HomeMy WebLinkAboutFiscal Year 1997/1998 - City Treasurer Annual Investment Pol Council/Agency Meeting Held: l Tzis/9 7
Deferred/Continued to:
®Approved ❑ Condition II Approve ❑ Denied City Clerk's gnature
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Council Meeting Date: �e 12/15 Department ID umber: C 97- 6 �q «4-6
CITY OF HUNTINGTON BEACH
REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION
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SUBMITTED TO: HONORABLE MAYOR/CHAIRMAN AND CITY COUNCIL
MEMBERS/REDEVELOPMENT AGENCY MEMBERS =
SUBMITTED BY: SHARI L. FREIDENRICH, City Treasure
PREPARED BY: SHARI L. FREIDENRICH, City Treasurer
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SUBJECT: ACCEPT AND ADOPT THE 1997 INVESTMENT POLICY
Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachments)
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Statement of Issue: Pursuant to California Government Code, the Treasurer of the local
agency shall render an annual statement of investment policy to the legislative body for
acceptance.
The City Treasurer, with the assistance of the Investment Advisory Board, has prepared a
new investment policy that is in an easier to read format with an index and a glossary,
incorporates additional internal controls into the existing policy, incorporates new legislation,
and is patterned after a "model" investment policy.
Funding Source: Not applicable.
Recommended Action: Approve and adopt the attached Resolutions and Investment
Policy for the City of Huntington Beach for the year 1997/1998
Alternative Action(s): Continue existing policy or modify as desired. o =
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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 Senior 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
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required in order that potential losses on individual securities do not exceed the income
generated from the remainder of the portfolio.
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 Senior 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
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make impartial investment decisions. Employees and investment officers shall disclose
to the City Clerk any material financial interests in financial institutions that conduct
business within this jurisdiction, and they shall further disclose any large personal
financial/investment positions that could be related to the performance of the City of
Huntington Beach, particularly with regard to the time of purchases and sales.
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.I 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 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). .
So long as the requirements of California Government Code Section 53601.5 are adhered to.
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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:
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 A1/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 AI/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 P1 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/P 1)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
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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.
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.
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REQUEST FORROUNCIL/REDEVELOPMENT AGENCY ACTION
MEETING DATE: 12/15/97 DEPARTMENT ID NUMBER: 94-015
Analysis: The attached Resolutions for 1997/98 have been reviewed by the city's
Investment Advisory Board and are a more in depth policy for city investments and
strengthens internal controls. We used the model Municipal Treasurer's Association (MTA)
investment policy as a basis for the updated policy.
Environmental Status:.
Attachment(s1:
City Clerk's
Page Number No. Description
1 Resolutions and proposed Investment Policy for 1997/1998
RCA Author: Shari L. Freidenrich, City Treasurer
Document4 -2- 12/04/97 3:50 PM
ATTACHMENT # 1
RESOLUTION NO. 97-82
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF HUNTINGTON BEACH
APPROVING THE ANNUAL FISCAL YEAR 1997/1998
INVESTMENT POLICY
WHEREAS, the City Council of the City of Huntington Beach is required to
approve an annual statement of investment policy; and
The duly elected City Treasurer has recommended approval of the City of
Huntington Beach Investment Policy, attached hereto 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 Govemment Code §53600, et
seq., attached hereto and incorporated herein by this reference.
NOW, THEREFORE, the City Council of the City of Huntington Beach
hereby approves and adopts the attached City of Huntington Beach Investment
Policy for Fiscal Year 1997/1998 so long as applied in a manner consistent with
state and local law as amended from time to time.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at
a regular meeting thereof held on the 15th day of December, 1997.
Mayor
ATTEST: APPROVED AS TO FORM:
City Clerk City Attorne I z.-3 -5
1.2--3 47 7, 1
REVIEWED AND APPROVED: INITIATED AND APPROVED:
City A ministrator y re u er
5/fy9596 1
Res. No. 97-82
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing resolution was passed and adopted by
the affirmative vote of at least a majority of all the members of said City Council at an
regular meeting thereof held on the 15th day of December, 1997 by the following
vote:
AYES: Julien, Harman, Green, Dettloff, Bauer, Sullivan, Garofalo
NOES: None
ABSENT: None
City Clerk and ex-offi io Clerk of the
City Council of the City of Huntington
Beach, California
G/resoluti/resbkpg/97-80
RESOLUTION NO. 285
A RESOLUTION OF THE REDEVELOPMENT AGENCY
OF THE CITY OF HUNTINGTON BEACH
APPROVING THE ANNUAL FISCAL-YEAR 1997/1998
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 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 Govemment Code §53600, et.
seq., attached hereto and incorporated herein by this reference.
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 1997/1998 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 15th day of December,
1997.
Chairperson
ATTEST: APPROVED AS TO FORM:
Agency Secretary Agency Counsel
REVIEWED AND APPROVED: INITIATED AND APPROVED:
Chief dministrative Officer C' y reasurer
5/fy9596 2
Res. No. 285
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 an adjourned regular meeting of said Redevelopment
Agency held on the 15th day of December, 1997 and that it was so adopted by
the following vote:
AYES: Julien, Harman, Green, Dettloff, Bauer, Sullivan, Garofalo
NOES: None
ABSENT: None
ABSTAIN: None
Clerk of the Redevelop Went Agency
of the City of Huntington Beach, Ca.
G/reso1uti/resbkpg2/Res.281
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
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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
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10.1 Investment Pools:
The City will investigate all local government investment pools and money market
mutual funds prior to investing and periodically thereafter while the City is invested in
the pool. 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
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statements will be annually reviewed by external auditors. 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 to do business with.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security,
shall be mitigated by investing in only very safe securities 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.
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
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that investment either specifically, or as a part of an investment program approved by the
City Council.
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 three designated city officials:
1. City Treasurer
2. Senior Deputy City Treasurer
3. Director of Finance
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.
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
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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 earning
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 amonthly 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
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.
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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.
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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
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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).
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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
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Housing 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 FMHM 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.
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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.
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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.
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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.
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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.
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RCA ROUTING SHEET
INITIATING DEPARTMENT: CITY TREASURER'S OFFICE
SUBJECT: 1997 INVESTMENT POLICY
COUNCIL MEETING DATE: I December 15, 1997
RCA ATTACHMENTS STATUS
Ordinance (w/exhibits & legislative draft if applicable) Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Attached
Tract Map, Location Map and/or other Exhibits Not Applicable
Contract/Agreement (w/exhibits if applicable)
(Signed in full by the City Attorney) Not Applicable
Subleases, Third Party Agreements, etc.
(Approved as to form by City Attorney) Not Applicable
Certificates of Insurance (Approved by the City Attomey) Not Applicable
Financial Impact Statement (Unbudget, over $5,000) Not Applicable
Bonds (If applicable) Not Applicable
Staff Report (If applicable) Not Applicable
Commission, Board or Committee Report (If applicable) Not Applicable
Findings/Conditions for Approval and/or Denial Not Applicable
EXPLANATION FOR MISSING ATTACHMENTS
...
REVfEWED RETURNED` FORW ED
. ......... ... _ ... ........ ...... ....... ........ ........ ......... ....... ..........
. ........ .... ...... _ .. ... .............. .._ .. . - _ ... ..
Administrative Staff ( )
Assistant City Administrator (Initial) ( ) ( )
City Administrator (Initial)
City Clerk ( )
................ . ...... .. ........ ........ ........ _ - . ........ ........ ........ .... ..... .
EXPLANATION FOR R ..._
ETURN OF ITEM.
Only)(Below Spade For City Clerk's Use
RCA Author: