HomeMy WebLinkAbout2008/02/12 Item 3
CITY COUNCIL
AGENDA STATEMENT
~I~ CITYOF
'~CHUIA VISTA
FEBRUARY 12, 2008, Item~
SUBMITTED BY:
REVIEWED BY:
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA AMENDING THE EXISTING CITY
INVESTMENT POLICY AND GUIDELINES
INVESTMENT REPORT FOR THE QUARTER ENDED
DECEMBER 31, 2007
DIRECTOR OF FINA{.C C,EE/TREASURER~
CITY MANAGER r\
4/5THS VOTE: YES D NO 0
ITEM TITLE:
SUMMARY
Per California Government Code Section 53646, the City Treasurer may annually present
the City's Investment Policy to the City Council to reaffirm or make any changes to the
existing policy. The Investment Policy provides guidelines for the investment of idle
funds and affords the City various investment opportunities, as long as the investment is
deemed prudent and is allowable under Government Code Section 53600, et.seq, The
current Policy was adopted by City Council on July 10, 2007, and received the Certificate
of Excellence Award from the Association of Public Treasurers United States and Canada
(APT-US&C) in August 2007. Adoption of the resolution approves an amendment to the
existing City Investment Policy and Guidelines to include an administrative reporting
change and an addition to the list of authorized and suitable investments, (Finance
Director)
RECOMMENDATION
Council adopt the resolution and accept the report.
BOARDS/COMMISSION RECOMMENDATION
Not Applicable.
3" J
FEBRUARY 12, 2008, 1tem~
Page 2 of3
DISCUSSION
I. Investment Policy Amendment
The City's Investment Policy and Guidelines adopted on July 10,2007 by Resolution 2007-
164 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 econornic condition of the City while ensuring the safety of funds invested.
The policy includes a list of specific investment instruments available under California
Government Code sections 53600, et.seq. Each investment transaction is made in the
context of first ensuring the "safety" of principal, second, investing only for that timeframe
that the cash is not needed for operational purposes (liquidity), and last seeking the highest
return possible (yield) provided that the first two factors are met.
Due to recent legislative changes, there is no longer a requirement to subrnit the City's
Investment Policy and quarterly reports to the California Debt and Investment Advisory
Commission (CDAIC). Therefore this statement will be eliminated from the policy. Also at
this time, staff is recornmending the addition of Investment Trust of California (CalTRUST)
to the list of authorized and suitable investments. CalTRUST is a local government
investment pool established by local public agencies as a joint powers agency authority
pursuant to California Government Code Sections 6509.7 and 53601(P). The Board of
Trustees, which governs and administers CalTRUST, is comprised of local agency
treasurers and investment officers, and public agency policy makers. The Investment
Advisor to CalTRUST is Metropolitan West Securities LLC (MetWest), and they conduct
the daily management of the fund's investments as well as all the research. The inclusion of
CalTRUST will help in offering more investment options and further diversifYing the City's
investment portfolio. Fifty counties, cities, agencies and special districts throughout the
state such as San Diego County, Los Angeles County, Riverside, Poway and National City
currently participate in this program.
It is recommended that the existing Policy be amended to reflect these changes. A
strikeout/underline version is attached for your review. Prior to this, the Policy had not been
amended since June 7, 2005.
II. Quarterly Report
Attached for your information is the quarterly report of investments as of December 31,
2007. The Cash/Time Deposits ($5,046,907), Pooled Investment Portfolio
($175,323,205) and Cash/Investments with Fiscal Agents ($168,385,362) continue to be
invested in accordance with the Government Code and the Council Investment Policy as
adopted on July 10,2007.
During the quarter, sixteen investments totaling $51,000,000 were purchased and twenty-
eight investments totaling $70,000,000 matured or were called. There is no other activity
to report on other than routine investments in money market mutual funds by the City's
fiscal agents.
In October, the Federal Open Market Committee (FOMC) cut the key Fed Funds rate by
25 basis points from 4.75% to 4.50%, and again in December to 4.25% in response to the
g~d
FEBRUARY 12, 2008, Item~
Page 3 oB
downturn in the housing market and the credit crunch. Additional cuts are anticipated in
the near future. Two-year Treasuries yielding 3.98% at the beginning of the quarter
dropped significantly to 3.06% at the end of the quarter as a result of this trend.
As of December 31, 2007, the weighted average yield (average interest rate) on the
Pooled Investment Portfolio was 4.756%, which is a 0.21 % decrease from the previous
quarter's 4.966%. This decrease is primarily attributable to higher yielding investments
maturing and reinvested at the current lower interest rates.
At the end of this quarter, the weighted average maturity of the portfolio increased from
0.89 years to 1.62 years due to the purchase of longer term investments now yielding
higher rates than shorter term investments, but it still remains well within the Council
Policy ofless than 3.0 years.
Considering the projected timing of cash receipts and disbursements, including the
proceeds from the Tax and Revenue Anticipation Note borrowing and the structure of the
Pooled Investment Portfolio, the City should be able to comfortably meet overall cash
flow needs over the next six months.
DECISION MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is
not site specific and consequently the 500 foot rule found in California Code of
Regulations section 1 8704.2(a)(l) is not applicable to this decision.
FISCAL IMPACT
There is no direct fiscal impact by this action.
ATTACHMENTS
A. Investment Report for the Quarter Ended December 31, 2007
B. City ofChula Vista Investment Policy and Guidelines
Prepared by: Nadine Mandery. Treasury Manager. Finance Department
ATTACHMENT A
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CIlY OF
CHUlA VISTA
FINANCE DEPARTMENT
COUNCIL INFORMATION
DATE:
January 31, 2008
TO:
Honorable Mayor and City Council
FROM:
David Garcia, City Manager
Maria Kachadoorian, Director of Financerrreasure_~
INVESTMENT REPORT FOR THE QUARTER ENDED
DECEMBER 31, 2007
VIA:
SUBJECT:
Attached for your information is the quarterly report of investments as of
December 31, 2007. The Cashmme Deposits ($5,046,907), Pooled Investment
Portfolio ($175,323,205) and Cash/Investments with Fiscal Agents
($168,385,362) continue to be invested in accordance with the Government
Code and the Council Investment Policy as adopted on July 10,2007.
During the quarter, sixteen investments totaling $51,000,000 were purchased
and twenty-eight investments totaling $70,000,000 matured or were called.
There is no other activity to report on other than routine investments in money
market mutual funds by the City's fiscal agents.
In October, the Federal Open Market Committee (FOMC) cut the key Fed Funds
rate by 25 basis points from 4.75% to 4.50%, and again in December to 4.25% in
response to the downturn in the housing market and the credit crunch. Additional
cuts are anticipated in the near future. Two-year Treasuries yielding 3.98% at
the beginning of the quarter dropped significantly to 3.06% at the end of the
quarter as a result of this trend.
As of December 31, 2007, the weighted average yield (average interest rate) on
the Pooled Investment Portfolio was 4.756%, which is a 0.21% decrease from
the previous quarter's 4.966%. This decrease is primarily attributable to higher
yielding investments maturing and reinvested at the current lower interest rates.
'B-3
Council Information
FY 2007-08 2nd Quarter Investment Report
December 31, 2007
Page 2 of 2
At the end of this quarter, the weighted average maturity of the portfolio
increased from 0.89 years to 1.62 years due to the purchase of longer term
investments now yielding higher rates than shorter term investments, but it still
remains well within the Council Policy of less than 3.0 years.
Considering the projected timing of cash receipts and disbursements, including
the proceeds from the Tax and Revenue Anticipation Note borrowing and the
structure of the Pooled Investment Portfolio, the City should be able to
comfortably meet overall cash flow needs over the next six months.
Should you have any questions regarding this information, please feel free to
contact me (619) 691-5051, extension 3636.
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City of Chula Vista
Cash and Investments
31-Dec-07
INVESTMENTS
Bank of New York Custodial Account
State of CA Local Investment Agency Fund
State of CA Local Investment Agency Fund
Accrued Interest on Investment
UNREALIZED GAIN
Unrealized Gain on Fair Market Value
CASH IN BANK
Bank of America - General Account
Bank of America - Payroll Account
California Bank - Direct Deposit Account
Wells Fargo Bank-CV Workers Comp Account
CASH ON HAND
Petty Cash Fund
TIME DEPOSIT
Bank of America Time Deposit
Cash and Investments as of 12/31/2007
CashlTime Deposits as of 12/31/2007
j.finance\data\Cash and Investments FY0708.xls
Amount
105,632,260
39,045,243
30,777,962
175,455,465
(440,589)
(440,589)
4,551,253
(956)
5,092
176,718
4,732,107
4,800
4,800
310,000
310,000
180,061,783
5,046,907
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
STRIKEOUT VERSION
ATTACHMENT B
1.0 Purpose: ................................................................................................................................... 2
2.0 Policy: ....................................................................................................................................... 2
3.0 Scope: ....................................................................................................................................... 2
4.0 Prudence: ................................................................................................................................. 3
5.0 Objective: ................................................................................................................................. 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 ollateralization: ................................................................................................................... 9
12.0 Safekeeping and Custody: .................................................................................................... 9
13.0 Diversification: ...................................................................................................................... 9
14.0 Maximum Maturities: ........................................................................................................ 10
15.0 Internal Control: .................................................................................................................10
16.0 Performance Standards: .................................................................................................... 10
17.0 Reporting: ............................................................................................................................11
18.0 Investment Policy Adoption:.............................................................................................. 12
GLOSSARy................................................................................................................................. 13
3.~O
CITY OF CHVLA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 Finance/Treasurer.
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 Finance/Treasurer 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 Revenue 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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4.0 Prudence:
The standard of prudence to be used by the Director of Finance/Treasurer shall be the "prudent
investor standard". This shall be applied in the context of managing an overall portfolio.
The "prudent investor standard" is applied to local agencies, pursuant to California
Government 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. When investing, reinvesting, 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 Finance/Treasurer, 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 from expectations are reported to the
City Council in a timely fashion and appropriate action is taken to control adverse developments.
5.0 Objective:
Consistent with this aim, investments are made under the terms and conditions of California
Government 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 ChuIa 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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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
compliance with any indenture agreement, as applicable. Liquidity is essential to the safety of
principal.
5.3 Return on Investments:
The City of Chula 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 ofInterest:
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 Reform Act and related regulations, including Government Code
Sections 81000, et seq., and the rules, regulations and guidelines promulgated by California's
Fair Political Practices Commission (FPPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Finance/Treasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will perform 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 Finance/Treasurer 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 Finance/Treasurer; or may be invested in the
investments set forth in Section 9.0. To be eligible to receive local agency money, a bank,
savings association, federal association, or federally insured industrial loan company shall have
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 qualifies under Securities and Exchange
Commission Rule 15C3-1 (Uniform 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 Government 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 fmancial institutions who desire to become qualified bidders for investment
transactions must submit a "Broker/Dealer Application" and related documents relative to
eligibility including a current audited armual financial statement, U4 form 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 of Finance/Treasurer 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 Government 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 term 180 days.
Banks must have a short term rating of at least AI/PI 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 term rating of AI/PI and a long term rating of at least a single A
from a nationally recognized authority on ratings.
C. COMMERCIAL PAPER, maximum 25% of portfolio. Maximum term 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,
with total assets in excess of $500 million and shall issue debt, other than commercial paper,
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that is rated "A" or higher by Moody's, S&P and Fitch. Split ratings (i.e. A2/Pl) 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 government or related
to the govemment 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 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
000 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 of 92 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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d) Funds obtained or funds within 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 [mal 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.
11. Financing of a local agency's activities.
111. Acceptance of a local agency's securities or funds as deposits.
I. MEDIUM-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 banks or savings & loan that have a short term rating of AUPl or
a long term rating of at least a single A from a generally recognized authority on ratings.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA
Obligations must be "A" rated or better from a nationally recognized authority on ratings.
L. MONEY MARKET FUNDS, maximum 15% of portfolio. (Requires Council approval for
each transaction)
No more than 10% of the 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 from 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 minimum of $500 million in assets under management. The purchase price
of the shares may not include commission.
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M. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
LAIF is a special fund of the California State Treasury through which any local government
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 Finance/Treasurer
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.
N. Investment Trust of California (CaITRUST)
The City mav invest in shares of beneficial interest issued bv the Investment Trust of
California (CaITRUST), a local eovernment investment pool established bv local
entities as a ioint powers authority pursuant to California Government Code Sections
6509.7 and 53601(p), provided:
CalTRUST investments are limited to the securities and oblieations authorized
for local aeencv investment pursuant to Subdivisions (a) to (n), inclusive, of
California Government Code Section 53601: and
CaITRUST shall have retained an investment adviser that:
Is reeistered or exempt from reeistration with the Securities and Exchanee
Commission:
Has not less than five vears experience investine in the securities and
oblieations authorized for local aeencv investment pursuant to subdivisions
(a) to (n), inclusive, of California Government Code Section 53601; and
Has assets under manaeement in excess of five hundred million dollars
($500,000,000).
9.1 Investment Pools:
The City's Director of Finance/Treasurer or designee shall be required to investigate all local
government 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 Government
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 Finance/Treasurer 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.
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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 government securities with a
value of 110 % of principal and accrued interest. California law also allows fmancial 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 daily 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 Finance/Treasurer, 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:
All City investments shall identify the City of Chula Vista as the registered owner, and all
interest and principal payments and withdrawals shall indicate the City of Chula 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 shall 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 in securities 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 would not unduly harm the City's cash flow.
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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
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 Finance/Treasurer shall establish a system of internal controls designed to
prevent loss of public funds due to fraud, 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 terms of this Investment Policy and the procedure
established by the Director of Finance/Treasurer.
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 performed by the Finance Department
and approved by the Director of Finance/Treasurer. 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 0 f 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 Finance/Treasurer
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 of this Investment Policy.
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
The monies entrusted to the Director of Finance/Treasurer 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 requirements of
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 l2-month
rolling average 2 - Year Constant Maturity Treasury (CMT) rate. While 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 Finance/Treasurer 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 Finance/Treasurer shall submit a quarterly investment report to the City Council
and City Manager following the end of each quarter. 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
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
. 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 commentary on capital markets and economic conditions may be
included with the report.
The Direetor of Finanee/Treaoarer shall sa8ffiit, j'lllfoaant to California Goyernment Code ~
53646(g), eOj'lies of the qaarterly iw;estffieHt rej3srts ts the Calif-omia Debt and Inyestffieat
.'\dyisory COffiffiission (CDIf.C) f-Elr 80th the seoond and foarth calendar quarters within sixty
days f-ollo'Ning the ead of the qaarter. In addition, the Director of FinaRce/Treasurer shall submit
to CDL^.C a GOpy of the adoj'lteEl In';estffieHt Policy anflaally and within siJety days of any
approved am.eBamen1:S or re'";isi0RS eftk0 Peliey.
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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FISCAL YEAR 2007/2008
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 ofa percent (i.e., 0.01 %)
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 deposit 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 term 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. Commercial 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
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.
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FISCAL YEAR 2007/2008
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 government 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 commercial 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-term 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
(HUD). 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
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.
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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 commercial 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, commercial banks, savings and loan associations and other institutions.
Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae
securities are backed by the FHA 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 [mancial
institution, bank or savings and loan, bought at par value with the promise to pay face value plus
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).
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as directed 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 informal 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 terms of the agreement
are structured to compensate him for this. Dealers use RP extensively to finance 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.
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which are
guaranteed by the Federal government 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.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
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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 15C3-1: See "Uniform Net Capital Rule".
TENNESSEE VALLEY AUTHORITIES (TVA): 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-term U.S. Treasury securities having initial maturities of more than
10 years.
TREASURY NOTES: Intermediate-term coupon bearing U.S. Treasury having initial
maturities of one year to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms 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 Maturity 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.
3~3~
RESOLUTION NO. 2008-
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA AMENDING THE EXISTING CITY
INVESTMENT POLICY AND GUIDELINES
WHEREAS, the City of Chula Vista's "Investment Policy and Guidelines," adopted on
July 10, 2007, by Resolution No. 2007-164 (the Policy), is intended to provide direction for the
prudent investment oftemporarily idle cash and to maximize the efficiency of the cash management
process; and
WHEREAS, the stated goal of the Policy is to enhance the economic condition of the City
while ensuring the safety of funds invested; and
WHEREAS, the Policy includes a list of specific investment instruments available pursuant
to California Government Code sections 53600, et. seq.; and
WHEREAS, each investment is selected consistent with the following order of priority:
(i) ensuring the "safety" of principal; (ii) investing only for that timeframe that the cash is not
needed for operational purposes (liquidity); and (iii) seeking the highest return possible (yield)
provided that the first two factors are met; and
WHEREAS, due to recent legislative changes, there is no longer a requirement to submit the
City's Investment Policy and quarterly reports to the California Debt and Investment Advisory
Commission (CDAIC), so this statement will be eliminated from the policy; and
WHEREAS, staff is recommending the addition of Investment Trust of California
(CaITRUST) to the list of authorized and suitable investments; and
WHEREAS, CalTRUST is a local government investment pool established by local public
agencies as a joint powers agency authority pursuant to California Government Code sections
6509.7 and 53601(p); and
WHEREAS, the Board of Trustees, which governs and administers CaITRUST, is comprised
of local agency treasurers and investment officers, and public agency policy makers; and
WHEREAS, the Investment Advisor to CalTRUST is Metropolitan West Securities LLC,
that conducts the daily management of the fund's investments, as well as all the research; and
WHEREAS, the inclusion ofCalTRUST will help in offering more investment options and
further diversifying the City's investment portfolio; and
WHEREAS, City staff recommends that the existing Policy be amended to reflect these
changes.
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Resolution No. 2008-
Page 2
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Chula Vista
that it amends the existing City Investment Policy and Guidelines, as reflected on Exhibit A
attached to this Resolution.
Presented by
Approved as to form by
Maria Kachadoorian
Director of Finance
~~Cu>
~ 'city Attorney
J:\Altomey\RESQIFINANCE\lnveSlmenl Policy and Guidelines For 2008_02-12-08.doc
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
1.0 Purpose: ................................................................................................................................... 2
2.0 Policy: ....................................................................................................................................... 2
3.0 Scope: ....................................................................................................................................... 2
4.0 Prudence: ................................................................................................................................. 3
5.0 Objective: ................................................................................................................................. 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 olIa teralization: ................................................................................................................... 9
12.0 Safekeeping and Custody: .................................................................................................... 9
13.0 Diversification: ...................................................................................................................... 9
14.0 Maximum Maturities: ........................................................................................................ 10
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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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 Finance/Treasurer.
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. I 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 Finance/Treasurer 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 Revenue 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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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
4.0 Prudence:
The standard of prudence to be used by the Director of Finance/Treasurer shall be the "prudent
investor standard". This shall be applied in the context of managing an overall portfolio.
The "prudent investor standard" is applied to local agencies, pursuant to California
Government 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. When investing, reinvesting, 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 Finance/Treasurer, 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 from expectations are reported to the
City Council in a timely fashion and appropriate action is taken to control adverse developments.
5.0 Objective:
Consistent with this aim, investments are made under the terms and conditions of California
Government 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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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
compliance with any indenture agreement, as applicable. Liquidity is essential to the safety of
principal.
5.3 Return on Investments:
The City of Chula Vista's investment portfolio shall be designed with the objective of attaining a
market-average rate ofretum 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 ofInterest:
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 Reform Act and related regulations, including Government Code
Sections 81000, et seq., and the rules, regulations and guidelines promulgated by California's
Fair Political Practices Commission (FPPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Finance/Treasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will perform 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 Finance/Treasurer 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 Finance/Treasurer; or may be invested in the
investments set forth in Section 9.0. To be eligible to receive local agency money, a bank,
savings association, federal association, or federally insured industrial loan company shall have
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 qualifies under Securities and Exchange
Commission Rule 15C3-1 (Uniform 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 Government 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 "BrokerIDealer Application" and related documents relative to
eligibility including a current audited annual financial statement, U4 form 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 of Finance/Treasurer 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 Govemment 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 term 180 days.
Banks must have a short term rating of at least Al/Pl 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 term rating of Al/Pl and a long term rating of at least a single A
from a nationally recognized authority on ratings.
C. COMMERCIAL PAPER, maximum 25% of portfolio. Maximum term 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,
with total assets in excess of $500 million and shall issue debt, other than commercial paper,
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 government or related
to the government 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 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
of3 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 of 92 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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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
d) Funds obtained or funds within 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.
11. Financing of a local agency's activities.
111. Acceptance of a local agency's securities or funds as deposits.
I. MEDIUM-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 banks or savings & loan that have a short term rating of Al/Pl or
a long term rating of at least a single A from a generally recognized authority on ratings.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA
Obligations must be "A" rated or better from a nationally recognized authority on ratings.
L. MONEY MARKET FUNDS, maximum 15% of portfolio. (Requires Council approval for
each transaction)
No more than 10% of the agency's surplus funds may be invested in shares 9f 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 from 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 minimum of $500 million in assets under management. The purchase price
of the shares may not include commission.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
M. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
LAIF is a special fund of the California State Treasury through which any local government
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 Finance/Treasurer
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.
N. Investment Trust ofCalifomia (CalTRUST)
The City may invest in shares of beneficial interest issued by the Investment Trust of
California (CalTRUST), a local government investment pool established by local entities as a
joint powers authority pursuant to Califomia Government Code Sections 6509.7 and
53601 (P), provided:
CalTRUST investments are limited to the securities and obligations authorized for
local agency investment pursuant to Subdivisions (a) to (n), inclusive, of California
Government Code Section 53601; and
CalTRUST shall have retained an investment adviser that:
Is registered or exempt from registration with the Securities and Exchange
Commission;
Has not less than five years experience investing in the securities and obligations
authorized for local agency investment pursuant to subdivisions (a) to (n),
inclusive, of California Government Code Section 53601; and
Has assets under management in excess of five hundred million dollars
($500,000,000).
9.1 Investment Pools:
The City's Director of Finance/Treasurer or designee shall be required to investigate all local
government 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 Government
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 Finance/Treasurer 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.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 government 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 daily 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 Finance/Treasurer, 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:
All City investments shall identify the City of Chula Vista as the registered owner, and all
interest and principal payments and withdrawals shall indicate the City of Chula 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 shall 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 in securities 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 would not unduly harm the City's cash flow.
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INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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
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 Finance/Treasurer shall establish a system of internal controls designed to
prevent loss of public funds due to fraud, 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 terms of this Investment Policy and the procedure
established by the Director of Finance/Treasurer.
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 performed by the Finance Department
and approved by the Director of Finance/Treasurer. 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 Finance/Treasurer
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 of this Investment Policy.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
The monies entrusted to the Director of Finance/Treasurer 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 requirements of
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. While 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 Finance/Treasurer 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 Finance/Treasurer shall submit a quarterly investment report to the City Council
and City Manager following the end of each quarter. 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
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
· 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 commentary on capital markets and economic conditions may be
included with the report.
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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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 %)
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 deposit 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 term 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. Commercial 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 ofthe 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
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.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 instrwnents 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 government 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 commercial 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-term 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
(HUD). 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
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.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
FEDERAL OPEN MARKET COMMITTEE (FOMe): 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 commercial 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, commercial banks, savings and loan associations and other institutions.
Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae
securities are backed by the FHA or VA 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 pnce 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 hill, bought at par value with the promise to pay face value plus
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).
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as directed 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 informal 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 capita!.
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 terms of the agreement
are structured to compensate him for this. Dealers use RP extensively to finance 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.
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which are
guaranteed by the Federal government 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.
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CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
FISCAL YEAR 2007/2008
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 15C3-1: See "Uniform 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-term U.S. Treasury securities having initial maturities of more than
10 years.
TREASURY NOTES: Intermediate-term coupon bearing U.S. Treasury having initial
maturities of one year to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms 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 Maturity 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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