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HomeMy WebLinkAbout1994/07/26 Item 9 COUNCIL AGENDA STATEMENT Item Meeting Date 7/26/94 9 ITEM TITLE: Resolution /757Y Amending City Investment Policy and Guidelines SUBMITTED BY: Director of Finance M REVIEWED BY: City Manager..Jt ~ ~ (4/5ths Vote: Yes _No---2LI The City has an existing Investment Policy and Guidelines to insure the prudent management of idle cash. (Exhibit A) It is recommended that the Council adopt a resolution amending the Policy and Guidelines to add the option of depositing funds in the County of San Diego Treasury for investment on a pooled basis with other local entities. It is also being recommended that the Annual Statement of Investment Policy to the Council currently required by the Policy be deleted in favor of the detailed monthly statements currently provided. The amended policy being recommended is attached as Exhibit B. RECOMMENDATION: Policy and Guidelines. That Council adopt a resolution amending the Investment BOARDS & COMMISSION RECOMMENDATION: Not Applicable DISCUSSION: The City's Investment Policy and Guidelines is intended to provide direction for the prudent investment of temporarily idle cash, and for maximizing the efficiency of the cash management process. The stated goal is to enhance the economic condition of the City while insuring the safety of funds invested. The policy includes a list of specific investment instruments available under the relevant California Government Code provisions, 53600 et. seq. and 53635 et. seq. In addition to specific instruments, investment in the Local Agency Investment Fund (LAIF), an investment pool administered by the State Treasurer is also included. On March 24, 1987, the County Board of Supervisors adopted Resolution No. 11, allowing local agencies within the County to deposit idle cash in the $4.0 billion County Treasury for investment on a pooled basis with other local entities, similar to the LAIF arrangement. In addition to all local public school districts and numerous independent special districts, there are currently thirteen cities (Exhibit E) with money invested in the County Treasury. The investment policy for the County Treasury is 9-/ Page 2. Item Meeting Date 7/26/94 , structured in accordance with substantially the same State statutes that guide the City's policy, and is included as Exhibit C. A snapshot of the County Treasury portfolio as of July 1, 1994, is included for information as Exhibit 0, showing seventy-five percent of the pool invested in securities issued or insured by the Federal Government and the remaining twenty-five percent invested in highly secure and liquid securities authorized by State statutes. Although structured very similar to LAIF, the County pool has consistently outperformed the State pool due to the very active management of the County Treasurer-Tax Collector. The difference can be significant as illustrated by the comparative performance of the two pools over the five months from January, 1994 through May, 1994. The average earnings rate for the LAIF pool was 4.31 percent versus the County pool average rate of 5.90 percent. Since during that same time frame, the City maintained an average balance in excess of $30 million invested in the State pool, the difference in interest revenue to the City would have been approximately $196,000. The current Investment Policy and Guidelines includes a requirement for the Director of Finance to annually render a Statement of Investment Policy to the City Council. Since the Policy already requires a monthly investment report to the City Manager and City Council, including very specific and detailed information on actual investment experience, the annual report is thought to be redundant, and therefore unneccesary. FISCAL IMPACT: No direct fiscal impact, but may result in an undetermined increase in interest revenue to all City funds. 9~:L CITIES INVESTING FUNDS IN THE COUNTY OF SAN DIEGO TREASURY City of Coronado City of El Cajon City of Del Mar city of Encinitas City of Imperial Beach city of La Mesa City of Lemon Grove City of National City City of Poway City of San Marcos City of Santee City of Solana Beach City of vista EXHIBIT E 9-.1 RESOLUTION NO. I 75'7Y RESOLUTION OF THE CITY CHULA VISTA ADOPTING POLICY AND GUIDELINES COUNCIL OF THE CITY OF NEW CITY INVESTMENT WHEREAS, the city's Investment Policy and Guidelines is intended to provide direction for the prudent investment of temporarily idle cash, and for maximizing the efficiency of the cash management process; and WHEREAS, the stated goal is to enhance the economic condition of the City while insuring the safety of funds invested; and WHEREAS, on March 24, 1987, the County Board of supervisors adopted Resolution No. 11, allowing local agencies within the County to deposit idle cash in the $4.0 billion County Treasury for investment on a pooled basis with other local entities, similar to the Local Agency Investment Fund (LAIF) arrangement; and WHEREAS, it is recommended that the Council adopt a resolution amending the Policy and Guidelines to add the option of depositing funds n the County Treasury for investment on a pooled basis with other local entities; and WHEREAS, it is also recommended that the Annual Statement of Investment Policy to the Council currently required by the Policy be deleted in favor of the detailed monthly statements currently provided. NOW, THEREFORE, BE IT RESOLVED the City Council of the City of Chula vista does hereby adopt new City Investment policy and Guidelines as set forth in Exhibit "B" attach hereto and incorporated herein by reference as if set 0 th in 11. Bruce M. Attorney Presented by Robert Powell, Director of Finance C: \ rs\ invest. pol 9-'/ j 1-, hr~ 9/24/85 CITY OF CHULA VISTA INVESTMENT POLICY AND GUIDELINES 1. PURPOSE This Statement is intended to provide guidelines for the prudent investment of the City's temporary idle cash, and outline the policies for maximizing the efficiency of the City's cash management system. The investment goal is to enhance the economic condition of the City while insuring the safety of funds invested. 2. OBJECTIVE The City's cash management system is designed to accurately monitor and forecast expenditures and revenues, thus enabling the City to invest funds to the fullest extent possible. The City attempts to obtain the highest yield on its investments consistent with the criteria established for safety and liquidity. 3. POLICY The Finance Director is responsible for investing the surplus funds in the City Treasury in accordance with the California Government Code, Sections 53600 et seq. and 53635 et seq. The City operates its temporary idle cash investments under the prudent man rule (Civil Code Sect. 2261, et seq.) which states, in essence, that "in investing... property for the benefit of another, a trustee shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs... " The three principle factors of safety, liquidity and yield are to be taken into consideration when making investment decisions. A) Safety. Safety and the minimizing of risk associated with investing refers to attempts to reduce the potential for loss of principal, interest or a combination of the two. The City invests only in those instruments that are considered very safe. B) Liquidity. Liquidity refers to the ability to convert an investment to cash promptly with minimum risk of losing some portion of principal or interest. A portion of the portfolio should be maintained in liquid short-term securities - 1 - EXHIBIT A "". /" r/~ which can be converted to cash if necessary to meet disbursement requirements. C) Yield. Yield is the average annual return on an investment based on the interest rate, price, and length of time to maturity. The City attempts to obtain the highest yield possible, provided that the basic criteria of safety and liquidity have been met. 4. INVESTMENT INSTRUMENTS The City of Chula Vista may invest in the following instruments under the guidelines as provided herein: A) Certificates of Deoosit. Time Certificates of Deposit will be made only in FDIC or FSLIC insured accounts. For deposits in excess of the insured maximum of $100,000, approved collateral shall be required in accordance with California Government Code Section 53652 and/or 53651 (m) (1). B) Securities of the U.S. Government or its Al!:encies. Includes obligations issued by Federal Home Loan Banks, Government National Mortgage Association, Farm Credit System, the Federal Home Loan Bank, Federal Home Loan Mortgage Association, Federal National Mortgage Association, or obligations or other instruments of or issued by a federal agency or a United States Government sponsored enterprise. C) Treasury Bills and Notes. U.S. Treasury Bills, Notes, Bonds or Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. D) Local Agency Investment Fund (LAIF)' Investment of funds in the California LAIF which allows the State Treasurer to invest through the Pooled Money Investment Account. Maximum investment is subject to state regulation. E) Bankers Acceptances. Bills of Exchange or Time Drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both domestic and foreign, which are eligible for purchase by the Federal Reserve System. Purchases of Bankers Acceptances may not exceed 270 days maturity or 40% of the City's surplus money which may be invested. F) Commercial Parer. Paper of the highest rating as provided by Moody's Investors Service, Inc., or Standard and Poor's Corporation (A-I: P-I). Purchases of eligible commercial paper may not exceed 180 days maturity or - 2 - EXHIBIT A 9/;; 15% of the City's surplus money which may be invested. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). G) Ne~otiable Certificates of Deposit. Issued by a nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank. Purchases of Negotiable Certificates of Deposit may not exceed 30% of the City's surplus money which may be invested. H) Reourchase A~reements. A purchase of securities by the City pursuant to an agreement by which the seller will repurchase such securities on or before a specified date, or on demand of either party, and for a specified amount. Investments in repos will be used solely as short term investments not to exceed 90 days. I) Other. Other investments that are, or may become, legal investments through the State of California Government Code and with prior approval of the City Council. 5. DIVERSIFICATION Investments shall be diversified among institutions, types of securities and maturities to maximize safety and yield with changing market conditions. Local financial institutions will be given preferential consideration for investment of City funds consistent with the City's objective of attaining market rates of return, and consistent with constraints imposed by its safety objectives, cash flow considerations and State laws. 6. SAFEKEEPING All investments of the City shall have the City of Chula Vista as registered owner or shall be kept in the custody of the City or by a qualified safekeeping institution. 7. INVESTMENT REPORTS A) The Director of Finance shall submit a monthly investment report to the City Manager and City Council containing the following information: Financial institution Type of investment Amount of deposit - 3 - EXHIBIT A 9~7 Rate of interest Purchase date Maturity date Current market value for securities with a maturity of more than 12 months - Other data as required by the City B) The Director of Finance shall annually render a Statement of Investment Policy to the City Council. - 4 - EXHIBIT A J-K 9/85 INVESTMENT INSTRUMENTS 1. T-BILLS Direct obligations of u.s. Government Three month and six month duration 2 . T-NOTES Direct obligations of u.s. Government Maturities up to 10 years 3. FEDERAL AGENCIES In addition to direct obligations of U. S. Government, a variety of Federal Agencies issue their own securities. Most carry full faith and credit guarantees. This category includes issues of Dept. of Housing & Urban Development (FHA and GNMA), Export-Import Bank of U.S., Farmers Home Administration, Government Services Administration SBA and Tennessee Valley Authority. 4. FEDERAL INSTRUMENTALITIES u.s. Government has sponsored creation of a variety of enterprises that operates as separate corporate entities. Underlying security varies by issuer. As with Agency securi ties, marketability of many sponsored corporations' debt is limited. Examples are Federal National Mortgage Association (FNMA), Federal Intermediate Credit (FIC) Banks, Federal Home Loan Banks, and Federal Land Banks, and Federal Land Banks. 5. COMMERCIAL BANK CERTIFICATES OF DEPOSIT CDs comprise backbone of many government portfolios because of their familiarity, their direct issuance by traditional government depositories, favorable legislation, flexible maturities, and money market rates of returns for larger deposits. 6. BANKERS' ACCEPTANCE Banker's Acceptance are negotiable time drafts drawn to finance the export, import, shipment or storage of goods, and they are termed "Accepted" when a bank guarantees to pay the face value of maturity. A Banker's Acceptance constitutes an irrevocable obligation of the accepting bank and a contingent obligation of the drawer and of any endorsees whose name appear on it. The bank is protected by its customer's EXHIBIT A 7~1 2 agreement to provide the necessary funds in advance of the maturity of the Acceptance and also by the pledge of documents such as bills of lading, independent warehouse or terminal receipts, and other documents evidencing ownership and the insurance of the goods so financed. Typically created from a letter of credit in a foreign trade transaction. Example - a u.s. corporation planning to import goods from abroad requests that its bank issue a Letter of Credit on its behalf in favor of the foreign supplier. This letter allows the foreign vendor to draw a draft on the importer's u.s. bank for payment of the merchandise. Upon receipt of the letter and draft, the supplier ships the goods and presents the draft at its bank for discounting, allowing the supplier to receive immediate payment for the shipment. The foreign bank then forwards the draft to its u.s. correspondent. At this point, the draft is stamped "accepted", with the U.S. bank incurring an obligation to pay .the draft (now a bankers' acceptance) at maturity. The accepting domestic bank may buy the acceptance, earning the discount between the purchase price and face amount to be reimbursed by the U. S. importer. On the other hand, the acceptance may be sold to a third party, freeing the bank of all but the contingent liability, for which it collects a small fee. The acceptance - secured by the bank, the goods themselves and the importer becomes a money market instrument. In 70 years of use in U. S., the Bankers' acceptance has experienced no principal loss to investors. Maturities range from 30 to 180 days. 7. COMMERCIAL PAPER Short term unsecured promissory note issued for a specific maturity. Used primarily by corporations to finance receivables. Maturities from 3 to 270 days. Generally the paper is backed by a credit line to refund the notes in the event the issuer is unable to roll the paper over at maturity. Presently over 1000 corporate entities issue commercial paper. Quality varies considerably so investors closely follow credit ratings issued by Standard & Poor and Moody. 8. LOCAL AGENCY INVESTMENT FUND Created by the State Legislature in 1976 in order to allow the pooling of monies from all local agencies statewide into one fund for purposes of investing, agencies may deposit funds in LAIF for a length of time determined solely by the depositing EXHIBIT A 9~/tl 3 agency. The state Treasurer may invest the monies in LAIF in eligible securities for state investments for the purpose of achieving the highest return consistent with safe and prudent treasury management. EXHIBIT A ~~ 7/12/94 CITY OF CHULA VISTA INVESTMENT POLICY AND GUIDELINES 1. PURPOSE This statement is intended to provide guidelines for the ~ prudent investment of the City'S temporary idle cash, and outline the policies for maximizing the efficiency of the City'S cash management system. The investment goal is to enhance the economic condition of the City while insuring the safety of funds invested. 2 . OBJECTIVE The City'S cash management system is designed to accurately monitor and forecast expenditures and revenues, thus enabling the City to invest funds to the fullest extent possible. The city attempts to obtain the highest yield on its investments consistent with the criteria established for safety and liquidity. 3. POLICY The Finance Director is responsible for investing the surplus funds in the city Treasury in accordance with the California Government Code, sections 53600 et seq. and 53635 et seq. The city operates its temporary idle cash investments under the prudent man rule (Civil Code Sect. 2261, et seq.) which states, in essence, that "in investing... property for the benefit of another, a trustee shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs..." The three principle factors of safety, liquidity and yield are to be taken into consideration when making investment decisions. A) Safetv. Safety and the minimizing of risk associated with investing refers to attempts to reduce the potential for loss of principal, interest or a combination of the two. The City invests only in those instruments that are considered very safe. - 1 - EXHIBIT B ?/I~ B) Liauiditv. Liquidity refers to the ability to convert an investment to cash promptly with minimum risk of losing some portion of principal or interest. A portion of the portfolio should be maintained in liquid short-term securities which can be converted to cash if necessary to meet disbursement requirements. C) Yield. Yield is the average annual return on an investment based on the interest rate, price, and length of time to maturity. The City attempts to obtain the highest yield possible, provided that the basic criteria of safety and liquidity have been met. 4. INVESTMENT INSTRUMENTS The city of Chula vista may invest in the following instruments under the guidelines as provided herein: A) certificates of Deposit. Time certificates of Deposit will be made only in FDIC or FSLIC insured accounts. For deposits in excess of the insured maximum of $100,000, approved collateral shall be required in accordance with California Government Code section 53652 and/or 53651 (m) (1). B) Securities of the u.S. Government or its Aaencies. Includes obligations issued by Federal Home Loan Banks, Government National Mortgage Association, Farm Credit System, the Federal Home Loan Bank, Federal Home Loan Mortgage Association, Federal National Mortgage Association, or obligations or other instruments of or issued by a federal agency or a united States Government sponsored enterprise. C) Treasurv Bills and Notes. U.S. Treasury Bills, Notes, Bonds or certificates of Indebtedness, or those for which the full faith and credit of the united States are pledged for the payment of principal and interest. D) Local Aaencv Investment Fund (LAIF). Investment of funds in the California LAIF which allows the State Treasurer to invest through the Pooled Money Investment Account. Maximum investment is subject to state regulation. E) Countv of San Dieao Treasurv Pool. Investment of funds in the County of San Diego Treasury which allows the County Treasurer-Tax Collector to invest local funds through a pooled concept. - 2 - EXHIBIT B 9 -- /) F) Bankers Acceptance. Bills of Exchange or Time Drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both domestic and foreign, which are eligible for purchase by the Federal Reserve system. Purchases of Bankers Acceptance may not exceed 270 days maturity or 40% of the City's surplus money which may be invested. G) Commercial Paper. Paper of the highest rating as provided by Moody's Investors Service, Inc., or Standard and Poor's Corporation (A-1: P-1). Purchases of eligible commercial paper may not exceed 180 days maturity or 15% of the City's surplus money which may be invested. Eligible paper is further limited to issuing corporations that are organized and operating within the united states and having total assets in excess of five hundred million dollars ($500,000,000). H) Neqotiable certificates of Deposit. Issued by a nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank. Purchases of Negotiable certificates of Deposit may not exceed 30% of the City's surplus money which may be invested. I) Repurchase Aqreements. A purchase of securities by the City pursuant to an agreement by which the seller will repurchase such securities on or before a specified date, or on demand of either party, and for a specified amount. Investments in repos will be used solely as short term investments not to exceed 90 days. J) Other. Other investments that are, or may become, legal investments through the State of California Government Code and with prior approval of the City Council. 5. DIVERSIFICATION Investments shall be diversified among institutions, types of securities and maturities to maximize safety and yield with changing market conditions. Local financial institutions will be given preferential consideration for investment of City funds consistent with the City's objective of attaining market rates of return, and consistent with constraints imposed by its safety objectives, cash flow considerations and State laws. - 3 - EXHIBIT B 7~)( 6. SAFEKEEPING All investments of the city shall have the city of Chula vista as registered owner or shall be kept in the custody of the city or by a qualified safekeeping institution. 7. INVESTMENT REPORTS A) The Director of Finance shall submit a monthly investment report to the City Manager and City council containing the following information: Financial institution Type of investment Amount of deposit Rate of interest Purchase date Maturity date Current market value for securities with a maturity of more than 12 months - Other data as required by the city - 4 - EXHIBIT B ~ L/_/-> 7/94 INVESTMENT INSTRUMENTS 1. T-BILLS Direct obligations of u.s. Government Three month and six month duration 2. T-NOTES Direct obligations of U.S. Government Maturities up to 10 years 3. FEDERAL AGENCIES In addition to direct obligations of U. S. Government, a variety of Federal Agencies issue their own securities. Most carry full faith and credit guarantees. This category includes issues of Dept. of Housing & Urban Development (FHA and GNMA), Export-Import Bank of U.S., Farmers Home Administration, Government Services Administration SBA and Tennessee Valley Authority. 4. FEDERAL INSTRUMENTALITIES U.S. Government has sponsored creation of a variety of enterprises that operates as separate corporate entities. Underlying security varies by issuer. As with Agency securities, marketability of many sponsored corporations' debt is limited. Examples are Federal National Mortgage Association (FNMA), Federal Intermediate Credit (FIC) Banks, Federal Home Loan Banks, and Federal Land Banks, and Federal Land Banks. 5. COMMERCIAL BANK CERTIFICATES OF DEPOSIT CDs comprise backbone of many government portfolios because of their familiarity, their direct issuance by traditional government depositories, favorable legislation, flexible maturities, and money market rates of returns for larger deposits. 6. BANKERS' ACCEPTANCE Banker's Acceptance are negotiable time drafts drawn to finance the export, import, shipment or storage of goods, and they are termed "Accepted" when a bank guarantees to pay the face value of maturity. A Banker's Acceptance constitutes an irrevocable obligation of the accepting bank and a contingent obligation of the drawer and of any endorsees whose name appear on it. The bank is protected by its customer I s EXHIBIT B 1-/t 2 agreement to provide the necessary funds in advance of the maturity of the Acceptance and also by the pledge of documents such as bills of lading, independent warehouse or terminal receipts, and other documents evidencing ownership and the insurance of the goods so financed. Typically created from a letter of credit in a foreign trade transaction. Example - a U.S. corporation planning to import goods from abroad requests that its bank issue a Letter of Credit on its behalf in favor of the foreign supplier. This letter allows the foreign vendor to draw a draft on the importer's U.S. bank for payment of the merchandise. Upon receipt of the letter and draft, the supplier ships the goods and presents the draft at its bank for discounting, allowing the supplier to receive immediate payment for the shipment. The foreign bank then forwards the draft to its u.s. correspondent. At this point, the draft is stamped "accepted", with the U.S. bank incurring an obligation to pay the draft (now a bankers' acceptance) at maturity. The accepting domestic bank may buy the acceptance, earning the discount between the purchase price and face amount to be reimbursed by the U. S. importer. On the other hand, the acceptance may be sold to a third party, freeing the bank of all but the contingent liability, for which it collects a small fee. The acceptance - secured by the bank, the goods themselves and the importer becomes a money market instrument. In 70 years of use in U. S., the Bankers' acceptance has experienced no principal loss to investors. Maturities range from 30 to 180 days. 7. COMMERCIAL PAPER Short term unsecured promissory note issued for a specific maturity. Used primarily by corporations to finance receivables. Maturities from 3 to 270 days. Generally the paper is backed by a credit line to refund the notes in the event the issuer is unable to roll the paper over at maturity. Presently over 1000 corporate entities issue commercial paper. Quality varies considerably so investors closely follow credit ratings issued by Standard & Poor and Moody. 8. LOCAL AGENCY INVESTMENT FUND Created by the State Legislature in 1976 in order to allow the pooling of monies from all local agencies statewide into one fund for purposes of investing, agencies may deposit funds in LAIF for a length of time determined solely by the depositing EXHIBIT B 9~/7 3 agency. The state Treasurer may invest the monies in LAIF in eligible securities for state investments for the purpose of achieving the highest return consistent with safe and prudent treasury management. 9. COUNTY OF SAN DIEGO TREASURY POOL Authorized by state of California Government Code 53684 and County Board of Supervisors Resolution No. 11, dated March 24, 1987, Local Agencies may deposit excess funds in the county Treasury for investment purposes. The County Treasurer-Tax Collector may invest the pooled monies in investments permitted by State of California Government Code 53600 et seq. and 53635 et seq. EXHIBIT B /~/~ TREASURER-TAX COLLECTOR PAUL BOLAND TRfA<;URfR TJH CO~ LEeTQ! COUNTY ADMINISTRATION CENTER. t600 PACIFIC HIGHWAY ROOM 101 SAN DIEGO. CALIFORNIA 92101-2479 . (619) 531-521 1 NORMAN Ii. ERNST CHIEF DEPU"~ TRfA5URfF ROB R. CASTETTER l~vrSTMENT MANAGER 02-01-94 INVESTMENT POllCY INTRODUcnON The investment policies and practices of the Treasurer-Tax Collector are based on state law and prudent money management. The policies of this office will always comply with the legal authority and limitations placed on it by the governing legislative bodies. The implementation of these laws, allowing for the dynamics of the money markets, will be the focus of this policy statement. The policies of this office have three primary goals: 1) To assure compliance with all federal, state, and local laws governing the investment of monies under the control of the County Treasurer-Tax Collector. 2) To protect the principal monies entrusted to this office. 3) To generate the maximum amount of investment income within the parameters of prudent risk management while providing the necessary liquidity for participants. The monies entrusted to the County Treasurer-Tax Collector (the Fund) will be an actively managed portfolio. By this we mean the Treasurer-Tax Collector and his staff will observe, review and react to changing conditions that affect the Fund. This shall be viewed as a full time responsibility by the Treasurer-Tax Collector and his staff. The authority to execute investment transactions that will affect the Fund will be limited to: Treasurer-Tax Collector Chief Deputy Treasurer Investment Manager Assistant Investment Manager(s) The Treasurer and the above staff will meet on a regular basis to discuss current market conditions and future trends and how each of these affect the Fund and the County. 1 ~); COUNTY OF SAN DIEGO EXHIBIT C SAN DIEGO COUNTY TREASURER INVESTMENT POllCY The purpose of the Treasurer's policy is to implement the legislated parameters of the investment authority of the Fund. As an elected official of the County of San Diego, the Treasurer-Tax Collector believes it prudent to manage public monies in a way that is consistent with sound investment practices. These policies are designed to safeguard monies entrusted to this office while earning the maximum return on investment. To have a policy which only concerns itself with maximizing return 'is a very dangerous course. The basic concept of investment return is based on a risk/reward relationship. Therefore, the higher the return, the higher the risk. This is why risk management must be an integral part of any investment policy. The Policy stated below will concern itself with risk management. Policy issues will be directed to 1) limiting the length of maturity for securities in the portfolio, 2) limiting the Fund's exposure to each issue and issuer of debt, and 3) determining a minimum credit requirement that firms must have in order to hold County money. Below, we will address each category of permissible investments individually as they appear in Government Codes 53601, 53635, 53637, 53638, 53652, and 53653. GOVERNMENT OBllGATIONS - The Fund invests in two categories of Government Obligations; U.S. Treasury and Agency obligations. Both are issued at the federal level. U.S. Treasury obligations are bills, notes and bonds issued by the Treasury and are direct obligations of the federal government. Agency obligations are notes and bonds of federal agencies, government sponsored enterprises, and international institutions. Agencies are not the direct obligation of the Treasury but involve federal sponsorship or guarantees. - Maximum Maturity - The maximum maturity of an issue shall be the current S year issue or an issue which at the time of the investment has a term remaining to maturity not in excess of 5 years. - Maximum Exposure Per Issue - The maximum exposure to the portfolio of a single issue shall be 5 % of the portfolio value. - Maximum Exposure Per Issuer - The maximum exposure to the portfolio for an individual issuer shall be; 1) Treasury - Unlimited, Treasury securities are the safest haven for investments in the world. 2) Agency - No more than 25 % of the portfolio value shall be invested in any single issuer. - Minimum Credit Requirement - None; U.S. Treasury and Agency securities are the highest credit in the world. - 1 - 9,20 EXHIBIT C - Maximum Maturity - The maximum maturity of an issue shall be 5 years. - Maximum Exposure Per Issue - the maximum exposure to a single issue shall be 2.5 % of the portfolio value. ' - Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5 % of the portfolio value. - Minimum Credit Requirements - Issuers must have the following investment grade from one of these rating firms: Fitch - AA Moody's - Aa Standard and Poor's - AA NEGOTIABLE CERTIFICATES OF DEPOSIT - These are issued by commercial banks and thrift institutions against funds deposited for specified periods of time and earn specified or variable rates of interest. Negotiable certificates of deposit (NCD) differ from other certificates of deposit by their liquidity. NCD's are traded actively in secondary markets. - Maximum Maturity - The maximum maturity of an issue shall be 5 years. - Maximum Exposure Per Issue - The maximum exposure to a single issue shall be 2.5 % of the portfolio value. - Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5 % of the portfolio value. - Minimum Credit Requirement - Issuers must have the following investment grade from one of these rating firms: Fitch - CD I or AA Moody's - PI or Aa Standard and Poor's - Al or AA Thomson Bank Watch - domestic banks - C foreign banks - IIIIIIIV REPURCHASE AGREEMENT - A repurchase agreement (RP) consists of two simultaneous transactions. One is the purchase of securities by an investor, the other is the commitment by the seller to repurchase the securities at the same price, plus interest, at some mutually agreed future date. - Maximum Maturity - The maximum maturity of repurchase agreements shall be 1 year. - Maximum Exposure Per Issue - The maximum exposure to a single RP issue shall be 10% of the portfolio value for RP's with maturities greater than 5 days, 15 % of the portfolio for RP's maturing in 5 days Or less. - Maximum Exposure Per Issuer - The maximum exposure to a single issuer of RP shall be 10% of the portfolio when the dollar weighted average maturity is greater than 5 days, IS% of the portfolio when the dollar weighted average maturity is - 3 - 7 -c2 / EXHIBIT C 5 days or less. - Delivery of Collateral - Issuers shall deliver the underlying securities to either the County's safekeeping bank of a mutually agreed upon third party custodian bank. When a third party custodian is used, it will be the custodian's responsibility to transfer funds and securities between the seller and purchaser in accordance with the terms of the repurchase agreement. REVERSE REPURCHASE AGREEMENT - Reverse repurchase agreements (RRPs) are essentially the mirror image of RPs. In this instance, the County is the seller of securities and the broker or bank is the investor. Due to the nature of RRPs, the policy regarding this instrument is different from the above RP policy. - Maximum Maturity - The maximum maturity of a reverse repurchase agreement shall be 182 days. - Maximum Exposure Per Issue - The maximum exposure to a single RRP issue shall be 5 % of the portfolio value. - Maximum Exposure of Portfolio - No more than 25 % of the portfolio shall be invested in RRPs at anyone time. - Maximum Exposure Per Dealer - No more than 10% of the portfolio shall be invested in RRPs with anyone dealer at anyone time. - Purpose of RRPs - The use of RRPs shall be limited to investing the proceeds from the agreement into another permissible security. The maturity of the RRP and the maturity of the security purchased shall be the same, except where the security purchased has a variable rate, the maturity of the RRP and the reset date of the security purchased shall be the same. - The custodian bank under contract is authorized to execute RRPs only under the guidelines listed above except the maximum exposure of portfolio does not apply. COLLATERALIZED CERTIFICATES OF DEPOSIT - This is the deposit of funds made by the County Treasurer-Tax Collector in state or national banks or state or federal savings and loan associations or fcdcral credit unions or FDIC insured industrial loan companies in California. The deposit of the funds will be made under the following conditions: - The deposit may not exceed the total of the paid-up capital and surplus of a depository. - The depository must maintain securities with a market value of at least 10% in excess of the total amourit of the Treasurer-Tax Collector's deposits. These securities will be placed in the institution's pooled collateral account and monitored by the State Treasurer of California. - The Treasurer-Tax Collector '.vill waive the fIrst $100,000 of collateral for each depository, so long as that amount is insured by an agency of the federal government. - The Treasurer-Tax Collector will select depositories from those agreeing to pay the highest available rate of interest. In the event that the highest available -4- 9 --;2cJ- EXHIBIT interest rate is offered to the County by more than one depository, the following criteria will be applied to determine which will receive County deposits: 1) If the deposit is a renewal of an already existing deposit it will be extended with the same mstitution. 2) If the funds available are insufficient to match the request of banks and savings and loan associations, the Treasurer-Tax Collector will distribute a fair share of the available funds to the institutions on the basis of the ratio of their total deposits to deposits within San Diego County. 3) When two institutions offer the same rate of interest, the Treasurer- Tax Collector will give consideration to the institution that has the best performance in making home mortgage loans within the low and moderate income areas of the County. ' - Each institution which receives County deposits must provide the Treasurer-Tax Collector with an up-to-date Contract, Annual Report, Affirmative Action Policy, Community Reinvestment Act Statement and EEO-l Form. - Institutions at or above the following investment grade, as determined by the respective rating firms, may pledge mortgage based collateral for County deposits; Fitch - FI or AA Moody's - PI or Aa Standard and Poor's - Al or AA Thomson Bank Watch - domestic - C foreign - Ifill/IV COVERED CALL OPTION/PUT OPTION - an option is the right to buy or sell a specific security within a specific time period at a specific price. - A covered call is when the Treasurer-Tax Collector sells the option to another party, giving them the right to buy the security at a specific price within a specific time period. - A put option is when the Treasurer-Tax Collector sells the option to another' party, giving them the right to sell to the'Treasurer-Tax Collector a security at a specific price within a specific time period. - The seller of a covered call option/put option is paid at the time of the sale of the option. At the end of the option period, if the option is not exercised, the right to buy or sell the security is canceled. - The Treasurer-Tu Collector will act only as a seller of covered call and put options with the following exception: Treasurer-Tax Collector may buy an option to offset an existing open position which is profitable. - Maximum maturity - The maximum maturity of a covered call option/put option shall be 90 days. - 5 - 9 /;2~) EXHIBIT C INVESTMENT POLICY LOCAL AGENCIES EXCESS FUNDS The State of California Government Code 53684 allows local agencies upon adoption of a resolution by the governing body of the agency, the option of depositing excess funds in the County Treasury for the purpose of investment by the County Treasurer. Below is a copy of Board Resolution 11 passed March 24, 1987, authorizing local public agencies to deposit excess funds with the County Treasurer for investment. No. 11 MARCH 24, 1987 RESOLUTION OF THB BOARD or SUPBRVISORS ALLOWING LOCAL PUBLIC AGENCIES TO DEPOSIT EXCESS rUNDS IN THE COUNTY TREASURY FOR INVESTMENT PURPOSES On motion of Supervieor WIlliams seconded DY supervieor 8,nev follow1ng reaolut10n ls adoptede WHEREAS, Government Code section 53684 va. recently amended to allow local publ1c agencies to deposit excess money 1n the County Treaaury for inveatment purpoaes. and , the , WHEREAS, Government Code section 53684 is not operative 1n any County unt1l the Board of Supervisora of the county, by major1ty vote, adopts a re.olut1on mak1ng the .ection operat1ve in the County. and WHEREAS, the County vill incur no additional coat of 1mplement1ng the amended Covernment Code ae~tion 53684: and WIIEREAS, 1t 'la In the public intereat to madmhe the earn1nga on exceaa caah on behalf of local pUblic allenc1ea. and WHEREAS, the County In ita regional role ahould aasiat and a1d other local publlc agenciea. NOW THERBrORB IT II RESOLVED AND ORDERED that, Government Cod. aact10n 53684 1. heroby mad. Operative in the County of San 01ego authorlz1ng local public ag.nci.s to depoait exce.. funda v\th the County Treasurer for inveatment purposea. Passed and adopted by the Board of Supervisors 0' the County 0' San Diego State of California, this 24th day of HarCh, 1987. by the following vote: . AYES: Supervisors Bilbrey. Bailey, Golding. Williams and HacDonald NOES: Supervisors None - 10- 9~;;( EXHIBIT C - Maximum exposure - No more than 10% of the portfolio may have options written against it at any given time. - Credit risk - Options shall only be written with primary dealers. MUTUAL FUND - Shares of beneficial interest issued by management companies. Such shares represent ownership of a diversified portfolio of securities which are redeemable at their net asset value. The prospec~s of the mutual fund will detail the features of the fund. - Maximum maturity - The maximum maturity of a mutual fund shall be 5 years. - Purchase price - The purchase price of the mutual fund sha1l not include any commission. - Maximum exposure per fund - The maximum exposure to a single mutual fund shall be 10% of the portfolio value. - Maximum exposure - The maximum exposure to mutual funds shall be 15 % of the portfolio value. - Minimum credit requirement - Mutual funds must have the following investment grade from at least two of these rating firms: Fitch - AaaF Moody's - AaaF Standard and Poor's - AAAf - Credit requirement alternatives - If a mutual fund does not have two credit ratings, it may qualify if it has an investment advisor registered with the SEC with at least five years experience and with assets under management in excess of $500,000,000. - Exception - The exception to this category is the specific authorization given by the Board of Supervisors on February 11, 1992, Minute Order No. 25, and July 10, 1993, Minute Order No. 44, to invest in Wells Fargo Overland Express Fund and the TNE Adjustable Rate U.S. Government Fund, which consists of securities with maturities in excess of five years. PASS-THROUGH SECURITIES - These are collateralized mortgage obligations, mortgage-backed or other pay-through bonds, equipment lease-backed certificates, consumer receivable pass-through certificates or consumer receivable-backed bonds. - Maximum maturity - The maximum maturity of an issue shall be 5 years. - Maximum exposure per issue - The maximum exposure to a single issue shall be 2.5 % of the portfolio value. - Maximum exposure per issuer - The maximum exposure to a single issuer shall be 5 % of the portfolio value. - Minimum credit requirement issuer - Issuers must have the following investment grade from one of these rating firms: - 6- '7 .~ ;2~ EXHIBIT C SUMMARY OF COUNTY TREASURY INVESTMENT PORTFOLIO JULY 1, 1994 u.s. Government Agency Obligations certificates of Deposit u.s. Government Treasury Bills/Notes Repurchase Agreements commercial Paper Other Authorized Investments 42% 19% 14% 12% 4% 9% 100% EXHIBIT D 7/'~?