HomeMy WebLinkAboutResolution 2005-015 N.C.S. 01/24/2005 Resolution No. 2005-015 N.C.S.
of the City of Petaluma, California
APPROVING THE
INVESTMENT POLICY FOR 2005
.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, and;
WHEREAS, the City Treasurer has developed a Statement of Investment Policy and
submitted said Policy to the City Council for review.
NOW, THEREFORE, DE IT RESOLVED that the City Council approves the 2005
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 th~e4~ity of Petaluma at ~ (Regular) (Adjourned) (Specie meeting orm
on the day of a ua y
20......, by the
following vote:
City Attorney
AYES: Canevaro, Mayor Glass, Vice Mayor Harris, Healy, Nau, O'Brien, Torliatt
NOES: None
ABSENT: None ~ I . ' - .
,
ATTEST:
City Clerk ayor
Council File
Res. No........200.5-O.1.S........N.C.s.
EXHIBIT A TO THE RESOLiJTION
v
x
CITY ®F PETALIJMA, CALIF®IZNIA
2005 STATEMENT ®F INVESTMENT P®LICY
Joseph D. Netter
Interim Finance Director/City Treasurer
Resolution No. 2005-015 N.C.S. Page 2
1
2
3 CITY ®F PETALUMA, CALIF®IZNIA
4 2005 STATEMENT ®F INVESTMENT P®LICY
s
6 POLICY
7
8 It is the policy of the City of Petaluma, CA (the "City") to invest public funds in a manner that
9 will provide the highest investment return with the maximum security while meeting the daily
10 cash flow demands of the entity and conforming to all state and local statutes governing the
11 investment of public funds.
12
13 SCOPE
14
15 This. investment policy applies to all financial assets of the City. These funds are accounted for
16 in the City Comprehensive Annual Financial Report and include:
17
18 General Fund
19 Special Revenue Funds
20 Debt Service Funds
21 Capital Project Funds
22 Enterprise Funds
23 Internal Service Funds
24 Permanent and Private Purpose Trust Funds
25
26 This Policy shall also apply to funds of the Petaluma Community Development Commission
27 (PCDC), Petaluma Public Financing Authority, City of Petaluma Public Financing Corporation
28 and any other fund under the control of the City Treasurer.
29
30 PRUDENCE
31
32 Investments shall be made with care, skill, prudence, and diligence under the circumstances then
33 prevailing, including, but not limited to, the general economic conditions and the anticipated
34 needs of the City, that a prudent person acting in a like capacity and familiarity with those
35 matters would use in the conduct of funds of a like character and with like aims, to safeguard the
36 principal and maintain the liquidity needs of the City.
37
38 ®BJECTIVE
39
4o The primary objective in priority order, of the City's investment activities shall be:
41
42 1. Safety: Safety of principal is the foremost objective of the investment program.
43 Investments of the City shall be undertaken in a manner that seeks to ensure the
44 preservation of capital in the overall portfolio.
45 2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the
46 City to meet all operating requirements which might be reasonably anticipated.
47 3. Return on Investments: The City's investments shall be designed with the objective of
48 attaining a rate of return throughout budgetary and economic cycles, commensurate with
49 the City's investment risk constraints and the cash flow characteristics of the portfolio.
50
51 DELEGATION OF AUTHORITY
52
Resolution No. 2005-015 N.C.S. Page 3
1 Under the City Charter Section 24, the City Treasurer is appointed by the City Manager with the
2 approval of the City Council. The City Treasurer is also the City's Finance Director. Pursuant to
3 the Government Code, the City Council delegates the authority to invest or to reinvest funds, or
4 to sell or exchange securities so purchased, to the City Treasurer for cone-year period. The City
5 Treasurer is charged with the responsibility for carrying out the policies of the City Council and
6 shall assume full responsibility for investment transactions until the delegation of authority is
7 revoked or expires.
8 The daily cash management, investment transactions and account reconciliation's are the primary
9 responsibilities of the City Treasurer. These activities axe also carried out by other members of
to the Finance Department under the direction of the City Treasurer. The City Treasurer shall
11 establish procedures for the operation consistent with this investment policy.
12
13 The City Treasurer and authorized individuals acting in accordance with written procedures and
14 the investment policy and exercising due diligence shall be relieved of personal responsibility for
15 an individual security's credit risk or market price changes, provided deviations from
16 expectations are reported in a timely fashion and appropriate action is taken to control adverse
17 developments.
18
19 ETHICS AND CONFLICT OF INTEREST
20
21 Officers and employees involved in the investment process shall refrain from personal business
22 activities that could conflict with proper execution of the investment program or which could
23 impair their ability to make impartial decisions. Officers and employees involved in the
24 investment process shall abide by the Conflict of Interest Code, (California Government Code
25 Section 1090 et seq.) and the California Political Reform Act (California Government Code
26 Section 81000 et seq.).
27
28 PERMITTED INVESTMENTS
29
3o California Government Code Sections53601 et. seq. governs the investments permitted for
31 purchase by the City. Within the investments permitted by the Code, the City seeks to further
32 restrict eligible investments to the investments listed below.
33
34 Percentage limitations, where indicated, apply at the time of the purchase. Rating requirements
35 were indicated; apply at the time of purchase. In the event a security held by the City is subject
36 to a rating change that brings it below the minimum specified rating requirement, the City
37 Treasurer shall notify the City Council of the change. The course of action to be followed will
38 then be decided on a case-by-case basis, considering such factors as the reason for the rate drop,
39 prognosis for recovery or further rate drops, and the market price of the security. Investment
4o maturities shall be based on review of cash flow forecasts. Maturities will be scheduled so as to
41 permit the City to meet all projected obligations.
42
43 No investment shall be made in any security, other than a security underlying a repurchase or
44 reverse repurchase agreement, that at the time of the investment has a term remaining to maturity
45 in excess of five years, unless the City Council has granted express authority to make that
46 investment no les than three months prior to the investment.
47
48 ELIGIBLE INVESTMENTS
49
5o A. State of California Local Agency Investment Fund ("LAIF"). The City may invest in
51 LAIF. A maximum of $40 million maybe invested in this category.
52
53 B. Sonoma County Investment Pool. The City may invest in the Sonoma County
54 Investment Pool. A maximum of $10 million maybe invested in this category.
Resolution No. 2005-015 N.C.S. Page 4
1
2 C. California Asset Management Trust. The City may invest in the shares in the
3 California Asset Management Trust, so long as the portfolio is rated among the top two
4 rating categories by one of the nationally recognized rating agencies. A maximum of $40
5 million maybe invested in this category.
6
7 D. Certificates of Deposit, FDIC insured or fully collateralized time certificates of deposit
8 in financial institutions located in California. Eligible investments are restricted to those
9 issuing institutions that have been in business at least five years. The maximum term for
10 deposits shall be one year. Investments in certificates of deposit are further limited to
11 20% of surplus funds. All time deposits must be collateralized in accordance with
12 California Government Code section 53561. The City, at its discretion, may waive the
13 collateralization requirements for any portion of the deposit that is covered by federal
14 insurance.
15
16 E. Negotiable Certificates of Deposit. Negotiable certificates of deposit issued by a
17 nationally or state chartered bank or a state or federal savings and loan association or by a
18 state-licensed branch of a foreign bank; provided that the senior debt obligations of the
19 issuing institution are rated "AA" or better by Moody's or Standard & Poor's.
20 Investments in negotiable certificates of deposit are limited to 20% of the portfolio.
21
22 F. Banker's Acceptances. Banker's acceptances issued by domestic or foreign banks,
23 which are eligible for purchase by the Federal Reserve System. Purchases of banker's
24 acceptances may not exceed 180 days maturity. Eligible banker's acceptances are
25 restricted to issuing financial institutions with short-term paper rated in the highest
26 category by one or more nationally recognized rating services. Investments in banker's
27 acceptances are further limited to 40% of the portfolio with no more than 30% of surplus
28 invested in the banker's acceptances of any one commercial bank.
29
3o G. IJ.S. Government Issues. United States Treasury notes, bonds, bills, or certificates of
31 indebtedness, or those for which the faith and credit of the United States are pledged for
32 the payment of principal and interest.
33
34 H. Federal Agency Securities. Federal agency or United States government-sponsored
35 enterprise obligations, participations, or other instruments, including those issued by or
36 fully guaranteed as to principal and interest by federal agencies or United States
37 government-sponsored enterprises.
38
39 I. Repurchase Agreements. Repurchase agreements are to be used. solely as short-term
4o investments not to exceed 30 days. The City may enter into repurchase agreements with
41 primary government securities dealers rated "A" or better by two nationally recognized
42 rating services. Counterparties should have (i.) a short-term credit rating of at least A-
43 1/P-1; (ii.) minimum assets and capital size of $25 billion in assets and $350 million in
44 capital; (iii.) five years of acceptable audited financial results; and (iv.) a strong
45 reputation among market participants.
46
47 The following collateral restrictions will be observed:
48
49 Only U.S. Treasury securities or Federal. Agency securities will be acceptable
5o collateral. All securities underlying repurchase agreements must be delivered to
51 the City's custodian bank versus payment or be handled under a properly executed
52 tri-party repurchase agreement. The total market value of all collateral for each
53 repurchase agreement must equal or exceed 102 percent of the total dollar value of
54 the money invested by the City for the term of the investment. For any repurchase
Resolution No. 2005-015 N.C.S. Page 5
1 agreement with a term of more than one day, the value of the underlying securities
2 must be reviewed on an on-going basis according to market conditions. Market
3 value must be calculated each time there is a substitution of collateral.
4
5 The City or its trustee shall have perfected first security interest under the
6 Uniform Commercial Code in all securities subject to repurchase agreement. The
7 City shall have properly executed a Professional Services Agreement with each
8 counter party with which it enters into repurchase agreements.
9
l0 J. Commercial Paper. Commercial paper of "prime" quality of the highest ranking or of
11 the highest letter and number rating as provide for by a nationally recognized statistical-
12 rating organization (NRSRO). The entity that, issues commercial paper shall meet all of
13 the following conditions in one of the following:
14
15 a. The entity meets the following criteria:
16 i. Is organized and operating within the United States as a general
17 corporation.
18 ii. Have total assets in excess of $500 million.
19 iii. Has debt other than commercial paper, if any, that is rated "A" or higher
20 by a nationally recognized statistical-rating organization (NRSRO).
21
22 (or)
23
24 b. The entity meets the following criteria:
25 i. Is organized within the United States as a special purpose corporation,
26 trust, or limited liability company.
27 ii. Has program wide credit enhancements including, but not limited to, over
28 collateralization, letters of credit, or surety bond.
29
30 Investments in commercial paper are limited to a maximum of 25% of the portfolio.
31 Purchases shall not exceed 10 percent of the outstanding paper of the issuing corporation.
32 The maximum investment maturity is restricted to 270 days.
33
34 K. Money Market Funds. Shares of beneficial interest issued by diversified management
35 companies that are money market funds registered with the Securities and Exchange
36 Commission (SEC) under the Investment Company Act of 1940 (15 U.S.C., Sec. 80a-1,
37 et seq.).
38
39 The City may invest in shares of beneficial interest issued by company shall. have met
40 either of the following criteria:
41
42 a. Attained the highest ranking or the highest letter and numerical rating provided by
43 not less than two nationally recognized rating services.
44
45 (or)
46
47 b. Retained an investment adviser registered or exempt from registration with the
48 SEC with not less than five years experience in managing money market mutual
49 funds with assets under management in excess of five hundred million dollars
50 ($500,000,000).
51
52 The purchase price of shares of beneficial interest purchased pursuant to this subdivision
53 shall not include any commission that the companies may charge. Investments in Money
54 Market Funds are further limited to 20% of the portfolio.
Resolution No. 2005-015 N.C.S. Page 6
1
2 ELIGIBLE INVESTMENTS FOR BOND PROCEEDS
3
4 Bond Proceeds shall be invested in securities permitted by the applicable bond documents. If the
5 bond documents are silent as to the permitted investments, bond proceeds will be invested in
6 securities permitted by this Policy.
7
8 With respect to maximum maturities, the Policy authorizes investing bond reserve fund proceeds
9 beyond the five years if prudent in the opinion of the City Treasurer.
10
11 INELIGIBLE INVESTMENTS
12
13 As provided in California Government Code section 53601.6, the City shall not invest any funds
14 in inverse floaters, range notes, mortgage derived interest-only strips or in any security that could
15 result in zero interest accrual if held to maturity.
16
17 The purchase of any security not listed above, but permitted by the California Government Code,
18 is prohibited unless the City Council approves the investment either specifically or as a part of an
19 investment program approved by the Board.
20
21 )BROKERS
22
23 In selecting securities brokers, the City Treasurer shall conduct credit and capitalization analysis
24 to determine that firms are adequately financed to conduct public business.
25
26 LOCAL INVESTMENT FOOL POLICIES AND DEPORTS
27
28 To the extent there are investments in the State, Sonoma County, or CAMP investment pools, the
29 City Treasurer shall review and maintain current copies of the adopted investment policies of the
3o State, Sonoma County, and CAMP. The policies shall be reviewed for concurrence with the
31 investment policy of the City.
32
33 SAFEKEEPING AND CUSTODY
34
35 All security transactions entered into by the City of Petaluma, CA shall be conducted on a
36 delivery-versus payment basis. A third party custodian designated by the City Treasurer and
37 evidenced by safekeeping receipts will hold securities.
38
39 The only exceptions to the foregoing are Local Agency Investment Pools, Certificates of Deposit,
4o and money market funds since the purchased securities are not deliverable. In all cases,
41 purchased securities shall be held in the City's name.
42
43 INTERNAL CONTROL
44
45 The City Treasurer shall establish an annual process of independent review by an external
46 auditor. This review will provide internal control by assuring compliance with policies and
47 procedures.
48
49 PERFORMANCE STANDARDS
50
51 The investment portfolio shall be designed with the objective of obtaining a rate of return
52 throughout budgetary and economic cycles, commensurate with the investment risk constraints
53 and the cash flow needs.
54
Resolution No. 2005-015 N.C.S. Page 7
1 The City will measure the portfolio's performance against a market benchmark that is
2 commensurate with the City's investment risk constraints and the cash flow characteristics of the
3 portfolio.
4
5 REPORTING
6
7 The City Treasurer shall provide a monthly investment report to the City Council, which
8 provides a clear picture of the status of the current investment portfolio, including transactions.
9 This report will be formally submitted to the City Council each quarter at a public meeting.
10
11 Schedules in the quarterly Treasurer's Report will include the following:
12
13 A list of individual securities held at the end of the reporting period by authorized
14 investment category
15 Average life and final maturity of all investments
16 Earnings rate on an annualized basis
17 Market value, par value and amortized book value
18 ¦ Percentage of the portfolio by investment category
19
20 The quarterly report shall state compliance of the portfolio to the investment policy, or manner in
21 which the portfolio is not in compliance. The quarterly report shall also include a statement
22 denoting the ability of the City to meet its expenditure requirements for the next six months, or
23 provide an explanation as to why sufficient money shall, or may, not be available.
24
25 POLICY REVIEW
26
27 The investment policy shall be adopted by resolution of the City Council on, at minimum, an
28 annual basis. The investment policy shall be reviewed at least annually to ensure its consistency
29 with the overall objectives of preservation of principal, liquidity and .yield, and its relevance to
3o current law and financial and economic trends. Any amendments to the policy shall be
31 forwarded to the City Council for approval.
Resolution No. 2005-015 N.C.S. Page 8
1 CITY OF PETALUMA
2 2005 STATEMENT OF INVESTMENT POLICY
3
4 GLOSSARY OF TYPES OF INVESTMENTS
5 AVAILABLE TO LOCAL GOVERNMENTS
6
7
8 STATE INVESTMENT POOL (LAIF)
9
to The Local Agency Investment Fund (LAIF), 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 office. 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
15 which daily invests hundreds of millions of dollars, using the investment expertise of the
16 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
31 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 market 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 PMIB 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 throughout the 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.
Resolution No. 2005-015 N.C.S. Page 9
1 It has been determined that the State of California cannot declare bankruptcy under Federal
2 regulations, thereby allowing the Government Code Section 16429.3 to stand. This Section states
3 "money placed with the State Treasurer for deposit in the LAIF shall not be subject to
4 impoundment or seizure by any State official or State agency."
5 The LAIF has grown from 293 participants and $468 million in 1977 to 3,039 participants and
6 $19.9 billion in 2002.
7
8 The Local Agency Investment Fund (LATE) was created by statute in 1977 and provides an
9 investment alternative for local agencies. The program offers participating agencies to
10 participate in a major portfolio, which invests hundreds of millions of dollars a day. The deposits
11 and withdrawals are done by electronic transfers of funds (wire transfers) and deposits earn
12 interest on a daily basis.
13
14 There is a limitation of $40 million per legal entity within an agency. There is also a maximum
15 of fifteen transactions, deposits or withdrawals per month.
16
17 SONOMA COUNTY INVESTMENT POOL
18
19 The Sonoma County Treasurer maintains an investment pool in which the County, Schools,
20 Special Districts and Cities can participate. This investment pool operates in the same manner as
21 the .State pool. The County Treasurer is subject to the same State Government Code regarding
22 investments as the City. As with the State investment fund, City funds can be withdrawn at any
23 time and are protected by State Law from seizure or impoundment by any County Officer. The
24 City does not participate in this pool but retains the option to do so.
25
26 CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP)
27
28 CAMP provides California public agencies, together with any bond trustee acting on behalf of
29 such public agency, assistance with the investment of and accounting for bond proceeds and
30 surplus funds. For bond proceeds, the objective of CAMP is to invest and account. of such
31 proceeds in compliance with arbitrage management and .rebate requirements of the Internal
32 Revenue Service. The program includes the California Asset Management Trust, a California
33 common law trust organized in 1989. The Trust currently offers a professionally managed
34 money market investment portfolio, the Cash Reserve Portfolio, to provide public agencies with
35 a convenient method of pooling funds for temporary investment pending their expenditure. The
36 Trust also provides record keeping, custodial and arbitrage rebate calculation services for bond
37 proceeds. As part of the program, public agencies may also establish individual, professionally
38 managed investment accounts.
39
4o The Pool seeks to attain as high a level of current income as is consistent with the preservation of
41 principal. The Pool purchases only investments of the type in which public agencies are
42 permitted by statute to invest surplus funds and proceeds of their own bonds.
43
44 CERTIFICATES OF DEPOSITS (CD)
45
46 Certificates of Deposits, sometimes known as "Jumbo Accounts" or "Fixed CD's" are savings
47 accounts with Banks or Savings and Loans. These accounts are for a specific amount, have a set
48 interest rate, and set maturity date. There is a substantial interest penalty if the CD is withdrawn
49 prior to the maturity date.
50
Resolution No. 2005-015 N.C.S. Page 10
i
1 The State law requires Public Fund CD's to be collateralized by the financial institution at 110%
2 with US Government notes/bonds or at 150% with quality First Trust Deeds. This collateral can
3 be waived if Federal Insurance (FDIC) is available. These federal agencies will insure each
4 account up to $100,000.
5
6 The City generally waives the collateralization requirements for the FDIC insurance. The waiver
7 of collateral is a wide spread practice and will generally generate higher interest rates and provide
8 the greatest security for the funds from the Federal Insurance. Agencies. For deposits in excess of
9 $100,000, the collateralization requirements are not waived.
to
11 NEGOTIABLE CERTIFICATE OF DEPOSIT (NCD)
12
13 This investment is similar to the Fixed CD's above. However, the NCD can be sold through a
14 broker on a "secondary market" prior to the maturity date. Normally, NCD's are issued in
15 $500,000 and $1,000,000 amounts. The State Code limits NCD's to not more than 30% of the
16 local agency's portfolio and to a five-year maximum term. The security is the credit worthiness
17 of the issuer. These deposits are uninsured and uncollateralized promissory notes.
18
19 BANKER'S ACCEPTANCES (BA)
20
21 A Banker's Acceptance is a time draft of invested funds, which has been drawn on and accepted
22 for repayment by a bank. This financial instrument is generally used for short term (30 and 180
23 days) financing of export, import, or storage of goods. By accepting the draft (investment of City
24 funds), the bank is liable for the payment at maturity. This bank liability makes the Banker's
25 Acceptance a marketable investment. The State Code limits BA's to not more than 180 days to
26 maturity and 40% of the local agency's portfolio. In addition, not more than 30% of the local
27 agency's portfolio may be placed in any one bank.
28
29 US TREASURY BILLS
30
31 Commonly referred to as T-Bills, these are short-term marketable securities sold as obligations of
32 the US Government. They are offered in three month, six month, nine month and one-year
33 maturities. T-Bills do not accrue interest but are sold at a discount, and pay the .face value at
34 maturity.
35
36 US TREASURY NOTES
37
38 These are marketable, interest-bearing securities sold as obligations of the US Government with
39 original maturities of one to ten years. Interest is paid semi-annually.
40
41 US TREASURY BONDS
42
43 These are the same as US Treasury Notes except they have original maturities of ten years or
44 longer.
45
46 FEDERAL AGENCY ISSUES
47
48 Many Federal Government Agencies are authorized to issue short term and long term obligations.
49 that are used to finance various. programs such as home loans, business loans, farm loans, etc.
5o These Agencies were created by the Federal Government in the 1930's and have since become
51 independent quasi-public agencies. The security for their issues is the guarantee of the Agency to
52 pay. The Federal Government has only an implied liability to the extent that the Agency has an
53 open credit line to borrow from the U.S. Treasury. It is widely accepted that Federal Agency
54 issues are almost as secure as U. S. Government notes.
Resolution No. 2005-015 N.C.S. Page 11
1
2 There is an active secondary market available to sell these issues prior to maturity. The issues
3 are fairly liquid depending on the prevailing market interest rates at the time of sale.
4 Some of the more common agency notes are issued by the Federal National Mortgage
5 Association (Fannie Mae), Federal Home Loan Banks, Federal Home Loan Mortgage
6 Corporation (Freddie Mac), and the Federal Farm Credit Banks.
7
8 REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS (REPOS)
9
1o A Repurchase Agreement is a short-term investment agreement to loan City funds for a fixed
11 period in return for a fixed interest rate and .secured collateral, such as U.S. Treasuries or Agency
12 Notes. This type of investment is usually done for overnight or very short term (7 days)
13 investment of funds left in the general operating checking account. Reverse Repurchase
14 agreements is a short-term investment, which is used to take advantage of market interest rate
15 changes and increase the size of the portfolio. State law was amended in 1996 to limit the use of
16 both repurchase and reverse repurchase agreements.
17
18 COMMERCIAL PAPER (CP)
19
20 Commercial Paper is unsecured promissory notes of industrial corporations, utilities and bank
21 holding companies. The notes are in bearer form in amounts starting at $100,000. State law
22 limits the City to investments in United States corporations having assets in excess of five
23 hundred million dollars with an "A" or higher rating. State Law also permits cities to invest in
24 Asset Back Commercial Paper (ABCP) from issuers organized within the United States as a
25 special purpose corporation, trust or limited liability company. ABCP issuers must have program
26 wide credit enhancements including, but not limited to, over collateralization, letters of credit, or
27 surety bond. Cities may not invest more than 25% of the portfolio in commercial paper nor
28 purchase more than 10 percent of the outstanding commercial paper of any single issuer. The
29 maximum maturity of the commercial paper may not exceed a term of 270 days.
30
31 MUTUAL )FUNDS
32
33 An investment company that pools money and can invest in a variety of securities, including
34 fixed-income securities and money market instruments, cities may invest in Mutual Funds or
35 Money Market funds that receive the highest ranking or the highest letter and numerical rating by
36 two of the three largest nationally recognized rating services. The Mutual Funds must abide by
37 the same .investment restrictions and regulations that apply to public agencies in California.
38 Money Market Funds must follow regulations specified the Security and Exchange Commission
39 under the Investment Company Act of 1940. Mutual Funds have floating Net Asset Values
40 (NAV), which means the amount received at redemption may be more or less than the amount
41 originally invested. Money Market Funds strive to maintain a constant NAV.
42
43 GUARANTEED INVESTMENT CONTRACT (GIC)
44
45 This is an agreement acknowledging receipt of funds for deposit, specifying terms for withdrawal
46 and guaranteeing a rate of interest to be paid. The investment follows all state laws for the
47 investment of public funds. GIC's are only permitted for bond proceeds
Resolution No. 2005-015 N.C.S. Page 12