HomeMy WebLinkAboutReso 2005-184
RESOLUTION NO. 2005-184
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA APPROVING A REVISED CITY
INVESTMENT POLICY AND GUIDELINES AS
RECOMMENDED BY THE ASSOCIATION OF PUBLIC
TREASURERS OF THE UNITED STATES AND CANADA
WHEREAS, the City's current Investment Policy and Guidelines were adopted on
February 18, 2003 by Resolution 2003-062, and were intended to provide direction for the
prudent investment of temporarily idle cash and for maximizing the efficiency of the cash
management process; and
WHEREAS, state law requires that the Investment Policy and Guidelines be adopted by
resolution of the City Council on an annual basis after being reviewed to ensure consistency with
the overall objectives of preservation of principal, .liquidity, and yield, and its relevance to
current law and financial and economic trends; and
WHEREAS, City staff recommends the current policy be amended for submission to the
Association of Public Treasurers of the United States and Canada (APTUSC) for certification;
and
WHEREAS, APTUSC has developed an Investment Policy Program that provides public
investors with guidance and technical assistance in developing a comprehensive written
investment policy; and
WHEREAS, creating a policy that meets certification standards set by APTUSC will
assure the City Council and the public that the City is abiding by professional standards
established to ensure prudent management of public funds; and
WHEREAS, City staff has prepared a revised Investment Policy and Guidelines to meet
the APTUSC standards.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula
Vista hereby approves and adopts the revised City Investment Policy and Guidelines, attached to
this resolution as Exhibit A and incorporated by this reference.
Presented by
Approved as to form by
G~
Ann Moore
City Attorney
Resolution No. 2005-184
Page 2
PASSED, APPROVED, and ADOPTED by the City Council of the City ofChula Vista,
California, this 7th day of June, 2005, by the following vote:
AYES:
Councilmembers:
Castaneda, Davis, McCann, Rindone and Padilla
NAYS:
Councilmembers:
None
ABSENT:
Councilmembers:
None
fdc!i2uL
Stephen C. Padilla, Mayor
ATTEST:
~ t; , r r=::::;;:;. , d
Susan Bigelow, MMC, Cit~~rk
CJJ-~
STATE OF CALIFORNIA )
COUNTY OF SAN DIEGO )
CITY OF CHULA VISTA )
I, Susan Bigelow, City Clerk of Chula Vista, California, do hereby certifY that the foregoing
Resolution No. 2005-184 was duly passed, approved, and adopted by the City Council at a
regular meeting of the Chula Vista City Council held on the 7th day of June, 2005.
Executed this 7th day of June, 2005.
,
:: I', l A.....L. t~'[--.J_.~
Susan Bigelow, MMC, City Clerk
J
Resolution No. 2005-184
Page 3
CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
1.0 Purpose: ................................................................................................................................... 2
2.0 Policy: ................................... .................................................................................................... 2
3.0 Scope: ....................................................................................................................................... 2
4.0 Prudence: ................................................................................................................................. 3
5.0 0 b j ective: ..................................................................... ............................................................ 3
6.0 Delegation of Authority:.........................................................................................................4
7.0 Ethics and Conflicts of Interest: ............................................................................................ 4
8.0 Authorized Financial Dealers and Institutions: ................................................................... 4
9.0 Authorized & Suitable Investments: ..................................................................................... 5
10.0 Portfolio Adjustments: ......................................................................................................... 8
11.0 C ollateraliza tion: ................................................................................................................... 8
12.0 Safekeeping and Custody: .................................................................................................... 8
13.0 Diversification: ...................................................................................................................... 9
14.0 Maximum Maturities: .......................................................................................................... 9
15.0 Internal Control: .................................................................................................................10
16.0 Performance Standards: ....................................................................................................10
17.0 Reporting: ............................................................................................................................11
18.0 Investment Policy' Adoption: .............................................................................................. 12
GLOSSARY..~.............................................................................................................................. 13
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Resolution No. 2005-184
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Resolution No. 2005-184
CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
1.0 Purpose:
This "Investment Policy and Guidelines" (the "Investment Policy") Policy is intended to provide
guidelines for the prudent investment of the City of Chula Vista's (the "City") cash balances, and
outline policies to assist in maximizing the efficiency of the City's cash management system,
while meeting the daily cash flow demands of the City.
2.0 Policy:
The investment practices and policies of the City of Chula Vista are based upon state law and
prudent money management. The primary goals of these practices are:
A. To ensure compliance with all Federal, State, and local laws governing the investment of
public funds under the control of the Director of Financerrreasurer.
B. To protect the principal monies entrusted to the City's Finance Department.
C. Achieve a reasonable rate of return within the parameters of prudent risk management while
minimizing the potential for capital losses arising from market changes or issuer default.
3.0 Scope:
This Investment Policy applies to all financial assets of the City of Chula Vista, as indicated in
3.1 below. These funds are accounted for in the City's Comprehensive Annual Financial Report.
3.1 Funds:
The Director of Finance/Treasurer is responsible for investing the unexpended cash in the City
Treasury for all funds, except for the employee's retirement funds, which are administered
separately, and those funds which are managed separately by trustees appointed under indenture
agreements. The Director of Financerrreasurer will strive to maintain the level of investment of
this cash as close as possible to 100%. These funds are described in the City's annual financial
report and include:
. General Fund
. Special.Rev:enue Funds
. Capital Project Funds
. Enterprise Funds
. Trust and Agency Funds
. Any new fund created by the legislative body, unless specifically exempted
This Investment Policy applies to all transactions involving the financial assets and related
activity of the foregoing funds.
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
4.0 Prudence:
The standard of prudence to be used by the Director of Financerrreasurer shall be the "prudent
investor standard". This shall be applied in the context of m~11~gj"g an overall portfolio.
The "prudent investor standard" is applied to local agencies, pursuant to California
Gove=ent Code Section 53600.3 which provides, in pertinent part:
" ... all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds
pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. W1:1en investing, rein vesting, purchasing, acquiring,
exchanging, selling, or managing public funds, a trustee shall act with care, skill,
prudence, and diligence under the circumstances then prevailing, including, but
not limited to, the general economic conditions and the anticipated needs of the
agency, 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. ..."
4.1 Personal Responsibility:
The Director of Financerrreasurer, Assistant Director of Finance and Treasury Manager as
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 or market price changes, provided deviations fiom expectations are reported to the
City Council in a timely fashion and appropriate action is taken to control adverse developments.
5.0 O'bjective:
Consistent wi'th this aim, investments are made under the terms and conditions of California
Gove=ent Code Section 53600, et seq. Criteria for selecting investments and the absolute
order of priority are:
5.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments of the City
of Chula Vista 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.
5.2 Liquidity:
The City of Chula Vista's investment portfolio will remain sufficiently liquid to enable 'the City
to meet all operating requirements which might be reasonably anticipated and to maintain
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Resolution No. 2005-184
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CTIY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
compliance with any indenture agreement, as applicable. Liquidity is essential to the safety of
principal.
5.3 Return on Investments:
The City of ChuIa Vista's investment portfolio shall be designed with the objective of attaining a
market-average rate of return throughout budgetary and economic cycles (market interest rates),
within the City's Investment Policy's risk parameters and the City's cash flow needs. See also
Section 16.1.
6.0 Delegation of Authority:
The Director of Finance/Treasurer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials. The
responsibility for the day-to-day investment of City funds will be delegated to the Treasury
Manager under the general direction of the Assistant Director of Finance.
7.0 Ethics and Conflicts of Interest:
In addition to state and local statutes relating to conflicts of interest, all persons involved in the
investment process shall refrain from personal business activity that could conflict with proper
execution of the investment program, or which could impair their ability to make impartial
investment decisions. Employees and investment officers are required to file annual disclosure
statements as required for "public officials who manage public investments" [as defined and
required by the Political Refo= Act and related regulations, including Gove=ent Code
Sections 81000, et seq., and the rules, regulations and guidelines promulgated by California's
Fair Political Practices Commission (FFPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Financerrreasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will perfo= an
annual review of the financial condition and. registrations of qualified bidders and require annual
audited financial statements to be on file for each company. The City will utilize Moody's
Securities or other such services to determine financially sound institutions with which to do
business. The City shall annually send a copy of the current Investment Policy to all financial
institutions and brokers/dealers approved to do business with the City.
As far as possible, all money belonging to, or in the custody of, a local agency, including money
paid to the City's Director of Financerrreasurer or other official to pay the principal, interest, or
penalties of bonds, shall be deposited for safekeeping in state or national banks, savings
associations, federal associations, credit unions, or federally insured industrial loan companies in
this state selected by the City's Director of Financerrreasurer; or may be invested in the
investments set forth in Section 9.0. To be eligible to receive local agency money, a bank,
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
savings association, federal association, or federally insured industrial loan company shall have
received an overall rating of not less than "satisfactory" in its most recent evaluation by the
appropriate federal financial supervisory agency of its record of meeting the credit needs of
California's communities, including low- and moderate-income neighborhoods.
To provide for the optimum yield in the investment of City funds, the City's investment
procedures shall encourage competitive bidding on transactions from approved brokers/dealers.
In order to be approved by the City, the dealer must meet the following criteria: (i) the dealer
must be a "primary" dealer or regional dealer that q11alifies under Securities and Exchange
Commission Rule 15C3-1 (Unifo= Net Capital Rule); (ii)the dealer's institution must have an
office in California; (iii)the dealer must be experienced in institutional trading practices and
familiar with the California Gove=ent Code as related to investments appropriate for the City;
and (iv) all other applicable criteria., as may be established in the investment procedures. All
brokers/dealers and financial institutions who desire to become qualified bidders for investment
transactions must submit a "BrokerlDealer Application" and related documents relative to
eligibility including a current audited annual financial statement, U4 fo= for the broker, proof
of state registration, proof of National Association of Securities Dealers certification and a
certification of having read and understood the City's Investment Policy and agreeing to comply
with the Investment Policy. The City's Director ofFinancelTreasurer shall determine if they are
adequately capitalized (i.e. minimum capital requirements of $10,000,000 and five years of
operation).
9.0 Authorized & Suitable Investments:
The City is authorized by California Gove=ent Code Section 53600, et. seq., to invest in
specific types of securities. Investments not specifically listed below are deemed inappropriate
and prohibited:
A. BANKERS' ACCEPTANCES, maximum 25% of portfolio (up to 40% with Council
approval). Maximum te= 180 days. Banks must have a short te= rating of at least AlIPI
and a long-term rating of A or higher as provided by Moody's Investors Service or Standard
and Poor's Corp. No more than 30% of the agency's money may be invested in the bankers'
acceptances of anyone commercial bank pursuant to this section.
B. NEGOTIABLE CERTIFICATES OF DEPOSIT, maximum 30% of portfolio. Maximum
term 3 years, (Up to 5 years with Council approval). Banks must have a short te= rating of
AlIPl and a long te= rating of at least a single A from a nationally recognized authority on
ratings.
C. COMMERCIAL PAPER, maximum 25% of portfolio. Maximum te= 270 days.
Commercial paper of prime quality of the highest ranking or of the highest letter and number
rating as provided for by Moody's Investor Services, Standard & Poor's' and Fitch Financial
Services. The issuing corporation must be organized and operating within the United States,
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
with total assets in excess of $500 million and shall issue debt, other than co=ercial paper,
that is rated "A" or higher by Moody's,. S&P and Fitch. Split ratings (i.e. A2/PI) are not
allowable. No more than 10% of the outstanding commercial paper of any single corporate
issue may be purchased.
D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY WITHIN THE STATE OF
CALIFORNIA. Bonds must have an "A" rating or better from a nationally recognized
authority on ratings.
E. OBLIGATIONS OF THE UNITED STATES TREASURY. 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. There is no limit on the
percentage of the portfolio that can be invested in this category.
F. FEDERAL AGENCIES. Debt instruments issued by agencies of the Federal government.
Though not general obligations of the U.S. Treasury, such securities are sponsored by the
gove=ent or related to the gove=ent and, therefore, have high safety ratings. The
following are authorized Federal Intermediate Credit Bank (FICB). Federal Land Bank
(FLB), Federal Home Loan Bank (FHLB), Federal National Mortgage Association (FNMA),
Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage
Association (GNMA), Tennessee Valley Authorities (TV A). Student Loan Association Notes
(SLMA) and Small Business Administration (SBA). There is no limit on the percentage of
the portfolio that can be invested in this category.
G. REPURCHASE AGREEMENT, maximum term 3 months. Investments in repurchase
agreements may be made, on any investment authorized in this section, when the term of the
agreement does not exceed 3 months. A Master Repurchase Agreement must be signed with
the bank or broker/dealer who is selling the securities to the City.
H. REVERSE-REPURCHASE AGREEMENTS, (requires City Council approval for each
transaction). Reverse repurchase agreements or securities lending agreements may be
utilized only when all of the following conditions are met:
a) The security to be sold on reverse repurchase agreement or securities lending
agreement has been owned and fully paid for by the local agency for a minimum
of 3.0 days prior to sale.
b) The total of all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency does not exceed 20% of the base value
of the portfolio.
c) The agreement does not exceed a term of92 days, unless the agreement includes a
written codicil guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement or securities
lending agreement and the final maturity date of the same security.
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
d) Funds obtained or funds witbin the pool of an equivalent amount to that obtained
from selling a security to a counter party by way of a reverse repurchase
agreement or securities lending agreement, shall not be used to purchase another
security with a maturity longer than 92 days from the initial settlement date of the
reverse repurchase agreement or securities lending agreement, unless the reverse
repurchase agreement or securities lending agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period between the sale
of a security using a reverse repurchase agreement or securities lending agreement
and the final maturity date of the same security. Investments in reverse
repurchase agreements, securities lending agreements, or similar investments in
which the local agency sells securities prior to purchase with a simultaneous
agreement to repurchase the security shall only be made with primary dealers of
the Federal Reserve Bank of New York or with a nationally or state-chartered
bank that has or has had a significant banking relationship with a local agency.
e) For purposes of this chapter, "significant banking relationship" means any of the
following activities of a bank:
i. Involvement in the creation, sale, purchase, or retirement of a local
agency's bonds, warrants, notes, or other evidence of indebtedness.
ii. Financing of a local agency's aotivities.
ill. Acceptance of a local agency's securities or funds as deposits.
I. :MEDmM-TERM CORPORATE NOTES, maximum 20% of portfolio (30% with Council
approval), with a maximum remaining maturity of five years or less. Notes eligible for
investment shall be "A" rated or its equivalent or better as determined by a nationally
recognized rating service.
J. TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable certificates of deposit.)
Maximum of 3 years. Deposits must be made with b?Dks or savings & loan that have a short
te= rating of Al!Pl or a long te= rating of at least a single A from a generally recognized
authority on ratings.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA, must be "A" rated or better from a
nationally recognized autbority on ratings.
L. MONEY MARKET FUNDS, maximum 15% of portfolio, (requires City Council approval
for each transaction). No more than 10% oftbe agency's surplus funds may be invested in
shares of beneficial interest of anyone Money Market fund. Local agencies may invest in
"shares of beneficial interest" issued by diversified management companies which invest
only in direct obligations in U.S. Treasury bills, notes and bonds, and repurchase agreements
with a weighted average of 60 days or less. They must have the highest rating ITom two
national rating agencies, must maintain a daily principal per share value of $1.00 per share
and distribute interest monthly, and must have a miT1;mum of $500 million in assets under
management. The purchase price of the shares may not include commission.
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Resolution No. 2005-184 _
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
M. THE LOCAL AGENCY INVESTMENT FUND (LAIF) is a special fund of the California
State Treasury through which any local gove=ent may pool investments. The City may
invest up to $40 million in this fund. Currently, the City has established two (2) agency
funds through which the Director of Financerrreasurer may invest the unexpended cash for
all funds: The City of Chula Vista City Fund, and the Chula Vista Redevelopment Agency
Fund. Investments in LAIF are highly liquid and may be converted to cash within 24 hours.
9.1 Investment Pools:
The City's Director of Financerrreasurer or designee shall be required to investigate all local
gove=ent investment pools and money market mutual funds prior to investing and performing
at least a quarterly review thereafter while the City is invested in the pool or the money market
fund. LAIF is authorized under provisions in Section 16429.1 of the California Gove=ent
Code as an. allowable investment for local agencies even though some of the individual
investments of the pool are not allowed as a direct investment by a local agency.
10.0 Portfolio Adjustments:
Should any investment listed in section 9.0 exceed a percentage-of-portfolio limitation due to an
incident such as fluctuation in portfolio size, the affected securities may be held to maturity to
avoid losses. When no loss is indicated, the Director of Financerrreasurer shall consider
reconstructing the portfolio basing his or her decision on the expected length of time the
portfolio will be unbalanced. If this occurs, the City Council shall be notified.
11.0 Collateralization:
Under provisions of the California Government Code, California banks, and savings and loan
associations are required to secure the City's deposits by pledging gove=ent securities with a
value of 110 % of principal and accrued interest. California law also allows financial institutions
to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the
City's total deposits. Collateral will always be held by an independent third party. A clearly
marked evidence of ownership (safekeeping receipt) must be supplied to the City and retained.
The market value of securities that underlay a repurchase agreement shall be valued at 102% or
greater of the funds borrowed against those securities and the value shall be adjusted no less than
quarterly. Since the market value of the underlying securities is subject to dally market
fluctuations, the investments in repurchase agreements shall be in compliance if the value of the
underlying securities is brought back up to 102% no later than the next business day. The
Director of Financeffreasurer, at his or her discretion, may waive the collateral requirement for
deposits that are fully insured up to $100,000 by the Federal Deposit Insurance Corporation. The
right of collateral substitution is granted.
12.0 Safekeeping and Custody:
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Resolution No. 2005-184 CITY OF CHULA VISTA
Page 12 STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
All City investments shall identify the City of ChuJa Vista as the registered owner, and all
interest and principal payments and withdrawals shal1 indicate the City of ChuJa Vista as the
payee. All securities shall be safe kept with the City itself or with a qualified financial
institution, contracted by the City as a third party. All agreements and statements will be subject
to review annually by external auditors in conjunction with their audit. In the event that the City
has a financial institution hold the securities, a separate custodial agreement shal1 be required.
All securities shall be acquired by the safekeeping institution on a "Delivery-Vs-Payment"
(DVP) basis. For Repurchase Agreements, the purchase may be delivered by book entry,
physical delivery or by third-party custodial agreement consistent with the Government Code.
The transfer of securities to the counter party bank's customer book entry account may be used
for book entry delivery.
13.0 Diversification:
The City's investment portfolio will be diversified to avoid incurring unreasonable and avoidable
risks associated with concentrating investments in specific security types, maturity segment, or in
individual financial institutions. With the exception of U.S. Treasury securities and authorized
pools, no more than 60% of the total investment portfolio will be invested in a single security
type or with a single financial institution. In addition, no more than 10% of the investment
portfolio shall be insecurities of anyone issuer except for U.S. Treasuries and U.S. Government
Agency issues.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be
mitigated by investing in those securities with an "A" or above rating and approved in the
Investment Policy and by diversifying the investment portfolio so that the failure of anyone
issuer wouJd not unduly harm the City's cash flow.
B. Market .risk, defined as the risk of market value fluctuations due to overall. changes in the
general level of interest rates, shall be mitigated by structuring the portfolio so that securities
mature at the same time that major cash outflows occur, thus eliminating the need to sell
securities prior to their maturity. It is explicitly recognized herein, however, that in a
diversified portfolio, occasional measured losses are inevitable and must be considered
within the context of overall investment return. The City's investment portfolio will remain
sufficiently liquid to enable the City to meet all operating requirements which might be
reasonably anticipated.
.14.0 Maximum Maturities:
To the extent possible, the City will attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City will not directly invest in
securities maturing more than five (5) years from the date of purchase, unless, the legislative
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Resolution No. 2005-184
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CITY OF CHULA VIS1'A
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
body has granted express authority to make that investment either specifically, or as a part of an
. investment program approved by the City Council.
15.0 Internal Control:
The Director of FinancelTreasurer shall establish a system of internal controls designed to
prevent loss of public funds due to ftaud, employee error, misrepresentation by third parties, or
unanticipated market changes. No investment personnel may engage in an investment
transaction except as provided for under the te=s of this Investment Policy and the procedure
established by the Director of FinancelTreasurer.
The external auditors shall annually review the investments with respect to the Investment
Policy. This review will provide internal control by assuring compliance with policies and
procedures for the investments that are selected for testing. Additionally, account reconciliation
and verification of general ledger balances relating to the purchasing or maturing of investments
and allocation of investments to fund balances shall be perfo=ed by the Finance Department
and approved by the Director of Financerrreasurer. To provide further protection of City funds,
written procedures prohibit the wiring of any City funds without the authorization of at least two
of the following four designated City staff:
1. Director of Finance/Treasurer
2. Assistant Director of Finance
3. Treasury Manager
4. Fiscal Operations Manager
16.0 Performance Standards:
This Investment Policy shall be reviewed at least annually by the Director of FinancelTreasurer
to ensure its consistency with the overall objective of preservation of principal, liquidity, and
return, and its relevance to current law and financial and economic trends. All financial assets of
all other funds shall be administered in accordance with the provisions oftbis Investment Policy.
The monies entrusted to the Director of FinancelTreasurer will be held in a passively managed
("hold to maturity") portfolio. However, the Director of Finance/Treasurer will use best efforts
to observe, review, and react to changing conditions that affect the portfolio, and to do so in a
manner that is consistent with this Investment Policy.
16.1 Market Yield (Benchmark):
The investment portfolio shall be managed to attain a market-average rate of return throughout
budgetary and economic cycles, taking into account the City's investment risk constraints and
cash flow. Investment return becomes a consideration only after the basic requir=ents of
Page 10 of1?
Resolution No. 2005-184 CITY OF CHULA VISTA
Page 14 STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
investment safety and liquidity have been met. Because the investment portfolio is designed to
operate on a 'hold-to-maturity' premise (or passive investment style) and because of the safety,
liquidity, and yield priorities, the performance benchmark that will be used to determine whether
market yields are being achieved shall be the average of the monthly LAIF rate and the 12-month
rolling average 2 - Year Constant Maturity Treasury (CMT) rate. Wbile the City will not make
investments for the purpose of trading or speculation as the dominant criterion, the Director of
Finance/Treasurer shall seek to enhance total portfolio. return by means of ongoing portfolio and
cash management. The prohibition of highly speculative investments precludes pursuit of gain
or profit through unusual risk and precludes investments primarily directed at gains or profits
from conjectural fluctuations in market prices. The Director of FinancelTreasurer will not
directly pursue any investments that are leveraged or deemed derivative in nature. However, as
long as the original investments can be justified by their ordinary earning power, trading in
response to changes in market value can be used as part of on-going portfolio management.
17.0 Reporting:
The Director of Financerrreasurer shall submit a quarterly investment report to the City Council
and City Manager following the end of each q1larter. This report will include the following
elements:
. Type of investment
. Institutional Issuer
. Purchase Date
. Date of maturity
. Amount of deposit or cost of the investment
. Face value of the investment
. Current market value of securities and source of valuation
. Rate of interest
. Interest earnings
. Statement relating the report to its compliance with the Statement of Investment Policy or
the manner in which the portfolio is not in compliance
. Statement on availability of funds to meet the next six. month's obligations
. Monthly and Year-to-date Budget Amounts for Interest Income
. Percentage of Portfolio by Investment Type
. Days to Maturity for all Investments
. Comparative report on Monthly Investment Balances & Interest Yields
. Monthly transactions
This quarterly investment report shall be an information item for the City Council and City
Manager. In addition, a co=entary on capital markets and economic conditions may be
included with the report.
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
The Director of Finance/Treasurer shall submit, pursuant to California Government Code 9
53646(g), copies of the quarterly investment reports to the California Debt and Investment
Advisory Commission (CDIAC) for both the second and fourth calendar quarters within sixty
days following the end of the quarter. In addition, the Director of Finance/Treasurer shall submit
to CDIAC a copy of the adopted Investment Policy annually and within sixty days of any
approved amendments or revisions of the Policy.
18.0 Investment Policy Adoption:
By virtue of a resolution of the City Council of the City of Chula Vista, the Council shall
acknowledge the receipt and filing of this annual statement of Investment Policy for the
respective fiscal year.
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Resolution No. 2005-184
Page 16 CITY OF CHULA VISTA
STATE:MENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
GLOSSARY
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered. (The price at which a firm will sell a security
to an investor.)
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. The
drafts are drawn on a bank: by an exporter or importer to obtain funds to pay for specific
merchandise. An acceptance is a high-grade negotiable instrument.
BASIS POINT: One one-hundredth of a percent (i.e., 0.01 'Yo)
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a
bid.)
BROKER: A broker brings buyers and sellers together for a commission. He does not take a
position.
CERTIFICATE OF DEPOSIT (CD): A time deposi.t with a specific maturity evidenced by a
certificate. Large-denomination CDs 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 monies.
COMMERCIAL PAPER: Short te= unsecured promissory note issued by a corporation to
raise working capital. These negotiable instruments are purchased at a discount to par value or at
par value with interest bearing. Co=erci.al paper is issued by corporations such as General
Motors Acceptance Corporation, IBM, Bank: of America, etc.
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 credit of the issuer.
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
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Resolution No. 2005-184
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. CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 200412005
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 at
a discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal gov=ent set up to supply credit
to various classes of institutions (e.g., S&Ls, 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 though 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 co=ercial banks.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Created to promote
the development of a nationwide secondary market in mortgages. It does this by purchasing
residential mortgages from financial institutions insured by an agency of the federal government
and selling its interest in them through mortgage backed securities. The interest and principal
payments from the mortgages pass through to the investors either monthly, semiannually or
annually.
FEDERAL LAND BANK (FLB): Long-te= mortgage credit provided to farmers by Federal
Land Banks. These bonds are issued at irregular times for various maturities ranging from a few
months to ten years~
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
corporation's purchases include a variety of adjustable mortgages and second loans, in addition
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Resolution No. 2005-184 CITY OF CHULA VISTA
Page 18 STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
to fixed-rate mortgages. FNMA's securities are 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 periodically meets to set Federal 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, D.C.; 12 regional banks
and about 5,700 co=ercial banks 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 bankers, co=ercial banks, savings and loan associations and other institutions.
Security holder is protected by full faith and credit of the U.S. Gove=ent. Ginnie Mae
securities are backed by the FHA or V A mortgages. The term "pass-through" 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 GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading and could presumable be
purchased or sold.
MARKET REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to repurchase-reverse agreements that establish each party's
rights in the transactions. A master agreement will often specify, among other things, the right
of the buyer-lender to liquidate the underlying securities in the event. of default by the seller-
borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due
and payable.
NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecured obligations of the financial
institution, bank or savings and loan, bought at par value with the promise to pay face value plus
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Resolution No. 2005- 184
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CITY OF CHULA VISTA
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2004/2005
accrued interest at maturity. They are high-grade negotiable instruments, paying a higher
interest rate than regular certificates of deposit.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for
an offer).
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as dixected by the FOMC
in order to influence the volume of money and credit in the economy. Purchases inject reserves
into the bank system and stimulate growth of money and credit: Sales have the opposite effect.
Open market operations are the Federal Reserve's most important and most flexible monetary
Policy tool. .
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A 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 info=al oversight. Primary dealers include Securities and
Exchange Commission (SEC)-registered securities broker/dealers, banks and a few unregulated
firms.
PRUDENT PERSON RULE: An investment standard. In some states, the law requires that a
fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody
state-the so - called "legal list" . In other states, the trustee may invest in a security if it is one that
would be bought by a prudent person of discretion and intelligence who is seeking a reasonable
income and preservation of capital.
RATE OF RETURN; The yield obtainable on a security based on its purchase price or its
current market price.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities
to an investor with an agreement to repurchase them at a fixed date. The security "buyer" in
effect lends the "seller" money for the period of the agreement, and the te=s of the agreement
are structured to compensate him for this. Dealers use RP extensively to fmance their position.
Exception: when the Fed is said to be doing RP, it is lending money that is, increasing bank
reserves.
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.
STUDENT LOAN ASSOCIATION NOTES (SLMA or SALLIE MAE): A U.S. Corporation
and instrumentality of the U.S. Government. Through its borrowings, funds are targeted for
loans to students in higher education institutions. SLMA securities are highly liquid and are
widely accepted.
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Resolution No. 2005-184
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CITY OF CHULA VISTA
STATEJ\1ENT OF INVESTMENT POLlCY AND G1J1DELINES
FISCAL YEAR 2004/2005
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which are
guaranteed by the Federal gove=ent to provide financial assistance through direct loans and
loan guarantees to small businesses. Cash flows from these instruments may not be in equal
installments because of prepayments.
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.
SEC RULE 15C3-l: See "Unifo= Net Capital Rule".
TENNESSEE VALLEY AUTHORITIES (TV A): A U.S. Corporation created in the 1930s to
electrify the Tennessee Valley area; currently a major utility headquartered in Knoxville,
Tennessee. TV A securities are highly liquid and are widely accepted.
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-te= U.S. Treasury securities having initial maturities of more than
10 years.
TREASURY NOTES: Inte=ediate-te= coupon bearing U.S. Treasury having initial
maturities of one year to ten years.
UNIFORM NET CAPITAL RULE: S.ecurities and Exchange Commission requirement that
member fi=s as well as nonmember broker/dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: The. rate of annual income return on an investment, expressed as a percentage. (a)
Income Yield is obtained by dividing the current dollar income by the current market price for
the security. (b) Net Yield or Yield to Matunty is the current income yield minus any premium
above par or plus any discount from par in purchase price, with the adjustment spread over the
period from the date of purchase to the date of maturity of the bond.
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