RES-ORA-0465 Statement of Investment Policy FY 2007-08RESOLUTION NO. ORA-
0465 A RESOLUTION OF THE
ORANGE REDEVELOPMENT AGENCY APPROVING
AND ADOPTING A STATEMENT OF
INVESTMENT POLICY FOR FISCAL YEAR 2007-
08 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, and accountability
therefor; and WHEREAS, the Board of Directors of the Orange Redevelopment
Agency adopted Resolution No. ORA-0458 on September 12, 2006, adopting
the Orange Redevelopment Agency's Statement ofInvestment Policy for Fiscal Year 2006-07 (herein
referred to as the
FY 2006-07 SIP); and WHEREAS, the FY 2006-07 SIP requires that
the City Council annually review its and the Orange Redevelopment Agency's Statement
ofInvestment 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
Board of Directors
of the Orange Redevelopment Agency; and WHEREAS, the City's
Investment Advisory Committee and Investment Oversight Committee have reviewed the Statement ofInvestment Policy
for Fiscal Year 2007-08 in the form attached to this Resolution, and incorporated
herein by this reference (herein referred to as the Fiscal Year 2007-08 SIP) and recommends
that the City Council and the Board of Directors of the Orange Redevelopment
Agency adopt the Fiscal Year 2007-08 SIP; and WHEREAS, the Board
of Directors of the Orange Redevelopment Agency desires to authorize the City Treasurer to
invest the funds of the Orange Redevelopment
Agency in accordance with the Fiscal Year 2007-08 SIP.NOW, THEREFORE, BE
IT RESOLVED by the
Board of
Directors of the Orange Redevelopment Agency as follows:SECTION I:That the Fiscal Year
2007-08 SIP, in the form attached, is the Orange Redevelopment Agency's Statement of
Investment Policy andis duly adopted in accordance with State law
SECTION II:
That the Treasurer of the City of Orange is hereby authorized and directed to invest
the funds of the Orange Redevelopment Agency on behalf of the Orange Redevelopment
Agency in accordance with the terms and provisions of the Fiscal Year 2007-08 SIP in
the form
attached.ADOPTED this 10th day of July,
2007.
ATTEST:1,"/
1 i,~-~ c/~kl V~
t/ Mary'E. Murphy, Cldrk fJepv~
7 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 10th day of July, 2007, by the
following vote:AYES:
NOES:
ABSENT:
ABSTAIN:
DIRECTORS:
Smith, Murphy, Cavecche, Dumitru, Bilodeau DIRECTORS:
None DIRECTORS:
None DIRECTORS:
None IJ . ,
1 "..1, II jit);
l/y.j~~,jJk.,,hi.cil..,Mary'
E. Murphy, Clerk 4-'
f ,J..
A/i~ ".1::J kM
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2
July 10, 2007
CITY OF ORANGE AND
ORANGE REDEVELOPMENT AGENCY
STATEMENT OF INVESTMENT POLICY
Fiscal Year 2007-
08 1.0 INVESTMENT POLICY
OVERVIEW1.1
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
conforming 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
thispolicy.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
Cityfunds.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 define "a market rate of return "; 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
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. 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) This 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 ofCGC 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, his/her 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
confirmation 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 within 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 (lOC). 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 IOC, with the City Manager as Vice Chair. The IOC is required to act
by majority vote.
b) The IOC shall, at least annually and more often if directed by the City Councilor agreed
by a majority of the IOC, review the City Council's adopted SIP and report to the City
Council its recommendations 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 IOC
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 financial 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 financial 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:
I) Audited financial 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 Section
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 Broker/Dealer 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. Investments 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
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:
a) 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.)
b) 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% of total portfolio in
any single agency and excluding completely Government National
Mortgage Association bonds; i.e., GNMA'
s.)c) Shares of beneficial interest issued by diversified management companies that
are Money Market Mutual Funds, registered with the Securities and
Exchange Commission 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, whichever is
less.)
d) State of California Local Agency Investment Fund (LAIF) is permitted, with the
knowledge that 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.)
e) 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.
1) 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.
g) 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.)
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 and53631.5, 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.1) State law notwithstanding, any investments not specifically described
herein under Subsections3.1 a) through 3.1 e) are
prohibited.
3.3 MITIGATING RISK IN THE PORTFOLIO
a) Credit Risk:
I) 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 immediately the credit situation and make a
determination as to whether to sell or retain such securities in the
portfolio.
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
I) 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
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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 the
portfolio, the type of investments, the issuers, maturity dates, par and dollar
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 Management 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 performance 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:
I) 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:
I) Submit a copy of the City's monthly investment report for June of each
calendar year to the California Debt and Investment Advisory
Commission ("CD lAC") 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
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3) Submit the City's Statement ofInvestrnent 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 confirmation of telephone transactions for investments
and wire transfers.
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 the 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 the 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 the 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 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 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.Fannie 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
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 ofthe 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
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 ofthe 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, VA or FMHM mortgages. The term "passthroughs" 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
investor.
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 informal 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 Section 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 and with
like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within
the limitations of the CGC Section 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 any sale or compensating use or ad valorem taxes under the
laws of this 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 of the timing of funds flows to and/or from a
security or portfolio.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,
TREASURY BOND: Long-term 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
purchase price.N:/Finance/Treasury/Investment
Policy