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Home My WebLink About18 MO. INVESTMENT RPT 01-16-95AGENDA NO. 18 ~ ~ 6-95 inter-Com DATE: JANUARY 10, 1995 TO: FROM: SUBJECT: WILLIAM A. HUSTON, CITY MANAGER RONALD A. NAULT, FINANCE DIRECTOR MONTHLY INVESTMENT REPORT RECOMMENDATION Pleasure of the City Council DISCUSSION At a previous City Council meeting Councilman Thomas suggested several changes be made to the monthly investment report. The suggestions were reviewed and discussed by the City's Audit Committee and the attached reports for November and December have incorporated the improved reporting format. The changes include: · The original purchase price is now stated in dollars rather than a percentage. · The column previously labeled amount is now labeled current book value. · The current market value is now stated as a dollar value rather than a percentage. · The average portfolio yield and life has been added. · We've also added.performance information, which is the current treasurY bill yield that most closely matches the current average portfolio life. · Footnotes have been added that further explain the new headings. 1/10/95 Agenda Item Attn: William A. Huston, City Manager Page 2 I've attached a copy of the City's current investment policy for reference. I refer you to the section on monthly reports on. page 3. The Government Code had contained a provision which required monthly investment reporting which expired January 1, 1991. The City's Audit Committee felt that it was appropriate to continue to report investment activity to the City Council on a monthly basis and has maintained the requirement as part of the City's current investment policy. The City's Audit Committee has been charged with reviewing the City's investment policy at least annually and to recommend changes to the City Council on an on-going basis. The last review was performed early 1994. Unless otherwise directed, they would next review the policy at their meeting ih March/April, 1995. RAN: ab a:monthly.ron DATE: 01/11/95 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: RONALD A. NAULT, ClTY TREASURER SUBJECT: INVESTMENT SCHEDULE AS OF: DECEIVlBER 31,1994 PURCHASE MATURITY TYPE BANK/AGENCY YIELD DATE DATE (1) (2) (3) ORIGINAL CURRENT CURRENT PURCHASE BOOK MARKET PRICE VALUE VALUE NOTES/RATINGS: NOTE FNMA 1992-100E 5.07% 02/25/93 01/25/97 $230,068 NOTE PFIZER INC. (AAA/AAA) 6.32% 05/12.~4 02/01/97 $251,078 NOTE FED FARM CR BK 6.00% 02/28/94 02/10/97 $742,500 NOTE FHLMC 1284E 9.97% 11/03/94 05/15/97 $1,304,364 NOTE US TREASURY 6.19% 05/27/94 05/15/97 $2,021,360 NOTE FHLB FRN 2.08% 10/20/93 0~/02/97 $2,550,000 NOTE FHLMC 1325-C 7.57% 05/06/94 07/15/97 $1,024,371 NOTE FED FARM CR BKFRN 4.84% 01/31/94 07/28/97 $1,050,000 NOTE FED FARM CR BKFRN 3.13% 11/09/93 09/23/97 $1,025,000 NOTE Pac Tel Cap MTN (AA3/AA) 11.35% 03/17/93 10/15/97 $574,140 NOTE FHLMC 1402-H 3.96% 01/28/94 10/15/97 $1,006,886 NOTE FHLMC 1436-SB 5.12% 03/21/94 12/15/97 $723,054 NOTE FHLB FRN 4.91% 09/29/93 03/23/98 $1,507,500 NOTE FHLB FRN 3.53% 10/21/93 05/07/98 $502,500 NOTE US TREASURY 6.47% 05/31/94 05/31/99 $3,031,590 NOTE SHELL OIL CO. (AA2/AAA) 6.72% 11/05/94 07/01/9g $690,228 NOTE TVA (AAA/AAA) 5.18% 02/03/94 08/01/99 $520,000 (1) (2) DAILY: Savings B of A: 2.00% Berkshire Hathaway- GIC 3.40% (AA/Aa3) Fidelity MMkt (AAA/AAA) 4.48% Local Agency InvesL Fund: 5.54% Orange Co. Invest Pool: 0.00% TOTAL CITY INVESTMENTS $122,415 $122,458 $250,862 $242,138 $742,500 $750,000 $1,304,364 $1,373,669 $2,019,224 $1,945,000 $2,532,145 $2,593,750 $934,364 $980,720 $1,039,341 $1,001,090 $1,012,475 $990,880 $544,464 $525,635 $699,458 $.900,267 $649,147 $638,241 $1,505,834 $1,470,000 $502,500 $495,000 $3,028,431 $2,877,180 $517,778 $461,875 $18~295,550 $18,02~i~337 $1,770 $1,770 $4,281,846 $4,281,846 $9,270,358 $9,270,358 $4,705,557 $4,705,557 $183,571 $183,571 $35.73{t, 852 $36.489.439 Average Portfolio Life: Average Portfolio Yield: Current 2 yr Treasury: 2.32 Years 5.15% 7.00% Origir~al Purchase Price is the amount paid for a security less any discount plus any premium. Current Book Value is a securities original purchase cost less the receipt of principal payments as booked to the City's General Ledger. Current Market Value is the price that the security is currently trading and could presumably be purchased or sold. Current Market Values are provided by Bank of America and First Interstate Bank on all securities held in safekeeping for the City and RDA. Differences in value are only booked if the security is sold prior to maturity. In compliance with Section II, paragraph f. of the City's Investment Policy, Corporate Medium Term Notes shall have a Moody's/Standard and Poors's long term debt rating of at least AA. TYPE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DECEMBER BANK/AGENCY PURCHASE MATURITY RATE DATE DATE (1) (2) (3) ORIGINAL CURRENT CURRENT PURCHASE BOOK MARKET PRICE VALUE VALUE Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes TOD'S: 0 NOTE'S/RATING'S: FHLMC 240008 FHLB FRN FED FARM CR BK FRN FHLMC FRN 1357-H FED FARM OR, BK FRN GE CAPITAL Franklin Universal Trust US T-NOTES TVA SERIES E FHI_B TOTAL TCD's 6.38% 09/30/92 01/01/95 $117,771 2.07% 10/20/93 06/02/97 $2,040,000 4.87% 01/31/94 07/28/97 $1,058,750 5.99% 08/28/92 08/15/97 $212,397 2.89% 11/09/93 09/23/97 $1,435,000 5.19% 11/18/93 11/18/98 $2,006,060 4.g0% 09/14/93 09/01/98 $1,029,800 6.42% 06/07/94 05/31/99 $1,518,984 5.42% 02/18/94 08/01/99 $515,048 8.01% 10/31/94 10/20~ $498,750 TOTAL NOTE"S DAILY: LAIF: 5.54% RDA SAVINGS 2.00% TOTAL RDA INVESTMENTS $0 $0 $111,338 $117,771 $2,028,572 $1,651,718 $1,046,162 $952,820 $2,232 * $1,419,090 $1,170,347 $2,004,848 $1,808,920 $1,023,840 $916,860 $1,517,086 $1,438,5~0 $513,376 $461,875 $498,750 $498~875 $10,165, 294 $9,025,776 $8,755,710 $8,755,710 $3,017~575 $3,017,575 _ $21,938, 579 $20,799,061 Average Portfolio Life: Average Portfolio Yield: Current 2 yr Treasury: 2.24 Years 4.71% 7.00% * Principal balance too Iow for accurate market value. (1) (2) GRAND TOTAL ALL INVESTMENTS $58.677.231 $57.268.500 Original Purchase Price is the amount paid for a security less any discount plus any premium. Current Book Value is a securities original purchase cost less the receipt of principal payments as booked to the City's General Ledger. (3) Current Market Value is the price that the security is currently trading and could presumably be purchased or sold. Current Market Values are provided by Bank of America and First Interstate Bank on all securities held in safekeeping for the City and RDA. Differences in value are only booked if the security is sold prior to maturity. (4) In compliance with Section II, paragraph f. of the City'S Investment Policy, Corporate Medium Term Notes shall have a Moody's/Standard and Poors's long term debt rating of at least AA. CERTIFICATION: I certify that this report reflects all Government Agency pooled Investments and is in conformity with the Investment Policy of the City of Tustin. A copy of this Policy is available at the Office of the City Treasurer. The Investment Program herein shown provides sufficient cash flow liquidity to meet next month's estimated expenditures. This statement is prepared in conformance with Government Code Section 53646. LEGEND: TCD-TIME CERTIFICATE OF DEPOSIT COMPAP-COMMERCIAL PAPER NOTE-GOV/CORP NOTES BOND-GOV AGENCY BONDS BA-BANKERS ACCEPTANCE FRN-FLOATING RATE NOTE MTN-MEDIUM TERM NOTE GIC- GUARANTEED INVESTMENT CONTRACT DATE: 01/11/95 TO' WILLIAM A. HUSTON, CITY MANAGER FROM: RONALD ~ NAULT, CITY TREASURER SUBJECT: INVESTMENT SCHEDULE AS OF: NOVEMBER 30, 1994 PURCHASE MATURITY TYPE BANK/AGENCY YIELD DATE DATE (1) ORIGINAL PURCHASE PRICE (2) CURRENT BOOK VALUE (3) CURRENT MARKET VALUE NOTES/RATINGS: NOTE FNMA 1992-100E 5.07% 02/25/93 01/25/97 NOTE PFIZER INC. (AAA/AAA) 6.32% 05/12/94 02/01/97 NOTE FED FARM CFI BK 6.00% 02/28~ 02/10/97 NOTE FHLMC 1284E 0.97% 11/03/94 05/15/97 NOTE US TREASURY 6.19% 05/27/94 05/15/97 NOTE FHLB FRN 2.08% 10/20/93 08/02/97 NOTE FHLMC 1325-C 8.15% 05/06/94 07/15/97 NOTE FED FARM CR BK FRN 4.84% 01/31/94 07/28/97 NOTE FED FARM CR BK FR N 3.13% 11/09/93 09/23/97 NOTE iPac Tel Cap MTN (AA3/AA) 11.35% 03/17/93 10/15/97 NOTE FHLMC 1402-H 4.32% 01/28/94 10/15/97 NOTE FHLMC 1436-SB . 5.61% 03/21/94 12/15/97 NOTE FHLB FRN 4.91% 09/29/93 03/23/98 NOTE FHLB FRN 3.63% 10/21/93 05/07/98 NOTE US TREASURY 6.47% 05/31/94 05/31/99 NOTE SHELL OIL CO. (AA2/AAA) 6.72% 11/05/94 07/01/99 NOTE TVA (AAA/AAA) 5.16% 02/03/94 08/01/99 DAILY: Savings B of A: 2.00% Berkshire Hathaway- GIC 3.40% (AA/ 3) Fidelity MMkt (AAA/AAA) 4.48% Local Agency Invest. Fund: 5.38% Orange Co. Invest Pool: 6.00% TOTAL CITY INVESTMENTS Average Portfolio Life: Average Portfolio Yield: Current 2 yr Treasury: 2.32 Years 5.18% 7.00% $230,066 $251,078 $742,5OO $1,304,354 $2,021,3~0 $2,550,000 $1,024,371 $1,050,000 $1,025,000 $574,140 $1,006,886 $723,054 $1,507,500 $,5O2,5OO $3,031,590 $690,228 $520,003 $135,015 $250,862 $742,500 $1,304,364 $2,019,224 $2,535,716 $934,364 $1,039,341 $1,015,780 $899,4,58 $649,147 $1,505,834 $502,500 $3,028,431 $690,228 $517,778 $1 35,061 $243,040 $750,000 $1,373 $1,954 386 $2,593 750 $98O 72O $1,001,090 $99O 88O $525 635 $9OO, 267 $6,38,241 $1,470, O03 $2,883,750 $662,599 $464,22O $18,315,026 $18,062~308 $1,770 $1,770 $4,269,787 $4,269,787 $9,194,486 $9,194,486 $3,955,557 $3,955,557 $177,649 $177,649 $35.914.275 $35.061,557 (1) Original Purchase Price is the amount paid for a security less any discount plus any premium. (2) Current Book Value is a securities original purchase cost less the receipt of principal payments as booked to the City's General Ledger. (4) Current Market Value is the price that the security is currently trading and could presumably be purchased or sold. Current Market Values are provided by Bank of America and First Interstate Bank on all securities held in safekeeping for the City and RDA. Differences in value are only booked if the security is sold prior to maturity. In compliance with Section II, paragraph f. of the City's Investment Policy, Corporate Medium Term Notes shall have a Moody's/Standard and Poors's long term debt rating of at least AA. TYPE TUSTIN COMMUNITY REDEVELOPMENT AGENCY NOVEMBER BANK/AGENCY PURCHASE MATURITY RATE DATE DATE (1) (2) (3) ORIGINAL CURRENT CURRENT PURCHASE BOOK MARKET PRICE VALUE VALUE TCD Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes (1) (2) TCD'S: Imperial Thrift & Loan (4) NOTE'S/P, ATI NG'S: FHLMC 240008 FHLB FRN FED FARM CR BK FRN FHLMC FRN 1357-H FED FARM CR. BK FRN GE CAPITAL Franklin Universal Trust US T-NOTES TVA SERIES E FHLB 4.90% 12/11/92 12/12/94 TOTAL TCD's 6.59% 09/30/92 01/01/95 2.07% 10/20/93 06/02/97 4.87% 01/31/94 07/28/97 5.89% 08/28/92 08/15/97 3.15% 11/09/93 09/23/97 5.19% 11/18/93 11/18/98 4.90% 09/14/93 09/01/98 6.42% 08/07/94 05/31/99 5.42% 02/18/94 08/01/99 8.01% 10/31/94 10/20/99 TOTAL NOTE"S DAILY: LAIF: -' 5.38% RDA SAVINGS 2.00% TOTAL RDA INVESTMENTS $99,000 SgO, O00 $99,000 $g9,000 $g9,000 $117,771 $111,586 $117,771 $2,040,000 $2,031,429 $1,776,042 $1,058,750 $1,046,162 $985,418 $212,397 $2,232 $1,435,000 $1,422,272 $1,262,086 $2,006,060 $2,004,848 $1,810,460 $1,029, 800 $1,023,840 $918,830 $1,518,984 $1,517,086 $1,441,875 $515,048 $513,376 $464,220 $498,750 $498,750 $497,815 $10,171,581 $9,274;517 $9,055,710 $9,055,710 $3,017,575 $3,017,575 $22,343,866 $21,446,802 Average Portfolio Life: Average Portfolio Yield: Current 2 yr Treasury: 2.24 Years 4.67% 7.00% * Principal balance too Iow for accurate market value. GRAND TOTAL ALL INVESTMENTS $58.258.141 $57.108,359 Original Purchase Price is the amount paid for a security less any discount plus any premium. Current Book Value is a securities original purchase cost less the receipt of principal payments as booked to the City's General Ledger. (3) Current Market Value is the price that the security is currently trading and could presumably be purchased or sold. Current Market Values are provided by Bank of America and First Interstate Bank on all securities held in safekeeping for the City and RDA. Differences in value are only booked if the security is sold prior to maturity. . (4) In compliance with Section II, paragraph f. of the City's Investment Policy, Corporate Medium Term Notes shall have a Moody's/Standard and Poors's long term debt rating of at least AA. CERTIFICATION: I certify that this report reflects all Government Agency pooled investments and is in conformity with the Investment Policy of the City of Tustin. A copy of this Policy is available at the Office of the City Treasurer. The Investment Program herein shown provides sufficient cash flow liquidity to meet next month's estimated expenditures. This statement is prepared in conformance with Government Code Section 53646. SIGNED: Ro'h~ld A I~au'E, City Tr~!~.surer ' LEGEND: TCD-TIME CERTIFICATE OF DEPOSIT COMPAP-COMMERCIAL PAPER NOTE- GOV/CORP NOTES BOND-GOV AGENCY BONDS BA-BANKERS ACCEPTANCE FRN-FLOATING RATE NOTE MTN-MEDIUM TERM NOTE GIC- GUARANTEED INVESTMENT CONTRACT · Finance Department Ci CITY OF TUSTIN STATEMENT OF INVESTMENT POLICY ty of Tustin 300 Centennial Way Tustin, CA 92680 Director (714) 573-3061 me, GENERAL Secretary (714) 573-3060 PURPOSE Water Billing (714) 573-3075 This statement is intended to provide guidelines F~14)'~}0825 prudent investment of the City's temporary idle cash, and outline the policies for maximizing the efficiency of the City's Cash Management System. The ultimate goal is to enhance the economic status of the City while protecting its pooled cash. SCOPE It is'intended that this policy cover all funds and investment activities under the direct authority of the City. OBJECTIVE The City's Cash Management System is designed to accurately monitor and forecast expenditures and revenues, thus enabling the City to invest funds to the fullest extent pOssible. The City investments meet the criteria established for safety and liquidity. The investment portfolio will be diversified to avoid incurring unreasonable risks regarding specific security types or individual financial institutions. POLICY The City of Tustin operates its temporary pooled idle cash inVestments under the prudent man rule (Civil Code Sec.2261, et seq.). The prudent man rule states, in essence, that "in investing .... property for the benefit of another, a trustee shall exercise the judgement and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs ..... ,, This affords the City a broad spectrum of investment opportunities as long as the investment is deemed prudent and allowable under current legislation of the State of California (Government Code Section 53600 et seq.) and the guidelines established by the following criteria for s~lecting investments and order of priority are: Safety. It is the primary duty and responsibility of the City, City Council, City Treasurer and Director of Finance at all times to protect, preserve and maintain intact the principal placed in trust with the City on behalf of the citizens of the community. Liquidity. An adequate percentage of the portfolio shall be maintained in liquid, short-term securities which can be converted to cash as necessary to meet disbursement requirements. Yield. Yield is to be a consideration only after the basic requirements of adequate safety and liquidity have been met. ~eqal Investment Authority. Temporarily idle monies shall be invested in accordance with State and local laws and regulations and this Statement of Investment Policy. Statement of Investment Policy. Each year after review and report by the Audit Committee, the Treasurer shall submit to the City council a proposed Statement of Investment Policy for Council consideration and adoption as submitted, or as revised by the City Council. Cash Purchase Only. Ail securities shall be purchased on a delivery vs payment (DVP) basis only. Securities shall not be purchased on margin, credit or for other than full cash payment and shall not be pledged as collateral. Repurchase Aqreements. Funds shall not be invested in repurchase or reverse repurchase agreements of any kind. Sellinq Securities Prior to Maturity. Generally losses will be acceptable on a sale before maturity if the reinvested proceeds will earn income with a present value greater than the present value of the income that would have been generated by the old investment, considering any capital loss or forgone interest on the original investment. , Performance Standards. The investment portfolio will be designed to obtain a market-average rate of return during budgetary and economic cycles, taking into account the City's investment risk constraints and cash flow needs. The market- average rate of return is defined as the average monthly return on three-month Treasury Bills. Monthly Reports. The Treasurer or Chief Fiscal Officer shall render a monthly report to the City Manager and the City Council, which states its relationship to the Statement of Investment Policy. This report is filed with the Chief Executive and the Governing Body. Sample attached, Exhibit I. Required elements of the monthly report are as follows: a. Type of investment. b. Institution. c. Date of maturity. d. Amount of deposit or cost of the security. e. Rate of interest. f. Statement relating the report to the Statement of Investment Policy. g. Statement that there are sufficient funds to meet the next 30 days' obligations. II. GUIDELINES. The following directions and limitations are hereby established to direct and control investment activities in such a manner that above-stated goals are achieved. Deleqation of Authority. California Government code, Section 53607, provides the authority for the legislative body of the local agency to invest the funds of the local agency or to delegate that full responsibility to the Treasurer of the local agency.Under City of Tustin Ordinance No. 832, the City Council has authorized the City Treasurer to invest City funds in accordance with California Government Code Section, 53600, et.seq. Ethics and Conflicts of Interest. The City Treasurer shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair the ability to make impartial investment decisions. The City Treasurer is governed by the Political Reform Act of 1974 regarding disclosure of material finanCial interests. Investment Transactions. Every investment transaction shall be reviewed, authorized and documented by the Treasurer. Pooled Cash. Wherever practical, the City's cash shall be consolidated into one bank account and invested on a pooled concept basis. Interest earnings shall be allocated according to fund cash and investment balances. Competitive Bids. Purchase and sale of securities shall be made on the basis of competitive offers and bids whenever practical. Cash Forecast. The cash flow for the City shall be analyzed with the receipt of revenues and maturity of investments scheduled so that adequate cash will be available to meet disbursement requirements. Investment Limitations. ,Security .purchases, deposits and holdings shall be maintained within statutory limits imposed by the California Government'Code and shall include only the following: a. Certificates of deposit (or time deposits) of leSs than $100,000 may be placed with commercial banks, savings and loan institutions and federally insured industrial loan companies (with a percentage of equity to assets of not less than three (3) percent to the extent they are fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation as required by the Government code. Deposits in excess of $100 000 may be made based on a full evaluation of financia~ soundness of the depository and approved collateral at the required percentage of market value in accordance with California Government Code Section 53651 and 53652. Evaluation of financial soundness shall be based on a minimum equity to asset ratio of, three (3) percent; $100 million of assets minimum; continued profitability based on the latest quarter-end/year-to-date FHLB Reports; and external rating service rating of AA or better, i.e., Findley's Bank-A-Lert Report, ITC, etc. The maximum deposit per institution shall not exceed the lesser of $1 million, or ten (10) percent of the bank's capital (or equity account as measured by Findley's Bank-A-Lert Report). Total non- insured deposits shall not exceed ten (10) percent of invested funds and limited to a maximum maturity of one year. be Prime quality Commercial Paper, highest letter and numerical'long term debt ratings by Moody,s'or Standard and Poors, AA or 'equivalent, but not to exceed twenty- five (25) percent of invested funds at the time of purchase and limited to a maximum maturity of ninety (90) days, and average weighted maturity shall not exceed 31 days if Commercial Paper exceeds fifteen (15) percent of total portfolio assets. c. Local Agency Investment Fund (State Pool) demand account. d® Orange County TreaSury Co-mingled Pool (County) demand account, but not in excess of ten (10%) percent of invested funds at the time of deposit. Se Commercial Bank Time Drafts (Banker's Acceptances), highest letter and numerical long term debt ratings by Moody's or Standard and Poors, AA or equivalent, but not in excess of twenty-five percent (25%) of invested funds at the time of purchase with a maximum maturity of one hundred and eighty (180) days. f® Medium Term Notes of a maximum maturity of five (5) years issued by corporations organized and operating within the U.S. or by depository institutions licensed by the U.S. or any State, and operating within the U.S. Notes eligible for investment under this subdivision shall have a long term debt rating of AA or its equivalent by Moody's or Standard and Poors. Purchases may not exceed ten percent (10%).. of invested funds at the time of purchase. '. '.- ge Federal Agency bonds or notes, but not in excess of twenty-five (25) percent of invested funds at time of purchase with a maximum maturity of five (5) years. he Treasury bills , bonds or notes not exceeding five (5) years to final maturity. Liquidity. The marketability (salability) of a security shall be considered at the time of purchase, as the security may have to be sold at a later date to meet an unanticipated cash demand. Long-Term Maturities. As a general rule, long-term maturities shall not represent a significant percentage of the total portfolio, as the principal risk involved can outweigh the 'potential for higher earnings. In no event shall any investment have a term longer than five (5) years and, at the time of purchase, holdings with maturities greater than one (1) year shall not exceed thirty five (35) percent of. the total portfolio. Collaterals' Collateral requirements are addressed in California Government Code Section 53652. All active and inactive deposits must be secured at all times with eligible securities in securities pools pursuant to Sections 53656 and 53657. Eligible securities held as collateral shall have a market value in excess of the total amount of all deposits of a depository as follows: --government securities, at least 10 percent in excess. --mortgaged backed securities, at least 50 percent in excess. --letters of credit, at least 5 percent in excess. Authorized Dealers/Brokers. Investments shall be transacted only through brokers/dealers which have been reviewed by the Finance Director for reliability, credit worthiness and trustworthiness. Diversification. The portfolio shall consist of a mix of the various types of securities approved by statute and this Statement of Investment Policy as well as a mix of issuers and maturities. Safekeeping. Securities purchased from brokers/dealers shall be held in third party safekeeping by the trust department of the local agency's bank, or by other third party trustee designated by the Treasurer. Said securities shall be held in the name of the City with the trustee executing agreements and confirmations of investment transactions as directed by the City Treasurer. III. STRATEGY. Strategy refers to the ability to manage financial resources in the most advantageous manner. Economic Forecasts. The Treasurer periodically shall obtain economic forecasts from economists and financial experts through bankers and brokers in order to assist the Treasurer with the formulation of investment plans. ~mplementinq Investment Strate~. The Treasurer shall execute investment transactions which conform with anticipated interest rate trends and the current investment strategy plan. Rapport. The Treasurer shall maintain a close working relationship with the departments of the City so as to anticipate and accommodate disbursements of City funds. For liquidity planning purposes, department heads shall apprise the Treasurer when large expenditures are anticipated. · Preserve Portfolio Value. The Treasurer shall develop yield standards in order to maintain earnings near the market and to preserve the value of the City's portfolio. Internal controls. The Finance Department shall establish a system of internal controls which shall be reviewed annually with the independent auditor. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent action by employees and officers of the City of Tustin. The City strives to maintain the level of investment of all funds as near 100 percent as possible, through daily and projected cash flow determinations. Idle cash management and investment transactions are the responsibility of the City Treasurer. The basic premise underlying the City's investment philosophy is, and will continue to be, to insure that money is always safe and available when needed. The City of Tustin Audit Committee shall review the City's Investment Policy with the City Treasurer at least annually. Any changes to the policy shall receive prior approval of the Audit Committee and proposed amendments will be brought to the City Council for final action upon the recommendation of the Committee. a:invstmt.new 08-05-93 GLOSSARY OF COMMON TREASURY TERMINOLOGY AGENCIES: Federal agency securities. ASKED: The price at which securities are offered. BANKERS, ACCEPTANCE (BA): A draft, bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. · BID: The price offered for securities. BROKER: A broker brings buyers and sellers together for a commission paid by the initiator of the transaction or by both sides. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to sec%rities pledged by a bank to secure deposits of public monies. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large denomination CD's are typically negotiable. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt (also called free). Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DEBENTURE: A bond secured only by the general credit of the issuer. DISCOUNT: The difference between the cost price of a security and its value at maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that .are issued at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury bills. (Also known as Zero Coupon Securities) . Page 2 Glossary DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. 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 RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governers in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and loan associations. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development, H.U.D. It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations,, and other instit~fions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by' FHA, VA or FMHM mortgages. The term pass-through is often used to describe Ginnie Maes. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from political subdivisions that are placed in the custody of the California State Treasurer for investment and reinvestment. Page 3 Glossary MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase--reverse repurchase agreements that establishes each party's right~ in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and.traded. PORTFOLIO: Collection of securities held by an investor. PRUDENT PERSON RULE: An investment standard that says a trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. PRIMARY DEALER: A group of government securities dealers that 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. 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. REPURCHASE AGREEMENT (RP OR REPO): A hol.der 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. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. Page 4 Glossary SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SEC RULE 15C3-1: see uniform net capital rule. SECURITIES kND EXCF~NGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more than ten years. TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury securities having initial maturities of from one to ten years. YIELD: The rate of annual income return on an ivestment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. UNIFORM NET CAPITAL' RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1: also called "net capital rule" and "net capital ratio". Indebtedness covers all money owed to a firm including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. a:gLossary, fin