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HomeMy WebLinkAboutRedevelopment Agency - 307 RESOLUTION NO. 307 A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF HUNTINGTON BEACH APPROVING THE ANNUAL FISCAL YEAR 1999/2000 INVESTMENT POLICY WHEREAS, the City Council of the City of Huntington Beach is required to approve an annual statement of investment policy, and the Redevelopment Agency of the City of Huntington Beach, by virtue of Resolution No. 1 applies City policies, rules and regulations wherever practicable; and The duly elected City Treasurer has recommended approval of the City of Huntington Beach Investment Policy, attached hereto as EXHIBIT "A" and incorporated herein by this reference; and The duly appointed Investment Advisory Board has reviewed the City Treasurer's recommended policy and also recommends approval thereof; and The policy is consistent with California Government Code §53600, et. seq. NOW, THEREFORE, the Redevelopment Agency of the City of Huntington Beach hereby approves and adopts the attached City of Huntington Beach Investment Policy for Fiscal Year 1999/2000 so long as applied in a manner consistent with state and local law as amended from time to time. PASSED AND ADOPTED by the Redevelopment Agency of the City of Huntington Beach at a regular meeting thereof held on the 20th day of December 1999. Chairperson ATTEST: APPROVED AS TO FORM: Agency Secretary A� Counsel � l REVIEWED AND APPROVED: INITIATED AND APPROVED: Execuge Director C� as r e r adl/99reso/FiscalYr-Agency 1 Res. 307 CITY OF HUNTINGTON BEACH STATEMENT OF INVESTMENT POLICY TABLE OF CONTENTS SECTION 1.0 Purpose................................................................................................................ 2 2.0 Policy................................................................................................................... 2 3.0 Scope................................................................................................................... 2 4.0 Prudence.............................................................................................................. 3 5.0 Objective............................................................................................................. 3 6.0 Investment Advisory Board................................................................................ 4 7.0 Delegation of Authority....................................................................................... 4 8.0 Ethics and Conflicts of Interest.......................................................................... 4 9.0 Authorized Financial Dealers & Institutions..................................................... 5 10.0 Authorized & Suitable Investments................................................................... 6 11.0 Portfolio Adjustment..............................................................................::.......... 8 12.0 Collateralization.................................................................................................. 8 13.0 Safekeeping and Custody................................................................................... 8 14.0 Diversification..................................................................................................... 9 15.0 Maximum Maturities.......................................................................................... 9 16.0 Internal Control...............................................................................................:.10 17.0 Performance Standards..................................................................................::.10 18.0 Reporting.....................................................:.....................................................11 19.0 Investment Policy Adoption..............................................................................12 Glossary..............................................................................................................13 APPROVEM AS TO FORM GA1L 't-UT T 01:11, City Attorney By: Deputy City Attorney 1 Res .-307 CITY OF HUNTINGTON BEACH Statement of Investment Policy 1.0 Purpose: This policy is intended to provide guidelines for the prudent investment of the city's cash balances, and outline the policies to assist maximizing the efficiency of the city's cash management system while meeting the daily cash flow demands of the city. 2.0 Policy: The investment practices and policies of the City of Huntington Beach are based upon state law and prudent money management. The primary goals of these practices are: A. To assure compliance with all Federal, State, and local laws governing the investment of public funds under the control of the City Treasurer. B. To protect the principal moneys entrusted to this office. C. Achieve a reasonable rate of return within the parameters of prudent risk management while minimizing the potential for capital losses arising from market changes or issuer default. 3.0 Scope: This investment policy applies to all financial assets as indicated in 3.1 below of the City of Huntington Beach. These funds are accounted for in the city's Comprehensive Annual Financial Report and include: 3.1 Funds: The City Treasurer is responsible for investing the unexpended cash in the City Treasury for all funds, except for the employee's retirement funds, which are administered separately and those funds which are managed separately by trustees appointed under indenture agreements. The City Treasurer will strive to maintain the level of investment of this cash as close as possible to 100%. These funds are described in the city's annual financial report and include: 3.1.1 General Fund 3.1.2 Special Revenue Funds 3.1.3 Capital Project Funds APPROVED AS TO FORM: 2 GAIL HUT;TIN, City Attorney By:; Deputy City Attorney, Res . 307 3.1.4 Enterprise Funds 3.1.5 Trust and Agency Funds 3.1.6 Any new fund created by the legislative body, unless specifically exempted This investment policy applies to all transactions involving the financial assets and related activity of the foregoing funds. 4.0 Prudence: The standard of prudence to be used by the City Treasurer shall be the"prudent investor " standard. This shall be applied in the context of managing an overall portfolio. The "Prudent Investor Rule" provides, pursuant to California Government Code Section 53600.3, that investments shall be made with judgment and care—under circumstances then prevailing—which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. 4.1 The City Treasurer and the Deputy City Treasurer, as investment officers acting in accordance with written procedures and the investment policy and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported to the City Council in a timely fashion and appropriate action is taken to control adverse developments. 5.0 Objective: Consistent with this aim, investments are made under the terms and conditions of California Government Code Section 53600, et seq. Criteria for selecting investments and the absolute order of priority are: 5.1 Safety: Safety of principal is the foremost objective of the investment program. Investments of . the City of Huntington Beach shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 3 Res. 307 5.2 Liquidity: The City of Huntington's Beach's investment portfolio will remain sufficiently liquid to enable the City of Huntington Beach to meet all operating requirements which might be reasonably anticipated and to maintain compliance with any indenture agreement, as applicable. Liquidity is essential to the safety of principal. 5.3 Return on Investments: The City of Huntington Beach's investment portfolio shall be designed with the objective of attaining a market-average rate of return throughout budgetary and economic cycles (market interest rates), within the City of Huntington Beach's investment policy's risk parameters and the cash flow needs of the City. See also Section 17.0. 6.0 Investment Advisory Board: By City Charter, the City Treasurer is the custodian of all public funds of the City of Huntington Beach. The City Council may appoint Huntington Beach residents, professional, and non professional people, to serve on an Investment Advisory Board for the purpose of advising the City Treasurer on the City's investment program and at least quarterly, review the investment portfolio for compliance with the adopted investment policy. Exceptions: Items in the Investment Policy that require City Council approval will first be reviewed by the Investment Advisory Board. 7.0 Delegation of Authority: Within the City Treasurer's office, the responsibility for the day to day investment of the City funds will be the City Treasurer and is delegated to the Deputy City Treasurer in the absence of the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. 8.0 Ethics and Conflicts of Interest: In addition to state and local statutes relating to conflicts of interest, all persons involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officers are required to file annual disclosure statements as required for "public officials who manage public 4 Res . 307 investments" (as defined and required by the Political Reform Act and related regulations, being Government Code Sections 81000 and the Fair Political Practices Commission (FFPC)). 9.0 Authorized Financial Dealers and Institutions: The City Treasurer will maintain a list of the financial institutions and broker/dealers authorized to provide investment and depository services and will perform an annual review of the financial condition and registrations of qualified bidders and require annual audited financial statements to be on file for each company. The City shall annually send a copy of the current investment policy to all financial institutions and broker/dealers approved to do business with the City. To provide for the optimum yield in the investment of city funds, the city's investment procedures shall encourage competitive bidding on transactions from approved brokers/dealers.' In order to be approved by the city, the dealer must be a"primary" dealer or regional dealer that qualifies under Securities and Exchange Commission Rule 150-1 (Uniform Net Capitol Rule). The institution must have an office in California. The dealer must be experienced in institutional trading practices and familiar with the California Government Code as related to investments appropriate for the city; and, other, criteria as may be established in the investment procedures. All broker/dealers and financial institutions who desire to become qualified bidders for investment transactions must submit a `Broker/Dealer Application" and related documents relative to eligibility including a current audited annual financial statement, U4 form for the broker, proof of state registration, proof of National Association of Securities Dealers certification and a certification of having read and understood the City's investment policy and agreeing to comply with the policy The City Treasurer shall determine if they are adequately capitalized (i.e. minimum capital requirements of$10,000,000 and five years of operation). . 10.0 Authorized & Suitable Investments: The City is authorized by California Government Code Section 53600, et. seq. to invest specific types of securities. Investments not specifically listed below are deemed inappropriate and prohibited: 1 So long as the requirements of California Government Code Section 53601.5 are adhered to. 5 Res . 307 A. BANKERS ACCEPTANCES, maximum 25% of portfolio (up to 40% with Council approval). Maximum term 180 days . Banks must have a short term rating of at least Al/P1 and a long-term rating of A or higher as provided by Moody's Investors Service or Standard and Poor's Corp. B. NEGOTIABLE CERTIFICATES OF DEPOSIT, maximum 30% of portfolio. Maximum term three (3) years, (Up to five (5) years with Council approval). Banks must have a short term rating of Al/PI and a long term rating of at least a single A from a nationally recognized authority on ratings. C. COMMERCIAL PAPER, maximum 15% of portfolio. Maximum term 180 days; plus additional 15% of portfolio if the dollar-weighted average maturity of the entire amount does not exceed 31 days. Commercial paper of prime quality and.ranked PI by Moody's Investor Services and Al by Standard and Poor's and issued by a domestic corporation having assets in excess of$500 million and having an"A' or better rating on its long term debt as provided by Moody's or Standard and Poor's. Split ratings(i.e. A2/Pl)are not allowable. D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY WITHIN THE STATE OF CALIFORNIA. Bonds must have a"A' rating or better E. OBLIGATIONS OF THE UNITED STATES TREASURY United States Treasury Notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. There is no limit on the percentage of the portfolio which can be invested in this category. . F. FEDERAL AGENCIES Debt instruments issued by agencies of the Federal government. Though not general obligations of the U.S. Treasury, such securities are sponsored by the government or related to the government and, therefore, have high safety ratings. The following are authorized Federal Intermediate Credit Bank (FICB's), Federal Land Bank (FLB's), Federal Home Loan Bank (FHLB's), Federal National Mortgage Association (FNMA's), Federal Home Loan Mortgage Corporation (FHLMC's), Government National Mortgage Association (GNMA's), Tennessee Valley Authorities (TVA's), Student Loan Association Notes (SLMA's) and Small Business Administration (SBA's). There is no limit on the percentage of the portfolio which can be invested in this category. G. REPURCHASE AGREEMENT, maximum term 3 months. 6 Res. 307 A Master Repurchase Agreement must be signed with the bank or broker/dealer who is selling the securities to the City.. H. REVERSE-REPURCHASE AGREEMENTS (Requires City Council approval for each transaction) I. MEDIUM-TERM CORPORATE NOTES, maximum 20% of portfolio (30% with Council approval), maximum term five years. Notes eligible for investment shall be "A" rated or its equivalent or better as determined by a nationally recognized rating service. J. TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable certificates of deposit.) ( maximum of 3 years) Deposits must be made with banks or savings&loan that have a short term rating of AI/PI or a long term rating of at least a single A from a generally recognized authority on ratings. K. OBLIGATIONS OF THE STATE OF CALIFORNIA Obligations must be"A" rated or better from a nationally recognized authority on ratings. L. MUTUAL FUNDS, maximum 15% of portfolio. (Requires City Council approval for each transaction) Local agencies may invest in "shares of beneficial interest" issued by diversified management companies which invest only in direct obligations in US Treasury bills, notes and bonds, and repurchase agreements with a weighted average of.60 days or less. They must have the highest rating from two national rating agencies, must maintain a daily principal per share value of $1.00 per share and distribute interest monthly, and must have a minimum of$500 million in assets under management. The purchase price of the shares may not include commission. M. THE LOCAL AGENCY INVESTMENT FUND (LAIF) Is a special fund of the California State Treasury through which any local government may pool investments. The city may invest up to $20,000,000 per agency in this fund. Currently, the city has established two (2) agency funds through which the Treasurer may invest the unexpended cash for all funds:' The City of Huntington Beach City Fund, and the Huntington Beach Redevelopment Agency Funds. Investments in LAIF are highly liquid and may be converted to cash within 24 hours. 10.1 Investment Pools: The City .Treasurer or designee shall be required to investigate all local government investment pools and money market mutual funds prior to investing and performing at least a quarterly reivew thereafter while the City is invested in the pool or the money 7 Res . 307 market fund. LAIF is authorized under provisions in Section 16429.1 of the California Government Code as an allowable investment for local agencies even though some of the individual investments of the pool are not allowed as a direct investment by a local agency. 11.0 Portfolio Adjustments: ,Should any investment listed in section 10.0 exceed a percentage-of-portfolio limitation due to an incident such as fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses. When no loss is indicated, the Treasurer shall consider reconstructing the portfolio basing his/her decision on the expected length of time the portfolio will be unbalanced. If this occurs, the City Council shall be notified. 12.0 Collateralization: Under provisions of the California Government Code, California banks, and savings and loan associations are required to secure the city's deposits by pledging government securities with a value of 110 % of principal and accrued interest. California law also allows financial institutions to secure city deposits by pledging first trust deed mortgage notes having a value of 150% of city's total deposits. Collateral will always be held by an independent third party. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the city and retained. Repurchase collateral will be at 102% of market value of principal and accrued interest, consistent with CA Code requirements. The City Treasurer, at his/her discretion, may waive the collateral requirement for deposits which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation. The right of collateral substitution is granted. 13.0 Safekeeping and Custody: All city investments shall have the City of Huntington Beach as its registered owner; and all interest and principal payments and withdrawals shall indicate the City of Huntington Beach as the payee. All securities shall be safe kept with the city itself or with a qualified financial institution, contracted by the city as a third party. All agreements and statements will be annually reviewed by external auditors. In the event that the City has a financial institution hold the securities, a separate custodial agreement shall be required. All securities shall be acquired by the safekeeping institution on a "Delivery-Vs-Payment" (DVP) basis. For Repurchase Agreements, the purchase may be delivered by book entry, 8 Res. 307 10.1 Investment Pools: The City Treasurer or designee shall be required to investigate all local government investment pools and money market mutual funds prior to investing and performing at least a quarterly reivew thereafter while the City is invested in the pool or the money market fund. LAIF is authorized under provisions in Section 16429.1 of the California Government Code as an allowable investment for local agencies even though some of the individual investments of the pool are not allowed as a direct investment by a local agency. 11.0 Portfolio Adjustments: Should any investment listed in section 10.0 exceed a percentage-of-portfolio limitation due to an incident such as fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses. When no loss is indicated, the Treasurer shall consider reconstructing the portfolio basing his/her decision on the expected length of time the portfolio will be unbalanced. If this occurs, the City Council shall be notified. 12.0 Collateralization: Under provisions of the California Government Code, California banks, and savings and loan associations are required to secure the city's deposits by pledging government securities with a value of 110 % of principal and accrued interest. California law also allows financial institutions to secure city.deposits by pledging first trust deed mortgage notes having a value of 150% of city's total deposits. Collateral will always be held by an independent third party. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the city and retained. Repurchase collateral will be at 102% of market value of principal and accrued interest, consistent with CA Code requirements. The City Treasurer, at his/her discretion, may waive the collateral requirement for deposits which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation. The right of collateral substitution is granted. 13.0 Safekeeping and Custody: All city investments shall have the City of Huntington Beach as its registered owner, and all interest and principal payments and withdrawals shall indicate the City of Huntington Beach as the payee. All securities shall be safe kept with the city itself or with a qualified financial institution, contracted by the city as a third party. All agreements and statements 8 Res . 307 will be annually reviewed by external auditors. In the event that the City has a financial institution hold the securities, a separate custodial agreement shall be required. All securities shall be acquired by the safekeeping institution on a `Delivery-Vs-Payment" (DVP) basis. For Repurchase Agreements, the purchase may be delivered by book entry, ,physical delivery or by third party custodial agreement consistent with the Government Code. The transfer of underlying securities to the counterparty bank's customer book- entry account may be used for book-entry delivery. 14.0 Diversification: The city's investment portfolio will be diversified to avoid incurring unreasonable and avoidable risks associated with concentrating investments in specific security types, maturity segment, or in individual financial institutions. The City will utilize Moody's Securities, Sheshunoff bank and savings and loan ratings, or other such services to determine financially sound institutions with which to do business. With the exception of U.S. Treasury securities and authorized pools, no more than 60% of the total investment .portfolio will be invested in a single security type or with a single financial institution. In addition, no more than 10% of the investment portfolio shall be in securities of any one issuer except for U.S. Treasuries and US Government Agency issues. A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be mitigated by investing in those securities with an "A" or above rating and approved in the investment policy and by diversifying the investment portfolio.so that the failure of any one issuer would not unduly harm the city's cash flow. B. Market risk, defined as the risk of market value fluctuations due to overall changes in the general level of interest rates, shall be mitigated by structuring the portfolio so.that securities mature at the same time that major cash outflows occur, thus eliminating the need to sell securities prior to their maturity. It is explicitly recognized herein, however, that in a diversified portfolio, occasional measured losses are inevitable and must be considered within the context of overall investment return. The city's investment portfolio will remain sufficiently liquid to enable the city to meet all operating requirements which might be reasonably anticipated. 9 Res . 307 15.0 Maximum Maturities: To the extent possible, the City of Huntington Beach will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the city will not directly invest in securities maturing more than five (5) years from the date of ,purchase, unless, the legislative body has granted express authority to make that investment either specifically, or as a part of an investment program approved by the City Council.The City of Huntington Beach shall not permit more than 30% of its investment portfolio to be invested in securities with maturities over three years. 16.0 Internal Control: The external auditors shall annually review the investments with respect to the investment policy. This review will provide internal control by assuring compliance with policies and procedures for the investments that are selected for testing. Additionally, account reconciliation and verification of general ledger balances relating to the purchasing or maturing of investments and allocation of investments to fund balances shall be performed by the Finance Department and approved by the City Treasurer. To provide further protection of city funds, written procedures prohibit the wiring of any city funds without the authorization of at least two of the four designated city officials: 1. City Treasurer 2. Deputy City Treasurer 3. Director of Finance 4. Director of Administrative Services 17.0 Performance Standards: This investment policy shall be reviewed at least annually by the Investment Advisory Board and the City Council to ensure its consistency with the overall objective of preservation of principal, liquidity, and return, and its relevance to current law and financial and economic trends. All financial assets of all other funds shall be administered in accordance with the provisions of this policy. The moneys entrusted to the City Treasurer will be an actively managed portfolio. This means that the City Treasurer will observe, review, and react to changing conditions that affect the portfolio. 10 Res . 307 17.1 Market Yield(Benchmark): The investment portfolio shall be managed to attain a market-average rate of return throughout budgetary and economic cycles, taking into account the city's investment risk constraints and cash flow. Market average will be considered for benchmark purposes to be the six month moving average of the 1 year Treasury Bill. While the city will not make investments for the purpose of trading or speculation as the dominant criterion, the City Treasurer shall seek to enhance total portfolio return by means of ongoing portfolio management. The prohibition of highly speculative investments precludes pursuit of gain or profit through unusual risk and precludes investments primarily directed at gains or profits from conjectural fluctuations in market prices. The City Treasurer will not directly pursue any investments that are leveraged or deemed derivative in nature. However, as long as the original investments can be justified by their ordinary earring power, trading in response to changes in market value is a requirement of on going portfolio management. 18.0 Reporting: The City Treasurer shall submit a monthly investment report and a quarterly report to the City Council, City Administrator, and City Finance Director and the Investment Advisory Board within 30 days following the end of the quarter. This report will include the following elements: 18.1 Type of investment 18.2. Institution/Issuer 18.3 Purchase Date 18.4 Date of maturity 18.5 Amount of deposit or cost of the investment 18.6 Face value of the investment 18.7 Current market value of securities and source of valuation 18.8 Rate of interest 18.9 Interest earnings 18.10 Statement relating the report to the Statement of Investment Policy 18.11 Statement on availability of funds to meet the next six month's obligations 11 Res . 307 18.12 Monthly and Year to date Budget Amounts for Interest Income 18.13 Percentage of Portfolio by Investment Type 18.14 Days to Maturity for all Investments 18.15 Comparative report on Monthly Investment Balances & Interest Yields ,18.16 Monthly transactions This monthly/quarterly report shall be placed on the City Council Agenda for Council and public review. In addition, a commentary on capital markets and economic conditions may be included with the report. 19.0 Investment Policy Adoption: By virtue of a resolution of the City Council of the City of Huntington Beach, the Council shall acknowledge the receipt and filing of this annual statement of investment policy for the respective fiscal year. 12 Res. 307 GLOSSARY AGENCIES: Federal agency securities. ASKED: The price at which securities are offered. (The price at which a firm will sell a security to an investor.) BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. The drafts are drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. An acceptance is a high grade negotiable instrument. BASIS POINT: One one-hundredth of a percent (i.e. 0.01%) BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) BROKER: A broker brings buyers and sellers together for a commission. He does not take a position. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large-denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMMERCIAL PAPER: Short term unsecured promissory note issued by a corporation to raise working capital. These negotiable instruments are purchased at a 13 Res. 307 discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, BankAmerica, etc. COUPON: a). The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. b) A certificate attached to a bond evidencing interest due on a payment date.. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value(e.g. US Treasury Bills). DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions (e.g. S&L's, Small business firms, students, farmers, farm cooperatives, and exporters). 14 Res . 307 FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A Federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve though open-market operations. FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-a-vis member commercial banks. FEDERAL HOME LOAN MORTGAGE CORPORATION: Created to promote the development of a nationwide secondary market in mortgages. It does this by purchasing residential mortgages from financial institutions insured by an agency of the federal government and selling its interest in them through mortgage backed securities. The interest and principal payments from the mortgages pass through to the investors either monthly, semiannually or annually. FEDERAL INTERMEDIATE CREDIT BANK (FICB): Loans to lending institutions used to finance the short term and intermediate needs of farmers, such as seasonal production. FEDERAL LAND BANK (FLB): Long term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a Federal corporation working under the auspices of the Department of Housing 15 Res. 307 and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other . presidents serve on a rotating basis. The committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by congress and consisting of a seven-member Board of Governors in Washington ,D.C.; 12 regional banks and about 5700 commercial banks are member of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE MAE): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan association's and other institutions. Security holder is protected by full faith and credit of the US Government. Ginnie Mae securities are backed by the FHA, VA or FMI-IM mortgages. The term"pass- throughs"is often used to describe Ginnie Maes. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. 16 Ms. 307 LOCAL GOVERNMENT INVESTMENT (LGIP): the aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumable be purchased or sold. MARKET REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase-reverse agreements that establish each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecured obligations of the financial institution, bank or savings and loan, bought at par value with the promise to pay face value plus accrued interest at maturity. They are high-grade negotiable instruments, paying a higher interest rate than regular certificates of deposit. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See"Asked" and `Bid". OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit: Sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. 17 Res. 307 PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the federal ,Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)-registered securities broker/dealers, banks and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state—the so-called "legal list". In other states, the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity; on a bond, the current income return. REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed date. The security "buyer" in effect lends the"seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their position. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. 18 Res . 307 STUDENT LOAN ASSOCIATION NOTES (SALLIE MAE): A US Corporation and instrumentality of the US Government. Through its borrowings, funds are targeted for loans to students in higher education institutions. SLMA's securities are highly liquid and are widely accepted. SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which are guaranteed by Federal government to provide financial assistance through direct loans and loan guarantees to small businesses. Cash flows from these instruments may not be in equal installments because of prepayments. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See "Uniform Net Capital Rule". TENNESSEE VALLEY AUTHORITIES (TVA): A US Corporation created in the 1930's to electrify the Tennessee Valley area; currently a major utility headquartered in Knoxville, Tennessee. TVA's securities are highly liquid and are widely accepted. TREASURY BILLS: A non-interest bearing discount security issued by the -US Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BOND: Long-term US Treasury securities having initial maturities of more than 10 years. 19 Res . 307 TREASURY NOTES: Intermediate-term coupon bearing US Treasury having initial maturities of from one year to ten years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker/dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) Income Yield is obtained by dividing the current dollar income by the current market price for.the security. (b) Net Yield or Yield to Maturity is the current income-yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 20 Res. No. 307 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF HUNTINGTON BEACH ) I, CONNIE BROCKWAY, Clerk of the Redevelopment Agency of the City of Huntington Beach, California, DO HEREBY CERTIFY that the foregoing resolution was duly adopted by the Redevelopment Agency of the City of Huntington Beach at a regular meeting of said Redevelopment Agency held on the 20th day of December, 1999 and that it was so adopted by the following vote: AYES: Sullivan, Harman, Garofalo, Green, Dettloff, Bauer NOES: None ABSENT: Julien ABSTAIN: None �d . Clerk of the Redevelopment Agency of the City of Huntington Beach, Ca.