City of Culver City, California
Agenda Item Report
Meeting Date: 08/09/2010 Item Number: J-1
JOINT CITY COUNCIL / REDEVELOPMENT AGENCY BOARD AGENDA ITEM: (1)
Adoption of City Council and Redevelopment Agency Resolutions Approving an
Investment Policy for the City and the Redevelopment Agency; and (2) Adoption of
City Council and Redevelopment Agency Resolutions Authorizing the Chief
Financial Officer and His Designated Representatives to Deposit and Withdraw
Funds as well as Make Account Changes with the State Local Agency Investment
Fund on Behalf of Culver City and of the Culver City Redevelopment Agency.
Contact Person/Dept.:
Jeff S. Muir/Finance
Phone Number: 310/253-5865
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [X] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (E-Mail) Meetings and Agendas – City Council (08/05/10)
Department Approval:
Jeff Muir (08/02/10)
City Attorney Approval:
Carol Schwab (by H. Baker) (08/04/10)
Chief Financial Officer Approval:
Jeff Muir (08/02/10)
City Manager Approval:
Martin R. Cole (08/05/10)
RECOMMENDATION:
Staff recommends that the City Council:
Adopt a Resolution approving the attached Investment Policy; and
Adopt a Resolution authorizing the Chief Financial Officer and his designated
representatives to deposit and withdraw funds as well as make account changes
with the State Local Investment Fund on behalf of Culver City;
AND
Staff recommends the Redevelopment Agency Board:
Adopt a Resolution that authorizes and approves the Investment Policy of the
City to be the Investment Policy for the Agency; and
Adopt a Resolution authorizing the Chief Financial Officer and his designated
representatives to deposit and withdraw funds as well as make account changes
with the State Local Investment Fund on behalf of the Culver City
Redevelopment Agency.
City of Culver City, California
Agenda Item Report
BACKGROUND / DISCUSSION:
Effective January 1, 1996, the filing of the Annual Statement of Investment Policy
became a requirement of State law. In FY 2003/2004, the State Legislature
suspended the requirement to avoid Mandated Cost Reimbursements to local
governments. However, sound practice is to continue an annual review of the City
and Agency Investment Policy and make adjustments when warranted. While the
City and Agency have been operating under the conservative investment policies
last adopted by the City Council and the Redevelopment Agency Board, in keeping
with sound practice, staff recently reviewed the Investment Policy and is presenting
it to the City Council and Agency Board for approval.
The attached investment policy is in compliance with Sections 53600 through 53684
of the Government Code, which govern investment requirements for California public
agencies. The Chief Financial Officer (acting in his capacity as City Treasurer as
that title has been conveyed upon the Chief Financial Officer by the City Manager) is
delegated primary authority for managing the City and Redevelopment Agency
investment portfolio. Previously, there were separate (though identical) investment
policies adopted by the City Council and the Redevelopment Agency Board. The
attached policy will be applicable to both entities.
It should be noted that the proposed policy continues the conservative investment
objectives of the City and the Agency. This is particularly important given the
unprecedented volatility in the investment markets experienced since the market
collapse experienced in 2008.
Because of staff turnover, it is also necessary to amend and update the City and
Redevelopment Agency Resolutions on file with the State of California Local Agency
Investment Fund (LAIF) to reflect current personnel. The City and the
Redevelopment Agency both have general investment accounts with LAIF, in
addition with the authority to invest bond proceeds in the same fund. The LAIF
requires the submittal of a resolution authorizing the Chief Financial Officer and his
designated representatives to deposit, withdraw and make account changes for both
the City and the Agency. The proposed Resolutions will authorize Jeff Muir, Chief
Financial Officer, and Nagam Rao, Revenue Division Manager, to conduct these
activities on behalf of the City and the Agency.
FISCAL ANALYSIS:
There is no fiscal impact associated with the approval of the Investment Policy and
the adoption of these Resolutions.
City of Culver City, California
Agenda Item Report
ATTACHMENTS:
1. Proposed City Council Resolutions
2. Proposed Redevelopment Agency Resolutions
MOTION:
That the City Council:
1. Adopt a Resolution that approves the attached Fiscal Year 2010/2011
Investment Policy; and
2. Adopt a Resolution authorizing the Chief Financial Officer and his designated
representatives to deposit and withdraw funds as well as make account
changes with the State Local Investment Fund on behalf of Culver City.
AND
That the Agency Board:
1. Adopt a Resolution that approves the Investment Policy of the City to be the
Investment Policy for the Agency; and
2. Adopt a Resolution authorizing the Chief Financial Officer and his designated
representatives to deposit and withdraw funds as well as make account
changes with the State Local Investment Fund on behalf of the Culver City
Redevelopment Agency.
MEETING DATE: 08/09/2010
AGENDA ITEM: (1) Adoption of City Council and Redevelopment Agency
Resolutions Approving an Investment Policy for the City
and the Redevelopment Agency; and (2) Adoption of City
Council and Redevelopment Agency Resolutions
Authorizing the Chief Financial Officer and His Designated
Representatives to Deposit and Withdraw Funds as well
as Make Account Changes with the State Local Agency
Investment Fund on Behalf of Culver City and of the
Culver City Redevelopment Agency
ATTACHMENTS
1. City Council Resolution approving an Investment
Policy for the City and Exhibit “A”.
1-22
2. City Council Resolution authorizing the Chief Financial
Officer and his designated representatives to deposit and
withdraw funds as well as make account changes with the
State Local Agency Investment Fund.
23-24
3. Redevelopment Agency Resolution approving the
City’s Investment Policy as the Investment Policy for the
Agency
25
4. Redevelopment Agency Resolution authorizing the
Chief Financial Officer and his designated representatives
to deposit and withdraw funds as well as make account
changes with the State Local Agency Investment Fund.
26-27
ATT-1EXHIBIT “A”
City of
Culver City
Annual Investment Policy
Fiscal Year 2010-2011
Jeff Muir
Chief Financial Officer / City Treasurer
ATT-2City of Culver City
Annual Investment Policy
Fiscal Year 2010-2011
TABLE OF CONTENTS
Introduction ............................................................................................................... 1
Delegation of Authority ........................................................................................... 1
Ethics and Conflicts of Interest ............................................................................... 2
Prudence ................................................................................................................... 2
Prudent Investor Rule ............................................................................................... 2
Internal Controls ...................................................................................................... 3
Investment Objectives ............................................................................................. 3
Performance Evaluation ......................................................................................... 4
Diversification .......................................................................................................... 4
Portfolio Segregation ............................................................................................... 4
Bond Issuance Arbitrage Rebate ........................................................................... 5
Maximum Maturities ................................................................................................. 5
Portfolio Reporting .................................................................................................. 6
Qualified Dealers .................................................................................................... 7
Safekeeping of Securities ...................................................................................... 8
Collateralization ...................................................................................................... 8
Authorized Investments ........................................................................................... 9
Ineligible Investments ............................................................................................. 13
Investment Advisory Committee ......................................................................... 13
Investment Policy Adoption ................................................................................ 13
Glossary ................................................................................................................... 14
ATT-3CITY OF CULVER CITY
ANNUAL INVESTMENT POLICY
FOR FISCAL YEAR 2010-2011
1
1. INTRODUCTION
This statement of Investment Policy is intended to provide specific criteria
for the prudent investment of City funds. The ultimate investment goal is to
enhance the economic status of the City while protecting funds under
management and meeting the daily cash flow demands of the City. The
investment policy conforms to all Federal, State and local laws governing
the investment of monies under the control of the Chief Financial Officer /
City Treasurer.
This investment policy applies to the City's Investment Portfolio and
Redevelopment Agency Portfolio. These portfolios encompass all monies
under the direct oversight of the Chief Financial Officer / City Treasurer and
include the General Fund, Reserve Funds, Special Revenue Funds, Debt
Service Funds, Capital Project Funds, Proprietary Funds, Trust and Agency
Funds, and any other funds that may be created.
2. DELEGATION OF AUTHORITY
The Charter of the City of Culver City and the authority granted by City
Council assign the responsibility of investing unexpended cash to the City
Treasurer. The Chief Financial Officer has been appointed to also serve as
the City Treasurer. The Chief Financial Officer may delegate daily
investment activity, such as carrying out the Treasurer's investment
instructions, confirming treasury transactions, and other routine activities.
The Chief Financial Officer shall establish written investment policy
procedures for the operation of the investment program consistent with this
policy. The procedures should include reference to: safekeeping, PSA
repurchase agreements, wire transfer agreements, banking service
contracts and collateral/depository agreements. Such procedures shall
include explicit delegation of authority to persons responsible for
investment transactions. No person may engage in an investment
transaction except as provided under the terms of this policy and the
procedures established by the Chief Financial Officer.
The Chief Financial Officer is responsible for the investment of bond
proceeds whether held by the City or with a fiscal agent. The Bond
Proceeds portfolio(s) shall be segregated from the Pooled Investment
Portfolio of the City and will be structured with maturities (or maintain an
average maturity) sufficient to meet construction draws, debt service
payments and other short-term liabilities. For purposes of efficiency, the
Chief Financial Officer may instruct each fiscal agent to purchase certain
securities regarding the investment of bond proceeds.
ATT-4City of Culver City Investment Policy Revised 2010
2
The Chief Financial Officer may delegate management of the Culver City
Investment Portfolio and Redevelopment Agency Portfolio to a contract
management firm that has full authority to execute investment transactions
on behalf of the City. In the event the contract management firm is not
able to execute investment transactions, the Chief Financial Officer and
Revenue Division Manager have the authority to execute investment
transactions.
3. ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain
from personal business activity that conflicts with proper execution of the
investment program or that impairs their ability to make impartial
investment decisions. Employees and investment officials shall disclose any
material financial interests that could be related to the performance of the
City's investment policy annually or as necessary.
4. PRUDENCE
The Chief Financial Officer operates the City's pooled cash investment
program under the Prudent Investor Rule, Government Code Section
53600.3, and applicable State laws. This affords a broad spectrum of
investment opportunities so long as the investment is deemed prudent and
permissible by the State of California, various bond indentures and this
policy. The Chief Financial Officer strives to invest 100% of idle funds.
5. PRUDENT INVESTOR RULE
When investing, reinvesting, purchasing, acquiring, exchanging, selling, and
managing public funds, the Chief Financial Officer shall act with care, skill,
prudence, and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiarity with those matters
would use in the conduct of funds of a like character and with like aims to
safeguard the principal and maintain the liquidity needs of the agency. All
such investments, reinvestments, purchases, acquisitions, exchanges, and
sales shall be made subject to and in accordance with this policy and the
provisions of Sections 16429.1 and 53600 through 53684 of the Government
Code and other applicable laws and regulations.
ATT-5City of Culver City Investment Policy Revised 2010
3
6. INTERNAL CONTROLS
The Chief Financial Officer shall establish procedures that separate the
internal responsibility for management and accounting of the investment
portfolio. An analysis by an external independent auditor shall be
conducted annually to review internal controls, account activity and
compliance with policies and procedures.
7. INVESTMENT OBJECTIVES
The City's cash management system is designed to accurately monitor and
forecast revenues and expenditures, thus enabling the Chief Financial
Officer to invest funds to the fullest extent possible. The Chief Financial
Officer maintains a diversified portfolio to accomplish the primary
objectives in the order of safety, liquidity, and yield.
Safety: The safety/risk associated with an investment refers to the potential
loss of principal, accrued interest or a combination of these. The Chief
Financial Officer seeks to mitigate credit risk by monitoring financial
institutions with which he/she will do business, and by careful scrutiny of the
credit worthiness of the investment instruments as well as the institutions.
Such resources as Moody's and Standard & Poor's rating services are
utilized for this review. The Treasurer seeks to mitigate interest rate risk
through diversification of instruments as well as maturities.
Liquidity: The portfolio will be structured with sufficient liquidity to allow the
Chief Financial Officer to meet anticipated cash requirements. This will be
accomplished through the purchase of a diversity of instruments to include
those with active secondary markets, those that can match maturities to
expected cash needs, and the State Local Agency Investment Fund with
immediate withdrawal provisions.
Yield: A competitive market rate of return is the third objective of the
investment program after the fundamental requirements of safety and
liquidity have been met. The portfolio shall be managed to consistently
attain a market rate of return throughout budgetary and economic cycles.
Whenever possible, and consistent with risk limitations and prudent
investment management, the City will seek to augment returns above the
market average rate of return through the implementation of active
portfolio management strategies.
ATT-6City of Culver City Investment Policy Revised 2010
4
8. PERFORMANCE EVALUATION
Investment performance is continually monitored and evaluated by the
Chief Financial Officer. Investment portfolio reports are generated on a
quarterly basis and submitted to the City Council, City Manager and
Investment Committee.
The investment portfolio reports are to be submitted within 30 days of the
end of the reporting period. The monthly average yield of the Culver City
Pooled Investment Portfolio will be compared to the monthly average 6-
month CMT (Constant Maturity Treasury) as calculated by the Federal
Reserve Bank of New York. As an added reference, the monthly average
yield of the Culver City Pooled Investment Portfolio will be compared to the
monthly average 2-year CMT as calculated by the Federal Reserve Bank of
New York.
9. DIVERSIFICATION
The City will diversify use of investment instruments to avoid unreasonable
risks inherent in over-investing in specific instruments, individual financial
institutions, or maturities.
Market price volatility shall be controlled through maturity diversification, as
well as ensuring adequate liquidity is available to meet cash flow
requirements, thereby precluding the need to sell instruments at a market
loss.
Risk of default will be controlled by acquiring instruments such as
Government Securities, or by diversifying the portfolio within the constraints
and parameters of Section 17 of this Policy, Authorized Investments.
10. PORTFOLIO SEGREGATION
Within the overall funds managed by the Chief Financial Officer, bond
funds shall be invested in conformance with the permitted investment
criteria documented in each bond indenture or guiding resolution.
Furthermore, bond proceeds held by fiscal agents shall also be segregated
and invested in accordance with each indenture.
The primary purpose in managing bond proceeds to structure investment
maturities to meet current and future liabilities. The preservation of
principal and the maintenance of liquidity are the most important factors
ATT-7City of Culver City Investment Policy Revised 2010
5
regarding the investment of bond proceeds. Portfolio yield is not a primary
factor since the portfolio structure, eligible investment assets and maturity
restrictions are governed by draws and expenditure schedules of the issues.
Performance will be based upon maximizing permitted positive arbitrage
within the context of principal preservation as a first priority (pre-1986 Tax
Reform Act issuances) or minimizing or eliminating negative arbitrage
(yield-restricted issues).
11. BOND ISSUANCE ARBITRAGE REBATE
The U.S. Tax Reform Act of 1986 requires the City to perform annual
arbitrage calculations and rebate excess earnings to the U.S. Treasury for
investment returns that exceed the allowable interest earnings limit of each
bond issue. The arbitrage calculation process must be conducted for the
investment of proceeds of bond issues sold after the effective date of this
law. This arbitrage calculation will be contracted out to provide the
necessary technical expertise to comply with this regulation. The City's
investment position relative to the interest rate arbitrage restrictions is to
have safety and the highest permitted return the law allows as the highest
priority while ensuring the preservation of principal and liquidity.
12. MAXIMUM MATURITIES
(1) Operating Portfolio
In accordance to California Government Code Section 53601, The
City will not invest in any securities maturing more than five (5) years
from the settlement date of purchase. If the Chief Financial Officer
desires to make investments longer than five years, express authority
to make those investments, either specifically or as part of an
investment program, must be approved by the City Council no less
than three months prior to the investment. In no event will securities
with maximum maturities beyond four years exceed 40% of the
portfolio’s total carrying cost at the time of purchase.
ATT-8City of Culver City Investment Policy Revised 2010
6
(2) Bond Proceeds
The Bond Proceeds portfolio held by the City and/or fiscal agents will
be structured with maturities sufficient to meet current and future
disbursements and other liabilities consistent with the purpose of
each bond issue. The Chief Financial Officer may match maturities
to defined future liabilities or may structure the portfolio in such a
manner as to maintain an average maturity and a defined liquidity
percentage necessary to meet estimated liabilities. In no event will
securities be purchased with final maturities that exceed a
specifically defined future liquidity requirement (such as bond
reserve fund availability requirement) or liability.
13. PORTFOLIO REPORTING
On a quarterly basis, or as otherwise requested by the City Manager, the
Chief Financial Officer shall provide to the City Council an investment
portfolio report indicating each of the City's investments (a description that
adequately describes the security), the purchase date, maturity date, cost
basis, current cost value (book value), interest rate, weighted average
maturity, and current unrealized loss or gain. Various investment types will
be categorized and grouped in the same structure as the qualified
investment categories identified in this policy. The portfolio report shall
include a statement certifying the ability of the City to meet its expenditure
requirements for the next six months, or provide an explanation as to why
sufficient money shall, or may, not be available. The report will also include
comments on the fixed income markets and economic conditions, and the
effect, if any, on the portfolio structure and investment strategy. The report
shall also detail all repurchase and reverse repurchase positions and
associated liabilities.
The investment portfolio report shall include mark-to-market information for
all investments. A monthly market value will be obtained for each security
owned by the City. For purposes of reporting, the market value of each
security may be obtained from the City’s custodian bank or other pricing
source(s) utilized by the City’s designated investment management firm
(registered investment advisor).
The City shall record interest revenue on a modified accrual basis of
accounting that is typical for reporting and recording of interest earnings,
accretions and premium amortizations. Securities held by a fiscal agent
shall also be recorded on a modified accrual basis of accounting. The
Chief Financial Officer will report year-end investments in conformance
ATT-9City of Culver City Investment Policy Revised 2010
7
with GASB 31 and GASB 40.
The Chief Financial Officer will perform a monthly reconciliation of all funds
included in the investment portfolios. The reconciliation shall utilize all
available information including the City's books, the Demand Deposit Bank
account, the custodian's statement and the fiscal agent's statement.
14. QUALIFIED DEALERS
The Chief Financial Officer shall transact business only with Registered
Investment Advisors, banks, savings and loans, and broker dealers. The
dealers should be primary dealers regularly reporting to the New York
Federal Reserve Bank, or approved regional or secondary market dealers
that qualify under the Securities and Exchange Commission Rule 15C3-1
(uniform net capital rule).
A list of security broker/dealers approved to conduct business with the City
shall be maintained. Every three years, the City shall issue a Request for
Qualifications (RFQ) to be submitted by broker/dealers that wish to
conduct business with the City. The City shall conduct a review and
evaluation process of submitted proposals and provide a list of
recommended broker/dealers to the Investment Committee and City
Council for approval. Approved broker/dealers shall be required to
execute the Acknowledgement of Compliance Standards for Investment
Transactions prior to conducting business with the City.
The Chief Financial Officer may direct a fiscal agent to execute investment
transactions on behalf of the City for funds held by that fiscal agent.
The City may purchase A|1010|, P|1010| rated commercial paper from its direct issuer
if it presents a higher return than in the secondary market.
The Chief Financial Officer shall send annually a copy of the current
investment policy by electronic mail to all broker/dealers approved to do
business with the City. Broker/dealers shall be required to provide a
certification acknowledging receipt of the policy and their most recent
audited financial statements upon receipt of policy. Chief Financial Officer
will review financials and report back to the Investment Committee.
Confirmation of receipt of this policy shall be considered evidence that the
dealer understands the City's investment policies and agrees to sell the City
only appropriate investments.
ATT-10City of Culver City Investment Policy Revised 2010
8
15. SAFEKEEPING OF SECURITIES
To protect against losses caused by the collapse of individual securities
dealers, all securities owned by the City shall be held in safekeeping by a
third party bank trust department acting as agent for the City under the
terms of a custody agreement or PSA agreement (repurchase agreement
collateral) or, in the case of funds held by the fiscal agent, the fiscal agent
shall segregate and report securities held on the City's behalf. Any trade
executed by a dealer is required to settle on a delivery versus payment
basis with the City's safekeeping agent.
Fiscal agents in receipt of City of Culver City bond proceeds will settle
security transactions on a delivery versus payment method based upon
instructions provided by the Chief Financial Officer or the City's investment
advisor. The fiscal agents will issue monthly custodian statements
evidencing securities held in safekeeping, including the receipt of interest
and maturity proceeds, the disbursement of funds for the purchase of
securities, and the receipt of any sale proceeds.
16. COLLATERALIZATION
All demand deposits, time deposits and repurchase agreements are to be
fully collateralized with securities authorized by the California Government
Code and the City.
(1) The eligible collateral for repurchase agreements must be those
investments authorized by Section 53651 of the California
Government Code. The Chief Financial Officer may specify the type
of eligible collateral for use in repurchase agreements. Eligible
collateral must be in book entry form. Collateral is valued at current
market plus accrued interest through the date of valuation.
(a) The cost value (book value) of collateral pledged for demand
deposits must at all time be equal to or greater than the
amount on deposit, plus accrued interest, in accordance with
the following ratio:
U.S. Treasury Securities 110%
(b) The cost value (book value) of collateral pledged for
repurchase agreements must at all time be equal to or greater
than the par amount, plus accrued interest, with the following
ratios:
ATT-11City of Culver City Investment Policy Revised 2010
9
U.S. Treasury Securities 102%
U.S. Government Agencies 102%
Cash (in immediately available funds) 100%
(2) It is the policy of the City to require reports at least on a quarterly
basis from institutions with which the Chief Financial Officer has
pledged security interest. The Chief Financial Officer shall monitor
the adequacy of collateralization to ensure that balances are
collateralized in accordance with the ratios approved herein.
(3) With regard to repurchase agreements, it is the policy of the City to
initiate a margin call in the event pledged collateral falls below the
appropriate ratio.
(4) Collateralized investments and deposits often require substitution of
collateral. Any broker or financial institution requesting substitution
must contact the City for approval in the event the counterparty to
the transaction is not authorized under agreement with the City to
make substitutions.
17. AUTHORIZED INVESTMENTS
The City is governed by the California Government Code, Sections 53600
et. seq. Within the context of these limitations and based on the cost at
the time of purchase, the following investments are authorized as further
limited herein:
Authorized Investment Summary Matrix
Category Percent
A. US Treasuries no limit
B. US Agencies no limit
C. Bankers’ Acceptances 25%
D. Commercial Paper 15%
E. Repurchase Agreements 25%
F. Reverse Repurchase Agreements 15%
G. Local Agency Investment Fund (LAIF) Per State limit
H. Municipal Bonds no limit
I. Corporate Medium Term Notes 20%
J. Money Market Mutual Funds 20%
ATT-12City of Culver City Investment Policy Revised 2010
10
A. United States Treasury Bills, Bonds, and Notes, or those for which the
full faith and credit of the United States are pledged for payment of
principal and interest. There is no limitation as to the percentage of
the portfolio that can be invested in this category.
B. Obligations issued by the Government National Mortgage
Association (GNMA), the Federal Farm Credit Bank System (FFCB),
the Federal Home Loan Bank Board (FHLB), Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA), and the Student Loan Marketing Association
(SLMA). Although there is no percentage limitation on these issues,
no more than 30% of the cost (book) value of the portfolio will be
invested in any one agency.
C. Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as Bankers’ Acceptances.
Bankers’ Acceptances purchased may not exceed 180 days to
maturity or 25% of the cost (book) value of the portfolio. No more
than 5% of the cost (book) value of the porfolio may be invested in
Bankers’ Acceptances issued by any one bank. Prior to the
purchase of any Banker’s Acceptance, the portfolio manager shall
review the rating of the issuing bank. Bankers’ Acceptances of
issuing financial institutions shall have both a short and long term
rating in the highest category by at least one nationally recognized
rating agency at the time of purchase.
D. Commercial Paper ranked P1 by Moody's Investor Services and A1 by
Standard and Poor's and issued by a domestic corporation having
assets in excess of $500 million. The commercial paper must also
have an A or better rating for the issuers debt, other than
commercial paper, if any, as provided by Moody's or Standard and
Poor's. Purchase of commercial paper from corporations on
negative credit watch by a major rating agency shall be prohibited.
Purchases of eligible Commercial Paper may not exceed 270 days
to maturity nor represent more than 10% of the outstanding paper of
an issuing corporation. Purchases of Commercial Paper may not
exceed 15% of the cost value of the portfolio at time of purchase.
No more than 5% of the cost value of the portfolio may be invested
in Commercial Paper issued by any one corporation. Corporate
Medium Term Note and bankers’ acceptance holdings shall be
considered when calculating the maximum dollar amount in any
issuer name.
Upon any announcement of negative credit watch or downgrade
ATT-13City of Culver City Investment Policy Revised 2010
11
by a major rating agency of any issue within the portfolio, the
investment manager should contact the Chief Financial Officer and
recommend a course of action. If at any time a security falls below
“investment grade,” the investment manager should obtain the best
bid and take the necessary steps toward liquidation.
E. Repurchase agreements. The City may invest in repurchase
agreements with banks and primary dealers with whom the City has
entered into a master repurchase agreement that specifies terms
and conditions of repurchase agreements. No more than 25% of the
cost value of the portfolio may be invested in repurchase
agreements at any time. The maturity of repurchase agreements
shall not exceed 75 days.
The cost value of securities used as collateral for repurchase
agreements shall be monitored daily by the Chief Financial Officer
and will not be allowed to fall below the margin ratios specified in
Section 16 (1)(b) of this policy. In order to conform with provisions of
the Federal Bankruptcy Code which provides for the liquidation of
securities held as collateral for repurchase agreements, the only
securities acceptable as collateral shall be securities that are direct
obligations of, or that are fully guaranteed as to principal and
interest by, the United States Government such as Treasury bills,
Treasury notes or Treasury bonds with less than a five year maturity.
F. Reverse repurchase agreements. The City may invest in reverse
repurchase agreements only with those banks and primary dealers
with whom the City has entered into a master repurchase
agreement outlining terms and conditions of repurchase and reverse
repurchase agreements. The City may only invest in reverse
repurchase agreements for the following purpose:
1. The City may enter into reverse repurchase agreements
when funds obtained through the reverse can be
reinvested in a higher yielding security to obtain
additional interest income for the City at a spread
deemed to be acceptable by the Chief Financial
Officer under then prevailing market conditions. Reverse
repurchase agreements entered into in accordance
with this paragraph may not exceed 75 days to maturity
and must be matched as to maturity and dollars
invested with its corresponding reinvestment. No more
than 15% of the cost value (book value) of the portfolio
ATT-14City of Culver City Investment Policy Revised 2010
12
may be invested in reverse repurchase agreements.
2. Reverse repurchase agreements may be used for
liquidity purposes when it is determined that the portfolio
has sufficient additional collateral coming due within the
term of the reverse repurchase agreement equal to or
exceeding the amount of the reverse repurchase
agreement.
G. Local Agency Investment Fund (LAIF). The City may invest in the LAIF
established by the State Treasurer for the benefit of local agencies
up to the maximum permitted by State law.
H. Bonds issued by local agencies in the State of California, including
bonds payable solely out of the revenues from a revenue-producing
property owned, controlled, or operated by the local agency or by a
department, bond, agency, or authority of the local agency rated
“AA” or better. "AA" rated bonds shall be limited to 36 months
maximum maturity and "AAA" rated bonds shall be limited to 60
months maximum maturity.
Upon any announcement of negative credit watch or downgrade
by a major rating agency of any issue within the portfolio, the
investment manager should contact the Chief Financial Officer and
recommend a course of action. If at any time a security falls below
“investment grade,” the investment manager should obtain the best
bid and take the necessary steps toward liquidation.
I. Corporate medium term notes issued by a domestic corporation
having assets in excess of $500 million and having an “AA” or better
rating criteria at time of purchase on its long-term debentures as
provided by Moody's or Standard and Poor's. Purchase of corporate
medium term notes from corporations on negative credit watch by a
major rating agency shall be prohibited. "AA" rated medium term
notes shall be limited to 36 months maximum maturity and "AAA"
rated medium term notes shall be limited to 60 months maximum
maturity. The aggregate total of all purchased medium term notes
may not exceed 20% of the cost value of the portfolio. No more
than 5% of the cost value of the portfolio may be invested in
corporate medium term notes issued by any one corporation.
Commercial Paper and bankers’ acceptance holdings shall be
considered when calculating the maximum percentage in any issuer
name.
ATT-15City of Culver City Investment Policy Revised 2010
13
Upon any announcement of negative credit watch or downgrade
by a major rating agency of any issue within the portfolio, the
investment manager should contact the Chief Financial Officer and
recommend a course of action. If at any time a security falls below
“investment grade,” the investment manager should obtain the best
bid and take the necessary steps toward liquidation.
J. Money Market Mutual funds having a rating of AAA/Aaa or an
equivalent by one or more national rating agencies with no load
and maintained at $1 par value. No more than 20% of portfolio
value should be invested in this category; investment in a single
mutual fund will not to exceed 10% of the cost value (book value) of
the total portfolio exclusive of the fiscal agent cash portfolio, and the
City's investment in any specific mutual fund will not exceed 2% of
that mutual fund's total assets.
18. INELIGIBLE INVESTMENTS
Investments not described herein including, but not limited to, equity
securities such as common stocks, preferred stocks, convertibles, inverse
floaters, range notes and interest-only strips that are derived from a pool of
mortgages are prohibited from use in this portfolio. The City is prohibited
from entering into a margin agreement and/or borrowing on margin.
19. INVESTMENT COMMITTEE
An Investment Committee shall be established consisting of but not limited
to the Chief Financial Officer, members of the Chief Financial Officer’s staff,
a City Council member, the City Manager and Community Development
Director.
20. INVESTMENT POLICY ADOPTION
The City Council shall review and adopt this Investment Policy annually.
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GLOSSARY
AGENCIES - Agencies of the Federal government set up to supply credit to
various classes of institutions (e.g., S&L's, small business firms, students,
farmers, housing agencies, etc.) Examples include Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA), Federal Home Loan Bank (FHLB) and Federal Farm Credit Bank
(FFCB).
ASK/OFFER - 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 of exchange accepted by a
bank or trust company. The accepting institution guarantees payment of
the bill as well as the issuer.
BASIS POINT - One one-hundredth of a percent (i.e., 0.01%)
BEAR MARKET - A period of generally pessimistic attitudes and declining
market prices.
BID PRICE - The price at which a broker/dealer will buy securities from an
investor.
BOND EQUIVALENT YIELD - The basis on which yields on notes and bonds are
quoted.
BOOK VALUE (COST VALUE) - The purchase price of the security as recorded
on the City’s books.
BROKER/DEALER – An individual or firm acting as principal in a securities
transaction.
BULL MARKET - A period of generally optimistic attitudes and increasing
market prices.
CALLABLES - Securities that the issuer has the right to redeem prior to
maturity.
CERTIFICATE OF DEPOSIT (CD) - A time deposit with a specific maturity
evidenced by a certificate. Large denomination CD's are typically
negotiable.
CMT - Constant Maturity Treasury – An index of the average yield on United
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States Treasury securities adjusted to a constant maturity.
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 - Commercial Paper is issued by leading industrial and
financial firms to raise working capital. The maturities are from 3 to 180 days,
usually sold on a discount basis. The City and Redevelopment Agency only
buys Commercial Paper issued by corporations with the highest possible
credit rating. Investments in Commercial Paper may not exceed 25% of the
City or Redevelopment Agency’s's surplus funds.
CORPORATE MEDIUM TERM NOTE - A security issued by a corporation doing
business in the U.S. with a maturity not to exceed five years.
COST VALUE (BOOK VALUE) - The purchase price of the security as recorded
on the City’s books.
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 VS PAYMENT - Delivery of securities with a simultaneous exchange
of money.
DEMAND ACCOUNT – An account with a commercial bank from which
check withdrawals may be made at any time.
DERIVATIVES - Financial products that are dependent for their value on (or
derived from) an underlying financial instrument, a commodity, or an index
representing values of groups of such instruments or assets.
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.
DIVERSIFICATION - Dividing investment funds among a variety of securities
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offering independent returns.
FEDERAL CREDIT AGENCIES - Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals; e.g., S&L's,
small business firms, students, farmers, farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - A federal agency that
insures bank deposits, currently up to $250,000 100,000 per deposit. Note
that this is set to revert back to $100,000 per deposit on December 31, 2009
unless extended by Congress.
FEDERAL FUNDS RATE – Interest rate charged by one institution lending
federal funds to another.
FEDERAL HOME LOAN BANKS (FHLB) - Government sponsored wholesale
banks (currently 12 regional banks), which lend funds and provide
correspondent banking services to member commercial banks, thrift
institutions, credit unions and insurance companies. The mission of the FHLBs
is to liquefy the housing related assets of its members who must purchase
stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA, like GNMA
was charted 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 also highly liquid and are widely accepted. FNMA assumes
and guarantees that all security holders will receive timely payment of
principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC) - Consists of seven members of
the Federal Reserve Board and five of the twelve Federal Reserve Bank
Presidents. The President of the New York Federal Reserve Bank is a
permanent member, while the other presidents serve on a rotating basis.
The Committee 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.
FINANCIAL ADVISOR - A firm or bank that acts in a financial advisory
capacity with respect to a new issue of municipal securities pursuant to a
written contract.
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FISCAL AGENT - A financial institution with trust powers which acts in a
fiduciary capacity for the benefit of the bondholders in enforcing the terms
of the bond contract.
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, VA or FmHA mortgages. The term "pass-throughs" is often used to
describe Ginnie Maes.
INTERNAL RATE OF RETURN - Rate of return over the life of a security on
variables.
LIQUIDITY - A liquid asset is one that can be converted easily and rapidly
into cash without a substantial loss of value. In the money market, a security
is said to be liquid if the spread between bid and asked prices is narrow
and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND (LAIF) - 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, usually the
liquidation value.
MONEY MARKET MUTUAL FUNDS – Open-ended mutual fund that invests in
commercial paper, banker’s acceptances, repurchase agreements,
government securities, certificates of deposit and other highly liquid and
safe securities, and pays money market rates of interest. The fund’s net
asset value remains a constant $1 a share, with the interest rate increasing
or decreasing.
OFFER PRICE - The price at which a broker/dealer will offer securities to an
investor.
OPEN MARKET OPERATIONS - Federal Reserve activity. Under the Federal
Reserve Act, the Fed uses purchases and sales of Government and Federal
Agency securities to add to or subtract from commercial bank reserves.
Goals are to sustain economic growth, high employment and reasonable
price stability.
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PAPER GAIN OR LOSS - Term used for unrealized gain or loss on securities
being held in a portfolio based on comparison of current market quotes
and their original cost. This situation exists as long as the security is held
while there is a difference between cost value (book value) and the
market value.
PRIMARY DEALER - A group of government securities dealers that submits
daily reports of market activity, 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.
PSA - The Public Securities Association is the international organization of
banks, dealers and brokers that underwrite, trade and sell municipal
securities, mortgage-backed securities, money market securities and U.S.
government and federal agency securities.
RATE OF RETURN - The yield obtainable on a security based on its purchase
price or its current market price. This may be the amortized yield to
maturity; on a bond, the current income return.
SAFEKEEPING - The service provided by banks and trust companies for
clients when the bank or trust company stores the securities, takes in
coupon payments, and redeems issues at maturity.
SPREAD - a) The yield or price difference between the bid and offer on an
issue; b) the yield or price difference between different issues.
SWAP - The sale of one issue and the simultaneous purchase of another for
some perceived advantage.
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 BONDS – U.S. Treasury securities that have initial maturities of
more than ten years.
TREASURY NOTES - Intermediate-term coupon bearing U.S. Treasury
securities having initial maturities of from one year to ten years.
TRUSTEE - A financial institution with trust powers that acts in a fiduciary
capacity for the benefit of the bondholders in enforcing the terms of the
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bond contract.
WHEN ISSUED BASIS (WI) - A term applied to securities that are traded
before they are actually issued with the stipulation that transactions are null
and void if securities are not issued.
YIELD CURVE - Yield calculations of various maturities at a given time to
observe spread difference.
YIELD TO MATURITY - The current coupon yield minus any premium above
par, or plus any discount from par in the purchase price with the
adjustment spread over the period from date of purchase to maturity.
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