with
original maturities of one to ten years. Interest is paid semi-annually.
US TREASURY BONDS
These are the same as US Treasury Notes except they have original maturities of ten years or longer.
FEDERAL AGENCY ISSUES -. -
Many Federal Government Agencies are authorized to issue short term and long term obligations that
are used to finance various programs such as home loans, business loans, farm loans, etc. These
Agencies were created by the Federal Government in the 1930's and have since become independent
quasi-public agencies. The security for their issues is the guarantee of the Agency to pay. The
Federal Government has only an implied liability to the extent that the Agency has an open credit
line to borrow from the U.S. Treasury. It is widely accepted that Federal Agency issues are almost as
secure as U.S. Government notes.
There is an active secondary market available to sell. these issues prior to maturity. The issues are
fairly liquid depending on the prevailing market interest rates at the time of sale.
Some of the more common agency notes are issued by the Federal National Mortgage Association
(Fannie Mae), Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (Freddie Mac),
and the Federal Farm Credit Banks.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS (REPOS)
A Repurchase Agreement is a short-term investment agreement to loan City funds for a fixed period
in return for a fixed interest rate and secured collateral, such as U.S. Treasuries or Agency Notes.
This type of investment is usually done for overnight or very short term (7 days) investment of funds
left in the general operating checking account. Reverse Repurchase agreements is a short-term
investment, which is used to take advantage of market interest rate changes and increase the size of
the portfolio. State law was amended in 1996 to limit the use of both repurchase and reverse
repurchase agreements.
COMMERCIAL PAPER (CP)
Commercial Paper is unsecured promissory notes of industrial corporations, utilities and. bank
holding companies. The notes are in bearer form in amounts starting at $100,000. State law limits
the City to investments in United States corporations having assets in excess of five hundred million
dollars with an "A" or higher rating. State Law also permits cities to invest in Asset Back
Commercial Paper (ABCP) from issuers organized within the United States as a special purpose
corporation, trust or limited liability company. ABCP issuers must have program wide credit
enhancements including, but not limited to, over collateralization, letters of credit, or surety .bond.
Cities may not invest more than 25% of the portfolio in commercial paper nor purchase more than 10
Resolution No. 2008-167 N.C.S. Page 10
1 percent of the outstanding commercial paper of any single issuer. The maximum maturity of the
2 commercial paper may not exceed a term of 270 days.
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MEDIUM TERM NOTES (MTN)
Debt securities issued by a corporation or depository institution with a maturity ranging for nine
months to five years. The term "medium-term note" refers to the time it takes for an obligation to
mature and includes other corporate securities originally issued for maturities longer than five years,
but which have now fallen within the f ve year maturity range. MTNs issued by banks are also
called bank notes.
MUTUAL h+UNDS
An investment company that pools money -and can invest in a variety of securities, including fixed-
income securities and money market instruments, cities may invest in Mutual Funds or Moriey
Market funds that receive the highest ranking or the highest letter and numerical rating by two of the
three largest nationally recognized rating services. The Mutual Funds must abide by the same
investment restrictions and regulations that apply to public agencies in California. Money Market
Funds must follow regulations specified the Security and Exchange Commission under the
Investment Company Act of 1940. Mutual Funds have floating Net Asset Values (NAV), which
means the amount received at redemption may be more or less than the amount originally invested.
Money Market Funds strive to maintain a constant NAV.
GUARANTEED INVESTMENT CONTRACT (GIC)
This is an agreement acknowledging receipt of funds for deposit, specifying terms for withdrawal
and guaranteeing a rate of interest to be paid. The investment follows all state laws for the
investment of public funds. GIC's are only permitted for bond proceeds
Resolution No. 2008-167 N.C.S. Page I 1