RES-ORA-0484 Investment Policy Amendment FY 07-08 and Adoption of Statement of Investment Policy FY 08-09RESOLUTION NO. ORA-
0484 A RESOLUTION OF THE
ORANGE REDEVELOPMENT AGENCY AMENDING
ITS STATEMENT OF INVESTMENT POLICY
FOR FISCAL YEAR 2007-08,
APPROVING AND ADOPTING A STATEMENT
OF INVESTMENT POLICY FOR FISCAL YEAR
2008-09, AND DELEGATING
INVESTMENT OF ORANGE REDEVELOPMENT AGENCY
FUNDS TO THE TREASURER OF THE
CITY OF ORANGE.WHEREAS, Government Code Sections 53600 et seq. set
forth detailed provisions regarding permitted and prohibited investments by public agencies,
including the Orange Redevelopment Agency (the Agency), and
accountability therefor; and WHEREAS, the Agency Board of Directors adopted Resolution
No. ORA-0465 on July 10, 2007, adopting the Agency's Statement oflnvestment Policy
for Fiscal Year 2007-08 (herein referred to as the
FY 2007-08 SIP); and WHEREAS, the Agency Board of Directors
desires to amend, modify and supplement the FY 2007-08 SIP for the balance of
Fiscal Year 2007-08, effective upon the adoption of this Resolution, so that the Agency'
s Statement of Investment Policy for the balance of Fiscal Year 2007-08 will be
the Statement of Investment Policy attached to this Resolution, and incorporated herein by this
reference (herein referred to as the SIP); and WHEREAS, the Agency Board of Directors
further desires to adopt the SIP as its Statement
of Investment Policy for Fiscal Year 2008-09; and WHEREAS, the FY 2007-
08 SIP requires that the City Council annually review its and the Agency's Statement
of Investment Policy and adopt a policy annually within 120 days following the end of each fiscal year by
a resolution and vote of the City Council at a public
meeting, and separately by the Agency Board of Directors; and
WHEREAS, the City's Investment Advisory Committee and Investment Oversight Committee have reviewed the
proposed amendment of the FY 2007-08 SIP, as presented at this meeting, and the proposed
SIP for Fiscal Year 2008-09 in the form attached to this Resolution and
have recommended that the City Council and the Agency Board of Directors a) amend the FY 2007-
08 SIP for the balance of Fiscal Year 2007-08 so that the SIP attached hereto
will be both the City and the Agency's Statement of Investment Policy for the balance of
Fiscal Year 2007-08, and (b) adopt the SIP attached
WHEREAS, the Agency Board of Directors desires to: (a) amend the FY 2007-
08 SIP for the balance of Fiscal Year 2007-08, commencing upon the adoption
of this Resolution, so that the SIP attached hereto will be the Agency's Statement
of Investment Policy for the balance of Fiscal Year 2007-08; (b) adopt the SIP attached
hereto as the Agency's Statement oflnvestment Policy for Fiscal Year 2008-09; and (
c) authorize the City Treasurer to invest the funds of the Agency during the balance of
Fiscal Year 2007-08 and Fiscal Year 2008-
09 in accordance with the SIP.NOW, THEREFORE, BE IT RESOLVED by the
Board of Directors of
the Orange Redevelopment Agency as follows:Section 1. That the FY 2007-08 SIP is
hereby amended for the balance of Fiscal Year 2007-08 so that the SIP attached hereto
will be the Agency's Statement of Investment
Policy for the balance of Fiscal Year 2007-08.Section 2. Moreover, the
SIP attached hereto is the Agency's Statement of Investment Policy for Fiscal Year 2008-
09 and isduly adopted in accordance with State law and Chapter
2.49 of Title 2 of the Orange Municipal Code.Section 3. That the
Treasurer of the City of Orange is hereby authorized and directed to invest the funds of the
Agency on behalf of the Agency in accordance with the terms and provisions of the SIP in
the form attached for the
balance of Fiscal Year 2007-08 and for Fiscal Year
2008-09.Section 4.This Resolution shall
take
effect
I, MARY E. MURPHY, City Clerk of the City of Orange, California, do hereby
certify that the foregoing Resolution was duly and regularly adopted by the Orange
Redevelopment Agency at a regular meeting thereof held on the 8th day of April, 2008, by
the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
DIRECTORS: Smith, Murphy, Cavecche, Dumitru, Bilodeau
DIRECTORS: None
DIRECTORS: None
DIRECTORS: None
M~~~
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CITY OF ORANGE AND
ORANGE REDEVELOPMENT AGENCY
STATEMENT OF INVESTMENT POLICY
Fiscal Year 2007-
08 1.0 INVESTMENT POLICY
OVERVIEW 1.1
POLICY It is the policy of the City of Orange ("City") and Orange Redevelopment
Agency Agency", which with the City shall be referred to herein collectively as the "City")
to invest public funds in a manner which will provide foremost for the safety of
principal while meeting the short- and long-term cash flow demands of the City and
confornling to all statutes governing the investment of
City funds.Annually, in accordance with California Government Code ("CGC") Section
53646, the Treasurer will render to the City Council a Statement of Investment
Policy for consideration and approval at a public meeting. Any investment currently held
at that time that does not meet the guidelines of this policy, as changed from time to time
by the City Council, shall be exempt from the requirements of this policy. However,
at the investment's maturity or liquidation, such funds shall be reinvested only as
provided by
this policy.1.
2 PURPOSE This Statement of Investment Policy ("SIP") is set forth by the City for
the
following purposes:a) To establish a clear understanding for the City Council, Investment
Committees, City management, responsible employees, citizens and third parties, of
the objectives,policies and guidelines for the investment of the City's idle and
surplus funds.b) To offer guidance to investment staff, brokers and any external
investment advisors on the investment of
City funds.1.3
INVESTMENT OBJECTIVES Within the overriding requirement of compliance with all Federal, State and
local laws governing the investment of moneys under the control of the Treasurer, and
as specified in the CGC Section 53600.5, when investing, reinvesting,
purchasing, acquiring,exchanging, selling and managing public funds, the primary objectives, in
priority order,of the investment activities
a) Safety: Safety of principal is the foremost objective of the investment program.
Investments of the City shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio.
b) Liquidity: The investment portfolio will remain sufficiently liquid to enable the City
to meet all operating requirements which might be reasonably anticipated.
c) Return on Investments: The investment portfolio shall be designed and managed
with the objective of attaining a market rate of return throughout budgetary and
economic cycles, taking into account the investment objectives, authorized
investments and the cash flow needs of the City. The Treasurer's monthly reports
shall include benchmark reporting to defme "a market rate afreturn"; which shall be
one of the indices published in a financial journal of wide circulation that are most
comparable to the Treasurer's portfolio. The benchmark shall be used solely as a
reference tool. The Treasurer shall not add additional risk to the portfolio in order to
attain or exceed the benchmark.
1.4 PRUDENCE
Investments shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence, discretion and intelligence exercise in the management of
tlleir own affairs; not for speculation, but for investment, considering the probable safety
of their capital as well as the probable income to be derived. The standard of prudence to
be used by investment officials shall be the "prudent investor" standard (CGC Section
53600.3) and shall be applied in the context of managing an overall portfolio. The
Treasurer and other investment employees, acting within. the intent and scope of the SIP
and other written procedures, 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 in the immediately following Treasurer's
Report and appropriate action is taken to control adverse developments. When a
deviation poses a significant risk to the City's financial position, the City Council shall be
notified immediately.
1.5 ETHICS
Elected officials, City officers and employees and any other individuals involved in the
investment operations are prohibited from personal business activity that could conflict
with the proper execution of the investment program, or which could impair their ability
to make impartial investment decisions, or which could give the appearance thereof.
Furthermore, these same individuals are prohibited from undertaking personal investment
transactions with any individual with whom business is conducted on behalf of the City.
2.0 OPERATIONS AND PROCEDURES
2.1 SCOPE
a) This SIP applies to all financial assets of the City and the Agency. These funds
are accounted for in the Comprehensive Annual Financial Report (CAFR) and
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include: General Fund, Special Revenue Funds, Debt Service Funds, Capital
Project Funds, Enterprise Funds, Internal Service Funds and Agency Funds.
b) Tins SIP specifically exempts and does not apply to the following financial assets
and investment activities of the City and the Agency:
1) The City's Deferred Compensation Plan is excluded because it is managed
by a third party administrator and invested by individual plan participants.
2) Proceeds of City or Agency bonds or other debt issues in possession of a
trustee or fiscal agent are not considered to be part of the financial assets
covered by this policy. These bond proceeds shall be invested in
accordance with the requirements and restrictions outlined in the bond
documents.
2.2 DELEGATION OF AUTHORITY
a) The City Council's authority to manage the investment program is derived from CGC
Sections 53600 et seq.
b) In accordance with the City of Orange Municipal Code Chapter 2.26, management
responsibility for the investment program is hereby delegated to the Treasurer, who
shall establish written procedures for the operation of the investment program
consistent with this SIP. Under the provision of CGC Section 53600.3, the Treasurer
is a trustee and a fiduciary subject to the prudent investor standard.
c) The Treasurer may delegate all, or a portion of, hislher investment authority to a
Deputy City Treasurer. Prior to the delegation of the investment authority to a Deputy
City Treasurer, the City Treasurer shall notify the City Council and request
confinnation of the delegation. Delegation of investment authority will not remove or
abridge the Treasurer's investment responsibility.
d) The City Council may engage the services of one or more external investment
managers to assist in the management of the City's investment portfolio in a manner
consistent with the City's objectives and in accordance with this SIP. Such external
managers may provide advice and effectuate trades upon specific authorization for
each transaction. Such managers must be registered under the Investment Advisors
Act of 1940 and must have not less than five years' experience investing in the
securities and obligations authorized by the CGC Section 53601, and with assets
under management in excess of five hundred million dollars ($500,000,000). The
Treasurer shall review Form ADV of any investment advisor prior to engagement by
the City Council. This Section does not preclude the Treasurer from retaining
portfolio consultants witllin existing authority.
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2.3 INVESTMENT OVERSIGHT COMMITTEE
a) Chapter 2.50 of the Orange Municipal Code establishes an Investment Oversight
Committee (IOC). The terms and provisions of said Chapter 2.50 are incorporated into
this SIP by reference as though fully set forth herein. The IOC consists of the Treasurer,
the City Manager or designee, and the Director of Finance. The Treasurer is required to
act as Chair of the roc, with the City Manager as Vice Chair. The roc is required to act
by maj ority vote.
b) The IOC shall, at least annually and more often if directed by the City Councilor agreed
by a majority of the roc, review the City Council's adopted SIP and report to the City
Council its recornmendations for any changes, additions or deletions to the SIP.
c) The IOC shall monitor the implementation of the City Council's adopted SIP and
annually submit a compliance report to the City Council.
d) The IOC shall review reports to the City Council from the Investment Advisory
Committee and prepare responses as required.
e) The IOC shall meet and report quarterly to the City Council summarizing the roc
meetings and the recommendations of the Investment Advisory Committee. Such report
shall contain. an unedited copy of the Investment Advisory Committee's
recommendations.
2.4 AUTHORIZED FINANCIAL INSTITUTIONS AND DEALERS
a) Institutions eligible to transact investment business with the City shall include
only the following:
1) Primary government dealers as designated by the Federal Reserve Bank;
2) Nationally or state-chartered
banks;3) The Federal Reserve Bank;
and 4) Direct issuers of securities eligible for purchase by the
City.b) Selection of fmancial institutions and broker/dealers authorized to engage
in transactions with the City shall be at the sole discretion of the City Treasurer.
The Treasurer will maintain a list of fmancial institutions authorized to
provide investment services to the
City.c) The City Treasurer shall obtain information from qualified financial institutions
to determine if the institution makes markets in securities appropriate for the City'
s needs, can assign qualified sales representatives and can provide
written agreements to abide by the conditions set forth in the City of Orange
SIP.Investment accounts with all financial institutions shall be standard
non-discretionary accounts and may not be margin
accounts.
d) All financial institutions which desire to become qualified bidders for investment
transactions must supply the Treasurer with the following:
1) Audited fmancial statements for the institution's three most recent fiscal
years;
2) At least three references from California local agencies whose portfolio
size, investment objectives and risk preferences are similar to the City's;
3) A statement certifying that the institution has reviewed the CGC Sections
53600 et seq. and the City's SIP, and that all securities offered to the City
shall comply fully and in every instance with all provisions of the Code
and with this SIP; and,
4) Completed BrokerlDealer Questionnaire.
e) The Treasurer shall conduct an annual review of the financial condition of
qualified institutions. In addition, a current financial statement is required to be
on file for each qualified institution.
f) Public deposits shall be made only in qualified public depositories within the
State of California as established by State law. Deposits shall be insured by the
Federal Deposit Insurance Corporation (FDIC) or, to the extent the amount
exceeds the insured maximum, shall be collateralized with securities in
accordance with State law.
2.5 COLLATERAL REQUIREMENTS
CGC Sections 53652 and 53667 require depositories to post certain types and levels of
collateral for public funds on deposit above the FDIC insurance amounts. The collateral
requirements apply to bank deposits, both active (checking and savings accounts) and
inactive (non-negotiable time certificates of
deposit).2.6 SAFEKEEPING AND
DELIVERY a) To protect against fraud, embezzlement, or losses caused by collapse of
individual securities dealers, all securities owned by the City shall be held in safekeeping
by the City's custodial bank, a third party bank trust department, acting as agent for
the City under the terms of a custody agreement, and shall be evidenced by
safekeeping
receipts.b) All security transactions entered into by the City shall be conducted on a
standard delivery-versus-payment (DVP) basis, which ensures that
securities are deposited with the third party custodian prior to the release of funds.
All securities purchased or acquired shall be delivered to the City by book entry, physical delivery
or by third party custodial agreement as required by CGC Section 53601. In~
estments in the State Pool or money market mutual funds are undeliverable, and are
not subject to delivery or third
party
c) On a daily basis, investment trades shall be verified against the bank transactions
and broker confirmation tickets to ensure accuracy. On a monthly basis, the
custodial asset statement is reconciled with the month end portfolio holdings. On
an annual basis, the external auditor confirms investment holdings.
3.0 PERMITTED INVESTMENTS AND RISK MANAGEMENT
3.1 INVESTMENTS AUTHORIZED
a) The City, as empowered by CGC Sections 53601 et seq. and 16429.1, hereby
authorizes the City Treasurer to select investments from among the following:
1) 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. (Limits: Maximum maturity at purchase 5
years; no other limits.)
2) Obligations issued by banks for cooperatives, federal land banks, federal
intermediate credit banks, federal home loan banks, the Federal Home Loan Bank,
the Tennessee Valley Authority, or in obligations, participations, or other
instruments of, or issued by, or fully guaranteed as to principal and interest by, the
Federal National Mortgage Association, or other instruments of, or issued by, a
federal agency or a United States government-sponsored enterprise. In every
case,any issue purchased must be fully guaranteed as to principal and interest by
the full faith and credit of the United States, or the issuing federal agency. (
Limits:Maximum maturity at purchase 5 years; maximum concentration 65% of
portfolio at time of purchase with no more than 35% oftotal portfolio in any single
agency and excluding completely Govemment National Mortgage Association bonds; i.
e.,GNMA'
s.)3) Shares of beneficial interest issued by diversified management
companies that are Money Market Mutual Funds, registered with the Securities and
Exchange Cornmission under the Investment Company Act of 1940 investing in
the securities and obligations authorized by CGC Sections 53601(b) and (e) only (i.
e.,U.S. Government issues only). Such Funds must either carry the highest rating
of at least two of the three largest national rating agencies, or such funds must
have retained an investment adviser registered with the Securities and
Exchange Commission with not less than five year's experience managing money
market mutual funds with assets under management in excess of five hundred
million dollars ($500,000,000). (Limits: maximum 90 days Weighted Average
Maturity;maximum concentration $15 million, or 20%, of portfolio, wlnchever is
less.)
4) State of California Local Agency Investment Fund (LAIF) is permitted,
with the knowledge tllat the fund may invest in some vehicles allowed by statute
but not otherwise authorized by the City Council in this SIP (See Exhibit 1). The
Treasurer shall obtain from the State Treasurer, no less than quarterly, reports
providing sufficient detail to adequately judge the risk inherent in the LAIF
portfolio, and shall inform the City Council immediately of any risks noted that
may warrant reconsideration of this investment vehicle. (Limits: Maximum
concentration 35% of total portfolio for all accounts.)
5) Investment in new Government sponsored pools will be subject to due
diligence. A thorough investigation of the pool is required prior to investing, and
on a continual basis.
6) Funds held under the terms of a Trust Indenture or other contract or debt
issuance agreement may be invested according to the provisions of those
indentures or agreements.
7) Certificates of Deposit approved by the California AB 2011 are permitted.
Limits: The bill allows investment up to January 1, 2012; maximum
concentration 30% of total portfolio.)
b) Subject to the prior approval of the City Council, the following IS a permitted
investment of City funds:
1) Loans or advances to, the Agency to enable the Agency to pay administrative
costs and salary expenses attributable to costs incurred by the Agency during a
fiscal year, which the Agency deems necessary for implementation of the
Redevelopment Plan for the Orange Merged and Amended Redevelopment
Project for the fiscal year in question. Interest payable by the Agency on such
loans or advances shall be equal to the City Treasurer's earnings rate on the
investment of City funds applied to the outstanding principal balance of any
such advances until paid in full.
c) Subject to the prior approval of the Agency Board of Directors and compliance witll
the requirements therefor under the Community Redevelopment Law (Part 1 of
Division 24 of the Health and Safety Code of the State of California) and any other
applicable statute, law or regulation, the following is a permitted investment of
Agency funds:
1) The loan of lawfully available monies, including taxes allocated pursuant to
Section 33670(b) of the California Health and Safety Code to the extent and
when said tax increments become available after the Agency pays any other
commitments it may have for the implementation of the Redevelopment Plan
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for the Orange Merged and Amended Redevelopment Project, to the City to be
used by the City to pay the cost of publicly-owned buildings under
Section 33445 of the Health and Safety Code and for the purpose of
redevelopment.Interest payable by the City on such loans shall be equal to the
City Treasurer's earnings rate on the investment of Agency funds applied to
the outstanding principal balance of any such loans until paid in
full.3.2 PROHIBITED INVESTMENT VEHICLES AND
PRACTICES The City Treasurer is prohibited from the
following:a) Borrowing for investment purposes ("Leverage") is
prohibited.b) Buying or selling securities "on Margin" is
prohibited.c) Investing in any instrument, which is commonly known as a "
derivative"instrument (options, futures, swaps, caps, floors, collars, U.S. Treasury
zero coupon bonds, U.S. Treasury strips, interest only bonds, interest-
only strips derived from mortgage pools), or any investment that may result in a
zero interest accrual, even if held to maturity,
is prohibited.d) Under the provisions of CGC Sections 53601.6 and 53631.5, the City
shall not invest any funds covered by this SIP in instruments known as
Structured Notes e.g. inverse floaters, leverage floaters, structured CD's, range
notes, equity-linked securities). Any such
investments are prohibited.e) Trading securities for the sole purpose of speculating on the
future direction of interest
rates is prohibited.f) State law notwithstanding, any investments not specifically
described herein under Subsections 3.1 a) through 3.1
c) are prohibited.3.3 MITIGATING RISK
IN THE PORTFOLIO
a) Credit Risk:l) The City will diversify its investments in accordance with
the limits set forth in Subsection 3.1 of this SIP to diminish the
credit risk
resulting from concentrations.2) The City, on occasion, may sell a security prior to its
maturity (recording a gain or loss) in order to improve the risk structure, liquidity
and yield of the portfolio in response
to market conditions.3) If securities owned by the City are downgraded by either Moody's
or S&P to a level below the quality required by this SIP, it shall be
the City's policy to review nmnediately the credit situation and
make a determination as to whether to sell or retain such securities
in
i) If a security is downgraded two grades below the level required by
the City, the security shall then be sold immediately.
ii) If a security is downgraded one grade below the level required by
this policy, the Treasurer will use discretion in determining
whether to sell or hold the security based on its current maturity,
the loss in value, the economic outlook for the issuer, and other
relevant factors.
iii) If a decision is made to retain. a downgraded security in the
portfolio, its presence in the portfolio will be monitored and
reported monthly to the IOC and the City Council.
b) Market Risk: While the City recognizes that longer term portfolios achieve
higher returns, longer term portfolios have higher volatility of total return. The
City will limit market risk by limiting the concentrations, volume and duration of
its longer term investments, as well as limiting them to funds which are not
needed for current year cash flow purposes '
1) Maturities selected shall provide for stability of income and liquidity, and
shall not exceed 5 years from the date of purchase. The City shall
structure its investment portfolio as a maturity ladder. Funds not required
for purposes of meeting cash flow needs shall be invested in permitted
securities so that selected percentages of the portfolio mature each year to
a maximum of five years.
2) Portfolio maturities shall be managed to avoid undue concentration in any
specific maturity sector with at least 35% of the portfolio must be invested
from one to 365 days, no more than 50% of the portfolio be invested from
366 days to 730 days, no more than 30% of the portfolio be invested from
731 days to 1095 days, no more than 30% of the portfolio be invested from
1096 days to 1460 days, and no more than 30% of the portfolio be invested
from 1461 days to 1825 days.
3) The City shall invest only in fixed rate, fixed coupon securities.
4) The City may, on occasion, sell a security prior to its maturity (recording a
gain or loss) in order to diminish the portfolio's exposure to market risk.
4.0 REPORTING, REVIEW AND AUDITS
4.1 MONTHLY REPORTS
a) In accordance with CGC Section 53646, the Treasurer shall submit a monthly
investment report to the City Council, and it shall be due within 30 days of the
end of each month. This report shall include a complete description of tlle
portfolio, the type of investments, the issuers, maturity dates, par and dollar
9
amounts invested on all securities, the current market values of each component
of the portfolio, the source of the portfolio valuation, investments and moneys
held by the City, and shall additionally include a description of any of the City's
funds, investments, or programs, that are under the management of contracted
parties, including lending programs.
b) The report shall also include performance measures as recommended by the
Association for Investment Alanagement and Research (AIMR). These shall
include a presentation of Total Return using accrual accounting, and a Time-
weighted Rate of Return using a monthly valuation and one of the AIMR
approved methods of calculation. The report shall also include a presentation of
Yield to Maturity.
c) The report shall also include the perfornlance of the benchmark described in
Subsection 1.3 c) of this SIP as a basis of comparison for the City's portfolio.
d) The report shall also include the following certifications:
1) All investment actions executed since the last report have been made in
full compliance with the SIP.
2) The City will meet its expenditure obligations for the next six months is
required by CGC Sections 53656(b)(2) and (3).
e) In accordance with CGC 53646, the Treasurer shall:
1) Submit a copy of the City's monthly investment report for June of each
calendar year to the California Debt and Investment Advisory Commission
CDIAC") within 60 days after June 30th of each calendar year, and
2) Submit a copy of the City's monthly investment report for December of
each calendar year to CDIAC within 60 days after December 31 st of each
calendar year; and
3) Submit the City's Statement of Investment Policy to CDIAC no later than
60 days after the close of the second quarter of each calendar year and 60
days after any subsequent amendments thereto.
4.2 INTERNAL CONTROLS
The Treasurer is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the City are protected from loss, theft or misuse. The
internal control structure shall be designed to provide reasonable assurance that these
objectives are met. Internal controls shall be in writing and shall address the following
points: separation of transaction authority from accounting and record keeping,
safekeeping of assets and written confinnation of telephone transactions for investments
and wire transfers.
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4.3 ANNUAL AUDIT
The Treasurer shall insure that the City's annual process of independent review by an
external auditor will include an appropriate investment review to assure compliance with
this policy and acceptable internal controls. The audit shall be presented to the City
Council upon its completion.
4.4 SPECIAL AUDITS
The City Council may at any time order an audit of the investment portfolio and/or the
Treasurer's investment practices.
5.0 INVESTMENT POLICY ADOPTION
The SIP shall be reviewed annually by tlle City Council and the Agency Board for
consistency with the City's and the Agency's overall investment objectives regarding
preservation of principal, liquidity, return, relevance to current law as well as to current
financial and economic trends. Any modifications necessary must be approved separately
by the City Council and the Agency Board. The SIP shall then be adopted in its entirety,
as amended, within 120 days of tlle fiscal year end by resolution and vote of the City
Council at a public meeting, and separately by the Agency Board regarding Agency
assets.
5.1 INVESTMENT POLICY CERTIFICATION
The 1999-2000 version of this investment policy was certified by the
Municipal Treasurer's Association of tlle United States and Canada, in June 2000.
Recommended changes have been incorporated. In the event of any significant changes in
legislation that will require significant changes to the SIP, the City will resubmit the new policy
for
re-
GLOSSARY
AGENCIES: Federal agency securities
ASKED: The price at which securities are offered.
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.
BENCHMARK: A segment of the securities market with characteristics similar to the subject
portfolio. It is used to compare portfolio performance to the performance of the appropriate
segment of the market. (e.g. I-Year T-
Bill rate)BID: The price offered by a buyer of securities. (When you are selling securities, you ask
for a bid.)
See Offer.BROKER: A broker brings buyers and sellers together for
a commission.CERTIFICATE OF DEPOSIT (CD): A tinle 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 moneys.COMMERCIAL PAPER: Short-term, negotiable unsecured
promissory notes of corporations.COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR):
The official annual report for the City of Orange. It includes five combined statements for
each individual fund and account group prepared in conformity with GAAP. It
also includes supporting schedules necessary to demonstrate compliance with finance-
related legal and contractual provisions,extensive introductory material,
and a detailed Statistical Section.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
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
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 and individuals; e.g., S&L's, small business firms,
students,farmers, farm cooperatives, and
exporters.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 Federal funds are traded. This rate
is currently pegged by the Federal Reserve through open-
market operations.FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend
to savings and loan associations. The Federal Home Loan banks playa role analogous to that played
by the Federal Reserve Banks vis-a.-vis
member commercial banks.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
and Urban Development HUD). It is the largest single provider of residential mortgage funds in
the United States.Famue Mae, as the corporation is called, is a private
stockholder-owned corporation. The corporations' purchases include a variety of adjustable mortgages and
second loans. In addition to fixed-rate mortgages. FNMA's securities are also lughly
liquid and are widely accepted.FNMA assunles 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 ofthe twelve Federal Reserve
Bank Presidents. The President of the New York Federal Reserve Bank is a pernlanent member, while
the other Presidents serve on a rotating basis. The committee periodically meets to
set
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, DC, 12 regional banks
and about 5,700 commercial banks that are members 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
banks, commercial banks, savings and loan associations, and other institutions. Security holder
is protected by full faith and credit of the u.s. Government. Ginnie Mae securities are backed by
the FHA, V A 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.LOCAL AGENCY INVESTMENT FUND (LAIF): A pooled investment vehicle for
local agencies in California sponsored by the State of California and administered by the
State
Treasurer.MARKET CYCLE: A market cycle is defined as a period of time which includes a
minimum of two consecutive quarters of falling interest rates followed by a minimum of two
consecutive quarters of rising interest
rates.MARKET VALUE: The price at which a security is traded and could presumably be
purchased or
sold.MATURITY: The date upon which the principal or states value of an investment becomes
due and
payable.MONEY MARKET: The market in which short-term debt instruments (
bills, commercial paper, bankers' acceptances, etc.) are issued
and traded.NEGOTIABLE CERTIFICATE OF DEPOSIT: A large denomination certificate
of deposit which can be sold in the open market prior
to maturity.OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer.) See Asked
and Bid.PORTFOLIO: Collection of securities held by
an
PRIMARY DEALER: 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 infonnal oversight. Primary dealers include Securities and
Exchange Commission (SEC)-registered securities broker-dealers, banks, and a few
unregulated
firms.PRUDENT INVESTOR STANDARD: Governing bodies of local agencies or
persons authorized to make investment decisions on behalf of those local agencies investing public
funds pursuant to CGC Sections 53600 et seq. are trustees and therefore fiduciaries subject to
the prudent investor standard. When investing, reinvesting, purchasing, acquiring,
exchanging,selling, and managing public funds, a trustee shall act with care, skill, prudence, and
diligence under the circumstances then prevailing, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds of a like character alld with
like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within
the limitations of the CGC Sections 53600 et seq. and considering individual investments as part
to an overall strategy, a trustee is authorized to acquire investments as authorized by
law.QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not
claim exemption from the payment of allY sale or compensating use or ad valorem taxes under the
laws of tlus state, which has aggregated for the benefit of the commission eligible collateral having
a value of not less than its maximum liability and which has been approved by the Public
Deposit Protection Commission to hold public
deposits.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.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.TIME CERTIFICATE OF DEPOSIT: A non-negotiable certificate of deposit
which cannot be sold prior
to maturity.TOTAL RATE OF RETURN: Represents growth (or decline) in the value of
a portfolio,including both capital appreciation and income, as a proportion of the starting
market value.TIME-WEIGHTED RATE OF RETURN: A modified measurement of Total
rate of Return which eliminates the effect ofthe timing of funds flows to and/or from a
security
TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury
to fInance the national debt. Most bills are issued to mature in three months, six months, or
one
year.TREASURY BOND: Long-tenn U.S. Treasury securities having initial maturities of
more than
10 years.TREASURY NOTES: A non-interest bearing discount security issued by the
US Treasury to finance the national debt. Most bills are issued to mature in one, two, three, five
or ten years.YIELD: The rate of annual income return on an investment, expressed
as a percentage.YIELD TO MATURITY is the calculated rate of return based upon the present
value of the cash flow from each interest payment, plus the present value of the cash
flow from the investment's redemption value at maturity vs.
the