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HomeMy WebLinkAboutAGENDA REPORT 1999 0616 CC REG ITEM 10CTO: FROM: DATE: SUBJECT: MOORPARK CITY COUNCIL AGENDA REPORT Honorable City Council ITEM ,U. C . CITY OF MOORPARK, CALIFORNIA City Council 'fleeting ACTION: i ivnl rd v r )) itrri n BY: John E. Nowak, Assistant City Manager 04 June 1999 (Council Meeting of 06- 16 -99) Consider Resolution No. 99 -_ Adopting an Investment Policy for the City of Moorpark. BACKGROUND: In 1995 the State Legislature enacted updates to Section 53600 et. seq. of the Government Code related to investment of surplus funds. The statutes now require certain information and procedures be included in a City's investment policy and that the policy be reviewed by the legislative body on an annual basis. DISCUSSION: Section 53600 et. seq, of the California Government Code requires each municipality to have an Investment Policy for the investment of surplus funds. Updates enacted by the legislature in 1995 were in response to the Orange County investment problem and placed additional requirements and restrictions on investments of public funds. One of the requirements is for the local legislative body to annually review the investment policy. The City of Moorpark last adopted an investment policy in October 1990 (copy attached) . Based on the revisions to State law, a new Investment Policy for City of Moorpark and City of Moorpark Redevelopment Agency surplus funds has been prepared. The basic policy of priority of investment (i.e., (1) safety, (2) liquidity, and (3) return on investment) remains the same. The new policy contains the following changes: 000619 Investment Meeting of Page 02 Policy 16 June 1999 (1) Recognizes the two types investment: Pooled which includes and Agency, and Investments held bond trust funds and assessment invested by other parties, often the City. (Sec. 3) of funds available for the cash held by the City Separately which includes district funds which are under general direction of (2) Identifies the City Treasurer as the individual charged with managing the City's investments. (Sec. 5) (3) Establishes an ethics and conflict of interest section related to all participants in the investment procedures. (Sec. 7) (4) Lists the types of investments that can be made with City and Agency funds. The two changes are to add the Local Agency Investment Fund (LAIF) as an investment vehicle and clarify the conditions under which commercial paper can be purchased. (Sec. 8) (5) Adds the requirement for collateralization for certificates of deposit over $100,000. (Sec. 9) (6) Lists types of investments that are specifically prohibited for any City or Agency funds. (Sec. 10) (7) Establishes maximum maturities for types of investments to assure that the portfolio is adequately laddered (increased liquidity). (Sec. 13) (8) Establishes procedures for selection of financial institutions and brokers /dealers to handle City investments. (Sec. 14) (9) Describes the investment reporting that must be provided to the legislative body as required by State Code. (Sec. 16) (10) Requires the City Treasurer to establish and maintain internal controls to assure compliance with the adopted policy. These are already in place. (Sec. 18) 111. 1, Investment Policy Meeting of 16 June 1999 Page 03 (11) Requires the Investment Policy to be adopted by Resolution (State Code) and that an annual report on the investment policy with any proposed changes be presented to the Council at a public meeting at least once a year. It is proposed that this be done in conjunction with the budget adoption. (12) A glossary of terms used in the Investment Policy is also included. The Investment Policy presented for the City Council's consideration addresses the requirements of Section 5360 of the Government Code and provides protective guidelines on the investment of surplus City and Agency funds. RECOMMENDATION: Staff recommends that the City Council adopt Resolution No. 99- — adopting an Investment Policy for the City of Moorpark. Attached: Current Investment Policy Resolution No. 99 -_ with Investment Policy exhibit 000621 BERNARDO M. PEREZ Mayor SCOTT MONTGOMERY Mayor Pro Tern ELOISE BROWN Councilmember CLINT HARPER, Ph.D. Councilmember PAUL W. LAWRASON, Jr. Councilmember LILLIAN KELLERMAN City Clerk MOORPARK M E M O R A N D U M STEVEN KUENY City Manager CHERYL J.KANE City Attorney PATRICK RICHARDS, A.I.C.P. Director of Community Development R. DENNIS DELZEIT City Engineer JOHN V. GILLESPIE Chief of Police RICHARD T. HARE City Treasurer TO: The Honorable City Council Steve Rueny, City Manager FROM: Richard Hare, Deputy City Mana e le-11-- DATE: October 16, 1990 SUBJECT: INVESTMENT POLICY The CalifbiZnia State Legislature passed legislation during the 1984 ses 'on requiring the filing of an Annual Statement of Investment licy by local public agencies. The Governor of the State of lifornia signed such legislation into law effective January 1985 (Chapter 1226). In compliance with this legislate n as City Treasurer of the City of Moorpark, I hereby ren r the annual Statement of Investment Policy to the City Council and City Manager of the City of Moorpark. 799 Moorpark Avenue Moorpark, California 93021 (805) 529-6864 ANNUAL TREASURER'S STATEMENT PURPOSE: this statement is intended to provide a guideline for the prudent investment of temporary idle cash, trust funds and restricted monies and to outline a policy for maximizing the efficiency of the cash management system. Ultimate investment goals include the enhancement of economic status and the protection of pooled cash investments. OBJECTIVE: To develop a cash management system of the City of Moorpark to accurately monitor and forecast expenditures and revenues, thus insuring the investment of monies to the fullest extent possible. Attempt to obtain highest interest yields possible as long as investments meet the criteria required for safety and liquidity. POLICY: The City of Moorpark operates its pooled idle cash investments under the Prudent Man Rule (copy attached, Section 2261.a). This affords a broad spectrum of investment opportunities so long as the investment is deemed prudent and is permissible under currently effective legislation of the State of California and other imposed legal restrictions. The City of Moorpark strives to maintain the level of investment of idle funds as near to 100% as possible. Consistent with this factor, investments are made under the terms and conditions of Sections 53600- 53683 of the Government Code of California. Criteria for selecting investments and the absolute order of priority are: 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. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. LIQUIDITY: The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. RETURN ON INVESTMENT: The City's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the cash flow characteristics of the portfolio. 0006243 Consistent with the priorities outlined the following are allowable investments. a. Government securities and debt obligations by Governmental agencies whose obligations carry the full faith and credit of the Federal Government, and repurchase agreements of the same stature, are the highest quality investments available in the terms of safety and liquidity. b. Certificates of deposit, savings accounts and interest bearing active deposits that are insured or collateralized to the degree consistent with or exceeding existing law or regulation. C. Obligations issued by banks for federal home loan banks, the Federal Home Loan Bank, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principle and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, federal agency or a United States government sponsored enterprise. d. Bills of exchange or time drafts sdrawn on and accepted by a commercial bank, otherwise known as bankers acceptances, which are eligible for purchase by the Federal Reserve System. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the City's surplus funds. However, no more than 30 percent of the City's surplus funds may be invested in the bankers acceptance of any one commercial bank. Most investments are highly liquid, with the exception of collateralized or insured term certificates of deposit issued by Banks and Savings and Loans. Certificate maturities are selected to anticipate cash needs, thereby obviating the need for forced liquidation and the accompanying loss of interest payment. 000624 The City of Moorpark operates its investment program with many federal, state and self- imposed constraints. It does not buy stocks; it does not speculate; it does not deal in futures, options or security loan agreements. Longer term investments (over one year) are limited maturities of five years or less with the exception of mortgage backed securities issued by the United States government with may exceed five years. To maintain internal controls, the recording and authorization functions are segregated. All transfers of funds between institutions are directed through one depository and only to the sole further credit of the City of Moorpark. To maximize investment income, the City of Moorpark uses all available, economically feasible investment aids. Economic conditions and various money markets are monitored in order to assess the probable course of interest rates. The final basic premise underlying the City of Moorpark investment philosophy is to achieve highest dollar yield consistent with priorities of absolute safety of principal while maintaining necessary liquidity. CERTIFICATION OF CITY CLERK I certify that an annual Statement of Investment Policy for the City of Moorpark has been filed by the City Treasurer for calendar year 1990 compliance with Section 56346(A) of the Government Code of the State of California. Presented the Z_7_ day of October 1990. U Dorothy aveer Deputy City Clerk 000625 CIVIL CODE 2261 (Investment of Funds) (1) In investing, reinvesting, purchasing, acquiring, exchanging, selling and managing property for the benefit of another, a trustee shall exercise the judgement and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of their capital. Within the limitations of the foregoing standard, and subject to any express provisions or limitations contained in any particular trust instrument, a trustee is authorized to acquire every kind of property, real, personal or mixed, and every kind of investment, specifically including, but not by way of limitation, corporate obligation of every kind, and stocks, preferred or common, which men of- prudence, discretion and intelligence acquire for their own account. (2) In the absence of express provisions to the contrary, in the trust instrument, a trustee may continue to hold property received into a trust at its inception or subsequently added to it or acquired pursuant to proper authority if and as long as the trustee, in the exercise of good faith and of reasonable prudence, discretion and intelligence, may consider that retention is in the best interests of the trust. Such property may include stock in the trustee, if a corporation, and stock in any corporation controlling, controlled by, or under common control with such trustee. (3) In the absence of express provisions to the contrary in the trust instrument, a deposit of trust funds at interest in any bank (including the trustee, if a bank) shall be a qualified investment to the extent that such deposit is insured under any present or future law of the United States, or to such greater extent as a court of competent jurisdiction may authorize. Nothing in this section shall be construed as limiting the right of trustees in proper cases to make deposits of trust moneys in banks, subject, in the case of interest - bearing deposits, to such notice or other conditions respecting withdrawal as may be prescribed by law or governmental regulation affecting such deposits. (4) Nothing in this section shall abrogate or restrict the power of the appropriate court in proper cases to direct or permit the trustee to deviate from the terms of the trust regarding the making or retention of investments. 000626 (5) the provisions of this section shall apply to all trusts now existing or hereafter created. Where, in trusts now existing or hereafter created, the term "investments permissible by law for investment of trust funds," or "authorized by law for investment of trust funds " "legal investments ", or "authorized investments ", or other , words of similar import are used in defining the powers of the trustee relative to investments, such language, in the absence of other controlling or modifying provisions of the trust instrument, shall be construed as authorizing any investment permitted by the terms of subdivision (1) of this section. (6) The term "property" as used in this section includes life insurance, endowment, and annuity contracts issued by legal reserve companies authorized to do business in this state. ®0062' PURPOSE: this statement is intended to provide a guideline for the prudent investment of temporary idle cash, trust funds and restricted monies and to outline a policy for maximizing the efficiency of the cash management system. Ultimate investment goals include the enhancement of economic status and the protection of pooled cash investments. OBJECTIVE: To develop a cash management system of the City of Moorpark to accurately monitor and forecast expenditures and revenues, thus insuring the investment of monies to the fullest extent possible. Attempt to obtain highest interest yields possible as long as investments meet the criteria required for safety and liquidity. POLICY: The City of Moorpark operates its pooled idle cash investments under the Prudent Man Rule (copy attached, Section 2261ta). This affords a broad spectrum of investment opportunities so long as the investment is deemed prudent and is permissible under currently effective legislation of the State of California and other imposed legal restrictions. The City of Moorpark strives to maintain the level of investment of idle funds as near to 100% as possible. Consistent with this factor, investments are made under the terms and conditions of Sections 53600- 53683 of the Government Code of California. Criteria for selecting investments and the absolute order of priority are: 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. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. LIQUIDITY: The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. RETURN ON INVESTMENT: The City's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the cash flow characteristics of the portfolio. 111. RESOLUTION NO. 99- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MOORPARK, CALIFORNIA, ADOPTING AN INVESTMENT POLICY FOR THE INVESTMENT OF SURPLUS FUNDS. WHEREAS, Section 53600 et. seq. of the California Government Code requires each unit of local government to establish a policy for the investment of surplus funds; and WHEREAS, the Government Code requires the local legislative body to adopt said investment policy by resolution at a public meeting. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The Investment Policy for the investment of surplus funds, attached hereto as Exhibit "A ", is hereby adopted as the City of Moorpark Investment Policy. SECTION 2. The City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the book of original Resolutions. PASSED AND ADOPTED this 16th day of June 1999. Patrick Hunter, Mayor ATTEST: Deborah S. Traffenstedt, City Clerk Exhibit "A" 000629 Exhibit "A" Resolution No. 99- CITY OF MOORPARK INVESTMENT POLICY 1. PURPOSE It is the purpose of the City of Moorpark to invest public funds in a prudent manner, which will provide the maximum security while meeting the daily cash flow needs and conforming to all statutes governing the investment of public funds. The purpose of this document is to identify policies that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment - related activities. This policy is to guide investment of City and Redevelopment Agency funds toward the investment goals of safety, liquidity and return. 2. POLICY It is the policy funds not requir( safe and liquid while conforming investment policy of the City of Moorpark to invest public �d for immediate day -to -day operations in investments having an acceptable return to all state statutes and the city's governs the investment of public funds. Any conflict between the City of Moorpark's Investment Policy and Government Code Section 53600 et. seq., shall be interpreted in favor of the Government Code. 3. SCOPE This policy covers the investment activities of temporarily idle funds under the direct authority of the City. A. Pooled Investments. its component units will except as provided for types to be included in fund, special revenue capital project funds, trust and agency funds. Investments for the City and be made on a pooled basis, below. The permitted fund the pooled funds are general funds, debt service funds, internal service funds and 000630 1 B. Investments Held Separately. In some instances, investments cannot be included in the city's investment pool. These may include investments of bond proceeds, retirement system contributions and others. In such cases the funds will be held separately when required by law, contract or other authority. 4. OBJECTIVES Section 53600.5 of the California Government Code outlines the primary objectives of a trustee investing public money. The primary objectives, in order of priority, of the city's investment activities shall be: A. Safety. Safety of principal is the foremost objective of the investment program. Investments by the City shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio and reduce both credit and market risk. B. Liquidity. The city's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. It also refers to the ability to convert an investment to cash without loss of principal and minimal loss of interest. C. Return on Investment. Investment return becomes a consideration only after the basic requirements of safety and liquidity have been met. The city shall attempt to obtain an acceptable return for additional income for City and Agency operations relative to the risk being taken. The City Treasurer shall strive to maintain the level of investment of all contingency reserves and inactive funds as close to 100% of all surplus funds as possible. While the objectives of safety and liquidity must first be met, it is recognized that investment assets represent a potential source of significant revenues. It is to the benefit of the City and Agency that these assets be managed to produce optimum revenues consistent with State statutes and local policies. 000631 K 5. DUTIES AND RESPONSIBILITIES By the annual adoption of this policy, the management of inactive cash and the investment of funds identified in paragraph 3(A) is the responsibility of the City Treasurer as directed by the City Council. Under the authority granted by the City Council, no person may engage in an investment transaction covered by the terms of this policy unless directed by the Treasurer. In the execution of this delegated authority, the Treasurer may establish accounts with qualified financial institutions and brokers /dealers for the purpose of effecting investment transactions in accordance with this policy. The criteria used to select qualified financial institutions and brokers /dealers are identified in Part 14 of this policy. 6. PRUDENCE Section 53600.3 of the California Government Code identifies as trustees those persons authorized to make investment decisions on behalf of a local agency. As a trustee, the standard of prudence to be used shall be the "prudent investor" standard and shall be applied in the context of managing the overall portfolio. Investments shall be made with judgement 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. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk changes or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. 7. ETHICS AND CONFLICTS OF INTEREST All participants in the city's investment process shall act responsibly as custodians of the public trust. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which 000632 3 would impair their ability to make impartial investment recommendations and decisions. Investment officials and employees shall make all disclosures appropriate under the Fair Political Practices Act, and may seek the advice of the City Attorney and the Fair Political Practices Commission whenever there is a question of personal financial or investment positions that could represent potential conflicts of interest. B. AUTHORIZED_ INVESTMENTS A. Pooled Investments. The City Treasurer may invest City funds in the following instruments as specified in the California Government Code Section 53601, and as further limited in this policy. (1) Local Agency Investment Fund (LAIF) of the State of California. Investments will be made in accordance with the laws and regulations governing those Funds. (2) Obligations of the U.S. Government, its agencies and instrumentalities, including mortgage- backed securities with a fixed coupon issued by an agency of the U.S. Government. (3) Certificates of Deposit. Deposits should not exceed one -year maturity. Deposits will be collateralized as specified in Section 9 of this investment policy. Deposits must be issued by nationally or state chartered banks and cannot exceed thirty percent (30 %) of the total portfolio. (4) Prime Commercial Paper of the highest numerical rating of Moody's Investment Service, Inc. or Standard & Poors Corporation. Further, eligible paper is limited to issuing corporations that are organized aand operating within the United States and having total assets in excess of $500 million and having a "AA" or higher rating for other debt of the issuer. Purchases may not exceed 180 days maturity or 15% of the portfolio. 000633 4 (5) Money market funds whose portfolio consists of one or more of the indicated legal investments and none of the prohibited investments. (6) Sweep account for the investment of overnight funds when the funds are swept into investments allowed by this policy. (7) Passbook accounts maintained solely to provide for ongoing operational needs shall be subject to the requirements of this policy. B. Investments Held Separately. Investments of bond funds will be made in conformance with the trust indenture for each issue. Such investments shall be held separately when required. 9. COLLATERALIZATION Investments in time certificates of deposit shall be fully insured up to $100,000 by the Federal Deposit Insurance Corporation or the Federal Savings & Loan Insurance Corporation, as appropriate. Investments in time certificates of deposit in excess of $100,000 shall be properly collateralized as required by law. 10. UNAUTHORIZED INVESTMENTS /INVESTMENT ACTIVITIES Investments not specifically included under Section 8 of this policy are disallowed. Additionally, Section 53601.6 of the California Government Code disallows the following: inverse floaters, rage notes, or interest -only strips that are derived from a pool of mortgages. Futures, options, or any leveraged purchases, reverse - repurchases, and speculations on interest rates are specifically not allowed by this policy. 11. INVESTMENT STRATEGY A. Pooled Investments. A buy and hold strategy will generally be followed; that is, investments once made will usually be held until maturity. A buy and hold strategy requires that the portfolio be kept sufficiently liquid to preclude the undesirable sale of investments prior to maturity. Occasionally, the City Treasurer may find it advantageous to sell an investment prior to maturity, but this should be only 000634 5 on an exception basis and only when it is clearly favorable to do so. To further provide for liquidity, investments will be made only in readily marketable securities actively traded in the secondary market. B. Investments Held Separately. Investments held separately for bond proceeds will follow the trust indenture for each issue. 12. DIVERSIFICATION The portfolio will be diversified to the extent feasible to avoid incurring unreasonable and avoidable risks regarding specific security types indicated in Section 8 of this investment policy, and with the exception of the U.S. Treasury/ Federal agency securities and authorized pools, no more than five percent (5 %) of the city's portfolio will be placed with any single issuer. 13. MAXIMUM MATURITIES A. Pooled Investments. A policy of laddered maturities will be followed for pooled investments. At least fifty percent (50 %) of the portfolio will be invested in instruments maturing within one year from the investment date. No more than twenty -five percent (25 %) of the entire portfolio may have a maturity date between three (3) and five (5) years from the investment date. Investments having a maturity greater than five (5) years will not be made. The average portfolio investment maturity shall be three (3) years or less. A dollar- weighted average will be used in computing the average maturity of the portfolio. B. Investments Held Separately. Maturities for investments held separately will conform to the trust indenture for each issue. 14. SELECTION OF FINANCIAL INSTITUTIONS AND BROKERS /DEALERS Investments shall be purchased only through well - established, financially sound institutions. All financial institutions and broker /dealers who desire to become qualified bidders for investment transactions will be given a copy of the city's investment policy, and return a cover 000635 6 letter which must be signed indicating that the investment policy has been read and understood. Qualified financial institutions must provide a copy of current audited financial statements and verification of federal charter. Broker /dealers must provide current audited financial statements and verification that the firm is in good standing with a national securities exchange. 15. PAYMENT, DELIVERY, SAFEKEEPING AND CUSTODY All security transactions entered into by the City shall be conducted on a delivery -vs- payment basis. Transactions, including wiring instructions, must be approved in writing by the City Treasurer or his /her designee, identified in advance in writing, or the City Manager. All investment transactions in excess of $100,000 (except for deposits or withdrawals from the L.A.I.F.) shall also require the signature of the City Manager. When the City Treasurer, in his /her capacity as Assistant City Manager, is serving as Acting City Manager the City Clerk shall be authorized to sign on behalf of the City Manager. All securities owned by the City (except the collateral for certificates of deposit in banks, and /or savings and loans) will be held by a third -party custodian designated by the City Treasurer and evidenced by a periodic statement from the custodian listing the specific instrument, rate, maturity and other pertinent information. All securities will be held in the nominee name of the custodian. 16. REPORTING Section 53636 of the California Government Code requires specific reports of investments and transactions to the City Council and the City Manager. A. Pooled Investments. The investment report shall be submitted to the City Council quarterly by the City Finance Division within thirty (30) days following the end of the quarter covered by the report. The quarterly report shall include the following elements: • Itemized listing of portfolio investments by type, date of maturity, yield to maturity, and issuer. 000636 7 • Par value, dollar amount invested, book value and current market value if applicable. The source of the market values will be cited. • Credit rating of corporate notes. • Weighted average yield and days to maturity of the portfolio. • Percent of portfolio maturing within one year, one to three years, and three to five years. • Percent that each type of investment represents in the portfolio. • Investment transactions for the reporting period. • Statement that the investment portfolio has the ability to meet the city's cash flow demands for the next six months. • Statement of compliance of the portfolio with the city's investment policy. An annual report for pooled investments will also be made to the City Council within ninety (90) days following the close of the fiscal year. The annual report will include a review of the composition of the portfolio, a discussion of trends impacting the portfolio, and a statement regarding anticipated fund activity in the next fiscal year. Monthly reports indicating the cash investment balances of the City and the Agency shall be submitted to the Council within thirty (30) days following the end of each month. B. Investments Held Separately. A report of the investments held separately shall be made quarterly within thirty (30) days following the end of the quarter and submitted as an attachment to the City Treasurer's quarterly report. 17. EXCEPTIONS Occasionally, exceptions to some of the requirements specified in this investment policy may occur for pooled investments because of events subsequent to the purchase of investment instruments. State law is silent as to how exceptions should be corrected. Exceptions may be temporary or more lasting; they may be self- correcting or require specific action. If specific action is required, the City Treasurer should determine the course of action 000637 8 that would correct exceptions to move the portfolio into compliance with state law and city policy. Decisions to correct exceptions should not expose the assets of the portfolio to undue risk, and should not impair the meeting of financial obligations as they fall due. Any subsequent investments should not extend existing exceptions. 18. INTERNAL CONTROL The City Treasurer shall establish and maintain a system of appropriate internal controls to ensure compliance with policies and procedures. The controls are designated to prevent losses of public funds arising from fraud, error, or imprudent actions by employees and officers of the City. 19. INVESTMENT POLICY ADOPTION Section 53646(a) of the California Government Code requires the City Treasurer to render to the City Council a statement of investment policy no less frequently than once a year for adoption. The city's investment policy and any modifications thereto shall be considered at a public meeting. Adoption shall be made by resolution of the City Council. 9 INVESTMENT POLICY - GLOSSARY Bond Indenture (or Trust Indenture): Written agreement specifying the terms and conditions for issuing bonds, stating the form of the bond being offered for sale, interest to be paid, the maturity date, call provisions and protective covenants, if any, collateral pledged, the repayment schedule, and other terms. It described the legal obligations of a bond issuer and the powers of the bond trustee, who has the responsibility for ensuring that interest payments are made to registered bondholders. Buy and Hold Strategy: Investments in which management has the positive intent and ability to hold each issue until maturity. Certificates of Deposit: Large denomination ($100,000 or more) interest bearing time deposits, paying the holder a fixed amount of interest at maturity. Funds cannot be withdrawn before maturity without giving advance notice and without a penalty. Collateralization: To secure a debt in part or in full by pledge of collateral, asset pledged as security as security to ensure payment or performance of an obligation. Commercial Paper: Short -term IOU, or unsecured money market obligation, issued by prime rated commercial firms and financial companies, with maturities from 2 days up to 270 days. A promissory note of the issuer used to finance current obligations, and is a negotiable instrument. Delivery versus Payment: Securities industry term indicating payment is due when the buyer has securities in hand or a book entry receipt. Diversification: Dividing investment funds among a variety of securities offering independent returns. Laddered Portfolio: Bond investment portfolio with securities in each maturity range (e.g. Monthly) over a specified period of time (e.g. five years). Leverage: Investing with borrowed money with the exception that the interest earned on the investment will exceed the interest paid on the borrowed money. 000639 10 Local Agency Investment Fund (LAIF): A voluntary investment program offering participating agencies the opportunity to participate in a major portfolio which daily invests hundreds of millions of dollars, using the investment expertise of the State Treasurer's Office investment staff at no additional cost to the taxpayer. Investment in LAIF, considered a short -term investment, is readily available for cash withdrawal on a daily basis. Nominee: Registered owner of a stock or bond if difference from the beneficial owner, who acts as holder of record for securities and other assets. Typically, this arrangement is done to facilitate the transfer of securities when it is inconvenient to obtain the signature of the real owner, or the actual owner may not wish to be identified. Nominee ownership simplifies the registration and transfer of securities. Pooled Investments: Grouping of resources for the common advantage of the participants. Sweep Account: Short -term income fund into which all uninvested cash balances from the non - interest bearing checking account are automatically transferred on a daily basis. Third -Party Custodian: Corporate agent, usually a commercial bank, who, acting as trustee, holds securities under a written agreement for a corporate client and buys and sells securities when instructed. Custody service includes securities safekeeping, and collection of dividends and interest. The bank acts only as a transfer agent and makes no buy -sell recommendations. U.S. Government Securities: Securities issued by the U.S. Government and it's agencies which are either directly or indirectly backed by the full faith and credit of the United States. U.S. Government securities include Treasury Bills, Notes and Bonds. Agency securities include those issued by the Federal National Mortgage Association, Federal Home Loan Bank, and similar agencies. Yield to Maturity: The rate of annual income return on an investment expressed as a percentage, adjusted for any discounts, and spread over the period from the date of purchase to the date of maturity. 00064® 11