HomeMy WebLinkAbout14 - NB-1 - Adoption of FY 2011-12 Statement - 7/19/2011' CITY COUNCIL AGENDA REPORT
MEETING DATE: JULY 19, 2011 ITEM NUMBER:
SUBJECT: ADOPTION OF THE FY 2011-2012 STATEMENT OF INVESTMENT POLICY
DATE: JUNE 24, 2011
FROM: FINANCE DEPARTMENT
PRESENTATION COLLEEN O'DONOGHUE, ASSISTANT FINANCE DIRECTOR
BY:
FOR FURTHER INFORMATION CONTACT: COLLEEN O'DONOGHUE (714) 754-5219
RECOMMENDED ACTION
Adopt Resolution No. approving the Statement of Investment Policy for Fiscal Year 2011-
2012 and to designate the Finance Director as City Treasurer.
BACKGROUND
The California Government Code Section 53646(a)(2) requires the City Treasurer to submit a
"Statement of Investment Policy" to the legislative body each fiscal year. This Investment Policy
has been designed and developed according to the specific needs of the City of Costa Mesa and
complies with the California Government Code, guidelines recommended by the California
Municipal Treasurer's Association (CMTA) and guidelines recommended by the Association of
Public Treasurers of the United States and Canada (APTUS&C).
The single most important statutory duty of the City Treasurer is set forth in California
Government Code Section 41001 which provides that the "City Treasurer shall receive and
safely keep all money coming into the Treasury." In light of these statutory responsibilities, the
California Municipal Treasurer's Association has established the following guidelines to prudent
investment strategy for local treasurers to follow:
Legal Investment Authority: Temporary idle monies are to be invested in accordance with state
and local statutes and in compliance with California Government Code Sections 53600 et. seq.
•
Safety: It is the primary duty and responsibility of the City Treasurer to protect,
preserve, and maintain intact cash and investments placed in trust with the City Treasurer
on behalf of the citizens of the City of Costa Mesa.
•
Liquidity: An adequate percentage of the portfolio should be maintained in liquid short-
term securities, which can be converted to cash if necessary to meet disbursement
requirements.
• Yield: The City Treasurer shall obtain the highest possible yield within the parameters of
the City's authorized investments, provided the criteria for safety and liquidity have been
met.
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ANALYSIS
The 2010-2011 Investment Policy adopted on May 18, 2010, has been revised to reflect the
changes as referenced below:
• Under Section VII Authorized Investments, the subsection related to Reverse Repurchase
Agreements was removed from the City's Investment Policy in its entirety.
The elimination of Reverse Repurchase Agreements from Authorized Investments
strengthens our Investment Policy by reducing potential exposure to market risk.
• Under Section VII Authorized Investments, in the subsection related to the Orange
County Treasurer's Pool, the following language was deleted; "However, any
investments held by the Orange County Treasurer's Pool will be apportioned and
overlaid with the City's Portfolio to determine compliance with other self-imposed
restrictions as specified in this Investment Policy."
This language was deleted from the policy because the City doesn't exercise control over
the County's investment selections and by overlaying their investments with our
investments, it can negatively impact the City's compliance with our investment
limitations.
• Under Section XII Policy Compliance Regulations, the following language was added;
"so long as the action is deemed to be prudent under then current market conditions."
The language was added to the policy statement to provide the City Treasurer with the
discretion of waiting for the right market conditions before selling the investment(s) in
order to bring the portfolio back into compliance.
• Under the Investment Guidelines and Strategy, the following reference was removed;
"Reverse Repurchase Agreements, 20% Section 53601(1).
The reference to Reverse Repurchase Agreements was removed due to the elimination of
Reverse Repurchase Agreements as an authorized investment.
• Miscellaneous or other "housekeeping" changes were made to various sections of the
City's Investment Policy as noted in the attached red -line copy of the policy statement.
Whenever revisions to the Investment Policy are considered, the proposed revisions are reviewed
and discussed with the Investment Oversight Committee at its meetings quarterly meeting. The
changes discussed herein have been submitted to the Investment Oversight Committee for
review and comment on April 26, 2011. After discussion of the proposed changes, the changes
referenced above have been recommended to City Council for adoption by the Investment
Oversight Committee.
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CONCLUSION
The attached Investment Policy has been revised to include the proposed changes referenced
above. It is recommended that City Council adopt the attached Resolution Number ----
approving the attached Investment Policy for the 2011-12 fiscal year.
COLLEEN O'DONOGHUE
Assistant Finance Director
Attachments:
(1) 2010-11 Red Lined Statement of Investment Policy
(2) 2011-12 Proposed Statement of Investment Policy
Investment Guidelines and Strategy
Investment Procedures: Internal Controls - Guidelines
Cash Controls: Independent Auditors' Procedure
Segregation of Treasury Responsibilities
(3) Glossary
(4) Resolution
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Attachment 1
CITY OF COSTA MESA
STATEMENT OF INVESTMENT POLICY
20110-20124
I. GENERAL INTRODUCTION
Under the laws of the State of California, it is the responsibility of the City Treasurer, at the direction of the City
Council, to secure and protect the public funds of the City, and to establish proper safeguards, controls, and
procedures to maintain these funds in a lawful, rational and auspicious manner. Said maintenance shall include the
prudent and secure investment of those funds that are deemed temporarily excess, in a manner anticipated to
provide additional benefit to the people of the City of Costa Mesa.
This Statement of Investment Policy will be provided annually for the review of the Oversight Committee and the
approval of the City Council in an open public meeting. It will be provided to securities dealers, banks, and brokers
currently approved for conducting investment transactions with the City Treasurer's office in the ongoing effort to
manage the excess cash portfolio; to other affected persons or entities; and to any member of the electorate wishing
to review this document upon request. The Treasurer reserves the right to provide these documents on a cost basis.
II. SCOPE
This Statement of Investment Policy pertains to those temporarily sufp4tis-excess funds under the control of the
Treasurer, designated for the daily ongoing operations of the City; and concerns the deposit, maintenance,
safekeeping, and preservation of all such funds, and the investments made with these funds. This Policy does not
apply to pension trust funds, deferred compensation funds, and certain other trust or non-operating funds.
ITT_ PTTRPOQF,
The purpose of this Statement of Investment Policy is to provide the City Council, the Investment Oversight
Committee, those involved in servicing the investment requirements of the City, and any other interested party, a
clear understanding of the regulations and internal guidelines that will be observed in maintaining and investing
those pooled funds deemed temporarily excess. This statement is intended to provide guidelines for the prudent
investment of the City's temporary idle cash, and outline the procedures for maximizing the efficiency of the City's
cash management system. The ultimate goal is to enhance the economic status of the City while safeguarding its
assets.
IV. OBJECTIVE
The City's cash management system is designed to accurately monitor and forecast revenues and expenditures, thus
enabling the City to invest funds to the fullest extent possible. The City attempts to obtain the highest yield
possible only after the criteria established for safety and liquidity have been met.
The City of Costa Mesa operates its pooled idle cash investments with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the
probable income to be derived.
This affords the City a broad spectrum of investment opportunities as long as the investment is deemed prudent and
is allowable under current legislation of the State of California Government Code Section 53600 et seq. and the
general laws of the City of Costa Mesa.
The City of Costa Mesa strives to maintain the level of investment of all idle funds as near 100% as possible,
through daily and projected cash flow determinations. Idle cash management and investment transactions are the
responsibility of the City Treasurer or his/her designee.
Criteria for selecting investments and the order of priority are:
1. Safe : The safety and risk associated with an investment refers to the potential loss of principal, interest,
or a combination of these amounts. The City only operates in those investments that are considered very
safe.
2. Liquidity: This refers to the ability to "cash in" at any moment in time with a minimal chance of losing
some portion of principal or interest.
3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is referred to as
the rate of return.
4. Safekeel2in : Securities purchased shall be held in third parry safekeeping in the Trust Department of a
financial institution, in the City's name and control. The account established shall be protected from
seizure by creditors should the financial institution holding the City's securities file for bankruptcy
protection. The basic premise underlying the City's investment philosophy is and continues to be, to
insure that surplus funds are always safe and available when needed.
V. DELEGATION OF INVESTMENT AUTHORITY
Authority to manage the City of Costa Mesa's investment program is derived from City of Costa Mesa Council
Resolution No. 10-3-2 . Management responsibility for the investment program is hereby delegated for fiscal
year 20119-201247 to the City Treasurer or his/her designee, who shall establish written procedures for the operation
of the investment program consistent with this Investment Policy. Procedures should include references to:
safekeeping, repurchase agreements, wire transfer agreements, banking service contracts, and collateral/ depository
agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment
transactions. No person may engage in an investment transaction except as provided under the terms of this policy
and the procedures established by the City Treasurer or his/her designee. The City Treasurer or his/her designee
shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities
of subordinate officials.
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VI. STANDARD OF PRUDENCE
The Treasurer shall perform the investment function in conjunction with the "Prudent Man Rule." This rule states,
in principle that whenever investing property for the benefit of others, a trustee shall exercise the judgment and
care, under circumstances then prevailing that persons of prudence, discretion, and intelligence, would exercise in
the management of their own affairs not in regards to speculation, but in regard to the permanent disposition of
their funds, considering the probability of safety of, as well as the probable income from their capital. The
Treasurer and his designees are considered to have a fiduciary, trustee, relationship with the public for the public
funds and all investment decisions will be made in a manner sustaining this responsibility.
VII. AUTHORIZED INVESTMENTS
The California Government Code allows the City to invest in the following media:
• Securities of the U.S. Government, or its government sponsored agencies
• Small Business Administration loans
• Certificates of deposit, placed with commercial banks and savings and loan companies
• Negotiable certificates of deposit
• Bankers' acceptances
• Commercial paper
• Corporate notes and bonds, including medium term notes
• Local Agency Investment Fund
• Repurchase agreements
• Passbook savings account demand deposits
• County Treasurer demand deposits
• Asset-backed and mortgage-backed securities
• Money market mutual funds
As a matter of practice, however, the City of Costa Mesa generally limits its investments to the following vehicles:
U.S. Treasur.Bills - Issued weekly with maturity dates up to one year. They are issued and traded on a discount
basis with interest figured on a 360 -day basis, actual number of days. They are issued in amounts of $10,000 and
up, in multiples of $5,000. They are a highly liquid security.
U.S. Treasury Notes - Initially issued with two- to ten-year maturities. They are actively traded in a large
secondary market and are very liquid. The Treasury may issue Note issues with a minimum of $1,000, however,
the average minimum is $5,000.
Federal Agency/U.S. Government -Sponsored Enterprise Issues - Guaranteed directly or indirectly by the United
States Government. All agency/GSE obligations qualify as legal investments and are acceptable as security for
public deposits. These securities usually_ provide higher yields than U.S. Treasury securities witheg nerally all of the
same advantages in terms of safe1y and liquidi .. Examples include:
FICBs (Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance the
short-term and intermediate needs of farmers, such as seasonal production. These securities are usually
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issued monthly in minimum denominations of $3,000 with a nine-month maturity. Interest is payable at
maturity and is calculated on a 360 -day, 30 -day month basis.
• FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term
needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month
maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly
liquid.
• FLBs (Federal Land Bank Bonds) - Long-term mortgage credit provided to farmers by Federal Land Banks.
These bonds are issued at irregular times for various maturities ranging from a few months to ten years.
The minimum denomination is $1,000. They carry semi-annual coupons. Interest is calculated on a 360 -
day, 30 -day month basis.
• FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to
help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to
savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and
mortgage -lending institutions. They are issued irregularly for various maturities. The minimum
denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at
maturity. The bonds are issued with various maturities and carry semi-annual coupons. Interest is
calculated on a 360 -day, 30 -day month basis.
• FNMAs Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing
mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well
as those guaranteed by the Veterans Administration. They are issued about four times a year for maturities
ranging from a few months to eight years. They are issued in minimum denominations of $10,000. They
carry semi-annual coupons. Interest is computed on a 360 -day, 30 -day month basis.
• FHLMCs (Federal Home Loan Mortgage e Corporation) - A government-sponsored enterprise established to
develop the secondary market for conventional home mortgages. Mortgages are purchased solely from the
Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of
the United States Government. They are issued for various maturities and in minimum denominations of
$10,000. Interest is paid semi-annually and is calculated on a 360 -day, 30 -day month basis.
• Other federal agency issues are Small Business Administration notes (SBAs), Government National
Mortgage Association notes (GNMAs), and Tennessee Valley Authority notes (TVAs). As a matter of
practice, the City does not invest in these issues as they do not suit our purposes as well as other investment
opportunities available.
The City limits its investments to no more than 60% of its surplus funds in any one Federal Agency.
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Bankers' Acceptances - Short-term credit arrangements to enable businesses to obtain funds to finance commercial
transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific
merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An
acceptance is a high-grade negotiable instrument. Bankers' Acceptances can be purchased in with various
denominations -maturities , but no longer than 180 days. The interest is calculated on a 360 -
day discount basis similar to Treasury Bills. Local agencies may not invest more than 40% of their surplus funds in
bankers' acceptances or more than 10% of the agency's surplus funds in bankers' acceptances of any one
commercial bank.
Certificates of Deposit - Time deposits of a bank or savings and loan. They are purchased in various denominations
with maturities ranging from 30 to 360 days. The interest is calculated on a 360 -day, actual -day month basis and is
payable monthly.
Negotiable Certificates of Deposit - Unsecured obligations of the financial institution, bank or savings and loan,
bought at par value with the promise to pay face value plus accrued interest at maturity. They are high-grade
negotiable instruments, paying a higher interest rate than regular certificates of deposit. The primary market
issuance is in multiples of $1,000,000; the secondary market usually trades in denominations of $500,000, although
smaller lots are occasionally available. As a matter of practice, only the ten largest U.S. banks where there is a
secondary market established for continued liquidity are considered for investment. The City's total investment in
negotiable certificates of deposit may not exceed 30% of surplus funds.
Commercial Paper - Short-term unsecured promissory notes issued by a corporation to raise working capital. These
negotiable instruments are purchased at a discount to par value or at par value with interest bearing.
The City is -permitted by State law to invest in commercial paper of "prime" quality of the highest ranking or of the
highest letter and numerical rating as provided for by a nationally recognized statistical -rating organization
(NRSRO). Eligible paper is further limited to issuing corporations that are organized and operating within the
United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or
higher rating for the issuer's debt other than commercial paper as rated by an NRSRO. Commercial Paper issued
by an Issuer that has a rating of "A" on their debt other than commercial paper but are on credit watch for a possible
downgrade by an NRSRO shall not be considered for investment purposes. Purchases of eligible commercial
paper may not exceed 270 days maturity nor represent more than 10% of the outstanding paper of an issuing
corporation. Purchases of commercial paper may not exceed 25 percent of the portfolio.
Medium Term Corporate Notes - Unsecured promissory notes issued by a corporation organized and operating in
the United States. These are negotiable instruments and are traded in the secondary market. Medium term
corporate notes can be defined as extended maturity commercial paper.
Local agencies are restricted by the Government Code to investments in corporations rated in the top three note
categories by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. For medium-term notes,
eligible purchases consist of instruments that have a rating of "A" or better by both Moody's Investors Service, Inc.,
and Standard and Poor's Corporation. Corporate Notes issued by an issuer that has a rating of "A" but are on credit
watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment
purposes. If the security's credit rating falls below an "A" rating by one of these agencies, then awareness is
heightened and the security monitored closely to determine if credit risk has been significantly increased. If a
security falls below an "A" rating by both rating agencies, then -the City Treasurer or his/her designee will evaluate
the need to sell the security prior to maturity. Further restrictions include are a maximum term of five years to
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maturity and total investments in medium term corporate notes may not exceed 30% of the local agency's surplus
funds or 5% in any one issuer name.
Repurchase Agreements - A repurchase agreement is a short-term investment transaction. Banks buy temporarily
idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to
repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity.
The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal
funds and the maturity of the repurchase agreement. Some banks will execute repurchase agreements for a
minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. The term of a repurchase
agreement may not exceed one year. The market value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no
less than quarterly. Repurchase Agreements can only be executed with financial institutions or broker/dealers that
have signed a Master Repurchase Agreement with the City.
LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to
deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum balance of $50,000,000 for any agency. The City is restricted to a
maximum of fifteen transactions per month. It offers high liquidity because deposits can be converted to cash in 24
hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis
determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State
retains an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the
earnings. California Government Code § 16429.3 states, in part:
"money placed with the State Treasurer for deposit in the Local Agency Investment Fund by cities,
counties, or special districts shall not be subject to impoundment or seizure by any state official or
state agency."
Orange County Treasurer's Pool - A special fund in the County Treasury which local agencies may use to deposit
funds for investment. The City may not invest more than 35% of its surplus money with the Orange County
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LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to
deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum balance of $50,000,000 for any agency. The City is restricted to a
maximum of fifteen transactions per month. It offers high liquidity because deposits can be converted to cash in 24
hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis
determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State
retains an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the
earnings. California Government Code § 16429.3 states, in part:
"money placed with the State Treasurer for deposit in the Local Agency Investment Fund by cities,
counties, or special districts shall not be subject to impoundment or seizure by any state official or
state agency."
Orange County Treasurer's Pool - A special fund in the County Treasury which local agencies may use to deposit
funds for investment. The City may not invest more than 35% of its surplus money with the Orange County
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kwestmefA Pehe , The County Treasurer charges 12.5 basis points (.125%) to all pool participants for its direct
costs. Direct Costs include proper staffing, bank and custodial fees, software maintenance fees, and other indirect
costs relating to the investment. Investment earnings are distributed to the pool participants on a monthly basis, net
of the above charges. The earnings are credited to the participant's accounts on either the last day of each month or
the first day of the subsequent month.
Money Market Mutual Funds - Shares of beneficial interest issued by diversified management companies. To be
eligible for investment, shares must:
1. attain the highest rating provided by Moody's Investors Service, Inc., which is currently "Aaa," and/or
Standard and Poor's Corporation, which is currently "AAA;" and
2. the investment adviser managing the shares must be registered with the Securities and Exchange Commission
with not less than five year's experience investing in instruments authorized under California Government
Code §53601 subdivisions (a) to (m) inclusive, and with assets under management in excess of five hundred
million dollars ($500,000,000); and
3. the purchase price of shares shall not include any commission that these companies may charge; and
4. investment in shares shall not exceed 20 percent of surplus funds.
However, no more than 10 percent of the City's surplus funds may be invested in shares of beneficial interest of
any one mutual fund. Furthermore, any investment in a money market mutual fund must comply with other self-
imposed restrictions as specified in this Investment Policy.
Asset -Backed and Mortizage-Backed Security - Bonds backed by payments from receivables/mortgages having a
maximum of five years maturity. These securities must have an "AA" or better rating by Moody's Investors
Services, Inc., and/or Standard and Poor's Corporation. No more than 20% of the City's surplus money may be
invested in these securities.
VIII. INVESTMENT OF BOND PROCEEDS
When investing proceeds from the issuance of bonds, the City of Costa Mesa will follow this Investment Policy
when determining allowable investments. Should the trust agreement of a particular bond issue be more restrictive
than the City's policy on permitted investments, then the trust agreement will take precedence.
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IX. CITY CONSTRAINTS
The City Treasurer or his/her designee will evaluate local banks and savings institutions and may invest idle cash
funds with such institutions when the criteria for prudent investment previously stated are met. The City operates
its investment pool according to State and self-imposed constraints. It does not buy stocks; it does not speculate; it
does not deal in futures or options. Any investment extending beyond a five-year period requires prior City
Council approval. Additionally, a minimum of 20% of the outstanding investments must mature within a one-year
time period.
X. SAFEKEEPING AND COLLATERALIZATION
All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted
on a delivery -versus -payment (DVP) basis. Securities will be held by a third party custodian designated by the City
Treasurer or his/her designee.
Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse
repurchase) agreements. In order to anticipate market changes and provide a level of security for all funds, a
minimum collateralization level is required.
Surplus funds must be deposited in State or national banks, State or Federal savings and loan associations, or State
or Federal credit unions within the State of California. The deposits cannot exceed the amount of the bank's or
savings and loan's paid-up capital and surplus.
The bank or savings and loan must secure public funds deposits with eligible securities having a market value of
110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a
value of 150% of the total amount of the deposits. A third class of collateral is 105% in the form of a letter of credit
drawn on the Federal Home Loan Bank.
The City Treasurer or his/her designee may waive security for that portion of a deposit, which is insured pursuant to
Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits in excess of $100,000 are
collateralized as previously indicated.
XI. DERIVATIVE INVESTMENTS
A derivative is a generic term often used to categorize a wide variety of financial instruments whose value "depends
on" or is "derived from" the value of an underlying asset, reference rate, or index.
Investments in derivative instruments are limited to debt securities that have periodic increases, or step-up interest
rate adjustments that provide upward mobility in yield return. Investments in debt securities, which contain a
callable feature are also allowable, but must comply with other restrictions as specified in this Investment Policy.
Investments purchased after June 19, 1995, in derivative instruments known as "inverse floaters," "dual index," or
"stepped inverse" securities that produce higher than market yields at purchase date (when interest rates are low),
but have the possibility of producing low or no coupon rates as market interest rates rise through the life of the
instrument are not allowable. Furthermore, investments in range notes or interest -only strips that are derived from a
pool of mortgages are not allowable. However, debt securities that have a floor or a built-in feature that prevents the
instrument from potentially returning no yield are allowable.
XII. POLICY COMPLIANCE REGULATIONS
Should the portfolio, for any reason, fall out of compliance with this Investment Policy, immediate liquidation of
securities in order to bring the portfolio back into compliance is not required. However, the Treasurer must take
action to bring the portfolio into compliance within 12 months from the date the portfolio was determined to be in
non-compliance with the provisions of this Investment Policy so long as the action is deemed to be prudent under
then current market conditions. Additionally, adequate disclosure as to all instances of noncompliance, and the
efforts undertaken to bring the portfolio into compliance, must be made on the monthly Treasurer's Report.
XIII. REPORTING
Under provisions of Section 53646 of the California Government Code, the Treasurer or his/her designee shall
render a quarterly investment report to the City Council, the City Manager, and the City Attorney within 30 days
following the end of the quarter covered by the report. However, as a matter of practice, a monthly report shall be
submitted listing the type of investments, institution, date of maturity, par value, amount of deposit, rate of interest,
current market value for all securities, and such other data as may be required by the City Council on a monthly
basis. Furthermore, an Investment Oversight Committee comprised of the following individuals will meet
quarterly to review the City's portfolio and investment strategy.
• Mayor, or his/her designee
• Chief Executive Officer
• Director of Finance/City Treasurer
• Assistant Director of Finance
• Revenue Supervisor
• Three Committee Members or alternate members appointed by City Council who are either residents or
conduct business within the City and have experience in banking, securities trading, or financial planning.
XIV. QUALIFIED DEALERS
The City of Costa Mesa shall transact business only with banks, savings and loans, and registered investment
securities dealers. The City will limit the number of broker/dealers authorized to do business with the City to no
more than one (1) broker/dealer for every $10,000,000 of portfolio size. Each authorized broker/dealer shall be
required to annually file a signed certification with the City Treasurer or his/her designee certifying that they have
read and understand the City's most recently adopted investment policy.
The City Treasurer or his/her designee will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will also be maintained of approved broker/dealers who are authorized to provide
investment services in the State of California. These may include "primary" and "regional" broker/dealers with
offices located in the State of California. All financial institutions and broker/dealers who desire to become
qualified bidders for investment transactions must be approved by and supply the City Treasurer or his/her designee
with a completed broker/dealer questionnaire.
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XV. POLICY REVIEW
This Statement of Investment Policy shall be reviewed at least annually to ensure its consistency with the overall
objectives of preservation of principal, liquidity and return, and its relevance to current law, financial and economic
trends.
Should conditions change or legislation become effective that behooves subsequent changes or a liberalization of
terms within the policy during the next fiscal year, the revised policy will be submitted to both the Investment
Committee and Council for adoption of the recommended action.
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CITY OF COSTA MESA
INVESTMENT GUIDELINES AND STRATEGY
I. GUIDELINES - Guidelines are established to direct and control activities in such a manner that previously
established goals are achieved.
Investment Transaction. Every investment transaction must be authorized and reviewed by the
Treasurer or his/her designee.
2. Pooled Cash. Whenever practical, local agency cash is consolidated into one bank account and
invested on a pooled concept basis. Interest earnings are allocated quarterly according to month-end
cash and investment balances for each fund.
3. Competitive Bids. Purchase and sales of securities are made on the basis of competitive offers and
bids when practical.
4. Cash Forecast. The cash flow for the City is analyzed with the receipt of revenues and maturity of
investments scheduled so that adequate cash will be available to meet disbursement requirements.
5. Investment Limitations. Security purchases and holdings are maintained within statutory limits
imposed by the California Government Code. Current limits are:
Bankers' Acceptances
40% Section 53601(f)
Commercial Paper
25% Section 53601(8)
Negotiable Certificates of Deposit
30% Section 53601(h)
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,; Seefien 53601(i)
Medium Term Notes
30% Section 536010)
Money Market Mutual Funds
20% Section 53601(k)
Asset-Backed/Mortgage-Backed Securities
20% Section 53601(n)
Federal Agency restriction
60% per Agency Section VI of Policy
Local Agency Investment Fund
$50,000,000 per Section VI of Policy
Orange County Treasurer's Pool
35% per Section VI of Policy
Portfolio Maturing within one year
20% per Section IX of Policy
6. Liquidity. The marketability of a security is considered at the time of purchase, as the security may
have to be sold at a later date to meet unanticipated cash demands.
7. Diversification. The portfolio should consist of a mix of various types of securities, issuers, and
maturities.
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CITY OF COSTA MESA
INVESTMENT GUIDELINES AND STRATEGY
(Continued)
8. Evaluate Certificates of Deposit
(a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. For deposits in excess
of the insured maximum of $100,000, approved collateral at full market value shall be
required. (California Government Code Section 53652 and/or 53651(m) and 53651.2(a)(1).
(b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit worthiness of the
issuer, as these deposits are uninsured and uncollateralized promissory notes.
II. STRATEGY - Strategy refers to the ability to manage financial resources in the most advantageous manner.
Economic Forecasts. Economic Forecasts are obtained periodically from economists and financial
experts through bankers and brokers to assist the Treasurer or his/her designee with the formulation
of an investment strategy for the local agency.
2. Implementing Investment Strategy. Investment transactions are executed which conform with
anticipated interest rate trends and the current investment strategy plan.
3. Rapport. A close working relationship is maintained with large vendors of the city. The objective
is to pinpoint when large disbursements will clear the city's bank account. It is essential for good
cash control that such large expenditures be anticipated, estimated as to dollar amount, and
communicated to the Treasurer or his/her designee for liquidity planning purposes.
4. Preserve Portfolio Value. Field standards are developed in order to maintain earnings near the
market and to preserve the value of the portfolio.
12
CITY OF COSTA MESA
INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES
OBJECTIVES OF INTERNAL CONTROL
Internal control is the plan of organization and all the related systems established by the management's objective of
ensuring, as far as practicable:
• The orderly and efficient conduct of its business, including adherence to management policies.
• The safeguarding of assets.
• The prevention or detection of errors and fraud.
• The accuracy and completeness of the accounting records.
• The timely preparation of reliable financial information.
LIMITATIONS OF INTERNAL CONTROL
No internal control system, however elaborate, can by itself guarantee the achievement of management's objectives.
Internal control can provide only reasonable assurance that the objectives are met, because of its inherent
limitations, including:
• Management's usual requirement that a control be cost-effective.
• The direction of most controls at recurring, rather than unusual, types of transactions.
• Human error due to misunderstanding, carelessness, fatigue, or distraction.
• Potential for collusion that circumvents controls dependent on the segregation of functions.
• Potential for a person responsible for exercising control abusing that responsibility; a responsible staff
member could be in a position to override controls which management has set up.
13
CITY OF COSTA MESA
INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES
(Continued)
ELEMENTS OF INTERNAL CONTROL
Elements of a system of internal control are the means by which an organization can satisfy the objectives of
internal control. These elements are:
1. ORGANIZATION
Specific responsibility for the performance of duties should be assigned and lines of authority and reporting
clearly identified and understood.
2. PERSONNEL
Personnel should have capabilities commensurate with their responsibilities. Personnel selection and
training policies together with the quality and quantity of supervision are thus important.
3. SEGREGATION OF FUNCTIONS
Segregation of incompatible functions reduces the risk that a person is in a position both to perpetrate and
conceal errors or fraud in the normal course of duty. If two parts of a transaction are handled by different
people, collusion is necessary to conceal errors or fraud. In particular, the functions that should be
considered when evaluating segregation of functions are authorization, execution, recording, custody of
assets, and performing reconciliations.
4. AUTHORIZATION
All transactions should be authorized by an appropriate responsible individual. The responsibilities and
limits of authorization should be clearly delineated. The individual or group authorizing a specific
transaction or granting general authority for transactions should be in a position commensurate with the
nature and significance of the transactions. Delegation of authority to authorize transactions should be
handled very carefully.
5. CONTROLS OVER AN ACCOUNTING SYSTEM
Controls over an accounting system include the procedures, both manual and computerized, carried out
independently to ascertain that transactions are complete, valid, authorized, and properly recorded.
14
CITY OF COSTA MESA
CASH CONTROLS
PROCEDURES PERFORMED BY EXTERNAL AUDITORS WITH RESPECT TO CASH RECEIPTS
A. City procedures and controls are reviewed. Some of the system strengths are:
1. Receipts are controlled upon receipt by proper registration devices.
2. Receipts are reconciled on a daily basis.
3. Amounts are deposited intact.
4. All bank accounts are authorized by City Council.
5. Cash counts are done by two or more individuals.
6. Bank reconciliations are reviewed.
7. Prompt posting of cash receipt entries in books.
8. Receipt forms are prenumbered, accounted for, and physically secured.
9. Proper approval required for write-off s of customer accounts.
10. Checks are restrictively endorsed upon receipt or when run through cash register.
11. Adequate physical security over cash.
12. Individuals that handle cash do not post to customer account records or process billing statements.
13. Adequate supervision of Finance Department operations.
B. Significant revenues are confirmed directly with payor and compared with City books to make sure
amounts are recorded properly.
C. Cash balances are substantiated by confirming all account balances recorded in books. Bank reconciliations
are reviewed for propriety and recalculated by the auditor. All significant reconciling items on bank
reconciliations are verified as valid reconciling items by proving to subsequent bank statements.
15
CITY OF COSTA MESA
SEGREGATION OF RESPONSIBILITIES OF
THE TREASURY FUNCTIONS
Function
1. Authorization of investment
transactions:
Formal investment policy should be:
* Prepared by:
* Submitted to:
Investment transactions
should be approved by
2. Execution of investment
transactions
3. Investment transactions approved
for compliance with investment
policy and/or State law
4. Timely recording of investment
transactions:
Recording of investment
transactions in the
Treasurer's records
Recording of investment
transactions in the
accounting records
5. Verification of investment,
i.e., match broker confirma-
tion to Treasurer's records
6. Safeguarding of assets and records:
Reconciliation of Treasurer's
records to the accounting records
Reconciliation of Treasurer's
records to bank statements and
safekeeping records
Responsibility
City Treasurer
City Council
City Treasurer
Assistant Director of Finance and/or
Revenue Supervisor
Assistant Director of Finance
Revenue Supervisor
Accounting Supervisor and/or
Accountant
Assistant Director of Finance and/or
Revenue Supervisor
Revenue Supervisor
Accounting Supervisor and/or
Accountant
16
CITY OF COSTA MESA
SEGREGATION OF RESPONSIBILITIES OF
THE TREASURY FUNCTIONS
(Continued)
Function
5. Safeguarding of Assets and Records
(continued):
Annual review of (a) financial
institution's financial condition,
(b) safety, liquidity, and potential
yields of investment instruments.
6. No less than an annual
review of investment
portfolio as prepared by
Treasurer including:
• Investment types
• Purchase Price
• Par values
• Market values
• Maturity dates
• Investment yields
• Conformance to stated investment policy
• Safekeeping reports
Responsibility
Assistant Director of Finance with
Treasurer's approval
External Independent Auditors
17
Attachment 2
CITY OF COSTA MESA
STATEMENT OF INVESTMENT POLICY
2011-2012
I. GENERAL INTRODUCTION
Under the laws of the State of California, it is the responsibility of the City Treasurer, at the direction of the City
Council, to secure and protect the public funds of the City, and to establish proper safeguards, controls, and
procedures to maintain these funds in a lawful, rational and auspicious manner. Said maintenance shall include the
prudent and secure investment of those funds that are deemed temporarily excess, in a manner anticipated to
provide additional benefit to the people of the City of Costa Mesa.
This Statement of Investment Policy will be provided annually for the review of the Oversight Committee and the
approval of the City Council in an open public meeting. It will be provided to securities dealers, banks, and brokers
currently approved for conducting investment transactions with the City Treasurer's office in the ongoing effort to
manage the excess cash portfolio; to other affected persons or entities; and to any member of the electorate wishing
to review this document upon request. The Treasurer reserves the right to provide these documents on a cost basis.
II. SCOPE
This Statement of Investment Policy pertains to those temporarily excess funds under the control of the Treasurer,
designated for the daily ongoing operations of the City; and concerns the deposit, maintenance, safekeeping, and
preservation of all such funds, and the investments made with these funds. This Policy does not apply to pension
trust funds, deferred compensation funds, and certain other trust or non-operating funds.
ITT_ PTTRPOSF,
The purpose of this Statement of Investment Policy is to provide the City Council, the Investment Oversight
Committee, those involved in servicing the investment requirements of the City, and any other interested party, a
clear understanding of the regulations and internal guidelines that will be observed in maintaining and investing
those pooled funds deemed temporarily excess. This statement is intended to provide guidelines for the prudent
investment of the City's temporary idle cash, and outline the procedures for maximizing the efficiency of the City's
cash management system. The ultimate goal is to enhance the economic status of the City while safeguarding its
assets.
IV. OBJECTIVE
The City's cash management system is designed to accurately monitor and forecast revenues and expenditures, thus
enabling the City to invest funds to the fullest extent possible. The City attempts to obtain the highest yield
possible only after the criteria established for safety and liquidity have been met.
The City of Costa Mesa operates its pooled idle cash investments with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the
probable income to be derived.
This affords the City a broad spectrum of investment opportunities as long as the investment is deemed prudent and
is allowable under current legislation of the State of California Government Code Section 53600 et seq. and the
general laws of the City of Costa Mesa.
The City of Costa Mesa strives to maintain the level of investment of all idle funds as near 100% as possible,
through daily and projected cash flow determinations. Idle cash management and investment transactions are the
responsibility of the City Treasurer or his/her designee.
Criteria for selecting investments and the order of priority are:
1. Safe : The safety and risk associated with an investment refers to the potential loss of principal, interest,
or a combination of these amounts. The City only operates in those investments that are considered very
safe.
2. Liquidity: This refers to the ability to "cash in" at any moment in time with a minimal chance of losing
some portion of principal or interest.
3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is referred to as
the rate of return.
4. Safekeel2in : Securities purchased shall be held in third parry safekeeping in the Trust Department of a
financial institution, in the City's name and control. The account established shall be protected from
seizure by creditors should the financial institution holding the City's securities file for bankruptcy
protection. The basic premise underlying the City's investment philosophy is and continues to be, to
insure that surplus funds are always safe and available when needed.
V. DELEGATION OF INVESTMENT AUTHORITY
Authority to manage the City of Costa Mesa's investment program is derived from City of Costa Mesa Council
Resolution No. . Management responsibility for the investment program is hereby delegated for fiscal year
2011-2012 to the City Treasurer or his/her designee, who shall establish written procedures for the operation of the
investment program consistent with this Investment Policy. Procedures should include references to: safekeeping,
repurchase agreements, wire transfer agreements, banking service contracts, and collateral/ depository agreements.
Such procedures shall include explicit delegation of authority to persons responsible for investment transactions.
No person may engage in an investment transaction except as provided under the terms of this policy and the
procedures established by the City Treasurer or his/her designee. The City Treasurer or his/her designee shall be
responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of
subordinate officials.
Pa
VI. STANDARD OF PRUDENCE
The Treasurer shall perform the investment function in conjunction with the "Prudent Man Rule." This rule states,
in principle that whenever investing property for the benefit of others, a trustee shall exercise the judgment and
care, under circumstances then prevailing that persons of prudence, discretion, and intelligence, would exercise in
the management of their own affairs not in regards to speculation, but in regard to the permanent disposition of
their funds, considering the probability of safety of, as well as the probable income from their capital. The
Treasurer and his designees are considered to have a fiduciary, trustee, relationship with the public for the public
funds and all investment decisions will be made in a manner sustaining this responsibility.
VII. AUTHORIZED INVESTMENTS
The California Government Code allows the City to invest in the following media:
• Securities of the U.S. Government, or its government sponsored agencies
• Small Business Administration loans
• Certificates of deposit, placed with commercial banks and savings and loan companies
• Negotiable certificates of deposit
• Bankers' acceptances
• Commercial paper
• Corporate notes and bonds, including medium term notes
• Local Agency Investment Fund
• Repurchase agreements
• Passbook savings account demand deposits
• County Treasurer demand deposits
• Asset-backed and mortgage-backed securities
• Money market mutual funds
As a matter of practice, however, the City of Costa Mesa generally limits its investments to the following vehicles:
U.S. Treasur.Bills - Issued weekly with maturity dates up to one year. They are issued and traded on a discount
basis with interest figured on a 360 -day basis, actual number of days. They are issued in amounts of $10,000 and
up, in multiples of $5,000. They are a highly liquid security.
U.S. Treasu .rte - Initially issued with two- to ten-year maturities. They are actively traded in a large
secondary market and are very liquid. The Treasury may issue Note issues with a minimum of $1,000, however,
the average minimum is $5,000.
Federal Agency/U.S. Government -Sponsored Enterprise Issues - Guaranteed directly or indirectly by the United
States Government. All agency/GSE obligations qualify as legal investments and are acceptable as security for
public deposits. These securities usually provide higher yields than U.S. Treasury securities with generally all of the
same advantages in terms of safety and liquidity. Examples include:
FICBs Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance the
short-term and intermediate needs of farmers, such as seasonal production. These securities are usually
issued monthly in minimum denominations of $3,000 with a nine-month maturity. Interest is payable at
maturity and is calculated on a 360 -day, 30 -day month basis.
3
• FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term
needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month
maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly
liquid.
• FLBs Federal Land Bank Bonds) - Long-term mortgage credit provided to farmers by Federal Land Banks.
These bonds are issued at irregular times for various maturities ranging from a few months to ten years.
The minimum denomination is $1,000. They carry semi-annual coupons. Interest is calculated on a 360 -
day, 30 -day month basis.
• FHLBs Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to
help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to
savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and
mortgage -lending institutions. They are issued irregularly for various maturities. The minimum
denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at
maturity. The bonds are issued with various maturities and carry semi-annual coupons. Interest is
calculated on a 360 -day, 30 -day month basis.
• FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing
mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well
as those guaranteed by the Veterans Administration. They are issued about four times a year for maturities
ranging from a few months to eight years. They are issued in minimum denominations of $10,000. They
carry semi-annual coupons. Interest is computed on a 360 -day, 30 -day month basis.
• FHLMCs (Federal Home Loan Mortgage Corporation) - A government-sponsored enterprise established to
develop the secondary market for conventional home mortgages. Mortgages are purchased solely from the
Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of
the United States Government. They are issued for various maturities and in minimum denominations of
$10,000. Interest is paid semi-annually and is calculated on a 360 -day, 30 -day month basis.
• Other federal agency issues are Small Business Administration notes (SBAs), Government National
Mortgage Association notes (GNMAs), and Tennessee Valley Authority notes (TVAs). As a matter of
practice, the City does not invest in these issues as they do not suit our purposes as well as other investment
opportunities available.
The City limits its investments to no more than 60% of its surplus funds in any one Federal Agency.
4
Bankers' Acceptances - Short-term credit arrangements to enable businesses to obtain funds to finance commercial
transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific
merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An
acceptance is a high-grade negotiable instrument. Bankers' Acceptances can be purchased with various maturities
, but no longer than 180 days. The interest is calculated on a 360 -day discount basis similar to Treasury Bills.
Local agencies may not invest more than 40% of their surplus funds in bankers' acceptances or more than 10% of
the agency's surplus funds in bankers' acceptances of any one commercial bank.
Certificates of Deposit - Time deposits of a bank or savings and loan. They are purchased in various denominations
with maturities ranging from 30 to 360 days. The interest is calculated on a 360 -day, actual -day month basis and is
payable monthly.
Negotiable Certificates of Deposit - Unsecured obligations of the financial institution, bank or savings and loan,
bought at par value with the promise to pay face value plus accrued interest at maturity. They are high-grade
negotiable instruments, paying a higher interest rate than regular certificates of deposit. The primary market
issuance is in multiples of $1,000,000; the secondary market usually trades in denominations of $500,000, although
smaller lots are occasionally available. As a matter of practice, only the ten largest U.S. banks where there is a
secondary market established for continued liquidity are considered for investment. The City's total investment in
negotiable certificates of deposit may not exceed 30% of surplus funds.
Commercial Paper - Short-term unsecured promissory notes issued by a corporation to raise working capital. These
negotiable instruments are purchased at a discount to par value or at par value with interest bearing.
The City is permitted by State law to invest in commercial paper of "prime" quality of the highest ranking or of the
highest letter and numerical rating as provided for by a nationally recognized statistical -rating organization
(NRSRO). Eligible paper is further limited to issuing corporations that are organized and operating within the
United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or
higher rating for the issuer's debt other than commercial paper as rated by an NRSRO. Commercial Paper issued
by an Issuer that has a rating of "A" on their debt other than commercial paper but are on credit watch for a possible
downgrade by an NRSRO shall not be considered for investment purposes. Purchases of eligible commercial
paper may not exceed 270 days maturity nor represent more than 10% of the outstanding paper of an issuing
corporation. Purchases of commercial paper may not exceed 25 percent of the portfolio.
Medium Term Corporate Notes - Unsecured promissory notes issued by a corporation organized and operating in
the United States. These are negotiable instruments and are traded in the secondary market. Medium term
corporate notes can be defined as extended maturity commercial paper.
Local agencies are restricted by the Government Code to investments in corporations rated in the top three note
categories by Moody's Investors Service, Inc., and/or Standard and Poor's Corporation. For medium-term notes,
eligible purchases consist of instruments that have a rating of "A" or better by both Moody's Investors Service, Inc.,
and Standard and Poor's Corporation. Corporate Notes issued by an issuer that has a rating of "A" but are on credit
watch for a possible downgrade by a nationally recognized rating agency shall not be considered for investment
purposes. If the security's credit rating falls below an "A" rating by one of these agencies, then awareness is
heightened and the security monitored closely to determine if credit risk has been significantly increased. If a
security falls below an "A" rating by both rating agencies, the City Treasurer or his/her designee will evaluate the
need to sell the security prior to maturity. Further restrictions include a maximum term of five years to maturity
and total investments in medium term corporate notes may not exceed 30% of the local agency's surplus funds or
5% in any one issuer name.
5
Repurchase Agreements - A repurchase agreement is a short-term investment transaction. Banks buy temporarily
idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to
repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity.
The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal
funds and the maturity of the repurchase agreement. Some banks will execute repurchase agreements for a
minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. The term of a repurchase
agreement may not exceed one year. The market value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no
less than quarterly. Repurchase Agreements can only be executed with financial institutions or broker/dealers that
have signed a Master Repurchase Agreement with the City.
LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to
deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum balance of $50,000,000 for any agency. The City is restricted to a
maximum of fifteen transactions per month. It offers high liquidity because deposits can be converted to cash in 24
hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis
determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State
retains an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the
earnings. California Government Code § 16429.3 states, in part:
"money placed with the State Treasurer for deposit in the Local Agency Investment Fund by cities,
counties, or special districts shall not be subject to impoundment or seizure by any state official or
state agency."
Orange County Treasurer's Pool - A special fund in the County Treasury which local agencies may use to deposit
funds for investment. The City may not invest more than 35% of its surplus money with the Orange County
Treasurer's Pool. The County Treasurer charges 12.5 basis points (.125%) to all pool participants for its direct
costs. Direct Costs include proper staffing, bank and custodial fees, software maintenance fees, and other indirect
costs relating to the investment. Investment earnings are distributed to the pool participants on a monthly basis, net
of the above charges. The earnings are credited to the participant's accounts on either the last day of each month or
the first day of the subsequent month.
Money Market Mutual Funds - Shares of beneficial interest issued by diversified management companies. To be
eligible for investment, shares must:
attain the highest rating provided by Moody's Investors Service, Inc., which is currently "Aaa," and/or
Standard and Poor's Corporation, which is currently "AAA;" and
2. the investment adviser managing the shares must be registered with the Securities and Exchange Commission
with not less than five year's experience investing in instruments authorized under California Government
Code §53601 subdivisions (a) to (m) inclusive, and with assets under management in excess of five hundred
million dollars ($500,000,000); and
3. the purchase price of shares shall not include any commission that these companies may charge; and
4. investment in shares shall not exceed 20 percent of surplus funds.
rol
However, no more than 10 percent of the City's surplus funds may be invested in shares of beneficial interest of
any one mutual fund. Furthermore, any investment in a money market mutual fund must comply with other self-
imposed restrictions as specified in this Investment Policy.
Asset -Backed and Mortgage -Backed Security - Bonds backed by payments from receivables/mortgages having a
maximum of five years maturity. These securities must have an "AA" or better rating by Moody's Investors
Services, Inc., and/or Standard and Poor's Corporation. No more than 20% of the City's surplus money may be
invested in these securities.
VIII. INVESTMENT OF BOND PROCEEDS
When investing proceeds from the issuance of bonds, the City of Costa Mesa will follow this Investment Policy
when determining allowable investments. Should the trust agreement of a particular bond issue be more restrictive
than the City's policy on permitted investments, then the trust agreement will take precedence.
7
IX. CITY CONSTRAINTS
The City Treasurer or his/her designee will evaluate local banks and savings institutions and may invest idle cash
Rinds with such institutions when the criteria for prudent investment previously stated are met. The City operates
its investment pool according to State and self-imposed constraints. It does not buy stocks; it does not speculate; it
does not deal in futures or options. Any investment extending beyond a five-year period requires prior City
Council approval. Additionally, a minimum of 20% of the outstanding investments must mature within a one-year
time period.
X. SAFEKEEPING AND COLLATERALIZATION
All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted
on a delivery -versus -payment (DVP) basis. Securities will be held by a third party custodian designated by the City
Treasurer or his/her designee.
Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse
repurchase) agreements. In order to anticipate market changes and provide a level of security for all funds, a
minimum collateralization level is required.
Surplus funds must be deposited in State or national banks, State or Federal savings and loan associations, or State
or Federal credit unions within the State of California. The deposits cannot exceed the amount of the bank's or
savings and loan's paid-up capital and surplus.
The bank or savings and loan must secure public funds deposits with eligible securities having a market value of
110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a
value of 150% of the total amount of the deposits. A third class of collateral is 105% in the form of a letter of credit
drawn on the Federal Home Loan Bank.
The City Treasurer or his/her designee may waive security for that portion of a deposit, which is insured pursuant to
Federal law. Currently, the first $100,000 of a deposit is federally insured. Deposits in excess of $100,000 are
collateralized as previously indicated.
XI. DERIVATIVE INVESTMENTS
A derivative is a generic term often used to categorize a wide variety of financial instruments whose value "depends
on" or is "derived from" the value of an underlying asset, reference rate, or index.
Investments in derivative instruments are limited to debt securities that have periodic increases, or step-up interest
rate adjustments that provide upward mobility in yield return. Investments in debt securities, which contain a
callable feature are also allowable, but must comply with other restrictions as specified in this Investment Policy.
Investments purchased after June 19, 1995, in derivative instruments known as "inverse floaters," "dual index," or
"stepped inverse" securities that produce higher than market yields at purchase date (when interest rates are low),
but have the possibility of producing low or no coupon rates as market interest rates rise through the life of the
instrument are not allowable. Furthermore, investments in range notes or interest -only strips that are derived from a
pool of mortgages are not allowable. However, debt securities that have a floor or a built-in feature that prevents the
instrument from potentially returning no yield are allowable.
XII. POLICY COMPLIANCE REGULATIONS
Should the portfolio, for any reason, fall out of compliance with this Investment Policy, immediate liquidation of
securities in order to bring the portfolio back into compliance is not required. However, the Treasurer must take
action to bring the portfolio into compliance within 12 months from the date the portfolio was determined to be in
non-compliance with the provisions of this Investment Policy so long as the action is deemed to be prudent under
then current market conditions. Additionally, adequate disclosure as to all instances of noncompliance, and the
efforts undertaken to bring the portfolio into compliance, must be made on the monthly Treasurer's Report.
XIII. REPORTING
Under provisions of Section 53646 of the California Government Code, the Treasurer or his/her designee shall
render a quarterly investment report to the City Council, the City Manager, and the City Attorney within 30 days
following the end of the quarter covered by the report. However, as a matter of practice, a monthly report shall be
submitted listing the type of investments, institution, date of maturity, par value, amount of deposit, rate of interest,
current market value for all securities, and such other data as may be required by the City Council on a monthly
basis. Furthermore, an Investment Oversight Committee comprised of the following individuals will meet
quarterly to review the City's portfolio and investment strategy.
• Mayor, or his/her designee
• Chief Executive Officer
• Director of Finance/City Treasurer
• Assistant Director of Finance
• Revenue Supervisor
• Three Committee Members or alternate members appointed by City Council who are either residents or
conduct business within the City and have experience in banking, securities trading, or financial planning.
XIV. QUALIFIED DEALERS
The City of Costa Mesa shall transact business only with banks, savings and loans, and registered investment
securities dealers. The City will limit the number of broker/dealers authorized to do business with the City to no
more than one (1) broker/dealer for every $10,000,000 of portfolio size. Each authorized broker/dealer shall be
required to annually file a signed certification with the City Treasurer or his/her designee certifying that they have
read and understand the City's most recently adopted investment policy.
The City Treasurer or his/her designee will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will also be maintained of approved broker/dealers who are authorized to provide
investment services in the State of California. These may include "primary" and "regional" broker/dealers with
offices located in the State of California. All financial institutions and broker/dealers who desire to become
qualified bidders for investment transactions must be approved by and supply the City Treasurer or his/her designee
with a completed broker/dealer questionnaire.
W
XV. POLICY REVIEW
This Statement of Investment Policy shall be reviewed at least annually to ensure its consistency with the overall
objectives of preservation of principal, liquidity and return, and its relevance to current law, financial and economic
trends.
Should conditions change or legislation become effective that behooves subsequent changes or a liberalization of
terms within the policy during the next fiscal year, the revised policy will be submitted to both the Investment
Committee and Council for adoption of the recommended action.
iff
CITY OF COSTA MESA
INVESTMENT GUIDELINES AND STRATEGY
I. GUIDELINES - Guidelines are established to direct and control activities in such a manner that previously
established goals are achieved.
Investment Transaction. Every investment transaction must be authorized and reviewed by the
Treasurer or his/her designee.
2. Pooled Cash. Whenever practical, local agency cash is consolidated into one bank account and
invested on a pooled concept basis. Interest earnings are allocated quarterly according to month-end
cash and investment balances for each fund.
3. Competitive Bids. Purchase and sales of securities are made on the basis of competitive offers and
bids when practical.
4. Cash Forecast. The cash flow for the City is analyzed with the receipt of revenues and maturity of
investments scheduled so that adequate cash will be available to meet disbursement requirements.
5. Investment Limitations. Security purchases and holdings are maintained within statutory limits
imposed by the California Government Code. Current limits are:
Bankers' Acceptances
Commercial Paper
Negotiable Certificates of Deposit
Medium Term Notes
Money Market Mutual Funds
Asset-Backed/Mortgage-Backed Securities
Federal Agency restriction
Local Agency Investment Fund
Orange County Treasurer's Pool
Portfolio Maturing within one year
40% Section 53601(f)
25% Section 53601(g)
30% Section 53601(h)
30% Section 536010)
20% Section 53601(k)
20% Section 53601(n)
60% per Agency Section VI of Policy
$50,000,000 per Section VI of Policy
35% per Section VI of Policy
20% per Section IX of Policy
6. Liquidily. The marketability of a security is considered at the time of purchase, as the security may
have to be sold at a later date to meet unanticipated cash demands.
7. Diversification. The portfolio should consist of a mix of various types of securities, issuers, and
maturities.
CITY OF COSTA MESA
INVESTMENT GUIDELINES AND STRATEGY
(Continued)
8. Evaluate Certificates of Deposit
(a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. For deposits in excess
of the insured maximum of $100,000, approved collateral at full market value shall be
required. (California Government Code Section 53652 and/or 53651(m) and 53651.2(a)(1).
(b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit worthiness of the
issuer, as these deposits are uninsured and uncollateralized promissory notes.
II. STRATEGY - Strategy refers to the ability to manage financial resources in the most advantageous manner.
Economic Forecasts. Economic Forecasts are obtained periodically from economists and financial
experts through bankers and brokers to assist the Treasurer or his/her designee with the formulation
of an investment strategy for the local agency.
2. Implementing Investment Strategy. Investment transactions are executed which conform with
anticipated interest rate trends and the current investment strategy plan.
3. Rapport. A close working relationship is maintained with large vendors of the city. The objective
is to pinpoint when large disbursements will clear the city's bank account. It is essential for good
cash control that such large expenditures be anticipated, estimated as to dollar amount, and
communicated to the Treasurer or his/her designee for liquidity planning purposes.
4. Preserve Portfolio Value. Field standards are developed in order to maintain earnings near the
market and to preserve the value of the portfolio.
12
CITY OF COSTA MESA
INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES
OBJECTIVES OF INTERNAL CONTROL
Internal control is the plan of organization and all the related systems established by the management's objective of
ensuring, as far as practicable:
• The orderly and efficient conduct of its business, including adherence to management policies.
• The safeguarding of assets.
• The prevention or detection of errors and fraud.
• The accuracy and completeness of the accounting records.
• The timely preparation of reliable financial information.
LIMITATIONS OF INTERNAL CONTROL
No internal control system, however elaborate, can by itself guarantee the achievement of management's objectives.
Internal control can provide only reasonable assurance that the objectives are met, because of its inherent
limitations, including:
• Management's usual requirement that a control be cost-effective.
• The direction of most controls at recurring, rather than unusual, types of transactions.
• Human error due to misunderstanding, carelessness, fatigue, or distraction.
• Potential for collusion that circumvents controls dependent on the segregation of functions.
• Potential for a person responsible for exercising control abusing that responsibility; a responsible staff
member could be in a position to override controls which management has set up.
13
CITY OF COSTA MESA
INVESTMENT PROCEDURES
INTERNAL CONTROL - GUIDELINES
(Continued)
ELEMENTS OF INTERNAL CONTROL
Elements of a system of internal control are the means by which an organization can satisfy the objectives of
internal control. These elements are:
1. ORGANIZATION
Specific responsibility for the performance of duties should be assigned and lines of authority and reporting
clearly identified and understood.
2. PERSONNEL
Personnel should have capabilities commensurate with their responsibilities. Personnel selection and
training policies together with the quality and quantity of supervision are thus important.
3. SEGREGATION OF FUNCTIONS
Segregation of incompatible functions reduces the risk that a person is in a position both to perpetrate and
conceal errors or fraud in the normal course of duty. If two parts of a transaction are handled by different
people, collusion is necessary to conceal errors or fraud. In particular, the functions that should be
considered when evaluating segregation of functions are authorization, execution, recording, custody of
assets, and performing reconciliations.
4. AUTHORIZATION
All transactions should be authorized by an appropriate responsible individual. The responsibilities and
limits of authorization should be clearly delineated. The individual or group authorizing a specific
transaction or granting general authority for transactions should be in a position commensurate with the
nature and significance of the transactions. Delegation of authority to authorize transactions should be
handled very carefully.
5. CONTROLS OVER AN ACCOUNTING SYSTEM
Controls over an accounting system include the procedures, both manual and computerized, carried out
independently to ascertain that transactions are complete, valid, authorized, and properly recorded.
14
CITY OF COSTA MESA
CASH CONTROLS
PROCEDURES PERFORMED BY EXTERNAL AUDITORS WITH RESPECT TO CASH RECEIPTS
A. City procedures and controls are reviewed. Some of the system strengths are:
1. Receipts are controlled upon receipt by proper registration devices.
2. Receipts are reconciled on a daily basis.
3. Amounts are deposited intact.
4. All bank accounts are authorized by City Council.
5. Cash counts are done by two or more individuals.
6. Bank reconciliations are reviewed.
7. Prompt posting of cash receipt entries in books.
8. Receipt forms are prenumbered, accounted for, and physically secured.
9. Proper approval required for write-off s of customer accounts.
10. Checks are restrictively endorsed upon receipt or when run through cash register.
11. Adequate physical security over cash.
12. Individuals that handle cash do not post to customer account records or process billing statements.
13. Adequate supervision of Finance Department operations.
B. Significant revenues are confirmed directly with payor and compared with City books to make sure
amounts are recorded properly.
C. Cash balances are substantiated by confirming all account balances recorded in books. Bank reconciliations
are reviewed for propriety and recalculated by the auditor. All significant reconciling items on bank
reconciliations are verified as valid reconciling items by proving to subsequent bank statements.
15
CITY OF COSTA MESA
SEGREGATION OF RESPONSIBILITIES OF
THE TREASURY FUNCTIONS
Function
1. Authorization of investment
transactions:
Formal investment policy should be:
* Prepared by:
* Submitted to:
Investment transactions
should be approved by
2. Execution of investment
transactions
3. Investment transactions approved
for compliance with investment
policy and/or State law
4. Timely recording of investment
transactions:
Recording of investment
transactions in the
Treasurer's records
Recording of investment
transactions in the
accounting records
5. Verification of investment,
i.e., match broker confirma-
tion to Treasurer's records
6. Safeguarding of assets and records:
Reconciliation of Treasurer's
records to the accounting records
Reconciliation of Treasurer's
records to bank statements and
safekeeping records
Responsibility
City Treasurer
City Council
City Treasurer
Assistant Director of Finance and/or
Revenue Supervisor
Assistant Director of Finance
Revenue Supervisor
Accounting Supervisor and/or
Accountant
Assistant Director of Finance and/or
Revenue Supervisor
Revenue Supervisor
Accounting Supervisor and/or
Accountant
16
CITY OF COSTA MESA
SEGREGATION OF RESPONSIBILITIES OF
THE TREASURY FUNCTIONS
(Continued)
Function
5. Safeguarding of Assets and Records
(continued):
Annual review of (a) financial
institution's financial condition,
(b) safety, liquidity, and potential
yields of investment instruments.
6. No less than an annual
review of investment
portfolio as prepared by
Treasurer including:
• Investment types
• Purchase Price
• Par values
• Market values
• Maturity dates
• Investment yields
• Conformance to stated investment policy
• Safekeeping reports
Responsibility
Assistant Director of Finance with
Treasurer's approval
External Independent Auditors
17
GLOSSARY
(Note: Entities are encouraged to include a glossary as part of
the investment policy. All words of a technical nature should
be included. Following is an example of common treasury
terminology.)
AGENCIES: Federal agency securities and/or Government -
sponsored enterprises.
ASKED: The price at which securities are offered.
BANKERS' ACCEPTANCE (BA): a draft or bill or exchange
accepted by a bank or trust company.
BID: The price offered by a buyer of securities. (When you
are selling securities, you ask for a bid.) See Offer.
BROKER: A broker brings buyers and sellers together for a
commission..
CERTIFICATE OF DEPOSIT (CD): A time deposit with a
specific maturity evidenced by a certificate. Large -
denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other
property which a borrower pledges to secure repayment of a
loan. Also refers to securities pledged by a bank to secured
deposits of public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT
(CAFR): The official annual report for the City of Costa Mesa.
It includes five combined statements for each individual fund
and group prepared in conformity with GAAP. It also includes
supporting schedules necessary to demonstrate compliance with
finance -related legal and contractual provisions, extensive
introductory material, and a detailed Statistical Section.
COUPON: (a) The annual rate of interest that a bond's issuer
promises to pay the bondholder on the bond's face value. 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
DEBENTURE: A bond secured only by the general credit of
the issuer.
DELIVERY VERSUS PAYMENT: There are two methods
of delivery of securities: delivery versus payment and delivery
versus receipt. Delivery versus payment is delivery of securities
with an exchange of money for the securities. Delivery versus
receipt is delivery of securities with an exchange of a signed
receipt for the securities.
Attachment 3
DERIVATIVES: (1) Financial instrument 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 exchanges, equities or commodities).
DISCOUNT: The difference between the cost price of a
security and its maturity when quoted at lower than face value.
A security selling below original offering price shortly after sale
also is considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money
market instruments that are issued a discount and redeemed at
maturity for full face value, e.g., U.S. Treasury Bills.
DIVERSIFICATION: Dividing investment funds among a
variety of securities offering independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal
government set up to supply credit to various classes of
institutions and individuals, e.g., S&L's, small business firms,
students, farmers, farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION
(FIDC): 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. The
mission of the FHLBs is to liquefy the housing related assets of
its members who must purchase stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA): FNMA, like GNMA was chartered under the Federal
National Mortgage Association Act in 1938. FNMA is a federal
corporation working under the auspices of the Department of
Housing and Urban Development (HUD). It is the largest
single provider of residential mortgage funds in the United
States. Fannie Mae, as the corporation is called, is a private
stockholder -owned corporation. The corporation's purchases
include a variety of adjustable mortgages and second loans, in
addition to fixed-rate mortgages. FNMA's securities are also
highly liquid and are widely accepted. FNMA assumes and
guarantees that all security holders will receive timely payment
of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC):
Consists of seven members of the Federal Reserve Board and
five of the twelve Federal Reserve Bank Presidents. The
President of the New York Federal Reserve Bank is a
permanent member, while the other Presidents serve on a
rotating basis. The Committee periodically meets to set Federal
Reserve guidelines regarding purchases and sales of
Government Securities in the open market as a means of
influencing the volume of bank credit and money.
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.
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.
LIQUIDITY: A liquid asset is one that can be converted easily
and rapidly into cash without a substantial loss of value. In the
money market, a security is said to be liquid if the spread
between bid and asked prices is narrow and reasonable size can
be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP):
The aggregate of all funds from political subdivisions that are
placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading
and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written
contract covering all future transactions between the parties to
repurchase — reverse repurchase agreements that established
each party's rights in the transactions. A master agreement will
often specify, among other things, the right of the buyer -lender
to liquidate the underlying securities in the event of default by
the seller -borrower.
MATURITY: The date upon which the principal or stated
value of an investment becomes due and payable.
MONEY MARKET: The market in which short-term debt
instruments (bills, commercial paper, bankers' acceptances,
etc.) are issued and traded.
SECONDARY MARKET: A market made for the purchase
and sale of outstanding issues following the initial distribution.
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.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities
dealers who submit daily reports of market activity and
positions and monthly financial statements to the Federal
Reserve Bank of New York and are subject to its informal
oversight. Primary dealers include Securities and Exchange
Commission (SEC) - registered securities broker-dealers, banks,
and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In
some states the law requires that a fiduciary, such as a trustee,
may invest money only in a list of securities selected by the
custody state — the so-called legal list. In other states the trustee
may invest in a security if it is one which would be bought by a
prudent person of discretion and intelligence who is seeking a
reasonable income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES: A financial
institution which does not claim exemption from the payment of
any sales or compensating use or ad valorem taxes under the
laws of this state, which has segregated for the benefit of the
commission eligible collateral having a value of not less than its
maximum liability and which has been approved by the Public
Deposit Protection Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based
on its purchase price or its current market price. This may be
the amortized yield to maturity on a bond the current income
return.
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 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.
19
SECURITIES & EXCHANGE COMMISSION: Agency
created by Congress to protect investors in securities
transactions by administering securities legislation.
SEC RULE 15C3-1: See Uniform Net Capital Rule.
STRUCTURED NOTES: Notes issued by Government
Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and
Corporations which have imbedded options (e.g., call features,
step-up coupons, floating rate coupons, derivative -based
returns) into their debt structure. Their market performance is
impacted by the fluctuation of interest rates, the volatility of the
imbedded options and shifts in the shape of the yield curve.
TREASURY BILLS: A non-interest bearing discount security
issued by the U.S. Treasury to finance the national debt. Most
bills are issued to mature in three months, six months, or one
year.
TREASURY BONDS: 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 from two to 10 years.
UNIFORM NET CAPITAL RULE: Securities and Exchange
Commission requirement that member firms as well as
nonmember broker-dealers in securities maintain a maximum
ratio of indebtedness to liquid capital of 15 to 1; also called net
capital rule and net capital ratio. Indebtedness covers all money
owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread
among members of underwriting syndicates. Liquid capital
includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment,
expressed as a percentage. (a) INCOME YIELD is obtained
by dividing the current dollar income by the current market
price for the security. (b) NET YIELD or YIELD TO
MATURITY is the current income yield minus any premium
above par or plus any discount from par in purchase price, with
the adjustment spread over the period from the date of purchase
to the date of maturity of the bond.
20
Attachment 4
RESOLUTION NO. 11-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF COSTA MESA, CALIFORNIA, ADOPTING THE 2011-
2012 STATEMENT OF INVESTMENT POLICY FOR THE
CITY, AND DESIGNATE THE FINANCE DIRECTOR TO
ACT AS CITY TREASURER TO INVEST AND REINVEST
IDLE MONIES OF THE CITY OF COSTA MESA IN
ACCORDANCE WITH THE 2011-2012 STATEMENT OF
INVESTMENT POLICY.
THE CITY COUNCIL OF THE CITY OF COSTA MESA DOES HEREBY
RESOLVE AS FOLLOWS:
WHEREAS, in accordance with Section 53607 of the Government Code of the
State of California, the City Treasurer is hereby authorized (a) to invest such portion of
any sinking fund of, or idle money in, the City Treasury, not required for the immediate
necessities of the City as is deemed wise or expedient, in securities in which this
Council is authorized to invest such sums by the provisions of State Government Code
Section 53601 and Section 53635, limited by the City's Investment Policy; and (b) to
sell, or exchange for other eligible securities, and reinvest the proceeds of the securities
purchased. The City Treasurer shall make a monthly report of such transactions to this
Council.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Costa
Mesa has adopted the 2011-2012 Statement of Investment Policy as set forth in the
attached document. The City Clerk shall certify to the passage and adoption of this
resolution, and it shall be thereupon be in full force and effect.
PASSED AND ADOPTED this 19th day of July, 2011.
Gary Monahan, Mayor
ATTEST:
APPROVED AS TO FORM:
Julie Folcik, City Clerk Thomas P. Duarte, City Attorney
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss
CITY OF COSTA MESA )
I, JULIE FOLCIK, City Clerk of the City of Costa Mesa, DO HEREBY CERTIFY
that the above and foregoing is the original of Resolution No. 11- and was duly
passed and adopted by the City Council of the City of Costa Mesa at a regular meeting
held on the 19th of July, 2011, by the following roll call vote, to wit:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
IN WITNESS WHEREOF, I have hereby set my hand and affixed the seal of the
City of Costa Mesa this 20th day of July, 2011.
JULIE FOLCIK, CITY CLERK
(SEAL)