RES-ORA-0415 Statement of Investment Policy FY 2002-03RESOLUTION NO, ORA-
0415 A RESOLUTION OF THE
ORANGE REDEVELOPMENT AGENCY APPROVING
AND ADOPTING A STATEMENT OF
INVESTMENT POLICY FOR FISCAL YEAR 2002-
03 AND DELEGATING INVESTMENT
OF ORANGE REDEVELOPMENT AGENCY FUNDS
TO THE TREASURER OF THE CITY
OF ORANGE.VHEREAS, 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 VVHEREAS, the Board of Directors of the Orange Redevelopment
Agency adopted Resolution No. ORA-0402 on October 9, 2001, adopting
the Orange Redevelopment Agency'; Statement of Investment Policy for Fiscal Year 2001-02 (herein
refelTed to as the
FY2001-02 SIP); and N'HEREAS, the FY 2001-02 SIP requires that
the City Council annually review its and the Orange Redevelopment Agency's Statement of
Investment Policy and adopt a policy annually within 120 days of 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
Oversight Committee has reviewed the proposed Statement of Investment Policy for Fiscal Year 2002-
03 in the form attached to this Resolution as Attachment 1 and incorporated herein
by this reference (herein referred to as the "Fiscal Year 2002-03 SIP") and has recommended
that the City Council and the Board of Directors of the Orange Redevelopment
Agency adopt the Fiscal Year 2002-03 SIP; and WHEREAS,
the General Counsel of the Orange Redevelopment
Agency has reviewed the Fiscal Year 2002-03 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 2002-03 SIP.NOW, THEREFORE, BE
IT RES01"VED by
the
Board
ofDirectorsoftheOrange RedevelopmentAgencyas
SECTION I:
That the Fiscal Year 2002-03 SIP, in the fOffil attached hereto as Attachment 1, is
the Orange Redevelopment Agency's Statement of Investment Policy and is duly adopted
in accordance with State law and Chapter2.49 of Title 2: of the Orange Municipal
Code.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 2002-03 SIP
in the form attached hereto as
Attachment 1.ADOPTED this 8th day of
October, 2002.JI"hI. h
l~ JI MurphY,
Ch
an ATTEST:
4~~U~~Cassandra J.
Cat , Clerk I 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 October,2002, by the
following
vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
DIRECTORS:
DIRECTORS:
DIRECTORS:DIRECTORS:SLATER, ALVAREZ, III!URPHY,
COONTZ,
CAVECCHE
NONE
NONE NONEt1-Uv.~-t~Cassandra
J. Cathc , Clerk Reso No.
ORA-
CITY OF ORANGE
AND THE
ORANGE REDEVELOP-MENT
AGENCY STATEMENT OF INVESTMENT
POLICY
ADOPTED October 08,
2002 REGULAR MEE'
fING 4:30 PM
Session 300 E. Chapman
Avenue Council Chambers
Room Mayor Mark A.
Murphy Mayor pro tem Mike
Alvarez
Councilmembers Joanne
Coontz Dan
Slater Carolyn
Cavecche David 1..
Rudat City
Manager
CITY OF ORANGE AND
ORANGE REDEVELOPMENT AGENCY
STATEMENT OF INVESTMENT POLICY
Fiscal Year 2002-
03 SE~ction
Pa2e 1.0 IN'VESTMENT POLICY
OVERVIEW 1.1 Policy
1 1.2 Purpose
1 1.3 Investment Objectives
I1.4 Prudence
2 1.5 Ethics
2 2.0 O:PERATIONS AND
PROCEDURES 2.1 Scope
2 2.2 Delegation Of Authority
32.3 Investment Oversight Committee
42.4 Authorized Institutions And Dealers
4 2.5 Collateral Requirements
5 2.6 Safekeeping And Delivery
5 3,0 Pl8:RMITTED INVESTMENTS AND RISK
MANAGEMENT 3.1 Investments Authorized
6 3.2 Prohibited Investment Vehicles And Practices
73.3 Mitigating Risk In The Portfolio
8 4,0 REPORTING, REVIEW AND
AUDITS4.1 Monthly Reports
9 4.2 Internal Controls
94.3 Annual Audit
104.4 Special Audits
10 5.0 INVESTMENT POLICY ADOPTION
10 5,1 INVESTMENT POLICY CERTIFICATION
10 GLOSSARY
CITY
OF ORANGE AND ORANGE
REDEVELOPMENT AGENCY STATEMENT
OF INVESTMENT POLICY Fiscal
Year 2002-03
1.0
1.1
INVESTMENT POLICY OVERVIEW
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 shOIt- 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 this
policy.1.2
PURPOSE This Statement of Investment Policy ("SIP") 1S 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 shall
be: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 How 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 a'i 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 Secltion 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 cnxlit 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 shaH 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 tmnsactions 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 Compn:hensive Annual Financial Report
CAFR) and include: General Fund, Special Revenue Funds, Debt Service
2
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 covert;:d 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 SlP. 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, 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 prlor to engagement by the City Council.
3
This Section does not preclude the Treasurer from retaining portfolio
consultants within existing authority.
2.3 INVESTMENT OVERSIGHT COMMITTEE
a) The Orange Municipal Code Chapter 2.50 et seq. of Title 2 establishing an
Investment Oversight Committee (IOC) is hereby made part of this SIP. The IOC
consists of the Treasurer, the City Manager or designee, and the Director of
Finance. The Treasurer shall act as Chair of the committee, with the City
Manager as Vice Chair. The IOC shall 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 tor 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 st::rvict;:s 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
margm
accounts.d) All financial institutions which desire to become qualified bidders
for investment transactions must supply the Treasurer with the
following:1) 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 BrokerIDealer
Questionnaire.e) The Treasurer shall conduct an aillLUal review of the financial condition
of qualified institutions. In addition, a CUlTent 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 palty custodial agreement
as required by CGC Section 53601. Investments in the State Pool or
money
are undeliverable, and are not subject to delivery or third party safekeeping
requirements.
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 $50 million
of portfolio; 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 $30 million combined limit 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.
f) 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.
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 ifheld to maturity, is
prohibited.d) Under the provisions of cae 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 e)
are
prohibited.
7
3,3 MITIGATING RISK IN THE PORTFOLIO
a) Credit Risk:
1) 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 sdl 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 relt:vant 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.
No more than 50% of the portfolio shall exceed 2.5 years to
maturity.) 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
8
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.
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 Rl~tum 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 perfonnance 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 of Orange will meet its expenditure obligations for
the next six months is required by CGC Sections 53656(b)(2) and (
3)
respectively.
e) In accordance with Chapter 687, Statutes of 2000 (AB943), the Treasurer
shall:
1) Forward a copy of the monthly investment report at the quarter end
dated December 31st and at the quarter end dated June 30 to the
California Debt and Investment Advisory Commission ("CDIAC")
within 60 days of the end ofthe respective quarter, and
2) Submit a copy of the newly adopted investment policy each calendar
year. The policy must be submitted within 60 days of adoption.
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 aIillual 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.
4A 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-
certification.10
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. (\Vhen you are selling securities, you
ask f.or 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
DEBENTURE: A bond secured only by the general credit of the issuer.
12
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 fact: value; e.g., US Treasury
Bills.DIVERSIFICATION: Dividing investment funds among a variety of securities
offering independent
returns.FEDE.RAL 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 (RUD). 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 of the
twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Banle is
a permanent member, while the other Presidents serve on a rotating basis. The
committee
periodicallymeetstoset Federal 13
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, 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
passthroughs" is often used to describe Ginnie Maes.
LIQU][DITY: 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 Stat'e 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 V ALUE: 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 depmit 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: Goveming 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.QU.ALIFIED 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 madefi:)r 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 portfi)lio, including both capital appreciation and income, as a proportion of
thestartingmarkl;:
tvalue.TIMII!:-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
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-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 ofthe cash
flow from the investment's redemption value at maturity vs.
the purchase price.N :/Finance/
Treasury/
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