HomeMy WebLinkAbout8.1 Annual Review of the City’s Statement of Investment Policyr
DUBLIN
CALIFORNIA
STAFF REPORT
CITY COUNCIL
Agenda Item 8.1
DATE: September 17, 2024
TO: Honorable Mayor and City Councilmembers
FROM: Linda Smith, City Manager
SU B.ECT : Annual Review of the City's Statement of Investment Policy
Prepared by: JayBaksa, Finance Director
EXECUTIVE SUMMARY:
The City Council will consider a resolution completing the annual review of the Statement of
Investment Policy. The Policy has been updated to clarify the Delegation of Authority and
Authorized and Suitable Investments and remove language to the Prohibited Investment Practices
to provide more flexibility in the City's investment strategy. While not required by statute, annual
review of a local agency's investment policy is recommended by the California Debt and
Investment Advisory Commission and is included as a requirement in the City Policy.
Additionally, the City Council will consider and provide feedback on the establishment of a
Finance and Investment Subcommittee, which would be responsible for reviewing and making
recommendations to the City Council on financial matters including the City's investment strategy.
STAFF RECOMMENDATION:
Adopt the Resolution Approving the Annual Review of the Statement of Investment Policy and
Delegation of Authority to Complete Investment Transactions and provide feedback and direction
on the establishment of a Finance and Investment Subcommittee.
FINANCIAL IMPACT:
None.
DESCRIPTION:
The current Statement of Investment Policy, adopted on August 21, 2007, states that it is subject
to annual review by the City Council and that the review shall be conducted by the second meeting
in September (Section XVIII). The Policy was last revised on August 15, 2023 to reflect the current
organizational structure of the Finance Department.
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After Staff review and consultation with the City's investment advisor, Chandler Asset
Management, the annual review of the Policy includes the following changes.
Proposed Changes
Section IV. Delegation of Authority
Staff has removed the designation of Assistant Finance Director as Deputy City Treasurer, as that
position is vacant (replaced by an Accounting Manager) as of last fiscal year. The Finance Director
will retain the designation of City Treasurer, and the City Manager will be the sole designated
Deputy City Treasurer.
Section IX.9: Authorized and Suitable Investments
The proposed change adds language to Section IX.9 to allow for investments in Joint Powers
Authority (JPA) pools that meet the requirements of the California Governmental Code. Currently,
the Policy allows for investments in JPA pools, but specifically lists one JPA, California Asset
Management Program (CAMP) as the only authorized JPA investment vehicle. The change will
allow the City to invest in any JPA that meets the criteria of the California Government Code
Section 6509.7, including but not limited to CAMP.
Section XI: Prohibited Investment Practices and Instruments
The proposed change removes the phrase "Securities are purchased with the intent to hold to
maturity" from this section to provide more flexibility in the City's investment strategy.
Other:
Staff has made corrections in the document for spelling or grammatical errors. All such
corrections are reflected in the redlines of Attachment 3.
The attached Resolution documents the annual review and confirms the delegation of authority to
Staff to complete investment transactions. The Policy is provided as Exhibit A to the Resolution.
Finance and Investment Subcommittee
Staff is recommending the City Council consider the establishment of a Finance and Investment
Subcommittee comprising two members of the City Council. The Subcommittee would be
responsible for reviewing and making recommendations to the City Council on matters related to
the City's investments and on other major financial matters. Topics to consider for the
Subcommittee could include:
• Review of the City's Investment Policy, including determining if and how the City should
incorporate Socially Responsible Investing (SRI) practices and Environmental, Social,
Governance (ESG) standards. This topic was most recently raised at the meeting of May 21,
2024, with two Councilmembers expressing the desire to address this issue at a later date.
• Review of and recommendations on the City's investment strategy, portfolio composition,
and quarterly returns.
• Review of items related to existing and potential debt issuance.
• Review of quarterly financial reviews.
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If the City Council provides direction to create the Finance and Investment Subcommittee, Staff
would bring that item to the City Council in October for formal approval. Appointments to the
Subcommittee would then be made by the Mayor as part of the annual item brought to the City
Council. The next such item is planned for a December 2024 meeting, with the newly seated City
Council.
STRATEGIC PLAN INITIATIVE:
None.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
The City Council Agenda was posted.
ATTACHMENTS:
1) Resolution Approving the Annual Review of the Statement of Investment Policy and Delegation
of Authority to Complete Investment Transactions
2) Exhibit A to the Resolution - Statement of Investment Policy for the City of Dublin
3) Statement of Investment Policy for the City of Dublin (Redline)
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Attachment I
RESOLUTION NO. XX — 24
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
APPROVING THE ANNUAL REVIEW OF THE STATEMENT OF INVESTMENT POLICY AND
DELEGATION OF AUTHORITY TO COMPLETE INVESTMENT TRANSACTIONS
WHEREAS, on August 21, 2007 the City Council adopted Resolution 152-07 approving a
Statement of Investment Policy ("Investment Policy"); and
WHEREAS, Section XVIII of the Investment Policy requires an annual review by the City
Council no later than the second meeting in September; and
WHEREAS, the last modification to the Investment Policy was approved by the City Council
at the meeting of August 15, 2023; and
WHEREAS, the focus of the annual review is to allow for any adjustments as a result of
changes in State laws or other recommended modifications; and
WHEREAS, consistent with the provisions of Government Code Section 53607, the
Investment Policy provides for the City Council to delegate for a one-year period the authority to
invest City funds to the City Treasurer and any duly appointed Deputy City Treasurer; and
WHEREAS, Staff recommends changes to the Investment Policy aligning with current best
practices and clarifying language; and
WHEREAS, the City Council reviewed the Investment Policy at the September 17, 2024
meeting.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does
hereby in accordance with California Government Code 53646(a)(2) complete the annual review
of the Statement of Investment Policy, as attached hereto as Exhibit A.
BE IT FURTHER RESOLVED that the City Council action explicitly renews the delegation
of authority to complete investment transactions by City Staff (Finance Director designated as the
City Treasurer and the City Manager designated as the Deputy City Treasurer), as described in
Section IV of the Statement of Investment Policy.
{Signatures on the following page}
Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 1 of 2
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PASSED, APPROVED AND ADOPTED this 17th day of September 2024, by the following
vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
Mayor
ATTEST:
City Clerk
Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 2 of 2 5
Attachment 2 — Exhibit A to the Resolution
STATEMENT OF INVESTMENT POLICY FOR THE CITY OF DUBLIN
I. INTRODUCTION
This Statement of Investment Policy is intended to identify various policies and
procedures that will foster a prudent and systematic investment program designed to
seek the City's objectives of safety, liquidity and return through a diversified investment
portfolio. This policy also serves to organize and formalize the City's investment -
related activities, while complying with all applicable status governing the investment
of public funds.
II. SCOPE
This policy covers all funds and investment activities under the direct authority of the
City of Dublin, as set forth in the State Government Code, sections 53600 et seq.,
excluding any bond- related proceeds or reserves, which are governed by their bond
indentures. Cash held by the City shall be pooled in order to more effectively manage
City cash resources. All pooled funds are accounted for in the City's Comprehensive
Annual Financial Report and include:
Funds
General Fund
Special Revenue Funds
Capital Project Funds
Internal Service Funds
Enterprise Funds
Agency Funds
This original investment policy was adopted by the City of Dublin (the "City"), on
August 21, 2007. This update to the Policy is effective on September 17, 2024 and
replaces any previous versions.
III. OBJECTIVES
The overall program shall be designed and managed with a degree of professionalism
worthy of the public trust. The primary objectives, in order of priority, of the City's
investment activities shall be:
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Attachment 2 — Exhibit A to the Resolution
1) Safety: Safety of principal is the foremost objective of the investment program. The
City's investments shall be undertaken in a manner that seeks to safeguard the
principal of the funds under its control by maintaining an appropriate risk level.
2) Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the
City to meet its reasonably anticipated cash flow requirements.
3) Return: Return should become a consideration only after the basic requirements
of safety and liquidity have been met. The City seeks to attain market average rate
of return on its investments throughout economic cycles, consistent with
constraints imposed by its safety objectives and cash flow considerations.
4) Diversification: The investment portfolio will be diversified to avoid incurring
unreasonable and avoidable risks regarding specific security types or individual
financial institutions. This shall also conform with applicable sections of the
Government Code.
IV. DELEGATION OF AUTHORITY
As authorized in Government Code Section 53607, the City Council delegates the
authority to invest funds of the City to the City Treasurer and/or any duly appointed
Deputy City Treasurer. The City Treasurer and any duly appointed Deputy City
Treasurer shall make all investment decisions and transactions in strict accordance
with State law and this investment policy. The Finance Director shall be designated as
the City Treasurer and the City Manager shall be designated as the Deputy City
Treasurer. This delegation shall be for a one-year period until the delegation of
authority is revoked or expires. The City Council may renew the authority each year
as part of an annual review of this policy.
The City Treasurer shall establish procedures for the operation of the investment
program. The City Treasurer shall be also responsible for all transactions undertaken
and establishing a system of controls to regulate the activities of subordinates.
The City recognizes that in a diversified portfolio, occasional measured losses may be
inevitable and must be considered within the context of the overall portfolio's return
and the cash flow requirements of the City. Authorized individuals 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 in a timely fashion
and appropriate action is taken to control adverse developments.
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Attachment 2 — Exhibit A to the Resolution
The City may engage the services of one or more external investment managers to
assist in the management of the City's investment portfolio in a manner consistent with
the City's objectives. Such external managers may be granted discretion to purchase
and sell investment securities in accordance with this investment policy. Such
managers must be registered under the Investment Advisors Act of 1940.
V. PRUDENCE
Pursuant to California Government Code Section 53600.3, all persons authorized to
make investment decisions on behalf of the City 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."
VI. ETHICS AND CONFLICTS OF INTEREST
All participants in the investment process shall act as custodians of the public trust.
Investment officials shall recognize that the investment portfolio is subject to public
review and evaluation. The overall program shall be designed and managed with a
degree of professionalism that is worthy of the public trust. Thus, employees and
officials involved in the investment process shall refrain from personal business
activity that conflicts with proper execution of the investment program or impairs their
ability to make impartial investment decisions. Additionally, the City Treasurer and the
Deputy Treasurer shall file applicable financial disclosures as required by the Fair
Political Practices Commission (FPPC).
VII. INTERNAL CONTROLS
The Treasurer is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the entity are protected from loss, theft
or misuse. The internal control structure shall be designed to provide reasonable
assurance that these objectives are met. The concept of reasonable assurance
recognizes that (1) the cost of a control should not exceed the benefits likely to be
derived; and (2) the valuation of costs and benefits requires estimates and judgments
by City management. Periodically, as deemed appropriate by City management
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Attachment 2 — Exhibit A to the Resolution
and/or the City Council, an independent analysis by an external auditor shall be
conducted to review internal controls, account activity and compliance with policies
and procedures.
VIII. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
To the extent practical the Treasurer shall endeavor to complete investment
transactions using a competitive bid process whenever possible. It shall be the City's
policy to purchase securities only from authorized institutions and firms. No deposit of
public funds shall be made except in a qualified public depository as established by
state laws.
Institutions eligible to transact investment business with the City include:
1) Primary government dealers as designated by the Federal Reserve Bank and non -
primary government dealers
2) Nationally or state -chartered banks
3) The Federal Reserve Bank
4) Direct issuers of securities eligible for purchase
The Treasurer shall maintain procedures for the establishing a list of authorized
broker/dealers and financial institutions which are approved for investment purposes.
These may include primary or regional dealers that qualify under Securities &
Exchange Commission Rule 15C3-I (uniform net capital rule). The City requires each
firm that will be used for the purchase or sale of securities to be evaluated by the
Treasurer prior to any investments. The firms shall submit current financial statements,
and annual audited financial statements each year thereafter, which are to be
evaluated by the Treasurer. At a minimum, the firm must be financially sound and have
been in business a minimum of three years. In addition, the firms must provide: proof
of National Association of Security Dealers membership, proof of state registration or
exemption, and certificate of having read the City's investment policy.
If an investment adviser is retained by the City, then that adviser will be permitted to
use their own list of approved broker/dealers and financial institutions for investment
purposes.
IX. AUTHORIZED AND SUITABLE INVESTMENTS
The City's investments are governed by Government Code, Sections 53600 et seq.
Within the investments permitted by the Government Code, the City seeks to further
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Attachment 2 — Exhibit A to the Resolution
restrict eligible investments to the guidelines listed below. In the event an apparent
discrepancy is found between this Policy and the Government Code, the more
restrictive parameters will take precedence. Percentage holding limits listed in this
section apply at the time the security is purchased. Any investment currently held at
the time the Policy is adopted which does not meet the new Policy guidelines can be
held until maturity, and shall be exempt from the current Policy. At the time of the
investment's maturity or liquidation such funds shall be reinvested only as provided in
the most current Policy.
An appropriate risk level shall be maintained by primarily purchasing securities that
are of high quality, liquid, and marketable. The portfolio shall be diversified by security
type and institution to avoid incurring unreasonable and avoidable risks regarding
specific security types or individual financial institutions.
1) United States Treasury Issues. 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 limitation
as to the percentage of the portfolio that may be invested in this category. The
maximum maturity of these securities is ten years. The City Council authorized
investments in United States Treasury Issues beyond five years on September 6,
2022.
2) Federal Agency Obligations. Federal agency or United States government -
sponsored enterprise obligations, participations, or other instruments, including
those issued by or fully guaranteed as to principal and interest by federal agencies
or United States government- sponsored enterprises. There is no limitation as to
the percentage of the portfolio that may be invested in this category. However, the
portfolio's exposure to any one federal agency issuer is limited to 35 percent of the
overall portfolio. The limit of the overall portfolio's exposure to callable federal
agency securities is 25 percent. The maximum maturity for agency securities is ten
years. The City Council authorized investments in Federal Agency Obligations
beyond five years on September 6, 2022.
3) Bankers' Acceptances. Bankers' acceptances, otherwise known as bills of
exchange or time drafts, that are drawn on and accepted by a commercial bank.
Bankers' acceptances must be secured by the irrevocable primary obligation of the
accepting domestic bank. Purchasers are limited to issuers whose short-term debt
is rated "A- 1" or higher, or the equivalent, by a Nationally Recognized Statistical -
Rating Organization (NRSRO). Bankers' acceptances cannot exceed a maturity of
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Attachment 2 — Exhibit A to the Resolution
180 days. A maximum of 40 percent of the portfolio may be invested in this
category. The amount invested in bankers' acceptances with any one financial
institution in combination with any other debt from that financial institution shall not
exceed 20 percent of the portfolio.
4) Commercial Paper. Commercial paper of "prime" quality rated "A-1" or higher, or
the equivalent, by a NRSRO. The entity that issues the commercial paper shall
meet all of the following conditions in either paragraph (a) or paragraph (b):
a. The entity meets the following criteria: (i) Is organized and operating in the
United States as a general corporation. (ii) Has total assets in excess of five
hundred million dollars ($500,000,000). (iii) Has debt other than commercial
paper, if any, that is rated "A" or higher by a nationally recognized statistical -
rating organization.
b. The entity meets the following criteria: (i) Is organized within the United
States as a special purpose corporation, trust, or limited liability company.
(ii) Has program wide credit enhancements including, but not limited to,
overcollateralization, letters of credit, or surety bond. (iii) Has commercial
paper that is rated "A-1" or higher, or the equivalent, by a nationally
recognized statistical -rating organization.
Eligible commercial paper shall have a maximum maturity of 270 days or less and
not represent more than 10 percent of the outstanding paper of an issuing
corporation. A maximum of 25 percent of the portfolio may be invested in this
category. Under a provision of the California Government Code sunsetting on
January 1, 2026, no more than 40 percent of the portfolio may be invested in
Commercial Paper if the Agency's investment assets under management are
greater than $100,000,000. The amount invested in commercial paper of any one
issuer in combination with any other debt from that issuer shall not exceed 20
percent of the portfolio.
5) Negotiable Certificates of Deposit. Negotiable certificates of deposit (NCDs)
issued by a nationally or state -chartered bank, a savings association or a federal
association, a state or federal credit union, or by a state -licensed branch of a
foreign bank. Purchases are limited to institutions which have Tong -term debt rated
"A" or better and/or have short-term debt rated at least "A-1" or higher, or the
equivalent by a NRSRO. A maximum of 30 percent of the portfolio may be invested
in this category. The amount invested in NCDs with any one financial institution in
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Attachment 2 — Exhibit A to the Resolution
combination with any other debt from that financial institution shall not exceed 20
percent of the portfolio. The maximum maturity of these securities is five years.
6) Time Certificates of Deposit. Time Certificates of Deposit (TCDs) placed with
commercial banks and savings and loans. The purchase of TCDs from out-of-state
banks or savings and loans is prohibited. The amount on deposit shall not exceed
the shareholder's equity in the financial institution. To be eligible for purchase, the
financial institution must have received a minimum overall satisfactory rating for
meeting the credit needs of California Communities in its most recent evaluation,
as provided Government Code Section 53635.2. TCDs are required to be
collateralized as specified under Government Code Section 53630 et. seq. The
Treasurer, at his discretion, may waive the collateralization requirements for any
portion that is covered by federal (FDIC) insurance. The City shall have a signed
agreement with the depository per Government Code Section 53649. The
maximum maturity of these securities may not exceed one (1) year in maturity. A
maximum of 10 percent of the portfolio may be invested in this category.
7) Mutual Funds and Money Market Mutual Funds that are registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
provided that,
a. MUTUAL FUNDS that invest in the securities and obligations as authorized
under California Government Code, Section 53601 (a) to (k) and (m) to (q)
inclusive and that meet either of the following criteria:
i. Attained the highest ranking or the highest letter and numerical rating
provided by not less than two (2) NRSROs; or
ii. Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by California Government Code, Section
53601 and with assets under management in excess of $500 million.
iii. No more than 10% of the total portfolio may be invested in shares of
any one mutual fund.
b. MONEY MARKET MUTUAL FUNDS registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 and
issued by diversified management companies and meet either of the
following criteria:
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Attachment 2 — Exhibit A to the Resolution
i. Have attained the highest ranking or the highest letter and numerical
rating provided by not less than two (2) NRSROs; or
ii. Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual
funds with assets under management in excess of $500 million.
iii. No more than 20% of the total portfolio may be invested in Money
Market Mutual Funds.
c. No more than 20(Y0 of the total portfolio may be invested in these securities.
8) State of California Local Agency Investment Fund (LAIF). The City may invest up
to the maximum as permitted by LAIF. For due diligence, the Treasurer shall
maintain on file a copy of LAIF's current Answer Book.
9) Joint Powers Authority (JPA) Pools, provided that: The JPA is organized pursuant
to California Government Code Section 6509.7 and invests in the securities and
obligations authorized in subdivisions (a) to (r), inclusive. Each share shall
represent an equal proportional interest in the underlying pool of securities owned
by the JPA. The JPA has retained an investment advisor who is registered with the
SEC (or exempt from registration), has assets under management in excess of
$500 million, and has at least five years' experience investing in instruments
authorized by Section 53601, subdivisions (a) to (q).
10)Medium Term Notes. Medium -term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five years or less,
issued by corporations organized and operating within the United States or by
depository institutions licensed by the United States or any state and operating
within the United States. Purchases are limited to securities rated "A" or higher, or
the equivalent, by a NRSRO. A maximum of 30 percent of the City's portfolio may
be invested in this category and a maximum of 5 percent with any one issuer. The
maximum maturity of these securities is five years.
11)Asset-Backed, Mortgage -Backed, Mortgage Pass -Through Securities, and
Collateralized Mortgage Obligations, from issuers not defined in the Federal
Agency Obligations Subdivision. The City may purchase such securities provided
that they are rated "AA" or higher, or the equivalent, by a NRSRO. Purchase of
securities authorized by this subdivision may not exceed 20 percent of the portfolio,
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Attachment 2 — Exhibit A to the Resolution
and a maximum of 5 percent per issue. The maximum maturity of these securities
is five years.
12)Municipal Securities. Obligations of the State of California, any of the other 49
states, or any local agency within the State of California, may be purchased by the
City provided that long-term obligations are rated "A" or higher, or the equivalent,
by at least one NRSRO. There are no limits on the dollar amount or percentage
that the city may invest in municipal securities; however, investments in these
securities are limited to a maximum of 5 percent with any single issuer. The
maximum maturity of these securities is ten years. The City Council authorized
investments in Municipal Securities beyond five years on September 6, 2022.
13)Supranationals provided that issues are US dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development, International Finance
Corporation, or Inter -American Development Bank. The securities must be rated
in a rating category of "AA" or its equivalent by a NRSRO. No more than 30% of
the portfolio may be invested in these securities, and no more than 10% of the
portfolio may be invested in any single issuer. The maximum maturity does not
exceed five (5) years.
X. AUTHORIZED INVESTMENTS FOR BOND PROCEEDS
Bond proceeds shall be invested in securities permitted by the applicable bond
documents. If the bond documents are silent as to the permitted investments, bond
proceeds will be invested in securities permitted by this Policy. Notwithstanding the
provisions of the Policy, the percentage or dollar portfolio limitations listed elsewhere
in this Policy do not apply to bond proceeds. In addition to the securities listed in
Section IX above, bond proceeds may be invested in structured investment products
if approved by the Treasurer.
XI. PROHIBITED INVESTMENT PRACTICES AND INSTRUMENTS
The City shall not make investments for the purpose of trading or speculation as the
dominate criterion such as anticipation of appreciation of capital value through
changes in market rates.
Any investment in a security not specifically listed as an Authorized and Suitable
Investment above, but otherwise permitted by the Government Code, is prohibited
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Attachment 2 — Exhibit A to the Resolution
without the prior approval of the City Council. Section 53601.6 of the Government
Code specifically disallows investments in invoice floaters, range notes, or interest -
only strips that are derived from a pool of mortgages. Under a provision of the
California Government Code sunsetting on January 1, 2026, securities backed by the
United States Government that could result in a zero or negative interest accrual if
held to maturity are permitted.
XII. REVIEW OF INVESTMENT PORTFOLIO
The City Treasurer shall periodically, but no less than quarterly, review the portfolio to
identify investments that do not comply with this investment policy and establish
protocols for reporting major and critical incidences of noncompliance to the City
Council.
XIII. TERM OF INVESTMENTS
Funds of the City will be invested in accordance with sound treasury management
principles. It is the objective of this Policy to provide a system which will accurately
monitor and forecast revenues and expenditures so that the City can invest funds to
the fullest extent possible.
The maximum maturity of individual investments shall not exceed the limits set forth
in under Authorized and Suitable Investments. No investment shall exceed a maturity
of five years from the date of purchase unless the City Council has granted express
authority to make that investment either specifically or as a part of an investment
program approved by the City Council no less than three months prior to the
investment.
XIV. INVESTMENT RISK
a. MARKET RISK
Market risk is the risk that the portfolio will decline in value (or will not optimize
its value) due to changes in the general level of interest rates. The City
recognizes that, over time, longer -term portfolios achieve higher returns. On
the other hand, longer -term portfolios have higher volatility of return. The City
shall mitigate market risk by providing adequate liquidity for short-term cash
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Attachment 2 — Exhibit A to the Resolution
needs, and by making some longer -term investments only with funds that are
not needed for current cash flow purposes.
The City also prohibits investments in any fossil fuel companies, tobacco or
tobacco -related companies, and companies in support of the production of
firearms. The City further recognizes that certain types of securities, including
variable rate securities, securities with principal pay -downs prior to maturity,
and securities with embedded options, will affect the market risk profile of the
portfolio differently in different interest rate environments. The City, therefore,
adopts the following strategies to control and mitigate its exposure to market
risk:
i. The maximum stated final maturity of individual securities in the portfolio
shall be five years, unless otherwise stated in this policy;
ii. The City shall maintain a minimum of three months of budgeted
operating expenditures in cash, cash equivalents and short-term
investments; and
iii. The duration of the portfolio will typically be approximately equal to the
duration of a market index, selected by the City as its performance
benchmark, which meets the City's needs for cash flow and level of risk
tolerance plus or minus 20%.
b. CREDIT RISK
In general, the City's portfolio will be diversified to avoid incurring unreasonable
and avoidable risks regarding specific security types or individual financial
institutions, such as credit risk. Credit risk is the risk that a security or a portfolio
will lose some or all of its value due to a real or perceived change in the ability of
the issuer to repay its debt. The City shall mitigate credit risk by adopting the
following strategies:
i. The diversification requirements included in Section IX are designed to
mitigate credit risk in the portfolio;
ii. No more than 5% of the total portfolio may be deposited with or invested
in securities issued by any single issuer unless otherwise specified in
this policy.
iii. The City may elect to sell a security prior to its maturity and record a
capital gain or loss in order to improve the quality, liquidity or return of
the portfolio in response to market conditions or the City's risk
preferences; and
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Attachment 2 — Exhibit A to the Resolution
iv. If a security owned by the City is downgraded to a level below the
requirements of this policy, making the security ineligible for additional
purchases, the following steps will be taken:
1. Any actions taken related to the downgrade by the investment
manager will be communicated to the City in a timely manner.
2. If a decision is made to retain the security, the credit situation will
be monitored and reported back to the City.
XV. SAFEKEEPING AND CUSTODY
Investment securities are to be purchased when possible in book -entry form in the
City's name. All security transactions entered into by the City shall be conducted on a
delivery -versus -payment (DVP) basis. All cash and securities in the City's portfolio
shall be held in safekeeping in the City's name by a third -party bank trust department,
acting as agent for the City under the terms of a custody agreement executed by the
bank and the City. All investment transactions will require a safekeeping receipt or
acknowledgment generated from the trade. A monthly report will be received by the
City from the safekeeping institution listing all securities held in safekeeping with
current market data and other information. The only exception to the foregoing shall
be depository accounts and securities purchases made with: (i) local government
investment pools; (ii) time certificates of deposit, and, (iii) money mutual funds, since
the purchased securities are not deliverable. Term and non-negotiable instruments,
such as certificates of deposit, can be held by the Treasurer, or in safekeeping as the
Treasurer deems appropriate.
XVI. PERFORMANCE BENCHMARK
The investment portfolio shall be designed to attain a market -average rate of return
throughout budgetary and economic cycles, taking into account the City's risk
constraints, the cash flow characteristics of the portfolio, and state and local laws,
ordinances or resolutions that restrict investments. The Treasurer shall monitor and
evaluate the portfolio's performance relative to the market benchmark, which will be
included in the Treasurer's quarterly report. The Treasurer shall select an appropriate,
readily available index to use as a benchmark.
XVII. REPORT INFORMATION
The Treasurer shall prepare a report to the City Council not less than semi-annually
which is available each year within 60 days following December 31 st and June 30th.
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Attachment 2 — Exhibit A to the Resolution
The semi-annual report shall be presented at a subsequent regularly scheduled City
Council Meeting. The report shall be inclusive of a monthly listing of investment
transactions. At a minimum the report shall include the following (Revised 9-18-2012):
a. Type of Investment
b. Issuer
c. Date of Maturity
d. Par and dollar amount invested
e. Current Market Value as of the date of the report
f. Source of the market value information
g. A list of investment transactions.
h. A statement of compliance with the investment policy
i. A statement as to the ability of the City to meet its expenditure requirements for
the next six months
In addition, the City Treasurer will submit a monthly transaction report to the City
Council.
XVIII. REVIEW OF INVESTMENT POLICY
This policy shall be subject to review by the City Council on an annual basis, by the
second Council meeting in September. Any recommended modifications or
amendments shall be presented by Staff to the City Council for their consideration and
adoption.
GLOSSARY OF TERMS
ACCRUED INTEREST: Interest earned but not yet received.
AGENCIES: Federal agency securities and/or Government -sponsored enterprises.
Examples of well-known agencies that issue bonds are Federal Home Loan Mortgage
Corporation (FHLMC or "Freddie Mac"), Federal National Mortgage Association (FNMA
or "Fannie Mae"), and the Federal Home Loan Bank.
AMORTIZATION: An accounting practice of gradually decreasing (increasing) an asset's
book value by spreading its depreciation (accretion) over a period of time.
ASKED: The price at which securities are offered.
ASSET BACKED SECURITIES: Securities supported by pools of installment loans or
leases or by pools of revolving lines of credit.
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Attachment 2 — Exhibit A to the Resolution
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.
BASIS POINT: One basis point is one hundredth of one percent (.0 I ).
BENCHMARK: A comparative base for measuring the performance or risk tolerance of
the investment portfolio. A benchmark should represent a close correlation to the level of
risk and the average duration of the portfolio's investments.
BID PRICE: The price offered by a buyer of securities. (When you are selling securities,
you ask for a bid.) See Offer.
BOND: A financial obligation for which the issuer promises to pay the bondholder a
specified stream of future cash flows, including periodic interest payments and a principal
repayment.
BOOK ENTRY: The system maintained by the Federal Reserve, by which most money
market securities are delivered to an investor's custodial bank. The Federal Reserve
maintains a computerized record of the ownership of these securities and records any
changes in ownership corresponding to payments made over the Federal Reserve wire
(delivery versus payment.)
BOOK VALUE: The value at which a debt security is shown on the holder's balance
sheet. Book value is acquisition cost less amortization of premium or accretion of
discount.
BROKER: A broker brings buyers and sellers together for a commission.
CALLABLE BOND: A bond issue in which all or part of its outstanding principal amount
may be redeemed before maturity by the issuer under specified conditions.
CALL PRICE: The price at which an issuer may redeem a bond prior to maturity. The
price is usually at a slight premium to the bond's original issue price to compensate the
holder for loss of income and ownership.
CALL RISK: The risk to a bondholder that a bond may be redeemed prior to maturity.
CERTIFICATE OF DEPOSIT (CD): A deposit insured up to $100,000 by the FDIC at a
set rate for a specified period of time.
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.
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Attachment 2 — Exhibit A to the Resolution
COLLATERALIZED MORTGAGE OBLIGATION (CMO): Classes of bonds that
redistribute the cash flows of mortgage securities (and whole loans) to create securities
that have different levels of prepayment risk, as compared to the underlying mortgage
securities.
COMMERCIAL PAPER: An unsecured promissory note of industrial corporations, utilities
and bank holding companies having assets in excess of $500 million and an "A" or higher
rating for the issuer's debentures. Interest is discounted from par and calculated using
the actual number of days on a 360-day year. The notes are in bearer form, mature from
one to 270 days and generally start at $100,000. There is a secondary market for
commercial paper and an investor may sell them prior to maturity. Unused lines of credit
back commercial paper from major banks.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual
financial report for the City. It includes combined statements and basic financial
statements for each individual fund and account group prepared in conformity with
Generally Accepted Accounting Principles (GAAP). Supplemental information is also
included including a detailed multi -year comparative statistics.
COST YIELD: The annual income from an investment divided by the purchase cost.
Because it does not give effect to premiums and discounts which may have been included
in the purchase cost, it is an incomplete measure of return.
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.
CREDIT RISK: The risk that principal and/or interest on an investment will not be paid in
a timely manner due to changes in the condition of the issuer.
CURRENT YIELD: The interest paid on an investment expressed as a percentage of the
current price of the security.
CUSTODY: A banking service that provides safekeeping for the individual securities in a
customer's investment portfolio under a written agreement which also calls for the bank
to collect and pay out income, and to buy, sell, receive and deliver securities when ordered
to do so by the account holder.
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.
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Attachment 2 — Exhibit A to the Resolution
DELIVERY VERSUS PAYMENT (DVP): Delivery versus payment is delivery of securities
with an exchange of money for the securities.
DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from,
the movement of one or more underlying index or security, and may include a leveraging
factor, or (2) financial contracts based upon notional amounts whose value is derived from
an underlying index or security (interest rates, foreign exchange rates, equities or
commodities).
DISCOUNT: The difference between the cost price of a security and its value at maturity
when quoted at lower than face value.
DISCOUNT SECURITIES: Non -interest -bearing money market instruments that are
issued 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.
DURATION: A measure of the timing of the cash flows, such as the interest payments
and the principal repayment, to be received from a given fixed -income security. This
calculation is based on three variables: term to maturity, coupon rate, and yield to maturity.
The duration of a security is a useful indicator of its price volatility for given changes in
interest rates.
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 $100,000 per deposit.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is
currently pegged by the Federal Reserve through open -market operations.
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.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae): 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
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Attachment 2 — Exhibit A to the Resolution
and Urban Development (HUD). 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.
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 that are members of the system.
FED WIRE: A wire transmission service established by the Federal Reserve Bank to
facilitate the transfer of funds through debits and credits of funds between participants
within the Fed system.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or Freddie Mac): A
United States government sponsored corporation.
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.
HAIRCUT: The margin or difference between the actual market value of a security and
the value assessed by the lending side of a transaction (i.e. a repo).
INTEREST RATE: The annual yield earned on an investment, expressed as a
percentage.
LEVERAGE: Borrowing funds in order to invest in securities that have the potential to
pay earnings at a rate higher than the cost of borrowing.
LIQUIDITY: Refers to the ability to easily and rapidly convert a security into cash.
LOCAL AGENCY INVESTMENT FUND (LAIF): The local Agency Investment Fund
(LAIF) is a special fund in the California State Treasury created and governed pursuant
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Attachment 2 — Exhibit A to the Resolution
to Government Code Sections 16429.1 et seq. There are limits on the maximum dollars
deposited by a city as well as the number of transactions allowed each month.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in custody of the State Treasurer for investment and
reinvestment.
MAKE WHOLE CALL: A type of call provision on a bond that allows the issuer to pay off
the remaining debt early. Unlike a call option, with a make whole call provision, the issuer
makes a lump sum payment that equals the net present value (NPV) of future coupon
payments that will not be paid because of the call. With this type of call, an investor is
compensated, or "made whole."
MARGIN: The difference between the market value of a security and the loan a broker
makes using that security as collateral.
MARKET RISK: The risk that the value of securities will fluctuate with changes in overall
market conditions or interest rates.
MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold on a specific date.
MARKING TO MARKET: The process of posting current market values for securities in
a portfolio.
MATURITY: The date upon which the principal or stated value of an investment becomes
due and payable.
MEDIUM TERM NOTES (MTNs): Unsecured, investment -grade senior debt securities of
major corporations which are sold in relatively small amounts on either a continuous or
an intermittent basis. MTNs are highly flexible debt instruments that can be structured to
respond to market opportunities or to investor preferences.
MODIFIED DURATION: The percent change in price for a 100 basis point change in
yields. Modified duration is the best single measure of a portfolio's or security's exposure
to market risk.
MONEY MARKET: The market in which short-term debt instruments (T-bills, discount
notes, commercial paper, and banker's acceptances) are issued and traded.
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Attachment 2 — Exhibit A to the Resolution
MONEY MARKET MUTUAL FUND: Mutual funds that invest solely in money market
instruments (short- term debt instruments, such as Treasury bills, commercial paper,
bankers' acceptances, and federal funds).
MORTGAGE PASS THROUGH SECURITIES: A securitized participation in the interest
and principal cash flows from a specified pool of mortgages. Principal and interest
payments made on the mortgages are passed through to the holder of the security.
MUNICIPAL SECURITIES: Securities issued by state and local agencies to finance
capital and operating expenses.
MUTUAL FUND: An entity which pools the funds of investors and invests those funds in
a set of securities which is specifically defined in the fund's prospectus. Mutual funds can
be invested in various types of domestic and/or international stocks, bonds, and money
market instruments, as set forth in the individual fund's prospectus. For most large,
institutional investors, the costs associated with investing in mutual funds are higher than
the investor can obtain through an individually managed portfolio.
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD): A self -regulatory
organization (SRO) of brokers and dealers in the over-the-counter securities business. Its
regulatory mandate includes authority over firms that distribute mutual fund shares as
well as other securities.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NSROs);
Credit rating agencies whose ratings are permitted to be used for regulatory purposes
such as those imposed by the Securities and Exchange Commission.
NEGOTIABLE CERTIFICATE OF DEPOSIT: A large denomination certificate of deposit
which can be sold in the open market prior to maturity.
NEW ISSUE: Term used when a security is originally "brought" to market.
OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer.) See Asked and Bid.
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.
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Attachment 2 — Exhibit A to the Resolution
PORTFOLIO: Collection of securities held by an investor.
PREMIUM: The amount by which the price paid for a security exceeds the security's par
value.
PREPAYMENT SPEED: A measure of how quickly principal is repaid to investors in
mortgage securities.
PREPAYMENT WINDOW: The time period over which principal repayments will be
received on mortgage securities at a specified prepayment speed.
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.
PRINCIPAL: The face value or par value of a debt instrument, or the amount of capital
invested in a given security.
PRUDENT PERSON (PRUDENT INVESTOR) RULE: A standard of responsibility which
applies to fiduciaries. In California, the rule is stated as "Investments shall be managed
with the care, skill, prudence and diligence, under the circumstances then prevailing, that
a prudent person, acting in a like capacity and familiar with such matters, would use in
the conduct of an enterprise of like character and with like aims to accomplish similar
purposes."
PURCHASE DATE: The date on which a security is purchased for settlement on that or
a later date.
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 or the current
income return.
REALIZED YIELD: The change in value of the portfolio due to interest received and
interest earned and realized gains and losses. It does not give effect to changes in market
value on securities, which have not been sold from the portfolio.
REGIONAL DEALER: A financial intermediary that buys and sells securities for the
benefit of its customers without maintaining substantial inventories of securities and that
is not a primary dealer.
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Attachment 2 — Exhibit A to the Resolution
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed price on 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.
RULE 2a-7 OF THE INVESTMENT COMPANY ACT: Applies to all money market mutual
funds and mandates such funds to maintain certain standards, including a 13- month
maturity limit and a 90-day average maturity on investments, to help maintain a constant
net asset value of one dollar ($1.00).
SAFEKEEPING: See CUSTODY.
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 m securities transactions by administering securities legislation.
SETTLEMENT DATE: The date on which a trade is cleared by delivery of securities
against funds.
STRUCTURED NOTE: A complex, fixed income instrument, which pays interest, based
on a formula tied to other interest rates, commodities or indices. Examples include inverse
floating rate notes which have coupons that increase when other interest rates are falling,
and which fall when other interest rates are rising, and "dual index floaters," which pay
interest based on the relationship between two other interest rates - for example, the yield
on the ten-year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced
cost of borrowing by purchasing interest rate swap agreements.
TENNESSEE VALLEY AUTHORITY (TVA): The Tennessee Valley Authority provides
flood control and power and promotes development in portions of the Tennessee, Ohio,
and Mississippi River valleys. TVA currently issues discount notes and bonds.
TIME CERTIFICATE OF DEPOSIT: A non-negotiable certificate of deposit which cannot
be sold prior to maturity.
TOTAL RATE OF RETURN: A measure of a portfolio's performance over time. It is the
internal rate of return, which equates the beginning value of the portfolio with the ending
value; it includes interest earnings, realized and unrealized gains, and losses in the
portfolio.
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Attachment 2 — Exhibit A to the Resolution
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 and are sold on a discount basis.
TREASURY BONDS: Long-term coupon -bearing U.S. Treasury securities issued
as direct obligations of the U.S. Government and having initial maturities of more than 10
years.
TREASURY NOTES: Medium -term coupon -bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government and having initial maturities of I to 10 years.
U.S. GOVERNMENT AGENCIES: Instruments issued by various US Government
Agencies most of which are secured only by the credit worthiness of the particular agency.
VOLATILITY: The rate at which security prices change with changes in general economic
conditions or the general level of interest rates.
WEIGHTED AVERAGE MATURITY (WAM): The average maturity of all the securities
that comprise a portfolio that is typically expressed in days or years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
It is obtained by dividing the current dollar income by the current market price of the
security.
YIELD TO MATURITY: The rate of income return on an investment, minus any premium
or plus any discount, with the adjustment spread over the period from the date of purchase
to the date of maturity of the bond, expressed as a percentage.
YIELD CURVE: The yield on bonds, notes or bills of the same type and credit risk at a
specific date for maturities up to thirty years.
ZERO -COUPON SECURITY: Security that is issued at a discount and makes no periodic
interest payments. The rate of return consists of a gradual accretion of the principal of the
security and is payable at par upon maturity.
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Attachment 3
STATEMENT OF INVESTMENT POLICY FOR THE CITY OF DUBLIN
I. INTRODUCTION
This Statement of Investment Policy is intended to identify various policies and
procedures that will foster a prudent and systematic investment program designed to
seek the City's objectives of safety, liquidity and return through a diversified investment
portfolio. This policy also serves to organize and formalize the City's investment -
related activities, while complying with all applicable status governing the investment
of public funds.
II. SCOPE
This policy covers all funds and investment activities under the direct authority of the
City of Dublin, as set forth in the State Government Code, sections 53600 et seq.,
excluding any bond- related proceeds or reserves, which are governed by their bond
indentures. Cash held by the City shall be pooled in order to more effectively manage
City cash resources. All pooled funds are accounted for in the City's Comprehensive
Annual Financial Report and include:
Funds
General Fund
Special Revenue Funds
Capital Project Funds
Internal Service Funds
Enterprise Funds
Agency Funds
This original investment policy was adopted by the City of Dublin (the "City"), on
August 21, 2007. This update to the Policy is effective on August 15, 2023, September
17, 2024 and replaces any previous versions.
III. OBJECTIVES
The overall program shall be designed and managed with a degree of professionalism
worthy of the public trust. The primary objectives, in order of priority, of the City's
investment activities shall be:
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Attachment 3
1) Safety: Safety of principal is the foremost objective of the investment program. The
City's investments shall be undertaken in a manner that seeks to safeguard the
principal of the funds under its control by maintaining an appropriate risk level.
2) Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the
City to meet its reasonably anticipated cash flow requirements.
3) Return: Return should become a consideration only after the basic requirements
of safety and liquidity have been met. The City seeks to attain market average rate
of return on its investments throughout economic cycles, consistent with
constraints imposed by its safety objectives and cash flow considerations.
4) Diversification: The investment portfolio will be diversified to avoid incurring
unreasonable and avoidable risks regarding specific security types or individual
financial institutions. This shall also conform with applicable sections of the
Government Code.
IV. DELEGATION OF AUTHORITY
As authorized in Government Code Section 53607, the City Council delegates the
authority to invest funds of the City to the City Treasurer and/or any duly appointed
Deputy City Treasurer. The City Treasurer and any duly appointed Deputy City
Treasurer shall make all investment decisions and transactions in strict accordance
with State law and this investment policy. The Finance Director shall be designated as
the City Treasurer and the City Manager and/or Assistant Finance Director shall be
designated as the Deputy City Treasurer. This delegation shall be for a one-year
period until the delegation of authority is revoked or expires. The City Council may
renew the authority each year as part of an annual review of this policy.
The City Treasurer shall establish procedures for the operation of the investment
program. The City Treasurer shall be also responsible for all transactions undertaken
and establishing a system of controls to regulate the activities of subordinates.
The City recognizes that in a diversified portfolio, occasional measured losses may be
inevitable and must be considered within the context of the overall portfolio's return
and the cash flow requirements of the City. Authorized individuals 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 in a timely fashion
and appropriate action is taken to control adverse developments.
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Attachment 3
The City may engage the services of one or more external investment managers to
assist in the management of the City's investment portfolio in a manner consistent with
the City's objectives. Such external managers may be granted discretion to purchase
and sell investment securities in accordance with this investment policy. Such
managers must be registered under the Investment Advisors Act of 1940.
V. PRUDENCE
Pursuant to California Government Code Section 53600.3, all persons authorized to
make investment decisions on behalf of the City 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."
VI. ETHICS AND CONFLICTS OF INTEREST
All participants in the investment process shall acts as custodians of the public trust.
Investment officials shall recognize that the investment portfolio is subject to public
review and evaluation. The overall program shall be designed and managed with a
degree of professionalism that is worthy of the public trust. Thus, employees and
officials involved in the investment process shall refrain from personal business
activity that conflicts with proper execution of the investment program; or impairs their
ability to make impartial investment decisions. Additionally, the City Treasurer and the
Deputy Treasurer shall file applicable financial disclosures as required by the Fair
Political Practices Commission (FPPC).
VII. INTERNAL CONTROLS
The Treasurer is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the entity are protected from loss, theft
or misuse. The internal control structure shall be designed to provide reasonable
assurance that these objectives are met. The concept of reasonable assurance
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Attachment 3
recognizes that (1) the cost of a control should not exceed the benefits likely to be
derived; and (2) the valuation of costs and benefits requires estimates and judgments
by City management. Periodically, as deemed appropriate by City Mmanagement
and/or the City Council, an independent analysis by an external auditor shall be
conducted to review internal controls, account activity and compliance with policies
and procedures.
VIII. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
To the extent practical the Treasurer shall endeavor to complete investment
transactions using a competitive bid process whenever possible. It shall be the City's
policy to purchase securities only from authorized institutions and firms. No deposit of
public funds shall be made except in a qualified public depository as established by
state laws.
Institutions eligible to transact investment business with the City include:
1) Primary government dealers as designated by the Federal Reserve Bank and non -
primary government dealers
2) Nationally or state -chartered banks
3) The Federal Reserve Bank
4) Direct issuers of securities eligible for purchase
The Treasurer shall maintain procedures for the establishing a list of authorized
broker/dealers and financial institutions which are approved for investment purposes.
These may include primary or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3-I (uniform net capital rule). The City requires each firm that will
be used for the purchase or sale of securities to be evaluated by the Treasurer prior to
any investments. The firms shall submit current financial statements, and annual audited
financial statements each year thereafter, which are to be evaluated by the Treasurer. At
a minimum, the firm must be financially sound and have been in business a minimum of
three years. In addition, the firms must provide: proof of National Association of Security
Dealers membership, proof of state registration or exemption, and certificate of having
read the City's investment policy.
If an investment adviser is retained by the City, then that adviser will be permitted to use
their own list of approved broker/dealers and financial institutions for investment
purposes.
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Attachment 3
IX. AUTHORIZED AND SUITABLE INVESTMENTS
The City's investments are governed by Government Code, Sections 53600 et seq.
Within the investments permitted by the Government Code, the City seeks to further
restrict eligible investments to the guidelines listed below. In the event an apparent
discrepancy is found between this Policy and the Government Code, the more
restrictive parameters will take precedence. Percentage holding limits listed in this
section apply at the time the security is purchased. Any investment currently held at
the time the Policy is adopted which does not meet the new Policy guidelines can be
held until maturity, and shall be exempt from the current Policy. At the time of the
investment's maturity or liquidation such funds shall be reinvested only as provided in
the most current Policy.
An appropriate risk level shall be maintained by primarily purchasing securities that
are of high quality, liquid, and marketable. The portfolio shall be diversified by security
type and institution to avoid incurring unreasonable and avoidable risks regarding
specific security types or individual financial institutions.
1. United States Treasury Issues. 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 limitation
as to the percentage of the portfolio that may be invested in this category. The
maximum maturity of these securities is ten years. The City Council authorized
investments in United States Treasury Issues beyond five years on September 6,
2022.
2. Federal Agency Obligations. Federal agency or United States government -
sponsored enterprise obligations, participations, or other instruments, including
those issued by or fully guaranteed as to principal and interest by federal agencies
or United States government- sponsored enterprises. There is no limitation as to
the percentage of the portfolio that may be invested in this category. However, the
portfolio's exposure to any one federal agency issuer is limited to 35 percent of the
overall portfolio. The limit of the overall portfolio's exposure to callable federal
agency securities is 25 percent. The maximum maturity for agency securities is ten
years. The City Council authorized investments in Federal Agency Obligations
beyond five years on September 6, 2022.
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Attachment 3
3. Bankers' Acceptances. Bankers' acceptances, otherwise known as bills of
exchange or time drafts, that are drawn on and accepted by a commercial bank.
Bankers' acceptances must be secured by the irrevocable primary obligation of the
accepting domestic bank. Purchasers are limited to issuers whose short-term debt
is rated "A- 1" or higher, or the equivalent, by a Nationally Recognized Statistical -
Rating Organization (NRSRO). Bankers' acceptances cannot exceed a maturity of
180 days. A maximum of 40 percent of the portfolio may be invested in this
category. The amount invested in bankers' acceptances with any one financial
institution in combination with any other debt from that financial institution shall not
exceed 20 percent of the portfolio.
4. Commercial Paper. Commercial paper of "prime" quality rated "A-1" or higher, or
the equivalent, by a NRSRO. The entity that issues the commercial paper shall
meet all of the following conditions in either paragraph (Aa) or paragraph (Bb):
a. The entity meets the following criteria: (i) Is organized and operating in the
United States as a general corporation. (ii) Has total assets in excess of five
hundred million dollars ($500,000,000). (iii) Has debt other than commercial
paper, if any, that is rated "A" or higher by a nationally recognized statistical -
rating organization.
b. The entity meets the following criteria: (i) Is organized within the United
States as a special purpose corporation, trust, or limited liability company.
(ii) Has program wide credit enhancements including, but not limited to,
overcollateralization, letters of credit, or surety bond. (iii) Has commercial
paper that is rated "A-1" or higher, or the equivalent, by a nationally
recognized statistical -rating organization.
Eligible commercial paper shall have a maximum maturity of 270 days or less and
not represent more than 10 percent of the outstanding paper of an issuing
corporation. A maximum of 25 percent of the portfolio may be invested in this
category. Under a provision of the California Government Code sunsetting on
January 1, 2026, no more than 40 percent of the portfolio may be invested in
Commercial Paper if the Agency's investment assets under management are
greater than $100,000,000. The amount invested in commercial paper of any one
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issuer in combination with any other debt from that issuer shall not exceed 20
percent of the portfolio.
5. Negotiable Certificates of Deposit. Negotiable certificates of deposit (NCDs)
issued by a nationally or state -chartered bank, a savings association or a federal
association, a state or federal credit union, or by a state -licensed branch of a
foreign bank. Purchases are limited to institutions which have long-term debt rated
"A" or better and/or have short-term debt rated at least "A-1" or higher, or the
equivalent by a NRSRO. A maximum of 30 percent of the portfolio may be invested
in this category. The amount invested in NCDs with any one financial institution in
combination with any other debt from that financial institution shall not exceed 20
percent of the portfolio. The maximum maturity of these securities is five years.
6. Time Certificates of Deposit. Time Certificates of Deposit (TCDs) placed with
commercial banks and savings and loans. The purchase of TCDs from out-of-state
banks or savings and loans is prohibited. The amount on deposit shall not exceed
the shareholder's equity in the financial institution. To be eligible for purchase, the
financial institution must have received a minimum overall satisfactory rating for
meeting the credit needs of California Communities in its most recent evaluation,
as provided Government Code Section 53635.2. TCDs are required to be
collateralized as specified under Government Code Section 53630 et. seq. The
Treasurer, at his discretion, may waive the collateralization requirements for any
portion that is covered by federal (FDIC) insurance. The City shall have a signed
agreement with the depository per Government Code Section 53649. The
maximum maturity of these securities may not exceed one (1) year in maturity. A
maximum of 10 percent of the portfolio may be invested in this category.
7. Mutual Funds and Money Market Mutual Funds that are registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
provided that,
a. MUTUAL FUNDS that invest in the securities and obligations as authorized
under California Government Code, Section 53601 (a) to (k) and (m) to (q)
inclusive and that meet either of the following criteria:
i. Attained the highest ranking or the highest letter and numerical rating
provided by not less than two (2) NRSROs; or
ii. Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
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obligations authorized by California Government Code, Section
53601 and with assets under management in excess of $500 million.
iii. No more than 10% of the total portfolio may be invested in shares of
any one mutual fund.
b. MONEY MARKET MUTUAL FUNDS registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 and
issued by diversified management companies and meet either of the
following criteria:
i. Have attained the highest ranking or the highest letter and numerical
rating provided by not less than two (2) NRSROs; or
ii. Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual
funds with assets under management in excess of $500 million.
iii. No more than 20% of the total portfolio may be invested in Money
Market Mutual Funds.
c. No more than 20% of the total portfolio may be invested in these securities.
8. State of California Local Agency Investment Fund (LAIF). The City may invest up
to the maximum as permitted by LAIF. For due diligence, the Treasurer shall
maintain on file a copy of LAIF's current Answer Book.
9.
that invests in the securities and obligations authorized in subdivisions (a) to (n),
maintain on file a copy of CAMP's current Information Statement.
9. Joint Powers Authority (JPA) Pools, provided that: The JPA is organized pursuant
to California Government Code Section 6509.7 and invests in the securities and
obligations authorized in subdivisions (a) to (r), inclusive. Each share shall
represent an equal proportional interest in the underlying pool of securities owned
by the JPA. The JPA has retained an investment advisor who is registered with the
SEC (or exempt from registration), has assets under management in excess of
$500 million, and has at least five years' experience investing in instruments
authorized by Section 53601, subdivisions (a) to (q).
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10. Medium Term Notes. Medium -term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five years or less,
issued by corporations organized and operating within the United States or by
depository institutions licensed by the United States or any state and operating
within the United States. Purchases are limited to securities rated "A" or higher, or
the equivalent, by a NRSRO. A maximum of 30 percent of the City's portfolio may
be invested in this category and a maximum of 5 percent with any one issuer. The
maximum maturity of these securities is five years.
11.Asset-Backed, Mortgage -Backed, Mortgage Pass -Through Securities, and
Collateralized Mortgage Obligations, from issuers not defined in the Federal
Agency Obligations Subdivision. The City may purchase such securities provided
that they are rated "AA" or higher, or the equivalent, by a NRSRO. Purchase of
securities authorized by this subdivision may not exceed 20 percent of the portfolio,
and a maximum of 5 percent per issue. The maximum maturity of these securities
is five years.
12. Municipal Securities. Obligations of the State of California, any of the other 49
states, or any local agency within the sState of California, may be purchased by
the City provided that long-term obligations are rated "A" or higher, or the
equivalent, by at least one NRSRO. There are no limits on the dollar amount or
percentage that the city may invest in municipal securities; however, investments
in these securities are limited to a maximum of 5 percent with any single issuer.
The maximum maturity of these securities is ten years. The City Council authorized
investments in Municipal Securities beyond five years on September 6, 2022.
13. Supranationals provided that issues are US dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development, International Finance
Corporation, or Inter -American Development Bank. The securities must be rated
in a rating category of "AA" or its equivalent by a NRSRO. No more than 30% of
the portfolio may be invested in these securities, and no more than 10% of the
portfolio may be invested in any single issuer. The maximum maturity does not
exceed five (5) years.
X. AUTHORIZED INVESTMENTS FOR BOND PROCEEDS
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Bond proceeds shall be invested in securities permitted by the applicable bond
documents. If the bond documents are silent as to the permitted investments, bond
proceeds will be invested in securities permitted by this Policy. Notwithstanding the
provisions of the Policy, the percentage or dollar portfolio limitations listed in
elsewhere in this Policy do not apply to bond proceeds. In addition to the securities
listed in Section IX above, bond proceeds may be invested in structured investment
products if approved by the Treasurer.
XI. PROHIBITED INVESTMENT PRACTICES AND INSTRUMENTS
The City shall not make investments for the purpose of trading or speculation as the
dominate criterion such as anticipation of appreciation of capital value through
changes in market rates. Securities are purchased with the intent to hold to maturity.
Any investment in a security not specifically listed as an Authorized and Suitable
Investment above, but otherwise permitted by the Government Code, is prohibited
without the prior approval of the City Council. Section 53601.6 of the Government
Code specifically disallows investments in invoice floaters, range notes, or interest -
only strips that are derived from a pool of mortgages. Under a provision of the
California Government Code sunsetting on January 1, 2026, securities backed by the
United States Government that could result in a zero or negative interest accrual if
held to maturity are permitted.
XII. REVIEW OF INVESTMENT PORTFOLIO
The City Treasurer shall periodically, but no less than quarterly, review the portfolio to
identify investments that do not comply with this investment policy and establish
protocols for reporting major and critical incidences of noncompliance to the City
Council.
XIII. TERM OF INVESTMENTS
Funds of the City will be invested in accordance with sound treasury management
principles. It is the objective of this Policy to provide a system which will accurately
monitor and forecast revenues and expenditures so that the City can invest funds to
the fullest extent possible.
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The maximum maturity of individual investments shall not exceed the limits set forth
in under Authorized and Suitable Investments. No investment shall exceed a maturity
of five years from the date of purchase unless the City Council has granted express
authority to make that investment either specifically or as a part of an investment
program approved by the City Council no less than three months prior to the
investment.
XIV. INVESTMENT RISK
a. MARKET RISK
Market risk is the risk that the portfolio will decline in value (or will not optimize
its value) due to changes in the general level of interest rates. The City
recognizes that, over time, longer -term portfolios achieve higher returns. On
the other hand, longer -term portfolios have higher volatility of return. The City
shall mitigate market risk by providing adequate liquidity for short-term cash
needs, and by making some longer -term investments only with funds that are
not needed for current cash flow purposes.
The City also prohibits investments in any fossil fuel companies, tobacco or
tobacco -related companies, and companies in support of the production of
firearms. The City further recognizes that certain types of securities, including
variable rate securities, securities with principal pay -downs prior to maturity,
and securities with embedded options, will affect the market risk profile of the
portfolio differently in different interest rate environments. The City, therefore,
adopts the following strategies to control and mitigate its exposure to market
risk:
i. The maximum stated final maturity of individual securities in the portfolio
shall be five years, unless otherwise stated in this policy;
ii. The City shall maintain a minimum of three months of budgeted
operating expenditures in cash, cash equivalents and short-term
investments; and
iii. The duration of the portfolio will typically be approximately equal to the
duration of a market index, selected by the City as its performance
benchmark, which meets the City's needs for cash flow and level of risk
tolerance plus or minus 20%.
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b. CREDIT RISK
In general, the City's portfolio will be diversified to avoid incurring unreasonable and
avoidable risks regarding specific security types or individual financial institutions, such
as credit risk. Credit risk is the risk that a security or a portfolio will lose some or all of its
value due to a real or perceived change in the ability of the issuer to repay its debt. The
City shall mitigate credit risk by adopting the following strategies:
i. The diversification requirements included in Section IX are designed to
mitigate credit risk in the portfolio;
ii. No more than 5% of the total portfolio may be deposited with or invested
in securities issued by any single issuer unless otherwise specified in
this policy.
iii. The City may elect to sell a security prior to its maturity and record a
capital gain or loss in order to improve the quality, liquidity or return of
the portfolio in response to market conditions or the City's risk
preferences; and
iv. If a security owned by the City is downgraded to a level below the
requirements of this policy, making the security ineligible for additional
purchases, the following steps will be taken:
1. Any actions taken related to the downgrade by the investment
manager will be communicated to the City in a timely manner.
2. If a decision is made to retain the security, the credit situation will
be monitored and reported back to the City.
XV. SAFEKEEPING AND CUSTODY
Investment securities are to be purchased when possible in book -entry form in the
City's name. All security transactions entered into by the City shall be conducted on a
delivery -versus -payment (DVP) basis. All cash and securities in the City's portfolio
shall be held in safekeeping in the City's name by a third -party bank trust department,
acting as agent for the City under the terms of a custody agreement executed by the
bank and the City. All investment transactions will require a safekeeping receipt or
acknowledgment generated from the trade. A monthly report will be received by the
City from the safekeeping institution listing all securities held in safekeeping with
current market data and other information. The only exception to the foregoing shall
be depository accounts and securities purchases made with: (i) local government
investment pools; (ii) time certificates of deposit, and, (iii) money mutual funds, since
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the purchased securities are not deliverable. Term and non-negotiable instruments,
such as certificates of deposit, can be held by the Treasurer, or in safekeeping as the
Treasurer deems appropriate.
XVI. PERFORMANCE BENCHMARK
The investment portfolio shall be designed to attain a market -average rate of return
throughout budgetary and economic cycles, taking into account the City's risk
constraints, the cash flow characteristics of the portfolio, and state and local laws,
ordinances or resolutions that restrict investments. The Treasurer shall monitor and
evaluate the portfolio's performance relative to the market benchmark, which will be
included in the Treasurer's quarterly report. The Treasurer shall select an appropriate,
readily available index to use as a benchmark.
XVII. REPORT INFORMATION
The Treasurer shall prepare a report to the City Council not less than semi-annually
which is available each year within 60 days following December 31 st and June 30th.
The semi-annual report shall be presented at a subsequent regularly scheduled City
Council Meeting. The report shall be inclusive of a monthly listing of investment
transactions. At a minimum the report shall include the following (Revised 9-18-2012):
a. Type of Investment
b. Issuer
c. Date of Maturity
d. Par and dollar amount invested
e. Current Market Value as of the date of the report
f. Source of the market value information
g. A list of investment transactions.
h. A statement of compliance with the investment policy
i. A statement as to the ability of the City to meet its expenditure requirements for
the next six months
In addition, the City Treasurer will submit a monthly transaction report to the City Council.
XVIII. REVIEW OF INVESTMENT POLICY
This policy shall be subject to review by the City Council on an annual basis, by the
second Council meeting in September. Any recommended modifications or amendments
shall be presented by Staff to the City Council for their consideration and adoption.
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GLOSSARY OF TERMS
ACCRUED INTEREST: Interest earned but not yet received.
AGENCIES: Federal agency securities and/or Government -sponsored enterprises.
Examples of well-known agencies that issue bonds are Federal Home Loan Mortgage
Corporation (FHLMC or "Freddie Mac"), Federal National Mortgage Association (FNMA
or "Fannie Mae"), and the Federal Home Loan Bank.
AMORTIZATION: An accounting practice of gradually decreasing (increasing) an asset's
book value by spreading its depreciation (accretion) over a period of time.
ASKED: The price at which securities are offered.
ASSET BACKED SECURITIES: Securities supported by pools of installment loans or
leases or by pools of revolving lines of credit.
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.
BASIS POINT: One basis point is one hundredth of one percent (.0 I ).
BENCHMARK: A comparative base for measuring the performance or risk tolerance of
the investment portfolio. A benchmark should represent a close correlation to the level of
risk and the average duration of the portfolio's investments.
BID PRICE: The price offered by a buyer of securities. (When you are selling securities,
you ask for a bid.) See Offer.
BOND: A financial obligation for which the issuer promises to pay the bondholder a
specified stream of future cash flows, including periodic interest payments and a principal
repayment.
BOOK ENTRY: The system maintained by the Federal Reserve, by which most money
market securities are delivered to an investor's custodial bank. The Federal Reserve
maintains a computerized record of the ownership of these securities and records any
changes in ownership corresponding to payments made over the Federal Reserve wire
(delivery versus payment.)
BOOK VALUE: The value at which a debt security is shown on the holder's balance
sheet. Book value is acquisition cost less amortization of premium or accretion of
discount.
BROKER: A broker brings buyers and sellers together for a commission.
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CALLABLE BOND: A bond issue in which all or part of its outstanding principal amount
may be redeemed before maturity by the issuer under specified conditions.
CALL PRICE: The price at which an issuer may redeem a bond prior to maturity. The
price is usually at a slight premium to the bond's original issue price to compensate the
holder for loss of income and ownership.
CALL RISK: The risk to a bondholder that a bond may be redeemed prior to maturity.
CERTIFICATE OF DEPOSIT (CD): A deposit insured up to $100,000 by the FDIC at a
set rate for a specified period of time.
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.
COLLATERALIZED MORTGAGE OBLIGATION (CMO): Classes of bonds that
redistribute the cash flows of mortgage securities (and whole loans) to create securities
that have different levels of prepayment risk, as compared to the underlying mortgage
securities.
COMMERCIAL PAPER: An unsecured promissory note of industrial corporations, utilities
and bank holding companies having assets in excess of $500 million and an "A" or higher
rating for the issuer's debentures. Interest is discounted from par and calculated using
the actual number of days on a 360-day year. The notes are in bearer form, mature from
one to 270 days and generally start at $100,000. There is a secondary market for
commercial paper and an investor may sell them prior to maturity. Unused lines of credit
back commercial paper from major banks.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual
financial report for the City. It includes combined statements and basic financial
statements for each individual fund and account group prepared in conformity with
Generally Accepted Accounting Principles (GAAP). Supplemental information is also
included including a detailed multi -year comparative statistics.
COST YIELD: The annual income from an investment divided by the purchase cost.
Because it does not give effect to premiums and discounts which may have been included
in the purchase cost, it is an incomplete measure of return.
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.
CREDIT RISK: The risk that principal and/or interest on an investment will not be paid in
a timely manner due to changes in the condition of the issuer.
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CURRENT YIELD: The interest paid on an investment expressed as a percentage of the
current price of the security.
CUSTODY: A banking service that provides safekeeping for the individual securities in a
customer's investment portfolio under a written agreement which also calls for the bank
to collect and pay out income, and to buy, sell, receive and deliver securities when ordered
to do so by the account holder.
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 (DVP): Delivery versus payment is delivery of securities
with an exchange of money for the securities.
DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from,
the movement of one or more underlying index or security, and may include a leveraging
factor, or (2) financial contracts based upon notional amounts whose value is derived from
an underlying index or security (interest rates, foreign exchange rates, equities or
commodities).
DISCOUNT: The difference between the cost price of a security and its value at maturity
when quoted at lower than face value.
DISCOUNT SECURITIES: Non -interest -bearing money market instruments that are
issued 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.
DURATION: A measure of the timing of the cash flows, such as the interest payments
and the principal repayment, to be received from a given fixed -income security. This
calculation is based on three variables: term to maturity, coupon rate, and yield to maturity.
The duration of a security is a useful indicator of its price volatility for given changes in
interest rates.
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 $100,000 per deposit.
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FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is
currently pegged by the Federal Reserve through open -market operations.
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.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae): 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). 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.
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 that are members of the system.
FED WIRE: A wire transmission service established by the Federal Reserve Bank to
facilitate the transfer of funds through debits and credits of funds between participants
within the Fed system.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or Freddie Mac): A
United States government sponsored corporation.
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.
HAIRCUT: The margin or difference between the actual market value of a security and
the value assessed by the lending side of a transaction (i.e. a repo).
INTEREST RATE: The annual yield earned on an investment, expressed as a
percentage.
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LEVERAGE: Borrowing funds in order to invest in securities that have the potential to
pay earnings at a rate higher than the cost of borrowing.
LIQUIDITY: Refers to the ability to easily and rapidly convert a security into cash.
LOCAL AGENCY INVESTMENT FUND (LAIF): The local Agency Investment Fund
(LAIF) is a special fund in the California State Treasury created and governed pursuant
to Government Code Sections 16429.1 et seq. There are limits on the maximum dollars
deposited by a city as well as the number of transactions allowed each month.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in custody of the State Treasurer for investment and
reinvestment.
MAKE WHOLE CALL: A type of call provision on a bond that allows the issuer to pay off
the remaining debt early. Unlike a call option, with a make whole call provision, the issuer
makes a lump sum payment that equals the net present value (NPV) of future coupon
payments that will not be paid because of the call. With this type of call, an investor is
compensated, or "made whole."
MARGIN: The difference between the market value of a security and the loan a broker
makes using that security as collateral.
MARKET RISK: The risk that the value of securities will fluctuate with changes in overall
market conditions or interest rates.
MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold on a specific date.
MARKING TO MARKET: The process of posting current market values for securities in
a portfolio.
MATURITY: The date upon which the principal or stated value of an investment becomes
due and payable.
MEDIUM TERM NOTES (MTNs): Unsecured, investment -grade senior debt securities of
major corporations which are sold in relatively small amounts on either a continuous or
an intermittent basis. MTNs are highly flexible debt instruments that can be structured to
respond to market opportunities or to investor preferences.
MODIFIED DURATION: The percent change in price for a 100 basis point change in
yields. Modified duration is the best single measure of a portfolio's or security's exposure
to market risk.
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MONEY MARKET: The market in which short-term debt instruments (T-bills, discount
notes, commercial paper, and banker's acceptances) are issued and traded.
MONEY MARKET MUTUAL FUND: Mutual funds that invest solely in money market
instruments (short- term debt instruments, such as Treasury bills, commercial paper,
bankers' acceptances, and federal funds).
MORTGAGE PASS THROUGH SECURITIES: A securitized participation in the interest
and principal cash flows from a specified pool of mortgages. Principal and interest
payments made on the mortgages are passed through to the holder of the security.
MUNICIPAL SECURITIES: Securities issued by state and local agencies to finance
capital and operating expenses.
MUTUAL FUND: An entity which pools the funds of investors and invests those funds in
a set of securities which is specifically defined in the fund's prospectus. Mutual funds can
be invested in various types of domestic and/or international stocks, bonds, and money
market instruments, as set forth in the individual fund's prospectus. For most large,
institutional investors, the costs associated with investing in mutual funds are higher than
the investor can obtain through an individually managed portfolio.
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD): A self -regulatory
organization (SRO) of brokers and dealers in the over-the-counter securities business. Its
regulatory mandate includes authority over firms that distribute mutual fund shares as
well as other securities.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NSROs);
Credit rating agencies whose ratings are permitted to be used for regulatory purposes
such as those imposed by the Securities and Exchange Commission.
NEGOTIABLE CERTIFICATE OF DEPOSIT: A large denomination certificate of deposit
which can be sold in the open market prior to maturity.
NEW ISSUE: Term used when a security is originally "brought" to market.
OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer.) See Asked and Bid.
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.
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PORTFOLIO: Collection of securities held by an investor.
PREMIUM: The amount by which the price paid for a security exceeds the security's par
value.
PREPAYMENT SPEED: A measure of how quickly principal is repaid to investors in
mortgage securities.
PREPAYMENT WINDOW: The time period over which principal repayments will be
received on mortgage securities at a specified prepayment speed.
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.
PRINCIPAL: The face value or par value of a debt instrument, or the amount of capital
invested in a given security.
PRUDENT PERSON (PRUDENT INVESTOR) RULE: A standard of responsibility which
applies to fiduciaries. In California, the rule is stated as "Investments shall be managed
with the care, skill, prudence and diligence, under the circumstances then prevailing, that
a prudent person, acting in a like capacity and familiar with such matters, would use in
the conduct of an enterprise of like character and with like aims to accomplish similar
purposes."
PURCHASE DATE: The date in on which a security is purchased for settlement on that
or a later date.
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 or the current
income return.
REALIZED YIELD: The change in value of the portfolio due to interest received and
interest earned and realized gains and losses. It does not give effect to changes in market
value on securities, which have not been sold from the portfolio.
REGIONAL DEALER: A financial intermediary that buys and sells securities for the
benefit of its customers without maintaining substantial inventories of securities and that
is not a primary dealer.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed price on a fixed
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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.
RULE 2a-7 OF THE INVESTMENT COMPANY ACT: Applies to all money market mutual
funds and mandates such funds to maintain certain standards, including a 13- month
maturity limit and a 90-day average maturity on investments, to help maintain a constant
net asset value of one dollar ($1.00).
SAFEKEEPING: See CUSTODY.
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 m securities transactions by administering securities legislation.
SETTLEMENT DATE: The date on which a trade is cleared by delivery of securities
against funds.
STRUCTURED NOTE: A complex, fixed income instrument, which pays interest, based
on a formula tied to other interest rates, commodities or indices. Examples include inverse
floating rate notes which have coupons that increase when other interest rates are falling,
and which fall when other interest rates are rising, and "dual index floaters," which pay
interest based on the relationship between two other interest rates - for example, the yield
on the ten-year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced
cost of borrowing by purchasing interest rate swap agreements.
TENNESSEE VALLEY AUTHORITY (TVA): The Tennessee Valley Authority provides
flood control and power and promotes development in portions of the Tennessee, Ohio,
and Mississippi River valleys. TVA currently issues discount notes and bonds.
TIME CERTIFICATE OF DEPOSIT: A non-negotiable certificate of deposit which cannot
be sold prior to maturity.
TOTAL RATE OF RETURN: A measure of a portfolio's performance over time. It is the
internal rate of return, which equates the beginning value of the portfolio with the ending
value; it includes interest earnings, realized and unrealized gains, and losses in the
portfolio.
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 and are sold on a discount basis.
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Attachment 3
TREASURY BONDS: Long-term coupon -bearing U.S. Treasury securities issued
as direct obligations of the U.S. Government and having initial maturities of more than 10
years.
TREASURY NOTES: Medium -term coupon -bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government and having initial maturities of I to 10 years.
U.S. GOVERNMENT AGENCIES: Instruments issued by various US Government
Agencies most of which are secured only by the credit worthiness of the particular agency.
VOLATILITY: The rate at which security prices change with changes in general economic
conditions or the general level of interest rates.
WEIGHTED AVERAGE MATURITY (WAM): The average maturity of all the securities
that comprise a portfolio that is typically expressed in days or years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
It is obtained by dividing the current dollar income by the current market price of the
security.
YIELD TO MATURITY: The rate of income return on an investment, minus any premium
or plus any discount, with the adjustment spread over the period from the date of purchase
to the date of maturity of the bond, expressed as a percentage.
YIELD CURVE: The yield on bonds, notes or bills of the same type and credit risk at a
specific date for maturities up to thirty years.
ZERO -COUPON SECURITY: Security that is issued at a discount and makes no periodic
interest payments. The rate of return consists of a gradual accretion of the principal of the
security and is payable at par upon maturity.
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Annual Review of City's
Investment Policy
September I 7, 2024
DUBLIN
CALIFORNIA
Tonight
• Review of Investment Policy.
• Delegation of Authority to complete
investment transactions.
• Consider establishment of a Finance &
Investment Subcommittee.
Review of Investment Policy
• Policy originally adopted in 2007.
• Reviewed annually
_ 2nd meeting in September.
• Policy is derived from California Governmental
Code, Sections 53600 et seq.
• Policy can be more restrictive not less.
Review of Investment Policy
Proposed Changes
• Section IV - Delegation of Authority
— Remove Assistant Finance Director as Deputy City
Treasurer.
• Section IX -Authorized and Suitable Investments
— Add Joint Powers Authority pools.
Review of Investment Policy
Proposed Changes
• Section XI - Prohibited Investment Practices and
Instruments
— Remove language "intent to hold". Provide more
flexibility.
• Other
— Spelling and grammatical errors.
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Delegation of Authority
• Section IV — Delegation ofAuthority
—City Council delegates the authority to invest
funds for one year to the Treasurer (Finance
Director)/DeputyTreasurer (City Manager).
— Authority is renewed each year as part of the
annual review.
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Finance & Investment Subcommittee
• Consider establishment of a Finance and
Investment Subcommittee
— Two Councilmembers.
— Review City's Investment Policy
• Socially Responsible Investing (SRI).
• Environmental, Social, Governance (ESG) standards.
Finance & Investment Subcommittee
Review City's investment strategy, portfolio
composition and returns.
Review of items related to existing and potential
debt issuance.
Review of quarterly financial reports.
Finance & Investment Subcommittee
Next Steps
• October — formal approval.
• December —appointments.
Questions?
VM
DUBLIN
CALIFORNIA
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