RES-9529 Statement of Investment Policy Approval FY 2001-02RESOLUTION NO. 9529
A
RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF ORANGE APPROVING AND ADOPTING A
STATEMENT OF INVESTMENT POLICY FOR FISCAL
YEAR 2001-02.
WHEREAS, California Government Code Sections 53600 et seq. set forth detailed
provisions regarding permitted and prohibited investments by cities and accountability
therefor; and
WHEREAS, the City Council adopted Resolution No, 9339 on October 10, 2000
adopting the City's Statement ofInvestment Policy for Fiscal Year 2000-01 (herein
referred to as the "FY 2000-01
SIP"); and WHEREAS, the FY 2000-01 SIP requires that the City Council
annually review its 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
City's FY 2000-01 SIP and recommends that the City Council adopt the
Statement of Investment Policy for Fiscal Year 2001-02 (herein referred to as the "FY 2001-02
SIP") in the form attached to
this Resolution as Attachment 1; and WHEREAS, the City Attorney
has reviewed the FY 2001-02 SIP.NOW, THEREFORE, BE IT RESOLVED by
the City Council of the City of Orange that the FY 2001-02 SIP, in the form attached
hereto as Attachment I, is the City's Statement of Investment Policy for Fiscal
Year 2001-02 and is dulyadopted in accordance with State law and Chapter 2.
49
of Title 2 of the Orange Municipal
Code.
ATTEST:
ddbf~Cassandra J. Cathc , Ity Clerk of the CIty of Orange
I hereby certify that the foregoing Resolution was duly and regularly adopted by the
City Council of the City of Orange at a regular meeting thereof held on the 9th day of
October, 2001, by the following vote:
J\X'ES: COUNCIL11EMBERS: SLATER, ALVAREZ, MURPHY, COONTZ, CAVECCHE
NOES: COUNCILMEMBERS: NONE
ABSENT: COUNCILMEMBERS: NONE
ABSTAIN: COUNCILMEMBERS: NONE
CA~~A~ci~Cassandra J. Cathcart, ty Clerk of the CIty of Orange
Reso No, 9529 2 TJR
CITY
OF ORANGE AND
THE ORANGE
REDEVELOPMENT AGENCY STATEMENT
OF INVESTMENT POLICY ADOPTED
October
09, 2001 REGULAR
MEETING 4:
30 PM Session 300
E. Chapman Avenue Council
Chambers Room City
Council Members:Mark
A. Murphy, Mayor Mike
Alvarez, Mayor pro tem Joanne
Coontz Dan
Slater Carolyn
Cavecche David
L. Rudat City
Manager
CITY OF ORANGE AND
ORANGE REDEVELOPMENT AGENCY
STATEMENT OF INVESTMENT POLICY
Fiscal Year 2001-
02 1.
01.
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 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
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 CGCSection 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
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 Orange Redevelopment
Agency (ORA). These funds are accounted for in the Comprehensive
Annual Financial Report (CAFR) and include: General 2
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 ofthe City and ORA:
I) 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 ORA 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, 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.
3
2.3 INVESTMENT OVERSIGHT COMMITTEE
a) The Orange Municipal Code Chapter 2.50 et seq. of Title 2 establishing an
Investment Oversight Committee (JOC) 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 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:
I) 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
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 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. Investments in the State Pool or money market
mutual funds are undeliverable, and are not subject to delivery or third
party
safekeeping
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 I).
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 if held to maturity, is
prohibited.d) Under the provisions ofCGC 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
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
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
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.
8
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 (AlMR). 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: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 31't and at the quarter end dated June 30
to
the California Debt and Investment Advisory Commission
CDIAC) within 60 days of the end of the 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 oftelephone 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 ORA Board for
consistency with the City's and ORA'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 ORA 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
ORA Board regarding ORA 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 ofthe market. (e.g. I-Year T-
BiIl 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 (BUD). 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 Bank is
a permanent member, while the other Presidents serve on a rotating basis. The
committee
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.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.13
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
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 of the cash flow
from the investment's redemption value at maturity vs. the
purchase
price.N:/FinancelTreasury/Investment
Policy
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